Peoples Financial Services Corp 8-K/A, filed Sep 16, 2024
Peoples Financial Services Corp. (PFIS)
About this 8-K/A
Peoples Financial Services Corp filed this 8-K/A on September 16, 2024, reporting on events of July 1, 2024.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 1)
CURRENT REPORT
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Explanatory Note
Effective July 1, 2024 (the “Closing Date”), Peoples Financial Services Corp., a Pennsylvania corporation (“Peoples”), completed its previously announced merger with FNCB Bancorp, Inc., a Pennsylvania corporation (“FNCB”), pursuant to the Agreement and Plan of Merger dated September 27, 2023 between Peoples and FNCB (the “Merger Agreement”).
Pursuant to the Merger Agreement, on the Closing Date, FNCB merged with and into Peoples, with Peoples continuing as the surviving corporation (the “Merger”), and immediately following the Merger, FNCB Bank, a Pennsylvania-chartered bank (“FNCB Bank”), merged with and into Peoples Security Bank and Trust Company, a Pennsylvania-chartered bank and trust company and a wholly owned subsidiary of Peoples (“Peoples Bank”), with Peoples Bank as the surviving bank.
On July 1, 2024, Peoples filed a Current Report on Form 8-K, reporting the completion of the Merger (the “Original Report”). This Amendment No. 1 to the Original Report is being filed with the Securities and Exchange Commission solely to amend and supplement item 9.01 of the Original Report, as described in Item 9.01 below. This Amendment No. 1 makes no other amendments to the Original Report.
The pro forma financial information included in this Amendment No. 1 has been presented for informational purposes only and does not purport to represent the actual results that Peoples and FNCB would have achieved had the companies been combined during the periods presented, and is not intended to project any future results of operations for the combined company.
| Item 9.01 | Financial Statements and Exhibits |
(a) Financial statements of business acquired
The audited consolidated financial statements of FNCB as of and for the years ended December 31, 2023, and 2022, including the independent auditor’s report, are filed herewith as Exhibit 99.1 and are incorporated by reference into this item 9.01(a). The unaudited consolidated financial statements of FNCB as of and for the three months ended March 31, 2024, are filed herewith as Exhibit 99.2 and are incorporated by reference into this item 9.01(a).
(b) Pro forma financial information
The unaudited pro forma condensed consolidated combined financial information as of and for the three months ended March 31, 2024, and for the year ended December 31, 2023, is filed herewith as Exhibit 99.3 and is incorporated by reference into this item 9.01(b).
(d) Exhibits
*Filed herewith
SIGNATURE
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.
| PEOPLES FINANCIAL SERVICES CORP. | ||
| By: | /s/ Craig W. Best | |
| Craig W. Best Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Dated: September 16, 2024 |
| |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statements on Forms S-8 (No. 333-280652, No. 333-272482 and No. 333-219090) of Peoples Financial Services Corp. of our report dated March 8, 2024, relating to the consolidated financial statements of FNCB Bancorp, Inc. and Subsidiaries, which appears in Exhibit 99.1 to this Amendment No. 1 to Current Report on Form 8-K/A.
/s/ BAKER TILLY US, LLP
BAKER TILLY US, LLP
Iselin, New Jersey
September 16, 2024
Exhibit 99.3
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined condensed consolidated financial information has been prepared using the acquisition method of accounting under the provisions of the Financial Accounting Standards Board Accounting Standards Codification 805, “Business Combinations”, giving effect to the merger of FNCB Bancorp, Inc. (“FNCB”) with and into Peoples Financial Services Corp. (“Peoples”), with Peoples as the surviving corporation. Under this method, FNCB assets and liabilities as of the date of the acquisition will be recorded at their respective fair values and added to those of Peoples. Any difference between the purchase price for FNCB and the fair value of the identifiable net assets acquired (including core deposit intangibles) will be recorded as goodwill. The goodwill resulting from the acquisition will not be amortized to expense, but instead will be reviewed for impairment at least annually. Any core deposit intangible and other intangible assets with estimated useful lives to be recorded by Peoples in connection with the acquisition will be amortized to expense over such intangible asset’s estimated useful life. The financial statements of Peoples issued after the acquisition will reflect the results attributable to the acquired operations of FNCB beginning on the date of completion of the acquisition. The merger was consummated on July 1, 2024.
The unaudited pro forma condensed combined financial information and accompanying notes are based on and should be read in conjunction with the historical consolidated financial statements of Peoples included in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, as filed with the SEC on May 8, 2024, and the historical consolidated financial statements of FNCB included in FNCB’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, which is included as Exhibit 99.2 to this Current Report on Form 8-K.
The unaudited pro forma condensed combined financial information is provided for illustrative information purposes only. The unaudited pro forma condensed combined financial information is not necessarily, and should not be assumed to be, an indication of the actual results that would have been achieved had the merger been completed as of the dates indicated or that may be achieved in the future. The unaudited pro forma combined condensed financial statements have been prepared in accordance with Article 11 of Regulation S-X, Pro Forma Information, which requires the depiction of the accounting for the transaction, which we refer to as transaction accounting adjustments. Regulation S-X also allows for management adjustments that could include presentation of the reasonably estimable cost savings and revenue enhancements and other transaction effects that have occurred or are reasonably expected to occur. Peoples has elected to present certain management adjustments which include a $241.5 million balance sheet restructuring by selling $241.5 million of investment securities available for sale and paying down $106.8 million of FHLB short term borrowings with the remaining cash balance being invested in federal funds sold. Please note the unaudited pro forma condensed combined financial information does not include management adjustments for any potential effects of changes in market conditions, revenue enhancements or expense efficiencies, among other factors.
