Exhibit 99.3
UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL INFORMATION AND DATA
The following unaudited preliminary pro forma combined condensed consolidated balance sheet as of September 30, 2018 combines the historical consolidated balance sheets of FAIC and RBB (i) on an actual historical basis and (ii) assuming the completion of the merger at September 30, 2018, using the acquisition method of accounting and giving effect to the related pro forma adjustments described in the accompanying Notes to the Unaudited Pro Forma Combined Condensed Consolidated Financial Statements. The following Unaudited Pro Forma Combined Condensed Consolidated Statements of Income for both the nine months ended September 30, 2018 and the year ended December 31, 2017 combine the historical Consolidated Statements of Operations of RBB and the historical Consolidated Statements of Income of FAIC for such respective periods, giving effect to the merger as if the merger had become effective on January 1, 2017 using the acquisition method of accounting and giving effect to the pro forma adjustments described in the accompanying Notes to the Unaudited Pro Forma Combined Condensed Consolidated Financial Statements.
Although pro forma financial information is not a measurement of performance calculated in accordance with GAAP, RBB and FAIC believe that pro forma financial information is important because it gives effect to the merger. The unaudited pro forma combined condensed consolidated financial information are presented for informational purposes only. This information includes various estimates and may not necessarily be indicative of the financial condition or results of operations that would have occurred if the merger had been completed at the beginning of the periods indicated or which may be obtained in the future.
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 RBB and FAIC. The historical consolidated financial statements of RBB are filed with the SEC. The unaudited pro forma combined financial information should be read in conjunction with RBB’s Quarterly Report on Form 10-Q for the period ended September 30, 2018, and Annual Report on Form 10-K for the year ended December 31, 2017. The historical consolidated financial statements of FAIC are included in this Form 8-K/A.
FAIC’s consolidated financial statements as of December 31, 2017 and 2016, and unaudited consolidated financial statements as of September 30, 2018, included in exhibit 99.1 of this Current Report filed on Form 8/K-A. The pro forma information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the opportunities to earn additional revenue and does not include assumptions as to cost savings and, accordingly, does not attempt to predict or suggest future results.
THIS PRO FORMA DATA IS PRESENTED FOR ILLUSTRATIVE PURPOSES ONLY, DOES NOT INDICATE THE FINANCIAL AND OPERATING RESULTS THAT RBB WOULD HAVE ACHIEVED HAD IT COMPLETED THE MERGER AS OF THE BEGINNING OF THE PERIOD PRESENTED AND SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF FUTURE OPERATIONS OR THE FUTURE FINANCIAL POSITION OF THE COMBINED ENTITIES. THE ADJUSTMENTS MADE IN THE UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, WHICH ARE DESCRIBED IN THESE NOTES, ARE PRELIMINARY AND MAY BE REVISED.
Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet as of September 30, 2018 ($000s) |
| |||||||||||||||||||||
|
|
|
|
|
| First American |
|
|
|
|
|
| Pro Forma |
|
|
|
|
|
|
| ||
|
|
|
|
|
| International |
|
|
|
|
|
| Merger |
|
|
|
| Pro Forma |
| |||
dollars in thousands |
| RBB Bancorp |
|
| Corp. |
|
| Combined |
|
| Adjustments (1) |
|
| Key |
| Combined |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 171,553 |
|
| $ | 66,083 |
|
| $ | 237,636 |
|
| $ | (45,835 | ) |
| (a) |
| $ | 191,801 |
|
Federal funds sold and other cash equivalents |
