Midland States Bancorp, Inc.MSBI
Midland States Bancorp, Inc. Fair Value Disclosure
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date reflecting assumptions that a market participant would use when pricing an asset or liability. The hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:
•Level 1: Unadjusted quoted prices for identical assets or liabilities traded in active markets.
•Level 2: Significant other observable inputs other than Level 1, including quoted prices for similar assets and liabilities in active markets, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data.
•Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:
Investment securities. The fair value of investment securities available for sale are determined by quoted market prices, if available (Level 1). For investment securities available for sale where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For investment securities available for sale where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Securities classified as Level 3 are not actively traded, and as a result, fair value is determined utilizing third-party valuation services through consensus pricing. There were no transfers between Levels 1, 2 or 3 during the period presented for assets measured at fair value on a recurring basis. The fair value of equity securities is determined using quoted prices or market prices for similar securities (Level 1).
Residential loans held for sale. The fair value of residential loans held for sale is determined using quoted prices for a similar asset, adjusted for specific attributes of that loan (Level 2).
Credit enhancement asset. The fair value of the credit enhancement asset is calculated using the Income Approach Valuation Method (Level 3).
Derivative instruments. The fair value of derivative instruments are determined based on derivative valuation models using observable market data as of the measurement date (Level 2).
Nonperforming loans. Nonaccrual loans are considered nonperforming and are reviewed individually for the amount of impairment, if any. We measure collateral dependent nonperforming loans based on the estimated fair value of such collateral. In cases where the Company has an agreed upon selling price for the collateral, the fair value is set at the selling price (Level 1). The fair value of each loan’s collateral is generally based on estimated market prices from an independently prepared appraisal, which is then adjusted for the cost related to liquidating such collateral (Level 2). When adjustments are made to an appraised value to reflect various factors such as the age of the appraisal or known changes in the market or the collateral, such valuation inputs are considered unobservable (Level 3). The nonperforming loans categorized as Level 3 also include unsecured loans and other secured loans whose fair values are based significantly on unobservable inputs such as the strength of a guarantor, cash flows discounted at the effective loan rate, and management’s judgment.
Consumer loans held for sale. The fair value of consumer loans held for sale are calculated using discounted cash flows or other market indicators (Level 3).
Other Real Estate Owned. OREO is initially recorded at fair value at the date of foreclosure less estimated costs of disposal, which establishes a new cost basis. After foreclosure, OREO is held for sale and is carried at the lower of cost or fair value less estimated costs of disposal. Fair value for OREO is based on an appraisal performed upon foreclosure. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between comparable sales and income data available. Property is evaluated regularly to ensure the recorded amount is supported by its fair value less estimated costs to dispose. After the initial foreclosure appraisal, fair value is generally determined by an annual appraisal unless known events warrant adjustments to the recorded value (Level 2). When adjustments are made to an appraised value to reflect various factors such as the age of the appraisal or known changes in the market or the collateral, such valuation inputs are considered unobservable (Level 3).
Appraisals for both collateral-dependent loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Company’s asset quality or collections department reviews the assumptions and approaches utilized in the appraisal.
Assets and liabilities measured and recorded at fair value, including financial assets for which the Company has elected the fair value option, on a recurring and nonrecurring basis at December 31, 2025 and December 31, 2024, are summarized below:
| December 31, 2025 | |||||||||||||||||||||||
| (dollars in thousands) | Carrying amount | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||||||||
| Assets and liabilities measured at fair value on a recurring basis: | |||||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Investment securities available for sale: | |||||||||||||||||||||||
| U.S. government sponsored entities and U.S. agency securities | $ | 19,823 | $ | — | $ | 19,823 | $ | — | |||||||||||||||
| Mortgage-backed securities - agency | 1,193,750 | — | 1,193,750 | — | |||||||||||||||||||
| Mortgage-backed securities - non-agency | 97,089 | — | 97,089 | — | |||||||||||||||||||
| Asset-backed student loans | 34,215 | — | 34,215 | — | |||||||||||||||||||
| State and municipal securities | 73,458 | — | 73,458 | — | |||||||||||||||||||
| Collateralized loan obligations | 46,854 | — | 46,854 | — | |||||||||||||||||||
| Corporate securities | 57,812 | — | 57,812 | — | |||||||||||||||||||
| Equity securities | 4,235 | 4,235 | — | — | |||||||||||||||||||
| Residential loans held for sale | 7,781 | — | 7,781 | — | |||||||||||||||||||
| Credit enhancement asset | 12,557 | — | — | 12,557 | |||||||||||||||||||
| 3,451 | — | 3,451 | — | ||||||||||||||||||||
