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EX-99.2 - EXHIBIT 99.2 - SELECT BANCORP, INC.tv481797_ex99-2.htm
EX-23.1 - EXHIBIT 23.1 - SELECT BANCORP, INC.tv481797_ex23-1.htm
8-K - FORM 8-K - SELECT BANCORP, INC.tv481797_8k.htm

Exhibit 99.3

 

Select Bancorp, Inc. and Premara Financial, Inc.

Unaudited Pro Forma Condensed Combined Statement of Financial Condition

September 30, 2017

(dollars in thousands)

 

    Select Bancorp, Inc.     Premara Financial, Inc.     Pro Forma Before Adjustments     Pro Forma Purchase Accounting Adjustments       Adjustments for Merger and Transactional Costs       Pro Forma Combined  
ASSETS                                        
                                         
Cash and due from banks   $ 15,518     $ 3,154     $ 18,672     $ (14,674 )  A     -       $ 3,998  
Interest-earning deposits in other banks     36,793       22,080       58,873       -         (2,558 )  A     56,315  
Certificates of deposit     1,000       500       1,500       -         -         1,500  
Investment securities available-for-sale, at fair value     53,705       34,190       87,895       -         -         87,895  
                                                     
Loans     763,432       204,347       967,779       (5,459 )  B     -         962,320  
Allowance for loan losses     (8,647 )     (2,341 )     (10,988 )     2,341    C     -         (8,647 )
   NET LOANS     754,785       202,006       956,791       (3,118 )       -         953,673  
                                                     
Accrued interest receivable     2,949       948       3,897       -         -         3,897  
Stock in Federal Home Loan Bank of Atlanta ("FHLB"), at cost     1,712       -       1,712       -         -         1,712  
Other non-marketable securities     630       1,893       2,523       -         -         2,523  
Foreclosed real estate     2,093       -       2,093       -         -         2,093  
Premises and equipment, net     17,353       1,068       18,421       18    D     -         18,439  
Bank owned life insurance     22,610       5,643       28,253       -         -         28,253  
Goodwill     6,931       325       7,256       18,324    E     -         25,580  
Core deposit intangible ("CDI")     547       239       786       1,866    F     -         2,652  
Assets held for sale     846       -       846                 -         846  
Other assets     5,277       3,950       9,227       855    I     647    J     10,729  
                                                     
TOTAL ASSETS   $ 922,749     $ 275,996     $ 1,198,745     $ 3,271       $ (1,911 )     $ 1,200,105  
                                                     
                                                     
LIABILITIES AND SHAREHOLDERS' EQUITY                                                    
                                                     
Deposits:                                                    
Demand   $ 173,231     $ 71,756     $ 244,987     $ -       $ -       $ 244,987  
Savings     34,214       37,195       71,409       -         -         71,409  
Money market and NOW     192,685       41,847       234,532       -         -         234,532  
Time     374,892       69,447       444,339       812    G     -         445,151  
TOTAL DEPOSITS     775,022       220,245       995,267       812         -         996,079  
                                                     
Short-term debt     22,366       18,000       40,366       4    H     -         40,370  
Long-term debt     12,372       11,000       23,372       (1 )  H     -         23,371  
Accrued interest payable     302       56       358       -         -         358  
Accrued expenses and other liabilities     2,868       916       3,784       -         -         3,784  
                                                     
TOTAL LIABILITIES     812,930       250,217       1,063,147       815         -         1,063,962  
                                                     
Preferred stock     -       -       -       -    L     -         -  
                                                     
Common stock     11,663       32       11,695       (32 )  L     -         11,685  
                              23    L     -            
Additional paid-in-capital     69,753       23,758       93,511       (23,758 )  L     -         97,966  
                              28,212    L     -            
Retained earnings     27,903       1,899       29,802       (1,899 )  L     (1,911 )  K     25,992  
                                                     
Common stock issued to deferred compensation trust, at cost     (2,413 )     -       (2,413 )     -         -         (2,413 )
                                                     
Directors’ Deferred Compensation Plan Rabbi Trust     2,413       -       2,413       -         -         2,413  
                                                     
