Section 4: EX-99.2 (EXHIBIT 99.2) |
Exhibit 99.2
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial statements present the impact of the merger (the “Merger”) of Reliant Bancorp, Inc. (“Reliant”) and Community First, Inc. (“Community First”) in which Community First merged into Reliant’s wholly owned subsidiary, Reliant Bank.
The unaudited pro forma condensed combined financial information is based on the historical financial statements of Reliant and Community First. Historical financial information for Community First was derived from its audited consolidated financial statements as of and for the year ended December 31, 2017. Historical financial information for Reliant was derived from its audited consolidated financial statements as of and for the year ended December 31, 2017, included in Reliant’s Annual Report on Form 10-K filed on March 16X, 2018.
The unaudited pro forma combined consolidated financial statements are provided for informational purposes only and are not necessarily, and should not be assumed to be, an indication of the actual results that would have been achieved had the merger been completed as of the dates indicated or that will be achieved in the future. The preparation of the unaudited pro forma combined condensed financial statements and related adjustments required management to make certain assumptions and estimates. Such information includes adjustments, which are preliminary and may be revised, and such revisions may result in material changes. The unaudited pro forma financial information does not give consideration to the impact of possible cost savings, expense efficiencies, synergies, strategy modifications, asset dispositions, or other actions that may result from the merger. The unaudited pro forma combined condensed financial statements should be read in conjunction with the historical financial statements referred to above.
Unaudited Pro Forma Combined Condensed Balance Sheet
December 31, 2017
(In Thousands)
Reliant | Community First | Combined Pro Forma | |||||||||||||||
December 31, | December 31, | Pro Forma | December 31, | ||||||||||||||
2017 | 2017 | Adjustments | 2017 | ||||||||||||||
Assets: | |||||||||||||||||
Cash and cash equivalents | $ | 20,668 | $ | 33,128 | $ | - | $ | 53,796 | |||||||||
Time deposits in other financial institutions | - | 23,309 | - | 23,309 | |||||||||||||
Securities available for sale | 220,201 | 69,078 | - | 289,279 | |||||||||||||
Loans, net of unearned income | 772,219 | 320,084 | (7,044 | ) | A | 1,085,259 | |||||||||||
Allowance for loan losses | (9,731 | ) | (3,894 | ) | 3,894 | B | (9,731 | ) | |||||||||
Loans, net | 762,488 | 316,190 | (3,150 | ) | 1,075,528 | ||||||||||||
Mortgage loans held for sale, net | 45,322 | 910 | - | 46,232 | |||||||||||||
Accrued interest receivable | 5,744 | 1,165 | 6,909 | ||||||||||||||
Premises and equipment, net | 9,790 | 10,342 | (757 | ) | C | 19,375 | |||||||||||
Restricted equity securities | 7,774 | 1,727 | - | 9,501 | |||||||||||||
Cash surrender value of life insurance contracts | 33,663 | 10,664 | - | 44,327 | |||||||||||||
Other real estate owned, net | - | 2,386 | (736 | ) | D | 1,650 | |||||||||||
Deferred tax assets, net | 1,250 | 8,076 | (3,191 | ) | E | 6,135 | |||||||||||
Goodwill | 11,404 | - | 32,061 | F | 43,465 | ||||||||||||
Core deposit intangibles | 1,280 | 667 | 7,221 | G | 9,168 | ||||||||||||
Other assets | 5,450 | 1,888 | - | 7,338 | |||||||||||||
Total assets | $ | 1,125,034 | $ | 479,530 | $ | 31,448 | $ | 1,636,012 | |||||||||
Liabilities and Shareholders’ Equity: | |||||||||||||||||
Liabilities: | |||||||||||||||||
Deposits—noninterest-bearing | $ | 131,996 | $ | 80,939 | $ | - | $ | 212,935 | |||||||||
Deposits—interest-bearing | 751,523 | 352,018 | 82 | H | 1,103,623 | ||||||||||||
Total deposits | 883,519 | 432,957 | 82 | 1,316,858 | |||||||||||||
Other borrowings | 96,747 | 13,000 | (1,478 | ) | I | 108,269 | |||||||||||
Payables and other liabilities | 4,631 | 4,184 | 250 | J | 9,065 | ||||||||||||
Total liabilities | 984,897 | 450,141 | (1,146 | ) | 1,433,892 | ||||||||||||
Shareholders’ Equity: | |||||||||||||||||
Common stock | 9,034 | 25,531 | (23,115 | ) | K | 11,450 | |||||||||||
