Note 3 - Acquisitions

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Business Combination Disclosure [Text Block]

NOTE 3. ACQUISITIONS

MVB Bank Branches Acquisition

On July 10, 2021, Summit Community Bank, Inc. ("SCB"), a wholly-owned subsidiary of Summit, acquired four MVB Bank locations located in southern West Virginia: one in Kanawha County, one in Putnam County, and two in Cabell County. In addition, SCB acquired two MVB Bank drive-up banking locations in Cabell County. SCB assumed certain deposits and loans totaling approximately $164 million and $54 million, respectively. The purchase price was $9.8 million equaling the average daily closing balance of the deposits for the thirty (30) day period prior to the closing multiplied by 6.00%.

This acquisition was determined to constitute a business combination in accordance with ASC 805, Business Combinations, and accordingly, we accounted for the acquisition using the acquisition method of accounting, recording the assets and liabilities of MVB Bank at their acquisition date respective fair values. Determining the fair value of assets and liabilities, particularly related to the loan portfolio, is a complicated process involving significant judgment regarding methods and assumptions used to calculate the estimated fair values. The fair values were preliminary and subject to refinement for up to one year after the acquisition date as additional information relative to the acquisition date fair values became available. We recognized goodwill of $10.33 million in connection with the acquisition (deductible for income tax purposes), which is not amortized for financial reporting purposes, but is subject to annual impairment testing. The core deposit intangible represents the value of long-term deposit relationships acquired in this transaction and will be amortized over an estimated weighted average life of 10 years using an accelerated method which approximates the estimated run-off of the acquired deposits. The following table details the total consideration paid on July 10, 2021 in connection with the acquisition of the MVB Bank branches, the fair values of the assets acquired and liabilities assumed and the resulting goodwill.

(Dollars in thousands)	As Recorded by MVB			Estimated Fair Value Adjustments			Estimated Fair Values as Recorded by Summit
Cash consideration							$	9,807
Total consideration								9,807
Identifiable assets acquired:
Cash and cash equivalents	$	946		$	—		$	946
Loans
Purchased performing		53,440			478			53,918
Purchased credit deteriorated		488			(91	)		397
Premises and equipment		3,431			(129	)		3,302
Core deposit intangibles		—			178			178
Other assets		260			—			260
Total identifiable assets acquired	$	58,565		$	436		$	59,001
Identifiable liabilities assumed:
Deposits		163,081			959			164,040
Other liabilities		45			—			45
Total identifiable liabilities assumed	$	163,126		$	959		$	164,085
Net liabilities assumed	$	(104,561	)	$	(523	)	$	(105,084	)
Net cash received from MVB								94,753
Goodwill resulting from acquisition							$	10,331

WinFirst Financial Corp. Acquisition

On December 15, 2020, SCB acquired 100% of the ownership of WinFirst Financial Corp. ("WinFirst") and its subsidiary WinFirst Bank, headquartered in Winchester, Kentucky. Pursuant to the Agreement and Plan of Merger dated September 28, 2020, WinFirst's shareholders received $328.05 for each share of WinFirst common stock they owned, or approximately $21.7 million in the aggregate. With this transaction, Summit expanded its footprint into Kentucky. At acquisition, WinFirst's assets and liabilities approximated $143 million and $127 million, respectively.

We accounted for the acquisition using the acquisition method of accounting in accordance with ASC 805, Business Combinations and accordingly, the assets and liabilities of WinFirst were recorded at their respective acquisition date fair values. The fair values of assets and liabilities were preliminary and subject to refinement for up to one year after the acquisition date as additional information relative to the acquisition date fair values became available. We recognized goodwill of $6.73 million in connection with the acquisition (not deductible for income tax purposes), which is not amortized for financial reporting purposes, but is subject to annual impairment testing. The core deposit intangible represents the value of long-term deposit relationships acquired in this transaction and will be amortized over an estimated weighted average life of 10 years using an accelerated method which approximates the estimated run-off of the acquired deposits. The following table details the total consideration paid on December 15, 2020 in connection with the acquisition of WinFirst, the fair values of the assets acquired and liabilities assumed and the resulting goodwill.

