UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 26, 2023
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||||||||||||
| (Address of Principal Executive Offices) (Zip Code) | ||
(217 ) 342-7321
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |||||
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |||||
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |||||
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock, $0.01 par value | MSBI | The Nasdaq Market LLC | ||||||
| Depositary Shares, each representing a 1/40th interest in a share of 7.75% fixed rate reset non-cumulative perpetual preferred stock, Series A, $2.00 par value | MSBIP | The Nasdaq Market LLC | ||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition.
On October 26, 2023 , Midland States Bancorp, Inc. (the “Company”) issued a press release announcing its financial results for the third quarter of 2023. The press release is attached as Exhibit 99.1.
Item 7.01. Regulation FD Disclosure.
On October 26, 2023 , the Company made available on its website a slide presentation regarding the Company's third quarter 2023 financial results. The slide presentation is attached as Exhibit 99.2.
The information set forth under Items 2.02 and 7.01 in this Form 8-K and the attached exhibits shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in any such filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit No. | Description | ||||||||||
Press Release of Midland States Bancorp, Inc., dated | |||||||||||
Slide Presentation of Midland States Bancorp, Inc. regarding third quarter 2023 financial results | |||||||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | ||||||||||
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: | By: | /s/ Eric T. Lemke | ||||||
| Eric T. Lemke | ||||||||
| Chief Financial Officer | ||||||||
EXHIBIT 99.1
Midland States Bancorp, Inc. Announces 2023 Third Quarter Results
Third Quarter 2023 Highlights:
•Net income available to common shareholders of $15.8 million, or $0.71 per diluted share
•Adjusted earnings per diluted share of $0.78 reflects impact of balance sheet repositioning that is expected to be accretive to earnings prospectively
•Common equity tier 1 capital ratio improved to 8.16%
•Efficiency ratio of 55.8% compared to 55.0% in prior quarter
Effingham, IL, October 26, 2023 (GLOBE NEWSWIRE) -- Midland States Bancorp, Inc. (Nasdaq: MSBI) (the “Company”) today reported net income available to common shareholders of $15.8 million, or $0.71 per diluted share, for the third quarter of 2023, compared to $19.3 million, or $0.86 per diluted share, for the second quarter of 2023. This also compares to net income available to common shareholders of $23.5 million, or $1.04 per diluted share, for the third quarter of 2022.
Financial results for the third quarter of 2023 included a one-time enhancement fee of $6.6 million related to the surrender and purchase of company-owned life insurance, a $4.5 million tax charge related to the surrender, and $5.0 million of losses on the sale of investment securities. Excluding these transactions, adjusted earnings available to common shareholders were $17.3 million, or $0.78 per diluted share.
Jeffrey G. Ludwig, President and Chief Executive Officer of the Company, said, “We delivered another quarter of strong financial results highlighted by good stability in our deposit base, net interest margin, and asset quality, as well as disciplined expense control that resulted in a decline in our non-interest expense from the prior quarter. Due to our strong financial performance and prudent balance sheet management, we had increases in all of our regulatory capital ratios, while also continuing to repurchase our common stock at below tangible book value, which we believe is in the best long-term interests of shareholders.
“While continuing to prioritize prudent risk management and maintaining disciplined expense control, we will continue to be active in our new business development efforts with a focus on adding new core deposit relationships with both retail and commercial customers. We also continue to invest in initiatives that we believe will enhance the long-term value of the franchise, including our Banking-as-a-Service platform with two new partnerships launching in the fourth quarter that will contribute low-cost deposits and generate fee income. We expect the Banking-as-a-Service initiative to begin making a meaningful contribution during 2024, which, along with our continued progress on adding new clients in our markets, should support profitable growth in the future, improve our level of returns, and create additional value for our shareholders,” said Mr. Ludwig.
Balance Sheet Highlights
Total assets were $7.98 billion at September 30, 2023, compared to $8.03 billion at June 30, 2023, and $7.82 billion at September 30, 2022. At September 30, 2023, portfolio loans were $6.28 billion, compared to $6.37 billion as of June 30, 2023, and $6.20 billion as of September 30, 2022.
1
Loans
During the third quarter of 2023, outstanding loans declined slightly as the Company continued to originate loans in a more selective and deliberate approach to balance liquidity and funding costs. Increases in construction and land development loans, commercial FHA warehouse lines, and residential real estate loans of $50.2 million, $18.0 million, and $3.7 million, respectively, were offset by decreases in all other loan categories. Consumer loans decreased $56.8 million due to loan payoffs and a decrease in loans originated through GreenSky.
| As of | ||||||||||||||||||||||||||||||||
| September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||||||||||||||
| (in thousands) | 2023 | 2023 | 2023 | 2022 | 2022 | |||||||||||||||||||||||||||
| Loan Portfolio | ||||||||||||||||||||||||||||||||
| Commercial loans | $ | 943,761 | $ | 962,756 | $ | 937,920 | $ | 872,794 | $ | 907,651 | ||||||||||||||||||||||
| Equipment finance loans | 578,931 | 614,633 | 632,205 | 616,751 | 577,323 | |||||||||||||||||||||||||||
| Equipment finance leases | 485,460 | 500,485 | 510,029 | 491,744 | 457,611 | |||||||||||||||||||||||||||
| Commercial FHA warehouse lines | 48,547 | 30,522 | 10,275 | 25,029 | 51,309 | |||||||||||||||||||||||||||
| Total commercial loans and leases | 2,056,699 | 2,108,396 | 2,090,429 | 2,006,318 | 1,993,894 | |||||||||||||||||||||||||||
| Commercial real estate | 2,412,164 | 2,443,995 | 2,448,158 | 2,433,159 | 2,466,303 | |||||||||||||||||||||||||||
| Construction and land development | 416,801 | 366,631 | 326,836 | 320,882 | 225,549 | |||||||||||||||||||||||||||
| Residential real estate | 375,211 | 371,486 | 369,910 | 366,094 | 356,225 | |||||||||||||||||||||||||||
| Consumer | 1,020,008 | 1,076,836 | 1,118,938 | 1,180,014 | 1,156,480 | |||||||||||||||||||||||||||
| Total loans | $ | 6,280,883 | $ | 6,367,344 | $ | 6,354,271 | $ | 6,306,467 | $ | 6,198,451 | ||||||||||||||||||||||
Loan Quality
Credit quality metrics remained steady during the third quarter of 2023. Loans 30-89 days past due totaled $46.6 million as of September 30, 2023, compared to $44.2 million as of June 30, 2023. Non-performing loans were $56.0 million at September 30, 2023, compared to $54.8 million as of June 30, 2023, and non-performing assets were 0.74% of total assets at the end of the third quarter of 2023, compared to 0.72% at June 30, 2023.
At September 30, 2022, loans 30-89 days past due totaled $28.3 million, non-performing loans were $46.9 million, and non-performing assets as a percentage of total assets were 0.76%.
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| As of and for the Three Months Ended | ||||||||||||||||||||||||||||||||
| (in thousands) | September 30, | June 30, | March 31, | December 31, | September 30, | |||||||||||||||||||||||||||
| 2023 | 2023 | 2023 | 2022 | 2022 | ||||||||||||||||||||||||||||
| Asset Quality | ||||||||||||||||||||||||||||||||
| Loans 30-89 days past due | $ | 46,608 | $ | 44,161 | $ | 30,895 | $ | 32,372 | $ | 28,275 | ||||||||||||||||||||||
| Nonperforming loans | 55,981 | 54,844 | 50,713 | 49,423 | 46,882 | |||||||||||||||||||||||||||
| Nonperforming assets | 58,677 | 57,688 | 58,806 | 57,824 | 59,524 | |||||||||||||||||||||||||||
| Substandard loans | 143,793 | 130,707 | 99,819 | 101,044 | 98,517 | |||||||||||||||||||||||||||
| Net charge-offs | 3,449 | 2,996 | 2,119 | 538 | 3,233 | |||||||||||||||||||||||||||
| Loans 30-89 days past due to total loans | 0.74 | % | 0.69 | % | 0.49 | % | 0.51 | % | 0.46 | % | ||||||||||||||||||||||
| Nonperforming loans to total loans | 0.89 | % | 0.86 | % | 0.80 | % | 0.78 | % | 0.76 | % | ||||||||||||||||||||||
| Nonperforming assets to total assets | 0.74 | % | 0.72 | % | 0.74 | % | 0.74 | % | 0.76 | % | ||||||||||||||||||||||
| Allowance for credit losses to total loans | 1.06 | % | 1.02 | % | 0.98 | % | 0.97 | % | 0.95 | % | ||||||||||||||||||||||
| Allowance for credit losses to nonperforming loans | 119.09 | % | 118.43 | % | 122.39 | % | 123.53 | % | 125.08 | % | ||||||||||||||||||||||
| Net charge-offs to average loans | 0.22 | % | 0.19 | % | 0.14 | % | 0.03 | % | 0.21 | % | ||||||||||||||||||||||
The Company continued to increase its allowance for credit losses on loans due to increased delinquencies and losses within our equipment finance portfolio. The allowance totaled $66.7 million at September 30, 2023, compared to $65.0 million at June 30, 2023, and $58.6 million at September 30, 2022. The allowance as a percentage of portfolio loans was 1.06% at September 30, 2023, compared to 1.02% at June 30, 2023, and 0.95% at September 30, 2022.
Deposits
Total deposits were $6.41 billion at September 30, 2023, compared with $6.43 billion at June 30, 2023 and $6.40 billion at September 30, 2022. The deposit mix continues to shift from noninterest-bearing deposits to interest-bearing deposits due to the recent rate increases announced by the Federal Reserve and the expectation that rates will remain high for a longer period.
| As of | ||||||||||||||||||||||||||||||||
| September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||||||||||||||
| (in thousands) | 2023 | 2023 | 2023 | 2022 | 2022 | |||||||||||||||||||||||||||
| Deposit Portfolio | ||||||||||||||||||||||||||||||||
| Noninterest-bearing demand | $ | 1,154,515 | $ | 1,162,909 | $ | 1,215,758 | $ | 1,362,158 | $ | 1,362,481 | ||||||||||||||||||||||
| Interest-bearing: | ||||||||||||||||||||||||||||||||
| Checking | 2,572,224 | 2,499,693 | 2,502,827 | 2,494,073 | 2,568,195 | |||||||||||||||||||||||||||
| Money market | 1,090,962 | 1,226,470 | 1,263,813 | 1,184,101 | 1,125,333 | |||||||||||||||||||||||||||
| Savings | 582,359 | 624,005 | 636,832 | 661,932 | 704,245 | |||||||||||||||||||||||||||
| Time | 885,858 | 840,734 | 766,884 | 649,552 | 620,960 | |||||||||||||||||||||||||||
| Brokered time | 119,084 | 72,737 | 39,087 | 12,836 | 14,038 | |||||||||||||||||||||||||||
| Total deposits | $ | 6,405,002 | $ | 6,426,548 | $ | 6,425,201 | $ | 6,364,652 | $ | 6,395,252 | ||||||||||||||||||||||
The Company estimates that uninsured deposits(1) totaled $1.28 billion, or 20% of total deposits, at September 30, 2023 compared to $1.21 billion, or 19%, at June 30, 2023.
(1) Uninsured deposits include the Call Report estimate of uninsured deposits less affiliate deposits, estimated insured portion of servicing deposits, additional structured FDIC coverage and collateralized deposits.
