MSBI - Midland States Bancorp Inc. Announces 2024 First Quarter Results

First Quarter 2024 Highlights:

• Net income available to common shareholders of $11.7 million , or $0.53 per diluted share
• Pre-tax, pre-provision earnings of $32.2 million
• Tangible book value per share increased 0.4% from prior quarter to $23.44
• Common equity tier 1 capital ratio improved to 8.60% from 8.40%
• Net interest margin of 3.18% , compared to 3.21% in prior quarter
• Efficiency ratio of 58.0% , compared to 55.2% in prior quarter

EFFINGHAM, Ill., April 25, 2024 (GLOBE NEWSWIRE) -- Midland States Bancorp, Inc. (Nasdaq: MSBI) (the “Company”) today reported net income available to common shareholders of $11.7 million, or $0.53 per diluted share, for the first quarter of 2024, compared to $18.5 million, or $0.84 per diluted share, for the fourth quarter of 2023. This also compares to net income available to common shareholders of $19.5 million, or $0.86 per diluted share, for the first quarter of 2023.

Provision expense was $14.0 million in the first quarter of 2024 compared to $7.0 million and $3.1 million in the fourth and first quarters of 2023, respectively. The increase in provision expense was the result of a specific reserve of $8.0 million on a multi-family construction project.

Financial results for the fourth quarter of 2023 included a $1.1 million gain on the sale of shares of VISA B stock, offset by $2.9 million of losses on the sale of investment securities. Results for the first quarter of 2023 included $0.6 million of losses on the sale of investment securities. There were no adjustments to the financial results for the first quarter of 2024.

Excluding these transactions, adjusted earnings available to common shareholders were $19.8 million and $20.0 million, or $0.89 and $0.88 per diluted share, for the fourth and first quarters of 2023, respectively.

Jeffrey G. Ludwig, President and Chief Executive Officer of the Company, said, “Our first quarter reflects strong pre-tax, pre-provision results and our ongoing ability to deliver increased fee income and strong expense control. While our pre-tax pre-provision results generate solid profitability we did increase our reserves to reflect an increase in nonperforming loans. Our continued success in executing on our balance sheet management strategies resulted in the improvement in our loan-to-deposit ratio, tangible book value per share, and all of our capital ratios improved in the first quarter, even after the additional provision for credit losses.

“We continue to focus on high quality commercial relationships and our conservative approach to new loan production, including through the intentional runoff of equipment finance and consumer loans. We also continue to have success in growing our wealth management business, which contributed to the increase we had in non-interest income in the first quarter.

“As always, we continue to operate with a long-term perspective, and while we will maintain disciplined expense control, we will continue to invest in areas such as banking and wealth talent and technology that we believe will further strengthen our franchise and enhance our ability to continue creating long-term value for our shareholders,” said Mr. Ludwig.

Balance Sheet Highlights

Total assets were $7.83 billion at March 31, 2024, compared to $7.87 billion at December 31, 2023, and $7.93 billion at March 31, 2023. At March 31, 2024, portfolio loans were $5.96 billion, compared to $6.13 billion at December 31, 2023, and $6.35 billion at March 31, 2023.

Loans

During the first quarter of 2024, outstanding loans declined by $172.6 million, or 2.8%, from December 31, 2023, as the Company continued to originate loans in a more selective and deliberate approach to balance liquidity and funding costs. Increases in commercial FHA warehouse lines and construction and land development loans of $8.0 million and $21.5 million, respectively, were offset by decreases in all other loan categories. Equipment finance loan and lease balances decreased $54.5 million during the first quarter of 2024 as the Company continued to reduce its concentration of this product within the overall loan portfolio. Consumer loans decreased $98.1 million due to loan payoffs and a cessation in loans originated through GreenSky. Our Greensky-originated loan balances decreased $77.7 million during the first quarter to $606.0 million at March 31, 2024. In addition, as previously disclosed, during the fourth quarter of 2023, the Company ceased originating loans through LendingPoint. As of March 31, 2024, the Company had $112.7 million in loans that were originated through LendingPoint, which will continue to be serviced by LendingPoint.

