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Business Combinations and Asset Acquisitions | 6 Months Ended
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Jun. 30, 2023
Business Combination and Asset Acquisition [Abstract] |
Business Combination Disclosure | Acquisition On January 31, 2023, the Company completed its acquisition of Centric Financial Corporation (“Centric”) and its banking subsidiary, Centric Bank, for consideration of 9,688,478 shares of the Company's common stock. Through the acquisition, the Company obtained seven full-service banking offices and one loan production office in the Harrisburg, Philadelphia and Lancaster Metropolitan Service Areas ("MSAs"). The table below summarizes the net assets acquired (at fair value) and consideration transferred in connection with the Centric acquisition (dollars in thousands):
Consideration paid |  |
Cash paid to shareholders - fractional shares | $ | 1 |  |
Shares issued to shareholders (9,688,478 shares) | 141,355 |  |
Total consideration paid |  | $ | 141,356 |
Fair value of assets acquired |  |
Cash and due from banks | 14,492 |  |
Investment securities | 34,302 |  |
FHLB stock | 7,658 |  |
Loans | 923,555 |  |
Premises and equipment | 12,123 |  |
Core deposit intangible | 16,671 |  |
Bank owned life insurance | 4,502 |  |
Other assets | 17,391 |  |
Total assets acquired | 1,030,694 |  |
Fair value of liabilities assumed |  |
Deposits | 757,003 |  |
Borrowings | 186,716 |  |
Other liabilities | 6,006 |  |
Total liabilities assumed | 949,725 |  |
Total fair value of identifiable net assets |  | 80,969 |
Goodwill |  | $ | 60,387 |
The Company determined that this acquisition constitutes 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. The $60.4 million excess of the consideration paid over the fair value of assets acquired was recorded as goodwill and is not amortizable or deductible for tax purposes. 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 Centric. The fair value of the 9,688,478 common shares issued was determined based on the $14.59 closing market price of the Company's common shares on the acquisition date, January 31, 2023. During the three-months ended June 30, 2023, valuations were finalized for provisional amounts related to loan credit marks and a supplemental executive retirement plan liability ("SERP"). The credit marks were previously considered provisional due to the availability of data required to assess the borrowers cash flow and collateral position. After receiving additional historical financial information and meeting with the borrowers a $5.1 million decrease in fair value and increase in the allowance for credit losses was recognized. Receipt of a third party valuation for the SERP liability decreased the fair value of the liability by $0.07 million. There was no income statement impact related to the loan mark adjustment. The SERP adjustment resulted in a $34 thousand increase in SERP expense during the second quarter of 2023. As of June 30, 2023, the accounting for the business combination is considered complete. 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. Investment securities - The estimated fair value of the investment portfolio was based on quoted market prices, dealer quotes, and pricing obtained from independent pricing services. Loans - The estimated fair value of loans were based on a discounted cash flow methodology applied on a pooled basis for non- purchased credit-deteriorated ("non-PCD") loans and on an individual basis for purchased credit-deteriorated ("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. 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 will have an allowance established on acquisition date, which is recognized as an expense through provision for credit losses. For PCD loans, an allowance is recognized on day 1 by adding it to the fair value of the loan, which is the “Day 1 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. A day 1 allowance for credit losses on non-PCD loans of $10.7 million was recorded through the provision for credit losses within the Consolidated Statements of Income. At the date of acquisition, of the $979.5 million of loans acquired from Centric, $304.7 million, or 31.1%, of Centric's loan portfolio, was accounted for as PCD loans as of February 1, 2023. Premise and equipment - The estimated fair value of land and buildings were determined by independent market-based appraisals. 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. Time deposits - The estimated fair value of time deposits was determined using a discounted cash flow approach incorporating a discount rate equal to current market interest rates offered on time deposits with similar terms and maturities. Borrowings - The estimated fair value of short-term borrowings was determined to approximate stated value. Subordinated debentures were valued using a discounted cash flow approach incorporating a discount rate that incorporated similar terms, maturity and credit rating. The following table provides details related to the fair value of acquired PCD loans as of February 1, 2023.