|
| — |
|
|
| 43 |
|
|
| 43 |
|
|
| — |
|
|
|
|
| 43 |
|
Cash and cash equivalents |
|
| 171,553 |
|
|
| 66,126 |
|
|
| 237,679 |
|
|
| (45,835 | ) |
|
|
|
| 191,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning deposits in other financial institutions |
|
| 600 |
|
|
| 3,801 |
|
|
| 4,401 |
|
|
| — |
|
|
|
|
| 4,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale |
|
| 87,066 |
|
|
| 14,700 |
|
|
| 101,766 |
|
|
| — |
|
|
|
|
| 101,766 |
|
Held to maturity |
|
| 9,974 |
|
|
| 24,406 |
|
|
| 34,380 |
|
|
| (511 | ) |
| (b) |
|
| 33,869 |
|
Mortgage loans held for sale |
|
| 378,943 |
|
|
| 2,661 |
|
|
| 381,604 |
|
|
| — |
|
|
|
|
| 381,604 |
|
Net loans |
|
| 1,365,040 |
|
|
| 703,851 |
|
|
| 2,068,891 |
|
|
| 1,715 |
|
| (c) |
|
| 2,070,606 |
|
Premises and equipment |
|
| 8,119 |
|
|
| 5,825 |
|
|
| 13,944 |
|
|
| 3,322 |
|
| (d) |
|
| 17,266 |
|
Federal Home Loan Bank (FHLB) stock |
|
| 7,738 |
|
|
| 6,563 |
|
|
| 14,301 |
|
|
| — |
|
|
|
|
| 14,301 |
|
Net deferred tax assets |
|
| 7,320 |
|
|
| — |
|
|
| 7,320 |
|
|
| (2,743 | ) |
| (e) |
|
| 4,577 |
|
Income tax receivable |
|
| 1,845 |
|
|
| — |
|
|
| 1,845 |
|
|
| — |
|
|
|
|
| 1,845 |
|
Other real estate owned (OREO) |
|
| 293 |
|
|
| — |
|
|
| 293 |
|
|
| — |
|
|
|
|
| 293 |
|
Bank owned life insurance (BOLI) |
|
| 33,380 |
|
|
| — |
|
|
| 33,380 |
|
|
| — |
|
|
|
|
| 33,380 |
|
Goodwill |
|
| 29,940 |
|
|
| — |
|
|
| 29,940 |
|
|
| 30,816 |
|
| (f) |
|
| 60,756 |
|
Servicing assets |
|
| 6,248 |
|
|
| 11,290 |
|
|
| 17,538 |
|
|
| — |
|
|
|
|
| 17,538 |
|
Core deposit intangibles |
|
| 1,203 |
|
|
| — |
|
|
| 1,203 |
|
|
| 5,953 |
|
| (g) |
|
| 7,156 |
|
Accrued interest and other assets |
|
| 27,577 |
|
|
| 4,874 |
|
|
| 32,451 |
|
|
| — |
|
|
|
|
| 32,451 |
|
Total assets |
| $ | 2,136,839 |
|
| $ | 844,097 |
|
| $ | 2,980,936 |
|
| $ | (7,283 | ) |
|
|
| $ | 2,973,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
| 1,564,964 |
|
|
| 630,214 |
|
|
| 2,195,178 |
|
|
| 2,075 |
|
| (h) |
|
| 2,197,253 |
|
Reserve for unfunded commitments |
|
| 550 |
|
|
| — |
|
|
| 550 |
|
|
| — |
|
|
|
|
| 550 |
|
Income tax payable |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
| — |
|
FHLB advances |
|
| 210,000 |
|
|
| 124,500 |
|
|
| 334,500 |
|
|
| (1,260 | ) |
| (i) |
|
| 333,240 |
|
Long-term debt |
|
| 49,637 |
|
|
| — |
|
|
| 49,637 |
|
|
| — |
|
|
|
|
| 49,637 |
|
Subordinated debentures |
|
| 3,492 |
|
|
| 7,217 |
|
|
| 10,709 |
|
|
| 387 |
|
| (j) |
|
| 11,096 |
|
Accrued interest and other liabilities |
|
| 13,198 |
|
|
| 8,004 |
|
|
| 21,202 |
|
|
| 0 |
|
|
|
|
| 21,202 |
|
Total liabilities |
|
| 1,841,841 |
|
|
| 769,935 |
|
|
| 2,611,776 |
|
|
| 1,202 |
|
|
|
|
| 2,612,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| (k) |
|
| — |
|
Common Stock |
|
| 216,675 |
|
|
| — |
|
|
| 216,675 |
|
|
| 69,604 |
|
| (l) |
|
| 286,279 |
|
Treasury stock |
|
| — |
|
|
| (68 | ) |
|
| (68 | ) |
|
| 68 |
|
| (m) |
|
| — |
|
Additional paid-in capital |
|
| 6,193 |
|
|
| 46,228 |
|
|
| 52,421 |
|
|
| (46,228 | ) |
| (m) |
|
| 6,193 |
|
Retained earnings |
|
| 73,646 |
|
|
| 28,070 |
|
|
| 101,716 |
|
|
| (32,070 | ) |
| (n) |
|
| 69,646 |
|
Minority interest |
|
| — |
|
|
| 72 |
|
|
| 72 |
|
|
| — |
|
| (m) |
|
| 72 |
|
AOCI (Loss) - Net of tax |
|
| (1,516 | ) |
|
| (140 | ) |
|
| (1,656 | ) |
|
| 140 |
|
| (m) |
|
| (1,516 | ) |
Total shareholders’ equity |
|
| 294,998 |
|
|
| 74,162 |
|
|
| 369,160 |
|
|
| (8,486 | ) |
|
|
|
| 360,674 |
|
Total liabilities and shareholders’ equity |
| $ | 2,136,839 |
|
| $ | 844,097 |
|
| $ | 2,980,936 |
|
| $ | (7,283 | ) |
|
|
| $ | 2,973,652 |
|
(1)See related note references in Note 5 – Proforma Adjustments
The accompanying Notes are an integral part of the
Unaudited Pro Forma Combined Condensed Consolidated Financial Information.
