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Business Combinations | 3 Months Ended
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Mar. 31, 2020
Business Combinations [Abstract] |
Business Combinations | Business Combinations Capital Bank of New Jersey Acquisition On January 31, 2019, the Company completed its acquisition of Capital Bank of New Jersey (“Capital Bank”), which after purchase accounting adjustments added $494.4 million to assets, $307.3 million to loans, and $449.0 million to deposits. Total consideration paid for Capital Bank was $76.8 million, including cash consideration of $353,000. Capital Bank was merged with and into the Company on the date of acquisition. The acquisition was accounted for under the acquisition method of accounting. Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values, net of tax. The excess of consideration paid over the estimated fair value of the net assets acquired has been recorded as goodwill. The following table summarizes the fair values of the assets acquired and the liabilities assumed at the date of the acquisition for Capital Bank, net of total consideration paid (in thousands):
| At January 31, 2019
| Fair Value
Total Purchase Price: | $ | 76,834 |
Assets acquired: |
Cash and cash equivalents | $ | 59,748 |
Securities | 103,775 |
Loans | 307,300 |
Accrued interest receivable | 1,390 |
Bank Owned Life Insurance | 10,460 |
Deferred tax asset | 4,101 |
Other assets | 4,980 |
Core deposit intangible | 2,662 |
Total assets acquired | 494,416 |
Liabilities assumed: |
Deposits | (449,018 | )
Other liabilities | (5,210 | )
Total liabilities assumed | (454,228 | )
Net assets acquired | $ | 40,188 |
Goodwill recorded in the merger | $ | 36,646 |
The calculation of goodwill is subject to change for up to one year after the date of acquisition as additional information relative to the closing date estimates and uncertainties become available. On January 31, 2020, the Company finalized its review of the acquired assets and liabilities and will not be recording any further adjustments to the carrying value. Two River Bancorp Acquisition On January 1, 2020, the Company completed its acquisition of Two River Bancorp (“Two River”), which after purchase accounting adjustments added $1.113 billion to assets, $940.8 million to loans, and $941.8 million to deposits. Total consideration paid for Two River was $197.1 million, including cash consideration of $48.4 million. Two River was merged with and into the Company on the date of acquisition. The acquisition was accounted for under the acquisition method of accounting. Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values, net of tax. The excess of consideration paid over the estimated fair value of the net assets acquired has been recorded as goodwill. The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of the acquisition for Two River, net of total consideration paid (in thousands):
| At January 1, 2020
| Two River Book Value |  | Purchase Accounting Adjustments |  | Estimated Fair Value
Total Purchase Price: |  |  |  |  | $ | 197,050 |
Assets acquired: |  |  |  |  |
Cash and cash equivalents | $ | 51,102 |  |  | $ | — |  |  | $ | 51,102 |
Securities | 62,832 |  |  | 1,549 |  |  | 64,381 |
Loans | 940,885 |  |  | (49 | ) |  | 940,836 |
Accrued interest receivable | 2,382 |  |  | — |  |  | 2,382 |
Bank Owned Life Insurance | 22,440 |  |  | — |  |  | 22,440 |
Deferred tax asset | 5,201 |  |  | (1,850 | ) |  | 3,351 |
Other assets | 18,662 |  |  | (2,700 | ) |  | 15,962 |
Core deposit intangible | — |  |  | 12,130 |  |  | 12,130 |
Total assets acquired | 1,103,504 |  |  | 9,080 |  |  | 1,112,584 |
Liabilities assumed: |  |  |  |  |
Deposits | (939,132 | ) |  | (2,618 | ) |  | (941,750 | )
Other liabilities | (58,935 | ) |  | (21 | ) |  | (58,956 | )
Total liabilities assumed | (998,067 | ) |  | (2,639 | ) |  | (1,000,706 | )
Net assets acquired | $ | 105,437 |  |  | $ | 6,441 |  |  | $ | 111,878 |
