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Business Combinations Business Combinations | 9 Months Ended
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Jun. 30, 2020
Business Combinations [Abstract] |
Business Combinations | BUSINESS COMBINATION On October 1, 2018, the Company completed the South Sound Acquisition. The primary reason for the acquisition was to expand the Company's presence along Washington State's economically important I-5 corridor. Pursuant to the terms of the merger agreement, South Sound Bank shareholders received 0.746 of a share the Company's common stock and $5.68825 in cash per share of South Sound Bank common stock. The Company issued 904,826 shares of its common stock (valued at $28.27 million based on the Company's closing stock price on September 30, 2018 of $31.24 per share) and paid $6.90 million in cash in the transaction for total consideration paid of $35.17 million. The South Sound Acquisition constitutes a business combination as defined by GAAP, which establishes principles and requirements for how the acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired and liabilities assumed. The Company was considered the acquirer in this transaction. Accordingly, the estimates of fair values of the acquired assets, including the identifiable intangible assets, and the assumed liabilities in the South Sound Acquisition were measured and recorded as of October 1, 2018. The excess of the total consideration paid over the fair value of the net assets acquired was allocated to goodwill. The South Sound Acquisition resulted in $9.48 million of goodwill. The goodwill arising from the transaction consists largely of the synergies and expected economies of scale from combining the operations of the Company and South Sound Bank. This goodwill is not deductible for tax purposes. In most instances, determining the estimated fair values of the acquired assets and assumed liabilities requires the Company to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at the appropriate rate of interest. Differences may arise between contractually required payments and the expected cash flows at the acquisition date due to items such as estimated credit losses, prepayments or early withdrawal, and other factors. One of the most significant of those determinations relates to the valuation of acquired loans. For such loans, the excess of cash flows expected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans. In accordance with GAAP, there was no carry-over of South Sound Bank's previously established allowance for loan losses. The following table summarizes the fair value of consideration paid, the estimated fair values of assets acquired and liabilities assumed as of the acquisition date, and the resulting goodwill relating to the transaction:
| At October 1, 2018 |  |  |  |
| Book Value |  | Fair Value Adjustment |  | Estimated Fair Value
| (Dollars in thousands) |  |  |  |
Total acquisition consideration |  |  |  |  | $ | 35,170 |
Recognized amounts of identifiable assets acquired and liabilities assumed |  |  |  |  |
Identifiable assets acquired: |  |  |  |  |
Cash and cash equivalents | $ | 21,187 |  |  | $ | — |  |  | 21,187 |
CDs held for investment | 2,973 |  |  | — |  |  | 2,973 |
FHLB stock | 205 |  |  | — |  |  | 205 |
Investment securities held to maturity | 19,891 |  |  | (189) |  |  | 19,702 |
Investment securities available for sale | 5,022 |  |  | — |  |  | 5,022 |
Loans receivable | 123,627 |  |  | (2,083) |  |  | 121,544 |
Premises and equipment | 3,225 |  |  | 112 |  |  | 3,337 |
OREO | 25 |  |  | — |  |  | 25 |
Accrued interest receivable | 554 |  |  | — |  |  | 554 |
BOLI | 2,629 |  |  | — |  |  | 2,629 |
CDI | — |  |  | 2,483 |  |  | 2,483 |
Servicing rights | 285 |  |  | (4) |  |  | 281 |
Other assets | 1,087 |  |  | (511) |  |  | 576 |
Total assets | 180,710 |  |  | (192) |  |  | 180,518 |
Liabilities assumed: |  |  |  |  |
Deposits | 151,378 |  |  | 160 |  |  | 151,538 |
Other liabilities and accrued expenses | 3,291 |  |  | — |  |  | 3,291 |
Total liabilities assumed | 154,669 |  |  | 160 |  |  | 154,829 |
Total identifiable net assets acquired | $ | 26,041 |  |  | $ | (352) |  |  | 25,689 |
Goodwill recognized |  |  |  |  | $ | 9,481 |
The acquired loan portfolio was valued using Level 3 inputs (see Note 10) and included the use of present value techniques, including cash flow estimates and incorporated assumptions that the Company believes marketplace participants would use in estimating fair values. Credit discounts were included in the determination of the fair value of the loans acquired; therefore, an allowance for loan losses was not recorded at the acquisition date. Acquired loans are evaluated upon acquisition and classified as either purchased credit-impaired ("PCI") or purchased non-credit-impaired. PCI loans reflect credit deterioration since origination such that it is probable at acquisition that the Company will be unable to collect all contractually required payments. The Company determined that PCI loans acquired in the South Sound Acquisition were insignificant. For purchased non-credit-impaired loans, the difference between the fair value and unpaid principal balance of the loan at the acquisition date is amortized or accreted to interest income over the life of the loans. Any subsequent deterioration in credit quality is recognized by recording an allowance for loan losses. CDI represents the future economic benefit of the potential cost savings from acquiring core deposits as part of a business combination compared to the cost of alternative funding sources. CDI is amortized to non-interest expense using an accelerated method based on an estimated runoff of related deposits over a period of ten years. CDI is evaluated for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable, with any changes in estimated useful life accounted for prospectively over the revised remaining life. The operating results of the Company for the three and nine months ended June 30, 2020 and 2019 include the operating results produced by the net assets acquired in the South Sound Acquisition since the October 1, 2018 acquisition date. The Company determined that the disclosure requirements related to the amounts of revenues and earnings from the net assets acquired in the South Sound Acquisition since the October 1, 2018 acquisition date is impracticable. The financial activity and operating results of the net assets acquired in the South Sound Acquisition were commingled with the Company's financial activity and operating results as of the acquisition date. During the nine months ended June 30, 2020, the Company incurred acquisition-related expenses of $69,000 related to the South Sound Acquisition, of which $67,000 is included in the data processing and telecommunications expense category and $2,000 is included in the professional fees expense category in the accompanying consolidated statement of income. During the nine months ended June 30, 2019, the Company incurred acquisition-related expenses of $447,000 related to the South Sound Acquisition, which are included in the professional fees expense category in the accompanying consolidated statement of income.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: 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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