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Acquisition of Riverview Financial Corporation | 3 Months Ended
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Mar. 31, 2022
Business Combinations [Abstract] |
Acquisition of Riverview Financial Corporation | (3)Acquisition of Riverview Financial Corporation On November 30, 2021, Mid Penn completed its acquisition of Riverview through the merger of Riverview with and into Mid Penn. In connection with this acquisition, Riverview Bank, Riverview’s wholly-owned bank subsidiary, merged with and into Mid Penn Bank. Pursuant to the merger agreement, shareholders of Riverview common stock received, for each share of Riverview common stock held at the effective time of the merger, 0.4833 shares of Mid Penn common stock as merger consideration with an acquisition date fair value of $142,192,000 based on the closing stock price of Mid Penn’s common stock on November 30, 2021 of $31.46. This exchange ratio did not change as a result of changes in the Mid Penn share price. Additionally, outstanding options at the time of the merger were converted into the right to receive an amount in cash equal to the product obtained by multiplying the aggregate number of shares of Riverview common stock that were issuable upon exercise of each option outstanding, and the closing sale price of Mid Penn’s common stock on the fifth (5th) business day prior to the merger closing date multiplied by the exchange ratio, less the per share exercise price of each option outstanding, without interest. There were 172,964 options outstanding to purchase Riverview common stock and the closing price of Mid Penn common stock was at $30.76 per share on the fifth business day prior to the merger closing date. Additionally, 2,500 shares of restricted stock were paid out in cash, resulting in $776,000 of cash consideration relating to stock awards. Including $16,000 of cash paid in lieu of fractional shares, the total fair value of consideration paid was $142,984,000. The assets and liabilities of Riverview were recorded on the consolidated balance sheets of Mid Penn at their estimated fair value as of November 30, 2021, and their results of operations have been included in the consolidated income statement of the Corporation since such date. Riverview has been fully integrated into Mid Penn; therefore, the amount of revenue and earnings of Riverview included in the consolidated income statement since the acquisition date is impracticable to provide. The acquisition of Riverview resulted in the recognition and recording of intangible assets including $50,995,000 of goodwill, a core deposit intangible of $4,096,000, and a customer list intangible of $2,160,000. The core deposit intangible and customer list intangible will be amortized over a ten-year period using a sum of the years’ digits basis. The goodwill will not be amortized but will be measured annually for impairment or more frequently if circumstances require. The allocation of the purchase price is as follows:
(Dollars in thousands) |  |
Assets acquired: |  |  |  |
Cash and cash equivalents |  | $ | 316,079 |
Investment securities |  |  | 226 |
Restricted stock |  |  | 2,209 |
Loans |  |  | 837,505 |
Goodwill |  |  | 50,995 |
Core deposit intangible |  |  | 4,096 |
Customer list intangible |  |  | 2,160 |
Bank owned life insurance |  |  | 32,120 |
Premises and equipment |  |  | 11,819 |
Deferred income taxes |  |  | 7,110 |
Accrued interest receivable |  |  | 1,919 |
Other assets |  |  | 6,683 |
Total assets acquired |  |  | 1,272,921 |
Liabilities assumed: |  |  |  |
Deposits: |  |  |  |
Noninterest-bearing demand |  |  | 182,291 |
Interest-bearing demand |  |  | 371,283 |
Money Market |  |  | 152,365 |
Savings |  |  | 176,294 |
Time |  |  | 199,414 |
Long-term debt |  |  | 6,500 |
Subordinated debt and trust preferred securities |  |  | 36,308 |
Accrued interest payable |  |  | 439 |
Other liabilities |  |  | 5,043 |
Total liabilities assumed |  |  | 1,129,937 |
Consideration paid |  | $ | 142,984 |
Cash paid |  | $ | 792 |
Fair value of common stock issued |  |  | 142,192 |
Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, allows for adjustments to goodwill up to one year after the merger date for information that becomes available during this post-merger period that reflects circumstances at the date of merger. The following table summarizes the estimated fair value of the assets acquired and liabilities and equity assumed in the Riverview transaction that management believes are final; however, these values could be adjusted under ASC 805 until November 30, 2022.
