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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

 

For the quarterly period ended March 31, 2023 or

 

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

 

For the transition period from ______ to ______

 

 

Commission File Number: 0-26128

 

Finward Bancorp

(Exact name of registrant as specified in its charter)

 

Indiana35-1927981
(State or other jurisdiction of incorporation(I.R.S. Employer Identification Number)
or organization) 
  
9204 Columbia Avenue 
Munster, Indiana46321
(Address of principal executive offices)(ZIP code)

 

Registrant's telephone number, including area code: (219) 8364400

 

N/A


(Former name, former address and former fiscal year, if changed since last report)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading

Symbol(s)

Name of each exchange on which

registered

Common stock, no par value

FNWD

The NASDAQ Stock Market, LLC

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ☐      Accelerated filer ☐      Non-accelerated filer ☒

Smaller Reporting Company       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. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No ☒

 

There were 4,304,026 shares of the registrant’s Common Stock, without par value, outstanding at May 15, 2023.

 

 

 

 

Finward Bancorp

Index

                                                                                                                                                                                                                                                                                  

 

Page

Number

PART I. Financial Information

 
   

Item 1.Unaudited Financial Statements and Notes

1

   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

43

   

Item 4. Controls and Procedures

43

   

PART II. Other Information

44

   

SIGNATURES

45

   

EXHIBITS

 

31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

 

31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

 

32.1 Section 1350 Certifications

 

101 XBRL Interactive Data File

 

 

 

 

 

Finward Bancorp

Consolidated Balance Sheet

 

  

(unaudited)

     
  

March 31,

  

December 31,

 

(Dollars in thousands)

 

2023

  

2022

 
         

ASSETS

        
         

Cash and non-interest bearing deposits in other financial institutions

 $33,785  $19,965 

Interest bearing deposits in other financial institutions

  20,342   11,210 

Federal funds sold

  654   107 
         

Total cash and cash equivalents

  54,781   31,282 
         

Certificates of deposit in other financial institutions

  2,452   2,456 
         

Securities available-for-sale

  377,901   370,896 

Loans held-for-sale

  1,672   1,543 

Loans receivable, net of deferred fees and costs

  1,521,089   1,513,631 

Less: allowance for credit losses (1)

  (19,568)  (12,897)

Net loans receivable

  1,501,521   1,500,734 

Federal Home Loan Bank stock

  6,547   6,547 

Accrued interest receivable

  7,717   7,421 

Premises and equipment

  39,732   40,212 

Cash value of bank owned life insurance

  32,115   31,936 

Goodwill

  22,395   22,395 

Other intangible assets

  4,402   4,794 

Other assets

  47,357   50,123 
         

Total assets

 $2,098,592  $2,070,339 
         

LIABILITIES AND STOCKHOLDERS' EQUITY

        
         

Deposits:

        

Non-interest bearing

 $330,057  $359,092 

Interest bearing

  1,476,053   1,415,925 

Total

  1,806,110   1,775,017 

Repurchase agreements

  28,423   15,503 

Borrowed funds

  100,000   120,000 

Accrued expenses and other liabilities

  24,323   23,426 
         

Total liabilities

  1,958,856   1,933,946 
         

Commitments and contingencies

          
         

Stockholders' Equity:

        

Preferred stock, no par or stated value; 10,000,000 shares authorized, none outstanding

  -   - 

Common stock, no par or stated value; 10,000,000 shares authorized; shares issued and outstanding: March 31, 2023 - 4,304,026 December 31, 2022 - 4,298,401

  -   - 

Additional paid-in capital

  69,182   69,032 

Accumulated other comprehensive loss

  (55,895)  (64,300)

Retained earnings

  126,449   131,661 
         

Total stockholders' equity

  139,736   136,393 
         

Total liabilities and stockholders' equity

 $2,098,592  $2,070,339 

 

See accompanying notes to consolidated financial statements.

