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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on May 11, 2016.

Registration No. 333-210683


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Pre-Effective Amendment No. 3
            to            

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



MIDLAND STATES BANCORP, INC.

(Exact name of registrant as specified in its charter)

Illinois
(State or other jurisdiction of
incorporation or organization)
  6022
(Primary Standard Industrial
Classification Code Number)
  37-1233196
(I.R.S. Employer
Identification No.)

1201 Network Centre Drive
Effingham, Illinois 62401
(217) 342-7321
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)



Jeffrey G. Ludwig
Executive Vice President and Chief Financial Officer
Midland States Bancorp, Inc.
1201 Network Centre Drive
Effingham, Illinois 62401
(217) 342-7321
(Name, address, including zip code and telephone number, including
area code, of agent for service)



Copies to:

Dennis R. Wendte
Bill Fay
Barack Ferrazzano Kirschbaum & Nagelberg LLP
200 West Madison Street
Chicago, Illinois 60606
(312) 984-3100

 

Douglas J. Tucker
Senior Vice President and
Corporate Counsel
Midland States Bancorp, Inc.
1201 Network Centre Drive
Effingham, Illinois 62401
(217) 342-7321

 

Jennifer D. King
Vedder Price P.C.
222 North LaSalle Street
Chicago, Illinois 60601
(312) 609-7500

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.

         If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

         If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

         If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

         If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o



         The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We and the selling shareholders may not sell these securities until the Registration Statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED MAY 11, 2016

PROSPECTUS

3,865,000 Shares

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Common Stock

       This is the initial public offering of Midland States Bancorp, Inc. We are offering 3,077,252 shares of our common stock and the selling shareholders are offering 787,748 shares of our common stock. We will not receive any proceeds from the sales of shares by the selling shareholders.

       Prior to this offering, there has been no established public market for our common stock. We anticipate that the public offering price of our common stock will be between $25.00 and $27.00 per share. We have applied to list our common stock on the NASDAQ Global Select Market under the symbol "MSBI."

       Investing in our common stock involves risk. See "Risk Factors" beginning on page 15.

       We are an "emerging growth company" under the federal securities laws and will be subject to reduced public company reporting requirements.

 
  Per Share   Total  

Public offering price

  $     $    

Underwriting discounts(1)

             

Proceeds to us, before expenses

             

Proceeds to the selling shareholders, before expenses

             

(1)
See "Underwriting" for additional information regarding underwriting compensation.

       The underwriters have an option to purchase up to an additional 579,750 shares from us at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus.

       Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

       Shares of our common stock are not savings accounts or deposits and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

       The shares of common stock will be ready for delivery on or about                                    , 2016.

Sandler O'Neill+Partners, L.P.   Keefe, Bruyette & Woods
A Stifel Company

D. A. Davidson & Co.

 

Stephens Inc.

The date of this prospectus is                        , 2016.


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Table of Contents


TABLE OF CONTENTS



Prospectus Summary

  1

Risk Factors

  15

Cautionary Note Regarding Forward-Looking Statements

  37

Use of Proceeds

  39

Dividend Policy

  40

Capitalization

  41

Dilution

  43

Selected Historical Consolidated Financial Data

  45

Management's Discussion and Analysis of Financial Condition and Results of Operations

  54

Business

  116

Supervision and Regulation

  131

Management

  144

Executive Compensation

  154

Certain Relationships and Related Party Transactions

  167

Principal and Selling Shareholders

  170

Description of Capital Stock

  173

Shares Eligible for Future Sale

  178

Material United States Federal Income Tax Considerations for Non-U.S. Holders

  180

Underwriting

  183

Legal Matters

  187

Experts

  187

Where You Can Find More Information

  187

Index to Consolidated Financial Statements

  F-1




About this Prospectus

        You should rely only on the information contained in this prospectus or in any free writing prospectus that we authorize to be delivered to you. We, the selling shareholders and the underwriters have not authorized anyone to provide you with different or additional information. We, the selling shareholders and the underwriters are not making an offer of these securities in any jurisdiction where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

        Unless we state otherwise or the context otherwise requires, references in this prospectus to "we," "our," "us" or "the Company" refer to Midland States Bancorp, Inc., an Illinois corporation, and our consolidated subsidiaries, references to "Midland States Bank" or "Bank" refer to our banking subsidiary, Midland States Bank, an Illinois state chartered bank, references to "Love Funding" refer to the Bank's subsidiary, Love Funding Corporation, a Virginia corporation, and references to "Heartland Business Credit" refer to the Bank's subsidiary, Heartland Business Credit Corporation, a Missouri corporation.


Market and Industry Data

        Within this prospectus, we reference certain market, industry and demographic data and other statistical information. We have obtained this data and information from various independent, third party industry sources and publications. Nothing in the data or information used or derived from third party sources should be construed as advice. Some data and other information are also based on our

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good faith estimates, which are derived from our review of internal surveys and independent sources. We believe that these external sources and estimates are reliable, but have not independently verified them. Statements as to our market position are based on market data currently available to us. Although we are not aware of any misstatements regarding the economic, employment, industry and other market data presented herein, these estimates involve inherent risks and uncertainties and are based on assumptions that are subject to change.


Implications of Being an Emerging Growth Company

        As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company:

        In this prospectus we have elected to take advantage of the reduced disclosure requirements relating to executive compensation, and in the future we may take advantage of any or all of these exemptions for so long as we remain an emerging growth company. We will remain an emerging growth company until the earliest of (i) the end of the fiscal year during which we have total annual gross revenues of $1.0 billion or more, (ii) the end of the fiscal year following the fifth anniversary of the completion of this offering, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt and (iv) the date on which we are deemed to be a "large accelerated filer" under the Securities Exchange Act of 1934, as amended.

        In addition to the relief described above, the JOBS Act permits us an extended transition period for complying with new or revised accounting standards affecting public companies. We have irrevocably determined to not take advantage of this extended transition period, which means that the financial statements included in this prospectus, as well as any financial statements that we file in the future, will be subject to all new or revised accounting standards generally applicable to public companies.

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PROSPECTUS SUMMARY

        This summary highlights selected information contained in this prospectus. It does not contain all the information that you should consider before deciding to invest in our common stock. You should read the entire prospectus carefully, including the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections, and the historical financial statements and the accompanying notes included in this prospectus.

Our Company

        Midland States Bancorp, Inc. is a diversified financial holding company headquartered in Effingham, Illinois. Our 135-year old banking subsidiary, Midland States Bank, has branches across Illinois and in Missouri and Colorado, and provides a broad array of traditional community banking and other complementary financial services, including commercial lending, residential mortgage origination, wealth management, merchant services and prime consumer lending. Our commercial Federal Housing Administration (FHA) origination and servicing business, based in Washington, D.C., is one of the top originators of government sponsored mortgages for multifamily and healthcare facilities in the United States. Our commercial equipment leasing business, based in Denver, provides financing to business customers across the country. As of March 31, 2016, we had $2.9 billion in assets, $2.4 billion of deposits and $238.6 million of shareholders' equity.

        In late 2007, we developed a strategic plan to build a diversified financial services company anchored by a strong community bank. Since then, we have grown organically and through a series of nine acquisitions, with an over-arching focus on enhancing shareholder value and building a platform for scalability. Most recently, we acquired Heartland Bank in December 2014, which greatly expanded our commercial, retail and mortgage banking services in the St. Louis metropolitan area. Additionally, the Heartland Bank acquisition facilitated our entry into Colorado, with one branch office located in Denver and three Colorado mortgage offices. This transaction also provided us the opportunity to enter complementary commercial FHA loan origination and commercial equipment leasing business lines. In total, we have grown from a community bank with six locations and diluted earnings per share of $0.50 for the year ended December 31, 2007, to a diversified financial services company with 81 locations, nationwide operations and diluted earnings per share of $2.00 for the year ended December 31, 2015.


Strategic Growth History

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        We have five principal business lines: traditional community banking, residential mortgage origination, wealth management, commercial FHA origination and servicing, and commercial

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equipment leasing. Our traditional community banking business primarily consists of commercial and retail lending and deposit taking, with a total loan portfolio of $1.9 billion and total deposits of $2.4 billion as of March 31, 2016. We originate residential mortgage loans (the majority of which we sell), through the Bank, with $580.8 million of originations for the year ended December 31, 2015. Our wealth management group provides a comprehensive suite of trust and wealth management products and services, and had $1.2 billion in assets under management as of March 31, 2016. We conduct our FHA origination business through Love Funding Corporation, which we acquired in the Heartland Bank transaction. Love Funding originates commercial mortgage loans for multifamily and healthcare facilities under FHA insurance programs, with $382.9 million of originations for the year ended December 31, 2015. Our Heartland Business Credit subsidiary, also acquired in the Heartland Bank transaction, provides custom leasing and financing programs to equipment and software vendors and their customers, and had a lease portfolio of $157.7 million as of March 31, 2016.

Our Strategic Plan

        We developed our strategic plan in late 2007 soon after hiring Leon J. Holschbach, our President and Chief Executive Officer, and Jeffrey G. Ludwig, our Executive Vice President and Chief Financial Officer. The plan continues to reflect our belief that a diversified financial services company with strong leadership and a growth-oriented risk management program will be well positioned to take advantage of changes in the banking industry, including consolidation and opportunities to re-enter markets in which community banks had once been competitive. Our strategic plan includes five initiatives:

    revenue diversification,

    a customer-centric culture,

    de novo expansion,

    accretive acquisitions and

    enterprise-wide risk management.

        We have achieved our recent growth through sustained execution of these initiatives, and we have an experienced management team in place that we believe will allow us to continue this success. In addition, the implementation of our strategic plan is supported by the collective experience of our ten non-executive directors, all of whom are successful business owners or senior executives with long-standing ties to the communities or businesses in which we operate.

Our Competitive Strengths

        We believe our competitive strengths set us apart from many similarly sized community banks, and include the following key attributes:

        Diversified and Growing Revenue Streams.    While maintaining a focus on earnings growth, we have diversified our revenue and increased our noninterest income. We believe our diversification and significant noninterest income can help provide earnings stability through various economic and interest rate cycles, as well as establishing additional platforms for growth. In particular, since 2008, we have significantly grown our wealth management and residential mortgage loan origination businesses, and have added our commercial FHA origination and servicing and commercial equipment leasing businesses. In April 2014, our wealth management group was named by Bank Director magazine as one of the fastest growing trust departments in the country by revenue. As a result, we have grown our noninterest income from $2.8 million, or 19.1% of total revenue, for the year ended December 31, 2007, to $59.5 million, or 36.2% of total revenue, for the year ended December 31, 2015, and $12.6 million, or 34.4% of total revenue, for the three months ended March 31, 2016.

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        The diversification and growth of our noninterest income is demonstrated in the following charts.

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        Robust, Stable Core Funding Base.    Our relationship banking approach focuses on generating core deposits, which has helped drive our organic growth and improve our net interest margins. At March 31, 2016, core deposits (which exclude brokered deposits and certificates of deposit greater than $250,000) represented 88.7% of our total deposits. Our net non-core funding dependence ratio (which represents the degree to which the Bank is funding longer term assets with brokered deposits and certificates of deposit greater than $250,000) was 9.1% as of March 31, 2016, down from 27.7% as of December 31, 2007. We also benefit from strong levels of noninterest-bearing deposits, which represented approximately 22.9% of our total deposits at March 31, 2016. Several of our recent acquisitions have contributed significantly to our core funding base, improving our overall mix of core and non-core deposits.

        Experience in Smaller Communities and Metropolitan Markets.    Our banking footprint has given us experience operating in small communities and large cities. We believe that our presence in smaller communities gives us a relatively stable source of core deposits and steady profitability, while our recent growth in more metropolitan markets represents strong long-term growth opportunities. In addition, we believe that the breadth of our operating experience increases the scope of potential acquisition opportunities that we will be able to integrate and operate successfully.

        Proven Track Record of Accretive Acquisitions.    Having completed nine acquisitions since 2007, we believe we have developed an experienced acquisition team that is capable of identifying and executing transactions that build shareholder value through a disciplined approach to pricing. These transactions included three whole-bank acquisitions, two branch acquisitions and two FDIC-assisted acquisitions, as well as two business line acquisitions. Each of our bank acquisitions was immediately accretive to earnings, and our two non-bank acquisitions allowed us to develop complementary products and services. As a result, we believe that we have developed a reputation as an acquirer of choice in our markets and surrounding areas, and we receive frequent requests from other financial institutions to "talk about the future." Accordingly, we believe that we are well prepared to capitalize on favorable acquisition opportunities that may arise.

        Sophisticated Risk Management Functions.    Risk management is a vital part of our strategic plan, and we have implemented a variety of tools and policies to help us navigate the challenges of rapid growth. In anticipation of continued balance sheet and franchise growth, we have sought to maintain a risk management program suitable for an organization larger than ours at any given time, including in the areas of regulatory compliance, cybersecurity and internal audit, and to hire talented risk management professionals with experience building risk management programs at much larger financial

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institutions. With respect to credit risk, we operate what we believe to be a disciplined credit process, managed by experienced personnel who have produced strong results, as reflected by the following historical credit quality ratios:

Nonperforming Assets / Total Assets(1)   Net Charge-Offs / Average Loans(2)


GRAPHIC
 

GRAPHIC

(1)
Nonperforming assets exclude purchased credit-impaired loans, or PCI loans, acquired in our prior acquisitions. See notes 1 and 2 to the tables set forth in "—Summary Consolidated Financial Data" for additional information.

(2)
Net charge-offs for 2014 include a $9.8 million charge-off of a PCI commercial real estate loan pool that was covered under an FDIC loss-share arrangement. The impairment on the pool was recognized through provision for loan losses in 2009 and 2010. The pool was not charged off until 2014, when all loans in the pool were resolved. Net charge-offs to average loans were 0.14%, excluding this charge-off.

Our Growth and Earnings

        We believe that the continued execution of our strategic plan will drive further balance sheet growth through multiple asset and funding strategies, and further earnings growth across our diverse income streams.

        Organic Growth.    Since implementing our strategic plan, we have delivered strong organic loan growth, as reflected in the chart below. In addition, from December 31, 2007 through March 31, 2016, we have grown our core deposits and wealth management assets under management at compound annual growth rates (CAGR) of 30.9% and 41.7%, respectively. Since completing our acquisition of Heartland Bank on December 31, 2014 through March 31, 2016, we grew our core deposits by $194.4 million, reflecting an 8.0% CAGR.


Core Loan Growth(1)

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(1)
Core loan growth represents percentage change in the Company's core loans during the applicable period. Core loans represent non-PCI loans, less non-PCI loans acquired, plus non-PCI loans sold as of the date the loans were acquired or sold, and exclude certain short-term loans that the Company does not consider to be core loans. Acquired non-PCI loans become core loans subsequent to the acquisition date and will negatively affect core loan growth in future periods as these loans are repaid or prepaid. Core loan growth was negative in 2010 and 2011 due to the prepayment and scheduled repayment of loans acquired from acquisitions in 2009 and 2010. Core loans and core loan growth are non-GAAP financial measures. See "Selected Historical Consolidated Financial Data—Non-GAAP Financial Measures."

(2)
Core loan growth for the three months ended March 31, 2016 has been annualized for presentation purposes. This amount is not necessarily indicative of the amount that may be expected for the full year 2016 due to seasonality and other factors. Core loan growth for the three months ended March 31, 2015 was 0.6% on an annualized basis.

        We have also pursued organic growth through our de novo initiative, whereby we identify and hire experienced teams of bankers with proven track records, both in new target markets and in strategically positioned communities within our existing markets. Since 2007, we have established seven de novo locations, including two in Joliet, Illinois, one in each of Rockford, Bloomington, Decatur and Yorkville, Illinois, and one in Jennings, Missouri. We also expect to open one additional location in the St. Louis market in 2017. We believe that our experience in establishing de novo operations will serve us particularly well in the future as we seek to complement our acquisition growth initiative.

        Acquisitive Growth.    In addition to organic growth, we intend to continue pursuing financially and strategically accretive acquisitions. As illustrated in the figure below, we believe there are numerous small to midsized banking organizations that will be available for acquisition within Illinois and its contiguous states, either because of management succession questions, increasing capital requirements, operational challenges, regulatory pressure or shareholder liquidity needs.


