Acquisitions and FDIC Indemnification Asset

On August 16, 2013, the Bank completed a Purchase and Assumption Agreement with Bank of America, National Association. Under the terms of the Agreement, First Financial Bank purchased certain assets and assumed certain liabilities of 7 branch offices and 2 drive-up facilities of Bank of America in central and southern Illinois. The acquisition was beneficial in increasing the presence of the bank in the Illinois market. First Financial received cash in the amount of $177.7 million. The acquisition consisted of loans with a fair value of $1.9 million, fixed assets with a value of $5.9 million, a customer related core deposit intangible asset of $2.2 million, deposits with a value of $189.3 million and other liabilities of $0.3 million. Based upon the acquisition date fair values of the net assets acquired, goodwill of $1.9 million was recorded, all of which is expected to be tax deductible.

On December 30, 2011, the Bank completed a purchase and assumption agreement with PNB Holding Co (PNB), an Illinois corporation, to purchase all of the issued and outstanding stock of Freestar Bank, National Association, and assume certain liabilities of PNB (the “Transaction”). Immediately following the acquisition of the stock of Freestar Bank, First Financial merged Freestar Bank with and into its wholly-owned subsidiary, First Financial Bank, National Association.

The acquisition provided a strategic entry into the Champaign-Urbana, Bloomington-Normal and Pontiac, Illinois markets. Each of these markets are characterized by higher growth rates.

On July 2, 2009, the Bank entered into a purchase and assumption agreement with the Federal Deposit Insurance Corporation (“FDIC”) to assume all of the deposits (excluding brokered deposits) and certain assets of The First National Bank of Danville, a full-service commercial bank headquartered in Danville, Illinois, that had failed and been placed in receivership with the FDIC. Under the loss-sharing agreement (“LSA”), the Bank will share in the losses on assets covered under the agreement (referred to as covered assets). On losses up to $29 million, the FDIC has agreed to reimburse the Bank for 80 percent of the losses. On losses exceeding $29 million, the FDIC has agreed to reimburse the Bank for 95 percent of the losses. The loss-sharing agreement is subject to following servicing procedures as specified in the agreement with the FDIC. Loans acquired that are subject to the loss-sharing agreement with the FDIC are referred to as covered loans for disclosure purposes. Since the acquisition date the Bank has been reimbursed $19.0 million for losses and carrying expenses and currently carries a balance of $375 thousand in the indemnification asset. The loss share agreement as it relates to non-single family loans expired at the end of the third quarter of 2014 and there is no estimate for future potential losses at September 30, 2014 included in the current balance of the indemnification asset. The balance of loans covered by the loss share agreement excluding AS 310-30 loans at September 30, 2014 and December 31, 2013 totaled $7.8 million and $18.5 million, respectively.

FASB ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, applies to a loan with evidence of deterioration of credit quality since origination, acquired by completion of a transfer for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable. FASB ASC 310-30 prohibits carrying over or creating an allowance for loan losses upon initial recognition. The carrying amount of covered assets at September 30, 2014 and 2013, consisted of loans accounted for in accordance with FASB ASC 310-30 are shown in the following table:



	Three Months Ended September 30, 2014
(Dollar amounts in thousands)	Commercial			Consumer			Total
Beginning balance	$	7,337		$	1,885		$	9,222
Discount accretion	—			—			—
Disposals	(1,569		)	(108		)	(1,677		)
ASC 310-30 Loans	$	5,768		$	1,777		$	7,545



	Nine Months Ended September 30, 2014
(Dollar amounts in thousands)	Commercial			Consumer			Total
Beginning balance	$	7,676		$	2,409		$	10,085
Discount accretion	—			—			—
Disposals	(1,908		)	(632		)	(2,540		)
ASC 310-30 Loans	$	5,768		$	1,777		$	7,545



	Three Months Ended September 30, 2013
(Dollar amounts in thousands)	Commercial			Consumer			Total
Beginning balance	$	11,519		$	3,006		$	14,525
Discount accretion	—			(5		)	(5		)
Disposals	(1,382		)	(344		)	(1,726		)
ASC 310-30 Loans	$	10,137		$	2,657		$	12,794



	Nine Months Ended September 30, 2013
(Dollar amounts in thousands)	Commercial			Consumer			Total
Beginning balance	$	13,654		$	3,464		$	17,118
Discount accretion	(24		)	(13		)	(37		)
Disposals	(3,493		)	(794		)	(4,287		)
ASC 310-30 Loans	$	10,137		$	2,657		$	12,794