UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 8-K/A

 

(Amendment No. 1)

 

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

 

Date of report (Date of earliest event reported):  June 8, 2017

 

Midland States Bancorp, Inc.

(Exact Name of Registrant as Specified in Charter)

 

Illinois

 

001-35272

 

37-1233196

(State or Other Jurisdiction of
Incorporation)

 

(Commission File Number)

 

(IRS Employer Identification No.)

 

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 (17 CFR 230.405) or Rule 12b-2 under the Exchange Act (17 CFR 240.12b-2).

 

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

 

 

 



 

Explanatory Note

 

On June 12, 2017, Midland States Bancorp, Inc., an Illinois corporation (“Midland”), filed a Current Report on Form 8-K (the “Initial Report”) to report that on June 9, 2017, Midland completed the acquisition of Centrue Financial Corporation, a Delaware corporation (“Centrue”). This Form 8-K/A amends the Initial Report to include the historical audited financial statements of Centrue and the unaudited pro forma condensed combined financial information required by Items 9.01(a) and 9.01(b) of Form 8-K that were excluded from the Initial Report in reliance on the instructions to such items. This Form 8-K/A should be read in conjunction with the Initial Report.

 

Item 9.01.  Financial Statements and Exhibits.

 

(a) Financial Statements of Business Acquired.

 

The audited consolidated balance sheet of Centrue as of December 31, 2016, the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for the year ended December 31, 2016, the notes related thereto and the Report of Crowe Horwath LLP, independent registered public accounting firm, dated March 2, 2017, were filed in Centrue’s Annual Report on Form 10-K filed on March 2, 2017 and are incorporated by reference herein.

 

The unaudited consolidated balance sheet of Centrue as of March 31, 2017, the related consolidated statements of income and comprehensive income, and cash flows for the three months ended March 31, 2017, and the notes related thereto were filed in Centrue’s Quarterly Report on Form 10-Q filed on May 10, 2017 and are incorporated by reference herein.

 

(b) Pro Forma Financial Information.

 

The unaudited pro forma condensed combined balance sheet of Midland and Centrue as of March 31, 2017, unaudited pro forma condensed combined statement of income of Midland and Centrue for the year ended December 31, 2016 and for the three months ended March 31, 2017, and the notes related thereto, are filed herewith as Exhibit 99.3.

 

(d)  Exhibits.

 

Exhibit
No.

 

Description

 

 

 

23.1

 

Consent of Crowe Horwath LLP

 

 

 

99.1

 

Audited consolidated balance sheet of Centrue Financial Corporation as of December 31, 2016, the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for the year ended December 31, 2016, the notes related thereto and the Report of Crowe Horwath LLP, independent registered public accounting firm, dated March 2, 2017 (incorporated by reference to Centrue Financial Corporation’s Annual Report on Form 10-K filed on March 2, 2017)

 

 

 

99.2

 

Unaudited consolidated balance sheet of Centrue Financial Corporation as of March 31, 2017, the related consolidated statements of income and comprehensive income, and cash flows for the three months ended March 31, 2017, and the notes related thereto (incorporated by reference to Centrue Financial Corporation’s Quarterly Report on Form 10-Q filed on May 10, 2017)

 

2



 

99.3

 

Unaudited pro forma condensed combined balance sheet of Midland States Bancorp, Inc. and Centrue Financial Corporation as of March 31, 2017, unaudited pro forma condensed combined statement of income of Midland States Bancorp, Inc. and Centrue Financial Corporation for the year ended December 31, 2016 and for the three months ended March 31, 2017, and the notes related thereto

 

3



 

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.

 

Date: August 7, 2017

MIDLAND STATES BANCORP, INC.

 

 

 

 

 

By:

/s/ Douglas J. Tucker

 

Name:

Douglas J. Tucker

 

Title:

Senior Vice President and Corporate Counsel

 

4



 

EXHIBIT INDEX

 

Exhibit
No.

