msbi_Current_Folio_10Q

 

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, 2017

 

☐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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Large accelerated filer ☐

 

Accelerated filer ☐

 

Non-accelerated filer ☒

 

Smaller reporting company ☐

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. ☒

 

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

 

As of October 31, 2017, the Registrant had 19,098,890 shares of outstanding common stock, $0.01 par value.

 

 

 


 

 

 

 

MIDLAND STATES BANCORP, INC.

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

Page

PART I.        FINANCIAL INFORMATION

 

 

 

 

Item 1. 

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets at September 30, 2017 (Unaudited) and December 31, 2016

1

 

 

 

 

Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, 2017 and 2016

2

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2017 and 2016

3

 

 

 

 

Consolidated Statements of Shareholders’ Equity (Unaudited) for the nine months ended September 30, 2017 and 2016

4

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2017 and 2016

5

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

6

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

44

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

70

 

 

 

Item 4. 

Controls and Procedures

70

 

 

 

PART II.     OTHER INFORMATION

 

 

 

 

Item 1. 

Legal Proceedings

70

 

 

 

Item 1A. 

Risk Factors

71

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

71

 

 

 

Item 6. 

Exhibits

72

 

 

 

SIGNATURES 

73

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Table of Contents

 

 

 

 

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

MIDLAND STATES BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

    

2017

    

2016

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

 

Cash and due from banks

 

$

180,807

 

$

189,543

 

Federal funds sold

 

 

2,765

 

 

1,173

 

Cash and cash equivalents

 

 

183,572

 

 

190,716

 

Investment securities available for sale, at fair value

 

 

396,985

 

 

246,339

 

Investment securities held to maturity, at amortized cost (fair value of $75,142 and $81,952 at September 30, 2017 and December 31, 2016, respectively)

 

 

70,867

 

 

78,672

 

Loans

 

 

3,157,972

 

 

2,319,976

 

Allowance for loan losses

 

 

(16,861)

 

 

(14,862)

 

Total loans, net

 

 

3,141,111

 

 

2,305,114

 

Loans held for sale, at fair value

 

 

35,874

 

 

70,565

 

Premises and equipment, net

 

 

80,941

 

 

66,692

 

Other real estate owned

 

 

6,379

 

 

3,560

 

Nonmarketable equity securities

 

 

34,391

 

 

19,485

 

Accrued interest receivable

 

 

11,673

 

 

8,202

 

Mortgage servicing rights, at lower of cost or market

 

 

56,299

 

 

68,008

 

Mortgage servicing rights held for sale

 

 

10,618

 

 

 —

 

Intangible assets

 

 

17,966

 

 

7,187

 

Goodwill

 

 

97,351

 

 

48,836

 

Cash surrender value of life insurance policies

 

 

112,591

 

 

74,226

 

Accrued income taxes receivable

 

 

2,209

 

 

5,862

 

Deferred tax assets, net

 

 

22,845

 

 

 —

 

Other assets

 

 

66,089

 

 

40,259

 

Total assets

 

$

4,347,761

 

$

3,233,723

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Noninterest-bearing

 

$

674,118

 

$

562,333

 

Interest-bearing

 

 

2,440,349

 

 

1,842,033

 

Total deposits

 

 

3,114,467

 

 

2,404,366

 

Short-term borrowings

 

 

153,443

 

 

131,557

 

FHLB advances and other borrowings

 

 

488,870

 

 

237,518

 

Subordinated debt

 

 

54,581

 

 

54,508

 

Trust preferred debentures

 

 

45,267

 

 

37,405

 

Accrued interest payable

 

 

2,355

 

 

1,045

 

Deferred tax liabilities, net

 

 

 —

 

 

8,598

 

Other liabilities

 

 

38,089

 

 

36,956

 

Total liabilities

 

 

3,897,072

 

 

2,911,953

 

 

 

 

 

 

 

 

 

Shareholders’ Equity:

 

 

 

 

 

 

 

Preferred stock, Series H, $2 par value, $1,000 per share liquidation value; 2,636 shares authorized, issued and outstanding at September 30, 2017

 

 

3,015

 

 

 —

 

Common stock, $0.01 par value; 40,000,000 shares authorized; 19,093,153 and 15,483,499 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively

 

 

191

 

 

155

 

Capital surplus

 

 

329,934

 

 

209,712

 

Retained earnings

 

 

116,373

 

 

112,513

 

Accumulated other comprehensive income (loss)

 

 

1,176

 

 

(610)

 

Total shareholders’ equity

 

 

450,689

 

 

321,770

 

Total liabilities and shareholders’ equity

 

$

4,347,761

 

$

3,233,723

 

The accompanying notes are an integral part of the consolidated financial statements.

