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Acquisition of Clifton Bancorp Inc.
12 Months Ended
Jun. 30, 2019
Business Combinations [Abstract]  
Acquisition of Clifton Bancorp Inc

Note 3 – Acquisition of Clifton Bancorp Inc.

On April 2, 2018, the Company completed its acquisition of Clifton Bancorp Inc. (“Clifton”), the parent company of Clifton Savings Bank, a federally chartered stock savings bank.  At the time of closing, Clifton had $1.7 billion in total assets, including $1.2 billion in net loans receivable and $332.2 million in securities, and $1.4 billion in total liabilities, including $945.0 million in deposits and $421.4 million in borrowings.  The deposits acquired from Clifton were held across a network of 12 branches located in New Jersey throughout Bergen, Passaic, Hudson, and Essex counties.  

Clifton’s stockholders’ equity totaled approximately $272.0 million at the time of closing. Under the terms of the merger agreement, each outstanding share of Clifton common stock was exchanged for 1.191 shares of the Company’s common stock, resulting in the Company issuing 25.4 million shares of common stock to Clifton stockholders in conjunction with the merger’s closing.

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 April 2, 2018 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 $102.3 million and a core deposit intangible of $6.4 million.  Accounting guidance provides that an acquirer must recognize adjustments to provisional amounts that are identified during the measurement period, which runs through April 2, 2019, 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. During the year ended June 30, 2019, the Company completed all tax returns related to the operation of the combined entities through June 30, 2018 and determined that there were no material adjustments to the balance of income taxes or goodwill associated with the Clifton acquisition.

Note 3 – Acquisition of Clifton Bancorp Inc. (continued)

The Company recorded the assets acquired and liabilities assumed through the merger at fair value as summarized in the following table:

 

 

As Recorded

by Clifton

 

 

Fair Value Adjustments

 

 

As Recorded

at Acquisition

 

 

(In Thousands)

 

Cash and cash equivalents

$

36,585

 

 

$

-

 

 

$

36,585

 

Investment securities

 

332,183

 

 

 

(5,270

)

(a)

 

326,913

 

Loans receivable

 

1,191,748

 

 

 

(74,927

)

(b)

 

1,116,821

 

Allowance for loan losses

 

(8,025

)

 

 

8,025

 

(c)

 

-

 

Premises and equipment

 

8,066

 

 

 

3,556

 

(d)

 

11,622

 

FHLB stock

 

20,357

 

 

 

-

 

 

 

20,357

 

Accrued interest receivable

 

4,142

 

 

 

-

 

 

 

4,142

 

Bank owned life insurance

 

63,231

 

 

 

-

 

 

 

63,231

 

Deferred income taxes, net

 

6,837

 

 

 

16,149

 

(e)

 

22,986

 

Core deposit and other intangibles

 

-

 

 

 

6,367

 

(f)

 

6,367

 

Other real estate owned

 

163

 

 

 

(23

)

(g)

 

140

 

Other assets

 

1,438

 

 

 

133

 

(h)

 

1,571

 

Total assets acquired

$

1,656,725

 

 

$

(45,990

)

 

$

1,610,735

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

$

944,988

 

 

$

4,801

 

(i)

$

949,789

 

FHLB borrowings

 

421,400

 

 

 

(7,268

)

(j)

 

414,132

 

Advance payments by borrowers for taxes

 

9,777

 

 

 

-

 

 

 

9,777

 

Other liabilities

 

5,288

 

 

 

112

 

(k)

 

5,400

 

Total liabilities assumed

$

1,381,453

 

 

$

(2,355

)

 

$

1,379,098

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets acquired

 

 

 

 

 

 

 

 

$

231,637

 

Purchase price

 

 

 

 

 

 

 

 

 

333,941

 

Goodwill recorded in Merger

 

 

 

 

 

 

 

 

$

102,304

 

 

Explanation of certain fair value related adjustments:

 

(a)

Represents the fair value adjustments on investment securities.

(b)

Represents the fair value adjustments on the net book value of loans, which includes an interest rate mark and credit mark adjustment and the write-off of deferred fees/costs and premiums.

