2. 2012 ACQUISITIONS OF FAILED BANKS

OVERVIEW

During 2012, the Bank acquired two failed institutions in FDIC-assisted transactions. The Bank acquired certain assets and assumed certain liabilities of Tennessee Commerce Bank (“TCB”) during the first quarter of 2012 and First Commercial Bank (“FCB”) during the third quarter of 2012. The Bank did not raise capital to complete either of these acquisitions.

The Bank determined that the acquisitions of these failed banks constituted “business acquisitions” as defined by Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. Accordingly, the assets acquired and liabilities assumed have been presented at their estimated fair values, as required. Fair values are determined over a measurement period based on the requirements of ASC Topic 820, Fair Value Measurements and Disclosures. The measurement period for day-one fair values begins on the acquisition date and ends the earlier of: (a) the day management believes it has all the information necessary to determine day-one fair values; or (b) one year following the acquisition date. In many cases, the determination of these day-one fair values requires management to make material estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to recast adjustments, which are retrospective adjustments to reflect new information existing at the acquisition date affecting day-one fair values. More specifically, recast adjustments for loans and other real estate owned are made as market value data, such as appraisals, are received by the Bank. Increases or decreases to day-one fair values have been reflected with a corresponding increase or decrease to goodwill or bargain purchase gain.

Tennessee Commerce Bank

On January 27, 2012, the Bank acquired specific assets and assumed substantially all of the deposits and specific other liabilities of TCB, headquartered in Franklin, Tennessee from the FDIC, as receiver for TCB, pursuant to the terms of a Purchase and Assumption Agreement (“P&A”) — Whole Bank; All Deposits entered into among RB&T, the FDIC as receiver of TCB and the FDIC. On January 30, 2012, TCB’s sole location re-opened as a division of RB&T.

The Bank acquired approximately $221 million in notional assets from the FDIC as receiver for TCB. In addition, the Bank also recorded a receivable from the FDIC for approximately $785 million, which represented the net difference between the assets acquired and the liabilities assumed, adjusted for the discount the Bank received for the acquisition. The FDIC paid approximately $771 million of this receivable on January 30, 2012 with the remaining $14 million paid on February 15, 2012.

During the first quarter of 2012, the Bank recorded an initial bargain purchase gain of $27.9 million as a result of the TCB acquisition. The bargain purchase gain was realized because the overall price paid by the Bank was substantially less than the fair value of the TCB assets acquired and liabilities assumed in the acquisition. In the second and third quarters of 2012, the Bank posted adjustments to the acquired assets for its FDIC-assisted acquisition in the determination of day-one fair values and recorded a net decrease to the bargain purchase gain of $285,000, as additional information relative to the day-one fair values became available.

Information obtained subsequent to January 27, 2012 and through September 30, 2012 was considered in forming TCB estimates of cash flows and collateral values as of the January 27, 2012 acquisition date, i.e., TCB’s day-one fair values. Day-one fair values for TCB were considered final as of September 30, 2012, which is the date the Bank believed it had received all the information necessary to determine TCB’s day-one fair values.

A summary of the assets acquired and liabilities assumed in the TCB acquisition, including 2012 recast adjustments, follows:

Tennessee Commerce Bank

	January 27, 2012
	As Previously Reported						As Recasted
	Contractual			Fair Value			2012 Recast			Fair
(in thousands)	Amount			Adjustments			Adjustments			Value
Assets acquired:

Cash and cash equivalents	$	61,943		$	(89	)	$	(2	)	$	61,852
Securities available for sale	42,646			—			—			42,646
Loans to be repurchased by the FDIC, net of discount	19,800			(2,797		)	—			17,003
Loans	79,112			(22,666		)	830			57,276
Federal Home Loan Bank stock, at cost	2,491			—			—			2,491
Other real estate owned	14,189			(3,359		)	(1,113		)	9,717
Core deposit intangible	—			64			—			64
Discount	(56,970		)	56,970			—			—
FDIC settlement receivable	784,545			—			—			784,545
Other assets and accrued interest receivable	945			(60		)	—			885
Total assets acquired	$	948,701		$	28,063		$	(285	)	$	976,479

Liabilities assumed:

Deposits
Non interest-bearing	$	19,754		$	—		$	—		$	19,754
Interest-bearing	927,641			54			—			927,695
Total deposits	947,395			54			—			947,449

