Q2 2021 Midland States Bancorp Inc Earnings Call

July 23, 2021

[music].

No.

Okay.

Good morning, ladies and gentlemen, and welcome to the second quarter of Midland States Bancorp, Inc 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 assistance during the conference. Please press Star then zero on your Touchtone telephone.

I would now like to turn the conference over to your host Mr. Tony Rossi. Please go ahead.

Thank you Deb good morning, everyone and thank you for joining us today for the Midland States Bancorp second quarter 2021 earnings call joining us from Midland spans from 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 webcasts and presentations page of Midland 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.

<unk> 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.

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, we're going to start on slide 3 with the highlights of the second quarter. We continue to see the higher level of profitability that we targeted through the strategic initiatives, we implemented over the past couple of years to focus more of our attention and resources on higher return businesses.

Creating a more consistent revenue mix and improving efficiencies.

On a GAAP basis, we generated net income of $20.1 million or <unk> 88 per diluted share as we announced last month, we had a number of items that impacted our second quarter results were positive positively or negatively these.

These include a tax benefit related to a settlement of a prior tax issue stemming from the treatment of gains on FDIC assisted transactions. The professional fees, we incurred in pursuing the tax benefit and <unk> advanced prepayment penalty.

When these items are excluded we had adjusted earnings of $19.8 million or <unk> 86 per diluted share, which still represents the highest quarterly earnings in the history of the company.

We're also seeing improvement in our level of returns with return on equity coming in at 12, 6% and return on tangible common equity coming in at 17, 9% per the quarter, both of which were higher than the prior quarter and significantly above the levels that we have historically generated.

The improved profitability has enabled us to make significant progress on our goal to strengthen our capital ratios during the second quarter, our tangible common equity ratio increased 45 basis points and is now back above 7% while loan demand is improving we continue to have significant excess liquidity.

So we took the opportunity to use a portion of the excess liquidity to eliminate some of the higher cost funding sources, including an $85 million long term FHL advance that had an interest rate of 254% and $31 million of sub debt that had an interest rate of 454.

Percent Inc.

In aggregate the elimination of this higher cost funding, we will reduce our interest expense by $3.6 million annually.

Have a positive impact on our net interest margin of approximately 10 basis points.

With economic conditions steadily improving we are seeing higher levels of loan demand, which positively impact our production of equipment finance commercial real estate and construction loans during the second quarter.

And we continued to utilize our green Sky partnership to give us the flexibility to add high quality loans with attractive risk adjusted yields to offset run off we are seeing in other portfolios, most notably our residential real estate portfolio, where we continue to see a high level of refinancing activity.

Excluding PPP loans and commercial FHA warehouse lines of credit our total loans increased at an annualized rate of 6%, which was at the high end of our expected range we.

We are seeing a strong increase in noninterest income, which increased nearly 18% over the prior quarter and accounted for 26% of our total revenue per.

<unk> of the increase is attributed to more debit cards that we are issuing through our online account opening platform. The increase in debit card issuance combined with the increase in general economic activity is driving a higher level of interchange fees.

During 2019, the last normalized year, our interchange revenue was typically in the range of about $3 million per quarter. During the second quarter of 2021, we had $3.8 million in interchange revenue, which is a run rate that will result in more than $3 million per year in incremental revenue.

This is just 1 of the areas, where we are seeing a strong return on the investment we have made in expanding and enhancing our digital banking capabilities.

Our noninterest income was also positively impacted by a 10% increase in wealth management revenue, which was largely due to the 1 month contribution we received from the Atg Trust company. After completing this acquisition in the beginning of June.

This acquisition brought our assets under administration to more than $4 billion, and our wealth management revenues to $6.5 million per the quarter.

And our wealth management revenue should further increase as we get the full quarter impact of Atg and also begin leveraging their strong referral sources to enhance our business development efforts.

Moving to slide 4 we will provide that were provided an update on our PPP efforts and the impact that these loans had on various line items in the second quarter as the forgiveness process continued our PPP loans decline by about $65 million and brought our total balances to 147.

At the end of the second quarter.

We recognized $2 million and fees during the second quarter down a bit from the $2.1 billion that we recognized in the prior quarter.

As of June 30, we still had $5.6 million in fees to be recognized.

Turning to slide 5 will provide an update on our loan deferrals.

As you May recall, we had a bit of an increase in loan deferrals last quarter as we granted additional 3 month deferrals to help certain hotel borrowers get through the soft soft part of their year.

Most of those deferrals now have now expired, while we have saw a significant number of borrowers resumed scheduled payments.

This resulted in a 51% decrease in total deferrals.

$107 million remaining at June 30.

Or 2.2% of total loans and.

Borrowers have been able to make partial payments was 79% of the loans deferred making interest only or some other form of partial payment up from 40% at the end of the prior quarter.

At this point I'm going to turn the call over to Eric to provide some additional details on our second quarter performance.

Thanks, Jeff and again good morning, everyone.

Moving on slide 6 we'll take a look at our loan portfolio. Our total loans decreased $75 million from the end of the prior quarter. This was due to the continued run off we are seeing in the residential real estate portfolio due to refinancing activity, but forgiveness of PPP loans, and a $75 million decline in <unk>.

Period end balances on commercial FHA warehouse lines.

<unk> offset increases in the equipment financing commercial real estate and construction portfolios, resulting from a higher level of loan production in these areas during the quarter as Jeff mentioned, we added to the consumer portfolio through our Green Sky partnership to help offset the runoff in the residential real estate.

Portfolio.

At June 30, our balances of PPP loans were down to $147 million.

Excluding PPP loans and commercial warehouse credit lines total loans increased by $66 million or 1.5% for the quarter, an annualized growth rate of 6%.

On slide 7 we provided an update on our equipment finance portfolio as of June 30, we had $36 million of deferrals, which represents a decline of 23% since the end of the last quarter.

We continue to see a steady recovery of our borrowers in the transit and ground transportation industry is the trends and business and recreational travel improve we've.

<unk> seen more borrowers returned to scheduled payments as well as others that remain on deferral starting to make some form of partial payment and 92% of the borrowers on deferral in this portfolio are now making a partial payment.

