Midland to buy HomeStar in Illinois

A pair of Illinois banks are merging. Effingham-based Midland States Bancrop agreed to acquire HomeStar Financial Group, Manteno, in an all-stock transaction worth about $10 million.

HomeStar has $375 million of assets, $223 million in loans and $333 million in deposits as of Dec. 31.  Serving its communities for over 70 years, HomeStar Bank has 5 locations in northern Illinois and has the No. 1 deposit market share in the Kankakee, Ill., MSA. In fourth quarter 2018, it had a cost of deposits of 0.20%, an average loan yield of 5.13%, and a net interest margin of 3.88%.

“HomeStar has a deep history and strong commitment to their customers, employees and communities as evidenced by their leading market share position,” said Jeff Ludwig, President and CEO of the $5.6 billion Midland. “HomeStar will complement our Kankakee presence and is consistent with our strategy of partnering with institutions that have attractive deposit bases and a proven commitment to their local customers.”

The transaction is expected to close in the third quarter of 2019 and will be approximately 9% accretive to earnings per share in 2020, the first full year of combined operations.

Midland also expects to incur tangible book value per share dilution of approximately 2% upon the closing of the transaction, with an expected earn-back period of approximately 2 years using the cross-over method, inclusive of expected gains and purchase accounting adjustments.

Under the terms of the definitive agreement, prior to, or concurrent, with closing, HomeStar’s outstanding TruPS will be redeemed with $23.5 million of cash provided by Midland, at a discount to par value plus accrued interest, generating an expected gain of approximately $11.7 million.

Additionally, prior to closing, HomeStar will sell its interests in both its Insurance Agency and Title Company business lines.

Keefe, Bruyette & Woods, A Stifel Company served as financial advisor to Midland, and Barack Ferrazzano Kirschbaum & Nagelberg LLP served as Midland’s legal advisor.

Monroe Financial Partners, Inc. served as financial advisor to HomeStar, and Gerrish Smith Tuck served as HomeStar’s legal advisor.