Acquisition of MainStreet BankShares, Inc.

12 Months Ended

Dec. 31, 2016

Business Combinations [Abstract]

Acquisition of MainStreet BankShares, Inc.

Acquisition of MainStreet BankShares, Inc.

On January 1, 2015, the Company completed its acquisition of MainStreet. The merger of MainStreet with and into the Company was effected pursuant to the terms and conditions of the MainStreet Merger Agreement. Immediately after the merger, Franklin Bank, MainStreet's wholly owned bank subsidiary, merged with and into the Bank.  Pursuant to the MainStreet Merger Agreement, holders of shares of MainStreet common stock received $3.46 in cash and 0.482 shares of the Company's common stock for each share of MainStreet common stock held immediately prior to the effective date of the merger, plus cash in lieu of fractional shares.  Each option to purchase shares of MainStreet common stock that was outstanding immediately prior to the effective date of the merger vested upon the merger and was converted into an option to purchase shares of the Company's common stock, adjusted based on a 0.643 exchange ratio. Each share of the Company's common stock outstanding immediately prior to the merger remained outstanding and was unaffected by the merger. The cash portion of the merger consideration was funded through a cash dividend of $6,000,000 from the Bank to the Company, and no borrowing was incurred by the Company or the Bank in connection with the merger. Replacement stock option awards representing 43,086 shares of the Company's common stock were granted in conjunction with the MainStreet acquisition. 

	Amounts Previously Recognized as of September 30, 2015		Measurement Period Adjustments			Adjusted Amounts Recognized as of December 31, 2015
Consideration Paid:
Common shares issued (825,586)	$	20,483	$	—		$	20,483
Cash paid to Shareholders	5,935		—			5,935
Value of consideration	26,418		—			26,418
Assets acquired:
Cash and cash equivalents	18,173		—			18,173
Investment securities	18,507		—			18,507
Restricted stock	587		—			587
Loans	115,237		(723		)	115,960
Premises and equipment	956		—			956
Deferred income taxes	3,056		262			2,794
Core deposit intangible	1,839		—			1,839
Other real estate owned	168		—			168
Bank owned life insurance	1,955		—			1,955
Accrued interest receivable and other assets	1,049		—			1,049
Total assets	161,527		(461		)	161,988
Liabilities assumed:
Deposits	137,323		—			137,323
Accrued interest payable and other liabilities	3,076		—			3,076
Total liabilities	140,399		—			140,399
Net assets acquired	21,128		(461		)	21,589
Goodwill resulting from merger with MainStreet	$	5,290				$	4,829

The Company accounted for the acquisition using the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under the acquisition method of accounting, the assets and liabilities of MainStreet were recorded at their respective acquisition date fair values. Determining the fair value of assets and liabilities, particularly related to the loan portfolio, is a complicated process involving significant judgment regarding methods and assumptions used to calculate the estimated fair values. The fair values determined on the acquisition date were preliminary and subject to refinement during the measurement period as additional information relative to the acquisition date fair values became available. Goodwill of $5,300,000 was initially recorded at the time of the acquisition. The decrease in goodwill was made during the fourth quarter of 2015 was due to a revaluation of the loan portfolio. As part of management's revaluation process, information and payments received subsequent to the initial valuation provided evidence that the credit mark on certain purchase credit impaired loans was too large. Management determined that these conditions existed as of the date of acquisition, but the information was not readily available. The revaluation process resulted in a reduction of $723,000 in the credit mark for acquired impaired loans and an increase in deferred taxes of $262,000 for a net decrease in goodwill of $461,000.