XML 22 R11.htm IDEA: XBRL DOCUMENT

Business Combination

9 Months Ended

Sep. 30, 2021

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”). Edon was headquartered in Edon, Ohio and had one retail banking office. At the closing of the acquisition, Edon Bancorp was merged with and into the Company, with the Company surviving, and Edon 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 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 Edon transaction based on assumptions that are subject to change as management continues to evaluate relevant information as it becomes available. The table includes any updates to assumptions determined within one year of the completion of the transaction.

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 was $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 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 nine months ended September 30, 2021 and 2020, as if the Edon acquisition had occurred as of the beginning of the reporting periods presented. The acquisition would have increased revenue by approximately $0.5 million and reduced net income by $0.4 million for the nine months ended September 30, 2020.

Summary of Operations ($ in thousands)	Nine Months Ended
SB Financial Consolidated		Sep. 2021		Sep. 2020
Net interest income	$	28,806	$	27,178
Provision for loan losses		1,050		3,700
Net interest income after provision	$	27,756	$	23,478

Non interest income		24,108		21,237
Non interest expense		33,241		33,474
Income before income taxes	$	18,623	$	11,241
Income tax expense		3,678		2,073
Net income	$	14,945	$	9,168

Basic earnings per share	$	2.09	$	1.19
Diluted earnings per share	$	2.08	$	1.19

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