Midland States Bancorp, Inc. Announces 2024 Third Quarter Results
Third Quarter 2024 Highlights:
Net income available to common shareholders of $16.2 million, or $0.74 per diluted share
Adjusted pre-tax, pre-provision earnings of $27.5 million
Tangible book value per share increased to $24.90, compared to $23.36 at June 30, 2024
Common equity tier 1 capital ratio improved to 9.00%, compared to 8.64% at June 30, 2024
Net interest margin of 3.10%, compared to 3.12% in prior quarter
Efficiency ratio of 62.8%, compared to 65.2% in prior quarter
EFFINGHAM, Ill., Oct. 24, 2024 (GLOBE NEWSWIRE) -- Midland States Bancorp, Inc. (NASDAQ:MSBI) (the "Company") today reported net income available to common shareholders of $16.2 million, or $0.74 per diluted share, for the third quarter of 2024, compared to $4.5 million, or $0.20 per diluted share, for the second quarter of 2024. This also compares to net income available to common shareholders of $9.2 million, or $0.41 per diluted share, for the third quarter of 2023.
Provision expense was $5.0 million in the third quarter of 2024 compared to $16.8 million and $5.2 million in the second quarter of 2024 and the third quarter of 2023, respectively. The elevated provision expense in the second quarter of 2024 was primarily due to credit deterioration and servicing issues involving one of our fintech partners, LendingPoint, subsequent to their system conversion in late 2023.
Jeffrey G. Ludwig, President and Chief Executive Officer of the Company, said, "We executed well in the third quarter and delivered a higher level of profitability while making continued progress on our balance sheet management strategies, which resulted in further increases in all of our capital ratios, an increase in our tangible book value per share, and an increase in our level of liquidity with a reduction in our loan-to-deposit ratio. We continue to utilize the payoffs resulting from the intentional reduction of our equipment finance and consumer portfolios to fund high quality loans generated in our community bank and the purchase of investment securities. We are also seeing good results from the investments we have made in the business, such as increasing our presence and business development efforts in the St. Louis market, where our loan balances increased at an annualized rate of 12% during the third quarter, and growth in our Wealth Management revenues due to an increase in assets under administration, partially driven by the new wealth advisors we have added in recent quarters.
Improving our credit quality is a priority and we are taking proactive steps to resolve problem loans in order to reduce our level of non-performing and classified loans going forward. We continue to closely monitor the health of our borrowers and be conservative in downgrading loans where we see the potential for weakness. We also recently added a new Chief Credit Officer whose background and experience is consistent with our increased focus on in-market relationship lending in our community bank, which will continue to result in a higher quality, lower risk loan portfolio.
"While we will remain conservative in new loan production while economic conditions remain uncertain, we are well positioned to benefit from lower interest rates and we expect positive trends in our net interest margin and revenue generated from our Wealth Management business. While maintaining disciplined expense control, we are continuing to make investments in talent and technology that will further enhance our ability to increase our market share, add attractive new client relationships in our community bank, and generate profitable growth. With the stronger balance sheet we are building, including a Total Capital Ratio of approximately 14%, we believe we are well positioned to support the continued growth of our franchise as economic conditions improve in the future and create additional value for our shareholders in the process," said Mr. Ludwig.
Balance Sheet Highlights
Total assets were $7.75 billion at September 30, 2024, compared to $7.76 billion at June 30, 2024, and $7.97 billion at September 30, 2023. At September 30, 2024, portfolio loans were $5.75 billion, compared to $5.85 billion at June 30, 2024, and $6.28 billion at September 30, 2023.
Loans
During the third quarter of 2024, outstanding loans declined by $103.2 million, or 1.8%, from June 30, 2024, as the Company continued to shrink its equipment financing and consumer loan portfolios, and focus on commercial loan opportunities in our community banking regions.
Equipment finance loan and lease balances decreased $30.0 million during the third quarter of 2024 as the Company continued to reduce its concentration of this product within the overall loan portfolio. Consumer loans decreased $82.8 million due to loan payoffs and a cessation in loans originated through GreenSky. Our Greensky-originated loan balances decreased $63.0 million during the third quarter to $475.3 million at September 30, 2024. In addition, as previously disclosed, during the fourth quarter of 2023, the Company ceased originating loans through LendingPoint. As of September 30, 2024, the Company had $96.5 million in loans that were originated through and serviced by LendingPoint. Equipment financing and consumer loans comprised 15.0% and 11.5%, respectively, of the loan portfolio at September 30, 2024, compared to 15.2% and 12.7%, respectively, at June 30, 2024.
