On April 1, 2017, the Company and Virginia BanCorp, Inc. (“Virginia BanCorp”), a bank holding company conducting substantially all of its operations through its subsidiary, Virginia Commonwealth Bank, completed a merger (the “Merger”). The Company is the surviving corporation in the Merger, and the former shareholders of Virginia BanCorp received 1.178 shares of the Company’s common stock for each share of Virginia BanCorp common stock they owned immediately prior to the Merger, for a total issuance of 4,586,221 shares of the Company’s common stock valued at approximately $42.2 million at the time of closing. As of the completion of the Merger, the Company’s legacy shareholders owned approximately 51% of the outstanding common stock of the Company, and Virginia BanCorp’s former shareholders owned approximately 49% of the outstanding common stock of the Company. After the Merger, Virginia BanCorp’s subsidiary bank was merged with and into Bank of Lancaster, a wholly-owned subsidiary of the Company, and immediately thereafter Bank of Lancaster changed its name to Virginia Commonwealth Bank.

The Merger was accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under this method, the assets and liabilities of Virginia BanCorp were recorded at their respective estimated fair values as of the date of the Merger, April 1, 2017. Determining the fair value of assets and liabilities, particularly for the loan portfolio, is a complex process involving significant judgment regarding methods and assumptions used to calculate the estimated fair values. The Company recorded goodwill of $7.6 million in connection with the Merger, none of which is deductible for income tax purposes.

The following table details the total consideration paid by the Company in the Merger, the fair value of the assets acquired and liabilities assumed, and the resulting goodwill.

	As Recorded by Virginia BanCorp		Fair Value and Reclassification Adjustments			As Recorded by the Company
Consideration paid:
Bay Banks of Virginia, Inc. common stock						$	42,247
Identifiable assets acquired:
Cash and due from banks	$	2,356	$	—		$	2,356
Interest-earning deposits		12,342		—			12,342
Securities available-for-sale		22,088		—			22,088
Restricted securities		1,543		—			1,543
Loans receivable		272,479		(62,068	)		210,411
Loans held for sale		—		55,648			55,648
Deferred income taxes		1,325		255			1,580
Premises and equipment, net		3,333		2,703			6,036
Accrued interest receivable		1,253		(24	)		1,229
Other real estate owned		3,113		—			3,113
Core deposit intangible		—		3,670			3,670
Bank owned life insurance		8,430		—			8,430
Mortgage servicing rights		324		—			324
Other assets		365		—			365
Total identified assets acquired		328,951		184			329,135
Identifiable liabilities assumed:
Noninterest-bearing deposits		21,119		—			21,119
Savings and interest-bearing demand deposits		124,640		—			124,640
Time deposits		121,437		733			122,170
Federal Home Loan Bank advances		25,000		—			25,000
Other liabilities		1,525		—			1,525
Total identifiable liabilities assumed		293,721		733			294,454
Total identifiable assets assumed	$	35,230	$	(549	)	$	34,681
Goodwill resulting from acquisition						$	7,566

The table below illustrates the unaudited pro forma revenue and net income of the combined entities for the year ended December 31, 2017 had the Merger taken place on January 1, 2017. The unaudited combined pro forma revenue and net income combines the historical results of Virginia BanCorp with the Company’s consolidated statements of operations for the period noted, and while certain adjustments were made for the estimated effect of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition actually taken place on January 1, 2017. Merger-related expenses of $2.0 million were included in the Company’s actual consolidated statements of operations for the year ended December 31, 2017, but were excluded from the unaudited pro forma information below. Legacy Virginia BanCorp incurred $174 thousand of Merger-related expenses during the first three months of 2017, which was also excluded from the unaudited pro forma information below.