Midland States Bancorp: A Tale of Two Metrics – Revenue Growth vs. Earnings Disappointment and What It Means for Investors

In the world of investing, it's not uncommon to see companies post impressive revenue growth while simultaneously missing earnings estimates. Midland States Bancorp (NASDAQ: MSBI) has become a textbook example of this phenomenon in its Q2 2025 earnings report, revealing both opportunities and risks for investors.

The company reported Q2 2025 earnings on July 24, 2025, showing a net income of $9.8 million, or $0.44 per diluted share, which fell below the estimated $0.63 per share. This represents a significant improvement from the first quarter of 2025, during which the company experienced a net loss of $143.2 million due to a $154.0 million goodwill impairment. However, the Q2 2025 net income still marked a decline from the $23.5 million reported in Q2 2024.

What stands out in this report is the divergence between the company's revenue performance and its earnings results. While the company's net interest margin improved to 3.56% in Q2 2025, up from 3.49% in Q1 2025, and pre-provision net revenue increased to $32.2 million (up from $27.0 million in Q1), the company faced significant credit-related challenges that ultimately impacted its bottom line.

The company experienced $29.9 million in net charge-offs, primarily from its specialty finance and equipment finance portfolios. These portfolios had been identified as higher-risk, and the company has since implemented tighter underwriting standards to reduce exposure. The provision for credit losses was $17.4 million, largely attributed to trends in the equipment finance portfolio.

This divergence between revenue growth and earnings performance highlights the importance of understanding the underlying operational and strategic factors at play. While Midland States Bancorp has made progress in improving its credit quality, with nonperforming assets decreasing to 1.56% of total assets (down from 2.08% in Q1 2025), the company still faces headwinds from its higher-risk portfolios.

The company's strategic initiatives, including tighter underwriting standards and the sale of its GreenSky loans in April 2025, are expected to support future profitability. These actions have already begun to bear fruit, with the company successfully exiting two large non-performing relationships totaling $29 million in July 2025, further improving its credit quality.

From an investment perspective, this earnings report presents both caution and opportunity. The company's strong capital position, with a total capital ratio of 14.50% and a common equity tier 1 capital ratio of 9.02%, provides a buffer against further credit losses. The CEO, Jeffrey G. Ludwig, has emphasized the company's focus on growing its community bank and improving credit quality, with a target of increasing the common equity tier 1 capital ratio to 10.0%.

However, investors should be mindful of the risks. The company's pre-provision net revenue, while showing improvement, still needs to translate into consistent earnings growth. The fact that the company's actual revenue for Q2 2025 was reported to be below the estimated $75.35 million suggests that there may be challenges in maintaining revenue growth in the face of ongoing credit-related expenses.

The stock currently has a "Hold" consensus rating from 13 analysts, with price targets ranging from $20 to $29 and a median of $24.27. This suggests that while analysts believe in the company's long-term potential, they are cautious about its near-term performance.

For investors, the key takeaway is that Midland States Bancorp is in a transition phase. The company has made significant strides in improving its credit quality and capital position, but it still needs to demonstrate that these improvements can translate into consistent earnings growth. The divergence between revenue and earnings performance in Q2 2025 serves as a reminder that not all revenue is equal - particularly in the banking sector, where credit quality and risk management play such crucial roles.

Looking ahead, investors should monitor several key metrics:1. The company's ability to maintain its improved credit quality metrics2. Progress in reducing exposure to higher-risk portfolios3. The success of its strategic initiatives in growing the community bank segment4. The company's ability to convert pre-provision net revenue into actual earnings

While the Q2 2025 earnings report may not have been what investors hoped for, it does provide valuable insight into the company's operations and strategic direction. For long-term investors who believe in the company's vision and have the patience to see it through the transition period, Midland States Bancorp could offer attractive value. However, for those with a shorter investment horizon or a lower risk tolerance, the current divergence between revenue and earnings performance may warrant caution.

Ultimately, the key for investors will be to strike a balance between recognizing the company's progress and acknowledging the challenges it still faces. By doing so, investors can make informed decisions about whether Midland States Bancorp is the right fit for their investment portfolio.