Choiceone Financial Services Inc 8-K, filed Mar 3, 2025
Choiceone Financial Services Inc (COFS)
About this 8-K
Choiceone Financial Services Inc filed this 8-K on March 3, 2025, reporting on events of March 1, 2025.
Items reported
- Item 2.01: Completed an acquisition or sale of assets
- Item 5.02: Director or officer change, or executive pay
- Item 8.01: Other events
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
(Exact Name of Registrant as
Specified in Charter)
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Registrant's telephone number, including area code:
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Item 2.01 Completion of Acquisition or Disposition of Assets.
Effective March 1, 2025, pursuant to the Agreement and Plan of Merger, dated as of July 25, 2024 (the “Merger Agreement”), by and between ChoiceOne Financial Services, Inc. (“ChoiceOne”) and Fentura Financial, Inc. (“Fentura”), Fentura was merged with and into ChoiceOne, with ChoiceOne continuing as the surviving corporation in the merger (the “Merger”).
Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, each share of Fentura common stock was converted into the right to receive 1.35 shares of ChoiceOne common stock, plus cash in lieu of any fractional shares.
The foregoing description of the Merger and the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which was attached as Exhibit 2.1 to ChoiceOne’s Form 8-K filed on July 25, 2024, and which is incorporated herein by reference.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Pursuant to the Merger Agreement and effective as of the effective time of the Merger, ChoiceOne’s Board of Directors (the “Board”) increased in size to 15 directors and the Board appointed Brian Petty and Randy Hicks, M.D., former directors of Fentura, as directors of ChoiceOne to fill the resulting vacancies. The Board determined that Mr. Petty and Dr. Hicks are each independent under the listing standards of the Nasdaq Stock Market.
Pursuant to the Merger Agreement, ChoiceOne agreed to take all appropriate action, subject to and in accordance with its articles of incorporation and bylaws and corporate governance standards, to appoint two individuals serving on the Fentura board of directors to the Board, effective immediately following the effective time of the Merger, to serve until ChoiceOne’s next annual meeting of shareholders. Pursuant to the Merger Agreement, ChoiceOne shall endeavor to nominate Mr. Petty and Dr. Hicks for reelection to the Board for a subsequent term following their initial term.
It is expected that Mr. Petty will serve on the Audit Committee and that Dr. Hicks will serve on the Personnel and Benefits and Governance and Nominating Committees of the Board.
Mr. Petty and Dr. Hicks will each be entitled to receive compensation for their services as a director consistent with the compensation paid to other directors as described in the Proxy Statement for ChoiceOne's 2024 annual meeting of shareholders.
Item 8.01 Other Events.
On March 3, 2025, ChoiceOne and Fentura issued a joint press release announcing completion of the Merger, which is attached as Exhibit 99.1 to this Current Report on Form 8-K.
Item 9.01 Financial Statements and Exhibits.
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(a) Financial Statements of Business Acquired. |
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(i) The audited financial statements of Fentura as of and for the twelve months ended December 31, 2023 are attached as Exhibit 99.5 to ChoiceOne’s Form 8-K filed with the Commission on July 25, 2024, and are incorporated herein by reference.
(ii) The unaudited interim financial statements of Fentura as of and for the nine months ended September 30, 2024 are attached hereto as Exhibit 99.2, and are incorporated herein by reference.
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(b) |
Pro Forma Financial Information. |
(i) The unaudited pro forma financial statements of the combined company as of and for the nine months ended September 30, 2024 are attached hereto as Exhibit 99.3, and are incorporated herein by reference. The unaudited pro forma condensed statement of income of the combined company for the twelve months ended December 31, 2023 is attached as Exhibit 99.8 to ChoiceOne's Form 8-K filed with the Commission on July 25, 2024, and is incorporated herein by reference.
Exhibit No. Exhibit
99.1 Joint Press Release dated March 3, 2025.
99.2 Unaudited Interim Financial Statements of Fentura Financial, Inc.
99.3 Unaudited Pro Forma Financial Statements of the Combined Company.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: |
March 3, 2025 |
CHOICEONE FINANCIAL SERVICES, INC. |
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By: |
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Adom J. Greenland |
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FOR IMMEDIATE RELEASE
ChoiceOne Financial Services, Inc. and Fentura Financial, Inc.
Complete Merger
SPARTA, Mich., and FENTON, Mich., March 3, 2025 (PR NEWSWIRE) – ChoiceOne Financial Services, Inc., (NASDAQ: COFS) (“ChoiceOne”), today announced the completion of the merger of Fentura Financial, Inc. (OTCQX: FETM) (“Fentura”) with and into ChoiceOne, effective as of March 1, 2025. The combined organization is a bank holding company with assets exceeding $4 billion and operates 56 offices across Michigan.
“We are excited to welcome Fentura into our ChoiceOne family,” said ChoiceOne CEO Kelly Potes. “Our acquisition of Fentura is a natural geographical and cultural fit for ChoiceOne and allows us to expand our community bank franchise further into Central and Southeastern Michigan. Our combined company offers greater range and capacity for commercial and consumer lending as well as leading advancements in technology. We believe ChoiceOne offers substantial opportunity for our collective communities, customers, and employees while adding significant value for our shareholders. ChoiceOne will offer small businesses and consumers in West, Central and Southeast Michigan an extensive line of products and services delivered through an enhanced retail network including digital and branch banking.”
The combined organization will be headquartered in Sparta, Michigan. The consolidation of The State Bank with and into ChoiceOne Bank is expected to be effective on March 14, 2025 and the consolidated bank will operate under the ChoiceOne name and brand.
About ChoiceOne
ChoiceOne Financial Services, Inc. is a financial holding company headquartered in Sparta, Michigan and the parent corporation of ChoiceOne Bank and The State Bank. Members FDIC. Collectively, ChoiceOne Bank and The State Bank operate 56 offices in parts of Kent, Ottawa, Muskegon, Newaygo, Lapeer, St. Clair, Macomb, Genesee, Jackson, Livingston, Ingham, Saginaw, Shiawassee, and Bay counties. ChoiceOne Bank and The State Bank offer insurance and investment products through ChoiceOne Bank’s subsidiary, ChoiceOne Insurance Agencies, Inc. ChoiceOne Financial Services, Inc. common stock is quoted on the Nasdaq Capital Market under the symbol “COFS.” For more information, please visit Investor Relations at ChoiceOne’s website at choiceone.bank.
Forward-Looking Statements
This press release contains forward-looking statements. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “may,” “could,” “look forward,” “continue”, “future” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements reflect current beliefs as to the expected outcomes of future events and are not guarantees of future performance. These statements involve certain risks, uncertainties and assumptions (“risk factors”) that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed, implied or forecasted in such forward-looking statements. Furthermore, ChoiceOne does not undertake any obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise. Risk factors include, but are not limited to, the risk factors described in Item 1A in ChoiceOne’s Annual Report on Form 10-K for the year ended December 31, 2023, and in any of ChoiceOne’s subsequent SEC filings, which are available on the SEC’s website, www.sec.gov.
1
Contacts
Kelly Potes
ChoiceOne Chief Executive Officer
616-887-7366
kpotes@choiceone.bank
Michael J. Burke, Jr.
ChoiceOne President
810.664.2977
michael.burke@choiceone.bank
Source: ChoiceOne Financial Services, Inc.
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2
Fentura Financial, Inc.
Table of Contents
Interim Condensed Consolidated Financial Statements (Unaudited) |
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Interim Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 |
2 |
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Interim Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2024 and 2023 |
3 |
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Interim Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2024 and 2023 |
4 |
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Interim Condensed Consolidated Statements of Shareholders' Equity for the three and nine months ended September 30, 2024 and 2023 |
5 |
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Interim Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 |
7 |
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Notes to Interim Condensed Consolidated Financial Statements |
9 |
Interim Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
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September 30 |
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December 31 |
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2024 |
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2023 |
ASSETS |
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Cash and due from banks |
$ 199,717 |
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$ 90,661 |
Available-for-sale debt securities, at fair value |
97,591 |
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105,249 |
Held-to-maturity debt securities |
535 |
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878 |
Equity securities |
1,598 |
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1,488 |
Residential mortgage loans held-for-sale, at fair value |
1,861 |
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747 |
Gross loans |
1,442,389 |
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1,473,471 |
Less allowance for credit losses |
14,700 |
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15,400 |
Net loans |
1,427,689 |
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1,458,071 |
Premises and equipment, net |
13,203 |
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14,561 |
Federal Home Loan Bank stock |
9,179 |
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9,179 |
Corporate owned life insurance |
28,129 |
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27,466 |
Mortgage servicing rights |
8,461 |
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8,776 |
Accrued interest receivable |
4,354 |
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4,472 |
Goodwill |
8,853 |
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8,853 |
Other assets |
6,200 |
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8,551 |
Total assets |
$ 1,807,370 |
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$ 1,738,952 |
LIABILITIES AND SHAREHOLDERS' EQUITY |
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Deposits |
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Non-interest bearing demand |
$ 398,338 |
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$ 423,019 |
Interest bearing |
1,072,248 |
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971,163 |
Total deposits |
1,470,586 |
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1,394,182 |
Federal Home Loan Bank borrowings |
160,000 |
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180,000 |
Subordinated debentures |
14,000 |
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14,000 |
Other borrowings |
5,970 |
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4,500 |
Accrued interest payable and other liabilities |
10,416 |
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7,568 |
Total liabilities |
1,660,972 |
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1,600,250 |
Shareholders' equity |
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Common stock, no par value; 10,000,000 shares authorized, 4,495,005 issued and outstanding (4,470,871 outstanding at December 31, 2023) |
74,826 |
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74,230 |
Retained earnings |
78,467 |
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74,309 |
Accumulated other comprehensive income (loss) |
(6,895) |
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(9,837) |
Total shareholders' equity |
146,398 |
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138,702 |
Total liabilities and shareholders' equity |
$ 1,807,370 |
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$ 1,738,952 |
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The accompanying notes are an integral part of these interim condensed consolidated financial statements.
2
Interim Condensed Consolidated Statements of Income (Unaudited)
(Dollars in thousands except per share amounts)
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Three Months Ended |
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Nine Months Ended |
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September 30 |
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September 30 |
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2024 |
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2023 |
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2024 |
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2023 |
Interest income |
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Loans, including fees |
$ 19,599 |
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$ 19,170 |
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$ 58,758 |
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$ 55,749 |
Investments |
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Taxable |
335 |
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397 |
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1,044 |
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1,250 |
Tax-exempt |
45 |
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56 |
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147 |
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179 |
Fed funds sold and other |
2,215 |
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793 |
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5,273 |
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1,470 |
Total interest income |
22,194 |
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20,416 |
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65,222 |
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58,648 |
Interest expense |
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Deposits |
8,335 |
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5,939 |
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23,860 |
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13,858 |
Borrowings |
1,867 |
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1,818 |
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5,307 |
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5,703 |
Total interest expense |
10,202 |
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7,757 |
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29,167 |
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19,561 |
Net interest income |
11,992 |
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12,659 |
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36,055 |
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39,087 |
Credit loss expense (reversal) |
1,203 |
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(309) |
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1,956 |
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132 |
Net interest income, after credit loss expense (reversal) |
10,789 |
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12,968 |
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34,099 |
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38,955 |
Noninterest income |
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Service charges and fees |
1,323 |
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1,384 |
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3,930 |
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4,059 |
Net gain on sales of residential mortgage loans |
211 |
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164 |
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531 |
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523 |
Net gain on sales of commercial loans |
133 |
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— |
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527 |
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95 |
Net change in the fair value of mortgage servicing rights |
(175) |
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119 |
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(315) |
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218 |
Net change in fair value of equity investments |
33 |
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(28) |
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20 |
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(29) |
Other |
685 |
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699 |
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2,186 |
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2,260 |
Total noninterest income |
2,210 |
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2,338 |
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6,879 |
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7,126 |
Noninterest expenses |
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Compensation and benefits |
5,839 |
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5,592 |
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17,747 |
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16,876 |
Professional services |
799 |
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726 |
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2,656 |
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2,729 |
Furniture and equipment |
668 |
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668 |
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2,084 |
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2,079 |
Occupancy |
622 |
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591 |
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1,850 |
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1,815 |
Data processing |
751 |
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576 |
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1,788 |
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1,654 |
Loan and collection |
349 |
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232 |
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1,096 |
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929 |
Advertising and promotional |
312 |
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506 |
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997 |
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1,466 |
Other |
2,634 |
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1,703 |
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5,843 |
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4,999 |
Total noninterest expenses |
11,974 |
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10,594 |
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34,061 |
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32,547 |
Income before income tax expense |
1,025 |
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4,712 |
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6,917 |
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13,534 |
Income tax expense |
158 |
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937 |
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1,280 |
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2,689 |
Net income |
$ 867 |
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$ 3,775 |
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$ 5,637 |
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$ 10,845 |
Basic and diluted earnings per common share |
$ 0.19 |
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$ 0.85 |
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$ 1.26 |
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$ 2.45 |
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The accompanying notes are an integral part of these interim condensed consolidated financial statements.
3
Interim Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(Dollars in thousands)
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Three Months Ended |
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Nine Months Ended |
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September 30 |
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September 30 |
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2024 |
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2023 |
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2024 |
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2023 |
Net income |
$ 867 |
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$ 3,775 |
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$ 5,637 |
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$ 10,845 |
Other comprehensive income |
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Unrealized gains (losses) on available-for-sale securities |
3,381 |
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(1,422) |
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3,962 |
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(1,774) |
Tax effect |
(710) |
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298 |
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(832) |
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372 |
Unrealized gains (losses) on available-for-sale securities, net of tax |
2,671 |
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(1,124) |
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3,130 |
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(1,402) |
Unrealized gains (losses) on cash flow hedges |
(202) |
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(341) |
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(528) |
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(837) |
Reclassification adjustment for net interest expense included in net income |
97 |
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193 |
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291 |
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509 |
Unrealized gains (losses) on cash flow hedges |
(105) |
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(148) |
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(237) |
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(328) |
Tax effect |
22 |
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30 |
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49 |
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68 |
Unrealized gains (losses) on cash flow hedges, net of tax |
(83) |
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(118) |
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(188) |
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(260) |
Other comprehensive income (loss), net of tax |
2,588 |
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(1,242) |
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2,942 |
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(1,662) |
Comprehensive income |
$ 3,455 |
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$ 2,533 |
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$ 8,579 |
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$ 9,183 |
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The accompanying notes are an integral part of these interim condensed consolidated financial statements.
