Acquisition and Preliminary Purchase Price Allocation

3 Months Ended

Mar. 31, 2024

Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]

Acquisition and Preliminary Purchase Price Allocation

Acquisition and Purchase Price Allocation

On March 10, 2023, the Company acquired 100% of the outstanding common shares of Citizens Commerce Bancshares, Inc. ("Citizens") and its principal banking subsidiary, Citizens Commerce Bank, in order to strengthen the Company's market presence in the Lexington, Kentucky area. The acquisition of Citizens was structured as a stock transaction in which the Company issued approximately 0.7 million shares, valued at approximately $61.6 million.

The following table summarizes the consideration paid for Citizens and the amounts of the assets acquired and liabilities assumed as of the date of acquisition (in thousands):

Consideration:
Common stock	$	61,570
Cash	13
	61,583
Identifiable assets:
Cash and cash equivalents	14,041
Investment securities	41,008
FHLB stock	620
Loans	251,406
Fixed assets	3,237
Bank owned life insurance	2,966
Deferred tax assets, net	1,623
Other assets	5,198
Total identifiable assets	320,099
Identifiable liabilities:
Deposits	299,251
Short-term borrowings	6,500
Other liabilities	1,864
Total identifiable liabilities	307,615
Net identifiable assets (liabilities)	12,484
Goodwill	40,821
Core deposit intangible	8,278
	$	61,583

Investment Securities

Citizen's entire investment portfolio of $41 million was sold shortly after the acquisition date and resulted in a $0.7 million realized gain during the quarter ended March 31, 2023 .

Acquired Loans

The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows. However, the Company believes that there was not deterioration of credit at the date of acquisition. As such, these receivables were not considered impaired at the acquisition date and were not subject to the guidance relating to purchased credit deteriorated loans, which have shown evidence of credit deterioration since origination. Receivables acquired that were not subject to these requirements include non-impaired loans with a fair value of $246.4 million on the date of acquisition.

In connection with the completion of the acquisition of Citizens during the year ended December 31, 2023, the Company recorded $2.0 million of credit loss expense associated with loans acquired from Citizens in its total provision for credit losses.

The fair value of purchased financial assets with credit deterioration ("PCD") was $4.9 million on the date of acquisition. The gross contractual amounts receivable relating to the purchased financial asset with credit deterioration was

$8.5 million. The Company estimates, on the date of acquisition, that $3.6 million of the contractual cash flows specific to the purchased financial assets with credit deterioration will not be collected.

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 were being offered at the time of acquisition compared to the contractual interest rates. Based on this analysis, management recorded a premium on time deposits acquired of $0.6 million 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 acquisition, the Company recorded a core deposit intangible asset of $8.3 million. The core deposit intangible asset represents 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 intangible is 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. As of March 31, 2024, twelve months have occurred since the date of acquisition on March 10, 2023, and the measurement period is now complete. The following table summarizes adjustments to goodwill subsequent to December 31, 2023 (in thousands):

	Goodwill
Balance at December 31, 2023	$	149,902
Adjustment to goodwill acquired in conjunction with the acquisition of Citizens	(140)
Balance at March 31, 2024	$	149,762