UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K/A

CURRENT REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported):  February 28, 2018

Midland States Bancorp, Inc.

(Exact Name of Registrant as Specified in Charter)

1201 Network Centre Drive
Effingham, Illinois 62401
(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (217) 342-7321

N/A

(Former Name or Former Address, if Changed Since Last Report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 under the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  x

Item 2.01.                Completion of Acquisition or Disposition of Assets.

On February 28, 2018, Midland States Bancorp, Inc. (“Midland”) completed its acquisition of Alpine Bancorporation, Inc. (“Alpine”) pursuant to the previously announced Agreement and Plan of Merger, dated as of October 16, 2017, by and among Midland, Peak Midland Acquisition, LLC (“Merger Sub”), and Alpine.  Alpine was merged with and into Merger Sub (the “Merger”), with Merger Sub surviving as a wholly owned subsidiary of Midland.  As a result of the Merger, Alpine’s wholly owned bank subsidiary, Alpine Bank & Trust Co., became a wholly owned subsidiary of Midland.

On February 28, 2018, Midland filed a Current Report on Form 8-K with the Securities and Exchange Commission to report the completion of the Merger and other related matters. The purpose of this filing is to amend the Form 8-K filed on February 28, 2018, to include the information required by Item 9.01(a) and (b).

Item 9.01.                Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired.

The audited consolidated financial statements of Alpine as of December 31, 2017 and 2016, and for each of the two years ended December 31, 2017 and 2016, as well as the accompanying notes thereto and the related Independent Auditor’s Report, are filed as Exhibit 99.1 and incorporated herein by reference.

(b) Pro Forma Financial Information.

The unaudited pro forma condensed combined balance sheet of Midland as of December 31, 2017, and the unaudited pro forma condensed combined income statement of Midland for the year ended December 31, 2017, are filed as Exhibit 99.2 and incorporated herein by reference.

(d)  Exhibits.

2

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

3

Exhibit 23.1

Consent of Independent Auditor

We consent to the inclusion in the Current Report on Form 8-K/A (No. 001-35272) and consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-211963) and Form S-3 (No. 333-219097) of Midland States Bancorp, Inc. of our report dated February 27, 2018 related to our audits of the consolidated financial statements of Alpine Bancorporation, Inc. and Subsidiaries, as of and for the years ended December 31, 2017 and 2016.

/s/ Wipfli LLP

Wipfli LLP

Madison, Wisconsin

May 15, 2018

Exhibit 99.1

CONTENTS

Independent Auditor’s Report

Board of Directors

Alpine Bancorporation, Inc. and Subsidiaries

Belvidere, Illinois

We have audited the accompanying consolidated balance sheets of Alpine Bancorporation, Inc. and Subsidiaries (the “Company”) as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the years then ended and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits.  We conducted our audits in accordance with auditing standards generally accepted in the United States.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.  The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.  In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances.  An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alpine Bancorporation, Inc. and Subsidiaries as of December 31, 2017 and 2016, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States.

Report on Internal Controls over Financial Reporting

We also have audited in accordance with auditing standards generally accepted in the United States, the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and our report dated February 27, 2018, expressed an unmodified opinion.

Alpine Bancorporation, Inc. and Subsidiaries

Consolidated Balance Sheets

December 31, 2017 and 2016

(In thousands, except share data)

See Notes to Consolidated Financial Statements.

3

Alpine Bancorporation, Inc. and Subsidiaries

Consolidated Statements of Operations

Years Ended December 31, 2017, and 2016

(In thousands, except share data)

See Notes to Consolidated Financial Statements.

4

Alpine Bancorporation, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

Years Ended December 31, 2017, and 2016

(In thousands)

See Notes to Consolidated Financial Statements.

5

Alpine Bancorporation, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

Years Ended December 31, 2017 and 2016

(In thousands, except share data)

See Notes to Consolidated Financial Statements.

