Attached files
| file | filename |
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| EX-23.1 - EXHIBIT 23.1 - FIRST FINANCIAL BANCORP /OH/ | ex231.htm |
| 8-K/A - FORM 8-K/A - FIRST FINANCIAL BANCORP /OH/ | a8ka.htm |
EXHIBIT 99.2
FIRST FINANCIAL BANCORP.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined consolidated financial information combines the historical consolidated financial position and results of operations of First Financial Bancorp. (“First Financial”) and MainSource Financial Group, Inc. (“MainSource”) using the acquisition method of accounting and giving effect to the related pro forma adjustments described in the accompanying notes. Under the acquisition method of accounting, the assets and liabilities of MainSource will be recorded by First Financial at their respective fair values as of April 1, 2018, the date the merger of MainSource with and into First Financial (the “merger”) was completed and the excess of the merger consideration over the fair value of MainSource's net assets will be allocated to goodwill. The unaudited pro forma condensed combined consolidated financial information should be read in conjunction with the accompanying notes and the Annual Report on Form 10-K for the year ended December 31, 2017 of each of First Financial and MainSource. Certain amounts from the historical MainSource financial statements have been reclassified for the purpose of ensuring consistent presentation in the pro forma condensed combined consolidated financial information presented herein.
The unaudited pro forma condensed combined consolidated balance sheet as of December 31, 2017 gives effect to the merger as if the transaction had been consummated on December 31, 2017. The unaudited pro forma condensed combined consolidated statement of income for the twelve months ended December 31, 2017 gives effect to the merger as if the transaction had been consummated on January 1, 2017.
The unaudited pro forma condensed combined consolidated financial information included herein is presented for informational purposes only and does not necessarily reflect the financial results of the combined companies had the companies actually been combined at the dates presented. The adjustments included in this unaudited pro forma condensed combined consolidated financial information are preliminary and may be significantly revised and may not agree to actual amounts recorded by First Financial.
This financial information does not reflect the benefits of the merger’s expected cost savings and expense efficiencies, opportunities to earn additional revenue, potential impacts of current market conditions on revenues or asset dispositions, among other factors, and includes various preliminary estimates and may not necessarily be indicative of the financial position or results of operations that would have occurred if the merger had been completed on the dates presented or which may be attained in the future. As explained in more detail in the accompanying notes to the unaudited pro forma condensed combined consolidated financial information, the pro forma allocation of purchase price reflected in the unaudited pro forma condensed combined consolidated financial information is subject to adjustment and may vary from the actual purchase price allocation that will ultimately be recorded.
FIRST FINANCIAL BANCORP AND MAINSOURCE FINANCIAL GROUP, INC | |||||||||||||||||
Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet as of December 31, 2017 | |||||||||||||||||
First | Pro Forma | ||||||||||||||||
Financial | MainSource | Merger | Pro Forma | ||||||||||||||
(Dollars in thousands) | Historical | Historical | Adjustments | Notes | Combined | ||||||||||||
ASSETS | |||||||||||||||||
Cash and cash equivalents | $ | 184,624 | $ | 99,570 | $ | 284,194 | |||||||||||
Investment securities available-for-sale, at market value | 1,349,408 | 1,077,573 | (2,419 | ) | A | 2,424,562 | |||||||||||
Investment securities held-to-maturity | 654,008 | — | 654,008 | ||||||||||||||
Other investments | 53,140 | 27,796 | 80,936 | ||||||||||||||
Loans held for sale | 11,502 | 7,794 | 19,296 | ||||||||||||||
