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Business Combinations | 9 Months Ended
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Sep. 30, 2024
Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract] |
Business Combinations | Business Combinations On the Acquisition Date, Fulton Bank acquired substantially all of the assets and assumed substantially all of the deposits and certain liabilities of Republic First Bank from the FDIC, as receiver for Republic First Bank. As part of the Republic First Transaction, the Bank acquired approximately $4.8 billion of assets of Republic First Bank and received approximately $0.8 billion of cash from the FDIC. The Bank assumed approximately $5.6 billion of total liabilities of Republic First Bank. The Bank did not enter into a loss sharing arrangement with the FDIC in connection with the Republic First Transaction. As a result of the Republic First Transaction, the Bank enhanced its presence in Philadelphia, Pennsylvania and New Jersey. The Republic First Transaction constitutes a business combination as defined by FASB ASC Topic 805, Business Combinations. Accordingly, the assets acquired and liabilities assumed are presented at their estimated fair values based on preliminary valuations as of the Acquisition Date. The determination of estimated fair values required management to make certain estimates about discount rates, future expected cash flows and market conditions at the time of the Republic First Transaction. The Bank is awaiting conclusion of the customary final settlement process to determine whether certain assets and liabilities of Republic First Bank will be acquired by the Bank. Until management finalizes its fair value estimates for the acquired assets and assumed liabilities, the preliminary gain on acquisition can be updated for a period not to exceed one year following the Acquisition Date. The preliminary fair value estimates of assets acquired and liabilities assumed, provide a reasonable basis for determining the preliminary gain on acquisition. During the third quarter of 2024, adjustments to the estimated fair values of certain assets acquired were recorded, resulting in a $7.7 million reduction in the preliminary gain on acquisition, net of income taxes. The excess of the estimated fair value of net assets acquired and the cash consideration received from the FDIC over the estimated fair value of liabilities assumed was recorded as a preliminary gain on acquisition of $39.7 million, net of income taxes. The following table summarizes the consideration transferred and the estimated fair values of identifiable assets acquired and liabilities assumed in connection with the Republic First Transaction on the Acquisition Date:
|  | Estimated Fair Value
|  | (dollars in thousands)
Cash payment received from FDIC |  | $ | 809,920 |
Assets acquired: |  |
Cash and due from banks |  | 208,451 |
Investment securities |  | 1,938,571 |
Loans |  | 2,496,902 |
Premises and equipment |  | 1,211 |
CDI |  | 92,600 |
FHLB Stock |  | 37,931 |
Accrued interest receivable |  | 16,164 |
Other assets |  | 9,717 |
Total assets |  | 4,801,547 |
Liabilities assumed: |  |
Deposits |  | 4,112,325 |
Borrowings |  | 1,413,751 |
Accrued interest payable |  | 33,444 |
Other liabilities |  | 640 |
Total liabilities |  | 5,560,160 |
Net assets acquired: |  | (758,613) |
Gain on acquisition, before income taxes |  | $ | 51,307 |
Gain on acquisition, net of income taxes |  | $ | 39,685 |
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 fair values of cash and due from banks approximate their book values. Investment securities: The investment portfolio acquired in the Republic First Transaction, with a fair value of $1.9 billion, was sold shortly after the Acquisition Date. The fair value of the investment portfolio was based on the proceeds from the sale. Loans: The Corporation recorded $2.5 billion of acquired loans at their estimated fair values as of the Acquisition Date. The estimated 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 from the perspective of a market participant. Loan cash flows were generated on an individual loan basis. The PD, LGD, exposure at default and prepayment assumptions are the key factors driving credit losses that are embedded in the estimated cash flows. The following table presents information with respect to the estimated fair value and unpaid principal balance of acquired loans and leases at the Acquisition Date:
|  | April 26, 2024
|  | Unpaid Principal Balance |  | Estimated Fair Value
|  | (dollars in thousands)
Real estate - commercial mortgage |  | $ | 1,144,465 |  |  | $ | 1,024,004 |
Commercial and industrial |  | 545,374 |  |  | 487,962 |
Real-estate - residential mortgage |  | 947,135 |  |  | 752,328 |
Real-estate - home equity |  | 72,730 |  |  | 66,237 |
Real-estate - construction |  | 153,437 |  |  | 145,597 |
Consumer |  | 20,789 |  |  | 20,774 |
Total acquired loans |  | $ | 2,883,930 |  |  | $ | 2,496,902 |
The following table summarizes PCD Loans:
|  | April 26, 2024
|  | (dollars in thousands)
Book balance of loans with deteriorated credit quality at acquisition |  | $ | 1,014,559 |
Fair value of loans with deteriorated credit quality at acquisition |  | 896,316 |
