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Midland States Bancorp, Inc. Announces 2019 First Quarter Results

Midland States Bancorp, Inc. Announces 2019 First Quarter Results

Highlights

  • Net income of $14.0 million, or $0.57 diluted earnings per share
  • Book value per share increased 2.3% to $26.08
  • Tangible book value per share increased 4.0% to $17.68
  • Definitive agreement to acquire HomeStar Financial Group, Inc. announced on April 2, 2019

EFFINGHAM, Ill., April 25, 2019 (GLOBE NEWSWIRE) -- Midland States Bancorp, Inc. (MSBI) (the “Company”) today reported net income of $14.0 million, or $0.57 diluted earnings per share, for the first quarter of 2019.  This compares to net income of $16.3 million, or $0.67 diluted earnings per share, for the fourth quarter of 2018, and net income of $1.8 million, or $0.08 diluted earnings per share, for the first quarter of 2018, which included $11.9 million in integration and acquisition expenses.

Jeffrey G. Ludwig, President and Chief Executive Officer of the Company, said, “Our first quarter performance reflects our focus on prudently managing our balance sheet to protect our net interest margin, growing our equipment financing business, and improving efficiencies through disciplined expense management.  We also continue to add value to our franchise through our acquisition strategy.  Our pending acquisition of HomeStar Financial Group, Inc. will enable us to add a community bank that shares our strong commitment to customer service and provides a leadership position in the Kankakee market.  HomeStar’s attractive deposit base will also provide liquidity to support our organic loan growth.  While being a relatively small transaction, we expect the acquisition of HomeStar to be highly accretive to earnings and create strong value for shareholders.”

Factors Affecting Comparability

The Company acquired Alpine Bancorporation, Inc. (“Alpine”) in February 2018. The financial position and results of operations of Alpine prior to its acquisition date are not included in the Company’s financial results.

Net Interest Income

Net interest income for the first quarter of 2019 was $45.6 million, a decrease of 6.0% from $48.5 million for the fourth quarter of 2018.  Excluding accretion income, net interest income decreased $1.2 million from the prior quarter.  Accretion income associated with purchased loan portfolios totaled $2.5 million for the first quarter of 2019, compared with $4.3 million for the fourth quarter of 2018. 

Relative to the first quarter of 2018, net interest income increased $7.4 million, or 19.4%.  Accretion income for the first quarter of 2018 was $2.0 million.  The increase in net interest income resulted from a $12.9 million increase in interest income on interest-earning assets, offset in part by a $5.5 million increase in interest expense.  These increases were due to the impact of the acquisition of Alpine, as well as organic growth.

Net Interest Margin

Net interest margin for the first quarter of 2019 was 3.73%, compared to 3.85% for the fourth quarter of 2018.  The Company’s net interest margin benefits from accretion income on purchased loan portfolios, which contributed 17 and 31 basis points to net interest margin in the first quarter of 2019 and fourth quarter of 2018, respectively.  Excluding the impact of accretion income, net interest margin increased two basis points from the fourth quarter of 2018, primarily due to the impact of higher average loan yields.

Relative to the first quarter of 2018, net interest margin increased from 3.69%.  Accretion income on purchased loan portfolios contributed 16 basis points to net interest margin in the first quarter of 2018.  Excluding the impact of accretion income, net interest margin increased three basis points from the first quarter of 2018, primarily due to the impact of higher average loan yields. 

Noninterest Income

Noninterest income for the first quarter of 2019 was $17.1 million, a decrease of 19.3% from $21.2 million for the fourth quarter of 2018.  The decrease was attributable to declines in most major noninterest income items. 

Relative to the first quarter of 2018, noninterest income increased 3.5% from $16.5 million.  The increase was attributable to growth in wealth management and community banking fees, partially due to the impact of the acquisition of Alpine.

Wealth management revenue for the first quarter of 2019 was $5.0 million, a decrease of 12.4% from $5.7 million in the fourth quarter of 2018, primarily due to lower estate fees and other one-time revenue items recorded in the prior quarter.  Compared to the first quarter of 2018, wealth management revenue increased 21.4%, which was primarily attributable to the addition of Alpine’s wealth management business.

Commercial FHA revenue for the first quarter of 2019 was $3.3 million, compared to $4.2 million in the fourth quarter of 2018.  Commercial FHA revenue in the fourth quarter of 2018 included a $1.4 million recapture of mortgage servicing rights impairment.  The Company originated $64.5 million in rate lock commitments during the first quarter of 2019, compared to $62.3 million in the prior quarter.  Compared to the first quarter of 2018, commercial FHA revenue declined 1.8%.

