Business Combinations

Branch Acquisition

On May 18, 2018, German American Bank completed the acquisition of five branch locations of First Financial Bancorp (formerly branch locations of Mainsource Financial Group, Inc. prior to its merger with First Financial Bancorp on April 1, 2018) and certain related assets, and the assumption by German American Bank of certain related liabilities. Four of the branches are located in Columbus, Indiana, and one in Greensburg, Indiana. At the time of closing, German American Bank acquired approximately $175.3 million in deposits and approximately $117.6 million in loans associated with the five bank branches. The premium paid on deposits by German American Bank was approximately $7.4 million. The premium is subject to adjustment to reflect increases or decreases in the deposit balances during the six month period following the closing date. German American Bank also has the ability, under certain circumstances, to put loans back to First Financial Bancorp’s bank subsidiary during such six month period. The Company accounted for the transaction under the acquisition method of accounting, which means that the acquired assets and liabilities were recorded at fair value at the date of acquisition. The fair value estimates included in these financial statements are based on preliminary valuations. The Company expects that final valuation estimates will be completed during the year ending December 31, 2018.

This branch acquisition was consistent with the Company's strategy to continue building its regional presence in Southern Indiana. The acquisition offers the Company the opportunity to increase profitability by introducing existing products and services to the acquired customer base as well as add new customers in the expanded region.

In accordance with ASC 805, the Company has expensed approximately $632 of direct acquisition costs and recorded $6.9 million of goodwill and $3.5 million of intangible assets. The intangible assets are related to core deposits and are being amortized over 8 years. For tax purposes, goodwill totaling $6.9 million is tax deductible and will be amortized over 15 years. The following table summarizes the fair value of the total cash received as part of the branch acquisition as well as the fair value of identifiable assets acquired and liabilities assumed as of the effective date of the transaction.



Total Cash Received from First Financial	$	40,637

Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:
Cash	$	755
Loans	117,604
Premises, Furniture & Equipment	5,666
Intangible Assets	3,475
Accrued Interest Receivable and Other Assets	780
Deposits - Non-interest Bearing	(39,607		)
Deposits - Interest Bearing	(136,096		)
Accrued Interest Payable and Other Liabilities	(69		)

Total Identifiable Net Assets	$	(47,492	)

Goodwill	$	6,855

Pending Bank Acquisition

On May 22, 2018, the Company entered into a definitive agreement to acquire First Security, Inc. ("First Security") through the merger of First Security with and into the Company (the “Merger”). Immediately following completion of the Merger, First Security’s subsidiary bank, First Security Bank, Inc., will be merged with and into the Company’s subsidiary bank, German American Bank. First Security, based in Owensboro, Kentucky, operates 11 retail banking offices through First Security Bank, Inc., in Owensboro, Bowling Green, Franklin and Lexington, Kentucky and in Evansville and Newburgh, Indiana. At March 31, 2018, First Security had total assets of approximately $586 million, total loans of approximately $409 million, and total deposits of approximately $458 million.

Under terms of the definitive agreement, each record holder of First Security common stock (other than shares held by dissenting stockholders and shares held by the First Security, Inc. 401k and Employee Stock Ownership Plan (the "KSOP")) will receive (a) 0.7982 shares of the Company’s common stock in a tax-free exchange for each share of First Security common stock, plus (b) a cash payment of $12.00 for each share of First Security common stock. The KSOP, as a record holder of shares of First Security common stock, will receive, for each share of First Security common stock then held by the KSOP, a cash payment equal to $40.00. Any option to acquire a share of First Security common stock outstanding at the closing of the Merger will be cancelled in exchange for a cash payment equal to (x) $40.00, less (y) the applicable exercise price, and less (z) any withholding taxes. The cash payment per outstanding share (including each KSOP share) and per outstanding option described above are also subject to reduction in the event the "Effective Time Book Value" (as defined in and calculated pursuant to the definitive agreement) of First Security falls below certain thresholds at the time of closing of the Merger.

Based on First Security's number of shares of common stock currently outstanding, the Company expects to issue approximately 2.0 million shares of its common stock, and pay approximately $31 million in cash, in exchange for all of the issued and outstanding shares of common stock of First Security (including those held by the KSOP) and in cancellation of all outstanding options to acquire First Security common stock.

Consummation of the Merger is subject to approval by federal and state banking regulatory authorities, approval by the shareholders of First Security and certain other closing conditions. Assuming such approvals are timely secured, the Company expects that the Merger will be completed effective October 1, 2018.

This pending bank acquisition will be consistent with the Company's strategy to build a regional presence in central and western Kentucky. The acquisition offers the Company the opportunity to increase profitability by introducing existing products and services to the acquired customer base as well as add new customers in the expanded region.