Unaudited Pro Forma Combined Condensed Consolidated Statement of Income for the Nine Months Ended September 30, 2018 ($000s) |
| |||||||||||||||||||||
|
|
|
|
|
| First American |
|
|
|
|
|
| Pro Forma |
|
|
|
|
|
|
| ||
|
|
|
|
|
| International |
|
|
|
|
|
| Merger |
|
|
|
| Pro Forma |
| |||
|
| RBB Bancorp |
|
| Corp. |
|
| Combined |
|
| Adjustments (1) |
|
| Key |
| Combined |
| |||||
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
| $ | 63,651 |
|
| $ | 25,707 |
|
| $ | 89,358 |
|
| $ | 1,686 |
|
| (o) |
| $ | 91,044 |
|
Interest on investment securities |
|
| 1,722 |
|
|
| 764 |
|
|
| 2,486 |
|
|
| 88 |
|
| (p) |
|
| 2,574 |
|
Dividends on FHLB stock |
|
| 385 |
|
|
| 370 |
|
|
| 755 |
|
|
| — |
|
|
|
|
| 755 |
|
Interest on federal funds sold and other |
|
| 1,175 |
|
|
| 1,282 |
|
|
| 2,457 |
|
|
| — |
|
|
|
|
| 2,457 |
|
Total interest income |
|
| 66,933 |
|
|
| 28,123 |
|
|
| 95,056 |
|
|
| 1,774 |
|
|
|
|
| 96,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits |
|
| 10,295 |
|
|
| 4,419 |
|
|
| 14,714 |
|
|
| (70 | ) |
| (q) |
|
| 14,644 |
|
Interest on borrowings |
|
| 3,750 |
|
|
| 2,139 |
|
|
| 5,889 |
|
|
| 172 |
|
| (r) |
|
| 6,061 |
|
Total interest expense |
|
| 14,045 |
|
|
| 6,558 |
|
|
| 20,603 |
|
|
| 102 |
|
|
|
|
| 20,705 |
|
Net interest income before provision |
|
| 52,888 |
|
|
| 21,565 |
|
|
| 74,453 |
|
|
| 1,672 |
|
|
|
|
| 76,125 |
|
Provision for credit losses |
|
| 2,579 |
|
|
| — |
|
|
| 2,579 |
|
|
| — |
|
|
|
|
| 2,579 |
|
Net interest income after provision for credit losses |
|
| 50,309 |
|
|
| 21,565 |
|
|
| 71,874 |
|
|
| 1,672 |
|
|
|
|
| 73,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges, fees and other |
|
| 1,551 |
|
|
| 4,044 |
|
|
| 5,595 |
|
|
| — |
|
|
|
|
| 5,595 |
|
Gain on sale of loans |
|
| 5,025 |
|
|
| 4,041 |
|
|
| 9,066 |
|
|
| — |
|
|
|
|
| 9,066 |
|
Other income |
|
| 776 |
|
|
| 231 |
|
|
| 1,007 |
|
|
| — |
|
|
|
|
| 1,007 |
|
Total Non-Interest Income |
|
| 7,352 |
|
|
| 8,316 |
|
|
| 15,668 |
|
|
| — |
|
|
|
|
| 15,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 14,575 |
|
|
| 11,274 |
|
|
| 25,849 |
|
|
| — |
|
|
|
|
| 25,849 |
|
Data processing |
|
| 1,471 |
|
|
| 1,548 |
|
|
| 3,019 |
|
|
| — |
|
|
|
|
| 3,019 |
|
Merger-related |
|
| 571 |
|
|
| 3,415 |
|
|
| 3,986 |
|
|
| (3,986 | ) |
| (w) |
|
| — |
|
Amortization of intangibles |
|
| 235 |
|
|
| — |
|
|
| 235 |
|
|
| 762 |
|
| (s) |
|
| 997 |
|
Other expenses |
|
| 8,282 |
|
|
| 7,397 |
|
|
| 15,679 |
|
|
| 100 |
|
| (t) |
|
| 15,779 |
|
Total Non-Interest Expenses |
|
| 25,134 |
|
|
| 23,634 |
|
|
| 48,768 |
|
|
| (3,124 | ) |
|
|
|
| 45,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Taxes |