6

Alpine Bancorporation, Inc. and Subsidiaries

Consolidated Statements of Cash Flows - Unaudited

Years Ended December 31, 2017 and 2016

(In thousands)

See Notes to Consolidated Financial Statements.

7

ALPINE BANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2017 and 2016

Note 1.         Summary of Significant Accounting Policies

The accounting and reporting policies of Alpine Bancorporation, Inc. (the Company) conform to accounting principles generally accepted in the United States of America (“GAAP”) and to general practices within the banking industry.  Certain reclassifications were made to prior year amounts to conform to the current year presentation.  The following is a description of the significant policies.

Principles of consolidation:  The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Alpine Bank & Trust Co. (the Bank).  Alpine Insurance Solutions is a wholly owned consolidated subsidiary of the Bank that provides limited insurance services.  Assets held in a fiduciary or agency capacity are not assets of the Company or its subsidiary and are not included in the consolidated financial statements.  All significant intercompany accounts and transactions have been eliminated in consolidation.

Nature of operations:  The Bank provides a variety of banking products and services to individuals and businesses through facilities in the Illinois counties of Winnebago, Boone, and northern DeKalb and has an increasing commercial presence in the Wisconsin counties of Dane and Milwaukee.  Primary deposit products are demand deposits, savings, and certificates of deposit and primary lending products are agribusiness, commercial, including commercial real estate, real estate mortgage, and installment loans.  The Bank also offers wealth and trust services to the public.

Use of estimates:  The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  Although these estimates and assumptions are based upon the best available information, actual results could differ from those estimates.  The allowance for loan losses, valuation of mortgage servicing rights, valuation of OREO, and fair values of financial instruments are particularly subject to change.

Significant group concentrations of credit risk:  Most of the Company’s activities are with customers located within the Illinois counties of Winnebago, Boone, and northern DeKalb.  An increasing portion of the Company’s loan portfolio activities are with customers located within the Wisconsin counties of Dane and Milwaukee.  Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy in the preceding areas.  Note 3 addresses the types of securities in which the Company invests.  Note 4 addresses the types of lending that the Company engages in.  The Company does not have any significant concentrations to any one industry or customer.

Presentation of cash flows:  For purposes of reporting cash flows, cash and cash equivalents include cash, deposits with other financial institutions with maturities fewer than 90 days, and federal funds sold.  Cash flows from loans, deposits, federal funds purchased, other short-term borrowings, and any sweep repurchase agreements are reported net.

Securities:  Securities are classified as available-for-sale or held-to-maturity at the time of purchase.  Debt securities classified as held-to-maturity are carried at amortized cost when management has the positive intent and ability to hold them to maturity.  Debt securities are classified as available-for-sale when they might be sold before maturity.  Equity securities with readily determinable fair values are classified as available-for-sale.  Securities classified as available-for-sale are recorded at fair value, with unrealized holding gains and losses excluded from earnings and reported in other comprehensive income.

Purchase premiums and discounts are recognized in interest income on the level yield method without anticipating prepayments.  Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

8

ALPINE BANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

December 31, 2017 and 2016

Note 1.         Summary of Significant Accounting Policies (Continued)

Securities (continued):  Management evaluates securities for other-than-temporary impairment (“OTTI”) when economic or market conditions warrant such an evaluation.  For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer.  Management also assesses whether it intends to sell, or if it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis.  If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings.  For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the Consolidated Statements of Operations and 2) OTTI related to other factors, which is recognized in other comprehensive income.  The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.  For equity securities, the entire amount of impairment is recognized through earnings.

Loan Commitments and related financial instruments: Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer-financing needs.  The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay.  Such financial instruments are recorded when they are funded.  Instruments, such as standby or performance letters of credit that are considered financial guarantees are recorded at fair value at inception, if material.

Loans held-for-sale:  The Bank originates residential mortgage loans, which consist of loan products eligible for sale to the secondary market.  Residential mortgage loans intended and eligible for sale in the secondary market are carried at fair value.  The fair value of loans held-for-sale is determined using quoted secondary market prices on similar loans.

