- Key insight: Midland States' decision to sell its equipment finance portfolio has boosted its capital ratios and reduced problem loan levels.
- Expert quote: "The further you get from your core retail and commercial customers, the better underwriting you better have, the better discipline you better have, or eventually in some type of an economic cycle, you're going to run into problems," said Alta Group Vice Chairman Rick Remiker.
- Supporting data: Midland States' share price has leapt 24% since it disclosed the sale of its equipment finance portfolio on Monday.
After spending the past year shedding national lines of business and shifting focus to its core community banking franchise, Midland States Bancorp is well positioned to enter 2026 on its front foot, according to CEO Jeffrey Ludwig.
The sale of a $545 million portfolio of equipment finance loans announced Monday represents the last big item on the $6.91 billion-asset bank's restructuring agenda, Ludwig told American Banker.
"We still have a little bit of credit cleanup … but we're through the big pieces and looking forward to 2026," the CEO said.
Investors appear to share the sentiment. Midland States' shares were trading at $20.02 on Thursday afternoon, up a whopping 24% from their opening price on Monday morning.
Midland States' sale of its equipment finance portfolio, to nonbank lender North Mill Equipment Finance in Norwalk, Connecticut, followed its sales of consumer-loan portfolios in December 2024 and April 2025. Though the Effingham, Illinois-based bank reported losses resulting from each sale, the portfolios involved were national in scope, and thus out of sync with its company's emerging relationship-banking strategy.
"We made a strategic decision to move away from these sorts of out-of-market, more national businesses and really focus on the community bank group," Ludwig said.
Now, with the heavy lifting behind it, the company's balance sheet is smaller, with fewer problem loans and stronger capital ratios.
"Our capital is in a much better position, liquidity is in a better position, credit is getting cleaned up, and we're investing in the community bank group. We feel like we're doing all the right things to be a better-performing company," Ludwig said.
Zigging as the industry zags
Midland States' decision to sell its equipment finance portfolio and exit the business — it had halted originations in September — comes as lending across the equipment finance sector appears to be trending higher.
Rick Remiker, vice chairman at the equipment finance consulting firm Alta Group, said that equipment finance experienced a two-year slump as banks slowed their lending in the wake of the 2023 liquidity crisis. But growth resumed in 2025, with most equipment-finance lenders reporting strong results, Remiker told American Banker.
"Banks are into loan-growth mode again, and at the core, equipment finance, asset finance, is a loan-growth vehicle," said Remiker, who served as head of commercial banking at Huntington Bancshares from 2013 to 2020.
"Capital expenditure is up. The equipment finance business is up. … All boats are rising," Remiker added.
Midland States' woes were tied primarily to trucking and transportation loans, Ludwig said.
"We built a decent-size business," Ludwig said. "At the peak, we had $1 billion in this book. We were a little too heavy in the trucking and transportation space. That's where we began to take losses."
Ultimately, Midland States concluded that national equipment finance credits, even strong-performing ones, weren't as valuable as core commercial banking loans.
"We weren't getting deposits or selling other products and services to those customers," Ludwig said. "The value of that business in any market isn't as good as the value of our community bank that has core relationships."
For his part, Remiker said that although Main Street banks can and do succeed in national equipment finance, the business carries an elevated risk profile.
"The further you get from your core retail and commercial customers, the better underwriting you better have, the better discipline you better have, or eventually in some type of an economic cycle, you're going to run into problems," Remiker said.
Back to basics
Midland States expects to recognize a $20 million pretax loss on the asset sale during the fourth quarter. As a result of its smaller balance sheet, the bank's ratio of tangible common equity to tangible assets is projected to expand by 15 to 20 basis points. At the same time, the ratio of nonperforming assets to total assets, which totaled 1% on Sept. 30, was revised downward to 0.87%.
Prior to 2023, the national lending strategy appeared to be paying dividends for Midland States. Net income topped $81 million in 2021 and reached $100 million the following year.
But profits dipped in 2023 as the level of problem loans began mounting. The trouble continued into 2024 and reached a boiling point late in the year, prompting the decision to sell the consumer-lending portfolios. Elevated levels of charge-offs and nonperforming loans in the equipment finance portfolio continued into 2025.
Midland States invested significantly in its community bank business the past year, hiring eight wealth advisors and a similar number of community bankers, but those developments were overshadowed by the asset sales, according to Ludwig.
Ludwig expressed satisfaction that Midland States was able to pivot to a new strategy without raising new capital and diluting shareholders. The company steered clear of a fire-sale approach, which might have fixed its issues more quickly, but would likely have required a capital raise.
"We decided to protect our shareholders, not dilute them and sort of methodically work through the problems," Ludwig said.