Loans and leases | 6,013,183 | 3,063,463 | (98,785 | ) | B | 8,977,861 | |||||||||||
Less: Allowance for loan and lease losses | (54,021 | ) | (22,543 | ) | 22,543 | C | (54,021 | ) | |||||||||
Net loans and leases | 5,959,162 | 3,040,920 | (76,242 | ) | 8,923,840 | ||||||||||||
Premises and equipment | 125,036 | 82,438 | 24,000 | D | 231,474 | ||||||||||||
Goodwill | 204,084 | 137,090 | 411,735 | E | 752,909 | ||||||||||||
Other intangibles | 3,786 | 13,901 | 27,849 | F | 45,536 | ||||||||||||
Accrued interest and other assets | 352,173 | 160,780 | 2,633 | G | 515,586 | ||||||||||||
Total assets | $ | 8,896,923 | $ | 4,647,862 | $ | 387,556 | $ | 13,932,341 | |||||||||
LIABILITIES | |||||||||||||||||
Deposits | $ | 6,895,046 | $ | 3,507,603 | $ | (8,955 | ) | H | $ | 10,393,694 | |||||||
Total short-term borrowings | 814,565 | 185,652 | — | 1,000,217 | |||||||||||||
FHLB long-term borrowings | 1,016 | 335,986 | (4,155 | ) | I | 332,847 | |||||||||||
Subordinated notes | 118,638 | 56,545 | (7,578 | ) | I | 167,605 | |||||||||||
Total long-term debt | 119,654 | 392,531 | (11,733 | ) | 500,452 | ||||||||||||
Total borrowed funds | 934,219 | 578,183 | (11,733 | ) | 1,500,669 | ||||||||||||
Accrued interest and other liabilities | 136,994 | 29,118 | 2,187 | J | 168,299 | ||||||||||||
Total liabilities | 7,966,259 | 4,114,904 | (18,501 | ) | 12,062,662 | ||||||||||||
SHAREHOLDERS' EQUITY | |||||||||||||||||
Preferred stock | |||||||||||||||||
Common stock | 573,109 | 13,250 | 925,765 | K | 1,512,124 | ||||||||||||
Surplus | — | 347,161 | (347,161 | ) | L | — | |||||||||||
Retained earnings | 491,847 | 178,021 | (178,021 | ) | M | 491,847 | |||||||||||
Accumulated other comprehensive (loss) income | (20,390 | ) | 4,203 | (4,203 | ) | N | (20,390 | ) | |||||||||
Treasury stock, at cost | (113,902 | ) | (9,677 | ) | 9,677 | O | (113,902 | ) | |||||||||
Total shareholders' equity | 930,664 | 532,958 | 406,057 | 1,869,679 | |||||||||||||
Total liabilities and shareholders' equity | $ | 8,896,923 | $ | 4,647,862 | $ | 387,556 | $ | 13,932,341 | |||||||||
See accompanying notes to unaudited pro forma financial information.
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FIRST FINANCIAL BANCORP AND MAINSOURCE FINANCIAL GROUP, INC | |||||||||||||||||
Unaudited Pro Forma Condensed Combined Consolidated Statement of Income for the twelve months ended December 31, 2017 | |||||||||||||||||
First | Pro Forma | ||||||||||||||||
Financial | MainSource | Merger | Pro Forma | ||||||||||||||
(Dollars in thousands, except per share data) | Historical | Historical | Adjustments | Notes | Combined | ||||||||||||
Interest income | |||||||||||||||||
Loans and leases, including fees | $ | 280,111 | $ | 127,611 | $ | 26,524 | P | $ | 434,246 | ||||||||
Investment securities | 56,486 | 30,580 | 87,066 | ||||||||||||||
Other earning assets | (3,524 | ) | 356 | (3,168 | ) | ||||||||||||
Total interest income | 333,073 | 158,547 | 26,524 | 518,144 | |||||||||||||
Interest expense | |||||||||||||||||
Deposits | 35,182 | 6,143 | 417 | Q | 41,742 | ||||||||||||
Short-term borrowings | 8,193 | 5,247 | 13,440 | ||||||||||||||
Long-term borrowings | — | 1,981 | 1,385 | R | 3,366 | ||||||||||||
Subordinated notes | 6,153 | 2,307 | 408 | S | 8,868 | ||||||||||||
Total interest expense | 49,528 | 15,678 | 2,210 | 67,416 | |||||||||||||
Net interest income | 283,545 | 142,869 | 24,314 | 450,728 | |||||||||||||
Provision for loan and lease losses | 3,582 | 1,250 | (1,250 | ) | T | 3,582 | |||||||||||
Net interest income after provision for loan and lease losses | 279,963 | 141,619 | 25,564 | 447,146 | |||||||||||||
Noninterest income | |||||||||||||||||
Service charges on deposit accounts | 19,775 | 20,901 | 40,676 | ||||||||||||||
Trust and wealth management fees | 14,073 | 5,620 | 19,693 | ||||||||||||||
Bankcard income | 13,298 | 8,481 | 21,779 | ||||||||||||||
Gains on sales of investment securities | 1,649 | 84 | 1,733 | ||||||||||||||
Other | 27,347 | 14,630 | 41,977 | ||||||||||||||
Total noninterest income | 76,142 | 49,716 | — | 125,858 | |||||||||||||
Noninterest expenses | |||||||||||||||||
Salaries and employee benefits | 132,560 | 72,614 | 205,174 | ||||||||||||||
