Quarterly report pursuant to Section 13 or 15(d)

Note 7 - Intangibles and Acquisition Related Accounting

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Note 7 - Intangibles and Acquisition Related Accounting
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Goodwill and Intangible Assets Disclosure [Text Block]

Note 7 Intangibles and Acquisition Related Accounting

The Bancorp established a goodwill balance totaling $11.1 million with the acquisitions of AJSB, First Personal, First Federal, and Liberty Savings. Goodwill of $2.9 million, $5.4 million, $2.0 million, and $804 thousand were established with the acquisition of AJSB, First Personal, First Federal, and Liberty Savings, respectively. Goodwill is tested annually for impairment, or when circumstances or events are deemed significant enough to test for impairment. Goodwill arising from business combinations represents the value attributable to unidentifiable intangible assets in the business acquired. The Bancorp’s goodwill relates to the value inherent in the banking industry and that value is dependent upon the ability of the Bancorp to provide quality, cost effective banking services in a competitive marketplace. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written down to its implied fair value. As a result of the COVID-19 outbreak, and its broad effects on the economy, the Bancorp deemed it necessary to perform an interim impairment test of goodwill as of June 30, 2020. As part of the impairment test, the Bancorp enlisted a third party expert to perform a quantitative goodwill valuation analysis.  The analysis showed the implied fair value of goodwill was higher than its carrying value and no impairment was necessary. During the third quarter, the Bancorp performed an internal analysis, noting no impairment was necessary. The Bancorp will perform their annual impairment test as of December 31, 2020, and depending on current market conditions, the Bancorp will consider the use of a third party expert to perform another quantitative goodwill valuation analysis.Goodwill totaled $11.1 million as of September 30, 2020, and December 31, 2019.

 

In addition to goodwill, a core deposit intangible of $93 thousand for the acquisition of First Federal was established and is being amortized over an initial period of 7.9 years on a straight line basis. A core deposit intangible of $471 thousand for the acquisition of Liberty Savings was established and is being amortized over an initial period of 8.2 years on a straight line basis. A core deposit intangible of $3.0 million for the acquisition of First Personal was established and is being amortized over an initial period of 6.4 years on a straight line basis. A core deposit intangible of $2.9 million for the acquisition of AJSB was established and is being amortized over an initial period of 6.5 years on a straight line basis. The table below summarizes the annual amortization:

 

Amortization recorded for the nine months ended September 30, 2020 is as follows:

 

(dollars in thousands)

 

First Federal

   

Liberty Savings

   

First Personal

   

AJSB

   

Total

 

Current period

  $ 9     $ 43     $ 356     $ 337     $ 745  

 

Amortization to be recorded in future periods, is as follows:

 

(dollars in thousands)

 

First Federal

   

Liberty Savings

   

First Personal

   

AJSB

   

Total

 

Remainder 2020

    3       15       119       112       249  

2021

    12       58       475       449       994  
2022     1       58       475       449       983  

2023

    -       38       475       449       962  

2024

    -       -       470       449       919  

2025

    -       -       -       261       261  

2026

    -       -       -             -  

Total

  $ 16     $ 169     $ 2,014     $ 2,169     $ 4,368  

 

 

For the AJSB acquisition, as part of the fair value of certificates of deposit, a fair value premium was established of $174 thousand that is being amortized over 14 months on a straight line basis. Approximately $34 thousand of amortization was taken as income during the nine months ended September 30, 2020. The fair market premium on the certificates of deposit has fully amortized as of September 30, 2020.