Accumulated other comprehensive income     500       90       590       (90 )  L     -         500  
                                                     
TOTAL SHAREHOLDERS' EQUITY     109,819       25,779       135,598       2,456         (1,911 )       136,143  
                                                     
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 922,749     $ 275,996     $ 1,198,745     $ 3,271       $ (1,911 )     $ 1,200,105  
                                                     
Number of common shares outstanding     11,662,621       3,179,808       14,842,429       (850,885 )       -         13,991,544  
Number of preferred shares outstanding     -       -       -       -         -         -  
Total common book value per share   $ 9.42     $ 8.11                                 $ 9.73  
Total tangible book value per share   $ 8.78     $ 7.93                                 $ 7.71  

                       

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Select Bancorp, Inc. and Premara Financial, Inc.

Unaudited Pro Forma Condensed Combined Statements of Income

September 30, 2017

(dollars in thousands)

 

   Select Bancorp, Inc.   Premara Financial, Inc.   Pro Forma Before Adjustments   Adjustments     Pro Forma Combined 
                       
                       
INTEREST INCOME:                           
Loans  $27,323   $7,380   $34,703   $2,436   B  $37,139 
Federal funds sold and interest-earning deposits   350    49    399    -      399 
Investments   963    804    1,767    -      1,767 
TOTAL INTEREST INCOME   28,636    8,233    36,869    2,436      39,305 
                            
INTEREST EXPENSE:                           
Money market, NOW and savings deposits   360    958    1,318    -      1,318 
Time deposits   2,649    21    2,670    (352)  G   2,318 
Short-term debt   295    159    454    -      454 
Long-term debt   297    99    396    (1)  H   395 
TOTAL INTEREST EXPENSE   3,601    1,237    4,838    (353)     4,485 
                            
NET INTEREST INCOME   25,035    6,996    32,031    2,789      34,820 
PROVISION FOR LOAN LOSSES   1,091    275    1,366    -      1,366 
                            
NET INTEREST INCOME AFTER PROVISION   23,944    6,721    30,665    2,789      33,454 
FOR LOAN LOSSES                           
                            
OTHER INCOME:                           
Gain on sale of investment securities   -    -    -    -      - 
Service charges on deposit accounts   668    386    1,054    -      1,054 
Other fees and income   1,618    762    2,380    -      2,380 
Total other income   2,286    1,148    3,434    -      3,434 
                            
OTHER EXPENSES:                           
Personnel   10,665    3,851    14,516    -      14,516 
Occupancy and equipment   1,619    969    2,588    -      2,588 
Deposit insurance   222    143    365    -      365 
Professional fees   782    195    977    -      977 
CDI amortization   263    46    309    504   F   813 
Merger/acquisition related expenses   278    80    358    -      358 
Information systems   1,607    429    2,036    -      2,036 
Foreclosed -related expense   291    1    292    -      292 
Other   2,497    1,122    3,619    -      3,619 
TOTAL NON-INTEREST EXPENSE   18,224    6,836    25,060    504      25,564 
                            
INCOME BEFORE INCOME TAXES   8,006    1,033    9,039    2,285      11,324 
INCOME TAXES   2,776    198    2,974    535   I,J   3,509 
NET INCOME  $5,230   $835   $6,065   $1,750     $7,815 
                            
Earnings per share, basic  $0.45   $0.26               $0.56 
Earnings per share, diluted  $0.45   $0.26               $0.56 
                            
Weighted average common shares outstanding, basic   11,659,139    3,162,630                13,988,062 
Weighted average common shares outstanding, diluted   11,711,830    3,162,630                14,040,753 

 

 

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Select Bancorp, Inc. and Premara Financial, Inc.