4
Interim Condensed Consolidated Statements of Shareholders' Equity (Unaudited)
(Dollars in thousands except per share amounts)
For the three months ended September 30,
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Common Stock |
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Common Shares Issued and Outstanding |
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Amount |
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Retained Earnings |
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Accumulated Other Comprehensive Income (Loss) |
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Total |
July 1, 2023 |
4,460,053 |
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$ 73,993 |
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$ 67,643 |
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$ (10,946) |
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$ 130,690 |
Issuance of common shares under stock purchase and dividend reinvestment plans |
6,168 |
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125 |
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— |
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— |
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125 |
Cash dividends paid ($0.30 per share) |
— |
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— |
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(446) |
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— |
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(446) |
Comprehensive income (loss) |
— |
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— |
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3,775 |
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(1,242) |
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2,533 |
September 30, 2023 |
4,466,221 |
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$ 74,118 |
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$ 70,972 |
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$ (12,188) |
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$ 132,902 |
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July 1, 2024 |
4,490,087 |
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$ 74,690 |
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$ 78,094 |
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$ (9,483) |
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$ 143,301 |
Issuance of common shares under stock purchase and dividend reinvestment plans |
4,918 |
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136 |
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— |
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— |
|
136 |
Cash dividends paid ($0.33 per share) |
— |
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— |
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(494) |
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— |
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(494) |
Comprehensive income |
— |
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— |
|
867 |
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2,588 |
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3,455 |
September 30, 2024 |
4,495,005 |
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$ 74,826 |
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$ 78,467 |
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$ (6,895) |
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$ 146,398 |
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The accompanying notes are an integral part of these interim condensed consolidated financial statements.
5
Interim Condensed Consolidated Statements of Shareholders' Equity (Unaudited)
(Dollars in thousands except per share amounts)
For the nine months ended September 30,
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Common Stock |
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Common Shares Issued and Outstanding |
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Amount |
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Retained Earnings |
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Accumulated Other Comprehensive Income (Loss) |
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Total |
January 1, 2023 |
4,439,725 |
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$ 73,569 |
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$ 63,044 |
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$ (10,526) |
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$ 126,087 |
Issuance of common shares under stock purchase and dividend reinvestment plans |
17,625 |
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374 |
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— |
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— |
|
374 |
Issuance of common shares under stock grant plan |
8,871 |
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— |
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— |
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— |
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— |
Common shares vested under stock grant plan |
— |
|
175 |
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— |
|
— |
|
175 |
Cumulative effect adjustment for change in accounting principle, net of tax impact (1) |
— |
|
— |
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(1,580) |
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— |
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(1,580) |
Cash dividends paid ($0.30 per share) |
— |
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— |
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(1,337) |
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— |
|
(1,337) |
Comprehensive income (loss) |
— |
|
— |
|
10,845 |
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(1,662) |
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9,183 |
September 30, 2023 |
4,466,221 |
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$ 74,118 |
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$ 70,972 |
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$ (12,188) |
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$ 132,902 |
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January 1, 2024 |
4,470,871 |
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$ 74,230 |
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$ 74,309 |
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$ (9,837) |
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$ 138,702 |
Issuance of common shares under stock purchase and dividend reinvestment plans |
15,551 |
|
400 |
|
— |
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— |
|
400 |
Issuance of common shares under stock grant plan |
8,583 |
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— |
|
— |
|
— |
|
— |
Common shares vested under stock grant plan |
— |
|
196 |
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— |
|
— |
|
196 |
Cash dividends paid ($0.33 per share) |
— |
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— |
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(1,479) |
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— |
|
(1,479) |
Comprehensive income |
— |
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— |
|
5,637 |
|
2,942 |
|
8,579 |
September 30, 2024 |
4,495,005 |
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$ 74,826 |
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$ 78,467 |
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$ (6,895) |
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$ 146,398 |
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(1) Effective January 1, 2023, we adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This election resulted in a reclassification of $1,580 from retained earnings, net of tax.
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
6
Interim Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
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Nine Months Ended |
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September 30 |
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2024 |
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2023 |
Cash flows from operating activities |
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Net income |
$ 5,637 |
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$ 10,845 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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Depreciation of premises and equipment |
1,573 |
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1,592 |
Net amortization on securities |
306 |
|
341 |
Net change in the fair value of equity investments |
(20) |
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29 |
Net change in the fair value of mortgage servicing rights |
315 |
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(218) |
Amortization of core deposit intangible assets |
133 |
|
227 |
Credit loss expense |
1,956 |
|
132 |
Residential mortgage loans originated for sale |
(26,274) |
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(32,068) |
Proceeds from sales of residential mortgage loans |
25,655 |
|
32,030 |
Net gain on sales of residential mortgage loans |
(531) |
|
(523) |
Commercial loans originated for sale |
(6,370) |
|
— |
Proceeds from sales of commercial loans |
6,897 |
|
— |
Net gain on sales of commercial loans |
(527) |
|
— |
Net losses on sales of foreclosed assets |
3 |
|
(10) |
Increase in cash surrender value of corporate owned life insurance |
(617) |
|
(531) |
Common shares vested under stock grant plan |
196 |
|
175 |
Amortization of right-of-use assets |
271 |
|
292 |
Deferred income tax expense (benefit) |
— |
|
(130) |
Net change in: |
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|
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Accrued interest receivable and other assets |
784 |
|
(644) |
Accrued interest payable and other liabilities |
2,841 |
|
1,126 |
Net cash provided by operating activities |
12,228 |
|
12,665 |
|
|||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
7
Interim Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)
(Dollars in thousands)
|
Nine Months Ended |
||
|
September 30 |
||
|
Year Ended December 31 |
||
|
2024 |
|
2023 |
Cash flows from investing activities |
|
|
|
Calls, maturities, and principal paydowns of available-for sale securities |
$ 11,317 |
|
$ 13,197 |
Calls, maturities, and principal paydowns of held-to-maturity securities |
340 |
|
285 |
Purchases of equity investments |
(90) |
|
(120) |
Purchase of corporate owned life insurance |
(46) |
|
(46) |
Net loan principal (originations) collections |
28,426 |
|
(47,198) |
Proceeds from sales of foreclosed assets |
301 |
|
— |
Net (purchases) redemptions of Federal Home Loan Bank stock |
— |
|
1,036 |
Net purchases of premises and equipment |
(215) |
|
(949) |
Net cash (used in) provided by investing activities |
40,033 |
|
(33,795) |
|
|
|
|
Cash flows from financing activities |
|
|
|
Net increase in deposits |
76,404 |
|
68,914 |
Net advances (repayments) on line of credit |
1,470 |
|
700 |
Net advances (repayments) from Federal Home Loan Bank |
(20,000) |
|
(22,000) |
Proceeds from common stock issuance |
400 |
|
374 |
Cash dividends paid on common stock |
(1,479) |
|
(1,337) |
Net cash provided by (used in) financing activities |
56,795 |
|
46,651 |
Net change in cash and cash equivalents |
109,056 |
|
25,521 |
Cash and cash equivalents, beginning of year |
90,661 |
|
57,844 |
Cash and cash equivalents, end of period |
$ 199,717 |
|
$ 83,365 |
Supplemental cash flows information: |
|
|
|
Interest paid |
$ 27,642 |
|
$ 18,807 |
Income taxes paid |
1,113 |
|
3,000 |
Supplemental noncash information: |
|
|
|
Reclassifications of foreclosed loans to other real estate owned |
$ — |
|
$ 42 |
Lease liabilities arising from obtaining right-of-use assets |
— |
|
514 |
|
|
|
|
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
8
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in thousands except per share amounts)
9
Note 1 - Nature of Operations and Summary of Significant Accounting Policies
Glossary of Abbreviations and Acronyms
The following abbreviations and acronyms may be used throughout these Notes to Interim Condensed Consolidated Financial Statements (Unaudited).
ACH: Automated Clearing House |
FRB: Federal Reserve Bank |
ACL: Allowance for credit losses |
GAAP: Generally Accepted Accounting Principles |
AFS: Available-for-sale |
HFS: Held-for-sale |
AIR: Accrued interest receivable |
HTM: Held-to-maturity |
AOCI: Accumulated other comprehensive income |
IRA: Individual retirement account |
ARRC: Alternative Reference Rates Committee |
LIBOR: London Interbank Offered Rate |
ASC: Accounting Standards Codification |
MSR: Mortgage servicing rights |
ASU: Accounting Standards Update |
NASDAQ: National Association of Securities Dealers Automated Quotations |
ATM: Automated teller machine |
NOW: Negotiable order of withdrawal |
BSBY: Bloomberg Short Term Bank Yield Index |
NSF: Non-sufficient funds |
CDI: Core deposit intangible |
OCI: Other comprehensive income |
CECL: Current expected credit losses |
OIS: Overnight Index Swap |
CET1: Common equity tier 1 |
OREO: Other real estate owned |
COLI: Corporate owned life insurance |
OTTI: Other-than-temporary impairment |
DRIP: Dividend Reinvestment Plan |
PPP: Paycheck Protection Program |
EPS: Earnings Per Common Share |
SAB: Staff Accounting Bulletin |
ESOP: Employee Stock Ownership Plan |
SBA: U.S. Small Business Administration |
FASB: Financial Accounting Standards Board |
SERP: Supplemental Executive Retirement Plan |
FDIC: Federal Deposit Insurance Corporation |
SOFR: Secured Overnight Funding Rate |
FHLB: Federal Home Loan Bank |
TLM: Troubled loan modifications |
FHLLC: Fentura Holdings LLC |
USDA: United States Department of Agriculture |
FHLMC: Federal Home Loan Mortgage Corporation |
YTD: Year-to-date |
FNMA: Federal National Mortgage Association |
|
Nature of Operations and Principles of Consolidation
The unaudited interim condensed consolidated financial statements include references to the "Corporation", "Company", "Fentura", "we", "our", "us", and similar terms refer to the consolidated entity consisting of Fentura Financial, Inc. (the "Parent") and its subsidiaries. References to The State Bank or the "Bank" refer to Fentura Financial, Inc.'s subsidiary, The State Bank.
We provide banking and trust services principally to individuals, small businesses and governmental entities through our twenty community banking offices and one loan production center serving Bay, Genesee, Ingham, Jackson, Livingston, Oakland, Saginaw and Shiawassee Counties in locations of central and southeastern Michigan. Our primary deposit products are checking, savings, and term certificate accounts, and our primary lending products are residential mortgage, commercial real estate, commercial, home equity, and consumer loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and real estate. Commercial loans are expected to be repaid from cash flows from operations of businesses. Real estate loans are secured by both residential and commercial real estate. Our exposure to credit risk is substantially affected by the economy in our market area and by changes in commercial real estate values. While the loan portfolio is substantially commercial based, we are not dependent on any single borrower or industry.
The unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments considered necessary for a fair presentation have been included. Operating results for the
10
three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. For further information, refer to our audited consolidated financial statements for the year ended December 31, 2023.
Our accounting policies are materially the same as those discussed in Note 1 to the Consolidated Financial Statements included in our audited consolidated financial statements for the year ended December 31, 2023.
Use of Estimates
The preparation of the unaudited interim condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the consolidated financial statements and the disclosures provided, and future results could differ. Significant estimates include but are not limited to the determination of the ACL, the fair values of residential mortgage loans held-for-sale and associated mortgage derivatives, credit impairment of securities, goodwill and the carrying value of deferred income taxes.
Allowance for Credit Losses - Loans
The allowance for credit losses ("allowance") is a valuation account that is deducted from, or added to, the loans' amortized cost basis to present the net amount expected to be ultimately collected on the loans. Loan losses are charged-off against the allowance when management determines the loan balance to be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Cash received on previously charged-off amounts is recorded as a recovery to the allowance.
Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. We adjust for current and forecasted factors based on trends in delinquencies, trends in charge-offs and recoveries, trends in the volume of loans, changes in underwriting standards, trends in loan review findings, the experience and ability of lending staff, concentrations of credit and changes in the value of collateral.
Reasonable and supportable economic forecasts are incorporated in determining our expected credit losses. The forecast period represents the time frame from the current period end through the point in time that we can reasonably forecast and support entity and environmental factors that are expected to impact the performance of our loan portfolio. Ideally, the economic forecast period would encompass the contractual terms of all loans; however, the ability to produce a forecast that is considered reasonable and supportable becomes more difficult and may not be possible in later periods. Subsequent to the end of the forecast period, we revert to historical loan data based on an ongoing evaluation of each economic forecast in relation to then current economic conditions as well as any developing loan loss activity and resulting historical data. As of September 30, 2024 and December 31, 2023, we used a two-year reasonable and supportable economic forecast period, with a reversion back to historical immediately following the two year forecasted period.
We are not required to develop and use our own economic forecast model and elected to utilize economic forecasts from our third party CECL provider that analyzes and develops forecasts of the economy for the entire United States on at least a quarterly basis.
We measure the allowance on a collective pool basis when similar risk characteristics exist. Loans with similar risk characteristics are grouped into homogenous segments, or pools, for analysis. After analyzing our loans, we determined the asset type or product type was the best pooling option that utilizes product-based call codes as the pooling / segmentations choice within the CECL model. Comparison of loan attributes and loss experience to peers was facilitated by this pooling choice.
We also consider expected credit losses associated with loan commitments over the contractual period in which we are exposed to credit risk on the underlying commitments, unless the obligation is unconditionally cancellable by us. Any allowance for off-balance sheet credit exposures is reported as an other liability on our Interim Condensed Consolidated Balance Sheets and is increased or decreased through other noninterest expense on our Interim Condensed Consolidated Statements of Income. No allowance is recognized if we have the unconditional right to cancel the obligation. The calculation includes consideration of the likelihood that funding will occur and then applying the expected credit loss as calculated using the weighted-average rate methodology for the corresponding balance sheet loan pool. Adjustments to the allowance are reported in the Interim Condensed Consolidated Statements of Income as a component of credit loss expense. As of September 30, 2024 and December 31, 2023, the allowance for off-balance sheet credit exposures included on our Interim Condensed Consolidated Balance Sheets was not material.
