Business Combinations

12 Months Ended

Dec. 31, 2014

Business Combinations [Abstract]

Business Combinations

Note T

Business Combinations

The Company, through its subsidiary bank, purchased The BANKshares Inc. (“BANKshares”) in Winter Park, Florida on October 1, 2014. The acquisition related costs were approximately $4,361,000 and these expenses are reported in noninterest expenses in the consolidated statement of income. As a result of this acquisition, the Company expects to further solidify its market share in the Florida market, expand its customer base to enhance deposit fee income, and leverage operating costs through economies of scale.

The Company acquired 100% of the outstanding common stock of BANKshares. Each share of BANKshares common stock was exchanged for 0.4975 shares of the Company’s common stock. Based on the closing price of the Company’s common stock on September 30, 2014, the resulting purchase price was $76.8 million. The table below summarizes the purchase price calculation.

	September 30,
	2014
Number of shares of BANKshares common stock outstanding		12,644,763
BANKshares preferred shares that convert to BANKshares common shares upon a change in control		1,476,660
Total BANKshares common shares including conversion of preferred shares		14,121,423
Per share exchange ratio		0.4975
Number of shares of common stock issued		7,025,408
Multiplied by common stock price per share on September 30, 2014	$	10.93
Total purchase price		76,787,709

The table below presents information with respect to the fair value of acquired loans, as well as their unpaid principal balance (“Book Balance”) at acquisition date.

	Oct. 1, 2014
(Dollars in thousands)	Book Balance		Fair Value
Loans:
Single family residential real estate	$	50,768	$	49,184
Commercial real estate		229,859		224,837
Construction/development/land		30,994		27,578
Commercial loans		52,458		51,479
Consumer and other loans		3,647		3,568
Purchased credit-impaired		11,087		8,717
Total loans	$	378,813	$	365,363

Pro-forma information

Pro-forma data for the years ending December 31, 2014 and 2013 listed in the table below presents pro-forma information as if the acquisition occurred at the beginning of 2013.

	Year ended December 31,
(Dollars in thousands, except per share amounts)	2014		2013
Net interest income	$	91,382	$	86,401
Net income available to common shareholders		9,893		54,099
EPS - basic	$	0.30	$	2.04
EPS - diluted	$	0.30	$	2.03

 

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition.

	October 1,
Date of acquisition	2014
	(in thousands)
Assets:
Cash and cash equivalents	$	110,996
Loans		365,363
Securities available for sale		85,355
Bank premises		12,259
Other real estate owned		2,199
Core deposit intangible		7,769
Goodwill		25,309
Other assets		17,641
Total assets acquired	$	626,891
Liabilities:
Deposits	$	516,297
Subordinated debt		10,930
Repurchase agreements		18,478
Other liabilities		4,398
Total liabilities assumed	$	550,103

The acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. Both the purchased assets and liabilities assumed are recorded at their respective acquisition date fair values. Determining the fair values of assets and liabilities, especially the loan portfolio and foreclosed real estate, is a complicated process involving significant judgment regarding methods and assumptions used to calculate estimated fair values.

For the loans acquired we first, segregated all acquired loans with specifically identified credit deficiency factor(s). The factors we considered to identify loans as Purchase Credit Impaired (“PCI”) loans were all acquired loans that were non-accrual, 60 days or more past due, designated as Trouble Debt Restructured (“TDR”), graded “special mention” or “substandard.” . These loans were then evaluated to determine estimated fair values as of the acquisition date. As required by generally accepted accounting principles, we are accounting for these loans pursuant to ASC Topic 310-30.

Second, for those loans without specifically identified credit deficiency factors are referred to as Purchased Unimpaired Loans (“PULs”) for disclosure purposes. These loans were then evaluated to determine estimated fair values as of the acquisition date. Although no specific credit deficiencies were identifiable, we believe there is an element of risk as to whether all contractual cash flows will be eventually received. Factors that were considered included the economic environment both nationally and locally as well as the real estate market particularly in Florida. Based on management’s estimate of fair value, each of the PUL’s were assigned a discount credit mark. We have applied ASC Topic 310-20 accounting treatment to PULs.

The operating results of the Company for the year ended December 31, 2014 includes the operating results of the acquired assets and assumed liabilities since the acquisition date of October 1, 2014.