NOTE 3  ACQUISITION PGB Holdings, Inc. Acquisition: On January 10, 2020, the Company acquired all the assets and assumed all the liabilities of PGB Holdings, Inc. (PGBH or PGB) in exchange for cash of $32.9 million. PGBH operated three branches in the Chicago, Illinois metropolitan area. The Company acquired PGBH to strategically establish a presence in the Chicago area. Goodwill in the amount of $10.6 million was recognized in this acquisition. Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the two entities. Goodwill is not deductible for income tax purposes. The following table represents the assets acquired and liabilities assumed of PGBH as of January 10, 2020 and the fair value adjustments and amounts recorded by the Company in 2020 under the acquisition method of accounting: PGBH Fair Value Fair (dollars in thousands) Book Value Adjustments Value Assets acquired Cash and cash equivalents $ 17,033 $  $ 17,033 Fed funds sold 8,300  8,300 Interest-bearing deposits in other financial Institutions 14,186  14,186 Loans, gross 172,443 666 173,109 Allowance for loan losses (2,265 ) 2,265  Bank premises and equipment 6,394 1,639 8,033 Core deposit premium  491 491 Investment in trust 155  155 Other assets 1,687  1,687 Total assets acquired $ 217,933 $ 5,061 $ 222,994 Liabilities assumed Deposits $ 187,393 $ 969 $ 188,362 Escrow Payable 4,277  4,277 Subordinated debentures 5,155 (763 ) 4,392 Deferred income taxes 1,016 1,497 2,513 Other liabilities 1,211  1,211 Total liabilities assumed 199,052 1,703 200,755 Excess of assets acquired over liabilities assumed 18,881 3,358 22,239 $ 217,933 $ 5,061 Cash paid 32,885 Goodwill recognized $ 10,646 The fair values are estimates and are subject to adjustment for up to one year after the merger date. The Company accounted for these transactions under the acquisition method of accounting in accordance with ASC 805, Business Combinations, which requires purchased assets and liabilities assumed to be recorded at their respective fair values at the date of acquisition. The loan portfolio of PGBH was recorded at fair value at the date of acquisition with the assistance of a third-party valuation. A valuation of PGBHs loan portfolio was performed as of the acquisition date to assess the fair value of the loan portfolio. The loan portfolio was segmented into two groups; loans with credit deterioration and loans without credit deterioration, and then split further by loan type. The fair value was calculated on an individual loan basis using a discounted cash flow analysis. The discount rate utilized was based on a weighted average cost of capital, considering the cost of equity and cost of debt. Also factored into the fair value estimates were loss rates, recovery period and prepayment rates based on industry standards. The Company also determined the fair value of the core deposit intangible, securities and deposits with the assistance of third-party valuations. The core deposit intangible on non-maturing deposits was determined by evaluating the underlying characteristics of the deposit relationships, including customer attrition, deposit interest rates, service charge income, overhead expense and costs of alternative funding. Since the fair value of intangible assets are calculated as if they were stand-alone assets, the presumption is that a hypothetical buyer of the intangible asset would be able to take advantage of potential tax benefits resulting from the asset purchase. The value of the benefit is the present value over the period of the tax benefit, using the discount rate applicable to the asset. In determining the fair value of certificates of deposit, a discounted cash flow analysis was used, which involved present valuing the contractual payments over the remaining life of the certificates of deposit at market-based interest rates. For loans acquired from PGBH, the contractual amounts due, expected cash flows to be collected, interest component and fair value as of the respective acquisition dates were as follows: PGBH Acquired Loans Contractual amounts due $ 195,227 Cash flows not expected to be collected 5,176 Expected cash flows 190,051 Interest component of expected cash flows 16,893 Fair value of acquired loans $ 173,158 The operating results of the Company for the six months ended June 30, 2020 include the operating results of PGBH since its acquisition date. The following table presents the net interest and other income, net income and earnings per share as if the acquisition of PGBH was effective as of January 1, 2020. There were no material, nonrecurring adjustments to the pro forma net interest and other income, net income and earnings per share presented below: Three Months Ended Six Months Ended June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Net interest and other income $ 27,242 $ 31,916 $ 55,684 $ 64,141 Net income 6,513 10,944 12,095 21,901 Basic earnings per share 0.33 0.55 0.61 1.09 Diluted earnings per share 0.33 0.54 0.60 1.07 Third-party acquisition related expenses are recognized as incurred and continue until the acquired system is converted and operational functions become fully integrated. The Company incurred third-party acquisition related expenses in the consolidated statements of income for the periods indicated in the Statements of Income in the expense item Merger and conversion expenses.