11
Accrued interest receivable for loans is $4,338 at September 30, 2024 and $4,641 at December 31, 2023, and is included in accrued interest receivable on our Interim Condensed Consolidated Balance Sheets. We elected not to measure an allowance for accrued interest receivable. We elected to reverse interest income for loans that are placed on nonaccrual status, which is generally when the loan becomes 120 days past due, or earlier if we believe the collection of interest is doubtful. We believe this election results in the timely reversal of uncollectible interest.
The allowance for expected credit losses is a valuation account that is deducted from the loans amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged-off against the allowance when we believe the uncollectability of a loan balance is confirmed.
Debt Securities
Debt securities are classified as HTM and carried at amortized cost when we have the positive intent and the ability to hold them to maturity. Debt securities are classified as AFS when they might be sold before maturity. Debt securities AFS are carried at fair value, with unrealized holding gains and losses reported in OCI.
Allowance for Credit Losses - Held-to-Maturity Securities
We measure credit losses on HTM debt securities on a collective basis by major security type with each type sharing similar risk characteristics, and consider historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. HTM debt securities are charged-off against the ACL when deemed uncollectible. Adjustments to the ACL are reported on our Interim Condensed Consolidated Statements of Income in the provision for credit losses. We measure expected credit losses on HTM debt securities on a collective basis by major security type. Our HTM debt security portfolio consists of local municipal issued debt securities. The local municipalities are reviewed at least quarterly for credit worthiness. We utilize a third party vendor to provide a detailed credit write-up for our HTM debt securities. The third party vendor utilizes a proprietary scale between 1 and 8, whereas 1 is the strongest rating and 8 is the weakest rating assigned to a HTM debt security. All of our HTM debt securities were given a 1 rating as of September 30, 2024 and December 31, 2023. At September 30, 2024 and December 31, 2023, there was no ACL related to HTM debt securities.
Allowance for Credit Losses - Available-for-Sale Securities
For AFS debt securities in an unrealized loss position, we determine whether we intend to sell or if it is more likely than not that we will be required to sell the security before recovery of the amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income with an allowance being established under CECL. Our AFS debt securities consist of multiple agency's debt securities, as well as bank CDs that have minimal credit quality risk, as they are guaranteed by the federal government or backed by FDIC insurance. These government backed AFS debt securities were not assessed for credit deterioration. Our population of AFS debt securities that are not agency backed are assessed for credit quality risk and they consist of debt securities issued by municipalities. For AFS debt securities with unrealized losses not meeting these criteria, we evaluate whether any decline in fair value is due to credit loss factors. In making this assessment, we consider any changes to the rating of the security by rating agencies and adverse conditions specifically related to the issuer of the debt security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Changes in the ACL under ASU Topic 326-30 are recorded as provisions for credit loss expense. Losses are charged-off against the allowance when the collectability of an AFS debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income, net of income taxes. The local municipalities are reviewed at least quarterly for credit worthiness. We utilize a third party vendor to provide a detailed credit write-up for our AFS debt securities that are not supported by the federal government or backed by FDIC insurance. The third party vendor utilizes a proprietary scale between 1 and 8, whereas 1 is the strongest rating and 8 is the weakest rating assigned to an AFS debt security. All of our AFS debt securities were given a 3 rating or better. At September 30, 2024 and December 31, 2023, there was no ACL related to AFS debt securities.
12
Derivative Instruments and Hedging Activities
ASC 815 provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (1) how and why an entity uses derivative instruments, (2) how the entity accounts for derivative instruments and related hedged items, and (3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain our objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
Mortgage Banking Derivatives
Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and mandatory forward commitments for the future delivery of these mortgage loans are accounted for as free standing derivatives. The fair value of the interest rate lock is recorded at the time the commitment is executed and is adjusted for the expected exercise of the commitment before the loan is funded. In order to hedge the change in interest rates resulting from our commitments to fund loans, we enter into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into. Fair values of these mortgage derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked. Changes in the fair values of these derivatives are included in net gain on sales of residential mortgage loans included on our Interim Condensed Consolidated Statements of Income.
Earnings Per Common Share
Basic and diluted EPS are calculated as net income divided by the weighted average number of common shares outstanding during the year. Common stock grants that have a grant date prior to the date of earnings per common share calculation, and ESOP shares, are considered outstanding for this calculation. Unvested common stock grants are not considered outstanding for this calculation.
Reclassification
Certain items in the interim condensed consolidated financial statements of prior years were reclassified to conform to the current year presentation.
13
Note 2 - Recent Accounting Pronouncements
Pending Implementation
ASU 2023-09, "Income Taxes (Topic 740) - Improvements to Income Tax Disclosures"
In December 2023, ASU 2023-09 was issued and enhances transparency by requiring consistent categorization, greater disaggregation, and detailed disclosure related to income taxes paid. These changes aim to help users of financial statements understand factors contributing to differences between effective and statutory tax rates. The adoption of ASU 2023-09 is effective for annual reporting periods beginning after December 15, 2024 and is not expected to have a significant impact on our consolidated financial statements.
ASU 2024-03, "Income Statement (Subtopic 220-40) - Disaggregation of Income Statement Expenses"
In November 2024, ASU 2024-03 was issued and enhances transparency by requiring greater disaggregation and detailed disclosure related to certain costs and expenses. These changes require entities to disclose amounts of purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depreciation, depletion and amortization recognized as part of oil and gas-producing activities included in each relevant expense caption presented on the face of the income statement. The adoption of ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026 and is not expected to have a significant impact on our consolidated financial statements.
14
Note 3 - Investment Securities
The following is a summary of the amortized cost and fair value of investment securities as of:
|
September 30, 2024 |
||||||
|
Amortized Cost |
|
Gross Unrealized Gains |
|
Gross Unrealized Losses |
|
Fair Value |
Available-for-sale |
|
|
|
|
|
|
|
U.S. Government and federal agency |
$ 19,432 |
|
$ — |
|
$ (816) |
|
$ 18,616 |
State and municipal |
18,997 |
|
10 |
|
(1,048) |
|
17,959 |
Mortgage backed residential |
44,086 |
|
5 |
|
(4,125) |
|
39,966 |
Certificates of deposit |
2,234 |
|
— |
|
(60) |
|
2,174 |
Collateralized mortgage obligations - agencies |
21,640 |
|
— |
|
(2,764) |
|
18,876 |
Total available-for-sale |
$ 106,389 |
|
$ 15 |
|
$ (8,813) |
|
$ 97,591 |
Held-to-maturity state and municipal |
$ 535 |
|
$ — |
|
$ (9) |
|
$ 526 |
|
|
|
|
|
|
|
|
|
December 31, 2023 |
||||||
|
Amortized Cost |
|
Gross Unrealized Gains |
|
Gross Unrealized Losses |
|
Fair Value |
Available-for-sale |
|
|
|
|
|
|
|
U.S. Government and federal agency |
$ 22,425 |
|
$ — |
|
$ (1,461) |
|
$ 20,964 |
State and municipal |
20,460 |
|
13 |
|
(1,471) |
|
19,002 |
Mortgage backed residential |
49,076 |
|
1 |
|
(5,946) |
|
43,131 |
Certificates of deposit |
2,728 |
|
— |
|
(146) |
|
2,582 |
Collateralized mortgage obligations - agencies |
23,320 |
|
— |
|
(3,750) |
|
19,570 |
Total available-for-sale |
$ 118,009 |
|
$ 14 |
|
$ (12,774) |
|
$ 105,249 |
Held-to-maturity state and municipal |
$ 878 |
|
$ — |
|
$ (10) |
|
$ 868 |
|
|
|
|
|
|
|
|
There was no allowance for credit losses recorded for available-for-sale or held-to-maturity debt securities in the three or nine month periods ended September 30, 2024 or 2023.
The amortized cost and fair value of AFS debt securities grouped by contractual maturity were as follows as of September 30, 2024:
15
|
Maturing |
|
|
|
|
||||||
|
Due in One Year or Less |
|
After One Year But Within Five Years |
|
After Five Years But Within Ten Years |
|
After Ten Years |
|
Securities with Variable Monthly Payments or Noncontractual Maturities |
|
Total |
U.S. Government and federal agency |
$ 6,481 |
|
$ 12,951 |
|
$ — |
|
$ — |
|
$ — |
|
$ 19,432 |
State and municipal |
1,624 |
|
15,190 |
|
1,113 |
|
1,070 |
|
— |
|
18,997 |
Mortgage backed residential |
— |
|
— |
|
— |
|
— |
|
44,086 |
|
44,086 |
Certificates of deposit |
2,234 |
|
— |
|
— |
|
— |
|
— |
|
2,234 |
Collateralized mortgage obligations - agencies |
— |
|
— |
|
— |
|
— |
|
21,640 |
|
21,640 |
Total amortized cost |
$ 10,339 |
|
$ 28,141 |
|
$ 1,113 |
|
$ 1,070 |
|
$ 65,726 |
|
$ 106,389 |
Fair value |
$ 10,111 |
|
$ 26,620 |
|
$ 1,017 |
|
$ 1,001 |
|
$ 58,842 |
|
$ 97,591 |
|
|
|
|
|
|
|
|
|
|
|
|
Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. As a result of their variable monthly payments, mortgage backed residential and collateralized mortgage obligations are not reported by a specific maturing group.
The amortized cost and fair value of state and municipal HTM debt securities grouped by contractual maturity were as follows as of September 30, 2024:
|
Maturing |
|
|
|
|
||||||
|
Due in One Year or Less |
|
After One Year But Within Five Years |
|
After Five Years But Within Ten Years |
|
After Ten Years |
|
Securities with Variable Monthly Payments or Noncontractual Maturities |
|
Total |
Amortized Cost |
$ 85 |
|
$ 295 |
|
$ 155 |
|
$ — |
|
$ — |
|
$ 535 |
Fair value |
$ 84 |
|
$ 290 |
|
$ 152 |
|
$ — |
|
$ — |
|
$ 526 |
|
|
|
|
|
|
|
|
|
|
|
|
Information pertaining to AFS debt securities with unrealized losses aggregated by investment category for which an allowance for credit losses has not been recorded and the length of time that individual securities have been in a continuous loss position is as follows as of:
16
|
September 30, 2024 |
||||||||
|
Less Than 12 Months |
|
Over 12 Months |
|
|
||||
|
Gross Unrealized Losses |
|
Fair Value |
|
Gross Unrealized Losses |
|
Fair Value |
|
Gross Unrealized Losses |
U.S. Government and federal agency |
$ — |
|
$ — |
|
$ 816 |
|
$ 18,616 |
|
$ 816 |
State and municipal |
— |
|
— |
|
1,048 |
|
17,420 |
|
1,048 |
Mortgage backed residential |
— |
|
— |
|
4,125 |
|
39,781 |
|
4,125 |
Certificates of deposit |
— |
|
— |
|
60 |
|
2,174 |
|
60 |
Collateralized mortgage obligations - agencies |
— |
|
— |
|
2,764 |
|
18,876 |
|
2,764 |
Total |
$ — |
|
$ — |
|
$ 8,813 |
|
$ 96,867 |
|
$ 8,813 |
Number of AFS debt securities in an unrealized loss position: |
|
|
0 |
|
|
|
136 |
|
136 |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
||||||||
|
Less Than 12 Months |
|
Over 12 Months |
|
|
||||
|
Gross Unrealized Losses |
|
Fair Value |
|
Gross Unrealized Losses |
|
Fair Value |
|
Gross Unrealized Losses |
U.S. Government and federal agency |
$ 1 |
|
$ — |
|
$ 1,460 |
|
$ 20,963 |
|
$ 1,461 |
State and municipal |
3 |
|
530 |
|
1,468 |
|
17,849 |
|
1,471 |
Mortgage backed residential |
1 |
|
— |
|
5,945 |
|
43,018 |
|
5,946 |
Certificates of deposit |
— |
|
— |
|
146 |
|
2,582 |
|
146 |
Collateralized mortgage obligations - agencies |
— |
|
— |
|
3,750 |
|
19,570 |
|
3,750 |
Total |
$ 5 |
|
$ 530 |
|
$ 12,769 |
|
$ 103,982 |
|
$ 12,774 |
Number of AFS debt securities in an unrealized loss position: |
|
|
2 |
|
|
|
155 |
|
157 |
|
|
|
|
|
|
|
|
|
|
There were no sales of AFS or HTM debt securities in the three or nine months ended September 30, 2024 or 2023.
17
The fair values of equity securities were as follows as of:
|
September 30, |
|
December 31, |
|
2024 |
|
2023 |
Securities with readily determinable fair values |
$ 1,598 |
|
$ 1,488 |
Total equity securities |
$ 1,598 |
|
$ 1,488 |
|
|
|
|
As of September 30, 2024 and December 31, 2023, securities with a carrying amount of $21,099 and $25,868, respectively, were pledged to secure public deposits and borrowings.
As of September 30, 2024 and December 31, 2023, there were no holdings of securities of any one issuer, other than the U.S. Government and federal agencies, in an amount greater than 10% of shareholders' equity.
Allowance for Credit Losses ‐ Available‐for‐Sale Securities
As of September 30, 2024 and December 31, 2023, no allowance for credit losses was recognized on AFS debt securities in an unrealized loss position, as we do not believe any of the AFS debt securities are impaired due to reasons of credit quality. This is based on our analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors related to our AFS debt securities and consideration of our historical credit loss experience and internal forecasts. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. Furthermore, we do not have the intent to sell any of the debt securities classified as AFS in the table above, and believe it is more likely than not that we will not have to sell any such debt securities before a recovery of cost. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying debt securities were purchased. The fair value is expected to recover as the debt securities approach their respective maturity date or repricing date, or if the market yields for such investments decline. We utilize a third party vendor to provide a detailed credit write-up for our AFS debt securities that are not supported by the federal government or backed by FDIC insurance. The third party vendor utilizes a proprietary scale between 1 and 8, whereas 1 is the strongest rating and 8 is the weakest rating assigned to an AFS debt security. All of our AFS debt securities were given a 3 rating or better.
Allowance for Credit Losses – Held‐to‐Maturity Securities
Although all of the HTM debt securities held have been in an unrealized loss position for over 12 months as of September 30, 2024 and December 31, 2023, no allowance for credit losses was recognized, as we do not believe any of the HTM debt securities are impaired due to reasons of credit quality. We measure expected credit losses on HTM debt securities on a collective basis by major security type. Our HTM debt security portfolio consists of local municipal issued debt securities. The local municipalities are reviewed at least quarterly for credit worthiness. We utilize a third party vendor to provide a detailed credit write-up for our HTM debt securities. The third party vendor utilizes a proprietary scale between 1 and 8, whereas 1 is the strongest rating and 8 is the weakest rating assigned to a HTM debt security. All of our HTM debt securities were given a 1 rating as of September 30, 2024 and December 31, 2023.