(Dollars in thousands)	As Recorded by WinFirst			Estimated Fair Value Adjustments			Estimated Fair Values as Recorded by Summit
Cash consideration							$	21,705
Total consideration								21,705
Identifiable assets acquired:
Cash and cash equivalents	$	13,030		$	—		$	13,030
Securities available for sale, at fair value		1,613			19			1,632
Loans
Purchased performing		123,754			(968	)		122,786
Purchased credit deteriorated		—			—			—
Allowance for credit losses on loans		(1,227	)		1,227			—
Premises and equipment		171			(27	)		144
Property held for sale		196			(50	)		146
Core deposit intangibles		—			81			81
Other assets		5,898			477			6,375
Total identifiable assets acquired	$	143,435		$	759		$	144,194
Identifiable liabilities assumed:
Deposits		103,599			1,065			104,664
Short-term borrowings		3,000			—			3,000
Long-term borrowings		20,585			697			21,282
Other liabilities		270			—			270
Total identifiable liabilities assumed	$	127,454		$	1,762		$	129,216
Net identifiable assets acquired	$	15,981		$	(1,003	)	$	14,978
Goodwill resulting from acquisition							$	6,727

MVB Bank Branches Acquisition

On April 24, 2020, SCB expanded its presence in the Eastern Panhandle of West Virginia by acquiring three MVB Bank locations in Berkeley County, West Virginia and one MVB Bank location in Jefferson County, West Virginia. Summit assumed certain deposit liabilities and other liabilities and acquired certain assets totaling approximately $188.2 million and $38.4 million, respectively. The purchase price, equaling the average daily closing balance of the deposits for the thirty (30) day period prior to the closing multiplied by 8.00%, totaled $13.0 million.

This acquisition was determined to constitute a business combination in accordance with ASC 805, Business Combinations,and accordingly we accounted for the acquisition using the acquisition method of accounting, recording the assets and liabilities of MVB Bank at their acquisition date respective fair values. The fair values of assets and liabilities are preliminary and subject to refinement for up to one year after the acquisition date as additional information relative to the acquisition date fair values becomes available. We recognized goodwill of $14.7 million in connection with the acquisition (deductible for income tax purposes), which is not amortized for financial reporting purposes, but is subject to annual impairment testing. The core deposit intangible represents the value of long-term deposit relationships acquired in this transaction and will be amortized over an estimated weighted average life of 10 years using an accelerated method which approximates the estimated run-off of the acquired deposits. The following table details the total consideration paid on April 24, 2020 in connection with the acquisition of the MVB Bank branches, the fair values of the assets acquired and liabilities assumed and the resulting goodwill.

(Dollars in thousands)	As Recorded by MVB Bank			Estimated Fair Value Adjustments			Estimated Fair Values as Recorded by Summit
Cash consideration							$	12,965
Total consideration								12,965
Identifiable assets acquired:
Cash and cash equivalents	$	800		$	—		$	800
Loans
Purchased performing		35,127			(1,185	)		33,942
Premises and equipment		2,376			(42	)		2,334
Core deposit intangibles		—			125			125
Other assets		114			—			114
Total identifiable assets acquired	$	38,417		$	(1,102	)	$	37,315
Identifiable liabilities assumed:
Deposits		188,134			598			188,732
Other liabilities		102			—			102
Total identifiable liabilities assumed	$	188,236		$	598		$	188,834
Net liabilities assumed	$	(149,819	)	$	(1,700	)	$	(151,519	)
Net cash received from MVB Bank								136,854
Goodwill resulting from acquisition							$	14,665

Cornerstone Financial Services Inc. Acquisition

On January 1, 2020, SCB acquired 100% of the ownership of Cornerstone Financial Services Inc. ("Cornerstone") and its subsidiary Cornerstone Bank, headquartered in West Union, West Virginia. With this transaction, Summit further expands its footprint into the central region of West Virginia. Pursuant to the Agreement and Plan of Merger dated September 17, 2019, Cornerstone's shareholders received cash in the amount of $5,700.00 per share or 228 shares of Summit common stock, or a combination of cash and Summit stock, subject to proration to result in approximately 50% cash and 50% stock consideration in the aggregate. Total stock consideration was $15.4 million or 570,000 shares of Summit common stock and cash consideration was $14.3 million. Cornerstone's assets and liabilities approximated $195 million and $176 million, respectively, at December 31, 2019.

We accounted for the acquisition using the acquisition method of accounting in accordance with ASC 805, Business Combinations and accordingly, the assets and liabilities of Cornerstone were recorded at their acquisition date respective fair values. Determining the fair value of assets and liabilities, particularly related to the loan portfolio, is a complicated process involving significant judgment regarding methods and assumptions used to calculate the estimated fair values. We recognized goodwill of $10.82 million in connection with the acquisition (not deductible for income tax purposes), which is not amortized for financial reporting purposes, but is subject to annual impairment testing or upon a triggering event. The core deposit intangible represents the value of long-term deposit relationships acquired in this transaction and will be amortized over an estimated weighted average life of 10 years using an accelerated method which approximates the estimated run-off of the acquired deposits. The following table details the total consideration paid on January 1, 2020 in connection with the acquisition of Cornerstone, the fair values of the assets acquired and liabilities assumed and the resulting goodwill.

