Business Combinations

6 Months Ended

Jun. 30, 2016

Business Combinations [Abstract]

Business Combinations

Business Combinations:

On June 1, 2016, the Bank completed the acquisition of the Bowers Insurance Agency, Inc., and merged all activity of the Bowers Group with Insurance, the Bank’s wholly-owned insurance agency subsidiary.  The Bowers Group is engage in selling insurance including commercial, farm, home, and auto property/casualty insurance and will help to meet the needs of all the Company’s customers.  The transaction involved both cash and 123,280 shares of stock totaling $3.2 million, including up to $1.2 million of future payments, contingent upon Bowers Group meeting performance targets, with an estimated fair value at the acquisition date of $880 thousand. The acquisition is part of the Company’s plan to increase the levels of noninterest income and to complement the existing insurance services currently being offered.

Goodwill of $1.8 million, which is recorded on the balance sheet, arising from the acquisition consisted largely of synergies and the cost savings resulting from the combining of the companies.  The goodwill was determined not to be deductible for income tax purposes.  The fair value of other intangible assets of $1.6 million is related to client relationships, company name and noncompetition agreements.

The following table summarizes the consideration paid for Bowers Group and the amounts of the assets acquired and liabilities assumed on the closing date of the acquisition.

(In Thousands of Dollars)
Consideration
Cash	$	1,137
Stock		1,138
Contingent consideration		880
Fair value of total consideration transferred	$	3,155
Fair value of assets acquired
Cash	$	64
Premises and equipment		290
Other assets		34
Total assets acquired		388
Fair value of liabilities assumed		124
Net assets acquired	$	264
Assets and liabilities arising from acquisition
Identified intangible assets		1,630
Deferred tax liabilty		(588	)
Goodwill created		1,849
Total net assets acquired	$	3,155

Valuation of some assets acquired or created including intangible assets and goodwill are preliminary and could be subject to change.

On October 1, 2015, the Company completed the acquisition of Tri-State, the parent company of FNCB.  The transaction involved both cash and 1,296,517 shares of stock totaling $14.3 million.  Pursuant to the terms of the merger agreement, common shareholders of Tri-State received 1.747 common shares, without par value, of the Company or $14.20 in cash, for each common share of Tri-State, subject to proration provisions specified in the merger agreement that provide for a targeted aggregate split of total consideration consisting of 75% shares of Farmers’ common stock and 25% cash.  Preferred shareholders of Tri-State received $13.60 in cash for each share of Series A Preferred Stock, without par value, of Tri-State.

Goodwill of $2.8 million, which is recorded on the balance sheet, arising from the acquisition consisted largely of synergies and the cost savings resulting from the combining of the companies.  The goodwill was determined not to be deductible for income tax purposes.  The fair value of other intangible assets of $1.2 million is related to core deposits.

On June 19, 2015, the Company completed the acquisition of all outstanding stock of NBOH, the parent company of First National Bank of Orrville.  The transaction involved both cash and 7,262,955 shares of stock totaling $74.8 million.  First National Bank of Orrville branches became branches of Farmers National Bank of Canfield.  Pursuant to the Agreement, each shareholder of NBOH received either $32.15 per share in cash or 4.034 shares of Farmers’ common stock, subject to an overall limitation of 80% of the shares of NBOH being exchanged for stock and 20% for cash.

Goodwill of $26.7 million, which is recorded on the balance sheet, arising from the acquisition consisted largely of synergies and the cost savings resulting from the combining of the companies.  The goodwill was determined not to be deductible for income tax purposes.  The fair value of other intangible assets of $4.4 million is related to core deposits.

The acquisitions provide an attractive mix of additional loans and deposits and helps the Company achieve additional operating scale that will drive earnings per share growth.  In addition to the financial benefits, the merger is a significant step in the Company’s strategy to expand its footprint.

The following table summarizes the consideration paid for Tri-State and NBOH and the amounts of the assets acquired and liabilities assumed on the closing date of each acquisition.

	(In Thousands of Dollars)
	Tri-State		NBOH
Consideration
Cash	$	3,607	$	15,732
Stock		10,733		59,048
Fair value of total consideration transferred	$	14,340	$	74,780
Fair value of assets acquired
Cash and due from financial institutions	$	13,553	$	37,035
Securities available for sale		48,300		51,340
Loans, net		66,374		430,035
Premises and equipment		1,935		6,105
Bank owned life insurance		3,274		2,891
Core deposit intangible		1,173		4,409
Other assets		1,329		7,996
Total assets		135,938		539,811
Fair value of liabilities assumed
Deposits		114,342		423,661
Short-term borrowings		0		65,537
Long-term borrowings		2,002		0
Accrued interest payable and other liabilities		8,072		2,514
Total liabilities		124,416		491,712
Net assets acquired	$	11,522	$	48,099
Goodwill created		2,818		26,681
Total net assets acquired	$	14,340	$	74,780

The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows. However, the Company believes that all contractual cash flows related to the financial instruments acquired from Tri-State will be collected. As such, these receivables were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit impaired loans.  Purchase credit impaired loans would have shown evidence of credit deterioration since origination.

The following table presents pro forma information as if the above three acquisitions that occurred during 2015 and 2016 actually took place at the beginning of 2015. The pro forma information includes adjustments for merger related costs, amortization of intangibles arising from the transaction and the related income tax effects. The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions been effective on the assumed date.

	For Three Months Ended June 30,				For Six Months Ended June 30,
(In thousands of dollars except per share results)	2016		2015		2016		2015
Net interest income	$	16,889	$	15,681	$	33,636	$	30,444
Net income	$	5,054	$	3,604	$	9,904	$	7,644
Basic and diluted earnings per share	$	0.19	$	0.14	$	0.37	$	0.30