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Results of Operations Highlights
Net Interest Income and Margin
During the third quarter of 2023, net interest income, on a tax-equivalent basis, totaled $58.8 million, a decrease of $0.2 million, or 0.4%, compared to $59.0 million for the second quarter of 2023. The tax-equivalent net interest margin for the third quarter of 2023 was 3.20%, compared with 3.23% in the second quarter of 2023. Net interest income and related margin, on a tax-equivalent basis, was $64.3 million and 3.63%, respectively, in the third quarter of 2022. The decline in the net interest income and margin was largely attributable to increased market interest rates resulting in the cost of funding liabilities increasing at a faster rate than the yield on earning assets.
Average interest-earning assets for the third quarter of 2023 were $7.28 billion, compared to $7.33 billion for the second quarter of 2023. The yield increased 14 basis points to 5.65% compared to the second quarter of 2023. Interest-earning assets averaged $7.03 billion for the third quarter of 2022.
Average loans were $6.30 billion for the third quarter of 2023, compared to $6.36 billion for the second quarter of 2023 and $6.04 billion for the third quarter of 2022. The yield on loans was 5.93% and 5.80% for the third and second quarters of 2023, respectively.
Investment securities averaged $863.0 million for the third quarter of 2023, and yielded 3.60%, compared to an average balance and yield of $861.4 million and 3.39%, respectively, for the second quarter of 2023. The Company purchased additional investments and repositioned out of lower-yielding securities in favor of higher-yielding instruments resulting in the increased average balance and yield. The Company incurred net losses on sales of $5.0 million in the third quarter of 2023. The repositioning is expected to improve the overall margin, liquidity, and capital allocations. Investment securities averaged $749.0 million for the third quarter of 2022.
Average interest-bearing deposits were $5.35 billion for the third quarter of 2023, compared to $5.26 billion for the second quarter of 2023, and $4.92 billion for the third quarter of 2022. Cost of interest-bearing deposits was 2.80% in the third quarter of 2023, which represents a 24 basis point increase from the second quarter of 2023. A competitive market, driven by rising interest rates and increased competition, were contributing factors to the increase in deposit costs.
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| For the Three Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| September 30, | June 30, | September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2023 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-earning assets | Average Balance | Interest & Fees | Yield/Rate | Average Balance | Interest & Fees | Yield/Rate | Average Balance | Interest & Fees | Yield/Rate | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 78,391 | $ | 1,036 | 5.24 | % | $ | 67,377 | $ | 852 | 5.07 | % | $ | 195,657 | $ | 1,125 | 2.28 | % | ||||||||||||||||||||||||||||||||||||||
| Investment securities | 862,998 | 7,822 | 3.60 | 861,409 | 7,286 | 3.39 | 749,022 | 4,560 | 2.44 | |||||||||||||||||||||||||||||||||||||||||||||||
| Loans | 6,297,568 | 94,118 | 5.93 | 6,356,012 | 91,890 | 5.80 | 6,040,358 | 73,568 | 4.83 | |||||||||||||||||||||||||||||||||||||||||||||||
| Loans held for sale | 6,078 | 104 | 6.80 | 4,067 | 59 | 5.79 | 6,044 | 60 | 3.87 | |||||||||||||||||||||||||||||||||||||||||||||||
| Nonmarketable equity securities | 39,347 | 710 | 7.16 | 45,028 | 599 | 5.33 | 37,765 | 550 | 5.78 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total interest-earning assets | $ | 7,284,382 | $ | 103,790 | 5.65 | % | $ | 7,333,893 | $ | 100,686 | 5.51 | % | $ | 7,028,846 | $ | 79,863 | 4.51 | % | ||||||||||||||||||||||||||||||||||||||
| Noninterest-earning assets | 622,969 | 612,238 | 618,138 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 7,907,351 | $ | 7,946,131 | $ | 7,646,984 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-Bearing Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | $ | 5,354,356 | $ | 37,769 | 2.80 | % | $ | 5,259,188 | $ | 33,617 | 2.56 | % | $ | 4,922,345 | $ | 10,249 | 0.83 | % | ||||||||||||||||||||||||||||||||||||||
| Short-term borrowings | 20,127 | 14 | 0.28 | 22,018 | 14 | 0.26 | 58,271 | 28 | 0.19 | |||||||||||||||||||||||||||||||||||||||||||||||
| FHLB advances & other borrowings | 402,500 | 4,557 | 4.49 | 471,989 | 5,396 | 4.59 | 340,163 | 2,424 | 2.83 | |||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated debt | 93,441 | 1,280 | 5.43 | 97,278 | 1,335 | 5.51 | 139,324 | 2,010 | 5.77 | |||||||||||||||||||||||||||||||||||||||||||||||
| Trust preferred debentures | 50,379 | 1,369 | 10.78 | 50,218 | 1,289 | 10.29 | 49,751 | 821 | 6.54 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities | $ | 5,920,803 | $ | 44,989 | 3.01 | % | $ | 5,900,691 | $ | 41,651 | 2.83 | % | $ | 5,509,854 | $ | 15,532 | 1.12 | % | ||||||||||||||||||||||||||||||||||||||
| Noninterest-bearing deposits | 1,116,988 | 1,187,584 | 1,372,626 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other noninterest-bearing liabilities | 97,935 | 81,065 | 63,638 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders’ equity | 771,625 | 776,791 | 700,866 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities and shareholder’s equity | $ | 7,907,351 | $ | 7,946,131 | $ | 7,646,984 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Interest Margin | $ | 58,801 | 3.20 | % | $ | 59,035 | 3.23 | % | $ | 64,331 | 3.63 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Cost of Deposits | 2.32 | % | 2.09 | % | 0.65 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
(1)Interest income and average rates for tax-exempt loans and securities are presented on a tax-equivalent basis, assuming a federal income tax rate of 21%. Tax-equivalent adjustments totaled $0.2 million, $0.2 million and $0.3 million for the three months ended September 30, 2023, June 30, 2023 and September 30, 2022, respectively.
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During the nine months ended September 30, 2023, net interest income, on a tax-equivalent basis, decreased to $178.6 million, with a tax-equivalent net interest margin of 3.27%, compared to net interest income, on a tax-equivalent basis, of $183.2 million, and a tax-equivalent net interest margin of 3.60% for the nine months ended September 30, 2022.
The yield on earning assets increased 133 basis points to 5.50% for the nine months ended September 30, 2023 compared to the same period one year prior. However, the cost of interest-bearing liabilities increased at a faster rate during this period, increasing 203 basis points to 2.77% for the nine months ended September 30, 2023.
| For the Nine Months Ended | ||||||||||||||||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||
| Interest-earning assets | Average Balance | Interest & Fees | Yield/Rate | Average Balance | Interest & Fees | Yield/Rate | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 76,939 | $ | 2,868 | 4.98 | % | $ | 268,111 | $ | 1,764 | 0.88 | % | ||||||||||||||||||||||||||
| Investment securities | 844,946 | 21,103 | 3.33 | 820,328 | 14,453 | 2.35 | ||||||||||||||||||||||||||||||||
| Loans | 6,324,578 | 274,005 | 5.79 | 5,666,874 | 194,442 | 4.59 | ||||||||||||||||||||||||||||||||
| Loans held for sale | 3,900 | 179 | 6.14 | 15,629 | 357 | 3.05 | ||||||||||||||||||||||||||||||||
| Nonmarketable equity securities | 44,034 | 2,104 | 6.39 | 36,832 | 1,521 | 5.52 | ||||||||||||||||||||||||||||||||
| Total interest-earning assets | $ | 7,294,397 | $ | 300,259 | 5.50 | % | $ | 6,807,774 | $ | 212,537 | 4.17 | % | ||||||||||||||||||||||||||
| Noninterest-earning assets | 615,383 | 621,510 | ||||||||||||||||||||||||||||||||||||
| Total assets | $ | 7,909,780 | $ | 7,429,284 | ||||||||||||||||||||||||||||||||||
| Interest-Bearing Liabilities | ||||||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | $ | 5,223,852 | $ | 97,791 | 2.50 | % | $ | 4,717,610 | $ | 16,220 | 0.46 | % | ||||||||||||||||||||||||||
| Short-term borrowings | 26,865 | 53 | 0.26 | 62,495 | 73 | 0.16 | ||||||||||||||||||||||||||||||||
| FHLB advances & other borrowings | 471,084 | 15,959 | 4.53 | 319,791 | 5,071 | 2.12 | ||||||||||||||||||||||||||||||||
| Subordinated debt | 96,820 | 3,985 | 5.49 | 139,233 | 6,032 | 5.78 | ||||||||||||||||||||||||||||||||
| Trust preferred debentures | 50,216 | 3,887 | 10.35 | 49,603 | 1,959 | 5.28 | ||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities | $ | 5,868,837 | $ | 121,675 | 2.77 | % | $ | 5,288,732 | $ | 29,355 | 0.74 | % | ||||||||||||||||||||||||||
| Noninterest-bearing deposits | 1,184,410 | 1,402,900 | ||||||||||||||||||||||||||||||||||||
| Other noninterest-bearing liabilities | 84,650 | 70,427 | ||||||||||||||||||||||||||||||||||||
| Shareholders’ equity | 771,883 | 667,225 | ||||||||||||||||||||||||||||||||||||
| Total liabilities and shareholder’s equity | $ | 7,909,780 | $ | 7,429,284 | ||||||||||||||||||||||||||||||||||
| Net Interest Margin | $ | 178,584 | 3.27 | % | $ | 183,182 | 3.60 | % | ||||||||||||||||||||||||||||||
| Cost of Deposits | 2.04 | % | 0.35 | % | ||||||||||||||||||||||||||||||||||
(1)Interest income and average rates for tax-exempt loans and securities are presented on a tax-equivalent basis, assuming a federal income tax rate of 21%. Tax-equivalent adjustments totaled $0.6 million and $1.0 million for the nine months ended September 30, 2023 and 2022, respectively.
Noninterest Income
Noninterest income was $18.2 million for the third quarter of 2023, compared to $18.8 million for the second quarter of 2023. Noninterest income for the third quarter of 2023 included a one-time enhancement fee of $6.6 million related to the surrender and purchase of company-owned life insurance, partially offset by $5.0 million of losses on the sale of investment securities. The second quarter of 2023 included an $0.8 million gain on the sale of OREO and a $0.7 million gain on the repurchase of subordinated debt, partially offset by $0.9 million of losses on the sale of investment securities. Excluding these transactions, noninterest income for the third quarter of 2023 and the second quarter of 2023 was
6
$16.5 million and $18.2 million, respectively. Noninterest income for the third quarter of 2022 was $15.8 million and included $0.1 million loss on the sale of investment securities.
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | ||||||||||||||||||||||||||||
| (in thousands) | 2023 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||
| Noninterest income | ||||||||||||||||||||||||||||||||
| Wealth management revenue | $ | 6,288 | $ | 6,269 | $ | 6,199 | $ | 18,968 | $ | 19,481 | ||||||||||||||||||||||
| Residential mortgage banking revenue | 507 | 540 | 210 | 1,452 | 1,193 | |||||||||||||||||||||||||||
| Service charges on deposit accounts | 3,149 | 2,849 | 2,783 | 8,744 | 7,544 | |||||||||||||||||||||||||||
| Interchange revenue | 3,609 | 3,696 | 3,531 | 10,717 | 10,401 | |||||||||||||||||||||||||||
| Loss on sales of investment securities, net | (4,961) | (869) | (129) | (6,478) | (230) | |||||||||||||||||||||||||||
| Gain on repurchase of subordinated debt, net | — | 676 | — | 676 | — | |||||||||||||||||||||||||||
| Gain (loss) on sales of other real estate owned, net | — | 819 | — | 819 | (131) | |||||||||||||||||||||||||||
| Impairment on commercial mortgage servicing rights | — | — | — | — | (1,263) | |||||||||||||||||||||||||||
| Company-owned life insurance | 7,558 | 891 | 929 | 9,325 | 2,788 | |||||||||||||||||||||||||||
| Other income | 2,035 | 3,882 | 2,303 | 8,494 | 6,269 | |||||||||||||||||||||||||||
| Total noninterest income | $ | 18,185 | $ | 18,753 | $ | 15,826 | $ | 52,717 | $ | 46,052 | ||||||||||||||||||||||
Noninterest Expense
Noninterest expense was $42.0 million in the third quarter of 2023, compared to $42.9 million in the second quarter of 2023, and $43.5 million in the third quarter of 2022. The efficiency ratio was 55.82% for the quarter ended September 30, 2023, compared to 55.01% for the quarter ended June 30, 2023, and 54.26% for the quarter ended September 30, 2022.
