Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 - CB Financial Services, Inc. | exh_991.htm |
| 8-K/A - FORM 8-K/A - CB Financial Services, Inc. | f8ka_071618.htm |
Exhibit 99.2
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL DATA
The unaudited pro forma combined condensed consolidated financial information has been prepared using the acquisition method of accounting, giving effect to the merger. The unaudited pro forma combined condensed consolidated statement of financial condition combines the historical information of CB Financial Services, Inc. (CB) and First West Virginia Bancorp (First West Virginia) as of December 31, 2017 and assumes that the merger was completed on that date. The unaudited pro forma combined condensed consolidated statement of operations combines the historical financial information of CB and of First West Virginia and gives effect to the merger as if it had been completed as of the beginning of the period presented. The unaudited pro forma combined condensed consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations or financial condition had the merger been completed on the date described above, nor is it necessarily indicative of the results of operations in future periods or the future financial condition and results of operations of the combined entities. The financial information should be read in conjunction with the accompanying Notes to the Unaudited Pro Forma Combined Condensed Consolidated Financial Information. Certain reclassifications have been made to First West Virginia’s historical financial information in order to conform to CB’s presentation of financial information.
The pro forma financial information includes adjustments, including adjustments to record First West Virginia’s assets and liabilities at their respective fair values, and represents CB’s pro forma estimates based on information available as of the merger completion date. The final allocation of the purchase price for the merger was determined as of the merger completion date.
We anticipate that the merger will provide the combined company with financial benefits that include reduced operating expenses. The unaudited pro forma combined condensed consolidated financial data, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the benefits of expected cost savings or opportunities to earn additional revenue and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had our companies been combined during these periods.
The unaudited pro forma combined condensed consolidated financial information has been derived from and should be read in conjunction with the historical consolidated financial statements and the related notes of CB and of First West Virginia.
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Unaudited Combined Condensed Consolidated Pro Forma Statement of Financial Condition
| As of December 31,2017* | ||||||||||||||||
| CB Historical | First West Virginia Historical | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||
| (In Thousands) | ||||||||||||||||
| ASSETS | ||||||||||||||||
| Cash and cash equivalents | $ | 20,622 | $ | 18,188 | $ | (12,078 | )(1) | $ | 26,732 | |||||||
| Investment securities | 123,583 | 198,408 | ─ | 321,991 | ||||||||||||
| Loans receivable | 744,392 | 100,984 | (1,347 | )(2) | 844,029 | |||||||||||
| Allowance for loan losses | (8,796 | ) | (1,771 | ) | 1,771 | (2) | (8,796 | ) | ||||||||
| Loans, net | 735,596 | 99,213 | 424 | 835,233 | ||||||||||||
| Other real estate owned | 326 | 1,033 | ─ | 1,359 | ||||||||||||
| Accrued interest receivable | 2,676 | 1,134 | ─ | 3,810 | ||||||||||||
| Deferred tax asset, net | ─ | 2,508 | ─ | 2,508 | ||||||||||||
| Federal Home Loan Bank stock | 4,255 | 491 | ─ | 4,746 | ||||||||||||
| Banking premises and equipment, net | 16,712 | 6,709 | 6,519 | (4) | 29,940 | |||||||||||
| Bank-owned life insurance | 19,151 | 4,176 | ─ | 23,327 | ||||||||||||
| Core deposit intangible | 3,284 | ─ | 12,789 | (5) | 16,073 | |||||||||||
| Goodwill | 4,953 | 1,644 | 6,362 | (6) | 12,959 | |||||||||||
| Other assets | 3,328 | 963 | ─ | 4,291 | ||||||||||||
| Total assets | $ | 934,486 | $ | 334,467 | $ | 14,016 | $ | 1,282,969 | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
| Deposits | $ | 773,344 | $ | 280,916 | $ | (1,300 | )(7) | $ | 1,052,960 | |||||||
