Business Combinations (Notes)

3 Months Ended

Mar. 31, 2017

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Business Combinations

First Clover Leaf Financial Corp

On April 26, 2016, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with First Clover Leaf Financial Corp., a Maryland corporation ("First Clover Leaf"), pursuant to which, amongst other things, the Company agreed to acquire 100% of the issued and outstanding shares of First Clover Leaf pursuant to a business combination whereby First Clover Leaf would merge with and into the Company, with the Company as the surviving entity (the "Merger").

At the effective time of the Merger, 25% of the shares of First Clover Leaf common stock issued and outstanding immediately prior to the effective time of the Merger converted into the right to receive $12.87 per share, for an approximate aggregate total of $22,545,000, and 75% of the shares of First Clover Leaf common stock issued and outstanding immediately prior to the effective time of the Merger converted into the right to receive 0.495 shares of the Company’s common stock, par value $4.00 per share, for an approximate aggregate total of 2,600,616 shares of the Company’s common stock. Cash in lieu of fractional shares of Company common stock were issued in connection with the Merger.

First Clover Leaf had $659 million in assets at book value including $449 million in loans and $535 million in deposits. As a result of the acquisition, the Company increased its deposit base and reduced transaction costs. The Company also expects to reduce costs through economies of scale.

The acquisition was accounted for under the acquisition method of accounting in accordance with ASC 805, “Business Combinations ("ASC 805"),” and accordingly the assets and liabilities were recorded at their estimated fair values on the date of acquisition. Fair values are subject to refinement for up to one year after the closing date of September 8, 2016 as additional information regarding the closing date fair values become available.  The total consideration paid was used to determine the amount of goodwill resulting from the transaction.  As the total consideration paid exceeded the net assets acquired, goodwill of $16.8 million was recorded for the acquisition.  Goodwill recorded in the transaction, which reflects the synergies and economies of scale expected from combining operations and the enhanced revenue opportunities from the Company’s service capabilities in the St. Louis market, is not tax deductible, and was all assigned to the banking segment of the Company.

The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of the First Clover Leaf acquisition (in thousands).

	Acquired Book Value			Fair Value Adjustments			As Recorded by First Clover Leaf Bank
Assets
Cash	$	59,320		$	—		$	59,320
Investment Securities	109,911			(737		)	109,174
Loans	448,668			(10,403		)	438,265
Allowance for loan losses	(6,928		)	6,928			—
Other real estate owned	2,741			(754		)	1,987
Premises and equipment	9,618			1,963			11,581
Goodwill	11,385			5,400			16,785
Core deposit intangible	99			4,561			4,660
Other assets	23,974			3,159			27,133
Total assets acquired	$	658,788		$	10,117		$	668,905
Liabilities and Stockholders' Equity
Deposits	$	534,692		$	1,994		$	536,686
Securities sold under agreements to repurchase	23,263			—			23,263
FHLB advances	15,000			113			15,113
Subordinated debentures	4,000			(731		)	3,269
Other liabilities	2,103			—			2,103
Total liabilities assumed	579,058			1,376			580,434
Net assets acquired	$	79,730		$	8,741		$	88,471
Consideration Paid
Cash							$	22,545
Common stock							65,926
Total consideration paid							$	88,471

The Company has recognized approximately $3,085,000, pre-tax, of acquisition costs for the First Clover Leaf acquisition of which $1,745,000 was recorded in the first quarter of 2017. These costs are included in legal and professional and other expense. Of the $10.4 million difference between the fair value and acquired value of the purchased loans, approximately $8.4 million is being accreted to interest income over the remaining term of the loans. The differences between fair value and acquired value of the assumed time deposits of $1.99 million, of the assumed FHLB advances of $113,000 and of the assumed subordinated debentures of $(731,000), are being amortized to interest expense over the remaining life of the liabilities. The core deposit intangible asset, with a fair value of $4.7 million, will be amortized on an accelerated basis over its estimated life of ten years.

The following unaudited pro forma condensed combined financial information presents the results of operations of the Company, including the effects of the purchase accounting adjustments and acquisition expenses, had the First Clover Leaf acquisition taken place at the beginning of the period (dollars in thousands):

	Three months ended
	March 31,		March 31,
	2017		2016
Net interest income	$	22,772	$	21,225
Provision for loan losses	1,722		(387		)
Non-interest income	7,496		7,242
Non-interest expense	19,202		20,060
Income before income taxes	9,344		8,794
Income tax expense	3,080		2,999
Net income	6,264		5,795
Dividends on preferred shares	—		550
Net income available to common stockholders	$	6,264	$	5,245
Earnings per share
Basic	$	0.50	$	0.47
Diluted	$	0.50	$	0.47
Basic weighted average shares outstanding	12,475,728		11,056,123
Diluted weighted average shares outstanding	12,485,743		12,416,881

The unaudited pro forma condensed combined financial statements do not reflect any anticipated cost savings and revenue enhancements. Accordingly, the pro forma results of operations of the Company as of and after the First Clover Leaf business combination may not be indicative of the results that actually would have occurred if the combination had been in effect during the periods presented or of the results that may be attained in the future.