Business Combinations

6 Months Ended

Dec. 31, 2023

Business Combinations

Business Combinations

Note 12: Business Combinations

On January 20, 2023, the Company completed its acquisition of Citizens and its wholly owned subsidiary, Citizens Bank, in a stock and cash transaction. In late February 2023, the Company merged Citizens Bank with and into Southern Bank, coincident to the data systems conversion. For the three- and six- month periods ended December 31, 2023 and 2022, the Company incurred a credit of ($39,000) and a charge of $95,000, respectively, compared to $605,000 and $730,000 in the same periods of the prior fiscal year, of third-party acquisition-related costs, included in noninterest expense in the Company’s condensed consolidated statements of income.

Under the acquisition method of accounting, the total purchase price is allocated to the net tangible and intangible assets acquired based on their estimated fair values on the date of the acquisition. Based on preliminary valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, the purchase price for the Citizens acquisition is detailed in the following table. If, prior to the end of the one-year measurement period for finalizing the purchase price allocation, information becomes available about facts and circumstances that existed as of the acquisition date, which would indicate adjustments are required to the purchase price allocation, such adjustments will be included in the purchase price allocation retrospectively.

Citizens Bancshares Company
Fair Value of Consideration Transferred
(dollars in thousands)
Cash	$	34,889
Common stock, at fair value		98,280
Total consideration	$	133,169
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents	$	243,225
Investment securities		226,497
Loans		447,388
Premises and equipment		23,430
BOLI		21,733
Identifiable intangible assets		24,645
Miscellaneous other assets		9,366
Deposits		(851,140)
Securities sold under agreements to repurchase		(27,629)
Miscellaneous other liabilities		(7,784)
Total identifiable net assets		109,731
Goodwill	$	23,438

Of the total purchase price, $22.1 million was allocated to core deposit intangible, and will be amortized over ten years on a straight line basis, $2.6 million was allocated to the intangible related to the acquired trust and wealth management business line and will be amortized over ten years on a straight line basis, and $23.4 million was allocated to goodwill. None of the purchase price is deductible. Goodwill is attributable to synergies and economies of scale expected from combining the operations of the Bank and Citizens Bank. To the extent that management revises any of the fair value of the above fair value adjustments as a result of continuing evaluation, the amount of goodwill recorded in the merger will change.

The Company acquired the $461.5 million loan portfolio at an estimated fair value discount of $14.1 million. The excess of expected cash flows above the fair value of the performing portion of loans will be accreted to interest income over the remaining lives of the loans in accordance with ASC 310-30. Loans acquired that were not subject to guidance relating to PCD loans include loans with a fair value of $419.5 million and gross contractual amounts receivable of $520.0 million at the date of acquisition. Management identified 48 PCD loans, with a book balance of $27.5 million, associated with the Citizens acquisition (ASC 310-30).

The acquired business contributed revenues of $10.9 million and earnings of $2.5 million for the period from July 1, 2023 through December 31, 2023. The following unaudited pro forma summaries present consolidated information of the Company as if the business combination had occurred on the first day of each period:

	Pro Forma
	For the three months ended
	December 31,
(dollars in thousands)		2023		2022
Revenue	$	40,126	$	48,218
Earnings	$	12,193	$	13,834

	Pro Forma
	For the six months ended
	December 31,
(dollars in thousands)		2023		2022
Revenue	$	81,373	$	95,590
Earnings	$	25,345	$	28,123