Midland States Bancorp
Annual Report 2021

Plain-text annual report

ANNUAL REPORT 2021 focus more on Our efforts over the past couple of years improving operating to performance and less on acquisitions resulted in record revenue and profits in 2021. Perhaps more importantly these changes will continue to drive shareholder value for years to come. Broadly speaking, we saw improvements in talent, training, processes, systems and customer experience in every area of our business. Our teams see the benefits of these improvements and are highly energized for the future. Our business clients have weathered the COVID storm and are back to mostly normal operating levels. I’m proud of the work we have done and look forward to a strong 2022 and beyond. The Company’s 2021 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 2021 updated Total Assets ($ in Billions) $8 $7 $6 $5 $4 $3 $2 $1 $0 CAGR: 17% 8 % O : 1 6 I P 1 0 $6.1 e 2 c R s i n $5.6 G A C $7.4 $6.9 $4.4 $2.7 $2.9 $3.2 $1.6 $1.5 $1.6 $1.7 $1.1 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Selected Acquisitions Selected Acquisitions: Total Assets at Time of Acquisition (in millions) 2009: Strategic Capital Bank ($540) 2014: Love Savings/Heartland Bank ($889) 2018: Alpine Bancorp. ($1,243) 2010: AMCORE Bank ($500) 2017: Centrue Financial ($990) 2019: HomeStar Financial Group ($366) Table of Contents Our Strategic Plan ................................ 1 Letter to Shareholders ........................ 2 Financial Highlights .............................. 6 Summary Financial Information ........... 8 Our Environmental, Social and Governance Program (ESG) ............... 15 Board of Directors ............................. 16 Management Team .............................17 1 Letter to Shareholders Dear Shareholders: I am very pleased to report that 2021 was a terrific year for the Company. Indeed, we saw record net revenue and record earnings per share for the year. The primary drivers of this performance were: • Our model of customer-centric service and relationship banking allowed us to grow loans and deposits, with deposits increasing by $1.0 billion, or 19.8%, during 2021; • A continued focus on reducing costs and increasing operating efficiencies; and • Increased use of technology across our business sectors. We have remained steadfast in our commitment to drive down expenses while also improving our customers’ experience. The investments we made in prior years are really starting to pay off in the way we do business, both at the customer-facing stage as well as in our back office operations. Similarly, we continue to see positive results from our increased focus on corporate culture, training and personal development in recent years. If asked to name the biggest reason Midland had such a great year in the face of the ongoing pandemic, my answer would unequivocally be “our Team.” I visited all of our branches in 2021, and the consistently high level of morale, positive attitude and dedication to making sure each customer received friendly and efficient service was well evident across our footprint. It was truly inspiring. Financial Results We had an exceptional year that saw us improve our financial performance while also making investments that we believe will enable us to continue improving our performance in the years to come. Total loans increased by $121.5 million, or 2.4%, to $5.2 billion, resulting from growth across our commercial real estate and consumer loan portfolios. Total deposits increased by $1.0 billion, or 19.8%, to $6.1 billion, due primarily to increases in our servicing and commercial deposits. Tangible book value grew by 12.2% to $21.66 per share, driven by higher earnings realized in 2021 along with $11.7 million in additional repurchases of our common stock (approximately 481,000 shares). 