The following unaudited pro forma condensed combined financial information is based on the historical consolidated financial statements of ACNB Corporation (“ACNB”) and New Windsor Bancorp, Inc. (“New Windsor”) under the assumptions and adjustments set forth in the accompanying notes. The pro forma information, while helpful in illustrating the financial characteristics of ACNB following the merger under one set of assumptions, does not attempt to predict or suggest future results. The pro forma information also does not necessarily reflect what the historical results of ACNB would have been had our companies been combined during the periods or as of the date for which the pro forma information is presented.
Unaudited Pro Forma Condensed Combined Statement of Condition
As of March 31, 2017
($ in Thousands, Except for Per Share Data)
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| ACNB/New |
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| Pro Forma |
| Windsor |
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| ACNB |
| New Windsor |
| Merger |
| Combined |
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In thousands |
| Historical (1) |
| Historical (1) |
| Adjustments |
| Pro Forma |
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ASSETS |
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Cash, interest bearing deposits and federal funds sold |
| $ | 16,516 |
| $ | 9,409 |
| $ | (10,066 | )(2) | $ | 15,859 |
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Securities |
| 190,893 |
| 22,551 |
| — |
| 213,444 |
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Loans receivable, net |
| 938,797 |
| 265,595 |
| (6,519 | )(3) | 1,197,873 |
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Bank-owned life insurance |
| 40,997 |
| 3,094 |
| — |
| 44,091 |
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Intangible assets, net |
| 608 |
| — |
| 2,418 | (4) | 3,026 |
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Goodwill |
| 6,308 |
| — |
| 13,045 | (5) | 19,353 |
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Other assets |
| 47,606 |
| 13,492 |
| 1,760 | (6) | 62,858 |
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Total Assets |
| $ | 1,241,725 |
| $ | 314,141 |
| $ | 638 |
| $ | 1,556,504 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Liabilities |
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Deposits |
| $ | 990,494 |
| $ | 285,545 |
| $ | 848 | (7) | $ | 1,276,887 |
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Borrowed funds |
| 118,218 |
| 5,000 |
| (312 | )(8) | 122,906 |
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Other Liabilities |
| 11,171 |
| 907 |
| (283 | )(9) | 11,795 |
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Total Liabilities |
| 1,119,883 |
| 291,452 |
| 253 |
| 1,411,588 |
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Total Stockholders’ Equity |
| 121,842 |
| 22,689 |
| 385 | (10) | 144,916 |
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Total Liabilities and Shareholders’ Equity |
| $ | 1,241,725 |
| $ | 314,141 |
| $ | 638 |
| $ | 1,556,504 |
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(1) Based on ACNB’s Form 10-Q for the quarterly period ended March 31, 2017, filed with the Securities and Exchange Commission on April 28, 2017 and New Windsor’s unaudited financial statements as of March 31, 2017, respectively.
(2) The adjustment includes cash consideration of $4.5 million paid to New Windsor stockholders. Additionally, it is assumed that cash will be used to pay $5.5 million for one-time merger expenses related to New Windsor and ACNB.
Estimated New Windsor shares outstanding* |
| 1,003,703 |
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Estimated shares paid cash consideration |
| 150,555 |
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Cash consideration (per New Windsor share) |
| $ | 30.00 |
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Estimated cash portion of purchase price |
| $ | 4,519,650 |
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Estimated New Windsor shares outstanding* |
| 1,003,703 |
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Estimated shares paid stock consideration |
| 853,148 |
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Exchange ratio |
| 1.10 |
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Total ACNB shares issued |
| 938,360 |
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ACNB’s share price for purposes of calculation** |
| $ | 30.50 |
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Equity portion of purchase price |
| $ | 28,619,980 |
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Total estimated consideration to be paid |
| $ | 33,139,630 |
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* Represents the shares outstanding as of March 31, 2017 including the shares that will vest or be issued upon a change in control.
