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Business Combinations | 3 Months Ended
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Mar. 31, 2022
Business Combinations [Abstract] |
Business Combinations | Note 8 – Business Combinations On July 28, 2021, the Company and Brock Sub LLC, a newly formed Delaware limited liability company and wholly-owned subsidiary of the Company (“Delta Merger Sub”), entered into an Agreement and Plan of Merger (the “Delta Merger Agreement”) with Delta Bancshares Company, a Missouri corporation (“Delta”), pursuant to which, among other things, the Company agreed to acquire 100% of the issued and outstanding shares of Delta pursuant to a business combination whereby Delta merged with and into Delta Merger Sub, whereupon the separate corporate existence of Delta ceased and Delta Merger Sub continued as the surviving company and a wholly-owned subsidiary of First Mid (the “Delta Merger”). The Delta Merger was completed on February 14, 2022. 35 Subject to the terms and conditions of the Delta Merger Agreement, at the effective time of the Delta Merger, each share of common stock, par value $10.00 per share, of Delta issued and outstanding immediately prior to the effective time of the Delta Merger (other than shares held in treasury by Delta) converted into and became the right to receive cash and shares of common stock, par value $4.00 per share, of the Company and cash in lieu of fractional shares, less any applicable taxes required to be withheld, and subject to certain potential adjustments. On an aggregate basis, the total consideration paid by the Company at the closing of the Delta Merger to Delta’s shareholders and option holders was approximately $15.15 million in cash and 2,292,270 shares of Company common stock. Delta’s outstanding stock options vested upon consummation of the Delta Merger, and all outstanding Delta options that were unexercised prior to the effective time of the Delta Merger were cashed out. The acquisition was accounted for under the acquisition method of accounting in accordance with ASC 805, “Business Combinations ("ASC 805"),” and accordingly the assets and liabilities were recorded at their estimated fair values as of the date of acquisition. Fair values are subject to refinement for up to one year after the closing date of February 14, 2022 as additional information regarding the closing date fair values become available. The total consideration paid was used to determine the amount of goodwill resulting from the transaction. As the total consideration paid exceeded the net assets acquired, goodwill of $28.6 million was recorded for the acquisition. Goodwill recorded in the transaction, which reflects the synergies and economies of scale expected from combining operations and the enhanced revenue opportunities from the Company’s service capabilities, is not tax deductible, and was all assigned to the banking segment of the Company.
|  | Acquired |  |  | Fair Value |  |  | As Recorded by |
(In thousands) |  | Book Value |  |  | Adjustments |  |  | Jefferson Bank |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 82,473 |  |  | $ | — |  |  | $ | 82,473 |
Investment securities |  |  | 184,959 |  |  |  | (2,836 | ) |  |  | 182,123 |
Loans |  |  | 426,433 |  |  |  | (7,924 | ) |  |  | 418,509 |
Allowance for credit losses |  |  | (5,388 | ) |  |  | 4,525 |  |  |  | (863 | )
Premises and equipment |  |  | 5,522 |  |  |  | 3,508 |  |  |  | 9,030 |
Goodwill |  |  | 14 |  |  |  | 28,597 |  |  |  | 28,611 |
Core deposit intangible |  |  | — |  |  |  | 5,920 |  |  |  | 5,920 |
Bank owned life insurance |  |  | 15,822 |  |  |  |  |  |  |  | 15,822 |
Right of use asset |  |  | — |  |  |  | 717 |  |  |  | 717 |
Other assets |  |  | 9,061 |  |  |  | (1,340 | ) |  |  | 7,721 |
Total assets acquired |  | $ | 718,896 |  |  | $ | 31,167 |  |  | $ | 750,063 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 558,619 |  |  | $ | 1,759 |  |  | $ | 560,378 |
Securities sold under agreements to repurchase |  |  | 35,523 |  |  |  | — |  |  |  | 35,523 |
FHLB advances |  |  | 45,000 |  |  |  | 75 |  |  |  | 45,075 |
Lease liability |  |  | — |  |  |  | 717 |  |  |  | 717 |
Other liabilities |  |  | 2,209 |  |  |  | (1,161 | ) |  |  | 1,048 |
Total liabilities assumed |  |  | 641,351 |  |  |  | 1,390 |  |  |  | 642,741 |
Net assets acquired |  | $ | 77,545 |  |  | $ | 29,777 |  |  | $ | 107,322 |