2 Jeffrey G. Ludwig President and Chief Executive Officer Midland States Bancorp, Inc. 2021 updated Adjusted Pre-Tax Pre-Provision Earnings ($ in Thousands) $120,407 $108,921 $101,308 $130000 $104000 $83,706 $78000 $61,945 $52000 $26000 $0 2017 2018 2019 2020 2021 Adjusted Pre-Tax Pre-Provision Earnings is a non-GAAP financial measure. See page 11 for a reconciliation of this measure to its most comparable GAAP measure. Net income was $81.3 million in 2021, or $3.57 per fully diluted share compared to net income of $22.5 million, or $0.95 per fully diluted share in 2020. In addition, our adjusted pre-tax, pre- provision earnings increased by 10.5% on a year-over-year basis, to $120.4 million as compared to $108.9 million for 2020. 2021 also represented the 21st consecutive year we increased our common dividend. When taking the share repurchases and common share dividends paid in 2021 together, we distributed $36.9 million to our shareholders. Operating Efficiency Our focus on improving efficiency has yielded strong results. In 2021, our efficiency ratio declined to 57.1% from 59.4% in 2020, representing very strong year-over-year improvement, driven, primarily, by an increase in total revenue of $17.2 million. Given that our efficiency ratio was 66.1% in 2018, this represents a three-year improvement of 900 basis points. A portion of our improved efficiency resulted from cost- saving efforts we adopted in 2020. In particular, the closing or consolidation of 13 branch locations and two administrative offices in 2020, as well as certain Love Funding facilities we closed or transferred as part of the sale of this business in mid-2020, resulted in a $3.7 million reduction in staffing and occupancy costs during 2021. These results proved that we could continue to grow record revenue with fewer locations. Our Business Units Community Banking. Loans in our Community Banking business declined to approximately $3.3 billion, a decrease of $72.9 million or 2.2% over 2020. Included in the loan activity during the year was the payoff of $131.9 million of PPP loans and a decrease in our commercial FHA warehouse lending activity of $181.4 million. Excluding these two products, loans increased $240.4 million or 8.2% during 2021. Deposits grew to $4.5 billion, an increase of 5.3% year-over-year. Our commercial team continued to help customers with the PPP loan program and originated over 1,200 loans for $103.0 million in balances related to Round 2 of PPP. Of this amount and the 1st round of PPP loans, $52.5 million was outstanding as of December 31, 2021, and we expect most of these loans to be forgiven pursuant to SBA rules. Our consumer lending program also continued to perform on a very steady basis throughout the pandemic, with total loans outstanding at the end of 2021 of approximately $874.5 million, a year-over-year increase of 14.0% While our consumer program has largely been through our longstanding relationship with GreenSky, we now expect to broaden that program through agreements with one or more additional consumer-lending focused fintechs. This will help maintain our consumer loan portfolio if our Greensky loan balances eventually decrease at some point after the closing of the sale of GreenSky to Goldman Sachs, the closing of which is expected to occur in the second quarter of 2022. 2021 updated Tangible Book Value Per Share $23.00 $21.40 $19.80 $18.20 $17.31 $17.00 $21.66 $19.31 $18.64 $16.60 $15.00 2017 2018 2019 2020 2021 Tangible Book Value Per Share is a non-GAAP financial measure. See page 12 for a reconciliation of this measure to its most comparable GAAP measure. 2021 updated Common Dividends Per Share $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 $1.12 $1.07 $0.97 $0.88 % 0 R : 1 G A C $0.65 $0.59 $0.80 $0.72 $0.53 $0.48 $0.43 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2021 updated Efficiency Ratio 70.0% 67.5% 65.0% 62.5% 60.0% 57.5% 55.0% 52.5% 50.0% 66.66% 66.08% 61.53% 59.42% 57.05% 2017 2018 2019 2020 2021 Efficiency ratio is a non-GAAP financial measure. See page 13 for a reconciliation of this measure to its most comparable GAAP measure. 