Accrued income taxes payable	—			9,988			(100		)	9,888
Other liabilities and accrued interest payable	1,306			110			—			1,416

Total liabilities assumed	$	948,701		$	10,152		$	(100	)	$	958,753

Equity

Bargain purchase gain, net of taxes	—			17,911			(185		)	17,726

Total liabilities assumed and equity	$	948,701		$	28,063		$	(285	)	$	976,479

A summary of the net assets acquired from the FDIC and the estimated fair value adjustments as of the TCB acquisition date follows:

Tennessee Commerce Bank

	January 27, 2012
				Second Quarter			Third Quarter
	As Previously			2012 Recast			2012 Recast			As
(in thousands)	Reported			Adjustments			Adjustments			Recasted

Assets acquired, at contractual amount	$	221,126		$	—		$	—		$	221,126
Liabilities assumed, at contractual amount	(948,701		)	—			—			(948,701		)
Net liabilities assumed per the P&A Agreement	(727,575		)	—			—			(727,575		)

Contractual discount	(56,970		)	—			—			(56,970		)
Net receivable from the FDIC	$	(784,545	)	$	—		$	—		$	(784,545	)

Fair value adjustments:
Loans	$	(22,666	)	$	919		$	(89	)	$	(21,836	)
Discount for loans to be repurchased by the FDIC	(2,797		)	—			—			(2,797		)
Other real estate owned	(3,359		)	(1,000		)	(113		)	(4,472		)
Core deposit intangible	64			—			—			64
Deposits	(54		)	—			—			(54		)
Other assets and accrued interest receivable	(60		)	—			—			(60		)
All other	(199		)	(15		)	13			(201		)
Total fair value adjustments	(29,071		)	(96		)	(189		)	(29,356		)

Discount	56,970			—			—			56,970
Bargain purchase gain, pre-tax	$	27,899		$	(96	)	$	(189	)	$	27,614

On January 27, 2012, the Bank did not immediately acquire the TCB banking facility, including outstanding lease agreements and furniture, fixtures and equipment. During the third quarter of 2012, the Bank renegotiated a new lease with the landlord related to the sole banking facility and acquired all related data processing equipment and fixed assets totaling approximately $573,000.

First Commercial Bank

On September 7, 2012, the Bank acquired specific assets and assumed substantially all of the liabilities of FCB, headquartered in Bloomington, Minnesota from the FDIC, as receiver for FCB, pursuant to the terms of a Purchase and Assumption Agreement — Whole Bank; All Deposits, entered into among RB&T, the FDIC as receiver of FCB and the FDIC. On September 10, 2012, FCB’s sole location re-opened as a division of RB&T.

The Bank acquired approximately $215 million in notional assets from the FDIC as receiver for FCB. In addition, the Bank also recorded a receivable from the FDIC for approximately $64 million, which represented the net difference between the assets acquired and the liabilities assumed adjusted for the discount the Bank received for the acquisition. The FDIC paid substantially all of this receivable to the Bank on September 10, 2012.

During the third quarter of 2012, the Bank recorded an initial bargain purchase gain of $27.1 million as a result of the FCB acquisition. The bargain purchase gain was realized because the overall price paid by the Bank was substantially less than the fair value of the FCB assets acquired and liabilities assumed in the acquisition. During the fourth quarter of 2012, the Bank posted adjustments to the acquired assets for its FDIC-assisted acquisition in the determination of day-one fair values and recorded a net increase to the bargain purchase gain of $712,000, as additional information relative to the day-one fair values became available. During the first quarter of 2013, the Bank posted an additional increase of $1.3 million to the bargain purchase gain.

Information obtained subsequent to September 7, 2012 and through March 31, 2013 was considered in forming FCB estimates of cash flows and collateral values as of the September 7, 2012 acquisition date, i.e., FCB’s day-one fair values.

While a future recast of the FCB bargain purchase gain is possible through September 7, 2013, management does not currently anticipate additional future adjustments to the FCB bargain purchase gain, as a significant amount of information was considered available to management regarding the assets and liabilities in the acquisition and a significant amount of the assets acquired were resolved in some manner through March 31, 2013. As a result, management considered the measurement period for the FCB day-one fair values to be closed as of March 31, 2013 but reserves the right to make future adjustments if material information that existed as of the acquisition date becomes available prior to September 7, 2013.