18
Note 4 - Loans and Allowance for Credit Losses
We primarily originate residential and commercial real estate, commercial and industrial, and consumer loans. The majority of our loan portfolio is based in Genesee, Oakland, Saginaw, Shiawassee, Livingston, Ingham and Jackson counties within central and southeast Michigan. The ability of our debtors to honor their contracts is dependent upon the real estate values and general economic conditions in these areas. A significant amount of our consumer and residential real estate loans are secured by various items of real property. Commercial loans are secured primarily by real estate and business assets. Some of our loans are unsecured.
Total loans by class are summarized as follows as of:
|
September 30, 2024 |
|
December 31, 2023 |
||||
|
Balance |
|
% of Total |
|
Balance |
|
% of Total |
Commercial loans |
|
|
|
|
|
|
|
Commercial and industrial |
$ 109,188 |
|
7.57 % |
|
$ 118,089 |
|
8.01 % |
Commercial real estate |
855,270 |
|
59.30 % |
|
870,693 |
|
59.09 % |
Total commercial loans |
964,458 |
|
66.87 % |
|
988,782 |
|
67.11 % |
Residential real estate loans |
|
|
|
|
|
|
|
Residential mortgage |
419,140 |
|
29.06 % |
|
431,836 |
|
29.31 % |
Home equity |
55,475 |
|
3.85 % |
|
48,380 |
|
3.28 % |
Total residential real estate loans |
474,615 |
|
32.90 % |
|
480,216 |
|
32.59 % |
Consumer loans |
3,316 |
|
0.23 % |
|
4,473 |
|
0.30 % |
Gross loans |
1,442,389 |
|
100.00 % |
|
1,473,471 |
|
100.00 % |
Less allowance for expected credit losses |
(14,700) |
|
1.02 % |
|
(15,400) |
|
1.05 % |
Net loans |
$ 1,427,689 |
|
|
|
$ 1,458,071 |
|
|
|
|
|
|
|
|
|
|
Included in total loans above are net deferred loan (fees) costs as of:
|
September 30, |
|
December 31, |
|
2024 |
|
2023 |
Net deferred loan (fees) costs |
$ 2,685 |
|
$ 2,511 |
|
|
|
|
We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debts such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial and commercial real estate loans and is performed on a quarterly basis.
We use the following definitions for classified risk ratings for commercial and industrial and commercial real estate loans:
1: Loans of Exceptional Credit Quality - Loans supported by strong firms/individuals characterized as having minimum credit risk representing a prime credit. Generally fully secured by liquid, properly margined collateral.
19
2: Loans of High Quality - Loans protected by the borrower's net worth representing desirable banking risk. Well-seasoned borrowers displaying strong financial condition, consistently superior earning performance, and access to a range of financing alternatives. The borrower's trends and outlook, as well as those of its industry group, are positive.
3: Loans of Satisfactory Quality - Loans representing a reasonable credit risk. Characterized as being moderate to average risk to established borrowers that display sound financial condition and operating results. The capacity to service debt is stable and demonstrated at a level consistent with or above the industry norms. Borrower and industry trends and outlook are considered good.
4: Satisfactory - Acceptable - Loans to persons or entities with an average financial condition, adequate collateral margins, adequate cash flow to service long-term debt, and net worth comprised mainly of fixed assets are included in the category. These entities are minimally profitable now, with projections indicating continued profitability into the foreseeable future.
5: Satisfactory - Acceptable - Monitor - Loans that are characterized by borrowers who have marginal, but adequate cash flow, marginal profitability, and currently have been meeting the obligations of their loan structure. Adverse changes in the borrower’s circumstances and/or current economic conditions are more likely to impair their capacity for repayment. The borrower has, in the past, satisfactorily handled debts with us, but may be experiencing some minor delinquency in making payments, or other signs of temporary cash flow issues. Borrower may be experiencing declining margins or other negative financial trends, despite the borrower’s continued satisfactory condition and positive cash flow. Other characteristics of borrowers in this class include inadequate credit information, weakness of financial statement, or declining but positive repayment capacity. This classification includes loans to new or established borrowers with satisfactory loan structure, but where near term economic or business issues appears to remain stable and the near-term projections would limit the ability for an improvement in the financial trends of the borrower.
6: Special Mention - Loans in this class have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in our credit position at some future date. These potential weaknesses may result in a deterioration of the repayment of the loan and increase the credit risk. Special mention assets are not adversely classified and do not expose us to sufficient risk to warrant adverse classification.
7: Substandard - Loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.
8: Doubtful - Loans are classified as doubtful because they have all the weaknesses inherent in those classified “Substandard” with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.
9: Loss - Loans are classified as loss because they are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. Charge-off is recommended.
We use the following definitions for classified risk ratings for residential mortgage, home equity and consumer loans:
Current - Loans are classified as current when payments are made on a timely basis and are not delinquent or in nonaccrual status.
30-89 days past due - Loans are classified as 30-89 days past due when payments are not paid in a timely manner and are considered delinquent.
90+ days past due - Loans are classified as 90+ days past due when payments continue to be delinquent beyond 89 days.
Nonaccrual - Loans are reviewed for nonaccrual when they become delinquent beyond 120 days. When a loan is placed in nonaccrual status, interest income recognized during the current period is reversed out of interest income on our Interim
20
Condensed Consolidated Statements of Income and interest income recognized in prior periods is reversed out of ACL on our Interim Condensed Consolidated Balance Sheets.
The following tables present the amortized cost basis of loans by credit quality risk rating, class of financing receivable, and year of origination for term loans as of:
|
September 30, 2024 |
||||||||||||
|
Term loans amortized cost basis by origination year |
|
Revolving loans amortized cost basis |
|
Total |
||||||||
|
2024 |
|
2023 |
|
2022 |
|
2021 |
|
Prior |
|
|
|
|
Commercial loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating 1 |
$ — |
|
$ 849 |
|
$ — |
|
$ 404 |
|
$ — |
|
$ 8,045 |
|
$ 9,298 |
Risk rating 2 |
— |
|
270 |
|
519 |
|
833 |
|
1,664 |
|
6,532 |
|
9,818 |
Risk rating 3 |
4,461 |
|
5,992 |
|
7,460 |
|
1,416 |
|
2,662 |
|
15,949 |
|
37,940 |
Risk rating 4 |
3,823 |
|
1,060 |
|
9,462 |
|
1,108 |
|
9,817 |
|
15,511 |
|
40,781 |
Risk rating 5 |
— |
|
— |
|
59 |
|
34 |
|
91 |
|
1,007 |
|
1,191 |
Risk rating 6 |
— |
|
865 |
|
213 |
|
1,941 |
|
— |
|
476 |
|
3,495 |
Risk rating 7 |
— |
|
4,458 |
|
— |
|
— |
|
2,207 |
|
— |
|
6,665 |
Risk rating 8 |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Risk rating 9 |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Total commercial and industrial |
$ 8,284 |
|
$ 13,494 |
|
$ 17,713 |
|
$ 5,736 |
|
$ 16,441 |
|
$ 47,520 |
|
$ 109,188 |
Current year-to-date gross write-offs |
$ — |
|
$ 1,128 |
|
$ 13 |
|
$ — |
|
$ 47 |
|
$ — |
|
$ 1,188 |
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk rating 1 |
$ — |
|
$ — |
|
$ — |
|
$ — |
|
$ 31 |
|
$ — |
|
$ 31 |
Risk rating 2 |
1,906 |
|
1,164 |
|
20,093 |
|
43,861 |
|
52,494 |
|
69 |
|
119,587 |
Risk rating 3 |
6,411 |
|
17,276 |
|
147,695 |
|
68,711 |
|
124,818 |
|
3,390 |
|
368,301 |
Risk rating 4 |
20,564 |
|
25,977 |
|
109,982 |
|
66,835 |
|
91,678 |
|
5,734 |
|
320,770 |
Risk rating 5 |
— |
|
— |
|
15,282 |
|
7,064 |
|
4,861 |
|
310 |
|
27,517 |
Risk rating 6 |
— |
|
319 |
|
474 |
|
— |
|
13,551 |
|
156 |
|
14,500 |
Risk rating 7 |
113 |
|
— |
|
— |
|
— |
|
4,451 |
|
— |
|
4,564 |
Risk rating 8 |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Risk rating 9 |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Total commercial real estate |
$ 28,994 |
|
$ 44,736 |
|
$ 293,526 |
|
$ 186,471 |
|
$ 291,884 |
|
$ 9,659 |
|
$ 855,270 |
Current year-to-date gross write-offs |
$ — |
|
$ — |
|
$ — |
|
$ — |
|
$ 1,461 |
|
$ — |
|
$ 1,461 |
Residential real estate loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
$ 15,195 |
|
$ 37,820 |
|
$ 131,690 |
|
$ 99,016 |
|
$ 129,435 |
|
$ — |
|
$ 413,156 |
21
|
September 30, 2024 |
||||||||||||
|
Term loans amortized cost basis by origination year |
|
Revolving loans amortized cost basis |
|
Total |
||||||||
30-89 days past due |
— |
|
— |
|
588 |
|
1,085 |
|
2,035 |
|
— |
|
3,708 |
90+ days past due |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Nonaccrual |
— |
|
— |
|
803 |
|
199 |
|
1,274 |
|
— |
|
2,276 |
Total residential mortgage |
$ 15,195 |
|
$ 37,820 |
|
$ 133,081 |
|
$ 100,300 |
|
$ 132,744 |
|
$ — |
|
$ 419,140 |
Current year-to-date gross write-offs |
$ — |
|
$ — |
|
$ — |
|
$ — |
|
$ — |
|
$ — |
|
$ — |
Home equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
$ 48 |
|
$ 15 |
|
$ 394 |
|
$ 92 |
|
$ 403 |
|
$ 54,171 |
|
$ 55,123 |
30-89 days past due |
— |
|
— |
|
— |
|
6 |
|
— |
|
298 |
|
304 |
90+ days past due |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Nonaccrual |
— |
|
48 |
|
— |
|
— |
|
— |
|
— |
|
48 |
Total home equity |
$ 48 |
|
$ 63 |
|
$ 394 |
|
$ 98 |
|
$ 403 |
|
$ 54,469 |
|
$ 55,475 |
Current year-to-date gross write-offs |
$ — |
|
$ — |
|
$ — |
|
$ — |
|
$ 11 |
|
$ — |
|
$ 11 |
Consumer loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
$ 262 |
|
$ 641 |
|
$ 405 |
|
$ 676 |
|
$ 1,232 |
|
$ 96 |
|
$ 3,312 |
30-89 days past due |
— |
|
— |
|
— |
|
— |
|
2 |
|
— |
|
2 |
90+ days past due |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Nonaccrual |
— |
|
— |
|
— |
|
— |
|
2 |
|
— |
|
2 |
Total consumer |
$ 262 |
|
$ 641 |
|
$ 405 |
|
$ 676 |
|
$ 1,236 |
|
$ 96 |
|
$ 3,316 |
Current year-to-date gross write-offs |
$ 48 |
|
$ 2 |
|
$ — |
|
$ 4 |
|
$ — |
|
$ — |
|
$ 54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
December 31, 2023 |
||||||||||
|
Term loans amortized cost basis by origination year |
|
Revolving loans amortized cost basis |
|
Total |
||||||
|
2023 |
|
2022 |
|
2021 |
|
Prior |
|
|
|
|
Commercial loans |
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
Risk rating 1 |
$ 882 |
|
$ — |
|
$ 441 |
|
$ — |
|
$ 5,002 |
|
$ 6,325 |
Risk rating 2 |
271 |
|
577 |
|
1,020 |
|
2,318 |
|
3,831 |
|
8,017 |
Risk rating 3 |
7,303 |
|
17,611 |
|
3,265 |
|
4,294 |
|
23,413 |
|
55,886 |
Risk rating 4 |
2,548 |
|
3,700 |
|
2,656 |
|
9,719 |
|
19,109 |
|
37,732 |
Risk rating 5 |
— |
|
— |
|
3,743 |
|
— |
|
2,077 |
|
5,820 |
Risk rating 6 |
— |
|
— |
|
1,479 |
|
109 |
|
276 |
|
1,864 |
Risk rating 7 |
— |
|
13 |
|
170 |
|
257 |
|
2,005 |
|
2,445 |
Risk rating 8 |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Risk rating 9 |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Total commercial and industrial |
$ 11,004 |
|
$ 21,901 |
|
$ 12,774 |
|
$ 16,697 |
|
$ 55,713 |
|
$ 118,089 |
Current year-to-date gross write-offs |
$ — |
|
$ — |
|
$ — |
|
$ 85 |
|
$ — |
|
$ 85 |
Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
Risk rating 1 |
$ — |
|
$ — |
|
$ — |
|
$ 34 |
|
$ — |
|
$ 34 |
Risk rating 2 |
1,173 |
|
12,425 |
|
32,004 |
|
61,457 |
|
226 |
|
107,285 |
Risk rating 3 |
17,465 |
|
174,933 |
|
85,659 |
|
153,157 |
|
3,073 |
|
434,287 |
Risk rating 4 |
18,555 |
|
114,322 |
|
73,620 |
|
96,439 |
|
3,305 |
|
306,241 |
Risk rating 5 |
— |
|
988 |
|
5,281 |
|
1,782 |
|
252 |
|
8,303 |
Risk rating 6 |
— |
|
— |
|
— |
|
11,265 |
|
— |
|
11,265 |
Risk rating 7 |
— |
|
— |
|
— |
|
3,278 |
|
— |
|
3,278 |