3 2021 updated Total Gross Loans ($ in Millions) $6000 $5000 $4000 $3000 $2000 $1000 $0 $5,103 $5,225 $4,138 $4,401 $3,227 2017 2018 2019 2020 2021 2021 updated Trust Assets Under Administration ($ in Millions) $4500 $4000 $3500 $3000 $2500 $2000 $1500 $1000 $500 $0 $4,217 $3,410 $3,481 $2,945 $2,051 2017 2018 2019 2020 2021 You will hear us talking more and more about “banking as a service”, commonly referred to as “BaaS”, in the near future. BaaS generally involves banks providing services they already perform for their own operations to one or more outside clients. This can involve funding consumer and/or commercial loan originations, as we have done with GreenSky for more than ten years; servicing loans, as we have done for FHA lenders for several years; holding deposits generated by non- bank financial service companies; providing payment services and other financial services. Approximately two years ago we began to research possible BaaS opportunities and join certain organizations that focus on investing in and developing fintechs with services complimentary to community banks, fostering relationships between these fintechs and banks who are entrepreneurial and adept at working with partners, regulators and others to offer innovative financial services in a manner in compliance with the growing regulatory framework around these new products. I believe BaaS offers new revenue opportunities for us and I look forward to sharing additional information about this in the future. And while the sale of GreenSky will not end our relationship and loan originations through them in the near term, it does come at a time when we were gearing up to look for more opportunities to strike BaaS relationships. Wealth Management. Our Wealth Management group had another successful year, which included the acquisition of ATG Trust Company, located in Chicago, Illinois. I am especially pleased with the smooth transition accomplished between our Wealth Management team and our new ATG group. We felt that the two groups had similar cultures and would work well together and complement each other, and this is proving to be the case. Overall, Wealth Management’s assets under administration grew to $4.22 billion by the end of 2021, resulting in a 21.1% increase over year-end 2020. Wealth Management revenue grew to $26.8 million, up from $22.8 million in 2020, an increase of 17.6%. Equipment Finance. Our equipment finance business has continued to grow markedly in 2021, even as the pandemic caused great stress to many of its customers. Our equipment finance portfolio stood at $945.2 million at the end of 2021, as compared to $861.5 million at year- end 2020, representing an increase of 9.7%. Our equipment finance business has benefitted greatly from the strength of its management and the very cohesive team that operates this business for us. And while it is not at all uncommon for employees across our organization to be recognized by professional or governmental organizations for their hard work and dedication, I want to mention one here in particular. Fred Van Etten, who runs this business for us, recently received what really is tantamount to a lifetime achievement award. Partly in recognition of the growth he has driven here at Midland, Fred was recently selected as part of the 2022 Sun Devils 100 group, which recognizes Arizona State University alumni who own or lead successful, innovative businesses across the globe. It’s a well-deserved honor and we congratulate Fred on the recognition it brings. 