Business Combinations

SCB Bancorp, Inc.

On June 12, 2018, The Company and Project Almond Merger Sub LLC, a newly formed Illinois limited liability company and wholly-owned subsidiary of the Company (“Almond Merger Sub”), entered into an Agreement and Plan of Merger (the “SCB Merger Agreement”) with SCB Bancorp, Inc., an Illinois corporation (“SCB”), pursuant to which, among other things, the Company agreed to acquire 100% of the issued and outstanding shares of SCB pursuant to a business combination whereby SCB merged with and into Almond Merger Sub, whereupon the separate corporate existence of SCB ceased and Merger Sub continued as the surviving company and a wholly-owned subsidiary of the Company (the “SCB Merger”).

Subject to the terms and conditions of the SCB Merger Agreement, at the effective time of the SCB Merger, each share of common stock, par value $7.50 per share, of SCB issued and outstanding immediately prior to the effective time of the SCB Merger were converted into and became the right to receive, at the election of each stockholder, either $307.93 in cash or 8.0228 shares of common stock, par value $4.00 per share, of the Company and cash in lieu of fractional shares, less any applicable taxes required to be withheld. In addition, immediately prior to the closing of the proposed merger, SCB will paid a special dividend to its shareholders in the aggregate amount of approximately $25 million. The SCB Merger was subject to customary closing conditions, including the approval of the appropriate regulatory authorities and of the stockholders of SCB. The SCB Merger was completed November 15, 2018 and an aggregate of 1,330,571 shares of common stock were issued, and approximately $19,046,000 was paid, to the stockholders of SCB, including cash in lieu of fractional shares.

It is anticipated that SCB’s wholly-owned bank subsidiary, Soy Capital Bank and Trust Company (“Soy Capital Bank”), will be merged with and into First Mid Bank on April 6, 2019. At the time of the bank merger, Soy Capital Bank’s banking offices will become branches of First Mid Bank. As a result of the acquisition, the Company will have an opportunity to increase its deposit base and reduce transaction costs. The Company also expects to reduce costs through economies of scale.

The acquisition was accounted for under the acquisition method of accounting in accordance with ASC 805, “Business Combinations ("ASC 805"),” and accordingly the assets and liabilities were recorded at their estimated fair values as of the date of acquisition. Fair values are subject to refinement for up to one year after the closing date of November 15, 2018 as additional information regarding the closing date fair values become available. The total consideration paid was used to determine the amount of goodwill resulting from the transaction. As the total consideration paid exceeded the net assets acquired, goodwill of $18.6 million was recorded for the acquisition. Goodwill recorded in the transaction, which reflects the synergies and economies of scale expected from combining operations and the enhanced revenue opportunities from the Company’s service capabilities, is not tax deductible, and was all assigned to the banking segment of the Company.

The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of the Soy Capital Bank acquisition (in thousands).



	Acquired Book Value			Adjustments			As Recorded by First Mid Bank
Assets
Cash & due from banks	$	65,112		—			$	65,112
Investment Securities	97,545			(41		)	97,504
Loans	255,429			(7,868		)	247,561
Allowance for loan losses	(4,491		)	4,491			—
Other real estate owned	783			(345		)	438
Premises and equipment	10,115			1,228			11,343
Goodwill	6,782			11,854			18,636
Core deposit intangible	—			7,269			7,269
Other Intangibles	1,228			11,070			12,298
Other assets	24,821			(5,926		)	18,895
Total assets acquired	$	457,324		$	21,732		$	479,056
Liabilities and Stockholders' Equity
Deposits	348,314			(343		)	347,971
Securities sold under agreements to repurchase	21,180			—			21,180
FHLB advances	19,000			(29		)	18,971
Other borrowings	7,724			—			7,724
Other liabilities	15,904			—			15,904
Total liabilities assumed	412,122			(372		)	411,750
Net assets acquired	45,202			22,104			67,306

Consideration Paid
Cash							19,046
Common stock							48,260
Total consideration paid							67,306

The Company has recognized approximately $907,000, pre-tax, of acquisition costs for the Soy Capital Bank acquisition. These costs are included in legal and professional and other expense. Of the$7.9 million fair value adjustment to loans, approximately $7.2 million is being accreted to interest income over the remaining term of the loans. The differences between fair value and acquired value of the assumed time deposits of $(343,000), of the assumed FHLB advances of $(29,000), are being amortized to interest expense over the remaining life of the liabilities. The core deposit intangible asset, with a fair value of $7.3 million, will be amortized on an accelerated basis over its estimated life of 10 years. In addition, the Company recorded a $4.2 million intangible asset for the customer list of Soy Bank's Ag services business line and $8.1 million intangible asset for the customer list for Soy Bank's Insurance business line. These intangibles are being amortized over the estimated life of 12 years and 11 years, respectively.

The following unaudited pro forma condensed combined financial information presents the results of operations of the Company, including the effects of the purchase accounting adjustments and acquisition expenses, had the Soy Capital Bank acquisition taken place at the beginning of the period (in thousands, except share data):



	Twelve months ended December 31,
	2018		2017
Net interest income	123,161		105,925
Provision for loan losses	8,667		7,462
Non-interest income	52,257		47,719
Non-interest expense	112,246		100,933
Income before income taxes	54,505		45,249
Income tax expense	12,711		16,352
Net income available to common stockholders	$	41,794	$	28,897

Earnings per share
Basic	$2.67		$2.08
Diluted	$2.67		$2.08

Basic weighted average shares outstanding	15,646,359		13,862,230
Diluted weighted average shares outstanding	15,659,818		13,867,105

The unaudited pro forma condensed combined financial statements do not reflect any anticipated cost savings and revenue enhancements. Accordingly, the pro forma results of operations of the Company as of and after the Soy Capital Bank business combination may not be indicative of the results that actually would have occurred if the combination had been in effect during the periods presented or of the results that may be attained in the future.

