BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2016

NOTE A — BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 or any other period. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2015.

Use of Estimates

The preparation of these condensed consolidated financial statements required the use of certain estimates by management in determining the Company’s assets, liabilities, revenues and expenses. Actual results could differ from those estimates.

Specific areas, among others, requiring the application of management’s estimates include determination of the allowance for loan losses, the valuation of investment securities available for sale, fair value of impaired loans, contingent liabilities, fair value of other real estate owned, the fair value of acquired assets and assumed liabilities, and the valuation of deferred tax assets. Actual results could differ from those estimates.

Early Adoption of Accounting Standard Update

In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2016-09 for “Compensation—Stock Compensation, Improvements to Employee Share Based Payments Accounting.” The guidance alters the manner in which companies account for share based payments to employees. Entities are required to immediately recognize income tax effects of awards in the income statement when the awards vest or are settled. Additional paid-in capital pools are eliminated. The Company early adopted ASU 2016-09 during the three months ended September 30, 2016. As a result of the adoption, the Company recognized a $418,000 tax benefit in the Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2016, which added $0.01 to diluted and basic earnings per share for the three and nine month periods ended September 30, 2016. In addition, the Company presented excess tax benefits as an operating activity in the Consolidated Statement of Cash Flows using a retrospective transition method. The Company also made an accounting policy election to account for forfeitures utilizing estimates for expected forfeiture rates. This policy election did not have a material impact on the Company’s consolidated financial statements. Adoption of all other changes did not have an impact on our consolidated financial statements.