Loan Quality

Overall, credit quality metrics declined this quarter compared to the fourth quarter of 2023. Non-performing loans increased $48.6 million to $105.0 million at March 31, 2024, compared to $56.4 million as of December 31, 2023. Four loans totaling $47.4 million account for the increase. Of these, three loans totaling $40.8 million are multi-family construction or multi-family projects. Loans 30-89 days past due decreased $23.9 million to $58.9 million as of March 31, 2024, compared to prior quarter end, as loans totaling $25.1 million were transferred to nonperforming status.

At March 31, 2023, loans 30-89 days past due totaled $30.9 million, non-performing loans were $50.7 million, and non-performing assets as a percentage of total assets were 0.74%.

The Company continued to increase its allowance for credit losses on loans during the first quarter of 2024. Notably, the Company recorded a specific reserve of $8.0 million on one large construction and land development loan. The allowance totaled $78.1 million at March 31, 2024, compared to $68.5 million at December 31, 2023, and $62.1 million at March 31, 2023. The allowance as a percentage of portfolio loans was 1.31% at March 31, 2024, compared to 1.12% at December 31, 2023, and 0.98% at March 31, 2023.

Deposits

Total deposits were $6.32 billion at March 31, 2024, compared with $6.31 billion at December 31, 2023, representing an increase of $14.5 million, primarily due to increases in noninterest bearing demand deposits and brokered time deposits, which were partially offset by seasonal outflows of servicing and public fund deposits. Noninterest-bearing deposits increased $67.0 million to $1.21 billion at March 31, 2024, while interest-bearing deposits decreased $52.5 million to $5.11 billion at March 31, 2024. Brokered time deposits increased $93.7 million to offset seasonal outflows of the servicing and public fund deposits.

Results of Operations Highlights

Net Interest Income and Margin

During the first quarter of 2024, net interest income, on a tax-equivalent basis, totaled $56.1 million, a decrease of $2.1 million, or 3.6%, compared to $58.3 million for the fourth quarter of 2023. The tax-equivalent net interest margin for the first quarter of 2024 was 3.18%, compared with 3.21% in the fourth quarter of 2023. Net interest income and net interest margin, on a tax-equivalent basis, were $60.7 million and 3.39%, respectively, in the first quarter of 2023. The declines in the net interest income and margin were largely attributable to increased market interest rates resulting in the cost of funding liabilities increasing at a faster rate than the yield on earning assets, as well as the impact of interest reversals on loans placed on non-accrual.

Average interest-earning assets for the first quarter of 2024 were $7.11 billion, compared to $7.20 billion for the fourth quarter of 2023. The yield decreased 2 basis points to 5.76% compared to the fourth quarter of 2023. Interest-earning assets averaged $7.26 billion for the first quarter of 2023.

Average loans were $6.01 billion for the first quarter of 2024, compared to $6.20 billion for the fourth quarter of 2023 and $6.32 billion for the first quarter of 2023. The yield on loans was 5.99% and 6.00% for the first quarter of 2024 and the fourth quarter of 2023, respectively.

Investment securities averaged $988.7 million for the first quarter of 2024, and yielded 4.36%, compared to an average balance and yield of $883.2 million and 4.16%, respectively, for the fourth quarter of 2023. The Company purchased additional higher-yielding investments resulting in the increased average balance and yield. Investment securities averaged $809.8 million for the first quarter of 2023.

Average interest-bearing deposits were $5.20 billion for the first quarter of 2024, compared to $5.30 billion for the fourth quarter of 2023, and $5.05 billion for the first quarter of 2023. Cost of interest-bearing deposits was 3.04% in the first quarter of 2024, which represented an 11 basis point increase from the fourth quarter of 2023. A competitive market, driven by rising interest rates and increased competition, contributed to the increase in deposit costs.

(1)   Interest income and average rates for tax-exempt loans and investment securities are presented on a tax-equivalent basis, assuming a federal income tax rate of 21%. Tax-equivalent adjustments totaled $0.2 million for each of the three months ended March 31, 2024, December 31, 2023 and March 31, 2023, respectively.