The following unaudited pro forma combined consolidated balance sheet as of March 31, 2024, combines the unaudited consolidated balance sheet of Peoples as of March 31, 2024, with the unaudited statement of financial condition of FNCB as of March 31, 2024, giving effect to the transaction as if it had been consummated March 31, 2024. The unaudited pro forma condensed combined statements of income for the three months ended March 31, 2024, combines the unaudited consolidated statements of income of Peoples for the three months ended March 31, 2024 with the unaudited consolidated statement of operations of FNCB for the three months ended March 31, 2024, giving effect to the transaction as if it had been consummated on January 1, 2024. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2023, combines the audited consolidated statements of income of Peoples for the year ended December 31, 2023, with the audited consolidated statements of income of FNCB for the year ended December 31, 2023 (included as Exhibit 99.1 to this Current Report on Form 8-K), giving effect to the transaction as if it had been consummated on January 1, 2023. Certain reclassification adjustments have been made to FNCB’s financial statements to conform to Peoples’ financial statement presentation.
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The unaudited pro forma condensed consolidated financial statements were prepared with Peoples as the accounting acquirer and FNCB as the accounting acquiree under the acquisition method of accounting. Accordingly, the consideration paid by Peoples to complete the acquisition of FNCB will be allocated to FNCB’s assets and liabilities based upon their estimated fair values as of the date of completion of the acquisition. The allocation is dependent upon certain valuations and other studies that have not been finalized at this time; however, preliminary significant valuations based on the fair value of the acquired assets and liabilities have been estimated and included in the unaudited condensed pro forma financial statements.
The fair value adjustments made to the acquired assets and liabilities are considered preliminary at this time and are subject to change as Peoples finalizes its fair value determinations. Increases or decreases in the estimated fair values of the net assets as compared with the information shown in the unaudited pro forma combined condensed consolidated financial information may change the amount of the purchase price allocated to goodwill and other assets and liabilities and may impact Peoples’ consolidated statements of income due to adjustments in yield and/or amortization of the adjusted assets or liabilities. Any changes to FNCB shareholders’ equity, including results of operations from March 31, 2024, through the closing date will also change the purchase price allocation, which may include the recording of a lower or higher amount of goodwill. The final adjustments may be materially different from the transaction accounting adjustments presented herein. The total estimated purchase price for the purpose of this pro forma financial information is $133.7 million utilizing FNCB common shares settled on the closing date as of July 1, 2024, and Peoples’ closing common stock price of $45.54 as of June 28, 2024, for fair value of purchase price consideration which was closing price on the last trading date prior to the merger closing date on July 1, 2024.
The pro forma statements of income and per share data information do not include anticipated cost savings or revenue enhancements, nor does it include one-time merger-related expenses which will be expensed against income. FNCB and Peoples are currently in the process of assessing the two companies’ personnel, benefits plans, premises, equipment, computer systems and service contracts to determine where the companies may take advantage of redundancies or where it will be beneficial or necessary to convert to one system. Certain decisions arising from these assessments may involve canceling contracts between either FNCB or Peoples and certain service providers. There is no assurance that the anticipated cost savings will be realized on the anticipated time schedule or at all.
The pro forma combined basic and diluted earnings per share of Peoples common stock is based on the pro forma combined net income per common share for FNCB and Peoples divided by the pro forma basic or diluted common shares of the combined entities for the periods presented on such statements of income. The pro forma information includes adjustments related to the fair value of assets and liabilities of FNCB and is subject to adjustment as additional information becomes available and as final merger date analyses are performed. The pro forma combined balance sheet and book value per share data includes the impact of merger related expenses on the balance sheet with FNCB’s after-tax charges currently estimated at $1.9 million, illustrated as an adjustment to accrued other liabilities, and Peoples’ after-tax estimated charges of $10.7 million, illustrated as an adjustment to retained earnings and to accrued other liabilities. The pro forma combined book value per share of Peoples common stock is based on the pro forma combined common stockholders’ equity of FNCB and Peoples divided by total pro forma common shares of the combined entities.
The unaudited pro forma data are qualified by the statements set forth under this caption and should not be considered indicative of the market value of Peoples common stock or the actual or future results of operations of Peoples for any period. Actual results may be materially different than the pro forma information presented.
