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Note 2 - Mergers and Acquisitions
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Business Combination Disclosure [Text Block]
NOTE
2.
 MERGERS AND ACQUISITIONS
 
Effective
January 1, 2019,
Eagle completed its merger with BMB. The transaction provided an opportunity to expand market presence and lending activities throughout the state. The acquisition closed after receipt of approvals from regulatory authorities, approval of BMB shareholders and the satisfaction of other closing conditions. The total consideration paid was
$16,436,000
and included cash consideration of
$1,000
and common stock issued of
$16,435,000.
 
Effective
January 1, 2020,
Eagle completed its previously announced merger with WHC. At the effective time of the Merger, WHC merged with and into Eagle, with Eagle continuing as the surviving corporation. The acquisition closed after receipt of approvals from regulatory authorities, approval of WHC shareholders and the satisfaction of other closing conditions. The total consideration paid was
$14,967,000
and included cash consideration of
$6,500,000
and common stock issued of
$8,467,000.
 
These transactions were accounted for under the acquisition method of accounting.
 
All of the assets acquired and liabilities assumed were recognized at their acquisition-date fair value, while transaction costs and restructuring costs associated with the business combinations were expensed as incurred. Determining the fair value of assets and liabilities is a complicated process involving significant judgement regarding methods and assumptions used to calculate estimated fair values. The excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. The goodwill recorded is
not
deductible for federal income tax purposes.
 
The following table summarizes the fair values of the assets acquired and liabilities assumed, consideration paid and the resulting goodwill.
 
   
WHC
   
BMB
 
   
January 1,
   
January 1,
 
   
2020
   
2019
 
   
(In Thousands)
 
Assets acquired:
               
Cash and cash equivalents
  $
14,244
    $
6,902
 
Securities available-for-sale
   
43,710
     
2,096
 
Loans receivable
   
43,424
     
89,204
 
Premises and equipment
   
740
     
2,246
 
Cash surrender value of life insurance
   
2,131
     
2,862
 
Other real estate owned
   
-
     
223
 
Core deposit intangible
   
208
     
1,988
 
Other assets
   
1,874
     
1,995
 
Total assets acquired
  $
106,331
    $
107,516
 
                 
Liabilities assumed:
               
Deposits
  $
89,272
    $
92,706
 
Accrued expenses and other liabilities
   
4,554
     
1,960
 
Other borrowings
   
2,500
     
-
 
Total liabilities assumed
  $
96,326
    $
94,666
 
                 
Net assets acquired
  $
10,005
    $
12,850
 
                 
Consideration paid:
               
Cash
  $
6,500
    $
1
 
Common stock issued (395,850 shares WHC and 996,041 shares BMB)
   
8,467
     
16,435
 
Total consideration paid
  $
14,967
    $
16,436
 
                 
Goodwill resulting from acquisition
  $
4,962
    $
3,586
 
 
 
Goodwill recorded for the WHC acquisition during the
three
months ended
March 31, 2020
was provisionally
$4,962,000
due to the timing of the transaction. Amounts
may
be subject to change due to retrospective measurement period adjustments based on new information. Goodwill recorded for the BMB acquisition during the
three
months ended
March 31, 2019
was
$3,586,000.
Certain estimates that existed at
January 1, 2019
were realized and a final true up of
$126,000
was recorded to goodwill during the
three
months ended
December 31, 2019.
The final goodwill recorded related to the BMB acquisition was
$3,712,000.
 
WHC investments were written up
$425,000
to fair value on the date of acquisition based on market prices obtained from an independent
third
party. BMB investment fair value adjustments were considered insignificant.
 
For acquisitions, the fair value analysis of the loan portfolios resulted in a valuation adjustment for each loan based on an amortization schedule of expected cash flow. Individual amortization schedules were used for each loan over a certain amount and those with specifically identified loss exposure. The remainder of the loans were grouped by type and risk rating into loan pools (based on loan type, fixed or variable interest rate, revolving or term payments and risk rating). Yield inputs for the amortization schedules included contractual interest rates, estimated prepayment speeds, liquidity adjustments and market yields. Credit inputs for the amortization schedules included probability of payment default, loss given default rates and individually identified loss exposure.             
  