Increases in commercial FHA warehouse lines and commercial real estate loans of $50.2 million and $89.0 million, respectively, were offset by decreases in all other loan categories.
As of
September 30,
June 30,
March 31,
December 31,
September 30,
(in thousands)
2024
2024
2024
2023
2023
Loan Portfolio
Commercial loans
$
863,922
$
939,458
$
913,564
$
951,387
$
943,761
Equipment finance loans
442,552
461,409
494,068
531,143
578,931
Equipment finance leases
417,531
428,659
455,879
473,350
485,460
Commercial FHA warehouse lines
50,198
—
8,035
—
48,547
Total commercial loans and leases
1,774,203
1,829,526
1,871,546
1,955,880
2,056,699
Commercial real estate
2,510,472
2,421,505
2,397,113
2,406,845
2,412,164
Construction and land development
422,253
476,528
474,128
452,593
416,801
Residential real estate
378,657
378,393
378,583
380,583
375,211
Consumer
663,234
746,042
837,092
935,178
1,020,008
Total loans
$
5,748,819
$
5,851,994
$
5,958,462
$
6,131,079
$
6,280,883
Loan Quality
Overall, credit quality metrics remained consistent this quarter compared to the second quarter of 2024, albeit, nonperforming loans were still at elevated levels. Non-performing loans increased $2.4 million to $114.6 million at September 30, 2024, compared to $112.1 million as of June 30, 2024. Substandard loans increased $32.0 million to $167.5 million at September 30, 2024, as compared to June 30, 2024, primarily due to two multi-family projects that were downgraded this past quarter.
As of and for the Three Months Ended
(in thousands)
September 30,
June 30,
March 31,
December 31,
September 30,
2024
2024
2024
2023
2023
Asset Quality
Loans 30-89 days past due
$
55,329
$
54,045
$
58,854
$
82,778
$
46,608
Nonperforming loans
114,556
112,124
104,979
56,351
55,981
Nonperforming assets
126,771
123,774
116,721
67,701
58,677
Substandard loans
167,549
135,555
149,049
184,224
143,793
Net charge-offs
11,379
2,874
4,445
5,117
3,449
Loans 30-89 days past due to total loans
0.96
%
0.92
%
0.99
%
1.35
%
0.74
%
Nonperforming loans to total loans
1.99
%
1.92
%
1.76
%
0.92
%
0.89
%
Nonperforming assets to total assets
1.64
%
1.60
%
1.49
%
0.86
%
0.74
%
Allowance for credit losses to total loans
1.49
%
1.58
%
1.31
%
1.12
%
1.06
%
Allowance for credit losses to nonperforming loans
74.90
%
82.22
%
74.35
%
121.56
%
119.09
%
Net charge-offs to average loans
0.78
%
0.20
%
0.30
%
0.33
%
0.22
%
The allowance for credit losses on loans totaled $85.8 million at September 30, 2024, compared to $92.2 million at June 30, 2024, and $66.7 million at September 30, 2023. The allowance as a percentage of total loans was 1.49% at September 30, 2024, compared to 1.58% at June 30, 2024, and 1.06% at September 30, 2023.
Notably, the Company recognized provision expense of $14.0 million in the second quarter of 2024 related to the loans originated and serviced by LendingPoint, increasing the allowance to $14.6 million on this portfolio. Credit deterioration and servicing issues following their system conversion have resulted in increased losses within this portfolio. In the third quarter of 2024, loans totaling $6.2 million were charged off. At September 30, 2024, the Company had an allowance of $8.3 million on the $96.5 million of loans serviced by LendingPoint.
Deposits
Total deposits were $6.26 billion at September 30, 2024, compared with $6.12 billion at June 30, 2024. Noninterest-bearing deposits decreased $57.9 million to $1.05 billion at September 30, 2024, while interest-bearing deposits increased $196.7 million to $5.21 billion at September 30, 2024. Brokered time deposits increased $138.0 million to $269.4 million, and represented 4.31% of total deposits at September 30, 2024.