| Total | $ | 1,551,025 | $ | 4,235 | $ | 1,534,233 | $ | 12,557 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Derivative liabilities | $ | 4,999 | $ | — | $ | 4,999 | $ | — | |||||||||||||||
| Total | $ | 4,999 | $ | — | $ | 4,999 | $ | — | |||||||||||||||
| Assets measured at fair value on a non-recurring basis: | |||||||||||||||||||||||
Nonperforming loans: | |||||||||||||||||||||||
| Commercial | $ | 8,136 | $ | — | $ | — | $ | 8,136 | |||||||||||||||
| Commercial real estate | 40,324 | — | — | 40,324 | |||||||||||||||||||
| Residential real estate | 592 | — | — | 592 | |||||||||||||||||||
| Other real estate owned | 606 | — | — | 606 | |||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| (dollars in thousands) | Carrying amount | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||||||||
| Assets and liabilities measured at fair value on a recurring basis: | |||||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Investment securities available for sale: | |||||||||||||||||||||||
| U.S. government sponsored entities and U.S. agency securities | $ | 20,141 | $ | — | $ | 20,141 | $ | — | |||||||||||||||
| Mortgage-backed securities - agency | 847,056 | — | 847,056 | — | |||||||||||||||||||
| Mortgage-backed securities - non-agency | 101,012 | — | 101,012 | — | |||||||||||||||||||
| Asset-backed student loans | 49,973 | — | 49,973 | — | |||||||||||||||||||
| State and municipal securities | 69,061 | — | 69,061 | — | |||||||||||||||||||
| Collateralized loan obligations | 40,450 | — | 40,450 | — | |||||||||||||||||||
| Corporate securities | 79,881 | — | 79,881 | — | |||||||||||||||||||
| Equity securities | 4,792 | 4,792 | — | — | |||||||||||||||||||
Residential loans held for sale | 8,228 | — | 8,228 | — | |||||||||||||||||||
| 3,837 | — | 3,837 | — | ||||||||||||||||||||
| Total | $ | 1,224,431 | $ | 4,792 | $ | 1,219,639 | $ | — | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Derivative liabilities | $ | 5,655 | $ | — | $ | 5,655 | $ | — | |||||||||||||||
| Total | $ | 5,655 | $ | — | $ | 5,655 | $ | — | |||||||||||||||
| Assets measured at fair value on a non-recurring basis: | |||||||||||||||||||||||
Nonperforming loans: | |||||||||||||||||||||||
| Commercial | $ | 8,628 | $ | — | $ | — | $ | 8,628 | |||||||||||||||
| Commercial real estate | 102,548 | — | — | 102,548 | |||||||||||||||||||
| Construction and land development | 8,438 | — | — | 8,438 | |||||||||||||||||||
| Residential real estate | 302 | — | — | 302 | |||||||||||||||||||
| Lease financing | 306 | — | — | 306 | |||||||||||||||||||
| Consumer loans held for sale | 336,719 | — | — | 336,719 | |||||||||||||||||||
| Other real estate owned | 4,941 | — | — | 4,941 | |||||||||||||||||||
| Credit enhancement asset | 16,804 | — | — | 16,804 | |||||||||||||||||||
The following table presents losses recognized on assets measured on a nonrecurring basis for the years ended December 31, 2025, 2024 and 2023:
| Years Ended December 31, | |||||||||||||||||
| (dollars in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Nonperforming loans | $ | 21,619 | $ | 21,317 | $ | 19,421 | |||||||||||
| Other real estate owned | — | 4,866 | — | ||||||||||||||
| Total losses on assets measured on a nonrecurring basis | $ | 21,619 | $ | 26,183 | $ | 19,421 | |||||||||||
The following tables present quantitative information about significant unobservable inputs used in fair value measurements of Level 3 assets measured on a nonrecurring basis at December 31, 2025 and December 31, 2024:
| (dollars in thousands) | Fair value | Valuation technique | Unobservable input / assumptions | Discount Rate Range (weighted average)(1) | ||||||||||||||||||||||
| December 31, 2025 | ||||||||||||||||||||||||||
Nonperforming loans: | ||||||||||||||||||||||||||
| Commercial | $ | 8,136 | Fair value of collateral | Discount for type of property, age of appraisal, and/or current status | 0.00%- 0.00% (0.00%) | |||||||||||||||||||||
| Commercial real estate | 40,324 | Fair value of collateral | Discount for type of property, age of appraisal, and/or current status | 0.00% - 100.00% (4.79%) | ||||||||||||||||||||||
| Residential real estate | 592 | Fair value of collateral | Discount for type of property, age of appraisal, and/or current status | 0.00%- 0.00% (0.00%) | ||||||||||||||||||||||
| Other real estate owned | 606 | Fair value of collateral | Discount for type of property, age of appraisal, and/or current status | 54.10% - 70.67% (58.17%) | ||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||
Nonperforming loans: | ||||||||||||||||||||||||||
| Commercial | $ | 8,628 | Fair value of collateral | Discount to reflect current market conditions and ultimate collectability | 0.00% - 0.00% (0.00%) | |||||||||||||||||||||
| Commercial real estate | 102,548 | Fair value of collateral | Discount to reflect current market conditions and ultimate collectability | 0.00% - 9.20% (0.62%) | ||||||||||||||||||||||
| Construction and land development | 8,438 | Fair value of collateral | Discount to reflect current market conditions and ultimate collectability | 0.00% - 0.00% (0.00%) | ||||||||||||||||||||||
| Residential real estate | 302 | Fair value of collateral | Discount to reflect current market conditions and ultimate collectability | 0.00% - 0.00%(0.00%) | ||||||||||||||||||||||
| Lease financing | 306 | Fair value of collateral | Discount to reflect current market conditions and ultimate collectability | 34.15% - 34.15% (34.15%) | ||||||||||||||||||||||
| Other real estate owned | 4,941 | Fair value of collateral | Discount for type of property, age of appraisal, and/or current status | 0.00% - 43.54% (10.68%.) | ||||||||||||||||||||||
Consumer loans held for sale(2) | 336,719 | Discounted cash flow | Discount rate | 8.98% | ||||||||||||||||||||||
Credit enhancement asset | 16,804 | Income approach | Discount rate | 10.61% | ||||||||||||||||||||||
(1)Unobservable inputs were weighted by the relative fair value of the instruments.
