Midland States Bancorp, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with 2020. Midland is an Illinois-based financial holding company providing banking, lending, equipment financing, and wealth-management services. It reported 52 banking offices and $4.22 billion of wealth-management assets under administration at year-end.
Financial performance and condition
| Metric | 2021 | 2020 |
|---|---|---|
| Total interest income | $237.8 million | $244.9 million |
| Net interest income | $207.7 million | $199.1 million |
| Noninterest income | $69.9 million | $61.2 million |
| Provision for credit losses | $3.4 million | $44.4 million |
| Noninterest expense | $175.1 million | $184.0 million |
| Net income | $81.3 million | $22.5 million |
| Diluted EPS | $3.57 | $0.95 |
| Tax-equivalent net interest margin | 3.33% | 3.40% |
| Return on average assets / equity | 1.18% / 12.65% | 0.35% / 3.55% |
Operating cash flow was $334.4 million, compared with $499.1 million in 2020. Cash and cash equivalents at year-end were $680.4 million. Total assets were $7.44 billion, loans gross were $5.22 billion, deposits were $6.11 billion, and shareholders’ equity was $663.8 million.
The allowance for credit losses on loans was $51.1 million, or 0.98% of loans, versus $60.4 million, or 1.18%, in 2020. Net charge-offs were $13.3 million (0.27% of average loans), down from $23.5 million (0.50%). Nonperforming loans were $42.6 million, or 0.81% of loans, versus $54.1 million, or 1.06%.
Year-end borrowings included $310.2 million of FHLB and other borrowings, $76.8 million of short-term borrowings, $139.1 million of subordinated debt, and $49.4 million of trust preferred debentures. The Company and Bank were well-capitalized: Company total risk-based capital was 12.19%, and Bank total risk-based capital was 11.21%. The Bank had $863.7 million of FHLB borrowing capacity; Federal Reserve and federal funds lines were unused.
Changes versus 2020
- Net income rose to $81.3 million from $22.5 million, mainly reflecting a $41.0 million reduction in provision for credit losses, higher net interest income and noninterest income, and lower noninterest expense.
- Net interest income increased $8.5 million, while the tax-equivalent margin declined 7 basis points to 3.33%, reflecting lower earning-asset yields and reduced purchase-loan discount accretion.
- Deposits increased $1.01 billion and gross loans increased $121.5 million. Cash and cash equivalents rose $338.7 million. Deposit growth included $468.9 million of servicing deposits received from Dwight Capital.
- Noninterest income increased $8.7 million. Wealth-management revenue rose 17.6% to $26.8 million, partly reflecting the June acquisition of ATG Trust; mortgage banking and commercial FHA revenue declined.
- Noninterest expense fell $8.9 million, including lower occupancy costs following 2020 branch and office closures. This was partly offset by $8.5 million of FHLB prepayment fees, versus $4.9 million in 2020.
Outlook, commentary, risks, and unusual items
- Management provided no specific earnings or revenue guidance. It described acquisition opportunities, organic lending, wealth-management expansion, operational efficiency, and risk management as strategic priorities.
- Management expected to continue originating GreenSky-program consumer loans at least through 2023, aiming to keep that portfolio relatively stable; after originations end, it expects approximately half the portfolio to run off in the first 12 months, with the balance paying down over several years.
- COVID-related loan deferrals declined to $13.3 million at year-end from $209.1 million a year earlier. Management continued to flag borrower and collateral risks, particularly in hospitality, transportation, healthcare, and retail-related exposures.
- Management identified a rising-rate environment as a risk to securities values and reported that its modeled net-interest-income sensitivity to a +100-basis-point shock was +10.6%. The Company was outside its board policy limit in the -100-basis-point scenario and was monitoring the exposure.
- Unusual items included a $6.8 million tax benefit and $3.6 million of related consulting and legal expenses from a prior tax settlement, producing an approximately $2.9 million after-tax gain. The Company also recognized $1.1 million of life-insurance death benefits and $2.2 million of income from terminating hedged swaps.
- In June 2021, the Company redeemed $31.1 million of subordinated notes. It also prepaid $265 million of FHLB advances during 2021, incurring $8.5 million in fees. The 2021 net income comparison also benefited from the absence of $12.8 million of facility-optimization impairment recorded in 2020.
- After year-end, Midland announced an agreement to acquire approximately $86 million of deposits and $26 million of loans associated with two Illinois branches, subject to approval and customary closing conditions, with closing expected in Q2 2022.
- Other material risks include commercial-credit and real-estate concentration, interest-rate and liquidity exposure, cyber and third-party service risks, acquisition integration, and the transition from LIBOR. No material pending legal proceedings were reported. The auditor issued unqualified opinions on the financial statements and internal controls; allowance modeling and commercial FHA servicing-rights valuation were identified as critical audit matters.
Important facts for investors to verify
- Whether lower credit-loss provisions and improved asset quality persist, including trends in nonperforming loans, charge-offs, and the allowance.
- How deposit growth—especially servicing deposits—develops, and whether liquidity remains strong as balances and funding needs change.
- Whether margin performance holds up as rates change, given the reported policy-limit breach in the down-rate scenario and potential securities valuation effects.
- How much earnings depend on nonrecurring tax, insurance, swap-termination, PPP, and purchase-accounting items.
- Whether GreenSky portfolio replacement, the FNBC branch transaction, and other growth initiatives deliver the expected results without weakening credit quality or capital.