** Represents ACNB’s share price as of June 30, 2017.
(3) The pro forma adjustment of $6.519 million includes a negative $8.638 million credit component and a negative $710 thousand interest component netted with the existing New Windsor allowance for loan losses of $2.829 million which is prohibited to be carried over according to GAAP. The $8.638 million consists of an $4.674 million general credit component, which will be amortized or accreted into income, and an $3.964 million specific credit component, of which $2.506 million will be non-amortizing and $1.458 million will be amortized or accreted into income. Of the $710 thousand interest rate component, all will be amortized and accreted into income.
(4) The pro forma adjustment of $2.418 million represents the recognition of the fair value of the core deposit intangible asset, which is assumed to be 0.76% of core deposit liabilities assumed. Core deposits are defined as total deposits less time deposits. The Core Deposit intangible has a weighted average remaining useful life of 10 years and is being amortized into income using the level yield method.
(5) The proforma adjustment of $13.045 million calculated to reflect the preliminary proforma goodwill. The consideration paid to acquire New Windsor consists of cash of $4.52 million and the issuance of 938,360 shares of ACNB common stock based upon the fixed exchange rate of 1.10 applied to 853,148 of the 1,003,703 shares of New Windsor common stock outstanding as of the effective time of the merger.
(6) The proforma adjustment of $1,760 thousand represents the estimated fair value adjustment on premises and equipment acquired of $821 and a $939 adjustments in the net deferred tax assets resulting from the fair value adjustments related to the acquired assets and assumed liabilities, identifiable intangibles and other deferred tax items.
Acquisition accounting adjustments assume that New Windsor’s stockholders’ equity is eliminated and the purchase price, goodwill and intangible assets are reflected on the ACNB’s financial statements pursuant to the application of acquisition accounting.
The following table shows the pro forma allocation of the consideration paid for New Windsor’s common equity to the acquired identifiable assets and liabilities assumed which are based on preliminary estimates and the pro forma goodwill generated from the transaction (unaudited, dollars in thousands):
Pro Forma Allocation of Purchase Price |
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Total Pro Forma Purchase Price |
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| $ | 33,140 |
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Fair value of Assets Acquired |
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Cash, interest bearing deposits and federal funds sold |
| 9,409 |
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Investment securities |
| 22,551 |
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Loans held for sale |
| 94 |
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Loans receivable |
| 258,982 |
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Restricted stock |
| 417 |
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Premises and equipment, net |
| 8,768 |
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Intangible assets, net |
| 2,418 |
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Other assets |
| 9,161 |
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Total assets |
| 311,800 |
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Fair value of Liabilities Assumed |
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Non-interest-bearing deposits |
| 75,567 |
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Interest-bearing deposits |
| 210,826 |
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Subordinated debt |
| 4,688 |
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Other liabilities |
| 624 |
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Total liabilities |
| 291,705 |
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Net Assets Acquired |
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| 20,095 |
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Preliminary Pro Forma Goodwill |
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| $ | 13,045 |
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(7) Represents the recognition of the fair value of the deposits.
(8) Represents the recognition of the fair value of the other borrowed funds.
(9) Represents the recognition of the fair value of the trust preferred securities.
