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Midland States Bancorp, Inc. Announces 2018 Fourth Quarter Results

Highlights

  • Net income of $16.3 million, or $0.67 diluted earnings per share
  • Return on average assets of 1.14%
  • Return on average shareholders’ equity of 10.81% and return on average tangible common equity of 16.40%
  • Book value per share increased 2.2% to $25.50 and tangible book value per share increased 3.8% to $17.00

EFFINGHAM, Ill., Jan. 24, 2019 (GLOBE NEWSWIRE) -- Midland States Bancorp, Inc. (MSBI) (the “Company”) today reported net income of $16.3 million, or $0.67 diluted earnings per share, for the fourth quarter of 2018.  This compares to net income of $8.5 million, or $0.35 diluted earnings per share, for the third quarter of 2018, which included $9.6 million of integration and acquisition expenses, and net income of $2.0 million, or $0.10 diluted earnings per share, for the fourth quarter of 2017, which included $2.7 million in integration and acquisition expenses and $4.5 million in tax expense related to the revaluation of the Company’s net deferred tax assets as a result of the decrease in the federal corporate tax rate.

“Having successfully completed the integration of Alpine Bancorporation, we are delivering on the higher level of earnings and profitability that we projected from this transaction,” said Jeffrey G. Ludwig, President and Chief Executive Officer of the Company.  “We finished 2018 with positive trends in many areas including strong production from our commercial and consumer lending businesses, continued growth in our wealth management revenue, and an expansion in our net interest margin, excluding accretion income.  We are also very pleased with our strong capital generation, as our tangible book value per share increased nearly 4% in the fourth quarter, and we saw significant increases in all of our capital ratios.”

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 fourth quarter of 2018 was $48.5 million, an increase of 7.7% from $45.1 million for the third quarter of 2018.  Excluding accretion income, net interest income increased $0.9 million, which is a 7.9% annualized increase from prior quarter.  Accretion income associated with purchased loan portfolios totaled $4.3 million for the fourth quarter of 2018, compared with $1.7 million for the third quarter of 2018. 

Relative to the fourth quarter of 2017, net interest income increased $12.5 million, or 34.7%.  Accretion income for the fourth quarter of 2017 was $2.7 million.  The increase in net interest income resulted from an $18.1 million increase in interest income on interest-earning assets, offset in part by a $5.6 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 fourth quarter of 2018 was 3.85%, compared to 3.59% for the third quarter of 2018.  The Company’s net interest margin benefits from accretion income on purchased loan portfolios, which contributed 31 and 10 basis points to net interest margin in the fourth quarter of 2018 and third quarter of 2018, respectively.  Excluding the impact of accretion income, net interest margin increased five basis points from the third quarter of 2018, primarily due to the impact of higher average loan yields.

Relative to the fourth quarter of 2017, net interest margin increased from 3.73%.  Accretion income on purchased loan portfolios contributed 26 basis points to net interest margin in the fourth quarter of 2017.  Excluding the impact of accretion income, net interest margin increased seven basis points from the fourth quarter of 2017 primarily due to the impact of higher average loan yields. 

Noninterest Income

Noninterest income for the fourth quarter of 2018 was $21.2 million, an increase of 15.9% from $18.3 million for the third quarter of 2018.  The increase was primarily attributable to higher commercial FHA revenue, community banking fees, net gain on sales of investment securities, and other income. 

Relative to the fourth quarter of 2017, noninterest income increased 51.2% from $14.0 million.  The increase was attributable to growth in all fee generating areas, partially due to the impact of the acquisition of Alpine, with the exception of residential mortgage banking revenue.

Wealth management revenue for the fourth quarter of 2018 was $5.7 million, an increase of 3.4% from $5.5 million in the third quarter of 2018.  Compared to the fourth quarter of 2017, wealth management revenue increased 57.5%, which was primarily attributable to the addition of Alpine’s wealth management business.

Commercial FHA revenue for the fourth quarter of 2018 was $4.2 million, compared to $3.1 million in the third 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 $62.3 million in rate lock commitments during the fourth quarter of 2018, compared to $82.8 million in the prior quarter.  Compared to the fourth quarter of 2017, commercial FHA revenue increased 34.1%.

