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Business Combination

12 Months Ended

Dec. 31, 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 twelve months ended December 31, 2020. The $1.2 million in merger expense was 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 the acquisition date.

The contractual principal of loans at the acquisition date was $16.8 million and the estimate of the contractual cash flows not expected to be collected is $0.4 million.

($ in thousands)	June 5, 2020
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		4,299
Core deposit intangible		660
Other assets		192
Total assets acquired	$	66,769

Fair value of liabilities assumed

Deposits	$	51,053
Other liabilities		223
Total liabilities assumed		51,276
Total purchase price (cash)	$	15,493

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 twelve months ended December 31, 2020 and 2019, as if the Edon acquisition had occurred as of the beginning of the reporting periods presented. The acquisition’s impact was immaterial to the Company’s operating performance for the twelve months ended December 31, 2020.

	Twelve Months Ended December 31
Summary of Operations ($ in thousands)	2020		2019

Net interest income	$	36,429	$	36,307
Provision for loan losses		4,500		806
Net interest income after provision	$	31,929	$	35,501

Non interest income		30,140		18,132
Non interest expense		44,158		38,484
Income before income taxes	$	17,911	$	15,149
Income tax expense*		3,384		2,768
Net income	$	14,527	$	12,381
Preferred share dividends		-		487

Net income to common shareholders	$	14,527	$	11,894
Basic earnings per share	$	1.90	$	1.84
Diluted earnngs per share	$	1.90	$	1.56

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

Certain nonrecurring costs were included in the pro-forma, specifically $0.7 million was incurred by Edon prior to the acquisition in the 2020 fiscal year and the Company incurred $1.2 million in nonrecurring costs for the acquisition in the 2020 fiscal year. The Company and Edon incurred no acquisition related costs for the 2019 fiscal year.