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Unaudited Combined Pro Forma Balance Sheets as of March 31, 2024
($ in Thousands, Except Per Share Data)
| Peoples | FNCB | Transaction Accounting Adjustments |
Peoples
Pro Forma Combined before Management Adjustments | Management Adjustments |
Peoples
Pro Forma Combined after Management Adjustments | |||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Cash and cash equivalents | ||||||||||||||||||||||||||
| Cash and due from banks | $ | 32,009 | $ | 18,323 | $ | (32 | )(1) | $ | 50,300 | $ | - | $ | 50,300 | |||||||||||||
| Interest-bearing deposits in other banks | 8,259 | 52,266 | - | 60,525 | - | 60,525 | ||||||||||||||||||||
| Federal funds sold | 69,700 | - | - | 69,700 | 21,942 | (14) | 91,642 | |||||||||||||||||||
| Total cash and cash equivalents | 109,968 | 70,589 | (32 | ) | 180,525 | 21,942 | 202,467 | |||||||||||||||||||
| Investment securities: | ||||||||||||||||||||||||||
| Available-for-sale | 394,413 | 442,120 | (4,367 | )(3) | 832,166 | (241,488 | )(14) | 590,678 | ||||||||||||||||||
| Equity investments carried at fair value | 91 | 4,373 | - | 4,464 | - | 4,464 | ||||||||||||||||||||
| Held-to-maturity | 83,306 | - | - | 83,306 | - | 83,306 | ||||||||||||||||||||
| Total investment securities | 477,810 | 446,493 | (4,367 | ) | 919,936 | (241,488 | ) | 678,448 | ||||||||||||||||||
| Loans | 2,858,712 | 1,250,225 | (70,036 | )(4) | 4,038,901 | - | 4,038,901 | |||||||||||||||||||
| Less: allowance for credit losses | 22,597 | 12,455 | 3,312 | (5) | 38,364 | - | 38,364 | |||||||||||||||||||
| Net loans | 2,836,115 | 1,237,770 | (73,348 | ) | 4,000,537 | - | 4,000,537 | |||||||||||||||||||
| Goodwill | 63,370 | - | 15,100 | (1) | 78,470 | - | 78,470 | |||||||||||||||||||
| Premises and equipment, net | 59,097 | 14,256 | 593 | (6) | 73,946 | - | 73,946 | |||||||||||||||||||
| Bank owned life insurance | 49,673 | 36,667 | - | 86,340 | - | 86,340 | ||||||||||||||||||||
| Deferred tax assets | 14,241 | 14,250 | 10,465 | (7) | 38,956 | - | 38,956 | |||||||||||||||||||
| Accrued interest receivable | 13,565 | 7,590 | - | 21,155 | - | 21,155 | ||||||||||||||||||||
| Intangible assets, net | - | - | 37,617 | (8) | 37,617 | 37,617 | ||||||||||||||||||||
| Other assets | 45,299 | 38,367 | (1,599 | )(9) | 82,067 | - | 82,067 | |||||||||||||||||||
| Total assets | $ | 3,669,138 | $ | 1,865,982 | $ | (15,571 | ) | $ | 5,519,549 | $ | (219,546 | ) | $ | 5,300,003 | ||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Deposits: | ||||||||||||||||||||||||||
| Noninterest-bearing | $ | 623,408 | $ | 286,286 | $ | - | $ | 909,694 | $ | - | $ | 909,694 | ||||||||||||||
| Interest-bearing | 2,580,530 | 1,195,008 | (2,405 | )(10) | 3,773,133 | - | 3,773,133 | |||||||||||||||||||
| Total deposits | 3,203,938 | 1,481,294 | (2,405 | ) | 4,682,827 | - | 4,682,827 | |||||||||||||||||||
| Borrowings | 45,260 | 219,546 | (851 | )(11) | 263,955 | (219,546 | )(14) | 44,409 | ||||||||||||||||||
| Trust preferred | - | 10,310 | (2,318 | )(12) | 7,992 | - | 7,992 | |||||||||||||||||||
| Subordinated debt | 33,000 | - | - | 33,000 | - | 33,000 | ||||||||||||||||||||
| Accrued interest payable | 5,327 | 1,284 | - | 6,611 | - | 6,611 | ||||||||||||||||||||
| Other liabilities | 41,621 | 15,803 | 15,802 | (13) | 73,226 | - | 73,226 | |||||||||||||||||||
| Total liabilities | 3,329,146 | 1,728,237 | 10,228 | 5,067,611 | (219,546 | ) | 4,848,065 | |||||||||||||||||||
| Stockholders’ equity: | ||||||||||||||||||||||||||
| Common stock | 14,122 | 24,743 | (18,872 | )(1)(2) | 19,993 | - | 19,993 | |||||||||||||||||||
| Capital surplus | 122,162 | 78,412 | 49,398 | (1)(2) | 249,972 | - | 249,972 | |||||||||||||||||||
| Retained earnings | 249,123 | 73,522 | (95,257 | )(2)(5)(13) | 227,388 | - | 227,388 | |||||||||||||||||||
| Accumulated other comprehensive loss | (45,415 | ) | (38,932 | ) | 38,932 | (2) | (45,415 | ) | - | (45,415 | ) | |||||||||||||||
| Total stockholders’ equity | 339,992 | 137,745 | (25,799 | ) | 451,938 | - | 451,938 | |||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 3,669,138 | $ | 1,865,982 | $ | (15,571 | ) | $ | 5,519,549 | $ | (219,546 | ) | $ | 5,300,003 | ||||||||||||
| Per share data | ||||||||||||||||||||||||||
| Shares Outstanding | 7,057,258 | 19,795,151 | (16,859,695 | )(1) | 9,992,714 | - | 9,992,714 | |||||||||||||||||||
| Book Value Per Share | $ | 48.18 | $ | 6.96 | $ | 45.23 | $ | 45.23 | ||||||||||||||||||
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Unaudited Pro Forma Combined Statements of Income for three months ended March 31, 2024
($ in Thousands, Except Per Share Data)
| Peoples | FNCB | Transaction Accounting Adjustments | Peoples
Pro Forma Combined before Management Adjustments | Management Adjustments | Peoples
Pro Forma Combined After Management Adjustments | |||||||||||||||||||
| Interest income: | ||||||||||||||||||||||||
| Interest and fees on loans: | $ | 35,459 | $ | 18,320 | $ | 4,603 | (4) | $ | 58,382 | $ | - | $ | 58,382 | |||||||||||
| Interest and dividends on investment securities: | 2,291 | 4,387 | 2,851 | (3) | 9,529 | (3,027 | )(14) | 6,502 | ||||||||||||||||
| Interest on interest-bearing deposits in other banks | 120 | 178 | - | 298 | - | 298 | ||||||||||||||||||
| Interest on federal funds sold | 1,127 | - | - | 1,127 | 1,818 | (14) | 2,945 | |||||||||||||||||
| Total interest income | 38,997 | 22,885 | 7,454 | 69,336 | (1,209 | ) | 68,127 | |||||||||||||||||
| Interest expense: | ||||||||||||||||||||||||
| Interest on deposits | 18,704 | 7,543 | 834 | (10) | 27,081 | - | 27,081 | |||||||||||||||||
