Acquisition of Northwest Georgia Bank

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

Acquisition of Northwest Georgia Bank

Note (2)—Acquisition of Northwest Georgia Bank

On September 18, 2015, the Bank completed its acquisition of Northwest Georgia Bank (NWGB), a bank headquartered in Ringgold, Georgia, pursuant to that certain Agreement and Plan of Merger dated April 27, 2015 by and between the Bank and NWGB. Pursuant to the Agreement and Plan of Merger, NWGB was merged with and into the Bank, with the Bank as the surviving entity. Prior to the acquisition, NWGB operated six banking locations in Georgia and Tennessee. The acquisition of NWGB allowed the Company to further its strategic initiatives by expanding its geographic footprint into certain markets of Georgia and Tennessee. The Company acquired NWGB in a $1,500 cash purchase.

The Company recorded a bargain purchase gain of $2,794 and a core deposit intangible asset of $4,931. The fair value of the core deposit intangible is being amortized on a straight-line basis over the estimated useful life, currently expected to be approximately 10 years.

For income tax purposes, the acquisition of NWGB was treated as an asset purchase. As an asset purchase for income tax purposes, the carrying value of assets and liabilities for NWGB are the same for both financial reporting and income tax purposes; therefore, no deferred taxes were recorded at the date of acquisition except for a $191 deferred tax liability recorded for the bargain purchase gain. Additionally, this treatment allows for the deductibility for income tax purposes of the core deposit intangible recorded for the NWGB merger over 15 years, net of the bargain purchase gain.

In connection with the transaction, the Company incurred $1,122 and $291 and $3,268 and $578 in merger and conversion expenses during the three months and nine months ended September 30, 2016 and 2015, respectively.

The following table summarizes the final allocation of purchase price to assets and liabilities acquired in connection with the merger with NWGB based on estimated fair value on September 18, 2015.

(Dollar amounts in thousands)
Final Allocation of Purchase Price for Northwest Georgia Bank:
Total cash purchase price				$	1,500
Net assets acquired:
Stockholders' equity at September 18, 2015	$	6,478
Increase (decrease) to net assets as a result of fair value adjustments to    assets acquired and liabilities assumed:
Securities		535
Loans, net of the reversal of NWGB's allowance for loan losses    of $4,383		(8,024	)
Premises and equipment		3,731
Core deposits intangible		4,931
Foreclosed real estate		(1,922	)
Other assets		(264	)
Deposits		(302	)
FHLB funds purchased		(378	)
Other liabilities		(491	)
Total net fair value adjustments					4,294
Bargain purchase gain				$	2,794

(1) The bargain purchase gain resulting from the merger has been recognized in the Banking operating segment during the three months ended September 30, 2015.

The following table summarizes the estimated fair value of assets acquired and liabilities assumed at acquisition date in connection with the merger with NWGB.

Cash and cash equivalents	$	25,495
Securities available-for-sale		134,278
Loans		78,565
Premises and equipment		15,343
Intangible assets		4,931
Foreclosed real estate		5,002
Other assets		8,735
Total Assets	$	272,349
Deposits	$	246,216
Borrowings		20,378
Other liabilities		1,461
Total Liabilities	$	268,055
Purchase price		1,500
Bargain purchase gain	$	2,794

The Company finalized purchase accounting surrounding the NWGB acquisition and closed the measurement period as of December 31, 2015. The Company also elected to early adopt ASU 2015-16, “Simplifying the Accounting for Measurement Period Adjustments” as of December 31, 2015.

The following table presents the fair value of loans acquired from NWGB as of the September 18, 2015 acquisition date:

	September 18, 2015
Contractually-required principal and interest	$	91,079
Nonaccretable difference		(8,578	)
Cash flows expected to be collected		82,501
Accretable yield		(3,936	)
Fair value	$	78,565

The following unaudited pro forma combined condensed consolidated financial information presents the results of operations for the nine months ended September 30, 2015 of the Company as though the merger with NWGB had been completed as of January 1, 2014. The unaudited estimated pro forma information combines the historical results of NWGB with the Company’s historical consolidated results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the periods presented. The pro forma information is not indicative of what would have occurred had the acquisition taken place on January 1, 2014. The pro forma information does not include the effect of any cost-saving or revenue-enhancing strategies.

	Three Months ended September 30, 2015			Nine Months ended September 30, 2015
Interest income	$	22,516		$	75,702
Interest expense		1,702			6,616
Net interest income		20,814			69,086
Provision for loan losses		(1,159	)		(937	)
Noninterest income		25,335			68,271
Noninterest expense		29,409			97,201
Income before income taxes		17,899			41,093
Income taxes		935			2,502
Net income	$	16,964		$	38,591
Earnings per share
Basic	$	0.99		$	2.25
Diluted	$	0.99		$	2.25