SEC Filing | Midland States Bancorp Inc

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from __________ to __________

Commission File Number 001-35272

MIDLAND STATES BANCORP, INC.

(Exact name of Registrant as specified in its charter)



ILLINOIS		37-1233196
(State of other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1201 Network Centre Drive

Effingham, IL

62401

(Address of principal executive offices)

(Zip Code)

(217) 342-7321

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of October 31, 2016, the Registrant had 15,415,747 shares of outstanding common stock, $0.01 par value.

Table of Contents

Midland States Bancorp, Inc.

Table of Contents


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets at September 30, 2016 (Unaudited) and December 31, 2015	1

	Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2016 and 2015	2

	Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2016 and 2015	3

	Consolidated Statements of Shareholders’ Equity (Unaudited) for the nine months ended September 30, 2016 and 2015	4

	Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2016 and 2015	5

	Notes to Consolidated Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	68

Item 4.	Controls and Procedures	68

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	68

Item 1A.	Risk Factors	68

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69

Item 6.	Exhibits	70

SIGNATURES		71

Table of Contents

Part I – Financial Information

Item 1 – Financial Statements

Midland States Bancorp, Inc.

Consolidated Balance Sheets

(dollars expressed in thousands, except for per share data)


	September 30,		December 31,
	2016		2015
	(unaudited)
Assets
Cash and due from banks	$	227,496	$	211,976
Federal funds sold		534		499
Cash and cash equivalents		228,030		212,475
Investment securities available for sale, at fair value ($72,093 and $75,979 covered by a FDIC loss-share agreement at September 30, 2016 and December 31, 2015, respectively)		252,212		236,627
Investment securities held to maturity, at amortized cost (fair value of $88,590 and $92,816 at September 30, 2016 and December 31, 2015, respectively)		82,941		87,521
Loans		2,312,778		1,995,589
Allowance for loan losses		(15,559)		(15,988)
Total loans, net		2,297,219		1,979,601
Loans held for sale, at fair value		61,363		54,413
Premises and equipment, net		70,727		73,133
Other real estate owned		4,828		5,472
Nonmarketable equity securities		18,810		15,472
Accrued interest receivable		8,811		7,697
Mortgage servicing rights, at lower of cost or market		64,689		66,651
Intangible assets		5,391		7,004
Goodwill		46,519		46,519
Cash surrender value of life insurance policies		74,276		52,729
Accrued income taxes receivable		1,450		8,754
Deferred tax assets, net		—		1,496
Other assets		30,461		29,260
Total assets	$	3,247,727	$	2,884,824
Liabilities and Shareholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing	$	629,113	$	543,401
Interest-bearing		1,790,919		1,824,247
Total deposits		2,420,032		2,367,648
Short-term borrowings		138,289		107,538
FHLB advances and other borrowings		237,543		40,178
Subordinated debt		54,484		61,859
Trust preferred debentures		37,316		37,057
Accrued interest payable		1,875		979
Deferred tax liabilities, net		3,216		—
Other liabilities		33,182		36,509
Total liabilities		2,925,937		2,651,768

Shareholders’ Equity:
Common stock, $0.01 par value; 40,000,000 shares authorized; 15,404,423 and 11,797,404 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively		154		118
Capital surplus		208,452		135,822
Retained earnings		103,813		90,911
Accumulated other comprehensive income		9,330		6,029
Total Midland States Bancorp, Inc. shareholders’ equity		321,749		232,880
Noncontrolling interest in subsidiaries		41		176
Total shareholders’ equity		321,790		233,056
Total liabilities and shareholders’ equity	$	3,247,727	$	2,884,824

See accompanying notes to consolidated financial statements

Table of Contents

Midland States Bancorp, Inc.

Consolidated Statements of Income (Unaudited)