| Unpaid Principal Balance |  | PCD Allowance for Credit Loss at Acquisition |  | (Discount) Premium on Acquired Loans |  | Fair Value of PCD Loans at Acquisition
| (dollars in thousands)
Commercial, financial, agricultural and other | $ | 84,095 |  |  | $ | (19,417) |  |  | $ | 117 |  |  | $ | 64,795 |
Time and demand | 84,095 |  |  | (19,417) |  |  | 117 |  |  | 64,795 |
Real estate construction | 29,947 |  |  | (287) |  |  | (479) |  |  | 29,181 |
Construction other | 16,978 |  |  | (227) |  |  | (179) |  |  | 16,572 |
Construction residential | 12,969 |  |  | (60) |  |  | (300) |  |  | 12,609 |
Residential real estate | 16,564 |  |  | (527) |  |  | (496) |  |  | 15,541 |
Residential first lien | 13,740 |  |  | (197) |  |  | (264) |  |  | 13,279 |
Residential junior lien/home equity | 2,824 |  |  | (330) |  |  | (232) |  |  | 2,262 |
Commercial real estate | 174,002 |  |  | (6,971) |  |  | (6,073) |  |  | 160,958 |
Multifamily | 13,169 |  |  | (234) |  |  | (1,413) |  |  | 11,522 |
Nonowner occupied | 97,324 |  |  | (2,739) |  |  | (1,902) |  |  | 92,683 |
Owner occupied | 63,509 |  |  | (3,998) |  |  | (2,758) |  |  | 56,753 |
Loans to individuals | 62 |  |  | (3) |  |  | (3) |  |  | 56 |
Automobile and recreational vehicles | 62 |  |  | (3) |  |  | (3) |  |  | 56 |
Total loans and leases | $ | 304,670 |  |  | $ | (27,205) |  |  | $ | (6,934) |  |  | $ | 270,531 |
The following table provides details related to the fair value and Day 1 provision related to the acquired non-PCD loans as of February 1, 2023.
| Unpaid Principal Balance |  | (Discount) premium on acquired loans |  | Fair Value of Non-PCD Loans at Acquisition |  | Day 1 Provision for Credit Losses - Non-PCD Loans
| (dollars in thousands)
Commercial, financial, agricultural and other | $ | 167,606 |  |  | $ | (5,451) |  |  | $ | 162,155 |  |  | $ | 3,482 |
Time and demand | 165,878 |  |  | (5,342) |  |  | 160,536 |  |  | 3,436 |
Equipment finance | 4 |  |  | — |  |  | 4 |  |  | — |
Time and demand other | 1,724 |  |  | (109) |  |  | 1,615 |  |  | 46 |
Real estate construction | 52,773 |  |  | (1,126) |  |  | 51,647 |  |  | 1,638 |
Construction other | 34,801 |  |  | (971) |  |  | 33,830 |  |  | 1,146 |
Construction residential | 17,972 |  |  | (155) |  |  | 17,817 |  |  | 492 |
Residential real estate | 75,041 |  |  | (2,593) |  |  | 72,448 |  |  | 614 |
Residential first lien | 53,612 |  |  | (1,981) |  |  | 51,631 |  |  | 437 |
Residential junior lien/home equity | 21,429 |  |  | (612) |  |  | 20,817 |  |  | 177 |
Commercial real estate | 378,777 |  |  | (12,607) |  |  | 366,170 |  |  | 4,911 |
Multifamily | 45,475 |  |  | (1,203) |  |  | 44,272 |  |  | 514 |
Nonowner occupied | 182,793 |  |  | (5,660) |  |  | 177,133 |  |  | 2,111 |
Owner occupied | 150,509 |  |  | (5,744) |  |  | 144,765 |  |  | 2,286 |
Loans to individuals | 640 |  |  | (36) |  |  | 604 |  |  | 8 |
Automobile and recreational vehicles | 449 |  |  | (25) |  |  | 424 |  |  | 4 |
Consumer other | 191 |  |  | (11) |  |  | 180 |  |  | 4 |
Total loans and leases | $ | 674,837 |  |  | $ | (21,813) |  |  | $ | 653,024 |  |  | $ | 10,653 |
The following table presents the change in goodwill during the period (dollars in thousands):
|  | For the Six Months Ended June 30, 2023
Goodwill at December 31, 2022 |  | $ | 303,328 |
Goodwill from Centric acquisition |  | 60,387 |
Goodwill at June 30, 2023 |  | $ | 363,715 |
Costs related to the acquisition totaled $8.5 million. These amounts were expensed as incurred and are recorded as a merger and acquisition related expense in the Consolidated Statements of Income. As a result of the full integration of the operations of Centric, it is not practicable to determine revenue or net income included in the Company's operating results relating to Centric since the date of acquisition as Centric results cannot be separately identified.

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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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