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Midland States Bancorp, Inc. Announces 2017 Fourth Quarter Results

Highlights

• Net income of $2.0 million, or $0.10 diluted earnings per share, included the following significant items

  • $0.23 per diluted share in tax expense due to the revaluation of deferred tax assets
  • $0.08 per diluted share of integration and acquisition expenses

• Two charge-offs drive $4.6 million increase in provision for loan losses compared to prior quarter, impacting EPS by $0.14 per diluted share

• Total loans increase at 9% annualized rate

• Efficiency ratio improves to 64.6% from 69.0% in third quarter 2017

• Acquisition of Alpine Bancorporation expected to close by the end of February 2018

EFFINGHAM, Ill., Jan. 25, 2018 (GLOBE NEWSWIRE) -- Midland States Bancorp, Inc. (NASDAQ:MSBI) (the “Company”) today reported financial results for the fourth quarter of 2017, which included $2.7 million, or $0.08 per diluted share, in integration and acquisition expenses, and $4.5 million, or $0.23 per diluted share, 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. Inclusive of these expenses, Midland reported net income of $2.0 million, or $0.10 diluted earnings per share, for the fourth quarter of 2017. This compares to net income of $2.0 million, or $0.10 diluted earnings per share, for the third quarter of 2017, and net income of $11.6 million, or $0.72 diluted earnings per share, for the fourth quarter of 2016.

“While our fourth quarter results were negatively impacted by the revaluation of our deferred tax assets, our level of profitability will benefit from a lower effective tax rate going forward,” said Leon J. Holschbach, President and Chief Executive Officer of the Company. “During the fourth quarter, we saw an improvement in balance sheet growth driven by strong loan production across our portfolio and solid inflows of core deposits. We had 9% annualized loan growth in the quarter with strong increases coming in our commercial, construction and consumer loan portfolios. As we continue to realize the synergies from the Centrue acquisition, we are also seeing an improvement in our efficiency ratio.

“In 2018, we will be focused on integrating our acquisition of Alpine Bancorporation, capturing the synergies we project from this transaction, and expanding our core community banking and wealth management businesses. With the higher earnings resulting from the lowering of our effective tax rate, we intend to strengthen our capital base following the Alpine acquisition, as well as continue to deliver strong dividend growth to our shareholders. Over the past 15 years, we have increased our dividend at an annual rate of more than 10%. With the greater earnings power we are projecting following the Alpine acquisition and the lower effective tax rate, we believe we will maintain our strong track record of returning capital to our shareholders.”

Adjusted Earnings

Financial results for the fourth quarter of 2017 included $4.5 million of additional tax expense related to the revaluation of the Company’s net deferred tax assets, $2.7 million in integration and acquisition-related expenses, and $0.4 million in loss on mortgage servicing rights (“MSRs”) held-for-sale. Financial results for the third quarter of 2017 included $8.3 million in integration and acquisition-related expenses and $3.6 million in loss on MSRs held-for-sale.

Excluding these expenses, adjusted earnings were $8.4 million, or $0.42 diluted earnings per share, for the fourth quarter of 2017, compared with adjusted earnings of $9.2 million, or $0.46 diluted earnings per share, for the third quarter of 2017. The decline in adjusted earnings per share is primarily attributable to an increase in the provision for loan losses. Adjusted pre-tax pre-provision earnings were $16.9 million for the fourth quarter of 2017, compared with $15.6 million for the third quarter of 2017. A reconciliation of adjusted earnings and adjusted pre-tax pre-provision earnings to net income according to generally accepted accounting principles (“GAAP”) is provided in the financial tables at the end of this press release.

Net Interest Income

Net interest income for the fourth quarter of 2017 was $36.0 million, a decrease of 2.0% from $36.8 million for the third quarter of 2017. The decrease in net interest income was primarily attributable to a decline in net interest margin.

The Company’s net interest income benefits from accretion income associated with purchased loan portfolios. Accretion income totaled $2.7 million for the fourth quarter of 2017, compared with $3.0 million for the third quarter of 2017.

Relative to the fourth quarter of 2016, net interest income increased $10.1 million, or 38.8%. Accretion income for the fourth quarter of 2016 was $2.2 million. The increase in net interest income resulted from a $12.5 million increase in interest income on loans due primarily to growth in the average balance of loans. This increase was offset in part by a $3.4 million increase in interest expense primarily due to interest-bearing deposits from Centrue combined with increased usage of FHLB advances and subordinated debt.