|
| 32,527 |
|
|
| 6,247 |
|
|
| 38,774 |
|
|
| 4,796 |
|
|
|
|
| 43,570 |
|
Income Taxes |
|
| 5,913 |
|
|
| 1,794 |
|
|
| 7,707 |
|
|
| 681 |
|
| (u) |
|
| 8,388 |
|
Net Income |
| $ | 26,614 |
|
| $ | 4,453 |
|
| $ | 31,067 |
|
| $ | 4,115 |
|
|
|
| $ | 35,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common stock share: (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis |
| $ | 1.62 |
|
| $ | 2.02 |
|
| $ | 3.64 |
|
|
|
|
|
| (v) |
| $ | 1.81 |
|
Diluted |
| $ | 1.54 |
|
| $ | 2.01 |
|
| $ | 3.55 |
|
|
|
|
|
| (v) |
| $ | 1.73 |
|
(1)See related note references in Note 5 – Proforma Adjustments
(2)Calculated based on net income without regard to dividends paid on FAIC’s Series B Preferred Stock and related discount accretion as such preferred stock is required to be repurchased prior to the closing of the merger pursuant to the merger agreement.
The accompanying Notes are an integral part of the
Unaudited Pro Forma Combined Condensed Consolidated Financial Information.
Unaudited Pro Forma Combined Condensed Consolidated Statement of Income for the Year Ended December 31, 2017 ($000s) |
| |||||||||||||||||||||
|
|
|
|
|
| First American |
|
|
|
|
|
| Pro Forma |
|
|
|
|
|
|
| ||
|
|
|
|
|
| International |
|
|
|
|
|
| Merger |
|
|
|
| Pro Forma |
| |||
|
| RBB Bancorp |
|
| Corp. |
|
| Combined |
|
| Adjustments (1) |
|
| Key |
| Combined |
| |||||
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
| $ | 70,289 |
|
| $ | 32,444 |
|
| $ | 102,733 |
|
| $ | 2,773 |
|
| (o) |
| $ | 105,506 |
|
Interest on investment securities |
|
| 1,406 |
|
|
| 1,186 |
|
|
| 2,592 |
|
|
| 206 |
|
| (p) |
|
| 2,798 |
|
Dividends on FHLB stock |
|
| 472 |
|
|
| 435 |
|
|
| 907 |
|
|
| — |
|
|
|
|
| 907 |
|
Interest on federal funds sold and other |
|
| 1,937 |
|
|
| 745 |
|
|
| 2,682 |
|
|
| — |
|
|
|
|
| 2,682 |
|
Total interest income |
|
| 74,104 |
|
|
| 34,810 |
|
|
| 108,914 |
|
|
| 2,979 |
|
|
|
|
| 111,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits |
|
| 10,273 |
|
|
| 4,855 |
|
|
| 15,128 |
|
|
| (1,990 | ) |
| (q) |
|
| 13,138 |
|
Interest on borrowings |
|
| 3,665 |
|
|
| 2,982 |
|
|
| 6,647 |
|
|
| 865 |
|
| (r) |
|
| 7,512 |
|
Total interest expense |
|
| 13,938 |
|
|
| 7,837 |
|
|
| 21,775 |
|
|
| (1,125 | ) |
|
|
|
| 20,650 |
|
Net interest income before provision |
|
| 60,166 |
|
|
| 26,973 |
|
|
| 87,139 |
|
|
| 4,104 |
|
|
|
|
| 91,243 |
|
Provision for credit losses |
|
| (1,053 | ) |
|
| 149 |
|
|
| (904 | ) |
|
| — |
|
|
|
|
| (904 | ) |
Net interest income after provision for credit losses |
|
| 61,219 |
|
|
| 26,824 |
|
|
| 88,043 |
|
|
| 4,104 |
|
|
|
|
| 92,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges, fees and other |