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | ||||||||||||||||||||||||||||
| (in thousands) | 2023 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||
| Noninterest expense | ||||||||||||||||||||||||||||||||
| Salaries and employee benefits | $ | 22,307 | $ | 22,857 | $ | 22,889 | $ | 69,407 | $ | 67,404 | ||||||||||||||||||||||
| Occupancy and equipment | 3,730 | 3,879 | 3,850 | 12,052 | 11,094 | |||||||||||||||||||||||||||
| Data processing | 6,468 | 6,544 | 6,093 | 19,323 | 18,048 | |||||||||||||||||||||||||||
| Professional | 1,554 | 1,663 | 1,693 | 4,977 | 5,181 | |||||||||||||||||||||||||||
| Amortization of intangible assets | 1,129 | 1,208 | 1,361 | 3,628 | 4,077 | |||||||||||||||||||||||||||
| FDIC insurance | 1,107 | 1,196 | 977 | 3,632 | 2,633 | |||||||||||||||||||||||||||
| Other expense | 5,743 | 5,547 | 6,633 | 16,395 | 17,282 | |||||||||||||||||||||||||||
| Total noninterest expense | $ | 42,038 | $ | 42,894 | $ | 43,496 | $ | 129,414 | $ | 125,719 | ||||||||||||||||||||||
Salaries and employee benefits expenses were $22.3 million in the third quarter of 2023, compared to $22.9 million in both the second quarter of 2023 and the third quarter of 2022. Employees numbered 911 at September 30, 2023, compared to 915 at June 30, 2023, and 930 at September 30, 2022. The third quarter of 2023 included a decline in medical insurance expense of $0.7 million.
Income Tax Expense
Income tax expense was $11.5 million for the third quarter of 2023, as compared to $7.2 million for the second quarter of 2023 and $5.9 million for the third quarter of 2022. The resulting effective tax rates were 39.0%, 25.1% and 19.9% respectively. The third quarter of 2023 included tax charges of $4.5
7
million associated with the surrender of company-owned life insurance and $1.4 million related to the finalization of the 2022 federal and state tax returns. Exclusive of these items our effective tax rate is 25.1% for the third quarter of 2023.
Capital
At September 30, 2023, Midland States Bank and the Company exceeded all regulatory capital requirements under Basel III, and Midland States Bank met the qualifications to be a ‘‘well-capitalized’’ financial institution, as summarized in the following table:
As of September 30, 2023 | |||||||||||||||||
| Midland States Bank | Midland States Bancorp, Inc. | Minimum Regulatory Requirements (2) | |||||||||||||||
| Total capital to risk-weighted assets | 12.13% | 12.84% | 10.50% | ||||||||||||||
| Tier 1 capital to risk-weighted assets | 11.21% | 10.62% | 8.50% | ||||||||||||||
| Tier 1 leverage ratio | 10.21% | 9.67% | 4.00% | ||||||||||||||
| Common equity Tier 1 capital | 11.21% | 8.16% | 7.00% | ||||||||||||||
Tangible common equity to tangible assets (1) | N/A | 6.09% | N/A | ||||||||||||||
(1) A non-GAAP financial measure. Refer to page 16 for a reconciliation to the comparable GAAP financial measure.
(2) Includes the capital conservation buffer of 2.5%.
The impact of rising interest rates on the Company’s investment portfolio and cash flow hedges has resulted in a $101.2 million accumulated other comprehensive loss at September 30, 2023, which impacts tangible book value by $4.68 per share.
Stock Repurchase Program
As previously disclosed, on December 6, 2022, the Company’s board of directors authorized a new share repurchase program, pursuant to which the Company is authorized to repurchase up to $25.0 million of common stock through December 31, 2023. During the third quarter of 2023, the Company repurchased 271,059 shares of its common stock at a weighted average price of $22.14 under its stock repurchase program. As of September 30, 2023, the Company had $10.1 million remaining under the current stock repurchase authorization.
8
About Midland States Bancorp, Inc.
Midland States Bancorp, Inc. is a community-based financial holding company headquartered in Effingham, Illinois, and is the sole shareholder of Midland States Bank. As of September 30, 2023, the Company had total assets of approximately $7.98 billion, and its Wealth Management Group had assets under administration of approximately $3.50 billion. The Company provides a full range of commercial and consumer banking products and services and business equipment financing, merchant credit card services, trust and investment management, insurance and financial planning services. For additional information, visit https://www.midlandsb.com/ or https://www.linkedin.com/company/midland-states-bank.
Non-GAAP Financial Measures
Some of the financial measures included in this press release are not measures of financial performance recognized in accordance with GAAP.
These non-GAAP financial measures include “Adjusted Earnings,” “Adjusted Earnings Available to Common Shareholders,” “Adjusted Diluted Earnings Per Common Share,” “Adjusted Return on Average Assets,” “Adjusted Return on Average Shareholders’ Equity,” “Adjusted Return on Average Tangible Common Equity,” “Adjusted Pre-Tax, Pre-Provision Earnings,” “Adjusted Pre-Tax, Pre-Provision Return on Average Assets,” “Efficiency Ratio,” “Tangible Common Equity to Tangible Assets,” “Tangible Book Value Per Share,” “Tangible Book Value Per Share excluding Accumulated Other Comprehensive Income,” and “Return on Average Tangible Common Equity.” The Company believes these non-GAAP financial measures provide both management and investors a more complete understanding of the Company’s funding profile and profitability. These non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP financial measures. Not all companies use the same calculation of these measures; therefore, the measures in this press release may not be comparable to other similarly titled measures as presented by other companies.
Forward-Looking Statements
Readers should note that in addition to the historical information contained herein, this press release includes "forward-looking statements" within the meanings of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including but not limited to statements about the Company’s plans, objectives, future performance, goals and future earnings levels. These statements are subject to many risks and uncertainties, including changes in interest rates and other general economic, business and political conditions, the impact of inflation, continuing effects of the failures of Silicon Valley Bank and Signature Bank, increased deposit volatility and potential regulatory developments; changes in the financial markets; changes in business plans as circumstances warrant; risks relating to acquisitions; changes to U.S. tax laws, regulations and guidance; and other risks detailed from time to time in filings made by the Company with the Securities and Exchange Commission. Readers should note that the forward-looking statements included in this press release are not a guarantee of future events, and that actual events may differ materially from those made in or suggested by the forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "will," "propose," "may," "plan," "seek," "expect," "intend," "estimate," "anticipate," "believe," "continue," or similar terminology. Any forward-looking statements presented herein are made only as of the date of this press release, and the Company does not undertake any obligation to update or revise any
9
forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.
CONTACTS:
Jeffrey G. Ludwig, President and CEO, at jludwig@midlandsb.com or (217) 342-7321
Eric T. Lemke, Chief Financial Officer, at elemke@midlandsb.com or (217) 342-7321
Douglas J. Tucker, SVP and Corporate Counsel, at dtucker@midlandsb.com or (217) 342-7321
10
| MIDLAND STATES BANCORP, INC. | ||||||||||||||||||||||||||||||||
| CONSOLIDATED FINANCIAL SUMMARY (unaudited) | ||||||||||||||||||||||||||||||||
| As of and for the Three Months Ended | As of and for the Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | ||||||||||||||||||||||||||||
| (dollars in thousands, except per share data) | 2023 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||
| Earnings Summary | ||||||||||||||||||||||||||||||||
| Net interest income | $ | 58,596 | $ | 58,840 | $ | 64,024 | $ | 177,940 | $ | 182,185 | ||||||||||||||||||||||
| Provision for credit losses | 5,168 | 5,879 | 6,974 | 14,182 | 16,582 | |||||||||||||||||||||||||||
| Noninterest income | 18,185 | 18,753 | 15,826 | 52,717 | 46,052 | |||||||||||||||||||||||||||
| Noninterest expense | 42,038 | 42,894 | 43,496 | 129,414 | 125,719 | |||||||||||||||||||||||||||
| Income before income taxes | 29,575 | 28,820 | 29,380 | 87,061 | 85,936 | |||||||||||||||||||||||||||
| Income taxes | 11,533 | 7,245 | 5,859 | 25,672 | 19,783 | |||||||||||||||||||||||||||
| Net income | 18,042 | 21,575 | 23,521 | 61,389 | 66,153 | |||||||||||||||||||||||||||
| Preferred dividends | 2,229 | 2,228 | — | 6,685 | — | |||||||||||||||||||||||||||
| Net income available to common shareholders | $ | 15,813 | $ | 19,347 | $ | 23,521 | $ | 54,704 | $ | 66,153 | ||||||||||||||||||||||
| Diluted earnings per common share | $ | 0.71 | $ | 0.86 | $ | 1.04 | $ | 2.43 | $ | 2.92 | ||||||||||||||||||||||
| Weighted average common shares outstanding - diluted | 21,977,196 | 22,205,079 | 22,390,438 | 22,223,986 | 22,367,095 | |||||||||||||||||||||||||||
| Return on average assets | 0.91 | % | 1.09 | % | 1.22 | % | 1.04 | % | 1.19 | % | ||||||||||||||||||||||
| Return on average shareholders' equity | 9.28 | % | 11.14 | % | 13.31 | % | 10.63 | % | 13.26 | % | ||||||||||||||||||||||
Return on average tangible common equity (1) | 13.03 | % | 15.99 | % | 20.20 | % | 15.22 | % | 19.06 | % | ||||||||||||||||||||||
| Net interest margin | 3.20 | % | 3.23 | % | 3.63 | % | 3.27 | % | 3.60 | % | ||||||||||||||||||||||
Efficiency ratio (1) | 55.82 | % | 55.01 | % | 54.26 | % | 56.15 | % | 54.34 | % | ||||||||||||||||||||||
Adjusted Earnings Performance Summary (1) | ||||||||||||||||||||||||||||||||
| Adjusted earnings available to common shareholders | $ | 17,278 | $ | 19,488 | $ | 23,568 | $ | 56,783 | $ | 66,574 | ||||||||||||||||||||||
| Adjusted diluted earnings per common share | $ | 0.78 | $ | 0.87 | $ | 1.04 | $ | 2.53 | $ | 2.94 | ||||||||||||||||||||||
| Adjusted return on average assets | 0.98 | % | 1.10 | % | 1.22 | % | 1.07 | % | 1.20 | % | ||||||||||||||||||||||
| Adjusted return on average shareholders' equity | 10.03 | % | 11.21 | % | 13.34 | % | 10.99 | % | 13.34 | % | ||||||||||||||||||||||
| Adjusted return on average tangible common equity | 14.24 | % | 16.10 | % | 20.24 | % | 15.80 | % | 19.18 | % | ||||||||||||||||||||||
| Adjusted pre-tax, pre-provision earnings | $ | 33,064 | $ | 34,892 | $ | 36,415 | $ | 100,405 | $ | 104,358 | ||||||||||||||||||||||
| Adjusted pre-tax, pre-provision return on average assets | 1.66 | % | 1.76 | % | 1.89 | % | 1.70 | % | 1.88 | % | ||||||||||||||||||||||
| Market Data | ||||||||||||||||||||||||||||||||
| Book value per share at period end | $ | 30.27 | $ | 30.49 | $ | 28.48 | ||||||||||||||||||||||||||
Tangible book value per share at period end (1) | $ | 21.98 | $ | 22.24 | $ | 20.14 | ||||||||||||||||||||||||||
Tangible book value per share excluding accumulated other comprehensive income at period end (1) | $ | 26.66 | $ | 26.11 | $ | 23.69 | ||||||||||||||||||||||||||
| Market price at period end | $ | 20.54 | $ | 19.91 | $ | 23.57 | ||||||||||||||||||||||||||
| Common shares outstanding at period end | 21,594,546 | 21,854,800 | 22,074,740 | |||||||||||||||||||||||||||||
| Capital | ||||||||||||||||||||||||||||||||
| Total capital to risk-weighted assets | 12.84 | % | 12.65 | % | 12.79 | % | ||||||||||||||||||||||||||
| Tier 1 capital to risk-weighted assets | 10.62 | % | 10.47 | % | 10.05 | % | ||||||||||||||||||||||||||
| Tier 1 common capital to risk-weighted assets | 8.16 | % | 8.03 | % | 7.56 | % | ||||||||||||||||||||||||||
| Tier 1 leverage ratio | 9.67 | % | 9.57 | % | 9.40 | % | ||||||||||||||||||||||||||
Tangible common equity to tangible assets (1) | 6.09 | % | 6.19 | % | 5.82 | % | ||||||||||||||||||||||||||
| Wealth Management | ||||||||||||||||||||||||||||||||
| Trust assets under administration | $ | 3,501,225 | $ | 3,594,727 | $ | 3,355,019 | ||||||||||||||||||||||||||
(1) Non-GAAP financial measures. Refer to pages 14 - 16 for a reconciliation to the comparable GAAP financial measures.