Mortgage loans held-for-sale are generally sold with servicing rights retained.  The carrying value of mortgage loans sold is reduced by the amount allocated to the servicing right.  Gains and losses on sales of mortgage loans are recorded in non-interest income and are based upon the difference between the selling price and the carrying value of the related loan sold using the specific identification method.

Loans:  The Bank grants mortgage, commercial, agriculture and consumer loans to customers.  A substantial portion of the loan portfolio is represented by loans throughout Winnebago, Boone, and northern DeKalb counties in Illinois.  In addition, an increasing portion of the loan portfolio is represented by loans, principally commercial, in Dane and Milwaukee Counties in Wisconsin.  The ability of the Bank’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in these areas.

Loans held-for-investment are loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off and are generally reported at their outstanding unpaid principal balances adjusted for charge-offs and net of an allowance for loan losses.  Interest income is accrued on the unpaid principal balance.  Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield.

Interest income on mortgage and commercial loans is discontinued and placed on non-accrual status at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection.  Open-end home equity lines of credit loans are charged off no later than 180 days past due, and commercial loans are charged off to the extent principal or interest is deemed uncollectible.  Closed end retail and mortgage loans continue to accrue interest until they are charged off no later than 120 days past due unless the loan is in the process of collection and well secured.  Past-due status is based on the contractual terms of the loan.  In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.  Non-accrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

9

ALPINE BANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

December 31, 2017 and 2016

Note 1.         Summary of Significant Accounting Policies (Continued)

Loans (continued): All interest accrued but not received for loans placed on non-accrual is reversed against interest income.  Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual.  Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero.  Under the cash-basis method, interest income is recorded when the payment is received in cash.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for loan losses:  The allowance for loan losses is a valuation allowance for probable incurred credit losses and is maintained at a level, which, in management’s judgment, is adequate to absorb credit losses relating to specifically identified loans, as well as probable credit losses inherent in the loan portfolio.  The amount of the allowance is an estimate based on management’s evaluation of the collectability of the loan portfolio, including the nature and volume of the portfolio, credit concentrations, and trends in historical loss experience, specific impaired loans, and the effect of economic conditions and other factors.  Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.  Because of uncertainties inherent in the estimation process, management’s estimate of credit losses inherent in the loan portfolio and the related allowance may change materially in the near term.  In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses and may require the Bank to make additions to the allowance based on their judgment about information available to them at the time of their examinations.  The allowance is increased by a provision for loan losses, which is charged to expense.  Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.

When establishing the general component of the allowance for loan losses, management categorizes loans into loan pools generally based on the nature of the collateral or purpose of the loan.  These loan pools and their common characteristics are as follows:

The Commercial loan segment includes the following:

Commercial loans — Commercial loans are loans for commercial and industrial purposes, including issuing letters of credit, whether secured or unsecured, single-payment or amortizing.  These loans originate to sole proprietorships, partnerships, or corporations.  These may also include loans made to individuals for commercial, industrial, and professional purposes but not for investment or personal expenditures.  The Bank’s commercial business loan portfolio is comprised of loans for a variety of business purposes and generally is secured by equipment, machinery and other business assets.

Municipal loans — These loans provide financing for counties, municipalities, school districts, irrigation districts, state and local housing authorities and drainage and sewer districts or any obligations that are initiated by the state or local governments.

Agricultural loans — These are loans which originate to finance agricultural production, whether secured or unsecured and whether made to farm owners and operators or to non-farmers.  These include loans made for the purpose of financing the growing and storing of crops, the marketing or carrying of agricultural products and the production of livestock.  Also included in this pool would be loans made to farmers for the purchase or maintenance of farm machinery, equipment and implements, or provisions for farmer living expenses.

