Note 2 - Acquisition

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Business Combination Disclosure [Text Block]

(2) Acquisition

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

Effective March 31, 2020, management finalized the fair values of the acquired assets and assumed liabilities in advance of 12 months post acquisition date, as allowed by GAAP.

The following table provides a summary of the assets acquired and liabilities assumed as recorded by the acquire, the previously reported preliminary fair value adjustments necessary to adjust those acquired assets and assumed liabilities to fair value, final recast adjustments to those previously reported preliminary fair values, and the final fair values of those assets and liabilities as recorded by Bancorp.

	May 1, 2019
	As Recorded			Fair Value				Recast				As Recorded
(in thousands)	by KSB			Adjustments (1)				Adjustments				by Bancorp
Assets acquired:
Cash and due from banks	$	3,316		$	—			$	—			$	3,316
Interest bearing due from banks		1,761			—				—				1,761
Available for sale debt securities		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 credit 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) See the following page for explanations of individual fair value adjustments.

Explanation of the preceding pre-ASC 326 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 the acquiree’s recorded ACL.

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 CDI 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 and is the result of expected operational synergies and other factors. This goodwill was entirely attributable to Bancorp’s Commercial Banking segment and deductible for tax purposes.

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 in 2019 based on these sales.

Pro forma financial information as of the acquisition was not considered material.