4 Frederick Van Etten President Midland Equipment Finance Outlook I continue to believe we are well positioned for the future. Our customer base seems to have weathered the COVID storm and is returning to more normal activity. Our loan pipelines are as strong as they have ever been. Our credit quality is strong and charge-offs have been quite low and I have no reason to believe that will change, absent a significant deterioration in the overall economy. Our customer-facing teams remain highly motivated to continue providing excellent customer service after a very difficult two years of trying to keep branches open with limited staff. And our operations teams continue to find new ways to improve efficiency and reduce overhead. Our Wealth Management and Equipment Finance groups turned in tremendous performance in 2021 and, sitting here today, 2022 appears to be shaping up to be another good year at Midland. As always, we thank you for your continued support. Jeffrey G. Ludwig President and Chief Executive Officer March 21, 2022 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. 5 Financial Highlights 2021 updated 2021 updated Adjusted Return on Average Assets(1) Adjusted Diluted Earnings Per Share(1) 1.5% 1.2% 0.9% 0.6% 0.3% 0.0% 1.04% 1.08% 0.88% 1.21% 0.62% 2017 2018 2019 2020 2021 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 $3.65 $2.39 $2.54 $1.89 $1.70 2017 2018 2019 2020 2021 2021 updated Revenue ($ in Millions) 2021 updated Adjusted GAAP Noninterest Income / Revenue 35% 30% 25% 20% 15% 10% 5% 0% 31.4% 28.5% 28.4% 23.5% 25.2% 2017 2018 2019 2020 2021 $300 $250 $200 $150 $100 $50 $0 $252 $265 $260 $278 $189 2017 2018 2019 2020 2021 2021 updated Net Interest Margin 4.00% 3.75% 3.50% 3.25% 3.00% 3.77% 3.76% 3.69% 3.40% 3.33% 2017 2018 2019 2020 2021 6 2021 updated Total Deposits ($ in Millions) 2021 updated Total Shareholders’ Equity ($ in Millions) $7000 $6000 $5000 $4000 $3000 $2000 $1000 $0 $6,111 $5,101 $4,544 $4,074 $3,131 2017 2018 2019 2020 2021 $800 $700 $600 $500 $400 $300 $200 $100 $0 $609 $662 $664 $621 $450 2017 2018 2019 2020 2021 2021 updated 2021 updated Total Capital to Risk-Weighted Assets Return on Average Tangible Common Shareholders’ Equity(1) 15% 12% 9% 6% 3% 0% 14.72% 13.26% 12.79% 13.24% 12.19% 2017 2018 2019 2020 2021 20% 15% 10% 5% 0% 17.91% 12.82% 10.40% 5.19% 5.18% 2017 2018 2019 2020 2021 (1) Adjusted return on average assets, adjusted diluted earnings per share and return on average tangible common shareholders’ equity are non-GAAP financial measures. See “Non-GAAP Financial Measures” on pages 11 through 13 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, 2021. 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, 2021. (dollars in thousands, except per share data) Per Share Data (Common Stock) 2021 As of and for the Years Ended December 31, 2019 2020 2018 2017 Earnings Basic Diluted 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 shareholders' 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) Adjusted Earnings Metrics Adjusted earnings(1) Adjusted diluted earnings per share(1) Adjusted return on average assets(1) Adjusted return on average tangible common equity(1) Regulatory Capital Ratios Total risk-based capital ratio Tier 1 risk-based capital ratio Common equity tier 1 risk-based capital ratio Tier 1 leverage ratio Tangible common equity to tangible assets(1) 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 credit losses on loans to total loans Allowance for credit losses on loans to nonperforming loans Net charge-offs to average loans $ $ $ $ $ $ 3.58 3.57 1.12 30.11 21.66 24.79 $ 0.95 0.95 1.07 27.83 19.31 17.87 $ 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 22,481,389 22,547,353 22,050,537 23,336,881 23,346,126 22,325,471 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 1.18% 12.65% 17.91% 3.81% 0.66% 3.33% 57.05% 31.28% 85.50% 97.27% 83,221 3.65 1.21% 18.33% 12.19% 9.16% 8.08% 7.75% 6.58% 17,514 0.34% 42,580 0.81% 57,069 0.77% 0.98% 119.92% 0.27% $ $ $ $ 0.35% 3.55% 5.18% 4.17% 1.00% 3.40% 59.42% 112.63% 100.05% 97.72% 40,183 1.70 0.62% 9.24% 13.24% 9.20% 7.99% 7.50% 6.46% 31,460 0.62% 54,070 1.06% 75,432 1.10% 1.18% 111.79% 0.50% $ $ $ $ 0.96% 8.74% 12.82% 4.83% 1.43% 3.69% 61.53% 42.54% 96.86% 96.09% 62,826 2.54 1.08% 14.44% 14.72% 10.52% 9.20% 8.74% 7.74% 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% 56,763 2.39 1.04% 15.00% 