On the day after German American Bank announced it had acquired five branches from First Financial Bank, Cincinnati, Ohio, the Jasper, Ind.-based bank announced it plans to merge with First Security Bank, Owensboro, Ky.
According to terms of the deal, First Security Bank’s common shareholders will receive a fixed exchange ratio of 0.798 shares of German American common stock for each share of First Security in a tax free exchange, as well as a $12 cash payment per First Security share.
The merger is expected to convert First Security’s subordinated debt into common shares. Considering this and First Security’s current number of outstanding common shares, German American expects to issue about two million shares of its common stock and pay approximately $31 million for First Security’s issued and outstanding options.
The transaction has an estimated value of $101 million, with the total merger consideration split between stock and cash, on an approximate 70:30 basis.
First Security’s principal shareholders and board members have agreed to vote their shares, which make up 27 percent of outstanding shares of First Security common stock, in favor of the merger, according to a news release. The deal is expected to close in the fourth quarter, upon customary regulatory approval and the approval of First Security’s shareholders.
“From a shareholder perspective, German American is one of the nation’s best-performing community banking organizations,” said Michael Beckwith, president and CEO of First Security. German American’s stock would provide First Security shareholders with advanced liquidity and trading volume, Beckwith said.
Once the merger is complete, Beckwith will become German American Kentucky divisional president.
“Strategically and culturally, we are well aligned with German American, and through this partnership, German American is gaining a meaningful presence in Kentucky,” Beckwith said.
Expanding into Kentucky metro markets like Owensboro, Bowling Green and Lexington is “a strategic opportunity for German American to expand our community-focused, customer-centric business model,” said German American CEO Mark Schroeder. Evansville is the third largest metro market in Indiana, where German American holds “a significant and growing market share,” Schroeder said.
In addition to gaining a foothold in Kentucky and expanding in Indians with its First Security buy, German American will grow through its recent acquisition of five of First Financial’s branches — all located in either Columbus and Greensburg, Ind.
That acquisition deal included the transfer of approximately $175 million in deposits and $120 million in loans, and was finalized May 18.
German American paid a premium on deposits assumed of approximately $7.4 million, which is subject to a “true-up provision whereby the deposit premium shall be recalculated on the six month anniversary of the transfer. Additionally, German American has a 6-month “put-option” on the loans purchased, whereby German American can require First Financial to repurchase certain loans within six months following the closing of the transaction.
Sandler O’Neill & Partners, L.P., and Raymond James & Associates, Inc. served as German American’s financial advisors on both transactions. Bingham Greenebaum Doll LLP serves as German American’s legal counsel on the First Security transaction.
Raymond James & Associates, Inc. served as financial advisor and Frost Brown Todd LLC serves legal counsel for First Security Bank.