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Midland States Bancorp, Inc. Announces 2019 Second Quarter Results

Highlights

  • Net income of $16.4 million, or $0.67 diluted earnings per share
  • Book value per share increased 2.2% to $26.66
  • Tangible book value per share increased 3.8% to $18.36
  • Acquisition of HomeStar Financial Group, Inc. completed on July 17, 2019

EFFINGHAM, Ill., July 25, 2019 (GLOBE NEWSWIRE) --  Midland States Bancorp, Inc. (MSBI) (the “Company”) today reported net income of $16.4 million, or $0.67 diluted earnings per share, for the second quarter of 2019.  This compares to net income of $14.0 million, or $0.57 diluted earnings per share, for the first quarter of 2019, and net income of $12.8 million, or $0.52 diluted earnings per share, for the second quarter of 2018, which included $2.0 million in integration and acquisition expenses.

Jeffrey G. Ludwig, President and Chief Executive Officer of the Company, said, “We continue to execute well on our strategic priorities and deliver solid financial results for our shareholders.  We had another strong quarter of production in our equipment finance business, generated significant non-interest income from a diverse range of business lines, and continued to drive improved efficiencies throughout our organization.  We were very pleased to complete our acquisition of HomeStar Financial Group, Inc. in just over three months after announcing the transaction.  With its leading market position in Kankakee, Illinois, attractive deposit base, excess liquidity, and strong team of community bankers, we believe that HomeStar adds significant value to our franchise.”

Net Interest Income

Net interest income for the second quarter of 2019 was $46.1 million, an increase of 1.0% from $45.6 million for the first quarter of 2019.  Excluding accretion income, net interest income decreased $0.4 million from the prior quarter.  Accretion income associated with purchased loan portfolios totaled $3.4 million for the second quarter of 2019, compared with $2.5 million for the first quarter of 2019. 

Relative to the second quarter of 2018, net interest income decreased $2.2 million, or 4.6%.  Accretion income for the second quarter of 2018 was $5.5 million.  Excluding the impact of accretion income, net interest income was relatively unchanged compared to the second quarter of 2018.

Net Interest Margin

Net interest margin for the second quarter of 2019 was 3.76%, compared to 3.73% for the first quarter of 2019.  The Company’s net interest margin benefits from accretion income on purchased loan portfolios, which contributed 25 and 17 basis points to net interest margin in the second quarter of 2019 and first quarter of 2019, respectively.  Excluding the impact of accretion income, net interest margin decreased five basis points from the first quarter of 2019, primarily due to the impact of higher average deposit costs.

Relative to the second quarter of 2018, net interest margin decreased from 3.91%.  Accretion income on purchased loan portfolios contributed 40 basis points to net interest margin in the second quarter of 2018.  Excluding the impact of accretion income, net interest margin was unchanged compared to the second quarter of 2018. 

Noninterest Income

Noninterest income for the second quarter of 2019 was $19.6 million, an increase of 14.7% from $17.1 million for the first quarter of 2019.  The increase was attributable to increases in most major noninterest income items. 

Relative to the second quarter of 2018, noninterest income increased 23.6% from $15.8 million.  The increase was primarily attributable to higher commercial FHA revenue, partially offset by a decline in residential mortgage banking revenue.

Wealth management revenue for the second quarter of 2019 was $5.5 million, an increase of 11.1% from $5.0 million in the first quarter of 2019, primarily due to an increase in trust fees.  Compared to the second quarter of 2018, wealth management revenue increased 3.5%.

Commercial FHA revenue for the second quarter of 2019 was $4.9 million, compared to $3.3 million in the first quarter of 2019.  Commercial FHA revenue in the second quarter of 2019 included a $0.6 million recapture of mortgage servicing rights impairment, lower loan costs and an increase in gain premiums.  The Company originated $42.2 million in rate lock commitments during the second quarter of 2019, compared to $64.5 million in the prior quarter.  Compared to the second quarter of 2018, commercial FHA revenue increased $4.6 million.

Noninterest Expense

Noninterest expense for the second quarter of 2019 was $40.2 million, which included $0.3 million in integration and acquisition expenses and a $0.5 million gain on mortgage servicing rights held for sale, compared with $41.1 million for the first quarter of 2019, which included $0.2 million in integration and acquisition expenses.  The decrease was primarily attributable to lower salaries and employee benefits expense, partially offset by higher professional fees.

