Midland States Bancorp(US:MSBI)2022-11-03 20:42PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section provides Midland States Bancorp, Inc.'s unaudited consolidated financial statements as of September 30, 2022, along with detailed notes on accounting policies and key financial items Consolidated Balance Sheets Consolidated Balance Sheet Highlights (Unaudited) | Metric | September 30, 2022 ($ thousands) | December 31, 2021 ($ thousands) | Change | | :--- | :--- | :--- | :--- | | Total Assets | 7,821,877 | 7,443,805 | +5.1% | | Total Loans, net | 6,139,812 | 5,173,739 | +18.7% | | Goodwill | 161,904 | 161,904 | 0.0% | | Total Liabilities | 7,082,598 | 6,779,968 | +4.5% | | Total Deposits | 6,395,252 | 6,110,648 | +4.7% | | Total Shareholders' Equity | 739,279 | 663,837 | +11.4% | | Accumulated other comprehensive (loss) income | (78,383) | 5,237 | -1596.6% | - Total assets grew by 5.1% to $7.82 billion, primarily driven by an 18.7% increase in net loans. Total shareholders' equity increased by 11.4%, despite a significant swing to an accumulated other comprehensive loss of $78.4 million from income of $5.2 million, largely due to the issuance of preferred stock and retained earnings11 Consolidated Statements of Income Consolidated Income Statement Highlights (Unaudited) | Metric ($ thousands, except EPS) | Q3 2022 | Q3 2021 | YoY Change | Nine Months 2022 | Nine Months 2021 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | 64,024 | 51,396 | +24.6% | 182,185 | 153,374 | +18.8% | | Provision for Credit Losses | 6,974 | (184) | N/A | 16,582 | 2,926 | +466.7% | | Noninterest Income | 15,826 | 15,143 | +4.5% | 46,052 | 47,376 | -2.8% | | Noninterest Expense | 43,496 | 41,292 | +5.3% | 125,719 | 129,312 | -2.8% | | Net Income | 23,521 | 19,548 | +20.3% | 66,153 | 58,210 | +13.6% | | Diluted EPS | $1.04 | $0.86 | +20.9% | $2.92 | $2.55 | +14.5% | - Net income for Q3 2022 rose 20.3% year-over-year to $23.5 million, driven by a significant 24.6% increase in net interest income. This was partially offset by a $7.0 million provision for credit losses, compared to a small recapture in the prior-year quarter13 Consolidated Statements of Cash Flows Cash Flow Summary for the Nine Months Ended September 30 (Unaudited) | Cash Flow Activity ($ thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | 206,072 | 301,093 | | Net Cash used in Investing Activities | (900,971) | (85,189) | | Net Cash from Financing Activities | 327,716 | 105,099 | | Net (Decrease) Increase in Cash | (367,183) | 321,003 | - For the first nine months of 2022, cash and cash equivalents decreased by $367.2 million. The primary use of cash was a significant net increase in loans ($1.07 billion), which was funded by net cash from operations, a net increase in deposits, proceeds from an FHLB borrowing, and a preferred stock offering21 Notes to Consolidated Financial Statements - On June 17, 2022, the Company completed a branch acquisition from FNBC Bank & Trust, acquiring $79.8 million of deposits and $16.6 million of loans32 - On August 24, 2022, the Company issued $115.0 million of 7.75% fixed-rate reset non-cumulative perpetual preferred stock, Series A, which qualifies as Tier 1 capital. Net proceeds were $110.5 million after offering costs113114 - Subsequent to the quarter end, on October 24, 2022, the Company terminated $140.0 million notional amount of future-starting interest rate swaps, realizing a $17.6 million net gain143 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strong Q3 2022 performance, driven by significant net interest income growth and robust loan expansion, while maintaining strong capital ratios Results of Operations - Net income for Q3 2022 was $23.5 million ($1.04 diluted EPS), a 20.3% increase from $19.5 million ($0.86 diluted EPS) in Q3 2021. The growth was primarily driven by a $12.6 million increase in net interest income159 - Tax-equivalent net interest margin increased to 3.63% for Q3 2022 from 3.34% in Q3 2021, benefiting from loan growth and rising market interest rates157163 - The provision for credit losses was $7.0 million in Q3 2022, compared to a benefit of $0.2 million in Q3 2021, primarily due to the growth and changes in the mix of the loan portfolio185 - Noninterest income increased 4.5% in Q3 2022 vs Q3 2021. A $3.0 million impairment on commercial mortgage servicing rights in Q3 2021 did not recur, offsetting a $1.1 