Other income for the fourth quarter of 2018 was $3.9 million, compared to $3.0 million in the third quarter of 2018.  The increase was primarily attributable to a gain on proceeds from our bank-owned life insurance program. Compared to the fourth quarter of 2017, other income increased 65.2%.

Noninterest Expense

Noninterest expense for the fourth quarter of 2018 was $45.4 million, which included $0.6 million in integration and acquisition expenses, compared with $50.3 million for the third quarter of 2018, which included $9.6 million in integration and acquisition expenses and $0.3 million in loss on mortgage servicing rights held for sale.  Excluding integration and acquisition expenses and loss on mortgage servicing rights held for sale, noninterest expense increased $4.3 million, or 10.7%, from the prior quarter.  The increase was primarily due to higher variable compensation and higher professional fees.

Relative to the fourth quarter of 2017, noninterest expense increased 25.4% from $36.2 million.  Excluding integration and acquisition expenses and loss on mortgage servicing rights held for sale, noninterest expense increased 35.6% from $33.1 million.  The increase was primarily due to the addition of personnel and facilities from Alpine. 

Loan Portfolio

Total loans outstanding were $4.14 billion at December 31, 2018, compared with $4.16 billion at September 30, 2018 and $3.23 billion at December 31, 2017.  The decrease in total loans from September 30, 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, and consumer lending.  Equipment financing balances increased $64.7 million from September 30, 2018, which are booked within the commercial loans and leases portfolio.  The increase in total loans from December 31, 2017 was primarily attributable to the addition of Alpine’s loans.

Deposits

Total deposits were $4.07 billion at December 31, 2018, compared with $4.14 billion at September 30, 2018, and $3.13 billion at December 31, 2017.  The decrease in total deposits from September 30, 2018 was primarily related to outflows of public funds and the runoff of brokered deposits.  The increase in total deposits from December 31, 2017 was primarily attributable to the addition of Alpine’s deposits.

Asset Quality

Nonperforming loans totaled $42.9 million, or 1.04% of total loans, at December 31, 2018, compared with $38.6 million, or 0.93% of total loans, at September 30, 2018, and $26.8 million, or 0.83% of total loans, at December 31, 2017. The increase in nonperforming loans during the fourth quarter of 2018 was primarily attributable to the downgrade of three commercial real estate loans.

Net charge-offs for the fourth quarter of 2018 were $2.2 million, or 0.21% of average loans on an annualized basis. 

The Company recorded a provision for loan losses of $3.5 million for the fourth quarter of 2018.  The Company’s allowance for loan losses was 0.51% of total loans and 48.7% of nonperforming loans at December 31, 2018, compared with 0.47% of total loans and 50.9% of nonperforming loans at September 30, 2018.  Fair market value discounts recorded in connection with acquired loan portfolios represented 0.53% of total loans at December 31, 2018, compared with 0.59% of total loans at September 30, 2018.

Capital

At December 31, 2018, 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:

  December 31,
2018
Well Capitalized
Regulatory Requirements
Total capital to risk-weighted assets 12.79% 10.00%
Tier 1 capital to risk-weighted assets 10.25% 8.00%
Tier 1 leverage ratio 8.53% 5.00%
Common equity Tier 1 capital 8.76% 6.50%
Tangible common equity to tangible assets (1) 7.43% 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, January 25, 2019 to discuss its financial results.  The call can be accessed via telephone at (877) 516-3531; passcode: 6178589.  A recorded replay can be accessed through February 1, 2019 by dialing (855) 859-2056; passcode: 6178589.