Net occupancy | 17,397 | 10,710 | 28,107 | ||||||||||||||
Furniture and equipment | 8,443 | 13,770 | 420 | U | 22,633 | ||||||||||||
Data processing | 14,022 | — | 14,022 | ||||||||||||||
Marketing | 3,201 | 3,262 | 6,463 | ||||||||||||||
Communication | 1,819 | 1,836 | 3,655 | ||||||||||||||
Professional services | 15,023 | — | 15,023 | ||||||||||||||
FDIC assessments | 3,944 | 1,407 | 5,351 | ||||||||||||||
Other | 43,533 | 25,362 | 8,037 | V | 76,932 | ||||||||||||
Total noninterest expenses | 239,942 | 128,961 | 8,457 | 377,360 | |||||||||||||
Income before income taxes | 116,163 | 62,374 | 17,107 | 195,644 | |||||||||||||
Income tax expense | 19,376 | 12,936 | 3,592 | W | 35,904 | ||||||||||||
Net income | $ | 96,787 | $ | 49,438 | $ | 13,515 | $ | 159,740 | |||||||||
Net earnings per common share - basic | $ | 1.57 | $ | 1.97 | $ | 1.66 | |||||||||||
Net earnings per common share - diluted | $ | 1.56 | $ | 1.94 | $ | 1.64 | |||||||||||
Cash dividends declared per share | $ | 0.68 | $ | 0.68 | $ | 0.64 | |||||||||||
Average basic shares outstanding | 61,529,460 | 25,111,112 | 96,371,128 | ||||||||||||||
Average diluted shares outstanding | 62,171,590 | 25,514,638 | 97,573,150 | ||||||||||||||
See accompanying notes to unaudited pro forma financial information.
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Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial Information
Note 1-Description of Transaction
On April 1, 2018, First Financial completed its merger with MainSource Financial Group, Inc. Under the terms of the merger agreement, shareholders of MainSource received 1.3875 common shares of First Financial common stock for each share of MainSource common stock. Including outstanding options and warrants for MainSource common stock, total purchase consideration was approximately $1.0 billion. Cash was paid in lieu of fractional shares of First Financial common stock that would have otherwise been issued in connection with the merger.
Note 2-Basis of Presentation
The unaudited pro forma condensed combined consolidated financial information of First Financial is presented after giving effect to the merger. The pro forma financial information assumes that the merger with MainSource was consummated on December 31, 2017 for purposes of the unaudited pro forma condensed combined consolidated balance sheet and on January 1, 2017 for purposes of the unaudited pro forma condensed combined consolidated statement of income and gives effect to the merger, for purposes of the unaudited pro forma condensed combined consolidated statement of income, as if it had been effective during the entire period presented. The unaudited pro forma condensed combined consolidated financial information was calculated using the federal corporate income tax rate of 21% which was in effect for 2017.
The merger will be accounted for using the acquisition method of accounting; accordingly, the difference between the purchase price over the estimated fair value of the assets acquired (including identifiable intangible assets) and liabilities assumed will be recorded as goodwill as of completion of the merger.
The pro forma financial information includes estimated adjustments to record certain assets and liabilities of MainSource at their respective fair values and represents management’s estimates based on available information. The pro forma adjustments included herein may be revised as additional information becomes available and as additional analysis is performed. The final allocation of the purchase price will be determined after completion of a final analysis to determine the fair values of MainSource’s tangible, and identifiable intangible, assets and liabilities as of the effective time of the merger.
Note 3-Pro Forma Merger Adjustments
The following pro forma adjustments have been reflected in the unaudited pro forma condensed combined consolidated financial information. All taxable adjustments were calculated using a 21% tax rate to arrive at deferred tax asset or liability adjustments. All adjustments are based on current assumptions and valuations, which are subject to change.