Consideration paid |  |  |  |  |  |  |  |  |  |  |  |
Cash |  |  |  |  |  |  |  |  |  | $ | 15,150 |
Common stock |  |  |  |  |  |  |  |  |  |  | 92,172 |
|  |  |  |  |  |  |  |  |  | $ | 107,322 |
The Company has recognized approximately $785,000, pre-tax, of acquisition costs for the Delta Merger. Of this amount, $535,000 was recognized during 2022. These costs are included in salaries and benefits, legal and professional and other expense. Of the $7.9 million adjustment to loans, $8.2 million is being accreted to interest income over the remaining term of the loans. The remaining $300,000 was the elimination of deferred fees and unearned discounts previously recorded by Jefferson Bank. The Company also recorded approximately $863,000 directly to the allowance for credit losses for loans identified as PCD. Of the $426 million of loans acquired, approximately $18.8 million was identified as PCD. The differences between fair value and acquired value of the assumed time deposits of $1.8 million and the assumed FHLB advances of $75,000, are being amortized to interest expense over the remaining life of the liabilities. The core deposit intangible asset, with a fair value of $5.9 million, is being amortized on an accelerated basis over its estimated life of 10 years. 36 The following unaudited pro forma condensed combined financial information presents the results of operations of the Company, including the effects of the purchase accounting adjustments and acquisition expenses, had the Delta Merger taken place at the beginning of the period (dollars in thousands, except per share data):
|  | Three months ended March 31, |
|  | 2022 |  |  | 2021 |
Net interest income |  | $ | 44,200 |  |  | $ | 40,966 |
Provision for loan losses |  |  | 2,952 |  |  |  | 14,136 |
Non-interest income |  |  | 21,088 |  |  |  | 18,528 |
Non-interest expense |  |  | 40,575 |  |  |  | 39,653 |
Income before taxes |  |  | 21,761 |  |  |  | 5,705 |
Income tax expense (benefit) |  |  | 4,797 |  |  |  | 887 |
Net income (loss) |  | $ | 16,964 |  |  | $ | 4,818 |
Earnings per share |  |  |  |  |  |  |  |
Basic |  | $ | 0.88 |  |  | $ | 0.28 |
Diluted |  |  | 0.88 |  |  |  | 0.28 |
Basic weighted average shares o/s |  |  | 19,295,860 |  |  |  | 17,299,927 |
Diluted weighted average shares o/s |  |  | 19,358,457 |  |  |  | 17,352,947 |
On September 25, 2020, the Company and Eval Sub Inc., a newly formed Illinois corporation and wholly-owned subsidiary of the Company ("Eval Merger Sub"), entered into an Agreement and Plan of Merger (the "LINCO Merger Agreement") with LINCO Bancshares, Inc., a Missouri corporation ("LINCO"), and the sellers as defined therein, pursuant to which, among other things, the Company agreed to acquire 100% of the issued and outstanding shares of LINCO pursuant to a business combination whereby Eval Merger Sub merged with and into LINCO, whereupon the separate corporate existence of Merger Sub ceased and LINCO continued as the surviving company and a wholly-owned subsidiary of the Company (the "LINCO Merger"). The LINCO Merger closed on February 22, 2021. Subject to the terms and conditions of the LINCO Merger Agreement, at the effective time of the LINCO Merger, each share of common stock, par value $1.00 per share, of LINCO issued and outstanding immediately prior to the effective time of the LINCO Merger (other than shares held in treasury by LINCO) was converted into and become the right to receive, cash or shares of common stock, par value $4.00 per share, of the Company and cash in lieu of fractional shares, less any applicable taxes required to be withheld, and subject to certain potential adjustments. On an aggregate basis, the total consideration paid by the Company at the closing of the LINCO Merger was $103.5 million in cash and 1,262,246 shares of the Company’s common stock. In addition, immediately prior to the closing of the proposed merger, LINCO paid a special dividend to its shareholders in the aggregate amount of $13 million. The acquisition was accounted for under the acquisition method of accounting in accordance with ASC 805, “Business Combinations ("ASC 805"),” and accordingly the assets and liabilities were recorded at their estimated fair values as of the date of acquisition. Fair values are subject to refinement for up to one year after the closing date of February 22, 2021 as additional information regarding the closing date fair values become available. The total consideration paid was used to determine the amount of goodwill resulting from the transaction. As the total consideration paid exceeded the net assets acquired, goodwill of $5.4 million was recorded for the acquisition. Goodwill recorded in the transaction, which reflects the synergies and economies of scale expected from combining operations and the enhanced revenue opportunities from the Company’s service capabilities, is not tax deductible, and was all assigned to the banking segment of the Company. 37
