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Business Combinations | 6 Months Ended
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Jun. 30, 2024
Business Combinations [Abstract] |
Business Combinations | Note 8 – Business Combinations Blackhawk Bancorp, Inc. On August 15, 2023, the Company completed its acquisition of Blackhawk Bancorp, Inc. (“Blackhawk”) pursuant to an Agreement and Plan of Merger Agreement, dated March 20, 2023 (the “Agreement”). Pursuant to the Agreement, Blackhawk was merged with and into the Company. Blackhawk shareholders received 1.15 shares of the Company's common stock for each share of Blackhawk common stock. The Company accounted for the Blackhawk acquisition as a business combination using the acquisition method of accounting in accordance with ASC 805, Business Combinations (“ASC 805”). ASC 805 requires assets purchased and liabilities assumed to be recorded at their respective fair values at the date of acquisition. The Company determined the fair value of loans, core deposit intangibles, mortgage servicing rights, time deposits, real property, and subordinated debt with the assistance of third-party valuations and appraisals. A preliminary summary of the fair value of assets received and liabilities assumed are as follows:
(In thousands) |  |  |
Assets |  |  |
Cash and due from banks |  | $ | 55,600 |
Loans held for sale |  |  | 3,222 |
Loans, net |  |  | 722,866 |
Investments-available for sale |  |  | 377,969 |
Short-term investments |  |  | 869 |
FHLB stock |  |  | 1,737 |
Premises and equipment |  |  | 12,366 |
Accrued interest receivable |  |  | 4,029 |
Prepaid expenses |  |  | 1,182 |
Other assets |  |  | 20,742 |
Core deposit intangible |  |  | 34,590 |
Income tax receivable |  |  | 2,077 |
Deferred tax asset |  |  | 22,152 |
Mortgage servicing rights |  |  | 7,031 |
Total assets acquired |  | $ | 1,266,432 |
Liabilities |  |  |
Deposits |  | $ | 1,194,972 |
Subordinated and Junior Subordinated debt |  |  | 16,448 |
Accrued interest payable |  |  | 1,091 |
Accrued and other liabilities |  |  | 10,508 |
Total liabilities assumed |  |  | 1,223,019 |
Net assets acquired |  | $ | 43,413 |
Total consideration |  | $ | 93,510 |
Goodwill |  | $ | 50,097 |
The following table presents a summary of consideration transferred:
(In thousands, except shares) |  |  |
Common stock issued (3,290,222 shares) |  | $ | 93,508 |
Cash consideration |  |  | 2 |
Purchase price |  | $ | 93,510 |
The Company recorded $50.1 million of goodwill in connection with the acquisition of Blackhawk, none of which is deductible for tax purposes. The amount of goodwill recorded reflects the synergies and operational efficiencies that are expected to result from the acquisition. The descriptions below describe the methods used to determine the fair value of significant assets acquired and liabilities assumed, as presented above: Loans, net. The fair value of the loan portfolio was calculated on an individual loan basis using a discounted cash flow analysis, with results presented and assumptions applied on a summary basis. This analysis took into consideration the contractual terms of the loans and assumptions related to the cost of debt, cost of equity, servicing cost and other liquidity/risk premium considerations to estimate the projected cash flows. The inputs and assumptions used in the fair value estimate of the loan portfolio include credit mark, discount rate, prepayment speed, and foreclosure lag. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. Core deposit intangible. The Company identified customer relationships, in the form of core deposit intangibles, as an identified intangible asset. Core deposit intangibles derive value from the expected future benefits or earnings capacity attributable to the acquired core deposits. The fair value of the core deposit intangible was estimated by identifying the expected future benefits of the core deposits and discounting those benefits back to present value. The core deposit intangible will be amortized over its estimated useful life of approximately 10 years using the sum of the months digits accelerated method. Mortgage servicing rights. The Company identified residential mortgage servicing rights intangible asset and determined the fair value using a discounted cash flow analysis. The key inputs and assumptions used in the fair value estimate include prepayment assumptions, servicing costs, delinquencies, foreclosure costs, ancillary income, income earned on float & escrow, interest on escrow, internal rate of return and inflation. Deposits. The fair value of demand deposit and interest checking deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. The fair value of time deposits was estimated by discounting the contractual future cash flows using market rates offered for time deposits of similar remaining maturities. Subordinated and Junior Subordinated debt. The Subordinated and Junior Subordinated debt was fair valued using an income approach. Cash flows were calculated using an annualized contractual rate adjusted for forward interest costs and discounted using a variable discount rate. Accounting for acquired loans. Loans acquired are recorded at fair value with no carryover of the related allowance for credit losses. Purchased-credit deteriorated loans (“PCD”) are loans that have experienced more than insignificant credit deterioration since origination and are recorded at the purchase price. The allowance for credit losses is determined at the loan level. The sum of the loan’s purchase price and the allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Non-PCD loans have not experienced a more than insignificant deterioration in credit quality since origination. The difference between the fair value and outstanding balance of the non-PCD loans is recognized as an adjustment to interest income over the lives of the loan. In accordance with ASC 326, Financial Instruments – Credit Losses, immediately following the acquisition the Company established a $3.8 million allowance for credit losses on the $618.33 million of acquired non-PCD loans through provision for credit losses in the consolidated statement of operations. The following table provides a summary of PCD loans purchased as part of the Blackhawk acquisition as of the acquisition date:
(In thousands) |  |  |
Unpaid principal balance |  | $ | 115,250 |
PCD allowance for credit losses at acquisition |  |  | (3,791 | )
Non-credit discount on acquired loans |  |  | (5,476 | )
Fair value of PCD loans |  | $ | 105,983 |
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 Blackhawk Merger taken place at the beginning of the period (dollars in thousands, except per share data):
|  | Three months ended |  |  | Six months ended |
|  | June 30, |  |  | June 30, |
|  | 2023 |  |  | 2023 |
Net interest income |  | $ | 42,367 |  |  | $ | 56,502 |
Provision for credit losses |  |  | 458 |  |  |  | 924 |
Non-interest income |  |  | 19,486 |  |  |  | 23,024 |
Non-interest expense |  |  | 40,042 |  |  |  | 53,785 |
Income before taxes |  |  | 21,353 |  |  |  | 24,817 |
Income tax expense |  |  | 4,786 |  |  |  | 5,641 |
Net income |  | $ | 16,567 |  |  | $ | 19,176 |
Earnings per share |  |  |  |  |  |
Basic |  | $ | 0.81 |  |  | $ | 0.81 |
Diluted |  | $ | 0.80 |  |  | $ | 0.80 |
Basic weighted average shares o/s |  |  | 20,528,717 |  |  |  | 23,818,939 |
Diluted weighted average shares o/s |  |  | 20,628,239 |  |  |  | 23,918,461 |
Acquisition costs are expensed as incurred as a component of non-interest expense and primarily include, but are not limited to, severance costs, professional services, data processing fees, and marketing and advertising expenses. The Company incurred acquisition costs related to the Blackhawk acquisition, pre-tax, of $2.38 million and $561,000, respectively, during the six months ended June 30, 2024 and June 30, 2023 and $175,000 and $468,000, respectively, during the three months ended June 30, 2024 and June 30, 2023.

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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://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/805/tableOfContent + Details
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