On September 19, 2023, the Company completed its acquisition of Regal Bancorp, Inc. and its wholly-owned subsidiary Regal Bank. Pursuant to the terms of the Merger Agreement, Regal Bancorp merged with and into the Company, with the Company as the resulting entity. Immediately following the Merger, Regal Bank merged with and into Somerset Savings Bank, SLA, with Somerset Savings Bank, SLA as the surviving entity. which converted to a commercial bank charter, and was renamed Somerset Regal Bank. In connection with the Merger, each outstanding share of Regal Bancorp common stock converted into the right to receive $23.00 in cash.

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their fair values as of September

19, 2023 based on management’s best estimate using the information available as of the merger date. The application of the acquisition method of accounting resulted in the recognition of goodwill of $20.5 million and a core deposit intangible of $9.0 million. Accounting guidance provides that an acquirer must recognize adjustments to provisional amounts that are identified during the measurement period, which runs through September 19, 2024, in the measurement period in which the adjustment amounts are determined. The acquirer must record in the financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the changes to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. Items that could be subject to adjustment include credit fair value adjustments on loans, core deposit intangible and the deferred income tax assets resulting from the acquisition.

Merger-related expenses of $3,856 for 2023 and $196 for 2022 are recorded in the consolidated statements of income and are expensed as incurred. The following table sets forth assets acquired and liabilities assumed in the acquisition of Regal Bancorp, at their estimated fair values as of the closing date of the transaction:


	As recorded by Regal Bancorp			Fair value adjustments				As recorded at acquisition
Consideration paid (3,023,369 Regal Bancorp shares at $23.00 per share)									69,538
Assets Acquired
Cash and cash equivalents	$	55,294		$	—			$	55,294
Time deposits in other financial institutions		8,810							8,810
Securities available for sale		12,487							12,487
Securities held to maturity		2,587							2,587
Federal Home Loan Bank stock and other restricted stock		548							548
Loans receivable		335,971			(14,371	)	(a)		321,600
Allowance for loan loss		(4,076	)		4,076		(b)		—
Accrued interest receivable		1,214							1,214
Premises and equipment, net		1,570							1,570
Right-of-use asset		3,416							3,416
Goodwill		1,047			(1,047	)	(c)		—
Core deposit intangible		26			9,038		(d)(e)		9,064
Deferred costs		224			(224	)	(f)		—
Bank owned life insurance		7,470							7,470
Deferred income taxes		1,766			(91	)	(g)		1,675
Other assets		2,298							2,298
Total assets acquired	$	430,652		$	(2,619	)		$	428,033

Liabilities assumed
Deposits	$	373,174		$	(1,299	)	(h)	$	371,875
Lease liability		3,444							3,444
Deferred compensation		1,521							1,521
Accrued expenses and other liabilities		2,132							2,132
Total liabilities assumed	$	380,271		$	(1,299	)		$	378,972
Net assets acquired								$	49,061
Goodwill recorded at merger									20,477

Explanation of certain fair value related adjustments:


(a)	Adjustment for interest rate and credit risk to reduce loans to fair value, to be amortized as an increase to interest income over their remaining term.
(b)	Elimination of Regal Bank allowance for loan losses.
(c)	Elimination of pre-existing goodwill.
(d)	Elimination of pre-existing intangible asset for the fair value of core deposits.
(e)	Recording of new intangible asset for the fair value of core deposits, to be amortized on an accelerated basis


	over the estimated average life of the deposit base.
(f)	Elimination of deferred costs.
(g)	Recording of the deferred income tax effects of fair value adjustments.
(h)	Adjustment to reduce time deposits to fair value, to be amortized as an increase to interest expense over their remaining term.

The Company recorded one-time merger-related expenses of $3.9 million, consisting of $2.6 million for change in control payments, $612 for investment banking services, $414 related to the termination of a data processing contract, $99 for legal related expenses, $42 for severance payments, $17 in other professional services and $30 in other miscellaneous expenses. In addition, the Company recorded a $5.4 million charitable contribution expense for the establishment of the Somerset Regal Charitable Foundation, as well as a $4.2 million provision for estimated credit losses in connection with the acquired loan portfolio.

The fair value of loans acquired from Regal Bank was estimated using cash flow projections based on the remaining maturity and repricing terms. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. There was no carryover of Regal Bank’s allowance for credit losses associated with the loans that were acquired. The core deposit intangible asset recognized is being amortized over its estimated useful life of approximately 10 years utilizing the sum-of-the-years digits method. The acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. Accordingly, the Company recognizes amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair value. Due to the complexity in valuing the assets acquired and liabilities assumed and the significant amount of data inputs required, the valuation of the assets and liabilities acquired is not yet final. Fair value estimates are based on the information available, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to the closing date fair values becomes available.

The fair value of retail demand and interest-bearing deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. The fair value of time deposits was estimated by discounting the contractual future cash flows using market rates offered for time deposits of similar remaining maturities. The fair value of borrowings was based on the FHLB calculation to prepay borrowings with associated penalties.