Note 3 – Acquisitions

Centrue Financial Corporation

On June 9, 2017, the Company completed its acquisition of Centrue and its banking subsidiary, Centrue Bank, which operates 20 full-service banking centers located principally in northern Illinois. In the aggregate, the Company acquired Centrue for approximately $176.6 million, which consisted of approximately $61.0 million in cash and the issuance of 3,219,238 shares of the Company’s common stock, 181 shares of Series G preferred stock and 2,635.5462 shares of Series H preferred stock. This acquisition was accounted for under the acquisition method of accounting. Accordingly, the Company recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values. Through June 30, 2017, transaction and integration costs of $6.7 million associated with the acquisition have been expensed as incurred.

Under the acquisition method of accounting, the consideration paid is allocated to net tangible and intangible assets based on their current estimated fair values on the date of acquisition. Based on management’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on assumptions that are subject to change, the consideration paid for the Centrue acquisition is allocated as follows (in thousands):


Assets acquired:
Cash and cash equivalents	$	42,461
Investment securities available for sale		148,667
Loans		688,133
Loans held for sale		531
Premises and equipment		12,435
Other real estate owned		4,833
Nonmarketable equity securities		8,168
Accrued interest receivable		2,376
Mortgage servicing rights		1,933
Intangible assets		10,376
Cash surrender value of life insurance policies		36,349
Deferred tax assets, net		33,312
Other assets		3,453
Total assets acquired		993,027
Liabilities assumed:
Deposits		741,844
Short-term borrowings		14,434
FHLB advances and other borrowings		95,332
Trust preferred debentures		7,565
Accrued interest payable		275
Other liabilities		2,853
Total liabilities assumed		862,303
Net assets acquired		130,724
Goodwill		45,918
Total consideration paid	$	176,642

Prior to the end of the one year measurement period for finalizing the consideration paid allocation, if information becomes available which would indicate adjustments are required to the allocation, such adjustments will be included in the allocation in the reporting period in which the adjustment amounts are determined.

Goodwill of $45.9 million arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of Centrue into the Company. The goodwill is assigned as part of the Company’s Banking reporting unit. The portion of the purchase price allocated to goodwill will not be deductible for tax purposes.

The identifiable assets acquired included the establishment of $10.4 million in core deposit intangibles, which are expected to be amortized on an accelerated basis over an estimated useful life of eight years.

Acquired loan data for Centrue can be found in the table below (in thousands):


					Best Estimate at
					Acquisition Date of
	Fair Value		Gross Contractual		Contractual Cash
	of Acquired Loans		Amounts Receivable		Flows Not Expected
	at Acquisition Date		at Acquisition Date		to be Collected
Acquired receivables subject to ASC 310-30	$	11,800	$	30,375	$	8,726
Acquired receivables not subject to ASC 310-30		676,333		816,655		2,422

The following table provides the unaudited pro forma information for the results of operations for three and six months ended June 30, 2017 and 2016, as if the acquisition had occurred on January 1, 2016 (dollars in thousands). The pro forma results combine the historical results of Centrue with the Company’s consolidated statements of income, adjusted for the impact of the application of the acquisition method of accounting including loan discount accretion, intangible assets amortization, and deposit and trust preferred securities premium accretion, net of taxes. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations had the acquisition actually occurred on January 1, 2016. No assumptions have been applied to the pro forma results of operations regarding revenue enhancements, expense efficiencies or asset dispositions. Only the acquisition related expenses that have been incurred as of June 30, 2017 are included in net income in the table below. Acquisition related expenses that were recognized and are included in the pro forma net income for the three and six months ended June 30, 2017 totaled $6.1 million and $6.7 million, respectively, on a pre-tax basis.


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
Revenue (1)	$	50,873	$	53,337	$	104,090	$	99,395
Net income		3,958		8,629		13,220		14,379
Diluted earnings per common share		0.20		0.51		0.67		0.89

(1)

Net interest income plus noninterest income

CedarPoint Investment Advisors, Inc.

On March 28, 2017, the Company acquired all of the outstanding capital stock of CedarPoint Investment Advisors, Inc. (“CedarPoint”), an SEC registered investment advisory firm, pursuant to an Agreement and Plan of Merger, dated as of March 15, 2017. CedarPoint had approximately $180.0 million of assets under administration. The Company acquired CedarPoint for $3.7 million, which consisted of the issuance of 102,000 shares of the Company’s common stock and an accrual in other liabilities of $345,000 for the fair value of 18,000 shares that will be held in escrow as additional consideration until at least March 31, 2019, to secure the sellers’ obligations to indemnify the Company and its affiliates for certain losses they may suffer in connection with the transaction. Intangible assets recognized as a result of the transaction consisted of approximately $2.2 million in goodwill and $2.0 million in customer relationship intangibles. The customer relationship intangibles are being amortized on a straight-line basis over 12 years.

Acquisition of Wealth Management Assets

On November 10, 2016, the Bank completed its acquisition of approximately $400.0 million in wealth management assets from Sterling National Bank of Yonkers, New York (“Sterling”) for approximately $5.2 million in cash. Intangible assets recognized as a result of the transaction consisted of approximately $2.3 million in goodwill and $2.3 million in customer relationship intangibles. The customer relationship intangibles are being amortized on a straight-line basis over 20 years.