Notes to Unaudited Pro Forma Condensed Combined Financial Statements

 

  

Note 1 - Basis of Presentation

 

The unaudited proforma condensed combined financial information has been prepared using the acquisition method of accounting. Balance sheet data is presented as of September 30, 2017 and assumes the merger involving Select Bancorp, Inc. ("Select") and Premara Financial, Inc. ("Premara") was complete on that date. Income statement data is presented to give effect to the merger as if it had occured at the beginning of the relevant period presented. The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations or financial position had the merger been consummated at the beginning of the period presented, nor is it necessarily indicative of the results of operations in future periods or the future financial position of the combined entities. Certain historical financial information has been reclassified to conform to current presentation. The terms of the merger, which was completed on December 15, 2017, provides that the merger consideration paid by Select will consist of a mixture of Select common stock and cash, with 948,080 shares of Premara common stock being converted to the per share cash consideration of $12.65 and the balance of Premara's issued and outstanding shares as of the closing date being converted into Select common stock at the 1.0463 stock exchange ratio.

  

The unaudited pro forma condensed combined financial information includes preliminary estimated adjustments to record assets and liabilities of Premara at their respective fair values and represents management's estimates based on available information. The pro forma adjustments included herein are subject to updates as additional information becomes available and as additional analyses are performed. The final allocation of the purchase price will be determined after completion of thorough analyses to determine the fair value of Premara's tangible and identifiable intangible assets and liabilities as of the merger date. Increases or decreases in the estimated fair values of the net assets, commitments, executory contracts and other items of Premara as compared with the information shown in the unaudited pro forma combined financial information may change the amount of the purchase price allocated to goodwill and other assets and liabilities and may impact the statement of income due to adjustments in yield and/or amortization of the adjusted assets or liabilities.

  

Note 2 - Accounting Policies and Financial Statement Classifications

 

The accounting policies of both Select and Premara have been reviewed and management has determined that there are no material additional conforming adjustments or financial statement reclassifications needed. There are currently no material transactions between Select and Premara in relation to the unaudited pro forma condensed combined financial information.

  

Note 3 - Merger Related Charges

 

Select’s estimated transaction costs related to the merger are approximately $2.6 million ($1.9 million net of tax). This cost is included in the unaudited Pro Forma Condensed Combined Balance Sheet. These estimated transactions costs are still being developed and will continue to be refined over the next several months, and will include assessing personnel, benefit plans, premises, equipment, and service contracts to determine where Select and Premara may take advantage of redundancies. These costs will be recorded as non-interest expense as incurred. The pro forma presentation of the merger-related charges is in the following table (dollars in thousands).

 

Professional fees  $1,198 
Data processing and other non-interest expense   1,360 
Total non-interest expense  $2,558 
Tax benefit   647 
Net merger related expense after tax benefit  $1,911 

 

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Note 4 - Preliminary Purchase Accounting Allocation

 

The unaudited pro forma condensed combined financial information reflects the issuance of 2,328,923 shares of Select common stock totaling approximately $29.5 million plus cash of approximately $12 million. The merger will be accounted for using the acquisition method of accounting; accordingly Select's cost to acquire Premara will be allocated to the assets (including identifiable intangible assets) and liabilities of Select at their respective fair values as of the merger date. Accordingly, the pro forma purchase price was preliminarily allocated to the assets acquired and the liabilities assumed based on their estimated fair values as summarized in the following table (dollars in thousands).

 

Common equity capital of Premara as of September 30, 2017       $25,779 
Estimated Premara acquisition related expenses, net of tax       $(1,979)
Common equity capital of Premara as of September 30, 2017, adjusted       $23,800 
Less estimated fair value adjustments:          
Loan fair value  $(5,459)     
Allowance for loan losses   2,341      
    Loans, net   (3,118)     
Premises and equipment   18      
Core deposit intangible   1,866      
Elimination of Premara's goodwill   (325)     
Time deposits   (812)     
Borrowings   (3)     
Related tax benefit for above   854      
Total fair value adjustments        (1,520)
Net assets (Equity capital less fair value adjustments)        22,280 
Total consideration paid to Premara shareholders (1)        40,929 
Goodwill       $18,649 

 

(1)The purchase price is based on estimated total consideration of $40.9 million.  This includes issuance of Select common stock of 2,328,923 shares at a price of approximately $12.65 per common share for a value of $29.5 million, plus approximately $12 million in cash merger consideration, plus cash consideration for warrants and stock options cancelled in connection with the merger.