(c)

Represents the elimination of Clifton’s allowance for loan losses.

(d)

Represents the fair value adjustments to reflect the fair value of land and buildings and premises and equipment, which will be amortized on a straight-line basis over the estimated useful lives of the individual assets.

(e)

Represents an adjustment to net deferred tax assets resulting from the fair value adjustments related to the acquired assets, liabilities assumed and identifiable intangible assets recorded.

(f)

Represents the intangible assets recorded to reflect the fair value of core deposits. The core deposit asset was recorded as an identifiable intangible asset and will be amortized on an accelerated basis over the estimated average life of the deposit base.

(g)

Represents an adjustment to reduce the carrying value of other real estate owned to fair value, less costs to sell.

(h)

Represents an adjustment to other assets acquired.

(i)

Represents fair value adjustments on time deposits, which will be treated as a reduction of interest expense over the remaining term of the time deposits.

(j)

Represents the fair value adjustments on FHLB borrowings, which will be treated as an increase to interest expense over the life of the borrowings.

(k)

Represents an adjustment to other liabilities assumed.

 Note 3 – Acquisition of Clifton Bancorp Inc. (continued)

The fair value of loans acquired from Clifton were 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 Clifton’s allowance for loan losses associated with the loans that were acquired, as the loans were initially recorded at fair value on the date of the Clifton merger. Management has determined that there were no material purchased credit-impaired loans in the Clifton merger.

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.  

Goodwill is not amortized for book purposes; however, it is reviewed at least annually for impairment and is not deductible for tax purposes.

The fair value of land and buildings was estimated using appraisals. Acquired equipment was not material. Buildings are amortized over their estimated useful lives of approximately 35 to 46 years. Improvements and equipment are amortized or depreciated over their estimated useful lives ranging from one to 10 years.

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.

Direct acquisition and other charges incurred in connection with the Clifton merger were expensed as incurred and totaled $6.7 million for the year ended June 30, 2018. These expenses were recorded in merger-related expense on the consolidated statements of income.

The following table presents selected pro forma financial information reflecting the Clifton merger assuming it was completed as of July 1, 2016. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the financial results of the combined companies had the Clifton merger actually been completed at the beginning of the periods presented, nor does it indicate future results for any other interim or full year period. Pro forma basic and diluted EPS were calculated using the Company’s actual weighted average shares outstanding for the periods presented, plus the incremental shares issued, assuming the Clifton merger occurred at the beginning of the periods presented. The unaudited pro forma information is based on the actual financial statements of the Company for the periods presented, and on the actual financial statements of Clifton for the years ended March 31, 2018 and 2017 until the date of the Clifton merger, at which time Clifton’s results of operations were included in the Company’s financial statements.

The unaudited supplemental pro forma information for years ended June 30, 2018 and 2017 set forth below reflects adjustments related to (a) purchase accounting fair value adjustments; (b) amortization of core deposit and other intangibles; and (c) adjustments to interest income and expense due to amortization of premiums and accretion of discounts. Direct merger-related expenses incurred in the year ended June 30, 2018 are assumed to have occurred prior to July 1, 2017. Furthermore, the unaudited supplemental pro forma information does not reflect management’s estimate of any revenue enhancement opportunities or anticipated potential cost savings for periods that include data as of April 2, 2018 or earlier.

 

 

 

Unaudited

 

 

Supplemental Pro Forma Information

 

 

Years Ended June 30,

 

 

2018

 

 

2017

 

 

(In Thousands, Except Per Share Data)

 

Net interest income

$

169,094

 

 

$

146,426

 

Non-interest income

 

15,683

 

 

 

13,262

 

Non-interest expense

 

113,816

 

 

 

103,957

 

Net income available to common stockholders

 

40,216

 

 

 

31,631

 

Pro forma earnings per common share from continuing operations:

 

 

 

 

 

 

 

Basic

$

0.37

 

 

$

0.29

 

Diluted

$

0.37

 

 

$

0.29