On June 13, 2017, the boards of directors of Wolverine Bancorp, Inc. (Wolverine) and Horizon Bancorp (Horizon)
approved an Agreement and Plan of Merger (the Merger Agreement) that provides for Wolverine to merge with and into Horizon. Immediately following the merger, Wolverine Bank, the wholly-owned subsidiary of Wolverine, will merge with and
into Horizon Bank, the wholly-owned subsidiary of Horizon, with Horizon Bank as the surviving entity.
If the merger is completed, each
outstanding share of Wolverine common stock (other than shares then held of record by Horizon, shares held as treasury shares of Wolverine, and certain shares held by the Wolverine Bank employee stock ownership plan) will be converted into the right
to receive 1.0152 shares of Horizon common stock (subject to certain adjustments as described in the Merger Agreement), and $14.00 in cash. Each Wolverine stockholder also will receive cash in lieu of any fractional shares of Horizon common stock
that such stockholder would otherwise receive in the merger. Additionally, as described in more detail elsewhere in this proxy statement/prospectus, under the terms of the Merger Agreement, Wolverine would have the right to terminate the Merger
Agreement during the
five-day
period following the date on which all regulatory approvals and other approvals required for the merger are received if Horizons average common stock closing price over a
specified period of time decreases below $23.02 per share, and the decrease is more than 15% than the corresponding percentage performance of the SNL Small Cap U.S. Bank and Thrift Index during the same period. If Wolverine elects to exercise its
termination right, Horizon has the right to prevent Wolverines termination under these circumstances by agreeing to increase the exchange ratio pursuant to a formula set forth in the Merger Agreement.
Subject to the adjustments described in the Merger Agreement and based on Horizons closing stock price of $25.78 on August 24, 2017,
the value of the aggregate consideration that Wolverines stockholders will receive in the merger is approximately $88.1 million. The boards of directors of both Wolverine and Horizon believe that the merger is in the best interests of each of
their respective companies and shareholders.
Horizons common stock is traded on the NASDAQ Global Select Market under the trading
symbol HBNC. On June 13, 2017, the last day prior to the public announcement of the merger, the closing price of a share of Horizon common stock was $27.50, which based on the 1.0152 exchange ratio and $14.00 per share cash
consideration, represented an implied value of $41.92 per share of Wolverine common stock. On August 24, 2017, the latest practicable date before the date of this document, the closing price of a share of Horizon common stock was $25.78, which based
on the exchange ratio and per share cash consideration, represented an implied value of $40.17 per share of Wolverine common stock. Wolverines common stock is traded on the NASDAQ Capital Market under the trading symbol WBKC. On
June 13, 2017, the closing price of a share of Wolverine common stock was $31.95. On August 24, 2017, the closing price of a share of Wolverine common stock was $39.57.
You should carefully read this entire proxy statement/prospectus, including the appendices hereto and the
documents incorporated by reference herein, because it contains important information about the merger and the related transactions.
In particular, you should carefully read the information under the section entitled
Risk
Factors
beginning on page 19
. You can also obtain information about Horizon and Wolverine from documents that each has filed with the Securities and Exchange Commission.
THE MERGER
This section of the proxy statement/prospectus describes material aspects of the proposed merger. While Horizon and Wolverine believe that
the description covers the material terms of the merger, this summary may not contain all of the information that is important to you. You should read this entire proxy statement/prospectus and the other documents that we refer to carefully for more
detailed information regarding the merger.
General
Horizons and Wolverines boards of directors have approved and adopted the Merger Agreement, the merger, and the transactions
contemplated thereby. The Merger Agreement provides for the merger of Wolverine with and into Horizon, with Horizon as the surviving corporation. Immediately following the merger, Wolverine Bank, the wholly-owned federally-chartered savings bank
subsidiary of Wolverine, will merge with and into Horizon Bank, the wholly-owned Indiana state-chartered commercial bank subsidiary of Horizon.
In connection with the merger, each outstanding share of Wolverine common stock will be converted into the right to receive (i) 1.0152 shares
of Horizon common stock (subject to certain adjustments as described in the Merger Agreement), and (ii) $14.00 in cash. All of the executive officers and members of the board of directors of Wolverine and Wolverine Bank have entered into a voting
agreement pursuant to which they have agreed to vote their shares of Wolverine common stock in favor of the approval and adoption of the Merger Agreement and the merger.
Under the Merger Agreement, the executive officers and directors of Horizon and Horizon Bank serving at the effective time of the merger will
continue to serve as such after the merger is consummated. In addition, Eric P. Blackhurst, a current member of the Wolverine board of directors, will be appointed to the boards of directors of Horizon and Horizon Bank, effective as of the closing.
If the term of the class of directors to which Mr. Blackhurst is appointed expires less than three years after the effective time of the merger, Horizon and Horizon Bank will cause him to be nominated and recommended for election by
Horizons stockholders at the next election of directors as long as he continues to be eligible and qualified to serve as a director of Horizon and Horizon Bank.
Please see
The Merger Agreement
beginning on page 60 for additional and more detailed information regarding the legal
documents that govern the merger, including information about the conditions to the merger and the provisions for terminating and amending the Merger Agreement.
Background of the Merger
Since Wolverine Banks conversion from a mutual savings bank to a stock savings bank in January 2011, and concurrent (i) formation of
Wolverine as the stock holding company of the bank and (ii) stock offering by Wolverine, Wolverine has managed its capital through organic growth, cash dividends and stock repurchases. Wolverines board of directors and management also
have periodically reviewed and assessed strategic opportunities and challenges. The board of directors has considered the difficulty in growing profitably and operating a publicly-traded community financial institution under current economic and
competitive conditions. At the same time, like many other small financial institutions, Wolverine has experienced increasing costs for technology and regulatory compliance.
As part of the board of directors and managements evaluation of ways to meet these challenges, they routinely have considered both
internal growth strategies and strategic business combinations as means of achieving economies of scale. In connection with this ongoing assessment, from as early as 2013, the board of directors has met regularly with KBW to review developments in
the banking industry generally, Wolverines financial performance relative to certain other publicly-traded community financial institutions, capital management strategies (for example, stock repurchases and dividends) and the mergers and
acquisitions market, including valuation trends and potential merger or acquisition partners for Wolverine.
KBW is a nationally recognized
investment banking firm with substantial experience advising financial institutions generally, including with respect to mergers and acquisitions. In addition, KBW had previously served as financial advisor to Wolverine in connection with Wolverine
Banks mutual-to-stock conversion and
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related stock offering by Wolverine that was completed in 2011. In addition to periodic meetings with KBW, representatives of the board of directors and management have also attended conferences
to enhance their understanding of the banking industry and risks facing financial institutions.
On May 16, 2016, Wolverines board of
directors met as part of the boards ongoing assessment of Wolverines strategic opportunities and challenges. Representatives of KBW attended the meeting. At the meeting, KBW discussed with the board developments in the banking industry,
current valuation trends, an overview of the financial performance of Wolverine relative to certain other publicly-traded community financial institutions, current trends in shareholder activism, and the mergers and acquisitions market. KBW also
discussed financial considerations for comparing the option of Wolverine continuing to operate on a stand-alone basis with that of pursuing a merger transaction, and discussed the merger and acquisition process and other merger considerations.
On June 13, 2016, David H. Dunn, President and Chief Executive Officer of Wolverine, provided a strategic update to the board of directors,
which included a banking industry update and discussions of Wolverines net income, net interest margin and operating expenses. The update also included, among other items, a comparable peer group overview focusing on certain key financial
metrics, an executive summary of the 2016 budget, an overview of bank and thrift returns on average assets, a review of Wolverines stock price since the initial public offering and a review of Wolverines total shareholder return.
Mr. Dunn noted the key drivers for increased consolidation in the banking industry and increased commercial real estate lending and the related regulatory focus on such lending.
At a special meeting on August 31, 2016, the board of directors met with representatives from Ernst & Young, an international
accounting and advisory firm, who reviewed with the board the business, regulatory and operating challenges facing community banks, performance and trading metrics of different-sized financial institutions, the mergers and acquisitions market and
recent shareholder activism.
At its regular meeting on September 12, 2016, the board of directors engaged in discussion regarding
information from KBW relating to developments in the banking industry and gave further consideration to comparing the option of Wolverine continuing to operate on a stand-alone basis with that of pursuing a merger transaction.
At its regular meeting on October 10, 2016, the board of directors discussed Wolverines strategic plan as well as strategic alternatives,
including organic growth, acquiring another company, or merging with another company.
At its regular meeting on November 14, 2016, the
board of directors again met with KBW to discuss developments in the banking industry, as well as current valuation trends, an overview of Wolverines financial performance, the mergers and acquisitions market, and financial considerations
related to Wolverine in a potential merger transaction, both as a buyer and as a seller. The board of directors again discussed its strategic plan as well as strategic alternatives, including organic growth, acquiring another company, or merging
with another company.
At its regular meeting on December 12, 2016, the board of directors met to consider whether the board should
initiate a process for a potential acquisition of Wolverine. Representatives of KBW and Wolverines special legal counsel, Luse Gorman, PC (Luse Gorman), attended this meeting. The board reviewed Wolverines recent financial
performance and projected performance for 2016. Based on its discussion of relevant factors during this and prior meetings, as discussed above, the board determined that it was in Wolverines best interests to explore possible alternatives for
the acquisition of Wolverine. The board also reviewed and discussed with legal counsel the boards fiduciary duties in a merger context. The board then discussed engaging KBW to render financial advisory and investment banking services to
Wolverine in connection with a possible acquisition of Wolverine. Following this discussion, the board of directors approved the engagement of KBW and the initiation of a process for the identification and evaluation of potential alternatives for
the acquisition of Wolverine.
On January 6, 2017, at a special meeting, the board of directors reviewed with KBW a list of seven financial
institution holding companies that could have an interest in a transaction with Wolverine, considering,
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among other things, the ability to pay, regulatory standing, geographic location, presence and market share. The parties under consideration as acquisition partners had assets ranging from over
$1.5 billion to approximately $100 billion. The board of directors authorized initial contact with six of these parties (including Horizon). As part of its efforts to maximize value for Wolverine stockholders in a potential merger
transaction, the board of directors also instructed KBW to assist the board in identifying additional parties that could be contacted, utilizing similar criteria.
Following this meeting, seven additional parties that could have an interest in a transaction with Wolverine were identified with KBWs
assistance. On January 13, 2017, the board of directors approved these seven additional parties to be contacted by KBW, bringing the total number of parties being considered by the board to 13.
At Wolverines direction, beginning January 15, 2017, KBW contacted all 13 financial institution holding companies concerning their level
of interest, if any, in a possible business combination with Wolverine. Wolverines identity was not disclosed to these parties at that time. Eleven of these parties, including Horizon, indicated a preliminary interest. Wolverine executed
non-disclosure agreements with five of these potential merger parties, after which those parties were informed of Wolverines identity. On February 2, 2017, a virtual data room containing a confidential information memorandum and additional
information about Wolverine was opened and access was granted to each of these five parties after they executed the non-disclosure agreements. These parties were initially given until February 22, 2017 to submit non-binding indications of interest.
From January 29, 2017 to January 31, 2017, Wolverines Chairman, Richard M. Reynolds, and Mr. Dunn attended a banking conference
at which meetings and discussions were held with Horizon and two other companies that had signed non-disclosure agreements. At these meetings, which were also attended by a representative of KBW, the parties discussed general matters about
operations, including information that was contained in the confidential information memorandum. An additional, informal meeting was held at the conference with one other company that had signed a non-disclosure agreement. No matters relating to a
merger were discussed with this other company at the meeting.
On February 7, 2017, Mr. Dunn and a representative of KBW held a
phone conference with a financial institution holding company (Company A) that had signed a
non-disclosure
agreement. The parties discussed general matters about operations, including information
that was contained in the confidential information memorandum.
At its regular meeting on February 13, 2017, Wolverines board of
directors met to review 2016 financial results, as well as the 2017 budget. The board of directors also reviewed the merger process to date, including the meetings held at the recent banking conference.
On February 22, 2017, Horizon submitted an indication of interest that proposed paying merger consideration of $37.00 per Wolverine share,
payable 70% in stock (1.0023 shares of Horizon stock for each Wolverine share) and 30% in cash ($11.10 for each Wolverine share). Wolverine stockholders who held less than 100 shares of common stock would only receive cash consideration of $37.00
per share. The indication of interest stated that Horizon would consider adding one independent member of Wolverines board of directors to Horizons board of directors. On that same day, Company A, who had also conducted preliminary due
diligence, submitted an indication of interest that proposed paying merger consideration of between $36.20 to $37.50 for each Wolverine share, payable 50% in Company A common stock and 50% in cash. Company A also stated it would consider adding at
least one member of the board of directors of Wolverine to Company As board of directors. Each indication of interest provided that the cash portion of the merger consideration would be paid by Wolverine as a special dividend to stockholders
immediately prior to the closing of the merger. Each indication of interest indicated that all employment/change in control agreements would be honored. No other indications of interest were received from parties other than Horizon and Company A.
At a special meeting on February 27, 2017, Wolverines board of directors met to review the two indications of interest in detail.
Representatives of Luse Gorman and KBW attended this meeting. The board of directors discussed the process to date and reviewed with KBW financial information about Horizon and
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Company A, on both a historical and pro forma basis. Based on closing stock prices as of February 23, 2017, Horizons proposal had an implied value of $37.96 per Wolverine share, while
Company As proposal had an implied value of between $38.76 and $41.95 per Wolverine share. The board of directors also discussed its fiduciary duties in connection with a proposed acquisition of Wolverine. The board of directors authorized
continued due diligence by Horizon and Company A, and instructed management and KBW to ask these companies to submit updated indications of interest following their completion of due diligence.
On March 7, 2017, Company A conducted onsite due diligence of Wolverine.
On March 13, 2017, at its regular meeting, Wolverines board of directors reviewed the process to date, and discussed retaining an
additional financial advisor to supplement its review of Wolverines strategic options, including a separate review of the Horizon and Company A indications of interest, and a comparison of these offers to the value of the bank on a stand-alone
basis and in a scenario where it conducts a going private transaction.
On March 14, 2017, March 23, 2017 and March 24, 2017,
Horizon conducted
in-person
due diligence of Wolverine.
On March 23, 2017, management of Company A
and Wolverine met to discuss additional due diligence matters.
On April 10, 2017, at its regular meeting, Wolverines board of
directors met separately with representatives of Horizon and Company A to discuss their companies, their offers and other information related to the merger process. Horizon and Company A also answered questions from Wolverines board,
management and KBW regarding various considerations pertinent to Wolverines evaluation of the two indications of interest.
On April
12, 2017, Horizon submitted a revised indication of interest that proposed paying merger consideration of $39.19 per Wolverine share, payable 70% in stock (1.0532 shares of Horizon stock for each Wolverine share) and 30% in cash ($11.10 for each
Wolverine share). Wolverine stockholders who held less than 100 shares of common stock would receive cash consideration of $39.00 per share. Horizons updated indication of interest reiterated its earlier offer that it would consider adding one
independent member of the board of directors of Wolverine to Horizons board of directors.
On that same day, Company A submitted a
revised indication of interest that proposed paying merger consideration of $38.80 for each Wolverine share, payable 50% in stock and 50% in cash. Company As updated indication of interest provided that it would consider adding two members of
the board of directors of Wolverine to Company As board of directors.
On April 17, 2017, Wolverines board of directors met at
a special meeting to review the indications of interest in detail and to determine the next steps. Representatives of Luse Gorman attended this meeting. The board of directors reviewed with Luse Gorman its fiduciary duties relating to the ongoing
process and its decision regarding how and with whom to proceed between the two indications of interest.
Also as part of its review of the
indications of interest, and based on its discussion at the March 13, 2017 board meeting regarding potential retention of an additional financial advisor, Wolverines board of directors received a presentation from Sheshunoff & Co.
Investment Banking, L.P. (Sheshunoff). Sheshunoff provides investment banking services to financial institutions, including providing advice with respect to mergers and acquisitions. Wolverine was a participant in Sheshunoffs chief
executive officer peer advisory and networking program. Sheshunoff reviewed the terms of the Horizon and Company A indications of interest and compared the pricing to hypothetical values of Wolverine as a going concern and in a merger transaction.
Sheshunoff noted that the value of the offers from Horizon and Company A ($85.0 million and $85.8 million, respectively) exceeded Sheshunoffs estimated present value for Wolverine of $61.9 million as a going concern on a
discounted cash flow analysis basis, and also exceeded Sheshunoffs estimated value for Wolverine on a market comparison approach of between $60.7 million and $67.1 million. Sheshunoff also noted that the value of the offers was
consistent with Sheshunoffs estimated value of between $81 million and $86 million for Wolverine using an acquisition analysis approach. Sheshunoff discussed that qualitative factors (e.g., cultural fit, buyer
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regulatory issues, execution risk, price risk, and liquidity) are also important in determining the right partner. Sheshunoff also discussed the difficulties associated with Wolverine conducting
a going private transaction, whereby Wolverine would, in lieu of pursuing a merger transaction, remain an independent company that repurchased its public float (i.e., shares held by unaffiliated stockholders), issued debt and equity
securities to fund the repurchase, and discontinued filing reports with the Securities and Exchange Commission. Sheshunoff did not provide an opinion as to the value of the offers included in the indications of interest; rather, the board of
directors considered the information provided by Sheshunoff as part of the boards decision regarding whether to proceed with a merger transaction and, if it were to proceed, with which party (Horizon or Company A).
At the April 17, 2017 meeting, Wolverines board of directors also reviewed the Horizon and Company A indications of interest with
KBW. KBW also discussed the merger process to date and financial information about Horizon and Company A, on both a historical and a pro forma basis. Based on closing stock prices as of April 13, 2017, Horizons proposal had an implied value of
$37.75 per Wolverine share, while Company As proposal had an implied value of $39.26 per Wolverine share.
Wolverines board of
directors determined that it would proceed with merger negotiations with Horizon. In making this determination, the board considered, in addition to Horizons and Company As respective proposed per share consideration, Horizons
experience in completing merger transactions, the liquidity of Horizons common stock (approximately 60,000 shares of Horizon common stock traded each day, which was significantly higher than the average daily trading volume for each of
Wolverine and Company A), which would provide Wolverine stockholders with the option of selling their shares or remaining as stockholders of Horizon, Horizons current operations and future prospects, and the potential that Horizon could
provide superior long-term value to Wolverines stockholders. The board also considered and weighed the potential impact of a transaction with each of Horizon and Company A on Wolverines customers, employees and the community, including
consideration of Horizons significant presence in and understanding of the Michigan market and its similar culture in working with both customers and employees.
Wolverines board of directors also approved the selection of Chairman Reynolds, President and Chief Executive Officer Dunn, and Directors
Eric P. Blackhurst and J. Donald Sheets as members of a merger committee who were authorized to negotiate certain matters relating to a merger with Horizon, including the deal price offered by Horizon.
Immediately following the April 17, 2017 board meeting, the Wolverine merger committee met to review ways to enhance the value of the
transaction to Wolverine stockholders, including instructing KBW to request that Horizon increase its offer price, remove the requirement that the cash portion of the consideration be paid by Wolverine to its stockholders as a special dividend,
provide caps and collars on the offer price, and increase the cash portion of the merger consideration to 35%.
KBW contacted
Horizons financial advisor following the meeting of the merger committee to communicate the merger committees requests, and on April 20, 2017, Wolverines merger committee met to review the status of negotiations. The merger
committee was advised by KBW that Horizon had responded by stating that it would increase its offer to $40.00 for each Wolverine share, payable 65% in Horizon common stock and 35% in cash. Horizon also agreed to remove the requirement that the cash
portion of the consideration be paid as a special dividend. Horizon did not agree to provide caps and collars on the offer price, so the merger committee discussed a double trigger walkaway right as an alternative method to
provide Wolverine stockholders with protection against market price reductions on Horizons common stock, whereby the Wolverine board of directors could terminate the merger agreement if Horizons stock dropped a certain percentage on an
absolute basis, and also dropped a certain percentage below that of a to-be-determined peer group. The merger committee also instructed KBW to discuss with Horizon or its financial advisor the possibility of a cash-stock election,
whereby stockholders could request that they receive merger consideration in cash, Horizon common stock, or a combination thereof, subject to an allocation process that would ensure that the final aggregate merger consideration was paid 65% in
Horizon common stock and 35% on cash.
KBW contacted Horizons financial advisor following the meeting of the Wolverine merger
committee to carry out the merger committees instructions. Horizon did not agree to provide a cash-stock election to
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Wolverine stockholders. On April 21, 2017, Horizon submitted a revised indication of interest, which was distributed to each member of the Wolverine board. The revised indication of interest
confirmed Horizons offer to pay merger consideration of $40.00 for each share of Wolverine common stock, payable 65% in Horizon common stock and 35% in cash. Wolverine stockholders who held less than 100 shares of common stock would receive
cash consideration of $40.00 per share. The indication of interest also removed the requirement that the cash portion of the merger consideration be paid by Wolverine as a special dividend. Although not included in the indication of interest,
Horizons financial advisor confirmed that the draft merger agreement to be provided to Wolverine would include a double-trigger walkaway right. Horizons revised indication of interest also required Wolverine to negotiate
exclusively with Horizon for 60 days following Wolverines acceptance of the indication of interest. Wolverines management executed the indication of interest on April 24, 2017.
Horizon continued due diligence over the next few weeks. On May 4, 2017, Horizon began providing Wolverine and its advisors documents regarding
Horizons business and operations for reverse due diligence by Wolverine.
On May 5, 2017, the Wolverine merger committee met to
review the status of discussions and a general timeline of future events.
On May 11, 2017, Barnes & Thornburg LLP, counsel for
Horizon, provided an initial draft of the merger agreement to Luse Gorman. The initial draft of the merger agreement included a termination fee of $4,452,200, or approximately 5% of the deal value. The parties began negotiating the terms of the
merger agreement.
On May 11, 2017 and May 17, 2017, management of Wolverine, with the assistance of representatives of Luse Gorman and
KBW, interviewed certain members of senior management of Horizon, for reverse due diligence purposes.
On May 15, 2017, at its regular
meeting, Wolverines board of directors met to review the process to date and possible next steps. The board also met with three senior employees of Wolverine who had met with management of Horizon, and these employees provided the board with
feedback as to those meetings and the synergies that could be achieved through a potential merger transaction with Horizon.
On May 18,
2017, KBW received two e-mails from representatives of Company A, noting Company As recently increased stock trading price. One of the e-mails also indicated that the increased stock price would result in a deal value to Wolverine in excess of
$45.00 per share.
On May 18, 2017, the Wolverine merger committee met to discuss the e-mails received by KBW, the potential reasons for
the recent increase in Company As share value, and possible next steps. Representatives of KBW and Luse Gorman attended this meeting. Company A had recently become eligible for inclusion on a widely-tracked index. Index funds that track this
index were required to purchase Company As stock to reflect Company As inclusion in the index. Representatives of Luse Gorman again reviewed the boards fiduciary duties with the merger committee. Following this meeting, the merger
committee instructed KBW to provide summary information as to recent events to Horizons financial advisor without disclosing the identity of Company A. Management was also authorized to provide summary information to Horizons management,
also without disclosing the identity of Company A.
On May 19, 2017, after receiving notice that Wolverine was evaluating recent
communications from Company A, Horizon instructed its financial and legal advisors to suspend further work on the transaction until Horizon received a verbal indication from Wolverine that it intended to continue to pursue a transaction with
Horizon. Through its financial advisor, Horizon communicated to Wolverine its intention to cease work on the transaction.
On May 19, 2017,
the Wolverine merger committee met with representatives of KBW and Luse Gorman in attendance. Legal counsel again reviewed the boards fiduciary duties with the merger committee. KBW discussed financial aspects of the two alternative proposals.
Based on closing prices from May 18, 2017, Horizons proposal had an implied value of $39.77 for each Wolverine share, while Company As proposal had
35
an implied value of $45.61 for each Wolverine share. The merger committee discussed that Horizon had instructed its legal counsel and financial advisor to stop negotiating and cease work on the
merger agreement to allow Wolverine to consider its alternatives in view of its fiduciary obligations. At the end of this meeting, the merger committee instructed KBW to contact Horizons financial advisor to discuss potential ways to enhance
the value of Horizons offer, such as increased merger consideration or a floor on the deal pricing.
From May 19 to 22, 2017,
Horizons chief executive officer and its financial advisor discussed Wolverines request. Based on the current financial aspects of the transaction, as previously reviewed with Horizons board of directors, as well as other merger
opportunities Horizon was considering, Horizon determined it had presented Wolverine with its best offer and was not willing to change the financial terms of its proposal. On May 22, 2017, Horizons financial advisor notified KBW that it
would not modify its proposal and that Horizon believed the previously negotiated transaction terms, combined with its attractive stock valuation, the liquidity profile of its stock, and Horizons strong deal history, remained an attractive
offer for Wolverines stockholders.
On May 24, 2017, the Wolverine merger committee met with representatives of KBW and Luse Gorman.
KBW advised the committee that Horizon was not willing to change any of the terms of its indication of interest. The merger committee also reviewed information relating to the implied value of Company As proposal of $45.84 per share, and how
the price of Company As common stock compared to that of certain other publicly-traded community financial institutions (which were
publicly-traded
banks and thrifts headquartered in the Midwest with
total assets between $900 million and $1.5 billion and a return on average assets greater than or equal to 0.50%). Company As common stock was trading at multiples of tangible book value and trailing 12 months earnings that were
significantly higher than the median multiples for the other publicly-traded community financial institutions observed. In contrast, Horizons common stock traded at a discount to its peers on a price-to-earnings basis. The merger committee and
KBW discussed the likelihood that Company As stock value would begin to trade in line with its peers following the completion of the rebalancing of the index in which Company A was being included, and also discussed Horizons experience
in completing merger transactions, the liquidity of Horizons common stock versus Company As common stock, the status of merger negotiations and the risk of losing Horizon as a merger partner if Wolverine were to try to negotiate an
agreement with Company A. The merger committee instructed KBW to discuss additional information related to the comparison of Company A with other publicly-traded community financial institutions at an upcoming meeting of the full board.
On May 25, 2017, Wolverines board of directors met at a special meeting to review recent events. Representatives of KBW and Luse Gorman
attended the meeting. Legal counsel again reviewed the boards fiduciary duties in connection with the merger process and the boards decision. The board of directors discussed possible next steps, including letting the Horizon
60-day
exclusivity period lapse in order to negotiate further with Company A, continuing to negotiate with Horizon with the goal of executing a definitive merger agreement, and contacting Horizon to better evaluate
Horizons expectations on next steps in view of recent developments. The board of directors reviewed the implied value of Company As proposal ($45.84 per share of Wolverine common stock, based upon Company As stock price as of May
23, 2017). The board of directors reviewed comparisons of Company As common stock to those of two peer groups of publicly-traded community financial institutions, on an earnings and tangible book value basis. The peer groups were:
(i) publicly-traded banks and thrifts headquartered in the Midwest with total assets between $900 million and $1.5 billion and a return on average assets greater than or equal to 0.50%; and (ii) banks and thrifts listed on Nasdaq
and headquartered in the Midwest with market capitalizations between $200 million and $300 million. The board discussed how Company As current pricing significantly exceeded the top quartile of peer group pricing, and also discussed
the expectation of future downward pressure on Company As stock price. The board also considered the advantages of a transaction with Horizon, including increased liquidity for Wolverine stockholders compared to the limited liquidity in
Company As common stock, Horizons current operations and future prospects, Horizons proven ability to complete merger transactions, the status of merger negotiations with Horizon and the risk of losing Horizon as a merger partner
if Wolverine were to try to negotiate with Company A. At the completion of this meeting, the board of directors instructed KBW to contact Horizons financial advisor to determine whether
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Horizon would allow Wolverine to contact Company A to get a better understanding of their level of interest in pursuing a merger with Wolverine in view of the recent increase in Company As
stock price (without disclosing the name of Company A).
KBW contacted Horizons financial advisor following the meeting of
Wolverines board of directors to carry out the boards instructions. On May 26, 2017, Horizons financial advisor informed KBW that Wolverine continued to be subject to an exclusivity agreement with Horizon, and that Horizon expected
Wolverine to affirmatively state its intention to continue negotiations with Horizon, under the current terms, by May 31, 2017, or Horizon would terminate discussions.
On May 30, 2017, Wolverines board of directors held a special meeting to review the communication from Horizons financial advisor.
Representatives of KBW and Luse Gorman attended the meeting. The board of directors reviewed the relative pricing offered by Horizon and Company A. Based on closing prices from May 30, 2017, Horizons proposal had an implied value of
$39.60 per share of Wolverine common stock, with the total value of the merger consideration being 64.6% Horizon common stock and 35.4% cash, while Company As proposal had an implied value of $45.38 per share of Wolverine common stock, with
the total value of the merger consideration being 57.3% Company As common stock and 42.7% cash. The board of directors discussed Horizons strength as a merger partner, including its long-term business and financial prospects when
combined with Wolverine. The board of directors also discussed the risk of not being able to consummate any merger transaction if negotiations with Horizon were terminated and a transaction with Company A could not be negotiated on terms
satisfactory to Wolverine. The board of directors discussed the future value of Company As stock based on the recent increase in trading price and its value in relation to its peers. Following this discussion, based on its evaluation of all of
the described factors that were discussed and considered over the course of several board and merger committee meetings, Wolverines board of directors determined that it was in Wolverines and its stockholders best interests to
proceed with Horizon. Therefore, the board agreed to continue to proceed toward the negotiation of a final, definitive merger agreement with Horizon.
The parties continued negotiations regarding the terms of the merger agreement and exchanged drafts of and comments on the merger agreement. As
part of these negotiations, Horizon revised the merger agreement to reduce the termination fee to $3,539,000, or approximately 4% of the deal value at that time. Horizon also revised the merger agreement to provide that all stockholders would
receive the same merger consideration, such that stockholders owning fewer than 100 shares of Wolverine stock would not receive the cash consideration only.
On June 8, 2017, the Wolverine merger committee met with representatives of Luse Gorman to review the merger agreement and the status of open
items. The merger committee also discussed the next steps in the process.
At a regular meeting of Wolverines board of directors held
on June 12, 2017 and attended by representatives of KBW and Luse Gorman, the board reviewed in detail with legal counsel the merger agreement and ancillary documents, including: (i) voting agreements to be entered into by Wolverines
directors and executive officers; (ii) employment agreements to be entered into by certain senior officers, including Mr. Dunn; and (iii) termination and release agreements to be entered into by certain senior officers, including
Mr. Dunn. At this meeting, KBW reviewed with the board the financial aspects of the proposed merger and discussed on a preliminary basis the fairness opinion to be delivered by KBW with respect to the merger consideration to be received by the
holders of Wolverine common stock in the proposed merger. The board of directors reviewed the relative pricing offered by Horizon and Company A. Based on closing prices from June 9, 2017, Horizons proposal had an implied value of $41.52 per
share of Wolverine common stock, with the total value of the merger consideration being 66.3% Horizon common stock and 33.7% cash, while Company As proposal had an implied value of $43.25 per share of Wolverine common stock, with the total
value of the merger consideration being 55.1% Company A common stock and 44.9% cash.
On June 12, 2017, the board of directors of
Horizon met with Horizons management who presented the terms of the merger agreement that had been distributed to the board prior to the meeting, the strategic rationale for the transaction, and the financial aspects of the merger. Following
this presentation, the board of directors of
37
Horizon reviewed and discussed the draft of the merger agreement and the consideration to be paid by Horizon to Wolverines stockholders. Horizons management responded to questions
from the board regarding the merger and the merger consideration. Following a lengthy discussion, the board voted to approve managements finalization and execution of the merger agreement and all related documents.
At a special meeting of Wolverines board of directors held on June 13, 2017 and attended by representatives of KBW and Luse Gorman, legal
counsel updated the board as to the status of negotiations with Horizon. Legal counsel also discussed the proposed resolutions that the independent members of the board (all directors except for Mr. Dunn) would be requested to approve, as well
as the proposed resolutions that the full board would be requested to approve. At this meeting, KBW again reviewed with the board the financial aspects of the proposed merger and rendered to the board an opinion to the effect that, as of such date
and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW as set forth in its opinion, the merger consideration to be received by the holders of Wolverine common
stock in the proposed merger was fair, from a financial point of view, to the holders of Wolverine common stock. After further discussion, the independent members of Wolverines board of directors voted unanimously to approve the merger
agreement with Horizon in substantially the form presented, to recommend that Wolverine stockholders vote to approve the merger agreement and the merger, and to approve the executive compensation arrangements of senior officers, including
Mr. Dunn. Following this vote, and taking into consideration the factors described under
Wolverines Reasons for the Merger; Board Recommendation
,
the board of directors voted unanimously
to approve the Merger Agreement with Horizon in substantially the form presented, to recommend that Wolverine stockholders vote to approve the Merger Agreement and the merger, and to authorize management, with the assistance of counsel, to finalize
and execute the Merger Agreement and all related documents.
Following approval of Wolverines board of directors, on June 13, 2017,
the parties executed the Merger Agreement. Wolverine and Horizon issued a joint press release publicly announcing the transaction prior to the opening of the financial markets on June 14, 2017.
Wolverines Reasons for the Merger; Board Recommendation
Wolverines board of directors unanimously recommends that Wolverine stockholders vote for approval and adoption of the Merger Agreement
and the merger. The boards recommendation follows its determination that the merger and the Merger Agreement were fair to and in the best interest of Wolverine and its stockholders. In making its determination and recommendation in authorizing
and approving the merger and in approving and adopting the Merger Agreement, Wolverines board of directors consulted with members of Wolverines management, and with representatives of KBW and Luse Gorman, and also considered a number of
factors that the Wolverine board of directors viewed as relevant to its decisions, including, without limitation, the following:
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information concerning the business, earnings, operations, financial condition, asset quality and prospects of Wolverine and Horizon, both individually and as a combined company;
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the understanding of Wolverines board of directors of the strategic options available to Wolverine and the board of directors assessment of those options and the likelihood of Wolverines execution of
its business plan as an independent entity, and the boards determination that execution of the business plan was not more likely to create greater present value for Wolverines stockholders than the value to be paid by Horizon;
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managements assessment of the execution risks involved in attaining the performance levels assumed by the business projections relating to Wolverine;
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the prospects of profitably deploying Wolverines capital in a reasonable period of time;
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the challenges facing Wolverines management to grow Wolverines franchise and enhance stockholder value given current market conditions, including increased operating costs resulting from regulatory and
compliance mandates, continued pressure on net interest margin in the current interest rate environment and competition;
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conditions and activity in the mergers and acquisition market providing an opportunity for Wolverine to deliver accelerated and enhanced stockholder value, as compared to organic growth;
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the purchase price per share to be paid by Horizon and the resulting valuation multiples;
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that over 65% of the merger consideration (as calculated at the time of entering into the Merger Agreement) would be in stock of Horizon, which would allow Wolverine stockholders to participate in the future performance
of the combined company;
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the increased need for scale to absorb the growing costs of operations, cyber security and compliance with banking regulations;
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the compatibility of the business cultures of Wolverine and Horizon;
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the complementary nature of and potential synergies related to Wolverines and Horizons business;
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the geographic fit and increased customer convenience of the expanded branch network of Horizon;
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the scale, scope, capital position, strength and diversity of operations, product lines and delivery systems that could be achieved by the combined company;
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the historical performance of Horizons common stock, Horizons greater market capitalization, the stocks liquidity in terms of average daily trading volume and the level of future cash dividends
anticipated to be received by Wolverine stockholders;
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the continued participation of Wolverines directors and management in the combined company, which enhances the likelihood that the expected benefits of the merger will be realized, in particular that:
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Eric P. Blackhurst will be added to Horizons and Horizon Banks boards of directors following the completion of the merger; and
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Messrs. Dunn and Roskinski will have ongoing roles with the combined company;
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the stock component of the merger consideration, including the exchange ratio, and the potential for the price of Horizon common stock to increase after the signing of the Merger Agreement;
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the financial presentation of KBW to the Wolverine board of directors and the opinion, dated June 13, 2017, of KBW to the Wolverine board of directors as to the fairness, from a financial point of view and as of
the date of the opinion, to the holders of Wolverine common stock of the merger consideration in the proposed merger, as more fully described below under
Opinion of Wolverines Financial Advisor
;
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the legal analyses as to the structure of the merger, the Merger Agreement, the fiduciary and legal obligations applicable to directors when considering a sale or merger of a company, and the process that Wolverine
(including its board of directors) employed in considering potential strategic alternatives, including the merger with Horizon;
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the results of the solicitation process conducted by Wolverine, with the advice and assistance of its advisors;
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the terms of the Merger Agreement, including the fixed cash and stock consideration and the expected tax treatment of the merger as a reorganization for United States federal income tax purposes;
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certain structural protections included in the Merger Agreement, including:
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that the Merger Agreement does not preclude a third party from making an unsolicited acquisition proposal to Wolverine and that, under certain circumstances more fully described under
The Merger
Agreement
Acquisition Proposals by Third Parties,
Wolverine may furnish
non-public
information to and enter into discussions with such a third
party regarding an acquisition proposal;
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the ability of the Wolverine board of directors to submit the Merger Agreement to stockholders without recommendation, in which event the board of directors may communicate the basis for its lack of a recommendation to
the extent required by law;
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the ability of Wolverine to terminate the Merger Agreement if the price of Horizons common stock drops more than 15% relative to both its price before public announcement of the transaction and the SNL Small Cap
U.S. Bank and Thrift Index;
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the ability of Wolverine to terminate the Merger Agreement to enter into a definitive agreement for a superior proposal if certain requirements are met, in each case subject to the payment of a termination fee by
Wolverine of $3,539,000, an amount that was negotiated at
arms-length
and was determined by the Wolverine board of directors to be reasonable under the circumstances and generally comparable to
termination fees in other similar transactions; and
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the covenant of Horizon to use its reasonable best efforts to obtain regulatory approval;
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the anticipated effect of the merger on Wolverines employees (including that Wolverine employees who do not continue as employees of Horizon will be entitled to severance benefits);
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the effect on Wolverines customers and the communities served by Wolverine, including Horizons commitment to donate $50,000 annually for a five-year period to nonprofit organizations and/or community schools
in the markets served by Wolverine;
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that Horizon will establish a Great Lakes Bay Region Advisory Board and add representatives from the communities served by Wolverine;
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the ability of Horizon to complete the Merger, from a business, financial, and regulatory perspective, and its proven track record of successfully completing acquisition transactions; and
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the ability of Horizon to pay the merger consideration and the relative value of the Horizon currency compared to its peers.
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The Wolverine board of directors also considered a number of potential risks and uncertainties in connection with its consideration of the
proposed merger, including, without limitation, the following:
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the challenges of integrating Wolverines business, operations and employees with those of Horizon;
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that Horizon had recently announced the acquisition of another financial institution and the challenges of obtaining regulatory approval and integrating two institutions concurrently;
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the potential risk of diverting management attention and resources from the operation of Wolverines business and towards the completion of the merger;
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the restrictions on the conduct of Wolverines business before the completion of the merger, which are customary for public company merger agreements involving financial institutions, but which, subject to specific
exceptions, could delay or prevent Wolverine from undertaking business opportunities that may arise or any other action it would otherwise take with respect to the operations of Wolverine absent the pending merger;
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that the interests of certain of Wolverines directors and officers may be different from, or in addition to, the interests of Wolverines other stockholders as described under the heading
Interests
of Certain Directors and Officers of Wolverine in the Merger
;
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the risk of potential employee attrition and/or adverse effects on business and customer relationships as a result of the pending merger;
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the need to and likelihood of obtaining approval by stockholders of Wolverine and bank regulators to complete the transaction;
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the risks and costs associated with entering into the Merger Agreement and restrictions on the conduct of Wolverines business before the merger is completed;
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the possibility of a reduction in the trading price of Horizon common stock following the announcement of the Merger Agreement and prior to completion of the merger;
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that a termination fee in the amount of $3,539,000 would have to be paid to Horizon if Wolverine determined to terminate the Merger Agreement to accept a superior proposal or if Horizon determined to terminate the
Merger Agreement due to Wolverines material breach of its
non-solicitation
obligations, or, after the receipt of a third party proposal, Wolverines breach of its representations or warranties,
failure to recommend or the withdrawal or modification of its recommendation of the Merger Agreement, or entry into an acquisition agreement following its failure to obtain stockholder approval of the Merger Agreement;
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the impact that provisions of the Merger Agreement relating to payment of a termination fee by Wolverine may have on Wolverine receiving an alternative proposal;
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the potential costs associated with executing the Merger Agreement, including change in control payments and related costs, as well as estimated advisor fees; and
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the possibility of litigation in connection with the merger.
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This discussion of the
information and factors considered by Wolverines board of directors in reaching its conclusions and recommendation includes the factors identified above, but is not intended to be exhaustive and may not include all of the factors considered by
the Wolverine board of directors. In view of the wide variety of factors considered in connection with its evaluation of the merger and the other transactions contemplated by the Merger Agreement, and the complexity of these matters, the Wolverine
board of directors did not find it useful and did not attempt to quantify, rank or assign any relative or specific weights to the various factors that it considered in reaching its determination to approve the merger and the other transactions
contemplated by the Merger Agreement, and to make its recommendation to Wolverine stockholders. Rather, the Wolverine board of directors viewed its decisions as being based on the totality of the information presented to it and the factors it
considered. In addition, individual members of the Wolverine board of directors may have assigned different weights to different factors.
Certain of Wolverines directors and executive officers have financial interests in the merger that are different from, or in addition to,
those of Wolverines stockholders generally. The Wolverine board of directors was aware of and considered these potential interests, among other matters, in evaluating the merger and in making its recommendation to Wolverine stockholders. For a
discussion of these interests, see
Interests of Certain Directors and Officers of Wolverine in the Merger
.
For the
reasons set forth above, Wolverines board of directors has unanimously approved the Merger Agreement, has determined that the Merger Agreement and the transactions contemplated thereby, including the Merger and merger consideration, are
advisable and in the best interests of Wolverine and its stockholders, and unanimously recommends that Wolverine stockholders vote FOR the proposal to approve and adopt the Merger Agreement and the merger, FOR the approval of
the Merger-Related Compensation Proposal, and FOR the Adjournment Proposal.
Horizons Reasons for the
Merger
To reach its decision to approve the Merger Agreement, Horizons board of directors consulted with Horizons
management, as well as its financial and legal advisors, and considered a number of factors, including:
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the business, earnings, operations, financial condition, management, prospects, capital levels, and asset quality of both Horizon
and Wolverine, taking into account the results of Horizons due
diligence review of Wolverine, including Horizons assessments of Wolverines credit policies, asset quality, adequacy of loan loss reserves, interest rate risk, and litigation;
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the overall greater scale that will be achieved by the merger that will better position the combined company for future growth;
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its belief that Horizon and Wolverine have similar cultures and similar community-oriented philosophies, and the complementary nature of the strengths of the management personnel of each company;
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its ability to retain a seasoned management team to lead its banking efforts in the Great Lakes Bay Region of Michigan;
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growth opportunities in the Great Lakes Bay Region and Oakland County, Michigan;
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the belief of Horizons management that the merger will result in
pre-tax
annual cost savings of approximately $3.0 million in 2018, $3.1 million in 2019, and
$3.2 million in 2020. Approximately $2.2 million of the expected savings in 2018 are expected to result from reduced expenses for salaries, employee benefits, and other employee matters, approximately $360,000 are expected to result from
reduced data processing expenses, approximately $120,000 are expected to result from reduced professional fees, and approximately $365,000 are expected to result from reduced general, administrative, and other expenses;
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the belief of Horizon that the merger will produce earnings enhancement opportunities from additional sources of
non-interest
income;
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the estimation by Horizons management that the merger will result in
after-tax
earnings per share accretion of $0.10 in 2018, $0.09 in 2019, and $0.07 in 2020;
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the likelihood of a successful integration of Wolverines business, operations, and workforce with those of Horizon and of successful operation of the combined company, and the belief that customer disruption
in the transition phase would not be significant due to the complementary nature of the markets served by Horizon and Wolverine;
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the historical and current market prices of Horizons common stock and Wolverines common stock;
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the fact that Wolverines stockholders would own approximately 8.4% of the diluted share ownership of the combined company (giving effect to the completion of the previously announced acquisition of LFCB);
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the financial and other terms and conditions of the Merger Agreement, including the fact that the exchange ratio and the per share amount of the cash merger consideration are both fixed, provisions designed to limit the
ability of Wolverines board of directors to entertain third party acquisition proposals, a provision giving Wolverine the right to terminate the Merger Agreement in the event of a specified decline in the market value of Horizons common
stock relative to a designated market index unless Horizon agrees to pay additional merger consideration, and provisions providing for payment by Wolverine to Horizon of a $3,539,000 termination fee if the Merger Agreement is terminated
under certain circumstances;
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the boards belief that Horizon will be able to finance the cash portion of the merger consideration on substantially the terms contemplated by it;
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the interests of Wolverines directors and executive officers in the merger, in addition to their interests generally as stockholders, as described under
Interests of Certain Directors and Officers of
Wolverine in the Merger
beginning on page 80; and
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the need to obtain Wolverines stockholder approval and regulatory approvals in order to complete the transaction.
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The foregoing discussion of the factors considered by Horizons board of directors is not intended to be exhaustive, but rather includes
the material factors considered by Horizons board of directors. In reaching its decision to approve the Merger Agreement and the merger, Horizons board of directors did not quantify or assign any relative weights to the factors
considered, and individual directors may have given different weights
42
to different factors. Horizons board of directors considered these factors as a whole, including discussions with, and questioning of, Horizons management and its financial and legal
advisors, and overall considered the factors to be favorable to, and to support, its determination.
For the reasons set forth above,
Horizons board of directors unanimously approved the Merger Agreement and the merger, and the transactions contemplated by the Merger Agreement.
Effects of the Merger
The respective boards of directors of Horizon and Wolverine believe that, over the long-term, the merger will be beneficial to Horizons
stockholders, including the current stockholders of Wolverine who will become Horizon stockholders if the merger is completed. The Horizon board of directors believes that one of the potential benefits of the merger is the cost savings that may be
realized by combining the two companies and integrating Wolverine Bank into Horizons banking subsidiary, which savings are expected to enhance Horizons earnings.
Horizon expects to reduce expenses by combining accounting, data processing, retail and lending support, and other administrative functions
after the merger, which will enable Horizon to achieve economies of scale in these areas. Promptly following the completion of the merger, which is expected to occur early in the fourth quarter of 2017, Horizon plans to begin the process of
eliminating redundant functions and eliminating duplicative expenses that were identified prior to the completion of the merger. It is contemplated that after the merger Horizon Bank will continue to operate the main offices and branch offices of
Wolverine Bank. For more information about Wolverines branch offices, see
Additional Information About Wolverine
Properties
beginning on page 134.
The amount of any cost savings Horizon may realize in 2017 will depend upon how quickly and efficiently Horizon is able to implement the
processes outlined above during the year.
Horizon believes that it will achieve cost savings based on the assumption that it will be able
to:
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reduce data processing costs;
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reduce regulatory fees; and
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reduce legal and accounting fees.
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Horizon has based these assumptions on its present
assessment of where savings could be realized based upon the present independent operations of the two companies. Actual savings in some or all of these areas could be higher or lower than is currently expected.
Horizon also believes that the merger will be beneficial to the customers of Wolverine as a result of the additional products and services
offered by Horizon and because of its increased lending capabilities.
Negotiations, Transactions, or Material Contracts
Except as set forth above or elsewhere in this proxy statement/prospectus, none of Wolverine, Wolverine Bank, nor any of their
respective directors, executive officers, or other affiliates had any negotiations, transactions, or material contracts with Horizon, Horizon Bank, or any of their directors, executive officers, or other affiliates during the past three years that
would require disclosure under the rules and regulations of the SEC applicable to this proxy statement/prospectus.
Opinion
of Wolverines Financial Advisor
Wolverine engaged KBW to render financial advisory and investment banking services to Wolverine,
including an opinion to the Wolverine board of directors as to the fairness, from a financial point of view, to the holders of Wolverine common stock of the merger consideration to be received by such stockholders in the
43
proposed merger of Wolverine with and into Horizon. Wolverine selected KBW because KBW is a nationally recognized investment banking firm with substantial experience in transactions similar to
the merger. As part of its investment banking business, KBW is continually engaged in the valuation of financial services businesses and their securities in connection with mergers and acquisitions.
As part of its engagement, representatives of KBW attended the meeting of the Wolverine board held on June 13, 2017, at which the
Wolverine board evaluated the proposed merger. At this meeting, KBW rendered to the Wolverine board an opinion to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and
limitations on the review undertaken by KBW as set forth in its opinion, the merger consideration in the proposed merger was fair, from a financial point of view, to the holders of Wolverine common stock. The Wolverine board approved the Merger
Agreement at this meeting.
The description of the opinion set forth herein is qualified in its entirety by reference to the full text of
the opinion, which is attached as
Appendix B
to this document and is incorporated herein by reference, and describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by
KBW in preparing the opinion.
KBWs opinion speaks only as of the date of the opinion. The opinion was for the information of, and
was directed to, the Wolverine board (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion addressed only the fairness, from a financial point of view, of the merger consideration in the
merger to the holders of Wolverine common stock. It did not address the underlying business decision of Wolverine to engage in the merger or enter into the Merger Agreement or constitute a recommendation to the Wolverine board in connection with the
merger, and it does not constitute a recommendation to any holder of Wolverine common stock or any stockholder of any other entity as to how to vote in connection with the merger or any other matter, nor does it constitute a recommendation regarding
whether or not any such stockholder should enter into a voting, stockholders or affiliates agreement with respect to the merger.
KBWs opinion was reviewed and approved by KBWs Fairness Opinion Committee in conformity with its policies and procedures
established under the requirements of Rule 5150 of the Financial Industry Regulatory Authority.
In connection with the opinion, KBW
reviewed, analyzed and relied upon material bearing upon the financial and operating condition of Wolverine and Horizon and bearing upon the merger, including, among other things:
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a draft of the Merger Agreement dated June 13, 2017 (the most recent draft then made available to KBW);
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the audited financial statements and the Annual Reports on Form
10-K
for the three fiscal years ended December 31, 2016 of Wolverine;
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the unaudited quarterly financial statements and the Quarterly Report on Form
10-Q
for the fiscal quarter ended March 31, 2017 of Wolverine;
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the audited financial statements and the Annual Reports on Form
10-K
for the three fiscal years ended December 31, 2016 of Horizon;
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the unaudited quarterly financial statements and the Quarterly Report on Form
10-Q
for the fiscal quarter ended March 31, 2017 of Horizon;
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certain regulatory filings of Wolverine, Horizon and their respective subsidiaries, including (as applicable) the semi-annual reports on Form FR
Y-9SP
and quarterly reports on
Form FR
Y-9C
and quarterly call reports required to be filed with respect to each semi-annual period and quarter (as the case may be) during the three-year period ended December 31, 2016 and the quarter
ended March 31, 2017;
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certain other interim reports and other communications of Wolverine and Horizon to their respective shareholders; and
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other financial information concerning the businesses and operations of Wolverine and Horizon that was furnished to KBW by Wolverine and Horizon or which KBW was otherwise directed to use for purposes of KBWs
analyses.
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KBWs consideration of financial information and other factors that it deemed appropriate under the
circumstances or relevant to its analyses included, among others, the following:
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the historical and current financial position and results of operations of Wolverine and Horizon;
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the assets and liabilities of Wolverine and Horizon;
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the nature and terms of certain other merger transactions and business combinations in the banking industry;
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a comparison of certain financial and stock market information for Wolverine and Horizon with similar information for certain other companies the securities of which were publicly traded;
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financial and operating forecasts and projections of Wolverine that were prepared by, and provided to KBW and discussed with KBW by, Wolverine management and that were used and relied upon by KBW at the direction of
such management and with the consent of the Wolverine board;
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publicly available consensus street estimates of Horizon (which estimates reflected the estimated pro forma impact of Horizons pending acquisition of Lafayette Community Bancorp, which acquisition was
publicly announced on May 23, 2017 (the Lafayette Acquisition)), as well as assumed long-term Horizon growth rates provided to KBW by Horizon management, all of which information was discussed with KBW by such management and used
and relied upon by KBW based on such discussions, at the direction of Wolverine management and with the consent of the Wolverine board;
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projected balance sheet and capital data of Horizon, giving effect to Horizons estimates and assumptions regarding the pro forma impact of the Lafayette Acquisition, as of September 30, 2017, that was
prepared by Horizon management, provided to and discussed with KBW by such management and used and relied upon by KBW based on such discussions at the direction of Wolverine management and with the consent of the Wolverine board; and
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estimates regarding certain pro forma financial effects of the merger on Horizon (including, without limitation, the cost savings and related expenses expected to result from or be derived from the merger) that were
prepared by, and provided to and discussed with KBW by, the management of Horizon, and used and relied upon by KBW based on such discussions, at the direction of Wolverine management and with the consent of the Wolverine board.
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KBW also performed such other studies and analyses as it considered appropriate and took into account its assessment of general economic,
market and financial conditions and its experience in other transactions, as well as its experience in securities valuation and knowledge of the banking industry generally. KBW also participated in discussions that were held with the respective
managements of Wolverine and Horizon regarding the past and current business operations, regulatory relations, financial condition and future prospects of their respective companies and such other matters as KBW deemed relevant to its inquiry.
Although KBW assisted with the efforts undertaken by Wolverine to solicit indications of interest from third parties regarding a potential transaction with Wolverine, KBW was not requested to, and did not, engage in further discussions with parties
other than Horizon once Wolverine and Horizon entered into a period of exclusivity, notwithstanding the existence of another interested party that had recently indicated it might still have an interest in a potential transaction with Wolverine. KBW
expressed no opinion as to whether any alternative sale or other transaction resulting from further discussions with parties other than Horizon could have been more favorable in any respect to holders of Wolverine common stock than the merger or
whether the merger consideration would have been
45
more favorable to holders of Wolverine common stock than the consideration that could have been received by such holders in any such alternative transaction.
In conducting its review and arriving at its opinion, KBW relied upon and assumed the accuracy and completeness of all of the financial and
other information that was provided to it or that was publicly available and did not independently verify the accuracy or completeness of any such information or assume any responsibility or liability for such verification, accuracy or completeness.
KBW relied upon the management of Wolverine as to the reasonableness and achievability of the financial and operating forecasts and projections of Wolverine referred to above (and the assumptions and bases therefor), and KBW assumed that such
forecasts and projections were reasonably prepared and represented the best currently available estimates and judgments of such management and that such forecasts and projections would be realized in the amounts and in the time periods estimated by
such management. KBW further relied, with the consent of Wolverine, upon Horizon management as to the reasonableness and achievability of the publicly available consensus street estimates of Horizon, the assumed Horizon long-term growth
rates, and the estimates regarding certain pro forma financial effects of the merger on Horizon, all referred to above (and the assumptions and bases for all such information, including, without limitation, the cost savings and related expenses
expected to result or be derived from the merger), and KBW assumed that all such information was reasonably prepared and represented, or in the case of the Horizon street estimates referred to above that such estimates were consistent
with, the best currently available estimates and judgments of Horizon management and that the forecasts, projections and estimates reflected in such information would be realized in the amounts and in the time periods estimated. KBW expressed no
view or opinion as to the Lafayette Acquisition (or any terms, aspects or implications thereof) and has assumed, with the consent of Wolverine, that the Lafayette Acquisition would be consummated as described to KBW by Horizon management, and would
occur in the third quarter of 2017.
It is understood that the portion of the foregoing financial information of Wolverine and Horizon that
was provided to KBW was not prepared with the expectation of public disclosure, that all of the foregoing financial information, including the publicly available consensus street estimates of Horizon, was based on numerous variables and
assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions and that, accordingly, actual results could vary significantly from those set forth in such information. KBW
assumed, based on discussions with the respective managements of Wolverine and Horizon and with the consent of the Wolverine board, that all such information provided a reasonable basis upon which KBW could form its opinion and KBW expressed no view
as to any such information or the assumptions or bases therefor. KBW relied on all such information without independent verification or analysis and did not in any respect assume any responsibility or liability for the accuracy or completeness
thereof.
KBW also assumed that there were no material changes in the assets, liabilities, financial condition, results of operations,
business or prospects of either Wolverine or Horizon since the date of the last financial statements of each such entity that were made available to KBW. KBW is not an expert in the independent verification of the adequacy of allowances for loan and
lease losses and KBW assumed, without independent verification and with Wolverines consent, that the aggregate allowances for loan and lease losses for Wolverine and Horizon are adequate to cover such losses. In rendering its opinion, KBW did
not make or obtain any evaluations or appraisals or physical inspection of the property, assets or liabilities (contingent or otherwise) of Wolverine or Horizon, the collateral securing any of such assets or liabilities, or the collectability of any
such assets, nor did KBW examine any individual loan or credit files, nor did it evaluate the solvency, financial capability or fair value of Wolverine or Horizon under any state or federal laws, including those relating to bankruptcy, insolvency or
other matters. Estimates of values of companies and assets do not purport to be appraisals or necessarily reflect the prices at which companies or assets may actually be sold. Because such estimates are inherently subject to uncertainty, KBW assumed
no responsibility or liability for their accuracy.
KBW assumed, in all respects material to its analyses:
|
|
|
that the merger and any related transactions (including the bank subsidiary merger) would be completed
substantially in accordance with the terms set forth in the Merger Agreement (the final
|
46
|
terms of which KBW assumed would not differ in any respect material to KBWs analyses from the draft reviewed by KBW and referred to above) with no additional payments or adjustments to the
merger consideration (including the allocation between cash and stock);
|
|
|
|
that the representations and warranties of each party in the Merger Agreement and in all related documents and instruments referred to in the Merger Agreement were true and correct;
|
|
|
|
that each party to the Merger Agreement and all related documents would perform all of the covenants and agreements required to be performed by such party under such documents;
|
|
|
|
that there were no factors that would delay or subject to any adverse conditions, any necessary regulatory or governmental approval for the merger or any related transaction (including the subsidiary bank merger) and
that all conditions to the completion of the merger and any such related transaction would be satisfied without any waivers or modifications to the Merger Agreement or any of the related documents; and
|
|
|
|
that in the course of obtaining the necessary regulatory, contractual, or other consents or approvals for the merger and any related transaction (including the subsidiary bank merger), no restrictions, including any
divestiture requirements, termination or other payments or amendments or modifications, would be imposed that would have a material adverse effect on the future results of operations or financial condition of Wolverine, Horizon or the pro forma
entity, or the contemplated benefits of the merger, including without limitation the cost savings and related expenses expected to result or be derived from the merger.
|
KBW assumed that the merger would be consummated in a manner that complies with the applicable provisions of the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, and all other applicable federal and state statutes, rules and regulations. KBW was further advised by representatives of Wolverine that Wolverine relied upon advice from its advisors (other
than KBW) or other appropriate sources as to all legal, financial reporting, tax, accounting and regulatory matters with respect to Wolverine, Horizon, the merger and any related transaction (including the subsidiary bank merger), the Merger
Agreement and the Lafayette Acquisition. KBW did not provide advice with respect to any such matters.