11
| MIDLAND STATES BANCORP, INC. | ||||||||||||||||||||||||||||||||
| CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued) | ||||||||||||||||||||||||||||||||
| As of | ||||||||||||||||||||||||||||||||
| September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||||||||||||||
| (in thousands) | 2023 | 2023 | 2023 | 2022 | 2022 | |||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 132,132 | $ | 160,695 | $ | 138,310 | $ | 160,631 | $ | 313,188 | ||||||||||||||||||||||
| Investment securities | 839,344 | 887,003 | 821,005 | 776,860 | 690,504 | |||||||||||||||||||||||||||
| Loans | 6,280,883 | 6,367,344 | 6,354,271 | 6,306,467 | 6,198,451 | |||||||||||||||||||||||||||
| Allowance for credit losses on loans | (66,669) | (64,950) | (62,067) | (61,051) | (58,639) | |||||||||||||||||||||||||||
| Total loans, net | 6,214,214 | 6,302,394 | 6,292,204 | 6,245,416 | 6,139,812 | |||||||||||||||||||||||||||
| Loans held for sale | 6,089 | 5,632 | 2,747 | 1,286 | 4,338 | |||||||||||||||||||||||||||
| Premises and equipment, net | 82,741 | 81,006 | 80,582 | 78,293 | 77,519 | |||||||||||||||||||||||||||
| Other real estate owned | 480 | 202 | 6,729 | 6,729 | 11,141 | |||||||||||||||||||||||||||
| Loan servicing rights, at lower of cost or fair value | 20,933 | 21,611 | 1,117 | 1,205 | 1,297 | |||||||||||||||||||||||||||
| Commercial FHA mortgage loan servicing rights held for sale | — | — | 20,745 | 20,745 | 23,995 | |||||||||||||||||||||||||||
| Goodwill | 161,904 | 161,904 | 161,904 | 161,904 | 161,904 | |||||||||||||||||||||||||||
| Other intangible assets, net | 17,238 | 18,367 | 19,575 | 20,866 | 22,198 | |||||||||||||||||||||||||||
| Company-owned life insurance | 208,390 | 152,210 | 151,319 | 150,443 | 149,648 | |||||||||||||||||||||||||||
| Other assets | 292,460 | 243,697 | 233,937 | 231,123 | 226,333 | |||||||||||||||||||||||||||
| Total assets | $ | 7,975,925 | $ | 8,034,721 | $ | 7,930,174 | $ | 7,855,501 | $ | 7,821,877 | ||||||||||||||||||||||
| Liabilities and Shareholders' Equity | ||||||||||||||||||||||||||||||||
| Noninterest-bearing demand deposits | $ | 1,154,515 | $ | 1,162,909 | $ | 1,215,758 | $ | 1,362,158 | $ | 1,362,481 | ||||||||||||||||||||||
| Interest-bearing deposits | 5,250,487 | 5,263,639 | 5,209,443 | 5,002,494 | 5,032,771 | |||||||||||||||||||||||||||
| Total deposits | 6,405,002 | 6,426,548 | 6,425,201 | 6,364,652 | 6,395,252 | |||||||||||||||||||||||||||
| Short-term borrowings | 17,998 | 21,783 | 31,173 | 42,311 | 58,518 | |||||||||||||||||||||||||||
| FHLB advances and other borrowings | 538,000 | 575,000 | 482,000 | 460,000 | 360,000 | |||||||||||||||||||||||||||
| Subordinated debt | 93,475 | 93,404 | 99,849 | 99,772 | 139,370 | |||||||||||||||||||||||||||
| Trust preferred debentures | 50,457 | 50,296 | 50,135 | 49,975 | 49,824 | |||||||||||||||||||||||||||
| Other liabilities | 106,743 | 90,869 | 66,173 | 80,217 | 79,634 | |||||||||||||||||||||||||||
| Total liabilities | 7,211,675 | 7,257,900 | 7,154,531 | 7,096,927 | 7,082,598 | |||||||||||||||||||||||||||
| Total shareholders’ equity | 764,250 | 776,821 | 775,643 | 758,574 | 739,279 | |||||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 7,975,925 | $ | 8,034,721 | $ | 7,930,174 | $ | 7,855,501 | $ | 7,821,877 | ||||||||||||||||||||||
12
| MIDLAND STATES BANCORP, INC. | ||||||||||||||||||||||||||||||||
| CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued) | ||||||||||||||||||||||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | ||||||||||||||||||||||||||||
| (in thousands, except per share data) | 2023 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||
| Net interest income: | ||||||||||||||||||||||||||||||||
| Interest income | $ | 103,585 | $ | 100,491 | $ | 79,556 | $ | 299,615 | $ | 211,540 | ||||||||||||||||||||||
| Interest expense | 44,989 | 41,651 | 15,532 | 121,675 | 29,355 | |||||||||||||||||||||||||||
| Net interest income | 58,596 | 58,840 | 64,024 | 177,940 | 182,185 | |||||||||||||||||||||||||||
| Provision for credit losses: | ||||||||||||||||||||||||||||||||
| Provision for credit losses on loans | 5,168 | 5,879 | 6,974 | 14,182 | 15,847 | |||||||||||||||||||||||||||
| Provision for credit losses on unfunded commitments | — | — | — | — | 956 | |||||||||||||||||||||||||||
| Provision for other credit losses | — | — | — | — | (221) | |||||||||||||||||||||||||||
| Total provision for credit losses | 5,168 | 5,879 | 6,974 | 14,182 | 16,582 | |||||||||||||||||||||||||||
| Net interest income after provision for credit losses | 53,428 | 52,961 | 57,050 | 163,758 | 165,603 | |||||||||||||||||||||||||||
| Noninterest income: | ||||||||||||||||||||||||||||||||
| Wealth management revenue | 6,288 | 6,269 | 6,199 | 18,968 | 19,481 | |||||||||||||||||||||||||||
| Residential mortgage banking revenue | 507 | 540 | 210 | 1,452 | 1,193 | |||||||||||||||||||||||||||
| Service charges on deposit accounts | 3,149 | 2,849 | 2,783 | 8,744 | 7,544 | |||||||||||||||||||||||||||
| Interchange revenue | 3,609 | 3,696 | 3,531 | 10,717 | 10,401 | |||||||||||||||||||||||||||
| Loss on sales of investment securities, net | (4,961) | (869) | (129) | (6,478) | (230) | |||||||||||||||||||||||||||
| Gain on repurchase of subordinated debt, net | — | 676 | — | 676 | — | |||||||||||||||||||||||||||
| Gain (loss) on sales of other real estate owned, net | — | 819 | — | 819 | (131) | |||||||||||||||||||||||||||
| Impairment on commercial mortgage servicing rights | — | — | — | — | (1,263) | |||||||||||||||||||||||||||
| Company-owned life insurance | 7,558 | 891 | 929 | 9,325 | 2,788 | |||||||||||||||||||||||||||
| Other income | 2,035 | 3,882 | 2,303 | 8,494 | 6,269 | |||||||||||||||||||||||||||
| Total noninterest income | 18,185 | 18,753 | 15,826 | 52,717 | 46,052 | |||||||||||||||||||||||||||
| Noninterest expense: | ||||||||||||||||||||||||||||||||
| Salaries and employee benefits | 22,307 | 22,857 | 22,889 | 69,407 | 67,404 | |||||||||||||||||||||||||||
| Occupancy and equipment | 3,730 | 3,879 | 3,850 | 12,052 | 11,094 | |||||||||||||||||||||||||||
| Data processing | 6,468 | 6,544 | 6,093 | 19,323 | 18,048 | |||||||||||||||||||||||||||
| Professional | 1,554 | 1,663 | 1,693 | 4,977 | 5,181 | |||||||||||||||||||||||||||
| Amortization of intangible assets | 1,129 | 1,208 | 1,361 | 3,628 | 4,077 | |||||||||||||||||||||||||||
| FDIC insurance | 1,107 | 1,196 | 977 | 3,632 | 2,633 | |||||||||||||||||||||||||||
| Other expense | 5,743 | 5,547 | 6,633 | 16,395 | 17,282 | |||||||||||||||||||||||||||
| Total noninterest expense | 42,038 | 42,894 | 43,496 | 129,414 | 125,719 | |||||||||||||||||||||||||||
| Income before income taxes | 29,575 | 28,820 | 29,380 | 87,061 | 85,936 | |||||||||||||||||||||||||||
| Income taxes | 11,533 | 7,245 | 5,859 | 25,672 | 19,783 | |||||||||||||||||||||||||||
| Net income | 18,042 | 21,575 | 23,521 | 61,389 | 66,153 | |||||||||||||||||||||||||||
| Preferred stock dividends | 2,229 | 2,228 | — | 6,685 | — | |||||||||||||||||||||||||||
| Net income available to common shareholders | $ | 15,813 | $ | 19,347 | $ | 23,521 | $ | 54,704 | $ | 66,153 | ||||||||||||||||||||||
| Basic earnings per common share | $ | 0.71 | $ | 0.86 | $ | 1.04 | $ | 2.43 | $ | 2.93 | ||||||||||||||||||||||
| Diluted earnings per common share | $ | 0.71 | $ | 0.86 | $ | 1.04 | $ | 2.43 | $ | 2.92 | ||||||||||||||||||||||
13
| MIDLAND STATES BANCORP, INC. | ||||||||||||||||||||||||||||||||
| RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (unaudited) | ||||||||||||||||||||||||||||||||
| Adjusted Earnings Reconciliation | ||||||||||||||||||||||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | ||||||||||||||||||||||||||||
| (dollars in thousands, except per share data) | 2023 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||
| Income before income taxes - GAAP | $ | 29,575 | $ | 28,820 | $ | 29,380 | $ | 87,061 | $ | 85,936 | ||||||||||||||||||||||
| Adjustments to noninterest income: | ||||||||||||||||||||||||||||||||
| Loss on sales of investment securities, net | 4,961 | 869 | 129 | 6,478 | 230 | |||||||||||||||||||||||||||
| (Gain) on repurchase of subordinated debt | — | (676) | — | (676) | — | |||||||||||||||||||||||||||
| Company-owned life insurance enhancement fee | (6,640) | — | — | (6,640) | — | |||||||||||||||||||||||||||
| Total adjustments to noninterest income | (1,679) | 193 | 129 | (838) | 230 | |||||||||||||||||||||||||||
| Adjustments to noninterest expense: | ||||||||||||||||||||||||||||||||
| Integration and acquisition expenses | — | — | 68 | — | (347) | |||||||||||||||||||||||||||
| Total adjustments to noninterest expense | — | — | 68 | — | (347) | |||||||||||||||||||||||||||
| Adjusted earnings pre tax - non-GAAP | 27,896 | 29,013 | 29,441 | 86,223 | 86,513 | |||||||||||||||||||||||||||
| Adjusted earnings tax | 8,389 | 7,297 | 5,873 | 22,755 | 19,939 | |||||||||||||||||||||||||||
| Adjusted earnings - non-GAAP | 19,507 | 21,716 | 23,568 | 63,468 | 66,574 | |||||||||||||||||||||||||||
| Preferred stock dividends | 2,229 | 2,228 | — | 6,685 | — | |||||||||||||||||||||||||||
| Adjusted earnings available to common shareholders | $ | 17,278 | $ | 19,488 | $ | 23,568 | $ | 56,783 | $ | 66,574 | ||||||||||||||||||||||
| Adjusted diluted earnings per common share | $ | 0.78 | $ | 0.87 | $ | 1.04 | $ | 2.53 | $ | 2.94 | ||||||||||||||||||||||
| Adjusted return on average assets | 0.98 | % | 1.10 | % | 1.22 | % | 1.07 | % | 1.20 | % | ||||||||||||||||||||||
