Midland States Bancorp
Annual Report 2018

Plain-text annual report

2018 Annual Report Relevancy Growth Efficiency Many new CEOs have a vision that differs from their organization’s current path. Others find a corporate culture, or management team, that is not up to the task ahead. Still others find a balance sheet too weak to support new initiatives. As I take over as CEO I believe Midland is in good shape in all of these areas. I view our principal challenges over the next few years as threefold. The first is to take full advantage of our past growth, particularly in improved operating efficiency. The second, more mid-term goal is to continue to drive growth, organically and through strategic acquisitions. The third is to make the investment in people, process and technology to remain relevant in the rapidly changing environment for financial services. In short, my job is to continue driving the execution of our Strategic Plan across our organization. The Company’s 2018 Annual Report to Shareholders is available on the Company’s website, and printed copies are available by request. Please contact Ms. Dacia Albin, Assistant Secretary of the Company, at 217-342-7321 or dalbin@midlandsb.com for access/delivery information. Our Strategic Plan We continue to focus on these five initiatives: • Accretive Acquisitions • Customer Centric Culture • Revenue Diversification • Operational Excellence • Enterprise-Wide Risk Management Strategic Growth History ($ in Billions) $6 $5 $4 $3 $2 $1 $0 2008 Peoples National Bank branch acquisition 2009 Waterloo Bancshares and Strategic Capital acquisitions 2010 Westbridge Bank and AMCORE acquisitions 2012 EnablePay acquisition 2013 Grant Park Bancshares and Settlement Trust Group acquisitions 2014 Heartland Bank acquisition 2016 Sterling National Bank Trust Group acquisition 2017 CedarPoint Investment Advisors acquisition 2017 Centrue Bank acquisition 2018 Alpine Bank acquisition 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Total Assets Table of Contents Our Strategic Plan ................................ 1 Letter to Shareholders ........................ 2 Financial Highlights .............................. 6 Summary Financial Information ........... 8 Board of Directors ............................. 12 Management Team .............................13 1 Letter to Shareholders Dear Shareholders: This is my first letter to you since taking over as CEO on January 1st. I am honored to serve in this role. Many of you know that I first joined Midland in 2006 as Chief Financial Officer. For me, the opportunity to move back to Effingham (my hometown, as well as my wife’s), join a bank that had already been an Effingham institution for more than 125 years, and help grow it into a well rounded $5.0 billion+ financial institution, has been a gratifying experience. Not long after I returned to Effingham and joined Midland, Leon Holschbach was recruited to serve as President and Chief Executive Officer. Since then, Leon, I and the rest of the management team have worked hard to develop and execute on our Strategic Plan. Working hand-in-hand with Leon during those ten years, first in my capacity as CFO, then as Executive Vice President and then President, gave me an up-close view of his leadership ability, strong values and uncommon ability to maintain a healthy optimism while exercising cautious and prudent business judgment. I will always cherish those years working with him and wish him a happy and fulfilling retirement. Turning to the future, I view the CEO role in much the same way as Leon did. In short, while our management styles may be different, we both believe the job description for CEO can be summed up as “increasing long-term shareholder value.” Jeffrey G. Ludwig President and Chief Executive Officer Midland States Bancorp, Inc. In community banking, and perhaps in any business, there are essentially three components to driving shareholder value: relevancy, efficient internal operations and continued growth. Common Dividends Per Share Of these three challenges, relevancy is clearly the most critical. In community banking, relevancy means offering financial services when, where and how