Number of Banks & Thrifts with less than $1.0 Billion in Assets
(% of Nationwide Total)


GRAPHIC
 

As of March 31, 2016, there were 1,336 institutions in the six-state region with less than $1.0 billion in assets, representing 27.8% of the total number of banks and thrifts nationwide with assets less than $1.0 billion and $272 billion in aggregate banking assets.

Illinois and Missouri combine for a total of 629 of those banks, representing 13.1% of banks and thrifts nationwide with assets less than $1.0 billion.

Source: SNL Financial (bank asset sizes are based on December 31, 2015 financial data). Data excludes mutual savings institutions.

        We believe we can continue to serve as a platform for these organizations as they search for alternatives to remaining independent, while at the same time maintaining our desired acquisition goals, including prompt accretion to earnings and a disciplined approach to tangible book value per share earn-back. We also believe that our commercial leasing, consumer finance, commercial FHA origination and servicing, and wealth management businesses provide platforms for additional growth through acquisitions. Based on the breadth of potential acquisition targets, we believe we have the capacity to be selective in our pursuit of acquisitive growth, which, we believe, will drive strong financial results for our shareholders.

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        The following charts highlight key metrics of our recent growth.

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(1)
Tangible book value per share is a non-GAAP financial measure. See "Selected Historical Consolidated Financial Data—Non-GAAP Financial Measures."

(2)
Amounts shown assume the conversion of all preferred shares that were outstanding prior to December 31, 2014. See notes 4 and 5 to the tables set forth in "—Summary Consolidated Financial Data" for additional information.

        Earnings.    We have produced consistently strong earnings since adopting our strategic plan. For the years ended December 31, 2007 through December 31, 2015, we have increased net income from $2.1 million to $24.3 million, representing a 35.8% CAGR. The drivers of our earnings include:

    Net Interest Margin.  Our net interest margin is supported by strength in both our asset yields (4.68% yield on loans and 4.40% yield on earning assets for the three months ended March 31, 2016) and our funding costs (0.49% cost of total interest-bearing deposits and 0.73% cost of all interest-bearing liabilities for the three months ended March 31, 2016). Our net interest margin was 3.80% for the three months ended March 31, 2016.

    Credit Costs.  We have built a credit infrastructure with a foundation in underwriting, active portfolio monitoring and aggressive troubled asset realization and resolution techniques. We believe that we have managed our credit costs effectively, having experienced 0.51% of net charge-offs as a percentage of average gross loans for the three months ended March 31, 2016, and an annualized average of 0.50% of net charge-offs as a percentage of average gross loans since December 31, 2007.

    Noninterest Income.  We have developed several diversified fee income business lines, and grown them into sustainable core businesses that contribute to net income and help mitigate the effects of interest rate fluctuations on our financial results. Noninterest income was $12.6 million, or 34.4% of total revenue, for the three months ended March 31, 2016.

    Noninterest Expense.  We have continued to closely monitor and control our expense levels while building a talented team of senior managers. We have also built a sophisticated and expansion-ready technological infrastructure to support our various financial products and services, which

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      we believe helps to drive our efficiency and bottom line earnings. While our noninterest expense to average assets are higher than many similarly sized community banks, the incremental expenses are largely a result of our significant noninterest income business lines, including our wealth management, commercial FHA origination and servicing, and residential mortgage businesses.

        In operating our business, we focus on both our GAAP and adjusted earnings per share growth, revenue growth, return on average tangible common equity and return on average assets. We believe that we are well positioned to produce earnings in a prolonged low interest rate environment due to the growth of our fee income businesses. We also believe that our balance sheet is positioned to deliver strong earnings in a rising interest rate environment based on our core deposit strength, our diversified loan portfolio and the relatively short duration of our investment securities portfolio. Furthermore, we believe that our operating infrastructure will allow us to leverage our expense base to drive efficiency through our earnings stream. These and other earnings metrics are illustrated below.

GRAPHIC


(1)
Adjusted financial metrics exclude the following items: bargain purchase gains on acquisitions; payments received under our FDIC settlement; FDIC loss-sharing income; amortization of FDIC indemnification assets, net; gain on sales of investment securities, net; gain on sales of other assets; and other-than-temporary impairment on investment securities. Adjusted diluted earnings per share, adjusted return on average assets and adjusted return on average tangible common equity are non-GAAP financial measures. See "Selected Historical Consolidated Financial Data—Non-GAAP Financial Measures."

(2)
The revenue and earnings amounts for the three months ended March 31, 2016 have been annualized for presentation purposes. These amounts are not necessarily indicative of the amounts that may be expected for the full year 2016.

(3)
Net income in 2009 was positively affected by a $19.2 million bargain purchase gain recognized in connection with the Strategic Capital acquisition.

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Pending Acquisition

        On February 23, 2016, the Bank and Sterling National Bank of Yonkers, New York entered into a Trust Company Agreement and Plan of Merger, pursuant to which the Bank will acquire approximately $400 million in wealth management assets from Sterling. Under the terms of the agreement, the Bank will pay Sterling approximately $4.8 million in cash, subject to adjustment. The transaction is subject to regulatory approval and other customary closing conditions, and is expected to close in the third quarter of 2016. We expect to retain all 10 members of Sterling's trust department upon consummation of the transaction, which would bring the total number of employees in our wealth management group to 45.

Risks Relating to Our Company

        Our ability to implement our strategic plan and the success of our business are subject to numerous risks and uncertainties, which are discussed in the section titled "Risk Factors," beginning on page 16, and include the following:

    a decline in general business and economic conditions and any regulatory responses to such conditions could have a material adverse effect on us;

    if we do not effectively manage our credit risk, we may experience increased levels of delinquencies, nonperforming loans and charge-offs, which could require increases in our provision for loan losses;

    our allowance for loan losses may prove to be insufficient to absorb potential losses in our loan portfolio; and

    we are subject to extensive state and federal financial regulation, and compliance with changing requirements may restrict our activities or have an adverse effect on our results of operations.

Corporate Information

        Our principal executive offices are located at 1201 Network Centre Drive, Effingham, Illinois 62401, and our telephone number at that address is (217) 342-7321. Our website address is www.midlandsb.com. The information contained on our website is not a part of, or incorporated by reference into, this prospectus.

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The Offering

Common stock offered by us

  3,077,252 shares

Common stock offered by the selling shareholders

 

787,748 shares

Underwriters' purchase option

 

579,750 shares from us

Common stock outstanding after completion of this offering

 

14,882,031 shares (or 15,461,781 shares if the underwriters exercise their purchase option in full)

Use of proceeds

 

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and estimated offering expenses, will be approximately $72.7 million (or approximately $86.8 million if the underwriters exercise their option to purchase additional shares in full), based on an assumed public offering price of $26.00 per share, which is the midpoint of the price range set forth on the cover of this prospectus. We intend to contribute $25.0 million of the net proceeds that we receive from this offering to the Bank, and to use the remainder for general corporate purposes, which could include future acquisitions and other growth initiatives. We also intend to use approximately $4.8 million to complete the pending acquisition of wealth management assets from Sterling National Bank. We will not receive any proceeds from the sale of shares of our common stock by the selling shareholders. See "Use of Proceeds."

Dividends

 

It has been our policy to pay quarterly dividends to holders of our common stock, and we intend to generally maintain our current dividend levels. Our dividend policy and practice may change in the future, however, and our board of directors may change or eliminate the payment of future dividends at its discretion, without notice to our shareholders. Any future determination to pay dividends to holders of our common stock will depend on our results of operations, financial condition, capital requirements, banking regulations, contractual restrictions and any other factors that our board of directors may deem relevant. See "Dividend Policy."

Risk Factors

 

Investing in shares of our common stock involves a high degree of risk. See "Risk Factors" beginning on page 16 for a discussion of certain factors you should consider carefully before deciding to invest.

NASDAQ symbol

 

We have applied to list our common stock on the NASDAQ Global Select Market under the trading symbol "MSBI."

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        Unless otherwise indicated, all information in this prospectus relating to the number of shares of common stock to be outstanding immediately after the completion of this offering is based on 11,804,779 shares outstanding as of March 31, 2016, and:

    excludes 1,225,054 shares of common stock issuable upon exercise of stock options outstanding at March 31, 2016 at a weighted average exercise price of $17.52 per share;

    excludes 63,928 shares of unvested restricted stock;

    excludes 7,596 shares issuable upon the vesting of unvested restricted stock unit awards;

    excludes 125,000 shares of our common stock issuable upon exercise of a warrant at an exercise price of $16.00 per share;

    excludes 1,057,273 shares of common stock reserved at March 31, 2016 available for future awards under our Second Amended and Restated 2010 Long-Term Incentive Plan;

    excludes up to 571,429 shares of our common stock that may be issuable pursuant to an earn-out payment obligation in connection with the Heartland Bank transaction. As of March 31, 2016, we anticipate that no shares will be issued pursuant to this earn-out payment obligation; see Note 2 (Acquisitions) of the Notes to Consolidated Financial Statements for the years ended December 31, 2015, 2014 and 2013 included elsewhere in this prospectus; and

    assumes the underwriters do not exercise their option to purchase up to 579,750 additional shares from us.

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Summary Consolidated Financial Data

        The following table sets forth summary historical consolidated financial data as of the dates and for the periods shown. The summary balance sheet data as of December 31, 2015 and 2014 and the summary income statement data for the years ended December 31, 2015, 2014 and 2013 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary balance sheet data as of December 31, 2013, 2012 and 2011 and the summary income statement data for the years ended December 31, 2012 and 2011 have been derived from our audited consolidated financial statements that are not included in this prospectus. The summary consolidated financial data as of and for the three months ended March 31, 2016 and 2015 is derived from our unaudited interim consolidated financial statements included elsewhere in this prospectus and includes all normal and recurring adjustments that we consider necessary for a fair presentation. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

        As described elsewhere in this prospectus, we have consummated several acquisitions in recent fiscal periods. The results and other financial data of these acquired operations are not included in the table below for the periods prior to their respective acquisition dates and, therefore, the financial data for these prior periods is not comparable in all respects and are not necessarily indicative of our future results. You should read the following financial data in conjunction with the other information contained in this prospectus, including under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in the financial statements and related notes included elsewhere in this prospectus.

 
  As of and for the Three
Months Ended March 31,
  As of and for the Year Ended December 31,  
(dollars in thousands, except per
share data)

  2016   2015   2015   2014   2013   2012   2011  

Balance Sheet Data

                                           

Total assets

  $ 2,898,080   $ 2,828,759   $ 2,884,824   $ 2,676,614   $ 1,739,548   $ 1,572,064   $ 1,520,762  

Total loans, gross

    2,016,034     1,881,340     1,995,589     1,798,015     1,205,501     978,517     957,887  

Allowance for loan losses

    (14,571 )   (13,248 )   (15,988 )   (12,300 )   (23,672 )   (26,190 )   (26,831 )

Loans held for sale

    103,365     61,651     54,413     96,407     3,062     7,312     3,401  

Investment securities

    320,159     306,156     324,148     355,531     311,126     338,829     338,771  

Indemnification asset due from FDIC             

        308         493     3,053     9,813     17,648  

Deposits

    2,389,710     2,321,195     2,367,648     2,150,633     1,381,889     1,268,134     1,222,010  

Short-term borrowings

    101,649     107,399     107,538     129,714     87,420     71,222     55,410  

FHLB advances and other borrowings             

    40,133     98,881     40,178     74,349     73,410     75,082     81,038  

Subordinated debt

    61,903     7,389     61,859     7,370     7,299     5,000     5,000  

Trust preferred debentures

    37,142     37,036     37,057     36,930     11,830     10,000     10,000  

Preferred shareholders' equity

                    57,370     57,370     57,370  

Common shareholders' equity

    238,386     225,236     232,880     219,456     92,070     73,548     69,583  

Total shareholders' equity

    238,561     225,475     233,056     219,929     149,440     130,918     126,953  

Tangible common equity

    185,443     169,333     179,357     162,046     76,149     57,331     51,261  

Income Statement Data

   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Interest income

  $ 27,967   $ 27,305   $ 117,796   $ 73,141   $ 74,989   $ 74,197   $ 82,273  

Interest expense

    3,926     2,604     12,889     8,543     9,069     11,271     16,870  

Net interest income

    24,041     24,701     104,907     64,598     65,920     62,926     65,403  

Provision for loan losses

    1,125     997     11,127     92     173     2,052     3,854  

Gain on bargain purchase

                    2,154          

Noninterest income (excluding gain on bargain purchase)

    12,618     18,022     59,482     20,441     14,076     14,044     11,299  

Noninterest expense

    27,639     31,545     117,764     69,480     61,449     56,419     57,501  

Income before taxes

    7,895     10,181     35,498     15,467     20,528     18,499     15,347  

Provision for income taxes

    2,777     3,591     11,091     4,651     6,023     4,842     3,974  

Net income

    5,118     6,590     24,407     10,816     14,505     13,657     11,373  

Net (loss) income attributable to noncontrolling interest in subsidiaries

    (1 )   59     83                  

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  As of and for the Three
Months Ended March 31,
  As of and for the Year Ended December 31,  
(dollars in thousands, except per
share data)

  2016   2015   2015   2014   2013   2012   2011  

Net income attributable to Midland States Bancorp, Inc. 

    5,119     6,531     24,324     10,816     14,505     13,657     11,373  

Preferred stock dividends

                7,601     4,718     5,211     4,205  

Net income available to common shareholders

  $ 5,119   $ 6,531   $ 24,324   $ 3,215   $ 9,787   $ 8,446   $ 7,168  

Credit Quality Data

                                           

Loans 30-89 days past due

  $ 6,616   $ 4,059   $ 10,120   $ 5,744   $ 9,193   $ 3,037   $ 5,785  

Loans 30-89 days past due to total loans

    0.33 %   0.22 %   0.51 %   0.32 %   0.76 %   0.31 %   0.60 %

Nonperforming loans(1)

  $ 18,787   $ 35,283   $ 24,891   $ 32,172   $ 21,822   $ 19,829   $ 21,674  

Nonperforming loans to total loans(1)             

    0.93 %   1.88 %   1.25 %   1.80 %   1.81 %   2.03 %   2.26 %

Nonperforming assets(2)

  $ 22,312   $ 41,499   $ 29,206   $ 39,542   $ 28,481   $ 25,860   $ 24,023  

Nonperforming assets to total assets(2)             

    0.77 %   1.48 %   1.01 %   1.48 %   1.64 %   1.64 %   1.58 %

Allowance for loan losses to total loans(1)

    0.72 %   0.70 %   0.80 %   0.69 %   1.96 %   2.68 %   2.80 %

Allowance for loan losses to nonperforming loans(1)

    77.56 %   37.55 %   64.23 %   38.23 %   108.48 %   132.08 %   123.79 %

Net charge-offs to average loans

    0.51 %   0.01 %   0.39 %   0.94 %   0.25 %   0.28 %   0.56 %

Per Share Data (Common Stock)

   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Earnings:

                                           

Basic

  $ 0.43   $ 0.55   $ 2.03   $ 0.53   $ 2.12   $ 1.96   $ 1.69  

Diluted(3)

    0.42     0.54     2.00     0.53     1.70     1.62     1.43  

Dividends declared

    0.18     0.16     0.65     0.59     0.53     0.48     0.43  

Book value(4)

    20.19     19.16     19.74     18.72     19.93     17.28     16.57  

Book value—as converted(4)(5)

    20.19     19.16     19.74     18.72     17.81     16.37     15.99  

Tangible book value(6)

    15.71     14.40     15.20     13.82     16.48     13.47     12.21  

Tangible book value—as converted(5)(6)

    15.71     14.40     15.20     13.82     15.91     14.34     13.68  

Weighted average shares outstanding:             

                                           

Basic

    11,957,381     11,886,581     11,902,455     5,945,615     4,558,549     4,300,578     4,245,500  

Diluted

    12,229,293     12,065,449     12,112,403     6,025,454     7,151,471     6,898,791     6,896,393  

Shares outstanding at period end

    11,804,779     11,756,207     11,797,404     11,725,158     4,620,026     4,257,319     4,198,947  

Adjusted Earnings Metrics

   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Adjusted earnings(6)

  $ 5,802   $ 8,716   $ 29,193   $ 15,715   $ 17,541   $ 16,969   $ 18,109  

Adjusted diluted earnings per share(6)

    0.47     0.72     2.39     1.74     2.08     2.08     2.34  

Adjusted return on average assets(6)

