NOTE 22 – ACQUISITION OF MADISON FINANCIAL CORPORATION

On July 24, 2015, the Company acquired Madison Financial Corporation and its wholly-owned subsidiary, Madison Bank, both of which were headquartered in Richmond, Kentucky. As a result of the acquisition the Company expanded its presence into central Kentucky with minimal overlap of its existing market footprint and generated long-term value for the Company shareholders. Madison Bank had $116.1 million in total assets and operated three financial centers.

The total purchase price for Madison Financial Corporation was $7.9 million net of capital stock issuance costs, consisting of $3 thousand cash for fractional shares and the issuance of 263,361 shares of the Company’s common stock valued at $7.9 million net of capital stock issuance costs. The acquisition was accounted for under the acquisition method of accounting. Accordingly, the Company recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values, while approximately $858 thousand of transaction and integration costs associated with the acquisition were expensed as incurred. Of the total purchase price, $884 thousand was allocated to goodwill which is not considered deductible for tax purposes.

Based on management’s valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, the purchase price for the Madison Financial Corporation acquisition is allocated as follows (in thousands):


Cash and cash equivalents	$	3,517
Interest-bearing deposits in other financial institutions		2,979
Securities available for sale		27,704
Loans		77,729
Federal Home Loan Bank Stock		1,053
Accrued interest receivable		309
Premises and equipment		789
Other real estate		445
Deferred tax assets		624
Core deposit intangible asset		800
Other assets		116

Total assets acquired	$	116,065

Deposits	$	95,823
Other borrowings		6,245
Accrued interest payable		59
Other liabilities		817
Total liabilities assumed	$	102,944

Liquidation amount of preferred stock including unpaid dividends and interest		6,066

Total identifiable net assets	$	7,055
Goodwill		884
	$	7,939

The table below shows loans purchased in the acquisition of Madison Financial Corporation. All loan balances acquired in the Madison Financial Corporation acquisition have no allocated allowance for loan losses. The composition of loans acquired, as of December 31, 2017 and December 31, 2016, is as follows:

	12/31/2017		12/31/2016
Commercial	$	738	$	1,113
Real estate construction		382		398
Real estate mortgage:
1-4 family residential		9,057		11,462
Multi-family residential		3,078		5,043
Non-farm & non-residential		9,314		13,024
Agricultural		960		1,940
Consumer		5		107
Total	$	23,534	$	33,087

The fair value of net assets acquired includes fair value adjustments to certain loan receivables that were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows. However, the Company believes that all contractual cash flows related to these loans will be collected. As such, these loan receivables were not considered impaired at the acquisition date and were not subject to the guidance relating to purchase credit impaired loans, which have shown evidence of credit deterioration since origination. Loan receivables acquired that were not subject to these requirements include non-impaired loans with a fair value and gross contractual amounts receivable of $73.6 million and $74.7 million as of the date of acquisition.