Relative to the second quarter of 2018, noninterest expense decreased 13.5% from $46.5 million, which included $2.0 million in integration and acquisition expenses and a $0.2 million loss on mortgage servicing rights held for sale.  Excluding these items, noninterest expense decreased 8.6% from $44.2 million.  The decrease was primarily due to lower salaries and employee benefits expense and certain non-recurring items that impacted expense levels in the second quarter of 2018.

Loan Portfolio

Total loans outstanding were $4.07 billion at June 30, 2019, compared with $4.09 billion at March 31, 2019 and $4.10 billion at June 30, 2018.  The decrease in total loans from March 31, 2019 was primarily attributable to declines in the commercial real estate and residential real estate portfolios, which was partially offset by organic growth in commercial loans and leases and construction and land development loans.  Equipment finance balances increased $74.0 million from March 31, 2019, which are booked within the commercial loans and leases portfolio, reflecting management’s efforts to grow the equipment finance business.  The decrease in total loans from June 30, 2018 was primarily attributable to a decline in commercial real estate and residential real estate loans, partially offset by organic growth in commercial loans and leases and consumer loans.

Deposits

Total deposits were $4.01 billion at June 30, 2019, compared with $4.04 billion at March 31, 2019, and $4.16 billion at June 30, 2018.  The decrease in total deposits from March 31, 2019 was primarily related to the intentional reduction of $111.7 million in brokered money market deposits and brokered time deposits.

Asset Quality

Nonperforming loans totaled $50.7 million, or 1.24% of total loans, at June 30, 2019, compared with $49.3 million, or 1.20% of total loans, at March 31, 2019, and $28.3 million, or 0.69% of total loans, at June 30, 2018.  

Net charge-offs for the second quarter of 2019 were $1.2 million, or 0.12% of average loans on an annualized basis. 

The Company recorded a provision for loan losses of $4.1 million for the second quarter of 2019, which included a specific reserve for one credit placed on non-accrual during the prior quarter.  The Company’s allowance for loan losses was 0.64% of total loans and 51.2% of nonperforming loans at June 30, 2019, compared with 0.56% of total loans and 46.9% of nonperforming loans at March 31, 2019.  Fair market value discounts recorded in connection with acquired loan portfolios represented 0.39% of total loans at June 30, 2019, compared with 0.47% of total loans at March 31, 2019.

Capital

At June 30, 2019, the Company exceeded all regulatory capital requirements under Basel III and was considered to be a ‘‘well-capitalized’’ financial institution, as summarized in the following table:

  June 30, 2019 Well Capitalized
Regulatory Requirements
Total capital to risk-weighted assets 13.49% 10.00%
Tier 1 capital to risk-weighted assets 10.85% 8.00%
Tier 1 leverage ratio 9.27% 5.00%
Common equity Tier 1 capital 9.38% 6.50%
Tangible common equity to tangible assets (1) 8.20% NA

(1)   A non-GAAP financial measure. Refer to page 14 for a reconciliation to the comparable GAAP financial measure.

Acquisition of HomeStar Financial Group, Inc.

On July 17, 2019, the Company completed its acquisition of HomeStar Financial Group, Inc. and its banking subsidiary, HomeStar Bank and Financial Services, which operates 5 locations in the Kankakee, Illinois area, and which the Company intends to merge into the Bank. The Company acquired HomeStar for consideration of approximately $1.0 million in cash and the issuance of 405,000 shares of the Company’s common stock.  At closing, HomeStar had approximately $374.4 million in assets, $219.5 million in loans, and $321.8 million in deposits.

Conference Call, Webcast and Slide Presentation

The Company will host a conference call and webcast at 7:30 a.m. Central Time on Friday, July 26, 2019 to discuss its financial results.  The call can be accessed via telephone at (877) 516-3531; conference ID: 8484268.  A recorded replay can be accessed through August 2, 2019 by dialing (855) 859-2056; conference ID: 8484268.

A slide presentation relating to the second quarter 2019 results will be accessible prior to the scheduled conference call.  The slide presentation and webcast of the conference call can be accessed on the Webcasts and Presentations page of the Company’s investor relations website.

