(3) Merger

On March 6, 2015, CBI completed the acquisition by merger of TCNB Financial Corp. (“TCNB”) in an all-cash transaction for aggregate consideration of $17,226, or $23.50 per share of TCNB stock. The Company and TCNB had first announced that they had entered into an agreement to merge in September of 2014. Immediately following the merger, TCNB’s banking subsidiary, The Citizens National Bank of Southwestern Ohio, was merged into CBI’s banking subsidiary, Civista Bank.

At the time of the merger, TCNB had total assets of $97,479, including $76,771 in loans and $86,708 in deposits. The transaction was recorded as a purchase and, accordingly, the operating results of TCNB have been included in the Company’s Consolidated Financial Statements since the close of business on March 6, 2015. The aggregate of the purchase price over the fair value of the net assets acquired of approximately $5,121 was recorded as goodwill and will be evaluated for impairment on an annual basis.

The following table presents financial information for the former TCNB Financial Corp. included in the Consolidated Statements of Income from the date of acquisition through June 30, 2015.


	Actual From Acquisition Date Through June 30, 2015 (in thousands)
Net interest income after provision for loan losses	$	1,233
Noninterest income		71
Net income		464

The following table presents financial information for the former TCNB Financial Corp. included in the Consolidated Statements of Income for the three-month period ended June 30, 2015.


	For the Three-Month Period Ended June 30, 2015 (in thousands)
Net interest income after provision for loan losses	$	981
Noninterest income		60
Net income		416

The following table presents pro forma information for the six and three-month periods ended June30, 2015 as if the acquisition of TCNB had occurred on January 1, 2014. This table has been prepared for comparative purposes only and is not indicative of the actual results that would have been attained had the acquisition occurred as of the beginning of the periods presented, nor is it indicative of future results.


	Pro Formas
	Six months ended June 30,
	2015		2014
Net interest income after provision for loan losses	$	23,942	$	20,999
Noninterest income		8,545		8,283
Net income		5,811		5,349
Pro forma earnings per share:
Basic	$	0.64	$	0.56
Diluted	$	0.53	$	0.47


	Pro Formas
	Three months ended June 30,
	2015		2014
Net interest income after provision for loan losses	$	12,465	$	10,574
Noninterest income		3,711		3,570
Net income		3,276		2,489
Pro forma earnings per share:
Basic	$	0.37	$	0.27
Diluted	$	0.30	$	0.23

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for TCNB. Core deposit intangibles will be amortized over periods of between five and ten years using an accelerated method. Goodwill will not be amortized, but instead will be evaluated for impairment.


	At March 6, 2015
Total purchase price				$	17,226

Net assets acquired:
Cash and short-term investments		18,152
Loans, net		76,830
Other securities		716
Premises and equipment		1,739
Accrued interest receivable		194
Goodwill		5,121
Core deposit intangible		1,009
Other assets		1,265
Noninterest-bearing deposits		(18,263	)
Interest-bearing deposits		(68,606	)
Other liabilities		(5	)
					18,152

Cash acquired in acquisition				$	926

The acquired assets and liabilities were measured at estimated fair values. Management made certain estimates and exercised judgment in accounting for the acquisition. The following is a description of the methods used to determine fair value of significant assets and liabilities at the acquisition date:

Cash and short-term investments: The Company acquired $18.2 million in cash and short-term investments, which management deemed to reflect fair value based on the short term nature of the asset.

Loans: The Company acquired $76.8 million in loans receivable with and without evidence of credit quality deterioration. The loans consisted of commercial loans, commercial real estate loans, and residential mortgage loans which included home equity secured lines of credit, real estate construction and consumer and other loans. The fair value of the performing loan portfolio includes separate adjustments to reflect a credit risk and marketability component and a yield component reflecting the differential between portfolio and market yields. Credit impaired loans were individually evaluated to estimate credit losses and a net recovery amount for each loan. The net cash flows for each loan was then discounted to present value using a risk-adjusted market rate.

Deposits: The Company acquired $86.7 million in deposits. Savings and transaction accounts are variable, have no stated maturity and can be withdrawn on short notice with no penalty. Therefore, the fair value of such deposits is considered equal to the carrying value. The fair value of CD’s consists of comparing the contractual cost of the CD’s to the market rates with corresponding maturities. The valuation adjustment reflects the present value of the difference between the cash flows attributable to the CD’s based on contractual and market rates. The core deposit intangible is determined by the present value difference of the net cost of the core deposit versus the same amount for an alternative funding source.

This acquisition provided the Company with the strategic opportunity to expand into new markets that, while similar to existing markets, are projected to be more vibrant in population growth and business opportunity growth. Additionally, the acquisition will provide exposure to suburbs of larger urban areas without the commitment of operating inside large metropolitan areas dominated by regional and national financial organizations. The acquisition also creates synergies on the operational side of the Company by allowing noninterest expenses to be spread over a larger operating base.