Note 20. Liberty Bell Transaction

On March 1, 2018, the Company completed its acquisition of Liberty Bell Bank (“LBB”), a New Jersey chartered commercial bank. LBB shareholders received 0.2857 shares of the Company's common stock for each share of LBB common stock they owned as of the effective date of the acquisition, cash consideration of $1.70 per share or a combination thereof. The aggregate consideration paid to LBB shareholders was $17.3 million. The results of LBB's operations are included in the Company's consolidated statements of income for the years ended December 31, 2019 and 2018 for the period beginning March 1, 2018, the date of the acquisition.

The acquisition of LBB added market share in Burlington and Camden Counties in Southern New Jersey. The acquisition resulted in three new branches in Evesham, Cherry Hill, and Moorestown, New Jersey.

The acquisition of LBB was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration paid were recorded at their estimated fair values as of the acquisition date. The excess consideration paid over the fair value of net assets acquired has been reported as goodwill in the Company's consolidated statements of financial condition as of December 31, 2019 and 2018.

The assets acquired and liabilities assumed in the acquisition of LBB were recorded at their estimated fair values based on management's best estimates using information available at the date of the acquisition and are subject to adjustment for up to one year after the closing date of the acquisition. The items most susceptible to adjustment are the credit fair value adjustments on loans, core deposit intangible and the deferred income tax assets resulting from the acquisition.

In connection with the acquisition, the consideration paid and the fair value of identifiable assets acquired and liabilities assumed as of the date of acquisition are summarized in the following table:


	Estimated Fair
	Value as of
Dollars in Thousands	March 1, 2018
Consideration paid:
Cash	$	4,471
Common stock issued in acquisition		12,798
Total consideration paid		17,270
Assets acquired:
Cash and cash equivalents		11,831
Investment securities		7,605
Investments in correspondent bank stock		180
Loans		121,674
Premises and equipment		2,148
Other real estate owned		946
Accrued interest receivable		358
Core deposit intangible		1,489
Deferred tax asset		4,263
Other assets		1,039
Total assets acquired	$	151,532
Liabilities assumed:
Deposits	$	138,241
Other liabilities		1,259
Total liabilities assumed	$	139,500
Net assets acquired	$	12,032
Goodwill recorded in acquisition		5,237

Acquired loans (impaired and non‑impaired) are initially recorded at their acquisition‑date fair values using Level 3 inputs. Fair values are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, expected life‑ time losses, environmental factors, collateral values, discount rates, expected payments and expected prepayments. Specifically, the Company has prepared three separate loan fair value adjustments that it believes a market participant might employ in estimating the entire fair value adjustment necessary under ASC 820‑10 for the acquired loan portfolio. The three separate fair valuation methodologies employed are: (i) an interest rate loan fair value adjustment, (ii) a general credit fair value adjustment, and (iii) a specific credit fair value adjustment for purchased credit impaired loans subject to ASC 310‑30 provisions. The acquired loans were recorded at fair value at the acquisition date without carryover of LBB's previously established allowance for loan losses. The fair value of the financial assets acquired included loans receivable with a principal balance, prior to fair value adjustments, of $124.5 million.

The table below illustrates the fair value adjustments made to the amortized cost basis to present a fair value of the loans acquired:


Dollars in Thousands	At March 1, 2018
Gross principal balance	$	124,545
Fair value adjustment on pools of non-credit impaired loans		(1,703)
Fair value adjustment on purchased credit impaired loans		(1,168)
Fair value of acquired loans	$	121,674

The credit adjustment on acquired impaired loans is derived in accordance with ASC 310‑30 and represents the portion of the loan balances that have been deemed uncollectible based on the Company's expectations of future cash flows for each respective loan:


Dollars in Thousands	At March 1, 2018
Contractually required principal and interest at acquisition	$	2,469
Contractual cashflows not expected to be collected (non-accretable discount)		(922)
Expected cash flows at acquisition		1,547
Interest component of expected cash flows		(246)
Fair value for loans acquired under ASC 310-30	$	1,301

The fair value of savings and transaction deposit accounts acquired from LBB provide value to the Company as a source of below market rate funds. The fair value of the core deposit intangible was determined based on a discounted cash flow analysis using a discount rate based on the estimated cost of capital for a market participant. To calculate cash flows, the sum of deposit account servicing costs (net of deposit fee income) and interest expense on deposits were compared to the cost of alternative funding sources available to the Company. The expected cash flows of the deposit base included estimated attrition rates. The core deposit intangible was valued at $1.49 million or 2.04% of core deposits. The core deposit intangible asset is being amortized on a double declining basis over 7 years.

Direct costs related to the merger were accrued and expensed as incurred. There were no Liberty related merger expenses during 2019. During the year ended December 31, 2018, the Company incurred $1.4 million in Liberty merger‑related expenses.