(1) See note 3 regarding adoption of ASC 326

 

 

1

 

 

Finward Bancorp

Consolidated Statements of Income

(unaudited)

 

(Dollars in thousands, except per share data)

 

Three Months Ended March 31,

 

(Unaudited)

 

2023

   

2022

 

Interest income:

               

Loans receivable

  $ 17,626     $ 13,286  

Securities

    2,303       2,597  

Other interest earning assets

    207       11  
                 

Total interest income

    20,136       15,894  
                 

Interest expense:

               

Deposits

    4,087       337  

Repurchase agreements

    121       16  

Borrowed funds

    1,260       6  
                 

Total interest expense

    5,468       359  
                 

Net interest income

    14,668       15,535  

Provision for credit losses (1)

    488       -  
                 

Net interest income after provision for credit losses

    14,180       15,535  
                 

Noninterest income:

               

Fees and service charges

    1,311       1,304  

Wealth management operations

    614       607  

Gain on sale of loans held-for-sale, net

    263       595  

Increase in cash value of bank owned life insurance

    179       252  

Gain on sale of securities, net

    -       381  

Other

    241       5  
                 

Total noninterest income

    2,608       3,144  
                 

Noninterest expense:

               

Compensation and benefits

    7,538       7,367  

Occupancy and equipment

    1,690       1,500  

Data processing

    973       3,054  

Federal deposit insurance premiums

    465       219  

Marketing

    255       651  

Other

    3,306       3,478  
                 

Total noninterest expense

    14,227       16,269  
                 

Income before income tax expenses

    2,561       2,410  

Income tax expenses

    321       275  
                 

Net income

  $ 2,240     $ 2,135  
                 

Earnings per common share:

               

Basic

  $ 0.52     $ 0.53  

Diluted

  $ 0.51     $ 0.53  
                 

Dividends declared per common share

  $ 0.31     $ 0.31  

 

See accompanying notes to consolidated financial statements.

(1) See note 3 regarding adoption of ASC 326

 

2

 

 

Finward Bancorp

Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

 

(Dollars in thousands)

 

Three Months Ended March 31,

 
   

2023

   

2022

 
                 

Net income

  $ 2,240     $ 2,135  
                 

Net change in net unrealized gains and losses on securities available-for-sale:

               

Unrealized gain (loss) arising during the period

    11,057       (47,389 )

Less: reclassification adjustment for gains included in net income

    -       (381 )

Net securities gain (loss) during the period

    11,057       (47,770 )

Tax effect

    (2,652 )     10,032  

Other comprehensive income (loss), net of tax

    8,405       (37,738 )

Comprehensive income (loss), net of tax

    10,645       (35,603 )

 

See accompanying notes to consolidated financial statements.

 

 

 

Finward Bancorp

Consolidated Statements of Changes in Stockholder's Equity

(unaudited)

 

          

Accumulated

         
      

Additional

  

Other

         
  

Common

  

Paid-in

  

Comprehensive

  

Retained

  

Total

 

(Dollars in thousands, except per share data)

 

Stock

  

Capital

  

(Loss)/Income

  

Earnings

  

Equity

 
                     

Balance at January 1, 2022

 $-  $30,430  $4,276  $121,909  $156,615 
                     

Net income

  -   -   -   2,135   2,135 

Other comprehensive loss, net of tax

  -   -   (37,738)  -   (37,738)

Net surrender value of 2,336 restricted stock awards

  -   (115)  -   -   (115)

Stock-based compensation expense

  -   169   -   -   169 

Issuance of 795,423 shares at $47.75 per share, for acquisition of Royal Financial, Inc.

  -   37,902   -   -   37,902 

Cash dividends, $0.31 per share

  -   -   -   (1,331)  (1,331)
                     

Balance at March 31, 2022

 $-  $68,386  $(33,462) $122,713  $157,637 
                     

Balance at January 1, 2023

 $-  $69,032  $(64,300) $131,661  $136,393 
                     

Impact of adoption of ASU No. 2016-13

  -   -   -   (6,118)  (6,118)

Net income

  -   -   -   2,240   2,240 

Other comprehensive income, net of tax

  -   -   8,405   -   8,405 

Net surrender value of 4,188 restricted stock awards

  -   (157)  -   -   (157)

Stock-based compensation expense

  -   307   -   -   307 

Cash dividends, $0.31 per share

  -   -   -   (1,334)  (1,334)
                     

Balance at March 31, 2023

 $-  $69,182  $(55,895) $126,449  $139,736 

 

See accompanying notes to consolidated financial statements.

