Midland States Bancorp(US:MSBI)2025-11-06 21:04Loan Portfolio and Credit Quality - As of September 30, 2025, the outstanding loans in the third-party loan origination program were $56.5 million, down from $62.3 million as of December 31, 2024, representing a decrease of approximately 12.9%[171] - The Company recognized net charge-offs of $35.0 million when transferring the GreenSky consumer loan portfolio to held for sale[173] - The Company operated three significant programs for unsecured loans prior to March 31, 2025, but is now only operating one such program[169] - Total loans decreased by $300.0 million, or 5.8%, to $4.87 billion at September 30, 2025, compared to December 31, 2024[223] - The loan portfolio's commercial loans increased to $1.48 billion, representing 30.3% of total loans as of September 30, 2025, compared to $1.36 billion and 26.3% at December 31, 2024[222] - Commercial real estate loans accounted for 48.0% of total loans at $2.34 billion as of September 30, 2025, down from 50.1% at December 31, 2024[222] - The allowance for credit losses on loans was $100.9 million, or 2.07% of total loans, at September 30, 2025, down from $111.2 million, or 2.15%, at December 31, 2024[226] - The allowance allocated to commercial loans totaled $39.0 million, or 2.64% of total commercial loans, at September 30, 2025, compared to $42.8 million, or 3.15%, at December 31, 2024[230] - The allowance allocated to commercial real estate loans decreased to $26.8 million, or 1.15%, at September 30, 2025, from $36.8 million, or 1.42%, at December 31, 2024, with outstanding loan balances decreasing by $255.0 million, or 9.8%[231] - The allowance allocated to residential real estate loans totaled $6.4 million, or 1.81%, at September 30, 2025, down from $8.0 million, or 2.10%, at December 31, 2024[233] - The allowance allocated to consumer loans was $5.0 million, or 3.87%, at September 30, 2025, compared to $5.4 million, or 3.74%, at December 31, 2024[234] - Nonperforming loans decreased to $68.7 million, or 1.41% of total loans, at September 30, 2025, down from $150.9 million, or 2.92% of total loans, at December 31, 2024[240] - The provision for credit losses on loans totaled $20.5 million for Q3 2025, up from $17.9 million in Q3 2024, with a total of $48.2 million for the nine months ended September 30, 2025, compared to $46.1 million for the same period in 2024[203] - Total charge-offs for the three months ended September 30, 2025, were $16.0 million, a decrease from $23.0 million in the same period of 2024, representing a 30.4% reduction[237] - For the nine months ended September 30, 2025, total charge-offs increased to $67.4 million from $58.3 million in the prior year, marking a 15.7% increase[239] - The company continues to prioritize improving credit quality by tightening loan underwriting standards and resolving nonperforming loans[240] Financial Performance - For the three months ended September 30, 2025, the company reported net income of $7.6 million, a decrease from $20.4 million in the same period of 2024, resulting in diluted earnings per common share of $0.24 compared to $0.83[176] - During the nine months ended September 30, 2025, the company experienced a net loss of $121.4 million, or diluted loss per common share of $5.88, compared to net income of $68.8 million, or diluted earnings per common share of $2.81, in the same period of 2024[177] - Noninterest income decreased by $13.5 million in Q3 2025 and $42.1 million in the nine months ended September 30, 2025, compared to the same periods in 2024[177] - Noninterest expense increased significantly by $153.7 million in the nine months ended September 30, 2025, primarily due to a $154.0 million goodwill impairment recognized in Q1 2025[177] - The company’s return on average assets was 0.43% for Q3 2025, down from 1.05% in Q3 2024, and return on average shareholders' equity was 5.20%, down from 10.22%[176] - Wealth management revenue increased by $0.9 million for Q3 2025 and $1.7 million for the nine months ended September 30, 2025, with assets under administration rising to $4.36 billion from $4.27 billion year-over-year[205] - Salaries and employee benefits increased by $2.0 million for Q3 2025 and $7.1 million for the nine months ended September 30, 2025, primarily due to annual salary increases and severance