our customers want them. Midland’s Strategic Plan, adopted in 2007-2008, was specifically designed to facilitate the growth we felt would be necessary to remain relevent in the rapidly changing financial services industry. It was clear to us that community banks with assets under $1 billion and earnings in the $5-10 million per year range would find it difficult to cope with the increasing costs of technology, regulatory compliance and new delivery channels while also creating additional value for their shareholders. With all of those challenges, it seemed that banks of that size would also find it difficult to keep up with the myriad of new products and services sweeping the banking industry. $1.00 $0.80 $0.60 $0.43 $0.39 $0.40 $0.33 $0.88 $0.80 $0.72 $0.65 $0.59 $0.53 $0.48 $0.20 $0.00 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2 For the past ten years we have worked hard to build a financial services company that has the breadth, scale, products, services and level of customer experience to compete long into the future. As a $5.0 billion+ bank we feel we have achieved the scale and profitability necessary to remain relevant. We have invested heavily in people, processes and technology to insure we provide our customers with the access to banking products and servcies they have come to expect. The second critical component for creating shareholder value is operating efficiency. Operating efficiency is obviously paramount in driving profitability. Nevertheless, it is very hard to optimize operations while growing exponentially. As part of our rapid growth we knew it would be difficult to simultaneously create a lean organization, and we felt it might not be especially prudent to try. Community banking is a relationship business, and the principal value to be derived from buying other banks is the addition of their customer base to ours. Maintaining those customers, including their saving and checking accounts, consumer, residential and commercial loans, trust and wealth management accounts, and the other business they do, is paramount to Midland receiving value from the acquisition. As such, we did not strive to maximize efficencies during that growth. We focused on integrating those new customers and employees that came with each acquisition. During the past ten years we have completed 13 acquisitions, grown our headcount from approximately 100 to more than 1,100, and added approximately 90 new retail and back office locations. This transformation from a small bank to our current size was most pronounced in the 2015-2018 period, during which we grew from $1.7 billion in assets to our current $5.6 billion level through our acquisitions of Heartland Bank (December 2014), Centrue Bank (June 2017) and Alpine Bank (February 2018). Following each of these acquisitions, as with our prior acquisitions, we have done a good job of achieving our deal specific goals. We have integrated each bank’s customers, accounts and business processes into ours and experienced below average customer attrition. And while certain areas have proven more challenging than we would have hoped, including our residential and FHA mortgage businesses, other areas, such as our wealth management and equipment finance businesses, have met or exceeded expectations. With those transactions completed and fully integrated, we believe now is the time to take a more holistic view of our business operations, cost structure and customer experience. In this regard we have launched our Future Bank 2.0 initiative. Longtime shareholders will recall our initial Future Bank initiative in 2010-2011. That initiative was put in place to prepare for rapid growth. Its focus was on training our bankers, updating our processes, migrating to a data processing platform with substantial capacity for growth, and building a robust risk management program. The success of that Future Bank initiative was remarkable, and it would simply not have been possible for us to successfully have grown to where we are today without those investments and efforts. Indeed, those investments, and the progress we made in updating our capabilities and risk management program, were critical to