 

3

 

 

Finward Bancorp

Consolidated Statements of Cash Flows

(unaudited)

 

(Dollars in thousands)

 

Three months ended March 31,

 
   

2023

   

2022

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net income

  $ 2,240     $ 2,135  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Origination of loans for sale

    (8,873 )     (15,664 )

Sale of loans originated for sale

    8,949       19,760  

Depreciation and amortization, net of accretion

    1,078       1,191  

Stock based compensation expense

    307       169  

Gain on sale of securities, net

    -       (381 )

Gain on sale of loans held-for-sale, net

    (206 )     (582 )

Gain on cash value of bank owned life insurance

    (179 )     (252 )

Gain on derivatives

    (57 )     (25 )

Provision for credit losses

    488       -  

Net change in:

               

Interest receivable

    (296 )     (1,983 )

Other assets

    2,712       1,504  

Accrued expenses and other liabilities

    (2,212 )     (5,150 )

Net cash provided by operating activities

    3,951       722  
                 

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Proceeds from maturities of certificates of deposit in other financial institutions

    -       223  

Proceeds from maturities and pay downs of securities available-for-sale

    3,675       9,225  

Proceeds from sales of securities available-for-sale

    -       16,236  

Purchase of securities available-for-sale

    -       (10,724 )

Proceeds from bank owned life insurance

    -       314  

Net change in loans receivable

    (6,433 )     (20,094 )

Proceeds of Federal Home Loan Bank Stock

    -       1,512  

Purchase of loans receivable

    -       (2,113 )

Purchase of premises and equipment, net

    (217 )     (1,219 )

Cash and cash equivalents from acquisition activity, net

    -       33,799  

Net cash provided by (used in) investing activities

    (2,975 )     27,159  
                 

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Change in deposits

    31,093       (14,025 )

Proceeds from other borrowings

    100,000       -  

Repayment of other borrowings

    (120,000 )     -  

Net surrender value of restricted stock awards

    (157 )     (115 )

Change in repurchase agreements

    12,920       8,663  

Dividends paid

    (1,333 )     (1,079 )

Net cash (used in) provided by financing activities

    22,523       (6,556 )

Net change in cash and cash equivalents

    23,499       21,325  

Cash and cash equivalents at beginning of period

    31,282       33,176  

Cash and cash equivalents at end of period

  $ 54,781     $ 54,501  
                 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

               

Cash paid during the period for:

               

Interest

  $ 5,405     $ 339  

Acquisition activity:

               

Fair value of assets acquired, including cash and cash equivalents

  $ -     $ 528,083  

Value of goodwill and other intangible assets

    -       14,884  

Fair value of liabilities assumed

    -       486,340  

Cash paid for acquisition

    -       18,725  

Issuance of common stock for acquisition

    -       37,902  

Noncash activities:

               

Dividends declared not paid

    1,334       1,331  

 

See accompanying notes to consolidated financial statements.

 

4

 

Finward Bancorp

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

 

Note 1 - Basis of Presentation

 

Organization and Description of Business

 