Risk rating 8 |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Risk rating 9 |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Total commercial real estate |
$ 37,193 |
|
$ 302,668 |
|
$ 196,564 |
|
$ 327,412 |
|
$ 6,856 |
|
$ 870,693 |
Current year-to-date gross write-offs |
$ — |
|
$ — |
|
$ — |
|
$ — |
|
$ — |
|
$ — |
Residential real estate loans |
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
|
|
|
|
|
|
|
|
|
|
Current |
$ 41,022 |
|
$ 142,249 |
|
$ 106,018 |
|
$ 137,782 |
|
$ — |
|
$ 427,071 |
30-89 days past due |
— |
|
714 |
|
— |
|
1,324 |
|
— |
|
2,038 |
90+ days past due |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Nonaccrual |
106 |
|
396 |
|
204 |
|
2,021 |
|
— |
|
2,727 |
Total residential mortgage |
$ 41,128 |
|
$ 143,359 |
|
$ 106,222 |
|
$ 141,127 |
|
$ — |
|
$ 431,836 |
Current year-to-date gross write-offs |
$ — |
|
$ — |
|
$ — |
|
$ — |
|
$ — |
|
$ — |
Home equity |
|
|
|
|
|
|
|
|
|
|
|
Current |
$ 64 |
|
$ 339 |
|
$ — |
|
$ 444 |
|
$ 46,993 |
|
$ 47,840 |
30-89 days past due |
— |
|
— |
|
— |
|
— |
|
296 |
|
296 |
90+ days past due |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Nonaccrual |
— |
|
22 |
|
48 |
|
89 |
|
85 |
|
244 |
Total home equity |
$ 64 |
|
$ 361 |
|
$ 48 |
|
$ 533 |
|
$ 47,374 |
|
$ 48,380 |
Current year-to-date gross write-offs |
$ — |
|
$ — |
|
$ — |
|
$ — |
|
$ — |
|
$ — |
Consumer loans |
|
|
|
|
|
|
|
|
|
|
|
Current |
$ 1,278 |
|
$ 496 |
|
$ 932 |
|
$ 1,649 |
|
$ 79 |
|
$ 4,434 |
23
|
December 31, 2023 |
||||||||||
|
Term loans amortized cost basis by origination year |
|
Revolving loans amortized cost basis |
|
Total |
||||||
30-89 days past due |
— |
|
5 |
|
28 |
|
6 |
|
— |
|
39 |
90+ days past due |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Nonaccrual |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Total consumer |
$ 1,278 |
|
$ 501 |
|
$ 960 |
|
$ 1,655 |
|
$ 79 |
|
$ 4,473 |
Current year-to-date gross write-offs |
$ 69 |
|
$ 1 |
|
$ 24 |
|
$ 15 |
|
$ — |
|
$ 109 |
|
|
|
|
|
|
|
|
|
|
|
|
24
The following table presents the activity related to the allowance for expected credit losses for the three and nine months ended September 30, 2024 and 2023:
|
Commercial and Industrial |
|
Commercial Real Estate |
|
Residential Mortgage |
|
Home Equity |
|
Consumer |
|
Total |
July 1, 2024 |
$ 1,857 |
|
$ 8,903 |
|
$ 4,133 |
|
$ 327 |
|
$ 80 |
|
$ 15,300 |
Charge-offs |
(335) |
|
(1,461) |
|
— |
|
— |
|
(18) |
|
(1,814) |
Recoveries |
— |
|
— |
|
8 |
|
— |
|
3 |
|
11 |
Provision for (reversal of) credit losses |
296 |
|
904 |
|
(8) |
|
21 |
|
(10) |
|
1,203 |
September 30, 2024 |
$ 1,818 |
|
$ 8,346 |
|
$ 4,133 |
|
$ 348 |
|
$ 55 |
|
$ 14,700 |
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2024 |
$ 1,770 |
|
$ 8,822 |
|
$ 4,443 |
|
$ 321 |
|
$ 44 |
|
$ 15,400 |
Charge-offs |
(1,188) |
|
(1,461) |
|
— |
|
(11) |
|
(54) |
|
(2,714) |
Recoveries |
19 |
|
— |
|
18 |
|
— |
|
21 |
|
58 |
Provision for (reversal of) credit losses |
1,217 |
|
985 |
|
(329) |
|
38 |
|
45 |
|
1,956 |
September 30, 2024 |
$ 1,818 |
|
$ 8,346 |
|
$ 4,132 |
|
$ 348 |
|
$ 56 |
|
$ 14,700 |
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2023 |
$ 1,502 |
|
$ 8,982 |
|
$ 4,487 |
|
$ 325 |
|
$ 104 |
|
$ 15,400 |
Charge-offs |
— |
|
— |
|
— |
|
— |
|
(16) |
|
(16) |
Recoveries |
440 |
|
— |
|
6 |
|
— |
|
9 |
|
455 |
Provision for (reversal of) credit losses |
(313) |
|
(159) |
|
11 |
|
(5) |
|
27 |
|
(439) |
September 30, 2023 |
$ 1,629 |
|
$ 8,823 |
|
$ 4,504 |
|
$ 320 |
|
$ 124 |
|
$ 15,400 |
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2023 |
$ 1,094 |
|
$ 7,480 |
|
$ 3,921 |
|
$ 370 |
|
$ 135 |
|
$ 13,000 |
Cumulative effect of change in accounting principle |
226 |
|
1,103 |
|
540 |
|
(11) |
|
12 |
|
1,870 |
Charge-offs |
— |
|
— |
|
— |
|
— |
|
(85) |
|
(85) |
Recoveries |
440 |
|
— |
|
16 |
|
1 |
|
26 |
|
483 |
Provision for (reversal of) credit losses |
(131) |
|
240 |
|
27 |
|
(40) |
|
36 |
|
132 |
September 30, 2023 |
$ 1,629 |
|
$ 8,823 |
|
$ 4,504 |
|
$ 320 |
|
$ 124 |
|
$ 15,400 |
|
|
|
|
|
|
|
|
|
|
|
|
25
Troubled Loan Modifications
A loan modification is considered to be a TLM when the modification includes terms outside of normal lending practices to a borrower who is experiencing financial difficulties.
Typical concessions granted include, but are not limited to:
To determine if a borrower is experiencing financial difficulties, factors we consider include:
Based on our historical loss experience, losses associated with TLMs are not significantly different than other impaired loans within the same loan segment. As such, TLMs are analyzed in the same manner as other impaired loans within their respective loan segment.
There were no loan modifications granted to borrowers experiencing financial difficulty during the three month period ended September 30, 2024.
The following is a summary of the amortized cost basis of loan modifications granted to borrowers experiencing financial difficulty during the nine months ended September 30, 2024:
|
Nine Months Ended September 30, 2024 |
||||||||||
|
Interest Rate Reduction |
|
Other-Than-Insignificant Payment Delay |
|
Term Extension |
||||||
|
Amortized Cost Basis |
|
% of Total Class of Financing Receivables |
|
Amortized Cost Basis |
|
% of Total Class of Financing Receivables |
|
Amortized Cost Basis |
|
% of Total Class of Financing Receivables |
Residential mortgage |
$ — |
|
— % |
|
$ 839 |
|
0.20 % |
|
$ — |
|
— % |
|
|
|
|
|
|
|
|
|
|
|
|
There were no loan modifications granted to borrowers experiencing financial difficulty during the three or nine month periods ended September 30, 2023.
26
The following is a summary of the period-end amortized cost basis of loan modifications granted to borrowers experiencing financial difficulty in the past 12 months as of:
|
September 30, 2024 |
||||||
|
Current |
|
30-89 Days Past Due |
|
90+ Days Past Due |
|
Total |
Residential mortgage |
$ 954 |
|
$ — |
|
$ — |
|
$ 954 |
|
|
|
|
|
|
|
|
|
December 31, 2023 |
||||||
|
Current |
|
30-89 Days Past Due |
|
90+ Days Past Due |
|
Total |
Residential mortgage |
$ 143 |
|
$ — |
|
$ — |
|
$ 143 |
|
|
|
|
|
|
|
|
We did not modify any loans by forgiving principal or accrued interest during the three or nine month periods ended September 30, 2024 or 2023. We did not have material commitments to lend additional funds to borrowers with loans whose terms have been modified in TLMs or whose loans are on nonaccrual as of September 30, 2024 or 2023. We closely monitor the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of our modification efforts. No modified loans were delinquent as of September 30, 2024 or 2023 and there were no TLMs that defaulted during the three or nine month periods ended September 30, 2024 or 2023.
Credit Quality Indicators
The following table summarizes nonaccrual loans by loan class as of:
|
September 30, 2024 |
|
December 31, 2023 |
||||
|
Total Nonaccrual Loans |
|
Nonaccrual Loans with No ACL |
|
Total Nonaccrual Loans |
|
Nonaccrual Loans with No ACL |
Commercial and industrial |
$ 6,665 |
|
$ 5,782 |
|
$ 2,424 |
|
$ — |
Commercial real estate |
1,232 |
|
1,232 |
|
169 |
|
169 |
Residential mortgage |
2,276 |
|
2,276 |
|
2,727 |
|
2,727 |
Home equity |
48 |
|
48 |
|
244 |
|
244 |
Consumer |
2 |
|
— |
|
— |
|
— |
Total |
$ 10,223 |
|
$ 9,338 |
|
$ 5,564 |
|
$ 3,140 |
|
|
|
|
|
|
|
|
27
Loan delinquency was as follows as of:
|
September 30, 2024 |
||||||||||
|
Accruing |
|
|
|
|
|
|
||||
|
Current |
|
30-89 Days Past Due |
|
90+ Days Past Due |
|
Nonaccrual |
|
Total Loans |
|
Total Past Due and Nonaccrual |
Commercial and industrial |
$ 102,380 |
|
$ 143 |
|
$ — |
|
$ 6,665 |
|
$ 109,188 |
|
$ 6,808 |
Commercial real estate |
854,038 |
|
— |
|
— |
|
1,232 |
|
855,270 |
|
1,232 |
Residential mortgage |
413,155 |
|
3,709 |
|
— |
|
2,276 |
|
419,140 |
|
5,985 |
Home equity |
55,129 |
|
298 |
|
— |
|
48 |
|
55,475 |
|
346 |
Consumer |
3,312 |
|
2 |
|
— |
|
2 |
|
3,316 |
|
4 |
Total |
$ 1,428,014 |
|
$ 4,152 |
|
$ — |
|
$ 10,223 |
|
$ 1,442,389 |
|
$ 14,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
||||||||||
|
Accruing |
|
|
|
|
|
|
||||
|
Current |
|
30-89 Days Past Due |
|
90+ Days Past Due |
|
Nonaccrual |
|
Total Loans |
|
Total Past Due and Nonaccrual |
Commercial and industrial |
$ 115,652 |
|
$ 13 |
|
$ — |
|
$ 2,424 |
|
$ 118,089 |
|
$ 2,437 |
Commercial real estate |
868,671 |
|
1,853 |
|
— |
|
169 |
|
870,693 |
|
2,022 |
Residential mortgage |
427,071 |
|
2,038 |
|
— |
|
2,727 |
|
431,836 |
|
4,765 |
Home equity |
47,840 |
|
296 |
|
— |
|
244 |
|
48,380 |
|
540 |
Consumer |
4,434 |
|
39 |
|
— |
|
— |
|
4,473 |
|
39 |
Total |
$ 1,463,668 |
|
$ 4,239 |
|
$ — |
|
$ 5,564 |
|
$ 1,473,471 |
|
$ 9,803 |
28
Note 5 - Borrowings
Federal Home Loan Bank Borrowings
Borrowings from the FHLB and the associated assets pledged as collateral were as follows as of:
|
September 30, |
|
December 31, |
||||
|
2024 |
|
2023 |
||||
|
Amount |
|
Rate |
|
Amount |
|
Rate |
Fixed rate due 2025 |
10,000 |
|
4.11 % |
|
10,000 |
|
4.11 % |
Fixed rate due 2025 |
10,000 |
|
0.60 % |
|
10,000 |
|
0.60 % |
Fixed rate due 2026 |
10,000 |
|
3.88 % |
|
10,000 |
|
3.88 % |
Fixed rate symmetrical due 2027 |
20,000 |
|
3.76 % |
|
20,000 |
|
3.76 % |
Quarterly putable due 2029, putable quarterly starting 2025 |
40,000 |
|
3.89 % |
|
— |
|
— % |
Quarterly putable due 2031, putable quarterly starting 2025 |
50,000 |
|
3.80 % |
|
— |
|
— % |
Quarterly putable due 2033, putable quarterly starting 2024 |
20,000 |
|
3.28 % |
|
20,000 |
|
3.28 % |
Quarterly putable due 2028, putable quarterly staring 2024 |
— |
|
— % |
|
20,000 |
|
3.63 % |
Quarterly putable due 2030, putable quarterly staring 2024 |
— |
|
— % |
|
20,000 |
|
3.33 % |
Quarterly putable due 2030, putable quarterly staring 2024 |
— |
|
— % |
|
50,000 |
|
2.71 % |
Quarterly putable due 2033, putable quarterly starting 2024 |
— |
|
— % |
|
20,000 |
|
2.77 % |
Total Federal Home Loan Bank borrowings |
$ 160,000 |
|
3.58 % |
|
$ 180,000 |
|
3.09 % |
|
|
|
|
|
|
|
|
Fair value of securities pledged as collateral |
$ 632 |
|
|
|
$ 735 |
|
|
Loans pledged as collateral |
$ 815,137 |
|
|
|
$ 788,650 |
|
|
|
|
|
|
|
|
|
|
The borrowings are payable at their maturity date; a prepayment penalty is assessed with early payoffs of borrowings. As of September 30, 2024 and December 31, 2023, we had the ability to borrow up to an additional $190.0 million based on the lesser of the amount authorized by the Board of Directors or assets pledged as collateral.
Federal funds purchased generally mature within one to four days from the transaction date. The following table provides a summary of our federal funds purchased for the periods ended:
29
Three Months Ended September 30 |
||||||||||
2024 |
|
2023 |
||||||||
Maximum Month End Balance |
|
Average Balance |
|
Weighted Average Interest Rate During the Period |
|
Maximum Month End Balance |
|
Average Balance |
|
Weighted Average Interest Rate During the Period |
$ — |
|
$ — |
|
— % |
|
$ — |
|
$ — |
|
— % |
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30 |
||||||||||
2024 |
|
2023 |
||||||||
Maximum Month End Balance |
|
Average Balance |
|
Weighted Average Interest Rate During the Period |
|
Maximum Month End Balance |
|
Average Balance |
|
Weighted Average Interest Rate During the Period |
$ — |
|
$ — |
|
— % |
|
$ 3,000 |
|
$ 568 |
|
5.16 % |
|
|
|
|
|
|
|
|
|
|
|
Subordinated Debentures and Trust Preferred Securities
We formed a trust and issued $12.0 million of trust preferred securities in 2003 as part of a pooled offering of such securities. The interest rate is a floating rate (3 month LIBOR plus 3.00%), and the current rate at September 30, 2024 was 8.60%. We issued subordinated debentures at the same terms as the trust preferred securities to the trust in exchange for the proceeds of the offering; the debentures and related debt issuance costs represent the sole assets of the trust. We may redeem the subordinated debentures, in whole but not in part, any time at a price of 100% of face value. The subordinated debentures must be redeemed no later than 2033.
