Midland States Bancorp, Inc.MSBI
Midland States Bancorp, Inc. Income Taxes Disclosure
INCOME TAXES
(1) During the years ended December 31, 2025, 2024 and 2023, state taxes in Illinois comprised greater than 50% of the tax effect in this category.
The Company operates solely within the United States, and as a result all pre-tax book income is derived from domestic operations.
The components of income taxes for the years ended December 31, 2025, 2024 and 2023 were as follows:
| (dollars in thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Federal: | |||||||||||||||||
| Current | $ | 12,881 | $ | 13,592 | $ | 25,420 | |||||||||||
| Deferred | (7,811) | (6,249) | (5,805) | ||||||||||||||
| State: | |||||||||||||||||
| Current | 3,890 | (201) | 9,296 | ||||||||||||||
| Deferred | 453 | 1,714 | (2,104) | ||||||||||||||
| Total income tax expense | $ | 9,413 | $ | 8,856 | $ | 26,807 | |||||||||||
The Company’s income tax expense differed from the statutory federal rate of 21% for the years ended December 31, 2025, 2024 and 2023 as follows:
| (dollars in thousands) | 2025 | 2024 | 2023 | |||||||||||||||||||||||
| US federal statutory income tax rate | $ | (24,122) | 21.00 | % | $ | 9,849 | 21.00 | % | $ | 18,472 | 21.00 | % | ||||||||||||||
Domestic state and local taxes, net of federal effect(1) | 3,431 | (2.99) | 1,196 | 2.55 | 5,682 | 6.46 | ||||||||||||||||||||
| Domestic federal | ||||||||||||||||||||||||||
| Tax credits, net of amortization | (80) | 0.07 | 409 | 0.87 | (155) | (0.18) | ||||||||||||||||||||
| Nontaxable and nondeductible items | ||||||||||||||||||||||||||
Tax-exempt income, net(2) | (2,418) | 2.10 | (2,116) | (4.51) | (1,762) | (2.00) | ||||||||||||||||||||
| Surrender of company-owned life insurance policies | — | — | — | — | 3,756 | 4.27 | ||||||||||||||||||||
| Nondeductible goodwill impairment | 32,335 | (28.15) | — | — | — | — | ||||||||||||||||||||
| Other nontaxable and nondeductible items | 124 | (0.11) | 198 | 0.42 | 201 | 0.23 | ||||||||||||||||||||
| Valuation allowance | 103 | (0.09) | 40 | 0.09 | 53 | 0.06 | ||||||||||||||||||||
| Other | 40 | (0.03) | (720) | (1.54) | 560 | 0.64 | ||||||||||||||||||||
| Actual income tax expense and effective tax rate | $ | 9,413 | (8.20) | % | $ | 8,856 | 18.88 | % | $ | 26,807 | 30.48 | % | ||||||||||||||
(2) During the years ended December 31, 2025 2024 and 2023, tax-exempt income, net, primarily included tax-exempt interest income on municipal securities and increases in the cash surrender value of bank-owned life insurance. During the year ended December 31, 2023, tax-exempt income, net, also included underwriting income earned by the Company's captive insurance subsidiary that has elected to be taxed under Internal Revenue Code Section 831(b).