The consolidated financial statements include the accounts of Finward Bancorp (the “Bancorp” or “FNWD”), its wholly-owned subsidiaries NWIN Risk Management, Inc. (a captive insurance subsidiary) and Peoples Bank (the “Bank”), and the Bank’s wholly-owned subsidiaries, Peoples Service Corporation, NWIN, LLC; NWIN Funding, Incorporated, and Columbia Development Company, LLC. The Bancorp’s business activities include being a holding company for the Bank as well as a holding company for NWIN Risk Management, Inc. The Bancorp’s earnings are primarily dependent upon the earnings of the Bank. The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures required by U.S. generally accepted accounting principles for complete presentation of consolidated financial statements. In the opinion of management, the consolidated financial statements contain all adjustments necessary to present fairly the consolidated balance sheets of the Bancorp as of March 31, 2023, and December 31, 2022, and the consolidated statements of income, comprehensive income (loss), and changes in stockholders’ equity for the three months ended March 31, 2023, and 2022, and consolidated statements of cash flows for the three months ended March 31, 2023, and 2022. The income reported for the three month period ended March 31, 2023, is not necessarily indicative of the results to be expected for the full year.

 

The Notes to the Consolidated Financial Statements appearing in Finward Bancorp’s Annual Report on Form 10-K (2022 Annual Report), which include descriptions of significant accounting policies, should be read in conjunction with these interim financial statements. The Consolidated Balance Sheet at December 31, 2022, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. Certain amounts in the prior period consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on net income.

 

 

Note 2 - Use of Estimates

Preparing financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period, as well as the disclosures provided. Actual results could differ from those estimates. Estimates associated with the allowance for loan losses, fair values of foreclosed real estate, loan servicing rights, investment securities, deferred tax assets, goodwill, and the status of contingencies are particularly susceptible to material change in the near term.

 

 

Note 3 Change in Accounting Principles

In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (“CECL”. The ASU includes increased disclosures and various changes to the accounting and measurement of financial assets including the Bancorp’s loans and available-for-sale debt securities. Each financial asset presented on the balance sheet would have a unique allowance for credit losses (“ACL”) valuation account that is deducted from the amortized cost basis to present the net carrying value at the amount expected to be collected on the financial asset. The amendments in this ASU also eliminate the probable initial recognition threshold in current GAAP and instead, reflect an entity’s current estimate of all expected credit losses using reasonable and supportable forecasts. In October 2019, the FASB voted and approved proposed changes to the effective date of this ASU for smaller reporting companies, such as the Bancorp, and other non-SEC reporting entities. The approval changed the effective date of the ASU to fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. The new credit loss guidance became effective for the Bancorp as of January 1, 2023. Upon adoption, the ASU will be applied using a modified retrospective transition method to the beginning of the first reporting period in which the guidance is effective. A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. On January 1, 2023, the Bancorp adopted ASU No. 2016-13 resulting in an implementation entry of $8.3 million, increasing the ACL by $5.2 million and unfunded commitment liability of $3.1 million, retained earnings decreased $6.1 million and a deferred tax asset of $2.2 million was generated. The majority of the implementation entry is related to including acquired loan portfolios in the model and the addition of using economic forecasts in estimating future losses. In addition, $1.0 million of non-accretable credit loan discounts on purchase credit impaired loans now classified as purchase credit deteriorated were reallocated to the ACL.

 

5

 

Upon adopting ASU 2016-13, the Bancorp did not record an allowance as of January 1, 2023, with respect to its available-for-sale debt securities as the majority of these securities were backed by federal governmental agencies with zero-expected losses or highly rated for which the risk of loss is minimal.

 

The main drivers of the day one adjustment related to implementation is summarized in the following table:

 

          

As Reported Under

 

(Dollars in thousands)

 

Pre-ASC 326 Adoption

  

Impact of ASC 326

  

ASC 326

 

Allowance for credit losses

 

December 31, 2022

  

Adoption

  

January 1, 2023

 

Residential real estate

 $3,021  $1,719  $4,740 

Home equity

  410   632   1,042 

Commercial real estate

  5,784   1,446   7,230 

Construction and land development

  1,253   1,735   2,988 

Multifamily

  1,007   141   1,148 

Commercial business

  1,365   325   1,690 

Consumer

  57   22   79 

Manufactured homes

  -   112   112 

Government

  -   55   55 

Total allowance for credit losses on loans

 $12,897  $6,187  $19,084 

Accrued expenses and other liabilities

  -   3,108   3,108 

Total allowance for credit losses

 $12,897  $9,295  $22,192 

 

In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which addresses and amends areas identified by the FASB as part of its post-implementation review of the accounting standard that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by companies that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current-period gross writeoffs for financing receivables and net investment in leases by year of origination in the vintage disclosures. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for entities that have adopted the CECL accounting standard. The Bancorp adopted ASU 2022-02 on January 1, 2023.