| Federal Home Loan Bank advances | 24,500 | 2,195 | 128 | (8) | 26,823 | |||||||||||
| Repurchase agreements | 39,605 | 18,513 | ─ | 58,118 | ||||||||||||
| Deferred tax liability (asset) | 134 | ─ | 7,316 | (3) | 7,450 | |||||||||||
| Accrued expenses and other liabilities | 3,647 | 720 | ─ | 4,367 | ||||||||||||
| Total liabilities | 841,230 | 302,344 | 6,144 | 1,149,718 | ||||||||||||
| Shareholders’ equity: | ||||||||||||||||
| Common stock | 1,818 | 8,644 | (8,095 | )(9) | 2,367 | |||||||||||
| Paid-in capital | 42,089 | 6,966 | 32,480 | )(9) | 81,535 | |||||||||||
| Retained earnings | 55,280 | 18,904 | (18,904 | ) | 55,280 | |||||||||||
| Treasury stock, at cost | (4,590 | ) | (228 | ) | 228 | (4,590 | ) | |||||||||
| Accumulated other comprehensive loss, net of taxes | (1,341 | ) | (2,163 | ) | 2,163 | (1,341 | ) | |||||||||
| Total shareholders’ equity | 93,256 | 32,123 | 7,872 | 133,251 | ||||||||||||
| Total liabilities and shareholders’ equity | $ | 934,486 | $ | 334,467 | $ | 14,016 | $ | 1,282,969 | ||||||||
| * | Assumes that the merger was completed as of December 31, 2017 utilizing the acquisition method of accounting. Actual fair value adjustments, where appropriate, were determined as of the merger date and were amortized and accreted into income. |
| (1) | The adjustment includes cash consideration of $9.8 million paid to First West Virginia stockholders. The adjustment also results from the assumption that cash and cash equivalents are used to pay for after tax one-time merger and integration expenses of First West Virginia. A portion of these expenses have been assumed to be charged against First West Virginia’s income through December 31, 2017 and result in an increase to CB’s goodwill. |
| (2) | The unaudited combined condensed consolidated pro forma statement of financial condition includes a fair value adjustment to total loans to reflect the credit condition and interest rate mark of $1.3 million, which represents an adjustment of 1.3% on First West Virginia’s outstanding loan portfolio. In order to determine the adjustment, CB employed an outside expert to confirm the results obtained from CB’s due diligence process. The fair value adjustment will be accreted through loan interest income over the estimated lives of the affected loans. Another factor to this adjustment was the elimination of First West Virginia’s allowance for loan losses. Purchased loans acquired in a business combination are recorded at fair value and the recorded allowance of the acquired company is not carried over. |
| (3) | Represents adjustments in the net deferred tax accounts resulting from the fair value adjustments related to the acquired assets and liabilities, identifiable intangibles and other deferred tax items. The actual deferred tax adjustment will depend on facts and circumstances existing at the completion of the merger. The fair value adjustment of the net deferred tax asset assumes an effective tax rate of 35%. See footnote 6 for additional details. |
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| (4) | In order to determine the adjustment to premises and equipment, CB employed an outside expert to establish the fair market value of First West Virginia’s premises and equipment. The fair value adjustment will be amortized through amortization to occupancy expense. |
| (5) | CB employed an outside expert to assist in the determination of the cored deposit intangibles of $12.8 million. The core deposit intangible will be amortized into noninterest expense over an eight year life using the straight line method. Core deposits are defined as total deposits less time deposits. |
| (6) | Calculated to reflect the acquisition accounting adjustments related to the merger. The consideration paid to acquire First West Virginia consists of cash of $9.8 million (assumes that 20% of 1,718,730 shares of First West Virginia stock are exchanged for cash at the cash price of $28.50 per share) and the issuance of 1,317,647 shares of CB’s common stock based upon the fixed exchange rate of 0.9583 per share. The value of CB’s common stock to be issued was based upon the closing price of $31.91 on April 30, 2018, the closing date at of the merger. Acquisition accounting adjustments assume that First West Virginia’s stockholders’ equity is eliminated and the purchase price, goodwill and intangible assets are reflected on the CB’s financial statements pursuant to the application of acquisition accounting. |