A summary of the assets acquired and liabilities assumed in the FCB acquisition, including recast adjustments, follows:

First Commercial Bank

	September 7, 2012
	As Previously Reported						As Recasted
							2012 & 2013
	Contractual			Fair Value			Recast			Fair
(in thousands)	Amount			Adjustments			Adjustments			Value
Assets acquired :

Cash and cash equivalents	$	10,524		$	—		$	—		$	10,524
Securities available for sale	12,002			—			—			12,002
Loans	171,744			(44,214		)	2,821			130,351
Federal Home Loan Bank stock, at cost	407			—			—			407
Other real estate owned	19,360			(8,389		)	(785		)	10,186
Core deposit intangible	—			559			—			559
Discount	(79,412		)	79,412			—			—
FDIC settlement receivable	64,326			—			—			64,326
Other assets and accrued interest receivable	829			(95		)	—			734
Total assets acquired	$	199,780		$	27,273		$	2,036		$	229,089

Liabilities assumed:

Deposits:
Non interest-bearing	$	7,197		$	—		$	—		$	7,197
Interest-bearing	189,057			(3		)	—			189,054
Total deposits	196,254			(3		)	—			196,251

Federal Home Loan Bank advances	3,002			63			—			3,065
Accrued income taxes payable	—			9,706			712			10,418
Other liabilities and accrued interest payable	524			101			—			625

Total liabilities assumed	$	199,780		$	9,867		$	712		$	210,359

Equity:

Bargain purchase gain, net of taxes	—			17,406			1,324			18,730

Total liabilities assumed and equity	$	199,780		$	27,273		$	2,036		$	229,089

A summary of the net assets acquired from the FDIC and the estimated fair value adjustments as of the FCB acquisition date follows:

First Commercial Bank

	September 7, 2012
				Fourth Quarter		First Quarter
	As Previously			2012 Recast		2013 Recast			As
(in thousands)	Reported			Adjustments		Adjustments			Recasted

Assets acquired, at contractual amount	$	214,866		$	—	$	—		$	214,866
Liabilities assumed, at contractual amount	(199,780		)	—		—			(199,780		)
Net liabilities assumed per the P&A Agreement	15,086			—		—			15,086

Contractual discount	(79,412		)	—		—			(79,412		)
Net receivable from the FDIC	$	(64,326	)	$	—	$	—		$	(64,326	)

Fair value adjustments:
Loans	$	(44,214	)	$	423	$	2,398		$	(41,393	)
Other real estate owned	(8,389		)	289		(1,074		)	(9,174		)
Core deposit intangible	559			—		—			559
Deposits	3			—		—			3
Federal Home Loan Bank advances	(63		)	—		—			(63		)
Other assets and accrued interest receivable	(95		)	—		—			(95		)
All other	(101		)	—		—			(101		)
Total fair value adjustments	(52,300		)	712		1,324			(50,264		)

Discount	79,412			—		—			79,412
Bargain purchase gain, pre-tax	$	27,112		$	712	$	1,324		$	29,148

On September 7, 2012, the Bank did not immediately acquire the FCB banking facility, including outstanding lease agreements and furniture, fixtures and equipment. The Bank acquired all data processing equipment and fixed assets totaling approximately $328,000 during the fourth quarter of 2012. During the first quarter of 2013, the Bank renegotiated a new lease with the landlord related to the sole banking facility and acquired all related data processing equipment and fixed assets totaling approximately $233,000.

FAIR VALUE METHODS ASSOCIATED WITH THE 2012 ACQUISITIONS OF FAILED BANKS

The following is a description of the methods used to determine the fair values of significant assets and liabilities at the respective acquisition dates as presented throughout:

Cash and Due from Banks and Interest-bearing Deposits in Banks — The carrying amount of these assets, adjusted for any cash items deemed uncollectible by management, was determined to be a reasonable estimate of fair value based on their short-term nature.

Investment Securities — Investment securities were acquired at fair value from the FDIC. The fair values provided by the FDIC were reviewed and considered reasonable based on management’s understanding of the marketplace. Federal Home Loan Bank (“FHLB”) stock was acquired at cost, as it is not practicable to determine its fair value given restrictions on its marketability.

With the TCB acquisition, the Bank acquired $43 million in securities at fair value. The majority of the securities acquired were subsequently sold or called during the first quarter of 2012 with the Bank realizing a net gain on the corresponding transactions of approximately $56,000. The Bank sold these securities because management determined that the acquired securities did not fit within the Bank’s traditional investment strategies.

