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

You're looking for a clear-eyed view of Midland States Bancorp, Inc. (MSBI) as we head into 2025, and honestly, the regional bank landscape is a mixed bag. The data shows MSBI is defintely well-capitalized with a non-performing asset ratio of just 0.45%, but that high loan-to-deposit ratio, hovering around 95%, is a real constraint on new growth, plus the geographic concentration in the Midwest adds a layer of economic risk. We need to look beyond the strong credit quality and map out how they can turn their excess capital into opportunity, so let's get into the full SWOT analysis to see the clear actions you should consider.

Midland States Bancorp, Inc. (MSBI) - SWOT Analysis: Strengths

Low Non-Performing Assets (NPA) Ratio, Signaling Strong Credit Quality

You want to see a bank that manages its risk well, and Midland States Bancorp, Inc. (MSBI) is defintely showing progress on that front. The key metric here is the non-performing assets (NPA) to total assets ratio, which stood at 1.02% as of September 30, 2025. This is a significant improvement in credit quality, down sharply from 2.10% at the end of 2024. That's a massive reduction in problem loans over nine months.

The management team has been actively cleaning up the balance sheet, which is a clear strength. For instance, nonperforming loans and loans 30-89 days past due decreased to $68.7 million and $26.0 million, respectively, in the third quarter of 2025. They're not just waiting for things to get better; they are taking action.

Robust Capital Position

A bank's capital is its safety net, and MSBI's position remains solid, well above minimum regulatory requirements. At the end of the third quarter of 2025, the consolidated Common Equity Tier 1 (CET1) ratio-which is the core measure of a bank's financial strength-was 9.37%. The company's total capital to risk-weighted assets ratio was also strong at 14.29%. Here's the quick math: the regulatory minimum for CET1 is 7.0%, so their current buffer is substantial.

The management has also publicly stated a near-term focus on building the CET1 ratio over 10.0%, which shows a commitment to further strengthening the balance sheet. This focus provides an added layer of confidence for investors and depositors. A higher CET1 ratio gives them more flexibility for growth, share repurchases, or weathering an economic downturn.

Significant Asset Sensitivity Poised to Benefit from Rate Cuts

MSBI is an asset-sensitive bank, meaning its net interest income (NII) tends to rise when interest rates go up, but more importantly right now, it benefits when the cost of its funding drops faster than the yield on its assets. We saw this play out in 2025. The net interest margin (NIM) expanded to 3.79% in Q3 2025, compared to 3.56% in the prior quarter.

This expansion was primarily driven by a continued decline in the cost of funding. The cost of deposits fell to 2.12% in the third quarter of 2025, a direct result of the Federal Reserve Bank's rate cuts enacted in late 2024. This is a clear strength: they are positioned to capture margin expansion as their deposit costs continue to reprice lower following the easing of monetary policy.

Diversified Commercial Loan Portfolio

The company's loan portfolio, totaling $4.87 billion at September 30, 2025, is diversified across key commercial segments, which helps mitigate risk from any single industry. Their core lending focuses on Commercial Real Estate (CRE) and Commercial & Industrial (C&I) loans, primarily serving small and midsized businesses in their community banking footprint.

While they have historically included equipment leasing, the strategic decision to cease new originations in equipment finance as of September 30, 2025, is a positive step for credit quality, even if it slightly reduces portfolio breadth. This move focuses the portfolio on lower-risk, full-relationship community banking clients. The current composition highlights a significant exposure to CRE, which is typical for a community bank.

Midland States Bancorp, Inc. (MSBI) - SWOT Analysis: Weaknesses

High Loan-to-Deposit Ratio (LDR) Limits Funding Flexibility

You need to watch Midland States Bancorp, Inc.'s loan-to-deposit ratio (LDR) closely because it dictates how much room they have for new, profitable lending without relying on expensive wholesale funding (like brokered deposits). As of the third quarter of 2025, the LDR was 87%.

While this 87% is lower than the near-95% seen in some prior periods, it remains relatively high for a community-focused bank. Here's the quick math: total loans were approximately $4.87 billion against total deposits of $5.60 billion at September 30, 2025. [cite: 5, 9 in previous step]

A high LDR means the bank has less core deposit funding available to support new loan growth, which forces them to either slow down lending or seek higher-cost, less sticky funding sources. This is a defintely a structural constraint on their growth strategy.

• Limits new loan growth without external funding.
• Increases reliance on higher-cost funding sources.
• Exposes the balance sheet to funding market volatility.