| Adjusted return on average shareholders' equity | 10.03 | % | 11.21 | % | 13.34 | % | 10.99 | % | 13.34 | % | ||||||||||||||||||||||
| Adjusted return on average tangible common equity | 14.24 | % | 16.10 | % | 20.24 | % | 15.80 | % | 19.18 | % | ||||||||||||||||||||||
| Adjusted Pre-Tax, Pre-Provision Earnings Reconciliation | ||||||||||||||||||||||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | ||||||||||||||||||||||||||||
| (dollars in thousands) | 2023 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||
| Adjusted earnings pre tax - non-GAAP | $ | 27,896 | $ | 29,013 | $ | 29,441 | $ | 86,223 | $ | 86,513 | ||||||||||||||||||||||
| Provision for credit losses | 5,168 | 5,879 | 6,974 | 14,182 | 16,582 | |||||||||||||||||||||||||||
| Impairment on commercial mortgage servicing rights | — | — | — | — | 1,263 | |||||||||||||||||||||||||||
| Adjusted pre-tax, pre-provision earnings - non-GAAP | $ | 33,064 | $ | 34,892 | $ | 36,415 | $ | 100,405 | $ | 104,358 | ||||||||||||||||||||||
| Adjusted pre-tax, pre-provision return on average assets | 1.66 | % | 1.76 | % | 1.89 | % | 1.70 | % | 1.88 | % | ||||||||||||||||||||||
14
| MIDLAND STATES BANCORP, INC. | ||||||||||||||||||||||||||||||||
| RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (unaudited) (continued) | ||||||||||||||||||||||||||||||||
| Efficiency Ratio Reconciliation | ||||||||||||||||||||||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | ||||||||||||||||||||||||||||
| (dollars in thousands) | 2023 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||
| Noninterest expense - GAAP | $ | 42,038 | $ | 42,894 | $ | 43,496 | $ | 129,414 | $ | 125,719 | ||||||||||||||||||||||
| Integration and acquisition expenses | — | — | 68 | — | (347) | |||||||||||||||||||||||||||
| Adjusted noninterest expense | $ | 42,038 | $ | 42,894 | $ | 43,564 | $ | 129,414 | $ | 125,372 | ||||||||||||||||||||||
| Net interest income - GAAP | $ | 58,596 | $ | 58,840 | $ | 64,024 | $ | 177,940 | $ | 182,185 | ||||||||||||||||||||||
| Effect of tax-exempt income | 205 | 195 | 307 | 644 | 997 | |||||||||||||||||||||||||||
| Adjusted net interest income | 58,801 | 59,035 | 64,331 | 178,584 | 183,182 | |||||||||||||||||||||||||||
| Noninterest income - GAAP | 18,185 | 18,753 | 15,826 | 52,717 | 46,052 | |||||||||||||||||||||||||||
| Impairment on commercial mortgage servicing rights | — | — | — | — | 1,263 | |||||||||||||||||||||||||||
| Loss on sales of investment securities, net | 4,961 | 869 | 129 | 6,478 | 230 | |||||||||||||||||||||||||||
| (Gain) on repurchase of subordinated debt | — | (676) | — | (676) | — | |||||||||||||||||||||||||||
| Company-owned life insurance enhancement fee | (6,640) | — | — | (6,640) | — | |||||||||||||||||||||||||||
| Adjusted noninterest income | 16,506 | 18,946 | 15,955 | 51,879 | 47,545 | |||||||||||||||||||||||||||
| Adjusted total revenue | $ | 75,307 | $ | 77,981 | $ | 80,286 | $ | 230,463 | $ | 230,727 | ||||||||||||||||||||||
| Efficiency ratio | 55.82 | % | 55.01 | % | 54.26 | % | 56.15 | % | 54.34 | % | ||||||||||||||||||||||
| Return on Average Tangible Common Equity (ROATCE) | ||||||||||||||||||||||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | ||||||||||||||||||||||||||||
| (dollars in thousands) | 2023 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||
| Net income available to common shareholders | $ | 15,813 | $ | 19,347 | $ | 23,521 | $ | 54,704 | $ | 66,153 | ||||||||||||||||||||||
| Average total shareholders' equity—GAAP | $ | 771,625 | $ | 776,791 | $ | 700,866 | $ | 771,883 | $ | 667,225 | ||||||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||||||||
| Preferred Stock | (110,548) | (110,548) | (54,072) | (110,548) | — | |||||||||||||||||||||||||||
| Goodwill | (161,904) | (161,904) | (161,904) | (161,904) | (161,904) | |||||||||||||||||||||||||||
| Other intangible assets, net | (17,782) | (18,937) | (22,859) | (18,959) | (23,019) | |||||||||||||||||||||||||||
| Average tangible common equity | $ | 481,391 | $ | 485,402 | $ | 462,031 | $ | 480,472 | $ | 482,302 | ||||||||||||||||||||||
| ROATCE | 13.03 | % | 15.99 | % | 20.20 | % | 15.22 | % | 19.06 | % | ||||||||||||||||||||||
15
| MIDLAND STATES BANCORP, INC. | ||||||||||||||||||||||||||||||||
| RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (unaudited) (continued) | ||||||||||||||||||||||||||||||||
| Tangible Common Equity to Tangible Assets Ratio and Tangible Book Value Per Share | ||||||||||||||||||||||||||||||||
| As of | ||||||||||||||||||||||||||||||||
| September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||||||||||||||
| (dollars in thousands, except per share data) | 2023 | 2023 | 2023 | 2022 | 2022 | |||||||||||||||||||||||||||
| Shareholders' Equity to Tangible Common Equity | ||||||||||||||||||||||||||||||||
| Total shareholders' equity—GAAP | $ | 764,250 | $ | 776,821 | $ | 775,643 | $ | 758,574 | $ | 739,279 | ||||||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||||||||
| Preferred Stock | (110,548) | (110,548) | (110,548) | (110,548) | (110,548) | |||||||||||||||||||||||||||
| Goodwill | (161,904) | (161,904) | (161,904) | (161,904) | (161,904) | |||||||||||||||||||||||||||
| Other intangible assets, net | (17,238) | (18,367) | (19,575) | (20,866) | (22,198) | |||||||||||||||||||||||||||
| Tangible common equity | $ | 474,560 | $ | 486,002 | $ | 483,616 | $ | 465,256 | $ | 444,629 | ||||||||||||||||||||||
| Less: Accumulated other comprehensive income (AOCI) | (101,181) | (84,719) | (77,797) | (83,797) | (78,383) | |||||||||||||||||||||||||||
| Tangible common equity excluding AOCI | 575,741 | 570,721 | 561,413 | 549,053 | 523,012 | |||||||||||||||||||||||||||
| Total Assets to Tangible Assets: | ||||||||||||||||||||||||||||||||
| Total assets—GAAP | $ | 7,975,925 | $ | 8,034,721 | $ | 7,930,174 | $ | 7,855,501 | $ | 7,821,877 | ||||||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||||||||
| Goodwill | (161,904) | (161,904) | (161,904) | (161,904) | (161,904) | |||||||||||||||||||||||||||
| Other intangible assets, net | (17,238) | (18,367) | (19,575) | (20,866) | (22,198) | |||||||||||||||||||||||||||
| Tangible assets | $ | 7,796,783 | $ | 7,854,450 | $ | 7,748,695 | $ | 7,672,731 | $ | 7,637,775 | ||||||||||||||||||||||
| Common Shares Outstanding | 21,594,546 | 21,854,800 | 22,111,454 | 22,214,913 | 22,074,740 | |||||||||||||||||||||||||||
| Tangible Common Equity to Tangible Assets | 6.09 | % | 6.19 | % | 6.24 | % | 6.06 | % | 5.82 | % | ||||||||||||||||||||||
| Tangible Book Value Per Share | $ | 21.98 | $ | 22.24 | $ | 21.87 | $ | 20.94 | $ | 20.14 | ||||||||||||||||||||||
| Tangible Book Value Per Share excluding AOCI | $ | 26.66 | $ | 26.11 | $ | 25.39 | $ | 24.72 | $ | 23.69 | ||||||||||||||||||||||
16
1 Midland States Bancorp, Inc. NASDAQ: MSBI Third Quarter 2023 Earnings Presentation
22 Forward-Looking Statements. This presentation may contain forward-looking statements within the meaning of the federal securities laws. Forward-looking statements expressing management’s current expectations, forecasts of future events or long-term goals may be based upon beliefs, expectations and assumptions of the Company’s management, and are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. All statements in this presentation speak only as of the date they are made, and the Company undertakes no obligation to update any statement. A number of factors, many of which are beyond the ability of the Company to control or predict, could cause actual results to differ materially from those in its forward-looking statements including changes in interest rates and other general economic, business and political conditions, the impact of inflation, continuing effects of the failures of Silicon Valley Bank and Signature Bank, increased deposit volatility and potential regulatory developments. These risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. Additional information concerning the Company and its businesses, including additional factors that could materially affect the Company’s financial results, are included in the Company’s filings with the Securities and Exchange Commission. Use of Non-GAAP Financial Measures. This presentation may contain certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States (“GAAP”). These non-GAAP financial measures include “Adjusted Earnings,” "Adjusted Earnings Available to Common Shareholders," “Adjusted Diluted Earnings Per Share,” “Adjusted Return on Average Assets,” “Adjusted Return on Average Shareholders’ Equity,” “Adjusted Return on Average Tangible Common Equity,” “Adjusted Pre-Tax, Pre-Provision Income,” “Adjusted Pre-Tax, Pre-Provision Return on Average Assets,” “Efficiency Ratio,” “Tangible Common Equity to Tangible Assets,” “Tangible Book Value Per Share,” “Tangible Book Value Per Share excluding Accumulated Other Comprehensive Income,”and “Return on Average Tangible Common Equity.” The Company believes that these non-GAAP financial measures provide both management and investors a more complete understanding of the Company’s funding profile and profitability. These non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP financial measures. Not all companies use the same calculation of these measures; therefore this presentation may not be comparable to other similarly titled measures as presented by other companies. Reconciliations of these non-GAAP measures are provided in the Appendix section of this presentation.
