Midland States Bancorp, Inc. · NASDAQ:MSBI
Midland States Bancorp — Sandler O'Neill East Coast Financial Services Conference 2017
35 slides from Midland States Bancorp's conference presentation, Nov 15, 2017
Slide 1: Midland States Bancorp, Inc.
Midland States Bancorp, Inc. NASDAQ: MSBI Sandler O’Neill East Coast Financial Services Conference November 15-16, 2017
Slide 2: Forward-Looking Statements
Forward-Looking Statements. This presentation may contain forward-looking statements within the meaning of the federal securities laws. Forward-looking statements express management’s current expectations, forecasts of future events or long-term goals, and may be based upon beliefs, expectations and
Slide 3: Company Snapshot
Company Snapshot • $4.3 billion asset community bank established in 1881 and headquartered in Effingham, Illinois • $2 billion Wealth Management business • Strong fee generators consistently account for more than 30% of total revenue • 80+ offices throughout the U.S. including 52 traditional branche
Slide 4: Financial Services & Banking Center Footprint
Financial Services & Banking Center Footprint 3
Slide 5: Investment Summary
Investment Summary • Experienced and deep management team led by Board of Directors with considerable ownership • Following management transition completed in 2007, consistent track record of driving compelling shareholder returns through disciplined strategic expansion and earnings growth • Solid a
Slide 6: Business and Corporate Strategy
Business and Corporate Strategy • In conjunction with a new leadership team, MSBI’s corporate initiative-driven strategic plan was adopted in late 2007 to build a diversified financial services company anchored by a strong community bank • Five core strategic initiatives: Customer-Centric Drive our
Slide 7: Management Team
Management Team Highly experienced senior management in place: John M. Schultz: Chairman of the Board Leon J. Holschbach: President & Chief Executive Officer Held the position since 2006 Joined Midland States in August 2007 Chief Executive Officer of Agracel, Inc. 35+ years in community bank
Slide 8: Strategic Growth History
Strategic Growth History Successful Execution of Strategic Plan… …Driving Consistent TBV Growth (at period-end in Billions) (at period-end) $4.3 $17.16 $17.41 $3.2 $15.91 $15.20 $2.9 $14.34 $13.82 $13.68 $2.7 $12.52 $11.10 $1.6 $1.7 $1.5 $1.6 $1.1 2009 2010 2011 2012 2013 2014 2015 2016 3Q 2009 2010
Slide 9: Successful Acquisition History
Successful Acquisition History • Midland States has completed 12 transactions since 2008, including FDIC-assisted, branch, whole bank, asset purchase, business line, and a New York trust asset acquisition • Demonstrated history of earnings expansion • Deliberate diversification of geographies and re
Slide 10: Market Opportunities & Acquisition Strategy
Market Opportunities & Acquisition Strategy Number of Banks & Thrifts • MSBI believes there will be numerous small to With less than $1.0 Billion in Assets (1) midsized banking organizations available for acquisition within Illinois and contiguous states • There are more than 1,300 institutions in t
Slide 11: Long Track Record of Strong Returns and Increasing Dividends
Long Track Record of Strong Returns and Increasing Dividends • Profitability driven by MSBI’s attractive asset base, core funding structure and fee generating businesses • 10%+ annual dividend growth over the past 15 years Adjusted Return on Average Assets(1) Dividends Declared Per Share 1.08% 1.05%
Slide 12: Performance Metrics
Performance Metrics Adjusted Diluted Earnings Per Share (1) Adjusted Return on Avg. Tangible Common Equity (1) $2.39 19.7% $2.08 17.0% $1.89 $1.74 $1.57 12.5% 11.6% 11.7% 2013 2014 2015 2016 YTD 3Q17 2013 2014 2015 2016 YTD 2017 Net Interest Margin (2) Noninterest Income / Total Revenue 4.68% 36.2%
Slide 13: Delivering Organic Loan Growth
Delivering Organic Loan Growth Total Loans and Deposits $3,114 $3,158 13.6% average annual core loan growth (1) $2,368 $2,404 $2,320 $2,151 $1,996 $1,798 $1,382 $1,206 2013 2014 2015 2016 3Q 2017 Deposits ($mm) Loans ($mm) Note: (1) Average annual core loan growth represents average percentage chang
Slide 14: Loan Portfolio Overview
(1) Loan Portfolio Overview • Broadly diversified loan portfolio by type of Loan Portfolio Mix customer and loan type Lease Financing $201M Residential Real 6% • Current loan origination efforts focus on high Estate quality commercial loan segments $446M Non-Owner 14% Occupied CRE $784M • 57% of por
Slide 15: Strong Credit Quality
Strong Credit Quality • Managed by experienced personnel, MSBI maintains a disciplined approval process and conservative credit culture • Credit losses have steadily declined since 2015 Nonperforming Assets ($mm) (1) NCOs / Average Loans NPAs / Assets 1.64% 1.48% 1.01% 1.07% 0.88% 0.94% $39.5 $38.1
Slide 16: Attractive and Growing Core Deposit Base
(1) Attractive and Growing Core Deposit Base • 90% core deposits (2) Deposit Mix • 22% non-interest bearing deposits • Low cost of deposits at 41 basis points Checking Noninterest- $801M 26% Bearing $674M 22% • Recent acquisitions have improved overall 90% Core (2) funding mix Brokered Time Dep MMDA
Slide 17: Well Positioned for Higher Interest Rates
Well Positioned for Higher Interest Rates • Midland’s modeled base case earnings $10.0 $9.2 projections as of September 30, 2017 and $8.0 2018 in an +100 bps Ramp scenario would $6.4 increase net interest income by $1.1mm in $6.0 Year 1 and $3.5mm in Year Two $3.5 $4.0 $2.9 $2.0 • Conservative asset
