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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file Number:        000-32891
1ST CONSTITUTION BANCORP
(Exact Name of Registrant as Specified in Its Charter)
New Jersey
 
22-3665653
(State of Other Jurisdiction
of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)

2650 Route 130
P.O. Box 634
Cranbury
New Jersey
08512
(Address of Principal Executive Offices)
(Zip Code)

(Registrant’s Telephone Number, Including Area Code)
(609)
655-4500
 
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, no par value
FCCY
NASDAQ Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes        No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes        No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.




Large accelerated filer
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
 
 
 
Emerging growth company
If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No  
As of August 3, 2020, there were 10,215,550 shares of the registrant’s common stock, no par value, outstanding.




1ST CONSTITUTION BANCORP
FORM 10-Q
INDEX
 
 
Page
 
 
 
PART I.
FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
Consolidated Balance Sheets at June 30, 2020 and December 31, 2019 (unaudited)
 
 
 
 
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2020 and June 30, 2019 (unaudited)
 
 
 
 
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2020 and June 30, 2019 (unaudited)
 
 
 
 
Consolidated Statements of Changes in Shareholders' Equity for the Three and Six Months Ended June 30, 2020 and June 30, 2019 (unaudited)
 
 
 
 
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and June 30, 2019 (unaudited)
 
 
 
 
Notes to Consolidated Financial Statements (unaudited)
 
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 3.
Defaults Upon Senior Securities
 
 
 




Item 4.
Mine Safety Disclosures
 
 
 
Item 5.
Other Information
 
 
 
Item 6.
Exhibits
 
 
 
SIGNATURES




PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements.

1ST Constitution Bancorp
Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
 
 
June 30, 2020
 
December 31, 2019
ASSETS
 
 
 
 
Cash and due from banks
 
$
10,101

 
$
2,547

Interest-earning deposits
 
2,481

 
12,295

Total cash and cash equivalents
 
12,582

 
14,842

Investment securities
 
 

 
 

Available for sale, at fair value
 
151,661

 
155,782

Held to maturity (fair value of $97,567 and $78,223 at June 30, 2020
and December 31, 2019, respectively)
 
94,440

 
76,620

Total investment securities
 
246,101

 
232,402

Loans held for sale
 
11,129

 
5,927

Loans
 
1,355,436

 
1,216,028

  Less: allowance for loan losses
 
(12,126
)
 
(9,271
)
    Net loans
 
1,343,310

 
1,206,757

Premises and equipment, net
 
14,691

 
15,262

Right-of-use assets
 
17,282

 
17,957

Accrued interest receivable
 
5,740

 
4,945

Bank-owned life insurance
 
36,943

 
36,678

Other real estate owned
 
470

 
571

Goodwill and intangible assets
 
36,563

 
36,779

Other assets
 
16,139

 
14,142

Total assets
 
$
1,740,950

 
$
1,586,262

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 

 
 

LIABILITIES
 
 

 
 

Deposits
 
 

 
 

Non-interest bearing
 
$
397,238

 
$
287,555

Interest bearing
 
1,012,154

 
989,807

Total deposits
 
1,409,392

 
1,277,362

Short-term borrowings
 
107,250

 
92,050

Redeemable subordinated debentures
 
18,557

 
18,557

Accrued interest payable
 
1,296

 
1,592

Lease liability
 
18,036

 
18,617

Accrued expenses and other liabilities
 
8,935

 
7,506

Total liabilities
 
1,563,466

 
1,415,684

SHAREHOLDERS' EQUITY
 
 

 
 

Preferred stock, no par value; 5,000,000 shares authorized; none issued
 

 

Common stock, no par value; 30,000,000 shares authorized; 10,258,374 and 10,224,974 shares issued and 10,219,048 and 10,191,676 shares outstanding as of June 30, 2020 and December 31, 2019, respectively
 
110,546

 
109,964

Retained earnings
 
66,067

 
60,791

Treasury stock, 39,326 and 33,298 shares at June 30, 2020 and December 31, 2019, respectively
 
(503
)
 
(368
)
Accumulated other comprehensive income
 
1,374

 
191

Total shareholders' equity
 
177,484

 
170,578

Total liabilities and shareholders' equity
 
$
1,740,950

 
$
1,586,262

The accompanying notes are an integral part of these consolidated financial statements.