The commercial real estate loan segment includes the following:

Owner occupied real estate loans — These are loans secured by owner-occupied non-farm nonresidential properties.  These are loans for which the primary source of repayment is the cash flow from the ongoing operations and activities conducted by the party who owns the property.  Rental income, if derived from a nonaffiliated third party, must be less than 50% of the source of repayment.

10

ALPINE BANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

December 31, 2017 and 2016

Note 1.         Summary of Significant Accounting Policies (Continued)

Allowance for loan losses (continued):  Non owner-occupied real estate — Non owner-occupied are loans secured by non-farm nonresidential properties, including business and industrial properties, hotels, motels, churches, hospitals, educational and charitable institutions, dormitories, clubs, lodges, association buildings, homes for aged persons and orphans, golf courses, recreational facilities and similar properties.

Construction, land development, and other land loans — These loans are secured by real estate and originated to finance (a) land development preparatory to erecting vertical improvements or (b) the on-site construction of industrial, commercial, residential, or farm buildings.  For purposes of this classification, “construction” includes not only construction of new structures, but also includes any loans originated to finance additions or alterations to existing structures and the demolition of existing structures to make way for new structures.  Also included are loans secured by vacant land, except land known to be used or usable for agricultural purposes.  Until a permanent loan originates or payoff occurs all construction loans secured by real estate are reportable in this loan pool.  Loans to finance construction and land development that are not secured by real estate are segmented and reported separate from this pool.

Other commercial real estate loans — This includes farmland loans, multi-family loans and other real estate secured loans.  Farmland loans include all loans secured by farmland and improvements thereon.  Farmland includes all land known to be used or usable for agricultural purposes, such as crop and livestock production.  Farmland includes grazing or pastureland, whether tillable or not and whether wooded or not.  Multi-family loans include loans to finance non-farm properties with five or more units in structures primarily to accommodate households on a temporary or permanent basis.  These may include apartment buildings or apartment hotels.

The residential real estate loan segment includes the following:

Residential real estate loans — Residential loans are generally smaller in size and are homogenous because they exhibit similar characteristics.  These loans are secured by nonfarm property containing one to four family dwelling units (including vacation homes), mobile homes, and individual condominium dwelling units secured by an interest in the individual housing unit.

The installment and personal loan segment includes the following:

Direct consumer loans - These loans may take the form of installment loans, demand loans, and single payment loans and are extended to individuals for household, family, and other personal expenditures.  These also include direct consumer automobile loans extended by the bank for the purpose of purchasing a new or used vehicle for personal use.

Indirect consumer loans — These loans include retail installment-sales paper purchased by the bank from merchants or dealers of retail sales of vehicles for personal use.

Home equity loans — These consist of closed-end loans secured by one to four family residential properties secured by junior liens.

Home equity lines — These loans consist of revolving open-end lines of credit secured by one to four family residential properties extended to individuals for household, family, and other personal expenditures.  These lines of credit, commonly known as home equity lines, are typically secured by a junior lien and are usually accessible by check.

Personal reserve account loans — These consist of extensions of credit to individuals for household, family and other personal expenditures arising from prearranged overdraft plans.

Credit card lines — These consist of unsecured revolving open-end lines of credit to individuals and businesses for expenditures.

11

ALPINE BANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

December 31, 2017 and 2016

Note 1.         Summary of Significant Accounting Policies (Continued)

Allowance for loan losses (continued): The allowance consists of specific and general components.  The specific component relates to loans that are individually classified as impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement.  Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDRs”) and classified as impaired.

Additional factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Impaired loans are measured on an individual basis based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral, net of costs to sell, if the loan is collateral dependent.  For impaired loans, accrual of interest is discontinued on a loan when management believes after considering collection efforts and other factors that the borrower’s financial condition is such that the collection of interest is doubtful.

