Midland States and M2 Equipment Finance Abandon Equipment Lending

Why Did Midland States and M2 Equipment Finance Abandon Equipment Lending Simultaneously?

Midland States Bancorp ceased all equipment finance production effective September 30, 2025, after recording $5 million in net charge-offs from its trucking portfolio in Q3 alone³.

The Illinois-based bank increased loss-given-default assumptions across its $4.87 billion loan portfolio, with CEO Jeffrey Ludwig stating the equipment finance division would "not achieve our expected returns over the long term"⁴. Total provisions for credit losses reached $20.5 million in Q3, with $15 million attributed solely to equipment finance exposure⁵.

M2 Equipment Finance, a Wisconsin-based subsidiary of QCR Holdings, discontinued new loan and lease originations in September 2024, citing "market dynamics" and a need to "allocate capital to assets with higher risk-adjusted returns"⁶.

The company's allowance for credit losses climbed to 3.9% in Q2 2024 from 3.5% the prior year, while maintaining a $360 million servicing portfolio expected to amortize over three years⁷.

Both exits occurred within months of each other, suggesting synchronized recognition of systemic credit deterioration rather than institution-specific underwriting failures.

The timing coincides with trucking bankruptcy filings reaching their highest monthly concentration since systematic tracking began, with 12 additional freight carriers filing Chapter 11 in October 2025 alone⁸.

Which Lenders Are Capitulating in Transportation Finance and What Does Their Exit Tell Us About Portfolio Risk?

Regional banks and equipment finance subsidiaries are executing rapid exits from trucking portfolios, with two major lenders halting all new originations in Q3 2025 after absorbing multimillion-dollar charge-offs concentrated in sub-100 fleet bankruptcies. The withdrawal pattern reveals specific risk triggers alternative lenders can exploit or avoid, including:

• collateral depreciation rates exceeding 20% annually

• unsecured exposure from deficiency balances

• adverse selection dynamics where carriers seek financing immediately before operational failure¹².

What Loss Severity Are Banks Actually Experiencing on Secured Trucking Loans?

Court filings reveal substantial unsecured deficiency balances where collateral liquidation fails to cover outstanding principal. M&T Bank reported $905,000 in unsecured claims from Dolche Truckload's bankruptcy, secured against nine Freightliner trucks and one Volvo truck, plus an additional $45,000 tied to nine Wabash reefer trailers⁹. The same institution holds over $400,000 in unsecured claims from Daniel Trucking International's filing, representing exposure across 47 trucks¹⁰.

BMO Bank faces approximately $900,000 in unsecured claims from Propel Trucking's October 2025 filing, concentrated in six truck transactions¹¹. The Canadian parent company, Bank of Montreal, is actively exploring sale of its entire transportation finance arm following elevated impaired loan formations¹². BMO's gross impaired transportation loans reached CAD $503 million in Q2 2025 before declining to CAD $424 million in Q3¹³.

These deficiency balances indicate collateral coverage ratios below 50% in multiple transactions, contradicting traditional equipment finance assumptions where 75-80% LTV provides adequate protection. The gap stems from accelerated depreciation in used truck values, which declined 15-20% year-over-year through mid-2024 according to ACT Research data¹⁴¹⁵.

How Does Collateral Depreciation Compare to Historical Equipment Finance Norms?

Used Class 8 truck average retail prices fell to $55,745 in September 2025, representing a 27.4% decline from pandemic-era peaks and continuing monthly depreciation exceeding 2% on unsold inventory¹⁶¹⁷. November 2024 marked the first month since April 2021 that average transaction prices dropped below $60,000¹⁸.

Repossession inventory surged 25.8% year-over-year in May 2024, with Sandhills Global reporting "a lot of voluntaries right now in that space to where they just can't make it work"¹⁹. Liquidation timelines extended beyond normal 30-60 day wholesale cycles as dealer networks became saturated with defaulted carrier assets.

The depreciation velocity creates margin compression for lenders who originated loans at 2022-2023 valuations. A $150,000 truck financed at 80% LTV in early 2023 now carries liquidation value below $100,000, leaving $20,000+ deficiency balances after repossession costs. These losses compound when carriers default within 12-18 months of origination, before significant principal amortization occurs.