Other income for the first quarter of 2019 was $2.8 million, compared to $3.9 million in the fourth quarter of 2018.  The decrease was primarily attributable to a gain on proceeds from the Company’s bank-owned life insurance program recorded in the fourth quarter of 2018. Compared to the first quarter of 2018, other income decreased 21.7%.

Noninterest Expense

Noninterest expense for the first quarter of 2019 was $41.1 million, which included $0.2 million in integration and acquisition expenses, compared with $45.4 million for the fourth quarter of 2018, which included $0.6 million in integration and acquisition expenses.  The decrease was attributable to declines in most of the major noninterest expense items, as management has focused on controlling expenses.

Relative to the first quarter of 2018, noninterest expense decreased 17.0% from $49.5 million.  Excluding integration and acquisition expenses, noninterest expense increased 8.8% from $37.6 million.  The increase was primarily due to the addition of personnel and facilities from Alpine. 

Loan Portfolio

Total loans outstanding were $4.09 billion at March 31, 2019, compared with $4.14 billion at December 31, 2018 and $4.03 billion at March 31, 2018.  The decrease in total loans from December 31, 2018 was primarily attributable to a decline in the commercial real estate portfolio, which was partially offset by organic growth in commercial loans and leases.  Equipment financing balances increased $57.5 million from December 31, 2018, which are booked within the commercial loans and leases portfolio, reflecting management’s efforts to grow the equipment financing business.  The increase in total loans from March 31, 2018 was primarily attributable to organic growth in commercial loans and leases and consumer loans.

Deposits

Total deposits were $4.04 billion at March 31, 2019, compared with $4.07 billion at December 31, 2018, and $4.23 billion at March 31, 2018.  The decrease in total deposits from December 31, 2018 was primarily related to outflows of commercial deposits and a decrease in public funds.  

Asset Quality

Nonperforming loans totaled $49.3 million, or 1.20% of total loans, at March 31, 2019, compared with $42.9 million, or 1.04% of total loans, at December 31, 2018, and $26.5 million, or 0.66% of total loans, at March 31, 2018.  The increase in nonperforming loans from the end of the prior quarter was primarily attributable to the downgrade of one commercial real estate loan and one residential real estate loan during the first quarter of 2019.

Net charge-offs for the first quarter of 2019 were $1.1 million, or 0.10% of average loans on an annualized basis. 

The Company recorded a provision for loan losses of $3.2 million for the first quarter of 2019.  The Company’s allowance for loan losses was 0.56% of total loans and 46.9% of nonperforming loans at March 31, 2019, compared with 0.51% of total loans and 48.7% of nonperforming loans at December 31, 2018.  Fair market value discounts recorded in connection with acquired loan portfolios represented 0.47% of total loans at March 31, 2019, compared with 0.53% of total loans at December 31, 2018.

Capital

At March 31, 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:

  March 31, 2019 Well Capitalized
Regulatory Requirements
Total capital to risk-weighted assets 13.25% 10.00%
Tier 1 capital to risk-weighted assets 10.65% 8.00%
Tier 1 leverage ratio 8.92% 5.00%
Common equity Tier 1 capital 9.16% 6.50%
Tangible common equity to tangible assets (1) 7.74% NA
     

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

Conference Call, Webcast and Slide Presentation

The Company will host a conference call and webcast at 7:30 a.m. Central Time on Friday, April 26, 2019 to discuss its financial results.  The call can be accessed via telephone at (877) 516-3531; conference ID: 2075024.  A recorded replay can be accessed through May 3, 2019 by dialing (855) 859-2056; conference ID: 2075024.

A slide presentation relating to the first 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 March 31, 2019, the Company had total assets of approximately $5.64 billion and its Wealth Management Group had assets under administration of approximately $3.10 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 pending 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, Sr. V.P., Corporate Counsel, at dtucker@midlandsb.com or (217) 342-7321

                                         
MIDLAND STATES BANCORP, INC.
CONSOLIDATED FINANCIAL SUMMARY (unaudited)
                                         
    For the Quarter Ended  
    March 31,    December 31,    September 30,    June 30,    March 31, 
(dollars in thousands, except per share data)   2019   2018   2018   2018   2018
Earnings Summary                                        
Net interest income   $ 45,601     $ 48,535     $ 45,081     $ 48,286     $ 38,185  
Provision for loan losses     3,243       3,467       2,103       1,854       2,006  
Noninterest income     17,075       21,170       18,272       15,847       16,502  
Noninterest expense     41,097       45,375       50,317       46,452       49,499  
Income before income taxes     18,336       20,863       10,933       15,827       3,182  
Income taxes     4,354       4,527       2,436       3,045       1,376  
Net income     13,982       16,336       8,497       12,782       1,806  
Preferred stock dividends, net     34       34       35       36       36  
Net income available to common shareholders   $ 13,948     $ 16,302     $ 8,462     $ 12,746     $ 1,770  
                                         
