Second Quarter 2023 Highlights:
- Net income available to common shareholders of $19.3 million, or $0.86 per diluted share
- Efficiency ratio improved to 55.0% from prior quarter
- Total loan growth of $13.1 million, or 0.8% annualized
- Total deposit growth of $1.3 million or 0.1% annualized
- Common equity tier 1 capital ratio improved to 8.03%
- Tangible book value per share of $22.24, an increase of 1.7% from prior quarter
EFFINGHAM, Ill., July 27, 2023 (GLOBE NEWSWIRE) -- Midland States Bancorp, Inc. ( MSBI) (the “Company”) today reported net income available to common shareholders of $19.3 million, or $0.86 per diluted share, for the second quarter of 2023, compared to $19.5 million, or $0.86 per diluted share, for the first quarter of 2023. This also compares to net income available to common shareholders of $21.9 million, or $0.97 per diluted share, for the second quarter of 2022.
Jeffrey G. Ludwig, President and Chief Executive Officer of the Company, said, “We executed well in the second quarter and continued to deliver strong financial performance while prioritizing prudent risk management given the challenging operating environment, which resulted in an 8% increase in our pre-tax, pre-provision income compared to the prior quarter. Due to our strong financial performance and prudent balance sheet management, we saw an increase in our capital ratios and tangible book value per share, while also taking advantage of the opportunity to repurchase our common stock at below tangible book value and redeeming some of our higher cost subordinated debt.
“We continue to have success in developing full banking relationships with high quality businesses, which resulted in continued growth in our commercial loan portfolio. As planned, we are funding the new commercial loans and additional securities purchases with the runoff in our GreenSky portfolio, which is contributing to our strong financial performance and increase in capital ratios.
“While economic conditions remain uncertain, we will continue to prioritize prudent risk management and be conservative in our new loan production to build capital and liquidity. We continue to see good opportunities to add core deposit relationships in our markets with both retail and commercial customers, and during the second half of the year, we expect to begin seeing a contribution to deposit gathering from our Banking-as-a-Service initiative, which we believe will further strengthen our deposit base, support profitable growth in the future, and create additional franchise value,” said Mr. Ludwig.
Balance Sheet Highlights
Total assets were $8.03 billion at June 30, 2023, compared to $7.93 billion at March 31, 2023, and $7.44 billion at June 30, 2022. At June 30, 2023, portfolio loans were $6.37 billion, compared to $6.35 billion as of March 31, 2023, and $5.80 billion as of June 30, 2022.
Loans
During the second quarter of 2023, outstanding loans increased at a slower rate as the Company originated loans in a more selective and deliberate approach to balance liquidity and funding costs. Commercial loan and lease balances and construction and land development loans increased $18.0 million and $39.8 million, respectively, offsetting the decline in consumer loan balances due to a decrease in loans originated through GreenSky.
| As of | ||||||||||||||
| June 30, | March 31, | December 31, | September 30, | June 30, | ||||||||||
| (in thousands) | 2023 | 2023 | 2022 | 2022 | 2022 | |||||||||
| Loan Portfolio | ||||||||||||||
| Commercial loans | $ | 962,756 | $ | 937,920 | $ | 872,794 | $ | 907,651 | $ | 821,119 | ||||
| Equipment finance loans | 614,633 | 632,205 | 616,751 | 577,323 | 546,267 | |||||||||
| Equipment finance leases | 500,485 | 510,029 | 491,744 | 457,611 | 439,202 | |||||||||
| Commercial FHA warehouse lines | 30,522 | 10,275 | 25,029 | 51,309 | 23,872 | |||||||||
| Total commercial loans and leases | 2,108,396 | 2,090,429 | 2,006,318 | 1,993,894 | 1,830,460 | |||||||||
| Commercial real estate | 2,443,995 | 2,448,158 | 2,433,159 | 2,466,303 | 2,335,655 | |||||||||
| Construction and land development | 366,631 | 326,836 | 320,882 | 225,549 | 203,955 | |||||||||
| Residential real estate | 371,486 | 369,910 | 366,094 | 356,225 | 340,103 | |||||||||
| Consumer | 1,076,836 | 1,118,938 | 1,180,014 | 1,156,480 | 1,085,371 | |||||||||
| Total loans | $ | 6,367,344 | $ | 6,354,271 | $ | 6,306,467 | $ | 6,198,451 | $ | 5,795,544 | ||||
Loan Quality
Credit quality metrics declined during the second quarter of 2023. Loans 30-89 days past due totaled $44.2 million as of June 30, 2023, compared to $30.9 million as of March 31, 2023, and $16.2 million as of June 30, 2022. The increase in delinquencies during the most recent quarter was due to a single commercial loan, which has since been brought current, and an increase in delinquencies in equipment finance loans and leases.
