XML 28 R11.htm IDEA: XBRL DOCUMENT
v3.22.0.1

Business Combinations | 12 Months Ended
--- | ---
Dec. 31, 2021
Business Combinations [Abstract] |
Business Combinations | Note 3. Busines s Combinations On January 31, 2021, the Company completed the Bay Banks Merger, which was accounted for as a business combination. At the effective date of the merger, Bay Banks’ shareholders received 0.5000 shares of the Company’s common stock in exchange for each share of Bay Banks common stock held (“Exchange Ratio”), plus cash in lieu of any fractional shares, resulting in the Company issuing 6,634,495 shares (9,951,743 shares on a post Stock Split basis) with an aggregate fair market value of $124.9 million based on the closing price of the Company’s common stock at January 29, 2021, the last trading day prior to the effective date of the merger, and paying $3.4 thousand in lieu of fractional shares. In addition, options to purchase 198,362 shares of Bay Banks common stock, whether vested or unvested, were converted to options to acquire 99,176 shares of the Company’s common stock (148,764 shares on a post Stock Split basis) at an estimated fair value of $472 thousand as of the merger date. Finally, Bay Banks had previously acquired $1.75 million of the Company’s subordinated notes, while the Bank had previously acquired $1.10 million of Bay Banks’ subordinated notes. In the merger, an effective settlement of the notes occurred in the amount of $650 thousand, which reduced the consideration paid. The Bay Banks Merger combined two banks with complementary capabilities and geographical focus, thus provided the opportunity for the organization to leverage its existing infrastructure, including people, processes, and systems, across a larger asset base. The Company has accounted for the Bay Banks Merger under the acquisition method of accounting, whereby the acquired assets and assumed liabilities are recorded by the Company at their estimated fair values as of the effective date of the merger. Fair value estimates were based on management’s assessment of the best information available at the time of determination and are highly subjective. The following table presents the consideration paid in the merger and the summary balance sheet of Bay Banks as of the date of the merger inclusive of estimated fair value adjustments and the allocation of consideration paid in the merger to the acquired assets and assumed liabilities. Goodwill resulting from the Bay Banks Merger was $7.2 million.
(Dollars in thousands, except per share data) |  |  |
Consideration paid: |  |  | Reference:
Company's common shares issued |  | 9,951,743 |  | A
Purchase price per share | $ | 12.55 |  | A, B
Value of common stock issued | $ | 124,928 |  |
Estimated fair value of stock options |  | 472 |  |
Cash in lieu of fractional shares |  | 3 |  |
Total consideration paid | $ | 125,403 |  |
Effective settlement of subordinated notes |  | (650 | ) |
Total consideration paid less effective settlement of subordinated notes | $ | 124,753 |  |
Fair value of assets acquired: |  |  |
Cash and due from banks | $ | 44,066 |  |
Federal funds sold |  | 1,732 |  |
Certificates of deposit |  | 1,018 |  |
Securities available for sale |  | 79,505 |  |
Restricted securities |  | 4,385 |  |
Loans held for investment |  | 1,030,433 |  | C
Loans held for sale |  | 3,814 |  |
Premises and equipment |  | 15,532 |  | D
Right-of-use asset |  | 1,864 |  |
Other real estate owned |  | 598 |  |
Bank owned life insurance |  | 20,259 |  |
Mortgage servicing rights |  | 987 |  |
Core deposit intangible |  | 6,850 |  | E
Deferred tax asset, net |  | 2,685 |  | F
Other assets |  | 10,855 |  | G
Total assets | $ | 1,224,583 |  |
Fair value of liabilities assumed: |  |  |
Deposits | $ | 1,030,888 |  | H
FHLB borrowings |  | 10,124 |  | I
FRB borrowings |  | 24,815 |  |
Subordinated notes |  | 31,850 |  | J
Other liabilities |  | 9,359 |  |
Total liabilities | $ | 1,107,036 |  |
Net identifiable assets acquired at fair value | $ | 117,547 |  |
Goodwill | $ | 7,206 |  |
Reference: | Explanation of reference:
A | Common shares issued and purchase price per share are presented on a post Stock Split basis.
B | The value of the shares of the Company's common stock exchanged for shares of Bay Banks common stock was based upon the closing price of the Company's common stock at January 29, 2021, the last trading day prior to the date of completion of the merger.
