BUSINESS COMBINATIONS

12 Months Ended

Dec. 31, 2022

Business Combination and Asset Acquisition [Abstract]

BUSINESS COMBINATIONS Deepstack Acquisition. On September 15, 2022, we completed the acquisition of the assets of Global Payroll Gateway, Inc. and its wholly owned subsidiary, Deepstack Technologies, LLC (collectively, "Deepstack") for $24.0 million in total consideration.

The purchase was accounted for as a business combination under U.S. GAAP and assets purchased and liabilities assumed were recorded at their respective acquisition date estimated fair values.

The fair value amounts of identified assets acquired and liabilities assumed as part of the Deepstack Acquisition are as follows:


($ in thousands)	Fair Value
Assets acquired:
Cash and cash equivalents	$	4,068
Other intangibles	3,800
Other assets	1,385
Total assets acquired	$	9,253

Liabilities assumed:
Accounts payable	$	3,443

Total liabilities assumed	3,443
Excess of assets acquired over liabilities assumed	$	5,810
Total consideration	24,000
Goodwill	$	18,190

Total consideration of $24.0 million includes cash consideration paid of $14.4 million, common stock issued of $7.2 million, or 412,473 shares, and additional cash consideration of $2.4 million expected to be paid 18 months after the acquisition date.

The acquisition of Deepstack resulted in the recognition of $2.8 million in developed technology and $1.0 million in other intangibles, including trademarks, client relationships and non-compete agreements. Goodwill in the amount of $18.2 million was also recognized and represents the strategic, operational and financial benefits expected from integrating the payment processing solutions and technology of Deepstack into our operations.

Deepstack's results of operations have been included in our results beginning September 15, 2022. Acquisition, integration and transaction costs related to the acquisition were $2.1 million for the year ended December 31, 2022.

Pacific Mercantile Bancorp Acquisition. On October 18, 2021, we completed our merger with PMB, pursuant to which PMB merged with and into the Company, with the Company as the surviving corporation. PMB was the bank holding company of the wholly-owned Pacific Mercantile Bank, a California state chartered commercial bank headquartered in Costa Mesa, California, which operated seven banking offices, including three full service branches, located throughout Southern California.

Under the terms and conditions of the merger, each outstanding share of PMB common stock, aggregating 23,713,437 shares, was converted into the right to receive 0.5 of a share of the Company's common stock. In addition, at the effective time of the merger, we paid $3.2 million in cash for all outstanding PMB share-based awards, including outstanding shares subject to unvested restricted stock awards. In the merger, we also issued 11,856,713 shares of common stock with an estimated fair value of $222.2 million based upon the $18.74 closing price of the Company's common stock on October 18, 2021. Together with the $3.2 million of cash consideration, this result in an aggregate purchase price of $225.4 million.

Goodwill in the amount of $59.0 million was recognized and represents the expected synergies and economies of scale from the combination of our operations. Goodwill is not expected to be deductible for tax purposes.

The following table represents the allocation of merger consideration to the assets and liabilities of PMB as of October 18, 2021 and the fair value amounts at acquisition date:


($ in thousands)	Fair Value
Assets acquired:
Cash and due from banks	$	3,196
Interest-earning deposits in financial institutions	475,554


Loans receivable	962,856
Allowance for credit losses	(13,622)
Premises and equipment, net	314
Operating lease right-of-use assets	9,212
Other intangible assets, net(1)	4,074
Income tax receivable	2,035
Deferred income tax, net(1)	9,819
Bank owned life insurance	9,043
Other assets	20,302
Total assets acquired	$	1,482,783

Liabilities assumed:
Deposits	$	1,284,714


Long term debt, net	17,527
Lease liability	9,441
Accrued expenses and other liabilities	4,695
Total liabilities assumed	1,316,377
Excess of assets acquired over liabilities assumed	166,406
Consideration paid	225,384
Goodwill(1)	$	58,978

(1)During the year ended December 31, 2022, goodwill was increased by $1.8 million as a result of updates to the initial fair value amounts recognized. For additional information, see Note 8 - Goodwill and Other Intangibles

The fair value of the acquired identifiable intangible assets, representing core deposit intangibles, was $4.1 million. Core deposit intangible assets were valued using a net cost savings method and calculated as the present value of the estimated net cost savings attributable to the core deposit base over the expected remaining life of the deposits. The net cost savings attributed to the core deposit base were calculated as the difference between the prevailing alternative cost of funds and the estimated cost of the core deposits. The core deposit intangible is being amortized on an accelerated basis over its estimated useful life of 10 years.

During the year ended December 31, 2021, we incurred $15.9 million of costs to effect the merger and integrate PMB, which were expensed in accordance with ASC Topic 805 and are included in acquisition, integration and transaction costs in our consolidated statements of operations. These costs included investment banking fees, personnel costs, professional fees, facilities-related charges, systems conversion costs and other costs.