BALANCE SHEET | |||||
| |||||
(Dollars in thousands) | December 31, 2017 | ||||
A. Adjustments to investments, available for sale | |||||
To record AFS securities at fair value based on independent pricing sources | $ | (2,419 | ) | ||
B. Adjustments to loans | |||||
To reflect expected credit loss of $36.2 million and fair value interest rate mark discount of $72.8 million in MainSource’s loan portfolio | $ | (109,054 | ) | ||
Elimination of the fair value adjustment of $13.7 million for loans purchased by MainSource in previous acquisitions and elimination of MainSource’s net deferred loan fees of $3.4 million | 10,269 | ||||
$ | (98,785 | ) | |||
C. Adjustment to allowance for loan losses | |||||
To remove MainSource’s allowance as the credit risk is contemplated in the fair value adjustment in adjustment B above | $ | 22,543 | |||
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D. Adjustment to fixed assets | |||||
Estimated fair value adjustment of $24.0 million on MainSource’s premises and equipment | $ | 24,000 | |||
E. Adjustment to goodwill, net | |||||
To reflect goodwill created as a result of the merger | $ | 548,825 | |||
To reflect elimination of MainSource’s goodwill | | (137,090 | ) | ||
| $ | 411,735 | |||
F. Adjustment to core deposit intangible, net | |||||
To record the estimated fair value of acquired identifiable intangible assets. Core deposits represent total deposits less time deposits. The acquired core deposit intangible will be amortized over 10 years using an accelerated method of amortization. | $ | 41,750 | |||
To reflect elimination of MainSource’s other intangibles | | (13,901 | ) | ||
| $ | 27,849 | |||
G. Adjustments to accrued interest and other assets | |||||
To record the fair value of an agreement that was triggered by the merger to sell a brokerage business | $ | 2,633 | |||
H. Adjustments to deposits | |||||
To record estimated fair value based on current market rates for similar products. The adjustment will be accreted into income over the estimated lives of the deposits. | $ | 773 | |||
To reflect elimination of MainSource’s CD adjustments | (2,138 | ) | |||
On May 18, 2018, First Financial sold 5 branches to German American Bancorp, Inc. This divestiture resulted in a Day 1 fair value adjustment of $7.6MM to deposits. | (7,590 | ) | |||
$ | (8,955 | ) | |||
I. Adjustment to borrowings | |||||
To record estimated fair value of assumed borrowings based on market rates for similar | |||||
products. The adjustment will be accreted into income over the remaining lives of the | |||||
borrowings. | |||||
Adjustment to FHLB long-term borrowings | $ | (4,155 | ) | ||
Adjustment to subordinated notes | (7,578 | ) | |||
Total adjustments to long-term debt | $ | (11,733 | ) | ||
J. Adjustment for deferred federal income taxes associated with the adjustments to record the assets and liabilities of MainSource at fair value based on First Financial's statutory rate of 21% as of December 31, 2017. | |||||
To reflect net deferred tax liability as a result of the merger fair value adjustments | |||||
Adjustment to loans | $ | 20,745 | |||
Adjustment to allowance for loan losses | | (4,734 | ) | ||
Adjustment to fixed assets | (5,040 | ) | |||
Adjustment to core deposit intangible, net | | (8,768 | ) | ||
Adjustment to deposits | | (1,881 | ) | ||
Adjustment to FHLB long-term borrowings | | (873 | ) | ||
Adjustment to subordinated notes | | (1,591 | ) | ||
Adjustment to investments | 508 | ||||
Adjustment to other assets due to gains | (553 | ) | |||
Calculated deferred taxes at estimated statutory rate of 21.0% | $ | (2,187 | ) | ||
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K. Adjustments to shareholders’ equity | |||||
To eliminate historical MainSource common stock | $ | (13,250 | ) | ||
Recognition of the equity portion of the merger consideration. The adjustment to common stock represents the amount of equity consideration of First Financial common stock issuable in the merger. | | 939,015 | |||
| $ | 925,765 | |||
L. Adjustments to surplus | |||||
To eliminate MainSource's surplus capital | $ | (347,161 | ) | ||
M. Adjustments to retained earnings | |||||
To eliminate MainSource's retained earnings | $ | (178,021 | ) | ||
N. Adjustment to accumulated other comprehensive (loss) income | |||||
To eliminate MainSource's accumulated other comprehensive income | $ | (4,203 | ) | ||
O. Adjustment to treasury stock, at cost | |||||
