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Business Combinations | 12 Months Ended
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Dec. 31, 2022
Business Combination and Asset Acquisition [Abstract] |
Business Combinations | On July 1, 2022, the Corporation completed its acquisition of Prudential Bancorp, a Pennsylvania chartered bank holding company headquartered in Philadelphia, Pennsylvania that primarily served the Greater Philadelphia region. On that date, the Corporation acquired 100% of the outstanding common stock of Prudential Bancorp, Prudential Bancorp was merged with and into the Corporation, and Prudential Bancorp's wholly owned subsidiary, Prudential Bank, became a wholly owned subsidiary of the Corporation. The Corporation merged Prudential Bank with and into Fulton Bank in the fourth quarter of 2022. Results of the operations of the acquired entity are included in the Corporation's consolidated financial statements beginning on the acquisition date, July 1, 2022. As a result of this acquisition, the Corporation enhanced its presence in Philadelphia, expanded its customer base and leveraged operating costs through economies of scale. In accordance with the terms of the Merger Agreement, each share of Prudential Bancorp's common stock issued and outstanding immediately prior to the effective time of the Merger was converted into the right to receive the Merger Consideration. In the aggregate, approximately eighty percent (80%) of the Merger Consideration consisted of the Corporation's common stock with the remaining approximately twenty percent (20%) payable in cash. The receipt of the Corporation’s common stock in the Merger is expected to qualify as a tax-free exchange for Prudential Bancorp shareholders. The acquisition of Prudential Bancorp 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 values as of the Merger. The $16.3 million excess of the Merger Consideration over the fair value of assets acquired was recorded as goodwill and is not amortizable or deductible for tax purposes. The following table summarizes the consideration transferred and the fair values of identifiable assets acquired and liabilities assumed on July 1, 2022:
|  | Fair Value
(in thousands, except per share data) |  |
Consideration transferred: |  |
Common stock shares issued (6,208,516) |  | $ | 89,713 |
Cash paid to Prudential Bancorp shareholders |  | 29,343 |
Value of consideration |  | 119,056 |
Assets acquired: |  |
Cash and due from banks |  | 7,532 |
Investment securities |  | 287,126 |
Loans, net |  | 554,288 |
Premises and equipment |  | 13,738 |
Other assets |  | 70,720 |
Total assets |  | 933,404 |
Liabilities assumed: |  |
Deposits |  | 532,180 |
Borrowings(1) |  | 284,000 |
Other liabilities |  | 14,441 |
Total liabilities |  | 830,621 |
Net assets acquired: |  | 102,783 |
Goodwill resulting from acquisition of Prudential Bancorp |  | $ | 16,273 |
(1) Includes a $30.5 million intercompany borrowing between Prudential Bank and Fulton Bank. While the valuation of the acquired assets and liabilities is completed, fair value estimates related to the assets and liabilities from Prudential Bancorp are subject to adjustment for up to one year after the closing date of the Merger if additional information becomes available. Included in the above table are adjustments of $17 thousand that occurred during the fourth quarter of 2022, resulting in an increase to goodwill from the acquisition of Prudential Bancorp. The amount of goodwill recorded reflects the increased market share and related synergies that are expected to result from the acquisition and represents the excess purchase price over the estimated fair value of the net assets acquired from Prudential Bancorp. The following is a description of the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities assumed. Cash and due from banks: The estimated fair values of cash and due from banks approximate their stated value. Investment securities: The acquired investment portfolio had a fair value of $287.1 million, primarily consisting of mortgage-backed securities, U.S. Government securities and municipal securities. The fair value of the investment portfolio was based on quoted market prices, dealer quotes and pricing obtained from independent pricing services. Loans: The Company recorded $554.3 million of acquired loans, which were initially recorded at their fair values as of the Merger date. Fair value for the loans was 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 PD, LGD, EAD and prepayment assumptions are the key factors driving credit losses that are embedded into the estimated cash flows. The following table presents information with respect to the fair value and unpaid principal balance of acquired loans and leases at the Merger date:
|  | July 1, 2022
|  | Unpaid Principal Balance |  | Fair Value
|  | (dollars in thousands)
Real estate - commercial mortgage |  | $ | 224,904 |  |  | $ | 216,613 |
Commercial and industrial |  | 63,560 |  |  | 62,050 |
Real-estate - residential mortgage |  | 177,327 |  |  | 169,098 |
Real-estate - home equity |  | 6,034 |  |  | 5,812 |
Real-estate - construction |  | 98,963 |  |  | 98,546 |
Consumer |  | 2,306 |  |  | 2,286 |
Total acquired loans |  | $ | 573,094 |  |  | $ | 554,405 |
The following table presents the carrying amount of loans for which, at the date of the Merger, there was evidence of more than insignificant deterioration of credit quality since origination:
|  | July 1, 2022
|  | (dollars in thousands)
