Midland States Bancorp Inc.

Company Overview

Business Model: Midland States Bancorp is a diversified financial holding company that, through its wholly owned banking subsidiary, Midland States Bank, provides a full range of commercial and consumer banking products and services. These include commercial and retail lending, deposit taking, merchant credit card services, trust and investment management, insurance, and financial planning services. The Company generates income primarily from interest on loans and investment securities, and from noninterest sources such as fees from lending and deposit services, wealth management, residential mortgage loan originations and sales, and gains on asset sales.

Market Position: Midland States Bancorp operates in highly competitive industries, competing with other community banks, thrifts, credit unions, large banks, and various financial intermediaries including consumer finance companies, private credit funds, brokerage firms, mortgage banking companies, insurance companies, and securities firms. Increasing competition also comes from "online businesses" and FinTech companies. The Company differentiates itself through its range and quality of products, knowledgeable personnel, and emphasis on building long-lasting relationships. As of June 30, 2025, Midland States Bank held significant deposit market shares in several Illinois counties, including Effingham (35.57%), Kankakee (32.56%), and Boone (27.25%).

Recent Strategic Developments:

• Portfolio Divestitures: During Q4 2024, the Company sold its LendingPoint consumer loan portfolio ($87.1 million). In Q2 2025, it sold participation interests in $317.5 million of its GreenSky consumer loan portfolio, retaining $53.6 million. In Q4 2025, substantially all of the equipment finance portfolio was sold, resulting in a $21.4 million loss on sale and $1.0 million severance expense in Q3 2025. The Company ceased originating consumer loans through GreenSky and LendingPoint in 2023, and new equipment finance loans and leases effective September 30, 2025.
• Goodwill Impairment: Recognized a $154.0 million non-cash goodwill impairment expense in Q1 2025 related to its Banking reporting unit due to deteriorated credit quality and stock price trends.
• Subordinated Debt Redemption: Redeemed $50.8 million of Fixed-to-Floating Rate Subordinated Notes due September 30, 2029, with a 7.91% interest rate, on September 30, 2025.
• Banking-as-a-Service (BaaS) Platform: Invested in developing a BaaS platform to partner with financial technology companies, aiming to contribute to loan production, deposit gathering, and fee income.
• Credit Quality Improvement: Prioritized improving credit quality by tightening loan underwriting standards and resolving nonperforming loans, including portfolio sales. Ceased originations of new construction loans in the Specialty Finance Group in Q4 2024.

Geographic Footprint: Midland States Bancorp is headquartered in Effingham, Illinois. Midland States Bank operates 53 full-service banking offices, with 42 located across Illinois and 11 in the St. Louis metropolitan area (Missouri). The Company's lending activities primarily focus on borrowers in its market areas, with its Specialty Finance Group providing bridge loan financing for commercial real estate projects nationwide, and its former Equipment Finance business serving businesses throughout the United States.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin: Not directly calculable from provided data as "Total Revenue" is "Interest Income."
• Operating Margin: Not directly calculable as "Operating Income" is not explicitly defined in the provided income statement structure.
• Net Margin: -32.05% (2025) vs. 8.92% (2024)

Investment in Growth:

• R&D Expenditure: Not explicitly disclosed as a separate line item.
• Capital Expenditures: $5.3 million (2025)
• Strategic Investments: Development of a BaaS platform.

Business Segment Analysis

Banking Segment

Financial Performance:

• Interest Income: $387.9 million (2025) vs. $426.1 million (2024)
• Net Interest Income: $245.2 million (2025) vs. $245.5 million (2024) (-0.12% YoY)
• Income (loss) before income taxes: $(111.9) million (2025) vs. $46.5 million (2024)
• Operating Margin: Not explicitly disclosed.
• Key Growth Drivers: Relationship-driven growth, core community banking, and strategic initiatives like the BaaS platform. Growth in the Community Bank portfolio partially offset strategic declines in Specialty Finance and Equipment Finance.