Net Interest Margin

Net interest margin for the fourth quarter of 2017 was 3.73%, compared to 3.78% for the third quarter of 2017. The Company’s net interest margin benefits from accretion income on purchased loan portfolios, which contributed 26 and 27 basis points to net interest margin in the fourth and third quarters of 2017, respectively. Excluding the impact of accretion income, the decrease in net interest margin was attributable to the addition of $40 million of subordinated debt issued in preparation for the acquisition of Alpine Bancorporation.

Relative to the fourth quarter of 2016, the net interest margin increased from 3.70%. Accretion income on purchased loan portfolios contributed 28 basis points to net interest margin in the fourth quarter of 2016. Excluding the impact of accretion income, the increase in net interest margin was primarily driven by higher average loans yields.

Noninterest Income

Noninterest income for the fourth quarter of 2017 was $14.0 million, a decrease of 9.1% from $15.4 million for the third quarter of 2017. This decrease was primarily attributable to lower commercial FHA and residential mortgage banking revenue.

Wealth management revenue for the fourth quarter of 2017 was $3.6 million, an increase of 3.2% from $3.5 million in the third quarter of 2017. Compared to the fourth quarter of 2016, wealth management revenue increased 43.8%, which was attributable to 12% organic growth in assets under management and the acquisition of CedarPoint Investment Advisors in March 2017.

Commercial FHA revenue for the fourth quarter of 2017 was $3.1 million, a decrease of 17.2% from $3.8 million in the third quarter of 2017. The Company originated $98.5 million in rate lock commitments during the fourth quarter of 2017, compared to $112.5 million in the prior quarter. Compared to the fourth quarter of 2016, commercial FHA revenue decreased 15.6%.

Residential mortgage banking revenue for the fourth quarter of 2017 was $1.6 million, a decrease of 32.8% from $2.3 million in the third quarter of 2017. Compared to the fourth quarter of 2016, residential mortgage banking revenue decreased 75.1%, primarily due to the recapture of previously recorded mortgage servicing rights impairment totaling $3.6 million during the fourth quarter of 2016.

Relative to the fourth quarter of 2016, noninterest income decreased 54.1% from $30.5 million. During the fourth quarter of 2016, the Company recognized a gain of $14.4 million related to the sale of collateralized mortgage obligations (“CMOs”).

Noninterest Expense

Noninterest expense for the fourth quarter of 2017 was $36.2 million, compared with $48.4 million for the third quarter of 2017. Noninterest expense for the fourth and third quarters of 2017 included $2.7 million and $8.3 million in integration and acquisition-related expenses, respectively, and $0.4 million and $3.6 million losses on MSRs held-for-sale, respectively. Excluding these expenses, noninterest expense decreased $3.4 million, or 9.3%, from the prior quarter. The decrease was attributable to a decline in salaries and employee benefits expense due to a 5.7% decrease in FTEs resulting from the continued integration of Centrue, as well as reduced variable compensation in the commercial FHA and residential mortgage businesses.

Relative to the fourth quarter of 2016, noninterest expense excluding integration and acquisition-related expenses, branch network optimization plan charges, loss share agreement termination expenses, and the loss on mortgage servicing rights held-for-sale increased 8.6% from $30.4 million. The increase was primarily due to personnel and facilities added in the two acquisitions completed over the past year, partially offset by cost savings resulting from the Company’s Operational Excellence initiative.

Income Tax Expense

Income tax expense was $5.8 million for the fourth quarter of 2017, compared to $0.3 million for the third quarter of 2017.

On December 22, 2017, “H.R.1”, formerly known as the “Tax Cuts and Jobs Act”, was signed into law. Among other items, H.R.1 reduces the federal corporate tax rate to 21% effective January 1, 2018. As a result, Midland concluded that the reduction in the federal corporate tax rate required the revaluation of the Company’s net deferred tax assets. The Company’s net deferred tax assets represents net operating loss carryforwards that will be used to reduce corporate taxes expected to be paid in the future as well as differences between the carrying amounts and tax bases of assets and liabilities carried on the Company’s balance sheet. The Company performed an analysis and determined that the value of the deferred tax assets had declined by $4.5 million. To reflect the decline in the value of the deferred tax assets, the Company recorded additional tax expense of $4.5 million during the fourth quarter of 2017.

