NOTE 26 — ACQUISITIONS

On November 23, 2015, the Company entered into an Agreement and Plan of Merger with Cheviot Financial Corp., a Maryland corporation (“Cheviot”), pursuant to which Cheviot will merge with and into the Company, whereupon the separate corporate existence of Cheviot will cease and MainSource will survive. It is anticipated that immediately after the Merger, Cheviot Savings Bank, an Ohio-chartered savings and loan association and a wholly-owned subsidiary of Cheviot, will merge with and into MainSource Bank, an Indiana chartered commercial bank and wholly-owned subsidiary of the Company, with MainSource Bank as the surviving bank.

Subject to the approval of Cheviot’s stockholders of the merger, regulatory approvals and other customary closing conditions, the parties anticipate completing the merger in the second quarter of 2016.

At the effective time of the merger, stockholders of Cheviot will have the right to elect to receive either 0.6916 shares of the Company’s common stock or $15.00 in cash for each share of Cheviot common stock owned, subject to proration provisions specified in the Merger Agreement that provide for a targeted aggregate split of total consideration of 50% common stock and 50% cash. Based upon the November 20, 2015 closing price of $23.56 per share of the Company’s common stock, the transaction is valued at approximately $107.4 million.

Cheviot Financial Corp is the holding company of Cheviot Savings Bank. Cheviot Savings Bank was founded in 1911 as an Ohio-chartered savings and loan association and reorganized into a two-tier mutual holding company in 2004. Cheviot now operates 12 full service offices spanning across Hamilton County. As of September 30, 2015, Cheviot had $576,563 of total assets, $365,067 of loans, $459,856 of deposits and total equity of $96,890. A putative stockholder class action lawsuit has been filed against Cheviot, the directors of Cheviot and MainSource in the Court of Common Pleas, Hamilton County, Ohio, Civil Division (the "Ohio Action"). In the Ohio Action, the plaintiff alleges that the directors of Cheviot breached their fiduciary duties of due care, independence, good faith and fair dealing to the stockholders of Cheviot, that the consideration to be received by the stockholders is inadequate and undervalues Cheviot, that the Merger Agreement includes improper deal-protection devices that purportedly lock up the Merger and may operate to prevent other bidders from making successful competing offers for Cheviot, and that the deal protection devices unreasonably inhibit the ability of the directors of Cheviot to act with respect to investigating and pursuing superior proposals and alternatives. The complaint further alleges that Cheviot and MainSource aided and abetted the alleged breaches of fiduciary duty by the directors of Cheviot. The plaintiff seeks an order that the matter may be maintained as a class action, preliminary and permanent injunctive relief, including enjoining or rescinding the Merger, and an award of unspecified damages, attorneys' fees and other relief.

On August 14, 2015, the Company completed its purchase of five Old National Bank branches located in Batesville, Brownstown, Richmond, and Portland, Indiana and Union City, Ohio. As of the date of acquisition, the Company acquired $37 million in loans, $99 million in deposits, and $1 million in property. Goodwill of $2.5 million and a core deposit intangible of $1.2 million were also recorded resulting in purchase premium of $3.7 million. $57 million of cash was received at purchase. The Company incurred $731 of expenses related to the acquisition of these branches. The core deposit intangible asset is being amortized over 10 years. Goodwill and the core deposit intangible will be deducted for tax purposes over 15 years.

On October 17, 2014, the Company acquired 100% of the outstanding common shares of MBT Bancorp (“MBT”) in exchange for $35.16 in cash or 2.055 shares of common stock of the Company for each share of MBT common stock outstanding. The merger agreement required that 60% of the outstanding shares of MBT common stock be converted into MainSource common stock and 40% of the outstanding shares of MBT common stock be converted into cash. A shareholder election was conducted and completed prior to the closing wherein MBT shareholders were provided the opportunity to select their preferred form of consideration, subject to the allocation and proration procedures contained in the merger agreement. MBT shareholder stock elections were not sufficient to reach the 60% stock requirement established in the merger agreement. Consequently, MBT shareholders who did not make an election received a portion of their merger consideration in MainSource common stock and a portion in cash. In total, the Company issued 1,226,312 shares of common stock and paid $13.9 million in cash to the former shareholders of MBT.

At the time of the acquisition, MBT’s wholly-owned bank subsidiary, The Merchant’s Bank and Trust Company, was merged into the Bank. With the acquisition, the Company expanded its presence in the southeastern Indiana and greater Cincinnati market areas. The acquisition of MBT offered the Company the opportunity to increase profitability by introducing existing products and services to the acquired customer base and to add new customers in the expanded region. MBT’s results of operations were included in the Company’s results beginning October 18, 2014. Acquisition-related costs of $3,119 were included in the Company’s income statement for the year ended December 31, 2014. The fair value of the common shares issued as part of the consideration paid for MBT was determined on the basis of the closing price of the Company’s common shares on the acquisition date.

Goodwill of $8,550 arising from the acquisition consisted largely of synergies and the cost savings resulting from the combining of the operations of the companies. Goodwill will not be deductible for income tax purposes. The following table summarizes the consideration paid for MBT and the value of the assets acquired and liabilities assumed recognized at the acquisition date:


Consideration
Cash	$	13,992
Equity Instruments		21,534
Fair Value of Total Consideration	$	35,526
Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed
Cash and cash equivalents	$	3,306
Securities		31,214
Federal Home Loan Bank stock		1,476
Loans		184,716
Premises and equipment		4,863
Core deposit intangibles		1,661
Other assets		3,468
Total assets acquired		230,704

Deposits		183,897
Federal Home Loan Bank advances		16,300
Other liabilities		3,531
Total liabilities assumed		203,728

Total identifiable net assets	$	26,976

Goodwill	$	8,550

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 contractual 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 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 and gross contractual amounts receivable of $183,485 and $185,400 on the date of acquisition. The Company did acquire a small number of credit impaired loans. These loans had a net carrying amount of less than $1,000. Accordingly, no additional disclosures were made due to their immateriality.

The pro forma financial information is not included as it was considered immaterial to the Company’s results.

In December, 2013, the Company purchased a branch in Hope, Indiana. As of the date of acquisition, the Company acquired $3 million in loans and $22 million in deposits. Goodwill of $0.5 million was recorded. $18 million of cash was received at purchase. The goodwill will be deducted for tax purposes over 15 years. No other purchase accounting entries were made at acquisition as the amounts computed were considered immaterial.

The above transactions were considered business combinations. Their results of operations are included in the financial statements after acquisition. Proforma data was not considered material and is not presented.