Midland States Bancorp, Inc. Annual Report 2019

FY2019 Annual Report · Midland States Bancorp, Inc.

Loading PDF…

ANNUAL
REPORT

2019

Although 2019 was a good year for the Company, at the moment
nothing is more important than the safety of our employees, our
customers and people everywhere as the world comes to grips with
the Coronavirus. With many states in the U.S. implementing “shelter
at home” programs, including our home state of Illinois, there is little
doubt that businesses and families everywhere are going to have very
difficult times ahead. Economic activity will likely drop significantly
in the near-term, but there is no way to know the extent or duration
of the crisis. Our goal is to take all possible measures to protect our
employees while continuing to serve our customers. The financial
services industry is essential to our Nation, in good times and bad,
and the Midland Team stands ready to do everything we can to help
everyone in our communities get through this difficult time.

The Company’s 2019 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:

• Customer Centric Culture

• Operational Excellence

• Accretive Acquisitions

• Revenue Diversification

• Enterprise-Wide Risk Management

Strategic Growth History
($ in Billions)

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
2019 HomeStar Bank acquisition

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Total Assets

Table of Contents

Our Strategic Plan ................................ 1

Letter to Shareholders ........................ 2

Our Environmental, Social and
Governance Program (ESG) ................. 5

Financial Highlights .............................. 6

Summary Financial Information ........... 8

Board of Directors ............................. 12

Management Team .............................13

Letter to Shareholders

Dear Shareholders:

In this letter, I want to talk about the important progress we made
under our Strategic Plan in 2019, lay out our focus for the next
year or two and describe how I view the much talked about topic
of Sustainability/ESG. However, our immediate concern is the
Coronavirus (COVID-19) situation.

We have taken several measures to help protect our employees and
customers. Many of these actions were developed in mid- 2019, when
we held a company-wide mock pandemic exercise. That exercise gave
us a good roadmap to follow as the COVID-19 situation struck.

In late February, after reports of the first U.S. cases, we activated our
Business Continuity Plan. This involved several steps, and executive
management and managers across all of our functions began the
process of preparing for changes in ordinary business routines. In
the first weeks of March we began closing branch lobbies, but we
continue serving our customers through our drive-thru facilities. We
also started rotating personnel to their homes to test “working from
home” to ensure we identified any weak links in software functionality
and other issues, and began implementing other social distancing
procedures. For mission critical areas, such as transaction processing
and wire transfer/Federal Reserve systems capabilities, we adopted
additional procedures. In mid-March, we implemented work from
home for a large portion of our workforce.

We are also planning to help address the economic fallout in our
communities and will be announcing programs to provide short-term
relief to commercial and retail customers experiencing difficulties.
While these programs will likely affect our short-term financial results,
we believe they will help maintain and grow our franchise over time.
They are also critical to helping our communities at this difficult time.

Setting the current situation aside, 2019 was a good year and our
financial performance met our expectations. It was also the 14th
consecutive year we raised our dividend by 10%, and we implemented
a stock repurchase program to return additional capital to our
shareholders.

We also took advantage of the drop in interest rates to raise $100
million in subordinated debt, allowing us to retire higher priced debt
and strengthen our balance sheet. We made the decision to raise
these funds in mid-2019, instead of waiting until 2020, out of concern
that the credit markets might tighten as the Presidential election gets
closer. At the time, nobody had heard of COVID-19. Sitting here
today, with the extreme volatility in all markets, including for corporate
debt, this move looks sound.

On a GAAP basis, net income grew 41.5%, to $55.8 million in 2019
from $39.4 million in 2018, while fully diluted earnings grew 36.1%, to
$2.26 per share in 2019 from $1.66 per share in 2018. Tangible book
value grew from $17.00 to $18.64 at December 31, 2019, an increase of
9.6%. Return on average assets (ROAA) grew from 0.72% to 0.96%, a
33.3% increase.

Our acquisition of HomeStar Bank in July 2019 helped grow our
assets to $6.1 billion at the end of 2019, from $5.6 billion at the end of
2018. HomeStar brought us $367 million in assets and $320 million of
well-priced, core deposits as well as a long-standing customer base
resulting from its more than 70 years in business. We now also have
the #1 market share by deposits in our Kankakee, Illinois market.