For 2018, the Company expects its effective tax rate to be approximately 23%.

Loan Portfolio

Total loans outstanding were $3.23 billion at December 31, 2017, compared with $3.16 billion at September 30, 2017 and $2.32 billion at December 31, 2016. The increase in total loans from September 30, 2017 was primarily attributable to increases in the commercial, construction and consumer loan portfolios. The increase in total loans from December 31, 2016, was due to 9.8% organic growth and the addition of $679.9 million of loans from Centrue.

Deposits

Total deposits were $3.13 billion at December 31, 2017, compared with $3.11 billion at September 30, 2017, and $2.40 billion at December 31, 2016. The increase in total deposits from September 30, 2017 was primarily attributable to growth throughout the commercial, retail and servicing portfolios, which was partially offset by the continued reduction of brokered deposits.

Asset Quality

Non-performing loans totaled $26.8 million, or 0.83% of total loans, at December 31, 2017, compared with $33.4 million, or 1.06% of total loans, at September 30, 2017, and $31.6 million, or 1.36% of total loans, at December 31, 2016. The decrease in non-performing loans during the fourth quarter of 2017 was primarily driven by charge-offs.

Net charge-offs for the fourth quarter of 2017 were $6.5 million, or 0.81% of average loans on an annualized basis. The net charge-offs were primarily related to two commercial real estate loans.

The Company recorded a provision for loan losses of $6.1 million for the fourth quarter of 2017, which was driven by the growth in total loans outstanding and the net charge-offs taken in the quarter. The Company’s allowance for loan losses was 0.51% of total loans and 61.4% of non-performing loans at December 31, 2017, compared with 0.53% of total loans and 50.4% of non-performing loans at September 30, 2017. Fair market value discounts recorded in connection with acquired loan portfolios represented 0.51% of total loans at December 31, 2017, compared with 0.45% at September 30, 2017.

Capital

At December 31, 2017, 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, 2017Well Capitalized
Regulatory Requirements
Total capital to risk-weighted assets13.26%10.00%
Tier 1 capital to risk-weighted assets10.19%8.00%
Tier 1 leverage ratio8.63%5.00%
Common equity Tier 1 capital8.45%6.50%
Tangible common equity to tangible assets7.70%NA

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 26, 2018 to discuss its financial results. The call can be accessed via telephone at (877) 516-3531 (passcode: 5699319). A recorded replay can be accessed through February 2, 2018 by dialing (855) 859-2056; passcode: 5699319.

A slide presentation relating to the fourth quarter 2017 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, 2017, the Company had total assets of $4.4 billion and its Wealth Management Group had assets under administration of approximately $2.1 billion. Midland provides a full range of commercial and consumer banking products and services, merchant credit card services, trust and investment management, and insurance and financial planning services. In addition, commercial equipment financing is provided through Midland Equipment Finance, and multi-family and healthcare facility FHA financing is provided through Love Funding. For additional information, visit 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 accounting principles generally accepted in the United States (“GAAP”). These non-GAAP financial measures include “Adjusted Earnings,” “Adjusted Diluted Earnings Per 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,” “Efficiency Ratio,” “Tangible Common Equity to Tangible Assets,” “Tangible Book Value Per Share” and “Return on Average Tangible Common Equity.” The Company believes that 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," including but not limited to statements about the Company’s expected loan production, operating expenses 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 we do 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, Chief Financial Officer, at jludwig@midlandsb.com or (217) 342-7321
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) 2017 2017 2017 2017 2016
Earnings Summary
Net interest income $ 36,036 $ 36,765 $ 29,400 $ 27,461 $ 25,959
Provision for loan losses 6,076 1,489 458 1,533 2,445
Noninterest income 13,998 15,403 13,619 16,342 30,486
Noninterest expense 36,192 48,363 37,645 30,797 34,090
Income before income taxes 7,766 2,316 4,916 11,473 19,910
Income taxes 5,775 280 1,377 2,983 8,327
Net income $ 1,991 $ 2,036 $ 3,539 $ 8,490 $ 11,583
Diluted earnings per common share $0.10 $0.10 $0.20 $0.52 $0.72
Weighted average shares outstanding - diluted 19,741,833 19,704,217 17,320,089 16,351,637 16,032,016
Return on average assets 0.18% 0.18% 0.39% 1.05% 1.44%
Return on average shareholders' equity 1.74% 1.78% 3.93% 10.58% 14.05%
Return on average tangible common shareholders' equity 2.33% 2.39% 4.91% 12.78% 16.84%
Net interest margin 3.73% 3.78% 3.70% 3.87% 3.70%
Efficiency ratio 64.64% 69.00% 66.54% 66.34% 76.64%
Adjusted Earnings Performance Summary
Adjusted earnings $8,403 $9,173 $8,076 $9,243 $6,302
Adjusted diluted earnings per common share $0.42 $0.46 $0.46 $0.56 $0.39
Adjusted return on average assets 0.76% 0.82% 0.89% 1.14% 0.78%
Adjusted return on average shareholders' equity 7.34% 8.03% 8.97% 11.52% 7.64%
Adjusted return on average tangible common shareholders' equity 9.83% 10.77% 11.21% 13.91% 9.16%