 

Description

 

 

 

23.1

 

Consent of Crowe Horwath LLP

 

 

 

99.1

 

Audited consolidated balance sheet of Centrue Financial Corporation as of December 31, 2016, the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for the year ended December 31, 2016, the notes related thereto and the Report of Crowe Horwath LLP, independent registered public accounting firm, dated March 2, 2017 (incorporated by reference to Centrue Financial Corporation’s Annual Report on Form 10-K filed on March 2, 2017)

 

 

 

99.2

 

Unaudited consolidated balance sheet of Centrue Financial Corporation as of March 31, 2017, the related consolidated statements of income and comprehensive income, and cash flows for the three months ended March 31, 2017, and the notes related thereto (incorporated by reference to Centrue Financial Corporation’s Quarterly Report on Form 10-Q filed on May 10, 2017)

 

 

 

99.3

 

Unaudited pro forma condensed combined balance sheet of Midland States Bancorp, Inc. and Centrue Financial Corporation as of March 31, 2017, unaudited pro forma condensed combined statement of income of Midland States Bancorp, Inc. and Centrue Financial Corporation for the year ended December 31, 2016 and for the three months ended March 31, 2017, and the notes related thereto

 

5


Exhibit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We consent to the incorporation by reference in Registration Statements on Form S-8 (File Number 333-211963) and on Form S-3 (File Number 333-219097) of Midland States Bancorp, Inc. of our report dated March 2, 2017 on the consolidated financial statements which is included in the Annual Report on Form 10-K of Centrue Financial Corporation.

 

/s/ Crowe Horwath LLP

 

Oak Brook, Illinois

August 7, 2017

 


Exhibit 99.3

 

UNAUDITED PRO FORMA CONDENSED

COMBINED FINANCIAL INFORMATION

 

The following tables show unaudited pro forma financial information about the financial condition and results of operations of Midland States Bancorp, Inc. (“Midland”), including per share data, after giving effect to the merger with Centrue Financial Corporation (“Centrue”) and other pro forma adjustments. The unaudited pro forma financial information assumes that the merger is accounted for under the acquisition method of accounting for business combinations in accordance with GAAP, and that the assets and liabilities of Centrue will be recorded by Midland at their respective fair values as of the date the merger is completed. The unaudited pro forma condensed combined balance sheet as of March 31, 2017 gives effect to the merger as if it had occurred on that date. The unaudited pro forma condensed combined income statements for the three months ended March 31, 2017 and the year ended December 31, 2016 give effect to the merger as if it had become effective on January 1, 2016.

 

The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not indicate the financial results of the combined company that would have been achieved had the transaction been completed as of the dates indicated or that may be achieved in the future. The unaudited pro forma condensed combined financial information also does not consider any expense efficiencies or other potential financial benefits of the merger.  In addition, as explained in more detail in the accompanying notes, the preliminary allocation of the pro forma purchase price reflected in the unaudited pro forma condensed combined financial information is subject to adjustment and may vary from the actual purchase price allocation that will be recorded in Midland’s consolidated financial statements upon completion of the merger.

 

The preparation of the unaudited pro forma condensed combined financial information and related adjustments required management to make certain assumptions and estimates as of the dates hereof — actual amounts are in the process of being determined. The unaudited pro forma condensed combined financial statements should be read together with:

 

·                  The accompanying notes to the unaudited pro forma condensed combined financial information;

 

·                  Midland’s separate audited historical consolidated financial statements and accompanying notes as of and for the year ended December 31, 2016 included in Midland’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission (the “SEC”) on March 10, 2017;

 

·                  Centrue’s separate audited historical consolidated financial statements and accompanying notes as of and for the year ended December 31, 2016 included in Centrue’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission (the “SEC”) on March 2, 2017;

 

·                  Midland’s separate unaudited historical consolidated financial statements and accompanying notes as of and for the three months ended March 31, 2017 included in Midland’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 10, 2017;

 

·                  Centrue’s separate unaudited historical consolidated financial statements and accompanying notes as of and for the three months ended March 31, 2017 included in Centrue’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 10, 2017.

 



 

Unaudited Pro Forma Condensed Combined Balance Sheet

March 31, 2017

(dollars in thousands, except for share and per share data)

 

 

 

 

 

 

 

Pro Forma

 

 

 

Pro Forma

 

 

 

Midland

 

Centrue

 

Adjustments

 

 

 

Combined

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

218,096

 

$

31,237

 

$

(22,113

)

A

 

$

227,220

 

Investment securities

 

335,608

 

156,302

 

(916

)

B

 

490,994

 

Loans

 

2,454,950

 

688,092

 

(10,192

)

C

 

3,132,850

 

Allowance for loan losses

 

(15,805

)

(8,944

)

8,944

 

D

 