KBWs opinion addressed only
the fairness, from a financial point of view, as of the date of the opinion, to the holders of Wolverine common stock of the merger consideration to be received by such holders in the merger. KBW expressed no view or opinion as to any other terms or
aspects of the merger or any term or aspect of any related transaction (including the subsidiary bank merger), including without limitation, the form or structure of the merger (including the form of the merger consideration or the allocation of the
merger consideration between cash and stock) or any such related transaction, any consequences of the merger or any such related transaction to Wolverine, its stockholders, creditors or otherwise, or any terms, aspects, merits or implications of any
employment, consulting, voting, support, stockholder or other agreements, arrangements or understandings contemplated or entered into in connection with the merger or otherwise. KBWs opinion was necessarily based upon conditions as they
existed and could be evaluated on the date of such opinion and the information made available to KBW through such date. Developments subsequent to the date of KBWs opinion may have affected, and may affect, the conclusion reached in KBWs
opinion and KBW did not and does not have an obligation to update, revise or reaffirm its opinion. For purposes of KBWs analyses, KBW did not incorporate recently-announced proposed changes to United States tax laws regarding corporate tax
rates. KBWs opinion did not address, and KBW expressed no view or opinion with respect to:
|
|
|
the underlying business decision of Wolverine to engage in the merger or enter into the Merger Agreement;
|
|
|
|
the relative merits of the merger as compared to any strategic alternatives that are, have been or may be available to or contemplated by Wolverine or the Wolverine board;
|
|
|
|
the fairness of the amount or nature of any compensation to any of Wolverines officers, directors or employees, or any class of such persons, relative to the compensation to the holders of Wolverine common stock;
|
47
|
|
|
the effect of the merger or any related transaction on, or the fairness of the consideration to be received by, holders of any class of securities of Wolverine (other than the holders of Wolverine common stock, solely
with respect to the merger consideration as described in KBWs opinion and not relative to the consideration to be received by holders of any other class of securities) or holders of any class of securities of Horizon or any other party to any
transaction contemplated by the Merger Agreement;
|
|
|
|
any adjustment (as provided in the Merger Agreement) to the merger consideration assumed to be paid in the merger for purposes of KBWs opinion;
|
|
|
|
whether Horizon has sufficient cash, available lines of credit or other sources of funds to enable it to pay the aggregate amount of the cash consideration to the holders of Wolverine common stock at the closing of the
merger;
|
|
|
|
the actual value of Horizon common stock to be issued in the merger;
|
|
|
|
the prices, trading range or volume at which Wolverine common stock and Horizon common stock would trade following the public announcement of the merger or the prices, trading range or volume at which Horizon common
stock would trade following the consummation of the merger;
|
|
|
|
any advice or opinions provided by any other advisor to any of the parties to the merger or any other transaction contemplated by the Merger Agreement; or
|
|
|
|
any legal, regulatory, accounting, tax or similar matters relating to Wolverine, Horizon, their respective shareholders, or relating to or arising out of or as a consequence of the merger or any related transaction
(including the subsidiary bank merger), or the Lafayette Acquisition, including whether or not the merger would qualify as a
tax-free
reorganization for United States federal income tax purposes.
|
In performing its analyses, KBW made numerous assumptions with respect to industry performance, general business, economic,
market and financial conditions and other matters, which are beyond the control of KBW, Wolverine and Horizon. Any estimates contained in the analyses performed by KBW are not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by these analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be
sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. In addition, the KBW opinion was among several factors taken into consideration by the Wolverine board in making its determination to approve the
Merger Agreement and the merger. Consequently, the analyses described below should not be viewed as determinative of the decision of the Wolverine board with respect to the fairness of the merger consideration. The type and amount of consideration
payable in the merger were determined through negotiation between Wolverine and Horizon and the decision of Wolverine to enter into the Merger Agreement was solely that of the Wolverine board.
The following is a summary of the material financial analyses presented by KBW to the Wolverine board in connection with its opinion. The
summary is not a complete description of the financial analyses underlying the opinion or the presentation made by KBW to the Wolverine board, but summarizes the material analyses performed and presented in connection with such opinion. The
financial analyses summarized below includes information presented in tabular format. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex analytic process involving
various determinations as to appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or summary
description. In arriving at its opinion, KBW did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly,
KBW believes that its analyses and the summary of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses
and factors or the full narrative description of
48
the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying its analyses and opinion.
For purposes of the financial analyses described below, KBW utilized an implied value of the merger consideration of $41.49 per share of
Wolverine common stock, consisting of the sum of (i) the implied value of the stock consideration of 1.0152 shares of Horizon common stock based on the closing price of Horizon common stock on June 12, 2017, and (ii) the cash
consideration of $14.00.
Wolverine Selected Companies Analysis
.
Using publicly available information, KBW compared
the financial performance, financial condition and market performance of Wolverine to 12 selected publicly traded banks and thrifts that were headquartered in the Midwest U.S. and that had total assets between $300 million and $500 million
and tangible common equity to tangible assets ratios greater than 10.00%. Targets of publicly announced merger transactions and mutual holding companies were excluded from the selected companies.
The selected companies were as follows:
|
|
|
BOSP Bancshares, Inc.
|
|
Liberty Bancorp, Inc.
|
|
|
Boyle Bancorp, Inc.
|
|
Madison County Financial, Inc.
|
|
|
Denmark Bancshares, Inc.
|
|
Northeast Indiana Bancorp, Inc.
|
|
|
FNBH Bancorp, Inc.
|
|
Northern States Financial Corporation
|
|
|
HFB Financial Corporation
|
|
Perpetual Federal Savings Bank
|
|
|
Jacksonville Bancorp, Inc.
|
|
Poage Bankshares, Inc.
|
To perform this analysis, KBW used profitability and other financial information as of, or for the latest 12
months (LTM) period ended, March 31, 2017 or, in the case of BOSP Bancshares, Inc., Boyle Bancorp, Inc., FNBH Bancorp, Inc. and HFB Financial Corporation, December 31, 2016, and KBW also used market price information as of
June 12, 2017. Where consolidated holding company level financial data for the selected companies was unreported, subsidiary bank level data was utilized to calculate ratios. Certain financial data prepared by KBW, and as referenced in the
tables presented below, may not correspond to the data presented in Wolverines historical financial statements as a result of the different periods, assumptions and methods used by KBW to compute the financial data presented.
KBWs analysis showed the following concerning the financial performance of Wolverine and the selected companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Companies
|
|
|
|
Wolverine
|
|
|
25
th
Percentile
|
|
|
Median
|
|
|
Average
|
|
|
75
th
Percentile
|
|
LTM Return on Average Assets
|
|
|
1.21
|
%
|
|
|
0.79
|
%
|
|
|
0.94
|
%
|
|
|
0.93
|
%
|
|
|
1.13
|
%
|
|
|
|
|
|
|
LTM Return on Average Equity
|
|
|
7.58
|
%
|
|
|
6.59
|
%
|
|
|
7.15
|
%
|
|
|
7.09
|
%
|
|
|
8.63
|
%
|
|
|
|
|
|
|
LTM Return on Average Tangible Common Equity
|
|
|
7.50
|
%
|
|
|
6.66
|
%
|
|
|
7.18
|
%
|
|
|
7.24
|
%
|
|
|
8.65
|
%
|
|
|
|
|
|
|
LTM Net Interest Margin
|
|
|
3.36
|
%
|
|
|
3.46
|
%
|
|
|
3.59
|
%
|
|
|
3.64
|
%
|
|
|
3.78
|
%
|
|
|
|
|
|
|
LTM Net Interest Income / Average Assets
|
|
|
0.24
|
%
|
|
|
0.65
|
%
|
|
|
0.72
|
%
|
|
|
0.80
|
%
|
|
|
0.88
|
%
|
|
|
|
|
|
|
LTM Net Interest Expense / Average Assets
|
|
|
2.04
|
%
|
|
|
3.35
|
%
|
|
|
3.01
|
%
|
|
|
2.94
|
%
|
|
|
2.85
|
%
|
|
|
|
|
|
|
LTM Efficiency Ratio
|
|
|
57.40
|
%
|
|
|
75.68
|
%
|
|
|
70.51
|
%
|
|
|
67.80
|
%
|
|
|
62.80
|
%
|
49
KBWs analysis also showed the following concerning the financial condition of Wolverine and
the selected companies:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Companies
|
|
|
|
Wolverine
|
|
|
25
th
Percentile
|
|
|
Median
|
|
|
Average
|
|
|
75
th
Percentile
|
|
Tangible Common Equity / Tangible Assets
|
|
|
16.47
|
%
|
|
|
11.30
|
%
|
|
|
12.49
|
%
|
|
|
13.32
|
%
|
|
|
14.28
|
%
|
|
|
|
|
|
|
Total Capital Ratio
|
|
|
22.62
|
%
|
|
|
16.93
|
%
|
|
|
17.84
|
%
|
|
|
18.82
|
%
|
|
|
20.41
|
%
|
|
|
|
|
|
|
Loans / Deposits
|
|
|
119.76
|
%
|
|
|
78.00
|
%
|
|
|
90.40
|
%
|
|
|
88.41
|
%
|
|
|
92.96
|
%
|
|
|
|
|
|
|
Loan Loss Reserve / Gross Loans
|
|
|
2.69
|
%
|
|
|
1.44
|
%
|
|
|
1.54
|
%
|
|
|
1.71
|
%
|
|
|
1.96
|
%
|
|
|
|
|
|
|
Nonperforming Assets
(1)
/ Total
Assets
|
|
|
1.60
|
%
|
|
|
1.61
|
%
|
|
|
1.32
|
%
|
|
|
1.33
|
%
|
|
|
0.64
|
%
|
|
|
|
|
|
|
LTM Net Charge-Offs / Average Loans
|
|
|
(0.02
|
%)
|
|
|
0.11
|
%
|
|
|
0.01
|
%
|
|
|
(0.09
|
)%
|
|
|
0.08
|
%
|
(1)
|
Nonperforming assets included loans 90+ days past due.
|
In addition, KBWs analysis showed
the following concerning the market performance of Wolverine and the selected companies (excluding the impact of the LTM earnings per share (EPS) multiples for two of the selected companies, which multiples were considered to be not
meaningful because they were either less than zero or greater than 30.0x):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Companies
|
|
|
|
Wolverine
|
|
|
25
th
Percentile
|
|
|
Median
|
|
|
Average
|
|
|
75
th
Percentile
|
|
One-Year
Stock Price Change
|
|
|
21.89
|
%
|
|
|
8.59
|
%
|
|
|
19.47
|
%
|
|
|
20.51
|
%
|
|
|
26.37
|
%
|
|
|
|
|
|
|
One-Year
Total Return
|
|
|
27.94
|
%
|
|
|
13.18
|
%
|
|
|
20.30
|
%
|
|
|
23.08
|
%
|
|
|
30.36
|
%
|
|
|
|
|
|
|
Year-To-Date
Stock
Price Change
|
|
|
(0.09
|
%)
|
|
|
2.79
|
%
|
|
|
4.68
|
%
|
|
|
6.21
|
%
|
|
|
8.58
|
%
|
|
|
|
|
|
|
Stock Price / Book Value per Share
|
|
|
1.06x
|
|
|
|
0.98x
|
|
|
|
1.05x
|
|
|
|
1.06x
|
|
|
|
1.17x
|
|
|
|
|
|
|
|
Stock Price / Tangible Book Value per Share
|
|
|
1.06x
|
|
|
|
1.00x
|
|
|
|
1.07x
|
|
|
|
1.08x
|
|
|
|
1.18x
|
|
|
|
|
|
|
|
Stock Price / LTM EPS
|
|
|
13.4x
|
|
|
|
11.7x
|
|
|
|
12.4x
|
|
|
|
12.6x
|
|
|
|
13.7x
|
|
|
|
|
|
|
|
Dividend Yield
(1)
|
|
|
5.07
|
%
|
|
|
0.73
|
%
|
|
|
1.50
|
%
|
|
|
1.72
|
%
|
|
|
2.71
|
%
|
|
|
|
|
|
|
LTM Dividend Payout
(1)
|
|
|
68.09
|
%
|
|
|
8.04
|
%
|
|
|
28.42
|
%
|
|
|
27.62
|
%
|
|
|
44.98
|
%
|
(1)
|
Dividend payout and yield calculated using most recent quarterly dividend annualized excluding special dividends.
|
No company used as a comparison in the above selected companies analysis is identical to Wolverine. Accordingly, an analysis of these results
is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.
Horizon Bancorp Selected Companies Analysis.
Using publicly available information, KBW compared the financial performance,
financial condition and market performance of Horizon to 11 selected major exchange-traded banks and thrifts that were headquartered in the Midwest U.S. and that had total assets between $2.5 billion and $4.0 billion. Targets of publicly
announced merger transactions and mutual holding companies were excluded from the selected companies.
50
The selected companies were as follows:
|
|
|
|
|
Bank Mutual Corporation
|
|
|
Midland States Bancorp, Inc.
|
|
|
|
First Financial Corporation
|
|
|
MidWestOne Financial Group, Inc.
|
|
|
|
First
Mid-Illinois
Bancshares, Inc.
|
|
|
Peoples Bancorp Inc.
|
|
|
|
German American Bancorp, Inc.
|
|
|
QCR Holdings, Inc.
|
|
|
|
Independent Bank Corporation
|
|
|
Stock Yards Bancorp, Inc.
|
|
|
|
Mercantile Bank Corporation
|
|
|
|
|
To perform this analysis, KBW used profitability and other financial information as of, or for the LTM period
ended, March 31, 2017, and KBW also used market price information as of June 12, 2017. KBW also used 2017 and 2018 EPS estimates taken from publicly available consensus street estimates of Horizon and the selected companies.
Where consolidated holding company level financial data for the selected companies was unreported, subsidiary bank level data was utilized to calculate ratios. Certain financial data prepared by KBW, and as referenced in the tables presented below,
may not correspond to the data presented in Horizons historical financial statements as a result of the different periods, assumptions and methods used by KBW to compute the financial data presented.
KBWs analysis showed the following concerning the financial performance of Horizon and the selected companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Companies
|
|
|
|
Horizon
|
|
|
25
th
Percentile
|
|
|
Median
|
|
|
Average
|
|
|
75
th
Percentile
|
|
LTM Return on Assets
|
|
|
0.87
|
%
|
|
|
0.94
|
%
|
|
|
1.01
|
%
|
|
|
1.02
|
%
|
|
|
1.13
|
%
|
|
|
|
|
|
|
LTM Return on Equity
|
|
|
8.29
|
%
|
|
|
7.74
|
%
|
|
|
9.13
|
%
|
|
|
9.44
|
%
|
|
|
11.13
|
%
|
|
|
|
|
|
|
LTM Return on Average Tangible Common Equity
|
|
|
11.22
|
%
|
|
|
10.35
|
%
|
|
|
11.77
|
%
|
|
|
11.42
|
%
|
|
|
13.22
|
%
|
|
|
|
|
|
|
LTM Net Interest Margin
|
|
|
3.50
|
%
|
|
|
3.55
|
%
|
|
|
3.75
|
%
|
|
|
3.67
|
%
|
|
|
3.81
|
%
|
|
|
|
|
|
|
LTM Net Interest Income / Average Assets
|
|
|
1.11
|
%
|
|
|
0.95
|
%
|
|
|
1.06
|
%
|
|
|
1.20
|
%
|
|
|
1.50
|
%
|
|
|
|
|
|
|
LTM Net Interest Expense / Average Assets
|
|
|
2.71
|
%
|
|
|
3.09
|
%
|
|
|
2.77
|
%
|
|
|
2.91
|
%
|
|
|
2.60
|
%
|
|
|
|
|
|
|
LTM Efficiency Ratio
|
|
|
62.21
|
%
|
|
|
65.94
|
%
|
|
|
60.70
|
%
|
|
|
62.14
|
%
|
|
|
58.75
|
%
|
KBWs analysis showed the following concerning the financial condition of Horizon and the selected
companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Companies
|
|
|
|
Horizon
|
|
|
25
th
Percentile
|
|
|
Median
|
|
|
Average
|
|
|
75
th
Percentile
|
|
Tangible Common Equity / Tangible Assets
|
|
|
8.48
|
%
|
|
|
8.28
|
%
|
|
|
9.77
|
%
|
|
|
9.63
|
%
|
|
|
10.18
|
%
|
|
|
|
|
|
|
Total Capital Ratio
|
|
|
13.87
|
%
|
|
|
12.97
|
%
|
|
|
13.49
|
%
|
|
|
14.06
|
%
|
|
|
14.94
|
%
|
|
|
|
|
|
|
Loans / Deposits
|
|
|
87.93
|
%
|
|
|
80.20
|
%
|
|
|
85.56
|
%
|
|
|
88.10
|
%
|
|
|
94.10
|
%
|
|
|
|
|
|
|
Loan Loss Reserve / Gross Loans
|
|
|
0.70
|
%
|
|
|
0.79
|
%
|
|
|
1.03
|
%
|
|
|
0.97
|
%
|
|
|
1.07
|
%
|
|
|
|
|
|
|
Nonperforming Assets
(1)
/ Total
Assets
|
|
|
0.40
|
%
|
|
|
0.93
|
%
|
|
|
0.72
|
%
|
|
|
0.89
|
%
|
|
|
0.55
|
%
|
|
|
|
|
|
|
LTM Net Charge-Offs / Average Loans
|
|
|
0.04
|
%
|
|
|
0.17
|
%
|
|
|
0.08
|
%
|
|
|
0.12
|
%
|
|
|
(0.05
|
%)
|
(1)
|
Nonperforming assets included loans 90+ days past due.
|
51
In addition, KBWs analysis showed the following concerning the market performance of
Horizon and the selected companies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Companies
|
|
|
|
Horizon
|
|
|
25
th
Percentile
|
|
|
Median
|
|
|
Average
|
|
|
75
th
Percentile
|
|
One-Year
Stock Price Change
|
|
|
65.80
|
%
|
|
|
34.73
|
%
|
|
|
42.76
|
%
|
|
|
42.23
|
%
|
|
|
51.98
|
%
|
|
|
|
|
|
|
One-Year
Total Return
|
|
|
69.03
|
%
|
|
|
38.86
|
%
|
|
|
45.68
|
%
|
|
|
45.32
|
%
|
|
|
55.37
|
%
|
|
|
|
|
|
|
Year-To-Date
Stock
Price Change
|
|
|
(3.29
|
%)
|
|
|
(6.41
|
%)
|
|
|
(3.95
|
%)
|
|
|
(2.73
|
%)
|
|
|
1.03
|
%
|
|
|
|
|
|
|
Stock Price / Book Value per Share
|
|
|
1.72x
|
|
|
|
1.46x
|
|
|
|
1.58x
|
|
|
|
1.75x
|
|
|
|
1.98x
|
|
|
|
|
|
|
|
Stock Price / Tangible Book Value per Share
|
|
|
2.30x
|
|
|
|
1.75x
|
|
|
|
1.99x
|
|
|
|
2.02x
|
|
|
|
2.21x
|
|
|
|
|
|
|
|
Stock Price / LTM EPS
|
|
|
21.5x
|
|
|
|
17.8x
|
|
|
|
18.7x
|
|
|
|
19.3x
|
|
|
|
20.0x
|
|
|
|
|
|
|
|
Stock Price / 2017 Estimated EPS
|
|
|
16.0x
|
|
|
|
16.9x
|
|
|
|
17.7x
|
|
|
|
18.1x
|
|
|
|
18.4x
|
|
|
|
|
|
|
|
Stock Price / 2018 Estimated EPS
|
|
|
14.1x
|
|
|
|
15.3x
|
|
|
|
16.2x
|
|
|
|
16.4x
|
|
|
|
17.0x
|
|
|
|
|
|
|
|
Dividend Yield
(1)
|
|
|
1.62
|
%
|
|
|
1.80
|
%
|
|
|
2.00
|
%
|
|
|
1.89
|
%
|
|
|
2.24
|
%
|
|
|
|
|
|
|
LTM Dividend Payout
|
|
|
33.33
|
%
|
|
|
32.06
|
%
|
|
|
34.57
|
%
|
|
|
37.43
|
%
|
|
|
41.39
|
%
|
(1)
|
Dividend payout and yield calculated using most recent quarterly dividend annualized excluding special dividends.
|
No company used as a comparison in the above selected companies analysis is identical to Horizon. Accordingly, an analysis of these results is
not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.
Selected Transactions Analysis.
KBW reviewed publicly available information related to 12 selected whole bank and thrift
transactions, with acquired companies headquartered in the Midwest U.S., announced since January 1, 2016 with assets between $200 million and $700 million, tangible common equity / tangible assets ratios greater than 10.00% and
nonperforming assets to total assets ratios less than 3.00%. Transactions without reported deal values were excluded from the selected transactions.
The selected transactions were as follows:
|
|
|
Acquiror
|
|
Acquired Company
|
|
|
Citizens Community Bancorp, Inc.
|
|
Wells Financial Corp.
|
|
|
Topeka Bancorp Inc.
|
|
Kaw Valley Bancorp, Inc.
|
|
|
First Busey Corporation
|
|
Mid Illinois Bancorp, Inc.
|
|
|
First Merchants Corporation
|
|
Arlington Bank
|
|
|
First Commonwealth Financial Corporation
|
|
DCB Financial Corp
|
|
|
United Community Bancorp, Inc.
|
|
Liberty Bancshares, Inc.
|
|
|
First Defiance Financial Corp.
|
|
Commercial Bancshares, Inc.
|
|
|
Monona Bankshares, Inc.
|
|
MCB Bankshares, Inc.
|
|
|
Middlefield Banc Corp.
|
|
Liberty Bank, National Association
|
|
|
QCR Holdings, Inc.
|
|
Community State Bank
|
|
|
First
Mid-Illinois
Bancshares, Inc.
|
|
First Clover Leaf Financial Corp.
|
|
|
Horizon Bancorp
|
|
La Porte Bancorp, Inc.
|
52
For each selected transaction, KBW derived the following implied transaction statistics, in each
case based on the transaction consideration value paid for the acquired company and using financial data (if available) based on the acquired companys then latest publicly available financial statements prior to the announcement of the
respective transaction:
|
|
|
Price per common share to LTM EPS of the acquired company (in the case of selected transactions involving a private acquired company, this transaction statistic was calculated as total transaction consideration divided
by LTM net income);
|
|
|
|
Price per common share to book value per share of the acquired company (in the case of selected transactions involving a private acquired company, this transaction statistic was calculated as total transaction
consideration divided by total common equity);
|
|
|
|
Price per common share to tangible book value per share of the acquired company (in the case of selected transactions involving a private acquired company, this transaction statistic was calculated as total transaction
consideration divided by total tangible common equity); and
|
|
|
|
Tangible equity premium to core deposits (total deposits less time deposits greater than $100,000) of the acquired company, which we refer to as the core deposit premium.
|
The transaction statistics for the selected transactions were compared with the corresponding transaction statistics for the proposed merger
based on the implied transaction value for the proposed merger of $41.49 per share of Wolverine common stock and using historical financial information for Wolverine as of and for the twelve-month period ended March 31, 2017.
The results of the analysis are set forth in the following table (excluding the impact of the LTM EPS multiple for one of the selected
transactions, which multiple was considered to be not meaningful because it was either less than zero or greater than 100.0x, and the impact of the core deposit premium of another of the selected transactions, which core deposit premium was also
considered to be not meaningful):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Transactions
|
|
|
|
Wolverine
|
|
|
25
th
Percentile
|
|
|
Median
|
|
|
Average
|
|
|
75
th
Percentile
|
|
Transaction Value / LTM EPS (x)
|
|
|
17.7x
|
|
|
|
14.4x
|
|
|
|
18.2x
|
|
|
|
17.4x
|
|
|
|
19.1x
|
|
|
|
|
|
|
|
Transaction Value / Book Value (%)
|
|
|
140.0
|
%
|
|
|
104.2
|
%
|
|
|
124.1
|
%
|
|
|
135.6
|
%
|
|
|
164.7
|
%
|
|
|
|
|
|
|
Transaction Value / Tangible Book Value (%)
|
|
|
140.0
|
%
|
|
|
116.0
|
%
|
|
|
130.7
|
%
|
|
|
140.3
|
%
|
|
|
164.7
|
%
|
|
|
|
|
|
|
Core Deposit Premium (%)
|
|
|
17.1
|
%
|
|
|
4.4
|
%
|
|
|
4.9
|
%
|
|
|
7.3
|
%
|
|
|
11.3
|
%
|
No company or transaction used as a comparison in the above selected transaction analysis is identical to
Wolverine or the proposed merger. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.
Relative Contribution Analysis
.
KBW analyzed the relative standalone contribution of Horizon and
Wolverine to various pro forma balance sheet and income statement items and the pro forma market capitalization of the combined entity. This analysis did not include purchase accounting adjustments or cost savings. To perform this analysis, KBW used
(i) projected balance sheet and capital data for Horizon, giving effect to Horizons estimates and assumptions regarding the pro forma impact of the then pending Lafayette Acquisition, as of September 30, 2017 provided by Horizon
management, (ii) historical balance sheet and capital data for Wolverine as of March 31, 2017, (iii) publicly available EPS consensus street estimates of Horizon for 2017 and 2018, (iv) financial and operating forecasts and
projections of Wolverine provided by Wolverine management, and (v) market capitalization data as of June 12, 2017 applying, in the case of Horizon, a pro forma adjustment to share count for estimated shares to be issued in the then pending
Lafayette Acquisition. The results of KBWs analysis are set forth in the following table, which also compares the results of KBWs analysis with the implied pro forma ownership percentages of Horizon and Wolverine shareholders in the
combined company
53
based on the stock consideration of 1.0152 shares of Horizon common stock per share of Wolverine common stock and also hypothetically assuming 100% stock consideration in the proposed merger for
illustrative purposes:
|
|
|
|
|
|
|
|
|
|
|
Horizon as a
% of Total
|
|
|
Wolverine as a
% of Total
|
|
Ownership
|
|
|
|
|
|
|
|
|
|
|
|
At 1.0152x
|
|
|
92
|
%
|
|
|
8
|
%
|
|
|
|
Assuming 100% stock consideration
|
|
|
88
|
%
|
|
|
12
|
%
|
|
|
|
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
90
|
%
|
|
|
10
|
%
|
|
|
|
Gross Loans Held For Investment
|
|
|
88
|
%
|
|
|
12
|
%
|
|
|
|
Deposits
|
|
|
91
|
%
|
|
|
9
|
%
|
|
|
|
Tangible Common Equity
|
|
|
82
|
%
|
|
|
18
|
%
|
|
|
|
Income Statement
|
|
|
|
|
|
|
|
|
|
|
|
2017 Estimated Net Income
|
|
|
89
|
%
|
|
|
11
|
%
|
|
|
|
2018 Estimated Net Income
|
|
|
90
|
%
|
|
|
10
|
%
|
|
|
|
Market Capitalization
|
|
|
90
|
%
|
|
|
10
|
%
|
Forecasted Pro Forma Financial Impact Analysis.
KBW performed a pro forma financial impact
analysis that combined projected income statement and balance sheet information of Horizon and Wolverine. Using (i) closing balance sheet estimates as of September 30, 2017 for Horizon and Wolverine provided by Horizon management (giving
effect, in the case of Horizon, to Horizons estimates and assumptions regarding the pro forma impact of the then pending Lafayette Acquisition), (ii) publicly available consensus street estimates of Horizon for 2017 and 2018, (iii)
an assumed long term EPS growth rate for Horizon provided by Horizon management, (iv) financial and operating forecasts and projections of Wolverine provided by Wolverine management and pro forma assumptions (including certain purchase
accounting adjustments, cost savings and related expenses) provided by Horizon management, KBW analyzed the potential financial impact of the merger on certain projected financial results of Horizon. This analysis indicated the merger could be
accretive to Horizons estimated 2018 EPS and estimated 2019 EPS (assuming
one-time
merger-related charges at closing and no additional impact to EPS), accretive to Horizons estimated book value per
share as of September 30, 2017 and dilutive to Horizons estimated tangible book value per share as of September 30, 2017. Furthermore, the analysis indicated that each of Horizons tangible common equity to tangible assets
ratio, leverage ratio, Tier 1 Risk-Based Capital Ratio and Total Risk Based Capital Ratio as of September 30, 2017 could be lower. For all of the above analysis, the actual results achieved by Horizon following the merger may vary from the
projected results, and the variations may be material.
Wolverine Discounted Cash Flow Analysis.
KBW performed a discounted
cash flow analysis of Wolverine to estimate a range for the implied equity value of Wolverine. In this analysis, KBW used financial forecasts and projections relating to the net income and assets of Wolverine provided by Wolverine management, and
assumed discount rates ranging from 12.0% to 16.0%. The ranges of values were derived by adding (i) the present value of the estimated excess cash flows that Wolverine could generate over the five-year period from 2017 to 2021 as a standalone
company, and (ii) the present value of Wolverines implied terminal value at the end of such period. KBW assumed that Wolverine would maintain a tangible common equity to tangible asset ratio of 8.00% and would retain sufficient earnings
to maintain that level. KBW derived implied terminal values using two methodologies, one based on tangible book value multiples and the other based on 2022 net income multiples. Using implied terminal values for Wolverine calculated by applying a
terminal multiple range of 0.87x to 1.27x to Wolverines estimated tangible book value as of December 31, 2022, this discounted cash flow
54
analysis resulted in a range of implied values per share of Wolverine stock of approximately $29.14 to $35.66 per share. Using implied terminal values for Wolverine calculated by applying a
terminal multiple range of 10.4x to 14.4x to Wolverines estimated 2022 net income, this discounted cash flow analysis resulted in a range of implied values per share of Wolverine common stock of approximately $35.82 to $45.74 per share.
The discounted cash flow analysis is a widely used valuation methodology, but the results of such methodology are highly dependent on the
assumptions that must be made, including asset and earnings growth rates, terminal values, dividend payout rates, and discount rates. The foregoing discounted cash flow analyses did not purport to be indicative of the actual values of Wolverine.
Horizon Discounted Cash Flow Analysis.
KBW performed a discounted cash flow analysis of Horizon to estimate a range for the
implied equity value of Horizon. In this analysis, KBW used publicly available consensus street estimates of Horizon for 2017 and 2018, as well as assumed long-term net income and asset growth rates of Horizon provided by Horizon
management, and assumed discount rates ranging from 10.0% to 13.0%. The ranges of values were derived by adding (i) the present value of the estimated excess cash flows that Horizon could generate over the five-year period from 2017 to 2021 as
a standalone company, and (ii) the present value of Horizons implied terminal value at the end of such period. KBW assumed that Horizon would maintain a tangible common equity to tangible asset ratio of 8.00% and would retain sufficient
earnings to maintain that level. In calculating the terminal value of Horizon, KBW applied a range of 14.3x to 18.3x estimated Horizons 2022 net income. This discounted cash flow analysis resulted in a range of implied values per share of
Horizon common stock of approximately $25.02 to $34.64 per share.
The discounted cash flow analysis is a widely used valuation
methodology, but the results of such methodology are highly dependent on the assumptions that must be made, including asset and earnings growth rates, terminal values, dividend payout rates, and discount rates. The foregoing discounted cash flow
analyses did not purport to be indicative of the actual values of Horizon.
Miscellaneous
.
KBW acted as
financial advisor to Wolverine and not as an advisor to or agent of any other person. As part of its investment banking business, KBW is continually engaged in the valuation of bank and bank holding company securities in connection with
acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for various other purposes. As specialists in the securities of banking companies, KBW has experience in, and
knowledge of, the valuation of banking enterprises. KBW and its affiliates, in the ordinary course of its and their broker-dealer businesses (and further to certain existing sales and trading relationships between KBW and Wolverine and between
Horizon and a KBW broker-dealer affiliate, respectively), may from time to time purchase securities from, and sell securities to, Wolverine and Horizon. In addition, as market makers in securities, KBW and its affiliates may from time to time have a
long or short position in, and buy or sell, debt or equity securities of Wolverine or Horizon for its and their own accounts and for the accounts of its and their respective customers and clients. KBW employees may also maintain individual positions
in Wolverine common stock and Horizon common stock. Such positions included on the date of KBWs opinion and currently include an individual position in shares of Horizon common stock held by a senior member of the KBW advisory team providing
services to Wolverine in connection with the proposed merger.
Pursuant to the KBW engagement agreement, Wolverine agreed to pay KBW a cash
fee equal to 1.25% of the aggregate merger consideration, $25,000 of which became payable promptly after execution of the engagement agreement, $200,000 of which became payable upon the rendering of KBWs opinion, and the balance of which is
contingent upon the consummation of the merger. Wolverine also agreed to reimburse KBW for reasonable
out-of-pocket
expenses and disbursements incurred in connection
with its retention and to indemnify KBW against certain liabilities relating to or arising out of KBWs engagement or KBWs role in connection therewith. Other than in connection with this present engagement, during the two years preceding
the date of its opinion, KBW has not provided investment banking and financial advisory services to Wolverine. During the two years preceding the date of its opinion, KBW has not provided investment banking and financial advisory services to Horizon
and has not received compensation for such services. KBW may in the future provide investment banking and financial advisory services to Wolverine or Horizon and receive compensation for such services.
55
Certain Financial Projections Provided by Wolverine and Horizon
Wolverine and Horizon do not, as a matter of course, publicly disclose forecasts or internal projections as to their future performance,
earnings, or other results due to, among other reasons, the inherent uncertainty of the underlying assumptions and estimates. However, during February 2017, Wolverines management provided Horizon certain nonpublic unaudited prospective
financial information regarding Wolverine prepared by Wolverines management. This nonpublic unaudited prospective financial information was prepared by Wolverines management as part of the annual budget process. This prospective
financial information was updated in April 2017, and again in June 2017. In addition, KBW, in connection with the financial analyses performed in rendering its fairness opinion, used certain unaudited projected balance sheet and capital data for
Horizon, giving effect to Horizons estimates and assumptions regarding the pro forma impact of the then-pending Lafayette Acquisition, as of September 30, 2017, which was provided by Horizon management. A summary of these projections is
included in this proxy statement/prospectus because such initial forecasts and projected data were made available to Horizon and Wolverine, as the case may be, as described in the preceding sentences. They were also provided to Sheshunoff and KBW,
who also received other prospective financial information that is described below.
This nonpublic unaudited prospective financial
information was not prepared for the purposes of, or with a view toward, public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of
prospective financial information, published guidelines of the SEC regarding forward-looking statements, or GAAP. The information included below does not comprise all of the prospective financial information provided by Horizon and Wolverine to each
other or to KBW or Sheshunoff. However, a summary of the material elements of this information is set forth below.
Although presented with
numerical specificity, the financial forecasts reflect numerous estimates and assumptions of Wolverines and Horizons respective management made at the time they were prepared, and, in the case of Wolverine, assume the execution of
various strategic initiatives that Wolverine is no longer pursuing in light of the merger. These and the other estimates and assumptions underlying the financial forecasts involve judgments with respect to, among other things, the future interest
rate environment, the timing and level of loan originations, deposit generation, operating and other expenses, effective tax rates and other economic, competitive, regulatory, and financial market conditions and future business decisions that may
not be realized and that are inherently subject to significant uncertainties and contingencies. These uncertainties and contingencies include, among other things, the inherent uncertainty of the business and economic conditions affecting the
industry in which Wolverine and Horizon operate, and the risks and uncertainties described under
Risk Factors
beginning on page 19 and
Cautionary Note About Forward-Looking Statements
beginning on page 23, all
of which are difficult to predict and many of which are outside the control of Wolverine and Horizon and will be beyond the control of the combined company. There can be no assurance that the underlying assumptions would prove to be accurate or that
the projected results would be realized. Actual results may differ materially from those reflected in the financial forecasts, whether or not the merger is completed. Further, these assumptions do not include all potential actions that the
management of Wolverine and Horizon could or might have taken during these time periods.
The inclusion in this proxy statement/prospectus
of the nonpublic unaudited prospective financial information below should not be regarded as an indication that Wolverine, Horizon, their respective boards of directors, or KBW or Sheshunoff considered, or now consider, these projections and
forecasts to be fact or necessarily predictive of actual future results, and they should not be relied upon as such. The unaudited prospective financial information does not give effect to the merger of Wolverine and Horizon, including the impact of
negotiating or executing the Merger Agreement, the expenses to be incurred in connection with consummating the merger, the potential synergies that may be achieved by the combined company as a result of the merger, the effect on either Horizon or
Wolverine, as applicable, of any business or strategic decision or action that has been or will be taken as a result of the Merger Agreement having been executed, or the effect of any business or strategic decisions or actions that would likely have
been taken if the Merger Agreement had not been executed, but that were instead altered, accelerated, postponed, or not taken in anticipation of the merger.
56
No assurances can be given that, if these financial forecasts had been prepared as of the date of
this proxy statement/prospectus, the same underlying assumptions would be used. In addition, the financial forecasts may not reflect the manner in which Horizon would operate the Wolverine business after the merger.
Horizon and Wolverine do not
intend to, and each disclaims any obligation to, make publicly available any update or other revision to this unaudited prospective financial information to reflect circumstances occurring since its preparation or to reflect the occurrence of
unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error, or to reflect changes in general economic or industry conditions
.
The financial forecasts of Wolverine summarized in this section were prepared by and are the responsibility of the management of Wolverine. The
financial forecasts of Horizon summarized in this section were prepared by and are the responsibility of the management of Horizon. No independent registered public accounting firm has examined, compiled, or otherwise performed any procedures with
respect to the prospective financial information contained in these financial forecasts and, accordingly, no independent registered public accounting firm has expressed any opinion or given any other form of assurance with respect thereto and no
independent registered public accounting firm assumes any responsibility for the prospective financial information.
Further, the unaudited
prospective financial information does not take into account the effect on any of Wolverine, Wolverine Bank, Horizon, or Horizon Bank, as applicable, of any possible failure of the merger to occur. None of Wolverine, Wolverine Bank, Horizon, Horizon
Bank, KBW or Sheshunoff, or their respective affiliates, officers, directors, advisors, or other representatives has made, makes, or is authorized in the future to make any representation to any stockholder of Wolverine, stockholder of Horizon, or
other person regarding Wolverines or Horizons ultimate performance compared to the information contained in the unaudited prospective financial information or that the projected results will be achieved.
In light of the foregoing, and taking into account that the Special Meeting will be held several months after the unaudited prospective
financial information was prepared, as well as the uncertainties inherent in any forecasted information, Wolverine stockholders are cautioned not to place unwarranted reliance on such information, and Wolverine urges its stockholders to review
Wolverines and Horizons most recent financial statements for a description of their respective historical financial results.
Below are certain financial projections that were prepared by Wolverines management and were provided to Wolverines board of
directors, Horizon and KBW in connection with the proposed merger.
|
|
|
|
|
|
|
At December 31,
2017
|
|
|
|
(In millions)
|
|
Balance Sheet Data
|
|
|
|
|
Mortgage loans
|
|
$
|
369.0
|
|
General reserve for loan losses
|
|
|
9.6
|
|
Total assets
|
|
|
412.7
|
|
Total deposits
|
|
|
309.4
|
|
Borrowings
|
|
|
37.0
|
|
Total liabilities
|
|
|
350.5
|
|
Total equity
|
|
|
62.2
|
|
57
|
|
|
|
|
|
|
For the Year
Ending
December 31,
2017
|
|
|
|
(In thousands)
|
|
Income Statement Data
|
|
|
|
|
Interest income
|
|
$
|
18,614
|
|
Interest expense
|
|
|
4,319
|
|
|
|
|
|
|
Interest margin
|
|
|
14,295
|
|
Provision for loan losses
|
|
|
300
|
|
Other provisions/expenses
|
|
|
466
|
|
|
|
|
|
|
Interest margin after provision and other
|
|
|
13,529
|
|
Other income
|
|
|
1,519
|
|
Operating expense
|
|
|
7,780
|
|
|
|
|
|
|
Income before taxes
|
|
|
7,268
|
|
Income taxes
|
|
|
2,293
|
|
|
|
|
|
|
Net income
|
|
$
|
4,975
|
|
|
|
|
|
|
The prospective financial information for Wolverine that was provided to Sheshunoff in April 2017 (but not
Horizon) consisted of updated information. Specifically, Sheshunoff was provided with and used the following.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
|
(In millions)
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
389.0
|
|
|
$
|
431.0
|
|
|
$
|
476.0
|
|
|
$
|
520.0
|
|
|
$
|
573.0
|
|
Loans
|
|
|
365.0
|
|
|
|
402.0
|
|
|
|
442.0
|
|
|
|
486.0
|
|
|
|
534.0
|
|
Allowance for loan losses
|
|
|
9.0
|
|
|
|
9.5
|
|
|
|
9.9
|
|
|
|
10.4
|
|
|
|
10.9
|
|
Investments
|
|
|
25.0
|
|
|
|
30.0
|
|
|
|
35.0
|
|
|
|
35.0
|
|
|
|
40.0
|
|
Deposits
|
|
|
284.0
|
|
|
|
328.0
|
|
|
|
371.0
|
|
|
|
423.0
|
|
|
|
473.0
|
|
Borrowings
|
|
|
37.0
|
|
|
|
32.0
|
|
|
|
32.0
|
|
|
|
22.0
|
|
|
|
22.0
|
|
Capital
|
|
|
63.0
|
|
|
|
65.0
|
|
|
|
67.2
|
|
|
|
69.5
|
|
|
|
71.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
|
(Dollars in millions, except EPS amounts)
|
|
Income Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4.400
|
|
|
$
|
4.469
|
|
|
$
|
4.805
|
|
|
$
|
5.178
|
|
|
$
|
5.576
|
|
ROA
|
|
|
1.07
|
%
|
|
|
1.09
|
%
|
|
|
1.06
|
%
|
|
|
1.04
|
%
|
|
|
1.02
|
%
|
ROE
|
|
|
7.10
|
%
|
|
|
6.98
|
%
|
|
|
7.27
|
%
|
|
|
7.58
|
%
|
|
|
7.89
|
%
|
EPS
|
|
$
|
2.08
|
|
|
$
|
2.10
|
|
|
$
|
2.25
|
|
|
$
|
2.41
|
|
|
$
|
2.58
|
|
The prospective financial information for Wolverine that was provided to KBW in June 2017 (but not Horizon) by
Wolverines management and utilized and relied upon by KBW, as described in
Opinion of Wolverines Financial Advisor
, consisted of updated information. Specifically, KBW was provided with and
used the following: (a) net income of $4.7 million in 2017 and $4.9 million in 2018 and (b) 5% annual earnings and asset growth after 2018.
58
The following table presents selected financial projections for Horizon as of September 30,
2017, which were provided by Horizons management to Wolverine and KBW:
|
|
|
|
|
(In thousands)
|
|
Estimated Balance Sheet
As of September 30, 2017
|
|
Assets
|
|
$
|
3,534,840
|
|
Total Loans
|
|
|
2,464,731
|
|
Gross Loans Held for Investment
|
|
|
2,462,942
|
|
Deposits
|
|
|
2,618,799
|
|
Common Equity
|
|
|
394,431
|
|
Tangible Common Equity
|
|
|
294,357
|
|
59
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
Wolverine Bancorp, Inc.
Condensed Consolidated Balance Sheets
(Amounts in Thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
395
|
|
|
$
|
318
|
|
Interest-earning demand deposits
|
|
|
61,753
|
|
|
|
103,316
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
62,148
|
|
|
|
103,634
|
|
Investment securities held to maturity
|
|
|
|
|
|
|
499
|
|
Loans held for sale
|
|
|
|
|
|
|
238
|
|
Loans, net of allowance for loan losses of $7,288 and $9,326
|
|
|
314,432
|
|
|
|
320,606
|
|
Premises and equipment, net
|
|
|
1,051
|
|
|
|
1,127
|
|
Federal Home Loan Bank stock
|
|
|
2,700
|
|
|
|
2,700
|
|
Other real estate owned
|
|
|
198
|
|
|
|
86
|
|
Accrued interest receivable
|
|
|
865
|
|
|
|
846
|
|
Other assets
|
|
|
4,495
|
|
|
|
4,699
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
385,889
|
|
|
$
|
434,435
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity Liabilities
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
262,673
|
|
|
$
|
280,548
|
|
Federal Home Loan Bank advances
|
|
|
42,000
|
|
|
|
60,000
|
|
Federal funds purchased
|
|
|
12,000
|
|
|
|
27,000
|
|
Interest payable and other liabilities
|
|
|
7,003
|
|
|
|
5,913
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
323,676
|
|
|
|
373,461
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies Stockholders Equity
|
|
|
|
|
|
|
|
|
Common Stock, $0.01 par value per share:
|
|
|
|
|
|
|
|
|
Authorized 100,000,000 shares
|
|
|
|
|
|
|
|
|
Issued and outstanding 2,105,981 and 2,106,153 at June 30, 2017 and December 31,
2016, respectively
|
|
|
21
|
|
|
|
21
|
|
Unearned employee stock ownership plan (ESOP)
|
|
|
(1,164
|
)
|
|
|
(1,215
|
)
|
Additional paid-in capital
|
|
|
15,842
|
|
|
|
15,577
|
|
Retained earnings
|
|
|
47,514
|
|
|
|
46,591
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
62,213
|
|
|
|
60,974
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
385,889
|
|
|
$
|
434,435
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-2
Wolverine Bancorp, Inc.
Condensed Consolidated Statements of Income and Comprehensive Income
(Amounts in Thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Interest and Dividend Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
4,210
|
|
|
$
|
4,069
|
|
|
$
|
8,216
|
|
|
$
|
8,001
|
|
Investment securities and other
|
|
|
126
|
|
|
|
100
|
|
|
|
262
|
|
|
|
229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend income
|
|
|
4,336
|
|
|
|
4,169
|
|
|
|
8,478
|
|
|
|
8,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
548
|
|
|
|
508
|
|
|
|
1,103
|
|
|
|
1,016
|
|
Borrowings
|
|
|
391
|
|
|
|
465
|
|
|
|
826
|
|
|
|
924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
939
|
|
|
|
973
|
|
|
|
1,929
|
|
|
|
1,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
3,397
|
|
|
|
3,196
|
|
|
|
6,549
|
|
|
|
6,290
|
|
Credit for Loan Losses
|
|
|
(1,450
|
)
|
|
|
(200
|
)
|
|
|
(2,050
|
)
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income After Provision for Loan Losses
|
|
|
4,847
|
|
|
|
3,396
|
|
|
|
8,599
|
|
|
|
6,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
|
60
|
|
|
|
59
|
|
|
|
129
|
|
|
|
139
|
|
Net gain on loan sales
|
|
|
51
|
|
|
|
112
|
|
|
|
83
|
|
|
|
208
|
|
Net gain on sale of real estate owned
|
|
|
|
|
|
|
10
|
|
|
|
1
|
|
|
|
37
|
|
Other
|
|
|
186
|
|
|
|
97
|
|
|
|
254
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
297
|
|
|
|
278
|
|
|
|
467
|
|
|
|
561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
1,426
|
|
|
|
1,165
|
|
|
|
2,500
|
|
|
|
2,255
|
|
Net occupancy and equipment expense
|
|
|
194
|
|
|
|
196
|
|
|
|
385
|
|
|
|
403
|
|
Information technology expense
|
|
|
59
|
|
|
|
59
|
|
|
|
116
|
|
|
|
121
|
|
Federal deposit insurance corporation premiums (recovery)
|
|
|
(24
|
)
|
|
|
55
|
|
|
|
6
|
|
|
|
109
|
|
Professional and services fees
|
|
|
826
|
|
|
|
129
|
|
|
|
1,024
|
|
|
|
223
|
|
Other real estate owned expense (recovery)
|
|
|
1
|
|
|
|
9
|
|
|
|
(2
|
)
|
|
|
33
|
|
Loan legal expense
|
|
|
64
|
|
|
|
(11
|
)
|
|
|
80
|
|
|
|
70
|
|
Advertising expense
|
|
|
27
|
|
|
|
33
|
|
|
|
58
|
|
|
|
54
|
|
Michigan business tax
|
|
|
45
|
|
|
|
45
|
|
|
|
90
|
|
|
|
90
|
|
Other
|
|
|
318
|
|
|
|
223
|
|
|
|
565
|
|
|
|
432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
2,936
|
|
|
|
1,903
|
|
|
|
4,822
|
|
|
|
3,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Tax
|
|
|
2,208
|
|
|
|
1,771
|
|
|
|
4,244
|
|
|
|
3,261
|
|
Provision for Income Taxes
|
|
|
932
|
|
|
|
587
|
|
|
|
1,636
|
|
|
|
1,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income and Comprehensive Income
|
|
$
|
1,276
|
|
|
$
|
1,184
|
|
|
$
|
2,608
|
|
|
$
|
2,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.65
|
|
|
$
|
0.59
|
|
|
$
|
1.32
|
|
|
$
|
1.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.63
|
|
|
$
|
0.58
|
|
|
$
|
1.28
|
|
|
$
|
1.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-3
Wolverine Bancorp, Inc.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(Amounts in
Thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Six months ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
Operating Activities
|
|
|
|
|
Net income
|
|
$
|
2,608
|
|
|
$
|
2,151
|
|
Items not requiring (providing) cash
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
102
|
|
|
|
114
|
|
Credit for loan losses
|
|
|
(2,050
|
)
|
|
|
(200
|
)
|
Gain on other real estate owned
|
|
|
(1
|
)
|
|
|
(37
|
)
|
Loans originated for sale
|
|
|
(3,551
|
)
|
|
|
(6,826
|
)
|
Proceeds from loans sold
|
|
|
3,871
|
|
|
|
6,758
|
|
Net gain on sale of loans
|
|
|
(83
|
)
|
|
|
(208
|
)
|
Share based compensation
|
|
|
154
|
|
|
|
173
|
|
Earned ESOP shares
|
|
|
168
|
|
|
|
131
|
|
Changes in
|
|
|
|
|
|
|
|
|
Interest receivable and other assets
|
|
|
162
|
|
|
|
(263
|
)
|
Interest payable and other liabilities
|
|
|
2,468
|
|
|
|
355
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
3,848
|
|
|
|
2,148
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
Net change in interest-bearing time deposits
|
|
|
|
|
|
|
22,850
|
|
Purchase of held to maturity securities
|
|
|
|
|
|
|
(498
|
)
|
Proceeds from calls, maturities and pay-downs of held to maturity securities
|
|
|
500
|
|
|
|
500
|
|
Net change in loans
|
|
|
8,224
|
|
|
|
(17,210
|
)
|
Proceeds from sale of real estate owned
|
|
|
79
|
|
|
|
119
|
|
Purchase of premises and equipment
|
|
|
(26
|
)
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
8,777
|
|
|
|
5,726
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Net change in demand deposits, money market, checking and savings accounts
|
|
|
(16,775
|
)
|
|
|
(11,567
|
)
|
Net change in certificates of deposit
|
|
|
(1,100
|
)
|
|
|
(5,633
|
)
|
Repayment of Federal Home Loan Bank advances
|
|
|
(18,000
|
)
|
|
|
|
|
Net change in Fed funds purchased
|
|
|
(15,000
|
)
|
|
|
(24,000
|
)
|
Proceeds from stock options exercised
|
|
|
|
|
|
|
27
|
|
Purchase of common stock
|
|
|
(6
|
)
|
|
|
(268
|
)
|
Dividends paid
|
|
|
(3,229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(54,110
|
)
|
|
|
(41,441
|
)
|
|
|
|
|
|
|
|
|
|
Change in Cash and Cash Equivalents
|
|
|
(41,485
|
)
|
|
|
(33,567
|
)
|
Cash and Cash Equivalents, Beginning of Period
|
|
|
103,634
|
|
|
|
52,865
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Period
|
|
$
|
62,148
|
|
|
$
|
19,298
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flows Information
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
1,906
|
|
|
$
|
1,876
|
|
Income taxes paid
|
|
|
875
|
|
|
|
600
|
|
Loans transferred to real estate owned
|
|
|
190
|
|
|
|
192
|
|
Dividends declared, not paid
|
|
|
1,685
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-4
Wolverine Bancorp, Inc.
Condensed Consolidated Statement of Change in Stockholders Equity
(Unaudited)
(Amounts in
Thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional Paid-in
Capital
|
|
|
Unearned
ESOP Shares
|
|
|
Retained
Earnings
|
|
|
Total
Stockholders
Equity
|
|
Balances at January 1, 2017
|
|
$
|
21
|
|
|
$
|
15,577
|
|
|
$
|
(1,215
|
)
|
|
$
|
46,591
|
|
|
$
|
60,974
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,608
|
|
|
|
2,608
|
|
Purchase of 172 shares of common stock
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
Share based compensation expense
|
|
|
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
154
|
|
ESOP shares earned
|
|
|
|
|
|
|
117
|
|
|
|
51
|
|
|
|
|
|
|
|
168
|
|
Dividends ($.80 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,685
|
)
|
|
|
(1,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2017
|
|
$
|
21
|
|
|
$
|
15,842
|
|
|
$
|
(1,164
|
)
|
|
$
|
47,514
|
|
|
$
|
62,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-5
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
Note 1:
|
Basis of Presentation
|
The unaudited condensed consolidated financial statements of
Wolverine Bancorp, Inc. (the Company), the holding company of Wolverine Bank (the Bank), have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for
interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) believed necessary for a fair presentation have been included. The condensed consolidated balance sheet of the Company as of December 31, 2016 has been derived from the audited
consolidated balance sheet of the Company as of that date. Operating results for the three and six month periods ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017
or for any other period. These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto filed as part of our Annual Report on Form 10-K as filed with the Securities and Exchange
Commission on March 31, 2017.
Note 2:
|
Accounting Developments
|
FASB Accounting Standards Update No. 2017-09, Compensation Stock
Compensation (Topic 718), Scope Modification
The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2017-09,
Compensation Stock Compensation (Topic 718), Scope of Modification Accounting
. These amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity
to apply modification accounting under Topic 718. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted, including
adoption in an interim period. The amendments should be applied on a prospective basis to an award modified on or after the adoption date. The Company is assessing the impact of ASU 2017-09 and does not expect it to have a material impact on its
accounting and disclosures.
FASB ASU No. 2017-08, Receivable Nonrefundable Fees and Other Costs (Subtopic 310-20)
The FASB issued ASU No. 2017-08,
Receivables Nonrefundable Fees and Other Costs
(Subtopic 310-20):
Premium Amortization on Purchased Callable Debt Securities
. The guidance provides amendments to shorten the amortization period for certain callable debt securities held at a
premium. Specifically, the amendments require the premium to be amortized to the earliest call date. These amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.
The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim
period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Adoption of the ASU is not expected to have a significant
effect on the Companys consolidated financial statements.
FASB ASU No. 2017-04, Intangibles Goodwill and Other (Topic 350)
The FASB has issued ASU No. 2017-04,
Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment
. The new guidance is intended to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test.
F-6
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
The annual, or interim, goodwill impairment test is performed by comparing the fair value of
a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of
goodwill allocated to that reporting unit.
In addition, the income tax effects of tax deductible goodwill on the carrying amount of the
reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill
impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the qualitative impairment test is necessary. The amendments should be applied on a prospective basis. The nature of and
reason for the change in accounting principle should be disclosed upon transition.
The amendments in this update should be adopted for
annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted on testing dates after January 1, 2017. The Company does not expect adoption of this ASU to have a material
impact on its consolidated financial statements.
FASB ASU No. 2017-01, Business Combinations (Topic 805)
The FASB has issued ASU No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
. The amendments in
this update provide a more robust framework to use in determining when a set of assets and activities is a business. Because the current definition of a business is interpreted broadly and can be difficult to apply, stakeholders indicated that
analyzing transactions is inefficient and costly and that the definition does not permit the use of reasonable judgment. The amendments provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a
business more operable.
The amendments in this update become effective for annual periods and interim periods within those annual periods
beginning after December 15, 2017. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but it is not expected to have a material impact.
FASB ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging
Issues Task Force)
The FASB has issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230).
This update addresses eight
specific cash flow issues with the objective of reducing the existing diversity in practice of how certain cash receipts and cash payments are presented and classified in the statement of cash flow. In November 2016, the FASB issued ASU
No. 2016-18, which gave clarification on how restricted cash was to be presented in the cash flow statement.
The amendments are
effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15,
2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be
reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. Adoption of the ASU is not expected to have a significant effect on the
Companys consolidated financial statements.
FASB ASU No. 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments
The FASB has issued ASU No. 2016-13,
Financial Instruments Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments.
The main objective of this amendment is to provide
F-7
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each
reporting date.
The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on
historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates.
Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect
the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances.
The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and
judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organizations portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about
the amounts recorded in the financial statements.
In addition, the ASU amends the accounting for credit losses on available-for-sale debt
securities and purchased financial assets with credit deterioration.
For public business entities that are U.S. Securities and Exchange
Commission (SEC) filers, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities, the amendments in this Update
are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020,
and interim periods within fiscal years beginning after December 15, 2021. All entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal
years. The Company will be evaluating the impact of adopting this ASU and has not determined the anticipated impact on the consolidated financial statements.
FASB ASU No. 2016-09, Compensation Stock Compensation (Topic 718)
The FASB issued ASU No. 2016-09,
Compensation Stock Compensation
(Topic 718):
Improvements to Employee Share-Based
Payment Accounting
.
The ASU is intended to improve the accounting for employee shared-base payments and affects all organizations that
issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including the income tax consequences, the classification of awards as either equity or liabilities,
and the classification on the statement of cash flows.
For public business entities, the amendments became effective for annual periods
beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods
beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period. The amendments in this update became effective for the Company on January 1, 2017 and did not have a material impact on the
consolidated financial statements.
FASB ASU No. 2016-08, 2016-10, 2016-12, Revenue from Contracts with Customers (Topic 606)
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
, which requires an entity to recognize the
amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In March 2016, the FASB issued
ASU 2016-08,
Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
, which clarifies the guidance in determining revenue
F-8
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
recognition as principal versus agent. In April 2016, the FASB issued ASU 2016-10,
Identifying Performance Obligations and Licensing
, which provides guidance in accounting for
immaterial performance obligations and shipping and handling. In May 2016, the FASB issued ASU 2016-12,
Narrow-Scope Improvements and Practical Expedients
, which provides clarification on assessing the collectability criterion,
presentation of sales taxes, measurement date for noncash consideration and completed contracts at transition. This ASU also provides a practical expedient for contract modifications.
For public business entities, the amendments are effective for annual reporting periods beginning after December 15, 2017, including
interim reporting periods with that reporting period, as deferred by ASU 2015-14. Early application is permitted as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within the reporting period.
All other entities should apply the guidance to annual reporting periods beginning after December 15, 2018, and interim reporting
periods within annual reporting periods beginning after December 15, 2019. Early application is permitted for all other entities as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within
annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in Update 2014-09. Adoption of the ASU is not expected to have a significant effect on the Companys consolidated
financial statements.
FASB ASU No. 2016-07, Investments Equity Method and Joint Ventures (Topic 323)
In March 2016, the FASB issued ASU 2016-07,
Investments Equity Method and Joint Ventures: Simplifying the Transition to the Equity
Method of Accounting.
The amendments eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the
investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held.
The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis
of the investors previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive
adjustment of the investment is required.
The amendments require that an entity that has an available-for-sale equity security that
becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method.
The amendments became effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2016. The amendments were applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Adoption of the ASU did not have a
significant effect on the Companys consolidated financial statements.
FASB ASU No. 2016-06, Derivatives and Hedging (Topic 815): Contingent
Put and Call Options in Debt Instruments
The FASB has issued ASU No. 2016-05,
Derivatives and Hedging (Topic 815): Effect of
Derivative Contract Novations and Existing Hedge Accounting Relationships
. The amendments apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a hedging
instrument.
The amendments clarify what steps are required when assessing whether the economic characteristics and risks of call (put)
options are clearly and closely related to the economic characteristics and risks of their
F-9
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
debt hosts, which is one of the criteria for bifurcating an embedded derivative. Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the
event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks.
This standard became
effective for public business entities for fiscal year beginning after December 15, 2016 including interim periods within those fiscal years. Nonpublic business entities should apply the amendments for fiscal years beginning after
December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. Early application is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any
adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. Adoption of the ASU did not have a significant effect on the Companys consolidated financial statements.
FASB ASU No. 2016-02 Leases (Topic 842)
The FASB has issued ASU No. 2016-02,
Leases
. Under the new guidance, lessees will be required to recognize the following for all
leases (with the exception of short-term leases) at the commencement date:
|
|
|
A lease liability, which is a lessees obligation to make lease payments arising from a lease, measured on a discounted basis; and
|
|
|
|
A right-of-use asset, which is an asset that represents the lessees right to use, or control the use of, a specified asset for the lease term.
|
Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor
accounting with the lessee accounting model and Topic 606,
Revenue from Contracts with Customers
.
The new lease guidance simplified
the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing.
This standard will be effective for public business entities for fiscal year beginning after December 15, 2018 including interim periods
within those fiscal years. Nonpublic business entities should apply the amendments for fiscal years beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020.
Early application is permitted for all business entities upon issuance.
Lessees (for capital and operating leases) and lessors (for sales-type, direct financing and operating leases) must apply a modified
retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.
The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period
presented. Lessees and lessors may not apply a full retrospective transition approach.
Adoption of the ASU is not expected to have a
significant effect on the Companys consolidated financial statements.
FASB Accounting Standards Updates No. 2016-01,
Financial
Instruments Overall
(Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities
The FASB has issued ASU No. 2016-01,
Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities.
The new guidance is intended to improve the recognition and measurement of financial instruments. The ASU affects public and private companies, not-for-profit organizations, and employee benefit plans that hold
financial assets or owe financial liabilities.
F-10
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
The new guidance makes targeted improvements to existing U.S. GAAP by:
|
|
|
Requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized
in net income;
|
|
|
|
Requiring public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes;
|
|
|
|
Requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying
notes to the financial statements;
|
|
|
|
Eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities;
|
|
|
|
Eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at
amortized cost on the balance sheet; and
|
|
|
|
Requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk
(also referred to as own credit) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.
|
The new guidance is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within
those fiscal years. The new guidance permits early adoption of the own credit provision. In addition, the new guidance permits early adoption of the provision that exempts private companies and not-for-profit organizations from having to disclose
fair value information about financial instruments measured at amortized cost. Adoption of the ASU is not expected to have a significant effect on the Companys consolidated financial statements.
There were no held to maturity securities as of June 30, 2017.
The amortized cost and approximate fair values of securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
Held to Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury bond
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury bond
|
|
$
|
499
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no sales of securities during the six months ended June 30, 2017 and 2016.
