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Midland States Bancorp(MSBI) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This part provides the unaudited consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2025 Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Midland States Bancorp, Inc., including balance sheets, income statements, comprehensive income, shareholders' equity, and cash flows for the periods ended March 31, 2025, and December 31, 2024 (or March 31, 2024 for income/cash flow statements). It also includes detailed notes explaining significant accounting policies, investment securities, loans, goodwill impairment, derivatives, deposits, borrowings, and segment information Consolidated Balance Sheets This section details the company's financial position, including assets, liabilities, and equity, as of March 31, 2025, and December 31, 2024 Consolidated Balance Sheet Highlights (March 31, 2025 vs. December 31, 2024) ($ in thousands) | Metric | March 31, 2025 (Unaudited) | December 31, 2024 | | :--------------------------------- | :-------------------------- | :------------------ | | Total assets | $7,284,804 | $7,506,809 | | Total loans, net | $4,912,877 | $5,056,370 | | Investment securities available for sale, at fair value | $1,364,201 | $1,207,574 | | Goodwill | $7,927 | $161,904 | | Total deposits | $5,936,434 | $6,197,243 | | Federal Home Loan Bank advances and other borrowings | $498,000 | $258,000 | | Total liabilities | $6,713,367 | $6,795,962 | | Total shareholders' equity | $571,437 | $710,847 | - Total assets decreased by $222.0 million from December 31, 2024, to March 31, 2025, primarily due to a significant reduction in goodwill and net loans, partially offset by an increase in investment securities12 - Goodwill saw a substantial decrease from $161.9 million to $7.9 million, reflecting an impairment charge12 Consolidated Statements of Income This section presents the company's revenues, expenses, and net income (loss) for the three months ended March 31, 2025, and March 31, 2024 Consolidated Statements of Income Highlights (Three Months Ended March 31, 2025 vs. 2024) ($ in thousands) | Metric | March 31, 2025 (Unaudited) | March 31, 2024 (Unaudited) | Change (YoY) | | :--------------------------------- | :-------------------------- | :-------------------------- | :------------- | | Total interest income | $99,355 | $105,526 | $(6,171) | | Total interest expense | $41,065 | $45,755 | $(4,690) | | Net interest income | $58,290 | $59,771 | $(1,481) | | Provision for credit losses | $10,850 | $19,942 | $(9,092) | | Total noninterest income | $17,763 | $37,841 | $(20,078) | | Total noninterest expense | $203,005 | $48,608 | $154,397 | | Net (loss) income | $(140,974) | $22,663 | $(163,637) | | Basic (loss) earnings per common share | $(6.58) | $0.92 | $(7.50) | | Diluted (loss) earnings per common share | $(6.58) | $0.92 | $(7.50) | - The company reported a net loss of $140.97 million in Q1 2025, a significant decline from a net income of $22.66 million in Q1 2024, primarily driven by a $154.0 million goodwill impairment charge14 - Noninterest expense surged by $154.4 million year-over-year, largely due to the goodwill impairment14 Consolidated Statements of Comprehensive Income This section reports the company's comprehensive income (loss), including net income and other comprehensive income (loss), for the three months ended March 31, 2025, and March 31, 2024 Consolidated Statements of Comprehensive Income Highlights (Three Months Ended March 31, 2025 vs. 2024) ($ in thousands) | Metric | March 31, 2025 (Unaudited) | March 31, 2024 (Unaudited) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Net (loss) income | $(140,974) | $22,663 | | Other comprehensive income (loss), net of tax | $9,621 | $(4,666) | | Total comprehensive (loss) income | $(131,353) | $17,997 | - Total comprehensive loss for Q1 2025 was $(131.35) million, a substantial decrease from comprehensive income of $17.99 million in Q1 2024, primarily due to the net loss16 - Other comprehensive income, net of tax, improved significantly to $9.62 million in Q1 2025 from a loss of $(4.67) million in Q1 2024, driven by unrealized gains on investment securities available for sale16 Consolidated Statements of Shareholders' Equity This section outlines changes in shareholders' equity, including net loss, other comprehensive income, and dividends, between December 31, 2024, and March 31, 2025 Consolidated Statements of Shareholders' Equity Highlights (March 31, 2025 vs. December 31, 2024) ($ in thousands) | Metric | December 31, 2024 | March 31, 2025 | | :--------------------------------- | :------------------ | :-------------------------- | | Total shareholders' equity | $710,847 | $571,437 | | Net loss | — | $(140,974) | | Other comprehensive income | — | $9,621 | | Common dividends declared | — | $(6,782) | | Preferred dividends declared | — | $(2,228) | - Total shareholders' equity decreased by $139.41 million from December 31, 2024, to March 31, 2025, primarily due to the net loss of $140.97 million and dividend payments, partially offset by other comprehensive income18 Consolidated Statements of Cash Flows This section details the company's cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2025, and March 31, 2024 Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31, 2025 vs. 2024) ($ in thousands) | Cash Flow Activity | March 31, 2025 (Unaudited) | March 31, 2024 (Unaudited) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $24,700 | $43,072 | | Net cash provided by investing activities | $39,465 | $26,914 | | Net cash used in financing activities | $(76,925) | $(37,731) | | Net (decrease) increase in cash and cash equivalents | $(12,760) | $32,255 | | Cash and cash equivalents, end of period | $102,006 | $167,316 | - Net cash provided by operating activities decreased to $24.70 million in Q1 2025 from $43.07 million in Q1 2024, despite a significant goodwill impairment adjustment21 - Net cash used in financing activities increased to $(76.93) million in Q1 2025 from $(37.73) million in Q1 2024, primarily due to a net decrease in deposits and an increase in FHLB borrowings21 Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures for the consolidated financial statements, covering accounting policies, specific financial instruments, and segment information Note 1: Summary of Significant Accounting Policies This note describes the company's business operations and significant accounting policies, including recent accounting pronouncements - Midland States Bancorp, Inc. is a diversified financial holding company offering commercial and consumer banking, equipment financing, merchant services, trust, investment management, and insurance/financial planning services23 - The company's primary income sources are interest on loans and investment securities, supplemented by noninterest income from various services24 - New accounting guidance (ASU No. 2023-09) on income tax disclosures is effective for fiscal years beginning after December 15, 2024, with no material impact beyond additional disclosures28 - FASB ASU No. 2024-03, requiring disaggregation of income statement expenses, is effective for annual periods beginning after December 15, 2026, with early adoption permitted29 Note 2: Investment Securities This note provides details on the company's investment securities portfolio, including fair values and unrealized gains or losses Investment Securities Available for Sale (March 31, 2025 vs. December 31, 2024) ($ in thousands) | Category | March 31, 2025 Fair Value | December 31, 2024 Fair Value | | :--------------------------------- | :-------------------------- | :-------------------------- | | U.S. Treasury securities | $1,000 | $0 | | U.S. government sponsored entities and U.S. agency securities | $25,100 | $20,141 | | Mortgage-backed securities - agency | $1,006,339 | $847,056 | | Mortgage-backed securities - non-agency | $95,188 | $101,012 | | Asset-backed student loans | $47,401 | $49,973 | | State and municipal securities | $69,111 | $69,061 | | Collateralized loan obligations | $39,212 | $40,450 | | Corporate securities | $80,850 | $79,881 | | Total available for sale securities | $1,364,201 | $1,207,574 | Unrealized Losses on Investment Securities Available for Sale (March 31, 2025 vs. December 31, 2024) ($ in thousands) | Metric | March 31, 2025 Unrealized Loss | December 31, 2024 Unrealized Loss | | :--------------------------------- | :-------------------------- | :-------------------------- | | Total available for sale securities (Gross unrealized losses) | $(99,944) | $(112,358) | | Aggregate depreciation from amortized cost basis | 10.68% | N/A | - At March 31, 2025, 263 investment securities had unrealized losses, with aggregate depreciation of 10.68% from their amortized cost, primarily due to changes in interest rates. These losses are considered temporary as the company does not intend to sell and is not required to sell prior to anticipated recovery36 Note 3: Loans This note presents a detailed breakdown of the loan portfolio, allowance for credit losses, and nonaccrual loans Total Loans Outstanding by Portfolio Class (March 31, 2025 vs. December 31, 2024) ($ in thousands) | Portfolio Class | March 31, 2025 | December 31, 2024 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Commercial | $772,876 | $818,496 | | Commercial other | $496,686 | $541,324 | | Commercial real estate non-owner occupied | $1,597,251 | $1,628,961 | | Commercial real estate owner occupied | $441,910 | $440,806 | | Multi-family | $486,141 | $454,249 | | Farmland | $67,023 | $67,648 | | Construction and land development | $264,966 | $299,842 | | Residential first lien | $312,367 | $315,775 | | Other residential | $60,728 | $64,782 | | Consumer | $91,371 | $96,202 | | Consumer other | $53,566 | $48,099 | | Lease financing | $373,168 | $391,390 | | Total loans | $5,018,053 | $5,167,574 | Allowance for Credit Losses on Loans (Three Months Ended March 31, 2025 vs. 2024) ($ in thousands) | Metric | March 31, 2025 | March 31, 2024 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Balance, beginning of period | $111,204 | $159,319 | | Provision for credit losses on loans | $10,850 | $19,942 | | Charge-offs | $(17,996) | $(19,008) | | Recoveries | $1,118 | $591 | | Balance, end of period | $105,176 | $160,844 | - The allowance for credit losses on loans decreased to $105.18 million at March 31, 2025, from $111.20 million at December 31, 2024, with a provision for credit losses of $10.85 million in Q1 202546 - Total nonaccrual loans were $139.49 million at March 31, 2025, slightly down from $140.14 million at December 31, 202457 - Loan restructurings totaled $1.44 million in Q1 2025, primarily involving term extensions and interest rate reductions for borrowers experiencing financial difficulties64 Note 4: Premises, Equipment and Leases This note details the company's premises, equipment, and operating lease assets and liabilities Premises, Equipment and Leases (March 31, 2025 vs. December 31, 2024) ($ in thousands) | Category | March 31, 2025 | December 31, 2024 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Premises and equipment, net | $86,719 | $85,710 | | Operating lease right-of-use assets | $9,246 | $8,830 | | Operating lease liabilities | $10,519 | $10,100 | | Depreciation expense (Q1) | $1,200 | $1,200 | - Net premises and equipment increased slightly to $86.72 million at March 31, 2025, from $85.71 million at December 31, 202480 - Operating lease right-of-use assets and liabilities also saw minor increases, reflecting ongoing lease arrangements for banking offices and facilities81 Note 5: Operating Leases - Lessor This note provides information on the company's role as a lessor in operating lease arrangements, including leased equipment and related income Operating Leases - Lessor Highlights (Three Months Ended March 31, 2025 vs. 2024) ($ in thousands) | Metric | March 31, 2025 | March 31, 2024 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Equipment leased to others, net (period end) | $26,800 | N/A | | Lease income | $3,100 | $4,500 | | Depreciation expense related to leased equipment | $2,300 | $3,600 | - The company's equipment leased to others (net) was $26.8 million at March 31, 2025, down from $30.7 million at December 31, 202483 - Lease income from operating leases decreased to $3.1 million in Q1 2025 from $4.5 million in Q1 202483 Note 6: Goodwill This note explains the company's goodwill balance, including the significant impairment charge recognized in the current quarter Goodwill by Segment (March 31, 2025 vs. December 31, 2024) ($ in thousands) | Segment | March 31, 2025 | December 31, 2024 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Banking | $3,181 | $157,158 | | Wealth management | $4,746 | $4,746 | | Total goodwill | $7,927 | $161,904 | - The company recognized a $154.0 million goodwill impairment expense in Q1 2025 for its Banking reporting unit86 - The impairment was triggered by deteriorated credit quality and trends in the company's stock price, leading to the carrying amount exceeding the fair value of the Banking unit86 - The impairment did not affect regulatory capital ratios, tangible common equity ratio, or liquidity position86 Note 7: Derivative Instruments This note describes the company's use of derivative instruments for risk management and their fair value - The company uses derivative instruments, including interest rate swaps and options, to manage interest rate risk, converting fixed-rate instruments to variable-rate and vice versa9091 Fair Value of Derivative Instruments (March 31, 2025 vs. December 31, 2024) ($ in thousands) | Category | March 31, 2025 Fair Value Assets | March 31, 2025 Fair Value Liabilities | December 31, 2024 Fair Value Assets | December 31, 2024 Fair Value Liabilities | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total derivatives designated as accounting hedges | $5,184 | $6,222 | $3,516 | $5,437 | | Total derivatives not designated as accounting hedges | $376 | $203 | $321 | $218 | - Credit enhancement derivatives, associated with third-party loan programs, had a fair value of $5.6 million at March 31, 2025, down from $16.8 million at December 31, 2024105 - The decrease in credit enhancement derivative value was due to $11.1 million in charge-offs on a third-party loan origination program, which were fully reimbursed by the partner227 Note 8: Deposits This note provides a detailed classification of the company's deposit accounts Classification of Deposits (March 31, 2025 vs. December 31, 2024) ($ in thousands) | Deposit Type | March 31, 2025 | December 31, 2024 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Noninterest-bearing demand | $1,090,707 | $1,055,564 | | Interest-bearing checking | $2,161,282 | $2,378,256 | | Money market | $1,154,403 | $1,173,630 | | Savings | $522,663 | $507,305 | | Time | $1,007,379 | $1,082,488 | | Total deposits | $5,936,434 | $6,197,243 | - Total deposits decreased by $260.81 million to $5.94 billion at March 31, 2025, compared to December 31, 2024229 - Interest-bearing checking, money market, and time deposits decreased, while noninterest-bearing demand and savings accounts increased229 Note 9: FHLB Advances and Other Borrowings This note details the company's Federal Home Loan Bank advances and other borrowing arrangements FHLB Advances and Other Borrowings (March 31, 2025 vs. December 31, 2024) ($ in thousands) | Borrowing Type | March 31, 2025 | December 31, 2024 | | :--------------------------------- | :-------------------------- | :-------------------------- | | FHLB advances – fixed rate, fixed term | $133,000 | $133,000 | | FHLB advances – putable fixed rate | $125,000 | $125,000 | | FHLB advances – Short term fixed rate | $240,000 | $0 | | Total FHLB advances and other borrowings | $498,000 | $258,000 | - Total FHLB advances and other borrowings increased significantly to $498.0 million at March 31, 2025, from $258.0 million at December 31, 2024, primarily due to $240.0 million in short-term fixed-rate FHLB advances108 - These advances are collateralized by qualifying mortgage, home equity, and commercial real estate loans, totaling approximately $3.10 billion at March 31, 2025108 Note 10: Subordinated Debt This note provides information on the company's subordinated debt, including outstanding amounts and interest rates Subordinated Debt (March 31, 2025 vs. December 31, 2024) ($ in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Outstanding amount | $78,000 | $78,000 | | Carrying amount | $77,754 | $77,749 | | Current rate (Fixed to Float, Issued Sept 2019) | 7.91% | 7.94% | | Current rate (Fixed to Float, Issued Sept 2019) | 5.50% | 5.50% | - The company's subordinated debt remained stable at an outstanding