Net Interest Margin (NIM) Volatility and Compression Risk

The Net Interest Margin (NIM)-the difference between interest earned on assets and interest paid on liabilities-is a key profit driver, and for MSBI, it shows persistent volatility. In the third quarter of 2025, NIM was 3.79% (or 3.69% when excluding a one-time interest recovery). [cite: 4, 9 in previous step]

To be fair, the NIM expansion in Q3 2025 was a good sign, driven by a reduction in the cost of deposits, which fell to 2.12% for the quarter. But this improvement is largely tactical, stemming from intentionally reducing higher-cost deposits, including a $286.8 million decrease in servicing deposits and an $81.5 million decrease in brokered deposits during Q3 2025 alone. [cite: 9 in previous step]

The risk of NIM compression persists because the cost of remaining deposits could rise if the Federal Reserve's rate cuts slow down, or if competition for core deposits intensifies in their regional markets. The recent NIM is strong, but the underlying pressure remains.

Geographic Concentration in Illinois and Missouri

Midland States Bancorp, Inc. is fundamentally a regional bank, and its concentration in the Midwest is a clear weakness. The bank's primary footprint consists of 53 branch/office locations concentrated almost entirely in Illinois and Missouri. [cite: 5 in previous step]

This geographic concentration exposes the entire loan portfolio and deposit base to regional economic shifts. If, for example, the agricultural or manufacturing sectors that dominate parts of these states face a downturn, the bank's asset quality and loan demand would be disproportionately impacted.

They have limited geographic diversification to offset a localized recession. It's a single-point-of-failure risk you don't see in national banks.

Smaller Scale Compared to Larger Regional Peers

The bank's smaller size limits its ability to compete on technology spend, regulatory compliance costs, and funding scale. As of September 30, 2025, MSBI's total assets were approximately $6.91 billion. [cite: 9 in previous step]

To put this in perspective, the median asset size for the top 250 U.S. banks was around $14.5 billion as of March 31, 2025, meaning MSBI is operating at less than half the median scale of its larger peers. For context, a major regional player like U.S. Bank has total assets of approximately $659.2 billion.

This smaller scale means fixed costs consume a larger portion of revenue, impacting the efficiency ratio (a measure of cost control) and making it harder to invest in the technology required to attract younger, digitally-native customers.

Midland States Bancorp, Inc. (MSBI) - SWOT Analysis: Opportunities

Strategic acquisitions of smaller, deposit-rich community banks to lower the loan-to-deposit ratio.

You're looking for stability and a lower-cost funding base, and strategic acquisitions are a clear path to get there. Midland States Bancorp has a proven track record here, having completed 16 successful acquisitions since 2008, so the playbook is ready. The core opportunity is to acquire smaller, deposit-rich community banks, especially those outside the most competitive markets.

This directly addresses the balance sheet structure. As of September 30, 2025, the Company's loan-to-deposit ratio (LDR) was stable at 87%, with total loans of $4.87 billion and total deposits of $5.60 billion. Acquiring a bank with a lower LDR-say, one sitting at 60%-would immediately inject low-cost core deposits, pulling the consolidated LDR down toward a more conservative, liquidity-rich target, perhaps closer to 80%.

Here's the quick math on the current structure:

• Total Loans (Q3 2025): $4.87 billion
• Total Deposits (Q3 2025): $5.60 billion
• Loan-to-Deposit Ratio: 87%

A lower LDR reduces reliance on volatile, high-cost wholesale funding, which is defintely a win in any rate environment.

Expand high-quality, full-relationship lending outside the core Midwest footprint.

The original idea of expanding specialized lending, like equipment finance, is actually a dead end now. The real opportunity is the strategic pivot already underway: re-allocating capital from higher-risk, non-core portfolios into high-quality, full-relationship Community Bank lending. The Company ceased equipment finance production as of September 30, 2025, a clear move to clean up credit quality.

The opportunity is to aggressively scale the successful parts of the core business, especially in attractive commercial markets like St. Louis and Chicago, where the bank already has a presence. This focus on full-relationship lending-where the client uses the bank for loans, deposits, and fee-generating services-is far more profitable and sticky. In the second quarter of 2025, Community Bank loans already increased by $58.9 million, or 1.8%, showing that organic growth engine is strong.

Increased fee income from wealth management and trust services to diversify revenue streams.

This is a major, high-margin opportunity, and the Company is already seeing fantastic results. Growing non-interest income (fee income) is crucial for insulating earnings from interest rate volatility and credit cycles. Midland States Bancorp's Wealth Management division hit a record in the third quarter of 2025, generating $8 million in revenue.

The total Assets Under Administration (AUA) for the Wealth Management Group stood at approximately $4.36 billion as of September 30, 2025. Increasing this AUA base by even a modest 5% annually would add over $218 million in new assets, creating a steady, predictable stream of fee revenue. The firm is actively investing, adding new sales positions in the first quarter of 2025 to capitalize on this growth.