Additional paid in capital | 112,437 | 17,785 | 41,782 | K | 172,004 | ||||||||||||
Retained earnings (deficit) | 17,192 | (11,329 | ) | 11,329 | K | 17,192 | |||||||||||
Accumulated other comprehensive income (loss) | 1,474 | (2,598 | ) | 2,598 | K | 1,474 | |||||||||||
Total shareholders’ equity | 140,137 | 29,389 | 32,594 | 202,120 | |||||||||||||
Total liabilities and shareholders’ equity | $ | 1,125,034 | $ | 479,530 | $ | 31,448 | $ | 1,636,012 |
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial Information
Unaudited Pro Forma Combined Condensed Statement of Income
For the Year Ended December 31, 2017
(Dollar Amounts In Thousands, Except Per Share Data)
Reliant | Community First | Pro Forma Combined | |||||||||||||||
Year Ended December 31, | Year Ended December 31, | Pro Forma | Year Ended December 31, | ||||||||||||||
2017 | 2017 | Adjustments | 2017 | ||||||||||||||
Interest income: | |||||||||||||||||
Interest and fees on loans | $ | 34,176 | $ | 15,370 | $ | 1,477 | A | $ | 51,023 | ||||||||
Interest and fees on loans held for sale | 868 | 9 | - | 877 | |||||||||||||
Investment securities, taxable | 691 | 1,724 | - | 2,415 | |||||||||||||
Investment securities, nontaxable | 3,904 | 8 | - | 3,912 | |||||||||||||
Federal funds sold and other | 519 | 733 | - | 1,252 | |||||||||||||
Total interest income | 40,158 | 17,844 | 1,477 | 59,479 | |||||||||||||
Interest expense: | |||||||||||||||||
Deposits | |||||||||||||||||
Demand deposits | 173 | 92 | - | 265 | |||||||||||||
Savings and money market deposit account | 748 | 537 | - | 1,285 | |||||||||||||
Time | 4,095 | 1,493 | (71 | ) | H | 5,517 | |||||||||||
Other borrowings | 655 | 644 | 82 | I | 1,381 | ||||||||||||
Total interest expense | 5,671 | 2,766 | 11 | 8,448 | |||||||||||||
Net interest income | 34,487 | 15,078 | 1,466 | 51,031 | |||||||||||||
Provision for loan losses | 1,316 | 55 | - | 1,371 | |||||||||||||
Net interest income after loan loss provision | 33,171 | 15,023 | 1,466 | 49,660 | |||||||||||||
Non-interest income: | |||||||||||||||||
Service charges on deposit accounts and other fees | 1,251 | 1,717 | - | 2,968 | |||||||||||||
Gain on mortgage loans sold | 3,675 | 191 | - | 3,866 | |||||||||||||
Gain on sale of investment securities, net | 59 | - | - | 59 | |||||||||||||
Gain on sale other real estate | 27 | - | - | 27 | |||||||||||||
Loss on disposal of premise and equipment | (52 | ) | - | - | (52 | ) | |||||||||||
Other | 1,050 | 521 | - | 1,571 | |||||||||||||
Total non-interest income | 6,010 | 2,429 | - | 8,439 | |||||||||||||
Non-interest expense: | |||||||||||||||||
Salaries and employee benefits | 18,432 | 7,835 | - | 26,267 | |||||||||||||
Occupancy | 3,353 | 1,324 | (34 | ) | C | 4,643 | |||||||||||
Information technology | 2,715 | 1,214 | - | 3,929 | |||||||||||||
Advertising and public relations | 264 | 202 | - | 466 | |||||||||||||
Audit, legal and consulting | 2,865 | 438 | (2,997 | ) | M | 306 | |||||||||||
Federal deposit insurance | 399 | 260 | - | 659 | |||||||||||||
Other operating | 3,048 | 4,364 | 586 | G | 7,998 | ||||||||||||
Total non-interest expense | 31,076 | 15,637 | (2,445 | ) | 44,268 | ||||||||||||
Income before income tax expense | 8,105 | 1,815 | 3,911 | 13,831 | |||||||||||||
Income tax expense | 1,942 | 3,238 | 1,498 | N | 6,678 | ||||||||||||
Net income | 6,163 | (1,423 | ) | 2,413 | 7,153 | ||||||||||||
Noncontrolling interest in net loss of subsidiary | 1,083 | - | - | 1,083 | |||||||||||||
Net income available to common shareholders | $ | 7,246 | $ | (1,423 | ) | $ | 2,413 | $ | 8,236 | ||||||||
Basic earnings available to common shareholders per share | $ | 0.89 | $ | (0.28 | ) | $ | 0.78 | ||||||||||
Diluted earnings available to common shareholders per share | $ | 0.88 | $ | (0.28 | ) | $ | 0.77 | ||||||||||
Weighted average common shares outstanding: | |||||||||||||||||
Basic | 10,567,936 | ||||||||||||||||
Diluted | 10,655,745 |
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial Information
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
(Dollar Amounts In Thousands, Except Per Share Data)
NOTE 1 – BASIS OF PRESENTATION
The unaudited pro forma combined condensed financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted.