amount of $78.0 million, with a carrying amount of $77.75 million at March 31, 2025109 - These debentures may be included in Tier 2 capital under current regulatory guidelines109 Note 11: Accumulated Other Comprehensive Income (Loss) This note details the changes in accumulated other comprehensive income (loss) and its components Changes in AOCI (Three Months Ended March 31, 2025 vs. 2024) ($ in thousands) | Metric | March 31, 2025 | March 31, 2024 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Balance, beginning of period | $(81,960) | $(76,753) | | Other comprehensive income (loss) before reclassifications | $9,004 | $(5,653) | | Amounts reclassified from AOCI to income | $617 | $987 | | Balance, end of period | $(72,339) | $(81,419) | - AOCI improved to a loss of $(72.34) million at March 31, 2025, from $(81.96) million at December 31, 2024, primarily due to other comprehensive income before reclassifications of $9.00 million111 - Gains and losses on cash flow hedges were reclassified from AOCI to income, impacting interest income/expense112 Note 12: Earnings per Common Share This note presents the calculation of basic and diluted earnings (loss) per common share Earnings Per Common Share (Three Months Ended March 31, 2025 vs. 2024) ($ in thousands) | Metric | March 31, 2025 | March 31, 2024 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Net (loss) income available to common shareholders | $(143,202) | $20,435 | | Basic (loss) earnings per common share | $(6.58) | $0.92 | | Diluted (loss) earnings per common share | $(6.58) | $0.92 | | Weighted average common shares outstanding, basic | 21,795,570 | 21,774,647 | | Weighted average common shares outstanding, diluted | 21,795,570 | 21,787,691 | - Basic and diluted loss per common share was $(6.58) in Q1 2025, a significant decrease from earnings of $0.92 in Q1 2024, reflecting the net loss available to common shareholders113 Note 13: Fair Value of Financial Instruments This note outlines the fair value measurements of financial instruments, categorized by input levels - The company categorizes fair value measurements into Level 1 (quoted prices in active markets), Level 2 (significant other observable inputs), and Level 3 (significant unobservable inputs)114115 Assets Measured at Fair Value on a Recurring Basis (March 31, 2025) ($ in thousands) | Asset Category | Carrying Amount | Level 1 | Level 2 | Level 3 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Investment securities available for sale | $1,364,201 | $1,000 | $1,363,201 | $0 | | Equity securities | $4,204 | $4,204 | $0 | $0 | | Residential loans held for sale | $7,510 | $0 | $7,510 | $0 | | Credit enhancement asset | $5,615 | $0 | $0 | $5,615 | | Derivative assets | $5,260 | $0 | $5,260 | $0 | | Total | $1,386,790 | $5,204 | $1,375,971 | $5,615 | Assets Measured at Fair Value on a Non-Recurring Basis (March 31, 2025) ($ in thousands) | Asset Category | Carrying Amount | Level 1 | Level 2 | Level 3 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Nonperforming loans | $106,354 | $0 | $0 | $106,354 | | Consumer loans held for sale | $280,311 | $0 | $0 | $280,311 | | Other real estate owned | $4,183 | $0 | $0 | $4,183 | - Nonperforming loans, consumer loans held for sale, and other real estate owned are measured at fair value on a non-recurring basis, primarily using Level 3 unobservable inputs118119120122 Note 14: Commitments, Contingencies and Credit Risk This note discloses the company's outstanding commitments, contingent liabilities, and credit risk exposures - The company has outstanding contingent liabilities from claims and legal actions, but no other material losses are anticipated130 Loan Commitments (March 31, 2025 vs. December 31, 2024) ($ in thousands) | Commitment Type | March 31, 2025 | December 31, 2024 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Commitments to extend credit | $782,808 | $754,202 | | Financial guarantees – standby letters of credit | $19,139 | $22,298 | - Commitments to extend credit increased to $782.81 million at March 31, 2025, from $754.20 million at December 31, 2024133 Note 15: Segment Information This note provides financial information by the company's operating segments: Banking, Wealth Management, and Corporate - The company operates through three reportable segments: Banking, Wealth Management, and Corporate134 - The Banking segment provides commercial, real estate, mortgage, and consumer loan products, equipment financing, deposit products, and treasury management services135 - The Wealth Management segment offers trust and fiduciary services, brokerage, and retirement planning136 Net Income (Loss) by Segment (Three Months Ended March 31, 2025 vs. 2024) ($ in thousands) | Segment | March 31, 2025 Net Income (Loss) | March 31, 2024 Net Income (Loss) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Banking | $(140,281) | $22,926 | | Wealth Management | $1,078 | $1,022 | | Corporate | $(1,771) | $(1,285) | | Total | $(140,974) | $22,663 | Note 16: Revenue from Contracts with Customers This note details noninterest income streams derived from contracts with customers, categorized under Topic 606 Noninterest Income - In-Scope of Topic 606 (Three Months Ended March 31, 2025 vs. 2024) ($ in thousands) | Revenue Stream | March 31, 2025 | March 31, 2024 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Trust management/administration fees | $6,444 | $6,267 | | Investment advisory and brokerage fees | $483 | $423 | | Nonsufficient fund fees | $1,953 | $1,822 | | Interchange revenues | $3,151 | $3,358 | | Merchant services revenue | $338 | $344 | | Total noninterest income - in-scope | $13,781 | $12,212 | - Wealth management revenue, service charges on deposit accounts, and interchange revenue are key noninterest income streams within the scope of Topic 606142 - Wealth management revenue is primarily from fees for managing trusts and customer assets, recognized monthly based on market value143 - Service charges on deposit accounts include non-sufficient fund fees and other account-related charges, recognized over time or at the point of service144 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition, highlighting key factors that influenced results for the three months ended March 31, 2025, compared to December 31, 2024, and March 31, 2024. It covers critical accounting policies, factors affecting comparability (like goodwill impairment and loan portfolio sales), detailed results of operations, and an analysis of financial condition including assets, liabilities, capital, and liquidity Critical Accounting Policies and Estimates This section discusses key accounting policies and estimates, particularly those related to allowance for credit losses and goodwill impairment - Management's evaluation of the allowance for credit losses on loans (ACL) involves significant estimates, assumptions, and judgments, considering historical losses, economic forecasts, and collateral values151 - Goodwill is subject to impairment testing at least annually or upon a triggering event, with a quantitative test performed if impairment is more likely than not152153 - A $154.0 million goodwill impairment expense was recognized in Q1 2025 for the Banking reporting unit due to deteriorated credit quality and stock price trends, using a discounted cash flow analysis with a higher discount rate (15.9% vs. 13.4% at Dec 31, 2024)158 Factors Affecting Comparability This section highlights significant events, such as goodwill impairment and loan portfolio sales, that impact the comparability of financial results - A $154.0 million goodwill impairment expense was recognized in Q1 2025 for the Banking reporting unit, which did not impact regulatory capital ratios, tangible common equity, or liquidity162 - The company sold its LendingPoint portfolio in Q4 2024, recognizing $17.3 million in net charge-offs, and committed to sell its GreenSky consumer loan portfolio, resulting in $35.0 million in net charge-offs when transferred to held for sale163 - As of March 31, 2025, the company operates only one third-party loan origination and servicing program, down from three previously160 Results of Operations This section provides a detailed analysis of the company's financial performance, including net interest income, noninterest income, and expenses Overview This overview summarizes the company's key financial performance metrics for the three months ended March 31, 2025, compared to the prior year Key Performance Metrics (Three Months Ended March 31, 2025 vs. 2024) ($ in thousands) | Metric | March 31, 2025 | March 31, 2024 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Net (loss) income | $(140,974) | $22,663 | | Diluted (loss) earnings per common share | $(6.58) | $0.92 | | Return on average assets | (7.66)% | 1.17% | | Return on average shareholders' equity | (79.89)% | 11.54% | - The company reported a net loss of $141.0 million in Q1 2025, a significant decrease from net income of $22.7 million in Q1 2024, primarily due to a $154.4 million increase in noninterest expense (goodwill impairment), a $1.5 million decrease in net interest income, and a $20.1 million decrease in noninterest income165 Net Interest Income and Margin This section analyzes the company's net interest income and margin, including factors affecting interest income and expense Net Interest Income and Margin (Three Months Ended March 31, 2025 vs. 2024) ($ in thousands) | Metric | March 31, 2025 | March 31, 2024 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Net interest income (tax-equivalent) | $58,498 | $59,986 | | Tax-equivalent net interest margin | 3.49% | 3.39% | | Total interest income | $99,563 | $105,741 | | Total interest expense | $41,065 | $45,755 | - Net interest income (tax-equivalent basis) decreased by $1.5 million to $58.5 million in Q1 2025, while the tax-equivalent net interest margin increased to 3.49% from 3.39%169 - Average earning assets decreased by $309.48 million, primarily due to a $954.6 million decrease in average loans, partially offset by increases in investment securities and loans held for sale176177 - Interest expense decreased by $4.7 million, driven by a decrease in deposit costs due to Federal Reserve rate decreases, despite a $121.1 million decrease in average interest-bearing deposit accounts179180 Provision for Credit Losses This section discusses the provision for credit losses, reflecting management's assessment of the allowance for credit losses Provision for Credit Losses (Three Months Ended March 31, 2025 vs. 2024) ($ in thousands) | Metric | March 31, 2025 | March 31, 2024 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Provision for credit losses | $10,850 | $19,942 | - The provision for credit losses decreased to $10.9 million in Q1 2025 from $19.9 million in Q1 2024, with Q1 2024 including an $8.0 million specific reserve on a large construction loan181 - The provision is determined quarterly based on management's evaluation of the allowance for credit losses, considering past loss experience, portfolio characteristics, economic conditions, and forecasts182 Noninterest Income This section details the components of noninterest income and significant