receiving the continued regulatory approvals necessary to complete that series of transformational acquisitions. Without that Future Bank initiative the regulators may have (correctly) assessed that we would not have had the capacity to undertake that type of rapid growth. As you may recall, in 2010 the banking landscape was littered with banks that had collapsed under the weight of overly ambitious expansion plans. Future Bank 2.0 is similar in scope, but somewhat different in focus than our initial Future Bank program. With Future Bank 2.0 we are again evaluating the entire enterprise, but this time with the specific focus of optimizing what we have built. The third component is growth. Remaining relevant and operating efficiently are part and parcel of the third critical component for increasing shareholder wealth, which is growth. However, they are not sufficient to drive growth. Over the past 10 years Midland has grown both organically and through acquisitions. I fully expect the next 10 years will bring more of the same. Each of our business units are scalable and can accommodate further organic growth, and the number of quality acquisition targets in our current market areas remain high. 3 Organic Growth Regarding further organic growth, each of our principal business units, being Community Banking (retail and commercial banking), wealth management, commercial equipment financing and commercial FHA, have been crafted with growth in mind. And while business cycles have an impact on their year to year performance, we generally see each as a viable business that can carry us well into the future and contribute to both our financial success and continuing to be a competitive force in our markets. Of course, having a strong management team in place at our Bank, from senior management down through our various areas of operations and customer service, is critical to driving growth. In this regard I am particularly confident, first and foremost because Jeff Mefford, with whom I have worked since my arriving here at Midland, serves as President of our Bank. Those of you who know Jeff are well aware of the professionalism and enthusiasm he carries with him every day. Jeff has been with Midland since 2003 and served as Executive Vice President – Banking before his promotion to President. More importantly, Jeff was an integral part of developing our Strategic Plan and has been at the core of our execution and growth. Each of our business lines report directly to Jeff, and he has a built strong management team in each area. Community Banking. Perhaps the greatest challenge facing community banks at this particular point in the economic cycle is growing deposits. As is the case with most high performing banks, Midland has a high loan-to deposit ratio, and the absence of additional deposits is a hindrance to further loan growth. Of course, attracting deposits is a relatively simple matter for banks that are willing to pay above-market interest on those deposits. We do not believe overpaying for deposits generally makes sense, largely because we typically cannot increase the interest rates we charge for the higher-quality commercial loans we seek to generate. The lower net interest margin that results from higher priced deposits without corresponding increases in lending rates would result in, what we believe to be, an unacceptable risk-adjusted return. The alternative would be to make lower-quality loans for which we can charge a higher rate, which some banks are doing. However, we also do not believe this “reaching for yield” is prudent, especially at the end of a growth cycle. We do not know if we are at the end of the growth cycle that our economy has enjoyed for the past ten years. We do know that maintaining strong asset quality and a long term approach to banking has been a key part of our operating philosophy, and we have no plans to change our approach. While simply “paying more” for deposits is not the right answer, we do believe there is more we can be doing in this regard. We have instituted a renewed focus on deposit gathering in our training, in our product offerings and across our business units. As I mentioned earlier, we