|
| 2,111 |
|
|
| 4,540 |
|
|
| 6,651 |
|
|
| — |
|
|
|
|
| 6,651 |
|
Gain on sale of loans |
|
| 9,318 |
|
|
| 7,920 |
|
|
| 17,238 |
|
|
| — |
|
|
|
|
| 17,238 |
|
Other income |
|
| 1,772 |
|
|
| 141 |
|
|
| 1,913 |
|
|
| — |
|
|
|
|
| 1,913 |
|
Total Non-Interest Income |
|
| 13,201 |
|
|
| 12,601 |
|
|
| 25,802 |
|
|
| — |
|
|
|
|
| 25,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 16,821 |
|
|
| 14,690 |
|
|
| 31,511 |
|
|
| — |
|
|
|
|
| 31,511 |
|
Data processing |
|
| 1,622 |
|
|
| 1,770 |
|
|
| 3,392 |
|
|
| — |
|
|
|
|
| 3,392 |
|
Amortization of intangibles |
|
| 355 |
|
|
| — |
|
|
| 355 |
|
|
| 1,118 |
|
| (s) |
|
| 1,473 |
|
Other expenses |
|
| 8,825 |
|
|
| 11,642 |
|
|
| 20,467 |
|
|
| 133 |
|
| (t) |
|
| 20,600 |
|
Total Non-Interest Expenses |
|
| 27,623 |
|
|
| 28,102 |
|
|
| 55,725 |
|
|
| 1,251 |
|
|
|
|
| 56,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Taxes |
|
| 46,797 |
|
|
| 11,323 |
|
|
| 58,120 |
|
|
| 2,853 |
|
|
|
|
| 60,973 |
|
Income Taxes |
|
| 21,269 |
|
|
| 4,462 |
|
|
| 25,731 |
|
|
| 1,170 |
|
| (u) |
|
| 26,901 |
|
Net Income |
| $ | 25,528 |
|
| $ | 6,861 |
|
| $ | 32,389 |
|
| $ | 1,683 |
|
|
|
| $ | 34,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis |
| $ | 1.81 |
|
| $ | 3.11 |
|
| $ | 4.92 |
|
|
|
|
|
| (v) |
| $ | 1.99 |
|
Diluted |
| $ | 1.68 |
|
| $ | 3.11 |
|
| $ | 4.79 |
|
|
|
|
|
| (v) |
| $ | 1.87 |
|
(1)See related note references in Note 5 – Proforma Adjustments
(2)Calculated based on net income without regard to dividends paid on FAIC’s Series B Preferred Stock and related discount accretion as such preferred stock is required to be repurchased prior to the closing of the merger pursuant to the merger agreement.
The accompanying Notes are an integral part of the
Unaudited Pro Forma Combined Condensed Consolidated Financial Information.
Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial Information
Note 1. Basis of Presentation
The unaudited pro forma combined condensed consolidated financial information is based upon the assumption that the total number of shares of FAIC common stock immediately outstanding prior to the completion of the merger will be 2,235,646 and each outstanding share of FAIC common stock will be exchanged for 1.3472 shares of RBB common stock and $15.30 in cash, and 22,900 of stock options will be converted into cash equal to the difference between $51.00 and a weighted average exercise price of $23.50 per stock option. Additionally, RBB will provide financing to FAIC for the redemption of its $7.0 million in TARP Community Development Capital Initiative Shares (the “Series B Preferred Stock”).