Fair value discount |  | 118,243 |
PCD Loans credit discount |  | (54,767) |
Non-credit discount |  | $ | 63,476 |
The Republic First Transaction resulted in the addition of $78.2 million to the ACL, including the $54.8 million identified in the table above for PCD Loans, and $23.4 million recorded through the provision for credit losses at the Acquisition Date for non-PCD Loans. Intangible assets: The Corporation recorded $92.6 million of CDI reflected in other assets that is being amortized over seven years using the sum-of-the-years digits method. The estimated 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 estimated fair value was determined by projecting 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. FHLB stock: The Corporation acquired $37.9 million of FHLB stock. The estimated fair value of the FHLB stock approximated its book value. Accrued interest receivable: The Corporation acquired $16.2 million of accrued interest receivable. The fair value of the accrued interest receivable approximated its book value. Core deposits: Demand deposits, savings and money market deposits and time deposits (less than $250,000) were recorded at book value which approximated fair value. The Corporation recorded $92.6 million of CDI in other assets for these deposits. Time deposits: Time deposits of $250,000 and greater were valued based on a comparison with the contractual cost of a portfolio of brokered deposits having a similar tenor. As the time deposit portfolio had a remaining average life of approximately three months, the estimated fair value of the time deposits approximated their book value and no adjustment was recorded. Borrowings: Borrowings assumed in the Republic First Transaction, with a fair value of $1.4 billion, were repaid shortly after the Acquisition Date. The fair value of borrowings was based on the repayment amounts. Acquisition-related expenses: The Corporation developed a comprehensive integration plan under which it is incurring direct costs that are expensed as incurred. For the nine months ended, September 30, 2024, these direct costs included professional fees, a charitable donation, severance, and marketing expense. Costs related to the Republic First Transaction are included in acquisition-related expenses in the unaudited Consolidated Statements of Income. The following table details the costs incurred and classified as acquisition-related expenses:
|  | Nine months ended September 30, 2024 |  |
|  | (dollars in thousands)
Salaries and employee benefits |  | $ | 1,405 |  |  |
Net occupancy |  | 9,805 |  |  |
Professional fees |  | 8,792 |  |  |
Charitable donation |  | 5,000 |  |  |
Other |  | 2,996 |  |  |
|  | $ | 27,998 |  |  |
In connection with the Republic First Transaction, Fulton Bank made a $5.0 million donation to the Fulton Forward Foundation to provide additional impact grants to nonprofit community organizations across the region that share Fulton Bank's vision of advancing economic empowerment, particularly in underserved communities. On July 18, 2024, the Corporation announced a plan to close 13 of the Bank's financial center offices and consolidate the operations of those offices into nearby financial center offices operated by the Bank. The plan was adopted as part of the Bank's integration of the assets acquired and the deposits and certain other liabilities assumed in the Republic First Transaction. The premises and equipment of the 13 locations include five locations owned by the Bank and eight locations leased by the Bank. The Corporation recorded pre-tax costs of approximately $9.8 million reflected in acquisition-related expenses in the Consolidated Statements of Income for the three and nine months ended September 30, 2024, consisting of write-offs of premises and equipment and related expenses, and lease termination charges. The financial centers are expected to close on or about November 22, 2024. Unaudited Pro Forma Information: The amount of net interest income, non-interest income, non-interest expense and net income of $72.1 million, $45.1 million, $49.4 million and $44.3 million, respectively, attributable to the Republic First Transaction were included in the Corporation's unaudited Consolidated Statements of Income for the nine months ended September 30, 2024. Included in non-interest income above is $39.7 million related to the gain on acquisition, net of tax. Net interest income, non-interest income, non-interest expense and net income shown above reflect management's best estimates based on information available as of the date of the filing of this Quarterly Report on Form 10-Q. Republic First Bank does not have historical financial information on which the Corporation could base pro forma information. Additionally, the Bank did not acquire all of the assets or assume all of the liabilities of Republic First Bank. Therefore, it is impracticable to provide pro forma information on revenues and earnings for the Republic First Transaction in accordance with ASC 805-10-50-2.

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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://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/805/tableOfContent + Details
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