|  | Acquired |  |  | Fair Value |  |  | As Recorded by |
(In thousands) |  | Book Value |  |  | Adjustments |  |  | Providence Bank |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks |  | $ | 130,561 |  |  | $ | — |  |  | $ | 130,561 |
Investment securities |  |  | 119,234 |  |  |  | 264 |  |  |  | 119,498 |
Loans |  |  | 838,377 |  |  |  | (9,401 | ) |  |  | 828,976 |
Allowance for credit losses |  |  | (8,656 | ) |  |  | 6,583 |  |  |  | (2,073 | )
Other real estate owned |  |  | 8,435 |  |  |  | 915 |  |  |  | 9,350 |
Premises and equipment |  |  | 23,440 |  |  |  | 6,360 |  |  |  | 29,800 |
Goodwill |  |  | 20,503 |  |  |  | (15,054 | ) |  |  | 5,449 |
Core deposit intangible |  |  | 123 |  |  |  | 2,025 |  |  |  | 2,148 |
Right of use asset |  |  | — |  |  |  | 794 |  |  |  | 794 |
Other assets |  |  | 43,697 |  |  |  | 2,499 |  |  |  | 46,196 |
Total assets acquired |  | $ | 1,175,714 |  |  | $ | (5,015 | ) |  | $ | 1,170,699 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 988,329 |  |  | $ | 2,081 |  |  | $ | 990,410 |
Securities sold under agreements to repurchase |  |  | — |  |  |  | — |  |  |  | — |
FHLB advances |  |  | 26,941 |  |  |  | 975 |  |  |  | 27,916 |
Other borrowings |  |  | — |  |  |  | — |  |  |  | — |
Lease liability |  |  | — |  |  |  | 794 |  |  |  | 794 |
Other liabilities |  |  | 4,498 |  |  |  | (610 | ) |  |  | 3,888 |
Total liabilities assumed |  |  | 1,019,768 |  |  |  | 3,240 |  |  |  | 1,023,008 |
Net assets acquired |  | $ | 155,946 |  |  | $ | (8,255 | ) |  | $ | 147,691 |
Consideration paid |  |  |  |  |  |  |  |  |  |  |  |
Cash |  |  |  |  |  |  |  |  |  | $ | 103,500 |
Common stock |  |  |  |  |  |  |  |  |  |  | 44,191 |
|  |  |  |  |  |  |  |  |  | $ | 147,691 |
38 The Company has recognized approximately $9 million, pre-tax, of acquisition costs for the LINCO acquisition. Of this amount, $8.5 million was recognized during the first three months of 2021. These costs are included in salaries and benefits, legal and professional and other expense. Of the $9.4 million adjustment to loans, $11.1 million is being accreted to interest income over the remaining term of the loans. The remaining $1.7 million was the elimination of deferred fees and unearned discounts previously recorded by Providence Bank. The Company also recorded approximately $2 million directly to the allowance for credit losses for loans identified as PCD. Of the $838 million of loans acquired, approximately $64.6 million was identified as PCD. The differences between fair value and acquired value of the assumed time deposits of $2.1 million and the assumed FHLB advances of $975,000, are being amortized to interest expense over the remaining life of the liabilities. The core deposit intangible asset, with a fair value of $2.1 million, is being amortized on an accelerated basis over its estimated life of 10 years. The following unaudited pro forma condensed combined financial information presents the results of operations of the Company, including the effects of the purchase accounting adjustments and acquisition expenses, had the LINCO acquisition taken place at the beginning of the period (dollars in thousands, except per share data):
|  |  |  | Three months ended |
|  |  |  | March 31, 2021 |
Net interest income |  |  |  | $ | 38,237 |
Provision for loan losses |  |  |  |  | 12,136 |
Non-interest income |  |  |  |  | 17,749 |
Non-interest expense |  |  |  |  | 37,659 |
Income before taxes |  |  |  |  | 6,191 |
Income tax expense (benefit) |  |  |  |  | 1,078 |
Net income (loss) |  |  |  | $ | 5,113 |
Earnings per share |  |  |  |  |  |
Basic |  |  |  | $ | 0.30 |
Diluted |  |  |  |  | 0.29 |
Basic weighted average shares o/s |  |  |  |  | 17,299,927 |
Diluted weighted average shares o/s |  |  |  |  | 17,352,947 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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