On slide 8 we've provided an overview of our hotel motel portfolio at June 30, we had $39 million of loan deferrals in this portfolio, which is down 66% from the end of the prior quarter along with the decline in deferrals. We're also seeing a higher percentage of borrowers, making interest only or some other form of payment and <unk>.

At June 30, 77% of the remaining deferrals were making a partial payment up from 21% at the end of the prior quarter.

Looking at slide 9 we provided an update on the consumer loan portfolio that we have through our relationship with Green Sky.

This portfolio has performed.

Performed extremely well throughout the pandemic.

At June 30, we only had $600000 of deferred loans in this portfolio, which represents just 110th of 1% of the total loans. The delinquency rate has also declined to just 23 basis points of total loans, even better than the historical range that we've seen in the portfolio.

In addition to the strong performance. The escrow account is available to cover any deficiency in our principal balances and that escrow account increased to $32.7 million.

Into the second quarter.

Turning to slide 10, we'll look at our deposits total deposits decreased $144 million or 2.7% from the prior quarter.

This decline was largely attributable to a decrease in commercial FHA servicing deposits and retail deposit outflows as consumer spend the latest round of stimulus payments looking ahead to the third quarter, we will have additional opportunities to re re price higher cost time deposits.

Have a $163 million of Cds maturing at a weighted average rate of 147% as these deposits renew at current rates, we should see a positive impact on our deposit costs.

Looking at Slide 11, we will walk through the trends in our net interest income and margin.

Our net interest income decreased 3.4% from the prior quarter, primarily due to lower prepayment fees and unfavorable shift in the mix of earning assets and the recovery of interest on a previously charged off loans that we recognized back in the first quarter.

As we indicated we would do on our last earnings call. We added to the investment portfolio to help support net interest income and reduced our excess cash balances as a result, the investment portfolio increased by $66 million from the end of the prior quarter. We also did a little repositioning in the investment portfolio as we identified.

New mortgage backed securities and collateralized mortgage obligations that we thought had the potential to prepay in the short term. So we harvested the gains we had in those securities are reinvested those proceeds at what we felt was a good time in the market.

Excluding accretion income our net interest margin declined 17 basis points, primarily due to that unfavorable shift in the mix of earning assets. The mixed shift reflects the increase in the investment portfolio as well as a higher level of cash and cash equivalents, we hope for most of the quarter.

Prior to deploying it for the prepayment of the <unk> advance and the redemption of our subordinated debt.

Our net interest margin for the quarter, excluding the impact of PPP income was 3.3%.

We believe with debt we have seen the low end and our net interest margin at this point and we'll see the benefit of the elimination of the higher cost funding sources, starting in the third quarter.

So we believe we are well positioned to see some expansion in our net interest margin over the second half of the year with an increase in loan growth also providing additional benefit to the margin.

Turning to slide 12, we will look at our the trends in our wealth management business.

We had a $517 million increase in our assets under administration.

Primarily due to the acquisition of Atg Trust company.

On an organic basis, our assets under administration increased by approximately $100 million the higher assets under administration and the 1 month contribution of Atg resulted in a 10, 1% increase in our revenue compared to the prior quarter.

On slide 13, we will look at noninterest income, we had $17.4 million in noninterest income in the second quarter up 17, 6% from the prior quarter.

We recorded impairments on commercial mortgage servicing rights in both quarters with the impairment in the second quarter about $200000 lower than the prior quarter.

Excluding these impairments our noninterest income increased 15, 4% from the prior quarter, primarily due to higher levels of wealth management and interchange revenue as well as gains on the sale of investment securities and other real estate owned.

Our residential mortgage banking revenue held fairly steady with the prior quarter as a decline in refinancing volumes was offset by higher purchase production as we entered the seasonally stronger period for the housing market.

Turning to slide 14, we will take a look at our noninterest expense.

The $48.9 million of non interest expense in the second quarter included $3.6 million in professional fees incurred as part of our tax settlement, which is classified under acquisition and integration expense.

And the $3.7 million prepayment penalty for the FHL fee advance.

Excluding these amounts and a small amount of acquisition and integration expense that we've incurred in the quarter. Our non interest expense increased by $2.4 million.

This was primarily driven by an increase in salaries and benefits expense, resulting from higher incentive compensation going forward with the addition of ACG Trust company, we would expect our operating expense run rate to be between 40% to $42 million during the second half of the year. However, as we fully integrate <unk>.

G and eliminate some costs from that business and also realized from additional efficiency enhancements from technology. Rollouts later in the year, we would expect to see expenses be closer to the low end of that range by the end of 2021.

Turning to slide 15, we will look at our asset quality trends, our nonperforming loans increased $8.6 million from the end of the prior quarter, primarily due to the addition of 3 loans from our hotel motel portfolio.

All of the loans. These loans are to borrowers that operate hotels that largely cater to business travelers in the Chicago area with business travel taking longer to kick up in Chicago, We put these loans on non accrual to reflect to reflect the prolonged recovery period for these borrowers.

2 of the loans are well collateralized and we believe the potential for losses minimal we recognized the specific reserve on the third loan of $1.2 million due to deterioration of the collateral value.

We were able to sell a number of Oreo properties during the second quarter for a small gain as a result, despite the $8.6 million increase in our nonperforming loans, our nonperforming assets only increased by $1.9 million due to the decline in Oreo.

We had $4 million and net charge offs in the quarter or 33 basis points of average loans.

Approximately half of the charge offs this quarter related to the specific reserve held against the 1 commercial relationship that was placed on non accrual during the first quarter.

We recorded a negative provision for credit losses of $500000 and in terms of the various buckets that make up the provision we recorded a zero provision for credit losses on loans due to favorable changes in our portfolio mix and improved economic forecast.

And a negative $500000 of provision for credit losses on unfunded commitments and available for sales Securities, which was also primarily driven by improvement in those same economic forecasts.

At June 30, approximately 92% of our ACL was allocated to general reserves.

On slide 16, we show the components of the change in our ACL from Emerald prior quarter, our ACL decreased $4 million, which was driven by a combination of charge offs non specific reserves favorable changes in the portfolio and improvement in economic forecasts and on slide 17, we show our ACL broken out by portfolio.

We continued to keep elevated reserves in the portfolio is most impacted by the pandemic, particularly equipment financing and commercial real estate portfolio, where the hotel motel loans are held.