    0.80 %   1.33 %   1.05 %   0.90 %   1.08 %   1.13 %   1.17 %

Adjusted return on average tangible common equity(6)

    12.72     21.78     16.97     11.63     19.70     22.44     30.04  

Performance Metrics

   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Return on average assets

    0.70 %   1.00 %   0.88 %   0.62 %   0.89 %   0.91 %   0.74 %

Return on average shareholders' equity             

    8.69     12.05     10.68     6.82     10.45     10.75     10.05  

Return on average common shareholders' equity

    8.70     12.05     10.69     2.83     12.01     12.13     10.88  

Return on average tangible common equity(6)

    11.22     16.30     14.14     3.26     15.04     16.12     15.49  

Yield on earning assets

    4.40     4.85     4.91     4.74     5.29     5.65     6.07  

Cost of average interest-bearing liabilities             

    0.73     0.56     0.66     0.65     0.72     0.96     1.36  

Net interest spread

    3.67     4.29     4.25     4.09     4.57     4.69     4.71  

Net interest margin(7)

    3.80     4.40     4.38     4.21     4.68     4.82     4.88  

Adjusted net interest margin(6)

    3.51     3.89     3.74     4.11     4.32     4.42     4.42  

Efficiency ratio(8)

    67.72     64.06     66.15     71.42     67.37     66.04     62.36  

Common stock dividend payout ratio(9)

    41.86     29.09     32.02     111.32     25.00     24.49     25.44  

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  As of and for the Three
Months Ended March 31,
  As of and for the Year Ended December 31,  
(dollars in thousands, except per
share data)

  2016   2015   2015   2014   2013   2012   2011  

Loan to deposit ratio

    84.36 %   81.05 %   84.29 %   83.60 %   87.24 %   77.16 %   78.39 %

Core deposits / total deposits(10)

    88.74     91.26     88.41     89.56     87.97     87.52     86.87  

Net non-core funding dependence ratio(11)

    9.10     4.23     7.12     10.50     14.88     12.77     14.79  

                                           

Regulatory and Other Capital Ratios—Consolidated

   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Tangible common equity to tangible assets(6)

    6.52 %   6.11 %   6.33 %   6.19 %   4.42 %   3.68 %   3.41 %

Tier 1 common capital to risk-weighted assets(12)

    6.40     6.53     6.50     N/A     N/A     N/A     N/A  

Tier 1 leverage ratio

    7.25     7.56     7.49     10.48     8.14     7.98     7.60  

Tier 1 capital to risk-weighted assets

    8.48     8.66     8.62     8.65     9.98     10.36     9.96  

Total capital to risk-weighted assets

    11.67     9.78     11.82     9.59     11.77     12.03     11.67  

Regulatory Capital Ratios—Bank Only(13)

   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Tier 1 common capital to risk-weighted assets(12)

    10.51 %   9.48 %   10.39 %   N/A     N/A     N/A     N/A  

Tier 1 leverage ratio

    8.99     8.17     9.01     8.65 %   8.92 %   8.89 %   8.38 %

Tier 1 capital to risk-weighted assets

    10.51     9.48     10.39     10.34     10.93     11.54     10.96  

Total capital to risk-weighted assets

    11.11     10.08     11.06     11.18     12.18     12.81     12.22  

(1)
Nonperforming loans include nonaccrual loans, loans past due 90 days or more and still accruing interest and loans modified under troubled debt restructurings. Nonperforming loans exclude purchased credit-impaired loans, or PCI loans, acquired in our prior acquisitions. PCI loans had carrying values of $35.3 million as of March 31, 2016 and $41.8 million as of March 31, 2015, and $38.5 million, $44.2 million, $30.4 million, $43.0 million and $58.2 million as of December 31, 2015, 2014, 2013, 2012 and 2011, respectively. Furthermore, PCI loans, as well as other loans acquired in a business combination, are recorded at estimated fair value on their purchase date without a carryover of the related allowance for loan losses. Accordingly, our ratios that are computed using nonperforming loans and/or allowance for loan losses may not be comparable to similar ratios of our peers.

(2)
Nonperforming assets include nonperforming loans, other real estate owned that is not covered by a loss-sharing agreement with the FDIC and is not government guaranteed and other repossessed assets. As discussed in footnote 1, above, nonperforming loans exclude PCI loans. This ratio may therefore not be comparable to a similar ratio of our peers.

(3)
Earnings per share are calculated utilizing the two-class method. Basic earnings per share are calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share are calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of shares adjusted for the dilutive effect of outstanding stock options and common stock warrants using the treasury stock method and convertible preferred stock and convertible debentures using the if-converted method. For the years ended December 31, 2014, 2013 and 2012, diluted earnings per share considered, when dilutive, the weighted average shares of common stock issuable upon conversion of our Series C preferred stock, Series D preferred stock, Series E preferred stock and Series F preferred stock then outstanding. For the year ended December 31, 2011, diluted earnings per share considered, when dilutive, the weighted average shares of common stock issuable upon conversion of our Series C preferred stock, Series D preferred stock, Series E preferred stock and Series F preferred stock then outstanding, the $6.3 million of convertible subordinated notes issued in 2009 and the $5.0 million of convertible subordinated notes issued in 2010. On December 15, 2011, outstanding warrants to acquire Series E preferred stock and Series F preferred stock were exercised by the holder through the exchange of the corresponding principal amounts of the 2009 and 2010 subordinated notes, respectively. During 2014, our Series C, D, E and F preferred stock was converted into shares of common stock. We did not have any preferred stock or warrants to acquire preferred stock outstanding during 2015 or the first quarter of 2016.

(4)
For purposes of computing book value per common share, book value equals total common shareholders' equity.

(5)
Book value per share—as converted and tangible book value per share—as converted each give effect to: (i) for December 31, 2013, the conversion of all of the issued and outstanding shares of Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock into an aggregate of 3,772,664 shares of our common stock; and (ii) for December 31, 2012 and 2011, the conversion of all of the issued and outstanding shares of Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock into an aggregate of 3,739,028 shares of our common stock. We did not have any convertible preferred stock or warrants to acquire convertible preferred stock outstanding at December 31, 2014 or 2015, or at March 31, 2015 or 2016.

(6)
Tangible book value per share, tangible book value per share—as converted, adjusted earnings, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average tangible common equity, return on average tangible common equity, tangible common equity to tangible assets and adjusted net interest margin are non-GAAP financial measures. See "Selected

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    Historical Consolidated Financial Data—Non-GAAP Financial Measures" for a reconciliation of these measures to their most comparable GAAP measures.

(7)
Net interest margin is presented on a fully taxable equivalent, or FTE, basis.

(8)
Efficiency ratio represents noninterest expenses, as adjusted, divided by the sum of fully taxable equivalent net interest income plus noninterest income, as adjusted. Noninterest expense adjustments exclude integration and acquisition related expenses. Noninterest income adjustments exclude bargain purchase gains, FDIC settlement, FDIC loss sharing income, accretion/amortization of the FDIC indemnification asset, realized gains or losses from the sale of investment securities, gains or losses on sale of other assets and other-than-temporary impairment.

(9)
Common stock dividend payout ratio represents dividends per share divided by basic earnings per share. See "Dividend Policy."

(10)
Core deposits are defined as total deposits less brokered deposits and certificate of deposits greater than $250,000.

(11)
Net non-core funding dependence ratio represents the degree to which the Bank is funding longer term assets with non-core funds. We calculate this ratio as non-core liabilities, less short term investments, divided by long term assets.

(12)
The Tier 1 common capital to risk-weighted assets ratio is required under the Basel III Final Rules, which became effective for the Company and the Bank on January 1, 2015. Accordingly, this ratio is shown as not applicable ("N/A") for periods ending prior to January 1, 2015.

(13)
On December 31, 2014, we completed our acquisition of Love Savings Holding Company, which primarily consisted of Heartland Bank and its wholly owned subsidiaries Love Funding Corporation and Heartland Business Credit. For the purpose of comparability with prior periods presented, the "bank only" regulatory capital ratios as of December 31, 2014 represent Midland States Bank ratios only and do not include Heartland Bank. The Tier 1 leverage ratio, Tier 1 capital to risk-weighted assets ratio and total capital to risk-weighted assets ratio for Heartland Bank as of December 31, 2014 were 8.76%, 11.77% and 13.03%, respectively.

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RISK FACTORS

        Investing in our common stock involves a high degree of risk. Before you decide to invest, you should carefully consider the risks described below, together with all other information included in this prospectus. We believe the risks described below are the risks that are material to us. Any of the following risks, as well as risks that we do not know or currently deem immaterial, could have a material adverse effect on our business, financial condition, results of operations and growth prospects. In that case, you could experience a partial or complete loss of your investment.

Risks Related to Our Business

A decline in general business and economic conditions and any regulatory responses to such conditions could have a material adverse effect on our business, financial position, results of operations and growth prospects.

        Our business and operations are sensitive to general business and economic conditions in the United States, generally, and particularly the state of Illinois and the St. Louis metropolitan area. If the national, regional and local economies experience worsening economic conditions, including high levels of unemployment, our growth and profitability could be constrained. Weak economic conditions are characterized by, among other indicators, deflation, elevated levels of unemployment, fluctuations in debt and equity capital markets, increased delinquencies on mortgage, commercial and consumer loans, residential and commercial real estate price declines, lower home sales and commercial activity, and fluctuations in the commercial FHA financing sector. All of these factors are generally detrimental to our business. Our business is significantly affected by monetary and other regulatory policies of the U.S. federal government, its agencies and government-sponsored entities. Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control, are difficult to predict and could have a material adverse effect on our business, financial position, results of operations and growth prospects.

If we do not effectively manage our credit risk, we may experience increased levels of delinquencies, nonperforming loans and charge-offs, which could require increases in our provision for loan losses.

        There are risks inherent in making any loan, including risks inherent in dealing with individual borrowers, risks of nonpayment, risks resulting from uncertainties as to the future value of collateral and cash flows available to service debt and risks resulting from changes in economic and market conditions. We cannot guarantee that our credit underwriting and monitoring procedures will reduce these credit risks, and they cannot be expected to completely eliminate our credit risks. If the overall economic climate in the United States, generally, or our market areas, specifically, declines, our borrowers may experience difficulties in repaying their loans, and the level of nonperforming loans, charge-offs and delinquencies could rise and require further increases in the provision for loan losses, which would cause our net income, return on equity and capital to decrease.

Our allowance for loan losses may prove to be insufficient to absorb potential losses in our loan portfolio.

        We establish our allowance for loan losses and maintain it at a level that management considers adequate to absorb probable loan losses based on an analysis of our portfolio and market environment. The allowance for loan losses represents our estimate of probable losses in the portfolio at each balance sheet date and is based upon relevant information available to us. The allowance contains provisions for probable losses that have been identified relating to specific borrowing relationships, as well as probable losses inherent in the loan portfolio and credit undertakings that are not specifically identified. Additions to the allowance for loan losses, which are charged to earnings through the provision for loan losses, are determined based on a variety of factors, including an analysis of the loan portfolio, historical loss experience and an evaluation of current economic conditions in our market areas. The actual amount of loan losses is affected by changes in economic, operating and other

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conditions within our markets, which may be beyond our control, and such losses may exceed current estimates.

        As of March 31, 2016, our allowance for loan losses as a percentage of total loans was 0.72% and as a percentage of total nonperforming loans was 77.6%. Although management believes that the allowance for loan losses is adequate to absorb losses on any existing loans that may become uncollectible, we may be required to take additional provisions for loan losses in the future to further supplement the allowance for loan losses, either due to management's decision to do so or because our banking regulators require us to do so. Our bank regulatory agencies will periodically review our allowance for loan losses and the value attributed to nonaccrual loans or to real estate acquired through foreclosure and may require us to adjust our determination of the value for these items. These adjustments may adversely affect our business, financial condition and results of operations.

Because a significant portion of our loan portfolio is comprised of real estate loans, negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing our real estate loans and result in loan and other losses.

        At March 31, 2016, approximately 60.3% of our loan portfolio was comprised of loans with real estate as a primary or secondary component of collateral. As a result, adverse developments affecting real estate values in our market areas could increase the credit risk associated with our real estate loan portfolio. The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the area in which the real estate is located. Adverse changes affecting real estate values and the liquidity of real estate in one or more of our markets could increase the credit risk associated with our loan portfolio, significantly impair the value of property pledged as collateral on loans and affect our ability to sell the collateral upon foreclosure without a loss or additional losses, which could result in losses that would adversely affect profitability. Such declines and losses would have a material adverse impact on our business, results of operations and growth prospects. In addition, if hazardous or toxic substances are found on properties pledged as collateral, the value of the real estate could be impaired. If we foreclose on and take title to such properties, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses to address unknown liabilities and may materially reduce the affected property's value or limit our ability to use or sell the affected property.

Many of our loans are to commercial borrowers, which have a higher degree of risk than other types of loans.

        At March 31, 2016, we had $1.5 billion of commercial loans, consisting of $897.1 million of commercial real estate loans, $484.6 million of operating commercial loans for which real estate is not the primary source of collateral and $159.5 million of construction and land development loans. Commercial loans represented 76.4% of our total loan portfolio at March 31, 2016. Commercial loans are often larger and involve greater risks than other types of lending. Because payments on such loans are often dependent on the successful operation or development of the property or business involved, repayment of such loans is often more sensitive than other types of loans to adverse conditions in the real estate market or the general business climate and economy. Accordingly, a downturn in the real estate market and a challenging business and economic environment may increase our risk related to commercial loans, particularly commercial real estate loans. Unlike residential mortgage loans, which generally are made on the basis of the borrowers' ability to make repayment from their employment and other income and which are secured by real property whose value tends to be more easily ascertainable, commercial loans typically are made on the basis of the borrowers' ability to make repayment from the cash flow of the commercial venture. Our operating commercial loans are primarily made based on the identified cash flow of the borrower and secondarily on the collateral underlying the loans. Most often, this collateral consists of accounts receivable, inventory and equipment. Inventory and equipment may depreciate over time, may be difficult to appraise and may

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fluctuate in value based on the success of the business. If the cash flow from business operations is reduced, the borrower's ability to repay the loan may be impaired. Due to the larger average size of each commercial loan as compared with other loans such as residential loans, as well as collateral that is generally less readily-marketable, losses incurred on a small number of commercial loans could have a material adverse impact on our financial condition and results of operations.

The small to midsized businesses that we lend to may have fewer resources to weather adverse business developments, which may impair a borrower's ability to repay a loan, and such impairment could adversely affect our results of operations and financial condition.

        We target our business development and marketing strategy primarily to serve the banking and financial services needs of small to midsized businesses. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities, frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete and may experience substantial volatility in operating results, any of which may impair a borrower's ability to repay a loan. In addition, the success of a small and medium-sized business often depends on the management talents and efforts of one or two people or a small group of people, and the death, disability or resignation of one or more of these people could have a material adverse impact on the business and its ability to repay its loan. If general economic conditions negatively impact the markets in which we operate and small to medium-sized businesses are adversely affected or our borrowers are otherwise affected by adverse business developments, our business, financial condition and results of operations may be adversely affected.

Real estate construction loans are based upon estimates of costs and values associated with the complete project. These estimates may be inaccurate, and we may be exposed to significant losses on loans for these projects.

        Real estate construction loans comprised approximately 7.9% of our total loan portfolio as of March 31, 2016, and such lending involves additional risks because funds are advanced upon the security of the project, which is of uncertain value prior to its completion, and costs may exceed realizable values in declining real estate markets. Because of the uncertainties inherent in estimating construction costs and the realizable market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. As a result, construction loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property, rather than the ability of the borrower or guarantor to repay principal and interest. If our appraisal of the value of the completed project proves to be overstated or market values or rental rates decline, we may have inadequate security for the repayment of the loan upon completion of construction of the project. If we are forced to foreclose on a project prior to or at completion due to a default, we may not be able to recover all of the unpaid balance of, and accrued interest on, the loan as well as related foreclosure and holding costs. In addition, we may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time while we attempt to dispose of it.

System failure or breaches of our network security could subject us to increased operating costs as well as litigation and other liabilities.

