8) 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 at Closing		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.



		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

Liabilities 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, the disposition of other real estate owned of $1,132,000, a gain on the sale of securities of $53,000, partially offset by invoices paid after closing for services prior to closing of $29,000, and cash paid for fractional shares in the transaction of $3,000. The remaining $1,592,000 of cash paid for the transaction is an adjustment to prepaid assets included in other assets, net.

(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 is 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 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 at Closing		47,280
Total consideration	$	56,417

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.


		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 available-for-sale		64,144		(421)	(b)		63,723
Loans		196,694		18,783	(c)		215,477
Allowance for loan losses		(2,952)		2,952	(d)		—
Other intangible assets		—		6,383	(e)		6,383
Other assets, net		9,119		(1,078)	(f)		8,041
Total assets acquired	$	312,643	$	(5,901)			306,742

Liabilities assumed:
Deposits	$	281,189	$	51	(g)		281,240
Other borrowings		62		—			62
Other liabilities		2,617		(187)	(h)		2,430
Total liabilities	$	283,868	$	(136)			283,732
Net assets acquired							23,010
Purchase price							47,280
Goodwill recorded in the merger						$	24,270

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 of $9,137,000, the repurchase of $23,732,000 loan participations from ATBancorp, and $51,000 for invoices paid after closing for services prior to closing, partially offset by a tax refund of $400,000.

(b)

Represents the fair value adjustment on investment securities available-for-sale.

(c)

Represents the repurchase of $23,732,000 loan participations from ATBancorp, partially ofsset by the fair value adjustment to the net book value of loans of $4,680,000, which includes an interest rate mark and credit mark adjustment, and net charge-offs of $269,000 subsequent to closing.

(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 is 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 mergers provide 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 the Company’s capabilities, operational efficiencies, and community outreach. The Company also believes the combined bank will be much better positioned to meet the needs of the Company’s customers, shareholders and the community. Pre-tax acquisition and integration costs of $5,598,000 and $671,000 for the years ended December 31, 2018 and 2017, respectively, were included in other noninterest expense. In addition, salaries and employee benefits included severance and retention expense of $3,569,000 for the year ended December 31, 2018 related to the Tri-Valley and United American acquisitions. Total severance, retention, acquisition and integration costs were $9,167,000 and $671,000 for the years ended December 31, 2018 and 2017, 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. There were no PCI loans at December 31, 2018 and December 31, 2017.

Goodwill of $13,819,000 arising from the Tri-Valley acquisition and $24,270,000 from the United American acquisition is largely attributable to synergies and cost savings resulting from combining the operations of the companies. As these transactions were structured as a tax-free exchange, the goodwill will not be deductible for tax purposes. Management’s preliminary valuation of the tangible and intangible assets acquired and liabilities assumed, which are based on assumptions that are subject to change, and the resulting allocation of the consideration paid for the allocation is reflected in the tables above. Prior to the end of the one-year measurement period for finalizing the consideration paid allocation, if information becomes available which would indicate adjustments are required to the allocation, such adjustments will be included in the allocation in the reporting period in which the adjustment amounts are determined. 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.