1



1ST Constitution Bancorp
Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
INTEREST INCOME
 
 
 
 
 
 
 
Loans, including fees
$
15,374

 
$
12,869

 
$
30,179

 
$
25,026

Securities:
 
 
 
 
 
 
 
Taxable
852

 
1,215

 
1,908

 
2,485

Tax-exempt
496

 
422

 
934

 
863

Federal funds sold and short-term investments
4

 
47

 
93

 
94

Total interest income
16,726

 
14,553

 
33,114

 
28,468

INTEREST EXPENSE
 
 
 
 
 
 
 
Deposits
2,724

 
2,671

 
5,962

 
4,988

Borrowings
48

 
257

 
110

 
430

Redeemable subordinated debentures
106

 
192

 
258

 
390

Total interest expense
2,878

 
3,120

 
6,330

 
5,808

Net interest income
13,848

 
11,433

 
26,784

 
22,660

PROVISION FOR LOAN LOSSES
2,125

 
400

 
3,020

 
700

Net interest income after provision for loan losses
11,723

 
11,033

 
23,764

 
21,960

NON-INTEREST INCOME
 
 
 
 
 
 
 
Service charges on deposit accounts
132

 
159

 
345

 
325

Gain on sales of loans
2,121

 
1,160

 
3,591

 
2,205

Income on bank-owned life insurance
264

 
149

 
444

 
288

Gain on sales and calls of securities
10

 

 
18

 

Other income
573

 
702

 
1,158

 
1,218

Total non-interest income
3,100

 
2,170

 
5,556

 
4,036

NON-INTEREST EXPENSES
 
 
 
 
 
 
 
Salaries and employee benefits
6,001

 
5,278

 
12,170

 
10,241

Occupancy expense
1,205

 
991

 
2,375

 
2,012

Data processing expenses
470

 
345

 
916

 
693

FDIC insurance expense
225

 
60

 
259

 
160

Other real estate owned expenses
14

 
34

 
31

 
82

Merger-related expenses

 
258

 
64

 
273

Other operating expenses
1,922

 
1,600

 
3,815

 
3,199

Total non-interest expenses
9,837

 
8,566

 
19,630

 
16,660

Income before income taxes
4,986

 
4,637

 
9,690

 
9,336

INCOME TAXES
1,296

 
1,267

 
2,579

 
2,569

Net income
$
3,690

 
$
3,370

 
$
7,111

 
$
6,767

EARNINGS PER COMMON SHARE
 
 
 
 
 
 
 
Basic
$
0.36

 
$
0.39

 
$
0.70

 
$
0.78

Diluted
$
0.36

 
$
0.39

 
$
0.69

 
$
0.78

WEIGHTED AVERAGE SHARES OUTSTANDING
 
 
 
 
 
 
 
Basic
10,209,295

 
8,634,251

 
10,205,065

 
8,629,197

Diluted
10,248,156

 
8,696,943

 
10,256,481

 
8,692,063

The accompanying notes are an integral part of these consolidated financial statements.

2



1ST Constitution Bancorp
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
 
 
 
 
 
 
 
Net income
$
3,690

 
$
3,370

 
$
7,111

 
$
6,767

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized holding gains on securities available for sale
1,716

 
1,021

 
1,529

 
2,431

Tax effect
(418
)
 
(251
)
 
(372
)
 
(590
)
Net of tax amount
1,298

 
770

 
1,157

 
1,841

 
 
 
 
 
 
 
 
Reclassification adjustment for gains on securities available for sale(1)
(10
)
 

 
(11
)
 

   Tax effect (2)
3

 

 
3

 

Net of tax amount
(7
)
 

 
(8
)
 

 
 
 
 
 
 
 
 
Reclassification adjustment for unrealized impairment loss on held to maturity security(3)
5