12.79% 10.25% 8.76% 8.53% 7.43% 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% 34,895 1.89 0.88% 11.32% 13.26% 10.19% 8.45% 8.63% 7.70% 15,405 0.48% 26,760 0.83% 30,894 0.70% 0.51% 61.40% 0.28% (1) Tangible book value per share, return on average tangible common shareholders’ equity, efficiency ratio, adjusted earnings, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average tangible common equity and tangible common equity to tangible assets are non-GAAP financial measures. See “Non-GAAP Financial Measures” on pages 11 through 13 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 certificates of deposits greater than $250,000 and brokered certificates of deposits. 8 Balance Sheet (dollars in thousands) Assets Cash and due from banks Federal funds sold Cash and cash equivalents Investment securities available for sale Equity securities Loans Allowance for credit losses on loans Total loans Loans held for sale Premises and equipment Operating lease right-of-use assets Other real estate owned Nonmarketable equity securities Accrued interest receivable Loan servicing rights Goodwill Other intangible assets Cash surrender value of life insurance policies Other assets Total assets Liabilities and Shareholders’ Equity Liabilities: Deposits: Noninterest-bearing Interest-bearing Total deposits Short-term borrowings FHLB advances and other borrowings Subordinated debt Trust preferred debentures Operating lease liabilities Other liabilities Total liabilities Shareholders’ Equity: Common stock Capital surplus Retained earnings Accumulated other comprehensive income Total shareholders’ equity Total liabilities and shareholders’ equity As of December 31, 2021 2020 673,297 7,074 680,371 906,603 9,529 5,224,801 (51,062) 5,173,739 32,045 70,792 8,428 12,059 36,341 19,470 28,865 161,904 24,374 148,378 130,907 7,443,805 2,245,701 3,864,947 6,110,648 76,803 310,171 139,091 49,374 10,714 83,167 6,779,968 221 445,907 212,472 5,237 663,837 7,443,805 $ $ $ $ 337,080 4,560 341,640 676,711 9,424 5,103,331 (60,443) 5,042,888 138,090 74,124 9,177 20,247 56,596 23,545 40,154 161,904 28,382 146,004 99,654 6,868,540 1,469,579 3,631,437 5,101,016 68,957 779,171 169,795 48,814 11,958 67,438 6,247,149 223 453,410 156,327 11,431 621,391 6,868,540 $ $ $ $ 9 For the Years Ended December 31, 2020 2019 2021 $ $ 237,817 30,142 207,675 3,393 204,282 $ 244,888 45,752 199,136 44,361 154,775 249,518 59,703 189,815 16,985 172,830 26,811 1,414 5,526 8,348 14,500 537 (7,532) 4,496 15,799 69,899 86,883 14,866 24,595 10,971 3,239 3,002 5,855 - 8,536 17,122 175,069 99,112 17,795 81,317 $ 22,802 6,007 9,812 8,603 12,266 1,721 (12,337) 3,581 8,794 61,249 85,557 17,552 22,643 7,234 3,498 4,052 6,504 12,847 4,872 19,251 184,010 32,014 9,477 22,537 $ 21,832 15,309 2,928 11,027 11,992 674 (2,139) 3,640 10,019 75,282 91,906 18,811 21,390 8,783 3,927 3,693 7,090 3,577 - 16,464 175,641 72,471 16,687 55,784 $ Income Statement (dollars in thousands) Interest income Interest expense Net interest income Provision for credit losses Net interest income after provision for credit losses Noninterest income: Wealth management revenue Commercial FHA revenue Residential mortgage banking revenue Service charges on deposit accounts Interchange revenue Gain on sales of investment securities, net Impairment on commercial mortgage servicing rights Company-owned life insurance Other income Total noninterest income Noninterest expense: Salaries and employee benefits Occupancy and equipment Data processing Professional Marketing Communications Amortization of intangible assets Impairment related to facilities optimization FHLB advances prepayment fees Other expense Total noninterest expense Income before income taxes Income taxes Net income 10 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) Adjusted Earnings: Income before income taxes - GAAP Adjustments to noninterest income: Gain on sales of investment securities, net Gain on termination of heged interest rate