SIERRA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
114
21.
BUSINESS COMBINATION
(Continued)
In many cases, the fair values of assets acquired and liabilities assumed were determined by estimating the
cash flows expected to result from those assets and liabilities and discounting them at appropriate market
rates. The most significant category of assets for which this procedure was used was that of acquired
loans. The excess of expected cash flows above the fair value of the majority of loans will be accreted to
interest income over the remaining lives of the loans in accordance with FASB Accounting Standards
Codification (ASC) 310-20 (formerly SFAS 91). The Company believes that all contractual cash flows
related to these loans will be collected. As such, these loans 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. Loans acquired that were not subject to
these requirements had a fair value and gross contractual amounts receivable of $61,345,000 and
$71,470,000 as of the date of acquisition.
Certain loans, for which specific credit-related deterioration, since origination, was identified, are
recorded at fair value, reflecting the present value of the amounts expected to be collected. Income
recognition on these “purchase credit-impaired” loans is based on a reasonable expectation about the
timing and amount of cash flows to be collected. Acquired loans deemed impaired and considered
collateral dependent, with the timing of the sale of loan collateral indeterminate, remain on non-accrual
status and have no accretable yield. These loans are discussed in further detail in Note 4
Purchased Credit
Impaired Loans.
In accordance with GAAP, there was no carryover of the allowance for loan losses that had been
previously recorded by SCVB.
The Company recorded a deferred income tax asset of $2,300,000 related to SCVB’s net operating loss
carry-forward, as well as other tax attributes of SCVB, along with the effects of fair value adjustments
resulting from applying the acquisition method of accounting.
The fair value of savings and transaction deposit accounts acquired from SCVB were assumed to
approximate their carry value, as these accounts have no stated maturity and are payable on demand.
The following table presents unaudited pro forma information as if the acquisition had occurred at the
beginning of 2012. The unaudited pro forma information included 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 unaudited pro forma financial information is not necessarily indicative of the results of operations that
would have occurred had the transactions been effected on the assumed dates (dollars in thousands):
Pro Forma
Pro Forma
Pro Forma
Year Ended
Year Ended
Year Ended
2014
2013
2012
Net interest Income
56,095
$
53,189
$
55,545
$
Net income
13,792
$
13,082
$
8,609
$
Basic earnings per share
0.99
$
0.92
$
0.61
$
Diluted earnings per share
0.98
$
0.92
$
0.61
$