F-11
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
Note 4:
|
Loans and Allowance for Loan Losses
|
Categories of loans include:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Real Estate
|
|
|
|
|
|
|
|
|
One-to four-family
|
|
$
|
32,185
|
|
|
$
|
35,389
|
|
Home equity
|
|
|
3,567
|
|
|
|
4,031
|
|
Commercial mortgage loans
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
202,513
|
|
|
|
195,924
|
|
Multifamily
|
|
|
52,896
|
|
|
|
54,827
|
|
Land
|
|
|
11,075
|
|
|
|
11,547
|
|
Construction
|
|
|
10,417
|
|
|
|
13,475
|
|
Commercial non-mortgage
|
|
|
14,850
|
|
|
|
20,047
|
|
Consumer
|
|
|
1,044
|
|
|
|
1,074
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
328,547
|
|
|
|
336,314
|
|
Less
|
|
|
|
|
|
|
|
|
Net deferred loan costs, premiums and discounts
|
|
|
540
|
|
|
|
563
|
|
Undisbursed portion of loan
|
|
|
6,287
|
|
|
|
5,819
|
|
Allowance for loan losses
|
|
|
7,288
|
|
|
|
9,326
|
|
|
|
|
|
|
|
|
|
|
Net Loans
|
|
$
|
314,432
|
|
|
$
|
320,606
|
|
|
|
|
|
|
|
|
|
|
The risk characteristics of each loan portfolio segment are as follows:
1-4 family, home equity, and consumer
With respect to residential loans that are secured by one-to four-family residences and are primarily owner-occupied, we generally establish a
maximum loan-to-value ratio and require Private Mortgage Insurance (PMI) if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in one-to four-family residences, and consumer loans are typically
secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be
impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties.
Home equity loans secured by second mortgages have greater risk than one- to four-family residential mortgage loans secured by first mortgages.
We face the risk that the collateral will be insufficient to compensate us for loan losses and costs of foreclosure. When customers default on their loans, we attempt to foreclose on the property and resell the property as soon as possible to
minimize foreclosure and carrying costs. However, the value of the collateral may not be sufficient to compensate us for the amount of the unpaid loan and we may be unsuccessful in recovering the remaining balance from those customers.
Particularly with respect to our home equity loans, decreases in real estate values could adversely affect the value of property used as
collateral for our loans.
Consumer and other loans generally have greater risk compared to longer-term loans secured by improved,
owner-occupied real estate, particularly consumer loans that are secured by rapidly depreciable assets, such as automobiles. In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the
outstanding loan balance. As a result, consumer loan collections are dependent on the borrowers continuing financial stability and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.
F-12
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
Commercial real estate and multifamily
Commercial real estate and multifamily loans generally have greater credit risk than the owner-occupied one- to four-family residential
mortgage loans that we originate for retention in our loan portfolio. Repayment of these loans generally depends, in large part, on sufficient income from the property securing the loan or the borrowers business to cover operating expenses and
debt service. These types of loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential mortgage loans. Changes in economic conditions that are beyond the control of
the borrower may affect the value of the security for the loan, the future cash flow of the affected property or business, or the marketability of a construction project with respect to loans originated for the acquisition and development of
property. Additionally, due to declining property values in our primary market area and in Michigan, the loan to value ratios of many of our commercial real estate and multifamily loans have increased significantly from the loan to value ratios that
were assigned to these loans at the time of origination.
Land
Land loans generally have greater credit risk than the owner-occupied one-to four-family residential mortgage loans that we originate for
retention in our portfolio. Repayment of these loans generally depends, in large part, on the sale of the land. The sale of land can either take place when the land is undeveloped or developed. Generally, other cash flow sources of the borrower are
utilized to make additional payments on land loans. Changes in economic conditions that are beyond the control of the borrower may affect the value of the security for the loan, the future cash flow of the affected property or business, or the
marketability of a construction project with respect to loans originated for the acquisition and development of property. Additionally, due to declining property values in our primary market area and in Michigan, the loan to value ratios of many of
our land loans have increased significantly from the loan to value ratios that were assigned to these loans at the time of origination.
Construction
Construction loans include those for one- to four-family residential properties and commercial properties, including multifamily
loans and commercial mixed-use buildings and homes built by developers on speculation. With respect to construction loans for one- to four-family residential properties and which are primarily owner-occupied, we generally establish a
maximum loan-to-value ratio and require PMI if that ratio is exceeded. These are generally interest-only loans during the construction period which typically does not exceed nine months.
Construction loans for commercial real estate are made in accordance with a schedule reflecting the cost of construction, and are generally
limited to a 75% loan-to-completed appraised value ratio. For all construction loans, we generally require that a commitment for permanent financing be in place prior to closing the construction loan
Repayment of one-to four-family residential property loans is primarily dependent on the personal income of the borrowers, which can be
impacted by economic conditions in their market areas such as unemployment levels. Repayment of commercial property loans and homes built by developers on speculation is normally expected from the propertys eventual rental income, income from
the borrowers operations, the personal resources of the guarantor, or the sale of the subject property. Generally, before making a commitment to fund a construction loan, we require an appraisal of the property by a state-certified or
state-licensed appraiser. We generally review and inspect properties before disbursement of funds during the term of the construction loan.
Construction financing generally involves greater credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on
a construction loan depends largely upon the accuracy of the initial
F-13
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost
is inaccurate, we may be required to advance additional funds beyond the amount originally committed in order to protect the value of the property. Moreover, if the estimated value of the completed project is inaccurate, the borrower may hold a
property with a value that is insufficient to assure full repayment of the construction loan upon the sale of the property. Construction loans also expose us to the risk that improvements will not be completed on time in accordance with
specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated.
Commercial non-mortgage
Commercial non-mortgage loans generally have a greater credit risk than residential mortgage loans. Unlike residential mortgage
loans, which generally are made on the basis of the borrowers ability to make repayment from his or her employment and other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial
non-mortgage loans are of higher risk and typically are made on the basis of the borrowers ability to make repayment from the cash flow of the borrowers business.
As a result, the availability of funds for the repayment of commercial non-mortgage loans may be substantially dependent on the success of the
business itself. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. In determining the appropriate level of allowance for loan loss, we
analyze various components of our portfolio. The following components are analyzed: all substandard loans on an individual basis; all loans that are designated special mention or closely monitored; loans not classified according to purpose or
collateral type; and overdrawn deposit account balances.
We also factor in historical loss experience and qualitative considerations,
including trends in charge offs and recoveries; trends in delinquencies and impaired/classified loans; effects of credit concentrations; changes in underwriting standards and loan review system; experience in lending staff; current industry
conditions; and current market conditions.
F-14
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
The following tables present the balance in the allowance for loan losses and the recorded
investment in loans based on portfolio segment and impairment method as of June 30, 2017, December 31, 2016 and June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Class
|
|
1-4 Family
|
|
|
Home
Equity
|
|
|
Commercial
Real Estate
|
|
|
Multifamily
|
|
|
Land
|
|
|
Construction
|
|
|
Commercial
Non-
Mortgage
|
|
|
Consumer
|
|
|
Total
|
|
Year to date analysis as of June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
798
|
|
|
$
|
49
|
|
|
$
|
5,422
|
|
|
$
|
1,084
|
|
|
$
|
1,142
|
|
|
$
|
294
|
|
|
$
|
524
|
|
|
$
|
13
|
|
|
$
|
9,326
|
|
Provision credited to expense
|
|
|
(214
|
)
|
|
|
(13
|
)
|
|
|
(317
|
)
|
|
|
(337
|
)
|
|
|
(889
|
)
|
|
|
(86
|
)
|
|
|
(191
|
)
|
|
|
(3
|
)
|
|
|
(2,050
|
)
|
Losses charged off
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
595
|
|
|
$
|
36
|
|
|
$
|
5,105
|
|
|
$
|
747
|
|
|
$
|
253
|
|
|
$
|
208
|
|
|
$
|
333
|
|
|
$
|
11
|
|
|
$
|
7,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
250
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
595
|
|
|
$
|
36
|
|
|
$
|
4,855
|
|
|
$
|
747
|
|
|
$
|
253
|
|
|
$
|
208
|
|
|
$
|
333
|
|
|
$
|
11
|
|
|
$
|
7,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
32,185
|
|
|
$
|
3,567
|
|
|
$
|
202,513
|
|
|
$
|
52,896
|
|
|
$
|
11,075
|
|
|
$
|
10,417
|
|
|
$
|
14,850
|
|
|
$
|
1,044
|
|
|
$
|
328,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: individually evaluated for impairment
|
|
$
|
943
|
|
|
$
|
|
|
|
$
|
6,486
|
|
|
$
|
6,150
|
|
|
$
|
343
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
13,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
31,242
|
|
|
$
|
3,567
|
|
|
$
|
196,027
|
|
|
$
|
46,746
|
|
|
$
|
10,732
|
|
|
$
|
10,417
|
|
|
$
|
14,850
|
|
|
$
|
1,044
|
|
|
$
|
314,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Class
|
|
1-4
Family
|
|
|
Home
Equity
|
|
|
Commercial
Real Estate
|
|
|
Multifamily
|
|
|
Land
|
|
|
Construction
|
|
|
Commercial
Non-
Mortgage
|
|
|
Consumer
|
|
|
Total
|
|
Quarter to date analysis as of June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
753
|
|
|
$
|
40
|
|
|
$
|
5,870
|
|
|
$
|
872
|
|
|
$
|
540
|
|
|
$
|
270
|
|
|
$
|
375
|
|
|
$
|
14
|
|
|
$
|
8,734
|
|
Provision credited to expense
|
|
|
(162
|
)
|
|
|
(4
|
)
|
|
|
(765
|
)
|
|
|
(125
|
)
|
|
|
(287
|
)
|
|
|
(62
|
)
|
|
|
(42
|
)
|
|
|
(3
|
)
|
|
|
(1,450
|
)
|
Losses charged off
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
595
|
|
|
$
|
36
|
|
|
$
|
5,105
|
|
|
$
|
747
|
|
|
$
|
253
|
|
|
$
|
208
|
|
|
$
|
333
|
|
|
$
|
11
|
|
|
$
|
7,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Class
|
|
1-4
Family
|
|
|
Home
Equity
|
|
|
Commercial
Real Estate
|
|
|
Multifamily
|
|
|
Land
|
|
|
Construction
|
|
|
Commercial
Non-
Mortgage
|
|
|
Consumer
|
|
|
Total
|
|
Year to date analysis as of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
948
|
|
|
$
|
108
|
|
|
$
|
4,913
|
|
|
$
|
1,515
|
|
|
$
|
1,605
|
|
|
$
|
604
|
|
|
$
|
344
|
|
|
$
|
24
|
|
|
$
|
10,061
|
|
Provision (credit) charged to expense
|
|
|
(137
|
)
|
|
|
(59
|
)
|
|
|
555
|
|
|
|
(431
|
)
|
|
|
(544
|
)
|
|
|
(310
|
)
|
|
|
180
|
|
|
|
(14
|
)
|
|
|
(760
|
)
|
Losses charged off
|
|
|
(67
|
)
|
|
|
|
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(153
|
)
|
Recoveries
|
|
|
54
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
798
|
|
|
$
|
49
|
|
|
$
|
5,422
|
|
|
$
|
1,084
|
|
|
$
|
1,142
|
|
|
$
|
294
|
|
|
$
|
524
|
|
|
$
|
13
|
|
|
$
|
9,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
235
|
|
|
$
|
|
|
|
$
|
550
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
798
|
|
|
$
|
49
|
|
|
$
|
5,187
|
|
|
$
|
1,084
|
|
|
$
|
592
|
|
|
$
|
294
|
|
|
$
|
524
|
|
|
$
|
13
|
|
|
$
|
8,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
35,389
|
|
|
$
|
4,031
|
|
|
$
|
195,924
|
|
|
$
|
54,827
|
|
|
$
|
11,547
|
|
|
$
|
13,475
|
|
|
$
|
20,047
|
|
|
$
|
1,074
|
|
|
$
|
336,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: individually evaluated for impairment
|
|
$
|
1,500
|
|
|
$
|
|
|
|
$
|
8,103
|
|
|
$
|
6,311
|
|
|
$
|
1,061
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
16,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
33,889
|
|
|
$
|
4,031
|
|
|
$
|
187,821
|
|
|
$
|
48,516
|
|
|
$
|
10,486
|
|
|
$
|
13,475
|
|
|
$
|
20,047
|
|
|
$
|
1,074
|
|
|
$
|
319,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Class
|
|
1-4
Family
|
|
|
Home
Equity
|
|
|
Commercial
Real Estate
|
|
|
Multifamily
|
|
|
Land
|
|
|
Construction
|
|
|
Commercial
Non-
Mortgage
|
|
|
Consumer
|
|
|
Total
|
|
Year to date analysis as of June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
948
|
|
|
$
|
108
|
|
|
$
|
4,913
|
|
|
$
|
1,515
|
|
|
$
|
1,605
|
|
|
$
|
604
|
|
|
$
|
344
|
|
|
$
|
24
|
|
|
$
|
10,061
|
|
Provision charged (credited) to expense
|
|
|
(190
|
)
|
|
|
(45
|
)
|
|
|
777
|
|
|
|
(250
|
)
|
|
|
(168
|
)
|
|
|
(354
|
)
|
|
|
43
|
|
|
|
(13
|
)
|
|
|
(200
|
)
|
Losses charged off
|
|
|
(67
|
)
|
|
|
|
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(128
|
)
|
Recoveries
|
|
|
27
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
718
|
|
|
$
|
63
|
|
|
$
|
5,668
|
|
|
$
|
1,265
|
|
|
$
|
1,466
|
|
|
$
|
250
|
|
|
$
|
387
|
|
|
$
|
12
|
|
|
$
|
9,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
315
|
|
|
$
|
|
|
|
$
|
750
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
718
|
|
|
$
|
63
|
|
|
$
|
5,353
|
|
|
$
|
1,265
|
|
|
$
|
716
|
|
|
$
|
250
|
|
|
$
|
387
|
|
|
$
|
12
|
|
|
$
|
8,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
38,088
|
|
|
$
|
4,622
|
|
|
$
|
198,480
|
|
|
$
|
59,823
|
|
|
$
|
12,197
|
|
|
$
|
12,764
|
|
|
$
|
19,135
|
|
|
$
|
1,071
|
|
|
$
|
346,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: individually evaluated for impairment
|
|
$
|
1,071
|
|
|
$
|
|
|
|
$
|
8,095
|
|
|
$
|
7,003
|
|
|
$
|
1,520
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
17,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
37,017
|
|
|
$
|
4,622
|
|
|
$
|
190,385
|
|
|
$
|
52,820
|
|
|
$
|
10,677
|
|
|
$
|
12,764
|
|
|
$
|
19,135
|
|
|
$
|
1,071
|
|
|
$
|
328,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-16
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Class
|
|
1-4
Family
|
|
|
Home
Equity
|
|
|
Commercial
Real Estate
|
|
|
Multifamily
|
|
|
Land
|
|
|
Construction
|
|
|
Commercial
Non-
Mortgage
|
|
|
Consumer
|
|
|
Total
|
|
Quarter to date analysis as of June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
909
|
|
|
$
|
99
|
|
|
$
|
4,822
|
|
|
$
|
1,409
|
|
|
$
|
1,634
|
|
|
$
|
736
|
|
|
$
|
392
|
|
|
$
|
23
|
|
|
$
|
10,024
|
|
Provision charged (credited) to expense
|
|
|
(213
|
)
|
|
|
(36
|
)
|
|
|
891
|
|
|
|
(144
|
)
|
|
|
(196
|
)
|
|
|
(486
|
)
|
|
|
(5
|
)
|
|
|
(11
|
)
|
|
|
(200
|
)
|
Losses charged off
|
|
|
(1
|
)
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46
|
)
|
Recoveries
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
718
|
|
|
$
|
63
|
|
|
$
|
5,668
|
|
|
$
|
1,265
|
|
|
$
|
1,466
|
|
|
$
|
250
|
|
|
$
|
387
|
|
|
$
|
12
|
|
|
$
|
9,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consistent with regulatory guidance, charge offs on all loan segments are taken when specific loans, or
portions thereof, are considered uncollectible. Our policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined.
For all loan portfolio segments except one-to-four family residential loans and consumer loans, we promptly charge off loans, or portions
thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values,
and/or (3) legal action, including bankruptcy, that impairs the borrowers ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge off is recorded when a loss
has been confirmed by an updated appraisal or other appropriate valuation of the collateral.
We charge off one-to-four family residential
and consumer loans, or portions thereof, when we reasonably determine the amount of the loss. We adhere to timeframes established by applicable regulatory guidance which provides for the charge off of one-to-four family first and junior lien
mortgages to the net realizable value less costs to sell when the loan is more than 180 days past due, charge off of unsecured open-end loans when the loan is more than 180 days past due, and charge down to the net realizable value when other
secured loans are more than 120 days past due. Loans at these respective delinquency thresholds for which we can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of
delinquency status, need not be charged off.
The following table presents the credit risk profile of our loan portfolio based on rating
category and payment activity as of June 30, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
|
Home Equity
|
|
|
Commercial Real Estate
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Pass
|
|
$
|
30,888
|
|
|
$
|
33,787
|
|
|
$
|
3,567
|
|
|
$
|
4,031
|
|
|
$
|
181,794
|
|
|
$
|
173,375
|
|
Pass (Closely Monitored)
|
|
|
331
|
|
|
|
490
|
|
|
|
|
|
|
|
|
|
|
|
14,438
|
|
|
|
14,349
|
|
Special Mention
|
|
|
239
|
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
1,247
|
|
|
|
2,630
|
|
Substandard
|
|
|
727
|
|
|
|
871
|
|
|
|
|
|
|
|
|
|
|
|
5,034
|
|
|
|
5,570
|
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,185
|
|
|
$
|
35,389
|
|
|
$
|
3,567
|
|
|
$
|
4,031
|
|
|
$
|
202,513
|
|
|
$
|
195,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
Land
|
|
|
Construction
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Pass
|
|
$
|
49,741
|
|
|
$
|
48,241
|
|
|
$
|
9,932
|
|
|
$
|
9,631
|
|
|
$
|
10,417
|
|
|
$
|
13,475
|
|
Pass (Closely Monitored)
|
|
|
3,155
|
|
|
|
6,586
|
|
|
|
801
|
|
|
|
855
|
|
|
|
|
|
|
|
|
|
Special Mention
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substandard
|
|
|
|
|
|
|
|
|
|
|
342
|
|
|
|
1,061
|
|
|
|
|
|
|
|
|
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52,896
|
|
|
$
|
54,827
|
|
|
$
|
11,075
|
|
|
$
|
11,547
|
|
|
$
|
10,417
|
|
|
$
|
13,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Non-
Mortgage
|
|
|
Consumer
|
|
|
Total
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Pass
|
|
$
|
12,152
|
|
|
$
|
16,500
|
|
|
$
|
1,044
|
|
|
$
|
1,074
|
|
|
$
|
299,535
|
|
|
$
|
300,114
|
|
Pass (Closely Monitored)
|
|
|
488
|
|
|
|
658
|
|
|
|
|
|
|
|
|
|
|
|
19,213
|
|
|
|
22,938
|
|
Special Mention
|
|
|
2,210
|
|
|
|
2,889
|
|
|
|
|
|
|
|
|
|
|
|
3,696
|
|
|
|
5,760
|
|
Substandard
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,103
|
|
|
|
7,502
|
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,850
|
|
|
$
|
20,047
|
|
|
$
|
1,044
|
|
|
$
|
1,074
|
|
|
$
|
328,547
|
|
|
$
|
336,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We categorize loans into risk categories based on relevant information about the ability of borrowers to
service their debt such as: current financial information, historical payment experience, credit documentation and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. This analysis
is performed during the loan approval process and is updated as circumstances warrant.
The Pass asset quality rating encompasses assets
that have performed as expected. These assets generally do not have delinquency or servicing issues. Loans assigned this rating include loans to borrowers possessing solid credit quality with acceptable risk. Borrowers in these grades are
differentiated from higher grades on the basis of size (capital and/or revenue), leverage, asset quality, stability of the industry or specific market area and quality/coverage of collateral. These borrowers generally have a history of
consistent earnings and reasonable leverage.
The Closely Monitored asset quality rating encompasses assets that have been brought to the
attention of management and may, if not corrected, warrant a more serious quality rating by management. These assets are usually in the first phase of a deficiency situation and may possess similar criteria as Special Mention assets. This grade
includes loans to borrowers which require special monitoring because of deteriorating financial results, declining credit ratings, decreasing cash flow, increasing leverage, marginal collateral coverage or industry stress that has resulted or may
result in a changing overall risk profile.
The Special Mention asset quality rating encompasses assets that have potential weaknesses that
deserve managements close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institutions credit position at some future date. Special mention assets
are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. This grade is intended to include loans to borrowers whose credit quality has clearly deteriorated and where risk of further decline
is possible unless active measures are taken to correct the situation. Weaknesses are considered potential at this state and are not yet fully defined.
The Substandard asset quality rating encompasses assets that are inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any; assets having a well-defined
F-18
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
weakness(es) based upon objective evidence; assets characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected; or the possibility that
liquidation will not be timely. Loans categorized in this grade possess a well-defined credit weakness and the likelihood of repayment from the primary source is uncertain. Significant financial deterioration has occurred and very close
attention is warranted to ensure the full repayment without loss. Collateral coverage may be marginal and the accrual of interest has been suspended.
The Doubtful asset quality rating encompasses assets that have all of the weaknesses of those classified as Substandard. In addition,
these weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
The Loss asset quality rating encompasses assets that are considered uncollectible and of such little value that their continuance as assets of
the Bank is not warranted. A loss classification does not mean that an asset has no recovery or salvage value; instead, it means that it is not practical or desirable to defer writing off or reserving all or a portion of a basically worthless asset,
even though partial recovery may be realized in the future.
The following table is a summary of our past due and non-accrual loans as of
June 30, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Greater
than 90
Days
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total Loans
Receivable
|
|
|
Total Loans
>90 Days &
Accruing
|
|
|
Total
Nonaccrual
|
|
1-4 Family
|
|
$
|
|
|
|
$
|
70
|
|
|
$
|
219
|
|
|
$
|
289
|
|
|
$
|
31,896
|
|
|
$
|
32,185
|
|
|
$
|
|
|
|
$
|
335
|
|
Home Equity
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
3,556
|
|
|
|
3,567
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
184
|
|
|
|
635
|
|
|
|
|
|
|
|
819
|
|
|
|
201,694
|
|
|
|
202,513
|
|
|
|
|
|
|
|
3,789
|
|
Multifamily
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,896
|
|
|
|
52,896
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
|
|
|
|
|
|
|
|
343
|
|
|
|
343
|
|
|
|
10,732
|
|
|
|
11,075
|
|
|
|
|
|
|
|
343
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,417
|
|
|
|
10,417
|
|
|
|
|
|
|
|
|
|
Commercial Non-Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,850
|
|
|
|
14,850
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,044
|
|
|
|
1,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
195
|
|
|
$
|
705
|
|
|
$
|
562
|
|
|
$
|
1,462
|
|
|
$
|
327,085
|
|
|
$
|
328,547
|
|
|
$
|
|
|
|
$
|
4,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
30-59 Days
Past Due
|
|
|
60-89 Days
Past Due
|
|
|
Greater
than 90
Days
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total Loans
Receivable
|
|
|
Total Loans
>90 Days &
Accruing
|
|
|
Total
Nonaccrual
|
|
1-4 Family
|
|
$
|
165
|
|
|
$
|
94
|
|
|
$
|
137
|
|
|
$
|
396
|
|
|
$
|
34,993
|
|
|
$
|
35,389
|
|
|
$
|
|
|
|
$
|
137
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,031
|
|
|
|
4,031
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
648
|
|
|
|
100
|
|
|
|
748
|
|
|
|
195,176
|
|
|
|
195,924
|
|
|
|
|
|
|
|
4,872
|
|
Multifamily
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,827
|
|
|
|
54,827
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
|
|
|
|
|
|
|
|
1,061
|
|
|
|
1,061
|
|
|
|
10,486
|
|
|
|
11,547
|
|
|
|
|
|
|
|
1,061
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,475
|
|
|
|
13,475
|
|
|
|
|
|
|
|
|
|
Commercial Non-Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,047
|
|
|
|
20,047
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,074
|
|
|
|
1,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
165
|
|
|
$
|
742
|
|
|
$
|
1,298
|
|
|
$
|
2,205
|
|
|
$
|
334,109
|
|
|
$
|
336,314
|
|
|
$
|
|
|
|
$
|
6,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accrual of interest is discontinued on all loan classes at the time the loan is 90 days past due unless the
credit is well-secured and in process of collection. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. The entire balance of a loan is considered delinquent
if the minimum payment contractually required to be made is not received by the specified due date.
F-19
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
All interest accrued but not collected for loans that are placed on nonaccrual or charged off
is reversed against interest income. Subsequent payments on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Nonaccrual loans are returned to accrual
status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. We generally require a period of satisfactory performance of
not less than six months before returning a nonaccrual loan to accrual status.
A loan is considered impaired, in accordance with the
impairment accounting guidance (ASC 310-10-35-16), when based on current information and events, it is probable we will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans
include non-performing commercial loans but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties.
These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or
other actions intended to maximize collection. Interest income on loans individually classified as impaired is recognized on a cash basis after all past due and current principal payments have been made.
F-20
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
The following table presents impaired loans at June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
Balance
|
|
|
Unpaid
Principal
Balance
|
|
|
Specific
Allowance
|
|
|
QTD
Average
Balance
|
|
|
YTD
Average
Balance
|
|
|
QTD Interest
Income
|
|
|
YTD
Interest
Income
|
|
Loans without a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
$
|
943
|
|
|
$
|
1,067
|
|
|
$
|
|
|
|
$
|
1,155
|
|
|
$
|
1,181
|
|
|
$
|
4
|
|
|
$
|
13
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
5,780
|
|
|
|
7,838
|
|
|
|
|
|
|
|
6,308
|
|
|
|
6,850
|
|
|
|
17
|
|
|
|
56
|
|
Multi Family
|
|
|
6,150
|
|
|
|
6,964
|
|
|
|
|
|
|
|
6,195
|
|
|
|
6,234
|
|
|
|
129
|
|
|
|
168
|
|
Land
|
|
|
343
|
|
|
|
2,507
|
|
|
|
|
|
|
|
510
|
|
|
|
694
|
|
|
|
31
|
|
|
|
31
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Non-Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
120
|
|
|
$
|
80
|
|
|
$
|
|
|
|
$
|
2
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
706
|
|
|
|
706
|
|
|
|
250
|
|
|
|
1,397
|
|
|
|
855
|
|
|
|
2
|
|
|
|
10
|
|
Multi Family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Non-Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,264
|
|
|
|
842
|
|
|
|
|
|
|
|
35
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
$
|
943
|
|
|
$
|
1,067
|
|
|
$
|
|
|
|
$
|
1,275
|
|
|
$
|
1,261
|
|
|
$
|
4
|
|
|
$
|
15
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
6,486
|
|
|
|
8,544
|
|
|
|
250
|
|
|
|
7,705
|
|
|
|
7,705
|
|
|
|
19
|
|
|
|
66
|
|
Multi Family
|
|
|
6,150
|
|
|
|
6,964
|
|
|
|
|
|
|
|
6,195
|
|
|
|
6,234
|
|
|
|
129
|
|
|
|
168
|
|
Land
|
|
|
343
|
|
|
|
2,507
|
|
|
|
|
|
|
|
510
|
|
|
|
694
|
|
|
|
31
|
|
|
|
31
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Non-Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,264
|
|
|
|
842
|
|
|
|
|
|
|
|
35
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,922
|
|
|
$
|
19,082
|
|
|
$
|
250
|
|
|
$
|
16,949
|
|
|
$
|
16,736
|
|
|
$
|
183
|
|
|
$
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
The following table presents impaired loans at December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
Balance
|
|
|
Unpaid
Principal
Balance
|
|
|
Specific
Allowance
|
|
|
YTD Average
Balance
|
|
|
YTD Interest
Income
|
|
Loans without a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
$
|
1,500
|
|
|
$
|
1,620
|
|
|
$
|
|
|
|
$
|
1,311
|
|
|
$
|
70
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
7,494
|
|
|
|
9,669
|
|
|
|
|
|
|
|
8,296
|
|
|
|
426
|
|
Multi Family
|
|
|
6,311
|
|
|
|
7,125
|
|
|
|
|
|
|
|
6,884
|
|
|
|
402
|
|
Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Non-Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
609
|
|
|
|
695
|
|
|
|
235
|
|
|
|
385
|
|
|
|
41
|
|
Multi Family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
1,061
|
|
|
|
3,158
|
|
|
|
550
|
|
|
|
1,832
|
|
|
|
123
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Non-Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
$
|
1,500
|
|
|
$
|
1,620
|
|
|
$
|
|
|
|
$
|
1,311
|
|
|
$
|
70
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
8,103
|
|
|
|
10,364
|
|
|
|
235
|
|
|
|
8,681
|
|
|
|
467
|
|
Multi Family
|
|
|
6,311
|
|
|
|
7,125
|
|
|
|
|
|
|
|
6,884
|
|
|
|
402
|
|
Land
|
|
|
1,061
|
|
|
|
3,158
|
|
|
|
550
|
|
|
|
1,856
|
|
|
|
123
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Non-Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,975
|
|
|
$
|
22,267
|
|
|
$
|
785
|
|
|
$
|
18,773
|
|
|
$
|
1,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
The following table presents impaired loans at June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
Balance
|
|
|
Unpaid
Principal
Balance
|
|
|
Specific
Allowance
|
|
|
QTD
Average
Balance
|
|
|
YTD
Average
Balance
|
|
|
QTD Interest
Income
|
|
|
YTD
Interest
Income
|
|
Loans without a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
$
|
1,071
|
|
|
$
|
1,198
|
|
|
$
|
|
|
|
$
|
1,184
|
|
|
$
|
1,271
|
|
|
$
|
14
|
|
|
$
|
24
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
7,599
|
|
|
|
9,575
|
|
|
|
|
|
|
|
8,941
|
|
|
|
9,265
|
|
|
|
52
|
|
|
|
99
|
|
Multi Family
|
|
|
7,003
|
|
|
|
7,850
|
|
|
|
|
|
|
|
7,242
|
|
|
|
7,454
|
|
|
|
129
|
|
|
|
204
|
|
Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Non-Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
496
|
|
|
|
550
|
|
|
|
315
|
|
|
|
248
|
|
|
|
165
|
|
|
|
4
|
|
|
|
4
|
|
Multi Family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
1,520
|
|
|
|
3,417
|
|
|
|
750
|
|
|
|
1,598
|
|
|
|
1,680
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Non-Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
$
|
1,071
|
|
|
$
|
1,198
|
|
|
$
|
|
|
|
$
|
1,184
|
|
|
$
|
1,271
|
|
|
$
|
14
|
|
|
$
|
24
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
8,095
|
|
|
|
10,125
|
|
|
|
315
|
|
|
|
9,189
|
|
|
|
9,430
|
|
|
|
56
|
|
|
|
103
|
|
Multi Family
|
|
|
7,003
|
|
|
|
7,850
|
|
|
|
|
|
|
|
7,242
|
|
|
|
7,454
|
|
|
|
129
|
|
|
|
204
|
|
Land
|
|
|
1,520
|
|
|
|
3,417
|
|
|
|
750
|
|
|
|
1,646
|
|
|
|
1,725
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Non-Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,689
|
|
|
$
|
22,590
|
|
|
$
|
1,065
|
|
|
$
|
19,261
|
|
|
$
|
19,880
|
|
|
$
|
199
|
|
|
$
|
331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments on impaired loans are typically applied to principal unless collectability of the principal
amount is reasonably assumed, in which case interest is recognized on a cash basis and is reasonable compared to interest income noted above.
Troubled
Debt Restructuring (TDR)
We may grant a concession or modification for economic or legal reasons related to a borrowers
financial condition that we would not otherwise consider resulting in a modified loan which is then identified as a troubled debt restructuring. We may modify loans through rate reductions, short-term extensions of maturity, interest only payments,
or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the borrowers operations. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or
repossession of the collateral.
We identify loans for potential restructure primarily through direct communication with the borrower and
evaluation of the borrowers financial statements, revenue projections, tax returns, and credit reports. Even if
F-23
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the
near future.
For one-to-four family residential and home equity lines of credit, a restructure often occurs with past due loans and may be
offered as an alternative to foreclosure. There are other situations where borrowers, who are not past due, experience a sudden job loss, become over-extended with credit obligations, or other problems, have indicated that they will be unable to
make the required monthly payment and request payment relief.
When considering a loan restructure, management will determine if:
(i) the financial distress is short or long term; (ii) loan concessions are necessary; and (iii) the restructure is a viable solution.
When a loan is restructured, the new terms often require a reduced monthly debt service payment. No TDRs that were on non-accrual status at the
time the concessions were granted have been returned to accrual status. For commercial loans, management completes an analysis of the operating entitys ability to repay the debt. If the operating entity is capable of servicing the new debt
service requirements and the underlying collateral value is believed to be sufficient to repay the debt in the event of a future default, the new loan can be placed on accrual status after six months of performance with the new loan terms. To date,
there have been no commercial loans restructured and immediately placed on accrual status after the execution of the TDR.
For retail
loans, an analysis of the individuals ability to service the new required payments is performed. If the borrower is capable of servicing the newly restructured debt and the underlying collateral value is believed to be sufficient to repay the
debt in the event of a future default, the new loan can be placed on accrual status after six months of performance to the new loan terms. The reason for the TDR is also considered, such as paying past due real estate taxes or payments caused by a
temporary job loss, when determining whether a retail TDR loan could be returned to accrual status. Retail TDRs remain on nonaccrual status until sufficient payments have been made to bring the past due principal and interest current and/or after
six months of performance to the new loan terms at which point the loan could be transferred to accrual status.
There were no TDRs that
had payment defaults during the six months ended June 30, 2017. Default occurs when a TDR is 90 days or more past due, transferred to nonaccrual status, or transferred to other real estate owned within twelve months of restructuring.
Management monitors the TDRs based on the type of modification or concession granted to the borrower. These types of modifications may include
rate reductions, payment/term extensions, forgiveness of principal, forbearance, and other applicable actions. Management predominantly utilizes rate reductions and lower monthly payments, either from a longer amortization period or interest only
repayment schedule, because these concessions provide needed payment relief without risking the loss of principal. Management will also agree to a forbearance agreement when it is deemed appropriate to avoid foreclosure.
The following table summarizes the loans that were restructured as TDRs during the three and six months ended June 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30, 2017
|
|
|
Six months ended
June 30, 2017
|
|
|
|
Count
|
|
|
Balance
prior to
TDR
|
|
|
Balance
after
TDR
|
|
|
Count
|
|
|
Balance
prior to
TDR
|
|
|
Balance
after
TDR
|
|
|
|
(Dollars in thousands)
|
|
One-to four Family
|
|
|
2
|
|
|
|
116
|
|
|
|
116
|
|
|
|
2
|
|
|
|
116
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
2
|
|
|
$
|
116
|
|
|
$
|
116
|
|
|
|
2
|
|
|
$
|
116
|
|
|
$
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
The one-to four-family TDRs in 2017 were modified with maturity extensions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30, 2016
|
|
|
Six months ended
June 30, 2016
|
|
|
|
Count
|
|
|
Balance
prior to
TDR
|
|
|
Balance
after
TDR
|
|
|
Count
|
|
|
Balance
prior to
TDR
|
|
|
Balance
after
TDR
|
|
|
|
(Dollars in thousands)
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
996
|
|
|
|
996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
1
|
|
|
$
|
996
|
|
|
$
|
996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The commercial real estate TDR in 2016 was modified with a forbearance agreement and maturity extension.
Note 5:
|
Disclosures About Fair Value of Assets and Liabilities
|
ASC Topic 820,
Fair Value
Measurements
, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also establishes a fair value
hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
|
|
|
Level 1
|
|
Quoted prices in active markets for identical assets or liabilities.
|
|
|
Level 2
|
|
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
|
|
|
Level 3
|
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
Following is a description of the valuation methodologies used for assets measured at fair value on a
nonrecurring basis and recognized in the accompanying condensed consolidated balance sheets, as well as the general classification of such assets under the valuation hierarchy. We have no assets or liabilities measured at fair value on a recurring
basis and no liabilities measured at fair value on a nonrecurring basis.
Recurring and Nonrecurring Measurements
The following table presents the fair value measurements of assets and liabilities recognized in the accompanying consolidated balance sheets
measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2017 and December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Fair
Value
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral-dependent Impaired loans
|
|
$
|
461
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
461
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral-dependent Impaired loans
|
|
$
|
885
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
885
|
|
F-25
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
Collateral-dependent Impaired Loans
The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to
sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.
The Company considers the appraisal
or an evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the
loan is determined to be collateral-dependent or subsequently as deemed necessary and approved by management. Appraisals are reviewed for accuracy and consistency by the Credit Analysis department. Typically, appraisers are selected from the list of
approved appraisers maintained by the Underwriting department. The appraised values may be reduced by discounts to consider a lack of marketability or estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the
collateral. These discounts and estimates are developed by the Credit Analysis department and approved by management.
Unobservable (Level 3) inputs
The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair
value measurements other than goodwill at June 30, 2017 and December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral-dependent Impaired Loans
|
|
|
Fair Value
|
|
|
Valuation
Technique
|
|
Unobservable
Inputs
|
|
Range (Weighted
Average)
|
As of June 30, 2017
Collateral-dependent impaired loans
|
|
$
|
461
|
|
|
Market comparable properties
|
|
Marketability discount
|
|
0-17.5% (3%)
|
December 31, 2016
Collateral-dependent impaired loans
|
|
$
|
885
|
|
|
Market comparable properties
|
|
Marketability discount
|
|
3-13% (6%)
|
F-26
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
Fair Value of Financial Instruments
The following table presents estimated fair values of our financial instruments recognized in the accompanying consolidated balance sheets at
amounts other than fair value at the individual dates. The fair values of certain instruments were calculated by discounting expected cash flows, which involves significant judgments by management and uncertainties. Because no market exists for
certain financial instruments and because management does not intend to sell these financial instruments, we do not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or
in the aggregate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Carrying
Amount
|
|
|
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
As of June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
62,148
|
|
|
$
|
62,148
|
|
|
$
|
|
|
|
$
|
|
|
Loans, net of allowance for loan losses
|
|
|
314,432
|
|
|
|
|
|
|
|
|
|
|
|
317,161
|
|
Federal Home Loan Bank stock
|
|
|
2,700
|
|
|
|
|
|
|
|
2,700
|
|
|
|
|
|
Interest receivable
|
|
|
865
|
|
|
|
|
|
|
|
865
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
262,673
|
|
|
$
|
152,139
|
|
|
$
|
|
|
|
$
|
111,646
|
|
Federal Home Loan Bank advances
|
|
|
42,000
|
|
|
|
|
|
|
|
41,381
|
|
|
|
|
|
Federal funds purchased
|
|
|
12,000
|
|
|
|
|
|
|
|
12,000
|
|
|
|
|
|
Interest payable
|
|
|
85
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Carrying
Amount
|
|
|
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
103,634
|
|
|
$
|
103,634
|
|
|
$
|
|
|
|
$
|
|
|
Interest-earning time deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity securities
|
|
|
499
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
Loans held for sale
|
|
|
238
|
|
|
|
|
|
|
|
239
|
|
|
|
|
|
Loans, net of allowance for loan losses
|
|
|
320,606
|
|
|
|
|
|
|
|
|
|
|
|
323,601
|
|
Federal Home Loan Bank stock
|
|
|
2,700
|
|
|
|
|
|
|
|
2,700
|
|
|
|
|
|
Interest receivable
|
|
|
846
|
|
|
|
|
|
|
|
846
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
280,548
|
|
|
$
|
153,290
|
|
|
$
|
|
|
|
$
|
128,655
|
|
Federal Home Loan Bank advances
|
|
|
60,000
|
|
|
|
|
|
|
|
59,187
|
|
|
|
|
|
Federal funds purchased
|
|
|
27,000
|
|
|
|
|
|
|
|
27,000
|
|
|
|
|
|
Interest payable
|
|
|
249
|
|
|
|
|
|
|
|
249
|
|
|
|
|
|
F-27
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
The following methods and assumptions were used to estimate the fair value of all other
financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value.
Cash and Cash Equivalents,
Federal Home Loan Bank Stock, Federal Funds Purchased, Interest Receivable, and Interest Payable
The carrying amount approximates
fair value.
Held to Maturity Securities
Fair values equal quoted market prices, if available. If quoted market prices are not available, fair value is estimated based on quoted market
prices of similar securities.
Loans Held for Sale
Fair value of loans held for sale is estimated by discounting the future cash flows using the market rates at which similar loans would be made
to borrowers with similar remaining maturities.
Loans
The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations.
Deposits
Deposits include demand
deposits, savings accounts, checking accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates
currently offered for deposits of similar remaining maturities.
Federal Home Loan Bank Advances
Rates currently available to us for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.
Commitments to Originate Loans, Letters of Credit and Lines of Credit
Loan commitments and letters-of-credit generally have short-term, variable rate features and contain clauses, which limit our exposure to
changes in customer credit quality. Accordingly, their carrying values, which are immaterial at the respective balance sheet dates, are reasonable estimates of fair value.
Note 6:
|
Earnings Per Share (In thousands except per share amounts)
|
Basic earnings per common
share (EPS) excludes dilution and is computed by dividing net income applicable to common stock by the weighted average number of common shares outstanding for the year. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock (such as stock options) were exercised or converted into additional common shares that would then share in the earnings of the entity. Diluted EPS is computed by dividing net income applicable to
common stock by the weighted average number of common shares outstanding for the year, plus an incremental number of common-equivalent shares computed using the treasury stock method.
Unvested share-based payment awards, which include the right to receive non-forfeitable dividends or dividend equivalents, are considered to
participate with common stock in undistributed earnings for purposes of computing EPS. Accordingly, the Company is required to calculate basic and diluted EPS using the two-class method. Restricted stock awards granted by the Company are considered
participating securities. Calculations of EPS under the two-class method (i) exclude from the numerator any dividends paid or owed on participating securities and any undistributed earnings considered to be attributable to participating
securities and (ii) exclude from the denominator the dilutive impact of the participating securities.
F-28
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
Unearned ESOP shares, which are not vested and unvested restricted stock awards, are excluded
from the computation of average shares outstanding.
Earnings per share analysis for the three and six months ended June 30, 2017 and
2016 is as follows (dollars in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Three months
ended June 30,
2017
|
|
|
Three months
ended June 30,
2016
|
|
Net Income
|
|
$
|
1,276
|
|
|
$
|
1,184
|
|
Dividends and undistributed earnings allocated to participating securities
|
|
|
(12
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
Income attributable to common shareholders
|
|
$
|
1,264
|
|
|
$
|
1,164
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding (in thousands)
|
|
|
2,106
|
|
|
|
2,152
|
|
Less: average unearned ESOP and unvested restricted stock
|
|
|
(148
|
)
|
|
|
(177
|
)
|
|
|
|
|
|
|
|
|
|
Average Shares
|
|
|
1,958
|
|
|
|
1,975
|
|
Effect of dilutive based awards
|
|
|
55
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
Average common and common-equivalent shares for diluted EPS (in thousands)
|
|
|
2,013
|
|
|
|
2,007
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
0.65
|
|
|
$
|
0.59
|
|
Diluted EPS
|
|
$
|
0.63
|
|
|
$
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months
ended June 30,
2017
|
|
|
Six months
ended June 30,
2016
|
|
Net Income
|
|
$
|
2,608
|
|
|
$
|
2,151
|
|
Dividends and undistributed earnings allocated to participating securities
|
|
|
(25
|
)
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
Income attributable to common shareholders
|
|
$
|
2,583
|
|
|
$
|
2,114
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding (in thousands)
|
|
|
2,106
|
|
|
|
2,154
|
|
Less: average unearned ESOP and unvested restricted stock
|
|
|
(148
|
)
|
|
|
(177
|
)
|
|
|
|
|
|
|
|
|
|
Average Shares
|
|
|
1,958
|
|
|
|
1,977
|
|
Effect of dilutive based awards
|
|
|
54
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
Average common and common-equivalent shares for diluted EPS (in thousands)
|
|
|
2,012
|
|
|
|
2,009
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
1.32
|
|
|
$
|
1.07
|
|
Diluted EPS
|
|
$
|
1.28
|
|
|
$
|
1.05
|
|
Note 7:
|
Share-Based Compensation
|
In May 2012, the Companys stockholders approved the
Wolverine Bancorp, Inc. 2012 Equity Incentive Plan (Plan) which provides for awards of stock options and restricted stock to key officers and outside directors. The cost of the Plan is based on the fair value of the awards on the grant
date. The fair value of restricted stock awards is based on the closing price of the Companys stock on the grant date. The fair value of stock options is estimated using a Black-Scholes option pricing model using assumptions for dividend
yield, stock price volatility, risk-free interest rate, and option term. These assumptions are based on managements judgments regarding future events, are subjective in nature, and contain uncertainties inherent in an estimate. The cost of the
awards are being recognized on a straight-line basis over the five-year vesting period during which participants are required to provide services in exchange for the awards.
Until such time as awards of stock are granted and vest or options are exercised, shares of the Companys common stock under the Plan
shall be authorized but unissued shares. The maximum number of
F-29
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
shares authorized under the Plan is 351,050. Total shared-based compensation expense for the six months ended June 30, 2017 and 2016 was $154 and $173, respectively.
Stock Options
The table below presents
the stock option activity for the period shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Weighted
average
exercise
price
|
|
|
Remaining
contractual
life (years)
|
|
|
Aggregate
intrinsic
value (in
thousands)
|
|
Options outstanding at January 1, 2017
|
|
|
181,585
|
|
|
$
|
20.76
|
|
|
|
7
|
|
|
$
|
1,956
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at June 30, 2017
|
|
|
181,585
|
|
|
$
|
20.87
|
|
|
|
7
|
|
|
$
|
3,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2017
|
|
|
93,248
|
|
|
$
|
17.49
|
|
|
|
5
|
|
|
$
|
2,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017, the Company had $140 of unrecognized compensation expense related to stock options.
Stock option expense for the three and six months ended June 30, 2017 was $16 and $33, respectively. Stock option expense for the three and six months ended June 30, 2016 was $17 and $33 respectively.
Restricted Stock Awards
Restricted stock
awards are accounted for as fixed grants using the fair value of the Companys stock at the time of grant. Unvested restricted stock awards may not be disposed of or transferred during the vesting period. Restricted stock awards carry with them
the right to receive dividends.
The table below presents the restricted stock award activity for the period shown:
|
|
|
|
|
|
|
|
|
|
|
Service-Based Restricted
stock awards
|
|
|
Weighted average grant
date fair value
|
|
Non-vested at January 1, 2017
|
|
|
26,572
|
|
|
$
|
22.38
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(509
|
)
|
|
|
24.97
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at June 30, 2017
|
|
|
26,063
|
|
|
|
22.33
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017, the Company had $391 of unrecognized compensation expense related to restricted stock
awards. The cost of the restricted stock awards will be amortized in monthly installments over the five-year vesting period. Restricted stock expense for the three and six months ended June 30, 2017 was $58 and $121 respectively. Restricted
stock expense for the three and six months ended June 30, 2016 was $69 and $140 respectively.
On June 13, 2017, the Company entered into an Agreement and Plan of
Merger (the Merger Agreement) with Horizon Bancorp (Horizon), an Indiana corporation. Pursuant to the Merger Agreement, the Company will merge with and into Horizon, with Horizon as the surviving corporation (the
Merger). Immediately following the Merger, Wolverine Bank, a federally chartered savings bank and wholly-owned subsidiary of the Company, will merge with and into Horizon Bank, National Association, the wholly-owned national bank
subsidiary of Horizon (Horizon Bank), with Horizon Bank as the surviving bank.
F-30
Wolverine Bancorp, Inc.
Notes to Condensed Consolidated Interim Financial Statements (Unaudited)
(Amounts in Thousands, except per share amounts)
Subject to the terms and conditions of the Merger Agreement, upon the completion of the
Merger, each share of outstanding Company common stock, $0.01 par value per share, will be converted into 1.0152 shares (the Exchange Ratio) of Horizon common stock, no par value, and $14.00 per share in
cash. The Merger remains subject to regulatory approvals, Company stockholder approval and other customary closing conditions. Based on Horizons June 13, 2017 closing price of $27.50 per share as reported on the NASDAQ Global
Select Market, the transaction value is estimated at $91.8 million.
F-31
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
Wolverine
Bancorp, Inc.
Midland, Michigan
We have
audited the accompanying consolidated balance sheets of Wolverine Bancorp, Inc. (Company) as of December 31, 2016 and 2015, and the related consolidated statements of income and comprehensive income, stockholders equity and cash flows for
the years then ended. The Companys management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. Our audits also included examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Wolverine Bancorp, Inc. as of December 31, 2016, and 2015, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ BKD, LLP
Indianapolis, Indiana
March 31, 2017
F-32
Wolverine Bancorp, Inc.
Consolidated Balance Sheets
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
318
|
|
|
$
|
334
|
|
Interest-earning demand deposits
|
|
|
103,316
|
|
|
|
52,531
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
103,634
|
|
|
|
52,865
|
|
Interest-earning time deposits
|
|
|
|
|
|
|
39,021
|
|
Investment securities held to maturity
|
|
|
499
|
|
|
|
500
|
|
Loans held for sale
|
|
|
238
|
|
|
|
581
|
|
Loans, net of allowance for loan losses of $9,326 and $10,061
|
|
|
320,606
|
|
|
|
314,613
|
|
Premises and equipment, net
|
|
|
1,127
|
|
|
|
1,285
|
|
Federal Home Loan Bank stock
|
|
|
2,700
|
|
|
|
2,700
|
|
Other real estate owned
|
|
|
86
|
|
|
|
130
|
|
Accrued interest receivable
|
|
|
846
|
|
|
|
967
|
|
Other assets
|
|
|
4,699
|
|
|
|
5,151
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
434,435
|
|
|
$
|
417,813
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
280,548
|
|
|
$
|
281,701
|
|
Federal Home Loan Bank advances
|
|
|
60,000
|
|
|
|
47,000
|
|
Federal funds purchased
|
|
|
27,000
|
|
|
|
24,000
|
|
Interest payable and other liabilities
|
|
|
5,913
|
|
|
|
4,632
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
373,461
|
|
|
|
357,333
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Common Stock, $0.01 par value per share:
|
|
|
|
|
|
|
|
|
Authorized 100,000,000 shares Issued and outstanding 2,106,153 and 2,158,034 at
December 31, 2016 and December 31, 2015
|
|
|
21
|
|
|
|
22
|
|
Unearned employee stock ownership plan (ESOP)
|
|
|
(1,215
|
)
|
|
|
(1,410
|
)
|
Additional paid-in capital
|
|
|
15,577
|
|
|
|
16,401
|
|
Retained earnings
|
|
|
46,591
|
|
|
|
45,467
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
60,974
|
|
|
|
60,480
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
434,435
|
|
|
$
|
417,813
|
|
|
|
|
|
|
|
|
|
|
F-33
Wolverine Bancorp, Inc.
Consolidated Statements of Income and Comprehensive Income
Years Ended December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Interest and Dividend Income
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
16,435
|
|
|
$
|
15,372
|
|
Investment securities and other
|
|
|
384
|
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend income
|
|
|
16,819
|
|
|
|
15,616
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
2,033
|
|
|
|
1,451
|
|
Borrowings
|
|
|
1,850
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
3,883
|
|
|
|
3,451
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
12,936
|
|
|
|
12,165
|
|
Provision (Credit) for Loan Losses
|
|
|
(760
|
)
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income After Provision for Loan Losses
|
|
|
13,696
|
|
|
|
11,365
|
|
|
|
|
|
|
|
|
|
|
Noninterest Income
|
|
|
|
|
|
|
|
|
Service charges and fees
|
|
|
260
|
|
|
|
297
|
|
Net gain on loan sales
|
|
|
469
|
|
|
|
660
|
|
Net gain (loss) on sale of real estate owned
|
|
|
32
|
|
|
|
(116
|
)
|
Other
|
|
|
296
|
|
|
|
382
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
1,057
|
|
|
|
1,223
|
|
|
|
|
|
|
|
|
|
|
Noninterest Expense
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
4,953
|
|
|
|
4,541
|
|
Net occupancy and equipment expense
|
|
|
818
|
|
|
|
811
|
|
Information technology expense
|
|
|
240
|
|
|
|
236
|
|
Federal deposit insurance corporation premiums
|
|
|
214
|
|
|
|
217
|
|
Professional and services fees
|
|
|
584
|
|
|
|
398
|
|
Other real estate owned expense
|
|
|
25
|
|
|
|
50
|
|
Loan legal expense (recovery)
|
|
|
(74
|
)
|
|
|
322
|
|
Advertising expense
|
|
|
126
|
|
|
|
144
|
|
Michigan business tax
|
|
|
195
|
|
|
|
186
|
|
Other
|
|
|
915
|
|
|
|
953
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
7,996
|
|
|
|
7,858
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Tax
|
|
|
6,757
|
|
|
|
4,730
|
|
Provision for Income Taxes
|
|
|
2,404
|
|
|
|
1,544
|
|
|
|
|
|
|
|
|
|
|
Net Income and Comprehensive Income
|
|
$
|
4,353
|
|
|
$
|
3,186
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.20
|
|
|
$
|
1.57
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
2.16
|
|
|
$
|
1.55
|
|
|
|
|
|
|
|
|
|
|
F-34
Wolverine Bancorp, Inc.
Consolidated Statements of Changes in Stockholders Equity
Years Ended December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Unearned
ESOP
Shares
|
|
|
Retained
Earnings
|
|
|
Total
Stockholders
Equity
|
|
Balances at January 1, 2015
|
|
$
|
23
|
|
|
$
|
18,640
|
|
|
$
|
(1,564
|
)
|
|
$
|
44,439
|
|
|
$
|
61,538
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,186
|
|
|
|
3,186
|
|
Purchase of 112,814 shares of common stock
|
|
|
(1
|
)
|
|
|
(2,795
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,796
|
)
|
Share based compensation expense
|
|
|
|
|
|
|
319
|
|
|
|
|
|
|
|
|
|
|
|
319
|
|
ESOP shares earned
|
|
|
|
|
|
|
237
|
|
|
|
154
|
|
|
|
|
|
|
|
391
|
|
Dividends ($1.00 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,158
|
)
|
|
|
(2,158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2015
|
|
|
22
|
|
|
|
16,401
|
|
|
|
(1,410
|
)
|
|
|
45,467
|
|
|
|
60,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,353
|
|
|
|
4,353
|
|
Purchase of 57,557 shares of common stock
|
|
|
(1
|
)
|
|
|
(1,517
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,518
|
)
|
Exercised options
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
Share based compensation expense
|
|
|
|
|
|
|
334
|
|
|
|
|
|
|
|
|
|
|
|
334
|
|
ESOP shares earned
|
|
|
|
|
|
|
333
|
|
|
|
195
|
|
|
|
|
|
|
|
528
|
|
Dividends ($1.60 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,229
|
)
|
|
|
(3,229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2016
|
|
$
|
21
|
|
|
$
|
15,577
|
|
|
$
|
(1,215
|
)
|
|
$
|
46,591
|
|
|
$
|
60,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35
Wolverine Bancorp, Inc.
Consolidated Statements of Cash Flows
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,353
|
|
|
$
|
3,186
|
|
Items not requiring (providing) cash
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
223
|
|
|
|
232
|
|
Provision (credit) for loan losses
|
|
|
(760
|
)
|
|
|
800
|
|
(Gain) loss on other real estate owned
|
|
|
(32
|
)
|
|
|
116
|
|
Loans originated for sale
|
|
|
(17,309
|
)
|
|
|
(20,073
|
)
|
Deferred income taxes
|
|
|
348
|
|
|
|
(215
|
)
|
Proceeds from loans sold
|
|
|
18,121
|
|
|
|
20,722
|
|
Net gain on sale of loans
|
|
|
(469
|
)
|
|
|
(660
|
)
|
Share based compensation
|
|
|
334
|
|
|
|
319
|
|
Earned ESOP shares
|
|
|
528
|
|
|
|
391
|
|
Changes in
|
|
|
|
|
|
|
|
|
Interest receivable and other assets
|
|
|
225
|
|
|
|
249
|
|
Interest payable and other liabilities
|
|
|
210
|
|
|
|
429
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
5,772
|
|
|
|
5,496
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
Net change in interest-earning time deposits
|
|
|
39,021
|
|
|
|
(39,021
|
)
|
Purchase of held to maturity securities
|
|
|
(499
|
)
|
|
|
(500
|
)
|
Proceeds from calls, maturities and pay-downs of held to maturity securities
|
|
|
500
|
|
|
|
|
|
Net change in loans
|
|
|
(5,425
|
)
|
|
|
(19,111
|
)
|
Proceeds from sale of real estate owned
|
|
|
268
|
|
|
|
272
|
|
Purchase of FHLB stock
|
|
|
|
|
|
|
(200
|
)
|
Purchase of premises and equipment
|
|
|
(65
|
)
|
|
|
(133
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
33,800
|
|
|
|
(58,693
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Net change in demand deposits, money market, checking and savings accounts
|
|
|
35,413
|
|
|
|
3,499
|
|
Net change in certificates of deposit
|
|
|
(36,566
|
)
|
|
|
54,673
|
|
Repayment of Federal Home Loan Bank advances
|
|
|
|
|
|
|
(13,000
|
)
|
Proceeds from Federal Home Loan Bank advances
|
|
|
13,000
|
|
|
|
10,000
|
|
Net change in Fed funds purchased
|
|
|
3,000
|
|
|
|
24,000
|
|
Proceeds from stock options exercised
|
|
|
26
|
|
|
|
|
|
Purchase of common stock
|
|
|
(1,518
|
)
|
|
|
(2,796
|
)
|
Dividends paid
|
|
|
(2,158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
11,197
|
|
|
|
76,376
|
|
|
|
|
|
|
|
|
|
|
Change in Cash and Cash Equivalents
|
|
|
50,769
|
|
|
|
23,179
|
|
Cash and Cash Equivalents, Beginning of Period
|
|
|
52,865
|
|
|
|
29,686
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Period
|
|
$
|
103,634
|
|
|
$
|
52,865
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flows Information
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
3,937
|
|
|
$
|
3,375
|
|
Income taxes paid
|
|
|
1,981
|
|
|
|
1,847
|
|
Loans transferred to real estate owned
|
|
|
192
|
|
|
|
176
|
|
Dividends declared, not paid
|
|
|
2,305
|
|
|
|
2,158
|
|
F-36
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
Note 1:
|
Nature of Operations and Summary of Significant Accounting Policies
|
Nature of Operations
Wolverine Bank (the Bank), a wholly owned subsidiary of Wolverine Bancorp, Inc. (the Company), is a
federally chartered savings bank primarily engaged in providing a full range of banking and financial services to individual and business customers in the Great Lakes Bay Region and beyond. The Company is subject to competition from other financial
institutions. The Company is subject to the regulation of the Federal Reserve Board and the Bank is subject to the regulation of the Officer of the Comptroller of the Currency, and both undergo periodic examinations.
The Banks additional wholly owned subsidiaries, Wolserv Corporation, a Michigan corporation which has a membership interest in a title
company, and Wolverine Commercial Holdings LLC, a Michigan LLC owned by Wolverine Bank which holds certain real estate, are included in the consolidated financial statements.
Principles of Consolidation
The
consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation
of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses,
valuation of real estate acquired in connection with foreclosures or in satisfaction of loans and financial instruments.
Cash Equivalents
We consider all liquid investments with original maturities of three months or less to be cash equivalents.
Securities
Held-to-maturity
securities, which include any security for which we have the positive intent and ability to hold until maturity, are carried at historical cost adjusted for amortization of premiums and accretion of discounts.
Amortization of premiums and accretion of discounts are recorded as interest income from securities. Realized gains and losses are recorded as
net security gains (losses). Gains and losses on securities are determined on the specific-identification method.
Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net
unrealized losses, if any, are recognized through a valuation allowance by charges to noninterest income. Gains and losses on loan sales are recorded in noninterest income, and direct loan origination costs and fees are deferred at origination of
the loan and are recognized in noninterest income upon sale of the loan.
F-37
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their
outstanding principal balances adjusted for any charge-offs, the allowance for loan losses, any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Interest income is reported on the interest method
and includes amortization of net deferred loan fees and costs over the loan term. Generally, loans are placed on nonaccrual status at ninety days past due and interest is considered a loss, unless the loan is well-secured. Accrued interest for loans
placed on nonaccrual status is reversed against interest income.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income.
Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon managements periodic review of the
collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral and prevailing economic
conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those
loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers
non-classified loans and is based on historical charge-off experience and expected loss given default derived from our internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or
external influences on credit quality that are not fully reflected in the historical loss or risk rating data.
A loan is considered
impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by
management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally
are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length
of the delay, the reasons for the delay, the borrowers prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by
either the present value of expected future cash flows discounted at the loans effective interest rate, the loans obtainable market price or the fair value of the collateral if the loan is collateral dependent.
Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the groups historical loss
experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, we do not separately identify individual consumer and residential loans for impairment measurements, unless such loans
are the subject of a restructuring agreement due to financial difficulties of the borrower.
F-38
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
Premises and Equipment
Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight-line and accelerated
methods over the estimated useful lives of the assets ranging from 3 to 39 years.
Federal Home Loan Bank Stock
Federal Home Loan Bank stock is a required investment for institutions that are members of the Federal Home Loan Bank system. The required
investment in the common stock is based on a predetermined formula, carried at cost, and evaluated for impairment.
Real Estate Owned
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the
date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from
operations and changes in the valuation allowance are included in net income or expense from foreclosed assets.
Earnings Per Common Share
Basic earnings per common share (EPS) excludes dilution and is computed by dividing net income applicable to common
stock by the weighted average number of common shares outstanding for the year. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as stock options) were exercised or converted
into additional common shares that would then share in the earnings of the entity. Diluted EPS is computed by dividing net income applicable to common stock by the weighted average number of common shares outstanding for the year, plus an
incremental number of common-equivalent shares computed using the treasury stock method.
Unvested share-based payment awards, which
include the right to receive non-forfeitable dividends or dividend equivalents, are considered to participate with common stock in undistributed earnings for purposes of computing EPS. Accordingly, the Company is required to calculate basic and
diluted EPS using the two-class method. Restricted stock awards granted by the Company are considered participating securities. Calculations of EPS under the two-class method (i) exclude from the numerator any dividends paid or owed on
participating securities and any undistributed earnings considered to be attributable to participating securities and (ii) exclude from the denominator the dilutive impact of the participating securities.
Unearned ESOP shares, which are not vested, and unvested restricted stock awards are excluded from the computation of average shares
outstanding.
Income Taxes
We
account for income taxes in accordance with income tax accounting guidance (ASC 740,
Income Taxes
). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense
reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. We determine deferred income taxes using the liability (or balance sheet)
method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in
which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax
assets are recognized if it is more likely than not, based on the technical merits, that the tax position
F-39
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the
related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of
being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances
and information available at the reporting date and is subject to managements judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all
of a deferred tax asset will not be realized.
We recognize interest and penalties on income taxes as a component of income tax expense.
We file consolidated income tax returns with our subsidiaries.
Recently Issued Accounting Standards
FASB
Accounting Standards Updates No. 2017-04, Intangibles Goodwill and Other (Topic 350)
The FASB has issued Accounting
Standards Update (ASU) No. 2017-04, Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The new guidance is intended to simplify the subsequent measurement of goodwill by eliminating Step 2 from the
goodwill impairment test.
The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit
with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to
that reporting unit. In addition, the income tax effects of tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the
requirements for any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the qualitative
impairment test is necessary. The amendments should be applied on a prospective basis. The nature of and reason for the change in accounting principle should be disclosed upon transition.
The amendments in this update should be adopted for annual or any interim goodwill impairment tests in fiscal years beginning after
December 15, 2019. Early adoption is permitted on testing dates after January 1, 2017. The Company does not expect adoption of this ASU to have a material impact on its consolidated financial statements.
FASB Accounting Standards Updates No. 2017-01, Business Combinations (Topic 805)
The FASB has issued Accounting Standards Update (ASU) No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of
a Business
. The amendments in this update provide a more robust framework to use in determining when a set of assets and activities is a business. Because the current definition of a business is interpreted broadly and can be difficult to apply,
stakeholders indicated that analyzing transactions is inefficient and costly and that the definition does not permit the use of reasonable judgment. The amendments provide more consistency in applying the guidance, reduce the costs of application,
and make the definition of a business more operable.
The amendments in this update become effective for annual periods and interim periods
within those annual periods beginning after December 15, 2017. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but it is not expected to have a material impact.
F-40
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
FASB ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments (a consensus of the Emerging Issues Task Force)
The FASB has issued Accounting Standards Update (ASU)
No. 2016-15,
Statement of Cash Flows (Topic 230).
This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice of how certain cash receipts and cash payments are presented and
classified in the statement of cash flow. In November 2016, the FASB issued ASU No. 2016-18, which gave clarification on how restricted cash was to be presented in the cash flow statement.
The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within
those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including
adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must
adopt all of the amendments in the same period. Adoption of the ASU is not expected to have a significant effect on the Companys consolidated financial statements.
FASB ASU No. 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
The FASB has issued Accounting Standards Update (ASU) No. 2016-13,
Financial Instruments Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments.
The main objective of this amendment is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to
extend credit held by a reporting entity at each reporting date.
The ASU requires the measurement of all expected credit losses for
financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their
credit loss estimates.
Many of the loss estimation techniques applied today will still be permitted, although the inputs to those
techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances.
The ASU requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and
judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organizations portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about
the amounts recorded in the financial statements.
In addition, the ASU amends the accounting for credit losses on available-for-sale debt
securities and purchased financial assets with credit deterioration.
For public business entities that are U.S. Securities and Exchange
Commission (SEC) filers, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities, the amendments in this Update
are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020,
and interim periods within fiscal years beginning after December 15, 2021. All entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal
years. The Company will be evaluating the impact of adopting this ASU and has not determined the anticipated impact on the consolidated financial statements.
F-41
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
FASB ASU No. 2016-09, Compensation Stock Compensation (Topic 718)
The FASB issued ASU No. 2016-09, Compensation Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment
Accounting
.
The ASU is intended to improve the accounting for employee shared-base payments and affects all organizations that issue
share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including the income tax consequences, the classification of awards as either equity or liabilities, and the
classification on the statement of cash flows. The amendments in this update became effective on January 1, 2017 and did not have a material impact on the consolidated financial statements.
For public business entities, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods
within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is
permitted for any entity in any interim or annual period. The amendments in this update became effective on January 1, 2017 and did not have a material impact on the consolidated financial statements.
FASB ASU No. 2016-08, 2016-10, 2016-12, Revenue from Contracts with Customers (Topic 606)
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
, which requires an entity to recognize the
amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In March 2016, the FASB issued
ASU 2016-08,
Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
, which clarifies the guidance in determining revenue recognition as principal versus agent. In April 2016, the FASB issued ASU 2016-10,
Identifying Performance Obligations and Licensing
, which provides guidance in accounting for immaterial performance obligations and shipping and handling. In May 2016, the FASB issued ASU 2016-12,
Narrow-Scope
Improvements and Practical Expedients
, which provides clarification on assessing the collectability criterion, presentation of sales taxes, measurement date for noncash consideration and completed contracts at transition. This ASU also
provides a practical expedient for contract modifications.
For public business entities, the amendments are effective for annual reporting
periods beginning after December 15, 2017, including interim reporting periods with that reporting period, as deferred by ASU 2015-14. Early application is permitted as of annual reporting periods beginning after December 15, 2016,
including interim reporting periods within the reporting period.
All other entities should apply the guidance to annual reporting periods
beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Early application is permitted for all other entities as of annual reporting periods beginning after
December 15, 2016, including interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in Update 2014-09. Adoption of the ASU is not expected to
have a significant effect on the Companys consolidated financial statements.
FASB ASU No. 2016-07, Investments Equity Method and
Joint Ventures (Topic 323)
The amendments eliminate the requirement that when an investment qualifies for use of the equity method as
a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect
during all previous periods that the investment had been held.
F-42
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
The amendments require that the equity method investor add the cost of acquiring the
additional interest in the investee to the current basis of the investors previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon
qualifying for the equity method of accounting, no retroactive adjustment of the investment is required.
The amendments require that an
entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment
becomes qualified for use of the equity method.
The amendments are effective for all entities for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity
method. Earlier application is permitted. Adoption of the ASU is not expected to have a significant effect on the Companys consolidated financial statements.
FASB ASU No. 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments
The FASB has issued Accounting Standards Update (ASU) No. 2016-05,
Derivatives and Hedging (Topic 815): Effect of Derivative Contract
Novations and Existing Hedge Accounting Relationships
. The amendments apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a hedging instrument.
The amendments clarify what steps are required when assessing whether the economic characteristics and risks of call (put) options are clearly
and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. Consequently, when a call (put) option is contingently exercisable, an entity does not have to
assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks.
This
standard will be effective for public business entities for fiscal year beginning after December 15, 2016 including interim periods within those fiscal years. Nonpublic business entities should apply the amendments for fiscal years beginning
after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. Early application is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any
adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. Adoption of the ASU is not expected to have a significant effect on the Companys consolidated financial statements.
FASB ASU No. 2016-02 Leases (Topic 842)
The FASB has issued Accounting Standards Update (ASU) No. 2016-02,
Leases
. Under the new guidance, lessees will be required to
recognize the following for all leases (with the exception of short-term leases) at the commencement date:
|
|
|
A lease liability, which is a lessees obligation to make lease payments arising from a lease, measured on a discounted basis; and
|
|
|
|
A right-of-use asset, which is an asset that represents the lessees right to use, or control the use of, a specified asset for the lease term.
|
Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor
accounting with the lessee accounting model and Topic 606,
Revenue from Contracts with Customers
.
F-43
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
The new lease guidance simplified the accounting for sale and leaseback transactions
primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of
off-balance
sheet financing.
This standard will be effective for public business entities for fiscal year beginning after December 15, 2018 including interim periods
within those fiscal years. Nonpublic business entities should apply the amendments for fiscal years beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020.
Early application is permitted for all public business entities and all nonpublic business entities upon issuance.
Lessees (for capital and operating leases) and lessors (for sales-type, direct financing and operating leases) must apply a modified
retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting
for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach.
Adoption of the ASU is not expected to have a significant effect on the Companys consolidated financial statements.
FASB Accounting Standards Updates No. 2016-01,
Financial Instruments Overall
(Subtopic 825-10):
Recognition and
Measurement of Financial Assets and Financial Liabilities
The FASB has issued Accounting Standards Update (ASU)
No. 2016-01,
Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.
The new guidance is intended to improve the recognition and measurement of financial
instruments. The ASU affects public and private companies, not-for-profit organizations, and employee benefit plans that hold financial assets or owe financial liabilities.
The new guidance makes targeted improvements to existing U.S. GAAP by:
|
|
|
Requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized
in net income;
|
|
|
|
Requiring public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes;
|
|
|
|
Requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying
notes to the financial statements;
|
|
|
|
Eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities;
|
|
|
|
Eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at
amortized cost on the balance sheet; and
|
|
|
|
Requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk
(also referred to as own credit) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.
|
F-44
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
The new guidance is effective for public companies for fiscal years beginning after
December 15, 2017, including interim periods within those fiscal years. The new guidance permits early adoption of the own credit provision. In addition, the new guidance permits early adoption of the provision that exempts private companies
and not-for-profit organizations from having to disclose fair value information about financial instruments measured at amortized cost. Adoption of the ASU is not expected to have a significant effect on the Companys consolidated financial
statements.
Note 2:
|
Restriction on Cash and Due From Banks
|
We are required to maintain reserve funds in
cash and/or on deposit with the Federal Reserve Bank. The reserve required at December 31, 2016 was $459.
At December 31, 2016,
the Companys cash accounts exceeded federally insured limits by approximately $391. Additionally, the Company had approximately $1,733 and $98,665 on deposit with the Federal Home Loan Bank of Indianapolis and Federal Reserve Bank of Chicago,
as of December 31, 2016, which are not federally insured.
The amortized cost and approximate fair values of securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Approximate
Fair Value
|
|
Held to Maturity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury bond
|
|
$
|
499
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury bond
|
|
$
|
500
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The treasury bond held at December 31, 2016 matured on January 5
th
, 2017.
There were no sales of securities during 2016 or 2015.
F-45
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
Note 4:
|
Loans and Allowance for Loan Losses
|
Categories of loans include:
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Real Estate
|
|
|
|
|
|
|
|
|
One-to four-family
|
|
$
|
35,389
|
|
|
$
|
39,719
|
|
Home equity
|
|
|
4,031
|
|
|
|
5,459
|
|
Commercial mortgage loans
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
195,924
|
|
|
|
183,934
|
|
Multifamily
|
|
|
54,827
|
|
|
|
58,804
|
|
Land
|
|
|
11,547
|
|
|
|
12,543
|
|
Construction
|
|
|
13,475
|
|
|
|
14,785
|
|
Commercial non-mortgage
|
|
|
20,047
|
|
|
|
14,826
|
|
Consumer
|
|
|
1,074
|
|
|
|
1,221
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
336,314
|
|
|
|
331,291
|
|
Less
|
|
|
|
|
|
|
|
|
Net deferred loan costs, premiums and discounts
|
|
|
563
|
|
|
|
567
|
|
Undisbursed portion of loan
|
|
|
5,819
|
|
|
|
6,050
|
|
Allowance for loan losses
|
|
|
9,326
|
|
|
|
10,061
|
|
|
|
|
|
|
|
|
|
|
Net Loans
|
|
$
|
320,606
|
|
|
$
|
314,613
|
|
|
|
|
|
|
|
|
|
|
The risk characteristics of each loan portfolio segment are as follows:
1-4 Family, Home Equity, and Consumer
With respect to residential loans that are secured by 1-4 family residences and are primarily owner occupied, we generally establish a maximum
loan-to-value ratio and require PMI if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in 1-4 family residences, and consumer loans are typically secured by consumer assets such as automobiles or
recreational vehicles. Some consumer loans are unsecured such as small installment loans. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas
such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties.
Home equity loans
secured by second mortgages have greater risk than one-to-four family residential mortgage loans secured by first mortgages. We face the risk that the collateral will be insufficient to compensate us for loan losses and costs of foreclosure. When
customers default on their loans, we attempt to foreclose on the property and resell the property as soon as possible to minimize foreclosure and carrying costs. However, the value of the collateral may not be sufficient to compensate us for the
amount of the unpaid loan and we may be unsuccessful in recovering the remaining balance from those customers. Particularly with respect to our home equity loans, decreases in real estate values could adversely affect the value of property used as
collateral for our loans.
Consumer and other loans generally have greater risk compared to longer-term loans secured by improved,
owner-occupied real estate, particularly consumer loans that are secured by rapidly depreciable assets, such as automobiles. In these cases, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the
outstanding loan balance. As a result, consumer loan collections are dependent on the borrowers continuing financial stability and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy.
F-46
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
Commercial real estate and multi-family
Commercial real estate and multi-family loans generally have greater credit risk than the owner-occupied one-to-four family residential
mortgage loans that we originate for retention in our loan portfolio. Repayment of these loans generally depends, in large part, on sufficient income from the property securing the loan or the borrowers business to cover operating expenses and
debt service. These types of loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one-to-four family residential mortgage loans. Changes in economic conditions that are beyond the control of the
borrower may affect the value of the security for the loan, the future cash flow of the affected property or business, or the marketability of a construction project with respect to loans originated for the acquisition and development of property.
Additionally, due to declining property values in our primary market area and in Michigan, the loan to value ratios of many of our commercial real estate and multi-family have increased significantly from the loan to value ratios that were assigned
to these loans at the time of origination.
Land
Land loans generally have greater credit risk than the owner-occupied one-to four-family residential mortgage loans that we originate for
retention in our portfolio. Repayment of these loans generally depends, in large part, on the sale of the land.
The sale of land can
either take place when the land is undeveloped, or developed. Generally, other cash flow sources of the borrower are utilized to make additional payments on land loans. Changes in economic conditions that are beyond the control of the borrower may
affect the value of the security for the loan, the future cash flow of the affected property or business, or the marketability of a construction project with respect to loans originated for the acquisition and development of property. Additionally,
due to declining property values in our primary market area and in Michigan, the loan to value ratios of many of our land loans have increased significantly from the loan to value ratios that were assigned to these loans at the time of origination.
Construction
Construction
loans include those for one-to-four family residential properties and commercial properties, including multifamily loans and commercial mixed-use buildings and homes built by developers on speculation. Construction loans for one-to-four
family residential properties are originated with a maximum loan to value ratio of 70% and are generally interest-only loans during the construction period which typically does not exceed nine months. Construction loans for commercial
real estate are made in accordance with a schedule reflecting the cost of construction, and are generally limited to a 70% loan-to-completed appraised value ratio. For all construction loans, we generally require that a commitment for permanent
financing be in place prior to closing the construction loan.
Repayment of one-to four-family residential property loans is primarily
dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment of commercial property loans and homes built by developers on speculation is normally
expected from the propertys eventual rental income, income from the borrowers operations, the personal resources of the guarantor, or the sale of the subject property. Generally, before making a commitment to fund a construction loan, we
require an appraisal of the property by a state-certified or state-licensed appraiser. We review and inspect properties before disbursement of funds during the term of the construction loan.
Construction financing generally involves greater credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on
a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. If the estimate of
construction cost is inaccurate, we may be
F-47
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
required to advance additional funds beyond the amount originally committed in order to protect the value of the property. Moreover, if the estimated value of the completed project is inaccurate,
the borrower may hold a property with a value that is insufficient to assure full repayment of the construction loan upon the sale of the property. Construction loans also expose us to the risk that improvements will not be completed on time in
accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated.
Commercial non-mortgage
Commercial
non-mortgage loans generally have a greater credit risk than residential mortgage loans. Unlike residential mortgage loans, which generally are made on the basis of the borrowers ability to make repayment from his or her employment and other
income, and which are secured by real property whose value tends to be more easily ascertainable, commercial non-mortgage loans are of higher risk and typically are made on the basis of the borrowers ability to make repayment from the cash
flow of the borrowers business. As a result, the availability of funds for the repayment of commercial non-mortgage loans may be substantially dependent on the success of the business itself. Further, the collateral securing the loans may
depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.
In determining the
appropriate level of allowance for loan loss, we analyze various components of our portfolio. The following components are analyzed: all substandard loans on an individual basis; all loans that are designated special mention or closely monitored;
loans not classified according to purpose or collateral type; and overdrawn deposit account balances. We also factor in historical loss experience and qualitative considerations, including trends in charge offs and recoveries; trends in
delinquencies and impaired/classified loans; effects of credit concentrations; changes in underwriting standards and loan review system; experience in lending staff; current industry conditions; current market conditions; and change in regional
employment conditions.
In instances where risk and loss exposure is clearly identified with a particular asset, a specific valuation
allowance will be established or the asset or a portion of the asset will be charged off.
F-48
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
The following tables present the balance in the allowance for loan losses and the recorded
investment in loans based on portfolio segment and impairment method as of December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Class
|
|
1-4
Family
|
|
|
Home
Equity
|
|
|
Commercial
Real Estate
|
|
|
Multifamily
|
|
|
Land
|
|
|
Construction
|
|
|
Commercial
Non-Mortgage
|
|
|
Consumer
|
|
|
Total
|
|
Year to date analysis as of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
948
|
|
|
$
|
108
|
|
|
$
|
4,913
|
|
|
$
|
1,515
|
|
|
$
|
1,605
|
|
|
$
|
604
|
|
|
$
|
344
|
|
|
$
|
24
|
|
|
$
|
10,061
|
|
Provision charged to expense
|
|
|
(137
|
)
|
|
|
(59
|
)
|
|
|
555
|
|
|
|
(431
|
)
|
|
|
(544
|
)
|
|
|
(310
|
)
|
|
|
180
|
|
|
|
(14
|
)
|
|
|
(760
|
)
|
Losses charged off
|
|
|
(67
|
)
|
|
|
|
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(153
|
)
|
Recoveries
|
|
|
54
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
798
|
|
|
$
|
49
|
|
|
$
|
5,422
|
|
|
$
|
1,084
|
|
|
$
|
1,142
|
|
|
$
|
294
|
|
|
$
|
524
|
|
|
$
|
13
|
|
|
$
|
9,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
235
|
|
|
$
|
|
|
|
$
|
550
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
798
|
|
|
$
|
49
|
|
|
$
|
5,187
|
|
|
$
|
1,084
|
|
|
$
|
592
|
|
|
$
|
294
|
|
|
$
|
524
|
|
|
$
|
13
|
|
|
$
|
8,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
35,389
|
|
|
$
|
4,031
|
|
|
$
|
195,924
|
|
|
$
|
54,827
|
|
|
$
|
11,547
|
|
|
$
|
13,475
|
|
|
$
|
20,047
|
|
|
$
|
1,074
|
|
|
$
|
336,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: individually evaluated for impairment
|
|
$
|
1,500
|
|
|
$
|
|
|
|
$
|
8,103
|
|
|
$
|
6,311
|
|
|
$
|
1,061
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
16,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
33,889
|
|
|
$
|
4,031
|
|
|
$
|
187,821
|
|
|
$
|
48,516
|
|
|
$
|
10,486
|
|
|
$
|
13,475
|
|
|
$
|
20,047
|
|
|
$
|
1,074
|
|
|
$
|
319,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-49
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Class
|
|
1-4
Family
|
|
|
Home
Equity
|
|
|
Commercial
Real Estate
|
|
|
Multifamily
|
|
|
Land
|
|
|
Construction
|
|
|
Commercial
Non-Mortgage
|
|
|
Consumer
|
|
|
Total
|
|
Year to date analysis as of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
881
|
|
|
$
|
100
|
|
|
$
|
3,573
|
|
|
$
|
1,391
|
|
|
$
|
1,205
|
|
|
$
|
539
|
|
|
$
|
269
|
|
|
$
|
18
|
|
|
$
|
7,976
|
|
Provision (credit) charged to expense
|
|
|
79
|
|
|
|
8
|
|
|
|
72
|
|
|
|
124
|
|
|
|
374
|
|
|
|
65
|
|
|
|
75
|
|
|
|
3
|
|
|
|
800
|
|
Losses charged off
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(46
|
)
|
Recoveries
|
|
|
33
|
|
|
|
|
|
|
|
1,268
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
1,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
948
|
|
|
$
|
108
|
|
|
$
|
4,913
|
|
|
$
|
1,515
|
|
|
$
|
1,605
|
|
|
$
|
604
|
|
|
$
|
344
|
|
|
$
|
24
|
|
|
$
|
10,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: individually evaluated for impairment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
200
|
|
|
$
|
100
|
|
|
$
|
850
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
948
|
|
|
$
|
108
|
|
|
$
|
4,713
|
|
|
$
|
1,415
|
|
|
$
|
755
|
|
|
$
|
604
|
|
|
$
|
344
|
|
|
$
|
24
|
|
|
$
|
8,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
39,719
|
|
|
$
|
5,459
|
|
|
$
|
183,934
|
|
|
$
|
58,804
|
|
|
$
|
12,543
|
|
|
$
|
14,785
|
|
|
$
|
14,826
|
|
|
$
|
1,221
|
|
|
$
|
331,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: individually evaluated for impairment
|
|
$
|
1,504
|
|
|
$
|
|
|
|
$
|
12,280
|
|
|
$
|
7,877
|
|
|
$
|
1,883
|
|
|
$
|
|
|
|
$
|
295
|
|
|
$
|
|
|
|
$
|
23,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance: collectively evaluated for impairment
|
|
$
|
38,215
|
|
|
$
|
5,459
|
|
|
$
|
171,654
|
|
|
$
|
50,927
|
|
|
$
|
10,660
|
|
|
$
|
14,785
|
|
|
$
|
14,531
|
|
|
$
|
1,221
|
|
|
$
|
307,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consistent with regulatory guidance, charge offs on all loan segments are taken when specific loans, or
portions thereof, are considered uncollectible. Our policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined.
For all loan portfolio segments except one-to-four family residential loans and consumer loans, we promptly charge off loans, or portions
thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values,
and/or (3) legal action, including bankruptcy, that impairs the borrowers ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge off is recorded when a loss
has been confirmed by an updated appraisal or other appropriate valuation of the collateral.
We charge off one-to-four family residential
and consumer loans, or portions thereof, when we reasonably determine the amount of the loss. We adhere to timeframes established by applicable regulatory guidance which provides for the charge off of one-to-four family first and junior lien
mortgages to the net realizable value less costs to sell when the loan is 180 days past due, charge off of unsecured open-end loans when the loan is 180 days past due, and charge down to the net realizable value when other secured loans are 120 days
past due. Loans at these respective delinquency thresholds for which we can clearly document that the loan is both well-secured and in the process of collection, such that collection will occur regardless of delinquency status, need not be charged
off.
F-50
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
The following table presents the credit risk profile of our loan portfolio based on rating
category and payment activity as of December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
|
Home Equity
|
|
|
Commercial Real Estate
|
|
|
Multifamily
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Pass
|
|
$
|
33,787
|
|
|
$
|
36,941
|
|
|
$
|
4,031
|
|
|
$
|
5,459
|
|
|
$
|
173,375
|
|
|
$
|
150,122
|
|
|
$
|
48,241
|
|
|
$
|
46,230
|
|
Pass (Closely Monitored)
|
|
|
490
|
|
|
|
1,437
|
|
|
|
|
|
|
|
|
|
|
|
14,349
|
|
|
|
21,156
|
|
|
|
6,586
|
|
|
|
8,142
|
|
Special Mention
|
|
|
241
|
|
|
|
225
|
|
|
|
|
|
|
|
|
|
|
|
2,630
|
|
|
|
751
|
|
|
|
|
|
|
|
|
|
Substandard
|
|
|
871
|
|
|
|
1,116
|
|
|
|
|
|
|
|
|
|
|
|
5,570
|
|
|
|
11,905
|
|
|
|
|
|
|
|
4,432
|
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,389
|
|
|
$
|
39,719
|
|
|
$
|
4,031
|
|
|
$
|
5,459
|
|
|
$
|
195,924
|
|
|
$
|
183,934
|
|
|
$
|
54,827
|
|
|
$
|
58,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
Construction
|
|
|
Commercial
Non-Mortgage
|
|
|
Consumer
|
|
|
Total
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Pass
|
|
$
|
9,631
|
|
|
$
|
9,462
|
|
|
$
|
13,475
|
|
|
$
|
14,785
|
|
|
$
|
16,500
|
|
|
$
|
9,626
|
|
|
$
|
1,074
|
|
|
$
|
1,221
|
|
|
$
|
300,114
|
|
|
$
|
273,846
|
|
Pass (Closely Monitored)
|
|
|
855
|
|
|
|
1,239
|
|
|
|
|
|
|
|
|
|
|
|
658
|
|
|
|
4,904
|
|
|
|
|
|
|
|
|
|
|
|
22,938
|
|
|
|
36,878
|
|
Special Mention
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,760
|
|
|
|
976
|
|
Substandard
|
|
|
1,061
|
|
|
|
1,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
|
7,502
|
|
|
|
19,591
|
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,547
|
|
|
$
|
12,543
|
|
|
$
|
13,475
|
|
|
$
|
14,785
|
|
|
$
|
20,047
|
|
|
$
|
14,826
|
|
|
$
|
1,074
|
|
|
$
|
1,221
|
|
|
$
|
336,314
|
|
|
$
|
331,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We categorize loans into risk categories based on relevant information about the ability of borrowers to
service their debt such as: current financial information, historical payment experience, credit documentation and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. This analysis
is performed during the loan approval process and is updated as circumstances warrant.
The Pass asset quality rating encompasses assets
that have performed as expected. These assets generally do not have delinquency or servicing issues. Loans assigned this rating include loans to borrowers possessing solid credit quality with acceptable risk. Borrowers in these grades are
differentiated from higher grades on the basis of size (capital and/or revenue), leverage, asset quality, stability of the industry or specific market area and quality/coverage of collateral. These borrowers generally have a history of
consistent earnings and reasonable leverage.
The Closely Monitored asset quality rating encompasses assets that have been brought to the
attention of management and may, if not corrected, warrant a more serious quality rating by management. These assets are usually in the first phase of a deficiency situation and may possess similar criteria as Special Mention assets. This grade
includes pass grade loans to borrowers which require special monitoring because of deteriorating financial results, declining credit ratings, decreasing cash flow, increasing leverage, marginal collateral coverage or industry stress that
has resulted or may result in a changing overall risk profile.
The Special Mention asset quality rating encompasses assets that have
potential weaknesses that deserve managements close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institutions credit position at some future
date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. This grade is intended to include loans to borrowers whose credit quality has clearly deteriorated and
where risk of further decline is possible unless active measures are taken to correct the situation. Weaknesses are considered potential at this state and are not yet fully defined.
F-51
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
The Substandard asset quality rating encompasses assets that are inadequately protected by
the current net worth and paying capacity of the obligor or of the collateral pledged, if any; assets having a well-defined weakness(es) based upon objective evidence; assets characterized by the distinct possibility that we will sustain some loss
if the deficiencies are not corrected; or the possibility that liquidation will not be timely. Loans categorized in this grade possess a well-defined credit weakness and the likelihood of repayment from the primary source is
uncertain. Significant financial deterioration has occurred and very close attention is warranted to ensure the full repayment without loss. Collateral coverage may be marginal and the accrual of interest has been suspended.
The Doubtful asset quality rating encompasses assets that have all of the weaknesses of those classified as Substandard. In addition,
these weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
The Loss asset quality rating encompasses assets that are considered uncollectible and of such little value that their continuance as assets of
the bank is not warranted. A loss classification does not mean that an asset has no recovery or salvage value; instead, it means that it is not practical or desirable to defer writing off or reserving all or a portion of a basically worthless asset,
even though partial recovery may be realized in the future.
The following table is a summary of our past due and non-accrual loans as of
December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
30-59
Days
Past Due
|
|
|
60-89
Days
Past Due
|
|
|
Greater
than
90 Days
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total
Loans
Receivable
|
|
|
Total
Loans
>90 Days
&
Accruing
|
|
|
Total
Nonaccrual
|
|
1-4 Family
|
|
$
|
165
|
|
|
$
|
94
|
|
|
$
|
137
|
|
|
$
|
396
|
|
|
$
|
34,993
|
|
|
$
|
35,389
|
|
|
$
|
|
|
|
$
|
137
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,031
|
|
|
|
4,031
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
648
|
|
|
|
100
|
|
|
|
748
|
|
|
|
195,176
|
|
|
|
195,924
|
|
|
|
|
|
|
|
4,872
|
|
Multifamily
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,827
|
|
|
|
54,827
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
|
|
|
|
|
|
|
|
1,061
|
|
|
|
1,061
|
|
|
|
10,486
|
|
|
|
11,547
|
|
|
|
|
|
|
|
1,061
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,475
|
|
|
|
13,475
|
|
|
|
|
|
|
|
|
|
Commercial Non-Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,047
|
|
|
|
20,047
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,074
|
|
|
|
1,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
165
|
|
|
$
|
742
|
|
|
$
|
1,298
|
|
|
$
|
2,205
|
|
|
$
|
334,109
|
|
|
$
|
336,314
|
|
|
$
|
|
|
|
$
|
6,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
30-59
Days
Past Due
|
|
|
60-89
Days
Past Due
|
|
|
Greater
than
90 Days
|
|
|
Total Past
Due
|
|
|
Current
|
|
|
Total
Loans
Receivable
|
|
|
Total
Loans
>90 Days
&
Accruing
|
|
|
Total
Nonaccrual
|
|
1-4 Family
|
|
$
|
151
|
|
|
$
|
152
|
|
|
$
|
|
|
|
$
|
303
|
|
|
$
|
39,416
|
|
|
$
|
39,719
|
|
|
$
|
|
|
|
$
|
99
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,459
|
|
|
|
5,459
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate
|
|
|
6
|
|
|
|
1,011
|
|
|
|
|
|
|
|
1,017
|
|
|
|
182,917
|
|
|
|
183,934
|
|
|
|
|
|
|
|
5,188
|
|
Multifamily
|
|
|
1,291
|
|
|
|
|
|
|
|
|
|
|
|
1,291
|
|
|
|
57,513
|
|
|
|
58,804
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
|
|
|
|
|
|
|
|
1,842
|
|
|
|
1,842
|
|
|
|
10,701
|
|
|
|
12,543
|
|
|
|
|
|
|
|
1,842
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,785
|
|
|
|
14,785
|
|
|
|
|
|
|
|
|
|
Commercial Non-Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,826
|
|
|
|
14,826
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,221
|
|
|
|
1,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,448
|
|
|
$
|
1,163
|
|
|
$
|
1,842
|
|
|
$
|
4,453
|
|
|
$
|
326,838
|
|
|
$
|
331,291
|
|
|
$
|
|
|
|
$
|
7,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-52
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
Nonaccrual Loan and Past Due Loans. The accrual of interest is discontinued on all loan
classes at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered
doubtful. The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified due date.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. Subsequent
payments on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Nonaccrual loans are returned to accrual status when, in the opinion of management, the
financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. We generally require a period of satisfactory performance of not less than six months before returning a
nonaccrual loan to accrual status.
A loan is considered impaired, in accordance with the impairment accounting guidance (ASC
310-10-35-16), when based on current information and events, it is probable we will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans
but also include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions,
forgiveness of principal, forbearance or other actions intended to maximize collection. Interest income on loans individually classified as impaired is recognized on a cash basis after all past due and current principal payments have been made.
F-53
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
The following table present impaired loans for the year ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
Balance
|
|
|
Unpaid
Principal
Balance
|
|
|
Specific
Allowance
|
|
|
YTD Average
Balance
|
|
|
YTD Interest
Income
|
|
Loans without a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
$
|
1,500
|
|
|
$
|
1,620
|
|
|
$
|
|
|
|
$
|
1,311
|
|
|
$
|
70
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
7,494
|
|
|
|
9,669
|
|
|
|
|
|
|
|
8,296
|
|
|
|
426
|
|
Multi Family
|
|
|
6,311
|
|
|
|
7,125
|
|
|
|
|
|
|
|
6,884
|
|
|
|
402
|
|
Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Non-Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
609
|
|
|
|
695
|
|
|
|
235
|
|
|
|
385
|
|
|
|
41
|
|
Multi Family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
1,061
|
|
|
|
3,158
|
|
|
|
550
|
|
|
|
1,832
|
|
|
|
123
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Non-Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
$
|
1,500
|
|
|
$
|
1,620
|
|
|
$
|
|
|
|
$
|
1,311
|
|
|
$
|
70
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
8,103
|
|
|
|
10,364
|
|
|
|
235
|
|
|
|
8,681
|
|
|
|
467
|
|
Multi Family
|
|
|
6,311
|
|
|
|
7,125
|
|
|
|
|
|
|
|
6,884
|
|
|
|
402
|
|
Land
|
|
|
1,061
|
|
|
|
3,158
|
|
|
|
550
|
|
|
|
1,856
|
|
|
|
123
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Non-Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,975
|
|
|
$
|
22,267
|
|
|
$
|
785
|
|
|
$
|
18,733
|
|
|
$
|
1,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-54
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
The following table present impaired loans for the year ended December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
Balance
|
|
|
Unpaid
Principal
Balance
|
|
|
Specific
Allowance
|
|
|
YTD Average
Balance
|
|
|
YTD Interest
Income
|
|
Loans without a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
$
|
1,504
|
|
|
$
|
1,633
|
|
|
$
|
|
|
|
$
|
1,791
|
|
|
$
|
80
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
Commercial real estate
|
|
|
9,912
|
|
|
|
11,820
|
|
|
|
|
|
|
|
10,508
|
|
|
|
289
|
|
Multi Family
|
|
|
6,586
|
|
|
|
7,400
|
|
|
|
|
|
|
|
6,685
|
|
|
|
359
|
|
Land
|
|
|
41
|
|
|
|
96
|
|
|
|
|
|
|
|
371
|
|
|
|
22
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Non-Mortgage
|
|
|
295
|
|
|
|
295
|
|
|
|
|
|
|
|
311
|
|
|
|
22
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with a specific valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
|
2,368
|
|
|
|
2,368
|
|
|
|
200
|
|
|
|
2,499
|
|
|
|
175
|
|
Multi Family
|
|
|
1,291
|
|
|
|
1,291
|
|
|
|
100
|
|
|
|
1,319
|
|
|
|
77
|
|
Land
|
|
|
1,842
|
|
|
|
3,640
|
|
|
|
850
|
|
|
|
2,115
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Non-Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 Family
|
|
$
|
1,504
|
|
|
$
|
1,633
|
|
|
$
|
|
|
|
$
|
1,791
|
|
|
$
|
80
|
|
Home Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
Commercial real estate
|
|
|
12,280
|
|
|
|
14,188
|
|
|
|
200
|
|
|
|
13,007
|
|
|
|
464
|
|
Multi Family
|
|
|
7,877
|
|
|
|
8,691
|
|
|
|
100
|
|
|
|
8,004
|
|
|
|
436
|
|
Land
|
|
|
1,883
|
|
|
|
3,736
|
|
|
|
850
|
|
|
|
2,486
|
|
|
|
22
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Non-Mortgage
|
|
|
295
|
|
|
|
295
|
|
|
|
|
|
|
|
311
|
|
|
|
22
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,839
|
|
|
$
|
28,543
|
|
|
$
|
1,150
|
|
|
$
|
25,614
|
|
|
$
|
1,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have entered into transactions with certain executive officers, directors and their affiliates (related
parties). In managements opinion, such loans and other extensions of credit and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing
at the time for comparable transactions with other persons. Further, in managements opinion, these loans did not involve more than normal risk of collectability or present other unfavorable features.
Loans to related parties totaled $8,083 and $7,248 at December 31, 2016 and 2015, respectively. The increase was due to $3,148 in new
loans and refinances and $2,313 in payoffs and repayments.
Troubled Debt Restructuring (TDR)
We may grant a concession or modification for economic or legal reasons related to a borrowers financial condition that we would not
otherwise consider resulting in a modified loan which is then identified as a troubled debt restructuring. We may modify loans through rate reductions, short-term extensions of maturity, interest only payments, or payment modifications to better
match the timing of cash flows due under the
F-55
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
modified terms with the cash flows from the borrowers operations. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral.
We identify loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrowers
financial statements, revenue projections, tax returns, and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may
result in a payment default in the near future.
For one-to-four family residential and home equity lines of credit, a restructure often
occurs with past due loans and may be offered as an alternative to foreclosure. There are other situations where borrowers, who are not past due, experience a sudden job loss, become over-extended with credit obligations, or other problems, have
indicated that they will be unable to make the required monthly payment and request payment relief.
When considering a loan restructure,
management will determine if: (i) the financial distress is short or long term; (ii) loan concessions are necessary; and (iii) the restructure is a viable solution.
When a loan is restructured, the new terms often require a reduced monthly debt service payment. No TDRs that were on non-accrual status at the
time the concessions were granted have been returned to accrual status. For commercial loans, management completes an analysis of the operating entitys ability to repay the debt. If the operating entity is capable of servicing the new debt
service requirements and the underlying collateral value is believed to be sufficient to repay the debt in the event of a future default, the new loan can be placed on accrual status after six months of performance with the new loan terms. To date,
there have been no commercial loans restructured and immediately placed on accrual.
For retail loans, an analysis of the individuals
ability to service the new required payments is performed. If the borrower is capable of servicing the newly restructured debt and the underlying collateral value is believed to be sufficient to repay the debt in the event of a future default, the
new loan can be placed on accrual status after six months of performance to the new loan terms. The reason for the TDR is also considered, such as paying past due real estate taxes or payments caused by a temporary job loss, when determining whether
a retail TDR loan could be returned to accrual status. Retail TDRs remain on nonaccrual status until sufficient payments have been made to bring the past due principal and interest current and/or after six months of performance to the new loan terms
at which point the loan could be transferred to accrual status.
The following tables summarize the loans that have been restructured as
TDRs during the twelve months ended December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
December 31, 2016
|
|
|
|
Count
|
|
|
Balance prior
to TDR
|
|
|
Balance after
TDR
|
|
|
|
(Amounts in Thousands, except per share
data)
|
|
Commercial real estate
|
|
|
2
|
|
|
$
|
826
|
|
|
$
|
826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2
|
|
|
$
|
826
|
|
|
$
|
826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
December 31, 2015
|
|
|
|
Count
|
|
|
Balance prior
to TDR
|
|
|
Balance after
TDR
|
|
|
|
(Amounts in Thousands, except per share
data)
|
|
Commercial real estate
|
|
|
3
|
|
|
$
|
817
|
|
|
$
|
817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3
|
|
|
$
|
817
|
|
|
$
|
817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-56
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
The TDRs described above for the twelve months ended December 31, 2016 did not have a
material impact on the allowance for loan losses or a material charge-off.
A default on a TDR occurs when a TDR is 90 days or more past
due, transferred to nonaccrual status, or transferred to other real estate owned. The Company did not have any TDR loans default during the past 12 months. The Company had no TDR loans that defaulted in 2016.
The following tables summarize the loans that have been restructured as TDRs based on the type of modification or concession granted to the
borrower during the twelve months ending December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
Payment Extension
|
|
|
Rate Reduction
|
|
|
Combination
|
|
|
Totals
|
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
|
|
Commercial Real Estate
|
|
|
2
|
|
|
|
826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2
|
|
|
$
|
826
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
Payment Extension
|
|
|
Rate Reduction
|
|
|
Combination
|
|
|
Totals
|
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
817
|
|
|
|
817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
3
|
|
|
$
|
817
|
|
|
$
|
817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management monitors the TDRs based on the type of modification or concession granted to the borrower. These
types of modifications may include rate reductions, payment/term extensions, forgiveness of principal, forbearance, and other applicable actions. During the year ended December 31, 2016 and 2015, management predominantly utilized rate
reductions and lower monthly payments, either from a longer amortization period or interest only repayment schedule, because these concessions provide needed payment relief without risking the loss of principal. Management will also agree to a
forbearance agreement when it is deemed appropriate to avoid foreclosure.
Note 5:
|
Premises and Equipment
|
Major classifications of premises and equipment, stated at cost,
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Land
|
|
$
|
514
|
|
|
$
|
514
|
|
Buildings and improvements
|
|
|
3,156
|
|
|
|
3,146
|
|
Furniture, fixtures, and equipment
|
|
|
3,021
|
|
|
|
3,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,691
|
|
|
|
6,968
|
|
Less accumulated depreciation
|
|
|
(5,564
|
)
|
|
|
(5,683
|
)
|
|
|
|
|
|
|
|
|
|
Net premises and equipment
|
|
$
|
1,127
|
|
|
$
|
1,285
|
|
|
|
|
|
|
|
|
|
|
F-57
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
Deposits at year-end are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Savings accounts
|
|
$
|
13,923
|
|
|
$
|
13,626
|
|
Checking accounts
|
|
|
34,608
|
|
|
|
33,934
|
|
Money market accounts
|
|
|
104,798
|
|
|
|
70,356
|
|
Certificates of deposit
|
|
|
127,219
|
|
|
|
163,785
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
$
|
280,548
|
|
|
$
|
281,701
|
|
|
|
|
|
|
|
|
|
|
Brokered certificates of deposit totaled $20,955 and $43,612 at December 31, 2016 and 2015.
At December 31, 2016, scheduled maturities of certificates of deposit are as follows:
|
|
|
|
|
2017
|
|
|
75,405
|
|
2018
|
|
|
23,134
|
|
2019
|
|
|
17,749
|
|
2020
|
|
|
10,143
|
|
2021
|
|
|
676
|
|
Thereafter
|
|
|
112
|
|
Total
|
|
|
127,219
|
|
|
|
|
|
|
Time deposits of $250 or more were $33,402 and $39,061 at December 31, 2016 and 2015.
Note 7:
|
Federal Home Loan Bank Advances
|
Federal Home Loan Bank advances totaled $60,000 and
$47,000 at December 31, 2016 and 2015. At December 31, 2016, the advances are at fixed rates and bear interest at rates ranging from 0.90% to 5.25% and are secured by loans under a blanket collateral agreement as well as specific deposits
at the Federal Home Loan Bank totaling $148,999. Advances are subject to restrictions or penalties in the event of prepayment.
Aggregate
annual maturities of our Federal Home Loan Bank advances at December 31, 2016, are:
|
|
|
|
|
2017
|
|
$
|
23,000,000
|
|
2018
|
|
|
5,000,000
|
|
2019
|
|
|
|
|
2020
|
|
|
10,000,000
|
|
2021
|
|
|
|
|
Thereafter
|
|
|
22,000,000
|
|
|
|
|
|
|
Total
|
|
$
|
60,000,000
|
|
|
|
|
|
|
The provision for income taxes includes these components:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Taxes currently payable
|
|
$
|
2,056
|
|
|
$
|
1,759
|
|
Deferred income taxes
|
|
|
348
|
|
|
|
(215
|
)
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
2,404
|
|
|
$
|
1,544
|
|
|
|
|
|
|
|
|
|
|
F-58
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
A reconciliation of income tax expense at the statutory rate to the Companys actual
income tax expense is shown below:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Computed at the statutory rate (34%)
|
|
$
|
2,297
|
|
|
$
|
1,608
|
|
Increase (decrease) resulting from Tax exempt interest
|
|
|
(49
|
)
|
|
|
(49
|
)
|
Other
|
|
|
(156
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
Actual tax expense
|
|
$
|
2,404
|
|
|
$
|
1,544
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences related to deferred taxes shown on the consolidated balance sheets
were:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax asset
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
2,725
|
|
|
$
|
2,984
|
|
Depreciation
|
|
|
142
|
|
|
|
134
|
|
Deferred loan fees
|
|
|
195
|
|
|
|
195
|
|
Deferred compensation
|
|
|
186
|
|
|
|
197
|
|
Real estate owned
|
|
|
3
|
|
|
|
27
|
|
Other
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,251
|
|
|
|
3,599
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
FHLB stock dividends
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
3,220
|
|
|
$
|
3,568
|
|
|
|
|
|
|
|
|
|
|
Retained earnings at December 31, 2016 include approximately $2,019 for which no deferred federal income
tax liability has been recognized. This amount represents an allocation of income to bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carryback of
net operating losses would create income for tax purposes only, which would be subject to the then-current corporate income tax rate. The deferred income tax liabilities on the preceding amounts that would have been recorded if they were expected to
reverse into taxable income in the foreseeable future were approximately $686 at December 31, 2016.
ASC Topic 740-10 prescribes a
recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides b on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. The Company did not identify any uncertain tax positions that it believes should be recognized in the consolidated financial statements.
Note 9:
|
Regulatory Matters
|
We are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our
financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
F-59
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
Basel III Capital Rules
In July 2013, the three federal bank regulatory agencies jointly published final rules (the Basel III Capital Rules) establishing a new
comprehensive capital framework for U.S. banking organizations. The rules implement the Basel Committees December 2010 framework known as Basel III for strengthening international capital standards as well as certain provisions of
the Dodd-Frank Act. These rules substantially revise the risk-based capital requirements applicable to bank holding companies and depository institutions, compared to the current U.S. risk-based capital rules. The Basel III Capital Rules define the
components of capital and address other issues affecting the numerator in banking institutions regulatory capital ratios. These rules also address risk weights and other issues affecting the denominator in banking institutions regulatory
capital ratios and replace the existing risk-weighting approach with a more risk-sensitive approach.
The Basel III Capital Rules were
effective for the Bank on January 1, 2015 (subject to a four-year phase-in period). The Basel III Capital Rules, among other things, (i) introduce a new capital measure called Common Equity Tier 1 (CET1), (ii) specify that
Tier 1 capital consist of CET1 and Additional Tier 1 Capital instruments meeting specified requirements, (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not
to the other components of capital and (iv) expand the scope of the deductions/adjustments as compared to existing regulations. Under the Basel III Capital Rules, the initial minimum capital ratios as of January 1, 2015, will be as
follows:
4.5% CET1 to risk-weighted assets
6.0% Tier 1 capital to risk-weighted assets
8.0% Total capital to risk-weighted assets
4.0% Minimum leverage ratio
Implementation of the deductions and other adjustments to CET1 began on January 1, 2015, and will phase in over a four-year period
(beginning at 40% on January 1, 2015, and an additional 20% per year thereafter). Under the new rule, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive
officers, a banking organization must hold a capital conservation buffer composed of CET1 capital above its minimum risk-based capital requirements. The implementation of the capital conservation buffer began on January 1, 2016, at the 0.625%
level and will phase in over a four-year period (increasing by that amount on each subsequent January 1 until it reaches 2.5% on January 1, 2019).
Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the
table below). Management believes, as of December 31, 2016 and 2015, that we meet all capital adequacy requirements to which we are subject including the capital conservation buffer.
F-60
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
Our actual capital amounts and ratios are also presented in the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
For Capital Adequacy
Purposes
|
|
|
To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital (to risk-weighted assets)
|
|
|
63,829
|
|
|
|
22.02
|
%
|
|
|
23,188
|
|
|
|
8.0
|
%
|
|
|
28,985
|
|
|
|
10.0
|
%
|
Tier I capital (to risk-weighted assets)
|
|
|
60,131
|
|
|
|
20.75
|
|
|
|
17,391
|
|
|
|
6.0
|
|
|
|
23,188
|
|
|
|
8.0
|
|
Common equity tier 1 capital (to risk-weighted assets)
|
|
|
60,131
|
|
|
|
20.75
|
|
|
|
16,650
|
|
|
|
4.5
|
|
|
|
24,050
|
|
|
|
6.5
|
|
Tier I capital (to adjusted total assets)
|
|
|
60,131
|
|
|
|
16.25
|
|
|
|
14,800
|
|
|
|
4.0
|
|
|
|
18,500
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital (to risk-weighted assets)
|
|
|
61,810
|
|
|
|
20.7
|
%
|
|
|
23,848
|
|
|
|
8.0
|
%
|
|
|
29,810
|
|
|
|
10.0
|
%
|
Tier I capital (to risk-weighted assets)
|
|
|
57,990
|
|
|
|
19.45
|
|
|
|
17,886
|
|
|
|
6.0
|
|
|
|
23,848
|
|
|
|
8.0
|
|
Common equity tier 1 capital (to risk-weighted assets)
|
|
|
57,990
|
|
|
|
19.45
|
|
|
|
16,172
|
|
|
|
4.5
|
|
|
|
23,360
|
|
|
|
6.5
|
|
Tier I capital (to adjusted total assets)
|
|
|
57,990
|
|
|
|
16.14
|
|
|
|
14,375
|
|
|
|
4.0
|
|
|
|
17,969
|
|
|
|
5.0
|
|
Dividend Restriction
The Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. At
December 31, 2016 the bank may not make a dividend declaration without prior regulatory approval.
Note 10:
|
Employee Benefits
|
We have a retirement savings 401(k) plan covering substantially all
employees. Employees may contribute up to 100% of their compensation with us matching 100% of the employees contribution on the first 3% of the employees compensation and 50% of the employees contributions that exceed 3% but
does not exceed 5%. Additionally, we can make discretionary contributions to our 401 (k) plan. Employer contributions charged to expense for the years ended 2016 and 2015 were $83 and $75 respectively.
Employee Stock Ownership Plan (ESOP)
As part of the conversion, we established an ESOP covering substantially all of our employees. The ESOP acquired 200,600 shares of WBKC common
stock at $10.00 per share in the conversion with funds provided by a loan from the Company. Accordingly, $2,006 of common stock acquired by the ESOP reduced stockholders equity. Shares are released to participants proportionately as the loan
is repaid. Compensation expense is recorded equal to the fair market value of the stock when contributions, which are determined annually by our Board of Directors, are made to the ESOP. Dividends on allocated shares are recorded as dividends and
charged to retained earnings. Dividends on unallocated shares are used to repay the loan.
ESOP expense for the years ended
December 31, 2016 and 2015 was $555 and $391, respectively.
F-61
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
The ESOP shares as of December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Allocated shares
|
|
|
73,220
|
|
|
|
55,665
|
|
Unearned shares
|
|
|
121,755
|
|
|
|
141,255
|
|
|
|
|
|
|
|
|
|
|
Total ESOP shares
|
|
|
194,975
|
|
|
|
196,920
|
|
|
|
|
|
|
|
|
|
|
Fair value of unearned shares at December 31
|
|
$
|
3,847
|
|
|
$
|
3,763
|
|
|
|
|
|
|
|
|
|
|
We are obligated at the option of each beneficiary to repurchase shares of the ESOP upon the beneficiarys
termination or after retirement. At December 31, 2016 and 2015, the fair value of the 73,220 and 55,665 allocated shares held by the ESOP was $2,314 and $1,483.
Note 11:
|
Disclosures About Fair Value of Assets and Liabilities
|
ASC Topic 820,
Fair Value
Measurements
, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also establishes a fair value
hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
|
|
|
Level 1
|
|
Quoted prices in active markets for identical assets or liabilities.
|
|
|
Level 2
|
|
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
|
|
|
Level 3
|
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
Following is a description of the valuation methodologies used for assets measured at fair value on a
nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets under the valuation hierarchy. We have no assets or liabilities measured at fair value on a recurring basis and
no liabilities measured at fair value on a nonrecurring basis.
Impaired Loans (Collateral Dependent)
The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to
sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.
The Company considers the appraisal
or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value.
Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and
subsequently as deemed necessary by management. Appraisals are reviewed for accuracy and consistency by management. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts
to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by management by comparison to historical results.
F-62
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
The following table presents the fair value measurements of assets recognized in the
accompanying consolidated balance sheets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Fair
Value
|
|
|
Quoted
Prices
in Active
Markets
for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral-dependent Impaired loans
|
|
$
|
885
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
885
|
|
Unobservable (Level 3) inputs
The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value
measurements other than goodwill.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
December 31,
2016
|
|
|
Valuation
Technique
|
|
|
Unobservable
Inputs
|
|
|
Range
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral-dependent Impaired loans
|
|
$
|
885
|
|
|
|
Market comparable
properties
|
|
|
|
Marketability discount
|
|
|
|
3% - 13% (6%)
|
|
There were no collateral-dependent impaired loans in the year ended December 31, 2015.
Fair Value of Financial Instruments
The following table presents estimated fair values of the Companys financial instruments and the level within the fair value hierarchy in
which the fair value measurements fall at December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
As of December 31, 2016
|
|
Carrying
Amount
|
|
|
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
103,634
|
|
|
$
|
103,634
|
|
|
$
|
|
|
|
$
|
|
|
Held to maturity securities
|
|
|
499
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
Loans held for sale
|
|
|
238
|
|
|
|
|
|
|
|
239
|
|
|
|
|
|
Loans, net of allowance for loan losses
|
|
|
320,606
|
|
|
|
|
|
|
|
|
|
|
|
323,601
|
|
Federal Home Loan Bank stock
|
|
|
2,700
|
|
|
|
|
|
|
|
2,700
|
|
|
|
|
|
Interest receivable
|
|
|
846
|
|
|
|
|
|
|
|
846
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
280,548
|
|
|
$
|
153,290
|
|
|
$
|
|
|
|
$
|
128,655
|
|
Federal Home Loan Bank advances
|
|
|
60,000
|
|
|
|
|
|
|
|
59,187
|
|
|
|
|
|
Federal funds purchased
|
|
|
27,000
|
|
|
|
|
|
|
|
27,000
|
|
|
|
|
|
Interest payable
|
|
|
249
|
|
|
|
|
|
|
|
249
|
|
|
|
|
|
F-63
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
As of December 31, 2015
|
|
Carrying
Amount
|
|
|
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
52,865
|
|
|
$
|
52,865
|
|
|
$
|
|
|
|
$
|
|
|
Interest-earning time deposits
|
|
|
39,021
|
|
|
|
39,021
|
|
|
|
|
|
|
|
|
|
Held to maturity securities
|
|
|
500
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
Loans held for sale
|
|
|
581
|
|
|
|
|
|
|
|
583
|
|
|
|
|
|
Loans, net of allowance for loan losses
|
|
|
314,613
|
|
|
|
|
|
|
|
|
|
|
|
318,525
|
|
Federal Home Loan Bank stock
|
|
|
2,700
|
|
|
|
|
|
|
|
2,700
|
|
|
|
|
|
Interest receivable
|
|
|
967
|
|
|
|
|
|
|
|
967
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
281,701
|
|
|
$
|
117,916
|
|
|
$
|
|
|
|
$
|
165,657
|
|
Federal Home Loan Bank advances
|
|
|
47,000
|
|
|
|
|
|
|
|
46,390
|
|
|
|
|
|
Federal funds purchased
|
|
|
24,000
|
|
|
|
|
|
|
|
24,000
|
|
|
|
|
|
Interest payable
|
|
|
233
|
|
|
|
|
|
|
|
233
|
|
|
|
|
|
The following methods and assumptions were used to estimate the fair value of all other financial instruments
recognized in the accompanying consolidated balance sheets at amounts other than fair value.
Cash and Cash Equivalents, Federal Home Loan Bank
Stock, Federal Funds Purchased, Interest Receivable, and Interest Payable
The carrying amount approximates fair value.
Held to Maturity Securities
Fair
values equal quoted market prices, if available. If quoted market prices are not available, fair value is estimated based on quoted market prices of similar securities.
Loans and Loans held for sale
The
fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics
were aggregated for purposes of the calculations.
Deposits
Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount approximates fair
value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.
Federal Home Loan Bank Advances
Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing
debt.
F-64
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
Commitments to Originate Loans, Letters of Credit and Lines of Credit
Loan commitments and letters-of-credit generally have short-term, variable rate features and contain clauses which limit the Companys
exposure to changes in customer credit quality. Accordingly, their carrying values, which are immaterial at the respective balance sheet dates, are reasonable estimates of fair value.
Note 12:
|
Commitments and Contingent Liabilities
|
Some financial instruments, such as loan
commitments, credit lines, letters of credit and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met,
and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to
make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.
At year-end, these financial
instruments are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Commitments to extend credit
|
|
$
|
6,111
|
|
|
$
|
7,133
|
|
Unused portions of lines of credit
|
|
|
6,268
|
|
|
|
6,778
|
|
Standby letters of credit
|
|
|
787
|
|
|
|
990
|
|
Commitments to make loans generally expire within thirty to ninety days, while unused lines of credit expire at
the maturity date of the individual loans.
Note 13:
|
Earnings Per Share (In thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
Years ended December 31
|
|
2016
|
|
|
2015
|
|
Net Income
|
|
$
|
4,353
|
|
|
$
|
3,186
|
|
Dividends and undistributed earnings allocated to participating securities
|
|
|
(47
|
)
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
Income attributable to common shareholders
|
|
|
4,306
|
|
|
|
3,136
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding (in thousands)
|
|
|
2,132
|
|
|
|
2,200
|
|
Less: average unearned ESOP and unvested restricted stock
|
|
|
(171
|
)
|
|
|
(203
|
)
|
|
|
|
|
|
|
|
|
|
Average Shares
|
|
|
1,961
|
|
|
|
1,997
|
|
Effect of dilutive based awards
|
|
|
32
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
Average common and common-equivalent shares for diluted EPS (in thousands)
|
|
|
1,993
|
|
|
|
2,022
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
2.20
|
|
|
$
|
1.57
|
|
Diluted EPS
|
|
$
|
2.16
|
|
|
$
|
1.55
|
|
Note 14:
|
Share Based Compensation
|
In May 2012, the Companys stockholders approved the
Wolverine Bancorp, Inc. 2012 Equity Incentive Plan (Plan) which provides for awards of stock options and restricted stock to key officers and outside directors. The cost of the Plan is based on the fair value of the awards on the grant
date. The fair value of restricted stock awards is based on the closing price of the Companys stock on the grant date. The fair value of stock options is estimated using a Black-Scholes option pricing model using assumptions for dividend
yield, stock price volatility, risk-free interest rate, and option term. These assumptions are based on managements judgments regarding future events, are subjective in nature, and contain uncertainties inherent in an estimate. The cost of the
awards are being recognized on a straight-line basis over the five-year vesting period during which participants are required to provide services in exchange for the awards.
F-65
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
Until such time as awards of stock are granted and vest or options are exercised, shares of
the Companys common stock under the Plan are authorized but unissued shares. The maximum number of shares authorized under the Plan is 351,050. Total share-based compensation expense pursuant to the Plan for the years ended December 31,
2016 and 2015 was $334 and $319, respectively.