Noninterest Income

Noninterest income was $21.2 million for the first quarter of 2024, compared to $20.5 million for the fourth quarter of 2023. Noninterest income for the first quarter of 2024 included incremental servicing revenues of $3.7 million related to the Greensky portfolio. Noninterest income for the fourth quarter of 2023 included incremental servicing revenues of $2.2 million and $1.6 million related to our commercial FHA servicing portfolio and the Greensky portfolio, respectively. Also included was a $1.1 million one-time gain from the sale of Visa B stock, offset by $2.9 million of losses on the sale of investment securities. The first quarter of 2023 included $0.6 million of losses on the sale of investment securities. Excluding these transactions, noninterest income for the first quarter of 2024, the fourth quarter of 2023, and the first quarter of 2023 was $17.5 million, $18.5 million, and $16.4 million, respectively.

Wealth management revenue totaled $7.1 million in the first quarter of 2024, an increase of $0.5 million, or 8.0%, as compared to the fourth quarter of 2023. Assets under administration increased to $3.89 billion at March 31, 2024 from $3.73 billion at December 31, 2023, primarily due to improved market performance, resulting in an increase in revenue. In addition, the first quarter fees included seasonal tax preparation fees. Assets under administration totaled $3.50 billion at March 31, 2023.

Noninterest Expense

Noninterest expense was $44.9 million in the first quarter of 2024, compared to $44.5 million in both the fourth quarter of 2023, and the first quarter of 2023. The efficiency ratio increased to 58.03% for the quarter ended March 31, 2024, compared to 55.22% for the quarter ended December 31, 2023, and 57.64% for the quarter ended March 31, 2023.

Income Tax Expense

Income tax expense was $4.4 million for the first quarter of 2024, as compared to $6.4 million for the fourth quarter of 2023 and $6.9 million for the first quarter of 2023. The resulting effective tax rates were 23.9%, 23.7% and 24.0%, respectively.

Capital

At March 31, 2024, Midland States Bank and the Company exceeded all regulatory capital requirements under Basel III, and Midland States Bank met the qualifications to be a ‘‘well-capitalized’’ financial institution, as summarized in the following table:

(1) A non-GAAP financial measure. Refer to page 15 for a reconciliation to the comparable GAAP financial measure.
(2) Includes the capital conservation buffer of 2.5%.

The impact of rising interest rates on the Company’s investment portfolio and cash flow hedges resulted in an $81.4 million accumulated other comprehensive loss at March 31, 2024, which reduces tangible book value by $3.79 per share.

Stock Repurchase Program

As previously disclosed, on December 5, 2023, the Company’s board of directors authorized a new share repurchase program, pursuant to which the Company is authorized to repurchase up to $25.0 million of common stock through December 31, 2024. During the first quarter of 2024, the Company repurchased 73,781 shares of its common stock at a weighted average price of $26.31 under its stock repurchase program.

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, 2024, the Company had total assets of approximately $7.83 billion, and its Wealth Management Group had assets under administration of approximately $3.89 billion. The Company provides a full range of commercial and consumer banking products and services and business equipment financing, merchant credit card services, trust and investment management, insurance and financial planning services. For additional information, visit https://www.midlandsb.com/ or 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 Earnings Available to Common Shareholders,” “Adjusted Diluted Earnings Per Common Share,” “Adjusted Return on Average Assets,” “Adjusted Return on Average Shareholders’ Equity,” “Adjusted Return on Average Tangible Common Equity,” “Adjusted Pre-Tax, Pre-Provision Earnings,” “Adjusted Pre-Tax, Pre-Provision Return on Average Assets,” “Efficiency Ratio,” “Tangible Common Equity to Tangible Assets,” “Tangible Book Value Per Share,” “Tangible Book Value Per Share excluding Accumulated Other Comprehensive Income,” 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, the measures in this press release 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, the impact of inflation, continuing effects of the failures of Silicon Valley Bank and Signature Bank, increased deposit volatility and potential regulatory developments; changes in the financial markets; changes in business plans as circumstances warrant; risks relating to acquisitions; changes to U.S. tax laws, regulations and guidance; 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," "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
Eric T. Lemke, Chief Financial Officer, at elemke@midlandsb.com or (217) 342-7321
Douglas J. Tucker, SVP and Corporate Counsel, at dtucker@midlandsb.com or (217) 342-7321

(1) Non-GAAP financial measures. Refer to pages 13 - 15 for a reconciliation to the comparable GAAP financial measures.