have been steadily investing in improved information systems to provide us with a more full picture of our customers’ needs. We are also seeking ways to deepen wallet-share, as well as leveraging relationships with some of our business partners to increase deposits. In the short term, deposit generation is likely to remain our biggest challenge in growing our banking business. Wealth Management. Our wealth management group continues its successful growth. Several years ago, before it became fashionable to do so, we migrated our Wealth Management business to a fee- based model. This has served us well, and this remains an area that we look to continue growing. We believe we have a strong team in place to accomplish this. As of December 31, 2018 our Assets Under Administration stood at almost $3.0 billion. Also, our highly specialized settlement trust area continues to grow and is attracting business on the East Coast through our office in New York as well as in the Midwest through our Chicago office. Midland Equipment Finance. Our commercial equipment financing business, which we have re-branded under the Midland Equipment Financing name, continues to generate the growth we expected. Our team now consists of approximately 25 professionals, but more importantly is becoming more integrated into our overall banking operations, partly resulting from our moving the headquarters from Denver to St. Louis. Commercial FHA. Our commercial FHA business has had a tough run over the past year or so, as we have experienced a slowdown in demand for new construction loans and refinancings in the health care and multi-family sectors. We have used this slowdown as an opportunity to reformulate the leadership, and improve our systems, processes and business model. Regardless of that slowdown, the low-cost deposits 4 this business generates through required escrows and reserves remains an important part of our balance sheet. Growth by Accretive Acquisitions We continue to view accretive acquisitions as an important part of our growth strategy, but perhaps to be used in a somewhat different way than in recent years. As noted above, through our past three acquisitions we have more than tripled in size, and overall we have grown by a factor of approximately 15x since 2008. That growth was useful for getting to the scale and earnings power necessary to remain competitive. But now there is no compelling reason we need to seek similar growth over the next few years. Similarly, those acquisitions provided revenue diversification and helped us build out our operations and middle management roles and provided added bench strength in several important areas. We generally have the full complement of professionals and operations to continue growing. I expect our acquisition program to now focus more on what I refer to as “fill-in” acquisitions. By fill-in I mean acquisitions which enhance our existing markets, create greater presence in the communities between our current markets, and add size to our existing businesses. Illinois has one of the largest concentrations of small banks in the U.S., and many of these banks will need to join larger organizations to keep up with the growing expenses of technology, regulation and employee costs. We view these smaller banks, many of which are rich in deposits but have fewer commercial lending opportunities, as prime candidates for joining the Midland family. Similarly, many of these banks will view Midland, and our customer focus and strong culture, as providing a better fit in their communities than if they were to sell to a larger, more regional or national organization. A good example of the type of fill-in transaction we are looking for is our recently announced agreement to acquire HomeStar Bank. HomeStar is a 70+ year old franchise with approximately $360 million assets and five locations in the Kankakee, Illinois area. These locations, some of which are very close to our existing branches in that market, bring us greater scale in a very good market. HomeStar is highly regarded in its community and we believe will generate immediate earnings accretion to Midland. We believe there are other solid franchies we