33 Company Snapshot • Illinois state-chartered community bank founded in 1881 • $8.0 billion in assets • $3.5 billion Wealth Management business • Commercial bank focused on in-market relationships with national diversification in equipment finance • 53 branches in Illinois and Missouri • 16 successful acquisitions since 2008 Financial Highlights as of September 30, 2023 $8.0 Billion Total Assets $6.3 Billion Total Loans $6.4 Billion Total Deposits $3.5 Billion Assets Under Administration YTD ROAA: 1.04% YTD Return on TCE(1): 15.22% TCE/TA: 6.09% YTD PTPP(1) ROAA: 1.70% Dividend Yield: 5.84 % Price/Tangible Book: 0.93x Price/LTM EPS: 5.5x Notes: (1) Represents a non-GAAP financial measure. See “Non-GAAP Reconciliation” in the appendix.
4 Business and Corporate Strategy 4 Customer-Centric Culture Drive organic growth by focusing on customer service and accountability to our clients and colleagues; seek to develop bankers who create dynamic relationships; pursue continual investment in people; maintain a core set of institutional values, and build a robust technology platform that provides customers with a superior banking experience Operational Excellence A corporate-wide focus on driving improvements in people, processes and technology in order to generate further improvement in Midland's operating efficiency and financial performance Enterprise-Wide Risk Management Maintain a program designed to integrate controls, monitoring and risk-assessment at all key levels and stages of our operations and growth; ensure that all employees are fully engaged Accretive Acquisitions Maintain experienced acquisition team capable of identifying and executing transactions that build shareholder value through a disciplined approach to pricing; take advantage of relative strength in periods of market disruption Revenue Diversification Generate a diversified revenue mix and focus on growing businesses that generate strong recurring revenues such as wealth management
5 Successful Execution of Strategic Plan... 5 Total Assets (at period-end in billions) $1.1 $1.6 $1.5 $1.6 $1.7 $2.7 $2.9 $3.2 $4.4 $5.6 $6.1 $6.9 $7.4 $7.9 $8.0 Selected Acquisitions 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 3Q 2023 CAG R si nce 201 6 IP O: 1 4% CAGR: 15% Selected Acquisitions: Total Assets at Time of Acquisition (in millions) 2009: Strategic Capital Bank ($540) 2010: AMCORE Bank ($500) 2014: Love Savings/Heartland Bank ($889) 2017: Centrue Financial ($990) 2018: Alpine Bancorp ($1,243) 2019: HomeStar Financial Group ($366)
6 ...Leads to Creation of Shareholder Value 6 Tangible Book Value Per Share(1) 22 Consecutive Years of Dividend Increases $17.31 $17.00 $18.64 $19.31 $21.66 $20.94 $21.98 $17.22 $17.09 $18.34 $18.80 $21.42 $24.72 $26.66 Tangible Book Value Per Share TBV/Share ex. AOCI 2017 2018 2019 2020 2021 2022 3Q 2023 TBV/Share ex. AOCI CAGR: 7.9% Dividends Declared Per Share $0.80 $0.88 $0.97 $1.07 $1.12 $1.16 $1.20 2017 2018 2019 2020 2021 2022 3Q 2023 (annualized) CAGR: 7.0% Notes: (1) Represents a non-GAAP financial measure. See “Non-GAAP Reconciliation” in the appendix.
7 ...And Increased Profitability 7 Adjusted Diluted EPS(1) CAGR: 14.9% Adjusted ROATCE(1) 11.32% 15.00% 14.44% 9.24% 18.33% 18.59% 15.80% 2017 2018 2019 2020 2021 2022 YTD 2023 Notes: (1) Represents a non-GAAP financial measure. See “Non-GAAP Reconciliation” in the appendix. $1.89 $2.39 $2.54 $1.70 $3.65 $3.79 2017 2018 2019 2020 2021 2022 Adjusted Diluted EPS data and CAGR through 2022
8 Overview of 3Q23 Strong Financial Performance Stable Deposit Base Conservative Underwriting and Pricing Criteria Results in Small Decline in Total Loans Stable Asset Quality and Increase in Capital Ratios 8 • Net income available to common shareholders of $15.8 million, or $0.71 diluted EPS • 3Q23 results include net loss of $0.07 per share related to balance sheet repositioning that should increase EPS going forward • Pre-tax, pre-provision earnings(1) of $33.1 million • ROAA of 0.91% and ROTCE of 13.03% • Total deposits essentially unchanged from end of prior quarter • Loan-to-deposit ratio declined to 98% from 99% at end of prior quarter • Increase in brokered time deposits to offset other high cost funding • Selective approach to new loan production in current environment with focus on clients that provide full banking relationships • New loan production net of payoffs/paydowns in the quarter helped offset continued runoff in GreenSky portfolio and the planned reduction in equipment finance • Asset quality metrics relatively consistent with prior quarter • Strong financial performance and prudent balance sheet management resulted in increase in most capital ratios • CET1 ratio increased 13bps to 8.16% at the end of the current quarter Notes: (1) Represents a non-GAAP financial measure. See “Non-GAAP Reconciliation” in the appendix.
9 Loan Portfolio 9 • Total loans decreased $86.5 million from prior quarter to $6.28 billion • Decrease primarily driven by decline in equipment finance portfolio of $50.7 million and continued runoff of GreenSky portfolio of $62.8 million • Growth in construction portfolio driven by fundings on existing lines, primarily for multifamily • We expect the equipment finance balances to continue to decrease in order to reduce our concentration within overall loan portfolio Loan Portfolio Mix (in millions, as of quarter-end) 3Q 2023 2Q 2023 3Q 2022 Commercial loans and leases $ 2,057 $ 2,108 $ 1,994 Commercial real estate 2,412 2,444 2,466 Construction and land development 417 367 226 Residential real estate 375 371 356 Consumer 1,020 1,077 1,156 Total Loans $ 6,281 $ 6,367 $ 6,198 Total Loans ex. Commercial FHA Lines $ 6,232 $ 6,337 $ 6,144 $6,198 $6,306 $6,354 $6,367 $6,281 4.83% 5.26% 5.65% 5.80% 5.93% Total Loans Average Loan Yield 3Q 2022 4Q 2022 1Q 2023 2Q 2023 3Q 2023 Total Loans and Average Loan Yield (in millions, as of quarter-end)
10 Total Deposits 10 • Total deposits decreased $21.5 million from end of prior quarter • Noninterest-bearing deposits relatively stable as continued movement of funds into interest-bearing accounts was offset by new commercial and small business relationships • Managing rates on deposits in order to continue growing our deposit base through new and expanded relationships with retail and commercial clients • Increase in brokered CDs replaced other higher cost funding Deposit Mix (in millions, as of quarter-end) 3Q 2023 2Q 2023 3Q 2022 Noninterest-bearing demand $ 1,155 $ 1,163 $ 1,362 Interest-bearing: Checking $ 2,572 $ 2,500 $ 2,568 Money market $ 1,091 $ 1,226 $ 1,125 Savings $ 582 $ 624 $ 704 Time $ 886 $ 841 $ 621 Brokered time $ 119 $ 73 $ 14 Total Deposits $ 6,405 $ 6,427 $ 6,395 $6,395 $6,365 $6,425 $6,427 $6,405 0.65% 1.23% 1.70% 2.09% 2.32% Total Deposits Cost of Deposits 3Q 2022 4Q 2022 1Q 2023 2Q 2023 3Q 2023 Total Deposits and Cost of Deposits (in millions, as of quarter-end)
11 Deposit Summary as of September 30, 2023 11 Deposits by Channel (in millions) Commercial Deposits by NAICS Code (in millions) 22.9% 13.3% 5.8% 9.3%1.4% 7.9% 1.5% 4.1% 4.1% 2.2% 3.7% 1.2% 3.4% 4.6% 11.9% 2.7% Finance & Insurance RE, Rental & Leasing Manufacturing Other Services Skilled/Memory Care Construction Admin, Support, Waste Mgmt & Remediation Retail Trade Agriculture, Forestry, Fishing & Hunting Wholesale Trade Professional, Scientific & Tech Services Gasoline Station & C Stores Accom & Food NAICS code unavailable All Other Health Care All Other category made up of over 110 NAICS with Regulation of Agricultural Marketing and Commodities being the largest at $16 million $6.41 billion $0.94 billion $2,756 43.0% $940 14.7% $1,019 15.9% $326 5.1% $228 3.6% $711 11.1% $425 6.6% Retail Deposits Commercial Deposits Servicing Deposits Public Funds Brokered Deposits ICS Reciprocal Other
12 Uninsured Deposits 12 Average Deposit Balance per Account = $34,000 Uninsured Deposits (in millions) September 30, 2023 June 30, 2023 Call Report Uninsured Estimate $ 1,737 $ 1,654 Call Report Estimated Uninsured Deposits to Total Deposits 27 % 26 % Less: Affiliate Deposits (MSB owned funds) (44) (30) Less: Additional structured FDIC coverage (49) (50) Less: Collateralized Deposits (367) (363) Estimated uninsured deposits excluding items above $ 1,277 $ 1,211 Estimated Uninsured Deposits to Total Deposits 20 % 19 % Total Deposits $ 6,405 $ 6,427
13 Investment Portfolio As of September 30, 2023 13 Fair Value of Investments by Type 0.2% 10.7% 62.0% 8.7% 5.9% 2.7% 9.8% Treasuries US GSE & US Agency MBS - agency MBS - non agency State & Muni CLOs Corporate • All Investments are classified as Available for Sale • Average T/E Yield is 3.60% for 3Q23 • Average Duration is 5.19 years • Purchased $59 million with T/E Yield of 6.07%, Sold $71 million with T/E Yield of 2.46% in 3Q23 Investments by Yield and DurationInvestment Mix & Unrealized Gain (Loss) (in millions) Fair Value Book Value Unrealized Gain (Loss) Treasuries $ 2 $ 2 $ — US GSE & US Agency 89 93 (4) MBS - agency 517 613 (96) MBS - non agency 73 78 (5) State & Municipal 50 60 (10) CLOs 22 23 (1) Corporate 82 95 (13) Total Investments $ 835 $ 964 $ (129) Duration Yi el d 0 1 2 3 4 5 6 7 8 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% $835 million
14 Balance Sheet Repositioning 3Q23 14 Financial Impact (after tax) (in millions) 3Q2023 Ongoing Annualized Company-Owned Life Insurance Optimization Surrendered policies - $51 million at 2.19%; tax penalty of $4.5 million $ (4.5) $ (1.1) Purchased policies - $100 million at 4.56%; enhancement fee of $6.6 million 6.6 4.6 Net income on company-owned life insurance transactions $ 2.1 $ 3.5 Other Balance Sheet repositioning transactions Sold investment securities - $71 million at 2.46%; loss of $4.9 million $ (3.6) $ (1.2) Retired FHLB advances - $17 million at 5.45%; retired at par — 0.7 Net loss on other transactions $ (3.6) $ (0.5) After tax impact $ (1.5) $ 3.0 EPS $ (0.07) $ 0.13 *Approximate 6-month earn-back
15 Liquidity Overview 15 Liquidity Sources (in millions) September 30, 2023 June 30, 2023 Cash and Cash Equivalents $ 132.1 $ 160.7 Unpledged Securities 258.1 343.5 FHLB Committed Liquidity 883.9 857.2 FRB Discount Window Availability* 759.8 184.1 Total Estimated Liquidity $ 2,033.9 $ 1,545.5 Conditional Funding Based on Market Conditions Additional Credit Facility $ 364.0 $ 330.0 Brokered CDs (additional capacity) $ 500.0 $ 400.0 *Improved liquidity through additional pledging to FRB discount window.