 

 

Note 4 - Upcoming Accounting Standards

 

In March 2020, the FASB issued ASU No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. In January 2021, the FASB issued ASU 2021-01 which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. In December of 2022, the FASB issued ASU No. 2022-06 which extended the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The guidance ensures the relief in Topic 848 covers the period of time during which a significant number of modifications may take place and the ASU defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The Bancorp continues to implement its transition plan towards cessation of LIBOR and the modification of its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR. The Bancorp expects to utilize the LIBOR transition relief allowed under ASU 2020-04, ASU 2021-01 and ASU 2022-06, as applicable, and does not expect such adoption to have a material impact on its accounting and disclosures.

 

In June 2022, the FASB issued ASU No. 2022-03 “Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. This guidance is effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Bancorp has assessed ASU 2022-03 and does not expect it to have a material impact on its accounting and disclosures.

 

6

 

In March 2023, the FASB issued Accounting Standards (ASU) No. 2023-02 “Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. This guidance is effective for public business entities for fiscal years including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted in any interim period. The Bancorp is assessing ASU 2023-02 and its impact on its accounting and disclosures.

 

Note 5 - Acquisition Activity

On January 31, 2022, the Bancorp completed its previously announced acquisition of Royal Financial, Inc., a Delaware corporation (“RYFL”), pursuant to an Agreement and Plan of Merger dated July 28, 2021 (the “Merger Agreement”) between the Bancorp and RYFL. The stockholders of both the Bancorp and RYFL approved the Merger Agreement at the respective stockholder meetings of the companies held on December 13, 2021. Pursuant to the Merger Agreement, RYFL merged with and into the Bancorp, with the Bancorp as the surviving corporation (the “Merger”), and Royal Savings Bank, an Illinois state-chartered savings bank and wholly-owned subsidiary of RYFL, merged with and into Peoples Bank, the wholly-owned Indiana state-chartered commercial bank subsidiary of the Bancorp, with Peoples Bank as the surviving bank.

 

Under the terms of the merger agreement, RYFL stockholders who owned 101 or more shares of RYFL common stock were permitted to elect to receive either 0.4609 shares of the Bancorp common stock or $20.14 in cash, or a combination of both, for each share of RYFL common stock owned, subject to proration and allocation provisions such that 65% of the shares of RYFL common stock outstanding immediately prior to the closing of the merger were converted into the right to receive shares of the Bancorp common stock and the remaining 35% of the outstanding RYFL shares were converted into the right to receive cash. Stockholders holding less than 101 shares of RYFL common stock received fixed consideration of $20.14 in cash per share and no stock consideration.

 

As a result of RYFL stockholder stock and cash elections and the related allocation and proration provisions of the merger agreement, the Bancorp issued 795,423 shares of its common stock and paid cash consideration of approximately $18.7 million in the Merger. Based on the January 28, 2022, closing price of $47.75 per share of the Bancorp common stock, the transaction had an implied valuation of approximately $56.7 million. In connection with the acquisition, Robert W. Youman, was appointed to the boards of directors of the Bancorp and Peoples Bank effective as of the closing of the Merger. RYFL had a home office and eight branch offices in Cook County and DuPage County, Illinois. The acquisition has further expanded the Bank’s banking center network in Cook County and DuPage County, Illinois.