Diluted earnings per common share   $ 0.57     $ 0.67     $ 0.35     $ 0.52     $ 0.08  
Weighted average shares outstanding - diluted     24,204,661       24,200,346       24,325,743       24,268,111       21,351,511  
Return on average assets     1.01 %     1.14 %     0.59 %     0.91 %     0.15 %
Return on average shareholders' equity     9.23 %     10.81 %     5.68 %     8.77 %     1.47 %
Return on average tangible common equity (1)     13.79 %     16.40 %     8.69 %     13.48 %     2.05 %
Net interest margin     3.73 %     3.85 %     3.59 %     3.91 %     3.69 %
Efficiency ratio (1)     64.73 %     65.50 %     63.02 %     67.76 %     68.39 %
                                         
Adjusted Earnings Performance Summary                                        
Adjusted earnings (1)   $ 14,098     $ 16,397     $ 15,632     $ 14,469     $ 10,265  
Adjusted diluted earnings per common share (1)   $ 0.58     $ 0.67     $ 0.64     $ 0.59     $ 0.48  
Adjusted return on average assets (1)     1.02 %     1.14 %     1.09 %     1.03 %     0.87 %
Adjusted return on average shareholders' equity (1)     9.31 %     10.85 %     10.45 %     9.93 %     8.34 %
Adjusted return on average tangible common equity (1)     13.90 %     16.46 %     16.02 %     15.27 %     11.86 %
                                         
(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  
    March 31,    December 31,    September 30,    June 30,    March 31, 
(in thousands, except per share data)   2019   2018   2018   2018   2018
Net interest income:                                      
Total interest income   $ 59,432     $ 61,592     $ 56,987     $ 58,283     $ 46,505  
Total interest expense     13,831       13,057       11,906       9,997       8,320  
Net interest income     45,601       48,535       45,081       48,286       38,185  
Provision for loan losses     3,243       3,467       2,103       1,854       2,006  
Net interest income after provision for loan losses     42,358       45,068       42,978       46,432       36,179  
Noninterest income:                                      
Wealth management revenue     4,953       5,651       5,467       5,316       4,079  
Commercial FHA revenue     3,270       4,194       3,130       326       3,330  
Residential mortgage banking revenue     834       1,041       1,154       2,116       1,418  
Service charges on deposit accounts     2,520       2,976       2,804       2,693       1,967  
Interchange revenue     2,680       2,941       2,759       2,929       2,045  
Gain (loss) on sales of investment securities, net     -       469       -       (70 )     65  
Other income     2,818       3,898       2,958       2,537       3,598  
Total noninterest income     17,075       21,170       18,272       15,847       16,502  
Noninterest expense:                                      
Salaries and employee benefits     22,039       23,020       22,528       23,467       28,395  
Occupancy and equipment     4,832       4,914       5,040       4,708       4,252  
Data processing     4,891       5,660       10,817       5,106       4,479  
Professional     2,073       2,752       3,087       3,185       3,758  
Amortization of intangible assets     1,810       1,852       1,853       1,576       1,675  
Loss on mortgage servicing rights held for sale     -       -       270       188       -  
Other expense     5,452       7,177       6,722       8,222       6,940  
Total noninterest expense     41,097       45,375       50,317       46,452       49,499  
Income before income taxes     18,336       20,863       10,933       15,827       3,182  
Income taxes     4,354       4,527       2,436       3,045       1,376  
Net income     13,982       16,336       8,497       12,782       1,806  
Preferred stock dividends, net     34       34       35       36       36  
Net income available to common shareholders   $ 13,948     $ 16,302     $ 8,462     $ 12,746     $ 1,770  
                                       
Basic earnings per common share   $ 0.58     $ 0.68     $ 0.35     $ 0.53     $ 0.08  
Diluted earnings per common share   $ 0.57     $ 0.67     $ 0.35     $ 0.52     $ 0.08  
                                       

 

                               
MIDLAND STATES BANCORP, INC.
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
                               
    As of
    March 31,    December 31,    September 30,    June 30,    March 31, 
(in thousands)   2019   2018   2018   2018   2018
Assets                              
Cash and cash equivalents   $ 276,480     $ 213,700     $ 242,433     $ 276,331     $ 331,183  
Investment securities     656,152       660,785       685,753       708,001       738,172  
Loans     4,092,106       4,137,551       4,156,282       4,095,811       4,029,150  
Allowance for loan losses     (23,091 )     (20,903 )     (19,631 )     (18,246 )     (17,704 )
Total loans, net     4,069,015       4,116,648       4,136,651       4,077,565       4,011,446  
Loans held for sale, at fair value     16,851       30,401       35,246       41,449       25,267  
Premises and equipment, net     94,514       94,840       95,062       94,783       95,332  
Other real estate owned     2,020       3,483       3,684       3,911       5,059  
Mortgage servicing rights, at lower of cost or fair value     52,957       53,447       51,626       52,381       56,427  
Mortgage servicing rights held for sale     257       3,545       4,419       4,806       3,962  
Intangible assets     35,566       37,376       39,228       41,081       46,473  
Goodwill     164,673       164,673       164,044       164,044       155,674  
Cash surrender value of life insurance policies     139,686       138,783       138,600       137,681       136,766  
Other assets     133,609       119,992       127,866       128,567       117,611  
Total assets   $ 5,641,780     $ 5,637,673     $ 5,724,612     $ 5,730,600     $ 5,723,372  
                               