Book balance of loans with deteriorated credit quality at acquisition |  | $ | 27,057 |
Allowance for credit losses at acquisition |  | (1,135) |
Non-credit related discount |  | (130) |
Total initial purchased credit deteriorated loans |  | $ | 25,792 |
The Merger resulted in the addition of $9.1 million in allowance for credit losses, including the $1.1 million identified in the table above for initial purchased credit deteriorated loans recorded through the provision for credit losses at the date of the Merger. Premises and equipment: The fair value of land and buildings reflected in premises and equipment was determined by obtaining recent market sales for comparable properties. The difference between the fair market value and the net book value for these properties resulted in an increase of $7.1 million to the premises and equipment acquired from Prudential Bancorp. Intangible assets: The Corporation recorded $8.2 million of CDI reflected in other assets that is being amortized over seven years using the sum-of-the-years digits method. The fair value of the CDI was determined using the cost savings approach. The cost savings approach is defined as the difference between the cost of funds of core deposits and an alternative cost of funds for those deposits. The CDI fair value was determined by projected discounted net cash flows, that included assumptions related to customer attrition rates, discount rates, deposit interest rates, deposit account maintenance costs and alternative cost of funding rates. 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 brokered deposit costs having a similar tenor. The valuation adjustment of $1.9 million will be accreted to interest expense over the remaining maturities of the individual customer deposits. Borrowings: The estimated fair values for borrowings approximated their stated value given these were short-term advances. The following table presents the change in goodwill during the period:
| Twelve Months Ended December 31
| 2022
| (dollars in thousands)
Goodwill at December 31, 2021 | $ | 534,266 |
Goodwill from Prudential Bancorp acquisition | 16,273 |
Goodwill at December 31, 2022 | $ | 550,539 |
Merger-related expenses The Company developed a comprehensive integration plan under which it has incurred direct costs, which are expensed as incurred. These direct costs include costs primarily related to terminated contracts, consolidated facilities (including lease termination expenses), severance, marketing and professional fees. Costs related to the acquisition and restructuring are included in Merger-related expenses on the unaudited Consolidated Statements of Income. The following table details the costs identified and classified as Merger-related expenses:
|  |  |  | Twelve Months Ended December 31
|  |  |  | 2022
|  |  | (dollars in thousands)
Salaries and employee benefits |  |  |  | $ | 938
Data processing and software |  |  |  | 1,412
Net occupancy |  |  |  | 1,658
Other outside services |  |  |  | 225
Professional fees |  |  |  | 3,053
Marketing |  |  |  | 95
Charitable donation |  |  |  | 2,000
Other |  |  |  | 947
Total Merger-related expenses |  |  |  | $ | 10,328
As part of the Merger, the Corporation made a $2.0 million contribution to the Fulton Forward Foundation in July 2022, designated to be used to provide impact gifts in support of nonprofit community organizations in Philadelphia that are focused on advancing economic empowerment, particularly in underserved communities. Income Statement During the fourth quarter of 2022, the Corporation merged Prudential Bank with and into Fulton Bank. Separate results from legacy Prudential Bancorp assets and liabilities can no longer be identified. The following table summarizes the results of operations contributed by Prudential Bancorp for the three-month period ended September 30, 2022, presented in the unaudited Consolidated Statements of Income:
| Three Months Ended September 30, 2022
| (Unaudited)
| (dollars in thousands)
Total interest income | $ | 10,871 |
Total interest expense | 2,733
Net interest income | 8,138
Provisions for credit losses | 7,571
Net Interest Income After Provision for Credit Losses | 567
Total noninterest income | 197
Total noninterest expense | 3,583
Income Before Income Taxes | (2,819) |
Income taxes | (753) |
Net Loss | $ | (2,066) |
Pro Forma Income Statement (unaudited) The below table presents the pro forma results of the operations of the combined institutions as if the Merger occurred on January 1, 2021. The pro forma income statement adjustments are limited to the effects of fair value mark amortization and accretion and intangible asset amortization and do not consider future cost savings the Corporation expects to achieve subsequent to the merger of Prudential Bank with and into the Bank.
|  |  | Year Ended December 31
|  |  |  |  | 2022 |  | 2021
|  |  |  | (dollars in thousands)
Net interest income |  |  |  |  | $ | 801,907 |  |  | $ | 687,216 |
Provision for credit losses |  |  |  |  | 34,041 |  |  | (14,400) |
Net Interest Income After Provision for Credit Losses |  |  |  |  | 767,866 |  |  | 701,616 |
Total noninterest income |  |  |  |  | 232,054 |  |  | 277,217 |
Total noninterest expenses |  |  |  |  | 663,133 |  |  | 635,568 |
Income Before Income Taxes |  |  |  |  | 336,787 |  |  | 343,265 |
Income tax expense |  |  |  |  | 57,249 |  |  | 59,985 |
Net Income |  |  |  |  | $ | 279,538 |  |  | $ | 283,280 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
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