Stock Options
The table below presents the stock option activity for the period shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Weighted
average
exercise
price
|
|
|
Remaining
contractual
life (years)
|
|
|
Aggregate
intrinsic
value
|
|
Options outstanding at January 1, 2016
|
|
|
128,949
|
|
|
$
|
17.91
|
|
|
|
7
|
|
|
$
|
1,123
|
|
Granted
|
|
|
60,000
|
|
|
|
26.66
|
|
|
|
10
|
|
|
|
|
|
Exercised
|
|
|
(1,503
|
)
|
|
|
17.30
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(3,888
|
)
|
|
|
19.58
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(1,973
|
)
|
|
|
18.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2016
|
|
|
181,585
|
|
|
$
|
20.76
|
|
|
|
7
|
|
|
$
|
1,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
92,748
|
|
|
$
|
17.44
|
|
|
|
6
|
|
|
$
|
1,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of the Companys stock options granted on September 9, 2016 was determined using the
Black-Scholes option pricing formula. The following assumptions were used in the formula:
|
|
|
|
|
Expected volatility
|
|
|
17.80
|
%
|
Risk-free interest rate
|
|
|
1.59
|
%
|
Expected dividend yield
|
|
|
5.00
|
%
|
Expected life (in years)
|
|
|
7.50
|
|
Exercise price for the stock options
|
|
$
|
26.75
|
|
Grant date fair value
|
|
$
|
1.91
|
|
The fair value of the Companys stock options granted on December 15, 2016 was determined using the
Black-Scholes option pricing formula. The following assumptions were used in the formula:
|
|
|
|
|
Expected volatility
|
|
|
18.10
|
%
|
Risk-free interest rate
|
|
|
2.51
|
%
|
Expected dividend yield
|
|
|
5.00
|
%
|
Expected life (in years)
|
|
|
7.50
|
|
Exercise price for the stock options
|
|
$
|
26.03
|
|
Grant date fair value
|
|
$
|
2.58
|
|
Expected volatility Based on the historical volatility of share price.
Risk-free interest rate Based on the U.S. Treasury yield curve and expected life of the options at the time of grant.
Expected dividend yield The Company currently has a Cash Dividend Policy whereby the Company expects to pay a cash dividend to
shareholders on an annual basis. The expected dividend yield was estimated for the portion of the life of the options that the Company expects to pay a dividend.
Expected life Based on an average of the five year vesting period and the ten year contractual term of the stock option plan.
F-66
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
Exercise price for the stock options Based on the closing price of the Companys
stock on the date of grant.
As of December 31, 2016, the Bank had $179 of unrecognized compensation expense related to stock options.
The cost is expected to be recognized over a weighted-average period of 8.96 years. The total fair value of options vested in the year ended December 31, 2016 was $768. Stock option expense for the years ended December 31, 2016 and 2015
was $62 and $62, respectively.
Restricted Stock Awards
Restricted stock awards are accounted for as fixed grants using the fair value of the Companys stock at the time of grant. Unvested
restricted stock awards may not be disposed of or transferred during the vesting period. Restricted stock awards carry with them the right to receive dividends.
The table below presents the restricted stock award activity for the period shown:
|
|
|
|
|
|
|
|
|
|
|
Service-Based
Restricted
stock awards
|
|
|
Weighted
average
grant date fair
value
|
|
Non-vested at January 1, 2016
|
|
|
36,534
|
|
|
$
|
19.16
|
|
Granted
|
|
|
7,500
|
|
|
|
28.61
|
|
Vested
|
|
|
(14,745
|
)
|
|
|
18.14
|
|
Forfeited
|
|
|
(2,717
|
)
|
|
|
19.02
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2016
|
|
|
26,572
|
|
|
|
22.38
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, the Company had $505 of unrecognized compensation expense related to restricted
stock awards. The cost of the restricted stock awards will be amortized in monthly installments over the five-year vesting period. Restricted stock expense for the years ended December 31, 2016 and 2015 were $272 and $257, respectively.
F-67
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
Note 15:
|
Condensed Financial Information (Parent Company Only)
|
Presented below is condensed
financial information as to financial position, results of operations and cash flows of the Company:
Condensed Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,190
|
|
|
$
|
2,386
|
|
Investment in subsidiary
|
|
|
61,127
|
|
|
|
60,073
|
|
Other assets
|
|
|
205
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
64,522
|
|
|
$
|
62,658
|
|
|
|
|
|
|
|
|
|
|
Liabilities Other
|
|
$
|
3,548
|
|
|
$
|
2,178
|
|
Stockholders Equity
|
|
|
60,974
|
|
|
|
60,480
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
64,522
|
|
|
$
|
62,658
|
|
|
|
|
|
|
|
|
|
|
F-68
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
Condensed Statements of Income and Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Income Dividends from subsidiary
|
|
$
|
4,500
|
|
|
$
|
4,500
|
|
|
|
|
|
|
|
|
|
|
Expense
|
|
|
344
|
|
|
|
260
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Tax and Equity in Undistributed Income of Subsidiaries
|
|
|
4,156
|
|
|
|
4,240
|
|
Income Tax Benefit
|
|
|
5
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
Income Before Equity in Undistributed Income (Distribution in Excess of Income) of
Subsidiaries
|
|
|
4,161
|
|
|
|
4,313
|
|
Equity in Undistributed Income (Distribution in Excess of Income) of Subsidiaries
|
|
|
192
|
|
|
|
(1,127
|
)
|
|
|
|
|
|
|
|
|
|
Net Income and Comprehensive Income
|
|
$
|
4,353
|
|
|
$
|
3,186
|
|
|
|
|
|
|
|
|
|
|
F-69
Wolverine Bancorp, Inc.
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
(Amounts in Thousands, except per share data)
Condensed Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,353
|
|
|
$
|
3,186
|
|
Items not requiring (providing) cash:
|
|
|
|
|
|
|
|
|
(Equity in undistributed income) distributions in excess of income of subsidiaries
|
|
|
(192
|
)
|
|
|
1,127
|
|
Change in other assets
|
|
|
(6
|
)
|
|
|
(74
|
)
|
Change in other liabilities
|
|
|
299
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
4,454
|
|
|
|
4,192
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Purchase of common stock
|
|
|
(1,518
|
)
|
|
|
(2,796
|
)
|
Dividends paid
|
|
|
(2,158
|
)
|
|
|
|
|
Proceeds from stock options exercised
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(3,650
|
)
|
|
|
(2,796
|
)
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents
|
|
|
804
|
|
|
|
1,396
|
|
Cash and Cash Equivalents, Beginning of Period
|
|
|
2,386
|
|
|
|
990
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Period
|
|
$
|
3,190
|
|
|
$
|
2,386
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flows Information
|
|
|
|
|
|
|
|
|
Dividends Declared, not paid
|
|
$
|
3,229
|
|
|
$
|
2,158
|
|
F-70
Appendix A
A
GREEMENT
AND
P
LAN
OF
M
ERGER
BY
AND
BETWEEN
H
ORIZON
B
ANCORP
AND
W
OLVERINE
B
ANCORP
, I
NC
.
D
ATED
AS
OF
J
UNE
13, 2017
A-i
T
ABLE
OF
C
ONTENTS
|
|
|
|
|
|
|
|
|
ARTICLE I. THE MERGER
|
|
|
A-2
|
|
|
|
|
|
|
|
1.01
|
|
T
HE
M
ERGER
|
|
|
A-2
|
|
|
|
1.02
|
|
R
ESERVATION
OF
R
IGHT
TO
R
EVISE
S
TRUCTURE
|
|
|
A-3
|
|
|
|
1.03
|
|
T
AX
F
REE
R
EORGANIZATION
|
|
|
A-3
|
|
|
|
1.04
|
|
A
BSENCE
OF
C
ONTROL
|
|
|
A-3
|
|
|
|
1.05
|
|
B
ANK
M
ERGER
|
|
|
A-3
|
|
|
|
1.06
|
|
S
ALE
OF
R
EAL
E
STATE
S
UBSIDIARY
|
|
|
A-4
|
|
|
|
1.07
|
|
D
ISSOLUTION
OF
T
ITLE
B
USINESS
H
OLDING
C
OMPANY
|
|
|
A-4
|
|
|
|
1.08
|
|
N
O
D
ISSENTERS
R
IGHTS
|
|
|
A-4
|
|
|
|
ARTICLE II. MANNER AND BASIS OF EXCHANGE OF STOCK
|
|
|
A-4
|
|
|
|
|
|
|
|
2.01
|
|
M
ERGER
C
ONSIDERATION
|
|
|
A-4
|
|
|
|
2.02
|
|
T
REATMENT
OF
WBKC E
QUITY
A
WARDS
|
|
|
A-5
|
|
|
|
2.03
|
|
A
NTI
-D
ILUTION
A
DJUSTMENTS
|
|
|
A-5
|
|
|
|
2.04
|
|
N
O
F
RACTIONAL
S
HARES
|
|
|
A-6
|
|
|
|
2.05
|
|
E
XCHANGE
P
ROCEDURES
|
|
|
A-6
|
|
|
|
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF WBKC
|
|
|
A-8
|
|
|
|
|
|
|
|
3.01
|
|
O
RGANIZATION
AND
A
UTHORITY
|
|
|
A-9
|
|
|
|
3.02
|
|
A
UTHORIZATION
|
|
|
A-10
|
|
|
|
3.03
|
|
C
APITALIZATION
|
|
|
A-11
|
|
|
|
3.04
|
|
O
RGANIZATIONAL
D
OCUMENTS
|
|
|
A-12
|
|
|
|
3.05
|
|
C
OMPLIANCE
WITH
L
AW
|
|
|
A-12
|
|
|
|
3.06
|
|
A
CCURACY
OF
I
NFORMATION
P
ROVIDED
TO
H
ORIZON
|
|
|
A-13
|
|
|
|
3.07
|
|
L
ITIGATION
AND
P
ENDING
P
ROCEEDINGS
|
|
|
A-13
|
|
|
|
3.08
|
|
F
INANCIAL
S
TATEMENTS
AND
R
EPORTS
|
|
|
A-14
|
|
|
|
3.09
|
|
M
ATERIAL
C
ONTRACTS
|
|
|
A-14
|
|
|
|
3.10
|
|
A
BSENCE
OF
U
NDISCLOSED
L
IABILITIES
|
|
|
A-16
|
|
|
|
3.11
|
|
T
ITLE
TO
P
ROPERTIES
AND
E
NVIRONMENTAL
L
AWS
|
|
|
A-16
|
|
|
|
3.12
|
|
L
OANS
AND
I
NVESTMENTS
|
|
|
A-18
|
|
|
|
3.13
|
|
I
NDEBTEDNESS
|
|
|
A-19
|
|
|
|
3.14
|
|
N
O
S
HAREHOLDER
R
IGHTS
P
LAN
|
|
|
A-19
|
|
|
|
3.15
|
|
E
MPLOYEE
B
ENEFIT
P
LANS
|
|
|
A-19
|
|
|
|
3.16
|
|
L
ABOR
AND
E
MPLOYMENT
M
ATTERS
|
|
|
A-24
|
|
|
|
3.17
|
|
O
BLIGATIONS
TO
E
MPLOYEES
|
|
|
A-25
|
|
|
|
3.18
|
|
T
AXES
, R
ETURNS
AND
R
EPORTS
|
|
|
A-25
|
|
|
|
3.19
|
|
D
EPOSIT
I
NSURANCE
|
|
|
A-25
|
|
|
|
3.20
|
|
I
NSURANCE
|
|
|
A-26
|
|
|
|
3.21
|
|
B
OOKS
AND
R
ECORDS
|
|
|
A-26
|
|
|
|
3.22
|
|
B
ROKER
S
, F
INDER
S
,
OR
O
THER
F
EES
|
|
|
A-26
|
|
|
|
3.23
|
|
I
NTERIM
E
VENTS
|
|
|
A-26
|
|
|
|
3.24
|
|
I
NSIDER
T
RANSACTIONS
|
|
|
A-28
|
|
|
|
3.25
|
|
I
NDEMNIFICATION
A
GREEMENTS
|
|
|
A-28
|
|
|
|
3.26
|
|
S
HAREHOLDER
A
PPROVAL
|
|
|
A-28
|
|
|
|
3.27
|
|
I
NTELLECTUAL
P
ROPERTY
|
|
|
A-28
|
|
|
|
3.28
|
|
I
NFORMATION
S
ECURITY
|
|
|
A-30
|
|
|
|
3.29
|
|
C
OMMUNITY
R
EINVESTMENT
A
CT
|
|
|
A-30
|
|
|
|
3.30
|
|
B
ANK
S
ECRECY
AND
A
NTI
-M
ONEY
L
AUNDERING
C
OMPLIANCE
|
|
|
A-31
|
|
|
|
3.31
|
|
A
GREEMENTS
WITH
R
EGULATORY
A
GENCIES
|
|
|
A-31
|
|
|
|
3.32
|
|
A
PPROVAL
D
ELAYS
|
|
|
A-31
|
|
A-ii
|
|
|
|
|
|
|
|
|
|
|
3.33
|
|
I
NTERNAL
C
ONTROLS
|
|
|
A-31
|
|
|
|
3.34
|
|
F
IDUCIARY
A
CCOUNTS
|
|
|
A-32
|
|
|
|
3.35
|
|
F
AIRNESS
O
PINION
|
|
|
A-32
|
|
|
|
3.36
|
|
WBKC S
ECURITIES
AND
E
XCHANGE
C
OMMISSION
F
ILINGS
|
|
|
A-32
|
|
|
|
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF HORIZON
|
|
|
A-32
|
|
|
|
|
|
|
|
4.01
|
|
O
RGANIZATION
AND
A
UTHORITY
|
|
|
A-34
|
|
|
|
4.02
|
|
A
UTHORIZATION
|
|
|
A-34
|
|
|
|
4.03
|
|
C
APITALIZATION
|
|
|
A-35
|
|
|
|
4.04
|
|
C
OMPLIANCE
WITH
L
AW
|
|
|
A-35
|
|
|
|
4.05
|
|
A
BSENCE
OF
U
NDISCLOSED
L
IABILITIES
|
|
|
A-36
|
|
|
|
4.06
|
|
A
CCURACY
OF
I
NFORMATION
P
ROVIDED
TO
WBKC
|
|
|
A-36
|
|
|
|
4.07
|
|
F
INANCIAL
S
TATEMENTS
AND
R
EPORTS
|
|
|
A-37
|
|
|
|
4.08
|
|
A
DEQUACY
OF
R
ESERVES
|
|
|
A-37
|
|
|
|
4.09
|
|
L
ITIGATION
AND
P
ENDING
P
ROCEEDINGS
|
|
|
A-38
|
|
|
|
4.10
|
|
T
AXES
, R
ETURNS
AND
R
EPORTS
|
|
|
A-38
|
|
|
|
4.11
|
|
D
EPOSIT
I
NSURANCE
|
|
|
A-39
|
|
|
|
4.12
|
|
B
ANK
S
ECRECY
AND
A
NTI
-M
ONEY
L
AUNDERING
C
OMPLIANCE
|
|
|
A-39
|
|
|
|
4.13
|
|
C
OMMUNITY
R
EINVESTMENT
A
CT
|
|
|
A-39
|
|
|
|
4.14
|
|
A
PPROVAL
D
ELAYS
|
|
|
A-39
|
|
|
|
4.15
|
|
H
ORIZON
S
ECURITIES
AND
E
XCHANGE
C
OMMISSION
F
ILINGS
|
|
|
A-39
|
|
|
|
4.16
|
|
N
O
S
HAREHOLDER
A
PPROVAL
|
|
|
A-39
|
|
|
|
4.17
|
|
A
NTITAKEOVER
P
ROVISIONS
I
NAPPLICABLE
|
|
|
A-39
|
|
|
|
4.18
|
|
B
OOKS
AND
R
ECORDS
|
|
|
A-40
|
|
|
|
4.19
|
|
E
NVIRONMENTAL
M
ATTERS
|
|
|
A-40
|
|
|
|
4.20
|
|
I
NTERIM
E
VENTS
|
|
|
A-40
|
|
|
|
4.21
|
|
W
ELL
-C
APITALIZED
|
|
|
A-40
|
|
|
|
4.22
|
|
I
NTERNAL
C
ONTROLS
|
|
|
A-40
|
|
|
|
4.23
|
|
E
MPLOYEE
B
ENEFIT
P
LANS
|
|
|
A-41
|
|
|
|
4.24
|
|
I
NFORMATION
S
ECURITY
|
|
|
A-43
|
|
|
|
4.25
|
|
A
GREEMENTS
WITH
R
EGULATORY
A
GENCIES
|
|
|
A-44
|
|
|
|
4.26
|
|
I
NSURANCE
|
|
|
A-45
|
|
|
|
ARTICLE V. CERTAIN COVENANTS
|
|
|
A-45
|
|
|
|
|
|
|
|
5.01
|
|
S
HAREHOLDER
A
PPROVAL
|
|
|
A-45
|
|
|
|
5.02
|
|
O
THER
A
PPROVALS
|
|
|
A-45
|
|
|
|
5.03
|
|
C
ONDUCT
OF
B
USINESS
|
|
|
A-46
|
|
|
|
5.04
|
|
I
NSURANCE
|
|
|
A-51
|
|
|
|
5.05
|
|
A
CCRUALS
FOR
L
OAN
L
OSS
R
ESERVE
AND
E
XPENSES
|
|
|
A-51
|
|
|
|
5.06
|
|
A
CQUISITION
P
ROPOSALS
|
|
|
A-52
|
|
|
|
5.07
|
|
P
RESS
R
ELEASES
|
|
|
A-55
|
|
|
|
5.08
|
|
C
HANGES
AND
S
UPPLEMENTS
TO
D
ISCLOSURE
S
CHEDULES
|
|
|
A-55
|
|
|
|
5.09
|
|
F
AILURE
TO
F
ULFILL
C
ONDITIONS
|
|
|
A-55
|
|
|
|
5.10
|
|
A
CCESS
; I
NFORMATION
|
|
|
A-55
|
|
|
|
5.11
|
|
F
INANCIAL
S
TATEMENTS
|
|
|
A-56
|
|
|
|
5.12
|
|
E
NVIRONMENTAL
|
|
|
A-57
|
|
|
|
5.13
|
|
G
OVERNMENTAL
R
EPORTS
AND
S
HAREHOLDER
I
NFORMATION
|
|
|
A-57
|
|
|
|
5.14
|
|
A
DVERSE
A
CTIONS
|
|
|
A-57
|
|
|
|
5.15
|
|
E
MPLOYEE
B
ENEFITS
AND
E
MPLOYEES
|
|
|
A-58
|
|
|
|
5.16
|
|
A
MENDMENT
AND
T
ERMINATION
OF
B
ANK
ESOP
|
|
|
A-58
|
|
|
|
5.17
|
|
T
ERMINATION
OF
W
OLVERINE
B
ANK
401(
K
) P
LAN
|
|
|
A-60
|
|
|
|
5.18
|
|
D
ISPOSITION
OF
W
ELFARE
B
ENEFIT
AND
S
EC
. 125 P
LANS
|
|
|
A-62
|
|
A-iii
|
|
|
|
|
|
|
|
|
|
|
5.19
|
|
L
ONG
-T
ERM
I
NCENTIVE
P
LANS
|
|
|
A-62
|
|
|
|
5.20
|
|
C
HANGE
IN
C
ONTROL
P
AYMENTS
, M
UTUAL
T
ERMINATION
OF
E
MPLOYMENT
A
GREEMENTS
AND
N
EW
E
MPLOYMENT
A
GREEMENTS
; H
ONORING
WBKC P
LANS
|
|
|
A-63
|
|
|
|
5.21
|
|
S
UBSIDIARY
M
ERGER
, C
OMMERCIAL
H
OLDINGS
T
ERMINATION
AND
W
OLSERV
T
ERMINATION
|
|
|
A-64
|
|
|
|
5.22
|
|
C
OOPERATION
ON
C
ONVERSION
OF
S
YSTEMS
|
|
|
A-64
|
|
|
|
5.23
|
|
I
NSTALLATION
/C
ONVERSION
OF
E
QUIPMENT
; T
RAINING
|
|
|
A-64
|
|
|
|
ARTICLE VI. COVENANTS OF HORIZON
|
|
|
A-65
|
|
|
|
|
|
|
|
6.01
|
|
A
PPROVALS
|
|
|
A-65
|
|
|
|
6.02
|
|
SEC R
EGISTRATION
|
|
|
A-65
|
|
|
|
6.03
|
|
E
MPLOYEE
B
ENEFIT
P
LANS
AND
E
MPLOYEE
P
AYMENTS
|
|
|
A-66
|
|
|
|
6.04
|
|
A
DVERSE
A
CTIONS
|
|
|
A-68
|
|
|
|
6.05
|
|
D&O I
NSURANCE
AND
I
NDEMNIFICATION
|
|
|
A-69
|
|
|
|
6.06
|
|
C
HANGES
AND
S
UPPLEMENTS
TO
H
ORIZON
D
ISCLOSURE
S
CHEDULE
|
|
|
A-70
|
|
|
|
6.07
|
|
G
REAT
L
AKES
B
AY
R
EGION
A
DVISORY
B
OARD
|
|
|
A-70
|
|
|
|
6.08
|
|
H
ORIZON
AND
H
ORIZON
B
ANK
B
OARD
|
|
|
A-70
|
|
|
|
6.09
|
|
I
SSUANCE
OF
H
ORIZON
C
OMMON
S
TOCK
|
|
|
A-71
|
|
|
|
6.10
|
|
C
OMMUNITY
I
NVESTMENT
|
|
|
A-71
|
|
|
|
6.11
|
|
C
ONSIDERATION
A
VAILABILITY
|
|
|
A-71
|
|
|
|
6.12
|
|
S
HORT
-S
WING
T
RADING
E
XEMPTION
|
|
|
A-71
|
|
|
|
6.13
|
|
F
AILURE
TO
F
ULFILL
C
ONDITIONS
|
|
|
A-71
|
|
|
|
ARTICLE VII. CONDITIONS PRECEDENT TO THE MERGER
|
|
|
A-72
|
|
|
|
|
|
|
|
7.01
|
|
C
ONDITIONS
P
RECEDENT
TO
H
ORIZON
S
O
BLIGATIONS
|
|
|
A-72
|
|
|
|
7.02
|
|
C
ONDITIONS
P
RECEDENT
TO
WBKC
S
O
BLIGATIONS
|
|
|
A-75
|
|
|
|
ARTICLE VIII. TERMINATION OF MERGER
|
|
|
A-77
|
|
|
|
|
|
|
|
8.01
|
|
T
ERMINATION
|
|
|
A-77
|
|
|
|
8.02
|
|
E
FFECT
OF
T
ERMINATION
|
|
|
A-80
|
|
|
|
ARTICLE IX. EFFECTIVE TIME OF THE MERGER
|
|
|
A-81
|
|
|
|
ARTICLE X. CLOSING
|
|
|
A-82
|
|
|
|
|
|
|
|
10.01
|
|
C
LOSING
D
ATE
AND
P
LACE
|
|
|
A-82
|
|
|
|
10.02
|
|
D
ELIVERIES
|
|
|
A-82
|
|
|
|
ARTICLE XI. MISCELLANEOUS
|
|
|
A-83
|
|
|
|
|
|
|
|
11.01
|
|
N
O
A
SSIGNMENT
|
|
|
A-83
|
|
|
|
11.02
|
|
W
AIVER
; A
MENDMENT
|
|
|
A-83
|
|
|
|
11.03
|
|
N
OTICES
|
|
|
A-84
|
|
|
|
11.04
|
|
H
EADINGS
|
|
|
A-84
|
|
|
|
11.05
|
|
S
EVERABILITY
|
|
|
A-84
|
|
|
|
11.06
|
|
C
OUNTERPARTS
; F
ACSIMILE
|
|
|
A-84
|
|
|
|
11.07
|
|
G
OVERNING
L
AW
; E
NFORCEMENT
; S
PECIFIC
P
ERFORMANCE
; J
URY
T
RIAL
|
|
|
A-84
|
|
|
|
11.08
|
|
WAIVER OF JURY TRIAL
|
|
|
A-85
|
|
|
|
11.09
|
|
E
NTIRE
A
GREEMENT
|
|
|
A-85
|
|
|
|
11.10
|
|
S
URVIVAL
OF
R
EPRESENTATIONS
, W
ARRANTIES
OR
C
OVENANTS
|
|
|
A-85
|
|
|
|
11.11
|
|
E
XPENSES
|
|
|
A-85
|
|
|
|
11.12
|
|
C
ERTAIN
R
EFERENCES
|
|
|
A-86
|
|
A-iv
A
GREEMENT
AND
P
LAN
OF
M
ERGER
T
HIS
A
GREEMENT
AND
P
LAN
OF
M
ERGER
(this
Agreement
) is dated to be effective as of the 13
th
day of June, 2017, by and between H
ORIZON
B
ANCORP
, an Indiana corporation
(
Horizon
), and W
OLVERINE
B
ANCORP
, I
NC
., a Maryland corporation (
WBKC
).
W
ITNESSETH
:
W
HEREAS
, Horizon is an Indiana corporation registered as a financial holding company with the Board of Governors of the Federal
Reserve System (
FRB
) under the Bank Holding Company Act of 1956, as amended (the
BHC Act
), with its principal office located in Michigan City, Indiana; and
W
HEREAS
, WBKC is a Maryland corporation registered as a savings and loan holding company with the FRB under the Home
Owners Loan Act of 1933, as amended (the
HOLA
), with its principal office located in Midland, Michigan; and
W
HEREAS
, Horizon and WBKC seek to consummate a merger whereby WBKC will merge with and into Horizon, and immediately following
the merger, Wolverine Bank, a federally-chartered savings bank and wholly-owned subsidiary of WBKC (
Wolverine Bank
), will be merged with and into Horizon Bank, National Association, a national banking association and wholly-owned
subsidiary of Horizon that is converting to an Indiana state-chartered bank (
Horizon Bank
); and
W
HEREAS
, the Boards of Directors of each of the parties hereto have determined that it is in the best interests of their
respective corporations and their respective shareholders (with references in this Agreement to shareholders to include stockholders as appropriate in the context) to consummate the merger provided for herein; and
W
HEREAS
, the Board of Directors of each of the parties hereto has approved this Agreement and authorized its execution; and
W
HEREAS
, the Board of Directors of each of the parties hereto intends this Agreement to be designated a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and a plan of merger; and
W
HEREAS
, as an inducement for Horizon to enter into this Agreement, each of the directors and executive officers of WBKC has
entered into a Voting Agreement with Horizon substantially in the form of
Exhibit 5.01
hereto, dated as of the date hereof (the
Voting Agreement
), pursuant to which each such director and executive officer has agreed, among
other things, to vote all shares of common stock of WBKC owned by such person in favor of the approval of this Agreement and the transactions contemplated hereby, upon the terms and subject to the conditions set forth in such Voting Agreements.
N
OW
, T
HEREFORE
, in consideration of the foregoing premises, the representations, warranties, covenants, and
agreements herein contained, and other good and valuable
A-1
consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
THE MERGER
1.01
The Merger
.
(a)
General
Description
.
Upon the terms and subject to the conditions of this Agreement, at the Effective Time (as defined in
Article IX
), WBKC shall merge with and into Horizon (the
Merger
). Horizon shall survive
the Merger (sometimes hereinafter referred to as the
Surviving Corporation
) and shall continue its corporate existence under the laws of the State of Indiana pursuant to the provisions of and with the effect provided in the
Indiana Business Corporation Law (the
IBCL
), as amended.
(b)
Name, Officers, and
Directors
.
The name of the Surviving Corporation shall be
Horizon Bancorp
. Its principal office shall be located at 515 Franklin Street, Michigan City, Indiana 46360. The officers of Horizon serving at the
Effective Time shall continue to serve as the officers of the Surviving Corporation, until such time as their successors shall have been duly elected and have qualified or until their earlier resignation, death, or removal from office. The directors
of the Surviving Corporation following the Effective Time shall be those individuals serving as directors of Horizon at the Effective Time, until such time as their successors have been duly elected and have qualified or until their earlier
resignation, death, or removal as a director; provided, however, that Horizon shall take all appropriate action so that, as of the Effective Time and subject to and in accordance with the Bylaws of Horizon, Eric P. Blackhurst (or such other director
as shall be mutually agreed upon), shall be appointed as a director of Horizon.
(c)
Articles of
Incorporation and Bylaws
.
The Articles of Incorporation and Bylaws of Horizon in existence at the Effective Time shall remain the Articles of Incorporation and Bylaws of the Surviving Corporation following the Effective Time,
until such Articles of Incorporation and Bylaws shall be further amended as provided by applicable law.
(d)
Effect of the Merger
.
At the Effective Time, the title to all assets, real
estate, and other property owned by WBKC shall vest in Surviving Corporation as set forth in Indiana Code
Section 23-1-40-6,
as amended, without reversion or impairment. At the Effective Time, all liabilities of WBKC shall become liabilities of the Surviving Corporation as set forth in Indiana Code
Section 23-1-40-6,
as amended.
(e)
Integration
.
Subject to the terms and conditions of this Agreement, the
parties hereto intend to effectuate at the Effective Time, or cause to be effectuated at the Effective Time, the Merger, pursuant to the terms of this Agreement and the IBCL, and this Agreement shall also constitute the plan of merger
pursuant to Indiana Code
Section 23-1-40-1.
If required, the parties agree to enter into a separate short-form plan of
merger evidencing the
A-2
terms required by Indiana Code
Section 23-1-40-1.
The parties agree to
cooperate and to take all reasonable actions prior to the Effective Time, including executing all requisite documentation, as may be reasonably necessary to effect the Merger in accordance with the terms and subject to the conditions hereof.
1.02
Reservation of Right to Revise Structure
. At Horizons
election, the Merger may alternatively be structured so that (a) WBKC is merged with and into any other direct or indirect wholly-owned subsidiary of Horizon, or (b) any direct or indirect wholly-owned subsidiary of Horizon is merged with
and into WBKC;
provided
,
however
, that no such change shall: (1) alter or change the amount or kind of the Merger Consideration (as defined in
Section 2.01
), or the treatment of the holders of common stock, $0.01 par
value per share, of WBKC (the
WBKC Common Stock
) (including the holders of WBKC Restricted Stock Awards, as defined in
Section 2.02(b))
, or the holders of options for WBKC Common Stock; (2) prevent the parties
from obtaining the opinions of counsel referred to in
Sections 7.01(h)
and
7.02(h)
or otherwise cause the transaction to fail to qualify for the tax treatment described in
Section 1.03
or adversely affect the tax treatment
of WBKCs shareholders pursuant to this Agreement; or (3) materially impede or delay consummation of the transactions contemplated by this Agreement. In the event of such a revision, the parties agree to execute an appropriate amendment to
this Agreement (to the extent such amendment only changes the method of effecting the business combination and does not substantively affect this Agreement or the rights and obligations of the parties or their respective shareholders) in order to
reflect such revision.
1.03
Tax Free Reorganization
. Horizon and
WBKC intend for the Merger to qualify as a reorganization within the meaning of Section 368(a) and related sections of the Internal Revenue Code of 1986, as amended (the
Code
), and for this Agreement to constitute a
plan of reorganization for purposes of Sections 354 and 361 of the Code, and they agree to cooperate and to take such actions as may be reasonably necessary to assure such result.
1.04
Absence of Control
. Subject to any specific provisions of the
Agreement, it is the intent of the parties to this Agreement that neither Horizon nor WBKC by reason of this Agreement shall be deemed (until consummation of the transactions contemplated here) to control, directly or indirectly, the other party or
any of its respective Subsidiaries (as defined in the introductory paragraphs to
Article III
and
Article IV
) and that neither shall exercise or be deemed to exercise, directly or indirectly, a controlling influence over the management
or policies of such other party or any of its respective Subsidiaries.
1.05
Bank
Merger
. The parties will cooperate and use reasonable best efforts to effect the merger of Wolverine Bank with and into Horizon Bank (the
Bank Merger
) immediately following the Effective Time pursuant to a merger agreement to
be mutually agreed upon between the parties. At the effective time of the Bank Merger, the separate corporate existence of Wolverine Bank will terminate. Horizon Bank will be the surviving bank (the
Surviving Bank
) and will
continue its corporate existence under applicable law. The Articles of Association or other governing charter document of Horizon Bank, as then in
A-3
effect, will be the Articles of Association or other governing charter document of the Surviving Bank, and the Bylaws of Horizon Bank, as then in effect, will be the Bylaws of the Surviving Bank.
The directors of Horizon Bank following the effective time of the Bank Merger shall be those individuals serving as directors of Horizon Bank at the effective time of the Bank Merger, until such time as their successors have been duly elected and
have qualified or until their earlier resignation, death, or removal as a director; provided, however, that Horizon Bank shall take all appropriate action so that, as of the effective time of the Bank Merger, and subject to and in accordance with
the Bylaws of Horizon Bank, Eric P. Blackhurst (or such other director as shall be mutually agreed upon), shall be appointed as a director of Horizon Bank. The officers of Horizon Bank serving at the effective time of the Bank Merger shall continue
to serve as the officers of the Surviving Bank, until such time as their successors shall have been duly elected and have qualified or until their earlier resignation, death, or removal from office.
1.06
Sale of Real Estate Subsidiary
. Prior to the Effective Time, WBKC
shall cause Wolverine Bank to use its reasonable best efforts to take all steps necessary to sell Wolverine Commercial Holdings, LLC, a Michigan limited liability company (Commercial Holdings), as of the Effective Time (the
Commercial Holdings Termination).
1.07
Dissolution of Title Business
Holding Company
. Prior to the Effective Time, WBKC shall cause Wolverine Bank to use its reasonable best efforts to take all steps necessary to dissolve Wolserv Corp., a Michigan corporation (
Wolserv
), as of the
Effective Time (the
Wolserv Termination
).
1.08
No
Dissenters
Rights
. Shareholders of WBKC are not entitled to any dissenters rights under Title 3 of the Maryland General Corporation Law, as amended. WBKC shall take no action which would result in the loss of
such exemption prior to the Effective Time.
ARTICLE II.
MANNER AND BASIS OF EXCHANGE OF STOCK
2.01
Merger Consideration
. Subject to the terms and conditions of this
Agreement, at the Effective Time, each share of WBKC Common Stock issued and outstanding immediately prior to the Effective Time (other than shares held as treasury stock of WBKC, shares held by the Bank ESOP that are remitted to WBKC prior to the
Effective Time for purposes of repayment of the ESOP loan balance as contemplated by
Section 5.16(c)
and shares held directly or indirectly by Horizon, except shares held in a fiduciary capacity or in satisfaction of a debt previously
contracted, if any; collectively, the
Exempt WBKC Stock
) shall become and be converted into the right to receive in accordance with this
Article II
both: (i) 1.0152 shares of Horizon common stock (the
Exchange
Ratio
) (as adjusted in accordance with the terms of this Agreement), without par value (the stock consideration to be paid in the Merger is referred to herein as the
Stock Consideration
); and (ii) $14.00 in cash (the
cash consideration to be paid in the Merger is referred to herein as the
Cash
A-4
Consideration
) (with the Stock Consideration and the Cash Consideration collectively referred to herein as the
Merger Consideration
).
2.02
Treatment of WBKC Equity Awards
.
(a)
Stock Options
.
All outstanding options to purchase WBKC Common Stock, whether or not
vested (
WBKC Options
), shall be converted into the right to receive from Horizon, at the Effective Time, an amount in cash equal to $40.00 minus the per share exercise price for each share of WBKC Common Stock subject to a WBKC
Option; provided, however, that there shall be withheld from such cash payment any taxes required to be withheld by applicable law. Such payment shall be made by WBKC immediately prior to the Effective Time. The Compensation Committee of WBKC shall
take any required action under the WBKC Equity Plan regarding this treatment of the WBKC Options, and WBKC shall use its best efforts to obtain from all holders of an option or agreement their agreement to the treatment of their options in the
manner contemplated by this Section on or before thirty (30) days after the date of this Agreement (the
Conversion Deadline
) by executing and delivering to Horizon an agreement in the same form as
Exhibit 2.02
attached
hereto. WBKC shall amend any such plan accordingly (or take such other action as is necessary to cause all outstanding WBKC Options to terminate as of the Effective Time) prior to the Effective Time. Each such option shall be canceled and cease to
exist by virtue of such payment. Execution of a cancellation agreement by every holder of WBKC Options shall not be a condition precedent to consummation of the transactions contemplated herein.
(b)
Restricted Stock
.
At the Effective Time, each award of shares of WBKC Common Stock
granted under the WBKC 2012 Equity Incentive Plan, whether or not vested, that is outstanding immediately prior to the Effective Time (a
WBKC Restricted Stock Award
) shall fully vest and be canceled and be converted automatically
into the right to receive the Merger Consideration. Horizon shall issue the consideration described in this
Section 2.02(b)
, less applicable tax withholdings, in the same manner as the Merger Consideration is delivered to other WBKC
shareholders.
2.03
Anti-Dilution Adjustments
. If Horizon changes
(or establishes a record date for changing) the number of shares of Horizon common stock issued and outstanding prior to the Effective Time by way of a stock split, stock dividend, recapitalization, reclassification or similar transaction with
respect to the outstanding Horizon common stock, and the record date therefor is prior to the Effective Time, the Exchange Ratio shall be adjusted accordingly so that each shareholder of WBKC at the Effective Time shall receive, in the aggregate,
such number of shares of Horizon common stock representing the same percentage of the outstanding shares of Horizon common stock that such shareholders would have received if any of the foregoing actions had not occurred. No adjustment shall be made
under this
Section 2.03
solely as a result of Horizon changing its cash dividend levels or issuing additional shares of Horizon common stock, provided it receives fair market value for such shares or such shares are issued in connection
with a Horizon employee benefit plan or similar plan.
A-5
2.04
No Fractional Shares
.
Notwithstanding any other provision in this Agreement, no fractional shares of Horizon common stock and no certificates or scrip therefor, or other evidence of ownership thereof, will be issued in the Merger; instead, Horizon shall pay to each
holder of WBKC Common Stock who otherwise would be entitled to a fractional share of Horizon common stock an amount in cash (without interest) determined by multiplying such fraction by the average of the daily closing sales prices of a share of
Horizons common stock, rounded to the nearest cent, during the fifteen (15) consecutive trading days immediately preceding the second business day prior to the Closing Date;
provided
,
however
, that closing sales prices shall
only be used for days during which such shares are actually traded on the NASDAQ Global Select Market.
2.05
Exchange Procedures
.
(a) Horizon shall appoint its transfer agent, Computershare, Inc. (
Exchange Agent
), as
the exchange agent for the surrender of certificates formerly representing WBKC Common Stock in exchange for the Merger Consideration.
(b) At and after the Effective Time, each physical certificate or book-entry account statement evidencing
outstanding shares of WBKC Common Stock (each an
Old Certificate
) (other than the Exempt WBKC Stock) shall represent only the right to receive the Merger Consideration in accordance with the terms of this Agreement. No later than
the business day prior to the Closing Date, Horizon shall provide the Exchange Agent with the irrevocable authorization to issue a sufficient number of shares of Horizon common stock to be used to issue the aggregate Stock Consideration to holders
of WBKC Common Stock and deposit, or cause to be deposited, with the Exchange Agent, an amount in cash sufficient to pay the aggregate Cash Consideration payable to holders of WBKC Common Stock (together with cash for any fractional shares pursuant
to
Section 2.04
).
(c) No later than five (5) business days after the Effective Time
(and provided WBKC has delivered to the Exchange Agent all information which is necessary for the Exchange Agent to perform its obligations hereunder), the Exchange Agent shall mail to each holder of WBKC Common Stock a letter of transmittal
providing instructions to the WBKC shareholder as to the transmittal to the Exchange Agent of the Old Certificates in exchange for the issuance of the Merger Consideration applicable thereto pursuant to the terms of this Agreement.
(d) Horizon shall cause a book-entry account statement representing that number of whole shares of Horizon
common stock that each holder of WBKC Common Stock has the right to receive pursuant to
Section 2.01
as the holders aggregate Stock Consideration and a check in the amount of such holders aggregate Cash Consideration, along
with any cash in lieu of fractional shares or dividends or distributions which such holder shall be entitled to receive, if any, to be delivered to such shareholder as soon as reasonably practicable after the shareholder delivers to Horizon the Old
Certificates (or bond or other indemnity satisfactory to Horizon if any of such Old Certificates are lost, stolen or destroyed) owned by such shareholder, accompanied by a properly completed and executed letter of transmittal, in the
A-6
form and substance satisfactory to Horizon, and any other documents required by this Agreement or reasonably requested by Horizon or the Exchange Agent. No interest will be paid on any Merger
Consideration that any such holder is entitled to receive pursuant to this
Article II.
(e) No
dividends or other distributions on Horizon common stock with a record date occurring after the Effective Time shall be paid to the holder of any unsurrendered Old Certificate representing shares of WBKC Common Stock until the holder thereof
surrenders such Old Certificates in accordance with this
Article II
. After becoming so entitled in accordance with this
Section 2.05
, the record holder thereof also shall be entitled to receive any dividends or other
distributions, without any interest thereon, that were previously payable with respect to shares of Horizon common stock that such holder had the right to receive upon surrender of the Old Certificate.
(f) The stock transfer books of WBKC shall be closed at the Effective Time, and from and after the
Effective Time, there shall be no transfers on the stock transfer records of WBKC of any shares of WBKC Common Stock. If, after the Effective Time, Old Certificates are presented to Horizon, they shall be canceled and exchanged for the Merger
Consideration deliverable in respect thereof pursuant to this Agreement in accordance with the procedures set forth in this
Article II
.
(g) Horizon shall be entitled to rely upon WBKCs stock transfer books to establish the identity of
those individuals, partnerships, corporations, trusts, joint ventures, organizations, or other entities (each, a
Person
) entitled to receive the Merger Consideration, which books shall be conclusive with respect thereto. In the
event of a dispute with respect to ownership of stock represented by any Old Certificate, Horizon shall be entitled to deposit any Merger Consideration represented thereby in escrow with an independent third party selected by Horizon and thereafter
be relieved from any and all liability with respect to any claims thereto.
(h) If any Old Certificate
shall have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the Person claiming such Old Certificate to be lost, stolen, or destroyed and, if required by Horizon, the posting by such Person of a bond or other
indemnity satisfactory to Horizon as indemnity against any claim that may be made against it with respect to such Old Certificate, Horizon will issue in exchange for such affidavit of lost, stolen, or destroyed Old Certificate, the Merger
Consideration deliverable in respect thereof pursuant to, and in accordance with, the other terms and conditions of this
Article II
.
(i) Notwithstanding anything in this Agreement to the contrary, at the Effective Time, all shares of WBKC
Common Stock that are held as treasury stock of WBKC or owned by Horizon (other than shares held in a fiduciary capacity or in satisfaction of a debt previously contracted) shall be canceled and shall cease to exist, and no stock of Horizon or other
consideration shall be exchanged therefor.
A-7
(j) Notwithstanding the foregoing, no party hereto, nor the
Exchange Agent, shall be liable to any former holder of WBKC Common Stock for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat, or similar laws.
(k) If outstanding Old Certificates are not surrendered or the payment for them is not claimed prior to the
date on which the Merger Consideration payable therefor would otherwise escheat to, or become the property of any governmental unit or agency, the unclaimed Merger Consideration shall, to the extent permitted by abandoned property and any other
applicable law, become the property of Horizon (and to the extent not in its possession shall be delivered to it), free and clear of all claims or interest of any Person previously entitled thereto. Any former shareholder of WBKC who has not
theretofore complied with this
Article II
shall thereafter look only to the Surviving Corporation for payment of the Merger Consideration and any unpaid dividends and distributions on Horizons Common Stock deliverable in respect of each
former share of WBKC Common Stock such shareholder holds as determined pursuant to this Agreement, in each case, without any interest thereon. Neither the Exchange Agent nor any party to this Agreement shall be liable to any holder of shares of WBKC
Common Stock for any Merger Consideration properly delivered to a public official pursuant to applicable abandoned property, escheat, or similar laws.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF WBKC
On or prior to the date hereof, WBKC has delivered to Horizon a schedule (the
WBKC Disclosure Schedule
) setting forth,
among other things, items the disclosure of which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more representations or warranties contained in this
Article III
or to one or more of its covenants contained in
Article V
. However, for purposes of the WBKC Disclosure Schedule, any item disclosed on any schedule therein is deemed to be fully disclosed with respect to other sections of
this Agreement under which such item may be relevant, but only to the extent that it is reasonably clear on the face of such schedule that such item applies to such other section of this Agreement, and such item is described in sufficient detail to
enable Horizon to identify the items to which it applies.
For the purpose of this Agreement, and in relation to WBKC, a
Material
Adverse Effect
means any effect that (i) is material and adverse to the results of operations, properties, assets, liabilities, conditions (financial or otherwise), value, or business of WBKC and its Subsidiaries (as defined below in
this introduction to
Article III
) on a consolidated basis, or (ii) would materially impair the ability of WBKC or any of its Subsidiaries to perform its obligations under this Agreement or any related agreement or otherwise materially
threaten or materially impede the consummation of the Merger and the other transactions contemplated by this Agreement;
provided
,
however
, that Material Adverse Effect on WBKC shall not be deemed to include the impact of
(a) changes in banking and similar laws of general applicability to banks, savings associations, or their holding companies or interpretations thereof by courts or governmental authorities, (b) changes in United States
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generally accepted accounting principles (
GAAP
) or regulatory accounting requirements applicable to banks, savings associations or their holding companies generally,
(c) effects of any action or omission taken with the prior written consent of Horizon or at the direction of Horizon, (d) the expenses incurred by WBKC and Wolverine Bank in negotiating, documenting, effecting, and consummating the
transactions contemplated by this Agreement, (e) the announcement of this Agreement and the transactions contemplated hereby, and the effect of compliance with this Agreement, on the business, financial condition, or results of operations of
WBKC and its Subsidiaries, (f) any changes in general economic or capital market conditions affecting banks, savings associations and their holding companies generally, including, without limitation, changes in interest rates, and
(g) changes in national or international political or social conditions, including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military
or terrorist attack upon or within the United States, or any of its territories, possessions or diplomatic or consular offices, or upon any military installation, equipment, or personnel of the United States, unless it uniquely affects WBKC or any
of its Subsidiaries, taken as a whole.
For the purpose of this Agreement, and in relation to WBKC and its Subsidiaries,
knowledge
means those facts that are actually known by the officers of WBKC and its Subsidiaries who are listed on
Section 3.0
of the WBKC Disclosure Schedule. Additionally, for the purpose of this Agreement, and in
relation to WBKC, its
Subsidiaries
shall mean any entity which is required to be consolidated with WBKC for financial reporting purposes pursuant to GAAP.
Accordingly, WBKC hereby represents and warrants to Horizon as follows, except as set forth in the WBKC Disclosure Schedule:
3.01
Organization and Authority
.
(a) WBKC is a corporation duly organized and validly existing under the laws of the state of Maryland and
is a registered savings and loan holding company under the HOLA. WBKC has full power and authority (corporate and otherwise) to own and lease its properties as presently owned and leased and to conduct its business in the manner and by the means
utilized as of the date hereof.
Section 3.01(a)
of the WBKC Disclosure Schedule sets forth a complete list of WBKCs Subsidiaries. Except as provided in
Section 3.01(a)
of the WBKC Disclosure Schedule, WBKC owns directly
no voting stock or equity securities of any corporation, partnership, association, or other entity.
(b) Wolverine Bank is a federally chartered savings bank existing under the laws of the United States.
Wolverine Bank has full power and authority (corporate and otherwise) to own and lease its properties as presently owned and leased and to conduct its business in the manner and by the means utilized as of the date hereof. Except as set forth in
Section 3.01(b)
of the WBKC Disclosure Schedule, no Subsidiary owns voting stock or equity securities of any corporation, partnership, association, or other entity.
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3.02
Authorization
.
(a) WBKC has the requisite corporate power and authority to enter into this Agreement and to perform its
obligations hereunder, subject to the fulfillment of the conditions precedent set forth in
Sections 7.02(e)
and
(f)
hereof. This Agreement and its execution and delivery by WBKC have been duly authorized and approved by the Board
of Directors of WBKC and, assuming the accuracy of the representation contained in
Section 4.02(a)
, constitutes a valid and binding obligation of WBKC, subject to the terms and conditions hereof, and is enforceable in accordance with its
terms, except to the extent limited by general principles of equity and public policy and by bankruptcy, insolvency, fraudulent transfer, reorganization, liquidation, moratorium, readjustment of debt, or other laws of general application relating to
or affecting the enforcement of creditors rights.
(b) Except as set forth in
Section 3.02(b)
of the WBKC Disclosure Schedule, and subject to the fulfillment of the conditions precedent set forth in
Sections 7.02(e)
and
(f)
hereof, neither the execution of this Agreement nor consummation of the
Merger contemplated hereby: (i) conflicts with or violates the Articles of Incorporation or Bylaws of WBKC or the charter documents of any of WBKCs Subsidiaries; (ii) conflicts with or violates any applicable local, state, federal,
or foreign law, statute, ordinance, rule, or regulation (provided that the approvals of or filings with applicable government regulatory agencies or authorities required for consummation of the Merger are obtained) or any court or administrative
judgment, order, injunction, writ, or decree; (iii) conflicts with, results in a breach of, or constitutes a default under, or requires any notice or consent under, any note, bond, indenture, mortgage, deed of trust, license, lease, contract,
agreement, arrangement, commitment, or other instrument to which WBKC or any of its Subsidiaries is a party or by which WBKC or any of its Subsidiaries is subject or bound; (iv) results in the creation of or gives any Person the right to create
any lien, charge, claim, encumbrance, or security interest, or results in the creation of any other rights or claims of any other party (other than Horizon) or any other adverse interest, upon any right, property, or asset of WBKC or any of its
Subsidiaries; or (v) terminates or gives any Person the right to terminate, accelerate, amend, modify, or refuse to perform under any note, bond, indenture, mortgage, agreement, contract, lease, license, arrangement, deed of trust, commitment,
or other instrument to which WBKC or any of its Subsidiaries is bound or with respect to which WBKC or any of its Subsidiaries is to perform any duties or obligations or receive any rights or benefits, except for such conflicts, breaches, defaults,
notices, consent, liens, charges, claims, encumbrances, security interests, adverse interests, terminations, accelerations, amendments, modifications or refusals to perform under (iii), (iv) or (v) of this
Section 3.02(b)
that,
either individually or in the aggregate, will not have a Material Adverse Effect on WBKC.
(c) Other
than in connection or in compliance with the provisions of the applicable federal and state banking, securities, antitrust, and corporation statutes, all as amended, and the rules and regulations promulgated thereunder, no notice to, filing
with, exemption by, or consent, authorization, or approval of any governmental agency or body is necessary for consummation of the Merger by WBKC.
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(d) The transactions contemplated by this Agreement are not
subject to the requirements of any moratorium, control share, fair price, affiliate transactions, business combination, or other antitakeover laws and regulations of the State of Maryland,
including the provisions of the Maryland General Corporation Law applicable to WBKC.
3.03
Capitalization
.
(a) As of the date of this Agreement or as otherwise indicated below, the authorized capital stock of WBKC
consists of 100,000,000 shares of WBKC Common Stock, $0.01 par value per share, 2,105,981 shares of which are issued and outstanding (including 55,665 allocated shares of WBKC Common Stock and 141,255 unallocated shares of WBKC Common Stock held by
the Bank ESOP (as defined in
Section 3.15(k))
(as of December 31, 2016); 9,140 shares of WBKC Common Stock held by the Bank 401(k) Plan (as defined in
Section 3.15(l))
(as of June 1, 2017); 40,773
shares of
WBKC Common Stock held by the LTIPs (as defined in
Section 5.19
); and 26,063
shares of unvested restricted stock), and 50,000,000 shares of preferred stock, $0.01 par value, none of which are issued and outstanding. As of the date
of this Agreement, and as described in
Section 3.03(a)
of the WBKC Disclosure Schedule, there are WBKC Options to purchase 181,585 shares of WBKC Common Stock outstanding, all of which are vested (or will, as of the Effective Time, be
vested) and issuable as shares of WBKC Common Stock. As of the date of this Agreement, the WBKC Options have a weighted average exercise price of $20.87 per share. Such issued and outstanding shares of WBKC Common Stock and the shares underlying the
WBKC Options have been duly and validly authorized by all necessary corporate action of WBKC, are validly issued, fully paid, and nonassessable, and have not been issued in violation of any preemptive rights. WBKC has no capital stock authorized,
issued, or outstanding other than as described in this
Section 3.03(a)
and has no intention or obligation to authorize or issue any other capital stock or any additional shares of stock or securities convertible into stock. Each share of
WBKC Common Stock is entitled to one vote per share.
(b) Except as set forth in
Section 3.03(b)
of the WBKC Disclosure Schedule, all of the issued and outstanding shares of capital stock or other equity ownership interests of each Subsidiary of WBKC are owned by WBKC, directly or indirectly, free and clear of all
liens, pledges, charges, claims, encumbrances, restrictions, security interests, options, and preemptive rights and of all other rights or claims of any other Person with respect thereto.
(c) Other than the WBKC Options and except as set forth in
Section 3.03(c)
of the WBKC
Disclosure Schedule, there are no options, warrants, commitments, calls, puts, plans, agreements, understandings, arrangements, or subscription rights relating to any shares of capital stock of WBKC (whether outstanding or to be issued), or any
shares of capital stock of WBKCs Subsidiaries (whether outstanding or to be issued), or any securities convertible into or representing the right to purchase or otherwise acquire any common stock or debt securities of WBKC or its Subsidiaries,
by which WBKC is or may become bound or may, or is required to, issue any additional securities of WBKC or any Subsidiary. Except for the withholding of shares to satisfy tax obligations in connection with the vesting of WBKC Restricted Stock or the
exercise of WBKC Options, WBKC does not have any outstanding contractual or other
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obligation to repurchase, redeem, or otherwise acquire any of the issued and outstanding shares of WBKC Common Stock. WBKC is not a party to any voting trusts, voting arrangements,
buy-sell
agreements, or similar arrangements affecting the capital stock of WBKC or its Subsidiaries.
(d) WBKC has no knowledge of any Person which beneficially owns (as defined in Rule
13d-3
under the Securities Exchange Act of 1934 (the
1934 Act
)) 10% or more of the outstanding shares of WBKC Common Stock.
3.04
Organizational Documents
. The Articles of Incorporation and Bylaws of WBKC
and any similar governing documents for each of WBKCs Subsidiaries, represent true, accurate, and complete copies of such corporate documents in effect as of the date of this Agreement and have previously been delivered to Horizon.
3.05
Compliance with Law
.
(a) None of WBKC or any of its Subsidiaries is currently in material violation of, and during the preceding
five (5) years, none has been in material violation of, any applicable local, state, federal, or foreign law, statute, regulation, rule, ordinance, order, restriction, or requirement, and none is in violation of any order, injunction, judgment,
writ, or decree of any court or government agency or body (collectively, the
Law
) except where such violation would not have a Material Adverse Effect on WBKC. WBKC and its Subsidiaries possess and hold all licenses, franchises,
permits, certificates, and other authorizations necessary for the continued conduct of their business without interference or interruption, except where the failure to possess and hold the same would not have a Material Adverse Effect on WBKC, and
such licenses, franchises, permits, certificates, and authorizations are transferable (to the extent required) to Horizon at the Effective Time without any material restrictions or limitations thereon or the need to obtain any consents of government
agencies or other third parties other than as set forth in this Agreement.
(b)
Section 3.05(b)
of the WBKC Disclosure Schedule sets forth, as of the date hereof, a schedule of all officers (vice presidents and higher) and directors of WBKC who have outstanding loans from WBKC or any of its Subsidiaries, and there has been no default on, or
forgiveness or waiver of, in whole or in part, any such loan during the two (2) years immediately preceding the date hereof.
(c) Since the enactment of the Sarbanes-Oxley Act of 2002 (the
Sarbanes-Oxley Act
), and
WBKCs incorporation in 2010, WBKC has been and is in compliance in all material respects with the applicable provisions of the Sarbanes-Oxley Act.
(d) All of the existing offices and branches of Wolverine Bank have been legally authorized and established
in accordance with all applicable federal, state, and local laws, statutes, regulations, rules, ordinances, orders, restrictions, and requirements, except as would not reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect on WBKC. Wolverine Bank has no approved but unopened offices or branches.
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3.06
Accuracy of Information Provided to
Horizon
. WBKC agrees that the information concerning WBKC or any of its Subsidiaries that is provided or to be provided by WBKC to Horizon for inclusion or that is included in the Registration Statement or Proxy Statement (each as defined in
Section 6.02
), and any other documents to be filed with any regulatory authority or governmental entity in connection with the Merger and the other transactions contemplated by this Agreement will: (a) at the respective times such
documents are filed and, in the case of the Registration Statement, when it becomes effective and, with respect to the Proxy Statement, when mailed, not be false or misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; or (b) in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the WBKC
Shareholders Meeting, not be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for the
meeting in connection with which the Proxy Statement shall be mailed. Notwithstanding the foregoing, WBKC shall have no responsibility for the truth or accuracy of any information with respect to Horizon or any of its Subsidiaries or any of their
affiliates contained in the Registration Statement or the Proxy Statement or in any document submitted to, or other communication with, any regulatory agency or governmental entity.
3.07
Litigation and Pending Proceedings
.
(a) Except for lawsuits described in
Section 3.07(a)
of the WBKC Disclosure Schedule and
lawsuits involving collection of delinquent accounts, there are no material claims, actions, suits, proceedings, mediations, arbitrations, or investigations pending or, to the knowledge of WBKC, threatened against WBKC or any of its Subsidiaries,
and to WBKCs knowledge, there is no basis for any claim, action, suit, proceeding, litigation, arbitration, or investigation against WBKC or any of its Subsidiaries that individually or in the aggregate would reasonably be expected to have a
Material Adverse Effect on WBKC.
(b) Neither WBKC nor any of its Subsidiaries is: (i) subject to
any outstanding judgment, order, writ, injunction, or decree of any court, arbitration panel, or governmental agency or authority, except in the ordinary course of business regarding customer and fiduciary accounts; (ii) presently charged with,
or under governmental investigation with respect to, any actual or alleged violations of any law, statute, rule, regulation, or ordinance (other than immaterial violations raised as part of examinations by banking regulators in the ordinary course
of operating a banking business); or (iii) the subject of any pending or, to the knowledge of WBKC, threatened proceeding by any government regulatory agency or authority having jurisdiction over their respective business, assets, capital,
properties, or operations.
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3.08
Financial Statements and
Reports
.
(a) WBKC has previously delivered to Horizon copies of the following financial statements
and reports of WBKC and its Subsidiaries, including the notes thereto (collectively, the
WBKC Financial Statements
):
(i) Consolidated balance sheets and the related consolidated statements of earnings,
consolidated statements of cash flows, and consolidated statements of changes in shareholders equity of WBKC as of and for the fiscal years ended December 31, 2014, 2015, and 2016;
(ii) Unaudited interim consolidated financial statements of WBKC for the three months ended
March 31, 2017; and
(iii) Call Reports (Call Reports) for Wolverine
Bank for the periods ending on December 31, 2014, 2015, 2016, and for the three months ended March 31, 2017.
(b) The WBKC Financial Statements described in clauses (i) and (ii) above present fairly in all
material respects the consolidated financial position of WBKC as of and at the dates shown and the consolidated results of operations, cash flows, and changes in shareholders equity for the periods covered thereby and are complete, correct,
represent bona fide transactions, and have been prepared from the books and records of WBKC and its Subsidiaries. The WBKC Financial Statements described in clause (i) above are audited financial statements and have been prepared in conformance
with GAAP, except as may otherwise be indicated in any accountants notes or reports with respect to such financial statements.
3.09
Material Contracts
.
(a) As of the date of this Agreement, and
except as disclosed by
Section 3.09(a)
of the WBKC Disclosure Schedule, neither WBKC nor any of its Subsidiaries, nor any of their respective assets, businesses, or operations, is a party to, or is bound or affected by, or receives
benefits under the following material contracts (collectively, the
Material Contracts
):
(i) any contract relating to the borrowing of money in excess of $100,000 by WBKC or any of
its Subsidiaries or the guarantee by WBKC or any of its Subsidiaries of any such obligation (other than FHLB of Indianapolis advances, contracts pertaining to fully-secured securities repurchase agreements, trade payables, bankers acceptances,
and contracts relating to borrowings or guarantees made in the ordinary course of business);
(ii) any contract containing covenants that limit the ability of WBKC or any of its
Subsidiaries to compete in any line of business or with any Person, or to hire or engage the services of any Person, or that involve any restriction of the geographic area in which, or method by which, WBKC or any of its Subsidiaries may carry on
its
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business (other than as may be required by Law (as defined in Section 3.05(a)) or any Governmental Authority (as defined in
Section 5.13
)), or any contract that requires it or
any of its Subsidiaries to deal exclusively or on a sole source basis with another party to such contract with respect to the subject matter of such contract;
(iii) any contract for, with respect to, or that contemplates, a possible merger,
consolidation, reorganization, recapitalization, joint venture, or other business combination, or asset sale or sale of equity securities not in the ordinary course of business consistent with past practice, with respect to WBKC or any of its
Subsidiaries;
(iv) any lease of real or personal property providing for total
aggregate lease payments by or to WBKC or its Subsidiaries during the remaining term of the agreement in excess of $50,000 or having a remaining term in excess of two years, other than financing leases entered into in the ordinary course of business
in which WBKC or any of its Subsidiaries is the lessor;
(v) any contract that involves
total aggregate expenditures or receipts by WBKC or any of its Subsidiaries in excess of $100,000 during the remaining term of the agreement or having a remaining term in excess of two years, excluding agreements relating to loans and deposits with
Wolverine Bank customers;
(vi) any material licensing agreement or other contract with
respect to patents, trademarks, copyrights, or other intellectual property, including software agreements (other than
off-the-shelf
and similar software generally
available to the public) and including agreements with current or former employees, consultants, or contractors regarding the appropriation or the nondisclosure of any of its intellectual property; or
(vii) any other document, instrument or agreement that is required to be filed as an
exhibit to any WBKC SEC Report (as defined in
Section 3.36
) (pursuant to Items 601(b)(4) or 601(b)(10) of Regulation
S-K
under the 1933 Act) that has not been filed as an exhibit to, or
incorporated by reference in, WBKCs SEC Reports filed prior to the date of this Agreement.
