Acquisition of Dearmin Bancorp and The First National Bank of Odon

3 Months Ended

Dec. 31, 2018

Acquisition of Dearmin Bancorp and The First National Bank of Odon

On February 9, 2018, the Company acquired Dearmin Bancorp, Inc. (“Dearmin”) and its majority owned subsidiary, The First National Bank of Odon (“FNBO”), a full service community bank located in Odon, Indiana. The acquisition expanded the Company’s presence into Daviess County, Indiana. The Company expects to benefit from growth in this market area as well as from expansion of the banking services provided to the existing customers of FNBO. Cost savings are also expected for the combined bank through economies of scale, efficiencies and the consolidation of business operations.

Pursuant to the terms of the merger agreement, FNBO stockholders received $265.00 in cash for each share of FNBO common stock for total cash consideration of $10.6 million. Under the acquisition method of accounting, the purchase price is assigned to the identifiable assets acquired and liabilities assumed based on their fair values, net of applicable income tax effects. In accounting for the acquisition, the excess of cost over the fair value of the acquired net assets of $1.9 million was recorded as goodwill. Transaction and integration costs related to the acquisition totaling $1.3 million were expensed as incurred for the year ended September 30, 2018 including $24,000 incurred for the three-month period ended December 31, 2017.

No transaction and integration costs were recognized for the three-month period ended December 31, 2018.

Following is a condensed balance sheet providing the estimated fair values of the assets acquired and the liabilities assumed as of the date of acquisition:

	(In thousands)

Cash and due from banks	$	1,310
Interest-bearing deposits with banks		15,957
Interest-bearing time deposits with banks		3,817
Investment securities		39,978
Loans, net		34,467
Premises and equipment		1,125
Goodwill arising in the acquisition		1,912
Core deposit intangible		1,487
Other assets		2,890
Total assets acquired		102,943

Deposit accounts		91,765
Net deferred tax liabilities		205
Other liabilities		373
Total liabilities assumed		92,343

Total consideration	$	10,600

In accounting for the acquisition, $1.5 million was assigned to a core deposit intangible which is amortized over a weighted-average estimated economic life of 9.1 years. It is not anticipated that the core deposit intangible will have a significant residual value. No amount of the goodwill or core deposit intangible arising in the acquisition is deductible for income tax purposes.

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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. On the acquisition date, no loans were identified with evidence of deterioration of credit quality since origination. Loans acquired not subject to ASC 310-30 included non-impaired loans with a fair value of $34.5 million and gross contractual amounts receivable of $41.5 million at the date of acquisition.