XML 22 R11.htm IDEA: XBRL DOCUMENT

Business Combination

9 Months Ended

Sep. 30, 2020

NOTE 3 – BUSINESS COMBINATION

Effective June 5, 2020, the Company acquired Edon Bancorp and its subsidiary, The Edon State Bank Company of Edon, Ohio. Edon Bancorp was headquartered in Edon, Ohio and had one retail banking office. The Edon State Bank was merged with and into State Bank, with State Bank surviving. Under the terms of the merger agreement, shareholders of Edon received fixed consideration of $103.50 in cash for each share of Edon common stock for total consideration of $15.5 million. The Company accounted for the transaction under the acquisition method of accounting, which means that the acquired assets and liabilities were recorded at fair value at the date of acquisition.

In accordance with ASC 805, the Company expensed approximately $1.2 million of direct acquisition costs during the three months ended June 30, 2020, and no additional merger expense was recorded in the three months ended September 30, 2020. The $1.2 million in merger expense is split between data processing and professional fees expense. As a result of the acquisition, the Company recorded $4.3 million of goodwill and $0.7 million of intangible assets in the second quarter of 2020. The Company was able to increase both its deposit and loan base and acquire new households in a new market. It is expected that this transaction will result in business synergies and economies of scale. The acquisition was consistent with the Company’s strategy to expand its presence in Northwest Ohio and to increase profitability by introducing existing products and services to the acquired customer base. The intangible assets are related to core deposits, which are being amortized over 10 years on a straight-line basis. For tax purposes, goodwill is non-deductible but will be evaluated annually for impairment.

The following table summarizes the fair value of the total consideration transferred as part of the acquisition as well as the fair value of identifiable assets and liabilities assumed as of the effective date of the transaction based on assumptions that are subject to change as management continues to evaluate relevant information as it becomes available. If, prior to the end of the one-year measurement period for finalizing the purchase price allocation, relevant information becomes available which would indicate adjustments are required to the purchase price allocation, such adjustments will be recorded in the reporting period in which the adjustment amounts are determined. Potential adjustments, if any, will be related to assets that may have changes to valuation amounts that were not readily determinable at acquisition date.

The contractual principal of loans at the acquisition date was $16.3 million and the estimate of the contractual cash flows not expected to be collected is $0.4 million.

Fair value of assets acquired

Cash and cash equivalents	$	31,756
Interest bearing time deposits		11,542
Investment securities		1,362
Federal Home Loan Bank stock		117
Loans held for investment		16,395
Premises and equipment		446
Goodwill		4,325
Core deposit intangible		660
Other assets		192
Total assets acquired	$	66,795

Fair value of liabilities assumed

Deposits	$	51,053
Other liabilities		223
Total liabilities assumed		51,276
Total purchase price (cash)	$	15,519

Pro Forma Financial Information

The results of operations of Edon Bancorp have been included in the Company’s consolidated financial statements since the acquisition date of June 5, 2020. The following schedule includes the pro forma results for the three and nine months ended September 30, 2020 and 2019, as if the Edon acquisition had occurred as of the beginning of the reporting periods presented. The acquisition added less than $0.1 million in revenue and earnings to the Company for the three months and nine months ended September 30, 2020.

	Three Months Ended
Summary of Operations ($ in thousands)	Sep. 2020		Sep. 2019

Net interest income	$	9,259	$	9,424
Provision for loan losses		1,800		306

Net interest income after provision	$	7,459	$	9,118

Non interest income		10,418		5,394
Non interest expense		11,335		9,776

Income before income taxes	$	6,542	$	4,736
Income tax expense*		1,292		886

Net income	$	5,250	$	3,850
Preferred share dividends		-		233

Net income to common shareholders	$	5,250	$	3,617

Basic earnings per share	$	0.69	$	0.57
Diluted earnngs per share	$	0.69	$	0.49

Income tax expense for Edon calculated using a 21% statuatory rate

	Nine Months Ended
Summary of Operations ($ in thousands)	Sep. 2020		Sep. 2019

Net interest income	$	27,178	$	27,340
Provision for loan losses		3,700		506

Net interest income after provision	$	23,478	$	26,834

Non interest income		21,238		12,145
Non interest expense		33,474		28,043

Income before income taxes	$	11,242	$	10,936
Income tax expense*		2,073		2,018

Net income	$	9,169	$	8,918
Preferred share dividends		-		487

Net income to common shareholders	$	9,169	$	8,431

Basic earnings per share	$	1.19	$	1.31
Diluted earnngs per share	$	1.19	$	1.12

Income tax expense for Edon calculated using a 21% statuatory rate