(b) With respect to each of WBKCs Material Contracts: (i) each Material Contract is in full
force and effect (subject to iv), below); (ii) neither WBKC nor any of its Subsidiaries is in material default thereunder, as such term or concept may be defined in each Material Contract; (iii) neither WBKC nor any of its Subsidiaries has
repudiated or waived any material provision of any Material Contract; (iv) to WBKCs knowledge, no other party to any Material Contract is in default or otherwise not in compliance with any material term or condition of any Material
Contract; and (v) a true and complete copy of each Material Contract has been previously delivered to Horizon.
(c) Except as disclosed in
Section 3.09(c)
of the WBKC Disclosure Schedule, neither WBKC nor
any of its Subsidiaries have entered into any interest rate swaps, caps,
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floors, option agreements, futures and forward contracts, or other similar risk management arrangements, whether entered into for WBKCs own account or for the account of one or more of its
Subsidiaries or their respective customers.
3.10
Absence of Undisclosed
Liabilities
. Except (i) as provided in the WBKC Financial Statements or WBKC SEC Reports (as defined in
Section 3.36
), (ii) for unfunded loan commitments and obligations on letters of credit to customers of WBKCs
Subsidiaries made in the ordinary course of business, (iii) for trade payables incurred in the ordinary course of business, (iv) for the transactions contemplated by this Agreement, and (v) for any other transactions which would not
result in a material liability; none of WBKC or any of its Subsidiaries has any obligation, agreement, contract, commitment, liability, lease, or license made outside of the ordinary course of business, nor, to WBKCs knowledge, does there
exist any circumstances resulting from transactions effected or events occurring on or prior to the date of this Agreement or from any action omitted to be taken during such period which could reasonably be expected to result in any such material
obligation, agreement, contract, commitment, liability, lease, or license. None of WBKC or any of its Subsidiaries is delinquent in the payment of any material amount due pursuant to any trade payable, and each has properly accrued for such payables
in accordance with GAAP.
3.11
Title to Properties
and Environmental
Laws
.
(a)
Section 3.11(a)
of the WBKC Disclosure Schedule includes a list of all real
property owned (including other real estate owned (
OREO
)) and leased by WBKC or any Subsidiary. WBKC or one of its Subsidiaries, as the case may be, has marketable title in fee simple to all owned real property (including, without
limitation, all real property used as bank premises and all OREO); marketable title to all material personal property reflected in the WBKC Financial Statements as of March 31, 2017, other than personal property disposed of in the ordinary
course of business since March 31, 2017; the right to use by valid and enforceable written lease or contract all other real property which WBKC or any of its Subsidiaries uses in its respective business; marketable title to, or right to use by
terms of a valid and enforceable written lease or contract, all other tangible and intangible property used in its respective business to the extent material thereto; and marketable title to all material property and assets acquired (and not
disposed of) or leased since March 31, 2017. All of such owned real estate properties and all other
non-real
estate assets are owned by WBKC or its Subsidiaries free and clear of all land or conditional
sales contracts, mortgages, liens, pledges, restrictions, options, security, interests, charges, claims, rights of third parties, or encumbrances of any nature except: (i) as set forth in
Section 3.11(a)
of the WBKC Disclosure
Schedule; (ii) as specifically noted in reasonable detail in the WBKC Financial Statements; (iii) statutory liens for taxes not yet delinquent or being contested in good faith by appropriate proceedings; (iv) pledges or liens required
to be granted in connection with the acceptance of government deposits or granted in connection with repurchase or reverse repurchase agreements; and (v) easements, encumbrances, and liens and other matters of record, imperfections of title,
and other limitations which are not material in amount and which do not detract from the value or materially interfere with the present or contemplated use of any of the properties subject thereto or otherwise materially impair the use thereof for
the purposes
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for which they are held or used. To the knowledge of WBKC, all real property owned or leased by WBKC or its Subsidiaries is in compliance in all material respects with all applicable zoning and
land use laws and there are no encroachments or other violations of law with respect to any such property. To the knowledge of WBKC, all such properties also comply in all material respects with all applicable private agreements, zoning
requirements, and other governmental laws and regulations relating thereto, and there are no condemnation proceedings pending or threatened with respect to such properties. To the knowledge of WBKC, all real property, machinery, equipment,
furniture, and fixtures owned or leased by WBKC or its Subsidiaries that is material to their respective businesses is in good operating condition for its intended purpose (ordinary wear and tear excepted) and has been and is being maintained and
repaired in the ordinary condition of business.
(b) After the date hereof, Horizon shall be entitled,
at its own cost, to obtain new commitments for, and policies of title insurance or surveys in respect of, any real property owned or leased by WBKC or its Subsidiaries.
(c) With respect to all real property presently or formerly owned, leased, or used by WBKC or any of its
Subsidiaries, WBKC, its Subsidiaries and, to WBKCs knowledge, each of the prior owners, have conducted their respective business in material compliance with all applicable federal, state, county, and municipal laws, statutes, regulations,
rules, ordinances, orders, directives, restrictions, and requirements relating to, without limitation, responsible property transfer, underground storage tanks, petroleum products, air pollutants, water pollutants or storm water or process waste
water, or otherwise relating to the environment, air, water, soil, or toxic or hazardous substances, or to the manufacturing, recycling, handling, processing, distribution, use, generation, treatment, storage, disposal, or transport of any hazardous
or toxic substances or petroleum products (including polychlorinated biphenyls, whether contained or uncontained, and asbestos-containing materials, whether friable or not), including, without limitation, the Federal Solid Waste Disposal Act, the
Hazardous and Solid Waste Amendments, the Federal Clean Air Act, the Federal Clean Water Act, the Occupational Health and Safety Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, and the Superfund Amendments and Reauthorization Act of 1986, all as amended, and regulations of the Environmental Protection Agency, the Nuclear Regulatory Agency, the Army Corps of
Engineers, the Department of Interior, the United States Fish and Wildlife Service, and any state department of natural resources or state environmental protection agency now or at any time thereafter in effect (collectively,
Environmental
Laws
). There are no pending or, to the knowledge of WBKC, threatened claims, actions, or proceedings by any local municipality, sewage district, or other governmental entity against WBKC or any of its Subsidiaries with respect to the
Environmental Laws, and, to WBKCs knowledge, there is no reasonable basis or grounds for any such claim, action, or proceeding. No environmental clearances are required for the conduct of the business of WBKC or any of its Subsidiaries as
currently conducted or the consummation of the Merger or any of the other transactions contemplated hereby. Except as disclosed in
Section 3.11(c)
of the WBKC Disclosure Schedule, neither WBKC nor any of its Subsidiaries is the owner, or
has been in the chain of title or the operator or lessee, of any
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property on which any substances have been used, stored, deposited, treated, recycled, or disposed of, other than in compliance with Environmental Laws and which substances, if known to be
present on, at, or under such property, would require
clean-up,
removal, treatment, abatement, response costs, or any other remedial action under any Environmental Law. Neither WBKC nor any of its Subsidiaries
has any liability for any
clean-up
or remediation under any of the Environmental Laws with respect to any real property.
3.12
Loans and Investments
.
(a)
Section 3.12(a)
of the WBKC Disclosure Schedule contains (i) a list of each loan by
Wolverine Bank that has been classified by regulatory examiners or management as Special Mention, Substandard, Doubtful, or Loss or that has been identified by accountants or auditors (internal or
external) as having a significant risk of uncollectability as of March 31, 2017, (ii) the most recent loan watch list of Wolverine Bank and a list of all loans which have been determined to be thirty (30) days or more past due with respect
to principal or interest payments, have been placed on nonaccrual status, or have been designated as Troubled Debt Restructuring (
TDR
) loans, and (iii) a description of all unfunded loan commitments (and loans currently under
consideration) of the types and amounts for which consent would be required under
Section 5.03(b)(iv)
of this Agreement.
Section 3.12(a)
of the WBKC Disclosure Schedule also contains a true, accurate, and complete list of all
loans in which Wolverine Bank has any participation interest or which have been made with or through another financial institution on a recourse basis against Wolverine Bank.
(b) All loans reflected in the WBKC Financial Statements as of March 31, 2017, and which have been
made, extended, renewed, restructured, approved, amended, or acquired since March 31, 2017: (i) have been made for good, valuable, and adequate consideration in the ordinary course of business; (ii) constitute the legal, valid, and binding
obligation of the obligor and any guarantor named therein, except to the extent limited by general principles of equity and public policy or by bankruptcy, insolvency, fraudulent transfer, reorganization, liquidation, moratorium, readjustment of
debt, or other laws of general application relative to or affecting the enforcement of creditors rights; (iii) are evidenced by notes, instruments, or other evidences of indebtedness which are true, genuine, and what they purport to be in
all material respects; and (iv) are secured by perfected security interests or recorded mortgages naming Wolverine Bank as the secured party or mortgagee (unless by written agreement to the contrary).
(c) The allowance for loan and lease losses and the carrying value for OREO which are shown on the WBKC
Financial Statements are, in the judgment of management of WBKC, adequate in all material respects under the requirements of GAAP as of the respective dates.
(d) Except as set forth in
Section 3.12(d)
of the WBKC Disclosure Schedule, none of the
investments reflected in the WBKC Financial Statements as of and for the three months ended March 31, 2017, and none of the investments made by any Subsidiary of WBKC since March 31, 2017 are subject to any restriction, whether contractual
or statutory, which materially impairs the ability of such Subsidiary to dispose freely of such investment at any
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time. Neither WBKC nor any of its Subsidiaries is a party to any repurchase agreements with respect to securities. All United States Treasury securities, obligations of other United States
Government agencies and corporations, obligations of states of the United States and their political subdivisions, and other investment securities classified as held to maturity held by WBKC and Wolverine Bank, as reflected in the latest
balance sheet in the WBKC Financial Statements, are carried in the aggregate at no more than cost adjusted for amortization of premiums and accretion of discounts. All United States Treasury securities, obligations of other United States Government
agencies and corporations, obligations of states of the United States and their political subdivisions, and other investment securities classified as available for sale held by WBKC and Wolverine Bank, as reflected in the latest balance
sheet in the WBKC Financial Statements, are carried in the aggregate at market value. Provisions for losses have been made on all such securities that have had a decline in value deemed other than temporary as defined in SEC Staff
Accounting Bulletin No. 59.
3.13
Indebtedness
. Except as set forth in
Section 3.13
of the WBKC Disclosure Schedule and except for customer deposits and ordinary trade payables and FHLB advances, neither WBKC nor any of its Subsidiaries has any indebtedness for borrowed money.
3.14
No Shareholder Rights Plan
. WBKC has no outstanding shareholder rights plan
or any other plan, program, or agreement involving, restricting, prohibiting, or discouraging a change in control or merger of WBKC or which reasonably could be considered an anti-takeover mechanism.
3.15
Employee Benefit Plans
(a)
.
(a) With respect to the employee benefit plans, as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended (
ERISA
), sponsored or otherwise maintained by any member of a controlled group of corporations under Code Section 414(b) of which WBKC is or was a member, and any trade or business
(whether or not incorporated) which is or was under common control with WBKC under Code Section 414(c), and all other entities which together with WBKC are or were prior to the date hereof treated as a single employer under Code
Section 414(m) or 414(o) (an
ERISA Affiliate
), whether written or oral, in which WBKC or any ERISA Affiliate participates as a participating employer, or to which WBKC or any ERISA Affiliate contributes, or any nonqualified
employee benefit plans or deferred compensation, bonus, stock, performance share, phantom stock, or incentive plans or arrangements, or other employee benefit or fringe benefit programs for the benefit of former or current employees or directors (or
their beneficiaries or dependents) of WBKC or any ERISA Affiliate, and including any such plans which have been terminated, merged into another plan, frozen, or discontinued since January 1, 2011 (individually, a
WBKC Plan
and collectively,
WBKC Plans
), WBKC represents and warrants, except as set forth in
Section 3.15(a)
of the WBKC Disclosure Schedule:
(i) All such WBKC Plans have, on a continuous basis since their adoption, been, in all
material respects, maintained in compliance with their respective terms and
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with the requirements prescribed by all applicable statutes, orders, and governmental rules or regulations, including without limitation, ERISA and the Department of Labor
(Department) Regulations promulgated thereunder and the Code and Treasury Regulations promulgated thereunder.
(ii) All WBKC Plans intended to constitute
tax-qualified
plans under Code Section 401(a) have complied in form since their adoption and have been timely amended to comply in all material respects with all applicable requirements of the Code and
the Treasury Regulations and each such Plan either (A) has received a determination letter from the Internal Revenue Service upon which WBKC may rely regarding such plans
tax-qualified
status under
the Code, or (B) is a
pre-approved
volume submitter or prototype plan that is the subject of an opinion letter issued by the Internal Revenue Service.
(iii) All WBKC Plans that provide for payments of nonqualified deferred
compensation (as defined in Code Section 409A(d)(1)) have, in all material respects, been (drafted and operated in good faith compliance with the applicable requirements of Code Section 409A and applicable guidance thereunder since
January 1, 2005. Neither WBKC nor any ERISA Affiliate has any obligation to gross up, indemnify, or otherwise reimburse any individual for any excise taxes, interest, or penalties incurred pursuant to Section 409A of the Code.
(iv) All WBKC Options were granted with a per share exercise price that was not less than
the fair market value of WBKC Common Stock on the date of such grant, as determined in accordance with the terms of the applicable WBKC Plan. All WBKC Options, and WBKC Restricted Stock Awards have been properly accounted for in
accordance with GAAP, and no change is expected in respect of any prior financial statements relating to expenses for stock-based compensation. There is no pending audit, investigation, or inquiry by any governmental agency or authority or by WBKC
(directly or indirectly) with respect to WBKCs stock option or restricted stock granting practices or other equity compensation practices.
(v)
Section 3.15(a)(iv)
of the WBKC Disclosure Schedule sets forth and describes the
holdings of all WBKC Plans (and related trusts) that hold any stock or other securities of WBKC and all WBKC Plans that allow for the granting of any awards over or with respect to any stock or other securities of WBKC.
(vi) Neither WBKC, an ERISA Affiliate nor to WBKCs knowledge, any other fiduciary, as
defined in ERISA Section 3(21)(A), of an WBKC Plan has engaged in any transaction that may subject WBKC, any ERISA Affiliate, or any WBKC Plan to a civil penalty imposed by ERISA Section 502 or any other provision of ERISA or excise taxes
under Code Section 4971, 4975, 4976, 4977, 4979, or 4980B.
(vii) All obligations
required to be performed by WBKC or any ERISA Affiliate under any provision of any WBKC Plan have been performed by it in all
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material respects, and WBKC has contributed and has paid all amounts accrued and premiums due with respect to the WBKC Plans, and neither WBKC nor any ERISA Affiliate is, in any material respect,
in default under or in violation of any provision of any WBKC Plan.
(viii) All
required reports and descriptions for the WBKC Plans have, in all material respects, been timely filed and distributed to participants and beneficiaries, and all notices required by ERISA or the Code with respect to all WBKC Plans have been proper
as to form and timely given.
(ix) No event has occurred which would reasonably
constitute grounds for an enforcement action by any party under Part 5 of Title I of ERISA with respect to any WBKC Plan.
(x) There are no examinations, audits, enforcement actions or proceedings, or any other
investigations, pending or threatened by any governmental agency involving any WBKC Plan.
(xi) There are no actions, suits, proceedings, or claims pending (other than routine claims
for benefits) or threatened against WBKC or any ERISA Affiliate in connection with any WBKC Plan or the assets of any WBKC Plan.
(xii) Except as provided in
Section 3.15(a)(xii)
of the WBKC Disclosure
Schedule, any WBKC Plan may be amended and terminated at any time without any material liability, and these rights have always been maintained by WBKC and its ERISA Affiliates.
(b) WBKC has provided or made available to Horizon true, accurate, and complete copies and, in the case of
any plan or program which has not been reduced to writing, a materially complete summary, of all of the following WBKC Plans, as applicable:
(i) All current pension, retirement, profit-sharing, savings, stock purchase, stock bonus,
stock ownership, stock option, restricted stock, restricted stock unit, phantom stock, performance share, and stock appreciation right plans, all amendments thereto, and, if required under the reporting and disclosure requirements of ERISA, all
current summary plan descriptions thereof (including any modifications thereto);
(ii) All current employment, deferred compensation (whether funded or unfunded), salary
continuation, change in control, consulting, bonus, severance, and collective bargaining agreements, arrangements, or understandings;
(iii) All current executive and other incentive compensation plans, programs, and
agreements;
(iv) All current group insurance, medical, and prescription drug
arrangements, policies, or plans;
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(v) All other current incentive, welfare, or
employee benefit plans, understandings, arrangements, or agreements maintained or sponsored, participated in, or contributed to by WBKC for its current or former directors, officers, or employees;
(vi) All reports filed with the Internal Revenue Service or the Department within the
preceding three (3) years by WBKC or any ERISA Affiliate with respect to any WBKC Plan;
(vii) All current participants in such plans and programs and all participants with benefit
entitlements under such plans and programs; and
(viii) Valuations or allocation
reports for any defined contribution plans as of the most recent allocation and valuation dates.
(c) Except as disclosed in
Section 3.15(c)
of the WBKC Disclosure Schedule, no current or
former director, officer, or employee of WBKC or any ERISA Affiliate (i) is entitled to or may become entitled to any benefit under any WBKC Plans that are welfare benefit plans (as defined in ERISA Section 3(1)) after termination of
employment with WBKC or any ERISA Affiliate, except to the extent such individuals may be entitled to continue their group health care coverage pursuant to Code Section 4980B, or (ii) is currently receiving, or entitled to commence
receiving, a disability benefit under a long-term or short-term disability plan that is a WBKC Plan maintained by WBKC or an ERISA Affiliate.
(d) With respect to all WBKC Plans that are group health plans as defined in ERISA Section 607(1),
sponsored or maintained by WBKC or any ERISA Affiliate, to WBKCs knowledge, no director, officer, employee, or agent of WBKC or any ERISA Affiliate has engaged in any action or failed to act in such a manner that, as a result of such action or
failure to act, would cause a tax to be imposed on WBKC or any ERISA Affiliate under Code Section 4980B(a), or would cause a penalty to be imposed under ERISA and the regulations promulgated thereunder. With respect to all such plans, all
applicable provisions of Code Section 4980B and ERISA Sections
601-606
have been complied with by WBKC or any ERISA Affiliate, and all other provisions of ERISA and the regulations promulgated thereunder
have been complied with in all material respects.
(e) Except as disclosed in
Section 3.15(e)
of the WBKC Disclosure Schedule, there are no collective bargaining, employment, management, consulting, deferred compensation, change in control, reimbursement, indemnity, retirement, early retirement, severance, or
similar plans or agreements, commitments, or understandings, or any employee benefit or retirement plan or agreement, binding upon WBKC or any ERISA Affiliate, and no such agreement, commitment, understanding, or plan is under discussion or
negotiation by management with any employee or group of employees, any member of management, or any other Person.
(f) No Voluntary Employees Beneficiary Association (
VEBA
), as defined in Code
Section 501(c)(9), is sponsored or maintained by WBKC or any ERISA Affiliate.
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(g) Except as contemplated in this Agreement or as disclosed
in
Section 3.15(g)
of the WBKC Disclosure Schedule, there are no benefits or liabilities under any employee benefit plan or program that will be accelerated or otherwise come due as a result of the transactions contemplated by the terms
of this Agreement.
(h) Except as disclosed in
Section 3.15(h)
of the WBKC Disclosure
Schedule, neither WBKC nor any of its ERISA Affiliates has ever sponsored, maintained, participated in, contributed to, or had any obligation with respect to any plan that is subject to Code Section 412 or Title IV of ERISA, that is or has been
subject to Sections 4063 or 4064 of ERISA or that is a multiple employer welfare arrangement, as defined in Section 3(40) of ERISA. Neither WBKC nor any of its ERISA Affiliates has ever participated in or had any obligation to
contribute to a multiemployer plan, as defined in Section 3(37) of ERISA.
(i) Except
as disclosed in
Section 3.15(i)
of the WBKC Disclosure Schedule, as a result, directly or indirectly, of the transactions contemplated by this Agreement (including without limitation any termination of employment relating thereto and
occurring prior to, at or following the Effective Time), WBKC, its ERISA Affiliates, and their respective successors will not be obligated to make a payment that would be characterized as an excess parachute payment to an individual who
is a disqualified individual, as such terms are defined in Code Section 280G.
(j) Except as contemplated by this Agreement, neither WBKC nor any ERISA Affiliate has made any promises or
commitments, whether legally binding or not, to create any new plan, agreement, or arrangement, or to modify or change in any material way WBKC Plans.
(k) With respect to the Wolverine Bank FSB Employee Stock Ownership Plan (the
Bank
ESOP
):
(i) The Wolverine Bank Compensation Committee (the ESOP
Committee) has the authority to take all actions and provide such direction as contemplated by this Agreement.
(ii) No event of default has occurred or presently exists under the ESOP Term Loan
Agreement dated January 19, 2011, by and between the Bank ESOP and WBKC (the ESOP Loan Agreement), the Term Note dated January 19, 2011 issued by the Bank ESOP (the Exempt Note), or the Pledge and Security Agreement
dated January 19, 2011, by and between the Bank ESOP and WBKC (the ESOP Pledge Agreement) (the ESOP Loan Agreement, Exempt Note, and ESOP Pledge Agreement referred to collectively as the ESOP Loan Documents).
(iii) The Bank ESOP has the right under the ESOP Loan Agreement to prepay at any time the
principal amount of the Exempt Note without penalty and subject only to payment of accrued interest through the date of prepayment, as contemplated by
Section 5.16(c)
.
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(iv) The Bank ESOP is now and has been at all
times since its inception a qualified employee stock ownership plan within the meaning of Code Section 4975(e)(7).
(v) All shares of WBKC Common Stock owned by the Bank ESOP are and have at all times
constituted employer securities as that term is defined in Section 409(l) of the Code and qualifying employer securities as defined in Section 407(d)(5) of ERISA.
(vi) Except for the Indebtedness under the ESOP Loan Documents, there is no existing
Indebtedness of the Bank ESOP, WBKC, or Wolverine Bank relating to the ESOP.
(vii) The
ESOP Trustee has been duly and properly appointed and granted full authority to act as trustee of the Bank ESOP and exercise trust powers thereunder.
(l) With respect to the Wolverine Bank 401(k) Plan (the
Bank 401(k) Plan
), the Wolverine
Bank Compensation Committee has been duly appointed as the representative of the plan administrator (the
401(k) Trustee
) and has the authority to take all actions and provide such direction as contemplated by this Agreement.
(m) Wolverine Banks participation in the Pentegra Defined Benefit Plan for Financial Institutions
(the
Terminated Defined Benefit Plan
) terminated in 2010. Benefits under the Terminated Defined Benefit Plan are fully funded through the group annuity contract with Principal Life Insurance Company, effective December 1,
2010, and neither WBKC nor Wolverine Bank has any further financial obligation with respect to the Terminated Defined Benefit Plan.
3.16
Labor and Employment Matters
. WBKC is and has been in material compliance with all applicable Laws relating to labor and employment, including those relating to wages, hours, collective bargaining,
unemployment compensation, workers compensation, equal employment opportunity, age and disability discrimination, immigration control, employee classification, information privacy and security, payment, and withholding of taxes. To the
knowledge of WBKC, no employee with annual compensation of $75,000 or more plans to terminate his or her employment with WBKC or any Subsidiary. Within the past three (3) years, there has not been, and as of the date of this Agreement there is
not pending or, to the knowledge of WBKC, threatened, any labor dispute, work stoppage, labor strike, or lockout against WBKC. No employee of WBKC or any of its Subsidiaries is covered by an effective or pending collective bargaining agreement or
similar labor agreement. To WBKCs knowledge, there has not been any activity on behalf of any labor organization or employee group to organize any such employees. Except as set forth on
Section 3.16
of the WBKC Disclosure Schedule,
no employee or independent contractor of WBKC or any of its Subsidiaries is a party to any employment agreement, confidentiality, non
-
disclosure, or proprietary information agreement,
non-compete
agreement,
non-solicitation
agreement, or any similar agreement
with WBKC or any of its Subsidiaries (the
Employee Agreements
),
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and neither WBKC, any Subsidiary, or any employee or independent contractor is in violation of any such Employee Agreements. WBKC is in material compliance with all notice and other requirements
under the Worker Adjustment and Retraining Notification Act of 1988, and any other similar applicable foreign, state, or local laws relating to facility closings and layoffs.
3.17
Obligations to Employees
. All material obligations and
liabilities of and all payments by WBKC or any ERISA Affiliate and all WBKC Plans, whether arising by operation of law, by contract, or by past custom, for payments to trusts or other funds, to any government agency or authority or to any present or
former director, officer, employee, or agent (or his or her heirs, legatees, or legal representatives) have been and are being paid to the extent required by applicable law or by the plan, trust, contract, or past custom or practice, and adequate
actuarial accruals and reserves for such payments have been and are being made by WBKC or an ERISA Affiliate in accordance with GAAP and applicable law applied on a consistent basis and sound actuarial methods with respect to the following:
(a) withholding taxes or unemployment compensation; (b) WBKC Plans; (c) employment, salary continuation, change in control, consulting, retirement, early retirement, severance, or reimbursement; and (d) collective bargaining
plans and agreements. All accruals and reserves referred to in this
Section 3.17
are correctly and accurately reflected and accounted for in the WBKC Financial Statements and the books, statements, and records of WBKC.
3.18
Taxes, Returns and Reports
. Each of WBKC and its Subsidiaries
has, since January 1, 2010, (a) duly and timely filed or extended (before its due date) all material federal, state, local, and foreign tax returns of every type and kind required to be filed, and each such return is true, accurate, and
complete in all material respects; (b) paid or otherwise adequately reserved in accordance with GAAP for all taxes, assessments, and other governmental charges due or claimed to be due upon it or any of its income, properties, or assets, unless
being contested in good faith; and (c) not requested an extension of time for any such payments (which extension is still in force), other than as permitted under (a), above. WBKC has established, and shall establish in the Subsequent WBKC
Financial Statements (as defined in
Section 5.11
), in accordance with GAAP, a reserve for taxes in the WBKC Financial Statements adequate to cover all of WBKCs and its Subsidiaries tax liabilities (including, without
limitation, income taxes, payroll taxes and withholding, and franchise fees) for the periods then ending. Neither WBKC nor any of its Subsidiaries has, nor will any of them have, any liability for material taxes of any nature for or with respect to
the operation of its business, from the date hereof up to and including the Effective Time, except to the extent set forth in the Subsequent WBKC Financial Statements (as defined in
Section 5.11
) or as accrued or reserved for on the
books and records of WBKC or its Subsidiaries. Except as set forth in
Section 3.18
of the WBKC Disclosure Schedule, neither WBKC nor any of its Subsidiaries is currently under audit by any state or federal taxing authority. Except as set
forth in
Section 3.18
of the WBKC Disclosure Schedule, no federal, state, or local tax returns of WBKC or any of its Subsidiaries have been audited by any taxing authority during the past five (5) years.
3.19
Deposit Insurance
. The deposits of Wolverine Bank are insured by
the Federal Deposit Insurance Corporation in accordance with the Federal Deposit Insurance Act,
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as amended, to the fullest extent provided by applicable law, and WBKC or Wolverine Bank has paid, prepaid, or properly reserved or accrued for all current premiums and assessments with respect
to such deposit insurance.
3.20
Insurance
.
Section 3.20
of the WBKC Disclosure Schedule contains a true, accurate, and complete list of all policies of insurance, self-insured arrangements, and pooled or shared risk arrangements (including, without limitation, bankers
blanket bond, directors and officers liability insurance, bankers blanket bond for third-party mortgage brokers, property and casualty insurance, group health or hospitalization insurance, and insurance providing benefits for
employees) owned, held, or participated in by WBKC or any of its Subsidiaries on the date hereof or with respect to which WBKC or any of its Subsidiaries pays any premiums. Except as set forth in
Section 3.20
of the WBKC Disclosure
Schedule,
each bankers bond for third-party brokers satisfies the applicable requirements of
Section 5.04(b)
of this Agreement. All of the aforementioned policies and arrangements are in full force and effect and all
premiums due thereon have been paid when due.
3.21
Books and
Records
. The books of account, minute books, stock record books, and other records of WBKC and its Subsidiaries are complete and correct in all material respects and have been maintained in accordance with the WBKCs business practices and
all applicable Laws, including the maintenance of an adequate system of internal controls required by such Laws. The minute books of WBKC and each of its Subsidiaries contain accurate and complete records in all material respects of all meetings
held, and corporate action taken by, its respective shareholders, boards of directors, and committees of the boards of directors. At the Closing, all of those books and records will be in the possession of WBKC and its Subsidiaries.
3.22
Broker
s, Finder
s, or Other
Fees
. Except for reasonable fees and expenses of WBKCs attorneys, accountants and other advisors and the contractually-agreed fees and expenses of Keefe, Bruyette & Woods, Inc. (
KBW
) and WBKCs other
financial advisor with respect to this Agreement, which financial advisory fees are identified on
Section 3.22
of the WBKC Disclosure Schedule, and all of which fees and expenses shall be paid or accrued by WBKC at or prior to the
Effective Time, no agent, broker, or other Person acting on behalf of WBKC or any of its Subsidiaries or under any authority of WBKC or any of its Subsidiaries is or shall be entitled to any commission, brokers or finders fee, or any
other similar form of compensation or payment from any of the parties hereto relating to this Agreement or the Merger or other transactions contemplated hereby.
3.23
Interim Events
. Except as otherwise permitted hereunder or
disclosed on
Section 3.23
of the WBKC Disclosure Schedule, since March 31, 2017, neither WBKC nor any of its Subsidiaries has:
(a) Experienced any events, changes, developments, or occurrences which have had, or are reasonably likely
to have, a Material Adverse Effect on WBKC;
(b) Suffered any damage, destruction, or loss to any of
its properties, not fully paid by insurance proceeds, in excess of $100,000 individually or $250,000 in the aggregate;
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(c) Declared, distributed, or paid any dividend or other
distribution to its shareholders, except for payment of dividends as permitted by
Section 5.03(b)(ii)
hereof;
(d) Repurchased, redeemed, or otherwise acquired shares of its common stock (other than the withholding of
shares to satisfy tax obligations in connection with the vesting of WBKC Restricted Stock or the exercise of WBKC Options), issued any shares of its common stock or stock appreciation rights, or sold or agreed to issue or sell any shares of its
common stock (excluding the exercise of any stock options), including the issuance of stock options, or any right to purchase or acquire any such stock or any security convertible into such stock, or taken any action to reclassify, recapitalize, or
split its stock;
(e) Granted or agreed to grant any increase in benefits payable or to become payable
under any pension, retirement, profit sharing, change in control, health, bonus, insurance, or other welfare benefit plan or agreement to employees, officers, or directors of WBKC or a Subsidiary, except in the ordinary course of business;
(f) Increased the salary of (or granted any bonus to) any director, officer, or employee, except for normal
increases (and bonuses) in the ordinary course of business and in accordance with past practices, or entered into any employment contract, indemnity agreement, or understanding with any officer or employee or installed or amended any existing
employee welfare, pension, retirement, change in control, stock option, stock appreciation, stock dividend, profit sharing, or other similar plan or arrangement;
(g) Leased, sold, or otherwise disposed of any of its assets except in the ordinary course of business or
leased, purchased, or otherwise acquired from third parties any assets except in the ordinary course of business;
(h) Except for the Merger and other transactions contemplated by this Agreement, merged, consolidated, or
sold shares of its (or any of its Subsidiaries) common stock, agreed to merge or consolidate WBKC or any of its Subsidiaries with or into any third party, agreed to sell any shares of its (or any of its Subsidiaries) common stock, or
acquired or agreed to acquire any stock, equity interest, assets, or business of any third party;
(i) Incurred, assumed, or guaranteed any material obligation or liability (fixed or contingent) other than
obligations and liabilities incurred in the ordinary course of business;
(j) Mortgaged, pledged, or
subjected to a lien, security interest, option, or other encumbrance any of its assets except for tax and other liens which arise by operation of law and with respect to which payment is not past due and except for pledges or liens:
(i) required to be granted in connection with acceptance by Wolverine Bank of government deposits; or (ii) granted in connection with repurchase or reverse repurchase agreements;
(k) Canceled, released, or compromised any material loan, debt, obligation, claim, or receivable other than
in the ordinary course of business;
(l) Except for this Agreement, entered into any transaction,
contract, or commitment other than in the ordinary course of business;
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(m) Agreed to enter into any transaction for the borrowing or
loaning of monies, other than in the ordinary course of its lending business;
(n) Amended their
articles of incorporation, charter, or bylaws (or other similar governance documents) or adopted any resolutions by their board of directors or shareholders with respect to the same; or
(o) Conducted its business in any manner other than substantially as it was being conducted prior to
March 31, 2017.
3.24
Insider Transactions
. Except as set
forth in
Section 3.24
of the WBKC Disclosure Schedule, during the preceding five (5) years, no executive officer or director of WBKC or any of its Subsidiaries or member of the immediate family or related
interests (as such terms are defined in Regulation O) of any such executive officer or director has currently, or has had during such time period, any direct or indirect interest in any property, assets, business, or right which is owned,
leased, held, or used by WBKC or any Subsidiary or in any liability, obligation, or indebtedness of WBKC or any Subsidiary, except for deposits of Wolverine Bank, securities issued by WBKC, and interests in compensatory arrangements.
3.25
Indemnification Agreements
.
(a) Except as set forth in
Section 3.25(a)
of the WBKC Disclosure Schedule, neither WBKC nor
any of its Subsidiaries is a party to any indemnification, indemnity or reimbursement agreement, contract, commitment, or understanding to indemnify any present or former director, officer, employee, shareholder, or agent against liability or hold
the same harmless from liability other than as expressly provided in the Articles of Incorporation or Bylaws of WBKC or the charter documents of a Subsidiary.
(b) During the preceding five (5) years, no claims have been made against or filed with WBKC or any of
its Subsidiaries, nor have any claims been threatened against WBKC or a Subsidiary, for indemnification against liability or for reimbursement of any costs or expenses incurred in connection with any legal or regulatory proceeding by any present or
former director, officer, shareholder, employee, or agent of WBKC or any of its Subsidiaries.
3.26
Shareholder Approval
. The affirmative vote of the holders of a
majority of the shares of WBKC Common Stock (which are issued and outstanding on the record date relating to the meeting of shareholders contemplated by
Section 5.01
of this Agreement) and entitled to vote on this Agreement and the
Merger is required for shareholder approval of this Agreement and the Merger.
3.27
Intellectual Property
.
(a) WBKC and its Subsidiaries own, or are licensed or otherwise possess sufficient legally enforceable
rights to use, all material Intellectual Property (as defined in
Section 3.27(g)
) that is used by WBKC or its Subsidiaries in their respective businesses as currently conducted. Neither WBKC nor any of its Subsidiaries has
(i) licensed any
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Intellectual Property owned by it or its Subsidiaries to any third party, or (ii) entered into any exclusive agreements relating to Intellectual Property owned by it.
(b) WBKC and its Subsidiaries have not, to the knowledge of WBKC, infringed or otherwise violated any
material Intellectual Property rights of any third party during the preceding five (5) years. There is no claim asserted or threatened against WBKC and/or its Subsidiaries or any indemnitee thereof concerning the ownership, validity,
registerability, enforceability, infringement, use, or licensed right to use any Intellectual Property.
(c) During the preceding five (5) years, to the knowledge of WBKC, no third party has infringed,
misappropriated, or otherwise violated WBKC or its Subsidiaries Intellectual Property rights. There are no claims asserted or threatened by WBKC or its Subsidiaries, nor has WBKC or its Subsidiaries decided to assert or threaten a claim, that
(i) a third party infringed or otherwise violated any of their Intellectual Property rights; or (ii) a third partys owned or claimed Intellectual Property interferes with, infringes, dilutes, or otherwise harms any of their
Intellectual Property rights.
(d) To the extent WBKC has designated any of its information, materials,
or processes a trade secret, WBKC and its Subsidiaries have taken commercially reasonable measures to protect the confidentiality of all trade secrets that are owned, used, or held by them.
(e) None of the Software (as defined in subsection
(g)
below): (i) contains any bug, defect, or
error that materially and adversely affects the use, functionality, or performance of such Software or any system containing or used in conjunction with such Software (collectively,
Defective Code
) that has not been patched and
fixed by the Software provider and installed and applied by WBKC and its Subsidiaries, or (ii) fails to comply with any applicable warranty or other contractual commitment relating to the use, functionality, or performance of such Software or
system or, in the case of (i) and (ii), would not have a Material Adverse Effect on WBKC.
(f) No
Software contains any back door, drop dead device, time bomb, Trojan Horse, virus, worm, spyware, or adware (as such terms are commonly understood in the
software industry) or any other code designed or intended to have, or capable of performing or facilitating, any of the following functions: (i) disrupting, disabling, harming, or otherwise impeding, in any manner, the operation of, or
providing unauthorized access to, a computer system or network or other device on which such code is stored or installed, or (ii) compromising the privacy or data security of any user or damaging or destroying any data file without the
users consent (collectively,
Malicious Code
), which in the case of (i) and (ii), has not been patched or fixed by the Software provider and installed and applied by WBKC and its Subsidiaries or would not have a Material
Adverse Effect on WBKC.
(g) For purposes of this Agreement,
Intellectual Property
shall mean all patents, trademarks, trade names, service marks, domain names, social media handles and related
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accounts, database rights, copyrights and any applications therefor, mask works, technology,
know-how,
trade secrets, ideas, algorithms, processes,
computer software programs or applications (in both source code and object code form) (collectively,
Software
), and tangible or intangible proprietary information or material and all other intellectual property or proprietary
rights of any kind, whether or not registered.
3.28
Information
Security
. The computers, Software, computer programs, in source code and object code forms, servers, workstations, routers, hubs, switches, circuits, networks, data communications lines, repair and refurbishment equipment, and all other
information technology equipment owned, used, or held for use by WBKC or Wolverine Bank (collectively,
WBKC IT Assets
) (i) operate and perform, in all material respects, in accordance with their documentation and functional
specifications and otherwise as required for the conduct of WBKCs and Wolverine Banks businesses and have not materially malfunctioned or failed within the past three (3) years; and (ii) do not contain any Defective Code,
Malicious Code, or open source code, other than any such Defective Code, Malicious Code, or open source code which does not or could not have a Material Adverse Effect on WBKC. WBKC and Wolverine Bank take reasonable actions, consistent with current
banking industry standards, to protect the confidentiality, integrity, and security of the WBKC IT Assets (and all third party and customer information and transactions stored or contained therein or transmitted thereby) against any unauthorized
use, access, interruption, modification, or corruption, including, but not limited to, (A) the use of robust encryption technology, and (B) the implementation of a comprehensive security plan which (x) promptly identify any and all
internal and external risks to the security of WBKCs and/or Wolverine Banks confidential information or that of third parties or customers, and (y) implements, monitors, and improves adequate and effective safeguards to control
those risks. WBKC and its Subsidiaries have devised and maintain a system of internal controls sufficient, in the reasonable opinion of management of WBKC and Wolverine Bank, to maintain its Information System, as defined in the Committee of
Sponsoring Organizations of the Treadway Commission (
COSO
) in Internal Control Integrated Framework (
2013 Framework
), to meet the standards for Information Systems under the COSO 2013 Framework and have
achieved a baseline maturity level in all domains according to the Federal Financial Institutions Examination Council (
FFIEC
) Cybersecurity Assessment Tool. WBKC has implemented reasonable data backup, data storage,
system redundancy, and disaster avoidance and recovery procedures, as well as a reasonable business continuity plan, in each case consistent with banking industry practices. No claims are pending or threatened in writing against WBKC or Wolverine
Bank alleging a violation of any Persons privacy rights or rights regarding the protection of personally identifiable information or other
non-public
information, other than violations that, individually
or in the aggregate, would not have a Material Adverse Effect on WBKC.
3.29
Community Reinvestment Act
. Wolverine Bank received a rating of
satisfactory or better in its most recent examination or interim review with respect to the Community Reinvestment Act.
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3.30
Bank Secrecy and
Anti-Money Laundering Compliance
. During the last three (3) years, neither WBKC nor any of its Subsidiaries has received any notice or communication from any regulatory authority alleging violation of, or noncompliance with, any legal
requirement concerning bank secrecy or anti-money laundering, including the Currency and Foreign Transactions Reporting Act, the Money Laundering Control Act of 1986,
Annunzio-Wylie
Anti-Money Laundering Act,
the Money Laundering Suppression Act of 1994, and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (also known as the USA PATRIOT Act) (each such legal requirement and the
rules promulgated thereunder, a
BSA/AML Law
). WBKC and its Subsidiaries have not been cited, fined, or otherwise notified of any failure by it to comply with a BSA/AML Law which has not been cured. To the knowledge of WBKC and its
Subsidiaries, there are no facts or circumstances that could form the basis for assertion of any proceeding against WBKC or its Subsidiaries under any BSA/AML Law that, if determined adversely to WBKC or its Subsidiaries, would reasonably be likely,
either individually or in the aggregate, to have a Material Adverse Effect on WBKC.
3.31
Agreements with Regulatory Agencies
. Except as set forth in
Section 3.31
of the WBKC Disclosure Schedule, neither WBKC nor any of its Subsidiaries is subject to any
cease-and-desist,
consent order or other order, or
enforcement action issued by, or is a party to any written agreement, consent agreement, or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or has been
ordered to pay any civil money penalty by, or has been, during the preceding five (5) years, a recipient of any supervisory letter from, or, during the preceding five (5) years, has adopted any policies, procedures, or board resolutions at
the request or suggestion of any regulatory agency or other governmental entity that currently restricts (or restricted), in any material respect, the conduct of its business or that in any material manner relates to its capital adequacy, its
ability to pay dividends, its credit or risk management policies, its management, or its business, other than those of general application that apply to similarly situated bank holding companies or their subsidiaries (a
WBKC Regulatory
Agreement
), nor has WBKC or any of its Subsidiaries been advised, during the preceding five (5) years, by any regulatory agency or other governmental entity that it is considering issuing, initiating, ordering, or requesting any such
WBKC Regulatory Agreement. There are no refunds or restitutions required to be paid or corrective actions (including items designated as matters requiring attention) required to be taken as a result of any criticism of any regulatory
agency or body cited in any examination report of WBKC or any of its Subsidiaries as a result of an examination by any regulatory agency or body, or set forth in any accountants or auditors report to WBKC or any of its Subsidiaries.
3.32
Approval Delays
. To WBKCs knowledge, as of the date
hereof, there is no reason why the granting of any of the Regulatory Approvals (as defined in
Section 7.01(e)
) would be denied or unduly delayed.
3.33
Internal Controls
. WBKC and its Subsidiaries have devised and
maintain a system of internal accounting controls sufficient to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external
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purposes in accordance with GAAP. During the preceding three (3) years, (i) through the date hereof, neither WBKC nor any of its Subsidiaries has received or otherwise had or obtained
knowledge of any material complaint, allegation, assertion, or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies, or methods of WBKC or any of its Subsidiaries or their respective internal
accounting controls, including any material complaint, allegation, assertion, or claim that WBKC or any of its Subsidiaries has engaged in questionable accounting or auditing practices, and (ii) no attorney representing WBKC or any of its
Subsidiaries, whether or not employed by WBKC or any of its Subsidiaries, has reported evidence of a violation of securities laws, breach of fiduciary duty, or similar violation by WBKC or any of its officers, directors, employees, or agents to the
Board of Directors of WBKC or any committee thereof or to any director or officer of WBKC.
3.34
Fiduciary Accounts
. WBKC and each of its Subsidiaries has
properly administered all accounts for which it acts as a fiduciary, including, without limitation, accounts for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator, or investment advisor, in accordance
with the terms of the governing documents and applicable laws and regulations. Neither WBKC nor any of its Subsidiaries, nor any of their respective directors, officers, or employees, has committed any breach of trust with respect to any fiduciary
account, and the records for each such fiduciary account are true and correct and accurately reflect the assets of such fiduciary account.
3.35
Fairness Opinion
. The board of directors of WBKC has received an
opinion of KBW (which, if initially rendered verbally, has been or will be confirmed by a written opinion, dated the same date) to the effect that, as of the date of such opinion, and based upon and subject to the factors, assumptions and
qualifications contained therein, the Merger Consideration to be received by the common stockholders of WBKC in the Merger is fair to such common stockholders, from a financial point of view. Such opinion has not been amended or rescinded as of the
date of this Agreement..
3.36
WBKC Securities and Exchange
Commission Filings
. For the past five (5) years, WBKC has filed all material reports and other filings with the Securities and Exchange Commission (the
SEC
) required to be filed by it (
WBKC SEC
Reports
). All such WBKC SEC Reports were true, accurate, and complete in all material respects as of the dates of the WBKC SEC Reports, and no such filings contained any untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements, at the time and in the light of the circumstances under which they were made, not false or misleading. As of the date of this Agreement, there are no outstanding or unresolved comments in any comment
letters received by WBKC, and to the knowledge of WBKC, none of the WBKC SEC Reports is the subject of any ongoing review by the SEC.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF HORIZON
On or prior to the date hereof, Horizon has delivered to WBKC a schedule (the
Horizon Disclosure Schedule
) setting forth,
among other things, items the disclosure of
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which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more representations or warranties contained
in this
Article IV
or to one or more of its covenants contained in
Article V
or
Article VI
. However, for purposes of the Horizon Disclosure Schedule, any item disclosed on any schedule therein is deemed to be
fully disclosed with respect to other sections of this Agreement under which such item may be relevant, but only to the extent that it is reasonably clear on the face of such schedule that such item applies to such other section of this Agreement,
and such item is described in sufficient detail to enable WBKC to identify the items to which it applies.
For the purpose of this
Agreement, and in relation to Horizon and its Subsidiaries (as defined in this introduction to
Article IV
), a
Material Adverse Effect on Horizon
means any effect that (i) is material and adverse to the results of
operations, properties, assets, liabilities, conditions (financial or otherwise), value, or business of Horizon and its Subsidiaries on a consolidated basis, or (ii) would materially impair the ability of Horizon or any of its Subsidiaries to
perform its obligations under this Agreement or any related agreement or otherwise materially threaten or materially impede the consummation of the Merger and the other transactions contemplated by this Agreement;
provided
,
however
,
that Material Adverse Effect on Horizon shall not be deemed to include the impact of (a) changes in banking and similar laws of general applicability to banks, savings associations, or their holding companies or interpretations thereof by
courts or governmental authorities, (b) changes in GAAP or regulatory accounting requirements applicable to banks, savings associations, or their holding companies generally, (c) effects of any action or omission taken with the prior
written consent of WBKC or at the direction of WBKC, (d) the announcement of this Agreement and the transactions contemplated hereby, and the effect of compliance with this Agreement, on the business, financial condition, or results of
operations of Horizon and its Subsidiaries, (e) the expenses incurred by Horizon or Horizon Bank in negotiating, documenting, effecting, and consummating the transactions contemplated by this Agreement, (f) any changes in general economic
or capital market conditions affecting banks, savings associations, and their holding companies generally, including, without limitation, changes in interest rates, and (g) changes in national or international political or social conditions,
including the engagement by the United States in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon or within the United States, or any of its
territories, possessions or diplomatic or consular offices, or upon any military installation, equipment, or personnel of the United States, unless it uniquely affects Horizon or any of its Subsidiaries, taken as a whole.
For the purpose of this Agreement, and in relation to Horizon and its Subsidiaries,
knowledge
means those facts that are
actually known by the officers of Horizon who are listed on
Section 4.0
of the Horizon Disclosure Schedule. Additionally, for the purpose of this Agreement, and in relation to Horizon, its
Subsidiaries
shall mean any
entity which is required to be consolidated with Horizon for financial reporting purposes pursuant to GAAP.
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Accordingly, Horizon represents and warrants to WBKC as follows, except as set forth in the
Horizon Disclosure Schedule:
4.01
Organization and Authority
.
(a) Horizon is a corporation duly organized and validly existing under the laws of the State of Indiana and
is a registered bank holding company under the BHC Act. Horizon has full power and authority (corporate and otherwise) to own and lease its properties as presently owned and leased and to conduct its business in the manner and by the means utilized
as of the date hereof.
(b) Horizon Bank is currently a national bank chartered and existing under the
laws of the United States but is expected to be an Indiana state-chartered bank as of the Effective Time. Horizon Bank has full power and authority (corporate and otherwise) to own and lease its properties as presently owned and leased and to
conduct its business in the manner and by the means utilized as of the date hereof.
(c) Each of
Horizons Subsidiaries other than Horizon Bank is duly organized and validly existing under the laws of its jurisdiction of organization, and has full power and authority (corporate and otherwise) to own and lease its properties as presently
owned and leased and to conduct its business in the manner and by the means utilized as of the date hereof.
(d) The Articles of Incorporation and Bylaws of Horizon and Horizon Bank, representing true, accurate, and
complete copies of such corporate documents in effect as of the date of this Agreement, have been previously delivered to WBKC.
4.02
Authorization
.
(a) Horizon has the requisite corporate power
and authority to enter into this Agreement and to perform its obligations hereunder, subject to the fulfillment of the conditions precedent set forth in
Sections 7.01(d)
,
(e)
, and
(f)
hereof. This Agreement and its
execution and delivery by Horizon have been duly authorized and approved by the Board of Directors of Horizon and, assuming the accuracy of the representation contained in
Section 3.02(a)
, constitutes a valid and binding obligation of
Horizon, subject to the terms and conditions hereof, and is enforceable in accordance with its terms, except to the extent limited by general principles of equity and public policy and by bankruptcy, insolvency, fraudulent transfer, reorganization,
liquidation, moratorium, readjustment of debt, or other laws of general application relating to or affecting the enforcement of creditors rights.
(b) Subject to the fulfillment of the conditions precedent set forth in
Sections 7.02(e)
and
(f)
, neither the execution of this Agreement nor consummation of the Merger contemplated hereby: (i) conflicts with or violates the Articles of Incorporation or Bylaws of Horizon or the charter documents of any of Horizons
Subsidiaries; (ii) conflicts with or violates any local, state, federal, or foreign law, statute, ordinance, rule, or regulation (provided that the approvals of or filings with applicable government regulatory agencies or
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authorities required for consummation of the Merger are obtained) or any court or administrative judgment, order, injunction, writ, or decree; (iii) conflicts with, results in a breach of,
or constitutes a default under, or requires any notice or consent under, any note, bond, indenture, mortgage, deed of trust, license, lease, contract, agreement, arrangement, commitment, or other instrument to which Horizon or any of its
Subsidiaries is a party or by which Horizon or any of its Subsidiaries is subject or bound; (iv) results in the creation of or gives any Person the right to create any lien, charge, claim, encumbrance, or security interest, or results in the
creation of any other rights or claims of any other party (other than WBKC) or any other adverse interest, upon any right, property, or asset of Horizon or any of its Subsidiaries; or (v) terminates or gives any Person the right to terminate,
accelerate, amend, modify, or refuse to perform under any note, bond, indenture, mortgage, agreement, contract, lease, license, arrangement, deed of trust, commitment, or other instrument to which Horizon or any of its Subsidiaries is bound or with
respect to which Horizon or any of its Subsidiaries is to perform any duties or obligations or receive any rights or benefits, except for such conflicts, breaches, defaults, notices, consent, liens, charges, claims, encumbrances, security interests,
adverse interests, terminations, accelerations, amendments, modifications or refusals to perform under (iii), (iv) or (v) of this
Section 4.02(b)
that, either individually or in the aggregate, will not have a Material Adverse Effect
on Horizon.
(c) Other than in connection or in compliance with the provisions of the applicable
federal and state banking, securities, antitrust, and corporation statutes, all as amended, and the rules and regulations promulgated thereunder, no notice to, filing with, exemption by, or consent, authorization, or approval of any
governmental agency or body is necessary for consummation of the Merger by Horizon.
4.03
Capitalization
.
(a) As of the date of this Agreement, the authorized capital stock of Horizon consists of (i) 66,000,000
shares of Horizon common stock, 22,195,715 shares of which are issued and outstanding (and which includes shares of restricted stock), (ii) 1,000,000 shares of preferred stock, none of which are issued and outstanding, and (iii) options to
purchase 363,538 shares of Horizon common stock. Such issued and outstanding shares have been duly and validly authorized by all necessary corporate action of Horizon, are validly issued, fully paid, and nonassessable, and have not been issued in
violation of any preemptive rights. Each share of Horizon common stock is entitled to one vote per share.
(b) All of the issued and outstanding shares of capital stock or other equity ownership interests of each
Subsidiary of Horizon are owned by Horizon, directly or indirectly, free and clear of all liens, pledges, charges, claims, encumbrances, restrictions, security interests, options, and preemptive rights and of all other rights or claims of any other
Person with respect thereto.
4.04
Compliance with Law
.
(a) None of Horizon or any of its Subsidiaries is currently in violation of, and during the preceding five
(5) years, none has been in violation of any Law, except where such
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violation would not have a Material Adverse Effect on Horizon. Horizon and its Subsidiaries possess and hold all licenses, franchises, permits, certificates, and other authorizations necessary
for the continued conduct of their business without interference or interruption, except where the failure to possess and hold the same would not have a Material Adverse Effect on Horizon.
(b) Horizon is not subject to any understandings or commitments with, and there are no orders or directives
of, any government regulatory agencies or authorities with respect to the financial condition, results of operations, business, assets, or capital of Horizon or its Subsidiaries. There are no refunds or restitutions required to be paid as a result
of any criticism of any regulatory agency or body cited in any examination report of Horizon or any of its Subsidiaries as a result of an examination by any regulatory agency or body, or set forth in any accountants or auditors report to
Horizon or any of its Subsidiaries.
(c) Since the enactment of the Sarbanes-Oxley Act, Horizon, to its
knowledge, has been and is in compliance in all material respects with the applicable provisions of the Sarbanes-Oxley Act.
(d) All of the existing offices and branches of Horizon Bank have been legally authorized and established
in accordance with all applicable federal, state, and local laws, statutes, regulations, rules, ordinances, orders, restrictions, and requirements, except such as would not have a Material Adverse Effect on Horizon.
4.05
Absence of Undisclosed Liabilities
. Except (i) as provided in the
Horizon financial statements included in its SEC Reports (as defined in
Section 4.15
), (ii) for unfunded loan commitments and obligations on letters of credit to customers of Horizons Subsidiaries made in the ordinary course of
business, (iii) for trade payables incurred in the ordinary course of business, (iv) for the transactions contemplated by this Agreement, and (v) any other transactions which would not result in a material liability or have a material
impact on Horizon; none of Horizon or any of its Subsidiaries has any obligation, agreement, contract, commitment, liability, lease, or license made outside of the ordinary course of business nor, to Horizons knowledge, does there exist any
circumstances resulting from transactions effected or events occurring on or prior to the date of this Agreement or from any action omitted to be taken during such period which could reasonably be expected to result in any such material obligation,
agreement, contract, commitment, liability, lease, or license. None of Horizon or any of its Subsidiaries is delinquent in the payment of any material amount due pursuant to any trade payable, and each has properly accrued for such payables in
accordance with GAAP, except where the failure to so accrue would not constitute a Material Adverse Effect on Horizon.
4.06
Accuracy of Information Provided to WBKC
. Horizon agrees that the information concerning Horizon or any of its Subsidiaries that is provided or to be provided by Horizon to WBKC for inclusion or that is
included in the Registration Statement or Proxy Statement (each as defined in
Section 6.02
) and any other documents to be filed with any regulatory authority or governmental entity in connection with the Merger and the other
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transactions contemplated by this Agreement will: (a) at the respective times such documents are filed and, in the case of the Registration Statement, when it becomes effective and, with
respect to the Proxy Statement, when mailed, not be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were
made, not misleading; or (b) in the case of the Proxy Statement or any amendment thereof or supplement thereto, at the time of the WBKC Shareholders Meeting, not be false or misleading with respect to any material fact, or omit to state
any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for the meeting in connection with which the Proxy Statement shall be mailed. Notwithstanding the foregoing, Horizon
shall have no responsibility for the truth or accuracy of any information with respect to WBKC or any of its Subsidiaries or any of their affiliates contained in the Registration Statement or the Proxy Statement or in any document submitted to, or
other communication with, any regulatory agency or governmental entity.
4.07
Financial Statements and Reports
.
(a) The following financial statements and reports of Horizon and its Subsidiaries, including the notes
thereto (collectively, the
Horizon Financial Statements
)
are publicly available:
(i) consolidated balance sheets and the related consolidated statements of income,
consolidated statements of cash flows, and consolidated statements of changes in shareholders equity of Horizon as of and for the fiscal years ended December 31, 2014, 2015, and 2016;
(ii) Unaudited interim consolidated financial statements for the three months ended
March 31, 2017; and
(iii) Call Reports for Horizon Bank as of the close of
business on December 31, 2014, 2015, and 2016 and for the three months ended March 31, 2017.
(b) The Horizon Financial Statements described in clauses (i) and (ii) above present fairly, in all
material respects, the consolidated financial position of Horizon as of and at the dates shown and the consolidated results of operations for the periods covered thereby and are complete, correct, represent bona fide transactions, and have been
prepared from the books and records of Horizon and its Subsidiaries. The Horizon Financial Statements described in clause (i) above are audited financial statements and have been prepared in conformance with GAAP, except as may otherwise be
indicated in any accountants notes or reports with respect to such financial statements.
(c) Since March 31, 2017, on a consolidated basis, Horizon and its Subsidiaries have not incurred any
material liability other than in the ordinary course of business consistent with past practice.
4.08
Adequacy of Reserves
. The reserves, the allowance for loan and lease losses,
and the carrying value for real estate owned which are shown on the Horizon Financial
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Statements are, in the judgment of management of Horizon, adequate, in all material respects, under the requirements of GAAP to provide for possible losses on items for which reserves were made,
on loans and leases outstanding and real estate owned as of the respective dates.
4.09
Litigation and Pending Proceedings
.
(a) There are no material claims, actions, suits, proceedings, mediations, arbitrations, or investigations
pending or, to the knowledge of Horizon, threatened against Horizon or any of its Subsidiaries, and to Horizons knowledge there is no basis for any claim, action, suit, proceeding, litigation, arbitration, or investigation against Horizon or
any of its Subsidiaries that individually or in the aggregate would reasonably be expected to have a Material Adverse Effect on Horizon.
(b) Neither Horizon nor any of its Subsidiaries is: (i) subject to any outstanding judgment, order,
writ, injunction, or decree of any court, arbitration panel, or governmental agency or authority, except in the ordinary course of business regarding customer and fiduciary accounts; (ii) presently charged with or under governmental
investigation with respect to, any actual or alleged violations of any law, statute, rule, regulation, or ordinance (other than examinations by banking regulators in the ordinary course of operating a banking business); or (iii) the subject of
any pending or, to the knowledge of Horizon, threatened proceeding by any government regulatory agency or authority having jurisdiction over their respective business, assets, capital, properties, or operations.
4.10
Taxes, Returns and Reports
. Each of Horizon and its Subsidiaries has, since
January 1, 2010, (a) duly and timely filed or extended (before its due date) all material federal, state, local, and foreign tax returns of every type and kind required to be filed, and each such return is true, accurate, and complete in all
material respects; (b) except as disclosed in
Section 4.10
of the Horizon Disclosure Schedule, paid or otherwise adequately reserved in accordance with GAAP for all taxes, assessments, and other governmental charges due or claimed
to be due upon it or any of its income, properties, or assets, unless being contested in good faith; and (c) not requested an extension of time for any such payments (which extension is still in force) (other than as permitted by (a), above).
Horizon has established, and shall establish in future publicly-filed financial statements, in accordance with GAAP, a reserve for taxes in the Horizon Financial Statements adequate to cover all of Horizons and its Subsidiaries tax
liabilities (including, without limitation, income taxes, payroll taxes and withholding, and franchise fees) for the periods then ending. Neither Horizon nor any of its Subsidiaries, to their knowledge, has, nor will any of them have, any liability
for material taxes of any nature for or with respect to the operation of its business, from the date hereof up to and including the Effective Time, except to the extent set forth in Horizons future publicly-filed financial statements and as
accrued or reserved for on the books and records of Horizon or its Subsidiaries. Neither Horizon nor any of its Subsidiaries is currently under audit by any state or federal taxing authority. Except as disclosed in
Section 4.10
of the
Horizon Disclosure Schedule, no federal, state, or local tax returns of Horizon or any of its Subsidiaries have been audited by any taxing authority during the preceding five (5) years.