 
3

 
8

 
4

Tax effect
(2
)
 
(1
)
 
(3
)
 
(1
)
Net of tax amount
3

 
2

 
5

 
3

 
 
 
 
 
 
 
 
Pension liability
85

 
56

 
141

 
111

Tax effect
(25
)
 
(14
)
 
(42
)
 
(31
)
Net of tax amount
60

 
42

 
99

 
80

 
 
 
 
 
 
 
 
Reclassification adjustment for actuarial gains for unfunded pension liability(4)
(56
)

(44
)
 
(100
)

(88
)
Tax effect (2)
17

 
13

 
30

 
26

Net of tax amount
(39
)
 
(31
)
 
(70
)
 
(62
)
 
 
 
 
 
 
 
 
Total other comprehensive income
1,315

 
783

 
1,183

 
1,862

 
 
 
 
 
 
 
 
Comprehensive income
$
5,005

 
$
4,153

 
$
8,294

 
$
8,629


(1) Included in gain on sales of securities on the consolidated statements of income
(2) Included in income taxes on the consolidated statements of income
(3) Included in investment securities held to maturity on the consolidated balance sheets
(4) Included in salaries and employee benefits expense on the consolidated statements of income


        
The accompanying notes are an integral part of these consolidated financial statements.


3



1ST Constitution Bancorp
Consolidated Statements of Changes in Shareholders’ Equity
For the Three and Six Months Ended June 30, 2020 and 2019
(Dollars in thousands)
(Unaudited)

 
Common
Stock
 
Retained
Earnings
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Shareholders’
Equity
Balance, April 1, 2019
$
79,828

 
$
52,501

 
$
(368
)
 
$
(754
)
 
$
131,207

Net income

 
3,370

 

 

 
3,370

Exercise of stock options and issuance of restricted shares (10,555 shares and 14,181 shares, respectively)
66

 

 

 

 
66

Share-based compensation
296

 

 

 

 
296

Cash dividends ($0.075 per share)

 
(647
)
 

 

 
(647
)
Other comprehensive income

 

 

 
783

 
783

Balance, June 30 2019
$
80,190

 
$
55,224

 
$
(368
)
 
$
29

 
$
135,075

 
 
 
 
 
 
 
 
 
 
Balance, April 1, 2020
$
110,254

 
$
63,295

 
$
(503
)
 
$
59

 
$
173,105

Net income

 
3,690

 

 

 
3,690

Share-based compensation
292

 

 

 

 
292

Cash dividends ($0.09 per share)

 
(918
)
 

 

 
(918
)
Other comprehensive income

 

 

 
1,315

 
1,315

Balance, June 30, 2020
$
110,546

 
$
66,067

 
$
(503
)
 
$
1,374

 
$
177,484


 
Common
Stock
 
Retained
Earnings
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Shareholders’
Equity
Balance, January 1, 2019
$
79,536

 
$
49,750

 
$
(368
)
 
$
(1,833
)
 
$
127,085

Net income

 
6,767

 

 

 
6,767

Exercise of stock options and issuance of restricted shares (15,919 shares and 28,581 shares, respectively)
89

 

 

 

 
89

Share-based compensation
565

 

 

 

 
565

Cash dividends ($0.15 per share)

 
(1,293
)
 

 

 
(1,293
)
Other comprehensive income

 

 

 
1,862

 
1,862

Balance, June 30, 2019
$
80,190

 
$
55,224

 
$
(368
)
 
$
29

 
$
135,075

 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2020
$
109,964

 
$
60,791

 
$
(368
)
 
$
191

 
$
170,578

Net income

 
7,111

 

 

 
7,111

Share-based compensation
582

 

 

 

 
582

Cash dividends ($0.18 per share)

 
(1,835
)
 

 

 
(1,835
)
Treasury stock purchased (6,028 shares)

 

 
(135
)
 

 
(135
)
Other comprehensive income

 

 

 
1,183

 
1,183

Balance, June 30, 2020
$
110,546

 
$
66,067

 
$
(503
)
 
$
1,374

 
$
177,484


The accompanying notes are an integral part of these consolidated financial statements.


