v3.26.1
Note 2 - Business Combinations
 3 Months Ended
Mar. 31, 2026
Notes to Financial Statements  
Business Combination [Text Block]

Business Combinations:

 

 

On March 2, 2026, the Company completed its previously announced merger with Middlefield Banc Corp., an Ohio corporation (“Middlefield”), pursuant to the Agreement and Plan of Merger dated as of October 22, 2025, between the Company and Middlefield (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”) Middlefield merged with and into the Company (the “Merger”), with the Company as the surviving entity in the Merger. Promptly following the consummation of the Merger, The Middlefield Banking Company, the banking subsidiary of Middlefield, merged with and into The Farmers National Bank of Canfield, the national banking subsidiary of the Company (“Farmers Bank”), with Farmers Bank as the surviving bank.

 

Pursuant to the terms of the Merger Agreement, at the Effective Time of the Merger, each common share, without par value, of Middlefield (“Middlefield Common Shares”) issued and outstanding immediately prior to the Effective Time was converted into the right to receive 2.6 common shares, without par value, of the Company (“Company Common Shares”). No fractional Company Common Shares were issued in the Merger, and Middlefield’s shareholders became entitled to receive cash in lieu of fractional Company Common Shares, which represented a transaction value of approximately $277.4 million based on its closing stock price of $12.93 on February 27, 2026.  

 

In accordance with ASC 805, the Company expensed $3.7 million of merger related costs during the three months ended March 31, 2026.  There were no merger related expenses recorded during the three months ended March 31, 2025.  The Company recorded goodwill of $104.2 million as a result of the Merger.  Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies, including the reduction of personnel and overlapping contracts, expected to be derived from the Company’s strategy to enhance and expand its presence.  The Merger offers the Company the opportunity to increase profitability by introducing existing products and services to the acquired customer base as well as add new customers in the expanded market area.  The goodwill was determined not to be deductible for income tax purposes.

 

The following table summarizes the consideration paid for Middlefield and the amounts of the assets acquired and liabilities assumed on the closing date of the Merger.

 

 

(In Thousands of Dollars)

    

Consideration

    

Cash

 $8 

Stock

  277,355 

Fair value of total consideration transferred

 $277,363 

Fair value of assets acquired

    

Cash and cash equivalents

 $64,759 

Securities available for sale

  152,767 

Loans, net

  1,490,843 

Premises and equipment

  22,609 

Bank owned life insurance

  35,715 

Core deposit intangible

  19,826 

Current and deferred taxes

  7,473 

Other assets

  29,821 

Total assets acquired

  1,823,813 

Fair value of liabilities assumed

    

Deposits

  1,485,792 

Short-term borrowings

  145,000 

Long-term borrowings

  7,223 

Accrued interest payable and other liabilities

  12,636 

Total liabilities

  1,650,651 

Net assets acquired

 $173,162 

Goodwill created

  104,201 

Total net assets acquired

 $277,363 

 

The fair value of net assets acquired includes fair value adjustments to certain receivables that were considered performing as of the effective date of the Merger.  The fair value adjustments were determined using the income method, discounted cash flow approach.  However, the Company believes that all contractual cash flows related to these financial instruments will be collected.  As such, these receivables were not considered purchase credit deteriorated (“PCD”) at the Merger effective date and were not subject to the guidance relating to PCD loans.  Receivables acquired that were not subject to these requirements had a fair value and gross contractual amounts receivable of $1.46 billion and $1.48 billion on the date of acquisition.

 

The fair value of purchased financial assets that were classified as PCD loans are discussed in the Purchased Loans footnote. 

 

The following table presents unaudited pro forma information as if the Merger had occurred on January 1, 2025. The pro forma adjustments give effect to any change in interest income due to the accretion of the discount associated with the fair value adjustments to acquired loans, any change in interest expense due to estimated premium amortization/discount accretion associated with the fair value adjustment to acquired interest-bearing deposits and long-term debt and the amortization of the core deposit intangible that would have resulted had the deposits been acquired as of January 1, 2025.  The pro forma information is not indicative of what would have occurred had the Merger occurred as of the beginning of the year prior to the Merger effective date. The pro forma amounts below do not reflect any adjustments to the provision for credit losses for acquired loans, or the Company's expectations as of the date of the pro forma information of further operating cost savings and other business synergies expected to be achieved, including revenue growth as a result of the Merger.  As a result, actual amount differed from the unaudited pro forma information presented. 

 

 

  

Three months ended

 

(In Thousands of Dollars)

 

March 31, 2026

  

March 31, 2025

 

Net interest income

 $58,413  $51,422 

Noninterest income

  14,751   12,425 

Noninterest expense (1)

  48,268   40,208 

Net income (1)(2)

  21,069   19,543 

 

(1) Excludes $14.5 million in merger expense for the three months ended March 31, 2026.  No merger costs were recorded for the three months ended March 31, 2025.  

(2) Excludes $14.8 million in allowance for credit losses booked in the first quarter of 2026.  There was not a similar entry for the first quarter of 2025.