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) 2017 2017 2017 2017 2016
Net interest income:
Total interest income $43,500 $43,246 $34,528 $31,839 $29,981
Total interest expense 7,464 6,481 5,128 4,378 4,022
Net interest income 36,036 36,765 29,400 27,461 25,959
Provision for loan losses 6,076 1,489 458 1,533 2,445
Net interest income after provision for loan losses 29,960 35,276 28,942 25,928 23,514
Noninterest income:
Commercial FHA revenue 3,127 3,777 4,153 6,695 3,704
Residential mortgage banking revenue 1,556 2,317 2,330 2,916 6,241
Wealth management revenue 3,587 3,475 3,406 2,872 2,495
Service charges on deposit accounts 1,828 2,133 1,122 892 988
Interchange revenue 1,538 1,724 1,114 977 921
Gain on sales of investment securities, net 2 98 55 67 14,387
Other income 2,360 1,879 1,439 1,923 1,750
Total noninterest income 13,998 15,403 13,619 16,342 30,486
Noninterest expense:
Salaries and employee benefits 17,344 22,411 21,842 17,115 17,326
Occupancy and equipment 3,859 4,144 3,472 3,184 3,266
Data processing 3,640 5,786 2,949 2,796 2,828
Professional 3,611 4,151 3,142 2,992 2,898
Amortization of intangible assets 1,035 1,187 579 525 534
Loss on mortgage servicing rights held for sale 442 3,617 - - -
Other 6,261 7,067 5,661 4,185 7,238
Total noninterest expense 36,192 48,363 37,645 30,797 34,090
Income before income taxes 7,766 2,316 4,916 11,473 19,910
Income taxes 5,775 280 1,377 2,983 8,327
Net income $1,991 $2,036 $3,539 $8,490 $11,583
Basic earnings per common share $0.10 $0.10 $0.21 $0.54 $0.74
Diluted earnings per common share $0.10 $0.10 $0.20 $0.52 $0.72

MIDLAND STATES BANCORP, INC.
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
At Quarter Ended
December 31, September 30, June 30, March 31, December 31,
(in thousands) 2017 2017 2017 2017 2016
Assets
Cash and cash equivalents $215,202 $183,572 $334,356 $218,096 $190,716
Investment securities available-for-sale at fair value 450,525 396,985 385,340 259,332 246,339
Investment securities held to maturity at amortized cost - 70,867 75,371 76,276 78,672
Loans 3,226,678 3,157,972 3,184,063 2,454,950 2,319,976
Allowance for loan losses (16,431) (16,861) (15,424) (15,805) (14,862)
Total loans, net 3,210,247 3,141,111 3,168,639 2,439,145 2,305,114
Loans held for sale at fair value 50,089 35,874 41,689 39,900 70,565
Premises and equipment, net 76,162 80,941 76,598 66,914 66,692
Other real estate owned 5,708 6,379 7,036 3,680 3,560
Mortgage servicing rights at lower of cost or market 56,352 56,299 70,277 68,557 68,008
Mortgage servicing rights held for sale 10,176 10,618 - - -
Intangible assets 16,932 17,966 18,459 8,633 7,187
Goodwill 98,624 97,351 96,940 50,807 48,836
Cash surrender value of life insurance policies 113,366 112,591 111,802 74,806 74,226
Other assets 109,318 137,207 105,135 67,431 73,808
Total assets $4,412,701 $4,347,761 $4,491,642 $3,373,577 $3,233,723
Liabilities and Shareholders' Equity
Noninterest bearing deposits $724,443 $674,118 $780,803 $528,021 $562,333
Interest bearing deposits 2,406,646 2,440,349 2,552,228 1,999,455 1,842,033
Total deposits 3,131,089 3,114,467 3,333,031 2,527,476 2,404,366
Short-term borrowings 156,126 153,443 170,629 124,035 131,557
FHLB advances and other borrowings 496,436 488,870 400,304 250,353 237,518
Subordinated debt 93,972 54,581 54,556 54,532 54,508
Trust preferred debentures 45,379 45,267 45,156 37,496 37,405
Other liabilities 40,154 40,444 36,014 45,352 46,599
Total liabilities 3,963,156 3,897,072 4,039,690 3,039,244 2,911,953
Total shareholders’ equity 449,545 450,689 451,952 334,333 321,770
Total liabilities and shareholders’ equity $4,412,701 $4,347,761 $4,491,642 $3,373,577 $3,233,723