The reserve release this quarter came in other portfolios where credit trends remained strong.

And with that I'll turn it back the call back over to Jeff Jeff.

Thanks, Eric will wrap up on slide 18, with a few comments on our outlook. We believe that we are very well positioned to deliver a strong second half of the year economic conditions are steadily improving and we expect this trend to continue borrowing any setbacks related to the emergence of the delta variant.

This should lead to reductions in problem loans have continued to decline and deferrals and increased loan demand.

And with a higher level of loan growth. We believe we will see a favorable shift in the mix of earning assets and further increases in profitability 1.

1 potential tailwind for future loan growth should be a return to a more normalized utilization rate on our commercial lines of credit at the end of the second quarter, we had $196 billion of credit line commitments, excluding commercial FHA warehouse lines the utilization rates stood at 52.

6% compared to our historical average in the 62% to 64% range.

As the economy continues to recover and the utilization rates returned to a more normalized level. This could add another $100 million to $130 million of loans to our balance sheet independent of our new loan production.

Looking at the current pipeline after a seasonally slow start to the year production in the equipment finance is starting to pick up we are also seeing more opportunities in commercial real estate, including our specialty Finance group.

Were all within the community Bank group the loan pipeline is about 14% higher than it was at the end of the first quarter. This reflects the higher level of loan demand that we're seeing as well as the contributions being made by new bankers that we have added over the past several months. We've previously talked about the additions we have.

And the areas of SBA agribusiness, especially finance more recently, we've added some new bankers to increase our business development activity in St. Louis and.

In other high growth areas in Northern Illinois, we're about a $500 million bank in St. Louis and given the size of the market. There is a lot of opportunity for us to grow market share we have a new market president in St. Louis and we have added experienced commercial bankers in order to build a larger more productive team.

As a result, we are seeing more lending opportunities in that market and we're having more success in cross selling our wealth management services.

Early in this initiative, but the initial results are positive and we think that our results in building our St. Louis presence can help drive a higher level of organic growth in the future.

We are seeing the benefits of improved efficiencies from our technology investments, we continue to leverage technology and we have some additional rollout scheduled for release later this year that will help us take out some other costs and move down towards the bottom of the targeted expense range that Eric provided earlier.

On a final note since the beginning of 2020, we indicated that our priority would be to focus internally on improving our operations and optimizing our business model while building our capital ratios. We've made significant progress on the goals, we set which is reflected in our higher level of profitability and increased cash.

Little ratios, while we still have many internal initiatives. We are working on to further improve our performance. We are now at a point, where we believe that we can resume evaluating small M&A opportunities. It's an active market for M&A, the low rate environment low growth environment is pushing more banks to consider.

And we want to be a participant in the consolidation where it makes sense for us so where there are opportunities that present, the compelling strategic and economic rationale and would not to disrupt the positive momentum. We have built we are open to executing on small scale transactions that we believe enhance the value.

Our trend of our franchise and generate a good return for our shareholders.

With that we'll be happy to answer any questions you might have operator, please open the call.

If you would like to ask a question. Please press star 1 on your telephone keypad.

Your first question comes from the line of Michael Perito with K B W.

Hey, good morning.

Good morning, Mike.

2 questions from me I wanted to start on the just the expense guide I just wanted to clarify that the comments there so it sounds like.

The higher.

$40 million to $42 million, which is a little higher than what you were guiding to last quarter. It sounds like that more is for the third quarter, where expenses could be between 41 and $42 million, but by by the exited the year you expect to be closer to that $40 million number is that I guess capturing.

The comments in the prepared remarks accurately.

Yes, I think thats exactly how we sort of see it right now.

Okay.

And I guess just on that point I mean.

The $40 million run rate I mean, how do you think about growth Jeff longer term.

As you continue to invest and look to add lenders and do those things.

What is kind of a decent growth rate as far as you guys see it with what you have on the docket today that we should be thinking also that $40 million plus or minus number.

Yes, a lot of what we've done.

This year is the bankers, we're adding we're sort of trading up so we're not adding net new bankers. So we're a lot more productive.

And our and our commercial staff.

Today than we were a year ago, we have I think.

At our lineup of bankers and frankly less bankers. So we haven't necessarily as we've added these bankers added new expense, which I think is a real positive.

And I think as we think forward.

We still I still think that we've got.

Sort of.

<unk> hold expenses in line, so I wouldn't be thinking about 3% increase in expenses going forward.

So its something less than that.

Got it that's really helpful.

And then on the.

On the credit piece.

On the 3 hotel motel properties that I think you guys mentioned, we will just have kind of a longer recovery period. I was wondering if you could maybe just give a little bit more color in terms of kind of what the exposure is like what's been charge off or hasnt, yet or any reserves.

How what the performance is today, but.

It sounded like you could correct me, if I'm wrong, but it sounded like there were still.

Decent amount of confidence that they will cover I'll just take more time, but wondering if you could expand on that a little bit further.

Yes.

There are more in that business travel market, which is our occupancy rates are still sort of lagging where they need to be the cash flow. So.

As we said 2 of them, we feel pretty good about where we're in.

Good collateral positions and the third 1.

Not so much and we did put about $1.2 aside on specific reserves, we haven't charged anything off at this point, but we feel that were appropriately reserved.

<unk>.

To handle where these properties go in the future.

So the $1 million to that specific reserve on the 1 property.

And what's the size of that property tier.

Well, yes at that credit rather it's probably.

A $5.6 million loan balance.

Got it okay.

Helpful and then on the loan growth side.

I was curious if you could just.

All the comments at the end of the prepared remarks. They were helpful. In terms of line utilization and the potential upside I was wondering if you could just comment on.

The kind of the appetite and pipeline for additional consumer lending and if we should continue to expect that to contribute similarly to what it did in the second quarter and then.

Also just to the commercial FHA lines is that something that could normalize back up and be a tailwind or was it elevated and this is a better kind of level set.

Figure for us to consider moving forward.

Right I mean, that's a hard 1 for us to sort of forecast.

I would.

That business, we really look at the sort of where the average balances for the quarter.

And I think the average did come down quarter over quarter I think our average is probably about $125 million range in the second quarter.

I think what we where we're at right now is probably a good spot.

