BUSINESS COMBINATIONS

Mainland Bank

On March 1, 2019, the Company completed the acquisition of Mainland Bank (“Mainland”) located in Texas City, Texas. The Company acquired 100% of Mainland’s outstanding common shares for an aggregate merger consideration of 763,849 shares of the Company’s common stock, for a total of approximately $18.6 million. The acquisition of Mainland expanded the Company’s branch footprint into the greater Houston, Texas market, and added $128.4 million in total assets, $82.4 million in loans, and $107.6 million in deposits. As consideration paid was in excess of the net fair value of acquired assets, the Company recorded $4.5 million of goodwill. There were certain adjustments to the initial calculation of goodwill during the open measurement period in 2019 which were not material. Goodwill resulted from a combination of synergies and cost savings, expansion into Texas with the addition of three branch locations, and enhanced products and services.

The table below shows the allocation of the consideration paid for Mainland’s common equity to the acquired identifiable assets and liabilities assumed and the goodwill generated from the transaction (dollars in thousands). The fair values listed below, primarily related to loans and deferred tax assets and liabilities, are subject to refinement for up to one year after the closing date of the acquisition as additional information becomes available.



Purchase price:
Stock issued	$	18,637

Fair value of assets acquired:
Cash and cash equivalents	38,365
Loans	82,431
Other real estate owned	1,507
Bank premises and equipment	2,550
Core deposit intangible asset	2,439
Other assets	1,081
Total assets acquired	128,373

Fair value of liabilities acquired:
Deposits	107,646
Repurchase agreements	4,684
Other liabilities	1,883
Total liabilities assumed	114,213

Fair value of net assets acquired	14,160
Goodwill	$	4,477

Fair value adjustments to assets acquired and liabilities assumed are generally amortized using the effective yield method over periods consistent with the average life, useful life and/or contractual term of the related assets and liabilities.

The fair value of net assets acquired includes a fair value adjustment to loans as of the acquisition date. The adjustment for the acquired loan portfolio is based on current market interest rates, and the Company’s initial evaluation of credit losses identified. No loans acquired from Mainland were considered to be purchased credit impaired loans. The contractually required principal and interest payments of the loans acquired from Mainland are $91.9 million, of which $1.3 million is not expected to be collected.

Bank of York

On November 1, 2019, the Company completed the acquisition of Bank of York located in York, Alabama. The Company acquired 100% of Bank of York’s outstanding common shares for an aggregate merger consideration of $15.0 million. The acquisition of Bank of York expanded the Company’s branch footprint into the west Alabama market. The acquisition added $102.0 million in total assets, $46.1 million in loans, and $85.0 million in deposits. As consideration paid was in excess of the net fair value of acquired assets, the Company recorded $4.2 million of goodwill. Goodwill resulted from a combination of synergies and cost savings, and expansion into Alabama with the addition of two branch locations.

The table below shows the allocation of the consideration paid for Bank of York’s common equity to the acquired identifiable assets and liabilities assumed and the goodwill generated from the transaction (dollars in thousands). The fair values listed below, primarily related to loans and deferred tax assets and liabilities, are subject to refinement for up to one year after the closing date of the acquisition as additional information becomes available.



Purchase price:
Cash paid	$	15,000

Fair value of assets acquired:
Cash and cash equivalents	50,771
Investments	451
Loans	46,127
Bank premises and equipment	917
Core deposit intangible asset	931
Bank owned life insurance	2,429
Other assets	351
Total assets acquired	101,977

Fair value of liabilities acquired:
Deposits	85,004
Repurchase agreements	5,641
Other liabilities	562
Total liabilities assumed	91,207

Fair value of net assets acquired	10,770
Goodwill	$	4,230

The fair value of net assets acquired includes a fair value adjustment to loans as of the acquisition date. The adjustment for the acquired loan portfolio is based on current market interest rates, and the Company’s initial evaluation of credit losses identified. The total contractually required principal and interest payments of the loans acquired from Bank of York are $51.5 million, of which $0.9 million is not expected to be collected.

Loans acquired from Bank of York that are considered to be purchased credit impaired loans had a balance of $0.3 million. The total contractually required principal and interest payments of these loans are $0.3 million, of which $0.1 million is not expected to be collected.

The change in goodwill and other intangibles at December 31, 2019 compared to December 31, 2018 is primarily attributable to the goodwill and core deposit intangibles recorded as a result of the Mainland and Bank of York acquisitions.

Acquisition Expense

Acquisition related costs of $2.1 million and $1.4 million are included in acquisition expenses in the accompanying consolidated statements of income for the years ended December 31, 2019 and 2018, respectively. These costs include system conversion and integrating operations charges for Mainland and legal and consulting expenses related to the acquisitions of Mainland and Bank of York, as well as the system conversion and integrating operations charges for the acquisition of BOJ Bancshares, Inc. which closed on December 1, 2017.