C | Reflective of a $17.9 million (or 1.70%) fair value adjustment (discount) to the amortized cost of the loan portfolio acquired.
D | Reflective of a $4.4 million fair value adjustment (premium) over the net book value of premises and equipment acquired.
E | Core deposit intangible asset recorded to reflect the fair value of nonmaturity deposits, except for time deposits over $100,000, assumed by the Company.
F | Reflective of a $2.1 million net deferred tax asset recorded on all fair value adjustments, excluding goodwill, at the statutory federal income tax rate of 21%.
G | Reflective of a $203 thousand fair vale adjustment (premium) on other assets acquired.
H | Reflective of a $5.8 million fair value adjustment (premium) over the book value of time deposits assumed.
I | Reflective of a $124 thousand fair value adjustment (premium) on the $10 million Federal Home Loan Bank of Atlanta ("FHLB") advance assumed.
J | Reflective of a $950 thousand fair value adjustment (premium) over the book value of subordinated notes assumed.
Cash and cash equivalents. The carrying amounts of cash, due from banks, federal funds sold, and certificates of deposit was deemed to be a reasonable estimate of fair value. Securities available for sale. The estimated fair value of investment securities acquired was based on quoted market and third-party broker provided prices as of the merger date. Restricted securities. The carrying amount of restricted equity securities was used as a reasonable estimate of fair value. These investments are carried at cost as no active trading market exists. Loans. The acquired loan portfolio was segregated into two categories for valuation purposes: PCI and purchased performing loans. PCI loans were identified as those loans that were nonaccrual prior to the business combination and those loans that were identified as potentially impaired. Potentially impaired loans were those loans that were identified during the credit review process where there was an indication that the borrower did not have sufficient cash flows to service the loan in accordance with its terms. Specifically, loans with a risk rating of special mention or worse, loans that had been previously restructured as a TDR, or loans that had a history of delinquent payments were deemed PCI. Performing loans were those loans that were currently performing in accordance with the loan contract and did not exhibit any significant deterioration in credit quality since origination. For loans that were identified as performing, the fair values were determined using a discounted cash flow analysis (the "income approach"). Performing loans were segmented into pools based on loan type including commercial mortgages, multifamily, commercial and industrial, construction and land development, consumer residential, and consumer nonresidential, and further segmented based on payment structure (fully amortizing, non-fully amortizing balloon, or interest only), rate type (fixed versus variable), and remaining maturity. The estimated cash flows expected to be collected for each loan were determined using a valuation model that included the following key assumptions: prepayment speeds, expected credit loss rates, and discount rates. Prepayment speeds were influenced by many factors including, but not limited to, current yields, historic rate trends, payment types, interest rate type, and the duration of the individual loan. Expected credit loss rates were based on recent and historical default and loss rates observed for loans with similar characteristics, and further influenced by a third-party loan review on a selection of loans within the acquired portfolio. The discount rates used were based on rates market participants may require for cash flows with similar risk characteristics at the acquisition date. For loans that were identified as PCI, either the above income approach or the asset approach was used. The income approach was used for PCI loans where there was an expectation that the borrower would more likely than not continue to pay based on the current terms of the loan contract. Management used the asset approach for all nonaccrual loans to reflect market participant assumptions. Under the asset approach, the fair value of each loan was determined based on the estimated fair values of the underlying collateral, less estimated costs to sell. The methods used to estimate the fair values of loans are sensitive to the assumptions and estimates used. While management attempted to use assumptions and estimates that best reflected the acquired loan portfolios and current market conditions, a greater degree of subjectivity is inherent in these values than in those determined in active markets. Premises and equipment. Land and buildings (collectively, “premises”) acquired were recorded at estimated fair value as determined by third-party appraisals at or near the merger date. Equipment, including office furniture, computers, and similar assets, were recorded at the their net book values as of the merger date, which approximated fair value. Bank owned life insurance. The carrying value of bank owned life insurance was deemed to reasonably approximate fair value. These policies are recorded at their cash surrender value, using information provided by the insurance carriers. The following table presents the purchased performing and PCI loans receivable at the date of the Bay Banks Merger and the fair value adjustments (discounts) recorded immediately following the merger:
|  | As of January 31, 2021 |
(Dollars in thousands) |  | Purchased Performing |  |  | PCI |  |  | Total |
Principal payments receivable |  | $ | 936,523 |  |  | $ | 111,766 |  |  | $ | 1,048,289 |
Fair value adjustment - credit and interest |  |  | (2,784 | ) |  |  | (15,072 | ) |  |  | (17,856 | )
Fair value of acquired loans |  | $ | 933,739 |  |  | $ | 96,694 |  |  | $ | 1,030,433 |
Core deposit intangible. Core deposit intangible ("CDI") is the measure of the value of noninterest-bearing checking, savings, interest-bearing checking, money market, and certain certificates of deposits assumed in a business combination. Certificates of deposit with balances over $100,000 and brokered deposits are excluded from evaluation, as the Company determined customer related intangible assets are non-existent for these accounts. The estimated fair value of CDI was based on the present value of the expected cost savings attributable to the core deposit funding relative to an alternative funding source. The CDI is being amortized over an estimated useful life of 10 years, which approximates the existing deposit relationships acquired. Deposits. The fair values of deposit liabilities with no stated maturity (noninterest-bearing checking, savings, interest-bearing checking, and money market deposits) are equal to the carrying amounts payable on demand. The estimated fair value of the certificates of deposit represents contractual cash flows, discounted to present value using interest rates currently offered by market participants on deposits with similar characteristics and remaining maturities. FHLB borrowings. The fair value of the FHLB borrowings was estimated by discounting the future cash flows using current interest rates offered for similar advances as of the acquisition date. FRB borrowings. The fair value of Federal Reserve Bank of Richmond (“FRB”) borrowings was deemed to approximate its carrying value. These borrowings are pursuant to the FRB’s Paycheck Protection Program Liquidity Facility (“PPPLF”) and there is no comparable borrowing to advances under this facility. Subordinated notes. The fair value of the subordinated notes was estimated by utilizing recent issuance interest rates for subordinated debt offerings of similar issuer size near the merger date and adjusted for time to redemption or maturity. The fair value estimates are subject to change for up to one year after the effective date of the merger, if additional information relative to effective date fair values becomes available. No adjustments have been made to the fair value estimates through December 31, 2021. Impact of Certain Fair Value Adjustments The net effect of the amortization and accretion of premiums and discounts associated with the fair value adjustments to assets acquired and liabilities assumed in the Bay Banks Merger had the following effect on the consolidated statement of operations for the period stated.
(Dollars in thousands) |  | For the year ended December 31, 2021 |
Loans (1) |  | $ | 1,593 |
Time deposits (2) |  |  | 3,146 |
FHLB borrowings (3) |  |  | 12 |
Subordinated notes (4) |  |  | 171 |
CDI (5) |  |  | (1,194 | )
Net effect to income before income taxes |  | $ | 3,728 |
(1) Loan discount accretion and premium (amortization) is included in interest and fees in the consolidated statements of operations. (2) Time deposit premium amortization is included in interest on deposits in the consolidated statements of operations. (3) FHLB borrowings premium amortization is included in interest on FHLB and FRB borrowings in the consolidated statements of operations. (4) Subordinated notes premium amortization is included in the interest on subordinated notes in the consolidated statements of operations. (5) CDI amortization is included in the intangible amortization in the consolidated statements of operations. Pro Forma Financial Information The following table presents the effect of the Bay Banks Merger on the Company on a pro forma basis, as if the merger had occurred at the beginning of 2020. Merger-related expenses of $11.9 million and $2.4 million for the years ended December 31, 2021 and 2020, respectively, which are included in the Company’s consolidated statements of operations, are not included in the pro forma information below. Merger-related expenses incurred by Bay Banks prior to the completion of the Bay Banks Merger are not included in the Company’s consolidated statements of operations and are also not included in the pro forma information below. Net income includes pro forma adjustments for the accretion and amortization of estimated fair value adjustments on acquired loans and assumed time deposits and borrowings, as well as amortization of estimated CDI. A federal income tax rate of 21% was used in determining pro forma net income.
|  | For years ended December 31, |
(Dollars in thousands, except per share data) |  | 2021 |  |  | 2020 |
Revenue (net interest income plus noninterest income) |  | $ | 183,226 |  |  | $ | 152,473 |
Net income |  |  | 60,956 |  |  |  | 26,107 |
Earnings per common share |  |  | 3.32 |  |  |  | 1.42 |

X
- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
Name: | us-gaap_BusinessCombinationDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- References No definition available. + Details
Name: | us-gaap_BusinessCombinationsAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration