10-K: Midland States Bancorp Reports $124M Loss, Strategic Portfolio Sales

Midland States Bancorp, Inc. reported a net loss of $124.3 million for the fiscal year ended December 31, 2025, driven by significant goodwill impairment and strategic non-core asset sales.

Summary

• A net loss of $124.3 million was reported for the year ended December 31, 2025, compared to net income of $38.0 million in 2024.
• Diluted loss per common share was $6.12 in 2025, a decrease from diluted earnings per common share of $1.32 in 2024.
• A goodwill impairment expense of $154.0 million was recognized in the first quarter of 2025.
• A $21.4 million loss was incurred on the sale of substantially all of the equipment finance portfolio during the fourth quarter of 2025.
• Net interest income slightly increased by $0.5 million to $236.8 million in 2025.
• The provision for credit losses decreased by $60.5 million to $59.8 million in 2025.
• Total assets decreased by $1.0 billion to $6.51 billion at December 31, 2025, from $7.51 billion at December 31, 2024.
• Total loans decreased by $815.6 million, or 15.8%, to $4.35 billion at December 31, 2025, primarily due to non-core portfolio sales.
• Nonperforming loans decreased to $65.5 million, or 1.50% of total loans, at December 31, 2025, from $150.9 million, or 2.92%, at December 31, 2024.
• The allowance for credit losses on loans decreased to $69.2 million, or 1.59% of total loans, at December 31, 2025, from $111.2 million, or 2.15%, at December 31, 2024.
• Total deposits decreased by $772.9 million to $5.42 billion at December 31, 2025.
• Shareholders' equity decreased by $145.3 million to $565.5 million at December 31, 2025.
• The board of directors authorized a new $25.0 million share repurchase program through November 2, 2026, with $9.6 million repurchased by December 31, 2025.
• Subordinated notes totaling $50.8 million with an interest rate of 7.91% were redeemed on September 30, 2025.
• Internal control over financial reporting was deemed effective as of December 31, 2025, following the remediation of previously identified material weaknesses.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a challenging year marked by significant non-cash goodwill impairment and losses from strategic portfolio divestitures, leading to a net loss. While credit quality metrics improved and internal controls were remediated, the overall financial performance was negative, reflecting a period of restructuring and de-risking.

Positives

• Net interest income slightly increased by $0.5 million in 2025, indicating some stability in core lending operations.
• The provision for credit losses significantly decreased by $60.5 million in 2025, reflecting improved credit risk outlook or successful resolution of problematic assets.
• Nonperforming loans decreased by over 50% to $65.5 million (1.50% of total loans) at December 31, 2025, from $150.9 million (2.92%) at December 31, 2024, indicating a substantial improvement in asset quality.
• The allowance for credit losses to nonperforming loans improved to 105.71% at December 31, 2025, from 73.69% at December 31, 2024, demonstrating stronger coverage for potential loan losses.
• Wealth management revenue increased by $2.3 million, or 8.09%, in 2025, driven by growth in assets under management to $4.48 billion.
• Residential mortgage banking revenue increased by $0.4 million, or 18.2%, in 2025.
• The Company maintained its 'well capitalized' status, exceeding all regulatory minimums at December 31, 2025.
• Previously identified material weaknesses in internal control over financial reporting were remediated, and controls were deemed effective as of December 31, 2025, enhancing financial reporting reliability.
• Strategic sales of non-core consumer loan portfolios (LendingPoint, GreenSky) and the equipment finance portfolio were completed, reducing exposure to higher-risk assets.
• The community bank loan portfolio experienced growth, increasing by $150.3 million, or 4.7%, in 2025.

Negatives

• Reported a net loss of $124.3 million for the year ended December 31, 2025, a significant reversal from net income in the prior year.
• Recognized a substantial non-cash goodwill impairment expense of $154.0 million in the first quarter of 2025.
• Incurred a $21.4 million loss on the sale of substantially all of the equipment finance portfolio in the fourth quarter of 2025.
• Total assets decreased by $1.0 billion to $6.51 billion at December 31, 2025.
• Total loans decreased by $815.6 million, or 15.8%, primarily due to the strategic sales of non-core portfolios.
• Total deposits decreased by $772.9 million in 2025, including a $433.7 million decrease in servicing deposits due to the loss of a customer.
• Credit enhancement income declined by $51.1 million in 2025 due to loan payoffs and the cessation of originations through the GreenSky and LendingPoint programs.
• Shareholders' equity decreased by $145.3 million to $565.5 million at December 31, 2025.
• Salaries and employee benefits expense increased by $10.8 million in 2025, including $3.2 million in severance expense.
• Professional services expense increased by $2.0 million in 2025, primarily due to increased audit and consulting fees related to prior years' financial statement restatements and evaluation of third-party lending arrangements.
• FDIC insurance expense increased by $2.8 million in 2025, including $1.7 million in additional assessments related to prior years' amended call reports due to restatements.