Jeffrey G. Ludwig
President and
Chief Executive Officer
Midland States Bancorp, Inc.

Common Dividends Per Share

$1.00

$0.80

$0.60

$0.43

$0.39

$0.40

$0.33

$0.65

$0.59

$0.53

$0.48

$0.97

$0.88

$0.80

$0.72

$0.20

$0.00

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

In 2019, besides completing the HomeStar acquisition, our principal focus was on improving operating efficiency. As
I said in last year’s letter, I believe that the two most important components in building further shareholder value are
improving our operational efficiencies and ensuring continued relevance to our customers.

We worked hard to improve our operating efficiency in 2019, and our efforts have already paid off. We drove our
efficiency ratio from 66.1% to 61.5%, representing a significant year-over-year improvement and contributing to our
stronger ROAA. We expect to continue improving on this measure over the coming years, although we expect 2020 is
going to be a challenging year due to the impact of COVID-19.

We have also been working on enhancing our customer experience and developing deeper wallet share. Part of this
effort includes increased data capabilities, both in terms of better understanding our customers and in back-office
functions. Community banks are at somewhat of a disadvantage as compared to larger banks in utilizing data and
automated processes because technology is expensive and continues to change. Nevertheless, we believe our
customer experience and product/services offerings, including our online and mobile offerings, can be as robust as
the larger banks, and we continue our efforts in this regard.

Our Business Units

Community Banking. Our banking group grew deposits by $470 million in 2019, while loans grew by $263 million, in
each case principally through the HomeStar acquisition. The net liquidity brought in from HomeStar, together with
successful CD and other marketing campaigns, allowed us to drive our net non-core funding ratio down from 17.9%
to 7.8% and hold net interest margin virtually steady year over year. We developed and rolled out a new Insured
Cash Sweep (ICS) deposit product, which generated $288 million in deposits in just the first six months after it was
introduced in June 2019. The ICS product permits commercial customers to have deposits of any size qualify for FDIC
insurance (instead of being subject to the normal $250,000 per account limit) through a reciprocal bank-to-bank
settlement process.

We also reduced our branch footprint by four locations in 2019, including two Midland branches that were right across
the street from HomeStar branches in Kankakee and Manteno, Illinois. These closures cut significant expense without
major inconvenience to our customers.

Wealth Management. Our Wealth Management group had another successful year and contributed positively
to our net income. By year-end 2019, our Wealth team consisted of 75 professionals, including 41 client-facing
representatives, offering services across our footprint. This is our largest fee-based business, generating recurring
revenue on both the financial advisory and trust administration sides of the business. Our focus on personalized
financial advice and the fiduciary model has helped offset the dual industry trends of lower management fees and
robo-advisors. Another contributor is our Midland Trust Company subsidiary, which specializes in managing special
needs trusts and property guardianships for personal injury victims. Our teams in Chicago and New York have been
building this nationwide business since 2013.

Wealth Management’s assets under administration grew to $3.41 billion by the end of 2019, including $181 million from
the HomeStar acquisition, resulting in a 15.8% increase over year-end 2018. Wealth Management revenue reached
$21.8 million in 2019, up from $20.5 million in 2018.

Equipment Finance. Our equipment finance business has grown significantly since we reorganized it in early 2018, at
which time our equipment finance portfolio was less than $200 million. This business, which helps small-medium sized
businesses acquire essential equipment in a variety of sectors, provides us risk-adjusted yields above that which we
generate on our overall commercial loan business. It also provides greater granularity, with average transaction sizes
of approximately $200,000.

As is the case with our general commercial lending, our equipment finance team can quickly adapt to changes in the
economy. As an example, in early 2019 it was becoming clear that the nationwide transportation sector was seeing a
slowdown, and our team moved away from seeking new business in that sector, instead focusing on other areas, such
as specialty vehicles (including emergency response vehicles, school buses and other shuttle-type vehicles) and a more
diverse mix of construction-related assets.