4



1ST Constitution Bancorp
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)

 
Six Months Ended June 30,
 
2020
 
2019
OPERATING ACTIVITIES:
 
 
 
Net income
$
7,111

 
$
6,767

Adjustments to reconcile net income to net cash (used in) provided by operating activities-
 
 
 
Provision for loan losses
3,020

 
700

Depreciation and amortization
1,061

 
681

Net amortization of premiums and discounts on securities
655

 
248

SBA loan discount accretion
(206
)
 
(188
)
Gains on sales and calls of securities available for sale
(11
)
 

Gains on sales and calls of securities held to maturity
(7
)
 

Gains on sales of other real estate owned

 
(137
)
Gains on sales of loans held for sale
(3,591
)
 
(2,205
)
Originations of loans held for sale
(118,467
)
 
(56,668
)
Proceeds from sales of loans held for sale
116,856

 
58,030

Increase in cash surrender value on bank–owned life insurance
(369
)
 
(288
)
Gain on cash surrender value on bank-owned life insurance
(75
)
 

Share-based compensation expense
582

 
565

Decrease in deferred tax asset
384

 
1,033

Noncash rent and equipment expense
94

 
112

Increase in accrued interest receivable
(795
)
 
(235
)
Increase in other assets
(1,226
)
 
(1,215
)
(Decrease) increase in accrued interest payable
(296
)
 
469

Increase (decrease) in accrued expenses and other liabilities
1,470

 
(1,765
)
                Net cash provided by operating activities
6,190

 
5,904

INVESTING ACTIVITIES:
 
 
 
Purchases of securities:
 
 
 
Available for sale
(18,417
)
 
(25,339
)
Held to maturity
(31,364
)
 
(5,942
)
Proceeds from calls, maturities and payments of securities:
 
 
 
Available for sale
23,624

 
13,660

Held to maturity
13,347

 
7,590

Proceeds from bank-owned life insurance benefits paid
179

 

Net purchase of restricted stock
(1,706
)
 
(1,524
)
Net increase in loans
(139,367
)
 
(84,929
)
Capital expenditures
(107
)
 
(375
)
Proceeds from sales of other real estate owned
101

 
1,192

Net cash used in investing activities
(153,710
)
 
(95,667
)
FINANCING ACTIVITIES:
 
 
 
Exercise of stock options

 
89

Purchase of treasury shares
(135
)
 

Cash dividends paid to shareholders
(1,835
)
 
(1,293
)
Net increase in deposits
132,030

 
71,162

Increase in short-term borrowings
15,200

 
33,075

Net cash provided by financing activities
145,260

 
103,033

(Decrease) increase in cash and cash equivalents
(2,260
)
 
13,270

Cash and cash equivalents at beginning of period
14,842

 
16,844

Cash and cash equivalents at end of period
$
12,582

 
$
30,114





Supplemental Disclosures of Cash Flow Information
 
 
 
Cash paid during the period for -
 
 
 
Interest
$
6,626


$
5,339

Income taxes
1,241


3,724

Noncash items:
 
 
 
Right-of-use assets
$

 
$
15,441

Lease liability
144

 
16,021

 
 
 
 






The accompanying notes are an integral part of these consolidated financial statements.


5



1ST Constitution Bancorp
Notes to Consolidated Financial Statements
June 30, 2020
(Unaudited)

(1)   Summary of Significant Accounting Policies

The accompanying unaudited consolidated financial statements include 1ST Constitution Bancorp (the “Company”), its wholly-owned subsidiary, 1ST Constitution Bank (the “Bank”), and the Bank’s wholly-owned subsidiaries, 1ST Constitution Investment Company of New Jersey, Inc. and FCB Assets Holdings, Inc. 1ST Constitution Capital Trust II, a subsidiary of the Company, is not included in the Company’s consolidated financial statements, as it is a variable interest entity and the Company is not the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting policies of the Company and its subsidiaries conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and to the rules and regulations of the Securities and Exchange Commission (the “SEC”), including the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 16, 2020.