| Interest on borrowings | 532 | 1,923 | 109 | (11) | 2,564 | (1,515 | )(14) | 1,049 | ||||||||||||||||
| Interest on subordinated debt | 443 | 190 | 23 | (12) | 656 | - | 656 | |||||||||||||||||
| Total interest expense | 19,679 | 9,656 | 966 | 30,301 | (1,515 | ) | 28,786 | |||||||||||||||||
| Net interest income | 19,318 | 13,229 | 6,488 | 39,035 | 306 | 39,341 | ||||||||||||||||||
| Provision for credit losses | 708 | 1,486 | - | 2,194 | - | 2,194 | ||||||||||||||||||
| Net interest income after provision for credit losses | 18,610 | 11,743 | 6,488 | 36,841 | 306 | 37,147 | ||||||||||||||||||
| Noninterest income: | ||||||||||||||||||||||||
| Service charges, fees, commissions and other | 2,036 | 1,070 | - | 3,106 | - | 3,106 | ||||||||||||||||||
| Merchant services income | 115 | 129 | - | 244 | - | 244 | ||||||||||||||||||
| Commission and fees on fiduciary activities | 551 | - | - | 551 | - | 551 | ||||||||||||||||||
| Wealth management income | 361 | 304 | - | 665 | - | 665 | ||||||||||||||||||
| Mortgage banking income | 92 | - | - | 92 | - | 92 | ||||||||||||||||||
| Increase in cash surrender value of life insurance | 279 | 226 | - | 505 | - | 505 | ||||||||||||||||||
| Interest rate swap (loss) gain | (24 | ) | - | - | (24 | ) | - | (24 | ) | |||||||||||||||
| Net losses on equity investment securities | (8 | ) | (413 | ) | - | (421 | ) | - | (421 | ) | ||||||||||||||
| Net gains on sale of investment securities available for sale | - | - | - | - | - | - | ||||||||||||||||||
| Other income | - | 312 | - | 312 | - | 312 | ||||||||||||||||||
| Total noninterest income | 3,402 | 1,628 | - | 4,718 | - | 5,030 | ||||||||||||||||||
| Noninterest expense: | ||||||||||||||||||||||||
| Salaries and employee benefits expense | 8,839 | 5,193 | - | 14,032 | - | 14,032 | ||||||||||||||||||
| Net occupancy and equipment expense | 4,725 | 813 | 6 | (6) | 5,544 | - | 5,544 | |||||||||||||||||
| Acquisition related expenses | 486 | 284 | (770 | )(13) | - | - | - | |||||||||||||||||
| Amortization of intangible assets | - | - | 1,710 | (8) | 1,710 | - | 1,710 | |||||||||||||||||
| Net gains on sale of other real estate owned | - | - | - | - | - | - | ||||||||||||||||||
| Professional fees and outside services | 688 | 317 | - | 1,005 | - | 1,005 | ||||||||||||||||||
| FDIC insurance and assessments | 594 | 302 | - | 896 | - | 896 | ||||||||||||||||||
| Donations | 409 | 253 | - | 662 | - | 662 | ||||||||||||||||||
| Other expenses | 2,327 | 2,025 | - | 4,352 | - | 4,352 | ||||||||||||||||||
| Total noninterest expense | 18,068 | 9,187 | 946 | 28,201 | - | 28,201 | ||||||||||||||||||
| Income before income taxes | 3,944 | 4,184 | 5,542 | 13,358 | 306 | 13,976 | ||||||||||||||||||
| Provision for income tax expense | 478 | 652 | 1,842 | (7)(13) | 2,972 | 64 | (14) | 3,036 | ||||||||||||||||
| Net income | $ | 3,466 | $ | 3,532 | $ | 3,700 | $ | 10,386 | $ | 242 | $ | 10,940 | ||||||||||||
| Per share data | ||||||||||||||||||||||||
| Basic earnings per common share | $ | 0.49 | $ | 0.18 | $ | - | $ | 1.04 | $ | - | $ | 1.10 | ||||||||||||
| Diluted earnings per common share | $ | 0.49 | $ | 0.18 | $ | - | $ | 1.03 | $ | - | $ | 1.09 | ||||||||||||
| Basic weighted average common shares outstanding | 7,052,912 | 19,793,235 | (16,857,779 | )(1) | 9,988,368 | - | 9,988,368 | |||||||||||||||||
| Diluted weighted average common shares outstanding | 7,102,112 | 19,795,213 | (16,859,757 | )(1) | 10,037,568 | - | 10,037,568 | |||||||||||||||||
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Unaudited Pro Forma Combined Statements of Income for twelve months ended December 31, 2023
($ in Thousands, Except Per Share Data)
| Peoples | FNCB | Transaction Accounting Adjustments | Peoples Pro Forma Combined before Management Adjustments | Management Adjustments | Peoples Pro Forma Combined | |||||||||||||||||||
| Interest income: | ||||||||||||||||||||||||
| Interest and fees on loans: | $ | 134,641 | $ | 65,364 | $ | 16,917 | (4) | $ | 216,922 | $ | - | $ | 216,922 | |||||||||||
| Interest and dividends on investment securities: | 9,498 | 15,649 | 11,402 | (3) | 36,549 | (12,107 | )(14) | 24,442 | ||||||||||||||||
| Interest on interest-bearing deposits in other banks | 335 | 1,011 | - | 1,346 | - | 1,346 | ||||||||||||||||||
| Interest on federal funds sold | 5,377 | - | - | 5,377 | 7,273 | (14) | 12,650 | |||||||||||||||||
| Total interest income | 149,851 | 82,024 | 28,319 | 260,194 | (4,834 | ) | 255,360 | |||||||||||||||||
| Interest expense: | ||||||||||||||||||||||||
| Interest on deposits | 58,561 | 24,461 | 1,856 | (10) | 84,878 | - | 84,878 | |||||||||||||||||
| Interest on borrowings | 2,762 | 8,942 | 409 | (11) | 12,113 | (6,060 | )(14) | 6,053 | ||||||||||||||||
| Interest on subordinated debt | 1,774 | 724 | 96 | (12) | 2,594 | - | 2,594 | |||||||||||||||||
| Total interest expense | 63,097 | 34,127 | 2,361 | 99,585 | (6,060 | ) | 93,525 | |||||||||||||||||
| Net interest income | 86,754 | 47,897 | 25,958 | 160,609 | 1,226 | 161,835 | ||||||||||||||||||
| Provision for credit losses | 566 | 1,880 | - | 2,446 | - | 2,446 | ||||||||||||||||||
| Net interest income after provision for credit losses | 86,188 | 46,017 | 25,958 | 158,163 | 1,226 | 159,389 | ||||||||||||||||||
| Noninterest income: | ||||||||||||||||||||||||
| Service charges, fees, commissions and other | 7,728 | 4,537 | - | 12,265 | - | 12,265 | ||||||||||||||||||
| Merchant services income | 693 | 592 | - | 1,285 | - | 1,285 | ||||||||||||||||||
| Commission and fees on fiduciary activities | 2,219 | - | - | 2,219 | - | 2,219 | ||||||||||||||||||