Product Portfolio:

• Commercial Loans: Term loans for capital equipment, lines of credit for working capital to small and midsized businesses, agricultural equipment and production loans.
• Commercial Real Estate Loans: Owner-occupied and non-owner-occupied properties (offices, warehouses, production facilities, hotels, mixed-use, retail, multifamily, skilled nursing, assisted living facilities), and farmland loans.
• Construction and Land Development Loans: Loans for owner-user properties, commercial real estate investment properties, residential developments, and single-family homes. Originations in the Specialty Finance Group ceased in Q4 2024.
• Residential Real Estate Loans: First and second mortgage loans for primary residences, home equity lines of credit.
• Consumer Installment Loans: Loans for automobiles, boats, recreational vehicles, major appliances, and home improvement projects. Originations through GreenSky and LendingPoint ceased in 2023, and portfolios were sold in 2024 and 2025.
• Lease Financing: Historically provided financing leases for business equipment and software nationwide. Substantially all of this portfolio was sold in Q4 2025, and new originations ceased effective September 30, 2025.
• Deposit Taking: Traditional depository products (checking, savings, money market, certificates of deposits) and sweep accounts.

Market Dynamics:

• Competitive positioning within the segment is based on product range, service quality, and relationship building.
• Key customer types include individuals, small to midsized businesses, municipalities, and other entities.
• The Company faces competition from various financial institutions and FinTech companies.

Sub-segment Breakdown:

• Community Bank: $3.33 billion revenue (2025), +4.7% YoY growth in portfolio. Predominantly in-market loans originated through the banking center network.
• Specialty Finance: $668.2 million revenue (2025), -358.3 million YoY decline in portfolio. Provides bridge loan financing for commercial real estate projects (multi-family, healthcare), typically outside primary market areas.
• Equipment Finance: $59.8 million revenue (2025), -748.6 million YoY decline in portfolio. Historically provided financing leases for business equipment nationwide. Substantially all of the portfolio was sold in Q4 2025.
• Non-core and other: $295.8 million revenue (2025). Includes third-party origination and servicing programs (LendingPoint, GreenSky, largely divested) and capital market credits.

Wealth Management

Financial Performance:

• Revenue: $31.0 million (2025) vs. $28.7 million (2024) (+8.09% YoY)
• Income (loss) before income taxes: $6.9 million (2025) vs. $6.8 million (2024)
• Operating Margin: Not explicitly disclosed.
• Key Growth Drivers: Growth in assets under administration, which increased 7.85% to $4.48 billion at December 31, 2025, from $4.15 billion at December 31, 2024.

Product Portfolio:

• Comprehensive suite of trust and wealth management products and services.
• Financial and estate planning, trustee and custodial services, investment management, tax and insurance planning, business planning, corporate retirement plan consulting and administration, and retail brokerage services (through a nationally recognized third-party broker-dealer).

Market Dynamics:

• Operates under the name Midland Wealth Management.
• Competes with other financial institutions, brokerage firms, and automated retirement and investment service providers.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: $9.7 million (479,301 shares) in 2025.
• Dividend Payments: $27.7 million (common shareholders) and $8.9 million (preferred shareholders) in 2025.
• Dividend Yield: Not explicitly disclosed, but common dividends declared were $1.26 per share in 2025.
• Future Capital Return Commitments: Board authorized a new share repurchase program on November 3, 2025, to repurchase up to $25.0 million of common stock through November 2, 2026. As of December 31, 2025, $15.4 million remained available under this program.

