Business Combination

12 Months Ended

Dec. 31, 2021

Business Combination

Business Combination

3. Business Combination

On October 30, 2020, the Company completed its acquisition of 100% of the outstanding voting and non-voting shares of Empire Bancorp, Inc. (“Empire”). In connection with the transaction, Empire National Bank (“Empire Bank”), a wholly-owned subsidiary of Empire, merged with and into Flushing Bank, with Flushing Bank as the surviving entity.

The shareholders of Empire received total consideration of $87.5 million which consisted of $54.8 million in cash and 2,557,028 shares of Flushing Financial Corporation common stock.

The merger was accounted for under the acquisition method of accounting. The excess of the fair value of the consideration paid over the preliminary net fair value of Empire’s assets and liabilities resulted in recognition of goodwill totaling $1.5 million, none of which is deductible for tax purposes. Upon closing of the merger, the Company’s assets increased by $982.7 million and four new branch locations were added, which expanded our presence on Long Island with having entrance to Suffolk County.

The assets acquired and liabilities assumed in the merger were recorded at their estimated fair values based on management’s best estimates, using the information available at the date of merger, including the use of third party valuation specialists. The fair values are subject to adjustment for up to one year after the closing date of the transaction. There were no adjustments made from the original estimates recorded.

The following table summarizes the consideration paid:

(Dollars in thousands)	Amount
Consideration Paid :
Company stock issued ( 2,557,028 shares )	$	32,705
Cash payment		54,836
Total consideration paid	$	87,541

The following table summarizes the estimated fair value of the acquired assets and liabilities assumed at October 30, 2020:

(Dollars in thousands)	Amount
Assets acquired:
Cash and Cash Equivalents	$	86,340
Securities available for sale		159,369
Net loans		669,682
Interest and dividends receivable		5,394
Bank premises and equipment, net		3,203
Federal Home Loan Bank of New York stock, at cost		1,135
Bank owned life insurance		21,992
Core deposit Intangibles		3,280
Right of use asset		9,993
Other assets		22,300
	$	982,688
Liabilities assumed:
Due to depositors:
Non-interest bearing		169,496
Interest-bearing		685,393
Mortgagors' escrow deposits		6,406
Borrowed funds		21,215
Operating lease liability		11,039
Other liabilities		3,108
	$	896,657
Goodwill recorded	$	1,509

Investments were measured upon quoted market prices, where available. If a quoted market price was not available, fair value was estimated using quoted market prices for similar securities and adjusted for differences between the quoted instrument and the instrument being valued.

Loans acquired were recorded at fair value and subsequently accounted for, as described in Note 2 (“Significant Accounting Policies”). The fair values of the loans were estimated utilizing the cash flow projections based on the remaining maturities and repricing terms. Cash flows were adjusted for estimated future credit losses and estimated prepayments. Projected cash flows were then discounted to present value, utilizing the Company’s CECL model. The Company recorded Day 1 ACL of $4.1 million resulting from PCD loans and non credit discount of $7.6 million.

Core deposit intangibles (“CDI”) were recorded at fair value estimated based on discounted cash flow methodology that gave appropriate consideration to expected client attrition rates, cost of deposit base, reserve requirements, net maintenance cost attributable to client deposits and an estimate of the cost associated with alternative funding sources. The discount rates used for CDI assets are based on market rates. The CDI is being amortized over 10 years based upon the estimated economic benefit received using sum of months digit method.

Deposits were recorded at fair value calculated based on discounted cash flow calculation using the current interest rate being offered to the contractual interest rates on such deposits.

Long-term debt was recorded at fair value based on current incremental borrowing rates for similar type of instruments.