Midland States Bancorp, Inc. (MSBI): 5 FORCES Analysis [Nov-2025 Updated]

You're looking at Midland States Bancorp, Inc. right now, trying to get a clear-eyed view of its competitive footing as we head into late 2025, and honestly, the picture is complex. We see supplier power easing a bit as the cost of deposits fell to 2.12% in Q3, but that's immediately offset by strong customer power-loan balances fell $167.7 million in that same quarter-and intense rivalry against much larger players, given the bank's small $0.34 Billion market cap. Still, the real fight is against digital substitutes from Fintechs and the regulatory moat that's getting trickier to maintain against tech-forward entrants, even with a strong CET1 ratio of 9.37%. Let's break down exactly where the pressure is coming from across all five forces to see what Midland States Bancorp, Inc. needs to do next.

Midland States Bancorp, Inc. (MSBI) - Porter's Five Forces: Bargaining power of suppliers

When we look at the bargaining power of suppliers for Midland States Bancorp, Inc. (MSBI), the primary suppliers are those providing funding, mainly depositors. The good news here, as of the third quarter of 2025, is that MSBI has successfully pushed down its overall cost of funding. The cost of deposits fell to 2.12% in Q3 2025. That drop, which is a 7 basis point reduction quarter-over-quarter (QoQ), definitely helped the net interest margin expand to 3.79% (or 3.69% when you exclude that one-time interest recovery). Lower funding costs mean depositors have less leverage over MSBI's profitability, which is a win for the bank.

MSBI has been actively managing its liability mix to shed the more expensive sources. You see this clearly in the reduction of high-cost deposits. Specifically, MSBI reduced high-cost brokered deposits by $81.5 million in Q3 2025. That's a strategic move to lower the overall weighted average cost of funds. To give you the full picture of this liability restructuring, here's how the high-cost components shifted:

Still, the overall funding base saw movement. Total deposits for Midland States Bancorp, Inc. decreased by $342.1 million in Q3 2025, settling at $5.60 billion as of September 30, 2025. This overall decline shows that while MSBI is shedding expensive liabilities, there is still customer mobility in the market. However, the core funding base, the Community Bank deposits, actually grew, which is a positive sign for stability. Here's a quick breakdown of the deposit flow:

• Community Bank deposits rose by $69.9 million.
• This growth was largely driven by increases in commercial deposits.
• Retail and public funds deposits were down, contributing to the overall net decrease.

Finally, the bank's liquidity position is strong, which further reduces the immediate bargaining power of any remaining wholesale funding sources. Liquidity is strong at 15.2% of assets, comprising cash and available investment securities on the balance sheet. Honestly, having that 15.2% buffer means MSBI isn't desperate for funding, giving them more control over the rates they are willing to pay to secure deposits. Finance: draft 13-week cash view by Friday.

Midland States Bancorp, Inc. (MSBI) - Porter's Five Forces: Bargaining power of customers

You're looking at Midland States Bancorp, Inc. (MSBI) through the lens of customer power, and honestly, it's a mixed bag right now. The power customers hold is directly related to how easy it is for them to walk away and what alternatives they have on the table.

Customers have low switching costs between regional banks and national giants. This is a classic banking industry dynamic. While moving direct deposits and automatic payments takes effort-like updating employers and utility companies-the core transactional products are largely commoditized. If a competitor, especially a large national player or a nimble fintech, offers a better rate or a lower fee structure, the friction to switch is often overcome by the perceived financial gain. Research shows that fees make customers more than twice as likely to switch banks, suggesting that price sensitivity is high when the cost structure is visible. Furthermore, the sheer volume of money that changes hands annually due to switching-estimated at $80 billion in annual revenue in 2022-shows that customers do move when the value proposition shifts enough to justify the hassle. This low barrier for the retail customer keeps the pressure on Midland States Bancorp, Inc. to remain competitive on basic pricing.

We saw evidence of this price sensitivity in the loan portfolio during the third quarter of 2025. Midland States Bancorp, Inc.'s total loan balances fell by $167.7 million between June 30, 2025, and September 30, 2025, landing at $4.87 billion as of the end of Q3 2025. This reduction, which included a $39 million decline specifically from the Community Bank segment, suggests that payoffs and a general reduction in loan demand or pricing pressure led to a net contraction in the loan book. This contraction contrasts with the stability seen in other areas, which we can map out here:

Still, not all customer relationships are equally elastic. Wealth Management, with record $8.0 million in Q3 2025 revenue, is definitely a stickier customer segment for Midland States Bancorp, Inc.. Wealth management and trust services involve deep, personalized relationships, complex planning, and significant assets under administration-which was approximately $4.18 billion as of June 30, 2025. Once you have your financial plan managed and your portfolio established with an advisor you trust, the switching costs-the time, the re-establishment of trust, the potential tax implications-are substantially higher than simply changing your primary checking account. This segment provides a necessary counterbalance to the price sensitivity seen elsewhere.

