Exhibit 99.3
Pro Forma Combined Consilidated Balance Sheets as of September 30, 2014
Unaudited (In thousands, except share and per share data)
Mid Penn | Phoenix | Combined | Pro Forma Adjustments | Pro Forma Combined | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Cash and due from banks | $ | 13,854 | $ | 2,330 | $ | 16,184 | $ | — | $ | 16,184 | ||||||||||
Interest-bearing balances with other financial institutions | 1,393 | 263 | 1,656 | — | 1,656 | |||||||||||||||
Federal funds sold | — | 1,200 | 1,200 | (1,200 | ) | — | ||||||||||||||
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Total cash and cash equivalents | 15,247 | 3,793 | 19,040 | (1,200 | ) | 17,840 | ||||||||||||||
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Interest-bearing time deposits with other financial institutions | 5,772 | 500 | 6,272 | — | 6,272 | |||||||||||||||
Available for sale investment securities | 148,134 | 12,154 | 160,288 | — | 160,288 | |||||||||||||||
Loans and leases, net of unearned interest | 568,161 | 116,473 | 684,634 | (991 | ) (2)(3) | 683,643 | ||||||||||||||
Less: Allowance for loan and lease losses | (6,411 | ) | (1,344 | ) | (7,755 | ) | 1,344 | (4) | (6,411 | ) | ||||||||||
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Net loans and leases | 561,750 | 115,129 | 676,879 | 353 | 677,232 | |||||||||||||||
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Bank premises and equipment, net | 12,303 | 2,872 | 15,175 | — | 15,175 | |||||||||||||||
Restricted investment in bank stocks | 3,395 | 389 | 3,784 | — | 3,784 | |||||||||||||||
Foreclosed assets held for sale | 849 | 616 | 1,465 | (519 | ) (5) | 946 | ||||||||||||||
Accrued interest receivable | 3,000 | 431 | 3,431 | — | 3,431 | |||||||||||||||
Deferred income taxes | 2,055 | 88 | 2,143 | (338 | ) (6) | 1,805 | ||||||||||||||
Goodwill | 1,016 | 689 | 1,705 | (53 | ) (1) | 1,652 | ||||||||||||||
Core deposit and other intangibles, net | 203 | — | 203 | 1,370 | (11) | 1,573 | ||||||||||||||
Cash surrender value of life insurance | 8,526 | 3,633 | 12,159 | — | 12,159 | |||||||||||||||
Other assets | 2,153 | 380 | 2,533 | — | 2,533 | |||||||||||||||
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Total Assets | $ | 764,403 | $ | 140,674 | $ | 905,077 | $ | (387 | ) | $ | 904,690 | |||||||||
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LIABILITIES & SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
Deposits: | ||||||||||||||||||||
Noninterest bearing demand | $ | 52,715 | $ | 28,627 | $ | 81,342 | $ | — | $ | 81,342 | ||||||||||
Interest bearing demand | 226,883 | 3,200 | 230,083 | — | 230,083 | |||||||||||||||
Money market | 209,556 | 34,981 | 244,537 | — | 244,537 | |||||||||||||||
Savings | 30,672 | 23,370 | 54,042 | — | 54,042 | |||||||||||||||
Time | 126,171 | 30,663 | 156,834 | (61 | ) (7) | 156,773 | ||||||||||||||
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Total Deposits | 645,997 | 120,841 | 766,838 | (61 | ) | 766,777 | ||||||||||||||
Short-term borrowings | 21,854 | — | 21,854 | (1,200 | ) | 20,654 | ||||||||||||||
Long-term debt | 33,008 | 3,500 | 36,508 | 2,981 | (8)(9) | 39,489 | ||||||||||||||
Accrued interest payable | 646 | 42 | 688 | — | 688 | |||||||||||||||
Other liabilities | 4,087 | 612 | 4,699 | 239 | (12) | 4,938 | ||||||||||||||
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Total Liabilities | 705,592 | 124,995 | 830,587 | 1,959 | 832,546 | |||||||||||||||
Shareholders’ Equity: | ||||||||||||||||||||
Preferred stock | 5,000 | 1,750 | 6,750 | — | 6,750 | |||||||||||||||
Common stock | 3,497 | 336 | 3,833 | 388 | (10) | 4,221 | ||||||||||||||