| Wealth management income | 1,576 | 944 | - | 2,520 | - | 2,520 | ||||||||||||||||||
| Mortgage banking income | 390 | 6 | - | 396 | - | 396 | ||||||||||||||||||
| Increase in cash surrender value of life insurance | 1,067 | 752 | - | 1,819 | - | 1,819 | ||||||||||||||||||
| Interest rate swap (loss) gain | 390 | 237 | - | 627 | - | 627 | ||||||||||||||||||
| Net losses on equity investment securities | (11 | ) | (1,601 | ) | - | (1,612 | ) | - | (1,612 | ) | ||||||||||||||
| Net gains on sale of investment securities available for sale | 81 | 252 | - | 333 | - | 333 | ||||||||||||||||||
| Other income | - | 926 | - | 926 | - | 926 | ||||||||||||||||||
| Total noninterest income | 14,133 | 6,645 | - | 19,852 | - | 20,778 | ||||||||||||||||||
| Noninterest expense: | ||||||||||||||||||||||||
| Salaries and employee benefits expense | 35,285 | 20,234 | - | 55,519 | - | 55,519 | ||||||||||||||||||
| Net occupancy and equipment expense | 17,146 | 3,119 | 23 | (6) | 20,288 | - | 20,288 | |||||||||||||||||
| Acquisition related expenses | 1,816 | 1,480 | (3,296 | )(13) | - | - | - | |||||||||||||||||
| Amortization of intangible assets | 105 | - | 6,839 | (8) | 6,944 | - | 6,944 | |||||||||||||||||
| Net gains on sale of other real estate owned | (18 | ) | - | - | (18 | ) | (18 | ) | ||||||||||||||||
| Professional fees and outside services | 2,810 | 1,093 | - | 3,903 | - | 3,903 | ||||||||||||||||||
| FDIC insurance and assessments | 2,131 | 1,115 | - | 3,246 | - | 3,246 | ||||||||||||||||||
| Donations | 1,619 | 575 | - | 2,194 | - | 2,194 | ||||||||||||||||||
| Other expenses | 6,926 | 9,306 | - | 16,232 | - | 16,232 | ||||||||||||||||||
| Total noninterest expense | 67,820 | 36,922 | 3,566 | 108,308 | - | 108,308 | ||||||||||||||||||
| Income before income taxes | 32,501 | 15,740 | 22,392 | 69,707 | 1,226 | 71,859 | ||||||||||||||||||
| Provision for income tax expense | 5,121 | 2,757 | 4,599 | (7)(13) | 12,477 | 257 | (14) | 12,734 | ||||||||||||||||
| Net income | $ | 27,380 | $ | 12,983 | $ | 17,793 | $ | 57,230 | $ | 969 | $ | 59,125 | ||||||||||||
| Per share data | ||||||||||||||||||||||||
| Basic earnings per common share | $ | 3.85 | $ | 0.66 | $ | - | $ | 5.70 | $ | - | $ | 5.89 | ||||||||||||
| Diluted earnings per common share | $ | 3.83 | $ | 0.66 | $ | - | $ | 5.67 | $ | - | $ | 5.86 | ||||||||||||
| Basic weighted average common shares outstanding | 7,107,908 | 19,740,493 | (16,805,037 | )(1) | 10,043,364 | - | 10,043,364 | |||||||||||||||||
| Diluted weighted average common shares outstanding | 7,151,471 | 19,742,618 | (16,807,162 | )(1) | 10,086,927 | - | 10,086,927 | |||||||||||||||||
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Unaudited Pro Forma Per Share Data
For The Three Months Ended March 31, 2024
($ in Thousands, Except Per Share Data)
| Peoples | FNCB | Pro Forma Combined | Pro Forma Equivalent FNCB Share (A) | |||||||||||||
| For The Three Months Ended March 31, 2024: | ||||||||||||||||
| Earnings per share: | ||||||||||||||||
| Net income per share (Basic) | $ | 0.49 | $ | 0.18 | $ | 1.10 | $ | 0.16 | ||||||||
| Net income per share (Diluted) | $ | 0.49 | $ | 0.18 | $ | 1.09 | $ | 0.16 | ||||||||
| Book Value per common share as of March 31, 2024 | $ | 48.18 | $ | 6.96 | $ | 45.23 | $ | 6.60 | ||||||||
Unaudited Pro Forma Per Share Data
For The Twelve Months Ended December 31, 2023
($ in Thousands, Except Per Share Data)
| Peoples | FNCB | Pro Forma Combined | Pro Forma Equivalent FNCB Share (A) | |||||||||||||
| For The Twelve Months Ended December 31, 2023: | ||||||||||||||||
| Earnings per share | ||||||||||||||||
| Net income per share (Basic) | $ | 3.85 | $ | 0.66 | $ | 5.89 | $ | 0.86 | ||||||||
| Net income per share (Diluted) | $ | 3.83 | $ | 0.66 | $ | 5.86 | $ | 0.86 | ||||||||
| Book Value per common share as of December 31, 2023 | $ | 44.06 | $ | 6.80 | $ | 42.02 | $ | 6.14 | ||||||||
| (A) | The pro forma equivalent FNCB per share amount is calculated by multiplying the pro forma combined per share amount by the exchange ratio of 0.146 in accordance with the merger agreement. |
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
TRANSACTION ACCOUNTING ADJUSTMENTS:
| (1) | On July 1, 2024, the merger closing date, each share of common stock of FNCB was converted into 0.1460 shares of Peoples common stock, subject to the payment of cash in lieu of fractional shares of Peoples common stock. The parties intend for the merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. |
The total estimated purchase price for the purpose of this pro forma financial information is $133.7 million utilizing FNCB common shares settled on the closing date as of July 1, 2024, and Peoples’ closing common stock price of $45.54 as of June 28, 2024, for fair value of purchase price consideration which was the closing price on the last trading date prior to the merger closing date of July 1, 2024. The adjustment for shares outstanding, basic and diluted weighted average common shares outstanding is an amount to adjust the shares to equal the new shares issued for the transaction
The following is a summary of the fair value of assets acquired and liabilities assumed resulting in goodwill. Goodwill is created when the purchase price consideration exceeds the fair value of the net assets acquired. For purposes of this analysis as of March 31, 2024, goodwill of $15.1 million results from the transaction; however, the final purchase accounting analysis will be performed as of the merger date and amounts therein are subject to change based on operations subsequent to March 31, 2024, as additional information becomes available and as additional analyses are performed.