16 Net Interest Income/Margin 16 • Net interest income down slightly from prior quarter as higher average balance of interest-earning assets was offset by an increase in cost of interest-bearing liabilities • As expected, net interest margin stabilized with just a 3 bp decrease from prior quarter as the increase in cost of deposits slightly exceeded the increase in the average yield on earning assets • Average rate on new and renewed loan originations decreased 15 bps to 7.86% in September 2023 from 8.01% in June 2023 • Net interest margin expected to continue to be relatively stable as the pace of Fed rate increases slow, loan portfolio continues to reprice, and the impact of repositioning in the investment portfolio is realized Net Interest Income (in millions) Net Interest Margin $64.0 $63.6 $60.5 $58.8 $58.6 $0.5 $0.3 $0.4 $0.4 $0.2 NII Accretion Income 3Q 2022 4Q 2022 1Q 2023 2Q 2023 3Q 2023 3.63% 3.50% 3.39% 3.23% 3.20% 0.03% 0.02% 0.02% 0.02% 0.01% NIM Accretion Income 3Q 2022 4Q 2022 1Q 2023 2Q 2023 3Q 2023
17 Loans & Securities - Repricing and Maturity 17 Total Loans and Leases (net of unearned income)(1) (in millions) As of September 30, 2023 Repricing Term Rate Structure 3 mos or less 3-12 mos 1-3 years 3-5 years 5-10 years 10-15 years Over 15 years Total Adjustable Rate Fixed Rate Commercial loans and leases $ 587 $ 417 $ 606 $ 357 $ 56 $ 4 $ 30 $ 2,057 $ 616 $ 1,441 Commercial real estate 678 369 668 458 190 15 34 2,412 862 1,550 Construction and land development 155 115 97 37 10 — 3 417 277 140 Residential real estate 63 37 44 52 113 49 17 375 176 199 Consumer 255 243 486 29 7 — — 1,020 1 1,019 Total $ 1,738 $ 1,181 $ 1,901 $ 933 $ 376 $ 68 $ 84 $ 6,281 $ 1,932 $ 4,349 % of Total 28 % 19 % 30 % 15 % 6 % 1 % 1 % 100 % 31 % 69 % Weighted Average Rate 7.59 % 6.02 % 5.30 % 5.17 % 4.71 % 4.24 % 0.90 % (2) 5.94 % 7.57 % 5.22 % Investment Securities Available for Sale(3) (in millions) As of September 30, 2023 Maturity & Projected Cash Flow Distribution 1 year or less 1-3 years 3-5 years 5-10 years Over 10 years Total Amortized Cost $ 129 $ 165 $ 141 $ 345 $ 183 $ 963 % of Total 13 % 17 % 15 % 36 % 19 % 100 % Notes: (1) Based on projected principal payments for all loans plus the next reset for floating and adjustable rate loans and the maturity date of fixed rate loans. (2) Over 15 years category includes all nonaccrual loans and leases. (3) Projected principal cash flows for securities. Differences between amortized cost and total principal are included in Over 10 years.
18 Wealth Management 18 • Assets under administration and Wealth Management fees remained relatively stable from 2Q23 to 3Q23, as declines in market values were partially offset by addition of new client assets from new business development efforts • Formed Midland Wealth Advisors, a registered investment advisor 2Q23 • Implementing additional technology, expected to go live 4Q23 • Adding to team, including investment officers and wealth advisors, one wealth advisor in 3Q23 with more expected in 4Q23 Assets Under Administration (in millions) Wealth Management Revenue (in millions) $3,355 $3,505 $3,503 $3,595 $3,501 3Q 2022 4Q 2022 1Q 2023 2Q 2023 3Q 2023 $6.20 $6.23 $6.41 $6.27 $6.29 3Q 2022 4Q 2022 1Q 2023 2Q 2023 3Q 2023
19 Noninterest Income 19 • Noninterest income decreased 3% from prior quarter • 3Q23 noninterest income included $5.0 million loss on sale of investment securities and $6.6 million enhancement fee on company-owned life insurance resulting from balance sheet repositioning • Excluding impact of balance sheet repositioning, most line items were relatively consistent with the prior quarter • Noninterest income expected to be in the range of $17.2 - $17.5 million in 4Q23 Noninterest Income (in millions) $15.8 $33.8 $15.8 $18.8 $18.2 Wealth Management Interchange Service Charges on Deposits Residential Mortgage All Other 3Q 2022 4Q 2022 1Q 2023 2Q 2023 3Q 2023
20 Noninterest Expense and Operating Efficiency 20 Noninterest Expense and Efficiency Ratio (1) (Noninterest expense in millions) $43.5 $44.5 $42.9 $42.0 $49.9 $3.3 54.3% 58.3% 57.6% 55.0% 55.8% Total Noninterest Expense Adjustments to Noninterest Expense Efficiency Ratio 3Q 2022 4Q 2022 1Q 2023 2Q 2023 3Q 2023 • Efficiency Ratio (1) was 55.8% in 3Q 2023 vs. 55.0% in 2Q 2023 • Disciplined expense control resulted in slight declines in most line items compared to the prior quarter • Near-term operating expense run-rate expected to be approximately $43.5 - $44.5 million ◦ Favorable heath care claims in 3Q not expected to continue ◦ Staffing additions to support growth in BaaS, Wealth, and Community Banking Notes: (1) Represents a non-GAAP financial measure. See “Non-GAAP Reconciliation” in the appendix.
21 Asset Quality 21 • Nonperforming loans increased $1.1 million primarily due to one commercial loan as well as increases in the equipment finance portfolio • Net charge-offs to average loans was 0.22% • Provision for credit losses on loans of $5.2 million, primarily related to increases in past dues for the equipment finance portfolio, other Q factors, and decreases to specific reserves Nonperforming Loans / Total Loans (Total Loans as of quarter-end) NCO / Average Loans 0.76% 0.78% 0.80% 0.86% 0.89% 3Q 2022 4Q 2022 1Q 2023 2Q 2023 3Q 2023 0.21% 0.03% 0.14% 0.19% 0.22% 3Q 2022 4Q 2022 1Q 2023 2Q 2023 3Q 2023
22 Changes in Allowance for Credit Losses 22 ($ in thousands) ▪ Changes to specific reserves ▪ New Loans ▪ Changes in Credit quality including risk rating ▪ Changes in portfolio mix ▪ Aging of existing portfolio ▪ Other charge-offs and recoveries ▪ Change to macro- economic variables and forecasts ▪ Changes to other economic qualitative factors $64,950 $(1,541) $3,207 $53 $66,669 ACL June 30, 2023 Specific Reserves Portfolio Changes Economic Factors ACL September 30, 2023
23 ACL by Portfolio 23 ($ in thousands) September 30, 2023 June 30, 2023 Portfolio Loans ACL % of Total Loans Loans ACL % of Total Loans Commercial $ 874,004 $ 7,563 0.87 % $ 875,295 $ 5,180 0.59 % Warehouse Lines 48,547 — — % 30,522 — — % Commercial Other 697,235 11,847 1.70 % 732,616 10,110 1.38 % Equipment Finance Loans 578,931 11,361 1.96 % 614,633 9,743 1.59 % Equipment Finance Leases 485,460 9,436 1.94 % 500,485 7,542 1.51 % CRE non-owner occupied 1,636,168 16,253 0.99 % 1,647,680 20,544 1.25 % CRE owner occupied 439,642 5,265 1.20 % 453,514 5,711 1.26 % Multi-family 269,708 2,583 0.96 % 273,939 2,676 0.98 % Farmland 66,646 510 0.77 % 68,862 494 0.72 % Construction and Land Development 416,801 3,530 0.85 % 366,631 3,189 0.87 % Residential RE First Lien 313,638 5,038 1.61 % 311,796 4,952 1.59 % Other Residential 61,573 660 1.07 % 59,690 599 1.00 % Consumer 111,432 847 0.76 % 108,619 804 0.74 % Consumer Other(1) 908,576 3,137 0.35 % 968,217 3,149 0.33 % Total Loans 6,280,883 66,669 1.06 % 6,367,344 64,950 1.02 % Loans (excluding BaaS portfolio(1) and warehouse lines) 5,235,382 63,090 1.21 % 5,276,170 61,436 1.16 % Notes: (1) Primarily consists of loans originated through GreenSky relationship
24 Outlook 24 • Prudent risk management will remain top priority while economic uncertainty remains with business development efforts focused on adding new commercial and retail deposit relationships • Continue generating strong financial performance while maintaining conservative approach to new loan production to build capital and liquidity • Planned reduction in the consumer portfolio will continue to be utilized to fund new commercial loan production, add to the securities portfolio and pay off higher cost funding sources with net impact likely being earnings neutral, but capital accretive • Modest additional repositioning in the investment portfolio should continue to support increase in average yields and a stable net interest margin • Maintain disciplined expense management while also making long-term investments to support growth in Wealth Management business and development of Banking-as-a-Service platform • Two Banking-as-a-Service partnerships launching in 4Q23 focused on low-cost deposit generation and fee income with BaaS initiative expected to start making a meaningful contribution during 2024 • Strength of balance sheet expected to provide opportunities to capitalize on current environment to add new clients that will contribute to continued long-term profitable growth and increase in franchise value
25 APPENDIX 25
2626 Industries as a percentage of Commercial, CRE and Equipment Finance Loans and Leases with outstanding balances of $4.89 billion as of 9/30/2023 ($s in millions) RE/Rental & Leasing $1,533.9 31.4% All Others $622.8 12.7% Skilled Nursing $468.8 9.6% Construction - General $336.7 6.9% Manufacturing $245.0 5.0% Finance and Insurance $317.8 6.5% Accommodation & Food Svcs $230.8 4.7% Trans./Ground Passenger $206.8 4.2% Assisted Living $131.5 2.7% Ag., Forestry, & Fishing $146.9 3.0% General Freight Trucking $221.4 4.5% Retail Trade $175.3 3.6% Wholesale Trade $75.2 1.5% Other Services $100.2 2.1% Commercial Loans and Leases by Industry Health Care $72.7 1.5%
27 Commercial Real Estate Portfolio by Collateral Type 27 CRE Concentration (as of September 30, 2023) CRE as a % of Total Loans 38.4% CRE as a % of Total Risk-Based Capital (1) 262.0% Notes: (1) Represents non-owner occupied CRE loans only Collateral type as a percentage of the Commercial Real Estate and Construction Portfolio with outstanding balances of $2.83 billion as of September 30, 2023 ($s in millions) Skilled Nursing $469.6 16.6% Retail $439.5 15.5% Multi-Family $485.3 17.2% Industrial/Warehouse $218.6 7.7% Assisted Living $157.9 5.6% Hotel/Motel $165.9 5.9% All Other $183.7 6.5% Office $147.6 5.2% Farmland $65.2 2.3% Residential 1-4 Family $85.9 3.0% Raw Land $13.8 0.5% Restaurant $35.8 1.3% Mixed Use/Other $85.6 3.0% Medical Building $106.7 3.8% Special Purpose $93.7 3.3% C-Store/Gas Station $74.4 2.6%