        The computer systems and network infrastructure we use could be vulnerable to hardware and cyber security issues. Our operations are dependent upon our ability to protect our computer equipment against damage from fire, power loss, telecommunications failure or a similar catastrophic event. We could also experience a breach by intentional or negligent conduct on the part of employees or other internal or external sources, including our third-party vendors. Any damage or failure that

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causes an interruption in our operations could have an adverse effect on our financial condition and results of operations. In addition, our operations are dependent upon our ability to protect the computer systems and network infrastructure utilized by us, including our internet banking activities, against damage from physical break-ins, cyber security breaches and other disruptive problems caused by the internet or other users. Such computer break-ins and other disruptions would jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability, damage our reputation and inhibit the use of our internet banking services by current and potential customers. We regularly add additional security measures to our computer systems and network infrastructure to mitigate the possibility of cyber security breaches, including firewalls and penetration testing. However, it is difficult or impossible to defend against every risk being posed by changing technologies as well as criminal intent on committing cyber-crime. Increasing sophistication of cyber criminals and terrorists make keeping up with new threats difficult and could result in a breach. Controls employed by our information technology department and cloud vendors could prove inadequate. A breach of our security that results in unauthorized access to our data could expose us to a disruption or challenges relating to our daily operations, as well as to data loss, litigation, damages, fines and penalties, significant increases in compliance costs and reputational damage, any of which could have an adverse effect on our business, financial condition and results of operations.

Our operations could be interrupted if our third-party service providers experience difficulty, terminate their services or fail to comply with banking regulations.

        We depend to a significant extent on a number of relationships with third-party service providers. Specifically, we receive core systems processing, essential web hosting and other internet systems, deposit processing and other processing services from third-party service providers. If these third-party service providers experience difficulties or terminate their services and we are unable to replace them with other service providers, our operations could be interrupted. If an interruption were to continue for a significant period of time, our business, financial condition and results of operations could be adversely affected, perhaps materially. Even if we are able to replace them, it may be at a higher cost to us, which could adversely affect our business, financial condition and results of operations.

We are subject to certain operational risks, including, but not limited to, customer or employee fraud and data processing system failures and errors.

        Employee errors and employee and customer misconduct could subject us to financial losses or regulatory sanctions and seriously harm our reputation. Misconduct by our employees could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our customers or improper use of confidential information. It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Employee errors could also subject us to financial claims for negligence.

        We maintain a system of internal controls and insurance coverage to mitigate against operational risks, including data processing system failures and errors and customer or employee fraud. If our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, financial condition and results of operations.

Our strategy of pursuing growth via acquisitions exposes us to financial, execution and operational risks that could have a material adverse effect on our business, financial position, results of operations and growth prospects.

        Since late 2007, we have been pursuing a strategy of leveraging our human and financial capital by acquiring other financial institutions, including FDIC-assisted acquisitions of failed depository

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institutions, in our target markets. We have completed several acquisitions in recent years, including most recently the Heartland Bank acquisition and we may continue pursuing this strategy.

        Our acquisition activities could require us to use a substantial amount of cash, other liquid assets, and/or incur debt. In addition, if goodwill recorded in connection with our potential future acquisitions were determined to be impaired, then we would be required to recognize a charge against our earnings, which could materially and adversely affect our results of operations during the period in which the impairment was recognized.

        There are risks associated with an acquisition strategy, including the following:

        In addition to the foregoing, we may face additional risks in acquisitions to the extent we acquire new lines of business or new products, or enter new geographic areas, in which we have little or no current experience, especially if we lose key employees of the acquired operations. We cannot assure you that we will be successful in overcoming these risks or any other problems encountered in connection with acquisitions. Our inability to overcome risks associated with acquisitions could have an adverse effect on our ability to successfully implement our acquisition growth strategy and grow our business and profitability.

We may be exposed to unrecoverable losses on loans we have acquired.

        Although we have generally acquired the loan assets of our recent acquisitions at substantial discounts to their unpaid principal balances, we may incur losses on acquired loans. In the case of our two FDIC-assisted transactions, the nature of such transactions does not allow the time normally associated with evaluating and preparing for the integration of an acquired institution. While we entered into customary loss-sharing agreements with the FDIC at the time of those transactions, the loss-sharing protections have begun to expire and will have expired completely by June 30, 2016. In

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addition, the FDIC has the right to refuse or delay payment for such loan losses if the loss-sharing agreements are not managed in accordance with their terms.

If the goodwill that we recorded in connection with a business acquisition becomes impaired, it could require charges to earnings, which would have a negative impact on our financial condition and results of operations.

        Goodwill represents the amount by which the cost of an acquisition exceeded the fair value of net assets we acquired in connection with the purchase. We review goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate that the carrying value of the asset might be impaired.

        We determine impairment by comparing the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. Any such adjustments are reflected in our results of operations in the periods in which they become known. As of March 31, 2016, our goodwill totaled $46.5 million. There can be no assurance that our future evaluations of goodwill will not result in findings of impairment and related write-downs, which may have a material adverse effect on our financial condition and results of operations.

We may not be able to continue growing our business, particularly if we cannot make acquisitions or increase loans through organic loan growth, either because of an inability to find suitable acquisition candidates, constrained capital resources or otherwise.

        We have grown our consolidated assets from $382.1 million as of December 31, 2007 to $2.9 billion as of March 31, 2016, and our deposits from $301.4 million as of December 31, 2007 to $2.4 billion as of March 31, 2016. Much of this growth has resulted from several acquisitions that we have completed since 2007. While we intend to continue to grow our business through strategic acquisitions coupled with organic loan growth, because certain of our market areas are comprised of mature, rural communities with limited population growth, we anticipate that much of our future growth will be dependent on our ability to successfully implement our acquisition growth strategy. A risk exists, however, that we will not be able to identify suitable additional candidates for acquisitions. In addition, even if suitable targets are identified, we expect to compete for such businesses with other potential bidders, many of which may have greater financial resources than we have, which may adversely affect our ability to make acquisitions at attractive prices. Furthermore, many acquisitions we may wish to pursue would be subject to approvals by bank regulatory authorities, and we cannot predict whether any targeted acquisitions will receive the required regulatory approvals. In light of the foregoing, our ability to continue to grow successfully will depend to a significant extent on our capital resources. It also will depend, in part, upon our ability to attract deposits, identify favorable loan and investment opportunities and on whether we can continue to fund growth while maintaining cost controls and asset quality, as well on other factors beyond our control, such as national, regional and local economic conditions and interest rate trends.

        Also, as our acquired loan portfolio, which produces higher yields than our originated loans due to loan discount accretion on our purchased credit impaired loan portfolio (a component of the accretable yield), is paid down, we expect downward pressure on our income to the extent that the run-off is not replaced with other high-yielding loans. The accretable yield represents the excess of the net present value of expected future cash flows over the acquisition date fair value and includes both the expected coupon of the loan and the discount accretion. For example, the total loan yield for the year ended December 31, 2015 was 5.21%, while the yield generated using only the expected coupon would have been 4.20% during the same period. As a result of the foregoing, if we are unable to replace loans in our existing portfolio with comparable high-yielding loans or a larger volume of loans, we could be adversely affected. We could also be materially and adversely affected if we choose to pursue riskier higher-yielding loans that fail to perform.

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The accounting for loans acquired in connection with our acquisitions is based on numerous subjective determinations that may prove to be inaccurate and have a negative impact on our results of operations.

        Loans acquired in connection with our acquisitions have been recorded at estimated fair value on their acquisition date without a carryover of the related allowance for loan losses. In general, the determination of estimated fair value of acquired loans requires management to make subjective determinations regarding discount rate, estimates of losses on defaults, market conditions and other factors that are highly subjective in nature. A risk exists that our estimate of the fair value of acquired loans will prove to be inaccurate and that we ultimately will not recover the amount at which we recorded such loans on our balance sheet, which would require us to recognize losses.

        Loans acquired in connection with acquisitions that have evidence of credit deterioration since origination and for which it is probable at the date of acquisition that we will not collect all contractually required principal and interest payments are accounted for under ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. These credit-impaired loans, like non-credit-impaired loans acquired in connection with our acquisitions, have been recorded at estimated fair value on their acquisition date, based on subjective determinations regarding risk ratings, expected future cash flows and fair value of the underlying collateral, without a carryover of the related allowance for loan losses. We evaluate these loans quarterly to assess expected cash flows. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in cash flows result in a reversal of the provision for loan losses to the extent of prior charges or a reclassification of the difference from non-accretable to accretable with a positive impact on interest income. Because the accounting for these loans is based on subjective measures that can change frequently, we may experience fluctuations in our net interest income and provisions for loan losses attributable to these loans. These fluctuations could negatively impact our results of operations.

We are highly dependent on our management team, and the loss of our senior executive officers or other key employees could harm our ability to implement our strategic plan, impair our relationships with customers and adversely affect our business, results of operations and growth prospects.

        Our success is dependent, to a large degree, upon the continued service and skills of our executive management team, particularly Mr. Leon J. Holschbach, our Chief Executive Officer and President, and Mr. Jeffrey G. Ludwig, our Executive Vice President and Chief Financial Officer.

        Our business and growth strategies are built primarily upon our ability to retain employees with experience and business relationships within their respective market areas. We seek to manage the continuity of our executive management team through regular succession planning. As part of these efforts, we recently entered into a transitional employment agreement with Mr. Holschbach, which contemplates his retirement on December 31, 2018 and his continued service as a director of the Company through the annual meeting of shareholders in 2020. See "Executive Compensation—Employment Agreements." The loss of Mr. Holschbach, Mr. Ludwig or any of our other key personnel could have an adverse impact on our business and growth because of their skills, years of industry experience, knowledge of our market areas, the difficulty of finding qualified replacement personnel, particularly in light of the fact that we are headquartered outside of a major metropolitan area, and any difficulties associated with transitioning of responsibilities to any new members of the executive management team. In addition, although we have non-competition agreements with each of our seven executive officers and with several others of our senior personnel, we do not have any such agreements with other employees who are important to our business, and in any event the enforceability of non-competition agreements varies across the states in which we do business. While our mortgage originators, loan officers and wealth management professionals are generally subject to non-solicitation provisions as part of their employment, our ability to enforce such agreements may not fully mitigate the injury to our business from the breach of such agreements, as such employees could leave us and immediately begin soliciting our customers. The departure of any of our personnel who are not subject

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to enforceable non-competition agreements could have a material adverse impact on our business, results of operations and growth prospects.

Fluctuations in interest rates may reduce net interest income and otherwise negatively impact our financial condition and results of operations.

        Shifts in short-term interest rates may reduce net interest income, which is the principal component of our earnings. Net interest income is the difference between the amounts received by us on our interest-earning assets and the interest paid by us on our interest-bearing liabilities. When interest rates rise, the rate of interest we pay on our liabilities, such as deposits, rises more quickly than the rate of interest that we receive on our interest-bearing assets, such as loans, which may cause our profits to decrease. The impact on earnings is more adverse when the slope of the yield curve flattens, that is, when short-term interest rates increase more than long-term interest rates or when long-term interest rates decrease more than short-term interest rates.

        Interest rate increases often result in larger payment requirements for our borrowers, which increases the potential for default. At the same time, the marketability of the underlying property may be adversely affected by any reduced demand resulting from higher interest rates. In a declining interest rate environment, there may be an increase in prepayments on loans as borrowers refinance their mortgages and other indebtedness at lower rates. At March 31, 2016, total gross loans were 78.3% of our total earning assets and exhibited a positive 10.2% sensitivity to rising interest rates in a 100 basis point parallel shock.

        Changes in interest rates also can affect the value of loans, securities and other assets. An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in nonperforming assets and a reduction of income recognized, which could have a material adverse effect on our results of operations and cash flows. Further, when we place a loan on nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. Subsequently, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense. Thus, an increase in the amount of nonperforming assets would have an adverse impact on net interest income.

        Rising interest rates will result in a decline in value of the fixed-rate debt securities we hold in our investment securities portfolio. The unrealized losses resulting from holding these securities would be recognized in other comprehensive income (loss) and reduce total shareholders' equity. Unrealized losses do not negatively impact our regulatory capital ratios; however, tangible common equity and the associated ratios would be reduced. If debt securities in an unrealized loss position are sold, such losses become realized and will reduce our regulatory capital ratios.

        If short-term interest rates remain at their historically low levels for a prolonged period, and assuming longer term interest rates fall further, we could experience net interest margin compression as our interest earning assets would continue to reprice downward while our interest-bearing liability rates could fail to decline in tandem. This would have a material adverse effect on our net interest income and our results of operations.

Liquidity risks could affect operations and jeopardize our business, financial condition, and results of operations.

        Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans and/or investment securities and from other sources could have a substantial negative effect on our liquidity. Our most important source of funds consists of our customer deposits, including escrow deposits held in connection with our commercial mortgage servicing business. Such deposit balances can decrease when customers perceive alternative investments, such as the stock market, as providing a better risk/return tradeoff, or, in connection with our commercial mortgage servicing

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business, third parties for whom we provide servicing choose to terminate that relationship with us. If customers move money out of bank deposits and into other investments, we could lose a relatively low cost source of funds, which would require us to seek wholesale funding alternatives in order to continue to grow, thereby increasing our funding costs and reducing our net interest income and net income.

        Other primary sources of funds consist of cash from operations, investment maturities and sales, and proceeds from the issuance and sale of our equity and debt securities to investors. Additional liquidity is provided by brokered deposits, repurchase agreements and the ability to borrow from the Federal Reserve Bank and the Federal Home Loan Bank of Chicago. We also may borrow from third-party lenders from time to time. Our access to funding sources in amounts adequate to finance or capitalize our activities or on terms that are acceptable to us could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry.

        Any decline in available funding could adversely impact our ability to continue to implement our strategic plan, including originate loans, invest in securities, meet our expenses, pay dividends to our shareholders or to fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, financial condition and results of operations.

We may need to raise additional capital in the future, and if we fail to maintain sufficient capital, whether due to losses, an inability to raise additional capital or otherwise, our financial condition, liquidity and results of operations, as well as our ability to maintain regulatory compliance, would be adversely affected.

        We face significant capital and other regulatory requirements as a financial institution. Although management believes that funds raised in this offering will be sufficient to fund operations and growth initiatives for at least the next eighteen to twenty-four months based on our estimated future operations, we may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments and business needs, which could include the possibility of financing acquisitions. In addition, the Company, on a consolidated basis, and the Bank, on a stand-alone basis, must meet certain regulatory capital requirements and maintain sufficient liquidity. Importantly, regulatory capital requirements could increase from current levels, which could require us to raise additional capital or contract our operations. Our ability to raise additional capital depends on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities, and on our financial condition and performance. Accordingly, we cannot assure you that we will be able to raise additional capital if needed or on terms acceptable to us. If we fail to maintain capital to meet regulatory requirements, our financial condition, liquidity and results of operations would be materially and adversely affected.

Decreased residential and commercial mortgage origination, volume and pricing decisions of competitors, and changes in interest rates, may adversely affect our profitability.

        We currently operate a residential and commercial mortgage origination and servicing business. Changes in interest rates and pricing decisions by our loan competitors may adversely affect demand for our mortgage loan products, the revenue realized on the sale of loans, revenues received from servicing such loans and the valuation of our mortgage servicing rights. New regulations, increased regulatory reviews, and/or changes in the structure of the secondary mortgage markets which we would utilize to sell mortgage loans may be introduced and may increase costs and make it more difficult to operate a residential and commercial mortgage origination and servicing business.

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We could recognize losses on securities held in our securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate.

        As of March 31, 2016, the fair value of our securities portfolio was approximately $325.6 million. Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. For example, fixed-rate securities acquired by us are generally subject to decreases in market value when interest rates rise. Additional factors include, but are not limited to, rating agency downgrades of the securities or our own analysis of the value of the security, defaults by the issuer or individual mortgagors with respect to the underlying securities, and continued instability in the credit markets. Any of the foregoing factors could cause an other-than-temporary impairment in future periods and result in realized losses. The process for determining whether impairment is other-than-temporary usually requires difficult, subjective judgments about the future financial performance of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security. Because of changing economic and market conditions affecting interest rates, the financial condition of issuers of the securities and the performance of the underlying collateral, we may recognize realized and/or unrealized losses in future periods, which could have an adverse effect on our financial condition and results of operations.

Downgrades in the credit rating of one or more insurers that provide credit enhancement for our state and municipal securities portfolio may have an adverse impact on the market for and valuation of these types of securities.