year-over-year changes Noninterest Income Components (Three Months Ended March 31, 2025 vs. 2024) ($ in thousands) | Noninterest Income Category | March 31, 2025 | March 31, 2024 | Change (YoY) | | :--------------------------------- | :-------------------------- | :-------------------------- | :------------- | | Wealth management revenue | $7,350 | $7,132 | $218 | | Service charges on deposit accounts | $3,305 | $3,116 | $189 | | Interchange revenue | $3,151 | $3,358 | $(207) | | Residential mortgage banking revenue | $676 | $527 | $149 | | Income on company-owned life insurance | $2,334 | $1,801 | $533 | | Credit enhancement (loss) income | $(578) | $16,654 | $(17,232) | | Other income | $1,525 | $5,253 | $(3,728) | | Total noninterest income | $17,763 | $37,841 | $(20,078) | - Total noninterest income decreased by 53.1% ($20.08 million) in Q1 2025 compared to Q1 2024, primarily due to a $17.23 million decline in credit enhancement income183186 - Credit enhancement income declined due to loan payoffs and the cessation of loan originations through the GreenSky and LendingPoint programs186 - Wealth management revenue increased by 3.1% to $7.35 million, and income on company-owned life insurance increased by $0.5 million, partly due to death benefits184185 Noninterest Expense This section analyzes the company's noninterest expenses, highlighting the impact of goodwill impairment and other operational costs Noninterest Expense Components (Three Months Ended March 31, 2025 vs. 2024) ($ in thousands) | Noninterest Expense Category | March 31, 2025 | March 31, 2024 | Increase (decrease) | | :--------------------------------- | :-------------------------- | :-------------------------- | :------------------ | | Salaries and employee benefits | $26,416 | $24,102 | $2,314 | | Occupancy and equipment | $4,498 | $4,142 | $356 | | Professional services | $2,741 | $2,255 | $486 | | Loan servicing fees | $750 | $3,741 | $(2,991) | | Impairment on goodwill | $153,977 | $0 | $153,977 | | Total noninterest expense | $203,005 | $48,608 | $154,397 | - Total noninterest expense increased by $154.4 million to $203.0 million in Q1 2025, primarily due to a $154.0 million goodwill impairment charge187 - Salaries and employee benefits increased by $2.3 million, including $1.4 million in severance expense from a 25-employee headcount reduction187 - Loan servicing fees decreased by $3.0 million due to loan payoffs and the cessation of third-party lending programs191 Income Tax Expense This section discusses the company's income tax expense and the tax implications of the goodwill impairment Income Tax Expense (Three Months Ended March 31, 2025 vs. 2024) ($ in thousands) | Metric | March 31, 2025 | March 31, 2024 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Income tax expense | $3,172 | $6,399 | - Income tax expense decreased to $3.2 million in Q1 2025 from $6.4 million in Q1 2024192 - The goodwill impairment recognized in Q1 2025 was not deductible for tax purposes192 Financial Condition This section provides an in-depth analysis of the company's balance sheet, including assets, liabilities, and capital resources Assets This section details the composition and changes in the company's asset base, including loans and investment securities - Total assets decreased to $7.28 billion at March 31, 2025, from $7.51 billion at December 31, 2024193 Loans This section provides a detailed breakdown of the loan portfolio by class and an analysis of nonperforming loans Loan Portfolio Composition (March 31, 2025 vs. December 31, 2024) ($ in thousands) | Loan Category | March 31, 2025 Balance | March 31, 2025 Percent | December 31, 2024 Balance | December 31, 2024 Percent | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Commercial | $1,269,562 | 25.3% | $1,359,820 | 26.3% | | Commercial other | $496,686 | 9.9% | $541,324 | 10.5% | | Commercial real estate non-owner occupied | $1,597,251 | 31.8% | $1,628,961 | 31.5% | | Commercial real estate owner occupied | $441,910 | 8.8% | $440,806 | 8.5% | | Multi-family | $486,141 | 9.7% | $454,249 | 8.8% | | Farmland | $67,023 | 1.3% | $67,648 | 1.3% | | Construction and land development | $264,966 | 5.3% | $299,842 | 5.8% | | Residential first lien | $312,367 | 6.2% | $315,775 | 6.1% | | Other residential | $60,728 | 1.2% | $64,782 | 1.3% | | Consumer | $91,371 | 1.8% | $96,202 | 1.9% | | Consumer other | $53,566 | 1.1% | $48,099 | 0.9% | | Lease financing | $373,168 | 7.4% | $391,390 | 7.6% | | Total loans, gross | $5,018,053 | 100.0% | $5,167,574 | 100.0% | - Total loans decreased by $149.5 million (2.9%) to $5.02 billion at March 31, 2025, compared to December 31, 2024198 - Community bank portfolio grew by $69.9 million, offsetting strategic declines in Specialty finance ($158.5 million) and Equipment finance ($44.9 million) portfolios198 Nonperforming Assets (March 31, 2025 vs. December 31, 2024) ($ in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Total nonperforming loans | $145,690 | $150,907 | | Other real estate owned and other repossessed assets | $5,574 | $6,502 | | Nonperforming assets | $151,264 | $157,409 | | Nonperforming loans to total loans | 2.90% | 2.92% | | Allowance for credit losses to nonperforming loans | 72.19% | 73.69% | - Nonperforming loans decreased to $145.7 million at March 31, 2025, from $150.9 million at December 31, 2024, as the company focuses on improving credit quality216 Investment Securities This section details the composition and changes in the company's investment securities portfolio Investment Securities Available for Sale (March 31, 2025 vs. December 31, 