With the FCB acquisition, the Bank acquired $12 million in securities at fair value. The nature of these securities acquired were consistent with the Bank’s existing investment portfolio and the Bank elected not to sell these securities.

Loans — Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and a discount rate reflecting current market rates for new originations of comparable loans adjusted for the risk inherent in the cash flow estimates.

Certain loans that were deemed to be collateral dependent were valued based on the fair value of the underlying collateral. These estimates were based on the most recently available real estate appraisals with certain adjustments made based on the type of property, age of appraisal, current status of the property and other related factors to estimate the current value of the collateral.

With the TCB acquisition, the Bank purchased approximately $99 million in loans with a recasted fair value of approximately $74 million. During 2012, the FDIC repurchased approximately $20 million of TCB loans at a price of par less the original discount of $3 million that the Bank received when it purchased the loans. Loans repurchased by the FDIC were valued at the contractual amount reduced by the applicable discount.

With the FCB acquisition, the Bank purchased approximately $172 million in loans with a recasted fair value of approximately $130 million.

The composition of acquired loans as of the respective acquisition dates follows:

Tennessee Commerce Bank

	January 27, 2012
	As Previously Reported					As Recasted
	Contractual		Fair Value			2012 Recast			Fair
(in thousands)	Amount		Adjustments			Adjustments			Value

Residential real estate	$	22,693	$	(4,076	)	$	243		$	18,860
Commercial real estate	18,646		(6,971		)	1,988			13,663
Real estate construction	14,877		(2,681		)	(1,972		)	10,224
Commercial	13,224		(6,939		)	496			6,781
Home equity	6,220		(606		)	24			5,638
Consumer:
Credit cards	608		(22		)	—			586
Overdrafts	672		(621		)	—			51
Other consumer	2,172		(750		)	51			1,473
Total loans	$	79,112	$	(22,666	)	$	830		$	57,276

First Commercial Bank

	September 7, 2012
	As Previously Reported					As Recasted
						2012 & 2013
	Contractual		Fair Value			Recast			Fair
(in thousands)	Amount		Adjustments			Adjustments			Value

Residential real estate	$	48,409	$	(9,634	)	$	180		$	38,955
Commercial real estate	82,161		(12,330		)	(1,746		)	68,085
Real estate construction	14,918		(6,182		)	316			9,052
Commercial	25,475		(16,060		)	4,120			13,535
Home equity	404		(3		)	—			401
Consumer:
Credit cards	—		—			—			—
Overdrafts	6		—			—			6
Other consumer	371		(5		)	(49		)	317
Total loans	$	171,744	$	(44,214	)	$	2,821		$	130,351

The following tables present the purchased loans that are included within the scope of ASC Topic 310-30, Accounting for Purchased Loans with Deteriorated Credit Quality, at the respective acquisition dates:

Tennessee Commerce Bank

	January 27, 2012
	As Previously			2012 Recast			As
(in thousands)	Reported			Adjustments			Recasted

Contractually-required principal and interest payments	$	52,278		$	—		$	52,278
Non-accretable difference	(21,308		)	903			(20,405		)
Cash flows expected to be collected	30,970			903			31,873
Accretable difference	(425		)	(73		)	(498		)
Fair value of loans	$	30,545		$	830		$	31,375

First Commercial Bank

	September 7, 2012
				2012 & 2013
	As Previously			Recast			As
(in thousands)	Reported			Adjustments			Recasted

Contractually-required principal and interest payments	$	116,940		$	4,213		$	121,153
Non-accretable difference	(33,523		)	4,640			(28,883		)
Cash flows expected to be collected	83,417			8,853			92,270
Accretable difference	(2,827		)	(1,819		)	(4,646		)
Fair value of loans	$	80,590		$	7,034		$	87,624

Core Deposit Intangible — In its assumption of the deposit liabilities for the 2012 acquisitions, the Bank believed that the customer relationships associated with these deposits had intangible value, although this value was anticipated to be modest given the nature of the deposit accounts and the anticipated rapid account run-off since acquired. The Bank recorded core deposit intangible assets of $64,000 and $559,000 related to the TCB and FCB acquisitions. The fair value of these intangible assets were estimated based on a discounted cash flow methodology that gave appropriate consideration to type of deposit, deposit retention, cost of the deposit base and net maintenance cost attributable to customer deposits.

