NOTE 21 — BUSINESS COMBINATIONS

First Federal of Northern Michigan Bancorp, Inc.

The Corporation completed its acquisition of First Federal of Northern Michigan Bancorp, Inc. in May 2018. FFNM had seven branch offices, one of which was consolidated into an existing mBank branch shortly after consummation of the transaction. Total assets of FFNM as of May 18, 2018 were $318 million, including total loans of $192 million. Deposits garnered in the acquisition the majority of which are core deposits, totaled $254 million. The results of operations due to the merger have been included in the Corporation’s results since the acquisition date. As consideration in the acquisition, the Corporation issued 2,146,378 new shares, approximating $34.101 million. The Corporation recorded deposit based intangibles of $2.894 million and goodwill of $12.628 million. In the first quarter of 2019, the Corporation concluded the business combination and purchase accounting based on the final tax returns and deferred tax calculations of FFNM. As a result, the purchase price allocation has been updated to reflect changes with an increase in the deferred tax asset on $1.950 million, an increase to the MSRs of $.500 million, and a decrease in goodwill of $2.450 million.

The table below highlights the allocation of purchase price for the FFNM acquisition after the above mentioned adjustments (dollars in thousands, except per share data):


Purchase Price:

FFNM shares outstanding		3,726,925
Price per share	$	9.15
Total purchase price			$	34,101

Net assets acquired:

Cash and cash equivalents	$	13,267
Securities available for sale		96,297
FHLB Stock		1,748
Total loans		185,444
Premises and equipment		5,134
Other real estate owned		194
Deposit based intangible		2,894
Mortgage servicing rights		886
Deferred tax assets		4,631
Bank owned life insurance		5,170
Other assets		1,775
Total assets		317,440

Non-interest bearing deposits		60,616
Interest bearing deposits		193,099
Total deposits		253,715
FHLB borrowings		40,722
Deferred tax liability		133
Other liabilities		1,397
Total liabilities		295,967
Net assets acquired				21,473

Goodwill			$	12,628

Lincoln Community Bank

The Corporation completed its acquisition of Lincoln Community Bank on October 1, 2018. Lincoln had two branch offices, one of which was subsequently closed in 2018, and total assets of $60 million. 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 $8.500 million. In the first quarter of 2019, the Corporation made adjustments to the business combination and purchase accounting based on additional tax provision information. As a result, the purchase price allocation has been updated to reflect changes with a decrease in the deferred tax liability of $.163 million and a decrease in goodwill of $.163 million. In the third quarter of 2019, the Corporation concluded the business combination and purchase accounting for the Lincoln acquisition. There were no further purchase accounting adjustments made.


Purchase Price:

Cash consideration	$	8,500

Net assets acquired:

Cash and cash equivalents	$	10,971
Securities available for sale		6,947
Total loans		38,001
Premises and equipment		1,249
Other real estate owned		69
Deposit based intangible		1,353
Bank owned life insurance		1,653
Other assets		339
Total assets		60,582

Non-interest bearing deposits		15,559
Interest bearing deposits		37,654
Total deposits		53,213
Deferred tax liability		68
Other liabilities		53
Total liabilities		53,334
Net assets acquired				7,248

Goodwill			$	1,252

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 FFNM and Lincoln.