8-K: Midland States Bancorp Announces Preliminary First Quarter 2025 Results Amid Accounting Review

Midland States Bancorp reports preliminary Q1 2025 results, including net income of $12.6 million, while addressing delays in filing its 2024 Annual Report due to an ongoing evaluation of third-party lending arrangements.

Summary

• Midland States Bancorp, Inc. announced preliminary financial results for the first quarter of 2025.
• Net income available to common shareholders was $12.6 million, or $0.57 per diluted share.
• Pre-tax, pre-provision earnings were $27.0 million, or $1.12 per diluted share.
• The company is still completing its evaluation of accounting and financial reporting of third-party lending and servicing arrangements, which has delayed the filing of its 2024 Annual Report.
• The sale of $330 million of GreenSky loans in April 2025 is expected to reduce exposure to higher-risk portfolios.
• The net interest margin was strong at 3.48%.
• Total loans were $5.02 billion, a decrease of $149.5 million from December 31, 2024.
• Total deposits were $5.94 billion, a decrease of $260.8 million from December 31, 2024.
• Wealth Management revenue totaled $7.4 million.
• The company expects noninterest income of approximately $17.0 million to $17.5 million in the near term quarters.
• The company expects the near term operating expense run rate to be approximately $48.0 million to $49.0 million.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While the company reports positive underlying profitability trends and a strong net interest margin, the delay in filing the 2024 Annual Report and the decrease in total loans and deposits raise concerns.

Positives

• The company reported a solid net interest margin of 3.48%.
• Wealth Management revenue contributed $7.4 million in the first quarter.
• The company closed its sale of participation interests of consumer loans originated through the GreenSky program for $330 million.
• Noninterest-bearing deposits increased $35.1 million in the quarter.
• Retail deposits increased by $96.8 million through a growth and marketing strategy.

Negatives

• The company is delaying the filing of its 2024 Annual Report due to an ongoing evaluation of third-party lending arrangements.
• Total loans decreased by $149.5 million from December 31, 2024.
• Total deposits decreased by $260.8 million from December 31, 2024.
• Net charge-offs were $16.9 million for the quarter.
• Noninterest expense was $48.9 million for the first quarter of 2025 and was impacted by an additional $1.4 million in severance expense and $0.7 million in professional fees.

Risks

• The company's actual results may differ materially from these preliminary financial results.
• The company is completing an evaluation of whether there is an impairment to its goodwill.
• The delay in filing the 2024 Annual Report could have negative consequences.
• The company continues to experience higher levels of legal fees and other expenses related to loan collections.
• The company is exposed to risks related to changes in interest rates and other general economic, business and political conditions.

Future Outlook

The company expects stronger profitability over the balance of 2025 with growing capital ratios, noninterest income of approximately $17.0 million to $17.5 million in the near term quarters, and the near term operating expense run rate to be approximately $48.0 million to $49.0 million.

Management Comments

• We are working diligently to resolve the delay in our audited financials, although we want to emphasize that we do not expect a material impact to first quarter tangible equity or regulatory capital levels.
• Our unaudited preliminary first quarter results already reflect the previously disclosed accounting methodology changes, for a small third party guaranteed loan portfolio.
• Improving credit quality remains a strategic priority.
• The previously disclosed sale of $330 million of GreenSky loans in April 2025, plus tighter underwriting standards in our equipment finance portfolio are expected to significantly reduce exposure to higher-risk portfolios over the balance of 2025.
• Our underlying profitability trends were favorable in the first quarter, with a strong net interest margin of 3.48%, solid loan growth in the Community Bank, and continued contribution from our wealth management revenue platform.

Industry Context

The announcement comes at a time when banks are under increased scrutiny regarding their loan portfolios and accounting practices, particularly concerning third-party lending arrangements. The company's focus on improving credit quality and reducing exposure to higher-risk portfolios aligns with broader industry trends aimed at mitigating risk and enhancing financial stability.

Comparison to Industry Standards

• Comparing Midland States Bancorp's net interest margin of 3.48% to peers such as First Midwest Bancorp (now part of Old National Bancorp) and Wintrust Financial Corporation, it appears competitive, though specific comparisons would require a deeper dive into asset mix and funding costs.
• The efficiency ratio of 64.24% is within a reasonable range for a community bank, but could be improved compared to more efficient operators like U.S. Bancorp, which often targets efficiency ratios below 60%.
• The tangible common equity to tangible assets ratio of 6.32% is a key metric for assessing capital strength; comparing this to regional banks like Huntington Bancshares or KeyCorp would provide a better sense of Midland States' relative position.

Stakeholder Impact

• Shareholders may be concerned about the delay in filing the 2024 Annual Report and the potential impact on the company's stock price.
• Employees may be affected by the company's cost-cutting measures and the ongoing evaluation of its operations.
• Customers may be impacted by changes in the company's loan products and services.
• Suppliers and creditors may be affected by the company's financial performance and its ability to meet its obligations.

Next Steps

• The company will complete its evaluation of accounting and financial reporting of third-party lending and servicing arrangements.
• The company will file its Annual Report on Form 10-K for the year ended December 31, 2024.
• The company will continue to evaluate subsequent events that occur prior to the date the financial statements for the year ended December 31, 2024 are available to be issued.

Key Dates

Keywords

financial results, first quarter, Midland States Bancorp, preliminary results, GreenSky, net interest margin, loan portfolio, deposits, wealth management, noninterest income, noninterest expense, credit quality, annual report, accounting review