3. Mergers and Acquisitions

Metro Bancorp, Inc.

On February 13, 2016, the Corporation completed its acquisition of Metro Bancorp, Inc. (METR), a bank holding company based in Harrisburg, Pennsylvania. The acquisition continues the Corporation’s growth strategy, including expanding its geographic footprint in markets throughout central Pennsylvania. Additionally, cost savings, efficiencies and other benefits are expected from the combined operations.

On the acquisition date, METR had assets with a net book value of approximately $2,854,896, including $1,980,790 in loans, and deposits with a net book value of approximately $2,326,313. The acquisition was valued at approximately $402,990 and resulted in the Corporation issuing 34,041,181 shares of its common stock in exchange for 14,345,319 shares of METR common stock. The Corporation also acquired the fully vested outstanding stock options of METR.

The merger will be accounted for in accordance with the acquisition method of accounting. Preliminary fair values for all assets and liabilities are not reported herein as the Corporation is undertaking a comprehensive review and determination of the fair values of the assets and liabilities of METR to ensure that they conform to the measurement and reporting guidance set forth for the accounting for business combinations. Determining the fair value of assets and liabilities, especially in the loan portfolio, is a complex process involving significant judgment regarding estimates and assumptions used to calculate fair values. Accordingly, the initial accounting for the merger is not complete.

Goodwill expected to be recorded in the transaction will not be deductible for income tax purposes as the acquisition is accounted for as a tax-free exchange for tax purposes.

The Corporation incurred merger expenses of $1,260 related to the METR acquisition for the year ended December 31, 2015.

The following pro forma financial information for the year ended December 31, 2015 reflects the Corporation’s estimated consolidated pro forma results of operations as if the METR acquisition occurred on January 1, 2015, unadjusted for potential cost savings:


Revenue (net interest income and non-interest income)	$	790,391
Net income		171,850
Net income available to common stockholders		163,809
Earnings per common share – basic		0.78
Earnings per common share – diluted		0.78

Branch Purchase – Bank of America

On September 18, 2015, the Corporation completed its purchase of five branch-banking locations in southeastern Pennsylvania from Bank of America (BofA). The fair value of the acquired assets totaled $154,619, including $148,159 in cash, $4,485 in goodwill and intangible assets, and $1,975 in fixed and other assets. The Corporation also assumed $154,619 in deposits associated with these branches. The Corporation paid a deposit premium of 1.94% and acquired an immaterial amount of loans as part of the transaction. The Corporation’s operating results for 2015 includes the impact of branch activity subsequent to the September 18, 2015 closing date. Goodwill of $1,485 for this transaction is expected to be deductible for income tax purposes.

Insurance Brokerage – Conway E&S, Inc.

On July 18, 2015, the Corporation, through its wholly-owned subsidiary, FNIA, acquired certain account assets of Conway E&S, Inc., a Pittsburgh-based independent insurance brokerage firm. Under the purchase agreement, the Corporation paid $464 in cash and recorded goodwill of $269 and other intangibles of $195 in connection with this acquisition.

Insurance Brokerage – First Niagara Risk Management, Inc.

On June 22, 2015, FNIA acquired the Pittsburgh Insurance Brokerage Segment of First Niagara Risk Management, Inc. Under the purchase agreement, the Corporation paid $3,066 in cash and recorded goodwill of $1,639, other intangibles of $1,186, and miscellaneous other assets of $241 in connection with this acquisition.

OBA Financial Services, Inc.

On September 19, 2014, the Corporation completed its acquisition of OBA Financial Services, Inc. (OBA), a bank holding company based in Germantown, Maryland. On the acquisition date, the estimated fair values of OBA included $390,160 in assets, $291,393 in loans and $295,922 in deposits. The acquisition was valued at $85,554 and resulted in the Corporation issuing 7,170,037 shares of its common stock in exchange for 4,025,895 shares of OBA common stock. The Corporation also acquired the outstanding stock options of OBA that became fully vested upon the acquisition. The assets and liabilities of OBA were recorded on the Corporation’s consolidated balance sheet at their fair values as of September 19, 2014, the acquisition date, and OBA’s results of operations have been included in the Corporation’s consolidated statement of comprehensive income since that date. OBA’s banking affiliate, OBA Bank, was merged into FNBPA on September 19, 2014. Based on the purchase price allocation, the Corporation recorded $20,107 in goodwill and $4,304 in core deposit intangibles as a result of the acquisition. None of the goodwill is deductible for income tax purposes.

BCSB Bancorp, Inc.

On February 15, 2014, the Corporation completed its acquisition of BCSB Bancorp, Inc. (BCSB), a bank holding company based in Baltimore, Maryland. On the acquisition date, the estimated fair values of BCSB included $596,122 in assets, $304,932 in loans and $532,197 in deposits. The acquisition was valued at $80,547 and resulted in the Corporation issuing 6,730,597 shares of its common stock in exchange for 3,235,961 shares of BCSB common stock. The Corporation also acquired the outstanding stock options of BCSB that became fully vested upon the acquisition. The assets and liabilities of BCSB were recorded on the Corporation’s consolidated balance sheet at their fair values as of February 15, 2014, the acquisition date, and BCSB’s results of operations have been included in the Corporation’s consolidated statement of comprehensive income since that date. BCSB’s banking affiliate, Baltimore County Savings Bank, was merged into FNBPA on February 15, 2014. Based on the purchase price allocation, the Corporation recorded $42,452 in goodwill and $6,591 in core deposit intangibles as a result of the acquisition. None of the goodwill is deductible for income tax purposes.

