BUSINESS COMBINATION

3 Months Ended

Mar. 31, 2017

Business Combinations [Abstract]

BUSINESS COMBINATION

14. BUSINESS COMBINATION

On January 31, 2017, United Community completed its acquisition of Ohio Legacy Corp. (OLCB) pursuant to the terms and conditions of the Agreement and Plan of Merger, dated as of September 8, 2016 by and among United Community, the Bank, OLCB and Premier Bank & Trust (Merger Agreement).  Pursuant to the terms of the Merger Agreement, OLCB was merged with and into United Community. Immediately following the merger, Home Savings was merged with and into Premier Bank & Trust, a subsidiary of OLCB, and changed its name to Home Savings Bank.

As a result of the merger and in accordance with the terms of the Merger Agreement, each preferred share of OLCB was deemed to have been converted into OLCB common shares. Each OLCB common share was converted into the right to receive either $18.00 in cash or 2.736 United Community common shares, subject to certain allocation procedures set forth in the Merger Agreement that ensured that 50% of OLCB’s common shares outstanding were converted into United Community common shares and 50% of OLCB’s common shares outstanding were exchanged for the cash consideration. The Company issued cash in lieu of issuing fractional shares.  

After the allocation procedures were applied, the Company issued 3,033,604 United Community common shares and paid $20.4 million to OLCB shareholders as a result of the merger.  Acquisition related costs aggregating $5.0 million were included in United Community’s Consolidated Statements of Operations for the three months ended March 31, 2017.  The fair value of the common shares issued as part of the consideration paid for OLCB was determined in the basis of the closing price of United Community’s commons shares on the acquisition date.

The following table summarizes the consideration paid for OLCB.

	(In thousands)
Cash	$	20,379
United Community shares issued		25,816
Total fair value of consideration paid	$	46,195

At the acquisition date, United Community added the following to the Company’s consolidated statements of financial position:

	(In thousands)
Cash	$	46,159
Loans		259,373
Available for sale securities		9,996
FHLB stock, at cost		1,256
Premises and equipment		2,940
Accrued interest		679
Other intangible assets		2,426
Other real estate owned		89
Other assets		7,988
Total assets acquired	$	330,906
Deposits assumed	$	266,279
Federal Home Loan Bank advances		23,500
Repurchase agreements and other borrowings		10,771
Accrued expenses and other liabilities		2,581
Total liabilities assumed	$	303,131
Goodwill created	$	18,420

The changes to goodwill during the three months ended March 31, 2017 are primarily due to changes in the final market value for the customer list intangible asset, as well as the related tax effect from those adjustments related to the James & Sons acquisition in January 2016.  

The fair value of net assets acquired included fair value adjustments to certain receivables that were not considered impaired as of the acquisition date.  The fair value adjustments were determined using discounted contractural cash flows.  However, the Company believes that all contractual cash flows related to these financial instruments will be collected.  As such, these receivables were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit impaired loans, which have shown evidence of credit deterioration since origination.  Receivables acquired that were not subject to these requirements include non-impaired loans and customer receivables with a fair value and gross contractual amounts receivable of $2.5 million and $2.6 million, respectively, on the date of acquisition.

Upon adoption of ASU 2016-16, Business Combinations (Topic 805), adjustments to provisional amounts booked in previous years are to be adjusted through current year goodwill with the full effect of changes to depreciation, amortization, or other income recorded in current year earnings as if the change had been completed as of the acquisition date.

The following table presents proforma information as if the acquisition had occurred at the beginning of 2016.  The proforma information includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, depreciation expense on property acquired, interest expense on deposits acquired, and the related income tax effects.  The proforma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed dates.  Net income includes the recognition of $4.1 million in merger releated expenses incurred by United Community and $368,000 in merger related expenses for OLCB during the threee months ended March 31, 2017.  

	For the three months ended		For the three months ended
	March 31, 2017		March 31, 2016
	(In thousands, except per share data)
Net interest income	$	19,735	$	17,839
Net income		1,183		3,995
Basic earnings per share	$	0.02	$	0.08
Diluted earnings per share	$	0.02	$	0.08

Goodwill is recorded arising from the acquisition, which consisted largely of synergies and the cost savings resulting from combining the operations of the companies.  No goodwill is expected to be deductible for income tax purposes.  

At the time of the closing, Home Savings charter changed to a state chartered commercial bank and United Community became a financial holding company.

The acquisition benefits the Company and its shareholders by enabling the Company to further expand into the markets currently served by OLCB and strengthening the competitive position of the combined organization. Furthermore, the Company believes its increased asset size after the Merger will create additional economies of scale and provide opportunities for asset and earnings growth in an extremely competitive banking environment.  Bank results of operations were included in the Company’s results beginning January 31, 2017.

The fair value of $2.2 million of intangible assets related to core deposits is subject to change pending final receipt of the final valuation.