We formed a trust and issued $2.0 million of trust preferred securities in 2005 as part of a pooled offering of such securities. The interest rate is a floating rate (3 month LIBOR plus 1.60%), and the current rate at September 30, 2024 was 6.96%. We issued subordinated debentures at the same terms as the trust preferred securities to the trust in exchange for the proceeds of the offering; the debentures and related debt issuance costs represent the sole assets of the trust. We may redeem the subordinated debentures, in whole but not in part, any time at a price of 100% of face value. The subordinated debentures must be redeemed no later than 2035.
We are not considered the primary beneficiary of these trusts, therefore the trusts are not consolidated in our financial statements; rather, the subordinated debentures are presented as a liability.
As of September 30, 2024, the Parent had a term loan secured by our investment in the Bank. This loan has a term of 3 years with a scheduled maturity in 2027 and has a fixed rate of 7.75%. As of September 30, 2024, the outstanding balance of the note was $6.0 million.
As of September 30, 2024, the Parent had a $7.0 million line of credit secured by our investment in the Bank. This instrument has a variable rate equal to Wall Street Journal Prime, which was 8.00% as of September 30, 2024, with a floor of 5.00%. We had $1.9 million in outstanding advances against this line as of September 30, 2024.
As of December 31, 2023, the Parent had an $8.0 million line of credit secured by our investment in the Bank. This instrument had the option to be at a fixed or variable rate at the time of each draw and matured annually with any individual draw having a maturity of no more than 3 years. The fixed rate option would be priced at the time of draw. The variable rate spread was 2.25% over the 1 month BSBY, and the rate at December 31, 2023 was 7.63%. We had $4.5 million in outstanding advances against this line as of December 31, 2023.
30
Note 6 - Earnings Per Share
The components in the earnings per common and diluted share computation follow for the periods ended:
|
Three Months Ended |
|
Nine Months Ended |
||||
|
September 30 |
|
September 30 |
||||
|
2024 |
|
2023 |
|
2024 |
|
2023 |
Net income |
$ 867 |
|
$ 3,775 |
|
$ 5,637 |
|
$ 10,845 |
Weighted average common shares - issued and outstanding |
4,493,451 |
|
4,464,083 |
|
4,487,577 |
|
4,457,493 |
Average unvested common stock grants |
(26,500) |
|
(26,668) |
|
(28,274) |
|
(28,530) |
Weighted average common shares - basic |
4,466,951 |
|
4,437,415 |
|
4,459,303 |
|
4,428,963 |
Basic and diluted earnings per common share |
$ 0.19 |
|
$ 0.85 |
|
$ 1.26 |
|
$ 2.45 |
|
|
|
|
|
|
|
|
There were no common stock options or other common stock equivalents outstanding at September 30, 2024 or 2023.
Unvested stock grants were not considered in computing basic and diluted earnings per share because they are antidilutive for all periods presented.
31
Note 7 - Revenue Recognition
All of our revenue from contracts with customers included in the scope of ASC Topic 606 is recognized within noninterest income. Items outside the scope of ASC Topic 606 are noted as such. The following table presents our sources of noninterest income for the periods ended:
|
Three Months Ended |
|
Nine Months Ended |
||||
|
September 30 |
|
September 30 |
||||
|
2024 |
|
2023 |
|
2024 |
|
2023 |
Net gain on sales of residential mortgage loans (1) |
$ 211 |
|
$ 164 |
|
$ 531 |
|
$ 523 |
Net gain on sales of commercial loans (1) |
133 |
|
— |
|
527 |
|
95 |
Service charges and fees |
|
|
|
|
|
|
|
Debit card fees |
260 |
|
271 |
|
1,376 |
|
1,451 |
Trust related administration |
359 |
|
301 |
|
821 |
|
917 |
Investment services (1) |
81 |
|
78 |
|
1,046 |
|
787 |
Service charges on deposit accounts |
460 |
|
490 |
|
465 |
|
686 |
ATM card fees |
163 |
|
244 |
|
222 |
|
218 |
Total |
1,323 |
|
1,384 |
|
3,930 |
|
4,059 |
Net change in the fair value of mortgage servicing rights (1) |
(175) |
|
119 |
|
(315) |
|
218 |
Net change in fair value of equity investments (1) |
33 |
|
(28) |
|
20 |
|
(29) |
Other |
|
|
|
|
|
|
|
Residential mortgage loan servicing fees (1) |
389 |
|
398 |
|
1,169 |
|
1,210 |
Increase in cash surrender value of corporate owned life insurance (1) |
206 |
|
181 |
|
617 |
|
531 |
Other (1) |
90 |
|
120 |
|
400 |
|
519 |
Total |
685 |
|
699 |
|
2,186 |
|
2,260 |
Total noninterest income |
$ 2,210 |
|
$ 2,338 |
|
$ 6,879 |
|
$ 7,126 |
|
|
|
|
|
|
|
|
(1) Not within the scope of ASC Topic 606.
A description of our revenue streams accounted for under ASC 606 follows:
Trust related administration
We earn trust related income from contracts with customers to manage assets for investment, and/or to transact on their accounts. These fees are primarily earned over time as we provide the contracted monthly or quarterly services that are generally assessed based on a tiered scale of the market value of assets under management at month-end. Fees that are transaction based are recognized at the point in time that the transaction is executed.
Service charges on deposit accounts and ATM and Debit card fees
We earn fees from deposit customers for transaction-based, account maintenance and overdraft services. Transaction-based fees, which include stop payment charges, statement rendering, ACH and ATM fees, are recognized at the time the transaction is executed as that is the point in time we fulfill the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which we satisfy the performance obligation. Similarly, overdraft fees are recognized at the point in time that the overdraft occurs as this corresponds with our performance obligation. Service charges and ATM fees on deposit accounts are withdrawn from the customer's account as the transactions occur.
32
Note 8 - Noninterest Expenses
A summary of other noninterest expenses was as follows for the periods ended:
|
Three Months Ended |
|
Nine Months Ended |
||||
|
September 30, |
|
September 30, |
||||
|
2024 |
|
2023 |
|
2024 |
|
2023 |
ATM and debit card |
$ 214 |
|
$ 153 |
|
$ 573 |
|
$ 493 |
FDIC insurance premiums |
275 |
|
330 |
|
901 |
|
861 |
Telephone and communication |
95 |
|
115 |
|
290 |
|
334 |
Amortization of core deposit intangibles |
44 |
|
75 |
|
133 |
|
227 |
Acquisition related expenses |
953 |
|
— |
|
953 |
|
— |
Other general and administrative |
1,053 |
|
1,030 |
|
2,993 |
|
3,084 |
Total other noninterest expenses |
$ 2,634 |
|
$ 1,703 |
|
$ 5,843 |
|
$ 4,999 |
|
|
|
|
|
|
|
|
33
Note 9 - Fair Value Measurements
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values.
Level 1: Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2: Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3: Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market.
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of our financial assets and financial liabilities carried at fair value and all financial instruments disclosed at fair value. Transfers of assets or liabilities between levels of the fair value hierarchy are recognized at the beginning of the reporting period, when applicable.
In general, fair value is based upon quoted market prices, where available. If quoted market prices are not available, fair value is based upon third-party pricing services when available. Fair value may also be based on internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be required to record financial instruments at fair value. Any such valuation adjustments are applied consistently over time. Our valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.
While we believe our valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the fair value amounts may change significantly after the date of our Interim Condensed Consolidated Balance Sheets.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
Available-for-Sale Securities: The fair values of AFS debt securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).
Equity Securities: The fair values of equity securities (Level 1 inputs) are determined by obtaining quoted prices on nationally recognized securities exchanges.
Residential Mortgage Loans Held-for-Sale, at Fair Value: The fair values of residential mortgage loans HFS are based on valuation models which use the market price for similar loans sold in the secondary market. As these prices are derived from market observable inputs, we categorize these loans HFS as Level 2.
Mortgage Servicing Rights: MSR are accounted for under the fair value measurement methodology. MSR are measured at fair value each reporting period and changes in the fair value are recorded to earnings in the period in which the fair value changes occur using a model that calculates the net present value of estimated future cash flows using various assumptions, including prepayment speeds, the discount rate and servicing costs. We classify the MSR subject to recurring fair value measurements as Level 3 valuation.
Derivatives: We utilize various derivative instruments to manage interest rate risk including interest rate caps, interest rate swaps, forward contracts, and interest rate lock commitments. Derivatives are reported at fair value utilizing Level 2 inputs. Substantially all
34
of the derivative instruments held for risk management purposes are traded in over-the-counter markets where quoted market prices are not readily available. We measure fair value using models that use primarily market observable inputs, such as yield curves and option volatilities, and include the value associated with counterparty credit risk. In addition, we obtain third-party valuations. Derivatives are included in other assets or liabilities on our Interim Condensed Consolidated Balance Sheets.
A description of the various derivative instruments utilized is as follows:
Interest rate swaps: Interest rate swaps are designated as cash flow hedges which involve the receipt of variable amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
Forward contracts: We enter into forward loan sales commitments to sell certain residential mortgage loans which are recorded at fair value based on valuation models. Our expectation of the amount of interest rate lock commitments that will ultimately close is a factor in determining the position. The valuation models utilize the fair value of related residential mortgage loans determined using observable market data.
Interest rate lock commitments: Our interest rate lock commitments are derivative instruments that are recorded at fair value based on valuation models that use the market price for similar loans sold in the secondary market. The interest rate lock commitments are adjusted for expectations of exercise and funding.
Assets measured at fair value on a recurring basis are summarized below as of:
|
September 30, 2024 |
||||||
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
Available-for-sale debt securities |
|
|
|
|
|
|
|
U.S. Government and federal agency |
$ 18,616 |
|
$ 11,392 |
|
$ 7,224 |
|
$ — |
State and municipal |
17,959 |
|
— |
|
17,959 |
|
— |
Mortgage backed residential |
39,966 |
|
— |
|
39,966 |
|
— |
Certificates of deposit |
2,174 |
|
— |
|
2,174 |
|
— |
Collateralized mortgage obligations - agencies |
18,876 |
|
— |
|
18,876 |
|
— |
Total available-for-sale debt securities |
$ 97,591 |
|
$ 11,392 |
|
$ 86,199 |
|
$ — |
Equity securities |
$ 1,598 |
|
$ 1,598 |
|
$ — |
|
$ — |
Mortgage servicing rights |
$ 8,461 |
|
$ — |
|
$ — |
|
$ 8,461 |
Residential mortgage loans held-for-sale |
$ 1,861 |
|
$ — |
|
$ 1,861 |
|
$ — |
Interest rate swaps |
$ 510 |
|
$ — |
|
$ 510 |
|
$ — |
Forward contracts |
$ 3 |
|
$ — |
|
$ 3 |
|
$ — |
Interest rate lock commitments |
$ 44 |
|
$ — |
|
$ 44 |
|
$ — |
|
|
|
|
|
|
|
|
35
|
December 31, 2023 |
||||||
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
Available-for-sale debt securities |
|
|
|
|
|
|
|
U.S. Government and federal agency |
$ 20,964 |
|
$ 12,009 |
|
$ 8,955 |
|
$ — |
State and municipal |
19,002 |
|
— |
|
19,002 |
|
— |
Mortgage backed residential |
43,131 |
|
— |
|
43,131 |
|
— |
Certificates of deposit |
2,582 |
|
— |
|
2,582 |
|
— |
Collateralized mortgage obligations - agencies |
19,570 |
|
— |
|
19,570 |
|
— |
Total available-for-sale debt securities |
$ 105,249 |
|
$ 12,009 |
|
$ 93,240 |
|
$ — |
Equity securities |
$ 1,488 |
|
$ 1,488 |
|
$ — |
|
$ — |
Mortgage servicing rights |
$ 8,776 |
|
$ — |
|
$ — |
|
$ 8,776 |
Residential mortgage loans held-for-sale |
$ 747 |
|
$ — |
|
$ 747 |
|
$ — |
Interest rate swaps |
$ 1,065 |
|
$ — |
|
$ 1,065 |
|
$ — |
Forward contracts |
$ 1 |
|
$ — |
|
$ 1 |
|
$ — |
Interest rate lock commitments |
$ 12 |
|
$ — |
|
$ 12 |
|
$ — |
|
|
|
|
|
|
|
|
There were no reclassifications between levels within the fair value hierarchy during the three and nine months ended September 30, 2024 or 2023.
The following table provides a reconciliation of MSR measured at fair value using significant unobservable inputs (Level 3) on a recurring basis. Had there been any transfer into or out of Level 3, the amount included in "Transfers into (out of) Level 3" would represent the beginning balance of an item in the period during which it was transferred.
Activity in MSR measured at fair value using Level 3 inputs on a recurring basis consisted of the following for the periods ended:
|
Three Months Ended |
||
|
September 30, |
||
|
2024 |
|
2023 |
July 1 |
$ 8,636 |
|
$ 8,765 |
Net change in fair value |
(175) |
|
119 |
September 30 |
$ 8,461 |
|
$ 8,884 |
|
|
|
|
|
Nine Months Ended |
||
|
September 30, |
||
|
2024 |
|
2023 |
January 1 |
$ 8,776 |
|
$ 8,666 |
Net change in fair value |
(315) |
|
218 |
September 30 |
$ 8,461 |
|
$ 8,884 |
|
|
|
|
36
The following table presents quantitative information about recurring Level 3 fair value measurements as of :
|
September 30, 2024 |
||||||||||
|
|
|
|
|
|
|
Range |
|
|
||
|
Fair Value |
|
Valuation Technique |
|
Unobservable Input |
|
Minimum |
|
Maximum |
|
Weighted Average |
Mortgage servicing rights |
$ 8,461 |
|
Discounted cash flow |
|
Discount rate |
|
10.50% |
|
10.50% |
|
10.50% |
|
|
Prepayment speed |
|
6.00% |
|
25.20% |
|
6.98% |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2023 |
||||||||||
|
|
|
|
|
|
|
Range |
|
|
||
|
Fair Value |
|
Valuation Technique |
|
Unobservable Input |
|
Minimum |
|
Maximum |
|
Weighted Average |
Mortgage servicing rights |
$ 8,776 |
|
Discounted cash flow |
|
Discount rate |
|
11.00% |
|
11.00% |
|
11.00% |
|
|
Prepayment speed |
|
6.00% |
|
21.39% |
|
6.42% |
|||
|
|
|
|
|
|
|
|
|
|
|
|
Our MSR valuations were supported by an analysis prepared by an independent third party. The analyses utilized the discounted cash flow valuation method. The unobservable inputs used in the fair value measurement of MSR are discount rate and prepayment speed. Significant changes in these assumptions could result in significant changes to the value of our MSR. Unobservable inputs were weighted by the relative fair value of the instruments.