This will result in the issuance of 3,011,862 shares of RBB common stock with an estimated fair value of $69.6 million based upon the closing price of RBB’s common stock on October 15, 2018 of $23.11 per share, and total cash consideration of $41.8 million comprised of (i) $34.2 million ($15.30 per share) in cash consideration for the outstanding shares of FAIC common stock, (ii) $630,000 ($27.50 per stock option) in stock option consideration, and (iii) $7.0 million provided by RBB in the form of financing to FAIC to fund the redemption of the Series B Preferred Stock. Total purchase consideration is estimated to be $111.4 million. The final allocation of the purchase price will be determined after the merger is completed and additional analyses are performed to determine the fair values of FAIC’s tangible and identifiable intangible assets and liabilities as of the date the merger is completed. The final adjustments may be materially different from the unaudited pro forma adjustments presented herein. The unaudited pro forma combined condensed consolidated financial information has been prepared to include the estimated adjustments necessary to record the assets and liabilities of FAIC at their respective fair values and represents management’s best estimate based upon the information available at this time. The pro forma adjustments included herein are subject to change as additional information becomes available and as additional analyses are performed. Such adjustments, when compared to the information shown in this document, may change the amount of the purchase price allocation to goodwill.
Goodwill is created when the purchase price consideration exceeds the fair value of the net assets acquired or a bargain purchase gain results when the current fair value of the net assets acquired exceeds the purchase price consideration. For purposes of this analysis, goodwill of $30.8 million results from the transaction; however, the final purchase accounting analysis will be performed as of the merger date and these amounts are subject to change as additional information becomes available and as additional analyses are performed. Note 6 –Preliminary Purchase Accounting Allocation below presents a table that provides the preliminary calculation and allocation of the purchase consideration used in the pro forma consolidated combined condensed financial statements and a reconciliation of pro forma shares to be outstanding.
Notes 2. Accounting Policies and Financial Statement Classification
The accounting policies of FAIC are in the process of being reviewed in detail by RBB. Upon completion of such review, conforming adjustments or financial statement reclassifications may be determined.
Note 3. Merger and Acquisition Integration Costs
The branch operations, lending activities, along with all other operations of FAIC will be integrated into RBB Bancorp. The conversion of systems were completed in December 2018. The integration of operations will continue over the next several months.
The specific details of the plan to integrate the operations of FAIC 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 RBB may take advantage of redundancies. Certain decisions arising from these assessments may involve involuntary termination of employees, vacating leased premises, changing information systems, canceling contracts with certain service providers, and selling or otherwise disposing of certain premises, furniture and equipment. RBB and FAIC expects to incur merger-related costs including professional fees, legal fees, system conversion costs and costs related to communications with customers and others. To the extent there are costs associated with these actions, the costs will be recorded based on the nature of the cost and in the period incurred.
Note 4. Estimated Annual Cost Savings
RBB expects to realize cost savings following the merger. These cost savings are not reflected in the pro forma combined condensed consolidated financial information and there can be no assurance they will be achieved in the amount or manner currently contemplated.
Note 5. Pro Forma Adjustments
The following pro forma adjustments have been reflected in the unaudited pro forma combined condensed consolidated financial information. All adjustments, including fair value adjustments are based on current assumptions and valuations, which are subject to change.
a. Adjustment of $45.8 million is comprised of (i) cash consideration of $34.2 million based on 2,235,646 outstanding FAIC common shares and a per share price of $15.30, (ii) additional stock option consideration of $630,000 based on 22,900 outstanding stock options and net stock option price of $27.50, (iii) an additional $7.0 million to fund FAIC’s redemption of its Series B Preferred Stock (Refer to Note 1 –Basis of Presentation for further information), and (iv) $4.0 million in transaction costs.
b. Purchase accounting adjustment of $(511,000) to reflect the fair value of securities held-to-maturity, which is determined by matrix pricing, utilizing an independent pricing service for significantly similar securities and relying on the securities’ relationship to other benchmark quoted securities. The adjustment will be amortized based upon the estimated remaining life of the securities.
c. Purchase accounting reversal of FAIC’s $9.6 million allowance for loan losses, which is not carried over, offset by net fair value adjustments of $(7.9) million, to reflect the preliminary market value of loans, which includes credit losses, as well as an interest and liquidity component. The adjustment will be substantially amortized based upon the expected five-year life of the loans.
d. Purchase accounting adjustment of $3.3 million to reflect the fair value of FAIC’s 19,200 square foot commercial real estate building based on a recent appraisal. This adjustment includes a discount of 10% for estimated selling costs. The amortizable portion of the adjustment attributable to the building will be amortized over a twenty-year expected life on a straight-line basis.
e. Purchase accounting adjustment of $(2.7) million to reflect reduction in the estimated amount of deferred taxes resulting from fair value adjustments using an effective tax rate of 29.6%.