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| (dollars in thousands, except per share data) | ||||
| Purchase price | ||||
| Common shares of FNCB settled as of June 30, 2024 | 20,110,771 | |||
| Exchange ratio | 0.1460 | |||
| Peoples shares to be issued | $ | 2,935,456 | ||
| Price per share of Peoples common stock (closing stock price as of June 28, 2024). | $ | 45.54 | ||
| Purchase price consideration for common stock | $ | 133,681 | ||
| Cash in lieu of fractional shares | $ | 32 | ||
| Purchase price consideration for common stock | $ | 133,713 |
| FNCB Book Value 3/31/2024 | Fair Value Adjustments | FNCB Fair Value 3/31/2024 | ||||||||||
| Total purchase price consideration | $ | 133,713 | ||||||||||
| Recognized amounts of identifiable assets acquired and liabilities assumed | ||||||||||||
| Cash and cash equivalents | $ | 70,589 | $ | - | $ | 70,589 | ||||||
| Federal funds sold | - | - | - | |||||||||
| Securities, available for sale | 442,120 | (4,367 | )(3) | 437,753 | ||||||||
| Equity securities | 4,373 | - | 4,373 | |||||||||
| Loans gross | 1,250,225 | (70,036 | )(4) | 1,180,189 | ||||||||
| Allowance credit losses | (12,455 | ) | 10,644 | (5) | (1,811 | ) | ||||||
| Loans, net of allowance | 1,237,770 | (59,392 | ) | 1,178,378 | ||||||||
| Restricted stock | - | - | - | |||||||||
| Premises and equipment | 14,256 | 593 | (6) | 14,849 | ||||||||
| Accrued interest receivable | 7,590 | - | 7,590 | |||||||||
| Other identifiable intangible assets | - | 37,617 | (8) | 37,617 | ||||||||
| Deferred tax asset | 14,250 | 4,927 | (7) | 19,177 | ||||||||
| Other assets | 75,034 | (1,599 | )(9) | 73,435 | ||||||||
| Total identifiable assets acquired | 1,865,982 | (22,221 | ) | 1,843,761 | ||||||||
| Deposits | 1,481,294 | (2,405 | )(10) | 1,478,889 | ||||||||
| Borrowings | 219,546 | (851 | )(11) | 218,695 | ||||||||
| Trust Preferred | 10,310 | (2,318 | )(12) | 7,992 | ||||||||
| Accrued interest payable | 1,284 | - | 1,284 | |||||||||
| Other liabilities | 15,803 | 2,485 | (13) | 18,288 | ||||||||
| Total liabilities assumed | 1,728,237 | (3,089 | ) | 1,725,148 | ||||||||
| Total identifiable net assets | $ | 137,745 | $ | (19,132 | ) | 118,613 | ||||||
| Goodwill | $ | 15,100 | ||||||||||
| (2) | Balance sheet adjustments reflect the reversal of FNCB’s historical equity accounts to capital surplus and to record the purchase price consideration for common stock. The following tables summarize the transaction accounting adjustments for the equity accounts. |
| Balance Sheet | ||||||||
| 3/31/2024 | ||||||||
| Transaction accounting adjustment for common stock | ||||||||
| Reversal of FNCB's common stock | $ | (24,743 | ) | |||||
| Number of Peoples shares issued | 2,935,456 | |||||||
| Par value of Peoples common stock | $ | 2.00 | ||||||
| Par value of Peoples shares issued for merger | 5,871 | |||||||
| Total transaction accounting adjustment for common stock | $ | (18,872 | ) | |||||
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| Balance Sheet | ||||||||
| 3/31/2024 | ||||||||
| Transaction accounting adjustment for capital surplus | ||||||||
| Reversal of FNCB common stock to capital surplus | $ | 24,743 | ||||||
| Reversal of FNCB retained earnings to capital surplus | 73,522 | |||||||
| Reversal of FNCB accumulated other comprehensive loss to capital surplus | (38,932 | ) | ||||||
| Reversal of FNCB treasury stock to capital surplus | - | |||||||
| Net change in noncontroling interest in consolidated subsidiaries | - | |||||||
| Shares of FNCB | 20,110,771 | |||||||
| Exchange ratio | 0.146 | |||||||
| Number of Peoples Shares issued | 2,935,456 | |||||||
| Value assigned to Peoples common shares | $ | 45.54 | ||||||
| Purchase price consideration for common stock | 133,681 | |||||||
| Less: par value of Peoples common stock | 5,871 | |||||||
| capital surplus adjustment for Peoples shares issued | 127,810 | |||||||
| Less: FNCB Equity | (137,745 | ) | ||||||
| Net adjustment to capital surplus for stock consideration | (9,935 | ) | ||||||
| Total transaction accounting adjustment for capital surplus | $ | 49,398 | ||||||
| Balance Sheet | ||||
| 3/31/2024 | ||||
| Transaction accounting adjustment for retained earnings | ||||
| Reversal of FNCB retained earnings | $ | (73,522 | ) | |
| Peoples merger costs | (10,710 | ) | ||
| Provision for loan losses for Non-PCD loans | (11,025 | ) | ||
| Total transaction accounting adjustment for retained earnings | $ | (95,257 | ) | |
| Balance Sheet | ||||
| 3/31/2024 | ||||
| Transaction accounting adjustment for accumulated other comprehensive loss | ||||
| Reversal of FNCB accumulated other comprehensive loss | $ | 38,932 | ||
| Total transaction accounting adjustment for accumulated other comprehensive loss | $ | 38,932 | ||
| (3) | Balance sheet and income statement adjustment to reflect the negative fair value adjustment for securities available for sale of $4.4 million. Adjustment to statements of income includes prospective reclassification of existing available-for-sale securities fair value adjustment of $53.5 million to an amortizing discount which will be amortized into income based on the expected life of securities. |
| Balance Sheet | Statements of Income | |||||||||||
| 3/31/2024 | Three Months Ended 3/31/2024 | Twelve Months Ended 12/31/2023 | ||||||||||
| Securities available for sale | $ | (4,367 | ) | $ | 2,851 | $ | 11,402 | |||||
| Total investment securities | $ | (4,367 | ) | $ | 2,851 | $ | 11,402 | |||||
