6) Business Combinations

On April 6, 2018, the Company completed its acquisition of Tri-Valley for a transaction value of $32,320,000. At closing the Company issued 1,889,613 shares of the Company’s common stock with an aggregate market value of $30,725,000 on the date of closing. The number of shares issued was based on a fixed exchange ratio of 0.0489 of a share of the Company’s common stock for each outstanding share of Tri-Valley common stock. In addition, at closing the Company paid cash to the holder of a stock warrant and holders of outstanding stock options and related fees and fractional shares totaling $1,595,000. The following table summarizes the consideration paid for Tri-Valley:


	(Dollars in thousands)
Cash paid for:
Warrant	$	889
Options		615
Other		91
Total cash paid		1,595

Issuance of 1,889,613 shares of common stock to Tri-
Valley shareholders at $16.26 per share		30,725

Total consideration	$	32,320

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. The Company is in the process of finalizing the purchase accounting for the acquisition.



		As					As
		Recorded		Fair			Recorded
		by		Value			at
		Tri-Valley		Adjustments			Acquisition
		(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	21,757	$	1,153	(a)	$	22,910
Loans		123,532		(2,563)	(b)		120,969
Allowance for loan losses		(1,969)		1,969	(c)		—
Other intangible assets		—		1,978	(d)		1,978
Other assets, net		9,939		(2,894)	(e)		7,045
Total assets acquired	$	153,259	$	(357)			152,902

Liabililities assumed:
Deposits	$	135,351	$	37	(f)		135,388
Other liabilities		608		—			608
Total liabilities assumed	$	135,959	$	37			135,996
Net assets acquired							16,906
Purchase price							30,725
Goodwill recorded in the merger						$	13,819

Explanation of certain fair value related adjustments for the Tri-Valley acquisition:

(a)Represents the cash acquired in the merger, net of cash paid for the transaction, and the disposition of other real estate owned.

(b)Represents the fair value adjustment to the net book value of loans, which includes an interest rate mark and credit mark adjustment.

(c)Represents the elimination of Tri-Valley’s allowance for loan losses.

(d)Represents intangible assets recorded to reflect the fair value of core deposits and a below market lease. The core deposit asset was recorded as an identifiable intangible asset and will be amortized on an accelerated basis over the estimated average life of the deposit base. The below market lease intangible assets will be amortized on the straight line method over eleven years.

(e)Represents an adjustment to net deferred tax assets resulting from the fair value adjustments related to the acquired assets, liabilities assumed and identifiable intangible assets recorded,and the disposition of other real estate owned.

(f)Represents the fair value adjustment on time deposits, which was be accreted as a reduction of interest expense.

Tri-Valley’s results of operations have been included in the Company’s results of operations beginning April 7, 2018.

On May 4, 2018, the Company completed its acquisition of United American for a transaction value of $56,417,000. At closing the Company issued 2,826,032 shares of the Company’s common stock with an aggregate market value of $47,280,000 on the date of closing. The number of shares issued was based on a fixed exchange ratio of 2.1644 of a share of the Company’s common stock for each outstanding share of United American common stock and each common stock equivalent underlying the United American Series D Preferred Stock and Series E Preferred Stock. The shareholders of the United American Series A Preferred Stock and the Series B Preferred Stock received $1,000 cash for each share totaling $8,700,000 and $435,000, respectively. In addition, the Company paid $2,000 in cash for fractional shares, for total cash consideration of $9,137,000. The following table summarizes the consideration paid for United American:


	(Dollars in thousands)
Consideration paid:
Cash paid for:
Series A Preferred Stock	$	8,700
Series B Preferred Stock		435
Other		2
Total cash paid		9,137

Issuance of 2,826,032 shares of common stock to United
American shareholders at $16.73 per share		47,280
Total consideration	$	56,417


		As					As
		Recorded		Fair			Recorded
		by		Value			at
		United American		Adjustments			Acquisition
		(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	45,638	$	(32,520)	(a)	$	13,118
Securities avaiable-for-sale		64,144		(421)	(b)		63,723
Loans		196,694		18,783	(c)		215,477
Allowance for loan lossess		(2,952)		2,952	(d)		—
Other intangible assets		—		5,431	(e)		5,431
Other assets, net		9,119		(798)	(f)		8,321
Total assets acquired	$	312,643	$	(6,573)			306,070

Liabililities assumed:
Deposits	$	281,189	$	51	(g)		281,240
Other borrowings		62		—			62
Other liabilities		2,617		(195)	(h)		2,422
Total liabilities	$	283,868	$	(144)			283,724
Net assets acquired							22,346
Purchase price							47,280
Goodwill recorded in the merger						$	24,934

Explanation of certain fair value related adjustments for the United American acquisition:

(a)Represents the cash acquired in the merger, net of cash paid for the transaction, and the repurchase of $23,732,000 loan participations from ATBancorp.

(b)Represents the fair value adjustment on investment securities available-for-sale

(c)Represents the fair value adjustment to the net book value of loans, which includes an interest rate mark and credit mark adjustment, and the repurchase of $23,732,000 loan participations from ATBancorp.

(d)Represents the elimination of United American’s allowance for loan losses.

(e)Represents intangible assets recorded to reflect the fair value of core deposits and a below market lease. The core deposit asset was recorded as an identifiable intangible asset and will be amortized on an accelerated basis over the estimated average life of the deposit base. The below market lease intangible assets will be amortized on the straight line method over three years.

(f)Represents an adjustment to net deferred tax assets resulting from the fair value adjustments related to the acquired assets, liabilities assumed and identifiable intangible assets recorded.

(g)Represents the fair value adjustment on time deposits, which was be accreted as a reduction of interest expense.

(h)Represents the reversal of over accrued accounts payable.

United American’s results of operations have been included in the Company’s results of operations beginning May 5, 2018.

The Company believes the merger provides the opportunity to combine three independent business banking franchises with similar philosophies and cultures into a combined $3.1 billion business bank based in San Jose, California. The pooling of the three banks’ resources and knowledge enhance our capabilities, operational efficiencies, and community outreach. The Company also believes the combined bank will be much better positioned to meet the needs of our customers, shareholders and the community. The one time pre-tax severance, retention, acquisition and integration costs totaled $8,214,000 and $8,829,000 for the three months and six months ended June 30, 2018, respectively.

The fair value of net assets acquired includes fair value adjustments to certain receivables of which some were considered impaired and some were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows, adjusted for expected losses and prepayments, where appropriate. The receivables that were not considered impaired at the acquisition date were not subject to the guidance relating to purchased credit impaired loans, which have shown evidence of credit deterioration since origination.

Goodwill of $13,819,000 arising from the Tri-Valley acquisition and $24,934,000 from the United American acquisition is largely attributable to synergies and cost savings resulting from combining the operations of the companies. As this transactions were structured as a tax-free exchange, the goodwill will not be deductible for tax purposes. The fair values of assets acquired and liabilities assumed are subject to adjustment during the first twelve months after the acquisition date if additional information becomes available to indicate a more accurate or appropriate value for an asset or liability. Loan valuations may be adjusted based on new information obtained by the Company in future periods that may reflect conditions or events that existed on the acquisition date. Deferred tax assets may be adjusted for purchase accounting adjustments on open areas such as loans or upon filing final “stub” period tax returns for April 6, 2018 for Tri-Valley, and May 4, 2018 for United American. The closing equity balance for Tri-Valley and United American are also subject to adjustments for invoices received after the close of the transaction that were attributable to their operations through closing.