Non-performing loans were $54.8 million at June 30, 2023, compared to $50.7 million as of March 31, 2023, and $56.9 million as of June 30, 2022. The increase at June 30, 2023 was related to one commercial real estate loan moving to non-performing at the end of the quarter. Non-performing loans as a percentage of portfolio loans was 0.86% at June 30, 2023, compared with 0.80% at March 31, 2023, and 0.98% at June 30, 2022.
Non-performing assets were 0.72% of total assets at the end of the second quarter of 2023, compared to 0.74% at March 31, 2023 and 0.93% at June 30, 2022. Two other real estate owned (“OREO”) properties were sold during the second quarter of 2023 at a gain of $0.8 million resulting in the decrease in non-performing assets.
| As of and for the Three Months Ended | |||||||||||||||||||
| (in thousands) | June 30, | March 31, | December 31, | September 30, | June 30, | ||||||||||||||
| 2023 | 2023 | 2022 | 2022 | 2022 | |||||||||||||||
| Asset Quality | |||||||||||||||||||
| Loans 30-89 days past due | $ | 44,161 | $ | 30,895 | $ | 32,372 | $ | 28,275 | $ | 16,212 | |||||||||
| Nonperforming loans | 54,844 | 50,713 | 49,423 | 46,882 | 56,883 | ||||||||||||||
| Nonperforming assets | 57,688 | 58,806 | 57,824 | 59,524 | 69,344 | ||||||||||||||
| Substandard loans | 130,707 | 99,819 | 101,044 | 98,517 | 114,820 | ||||||||||||||
| Net charge-offs | 2,996 | 2,119 | 538 | 3,233 | 2,781 | ||||||||||||||
| Loans 30-89 days past due to total loans | 0.69 | % | 0.49 | % | 0.51 | % | 0.46 | % | 0.28 | % | |||||||||
| Nonperforming loans to total loans | 0.86 | % | 0.80 | % | 0.78 | % | 0.76 | % | 0.98 | % | |||||||||
| Nonperforming assets to total assets | 0.72 | % | 0.74 | % | 0.74 | % | 0.76 | % | 0.93 | % | |||||||||
| Allowance for credit losses to total loans | 1.02 | % | 0.98 | % | 0.97 | % | 0.95 | % | 0.95 | % | |||||||||
| Allowance for credit losses to nonperforming loans | 118.43 | % | 122.39 | % | 123.53 | % | 125.08 | % | 96.51 | % | |||||||||
| Net charge-offs to average loans | 0.19 | % | 0.14 | % | 0.03 | % | 0.21 | % | 0.20 | % | |||||||||
The Company’s allowance for credit losses totaled $65.0 million at June 30, 2023, compared to $62.1 million at March 31, 2023, and $54.9 million at June 30, 2022. The allowance as a percentage of portfolio loans was 1.02% at June 30, 2023, compared to 0.98% at March 31, 2023, and 0.95% at June 30, 2022.
