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Business Combinations and Divestitures | 6 Months Ended
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Jun. 30, 2018
Business Combinations [Abstract] |
Business Combinations and Divestitures | NOTE 2 – Business combinations AND DIVESTITURES Interstate Capital Corporation On June 2, 2018, the Company acquired substantially all of the operating assets of, and assumed certain liabilities associated with, Interstate Capital Corporation’s (“ICC”) accounts receivable factoring business and other related financial services. ICC operates out of offices located in El Paso, Texas and Santa Teresa, New Mexico and provides invoice factoring to small and medium-sized businesses. 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 |  | $ | 75 |
Factored receivables |  |  | 131,017 |
Premises and equipment |  |  | 279 |
Intangible assets |  |  | 13,920 |
Other assets |  |  | 144 |
|  |  | 145,435 |
Liabilities assumed: |  |  |  |
Deposits |  |  | 7,389 |
Other liabilities |  |  | 763 |
|  |  | 8,152 |
Fair value of net assets acquired |  |  | 137,283 |
Consideration: |  |  |  |
Cash paid |  |  | 160,258 |
Contingent consideration |  |  | 20,000 |
Total consideration |  |  | 180,258 |
Goodwill |  | $ | 42,975 |
ICC’s net assets acquired were allocated to the Company’s Factoring segment whose factoring operations were significantly expanded as a result of the transaction. The Company has recognized goodwill of $42,975,000, which was calculated as the excess of both the fair value of cash consideration exchanged and the fair value of the contingent liability assumed as compared to the fair value of identifiable net assets acquired and was allocated to the Company’s Factoring segment. The goodwill in this acquisition resulted from expected synergies and expansion in the factoring market. The goodwill will be deducted for tax purposes. The intangible assets recognized include a customer relationship intangible asset with an acquisition date fair value of $13,500,000 which will be amortized utilizing an accelerated method over its eight year estimated useful life and a trade name intangible asset with an acquisition date fair value of $420,000 which will be amortized on a straight-line basis over its three year estimated useful life. Consideration paid included contingent consideration with an acquisition date fair value of $20,000,000. The contingent consideration is based on a proprietary index designed to approximate the rise and fall of transportation invoice prices subsequent to acquisition and is correlated to historical monthly movements in average invoice prices historically experienced by ICC. At the end of a 30 month earnout period, a final average index price will be calculated and the contingent consideration will be settled in cash based on the final average index price. Final contingent consideration payout will range from $0 to $22,000,000 and the fair value of the associated liability will be remeasured each reporting period with changes in fair value reflected in operating results. The operations of ICC are reflected in the Company’s Factoring segment and included in the Company’s operating results beginning June 2, 2018. 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. Expenses related to the acquisition, including professional fees and other transaction costs, totaling $1,094,000 were recorded in noninterest expense in the consolidated statements of income during the three months ended June 30, 2018. First Bancorp of Durango, Inc. and Southern Colorado Corp. On April 9, 2018 the Company entered into agreements to acquire (i) First Bancorp of Durango, Inc. and its community banking subsidiaries, First National Bank of Durango and Bank of New Mexico and (ii) Southern Colorado Corp. and its community banking subsidiary, Citizens Bank of Pagosa Springs for aggregate cash consideration of approximately $147,500,000. At December 31, 2017, First Bancorp of Durango, Inc. had $646,000,000 in assets, including $271,000,000 in loans, and $574,000,000 in deposits, and Southern Colorado Corp. had $88,000,000 in assets, including $37,000,000 in loans, and $79,000,000 in deposits. The transactions are expected to close during the third quarter of 2018 and are subject to certain customary closing conditions, including receipt of regulatory approvals. 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. At December 31, 2017, the carrying amount of the Disposal Group was transferred to assets held for sale. The sale closed on March 16, 2018. A summary of the carrying amount of the assets in the Disposal Group and the gain on sale is as follows:
(Dollars in thousands) |  |  |  |
Carrying amount of assets in the disposal group: |  |  |  |
Loans |  | $ | 70,147 |
Premises and equipment, net |  |  | 19 |
Goodwill |  |  | 1,457 |
Intangible assets, net |  |  | 958 |
Other assets |  |  | 197 |
Total carrying amount |  |  | 72,778 |
Total consideration received |  |  | 74,017 |
Gain on sale of division |  |  | 1,239 |
Transaction costs |  |  | 168 |
Gain on sale of division, net of transaction costs |  | $ | 1,071 |
The Disposal Group was included in the Banking segment, and the loans in the Disposal Group were previously included in the commercial loan portfolio. 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 expanded 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. Effective June 30, 2018 the Company reversed a previously established $1.7 million measurement period adjustment for a post-retirement benefit obligation related to an acquired split-dollar bank-owned life insurance policy based on new information obtained about the acquired policy’s conditions existing at the acquisition date. 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 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 three months 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 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 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 three months 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 or division |  |  | 21,260 |
Transaction costs |  |  | 400 |
Gain on sale of subsidiary or division, 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. 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 $1,534,000 at June 30, 2018. 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 during the three months ended March 31, 2017.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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