(15,805

)

Total loans, net

 

2,439,145

 

679,148

 

(1,248

)

 

 

3,117,045

 

Loans held for sale

 

39,900

 

 

 

 

 

39,900

 

Premises and equipment, net

 

66,914

 

16,150

 

(2,664

)

E

 

80,400

 

Other real estate owned

 

3,680

 

4,911

 

(582

)

F

 

8,009

 

Mortgage servicing rights

 

68,557

 

1,993

 

(38

)

G

 

70,512

 

Intangible assets

 

8,633

 

 

10,376

 

H

 

19,009

 

Goodwill

 

50,807

 

 

45,918

 

I

 

96,725

 

Cash surrender value of life insurance policies

 

74,806

 

36,203

 

 

 

 

111,009

 

Other assets

 

67,431

 

49,807

 

(2,192

)

J

 

115,046

 

Total assets

 

$

3,373,577

 

$

975,751

 

$

26,541

 

 

 

$

4,375,869

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

528,021

 

$

152,196

 

$

 

 

 

$

680,217

 

Interest-bearing

 

1,999,455

 

576,293

 

1,535

 

K

 

2,577,283

 

Total deposits

 

2,527,476

 

728,489

 

1,535

 

 

 

3,257,500

 

Short-term borrowings

 

124,035

 

11,303

 

 

 

 

135,338

 

FHLB advances and other borrowings

 

250,353

 

93,209

 

40,151

 

L

 

383,713

 

Subordinated debt

 

54,532

 

 

 

 

 

54,532

 

Trust preferred debentures

 

37,496

 

10,000

 

(2,435

)

M

 

45,061

 

Other liabilities

 

45,352

 

4,347

 

47

 

N

 

49,746

 

Total liabilities

 

3,039,244

 

847,348

 

39,298

 

 

 

3,925,890

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Preferred shareholders’ equity

 

 

2,636

 

498

 

O

 

3,134

 

Common shareholders’ equity

 

334,333

 

125,767

 

(13,225

)

P

 

446,845

 

Total shareholders’ equity

 

334,333

 

128,403

 

(12,757

)

 

 

449,979

 

Total liabilities and shareholders’ equity

 

$

3,373,577

 

$

975,751

 

$

26,541

 

 

 

$

4,375,869

 

 

 

 

 

 

 

 

 

 

 

 

 

Book value per common share

 

$

21.19

 

$

19.31

 

 

 

 

 

$

23.52

 

Common shares outstanding

 

15,780,651

 

6,513,694

 

(3,294,456

)

Q

 

18,999,889

 

 



 

Unaudited Pro Forma Condensed Combined Statement of Income

for the Three Months Ended March 31, 2017

(dollars in thousands, except per share data)

 

 

 

 

 

 

 

Pro Forma

 

 

 

Pro Forma

 

 

 

Midland

 

Centrue

 

Adjustments

 

 

 

Combined

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

29,159

 

$

7,403

 

$

273

 

R

 

$

36,835

 

Investment securities

 

2,369

 

699

 

45

 

S

 

3,113

 

Federal funds sold and cash investments

 

311

 

5

 

 

 

 

316

 

Total interest income

 

31,839

 

8,107

 

318

 

 

 

40,264

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

2,386

 

376

 

78

 

T

 

2,840

 

Short-term borrowings

 

80

 

7

 

 

 

 

87

 

FHLB advances and other borrowings

 

566

 

230

 

331

 

U

 

1,127

 

Subordinated debt

 

873

 

 

 

 

 

873

 

Trust preferred debentures

 

473

 

95

 

36

 

V

 

604

 

Total interest expense

 

4,378

 

708

 

445

 

 

 

5,531

 

Net interest income

 

27,461

 

7,399

 

(127

)

 

 

34,733

 

Provision for loan losses

 

1,533

 

 

 

 

 

1,533

 

Net interest income after provision for loan losses

 

25,928

 

7,399

 

(127

)

 

 

33,200

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

Commercial FHA revenue

 

6,695

 

 

 

 

 

6,695

 

Residential mortgage banking revenue

 

2,916

 

248

 

 

 

 

3,164

 

Wealth management revenue

 

2,872

 

 

 

 

 

2,872

 

Service charges on deposit accounts

 

892

 

852

 

 

 

 

1,744

 

Interchange revenue

 

977

 

610

 