Financial Instruments Recorded Using Fair Value Option
We elected the fair value option for residential mortgage loans held-for-sale. These loans are intended for sale and we believe that the fair value is the best indicator of the resolution of these loans. Interest income is recorded based on the contractual terms of the note and in accordance with our policy on loans held for investment. None of these loans were 90 days or more past due or in non-accrual status as of September 30, 2024 or December 31, 2023. There were no gains or losses attributable to instrument specific credit risk in the three or nine months ended September 30, 2024 or 2023.
The aggregate fair value, contractual balance (including accrued interest), and gain or loss was as follows as of:
|
September 30, |
|
December 31, |
|
2024 |
|
2023 |
Aggregate fair value |
$ 1,861 |
|
$ 747 |
Contractual balance |
1,809 |
|
728 |
Gain (loss) |
$ 52 |
|
$ 19 |
|
|
|
|
The total amount of gains and losses from changes in fair value included in net income were as follows for the three and nine months ended September 30:
|
Three Months Ended |
|
Nine Months Ended |
||||
|
September 30 |
|
September 30 |
||||
|
2024 |
|
2023 |
|
2024 |
|
2023 |
Interest Income |
$ 42 |
|
$ 46 |
|
$ 99 |
|
$ 89 |
Change in fair value |
211 |
|
164 |
|
531 |
|
523 |
Total change in value |
$ 253 |
|
$ 210 |
|
$ 630 |
|
$ 612 |
|
|
|
|
|
|
|
|
Assets Measured at Fair Value on a Nonrecurring Basis
37
There were no material assets recorded at fair value on a nonrecurring basis as of September 30, 2024 or December 31, 2023.
There were no liabilities recorded at fair value on a nonrecurring basis as of September 30, 2024 or December 31, 2023.
Disclosures About Fair Value of Financial Instruments
GAAP requires disclosures about the estimated fair value of our financial instruments, including those financial assets and liabilities that are not measured and reported at fair value on a recurring or nonrecurring basis. We utilized the fair value hierarchy in computing the fair values of our financial instruments. In cases where quoted market prices were not available, we employed the exit-price notion, using unobservable inputs requiring our judgment to estimate the fair values of our financial instruments, which are considered Level 3 valuations. These Level 3 valuations are affected by the assumptions made and, accordingly, are not necessarily indicative of amounts that would be realized in a current market exchange. It is also our general practice and intent to hold the majority of our financial instruments until maturity and, therefore, we do not expect to realize the estimated amounts disclosed.
A summary of carrying amounts and estimated fair values of our financial instruments not recorded at fair value in their entirety on a recurring basis on our Interim Condensed Consolidated Balance Sheets are disclosed in the table below as of:
|
|
|
September 30, 2024 |
|
December 31, 2023 |
||||
|
Level in Fair Value Measurement Hierarchy |
|
Carrying Amount |
|
Fair Value |
|
Carrying Amount |
|
Fair Value |
Assets |
|
|
|
|
|
|
|
|
|
Held-to-maturity securities |
Level 2 |
|
$ 535 |
|
$ 526 |
|
$ 878 |
|
$ 868 |
Net loans |
Level 3 |
|
1,427,689 |
|
1,341,679 |
|
1,458,071 |
|
1,387,580 |
Liabilities |
|
|
|
|
|
|
|
|
|
Time deposits |
Level 2 |
|
$ 355,166 |
|
$ 357,677 |
|
$ 295,142 |
|
$ 260,088 |
Federal Home Loan Bank borrowings |
Level 2 |
|
160,000 |
|
158,742 |
|
180,000 |
|
175,680 |
Subordinated debentures |
Level 2 |
|
14,000 |
|
14,000 |
|
14,000 |
|
14,000 |
Other borrowings |
Level 2 |
|
5,970 |
|
5,970 |
|
4,500 |
|
4,500 |
|
|
|
|
|
|
|
|
|
|
There were no reclassifications between Level 1, Level 2 or Level 3 for the three or nine months ended September 30, 2024 or 2023.
The short-term nature of certain assets and liabilities result in their carrying value approximating fair value. These include cash and cash equivalents, FHLB stock, non-marketable equity securities, accrued interest receivable, COLI, deposits without defined maturities, federal funds purchased and sold, and accrued interest payable.
38
Note 10 - Derivatives
Risk Management Objective of Using Derivatives
We are exposed to certain risk arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of our assets and liabilities and the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash receipts and our known or expected cash payments principally related to our mortgage loans, investments and borrowings.
Cash Flow Hedges of Interest Rate Risk
Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we primarily uses interest rate swaps and caps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. During the nine months ended September 30, 2024 and twelve months ended December 31, 2023, such derivatives were used to hedge the variable cash flows associated with existing variable-rate borrowings and forecasted issuances of borrowings.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt.
Fair Value Hedges of Interest Rate Risk
We are exposed to changes in the fair value of certain of our fixed-rate assets due to changes in benchmark interest rates. We use interest rate swaps to manage our exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate, LIBOR. Interest rate swaps designated as fair value hedges involve the payments of fixed-rate amounts to a counterparty in exchange for receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount.
For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.
Non-designated Hedges of Interest Rate Risk
Derivatives not designated as hedges are not speculative and result from a service we provide to certain customers. We execute interest rate swaps with commercial loan customers to facilitate their respective risk management strategies. The interest rate swaps are simultaneously hedged by offsetting derivatives that we execute with a third party, such that we minimize our net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.
39
The following table presents the carrying amounts of the hedged items accounted for as fair value hedges as of:
|
|
Carrying Amount of the Hedged Assets |
|
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets |
||||
Line Item in the Interim Condensed Consolidated Balance Sheets in Which the Hedged Item is Included |
|
September 30, 2024 |
|
December 31, 2023 |
|
September 30, 2024 |
|
December 31, 2023 |
Loans |
|
$ 19,460 |
|
$ 19,612 |
|
$ (406) |
|
$ (710) |
|
|
|
|
|
|
|
|
|
The tables below presents the fair value of our derivative financial instruments as well as the classification on our Interim Condensed Consolidated Balance Sheets as of:
|
|
|
|
September 30, 2024 |
|
December 31, 2023 |
||||
Derivatives Designated as Hedging Instruments |
|
Location |
|
Notional Amount |
|
Fair Value |
|
Notional Amount |
|
Fair Value |
Interest rate derivatives |
|
Other Liabilities |
|
$ 29,791 |
|
$ 510 |
|
$ 30,322 |
|
$ 1,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2024 |
|
December 31, 2023 |
||||
Derivatives not Designated as Hedging Instruments |
|
Location |
|
Notional Amount |
|
Fair Value |
|
Notional Amount |
|
Fair Value |
Interest rate derivatives |
|
Other Assets |
|
$ 8,390 |
|
$ 343 |
|
$ — |
|
$ — |
|
Other Liabilities |
|
$ 8,390 |
|
$ 368 |
|
$ — |
|
$ — |
|
|
|
|
|
|
|
|
|
|
|
|
The table below presents the effect of cash flow hedge accounting on AOCI for the periods ended:
|
Three Months Ended September 30 |
||||||||
|
Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative |
|
Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings |
|
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings |
||||
|
2024 |
|
2023 |
|
|
|
2024 |
|
2023 |
Interest rate derivatives |
$ (105) |
|
$ (148) |
|
Interest Expense |
|
$ (97) |
|
$ (193) |
|
|
|
|
|
|
|
|
|
|
40
|
Nine Months Ended September 30 |
||||||||
|
Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative |
|
Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings |
|
Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings |
||||
|
2024 |
|
2023 |
|
|
|
2024 |
|
2023 |
Interest rate derivatives |
$ (237) |
|
$ (328) |
|
Interest Expense |
|
$ (291) |
|
$ (509) |
|
|
|
|
|
|
|
|
|
|
The table below presents the effect of our derivative financial instruments on the Interim Condensed Consolidated Statements of Income for the periods ended:
|
Three Months Ended |
|
Nine Months Ended |
||||||||||||
|
September 30, 2024 |
|
September 30, 2023 |
|
September 30, 2024 |
|
September 30, 2023 |
||||||||
|
Interest Income |
|
Interest Expense |
|
Interest Income |
|
Interest Expense |
|
Interest Income |
|
Interest Expense |
|
Interest Income |
|
Interest Expense |
Total amount of income and expense line items presented in the Interim Condensed Consolidated Statements of Income in which the effects of fair value or cash flow hedges are recorded |
$ 141 |
|
$ (97) |
|
$ 141 |
|
$ (193) |
|
$ 4 |
|
$ (291) |
|
$ 3 |
|
$ (509) |
The effects of fair value and cash flow hedging: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on fair value hedging relationship |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedged items |
$ 610 |
|
$ — |
|
$ (293) |
|
$ — |
|
$ 314 |
|
$ — |
|
$ (370) |
|
$ — |
Derivatives designated as hedging instruments (1) |
$ (469) |
|
$ — |
|
$ 434 |
|
$ — |
|
$ (310) |
|
$ — |
|
$ 373 |
|
$ — |
Gain (loss) on cash flow hedging relationship |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss) reclassified from accumulated other comprehensive income into earnings |
$ — |
|
$ (97) |
|
$ — |
|
$ (193) |
|
$ — |
|
$ (291) |
|
$ — |
|
$ (509) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Amounts include changes in fair value as well as net settlement on the derivatives.
41
Amount of gain (loss) reclassified from accumulated other comprehensive income into earnings as a result that a forecasted transaction is no longer probable of occurring.
42
The follow table presents the effect of our derivatives not designated as hedging instruments on the Interim Condensed Consolidated Statements of Income for the periods ended:
Derivatives Not Designated as Hedging Instruments under Subtopic 815-20 |
Location of Income or (Expense) Included in our Interim Condensed Consolidated Statements of Income on Derivatives Not Designated as Hedging Instruments |
Total Amount of Income or (Expense) Included in our Interim Condensed Consolidated Statements of Income on Derivatives Not Designated as Hedging Instruments |
||||||
|
|
Three Months Ended |
|
Nine Months Ended |
||||
September 30, 2024 |
|
September 30, 2023 |
|
September 30, 2024 |
|
September 30, 2023 |
||
Interest rate derivatives |
Other income |
$ 11 |
|
$ — |
|
$ (2) |
|
$ — |
|
|
|
|
|
|
|
|
|
The tables below present a gross presentation, the effects of offsetting, and a net presentation of our derivatives as of September 30, 2024 and December 31, 2023. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented:
Offsetting of Derivative Liabilities as of September 30, 2024 |
|||||||||||
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Interim Condensed Consolidated Balance Sheets |
||||
|
Gross Amounts of Recognized Liabilities |
|
Gross Amounts Offset in the Interim Condensed Consolidated Balance Sheets |
|
Net Amounts of Liabilities presented in the Interim Condensed Consolidated Balance Sheets |
|
Financial Instruments |
|
Cash Collateral Received (Posted) |
|
Net Amount |
Interest rate derivatives |
$ 510 |
|
$ — |
|
$ 510 |
|
$ — |
|
$ 5,784 |
|
$ (5,274) |
|
|
|
|
|
|
|
|
|
|
|
|
Offsetting of Derivative Liabilities as of December 31, 2023 |
|||||||||||
|
|
|
|
|
|
|
Gross Amounts Not Offset in the Interim Condensed Consolidated Balance Sheets |
||||
|
Gross Amounts of Recognized Liabilities |
|
Gross Amounts Offset in the Interim Condensed Consolidated Balance Sheets |
|
Net Amounts of Liabilities presented in the Interim Condensed Consolidated Balance Sheets |
|
Financial Instruments |
|
Cash Collateral Received (Posted) |
|
Net Amount |
Interest rate derivatives |
$ 1,065 |
|
$ — |
|
$ 1,065 |
|
$ — |
|
$ 5,555 |
|
$ (4,490) |
|
|
|
|
|
|
|
|
|
|
|
|
43
Mortgage Banking Derivatives
The following table summarizes the net gains (losses) relating to free-standing derivative instruments used for risk management for the periods ended:
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
||||
|
|
|
|
September 30 |
|
September 30 |
||||
Instrument |
|
Location |
|
2024 |
|
2023 |
|
2024 |
|
2023 |
Mandatory forward contracts |
|
Other noninterest income |
|
$ (51) |
|
$ 13 |
|
$ 2 |
|
$ 19 |
Interest rate lock commitments |
|
Net gain on sales of residential mortgage loans |
|
$ 22 |
|
$ 32 |
|
$ 32 |
|
$ (2) |
|
|
|
|
|
|
|
|
|
|
|
The following table reflects the amount and fair value of mortgage banking derivatives included on our Interim Condensed Consolidated Balance Sheets as of:
|
|
September 30, 2024 |
|
December 31, 2023 |
||||
|
|
Notional |
|
Fair |
|
Notional |
|
Fair |
|
|
Amount |
|
Value |
|
Amount |
|
Value |
Included in other assets: |
|
|
|
|
|
|
|
|
Mandatory forward contracts |
|
$ 607 |
|
$ 13 |
|
$ 428 |
|
$ 4 |
Interest rate lock commitments |
|
3,007 |
|
46 |
|
300 |
|
12 |
Total included in other assets |
|
$ 3,614 |
|
$ 59 |
|
$ 728 |
|
$ 16 |
|
|
|
|
|
|
|
|
|
Included in other liabilities: |
|
|
|
|
|
|
|
|
Mandatory forward contracts |
|
$ 1,202 |
|
$ 10 |
|
$ 1,231 |
|
$ 3 |
Interest rate lock commitments |
|
174 |
|
2 |
|
138 |
|
— |
Total included in other liabilities |
|
$ 1,376 |
|
$ 12 |
|
$ 1,369 |
|
$ 3 |
|
|
|
|
|
|
|
|
|
Credit-risk-related Contingent Features
We have agreements with each of our derivative counterparties that contain a provision where if we either default, or are capable of being declared in default, on any of our indebtedness, then we could also be declared in default on our derivative obligations.
