Midland States Bancorp : 2024 Annual Report

Published: 2025-07-08 13:47:06 ET MSBI

Published on 07/08/2025 at 13:47

Letter to Shareholders 1

Financial Highlights 6

Summary Financial Information 7

Management Team ............................ 15

The Company's 2024 Annual Report to Shareholders is available on the Company's website, and printe d copies are av ailable by request. Ple ase contact Ms. Dacia Albin, Assistant Se cretary of t he Company, at 217-342-7321 or [email protected] for more information.

Letter to Shareholders

Dear Shareholders:

We faced a challenging year in 2024, and I want to address what happened and how we responded. Late in the year, we faced credit issues that required close attention and swift action. Separately, we identified technical accounting matters related to certain loan portfolios with credit enhancements, which led to a restatement of our financial statements. That restatement delayed our 10-K filing by more than four months and demanded an extraordinary effort from our Finance team-I want to thank them for their hard work and dedication throughout the process.

Credit Issues

During the fourth quarter of 2024, we took several actions to address our credit quality issues and exit non-core consumer loan portfolios. These credit quality issues primarily affected three of our lines of business: non-core consumer loans, Specialty Finance Group, and Midland Equipment Finance.

First, after identifying these issues we decided to accelerate the reduction of our non-core consumer loan portfolio through sales. These loans were originated by our fintech partners, LendingPoint and Greensky. In December 2024, we sold our $87.1 million LendingPoint portfolio, recognizing net charge-offs of $17.3 million on the sale. We also committed to a plan to sell $317.5 million of our Greensky consumer loan portfolio and recognized net charge-offs of $35.0 million when these loans were transferred to held for sale in the fourth quarter. We completed the sale of participation interests for most of the Greensky portfolio in April 2025.

Second, we completed a strategic review of our Specialty Finance Group portfolio, which provides bridge loan financing for commercial real estate projects, primarily multi-family and healthcare. These projects can include construction and often require short-term financing in anticipation of obtaining permanent secondary market financing. The loans are typically outside of the Company's primary market areas. We obtained updated appraisals on loans that had shown elevated credit risk in the third and fourth quarters. As a result of this review, five loans with balances of $57.8 million were moved from substandard to non-performing with recognized charge-offs of $6.6 million. In addition, updated appraisals were obtained for five non-performing loans with balances of $55.8 million which resulted in charge-offs of $18.8 million. In addition, we recognized an impairment expense on an OREO property related to a former assisted living loan of $3.6 million.

We also closely evaluated all criticized loans, construction loans, and credits that failed our internal stress tests- across all portfolios, including the Community Bank. We have since taken proactive steps to strengthen our credit risk profile, including tightening underwriting standards and ceasing new construction lending in our Specialty Finance Group. These changes, combined with new talent we have added to our credit team, are already having a positive impact on our credit culture-something I will expand on later in this letter.

Finally, we also experienced elevated charge-offs in our Midland Equipment Finance portfolio during 2024, primarily driven by continued stress in the trucking industry. In the fourth quarter alone, charge-offs totaled

$15.3 million, as we reassessed equipment values tied to nonaccrual assets. Given further deterioration in the sector, we evaluated the collateral salvage values of loans and leases, along with the carrying value of repossessed and off-lease equipment, resulting in a $7.9 million impairment expense. In response, we have taken decisive action-tightening credit standards, ceasing originations to the trucking sector, and actively reducing the overall size of the equipment finance portfolio.

Improving credit quality and evolving our credit culture is a top priority. A key part of that effort is adding experienced talent to our Credit team. In July 2024, we welcomed Jeremy Jameson as our new

yield on the portfolio. In April 2025, we determined that these payments should be accounted for separately or on a gross basis. While the change in accounting methodology had an impact to previously reported net income, most of the loan balances impacted by the change have been sold and moved off our balance sheet through the sale of our Greensky and LendingPoint portfolios discussed above. Going forward, we will utilize the new accounting on any third-party originated loans, which are expected to represent a smaller portion of total loans in the future. When the new accounting methodology is used, however, loan yields and interest income will be recognized at the gross borrower loan rate, while credit losses and provisions will be recorded on a gross basis. Credit enhancement payments will be accounted for separately as a credit indemnification derivative.

The effect of the restatement related to third-party loan programs had a significant positive impact on our 2024 earnings as compared to the initial results reported in late January, changing from a net loss of $13.4 million to

Chief Credit Officer, and he has already made a meaningful impact in his first year. To further support this transformation, we

Cheif Credit Officer Midland States Bank

net income of $38.0 million. However, the restatement required that losses initially recorded in the fourth quarter and disclosed in our January earnings release be recorded in the year that the loans were originated, thus moving the

brought on two Regional Credit Officers-Fritz Gebhard and David Quagliana-and Emmett Reidner as Director of Credit Projects. We have also implemented a regional credit strategy and made important enhancements to our underwriting process. Jeremy and the team are driving real progress, and I have full confidence in their leadership and the changes underway.

Restatement

The restatement related to our accounting for loans originated through third-party loan origination programs dating back to 2012. Under these programs, the third-party provider offered various credit enhancements- such as reserve account contributions, yield maintenance, and other payments-to support loan performance. Historically, we accounted for borrower payments and credit enhancement payments on a net basis, recognizing them together as interest income representing the effective

fourth quarter 2024 loss to prior periods. Although the restatement had significant effects on net income in 2024 and 2023 and various income statement line items, the net impact to our retained earnings at December 31, 2024 was limited to a $5 million reduction.

Despite the challenges we faced during 2024, the fundamentals of the Company remain strong. We finished the year with a total risk-based capital ratio of 13.07%, compared to 12.37% in 2023, reflecting our continued well-capitalized position. Additionally, our net interest margin expanded to 3.35%, demonstrating our disciplined balance sheet management. Wealth management revenue increased to $28.7 million, driven in part by new client additions.

We were also successful in adding significant talent throughout the Company in 2024. Our Community

Bank team welcomed Tom Lally as Regional President and Meg Fisher as Market President in St. Louis while also adding Andy Patel as Regional President in Northern Illinois. We added Tom Ormseth as Chief Deposit Officer as well as numerous other hires to key roles to add depth

Tom Lally Meg Fisher

Andy Patel Tom Ormseth

throughout our Community Bank. We also hired several new wealth advisors to enhance the reach and service capabilities of our Wealth Management group. These hires represent a significant investment in strengthening our team, who together are well-suited to generate revenue for the Company in 2025 and beyond.

The results below reflect our restated financials.

In 2024, our adjusted pre-tax, pre-provision earnings were $167.2 million, compared to $178.1 million for 2023. Adjusted earnings available to common shareholders was $29.1 million, or $1.32 per fully diluted share in 2024 compared to adjusted earnings of

$62.3 million, or $2.78 per fully diluted share in 2023. Adjusted earnings for 2024 compared to 2023 decreased primarily due to a $12.5 million decrease in net interest income, and a $37.8 million increase in provision for credit losses.

Tangible book value per share on December 31, 2024 was $19.83, a 0.2% increase from $19.79 a share in 2023.

We continued our tradition of paying dividends, and when taking share repurchases and common share dividends paid in 2024 together, we distributed $32.5 million to our common shareholders while also distributing $8.9 million of dividends to preferred shareholders.

Disclaimer

Midland States Bancorp Inc. published this content on July 08, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on July 08, 2025 at 17:46 UTC.