Acquisitions (Notes)

6 Months Ended

Jun. 30, 2021

Business Combination Disclosure [Text Block]

Acquisitions

On May 4, 2021, Peoples Insurance Agency, LLC ("Peoples Insurance") acquired substantially all of the assets and rights of an insurance agency located in Pikeville, Kentucky and certain rights to related customer accounts, which were previously developed and maintained by Justice & Stamper Insurance Agency, Inc. Total consideration for this transaction was $325,000. Peoples accounted for this transaction as a business combination under the acquisition method.

On March 29, 2021, Peoples announced that it had entered into an Agreement and Plan of Merger dated March 26, 2021 (“Merger Agreement”) with Premier Financial Bancorp, Inc. (“Premier”). The Merger Agreement calls for Premier to merge into Peoples and for Premier’s wholly-owned subsidiaries, Premier Bank, Inc., and Citizens Deposit Bank and Trust, Inc., which combined operate 48 branches in Kentucky, Maryland, Ohio, Virginia, West Virginia and the District of Columbia, to merge into Peoples’ wholly-owned subsidiary, Peoples Bank. The transaction is subject to certain closing conditions and is anticipated to close during the third quarter of 2021.

Peoples Bank entered into an Asset Purchase Agreement, dated March 24, 2021 (the “Asset Purchase Agreement”), with NS Leasing, LLC, which is headquartered in Burlington, Vermont, and does business as “North Star Leasing”. The transaction closed after the end of business on March 31, 2021 and Peoples Bank began operating the acquired business as a division of Peoples Bank on April 1, 2021. Peoples Bank acquired assets comprising NSL’s equipment finance business and assumed from NSL certain specified liabilities for total cash consideration of $116.5 million, plus a potential earnout payment to NSL of up to $3.1 million. Peoples Bank acquired $83.3 million in leases and satisfied, on behalf of NSL, certain third-party debt in the amount of $69.1 million. NSL originates, underwrites and services equipment leases and equipment financing agreements to businesses throughout the United States. Peoples recorded preliminary goodwill in the amount of $25.2 million and preliminary other intangibles of $13.5 million, which included customer relationship intangible and non-compete agreements related to this transaction. Peoples also recorded preliminary contingent consideration related to the bonus earn-out provision of $2.3 million. As of June 30, 2021, leases had grown to $95.6 million. Peoples accounted for this transaction as a business combination under the acquisition method.

The goodwill recorded associated with the NSL acquisition is related to expected synergies to be gained from the combination of NSL with Peoples' operations. The employees retained from the NSL acquisition should allow Peoples to continue to grow the lease portfolio, along with Peoples' resources, and should benefit Peoples in future periods. During Peoples' evaluation of intangible assets, it was determined that an assembled workforce intangible asset was not separately recognizable and was included in goodwill.

The bonus earn-out provision recorded by Peoples related to the NSL acquisition was determined based on a weighting of probability of outcomes, at present value. Peoples predominately weighted the outcomes of the factors at around a 100% payout expectation of the base earn-out, which is approximately $2.5 million in total, with some weighting into the bonus expectation, which is an additional $625,000 of potential payout. Peoples anticipates that NSL will meet the minimums for the base earn-out payment, and will likely meet the targets set at acquisition for a 100% payout of the base earn-out.

The following table provides the preliminary purchase price calculation as of the date of acquisition for NSL, and the assets acquired and liabilities assumed at their estimated fair values.


(Dollars in thousands)
Total purchase price (a)	$	118,846


Net assets at fair value
Assets
Cash and due from banks	$	216
Leases	83,326
Allowance for credit losses	(493)
Net leases	82,833
Bank premises and equipment, net of accumulated depreciation	470
Other intangible assets	13,535
Other assets	845
Total assets	$	97,899
Liabilities
Accrued expenses and other liabilities	$	4,247
Total liabilities	$	4,247
Net assets	$	93,652
Goodwill	$	25,194

(a) Includes preliminary contingent consideration related to the bonus earn-out provision of $2.3 million.

Acquired leases are reported net of the unamortized fair value adjustment. The following table details the fair value adjustment for acquired leases as of the acquisition date:


(Dollars in thousands)
Non-purchased credit deteriorated leases
Contractual cash flows	$	85,762
Nonaccretable difference	3,456
Expected cash flows	82,306
Accretable yield	1,020
Fair value	$	83,326

Acquired purchased credit deteriorated leases are reported net of the unamortized fair value adjustment. The following table details the fair value adjustment for acquired purchased credit deteriorated leases as of the acquisition date:


(Dollars in thousands)
Purchased credit deteriorated leases
Par value	$	5,248
Allowance for credit losses	(493)
Premium	85
Fair value	$	4,840

Peoples recorded acquisition-related expenses during the second quarter of 2021, which included $7,000 in salaries and employee benefit costs; $2.0 million in professional fees; $6,000 in net occupancy and equipment expense; $43,000 in data processing and software expense; $15,000 in marketing expense; and $334,000 in other non-interest expense. For the first six months of 2021, Peoples recognized acquisition-related expenses of $7,000 in salaries and employee benefit costs; $3.8 million in professional fees; $6,000 in net occupancy and equipment expense; $43,000 in data processing and software expense; $17,000 in marketing expense; and $445,000 in other non-interest expense.