ACQUISITIONS

Mayflower Bancorp, Inc.

On November 15, 2013, the Company completed its acquisition of Mayflower Bancorp, Inc. ("Mayflower"), the parent of Mayflower Co-operative Bank. The transaction qualified as a tax-free reorganization for federal income tax purposes and Mayflower shareholders received either the right to receive $17.50 in cash per share or 0.565 shares of the Company's stock (valued at $20.28 per share, based upon the highest trading value of the Company's stock on November 15, 2013 of $35.90). The total deal consideration was $40.3 million and was comprised of 30% cash and 70% stock consideration. The cash consideration was $10.9 million in the aggregate, inclusive of cash paid in lieu of fractional shares. The total stock consideration was $29.4 million and resulted in an increase to the Company's outstanding shares of 818,650 shares. In addition to increasing its loan and deposit base, the Company will be able to provide a deeper product set to new customers, as well as benefit from increased operating synergies, improving the long-term operating and financial results of the Company.

The Company accounted for the acquisition using the acquisition method pursuant to the Business Combinations Topic of the FASB ASC. Accordingly, the Company recorded merger and acquisition expenses of $6.9 million during the year ended December 31, 2013. Additionally, the acquisition method requires the acquirer to recognize the assets acquired and the liabilities assumed at their fair values as of the acquisition date. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed as of the date of the acquisition:



	Net Assets Acquired at Fair Value
	(Dollars in thousands)
Assets
Cash	$	21,390
Investments	77,953
Loans	126,570
Premises and equipment	7,128
Goodwill	20,030
Core deposit intangible	2,610
Other assets	7,104
Total assets acquired	262,785
Liabilities
Deposits	218,877
Borrowings	1,121
Other liabilities	2,527
Total liabilities assumed	222,525
Purchase price	$	40,260

Fair value adjustments to assets acquired (other than PCI loans, see Note 1, "Summary of Significant Accounting Policies" herein) and liabilities assumed are generally amortized using either an effective yield or straight-line basis over periods consistent with the average life, useful life and/or contractual term of the related assets and liabilities.

Fair values of the major categories of assets acquired and liabilities assumed were determined as follows:

Cash and Cash Equivalents

The fair values of cash and cash equivalents approximate the respective carrying amounts because the instruments are payable on demand or have short-term maturities.

Investments

The fair values of securities were based on quoted market prices for identical securities received from an independent, nationally-recognized, third-party pricing service. When quoted market prices for identical securities were unavailable, prices provided by the independent pricing service were based on recent trading activity and other observable information including, but not limited to, market interest rate curves, referenced credit spreads and estimated prepayment rates where applicable.

Loans

The loans acquired were recorded at fair value without a carryover of the allowance for loan losses. Fair value of the loans is determined using market participant assumptions in estimating the amount and timing of both principal and interest cash flows expected to be collected, as adjusted for an estimate of future credit losses and prepayments, and then applying a market-based discount rate to those cash flows. The overall discount on the loans acquired in this transaction was due primarily to anticipated credit loss, as well as considerations for liquidity and market interest rates. For the year ended December 31, 2013 the Company recorded approximately $641,000 of interest income attributable to these acquired loans since the acquisition date.

A portion of the loans acquired showed evidence of deterioration of credit quality at the purchase date and was deemed unlikely that the Bank will be able to collect all contractually required payments. As such, these loans were deemed to be PCI and the carrying value and prospective income recognition are predicated upon future cash flows expected to be collected. The following is a summary of these PCI loans associated with the acquisition:



	(Dollars in thousands)
Contractually required principal and interest at acquisition	$	4,440
Contractual cash flows not expected to be collected	(1,296		)
Expected cash flows at acquisition	3,144
Interest component of expected cash flows	(386		)
Basis in PCI loans at acquisition - estimated fair value	$	2,758

Core Deposit Intangible

The fair value of the core deposit intangible is derived by comparing the interest rate and servicing costs that the financial institution pays on the core deposit liability versus the current market rate for alternative sources of financing. The intangible asset represents the stable and relatively low cost source of funds that the deposits and accompanying relationships provide the Company, when compared to alternative funding sources.

Premises and Equipment

The fair value of Mayflower's premises, including land, buildings and improvements, was determined based upon appraisal by licensed real estate appraisers or pending agreed upon sale prices. The appraisals were based upon the best and highest use of the property with final values determined based upon an analysis of the cost, sales comparison and income capitalization approaches for each property appraised.

Deposits

The fair value of acquired savings and transaction deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. The fair value of time deposits were determined based on the present value of the contractual cash flows over the remaining period to maturity using a market interest rate.

Borrowings

The fair values of FHLB advances were derived based upon the present value of the principal and interest payments using a current market discount rate.

Selected Pro Forma Results

The following summarizes the unaudited pro forma results of operations as if the Company acquired Mayflower on January 1, 2013 (2012 amounts represent combined results for the Company and Mayflower). The selected pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the financial results of the combined companies had the acquisition actually been completed at the beginning of the periods presented, nor does it indicate future results for any other interim or full-year period.