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| (4) | Balance sheet adjustment to reflect the fair value discount for acquired purchased credit deteriorated (“PCD”) loans and non-PCD loans of $70.0 million of which $70.7 million is assigned to loans and $1.8 million is assigned to the allowance for credit losses (recorded to allowance for credit losses in footnote 5). The accruing loan fair value adjustments will be substantially recognized over the expected life of the loans. Additional balance sheet adjustment reverses existing deferred fees, loan discounts and premiums of $1.2 million and the reversal of mortgage loan hedge fair value adjustment of $52 thousand. |
| Balance Sheet | Statements of Income | |||||||||||
| 3/31/2024 | Three Months Ended 3/31/2024 | Twelve Months Ended 12/31/2023 | ||||||||||
| Fair value adjustments on loans acquired | ||||||||||||
| Non-PCD loans interest rate fair value | $ | (47,659 | ) | $ | 2,969 | $ | 11,043 | |||||
| Non-PCD loans general credit fair value | (16,715 | ) | 1,541 | 5,546 | ||||||||
| Fair value adjustment assigned to Non-PCD loans | (64,374 | ) | 4,511 | 16,590 | ||||||||
| PCD Accruing loans fair value | (3,626 | ) | 92 | 327 | ||||||||
| PCD Non-accruing loans fair value | (2,712 | ) | - | - | ||||||||
| Fair value adjustment assigned to PCD loans | (6,338 | ) | 92 | 327 | ||||||||
| Total fair value adjustments for loans | (70,712 | ) | 4,603 | 16,917 | ||||||||
| PCD Accruing loan ACL | 1,811 | - | - | |||||||||
| Fair value of PCD loans assigned to allowance for credit losses | 1,811 | - | - | |||||||||
| Reversal of existing deferred fees and costs | (1,187 | ) | - | - | ||||||||
| Reversal of existing mortgage loan hedge fair value | 52 | - | - | |||||||||
| Total loan adjustments | $ | (70,036 | ) | $ | 4,603 | $ | 16,917 | |||||
| (5) | Balance sheet adjustment for the reversal of FNCB’s existing allowance for credit losses of $12.5 million. Balance sheet adjustment of $1.8 million of PCD loan fair value assigned to the allowance for credit losses. Balance sheet and equity adjustment for the current expected credit loss allowance for credit losses of $14.0 million for acquired non-PCD loans. The pro forma statements of income does not include a one-time provision expense of $14.0 million related to allowance for credit losses for non-PCD loans as it is shown as a direct equity adjustment to retained earnings. It is noted that the one-time provision expense of $14.0 million to allowance for credit losses for non-PCD loans will be recorded as a provision expense in the income statement of the quarter ended September 30, 2024. |
| Balance Sheet | Statements of Income | |||||||||||
| 3/31/2024 | Three Months Ended 3/31/2024 | Twelve Months Ended 12/31/2023 | ||||||||||
| Allowance for credit losses | ||||||||||||
| Reversal of existing allowance for credit losses | $ | 12,455 | $ | - | $ | - | ||||||
| ACL for PCD Accruing loans | (1,811 | ) | - | - | ||||||||
| Total adjustments to allowance for credit losses excluding ACL for Non-PCD Loans | 10,644 | - | - | |||||||||
| ACL for Non-PCD loans | (13,956 | ) | - | - | ||||||||
| Total adjustments to allowance for credit losses including ACL for Non-PCD Loans | $ | (3,312 | ) | $ | - | $ | - | |||||
| (6) | Balance sheet and statements of income adjustment to reflect the fair value of buildings and land for $893 thousand and the related amortization adjustment based on an expected life of 40 years. Balance sheet adjustment to reflect the write off of obsolete fixed assets of $300 thousand. |
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| Balance Sheet | Statements of Income | |||||||||||
| 3/31/2024 | Three Months Ended 3/31/2024 | Twelve Months Ended 12/31/2023 | ||||||||||
| Premises and equipment | ||||||||||||
| Owned premised fair value | $ | 893 | $ | 6 | $ | 23 | ||||||
| Write off of obsolete fixed assets | (300 | ) | ||||||||||
| Total adjustments to premises | $ | 593 | $ | 6 | $ | 23 | ||||||
| (7) | Balance sheet adjustment to reflect the net deferred tax asset, at a rate of 21.0%, related to fair value adjustments and tax benefits related to one-time merger charges and related statements of income adjustments to pro forma adjustments using an effective tax rate of 21.0% for book income tax expense. |
| Balance Sheet | Statements of Income | |||||||||||
| 3/31/2024 | Three Months Ended 3/31/2024 | Twelve Months Ended 12/31/2023 | ||||||||||
| Tax impact | ||||||||||||
| Fair value adjustments | $ | 4,927 | $ | 1,723 | $ | 4,010 | ||||||
| Peoples Financial Services, Inc. merger costs | 2,607 | - | - | |||||||||
| ACL for Non-PCD loans | 2,931 | - | - | |||||||||
| Reversal of merger related expenses | - | 119 | 589 | |||||||||
| Total tax impact | $ | 10,465 | $ | 1,842 | $ | 4,599 | ||||||
| (8) | Balance sheet adjustment to intangible assets to reflect the fair value of $36.6 million for acquired core deposit intangible assets and the fair value of wealth management customer list intangible of $988 thousand and the related statements of income amortization adjustments based upon an expected life of 10 years using sum of the years digits method. |
| Balance Sheet | Statements of Income | |||||||||||
| 3/31/2024 | Three Months Ended 3/31/2024 | Twelve Months Ended 12/31/2023 | ||||||||||
| Intangible assets | ||||||||||||
| Core deposit intangible asset | $ | 36,629 | $ | 1,665 | $ | 6,660 | ||||||
| Wealth Management customer list intangible | 988 | 45 | 179 | |||||||||