Treasury stock | (1,435 | ) | (1,435 | ) | 1,435 | (10) | — | |||||||||||||
Additional paid-in capital | 29,888 | 6,042 | 35,930 | 4,817 | (10) | 40,747 | ||||||||||||||
Retained earnings | 19,117 | 8,763 | 27,880 | (8,763 | ) (10) | 19,117 | ||||||||||||||
Accumulated other comprehensive income | 1,309 | 223 | 1,532 | (223 | ) (10) | 1,309 | ||||||||||||||
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Total Shareholders’ Equity | 58,811 | 15,679 | 74,490 | (2,346 | ) | 72,144 | ||||||||||||||
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Total Liabilities and Shareholders’ Equity | $ | 764,403 | $ | 140,674 | $ | 905,077 | $ | (387 | ) | $ | 904,690 | |||||||||
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Per Share Data: | ||||||||||||||||||||
Common Shares outstanding | 3,496,916 | 285,726 | 3,782,642 | 723,915 | 4,220,831 | |||||||||||||||
Book value per common share | $ | 15.39 | $ | 48.75 | $ | 15.49 | ||||||||||||||
Tangible book value per common share: | ||||||||||||||||||||
Total equity | $ | 58,811 | $ | 15,679 | $ | 72,144 | ||||||||||||||
Less: perferred stock | 5,000 | 1,750 | 6,750 | |||||||||||||||||
Less: goodwill and intangibles | 1,219 | 689 | 3,225 | |||||||||||||||||
Total tangible equity | $ | 52,592 | $ | 13,240 | $ | 62,169 | ||||||||||||||
Tangible book value per common share | $ | 15.04 | $ | 46.34 | $ | 14.73 |
Pro Forma Consolidated Statements of Income
For the Nine Months Ended September 30, 2014
Unaudited (In thousands, except share and per share data)
Mid Penn | Phoenix | Combined | Pro Forma Adjustments | Pro Forma Combined | ||||||||||||||||
INTEREST INCOME | ||||||||||||||||||||
Interest & fees on loans and leases | $ | 20,122 | $ | 4,190 | $ | 24,312 | $ | (43 | ) (2) | 24,269 | ||||||||||
Interest on interest-bearing balances | 31 | 8 | 39 | 39 | ||||||||||||||||
Interest and dividends on investment securities: | — | |||||||||||||||||||
U.S. Treasury and government agencies | 994 | 35 | 1,029 | 1,029 | ||||||||||||||||
State and political subdivision obligations, tax-exempt | 1,618 | 84 | 1,702 | 1,702 | ||||||||||||||||
Other securities | 118 | 101 | 219 | 219 | ||||||||||||||||
Interest on federal funds sold and securities purchased under agreements to resell | — | 1 | 1 |
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Total Interest Income | 22,883 | 4,419 | 27,302 | (43 | ) | 27,259 | ||||||||||||||
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INTEREST EXPENSE | ||||||||||||||||||||
Interest on deposits | 2,921 | 298 | 3,219 | 23 | (7) | 3,242 | ||||||||||||||
Interest on short-term borrowings | 26 | 4 | 30 | 30 | ||||||||||||||||
Interest on long-term debt | 369 | 53 | 422 | 36 | (8)(9) | 458 | ||||||||||||||
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Total Interest Expense | 3,316 | 355 | 3,671 | 59 | 3,730 | |||||||||||||||
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Net Interest Income | 19,567 | 4,064 | 23,631 | (102 | ) | 23,529 | ||||||||||||||
PROVISION FOR LOAN AND LEASE LOSSES | 1,217 | 158 | 1,375 | 1,375 | ||||||||||||||||
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Net Interest Income After Provision for Loan and Lease Losses | 18,350 | 3,906 | 22,256 | (102 | ) | 22,154 | ||||||||||||||
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NONINTEREST INCOME | ||||||||||||||||||||
Income from fiduciary activities | 445 | — | 445 | 445 | ||||||||||||||||
Service charges on deposits | 417 | 209 | 626 | 626 | ||||||||||||||||
Net gain on sales of investment securities | 150 | 43 | 193 | 193 | ||||||||||||||||
Earnings from cash surrender value of life insurance | 152 | 87 | 239 | 239 | ||||||||||||||||