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 June 30, 2019, the Company had total assets of approximately $5.55 billion and its Wealth Management Group had assets under administration of approximately $3.13 billion. Midland provides a full range of commercial and consumer banking products and services, business equipment financing, merchant credit card services, trust and investment management, and insurance and financial planning services. In addition, multi-family and healthcare facility FHA financing is provided through Love Funding, Midland’s non-bank subsidiary. For additional information, visit https://www.midlandsb.com/ or follow Midland on LinkedIn at 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 Diluted Earnings Per Common Share,” “Adjusted Return on Average Assets,” “Adjusted Return on Average Shareholders’ Equity,” “Adjusted Return on Average Tangible Common Equity,” “Efficiency Ratio,” “Tangible Common Equity to Tangible Assets,” “Tangible Book Value Per Share” 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, this presentation 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, including changes in the financial markets; changes in business plans as circumstances warrant; risks relating to acquisitions; 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" or "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 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
Stephen A. Erickson, Chief Financial Officer, at serickson@midlandsb.com or (217) 540-1712
Douglas J. Tucker, SVP and Corporate Counsel, at dtucker@midlandsb.com or (217) 342-7321



                                       
MIDLAND STATES BANCORP, INC.
CONSOLIDATED FINANCIAL SUMMARY (unaudited)
                                       
  For the Quarter Ended  
  June 30,    March 31,    December 31,    September 30,    June 30, 
(dollars in thousands, except per share data) 2019   2019   2018   2018   2018
Earnings Summary                                      
Net interest income $   46,077     $   45,601     $   48,535     $   45,081     $   48,286  
Provision for loan losses     4,076         3,243         3,467         2,103         1,854  
Noninterest income     19,587         17,075         21,170         18,272         15,847  
Noninterest expense     40,194         41,097         45,375         50,317         46,452  
Income before income taxes     21,394         18,336         20,863         10,933         15,827  
Income taxes     5,039         4,354         4,527         2,436         3,045  
Net income      16,355         13,982         16,336         8,497         12,782  
Preferred stock dividends, net     34         34         34         35         36  
Net income available to common shareholders $   16,321     $   13,948     $   16,302     $   8,462     $   12,746  
                                       
Diluted earnings per common share $   0.67     $   0.57     $   0.67     $   0.35     $   0.52  
Weighted average shares outstanding - diluted     24,303,211         24,204,661         24,200,346         24,325,743         24,268,111  
Return on average assets     1.17 %       1.01 %       1.14 %       0.59 %       0.91 %
Return on average shareholders' equity     10.43 %       9.23 %       10.81 %       5.68 %       8.77 %
Return on average tangible common equity (1)     15.34 %       13.79 %       16.40 %       8.69 %       13.48 %
Net interest margin     3.76 %       3.73 %       3.85 %       3.59 %       3.91 %
Efficiency ratio (1)     61.58 %       64.73 %       65.50 %       63.02 %       67.76 %
                                       
Adjusted Earnings Performance Summary                                      
Adjusted earnings (1) $ 16,196     $ 14,098     $ 16,397     $ 15,632     $ 14,469  
Adjusted diluted earnings per common share (1) $ 0.66     $ 0.58     $ 0.67     $ 0.64     $ 0.59  
Adjusted return on average assets (1)   1.16 %     1.02 %     1.14 %     1.09 %     1.03 %
Adjusted return on average shareholders' equity (1)   10.33 %     9.31 %     10.85 %     10.45 %     9.93 %
Adjusted return on average tangible common equity (1)   15.19 %     13.90 %     16.46 %     16.02 %     15.27 %
                                       
(1) Non-GAAP financial measures. Refer to pages 12 - 14 for a reconciliation to the comparable GAAP financial measures.                            

 

                                   
MIDLAND STATES BANCORP, INC.
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
 