 

Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition. Based on the valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on estimates and assumptions that are subject to change, the final purchase price for the RYFL acquisition is allocated as follows:

 

ASSETS

    

LIABILITIES

    

Cash and due from banks

 $52,524 

Deposits

    

Investment securities, available for sale

  - 

Non-interest bearing

 $32,095 

Certificate of deposit in other financial institutions

  245 

NOW accounts

  63,639 
     

Savings and money market

  184,149 

Total Loans

  450,757 

Certificates of deposits

  195,153 
     

Total Deposits

  475,036 

Premises and equipment, net

  13,896      

FHLB stock

  1,303 

Interest payable

  75 

Goodwill

  11,286 

Other liabilities

  11,228 

Core deposit intangible

  3,220      

Interest receivable

  1,836      

Other assets

  7,978      

Total assets purchased

 $543,045      

Common shares issued

  37,981      

Cash paid

  18,725      

Total purchase price

 $56,706 

Total liabilities assumed

 $486,339 

 

7

 

During the year-ended December 31, 2022, adjustments were made to the carrying value of other assets of $409 thousand, due to the valuation of prepaids and deferred tax assets brought over in the acquisition, and premises and equipment, net, of $48 thousand, due to a correction in the valuation of buildings, and in addition, a correction was made to the valuation of shares issued increasing the value by $79 thousand. The resulting impact of these changes was a decrease to the goodwill balance related to the RYFL acquisition of $378 thousand. Goodwill related to the RYFL transaction is not expected to be deductible for tax purposes.

 

Goodwill of approximately $11.5 million, which is the excess of the acquisition consideration over the fair value of net assets acquired, has been recorded in the RYFL acquisition and is the result of expected operational synergies and other factors. This goodwill is not expected to be deductible for tax purposes.

 

Gross loans acquired during the RYFL transaction totaled $456.7 million, of which $6.1 million were expected to be uncollectable.

 

The following pro-forma and earnings (unaudited) of the combined company are presented as if the RYFL merger had occurred on January 1, 2023, and January 1, 2022:

 

  

For the three months ended

  

For the three months ended

 

(in thousands)

 

March 31, 2023

  

March 31, 2022

 

Selected Financial Data

        

Interest income

 $20,136  $17,589 

Interest expense

  (5,468)  (460)

Provision for loan losses

  (488)  - 

Non-interest income

  2,608   3,283 

Non-interest expense (1)

  (14,227)  (14,397)

Income before provision for income taxes

  2,561   6,015 

Income tax expense

  (321)  (1,032)

Net income

 $2,240  $4,983 
         

Earnings per common share:

        

Basic

 $0.52  $1.24 

Diluted

 $0.51  $1.24 

 

(1) Excludes $2.9 million in pre-tax merger expenses for the three months ended March 31, 2022.

 

 

For the three months ended March 31, 2022, the Bancorp recorded $2.9 million in pre-tax one-time merger expenses related to the RYFL acquisition, and these expenses have been allocated to the following non-interest expense line items within the income statement:

 

(in thousands)

 

Three months ended

 

Noninterest expense:

 

March 31, 2022

 

Compensation and benefits

 $132 

Data processing

  1,929 

Marketing

  135 

Other

  656 
     

Period merger expense

 $2,852 

 

8

 
 

Note 6 - Securities

The estimated fair value of available-for-sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:

 

   

(Dollars in thousands)

 
           

Gross

   

Gross

   

Estimated

 
   

Cost

   

Unrealized

   

Unrealized

   

Fair

 
   

Basis

   

Gains

   

Losses

   

Value

 

March 31, 2023

                               

U.S. government sponsored entities

  $ 8,883     $ -     $ (1,141 )     7,742  

U.S. treasury securities

    389       -       -       389  

Collateralized mortgage obligations and residential mortgage-backed securities

    159,376       -       (26,067 )     133,309  

Municipal securities

    280,604       69       (45,229 )     235,444  

Collateralized debt obligations

    2,173       -       (1,156 )     1,017  

Total securities available-for-sale

  $ 451,425     $ 69     $ (73,593 )   $ 377,901  

 

   

(Dollars in thousands)

 
           

Gross

   

Gross

   

Estimated

 
   

Cost

   

Unrealized

   

Unrealized

   

Fair

 
   

Basis

   

Gains

   

Losses

   

Value

 

December 31, 2022

                               