can acquire in coming years without going far outside our existing footprint. In closing, let me again say what a privilege it is to serve as CEO of our storied Company. I am proud of our team and the work we do in our communities. I am also proud of the culture we have built as well as the reputation we have developed as an acquirer of choice for banks in our market. Moreover, our recent 10.2% dividend increase marks the 17th year in a row we have raised dividends by 10% or more. In short, our “Great strength. More heart.” motto is more than just a motto – it is what we work hard on every day. And by doing that, and remaining laser focused on our customer experience, operational efficiency and further growth, I believe we will continue to drive value for our shareholders. Very truly yours, Jeffrey G. Ludwig President and Chief Executive Officer Midland States Bancorp, Inc. Additional Information This document may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, plans, objectives, future performance and business of Midland. Forward- looking statements, which may be based upon beliefs, expectations and assumptions of Midland’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made. Midland undertakes no obligation to update any statement in light of new information or future events. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning Midland and its business, including additional factors that could materially affect Midland’s financial results, are included in Midland’s filings with the Securities and Exchange Commission (the “SEC”). 5 Financial Highlights Total Gross Loans ($ in Millions) Total Deposits ($ in Millions) $5000 $4000 $3000 $4,138 $3,227 $2000 $1,798 $2,320 $1,996 $1000 $0 2014 2015 2016 2017 2018 $5000 $4000 $3000 $2000 $1000 $0 $4,074 $3,131 $2,151 $2,368 $2,404 2014 2015 2016 2017 2018 Trust Assets Under Administration ($ in Millions) Total Shareholders’ Equity ($ in Millions) $2,945 $3000 $2500 $2000 $1500 $1000 $500 $0 $2,051 $1,658 $1,186 $1,181 2014 2015 2016 2017 2018 $800 $700 $600 $500 $400 $300 $200 $100 $0 $609 $450 $322 $219 $233 2014 2015 2016 2017 2018 Total Capital to Risk-Weighted Assets Return on Average Tangible Common Equity(1) 15% 12% 9% 6% 3% 0% 13.85% 13.26% 12.79% 11.82% 9.59% 2014 2015 2016 2017 2018 20% 15% 10% 5% 0% % 0 . 7 1 % 1 . 4 1 % 4 . 3 % 1 7 . 1 1 % 3 . 1 1 % 0 . 5 1 % 4 . 0 1 % 2 . 5 % 6 . 1 1 % 3 . 3 2014 2015 2016 2017 2018 Adjusted GAAP (1) Return on average tangible common equity and adjusted return on average tangible common equity are non-GAAP financial measures. See “Item 6 – Selected Financial Data – Non-GAAP Financial Measures” in the Company’s Form 10-K for the fiscal year ended December 31, 2018 for a reconciliation of return on average tangible common equity to its most comparable GAAP measure. See “Non-GAAP Financial Measures” on page 14 for a reconciliation of adjusted return on average tangible common equity to its most comparable GAAP measure. 6 Tangible Book Value Per Share(1) Return on Average Assets(2) $20 $15 $13.82 $15.20 $17.16 $17.31 $17.00 $10 $5 $0 2014 2015 2016 2017 2018 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% % 5 0 . 1 % 3 0 . 1 % 8 8 . 0 % 9 8 . 0 % 8 8 . 0 % 0 9 . 0 % 2 6 . 0 % 4 0 . 1 % 2 7 . 0 % 1 4 . 0 2014 2015 2016 2017 2018 Adjusted GAAP Diluted Earnings Per Share(2) Revenue ($ in Millions) $2.50 $2.00 4 7 . 1 $ 9 3 . 2 $ 0 0 . 2 $ 7 1 . 2 $ 9 8 . 1 $ 9 8 . 1 $ 9 3 . 2 $ 6 6 . 1 $ $1.50 $1.00 $0.50 $0.00 3 5 . 0 $ 7 8 . 0 $ 2014 2015 2016 2017 2018 Adjusted GAAP $300 $250 $200 $150 $100 $50 $0 $252 $177 $189 $164 $85 2014 2015 2016 2017 2018 Noninterest Income / Revenue Net Interest Margin 50% 40% 30% 20% 10% 0% 40.6% 36.2% 31.4% 28.5% 24.0% 2014 2015 2016 2017 2018 5% 4% 3% 2% 1% 0% 4.21% 4.38% 3.92% 3.77% 3.76% 2014 2015 2016 2017 2018 (1) Tangible book value per share is a non-GAAP financial measure. See “Item 6 - Selected Financial Data - Non-GAAP Financial Measures” in the Company’s Form 10-K for the fiscal year ended December 31, 2018 for a reconciliation of tangible book value per share to its most comparable GAAP measure. (2) Adjusted return on average assets and adjusted diluted earnings per share are non-GAAP financial measures. See “Non-GAAP Financial Measures” on page 14 for a reconciliation of these measures to their most comparable GAAP measures. 