Maybe there could be a little bit of tailwind I mean, we have a drop in interest rates that could create some some more refinancing with our partners that are going to need to draw on that line some more.

But the the net income or the margin impact is.

Fairly small right I mean, as we look quarter over quarter, where we're looking at.

Hundreds a few hundred thousand dollars difference in margin dollars as those balances move around.

So it is not.

It looks like it should have a bigger impact when they move on the balance sheet and you're only looking at spot balances at the end of the quarter and maybe what we could do is provide some average.

Disclosure.

To give you a better sense of what that looks like.

So I wouldn't say.

Significant tailwind even if it goes back to where it was last quarter in terms of averages.

The margin would be up a few hundred thousand dollars.

Got it and then in terms of Green Sky.

Yes, so I think what we talked about last quarter was we are going to increase that position between 75 and $125 million over the course of the remaining part of this year I think green Sky was up roughly $40 million. This quarter. So we still have.

More and more industries and get into that volume as we move forward.

So that will be some tailwind.

Yes.

I sort of look at that is offsetting a lot of the residential runoff from unit residential consumers are our sort of consumer lending.

And it's really offsetting that run off it would be nice if the resi slowdown, but I'm not sure what's going to happen either with where rates are.

Got it helpful. Thank you guys for taking my questions I appreciate it thanks, Mike.

And your next question comes from the line of Nathan race with Piper Sandler.

Yes, hi, guys good morning.

Good.

Maybe just start on fee income in the quarter with Atg.

In the quarter for only about a month.

And then assuming from equity market valuations remain where they are just fair to assume that we should layer on another 600000 or so related revenue.

<unk> for the back half of this year on a quarterly basis yet.

Yes, I think that that's a fair position.

Okay, Great and then just on the card line, obviously nice growth.

Quickly there.

Much of that is attributable to just some pent up spending on stimulus efforts and so forth and you kind of expect that card revenue line should revert back to maybe what we've seen going back to the back half of <unk> 19, that's maybe on a more normalized environment basis.

We don't think so I do think there's probably some pent up demand going there, but we have we've had a lot of effort going on within this company to get on the retail price.

Gift cards and in consumers' hands.

I might not have a card attached to their checking account.

And with the online account opening and theirs.

I think we see a higher level of card.

Activation and usage so.

We do see here that we've got a lot more cards activated and being used so I think that bodes well for even if spending comes down we do think debt.

We've made some some really good progress since the end of 19.

Over 19 that the revenue is going to be higher.

Okay.

Understood.

It's helpful. Thanks, Jeff and maybe just changing gears on the margin outlook in terms of the court.

Spread revenue growth expectations for the back half of this year. It sounds like we've hit a trough on the core net interest income ex PPP. Just curious if you guys kind of 3 months expectations in terms of growth from this level here in <unk>. It sounds like the loan pipelines are pretty strong compared to the end of March.

Obviously, you see some variability in the warehouse lines and so forth.

Online loan growth perspective, but.

I'm just curious how we should kind of later on.

AI growth with some ongoing redeployment of the elevated excess liquidity both into loans and I imagine to some extent.

Into securities as well going forward.

Yes ill take the first shot at it but the liability restructure that we did should Adam.

Ex PPP.

Should add $1 million per quarter fairly close to that.

We had nice loan growth in the second quarter, which is going to help.

Going into the third quarter and we've got good pipelines.

Heading into the third quarter. So we should see some nice some nice loan growth. So we <unk>.

Sort of the PPP forgiveness.

We think it's a $1 million million plus and.

And margin dollars.

Gotcha Okay.

That's helpful.

Maybe just 1 last 1.

Just curious on the charge offs in the quarter I believe it was tied to the credit that moved to <unk>.

Non performing.

First quarter. So just just any additional details on that 1 would be helpful.

Yes, It was an acquired loan as an operating business.

Had what we think could have a little bit of fraud going on in the company.

Where.

The inventory and receivables at some level wasn't there.

Yeah.

And we've put it on non accrual we've now dug in and thought that at this point, it's appropriate to take the charge offs I think we feel that we've taken the losses on that credit.

As of now.

And what we're continuing to work on that sort of work that credit out.

Got it very helpful.

Well, let's step back from now thank you guys. Thanks.

Again, if you'd like to ask a question. Please press star 1 on your telephone keypad.

Your next question comes from Terry Mcevoy with Stephens.

Morning, It's Brendan rude on for Terry.

A couple of questions quick the first 1 from 1 of your last comments there was about.

How about M&A and kind of seemed like you might be open to maybe some smaller bank acquisitions as well as the fee generating.

Can you just maybe talk a bit more.

About that.

Efficiencies.

Sort of streamlining the business as we want to be in exiting the business as we didn't want to be in.

And in.

And building out sort of.

Or sort of.

Sort of commercial commercial line right to really begin to build pipelines and there are some more things we've got planned on.

Technology and efficiencies for the back part of this year and into next year, but we're getting to the end and feel that we.

Did atg and it was small not very impactful internally. So our folks could continue to work on the initiatives, we had internally and sort of are looking at banking the same way.

It'll be there'll be small and there'll be in market that are sort of less disruptive to the company.

Okay. Okay. Thank you for that.

Another 1 here.

The impairment on <unk>.

On your on your commercial servicing rights.

It kind of.

Bounce around in the past couple of quarters is that just tied to wherever interest rates finished the quarter at how I guess looking forward.

Can we model that out.

Well when you figure that out and you can let me know.

Okay.

It is tied to I think it's tied to interest rates or these are commercial.

Mortgage servicing rights and when rates are low.

There is more loan modifications going on in the in the portfolio and more refinancing going on in the portfolio.

When rates are lower there is opportunity for borrowers to sort of refinance to a lower rate.

And so what we're seeing mostly is a higher level of.

Pay offs that are happening within that book, that's driving the valuation.

We amortize that asset off but the amortization or the estimate of what we think the paydowns are going to be the paydowns have been running higher. So then we have to from.

The write that asset down.

And since we're not in the love funding business anymore.

We're not adding we're not adding to the book to sort of offset some of that debt might be going on.

Okay. Okay. Thank you.

1 last 1 on on deposits Kingdom book too.

2.5% this last quarter due to the commercial.

States.

The deposits and.

Retail.

Deposits can you maybe quantify a little debt between the 2.

