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Business Combination | 3 Months Ended
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Sep. 30, 2024
Business Combinations [Abstract] |
Business Combination | 2. Business Combination On September 19, 2023, the Company completed its acquisition of Regal Bancorp and Regal Bank, under which 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 Bank, which had converted to a commercial bank charter, with Somerset Bank as the surviving entity, 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 $20.4 million and a core deposit intangible of $9.1 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. 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. 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 |
|  | (Dollars in thousands) |
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, at fair value |  |  | 12,487 |  |  |  |  |  |  |  | 12,487 |
Securities held-to-maturity, at amortized cost |  |  | 2,587 |  |  |  |  |  |  |  | 2,587 |
Federal Home Loan Bank stock and other restricted stock |  |  | 548 |  |  |  |  |  |  |  | 548 |
Loans receivable, net |  |  | 335,971 |  |  |  | (14,371 | ) | (a) |  |  | 321,600 |
Allowance for credit losses |  |  | (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 |
Net deferred tax asset |  |  | 1,634 |  |  |  | (78 | ) | (g)(i) |  |  | 1,556 |
Other assets |  |  | 2,430 |  |  |  | (201 | ) | (i) |  |  | 2,229 |
Total assets acquired |  | $ | 430,652 |  |  | $ | (2,807 | ) |  |  | $ | 427,845 |
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 |  |  |  | (248 | ) | (i) |  |  | 1,884 |
Total liabilities assumed |  | $ | 380,271 |  |  | $ | (1,547 | ) |  |  | $ | 378,724 |
Net assets acquired |  |  |  |  |  |  |  |  | $ | 49,121 |
Goodwill recorded at merger |  |  |  |  |  |  |  |  |  | 20,417 |
(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) 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. (e) Elimination of pre-existing intangible asset for the fair value of core deposits. (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. (i) Final adjustments of income taxes, other assets and other liabilities. During the three months ended September 30, 2023, the Company recorded one-time merger-related expenses of $3.9 million in the consolidated statements of income (loss), consisting of $2.6 million for change in control payments, $612,000 for investment banking services, $414,000 related to the termination of a data processing contract, $99,000 for legal related expenses, $42,000 for severance payments, $17,000 in other professional services and $30,000 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 s um-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. At June 30, 2024, the Company finalized its review of the acquired assets and assumed liabilities and did not record any further adjustments to the carrying value. 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.

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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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