Goodwill recorded in the merger |  |  |  |  | $ | 85,172 |
The calculation of goodwill is subject to change for up to one year after the date of acquisition as additional information relative to the closing date estimates and uncertainties become available. As the Company finalizes its review of the acquired assets and liabilities, certain adjustments to the recorded carrying values may be required. Country Bank Holding Company, Inc. Acquisition On January 1, 2020, the Company completed its acquisition of Country Bank Holding Company, Inc. (“Country Bank”), which after purchase accounting adjustments added $792.9 million to assets, $618.7 million to loans, and $652.7 million to deposits. Total consideration paid for Country Bank was $112.8 million. Country Bank was merged with and into the Company on the date of acquisition. The acquisition was accounted for under the acquisition method of accounting. Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values, net of tax. The excess of consideration paid over the estimated fair value of the net assets acquired has been recorded as goodwill. The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of the acquisition for Country Bank, net of total consideration paid (in thousands):
| At January 1, 2020
| Country Bank Book Value |  | Purchase Accounting Adjustments |  | Estimated Fair Value
Total Purchase Price: |  |  |  |  | $ | 112,836 |
Assets acquired: |  |  |  |  |
Cash and cash equivalents | $ | 20,799 |  |  | $ | — |  |  | $ | 20,799 |
Securities | 144,460 |  |  | 39 |  |  | 144,499 |
Loans | 614,285 |  |  | 4,376 |  |  | 618,661 |
Accrued interest receivable | 1,779 |  |  | — |  |  | 1,779 |
Deferred tax asset | (3,254 | ) |  | (897 | ) |  | (4,151 | )
Other assets | 10,327 |  |  | (1,134 | ) |  | 9,193 |
Core deposit intangible | — |  |  | 2,117 |  |  | 2,117 |
Total assets acquired | 788,396 |  |  | 4,501 |  |  | 792,897 |
Liabilities assumed: |  |  |  |  |
Deposits | (649,399 | ) |  | (3,254 | ) |  | (652,653 | )
Other liabilities | (69,244 | ) |  | 1,980 |  |  | (67,264 | )
Total liabilities assumed | (718,643 | ) |  | (1,274 | ) |  | (719,917 | )
Net assets acquired | $ | 69,753 |  |  | $ | 3,227 |  |  | $ | 72,980 |
Goodwill recorded in the merger |  |  |  |  | $ | 39,856 |
The calculation of goodwill is subject to change for up to one year after the date of acquisition as additional information relative to the closing date estimates and uncertainties become available. As the Company finalizes its review of the acquired assets and liabilities, certain adjustments to the recorded carrying values may be required. Supplemental Pro Forma Financial Information The following table presents financial information regarding the former Two River and Country Bank operations included in the Consolidated Statements of Income from the date of the acquisition (January 1, 2020) through March 31, 2020. The table also presents financial information regarding the former Capital Bank operations included in the Consolidated Statements of Income from the date of the acquisition (January 31, 2019) through March 31, 2020. In addition, the table provides unaudited condensed pro forma financial information assuming the Two River, Country Bank, and Capital Bank acquisitions had been completed as of January 1, 2019 for the three months ended March 31, 2019. The table below has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisition occurred as of the beginning of the periods presented, nor is it indicative of future results. Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings or the impact of conforming certain accounting policies of the acquired company to the Company’s policies that may have occurred as a result of the integration and consolidation of Two River, Country Bank, and Capital Bank’s operations. The pro forma information shown reflects adjustments related to certain purchase accounting fair value adjustments; amortization of core deposit and other intangibles; and related income tax effects.