(2)There was one pool of loans at December 31, 2024 with write-downs during 2024, so no range or weighted average is reported.
ASC Topic 825, Financial Instruments, requires disclosure of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate such fair values. Additionally, certain financial instruments and all nonfinancial instruments are excluded from the applicable disclosure requirements.
The Company has elected the fair value option for newly originated residential loans held for sale. These loans are intended for sale and are hedged with derivative instruments. We have elected the fair value option to mitigate accounting mismatches in cases where hedge accounting is complex and to achieve operational simplification.
The following table presents the difference between the aggregate fair value and the aggregate remaining principal balance for loans for which the fair value option has been elected as of December 31, 2025 and December 31, 2024:
| December 31, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Aggregate fair value | Difference | Contractual principal | Aggregate fair value | Difference | Contractual principal | |||||||||||||||||||||||||||||
| Residential loans held for sale | $ | 7,781 | $ | 390 | $ | 7,391 | $ | 8,228 | $ | 282 | $ | 7,946 | |||||||||||||||||||||||
The following table presents the amount of gains from fair value changes included in income before income taxes for financial assets carried at fair value for the years ended December 31, 2025, 2024 and 2023:
| Years Ended December 31, | |||||||||||||||||
| (dollars in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Residential loans held for sale | $ | 85 | $ | 47 | $ | 163 | |||||||||||
The carrying values and estimated fair value of certain financial instruments not carried at fair value at December 31, 2025 and December 31, 2024 were as follows:
| December 31, 2025 | |||||||||||||||||||||||||||||
| (dollars in thousands) | Carrying amount | Fair value | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||
| Cash and due from banks | $ | 127,279 | $ | 127,279 | $ | 127,279 | $ | — | $ | — | |||||||||||||||||||
| Federal funds sold | 532 | 532 | 532 | — | — | ||||||||||||||||||||||||
Loans, net | 4,282,785 | 4,229,483 | — | — | 4,229,483 | ||||||||||||||||||||||||
| Accrued interest receivable | 23,824 | 23,824 | — | 23,824 | — | ||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||
| Deposits | $ | 5,424,379 | $ | 5,421,497 | $ | — | $ | 5,421,497 | $ | — | |||||||||||||||||||
| Short-term borrowings | 60,181 | 60,181 | 50,000 | 10,181 | — | ||||||||||||||||||||||||
| FHLB and other borrowings | 293,000 | 295,047 | — | 295,047 | — | ||||||||||||||||||||||||
| Subordinated debt | 27,019 | 23,005 | — | 23,005 | — | ||||||||||||||||||||||||
| Trust preferred debentures | 51,857 | 48,626 | — | 48,626 | — | ||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||
| (dollars in thousands) | Carrying amount | Fair value | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||
| Cash and due from banks | $ | 114,055 | $ | 114,055 | $ | 114,055 | $ | — | $ | — | |||||||||||||||||||
| Federal funds sold | 711 | 711 | 711 | — | — | ||||||||||||||||||||||||
Loans, net | 5,056,370 | 4,872,824 | — | — | 4,872,824 | ||||||||||||||||||||||||
| Accrued interest receivable | 25,329 | 25,329 | — | 25,329 | — | ||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||
| Deposits | $ | 6,197,243 | $ | 6,183,807 | $ | — | $ | 6,183,807 | $ | — | |||||||||||||||||||
| Short-term borrowings | 87,499 | 87,499 | 75,000 | 12,499 | — | ||||||||||||||||||||||||
| FHLB and other borrowings | 258,000 | 253,520 | — | 253,520 | — | ||||||||||||||||||||||||
| Subordinated debt | 77,749 | 69,827 | — | 69,827 | — | ||||||||||||||||||||||||
| Trust preferred debentures | 51,205 | 49,056 | — | 49,056 | — | ||||||||||||||||||||||||
The methods utilized to measure fair value of financial instruments at December 31, 2025 and December 31, 2024 represent an approximation of exit price; however, an actual exit price may differ.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 2, 2026 | Showing above |
| 2024 | Jul 1, 2025 | |
| 2023 | Feb 23, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Feb 28, 2020 | |
| 2018 | Feb 28, 2019 | |
| 2017 | Mar 6, 2018 | |
| 2016 | Mar 10, 2017 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.