 

 

 

1,587

 

Gain on sales of investment securities

 

67

 

 

 

 

 

67

 

Other income

 

1,911

 

430

 

 

 

 

2,341

 

Total noninterest income

 

16,330

 

2,140

 

 

 

 

18,470

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

17,115

 

4,278

 

 

 

 

21,393

 

Occupancy and equipment

 

3,184

 

901

 

 

 

 

4,085

 

Data processing

 

2,796

 

471

 

 

 

 

3,267

 

FDIC insurance

 

370

 

77

 

 

 

 

447

 

Professional

 

2,992

 

293

 

 

 

 

3,285

 

Marketing

 

642

 

37

 

 

 

 

679

 

Communications

 

546

 

192

 

 

 

 

738

 

Loan expense

 

420

 

101

 

 

 

 

521

 

Other real estate owned

 

412

 

103

 

 

 

 

515

 

Intangible assets amortization

 

525

 

 

576

 

W

 

1,101

 

Other

 

1,783

 

1,358

 

 

 

 

3,141

 

Total noninterest expense

 

30,785

 

7,811

 

576

 

 

 

39,172

 

Income before income taxes

 

11,473

 

1,728

 

(703

)

 

 

12,498

 

Income taxes

 

2,983

 

669

 

(276

)

X

 

3,376

 

Net income

 

8,490

 

1,059

 

(427

)

 

 

9,122

 

Dividends on preferred shares

 

 

82

 

 

 

 

82

 

Net income available to common shareholders

 

$

8,490

 

$

977

 

$

(427

)

 

 

$

9,040

 

Per Common Share Data:

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.54

 

$

0.15

 

 

 

 

 

$

0.47

 

Diluted earnings per common share

 

$

0.52

 

$

0.15

 

 

 

 

 

$

0.46

 

 


 


 

Unaudited Pro Forma Condensed Combined Statement of Income

for the Year Ended December 31, 2016

(in thousands, except per share data)

 

 

 

 

 

 

 

Pro Forma

 

 

 

Pro Forma

 

 

 

Midland

 

Centrue

 

Adjustments

 

 

 

Combined

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

106,686

 

$

28,558

 

$

1,086

 

R

 

$

136,330

 

Investment securities

 

13,615

 

2,996

 

180

 

S

 

16,791

 

Federal funds sold and cash investments

 

948

 

134

 

 

 

 

1,082

 

Total interest income

 

121,249

 

31,688

 

1,266

 

 

 

154,203

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

8,936

 

1,357

 

314

 

T

 

10,607

 

Short-term borrowings

 

303

 

37

 

 

 

 

340

 

FHLB advances and other borrowings

 

1,057

 

760

 

1,325

 

U

 

3,142

 

Subordinated debt

 

3,858

 

 

 

 

 

3,858

 

Trust preferred debentures

 

1,841

 

548

 

144

 

V

 

2,533

 

Total interest expense

 

15,995

 

2,702

 

1,783

 

 

 

20,480

 

Net interest income

 

105,254

 

28,986

 

(517

)

 

 

133,723

 

Provision for loan losses

 

5,591

 

300

 

 

 

 

5,891

 

Net interest income after provision for loan losses

 

99,663

 

28,686

 

(517

)

 

 

127,832

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

Commercial FHA revenue

 

22,064

 

 

 

 

 

22,064

 

Residential mortgage banking revenue

 

13,389

 

1,175

 

 

 

 

14,564

 

Wealth management revenue

 

8,091

 

 

 

 

 

8,091

 

Service charges on deposit accounts

 

3,904

 

3,927

 

 

 

 

7,831

 

Interchange revenue

 

3,750

 

2,536

 

 

 

 

6,286

 

Gain on sales of investment securities

 

14,702

 

142

 

 

 

 

14,844

 

Gain on sale of branches

 

 

1,877

 

 

 

 

1,877

 

Gain on extinguishment of debt

 

 

1,000

 

 

 

 

1,000

 

Other income

 

6,157

 

2,089

 

 

 

 

8,246

 

Total noninterest income

 

72,057

 

12,746

 

 

 

 

84,803

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

66,293

 

16,748

 

 

 

 

83,041

 

Occupancy and equipment

 

13,080

 

3,772

 

 

 

 

16,852

 

Data processing

 

10,658

 

1,809

 

 

 

 

12,467

 

