Business Combination

6 Months Ended

Jun. 30, 2014

Business Combination

Business Combination:

On July 1, 2013, the Company completed the acquisition of all outstanding stock of the retirement planning consultancy National Associates, Inc. of Cleveland, Ohio.  The transaction involved both cash and stock totaling $4.4 million, including up to $1.5 million of future payments, contingent upon NAI meeting income performance targets, with an estimated fair value at the acquisition date of $920,000.  The fair market value of the contingent consideration was determined using the Monte Carlo Simulation.  The simulation’s key assumptions included a two year period with an estimated volatility of 20%.  Expected EBITDA had a base of 6% with a maximum 12% and a discount rate of 11.9%.  The acquisition is part of the Company’s plan to increase the levels of noninterest income and to complement the existing retirement services currently being offered.

Goodwill of $2.6 million, which is recorded on the balance sheet of NAI, arising from the acquisition consisted largely of synergies and the cost savings resulting from the combining of the operations of the companies.  The goodwill is not expected to be deductible for income tax purposes.  The fair value of other intangible assets of $2.3 million is related to client relationships, company name and noncompetition agreements.  The following table summarizes the consideration paid for NAI and the amounts of the assets acquired and liabilities assumed.

(In Thousands of Dollars)
Consideration
Cash	$	2,111
Stock		1,400
Contingent consideration		920
Fair value of total consideration transferred	$	4,431
Assets acquired and liabilities assumed
Cash	$	28
Accounts receivable		300
Premises and equipment		50
Other assets		1
Total assets acquired		379
Liabilities assumed		81
Net assets acquired	$	298
Assets and liabilities arising from acquisition
Identified intangible assets		2,290
Deferred tax liability		(802	)
Goodwill		2,645
Net assets acquired from acquisition	$	4,431

NAI contributed $272 thousand and $636 thousand of gross revenues to the Company for the three and six month periods ended June 30, 2014.  The resulting net income contributed was $98 thousand and $115 thousand during the three and six month periods ended June 30, 2014.

The following table presents pro forma information as if the acquisition had occurred at the beginning of 2013.  The pro forma information includes adjustments for amortization of intangibles arising from the transaction and the related income tax effects.  The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions been effected on the assumed dates.

(In Thousands of Dollars except per share results)	Three months ended June 30, 2013		Six months ended June 30, 2013
Noninterest income	$	3,807	$	7,266
Net income	$	1,827	$	3,758
Basic and diluted earnings per share	$	0.10	$	0.20