Deferred tax assets, net in the accompanying consolidated balance sheets at December 31, 2025 and 2024 include the following amounts of deferred tax assets and liabilities:
| (dollars in thousands) | 2025 | 2024 | |||||||||
| Assets: | |||||||||||
| Allowance for credit losses on loans | $ | 18,170 | $ | 29,191 | |||||||
| Deferred loan costs, net of fees | 1,419 | — | |||||||||
| Deferred compensation | 1,986 | 2,050 | |||||||||
| Tax credits | 591 | 8,796 | |||||||||
| Unrealized loss on securities | 20,276 | 28,547 | |||||||||
| Unrealized loss on derivatives | 523 | 504 | |||||||||
| Net operating losses | 6,365 | 7,290 | |||||||||
| Operating lease liabilities | 2,444 | 2,654 | |||||||||
| Other, net | 5,435 | 7,521 | |||||||||
| Deferred tax assets | 57,209 | 86,553 | |||||||||
| Valuation allowance | (416) | (287) | |||||||||
| Deferred tax assets, net of valuation allowance | 56,793 | 86,266 | |||||||||
| Liabilities: | |||||||||||
| Premises and equipment | 1,201 | 1,177 | |||||||||
| Mortgage servicing rights | 2,937 | 3,524 | |||||||||
| Fair value adjustment on trust preferred debentures | 3,423 | 3,593 | |||||||||
| Deferred loan costs, net of fees | — | 1,457 | |||||||||
| Intangible assets | 2,161 | 2,783 | |||||||||
| Leased equipment | 484 | 15,981 | |||||||||
| Operating lease right-of-use assets | 2,131 | 2,318 | |||||||||
| Other, net | 5,141 | 7,414 | |||||||||
| Deferred tax liabilities | 17,478 | 38,247 | |||||||||
| Deferred tax assets, net | $ | 39,315 | $ | 48,019 | |||||||
The components of income taxes paid for the years ended December 31, 2025, 2024 and 2023 were as follows:
| (dollars in thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| US federal | $ | 812 | $ | 15,000 | $ | 15,000 | ||||||||||||||
| US state and local | ||||||||||||||||||||
| California | 105 | * | * | |||||||||||||||||
| Florida | 120 | * | * | |||||||||||||||||
| Illinois | — | 4,500 | 5,600 | |||||||||||||||||
| Indiana | 125 | * | * | |||||||||||||||||
| Texas | 152 | * | * | |||||||||||||||||
| Other | 266 | 3,043 | 4,520 | |||||||||||||||||
| Total income taxes paid | $ | 1,580 | $ | 22,543 | $ | 25,120 | ||||||||||||||
*Jurisdiction below the 5% disclosure threshold for the period presented.
At December 31, 2025 and 2024, the accumulation of the prior year’s earnings representing tax bad debt deductions was approximately $3.1 million for both years. If these tax bad debt reserves were charged for losses other than bad debt losses, the Company would be required to recognize taxable income in the amount of the charge. It is not expected that such tax-restricted retained earnings will be used in a manner that would create federal income tax liabilities.
The Company had $25.7 million of federal net operating loss carryforwards expiring 2026 through 2035, $12.8 million of Illinois post-apportioned net operating loss carryforwards expiring 2030 through 2031 and $25.7 million of Missouri pre-apportioned net operating loss carryforwards expiring 2026 through 2035 at December 31, 2025. The utilization of the federal and Missouri net operating losses are subject to the limitations of Internal Revenue Code Section 382. The utilization of the Illinois net operating loss is limited to $100,000 per year for years 2021 through 2023 and $500,000 per year for years 2024 and 2025, and years under which net operating losses are suspended do not count toward the number of carryforward years.
The Company has state tax credit carryforwards of $0.7 million with a five year carryforward period, expiring between 2026 and 2030. Any amounts that are expected to expire before being fully utilized have been accounted for through a valuation allowance as discussed below.
The deferred tax asset associated with the unrealized losses on securities is mainly a result of changes in interest rates, and the unrealized losses are considered to be temporary as the fair value is expected to recover as the securities approach their respective maturity dates.
We had no unrecognized tax benefits as of December 31, 2025 and 2024, and did not recognize any increase of unrecognized benefits during 2025 relative to any tax positions taken during the year.
Should the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is our policy to record such accruals in other income or expense; no such accruals existed as of December 31, 2025 and 2024.
Future realization of the tax benefit of an existing deductible temporary difference or carryforward ultimately depends on the existence of sufficient taxable income of the appropriate character within the carryback or carryforward period available under the tax law. All available evidence, both positive and negative, should be considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. At December 31, 2025, the Company concluded, based on all available evidence, a valuation allowance was needed for the Company’s deferred tax asset related to capital loss carry forwards. An addition was made to the $287,000 valuation allowance from December 31, 2024 in the amount of $129,000, resulting in a valuation allowance of $416,000 at December 31, 2025 for the estimated capital losses that will not be able to be utilized in the future. For the Company's remaining deferred tax assets, based on our taxpaying history and estimates of taxable income over the years in which the items giving rise to the deferred tax assets are deductible, management believes it is more likely than not that we will realize the benefits of these deductible differences.
The Company is subject to U.S. federal income tax as well as income tax of various states. Years that remain open for potential review by the Internal Revenue Service are 2022 through 2024 and by state taxing authorities are 2021 through 2024.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 2, 2026 | Showing above |
| 2024 | Jul 1, 2025 | |
| 2023 | Feb 23, 2024 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Feb 28, 2020 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.