The total accretable discount on WHC acquired loans was
$1,166,000
as of
January 1, 2020.
During the
three
months ended
March 31, 2020,
accretion of the loan discount was
$130,000.
The remaining accretable loan discount was
$1,036,000
as of
March 31, 2020.
 
The total accretable discount on BMB acquired loans was
$2,813,000
as of
January 1, 2019.
During the year ended
December 31, 2019,
accretion of the loan discount was
$1,480,000.
During the
three
months ended
March 31, 2020,
accretion of the loan discount was
$119,000.
The remaining accretable loan discount was
$1,214,000
as of
March 31, 2020.
 
One impaired loan was acquired through the WHC acquisition with an insignificant balance as of
January 1, 2020.
Four impaired loans were acquired through the BMB acquisition with a net balance of
$556,000
as of
January 1, 2019.
The balance of the acquired impaired loans as of
March 31, 2020
was
$134,000.
 
Fair value adjustments of
$590,000
and
$276,000
were recorded for WHC and BMB, respectively, related to premises and equipment. The Company used independent
third
party appraisals in the determination of the fair value of acquired assets.
 
Core deposit intangible assets of
$208,000
were recorded for WHC and are being amortized using an accelerated method over the estimated useful lives of the related deposits of
10
years. Core deposit intangible assets of
$1,988,000
were recorded for BMB and are being amortized using an accelerated method over the estimated useful lives of the related deposits of
10
years.
 
For acquisitions, the core deposit intangible value is a function of the difference between the cost of the acquired core deposits and the alternative cost of funds. These cash flow streams were discounted to present value. The fair value of other deposit accounts acquired were valued by estimating future cash flows to be received or paid from individual or homogenous groups of assets and liabilities and then discounting those cash flows to a present value using rates of return that were available in financial markets for similar financial instruments on or near the acquisition date.
 
Direct costs related to the acquisitions were expensed as incurred. The Company recorded acquisition costs related to WHC of
$128,000
during the
three
months ended
March 31, 2020
and
$818,000
during the years ended
December 31, 2019.
The Company recorded acquisition costs related to BMB of
$1,380,000
and
$804,000
during the years ended
December 31, 2019
and
2018,
respectively. Acquisition costs included professional fees and data processing expenses incurred related to the acquisitions.
 
Operations of WHC have been included in the consolidated financial statements since
January 1, 2020.
The Company does
not
consider WHC a separate reporting segment and does
not
track the amount of revenues and net income attributable to WHC since acquisition. As such, it is impracticable to determine such amounts for the period from
January 1, 2020
through
March 31, 2020.
 
Operations of BMB have been included in the consolidated financial statements since
January 1, 2019.
The Company does
not
consider BMB a separate reporting segment and does
not
track the amount of revenues and net income attributable to BMB since acquisition. As such, it is impracticable to determine such amounts for the period from
January 1, 2019
through
March 31, 2020.
 
The accompanying consolidated statements of income include the results of operations of WHC since the
January 1, 2020
acquisition date. The following table presents unaudited pro forma results of operations for the
three
months ended
March 31, 2019
as if the acquisition had occurred on
January 1, 2019.
This pro forma information gives effect to certain adjustments, including purchase accounting fair value adjustments and amortization of the core deposit intangible asset. The pro forma information does
not
necessarily reflect the results of operations that would have occurred had the Company purchased and assumed the assets and liabilities of WHC on
January 1, 2019.
Cost savings are also
not
reflected in the unaudited pro forma amounts for the
three
months ended
March 31, 2019.
 
   
Three Months Ended
 
   
March 31, 2019
 
   
(Dollars in Thousands,
Except Per Share Data)
 
Pro forma net income
(1)
       
Net interest income after loan loss provision
  $
9,486
 
Noninterest income
   
3,983
 
Noninterest expense
   
11,710
 
Income before provision for income taxes
   
1,759
 
Income tax provision
   
352
 
Net income
  $
1,407
 
         
Pro forma earnings per share
(1)
       
Basic earnings per share
  $
0.22
 
Diluted earnings per share
  $
0.22
 
         
Basic weighted average shares outstanding
   
6,450,326
 
Diluted weighted average shares outstanding
   
6,510,486
 
 
(
1
)
Significant assumptions utilized include the acquisition cost noted above and a
20.00%
effective tax rate.