(dollars expressed in thousands, except for per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Interest income:
Loans:
Taxable	$	26,905	$	24,807	$	78,142	$	74,821
Tax exempt		254		309		899		852
Investment securities:
Taxable		2,940		2,784		8,726		8,589
Tax exempt		892		967		2,739		2,972
Federal funds sold and cash investments		195		82		762		262
Total interest income		31,186		28,949		91,268		87,496
Interest expense:
Deposits		2,189		1,921		6,701		5,320
Short-term borrowings		81		56		217		176
FHLB advances and other borrowings		306		111		698		634
Subordinated debt		873		1,054		2,985		1,671
Trust preferred debentures		472		370		1,373		1,240
Total interest expense		3,921		3,512		11,974		9,041
Net interest income		27,265		25,437		79,294		78,455
Provision for loan losses		1,392		6,699		3,146		10,075
Net interest income after provision for loan losses		25,873		18,738		76,148		68,380
Noninterest income:
Commercial FHA revenue		3,260		5,914		18,360		17,130
Residential mortgage banking revenue		4,990		3,490		7,148		14,305
Wealth management revenue		1,941		1,808		5,596		5,461
Merchant services revenue		427		419		1,287		1,097
Service charges on deposit accounts		1,044		1,022		2,916		2,990
Interchange revenue		920		895		2,829		2,703
FDIC loss-sharing expense		—		(57)		(1,661)		(354)
Gain on sales of investment securities, net		39		1		315		160
Other-than-temporary impairment on investment securities		—		(299)		(824)		(461)
Gain on sales of other real estate owned		33		92		112		417
Other income		2,283		1,179		5,494		3,235
Total noninterest income		14,937		14,464		41,572		46,683
Noninterest expense:
Salaries and employee benefits		16,568		14,932		48,967		49,588
Occupancy and equipment		3,271		3,114		9,815		9,727
Data processing		2,586		2,541		7,830		7,651
FDIC insurance		388		371		1,350		1,514
Professional		1,877		2,075		5,151		6,608
Marketing		717		855		2,009		2,247
Communications		546		506		1,609		1,791
Loan expense		314		789		1,351		2,349
Other real estate owned		179		203		748		660
Amortization of intangible assets		514		597		1,613		1,863
Other		1,703		1,840		6,762		6,073
Total noninterest expense		28,663		27,823		87,205		90,071
Income before income taxes		12,147		5,379		30,515		24,992
Income taxes		4,102		1,928		10,562		8,281
Net income		8,045		3,451		19,953		16,711
Less: net (loss) income attributable to noncontrolling interest in subsidiaries		(6)		6		(6)		82
Net income attributable to Midland States Bancorp, Inc.	$	8,051	$	3,445	$	19,959	$	16,629
Per common share data:
Basic earnings per common share	$	0.51	$	0.29	$	1.46	$	1.39
Diluted earnings per common share	$	0.51	$	0.28	$	1.43	$	1.36
Weighted average common shares outstanding		15,578,703		11,911,414		13,637,997		11,895,337
Weighted average diluted common shares outstanding		15,858,273		12,130,529		13,902,664		12,111,695

See accompanying notes to consolidated financial statements

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Midland States Bancorp, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

(dollars expressed in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Net income	$	8,045	$	3,451	$	19,953	$	16,711
Other comprehensive (loss) income:
Investment securities available for sale:
Unrealized (losses) gains that occurred during the period		(233)		2,136		5,789		222
Reclassification adjustment for realized net gains on sales of investment securities included in net income		(39)		(1)		(315)		(160)
Income tax effect		110		(859)		(2,203)		(25)
Change in investment securities available for sale, net of tax		(162)		1,276		3,271		37
Investment securities held to maturity:
Amortization of unrealized gain on investment securities transferred from available-for-sale		(3)		(49)		(42)		(187)
Income tax effect		1		20		17		103
Change in investment securities held to maturity, net of tax		(2)		(29)		(25)		(84)
Cash flow hedges:
Change in fair value of interest rate swap		32		21		93		56
Income tax effect		(13)		(13)		(38)		(25)
Change in cash flow hedges, net of tax		19		8		55		31
Other comprehensive (loss) income, net of tax		(145)		1,255		3,301		(16)
Total comprehensive income		7,900		4,706		23,254		16,695
Less: net (loss) income attributable to noncontrolling interest in subsidiaries		(6)		6		(6)		82
Total comprehensive income attributable to Midland States Bancorp, Inc.	$	7,906	$	4,700	$	23,260	$	16,613

See accompanying notes to consolidated financial statements

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Midland States Bancorp, Inc.

Consolidated Statements of Shareholders’ Equity (Unaudited)

Nine Months Ended September 30, 2016 and 2015

(dollars expressed in thousands, except for per share data)


							Accumulated		Midland States
							other		Bancorp, Inc.’s		Noncontrolling
	Common		Capital		Retained		comprehensive		Shareholders’		interests in
	stock		surplus		earnings		income		Equity		subsidiaries		Total
Balances, December 31, 2015	$	118	$	135,822	$	90,911	$	6,029	$	232,880	$	176	$	233,056
Net income		—		—		19,959		—		19,959		(6)		19,953
Cash distributions to noncontrolling interests		—		—		—		—		—		(129)		(129)
Compensation expense for stock option grants		—		315		—		—		315		—		315
Amortization of restricted stock awards		—		387		—		—		387		—		387
Common dividends declared ($0.54 per share)		—		—		(7,057)		—		(7,057)		—		(7,057)
Initial public offering of 3,590,065 shares of common stock, net of issuance costs		36		71,439		—		—		71,475		—		71,475
Issuance of common stock under employee benefit plans		—		489		—		—		489		—		489
Other comprehensive income		—		—		—		3,301		3,301		—		3,301
Balances, September 30, 2016	$	154	$	208,452	$	103,813	$	9,330	$	321,749	$	41	$	321,790