How much was driven from the retail deposits versus the FHA.

Okay.

The vast majority of it was service from the servicing book.

Okay, Yes, I think.

Yes, I would say the servicing book with north of $100 million.

And retail is probably in that maybe $40 million range.

Okay.

Alright.

Thank you.

And you have a follow up question from the line of Nathan race with Piper Sandler.

Yes.

I appreciate you taking the follow up question.

I wanted to go back to the credit discussion a little bit just in terms of thinking about.

Provisioning charge offs from a worthy ECL is going to trend over the next couple of quarters.

It does look like there's much loss content expectations with the hotel Curtis debt.

Were placed.

Non accrual in the quarter.

I imagine maybe there is some need to provide for growth, but you also some unallocated.

Unallocated reserves, so just any expectations just in terms of charge off levels of provisioning over the next couple of quarters would be helpful.

Yes, I mean, I think we feel good on the charge offs.

I think we.

We sort of pushed through this quarter, what we thought we probably had losses in.

And then on the provision side Theres still the economic forecast I think can still get better.

So that potentially could offset any growth that we would need to fund the reserve so.

<unk>.

Yeah.

Maybe somewhat similar to this quarter as I sit here and just think about next quarter.

<unk>.

Our.

I don't think it's going to be it won't be as high as the first quarter I think it would be closer to what it was in the second quarter maybe.

Say that.

Okay got it fair enough and very well could be zero again.

Good.

Very much be the case.

Gotcha, so assume charge offs from down in provisioning remains pretty.

Muted maybe.

Moving to levels that we saw during the second quarter, it's probably fair to expect the reserve to come down, albeit to a lesser degree than we saw in <unk>, just with charge offs coming down.

Yes.

Okay perfect.

Great color guys. Thanks again.

I show no further questions in queue I would like to turn the call back over to management for closing comments.

Thanks for joining.

The earnings call today, and we will see and talk to everybody next quarter. Thanks.

This does conclude today's call you may now disconnect your lines.

[music].

Good morning, ladies and gentlemen, and welcome to the second quarter of Midland States Bancorp, Inc 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 assistance during the conference. Please press Star then zero on your Touchtone telephone.

I would now like to turn the conference over to your host Mr. Tony Rossi. Please go ahead.

Thank you Deb good morning, everyone and thank you for joining us today for the Midland States Bancorp second quarter 2021 earnings call joining us from Midland Spanish, but team are Jeff Ludwig President and Chief Executive Officer, Eric Lemke, Chief Financial Officer 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 Investor Relations website to download a copy of the presentation.

Various factors could cause actual results to be materially different from any future results expressed or implied by such forward looking statements.

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.

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 and welcome to the Midland States earnings call, we're going to start on slide 3 with the highlights of the second quarter. We continue to see the higher level of profitability that we targeted through the strategic initiatives, we implemented over the past couple of years to focus more of our attention and resources on higher return businesses.

Creating a more consistent revenue mix and improving efficiencies.

On a GAAP basis, we generated net income of $20.1 million or <unk> 88 per diluted share as we announced last month, we had a number of items that impacted our second quarter results were positive.

<unk> a negatively.

These include a tax benefit related to a settlement of a prior tax issue stemming from the treatment of gains on FDIC assisted transactions.

Professional fees, we incurred in pursuing the tax benefit and <unk> advanced prepayment penalty.

These items are excluded we had adjusted earnings of $19.8 million or <unk> 86 cents per diluted share, which still represents the highest quarterly earnings in the history of the company.

Improved profitability has enabled us to make significant progress on our goal to strengthen our capital ratios during the second quarter, our tangible common equity ratio increased 45 basis points and is now back above 7%.

While loan demand is improving we continue to have significant excess liquidity.

So we took the opportunity to use a portion of the excess liquidity to eliminate some of the higher cost funding sources, including an $85 million long term FHL advance that had an interest rate of 2.54% and $31 million of sub debt that had an interest rate of 4.5 for <unk>.

<unk>.

In aggregate the elimination of this higher cost funding, we will reduce our interest expense by $3.6 million annually and have a positive impact on our net interest margin of approximately 10 basis points.

<unk> PPP loans and commercial FHA warehouse lines of credit our total loans increased at an annualized rate of 6%, which was at the high end of our expected range.

We are seeing a strong increase in noninterest income, which increased nearly 18% over the prior quarter and accounted for 26% of our total revenue.

Portion of the increase is attributed to more debit cards that we are issuing through our online account opening platform. The increase in debit card issuance combined with the increase in general economic activity is driving a higher level of interchange fees during.

This is just 1 of the areas, where we are seeing a strong return on the investment we have made in expanding and enhancing our digital banking capabilities.

This acquisition brought our assets under administration to more than $4 billion, and our wealth management revenues to $6.5 million per the quarter.

And our wealth management revenue should further increase as we get the full quarter impact of Atg and also began leveraging their strong referral sources to enhance our business development efforts.

Moving to slide 4 we will provide or provided an update on our PPP efforts and the impact that these loans had on various line items in the second quarter as debt forgiveness process continued our PPP loans decline by about $65 million and brought our total balances to a 147.

At the end of the second quarter.

We recognized $2 million and fees during the second quarter down a bit from the $2.1 million that we recognized in the prior quarter.

As of June 30, we still had $5.6 million in fees to be recognized.

Turning to slide 5 will provide an update on our loan deferrals.

As you May recall, we had a bit of an increase in loan deferrals last quarter as we granted additional 3 month deferrals to help certain hotel borrowers get through the soft soft part of their year.

Most of those deferrals now have now expired, while we saw a significant number of borrowers resumed scheduled payments.

This resulted in a 51% decrease in total deferrals.

$107 million remaining at June 30.

Or 2.2% of total loans and.

And borrowers have been able to make their partial payments was 79% of the loans deferred making interest only or some other form of partial payment up from 40% at the end of the prior quarter.

At this point I'll turn the call over to Eric to provide some additional details on our second quarter performance.

Thanks, Jeff and again good morning, everyone I'm starting on slide 6 we will take a look at our loan portfolio. Our total loans decreased $75 million from the end of the prior quarter. This was due to the continued run off we are seeing in the residential real estate portfolio due to refinancing activity, but forgiveness.