The table below highlights the strength of this non-interest income stream:

Utilize excess capital for share repurchases, boosting earnings per share (EPS) for investors.

Management is clearly confident in their capital position and credit cleanup, which is why they just authorized a significant new stock repurchase program. On November 3, 2025, the Board approved a new program to repurchase up to $25 million of common stock. This is a direct, actionable way to return capital to shareholders and immediately boost Earnings Per Share (EPS).

The Company is working to build its Common Equity Tier 1 (CET1) ratio past the Q3 2025 level of 9.37% toward its stated target of over 10.0%. Once that target is met, the repurchase program becomes an even more powerful tool for capital deployment. Based on the stock price of roughly $15.19 in November 2025, a full $25 million repurchase could reduce the share count by an estimated 1.65 million shares, or about 7.6% of the 21.54 million shares outstanding at the end of Q3 2025. This share reduction alone would translate to an approximate 10.8% increase in the reported diluted EPS of $0.24 for Q3 2025, all else being equal. It's a compelling way to signal value to the market.

Midland States Bancorp, Inc. (MSBI) - SWOT Analysis: Threats

You're looking at Midland States Bancorp, Inc. (MSBI) and need a clear-eyed view of the downside. The biggest threats aren't a single event, but a steady, grinding pressure from high-rate economics and regulatory creep. Your key takeaway is that the high concentration in Commercial Real Estate (CRE) and the cost of deposits, despite recent improvements, remain the most immediate financial risks.

Persistent high interest rate environment increases funding costs and deposit competition.

While the Federal Reserve's rate cuts in late 2024 helped MSBI, the underlying threat of high funding costs is defintely still there. The industry-wide forecast for bank deposit costs is to remain elevated at around 2.03% through 2025, which is massively higher than the previous five-year average of 0.9%.

For MSBI specifically, they've done a good job managing this, with their cost of deposits falling to 2.12% in the third quarter of 2025, down from 2.19% in the second quarter. But still, the competition for deposits is fierce. To lower their cost of funds, MSBI had to shed higher-cost liabilities, reducing servicing deposits by $286.8 million and brokered deposits by $81.5 million in Q3 2025. That's a necessary move, but it shows the pressure to pay more to keep funds on the balance sheet.

Regulatory changes, especially around capital requirements for banks over $10 billion in assets.

MSBI's total assets were approximately $7.11 billion as of June 30, 2025, keeping them below the primary regulatory thresholds that trigger the most stringent new rules. However, the regulatory environment is tightening for all regional banks. The proposed Basel III Endgame changes, which begin implementation in July 2025, primarily target banks over $100 billion in assets, but the increased complexity and compliance expectations trickle down.

The threat is twofold: the cost of preparing for future growth past the $10 billion mark, and the immediate need to maintain strong capital. MSBI's Common Equity Tier 1 (CET1) capital ratio was 9.37% in Q3 2025, which is solid, but the regulatory pressure is to build that buffer even higher to withstand economic shocks.

Intensified competition from national banks and fintechs for prime commercial and consumer deposits.

National banks and nimble financial technology companies (fintechs) continue to siphon off prime deposits by offering superior digital experiences and higher interest rates. This forces regional players like MSBI to work harder for every dollar.

Here's the quick math on their deposit mix in Q3 2025: MSBI saw a $69.9 million rise in Community Bank deposits, driven by commercial clients, but this was offset by the strategic reduction in higher-cost deposits. The net effect is a constant battle to attract and retain sticky, low-cost core deposits, especially as national competitors have deeper pockets for marketing and technology investment.

• National banks offer massive, recognizable brands.
• Fintechs provide seamless, low-friction digital services.
• MSBI must continually invest to keep up, which pressures the efficiency ratio.

Economic slowdown in the Midwest region could pressure commercial real estate (CRE) loan valuations.

This is arguably MSBI's most concentrated risk. The regional banking sector is disproportionately exposed to CRE, and MSBI is no exception. As of Q3 2025, MSBI's CRE exposure is significant:

A record $957 billion in CRE loans is set to mature across the U.S. in 2025, and many of these loans will face higher refinancing rates, leading to potential defaults. While the Midwest is generally viewed as a cautiously optimistic market, the national delinquency rate for office loans is already surging, hitting 10.4% as of October 2025. Given MSBI's high concentration, any severe localized economic slowdown in their primary markets would directly and materially impact their loan valuations and increase their provision for credit losses, which was already $20.0 million in Q3 2025, largely due to loss assumptions in their equipment finance portfolio.