| Note | ||||||
| (In thousands) | ||||||
| Assumptions/Inputs: | ||||||
| Value of CB’s common stock to be issued | $ | 42,042 | ||||
| Cash paid to First West Virginia’s stockholders and option holders | 9,801 | |||||
| Total deal value at date merger agreement signed | 51,843 | |||||
| First West Virginia’s stockholders’ equity | 32,123 | |||||
| Less: incremental First West Virginia’s transaction costs, (net of tax) | (230 | ) | ||||
| Less: goodwill of First West Virginia | (1,644 | ) | ||||
| First West Virginia’s stockholders’ equity, net of transaction costs | 30,249 | |||||
| Fair value adjustments: | ||||||
| Loans | (2) | 424 | ||||
| Core deposit intangible | (5) | 12,789 | ||||
| Premises and equipment | (5) | 6,519 | ||||
| Time deposits | (7) | 1,300 | ||||
| FHLB advances | (8) | (128 | ) | |||
| Fair value adjustments | 20,904 | |||||
| Tax effect of fair value adjustments ** | (3) | (7,316 | ) | |||
| Total adjustment of net assets acquired | 13,588 | |||||
| Adjusted net assets acquired | 43,837 | |||||
| Estimated goodwill | (6) | $ | 8,006 | |||
| ______________________ | ||||||
| (**) Assumed effective tax rate of 35% | ||||||
| (7) | The deposits include a fair value adjustment to time deposits to reflect differences in interest rates in the amount of $1.3 million. The analysis was prepared by an outside expert based on an analysis of current market interest rates and maturity dates. This fair value adjustment will be amortized into interest expense over the estimated lives of the affected time deposits. The amortization was computed using the straight line methodology utilizing a 1.8 year period for full recognition of this adjustment based upon historical deposit lives. |
| (8) | The FHLB advances include a fair value adjustment to First West Virginia’s FHLB advances to reflect differences in interest rates of $128,000. The fair value adjustment will be accreted into interest expense over the remaining life of the affected FHLB advances using the straight line methodology using a fair value adjustment period of 5.1 years based upon the outstanding balance and repayment history. |
| (9) | Reflects elimination of First West Virginia’s stockholders’ equity accounts, issuance of 1,317,647 shares of CB’s common stock and additional merger-related transaction costs, net of tax. Through December 31, 2017, First West Virginia incurred merger-related transaction costs of $353,000 ($230,000 net of tax) and incurred an additional $3,150,000 of merger-related transaction costs through April 30, 2018 ($2,047,000 net of tax). |
| 3 |
Unaudited Combined Condensed Consolidated Pro Forma Statement of Operations
For the Year Ended December 31, 2017 (1)
(In Thousands, Except Share Data)
| CB Historical | First West Virginia Historical | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||
| Interest and dividend income: | ||||||||||||||||
| Loans | $ | 29,527 | $ | 4,632 | $ | 207 | (2) | $ | 34,366 | |||||||
| Investments | 2,423 | 4,919 | ─ | 7,342 | ||||||||||||
| Other interest-earning assets | 484 | 270 | ─ | 754 | ||||||||||||
| Total interest and dividend income | 32,434 | 9,821 | 207 | 42,462 | ||||||||||||
| Interest expense: | ||||||||||||||||
| Deposits | 2,811 | 663 | 734 | (2) | 4,208 | |||||||||||
| Federal funds purchased and repurchase agreements | 82 | 155 | ─ | 237 | ||||||||||||
| FHLB advances | 481 | 119 | (34 | )(2) | 566 | |||||||||||
| Total interest expense | 3,374 | 937 | 700 | 5,011 | ||||||||||||
| Net interest income before provision for loan losses | 29,060 | 8,884 | (493 | ) | 37,451 | |||||||||||
| Provision for loan losses | 1,870 | 1,075 | ─ | 2,945 | ||||||||||||
| Net interest income after provision for loan losses | 27,190 | 7,809 | (493 | ) | 34,506 | |||||||||||
| Noninterest income: | ||||||||||||||||
| Service fees | 2,482 | 294 | ─ | 2,776 | ||||||||||||
| Insurance commissions | 3,583 | ─ | ─ | 3,583 | ||||||||||||
| Increase in cash surrender value of bank-owned life insurance | 464 | 112 | ─ | 576 | ||||||||||||
| Net gain on sales of loans | 458 | ─ | ─ | 458 | ||||||||||||
| Net gain on sales of investments | 199 | 6 | ─ | 205 | ||||||||||||
| Other income (loss) | 614 | 567 | ─ | 1,181 | ||||||||||||
| Total noninterest income | 7,800 | 979 | ─ | 8,779 | ||||||||||||
