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Note 3 - Bank Acquisitions | 12 Months Ended
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Dec. 31, 2023
Notes to Financial Statements |
Business Combination Disclosure [Text Block] | (3) Bank Acquisition Commonwealth Bancshares, Inc. On March 7, 2022, Bancorp completed its acquisition of Commonwealth Bancshares, Inc. in a combined stock and cash transaction for total consideration of $168 million. Bancorp acquired 15 retail branches, including nine in Jefferson County, four in Shelby County, and two in Northern Kentucky. Effective December 31, 2022, management finalized the fair values of the acquired assets and assumed liabilities in advance of the 12 month post-acquisition date, as allowed by GAAP. The following table provides a summary of the fair value of the assets acquired and liabilities assumed by Bancorp as of the acquisition date, the previously reported preliminary fair value adjustments necessary to adjust those acquired assets and assumed liabilities to fair value, final provisional period adjustments to those previously reported preliminary values, and the final fair values of those assets and liabilities as recorded by Bancorp.
|  | As Recorded |  |  | Fair Value |  |  |  | Classification |  |  | Provisional Period |  |  | As Recorded |
(in thousands) |  | By CB |  |  | Adjustments (1) |  |  |  | Adjustments (2) |  |  | Adjustments (1) |  |  | by Bancorp |
Assets aquired: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 380,450 |  |  | $ | — |  |  |  | $ | — |  |  | $ | — |  |  | $ | 380,450 |
Mortgage loans held for sale |  |  | 3,559 |  |  |  | — |  |  |  |  | — |  |  |  | — |  |  |  | 3,559 |
Available for sale debt securities |  |  | 247,209 |  |  |  | (416 | ) | a |  |  | (161,819 | ) |  |  | — |  |  |  | 84,974 |
Held to maturity debt securities (2) |  |  | — |  |  |  | — |  | a |  |  | 161,819 |  |  |  | — |  |  |  | 161,819 |
Federal Home Loan Bank stock, at cost |  |  | 4,436 |  |  |  | — |  |  |  |  | — |  |  |  | — |  |  |  | 4,436 |
Loans |  |  | 645,551 |  |  |  | (13,147 | ) | b |  |  | — |  |  |  | — |  |  |  | 632,404 |
Allowance for credits losses on loans |  |  | (16,102 | ) |  |  | 6,152 |  | c |  |  | — |  |  |  | — |  |  |  | (9,950 | )
Net loans |  |  | 629,449 |  |  |  | (6,995 | ) |  |  |  | — |  |  |  | — |  |  |  | 622,454 |
Premises and equipment, net |  |  | 28,784 |  |  |  | 4,009 |  | d |  |  | — |  |  |  | — |  |  |  | 32,793 |
Accrued interest receivable |  |  | 1,973 |  |  |  | — |  |  |  |  | — |  |  |  | — |  |  |  | 1,973 |
Goodwill |  |  | 5,412 |  |  |  | (5,412 | ) | e |  |  | — |  |  |  | — |  |  |  | — |
Core deposit intangible |  |  | — |  |  |  | 12,724 |  | f |  |  | — |  |  |  | — |  |  |  | 12,724 |
Customer list intangibles |  |  | — |  |  |  | 14,360 |  | g |  |  | — |  |  |  | — |  |  |  | 14,360 |
Mortgage servicing rights |  |  | 9,387 |  |  |  | 3,289 |  | h |  |  | — |  |  |  | — |  |  |  | 12,676 |
Deferred income taxes, net |  |  | — |  |  |  | (3,727 | ) | i |  |  | — |  |  |  | — |  |  |  | (3,727 | )
Other assets |  |  | 9,389 |  |  |  | (1,065 | ) | j |  |  | — |  |  |  | — |  |  |  | 8,324 |
Total assets acquired |  | $ | 1,320,048 |  |  | $ | 16,767 |  |  |  | $ | - |  |  | $ | - |  |  | $ | 1,336,815 |
Liabilities assumed: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-interest bearing |  | $ | 302,098 |  |  | $ | — |  |  |  | $ | — |  |  | $ | — |  |  | $ | 302,098 |
Interest bearing |  |  | 818,334 |  |  |  | 371 |  | k |  |  | — |  |  |  | — |  |  |  | 818,705 |
Total deposits |  |  | 1,120,432 |  |  |  | 371 |  |  |  |  | — |  |  |  | — |  |  |  | 1,120,803 |
SSUAR |  |  | 66,220 |  |  |  | — |  |  |  |  | — |  |  |  | — |  |  |  | 66,220 |
Subordinated debentures |  |  | 26,806 |  |  |  | (794 | ) | l |  |  | — |  |  |  | — |  |  |  | 26,012 |
Line of credit |  |  | 3,200 |  |  |  | — |  |  |  |  | — |  |  |  | — |  |  |  | 3,200 |
Accrued interest payable |  |  | 243 |  |  |  | — |  |  |  |  | — |  |  |  | — |  |  |  | 243 |
Other liabilities |  |  | 17,822 |  |  |  | 1,296 |  | m |  |  | — |  |  |  | — |  |  |  | 19,118 |
Total liabilities assumed |  |  | 1,234,723 |  |  |  | 873 |  |  |  |  | — |  |  |  | — |  |  |  | 1,235,596 |
Net assets acquired |  | $ | 85,325 |  |  | $ | 15,894 |  |  |  | $ | - |  |  | $ | - |  |  | $ | 101,219 |
Consideration for common stock |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 133,825 |
Cash consideration paid |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 30,994 |
Non-controlling interest of acquired entity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 3,094 |
Total consideration |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 167,913 |
Goodwill |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 66,694 |
(1) | See the following page for explanations of individual fair value/provisional period adjustments.