At the end of 2019, our equipment finance portfolio stood at $631.5 million, an increase of 67.9% from year-end 2018.
This unit is also operating more efficiently than a few years ago, partly due to better integration of its underwriting,
document processing and funding functions.

Commercial FHA. The 2019 fiscal year was the first full year of operations following our change of leadership in our
Love Funding subsidiary in mid-2018, and I am very pleased with the results. This business, which specializes in
originating FHA guaranteed financing for multi-family and health care facilities, had not been growing over the past
few years, and we felt a change was needed. In 2019, rate locks increased from $236 million in 2018 to $307 million,
an increase of 30%. Similarly, revenue increased by 19.9%, from $11.0 million to $13.2 million. It is hard to tell if the
current very low interest rate environment will lead to a spurt of new business, but we continue to expect Love Funding
as likely to generate $12-20 million of revenue year in and year out.

In 2019, we were also successful in continuing to grow our bridge lending program to Love Funding’s clients, where
our Bank provides construction or other shorter-term financing prior to the project obtaining its FHA financing. Our
commercial lending teams are finding more and more opportunities to work with the developers of these projects at

the early stages, and this is turning into a strong source of commercial real estate lending for us. The bridge financing
also provides a competitive advantage for Love Funding over other FHA origination companies that do not have access
to similar shorter-term financing. At the end of 2019, we had approximately $157 million of bridge loans outstanding.

Sustainability/Environmental, Social and Governance (ESG)

While discussion regarding the proper role of publicly traded corporations in society is nothing new, the issue has
become more front and center over the past year or two. Often the question posed is whether a business should be
managed solely in the best interests of its shareholders, or whether other interests should be considered, such as its
communities, employees, vendors, the environment, etc.

In my view, especially for a community bank like Midland, there is no real dichotomy. Our opportunities to thrive and
provide meaningful shareholder returns most strongly exist when the businesses and families in our communities are
thriving. Our growth and profitability largely depend on our local businesses expanding and needing capital to do
so, and whether the families in our communities feel the level of stability that promotes home ownership, new car
purchases, dining out and the rest of the economic activity that generates the need for financial services. Moreover,
good corporate governance, strong risk management, a diverse workforce and a visible presence in community
activities are vital to Midland remaining a sustainable and profitable enterprise.

On the environmental front, examples of actions we have taken that directly benefit our shareholders include the
design of our 80,000 square foot Effingham headquarters, which is LEED certified, and the installation of solar panels
in many of our other locations, reducing our operating costs in these facilities. Also, we have provided more than $540
million of financing for environmentally certified (LEED, Energy Star, etc.) commercial properties since 2017 and have
made more than $50 million of credit available to home owners wishing to add solar energy to their homes. Each of
these efforts has been financially sound and has generated the expected financial returns.

I hope you will take a minute to review our ESG Summary included in this Annual Report. I think it provides a good
view into how Midland interacts with our outside constituents to help drive shareholder value.

Outlook

The short-term outlook for Midland, as is the case with every business and especially every community bank, largely
depends on the duration and severity of problems resulting from COVID-19. There will most certainly be less
commercial activity than we had expected in 2020. However, it is simply too early to know with any certainty what
effect the virus and its aftermath will have on our communities and on our business.

We do believe that the crisis will pass and that people’s lives and the economy will return to “normal”, but that normal
may be somewhat different from the recent past. More people may work from home. Businesses may seek to further
diversify their supply chains. Consumers may be more cautious with their spending.

In my view, once the current crisis has passed and the economy returns to a more normal footing, we will be in a good
position to further drive down costs and make better use of technology to understand our customers’ needs and more
efficiently process transactions across all of our business units. We believe our current size offers room for additional
synergies. HomeStar was an excellent acquisition for us, and our principal focus will remain on improving our efficiency
and return on assets.

In closing, I want to take a moment to wish Leon Holschbach well and thank him for all he has done for Midland since
joining the Company in 2007. As his final year of service on our Board draws to a close, I hope you will join me in
wishing him well. The past 13 years of working with Leon have been some of the most enjoyable years of my career,
and we will all miss his wit, humor and wisdom.