| Total core deposit intangible asset | $ | 37,617 | $ | 1,710 | $ | 6,839 | ||||||
| (9) | Balance sheet and income statement adjustment to reflect the write off of prepaid expenses. |
| Balance Sheet | Statements of Income | |||||||||||
| 3/31/2024 | Three Months Ended 3/31/2024 | Twelve Months Ended 12/31/2023 | ||||||||||
| Other assets | ||||||||||||
| Write off of miscellaneous assets (primarily prepaid expenses and fair value adjustments for other miscellaneous assets) | $ | (1,599 | ) | $ | - | $ | - | |||||
| Total adjustments to other assets | $ | (1,599 | ) | $ | - | $ | - | |||||
| (10) | Balance sheet and statements of income adjustment related to the fair value of interest-bearing time deposits and corresponding statements of income adjustments related to the amortization of discount on interest-bearing time deposits based on the maturities of the interest-bearing time deposits. |
10 | Page
| Balance Sheet | Statements of Income | |||||||||||
| 3/31/2024 | Three Months Ended 3/31/2024 | Twelve Months Ended 12/31/2023 | ||||||||||
| Certificates of deposit | ||||||||||||
| Certificates of deposit | $ | (2,405 | ) | $ | 834 | $ | 1,856 | |||||
| Total certificates of deposits | $ | (2,405 | ) | $ | 834 | $ | 1,856 | |||||
| (11) | Balance sheet and statements of income adjustment related to the fair value of borrowings and corresponding statements of income adjustments related to the amortization of discount on borrowings based on the maturities of the borrowings. |
| Balance Sheet | Statements of Income | |||||||||||
| 3/31/2024 | Three Months Ended 3/31/2024 | Twelve Months Ended 12/31/2023 | ||||||||||
| Borrowings | ||||||||||||
| Borrowings fair value | $ | (851 | ) | $ | 109 | $ | 409 | |||||
| Total borrowings | $ | (851 | ) | $ | 109 | $ | 409 | |||||
| (12) | Balance sheet and statements of income adjustment related to the fair value of trust preferred debt and corresponding statements of income adjustments related to the amortization of discount on trust preferred debt based on the maturities of the subordinated debt. |
| Balance Sheet | Statements of Income | |||||||||||
| 3/31/2024 | Three Months Ended 3/31/2024 | Twelve Months Ended 12/31/2023 | ||||||||||
| Trust preferred | ||||||||||||
| Trust preferred fair value | $ | (2,318 | ) | $ | 23 | $ | 96 | |||||
| Total trust preferred | $ | (2,318 | ) | $ | 23 | $ | 96 | |||||
| (13) | Balance sheet adjustment to reflect the accrual of one-time merger-related charges for Peoples and FNCB: (a) FNCB pre-tax charges are estimated at $2.2 million ($1.9 million after-tax) and are included as a pro forma fair value liability accrual, and (b) Peoples pre-tax charges are estimated at $13.3 million ($10.7 million after-tax) and are included as a pro forma liability accrual with the after-tax cost as reduction to retained earnings. It is noted that a tax benefit was not taken for certain merger obligations and costs that were not considered to be tax deductible. The pro forma statements of income do not include merger-related expenses related to this transaction which will be expensed against income when incurred. It is noted that the Peoples one-time merger expense will be recorded as a provision expense in the income statement of the quarter ended September 30, 2024. Additionally note that an adjustment to the statements of income was made to exclude a one-time merger and system related expenses that were incurred in March 31, 2024, and December 31, 2023 for both Peoples and FNCB. For the three months ended March 31, 2024, Peoples expenses were $486 thousand pre-tax or $427 thousand after tax and FNCB were $284 thousand pre-tax and $224 thousand after tax. For the twelve months ended December 31, 2023, Peoples expenses were $1.8 million pre-tax or $1.5 million after tax and FNCB were $1.5 million pre-tax and $1.2 million after tax. |
| An additional fair value adjustment was made to increase the allowance for unfunded commitments. |
11 | Page
| Balance Sheet | Statements of Income | |||||||||||
| 3/31/2024 | Three Months Ended 3/31/2024 | Twelve Months Ended 12/31/2023 | ||||||||||
| Other Liabilities | ||||||||||||
| Peoples accrual for one-time merger related charges | $ | 13,317 | $ | - | $ | - | ||||||
| FNCB accrual for one-time merger related charges | 2,184 | - | - | |||||||||
| Adjustment for reserve for unfunded commitments | 301 | |||||||||||
| Total other liabilities adjustments | $ | 15,802 | $ | - | $ | - | ||||||
MANAGEMENT ADJUSTMENTS:
| (14) | Balance sheet and income statement adjustment to reflect the post-closing balance sheet restructuring of selling $241.5 million of investment securities available for sale with a yield of 5.01% and pay down $106.8 million of FHLB short term borrowings with a cost of 5.67%, with the remaining cash balance being invested in federal funds sold with a yield of 5.40%. The adjustment also includes a book income tax expense assuming a 21% tax rate. |
| Balance Sheet | Statements of Income | |||||||||||
| 3/31/2024 | Three Months Ended 3/31/2024 | Twelve Months Ended 12/31/2023 | ||||||||||
| Management Adjustments | ||||||||||||
| Federal funds sold | $ | 134,688 | $ | 1,818 | $ | 7,273 | ||||||
| Sale of investment securities | $ | (241,488 | ) | $ | (3,027 | ) | $ | (12,107 | ) | |||
| Borrowings | $ | (106,800 | ) | $ | (1,515 | ) | $ | (6,060 | ) | |||
| Income tax expense | $ | - | $ | 64 | $ | 257 | ||||||
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