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SIERRA BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
117
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 2013. 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
Year Ended
Year Ended
2014
2013
Net interest Income
56,095
$
53,189
$
Net income
13,792
$
13,082
$
Basic earnings per share
0.99
$
0.92
$
Diluted earnings per share
0.98
$
0.92
$