A slide presentation relating to the fourth quarter 2018 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 December 31, 2018, the Company had total assets of approximately $5.64 billion and its Wealth Management Group had assets under administration of approximately $2.95 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; 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  
    December 31,    September 30,    June 30,      March 31,        December 31,   
(dollars in thousands, except per share data)   2018   2018   2018   2018   2017
Earnings Summary                                        
Net interest income   $ 48,535     $ 45,081     $ 48,286     $ 38,185     $ 36,036  
Provision for loan losses     3,467       2,103       1,854       2,006       6,076  
Noninterest income     21,170       18,272       15,847       16,502       13,998  
Noninterest expense     45,375       50,317       46,452       49,499       36,192  
Income before income taxes     20,863       10,933       15,827       3,182       7,766  
Income taxes     4,527       2,436       3,045       1,376       5,775  
Net income     16,336       8,497       12,782       1,806       1,991  
Preferred stock dividends, net     34       35       36       36       37  
Net income available to common shareholders   $ 16,302     $ 8,462     $ 12,746     $ 1,770     $ 1,954  
                                         
Diluted earnings per common share   $ 0.67     $ 0.35     $ 0.52     $ 0.08     $ 0.10  
Weighted average shares outstanding - diluted     24,200,346       24,325,743       24,268,111       21,351,511       19,741,833  
Return on average assets     1.14 %     0.59 %     0.91 %     0.15 %     0.18 %
Return on average shareholders' equity     10.81 %     5.68 %     8.77 %     1.47 %     1.74 %
Return on average tangible common equity (1)     16.40 %     8.69 %     13.48 %     2.05 %     2.31 %
Net interest margin     3.85 %     3.59 %     3.91 %     3.69 %     3.73 %
Efficiency ratio (1)     65.50 %     63.02 %     67.76 %     68.39 %     64.64 %
                                         
Adjusted Earnings Performance Summary                                        
Adjusted earnings (1)   $ 16,397     $ 15,632     $ 14,469     $ 10,265     $ 8,403  
Adjusted diluted earnings per common share (1)   $ 0.67     $ 0.64     $ 0.59     $ 0.48     $ 0.42  
Adjusted return on average assets (1)     1.14 %     1.09 %     1.03 %     0.87 %     0.76 %
Adjusted return on average shareholders' equity (1)     10.85 %     10.45 %     9.93 %     8.34 %     7.34 %
Adjusted return on average tangible common equity (1)     16.46 %     16.02 %     15.27 %     11.86 %     9.88 %
                                         
(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
    December 31,    September 30,    June 30,    March 31,    December 31, 
(in thousands, except per share data)   2018   2018   2018   2018   2017
Net interest income:                                      
Total interest income   $ 61,592     $ 56,987     $ 58,283       $ 46,505     $ 43,500
Total interest expense     13,057       11,906       9,997         8,320       7,464
Net interest income     48,535       45,081       48,286         38,185       36,036
Provision for loan losses     3,467       2,103       1,854         2,006       6,076
Net interest income after provision for loan losses     45,068       42,978       46,432         36,179       29,960
Noninterest income:                                      
Commercial FHA revenue     4,194       3,130       326         3,330       3,127
Residential mortgage banking revenue     1,041       1,154       2,116         1,418       1,556
Wealth management revenue     5,651       5,467       5,316         4,079       3,587
Service charges on deposit accounts     2,976       2,804       2,693         1,967       1,828
Interchange revenue     2,941       2,759       2,929         2,045       1,538
Gain (loss) on sales of investment securities, net     469       -       (70 )       65       2
Other income     3,898       2,958       2,537         3,598       2,360
Total noninterest income     21,170       18,272       15,847         16,502       13,998
Noninterest expense:                                      
Salaries and employee benefits     23,020       22,528       23,467         28,395       17,344
Occupancy and equipment     4,914       5,040       4,708         4,252       3,859
Data processing     5,660       10,817       5,106         4,479       3,640
Professional     2,752       3,087       3,185         3,758       3,953
Amortization of intangible assets     1,852       1,853       1,576         1,675       1,035
Loss on mortgage servicing rights held for sale     -       270       188         -       442
Other expense     7,177       6,722       8,222         6,940       5,919
Total noninterest expense     45,375       50,317       46,452         49,499       36,192
Income before income taxes     20,863       10,933       15,827         3,182       7,766
Income taxes     4,527       2,436       3,045         1,376       5,775
Net income     16,336       8,497       12,782         1,806       1,991
Preferred stock dividends, net     34       35       36         36       37
Net income available to common shareholders   $ 16,302     $ 8,462     $ 12,746       $ 1,770     $ 1,954
                                       
Basic earnings per common share   $ 0.68     $ 0.35     $ 0.53       $ 0.08     $ 0.10
Diluted earnings per common share   $ 0.67     $ 0.35     $ 0.52       $ 0.08     $ 0.10
                                       

 

MIDLAND STATES BANCORP, INC.
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
                                       
    As of
    December 31,    September 30,    June 30,    March 31,    December 31, 
(in thousands)   2018   2018   2018   2018   2017
Assets                                      
Cash and cash equivalents   $ 213,700       $ 242,433       $ 276,331       $ 331,183       $ 215,202  
Investment securities     660,785         685,753         708,001         738,172         450,525  
Loans     4,137,551         4,156,282         4,095,811         4,029,150         3,226,678  
Allowance for loan losses     (20,903 )       (19,631 )       (18,246 )       (17,704 )       (16,431 )
Total loans, net     4,116,648         4,136,651         4,077,565         4,011,446         3,210,247  
Loans held for sale, at fair value     30,401         35,246         41,449         25,267         50,089  
Premises and equipment, net     94,840         95,062         94,783         95,332         76,162  
Other real estate owned     3,483         3,684         3,911         5,059         5,708  
Mortgage servicing rights, at lower of cost or fair value     53,447         51,626         52,381         56,427         56,352  
Mortgage servicing rights held for sale     3,545         4,419         4,806         3,962         10,176  
Intangible assets     37,376         39,228         41,081         46,473         16,932  
Goodwill     164,673         164,044         164,044         155,674         98,624  
Cash surrender value of life insurance policies     138,783         138,600         137,681         136,766         113,366  
Other assets     119,992         127,866         128,567         117,611         109,318  
Total assets   $ 5,637,673       $ 5,724,612       $ 5,730,600       $ 5,723,372       $ 4,412,701  
                                       
Liabilities and Shareholders' Equity                                      
Noninterest-bearing deposits   $ 972,164       $ 991,311       $ 1,001,802       $ 1,037,710       $ 724,443  
Interest-bearing deposits     3,102,006         3,151,895         3,158,055         3,196,105         2,406,646  
Total deposits     4,074,170         4,143,206         4,159,857         4,233,815         3,131,089  
Short-term borrowings     124,235         145,450         114,536         130,693         156,126  
FHLB advances and other borrowings     640,631         652,253         678,873         587,493         496,436  
Subordinated debt     94,134         94,093         94,053         94,013         93,972  
Trust preferred debentures     47,794         47,676         47,559         47,443         47,330  
Other liabilities     48,184         47,788         43,187         44,530         38,203  
Total liabilities     5,029,148         5,130,466         5,138,065         5,137,987         3,963,156  
Total shareholders’ equity     608,525         594,146         592,535         585,385         449,545  
Total liabilities and shareholders’ equity   $ 5,637,673       $ 5,724,612       $ 5,730,600       $ 5,723,372       $ 4,412,701  
                                       

 

MIDLAND STATES BANCORP, INC.
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
                                         
    As of  
    December 31,    September 30,    June 30,    March 31,    December 31, 
(in thousands)   2018   2018   2018   2018   2017
Loan Portfolio                                        
Commercial loans and leases   $ 1,074,935     $ 1,034,546     $ 991,164     $ 1,026,253     $ 761,073  
Commercial real estate loans     1,639,155       1,711,926       1,711,296       1,773,510       1,440,011  
Construction and land development loans     232,229       239,480       247,889       234,837       200,587  
Residential real estate loans     578,048       586,134       601,808       570,321       453,552  
Consumer loans     613,184       584,196       543,654       424,229       371,455  
Total loans   $ 4,137,551     $ 4,156,282     $ 4,095,811     $ 4,029,150     $ 3,226,678  
                                         