  For the Quarter Ended
  June 30,    March 31,    December 31,    September 30,    June 30, 
(in thousands, except per share data) 2019   2019   2018   2018   2018
Net interest income:                                  
Total interest income $   60,636     $   59,432     $   61,592     $   56,987     $ 58,283  
Total interest expense     14,559         13,831         13,057         11,906       9,997  
Net interest income     46,077         45,601         48,535         45,081         48,286  
Provision for loan losses     4,076         3,243         3,467         2,103       1,854  
Net interest income after provision for loan losses     42,001         42,358         45,068         42,978         46,432  
Noninterest income:                                  
Wealth management revenue     5,504         4,953         5,651         5,467       5,316  
Commercial FHA revenue     4,917         3,270         4,194         3,130       326  
Residential mortgage banking revenue     611         834         1,041         1,154       2,116  
Service charges on deposit accounts     2,639         2,520         2,976         2,804       2,693  
Interchange revenue     3,010         2,680         2,941         2,759       2,929  
Gain (loss) on sales of investment securities, net     14         -         469         -       (70 )
Other income     2,892         2,818         3,898         2,958       2,537  
Total noninterest income     19,587         17,075         21,170         18,272         15,847  
Noninterest expense:                                  
Salaries and employee benefits     21,134         22,039         23,020         22,528       23,467  
Occupancy and equipment     4,500         4,832         4,914         5,040       4,708  
Data processing     4,987         4,891         5,660         10,817       5,106  
Professional     2,410         2,073         2,752         3,087       3,185  
Amortization of intangible assets     1,673         1,810         1,852         1,853       1,576  
(Gain) loss on mortgage servicing rights held for sale     (515 )       -         -         270         188  
Other expense     6,005         5,452         7,177         6,722       8,222  
Total noninterest expense     40,194         41,097         45,375         50,317         46,452  
Income before income taxes     21,394         18,336         20,863         10,933         15,827  
Income taxes     5,039         4,354         4,527         2,436       3,045  
Net income     16,355         13,982         16,336         8,497         12,782  
Preferred stock dividends, net     34         34         34         35       36  
Net income available to common shareholders $   16,321     $   13,948     $   16,302     $   8,462     $   12,746  
                                   
Basic earnings per common share $ 0.67     $ 0.58     $ 0.68     $ 0.35     $ 0.53  
Diluted earnings per common share $ 0.67     $ 0.57     $ 0.67     $ 0.35     $ 0.52  

 

                             
MIDLAND STATES BANCORP, INC.
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
                             
  As of
  June 30,    March 31,    December 31,    September 30,    June 30, 
(in thousands) 2019   2019   2018   2018   2018
Assets                            
Cash and cash equivalents $ 245,415     $ 276,480     $ 213,700     $ 242,433     $ 276,331  
Investment securities    613,026       656,152       660,785       685,753       708,001  
Loans   4,073,527       4,092,106       4,137,551       4,156,282       4,095,811  
Allowance for loan losses   (25,925 )     (23,091 )     (20,903 )     (19,631 )     (18,246 )
Total loans, net   4,047,602       4,069,015       4,116,648       4,136,651       4,077,565  
Loans held for sale, at fair value   22,143       16,851       30,401       35,246       41,449  
Premises and equipment, net   94,824       94,514       94,840       95,062       94,783  
Other real estate owned   3,797       2,020       3,483       3,684       3,911  
Mortgage servicing rights, at lower of cost or fair value   54,191       52,957       53,447       51,626       52,381  
Mortgage servicing rights held for sale   159       257       3,545       4,419       4,806  
Intangible assets   33,893       35,566       37,376       39,228       41,081  
Goodwill   164,673       164,673       164,673       164,044       164,044  
Cash surrender value of life insurance policies   140,593       139,686       138,783       138,600       137,681  
Other assets   125,739       133,609       119,992       127,866       128,567  
Total assets $ 5,546,055     $ 5,641,780     $ 5,637,673     $ 5,724,612     $ 5,730,600  
                             
Liabilities and Shareholders' Equity                            
Noninterest-bearing deposits $ 902,286     $ 941,344     $ 972,164     $ 991,311     $ 1,001,802  
Interest-bearing deposits   3,108,921       3,094,944       3,102,006       3,151,895       3,158,055  
Total deposits   4,011,207       4,036,288       4,074,170       4,143,206       4,159,857  
Short-term borrowings   113,844       115,832       124,235       145,450       114,536  
FHLB advances and other borrowings   582,387       669,009       640,631       652,253       678,873  
Subordinated debt   94,215       94,174       94,134       94,093       94,053  
Trust preferred debentures   48,041       47,918       47,794       47,676       47,559  
Other liabilities   56,473       54,391       48,184       47,788       43,187  
Total liabilities   4,906,167       5,017,612       5,029,148       5,130,466       5,138,065  
Total shareholders’ equity   639,888       624,168       608,525       594,146       592,535  
Total liabilities and shareholders’ equity $ 5,546,055     $ 5,641,780     $ 5,637,673     $ 5,724,612     $ 5,730,600  

 

                                       
MIDLAND STATES BANCORP, INC.
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
                                       