7 Summary Financial Information The following consolidated selected financial data is derived from the Company’s audited consolidated financial statements as of and for the five years ended December 31, 2018. This information should be read in connection with our audited consolidated financial statements, related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in our Form 10-K for the fiscal year ended December 31, 2018. (dollars in thousands) Balance Sheet Data: Total assets Total loans, gross Allowance for loan losses Loans held for sale Investment securities Deposits Short-term borrowings FHLB advances and other borrowings Subordinated debt Trust preferred debentures Total shareholders’ equity Tangible common equity (1) Income Statement Data: Interest income Interest expense Net interest income Provision for loan losses Noninterest income Noninterest expense Income before taxes Provision for income taxes Net income Preferred stock dividends $ $ Net income available to common shareholders $ 2018 2017 As of December 31, 2016 2015 2014 5,637,673 4,137,551 (20,903) 30,401 660,785 4,074,170 124,235 640,631 94,134 47,794 608,525 403,695 $ 4,412,701 3,226,678 (16,431) 50,089 450,525 3,131,089 156,126 496,436 93,972 45,379 449,545 331,019 $ 3,233,723 2,319,976 (14,862) 70,565 325,011 2,404,366 131,557 237,518 54,508 37,405 321,770 265,747 $ 2,884,824 1,995,589 (15,988) 54,413 324,148 2,367,648 107,538 40,178 61,859 37,057 232,880 179,357 $ 2,676,614 1,798,015 (12,300) 96,407 355,531 2,150,633 129,714 74,349 7,370 36,930 219,456 162,046 2018 223,367 43,280 180,087 9,430 71,791 191,643 50,805 11,384 39,421 141 39,280 For the Years Ended December 31, 2015 2016 2017 2014 $ $ 153,113 23,451 129,662 9,556 59,362 152,997 26,471 10,415 16,056 83 15,973 $ $ 121,249 15,995 105,254 5,591 72,057 121,289 50,431 18,889 31,542 - 31,542 $ $ 117,796 12,889 104,907 11,127 59,482 117,847 35,415 11,091 24,324 - 24,324 $ $ 73,141 8,543 64,598 92 20,441 69,480 15,467 4,651 10,816 7,601 3,215 8 (dollars in thousands, except per share data) Per Share Data (Common Stock) Basic earnings per share Diluted earnings per share Dividends declared Book value Market price Weighted average shares outstanding - diluted Shares outstanding at period end Performance Metrics Return on average assets Return on average shareholders’ equity Return on average tangible common equity(1) Yield on earning assets Cost of average interest bearing liabilities Net interest margin(3) Efficiency ratio(1) Common stock dividend payout ratio(4) Loan to deposit ratio Adjusted Earnings Metrics Adjusted earnings(2) Adjusted diluted earnings per share(2) Adjusted return on average assets(2) Adjusted return on average tangible common equity(2) Regulatory Capital Ratios(5) Tier 1 common capital to risk-weighted assets Tier 1 leverage ratio Tier 1 capital to risk-weighted assets Total capital to risk-weighted assets Credit Quality Data Loans 30-89 days past due Loans 30-89 days past due to total loans Nonperforming loans Nonperforming loans to total loans Nonperforming assets Nonperforming assets to total assets Allowance for loan losses to total loans Allowance for loan losses to nonperforming loans Net charge-offs to average loans $ $ $ $ 2018 $ 1.69 1.66 0.88 25.50 22.34 23,549,025 23,751,798 As of and for the Years Ended December 31, 2016 2015 2017 $ 0.89 0.87 0.80 23.35 32.48 18,283,214 19,122,049 $ 2.22 2.17 0.72 20.78 36.18 14,428,839 15,483,499 $ 2.03 2.00 0.65 19.74 N/A 12,112,403 11,797,404 0.72% 6.92% 10.40% 4.65% 1.11% 3.76% 66.08% 52.07% 101.56% 56,763 2.39 1.04% 15.00% 8.76% 8.53% 10.25% 12.79% 25,213 0.61% 42,899 1.04% 45,899 0.81% 0.51% 48.73% 0.13% $ $ $ $ 0.41% 4.02% 5.19% 4.43% 0.82% 3.77% 66.66% 89.89% 103.05% 34,895 1.89 0.88% 11.32% 8.45% 8.63% 10.19% 13.26% 15,405 0.48% 26,760 0.83% 30,894 0.70% 0.51% 61.40% 0.28% $ $ $ $ 1.03% 10.95% 13.43% 4.51% 0.72% 3.92% 68.66% 32.43% 96.49% 27,443 1.89 0.89% 11.68% 9.35% 9.76% 11.27% 13.85% 10,767 0.46% 31,603 1.36% 34,550 1.07% 0.64% 47.03% 0.31% $ $ $ $ 0.88% 10.68% 14.14% 4.91% 