Midland States Bancorp, Inc. (NASDAQ:MSBI) is a diversified financial holding company headquartered in Effingham, Illinois. With a rich history spanning over four decades, the company has steadily evolved, adapting to the changing financial landscape and positioning itself as a trusted community banking institution. Through its wholly-owned subsidiary, Midland States Bank, the company offers a comprehensive range of commercial and consumer banking products and services, wealth management solutions, and specialized financial services across Illinois and Missouri.
Business Overview and History Midland States Bancorp was founded in 1988 as a community bank, dedicated to serving the financial needs of its local clientele. Over the years, the company has strategically expanded its footprint, both organically and through strategic acquisitions, to become a significant player in the Midwest banking industry. A key milestone in the company’s growth was the acquisition of Heartland Bank in 2013, which significantly expanded Midland States’ geographic footprint and product offerings.
During the 2008 financial crisis, Midland States demonstrated its resilience by maintaining a conservative lending approach and prudent risk management practices, allowing it to weather the economic storm effectively. In the 2010s, the company strategically diversified its business model by expanding into wealth management, mortgage banking, and equipment financing. These moves helped reduce reliance on traditional lending and generate more fee-based income.
A significant development in Midland States’ recent history was the acquisition of GreenSky, LLC in 2020. This strategic move strengthened the company’s fintech capabilities and positioned it to capitalize on the growing demand for digital banking solutions. Throughout its journey, Midland States has remained committed to its community banking roots, providing personalized service and tailored financial solutions to individuals and businesses in its core markets.
The company has also demonstrated a strong focus on corporate social responsibility, supporting local communities through charitable initiatives and community development programs. This commitment to community engagement has helped Midland States build strong relationships with its customers and maintain its position as a trusted financial partner in the regions it serves.
Financial Performance and Ratios Midland States Bancorp has demonstrated a solid financial performance over the years. As of the latest reporting period, the company had total assets of $7.75 billion, a testament to its steady growth and expansion. The company’s net income for the trailing twelve months stood at $39.10 million, with a net profit margin of 12.24%. Midland States Bancorp’s return on assets (ROA) and return on equity (ROE) for the same period were 0.67% and 6.62%, respectively, indicating efficient capital deployment and asset utilization.
For the fiscal year 2023, Midland States Bancorp reported revenue of $298.40 million, net income of $75.46 million, operating cash flow of $154.64 million, and free cash flow of $145.91 million. In the most recent quarter (Q3 2024), the company reported revenue of $72,354,000, net income of $18,476,000, operating cash flow of $46,677,000, and free cash flow of $48,755,000. However, it’s important to note that revenue decreased 6.3% year-over-year, primarily due to a decrease in net interest income as a result of higher funding costs. Net income decreased 77.1% year-over-year, primarily due to higher provision for credit losses.
Liquidity The company’s liquidity position remains strong, with a current ratio of 1.10 and a quick ratio of 1.10, reflecting its ability to meet short-term obligations. Midland States Bancorp’s debt-to-equity ratio of 0.70 suggests a conservative capital structure, providing the flexibility to capitalize on future growth opportunities. As of Q3 2024, the company had cash and cash equivalents of $121.87 million. Additionally, Midland States Bancorp has a $500 million revolving credit facility, of which $433 million was available as of Q3 2024, further bolstering its liquidity position.
Quarterly Performance and Outlook In the most recent quarter, Midland States Bancorp reported net income available to common shareholders of $16.25 million, or $0.74 per diluted share. This represents a notable increase compared to the $9.17 million, or $0.41 per diluted share, reported in the same quarter of the previous year. The company’s net interest margin for the quarter stood at 3.10%, a slight decrease from the prior quarter’s 3.12%.
The company’s management has provided a cautiously optimistic outlook, highlighting the ongoing challenges posed by the evolving interest rate environment and the need for continued prudent risk management. Midland States Bancorp remains focused on organic growth, strategic acquisitions, and the diversification of its revenue streams to navigate the ever-changing financial landscape.
Key Risks and Considerations While Midland States Bancorp has demonstrated resilience, the company is not without its challenges. The highly competitive nature of the banking industry, regulatory changes, and the potential for economic downturns could pose risks to the company’s future performance. Additionally, the company’s reliance on its wealth management and equipment financing businesses exposes it to market volatility and industry-specific risks.
Furthermore, the recent system conversion issues experienced by one of Midland States Bancorp’s FinTech partners, LendingPoint, have resulted in credit deterioration and servicing-related deficiencies, leading to increased provision for credit losses. The company’s management has taken immediate action to address these concerns, including changing underwriting criteria, ceasing certain lending activities, and exploring options to resolve the specific credits impacted.
Product Segments and Offerings Midland States Bancorp operates through three main segments: Banking, Wealth Management, and Corporate.
The Banking segment provides a wide range of financial products and services to consumers and businesses. This includes commercial, commercial real estate, mortgage and other consumer loan products, commercial equipment financing, mortgage loan sales and servicing, letters of credit, various deposit products (including checking, savings, and time deposit accounts), merchant services, and corporate treasury management services.
Within the commercial loan portfolio, the company offers commercial loans, commercial real estate loans, construction and land development loans, and lease financing. The commercial real estate loan portfolio includes non-owner occupied properties such as office buildings, hotels, retail centers, and multifamily properties, as well as owner-occupied commercial properties. The construction and land development loan category includes loans for residential construction, commercial construction, and land acquisition and development.
The residential real estate loan portfolio consists of residential first lien mortgages and other residential loans that generally do not qualify for secondary market sale. The consumer loan segment includes direct personal loans, indirect automobile loans, lines of credit, and installment loans originated through home improvement retailers and contractors.
The Wealth Management segment provides trust and fiduciary services, brokerage and retirement planning services. The company generates fees from the management and administration of trusts and other customer assets, as well as investment advisory fees through its SEC registered investment advisory subsidiary.
The Corporate segment includes the holding company financing and investment activities, administrative expenses, as well as the elimination of intercompany transactions. It previously included the company’s captive insurance business unit, which was dissolved as of December 31, 2023.
Industry Trends The banking industry has seen a compound annual growth rate (CAGR) of around 4-5% in recent years, driven by factors such as rising interest rates and loan growth. Midland States Bancorp operates primarily in the Midwestern United States, with a presence in Illinois and Missouri, positioning itself to capitalize on regional economic trends and growth opportunities.
Conclusion Midland States Bancorp has carved out a strong position in the Midwest banking landscape, leveraging its diversified business model, prudent risk management, and commitment to serving its local communities. Despite the challenges posed by the evolving financial environment, the company has demonstrated the ability to adapt and maintain a solid financial footing. As Midland States Bancorp continues to navigate the road ahead, investors will be closely watching the company’s ability to capitalize on growth opportunities, manage risks effectively, and deliver sustainable value to its shareholders.
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