Deposits
Total deposits were $6.43 billion at both June 30, 2023 and March 31, 2023, compared with $6.18 billion at June 30, 2022. The deposit mix continues to shift from noninterest-bearing deposits to interest-bearing deposits due to the continued rate increases announced by the Federal Reserve. Interest rate promotions offered during the second quarter of 2023 on time deposit products contributed to an increase in balances of $73.9 million at June 30, 2023, compared to March 31, 2023.
| As of | ||||||||||||||
| June 30, | March 31, | December 31, | September 30, | June 30, | ||||||||||
| (in thousands) | 2023 | 2023 | 2022 | 2022 | 2022 | |||||||||
| Deposit Portfolio | ||||||||||||||
| Noninterest-bearing demand | $ | 1,162,909 | $ | 1,215,758 | $ | 1,362,158 | $ | 1,362,481 | $ | 1,403,386 | ||||
| Interest-bearing: | ||||||||||||||
| Checking | 2,499,693 | 2,502,827 | 2,494,073 | 2,568,195 | 2,377,760 | |||||||||
| Money market | 1,226,470 | 1,263,813 | 1,184,101 | 1,125,333 | 1,027,547 | |||||||||
| Savings | 624,005 | 636,832 | 661,932 | 704,245 | 740,364 | |||||||||
| Time | 840,734 | 766,884 | 649,552 | 620,960 | 620,363 | |||||||||
| Brokered time | 72,737 | 39,087 | 12,836 | 14,038 | 15,018 | |||||||||
| Total deposits | $ | 6,426,548 | $ | 6,425,201 | $ | 6,364,652 | $ | 6,395,252 | $ | 6,184,438 | ||||
The Company estimates that uninsured deposits(1) totaled $1.21 billion, or 19% of total deposits, at June 30, 2023 compared to $1.32 billion, or 21%, at March 31, 2023.
| (1) | Uninsured deposits include the Call Report estimate of uninsured deposits less affiliate deposits, estimated insured portion of servicing deposits, additional structured FDIC coverage and collateralized deposits. |
Results of Operations Highlights
Net Interest Income and Margin
During the second quarter of 2023, net interest income, on a tax-equivalent basis, totaled $59.0 million, a decrease of $1.7 million, or 2.8%, compared to $60.7 million for the first quarter of 2023. The tax-equivalent net interest margin for the second quarter of 2023 was 3.23%, compared with 3.39% in the first quarter of 2023. Net interest income and related margin, on a tax-equivalent basis, was $61.7 million and 3.65%, respectively, in the second quarter of 2022. The decline in the net interest income and margin was largely attributable to increased market interest rates resulting in the cost of funding liabilities increasing at a faster rate than the yields on earning assets.
Average interest-earning assets for the second quarter of 2023 were $7.33 billion, compared to $7.26 billion for the first quarter of 2023. The yield increased 16 basis points to 5.51% compared to the first quarter of 2023. Interest-earning assets averaged $6.77 billion for the second quarter of 2022.
Average loans were $6.36 billion for the second quarter of 2023, compared to $6.32 billion for the first quarter of 2023 and $5.68 billion for the second quarter of 2022. The yield on loans was 5.80% and 5.65% for the second and first quarters of 2023, respectively.
| For the Three Months Ended | ||||||||||||||||||||||||||
| June 30, | March 31, | June 30, | ||||||||||||||||||||||||
| (dollars in thousands) | 2023 | 2023 | 2022 | |||||||||||||||||||||||
| 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 | $ | 67,377 | $ | 852 | 5.07 | % | $ | 85,123 | $ | 980 | 4.67 | % | $ | 226,517 | $ | 468 | 0.83 | % | ||||||||
| Investment securities | 861,409 | 7,286 | 3.39 | % | 809,848 | 5,995 | 3.00 | % | 818,927 | 4,931 | 2.41 | % | ||||||||||||||
| Loans | 6,356,012 | 91,890 | 5.80 | % | 6,320,402 | 87,997 | 5.65 | % | 5,677,791 | 63,594 | 4.49 | % | ||||||||||||||
| Loans held for sale | 4,067 | |||||||||||||||||||||||||