0.66% 4.38% 66.20% 32.02% 84.29% 29,193 2.39 1.05% 16.97% 6.50% 7.49% 8.62% 11.82% 10,120 0.51% 24,891 1.25% 29,206 1.01% 0.80% 64.23% 0.39% $ $ $ $ $ 2014 0.53 0.53 0.59 18.72 N/A 6,025,454 11,725,158 0.62% 6.82% 3.26% 4.74% 0.65% 4.21% 71.07% 111.32% 83.60% 15,715 1.74 0.90% 11.63% N/A 10.48% 8.65% 9.59% 5,744 0.32% 32,172 1.80% 39,542 1.48% 0.69% 38.23% 0.94% 1) Tangible common equity, return on average tangible common equity and efficiency ratio are non-GAAP financial measures. See “Item 6 - Selected Financial Data - Non-GAAP Financial Measures” in the Company’s Form 10-K for the fiscal year ended December 31, 2018 for a reconciliation of these measures to their most comparable GAAP measures. 2) Adjusted earnings, adjusted diluted earnings per share, adjusted return on average assets and adjusted return on average tangible common equity are non-GAAP financial measures. See “Non-GAAP Financial Measures” on page 14 for a reconciliation of these measures to their most comparable GAAP measures. 3) Net interest margin is presented on a fully taxable equivalent basis. 4) Common stock dividend payout ratio represents dividends per share divided by basic earnings per share. 5) Beginning January 1, 2015, calculated in accordance with Basel III. 9 Adjusted Earnings Metrics. We use the measure adjusted earnings to assess the performance of our core business and the strength of our capital position. We believe that this non-GAAP financial measure provides meaningful additional information about us to assist investors in evaluating our operating results. This non-GAAP financial measure should not be considered a substitute for operating results determined in accordance with GAAP and may not be comparable to other similarly titled measures used by other companies. The following table reconciles adjusted earnings, adjusted diluted earnings per share, adjusted return on average assets and adjusted return on average tangible common equity to their most comparable GAAP measures: (dollars in thousands, except per share data) 2018 2017 2016 2015 2014 For the Years Ended Income before income taxes - GAAP Adjustements to noninterest income: $ 50,805 $ 26,471 $ 50,431 $ 35,415 $ 15,467 Gain on sales of investment securities, net 464 222 Other than temporary impairment on investment securities FDIC settlement FDIC loss-sharing (expense) income Amoritization of FDIC indemnification asset, net Reversal of contingent consideration accrual Gain (loss) on sale of other assets Total adjustments to noninterest income Adjustments to noninterest expense: Foundation contribution Expense from payoff of subordinated debt Net expense from FDIC loss share termination agreement Branch network optimization plan charges Loss on mortgage servicing rights held for sale Integration and acquisition expenses Total adjustments to noninterest expense Adjusted earnings pre tax Adjusted earnings tax Revaluation of net deferred tax assets Adjusted earnings - non-GAAP Preferred stock dividends, net of premium amortization Preferred stock dividends paid at conversion Adjusted earnings available to common shareholders - non-GAAP Adjusted diluted earnings per share - - - - - 89 553 - - - - 458 24,015 24,473 74,725 17,962 - - - - - - (67) 155 - - - 1,952 4,059 17,738 23,749 50,065 19,710 (4,540) 14,702 (824) - - - 350 - 193 (461) - (566) (397) - 12 14,228 (1,219) - 511 351 2,099 - 2,343 5,304 41,507 14,064 - - - - - - 6,101 6,101 42,735 13,542 - 77 (190) 1,709 (3,491) (954) - 2,972 123 900 - - - - 6,229 7,129 22,473 6,758 - $ $ $ 56,763 $ 34,895 $ 27,443 $ 29,193 $ 15,715 141 - 83 - - - - - 56,622 $ 34,812 $ 27,443 $ 29,193 $ 2.39 $ 1.89 $ 1.89 $ 2.39 $ 7,601 (3,346) 11,460 1.74 Weighted average diluted common shares outstanding 23,549,025 18,283,214 14,428,839 12,112,403 7,528,641 Average assets Adjusted return on average assets Average tangible common equity $ 5,455,823 $ 3,941,272 $ 3,075,134 $ 2,768,879 $ 1,753,286 1.04% 0.88% 0.89% 1.05% 0.90% $ 377,602 $ 307,523 $ 234,898 $ 172,064 $ 98,546 Adjusted return on average tangible common equity 15.00% 11.32% 11.68% 16.97% 11.63% 10 2018 Actual Cash Dividend Data Quarter Record Date Payment Date Share Amount 1 2 3 4 February 