Balance Sheet Position:

• Cash and Equivalents: $127.8 million (2025)
• Total Debt: $432.0 million (sum of short-term borrowings, FHLB advances, subordinated debt, trust preferred debentures) (2025)
• Net Cash Position: $(304.2) million (2025) (Cash & Equivalents - Total Debt)
• Credit Rating: Not disclosed.
• Debt Maturity Profile:
  • Subordinated Debt: $27.3 million aggregate principal amount of Fixed-to-Floating Rate Subordinated Notes due September 30, 2034, with an interest rate of 5.50% (as of September 30, 2025) remain outstanding.
  • FHLB Advances: $293.0 million outstanding (2025), with maturities ranging from 2026 to after 2030. Contractual payments: $10.0 million (2026), $0 (2027), $45.0 million (2028), $113.0 million (2029), $0 (2030), $25.0 million (thereafter).
  • Trust Preferred Debentures: $51.9 million outstanding (2025), with maturities ranging from 2034 to 2037.

Cash Flow Generation:

• Operating Cash Flow: $125.7 million (2025)
• Free Cash Flow: $120.3 million (Operating Cash Flow - Capital Expenditures) (2025)
• Cash Conversion Metrics: Not explicitly disclosed.

Operational Excellence

Production & Service Model: Midland States Bancorp employs a "high-tech, high-touch" approach, emphasizing core community banking and relationship-driven growth. The Company focuses on enhancing its regional franchise to serve core customers with a consistent, high-performance culture rooted in its "One Midland values" and a strong foundation in Enterprise Risk Management.

Supply Chain Architecture: The Company relies heavily on information technology and telecommunications systems, including those of third-party servicers for data processing, mobile and online banking platforms, and financial intermediaries. These third parties provide key components of the business infrastructure.

Key Suppliers & Partners:

• Data Processing & Banking Systems: Third-party providers for core banking, mobile, and online banking systems.
• Brokerage Services: Nationally recognized third-party broker-dealer for retail brokerage services within Wealth Management.
• Loan Origination/Servicing: Historically partnered with GreenSky and LendingPoint for consumer loans, and currently has a sole third-party partner for lending and servicing arrangements.

Facility Network:

• Corporate Headquarters & Primary Operations: Owned office building at 1201 Network Centre Drive, Effingham, Illinois, built in 2011.
• Additional Operations Centers: Located in St. Louis, Missouri, and Rockford, Illinois, supporting banking and wealth management.
• Banking Offices: 53 full-service banking centers (43 owned, 10 leased) as of December 31, 2025, with 42 in Illinois and 11 in the St. Louis metropolitan area.

Operational Metrics:

• Total Employees: 861 (including 22 part-time) at December 31, 2025.
• Employee Development: Midland University provides regulatory training and skill-based education (e.g., generative AI, robotic process automation, process improvement, data-informed decision-making). The MASTERS program develops high-performing employees with leadership potential, with over 140 participants since 2016.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: Primarily through branch offices and high-touch personal service, focusing on middle market businesses for commercial lending.
• Channel Partners: Historically originated consumer loans through national and regional retailers and other vendors (e.g., GreenSky and LendingPoint, now divested). Retail brokerage services are offered through a nationally recognized third-party broker-dealer.
• Digital Platforms: Online banking and mobile banking platforms are key components of customer access.

Customer Portfolio:

• Target Customers: Individuals, small to midsized businesses, municipalities, and other entities.
• Customer Concentration: Not explicitly disclosed as a percentage of revenue or loans for specific customers.

Geographic Revenue Distribution:

• Illinois: Primary market area, with significant deposit market shares in Effingham (35.57%), Winnebago (11.85%), Kankakee (32.56%), La Salle (8.06%), Will (1.23%), Lee (25.21%), Boone (27.25%), Whiteside (9.64%), Bureau (13.58%), Kendall (4.54%), Grundy (6.08%), Monroe (7.71%), Marion (8.15%), Champaign (0.83%), St. Clair (0.84%), and Fayette (8.61%) counties as of June 30, 2025.
• Missouri: St. Louis metropolitan area, with banking offices in St. Charles, St. Louis (City), Jefferson, and Franklin counties.
• Nationwide: Specialty Finance Group provides bridge loan financing for commercial real estate projects nationwide.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The financial services industry is highly competitive and undergoing rapid technological changes, including the frequent introduction of new technology-driven products and services (e.g., artificial intelligence). Consumers and businesses are increasingly using non-banks (online banks, FinTech companies, private credit funds) for financial transactions, leading to a diminishing role for traditional banks as financial intermediaries.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors:

• Traditional Financial Institutions: Other community banks, thrifts, credit unions, large national and regional banks.
• Non-Bank Financial Intermediaries: Consumer finance companies, private credit funds, brokerage firms, mortgage banking companies, insurance companies, securities firms, mutual funds.
• Online/FinTech Companies: Online banks, lenders, consumer and commercial lending platforms, automated retirement and investment service providers.

