(17) Merger

On September 14, 2018, CBI completed the acquisition by merger of United Community Bancorp (“UCB”) in a stock and cash transaction for aggregate consideration of approximately $117,344. As a result of the acquisition, the Company issued 4,277,430 common shares and paid approximately $12,675 in cash to the former shareholders of UCB. The Company and UCB had first announced that they had entered into an agreement to merge in March of 2018. Immediately following the merger, UCB’s banking subsidiary, United Community Bank, was merged into CBI’s banking subsidiary, Civista Bank.

The assets and liabilities of UCB were recorded on CBI’s Balance Sheet at their preliminary estimated fair values as of September 14, 2018, the acquisition date, and UCB’s results of operations have been included in CBI’s Consolidated Statements of Income since that date. Due to the timing of the acquisition relative to the end of the reporting period, the fair values for certain assets and liabilities acquired from UCB on September 14, 2018 represent preliminary estimates. Based on a preliminary purchase price allocation, CBI recorded $49,221 in goodwill and $7,518 in core deposit intangibles, representing the principal change in goodwill and intangibles from December 31, 2017.

At the time of the merger, UCB had total assets of $538,875, including $298,319 in loans, and $481,832 in deposits. The transaction was recorded as a purchase and, accordingly, the operating results of UCB have been included in the Company’s Consolidated Financial Statements since the close of business on September 14, 2018.

Identifiable intangibles are amortized to their estimated residual values over the expected useful lives. Such lives are also periodically reassessed to determine if any amortization period adjustments are required. The identifiable intangible assets consist of core deposit intangible which is being amortized over the estimated useful life. The gross carrying amount of the core deposit intangible at September 30, 2018 was $7,518.

As of September 30, 2018, the current year and estimated future amortization expense for the core deposit intangible is as follows:

	Core deposit intangibles
2018	$	255
2019		857
2020		842
2021		823
2022		800
Thereafter		3,941
	$	7,518

The following table presents financial information for the former UCB included in the Consolidated Statements of Income from the date of acquisition through September 30, 2018.

	Actual From Acquisition Date Through September 30, 2018
	(in thousands)
Net interest income after provision for loan losses	$	432
Noninterest income		7
Net income		298

The following table presents pro forma information for the nine- and three-month periods ended September 30, 2018 and 2017 as if the acquisition of UCB had occurred on January 1, 2017. 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				Pro Formas
	Nine months ended September 30,				Three months ended September 30,
	2018		2017		2018			2017
Net interest income after provision for loan losses	$	54,340	$	50,809	$	17,236		$	17,378
Noninterest income		13,493		16,015		1,158			4,565
Net income		5,895		14,679		(5,708	)		4,522
Pro forma earnings per share:
Basic	$	0.47	$	1.40	$	(0.51	)	$	0.41
Diluted	$	0.46	$	1.20	$	(0.51	)	$	0.36

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for UCB. Core deposit intangibles will be amortized over periods of between ten years using an accelerated method. Goodwill will not be amortized, but instead will be evaluated for impairment. Furthermore, the unaudited pro forma information does not reflect management’s estimate of any revenue-enhancing opportunities nor anticipated cost savings as a result of the integration and consolidation of the acquisition. Merger and acquisition integration costs and amortization of fair value adjustments net of the related income tax effects are included in the amounts below.

Consideration paid				$	117,344

Net assets acquired:
Cash and due from financial institutions	$	156,472
Securities available for sale		43,214
Equity securities		212
Loans held for sale		492
Loans, net		298,319
Other securities		3,527
Premises and equipment		5,291
Accrued interest receivable		950
Core deposit intangible		7,518
Bank owned life insurance		17,193
Other assets		10,896
Noninterest-bearing deposits		(226,795	)
Interest-bearing deposits		(249,149	)
Other liabilities		(17	)
					68,123
Goodwill resulting from UCB merger				$	49,221

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: The Company acquired $156.5 million in cash, which management deemed to reflect fair value based on the short term nature of the asset.

Loans: The Company acquired $298.3 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. Additionally, certain loans were valued based on their observable sales price. Loans acquired with credit deterioration of $1,210 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 $475.9 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.