The PPP loans and a $75 million decline in period end balances on commercial FHA warehouse lines.

Offset increases in the equipment financing commercial real estate and construction portfolios, resulting from the higher level of loan production in these areas during the quarter as Jeff mentioned, we added to the consumer portfolio through our Green Sky partnership to help offset the runoff in the residential real estate.

Portfolio.

At June 30, our balances of PPP loans were down to $147 million.

Excluding PPP loans and commercial warehouse credit lines total loans increased by $66 million or 1.5% for the quarter, an annualized growth rate of 6%.

On slide 7 we've provided an update on our equipment finance portfolio as of June 30, we had $36 million of deferrals, which represents a decline of 23% since the end of the last quarter. We continue to see a steady recovery of our borrowers in the transit and ground transportation industry as the trends in beer.

<unk> and recreational travel improve we.

On slide 8 we've provided an overview of our hotel motel portfolio at June 30, we had $39 million of loan deferrals in this portfolio, which is down 66% from the end of the prior quarter along with the decline in deferrals. We're also seeing higher percentage of borrowers, making interest only or some other form of payment and <unk>.

At June 30, 77% of the remaining deferrals were making a partial payment up from 21% at the end of the prior quarter.

Looking at slide 9 we provided an update on the consumer loan portfolio that we have through our relationship with Green Sky.

This portfolio has as performed extremely well throughout the pandemic at June 30, we only had $600000 of deferred loans in this portfolio, which represents just 110th of 1% of the total loans. The delinquency rate has also declined to just 23 basis points of total loans.

Even better than the historical range that we've seen in the portfolio.

In addition to the strong performance. The escrow account is available to cover any deficiency in our principal balances and that escrow account increased to $32.7 million at the end of the second quarter.

Turning to slide 10, we'll look at our deposits total deposits decreased $144 million or 2.7% from the prior quarter.

$163 million of Cds maturing at a weighted average rate of 147% as these deposits renew at current rates, we should see a positive impact on our deposit costs.

Looking at Slide 11, we will walk through the trends in our net interest income and margin.

As we indicated we would do on our last earnings call. We added to the investment portfolio to help support net interest income and reduce our excess cash balances as a result, the investment portfolio increased by $66 million from the end of the prior quarter. We also did a little repositioning in the investment portfolio as we identified a few.

Mortgage backed securities and collateralized mortgage obligations that we thought had the potential to prepay in the short term. So we harvested the gains we had in those securities and reinvested those proceeds at what we felt was a good time in the market.

Prior to deploying it for the prepayment of the FHL advance and the redemption of our subordinated debt.

Our net interest margin for the quarter, excluding the impact of PPP income was 3.3%.

We believe with debt we have seen the low end and our net interest margin at this point and we'll see the benefit of the elimination of the higher cost funding sources, starting in the third quarter.

So we believe we are well positioned to see some expansion in our net interest margin over the second half of the year with an increase in loan growth also providing additional benefit to the margin.

Turning to slide 12, we will look at our the trends in our wealth management business.

We had a $517 million increase in our assets under administration.

Primarily due to the acquisition of Atg Trust company.

On an organic basis, our assets under administration increased by approximately $100 million.

The higher assets under administration and the 1 month contribution of Atg resulted in a 10, 1% increase in our revenue compared to the prior quarter.

On Slide 13, we'll look at noninterest income, we had $17.4 million in noninterest income in the second quarter up 17, 6% from the prior quarter we.

We recorded impairments on commercial mortgage servicing rights in both quarters with the impairment in the second quarter about $200000 lower than the prior quarter.

Turning to slide 14, we will take a look at our noninterest expense.

And a $3.7 million prepayment penalty for the FHL fee advance.

Excluding these amounts and a small amount of acquisition and integration expense that we've incurred in the quarter. Our non interest expense increased by $2.4 million.

This was primarily driven by an increase in salaries and benefits expense, resulting from higher incentive compensation going forward with the addition of ACG Trust company, we would expect our operating expense run rate to be between $40 million to $42 million during the second half of the year. However, as we fully integrate atg.

And eliminate some costs from that business and also realized from additional efficiency enhancements from technology. Rollouts later in the year, we would expect to see expenses be closer to the low end of that range by the end of 2021.

2 of the loans are well collateralized and we believe the potential for losses minimal we recognize the specific reserve on the third loan of $1.2 million due to deterioration of the collateral value.

We had $4 million and net charge offs in the quarter or 33 basis points of average loans.

Approximately half of the charge offs this quarter related to the specific reserve held against 1 commercial relationship that was placed on non accrual during the first quarter.

And a negative 500000.

Provision for credit losses on unfunded commitments and available per sale Securities, which was also primarily driven by improvement in those same economic forecasts.

At June 30, approximately 92% of our ACL was allocated to general reserves.

On slide 16, we show the components of the change our ACL from end of the prior quarter, our ACL decreased $4 million, which was driven by a combination of charge offs on specific reserves favorable changes in the portfolio and improvement in economic forecasts and on slide 17, we show our ACL broken out by portfolio.

So we continue to keep elevated reserves in the portfolio is most impacted by the pandemic, particularly equipment financing and commercial real estate portfolio, where the hotel motel loans are held the reserve release. This quarter came in other portfolios where credit trends remained strong.

And with that I'll turn it back the call back over to Jeff Jeff.

This should lead to reductions in problem loans have continued to decline and deferrals and increased loan demand.

And with a higher level of loan growth. We believe we will see a favorable shift in the mix of earning assets and further increases in profitability 1.

6% compared to our historical average in the 62% to 64% range as the economy continues to recover and the utilization rates returned to a more normalized level. This could add another $100 million to $130 million of loans to our balance sheet independent of our new loan production.

Overall within the community Bank group the loan pipeline is about 14% higher than it was at the end of the first quarter.

This reflects the higher level of loan demand that we're seeing as well as the contributions being made by new bankers that we have added over the past several months. We've previously talked about the additions we have made in the areas of SBA agro business, especially finance more recently, we've added some new bankers too.

To increase our business development activity in St. Louis.

As a result, we are seeing more lending opportunities in that market and we are having more success in cross selling our wealth management services. It's still early in this initiative, but the initial results are positive and we think that our results in building our St. Louis presence can help drive a higher level of organic growth in the future.