expenses[210] Impairment and Goodwill - The Company recognized a goodwill impairment expense of $154.0 million in the first quarter of 2025 due to a quantitative impairment test indicating that the carrying amount exceeded the fair value of the Banking reporting unit[167] - The fair value of the Banking reporting unit exceeded its carrying amount by approximately 7% as of December 31, 2024, indicating no impairment loss at that time[163] - The discount rate used in the quantitative impairment test as of March 31, 2025, was 15.9%, an increase from 13.4% at December 31, 2024, due to a rise in the company-specific risk premium from 2.5% to 6.0%[167] - The company recognized a goodwill impairment expense of $154.0 million during Q1 2025, impacting the financial results significantly[213] Interest Income and Expense - Net interest income for Q3 2025 was $61.3 million, up from $59.3 million in Q3 2024, with a tax-equivalent net interest margin increasing to 3.79% from 3.34%[181] - For the nine months ended September 30, 2025, net interest income on a tax-equivalent basis was $178.8 million, with a net interest margin of 3.61%, compared to $178.4 million and 3.35% in the same period of 2024[182] - Interest income decreased by $10.5 million to $98.7 million for Q3 2025 compared to Q3 2024, primarily due to a decline in earning assets[192] - Average earning assets decreased to $6.41 billion in Q3 2025 from $7.07 billion in Q3 2024, with average loans decreasing by $835.7 million[193] - Interest expense decreased by $12.5 million to $37.4 million for Q3 2025 compared to Q3 2024, with the cost of interest-bearing liabilities decreasing to 2.84%[199] - Interest expense on deposits decreased by $11.8 million to $30.2 million for Q3 2025, primarily due to a decrease in rates paid on deposits[200] - For the nine months ended September 30, 2025, interest expense decreased by $26.2 million to $117.7 million compared to the same period in 2024[201] - The yield on earning assets decreased by three basis points to 6.11% from 6.14% in Q3 2025[192] Capital and Liquidity - Total assets decreased to $6.91 billion at September 30, 2025, down from $7.51 billion at December 31, 2024[216] - Total deposits decreased by $592.4 million to $5,604,825 thousand as of September 30, 2025, compared to December 31, 2024[254] - Shareholders' equity decreased by $126.8 million to $584.0 million, primarily due to a net loss of $121.4 million[257] - Total liabilities decreased to $6.33 billion from $6.80 billion at December 31, 2024[253] - The company redeemed $50.8 million of subordinated debt on September 30, 2025, which had an interest rate of 7.91%[254] - Total estimated liquidity as of September 30, 2025, was $2,393,973 thousand, down from $2,616,246 thousand at December 31, 2024[261] - The company had $1,048,227 thousand in FHLB committed liquidity as of September 30, 2025, compared to $1,290,246 thousand at December 31, 2024[261] - As of September 30, 2025, Midland States Bancorp, Inc. reported a total risk-based capital ratio of 14.29%, exceeding the regulatory requirement of 10.50%[263] - Midland States Bank's Tier 1 risk-based capital ratio stood at 12.08%, surpassing the minimum requirement of 8.50%[263] - The Common equity tier 1 risk-based capital ratio for Midland States Bancorp, Inc. was 9.37%, above the regulatory minimum of 7.00%[263] Interest Rate Risk Management - The NII at Risk analysis for September 30, 2025, indicated a dollar change of $1,204 for a +100 basis point shift in rates, reflecting a 0.5% increase[272] - For December 31, 2024, the NII at Risk showed a dollar change of $(2,727) for a +100 basis point shift, indicating a 1.2% decrease[272] - The company maintained compliance with board policy limits for all interest rate scenarios as of September 30, 2025[272] - Interest rate risk management involves monitoring loan and deposit flows, complemented by investment, funding, and hedging activities[267] - The company is positioned to benefit from a declining rate environment, projecting increasing profitability[273] - Price risk is present from investment securities, derivative instruments, and equity investments, which are subject to fair value accounting[274] - The company has adopted a strategy to lower short-term rates through deposit pricing and securities purchase selection[273]