NOTE 21 — BUSINESS COMBINATIONS

The First National Bank of Eagle River

The Corporation completed its acquisition of Eagle River on April 29, 2016. Eagle River had three branch offices and approximately $125 million in assets of April 29, 2016. The results of operations due to the merger have been included in the Corporation’s results since the acquisition date. The merger was effected with a cash payment of $12.500 million.

The table below highlights the allocation of the purchase price:


Purchase Price:

Eagle River shares outstanding		85,776
Price per share/Cash price	$	145.73
Total purchase price			$	12,500
Reimbursement of termination fees				(1,763)
Cash consideration			$	10,737

Net assets acquired:

Cash and cash equivalents	$	10,600
Securities available for sale, net of purchase accounting marks		23,296
FRB & FHLB Stock		575
Total Loans, net of purchase accounting marks		80,875
Premises and equipment		1,931
Other real estate owned, net of purchase accounting marks		904
Deposit based intangible		993
Mortgage servicing rights		120
Deferred tax asset		948
Bank owned life insurance		4,132
Other assets		323
Total assets		124,697

Non-interest bearing deposits		22,349
Interest bearing deposits		82,165
Total deposits		104,514
FHLB Borrowings		11,000
Other liabilities		285
Total liabilities		115,799
Net assets acquired				8,898

Goodwill			$	1,839

The results of operations for the twelve months ended December 31, 2016, include the operating results of the acquired assets and assumed liabilities for the 245 days subsequent to the acquisition date. Eagle River’s results of operations prior to the acquisition date are not included in the Corporation’s consolidated statement of comprehensive income.

In addition to the data processing termination fees of $1.763 million, the Corporation incurred other Eagle River transaction related expenses of $.954 million, for a total of $2.717 million, or $1.793 million on an after tax basis during 2016. These expenses included professional services such as legal, accounting, employee severance payments and contractual arrangements for consulting services.

Niagara Bancorporation

The Corporation completed its acquisition of Niagara on August 31, 2016. Niagara had four branch offices and approximately $67 million in assets as of August 31, 2016. The results of operations due to the merger have been included in the Corporation’s results since the acquisition date. The merger was effected with a cash payment of $7.325 million.

The table below highlights the allocation of the purchase price (dollars in thousands, except per share data):


Purchase Price:

Niagara shares outstanding		4,354
Price per share/Cash price	$	1,682.36
Total purchase price			$	7,325

Net assets acquired:

Cash and cash equivalents	$	9,778
Securities available for sale		21,491
FRB & FHLB Stock		287
Total Loans, net of purchase accounting marks		31,707
Premises and equipment		926
Other real estate owned, net of purchase accounting marks		301
Deposit based intangible		300
Mortgage servicing rights		87
Deferred tax assets		397
Bank owned life insurance		1,109
Other assets		302
Total assets		66,685

Non-interest bearing deposits		5,396
Interest bearing deposits		53,788
Total deposits		59,184
Other liabilities		226
Total liabilities		59,410
Net assets acquired				7,275

Goodwill			$	50

The results of operations for the twelve months ended December 31, 2016, include the operating results of the acquired assets and assumed liabilities for the 122 days subsequent to the acquisition date. Niagara’s results of operations prior to the acquisition date are not included in the Corporation’s consolidated statement of comprehensive income.

The Corporation incurred Niagara transaction related expenses of $.384 million, or $.253 million on an after tax basis during 2016. These expenses included professional services such as legal, accounting, employee severance payments and contractual arrangements for consulting services.

The following table provides the unaudited pro forma information for the results of operations for the twelve months ended December 31, 2016 and 2015, as if both the Eagle River acquisition and Niagara acquisition had occurred on January 1. These adjustments reflect the impact of certain purchase accounting fair value measurements, primarily on the loan and deposit portfolios of Eagle River and Niagara. In addition, the merger-related costs noted above are excluded from the 2016 results of operations, for comparative purposes. Further operating cost savings are expected along with additional business synergies as a result of the merger which are not presented in the pro forma amounts. These unaudited pro forma results are presented for illustrative purposes only and are not intended to represent or be indicative of the actual results of operations of the combined banking organization that would have been achieved had the merger occurred at the beginning of the period presented, nor are they intended to represent or be indicative of future results of the Corporation.


	2016		2015
Net interest income	$	36,902	$	32,924
Noninterest income		5,129		4,865
Noninterest expense		30,857		26,851
Net income		7,375		7,219
Net income per diluted share	$	1.18	$	1.15

Fair Value

In most instances, determining the fair value of the acquired assets and assumed liabilities required the Corporation to estimate the cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest. The most significant of those determinations is related to the valuation of acquired loans. For such loans, the excess cash flows expected at merger over the estimated fair value is recognized as interest income over the remaining lives of the loans. The difference between contractually required payments at merger and the cash flows expected to be collected at merger reflects the impact of estimated credit losses, interest rate changes, and other factors, such as prepayments. In accordance with the applicable accounting guidance for business combinations, there was no carry-over of the acquired banks’ previously established allowance for loan losses.

Goodwill recognized in these acquisitions was based primarily due to the synergies and economies of scale expected from combining the operations of the Corporation with Eagle River and Niagara.