16, 2018 February 23, 2018 May 18, 2018 May 25, 2018 August 17, 2018 August 24, 2018 November 19, 2018 November 26, 2018 $0.22 $0.22 $0.22 $0.22 Ten-year Dividend History and Book Value Per Share Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Cash Dividends for the Year Book Value Per Share - at End of Year Amount (a) % Increase Amount (b) % Increase $0.33 $0.39 $0.43 $0.48 $0.53 $0.59 $0.65 $0.72 $0.80 $0.88 10.0% 18.2% 10.3% 11.6% 10.4% 11.3% 10.2% 10.8% 11.1% 10.0% $12.40 $15.14 $15.99 $16.37 $17.81 $18.72 $19.74 $20.78 $23.35 $25.50 34.1% 22.1% 5.6% 2.4% 8.8% 5.1% 5.4% 5.3% 12.4% 9.2% (a) Restated for 10 for 1 stock split on December 31, 2010. (b) Book value per share gives effect to the conversion of all of the issued and outstanding shares of preferred stock into shares of the Company’s common stock in 2009, 2010, 2011, 2012 and 2013 Our common stock began trading on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “MSBI” on May 24, 2016. Prior to that, there was no public market for our common stock. The following table sets forth the high and low sales prices of our common stock for the years ended December 31, 2018 and 2017 as reported by NASDAQ. 2018 Fourth Quarter Third Quarter Second Quarter First Quarter 2017 Fourth Quarter Third Quarter Second Quarter First Quarter Price Per Share High Low $ 32.28 $ 36.06 36.00 34.42 19.56 31.65 30.46 29.75 $ 36.50 $ 30.31 34.32 36.14 36.62 28.70 31.40 31.56 11 Board of Directors John M. Schultz Midland States Bancorp, Inc. Chairman Leon J. Holschbach Midland States Bancorp, Inc. Vice Chairman Jeffrey C. Smith Midland States Bank Chairman Agracel, Inc. Chairman and Chief Executive Officer Midland States Bank Vice Chairman Walters Golf Management Principal and Managing Partner Deborah A. Golden Executive Vice President, General Counsel and Secretary of GATX Richard T. Ramos Maritz Holdings, Inc. Executive Vice President Chief Financial Officer and Board Member Jeffrey G. Ludwig Midland States Bancorp, Inc. President and Chief Executive Officer Midland States Bank Chief Executive Officer Jennifer L. DiMotta DiMotta Consulting LLC President Robert F. Schultz JM Schultz Investment Company Managing Partner Dwight A. Miller Dash Management, Inc. Chief Executive Officer For press releases, financial information and more, visit midlandsb.com/investors. 12 Jeffrey M. McDonnell J&J Management Services, Inc. Chief Executive Officer Jerry L. McDaniel Superior Fuels, Inc. Dirtbuster Carwash, LLC President R. Robert Funderburg, Jr. Funderburg Farms, Inc. K-B Farms, Inc. President Management Team Executive Management Jeffrey G. Ludwig Midland States Bancorp, Inc. President and Chief Executive Officer Jeffrey S. Mefford Midland States Bank Chief Executive Officer Midland States Bank President Douglas J. Tucker Midland States Bancorp, Inc. Senior Vice President, Corporate Counsel and Secretary Stephen A. Erickson Midland States Bancorp, Inc. Chief Financial Officer Midland States Bank Senior Vice President, Corporate Counsel Midland States Bank Chief Financial Officer Jeffrey A. Brunoehler Midland States Bank Senior Vice President, Chief Credit Officer Sharon A. Schaubert Midland States Bank Senior Vice President, Banking Services James R. Stewart Midland States Bank Senior Vice President, Chief Risk Officer Senior Management Corporate Michael Karibian Corporate Treasurer Donald Spring Controller Aaron Rios Director - Operations Kyle Mooney Chief Information Officer Willie Wierman Senior Credit Officer and Manager of Retail and Business Banking Jeffrey Culp Director - Financial Planning & Analysis Cristina Ciorna Director - Training John Dietrich Director - Marketing Banking Timothy Spitz Senior Vice President Dan Stevenson Senior Vice President Chuck Frederick Director - Retail Banking Richard Kantor Director - Commercial Banking Matt Dunbar Director - Residential Mortgage Liz Schweger Director - Treasury Management Wealth Management Eric Chojnicki President Midland Equipment Finance Frederick Van Etten President Love Funding Jon Camps President 13 1201 Network Centre Drive, Effingham, IL 62401 • midlandsb.com • 1-855-MY-MIDLAND 

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