NOTE 2 – Business combinations AND DIVESTITURES

Triumph Healthcare Finance

On January 19, 2018, the Company entered into an agreement to sell the assets (the “Disposal Group”) of Triumph Healthcare Finance (“THF”) and exit its healthcare asset-based lending line of business. The decision to sell THF was made prior to the end of the year, and at December 31, 2017, the fair value of the Disposal Group exceeded its carrying amount. As a result of this decision, the carrying amount of the Disposal Group was transferred to assets held for sale.

A summary of the carrying amount of the assets in the Disposal Group transferred to held for sale is as follows:

(Dollars in thousands)
Loans	$	70,771
Allowance for loan and lease losses		(2,103	)
Loans, net of allowance for loan and lease losses		68,668
Premises and equipment, net		33
Goodwill		1,024
Intangible assets, net		1,007
Other assets		630
Total carrying amount	$	71,362

The loans in the Disposal Group transferred to assets held for sale were previously included in the commercial loan portfolio. Loans in the Disposal Group with a recorded investment of $245,000 were classified as nonaccrual and impaired without a valuation allowance, and loans in the Disposal Group with a recorded investment of $5,431,000 were classified as substandard at December 31, 2017. The Disposal Group is included in the Banking segment.

Valley Bancorp, Inc.

Effective December 9, 2017, the Company acquired Valley Bancorp, Inc. (“Valley”) and its community banking subsidiary, Valley Bank & Trust, in an all-cash transaction. Valley Bank & Trust serves individuals and business customers from seven locations across the northern front range including Brighton, Dacono, Denver, Hudson, Westminster and Strasburg, Colorado. Valley Bank & Trust was merged into TBK Bank upon closing. The acquisition expanding the Company’s market in Colorado and further diversified the Company’s loan, customer, and deposit base.

A summary of the estimated fair values of assets acquired, liabilities assumed, consideration transferred, and the resulting goodwill is as follows:

(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	38,473
Securities		97,687
Loans		171,199
FHLB stock		315
Premises and equipment		6,238
Other real estate owned		2,282
Intangible assets		6,072
Bank-owned life insurance		7,153
Other assets		1,882
		331,301
Liabilities assumed:
Deposits		293,398
Junior subordinated debentures		5,470
Other liabilities		2,881
		301,749
Fair value of net assets acquired		29,552
Consideration transferred		40,075
Goodwill	$	10,523

The Company has recognized goodwill of $10,523,000, which was calculated as the excess of both the consideration exchanged and the liabilities assumed as compared to the fair value of identifiable net assets acquired and was allocated to the Company’s Banking segment. The goodwill in this acquisition resulted from expected synergies and expansion in the Colorado market. The goodwill will be deducted for tax purposes. The intangible assets recognized in the transaction will be amortized utilizing an accelerated method over their ten year estimated useful lives. The initial accounting for the acquisition has not been completed because the fair values of the assets acquired and liabilities assumed have not yet been finalized.

In connection with the acquisition, the Company acquired loans both with and without evidence of credit quality deterioration since origination. The acquired loans were initially recorded at fair value with no carryover of any allowance for loan and lease losses. Acquired loans were segregated between those considered to be purchased credit impaired (“PCI”) loans and those without credit impairment at acquisition. The following table presents details of the estimated fair value of acquired loans at the acquisition date:

	Loans,
	Excluding		PCI		Total
(Dollars in thousands)	PCI Loans		Loans		Loans
Commercial real estate	$	73,273	$	254	$	73,527
Construction, land development, land		19,770		1,199		20,969
1-4 family residential properties		26,264		—		26,264
Farmland		16,934		—		16,934
Commercial		31,893		—		31,893
Factored receivables		—		—		—
Consumer		1,612		—		1,612
Mortgage warehouse		—		—		—
	$	169,746	$	1,453	$	171,199

The following presents information at the acquisition date for non-PCI loans acquired in the transaction:

(Dollars in thousands)
Contractually required principal and interest payments	$	214,139
Contractual cash flows not expected to be collected	$	3,646
Fair value at acquisition	$	169,746

The following presents information at the acquisition date for PCI loans acquired in the transaction:

(Dollars in thousands)
Contractually required principal and interest payments	$	2,599
Contractual cash flows not expected to be collected (nonaccretable difference)		775
Expected cash flows at acquisition		1,824
Interest component of expected cash flows (accretable yield)		371
Fair value of loans acquired with deterioration of credit quality	$	1,453

The operations of Valley are included in the Company’s operating results beginning December 9, 2017.