We are seeing the benefits of improved efficiencies from our technology investments, we continue to leverage technology and we have some additional rollouts scheduled for release later this year that will help us pick out some other costs and move down towards the bottom of the targeted expense range that Eric provided earlier on.

A final note since the beginning of 2020, we indicated that our priority would be to focus internally on improving our operations and optimizing our business model while building our capital ratios. We've made significant progress on the goals, we set which is reflected in our higher level of profitability and increased capital.

All ratios, while we still have many internal initiatives. We are working on to further improve our performance. We are now at a point, where we believe that we can resume evaluating small M&A opportunities.

Inactive market for M&A, the low rate environment low growth environment is pushing more banks to consider selling and we want to be a participant in the consolidation where it makes sense for us so where there are opportunities that present, the compelling strategic and economic rationale and would not do this.

Dropped the positive momentum we have built we are open to executing on small scale transactions that we believe putting enhance the value of our trend of our franchise and generate a good return for our shareholders with that we'll be happy to answer any questions you might have operator, please open the call.

Maybe you would like to ask a question. Please press star 1 on your telephone keypad.

Your first question comes from the line of Michael Perito with K B W.

Yes.

Hey, good morning.

Hey, Mike.

Few questions from me I wanted to start on just the expense guide I just wanted to clarify that the comments there so it sounds like the.

The higher to $40 million to $42 million, which is a little higher than what you were guiding to last quarter sounds like thats more for the third quarter, where expenses could be between $4100.42 million book by the exited the year you expect to be closer to that $40 million number and is that I guess capturing.

The comments in the prepared remarks accurately.

Yes, I think thats exactly how we sort of see it right now.

Okay.

And I guess just on that point I mean.

The $40 million run rate I mean, how do you think about growth Jeff longer term.

As you continue to invest and look to add lenders and do those things.

What is kind of a decent growth rate as far as you guys see it with what you have on the docket today that we should be thinking also that $40 million plus or minus number.

Yes, I mean, a lot of what we've done.

This year is the bankers, we're adding we're sort of trading up so we're not adding.

Net new bankers, so we're a lot more productive.

And our and our commercial staff.

Today than we were a year ago, we have I think a bet.

At our lineup of bankers and frankly less bankers. So we haven't necessarily as we've added these bankers added new expense, which I think is a real positive.

And I think as we think forward.

We still I still think that we've got.

Sort of.

<unk> hold expenses in line, so I wouldn't be thinking of a 3% increase in expenses going forward.

So it is something less than that.

Got it that's really helpful.

And then on the.

On the credit piece.

On the 3 hotel motel properties that then I think you guys mentioned, we will just have kind of a longer recovery period. I was wondering if you could maybe just give a little bit more color in terms of kind of what do you see.

Closure is like what's been charge offs or hasnt, yet or any reserves.

How what the performance is today, but.

It sounded like you can correct me, if I'm wrong, but it sounded like there were still.

Decent amount of confidence that they will cover I'll just take more time, but wondering if you could expand on that a little bit further.

Yes.

There are more in that business travel market, which is our occupancy rates are still sort of lagging where they need to be the cash flow. So.

As we said 2 of them, we feel pretty good about.

Good collateral positions and the third 1.

Maybe not so much and we did put about $1.2 aside on specific reserves, we haven't charged anything off at this point, but we feel that were appropriately reserved.

<unk>.

To handle where these properties go in the future.

So the $1 million to that specific reserve on the 1 property.

And what's the size of that property.

That credit rather is probably a debt of $5.6 million loan balance.

Got it okay.

Helpful and then on the loan growth side.

Hum.

I was curious if you could just.

All the comments at the end of the prepared remarks. They were helpful. In terms from the line utilization and the potential upside I was wondering if you could just comment on.

<unk>.

The kind of deep appetite and pipeline for additional consumer lending.

We should continue to expect that to contribute similarly to what it did in the second quarter and then.

Also just the commercial FHA lines is that something that could normalize back up and be a tailwind or was it elevated and this is a better kind of level set.

Figure for us to consider moving forward.

Right I mean, that's a hard 1 for us to sort of forecast.

I would.

That business, we really look at the sort of where the average balances for the quarter.

And I think the average did come down quarter over quarter I think our average was probably about $125 million range in the second quarter.

I think what we know where we're at right now is probably a good spot.

But.

The net income or the margin impact is.

Fairly small right I mean, as we look quarter over quarter.

We're looking at.

Hundreds a few hundred thousand dollars difference in margin dollars as those balances move around.

So it's not.

It looks like it should have a bigger impact when they move on the balance sheet and you're only looking at spot balances at the end of the quarter and maybe what we could do is provide some average.

Disclosure.

To give you a better sense of what that looks like.

So I wouldn't say.

Significant tailwind even if it goes back to where it was last quarter in terms of averages.

The margin would be up a few hundred thousand dollars.

Got it and then in terms of Green Sky.

Yes, so I think what we talked about last quarter was we are going to increase debt position between 75 and like $125 million over the course of the remaining part of this year and I think green Sky was up roughly $40 million. This quarter. So we still have.

More and more share you still get into volume.

As we move forward, so that will be some tailwind but.

I sort of look at that is offsetting a lot of the residential run off unit residential consumers are our sort of consumer lending.

And it's really offsetting that run off it would be nice if the resi slowdown, but I'm not sure what's going to happen either with where rates are.

Got it helpful. Thank you guys for taking my questions I appreciate it thanks, Mike.

And your next question comes from the line of Nathan race with Piper Sandler.

Yes, hi, guys good morning.

Renewals.

Got it.

Maybe just starting on fee income in the quarter with Atg.

In the quarter for only about a month.

And assuming some equity market valuations remain where they are is it just fair to assume that we should lay around another 600000, or so and the related revenue and net wealth line for the back half of this year on a quarterly basis yet.

Yes, I think that that's a fair position.

Okay, Great and then just on the card line, obviously nice growth.

Quickly there.

How much of that is attributable to just some pent up spending stimulus efforts and so forth and you kind of expect that card revenue lines should revert back to maybe what we've seen going back to the back half of <unk> 19, that's maybe on a more normalized environment basis.

We don't think so I do think there's probably some pent up demand going there, but <unk> had a lot of effort going on within this company to get on the retail price gift cards and in consumers' hands.