U.S. government sponsored entities

  $ 8,883     $ -     $ (1,258 )   $ 7,625  

U.S. treasury securities

    389       -       -       389  

Collateralized mortgage obligations and residential mortgage-backed securities

    163,000       -       (28,884 )     134,116  

Municipal securities

    281,032       7       (53,321 )     227,718  

Collateralized debt obligations

    2,173       -       (1,125 )     1,048  

Total securities available-for-sale

  $ 455,477     $ 7     $ (84,588 )   $ 370,896  

 

The cost basis and estimated fair value of available-for-sale debt securities at March 31, 2023, by contractual maturity, were as follows. Securities not due at a single maturity date, primarily collateralized mortgage obligations and residential mortgage-backed securities, are shown separately.

 

   

(Dollars in thousands)

 
   

Available-for-sale

 
           

Estimated

 
   

Cost

   

Fair

 

March 31, 2023

 

Basis

   

Value

 

Due in one year or less

  $ 795     $ 795  

Due from one to five years

    7,062       6,363  

Due from five to ten years

    20,004       18,548  

Due over ten years

    264,188       218,886  

Collateralized mortgage obligations and residential mortgage-backed securities

    159,376       133,309  

Total

  $ 451,425     $ 377,901  

 

 

Sales of available-for-sale securities were as follows for the three months ended:

 

   

(Dollars in thousands)

 
   

March 31,

   

March 31,

 
   

2023

   

2022

 
                 

Proceeds

  $ -     $ 16,236  

Gross gains

    -       397  

Gross losses

    -       (16 )

 

9

 

Accumulated other comprehensive income/(loss) balances, net of tax, related to available-for-sale securities, were as follows:

 

   

(Dollars in thousands)

 
   

Unrealized
gain/(loss)

 

Ending balance, December 31, 2021

  $ 4,276  

Current period change

    (37,738 )

Ending balance, March 31, 2022

  $ (33,462 )

 

   

(Dollars in thousands)

 
   

Unrealized
gain/(loss)

 

Ending balance, December 31, 2022

  $ (64,300 )

Current period change

    8,405  

Ending balance, March 31, 2023

  $ (55,895 )

 

 

Securities with market values of approximately $320.7 million and $223.7 million were pledged as of March 31, 2023 and December 31, 2022, respectively, as collateral for repurchase agreements, public funds, and for other purposes as permitted or required by law.

 

Securities with gross unrealized losses at March 31, 2023, and December 31, 2022 not recognized in income are as follows:

 

   

(Dollars in thousands)

         
   

Less than 12 months

   

12 months or longer

   

Total

         
   

Estimated

           

Estimated

           

Estimated

           

Percentage of

 
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Total Portfolio

 
   

Value

   

Losses

   

Value

   

Losses

   

Value

   

Losses

   

in Loss Position

 

March 31, 2023

                                                       

U.S. government sponsored entities

  $ -     $ -     $ 7,742     $ (1,141 )   $ 7,742     $ (1,141 )     100.0 %

Collateralized mortgage obligations and residential mortgage-backed securities

    3,617       (125 )     129,692       (25,942 )     133,309       (26,067 )     100.0 %

Municipal securities

    10,579       (197 )     215,135       (45,032 )     225,714       (45,229 )     95.9 %

Collateralized debt obligations

    -       -       1,017       (1,156 )     1,017       (1,156 )     100.0 %

Total temporarily impaired

  $ 14,196     $ (322 )   $ 353,586     $ (73,271 )   $ 367,782     $ (73,593 )     97.3 %

Number of securities

            28               408               436          

 

   

(Dollars in thousands)

         
   

Less than 12 months

   

12 months or longer

   

Total

         
   

Estimated

           

Estimated

           

Estimated

           

Percentage of

 
   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Total Portfolio

 
   

Value

   

Losses

   

Value

   

Losses

   

Value

   

Losses

   

in Loss Position

 

December 31, 2022

                                                       

U.S. government sponsored entities

  $ -     $ -     $ 7,625     $ (1,258 )   $ 7,625