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Note 3 - Acquisition | 9 Months Ended
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Sep. 30, 2020
Notes to Financial Statements |
Business Combination Disclosure [Text Block] | NOTE 3 – ACQUISITION PGB Holdings, Inc. Acquisition: On January 10, 2020, the Company acquired all the assets and assumed all the liabilities of PGBH and its wholly owned bank subsidiary, in exchange for cash of $32.9 million. PGBH operated three branches in the Chicago, Illinois metropolitan area. The Company acquired PGBH to strategically establish a presence in the Chicago area. Goodwill in the amount of $10.7 million was recognized in this acquisition. Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the two entities. Goodwill is not deductible for income tax purposes. The following table represents the assets acquired and liabilities assumed of PGBH as of January 10, 2020 and the fair value adjustments and amounts recorded by the Company in 2020 under the acquisition method of accounting:
|  | PGBH |  |  | Fair Value |  |  | Fair |
(dollars in thousands) |  | Book Value |  |  | Adjustments |  |  | Value |
Assets acquired |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 17,033 |  |  | $ | — |  |  | $ | 17,033 |
Fed funds sold |  |  | 8,300 |  |  |  | — |  |  |  | 8,300 |
Interest-bearing deposits in other financial Institutions |  |  | 14,186 |  |  |  | — |  |  |  | 14,186 |
Investments - held to maturity |  |  | — |  |  |  | — |  |  |  | — |
Investments - available for sale |  |  | — |  |  |  | — |  |  |  | — |
Mortgage loans held for sale |  |  | — |  |  |  | — |  |  |  | — |
Loans, gross |  |  | 172,443 |  |  |  | 666 |  |  |  | 173,109 |
Allowance for loan losses |  |  | (2,265 | ) |  |  | 2,265 |  |  |  | — |
Bank premises and equipment |  |  | 6,394 |  |  |  | 1,639 |  |  |  | 8,033 |
Mortgage servicing rights |  |  | — |  |  |  | — |  |  |  | — |
Core deposit premium |  |  | — |  |  |  | 491 |  |  |  | 491 |
Investment in trust |  |  | 155 |  |  |  | — |  |  |  | 155 |
Other assets |  |  | 1,687 |  |  |  | (194 | ) |  |  | 1,493 |
Total assets acquired |  | $ | 217,933 |  |  | $ | 4,867 |  |  | $ | 222,800 |
Liabilities assumed |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 187,393 |  |  | $ | 969 |  |  | $ | 188,362 |
Escrow Payable |  |  | 4,277 |  |  |  | — |  |  |  | 4,277 |
Subordinated debentures |  |  | 5,155 |  |  |  | (763 | ) |  |  | 4,392 |
Deferred income taxes |  |  | 1,016 |  |  |  | 1,721 |  |  |  | 2,737 |
Other liabilities |  |  | 1,211 |  |  |  | (384 | ) |  |  | 827 |
Total liabilities assumed |  |  | 199,052 |  |  |  | 1,543 |  |  |  | 200,595 |
Excess of assets acquired over liabilities assumed |  |  | 18,881 |  |  |  | 3,324 |  |  |  | 22,205 |
|  | $ | 217,933 |  |  | $ | 4,867 |  |  |  |  |
Cash paid |  |  |  |  |  |  |  |  |  |  | 32,885 |
Goodwill recognized |  |  |  |  |  |  |  |  |  | $ | 10,680 |
The fair values are estimates and are subject to adjustment for up to one year after the merger date. The Company accounted for these transactions under the acquisition method of accounting in accordance with ASC 805, Business Combinations, which requires purchased assets and liabilities assumed to be recorded at their respective fair values at the date of acquisition. The loan portfolio of PGBH was recorded at fair value at the date of acquisition with the assistance of a third-party valuation. A valuation of PGBH’s loan portfolio was performed as of the acquisition date to assess the fair value of the loan portfolio. The loan portfolio was segmented into two groups; loans with credit deterioration and loans without credit deterioration, and then split further by loan type. The fair value was calculated on an individual loan basis using a discounted cash flow analysis. The discount rate utilized was based on a weighted average cost of capital, considering the cost of equity and cost of debt. Also factored into the fair value estimates were loss rates, recovery period and prepayment rates based on industry standards. The Company also determined the fair value of the core deposit intangible, securities and deposits with the assistance of third-party valuations. The core deposit intangible on non-maturing deposits was determined by evaluating the underlying characteristics of the deposit relationships, including customer attrition, deposit interest rates, service charge income, overhead expense and costs of alternative funding. Since the fair value of intangible assets are calculated as if they were stand-alone assets, the presumption is that a hypothetical buyer of the intangible asset would be able to take advantage of potential tax benefits resulting from the asset purchase. The value of the benefit is the present value over the period of the tax benefit, using the discount rate applicable to the asset. In determining the fair value of certificates of deposit, a discounted cash flow analysis was used, which involved present valuing the contractual payments over the remaining life of the certificates of deposit at market-based interest rates. For loans acquired from PGBH, the contractual amounts due, expected cash flows to be collected, interest component and fair value as of the respective acquisition dates were as follows:
|  | PGBH Acquired Loans |
Contractual amounts due |  | $ | 195,227 |
Cash flows not expected to be collected |  |  | 5,176 |
Expected cash flows |  |  | 190,051 |
Interest component of expected cash flows |  |  | 16,942 |
Fair value of acquired loans |  | $ | 173,109 |
The operating results of the Company for the nine months ended September 30, 2020 include the operating results of PGBH since its acquisition date. The following table presents the net interest and other income, net income and earnings per share as if the acquisition of PGBH was effective as of January 1, 2020. There were no material, nonrecurring adjustments to the pro forma net interest and other income, net income and earnings per share presented below:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2020 |  |  | September 30, 2019 |  |  | September 30, 2020 |  |  | September 30, 2019 |
Net interest and other income |  | $ | 29,978 |  |  | $ | 28,715 |  |  | $ | 85,662 |  |  | $ | 92,856 |
Net income |  |  | 8,520 |  |  |  | 8,531 |  |  |  | 20,615 |  |  |  | 30,432 |
Basic earnings per share |  |  | 0.43 |  |  |  | 0.43 |  |  |  | 1.04 |  |  |  | 1.52 |
Diluted earnings per share |  |  | 0.43 |  |  |  | 0.42 |  |  |  | 1.03 |  |  |  | 1.49 |
Third-party acquisition related expenses are recognized as incurred and continue until the acquired system is converted and operational functions become fully integrated. The Company incurred third-party acquisition related expenses in the consolidated statements of income for the periods indicated in the Statements of Income in the expense item “Merger and conversion expenses”.

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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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