Midland States Bancorp, Inc. (NASDAQ:MSBIP) is a diversified financial holding company headquartered in Effingham, Illinois. The company's wholly owned banking subsidiary, Midland States Bank, has branches across Illinois and Missouri, providing a full range of commercial and consumer banking products and services, business equipment financing, merchant credit card services, trust and investment management services, and insurance and financial planning services.

Midland States Bancorp reported annual net income of $75.46 million in its latest fiscal year, with annual revenue of $470.45 million and annual operating cash flow of $114.74 million. The company's annual free cash flow stood at $57.41 million. In the latest quarter, the company generated net income of $13.88 million.

Business Overview

Midland States Bancorp's principal business activity has been lending to and accepting deposits from individuals, businesses, municipalities and other entities. The company has derived income principally from interest charged on loans and, to a lesser extent, from interest and dividends earned on investment securities. Midland States Bancorp has also derived income from noninterest sources, such as fees received in connection with various lending and deposit services; wealth management services; mortgage loan originations, sales and servicing; and, from time to time, gains on sales of assets.

The company's loan portfolio is diversified across commercial, commercial real estate, construction and land development, residential real estate, consumer, and lease financing segments. As of March 31, 2024, the company's total loan portfolio stood at $5.96 billion, with the commercial loan portfolio accounting for 31.4% of the total, commercial real estate at 40.2%, construction and land development at 8.0%, residential real estate at 6.4%, consumer at 14.0%, and lease financing at 7.7%.

Midland States Bancorp's wealth management business, which includes trust and fiduciary services, brokerage and retirement planning services, contributed $7.13 million in revenue during the latest quarter, up from $6.41 million in the same period a year ago. Assets under administration in the wealth management segment increased to $3.89 billion as of March 31, 2024, from $3.50 billion a year earlier, primarily due to an increase in market performance.

Financials

Midland States Bancorp's net interest income, on a tax-equivalent basis, decreased to $56.1 million in the first quarter of 2024, compared to $60.7 million in the same period of 2023. The tax-equivalent net interest margin decreased to 3.18% for the first quarter of 2024, compared to 3.39% for the first quarter of 2023. The decrease in net interest income and net interest margin was primarily due to the impact of increasing market interest rates.

The company's provision for credit losses on loans was $14.0 million for the first quarter of 2024, compared to $3.1 million for the same period in 2023. The increase in the provision was primarily due to a specific reserve of $8.0 million on one large construction and land development loan. Net charge-offs for the first quarter of 2024 totaled $4.4 million, compared to $2.1 million for the same period in 2023.

Noninterest income increased 34.3% to $21.19 million in the first quarter of 2024, compared to $15.78 million in the same period of 2023. The increase was primarily driven by a $0.9 million increase in income on company-owned life insurance, a $0.7 million increase in wealth management revenue, and a $2.7 million increase in other noninterest income, which included incremental servicing revenues related to the Greensky portfolio.

Noninterest expense increased 0.9% to $44.87 million in the first quarter of 2024, compared to $44.48 million in the same period of 2023. The increase was primarily due to a $0.4 million increase in data processing costs and a $0.5 million increase in professional services expenses, partially offset by a $0.3 million decrease in occupancy and equipment expenses and a $0.2 million decrease in amortization of intangible assets.

Financial Condition and Liquidity

As of March 31, 2024, Midland States Bancorp had total assets of $7.83 billion, compared to $7.87 billion as of December 31, 2023. The company's loan portfolio decreased by $172.6 million during the first quarter of 2024, primarily due to a $98.1 million decrease in consumer loans, partially offset by a $21.5 million increase in construction and land development loans.

The company's allowance for credit losses on loans was $78.1 million, or 1.31% of total loans, as of March 31, 2024, compared to $68.5 million, or 1.12% of total loans, as of December 31, 2023. The increase in the allowance was primarily due to the specific reserve of $8.0 million on the large construction and land development loan.

Midland States Bancorp's total deposits increased by $14.5 million to $6.32 billion as of March 31, 2024, compared to December 31, 2023. The increase was primarily driven by a $67.0 million increase in noninterest-bearing demand accounts and a $76.0 million increase in time deposits, partially offset by decreases in interest-bearing checking, money market, and savings account balances.

The company's short-term borrowings, consisting of federal funds purchased and securities sold under agreements to repurchase, increased to $214.4 million as of March 31, 2024, from $34.9 million as of December 31, 2023. FHLB advances and other borrowings decreased to $255.0 million as of March 31, 2024, from $476.0 million as of December 31, 2023, as the company utilized additional short-term liquidity resources and reduced its reliance on FHLB advances.

Midland States Bancorp's shareholders' equity decreased to $791.0 million as of March 31, 2024, from $791.9 million as of December 31, 2023, primarily due to the repurchase of $1.9 million in common stock and a $4.7 million increase in accumulated other comprehensive losses, partially offset by the generation of $13.9 million in net income.

Regulatory Capital and Liquidity

As of March 31, 2024, Midland States Bancorp and its banking subsidiary, Midland States Bank, exceeded the regulatory minimums and met the regulatory definition of well-capitalized. The company's total risk-based capital ratio was 13.68%, its tier 1 risk-based capital ratio was 11.16%, and its tier 1 leverage ratio was 9.92% at the holding company level.

Midland States Bancorp reported total estimated liquidity of $2.45 billion as of March 31, 2024, which included $167.3 million in cash and cash equivalents, $506.2 million in unpledged securities, $1.17 billion in FHLB committed liquidity, and $613.3 million in Federal Reserve Bank discount window availability.

Risks and Challenges

Midland States Bancorp operates in a highly competitive and regulated industry, which exposes the company to various risks, including interest rate risk, credit risk, operational risk, and regulatory risk. The company's performance is also susceptible to changes in economic conditions, which can impact loan demand, credit quality, and funding costs.

Outlook

The company has not provided any specific financial guidance for the current fiscal year. However, management has indicated that it will continue to focus on prudent risk management, diversifying its revenue streams, and maintaining a strong capital and liquidity position to navigate the current economic environment.

Conclusion

Midland States Bancorp is a well-diversified financial holding company with a strong presence in its core markets of Illinois and Missouri. The company has demonstrated steady growth in its wealth management business and has maintained a disciplined approach to credit risk management. While the company faces various industry-related risks, its diversified business model, solid capital position, and ample liquidity provide a solid foundation for continued performance. Investors should closely monitor the company's ability to navigate the evolving interest rate environment and manage credit quality as the economic landscape evolves.