1


 

Table of Contents

MIDLAND STATES BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME—(UNAUDITED)

(dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

    

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2017

    

2016

    

2017

    

2016

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

$

38,689

 

$

26,047

 

$

97,016

 

$

75,741

 

Tax exempt

 

 

313

 

 

254

 

 

953

 

 

899

 

Loans held for sale

 

 

438

 

 

858

 

 

1,926

 

 

2,401

 

Investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

1,905

 

 

2,766

 

 

4,705

 

 

8,222

 

Tax exempt

 

 

963

 

 

892

 

 

2,820

 

 

2,739

 

Nonmarketable equity securities

 

 

331

 

 

174

 

 

788

 

 

504

 

Federal funds sold and cash investments

 

 

607

 

 

195

 

 

1,405

 

 

762

 

Total interest income

 

 

43,246

 

 

31,186

 

 

109,613

 

 

91,268

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

3,377

 

 

2,189

 

 

8,570

 

 

6,701

 

Short-term borrowings

 

 

100

 

 

81

 

 

262

 

 

217

 

FHLB advances and other borrowings

 

 

1,494

 

 

306

 

 

2,901

 

 

698

 

Subordinated debt

 

 

873

 

 

873

 

 

2,619

 

 

2,985

 

Trust preferred debentures

 

 

637

 

 

472

 

 

1,635

 

 

1,373

 

Total interest expense

 

 

6,481

 

 

3,921

 

 

15,987

 

 

11,974

 

Net interest income

 

 

36,765

 

 

27,265

 

 

93,626

 

 

79,294

 

Provision for loan losses

 

 

1,489

 

 

1,392

 

 

3,480

 

 

3,146

 

Net interest income after provision for loan losses

 

 

35,276

 

 

25,873

 

 

90,146

 

 

76,148

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial FHA revenue

 

 

3,777

 

 

3,260

 

 

14,625

 

 

18,360

 

Residential mortgage banking revenue

 

 

2,317

 

 

4,990

 

 

7,563

 

 

7,148

 

Wealth management revenue

 

 

3,475

 

 

1,941

 

 

9,754

 

 

5,596

 

Service charges on deposit accounts

 

 

2,133

 

 

1,044

 

 

4,147

 

 

2,916

 

Interchange revenue

 

 

1,724

 

 

920

 

 

3,816

 

 

2,829

 

FDIC loss-sharing expense

 

 

 —

 

 

 —

 

 

 —

 

 

(1,661)

 

Gain on sales of investment securities, net

 

 

98

 

 

39

 

 

219

 

 

315

 

Other-than-temporary impairment on investment securities

 

 

 —

 

 

 —

 

 

 —

 

 

(824)

 

Gain on sales of other real estate owned

 

 

22

 

 

33

 

 

54

 

 

112

 

Other income

 

 

1,857

 

 

2,710

 

 

5,186

 

 

6,781

 

Total noninterest income

 

 

15,403

 

 

14,937

 

 

45,364

 

 

41,572

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

22,411

 

 

16,568

 

 

61,368

 

 

48,967

 

Occupancy and equipment

 

 

4,144

 

 

3,271

 

 

10,800

 

 

9,815

 

Data processing

 

 

5,786

 

 

2,586

 

 

11,531

 

 

7,830

 

FDIC insurance

 

 

565

 

 

388

 

 

1,403

 

 

1,350

 

Professional

 

 

4,151

 

 

1,877

 

 

10,285

 

 

5,151

 

Marketing

 

 

1,070

 

 

717

 

 

2,517

 

 

2,009

 

Communications

 

 

723

 

 

546

 

 

1,655

 

 

1,609

 

Loan expense

 

 

629

 

 

314

 

 

1,531

 

 

1,351

 

Other real estate owned

 

 

146

 

 

179

 

 

725

 

 

748

 

Amortization of intangible assets

 

 

1,187

 

 

514

 

 

2,291

 

 

1,613

 

Loss on mortgage servicing rights held for sale

 

 

3,617

 

 

 —

 

 

3,617

 

 

 —

 

Other expense

 

 

3,934

 

 

1,697

 

 

9,082

 

 

6,756

 

Total noninterest expense

 

 

48,363

 

 

28,657

 

 

116,805

 

 

87,199

 

Income before income taxes

 

 

2,316

 

 

12,153

 

 

18,705

 

 

30,521

 

Income taxes

 

 

280

 

 

4,102

 

 

4,640

 

 

10,562

 

Net income

 

 

2,036

 

 

8,051

 

 

14,065

 

 

19,959

 

Preferred stock dividends and premium amortization

 

 

27

 

 

 —

 

 

46

 

 

 —

 

Net income available to common shareholders

 

$

2,009

 

$

8,051

 

$

14,019

 

$

19,959

 

Per common share data:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.10

 

$

0.51

 

$

0.81

 

$

1.46

 

Diluted earnings per common share

 

$

0.10

 

$

0.51

 

$

0.78

 

$

1.43

 

Weighted average common shares outstanding

 

 

19,265,409

 

 

15,578,703

 

 

17,274,746

 

 

13,637,997

 

Weighted average diluted common shares outstanding

 

 

19,704,217

 

 

15,858,273

 

 

17,797,235

 

 

13,902,664

 

The accompanying notes are an integral part of the consolidated financial statements.

