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Note 2 - Acquisitions

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Business Combination Disclosure [Text Block]

Note 2. Acquisitions

On October 1, 2024, the Company completed its previously announced merger with Touchstone, the holding company for Touchstone Bank headquartered in Prince George, Virginia. Under the terms of the merger agreement, at the effective time of the merger, each outstanding share of Touchstone common stock was converted into 0.55 shares of the Company’s common stock, resulting in 2.7 million additional shares issued, or aggregate consideration of $46.8 million, based on the closing price per share of the Company’s common stock as quoted on the NASDAQ Capital Market on September 30, 2024, which was the last trading day prior to the consummation of the acquisition. With the acquisition of Touchstone, the Company acquired 12 branches, deepening its presence in central Virginia and expanding its franchise into contiguous markets in southern Virginia and northern North Carolina.

As a result of the Touchstone acquisition, the Company recognized a preliminary bargain purchase gain of $2.9 million. While the Company believes that the information available on October 1, 2024, provided a reasonable basis for estimating fair value, the Company may obtain additional information and evidence during the measurement period that could result in changes to the estimated fair value amounts and associated bargain purchase gain recorded. Valuations subject to change include, but are not limited to: Loans, identified intangible assets, certain deposits, borrowings, income taxes, and certain other assets and liabilities. Subsequent adjustments, if necessary, will be reflected in future filings. The following table provides a preliminary assessment of the consideration transferred and the fair value of the assets acquired and liabilities assumed as of the date of the acquisition (dollars in thousands).

Purchase price consideration:
Fair value of shares of the Company’s common stock		$	46,789
Cash paid for fractional shares			10
Total Purchase Price		$	46,799

Fair value of assets acquired:
Cash and cash equivalents		$	70,253
Securities AFS			62,166
Loans, net accretion			479,341
Premises and equipment			11,388
CDI and other intangibles			15,329
Bank owned life insurance			12,617
Other assets			13,232
Total assets		$	664,326

Fair value of liabilities assumed:
Deposits		$	555,439
Short-term borrowings			39,305
Subordinated debt			16,176
Other liabilities			3,687
Total liabilities		$	614,607

Fair value of net assets acquired		$	49,719
Preliminary bargain purchase gain		$	2,920

The Company assessed the fair value based on the following methods for the significant assets acquired and liabilities assumed:

Cash and cash equivalents: The fair value was determined to approximate the carrying amount based on the short-term nature of these assets.

Securities AFS: The fair value of the investment portfolio was based on quoted market prices and dealer quotes and pricing obtained from independent pricing services

Loans: Fair values for loans were estimated using a discounted cash flow analysis that considered factors including loan type, interest rate type, prepayment speeds, duration, and current discount rates. The discount rates used for loans were based on current market rates for new originations of comparable loans and factored in adjustments for any expected liquidity events. Expected cash flows were derived using inputs that considered estimated credit losses and prepayments.

Premises and equipment: The fair value of bank premises and equipment held for use was valued by obtaining recent market data for similar property types with adjustments for characteristics of individual properties.

Core Deposit Intangibles, net: Core Deposit Intangibles (CDI) represents the future economic benefit of acquired customer deposits. The fair value of the CDI asset was estimated based on a discounted cash flow methodology that incorporated expected customer attrition rates, cost of deposit base, net maintenance cost associated with customer deposits, and the cost for alternative funding sources. The discount rates used were based on market rates.

Bank Owned Life Insurance (BOLI): The fair value of BOLI is carried at its current cash surrender value, which is the most reasonable estimate of fair value.

Deposits: The fair value of interest bearing and non-interest bearing deposits is the amount payable on demand at the acquisition date. The fair value of time deposits was estimated using a discounted cash flow calculation that includes a market rate analysis of the current rates offered by market participants for certificates of deposits that mature in the same period.

Other Borrowings: Acquired other borrowings consisted of FHLB short term borrowings. The fair value of the short-term borrowings was based on the immediate repayment of the advances on Day 2.

Subordinated Debt: The fair values of the Company’s subordinated debt holdings were estimated using discounted cash flow analyses, based on the current incremental borrowing rates for similar types of borrowing arrangements.

The following table presents for illustrative purposes only certain pro forma information as if the Company had acquired Touchstone on January 1, 2023. These results combine the historical results of Touchstone in the Company's Consolidated Statements of Income and while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on January 1, 2023. No adjustments have been made to the pro-forma results regarding possible revenue enhancements, provision for credit losses, or expense efficiencies. Pro forma adjustments below include the net impact of Touchstone’s accretion and the elimination of merger-related costs, as disclosed below. The Company expects to achieve further operating cost savings and other business synergies as a result of the acquisition, which are not reflected in the pro forma amounts below (dollars in thousands):

	*Pro forma Twelve Months Ended*
	At December 31,
(unaudited)		2024⁽²⁾⁽³⁾			2023(3	)
Total revenues ⁽¹⁾	$	86,533		$	82,046
Net income available to common shareholders⁽³⁾	$	14,965		$	14,595
Earnings per share	$	1.67		$	1.63

⁽¹⁾ Includes net interest income and noninterest income.

⁽²⁾ Includes the net impact of Touchstone’s accretion adjustments of $394 thousand and $1.6 million for the twelve months ended December 31, 2024 and 2023.

⁽³⁾ For the twelve months ended December 31, 2024, and 2023, excludes merger-related costs associated with the acquisition of Touchstone as noted below.

Merger-related costs associated with the acquisition of Touchstone were $8.1 million and none for the years ended December 31, 2024, and 2023, respectively. Such costs include legal and accounting fees, lease and contract termination expenses, system conversion, and employee severances, which have been expensed as incurred. Such costs include employee severance, professional fees, system conversion, and lease and contract termination expenses, which have been expensed as incurred, and are recorded in “Merger-related costs” on the Company’s Consolidated Statements of Income.

Fair Value Premiums and Discounts

The net effect of the amortization and accretion of premiums and discounts associated with the Company’s acquisition accounting adjustments, which includes previous acquisitions in addition to Touchstone, had the following impact on the Consolidated Statements of Income during the years ended December 31, 2024 and 2023 (dollars in thousands):

		*For the years ended*
		*December 31,*
		2024				2023
Loans (1)		$	711			$	822
Buildings (2)			(15	)			(15	)
Core deposit intangible (3)			(1,718	)			(1,749	)
Subordinated Debt (4)			(307	)			(445	)
Time deposits (5)			(49	)			1,226
Net impact to income before taxes		$	(1,378	)		$	(161	)

(1) Loan acquisition-related fair value adjustments accretion is included in "Interest and fees on loans" in the "Interest and dividend income" section of the Company’s Consolidated Statements of Income.

(2) Building and lease acquisition-related fair value adjustments amortization is included in "Occupancy expenses" in the "Noninterest expense" section of the Company’s Consolidated Statements of Income.

(3) Core deposit and other intangible premium amortization is included in "Amortization expense" in the "Noninterest expense" section of the Company’s Consolidated Statements of Income.

(4) Borrowings acquisition-related fair value adjustments (accretion) amortization is included in "Interest on subordinated debt" in the "Interest Expense" section of the Company’s Consolidated Statements of Income.

(5) Certificate of deposit acquisition-related fair value adjustments (accretion) amortization is included in "Interest on deposits" in the "Interest expense" section of the Company’s Consolidated Statements of Income.