As of
September 30,
June 30,
March 31,
December 31,
September 30,
(in thousands)
2024
2024
2024
2023
2023
Deposit Portfolio
Noninterest-bearing demand
$
1,050,617
$
1,108,521
$
1,212,382
$
1,145,395
$
1,154,515
Interest-bearing:
Checking
2,389,970
2,343,533
2,394,163
2,511,840
2,572,224
Money market
1,187,139
1,143,668
1,128,463
1,135,629
1,090,962
Savings
510,260
538,462
555,552
559,267
582,359
Time
849,413
852,415
845,190
862,865
885,858
Brokered time
269,437
131,424
188,234
94,533
119,084
Total deposits
$
6,256,836
$
6,118,023
$
6,323,984
$
6,309,529
$
6,405,002
Results of Operations Highlights
Net Interest Income and Margin
During the third quarter of 2024, net interest income and net interest margin, on a tax-equivalent basis, were $55.2 million and 3.10%, respectively, compared to $55.2 million and 3.12%, respectively, in the second quarter of 2024. Net interest income and net interest margin, on a tax-equivalent basis, were $58.8 million and 3.20%, respectively, in the third quarter of 2023.
Average interest-earning assets for the third quarter of 2024 were $7.07 billion, compared to $7.13 billion for the second quarter of 2024. The yield on interest-earning assets increased 7 basis points to 5.91% compared to the second quarter of 2024. Interest-earning assets averaged $7.28 billion for the third quarter of 2023.
Average loans were $5.78 billion for the third quarter of 2024, compared to $5.92 billion for the second quarter of 2024 and $6.30 billion for the third quarter of 2023. The yield on loans was 6.15% for the third quarter of 2024, up from 6.03% for the second quarter of 2024 and 5.93% for the third quarter of 2023.
Investment securities averaged $1.16 billion for the third quarter of 2024, and yielded 4.71%, compared to an average balance and yield of $1.10 billion and 4.69%, respectively, for the second quarter of 2024. The Company purchased additional higher-yielding investments resulting in the increased average balance and yield. Investment securities averaged $863.0 million for the third quarter of 2023.
Average interest-bearing liabilities for the third quarter of 2024 were $5.76 billion, compared to $5.78 billion for the second quarter of 2024. The cost of funds increased 9 basis points to 3.45% compared to the second quarter of 2024. Interest-bearing liabilities averaged $5.92 billion for the third quarter of 2023.
Average interest-bearing deposits were $5.13 billion for the third quarter of 2024, compared to $5.10 billion for the second quarter of 2024, and $5.35 billion for the third quarter of 2023. Cost of interest-bearing deposits was 3.25% in the third quarter of 2024, which represented a 14 basis point increase from the second quarter of 2024, due to increased competition.
For the Three Months Ended
(dollars in thousands)
September 30, 2024
June 30, 2024
September 30, 2023
Interest-earning assets
Average Balance
Interest & Fees
Yield/Rate
Average Balance
Interest & Fees
Yield/Rate
Average Balance
Interest & Fees
Yield/Rate
Cash and cash equivalents
$
75,255
$
1,031
5.45
%
$
65,250
$
875
5.40
%
$
78,391
$
1,036
5.24
%
Investment securities(1)
1,162,751
13,752
4.71
1,098,452
12,805
4.69
862,998
7,822
3.60
Loans(1)(2)
5,783,408
89,344
6.15
5,915,523
88,738
6.03
6,297,568
94,118
5.93
Loans held for sale
7,505
124
6.57
4,910
84
6.84
6,078
104
6.80
Nonmarketable equity securities
41,137
788
7.62
44,216
963
8.76
39,347
710
7.16
Total interest-earning assets
7,070,056
105,039
5.91
7,128,351
103,465
5.84
7,284,382
103,790
5.65
Noninterest-earning assets
653,279
669,370
622,969
Total assets
$
7,723,335
$
7,797,721
$
7,907,351
Interest-Bearing Liabilities
Interest-bearing deposits
$
5,132,640
$
41,970
3.25
%
$
5,101,365
$
39,476
3.11
%
$
5,354,356
$
37,769
2.80
%
Short-term borrowings
53,577
602
4.47
30,449
308
4.07
20,127
14
0.28
FHLB advances & other borrowings
428,739
4,743
4.40
500,758
5,836
4.69
402,500
4,557
4.49
Subordinated debt
89,120
1,228
5.48
93,090
1,265
5.47
93,441
1,280
5.43
Trust preferred debentures
50,990
1,341
10.46
50,921
1,358
10.73
50,379
1,369
10.78
Total interest-bearing liabilities
5,755,066
49,884
3.45
5,776,583
48,243
3.36
5,920,803
44,989
3.01
Noninterest-bearing deposits
1,075,712
1,132,451
1,116,988
Other noninterest-bearing liabilities
97,235
104,841
97,935
Shareholders' equity
795,322
783,846
771,625
Total liabilities and shareholder's equity
$
7,723,335
$
7,797,721
$
7,907,351
Net Interest Margin
$
55,155
3.10
%
$
55,222
3.12
%
$
58,801
3.20
%
Cost of Deposits
2.69
%
2.55
%
2.32
%
(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 September 30, 2024, June 30, 2024 and September 30, 2023, respectively.(2) Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.
