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Acquisition and Preliminary Purchase Price Allocation | 9 Months Ended
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Sep. 30, 2023
Business Combination and Asset Acquisition [Abstract] |
Acquisition and Preliminary Purchase Price Allocation | Acquisition and Preliminary Purchase Price AllocationOn March 10, 2023, the Company acquired 100% of the outstanding common shares of Citizens Commerce Bancshares, Inc. ("Citizens") and its principal banking subsidiary, Citizens Commerce Bank of Versailles, Kentucky, in order to strengthen the Company's market presence in the Lexington, Kentucky area. The acquisition of Citizens was structured as a stock transaction in which the Company issued approximately 0.7 million shares, valued at approximately $62.1 million. The following table summarizes the consideration paid for Citizens and the amounts of the assets acquired and liabilities assumed as of the date of acquisition (in thousands):
Consideration: |
Common stock | $ | 61,570 |
Stock option buyout | 495 |
Cash | 13 |
| 62,078 |
Identifiable assets: |
Cash and cash equivalents | 14,013
Investment securities | 41,008
FHLB stock | 620
Loans | 251,406
Fixed assets | 3,237
Bank owned life insurance | 2,966
Deferred tax assets, net | 1,481
Other assets | 5,007
Total identifiable assets | 319,738
Identifiable liabilities: |
Deposits | 299,251
Short-term borrowings | 6,500
Other liabilities | 1,362
Total identifiable liabilities | 307,113
Net identifiable assets (liabilities) | 12,625
Goodwill | 41,175
Core deposit intangible | 8,278
| $ | 62,078 |
319,738 Investment Securities The gain on the sale of investment securities recognized in the first nine months of 2023 was primarily due to the sale of Citizens investment portfolio of approximately $41 million shortly after the acquisition date. Acquired Loans The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows. However, the Company believes that there was not deterioration of credit at the date of acquisition. As such, these receivables were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit deteriorated loans, which have shown evidence of credit deterioration since origination. Receivables acquired that were not subject to these requirements include non-impaired loans with a fair value of $246.4 million on the date of acquisition. In connection with the completion of the acquisition of Citizens during the nine months ended September 30, 2023, the Company recorded $2.0 million of credit loss expense associated with loans acquired from Citizens in its total provision for credit losses. The fair value of purchased financial assets with credit deterioration ("PCD") was $4.9 million on the date of acquisition. The gross contractual amounts receivable relating to the purchased financial asset with credit deterioration was $8.5 million. The Company estimates, on the date of acquisition, that $3.6 million of the contractual cash flows specific to the purchased financial assets with credit deterioration will not be collected. Acquired Deposits The fair values of non-time deposits approximated their carrying value at the acquisition date. For time deposits, the fair values were estimated based on discounted cash flows, using interest rates that were being offered at the time of acquisition compared to the contractual interest rates. Based on this analysis, management recorded a premium on time deposits acquired of $0.6 million which is being amortized over 5 years. Core Deposit Intangible The Company believes that the customer relationships with the deposits acquired have an intangible value. In connection with the acquisition, the Company recorded a core deposit intangible asset of $8.3 million. The core deposit intangible asset represents the value that the acquiree had with their deposit customers. The fair value was estimated based on a discounted cash flow methodology that considered the type of deposit, deposit retention and the cost of the deposit base. The core deposit intangible is being amortized over 10 years. Goodwill Under GAAP, management has up to twelve months following the date of the acquisition to finalize the fair value of acquired assets and liabilities. The measurement period ends as soon as the Company receives information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. Any subsequent adjustments to the fair value of the acquired assets and liabilities, intangible assets or other purchase accounting adjustments will result in adjustments to the goodwill recorded. Among the items that are still preliminary at September 30, 2023 is the finalization of the final tax return, which management anticipates completing during 2023. Given the form of the transaction, the $41.2 million goodwill preliminarily recorded in conjunction with the Citizens acquisition is not expected to be deductible for tax purposes. The following table summarizes adjustments to goodwill subsequent to December 31, 2022 (in thousands):
| Goodwill
Balance at December 31, 2022 | $ | 108,941 |
Adjustment to goodwill acquired in conjunction with the acquisition of Citizens | 41,175
Balance at September 30, 2023 | $ | 150,116 |
Merger Related Costs During the nine months ended September 30, 2023, the Company incurred $5.6 million of merger-related costs in connection with the acquisition of Citizens, primarily for professional fees ($1.6 million), severance ($1.4 million), and data processing costs ($1.3 million).

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