Liabilities and Shareholders' Equity                              
Noninterest-bearing deposits   $ 941,344     $ 972,164     $ 991,311     $ 1,001,802     $ 1,037,710  
Interest-bearing deposits     3,094,944       3,102,006       3,151,895       3,158,055       3,196,105  
Total deposits     4,036,288       4,074,170       4,143,206       4,159,857       4,233,815  
Short-term borrowings     115,832       124,235       145,450       114,536       130,693  
FHLB advances and other borrowings     669,009       640,631       652,253       678,873       587,493  
Subordinated debt     94,174       94,134       94,093       94,053       94,013  
Trust preferred debentures     47,918       47,794       47,676       47,559       47,443  
Other liabilities     54,391       48,184       47,788       43,187       44,530  
Total liabilities     5,017,612       5,029,148       5,130,466       5,138,065       5,137,987  
Total shareholders’ equity     624,168       608,525       594,146       592,535       585,385  
Total liabilities and shareholders’ equity   $ 5,641,780     $ 5,637,673     $ 5,724,612     $ 5,730,600     $ 5,723,372  
                               

 

                                         
MIDLAND STATES BANCORP, INC.
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
                                         
    As of  
    March 31,    December 31,    September 30,    June 30,    March 31, 
(in thousands)   2019   2018   2018   2018   2018
Loan Portfolio                                        
Commercial loans and leases   $ 1,122,621     $ 1,074,935     $ 1,034,546     $ 991,164     $ 1,026,253  
Commercial real estate loans     1,560,427       1,639,155       1,711,926       1,711,296       1,773,510  
Construction and land development loans     239,376       232,229       239,480       247,889       234,837  
Residential real estate loans     569,051       578,048       586,134       601,808       570,321  
Consumer loans     600,631       613,184       584,196       543,654       424,229  
Total loans   $ 4,092,106     $ 4,137,551     $ 4,156,282     $ 4,095,811     $ 4,029,150  
                                         
Deposit Portfolio                                        
Noninterest-bearing demand deposits   $ 941,344     $ 972,164     $ 991,311     $ 1,001,802     $ 1,037,710  
Interest-bearing:                                        
Checking accounts     968,844       1,002,275       1,047,914       1,024,506       993,253  
Money market accounts     802,036       862,171       836,151       843,984       840,415  
Savings accounts     457,176       442,132       445,640       460,560       466,887  
Time deposits     685,700       633,787       633,654       638,215       672,034  
Brokered deposits     181,188       161,641       188,536       190,790       223,516  
Total deposits   $ 4,036,288     $ 4,074,170     $ 4,143,206     $ 4,159,857     $ 4,233,815  
                                         

 

                                         
MIDLAND STATES BANCORP, INC.
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
                                         
    For the Quarter Ended  
    March 31,    December 31,    September 30,    June 30,    March 31, 
(dollars in thousands)   2019   2018   2018   2018   2018
Average Balance Sheets                                        
Cash and cash equivalents   $ 152,078     $ 155,280     $ 154,526     $ 227,499     $ 138,275  
Investment securities     654,764       676,483       700,018       731,017       548,168  
Loans     4,128,893       4,139,831       4,106,367       3,982,958       3,477,917  
Loans held for sale     30,793       51,981       48,715       31,220       40,841  
Nonmarketable equity securities     44,279       42,708       42,770       38,872       34,890  
Total interest-earning assets     5,010,807       5,066,283       5,052,396       5,011,566       4,240,091  
Non-earning assets     618,996       624,378       639,323       639,864       536,750  
Total assets   $ 5,629,803     $ 5,690,661     $ 5,691,719     $ 5,651,430     $ 4,776,841  
                                         
Interest-bearing deposits   $ 3,093,979     $ 3,123,134     $ 3,172,422     $ 3,158,816     $ 2,675,339  
Short-term borrowings     135,337       143,869       139,215       120,794       148,703  
FHLB advances and other borrowings     673,250       645,642       608,153       573,107       489,567  
Subordinated debt     94,156       94,115       94,075       94,035       93,993  
Trust preferred debentures  null