        We invest in tax-exempt state and local municipal securities, some of which are insured by monoline insurers. As of March 31, 2016, we had $109.1 million of municipal securities, which represented 34.1% of our total securities portfolio. Since the economic crisis unfolded in 2008, several of these insurers have come under scrutiny by rating agencies. Even though management generally purchases municipal securities on the overall credit strength of the issuer, the reduction in the credit rating of an insurer may negatively impact the market for and valuation of our investment securities. Such downgrade could adversely affect our liquidity, financial condition and results of operations.

Our mortgage banking profitability could significantly decline if we are not able to originate and resell a high volume of mortgage loans.

        Mortgage production, especially refinancing activity, declines in rising interest rate environments. While we have been experiencing historically low interest rates over the last few years, this low interest rate environment likely will not continue indefinitely. Moreover, when interest rates increase further, there can be no assurance that our mortgage production will continue at current levels. Because we sell a substantial portion of the mortgage loans we originate, the profitability of our mortgage banking business also depends in large part on our ability to aggregate a high volume of loans and sell them in the secondary market at a gain. Thus, in addition to our dependence on the interest rate environment, we are dependent upon (i) the existence of an active secondary market and (ii) our ability to profitably sell loans or securities into that market. If our level of mortgage production declines, the profitability will depend upon our ability to reduce our costs commensurate with the reduction of revenue from our mortgage operations.

        Our ability to originate and sell mortgage loans readily is dependent upon the availability of an active secondary market for single-family mortgage loans, which in turn depends in part upon the continuation of programs currently offered by government-sponsored entities ("GSEs") and other institutional and non-institutional investors. These entities account for a substantial portion of the secondary market in residential mortgage loans. Because the largest participants in the secondary market are Fannie Mae and Freddie Mac, GSEs whose activities are governed by federal law, any future changes in laws that significantly affect the activity of these GSEs could, in turn, adversely affect

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our operations. In September 2008, Fannie Mae and Freddie Mac were placed into conservatorship by the U.S. government. The federal government has for many years considered proposals to reform Fannie Mae and Freddie Mac, but the results of any such reform, and their impact on us, are difficult to predict. To date, no reform proposal has been enacted.

        In addition, our ability to sell mortgage loans readily is dependent upon our ability to remain eligible for the programs offered by the GSEs and other institutional and non-institutional investors. Any significant impairment of our eligibility with any of the GSEs could materially and adversely affect our operations. Further, the criteria for loans to be accepted under such programs may be changed from time to time by the sponsoring entity, which could result in a lower volume of corresponding loan originations. The profitability of participating in specific programs may vary depending on a number of factors, including our administrative costs of originating and purchasing qualifying loans and our costs of meeting such criteria.

Our ability to maintain our reputation is critical to the success of our business, and the failure to do so may materially adversely affect our business and the value of our stock.

        We are a community bank, and our reputation is one of the most valuable components of our business. Similarly, Love Funding Corporation and Heartland Business Credit Corporation operate in niche markets where reputation is critically important. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers and associates. If our reputation is negatively affected, by the actions of our employees or otherwise, our business and, therefore, our operating results and the value of our stock may be materially adversely affected.

Our risk management framework may not be effective in mitigating risks and/or losses to us.

        Our risk management framework is comprised of various processes, systems and strategies, and is designed to manage the types of risk to which we are subject, including, among others, credit, market, liquidity, interest rate and compliance. Our framework also includes financial or other modeling methodologies that involve management assumptions and judgment. Our risk management framework may not be effective under all circumstances or that it will adequately mitigate any risk or loss to us. If our framework is not effective, we could suffer unexpected losses and our business, financial condition, results of operations or growth prospects could be materially and adversely affected. We may also be subject to potentially adverse regulatory consequences.

Changes in accounting standards could materially impact our financial statements.

        From time to time, the Financial Accounting Standards Board or the SEC may change the financial accounting and reporting standards that govern the preparation of our financial statements. Such changes may result in us being subject to new or changing accounting and reporting standards. In addition, the bodies that interpret the accounting standards (such as banking regulators or outside auditors) may change their interpretations or positions on how these standards should be applied. These changes may be beyond our control, can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retrospectively, or apply an existing standard differently, also retrospectively, in each case resulting in our needing to revise or restate prior period financial statements.

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The obligations associated with being a public company will require significant resources and management attention, which may divert from our business operations.

        As a result of this offering, we will become subject to the reporting requirements of the Securities Exchange Act of 1934, or Exchange Act, and the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition with the SEC. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financial reporting. As a result, we will incur significant legal, accounting and other expenses that we did not previously incur. We anticipate that these costs will materially increase our general and administrative expenses. Furthermore, the need to establish the corporate infrastructure demanded of a public company may divert management's attention from implementing our strategic plan, which could prevent us from successfully implementing our growth initiatives and improving our business, results of operations and financial condition.

        As an "emerging growth company" as defined in the JOBS Act, we intend to take advantage of certain temporary exemptions from various reporting requirements, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and an exemption from the requirement to obtain an attestation from our auditors on management's assessment of our internal control over financial reporting. When these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring compliance with them. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.

We are subject to claims and litigation pertaining to our fiduciary responsibilities.

        Some of the services we provide, such as wealth management services, require us to act as fiduciaries for our customers and others. From time to time, third parties make claims and take legal action against us pertaining to the performance of our fiduciary responsibilities. If these claims and legal actions are not resolved in a manner favorable to us, we may be exposed to significant financial liability and/or our reputation could be damaged. Either of these results may adversely impact demand for our products and services or otherwise have a harmful effect on our business and, in turn, on our financial condition and results of operations.

We have a continuing need for technological change, and we may not have the resources to effectively implement new technology or we may experience operational challenges when implementing new technology.

        The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success will depend in part upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in our operations as we continue to grow and expand our market area. We may experience operational challenges as we implement these new technology enhancements, or seek to implement them across all of our offices and business units, which could result in us not fully realizing the anticipated benefits from such new technology or require us to incur significant costs to remedy any such challenges in a timely manner.

        Many of our larger competitors have substantially greater resources to invest in technological improvements. As a result, they may be able to offer additional or superior products to those that we will be able to offer, which would put us at a competitive disadvantage. Accordingly, a risk exists that we will not be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to our customers.

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Real estate market volatility and future changes in our disposition strategies could result in net proceeds that differ significantly from our other real estate owned fair value appraisals.

        As of March 31, 2016, we had $4.7 million of other real estate owned. Our other real estate owned portfolio consists of properties that we obtained through foreclosure or through an in-substance foreclosure in satisfaction of loans. Properties in our other real estate owned portfolio are recorded at the lower of the recorded investment in the loans for which the properties previously served as collateral or the "fair value," which represents the estimated sales price of the properties on the date acquired less estimated selling costs. Generally, in determining "fair value," an orderly disposition of the property is assumed, except where a different disposition strategy is expected. Significant judgment is required in estimating the fair value of other real estate owned property, and the period of time within which such estimates can be considered current is significantly shortened during periods of market volatility.

        In response to market conditions and other economic factors, we may utilize alternative sale strategies other than orderly disposition as part of our other real estate owned disposition strategy, such as immediate liquidation sales. In this event, as a result of the significant judgments required in estimating fair value and the variables involved in different methods of disposition, the net proceeds realized from such sales transactions could differ significantly from appraisals, comparable sales and other estimates used to determine the fair value of our other real estate owned properties.

Nonperforming assets take significant time to resolve and adversely affect our results of operations and financial condition, and could result in further losses in the future.

        As of March 31, 2016, our nonperforming loans (which consist of nonaccrual loans, loans past due 90 days or more and still accruing interest and loans modified under troubled debt restructurings) totaled $18.8 million, or 0.9% of our loan portfolio, and our nonperforming assets (which include nonperforming loans plus other real estate owned that is not covered by a loss-sharing agreement with the FDIC and is not government guaranteed) totaled $22.3 million, or 0.8% of total assets. In addition, we had $6.6 million in accruing loans that were 31-89 days delinquent as of March 31, 2016.

        Our nonperforming assets adversely affect our net income in various ways. We do not record interest income on nonaccrual loans or other real estate owned, thereby adversely affecting our net income and returns on assets and equity, increasing our loan administration costs and adversely affecting our efficiency ratio. When we take collateral in foreclosure and similar proceedings, we are required to mark the collateral to its then-fair market value, which may result in a loss. These nonperforming loans and other real estate owned also increase our risk profile and the level of capital our regulators believe is appropriate for us to maintain in light of such risks. The resolution of nonperforming assets requires significant time commitments from management and can be detrimental to the performance of their other responsibilities. If we experience increases in nonperforming loans and nonperforming assets, our net interest income may be negatively impacted and our loan administration costs could increase, each of which could have an adverse effect on our net income and related ratios, such as return on assets and equity.

We depend on the accuracy and completeness of information provided by customers and counterparties.

        In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information furnished to us by or on behalf of customers and counterparties, including financial statements and other financial information. We also may rely on representations of customers and counterparties as to the accuracy and completeness of that information. In deciding whether to extend credit, we may rely upon our customers' representations that their financial statements conform to GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. We also may rely on customer representations and certifications, or other audit or accountants' reports, with respect to the business

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and financial condition of our clients. Our financial condition, results of operations, financial reporting and reputation could be negatively affected if we rely on materially misleading, false, inaccurate or fraudulent information.

If we breach any of the representations or warranties we make to a purchaser of our mortgage loans, we may be liable to the purchaser for certain costs and damages.

        When we sell or securitize mortgage loans in the ordinary course of business, we are required to make certain representations and warranties to the purchaser about the mortgage loans and the manner in which they were originated. Under these agreements, we may be required to repurchase mortgage loans if we have breached any of these representations or warranties, in which case we may record a loss. In addition, if repurchase and indemnity demands increase on loans that we sell from our portfolios, our liquidity, results of operations and financial condition could be adversely affected.

We face strong competition from financial services companies and other companies that offer banking, mortgage, leasing, and wealth management services and providers of FHA financing and servicing, which could harm our business.

        Our operations consist of offering banking and mortgage services, and we also offer commercial FHA financing, trust, wealth management and leasing services to generate noninterest income. Many of our competitors offer the same, or a wider variety of, banking and related financial services within our market areas. These competitors include national banks, regional banks and other community banks. We also face competition from many other types of financial institutions, including savings and loan institutions, finance companies, brokerage firms, insurance companies, credit unions, mortgage banks and other financial intermediaries. In addition, a number of out-of-state financial intermediaries have opened production offices or otherwise solicit deposits in our market areas. Additionally, we face growing competition from so-called "online businesses" with few or no physical locations, including online banks, lenders and consumer and commercial lending platforms, as well as automated retirement and investment service providers. Increased competition in our markets may result in reduced loans, deposits and commissions and brokers' fees, as well as reduced net interest margin and profitability. Ultimately, we may not be able to compete successfully against current and future competitors. If we are unable to attract and retain banking, mortgage, leasing and wealth management customers, we may be unable to continue to grow our business, and our financial condition and results of operations may be adversely affected.

If we violate HUD lending requirements, or if the federal government shuts down or otherwise fails to fully fund the federal budget, our commercial FHA origination business could be adversely affected.

        We originate, sell and service loans under FHA insurance programs, and make certifications regarding compliance with applicable requirements and guidelines. If we were to violate these requirements and guidelines, or other applicable laws, or if the FHA loans we originate show a high frequency of loan defaults, we could be subject to monetary penalties and indemnification claims, and could be declared ineligible for FHA programs. Any inability to engage in our commercial FHA origination and servicing business would lead to a decrease in our net income.

        In addition, disagreement over the federal budget has caused the U.S. federal government to shut down for periods of time in recent years. Federal governmental entities, such as HUD, that rely on funding from the federal budget, could be adversely affected in the event of a government shut-down, which could have a material adverse effect on our commercial FHA origination business and our results of operations.

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Risks Related to the Business Environment and Our Industry

Legislative and regulatory actions taken now or in the future may increase our costs and impact our business, governance structure, financial condition or results of operations.

        The Dodd-Frank Act, among other things, imposed new capital requirements on bank holding companies; changed the base for FDIC insurance assessments to a bank's average consolidated total assets minus average tangible equity, rather than upon its deposit base; permanently raised the current standard deposit insurance limit to $250,000; and expanded the FDIC's authority to raise insurance premiums. The Dodd-Frank Act established the Consumer Financial Protection Bureau as an independent entity within the Federal Reserve, which has broad rulemaking, supervisory and enforcement authority over consumer financial products and services, including deposit products, residential mortgages, home-equity loans and credit cards and contains provisions on mortgage-related matters, such as steering incentives, determinations as to a borrower's ability to repay and prepayment penalties. Although the applicability of certain elements of the Dodd-Frank Act is limited to institutions with more than $10 billion in assets, there can be no guarantee that such applicability will not be extended in the future or that regulators or other third parties will not seek to impose such requirements on institutions with less than $10 billion in assets, such as the Bank.

        Compliance with the Dodd-Frank Act and its implementing regulations has and will continue to result in additional operating and compliance costs that could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

        In addition, new proposals for legislation continue to be introduced in the U.S. Congress that could further substantially increase regulation of the bank and non-bank financial services industries and impose restrictions on the operations and general ability of firms within the industry to conduct business consistent with historical practices. Federal and state regulatory agencies also frequently adopt changes to their regulations or change the manner in which existing regulations are applied. Certain aspects of current or proposed regulatory or legislative changes to laws applicable to the financial industry, if enacted or adopted, may impact the profitability of our business activities, require more oversight or change certain of our business practices, including the ability to offer new products, obtain financing, attract deposits, make loans and achieve satisfactory interest spreads and could expose us to additional costs, including increased compliance costs. These changes also may require us to invest significant management attention and resources to make any necessary changes to operations to comply and could have an adverse effect on our business, financial condition and results of operations.

As a result of the Dodd-Frank Act and recent rulemaking, we are subject to more stringent capital requirements.

        In July 2013, the U.S. federal banking authorities approved the implementation of the Basel III regulatory capital reforms, or Basel III, and issued rules effecting certain changes required by the Dodd-Frank Act. Basel III is applicable to all U.S. banks that are subject to minimum capital requirements as well as to bank and saving and loan holding companies, other than "small bank holding companies" (generally bank holding companies with consolidated assets of less than $1.0 billion). Basel III not only increases most of the required minimum regulatory capital ratios, it introduces a new common equity Tier 1 capital ratio and the concept of a capital conservation buffer. Basel III also expands the current definition of capital by establishing additional criteria that capital instruments must meet to be considered additional Tier 1 and Tier 2 capital. In order to be a "well-capitalized" depository institution under the new regime, an institution must maintain a common equity Tier 1 capital ratio of 6.5% or more; a Tier 1 capital ratio of 8% or more; a total capital ratio of 10% or more; and a leverage ratio of 5% or more. Institutions must also maintain a capital conservation buffer consisting of common equity Tier 1 capital. The Basel III capital rules became effective as applied to us and the Bank on January 1, 2015 with a phase-in period that generally extends through January 1, 2019 for many of the changes.

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        The failure to meet applicable regulatory capital requirements could result in one or more of our regulators placing limitations or conditions on our activities, including our growth initiatives, or restricting the commencement of new activities, and could affect customer and investor confidence, our costs of funds and FDIC insurance costs, our ability to pay dividends on our common stock, our ability to make acquisitions, and our business, results of operations and financial conditions, generally.

Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations.

        In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve. An important function of the Federal Reserve is to regulate the money supply and credit conditions. Among the instruments used by the Federal Reserve to implement these objectives are open market purchases and sales of U.S. government securities, adjustments of the discount rate and changes in banks' reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits.

        The monetary policies and regulations of the Federal Reserve have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. The effects of such policies upon our business, financial condition and results of operations cannot be predicted.

Federal and state regulators periodically examine our business, and we may be required to remediate adverse examination findings.

        The Federal Reserve, the FDIC, and the Illinois Department of Financial and Professional Regulation periodically examine our business, including our compliance with laws and regulations. If, as a result of an examination, a banking agency were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, they may take a number of different remedial actions as they deem appropriate. These actions include the power to enjoin "unsafe or unsound" practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil money penalties, to fine or remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance and place us into receivership or conservatorship. Any regulatory action against us could have an adverse effect on our business, financial condition and results of operations.

We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.

