NOTE 12 – ACQUISITIONS

On April 30, 2017, the Company acquired 100% of the outstanding common shares of FCB Bancorp, Inc., a Kentucky corporation (“FCB”). On June 23, 2017, FCB’s wholly-owned subsidiary, The First Capital Bank of Kentucky, a Kentucky-chartered bank (“FCB Bank”) was merged into the Company’s wholly-owned subsidiary, MainSource Bank. Shareholders of FCB were entitled to merger consideration in accordance with the terms of the merger agreement. At the effective time of the Merger, shareholders of FCB received (i) 0.9 shares of MainSource common stock (the “Exchange Ratio”) and (ii) $7.00 in cash for each share of FCB common stock owned. Additionally, all outstanding and unexercised options to purchase FCB stock vested in full and were converted automatically into the right to receive an amount of cash equal to the product of (i) the difference (if positive) between (A) $7.00 plus the product of (y) 0.9 and (z) the average of the daily closing sales prices of a share of MainSource common stock as reported on the NASDAQ for the 10 consecutive trading days ending on the third business day preceding the Closing Date minus (B) the exercise price of such FCB stock option, multiplied by (ii) the number of shares of FCB common stock subject to such FCB stock option In total, the Company issued 1,402,612 shares of common stock and paid $10.9 million in cash to the former shareholders of FCB.

With the acquisition, the Company expanded its presence in the greater Louisville area. The acquisition offers the Company the opportunity to increase profitability by introducing new products and services to the acquired customer base and adding new customers in the expanded region. FCB’s results of operations were included in the Company’s results beginning May 1, 2017. Acquisition-related costs of $7,063 were included in the Company’s income statement for the nine months ended September 30, 2017. The fair value of the common shares issued as part of the consideration paid for FCB was determined on the basis of the closing price of the Company’s common shares on the acquisition date. Goodwill of $33,668 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 FCB and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date:



Consideration
Cash	$	10,911
Equity Instruments		47,969
Fair Value of Total Consideration	$	58,880

Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed
Cash and cash equivalents	$	15,972
Securities		45,498
Federal Home Loan Bank stock		3,418
Loans		427,762
Premises and equipment		9,863
Core deposit intangibles		6,263
Bank owned life insurance		6,571
Other assets		9,057
Total assets acquired	$	524,404

Deposits	$	366,871
Federal Home Loan Bank advances		43,804
Subordinated debt		17,111
Other liabilities		71,406
Total liabilities assumed	$	499,192

Total identifiable net assets	$	25,212

Goodwill	$	33,668

The Company will be completing its final fair value adjustments in the fourth quarter of 2017.

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 $419,470 and $427,152 on the date of acquisition.

The following table presents pro forma information as if the acquisition had occurred at the beginning of 2016. The pro forma information includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, depreciation expense on property acquired, interest expense on deposits acquired, and the related income tax effects. The pro forma financial information is not necessarily indicative of the results of operations that would have occurred if the transaction had been effected on the assumed dates.


	3 months		3 months		9 months		9 months
	9/30/2017		9/30/2016		9/30/2017		9/30/2016
Net interest income	$	37,400	$	35,317	$	110,947	$	98,452
Net income		12,133		13,100		38,801		34,200
Basic earnings per share		0.47		0.51		1.51		1.40
Diluted earnings per share		0.47		0.51		1.49		1.39

On February 17, 2017, MainSource Bank entered into an agreement with First Service Capital Management, Inc. (“First Service”), located in Elizabethtown, Kentucky, to acquire the assets under management. The transaction closed on February 17, 2017. $1,400 was paid on February 17, 2017 upon closing of the transaction and the remaining balance will be paid as earned over the next two years. In connection with the acquisition, the Bank also agreed to hire all of the First Service employees, including its four brokers. The purchase price of approximately $1,750 resulted in goodwill of $660 and a customer relationship intangible of $1,090 being recorded. The customer relationship intangible is being amortized over 15 years. Goodwill and intangible assets will be deducted for tax purposes over 15 years.

On May 1, 2017, MainSource Bank entered into an agreement with Capstone Investment Management, LLC. (“Capstone”), located in Greenwood, Indiana, to acquire the assets under management. In connection with the acquisition, the Bank also agreed to hire all of Capstone’s employees. The purchase price of approximately $1,750 will result in intangible assets including goodwill and a customer relationship intangible. Preliminary amounts have been recorded in the second quarter of 2017 but are still being finalized. $756 was paid on May 1, 2017 upon closing of the transaction and a loan held by the seller of $644 was assumed. The remaining balance will be paid as earned over the next two years.

On July 25, 2017, First Financial Bancorp (“First Financial”) and MainSource Financial Group, Inc. (the “Company”) executed a definitive merger agreement pursuant to which the Company agreed to merge into First Financial in a stock-for-stock transaction. MainSource Bank, a wholly owned subsidiary of the Company, will merge into First Financial Bank, a wholly owned subsidiary of First Financial.

Under the terms of the merger agreement, shareholders of the Company will receive 1.3875 common shares of First Financial common stock for each share of the Company’s common stock. The closing price of First Financial on July 25, 2017 was $28.10. Including outstanding options and warrants on the Company’s common stock, the transaction is valued at approximately $1.0 billion. Upon closing, First Financial shareholders will own approximately 63% of the combined company and the Company’s shareholders will own approximately 37% on a fully diluted basis.

The merger will result in a combined company with approximately $13.3 billion in assets, $8.9 billion in loans, $10.0 billion in deposits, and $4.0 billion in assets under management, utilizing financial information as of September 30, 2017. The transaction will allow the combined company to better meet the needs of its communities in a rapidly changing banking environment, while providing the efficiencies and scale required to comply with regulatory requirements and costs associated with crossing the $10 billion asset threshold.

The transaction is expected to close in early 2018, subject to the approval of shareholders of both First Financial and the Company and regulatory approvals, as well as satisfaction of customary closing conditions. The combined company will operate as First Financial and its headquarters will be located in downtown Cincinnati, Ohio.