NOTE 2 – PRO FORMA ADJUSTMENTS
A. | Mark-to-market adjustment to reflect Community First’s loan portfolio at fair value. The accretable portion of the discount totals $5,883 and will be recognized as interest income over the estimated remaining lives of the related loans using a method that approximates the level yield method. The weighted average remaining life is estimated to be 54 months. |
B. | Mark-to-market adjustment to eliminate Community First’s allowance for loan losses. Future credit losses were considered in the loan valuation discount described above. |
C. | Mark-to-market adjustment to reflect premises and equipment of Reliant at fair value and the related depreciation expense. The fair value adjustment related to buildings will be recognized as a reduction in depreciation expense which is estimated to be over the remaining lives as originally established upon completion of the buildings. The remaining lives range from 5 to 30 years. |
D. | Mark-to-market adjustment to reflect Community First’s other real estate at fair value. |
E. | To record net deferred tax assets related to fair value adjustments and intangible assets acquired, excluding goodwill. |
F. | To record goodwill equal to the excess of consideration paid over the fair value of assets and liabilities recognized. Goodwill will not be amortized for accounting purposes but will be tested for impairment at least annually, which may result in impairment losses in future periods. |
G. | To record the core deposit intangible asset related to deposit customer relationships acquired and the related amortization expense, net of removing the existing core deposit intangible of Community First. This asset will be amortized over the estimated future benefit period of 12 years. |
H. | Mark-to-market adjustment to record acquired time deposits at fair value and the related affect on interest expense. This fair value adjustment will be recognized as a reduction to interest expense on deposits using a method that approximates the level yield method over the estimated remaining life of 14 months. |
I. | Mark-to-market adjustment to record acquired other borrowings at fair value and the related effect on interest expense. This fair value adjustment will be recognized as an increase to interest expense on other borrowings using a method that approximates the level yield method over the estimated remaining life of 18 years. |
J. | To record contract settlement obligations related to the merger. |
K. | To record acquisition consideration, eliminate retained earnings and accumulated other comprehensive income of Community First, and reflect the exchange of common stock based on the merger share exchange ratio. |
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
(Dollar Amounts In Thousands, Except Per Share Data)
NOTE 2 – PRO FORMA ADJUSTMENTS (Continued)
M. | Adjustments to exclude non-recurring merger related expenses. During the year ended December 31, 2017 and Reliant incurred expenses totaling $1,431 and Community First incurred expenses totaling $1,565. |
N. | Adjustment to reflect income tax expense related to pro forma adjustments to income. The blended income tax rate for state and federal taxes assumes the federal tax rate in effect for the year ended December 31, 2017. |
The following table presents the estimated income or expense effect of the pro forma adjustments for the following five successive years, excluding the tax effect and the non-recurring merger expenses:
Income (Expense) | ||||||||||||||||||||
To Be Recognized in the Successive Years | ||||||||||||||||||||
Period 1 | Period 2 | Period 3 | Period 4 | Period 5 | ||||||||||||||||
Loans | $ | 1,477 | 1,418 | 1,278 | 1,076 | 610 | ||||||||||||||
Premises and equipment | 34 | 34 | 34 | 34 | 34 | |||||||||||||||
Core deposit | (586 | ) | (586 | ) | (586 | ) | (586 | ) | (604 | ) | ||||||||||
Deposits | 71 | 11 | - | - | - | |||||||||||||||
Debentures | (82 | ) | (82 | ) | (82 | ) | (82 | ) | (82 | ) | ||||||||||
$ | 914 | 795 | 644 | 442 | (42 | ) |
NOTE 3 – PURCHASE PRICE DETERMINATION
Measurement of the acquisition consideration was based on the fair value of Reliant’s common stock, which was more readily determinable than the fair value of Community First common stock. The fair value of Reliant common stock as of December 29, 2017, as determined based on the quoted closing market price as of that date. This date was the last open market date prior the merger. That closing price was multiplied by the number of common shares issued to the retained by the transferring shareholders of Community First. In addition, there were fractional shares redeemed of Community first shareholders that totaled $25.