Emerging Competitive Threats: New entrants, disruptive technologies (e.g., AI in fraud schemes), and alternative solutions from FinTech companies and private credit funds.

Competitive Response Strategy: Midland States Bancorp aims to maintain its competitive advantage through the range and quality of its products, the knowledge of its personnel, and its emphasis on building long-lasting customer relationships. Strategic investments in technology, such as the BaaS platform, are intended to address evolving customer demands and market competition.

Risk Assessment Framework

Strategic & Market Risks

• Market Dynamics: Business and operations are sensitive to economic conditions in the U.S., Illinois, and the St. Louis metropolitan area. Weak economic conditions can lead to increased loan delinquencies, real estate price declines, and lower commercial activity.
• Technology Disruption: Rapid technological changes and the emergence of FinTech companies pose risks if the Company cannot effectively implement new technology or compete with larger competitors' resources.
• Customer Concentration: The Company's focus on small to midsized businesses means these borrowers may have fewer resources to weather adverse business developments, impairing loan repayment ability.
• Growth Challenges: Growth depends on attracting deposits and identifying favorable loan/investment opportunities, which can be challenging in mature, rural market areas with limited population growth.
• BaaS Platform Risks: Exposure to compliance violations by BaaS partners and the risk that the platform may not achieve its targeted financial impact.

Operational & Execution Risks

• Supply Chain Vulnerabilities: High dependence on third-party information technology and telecommunications systems (data processing, mobile/online banking), with potential for service denials, system failures, or data breaches.
• Fraud & Cybersecurity: Susceptibility to fraudulent activity, information security breaches, and cyber-attacks (including those incorporating AI tools), which can lead to financial losses, data misuse, litigation, or reputational damage.
• Employee Errors & Misconduct: Risks of financial losses, regulatory sanctions, and reputational harm from employee errors or misconduct.
• Acquisition Risks: Potential acquisitions involve financial, execution, and operational risks, including integration challenges, exposure to unknown liabilities, and diversion of management attention.
• Management Team Dependence: Success is highly dependent on the continued service and skills of the executive management team, particularly Jeffrey G. Ludwig (President and CEO) and Eric T. Lemke (CFO).
• Mortgage Loan/Servicing Rights Liability: Potential liability to purchasers of mortgage loans and mortgage servicing rights due to breaches of representations and warranties, requiring repurchases or indemnification.
• Reputational Risk: Critical to business success; negative impact from employee actions or other events could adversely affect business and stock value.

Financial & Regulatory Risks

• Market & Financial Risks: Fluctuations in interest rates can reduce net interest income, increase loan defaults, and affect the value of assets. Securities portfolio is subject to price risk from interest rate changes and economic conditions, potentially leading to impairment charges. Mortgage banking revenue is sensitive to interest rate environments.
• Liquidity Risks: Inability to raise funds through deposits, borrowings, or asset sales could negatively affect liquidity, impacting loan origination, investments, and ability to meet obligations.
• Capital Requirements: Subject to stringent regulatory capital requirements (Basel III Rule, capital conservation buffer); failure to comply could limit activities, growth, and dividend payments.
• Regulatory Examinations: Periodic examinations by federal and state regulators (Federal Reserve, FDIC, DFPR) may result in adverse findings requiring remediation or enforcement actions.
• AML/Sanctions Compliance: Risk of noncompliance and enforcement action with BSA, USA PATRIOT Act, and Office of Foreign Assets Control regulations, leading to penalties or reputational harm.
• Consumer Protection Laws: Failure to comply with CRA and fair lending laws could result in sanctions, including penalties, injunctive relief, and restrictions on business activities.
• Source of Strength Doctrine: Federal Reserve may require Midland States Bancorp to inject capital into Midland States Bank, potentially at times when resources are limited.