Very truly yours,

Jeffrey G. Ludwig
President and
Chief Executive Officer

March 25, 2020

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”).

Our Environmental, Social and Governance Program (ESG)

ENVIRONMENTAL
Our environmental initiatives pertain to our internal business
operations and our Bank’s lending activities.
Facilities
• Our Corporate HQ, built in 2011, is LEED (Silver) Certified.
• We have installed Solar power in 10 Midland locations.
• We have made more than $50 million of credit available for

residential solar projects since 2011.

• We have also provided $540 million of financing for 18

“green” (LEED, Energy Star, etc.) multi-family/health care
facilities since 2017.

Paper Reduction
• More than 40% of our customers use paperless statements and
we have had a paper elimination program in place since 2010.

SOCIAL
We strive to further the financial success of the families and
small-medium sized/minority owned businesses in our markets
by offering fair products and services supported by financial
education and other measures.
Our Community Development Plan (CDP), which is available at
www.midlandsb.com/community-development-plan, is designed
to insure we serve as a catalyst for community development in
our neighborhoods.
We strive to safekeep our customer’s information, and help them
reduce the chance of identity theft and online fraud.
Community Outreach
• We have been serving families and businesses since 1881,
offering products and services based on the needs of our
customers.

• We work with more than 150 low-to-moderate income (LMI)

and minority focused community groups to insure we address
the needs of each of our markets.

• The Midland Institute CEO program, a unique year-long

program designed to teach entrepreneurship to high school
students, was created in 2010. In 2020, more than 50
programs, serving 229 high schools in six states, now utilize
this powerful program for energizing tomorrow’s business
leaders.

Culture and People
• Since 2008 Midland has provided all employees with personal

and professional development training.

• Midland’s Advanced Study for Talent Enrichment and

Resource Training (MASTERS) program serves to develop
future leaders of the Company. To date 59% of participants
have been women or minority employees.

Philanthropy
• $30 million of investment towards community development

goals targeted for the 2019-2021 period.

• Since its creation in 2011, the Midland States Bank

Foundation has contributed more than $900,000 to non-profit
organizations throughout Midland’s footprint.

Financial Education
• Since 2015 we have held more than 240 financial literacy
seminars in LMI/minority neighborhoods in our footprint.

Community Development and Financial Inclusion
• We have provided $877 million of financing for 148 affordable

multi-family and health care projects since 2015.

• Through our Believable Banking® Residential Mortgage and
Home Improvement programs we have made more than $31
million of loans to families underserved by traditional loan
programs.

• Our banking products and services are offered through our
personal bankers, online with materials clearly describing
the features, costs and alternatives available, and by dual-
language materials in our branches and our ADA compliant
website.

GOVERNANCE
Midland has a long history of effective corporate governance,
inclusiveness and providing opportunities for personal and
professional development for all employees.
Our Enterprise-Wide Risk Management program has been one
of the five initiatives under our Strategic Plan since its creation in
2008.
Our Executive Compensation program is designed to reward
growth oriented results without exceeding proper credit
and other risk tolerances for a community-focused banking
organization.
Reputation and Ethics
• Midland States Bank was one of the first banks in the nation to

have a woman on its board (1903).

• Our board composition includes 36% women and minorities,
and our criteria for identifying directors includes seeking
diverse individuals.

• Our Code of Business Conduct and Ethics is available at

investors.midlandsb.com.

Oversight of Strategy and Risk Managment
• The Company’s Chair and CEO roles have been separate since

the Company’s inception (1988).

• All directors continuing after our May 2020 Annual Meeting of
Shareholders, except our CEO, are “independent” pursuant to
applicable SEC/NASDAQ rules.

• Our Board of Directors has established a Risk and Compliance

Committee to oversee all aspects of risk and compliance
management across our enterprise.