        The Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations prohibit discriminatory lending practices by financial institutions. The U.S. Department of Justice, federal banking agencies, and other federal agencies are responsible for enforcing these laws and regulations. A challenge to an institution's compliance with fair lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines. Private parties may also challenge an institution's performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

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We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.

        The Bank Secrecy Act, the USA Patriot Act and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and to file reports such as suspicious activity reports and currency transaction reports. We are required to comply with these and other anti-money laundering requirements. The federal banking agencies and Financial Crimes Enforcement Network are authorized to impose significant civil money penalties for violations of those requirements and have recently engaged in coordinated enforcement efforts against banks and other financial services providers with the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service. We are also subject to increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control. If our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans.

        Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

The Federal Reserve may require us to commit capital resources to support the Bank.

        As a matter of policy, the Federal Reserve expects a bank holding company to act as a source of financial and managerial strength to a subsidiary bank and to commit resources to support such subsidiary bank. The Dodd-Frank Act codified the Federal Reserve's policy on serving as a source of financial strength. Under the "source of strength" doctrine, the Federal Reserve may require a bank holding company to make capital injections into a troubled subsidiary bank and may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank. A capital injection may be required at times when the holding company may not have the resources to provide it and therefore may be required to borrow the funds or raise capital. Any loans by a holding company to its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company's bankruptcy, the bankruptcy trustee will assume any commitment by the holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank. Moreover, bankruptcy law provides that claims based on any such commitment will be entitled to a priority of payment over the claims of the institution's general unsecured creditors, including the holders of its note obligations. Thus, any borrowing that must be done by the Company to make a required capital injection becomes more difficult and expensive and could have an adverse effect on our business, financial condition and results of operations.

We may be adversely affected by the soundness of other financial institutions.

        Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty, and other relationships. We have exposure to different industries and counterparties, and through transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, and other institutional clients. As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. These losses or defaults could have a material adverse effect on our business, financial condition, results of operations and growth prospects. Additionally, if our competitors were extending credit on terms we found to pose excessive risks, or at

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interest rates which we believed did not warrant the credit exposure, we may not be able to maintain our business volume and could experience deteriorating financial performance.

Risks Related to this Offering and an Investment in Our Common Stock

An active, liquid trading market for our common stock may not develop, and you may not be able to sell your common stock at or above the public offering price, or at all.

        Prior to this offering, there has been no public market for our common stock. An active trading market for shares of our common stock may never develop or be sustained following this offering. If an active trading market does not develop, you may have difficulty selling your shares of common stock at an attractive price, or at all. The public offering price for our common stock will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell your common stock at or above the public offering price or at any other price or at the time that you would like to sell. An inactive market may also impair our ability to raise capital by selling our common stock and may impair our ability to expand our business by using our common stock as consideration in an acquisition.

The price of our common stock could be volatile following this offering.

        The market price of our common stock following this offering may be volatile and could be subject to wide fluctuations in price in response to various factors, some of which are beyond our control. These factors include, among other things:

        In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

An investment in our common stock is not an insured deposit.

        An investment in our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private entity. Investment in our common stock is inherently risky for the reasons described herein, and is subject to the same market forces that affect the price of common stock in any company. As a result, if you acquire our common stock, you could lose some or all of your investment.

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If equity research analysts do not publish research or reports about our business, or if they do publish such reports but issue unfavorable commentary or downgrade our common stock, the price and trading volume of our common stock could decline.

        The trading market for our common stock could be affected by whether equity research analysts publish research or reports about us and our business. We cannot predict at this time whether any research analysts will publish research and reports on us and our common stock. If one or more equity analysts do cover us and our common stock and publish research reports about us, the price of our stock could decline if one or more securities analysts downgrade our stock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.

        If any of the analysts who elect to cover us downgrades our stock, our stock price could decline rapidly. If any of these analysts ceases coverage of us, we could lose visibility in the market, which in turn could cause our common stock price or trading volume to decline and our common stock to be less liquid.

Our dividend policy may change.

        Although we have historically paid dividends to our shareholders and currently intend to generally maintain our current dividend levels, we have no obligation to continue doing so and may change our dividend policy at any time without notice to our shareholders. Holders of our common stock are only entitled to receive such cash dividends as our board of directors, in its discretion, may declare out of funds legally available for such payments. Furthermore, consistent with our strategic plans, growth initiatives, capital availability, projected liquidity needs, and other factors, we have made, and will continue to make, capital management decisions and policies that could adversely impact the amount of dividends paid to our common shareholders.

        We are a separate and distinct legal entity from our subsidiaries, including the Bank. We receive substantially all of our revenue from dividends from the Bank, which we use as the principal source of funds to pay our expenses. Various federal and/or state laws and regulations limit the amount of dividends that the Bank and certain of our non-bank subsidiaries may pay us. Such limits are also tied to the earnings of our subsidiaries. If the Bank does not receive regulatory approval or if our subsidiaries' earnings are not sufficient to make dividend payments to us while maintaining adequate capital levels, our ability to pay our expenses and our business, financial condition or results of operations could be materially and adversely impacted.

Shares of certain shareholders may be sold into the public market in the near future. This could cause the market price of our common stock to drop significantly.

        In connection with this offering, we, our directors, our executive officers and certain of our shareholders have each agreed to enter into lock-up agreements that restrict the sale of their holdings of our common stock for a period of 180 days from the date of this prospectus, subject to an extension in certain circumstances. The underwriters, in their discretion, may release any of the shares of our common stock subject to these lock-up agreements at any time without notice. In addition, after this offering, approximately 7,233,567 shares of our common stock that are currently issued and outstanding will not be subject to lock-up. The resale of such shares could cause the market price of our stock to drop significantly, and concerns that those sales may occur could cause the trading price of our common stock to decrease or to be lower than it might otherwise be.

        In addition, several of our shareholders have demand (beginning 180 days after the registration statement of which this prospectus is a part becomes effective) and piggyback registration rights pursuant to registration rights agreements with respect to the shares of our common stock that these holders own. As of the date of this prospectus, these holders owned 3,376,840 shares of our common stock, 787,748 of which are included in this offering. Any shares registered pursuant to the registration rights agreement would be freely tradable in the public market following customary lock-up periods.

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See "Shares Eligible for Future Sale." In addition, immediately following this offering, we intend to file a registration statement on Form S-8 registering under the Securities Act of 1933, as amended, or the Securities Act, the shares of common stock reserved for issuance in respect of incentive awards issued under our equity incentive plans. If a large number of shares are sold in the public market, the sales could reduce the trading price of our common stock. These sales also could impede our ability to raise future capital.

Our management will have broad discretion as to the use of proceeds from this offering, and we may not use the proceeds effectively.

        We are not required to apply any portion of the net proceeds of this offering for any particular purpose. Accordingly, our management will have broad discretion as to the application of the net proceeds of this offering and could use them for purposes other than those contemplated at the time of this offering. A portion of the proceeds are expected to be used to provide additional capital as a cushion against minimum regulatory capital requirements, which may tend to reduce our return on equity as opposed to if such proceeds were used for further growth. Our shareholders may not agree with the manner in which our management chooses to allocate and invest the net proceeds. We may not be successful in using the net proceeds from this offering to increase our profitability or market value and we cannot predict whether the proceeds will be invested to yield a favorable return.

Failure to maintain effective internal controls over financial reporting could have a material adverse effect on our business and stock price.

        As a private company, we are not currently required to comply with the rules of the SEC implementing Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company after completion of this offering, we will be required to comply with the SEC's rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. In particular, we will be required to certify our compliance with Section 404 of the Sarbanes-Oxley Act beginning with our second annual report on Form 10-K, which will require us to furnish annually a report by management on the effectiveness of our internal control over financial reporting. Furthermore, unless we remain an emerging growth company and elect additional transitional relief available to emerging growth companies, or we qualify as a smaller reporting company under applicable SEC rules, then our independent registered public accounting firm will be required to report on the effectiveness of our internal control over financial reporting, beginning as of that second annual report.

        If we identify any material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting once we are no longer an emerging growth company, investors, counterparties and customers may lose confidence in the accuracy and completeness of our financial statements and reports; our liquidity, access to capital markets and perceptions of our creditworthiness could be adversely affected; and the market price of our common stock could decline. In addition, we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, the Board of Governors of the Federal Reserve System, the FDIC, the OCC or other regulatory authorities, which could require additional financial and management resources. These events could have an adverse effect on our business, financial condition and results of operations.

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You will incur immediate dilution as a result of this offering.

        If you purchase common stock in this offering, you will pay more for your shares than our existing net tangible book value per share. As a result, you will incur immediate dilution of $8.65 per share, representing the difference between the assumed public offering price of $26.00 per share (the mid-point of the range set forth on the cover page of this prospectus) and our adjusted net tangible book value per share after giving effect to this offering. This represents 33.3% dilution from the public offering price.

Future equity issuances could result in dilution, which could cause our common stock price to decline.

        We are generally not restricted from issuing additional shares of our common stock, up to the 35 million shares of voting common stock and 5 million shares of non-voting common stock authorized in our articles of incorporation, which in each case could be increased by a vote of a majority of our shares. We may issue additional shares of our common stock in the future pursuant to current or future equity compensation plans, upon conversions of preferred stock or debt, upon exercise of warrants or in connection with future acquisitions or financings. If we choose to raise capital by selling shares of our common stock for any reason, the issuance would have a dilutive effect on the holders of our common stock and could have a material negative effect on the market price of our common stock.

We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common stock, which could depress the price of our common stock.

        Although there are currently no shares of our preferred stock issued and outstanding, our articles of organization authorize us to issue up to 4 million shares of one or more series of preferred stock. The board also has the power, without shareholder approval, to set the terms of any series of preferred stock that may be issued, including voting rights, dividend rights, preferences over our common stock with respect to dividends or in the event of a dissolution, liquidation or winding up and other terms. In the event that we issue preferred stock in the future that has preference over our common stock with respect to payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of the holders of our common stock or the market price of our common stock could be adversely affected. In addition, the ability of our board of directors to issue shares of preferred stock without any action on the part of our shareholders may impede a takeover of us and prevent a transaction perceived to be favorable to our shareholders.

The holders of our debt obligations and preferred stock, if any, will have priority over our common stock with respect to payment in the event of liquidation, dissolution or winding up and with respect to the payment of interest and dividends.

        In any liquidation, dissolution or winding up of the Company, our common stock would rank below all claims of debt holders against us and claims of all of our outstanding shares of preferred stock. As of March 31, 2016, we had outstanding $61.9 million of subordinated notes and $37.1 million of trust preferred securities (which reflects a discount of $15.9 million to the aggregate principal balance of $53.0 million as a result of purchase accounting adjustments).

        As a result, holders of our common stock will not be entitled to receive any payment or other distribution of assets upon the liquidation, dissolution or winding up of the Company until after all of our obligations to our debt holders have been satisfied and holders of trust preferred securities and senior equity securities, including preferred shares, if any, have received any payment or distribution due to them. In addition, we are required to pay interest on our subordinated notes and dividends on our trust preferred securities and preferred stock before we pay any dividends on our common stock.

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Provisions in our charter documents and Illinois law may have an anti-takeover effect, and there are substantial regulatory limitations on changes of control of bank holding companies.

        Provisions of our charter documents and the Illinois Business Corporation Act of 1983, or the IBCA, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial by our shareholders. Furthermore, with certain limited exceptions, federal regulations prohibit a person or company or a group of persons deemed to be "acting in concert" from, directly or indirectly, acquiring more than 10% (5% if the acquirer is a bank holding company) of any class of our voting stock or obtaining the ability to control in any manner the election of a majority of our directors or otherwise direct the management or policies of our company without prior notice or application to and the approval of the Federal Reserve. Accordingly, prospective investors need to be aware of and comply with these requirements, if applicable, in connection with any purchase of shares of our common stock. Moreover, the combination of these provisions effectively inhibits certain mergers or other business combinations, which, in turn, could adversely affect the market price of our common stock.

We are an "emerging growth company," and the reduced regulatory and reporting requirements applicable to emerging growth companies may make our common stock less attractive to investors.

        We are an "emerging growth company," as described in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of reduced regulatory and reporting requirements that are otherwise generally applicable to public companies. These include, without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced financial reporting requirements, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments. The JOBS Act also permits an "emerging growth company" such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. However, we have irrevocably "opted out" of this provision, and we will comply with new or revised accounting standards to the same extent that compliance is required for non-emerging growth companies.

        We may take advantage of these provisions for up to five years, unless we earlier cease to be an emerging growth company, which would occur if our annual gross revenues exceed $1.0 billion, if we issue more than $1.0 billion in non-convertible debt in a three-year period, or if the market value of our common stock held by non-affiliates exceeds $700.0 million as of any June 30 before that time, in which case we would no longer be an emerging growth company as of the following December 31. Investors may find our common stock less attractive if we rely on the exemptions, which may result in a less active trading market and increased volatility in our stock price.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as "may," "might," "should," "could," "predict," "potential," "believe," "expect," "continue," "will," "anticipate," "seek," "estimate," "intend," "plan," "projection," "goal," "target," "outlook," "aim," "would," "annualized" and "outlook," or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

        A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including those factors identified in "Risk Factors" or "Management's Discussion and Analysis of Financial Condition and Results of Operations" or the following:

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        The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this prospectus. Because of these risks and other uncertainties, our actual future results, performance or achievement, or industry results, may be materially different from the results indicated by the forward looking statements in this prospectus. In addition, our past results of operations are not necessarily indicative of our future results. You should not rely on any forward looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

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USE OF PROCEEDS

        We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and estimated offering expenses, will be approximately $72.7 million (or approximately $86.8 million if the underwriters exercise their option to purchase additional shares from us in full), based on an assumed public offering price of $26.00 per share, which is the midpoint of the price range set forth on the cover of this prospectus. Each $1.00 increase or decrease in the assumed public offering price of $26.00 per share would increase or decrease the net proceeds to us from this offering by approximately $2.9 million (or approximately $3.4 million if the underwriters exercise their purchase option in full). We will not receive any proceeds from the sale of shares of our common stock by the selling shareholders.

        We intend to contribute $25.0 million of the net proceeds that we receive from this offering to the Bank, of which approximately $4.8 million is expected to be used in connection with the pending acquisition of wealth management assets from Sterling National Bank, and to use the remainder for general corporate purposes, which could include future acquisitions and other growth initiatives. We do not have any current specific plan for such remaining net proceeds, and do not have any current plans, arrangements or understandings to make any material acquisitions or to establish any de novo bank branches, other than our planned de novo bank branch in St. Louis, Missouri that we expect to open in 2017. Our management will retain broad discretion to allocate the net proceeds of this offering. The precise amounts and timing of our use of the proceeds will depend upon market conditions, among other factors.

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DIVIDEND POLICY

        It has been our policy to pay quarterly dividends to holders of our common stock, and we intend to generally maintain our current dividend levels. Our dividend policy and practice may change in the future, however, and our board of directors may change or eliminate the payment of future dividends at its discretion, without notice to our shareholders. Any future determination to pay dividends to holders of our common stock will depend on our results of operations, financial condition, capital requirements, banking regulations, contractual restrictions and any other factors that our board of directors may deem relevant.

        The following table shows recent quarterly dividends on our common stock during the periods indicated.

Quarterly Period
  Amount
Per Share
  Payment Date  

Second Quarter 2016

  $ 0.18     May 9, 2016  

First Quarter 2016

    0.18     February 8, 2016  

Fourth Quarter 2015

   
0.17
   
November 9, 2015
 

Third Quarter 2015

    0.16     August 10, 2015  

Second Quarter 2015

    0.16     May 7, 2015  

First Quarter 2015

    0.16     February 9, 2015  

Fourth Quarter 2014

   
0.15
   
November 7, 2014
 

Third Quarter 2014

    0.15     August 7, 2014  

Second Quarter 2014

    0.15     May 7, 2014  

First Quarter 2014

    0.14     February 7, 2014  

Dividend Restrictions

        Under the terms of our subordinated notes issued in June 2015 and the related subordinated note purchase agreements, we are not permitted to declare or pay any dividends on our capital stock if an event of default occurs under the terms of the subordinated notes. Additionally, under the terms of such notes, we are not permitted to declare or pay any dividends on our capital stock if we are not "well capitalized" for regulatory purposes immediately prior to the payment of such dividend.

