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Based in Effingham, Illinois, Midland States Bancorp [proposed symbol (MSBI)] scheduled an $80 million IPO with a market capitalization of $148 million at a price range mid-point of $16 for the week of August 8, 2011. The full IPO calendar for the week of August 8 includes 12 scheduled IPOs trying to raise almost $2 billion.

OBSERVATIONS -- MSBI believes it can become a strong regional bank by buying distressed community banks. Assets of regional bank portfolios are difficult to evaluate in this economic climate.

There is uncertainty regarding implementation of the Dodd-Frank Act and the regulations to be promulgated thereunder. Plus, there is protracted weakness in the commercial and residential real estate markets.

MSBI expects that community banks will face increased competition for lower cost capital as a result of regulatory policies that may offer larger financial institutions greater access to government assistance than is available for smaller institutions, including community banks.

VALUATION -- MSBI is trying to IPO at 80% of book value and 16 times annualized adjusted earnings for the March 2011 quarter. Because of uncertainties regarding regional banks and perhaps increased competition from big banks, it may be better to pass on the MSBI IPO.

MSBI Valuation Metrics

BUSINESS -- MSBI offers locally-managed, community-focused banking in central and northern Illinois and the St. Louis metropolitan area. In addition to a traditional community banking business, MSBI also delivers a comprehensive suite of trust and wealth management products and services to customers and clients.

Since late 2007, MSBI has pursued a growth strategy, and has completed five acquisitions and grown its balance sheet from $382.1 million in assets and $301.4 million in deposits at December 31, 2007 to $1.6 billion in assets and $1.4 billion in deposits at December 31, 2010.

ACQUISITIONS -- During the past three years, MSBI has completed two larger acquisitions, one in each of 2009 and 2010, and three smaller acquisitions, one in each of 2008, 2009 and 2010.

Because the results of each of these acquisitions are not included in MSBI’s results for the periods prior to each respective date of acquisition, results of operations and other financial data for these prior periods are not comparable in all respects to results of operations for periods after the dates of acquisition.

COMMUNITY BANKING -- MSBI believes the most important trends affecting community banks in the U.S. over the foreseeable future will be related to heightened regulatory capital requirements, increasing regulatory burdens generally, including the implementation of the Dodd-Frank Act and the regulations to be promulgated thereunder, and the possible protracted weakness in the commercial and residential real estate markets.

MSBI expects that community banks will face increased competition for lower cost capital as a result of regulatory policies that may offer larger financial institutions greater access to government assistance than is available for smaller institutions, including community banks.

MSBI expects that troubled community banks will continue to face significant challenges when attempting to raise capital. MSBI also believes that heightened regulatory capital requirements will make it more difficult for even well-capitalized, healthy community banks to grow in their communities by taking advantage of opportunities in their markets that result as the economy improves.

However, MSBI believes these trends will favor community banks that have sufficient capital and a strong deposit franchise and MSBI believes that, following this offering, MSBI will possess these characteristics.

DIVDEND POLICY -- MSBI is obligated to pay certain dividends to holders of preferred stock. The amount for 2010 was $3.6 million.

COMPETITION -- MSBI faces strong direct competition for deposits, loans, wealth management and other financial-related services. MSBI competes with other commercial banks, thrifts and credit unions. Although some of these competitors are situated locally, others have statewide or nationwide presence.

In addition, MSBI competes with large banks in major financial centers and other financial intermediaries, such as consumer finance companies, brokerage firms, mortgage banking companies, insurance companies, securities firms, mutual funds and certain government agencies as well as major retailers, all actively engaged in providing various types of loans and other financial services.

USE OF PROCEEDS -- MSBI expects to net $72 million, with proceeds allocated as follows:

  • $1.3 million to repurchase preferred stock,
  • Balance to support long-term growth by enhancing capital ratios to permit future strategic acquisitions and growth initiatives and for general working capital and other corporate purposes.
Source: IPO Preview: Midland States Bancorp