Slide 18: Wealth Management
Wealth Management • Offers comprehensive suite of Trust and Wealth Management products • Acquisition of Sterling Trust (Nov. 2016) added $400 million in Assets Under Administration • Acquisition of CedarPoint Investment Advisors (Mar. 2017 - $180 million in AUA) added RIA platform • Year-over-year o
Slide 19: Love Funding – Commercial FHA Revenue
Love Funding – Commercial FHA Revenue • One of the top originators of government sponsored mortgages for multifamily and healthcare facilities in the U.S. • Attractive economics • $18-$20 million in annual revenue from gain on loan sale and servicing • 20-25% pre-tax margins • Provides high margin b
Slide 20: Acquisition of Alpine Bancorporation
Midland States Bancorp Acquisition of Alpine Bancorporation Announced on October 16, 2017
Slide 21: Transaction Highlights
Transaction Highlights • 100+ year old community bank with deep community ties that brings significant scale with $1.3B in assets and the #1 market share ranking in the Rockford, IL MSA • Creates the 4th largest Illinois-based community bank(1) with ~$6.0B in assets Franchise Value • Supports growth
Slide 22: Alpine Bancorporation, Inc. Overview
Alpine Bancorporation, Inc. Overview Overview Branch Map • Established in 1908, Alpine is a regional, full-service South Beloit South Beloit community bank headquartered in Belvidere, IL – Offers commercial, retail, mortgage and wealth management Rockton Rockton 90 services through 19 branches H
Slide 23: Pro Forma Franchise
Pro Forma Franchise Pro Forma Highlights(1) Pro Forma Branch Map Assets: ~$5.8B MSBI (58) Rockford Rockford Deposits: ~$4.4B Alpine (19) Chicago Chicago Loans: ~$4.0B Assets Under Administration: ~$3.0B 74 • Creates the 4th largest Illinois-based 39 community bank and the #2 ranked 57 institution in
Slide 24: Financial Impact & Assumptions
Financial Impact & Assumptions • ~5% for partial year 2018, excluding transaction expenses EPS Accretion • ~10% in full-year 2019 (reflects fully phased cost savings) TBV Impact • ~6% TBV dilution at closing, earnback of 3.5 years using crossover method(1) IRR • 25%+ IRR, above internal targets • ~7
Slide 25: Outlook
Outlook Midland [=] States Bancorp, Inc.
Slide 26: Improving Quality of Earnings
Improving Quality of Earnings • Greater percentage of revenue being derived from core community banking and wealth management businesses • Private label CMO income(1) and gain on sale income from commercial FHA and residential mortgage banking declining as a percentage of total revenue FY 2016 Reven
Slide 27: Fee Income Shifting to More Consistent Sources
Fee Income Shifting to More Consistent Sources • Wealth Management and core banking fees increasing as percentage of fee income • Gain on sale income from commercial FHA and residential mortgage banking declining as a percentage of fee income FY 2016 Fee Income Mix Projected FY 2018 Fee Income Mix(1
Slide 28: Outlook
Outlook • Accretive acquisitions continue to drive shareholder value • Alpine transaction provides significant increase in scale and deeper presence in Illinois • Recurring revenue of Wealth Management becoming larger percentage of revenue mix • Expanded base of low-cost deposits • Midland positione
Slide 29: Appendix
APPENDIX
Slide 30: Appendix: Board of Director Profiles
Appendix: Board of Director Profiles Name: Background: John M. Schultz • Mr. Schultz serves as CEO of Agracel Inc, an industrial developer of facilities for manufacturing and high tech entities in small to midsized communities, Chairman of the Board and is the author of BoomtownUSA: The Keys to Big
Slide 31: Capital Position
Strong Pro Forma Capital Position (1) Capital Position 12.21% 12.00% 10.20% 8.50% 8.54% 7.85% 8.00% 4.00% 0.00% TCE/TA Tier 1 Common Tier 1 Leverage Tier 1 RBC Total RBC As Reported (9/30/17) 30
Slide 32: Appendix: Solid Reserve Coverage
Appendix: Solid Reserve Coverage As of December 31, 2015 As of December 31, 2016 As of September 30, 2017 % of the % of the % of the Allowance Allowance Allowance Non- to Total Non- to Total Non- to Total Purchased Purchased Loans in Purchased Purchased Loans in Purchased Purchased Loans in Credit-
Slide 33: Appendix: Investments
Appendix: Investments(1) • Midland continues to reposition the US Treasury investment portfolio after the addition of 10% GSE Debt Centrue’s ARM portfolio to enhance Equity Securities Securities 1% portfolio flexibility and yield 4% Municipal HTM 15% • Effective duration of approximately 3.8 Corpora
Slide 34: Appendix: Reconciliation of Net Interest Margin Excluding Accretion Income
Appendix: Reconciliation of Net Interest Margin Excluding Accretion Income Nine Months Year Ended December 31, Ended September 30, 2013 2014 2015 2016 2017 Reported yield on loans 5.33% 4.65% 5.21% 4.83% 4.84% Effect of accretion income on acquired loans (0.50%) (0.14%) (0.73%) (0.47%) (0.30%) Yield
Slide 35: Appendix: Reconciliation of Adjusted Earnings/Profitability
Appendix: Reconciliation of Adjusted (1) Earnings/Profitability Nine Months Year Ended December 31, Ended 2013 2014 2015 2016 September 30, 2017 (dollars in thousands, except per share data) Adjusted Earnings Income before income taxes - GAAP $ 20,528 $ 15,467 $ 35,498 $ 50,422 $ 18,705 Adjustments
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