 

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Note 5 - Pro Forma Adjustments

 

The following pro forma adjustments have been reflected in the unaudited pro forma condensed combined financial information. All adjustments are based on current assumptions and valuations, which are subject to change.

 

A Cash was adjusted to reflect the payment of estimated merger related expenses of $2.6 million which is assumed to happen at closing prior to any income statement effect and is therefore offset by a reduction in retained earnings.  The cash purchase of stock from the shareholders of Premara amounted to approximately $12.0 million.
   
B Select identified $5.5 million in net preliminary estimated fair value adjustments to Premara's loan portfolio.  The adjustment reflects Select's estimates of both market rate differential at September 30, 2017 and the potential adjustments related to the credit quality of the loan portfolio.  As a result $4.5 million of the fair value adjustment  relates to credit quality and $1.0 million to interest yield, which  is estimated and would only be recorded prospectively if there was a significant increase in the estimated cash flows on those loans.  The remaining fair value adjustment reflects estimated fair value based upon current interest rates and spreads in the current interest rate environment, and will be accreted using the level yield methodology over the estimated remaining life of the acquired loan portfolio.  The accretion for the nine month period ended September 30, 2017 and year ended December 31, 2016 is estimated at approximately $2.4 million and $2.7 million, respectively.  
   
C Premara's existing allowance for loan losses of $2.3 million was eliminated in accordance with generally accepted accounting principles.
   
D Premises and equipment were adjusted by $18,000 to reflect estimated fair value adjustments for real property.  The amortization of these adjustments is not considered material for the nine months ended September 30, 2017.
   
E The estimated amount of goodwill associated with the transaction is $18.6 million.  The final allocation of the purchase price will be determined after the merger is completed and all purchase accounting adjustments are finalized, and may change the amount allocated to goodwill.  At September 30, 2017, Premara had $325,000 in goodwill that will be eliminated at the time of merger.
   
F Other intangible assets were adjusted to reflect a core deposit intangible of $2.1 million.  A core deposit intangible arises from a financial institution having a deposit base comprised of funds associated with stable customer relationships.  These customer relationships provide a cost benefit to the acquiring institution since the associated customer deposits typically are at lower interest rates and can be expected to be retained on a long-term basis.  This amount reflects management's estimate of the market premium associated with these core deposits.  The amortization is estimated at approximately $504,000 for the nine month period ended September 30, 2017 and approximately $644,000 for the twelve month period ended December 31, 2016.
   
G Time deposits were adjusted by an estimated $812,000 credit for fair value adjustments on deposits at current market rates for similar products.  This adjustment will be accreted into income over the estimated lives of the deposits.  Estimated accretion in the pro forma was computed using the sum-of-the-years digits method, which approximates the level yield method.  The accretion is estimated at approximately $352,000 for the nine month period ended September 30, 2017 and $418,000 for the twelve month period ended December 31, 2016.
   
H Borrowings were adjusted by an estimated $4,000 for short-term borrowings and $1,000 credit for fair value adjustments on long-term borrowings at current market rates for similar products.  This adjustment will be accreted into income over the estimated lives of the borrowings.  Estimated accretion in the pro forma was computed using the straight line method, which approximates the level yield method.  The accretion is estimated at approximately $750 for the nine month period ended  September 30, 2017 and $3,000 for the twelve month period ended December 31, 2016.
   
I Other assets were adjusted by $855,000 to reflect the estimated deferred tax asset arising from the credit quality fair value adjustments and other fair value adjustments  on other assets and liabilities, less deferred tax liabilities arising from the core deposit intangible and other fair value adjustments on other assets and liabilities.
   
J Other assets were adjusted by $647,000 to reflect the estimated deferred tax asset arising from the merger and transactional expenses.
   
K Retained earnings were adjusted by $1.9 million to reflect the equity effect of merger and transactional costs.
   
L Historical shareholders' equity has been eliminated and additional paid-in-capital has been adjusted to reflect Select's estimated capitalization of Premara.
   
M The amount of pro forma combined weighted average shares outstanding is calculated by adding Select's historical weighted average shares outstanding for the nine month period ended September 30, 2017 to the shares to be issued in connection with the merger.

  

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