2024) ($ in thousands) | Category | March 31, 2025 Balance | March 31, 2025 Percent | December 31, 2024 Balance | December 31, 2024 Percent | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Mortgage-backed securities - agency | $1,006,339 | 73.7% | $847,056 | 70.1% | | Corporate securities | $80,850 | 5.9% | $79,881 | 6.6% | | State and municipal securities | $69,111 | 5.1% | $69,061 | 5.7% | | Total investment securities | $1,364,201 | 100.0% | $1,207,574 | 100.0% | - Total investment securities available for sale increased to $1.36 billion at March 31, 2025, from $1.21 billion at December 31, 2024221 - The portfolio is primarily composed of mortgage-backed securities (73.7%) and has an average credit rating of AAA for a significant portion221225 Credit enhancement asset This section discusses the fair value and changes in the company's credit enhancement derivative asset Credit Enhancement Asset Fair Value (March 31, 2025 vs. December 31, 2024) ($ in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Fair value of derivative | $5,600 | $16,800 | | Charge-offs recognized on third-party loan program (Q1 2025) | $11,100 | N/A | | Decrease in credit enhancement derivative (Q1 2025) | $11,200 | N/A | - The fair value of credit enhancement derivatives decreased to $5.6 million at March 31, 2025, from $16.8 million at December 31, 2024227 - This decrease was primarily due to $11.1 million in charge-offs on a third-party loan origination program, which were fully recovered from the third-party partner227 Liabilities This section details the composition and changes in the company's liabilities, primarily focusing on deposits - Total liabilities decreased to $6.71 billion at March 31, 2025, from $6.80 billion at December 31, 2024228 Deposits This section provides a detailed breakdown of the company's deposit composition and changes over the period Deposit Composition (March 31, 2025 vs. December 31, 2024) ($ in thousands) | Deposit Type | March 31, 2025 Balance | March 31, 2025 Percent | December 31, 2024 Balance | December 31, 2024 Percent | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Noninterest-bearing demand | $1,090,707 | 18.4% | $1,055,564 | 17.0% | | Interest-bearing checking | $2,161,282 | 36.4% | $2,378,256 | 38.4% | | Money market | $1,154,403 | 19.4% | $1,173,630 | 18.9% | | Savings | $522,663 | 8.8% | $507,305 | 8.2% | | Time | $1,007,379 | 17.0% | $1,082,488 | 17.5% | | Total deposits | $5,936,434 | 100.0% | $6,197,243 | 100.0% | - Total deposits decreased by $260.8 million to $5.94 billion at March 31, 2025, compared to December 31, 2024229 - Decreases in interest-bearing checking, money market, and time deposit accounts were partially offset by increases in noninterest-bearing demand and savings accounts229 Capital Resources and Liquidity Management This section analyzes the company's capital adequacy, liquidity position, and regulatory capital ratios Capital Resources This section details the changes in shareholders' equity and factors affecting the company's capital base Shareholders' Equity (March 31, 2025 vs. December 31, 2024) ($ in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Shareholders' equity | $571,437 | $710,847 | | Net loss | $(140,974) | N/A | | Dividends to common shareholders | $(6,782) | N/A | | Dividends to preferred shareholders | $(2,228) | N/A | | Decrease in accumulated other comprehensive losses | $9,621 | N/A | - Shareholders' equity decreased by $139.4 million to $571.4 million at March 31, 2025, primarily due to the net loss and dividend payments, partially offset by a decrease in accumulated other comprehensive losses ($9.6 million)232 Liquidity Management This section outlines the company's liquidity sources and management strategies to meet financial obligations Sources of Liquidity (March 31, 2025 vs. December 31, 2024) ($ in thousands) | Source | March 31, 2025 | December 31, 2024 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Cash and cash equivalents | $102,006 | $114,766 | | Unpledged securities | $880,920 | $672,399 | | FHLB committed liquidity | $1,015,704 | $1,290,246 | | FRB discount window availability | $504,205 | $538,835 | | Total Estimated Liquidity | $2,502,835 | $2,616,246 | | Additional credit facility | $392,000 | $360,000 | | Brokered CDs (additional capacity) | $400,000 | $350,000 | | ICS One Way Buy (additional capacity) | $350,000 | $0 | - Total estimated liquidity decreased to $2.50 billion at March 31, 2025, from $2.62 billion at December 31, 2024, primarily due to a decrease in FHLB committed liquidity236 - The company maintains various liquidity sources, including cash, unpledged securities, FHLB committed liquidity, and FRB discount window availability236 Regulatory Capital Requirements This section presents the company's regulatory capital ratios and compliance with 'well-capitalized' requirements Regulatory Capital Ratios (March 31, 2025) | Ratio | Actual (Midland States Bancorp, Inc.) | Minimum Regulatory Requirements | Well Capitalized | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total risk-based capital ratio | 13.51% | 10.50% | N/A | | Tier 1 risk-based capital ratio | 11.16% | 8.50% | N/A | | Common equity tier 1 risk-based capital ratio | 8.32% | 7.00% | N/A | | Tier 1 leverage ratio | 9.11% | 4.00% | N/A | - At March 31, 2025, both the Company and Midland States Bank exceeded all regulatory minimum capital requirements and met the regulatory definition of 'well-capitalized'238 - The capital conservation buffer of 2.5% is included in the total risk-based, Tier 1 risk-based, and Common equity tier 1 risk-based capital