28 Capital Ratios and Strategy 28 • Capital initiatives increased CET1 to 8.16% from 7.77% at 12/31/22 with limited buybacks below TBV • Internal capital generated from strong profitability and slower balance sheet growth expected to raise TCE ratio to 7.00%-7.75% by the end of 2024 • Capital actions and strong profitability expected to enable MSBI to raise capital ratios while maintaining current dividend payout Capital Strategy Capital Ratios (as of September 30, 2023) 6.09% 8.16% 9.67% 10.62% 12.84% 11.21% 10.21% 11.21% 12.13% Consolidated Bank Level TCE/TA Common Eq. Tier 1 Tier 1 Leverage Tier 1 RBC Total RBC
2929 MIDLAND STATES BANCORP, INC. RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (unaudited) Tangible Book Value Per Share For the Year Ended (dollars in thousands, except per share data) 2017 2018 2019 2020 2021 2022 Shareholders' Equity to Tangible Common Equity Total shareholders' equity—GAAP $ 449,545 $ 608,525 $ 661,911 $ 621,391 $ 663,837 $ 758,574 Adjustments: Preferred Stock (2,970) (2,781) — — — (110,548) Goodwill (98,624) (164,673) (171,758) (161,904) (161,904) (161,904) Other intangible assets, net (16,932) (37,376) (34,886) (28,382) (24,374) (20,866) Tangible common equity 331,019 403,695 455,267 431,105 477,559 465,256 Less: Accumulated other comprehensive income (AOCI) 1,758 (2,108) 7,442 11,431 5,237 (83,797) Tangible common equity excluding AOCI $ 329,261 $ 405,803 $ 447,825 $ 419,674 $ 472,322 $ 549,053 Common Shares Outstanding 19,122,049 23,751,798 24,420,345 22,325,471 22,050,537 22,214,913 Tangible Book Value Per Share $ 17.31 $ 17.00 $ 18.64 $ 19.31 $ 21.66 $ 20.94 Tangible Book Value Per Share excluding AOCI $ 17.22 $ 17.09 $ 18.34 $ 18.80 $ 21.42 $ 24.72
3030 MIDLAND STATES BANCORP, INC. RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (unaudited) Adjusted Earnings Reconciliation For The Year Ended (dollars in thousands, except per share data) 2017 2018 2019 2020 2021 2022 Income before income taxes - GAAP $ 26,471 $ 50,805 $ 72,471 $ 32,014 $ 99,112 $ 129,838 Adjustments to noninterest income: (Gain) on sales of investment securities, net (222) (464) (674) (1,721) (537) 230 (Gain) on termination of hedged interest rate swaps — — — — (2,159) (17,531) Other income 67 (89) 29 17 (48) — Total adjustments to noninterest income (155) (553) (645) (1,704) (2,744) (17,301) Adjustments to noninterest expense: Impairment related to facilities optimization (1,952) — (3,577) (12,847) — — (Loss) gain on mortgage servicing rights held for sale (4,059) (458) 490 (1,692) (222) (3,250) FHLB advances prepayment fees — — — (4,872) (8,536) — Loss on repurchase of subordinated debt — — (1,778) (193) — — Integration and acquisition expenses (17,738) (24,015) (5,493) (2,309) (4,356) (347) Total adjustments to noninterest expense (23,749) (24,473) (10,358) (21,913) (13,114) (3,597) Adjusted earnings pre tax - non-GAAP 50,065 74,725 82,184 52,223 109,482 116,134 Adjusted earnings tax 15,170 17,962 19,358 12,040 26,261 27,113 Adjusted earnings - non-GAAP 34,895 56,763 62,826 40,183 83,221 89,021 Preferred stock dividends, net 83 141 46 — — 3,169 Adjusted earnings available to common shareholders $ 34,812 $ 56,622 $ 62,780 $ 40,183 $ 83,221 $ 85,852 Adjusted diluted earnings per common share $ 1.89 $ 2.39 $ 2.54 $ 1.70 $ 3.65 $ 3.79 Adjusted return on average tangible common equity 11.32 % 15.00 % 14.44 % 9.24 % 18.33 % 18.59 %
3131 MIDLAND STATES BANCORP, INC. RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (unaudited) Adjusted Earnings Reconciliation For The Quarter Ended September 30, June 30, March 31, December 31, September 30, (dollars in thousands, except per share data) 2023 2023 2023 2022 2022 Income before income taxes - GAAP $ 29,575 $ 28,820 $ 28,666 $ 43,902 $ 29,380 Adjustments to noninterest income: Loss on sales of investment securities, net 4,961 869 648 — 129 (Gain) on termination of hedged interest rate swaps — — — (17,531) — (Gain) on repurchase of subordinated debt — (676) — — — Company-owned life insurance enhancement fee (6,640) — — — — Total adjustments to noninterest income (1,679) 193 648 (17,531) 129 Adjustments to noninterest expense: (Loss) on mortgage servicing rights held for sale — — — (3,250) — Integration and acquisition expenses — — — — 68 Total adjustments to noninterest expense — — — (3,250) 68 Adjusted earnings pre tax - non-GAAP 27,896 29,013 29,314 29,621 29,441 Adjusted earnings tax 8,389 7,297 7,069 7,174 5,873 Adjusted earnings - non-GAAP 19,507 21,716 22,245 22,447 23,568 Preferred stock dividends 2,229 2,228 2,228 — — Adjusted earnings available to common shareholders $ 17,278 $ 19,488 $ 20,017 $ 22,447 $ 23,568 Adjusted diluted earnings per common share $ 0.78 $ 0.87 $ 0.88 $ 0.85 $ 1.04 Adjusted return on average assets 0.98 % 1.10 % 1.15 % 1.13 % 1.22 % Adjusted return on average shareholders' equity 10.03 % 11.21 % 11.76 % 11.89 % 13.34 % Adjusted return on average tangible common equity 14.24 % 16.10 % 17.11 % 16.80 % 20.24 % Adjusted Pre-Tax, Pre-Provision Earnings Reconciliation For the Quarter Ended September 30, June 30, March 31, December 31, September 30, (dollars in thousands) 2023 2023 2023 2022 2022 Adjusted earnings pre tax - non-GAAP $ 27,896 $ 29,013 $ 29,314 $ 29,621 $ 29,441 Provision for credit losses 5,168 5,879 3,135 3,544 6,974 Impairment on commercial mortgage servicing rights — — — — — Adjusted pre-tax, pre-provision earnings - non-GAAP $ 33,064 $ 34,892 $ 32,449 $ 33,165 $ 36,415 Adjusted pre-tax, pre-provision return on average assets 1.66 % 1.76 % 1.67 % 1.68 % 1.89 %
3232 MIDLAND STATES BANCORP, INC. RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (unaudited) (continued) Efficiency Ratio Reconciliation For the Quarter Ended September 30, June 30, March 31, December 31, September 30, 2023 2023 2023 2022 2022 (dollars in thousands) Noninterest expense - GAAP $ 42,038 $ 42,894 $ 44,482 $ 49,943 $ 43,496 Loss on mortgage servicing rights held for sale — — — (3,250) — Integration and acquisition expenses — — — — 68 Adjusted noninterest expense $ 42,038 $ 42,894 $ 44,482 $ 46,693 $ 43,564 Net interest income - GAAP $ 58,596 $ 58,840 $ 60,504 $ 63,550 $ 64,024 Effect of tax-exempt income 205 195 244 286 307 Adjusted net interest income 58,801 59,035 60,748 63,836 64,331 Noninterest income - GAAP 18,185 18,753 15,779 33,839 15,826 Impairment on commercial mortgage servicing rights — — — — — Loss on sales of investment securities, net 4,961 869 648 — 129 (Gain) on termination of hedged interest rate swaps — — — (17,531) — (Gain) on repurchase of subordinated debt — (676) — — — Company-owned life insurance enhancement fee (6,640) — — — — Adjusted noninterest income 16,506 18,946 16,427 16,308 15,955 Adjusted total revenue $ 75,307 $ 77,981 $ 77,175 $ 80,144 $ 80,286 Efficiency ratio 55.82 % 55.01 % 57.64 % 58.26 % 54.26 %
3333 MIDLAND STATES BANCORP, INC. RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (unaudited) (continued) Tangible Common Equity to Tangible Assets Ratio and Tangible Book Value Per Share As of September 30, June 30, March 31, December 31, September 30, (dollars in thousands, except per share data) 2023 2023 2023 2022 2022 Shareholders' Equity to Tangible Common Equity Total shareholders' equity—GAAP $ 764,250 $ 776,821 $ 775,643 $ 758,574 $ 739,279 Adjustments: Preferred Stock (110,548) (110,548) (110,548) (110,548) (110,548) Goodwill (161,904) (161,904) (161,904) (161,904) (161,904) Other intangible assets, net (17,238) (18,367) (19,575) (20,866) (22,198) Tangible common equity $ 474,560 $ 486,002 $ 483,616 $ 465,256 $ 444,629 Less: Accumulated other comprehensive income (AOCI) (101,181) (84,719) (77,797) (83,797) (78,383) Tangible common equity excluding AOCI $ 575,741 $ 570,721 $ 561,413 $ 549,053 $ 523,012 Total Assets to Tangible Assets: Total assets—GAAP $ 7,975,925 $ 8,034,721 $ 7,930,174 $ 7,855,501 $ 7,821,877 Adjustments: Goodwill (161,904) (161,904) (161,904) (161,904) (161,904) Other intangible assets, net (17,238) (18,367) (19,575) (20,866) (22,198) Tangible assets $ 7,796,783 $ 7,854,450 $ 7,748,695 $ 7,672,731 $ 7,637,775 Common Shares Outstanding 21,594,546 21,854,800 22,111,454 22,214,913 22,074,740 Tangible Common Equity to Tangible Assets 6.09 % 6.19 % 6.24 % 6.06 % 5.82 % Tangible Book Value Per Share $ 21.98 $ 22.24 $ 21.87 $ 20.94 $ 20.14 Tangible Book Value Per Share excluding AOCI $ 26.66 $ 26.11 $ 25.39 $ 24.72 $ 23.69 Return on Average Tangible Common Equity (ROATCE) For the Quarter Ended September 30, June 30, March 31, December 31, September 30, (dollars in thousands) 2023 2023 2023 2022 2022 Net income available to common shareholders $ 15,813 $ 19,347 $ 19,544 $ 29,703 $ 23,521 Average total shareholders' equity—GAAP $ 771,625 $ 776,791 $ 767,186 $ 749,183 $ 700,866 Adjustments: Preferred Stock (110,548) (110,548) (110,548) (110,548) (54,072) Goodwill (161,904) (161,904) (161,904) (161,904) (161,904) Other intangible assets, net (17,782) (18,937) (20,184) (21,504) (22,859) Average tangible common equity $ 481,391 $ 485,402 $ 474,550 $ 455,227 $ 462,031 ROATCE 13.03 % 15.99 % 16.70 % 25.89 % 20.20 %