First BancTrust Corporation

On December 11, 2017, the Company and Project Hawks Merger Sub LLC (formerly known as Project Hawks Merger Sub Corp.), a newly formed Delaware limited liability company and wholly-owned subsidiary of the Company (“Hawks Merger Sub”), entered into an Agreement and Plan of Merger (as amended as of January 18, 2018, the “First Bank Merger Agreement") with First BancTrust Corporation, a Delaware corporation (“First Bank”), pursuant to which, among other things, the Company agreed to acquire 100% of the issued and outstanding shares of First Bank pursuant to a business combination whereby First Bank will merge with and into Hawks Merger Sub, with Hawks Merger Sub as the surviving entity and a wholly-owned subsidiary of the Company (the “First Bank Merger”).

At the effective time of the First Bank Merger, each share of common stock, par value $0.01 per share, of First Bank issued and outstanding immediately prior to the effective time of the First Bank Merger (other than shares held in treasury by First Bank and shares held by stockholders who had properly made and not withdrawn a demand for appraisal rights under Delaware law) converted into and become the right to receive, (a) $5.00 in cash and (b) 0.800 shares of common stock, par value $4.00 per share, of the Company and cash in lieu of fractional shares, less any applicable taxes required to be withheld and subject to certain adjustments, all as set forth in the First Bank Merger Agreement.

On May 1, 2018, the Company issued an aggregate total of 1,643,900 shares of common stock valued at $37.32 per share and paid approximately $10,275,000, including cash in lieu of fractional shares. First Bank’s wholly-owned bank subsidiary, First Bank & Trust, IL (“First Bank & Trust”), merged with and into First Mid Bank on August 10, 2018. At the time of the bank merger, First Bank & Trust’s banking offices became branches of First Mid Bank. As a result of the acquisition, the Company will have an opportunity to increase its deposit base and reduce transaction costs. The Company also expects to reduce costs through economies of scale.

The acquisition was accounted for under the acquisition method of accounting in accordance with ASC 805, “Business Combinations ("ASC 805"),” and accordingly the assets and liabilities were recorded at their estimated fair values as of the date of acquisition. Fair values are subject to refinement for up to one year after the closing date of May 1, 2018 as additional information regarding the closing date fair values become available. The total consideration paid was used to determine the amount of goodwill resulting from the transaction. As the total consideration paid exceeded the net assets acquired, goodwill of $26.5 million was recorded for the acquisition. Goodwill recorded in the transaction, which reflects the synergies and economies of scale expected from combining operations and the enhanced revenue opportunities from the Company’s service capabilities, is not tax deductible, and was all assigned to the banking segment of the Company.

The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of the First Bank acquisition (in thousands).



	Acquired Book Value			Adjustments			As Recorded by First Bank & Trust
Assets
Cash & due from banks	$	20,598					$	20,598
Investment Securities	59,906			(320		)	59,586
Loans	371,156			(7,875		)	363,281
Allowance for loan losses	(4,412		)	4,412			—
Other real estate owned	547			(12		)	535
Premises and equipment	10,126			(689		)	9,437
Goodwill	543			25,948			26,491
Core deposit intangible	—			5,224			5,224
Other assets	16,389			(256		)	16,133
Total assets acquired	$	474,853		$	26,432		$	501,285
Liabilities and Stockholders' Equity
Deposits	$	384,323		$	1,301		$	385,624
FHLB advances	31,000			(328		)	30,672
Subordinated debentures	6,186			(1,451		)	4,735
Other liabilities	8,665			(36		)	8,629
Total liabilities assumed	430,174			(514		)	429,660
Net assets acquired	$	44,679		$	26,946		$	71,625

Consideration Paid
Cash							$	10,275
Common stock							61,350
Total consideration paid							$	71,625

The Company has recognized approximately $7.3 million, pre-tax, of acquisition costs for the First Bank acquisition. These costs are included in legal and professional and other expense. Of the $7.9 million fair value adjustment to loans, approximately $3.6 million is being accreted to interest income over the remaining term of the loans. The differences between fair value and acquired value of the assumed time deposits of $1.3 million, of the assumed FHLB advances of $(328,000) and of the assumed subordinated debentures of $(1,451,000), are being amortized to interest expense over the remaining life of the liabilities. The core deposit intangible asset, with a fair value of $5.2 million, will be amortized on an accelerated basis over its estimated life of 10 years.

The following unaudited pro forma condensed combined financial information presents the results of operations of the Company, including the effects of the purchase accounting adjustments and acquisition expenses, had the First Bank acquisition taken place at the beginning of the period (in thousands, except share data):



	Twelve months ended December 31,
	2018		2017
Net interest income	117,450		110,990
Provision for loan losses	8,867		8,365
Non-interest income	36,526		34,060
Non-interest expense	94,464		94,843
Income before income taxes	50,645		41,842
Income tax expense	12,456		15,849
Net income available to common stockholders	$	38,189	$	25,993

Earnings per share
Basic	$2.60		$1.83
Diluted	$2.59		$1.83

Basic weighted average shares outstanding	14,704,888		14,175,559
Diluted weighted average shares outstanding	14,721,708		14,180,434