        As a bank holding company, our ability to pay dividends is affected by the policies and enforcement powers of the Federal Reserve. See "Supervision and Regulation—The Company—Dividend Payments." In addition, because we are a holding company, we are dependent upon the payment of dividends by the Bank to us as our principal source of funds to pay dividends in the future, if any, and to make other payments. The Bank is also subject to various legal, regulatory and other restrictions on its ability to pay dividends and make other distributions and payments to us. See "Supervision and Regulation—The Bank—Dividend Payments."

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CAPITALIZATION

        The following table shows our capitalization, including regulatory capital ratios, on a consolidated basis, as of March 31, 2016, on an actual basis and on an as adjusted basis after giving effect to the net proceeds from the sale by us of 3,077,252 shares (assuming the underwriters do not exercise their overallotment option) at an assumed public offering price of $26.00 per share, which is the midpoint of the price range on the cover of this prospectus, after deducting underwriting discounts and estimated offering expenses. You should read the following table in conjunction with the sections titled "Selected Historical Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our consolidated financial statements and related notes appearing elsewhere in this prospectus.

 
  As of March 31, 2016  
 
  Actual   As adjusted(3)  
 
  (dollars in thousands)
 

Long-term debt:

             

Subordinated notes

  $ 61,903   $ 61,903  

Trust preferred debentures(1)

    37,142     37,142  

Total long-term debt

    99,045     99,045  

Shareholders' equity:

             

Preferred stock, par value $2.00 per share, 4,000,000 shares authorized, no shares outstanding actual and as adjusted

         

Common stock, par value $0.01 per share, 35,000,000 shares authorized, 11,804,779 shares outstanding actual and 14,882,031 shares outstanding as adjusted

    118     149  

Non-voting common stock, par value $0.01 per share, 5,000,000 shares authorized, no shares outstanding actual and as adjusted

         

Capital surplus

    136,232     208,926  

Retained earnings

    93,893     93,893  

Accumulated other comprehensive income

    8,143     8,143  

Noncontrolling interest

    175     175  

Total shareholders' equity

    238,561     311,286  

Total capitalization

  $ 337,606   $ 410,331  

Capital ratios (consolidated):

             

Tangible common equity to tangible assets(2)

    6.52 %   8.85 %

Tier 1 common capital to risk-weighted assets

    6.40 %   9.65 %

Tier 1 leverage

    7.25 %   9.81 %

Tier 1 capital to risk-weighted assets

    8.48 %   11.78 %

Total capital to risk-weighted assets

    11.67 %   14.94 %

(1)
Consists of junior subordinated debentures issued in connection with our trust preferred securities. Amount shown reflects a discount of $15.9 million to the aggregate principal balance of $53.0 million as a result of purchase accounting adjustments.

(2)
Tangible common equity to tangible assets is a non-GAAP financial measure. See "Selected Historical Consolidated Financial Data—Non-GAAP Financial Measures" for a reconciliation of this measure to its most comparable GAAP measure.

(3)
A $1.00 increase (decrease) in the assumed public offering price of $26.00 per share, which is the midpoint of the price range on the cover of this prospectus, would increase (decrease) the as adjusted amount of each of capital surplus, total shareholders' equity and total capitalization by

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    approximately $2.9 million, assuming no change to the number of shares offered by us as set forth on the cover of this prospectus, and after deducting underwriting discounts and estimated offering expenses.


The table assumes the underwriters do not exercise their option to purchase additional shares from us.

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DILUTION

        If you purchase shares of our common stock in this offering, your ownership interest will experience immediate book value dilution to the extent the public offering price per share exceeds our net tangible book value per share immediately after this offering. Net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the number of shares of common stock outstanding.

        Our net tangible book value at March 31, 2016 was $185.4 million, or $15.71 per share based on the number of shares outstanding as of such date. After giving effect to our sale of 3,077,252 shares in this offering at an assumed public offering price of $26.00 per share, which is the midpoint of the price range on the cover of this prospectus, and after deducting underwriting discounts and estimated offering expenses, our as adjusted net tangible book value at March 31, 2016 would have been approximately $258.2 million, or $17.35 per share. Therefore, under those assumptions this offering would result in an immediate increase of $1.64 in the net tangible book value per share to our existing shareholders, and immediate dilution of $8.65 in the net tangible book value per share to investors purchasing shares in this offering. The following table illustrates this per share dilution.

Assumed public offering price per share

        $ 26.00  

Net tangible book value per share at March 31, 2016

  $ 15.71        

Increase in net tangible book value per share attributable to this offering

    1.64        

As adjusted net tangible book value per share after this offering

          17.35  

Dilution in net tangible book value per share to new investors

        $ 8.65  

        If the underwriters exercise their option to purchase additional shares from us in full, the as adjusted net tangible book value after giving effect to this offering would be $17.61 per share. This represents an increase in net tangible book value of $1.90 per share to existing shareholders and dilution of $8.39 per share to new investors.

        A $1.00 increase (decrease) in the assumed public offering price of $26.00 per share, which is the midpoint of the price range on the cover of this prospectus, would increase (decrease) our net tangible book value by $2.9 million, or $0.20 per share, and the dilution to new investors by $0.80 per share, assuming no change to the number of shares offered by us as set forth on the cover of this prospectus, and after deducting underwriting discounts and estimated offering expenses.

        The following table sets forth information regarding the shares issued to, and consideration paid by, our existing shareholders and the shares to be issued to, and consideration to be paid by, investors in this offering at an assumed public offering price of $26.00 per share, which is the midpoint of the price range on the cover of this prospectus, before deducting underwriting discounts and estimated offering expenses.

 
   
   
  Total consideration    
 
 
  Shares purchased    
 
 
  Amount
(in thousands)
   
  Average price
per share
 
 
  Number   Percent   Percent  

Shareholders as of March 31, 2016

    9,409,789     75.4 % $ 86,295     51.9 % $ 9.17  

Investors in this offering

    3,077,252     24.6     80,009     48.1     26.00  

Total

    12,487,041     100.0 % $ 166,304     100.0 % $ 13.32  

        The tables above exclude 1,225,054 shares of common stock issuable upon exercise of stock options outstanding at March 31, 2016 at a weighted average exercise price of $17.52 per share, 125,000 shares of our common stock issuable upon exercise of a warrant at an exercise price of $16.00 per share,

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1,057,273 shares of common stock reserved at March 31, 2016 in connection with options and restricted stock awards that remain available for issuance under our Second Amended and Restated 2010 Long-Term Incentive Plan, 63,928 shares of common stock issuable upon vesting of unvested restricted stock, 7,596 shares of common stock issuable upon the vesting of unvested restricted stock unit awards, 2,394,990 shares of common stock issued as consideration in past acquisitions, and up to 571,429 shares of our common stock that may be issuable pursuant to an earn-out payment obligation in connection with the Company's acquisition of Heartland Bank. As of March 31, 2016, we anticipate that no shares will be issued pursuant to this earn-out obligation. To the extent that such options or warrant are exercised, or earn-out obligations are paid, or other equity awards are issued, investors participating in the offering will experience further dilution.

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

        The following table sets forth selected historical consolidated financial data as of the dates and for the periods shown. The selected balance sheet data as of December 31, 2015 and 2014 and the selected income statement data for the years ended December 31, 2015, 2014 and 2013 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected balance sheet data as of December 31, 2013, 2012 and 2011 and the selected income statement data for the years ended December 31, 2012 and 2011 have been derived from our audited consolidated financial statements that are not included in this prospectus. The summary consolidated financial data as of and for the three months ended March 31, 2016 and 2015 is derived from our unaudited interim consolidated financial statements included elsewhere in this prospectus and includes all normal and recurring adjustments that we consider necessary for a fair presentation. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

        As described elsewhere in this prospectus, we have consummated several acquisitions in recent fiscal periods. The results and other financial data of these acquired operations are not included in the table below for the periods prior to their respective acquisition dates and, therefore, the financial data for these prior periods is not comparable in all respects and are not necessarily indicative of our future results. You should read the following financial data in conjunction with the other information contained in this prospectus, including under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in the financial statements and related notes included elsewhere in this prospectus.

 
  As of and for the Three
Months Ended March 31,
  As of and for the Year Ended December 31,  
(dollars in thousands, except per share data)
  2016   2015   2015   2014   2013   2012   2011  

Selected Balance Sheet Data

                                           

Assets:

                                           

Cash and cash equivalents

  $ 162,416   $ 312,025   $ 212,475   $ 159,903   $ 86,723   $ 114,046   $ 99,545  

Investment securities available for sale, at fair value

    232,074     209,271     236,627     253,768     201,278     233,368     223,791  

Investment securities held to maturity, at amortized cost

    88,085     96,885     87,521     101,763     109,848     105,461     114,980  

Total investment securities             

    320,159     306,156     324,148     355,531     311,126     338,829     338,771  

Total loans (gross)

    2,016,034     1,881,340     1,995,589     1,798,015     1,205,501     978,517     957,887  

Allowance for loan losses

    (14,571 )   (13,248 )   (15,988 )   (12,300 )   (23,672 )   (26,190 )   (26,831 )

Total loans (net)

    2,001,463     1,868,092     1,979,601     1,785,715     1,181,829     952,327     931,056  

Loans held for sale, at fair value

    103,365     61,651     54,413     96,407     3,062     7,312     3,401  

Indemnification asset due from FDIC

        308         493     3,053     9,813     17,648  

Premises and equipment, net             

    72,421     71,932     73,133     72,331     54,238     47,936     47,336  

Other real estate owned

    4,740     6,858     5,472     8,291     10,519     11,672     11,622  

Mortgage servicing rights, at lower of cost or market

    65,486     62,582     66,651     62,781     2,320     1,202     1,249  

Intangible assets

    6,424     8,801     7,004     9,464     8,189     8,485     10,740  

Goodwill

    46,519     47,102     46,519     47,946     7,732     7,732     7,582  

Total intangible assets

    52,943     55,903     53,523     57,410     15,921     16,217     18,322  

Cash surrender value of life insurance policies             

    53,173     31,514     52,729     31,255     30,190     27,216     16,171  

Other assets

    61,914     51,738     62,679     46,497     40,567     45,494     35,641  

Total assets

  $ 2,898,080   $ 2,828,759   $ 2,884,824   $ 2,676,614   $ 1,739,548   $ 1,572,064   $ 1,520,762  

Liabilities:

                                           

Noninterest-bearing deposits             

  $ 546,664   $ 672,558   $ 543,401   $ 507,188   $ 265,036   $ 238,944   $ 198,443  

Interest-bearing deposits

    1,843,046     1,648,637     1,824,247     1,643,445     1,116,853     1,029,190     1,023,567  

Total deposits

    2,389,710     2,321,195     2,367,648     2,150,633     1,381,889     1,268,134     1,222,010  

Short-term borrowings

    101,649     107,399     107,538     129,714     87,420     71,222     55,410  

FHLB advances and other borrowings

    40,133     98,881     40,178     74,349     73,410     75,082     81,038  

Subordinated debt

    61,903     7,389     61,859     7,370     7,299     5,000     5,000  

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  As of and for the Three
Months Ended March 31,
  As of and for the Year Ended December 31,  
(dollars in thousands, except per share data)
  2016   2015   2015   2014   2013   2012   2011  

Trust preferred debentures

    37,142     37,036     37,057     36,930     11,830     10,000     10,000  

Other liabilities

    28,982     31,384     37,488     57,689     28,260     11,708     20,351  

Total liabilities

    2,659,519     2,603,284     2,651,768     2,456,685     1,590,108     1,441,146     1,393,809  

Shareholders' equity:

                                           

Preferred stock

                    57,370     57,370     57,370  

Common stock and capital surplus

    136,350     134,935     135,940     134,540     14,847     10,645     9,955  

Retained earnings

    93,893     78,918     90,911     74,279     74,576     67,192     60,775  

Accumulated other comprehensive income

    8,143     11,383     6,029     10,637     7,012     2,327     5,793  

Treasury stock, at cost

                    (4,365 )   (6,616 )   (6,940 )

Total Midland States Bancorp, Inc. shareholders' equity

    238,386     225,236     232,880     219,456     149,440     130,918     126,953  

Noncontrolling interest in subsidiaries

    175     239     176     473              

Total shareholders' equity

    238,561     225,475     233,056     219,929     149,440     130,918     126,953  

Total liabilities and shareholders' equity

  $ 2,898,080   $ 2,828,759   $ 2,884,824   $ 2,676,614   $ 1,739,548   $ 1,572,064   $ 1,520,762  

Selected Income Statement Data

   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Interest income—loans

  $ 23,864   $ 23,154   $ 101,989   $ 56,296   $ 56,858   $ 55,066   $ 60,729  

Interest income—investment securities                                       

    4,103     4,151     15,807     16,845     18,131     19,131     21,544  

Interest expense

    3,926     2,604     12,889     8,543     9,069     11,271     16,870  

Net interest income

    24,041     24,701     104,907     64,598     65,920     62,926     65,403  

Provision for loan losses

    1,125     997     11,127     92     173     2,052     3,854  

Net interest income after provision for loan losses

    22,916     23,704     93,780     64,506     65,747     60,874     61,549  

Gain on bargain purchase

                    2,154          

Noninterest income (excluding gain on bargain purchase)             

    12,618     18,022     59,482     20,441     14,076     14,044     11,299  

Noninterest expense

    27,639     31,545     117,764     69,480     61,449     56,419     57,501  

Income before income taxes             

    7,895     10,181     35,498     15,467     20,528     18,499     15,347  

Income tax expense

    2,777     3,591     11,091     4,651     6,023     4,842     3,974  

Net income

    5,118     6,590     24,407     10,816     14,505     13,657     11,373  

Net (loss) income attributable to noncontrolling interest in subsidiaries             

    (1 )   59     83                  

Net income attributable to Midland States Bancorp, Inc. 

    5,119     6,531     24,324     10,816     14,505     13,657     11,373  

Preferred stock dividends

                7,601     4,718     5,211     4,205  

Net income available to common shareholders             

  $ 5,119   $ 6,531   $ 24,324   $ 3,215   $ 9,787   $ 8,446   $ 7,168  

Credit Quality Data

   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Loans 30-89 days past due

  $ 6,616   $ 4,059   $ 10,120   $ 5,744   $ 9,193   $ 3,037   $ 5,785  

Loans 30-89 days past due to total loans

    0.33 %   0.22 %   0.51 %   0.32 %   0.76 %   0.31 %   0.60 %

Nonperforming loans(1)

  $ 18,787   $ 35,283   $ 24,891   $ 32,172   $ 21,822   $ 19,829   $ 21,674  

Nonperforming loans to total loans(1)

    0.93 %   1.88 %   1.25 %   1.80 %   1.81 %   2.03 %   2.26 %

Nonperforming assets(2)

  $ 22,312   $ 41,499   $ 29,206   $ 39,542   $ 28,481   $ 25,860   $ 24,023  

Nonperforming assets to total assets(2)

    0.77 %   1.48 %   1.01 %   1.48 %   1.64 %   1.64 %   1.58 %

Allowance for loan losses to total loans(1)

    0.72 %   0.70 %   0.80 %   0.69 %   1.96 %   2.68 %   2.80 %

Allowance for loan losses to nonperforming loans(1)

    77.56 %   37.55 %   64.23 %   38.23 %   108.48 %   132.08 %   123.79 %

Net charge-offs to average loans

    0.51 %   0.01 %   0.39 %   0.94 %   0.25 %   0.28 %   0.56 %

Per Share Data (Common Stock)

   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Earnings:

                                           

Basic

  $ 0.43   $ 0.55   $ 2.03   $ 0.53   $ 2.12   $ 1.96   $ 1.69  

Diluted(3)

    0.42     0.54     2.00     0.53     1.70     1.62     1.43  

Dividends declared

    0.18     0.16     0.65     0.59     0.53     0.48     0.43  

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  As of and for the Three
Months Ended March 31,
  As of and for the Year Ended December 31,  
(dollars in thousands, except per share data)
  2016   2015   2015   2014   2013   2012   2011  

Book value(4)

  $ 20.19   $ 19.16   $ 19.74   $ 18.72   $ 19.93   $ 17.28   $ 16.57  

Book value—as converted(4)(5)

    20.19     19.16     19.74     18.72     17.81     16.37     15.99  

Tangible book value(6)

    15.71     14.40     15.20     13.82     16.48     13.47     12.21  

Tangible book value—as converted(5)(6)

    15.71     14.40     15.20     13.82     15.91     14.34     13.68  

Weighted average shares outstanding:

