2.	BUSINESS COMBINATION

On January 31, 2017, United Community completed its acquisition of OLCB pursuant to the terms and conditions of the Agreement and Plan of Merger, dated as of September 8, 2016 by and among United Community, the Bank, OLCB and Premier Bank & Trust (the Merger Agreement). Pursuant to the terms of the Merger Agreement, OLCB was merged with and into United Community. Immediately following the merger, Home Savings was merged with and into Premier Bank & Trust, a wholly-owned subsidiary of OLCB, and changed its name to Home Savings Bank.

As a result of the merger and in accordance with the terms of the Merger Agreement, each preferred shareholder of OLCB was deemed to have been converted into OLCB common shares. Each OLCB common share was converted into the right to receive either $18.00 in cash or 2.736 United Community common shares, subject to certain allocation procedures set forth in the Merger Agreement that ensured that 50% of OLCB’s common shares outstanding were converted into United Community common shares and 50% of OLCB’s common shares outstanding received the cash consideration. The Company issued cash in lieu of issuing fractional shares.

After the allocation procedures were applied, the Company issued 3,033,604 United Community common shares and paid $20.4 million to OLCB shareholders as a result of the merger. Merger related costs aggregating $5.0 million were included in United Community’s Consolidated Statements of Operations for the year ended December 31, 2017. The fair value of the common shares issued as part of the consideration paid for OLCB was determined on the basis of the closing price of United Community’s commons shares on the date of consummation of the merger (the merger date).

The following table summarizes the consideration paid for OLCB.

	(in thousands)
Cash	$	20,379
United Community shares issued		25,816
Total fair value of consideration paid	$	46,195

At the merger date, United Community added the following to the Company’s consolidated statements of financial position:

	(in thousands)
Cash	$	46,159
Loans		259,373
Available for sale securities		9,996
FHLB stock, at cost		1,256
Premises and equipment		2,940
Accrued interest		679
Other intangible assets		2,426
Other real estate owned		89
Other assets		7,240
Total assets acquired	$	330,158

Deposits assumed	$	266,279
Federal Home Loan Bank advances		23,500
Repurchase agreements and other borrowings		10,771
Accrued expenses and other liabilities		2,581
Total liabilities assumed	$	303,131

Goodwill created	$	19,168

The fair value of net assets acquired included fair value adjustments to certain receivables that were not considered impaired as of the merger date. The fair value adjustments were determined using discounted contractual cash flows. However, the Company believes that all contractual cash flows related to these financial instruments will be collected. As such, these receivables were not considered impaired at the merger date and were not subject to the guidance relating to purchased credit impaired loans, which have shown evidence of credit deterioration since origination. The Company has purchased loans, for which there was, at the merger date, evidence of deterioration of credit quality since origination and it was probable, at the merger date, that all contractually required payments would not be collected with a fair value and gross contractual amounts receivable of $1.8 million and $3.3 million, respectively, on the merger date.

Upon adoption of ASU 2016-16, Business Combinations (Topic 805), adjustments to provisional amounts booked in the previous twelve months are to be adjusted through current year goodwill with the full effect of changes to depreciation, amortization, or other income recorded in current year earnings as if the change had been completed as of the merger date.

The following table presents proforma information as if the OLCB merger had occurred at the beginning of 2016. The proforma information includes adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, depreciation expense on property acquired, interest expense on deposits acquired, and the related income tax effects. The proforma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed dates. Net income includes the recognition of $5.0 million in merger related expenses incurred by United Community and $368,000 in merger related expenses for OLCB during the twelve months ended December 31, 2017. The impact of the acquired insurance agencies is considered immaterial and not included in the table below.

	For the Year Ended December 31,
	2017		2016
	(In thousands, except per share data)
Net interest income	$	82,286	$	75,443
Net income		21,430		16,770
Basic earnings per share	$	0.43	$	0.38
Diluted earnings per share	$	0.43	$	0.37

Goodwill is recorded arising from the merger, which consisted largely of synergies and the cost savings resulting from combining the operations of the companies. No goodwill is expected to be deductible for income tax purposes.

At the time of the closing, Home Savings’ charter changed to a state chartered commercial bank and United Community became a financial holding company.

The merger benefits the Company and its shareholders by enabling the Company to further expand into the markets currently served by OLCB and PB&T and strengthening the competitive position of the combined organization. Furthermore, the Company believes its increased asset size after the merger will create additional economies of scale and provide opportunities for asset and earnings growth in an extremely competitive banking environment. OLCB results of operations were included in the Company’s results beginning January 31, 2017.

On February 28, 2017, HSB Insurance, LLC completed the purchase of an insurance agency engaged in the business of selling insurance including auto, commercial, homeowners and life-health insurance. Under the purchase agreement, the Company paid $535,000, of which $107,000 was paid in cash at closing and the remaining $428,000 will be paid in four equal installments in connection with this acquisition. Total assets purchased were $722,000, which includes the customer list intangible and goodwill.

On July 1, 2017, HSB Insurance, LLC completed the purchase of an insurance agency engaged in the business of selling insurance including auto, commercial, homeowners and life-health insurance. Under the purchase agreement, the Company paid $60,000, of which $23,000 was paid in cash at closing and the remaining $37,000 will be paid in two equal installments in connection with this acquisition. Total assets purchased were $81,000, which includes the customer list intangible and goodwill.