Business Combinations

6 Months Ended

Jun. 30, 2023

Note 2 – Business Combinations

On May 19, 2023, the Company completed its acquisition of Noan Bank, a Pennsylvania chartered state bank headquartered in Elkins Park, Pennsylvania that primarily served the Philadelphia, North New Jersey and New York City markets. On that date the Company acquired 100% of the outstanding common stock of Noah Bank and Noah Bank was merged with and into the Bank.

In accordance with the terms of the acquisition agreement, the Company paid $6.00 per share of Noah’s common stock outstanding on the closing date.

The acquisition of Noah Bank was accounted for as a business combination using the acquisition method of accounting, and accordingly, the assets acquired, the liabilities assumed, and consideration transferred were recorded at their estimated fair value as of the acquisition. The $9.7 million below was recorded as a “Bargain Purchase” in

non-interest

income on the Consolidated Statement of Income. This item was not taxable for the recording of income taxes on the Consolidated Statement of Income.

The following table summarizes the purchase price calculation and bargain purchase gain resulting from acquisition:


	Fair Value
(Dollars in thousands except per share data)
Purchase Price Consideration in Cash for Noah Bank’s Outstanding Shares
Noah Bank number of common shares outstanding		4,235,666
Purchase price per share assigned to cash consideration	$	6.00

Cash consideration	$	25,414

Assets Acquired:
Cash and cash equivalents	$	23,181
Securities available-for-sale		6,454
Loans receivable, net of allowance		185,891
Core deposit intangible		99
Premises and equipment		2,495
Operating leases right-of-use		10,523
Deferred tax assets		4,308
Other assets		6,500

Fair value of assets acquired		239,451

Liabilities Assumed:
Deposits		191,700
Operating lease liability		10,523
Other liabilities assumed		2,118

Fair value of liabilities assumed		204,341

Total identifiable net assets		35,110

Bargain purchase gain	$	(9,696	)

The Company recorded merger-related expenses of $7.0 million, consisting of $3.7 million for termination of a branch lease, $1.7 million related to termination of data processing contract, $437 thousand for legal related expenses, $243 thousand for investment banker services, $184 thousand in severance payments, $115 thousand in professional services provided and $621 thousand in other miscellaneous related expenses. In addition, the Company recorded a $1.7 million provision for the

non-purchase

credit deteriorated loans in connection with the acquisition.

While the valuation of the acquired assets and liabilities is substantially complete, fair value estimates related to the assets and liabilities from Noah Bank are subject to adjustment for up to one year after the closing date of the acquisition as additional information becomes available. Valuations subject to adjustment include, but are not limited to, investments, loans and deposits as management continues to review the estimated fair value and evaluate the assumed tax position. When the valuation is final, any changes to the preliminary valuation could result in adjustments of bargain purchase recorded. The following is a description of the fair value methodologies used to estimate the fair values of major categories of assets acquired.

Cash and due from banks:

The estimated fair values of cash and due from banks approximated their state value.

Investment securities:

The acquired portfolio had a fair value of $6.5 million, primarily consisting of mortgage-backed securities and small business administration securities.

Loans:

The Company recorded $185.9 million of acquired loans that were initially at their fair values as of the date of the acquisition. Fair values for loans were based on a discounted cash flow methodology that considered credit loss and prepayment expectations, market interest rates and other market factors, such as liquidity, from the perspective of a market participant. Loan cash flows were generated on an individual loan basis. The probability of default (“PD”), loss given default (“LGD”), exposure of default and prepayment assumptions are the key factors driving credit losses that are embedded in the estimated cash flows. The Company determined that $37.3 million of the acquired loans were purchased credit deteriorated (“PCD”) of which $34.5 million were performing and $2.6 million were

non-performing

at the time of the acquisition.

Allowance for credit losses

: The acquisition resulted in the addition of $2.3 million in the allowance for credit losses, including $537 thousand identified for purchase credit deteriorated loans.

Other assets

: The Company acquired $2.5 million of premises and equipment and $10.5 million of operating lease

right-of-use

assets and recorded the assets at fair value.

Time deposits:

Time deposits were valued at the account level based on their remaining maturity dates and comparing the contractual cost of the portfolio to similar instruments. The valuation adjustment of $407 thousand will be accreted to expense over a five-year period.