swap Other Total adjustments to noninterest income Adjustments to noninterest expense: Impairment related to facilities optimization Loss (gain) on mortgage servicing rights held for sale Loss on repurchase of subordinated debt FHLB advances prepayment fees 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 and premium amortization Adjusted earnings available to common shareholders - non-GAAP $ $ Adjusted diluted earnings per common share Weighted average shares outstanding - diluted Average assets Adjusted return on average assets Average tangible common equity Adjusted return on average tangible common equity Adjusted Pre-Tax, Pre-Provision Earnings Adjusted earnings pre tax - non- GAAP Provision for credit losses Impairment on commercial mortgage servicing rights Adjusted pre-tax, pre-provision earnings - non-GAAP Adjusted pre-tax, pre-provision return on average assets $ $ $ $ 2021 For the years ended December 31, 2019 2020 2018 2017 $ 99,112 $ 32,014 $ 72,471 $ 50,805 $ 26,471 537 2,159 48 2,744 - 222 - 8,536 4,356 13,114 109,482 26,261 - 1,721 - (17) 1,704 12,847 1,692 193 4,872 2,309 21,913 52,223 12,040 - 674 - (29) 645 3,577 (490) 1,778 - 5,493 10,358 82,184 19,358 - 464 - 89 553 - 458 - - 24,015 24,473 74,725 17,962 - $ 83,221 $ 40,183 $ - 83,221 $ 3.65 $ - 40,183 $ 1.70 $ 62,826 $ 46 62,780 $ 2.54 $ 56,763 $ 141 56,622 $ 2.39 $ 22,547,353 6,881,592 $ 1.21% 454,061 $ 18.33% 23,346,126 6,529,226 $ 5,835,086 $ 24,493,431 0.62% 434,673 $ 9.24% 1.08% 434,681 $ 14.44% 23,549,025 5,455,823 $ 1.04% 377,602 $ 15.00% 222 - (67) 155 1,952 4,059 - - 17,738 23,749 50,065 19,710 (4,540) 34,895 83 34,812 1.89 18,283,214 3,941,272 0.88% 307,523 11.32% 109,482 $ 3,393 7,532 120,407 $ 1.75% 52,223 $ 44,361 12,337 108,921 $ 1.67% 82,184 $ 16,985 2,139 101,308 $ 1.74% 74,725 $ 9,430 (449) 83,706 $ 1.53% 50,065 9,556 2,324 61,945 1.57% 11 Tangible Common Equity, Tangible Common Equity to Tangible Assets Ratio and Tangible Book Value Per Share. Tangible common equity, tangible common equity to tangible assets ratio and tangible book value per share are non-GAAP measures generally used by financial analysts and investment bankers to evaluate capital adequacy. We calculate: (i) tangible common equity as total shareholders’ equity less preferred equity, goodwill and other intangible assets (excluding mortgage servicing rights); (ii) tangible assets as total assets less goodwill and other intangible assets; and (iii) tangible book value per share as tangible common equity divided by shares of common stock outstanding. Our management, banking regulators, many financial analysts and other investors use these measures in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of preferred equity and/or goodwill or other intangible assets, which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions. Tangible common equity, tangible assets, tangible book value per share and related measures should not be considered in isolation or as a substitute for total shareholders’ equity, total assets, book value per share or any other measure calculated in accordance with GAAP. Moreover, the manner in which we calculate tangible common equity, tangible assets, tangible book value per share and any other related measures may differ from that of other companies reporting measures with similar names. The following table reconciles shareholders’ equity (on a GAAP basis) to tangible common equity and total assets (on a GAAP basis) to tangible assets, and calculates our tangible common equity to tangible assets ratio and tangible book value per share: (dollars in thousands, except per share data) Shareholders' Equity to Tangible Common Equity: Total shareholders' equity—GAAP Adjustments: Preferred stock Goodwill Other intangible assets, net Tangible common equity Total Assets to Tangible Assets: Total assets—GAAP Adjustments: Goodwill Other intangible assets, net Tangible assets Common shares outstanding Tangible common equity to tangible assets