Risks

• A decline in general business and economic conditions, including interest rate fluctuations and real estate value declines, could have a material adverse effect on the business, financial position, results of operations, and growth prospects.
• Ineffective management of credit risk may lead to increased levels of nonperforming loans, charge-offs, and delinquencies, requiring further increases in the provision for credit losses.
• A significant portion of the loan portfolio (approximately 68.4% at December 31, 2025) is secured by real estate, making it vulnerable to adverse developments in real estate values and environmental issues.
• Challenges in growing the business, particularly through organic loan growth, in mature, rural market areas.
• Commercial loans, representing 87.5% of the total loan portfolio, are larger and involve greater risks, with repayment often dependent on the successful operation or development of the underlying business or property.
• Lending to small to mid-sized businesses, which generally have fewer financial resources and are more vulnerable to economic downturns, may impair a borrower's ability to repay a loan.
• Real estate construction loans involve additional risks due to uncertain project values prior to completion and potential for costs to exceed realizable values in declining markets.
• Real estate market volatility and future changes in disposition strategies could result in net proceeds from other real estate owned (OREO) sales differing significantly from appraisals, potentially leading to additional losses.
• Nonperforming assets require significant time to resolve and adversely affect net income, increase loan administration costs, and impact the efficiency ratio.
• The occurrence of fraudulent activity, breaches or failures of information security controls, or cybersecurity-related incidents could lead to financial losses, data misuse, litigation, or damage to reputation.
• Heavy dependence on information technology and telecommunications systems of third parties, with potential for system failures, interruptions, or data breaches adversely affecting operations.
• Operational risks, including customer or employee fraud and data processing system failures and errors, could lead to financial losses or regulatory sanctions.
• Any future acquisitions could expose the Company to financial, execution, and operational risks, including integration challenges, unknown liabilities, and the need for substantial capital.
• High dependence on the management team, with the loss of senior executive officers or other key employees potentially harming the ability to implement strategic plans and maintain customer relationships.
• Potential liability to purchasers of mortgage loans and mortgage servicing rights due to breaches of representations and warranties.
• The ability to maintain reputation is critical, and negative impacts could materially adversely affect the business and stock value.
• A continuing need for technological change, with risks of ineffective implementation or competitive disadvantage against larger competitors.
• Strong competition from various financial services companies, including online businesses and FinTech companies, could reduce loans, deposits, and profitability.
• The increasing use of non-banks for financial transactions could result in the loss of fee income and customer deposits.
• The development of the Banking-as-a-Service (BaaS) platform may expose the Company to liability for compliance violations by BaaS partners or fall short of its targeted financial impact.
• Failure to design, implement, and maintain effective internal control over financial reporting could lead to inaccurate financial results or future restatements.
• Risk of future impairment charges to goodwill, which would negatively impact financial condition and results of operations.
• The risk management framework may not be effective in mitigating all types of risks and/or losses.
• Involvement in suits, legal proceedings, information-gathering requests, investigations, and proceedings by governmental and self-regulatory agencies, potentially leading to adverse consequences, especially related to prior financial statement restatements and LendingPoint's system conversion.
• Legislative and regulatory actions, including changes in banking, consumer protection, securities, and tax laws, may increase costs and impact the business.
• Failure to comply with stringent capital requirements may impact dividend payments and limit activities.
• Adverse examination findings from federal and state regulators could lead to remedial actions, restrictions, or penalties.
• Risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
• The Federal Reserve may require the Company to commit capital resources to support the Bank as a source of financial strength.
• Failure to comply with consumer protection laws, including the Community Reinvestment Act and fair lending laws, could lead to a wide variety of sanctions.
• Monetary policies and regulations of the Federal Reserve could adversely affect the business, financial condition, and results of operations.
• Fluctuations in interest rates may reduce net interest income and otherwise negatively impact financial condition and results of operations.
• Potential for losses on securities held in the investment portfolio, particularly if interest rates continue to increase or economic and market conditions deteriorate.
• Mortgage banking revenue could be adversely impacted by an elevated interest rate environment.
• Liquidity risks, including an inability to raise funds through deposits, borrowings, or asset sales, could affect operations and jeopardize the business.
• The need to raise additional capital in the future, with dependence on capital markets and economic conditions.
• The soundness of other financial institutions could adversely affect the Company's ability to engage in routine funding transactions and its perceived strength.

Future Outlook

The Federal Open Market Committee (FOMC) has upgraded its assessment of the economy, noting solid activity, resilient consumer spending, and growing business investment, with signs of labor market stabilization despite elevated inflation. The Federal Reserve is adopting a more patient stance after recent rate cuts. The Company anticipates that a revised Basel III Endgame Proposal will primarily affect larger banking organizations. The development of the Banking-as-a-Service (BaaS) platform is expected to contribute to future loan production, deposit gathering, and fee income. The Company estimates $1.9 million in losses will be reclassified into pretax earnings from cash flow hedges over the next 12 months.

