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Acquisitions | 9 Months Ended
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Sep. 30, 2024
Acquisitions [Abstract] |
Acquisitions |
4. | Acquisitions
Pending Acquisition of Evans Bancorp, Inc. On September 9, 2024, the Company and the Bank, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Evans and Evans Bank, Evans’s subsidiary, pursuant to which the Company will acquire Evans. Evans, with assets of approximately $2.28 billion at September 30, 2024, is headquartered in Williamsville, New York. Its primary subsidiary, Evans Bank, is a federally-chartered national banking association with 18 banking locations in Western New York. Subject to the terms and conditions of the Merger Agreement, which has been approved by the boards of directors of each party, Evans will merge with and into the Company, with the Company as the surviving entity, and immediately thereafter, Evans Bank will merge with and into the Bank, with the Bank as the surviving bank (the “Merger”). Under the terms of the Merger Agreement, each outstanding share of Evans common stock will be converted into the right to receive 0.91 shares of the Company’s common stock. The Merger is subject to customary closing conditions, including the receipt of regulatory approvals and approval by the shareholders of Evans, and is expected to close in the second quarter of 2025. Prior Period Acquisitions On August 11, 2023, the Company completed the acquisition of Salisbury through the merger of Salisbury with and into the Company, with the Company surviving the merger, for $161.7 million in stock. Salisbury Bank, Salisbury’s subsidiary, was a Connecticut-chartered commercial bank headquartered in Lakeville, Connecticut with 13 banking offices. The acquisition enhanced the Company’s presence in Massachusetts’ Berkshire county, and extended its footprint into New York’s Dutchess, Orange and Ulster counties and into Connecticut’s Litchfield county. In connection with the acquisition, the Company issued 4.32 million shares of common stock and acquired approximately $1.46 billion of identifiable assets. Preliminary goodwill of $78.1 million was recognized during the quarter ended September 30, 2023 as a result of the merger and is not amortizable or deductible for tax purposes. During the fourth quarter of 2023, the Company revised the estimated fair value of premises and equipment, net and related deferred income taxes based upon receipt of land and building appraisals, which resulted in a $1.7 million increase in goodwill. Total goodwill of $79.7 million was recognized as a result of the merger. The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date. As a result of the full integration of the operations of Salisbury, it is not practicable to determine all revenue or net income included in the Company’s operating results relating to Salisbury since the date of acquisition as Salisbury results cannot be separately identified. The Company determined that this acquisition constituted a business combination and therefore was accounted for using the acquisition method of accounting. Accordingly, as of the date of the acquisition, the Company recorded the assets acquired, liabilities assumed and consideration paid at fair value based on management’s best estimates using information available at the date of the acquisition and these estimates are subject to adjustment based on updated information not available at the time of the acquisition. The amount of goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Company with Salisbury. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed:
|  | August 11, 2023 |
(In thousands) |  | Salisbury Bancorp, Inc. |
Consideration: |  |  |
Cash paid to shareholders (fractional shares) |  | $ | 15 |
Common stock issuance |  |  | 161,723 |
Total net consideration |  | $ | 161,738 |
Recognized amounts of identifiable assets acquired and (liabilities) assumed: |  |  |  |
Cash and cash equivalents |  | $ | 48,665 |
Securities available for sale |  |  | 122,667 |
Loans, net of allowance for credit losses on purchased credit deteriorated loans |  |  | 1,174,237 |
Premises and equipment, net |  |  | 13,026 |
Core deposit intangibles |  |  | 31,188 |
Wealth management customer intangible |  |  | 4,654 |
Bank owned life insurance |  |  | 30,315 |
Other assets |  |  | 37,631 |
Total identifiable assets acquired |  | $ | 1,462,383 |
Deposits |  | $ | (1,308,976 | )
Borrowings |  |  | (55,461 | )
Other liabilities |  |  | (15,949 | )
Total liabilities assumed |  | $ | (1,380,386 | )
Total identifiable assets, net |  | $ | 81,997 |
Goodwill |  | $ | 79,741 |
The following is a description of the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities assumed. The Company used an independent valuation specialist to assist with the determination of fair values for certain acquired assets and assumed liabilities. Cash and due from banks - The estimated fair value was determined to approximate the carrying amount of these assets. Securities available for sale - The estimated fair value of the investment portfolio was based on quoted market prices and dealer quotes. The investment securities were sold immediately after the merger and no gains or losses were recorded. Loans - The estimated fair value of loans were based on a discounted cash flow methodology applied on a pooled basis for non-PCD loans and for PCD loans. The valuation considered underlying characteristics including loan type, term, rate, payment schedule and credit rating. Other factors included assumptions related to prepayments, probability of default and loss given default. The discount rates applied were based on a build-up approach considering the funding mix, servicing costs, liquidity