Midland States Bancorp(MSBI) - 2024 Q4 - Annual Report

Financial Position - As of December 31, 2024, the company had total assets of $7.51 billion and wealth management assets under administration of approximately $4.15 billion[26] - The commercial real estate and construction loan portfolio totaled $2.89 billion as of December 31, 2024, with a diversified composition across various property types[35] - The company reported a market share of 37.66% in Effingham County, IL, with total deposits of $1.06 billion as of June 30, 2024[42] - The multi-family property loans represented 18.9% of the commercial real estate loan portfolio, increasing from 18.1% in 2023[35] - The company had 896 employees as of December 31, 2024, with a focus on competitive salaries and employee development[43] Regulatory Environment - The Company is subject to extensive regulation under federal and state law, which affects its growth and earnings performance[48] - The Company has regulatory capital in excess of the Federal Reserve's requirements and meets the Basel III Rule requirements to be well-capitalized as of December 31, 2024[66] - The Basel III Rule increased the required minimum capital ratios, including a Common Equity Tier 1 Capital ratio of 4.5% of risk-weighted assets[63] - The Company is not subject to a directive from the Federal Reserve or the DFPR to increase its capital as of December 31, 2024[66] - The Regulatory Relief Act enacted in May 2018 provided regulatory relief for community banks, eliminating certain Dodd-Frank Act requirements[49] - The Basel III Rule requires banking organizations to maintain a capital conservation buffer of 2.5% in Common Equity Tier 1 Capital for capital distributions[60] - The Company believes that the reforms from the Regulatory Relief Act are favorable to its operations[49] - The supervisory framework for U.S. banking organizations subjects banks to regular examination, impacting their business conduct and growth[50] - The Basel III Endgame Proposal, proposed in July 2023, is not expected to significantly impact the Company or the Bank[61] - The Company has not yet elected to comply with the Community Bank Leverage Ratio (CBLR) framework, which requires a CBLR greater than 9% for eligibility[68] - The Company is subject to capital requirements including a Common Equity Tier 1 Capital ratio of 6.5% or more and a Total Capital ratio of 10% or more[71] - The FDIC's special assessment for banking organizations with assets of $5 billion or more is set at an annual rate of 13.4 basis points, effective from the first quarterly assessment period of 2024[90] - The Bank paid approximately $0.5 million in supervisory assessments to the DFPR during the year ended December 31, 2024[91] - The Dodd-Frank Act increased the minimum reserve ratio for the Deposit Insurance Fund (DIF) from 1.15% to 1.35% of estimated insured deposits[89] - The Company is required to maintain sufficient liquidity to withstand a range of stress events, as highlighted by recent banking failures[93] - The Federal Reserve has indicated that bank holding companies should eliminate or significantly reduce dividends if net income is insufficient to fund them[78] - The Company is legally obligated to act as a source of financial and managerial strength to the Bank under the Bank Holding Company Act (BHCA)[69] - The Company must maintain its status as a financial holding company by being well-capitalized and well-managed[74] - The Federal Reserve requires prior approval for any merger or acquisition involving the Company[70] - The Bank exceeded its capital requirements under applicable guidelines as of December 31, 2024[98] Risk Management - The liquidity coverage ratio (LCR) requires large financial firms to hold sufficient liquid assets to protect against funding constraints during financial turmoil[95] - The net stable funding ratio (NSFR) promotes more medium- and long-term funding of assets and activities over a one-year horizon[95] - The Bank is subject to restrictions on dividend payments, which cannot exceed the bank's calendar year-to-date net income plus retained income for the two preceding calendar years without Federal Reserve approval[97] - The Bank's CRA ratings can significantly impact its ability to engage in certain activities, including acquisitions[110] - As of December 31, 2024, the Bank did not exceed the guidelines for commercial real estate loan concentrations[116] - The Bank must maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer to pay unrestricted dividends[98] - The federal banking agencies have identified elevated operational risk and strategic risks from non-depository financial institutions as key risk themes for 2024[106] - The Bank is required to implement a comprehensive information security program to protect customer records and information[107] - The Bank must comply with stringent economic and trade sanctions regimes administered by the Office of Foreign Assets Control[115] Financial Performance - The fair value of the Company's Banking reporting unit exceeded its carrying amount by approximately 7% as of December 31, 2024, indicating no impairment loss[332] - The Company expects to recognize goodwill impairment expense between $135.0 million and $154.0 million in the first quarter of 2025 due to deteriorated credit quality and stock price trends[337] - The Company has a net interest income sensitivity (NII at Risk) of $2,395 thousand for a -200 basis point shock and -$5,596 thousand for a +200 basis point shock as of December 31, 2024[323] - The Company reported a 1.1% increase in net interest income sensitivity for a -200 basis point change in rates as of December 31, 2024[323] - The Company is actively managing interest rate risk through monitoring loan and deposit flows, investment, funding, and hedging activities[318] Loan Programs - The Company operates three significant programs for unsecured commercial and consumer loans, with terms ranging from five months to 25 years[338] - As of December 31, 2024, loans outstanding in the programs were $110.4 million, a decrease from $853.4 million in 2023[341] - $336.7 million is included in loans held for sale at lower of cost or market due to the decision to pursue a sale of that portion of the portfolio[341] - The servicer guarantees a targeted return paid first by customer payments, supplemented if necessary[340] - Excess yield on the portfolio after realized charge-offs is paid to the servicer as a "performance fee" if above the agreed target rate[340] - Charge-offs exceeding the performance fee amount roll over to future periods to offset potential performance fees[340] - The program sponsor also guarantees a targeted return, similarly structured to the servicer's arrangement[340] - Excess yield after charge-offs is paid to the program sponsor as a "performance fee" if above the agreed target rate[340] - The program sponsor reimburses the Company for all excess charge-offs if they exceed the performance fee amount[340]