(Dollars in thousands)	As Recorded by Cornerstone			Estimated Fair Value Adjustments			Estimated Fair Values as Recorded by Summit
Cash consideration							$	14,250
Stock consideration								15,441
Total consideration								29,691
Identifiable assets acquired:
Cash and cash equivalents	$	60,284		$	—		$	60,284
Securities available for sale, at fair value		90,075			(47	)		90,028
Loans
Purchased performing		37,965			188			38,153
Purchased credit deteriorated		1,877			(569	)		1,308
Allowance for credit losses on loans		(312	)		312			—
Premises and equipment		806			(142	)		664
Property held for sale		10			—			10
Core deposit intangibles		—			717			717
Other assets		4,324			(74	)		4,250
Total identifiable assets acquired	$	195,029		$	385		$	195,414
Identifiable liabilities assumed:
Deposits		173,027			239			173,266
Other liabilities		3,286			(7	)		3,279
Total identifiable liabilities assumed	$	176,313		$	232		$	176,545
Net identifiable assets acquired	$	18,716		$	153		$	18,869
Goodwill resulting from acquisition							$	10,822

The following is a description of the methods used to determine the fair values of significant assets and liabilities presented for each transaction above.

Cash and cash equivalents: The carrying amount of these assets approximates their fair value based on the short-term nature of these assets, with the exception of certificates of deposits held at other banks, which were adjusted to fair value based upon current interest rates.

Securities: Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair value estimates are based on observable inputs including quoted market prices for similar instruments, quoted market prices that are not in an active market or other inputs that are observable in the market.

Loans: Fair values for loans are based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, collectibility, fixed or variable interest rate, term of loan, amortization status and current market rates. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns, if any.

Premises and equipment: The fair value real property was determined based upon appraisals by licensed appraisers. The fair value of tangible personal property, which is not material, was assumed to equal the carrying value.

Core deposit intangible: This intangible asset represents the value of the relationships with deposit customers. The fair value was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base, reserve requirements and the net maintenance cost attributable to customer deposits.

Deposits: The fair values of the demand and savings deposits by definition equal the amount payable on demand at the acquisition date. The fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered to the contractual interest rates on such time deposits.

Long-term borrowings: The fair value of long-term fixed-rate borrowings was estimated using by discounting future cash flows using current interest rates for similar financial instruments.

Loans acquired in a business combination are recorded at estimated fair value on the date of acquisition without the carryover of the related allowance for credit losses on loans.

In accordance with ASC 326, loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered purchased credit deteriorated (“PCD”) loans. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This initial allowance for credit losses is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans. As the initial allowance for credit losses is added to the purchase price, there is no credit loss expense recognized upon acquisition of a PCD loan. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors and results in a discount or premium. Discounts and premiums are recognized through interest income on a level-yield method over the life of the loans. All loans considered to be PCI prior to January 1, 2020 were converted to PCD on that date.

Loans not designated PCD loans as of the acquisition date are designated purchased performing loans. We account for purchased performing loans using the contractual cash flows method of recognizing discount accretion based on the acquired loans’ contractual cash flows. Purchased performing loans are recorded at fair value, including a credit discount. The fair value discount is accreted as an adjustment to yield over the estimated lives of the loans. There is no allowance for credit losses established at the acquisition date for purchased performing loans. A provision for credit losses is recorded for any deterioration in these loans subsequent to the acquisition.

The revenues and earnings of our acquired entities during 2021 and 2020, as if the business combinations occurred as of the beginning of the comparable prior annual reporting period, are impracticable to provide because each acquisition was integrated into our existing operations and financial information relative to the acquired entities is not maintained.

During 2021 and 2020, we purchased loans, for which there was, at the time of acquisition, more than significant deterioration of credit quality since origination (PCD loans). The carrying amount of these loans at acquisition is as follows:

	For the Year Ended December 31,
Dollars in thousands	2021			2020
Purchase price of PCD loans at acquisition	$	488		$	12,649
Allowance for credit losses - loans at acquisition		91			796
Non-credit discount at acquisition		(2	)		568
Par value of PCD loans at acquisition		399			11,285