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Note 3 - Acquisition of KSB

12 Months Ended

Dec. 31, 2019

Business Combination Disclosure [Text Block]

(3) Acquisition of KSB

On May 1, 2019, Bancorp completed its acquisition of KSB, for $28 million in cash. The acquisition expands Bancorp’s market area into nearby Nelson County, Kentucky, while growing its customer base in Louisville, Kentucky.

The following table provides a summary of the assets acquired and liabilities assumed as recorded by KSB, the previously reported preliminary fair value adjustments necessary to adjust those acquired assets and assumed liabilities to fair value, recast adjustments to those previously reported preliminary fair values, and the fair values of those assets and liabilities as recorded by Bancorp. As provided for under GAAP, management has up to 12 months following the date of acquisition to finalize the fair values of the acquired assets and assumed liabilities. The preliminary fair value adjustments and the preliminary resultant fair values shown in the following table continue to be evaluated by management and may be subject to further recast adjustments.

	May 1, 2019
	As Recorded			Fair Value				Recast				As Recorded
(in thousands)	by King			Adjustments (1)				Adjustments (1)				by Bancorp
Assets acquired:

Cash and due from banks	$	3,316		$	—			$	—			$	3,316
Interest bearing due from banks		1,761			—				—				1,761
Securities available for sale		12,404			23		a		—				12,427
Federal Home Loan Bank stock, at cost		1,517			—				—				1,517
Federal Reserve Bank stock, at cost		490			—				—				490
Loans		165,744			(1,597	)	b		(118	)	b		164,029
Allowance for loan losses		(1,812	)		1,812		b		—				—
Net loans		163,932			215				(118	)			164,029
Premises and equipment, net		4,358			(1,328	)	c		431		c		3,461
Bank owned life insurance		3,431			—				—				3,431
Core deposit intangible		—			1,519		d		—				1,519
Other real estate owned		325			(325	)	e		—				—
Other assets and accrued interest receivable		867			(36	)	f		—				831

Total assets acquired	$	192,401		$	68			$	313			$	192,782

Liabilities assumed:

Deposits
Non-interest bearing	$	24,939		$	—			$	—			$	24,939
Interest bearing		100,839			(252	)	g		—				100,587
Total deposits		125,778			(252	)			—				125,526

Federal funds purchased		1,566			—				—				1,566
Federal Home Loan Bank advances		43,718			(419	)	h		—				43,299
Subordinated Note		3,609			—				—				3,609
Holding Company line of credit		2,300			—				—				2,300
Other liabilities and accrued interest payable		313			—				—				313

Total liabilities assumed		177,284			(671	)			—				176,613

Net assets acquired	$	15,117		$	739			$	313			$	16,169

Cash consideration paid													(28,000	)

Goodwill												$	11,831

(1) - Bancorp’s acquisition of KSB closed on May 1, 2019. The fair value adjustments reported are preliminary estimates based on information obtained subsequent to May 1, 2019 and through December 31, 2019. Management is continuing to evaluate each of its estimates and may provide additional recast adjustments in future periods based on this continuing evaluation. To the extent that additional recast adjustments are posted in future periods, the resultant fair values and the amount of goodwill recorded by Bancorp will change.

Explanation of preliminary fair value adjustments:

a.

Reflects the fair value adjustment based on Bancorp’s evaluation of the acquired investment portfolio.

b.

Reflects the fair value adjustment based on Bancorp’s evaluation of the acquired loan portfolio and to eliminate KSB’s recorded allowance.

c.

Reflects the fair value adjustment based on Bancorp’s evaluation of the premises and equipment acquired.

d.

Reflects the fair value adjustment for the core deposit intangible asset recorded as a result of the acquisition.

e.

Reflects the fair value adjustment based upon Bancorp’s evaluation of the foreclosed real estate acquired.

f.

Reflects the write-off of a miscellaneous other asset.

g.

Reflects the fair value adjustment based on Bancorp’s evaluation of the assumed time deposits.

h.

Reflects the fair value adjustment based upon Bancorp’s evaluation of the assumed FHLB advances.

Goodwill of approximately $12 million, which is the excess of the acquisition consideration over the fair value of net assets acquired, was recorded in the KSB acquisition as the result of expected operational synergies and other factors. This goodwill is attributable to Bancorp’s Commercial Banking segment and is expected to be deductible for tax purposes. To the extent that management revises any of the above fair value adjustments as a result of its continuing evaluation, the amount of goodwill recorded will change.

Based upon the proximity to existing branch locations, Bancorp closed and ultimately sold three acquired full service branch locations in 2019, while retaining the associated customer relationships. Goodwill was recast based on these sales.

Prior year pro-forma financial statements are not presented due to the immateriality of the transaction. Revenue (defined as net interest income and non-interest income) attributed to KSB totaled $4.0 million for the year ended December 31, 2019.