Midland States Bancorp Maintains Dividends Amid Strategic Loan Portfolio Overhaul

Midland States Bancorp, Inc. (NASDAQ: MSBI) has reaffirmed its commitment to shareholders with the announcement of its 2025 dividends, including a common stock payout of $0.31 per share and a preferred stock dividend of $0.4844 per depository share. These payments, while modest in absolute terms, underscore the company’s focus on capital preservation amid a broader restructuring of its loan portfolio. However, the path forward remains fraught with risks tied to legacy credit issues and regulatory scrutiny.

Dividend Details and Financial Context

The common stock dividend, payable on May 23, 2025, to shareholders of record as of May 16, aligns with the company’s $0.31 per share quarterly payout since 2023. The preferred stock dividend, due June 30 for holders recorded on June 16, maintains the 7.75% Fixed-Rate Reset terms set at issuance. These payments are supported by first-quarter 2025 financial results showing $12.6 million in net income available to common shareholders ($0.57 diluted EPS), though pre-tax, pre-provision earnings were stronger at $27.0 million ($1.12 diluted EPS).

The net interest margin of 3.48% reflects improved deposit costs (2.29%) as federal funds rates declined, but loan portfolio headwinds persist. Total loans fell by $149.5 million in Q1 to $5.02 billion, driven by intentional reductions in high-risk segments. The Community Bank division offset some declines with $56.8 million in loan growth, while the Specialty Finance division cut balances by $159.3 million as part of a credit cleanup.

Credit Cleanup and Capital Strength

Midland States’ $330 million sale of its GreenSky consumer loan portfolio in April 2025 marks a pivotal step in reducing exposure to risky assets. Nonperforming loans (NPLs) stabilized at $140 million (2.79% of total loans), though equipment finance sector challenges linger. The $8.3 million provision for credit losses in Q1 highlights ongoing strain, particularly in trucking and other industries.

The company’s capital position remains robust, with $7.46 billion in total assets and a Tier 1 leverage ratio of 9.90%—well above the 4.0% regulatory minimum. The Common Equity Tier 1 ratio stands at 11.84%, bolstering its “well-capitalized” status under Basel III.

Risks and Regulatory Hurdles

Despite these positives, risks are mounting. The delayed filing of its 2024 Annual Report due to unresolved accounting issues around third-party lending arrangements raises red flags about internal controls. While management insists this won’t impact tangible equity or regulatory capital, investors may question governance.

The equipment finance portfolio, which contributed $4.5 million in net charge-offs, remains a vulnerability. Meanwhile, mixed institutional sentiment—with 65 funds trimming stakes versus 64 adding—reflects uncertainty. Notably, Hillsdale Investment Management added $2.6 million in shares, while Accurate Wealth Management exited entirely.

Balancing Dividends and Growth

The $0.31 common dividend consumes just 57% of Q1’s net income, leaving ample room for reinvestment. However, the strategic pivot toward lower-risk lending—such as the Community Bank’s 1.8% loan growth—suggests a preference for stability over aggressive expansion. Wealth Management revenue rose to $7.4 million in Q1, aided by new sales hires, but this remains a small part of the business.

Conclusion: A Dividend Play with Caution

Midland States Bancorp’s dividends appear sustainable, backed by a 3.48% net interest margin, robust capital ratios, and disciplined credit management. The $0.31 common dividend yields approximately 2.6% at current stock prices, offering modest income potential. However, investors must weigh this against unresolved risks:

1. Regulatory Delays: The pending restatement of 2024 financials could trigger investor skepticism.
2. Credit Exposure: Equipment finance sector weakness and lingering third-party loan issues may strain earnings.
3. Growth Limits: The shift to lower-risk lending could cap long-term profitability gains.

For conservative investors seeking dividend stability, MSBI’s current yield and capital strength make it a contender. Yet its stock price—down 12% year-to-date—hints at broader market skepticism. A “hold” rating seems prudent until regulatory clouds clear and credit trends improve.

In short, Midland States Bancorp’s dividends are a lifeline for income-focused investors, but the road to sustainable growth remains bumpy.