Troubled debt restructurings are individually evaluated for impairment and included in the separately identified impairment disclosures.  TDRs are measured at the present value of estimated future cash flows using the loan’s effective rate at inception.  If a commercial TDR is considered to be a collateral dependent loan, the loan is reported at the fair value of the collateral, net.  For TDRs that subsequently default, the Bank determines the amount of the allowance on that loan in accordance with the accounting policy for the allowance for loan losses on loans individually identified as impaired.  The Bank incorporates recent historical experience related to TDRs including the performance of TDRs that subsequently default into the calculation of the allowance by loan portfolio segment.

The general component covers loans that are collectively evaluated for impairment.  Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans are collectively evaluated for impairment.  The general allowance component also includes loans that are not individually identified for impairment evaluation, as well as those loans that are individually evaluated but are not considered impaired.  The general component is based on historical loss experience adjusted for current factors.  The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Bank.  This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment.

These economic and other factors include, but are not limited to, consideration of the following: changes in the nature and volume of the portfolio and terms of loans, changes in volume and severity of past due loans and similar conditions such as trends in delinquencies and impaired loans (including TDRs); levels of and trends in charge-offs and recoveries;  changes in levels of loans classified as special mention, substandard, or doubtful; effects of any changes in the quality of the organization’s loan review system including risk selection; other changes in lending policies and procedures including changes in underwriting standards and collections, charge offs, and recovery practices; changes in the experience, ability, and depth of lending management and other relevant staff; changes in international, national, regional, and local economic trends and conditions; changes in the value of underlying collateral on collateral dependent loans; industry conditions and effects of changes in credit concentration and levels of such concentration; and the effect of other external factors (i.e. competition, legal and regulatory requirements) on the level of estimated credit losses.

12

ALPINE BANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

December 31, 2017 and 2016

Note 1.         Summary of Significant Accounting Policies (Continued)

Troubled debt restructurings:  A loan is classified as a troubled debt restructuring when a borrower is experiencing financial difficulties that leads to a restructuring of the loan, and the Company grants concessions to the borrower in the restructuring that it would not otherwise consider.  These concessions may include rate reductions, principal forgiveness, extension of maturity date, and other actions intended to minimize potential losses.  Loans are not classified as a TDR when the modification is short-term or results in only an insignificant delay or shortfall in the payments to be received.  The Bank’s TDRs are determined on a case-by-case basis in connection with ongoing loan collection and credit analysis processes.

The Company generally does not accrue interest on any TDRs unless it believes collection of all principal and interest under the modified terms is reasonably assured.  For TDRs to accrue interest, the borrower must demonstrate both some level of past performance and the capacity to perform under the modified terms.  Generally, six months of consecutive payment performance by the borrower under the restructured terms is required before TDRs are returned to accrual status.  However, the period could vary depending on the individual facts and circumstances of the loan.  An evaluation of the borrower’s current creditworthiness is used to assess whether the borrower has the capacity to repay the loan under the modified terms.  This evaluation includes an estimate of expected cash flows, evidence of strong financial position, and estimates of the value of collateral, if applicable.

Mortgage servicing rights:  The Bank is also involved in the business of servicing mortgage loans.  Servicing activities include collecting principal, interest, and escrow payments from borrowers, making tax and insurance payments on behalf of the borrowers, monitoring delinquencies, executing foreclosure proceedings, and accounting for and remitting principal and interest payments to the investors.  Mortgage servicing rights represent the right to a stream of cash flows and an obligation to perform specified residential mortgage servicing activities.

Servicing rights are recognized separately as assets when they are acquired through sales of loans and servicing rights are retained.  Servicing rights are initially recorded at fair value with the effect recorded in gains on sales of loans on the Consolidated Statements of Operations.  Mortgage servicing rights are valued under the fair value measurement method.  Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income.  The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation   rate, ancillary income, prepayment speeds and default rates and losses.  While market-based data is used to determine the input assumptions, the Bank incorporates its own estimates of assumptions market participants would use in determining fair value of mortgage servicing rights.  Changes in fair value are recognized and reported in the Consolidated Statement of Operations as a component of mortgage servicing income.