• Consistent with COSO’s 2017 Enterprise-Wide Risk

Management (ERM) Framework, our ERM program employs
business process risk ownership and the “three lines
of defense” model. The primary objectives of our ERM
framework are to:
• Maintain sufficient liquidity given our funding requirements;
• Identify, measure, monitor and report market, credit and

operational risks;

• Promote awareness of emerging risks among all employees,

managers, directors; and

• Manage avoidable exposures through a robust framework of

internal controls.
Data Security & Privacy
• We utilize data security programs and a privacy policy under
which we do not sell or share customer information with non-
affiliated entities.

Executive Compensation
• Our executive compensation, including all performance
related compensation, is evaluated annually by Risk
Management to ensure consistency with Federal Reserve
Safety and Soundness requirements, and the Interagency
Guidance on Sound Incentive Compensation Policies issued
jointly by the federal regulatory agencies.

• All cash and equity incentive programs for executive officers

include performance metrics and/or four-year vesting periods.

Financial Highlights

Total Gross Loans
($ in Millions)

Total Deposits
($ in Millions)

$5,000

$4,000

$3,000

$2,000

$1,000

$4,401

$4,138

$3,227

$2,320

$1,996

2015

2016

2017

2018

2019

$5,000

$4,000

$3,000

$2,000

$1,000

$4,544

$4,074

$3,131

$2,368

$2,404

2015

2016

2017

2018

2019

Trust Assets Under Administration
($ in Millions)

Total Shareholders’ Equity
($ in Millions)

$3,410

$2,945

$3,500

$3,000

$2,500

$2,000

$1,500

$1,181

$2,051

$1,658

$1,000

$500

2015

2016

2017

2018

2019

$800

$700

$600

$500

$400

$300

$200

$100

$662

$609

$450

$322

$233

2015

2016

2017

2018

2019

Total Capital to Risk-Weighted Assets

Return on Average Tangible
Common Shareholders’ Equity(1)

13.85%

13.26%

12.79%

14.72%

15%

14.14%

13.43%

11.82%

15%

12%

2015

2016

2017

2018

2019

12.82%

10.40%

5.19%

2015

2016

2017

2018

2019

(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, 2019 for a reconciliation of
return on average tangible common equity to its most comparable GAAP measure. See “Non-GAAP Financial Measures” on page 10 for a reconciliation of
adjusted return on average tangible common equity to its most comparable GAAP measure.

Tangible Book Value Per Share(1)

Adjusted Return on Average Assets(2)

$20

$15

$10

$17.16

$17.31

$17.00

$18.64

$15.20

2015

2016

2017

2018

2019

1.2%

1.0%

0.8%

0.6%

0.4%

0.2%

0.0%

1.05%

1.04%

1.08%

0.89%

0.88%

2015

2016

2017

2018

2019

Adjusted Diluted Earnings Per Share(2)

Revenue
($ in Millions)

$3.00

$2.50

$2.00

$1.50

$1.00

$0.50

$0.00

$2.39

$2.54

$2.39

$1.89

2015

2016

2017

2018

2019

$300

$250

$200

$150

$100

$50

$252

$265

$164

$177

$189

2015

2016

2017

2018

2019

Adjusted

GAAP

Noninterest Income / Revenue

Net Interest Margin

50%

40.6%

40%

36.2%

30%

20%

10%

31.4%

28.5%

28.4%

2015

2016

2017

2018

2019

4.38%

3.92%

3.77%

3.76%

3.69%

2015

2016

2017

2018

2019

(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, 2019 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 10 for a reconciliation of these measures to their most comparable GAAP measures.

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, 2019. 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, 2019.

2019

2018

As of December 31,
2017

2016

2015

$ 6,087,017 $ 5,637,673 $ 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

4,401,410
(28,028)
16,431
655,054
4,544,254
82,029
493,311
176,653
48,288
661,911
455,267

4,137,551
(20,903)
30,401
660,785
4,074,170
124,235
640,631
94,134
47,794
608,525
403,695