ratio Tangible book value per share 2021 For the years ended December 31, 2019 2020 2018 2017 $ 663,837 $ 621,391 $ 661,911 $ 608,525 $ 449,545 - (161,904) (24,374) 477,559 $ - (161,904) (28,382) 431,105 $ - (171,758) (34,886) 455,267 $ (2,781) (164,673) (37,376) 403,695 $ (2,970) (98,624) (16,932) 331,019 $ $ 7,443,805 $ 6,868,540 $ 6,087,017 $ 5,637,673 $ 4,412,701 (161,904) (24,374) 7,257,527 $ (161,904) (28,382) 6,678,254 $ (171,758) (34,886) 5,880,373 $ (164,673) (37,376) 5,435,624 $ (98,624) (16,932) 4,297,145 22,050,537 22,325,471 24,420,345 23,751,798 19,122,049 6.58 % 6.46 % 21.66 $ 19.31 $ 7.74 % 18.64 $ 7.43 % 17.00 $ 7.70 % 17.31 $ $ Return on Average Tangible Common Equity. Management measures return on average tangible common equity to assess the Company’s capital strength and business performance. Tangible equity excludes preferred equity, goodwill and other intangible assets (excluding mortgage servicing rights), and is reviewed by banking and financial institution regulators when assessing a financial institution’s capital adequacy. 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 return on average tangible common equity to its most comparable GAAP measure: (dollars in thousands) Net income available to common shareholders Average Shareholders' Equity to Average Tangible Common Equity: Average total shareholders' equity—GAAP Adjustments: Preferred stock Goodwill Other intangible assets, net Average tangible common equity Return on average tangible common equity $ $ $ 2021 For the years ended December 31, 2019 2020 2018 2017 81,317 $ 22,537 $ 55,738 $ 39,280 $ 15,973 642,698 $ 634,995 $ 638,307 $ 569,537 $ 399,061 - (161,904) (26,733) 454,061 $ 17.91 % - (168,821) (31,501) 434,673 $ 5.18 % (1,561) (166,721) (35,344) 434,681 $ 12.82 % (2,882) (151,546) (37,507) 377,602 $ 10.40 % (1,707) (76,394) (13,437) 307,523 5.19 % 12 Efficiency Ratio. Management uses the efficiency ratio to measure how effective the Bank is in using overhead expenses, including salaries and benefit costs and occupancy expenses as well as other operating expenses, in generating revenues. We believe that this non-GAAP financial measure provides meaningful information to further 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 the efficiency ratio to its most comparable GAAP measure: (dollars in thousands) Noninterest expense Adjustments to noninterest expense: Impairment related to facilities optimization (Loss) gain on mortgage servicing rights held for sale FHLB advances prepayment fees Loss on repurchase of subordinated debt Integration and acquisition expenses Adjusted noninterest expense Net interest income Effect of tax-exempt income Adjusted net interest income Noninterest income Adjustments to noninterest income: Impairment (recapture) on commercial servicing rights Gain on sales of investment securities, net Gain on termination of hedged interest rate swap Other income Adjusted noninterest income Adjusted total revenue Efficiency ratio 2021 For the years ended December 31, 2019 2020 2018 2017 $ 175,069 $ 184,010 $ 175,641 $ 191,643 $ 152,997 - (222) (8,536) - (4,356) 161,955 $ (12,847) (1,692) (4,872) (193) (2,309) 162,097 $ 207,675 1,543 209,218 $ 199,136 1,766 200,902 $ (3,577) 490 - (1,778) (5,493) 165,283 $ 189,815 2,045 191,860 $ - (458) - - (24,015) 167,170 $ 180,087 2,095 182,182 $ (1,952) (4,059) - - (17,738) 129,248 129,662 2,691 132,353 69,899 61,249 75,282 71,791 59,362 7,532 (537) (2,159) (48) 74,687 $ 12,337 (1,721) - 17 71,882 $ 2,139 (674) - 29 76,776 $ (449) (464) - (90) 70,788 $ 2,324 (222) - 67 61,531 283,905 $ 272,784 $ 268,636 $ 252,970 $ 193,884 57.05 % 59.42 % 61.53 % 66.08 % 66.66 % $ $ $ $ 13 2021 Actual Cash Dividend Data Quarter Record Date Payment Date Share Amount 1 2 3 4 February 12, 2021 February 19, 2021 May 14, 2021 May 21, 2021 August 13, 2021 August 20, 2021 November 22, 2021 November 29, 2021 $0.28 $0.28 $0.28 $0.28 Ten-year Dividend History and Book Value Per