ratios239 Quantitative and Qualitative Disclosures About Market Risk This section provides disclosures on the company's exposure to market risks, primarily interest rate risk and price risk Market Risk This section identifies the primary market risks the company is exposed to, including interest rate and price risk - The company is primarily exposed to interest rate risk and secondarily to price risk from investments in securities240 Interest Rate Risk This section details the company's interest rate risk exposure and its assessment using Net Interest Income at Risk modeling - Interest rate risk arises from timing differences in repricings and maturities of assets/liabilities, embedded options, yield curve changes, and spread relationships241 - The company uses Net Interest Income (NII) at Risk modeling to assess interest rate sensitivity under various scenarios, including parallel shifts in market interest rates246247 Net Interest Income Sensitivity (Shocks) (March 31, 2025 vs. December 31, 2024) ($ in thousands) | Immediate Change in Rates | March 31, 2025 Dollar Change | March 31, 2025 Percent Change | December 31, 2024 Dollar Change | December 31, 2024 Percent Change | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | -200 bps | $8,078 | 3.6% | $2,395 | 1.1% | | -100 bps | $3,490 | 1.6% | $1,395 | 0.6% | | +100 bps | $(1,619) | (0.7)% | $(2,727) | (1.2)% | | +200 bps | $(3,430) | (1.5)% | $(5,596) | (2.5)% | - NII at Risk results for March 31, 2025, project increasing profitability in a declining rate environment, consistent with December 31, 2024, and within board policy limits249 Price Risk This section describes the company's exposure to price risk from adverse movements in the fair values of financial instruments - Price risk is the risk of loss from adverse movements in the fair values of financial instruments, including investment securities, derivative instruments, and equity investments250 Item 3. Quantitative and Qualitative Disclosures about Market Risk This section refers to the market risk disclosures provided in Item 2, 'Management's Discussion and Analysis of Financial Condition and Results of Operations – Quantitative and Qualitative Disclosures about Market Risk' - The quantitative and qualitative disclosures about market risk are incorporated by reference from Item 2 of this report251 Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of March 31, 2025, due to ongoing remediation of previously identified material weaknesses in internal controls over financial reporting. Despite this, the consolidated financial statements fairly present the company's financial condition, results of operations, and cash flows - The company's disclosure controls and procedures were deemed not effective as of March 31, 2025, due to un-remediated material weaknesses in internal controls over financial reporting254 - Despite the material weaknesses, management concluded that the consolidated financial statements in this Form 10-Q fairly present the company's financial condition, results of operations, and cash flows255 - No changes in internal control over financial reporting materially affected or are reasonably likely to materially affect the company's internal control over financial reporting during the quarter256 PART II. OTHER INFORMATION This part includes information on legal proceedings, risk factors, equity sales, other disclosures, and exhibits Item 1. Legal Proceedings The company is not a party to any material pending legal proceedings other than ordinary routine litigation incidental to its business. No other material losses are anticipated from these actions or claims - There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business258 - No other material losses are anticipated as a result of these actions or claims130 Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024260 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company had no unregistered sales of equity securities during the period. It repurchased 543 shares of common stock in February 2025 at an average price of $21.42 per share, primarily under employee stock purchase programs and for tax withholding obligations - No unregistered sales of equity securities occurred during the first quarter of 2025262 Issuer Purchases of Equity Securities (Q1 2025) | Period | Total number of shares purchased | Average price paid per share | | :--------------------------------- | :-------------------------- | :-------------------------- | | February 1 - 28, 2025 | 543 | $21.42 | | Total | 543 | $21.42 | - Shares repurchased were under the employee stock purchase program and for tax withholding obligations upon vesting of restricted stock awards264 Item 5. Other Information During the three months ended March 31, 2025, no director or officer of the company adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' - No director or officer adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during Q1 2025266 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications (Rule 13(a)-14(a) and 18 U.S.C. Section 1350), and financial information formatted in iXBRL - Includes CEO and CFO certifications required by Rule 13(a)-14(a) and 18 U.S.C. Section 1350269 - Financial information from the Quarterly Report on Form 10-Q is formatted in iXBRL269 SIGNATURES This section contains the official signatures of the company's President, Chief Executive Officer, and Chief Financial Officer, certifying the report - The report is duly signed on August 8, 2025, by Jeffrey G. Ludwig, President and Chief Executive Officer, and Eric T. Lemke, Chief Financial Officer274