PVF Capital Corp.

On October 12, 2013, the Corporation completed its acquisition of PVF Capital Corp. (PVF), a savings and loan holding company based in Solon, Ohio. On the acquisition date, the estimated fair values of PVF included $737,229 in assets, $512,795 in loans and $628,019 in deposits. The acquisition was valued at $109,856 and resulted in the Corporation issuing 8,893,598 shares of its common stock in exchange for 26,119,398 shares of PVF common stock. The Corporation also acquired the outstanding stock options of PVF that became fully vested upon the acquisition. The assets and liabilities of PVF were recorded on the Corporation’s consolidated balance sheets at their fair values as of October 12, 2013, the acquisition date, and PVF’s results of operations have been included in the Corporation’s consolidated statements of comprehensive income since that date. PVF’s banking affiliate, Park View Federal Savings Bank, was merged into FNBPA on October 12, 2013. Based on the purchase price allocation, the Corporation recorded $55,727 in goodwill and $6,867 in core deposit intangibles as a result of the acquisition. None of the goodwill is deductible for income tax purposes.

Annapolis Bancorp, Inc.

On April 6, 2013, the Corporation completed its acquisition of Annapolis Bancorp, Inc. (ANNB), a bank holding company based in Annapolis, Maryland. On the acquisition date, the estimated fair values of ANNB included $430,252 in assets, $256,212 in loans and $349,370 in deposits. The acquisition was valued at $56,300 and resulted in the Corporation issuing 4,641,412 shares of its common stock in exchange for 4,060,802 shares of ANNB common stock. The Corporation also acquired the outstanding stock options of ANNB that became fully vested upon the acquisition. Additionally, the Corporation paid $609, or $0.15 per share, to the holders of ANNB common stock as cash consideration due to the collection of a certain loan, as designated in the merger agreement. The assets and liabilities of ANNB were recorded on the Corporation’s consolidated balance sheets at their fair values as of April 6, 2013, the acquisition date, and ANNB’s results of operations have been included in the Corporation’s consolidated statements of comprehensive income since that date. ANNB’s banking affiliate, BankAnnapolis, was merged into FNBPA on April 6, 2013. In conjunction with the acquisition, a warrant issued by ANNB to the U.S. Department of the Treasury (UST) under the Capital Purchase Program (CPP) was assumed by the Corporation and converted into a warrant to purchase up to 342,564 shares of the Corporation’s common stock. The warrant expires January 30, 2019 and has an exercise price of $3.57 per share. Subsequent adjustments related to actual dividends paid by the Corporation have increased the share amount of these warrants to 364,843, with a resulting lower exercise price of $3.38 per share as of December 31, 2015. Based on the purchase price allocation, the Corporation recorded $35,854 in goodwill and $3,775 in core deposit intangibles as a result of the acquisition. None of the goodwill is deductible for income tax purposes.

The following table summarizes the amounts recorded on the consolidated balance sheet as of each of the acquisition dates in conjunction with the acquisitions noted above:


	Bank of America Branches			OBA Financial Services, Inc.		BCSB Bancorp, Inc.		PVF Capital Corp.		Annapolis Bancorp, Inc.
Fair value of consideration paid:
Common stock issued, net of offering costs	$	—		$	85,554	$	80,547	$	109,856	$	54,065
Warrant assumed		—			—		—		—		2,235

Total consideration paid		—			85,554		80,547		109,856		56,300

Fair value of identifiable assets acquired:
Cash and cash equivalents		148,159			32,913		26,980		99,738		41,986
Securities		—			39,891		208,538		47,258		99,309
Loans		842			291,393		304,932		512,795		256,212
Other intangible assets		3,000			4,304		6,591		15,288		3,775
Other assets		1,133			21,659		49,081		62,150		28,970

Total identifiable assets acquired		153,134			390,160		596,122		737,229		430,252

Fair value of liabilities assumed:
Deposits		154,619			295,922		532,197		628,019		349,370
Borrowings		—			27,602		17,011		37,241		58,204
Other liabilities		—			1,189		8,819		17,840		2,232

Total liabilities assumed		154,619			324,713		558,027		683,100		409,806

Fair value of net identifiable assets acquired		(1,485	)		65,447		38,095		54,129		20,446

Goodwill recognized	$	1,485		$	20,107	$	42,452	$	55,727	$	35,854

Pending Branch Purchase – Fifth Third Bank

On September 3, 2015, the Corporation announced that it entered into a purchase and assumption agreement to acquire approximately $383,000 in retail and private banking deposits, 17 branch-banking locations and related consumer loans in the Pittsburgh, Pennsylvania area from Fifth Third Bank. The transaction is expected to close during the second quarter of 2016.