For the nine months ended September 30, 2024, net interest income, on a tax-equivalent basis, decreased to $166.5 million, with a tax-equivalent net interest margin of 3.13%, compared to net interest income, on a tax-equivalent basis, of $178.6 million, and a tax-equivalent net interest margin of 3.27% for the nine months ended September 30, 2023.
The yield on earning assets increased 34 basis points to 5.84% for the nine months ended September 30, 2024 compared to the prior year. However, the cost of interest-bearing liabilities increased at a faster rate during this period, increasing 57 basis points to 3.34% for the nine months ended September 30, 2024.
For the Nine Months Ended
(dollars in thousands)
September 30, 2024
September 30, 2023
Interest-earning assets
Average Balance
Interest & Fees
Yield/Rate
Average Balance
Interest & Fees
Yield/Rate
Cash and cash equivalents
$
69,960
$
2,857
5.45
%
$
76,939
$
2,868
4.98
%
Investment securities(1)
1,083,597
37,265
4.59
844,946
21,103
3.33
Loans(1)(2)
5,903,216
267,570
6.05
6,324,578
274,005
5.79
Loans held for sale
5,281
263
6.65
3,900
179
6.14
Nonmarketable equity securities
40,429
2,438
8.06
44,034
2,104
6.39
Total interest-earning assets
7,102,483
310,393
5.84
7,294,397
300,259
5.50
Noninterest-earning assets
663,967
615,383
Total assets
$
7,766,450
$
7,909,780
Interest-Bearing Liabilities
Interest-bearing deposits
$
5,142,979
$
120,660
3.13
%
$
5,223,852
$
97,791
2.50
%
Short-term borrowings
49,750
1,746
4.69
26,865
53
0.26
FHLB advances & other borrowings
414,259
13,615
4.39
471,084
15,959
4.53
Subordinated debt
91,921
3,773
5.48
96,820
3,985
5.49
Trust preferred debentures
50,873
4,088
10.73
50,216
3,887
10.35
Total interest-bearing liabilities
5,749,782
143,882
3.34
5,868,837
121,675
2.77
Noninterest-bearing deposits
1,119,764
1,184,410
Other noninterest-bearing liabilities
107,192
84,650
Shareholders' equity
789,712
771,883
Total liabilities and shareholders' equity
$
7,766,450
$
7,909,780
Net Interest Margin
$
166,511
3.13
%
$
178,584
3.27
%
Cost of Deposits
2.57
%
2.04
%
(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 $0.6 million for each of the nine months ended September 30, 2024 and 2023, respectively.(2) Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.
Noninterest Income
Noninterest income was $19.3 million for the third quarter of 2024, compared to $17.7 million for the second quarter of 2024. Noninterest income for the second quarter of 2024 included a $0.2 million gain on the repurchase of subordinated debt, offset by $0.2 million of net losses on the sale of investment securities. The third quarter of 2023 included $5.0 million of losses on the sale of investment securities. Excluding these transactions, noninterest income for the third quarter of 2024, the second quarter of 2024, and the third quarter of 2023 was $19.3 million, $17.6 million, and $16.5 million, respectively.
For the Three Months Ended
For the Nine Months Ended
September 30,
June 30,
September 30,
September 30,
September 30,
(in thousands)
2024
2024
2023
2024
2023
Noninterest income
Wealth management revenue
$
7,104
$
6,801
$
6,288
$
21,037
$
18,968
Service charges on deposit accounts
3,411
3,121
3,149
9,648
8,744
Interchange revenue
3,506
3,563
3,609
10,427
10,717
Residential mortgage banking revenue
697
557
507
1,781
1,452
Income on company-owned life insurance
1,982
1,925
918
5,708
2,685
Loss on sales of investment securities, net