(10) Reflects the elimination of New Windsor’s equity accounts, issuance of 938,360 shares of ACNB’s common stock and additional merger-related costs as follows (dollars in thousands):
Total consideration |
| $ | 33,140 |
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Stock consideration |
| 85 | % | |
Total stock consideration |
| $ | 28,619 |
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New Windsor’s equity |
| $ | (22,689 | ) |
Merger-related costs |
| $ | (5,545 | ) |
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Net adjustments to equity |
| $ | 385 |
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Unaudited Pro Forma Combined Condensed Statement of Income
For the Three Months Ended March 31, 2017
($ in Thousands, Except for Per Share Data)
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| ACNB/New |
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| Pro Forma |
| Windsor |
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| ACNB |
| New Windsor |
| Merger |
| Combined |
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| Historical (1) |
| Historical (1) |
| Adjustments |
| Pro Forma |
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Interest Income: |
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Loans, including fees |
| $ | 9,530 |
| $ | 2,961 |
| $ | 359 | (2) | $ | 12,850 |
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Securities |
| 999 |
| 86 |
| — | (3) | 1,085 |
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Other Interest Income |
| 4 |
| 11 |
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| 15 |
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Total Interest Income |
| 10,533 |
| 3,058 |
| 359 |
| 13,950 |
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Interest Expense: |
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Deposits |
| 635 |
| 320 |
| (59 | )(2) | 896 |
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Borrowings |
| 432 |
| 80 |
| 2 | (2) | 514 |
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Total Interest Expense |
| 1,067 |
| 400 |
| (57 | ) | 1,410 |
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Net Interest Income |
| 9,466 |
| 2,658 |
| 416 |
| 12,540 |
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Provision for Loan Losses |
| — |
| — |
| — |
| — |
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Net Interest Income after Provision for Loan Losses |
| 9,466 |
| 2,658 |
| 416 |
| 12,540 |
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Other Income: |
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Service charges on deposit accounts |
| 928 |
| 314 |
| — |
| 1,242 |
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Earnings on investment in bank-owned life |
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insurance |
| 255 |
| 26 |
| — |
| 281 |
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Other non-interest income |
| 1,899 |
| 248 |
| — |
| 2,147 |
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Total Other Income |
| 3,082 |
| 588 |
| — |
| 3,670 |
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Other Expenses: |
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Salaries and employee benefits |
| 5,748 |
| 1,552 |
| — |
| 7,300 |
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Occupancy and equipment costs |
| 1,320 |
| 444 |
| (4 | )(4) | 1,760 |
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Other non-interest expense |
| 1,770 |
| 693 |
| (66 | )(5) | 2,397 |
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Merger related expenses |
| 162 |
| 140 |
| (302 | )(6) | — |
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Total Other Expenses |
| 9,000 |
| 2,829 |
| (372 | ) | 11,457 |
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Income Before Income Taxes |
| 3,548 |
| 417 |
| 788 |
| 4,753 |
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Provision for Income Taxes |
| 911 |
| 211 |
| 276 | (7) | 1,398 |
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Net Income |
| $ | 2,637 |
| $ | 206 |
| $ | 512 |
| $ | 3,355 |
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Per Share Data |
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Basic and diluted |
| $ | 0.43 |
| $ | 0.20 |
| $ | — |
| $ | 0.48 |
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Weighted average common shares outstanding |
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Basic and Diluted |
| 6,064,656 |
| 1,007,617 |
| (69,257 | )(8) | 7,003,016 |
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(1) Based on ACNB’s Form 10-Q for the quarterly period ended March 31, 2017, filed with the Securities and Exchange Commission on April 28, 2017, and New Windsor’s unaudited financial statements as of March 31, 2017, respectively.
(2) The resulting premiums and discounts for purposes of the unaudited combined condensed consolidated pro forma financial data, are being amortized and accreted into income over the estimated remaining lives of the respective assets and liabilities using the level yield method. The estimated weighted average remaining useful lives of time deposits is 2.5 years and the weighted average remaining useful life of the core deposit intangible is 10 years.
(3) No adjustment to carrying value of securities as all securities are held as “available for sale”.
(4) Represents the estimated fair value adjustment on premises and equipment required.
(5) For the March 31, 2017 unaudited Pro Forma Combined Condensed Statement of Income, the adjustment represents the amortization of the core deposit intangible, amortization of the customer list intangible and the fair value adjustments on owned and leased buildings.
(6) Other expenses do not reflect anticipated costs savings. As of March 31, 2017, other expenses include one-time merger and integration expenses of $162,000 incurred by ACNB and $140,000 incurred by New Windsor. Total anticipated one-time merger and integration expenses, on a pre-tax basis, are anticipated to be approximately $5.5 million.
(7) Marginal tax rate of 35.0%.
(8) Assumes ACNB’s average outstanding shares for the three month period ended March 31, 2017 combined with the 938,360 shares issued to New Windsor shareholders were outstanding for the entire period.