Expenses related to the acquisition, including professional fees and other transaction costs, totaling $1,251,000 were recorded in noninterest expense in the consolidated statements of income during the year ended December 31, 2017.

Independent Bank – Colorado Branches

On October 6, 2017, the Company completed its acquisition of nine branch locations in Colorado from Independent Bank Group, Inc.’s banking subsidiary Independent Bank for an aggregate deposit premium of $6,771,000 or 4.2%. The branches were merged into TBK Bank upon closing. The primary purpose of the acquisition was to improve the Company’s core deposit base and continue to build upon the diversification of the Company’s loan portfolio.

A summary of the estimated fair values of assets acquired, liabilities assumed, consideration transferred, and the resulting goodwill is as follows:

(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	1,611
Loans		95,794
Premises and equipment		7,524
Intangible assets		3,255
Other assets		1,644
		109,828
Liabilities assumed:
Deposits		160,702
Other liabilities		249
		160,951
Fair value of net assets acquired		(51,123	)
Cash received from seller, net of $6,771 deposit premium		45,306
Goodwill	$	5,817

The Company has recognized goodwill of $5,817,000, which was calculated as the excess of both the consideration exchanged and the liabilities assumed as compared to the fair value of identifiable net assets acquired and was allocated to the Company’s Banking segment. The goodwill in this acquisition resulted from expected synergies and expansion in the Colorado market. The goodwill will be deducted for tax purposes. The intangible assets recognized in the transaction will be amortized utilizing an accelerated method over their ten year estimated useful lives. The initial accounting for the acquisition has not been completed because the fair values of the assets acquired and liabilities assumed have not yet been finalized.

The loans acquired in the transaction were initially recorded at fair value with no carryover of any allowance for loan and lease losses. There were no loans acquired that were considered to be purchased credit impaired (“PCI”) loans. The following table presents details of the estimated fair value of acquired loans at the acquisition date:

(Dollars in thousands)
Commercial real estate	$	13,382
Construction, land development, land		537
1-4 family residential properties		6,986
Farmland		31,490
Commercial		43,104
Factored receivables		—
Consumer		295
Mortgage warehouse		—
	$	95,794

The following presents information at the acquisition date for non-PCI loans acquired in the transaction:

(Dollars in thousands)
Contractually required principal and interest payments	$	122,498
Contractual cash flows not expected to be collected	$	3,415
Fair value at acquisition	$	95,794

The operations of the branches acquired are included in the Company’s operating results beginning October 6, 2017.

Expenses related to the acquisition, including professional fees and other transaction costs, totaling $437,000 were recorded in noninterest expense in the consolidated statements of income during the year ended December 31, 2017.

Triumph Capital Advisors, LLC

On March 31, 2017, the Company sold its wholly owned asset management subsidiary, Triumph Capital Advisors, LLC, to an unrelated third party. The transaction was completed to enhance shareholder value and provide a platform for TCA to operate without the impact of regulations intended for depository institutions and their holding companies.

A summary of the consideration received and the gain on sale is as follows:

(Dollars in thousands)
Consideration received (fair value):
Cash	$	10,554
Loan receivable		10,500
Revenue share		1,623
Total consideration received		22,677
Carrying value of TCA membership interest		1,417
Gain on sale of subsidiary		21,260
Transaction costs		400
Gain on sale of subsidiary, net of transaction costs	$	20,860

The Company financed a portion of the consideration received with a $10,500,000 term credit facility. Terms of the floating rate credit facility provide for quarterly principal and interest payments with an interest rate floor of 5.50%, maturing on March 31, 2023. The Company received a $25,000 origination fee associated with the term credit facility that was deferred and is being accreted over the contractual life of the loan as a yield adjustment.