Servicing fee income, which is included on the Consolidated Statements of Operations as mortgage servicing income, net of fair value changes, is recorded for fees earned for servicing loans.  The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned.

Mortgage loans that the Company is servicing for others are not included in the Consolidated Balance Sheets.  Fees received in connection with servicing loans for others are recognized as earned.  Loan servicing costs are charged to expense as incurred.

13

ALPINE BANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

December 31, 2017 and 2016

Note 1.         Summary of Significant Accounting Policies (Continued)

Premises and equipment:  Premises and equipment are stated at cost less accumulated depreciation.  Depreciation is charged to operating expense on a straight-line or an accelerated basis over the estimated useful lives of the assets (10-60 years, buildings and improvements; 3-15 years, furniture and equipment).  Gains and losses are included in other noninterest income in the Consolidated Statements of Operations.  Maintenance and repairs are charged to operating expenses as incurred, while improvements that conform to definitions of tangible property improvements are capitalized and depreciated over the estimated remaining life.

Non-marketable equity securities:  Non-marketable equity securities include Federal Reserve Bank (“FRB”) and Federal Home Loan Bank (“FHLB”) stock as well as other non-marketable equity securities.  The Bank is a member of its regional Federal Reserve Bank.  FRB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value.  Both cash and stock dividends are reported as income.

The Bank is also a member of the FHLB system.  Members are required to own a certain amount of stock based on the level of borrowings and other factors.  Effective January, 2017, FHLB began repurchasing all stock in excess of membership activity requirements.  FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value.  Both cash and stock dividends are reported as income. All other non-marketable equity securities are carried at cost, classified as restricted, and periodically evaluated for impairment.

Other Real Estate Owned: Other real estate owned (“OREO”) properties are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.  Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement.  These assets are subsequently accounted for at the lower of cost or fair value less estimated costs to sell.  If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense.  Revenue and expenses from operations and fair value write-downs are included in other real estate expense.

Bank-owned life insurance:  The Company has purchased life insurance policies on certain employees (both current and former).  The bank owned life insurance (“BOLI”) is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value (“CSV”) or the amount that can be realized.  The change in CSV is recorded as increase in cash surrender value of bank-owned life insurance in the Consolidated Statements of Operations in noninterest income.

Loss contingencies:  Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.  Management does not believe there now are such matters that will have a material effect on the financial statements.

Wealth Management & Trust Services:  Assets held in a fiduciary or agency capacity for customers are not included in the consolidated financial statements as they are not assets of the Company or its subsidiaries.  Fee income is recognized on a cash basis and is included as a component of noninterest income in the Consolidated Statements of Operations.

14

ALPINE BANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

December 31, 2017 and 2016

Note 1.         Summary of Significant Accounting Policies (Continued)

Long Term Incentive Plan: Compensation cost for the Company Restricted Stock Plan awards issued to employees is based upon the fair value of the awards at the effective date of grant.  The market price of the Company’s common stock at the grant date is used for the valuation of restricted stock and restricted stock unit awards.  Compensation cost is recognized over the required service performance period, generally defined as the vesting period.

Transfers of financial assets:  Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered.  Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Earnings per common share:  Basic earnings per share (“EPS”) of common stock is computed by dividing net income applicable to common shareholders by the weighted-average number of common shares outstanding for the period.  Diluted EPS is computed by dividing net income applicable to common shareholders by the weighted-average number of common shares outstanding plus the number of additional common shares that would have been outstanding if dilutive shares were issued.

Mortgage banking derivatives:  Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free standing derivatives.  Fair values of these mortgage derivatives are estimated based on changes in mortgage interest rates from the date the interest rate on the loan is locked.  The Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into, in order to hedge the change in interest rates resulting from its commitments to fund the loans.  Changes in the fair values of these derivatives are included in net gain on sales of loans.

Income taxes:  Effective January 1, 2006, the Company, with the consent of its stockholders and the applicable taxing authorities, began being taxed under sections of federal and state income tax law, which provide that, in lieu of corporation income taxes, the stockholders separately account for their pro rata share of the Company’s income, deductions, losses and credits. The Company is responsible for and records as expense appropriate state income taxes.