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4.11
Deposit Insurance
. The deposits
of Horizon Bank are insured by the Federal Deposit Insurance Corporation in accordance with the Federal Deposit Insurance Act, as amended, to the fullest extent provided by applicable law, and Horizon or Horizon Bank has paid or properly reserved or
accrued for all current premiums and assessments with respect to such deposit insurance.
4.12
Bank Secrecy and Anti
-Money
Laundering Compliance
. During the last three (3) years, neither Horizon nor any of its Subsidiaries has received any notice or communication from any regulatory authority alleging violation of, or noncompliance with, any BSA/AML Law.
Horizon and its Subsidiaries have not been cited, fined, or otherwise notified of any failure by it to comply with a BSA/AML Law which has not been cured. To the knowledge of Horizon and its Subsidiaries, there are no facts or circumstances that
could form the basis for assertion of any proceeding against Horizon or its Subsidiaries under any BSA/AML Law that, if determined adversely to Horizon or its Subsidiaries, would reasonably be likely, either individually or in the aggregate, to have
a Material Adverse Effect on Horizon.
4.13
Community Reinvestment Act
.
Horizon Bank received a rating of satisfactory or better in its most recent examination or interim review with respect to the Community Reinvestment Act.
4.14
Approval Delays
. To the knowledge of Horizon, as of the date hereof, there
is no reason why the granting of any of the Regulatory Approvals would be denied or unduly delayed.
4.15
Horizon Securities and Exchange Commission Filings
. For the past five
(5) years, Horizon has filed all material reports and other filings with the SEC required to be filed by it (
Horizon SEC Reports
). All such Horizon SEC Reports were true, accurate, and complete in all material respects as of
the dates of the Horizon SEC Reports, and no such filings contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements, at the time and in the light of the circumstances under which
they were made, not false or misleading. As of the date of this Agreement, there are no outstanding or unresolved comments in any comment letters received by Horizon, and to the knowledge of Horizon, none of the Horizon SEC Reports is the subject of
any ongoing review by the SEC.
4.16
No Shareholder Approval
. No vote or
consent of any of the holders of Horizons capital stock is required by law, agreement, or NASDAQ Global Select Market listing requirements for Horizon to enter into this Agreement and to consummate the Merger.
4.17
Antitakeover Provisions Inapplicable
. The transactions contemplated by this
Agreement are not subject to the requirements of any moratorium, control share, fair price, affiliate transactions, business combination or other antitakeover laws and regulations of the
State of Indiana, including the provisions of the IBCL applicable to Horizon.
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4.18
Books and Records
. The books of
account, minute books, stock record books, and other records of Horizon and its Subsidiaries are complete and correct in all material respects and have been maintained in accordance with Horizons business practices and all applicable Laws,
including the maintenance of an adequate system of internal controls required by such Laws. The minute books of Horizon and each of its Subsidiaries contain accurate and complete records, in all material respects, of all meetings held, and corporate
action taken by, its respective shareholders, boards of directors, and committees of the boards of directors.
4.19
Environmental Matters
. Horizon and its Subsidiaries are in material
compliance with all Environmental Laws. There are no legal, administrative, arbitral, or other proceedings, claims, or actions, or to the knowledge of Horizon, any private environmental investigations or remediation activities or governmental
investigations of any nature seeking to impose on Horizon or any of its Subsidiaries any material liability or material obligation arising under any Environmental Law, pending or to Horizons knowledge, threatened against Horizon. To the
knowledge of Horizon, there is no reasonable basis for any such proceeding, claim, action, or governmental investigation on Horizon or any of its Subsidiaries of any material liability or material obligation arising under any Environmental Law.
4.20
Interim Events
. Since March 31, 2017, neither Horizon nor any of its
Subsidiaries has experienced any events, changes, developments or occurrences which have had, or are reasonably likely to have, a Material Adverse Effect on Horizon.
4.21
Well-Capitalized
. Horizon Bank is well capitalized (as that term
is defined in 12 C.F.R. Section 6.4(c)(1)). Horizon Bank has not been informed that its status as well capitalized will change and has no basis for believing that its status will change due to this Merger.
4.22
Internal Controls
. Horizon and its Subsidiaries have devised and maintain a
system of internal accounting controls sufficient to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. During the preceding three
(3) years, (i) through the date hereof, neither Horizon nor any of its Subsidiaries has received or otherwise had or obtained knowledge of any material complaint, allegation, assertion, or claim, whether written or oral, regarding the
accounting or auditing practices, procedures, methodologies, or methods of Horizon or any of its Subsidiaries or their respective internal accounting controls, including any material complaint, allegation, assertion, or claim that Horizon or any of
its Subsidiaries has engaged in questionable accounting or auditing practices, and (ii) no attorney representing Horizon or any of its Subsidiaries, whether or not employed by Horizon or any of its Subsidiaries, has reported evidence of a
violation of securities laws, breach of fiduciary duty, or similar violation by Horizon or any of its officers, directors, employees, or agents to the Board of Directors of Horizon or any committee thereof or to any director or officer of Horizon.
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4.23
Employee Benefit Plans
.
(a) With respect to the employee benefit plans, as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended (
ERISA
), sponsored or otherwise maintained by any member of a controlled group of corporations under Code Section 414(b) of which Horizon is or was a member, and any trade or business
(whether or not incorporated) which is or was under common control with Horizon under Code Section 414(c), and all other entities which together with Horizon are or were prior to the date hereof treated as a single employer under Code
Section 414(m) or 414(o) (an
ERISA Affiliate
), whether written or oral, in which Horizon or any ERISA Affiliate participates as a participating employer, or to which Horizon or any ERISA Affiliate contributes, or any
nonqualified employee benefit plans or deferred compensation, bonus, stock, performance share, phantom stock, or incentive plans or arrangements, or other employee benefit or fringe benefit programs for the benefit of former or current employees or
directors (or their beneficiaries or dependents) of Horizon or any ERISA Affiliate, and including any such plans which have been terminated, merged into another plan, frozen, or discontinued since January 1, 2011 (individually, a
Horizon Plan
and collectively,
Horizon Plans
), Horizon represents and warrants:
(i) All such Horizon Plans have, on a continuous basis since their adoption, been, in all
material respects, maintained in compliance with their respective terms and with the requirements prescribed by all applicable statutes, orders, and governmental rules or regulations, including without limitation, ERISA and the Department
Regulations promulgated thereunder and the Code and Treasury Regulations promulgated thereunder.
(ii) All Horizon Plans intended to constitute
tax-qualified
plans under Code Section 401(a) have complied in form since their adoption and have been timely amended to comply in all material respects with all applicable requirements of the Code and
the Treasury Regulations and each such Plan either (A) has received a determination letter from the Internal Revenue Service upon which Horizon may rely regarding such plans
tax-qualified
status
under the Code, or (B) is a
pre-approved
volume submitter or prototype plan that is the subject of an opinion letter issued by the Internal Revenue Service.
(iii) All Horizon Plans that provide for payments of nonqualified deferred
compensation (as defined in Code Section 409A(d)(1)) have, in all material respects, been drafted and operated in good faith compliance with the applicable requirements of Code Section 409A and applicable guidance thereunder since
January 1, 2005.
(iv) All options to purchase shares of Horizon Common Stock were
granted with a per share exercise price that was not less than the fair market value of Horizon Common Stock on the date of such grant, as determined in accordance with the terms of the applicable Horizon Plan. All Horizon stock options,
restricted stock units, and shares of restricted stock have been properly accounted for in accordance
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with GAAP, and no change is expected in respect of any prior financial statements relating to expenses for stock-based compensation. There is no pending audit, investigation, or inquiry by any
governmental agency or authority or by Horizon (directly or indirectly) with respect to Horizons stock option or restricted stock granting practices or other equity compensation practices.
(v) No Horizon Plan (or its related trust) holds any stock or other securities of Horizon
and no Horizon Plan allows for the granting of any awards over or with respect to any stock or other securities of Horizon.
(vi) Neither Horizon, an ERISA Affiliate nor to Horizons knowledge, any other
fiduciary as defined in ERISA Section 3(21)(A) of a Horizon Plan, has engaged in any transaction that may subject Horizon, any ERISA Affiliate, or any Horizon Plan to a civil penalty imposed by ERISA Section 502 or any other provision of
ERISA or excise taxes under Code Section 4971, 4975, 4976, 4977, 4979, or 4980B.
(vii) All obligations required to be performed by Horizon or any ERISA Affiliate under any
provision of any Horizon Plan have been performed by it in all material respects, and Horizon has contributed and has paid all amounts accrued and premiums due with respect to the Horizon Plans, and neither Horizon nor any ERISA Affiliate is, in any
material respect, in default under or in violation of any provision of any Horizon Plan.
(viii) All required reports and descriptions for the Horizon Plans have, in all material
respects, been timely filed and distributed to participants and beneficiaries, and all notices required by ERISA or the Code with respect to all Horizon Plans have been proper as to form and timely given.
(ix) No event has occurred which would reasonably constitute grounds for an enforcement
action by any party under Part 5 of Title I of ERISA with respect to any Horizon Plan.
(x) There are no examinations, audits, enforcement actions, or proceedings, or any other
investigations, pending or threatened by any governmental agency involving any Horizon Plan.
(xi) There are no actions, suits, proceedings, or claims pending (other than routine claims
for benefits) or threatened against Horizon or any ERISA Affiliate in connection with any Horizon Plan or the assets of any Horizon Plan.
(b) Horizon has provided or made available to WBKC true, accurate, and complete copies and, in the case of
any plan or program which has not been reduced to writing, a materially complete summary, of all of the following Horizon Plans, as applicable:
(i) All current pension, retirement, profit-sharing, savings, stock purchase, stock bonus,
stock ownership, stock option, restricted stock, restricted stock unit,
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phantom stock, performance share, and stock appreciation right plans, all amendments thereto, and, if required under the reporting and disclosure requirements of ERISA, all current summary plan
descriptions thereof (including any modifications thereto);
(ii) All current
employment, deferred compensation (whether funded or unfunded), salary continuation, change in control, consulting, bonus, severance, and collective bargaining agreements, arrangements, or understandings;
(iii) All current executive and other incentive compensation plans, programs, and
agreements;
(iv) All current group insurance, medical, and prescription drug
arrangements, policies, or plans;
(v) All other current incentive, welfare, or
employee benefit plans, understandings, arrangements, or agreements maintained or sponsored, participated in, or contributed to by Horizon for its current or former directors, officers, or employees;
(vi) All reports filed with the Internal Revenue Service or the Department within the
preceding three (3) years by Horizon or any ERISA Affiliate with respect to any Horizon Plan;
(vii) All current participants in such plans and programs and all participants with benefit
entitlements under such plans and programs; and
(viii) Valuations or allocation
reports for any defined contribution plans as of the most recent allocation and valuation dates.
(c) With respect to all Horizon Plans that are group health plans as defined in ERISA Section 607(1),
sponsored or maintained by Horizon or any ERISA Affiliate, to Horizons knowledge, no director, officer, employee, or agent of Horizon or any ERISA Affiliate has engaged in any action or failed to act in such a manner that, as a result of such
action or failure to act, would cause a tax to be imposed on Horizon or any ERISA Affiliate under Code Section 4980B(a), or would cause a penalty to be imposed under ERISA and the regulations promulgated thereunder. With respect to all such
plans, all applicable provisions of Code Section 4980B and ERISA Sections
601-606
have been complied with by Horizon or any ERISA Affiliate, and all other provisions of ERISA and the regulations
promulgated thereunder have been complied with in all material respects.
4.24
Information Security
. The computers, Software, computer programs, in source
code and object code forms, servers, workstations, routers, hubs, switches, circuits, networks, data communications lines, repair and refurbishment equipment, and all other information technology equipment owned, used, or held for use by Horizon or
Horizon Bank (collectively,
Horizon IT Assets
) (i) operate and perform, in all material respects, in accordance with their documentation and functional specifications and otherwise as required for the conduct of Horizons and
Horizon Banks businesses and have not materially malfunctioned or failed
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within the past three (3) years; and (ii) do not contain any Defective Code, Malicious Code, or open source code which does not or could not have a Material Adverse Effect on Horizon.
Horizon and Horizon Bank take reasonable actions, consistent with current banking industry standards, to protect the confidentiality, integrity, and security of the Horizon IT Assets (and all third party and customer information and transactions
stored or contained therein or transmitted thereby) against any unauthorized use, access, interruption, modification, or corruption, including, but not limited to, (A) the use of robust encryption technology, and (B) the implementation of
a comprehensive security plan which (x) promptly identify any and all internal and external risks to the security of Horizons and/or Horizon Banks confidential information or that of third parties or customers, and
(y) implements, monitors, and improves adequate and effective safeguards to control those risks. Horizon and its Subsidiaries have devised and maintain a system of internal controls sufficient, in the reasonable opinion of management of Horizon
and Horizon Bank, to maintain its Information System, as defined in the COSO 2013 Framework, to meet the standards for Information Systems under the COSO 2013 Framework and have achieved a baseline maturity level in all domains according
to the FFIEC Cybersecurity Assessment Tool. Horizon has implemented reasonable data backup, data storage, system redundancy, and disaster avoidance and recovery procedures, as well as a reasonable business continuity plan, in each case consistent
with banking industry practices. No claims are pending or threatened in writing against Horizon or Horizon Bank alleging a violation of any Persons privacy rights or rights regarding the protection of personally identifiable information or
other
non-public
information, other than violations that, individually or in the aggregate, would not have a Material Adverse Effect on Horizon.
4.25
Agreements with Regulatory Agencies
. Neither Horizon nor any of its
Subsidiaries is subject to any
cease-and-desist,
consent order or other order, or enforcement action issued by, or is a party to any written agreement, consent
agreement, or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or has been ordered to pay any civil money penalty by, or has been, during the preceding
five (5) years, a recipient of any supervisory letter from, or, during the preceding five (5) years, has adopted any policies, procedures, or board resolutions at the request or suggestion of any regulatory agency or other governmental
entity that currently restricts (or restricted), in any material respect, the conduct of its business or that in any material manner relates to its capital adequacy, its ability to pay dividends, its credit or risk management policies, its
management, or its business, other than those of general application that apply to similarly situated bank holding companies or their subsidiaries (a
Horizon Regulatory Agreement
), nor has Horizon or any of its Subsidiaries been
advised, during the preceding five (5) years, by any regulatory agency or other governmental entity that it is considering issuing, initiating, ordering, or requesting any such Horizon Regulatory Agreement. There are no refunds or restitutions
required to be paid or corrective actions (including items designated as matters requiring attention) required to be taken as a result of any criticism of any regulatory agency or body cited in any examination report of Horizon or any of
its Subsidiaries as a result of an examination by any regulatory agency or body, or set forth in any accountants or auditors report to Horizon or any of its Subsidiaries.
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4.26
Insurance
. All policies of
insurance, self-insured arrangements, and pooled or shared risk arrangements (including, without limitation, bankers blanket bond, directors and officers liability insurance, bankers blanket bond for third-party mortgage
brokers, property and casualty insurance, group health or hospitalization insurance, and insurance providing benefits for employees) owned, held, or participated in by Horizon or any of its Subsidiaries on the date hereof or with respect to which
Horizon or any of its Subsidiaries pays any premiums are in full force and effect and all premiums due thereon have been paid when due.
ARTICLE V.
CERTAIN COVENANTS
WBKC
covenants and agrees with Horizon and covenants and agrees to cause its Subsidiaries to act as follows, and Horizon covenants and agrees with WBKC as follows:
5.01
Shareholder Approval
. Unless this Agreement has been terminated in
accordance with its terms, WBKC shall submit this Agreement to its shareholders for approval and adoption at a meeting to be called and held in accordance with applicable law and the Articles of Incorporation and Bylaws of WBKC (the
WBKC
Shareholders
Meeting
) as soon as reasonably practicable after the effectiveness of the Registration Statement. Subject to
Section 5.06
hereof, the Board of Directors of WBKC shall recommend to WBKCs
shareholders that such shareholders approve and adopt this Agreement and the Merger contemplated hereby and will solicit proxies voting in favor of this Agreement from WBKCs shareholders.
5.02
Other Approvals
.
(a) WBKC and Horizon shall cooperate fully and use reasonable best efforts to procure, upon terms and
conditions consistent with the condition set forth in
Section 7.01(e)
hereof, all consents, authorizations, approvals, registrations, and certificates, in completing all filings and applications, and in satisfying all other requirements
prescribed by law which are necessary for consummation of the Merger on the terms and conditions provided in this Agreement at the earliest possible reasonable date.
(b) WBKC will use reasonable best efforts to obtain any required third party consents to agreements,
contracts, commitments, leases, instruments, and documents described in the WBKC Disclosure Schedule and which WBKC and Horizon agree are material.
(c) Any written materials or information provided by WBKC or Horizon for use in any filing with any state
or federal regulatory agency or authority shall not contain any untrue or misleading statement of material fact and shall not omit to state a material fact necessary to make the statements contained therein, in light of the circumstances in which
they are made, not false or misleading.
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5.03
Conduct of Business
.
(a) After the date of this Agreement and until the Effective Time or until this Agreement is terminated as
herein provided, each of WBKC and its Subsidiaries shall: (i) carry on its business diligently, substantially in the manner as is presently being conducted and in the ordinary course of business; (ii) use reasonable best efforts to
preserve its business organization intact in all material respects, keep available the services of the present officers and employees, and preserve its present relationships with customers and Persons having business dealings with it; (iii) use
reasonable best efforts to maintain all of the properties and assets that it owns or utilizes, and which are material to the operation of its business, in the operation of its business as currently conducted in good operating condition and repair,
reasonable wear and tear excepted; (iv) maintain its books, records, and accounts in the usual, regular, and ordinary manner, on a basis consistent with past practice and in compliance in all material respects with all statutes, laws,
rules, and regulations applicable to them and to the conduct of its business; and (v) not knowingly do or fail to do anything which will cause a breach of, or default in, any material contract, agreement, commitment, obligation,
understanding, arrangement, lease, or license to which it is a party or by which it is or may be subject or bound.
(b) From the date hereof until the Effective Time or until this Agreement is terminated as herein provided,
except as expressly contemplated or permitted by this Agreement or as set forth in
Section 5.03(b)
of the WBKC Disclosure Schedule, without the prior written consent (including consent delivered by email) of Horizon, which consent shall
not be unreasonably withheld, WBKC will not and will cause its Subsidiaries to not:
(i) make any changes in its capital stock (including, without limitation, any stock
issuance, stock split, stock dividend, recapitalization, or reclassification), authorize a class of stock, or issue any stock (other than pursuant to the exercise of any WBKC Options outstanding as of the date hereof), issue or grant any warrant,
option, right, or other agreement of any character relating to its authorized or issued capital stock or any securities convertible into shares of such stock, or redeem any of its outstanding shares of common stock or other securities (other than
the withholding of shares to satisfy tax obligations in connection with the vesting of WBKC Restricted Stock or the exercise of WBKC Options);
(ii) distribute or pay any dividends on its shares of common stock, or authorize a stock
split, or make any other distribution to its shareholders except for semi-annual or quarterly dividends paid by WBKC to its common shareholders in amounts that, when combined, do not to exceed $0.80 per share of WBKC Common Stock;
provided,
however
, each of the Subsidiaries may pay cash dividends to WBKC or Wolverine Bank in the ordinary course of business for payment of reasonable and necessary business and operating expenses of WBKC or Wolverine Bank and expenses of the Merger;
provided further
, at Horizons request in accordance with the terms described in
Section 7.01(q)
, and except to the extent prohibited by Law or any bank regulatory agency, Wolverine Bank shall pay dividends to WBKC;
provided further
,
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no dividend may be paid by WBKC to its shareholders for the quarterly period in which the Merger is scheduled to be consummated or consummated if during such period WBKCs shareholders will
become entitled to receive dividends on their shares of Horizon common stock received pursuant to this Agreement, and
provided, further
, that WBKC may pay additional dividends up to $0.80 per share in the aggregate to its common shareholders
before March 31, 2018, if the Closing has not occurred prior to December 31, 2017, and the WBKC 2017 consolidated annual net income, as agreed upon by Horizon and WBKC, is equal to or greater than 95% of the WBKC 2016 consolidated audited
annual net income without taking into account the aggregate expenses of attorneys, accountants, consultants, financial advisors, and other professional advisors incurred by WBKC or any Subsidiary of WBKC in connection with this Agreement or the
transactions contemplated hereby;
(iii) purchase or otherwise acquire any investment
security for their own account that exceeds $2,000,000 individually, or purchase or otherwise acquire any security other than U.S. Treasury or other governmental obligations or asset-backed securities issued or guaranteed by United States
governmental or other governmental agencies, in either case having an average remaining life of three (3) years or less, or sell any investment security owned by them other than sales made in the ordinary course of business as previously
conducted during the past three (3) years and in accordance with applicable laws and regulations, or engage in any activity that would be inconsistent with the classification of investment securities as either held to maturity or
available for sale;
(iv) except for binding commitments in effect as of
the date of this Agreement, make, renew, or otherwise modify any loan, loan commitment, letter of credit, or other extension of credit (individually, a Loan and collectively, Loans) to any Person if the Loan is an existing
credit on the books of WBKC or any Subsidiary and classified as Other Loans Especially Mentioned, Substandard, Doubtful or Loss in an amount in excess of $500,000. Wolverine Bank also shall not make,
purchase, renew, modify, amend, or extend the maturity of (1) any new commercial Loan in excess of $1,000,000;
provided
, that Wolverine Bank may, without the consent of Horizon, renew, modify, amend, or extend the maturity of existing
performing commercial loans (which are not classified or
non-accrual)
with existing principal balances of $1,500,000 or less, (2) unless such mortgage loan is saleable in the secondary market, any
mortgage loan with a loan to value in excess of 80% (unless private mortgage insurance is obtained) or any other mortgage loan in excess of $424,000, (3) any consumer Loan in excess of $75,000, (4) any home equity Loan or line of credit in excess of
$100,000, (5) any Loan participation, or (6) any agreement to purchase mortgage loans from any third-party originator;
provided, however
, that Wolverine Bank may take any such action with respect to any such Loan or Loans if the Chief
Credit Officer of Horizon Bank, or his designee, is provided with notice of the proposed action in writing (together will complete information regarding such Loan) and Horizon Bank has not provided written objection to the taking of such
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proposed action within five (5) business days thereafter (the lack of such objection being deemed prior written consent of Horizon Bank for purposes of this Section);
(v) acquire any assets of any other Person by any means (other than personal property
acquired in foreclosure or otherwise in the ordinary course of collection of indebtedness owed to Wolverine Bank) or foreclose upon or otherwise take title to, or possession or control of, any real property without first obtaining a Phase I
environmental report thereon, prepared by a reliable and qualified Person acceptable to Horizon, which indicates that the real property is free of pollutants, contaminants, or hazardous materials;
provided
,
however
, that neither WBKC
nor Wolverine Bank shall be required to obtain such a report with respect to single-family,
non-agricultural
residential property to be foreclosed upon unless WBKC has reason to believe that such property
might contain such hazardous materials or otherwise might be contaminated;
(vi) pay or
agree to pay, conditionally or otherwise, any additional compensation (including bonuses) or severance benefit, take any action that would give rise to an acceleration of the right to payment, or otherwise make any changes with respect to the fees
or compensation payable (or to become payable) to consultants, directors, officers, or salaried employees or, except as required by law and except as contemplated by this Agreement, adopt or make any change in any WBKC Plan or other arrangement
(including any agreement for indemnification) or payment made to, for, or with any of such consultants, directors, officers, or employees, except (1) as contemplated by this Agreement (including severance and change in control payments
anticipated to be paid as described in
Section 5.20
and
Section 6.03(h)
hereof), (2) as may be required pursuant to commitments existing on the date hereof or pursuant to any WBKC employee benefit plan or arrangement
described on
Section 3.15(e)
of the WBKC Disclosure Schedules, (3) as to
non-executive
employees, pay increases in the ordinary course of business and consistent with past practice, due to a
material change in position or duties or which are typically given based upon merit or on an employees anniversary date of hire or the anniversary date in the current position, in either case which do not involve increases of more than 4% in
connection therewith, (4) the payment of bonuses for the year ended December 31, 2016, to the extent such bonuses have been accrued in accordance with GAAP through the date hereof and provided that such bonuses are consistent, as to amount
and persons covered, with past practice, all of which are set forth in
Section 5.03(b)(vi)
of the WBKC Disclosure Schedule, and (5) the payment of bonuses for the partial year commencing January 1, 2017 and ending on the date
of the Effective Time, to the extent such bonuses have been accrued in accordance with GAAP through the Effective Time and provided that such bonuses are consistent, as to amount and persons covered, with past practice, all of which are set forth in
Section 5.03(b)(vi)
of the WBKC Disclosure Schedule;
(vii) fail to accrue,
pay, discharge, and satisfy all debts, liabilities, obligations, and expenses, including, without limitation, trade payables, incurred in the
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regular and ordinary course of business as such debts, liabilities, obligations, and expenses become due, unless the same are being contested in good faith;
(viii) except for obligations disclosed in this Agreement, short-term FHLB advances,
federal funds purchased by Wolverine Bank, trade payables and similar liabilities, and obligations incurred in the ordinary course of business and the payment, discharge, or satisfaction in the ordinary course of business of liabilities reflected in
the WBKC Financial Statements or the Subsequent WBKC Financial Statements, borrow any money or incur any indebtedness in an aggregate amount exceeding $100,000;
(ix) change its accounting methods, except as may be necessary and appropriate to conform
to (1) changes in law and regulation, (2) changes in GAAP or regulatory accounting principles, (3) changes required by WBKCs independent auditors or its regulatory authorities, or (4) changes requested by Horizon pursuant
to this Agreement, provided any such changes are consistent with GAAP and/or regulatory accounting principles, as appropriate;
(x) make, change, or revoke any material tax election, enter into any closing agreement
with respect to a material amount of taxes, settle any material tax claim or assessment, or surrender any right to claim a refund of a material amount of taxes;
(xi) make application for the opening or closing of any, or open or close any, branch or
automated banking facility, except as contemplated by any application filed with any bank regulatory authority in connection with the Merger;
(xii) waive, release, grant, or transfer any material rights of value or enter into, amend,
or terminate any contract, agreement, lease, commitment, understanding, arrangement, or transaction or incur any liability or obligation (other than as contemplated by this Agreement and legal, accounting, and investment banking or financial
advisory fees related to the Merger) requiring payments by WBKC or any of its Subsidiaries which exceed $50,000,
whether individually or in the aggregate, other than trade payables or otherwise incurred in the ordinary course of business, or
which contain any financial commitment extending more than twelve (12) months following the date of this Agreement;
(xiii) except as already committed in writing as of the date of this Agreement and other
than expenditures necessary to maintain existing assets in good repair, make any capital expenditures in excess of $100,000 individually or $250,000 in the aggregate;
(xiv) except as required by applicable law, regulation, or its regulatory authorities:
(1) implement or adopt any material change in its interest rate risk management or hedging policies, procedures, or practices; (2) fail to follow its existing policies or practices with respect to managing its exposure to interest rate
risk; or (3) fail to use commercially reasonable means to avoid any material increase in its aggregate exposure to interest rate risk;
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(xv) maintain an allowance for loan and lease
losses which is not adequate, in all material respects, under the requirements of GAAP to provide for possible losses, net of recoveries, relating to Loans previously charged off or take any action that would change Wolverine Banks loan loss
reserves that is not in compliance with Wolverine Banks policy and past practices consistently applied and in material compliance with GAAP;
(xvi) except as already committed in writing as of the date of this Agreement, cancel,
release, or compromise any indebtedness in excess of $100,000 owing to WBKC or any Subsidiary or any claims which WBKC or any Subsidiary may possess, or voluntarily waive any material rights with respect thereto;
(xvii) pay, discharge, settle or compromise any litigation, claim, action, arbitration, or
other proceeding against WBKC or any Subsidiary other than (1) any such payment, discharge, settlement, or compromise in the ordinary course of business consistent with past practice that involves solely money damages in the amount not in
excess of $50,000 individually or $100,000 in the aggregate, or (2) with regard to a settlement exceeding $50,000 individually or $100,000 in the aggregate, where such settlement is fully covered by insurance; and in all such cases contemplated
by (1) and (2) above: (A) does not create precedent for other pending or potential claims, actions, litigation, arbitration, or proceedings, (B) neither WBKC nor Wolverine Bank consents to the issuance of any injunction, decree,
order, or judgment restricting or otherwise affecting its business or operations, and (C) involves a complete and unconditional release from liability with respect to WBKC and/or Wolverine Bank, as applicable, with no admission of fault;
(xviii) take any action that is intended or is reasonably likely to result in (A) any
of its representations or warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the Effective Time, (B) any of the conditions to the Merger set forth in this Agreement not being
satisfied in any material respect, or (C) a material breach of any provision of this Agreement; except, in each case, as may be required by applicable law or regulation;
(xix) maintain the rate of interest paid by Wolverine Bank on any deposit product,
including without limitation on certificates of deposit, in a manner and pursuant to policies inconsistent with past practices or outside reasonable local market area interest rates paid by local competing banks;
(xx) amend the Articles of Incorporation or Bylaws of WBKC, or similar governing documents
of any of its Subsidiaries;
(xxi) knowingly take any action or fail to take any action
that would, or would be likely to, prevent, impede or delay the Merger from qualifying as a reorganization as defined by Section 368(a) of the Code; or
(xxii) agree or commit to do, or enter into any contract regarding, anything that would be
precluded by this Section.
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5.04
Insurance
.
(a) WBKC and its Subsidiaries shall maintain, or cause to be maintained, in full force and effect,
insurance on its assets, properties, and operations, fidelity coverage, and directors and officers liability insurance in such amounts and with regard to such liabilities and hazards as are currently insured by WBKC or its Subsidiaries
as of the date of this Agreement.
(b) Except as set forth on
Section 5.04(b)
of the WBKC
Disclosure Schedule, WBKC and its Subsidiaries shall maintain in full force and effect blanket bond insurance coverage against loss or damage relating to or resulting from any breach of fidelity by any third-party mortgage broker compensated by WBKC
or any of its Subsidiaries in connection with the origination of any mortgage loan, such policy to have a single loss coverage limit of no less than $5,000,000 and a deductible of no more than $1,000,000.
5.05
Accruals for Loan Loss Reserve and Expenses
.
(a) Prior to the Effective Time, WBKC shall make and shall cause its Subsidiaries to make, consistent with
GAAP and applicable banking laws and regulations, such appropriate accounting entries in its books and records and use reasonable best efforts to take such other actions as WBKC and its Subsidiaries shall deem to be necessary or desirable in
anticipation of the Merger including, without limitation, accruals or the creation of reserves for employee benefits and Merger-related expenses.
(b) WBKC recognizes that Horizon may have adopted different loan and accounting policies and practices
(including loan classifications and levels of loan loss allowances). Subject to applicable law (including without limitation applicable banking laws and regulations and GAAP), from and after the date hereof, WBKC shall consult and cooperate in good
faith with Horizon with respect to conforming the loan and accounting policies and practices of WBKC to those policies and practices of Horizon for financial accounting and/or income tax reporting purposes, as reasonably specified in each case in
writing from Horizon to WBKC, based upon such consultation and subject to the conditions in
Section 5.05(d)
.
(c) Subject to applicable law (including without limitation applicable banking laws and regulations and
GAAP), WBKC shall consult and cooperate in good faith with Horizon with respect to determining, as reasonably specified in a written notice from Horizon to WBKC, based upon such consultation and subject to the conditions in
Section 5.05(d)
, the amount and the timing for recognizing for financial accounting and/or income tax reporting purposes of WBKCs expenses of the Merger.
(d) Subject to applicable law (including without limitation applicable banking laws and regulations and
GAAP), WBKC and Wolverine Bank shall make such conforming changes and entries as contemplated in
Section 5.05(a)
,
Section 5.05(b)
, and
Section 5.05(c)
above, but in no event prior to the 5th day next preceding the
Closing Date and only after Horizon acknowledges that all conditions to its obligation to consummate the Merger have
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been satisfied and certifies to WBKC that Horizon will at the Effective Time deliver to WBKC the certificate contemplated in
Section 7.02(g)
.
(e) WBKCs representations, warranties, and covenants contained in this Agreement shall not be deemed
to be untrue or breached in any respect for any purpose as a consequence of any modifications or changes undertaken at Horizons request in compliance with
Section 5.05(d)
.
5.06
Acquisition Proposals
.
(a) WBKC will, and will cause each of its Subsidiaries to, and its and their respective officers,
directors, and representatives (including KBW) to, immediately cease and cause to be terminated any existing solicitations, discussions, or negotiations with any Person concerning an Acquisition Proposal (as defined in
Section 5.06(e)
).
During the period from the date of this Agreement through the Effective Time, WBKC shall not terminate, amend, modify, or waive any material provision of any confidentiality or similar agreement to which WBKC or any of its Subsidiaries is a party
(other than any involving Horizon).
(b) Except as permitted in this
Section 5.06
, WBKC
shall not, and shall cause its Subsidiaries and any of their respective directors, officers, and representatives (including KBW) not to, (i) solicit, initiate, or knowingly encourage or facilitate, or take any other action designed to, or that
could reasonably be expected to, facilitate (including by way of furnishing
non-public
information) any inquiries with respect to an Acquisition Proposal, or (ii) initiate, participate in, or knowingly
encourage any discussions or negotiations or otherwise knowingly cooperate in any way with any Person regarding an Acquisition Proposal; provided, however, that, at any time prior to obtaining the approval of the Merger by WBKCs shareholders,
if WBKC receives a bona fide Acquisition Proposal that the WBKC Board of Directors determines in good faith constitutes or is reasonably likely to lead to a Superior Proposal (as defined in
Section 5.06(f)
) that was not solicited after
the date hereof and did not otherwise result from a breach of WBKCs obligations under this
Section 5.06
, WBKC may furnish, or cause to be furnished,
non-public
information with respect to
WBKC and its Subsidiaries to the Person who made such proposal (provided that all such information has been provided to Horizon prior to or at the same time it is provided to such Person) and may participate in discussions and negotiations regarding
such proposal if (A) the WBKC Board of Directors determines in good faith, and following consultation with its outside legal counsel and financial advisor, that failure to do so would be reasonably likely to result in a breach of its fiduciary
duties to WBKCs shareholders under applicable law, and (B) prior to taking such action, WBKC has used its reasonable best efforts to enter into a confidentiality agreement with such Person containing terms no less favorable to WBKC than
those contained in the Confidentiality Agreement (as defined in
Section 11.09
) and which confidentiality agreement shall not provide such Person with any exclusive right to negotiate with WBKC. Without limiting the foregoing, it is
agreed that any violation of the restrictions contained in the first sentence of this
Section 5.06(b)
by any representative (including KBW) of WBKC or its Subsidiaries shall be a breach of this
Section 5.06
by WBKC.
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(c) Neither the WBKC Board of Directors nor any committee
thereof shall (or shall agree or resolve to) (i) fail to make, withdraw, or modify in a manner adverse to Horizon, or propose to withdraw or modify in a manner adverse to Horizon (or take any action inconsistent with), the recommendation by
such WBKC Board of Directors or any such committee regarding this Agreement or the Merger, or approve or recommend, or propose to recommend, the approval or recommendation of any Acquisition Proposal (any of the foregoing being referred to herein as
an
Adverse Recommendation Change
), or (ii) cause or permit WBKC or Wolverine Bank to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option
agreement, joint venture agreement, partnership agreement, or other agreement (each, an
Acquisition Agreement
) constituting or related to, or which is intended to or would be reasonably likely to lead to, any Acquisition Proposal
(other than a confidentiality agreement referred to in
Section 5.06(b)
). Notwithstanding the foregoing, at any time prior to the special meeting of WBKCs shareholders to approve the Merger, the WBKC Board of Directors may, in
response to a Superior Proposal, effect an Adverse Recommendation Change, provided, that the WBKC Board of Directors determines in good faith, after consultation with its outside legal counsel and financial advisor, that the failure to do so would
be reasonably likely to result in a breach of its fiduciary duties to the shareholders of WBKC under applicable Law, and provided, further, that the WBKC Board of Directors may not effect such an Adverse Recommendation Change unless (A) the
WBKC Board shall have first provided prior written notice to Horizon (an
Adverse Recommendation Change Notice
) that it is prepared to effect an Adverse Recommendation Change in response to a Superior Proposal, which notice shall,
in the case of a Superior Proposal, attach the most current version of any proposed written agreement or letter of intent relating to the transaction that constitutes such Superior Proposal (it being understood that any amendment to the financial
terms or any other material term of such Superior Proposal shall require a new notice and a new five (5) business day period), and (B) Horizon does not make, within five (5) business days after receipt of such notice, a proposal that
would, in the reasonable good faith judgment of the WBKC Board of Directors (after consultation with outside legal counsel and WBKCs financial advisor), cause the offer previously constituting a Superior Proposal to no longer constitute a
Superior Proposal or that the Adverse Recommendation Change is no longer required in order to comply with the WBKC Boards fiduciary duties to the shareholders of WBKC under applicable Law. WBKC agrees that, during the five (5) business
day period prior to its effecting an Adverse Recommendation Change, WBKC and its officers, directors, and representatives shall negotiate in good faith with Horizon and its officers, directors, and representatives regarding any revisions to the
terms of the transactions contemplated by this Agreement proposed by Horizon.
(d) In addition to the
obligations of WBKC set forth in paragraphs (a), (b), and (c) of this
Section 5.06
, WBKC shall as promptly as possible, and in any event within two (2) business days after WBKC first obtains knowledge of the receipt thereof,
advise Horizon orally and in writing of (i) any Acquisition Proposal or any request for information that WBKC reasonably believes could lead to or contemplates an Acquisition Proposal, or (ii) any inquiry WBKC reasonably believes could
lead to any Acquisition Proposal, the terms and
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conditions of such Acquisition Proposal, request or inquiry (including any subsequent amendment or other modification to such terms and conditions), and the identity of the Person making any such
Acquisition Proposal or request, or inquiry. In connection with any such Acquisition Proposal, request, or inquiry, if there occurs or is presented to WBKC any offer, material change, modification, or development to a previously made offer, letter
of intent, or any other material development, WBKC (or its outside counsel) shall (A) advise and confer with Horizon (or its outside counsel) regarding the progress of negotiations concerning any Acquisition Proposal, the material resolved and
unresolved issues related thereto, and the material terms (including material amendments or proposed amendments as to price and other material terms) of any such Acquisition Proposal, request, or inquiry, and (B) promptly upon receipt or
delivery thereof, provide Horizon with true, correct, and complete copies of any document or communication related thereto.
(e) For purposes of this Agreement,
Acquisition Proposal
shall mean (i) any
inquiry, proposal, or offer from any Person or group of Persons (other than as contemplated by this Agreement) relating to, or that could reasonably be expected to lead to, any direct or indirect acquisition or purchase, in one transaction or a
series of transactions, of (A) assets or businesses that constitute 25% or more of the revenues, net income, or assets of WBKC and its Subsidiaries, taken as a whole, or (B) 25% or more of any class of equity securities of WBKC or any of its
Subsidiaries; (ii) any tender offer or exchange offer that, if consummated, would result in any Person beneficially owning 25% or more of any class of equity securities of WBKC or any of its Subsidiaries; (iii) any merger, consolidation,
business combination, recapitalization, liquidation, dissolution, joint venture, binding share exchange, or similar transaction involving WBKC, Wolverine Bank, or any of its other Subsidiaries pursuant to which any Person or the shareholders of any
Person would own 25% or more of any class of equity securities of WBKC, Wolverine Bank, or any of WBKCs other Subsidiaries or of any resulting parent company of WBKC or Wolverine Bank; or (iv) any other transaction the consummation of
which could reasonably be expected to impede, interfere with, prevent, or materially delay the Merger or that could reasonably be expected to dilute materially the benefits to Horizon of the transactions contemplated hereby, other than the
transactions contemplated hereby. For purposes of this
Section 5.06
, a
Person
shall include a natural Person, or any legal, commercial, or Governmental Authority, including, a corporation, general partnership, joint
venture, limited partnership, limited liability company, trust, business association, group acting in concert, or any Person acting in a representative capacity.
(f) For purposes of this Agreement,
Superior Proposal
shall mean any Acquisition
Proposal (but changing the references to 25% or more in the definition of
Acquisition Proposal
to 50% or more) that the WBKC Board determines in good faith (after having received the advice of its financial
advisor), to be (i) materially more favorable to the shareholders of WBKC from a financial point of view and its other constituencies than the Merger (taking into account all the terms and conditions of such proposal and this Agreement
(including any
break-up
fees, expense reimbursement provisions, and conditions to consummation and any changes to the financial terms of this Agreement proposed by Horizon in response to such offer or
otherwise)), and (ii) reasonably capable of being completed
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without undue delay taking into account all financial, legal, regulatory, and other aspects of such proposal.
5.07
Press Releases
. Horizon and WBKC shall use reasonable best efforts
(i) to develop a joint communications plan with respect to this Agreement and the transactions contemplated hereby, (ii) to ensure that all press releases and other public statements with respect to this Agreement and the transactions
contemplated hereby shall be consistent with such joint communications plan, and (iii) except where (and to the extent that) such prior consultation is not reasonably possible due to time considerations in respect of any announcement required
by applicable law or by obligations pursuant to any listing agreement with or rules of the NASDAQ Stock Market, to consult with each other before issuing any press release or otherwise making any public statement with respect to this Agreement or
the transactions contemplated hereby.
5.08
Changes and Supplements to Disclosure
Schedules
. WBKC shall promptly supplement, amend, and update, upon the occurrence of any change prior to the Effective Time, and as of the Effective Time, the WBKC Disclosure Schedule with respect to any matters or events hereafter arising
which, if in existence or having occurred as of the date of this Agreement, would have been required to be set forth or described in the WBKC Disclosure Schedule or this Agreement and including, without limitation, any fact which, if existing or
known as of the date hereof, would have made any of the representations or warranties of WBKC contained herein materially incorrect, untrue, or misleading. No such supplement, amendment, or update shall have any effect for the purposes of
determining satisfaction of the conditions set forth in
Article VII
.
5.09
Failure to Fulfill Conditions
. In the event WBKC determines that a condition
to its obligation to complete the Merger cannot be fulfilled and that it will not waive that condition, it will promptly notify Horizon.
5.10
Access; Information
.
(a) Horizon and WBKC, and their
representatives and agents, shall, upon reasonable notice to the other party, at all times during normal business hours prior to the Effective Time, have reasonable access to the properties, facilities, operations, books, and records of the other
party (other than minutes that discuss any of the transactions contemplated by this Agreement). Horizon and WBKC, and their representatives and agents, may, prior to the Effective Time, make or cause to be made such reasonable investigation of the
operations, books, records, and properties of the other party and their Subsidiaries and of their financial and legal condition as deemed necessary or advisable to familiarize themselves with such operations, books, records, properties, and other
matters; provided, however, that such access or investigation shall not interfere unnecessarily with the normal business operations of WBKC or Horizon or either of their Subsidiaries; provided further, neither WBKC, Horizon, nor any of their
Subsidiaries shall be required to take any action that would provide access to or to disclose information where such access or disclosure would violate or prejudice the rights of any customer or other person or would result in the waiver by any of
them of the
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privilege protecting communications between any of them and any of their counsel. In addition, after receipt of all Regulatory Approvals and the necessary shareholders approval, WBKC shall
cooperate with Horizon to facilitate introductions to Wolverine Banks customers and key business partners and referral sources.
(b) No investigation by Horizon or WBKC shall affect the representations and warranties made by WBKC or
Horizon herein.
(c) Any confidential information or trade secrets received by Horizon, WBKC, or their
representatives or agents in the course of such examination will be treated confidentially, and any correspondence, memoranda, records, copies, documents, and electronic or other media of any kind containing such confidential information or trade
secrets or both shall be destroyed by Horizon or WBKC, as applicable, or at Horizons or WBKCs request, returned to Horizon or WBKC, as applicable, in the event this Agreement is terminated as provided in
Article VIII
hereof;
provided, however, that the parties may retain such received confidential information to comply with applicable law or regulation or professional standard or bona fide internal compliance policy requirements and any such retained information must be
treated confidentially. Additionally, any confidential information or trade secrets received by Horizon or WBKC, or either of their agents or representatives, in the course of their examinations (whether conducted prior to or after the date of this
Agreement) shall be treated confidentially and in accordance with the Confidentiality Agreement (as defined in
Section 11.09
). This
Section 5.10
will not require the disclosure of any information to Horizon or WBKC which
would be prohibited by law or regulation.
(d) WBKC shall also provide Horizon with copies of minutes
and consents from all Board of Director and committee meetings no later than two (2) business days after such minutes are approved at the next monthly meeting of the Board of Directors (other than minutes that discuss any of the transactions
contemplated by this Agreement and other than portions of minutes that contain information that is expressly exempt from disclosure pursuant to this
Section 5.10
).
5.11
Financial Statements
. As soon as internally available after the date of this
Agreement, WBKC will deliver to Horizon any additional audited consolidated financial statements which are prepared on its behalf or at its direction, the monthly consolidated unaudited balance sheets and profit and loss statements of WBKC prepared
for its internal use, Wolverine Banks Call Reports for each quarterly period completed prior to the Effective Time, all other financial reports or statements submitted to regulatory authorities after the date hereof, and all other financial
statements and financial information reasonably requested by Horizon (collectively,
Subsequent WBKC Financial Statements
). The Subsequent WBKC Financial Statements will be prepared on a basis consistent with past accounting
practices and GAAP (to the extent applicable) and shall present fairly the financial condition and results of operations as of the dates and for the periods presented (except in the case of unaudited financial statements or Call Report information
for the absence of notes and/or
year-end
adjustments).
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5.12
Environmental
. If requested by
Horizon, WBKC will cooperate with an environmental consulting firm designated by Horizon (the
Designated Environmental Consultant
) in connection with the conduct, at any time after the date hereof (the
Investigation
Period
), by the Designated Environmental Consultant of Phase I environmental site assessments and any other investigation reasonably requested by Horizon on all real property (except single family,
non-agricultural
residential property of one acre or less) owned or leased by WBKC or any of its Subsidiaries as of the date of this Agreement or acquired thereafter, including OREO, to the extent not
prohibited by any lease governing Wolverine Banks lease of any branch. Horizon will proceed with such assessments, testing, and investigations as soon as reasonably practicable after the date of this Agreement and will diligently work to
pursue such assessments, testing, and investigations through completion. Horizon shall furnish true and complete copies of any reports of the Designated Environmental Consultant that it receives with respect to any WBKC property, promptly upon
Horizons receipt of such reports. Horizon shall be responsible for the costs of the Phase I environmental site assessments, and Horizon and WBKC shall each bear 50% of the costs of any additional environmental investigation or testing as
determined to be advisable or recommended by the Designated Environmental Consultant as a result of an actual or suspected Recognized Environmental Condition (as such term is defined by the American Society for Testing Materials).
5.13
Governmental Reports and Shareholder Information
. Promptly upon
its becoming available, WBKC shall furnish to Horizon one (1) copy of each financial statement, report, notice, or proxy statement sent by WBKC to any Governmental Authority or to WBKCs shareholders, and of any order issued by any
Governmental Authority in any proceeding to which WBKC is a party. For purposes of this Agreement,
Governmental Authority
shall mean any government (or any political subdivision or jurisdiction thereof), court, bureau, agency, or
other governmental entity having or asserting jurisdiction over the applicable party or its business, operations, or properties.
5.14
Adverse Actions
. During the period from the date of this Agreement to the Effective Time, except with the written consent of Horizon, which consent will not be unreasonably withheld, WBKC will, and
it will cause each of its Subsidiaries to, use reasonable best efforts to preserve intact its business organization and assets and maintain its rights and franchises, and voluntarily take no action that would: (i) adversely affect the ability
of the parties to obtain the Regulatory Approvals or materially increase the period of time necessary to obtain such approvals; (ii) adversely affect its ability to perform its covenants and agreements under this Agreement in any material
respect; or (iii) result in the representations and warranties contained in
Article III
of this Agreement not being true and correct on the date of this Agreement or at any future date on or prior to the Closing Date (subject to the
standards set forth in
Section 7.01(a)
hereof) or in any of the conditions set forth in
Article VII
hereof not being satisfied;
provided
,
however
, that the foregoing shall not be deemed to require WBKC to take any
action which would otherwise violate any other provision of this Agreement.
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5.15
Employee Benefits and
Employees
.
(a) Neither the terms of
Section 6.03
hereof nor the provision of any
employee benefits by Horizon or any of its Subsidiaries to employees of WBKC or any of its Subsidiaries shall: (a) create any employment contract, agreement, or understanding with or employment rights for, or constitute a commitment or
obligation of employment to, any of the officers or employees of WBKC or any of its Subsidiaries; or (b) prohibit or restrict Horizon or its Subsidiaries, whether before or after the Effective Time, from changing, amending, or terminating any
employee benefits provided to its employees from time to time.
(b) Before the date that is forty-five
(45) days after the public announcement of the Merger, Horizon will use its reasonable best efforts to notify WBKC of the employees Horizon intends to retain after the Effective Time. Prior to the Closing Date, WBKC shall be responsible for
timely giving any notices to, and terminating (but in no event earlier than the date all Regulatory Approvals are received), any employees whose employment will not be continued by Horizon, and Horizon or WBKC shall pay any and all amounts which are
due and payable to such employees in connection with the termination of their employment, including, without limitation, all accrued vacation and sick pay and the severance amounts contemplated by
Section 6.03(h)
of this Agreement.
(c) Before Closing, with WBKCs prior consent (which consent shall not be unreasonably withheld),
Horizon may conduct such training and other programs as it may, in its reasonable discretion and at its sole expense, elect to provide for those employees who will be continuing employment with Horizon; provided, however, that such training and
other programs shall not materially interfere with or prevent the performance of the normal business operations of WBKC.
5.16
Amendment and Termination of Bank ESOP
.
(a) WBKC shall make
contributions to the Bank ESOP between the date hereof and the Effective Time consistent with the terms of the Bank ESOP and past practices, including, without limitation, any contributions required pursuant to the terms and conditions of the ESOP
Loan Documents.
(b) No later than ten (10) days prior to the Closing Date, WBKC, pursuant to the
provisions of the Bank ESOP, shall, subject to review and approval by Horizon: (i) adopt resolutions to terminate, subject to the consummation of the Merger, the Bank ESOP, effective as of the Closing Date (the
ESOP Termination
Date
); (ii) amend the Bank ESOP effective as of a date not later than the ESOP Termination Date to freeze participation under the Bank ESOP and to provide that no distributions of accrued benefits shall be made from the Bank ESOP, or its
related employee benefit trust, subsequent to the ESOP Termination Date until such time as the Internal Revenue Service issues a favorable determination letter to the effect that the plan termination does not adversely affect the Bank ESOPs
qualification for favorable income tax treatment under the Code, except distributions may be made earlier if required by the terms of the Bank ESOP upon the occurrence of retirement, death, disability,
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or termination of employment, or any other event, other than the plan termination, that requires a distribution from the Bank ESOP; (iii) amend the Bank ESOP to provide that the excess of
the proceeds from the sale or remittance of shares of WBKC Common Stock held by the Bank ESOP in the Bank ESOPs unallocated suspense account (
Suspense Shares
) over the unpaid principal and accrued interest of the Exempt Note
attributable to the Suspense Shares shall (after repayment of the Exempt Note as contemplated in
Section 5.16(c)
of this Agreement) be allocated to the accounts of the Bank ESOPs active participants according to each active
participants proportionate Bank ESOP account balance as of the day before the ESOP Termination Date.
(c) As soon as practicable following the execution of this Agreement, WBKC will file, or cause to be filed,
with the Internal Revenue Service an application for a favorable determination letter upon termination of the Bank ESOP requesting the issuance to WBKC of the favorable determination letter described in
Section 5.16(b)
. A copy of the
completed and filed application shall be provided to Horizon at least five (5) business days prior to the Effective Time. On the Closing Date, immediately prior to the Effective Time, WBKC shall direct the Trustee of the Bank ESOP to cause the
unpaid principal balance and accrued interest through the Closing Date of the Exempt Note (such unpaid principal and accrued interest shall be referred to as the
ESOP
Loan Balance
) to be repaid by remitting a sufficient
number of Suspense Shares to WBKC or any other lender (including Horizon, as successor in interest to WBKC, as applicable) to repay the ESOP Loan Balance, with each remitted share to be valued in an amount equal to the cash equivalent of the Merger
Consideration. All remaining shares of WBKC Common Stock held by the ESOP (including the remaining Suspense Shares) shall be converted into the right to receive the Merger Consideration.
(d) Following the Effective Time, Horizon shall use its reasonable best efforts in good faith to obtain the
Internal Revenue Service favorable determination letter as promptly as possible, including adopting any amendments to the Bank ESOP that may be required by the Internal Revenue Service. As soon as practicable following the receipt of a favorable
determination letter from the Internal Revenue Service regarding the
tax-qualified
status of the Bank ESOP upon its termination, the remaining account balances in the Bank ESOP shall either be distributed to
participants and beneficiaries or rolled over to an eligible
tax-qualified
retirement plan or individual retirement account as a participant or beneficiary may direct.
(e) On or before the Effective Time, the Bank ESOP Committee shall have directed Pentegra Trust Company
(the
ESOP Trustee
), as directed trustee of the Bank ESOP, to (i) provide to the Bank ESOP participants similar notices and materials provided to other WBKC shareholders with respect to those matters requiring a vote of the
shareholders under this Agreement; (ii) obtain direction from the Bank ESOPs participants as to how to vote those shares of WBKC Common Stock allocated to the accounts of the Bank ESOPs participants with respect to those matters for
which a shareholder vote is required under this Agreement; (iii) vote those shares of WBKC Common Stock in accordance with the direction of the Bank ESOPs participants and in accordance with the Bank ESOP; and (iv) vote the Suspense
Shares and allocated shares of WBKC Common Stock for which no participant
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investment direction has been timely received by the ESOP Trustee in accordance with the Bank ESOP.
(f) WBKC shall continue in full force and effect, until the Effective Time: (i) the fidelity bond, if
any, issued to WBKC as described in ERISA Section 412; and (ii) the ERISA fiduciary liability insurance policy currently in effect, if any, for the benefit of the covered fiduciaries of the Bank ESOP.
(g) As soon as practicable following the execution of this Agreement, Horizon will amend the Horizon
Employee Stock Ownership Plan (the
Horizon ESOP
) to permit Continuing Employees to enter the Horizon ESOP as of the Effective Time, and Continuing Employees will be credited with prior years of service with WBKC for purposes of
eligibility and vesting (but not benefit accruals).
5.17
Termination of
Wolverine Bank 401(k) Plan
.
(a) WBKC maintains the Bank 401(k) Plan. WBKC shall make contributions
to the Bank 401(k) Plan between the date hereof and the Effective Time consistent with the terms of the Bank 401(k) Plan and past practices, including, without limitation, elective deferral contributions of those Bank 401(k) Plan participants who
are employed by WBKC or its Subsidiaries.
(b) As soon as practicable following the execution of this
Agreement, WBKC, pursuant to the provisions of the Bank 401(k) Plan, shall, subject to review and approval by Horizon: (i) adopt resolutions to terminate, subject to the consummation of the Merger, the Bank 401(k) Plan effective as of a date
that is not later than the day before the Effective Time (the
Plan Termination Date
) and to provide that the 401(k) Trustee shall designate the then- current Horizon 401(k) plan trustee as the named fiduciary with respect to the
Bank 401(k) Plan until assets of the Bank 401(k) Plan are distributed fully, and (ii) amend the Bank 401(k) Plan effective as of a date not later than the Plan Termination Date to freeze participation in and benefit accruals under the Bank
401(k) Plan, to vest fully all accrued benefits, and to provide that no distributions of accrued benefits shall be made from the Bank 401(k) Plan, or its related employee benefit trust, subsequent to the Plan Termination Date until such time as the
Internal Revenue Service issues a favorable determination letter to the effect that the plan termination does not adversely affect the Bank 401(k) Plans qualification for favorable income tax treatment under the Code, except distributions may
be made earlier if required by the terms of the Bank 401(k) Plan upon the occurrence of retirement, death, disability, or termination of employment, or any other event, other than the plan termination, that requires a distribution from the Bank
401(k) Plan. Notwithstanding the preceding provisions, participants with outstanding plan loans under the Bank 401(k) Plan as of the Effective Time shall be permitted to continue repaying such outstanding loans (subject to the terms and conditions
of such plan and the related loan procedures) on and after the Effective Time and until such time as plan termination distributions are paid pursuant to the preceding sentence. At such time as the loans are required to be repaid or will be taxed to
the borrower if not repaid (the 401(k) Loan Repayment Date), Horizon, if any, shall cause loans to be made,
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outside of any
tax-qualified
retirement plan, to those WBKC employees who had loans outstanding under the Bank 401(k) Plan as of the 401(k) Loan Repayment
Date, in an amount not to exceed the outstanding loan balance as of the 401(k) Loan Repayment Date, provided that any such WBKC employee completes any necessary documentation and is determined to qualify for such loan under applicable loan policies
and underwriting standards of Horizon. Each such refinancing loan shall have a fixed rate of interest not to exceed four percent (4.0%) per annum and shall have an amortization period not to exceed the remaining term of the loan granted under the
Bank 401(k) Plan.
(c) As soon as practicable following the execution of this Agreement, WBKC will
file, or cause to be filed, with the Internal Revenue Service an application for a favorable determination letter upon termination of the Bank 401(k) Plan (IRS Form 5310 and related attachments) requesting the issuance to WBKC of the favorable
determination letter described in
Section 5.17(b)
. A copy of the completed and filed IRS Form 5310 shall be provided to Horizon at least five (5) business days prior to the Effective Time. Following the Effective Time, Horizon shall
use its reasonable best efforts in good faith to obtain the Internal Revenue Service favorable determination letter as promptly as possible, including adopting any amendments to the Bank 401(k) Plan that may be required by the Internal Revenue
Service. As soon as practicable following the receipt of a favorable determination letter from the Internal Revenue Service regarding the
tax-qualified
status of the Bank 401(k) Plan upon its termination, the
remaining account balances in the Bank 401(k) Plan shall either be distributed to participants and beneficiaries or transferred to an eligible
tax-qualified
retirement plan or individual retirement account as
a participant or beneficiary may direct.
(d) Any contributions due to the Bank 401(k) Plan for the
period prior to the Plan Termination Date, and not yet paid on the Plan Termination Date, will be contributed by WBKC, or by Horizon Bank if after the Effective Time, as soon as administratively feasible following the Plan Termination Date.
(e) WBKC shall continue in full force and effect, until the Effective Time: (i) the fidelity bond, if
any, issued to WBKC as described in ERISA Section 412; and (ii) the ERISA fiduciary liability insurance policy currently in effect, if any, for the benefit of the covered fiduciaries of the Bank 401(k) Plan.
(f) On or before the Effective Time, WBKC shall have directed the 401(k) Trustee or plan administrators to
(i) provide to the Bank 401(k) Plan participants similar notices and materials provided to other WBKC shareholders with respect to those matters requiring a vote of the shareholders under this Agreement; (ii) obtain direction from the Bank
401(k) Plan participants as to how to vote those shares of WBKC Common Stock allocated to the accounts of the Bank 401(k) Plan participants with respect to those matters for which a shareholder vote is required under this Agreement; (iii) vote
those shares of WBKC Common Stock in accordance with the Bank 401(k) Plan participants and in accordance with the Bank 401(k) Plan; and (iv) vote the shares of WBKC Common Stock for which no participant investment direction has been timely
received by the 401(k) Trustee or plan administrators in accordance with the Bank 401(k) Plan.
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(g) As soon as practicable following the execution of this
Agreement, Horizon will amend the Horizon Employees Thrift Plan (
Horizon 401(k) Plan
) to permit Continuing Employees to enter the Horizon 401(k) Plan as of the Effective Time, and Continuing Employees will be credited with
prior years of service with WBKC for purposes of eligibility and vesting (but not benefit accruals). Horizon agrees to permit Bank 401(k) Plan participants who become employees of Horizon to roll over their account balances in the Bank 401(k) Plan
to the Horizon 401(k) Plan, subject to the terms of the Horizon 401(k) Plan, including any rollover restrictions.
5.18
Disposition of Welfare Benefit and Sec. 125 Plans
.