Geopolitical & External Risks

• Geopolitical Exposure: General statement in safe harbor regarding effects of severe weather, natural disasters, acts of war or terrorism, widespread disease or pandemics. No specific current year impacts or dependencies disclosed.

Innovation & Technology Leadership

Research & Development Focus: Core Technology Areas:

• Artificial Intelligence (AI): Employees have access to development in generative AI.
• Robotic Process Automation (RPA): Employees have access to development in RPA.
• Process Improvement: Focus on enhancing operational efficiency.
• Data-Informed Decision-Making: Emphasis on leveraging data for strategic decisions.
• Innovation Pipeline: Development of a BaaS platform to provide banking services to FinTech companies.

Intellectual Property Portfolio: Not explicitly detailed in the filing.

Technology Partnerships:

• Strategic Alliances: Development of a BaaS platform involves partnerships with financial technology companies.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: The Company's success is highly dependent on the continued service and skills of its current executive management team. Non-competition agreements are in place with executive officers and some senior personnel, and non-solicitation provisions apply to mortgage originators, loan officers, and wealth management professionals.

Board Composition: The Board of Directors, through its Risk Policy & Compliance Committee, oversees risk management, including cybersecurity risks. The Board and Committee receive regular updates from management on these areas.

Human Capital Strategy

Workforce Composition:

• Total Employees: 861 at December 31, 2025, including 22 part-time employees. (Decreased from 896 employees at December 31, 2024).
• Geographic Distribution: Not explicitly detailed, but employees are located across Illinois and Missouri.
• Skill Mix: Focus on building skills and capabilities for efficient operations and adaptation to an evolving banking environment.

Talent Management: Acquisition & Retention:

• Hiring Strategy: Strives to offer competitive compensation and benefits, and regularly monitors market practices.
• Retention Metrics: Not explicitly disclosed, but the Company believes its ability to attract and retain skilled employees is key to success.
• Employee Value Proposition: Competitive compensation and benefits, and a culture rooted in "One Midland values."

Diversity & Development:

• Development Programs: Midland University offers required regulatory training and skill-based education (e.g., generative AI, robotic process automation, process improvement, data-informed decision-making). The MASTERS program (Midland’s Advanced Study for Talent Enrichment and Resource Strengthening) develops high-performing employees with leadership potential; over 140 employees have participated since 2016.
• Culture & Engagement: Emphasizes professional capabilities such as adaptability, growth mindset, collaboration, and change management.

Environmental & Social Impact

No material information explicitly stated in the filing.

Business Cyclicality & Seasonality

Demand Patterns:

• Economic Sensitivity: The Company's business and operations are sensitive to general business and economic conditions, particularly in Illinois and the St. Louis metropolitan area. Weak economic conditions negatively impact loan repayment, real estate values, and overall profitability.
• Interest Rate Sensitivity: Earnings, capital ratios, and growth are significantly affected by Federal Reserve monetary policies. Fluctuations in interest rates can reduce net interest income, increase loan defaults, and impact the value of the securities portfolio. Mortgage production, especially refinancing, is adversely affected by high or rising interest rates.

Planning & Forecasting: The Company uses NII at Risk modeling to assess interest rate risk under various scenarios, including interest rate shocks, gradual ramps, and yield curve changes, to inform investment, funding, and hedging activities.

Regulatory Environment & Compliance

Regulatory Framework: Midland States Bancorp and Midland States Bank are extensively regulated under federal and state law by the DFPR, Federal Reserve, FDIC, SEC, state consumer financial protection agencies, IRS, state taxing authorities, and FinCEN.

