( 3 ) Acquisition of First Priority Financial Corp. On July 31, 2018, Mid Penn completed its acquisition of First Priority Financial Corp. (First Priority), through the merger of First Priority with and into Mid Penn. In connection with this acquisition, First Prioritys wholly-owned bank subsidiary was merged with and into Mid Penn Bank. Pursuant to the merger agreement between Mid Penn and First Priority, the common shareholders of First Priority received 0.3481 shares of Mid Penn common stock for each share of First Priority common stock owned. Additionally, outstanding options to purchase First Priority common stock at the time of the merger were converted into the right to receive cash at a per-option value of $11.07 less the applicable exercise price, without interest. As a result of the acquisition, Mid Penns fulfillment of the merger consideration requirements resulted in (i) the issuance of 2,320,800 shares of Mid Penn common stock with an acquisition date fair value of approximately $76,122,000 based on the closing stock price of Mid Penns common stock of $32.80 on July 31, 2018, (ii) the payment of $3,801,000 related to cashing out the First Priority stock options, (iii) cash paid of $6,000 in lieu of fractional shares, and (iv) the issuance of 3,404 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series D totaling $3,404,000 in replacement of similarly valued preferred shares previously issued by First Priority. Aggregately, the combined fair value of total consideration paid by Mid Penn to acquire First Priority was $79,929,000. The assets and liabilities of First Priority were recorded on the consolidated balance sheet of the Company at their estimated fair value as of July 31, 2018, and their impact on the results of operations have been included in the consolidated income statement of the Company since such date. First Priority has been fully integrated into Mid Penn; therefore, the amount of revenue and earnings of First Priority included in the consolidated income statement since the acquisition date is impracticable to provide. The acquisition of First Priority resulted in the recognition and recording of intangible assets including $39,744,000 of goodwill, a core deposit intangible of $2,832,000, and a trade name intangible of $205,000. The core deposit intangible will be amortized over a ten-year period using a sum of the years digits basis. The goodwill will not be amortized, but will be measured annually for impairment or more frequently if circumstances require. The allocation of the purchase price is as follows: (Dollars in thousands) Assets acquired: Cash and cash equivalents $ 11,398 Investment securities 62,977 Restricted stock 2,237 Loans 511,623 Goodwill 39,744 Core deposit intangible 2,832 Trade name intangible 205 Premises and equipment 1,147 Foreclosed assets 125 Deferred income taxes 3,140 Accrued interest receivable 2,293 Other assets 4,197 Total assets acquired 641,918 Liabilities assumed: Deposits 504,946 Borrowings 49,939 Accrued interest payable 1,073 Other liabilities 2,627 Total liabilities assumed 558,585 Equity acquired: Preferred stock 3,404 Total equity acquired and liabilities assumed 561,989 Consideration paid $ 79,929 Cash paid $ 3,807 Fair value of common stock issued 76,122 The following table summarizes the final estimated fair value of the assets acquired and liabilities and equity assumed in the First Priority transaction. (Dollars in thousands) Total purchase price (consideration paid) $ 79,929 Net assets acquired: Cash and cash equivalents 11,398 Investment securities 62,977 Restricted stock 2,237 Loans 511,623 Core deposit intangible 2,832 Trade name intangible 205 Premises and equipment 1,147 Foreclosed assets 125 Deferred income taxes 3,140 Accrued interest receivable 2,293 Other assets 4,197 Deposits (504,946 ) Borrowings (49,939 ) Accrued interest payable (1,073 ) Other liabilities (2,627 ) Preferred stock (3,404 ) 40,185 Goodwill $ 39,744 In general, factors contributing to goodwill recognized as a result of the First Priority acquisition include expected cost savings from combined operations, opportunities to expand into several new markets, and growth and profitability potential from the repositioning of certain investments into higher-yielding loans. The goodwill acquired as a result of the First Priority acquisition is not tax deductible. The fair value of the financial assets acquired included loans receivable with a net amortized cost basis of $511,623,000. The table below illustrates the fair value adjustments made to the amortized cost basis in order to present a fair value of the loans acquired. (Dollars in thousands) Gross amortized cost basis at July 31, 2018 $ 521,644 Market rate adjustment (3,023 ) Credit fair value adjustment on pools of homogeneous loans (6,742 ) Credit fair value adjustment on impaired loans (256 ) Fair value of purchased loans at July 31, 2018 $ 511,623 The market rate adjustment represents the movement in market interest rates, irrespective of credit adjustments, compared to the contractual rates of the acquired loans. The credit adjustment made on pools of homogeneous loans represents the changes in credit quality of the underlying borrowers from loan inception to the acquisition date. The credit adjustment on impaired loans is derived in accordance with ASC 310-30-30 and represents the portion of the loan balance that has been deemed uncollectible based on our expectations of future cash flows for each respective loan. The information about the acquired First Priority impaired loan portfolio as of July 31, 2018 is as follows: (Dollars in thousands) Contractually required principal and interest at acquisition $ 1,855 Contractual cash flows not expected to be collected (nonaccretable discount) (858 ) Expected cash flows at acquisition 997 Interest component of expected cash flows (accretable discount) (125 ) Fair value of acquired loans $ 872 The following table presents pro forma information as if the merger between Mid Penn and First Priority had been completed on January 1, 2018. The pro forma information does not necessarily reflect the results of operations that would have occurred had Mid Penn merged with First Priority at the beginning of 2018. The supplemental pro forma earnings for 2018 exclude $654,000 of merger related costs related to the First Priority acquisition, of which $517,000 was not deductible for federal income tax purposes. The pro forma financial information does not include the impact of possible business model changes, nor does it consider any potential impacts of current market conditions or revenues, expense efficiencies, or other factors. (Dollars in thousands, except per share data) Three Months Ended Six Months Ended June 30, 2018 June 30, 2018 Net interest income after loan loss provision $ 16,235 $ 31,655 Noninterest income 2,192 4,003 Noninterest expense 12,439 26,969 Net income 5,308 8,251 Net income per common share 0.63 0.99