Business Combinations, Goodwill and Intangible Assets

Business Combinations

Effective October 1, 2013, the Company acquired United Commerce Bancorp and its subsidiary, United Commerce Bank. The acquisition was accomplished by the merger of United Commerce Bancorp into the German American Bancorp, Inc., immediately followed by the merger of United Commerce Bank into German American Bancorp, Inc.’s bank subsidiary (German American Bancorp). The United Commerce Bank operated two banking offices in Bloomington, Indiana. United Commerce’s consolidated assets and equity (unaudited) as of October 1, 2013 totaled $119.7 million and $13.7 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. See Note 4 for additional information related to the fair value of loans acquired. The Company determined the fair value of core deposit intangibles, securities and deposits with the assistance of third party valuations.

In accordance with ASC 805, the Company has expensed approximately $251 of direct acquisition costs and recorded $1.7 million of goodwill and $2.1 million of intangible assets. The intangible assets are related to core deposits and are being amortized on an accelerated basis over 8 years. For tax purposes, goodwill totaling $1.7 million is non-deductible. The following table summarizes the fair value of the total consideration transferred as a part of the United Commerce acquisition as well as the fair value of identifiable assets acquired and liabilities assumed as of the effective date of the transaction.

October 1, 2013



Consideration
Cash for Options and Fractional Shares	$	643
Cash Consideration	1,391
Equity Instruments	13,348

Fair Value of Total Consideration Transferred	$	15,382

Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:



Cash and Due From Banks	$	430
Federal Funds Sold, Other Short-term Investments	7,362
Interest-bearing Time Deposits with Banks	100
Securities	25,644
Loans	79,575
Premises, Furniture & Equipment	1,718
Core Deposit Intangible	2,052
Accrued Interest Receivable & Other Assets	3,638
Deposits	(106,633		)
Accrued Interest Payable and Other Liabilities	(175		)

Total Identifiable Net Assets	$	13,711

Goodwill	$	1,671

Under the terms of the merger agreement, the Company issued approximately 503,000 shares of its common stock to the former shareholders of United Commerce. Each United Commerce common shareholder of record at the effective time of the merger became entitled to receive 0.5456 shares of common stock of the Company for each of their former shares of United Commerce common stock.

The Company at the effective time of the merger owned 44,100 shares of United Commerce’s outstanding common stock (approximately 4.6% of United Commerce’s common shares then outstanding). All of these shares were cancelled at the effective time of the merger and were not exchanged for shares of the Company in the merger.

In connection with the closing of the merger, the Company paid to United Commerce’s shareholders of record at the close of business on September 30, 2013, cash consideration of $1.51 per United Commerce share (an aggregate of $1,391 to shareholders other than the Company) and the Company paid approximately $643 to persons who held options to purchase United Commerce 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.

Goodwill

The changes in the carrying amount of goodwill for the periods ended December 31, 2014, 2013 and 2012 were classified as follows:



	2014		2013		2012

Beginning of Year	$	20,536	$	18,865	$	18,865
Acquired Goodwill	—		1,671		—
Impairment	—		—		—
End of Year	$	20,536	$	20,536	$	18,865

Of the $20,536 carrying amount of goodwill, $19,204 is allocated to the core banking segment and $1,332 is allocated to the insurance segment for the periods ended December 31, 2014 and 2013. Of the $18,865 carrying amount of goodwill, $17,533 is allocated to the core banking segment and $1,332 is allocated to the insurance segment for the period ended December 31, 2012.

Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. At December 31, 2014, the Company’s reporting units had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting units exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value.

Acquired Intangible Assets



Acquired intangible assets were as follows as of year end:	2014
	Gross Amount		Accumulated Amortization
Core Banking
Core Deposit Intangible	$	9,004	$	7,015
Unidentified Branch Acquisition Intangible	257		257
Insurance
Customer List	5,199		5,114
Total	$	14,460	$	12,386


Acquired intangible assets were as follows as of year end:	2013
	Gross Amount		Accumulated Amortization
Core Banking
Core Deposit Intangible	$	9,004	$	5,815
Unidentified Branch Acquisition Intangible	257		257
Insurance
Customer List	5,199		5,060
Total	$	14,460	$	11,132

Amortization Expense was $1,254, $1,416 and $1,655, for 2014, 2013 and 2012.

Estimated amortization expense for each of the next five years is as follows:



2015	$	790
2016	493
2017	323
2018	235
2019	148