Industry-Specific Regulations:

• Capital Requirements: Subject to Basel III Rule, including minimum capital ratios (CET1, Tier 1, Total Capital, Leverage Ratio) and a capital conservation buffer. The Bank is "well capitalized."
• Community Bank Leverage Ratio (CBLR): Eligible for the CBLR framework (less than $10 billion in assets, limited certain exposures, CBLR > 9%), but has not elected it. A proposed rule in late 2025 to reduce the CBLR to 8% has not been finalized.
• Prompt Corrective Action: Subject to regulatory enforcement actions based on capital levels.
• Bank Holding Company Act (BHCA): Midland States Bancorp is regulated by the Federal Reserve, obligated to be a source of strength to Midland States Bank, and subject to restrictions on acquisitions and nonbanking activities.
• Financial Holding Company Status: Elected in 2006, requiring the Company and Bank to be well capitalized, well managed, and maintain a satisfactory CRA rating.
• Deposit Insurance Assessments: Midland States Bank pays FDIC deposit insurance premiums based on a risk-based assessment system.
• Supervisory Assessments: Illinois-chartered banks pay supervisory assessments to the DFPR.
• Liquidity Requirements: Required to implement liquidity risk management frameworks, though specific Basel III liquidity tests (LCR, NSFR) do not apply to Midland States Bank.
• Community Reinvestment Act (CRA): Subject to federal CRA and Illinois CRA standards, with performance impacting regulatory approvals.
• Anti-Money Laundering/Sanctions (AML/CFT): Required to comply with BSA, USA PATRIOT Act, and Office of Foreign Assets Control regulations.
• Concentrations in Commercial Real Estate (CRE): Subject to interagency CRE Guidance; as of December 31, 2025, Midland States Bank did not exceed the numerical indicators for significant CRE loan concentrations.
• Consumer Financial Services: Subject to CFPB and state consumer protection laws.

Trade & Export Controls: Compliance with stringent economic and trade sanctions regimes administered and enforced by the Office of Foreign Assets Control.

Legal Proceedings: No material pending legal proceedings other than ordinary routine litigation. The Company faces an elevated risk of proceedings related to prior years' financial statement restatements and LendingPoint's 2023 system conversion.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: 24.1% (2025) vs. 18.9% (2024).
• Geographic Tax Planning: Operates solely within the United States. State taxes in Illinois comprised greater than 50% of the state and local tax effect.
• Tax Reform Impact: Nondeductible goodwill impairment of $154.0 million in 2025 significantly impacted the effective tax rate calculation.
• Net Operating Losses (NOLs): $25.7 million federal NOL carryforwards (expiring 2026-2035), $12.8 million Illinois post-apportioned NOL carryforwards (expiring 2030-2031), and $25.7 million Missouri pre-apportioned NOL carryforwards (expiring 2026-2035).
• Tax Credit Carryforwards: $0.7 million state tax credit carryforwards (5-year period, expiring 2026-2030).
• Valuation Allowance: A valuation allowance of $416,000 was recorded at December 31, 2025, for estimated capital losses not expected to be utilized.

Insurance & Risk Transfer

Risk Management Framework: The Company maintains a system of internal controls and insurance coverage to mitigate operational risks, including data processing system failures and errors, and customer or employee fraud. The risk management framework is designed to manage credit, market, liquidity, interest rate, and compliance risks.

Insurance Coverage: Insurance coverage is maintained to mitigate against operational risks.

Risk Transfer Mechanisms:

• Hedging Strategies: Utilizes interest rate swaps, forwards, and options to manage interest rate risk, including fair value hedges of securities and cash flow hedges of loan and borrowing cash flows.
• Contractual Risk Allocation: Third-party loan origination programs historically included credit enhancements (e.g., contributions to reserve accounts, yield maintenance) that transferred certain risks. Effective December 31, 2025, the sole remaining third-party lending arrangement provides a credit enhancement indemnifying or reimbursing incurred losses.