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

2019

249,518
59,703
189,815
16,985
75,282
175,641
72,471
16,687
55,784
46
55,738

For the Years Ended December 31,
2016
2017
2018

223,367
43,280
180,087
9,430
71,791
191,643
50,805
11,384
39,421
141
39,280

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

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

2015

117,796
12,889
104,907
11,127
59,482
117,847
35,415
11,091
24,324
-
24,324

(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

Income taxes

Net income

Preferred stock dividends

Net income available to common shareholders

(dollars in thousands, except per share data)
Per Share Data (Common Stock)
Basic earnings per share
Diluted earnings per share
Dividends declared
Book value
Tangible book value(1)
Market price
Weighted average shares outstanding

Basic
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(2)
Efficiency ratio(1)
Common stock dividend payout ratio(3)
Loan to deposit ratio
Core deposits/total deposits(4)
Net non-core funding dependence ratio(1)

Adjusted Earnings Metrics
Adjusted earnings(5)
Adjusted diluted earnings per share(5)
Adjusted return on average assets(5)
Adjusted return on average tangible common equity(5)

Regulatory Capital Ratios

Tangible common equity to tangible assets(1)
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

2019

As of and for the Years Ended December 31,
2017

2018

2016

2.28
2.26
0.97
27.10
18.64
28.96

1.69
1.66
0.88
25.50
17.00
22.34

0.89
0.87
0.80
23.35
17.31
32.48

2.22
2.17
0.72
20.78
17.16
36.18

2015

2.03
2.00
0.65
19.74
15.20
N/A

24,288,793
24,493,431
24,420,345

23,130,475
23,549,025
23,751,798

17,781,631
18,283,214
19,122,049

14,130,552
14,428,839
15,483,499

11,902,455
12,112,403
11,797,404

0.96%
8.74%
12.82%
4.83%
1.43%
3.69%
61.53%
42.54%
96.86%
96.09%
7.77%

62,826
2.54
1.08%
14.44%

7.74%
9.20%
8.74%
10.52%
14.72%

29,876
0.68%
42,082
0.96%
50,027
0.82%
0.64%
66.60%
0.23%

0.72%
6.92%
10.40%
4.65%
1.11%
3.76%
66.08%
52.07%
101.56%
92.35%
17.89%

56,763
2.39
1.04%
15.00%

7.43%
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%
91.69%
19.95%

34,895
1.89
0.88%
11.32%

7.70%
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%
88.70%
15.23%

27,443
1.89
0.89%
11.68%

8.36%
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%
88.41%
7.12%

29,193
2.39
1.05%
16.97%

6.33%
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%

(1) Tangible common equity, tangible book value per share, return on average tangible common equity, efficiency ratio, net non-core funding dependence ratio and tangible common equity to
tangible assets 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,
2019 for a reconciliation of these measures to their most comparable GAAP measures.

(2) Net interest margin is presented on a fully taxable equivalent basis.
(3) Common stock dividend payout ratio represents dividends per share divided by basic earnings per share.
(4) Core deposits are defined as total deposits less certificate of deposits greater than $250,000 and brokered certificates of deposits.
(5) 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 10 for a reconciliation of these measuers to their most comparable GAAP measures.

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)

2019

2018

2017

2016

2015

For the years ended December 31,

Adjusted Earnings:

Income before income taxes - GAAP

Adjustments to noninterest income:

72,471 $

50,805 $

26,471 $

50,431 $

35,498

Gain on sales of investment securities, net

674

464

222

Other than-temporary-impairment on investment securities

FDIC loss-sharing expense

Amortization of FDIC indemnification asset, net

Reversal of contingent consideration accrual

Other

Total adjustments to noninterest income

Adjustments to noninterest expense:

Net expense from FDIC loss share termination agreement

Branch network optimization plan charges

(Gain) loss on mortgage servicing rights held for sale

Loss on repurchase of subordinated debt

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

(29)

645

(490)

1,778

9,070

10,358

82,184

19,358

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)

14,228

(1,219)