The competitive set also extends beyond traditional banks. Non-bank financial institutions offer customers alternative credit and lending options, which directly pressures Midland States Bancorp, Inc.'s lending business. This 'shadow banking' sector is growing rapidly; U.S. banks' loans to the nonbank financial sector exceeded $1.14 trillion in Q1 2025, and this lending has seen an annualized growth rate of approximately 26% per year since 2012. In the middle market, non-bank lenders financed 85% of U.S. leveraged buyouts in 2024, and their market share in middle market lending is projected to reach 40% by 2025. These non-banks often provide more flexible, covenant-lite terms that appeal to certain borrowers, meaning Midland States Bancorp, Inc. must compete not just on rates but on the structure and speed of its credit offerings. You need to watch how the company manages its remaining equipment finance portfolio, especially since originations ceased as of September 30, 2025, due to credit quality issues.

Here are the key takeaways on customer power dynamics:

• Retail/Commercial customers face low switching costs, driving price sensitivity.
• Loan balances contracted by $167.7 million in Q3 2025, reflecting this pressure.
• Wealth Management revenue hit a record $8.0 million in Q3 2025, showing stickiness.
• Non-bank credit intermediaries command significant market share, projected at 40% in middle market lending by 2025.

Finance: draft 13-week cash view by Friday.

Midland States Bancorp, Inc. (MSBI) - Porter's Five Forces: Competitive rivalry

MSBI's small market cap of $0.34 Billion USD (Nov 2025) faces much larger rivals.

For context on the scale difference, the largest US bank by market cap, JPMorgan Chase & Co, reached a valuation of $787.92 billion as of August 2025. Bank of America Corp stood at $383.24 B. Midland States Bancorp, Inc.'s market cap as of November 26, 2025, was reported at $348.06 million, or $343.35M as of November 21, 2025. This places MSBI firmly in the Small Cap category.

Regional banks share high exposure to Commercial Real Estate (CRE) risk.

The concentration of CRE debt among regional banks is a key differentiator from larger institutions. Regional banks held CRE debt constituting approximately 44% of their total loans, significantly higher than the 13% held by larger banks. The delinquency rate for office loans in the U.S. reached 10.4% as of October 2025. Furthermore, more than $1 trillion in CRE loans are slated to mature by the end of 2025. Midland States Bancorp, Inc. took a $20.5 million provision in Q3 2025, primarily for its equipment finance portfolio, which included a $15 million specific provision.

The bank is exiting equipment finance, reducing rivalry in a troubled segment.

Midland States Bancorp, Inc. ceased originations in the equipment finance portfolio effective September 30, 2025. This move was part of a strategy to reduce exposure to higher-risk asset classes. The impact of this pullback is visible in the portfolio numbers:

• Equipment finance loans dropped 26.1% year over year to $326.9 million in Q3 2025.
• Equipment finance leases fell 25.5% year over year to $311 million in Q3 2025.
• The total equipment leasing and finance portfolio was down 20% year over year at midyear 2025, totaling $711.7 million.

Industry M&A is expected to accelerate in 2025, creating fewer, larger competitors.

The environment suggests a consolidation trend, with bank leaders indicating a higher propensity for deals. 43% of bank leaders stated their institutions were very or somewhat likely to acquire another bank in 2025, an increase from 35% the prior year. This follows a 25% rise in regional bank M&A activity in 2024. Valuations for regional banks were trading around 11.83x forward earnings and 1.15x price-to-book value.

Midland States Bancorp, Inc. (MSBI) - Porter's Five Forces: Threat of substitutes

The threat of substitutes for Midland States Bancorp, Inc. (MSBI) remains substantial, driven by specialized, lower-cost, and digitally native alternatives across lending, payments, and wealth management.

Fintechs provide lower-cost, digital-first banking and payment services. The U.S. fintech market size is projected to be valued at $95.2 Bn in 2025. Digital payments dominated the U.S. fintech market in 2024, accounting for 47.43% of the share. Furthermore, mobile transactions rose to account for 32% of all costs in 2024, showing deep consumer adoption of digital channels. Neobanking, a key fintech segment, is anticipated to experience the fastest growth, with a Compound Annual Growth Rate (CAGR) of 21.67% from 2025 to 2030. Banks themselves are major end-users of fintech, holding over 40% of the market share due to integration needs.