FDIC insurance

 

1,707

 

450

 

 

 

 

2,157

 

Professional

 

8,049

 

1,732

 

 

 

 

9,781

 

Marketing

 

2,733

 

244

 

 

 

 

2,977

 

Communications

 

2,150

 

831

 

 

 

 

2,981

 

Loan expense

 

1,957

 

390

 

 

 

 

2,347

 

Other real estate owned

 

935

 

610

 

 

 

 

1,545

 

Intangible assets amortization

 

2,147

 

880

 

2,306

 

W

 

5,333

 

Other

 

11,580

 

4,048

 

 

 

 

15,628

 

Total noninterest expense

 

121,289

 

31,514

 

2,306

 

 

 

155,109

 

Income before income taxes

 

50,431

 

9,918

 

(2,823

)

 

 

57,526

 

Income taxes

 

18,889

 

3,602

 

(1,108

)

X

 

21,383

 

Net income

 

31,542

 

6,316

 

(1,715

)

 

 

36,143

 

Dividends on preferred shares

 

 

329

 

 

 

 

329

 

Net income available to common shareholders

 

$

31,542

 

$

5,987

 

$

(1,715

)

 

 

$

35,814

 

Per Common Share Data:

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

2.22

 

$

0.92

 

 

 

 

 

$

2.06

 

Diluted earnings per common share

 

$

2.17

 

$

0.92

 

 

 

 

 

$

2.02

 

 



 

Note 1—Basis of Presentation

 

The unaudited pro forma condensed combined financial information has been prepared under the acquisition method of accounting for business combinations. The unaudited pro forma condensed combined statements of income for the three months ended March 31, 2017 and the year ended December 31, 2016 are presented as if the acquisition occurred on January 1, 2016. The unaudited pro forma condensed combined balance sheet as of March 31, 2017 is presented as if the acquisition occurred as of that date. This information is not intended to reflect the actual results that would have been achieved had the acquisition actually occurred on those dates. The pro forma adjustments are preliminary, based on estimates, and are subject to change as more information becomes available and after final analyses of the fair values of both tangible and intangible assets acquired and liabilities assumed are completed. Accordingly, the final fair value adjustments may be materially different from those presented in this document.

 

Note 2 — Purchase Price

 

Midland completed the acquisition of Centrue on June 9, 2017. Pursuant to the merger agreement, each issued and outstanding share of Centrue common stock was converted into either $26.75 in cash or 0.7604 shares of Midland common stock. The total number of outstanding shares of Centrue common stock entitled to receive cash consideration did not exceed 35%. Midland also issued 2,636 shares of preferred stock as part of the consideration. The fair value of the preferred stock issued was based on a third-party valuation.

 

Note 3 — Allocation of Purchase Price

 

Under the acquisition method of accounting, the total purchase price is allocated to the acquired tangible and intangible assets and assumed liabilities of Centrue based on their estimated fair value as of the closing of the transaction. The excess of the purchase price over the fair value of the net assets acquired, net of deferred taxes, is allocated to goodwill. Estimated fair value adjustments included in the pro forma financial statements are based upon available information, and certain assumptions considered reasonable, and may be revised as additional information becomes available. The following are the pro forma adjustments made to record the acquisition and to adjust Centrue’s assets and liabilities to their estimated fair values at March 31, 2017.

 

(dollars in thousands)

 

 

 

Purchase price allocation:

 

 

 

Midland common stock paid at June 9, 2017 closing price of $34.95

 

$

112,512

 

Cash paid for Centrue common stock

 

60,996

 

Midland preferred stock issued at closing

 

3,134

 

Purchase price

 

176,642

 

Allocated to:

 

 

 

Net historical book value of Centrue’s assets and liabilities

 

128,403

 

Less: Seller paid deal expenses (net of taxes)

 

(1,117

)

Adjusted net historical book value of Centrue’s assets and liabilities

 

127,286

 

Adjustments to record assets and liabilities at fair value:

 

 

 

Investment securities

 

(916

)

Loans

 

(10,192

)

Elimination of Centrue’s allowance for loan losses

 

8,944

 

Premises and equipment

 

(2,664

)

Other real estate owned

 

(582

)

Mortgage servicing rights

 

(38

)

Core deposit intangible

 

10,376

 

Deferred taxes

 

(907

)

Other assets

 

(2,192

)

Interest-bearing time deposits

 

(1,535

)

FHLB advances and other borrowings

 

(151

)

Other liabilities

 

860

 

Trust preferred securities

 

2,435

 

Preliminary pro forma goodwill

 

$

45,918

 

 



 

The following pro forma adjustments are reflected in the unaudited pro forma condensed combined financial information. All taxable adjustments were calculated using a 39.25% tax rate to arrive at deferred tax asset or liability adjustments. All adjustments are based on current assumptions and valuations, which are subject to change:

 

A.            Cash paid for Centrue common stock of $61.0 million (of which $40.0 million was borrowed against a note payable with a three-year term, bearing interest at an interest rate of one-month LIBOR plus 225 basis points) and Centrue’s estimated transaction expenses, net of tax, of $1.1 million.

 

B.            Fair value adjustment on investment securities based on management’s estimate, which will be accreted on a level-yield basis over the remaining life of the investment securities.

 

C.            Fair value adjustment on loans based on an $11.3 million discount to adjust for credit deterioration of the acquired portfolio and a $1.1 million premium for the impact of changes in market interest rates. The net fair value adjustment of $10.2 million is expected to be accreted over an estimated 6 year remaining life of the respective loans in a manner that approximates level yield.

 

D.            Elimination of Centrue’s allowance for loan losses.

 

E.             Fair value adjustment on premises and equipment based on management’s estimate.

 

F.              Fair value adjustment on other real estate owned based on management’s estimate.

 

G.            Fair value adjustment on mortgage servicing rights based on management’s estimate.

 

H.           Adjustment to record estimate of core deposit intangible asset that will be recognized as part of the purchase accounting transaction. The core deposit intangible is assumed to be amortized using the sum of year’s digits method over an 8 year life.

 

I.                Adjustment to record estimate of goodwill that will be recognized as part of the transaction — see the allocation of purchase price calculation above.

 

J.                Fair value adjustment on other assets based on management’s estimate.

 

K.            Fair value adjustment on time deposits to reflect estimated current interest rates.

 

L.             Adjustment to record $40.0 million note payable (see A above) and fair value adjustment on FHLB advances to reflect estimated current interest rates.

 

M.         Fair value adjustment on trust preferred securities to reflect estimated current interest rates. Amortization is projected to be on a straight line basis over the remaining life of the trust preferred securities.

 

N.            Fair value adjustment on other liabilities based on management’ estimate and adjustment of $0.9 million to record the net deferred tax liability related to the fair value adjustments and core deposit intangible resulting from book versus tax timing differences valued at an estimated tax rate of 39.25%.

 

O.            Fair value adjustment on 2,636 shares of preferred stock issued as a component of the consideration paid by Midland.

 

P.              Adjustment to record the elimination of Centrue’s shareholders’ equity of $125.8 million and the issuance of $112.5 million in common shares by Midland for the merger.

 

Q.            Adjustment to record the elimination of 6,513,694 shares of Centrue common stock and the issuance of 3,219,238 shares of Midland common stock for the merger.

 

R.            Adjustment to record accretion on the net credit / interest rate adjustment on the loan portfolio.

 



 

S.              Adjustment to record estimate of yield adjustment for interest income on investment securities.

 

T.             Adjustment to record amortization of interest rate adjustment on time deposits.

 

U.            Adjustment to record estimate of interest expense on the note payable and amortization of interest rate adjustment on FHLB advances.

 

V.            Adjustment to record accretion estimate of interest rate mark on trust preferred securities.

 

W.         Adjustment to record amortization estimate of core deposit intangible.

 

X.            Adjustment to record tax effects at an estimated effective tax rate of 39.25%.

 

Note 4 — Estimated Merger Costs

 

The table below reflects Midland’s current estimate of the aggregated merger costs of $11.1 million (net of $7.2 million of income taxes using a 39.25% tax rate) expected to be incurred in connection with the merger, which are excluded from the pro forma financial statements.  The current estimates of these costs are as follow:

 

(dollars in thousands)

 

 

 

Change of control, severance and retention payments

 

$

6,134

 

Premises and equipment costs

 

849

 

Data processing, termination and conversion

 

5,127

 

Professional fees and other noninterest expenses

 

6,176

 

Pre-tax merger costs

 

18,286

 

Income tax benefit

 

(7,177

)

Total merger costs

 

$

11,109