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Business Combinations
 9 Months Ended
Sep. 30, 2012
Business Combinations [Abstract]  
Business Combinations

 

Note 5. Business Combinations

 

On August 1, 2012, Union Center National Bank (the "Bank") assumed all of the deposits and certain other liabilities and acquired certain assets of Saddle River Valley Bank, a New Jersey State-chartered bank, pursuant to the terms of the Purchase and Assumption Agreement, dated as of February 1, 2012, among the Bank, Saddle River Valley Bank and Saddle River Valley Bancorp. This purchase and assumption was in keeping with the Bank's strategy to expand its base of operations into Northern New Jersey.

 

The Bank assumed approximately $85.2 million in deposits and acquired approximately $89.3 million in loans and securities from Saddle River Valley Bank. The bank paid total consideration of $10.3 million in cash. Acquisition costs, totaling $472,000 for the three and nine months ended September 30, 2012 are reported on the consolidated statements of income.

 

The following table sets forth assets acquired and liabilities assumed at their estimated fair values, and resulting Bargain gain on acquisition, as of closing date of the transaction:

 

         

 

 

August 1, 2012

 

 

 

(in thousands)

 

Assets acquired:

 

 

 

 

Cash and cash equivalents

$

6,195

 

 

Investment securities available-for-sale

 

37,143

 

 

Loans

 

52,192

 

 

Premises and equipment, net

 

1,262

 

 

Accrued interest receivable

 

389

 

Total assets acquired

$

97,181

 

Liabilities assumed:

 

 

 

 

Deposits:

$

85,236

 

 

Other liabilities

 

795

 

Total liabilities assumed

$

86,031

 

 

Net assets acquired

 

11,150

 

 

 Cash consideration paid in acquisition

$

10,251

 

 

 Bargain gain on acquisition

$

899

 

 

 

The fair value estimates are subject to change for up to one year after closing date of the transaction if additional information relative to closing date fair values becomes available. As the Bank continues to analyze the acquired assets and liabilities, there may be adjustments to the recorded carrying values.

Fair Value of Measurement of Assets Acquired and Liabilities Assumed

 

Described below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the acquisition.

 

Cash and cash equivalents. The estimated fair values of cash and cash equivalents approximate their stated face amounts.

 

Investment securities available-for-sale. The estimated fair values of the investment securities available for sale were calculated utilizing Level 2 inputs. The prices for these instruments are obtained through an independent pricing service and are derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other things. Management reviewed the data and assumptions used in pricing the securities by its third party provider to ensure the highest level of significant inputs are derived from market observable data.

 

Loans. A discounted cash flow of each individual loan was calculated. The discounted cash flows, at an account level, were then aggregated together by category type to determine the mark-to-market value of each loan type. The market values of all loan categories were added together to determine the total market value of the loan portfolio. The price of the portfolio is then determined by dividing the market value of the portfolio by the purchased face value of the portfolio. The discount rate utilized for the discounted cash flow of each loan category was based upon Bankrate and a survey of three local market competitors and the Bank's offerings.

 

Deposits. The discount rate utilized for the discounted cash flow of each time deposit category was calculated based upon the market interest rate for the term nearest to the weighted average remaining maturity for each time deposit category. The time deposit market interest rate was derived from a Financial Market Focus Report for New Jersey as of August 1, 2012.

 

Accrued interest receivable. The carrying amounts of accrued interest approximate fair value based on the asset with which the accrual is associated.

 

Other liabilities. The estimated fair values of other liabilities approximate their stated face amounts.

 

In accordance with GAAP, there was no carryover of the allowance for loan losses that had been previously recorded by Saddle River.

 

In connection with the Saddle River asset/liability purchase and assumption, the Corporation recorded a net deferred income tax liability of $620,000 related to the tax attributes of the transaction.

 

The following table presents actual operating results attributable to Saddle River since the August 1, 2012 assumption date through September 30, 2012. This information does not include purchase accounting adjustments or acquisition integration costs.

 

 

 

SRVB Financial

August 1, 2012 to

September 30, 2012

 

 

 

(in thousands)

 

Net interest income

$

401

 

Non-interest income

 

8

 

Non-interest expense and income taxes

 

(282

)

Net income

$

127

 

 

The Corporation has not provided pro forma information for the nine month periods ended September 30, 2012 and 2011as if the asset/liability purchase and assumption of Saddle River had occurred as of both January 1, 2011 and 2012 as there is no consistent level base for objective comparison as product balances declined on a steady basis from the agreement date to assumption date and the closing date and accordingly such disclosures are considered impractical as the application of those disclosures would require a significant estimate of amounts, and it is impossible to distinguish objective information about those estimates that both provide evidence of circumstances that existed at the reporting dates, and would have been available when the financial statements for the prior periods were issued. The Company will continue to evaluate information, and provide the required disclosures in future filings if deemed practical.

 

Certain loans, for which specific credit-related deterioration was identified, are recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition on these loans is based on a reasonable expectation of the timing and amount of cash flows to be collected. The timing of the sale of loan collateral was estimated for acquired loans deemed impaired and considered collateral dependent. For these collateral dependent impaired loans, the excess of the future expected cash flow over the present value of the future expected cash flow represents the accretable yield, which will be accreted into interest income over the estimated liquidation period using the effective interest method. The following table details the loans that are accounted for in accordance with FASB ASC 310-30 as of August 1, 2012:

 

(in thousands)

 

 

 

Contractually required principal and interest at acquisition

$

2,101

 

Contractual cash flows not expected to be collected (nonaccretable difference)

 

(982

)

Expected cash flows at acquisition

 

1,119

 

Interest component of expected cash flows (accretable discount)

 

(161

)

Fair value of acquired loans accounted for under FASB ASC 310-30

$

958

 

 

 

Acquired loans not subject to the requirements of FASB ASC 310-30 are recorded at fair value. The fair value mark on each of these loans will be accreted into interest income over the remaining life of the loan. The following table details loans that are not accounted for in accordance with FASB ASC 310-30 as of August 1, 2012:

 

(in thousands)

 

 

 

Contractually required principal and interest at acquisition

$

50,917

 

Contractual cash flows not expected to be collected (credit mark)

 

(807

)

Expected cash flows at acquisition

 

50,110

 

Interest rate premium mark

 

1,313

 

Fair value of acquired loans not accounted for under FASB ASC 310-30

$

51,423