Credit unions are a growing substitute, appealing to younger customers, though their scale remains smaller than large commercial banks. Total assets in federally insured credit unions reached $2.37 trillion by the first quarter of 2025, marking a 2.6% year-over-year increase. Total shares and deposits for these institutions grew to $2.02 trillion in Q1 2025, a 4.5% increase from the prior year. As of March 2025, the average asset size for a credit union in the top 250 was $6.25 billion, which is significantly less than the $87.2 billion average for the top 250 U.S. banks. There were 4,411 credit unions operating in the U.S. in March 2025.

Non-bank lenders grew faster than banks in 2023, and this trend continued into 2024, offering alternative credit, particularly in the mortgage space. This segment directly competes with MSBI's traditional lending business. The Mortgage Bankers Association reported that lenders originated $498 billion in commercial real estate loans in 2024, up 16% from $429 billion in 2023. In residential mortgages, nonbanks captured a dominant share, which is a clear substitute threat for banks like Midland States Bancorp, Inc..

Here's the quick math on the mortgage lending shift:

The private credit market, a key non-bank lending area, reached $1.7 trillion in the U.S. by early 2024. Private credit's market share in middle market lending is projected to reach 40% by 2025.

Large asset managers and robo-advisors substitute for the wealth management business by offering lower-cost, automated portfolio management. While the 'robo-advisor revolution' did not fully supplant human advisors, their assets are significant and growing. In 2024, robo-advisor assets were estimated between $634 billion and $754 billion. The global robo-advisory market is expected to expand at a CAGR of 30.5% through 2030.

The cost differential is a major driver of this substitution:

• Traditional financial advisor annual fees: 0.8% to 1.2% of AUM.
• Robo-advisor annual fees: Generally 0.25% to 0.50% of AUM.
• For a $100,000 portfolio, the annual fee difference is $750 (1.0% vs 0.25%).

Overall, global assets under management (AuM) held by asset and wealth managers are projected to climb from $139 trillion in 2024 to $200 trillion by 2030. This growth, however, is accompanied by fee pressure, pushing clients toward lower-cost digital alternatives for basic management tasks.

Midland States Bancorp, Inc. (MSBI) - Porter's Five Forces: Threat of new entrants

You're looking at the barriers to entry for Midland States Bancorp, Inc. (MSBI), and honestly, the regulatory environment is the first wall you hit. For any new player looking to start a traditional bank, the capital requirements are steep, making it a high-stakes game right from the jump.

High regulatory capital requirements are a major barrier to entry. The Federal Reserve sets a baseline that new entrants must meet to ensure stability. This isn't just about having cash on hand; it's about holding a specific quality of capital against risk-weighted assets. For large banks, the minimum Common Equity Tier 1 (CET1) capital ratio requirement is set at 4.5%. On top of that, there is the Stress Capital Buffer (SCB) requirement, which is at least 2.5%. So, the absolute floor for a well-capitalized institution, before any firm-specific surcharges, is a minimum of 7.0% CET1.

Midland States Bancorp, Inc. (MSBI)'s own capital position shows where the established players stand. As of their Third Quarter 2025 filing, MSBI reported a Consolidated CET1 ratio of 9.37%. They even have an internal near-term focus on building that ratio over 10.0%. This means a new entrant needs to raise capital significantly above the regulatory minimum just to be seen as comparable to an established, mid-sized entity like Midland States Bancorp, Inc. (MSBI).

Here's a quick look at how MSBI's capital stacks up against the regulatory floor:

Still, the game is changing because Fintechs use Banking-as-a-Service (BaaS) to bypass traditional regulatory hurdles. This model allows non-bank entities to offer banking functions by leveraging a licensed sponsor bank's charter. This strategy lets them launch card, account, and lending features at speed while actively avoiding the massive capital requirements associated with obtaining a full banking charter. The BaaS market itself is huge, valued at USD 24.58 billion in 2025, showing that many players are already choosing this route over the traditional path Midland States Bancorp, Inc. (MSBI) must navigate.

The high cost of technology and cybersecurity investment is definitely a barrier, though the nature of that cost differs based on the entry model. For a new bank seeking its own national charter, the initial investment can easily exceed $20 million. Even for a leaner, partnership-based (BaaS) approach, technology and platform development alone requires a budget between $200,000 and $500,000. Furthermore, established players like Midland States Bancorp, Inc. (MSBI) are feeling the pressure to spend more just to keep up and secure their operations. In 2025, 88% of U.S. bank executives planned to increase their IT spending by at least 10%, with 86% citing cybersecurity as their top concern and biggest area for budget increases. Technology, in general, absorbs, on average, more than 10% of a bank's revenues.

Consider the breakdown of initial technology investment for a partnership-based digital bank:

• Technology and Platform Development: Budget $200,000 to $500,000.
• API Integrations (KYC/AML, payments): Adding $50,000 to $150,000.
• Regulatory and Legal Setup (for BaaS agreements): Expect $100,000 to $250,000.

Finance: draft 13-week cash view by Friday.