The fair value of derivatives in a net liability position ("out-of-the-money"), which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements as of September 30, 2024 and December 31, 2023 was $510,000 and $1.1 million respectively. As of September 30, 2024 and December 31, 2023, we had minimum collateral posting thresholds with certain of our derivative counterparties and had posted collateral of $5.8 million and $5.6 million, respectively, in cash collateral on deposit with counterparties. If we had breached any of these provisions, we could have been required to settle our obligations under the agreements at their termination value at September 30, 2024 and December 31, 2023 of $510,000 and $1.1 million, respectively.
44
Note 11 - Contingencies
Litigation
We are party to litigation arising during the normal course of business. In our opinion, based on consultation with legal counsel, the resolution of such litigation is not expected to have a material effect on our interim condensed consolidated financial statements.
45
46
|
|
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information combines the historical consolidated balance sheet and statement of income for ChoiceOne Financial Services, Inc. (“ChoiceOne”) and Fentura Financial, Inc. (“Fentura”), after giving effect to the merger, using the acquisition method of accounting and giving effect to the related pro forma adjustments described in the accompanying notes. Under the acquisition method of accounting, the assets and liabilities of Fentura will be recorded by ChoiceOne at their respective fair values on the date that the merger is completed. The pro forma condensed combined balance sheet gives effect to the merger as if the transaction had occurred on September 30, 2024. The pro forma condensed combined income statement for the nine months ended September 30, 2024 gives effect to the merger as if the transaction had become effective on January 1, 2024.
The pro forma condensed combined financial information is presented for illustrative purposes only and does not indicate the financial results of the combined company had the companies actually been combined at the beginning of the period presented, nor the impact of possible business model changes. The pro forma condensed combined financial information, while helpful in illustrating the financial characteristics of the combined organization under one set of assumptions, does not reflect the potential effects of changes in market conditions on revenues, expense efficiencies, and asset dispositions, among other factors, nor does it include the funding cost or lost opportunity cost related to the stock consideration paid to Fentura shareholders and, accordingly, does not attempt to predict or suggest future results. In addition, as explained in more detail in the accompanying notes, the preliminary allocation of the pro forma purchase price reflected in the pro forma condensed combined financial information is subject to adjustment and may vary significantly from the actual purchase price allocation that will be recorded upon completion of the merger.
The pro forma financial statements do not include future estimated merger and integration costs expected to be incurred subsequent to March 1, 2025, in conjunction with the merger. Due diligence, professional fees, and other expenses related to the merger were incurred by ChoiceOne and Fentura during the nine months ended September 30, 2024, but the pro forma condensed combined statement of income is not adjusted to exclude these costs.
Actual and Pro Forma Consolidated Balance Sheets (Unaudited) |
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(Dollar amounts in thousands except per share data) |
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ChoiceOne |
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Fentura |
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Pro Forma Adjustments |
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Pro Forma ChoiceOne and Fentura |
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Assets |
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Cash and cash equivalents |
$ |
145,938 |
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|
$ |
199,717 |
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$ |
(19,823 |
) |
A |
$ |
325,832 |
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Equity securities, at fair value |
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7,816 |
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1,598 |
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9,414 |
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Securities available for sale, at fair value |
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497,552 |
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97,591 |
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595,143 |
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Securities held to maturity, at amortized cost net of credit losses |
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391,954 |
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|
535 |
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(24 |
) |
B |
|
392,465 |
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Federal Home Loan Bank stock |
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4,449 |
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9,179 |
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13,628 |
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Federal Reserve Bank stock |
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5,307 |
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- |
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5,307 |
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Loans held for sale |
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5,994 |
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1,861 |
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7,855 |
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Loans held for investment |
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1,503,950 |
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1,442,389 |
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7,585 |
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C |
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2,881,142 |
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(53,819 |
) |
D |
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(18,963 |
) |
E |
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Allowance for credit losses |
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(16,490 |
) |
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(14,700 |
) |
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14,700 |
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F |
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(35,453 |
) |
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(11,378 |
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G |
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(7,585 |
) |
H |
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Net loans |
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1,487,460 |
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1,427,689 |
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(69,460 |
) |
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2,845,689 |
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Premises and equipment, net |
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27,135 |
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13,203 |
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4,000 |
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I |
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44,338 |
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Other real estate owned |
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529 |
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- |
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- |
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529 |
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Goodwill |
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59,946 |
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8,853 |
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(8,853 |
) |
J |
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116,412 |
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56,466 |
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K |
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Other intangible assets |
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1,250 |
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400 |
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(400 |
) |
L |
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44,603 |
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43,353 |
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M |
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Interest receivable and other assets |
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90,673 |
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46,744 |
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18,839 |
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N |
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156,256 |
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Total Assets |
$ |
2,726,003 |
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$ |
1,807,370 |
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$ |
24,098 |
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$ |
4,557,471 |
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Liabilities and Shareholders' Equity |
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Deposits: |
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Non-interest bearing |
$ |
521,055 |
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$ |
398,338 |
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$ |
919,393 |
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Interest bearing |
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1,687,173 |
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1,072,248 |
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2,759,421 |
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Total Deposits |
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2,208,228 |
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1,470,586 |
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- |
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3,678,814 |
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Borrowings |
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210,000 |
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165,970 |
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(1,000 |
) |
O |
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374,970 |
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Subordinated debentures |
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35,691 |
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14,000 |
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(2,000 |
) |
P |
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47,691 |
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Other liabilities |
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24,338 |
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10,416 |
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10,574 |
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Q |
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45,328 |
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Total liabilities |
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2,478,257 |
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1,660,972 |
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7,574 |
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4,146,803 |
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Total shareholders' equity |
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247,746 |
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146,398 |
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16,524 |
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R |
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410,668 |
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Total Liabilities and Shareholders' Equity |
$ |
2,726,003 |
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$ |
1,807,370 |
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$ |
24,098 |
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$ |
4,557,471 |
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Book value per share |
$ |
27.65 |
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$ |
32.57 |
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$ |
27.33 |
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Tangible book value per share |
$ |
20.82 |
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$ |
30.51 |
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$ |
16.61 |
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See accompanying notes to unaudited pro forma condensed combined financial statements.
ChoiceOne Financial Services, Inc. and Fentura Financial, Inc. |
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(Dollar amounts in thousands except per share data) |
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ChoiceOne |
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Fentura |
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Pro Forma Adjustments |
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Pro Forma ChoiceOne and Fentura |
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Interest income |
$ |
90,066 |
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$ |
65,222 |
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$ |
4 |
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A |
$ |
171,712 |
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(605 |
) |
B |
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3,413 |
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C |
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13,612 |
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D |
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Interest expense |
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34,973 |
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29,167 |
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250 |
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E |
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64,564 |
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175 |
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F |
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Net interest income |
$ |
55,093 |
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$ |
36,055 |
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$ |
16,000 |
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$ |
107,148 |
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Provision for loan losses |
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425 |
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1,956 |
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2,381 |
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Noninterest income |
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13,001 |
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6,879 |
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19,880 |
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Noninterest expense (excluding merger related expenses |
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43,379 |
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34,061 |
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5,503 |
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G |
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83,489 |
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409 |
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H |
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120 |
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I |
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150 |
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J |
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(133 |
) |
K |
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Net income before income taxes |
$ |
24,290 |
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$ |
6,917 |
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$ |
9,951 |
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$ |
41,158 |
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Income Tax |
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4,722 |
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1,280 |
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2,090 |
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L |
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8,092 |
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Net income |
$ |
19,568 |
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$ |
5,637 |
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$ |
7,861 |
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$ |
33,066 |
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Net income per share |
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Basic |
$ |
2.48 |
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$ |
1.26 |
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$ |
2.20 |
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Diluted |
$ |
2.46 |
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$ |
1.26 |
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$ |
2.19 |
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Dividends per share |
$ |
0.81 |
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$ |
0.33 |
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$ |
0.58 |
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Average shares outstanding |
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Basic |
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7,898,938 |
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4,459,303 |
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6,020,059 |
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13,918,997 |
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Diluted |
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7,944,143 |
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4,459,303 |
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6,020,059 |
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13,964,202 |
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See accompanying notes to unaudited pro forma condensed combined financial statements.
Note 1—Basis of Presentation
The pro forma condensed combined financial information and explanatory notes have been prepared to illustrate the effects of the merger involving ChoiceOne and Fentura under the acquisition method of accounting with ChoiceOne treated as the acquirer. The pro forma condensed combined financial information is presented for illustrative purposes only and does not necessarily indicate the financial results of the combined companies had the companies actually been combined at the beginning of the period presented, nor does it necessarily indicate the results of operations in future periods or the future financial position of the combined entities. Under the acquisition method of accounting, the assets and liabilities of Fentura will be recorded by ChoiceOne at their respective fair values and the excess of the merger consideration over the fair value of Fentura’s net assets will be allocated to goodwill.
If completed, the merger will provide for Fentura common shareholders to receive 1.35 shares of ChoiceOne common stock for each share of Fentura common stock they held immediately prior to the merger. Based on the closing trading price of shares of ChoiceOne common stock on the NASDAQ Stock Exchange on September 30, 2024, the value of the merger consideration of ChoiceOne common stock was $30.91 per share.
The pro forma allocation of the purchase price reflected in the pro forma condensed combined financial information is subject to adjustment and may vary from the actual purchase price allocation that will be recorded. Adjustments will include, but not be limited to, changes in (i) fair value of Fentura’s assets and liabilities as additional information becomes available from independent third parties and management’s analysis; (ii) final analysis regarding the timing and treatment of certain merger related expenses from amounts included herein; and (iii) the underlying values of assets and liabilities if market conditions differ from current assumptions.
The accounting policies of both ChoiceOne and Fentura are in the process of being reviewed in detail. Upon completion of such review, conforming adjustments or financial statement reclassification may be determined.
Note 2—Preliminary Purchase Price Allocation
The pro forma adjustments include the estimated purchase accounting entries to record the merger transaction. The excess of the purchase price over the fair value of net assets acquired, net of deferred taxes, is allocated to goodwill. Estimated fair value adjustments included in the pro forma financial statements are based upon available information and certain assumptions considered reasonable, and may be revised as additional information becomes available.
Core deposit intangible and customer list assets of $44.6 million are included in the pro forma adjustments separate from goodwill and amortized on a sum of year digits method over 10 years. Goodwill totaling $56.5 million is included in the pro forma adjustments and is not subject to amortization.
Equity Consideration |
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Fentura shares outstanding September 30, 2024 |
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4,495,005 |
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Exchange ratio |
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1.35 |
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ChoiceOne shares Issued |
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6,068,257 |
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ChoiceOne Share Price (as of September 30, 2024) |
$ |
30.91 |
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Total Consideration (dollars in thousands) |
$ |
187,570 |
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Fentura Net Assets at Fair Value |
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Assets Acquired |
$ |
1,799,650 |
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Liabilities Assumed |
$ |
1,668,546 |
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Net Assets Acquired |
$ |
131,104 |
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Preliminary pro forma goodwill (dollars in thousands) |
$ |
56,466 |
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Note 3—Pro Forma Adjustments
The following pro forma adjustments have been reflected in the pro forma condensed combined financial information. All taxable adjustments were calculated using a 21% tax rate to arrive at deferred tax asset or liability adjustments. All adjustments are based on current assumptions and valuations, which are subject to change.
Balance Sheet
A |
Reflects adjustments to record ChoiceOne’s estimated transaction costs pretax as well as the adjustment to record Fentura Employee Stock Ownership Plan shares for cash. |
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B |
Adjustment to record estimated fair value of held-to-maturity investments. |
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C |
Estimated purchase credit discount CECL reserve gross up. |
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D |
Estimated interest rate adjustment to record loans at fair value. |
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E |
Estimated adjustment to record the gross credit mark on loans. |
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F |
Estimated adjustment to record the elimination of existing Fentura allowance for credit losses. |
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G |
Estimated adjustment to record day 2 CECL reserve on non-PCD loans (double dip). |
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H |
Reflects the estimated adjustment to record day 2 PCD CECL reserve adjustment. |
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I |
Estimated adjustment to record fixed assets at fair value. |
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J |
Adjustment to record the elimination of Fentura’s existing goodwill. |
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K |
“Estimated Goodwill to be generated as a result of the total purchase price and net assets acquired. (See ““Preliminary Purchase Price Allocation”” above for the allocation of the purchase price to net assets acquired””).” |
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L |
Adjustment to eliminate Fentura's existing CDI . |
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M |
Adjustment to record estimated CDI at fair value and Customer list at estimated fair value. |
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N |
Current/deferred tax assets created as a result of purchase accounting adjustments. All taxable adjustments were calculated using a 21% tax rate. |
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O |
Adjustment to record borrowings at their estimated fair value. |
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P |
Adjustment to record TruPS at their estimated fair value. |
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Q |
Current/deferred tax liabilities created as a result of purchase accounting adjustments. All taxable adjustments were calculated using a 21% tax rate. |
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R |
Estimated elimination of Fentura Financial Inc. common stock and value of merger consideration paid. |
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Income Statement |
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A |
Investment securities estimated fair value adjustment amortization. |
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B |
Adjustment for the estimated lost reinvestment income on cash paid for transaction expenses at an assumed lost yield equal to 5.0%. |
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C |
Estimated accretion of the credit adjustment on non-PCD loans. |
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D |
Estimated accretion of the fair value adjustment on loans. |
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E |
Estimated bank-level borrowing fair value adjustment amortization. |
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F |
Holding Company TruPS estimated fair value adjustment amortization. |
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G |
Estimated incremental CDI intangible amortization expense above historical CDI amortization expense based on a a 10 year sum of years digits calculation. |
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H |
Estimated customer list intangible amortization expense. |
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I |
Estimated capitalization of branch expenses. |
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J |
Adjustment to reflect the increased depreciation expense related to the estimated fair value adjustment on fixed assets. |
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K |
Reversal of Fentura’s CDI Amortization. |
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L |
Tax effect on the pro forma adjustments at an assumed 21% effective tax rate. |