| Business Combination Disclosure [Text Block] |
Bancorp completed its acquisition of Kentucky Bancshares, Inc. during the second quarter in a combined stock and cash transaction for total consideration of $233 million. Bancorp acquired 19 branches in 11 communities throughout central and eastern Kentucky, including the Lexington, Kentucky metropolitan statistical area and contiguous counties, and also acquired a captive insurance subsidiary.
The following table provides a summary of the fair value of the assets acquired and liabilities assumed by Bancorp as of the acquisition date. As provided for under GAAP, management has up to 12 months following the date of acquisition to finalize the fair values of the acquired assets and assumed liabilities. The preliminary fair value adjustments and the preliminary fair values shown in the following table continue to be evaluated by management and may be subjected to further adjustment.
| Acquisition of Kentucky Bancshares, Inc. | |
| Summary of Assets Aquired and Liabilities Assumed | |
| | | As Recorded | | | Fair Value | | | | As Recorded | |
| (in thousands) | | By KB | | | Adjustments (1) | | | | by Bancorp | |
| Assets aquired: | | | | | | | | | | | | | |
| Cash and due from banks | | $ | 53,257 | | | $ | — | | | | $ | 53,257 | |
| Mortgage loans held for sale | | | 3,071 | | | | — | | | | | 3,071 | |
| Available for sale debt securities | | | 396,157 | | | | (295 | ) | a | | | 395,862 | |
| Federal Home Loan Bank stock, at cost | | | 7,072 | | | | — | | | | | 7,072 | |
| Loans | | | 755,932 | | | | (757 | ) | b | | | 755,175 | |
| Allowance for credits losses on loans | | | (9,491 | ) | | | 2,734 | | c | | | (6,757 | ) |
| Net loans | | | 746,441 | | | | 1,977 | | | | | 748,418 | |
| Premises and equipment, net | | | 27,401 | | | | (6,361 | ) | d | | | 21,040 | |
| Bank owned life insurance | | | 18,909 | | | | — | | | | | 18,909 | |
| Accrued interest receivable | | | 4,939 | | | | — | | | | | 4,939 | |
| Goodwill | | | 14,001 | | | | (14,001 | ) | e | | | — | |
| Core deposit intangible | | | — | | | | 3,404 | | f | | | 3,404 | |
| Other real estate owned | | | 674 | | | | (123 | ) | g | | | 551 | |
| Mortgage servicing rights | | | 1,628 | | | | 34 | | h | | | 1,662 | |
| Deferred income taxes, net | | | 1,856 | | | | 715 | | i | | | 2,571 | |
| Other assets | | | 6,421 | | | | (1,866 | ) | j | | | 4,555 | |
| Total assets acquired | | $ | 1,281,827 | | | $ | (16,516 | ) | | | $ | 1,265,311 | |
| | | | | | | | | | | | | | |
| Liabilities assumed: | | | | | | | | | | | | | |
| Deposits: | | | | | | | | | | | | | |
| Non-interest bearing | | $ | 359,544 | | | $ | — | | | | $ | 359,544 | |
| Interest bearing | | | 678,528 | | | | 1,146 | | k | | | 679,674 | |
| Total deposits | | | 1,038,072 | | | | 1,146 | | | | | 1,039,218 | |
| | | | | | | | | | | | | | |
| Securities sold under agreements to repurchase | | | 11,360 | | | | — | | | | | 11,360 | |
| Federal Home Loan Bank advances | | | 88,581 | | | | 2,490 | | l | | | 91,071 | |
| Accrued interest payable | | | 505 | | | | — | | | | | 505 | |
| Other liabilities | | | 16,231 | | | | (2,004 | ) | m | | | 14,227 | |
| Total liabilities assumed | | | 1,154,749 | | | | 1,632 | | | | | 1,156,381 | |
| Net assets acquired | | $ | 127,078 | | | $ | (18,148 | ) | | | $ | 108,930 | |
| | | | | | | | | | | | | | |
| Consideration for common stock | | | | | | | | | | | $ | 204,670 | |
| Cash consideration paid | | | | | | | | | | | | 28,276 | |
| Total consideration | | | | | | | | | | | $ | 232,946 | |
| | | | | | | | | | | | | | |
| Goodwill | | | | | | | | | | | $ | 124,016 | |
| (1) | See the following page for explanations or individual fair value adjustments. |
Explanation of fair value adjustments
| a. | Adjustment based on Bancorp’s evaluation of the acquired investment portfolio. Approximately $91 million in AFS debt securities were sold by Bancorp shortly after acquisition. |
| b. | Adjustments to loans to reflect estimated fair value adjustments, including the following: |
| (in thousands) | | | | |
| | | | | |
| Fair value adjustment - acquired non PCD loans | | $ | 228 | |
| Fair value adjustment - acquired PCD loans | | | (735 | ) |
| Eliminate unrecognized loan fees on acquired loans and fair value hedge | | | (250 | ) |
| Net loan fair value adjustments | | $ | (757 | ) |