premium and factors related to performance risk. Core deposit intangible - The core deposit intangible was valued utilizing the cost savings method approach, which recognizes the cost savings represented by the expense of maintaining the core deposit base versus the cost of an alternative funding source. The valuation incorporates assumptions related to account retention, discount rates, deposit interest rates, deposit maintenance costs and alternative funding rates. Wealth management customer intangible - The wealth management customer intangible was valued utilizing the income approach, which employs a present value analysis, which calculates the expected after-tax cash flow benefits of the net revenues generated by the acquired customers over the expected lives of the acquired customers, discounted at a long-term market-oriented after-tax rate of return on investment. The value assigned to the acquired customers represents the future economic benefit from acquiring the customers (net of operating expenses). Deposits - The fair value of noninterest bearing demand deposits, interest checking, money market and savings deposit accounts from Salisbury were assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. Certificate of deposit (time deposit accounts) were valued at the present value of the certificates’ expected contractual payments discounted at market rates for similar certificates. Borrowings - The estimated fair value of short-term borrowings was determined to approximate stated value. Subordinated debt was valued using a discounted cash flow approach incorporating a discount rate that incorporated similar terms, maturity and credit rating. Accounting for Acquired Loans - Acquired loans are classified into two categories: PCD loans and non-PCD loans. PCD loans are defined as a loan or group of loans that have experienced more than insignificant credit deterioration since origination. Non-PCD loans had an allowance established on acquisition date, which was recognized as an expense through the provision for credit losses. For PCD loans, an allowance was recognized by adding it to the fair value of the loan, which is the amortized cost. There is no provision for credit loss expense recognized on PCD loans because the initial allowance is established by grossing-up the amortized cost of the PCD loan. The allowance for credit losses on non-PCD loans of $8.8 million was recorded through the provision for loan losses within the unaudited interim consolidated statements of income. The following table provides details related to the fair value of acquired PCD loans.
(In thousands) |  | PCD Loans |
Par value of PCD loans at acquisition |  | $ | 219,076 |
Allowance for credit losses at acquisition |  |  | 5,772 |
Discount at acquisition |  |  | (24,512 | )
Fair value of PCD loans at acquisition |  | $ | 200,336 |
Direct costs related to the acquisition were expensed as incurred. Acquisition integration-related expenses were $7.9 million and $9.7 million during the three and nine months ended September 30, 2023, respectively. These amounts have been separately stated in the unaudited interim consolidated statements of income and are included in operating activities in the unaudited interim consolidated statements of cash flows. Supplemental Pro Forma Financial Information (Unaudited) The following table presents certain unaudited pro forma financial information for illustrative purposes only, for the three and nine months ended September 30, 2023, as if Salisbury had been acquired on January 1, 2023. This unaudited pro forma information combines the historical results of Salisbury with the Company’s consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the acquisition occurred as of the beginning of the year prior to the acquisition. The unaudited pro forma information does not consider any changes to the provision expense resulting from recording loan assets at fair value, cost savings or business synergies. As a result, actual amounts would have differed from the unaudited pro forma information presented and the differences could be significant.
|  | Pro Forma (Unaudited) |
|  | Three Months Ended |  |  | Nine Months Ended |
(In thousands) |  | September 30, 2023 |  |  | September 30, 2023 |
Total revenue, net of interest expense |  | $ | 130,881 |  |  | $ | 404,580 |
Net income |  |  | 12,182 |  |  |  | 81,859 |
Other Acquisitions In July 2024, the Company, through its subsidiary, NBT Insurance Agency, LLC, a full-service insurance agency, completed the acquisition of substantially all of the assets of Karl W. Reynard, Inc. located in Stamford, NY for a total consideration of $1.2 million. Karl W. Reynard, Inc. was a long-established property and casualty agency offering personal and commercial lines. This strategic acquisition expands the presence of NBT Insurance Agency, LLC in the Catskills, where the agency and the Bank are well established. As part of the acquisition, the Company recorded goodwill of $0.2 million and a $1.0 million contingent consideration recorded in other liabilities on the unaudited interim consolidated balance sheets. In July 2023, the Company, through its subsidiary, EPIC Advisors Inc., completed its acquisition of certain assets of Retirement Direct, LLC, a retirement plan administration business based near Charlotte, North Carolina for a total consideration of $2.8 million. As part of the acquisition, the Company recorded goodwill of $0.9 million and a $1.0 million contingent consideration recorded in other liabilities on the unaudited interim consolidated balance sheets. The operating results of the acquired companies are included in the consolidated results after the date of acquisition.

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