The Company accounts for uncertainty in income taxes, which arise, based on determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.  The Company did not have any significant uncertain tax positions as of December 31, 2017 and 2016.

Comprehensive income:  Comprehensive income is the total of reported earnings of all other revenues, expenses, gains, and losses that are not reported in earnings under GAAP.  The Company includes the following items in other comprehensive income (loss) in the Consolidated Statements of Comprehensive Income: (i) change in net unrealized gains or losses on available-for-sale securities, less (ii) the reclassification adjustment for the net gains (losses) realized during the period.

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ALPINE BANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

December 31, 2017 and 2016

Note 1.         Summary of Significant Accounting Policies (Continued)

Recent accounting pronouncements:

Future accounting standards:

In May 2014, the FASB issued ASU No. 2014-09 “Revenue from Contracts with Customers (Topic 606).”  The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.  ASU 2014-09 was to be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period.  The amendments can be applied retrospectively to each prior reporting period or retrospectively with the cumulative effect of initially applying this update recognized at the date of initial application.  Early application is not permitted.  The Company is assessing the impact of ASU 2014-09 on its accounting and disclosures.

In August 2015, the FASB issued ASU 2015-14 “Revenue from Contracts with Customers (Topic 606) Deferral of the Effective Date.”  This accounting standards update defers the effective date for an additional year.  ASU 2015-14 will be effective for non-public business entities for annual reporting periods beginning after December 15, 2018. The Company does not believe the adoption of this standard will have a significant impact on its consolidated financial statements because the majority of the Company’s financial instruments are not within the scope of Topic 606.  Revenue streams within Other Noninterest Income that the Company is evaluating include Service Charges on deposit accounts and Income from fiduciary activities.

In January 2016, the FASB issued ASU No. 2016-01 Financial Instruments - Overall (Subtopic 825-10) “Recognition and Measurement of Financial Assets and Financial Liabilities”.  The amendments in this ASU require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee).  The amendments in this accounting standard update also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.  In addition, the amendments in this accounting standard update eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities.  This new standard is effective for consolidated financial statements issued for annual periods beginning after December 15, 2018. The Company does not believe the adoption of the rest of the standard will have a significant impact on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842). The amendment requires lessees recognized the following for all leases (with the exception of short-term leases) as the commencement date (1) A lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discount basis; and (2) A right of use asset which is an asset that represents the lessee’s right to use, control the us e of, a specified asset for the lease term.  Under the new guidance, lessor accounting is largely unchanged.  Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.  These amendments are effective for fiscal years beginning after December 15, 2019.  Early application is permitted. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.  The Company does not believe the adoption of the standard will have a significant impact on its consolidated financial statements.

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ALPINE BANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

December 31, 2017 and 2016

Note 1.         Summary of Significant Accounting Policies (Continued)

In June 2016, FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326). This guidance replaces the current incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model.  The CECL model is applicable to the measurement of credit losses in financial assets, measures at amortized cost, including loan receivables, held to maturity debt securities, and reinsurance receivables.  It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor. These amendments are effective for fiscal years beginning after December 15, 2020.  Entities may adopt early for fiscal years beginning after December 15, 2018.  The Company is assessing the impact of ASU 2016-13 on its accounting and disclosures.

In December 2017, FASB issued ASU 2017-08, Premium Amortization of Purchased Callable Debt Securities (Subtopic 310-20). This standard requires that premiums on purchased callable debt securities to be amortized to the earliest call date.  The amendment does not require an accounting change for securities held at a discount, the discount continues to be amortized until maturity. This new standard is effective for annual reporting periods beginning after December 15, 2018.  The Company does not believe this will have a significant impact on its consolidated financial statements.