                                           

Basic

    11,957,381     11,886,581     11,902,455     5,945,615     4,558,549     4,300,578     4,245,500  

Diluted

    12,229,293     12,065,449     12,112,403     6,025,454     7,151,471     6,898,791     6,896,393  

Shares outstanding at period end

    11,804,779     11,756,207     11,797,404     11,725,158     4,620,026     4,257,319     4,198,947  

Adjusted Earnings Metrics

   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Adjusted earnings(6)

  $ 5,802   $ 8,716   $ 29,193   $ 15,715   $ 17,541   $ 16,969   $ 18,109  

Adjusted diluted earnings per share(6)

    0.47     0.72     2.39     1.74     2.08     2.08     2.34  

Adjusted return on average assets(6)

    0.80 %   1.33 %   1.05 %   0.90 %   1.08 %   1.13 %   1.17 %

Adjusted return on average tangible common equity(6)

    12.72     21.78     16.97     11.63     19.70     22.44     30.04  

Performance Metrics

   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Return on average assets

    0.70 %   1.00 %   0.88 %   0.62 %   0.89 %   0.91 %   0.74 %

Return on average shareholders' equity

    8.69     12.05     10.68     6.82     10.45     10.75     10.05  

Return on average common shareholders' equity

    8.70     12.05     10.69     2.83     12.01     12.13     10.88  

Return on average tangible common equity(6)

    11.22     16.30     14.14     3.26     15.04     16.12     15.49  

Yield on earning assets

    4.40     4.85     4.91     4.74     5.29     5.65     6.07  

Cost of average interest-bearing liabilities

    0.73     0.56     0.66     0.65     0.72     0.96     1.36  

Net interest spread

    3.67     4.29     4.25     4.09     4.57     4.69     4.71  

Net interest margin(7)

    3.80     4.40     4.38     4.21     4.68     4.82     4.88  

Adjusted net interest margin(6)

    3.51     3.89     3.74     4.11     4.32     4.42     4.42  

Efficiency ratio(8)

    67.72     64.06     66.15     71.42     67.37     66.04     62.36  

Common stock dividend payout ratio(9)

    41.86     29.09     32.02     111.32     25.00     24.49     25.44  

Loan to deposit ratio

    84.36     81.05     84.29     83.60     87.24     77.16     78.39  

Core deposits / total deposits(10)

    88.74     91.26     88.41     89.56     87.97     87.52     86.87  

Net non-core funding dependence ratio(11)

    9.10     4.23     7.12     10.50     14.88     12.77     14.79  

Regulatory and Other Capital Ratios—Consolidated

   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Tangible common equity to tangible assets(6)

    6.52 %   6.11 %   6.33 %   6.19 %   4.42 %   3.68 %   3.41 %

Tier 1 common capital to risk-weighted assets(12)

    6.40     6.53     6.50     N/A     N/A     N/A     N/A  

Tier 1 leverage ratio

    7.25     7.56     7.49     10.48     8.14     7.98     7.60  

Tier 1 capital to risk-weighted assets

    8.48     8.66     8.62     8.65     9.98     10.36     9.96  

Total capital to risk-weighted assets

    11.67     9.78     11.82     9.59     11.77     12.03     11.67  

Regulatory Capital Ratios—Bank Only(13)

   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Tier 1 common capital to risk-weighted assets(12)

    10.51 %   9.48 %   10.39 %   N/A     N/A     N/A     N/A  

Tier 1 leverage ratio

    8.99     8.17     9.01     8.65 %   8.92 %   8.89 %   8.38 %

Tier 1 capital to risk-weighted assets

    10.51     9.48     10.39     10.34     10.93     11.54     10.96  

Total capital to risk-weighted assets

    11.11     10.08     11.06     11.18     12.18     12.81     12.22  

(1)
Nonperforming loans include nonaccrual loans, loans past due 90 days or more and still accruing interest and loans modified under troubled debt restructurings. Nonperforming loans exclude purchased credit-impaired loans, or PCI loans, acquired in our prior acquisitions. PCI loans had carrying values of $35.3 million as of March 31, 2016 and $41.8 million as of March 31, 2015, and $38.5 million, $44.2 million, $30.4 million, $43.0 million and $58.2 million as of December 31, 2015, 2014, 2013, 2012 and 2011, respectively. Furthermore, PCI loans, as well as other loans acquired in a business combination, are recorded at estimated fair value on their purchase date without a carryover of the related allowance for loan losses. Accordingly, our ratios that are computed using nonperforming loans and/or allowance for loan losses may not be comparable to similar ratios of our peers.

(2)
Nonperforming assets include nonperforming loans, other real estate owned that is not covered by a loss-sharing agreement with the FDIC and is not government guaranteed and other repossessed assets. As discussed in footnote 1, above, nonperforming loans exclude PCI loans. This ratio may therefore not be comparable to a similar ratio of our peers.

(3)
Earnings per share are calculated utilizing the two-class method. Basic earnings per share are calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share are calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of shares adjusted for the dilutive effect of outstanding stock options and common stock warrants using the treasury stock method and convertible preferred stock and convertible debentures using the if-converted method. For the years ended December 31, 2014, 2013 and 2012, diluted earnings per share considered, when dilutive, the weighted average shares of common stock issuable upon conversion of our Series C preferred stock, Series D preferred stock, Series E preferred stock and Series F preferred stock then

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    outstanding. For the year ended December 31, 2011, diluted earnings per share considered, when dilutive, the weighted average shares of common stock issuable upon conversion of our Series C preferred stock, Series D preferred stock, Series E preferred stock and Series F preferred stock then outstanding, the $6.3 million of convertible subordinated notes issued in 2009 and the $5.0 million of convertible subordinated notes issued in 2010. On December 15, 2011, outstanding warrants to acquire Series E preferred stock and Series F preferred stock were exercised by the holder through the exchange of the corresponding principal amounts of the 2009 and 2010 subordinated notes, respectively. During 2014, our Series C, D, E and F preferred stock was converted into shares of common stock. We did not have any preferred stock or warrants to acquire preferred stock outstanding during 2015 or the first quarter of 2016.

(4)
For purposes of computing book value per common share, book value equals total common shareholders' equity.

(5)
Book value per share—as converted and tangible book value per share—as converted each give effect to: (i) for December 31, 2013, the conversion of all of the issued and outstanding shares of Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock into an aggregate of 3,772,664 shares of our common stock; and (ii) for December 31, 2012 and 2011, the conversion of all of the issued and outstanding shares of Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock into an aggregate of 3,739,028 shares of our common stock. We did not have any convertible preferred stock or warrants to acquire convertible preferred stock outstanding at December 31, 2014 or 2015, or at March 31, 2015 or 2016.

(6)
Tangible book value per share, tangible book value per share—as converted, adjusted earnings, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on average tangible common equity, return on average tangible common equity, tangible common equity to tangible assets and adjusted net interest margin are non-GAAP financial measures. See "—Non-GAAP Financial Measures," below, for a reconciliation of these measures to their most comparable GAAP measures.

(7)
Net interest margin is presented on a fully taxable equivalent, or FTE, basis.

(8)
Efficiency ratio represents noninterest expenses, as adjusted, divided by the sum of fully taxable equivalent net interest income plus noninterest income, as adjusted. Noninterest expense adjustments exclude integration and acquisition related expenses. Noninterest income adjustments exclude bargain purchase gains, FDIC settlement, FDIC loss sharing income, accretion/amortization of the FDIC indemnification asset, realized gains or losses from the sale of investment securities, gains or losses on sale of other assets and other-than-temporary impairment.

(9)
Common stock dividend payout ratio represents dividends per share divided by basic earnings per share. See "Dividend Policy."

(10)
Core deposits are defined as total deposits less brokered deposits and certificate of deposits greater than $250,000.

(11)
Net non-core funding dependence ratio represents the degree to which the Bank is funding longer term assets with non-core funds. We calculate this ratio as non-core liabilities, less short term investments, divided by long term assets.

(12)
The Tier 1 common capital to risk-weighted assets ratio is required under the Basel III Final Rules, which became effective for the Company and the Bank on January 1, 2015. Accordingly, this ratio is shown as not applicable ("N/A") for periods ending prior to January 1, 2015.

(13)
On December 31, 2014, we completed our acquisition of Love Savings Holding Company, which primarily consisted of Heartland Bank and its wholly owned subsidiaries Love Funding Corporation and Heartland Business Credit. For the purpose of comparability with prior periods presented, the "bank only" regulatory capital ratios as of December 31, 2014 represent Midland States Bank ratios only and do not include Heartland Bank. The Tier 1 leverage ratio, Tier 1 capital to risk-weighted assets ratio and total capital to risk-weighted assets ratio for Heartland Bank as of December 31, 2014 were 8.76%, 11.77% and 13.03%, respectively.

Non-GAAP Financial Measures

        Some of the financial measures included in this prospectus are not measures of financial performance recognized by GAAP. These non-GAAP financial measures include "tangible common equity to tangible assets," "tangible book value per share," "tangible book value per share—as converted," "return on average tangible common equity," "adjusted earnings," "adjusted diluted earnings per share," "adjusted return on average assets," "adjusted return on average tangible common equity," "core loans" and "core loan growth." Our management uses these non-GAAP financial measures in its analysis of our performance.

        Tangible Common Equity to Tangible Assets Ratio, Tangible Book Value Per Share and Tangible Book Value Per Share (as converted).    The tangible common equity to tangible assets ratio, tangible book value per share and tangible book value per share—as converted are non-GAAP measures generally used by financial analysts and investment bankers to evaluate capital adequacy. We calculate: (i) tangible common equity as total shareholders' equity less preferred equity, noncontrolling interest in subsidiaries, goodwill and other intangible assets (excluding mortgage servicing rights); (ii) tangible assets as total assets less goodwill and other intangible assets; and (iii) tangible book value per share as tangible common equity divided by shares of common stock outstanding (in the case of the "as converted" measure, assuming the conversion of all preferred shares that were outstanding prior to December 31, 2014).

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        Our management, banking regulators, many financial analysts and other investors use these measures in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of preferred equity and/or goodwill or other intangible assets, which typically stem from the use of the purchase accounting method of accounting for mergers and acquisitions. Tangible common equity, tangible assets, tangible book value per share and related measures should not be considered in isolation or as a substitute for total shareholders' equity, total assets, book value per share or any other measure calculated in accordance with GAAP. Moreover, the manner in which we calculate tangible common equity, tangible assets, tangible book value per share (as converted) and any other related measures may differ from that of other companies reporting measures with similar names. The following table reconciles shareholders' equity (on a GAAP basis) to tangible common equity and total assets (on a GAAP basis) to tangible assets, and calculates our tangible book value per share (as converted):

 
As of and for the Three
Months Ended
March 31,
As of December 31,
(dollars in thousands, except per share data)
2016 2015 2015 2014 2013 2012 2011 2010 2009 2008

Tangible common equity—as converted:

                   

Total shareholders' equity—GAAP

$ 238,561 $ 225,475 $ 233,056 $ 219,929 $ 149,440 $ 130,918 $ 126,953 $ 109,208 $ 76,627 $ 37,301

Adjustments:

                   

Preferred equity

(57,370 ) (57,370 ) (57,370 ) (47,370 ) (23,600 )

Noncontrolling interest in subsidiaries

(175 ) (239 ) (176 ) (473 )

Goodwill

(46,519 ) (47,102 ) (46,519 ) (47,946 ) (7,732 ) (7,732 ) (7,582 ) (7,582 ) (7,582 ) (3,812 )

Other intangibles

(6,424 ) (8,801 ) (7,004 ) (9,464 ) (8,189 ) (8,485 ) (10,740 ) (13,234 ) (1,072 ) (109 )

Tangible common equity

$ 185,443 $ 169,333 $ 179,357 $ 162,046 $ 76,149 $ 57,331 $ 51,261 $ 41,022 $ 44,373 $ 33,380

Adjustments:

                   

Preferred equity

57,370 57,370 57,370 47,370 23,600

Warrants

11,300 6,300

Tangible common equity—as converted(1)

$ 185,443 $ 169,333 $ 179,357 $ 162,046 $ 133,519 $ 114,701 $ 108,631 $ 99,692 $ 74,273 $ 33,380

Tangible assets:

                   

Total assets—GAAP

$ 2,898,080 $ 2,828,759 $ 2,884,824 $ 2,676,614 $ 1,739,548 $ 1,572,064 $ 1,520,762 $ 1,642,376 $ 1,118,814 $ 441,027

Adjustments:

                   

Goodwill

(46,519 ) (47,102 ) (46,519 ) (47,946 ) (7,732 ) (7,732 ) (7,582 ) (7,582 ) (7,582 ) (3,812 )

Other intangibles

(6,424 ) (8,801 ) (7,004 ) (9,464 ) (8,189 ) (8,485 ) (10,740 ) (13,234 ) (1,072 ) (109 )

Tangible assets

$ 2,845,137 $ 2,772,856 $ 2,831,301 $ 2,619,204 $ 1,723,627 $ 1,555,847 $ 1,502,440 $ 1,621,560 $ 1,110,160 $ 437,106

Common shares outstanding—as converted:

                   

Common shares outstanding

11,804,779 11,756,207 11,797,404 11,725,158 4,620,026 4,257,319 4,198,947 4,164,030 4,143,640 4,031,540

Adjustments:

                   

Upon conversion of preferred stock

3,772,664 3,739,028 3,739,028 3,795,549 2,544,680

Common shares outstanding—as converted(1)

11,804,779 11,756,207 11,797,404 11,725,158 8,392,690 7,996,347 7,937,975 7,959,579 6,688,320 4,031,540

Tangible common equity to tangible assets ratio

6.52 % 6.11 % 6.33 % 6.19 % 4.42 % 3.68 % 3.41 % 2.53 % 4.00 % 7.64 %

Tangible book value per share—as converted(1)

$ 15.71 $ 14.40 $ 15.20 $ 13.82 $ 15.91 $ 14.34 $ 13.68 $ 12.52 $ 11.10 $ 8.28

(1)
As converted represents amount per common share with all preferred shares that were outstanding prior to December 31, 2014 converted into common shares.

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        Return on Average Tangible Common Equity.    Management measures return on average tangible common equity (ROATCE) to assess the Company's capital strength and business performance. Tangible equity excludes preferred equity, noncontrolling interest in subsidiaries, goodwill and other intangible assets (excluding mortgage servicing rights), and is reviewed by banking and financial institution regulators when assessing a financial institution's capital adequacy. This non-GAAP financial measure should not be considered a substitute for operating results determined in accordance with GAAP and may not be comparable to other similarly titled measures used by other companies. The following table reconciles return on average tangible common equity to its most comparable GAAP measure:

 
As of and for the
Three Months
Ended March 31,
For the Year Ended December 31,
(dollars in thousands)
2016 2015 2015 2014 2013 2012 2011 2010 2009 2008

Net Income

$ 5,119 $ 6,531 $ 24,324 $ 10,816 $ 14,505 $ 13,657 $ 11,373 $ 12,900 $ 15,971 $ 2,139

Less—preferred stock dividends

7,601 4,718 5,211 4,205 3,668 2,291

Net income available to common shareholders

$ 5,119 $ 6,531 $ 24,324 $ 3,215 $ 9,787 $ 8,446 $ 7,168 $ 9,232 $ 13,680 $ 2,139

Average Tangible Common Equity:

                   

Average total stockholder's equity—GAAP

$ 236,921 $ 219,809 $ 227,757 $ 158,562 $ 138,862 $ 127,026 $ 113,109 $ 104,945 $ 67,415 $ 32,117

Adjustments:

                   

Preferred equity

(45,057 ) (57,370 ) (57,370 ) (47,269 ) (40,619 ) (24,402 )

Noncontrolling interest in subsidiaries

(184 ) (226 ) (138 )

Goodwill

(46,519 ) (48,041 ) (47,306 ) (7,842 ) (7,732 ) (7,658 ) (7,582 ) (7,582 ) (4,859 ) (1,296 )

Other intangible assets

(6,740 ) (9,228 ) (8,249 ) (7,117 ) (8,677 ) (9,592 ) (11,979 ) (11,546 ) (2,505 ) (1,658 )

Average tangible common equity

$ 183,478 $ 162,314 $ 172,064 $ 98,546 $ 65,083 $ 52,406 $ 46,279 $ 45,198 $ 35,649 $ 29,163