In addition, the Company is entitled to receive an annual earn-out payment representing 3% of TCA’s future annual gross revenue, with a total maximum earn-out amount of $2,500,000. The revenue share earn-out was considered contingent consideration which the Company recorded as an asset at its estimated fair value of $1,623,000 on the date of sale. The fair value of the revenue share asset was $1,737,000 at December 31, 2017.

The Company incurred pre-tax expenses related to the transaction, including professional fees and other direct transaction costs, totaling $400,000 which were netted against the gain on sale of subsidiary in the consolidated statements of income.

Southern Transportation Insurance Agency

On September 1, 2016, the Company acquired Southern Transportation Insurance Agency, Ltd. in an all-cash transaction for $2,150,000. The purpose of the acquisition was to expand the Company’s product offerings for clients in the transportation industry. The Company recognized an intangible asset of $1,580,000 and goodwill of $570,000, which were allocated to the Company’s Banking segment. Goodwill resulted from expected enhanced product offerings and will be deducted for tax purposes. The intangible assets recognized in the transaction will be amortized utilizing a straight line method over their eight year estimated useful lives.

ColoEast Bankshares, Inc.

On August 1, 2016, the Company acquired 100% of the outstanding common stock of ColoEast Bankshares, Inc. (“ColoEast”) and its community banking subsidiary, Colorado East Bank & Trust, in an all-cash transaction for $70,000,000. The Company also assumed $10,500,000 of ColoEast preferred stock issued in conjunction with the U.S. Government’s Treasury Asset Relief Program (“TARP Preferred Stock”). Colorado East Bank & Trust, which was merged into TBK Bank upon closing, offers personal checking, savings, CD, money market, HSA, IRA, NOW and business accounts, as well as commercial and consumer loans from 18 branches and one loan production office located throughout Colorado and far western Kansas. The acquisition expanded the Company’s market into Colorado and Kansas and further diversified the Company’s loan, customer, and deposit base.

A summary of the fair values of assets acquired, liabilities assumed, consideration transferred, and the resulting goodwill is as follows:

	Initial Values		Measurement
	Recorded at		Period			Adjusted
(Dollars in thousands)	Acquisition Date		Adjustments			Values
Assets acquired:
Cash and cash equivalents	$	57,671	$	—		$	57,671
Securities		161,693		—			161,693
Loans		460,775		—			460,775
FHLB and Federal Reserve Bank stock		550		—			550
Premises and equipment		23,940		—			23,940
Other real estate owned		3,105		(143	)		2,962
Intangible assets		7,238		—			7,238
Bank-owned life insurance		6,400		—			6,400
Deferred income taxes		4,511		(70	)		4,441
Other assets		10,022		—			10,022
		735,905		(213	)		735,692
Liabilities assumed:
Deposits		652,952		—			652,952
Junior subordinated debentures		7,728		—			7,728
Other liabilities		6,784		—			6,784
		667,464		—			667,464
Fair value of net assets acquired		68,441		(213	)		68,228
Cash paid		70,000		—			70,000
TARP Preferred Stock assumed		10,500		—			10,500
Consideration transferred		80,500		—			80,500
Goodwill	$	12,059	$	213		$	12,272

The consideration was comprised of a combination of cash and the assumption of ColoEast’s TARP Preferred Stock. The Company recognized goodwill of $12,272,000, which included measurement period adjustments related to the final valuation of other real estate owned acquired in the transaction and the finalization of income taxes associated with the transaction. Goodwill was calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of identifiable net assets acquired and was allocated to the Company’s Banking segment. The goodwill in this acquisition resulted from expected synergies and expansion into the Colorado and Kansas markets. The goodwill will not be deducted for tax purposes. The intangible assets recognized in the transaction will be amortized utilizing an accelerated method over their ten year estimated useful lives.

The TARP Preferred Stock assumed in the acquisition was redeemed by the Company at par on August 31, 2016.