2


 

Table of Contents

MIDLAND STATES BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME—(UNAUDITED)

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2017

    

2016

    

2017

    

2016

 

Net income

 

$

2,036

 

$

8,051

 

$

14,065

 

$

19,959

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) that occurred during the period

 

 

305

 

 

(233)

 

 

3,245

 

 

5,789

 

Reclassification adjustment for realized net gains on sales of investment securities included in net income

 

 

(98)

 

 

(39)

 

 

(219)

 

 

(315)

 

Income tax effect

 

 

(94)

 

 

110

 

 

(1,188)

 

 

(2,203)

 

Change in investment securities available for sale, net of tax

 

 

113

 

 

(162)

 

 

1,838

 

 

3,271

 

Investment securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of unrealized gain on investment securities transferred from available-for-sale

 

 

(25)

 

 

(3)

 

 

(83)

 

 

(42)

 

Income tax effect

 

 

 9

 

 

 1

 

 

31

 

 

17

 

Change in investment securities held to maturity, net of tax

 

 

(16)

 

 

(2)

 

 

(52)

 

 

(25)

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of interest rate swap

 

 

 —

 

 

32

 

 

 —

 

 

93

 

Income tax effect

 

 

 —

 

 

(13)

 

 

 —

 

 

(38)

 

Change in cash flow hedges, net of tax

 

 

 —

 

 

19

 

 

 —

 

 

55

 

Other comprehensive income (loss), net of tax

 

 

97

 

 

(145)

 

 

1,786

 

 

3,301

 

Total comprehensive income

 

$

2,133

 

$

7,906

 

$

15,851

 

$

23,260

 

The accompanying notes are an integral part of the consolidated financial statements.

 

3


 

Table of Contents

MIDLAND STATES BANCORP, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY—(UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

(dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

 

 

    

 

 

    

 

 

    

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

other

 

Total

 

 

Preferred

 

Common

 

Capital

 

Retained

 

comprehensive

 

shareholders'

 

 

stock

 

stock

 

surplus

 

earnings

 

(loss) income

 

equity

Balances, December 31, 2016

 

$

 —

 

$

155

 

$

209,712

 

$

112,513

 

$

(610)

 

$

321,770

Net income

 

 

 —

 

 

 —

 

 

 —

 

 

14,065

 

 

 —

 

 

14,065

Compensation expense for stock option grants

 

 

 —

 

 

 —

 

 

413

 

 

 —

 

 

 —

 

 

413

Amortization of restricted stock awards

 

 

 —

 

 

 —

 

 

599

 

 

 —

 

 

 —

 

 

599

Preferred dividends declared

 

 

 —

 

 

 —

 

 

 —

 

 

(102)

 

 

 —

 

 

(102)

Amortization of preferred stock premium

 

 

(56)

 

 

 —

 

 

 —

 

 

56

 

 

 

 

 

 —

Common dividends declared ($0.60 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(10,159)

 

 

 —

 

 

(10,159)

Acquisition of CedarPoint Investment Advisors, Inc.

 

 

 —

 

 

 1

 

 

3,350

 

 

 —

 

 

 —

 

 

3,351

Acquisition of Centrue Financial Corporation

 

 

3,071

 

 

32

 

 

112,480

 

 

 —

 

 

 —

 

 

115,583

Issuance of common stock under employee benefit plans

 

 

 —

 

 

 3

 

 

3,380

 

 

 —

 

 

 —

 

 

3,383

Other comprehensive income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,786

 

 

1,786

Balances, September 30, 2017

 

$

3,015

 

$

191

 

$

329,934

 

$

116,373

 

$

1,176

 

$

450,689

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2015

 

$

 —

 

$

118

 

$

135,822

 

$

90,911

 

$

6,029

 

$

232,880

Cumulative effect of change in accounting principle

 

 

 —

 

 

 —

 

 

87

 

 

(87)

 

 

 —

 

 

 —

Balances, January 1, 2016

 

 

 —

 

 

118

 

 