(in thousands) | Two River Actual for Three Months Ended March 31, 2020 |  | Country Bank Actual for Three Months Ended March 31, 2020 |  | Capital Bank Actual from February 1, 2019 to March 31, 2019 |  | Pro forma Three Months Ended March 31, 2019
Net interest income | $ | 10,650 |  |  | $ | 6,507 |  |  | $ | 3,172 |  |  | $ | 84,302 |
Credit loss expense | 210 |  |  | 126 |  |  | 70 |  |  | 1,095 |
Non-interest income | 558 |  |  | 162 |  |  | 199 |  |  | 10,963 |
Non-interest expense | 11,630 |  |  | 5,488 |  |  | 6,439 |  |  | 58,535 |
Provision (benefit) for income taxes | (167 | ) |  | 589 |  |  | (6 | ) |  | 6,506 |
Net income | $ | (465 | ) |  | $ | 466 |  |  | $ | (3,132 | ) |  | $ | 29,129 |
Fully diluted earnings per share |  |  |  |  |  |  | $ | 0.47 |
Fair Value Measurement of Assets Assumed and Liabilities Assumed The methods used to determine the fair value of the assets acquired and liabilities assumed in the Capital Bank, Two River and Country Bank acquisitions were as follows. Refer to Note 7, Fair Value Measurements, for a discussion of the fair value hierarchy. Securities The estimated fair values of the securities were calculated utilizing Level 2 inputs. The securities acquired are bought and sold in active markets. Prices for these instruments were obtained through security industry sources that actively participate in the buying and selling of securities. Loans The acquired loan portfolio was valued utilizing Level 3 inputs and included the use of present value techniques employing cash flow estimates and incorporated assumptions that marketplace participants would use in estimating fair values. In instances where reliable market information was not available, the Company used its own assumptions in an effort to determine reasonable fair value. Specifically, the Company utilized three separate fair value analyses which a market participant would employ in estimating the total fair value adjustment. The three separate fair valuation methodologies used were: 1) interest rate loan fair value analysis; 2) general credit fair value adjustment; and 3) specific credit fair value adjustment. To prepare the interest rate fair value analysis, loans were grouped by characteristics such as loan type, term, collateral and rate. Market rates for similar loans were obtained from various external data sources and reviewed by Company management for reasonableness. The average of these rates was used as the fair value interest rate a market participant would utilize. A present value approach was utilized to calculate the interest rate fair value adjustment. The general credit fair value adjustment was calculated using a two part general credit fair value analysis: 1) expected lifetime losses and 2) estimated fair value adjustment for qualitative factors. The expected lifetime losses were calculated using an average of historical losses of the acquired bank. The adjustment related to qualitative factors was impacted by general economic conditions and the risk related to lack of experience with the originator’s underwriting process. To calculate the specific credit fair value adjustment, subsequent to January 1, 2020, the Company identified loans that have experienced more-than-insignificant deterioration in credit quality since origination. Loans meeting this criteria were reviewed by comparing the contractual cash flows to expected collectible cash flows. The aggregate expected cash flows less the acquisition date fair value resulted in an accretable yield amount which will be recognized over the life of the loans on a level yield basis as an adjustment to yield. Premises and Equipment Fair values are based upon appraisals from independent third parties. In addition to owned properties, Capital Bank, Two River and Country Bank operated one, 14, and five properties, respectively, subject to a lease agreement. Deposits and Core Deposit Premium Core deposit premium represents the value assigned to non-interest-bearing demand deposits, interest-bearing checking, money market and saving accounts acquired as part of the acquisition. The core deposit premium value represents the future economic benefit, including the present value of future tax benefits, of the potential cost saving from acquiring the core deposits as part of an acquisition compared to the cost of alternative funding sources and is valued utilizing Level 2 inputs. The core deposit premium totaled $2.7 million, $12.1 million, and $2.1 million, for the acquisitions of Capital Bank, Two River, and Country Bank, respectively, and is being amortized over its estimated useful life of approximately 10 years using an accelerated method. Time deposits are not considered to be core deposits as they are assumed to have a low expected average life upon acquisition. The fair value of time deposits represents the present value of the expected contractual payments discounted by market rates for similar time deposits and is valued utilizing Level 2 inputs. Borrowings Fair value estimates are based on discounting contractual cash flows using rates which approximate the rates offered for borrowings of similar remaining maturities.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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