3.	ACQUISITION

On July 1, 2016, the Company acquired all of the outstanding common stock of Bankshares for cash of $14.1 million. First Eastern operated eight residential loan production offices in eastern Massachusetts and New Hampshire and a retail banking branch in downtown Boston. As a result of the transaction, Bankshares merged into Randolph Bancorp, Inc. and First Federal merged into Randolph Savings Bank. This business combination significantly increases the Company’s mortgage banking operations. The results of First Eastern’s operations are included in the Company’s consolidated statement of operations from the date of acquisition. First Eastern’s assets and liabilities were recorded at their fair value as of the date of acquisition based on management’s estimates using currently available information. Prior to the end of the one year measurement period for finalizing the purchase price allocation, if information becomes available which would indicate adjustments are required, such adjustments will be included in the purchase price allocation in the reporting period in which the adjustment amounts are determined. Cash consideration paid, and fair values of First Eastern’s assets acquired and liabilities assumed, along with the resulting bargain purchase gain, are summarized in the following table (in thousands):

				Fair Value
	As Acquired			Adjustments				As Recorded
	(In thousands)
Cash and cash equivalents	$	2,951		$	—			$	2,951
Loans held for sale		26,209			450		(a)		26,659
Loans		30,824			482		(b)		31,306
Mortgage servicing rights		4,396			1,820		(c)		6,216
Premises and equipment		1,566			1,534		(d)		3,100
Core deposit intangible		—			118		(e)		118
Goodwill		789			(789	)	(f)		—
Other assets		2,046			(55	)	(g)		1,991
Deposits		(41,737	)		(53	)	(h)		(41,790	)
Federal Home Loan Bank advances		(13,128	)		(60	)	(h)		(13,188	)
Other liabilities		(1,917	)		(88	)	(i)		(2,005	)
Total identifiable net assets	$	11,999		$	3,359				15,358

Cash consideration paid to seller									14,082

Bargain purchase gain								$	1,276

Explanation of the fair value adjustments is as follows:

(a)

The adjustment represents the write-up of the book value of loans held for sale to their estimated fair value based on current selling prices, including the value of their servicing rights.

(b)

The adjustment represents the write-up of the book value of loans, to their estimated fair value based on current interest rates and expected cash flows, which includes an estimate of expected loan losses inherent in the portfolio. The balance of impaired loans was not significant.

(c)

The adjustment represents the write-up of the book value of mortgage servicing rights associated with $789.3 million of serviced loans to their estimated fair value based on an independent appraisal. The fair value was determined based on the discounted present value of estimated future net servicing income using market-based assumptions including prepayment speeds, costs of servicing, risk characteristics and interest rates.

(d)

The adjustment represents the write-up of the Boston retail branch based on an independent appraisal.

(e)

This amount represents the estimated fair value of core deposit relationships (equal to 1.1% of core deposits) based on an independent appraisal.

(f)

The adjustment eliminates existing goodwill.

(g)

The adjustment eliminates deferred origination costs for loans-in-process.

(h)

The adjustments represent the write-up of the book value of term certificate accounts and FHLB advances based on interest rates currently offered on instruments having similar remaining maturities.

(i)

The adjustment represents the fair value of forward loan sale commitments written on a best efforts basis.

The bargain purchase gain is presented in the accompanying statement of operations as a separate component of non-interest income. This gain is primarily attributable to the write-ups of the mortgage servicing rights and premises and equipment to fair value as determined by independent third-party specialists based on market assumptions that were reviewed for reasonableness. During the fourth quarter of 2016, the Company and the seller completed an analysis of the additional income taxes related to the structuring of the transaction as an asset sale. The Company paid an additional $175,000 to the seller thereby reducing the preliminary bargain purchase gain that had been reported as of September 30, 2016.

Direct acquisition and merger integration costs of the First Eastern business combination are being expensed as incurred and are presented separately in the accompanying statements of operations. Costs incurred in 2015 consist principally of legal fees in completing negotiation of the purchase and sale agreement. Costs incurred in 2016 consist of retention bonuses, severance obligations, systems conversion costs as well as legal and consulting fees. Additional merger integration costs are expected to be incurred through the third quarter of 2017.

The following table presents selected unaudited pro forma financial information assuming that the acquisition was completed as of January 1, 2015. The pro forma amounts reflect adjustments related to: (a) reversal of non-recurring merger and integration costs; (b) reversal of a special bonus of $1.6 million paid in June 2016 to First Eastern executives in connection with the merger; (c) amortization and accretion of acquisition accounting fair value adjustments; and (d) reversal of the bargain purchase gain. No provision (benefit) for income taxes is included in the determination of pro forma net income (loss) for the periods presented due to the Company’s net operating loss carryforward position. Furthermore, the unaudited pro forma financial information do not reflect management’s estimate of any revenue enhancement opportunities or anticipated potential cost savings nor any adjustments related to the stock offering completed on July 1, 2016.

The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the combined financial results of the Company and First Eastern had the acquisition transaction actually been completed at the beginning of the periods presented, nor does it indicate future results for any interim or annual period. Pro forma basic and diluted earnings (loss) per common share are not presented as such information is not being presented as part of our historical financial statements for the periods being presented due to the completion of the stock offering on July 1, 2016.

Unaudited pro forma financial information for the years ended December 31, 2016 and 2015 is as follows (in thousands):

	2016		2015
Net Interest Income	$	13,463	$	13,287
Non-interest Income		20,539		15,080
Net Income		1,658		243

Due to the conversion of First Eastern’s core processing system in the fourth quarter of 2016, separate revenue and earnings information for First Eastern since the date of acquisition is not available.