| c. | The net adjustment to allowance for credit losses includes the following: |
| (in thousands) | | | | |
| | | | | |
| Reversal of historical KB allowance for credit losses on loans | | $ | 9,491 | |
| Estimate of lifetime credit losses for PCD loans | | | (6,757 | ) |
| Net change in allowance for credit losses | | $ | 2,734 | |
| d. | Adjustment to premises and equipment to reflect the estimated fair value of acquired premises and equipment and right of use assets. |
| e. | Elimination of the historical KB goodwill of $14.0 million at the closing date. |
| f. | Calculation of core deposit intangible related to the acquisition. |
| g. | Adjustment to reflect the estimated fair value of other real estate owned. |
| h. | Adjustment to reflect the estimated fair value of mortgage servicing rights. |
| i. | Adjustment to net deferred tax assets associated with the effects of the purchase accounting adjustments. |
| j. | Adjustment to other assets to reflect the estimated fair value of prepaid and other assets. |
| k. | Adjustment to deposits to reflect the estimated fair value of time deposits in interest rates, which was based primarily on an analysis of current market interest rates and maturity dates. |
| l. | Adjustment to reflect the estimated fair value of Federal Home Loan Bank advances for differences in interest rates, which was based primarily on an analysis of current market interest rates and maturity dates. All KB FHLB advances were paid off immediately upon acquisition. |
| m. | Adjustment to other liabilities to establish the reserve for unfunded loan commitments under CECL and various accrual adjustments. |
Goodwill of approximately $124 million, which is the excess of the acquisition consideration over the fair value of net assets acquired, is expected to be recorded in the KB acquisition and is the result of expected operational synergies and other factors. This goodwill is all attributable to the Company’s Commercial Banking segment and is not expected to be deductible for tax purposes. To the extent that management revises any of the above fair value adjustments as a result of its continuing evaluation, the amount of goodwill recorded in the KB acquisition will change.
Net income, excluding all purchase accounting adjustments, attributed to KB totaled $2.1 million for the three and six months ended June 30, 2021.
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 KB acquisition taken place at the beginning of the period:
| (in thousands) | | Three months ended June 30, 2021 | | | Three months ended June 30, 2020 | |
| | | | | | | | | |
| Net interest income | | $ | 47,465 | | | $ | 42,664 | |
| Provision for loan losses (1) | | | (3,167 | ) | | | 7,525 | |
| Non-interest income | | | 18,078 | | | | 16,621 | |
| Non-interest expense (2) | | | 37,257 | | | | 32,903 | |
| Income before taxes | | | 31,453 | | | | 18,857 | |
| Income tax expense | | | 6,026 | | | | 2,518 | |
| Net income | | $ | 25,427 | | | $ | 16,339 | |
| | | | | | | | | |
| Earnings per share | | | | | | | | |
| Basic | | $ | 0.95 | | | $ | 0.62 | |
| Diluted | | | 0.94 | | | | 0.62 | |
| | | | | | | | | |
| Basic weighted average shares outstanding | | | 26,687 | | | | 26,363 | |
| Diluted weighted average shares outstanding | | | 26,926 | | | | 26,542 | |
| (in thousands) | | Six months ended June 30, 2021 | | | Six months ended June 30, 2020 | |
| | | | | | | | | |
| Net interest income | | $ | 94,043 | | | $ | 84,156 | |
| Provision for loan losses (1) | | | (4,542 | ) | | | 15,075 | |
| Non-interest income | | | 36,090 | | | | 32,719 | |
| Non-interest expense (2) | | | 71,803 | | | | 65,864 | |
| Income before taxes | | | 62,872 | | | | 35,936 | |
| Income tax expense | | | 11,979 | | | | 4,716 | |
| Net income | | $ | 50,893 | | | $ | 31,220 | |
| | | | | | | | | |
| Earnings per share | | | | | | | | |
| Basic | | $ | 1.91 | | | $ | 1.19 | |
| Diluted | | | 1.89 | | | | 1.18 | |
| | | | | | | | | |
| Basic weighted average shares outstanding | | | 26,670 | | | | 26,341 | |
| Diluted weighted average shares outstanding | | | 26,911 | | | | 26,540 | |
| (1) - Excludes $7.4 million in merger related credit loss expense for the three and six months ended June 30, 2021, respectively. | |
| (2) - Excludes $18.1 million and $18.5 million in pre-tax merger expenses for the three and six months ended June 30, 2021, respectively. |
|