Note 3. Business Combinations On October 12, 2018, the Company acquired Colombo, a commercial bank with approximately $199 million in assets, after purchase accounting adjustments. Based on an average closing price of the Companys common stock during the five trading day period ended on October 10, 2018 of $19.614 (the Average Closing Price), the shareholders of Colombo common stock received 0.002217 shares of the Companys common stock and $0.053157 in cash for each share of Colombo common stock held, plus cash in lieu of fractional shares at a rate equal to the Average Closing Price, and subject to the right of holders of Colombo common stock who own fewer than 45,086 shares of Colombo common stock after aggregation of all shares held in the same name, and who made a timely election, to receive only cash in an amount equal to $0.096649 per share of Colombo common stock. As a result, 763,051 shares of the Companys common stock and $18.3 million in cash were issued in exchange for outstanding shares of Colombo common stock. Total consideration for the acquisition was $32.9 million. Merger and acquisition expense for 2018 was $3.3 million which was mainly related to legal and accounting cost, system conversion and integration expenses, employee retention and severance payments. The following table sets forth the assets acquired and liabilities assumed in the acquisition at their estimated fair values as of the closing date of the transactions: Assets acquired: October 12, 2018 Cash and cash equivalents $ 23,469 Interest-bearing deposits 3,874 Securities available-for-sale 12,732 Restricted stock, at cost 1,391 Loans 142,593 Premises and equipment 789 Deferred tax assets, net 4,289 Goodwill 6,512 Core deposit intangible, net 1,950 Accrued interest receivable 406 Prepaid expense 161 Other real estate owned (OREO) 358 Other assets 638 Total assets acquired $ 199,162 Liabilities assumed: Deposits: Non-interest bearing $ 19,080 Interest-bearing checking, savings and money market 48,426 Time deposits 70,778 Total deposits 138,284 FHLB advances 27,577 Accrued interest payable 127 Accrued expenses and other liabilities 294 Total liabilities assumed: $ 166,282 Total consideration paid $ 32,880 The fair value estimates are subject to change for up to one year after the closing date of the transaction if additional information relative to closing dates fair values becomes available. Fair Value Measurement of Assets Acquired and Liabilities Assumed Below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the acquisition. Cash and cash equivalents. The carrying amount of cash and cash equivalents was used as a reasonable estimate of fair value. Interest-bearing deposits. The carrying amount of interest-bearing deposits was used as a reasonable estimate of fair value. Investment securities available-for-sale. The estimated fair value of investment securities available-for-sale was based on proceeds received from sale of securities immediately after consummation of acquisition. Restricted stocks. The carrying amount of restricted stocks was used as a reasonable estimate of fair value. These investments are carried at cost as no active trading market exists. Loans. The acquired loan portfolio was segregated into one of two categories for valuation purposes: purchased credit impaired (PCI) and performing loans. PCI loans were identified as those loans that were nonaccrual prior to the business combination and those loans that had been identified as potentially impaired. Potentially impaired loans were those loans that were identified during the credit review process where there was an indication that the borrower did not have sufficient cash flows to service the loan in accordance with its terms. Performing loans were those loans that were currently performing in accordance with the loan contract and do not appear to have any significant credit issues. For loans that were identified as performing, the fair values were determined using a discounted cash flow analysis (the income approach). Performing loans were segmented into pools based on loan type (commercial real estate, commercial and industrial, commercial construction, consumer residential and consumer nonresidential), and further segmented based on payment structure (fully amortizing, non-fully amortizing balloon, or interest only), rate type (fixed versus variable), and remaining maturity. The estimated cash flows expected to be collected for each loan was determined using a valuation model that included the following key assumptions: prepayment speeds, expected credit loss rates and discount rates. Prepayment speeds were influenced by many factors including, but not limited to, current yields, historic rate trends, payment types, interest rate type, and the duration of the individual loan. Expected credit loss rates were based on recent and historical default and loss rates observed for loans with similar characteristics, and further influenced by a credit review by management and a third party consultant on a selection of loans within the acquired portfolio. The discount rates used were based on rates market participants might charge for cash flows with similar risk characteristics at the acquisition date. These assumptions were developed based on management discussions and third party professional experience. For loans that were identified as PCI, either the above income approach was used or the asset approach was used. The income approach was used for PCI loans where there was an expectation that the borrower would more likely than not continue to pay based on the current terms of the loan contract. Management used the asset approach for all nonaccrual loans to reflect market participant assumptions. Under the asset approach, the fair value of each loan was determined based on the estimated values of the underlying collateral. The methods used to estimate the Level 3 fair values of loans are extremely sensitive to the assumptions and estimates used. While management attempted to use assumptions and estimates that best reflected the acquired loan portfolios and current market conditions, a greater degree of subjectivity is inherent in these values than in those determined in active markets. The difference between the fair value and the expected cash flows from acquired loans will be accreted to interest income over the remaining term of the loans in accordance with ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. See Note 5 for further details. Premises and equipment. The land and building acquired were recorded at fair value as determined by the current tax assessment at acquisition date. Other real estate owned (OREO). OREO was recorded at fair value based on an existing purchase contract. Core deposit intangible. Core deposit intangibles (CDI) are measures of the value of non-interest checking, savings, interest-bearing checking, and money market deposits that are acquired in a business combination excluding certificates of deposit with balances over $250,000 and high yielding interest bearing deposit accounts, which the Company determines customer related intangible assets as non-existent. The fair value of the CDI stemming from any business combination is based on the present value of the expected cost savings attributable to the core deposit funding, relative to an alternative funding source. The CDI is being amortized over an estimated useful life of 9.8 years to approximate the existing deposit relationships acquired. Deposits. The fair values of deposit liabilities with no stated maturity (non-interest checking, savings, interest-bearing checking, and money market deposits) are equal to the carrying amounts payable on demand. The fair values of the certificates of deposit represent contractual cash flows, discounted to present value using interest rates currently offered by market participants on deposits with similar characteristics and remaining maturities. FHLB advances. The fair value of FHLB advances was determined based on the repayment amount as all acquired advances were repaid immediately following the acquisition .