(Dollars in thousands) |  |
Total purchase price (consideration paid) |  | $ | 142,984 |
Net assets acquired: |  |  |  |
Cash and cash equivalents |  |  | 316,079 |
Investment securities |  |  | 226 |
Restricted stock |  |  | 2,209 |
Loans |  |  | 837,505 |
Core deposit intangible |  |  | 4,096 |
Customer list intangible |  |  | 2,160 |
Bank owned life insurance |  |  | 32,120 |
Premises and equipment |  |  | 11,819 |
Deferred income taxes |  |  | 7,110 |
Accrued interest receivable |  |  | 1,919 |
Other assets |  |  | 6,683 |
Deposits: |  |  |  |
Noninterest-bearing demand |  |  | (182,291 | )
Interest-bearing demand |  |  | (371,283 | )
Money Market |  |  | (152,365 | )
Savings |  |  | (176,294 | )
Time |  |  | (199,414 | )
Long-term debt |  |  | (6,500 | )
Subordinated debt and trust preferred securities |  |  | (36,308 | )
Accrued interest payable |  |  | (439 | )
Other liabilities |  |  | (5,043 | )
Net assets acquired |  |  | 91,989 |
Goodwill |  | $ | 50,995 |
In general, factors contributing to goodwill recognized as a result of the Riverview acquisition include expected cost savings from combined operations, opportunities to expand into several new markets, and growth and profitability potential from the repositioning of short-term investments into higher-yielding loans. The goodwill acquired as a result of the Riverview acquisition is not tax deductible. The fair value of the financial assets acquired included loans receivable with a net amortized cost basis of $837,505,000. The table below illustrates the fair value adjustments made to the amortized cost basis in order to present a fair value of the loans acquired.
(Dollars in thousands) |  |
Gross amortized cost basis at November 30, 2021 |  | $ | 850,920 |
Market rate adjustment |  |  | 529 |
Credit fair value adjustment on pools of homogeneous loans |  |  | (13,117 | )
Credit fair value adjustment on impaired loans |  |  | (827 | )
Fair value of purchased loans at November 30, 2021 |  | $ | 837,505 |
The market rate adjustment represents the movement in market interest rates, irrespective of credit adjustments, compared to the contractual rates of the acquired loans. The credit adjustment made on pools of homogeneous loans represents the changes in credit quality of the underlying borrowers from loan inception to the acquisition date. The credit adjustment on impaired loans is derived in accordance with ASC 310-30-30 and represents the portion of the loan balance that has been deemed uncollectible based on our expectations of future cash flows for each respective loan. The information about the acquired Riverview impaired loan portfolio as of November 30, 2021 is as follows:
(Dollars in thousands) |  |
Contractually required principal and interest at acquisition |  | $ | 5,591 |
Contractual cash flows not expected to be collected (nonaccretable discount) |  |  | (1,739 | )
Expected cash flows at acquisition |  |  | 3,852 |
Interest component of expected cash flows (accretable discount) |  |  | (541 | )
Fair value of acquired loans |  | $ | 3,311 |
The following table presents pro forma information as if the merger between Mid Penn and Riverview had been completed on January 1, 2021. The pro forma information does not necessarily reflect the results of operations that would have occurred had Mid Penn merged with Riverview at the beginning of 2021. The pro forma financial information does not include the impact of possible business model changes, nor does it consider any potential impacts of current market conditions or revenues, expense efficiencies, or other factors.
(Dollars in thousands, except per share data) |  |  |  |
|  | Three Months Ended |
|  | March 31, 2021 |
Net interest income after loan loss provision |  | $ | 33,935 |
Noninterest income |  |  | 7,235 |
Noninterest expense |  |  | 28,798 |
Net income |  |  | 12,372 |
Net income per common share |  |  | 0.70 |

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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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