On May 26, 2021, the Company completed its previously announced acquisition of Savoy Bank pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated as of August 27, 2020, as amended, between the Company, the Bank and Savoy. Pursuant to the Merger Agreement, Savoy was merged with and into the Bank, with the Bank surviving, in a two-step transaction (collectively, the “Merger”).

The purchase price in the transaction was based upon the tangible book values of each of the Company and Savoy as of April 30, 2021 and calculated in accordance with the terms of the Merger Agreement. At the effective time of the Merger, each share of Savoy common stock, $1.00 par value (“Savoy Common Stock”) was converted into the right to receive (i) $3.246 in cash and (ii) 0.141 shares of the Company’s common stock. The final aggregate purchase price was $65.5 million, or $6.49 per Savoy share.

A final summary of the fair value of assets received and liabilities assumed are as follows:

(a)	Represents the fair value adjustments on net book value of loans, which includes an interest rate mark and credit mark adjustment, the write-off of deferred fees/costs and premiums and the elimination of Savoy’s allowance for loan losses.

(b)	Represents the fair value adjustments to reflect the fair value of premises and equipment.

(c)	Represents the fair value of core deposit intangible recorded, which is amortized on an accelerated basis over the estimated average life of the deposit base.

(d)	Represents an adjustment to accrued interest receivable acquired.

(e)	Represents an adjustment to other assets acquired. The largest adjustment was the net deferred tax assets resulting from the fair value adjustment related to the acquired assets, liabilities assumed and identifiable intangible assets recorded.

(f)	Represents the fair value adjustments on time deposits, which is treated as a reduction of interest expense over the remaining term of the time deposits.

(g)	Represents the fair value adjustments on an FHLB borrowing, which is treated as a reduction to interest expense over the life of the borrowing.

(h)	Represents an adjustment to other liabilities assumed.

A summary of total consideration paid is as follows:


(in thousands, except share data)
Common stock issued (1,357,567 shares issued)	$	31,252
Rollover options		1,269
Cash payments to common shareholders		32,991
Total consideration paid	$	65,512

With the Savoy acquisition, the Company significantly expanded its commercial banking and SBA lending capabilities. None of the goodwill associated with this acquisition is deductible for income tax purposes. All goodwill related to this acquisition was allocated to the Company’s only reporting unit, which is the Company as a whole.

The Company engaged a third-party specialist to develop the fair value estimate of Savoy’s loan portfolio as of the acquisition date in accordance with ASC 820. Inputs and assumptions used in the fair value estimate of the loan portfolio, include interest rate, servicing, credit and liquidity risk, and required equity return. The fair value of loans was calculated using a discounted cash flow analysis 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 Savoy’s allowance for loan losses associated with the loans that were acquired, as the loans were initially recorded at fair value as of the acquisition date.

The core deposit intangible asset recognized is being amortized over its estimated useful life of approximately 10 years and the amortization is based on dollar weighted deposit runoff on an annualized basis.

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.

Other borrowed funds include a borrowing from the FHLB. The fair value of this borrowing was estimated by discounting the contractual future cash flows using FHLB rates offered of similar maturities.

During the fiscal fourth quarter of 2021, the Company revised its initial estimates and assumptions regarding the valuation of acquired deferred tax assets. Because such revision occurred during the first 12 months following the date of acquisition and was not the result of an event that occurred subsequent to the acquisition date, the Company has increased goodwill recorded by $1.1 million to reflect this change in estimate.

Acquisition costs are expensed as incurred as a component of non-interest expense and primarily include, but are not limited to, severance costs, professional services, data processing fees, and marketing and advertising expenses. The Company incurred total acquisition costs of $250 thousand and $4.4 million during the years ended September 30, 2022 and 2021, respectively.

The Company has determined the above noted acquisition constitutes a business combination as defined by ASC Topic 805, which establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired and the liabilities assumed. The Company has recorded the assets purchased and liabilities assumed at their estimated fair value in accordance with ASC Topic 805.

The following is a summary of the loans accounted for in accordance with ASC 310-30 that were acquired in the Savoy acquisition as of the merger date:


(in thousands)
Contractually required principal and interest at acquisition	$	14,416
Contractual cash flows not expected to be collected (non-accretable discount)		(3,467)
Expected cash flows at acquisition		10,949
Interest component of expected cash flows (accretable discount)		(540)
Fair value of acquired purchased credit impaired loans	$	10,409