f. Represents the recognition of goodwill totaling $30.8 million resulting from the difference between the aggregate purchase consideration to FAIC shareholders less the net fair value of the assets acquired and assumed liabilities. See Note 6 – Preliminary Purchase Accounting Allocation.
g. Purchase accounting adjustment amount represents $6.0 million in core deposit asset fair value, which is estimated to be 1% of core deposits. Core deposits are defined as non-maturity deposits (such as non-interest bearing demand, savings, NOW and money market accounts) plus time deposits under $250,000. The fair value adjustment will be amortized on an accelerated basis over an estimated life of 10 years.
h. Purchase accounting adjustment of $2.1 million to reflect the fair values of certain time deposits based on current interest rates for similar instruments. The adjustment will be recognized using an accelerated amortization method based upon the estimated weighted average maturities of the deposit liabilities of approximately 13 months.
i. Purchase accounting adjustment of $1.3 million to reflect the fair values of FHLB advances based on current interest rates for similar instruments. The adjustment will be recognized using a level yield amortization method based upon the weighted average contractual maturities of the advances of approximately 13 months.
j. Purchase accounting adjustment of $(387,000) to reflect the fair value of FAIC’s junior subordinated debentures and is based on current rates for similar debt. The adjustment will be recognized using a level yield amortization method based upon the contractual maturity of the debentures of approximately 17 years.
k. FAIC’s $7.0 million Series B Preferred Stock was redeemed prior to closing. Refer to Note 1 – Basis of Presentation for additional information.
l. Purchase accounting adjustments to eliminate FAIC common stock and record the $69.6 million in purchase consideration assigned to common shares of FAIC exchanged for RBB common shares.
m. Purchase accounting adjustments reflecting the elimination of (i) $46.2 million in additional paid-in capital, which includes $7.0 million in additional paid-in capital related to the Series B Preferred Stock redeemed by FAIC prior to closing (Refer to Note 1 –Basis of Presentation for additional information), (ii) $(68,000) in treasury stock, (iii) $(140,000) related to accumulated other comprehensive loss.
n. Purchase accounting adjustment of $33.2 million reflecting the elimination of $28.1 million in retained earnings plus $3.6 million in estimated transaction costs.
o. Adjustment to reflect accelerated accretion of the purchase price accounting adjustment on loans, which is expected to increase pro forma pre-tax interest income by $1.7 million and $2.8 million for the nine months ended September 30, 2018 and year ended December 31, 2017, respectively. Estimated accretion for the 4th quarter of 2018 is $487,000, $1.6 million for 2019, $974,000 for 2020, $375,000 for 2021 and none thereafter.
p. Adjustment to reflect accretion of the purchase price accounting adjustment on securities held-to-maturity, which is expected to increase pro forma pre-tax interest income by $88,000 and $206,000 for the nine months ended September 30, 2018 and year ended December 31, 2017, respectively.
q. Adjustment to reflect amortization of the purchase price accounting adjustment related to time certificates of deposit, which are expected to reduce pro forma pre-tax interest expense by $70,000 and $2.0 million for the nine months ended September 30, 2018 and year ended December 31, 2017, respectively.
r. Adjustment to reflect amortization of the purchase price accounting adjustments related to junior subordinated debentures and FHLB advances, which are expected to increase pro forma pre-tax interest expense by $172,000 and $865,000 for the nine months ended September 30, 2018 and year ended December 31, 2017, respectively.
s. Adjustment to reflect amortization of the purchase price accounting adjustment related to core deposit intangible, which are expected to increase pro forma pre-tax noninterest expense by $762,000 and $1.1 million for the nine months ended September 30, 2018 and year ended December 31, 2017, respectively.
t. Adjustment to reflect amortization of the purchase price accounting adjustment related to the commercial real estate building, which is expected to increase pro forma pre-tax noninterest expense by $100,000 and $133,000 thousand for the nine months ended September 30, 2018 and year ended December 31, 2017, respectively.
u. Pro-forma income taxes are estimated at an effective tax rate of 29.6% for the nine months ended September 30, 2018 and 41.0% for the year ended December 31, 2017.
v. Basic and diluted net income per share for the nine months ended September 30, 2018 are each computed using RBB’s weighted average basic and diluted shares outstanding of 16,379,211 and 17,309,241, respectively, plus the 3,011,862 shares expected to be issued to FAIC common shareholders. Basic and diluted net income per share for the year ended December 31, 2017 are each computed using RBB’s weighted average basic and diluted shares outstanding of 14,078,281 and 15,238,365, respectively, plus the 3,011,862 shares expected to be issued to FAIC common shareholders.
w. Adjustment to reflect the elimination of $4.0 million in nonrecurring costs incurred by RBB and FAIC and directly attributable to the merger transaction.
