Business Combination

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

Business Combination

Business Combination

Effective March 1, 2016, the Company acquired River Valley Bancorp ("River Valley") and its subsidiaries, including River Valley Financial Bank, pursuant to an Agreement and Plan of Reorganization dated October 26, 2015, as amended. The acquisition was accomplished by the merger of River Valley into German American Bancorp, Inc., immediately followed by the merger of River Valley Financial Bank into German American Bancorp, Inc.'s bank subsidiary, German American Bancorp. River Valley Financial Bank operated 14 banking offices in Southeast Indiana and 1 banking office in Northern Kentucky. River Valley's consolidated assets and equity (unaudited) as of February 29, 2016 totaled $516.3 million and $56.6 million, respectively. 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 does not expect material variances from these estimates and expects that final valuation estimates will be completed during the year ending December 31, 2016.

In accordance with ASC 805, the Company has expensed approximately $4.3 million of direct acquisition costs and recorded $33.1 million of goodwill and $2.6 million of intangible assets. The intangible assets are related to core deposits and are being amortized over 8 years. For tax purposes, goodwill totaling $33.1 million is non-deductible but will be evaluated annually for impairment. The following table summarizes the fair value of the total consideration transferred as a part of the River Valley 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 Options and Fractional Shares	$	395
Cash Consideration	24,975
Equity Instruments	62,022
Fair Value of Total Consideration Transferred	$	87,392
Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:
Cash	$	17,877
Federal Funds Sold and Other Short-term Investments	6,477
Interest-bearing Time Deposits with Banks	992
Securities	132,396
Loans	317,760
Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost	3,127
Premises, Furniture & Equipment	10,219
Other Real Estate	882
Intangible Assets	2,613
Company Owned Life Insurance	12,842
Accrued Interest Receivable and Other Assets	8,958
Deposits - Non Interest Bearing	(9,584		)
Deposits - Interest Bearing	(395,862		)
FHLB Advances and Other Borrowings	(49,910		)
Accrued Interest Payable and Other Liabilities	(4,530		)
Total Identifiable Net Assets	$	54,257
Goodwill	$	33,135

Under the terms of the merger agreement, the Company issued approximately 1,942,000 shares of its common stock to the former shareholders of River Valley. Each River Valley common shareholder of record at the effective time of the merger became entitled to receive 0.770 shares of common stock of the Company for each of their former shares of River Valley common stock.

In connection with the closing of the merger, the Company paid to River Valley's shareholders of record at the close of business on February 29, 2016, cash consideration of $9.90 per River Valley share (an aggregate of $24,975 to shareholders) and the Company paid approximately $395 to persons who held options to purchase River Valley common stock (all of which rights were cancelled at the effective time of the merger and were not assumed by the Company).

This acquisition was consistent with the Company’s strategy to build a 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.

The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted cash flows. However, the Company believes that all contractual cash flows related to these financial instruments will be collected. As such, these receivables were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit impaired loans, which are loans that have shown evidence of credit deterioration since origination. Receivables acquired that were not subject to these requirements include non-impaired loans and customer receivables with a fair value of $309.0 million and unpaid principle of $316.4 million on the date of acquisition.

The following table presents unaudited pro forma information as if the acquisition had occurred on January 1, 2015 after giving effect to certain adjustments. The unaudited pro forma information for the three and nine months ended September 30, 2016 and 2015 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.

	Pro Forma Three Months Ended 9/30/2016		Pro Forma Three Months Ended 9/30/2015
Net Interest Income	$	24,560	$	25,165
Non-interest Income	8,384		8,857
Total Revenue	32,944		34,022
Provision for Loan Losses Expense	—		(500		)
Non-interest Expense	18,465		20,817
Income Before Income Taxes	14,479		13,705
Income Tax Expense	4,182		3,357
Net Income	10,297		10,348
Earnings Per Share and Diluted Earnings Per Share	$	0.67	$	0.68

	Pro Forma Nine Months Ended 9/30/2016		Pro Forma Nine Months Ended 9/30/2015
Net Interest Income	$	72,907	$	73,313
Non-interest Income	24,298		24,445
Total Revenue	97,205		97,758
Provision for Loan Losses Expense	1,200		—
Non-interest Expense	54,877		57,338
Income Before Income Taxes	41,128		40,420
Income Tax Expense	12,263		11,029
Net Income	28,865		29,391
Earnings Per Share and Diluted Earnings Per Share	$	1.89	$	1.93

The above pro forma financial information includes approximately $429 of net income and $3,043 of total revenue related to the operations of River Valley during the third quarter of 2016 and $3,187 of net income and $12,561 of total revenue related to the operations of River Valley for the nine months ended 2016. The above pro forma financial information related to 2016 excludes non-recurring merger costs that totaled $189 and $4,318 on a pre-tax basis for the three and nine months ended September 30, 2016, respectively. The above pro forma financial information excludes the River Valley provision for loan loss recognized during the three and nine months ended 2016 and 2015. Under acquisition accounting treatment, loans are recorded at fair value which includes a credit risk component, and therefore the provision for loan loss recognized during the three and nine months ended September 30, 2015 was presumed to not be necessary.