I might not have a card attached to their checking account.

And with the online account opening.

<unk>.

I think we see a higher level of card.

Activation and usage. So I think we do see here that we've got a lot more cards activated and being used so I think that bodes well for even if spending comes down we do think debt.

We've made some some really good progress since the end of 19.

Over 19 that the revenue is going to be higher.

Understood.

That's helpful. Thanks, Jeff and maybe just changing gears on the margin outlook and some of the core.

Spread revenue growth expectations for the back half of this year. It sounds like we've hit a trough on the core net interest income ex PPP.

Curious if you guys kind of frameworks expectations in terms of growth from this level here in <unk>. It sounds like the loan pipelines are pretty strong compared to the end of March.

Obviously, some variability in the warehouse lines and so forth from a bottom line loan growth perspective.

I'm just curious how we should kind of later on.

AI growth with some ongoing redeployment of the elevated excess liquidity both into loans and I mentioned to some extent.

Into securities as well going forward.

Yes ill take the first shot at it but the liability restructure that we did should Adam.

PPP.

At a $1 million per quarter fairly close to that.

We had nice loan growth in the second quarter, which is going to help.

Going into the third quarter and we've got good pipelines.

Heading into the third quarter. So we should see some nice some nice loan growth.

We.

Sort of the PPP forgiveness.

We think it's a million a million plus in.

And margin dollars.

Okay.

That's helpful.

Yes.

1 last 1.

Just curious on the the charge offs in the quarter I believe it was tied to the credit that moved to non.

Non performing.

First quarter. So just any additional details on that 1 would be helpful.

It was an acquired loan as an operating business.

Had what we think could have a little bit of fraud going on in the company.

Where.

The inventory and receivables at some level wasn't there.

And we put it on non accrual.

Now dug in and thought that at this point, it's appropriate to take the charge offs I think we feel that we've taken the losses on that credit.

As of now.

And what we're continuing to work on that will be sort of work that credit out.

Got it.

Paul.

Well, let's step back for now thank you guys. Thanks.

Again, if you'd like to ask a question. Please press star 1 on net telephone keypad.

Your next question comes from Terry Mcevoy with Stephens.

Morning, It's Brandon on for Terry.

A couple of questions quick the first 1 common of your last comments there was about.

How about M&A and kind of seemed like you might be open to maybe some smaller bank acquisitions as well as our fee generating.

Can you just maybe talk.

Talk a bit more.

About that.

Yes, I think we feel like we've made in the last 18 months made a lot of progress internally on on.

Efficiencies sort.

Streamlining the business as we want to be in exiting the business as we didn't want to be in.

And and.

And building out sort of.

Or sort of.

Sort of commercial commercial lines right to really begin to build pipelines.

And there are some more things we've got planned on.

Technology and efficiencies for the back part of this year and into next year, but we're getting to the end and feel that.

We did atg and it was small not very impactful internally. So our folks could continue to work on the initiatives, we had internally and sort of are looking at banking the same way.

It will be still be small and there'll be end markets that are sort of less disruptive.

The company.

Okay. Okay. Thank you for that.

Another 1 here.

Impairments on.

On your on your commercial servicing rights.

They kind of.

Bounce around the past couple of quarters is that just tied to wherever interest rates finished the quarter at <unk>.

I guess looking forward can.

Can we model that out yes.

Yeah, well when you figure that out and you let me know.

So.

It is tied to I think it's tied to interest rates are and these are commercial.

Mortgage servicing rights and when rates are low.

Yes, there is more loan modifications going on in the in the portfolio and more refinancing going on in the portfolio.

Rates are lower there is opportunity for borrowers to sort of refinance to a lower rate.

And so what we're seeing mostly is a higher level of.

Pay offs that are happening within that book, that's driving the valuation.

Amortized that asset off but the amortization or the estimate of what we think the paydowns are going to be the paydowns have been running higher. So then we have to.

Further write that asset down.

And since we're not in the love funding business anymore.

We're not adding we're not adding to the book to sort of offset some of that debt might be going on.

Sure Okay. Okay. Thank you.

1 last 1 on on deposits you said it came down about.

2.5% this last quarter due to the commercial.

Hey.

The deposits and.

Retail.

Deposits can you maybe quantify a little bit between the 2.

How much was driven from the retail deposits versus the FHA.

Okay.

The vast majority of Airbus net servicing book.

Okay, Yes, I think.

Yes, I would say the servicing book with north of $100 million.

And retail is probably in that maybe $40 million range.

Okay got it alright.

Thank you.

And you have a follow up question from the line of Nathan race with Piper Sandler.

Yes.

I appreciate you taking the follow up question.

Wanted to go back to the credit discussion a little bit just in terms of thinking about.

Provisioning charge offs from a worthy ECL is going to trend over the next couple of quarters.

It doesn't sound as much loss content expectations with the hotel Curtis net.

We're pleased.

Non accrual in the quarter.

I imagine maybe there is some need to provide for growth, but you also some excess.

Unallocated reserves, so just any expectations just in terms of charge off levels of provisioning over the next couple of quarters would be helpful.

Yes, I think we feel good on the charge offs.

I think we.

Sort of pushed through this quarter, what we thought we probably had losses in.

Sure.

And then on the provision side Theres still the economic forecast I think can still get better.

So that potentially could offset any growth that we would need to fund the reserve so.

Think it's.

Maybe somewhat similar to this quarter as I sit here and just think about next quarter.

Hi.

I don't think its going to be it won't be as high as the first quarter I think it would be closer to where it was in the second quarter maybe yet.

Say that.

Okay got it fair enough and very well could mean zero debt.

Good.

Very much be the case.

Gotcha, so assume charge offs from down in provisioning remains pretty.

Muted maybe.

Moving to level that we saw during the second quarter, it's probably fair to expect the reserve to come down, albeit to a lesser degree than we saw in <unk>, just with charge offs coming down.

Yes.

Okay perfect I appreciate all the color guys. Thanks again.

Yes.

I show no further questions in queue I would like to turn the call back over to management for closing comments.

Thanks for joining.

The earnings call today, and we will see and talk to everybody next quarter. Thanks.

This does conclude today's call you may now disconnect your lines.

Q2 2021 Midland States Bancorp Inc Earnings Call

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