Mergers and Acquisitions

3 Months Ended

Mar. 31, 2024

Business Combination and Asset Acquisition [Abstract]

Mergers and Acquisitions

Business Developments

Ametros Acquisition

On January 24, 2024, the Bank acquired all of the equity interest in Ametros from Long Ridge Capital Management
(the “Seller”). Ametros is a custodian and administrator of medical funds from insurance claim settlements that helps individuals manage their ongoing medical care through its CareGuard service and proprietary technology platform. The acquisition provided the Company with a fast-growing source of low-cost and long-duration deposits, new sources of non-interest income, and will enhance its employee benefit and healthcare financial services expertise.

The acquisition was accounted for as a business combination. Accordingly, the total purchase price, which included cash paid of $359.7 million, the forgiveness of $12.9 million in long-term debt, and the assumption of a $5.8 million liability for the Seller’s transaction expenses, has been preliminarily allocated to the identifiable assets acquired and liabilities assumed based on their acquisition-date fair values, as summarized in the following table:

(In thousands)	Fair Value
Purchase price consideration	$	378,424
Assets:
Cash and due from banks	310
Premises and equipment	1,078
Other intangible assets	188,900
Deferred tax assets, net	(35,889)
Other assets:
Funds held in escrow	288,167
Accounts receivable	2,435
Prepaid expenses	1,166
Total other assets	291,768
Total assets acquired	$	446,167
Liabilities:
Interest-bearing deposits (1)	(20,622)
Other liabilities:
Accounts payable	684
Accrued expenses	4,270
Deferred revenue	20,391
Member’s funds	288,167
Operating lease liabilities	838
Total other liabilities	314,350
Total liabilities assumed	$	293,728
Net assets acquired	152,439
Pre-existing equity interest (2)	$	2,200
Goodwill	$	228,185

(1)The $20.6 million reflects the amount held in Ametros’ operating cash account at the Bank on January 24, 2024. Upon acquisition, such cash and the Bank’s corresponding deposit liability owed to Ametros were eliminated in consolidation, which resulted in a decrease to interest-bearing deposits for the Bank and the Bank’s legal title to the funds being held in such operating cash account.

(2)Prior to the acquisition date, the Company had a 0.6% equity interest in Ametros. The consideration transferred reflects the purchase price for the remaining 99.4% of the business. Upon acquisition, the Company recognized a $1.5 million gain in Other income on the accompanying Condensed Consolidated Statement of Income, which represents the difference between the cost basis and estimated acquisition-date fair value of the Company’s pre-existing equity interest in Ametros.

The $228.2 million of preliminary goodwill is not deductible for tax purposes. Information regarding the allocation of goodwill to the Company’s reportable segments can be found within Note 15: Segment Reporting.

The Company considers its valuations of other intangible assets, deferred taxes, and certain other assets and other liabilities to be provisional, as management continues to identify and assess information regarding the nature of these assets acquired and liabilities assumed, including extended information gathering and management review procedures. Although the Company believes that the information available as of March 31, 2024, provides a reasonable basis for estimating fair value, it is possible that additional information becomes available during the one-year measurement period following the close of the acquisition, which could result in changes to the fair values presented.

The results of operations related to the acquired Ametros business are included in the Company’s Condensed Consolidated Statements of Income subsequent to the acquisition date, and were not material for the three months ended March 31, 2024.

The following is a description of the valuation methodologies used to estimate the fair values of the significant assets acquired and liabilities assumed:

Other intangible assets. The Company identified and recognized a $182.8 million core deposit intangible asset and a
$6.1 million trade name intangible asset. A core deposit intangible asset represents the value of relationships with deposit customers. The fair value of the core deposit intangible asset was estimated using a net cost savings method, a form of discounted cash flow methodology, which gave appropriate consideration to expected client attrition rates and other applicable adjustments to the projected deposit balance, the interest cost and net maintenance cost associated with the client deposit base, an alternative cost of funds, and a discount rate that was used to discount the future economic benefits of the core deposit intangible asset to present value. The core deposit intangible asset is being amortized on an accelerated basis over an estimated useful life of 25 years, which is the period over which the estimated economic benefits are estimated to be received. The fair value of the trade name intangible asset for the Ametros brand was estimated using a relief-from-royalty methodology, which models the cost savings from owning the brand rather than licensing it from a third party. The trade name intangible asset is being amortized on a straight-line basis over an estimated useful life of 5 years.

Funds held in escrow and Members’ funds.

Funds held in escrow represent amounts held in interest-bearing checking accounts at insured depository institutions other than the Bank for the purpose of providing post-settlement medical administration services on a respective member’s behalf. Members’ funds is the corresponding liability to the Funds held in escrow. Given that these amounts can be withdrawn and/or directed for use on demand, as long as in accordance with the terms of the settlement agreement, their carrying amount is a reasonable estimate of fair value.

Held-for-Sale Payroll Finance and Factored Receivables Loan Portfolio

In March 2024, the Company initiated a plan to actively sell its payroll finance and factored receivables loan portfolio, along with the related customer relationship intangible assets. The decision to sell was a direct result of the Company’s continuous reassessment of its strategic model in an effort to identify opportunities to improve its core financial products and services. The Company expects to complete the sale in either the second or third quarter of 2024.

At March 31, 2024, the portfolio held-for-sale comprised $220.2 million in aggregate of payroll finance and factored receivables loans, which are included in Loans held for sale on the Condensed Consolidated Balance Sheets. The aggregate net carrying amount of the related customer relationship intangible assets was $49.7 million. These assets are included in Commercial Banking for segment reporting purposes.

Sale of Mortgage Servicing Rights

On February 12, 2024, the Company sold the majority of its mortgage servicing portfolio, which comprised 9,184 individual mortgage loans with an aggregate UPB of $1.4 billion. In connection with the sale, the Company received net cash proceeds of $18.4 million and derecognized $6.7 million of mortgage servicing rights from Accrued interest receivable and other assets on the Condensed Consolidated Balance Sheet. The resulting $11.7 million net gain on sale of mortgage servicing rights is included in Other income on the Condensed Consolidated Statements of Operations.

interLINK Acquisition

On January 11, 2023, the Company acquired 100% ownership of interLINK from StoneCastle Partners LLC. interLINK is a technology-enabled deposit management platform that administers over $9 billion of deposits from FDIC-insured cash sweep programs between banks and broker/dealers and clearing firms. The acquisition provided the Company with access to a unique source of core deposit funding and scalable liquidity and added another technology-enabled channel to its already differentiated, omnichannel deposit gathering capabilities.

The total purchase price of the acquisition was $174.6 million, which included cash paid of $158.6 million and $16.0 million of contingent consideration measured at fair value. The contingent consideration is payable in cash upon the achievement of discrete customer and deposit growth events within three years of the acquisition date. Additional information regarding contingent consideration, including the determination of fair value, can be found within Note 13: Fair Value Measurements.

The acquisition has been accounted for as a business combination, and resulted in the addition of $31.4 million in net assets measured at fair value, which primarily comprised $36.0 million of broker dealer relationship intangible assets, $6.0 million of developed technology, a $4.0 million non-competition agreement intangible asset, and $15.9 million of royalty liabilities. The $143.2 million of goodwill recognized is deductible for tax purposes.