In December 2017, FASB issued ASU 2017-12, Targeted Improvement to Accounting for Hedging Activities (Topic 815).  This standard is intended to improve the financial reporting of certain hedging relationships and simplify application of hedge accounting guidance through the following changes: 1) permits hedge accounting for risk components in certain hedging relations involving nonfinancial risk and interest rate risk; 2) changes the guidance for designating fair value hedges on interest rate risk and for measuring the change in fair value of the hedged item in fair value hedges of interest rate risk; 3) requires the Company to present the earning effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported; and 4) provide for other targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness.  The standard also requires some changes to the hedging disclosures.  This new standard is effective for consolidated financial statements issued for annual periods beginning after December 15, 2019.  The Company does not believe this will have a significant impact on its consolidated financial statements.

Pending Transaction:  On October 16, 2017, the Company finalized and executed a merger agreement with Midland States Bancorp, Inc. (“Midland”) an Illinois corporation and registered bank holding company and its wholly owned subsidiary Midland States Bank an Illinois state-chartered bank headquartered in Effingham Illinois.  Under the terms of the agreement shareholders of the Company are expected to receive a combination of cash and shares of Midland States Bancorp, Inc.’s stock valued at $21.42 per share for each share of Company stock based on the closing price of Midland common stock as reports on the Nasdaq Select Market of $33.10 as of October 13, 2017, the trading day immediately preceding the public announcement of the merger.  This merger is anticipated to be finalized on February 28, 2018.

Subsequent events:  The Company has evaluated subsequent events for recognition and disclosure through February 27, 2018, which is the date the consolidated financial statements were available to be issued.

Note 2.                                             Restrictions on Cash and Amounts Due From Banks

The Bank is required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank.  In accordance with the reserve requirements, the average reserve balances were $1.27 million and $1.47 million, for the years ending December 31, 2017, and 2016, respectively.  There were no reserve balances held on deposit with the Federal Reserve Bank at December 31, 2017 and 2016.

The nature of the Company’s business requires that it maintain amounts with other banks and federal funds, which, at times, may exceed federally insured limits.  Management monitors these correspondent relationships, and the Company has not experienced any losses in such accounts.

17

ALPINE BANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

December 31, 2017 and 2016

Note 3.                                             Securities

Investment portfolio management: The investment portfolio serves the liquidity and income needs of the Company.  While the portfolio serves as an important component of the overall liquidity management at the Bank, portions of the portfolio also serve as income producing assets.  The size and composition of the portfolio reflects liquidity needs, loan demand and interest income objectives.  Portfolio size and composition will be adjusted from time to time.  While a significant portion of the portfolio consists of readily marketable securities to address liquidity, other parts of the portfolio may reflect funds invested pending future loan demand or to maximize interest income without undue interest rate risk.

Securities are comprised of debt securities, certificates of deposit, and marketable equity securities.  Securities available-for-sale are carried at fair value.  Unrealized gains and losses, net of tax, on securities available-for-sale are reported as a separate component of equity.  This balance sheet component changes as interest rates and market conditions change.  Unrealized gains and losses are not included in the calculation of regulatory capital.

Securities held-to-maturity are carried at amortized cost.  In accordance with GAAP, the Company has the positive intent and ability to hold the securities to maturity.

The following tables summarize the amortized cost and fair value of the securities portfolio and the corresponding amounts of gross unrealized gains and losses at December 31:

18

ALPINE BANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

December 31, 2017 and 2016

Note 3.         Securities (Continued)

Gross realized gains and gross realized losses on sales of securities available-for-sale for the years ended December 31, are as follows:

19

ALPINE BANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

December 31, 2017 and 2016

Note 3.         Securities (Continued)

The amortized cost and fair value of debt securities by contractual maturity as of December 31, 2017, are shown in the following summary.  Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately in the following summary.

20

ALPINE BANCORPORATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(CONTINUED)

December 31, 2017 and 2016

Note 3.                                             Securities (Continued)

The following table shows the fair value and the unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31: