Note C –Acquisitions and Preliminary Purchase Price Allocation

On December 7, 2018, the Company acquired 100% of the outstanding common stock of Poage Bankshares, Inc., the parent company of Town Square Bank (collectively, "Poage"). The acquisition of Poage was structured as a stock transaction in which the Company issued approximately 1.1 million shares, valued at approximately $82.6 million, or $24.22 per share of Poage common stock.

On December 7, 2018, the Company also acquired 100% of the outstanding common stock of Farmers Deposit Bancorp, Inc., the parent company of Farmers Deposit Bank (collectively, "Farmers Deposit"). The acquisition of Farmers Deposit was structured as a cash transaction valued at $24.9 million, or $1,174.14 per share of Farmers Deposit common stock.

The Company accounted for both acquisitions using the acquisition method pursuant to "Topic 805 Business Combinations" of the FASB Accounting Standards Codification. The acquisition method requires the acquirer to recognize the assets acquired and the liabilities assumed at their fair values as of the acquisition date. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed as of the date of acquisition (in thousands):



	Farmers
	Deposit			Poage		Total
Consideration	$	24,900		$	83,936	$	108,836

Identifiable assets:
Cash and cash equivalents	4,173			34,325		38,498
Investment securities	46,235			72,321		118,556
Loans	58,516			304,359		362,875
Bank owned life insurance	—			7,439		7,439
Premises and equipment	768			4,547		5,315
Deferred tax assets, net	(188		)	2,379		2,191
Other assets	2,302			8,799		11,101
Total identifiable assets	111,806			434,169		545,975

Identifiable liabilities:
Deposits	92,241			379,285		471,526
Short-term borrowings	2,025			—		2,025
Long-term debt	—			4,053		4,053
Other liabilities	651			3,054		3,705
Total identifiable liabilities	94,917			386,392		481,309

Net identifiable assets	16,889			47,777		64,666
Goodwill	4,677			28,105		32,782
Core deposit intangible	3,334			8,054		11,388
	$	24,900		$	83,936	$	108,836

Acquired Loans

The following table presents information regarding the purchased credit-impaired and noncredit-impaired loans acquired in conjunction with both acquisitions (in thousands):



	At			As of
Acquired Credit-Impaired	Acquisition			March 31, 2019
Contractually required principal and interest	$	25,315		$	20,528
Contractual cash flows not expected to be collected (non-accretable difference)	(13,593		)	(10,115		)
Expected cash flows	11,722			10,413
Interest component of expected cash flows (accretable difference)	(2,375		)	(2,349		)
Carrying value of purchased credit-impaired loans acquired	$	9,347		$	8,064

Acquired Noncredit-Impaired
Outstanding balance	$	354,374		$	344,780
Less: fair value adjustment	(846		)	(653		)
Carrying value of acquired noncredit-impaired loans	$	353,528		$	344,127

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 are currently being offered compared to the contractual interest rates. Based on this analysis, management recorded a premium on time deposits acquired of $0.1 million and $1.7 million for the Farmers Deposit and Poage acquisitions, respectively, each of 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 acquisitions, the Company recorded a core deposit intangible asset of $3.3 million and $8.1 million for Farmers Deposit and Poage, respectively. Each of the core deposit intangible assets represent 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 intangibles are 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 March 31, 2019, is the finalization of the final tax returns for both entities, which management anticipates completing during 2019. Given the form of the respective transactions, the $4.7 million goodwill preliminarily recorded in conjunction with the Farmers Deposit acquisition is expected to be deductible for tax purposes, while the $28.1 million goodwill preliminarily recorded in conjunction with the Poage acquisition is not expected to be deductible for tax purposes. The following table summarizes adjustments to goodwill subsequent to December 31, 2018 (in thousands):



	Goodwill

Balance at December 31, 2018	$	109,567
Adjustment to goodwill acquired in conjunction with the acquisition of Poage	(529		)
Adjustment to goodwill acquired in conjunction with the acquisition of Farmers Deposit	(61		)
Balance at March 31, 2019	$	108,977