MIDLAND STATES BANCORP, INC.
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
As of
December 31, September 30, June 30, March 31, December 31,
(in thousands) 2017 2017 2017 2017 2016
Loan Portfolio
Commercial loans $555,930 $513,544 $571,111 $475,408 $457,827
Commercial real estate loans 1,440,011 1,472,284 1,470,487 997,200 969,615
Construction and land development loans 200,587 182,513 176,098 171,047 177,325
Residential real estate loans 453,552 445,747 428,464 277,402 253,713
Consumer loans 371,455 343,038 335,902 337,081 270,017
Lease financing loans 205,143 200,846 202,001 196,812 191,479
Total loans $3,226,678 $3,157,972 $3,184,063 $2,454,950 $2,319,976
Deposit Portfolio
Noninterest-bearing demand deposits $724,443 $674,118 $780,803 $528,021 $562,333
Checking accounts 785,935 800,649 841,640 751,193 656,248
Money market accounts 646,426 633,844 578,077 415,322 399,851
Savings accounts 281,212 278,977 291,912 169,715 166,910
Time deposits 502,810 493,777 525,647 394,508 400,304
Brokered deposits 190,263 233,102 314,952 268,717 218,720
Total deposits $3,131,089 $3,114,467 $3,333,031 $2,527,476 $2,404,366

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) 2017 2017 2017 2017 2016
Average Balance Sheets
Cash and cash equivalents $173,540 $202,407 $192,483 $163,595 $140,439
Investment securities 461,475 474,216 362,268 328,880 315,511
Loans 3,198,036 3,173,027 2,620,875 2,361,380 2,299,115
Loans held for sale 40,615 46,441 61,759 73,914 86,665
Nonmarketable equity securities 33,703 31,224 22,246 20,047 18,927
Total interest-earning assets 3,907,369 3,927,315 3,259,631 2,947,816 2,860,657
Non-earning assets 497,502 498,364 372,525 336,761 337,566
Total assets $4,404,871 $4,425,679 $3,632,156 $3,284,577 $3,198,223
Interest-bearing deposits $2,433,461 $2,527,490 $2,116,564 $1,896,569 $1,838,760
Short-term borrowings 181,480 182,015 146,144 143,583 151,191
FHLB advances and other borrowings 472,709 434,860 290,401 248,045 183,614
Subordinated debt 88,832 54,570 54,542 54,518 54,495
Trust preferred debentures 45,312 45,201 39,179 37,443 37,357
Total interest-bearing liabilities 3,221,794 3,244,136 2,646,830 2,380,158 2,265,417
Noninterest-bearing deposits 684,907 688,986 579,977 525,868 562,958
Other noninterest-bearing liabilities 44,202 39,240 44,014 53,109 41,962
Shareholders' equity 453,968 453,317 361,335 325,442 327,886
Total liabilities and shareholders' equity $4,404,871 $4,425,679 $3,632,156 $3,284,577 $3,198,223
Yields
Cash and cash equivalents 1.28% 1.19% 1.02% 0.77% 0.53%
Investment securities 3.01% 2.86% 3.33% 3.21% 3.10%
Loans 4.88% 4.90% 4.71% 4.91% 4.65%
Loans held for sale 3.62% 3.74% 4.67% 4.22% 4.22%
Nonmarketable equity securities 4.78% 4.20% 4.31% 4.41% 3.85%
Total interest-earning assets 4.48% 4.44% 4.33% 4.47% 4.26%
Interest-bearing deposits 0.58% 0.53% 0.53% 0.51% 0.48%
Short-term borrowings 0.26% 0.22% 0.23% 0.23% 0.22%
FHLB advances and other borrowings 1.42% 1.36% 1.16% 0.93% 0.78%
Subordinated debt 6.46% 6.40% 6.40% 6.40% 6.41%
Trust preferred debentures 5.75% 5.60% 5.37% 5.12% 4.99%
Total interest-bearing liabilities 0.92% 0.79% 0.78% 0.75% 0.71%
Net interest margin 3.73% 3.78% 3.70% 3.87% 3.70%

MIDLAND STATES BANCORP, INC.
CONSOLIDATED FINANCIAL SUMMARY (unaudited) (continued)
As of and for the Quarter Ended
December 31, September 30, June 30, March 31, December 31,
(dollars in thousands, except per share data) 2017 2017 2017 2017 2016
Asset Quality
Loans 30-89 days past due $15,405 $13,526 $13,566 $14,075 $10,767
Nonperforming loans 26,760 33,431 27,615 28,933 31,603
Nonperforming assets 30,894 38,109 33,150 31,684 34,550
Net charge-offs 6,506 52 839 590 3,142
Loans 30-89 days past due to total loans 0.48% 0.43% 0.43% 0.57% 0.46%
Nonperforming loans to total loans 0.83% 1.06% 0.87% 1.18% 1.36%
Nonperforming assets to total assets 0.70% 0.88% 0.74% 0.94% 1.07%
Allowance for loan losses to total loans 0.51% 0.53% 0.48% 0.64% 0.64%
Allowance for loan losses to nonperforming loans 61.40% 50.43% 55.81% 54.62% 47.03%
Net charge-offs to average loans 0.81% 0.01% 0.13% 0.10% 0.54%
Wealth Management
Trust assets under administration $2,051,249 $2,001,106 $1,929,513 $1,869,314 $1,658,235
Market Data
Book value per share at period end $23.35 $23.45 $23.51 $21.19 $20.78
Tangible book value per share at period end $17.31 $17.41 $17.47 $17.42 $17.16
Market price at period end $32.48 $31.68 $33.52 $34.39 $36.18
Shares outstanding at period end 19,122,049 19,093,153 19,087,409 15,780,651 15,483,499
Capital
Total capital to risk-weighted assets 13.26% 12.21% 11.98% 13.48% 13.85%
Tier 1 capital to risk-weighted assets 10.19% 10.20% 10.05% 10.97% 11.27%
Tier 1 leverage ratio 8.63% 8.54% 10.45% 9.61% 9.76%
Common equity Tier 1 capital ratio 8.45% 8.50% 8.36% 9.10% 9.35%
Tangible common equity to tangible assets 7.70% 7.85% 7.62% 8.29% 8.36%


MIDLAND STATES BANCORP, INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
Adjusted Earnings Reconciliation
For the Quarter Ended
December 31, September 30, June 30, March 31, December 31,
(in thousands, except per share data)2017 2017 2017 2017 2016
Income before income taxes - GAAP$7,766 $2,316 $4,916 $11,473 $19,910
Adjustments to noninterest income:
Gain on sales of investment securities, net 2 98 55 67 14,387
Gain (loss) on sale of other assets 37 45 (91) (58) -
Total adjustments to noninterest income 39 143 (36) 9 14,387
Adjustments to noninterest expense:
Net expense from loss share termination agreement - - - - 351
Branch network optimization plan charges 371 336 1,236 9 2,099
Loss on mortgage servicing rights held for sale 442 3,617 - - -
Integration and acquisition expenses 2,315 7,967 6,214 1,242 1,200
Total adjustments to noninterest expense 3,128 11,920 7,450 1,251 3,650
Adjusted earnings pre tax 10,855 14,093 12,402 12,715 9,173
Adjusted earnings tax (a) 6,992 4,920 4,326 3,472 2,871
Revaluation of net deferred tax assets (4,540) - - - -
Adjusted earnings - non-GAAP$8,403 $9,173 $8,076 $9,243 $6,302
Adjusted diluted EPS$0.42 $0.46 $0.46 $0.56 $0.39
Adjusted return on average assets 0.76 % 0.82% 0.89 % 1.14 % 0.78%
Adjusted return on average shareholders' equity 7.34 % 8.03% 8.97 % 11.52 % 7.64%
Adjusted return on average tangible common equity 9.83 % 10.77% 11.21 % 13.91 % 9.16%
(a) Tax rate applied to adjustments changed for prior 2017 quarters to statutory tax rate for fiscal 2017.
Adjusted Pre-Tax, Pre-Provision Earnings Reconciliation
For the Quarter Ended
December 31, September 30, June 30, March 31, December 31,
(in thousands)2017 2017 2017 2017 2016
Adjusted earnings pre tax$10,855 $14,093 $12,402 $12,715 $9,173
Provision for loan losses 6,076 1,489 458 1,533 2,445
Adjusted pre-tax, pre-provision earnings - non-GAAP$16,931 $15,582 $12,860 $14,248 $11,618