The purchase price calculation is as follows:
Shares of CFB&T common stock outstanding as of December 31, 2017 | 5,025,884 | ||||
Exchange ratio for Reliant Bancorp, Inc. common stock | 0.481 | ||||
Share conversion | 2,417,450 | ||||
Reliant Bancorp, Inc. common stock shares issued | 2,416,444 | ||||
$ | 25.64 | ||||
61.958 | |||||
Value of fractional shares redeemed for cash | 25 | ||||
Estimated fair value of CFB&T | $ | 61.983 |
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
(Dollar Amounts In Thousands, Except Per Share Data)
NOTE 4 – PURCHASE PRICE ALLOCATION
The purchase price has been allocated to Community First’s tangible and intangible assets and liabilities as of December 31, 2017, based on their estimated fair values as follows (in thousands):
Total consideration (NOTE 3) | $ | 61,983 | ||
Fair value of assets acquired and liabilities assumed: | ||||
Cash and cash equivalents | $ | (33,128 | ) | |
Time deposits in other financial institutions | (23,309 | ) | ||
Securities available for sale | (69,078 | ) | ||
Loans, net of unearned income | (313,040 | ) | ||
Mortgage loans held for sale, net | (910 | ) | ||
Accrued interest receivable | (1,165 | ) | ||
Premises and equipment, net | (9,585 | ) | ||
Restricted equity securities | (1,727 | ) | ||
Cash surrender value of life insurance contracts | (10,664 | ) | ||
Other real estate owned | (1,650 | ) | ||
Deferred tax assets, net | (4,885 | ) | ||
Core deposit intangibles | (7,888 | ) | ||
Other assets | (1,888 | ) | ||
Deposits—noninterest-bearing | 80,395 | |||
Deposits—interest-bearing | 352,100 | |||
Other borrowings | 11,522 | |||
Payables and other liabilities | 4,978 | |||
Net liabilities assumed (net assets acquired) | $ | (29,922 | ) | |
Goodwill | $ | 32,061 |
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
(Dollar Amounts In Thousands, Except Per Share Data)
NOTE 5 – EARNINGS PER COMMON SHARE
Unaudited pro forma earnings per common share for the year ended December 31, 2017, have been calculated using Reliant’s common shares outstanding plus the common shares issued to Community First shareholders in the merger. Under the terms of the merger agreement, Community First shareholders were entitled to receive .481 shares of Reliant common stock for each common share of Community First.
The following table sets forth the calculation of basic and diluted unaudited pro forma earnings per common share for the year ended December 31, 2017 (dollar amounts in thousands, except per common share amounts).
Year Ended | ||||||||
December 31, 2017 | ||||||||
Basic | Diluted | |||||||
Pro forma net income available to common shareholders | $ | 8,236 | $ | 8,236 | ||||
Weighted average common shares outstanding: | ||||||||
Reliant | 8,151,492 | 8,239,301 | ||||||
Community First (1) | 2,416,444 | 2,416,444 | ||||||
Pro forma weighted average shares | 10,567,936 | 10,655,745 | ||||||
Pro forma net income per common share | $ | 0.78 | $ | 0.77 |
(1) Includes pro forma adjustment to basic and diluted shares based on merger share exchange ratio. |