Midland States Bancorp reports $54.8m Q4 loss amid strategic overhaul

Midland States Bancorp, Inc., a financial holding company based in Effingham, Illinois, reported a $54.8 million loss for the fourth quarter of 2024. This marked a dramatic shift from the $16.2 million profit reported during the same period the previous year. The announcement, which detailed the bank’s efforts to address credit quality issues and reposition its portfolio, caused its stock to plummet to a 52-week low of $19.75, closing the day at $20.42.

The quarterly results reflect Midland States Bancorp’s deliberate steps to exit non-core loan portfolios and focus on its core community banking operations. These strategic changes, while costly in the short term, aim to strengthen the bank’s long-term financial stability and growth trajectory.

What Led to Midland States Bancorp’s $54.8 Million Q4 Loss?

The significant loss can be attributed to Midland’s decision to sell its LendingPoint and Greensky consumer loan portfolios, which had been underperforming due to deteriorating credit quality issues. During the quarter, the company sold its $87.1 million LendingPoint portfolio, incurring $17.3 million in net charge-offs and provisions for credit losses. Additionally, Midland committed to selling its $371.7 million Greensky portfolio, resulting in $33.4 million in similar losses.

According to Jeffrey Ludwig, President and CEO of Midland States Bancorp, these actions were necessary to realign the company’s focus on community-based banking. Ludwig stated, “Exiting non-core consumer portfolios and addressing deteriorating credits will better position us to grow our core community banking business. Improving credit quality is our number one priority.”

How Has Midland States Bancorp’s Loan Portfolio Changed?

Midland’s loan portfolio underwent significant reductions during the quarter. Total loans declined 10% sequentially to $5.17 billion, primarily due to the sale of consumer loans. The company’s equipment finance division also saw elevated losses, particularly in the trucking sector, which led to $15.3 million in charge-offs.

The company’s Specialty Finance Group, which manages bridge loans for commercial real estate, experienced similar challenges. A strategic review of the portfolio resulted in updated appraisals and the classification of five loans, totaling $57.8 million, as non-performing. This move contributed to $18.8 million in charge-offs.

In addition to portfolio reductions, Midland tightened its credit standards, choosing to cease new construction loans in the Specialty Finance Group. The bank emphasized its intent to focus on strengthening credit administration and risk management practices moving forward.

What Is the Impact of These Strategic Moves on Midland’s Deposits and Revenues?

Total deposits for the quarter decreased slightly to $6.2 billion, reflecting a modest 1% decline from the previous quarter. Despite the reductions in loans and deposits, the bank reported some positive developments in its operational metrics. Midland’s net interest margin (NIM) improved to 3.19%, up from 3.10% in the prior quarter, supported by declining funding costs.

Additionally, wealth management emerged as a strong performer for Midland States Bancorp. Revenue from this segment grew to $7.7 million, up from $7.1 million in the third quarter. Assets under administration totaled $4.15 billion, demonstrating the bank’s strength in this division.

How Will Midland States Bancorp Reposition for Growth in 2025?

Looking ahead, Midland States Bancorp is implementing measures to stabilize its operations and build a foundation for sustainable growth. Ludwig emphasized that the actions taken in the fourth quarter—though painful—were necessary to mitigate credit risk and improve financial performance in 2025.

Key areas of focus for the coming year include:

• Enhancing core community banking operations: The company aims to deepen its presence in local markets, focusing on commercial loan opportunities rather than high-risk consumer lending.
• Investing in technology and talent: Midland plans to upgrade its technology infrastructure and enhance marketing efforts to attract new clients.
• Maintaining capital strength: As of December 31, 2024, Midland States Bancorp’s common equity tier 1 capital ratio stood at 8.37%, meeting regulatory requirements.

Despite these challenges, Ludwig highlighted positive trends in client acquisition across its community banking and wealth management divisions. “With the actions we’ve taken, we are confident in our ability to deliver strong financial performance in 2025,” Ludwig stated.

Expert Insights on Midland States Bancorp’s Strategic Shift

Financial analysts have noted that Midland’s decision to exit non-core loan portfolios reflects broader trends in the banking industry, where institutions are reevaluating risk exposure amid economic uncertainties. By focusing on core community banking, Midland aligns itself with a more stable revenue base, despite short-term setbacks.

However, analysts also warn that the bank’s reliance on its wealth management division and commercial loan growth will require careful execution to offset the revenue lost from portfolio reductions.

Midland States Bancorp’s $54.8 million fourth-quarter loss underscores the challenges of implementing a large-scale strategic overhaul. The company’s decision to exit non-core loan portfolios and focus on credit quality improvement represents a critical shift aimed at long-term stability. While the short-term financial impact has been significant, the bank’s leadership remains optimistic about its prospects in 2025 and beyond.

As Midland States Bancorp recalibrates its approach, its ability to execute on key initiatives will determine its success in regaining investor confidence and improving profitability.