  As of  
  June 30,    March 31,    December 31,    September 30,    June 30, 
(in thousands) 2019   2019   2018   2018   2018
Loan Portfolio                                      
Commercial loans and leases $ 1,149,370     $ 1,122,621     $ 1,074,935     $ 1,034,546     $ 991,164  
Commercial real estate loans   1,524,369       1,560,427       1,639,155       1,711,926       1,711,296  
Construction and land development loans   250,414       239,376       232,229       239,480       247,889  
Residential real estate loans   552,406       569,051       578,048       586,134       601,808  
Consumer loans   596,968       600,631       613,184       584,196       543,654  
Total loans $ 4,073,527     $ 4,092,106     $ 4,137,551     $ 4,156,282     $ 4,095,811  
                                       
Deposit Portfolio                                      
Noninterest-bearing demand deposits $ 902,286     $ 941,344     $ 972,164     $ 991,311     $ 1,001,802  
Interest-bearing:                                      
Checking accounts   1,009,023       968,844       1,002,275       1,047,914       1,024,506  
Money market accounts   732,573       802,036       862,171       836,151       843,984  
Savings accounts   442,017       457,176       442,132       445,640       460,560  
Time deposits   785,337       685,700       633,787       633,654       638,215  
Brokered time deposits   139,971       181,188       161,641       188,536       190,790  
Total deposits $ 4,011,207     $ 4,036,288     $ 4,074,170     $ 4,143,206     $ 4,159,857  

 

                                       
MIDLAND STATES BANCORP, INC.
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
                                       
  For the Quarter Ended  
  June 30,    March 31,    December 31,    September 30,    June 30, 
(dollars in thousands) 2019   2019   2018   2018   2018
Average Balance Sheets                                      
Cash and cash equivalents $ 162,110     $ 152,078     $ 155,280     $ 154,526     $ 227,499  
Investment securities   636,946       654,764       676,483       700,018       731,017  
Loans   4,086,720       4,128,893       4,139,831       4,106,367       3,982,958  
Loans held for sale   40,177       30,793       51,981       48,715       31,220  
Nonmarketable equity securities   44,217       44,279       42,708       42,770       38,872  
Total interest-earning assets   4,970,170       5,010,807       5,066,283       5,052,396       5,011,566  
Non-earning assets   618,023       618,996       624,378       639,323       639,864  
Total assets $ 5,588,193     $ 5,629,803     $ 5,690,661     $ 5,691,719     $ 5,651,430  
                                       
Interest-bearing deposits $ 3,107,660     $ 3,093,979     $ 3,123,134     $ 3,172,422     $ 3,158,816  
Short-term borrowings   120,859       135,337       143,869       139,215       120,794  
FHLB advances and other borrowings   607,288       673,250       645,642       608,153       573,107  
Subordinated debt   94,196       94,156       94,115       94,075       94,035  
Trust preferred debentures   47,982       47,848       47,737       47,601       47,488  
Total interest-bearing liabilities   3,977,985       4,044,570       4,054,497       4,061,466       3,994,240  
Noninterest-bearing deposits   921,115       919,185       989,954       989,142       1,025,308  
Other noninterest-bearing liabilities   60,363       51,838       46,487       47,654       47,229  
Shareholders' equity   628,730       614,210       599,723       593,457       584,653  
Total liabilities and shareholders' equity $ 5,588,193     $ 5,629,803     $ 5,690,661     $ 5,691,719     $ 5,651,430  
                                       
Yields                                      
Cash and cash equivalents   2.43 %     2.42 %     2.24 %     1.96 %     1.79 %
Investment securities   3.11 %     3.07 %     3.04 %     3.01 %     2.91 %
Loans   5.32 %     5.22 %     5.28 %     4.88 %     5.21 %
Loans held for sale   4.50 %     3.94 %     3.92 %     4.17 %     3.79 %
Nonmarketable equity securities   5.42 %     5.69 %     5.20 %     5.01 %     4.97 %
Total interest-earning assets   4.94 %     4.85 %     4.87 %     4.52 %     4.71 %
Interest-bearing deposits   1.09 %     0.97 %     0.86 %     0.77 %     0.64 %
Short-term borrowings   0.70 %     0.71 %     0.67 %     0.61 %     0.38 %
FHLB advances and other borrowings   2.34 %     2.32 %     2.26 %     2.09 %     1.81 %
Subordinated debt   6.43 %     6.43 %     6.43 %     6.44 %     6.44 %
Trust preferred debentures   7.17 %     7.38 %     6.93 %     6.81 %     6.59 %
Total interest-bearing liabilities   1.47 %     1.39 %     1.28 %     1.16 %     1.00 %
Net interest margin   3.76 %     3.73 %     3.85 %     3.59 %     3.91 %

 

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