| Noninterest expenses: | ||||||||||||||||
| Salaries and employee benefits | 13,937 | 4,265 | ─ | 18,202 | ||||||||||||
| Occupancy and equipment | 4,073 | 1,723 | 217 | (2) | 6,013 | |||||||||||
| Outside professional services | 973 | ─ | ─ | 973 | ||||||||||||
| Acquisition related expenses | 356 | ─ | ─ | 356 | ||||||||||||
| Marketing and advertising | 694 | 211 | ─ | 905 | ||||||||||||
| FDIC deposit insurance and regulatory assessment | 373 | 223 | ─ | 596 | ||||||||||||
| Other | 4,766 | 2,139 | 1,599 | (2) | 8,504 | |||||||||||
| Total noninterest expenses | 25,172 | 8,561 | 1,816 | (3) | 35,549 | |||||||||||
| Income before income tax expense | 9,818 | 227 | (2,309 | )(2) | 7,736 | |||||||||||
| Income tax expense | 2,874 | 211 | (808 | )(2) | 2,277 | |||||||||||
| Net income | $ | 6,944 | $ | 16 | $ | (1,501 | ) | $ | 5,459 | |||||||
| Earnings per share: | ||||||||||||||||
| Basic | $ | 1.70 | $ | 0.01 | $ | 1.01 | ||||||||||
| Diluted | $ | 1.69 | $ | 0.01 | $ | 1.01 | ||||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic | 4,088,191 | 1,718,730 | 5,405,835 | (3) | ||||||||||||
| Diluted | 4,110,372 | 1,718,730 | 5,428,019 | (3) | ||||||||||||
______________________
| (1) | Assumes that the merger was completed as of the beginning of the period presented utilizing the acquisition method of accounting. Actual fair value adjustments for loans, premises and equipment, core deposit intangible, time deposits, and borrowed funds were determined by an outside expert commissioned to calculate the fair value of selected assets and liabilities of First West Virginia. The resulting premiums and discounts for purposes of the unaudited combined condensed consolidated pro forma financial data, where appropriate, are being amortized and accreted into income as more fully described in the notes below. Actual fair value adjustments were determined as of the merger completion date, April 30, 2018, and will be amortized and accreted into income over the estimated remaining lives of the respective assets and liabilities. |
| 4 |
| (2) | The following table summarizes the estimated full year impact of the amortization (accretion) of the non-credit related acquisition accounting adjustments on the pro forma statement of operations (in thousands) assuming the merger was completed as of the beginning of the fiscal year presented. |
| Category | Premium/ (Discounts) | Estimated Life in Years | Amortization (Accretion) Method | Amortization (Accretion) Year Ended December 31, 2017 | ||||||||||
| Loans | $ | (1,347 | ) | 6.50 | SL | $ | (207 | ) | ||||||
| Core deposit intangible | 12,789 | 8.00 | SL | 1,599 | ||||||||||
| Time deposits | 1,300 | 1.75 | SL | 734 | ||||||||||
| FHLB advances | (128 | ) | 5.08 | SL | (34 | ) | ||||||||
| Banking premises | 6,519 | 30.00 | SL | (217 | ) | |||||||||
SL - straight line method.
The following table summarizes the estimated impact of the amortization (accretion) of the acquisition accounting adjustments on CB results of operations for the years following the merger assuming such transaction was effected on January 1, 2017 (in thousands).
| Amounts for the Years Ended December 31, | Amortization of Intangibles | Net Amortization (Accretion) | Net Decrease in Income Before Taxes | |||||||||
| 2017 | $ | 1,599 | $ | 711 | $ | 2,309 | ||||||
| 2018 | 1,599 | 553 | 2,152 | |||||||||
| 2019 | 1,599 | (13 | ) | 1,586 | ||||||||
| 2020 | 1,599 | (13 | ) | 1,586 | ||||||||
| 2021 | 1,599 | (13 | ) | 1,586 | ||||||||
| Thereafter | 4,796 | 5,119 | 9,915 | |||||||||
The income tax adjustment is based upon total pre-tax acquisition accounting adjustments and a 35% effective tax rate.
| (3) | Basic and diluted weighted average common shares outstanding were determined by adding the number of shares issuable to First West Virginia’s stockholders to CB’s historical weighted average basic and diluted outstanding common shares and reflect 1,317,647 incremental diluted shares of CB as a result of pro forma income for the year ended December 31, 2017. The stock consideration paid to First West Virginia’s stockholders consists of the issuance of 1,317,647 shares of CB’s common stock based upon the fixed exchange rate of 0.9583 applied to 80% of the 1,718,730 shares of First West Virginia common stock outstanding. |
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