2016 ACQUISITION OF CORNERSTONE BANCORP, INC.

9 Months Ended

Sep. 30, 2017

2016 ACQUISITION OF CORNERSTONE BANCORP, INC.

2016 ACQUISITION OF CORNERSTONE BANCORP, INC.

2. 2016 ACQUISITION OF CORNERSTONE BANCORP, INC.

OVERVIEW

On May 17, 2016, the Company completed its acquisition of Cornerstone Bancorp, Inc. (“Cornerstone”), and its wholly-owned bank subsidiary Cornerstone Community Bank, for approximately $32 million in cash. The primary reason for the acquisition of Cornerstone was to expand the Company’s footprint in the Tampa, Florida metropolitan statistical area.

ACQUISITION SUMMARY

The following table provides a summary of the assets acquired and liabilities assumed as recorded by Cornerstone, the previously reported preliminary fair value adjustments necessary to adjust those acquired assets and assumed liabilities to fair value, final recast adjustments to those previously reported preliminary fair values, and the final fair values of those assets and liabilities as recorded by the Company. Effective October 1, 2016, management believed it had finalized the fair values of the acquired assets and assumed liabilities within the 12 months following the date of acquisition, as allowed by GAAP.

Summary of Assets Acquired and Liabilities Assumed
		May 17, 2016
	As Previously Reported					As Recasted
		As Recorded		Fair Value			Recast			As Recorded
(in thousands)		by Cornerstone		Adjustments			Adjustments			by Republic
Assets acquired:
Cash and cash equivalents	$	22,707	$	—		$	—		$	22,707
Investment securities		329		—			—			329
Loans		195,136		(5,525)	a		13	a		189,624
Allowance for loan and lease losses		(1,955)		1,955	a		—			—
Loans, net		193,181		(3,570)			13			189,624
Federal Home Loan Bank stock, at cost		224		—			—			224
Premises and equipment, net		7,770		4,457	b		—			12,227
Core deposit intangible		—		1,205	c		—			1,205
Deferred income taxes		3,714		(74)	d		—			3,640
Bank owned life insurance		7,461		—			—			7,461
Other assets and accrued interest receivable		658		—			—			658
Total assets acquired	$	236,044	$	2,018		$	13		$	238,075
Liabilities assumed:
Deposits:
Noninterest-bearing	$	52,908	$	—		$	—		$	52,908
Interest-bearing		152,257		92	e		—			152,349
Total deposits		205,165		92			—			205,257
Subordinated note		4,124		—			—			4,124
Other liabilities and accrued interest payable		2,244		787	f		—			3,031
Total liabilities assumed		211,533		879			—			212,412
Net assets acquired	$	24,511	$	1,139		$	13			25,663
Cash consideration paid										(31,795)
Goodwill									$	6,132

Explanation of fair value adjustments

a. Reflects the fair value adjustment based on the Company’s evaluation of the acquired loan portfolio and to eliminate the acquiree’s recorded allowance for loan losses.

b. Reflects the fair value adjustment based on the Company’s evaluation of the premises and equipment acquired.

c. Reflects the fair value adjustment for the core deposit intangible asset recorded as a result of the acquisition.

d. Reflects the differences in the carrying values of acquired assets and assumed liabilities for financial reporting purposes and their basis for federal income tax purposes.

e. Reflects the fair value adjustment based on the Company’s evaluation of the assumed time deposits.

f. Reflects the amount needed to adjust other liabilities to estimated fair value and to record certain liabilities directly attributable to the acquisition of Cornerstone.

Goodwill of approximately $6 million, which is the excess of the merger consideration over the fair value of net assets acquired, was recorded in the Cornerstone acquisition and is the result of expected operational synergies and other factors. This goodwill is all attributable to the Company’s Traditional Banking segment and is not expected to be deductible for tax purposes.

For the three and nine months ended September 30, 2016, the Company’s consolidated statements of income included approximately $257,000 and $1.2 million of acquisition-related noninterest expense associated with the Cornerstone acquisition.