Balances, December 31, 2014	$	117	$	134,423	$	74,279	$	10,637	$	219,456	$	473	$	219,929
Net income		—		—		16,629		—		16,629		82		16,711
Cash distributions to noncontrolling interests		—		—		—		—		—		(345)		(345)
Compensation expense for stock option grants		—		287		—		—		287		—		287
Amortization of restricted stock awards		—		389		—		—		389		—		389
Common dividends declared ($0.48 per share)		—		—		(5,680)		—		(5,680)		—		(5,680)
Issuance of common stock under employee benefit plans		1		349		—		—		350		—		350
Other comprehensive loss		—		—		—		(16)		(16)		—		(16)
Balances, September 30, 2015	$	118	$	135,448	$	85,228	$	10,621	$	231,415	$	210	$	231,625

See accompanying notes to consolidated financial statements.

Table of Contents

Midland States Bancorp, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(dollars expressed in thousands)


	Nine Months Ended
	September 30,
	2016		2015
Cash flows from operating activities:
Net income	$	19,953	$	16,711
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		3,146		10,075
Depreciation on premises and equipment		3,816		3,791
Amortization of intangible assets		1,613		1,863
FDIC loss-sharing expense		1,661		354
Amortization of restricted stock awards		387		389
Compensation expense for stock option grants		315		287
Increase in cash surrender value of life insurance		(1,547)		(1,016)
Investment securities amortization, net		840		905
Other-than-temporary impairment on investment securities		824		461
Gain on sales of investment securities, net		(315)		(160)
Gain on sales of other real estate owned		(112)		(417)
Write-down of other real estate owned		219		49
Origination of loans held for sale		(894,445)		(779,821)
Proceeds from sales of loans held for sale		907,306		836,133
Gain on loans sold and held for sale		(28,827)		(29,557)
Amortization of mortgage servicing rights		4,410		3,739
Impairment on mortgage servicing rights		6,093		676
Net change in operating assets and liabilities:
Accrued interest receivable		(1,114)		(150)
Accrued interest payable		896		823
Accrued income taxes receivable		7,304		(2,193)
Other assets		460		2,776
Other liabilities		(2,485)		5,945
Net cash provided by operating activities		30,398		71,663
Cash flows from investing activities:
Investment securities available for sale:
Purchases		(64,396)		(43,244)
Sales		31,191		61,629
Maturities and payments		22,038		23,306
Investment securities held to maturity:
Purchases		(2,401)		(603)
Maturities		6,646		9,818
Net increase in loans		(325,009)		(184,955)
Purchases of premises and equipment		(1,410)		(4,875)
Purchase of bank-owned life insurance		(20,000)		(20,000)
Purchases of nonmarketable equity securities		(3,428)		(5,311)
Sales of nonmarketable equity securities		90		1,918
Proceeds from sales of other real estate owned		4,423		4,886
Net cash paid in acquisitions		—		(20,053)
Net cash used in investing activities		(352,256)		(177,484)
Cash flows from financing activities:
Net increase in deposits		52,384		147,953
Net increase (decrease) in short-term borrowings		30,751		(20,891)
Proceeds from FHLB borrowings		850,000		47,500
Payments made on FHLB borrowings		(652,500)		(57,500)
Payments made on other borrowings		—		(14,130)
Proceeds from issuance of subordinated debt, net of issuance costs		—		55,325
Payments made on subordinated debt		(8,000)		—
Cash dividends paid on common stock		(7,057)		(5,680)
Proceeds from issuance of common stock in initial public offering, net of issuance costs		71,475		—
Proceeds from issuance of common stock under employee benefit plans		489		350
Cash distributions to noncontrolling interests		(129)		(345)
Net cash provided by financing activities		337,413		152,582
Net increase in cash and cash equivalents		15,555		46,761
Cash and cash equivalents:
Beginning of year	$	212,475	$	159,903
End of year	$	228,030	$	206,664
Supplemental disclosures of cash flow information:
Cash payments for:
Interest paid on deposits and borrowed funds	$	11,078	$	8,218
Income tax paid		157		10,091
Supplemental disclosures of noncash investing and financing activities:
Transfer of loans to other real estate owned	$	4,245