Business Combinations

6 Months Ended

Jun. 30, 2022

Business Combination and Asset Acquisition [Abstract]

On January 1, 2022, the Company acquired Citizens Union Bancorp of Shelbyville, Inc. (“CUB”) through the merger of CUB with and into the Company. This was immediately followed by the merger of Citizens Union Bank of Shelbyville, Inc., a wholly-owned subsidiary of CUB, into the Company’s subsidiary bank, German American Bank. CUB, headquartered in Shelbyville, Kentucky, operated 15 retail banking offices located in Shelby, Jefferson, Spencer, Bullitt, Oldham, Owen, Gallatin and Hardin counties in Kentucky through Citizens Union Bank of Shelbyville, Inc.

As of the closing of the transaction, CUB had total assets of approximately $1,108,546 (unaudited), total loans of approximately $683,807 (unaudited), and total deposits of approximately $930,533 (unaudited). The Company accounted for the transaction under the acquisition method of accounting which means these financial assets and liabilities were recorded at fair value at the day of acquisition. The fair value of the common shares issued as part of the consideration paid for CUB was based upon the closing price of the Company's common shares on the acquisition date. The fair value estimates included in these financial statements are based on preliminary valuations; certain loan, deferred tax, and premises and equipment measurements have not been finalized and are subject to change. The Company does not expect material variances from these estimates and expects that final valuation estimates will be completed prior to December 31, 2022.

In accordance with ASC 805, the Company has expensed approximately $12,132 of direct acquisition costs and recorded $58,548 of goodwill and $7,572 of intangible assets. The goodwill of $58,548 arising from the acquisition consisted largely of synergies and the cost savings resulting from the combining of the operations of the companies. This goodwill will be evaluated annually for impairment and is non-deductible for tax purposes. The intangible assets are related to core deposits and are being amortized over 8 years. The following table summarizes the fair value of the total consideration transferred as a part of the CUB acquisition as well as the fair value of identifiable assets acquired and liabilities assumed as of the effective date of the transaction.


Consideration
Cash for Stock Options and Fractional Shares	$	942
Cash Consideration	49,863
Equity Instruments	111,914
Fair Value of Total Consideration Transferred	$	162,719

Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:
Cash	$	20,244
Federal Funds Sold and Other Short-term Investments	238,325
Interest-bearing Time Deposits with Banks	250
Securities	102,233
Loans	678,167
Stock in FHLB and Other Restricted Stock, at Cost	10,078
Premises, Furniture & Equipment	20,064
Other Real Estate	40
Intangible Assets	7,572
Company Owned Life Insurance	12,881
Accrued Interest Receivable and Other Assets	17,908
Deposits - Non-interest Bearing	(237,472)
Deposits - Interest Bearing	(696,750)
FHLB Advances and Other Borrowings	(60,837)
Accrued Interest Payable and Other Liabilities	(8,532)
Total Identifiable Net Assets	104,171
Goodwill	$	58,548

Under the terms of the merger agreement, each CUB common shareholder of record at the effective time of the merger became entitled to receive a cash payment of $13.44 and a 0.7739 share of common stock of the Company for each of their former shares of CUB common stock. As a result, in connection with the closing of the merger on January 1, 2022, the Company issued 2,870,975 shares of its common stock to the former shareholders of CUB and paid cash consideration in the aggregate amount of $50.8 million.

This acquisition is consistent with the Company’s strategy to build a regional presence in 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.

The fair value of purchased financial assets with credit deterioration was $29,868 on the date of acquisition. The gross contractual amounts receivable relating to the purchased financial assets with credit deterioration was $34,453. The Company estimates, on the date of acquisition, that $3,117 of the contractual cash flows specific to the purchased financial assets with credit deterioration will not be collected.

The following table presents unaudited pro forma information as if the acquisition had occurred on January 1, 2021 after giving effect to certain adjustments. The unaudited pro forma information for the three and six months ended June 30, 2022 and 2021 includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, interest expense on deposits and borrowings acquired, and the related income tax effects. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed date.


	Unaudited Pro Forma		Unaudited Pro Forma
	Quarter Ended 6/30/2022		Quarter Ended 6/30/2021

Net Interest Income	$	49,597	$	48,453
Non-interest Income	15,180		15,253
Total Revenue	64,777		63,706
Provision for Loan Losses Expense	300		(5,454)
Non-interest Expense	35,274		33,677
Income Before Income Taxes	29,203		35,483
Income Tax Expense	5,029		7,300
Net Income	$	24,174	$	28,183
Earnings Per Share and Diluted Earnings Per Share	$	0.82	$	0.96


	Unaudited Pro Forma		Unaudited Pro Forma
	Six Months Ended 6/30/2022		Six Months Ended 6/30/2021

Net Interest Income	$	96,505	$	96,184
Non-interest Income	31,368		31,779
Total Revenue	127,873		127,963
Provision for Loan Losses Expense	(800)		(8,311)
Non-interest Expense	71,729		71,121
Income Before Income Taxes	56,944		65,153
Income Tax Expense	10,051		13,248
Net Income	$	46,893	$	51,905
Earnings Per Share and Diluted Earnings Per Share	$	1.59	$	1.77

For the three months ended June 30, 2022, the above pro forma financial information excludes non-recurring merger costs that totaled $427 on a pre-tax basis. For the six months ended June 30, 2022, the above pro forma financial information excludes non-recurring merger costs that totaled $12,132 on a pre-tax basis and Day 1 provision for credit losses under the CECL model of $6,300 on a pre-tax basis