MIDLAND STATES BANCORP, INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
Efficiency Ratio Reconciliation
For the Quarter Ended
December 31, September 30, June 30, March 31, December 31,
(in thousands) 2017 2017 2017 2017 2016
Noninterest expense - GAAP $36,192 $48,364 $37,644 $30,798 $34,090
Net expense from loss-share termination agreement - - - - (351)
Branch network optimization plan charges (371) (336) (1,236) (9) (2,099)
Loss on mortgage servicing rights held for sale (442) (3,617) - - -
Integration and acquisition expenses (2,315) (7,967) (6,214) (1,242) (1,200)
Adjusted noninterest expense $33,064 $36,444 $30,194 $29,547 $30,440
Net interest income - GAAP $36,036 $36,765 $29,400 $27,461 $25,959
Effect of tax-exempt income 659 687 674 671 620
Adjusted net interest income 36,695 37,452 30,074 28,132 26,579
Noninterest income - GAAP $13,998 $15,403 $13,619 $16,342 $30,485
Mortgage servicing rights impairment (recovery) 494 104 1,650 76 (2,958)
Gain on sales of investment securities, net (2) (98) (55) (67) (14,387)
Other income (37) (45) 91 58 -
Adjusted noninterest income 14,453 15,364 15,305 16,409 13,140
Adjusted total revenue $51,148 $52,816 $45,379 $44,541 $39,719
Efficiency ratio 64.64 % 69.00 % 66.54 % 66.34 % 76.64 %

MIDLAND STATES BANCORP, INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
Tangible Common Equity to Tangible Assets Ratio and Tangible Book Value Per Share
As of
December 31, September 30, June 30, March 31, December 31,
(dollars in thousands, except per share data) 2017 2017 2017 2017 2016
Shareholders' Equity to Tangible Common Equity
Total shareholders' equity—GAAP $449,545 $450,689 $451,952 $334,333 $321,770
Adjustments:
Preferred stock (2,970) (3,015) (3,134) - -
Goodwill (98,624) (97,351) (96,940) (50,807) (48,836)
Other intangibles (16,932) (17,966) (18,459) (8,633) (7,187)
Tangible common equity $331,019 $332,357 $333,419 $274,893 $265,747
Total Assets to Tangible Assets:
Total assets—GAAP 4,412,701 4,347,761 4,491,642 3,373,577 3,233,723
Adjustments:
Goodwill (98,624) (97,351) (96,940) (50,807) (48,836)
Other intangibles (16,932) (17,966) (18,459) (8,633) (7,187)
Tangible assets $4,297,145 $4,232,444 $4,376,243 $3,314,137 $3,177,700
Common Shares Outstanding 19,122,049 19,093,153 19,087,409 15,780,651 15,483,499
Tangible Common Equity to Tangible Assets 7.70 % 7.85 % 7.62 % 8.29 % 8.36 %
Tangible Book Value Per Share $17.31 $17.41 $17.47 $17.42 $17.16
Return on Average Tangible Common Equity (ROATCE)
As of
December 31, September 30, June 30, March 31, December 31,
(in thousands) 2017 2017 2017 2017 2016
Net Income $1,991 $2,036 $3,539 $8,490 $11,583
Average total shareholders' equity—GAAP $453,968 $453,317 $361,335 $325,442 $327,886
Adjustments:
Goodwill (97,406) (97,129) (61,424) (48,836) (46,594)
Other intangibles (17,495) (18,153) (10,812) (7,144) (7,718)
Average tangible common equity $339,067 $338,035 $289,099 $269,462 $273,574
ROATCE 2.33 % 2.39 % 4.91 % 12.78 % 16.84 %


Source:Midland States Bancorp, Inc.