v3.26.1
Business Combinations
 6 Months Ended
Jun. 30, 2026
Business Combination [Abstract]  
Business Combinations

Note 8 -- Business Combinations

On February 28, 2026, the Company completed its acquisition of Two Rivers Financial Group, Inc. (“Two Rivers”) pursuant to an Agreement and Plan of Merger, dated October 29, 2025 (the “Merger Agreement”). Pursuant to the Merger Agreement, Two Rivers was merged with and into the Company. Two Rivers shareholders received 1.225 shares of the Company's common stock for each share of Two Rivers common stock.

The Company accounted for the Two Rivers acquisition as a business combination using the acquisition method of accounting in accordance with ASC 805, Business Combinations (“ASC 805”). ASC 805 requires assets purchased and liabilities assumed to be recorded at their respective fair values at the date of acquisition. The Company determined the fair value of loans, core deposit intangibles, time deposits, real property, jr. subordinated debt, a note payable, leases, FHLB borrowings and a customer list intangible with the assistance of third-party valuations and appraisals.

A preliminary summary of the fair value of assets received and liabilities assumed are as follows:

(In thousands)

 

 

 

Assets

 

 

 

Cash and due from banks

 

$

88,972

 

Loans held for sale

 

 

43

 

Loans, net

 

 

860,534

 

Investments-available for sale

 

 

169,780

 

FHLB stock

 

 

989

 

Premises and equipment

 

 

10,976

 

Accrued interest receivable

 

 

4,408

 

Prepaid expenses

 

 

954

 

Other assets

 

 

12,890

 

Core deposit intangible

 

 

21,240

 

Customer list intangible

 

 

4,800

 

Deferred tax asset

 

 

10,398

 

Total assets acquired

 

$

1,185,984

 

 

 

 

Liabilities

 

 

 

Deposits

 

$

1,040,793

 

FHLB advance

 

 

5,308

 

Note payable

 

 

20,004

 

Junior subordinated debt, net

 

 

9,526

 

Accrued interest payable

 

 

829

 

Accrued and other liabilities

 

 

5,576

 

Total liabilities assumed

 

 

1,082,036

 

Net assets acquired

 

$

103,948

 

 

 

 

Total consideration

 

$

104,161

 

Goodwill

 

$

213

 

The following table presents a summary of consideration transferred:

(In thousands, except shares)

 

 

 

Common stock issued (2,539,831 shares)

 

$

104,158

 

Cash consideration

 

 

3

 

Purchase price

 

$

104,161

 

 

The Company recorded $213,000 of goodwill in connection with the acquisition of Two Rivers. The amount of goodwill recorded reflects the synergies and operational efficiencies that are expected to result from the acquisition. The goodwill calculation is provisional for up to one year after the acquisition and could be adjusted in subsequent quarters during 2026 if additional relevant information to the fair values listed above become available. Adjustments made to the goodwill calculation are summarized in Note 5. The descriptions below describe the methods used to determine the fair value of significant assets acquired and liabilities assumed, as presented above:

 

Loans, net. The fair value of the loan portfolio was calculated on an individual loan basis using a discounted cash flow analysis, with results presented and assumptions applied on a summary basis. This analysis took into consideration the contractual terms of the loans and assumptions related to the cost of debt, cost of equity, servicing cost, and other liquidity/risk premium considerations to estimate the projected cash flows. The inputs and assumptions used in the fair value estimate of the loan portfolio include loss rates, discount rate, prepayment speed, and foreclosure lag. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans.

 

Premises and equipment. The fair value of the real estate acquired was determined by using third party real estate appraisers. The appraisals factored in the condition of the property and comparable sales of similar properties in similar markets. The appraisals allocated the value of each property between land and building and the properties were recorded at the appraised value on the balance sheet as of the date of the acquisition.

Core deposit intangible. The Company identified customer relationships, in the form of core deposit intangibles, as an identified intangible asset. Core deposit intangibles derive value from the expected future benefits or earnings capacity attributable to the acquired core deposits. The fair value of the core deposit intangible was estimated by identifying the expected future benefits of the core deposits and discounting those benefits back to present value. The core deposit intangible will be amortized over its estimated useful life of approximately 10 years using the sum of the months digits accelerated method.