To eliminate MainSource's treasury stock, at cost | $ | 9,677 | |||
INCOME STATEMENT | Twelve months ended December 31, 2017 | ||||
P. Adjustment to loan interest income | |||||
Represents 12 months of estimated net discount accretion on acquired loans. | $ | 26,524 | |||
Q. Adjustment to deposit interest expense | | ||||
To reflect accretion of deposit premium from fair value adjustment over an estimated five year average life | $ | 417 | |||
R. Adjustment to long-term borrowings interest expense | | ||||
To reflect accretion of borrowings premium from fair value adjustment over an estimated 3 year average life | $ | 1,385 | |||
S. Adjustment to subordinated debt interest expense | | ||||
To reflect amortization over 16.33 years | $ | 408 | |||
T. Adjustment to provision for loan and lease losses | |||||
To eliminate MainSource's provision for loan and lease losses | $ | (1,250 | ) | ||
U. Adjustment to furniture and fixture expense | |||||
Represents premium amortization on building. Premium will be amortized over 40 years using the straight-line method. | $ | 420 | |||
V. Adjustment to other noninterest expense | | ||||
To reflect amortization of acquired identifiable intangible assets based on amortization period of 10 years and using an accelerated method of amortization | $ | 8,037 | |||
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W. Adjustment to income tax provision | | ||||
To reflect the income tax effect of pro forma adjustments M-Q at estimated tax rate of 21.0% | $ | 3,592 | |||
NOTE 4 - Estimated Cost Savings and Merger-related Costs
Estimated cost savings are excluded from the pro forma analysis. Cost savings are estimated to be realized at 75% in the first year after completion of the merger and 100% in subsequent years. In addition, estimated merger-related costs are not included in the pro forma combined condensed consolidated statement of income since they will be recorded in the results of income as they are incurred and are not indicative of what historical results of the combined company would have been had the companies been actually combined during the periods presented.
Note 5-Preliminary Purchase Accounting Allocation
The unaudited pro forma condensed combined consolidated financial information reflects the issuance of approximately 35,634,614 shares of First Financial common stock totaling approximately $939.0 million. The merger will be accounted for using the acquisition method of accounting; accordingly the First Financial cost to acquire MainSource will be allocated to the assets (including identifiable intangible assets) and liabilities of MainSource at their respective estimated 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.
Pro Forma | ||||
(Dollars in thousands) | Allocation | |||
ASSETS | ||||
Cash and cash equivalents | $ | 99,570 | ||
Investment securities available-for-sale, at market value | 1,075,154 | |||
Other investments | 27,796 | |||
Loans held for sale | 7,794 | |||
Loans and leases | 2,964,678 | |||
Less: Allowance for loan and lease losses | — | |||
Net loans and leases | 2,964,678 | |||
Premises and equipment | 106,438 | |||
Goodwill | 548,825 | |||
Other intangibles | 41,750 | |||
Accrued interest and other assets | 163,413 | |||
Total assets | $ | 5,035,418 | ||
LIABILITIES | ||||
Deposits | $ | 3,498,648 | ||
Short-term borrowings | 185,652 | |||
Long-term debt | 331,831 | |||
Other long-term debt | 48,967 | |||
Total long-term debt | 380,798 | |||
Total borrowed funds | 566,450 | |||
Accrued interest and other liabilities | 31,305 | |||
Total liabilities assumed | $ | 4,096,403 | ||
Fair value of net assets acquired | $ | 939,015 | ||
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Note 6-Estimated Regulatory Adjustments
Upon completion of the merger, First Financial’s bank subsidiary’s total assets exceed $10 billion, and First Financial and its bank subsidiary are therefore subject to increased regulatory requirements. The Dodd-Frank Act and its implementing regulations impose various additional requirements on bank holding companies with $10 billion or more in total assets, including compliance with portions of the Federal Reserve’s enhanced prudential oversight requirements and annual stress testing requirements. No adjustments related to compliance with these additional regulatory requirements were made to the pro forma financial statements included herein.
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