Midland States Bancorp, Inc. (MSBI) 10-K 2024 Review

In a nutshell: Midland States Bancorp, Inc. (Nasdaq: MSBI) reported net income of $38.0 million in 2024, down from $61.2 million in 2023. Nonperforming loans rose sharply—from $56.4 million to $150.9 million—driven by specialized construction and consumer segments. The bank took aggressive write-downs and sales in its consumer portfolio, and recognized a large allowance for credit losses (2.15% of loans). While deposit balances remained stable, net interest margin compressed to 3.35% as the Fed cut rates.

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Table of Contents

1. Business Overview
2. 2024 Highlights
3. Income Statement Analysis
4. Credit Quality Trends
5. Balance Sheet & Liquidity
6. Capital & Regulatory Ratios
7. Risk Factors
8. Outlook & Investment Thesis

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Business Overview

Midland States Bancorp, Inc. is the $7.5 billion parent of Midland States Bank, headquartered in Effingham, Illinois. Through 53 branches in Illinois and Missouri, it offers:

• Commercial & consumer lending (including construction, CRE, agriculture, equipment finance)
• Deposit services (checking, savings, money markets, CDs)
• Mortgage origination & servicing
• Wealth management & trust services ($4.15 billion AUA)
• Digital banking & specialized FinTech programs

Its growth strategy blends "high-tech, high-touch" community banking with a regional footprint. Two outsourced consumer loan platforms (GreenSky, LendingPoint) and an equipment-finance unit broaden scale and fee income, but have introduced credit exposures outside core markets.

2024 Highlights

Net income: $38.0 million, down 38% y/y.
EPS: $1.32

Net interest income: $236.3 million (–5%), margin of 3.35% (down from 3.43%).
Provision for credit losses: $120.3 million (up 46%), driven by elevated consumer and niche construction losses.
Noninterest income: $138.7 million (up 21%), led by credit enhancement recoveries (+27%), wealth-management (+12%) and life-insurance (+73%).
Noninterest expense: $207.9 million (up 8%) on data-processing, FDIC premiums, legal and OREO impairments.

Credit metrics:

• Nonperforming loans: $150.9 million vs. $56.4 million (+168%).
• Allowance for credit losses: $111.2 million, 2.15% of loans (vs. 2.61%).
• Net charge-offs: 2.87% of avg. loans (vs. 0.83%).

Balance sheet:

• Loans: $5.17 billion (–15%), driven by sales and pay-downs in consumer & equipment finance.
• Deposits: $6.20 billion (–2%), core deposits remain stable.
• Liquidity: $2.6 billion in unpledged assets & Fed lines.

Capital:

• Common equity tier 1: 8.00% (vs. 7.00% req.)
• Tier 1 capital: 10.75% (vs. 8.50% req.)
• Total capital: 13.07% (vs. 10.50% req.)

Income Statement Analysis

1. Margin pressure: Despite rate cuts, earn-asset yields remain elevated relative to low funding rates, but margin compressed as wholesale funding and deposit costs reprice.
2. Loan growth: Loan balances fell 15%, reflecting de-risking in consumer and off-book equipment leases.
3. Fee income resilience: Wealth-management and credit-enhancement fees mitigated NII weakness.
4. Expense control: Salary and benefits flat; higher tech, FDIC and legal costs drove a modest expense uptick.

Credit Quality Trends

• Specialty‐finance construction loans (multi-family, skilled nursing) saw elevated NPL formation ($57.6 million) and impairments.
• Consumer loans from GreenSky/LendingPoint: Sold LendingPoint ($87 million, charge-off $17 million) and classified $317 million GreenSky as held for sale (charge-off $35 million).
• Equipment finance: Trucking sector sour, $28.8 million in charge-offs.
• Allowance build: $120.3 million provision absorbs higher charge-off forecast; allowance now 2.15% of loans (vs. 2.61%).

Balance Sheet & Liquidity

Assets: Concentrated in loans (69%), securities (16%) and cash (2%).
Liabilities: Core deposits (84%), wholesale borrowings (14%), minor subordinated debt.
Liquidity: Large Fed & FHLB lines; unpledged securities cover contingencies.

Capital & Regulatory Ratios

The bank remains well-capitalized under Basel III rules, with CET1 capital at 11.18% and a leverage ratio of 9.38%, providing a buffer above required minimums. Dividend capacity and strategic investments are supported by capital conservation buffers.

Risk Factors

1. Credit concentration: Non-core portfolios (construction, equipment, FinTech) drove spikes in NPLs.
2. Margin volatility: Rising wholesale rates and deposit competition tighten net interest spreads.
3. Operating risk: Continued digital transformation and FinTech partnerships require robust controls.
4. Regulatory scrutiny: Evolving Basel III, anti-money-laundering and CRA regulations can heighten compliance costs.

Outlook & Investment Thesis

Midland States Bancorp sits at an inflection point. The bank has proactively de-risked subscale portfolios and rebuilt credit reserves ahead of anticipated losses. Wedding core community banking with selective FinTech/lease channels can drive growth if risk is contained. Near-term earnings will remain weighed by elevated provisions and margin compression. If credit stabilizes in 2025 and the bank reaccelerates core lending, we may see a cyclical recovery in profitability.

Investment Score: 4.3/10
Balancing a well-capitalized community franchise and fee momentum against elevated credit costs, margin pressure and integration risks.