Unaudited Pro Forma Combined Condensed Statement of Income
For the Year Ended December 31, 2016
($ in Thousands, Except for Per Share Data)
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| ACNB/New |
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| Pro Forma |
| Windsor |
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| ACNB |
| New Windsor |
| Merger |
| Combined |
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| Historical (1) |
| Historical (1) |
| Adjustments |
| Pro Forma |
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Interest Income: |
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Loans, including fees |
| $ | 36,339 |
| $ | 11,718 |
| $ | 1,704 | (2) | $ | 49,761 |
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Securities |
| 4,042 |
| 381 |
| — | (3) | 4,423 |
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Other Interest Income |
| 119 |
| 14 |
| — |
| 133 |
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Total Interest Income |
| 40,500 |
| 12,113 |
| 1,704 |
| 54,317 |
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Interest Expense: |
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Deposits |
| 2,369 |
| 1,114 |
| 340 | (2) | 3,823 |
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Borrowings |
| 1,565 |
| 363 |
| (8 | )(2) | 1,920 |
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Total Interest Expense |
| 3,934 |
| 1,477 |
| 332 |
| 5,743 |
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Net Interest Income |
| 36,566 |
| 10,636 |
| 1,372 |
| 48,574 |
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Provision for Loan Losses |
| — |
| — |
| — |
| — |
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Net Interest Income after Provision for Loan Losses |
| 36,566 |
| 10,636 |
| 1,372 |
| 48,574 |
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Other Income: |
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Service charges |
| 3,868 |
| 1,288 |
| — |
| 5,156 |
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Earnings on investment in bank-owned life |
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insurance |
| 1,100 |
| 69 |
| — |
| 1,169 |
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Other non-interest income |
| 8,240 |
| 1,339 |
| — |
| 9,579 |
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Total Other Income |
| 13,208 |
| 2,696 |
| — |
| 15,904 |
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Other Expenses: |
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Salaries and employee benefits |
| 22,200 |
| 6,119 |
| — |
| 28,319 |
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Occupancy and equipment costs |
| 5,112 |
| 1,726 |
| (15 | )(4) | 6,823 |
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Other non-interest expense |
| 7,353 |
| 3,097 |
| (264 | )(5) | 10,186 |
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Merger related expenses |
| 472 |
| 325 |
| (797 | )(6) | — |
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Total Other Expenses |
| 35,137 |
| 11,267 |
| (1,076 | ) | 45,328 |
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Income Before Income Taxes |
| 14,637 |
| 2,065 |
| 2,448 |
| 19,150 |
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Provision for Income Taxes |
| 3,768 |
| 924 |
| 867 | (7) | 5,559 |
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Net Income |
| $ | 10,869 |
| $ | 1,141 |
| $ | 1,581 |
| $ | 13,591 |
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Per Share Data |
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Basic and diluted |
| $ | 1.80 |
| $ | 1.14 |
| $ | — |
| $ | 1.94 |
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Weighted average common shares outstanding |
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Basic and Diluted |
| 6,051,579 |
| 1,004,080 |
| (65,720 | )(8) | 6,989,939 |
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(1) Based on ACNB’s Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission on March 15, 2017, and New Windsor’s audited financial statements as of December 31, 2016, respectively.
(2) The resulting premiums and discounts for purposes of the unaudited combined condensed consolidated pro forma financial data, are being amortized and accreted into income over the estimated remaining lives of the respective assets and liabilities using the level yield method. The estimated weighted average remaining useful lives of time deposits is 2.5 years and the weighted average remaining useful life of the core deposit intangible is 10 years.
(3) No adjustment to carrying value of securities as all securities are held as “available for sale”.
(4) Represents the estimated fair value adjustment on premises and equipment required.
(5) The adjustment represents the amortization of the core deposit intangible, amortization of the customer list intangible and the fair value adjustments on owned and leased buildings.
(6) Other expenses do not reflect anticipated costs savings. As of December 31, 2016 other expenses include one-time merger and integration expenses of $472,000 incurred by ACNB and $325,000 incurred by New Windsor. Total anticipated onetime merger and integration expenses, on a pre-tax basis, are anticipated to be approximately $5.5 million.
(7) Marginal tax rate of 35.0%.
(8) Assumes ACNB’s average outstanding shares for the year ended December 31, 2016 combined with the 938,360 shares issued to New Windsor shareholders were outstanding for the entire period.