XML 32 R20.htm IDEA: XBRL DOCUMENT v3.25.2
Note 11 - Acquisition
 6 Months Ended
Jun. 30, 2025
Notes to Financial Statements  
Business Combination [Text Block]

Note 11. Acquisition

 

On October 1, 2024, the Company completed its previously announced acquisition of 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 merger. 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 merger, the Company recognized a preliminary bargain purchase gain of $2.9 million.

 

Following the Merger, the former branches of Touchstone Bank assumed in the Merger continued to operate in Virginia as Touchstone Bank, a division of First Bank, and, in North Carolina, as Touchstone Bank, a division of First Bank, Strasburg, Virginia, until the system integration was completed in February 2025. Following the system integration, the former branches of Touchstone Bank now operate in Virginia as First Bank and in North Carolina as First Bank of the Commonwealth. The combined company delivers banking services through thirty-three branch offices in Virginia and North Carolina and three loan production offices, in addition to a wide array of online banking services. The Company incurred merger costs totaling $2.0 million and $7.2 million for the six months ending June 30, 2025, and year ended December 31, 2024, respectively.

 

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.

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 for the three and six months ended June 30, 2025 and June 30, 2024, as follows (in thousands):

 

  

For the Three Months Ended June 30,

 
  

2025

  

2024

 

Loans (1)

 $930  $93 

Buildings (2)

  11   5 

Core deposit intangible (3)

  441   4 

Subordinated Debt (4)

  (186)  — 

Time deposits (5)

  163   — 

Net impact to income before taxes

 $1,359  $102 

 

  

For the Six Months Ended June 30,

 
  

2025

  

2024

 

Loans (1)

 $736  $192 

Buildings (2)

  22   10 

Core deposit intangible (3)

  883   9 

Subordinated Debt (4)

  (471)  — 

Time deposits (5)

  606   — 

Net impact to income before taxes

 $1,776  $211 

 

 

(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.

 

Other Intangible Assets

 

Other intangible assets consist of the core deposit intangible which is being amortized on an accelerated basis over its estimated useful life of 7 years. During the year ended December 31, 2024, the Company recorded $15.3 million of core deposit intangibles associated with the acquisition of Touchstone.

 

The gross carrying amounts and accumulated amortization of other intangible assets for the three and six months ended June 30, 2025 and June 30, 2024, were as follows (in thousands):

 

  

For the Three Months Ended June 30,

 
  

2025

  

2024

 

Beginning of period, March 31

 $14,543  $113 

Core deposit intangible acquired

  —   — 

Amortization

  (441)  (5)
         

Total core deposit intangible

 $14,102  $108 

 

 

  

For the Six Months Ended June 30,

 
  

2025

  

2024

 

Beginning of period, December 31

 $14,985  $117 

Core deposit intangible acquired

  —   — 

Amortization

  (883)  (9)
         

Total core deposit intangible

 $14,102  $108 

 

The Company reviews other intangible assets for possible impairment whenever events or changes in circumstances indicate that the carry amounts may not be recoverable. Total amortization expense associated with intangible assets was $883 thousand for the six months ended June 30, 2025. 

 

Estimated amortization expense for future years is as follows (in thousands):

 

  

Estimated Amortization

 

Remaining six months ending December 31, 2025

 $884 

2026

  1,736 

2027

  1,697 

2028

  1,651 

2029

  1,596 

Thereafter

  6,538 

Total

 $14,102