In connection with the ColoEast acquisition, the Company acquired loans both with and without evidence of credit quality deterioration since origination. The acquired loans were initially recorded at fair value with no carryover of any allowance for loan and lease losses. Acquired loans were segregated between those considered to be purchased credit impaired (“PCI”) loans and those without credit impairment at acquisition. The following table presents details on acquired loans at the acquisition date:

	Loans, Excluding		PCI		Total
(Dollars in thousands)	PCI Loans		Loans		Loans
Commercial real estate	$	86,569	$	10,907	$	97,476
Construction, land development, land		58,718		2,933		61,651
1-4 family residential properties		36,412		91		36,503
Farmland		100,977		233		101,210
Commercial		151,605		5,129		156,734
Factored receivables		694		—		694
Consumer		6,507		—		6,507
	$	441,482	$	19,293	$	460,775

The following presents information at the acquisition date for non-PCI loans acquired in the transaction:

(Dollars in thousands)
Contractually required principal and interest payments	$	530,404
Contractual cash flows not expected to be collected	$	21,272
Fair value at acquisition	$	441,482

Information about the acquired loan portfolio subject to PCI accounting guidance as of August 1, 2016 is as follows:

(Dollars in thousands)
Contractually required principal and interest payments	$	25,124
Contractual cash flows not expected to be collected (nonaccretable difference)		1,707
Expected cash flows at acquisition		23,417
Interest component of expected cash flows (accretable yield)		4,124
Fair value of loans acquired with deterioration of credit quality	$	19,293

The following table presents pro forma information for the years ended December 31, 2016 and 2015 as if the ColoEast acquisition had occurred at the beginning of 2015. The pro forma information includes adjustments for interest income on loans acquired, interest expense on junior subordinated debentures assumed, depreciation expense on property acquired, amortization of intangibles arising from the transaction, and the related income tax effects. The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been completed on the assumed date.

(Dollars in thousands)	December 31, 2016		December 31, 2015
Net interest income	$	128,322	$	117,051
Noninterest income	$	22,671	$	36,539
Net income	$	21,220	$	31,624
Basic earnings per common share	$	1.14	$	1.73
Diluted earnings per common share	$	1.13	$	1.70

The operations of ColoEast are included in the Company’s operating results beginning August 1, 2016.

Expenses related to the acquisition, including professional fees and other transaction costs, totaling $1,618,000 were recorded in noninterest expense in the consolidated statements of income during the year ended December 31, 2016.

Doral Money Acquisition

On March 3, 2015, the Company acquired 100% of the equity of Doral Money, Inc. (“DMI”), a subsidiary of Doral Bank, and the management contracts associated with two active CLOs with approximately $700,000,000 of managed assets. The consideration transferred in the acquisition consisted of cash paid of $135,864,000. The primary purpose of the acquisition was to expand the managed CLO assets at Triumph Capital Advisors, LLC.

A summary of the fair values of assets acquired, liabilities assumed, net consideration transferred, and the resulting bargain purchase gain is as follows:

	Initial Values			Measurement
	Recorded at			Period			Adjusted
(Dollars in thousands)	Acquisition Date			Adjustments			Values
Assets acquired:
Cash	$	8,273		$	—		$	8,273
CLO Securities		98,316			—			98,316
Intangible asset - CLO management contracts		1,918			—			1,918
Loans		36,765			900			37,665
Prepaid corporate income tax		3,014			1,688			4,702
Other assets		772			—			772
		149,058			2,588			151,646
Liabilities assumed:
Deferred tax liability		663			—			663
Other liabilities		22			(20	)		2
		685			(20	)		665
Fair value of net assets acquired		148,373			2,608			150,981
Net consideration transferred		135,864			—			135,864
Bargain purchase gain	$	(12,509	)	$	(2,608	)	$	(15,117	)

The Company completed the acquisition via an FDIC bid process for DMI as part of the Doral Bank failure and the resulting nontaxable bargain purchase gain represents the excess of the fair value of the net assets acquired over the fair value of the net consideration transferred.

The Company incurred pre-tax expenses related to the acquisition of approximately $243,000 which are included in professional fees in the consolidated statements of income in the period incurred.