Deposit Portfolio                                        
Noninterest-bearing demand deposits   $ 972,164     $ 991,311     $ 1,001,802     $ 1,037,710     $ 724,443  
Interest-bearing:                                        
Checking accounts     1,002,275       1,047,914       1,024,506       993,253       785,934  
Money market accounts     862,171       836,151       843,984       840,415       646,426  
Savings accounts     442,132       445,640       460,560       466,887       281,212  
Time deposits     633,787       633,654       638,215       672,034       502,810  
Brokered deposits     161,641       188,536       190,790       223,516       190,264  
Total deposits   $ 4,074,170     $ 4,143,206     $ 4,159,857     $ 4,233,815     $ 3,131,089  
 

 

MIDLAND STATES BANCORP, INC.
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
                                         
    For the Quarter Ended  
    December 31,    September 30,    June 30,    March 31,    December 31, 
(dollars in thousands)   2018   2018   2018   2018   2017
Average Balance Sheets                                        
Cash and cash equivalents   $ 155,280     $ 154,526     $ 227,499     $ 138,275     $ 173,540  
Investment securities     676,483       700,018       731,017       548,168       461,475  
Loans     4,139,831       4,106,367       3,982,958       3,477,917       3,198,036  
Loans held for sale     51,981       48,715       31,220       40,841       40,615  
Nonmarketable equity securities     42,708       42,770       38,872       34,890       33,703  
Total interest-earning assets     5,066,283       5,052,396       5,011,566       4,240,091       3,907,369  
Non-earning assets     624,378       639,323       639,864       536,750       497,502  
Total assets   $ 5,690,661     $ 5,691,719     $ 5,651,430     $ 4,776,841     $ 4,404,871  
                                         
Interest-bearing deposits   $ 3,123,134     $ 3,172,422     $ 3,158,816     $ 2,675,339     $ 2,433,461  
Short-term borrowings     143,869       139,215       120,794       148,703       181,480  
FHLB advances and other borrowings     645,642       608,153       573,107       489,567       472,709  
Subordinated debt     94,115       94,075       94,035       93,993       88,832  
Trust preferred debentures     47,737       47,601       47,488       47,373       47,263  
Total interest-bearing liabilities     4,054,497       4,061,466       3,994,240       3,454,975       3,223,745  
Noninterest-bearing deposits     989,954       989,142       1,025,308       782,164       684,907  
Other noninterest-bearing liabilities     46,487       47,654       47,229       40,761       42,251  
Shareholders' equity     599,723       593,457       584,653       498,941       453,968  
Total liabilities and shareholders' equity   $ 5,690,661     $ 5,691,719     $ 5,651,430     $ 4,776,841     $ 4,404,871  
                                         
Yields                                        
Cash and cash equivalents     2.24 %     1.96 %     1.79 %     1.53 %     1.28 %
Investment securities     3.04 %     3.01 %     2.91 %     2.87 %     3.01 %
Loans     5.28 %     4.88 %     5.21 %     4.85 %     4.88 %
Loans held for sale     3.92 %     4.17 %     3.79 %     4.25 %     3.62 %
Nonmarketable equity securities     5.20 %     5.01 %     4.97 %     4.64 %     4.78 %
Total interest-earning assets     4.87 %     4.52 %     4.71 %     4.49 %     4.48 %
Interest-bearing deposits     0.86 %     0.77 %     0.64 %     0.62 %     0.58 %
Short-term borrowings     0.67 %     0.61 %     0.38 %     0.34 %     0.26 %
FHLB advances and other borrowings     2.26 %     2.09 %     1.81 %     1.55 %     1.42 %
Subordinated debt     6.43 %     6.44 %     6.44 %     6.44 %     6.46 %
Trust preferred debentures     6.93 %     6.81 %     6.59 %     5.94 %     5.51 %
Total interest-bearing liabilities     1.28 %     1.16 %     1.00 %     0.98 %     0.92 %
Net interest margin     3.85 %     3.59 %     3.91 %     3.69 %     3.73 %
                                         

 

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MIDLAND STATES BANCORP, INC.
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)