	Years Ended December 31
	2013		2012
	(Dollars in thousands)
Net interest income after provision for loan losses	$	178,556	$	162,781
Net income	55,103		44,133

Excluded from the pro forma results of operations for the year ended December 31, 2013 are merger costs, net of tax, of $4.5 million, or $0.19 per diluted share, respectively, primarily made up of contract terminations arising due to the change in control, the acceleration of certain compensation and benefit costs, and other merger expenses.

Central Bancorp, Inc.

On November 9, 2012, the Company completed its acquisition of Central Bancorp, Inc. (“Central”), the parent of Central Co-operative Bank. The transaction qualified as a tax-free reorganization for federal income tax purposes and Central shareholders received either the right to receive $32.00 in cash per share or 1.0533 shares of the Company's stock (valued at $29.95 per share, based upon the highest trading value of the Company's stock on November 9, 2012 of $28.44). The total deal consideration was $52.0 million and was comprised of 40% cash and 60% stock consideration. The cash consideration was $21.6 million in the aggregate, inclusive of cash paid in lieu of fractional shares. The total stock consideration was $30.4 million and resulted in an increase to the Company's outstanding shares of 1,068,514 shares. In addition to increasing its loan and deposit base, the Company will be able to provide a deeper product set to new customers, as well as benefit from increased operating synergies, improving the long-term operating and financial results of the Company.

The Company accounted for the acquisition using the acquisition method pursuant to the Business Combinations Topic of the FASB ASC. Accordingly, the Company recorded merger and acquisition expenses of $1.8 million and $6.7 million during the years ended December 31, 2013 and 2012, respectively. Additionally, the acquisition method requires the acquirer to recognize the assets acquired and the liabilities assumed at their fair values as of the acquisition date. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed as of the date of the acquisition:



	Net Assets Acquired at Fair Value
	(Dollars in thousands)
Assets
Cash	$	12,683
Investments	28,268
Loans	450,671
Premises and equipment	6,277
Goodwill	22,544
Core deposit intangible	2,150
Other assets	37,309
Total assets acquired	559,902
Liabilities
Deposits	357,434
Borrowings	144,920
Other liabilities	5,511
Total liabilities assumed	507,865
Purchase price	$	52,037

As noted above, the Company acquired loans at fair value of $450.7 million. Subsequent to the acquisition, on November 9, 2012, the Company sold approximately $42.2 million of performing jumbo residential mortgages acquired in the transaction and paid down $25.0 million of acquired Federal Home Loan Bank Advances.

Fair value adjustments to assets acquired (other than PCI loans, see Note 1, "Summary of Significant Accounting Policies" herein.) and liabilities assumed are generally amortized using either an effective yield or straight-line basis over periods consistent with the average life, useful life and / or contractual term of the related assets and liabilities.

Fair values of the major categories of assets acquired and liabilities assumed were determined as follows:

Cash and Cash Equivalents

The fair values of cash and cash equivalents approximate the respective carrying amounts because the instruments are payable on demand or have short-term maturities.

Investments

Loans

The loans acquired were recorded at fair value without a carryover of the allowance for loan losses. Fair value of the loans is determined using market participant assumptions in estimating the amount and timing of both principal and interest cash flows expected to be collected, as adjusted for an estimate of future credit losses and prepayments, and then applying a market-based discount rate to those cash flows. The overall discount on the loans acquired in this transaction was due primarily to anticipated credit loss, as well as considerations for liquidity and market interest rates. For the year ended December 31, 2012 the Company recorded approximately $3.1 million of interest income attributable to these acquired loans since the acquisition date.



	(Dollars in thousands)
Contractually required principal and interest at acquisition	$	47,548
Contractual cash flows not expected to be collected	(8,733		)
Expected cash flows at acquisition	38,815
Interest component of expected cash flows	(3,095		)
Basis in PCI loans at acquisition - estimated fair value	$	35,720

Core Deposit Intangible

Deposits

Borrowings

The fair values of these borrowings were derived based upon present value of the principal and interest payments using a current market discount rate.

Selected Pro Forma Results

The following summarizes the unaudited pro forma results of operations as if the Company acquired Central on January 1, 2012 (2011 amounts represent combined results for the Company and Central). The selected pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the financial results of the combined companies had the acquisition actually been completed at the beginning of the periods presented, nor does it indicate future results for any other interim or full-year period.



	Years Ended December 31
	2012		2011
	(Dollars in thousands)
Net interest income after provision for loan losses	$	165,860	$	170,514
Net income	47,261		46,477

Excluded from the pro forma results of operations for the year ended December 31, 2012 are merger costs, net of tax, of $4.5 million, or $0.20 per diluted share, respectively, primarily made up of contract terminations arising due to the change in control, the acceleration of certain compensation and benefit costs, and other merger expenses.