On July 10, 2020, the Company completed its acquisition of MSB, and its subsidiary Millington Bank. In accordance with the merger agreement, approximately $9.8 million in cash and 5,853,811 shares of Company common stock were distributed to former MSB shareholders in exchange for their shares of MSB common stock.

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. Management engaged a third-party specialist to develop the fair value estimate of certain MSB’s assets and liabilities as of the acquisition date. The assets and liabilities, both tangible and intangible, were recorded at their fair values as of July 10, 2020 based on management’s best estimate using the information available as of the merger date. The application of the acquisition method of accounting resulted in the recognition of bargain purchase gain of $3.1 million and a core deposit intangible of $690,000. During the year ended June 30, 2021 the Company completed all MSB tax returns and determined that there were no material adjustments to the balance of deferred income tax assets or bargain purchase gain associated with the MSB acquisition.

The Company recorded the assets acquired and liabilities assumed through the merger at fair value as summarized in the following table:


	As Recorded by MSB			Fair Value Adjustments				As Recorded at Acquisition
	(In Thousands)
Cash paid for acquisition								$	9,830
Value of stock issued									45,133
Total purchase price								$	54,963

Cash and cash equivalents	$	14,126		$	-			$	14,126
Investment securities		4,000			(510	)	(a)		3,490
Loans receivable		537,589			(7,345	)	(b)		530,244
Allowance for loan losses		(6,037	)		6,037		(c)		-
Premises and equipment		7,698			(3,221	)	(d)		4,477
FHLB stock		3,345			-				3,345
Accrued interest receivable		1,701			-				1,701
Core deposit intangibles		-			690		(e)		690
Bank owned life insurance		14,663			-				14,663
Deferred income taxes, net		1,729			2,152		(f)		3,881
Other assets		4,830			495		(g)		5,325
Total assets acquired	$	583,644		$	(1,702	)		$	581,942

Deposits	$	458,392		$	1,786		(h)	$	460,178
FHLB borrowings		62,900			-				62,900
Advance payments by borrowers for taxes		794			-				794
Other liabilities		810			(756	)	(i)		54
Total liabilities assumed	$	522,896		$	1,030			$	523,926

Net assets acquired								$	58,016
Bargain purchase gain								$	(3,053	)

Explanation of certain fair value related adjustments:

(a)

Represents the fair value adjustments on investment securities.

(b)

Represents the fair value adjustments on the net book value of loans, which includes an interest rate mark and credit mark adjustment and the reversal of deferred fees/costs and premiums.

(c)

Represents the elimination of MSB’s allowance for loan losses.

(d)

Represents the fair value adjustments to reflect the fair value of land and buildings and premises and equipment, which will be amortized on a straight-line basis over the estimated useful lives of the individual assets.

(e)

Represents the intangible assets recorded to reflect the fair value of core deposits. The core deposit asset was recorded as an identifiable intangible asset and will be amortized on an accelerated basis over the estimated average life of the deposit base.

(f)

Represents an adjustment to net deferred tax assets resulting from the fair value adjustments related to the acquired assets, liabilities assumed and identifiable intangible assets recorded.

(g)

Represents an adjustment to other assets acquired.

(h)

Represents fair value adjustments on time deposits, which will be treated as a reduction of interest expense over the remaining term of the time deposits.

(i)

Represents an adjustment to other liabilities assumed.

The fair value of loans acquired from MSB was estimated using cash flow projections 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 MSB’s allowance for loan losses associated with the loans that were acquired. For information regarding purchased loans which have been determined to be PCD, refer to Note 5, Loans Receivable.

The core deposit intangible asset recognized is being amortized over its estimated useful life of approximately 10 years utilizing the sum-of-the-years digits method.

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.

Merger-related expenses were recorded in the Consolidated Statements of Income as a component of non-interest expense and include costs relating to the Company’s acquisition of MSB, as described above. These charges represent one-time costs associated with acquisition activities and are expensed as incurred. Direct acquisition and other charges were recorded in merger-related expense on the Consolidated Statements of Income. Direct acquisition and other charges incurred in connection with the MSB merger totaled $4.3 million and $951,000 for the years ended June 30, 2021 and 2020, respectively.