Midland States Q2: NIM rises, NPLs fall but $154M goodwill hit drives YTD $129M loss

Midland States Bancorp, Inc. (NASDAQ: MSBI) - Quick operational snapshot

- Reporting period: Quarter ended June 30, 2025 (Form 10‑Q)

- Total assets: $7,107,878 thousand (June 30, 2025) vs $7,506,809 thousand (Dec 31, 2024)

- Total deposits: $5,946,919 thousand (June 30, 2025) vs $6,197,243 thousand (Dec 31, 2024)

- Loans (gross): $5,035,295 thousand (June 30, 2025) vs $5,167,574 thousand (Dec 31, 2024)

- Allowance for credit losses on loans: $92,690 thousand (1.84% of loans) vs $111,204 thousand (2.15%) at Dec 31, 2024

- Nonperforming loans: $80,112 thousand (1.59% of loans) vs $150,907 thousand (2.92%) at Dec 31, 2024

Income statement - headline numbers (periods shown are three months / six months ended June 30)

- Net interest income: $58,695k (Q2 2025) vs $58,895k (Q2 2024); YTD $116,985k vs $118,666k

- Net interest margin (tax-equivalent): 3.56% (Q2 2025) - up from 3.33% a year ago; YTD 3.52% vs 3.36%

- Provision for credit losses: $17,369k (Q2 2025) vs $8,282k (Q2 2024); YTD $28,219k (flat vs prior YTD)

- Noninterest income: $23,534k (Q2 2025) vs $31,984k (Q2 2024); YTD $41,297k vs $69,825k

- Noninterest expense: $49,992k (Q2 2025) vs $50,784k (Q2 2024); YTD $252,997k vs $99,392k (includes $153,977k goodwill impairment)

- Net income (loss): $12,024k (Q2 2025) vs $25,719k (Q2 2024); YTD loss $(128,950)k vs income $48,382k

- Diluted EPS: $0.44 (Q2 2025) vs $1.06 (Q2 2024); YTD $(6.13) vs $1.99

What's happening inside the company - key drivers

- Goodwill impairment: $153.977 million recorded in Q1 2025 related to the Banking reporting unit (non‑cash). Management cites deteriorated credit trends and stock price movement as triggers.

- Credit trends: Higher charge-offs and elevated provisions in Q2. Net charge-offs in Q2 2025 were $29.855 million; a large portion related to commercial real estate and equipment finance.

- Loan portfolio repositioning: Management continued to shrink non‑core consumer and equipment finance exposures (sales of LendingPoint and partial GreenSky portfolio in prior quarters). Loans declined ~2.6% since Dec 31, 2024.

- Liquidity and funding: Deposits down ~$250 million since Dec 31, 2024; FHLB borrowings increased to $345 million. Company reports estimated liquidity of ~$2.62 billion (including committed FHLB availability).

- Capital: Company and Bank remain well‑capitalized under regulatory rules; total risk‑based capital for the parent 14.50%, Bank 13.74% at June 30, 2025. Goodwill impairment did not change regulatory capital metrics materially per management.

- Controls: Management reports disclosure controls and procedures are not effective (ongoing remediation of previously disclosed material weaknesses).

Positive aspects of the income statement

- Net interest margin improved to 3.56% (Q2), driven by lower deposit funding costs - net interest income roughly stable quarter‑over‑quarter.

- Wealth management revenue grew: $7.379M (Q2) vs $6.801M (Q2 2024); AUA increased to $4.18B (June 30, 2025) from $4.00B a year ago.

- Nonperforming loans materially reduced from $150.9M to $80.1M since Dec 31, 2024 - indicates active problem‑loan resolution (sales, charge‑offs, paydowns).

Negative aspects of the income statement

- Large non‑cash goodwill impairment ($153.977M) drove a YTD net loss of $128.95M and wiped out equity gains for the period.

- Q2 provisioning increased materially to $17.369M vs $8.282M a year ago; Q2 net charge‑offs were high at $29.855M - credit stress visible, especially in commercial real estate and equipment finance.

- Noninterest income declined sharply (credit enhancement income down massively due to program run‑offs and portfolio sales) - YTD noninterest income fell ~$28.5M vs prior year.

- Allowance for credit losses decreased to $92.69M (1.84% of loans) from $111.2M (2.15%) - while NPLs fell, the allowance coverage ratio vs NP loans rose to 115.7% (from 73.7%), but the lower absolute ACL merits monitoring given higher near‑term losses.

Operational & credit risk points to watch

- Continued elevated charge‑offs in equipment finance and pockets of CRE: recent quarters show concentration of losses in those areas.

- Ongoing remediation of internal control weaknesses - disclosure that controls are not effective is a governance red flag until fully remediated.

- Deposit outflows and reliance on wholesale funding (FHLB) - monitor deposit stabilization and funding cost trajectory if rates change.

- Model and forecast sensitivity: allowance, goodwill and valuation outcomes depend on forward economic assumptions (management uses Oxford Economics forecasts and qualitative adjustments).

Bottom line

- Midland States Bancorp, Inc. (NASDAQ: MSBI) shows a mixed quarter: core net interest performance and wealth management growth are positives, and nonperforming assets have declined. However, credit stress produced higher provisions and charge‑offs, and a substantial non‑cash goodwill impairment pushed the company to a large YTD loss and reduced shareholders' equity. Regulatory capital remains compliant, but the path to restored earnings will depend on continued credit improvement, successful remediation of controls, and steady deposit funding.

If you want, I can prepare a one‑page investor brief with the most sensitive risk metrics and a short scenario analysis (best/likely/worst) for MSBI.