Which Carrier Bankruptcies Signal Broader Market Deterioration Versus Isolated Failures?

Combined with earlier 2025 filings and filings below, the sector reported at least 17 Chapter 11 cases in Q2 alone²¹.

1. G1 Transport filed Oct. 3 in the Northern District of Georgia;

2. GEC Transport Solutions filed Oct. 6 in the Southern District of Texas;

3. Hadnot Logistics filed Oct. 29 in the Northern District of Texas;

4. IH 35 Transportation filed Oct. 2 in the Southern District of Texas;

5. Mister M&K Trucking filed Oct. 17 in the Western District of Texas;

6. Propel Trucking filed Oct. 2 in the Eastern District of Arkansas;

7. R&R Transport & Logistics filed Oct. 9 in the Southern District of Texas;

8. Ricky Sellers Trucking filed Oct. 23 in the Southern District of Alabama;

9. Styx Logistics filed Oct. 9 in the District of Nevada;

10. Supra National Express filed Oct. 28 in the Northern District of Illinois;

11. Titan Group Logistics filed Oct. 30 in the Central District of California; and

12. VIB Trans filed Oct. 28 in the Northern District of Illinois;

This spike follows an already elevated trend and overall bankruptcies in the sector are outpacing those in 2024.

Montgomery Transport's October 2025 Chapter 7 liquidation represents the largest single trucking bankruptcy of 2025, affecting approximately 1,000 employees and ceasing operations immediately without wind-down period²². The Birmingham-based flatbed carrier's abrupt closure left in-transit freight stranded and creditors with minimal recovery prospects.

The pattern reveals systematic margin compression rather than management incompetence. Failed carriers include 58-truck Daniel Trucking International, 70-truck Elite Carriers, and 70-truck Dolche Truckload, demonstrating that mid-sized operators with established fleets cannot survive prolonged spot rate suppression²³²⁴.

What Freight Rate Environment Drove These Carrier Failures?

Dry van spot rates averaged $1.63 per mile (excluding fuel) in September 2025, up only 2.5% year-over-year despite capacity reductions²⁵. These rates remain below average carrier operating costs, which the American Transportation Research Institute calculates at approximately 34% higher than 2014 levels when similar spot rates last prevailed²⁶.

Spot rates persisted "well below public truckload carriers' operating cost per mile for most of the past year," according to freight market analysis, creating unsustainable unit economics for smaller operators without contractual volume guarantees²⁷. The spot-to-contract spread compressed to $0.34 per mile by September 2025, eliminating traditional arbitrage opportunities that allowed spot market specialists to remain profitable²⁸.

Carriers seeking equipment financing in this environment face dual pressure: insufficient cash flow to service existing debt while also unable to generate returns justifying new equipment purchases. This creates the adverse selection dynamic where only the most distressed operators pursue alternative financing, precisely when their default risk peaks.

How Should Alternative Lenders Reposition Given Bank Withdrawals?

The regional bank retreat creates temporary pricing power for alternative lenders willing to accept transportation exposure, but sustainable profitability requires operational monitoring capabilities banks lacked. Midland States' exit demonstrates that traditional financial statement analysis and collateral-based underwriting cannot identify deterioration fast enough in 90-120 day credit cycles.

Competitive positioning opportunities include:

• Geographic concentration in non-bank markets: Midland States operated primarily in Illinois and the Midwest, while M2 served Wisconsin-centric markets²⁹³⁰. Alternative lenders can capture dealership relationships these institutions abandoned.

• Subordinated working capital structures: Banks' unsecured deficiency exposure suggests opportunity for junior capital providers who price for 40-50% loss severity rather than assuming collateral recovery.

• Debt service monitoring technology: Real-time cash flow tracking and CSA score monitoring provide 30-60 day advance warning that quarterly financial statements miss, as demonstrated by Midland's $5 million single-quarter charge-off³¹.

Rush Enterprises noted in October 2025 earnings that "financing remains a challenge for many buyers" with an "increasing number of bankruptcies of small carriers," confirming dealer networks face origination gaps banks formerly filled³².

The strategic calculus depends on whether alternative lenders view banking exits as validation of systemic risk or as overcorrection creating opportunity. Current spot rates suggest the freight recession continues through at least mid-2026, with ACT Research forecasting continued capacity oversupply and muted demand³³.

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