Goodwill
During the second quarter of 2020, management determined that a triggering event had occurred with respect to goodwill, which required a review of goodwill for impairment. Management completed its review of goodwill and concluded that it was more likely than not that the fair value of goodwill exceeded the carrying amount of goodwill at June 30, 2020. Accordingly, goodwill was not impaired at June 30, 2020.

In the opinion of the Company, all adjustments (consisting only of normal recurring accruals) that are necessary for a fair presentation of the operating results for the interim periods have been included. The results of operations for periods of less than a year are not necessarily indicative of results for the full year.

The Company has evaluated events and transactions occurring subsequent to the balance sheet date of June 30, 2020 for items that should potentially be recognized or disclosed in these consolidated financial statements.  The evaluation was conducted through the date these consolidated financial statements were issued.

COVID-19 Impact
The sudden emergence of the COVID-19 global pandemic in the first quarter of 2020, and the responses thereto (including business and school closures, restrictions on travel and social distancing protocols), has caused, and is continuing to cause, widespread uncertainty, social and economic disruption, highly volatile financial markets and unprecedented increases in unemployment levels in a short period of time. As a result, almost all businesses located in the Bank’s primary market areas of northern and central New Jersey, communities along the New Jersey shore, and the New York City metropolitan area, and their employees, have been adversely impacted.

The ultimate impact of the COVID-19 pandemic on the businesses and the people in the communities that the Bank serves, and on the Company’s operations and financial performance, will depend on future developments related to the duration, extent and severity of the pandemic and measures taken by governmental and private parties in response thereto. However, to the extent that the Bank’s customers are not able to fulfill their contractual obligations, the Company’s business operations, asset valuations, financial condition, cash flows and results of operations could be materially adversely impacted. Material adverse impacts may also include all or a combination of valuation impairments on our intangible assets, investments, loans, deferred tax assets, or other real estate owned ("OREO"). Similarly, the Company’s operations rely on third-party vendors to process, record and monitor transactions. If any of these vendors are unable to provide these services, our ability to serve customers could be disrupted. The pandemic could also negatively impact customers’ ability to conduct banking and other financial transactions. The Company’s operations could also be adversely impacted if key personnel or a significant number of employees were unable to work due to illness or restrictions.

On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief and Economic Security (“CARES”)
Act in response to the coronavirus pandemic. This legislation aims at providing relief for individuals and businesses that have been
negatively impacted by the coronavirus pandemic.

The CARES Act includes a provision for the Company to opt out of applying the “troubled-debt restructuring” accounting guidance in ASC 310-40 for certain loan modifications. Loan modifications made between March 1, 2020 and the earlier of i) December 30,

6



2020 or ii) 60 days after the President declares a termination of the COVID-19 national emergency are eligible for this relief if the related loans were not more than 30 days past due as of December 31, 2019. The Bank adopted this provision as of March 31, 2020.


Adoption of New Accounting Standards         

ASU 2018-15 - Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,” to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license.

The amendments in this Update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this Update.

The amendments in this ASU also require the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The term of the hosting arrangement includes the non-cancellable period of the arrangement plus periods covered by (1) an option to extend the arrangement if the customer is reasonably certain to exercise that option, (2) an option to terminate the arrangement if the customer is reasonably certain not to exercise the termination option, and (3) an option to extend (or not to terminate) the arrangement in which exercise of the option is in the control of the vendor. The entity also is required to apply the existing impairment guidance in Subtopic 350-40 to the capitalized implementation costs as if the costs were long-lived assets.

The amendments in this ASU also require the entity to present the expense related to the capitalized implementation costs in the same line item in the consolidated statements of income as the fees associated with the hosting element (service) of the arrangement and classify payments for capitalized implementation costs in the consolidated statements of cash flows in the same manner as payments made for fees associated with the hosting element. The entity is also required to present the capitalized implementation costs in the consolidated balance sheets in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented.

The adoption of this guidance in 2020 did not have a material impact on the Company's consolidated financial statements.