Share Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Cash Dividends for the Year Book Value Per Share - at End of Year Amount % Increase Amount (a) % Increase $0.48 $0.53 $0.59 $0.65 $0.72 $0.80 $0.88 $0.97 $1.07 $1.12 11.6% 10.4% 11.3% 10.2% 10.8% 11.1% 10.0% 10.2% 10.3% 4.7% $16.37 $17.81 $18.72 $19.74 $20.78 $23.35 $25.50 $27.10 $27.83 $30.11 2.4% 8.8% 5.1% 5.4% 5.3% 12.4% 9.2% 6.3% 2.7% 8.2% (a) 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 2012 and 2013 Two-year Stock Price Our common stock trades on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “MSBI.” The following table sets forth the high and low sales prices of our common stock for the years ended December 31, 2021 and 2020 as reported by NASDAQ. 2021 Fourth Quarter Third Quarter Second Quarter First Quarter 2020 Fourth Quarter Third Quarter Second Quarter First Quarter 14 Price Per Share High Low $24.93 $26.68 $29.28 $30.32 $19.33 $16.13 $18.15 $29.08 $24.62 $22.50 $25.34 $17.70 $12.77 $12.48 $12.49 $13.22 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. • 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 40% 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, 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 • Midland launched its Diversity & Inclusion Council in April 2020 internal controls. to focus on diversity in the workplace and workforce. Philanthropy • $67 million of investments towards community development for the 2019-2021 period. • Since its creation in 2011, the Midland States Bank Foundation has contributed more than $1.36 million 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. 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. 15 Board of Directors Jeffrey C. Smith Midland States Bancorp, Inc. Chairman Midland States Bank Chairman Walters Golf Management Principal and Managing Partner Jeffrey G. Ludwig Midland States Bancorp, Inc. Vice Chairman, President and Chief Executive Officer Midland States Bank Chief Executive Officer R. Dean Bingham Agracel, Inc. President Jennifer L. DiMotta DiMotta Consulting LLC President Deborah A. Golden Executive Vice President, General Counsel and Secretary of GATX Jerry L. McDaniel Superior Fuels, Inc. Dirtbuster Carwash, LLC President Jeffrey M. McDonnell J&J Management Services, Inc. Chief Executive Officer Dwight A. Miller Dash Management, Inc. Chief Executive Officer Richard T. Ramos Maritz Holdings, Inc. Executive Vice President Chief Financial Officer and Board Member Robert F. Schultz JM Schultz Investment Company Managing Partner 16 Management Team Executive Management Jeffrey G. Ludwig Midland States Bancorp, Inc. President and Chief Executive Officer Jeffrey S. Mefford Midland States Bancorp, Inc. 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 Jeffrey A. Brunoehler Midland States Bank Senior Vice President, Chief Credit Officer Midland States Bank Chief Financial Officer Midland States Bank Senior Vice President, Corporate Counsel James R. Stewart Midland States Bank Senior Vice President, Chief Risk Officer Senior Management Corporate Donald Spring Chief Accounting Officer and Corporate Controller Shonna Kracinski Director - Human Resources Kyle Mooney Chief Information Officer Matthew Shelton Director - Risk Management Timothy Spitz Senior Vice President Heath Sorenson Chief Operating Officer Banking Wealth Management Midland Equipment Finance Frederick Van Etten President William Wierman, Jr. Director - Credit Underwriting Dan Stevenson Senior Vice President Gerald Maloney Chief Compliance Officer Frank Turza Director - Retail Banking Richard Kantor Director - Commercial Banking Matthew Dunbar Director - Residential Mortgage Elizabeth Schweger Director - Commercial Services David R. Noble Director - Community Economic Development For press releases, financial information and more, visit midlandsb.com/investors. 17 1201 Network Centre Drive, Effingham, IL 62401 • midlandsb.com • 1-855-696-4352 

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