(a) All
fully insured welfare benefit (health, dental, vision, prescription drug, EAP, life/AD&D, LTD) and Internal Revenue Code Section 125, or cafeteria, plans currently sponsored by WBKC or Wolverine Bank shall be terminated as of
the Effective Time, unless Horizon determines that any such plan shall be continued past the Effective Time. WBKC shall take, or cause to be taken, all actions necessary to terminate all of WBKCs and any Subsidiarys group insurance
policies as of the Effective Time, unless otherwise instructed in writing by Horizon.
(b) As of the
Effective Time, and to the extent not prohibited by applicable law, WBKC shall take, or cause to be taken, all actions necessary to assign any and all applicable group insurance policies to Horizon and to provide Horizon all necessary financial,
enrollment, eligibility, contractual, and other information related to its welfare benefit and cafeteria plans to assist Horizon in the administration of such plans, unless Horizon determines that any or all of the group insurance policies should be
terminated as of the Effective Time.
(c) From the date of this Agreement through the Effective Time,
WBKC shall continue to: (i) pay the applicable insurance premiums necessary to continue the benefits under WBKCs fully insured welfare benefit plans; (ii) contribute to the cafeteria plan the
pre-tax
amounts which the cafeteria plan participants elect to defer from compensation; and (iii) pay all eligible claims incurred, in accordance with the terms and conditions of such plan, under the
cafeteria plans health and dependent care flexible spending accounts prior to the Effective Time.
(d) As of the date of the termination of the WBKC cafeteria plan, if any, and if directed by Horizon, the
balances in the health flexible spending accounts of Continuing Employees thereunder shall be transferred to the applicable components of the Horizon cafeteria plan. Benefit and compensation deferral elections in effect at that time shall be
continued under the Horizon cafeteria plan, subject to subsequent changes as provided in the Horizon plan. All benefit payments related to the transferred balances shall be made in accordance with the Horizon cafeteria plan.
5.19
Long-Term Incentive Plan
s
. At the Effective Time, Horizon
shall assume those certain Long-Term Incentive Plans with David H. Dunn and Rick A. Rosinski
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(collectively, the
LTIPs
) and the timing and amount of the payments thereunder will be made in accordance with the LTIP plan documents and election forms, as detailed in
Section 5.19
of the WBKC Disclosure Schedule. WBKC agrees to amend the LTIPs effective as soon as administratively feasible after the date of this Agreement to: (i) delete the provisions which permit the election of subsequent
voluntary deferral periods (including the subsequent deferral of any installment payments); (ii) prohibit WBKC, Horizon or any affiliate or successor from terminating the LTIPs and/or accelerate the timing of payments thereunder without participant
consent; and (iii) permit current LTIP owners to make deemed investment elections for amounts payable under the LTIPs (with the investment options of cash or Horizon common stock), including amounts previously credited to the Stock Units
Accounts under the LTIPs (subject to the ability of Horizon to override the investment elections at its sole discretion). Horizon and WBKC agree that all amounts payable under the LTIPs as of the Closing Date will be maintained by Horizon or any
affiliate or successor in a separate irrevocable grantor trust (which shall meet the requirements of Internal Revenue Service Revenue Procedure
92-65,
as amended or superseded from time to time), the trustee
of which grantor trust shall be determined by Horizon at the Effective Time, and all payments due under such LTIPs will be made from such trust in accordance with the LTIPs and applicable election forms, provided that the current owners of the LTIPs
shall be provided the opportunity to make deemed investment elections applicable to amounts payable under the LTIPs following the completion of the Merger.
5.20
Change in Control Payments, Mutual Termination of Employment Agreements
and New Employment Agreements
; Honoring WBKC Plans
. WBKC will pay out all amounts payable upon a change in control pursuant to the employment agreements between Wolverine Bank and (i) David H. Dunn, dated July 1,
2016, and (ii) Rick A. Rosinski, dated July 1, 2016 (collectively, the
Employment Agreements
), as identified in the WBKC Disclosure Schedule, as if the change in control payments contemplated by the Employment Agreements
had been triggered by the Merger,
provided, however, that
, if required, all such agreements shall be amended with the written consent of the affected parties prior to the Effective Time to ensure and expressly provide that no payment shall be
made under such agreements or under any other plan, arrangement or agreement applicable to the individual that would constitute an excess parachute payment (as such term is defined in Section 280G of the Code), and to the extent any
such payment would constitute an excess parachute payment, the payment will be reduced to $1.00 less than the amount that would be considered an excess parachute payment. The payment of such amounts shall be contingent upon
each of the two (2) above-named officers entering into (x) a mutual termination of employment agreement in a form reasonably acceptable to Horizon and executed concurrently with the execution of this Agreement (the
Mutual
Termination of Employment
Agreements
), and (y) an employment agreement with Horizon Bank in a form reasonably acceptable to Horizon and executed concurrently with the execution of this Agreement (the
Horizon Executive
Employment Agreements
). The change in control payments will be made in a lump sum no later than the Closing Date. Horizon shall honor the employment agreements between Wolverine Bank and (i) Brian Cherry, dated June 30, 2016;
(ii) Jeremy Clark, dated December 15, 2016; and (iii) John W. Schmitt, dated June 30, 2016, and the
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WBKC Plans identified in the WBKC Disclosure Schedules, except to the such extent any such agreement or plan is superseded or terminated, as of, or following, the Effective Time.
5.21
Subsidiary Merger
, Commercial Holdings Termination and Wolserv
Termination
. Prior to the Effective Time, WBKC shall, and shall cause each Subsidiary to, use its reasonable best efforts to take such action as necessary to (i) prepare to effectuate the Bank Merger as contemplated in
Section 1.05
hereof; (ii) effectuate the Commercial Holdings Termination as contemplated in
Section 1.06
hereof; (iii) effectuate the Wolserv Termination as contemplated in
Section 1.07
hereof; and
(iv) reconstitute the directors and officers of WBKC or any Subsidiary, amend the articles of incorporation or bylaws of WBKC or any Subsidiary, or make such other changes as Horizon may request if necessary to accomplish the same.
5.22
Cooperation on Conversion of Systems
. WBKC agrees to commence
immediately after the date of this Agreement (and continue until Closing or completed) using its reasonable best efforts to ensure an orderly transfer of information, processes, systems, and data to Horizon and to otherwise assist Horizon in
facilitating the conversion of all of WBKCs systems into, or to conform with, Horizons systems (including cooperating with Horizon in the training of WBKCs and its Subsidiaries employees on Horizons systems), so that,
as of the Closing, the systems of WBKC are readily convertible to Horizons systems to the fullest extent possible without actually converting them prior to the Closing. WBKC and Horizon shall meet on a regular basis to discuss and plan for the
conversion of WBKCs data processing and related electronic informational systems to those used by Horizon, which planning shall include, without limitation: (i) discussion of possible termination by WBKC of third-party service provider
arrangements effective at or following the Effective Time;
(ii) non-renewal
of personal property leases and software licenses used by WBKC in connection with its systems operations; and
(iii) retention of outside consultants and additional employees to assist with the conversion and outsourcing, as appropriate, of proprietary or self-provided system services. In the event that WBKC takes, at the request of Horizon, any action
relative to third parties to facilitate the conversion that results in the imposition of any fees, expenses or charges, Horizon Bank shall pay any such fees, expenses and charges directly to such third parties.
5.23
Installation/Conversion of Equipment
; Training
. Prior to
Closing, at times mutually agreeable to Horizon and WBKC, Horizon may, at Horizons sole expense, install teller equipment, platform equipment, security equipment, and computers, at the WBKC and Wolverine Bank offices, branches, and ATM
locations, and WBKC shall cooperate with Horizon in connection with such installation;
provided
,
however
, that such installations shall not interfere with the normal business activities and operations of WBKC or Wolverine Bank or
require material alterations to WBKCs or Wolverine Banks facilities;
provided further
, in the event of the termination of this Agreement, Horizon shall remove all such installed computers and equipment at Horizons sole
expense. In addition, prior to Closing, at times mutually agreeable to Horizon and WBKC, Horizon may conduct such training and other programs as it may, in its sole discretion and at its expense, elect to provide for those employees that Horizon
elects to offer employment;
provided, however,
that such training and
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other programs shall not interfere with the normal business activities and operations of WBKC or Wolverine Bank.
ARTICLE VI.
COVENANTS OF HORIZON
Horizon covenants and agrees with WBKC and covenants and agrees to cause its Subsidiaries to act as follows (and, where applicable, WBKC
covenants and agrees with Horizon as follows):
6.01
Approvals
. Horizon shall have primary responsibility for the
preparation, filing and costs of all bank regulatory applications required for consummation of the Merger (except those only applicable to WBKC or Wolverine Bank, if any), and all parties shall file such applications as promptly as practicable after
the execution of this Agreement (provided that each party has timely provided all information requested in writing by the other party or its counsel), and in no event later than forty-five (45) days after the execution of this Agreement;
provided, however,
that the parties acknowledge and agree that Horizon has made application to convert Horizon Bank from a national bank to an Indiana-state chartered bank, and all regulatory applications may, at Horizons election, be
filed after such conversion is consummated (presently anticipated to occur on or before June 30, 2017). Horizon shall provide WBKC and its counsel appropriate opportunity to review and comment on such bank regulatory applications, including any
supplements or amendments to such filings and all responses for additional information and replies to comments, prior to such filings being filed with a bank regulatory agency. Horizon shall promptly notify WBKC upon the receipt of any comments on
such bank regulatory agencies and shall provide WBKC with copies of all correspondence between Horizon and any bank regulatory agency. Horizon and WBKC shall cooperate fully and use reasonable best efforts to procure, upon terms and conditions
reasonably acceptable to each of them, all consents, authorizations, approvals, registrations, and certificates, to complete all filings and applications and to satisfy all other requirements prescribed by law which are necessary for consummation of
the Merger on the terms and conditions provided in this Agreement. Horizon agrees that it will consult with WBKC with respect to such consents, authorizations, approvals, registrations, and certificates, and agrees that it will keep WBKC apprised of
the status of matters relating to completion of the transactions contemplated hereby.
6.02
SEC Registration
.
(a) For the purposes (x) of registering the Horizon Common Stock to be offered to holders of WBKC
Common Stock in connection with the Merger with the SEC under the Securities Act and (y) of holding the WBKC shareholders meeting, as soon as practicable following the date of this Agreement, but no later than thirty (30) business days
after the date of this Agreement, WBKC (with the assistance of Horizon as appropriate) shall prepare the required proxy disclosures, in accordance with the rules and regulations of the SEC, to be used in connection with the WBKC shareholders meeting
to obtain approval for the Merger (the
Proxy Statement
), and as soon as reasonably practicable thereafter, Horizon shall prepare
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and file with the SEC a registration statement on Form
S-4
under the Securities Act of 1933, as amended (the
1933 Act
) covering the
shares of Horizon Common Stock to be issued pursuant to this Agreement, in which the Proxy Statement will be included as a prospectus. Such registration statement and any amendments and supplements thereto are referred to in this Agreement as the
Registration Statement
. Horizon shall provide WBKC and its counsel with appropriate opportunity to review and comment on the Registration Statement, and shall incorporate all appropriate comments thereto prior to the time it is
initially filed with the SEC or any amendments are filed with the SEC. Horizon shall use its reasonable best efforts to cause the same to become effective and thereafter, until the Effective Time or termination of this Agreement, to keep the same
effective and, if necessary, amend and supplement the same. Horizon shall, as soon as practicable after filing the Registration Statement, make all filings required to obtain all blue sky exemptions, authorizations, consents, or approvals required
for the issuance of Horizon common stock.
(b) The parties shall use reasonable best efforts to respond
(with the assistance of the other party) as promptly as practicable to any comments of the SEC with respect thereto. Horizon shall promptly notify WBKC upon the receipt of any comments from the SEC or its staff, or any request from the SEC or its
staff for amendments or supplements to the Registration Statement or Proxy Statement, as the case may be, and shall provide WBKC with copies of all correspondence between Horizon and the SEC. Horizon shall provide WBKC and its counsel with
appropriate opportunity to review and comment on such response and shall incorporate all appropriate comments thereto prior to filing its response with the SEC. If prior to the Effective Time any event occurs with respect to WBKC, Horizon or any
Subsidiary of WBKC or Horizon, respectively, or any change occurs with respect to information supplied by or on behalf of WBKC or Horizon, respectively, for inclusion in the Proxy Statement or the Registration Statement that, in each case, is
required to be described in an amendment of, or a supplement to, the Proxy Statement or the Registration Statement, WBKC or Horizon, as applicable, shall promptly notify the other of such event, and WBKC or Horizon, as applicable, shall cooperate in
the prompt filing with the SEC of any necessary amendment or supplement to the Proxy Statement and the Registration Statement and, as required by applicable Law, in disseminating the information contained in such amendment or supplement to
WBKCs shareholders and to Horizons shareholders.
(c) Horizon shall cause the shares of
Horizon Common Stock to be issued in the Merger to be approved for listing on the NASDAQ Global Select Market (subject to official notice of issuance) prior to the Effective Time.
6.03
Employee Benefit Plans and Employee Payments
.
(a) Horizon shall make available to the officers and employees of WBKC or any Subsidiary who continue as
employees of Horizon or any Subsidiary after the Effective Time (
Continuing Employees
), substantially the same employee benefits as are generally available to similarly-situated Horizon employees.
(b) Horizon and WBKC agree to address any issues related to the differences between the vacation and paid
time off policies of WBKC and any Subsidiary (including,
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without limitation, any banked paid time) and the vacation and paid time off policies of Horizon and communicate the proposed reconciliation of the policies to the Continuing Employees prior to
the Effective Time. Effective as of the later of the Effective Time or the date on which the Horizon vacation and paid time off policies are made available to the Continuing Employees, such Continuing Employees will be subject to the terms and
conditions of the Horizon vacation/paid time off policy in place for similarly situated employees of Horizon, with credit given for all prior years of service with WBKC or any Subsidiary for purposes of determining vacation pay eligibility and the
amount of such vacation pay
.
(c) Continuing Employees will receive credit for prior service
with WBKC or its Subsidiaries, or their predecessors, for purposes of eligibility and vesting (but not benefit accrual) under the employee benefit plans of Horizon and its Subsidiaries. The Horizon 401(k) Plan will be amended as provided in
Section 5.17(f)
of this Agreement and the Horizon ESOP will be amended as provided in
Section 5.16(g)
of this Agreement.
(d) To the extent a WBKC employee benefit plan is terminated at or prior to the Effective Time, Continuing
Employees shall become eligible to participate in Horizons similar employee benefit plans, if any, as of the Effective Time. To the extent a WBKC employee benefit plan is terminated after the Effective Time, Continuing Employees shall become
eligible to participate in Horizons similar employee benefit plans, if any, on the date of such plan termination. Horizon will use its reasonable best efforts to: (i) avoid subjecting Continuing Employees to any waiting periods or
additional
pre-existing
condition limitations under the health and dental plans of Horizon or its Subsidiaries in which they are eligible to participate than they otherwise would have been subject to under the
health and dental plans of WBKC; and (ii) give credit under the applicable plan for any deductibles and
co-insurance
payments made by such Continuing Employees under the corresponding WBKC plan during the
balance of the then current
12-month
period of coverage.
(e) To the extent permitted under the terms of any
tax-qualified
retirement plan maintained by Horizon after the Effective Time and subject to the terms and conditions thereof, such plan shall accept eligible rollover distributions (within the meaning of Code Section 402(c)(4)) of cash amounts
received from the Bank 401(k) Plan with respect to any Continuing Employees.
(f) Horizon may elect to
continue to maintain all fully insured employee welfare benefit and cafeteria plans currently in effect at the Effective Time until such time as Horizon determines, in its sole discretion, to modify or terminate any or all of those plans. Claims
incurred under the employee welfare benefit and cafeteria plans prior to plan termination shall be paid in accordance with the applicable plans claim submission procedures and deadlines.
(g) Until the Effective Time, WBKC or a Subsidiary of WBKC, whichever is applicable, shall be liable for
all obligations for continued health coverage pursuant to Section 4980B of the Code and Sections 601 through 609 of ERISA (
COBRA
) for eligible employees who incur a qualifying event before the Effective Time. Horizon or a
Horizon
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Subsidiary, whichever is applicable, shall, after the Effective Time, be liable for (i) all obligations for continued health coverage under COBRA with respect to each qualified beneficiary
of WBKC or a Subsidiary of WBKC who incurs a termination on and after the Effective Time, and (ii) for continued health coverage under COBRA from and after the Effective Time for each qualified beneficiary of WBKC or a Subsidiary of WBKC who
incurs a qualifying event before the Effective Time.
(h) Except for the employees identified in
Section 5.20
and any other employee receiving a separate change in control, severance or similar payment in connection with the Closing of the Merger, those employees of Wolverine Bank as of the Effective Time: (i) who are still
employed by Wolverine Bank and who Horizon or its Subsidiaries elect not to employ after the Effective Time or who are terminated other than for cause (as determined by Horizon and/or pursuant to its policies or any agreement applicable to the
employee) within twelve (12) months after the Effective Date or who resign because they are not being offered a comparable position with Horizon Bank that is within a twenty-five (25) mile radius of the current address of their primary
work location at Wolverine Bank; and (ii) who sign and deliver a termination and release agreement in a form substantially similar to the agreement provided in
Section 6.03(h)
of the Horizon Disclosure Schedule, shall be entitled to
severance pay in the amount described in
Section 6.03(h)
of the Horizon Disclosure Schedule. Such employees, who sign and deliver the termination and release agreement, will receive their severance in a
lump-sum
payment within sixty (60) days of termination of employment. Furthermore, any of such terminated employees shall be entitled to continuation coverage under Horizon Banks group health plans
as required by COBRA, subject to timely election and payment of the applicable COBRA premium by such terminated employees. In addition, Horizon, at its expense, will provide group career counseling for the Wolverine Bank employees who will not be
continuing with Horizon and will make professional career counseling services available through its internal employee assistance program for up to four (4) visits per employee. Nothing in this Section shall be deemed to limit or modify
Horizons or Horizon Banks
at-will
employment policy or any employees
at-will
employment status.
6.04
Adverse Actions
. During the period from the date of this
Agreement to the Effective Time, except with the written consent of WBKC, which consent will not be unreasonably withheld, Horizon will, and it will cause each of its Subsidiaries to, use reasonable best efforts to preserve intact its business
organization and assets and maintain its rights and franchises, and voluntarily take no action that would: (i) materially adversely affect the ability of the parties to obtain the Regulatory Approvals or materially increase the period of time
necessary to obtain such approvals; (ii) adversely affect its ability to perform its covenants and agreements under this Agreement in any material respect; or (iii) result in the representations and warranties contained in
Article
IV
of this Agreement not being true and correct on the date of this Agreement or at any future date on or prior to the Closing Date (subject to the standards set forth in
Section 7.02(a)
hereof) or in any of the conditions set forth
in
Article VII
hereof not being satisfied;
provided
,
however
, that the foregoing shall not be deemed to require Horizon to take any action which would otherwise violate any other provision of this Agreement.
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6.05
D&O Insurance and
Indemnification
.
(a) Subject to the limits of applicable federal banking law and regulations,
Horizon shall indemnify and hold harmless (including the advancement of expenses as incurred) each present and former director and officer of WBKC and its Subsidiaries, including Wolverine Bank (each, an
Indemnified Party
) for a
period of six (6) years following the Effective Time, against any costs or expenses (including reasonable attorneys fees), judgments, fines, losses, claims, damages, or liabilities incurred in connection with any claim, action, suit,
proceeding, or investigation, whether civil, criminal, administrative, or investigative, arising out of or pertaining to matters existing or occurring at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the same extent (and subject to the making of the same findings as to eligibility for such indemnification and/or advancement of expenses) that such Indemnified Party would have been indemnified (or entitled to advancement of expenses) as a
director or officer of WBKC or any of its Subsidiaries under applicable law or WBKCs, or any such Subsidiaries, articles of incorporation or bylaws as in effect as of the date of this Agreement.
(b) Provided WBKC has historically carried directors and officers liability insurance and
subject to the conditions of this
Section 6.05(b)
, Horizon shall to cause the persons serving as officers and directors of WBKC and Wolverine Bank immediately prior to the Effective Time to be covered for a period of up to six (6) years
after the Effective Time by the directors and officers liability insurance policy currently maintained by WBKC (the
Existing Policy
) or by a comparable or better policy (the
Replacement Policy
).
Prior to the Effective Time, as instructed by Horizon, WBKC shall cause the applicable broker of record designation for its Existing Policy and its existing Financial Institution Bond to be assigned to Horizons designee. Such assignments in
favor of Horizons designee shall be executed by WBKC with sufficient time to allow Horizon and its designee to place the insurance required by this Section. The Existing Policy or Replacement Policy, subject to policy terms and conditions,
shall provide coverage with respect to covered acts or omissions occurring prior to the Effective Time; provided, however, that Horizon shall not be required to pay annual premiums for the Existing Policy (or for any Replacement Policy) in excess of
150% of the annual premium for the current annual term of the Existing Policy (the
Maximum Amount
); and, provided, further, however, that, if Horizon is unable to maintain or obtain the insurance called for by this
Section 6.05(b)
, Horizon shall obtain as much comparable insurance as is available for the Maximum Amount. Horizons obligations within this
Section 6.05(b)
apply solely and exclusively to the Existing Policy and the
existing Financial Institution Bond at each policys current limits of insurance, as well as its other terms, conditions, exclusions and annual premiums as of the date of this Agreement, and which must be continuously maintained in force by
WBKC without interruption, cancellation, or amendment until the Effective Time or Horizons obligations within this Section shall cease.
(c) The provisions of this
Section 6.05
shall survive the Effective Time and the obligations of
Horizon provided under this
Section 6.05
are intended to be enforceable against Horizon directly by each Indemnified Party and his or her heirs and personal representatives.
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Horizon shall pay all reasonable costs, including attorneys fees, upon the final disposition of any claim, action, suit, proceeding or investigation by any Indemnified Party in successfully
enforcing the indemnity and other obligations provided for in this
Section 6.05
to the fullest extent permitted under applicable law, the articles of incorporation of WBKC or the bylaws of WBKC; provided, however, such payment of costs
shall be paid by Horizon in advance of the final disposition of such claim, action, suit, proceeding or investigation upon receipt of: (i) written affirmation of an Indemnified Partys good faith belief that the Indemnified Party is
eligible to receive the indemnification provided for in this
Section 6.05
; and (ii) an unconditional written undertaking by or on behalf of the Indemnified Party to repay such amount if it shall ultimately be determined that he or
she is not entitled to be indemnified by Horizon as authorized in this
Section 6.05
.
(d) In the event that either Horizon or any of its successors or assigns (i) consolidates with or
merges into any other Person and shall not be the continuing or surviving entity of such consolidation or merger, or (ii) transfers all or substantially all of its properties and assets to any Person, then, and in each such case, proper
provision shall be made so that the successors and assigns of Horizon shall assume the obligations set forth in this
Section 6.05
.
6.06
Changes and Supplements to Horizon Disclosure Schedule
. Horizon
shall promptly supplement, amend, and update, upon the occurrence of any change prior to the Effective Time, and as of the Effective Time, the Horizon Disclosure Schedule with respect to any matters or events after the date of this Agreement arising
which, if in existence or having occurred as of the date of this Agreement, would have been required to be set forth or described in the Horizon Disclosure Schedule or this Agreement and including, without limitation, any fact which, if existing or
known as of the date hereof, would have made any of the representations or warranties of Horizon contained herein materially incorrect, untrue, or misleading. No such supplement, amendment, or update shall have any effect for the purposes of
determining satisfaction of the conditions set forth in
Article VII
.
6.07
Great Lakes Bay Region Advisory Board
. As soon as reasonably
practical after the Effective Time, Horizon agrees to form a Great Lakes Bay Region Advisory Board comprised of three to five members and add representatives to the advisory board from the communities served by Wolverine Bank. Each member of the
Great Lakes Bay Region Advisory Board will receive fees and shares of Horizon Common Stock in amounts equal to those received by members of Horizons other advisory boards of directors.
6.08
Horizon and Horizon Bank Board
. Horizon and Horizon Bank shall
take all appropriate action so that, as of the Effective Time and subject to and in accordance with the Bylaws of Horizon and Horizon Bank, Eric P. Blackhurst (or such other director as shall be mutually agreed upon), shall be appointed as a
director of Horizon and Horizon Bank. If the term of the class of directors to which he is appointed shall expire less than three (3) years from the Effective Time, Horizon and Horizon Bank agree to cause him to be nominated and recommended for
election by the shareholders at the next election of directors as long as he continues to meet all of Horizons and Horizon Banks director qualifications, is otherwise
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qualified to serve as a director of Horizon and Horizon Bank under all applicable laws and regulations, and is not prohibited from serving in such a capacity by any bank or securities regulatory
authority or similar self-governing body with jurisdiction over Horizon or Horizon Bank.
6.09
Issuance of Horizon Common Stock
. The Horizon Common Stock to be
issued by Horizon to the shareholders of WBKC pursuant to this Agreement will, on the issuance and delivery to such shareholders pursuant to this Agreement, be duly authorized, validly issued, fully paid, and nonassessable. The shares of Horizon
Common Stock to be issued to the shareholders of WBKC pursuant to this Agreement are and will be free of any preemptive rights of the shareholders of Horizon or any other person, firm, or entity. The Horizon Common Stock to be issued to the
shareholders of WBKC pursuant to this Agreement will not be subject to any restrictions on transfer arising under the 1933 Act, except for Horizon Common Stock issued to any shareholder of WBKC who may be deemed to be an affiliate (under
the Securities Act) of Horizon after completion of the Merger pursuant to Rule 145 of the Securities Act.
6.10
Community Investment
. Horizon agrees that for a period of five
(5) years following the Effective Time, it shall cause Horizon Bank to donate $50,000 annually to nonprofit organizations and/or community schools in the markets served by Wolverine Bank. The continuation of these annual donations will be
dependent upon Horizons continued financial performance, and their permissibility under applicable law, including all banking regulations. These donations shall be administered by Horizons Great Lakes Bay Region Advisory Board, subject
to oversight by the Horizon Bank Board of Directors and/or Horizons Chief Executive Officer.
6.11
Consideration Availability
. Horizon agrees at all times from the
date of this Agreement until the Stock Consideration has been paid in full to reserve a sufficient number of shares of Horizon Common Stock to be issued as the Stock Consideration. Horizon has no reason to believe it will not have a sufficient
amount of cash, or have access to a sufficient amount of cash, to fulfill its obligations with respect to cash payments under this Agreement.
6.12
Short-Swing Trading Exemption
. Horizon shall take all steps, as
may be necessary or appropriate, to cause the transactions contemplated by
Article II
and any other dispositions of equity securities of WBKC (including derivative securities) or acquisitions of equity securities of Horizon in connection with
the consummation of the transactions contemplated by this Agreement to be exempt under Rule
16b-3(d)
promulgated under the Exchange Act.
6.13
Failure to Fulfill Conditions
. In the event Horizon determines
that a condition to its obligation to complete the Merger cannot be fulfilled, and that it will not waive that condition, it will promptly notify WBKC.
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ARTICLE VII.
CONDITIONS PRECEDENT TO THE MERGER
7.01
Conditions Precedent to Horizon
s
Obligations
. The obligation of Horizon to consummate the Merger is subject to the satisfaction and fulfillment of each of the following conditions on or prior to the Effective Time, unless waived in writing by Horizon,
provided
,
however
, that the conditions set forth in
Sections 7.01(d)
,
(e)
,
(f)
,
(h)
, and
(k)
cannot be waived by Horizon:
(a)
Representations and Warranties
.
Each of the representations and warranties of
WBKC set forth in the first three (3) sentences of
Section 3.01(a)
, the first two sentences of
Section 3.01(b)
and
Sections 3.02(a)
,
3.02(b)(i)
,
3.03
,
3.23(a)
and
3.23(n)
(in each case,
after giving effect to the first paragraph of
Article III
) shall be true, accurate, and correct (other than, in the case of
Section 3.03(a)
, such failures to be true, accurate and correct as are de minimis) in accordance with its
terms at and as of the Effective Time as though such representations and warranties had been made or given on and as of the Effective Time (except that representations and warranties that by their express terms speak as of the date of this Agreement
or some other date shall be true and correct only as of such date), and the representations and warranties of WBKC set forth in
Sections 3.02(b)(ii)
,
3.08
,
3.10
,
3.18
,
3.22
,
3.35
, and
3.36
(in each
case, after giving effect to the first paragraph of
Article III
) shall be true, accurate and correct in all material respects in accordance with its terms at and as of the Effective Time as though such representations and warranties had been
made or given on and as of the Effective Time (except to the extent such representations and warranties speak as of an earlier date). All other representations and warranties of WBKC set forth in this Agreement (read without giving effect to any
qualification as to materiality or Material Adverse Effect set forth in such representations or warranties but, in each case, after giving effect to the first paragraph of
Article III
) shall be true, accurate and correct in all respects as of
the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date, provided, that for purposes of this sentence, such
representations and warranties shall be deemed to be true, accurate and correct unless the failure or failures of such representations and warranties to be so true, accurate and correct, either individually or in the aggregate, and without giving
effect to any qualification as to materiality or Material Adverse Effect set forth in such representations or warranties, has had or would reasonably be expected to have a Material Adverse Effect on WBKC.
(b)
Covenants
.
Each of the covenants and agreements of WBKC shall have been
fulfilled or complied with, in all material respects, at or prior to the Effective Time.
(c)
Deliveries at Closing
.
Horizon shall have received from WBKC at the Closing
(as defined in
Section 10.01
) the items and documents, in form and content reasonably satisfactory to Horizon, set forth in
Section 10.02(b)
.
(d)
Registration Statement Effective
.
Horizon shall have registered its shares of
Horizon Common Stock to be issued to shareholders of WBKC in accordance with this
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Agreement with the SEC pursuant to the 1933 Act, and all state securities and blue sky approvals, authorizations, and exemptions required to offer and sell such shares shall have been received by
Horizon. The Registration Statement with respect thereto shall have been declared effective by the SEC and no stop order shall have been issued or threatened.
(e)
Regulatory Approvals
.
All regulatory approvals required to consummate the
transactions contemplated hereby (
Regulatory Approvals
) shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired and no such approvals shall contain
any conditions, restrictions, or requirements which would (i) following the Effective Time, have a Material Adverse Effect on Horizon, or (ii) reduce the benefits of the transactions contemplated hereby to such a degree that Horizon would
not have entered into this Agreement had such conditions, restrictions, or requirements been known at the date hereof.
(f)
Shareholder Approval
.
The shareholders of WBKC shall have approved and adopted
this Agreement as required by applicable law and the terms of this Agreement.
(g)
Officers
Certificate
.
WBKC shall have delivered to Horizon a
certificate signed by its President and its Secretary, dated as of the Effective Time, certifying that: (i) the representations and warranties of WBKC contained in
Article III
are true, accurate, and correct subject to the standard
specified in
Section 7.01(a)
; (ii) all the covenants of WBKC have been complied with in all material respects at or prior to the Effective Time; and (iii) WBKC has satisfied and fully complied with all conditions necessary to
consummate the transactions contemplated by this Agreement.
(h)
Tax
Opinion
.
The Board of Directors of Horizon shall have received a written opinion of the law firm of Barnes & Thornburg LLP, dated as of the Closing Date, in form and content reasonably satisfactory to Horizon, to the
effect that the Merger to be effected pursuant to this Agreement will qualify as a reorganization within the meaning of Section 368(a) and related sections of the Code (as described in
Section 1.03
hereof) to each party hereto and
to the shareholders of WBKC. In rendering such opinion, counsel may require and rely upon customary representation letters of the parties hereto and rely upon customary assumptions.
(i)
[
Intentionally Omitted.
]
(j)
Material Proceedings
.
None of Horizon, WBKC, or any of their Subsidiaries,
shall be subject to any statute, rule, regulation, injunction, order, or decree, which shall have been enacted, entered, promulgated, or enforced, which prohibits, prevents, or makes illegal the completion of the Merger, and no claim, litigation, or
proceeding which is likely, in the reasonable, good faith judgment of Horizon, to have a Material Adverse Effect on WBKC, shall have been initiated relating to this Agreement or the Merger or seeking to prevent the completion of the Merger.
(k)
Listing
.
The shares of Horizon Common Stock to be issued in the Merger shall
have been approved for listing on the NASDAQ Global Select Market, subject to official notice of issuance.
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(l)
Execution of Mutual Termination of Employment
Agreements
.
The Wolverine Bank employees identified in
Section 5.20
shall have executed and delivered the Mutual Termination of Employment Agreements to Horizon.
(m)
Execution of Horizon Executive Employment Agreements
.
The Wolverine Bank
employees identified in
Section 5.20
shall have executed and delivered the Horizon Executive Employment Agreements to Horizon.
(n)
Notice of Termination of Data Processing Agreement
.
Wolverine Bank shall have
provided notice of termination to Fiserv Solutions, Inc. (
Fiserv
) under that certain Master Agreement, dated October 1, 2010 (including related exhibits and schedules), as amended, between Wolverine Bank and Fiserv.
(o)
WBKC Consolidated Shareholders
Equity
.
As of the end of
the month prior to the Effective Time, the WBKC Consolidated Shareholders Equity (as defined in this
Section 7.01(o))
, shall not be less than $62.8 million, representing the amount outstanding as of May 31, 2017.
WBKC Consolidated Shareholders
Equity
shall be the consolidated shareholders equity of WBKC and all of its Subsidiaries determined in accordance with GAAP consistently applied for prior periods; provided,
however, that (A) any accruals established or expenses taken by WBKC or any Subsidiary of WBKC pursuant to
Sections 5.05(b) or 5.05(c)
; (B) any changes to the valuation of the Wolverine Bank investment portfolio attributed to ASC 320,
whether upward or downward, from March 31, 2017, until the measurement date; (C) the aggregate expenses of attorneys, accountants, consultants, financial advisors, and other professional advisors incurred by WBKC or any Subsidiary of WBKC
in connection with this Agreement or the transactions contemplated hereby, including those incurred prior to the execution of this Agreement; (D) any amounts paid or payable to any director, officer, or employee of WBKC or any Subsidiary of
WBKC under any contract, severance arrangement, benefit plan, or employment practice of WBKC or any Subsidiary of WBKC and all other payroll and
non-payroll
related costs and expenses; (E) costs
associated with the termination of the Bank 401(k) Plan, the Bank ESOP and any other employee benefit plan, except as otherwise expressly provided herein; (F) costs associated with the termination of the Fiserv data processing agreement;
(G) cash dividends permitted to be paid to shareholders of WBKC pursuant to
Section 5.03(b)(ii)
; and (H) any other expenses incurred in connection with the transactions contemplated hereby; in each case incurred or to be
incurred by WBKC or any WBKC Subsidiary through the Effective Time in connection with this Agreement and the transactions contemplated hereby,
will not reduce or impact the calculation of the WBKC Consolidated Shareholders Equity for
purposes of this Section. All such excluded amounts shall also be determined in accordance with GAAP.
(p)
Consents
.
WBKC shall have obtained or caused to be obtained (a) all
written consents, if any, required under the Material Contracts, and (b) all permits, authorizations, other written consents, permissions and approvals as required for the lawful consummation of this Merger and as required under all agreements,
contracts, appointments, indentures, plans, trusts or other arrangements with third parties required to effect the transactions contemplated by this Agreement.
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(q)
[
Intentionally Omitted.
]
(r)
Special Wolverine Bank Dividend to WBKC
. Wolverine Bank shall have sought and
received all necessary regulatory approvals for a cash dividend to WBKC in the amount of excess capital as determined and requested by Horizon (which cash dividend amount may not exceed an amount that would result in Wolverine Bank failing to be
considered well capitalized under applicable banking laws and regulations and after giving effect to costs, fees, expenses and other amounts to be paid and liabilities to be incurred pursuant to the terms of this Agreement, calculated on
a fully-phased in basis for requirements that are not fully phased in as of the date of this Agreement), and such dividend shall have been paid by Wolverine Bank to WBKC at least one (1) business day prior to the Closing Date.
7.02
Conditions Precedent to WBKC
s
Obligations
. The obligation of WBKC to consummate the Merger is subject to the satisfaction and fulfillment of each of the following conditions on or prior to the Effective Time, unless waived in writing by WBKC
provided
,
however
, that the conditions set forth in
Sections 7.02(d)
,
(e)
,
(f)
,
(i)
, and
(j)
cannot be waived by WBKC:
(a)
Representations and Warranties
.
The representations and warranties of Horizon
set forth in
Sections 4.01(a))
,
(b)
, and
(c)
,
4.03(a)
and
4.20
(in each case, after giving effect to the first paragraph of Article IV) shall be true, accurate and correct (other than, in the case of
Section 4.03(a)
, such failures to be true, accurate and correct as are de minimis) in each case as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date, and the representations and warranties of Horizon set forth in
Sections 4.02(b)(ii)
,
4.05
,
4.07
,
4.10
and
4.15
(in each case, after giving effect to the first
paragraph of Article IV) shall be true, accurate and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made
on and as of the Closing Date. All other representations and warranties of Horizon set forth in this Agreement (read without giving effect to any qualification as to materiality or Material Adverse Effect set forth in such representations or
warranties but, in each case, after giving effect to the first paragraph of
Article IV
) shall be true, accurate and correct in all respects as of the date of this Agreement and (except to the extent such representations and warranties speak
as of an earlier date) as of the Closing Date as though made on and as of the Closing Date, provided, that for purposes of this sentence, such representations and warranties shall be deemed to be true, accurate and correct unless the failure or
failures of such representations and warranties to be so true, accurate and correct, either individually or in the aggregate, and without giving effect to any qualification as to materiality or Material Adverse Effect set forth in such
representations or warranties, has had or would reasonably be expected to have a Material Adverse Effect on Horizon.
(b)
Covenants
.
Each of the covenants and agreements of Horizon shall have been
fulfilled or complied with, in all material respects, at or prior to the Effective Time.
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(c)
Deliveries at Closing
.
WBKC shall
have received from Horizon at the Closing the items and documents, in form and content reasonably satisfactory to WBKC, listed in
Section 10.02(a)
hereof.
(d)
Registration Statement Effective
.
Horizon shall have registered its shares of
Horizon Common Stock to be issued to shareholders of WBKC in accordance with this Agreement with the SEC pursuant to the 1933 Act, and all state securities and blue sky approvals, authorizations, and exemptions required to offer and sell such shares
shall have been received by Horizon. The Registration Statement with respect thereto shall have been declared effective by the SEC and no stop order shall have been issued or threatened.
(e)
Regulatory Approvals
.
All Regulatory Approvals shall have been obtained and
shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired.
(f)
Shareholder Approval
.
The shareholders of WBKC shall have approved and adopted
this Agreement as required by applicable law and the terms of this Agreement.
(g)
Officers
Certificate
.
Horizon shall have delivered to WBKC
a certificate signed by its Chief Executive Officer and its Secretary, dated as of the Closing Date, certifying that: (i) the representations and warranties of Horizon contained in
Article IV
are true, accurate, and correct subject to
the standard specified in
Section 7.02(a)
above; (ii) all the covenants of Horizon have been complied with in all material respects at or prior to the Effective Time; and (iii) Horizon has satisfied and fully complied with all
conditions necessary to make this Agreement effective as of the Closing Date.
(h)
Tax
Opinion
.
The Board of Directors of WBKC shall have received a written opinion of the law firm of Luse Gorman, PC, dated as of the Effective Time, in form and content reasonably satisfactory to WBKC, to the effect that the
Merger to be effected pursuant to this Agreement will qualify as a reorganization within the meaning of Section 368(a) and related sections of the Code (as described in
Section 1.03
hereof) to each party hereto and to the
shareholders of WBKC. In rendering such opinion, counsel may require and rely upon customary representation letters of the parties hereto and rely upon customary assumptions.
(i)
Listing
.
The shares of Horizon Common Stock to be issued in the Merger shall
have been approved for listing on the NASDAQ Global Select Market, subject to official notice of issuance.
(j)
Material Proceedings
.
None of Horizon, WBKC, or any Subsidiary of Horizon or
WBKC, shall be subject to any statute, rule, regulation, injunction, order, or decree, which shall have been enacted, entered, promulgated, or enforced, which prohibits, prevents, or makes illegal the completion of the Merger, and no claim,
litigation, or proceeding which is likely, in the reasonable, good faith judgment of WBKC, to have a Material Adverse Effect on Horizon, shall have been initiated relating to this Agreement or the Merger or seeking to prevent the completion of the
Merger.
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ARTICLE VIII.
TERMINATION OF MERGER
8.01
Termination
. This Agreement may be terminated and abandoned at any time prior to the Closing Date, only as follows:
(a) by the mutual written consent of Horizon and WBKC;
(b) by either of WBKC or Horizon by written notice to the other:
(i) if this Agreement and the Merger are not approved by the requisite vote of the shareholders
of WBKC at the meeting of shareholders of WBKC contemplated in
Section 5.01
;
(ii) (x) if any Governmental Authority of competent jurisdiction shall have issued an order,
decree, judgment, or injunction or taken any other action that permanently restrains, enjoins, or otherwise prohibits or makes illegal the consummation of the Merger, and such order, decree, judgment, injunction, or other action shall have become
final and
non-appealable,
or (y) if any consent or approval of any Governmental Authority whose consent or approval is required to consummate the Merger has been denied and such denial (despite the
reasonable best efforts of the parties hereto to appeal or reverse such denial) has become final and
non-appealable;
or (z) any application, filing, or notice for a regulatory approval has been withdrawn
at the request or recommendation of the applicable Governmental Authority;
provided, however
, that the right to terminate this Agreement under this
Section 8.01(b)(ii)
shall not be available to a party whose failure (or the
failure of any of its affiliates) to fulfill any of its obligations (excluding warranties and representations) under this Agreement has been the cause of or resulted in the occurrence of any event described in clauses (x), (y) and (z) above;
(iii) if the consummation of the Merger shall not have occurred on or before May 31,
2018 (the Outside Date);
provided
that the right to terminate this Agreement under this
Section 8.01(b)(iii)
shall not be available to any party whose breach of any representation, warranty, covenant, or other
agreement contained in this Agreement causes the failure of the Merger to occur on or before the Outside Date; or
(c) by written notice from Horizon to WBKC, if:
(i) any event shall have occurred which is not capable of being cured prior to or on the
Outside Date and would result in any condition set forth in
Section 7.01
not being satisfied prior to or on the Outside Date (
provided
, that Horizon is not then in material breach of any representation, warranty, covenant, or
other agreement contained herein);
(ii) WBKC breaches or fails to perform any of its
representations, warranties, or covenants contained in this Agreement, which breach or failure to perform would
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give rise to the failure of a condition set forth in Section 7.01, and such condition is incapable of being satisfied prior to or on the Outside Date or such breach has not been cured by
WBKC within twenty (20) business days after WBKCs receipt of written notice of such breach from Horizon (
provided
, that Horizon is not then in material breach of any representation, warranty, covenant, or other agreement contained
herein); or
(iii) there shall have occurred after the date of this Agreement any event, change,
condition, circumstance, or state of facts, or aggregation of events, changes, conditions, circumstance, or state of facts, that has had, individually or in the aggregate, a Material Adverse Effect on WBKC.
(d) by written notice from WBKC to Horizon if:
(i) any event shall have occurred which is not capable of being cured prior to or on the
Outside Date and would result in any condition set forth in
Section 7.02
not being satisfied prior to or on the Outside Date (
provided
, that WBKC is not then in material breach of any representation, warranty, covenant, or other
agreement contained herein);
(ii) Horizon breaches or fails to perform any of its
representations, warranties, or covenants contained in this Agreement, which breach or failure to perform would give rise to the failure of a condition set forth in
Section 7.02
and such condition is incapable of being satisfied prior to
or on the Outside Date or such breach has not been cured by Horizon within twenty (20) business days after Horizons receipt of written notice of such breach from WBKC (
provided
, that WBKC is not then in material breach of any
representation, warranty, covenant, or other agreement contained herein); or
(iii) there shall
have occurred after the date of this Agreement any event, change, condition, circumstance, or state of facts, or aggregation of events, changes, conditions, circumstances, or state of facts that has had, individually or in the aggregate, a Material
Adverse Effect on Horizon.
(e) by written notice from Horizon to WBKC:
(i) if the WBKC Board of Directors shall fail to include its recommendation to approve the
Merger in the Proxy Statement;
(ii) in the event of an Adverse Recommendation Change;
(iii) if the WBKC Board shall approve any Acquisition Proposal or publicly recommend that the holders
of WBKC Common Stock accept or approve any Acquisition Proposal; or
(iv) if WBKC shall have
entered into, or publicly announced its intention to enter into, a definitive agreement, agreement in principle, or letter of intent with respect to any Acquisition Proposal.
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(f) by written notice by Horizon to WBKC if a quorum could not
be convened at the meeting of shareholders of WBKC contemplated in
Section 5.01
or at a reconvened meeting held at any time prior to or on the Outside Date.
(g) by written notice by WBKC to Horizon at any time during the five (5) day period commencing on the
Determination Date if, and only if, both of the following conditions are satisfied, such termination to be effective on the fifth (5
th
) business day following the date WBKC provides notice to
Horizon after the Determination Date as set forth below:
(i) the Horizon Market Value
(as determined on the Determination Date) is less than $23.02; and
(ii) the number
obtained by [dividing the Horizon Market Value by the Initial Horizon Market Value] shall be less than the number obtained by [dividing ((A) the Final Index Price by (B) the Initial Index Price) minus 0.15];
subject
,
however
, to the following three sentences. If WBKC elects to exercise its termination right pursuant to this
Section 8.01(g)
, it shall give prompt written notice thereof to Horizon. During the five (5) business day period commencing with its receipt of such notice, Horizon shall have the option to increase the Exchange Ratio to equal the
lesser of (i) a quotient, the numerator of which is equal to the product of the Initial Horizon Market Value, the Exchange Ratio (as then in effect), and the [Index Ratio minus 0.15] and the denominator of which is equal to the Horizon Market
Value (as determined on the Determination Date); or (ii) the quotient determined by dividing the Initial Horizon Market Value by the Horizon Market Value (as determined on the Determination Date), and multiplying the quotient by the product of
the Exchange Ratio (as then in effect) and 0.85. If within such five (5) business day period, Horizon delivers written notice to WBKC that it intends to proceed with the Merger by paying such additional consideration as contemplated by the
preceding sentence, and notifies WBKC of the revised Exchange Ratio, then no termination shall have occurred pursuant to this
Section 8.01(g)
, and this Agreement shall remain in full force and effect in accordance with its terms (except
that the Exchange Ratio shall have been so modified).
For purposes of this
Section 8.01(g)
, the following terms shall have
the meanings indicated below:
Determination Date
shall mean the first date on which all Regulatory Approvals (and
waivers, if applicable) and all other approvals and consents necessary for consummation of the Merger have been received (disregarding any waiting period).
Final Index Price
means the average of the daily closing value of the Index for the fifteen (15) consecutive trading
days immediately preceding the Determination Date.
Index
means the SNL Small Cap U.S. Bank and Thrift Index or, if
such Index is not available, such substitute or similar Index as substantially replicates the SNL Small Cap U.S. Bank and Thrift Index.
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Index Ratio
means the Final Index Price divided by the Initial Index Price.
Initial Horizon Market Value
means $27.08, adjusted as indicated in the last sentence of this
Section 8.01(g)
.
Initial Index Price
means the closing value of the Index on the date immediately prior to
the date of this Agreement.
Horizon Market Value
means the average of the daily closing sales prices of a share of
Horizons common stock, rounded to the nearest cent, during the fifteen (15) consecutive trading days immediately preceding the Determination Date;
provided, however
, that closing sales prices shall only be used for days during
which Horizons shares are actually traded on the NASDAQ Global Select Market.
If Horizon or any company belonging to the Index
declares or effects a stock dividend,
split-up,
combination, exchange of shares or similar transaction between the date of this Agreement and the Determination Date, the prices for the common stock of such
company shall be appropriately adjusted for the purposes of applying this
Section 8.01(g)
.
(h) By written notice from WBKC to Horizon if the WBKC Board has approved any Acquisition Proposal or if
WBKC shall have entered into a definitive agreement, agreement in principle, or letter of intent with respect to any Acquisition Proposal.
8.02
Effect of Termination
.
(a) Subject to the remainder of this
Section 8.02
, in the event of the termination of this
Agreement pursuant to
Section 8.01
, this Agreement shall forthwith become null and void and have no effect, without any liability on the part of Horizon or WBKC and each of their respective subsidiaries, directors, officers, employees,
advisors, agents, or shareholders and all rights and obligations of any party under this Agreement shall cease, except for the agreements contained in
Section 5.06
, this
Section 8.02
and
Article XI
, which shall remain
in full force and effect and survive any termination of this Agreement; provided, however, that nothing contained in this Agreement, including this
Section 8.02
, except for the amounts payable pursuant to subsections
(a)
,
(c)
, or
(d)
, shall relieve any party hereto from liabilities or damages arising out of any fraud or intentional or willful breach by such party of any of its representations, warranties, covenants, or other agreements contained in this
Agreement or any related agreement.
(b) WBKC shall pay to Horizon an amount in cash equal to
$3,539,000 (the
Termination Fee
) if:
(i) this Agreement is
terminated by Horizon pursuant to
Section 8.01(e)
; or
(ii) this Agreement
is terminated by either party pursuant to
Section 8.01(b)(i)
as a result of the failure of WBKCs shareholders to approve the Agreement and the Merger by the requisite vote or by Horizon pursuant to
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Section 8.01(f)
and, in each case, (A) prior to the date of such termination, an Acquisition Proposal was made, and (B) prior to the date that is twelve (12) months
after such termination, WBKC or any of its Subsidiaries enters into any Acquisition Agreement or any Acquisition Proposal is consummated (regardless of whether such Acquisition Proposal is made or consummated before or after termination of this
Agreement); or
(iii) this Agreement is terminated by either WBKC or Horizon pursuant
to
Section 8.01(b)(iii)
and (A) prior to the date of such termination, an Acquisition Proposal was made, and (B) prior to the date that is twelve (12) months after such termination WBKC or any of its Subsidiaries enters
into any Acquisition Agreement or any Acquisition Proposal is consummated.
(iv) this
Agreement is terminated by Horizon pursuant to
Section 8.01(c)(ii)
or (iii), and prior to the date that is twelve (12) months after such termination, WBKC or any of its Subsidiaries enters into any Acquisition Agreement or any
Acquisition Proposal is consummated.
(v) This Agreement is terminated by WBKC pursuant
to
Section 8.01(h)
.
(c) Any fee due under
Section 8.02(a)
shall be paid by
WBKC by wire transfer of same day funds within three business days after written demand for payment is made by Horizon.
(d) In the event Horizon would be entitled to the Termination Fee pursuant to
Section 8.02(a)
,
then Horizon may elect, in its sole discretion, to terminate this Agreement and require the payment of such Termination Fee, in which event the Termination Fee shall be the sole and exclusive remedy for such termination event and such fee shall
constitute liquidated damages; provided, however, this Agreement shall not be terminated until the Termination Fee is paid in full. WBKC acknowledges that the agreements contained in this
Section 8.02
are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements, Horizon would not have entered into this Agreement. Accordingly, if WBKC fails promptly to pay the Termination Fee, and, in order to obtain such payment, Horizon
commences a suit that results in a judgment against WBKC for the Termination Fee, WBKC shall also pay to Horizon its reasonable costs and expenses (including attorneys and accountants fees and expenses) in connection with such suit and
any appeal relating thereto, together with interest at the national prime rate in effect on the date such payment was required to be made.
ARTICLE IX.
EFFECTIVE TIME OF THE MERGER
Upon the terms and subject to the conditions specified in this Agreement, the Merger shall become effective on the day and at the time
specified in the Articles of Merger of Horizon and WBKC as filed with the Indiana Secretary of State and the Maryland Department
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of Assessments and Taxation (the
Effective Time
). Unless otherwise mutually agreed to by the parties hereto, the parties shall cause the Effective Time to occur within ten
(10) business days after the later to occur of (a) all conditions precedent to the Merger set forth in this Agreement have been fulfilled, and (b) all waiting periods in connection with the bank regulatory applications filed for the
approval of the Merger have expired.
ARTICLE X.
CLOSING
10.01
Closing Date and Place
. So long as all conditions precedent set forth in
Article VII
hereof have been satisfied and fulfilled, the closing of the Merger (the
Closing
) will
take place on the date determined to be the date of the Effective Time by
Article IX
hereof (the
Closing Date
) at a location to be reasonably determined by Horizon.
10.02
Deliveries
.
(a) At the Closing, Horizon will deliver to WBKC the following:
(i) the officers certificate contemplated by
Section 7.02(g)
hereof;
(ii) copies of all Regulatory Approvals necessary to consummate the Merger;
(iii) copies of the resolutions adopted by the Board of Directors of Horizon, certified by
the Secretary of Horizon relative to the approval of this Agreement and the Merger;
(iv) the tax opinion required by
Section 7.02(h)
hereof;
(v) evidence of the purchase of director and officer liability insurance for the benefit of
the Indemnified Parties in accordance with
Section 6.05
; and
(vi) such
other documents and information as WBKC or its legal counsel may reasonably request.
(b) At the
Closing, WBKC will deliver to Horizon the following:
(i) the officers
certificate contemplated by
Section 7.01(g)
hereof;
(ii) copies of the
resolutions adopted by the Board of Directors and shareholders of WBKC certified by the Secretary of WBKC relative to the approval of this Agreement and the Merger;
(iii) the tax opinion required by
Section 7.01(h)
hereof; and
(iv) such other documents and information as Horizon or its legal counsel may reasonably
request.
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ARTICLE XI.
MISCELLANEOUS
11.01
No Assignment
. This Agreement and the recitals hereof shall be binding upon and inure to the benefit of and be enforceable by the respective parties hereto and their respective successors and
assigns;
provided
,
however
, that neither this Agreement nor any of the rights, interests, or obligations of the respective parties hereto under this Agreement may be assigned by any party hereto without the prior written consent of the
other parties hereto. Except as provided by
Section 6.05
(dealing with rights to indemnification and advancements of expenses, and the rights to insurance coverage provided to certain persons), the representations, warranties, covenants,
and agreements contained in this Agreement, as well as the documents and instruments referred to herein, are for the sole benefit of the parties hereto and their successors and assigns, and they will not be construed as conferring any rights on any
other Persons, other than the right of WBKC, on behalf of its shareholders, to pursue damages in the event of fraud or an intentional breach of this Agreement as provided in
Section 8.02(a)
hereof.
11.02
Waiver; Amendment
.
(a) The parties hereto may by an instrument in writing: (i) extend the time for the performance of or
otherwise amend any of the covenants, conditions, or agreements of the other parties under this Agreement; (ii) waive any inaccuracies in the representations or warranties of the other parties contained in this Agreement or in any document
delivered pursuant hereto or thereto; (iii) waive the performance by the other parties of any of the covenants or agreements to be performed by it or them under this Agreement; or (iv) waive the satisfaction or fulfillment of any permitted
condition, the nonsatisfaction or nonfulfillment of which is a condition to the right of the party so waiving to consummate the Merger. The waiver by any party hereto of a breach of or noncompliance with any provision of this Agreement will not
operate or be construed as a continuing waiver or a waiver of any other or subsequent breach or noncompliance hereunder.
(b) This Agreement may be amended, modified or supplemented only by a written agreement executed by the
parties hereto.
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11.03
Notices
. All
notices, requests and other communications hereunder will be in writing and will be deemed to have been duly given if delivered by hand and receipted for, delivered by certified United States Mail, return receipt requested, first class postage
pre-paid,
or delivered by overnight express receipted delivery service as follows:
|
|
|
If to Horizon:
|
|
with a copy (which shall not constitute notice) to:
|
|
|
Horizon Bancorp
515 Franklin Street
Michigan City, IN 46360
Attn: Craig M. Dwight
CEO
and Chairman
|
|
Barnes & Thornburg LLP
11 South Meridian Street
Indianapolis, IN 46204-3535
Attn: Curt W. Hidde
|
|
|
And
|
|
|
|
|
If to WBKC:
|
|
with a copy (which shall not constitute notice) to:
|
|
|
Wolverine Bancorp, Inc.
5710 Eastman Avenue
Midland, MI 48640
Attn:
David H. Dunn
President and CEO
|
|
Luse Gorman, PC
5335 Wisconsin Avenue, NW Suite 780
Washington, DC 20015
Attn: Eric Luse
|
or such substituted address or Person as any of them has given to the other in writing. All such notices, requests, or other
communications shall be effective: (a) if delivered by hand, when delivered; (b) if mailed in the manner provided herein, five (5) business days after deposit with the United States Postal Service; or (c) if delivered by
overnight express delivery service, on the next business day after deposit with such service.
11.04
Headings
. The headings in this Agreement have been inserted
solely for ease of reference and should not be considered in the interpretation or construction of this Agreement.
11.05
Severability
. In case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal, or unenforceable provision or provisions had never been contained herein.
11.06
Counterparts; Facsimile
. This Agreement may be executed in any
number of counterparts and by facsimile, each of which will be an original, but such counterparts shall together constitute one and the same instrument.
11.07
Governing Law; Enforcement; Specific Performance; Jury
Trial
. This Agreement (and any and all other documents, agreements, and instruments entered into in connection with the Merger and any related transaction; collectively, the
Related Agreements
) shall be governed by
and construed in accordance with the laws of the State of Indiana and applicable federal laws, without regard to principles of conflicts of law. The
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parties hereto hereby agree that all claims, actions, suits, and proceedings between the parties hereto relating to this Agreement or any Related Agreement shall be filed, tried, and litigated
only in the Circuit or Superior Courts of LaPorte County, Indiana or the United States District Court for the Northern District of Indiana. In connection with the foregoing, the parties hereto consent to the jurisdiction and venue of such courts and
expressly waive any claims or defenses of lack of personal jurisdiction of or proper venue by such courts. The parties agree that irreparable damage would occur in the event that any provision of this Agreement or any Related Agreement was not
performed in accordance with its specific terms on a timely basis or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or other equitable relief to prevent breaches of this Agreement or any Related
Agreement and to enforce specifically the terms and provisions of this Agreement or any Related Agreement in any court identified above, this being in addition to any other remedy to which they are entitled at law or in equity.
11.08
WAIVER OF JURY TRIAL
.
EACH OF THE PARTIES HEREBY WAIVES
TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTERS (WHETHER SOUNDING IN TORT, CONTRACT, OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY RELATED AGREEMENT.
11.09
Entire Agreement
. This Agreement and the Exhibits hereto
supersede all other prior or contemporaneous understandings, commitments, representations, negotiations, or agreements, whether oral or written, among the parties hereto relating to the Merger or matters contemplated herein and constitute the entire
agreement between the parties hereto, except as otherwise provided herein and except for the confidentiality letter agreement dated January 23, 2017, by and between the parties (the
Confidentiality Agreement
). Upon the
execution of this Agreement by all the parties hereto, any and all other prior writings of either party relating to the Merger, will terminate and will be rendered of no further force or effect. The parties hereto agree that each party and its
counsel reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party will not be employed in the interpretation of this Agreement or any amendments or
exhibits hereto.
11.10
Survival of Representations, Warranties or
Covenants
. Except as set forth in the following sentence, none of the representations, warranties, or covenants of the parties will survive the Effective Time or the earlier termination of this Agreement, and thereafter the parties
will have no further liability with respect thereto. The covenants contained in
Sections 5.06
,
5.07
, and
8.02
and this
Article XI
shall survive termination of this Agreement and remain in full force and effect. The
covenants contained in
Sections 1.01
,
1.05
,
2.05
,
5.16(d)
,
5.17
,
5.18
,
5.19
,
5.20
,
6.03
,
6.05
,
6.07
,
6.08
, and all of the provisions of this
Article XI
shall
survive the Effective Time.
11.11
Expenses
. Except as provided
elsewhere in this Agreement, each party to this Agreement shall pay its own expenses incidental to the Merger contemplated hereby.
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11.12
Certain
References
. Whenever in this Agreement a singular word is used, it also will include the plural wherever required by the context and vice-versa, and the masculine or neuter gender shall include the masculine, feminine, and neuter
genders. Except as expressly stated otherwise, all references in this Agreement to periods of days shall be construed to refer to calendar, not business, days. The term
business day
will mean any day when Horizon Bank, in Michigan
City, Indiana, is open for the transaction of business, except Saturday and Sunday.
[S
IGNATURE
P
AGE
F
OLLOWS
.]
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I
N
W
ITNESS
W
HEREOF
, Horizon and WBKC have made and
entered into this Agreement as of the day and year first above written and have caused this Agreement to be executed, attested in counterparts and delivered by their duly authorized officers.
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H
ORIZON
B
ANCORP
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By:
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/s/ Craig M. Dwight
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Craig M. Dwight
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CEO & Chairman
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W
OLVERINE
B
ANCORP
, I
NC
.
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By:
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/s/ David H. Dunn
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David H. Dunn
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CEO & President
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