Customer list intangible. The Company identified wealth management customer relationships, in the form of a customer list intangible, as an identified intangible asset. Customer list intangibles derive value from the expected future benefits or earnings capacity attributable to the acquired trust customer relationships. The fair value of the customer list intangible was estimated by identifying the expected future benefits of the customer relationships and discounting those benefits back to present value. The customer list intangible will be amortized over its estimated useful life of approximately 16 years using the straight-line method.

Deposits. The fair value of demand deposit and interest checking deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. The fair value of time deposits was estimated by discounting the contractual future cash flow using market rates offered for time deposits of similar remaining maturities.

FHLB borrowings, note payable, and jr. subordinated debt. The FHLB borrowings, note payable, and jr. subordinated debt was fair valued using an income approach. Cash flows were calculated using the instrument’s annualized contractual rate and discounted to present value using market rates for similar types of borrowing arrangements.

Accounting for acquired loans. Loans acquired are recorded at fair value with no carryover of the related allowance for credit losses. Purchased-credit deteriorated loans (“PCD”) are loans that have experienced more than insignificant credit deterioration since origination and are recorded at the purchase price. The allowance for credit losses is determined at the loan level. Non-PCD loans have not experienced a more than insignificant deterioration in credit quality since origination. Under ASU 2025-08, these loans are referred to as purchased seasoned loans and accounted for similarly to the PCD loans. PCD and purchased seasoned loan’s purchase price and the allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan.

In accordance with ASC 326, Financial Instruments – Credit Losses, immediately following the acquisition the Company established a $10.8 million allowance for credit losses on the $896.2 million of acquired loans.

The following table provides a summary of loans purchased as part of the Two Rivers acquisition as of the acquisition date:

(In thousands)

 

 

 

Unpaid principal balance

 

$

896,204

 

Allowance for credit losses at acquisition

 

 

(10,841

)

Non-credit discount on acquired loans

 

 

(24,786

)

Fair value of loans

 

$

860,577

 

 

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 Two Rivers Merger taken place at the beginning of the period (dollars in thousands, except per share data):

 

 

Three months ended

 

 

Six months ended

 

 

 

June 30,

 

 

June 30,

 

 

 

 

 

2025

 

 

2026

 

 

2025

 

Net interest income

 

 

 

$

73,328

 

 

$

156,900

 

 

$

141,870

 

Provision for credit losses

 

 

 

 

3,284

 

 

 

4,143

 

 

 

5,133

 

Non-interest income

 

 

 

 

26,580

 

 

 

57,331

 

 

 

54,305

 

Non-interest expense

 

 

 

 

68,213

 

 

 

140,140

 

 

 

136,070

 

Income before income taxes

 

 

 

 

28,411

 

 

 

69,948

 

 

 

54,972

 

Income tax expense

 

 

 

 

6,122

 

 

 

16,295

 

 

 

11,555

 

Net income available to common stockholders

 

 

 

$

22,289

 

 

$

53,653

 

 

$

43,417

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

$

0.84

 

 

$

2.03

 

 

$

1.64

 

Diluted

 

 

 

$

0.84

 

 

$

2.02

 

 

$

1.64

 

Basic weighted average shares outstanding

 

 

 

 

26,407,423

 

 

 

26,469,281

 

 

 

26,403,060

 

Diluted weighted average shares outstanding

 

 

 

 

26,528,805

 

 

 

26,600,629

 

 

 

26,514,014

 

The Company's consolidated statement of income for the six months ended June 30, 2026 includes $19,865 of revenue and $3,377 of net income applicable to Two Rivers from the Two Rivers Merger date, February 28, 2026, until the merger of Two Rivers Bank and First Mid Bank on June 13, 2026.

Acquisition costs are expensed as incurred as a component of non-interest expense and primarily include, but are not limited to, severance costs, professional services, data processing fees, and marketing and advertising expenses. The Company incurred acquisition costs related to the Two Rivers acquisition, pre-tax, of $9.2 million during the six months ended June 30, 2026 and no related acquisition costs were incurred during the six months ended June 30, 2025.