Other Real Estate Owned (“OREO”) — OREO is presented at fair value, which is the estimated value that management expects to receive when the property is sold, net of related costs to sell. These estimates were based on the most recently available real estate appraisals, with certain adjustments made based on the type of property, age of appraisal, current status of the property and other related factors to estimate the current value of the property.

The Bank acquired $14 million in OREO related to the TCB acquisition, which was initially reduced by a $3 million fair value adjustment as of January 27, 2012. Subsequent to the first quarter, the Bank posted a net negative recast adjustment of $1 million to OREO to mark several properties to market based on appraisals received.

The Bank acquired $19 million in OREO related to the FCB acquisition, which was initially reduced by an $8 million fair value adjustment as of September 7, 2012. During the fourth quarter of 2012 and the first quarter of 2013, the Bank posted net positive recast adjustments of $289,000 and $1.1 million to OREO to mark several properties to market based on appraisals received.

FHLB Advances —The Bank acquired $3 million in FHLB advances related to the FCB acquisition. The advances were marked to market as of the acquisition date based on early prepayment payoffs (including penalties) received from the FHLB.
The Bank paid off the advances during the third quarter of 2012 at no additional loss beyond the fair value adjustment as of their date of acquisition.

Deposits — The fair values used for the demand and savings deposits that comprise the acquisition accounts acquired, by definition, equal the amount payable on demand at the acquisition date. The fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered to the interest rates embedded on such time deposits.

The Bank assumed $947 million in deposits at estimated fair value in connection with the TCB acquisition. As permitted by the FDIC, within seven days of the acquisition date, RB&T had the option to disclose to TCB’s deposit customers that it was repricing the acquired deposit portfolios. In addition, depositors had the option to withdraw funds without penalty. The Bank chose to reprice all of the acquired TCB interest-bearing deposits, including transaction, time and brokered deposits with an effective date of January 28, 2012. This re-pricing triggered significant time and brokered deposit run-off consistent with management’s expectations. Through June 30, 2013, approximately 97% of the assumed TCB interest-bearing deposit account balances had exited the Bank, with no penalty on the applicable time and brokered deposits. At June 30, 2013, the Bank had $26 million of deposits associated with TCB.

The Bank assumed $196 million in deposits at estimated fair value in connection with the FCB acquisition. the Bank chose to re-price all of the acquired FCB time deposits with an effective date of October 1, 2012. This re-pricing triggered certificate of deposit run-off consistent with management’s expectations. Through June 30, 2013, approximately 81% of the assumed interest-bearing deposit account balances had exited the Bank, with no penalty on the applicable time and brokered deposits. At June 30, 2013, the Bank had $38 million of deposits associated with the FCB acquisition.

The composition of deposits assumed at fair value as of the respective acquisition dates follows:

Tennessee Commerce Bank

	January 27, 2012
	Contractual		Fair Value		Recast		Fair
(in thousands)	Amount		Adjustments		Adjustments		Value

Demand	$	3,190	$	—	$	—	$	3,190
Money market accounts	11,338		—		—		11,338
Savings	91,859		—		—		91,859
Individual retirement accounts*	15,486		—		—		15,486
Time deposits, $100,000 and over*	278,825		—		—		278,825
Other certificates of deposit*	108,003		14		—		108,017
Brokered certificates of deposit*	418,940		40		—		418,980

Total interest-bearing deposits	927,641		54		—		927,695
Total non interest-bearing deposits	19,754		—		—		19,754

Total deposits	$	947,395	$	54	$	—	$	947,449

First Commercial Bank

	September 7, 2012
	Contractual		Fair Value			Recast		Fair
(in thousands)	Amount		Adjustments			Adjustments		Value

Demand	$	4,003	$	—		$	—	$	4,003
Money market accounts	38,187		—			—		38,187
Savings	—		—			—		—
Individual retirement accounts*	16,780		—			—		16,780
Time deposits, $100,000 and over*	14,740		—			—		14,740
Other certificates of deposit*	62,033		—			—		62,033
Brokered certificates of deposit*	53,314		(3		)	—		53,311

Total interest-bearing deposits	189,057		(3		)	—		189,054
Total non interest-bearing deposits	7,197		—			—		7,197

Total deposits	$	196,254	$	(3	)	$	—	$	196,251

* - denotes a time deposit