20.	Mergers and Acquisitions

Community First Bancorp, Inc.

October 1, 2018,

the Corporation completed the acquisition of Community First Bancorp, Inc. (CFB) in accordance with the terms of the Agreement and Plan of Merger, dated as of

May 25, 2018,

in exchange for

419,173

shares of common stock valued at

$15.6

million and

$2.4

million in cash. In addition, the Corporation issued

$4.2

million of preferred stock in exchange for

420,593

shares of preferred stock of Community First Bank, valued at

$4.2

million. The acquisition strengthened the Corporation’s franchise within current market areas and increased the Corporation’s consolidated total assets, loans and deposits. The Corporation owned

18,000

shares of CFB common stock and recognized a

$690,000

non-taxable gain on the retirement of the share in connection with the acquisition.

The assets and liabilities of CFB were recorded on the Corporation’s consolidated balance sheet at their estimated fair value as of

October

2018.

Included in the purchase price was goodwill and a core deposit intangible of

$9.2

million and

$1.2

million, respectively. Goodwill is the excess of the purchase price over the fair value of the identifiable net assets acquired and is the result of expected operational synergies and other factors. This goodwill is

not

deductible for tax purposes. The goodwill will

not

be amortized, but will be measured annually for impairment or more frequently if circumstances require. The core deposit intangible will be amortized over an estimated life of

ten

years using the straight line method. Core deposit intangible expense was

$30,000

for

2018

and is projected for the succeeding

five

years beginning

2019

to be

121,000

per year with

$574,000

in total for years after

2023.

The following table summarizes the estimated fair value of the assets acquired, liabilities assumed and consideration transferred in connection with the acquisition:

(Dollar amounts in thousands)
Assets acquired:
Cash and cash equivalents	$	3,986
Securities available for sale		-
Loans receivable		111,566
Federal bank stocks		190
Accrued interest receivable		288
Premises and equipment		1,321
Core deposit intangible		1,208
Prepaid expenses and other assets		3,341
Total assets acquired		121,900

Liabilities assumed:
Deposits		106,149
Overnight borrowings		1,200
Accrued interest payable		61
Accrued expenses and other liabilities		449
Total liabilities assumed		107,859
Identifiable net assets acquired		14,041

Consideration paid:
Cash		2,429
Preferred stock		4,206
Previously owned common stock of CFB		931
Common stock		15,636
Total consideration		23,202

Goodwill	$	(9,161	)

While the Corporation believes that the accounting for the acquisition is complete, the fair value of the acquired assets and liabilities noted in the table

may

change during the provisional period, which

may

last up to

twelve

months subsequent to the acquisition date. The Corporation

may

obtain additional information to refine the valuation of the acquired assets and liabilities and adjust the recorded fair value, although such adjustments are

not

expected to be significant.

The fair value of loans was estimated using discounted contractual cash flows. The book balance of the loans at the time of the acquisition was

$112.8

million before considering CFB’s allowance for loan losses, which was

not

carried over. The fair value disclosed above reflects a credit-related adjustment of $(

1.7

million) and an adjustment for other factors of

$441,000.

Loans evidencing credit deterioration since origination (purchased credit impaired loans) included in loans receivable were immaterial.

Costs related to the acquisition for the year ended

December 31, 2018

totaled

$3.6

million including employee non-compete and severance costs, professional fees, system conversion costs, contract termination fees, legal fees, accounting and auditing fees and other costs of

$1.5

million,

$531,000,

$481,000,

$427,000,

$330,000,

$50,000

and

$228,000,

respectively.

Northern Hancock Bank & Trust Co.

September

30,

2017,

the Corporation completed the acquisition of Northern Hancock Bank & Trust Co. (NHB) in accordance with the terms of the Agreement and Plan of Merger, dated as of

May 4, 2017,

in exchange for

54,445

shares of common stock valued at

$1.7

million and

$22,000

in cash. The acquisition expanded the Corporation’s franchise into a new market and increased the Corporation’s consolidated total assets, loans and deposits.

The assets and liabilities of NHB were recorded on the Corporation’s consolidated balance sheet at their estimated fair value as of

September 30, 2017.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed:

(Dollar amounts in thousands)

Assets acquired:
Cash and cash equivalents	$	2,539
Loans receivable		18,480
Federal bank stocks		11
Accrued interest receivable		103
Premises and equipment		708
Core deposit intangible		167
Prepaid expenses and other assets		766
Total assets acquired		22,774

Liabilities assumed:
Deposits		19,748
Accrued interest payable		6
Accrued expenses and other liabilities		8
Total liabilities assumed		19,762
Identifiable net assets acquired		3,012

Consideration paid:
Cash		22
Common stock		1,674
Total consideration		1,696

Gain on bargain purchase	$	1,316

In connection with the acquisition, the Corporation recognized approximately

$1.3

million of bargain purchase gain and a

$167,000

core deposit intangible. The core deposit intangible will be amortized over a weighted average estimated life of

eight

years using the double declining balance method. Core deposit intangible expense was

$40,000

for

2018

and is projected for the succeeding

five

years beginning

2019

to be

$30,000,

$22,000,

$17,000,

$13,000

and

$13,000

per year, respectively, and

$21,000

in total for years after

2023.

The bargain purchase gain of

$1.3

million, recorded at the date of acquisition, represents the amount by which the acquisition-date fair value of the net identifiable assets acquired exceeded the fair value of the consideration transferred.

The fair value of loans was estimated using discounted contractual cash flows. The book balance of the loans at the time of the acquisition was

$18.5

million before considering NHB’s allowance for loan losses, which was

not

carried over. The fair value disclosed above reflects a credit-related adjustment of $(

566,000

) and an adjustment for other factors of

$537,000.

Loans evidencing credit deterioration since origination (purchased credit impaired loans) included in loans receivable were immaterial.

Costs related to the acquisition for the year ended

December 31, 2017

totaled

$1.1

million including system conversion costs, contract termination fees, legal fees, employee severance costs, accounting and auditing fees and other costs of

$421,000,

$279,000,

$173,000,

$108,000,

$55,000

and

$84,000,

respectively.