Management Comments

• Our strategic plan focuses on delivering a superior customer experience through a high-tech, high-touch approach, while remaining committed to core community banking and relationship-driven growth.
• We continue to enhance our regional franchise approach that serves our core customers with a consistent, high-performance culture rooted in our One Midland values and with a strong foundation in Enterprise Risk Management.
• Management considers its employee relations to be good. We believe our ability to attract and retain skilled employees is a key to our success.
• We intend to be very selective in our approach to developing BaaS partnerships to ensure that any partners that are added meet our high standards for risk management.
• Management believes it is more likely than not that we will realize the benefits of these deductible differences [remaining deferred tax assets].
• Management believed at December 31, 2025, that these limitations [on Bank dividends to Parent] will not impact our ability to meet our ongoing short-term cash obligations.
• Management asserts that the Company maintained effective internal control over financial reporting as of December 31, 2025 due to the remediation of the material weaknesses previously disclosed.

Industry Context

StockSavvy.ai notes that the banking industry is undergoing rapid technological changes, with increasing competition from online businesses and FinTech companies, which Midland States Bancorp is addressing through its BaaS platform development. The broader economic environment, characterized by Federal Reserve interest rate policies and inflation trends, significantly impacts net interest income and loan demand for regional banks like Midland. The regulatory landscape continues to evolve, with efforts to reduce burden on community banks, but also increased scrutiny on areas like cybersecurity and credit concentrations. The company's strategic shift away from non-core, higher-risk loan portfolios aligns with a broader industry trend towards de-risking and focusing on core competencies in a volatile economic climate.

Comparison to Industry Standards

• The company's strategic shift away from non-core consumer lending (GreenSky, LendingPoint) and equipment finance aligns with a broader industry trend where regional banks are de-risking and focusing on traditional banking activities, especially after recent market volatility.
• The improvement in the allowance for credit losses to nonperforming loans ratio (105.71% in 2025 vs. 73.69% in 2024) indicates a stronger coverage of potential loan losses compared to prior periods, which is a positive signal for credit quality management.
• The decrease in nonperforming loans to 1.50% of total loans in 2025 from 2.92% in 2024 suggests a more robust credit quality profile, potentially outperforming some peers who might still be grappling with legacy nonperforming assets.
• The company's 'well capitalized' status, exceeding all regulatory minimums, positions it favorably against industry benchmarks, especially in an environment where some financial institutions face heightened capital scrutiny.

Corporate Governance

Legal Proceedings

• No material pending legal proceedings, other than ordinary routine litigation incidental to the business, are anticipated to result in material losses.
• The Company faces an elevated risk of legal proceedings in connection with the matters leading to the restatement of prior years' financial statements and in connection with LendingPoint's 2023 system conversion and any potential effects on certain loans.

Related Party Transactions

• Loans were extended to certain directors, executive officers, principal shareholders, and their affiliates in the ordinary course of business upon substantially the same terms as comparable transactions with non-insiders, including collateralization and interest rates prevailing at the time.
• The Bank has $22.0 million of borrowings from the parent company (Midland States Bancorp, Inc.) as part of its strategy to manage FDIC insurance premiums. This note has a rolling 13-month maturity and a variable interest rate equal to the one-year treasury rate.

Stakeholder Impact

• Shareholders experienced a net loss and a decrease in shareholders' equity, although a new share repurchase program was authorized, and common dividends were paid.
• Employees saw an increase in salaries and benefits, including severance expenses, indicating workforce adjustments, while also benefiting from continued investment in skill development and leadership programs.
• Customers in non-core loan segments (GreenSky, LendingPoint, equipment finance) were impacted by the strategic sales of these portfolios, while the Company continues to focus on a 'high-tech, high-touch' community banking approach.
• Creditors benefit from the redemption of subordinated notes and the Company's continued 'well capitalized' status, which provides financial stability.
• Regulators will view the remediation of internal control weaknesses and ongoing compliance with capital requirements positively, potentially reducing future scrutiny.

Next Steps

• Continue to enhance the regional franchise approach and focus on core community banking and relationship-driven growth.
• Further develop the Banking-as-a-Service (BaaS) platform, being selective in partnerships to ensure high standards for risk management.
• Monitor and manage interest rate risk through investment, funding, and hedging activities.
• Continue to evaluate economic conditions in interim periods for potential goodwill impairment triggering events.
• The Company will update related disclosures upon adoption of FASB ASU No. 2024-03, effective for annual reporting periods beginning after December 15, 2026.

Key Dates

Recommendation

The company experienced a challenging year with a significant net loss primarily due to non-cash goodwill impairment and strategic divestitures of non-core loan portfolios. While these divestitures and the remediation of internal control weaknesses are positive steps towards de-risking and improving operational efficiency, the immediate financial results are poor. The reduction in nonperforming loans and improved ACL coverage are favorable, but the overall impact of the restructuring and the uncertain economic environment suggest a 'Hold' recommendation until there is clearer evidence of sustained profitability and successful execution of the refined strategic plan.

Keywords

Banking, Financial Services, Commercial Lending, Wealth Management, SEC Filing, 10-K, Regional Bank, Illinois, Missouri, Credit Risk, Interest Rates, Cybersecurity, Corporate Governance, Capital Management, Loan Portfolio, Deposits, Nonperforming Loans, Goodwill Impairment, Share Repurchase, Regulatory Compliance, FinTech, BaaS