(2) | As of acquisition date, securities with a fair value of $162 million were classified by Bancorp as HTM.
Explanation of fair value/provisional period adjustments:
a. | Adjustment to investment securities based on Bancorp’s evaluation of the acquired portfolio.
b. | Adjustments to loans to reflect estimated fair value adjustments, including the following:
(in thousands) |  |  |  |
Fair value adjustment - acquired non PCD loans |  | $ | (9,216 | )
Fair value adjustment - acquired PCD loans |  |  | (4,094 | )
Eliminate unrecognized loan fees on acquired loans and fair value hedge |  |  | 163 |
Net loan fair value adjustments |  | $ | (13,147 | )
c. | The net adjustment to the ACL on loans includes the following:
(in thousands) |  |  |  |
Reversal of historical CB ACL for loans |  | $ | (16,102 | )
Estimate of lifetime credit losses for PCD loans |  |  | 9,950 |
Net change in ACL for loans |  | $ | (6,152 | )
d. | Adjustment to premises and equipment to reflect the estimated fair value of acquired premises and equipment and right of use assets.
e. | Elimination of the historical CB goodwill.
f. | Calculation of CDI related to the acquisition.
g. | Calculation of CLI related to the acquisition.
h. | Adjustment to reflect the estimated fair value of MSRs.
i. | Adjustment to net DTAs associated with the effects of the purchase accounting adjustments.
j. | Adjustment to other assets to reflect the estimated fair value of prepaid and other assets.
k. | Adjustment to deposits to reflect the estimated fair value of time deposits, which was based on an analysis of market interest rates and maturity dates at the time of acquisition.
l. | Adjustment to reflect the estimated fair value of subordinated debentures, which was based primarily on an analysis of market interest rates and maturity dates at the time of acquisition.
m. | Adjustment to other liabilities to establish the reserve for unfunded loan commitments under CECL, operating lease liabilities and various accrual adjustments.
Bancorp recorded initial goodwill of approximately $67 million and incurred merger related expenses totaling $19.5 million during the first quarter of 2022 as a result of the CB acquisition. As a result of Bancorp’s disposition of its partial interest in LFA, which resulted in a pre-tax loss of $870,000 recorded in other non-interest expense on the consolidated income statements for the fourth quarter of 2022, goodwill totaling $8.5 million was written off, bringing total goodwill related to the CB acquisition to $58 million as of December 31, 2022. This goodwill is attributable to the Company’s Commercial Banking and Wealth Management & Trust segments. Goodwill related to the CB acquisition is not deductible for tax purposes, as the transaction was structured as a stock sale. Loans acquired that were not subject to guidance relating to PCD loans include loans with a fair value and gross contractual amounts receivable of $540 million and $549 million at the date of acquisition. Total revenue, defined as net interest income and non-interest income, attributed to CB totaled approximately $38.6 million for the year ended December 31, 2022, respectively. The following unaudited pro forma condensed combined financial information presents the results of operations of Bancorp, including the effects of the purchase accounting adjustments and acquisition expenses, had the CB acquisition taken place at the beginning of the period.
(in thousands, except per share data) Year ended December 31, |  | 2022 |  |  | 2021 |
Net interest income |  | $ | 238,416 |  |  | $ | 218,376 |
Provision for credit losses (1) |  |  | 5,828 |  |  |  | (7,667 | )
Non-interest income |  |  | 92,089 |  |  |  | 123,530 |
Non-interest expense (2) |  |  | 182,783 |  |  |  | 200,941 |
Income before taxes |  |  | 141,894 |  |  |  | 148,632 |
Income tax expense |  |  | 32,212 |  |  |  | 31,443 |
Net income |  |  | 109,682 |  |  |  | 117,189 |
Less net income attributed to NCI |  |  | 337 |  |  |  | 362 |
Net income available to stockholders |  | $ | 109,345 |  |  | $ | 116,827 |
Earnings per share: |  |  |  |  |  |  |  |
Basic |  | $ | 3.75 |  |  | $ | 4.02 |
Diluted |  |  | 3.72 |  |  |  | 3.99 |
Basic weighted average shares outstanding |  |  | 29,122 |  |  |  | 29,037 |
Diluted weighted average shares outstanding |  |  | 29,386 |  |  |  | 29,295 |
(1) - Excludes $4.4 million in merger related credit loss expense for the year ended December 31, 2022. Excludes $7.4 million in merger related credit loss expense for the year ended December 31, 2021.
(2) - Excludes $24.1 million in pre-tax merger expenses for the year ended December 31, 2022. Excludes $18.5 million in pre-tax merger expenses for the year ended December 31, 2021.

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