million decrease in residential mortgage banking revenue in Q3 2022188 - Noninterest expense increased by $2.2 million (5.3%) in Q3 2022 compared to Q3 2021, mainly due to a $1.8 million increase in other expenses from increased business activities and a $0.7 million rise in salaries and benefits193195 Financial Condition - Total assets increased by $378.1 million to $7.82 billion at September 30, 2022, from $7.44 billion at December 31, 2021198 - Total loans grew by $973.7 million (18.6%) since year-end 2021, driven by increases of $649.5 million in commercial real estate, $153.9 million in consumer loans, and $120.4 million in commercial loans and leases200 - The allowance for credit losses on loans was $58.6 million, or 0.95% of total loans, at September 30, 2022, compared to $51.1 million, or 0.98% of total loans, at year-end 2021208 - Nonperforming loans increased to $46.9 million (0.76% of total loans) from $42.6 million (0.81% of total loans) at year-end 2021. The ratio of nonperforming loans to total loans improved despite the dollar increase219 - Total deposits increased by $284.6 million to $6.40 billion since year-end 2021. There was a shift in deposit mix, with noninterest-bearing demand accounts decreasing by $220.5 million while interest-bearing checking and money market accounts grew by a combined $498.7 million234235 Capital Resources and Liquidity Management - Shareholders' equity increased by $75.4 million to $739.3 million since year-end 2021, primarily due to $110.5 million in net proceeds from a preferred stock offering and $66.2 million in net income, partially offset by an $83.6 million increase in accumulated other comprehensive loss and $19.4 million in common dividends239 Regulatory Capital Ratios as of September 30, 2022 | Ratio | Midland States Bancorp, Inc. (Actual) | Midland States Bank (Actual) | Well Capitalized Minimum | | :--- | :--- | :--- | :--- | | Total risk-based capital | 12.75% | 11.16% | 10.00% | | Tier 1 risk-based capital | 10.02% | 10.39% | 8.00% | | Common equity tier 1 | 7.54% | 10.39% | 6.50% | | Tier 1 leverage | 9.40% | 9.75% | 5.00% | - The Company and the Bank exceeded all regulatory minimums and met the definition of 'well-capitalized' as of September 30, 2022249 Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate risk, with an asset-sensitive balance sheet projecting increased net interest income in a rising rate environment, and all risk measures remaining within policy limits Net Interest Income (NII) at Risk Sensitivity Analysis | Immediate Rate Change | NII % Change (Sept 30, 2022) | NII % Change (Dec 31, 2021) | | :--- | :--- | :--- | | -100 bps | (4.6)% | (6.1)% | | +100 bps | +4.2% | +10.6% | | +200 bps | +8.4% | +21.2% | - The company's balance sheet is asset-sensitive, with a projected 4.2% increase in Net Interest Income over 12 months given a +100 basis point rate shock. This sensitivity has decreased significantly from the 10.6% projected at year-end 2021261262 Economic Value of Equity (EVE) Sensitivity Analysis | Immediate Rate Change | EVE % Change (Sept 30, 2022) | EVE % Change (Dec 31, 2021) | | :--- | :--- | :--- | | -100 bps | (0.7)% | (13.4)% | | +100 bps | +0.8% | +7.7% | | +200 bps | +1.8% | +14.5% | Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period269 - No material changes to the company's internal control over financial reporting occurred during the third quarter of 2022270 PART II. OTHER INFORMATION Legal Proceedings The company reports no material pending legal proceedings, with current lawsuits not expected to have a material effect on its operations - The company reports no material pending legal proceedings272 Risk Factors No material changes to the company's risk factors were reported since the Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to risk factors were reported since the last Annual Report on Form 10-K274 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered equity sales, repurchased 358 shares for employee programs, and had approximately $18.6 million remaining under its stock repurchase program - No unregistered sales of equity securities occurred during the period277 - As of September 30, 2022, approximately $18.6 million of repurchase authority remained under the company's stock repurchase program, which terminates on December 31, 2022279 Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial statements in iXBRL format