351

2,099

511

2,343

5,304

41,507

14,064

6,101

42,818

13,625

62,826 $

56,763 $

34,895 $

27,443 $

29,193

Preferred stock dividends and premium amortization

141

Adjusted earnings available to common shareholders - non-

GAAP

Adjusted diluted earnings per common share

62,780 $

56,622 $

34,812 $

27,443 $

29,193

2.54 $

2.39 $

1.89 $

2.39

Weighted average shares outstanding - diluted

24,493,431

23,549,025

18,283,214

14,428,839

12,112,403

Average assets

Adjusted return on average assets

Average tangible common equity

$ 5,835,085 $

5,455,823 $

3,941,272 $

3,075,134 $

2,768,879

1.08%

1.04%

0.88%

0.89%

1.05%

434,682 $

377,602 $

307,523 $

234,898 $

172,064

Adjusted return on average tangible common equity

14.44%

15.00%

11.32%

11.68%

16.97%

2019 Actual Cash Dividend Data

Quarter

Record Date

Payment Date

Share Amount

February 15, 2019

February 22, 2019

May 13, 2019

May 20, 2019

August 16, 2019

August 23, 2019

November 18, 2019

November 25, 2019

$0.2425

Ten-year Dividend History and Book Value Per Share

Year

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Cash Dividends for the Year

Book Value Per Share - at End of Year

Amount (a)

% Increase

Amount (b)

% Increase

$0.39

$0.43

$0.48

$0.53

$0.59

$0.65

$0.72

$0.80

$0.88

$0.97

18.2%

10.3%

11.6%

10.4%

11.3%

10.2%

10.8%

11.1%

10.0%

10.2%

$15.14

$15.99

$16.37

$17.81

$18.72

$19.74

$20.78

$23.35

$25.50

$27.10

22.1%

5.6%

2.4%

8.8%

5.1%

5.4%

5.3%

12.4%

9.2%

6.3%

(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 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, 2019 and 2018 as reported by NASDAQ.

2019

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

2018

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

Price Per Share

High

Low

29.50

25.15

27.89

28.24

25.84

24.39

23.85

21.81

36.50

30.31

34.32

36.14

36.62

28.70

31.40

31.56

Board of Directors

John M. Schultz
Midland States Bancorp, Inc.
Chairman

Agracel, Inc.
Chairman and Chief
Executive Officer

Jeffrey G. Ludwig
Midland States Bancorp, Inc.
President and
Chief Executive Officer

Midland States Bank
Chief Executive Officer

Jeffrey C. Smith
Midland States Bank
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

Leon J. Holschbach
Midland States Bancorp, Inc.
Vice Chairman

Jennifer L. DiMotta
DiMotta Consulting LLC
President

Midland States Bank
Vice Chairman

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.

Jeffrey M. McDonnell
J&J Management
Services, Inc.
Chief Executive Officer

Jerry L. McDaniel
Superior Fuels, Inc.
Dirtbuster Carwash, LLC
President

Management Team

Executive Management

Jeffrey G. Ludwig
Midland States Bancorp, Inc.
President and
Chief Executive Officer

Jeffrey S. Mefford
Executive Vice President

Douglas J. Tucker
Midland States Bancorp, Inc.
Senior Vice President,
Corporate Counsel and Secretary

Eric T. Lemke
Midland States Bancorp, Inc.
Chief Financial Officer

Midland States Bank
Chief Executive Officer

Midland States Bank
President

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,
Chief Human Resources Officer

James R. Stewart
Midland States Bank
Senior Vice President,
Chief Risk Officer

Senior Management

Corporate

Donald Spring
Chief Accounting Officer and
Corporate Controller

Michael Karibian
Corporate Treasurer

Aaron Rios
Director - Operations

Kyle Mooney
Chief Information Officer

Willie Wierman
Director - Credit Underwriting

Timothy Spitz
Senior Vice President

Eric Chojnicki
President

Banking

Wealth Management

Cristina Ciorna
Director - Training

John Dietrich
Director - Marketing

Dan Stevenson
Senior Vice President

Frank Turza
Director - Retail Banking

Richard Kantor
Director - Commercial Banking

Matt Dunbar
Director - Residential Mortgage

Liz Schweger
Director - Treasury Management

David R. Noble
Director - Community Economic
Development

Midland Equipment
Finance

Frederick Van Etten
President

Love Funding

Jon Camps
President

1201 Network Centre Drive, Effingham, IL 62401 • midlandsb.com • 1-855-696-4352