BUSINESS COMBINATIONS

12 Months Ended

Mar. 31, 2019

3.	BUSINESS COMBINATIONS

On February 17, 2017, the Company acquired certain assets and assumed certain liabilities of Merchants Bancorp and its wholly-owned subsidiary, MBank. MBank provided community banking services to individuals and businesses from banking offices in the Portland, Oregon metropolitan area. As a result of the MBank transaction, the Company has increased its presence in the Portland, Oregon metropolitan area and further diversified its loan, customer and deposit base. Total consideration paid under the MBank transaction consisted of $12.1 million in cash. There were no transfers of common stock or other equity instruments in connection with the MBank transaction, and the Company did not obtain any equity interests in Merchants Bancorp or MBank.

The acquired assets and assumed liabilities were recorded in the Company's consolidated balance sheets at their estimated fair values as of the February 17, 2017 transaction date, and the related results of operations have been included in the Company's consolidated statements of income since the transaction date. The excess of the consideration transferred over the fair value of the identifiable net assets acquired was recorded as goodwill. The goodwill arising from the transaction consists largely of the synergies and economies of scale expected from combining the operations of the Company and the acquired business.

In most instances, determining the estimated fair values of the acquired assets and assumed liabilities required the Company to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at the appropriate rate of interest. Differences may arise between contractually required payments and the expected cash flows at the acquisition date due to items such as estimated credit losses, prepayments or early withdrawals, and other factors. The most significant of those determinations related to the valuation of acquired loans. For such loans, the excess of cash flows expected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans. In accordance with GAAP, there was no carry-over of MBank's previously established allowance for loan losses. Goodwill is expected to be fully deductible for income tax purposes as, under the terms of the MBank transaction, the Company purchased certain assets and assumed certain liabilities of MBank but did not acquire any equity or other ownership interests.

The following table summarizes the fair value of consideration transferred, the estimated fair values of assets acquired and liabilities assumed as of the acquisition date, and the resulting goodwill relating to the transaction (in thousands):

	At February 17, 2017
	Book Value		Fair Value Adjustment			Estimated Fair Value

Cash consideration transferred						$	12,080

Recognized amounts of identifiable assets acquired and liabilities assumed
Identifiable assets acquired
Cash and cash equivalents	$	27,196	$	-			27,196
Loans receivable		115,283		(3,258	)		112,025
CDI		-		1,363			1,363
Premises and equipment		1,769		399			2,168
BOLI		2,113		-			2,113
Accrued interest receivable and other assets		431		90			521
Total identifiable assets acquired		146,792		(1,406	)		145,386

Liabilities assumed
Deposits		130,572		235			130,807
Junior subordinated debentures		5,155		(1,468	)		3,687
Accrued expenses and other liabilities		293		23			316
Total liabilities assumed		136,020		(1,210	)		134,810
Total identifiable net assets acquired	$	10,772	$	(196	)		10,576
Goodwill recognized						$	1,504

The acquired loan portfolio was valued using Level 3 inputs (see Note 17) and included the use of present value techniques (including cash flow estimates) and incorporated assumptions that the Company believes marketplace participants would use in estimating fair values.

The operating results of the Company for the years ended March 31, 2019, 2018 and 2017 included operating results produced by the MBank transaction for the years ended March 31, 2019 and 2018 and the period from February 17, 2017 to March 31, 2017, respectively. Disclosure of the amount of MBank's revenue and net income (excluding integration costs) included in the Company's consolidated statements of income is impracticable due to the integration of the operations and accounting for the transaction.

For illustrative purposes only, the following table presents certain unaudited pro forma information for the years ended March 31, 2017 and 2016. This unaudited estimated pro forma financial information was calculated as if MBank had been acquired as of the beginning of the year prior to the date of acquisition. This unaudited pro forma information combines the historical results of MBank with the Company's consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the transaction occurred as of the beginning of the year prior to the acquisition. The unaudited pro forma information does not consider any changes to the provision for credit losses resulting from recording loan assets at fair value. Additionally, the Company expects to achieve further operating cost savings and other business synergies, including revenue growth as a result of the transaction, which are not reflected in the pro forma amounts that follow. As a result, actual amounts would have differed from the unaudited pro forma information presented (in thousands):

	For the Year Ended March 31,
Unaudited Pro Forma	2017		2016

Total revenues (net interest income plus non-interest income)	$	49,290	$	45,261
Net income		9,277		8,260

The following table shows the impact of the acquisition-related expenses related to the MBank transaction for the year ended March 31, 2017 to the various components of noninterest expense (in thousands):

Salaries and employee benefits	$	26
Occupancy and depreciation		6
Data processing		63
Professional fees		653
Total impact of acquisition related costs to noninterest expense	$	748