135,909

 

 

90,824

 

 

6,029

 

 

232,880

Net income

 

 

 —

 

 

 —

 

 

 —

 

 

19,959

 

 

 —

 

 

19,959

Compensation expense for stock option grants

 

 

 —

 

 

 —

 

 

315

 

 

 —

 

 

 —

 

 

315

Amortization of restricted stock awards

 

 

 —

 

 

 —

 

 

387

 

 

 —

 

 

 —

 

 

387

Common dividends declared ($0.54 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(7,057)

 

 

 —

 

 

(7,057)

Initial public offering of 3,590,065 shares of common stock, net of issuance costs

 

 

 —

 

 

36

 

 

71,439

 

 

 —

 

 

 —

 

 

71,475

Issuance of common stock under employee benefit plans

 

 

 —

 

 

 —

 

 

489

 

 

 —

 

 

 —

 

 

489

Other comprehensive income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

3,301

 

 

3,301

Balances, September 30, 2016

 

$

 —

 

$

154

 

$

208,539

 

$

103,726

 

$

9,330

 

$

321,749

The accompanying notes are an integral part of the consolidated financial statements. 

4


 

Table of Contents

MIDLAND STATES BANCORP, INC.

CONSOLIDATED STATEMENTS OF  CASH FLOWS—(UNAUDITED)

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30, 

 

 

    

2017

    

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

14,065

 

$

19,959

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Provision for loan losses

 

 

3,480

 

 

3,146

 

Depreciation on premises and equipment

 

 

3,666

 

 

3,816

 

Amortization of intangible assets

 

 

2,291

 

 

1,613

 

FDIC loss-sharing expense

 

 

 —

 

 

1,661

 

Amortization of restricted stock awards

 

 

599

 

 

387

 

Compensation expense for stock option grants

 

 

413

 

 

315

 

Increase in cash surrender value of life insurance

 

 

(2,016)

 

 

(1,547)

 

Investment securities amortization, net

 

 

1,358

 

 

840

 

Other-than-temporary impairment on investment securities

 

 

 —

 

 

824

 

Gain on sales of investment securities, net

 

 

(219)

 

 

(315)

 

Gain on sales of other real estate owned

 

 

(54)

 

 

(112)

 

Write-down of other real estate owned

 

 

171

 

 

219

 

Origination of loans held for sale

 

 

(630,601)

 

 

(894,445)

 

Proceeds from sales of loans held for sale

 

 

679,217

 

 

907,306

 

Gain on loans sold and held for sale

 

 

(20,844)

 

 

(28,827)

 

Amortization of mortgage servicing rights

 

 

4,254

 

 

4,410

 

Impairment of mortgage servicing rights

 

 

1,830

 

 

6,093

 

Loss on mortgage servicing rights held for sale

 

 

3,617

 

 

 —

 

Net change in operating assets and liabilities:

 

 

 

 

 

 

 

Accrued interest receivable

 

 

(1,095)

 

 

(1,114)

 

Accrued interest payable

 

 

1,035

 

 

896

 

Accrued income taxes receivable

 

 

3,653

 

 

7,304

 

Other assets

 

 

159

 

 

460

 

Other liabilities

 

 

(2,341)

 

 

(2,620)

 

Net cash provided by operating activities

 

 

62,638

 

 

30,269

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Investment securities available for sale:

 

 

 

 

 

 

 

Purchases

 

 

(221,617)

 

 

(64,396)

 

Sales

 

 

11,250

 

 

31,191

 

Maturities and payments

 

 

192,791

 

 

22,038

 

Investment securities held to maturity:

 

 

 

 

 

 

 

Purchases

 

 

(2,929)

 

 

(2,401)

 

Maturities

 

 

10,480

 

 

6,646

 

Net increase in loans

 

 

(160,266)

 

 

(325,009)

 

Purchases of premises and equipment

 

 

(5,261)

 

 

(1,410)

 

Purchase of bank-owned life insurance

 

 

 —

 

 

(20,000)

 

Purchases of nonmarketable equity securities

 

 

(16,575)

 

 

(3,428)

 

Sales of nonmarketable equity securities

 

 

9,837

 

 

90

 

Proceeds from sales of other real estate owned

 

 

4,525

 

 

4,423

 

Net cash paid in acquisitions

 

 

(18,519)

 

 

 —

 

Net cash used in investing activities

 

 

(196,284)

 

 

(352,256)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Net (decrease) increase in deposits

 

 

(29,766)

 

 

52,384

 

Net increase in short-term borrowings

 

 

7,452

 

 

30,751

 

Proceeds from FHLB borrowings

 

 

347,357

 

 

850,000

 

Payments made on FHLB borrowings