Note 6. Preliminary Purchase Accounting Allocation
The following table represents a preliminary allocation of purchase price consideration to the assets and liabilities of FAIC as of September 30, 2018 and the preliminary fair value adjustments and amounts that may be recorded by RBB upon closing of the merger transaction:
Purchase price consideration (preliminary) |
|
|
|
|
|
|
|
|
FAIC common shares outstanding exchanged for stock |
|
| 2,235,646 |
|
|
|
|
|
Exchange ratio |
|
| 1.34720 |
|
|
|
|
|
RBB common shares to be issued to FAIC shareholders |
|
| 3,011,862 |
|
|
|
|
|
Purchase price per share of FAIC common stock as of October 15, 2018 |
| $ | 23.11 |
|
|
|
|
|
Purchase price assigned to common shares exchanged for stock |
|
| 69,604,138 |
|
|
|
|
|
Cash consideration |
|
| 34,205,000 |
|
|
|
|
|
Stock option consideration |
|
| 630,000 |
|
|
|
|
|
Cash provided for redemption of Series B Preferred Stock |
|
| 7,000,000 |
|
|
|
|
|
Total cash consideration |
|
| 41,835,000 |
|
|
|
|
|
Total purchase consideration |
|
|
|
|
| $ | 111,439,138 |
|
Less: FAIC shareholders’ equity |
|
|
|
|
|
| 74,161,519 |
|
Estimated fair value adjustments: |
|
|
|
|
|
|
|
|
Securities held to-maturity |
|
| (511,094 | ) |
|
|
|
|
Loan fair value |
|
| (7,868,000 | ) |
|
|
|
|
Elimination of allowance for loan losses |
|
| 9,583,000 |
|
|
|
|
|
Loans, net |
|
| 1,715,000 |
|
|
|
|
|
Premises and equipment |
|
| 3,322,000 |
|
|
|
|
|
Core deposit intangible |
|
| 5,953,000 |
|
|
|
|
|
Time deposits |
|
| (2,075,000 | ) |
|
|
|
|
FHLB advances |
|
| 1,260,000 |
|
|
|
|
|
Trust preferred securities |
|
| (387,000 | ) |
|
|
|
|
Minority interest |
|
| (72,000 | ) |
|
|
|
|
Related taxes of items above |
|
| (2,743,000 | ) |
|
|
|
|
Less: Total fair value adjustments |
|
|
|
|
|
| 6,461,906 |
|
Net assets acquired |
|
|
|
|
|
| 80,623,425 |
|
Goodwill |
|
|
|
|
| $ | 30,815,713 |
|
Reconciliation of pro forma shares outstanding: |
|
|
|
|
|
|
|
|
FAIC common shares exchanged for RBB common shares |
|
|
|
|
|
| 2,235,646 |
|
Exchange ratio |
|
|
|
|
|
| 1.34720 |
|
RBB common shares issued to FAIC common shareholders |
|
|
|
|
|
| 3,011,862 |
|
RBB common shares outstanding |
|
|
|
|
|
| 16,795,903 |
|
Pro forma RBB common shares |
|
|
|
|
|
| 19,807,765 |
|
Pro forma ownership percentage of FAIC shareholders |
|
|
|
|
|
| 15.21 | % |
Pro forma ownership percentage of legacy RBB shareholders |
|
|
|
|
|
| 84.79 | % |
Calculation of stock option consideration: |
|
|
|
|
|
|
|
|
FAIC stock options outstanding |
|
|
|
|
|
| 22,900 |
|
Weighted average exercise price |
|
|
|
|
| $ | 23.50 |
|
Price paid per FAIC outstanding stock option |
|
|
|
|
|
| 51.00 |
|
Net cash price paid per outstanding stock option |
|
|
|
|
| $ | 27.50 |
|
Stock option consideration |
|
|
|
|
| $ | 629,750 |
|
Outstanding stock options (equivalent shares) |
|
|
|
|
|
| 30,851 |
|