ASU 2018-14 - Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20)
In August 2018, the FASB issued ASU 2018-14 - “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20),” which consists of amendments to the disclosure framework project to improve the effectiveness of disclosures in the notes to the financial statements. The amendments in this Update modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.

The following disclosure requirements are removed from Subtopic 715-20:

1.
The amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year;
2.
The amount and timing of plan assets expected to be returned to the employer;
3.
The disclosures related to the June 2001 amendments to the Japanese Welfare Pension Insurance Law;
4.
Related party disclosures about the amount of future annual benefits covered by insurance and annuity contracts and significant transactions between the employer or related parties and the plan;
5.
For nonpublic entities, the reconciliation of the opening balances to the closing balances of plan assets measured on a recurring basis in Level 3 of the fair value hierarchy. However, nonpublic entities will be required to disclose separately the amounts of transfers into and out of Level 3 of the fair value hierarchy and purchases of Level 3 plan assets; and
6.
For public entities, the effects of a one-percentage point change in assumed health care cost trend rates on the (a) aggregate of the service and interest cost components of net periodic benefit costs and (b) benefit obligation for postretirement health care benefits.

The following disclosure requirements are added to Subtopic 715-20:

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1.
The weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates; and
2.
An explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.

The amendments in this ASU also clarify the disclosure requirements in paragraph 715-20-50-3, which state that the following information for defined benefit pension plans should be disclosed:

1.
The projected benefit obligation (“PBO”) and fair value of plan assets for plans with PBOs in excess of plan assets; and
2.
The accumulated benefit obligation (“ABO”) and fair value of plan assets for plans with ABOs in excess of plan assets.

The amendments in this ASU remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures and add disclosure requirements identified as relevant. Although narrow in scope, the amendments are considered an important part of the FASB’s efforts to improve the effectiveness of disclosures in the notes to financial statements by applying concepts in the Concepts Statement.

For the Company, the provisions of this ASU are effective for fiscal years ending after December 15, 2020. The adoption of this guidance in 2020 did not have a material impact on the Company's consolidated financial statements.

(2) Acquisition of Shore Community Bank
On November 8, 2019, the Company completed its acquisition of 100 percent of the shares of common stock of Shore Community Bank ("Shore"), which merged with and into the Bank (the “Shore Merger”). The former shareholders of Shore received total consideration of $54.3 million, which was comprised of 1,509,275 shares of common stock of the Company with a market value of $29.2 million and cash of $25.1 million, of which $925,000 was cash paid in exchange for unexercised outstanding stock options.

The Shore Merger was accounted for under the acquisition method of accounting, and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at preliminary estimated fair values as of the Shore Merger date. The excess of the fair value of the consideration paid over the preliminary net fair value of Shore's assets and liabilities resulted in the recognition of goodwill of $23.2 million. Shore’s results of operations have been included in the Company’s Consolidated Financial Statements since November 8, 2019.

The assets acquired and liabilities assumed in the merger were recorded at their estimated fair values based on management’s best estimates, using information available at the date of the merger, including the use of third party valuation specialists. The fair values are preliminary estimates and subject to adjustment for up to one year after the closing date of the Shore Merger.

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The following table summarizes the fair value of the acquired assets and liabilities assumed:
(Dollars in thousands)
Amount
Consideration paid:
 
Company stock issued
$
29,175

Cash payment
24,233

Cash payment for unexercised outstanding stock options
925

Total consideration paid
$
54,333

 
 
 
 
Recognized amounts of identifiable assets acquired and liabilities assumed at fair value:
 
Cash and cash equivalents
$
32,599

Investment securities available for sale
26,440

Loans
205,833

Premises and equipment, net
4,433

Core deposit intangible asset
1,467

Bank-owned life insurance
7,250

Right-of-use assets
3,226

Accrued interest receivable
778

Other real estate owned
605

Other assets
2,518

Deposits
(249,836
)
Lease liability
(3,226
)
Other liabilities
(948
)
Total identifiable assets and liabilities, net
$
31,139

 
 
Goodwill recorded from Shore merger
$