Mortgage banking income | 208 | 80 | 288 | 288 | ||||||||||||||||
ATM debit card interchange income | 403 | 146 | 549 | 549 | ||||||||||||||||
Merchant services income | 198 | — | 198 | 198 | ||||||||||||||||
Net gain on sales of SBA loans | 97 | — | 97 | 97 | ||||||||||||||||
Other income | 339 | 83 | 422 | 422 | ||||||||||||||||
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Total Noninterest Income | 2,409 | 648 | 3,057 | — | 3,057 | |||||||||||||||
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NONINTEREST EXPENSE | ||||||||||||||||||||
Salaries and employee benefits | 8,026 | 2,038 | 10,064 | 10,064 | ||||||||||||||||
Occupancy expense, net | 986 | 396 | 1,382 | 1,382 | ||||||||||||||||
Equipment expense | 908 | 263 | 1,171 | 1,171 | ||||||||||||||||
Pennsylvania Bank Shares tax expense | 272 | 101 | 373 | 373 | ||||||||||||||||
FDIC Assessment | 405 | 73 | 478 | 478 | ||||||||||||||||
Legal and professional fees | 366 | 263 | 629 | 629 | ||||||||||||||||
Director fees and benefits expense | 238 | 71 | 309 | 309 | ||||||||||||||||
Marketing and advertising expense | 227 | 44 | 271 | 271 | ||||||||||||||||
Software licensing | 687 | 441 | 1,128 | 1,128 | ||||||||||||||||
Telephone expense | 304 | 62 | 366 | 366 | ||||||||||||||||
(Gain) loss on sale/write-down of foreclosed assets | 109 | 20 | 129 | 129 | ||||||||||||||||
Intangible amortization | 22 | — | 22 | 103 | (11) | 125 | ||||||||||||||
Loan collection costs | 229 | 70 | 299 | 299 | ||||||||||||||||
Other expenses | 1,956 | 404 | 2,360 | 2,360 | ||||||||||||||||
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Total Noninterest Expense | 14,735 | 4,246 | 18,981 | 103 | 19,084 | |||||||||||||||
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INCOME BEFORE PROVISION FOR INCOME TAXES | 6,024 | 308 | 6,332 | (205 | ) | 6,127 | ||||||||||||||
Provision for income taxes | 1,211 | 29 | 1,240 | (70 | ) (13) | 1,170 | ||||||||||||||
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NET INCOME | 4,813 | 279 | 5,092 | (135 | ) | 4,957 | ||||||||||||||
Preferred stock dividends | 263 | 18 | 281 | 281 | ||||||||||||||||
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NET INCOME AVAILABLE TO COMMON SHAREHOLDERS | $ | 4,550 | $ | 261 | $ | 4,811 | $ | (135 | ) | 4,676 | ||||||||||
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Weighted average common shares outstanding: | ||||||||||||||||||||
Basic | 3,496,916 | 285,726 | 723,915 | 4,220,831 | ||||||||||||||||
Diluted | 3,496,916 | 285,726 | 723,915 | 4,220,831 | ||||||||||||||||
Earnings per common share: | ||||||||||||||||||||
Basic | $ | 1.30 | $ | 0.91 | $ | -0.19 | $ | 1.11 | ||||||||||||
Diluted | $ | 1.30 | $ | 0.91 | $ | -0.19 | $ | 1.11 |
(1) | The acquisition will be effected by the distribution of cash and issuance of shares of Mid Penn common stock to Phoenix’s common shareholders. The following unaudited pro forma combined consolidated financial information assumes that 80% of the outstanding shares of Phoenix common stock will be exchanged for Mid Penn common stock at an exchange ratio of 3.167 shares of Mid Penn common stock for each share of Phoenix common stock and that the remaining 20% of the outstanding shares of common stock will be exchanged for cash consideration of $51.60 for each share of Phoenix common stock. |
The unaudited pro forma combined consolidated financial information is based upon the assumption that the total number of shares of Phoenix common stock immediately prior to the completion of the merger will be 285,726 and utilizes the exchange ratio of 3.167 for 80% of Phoenix’s outstanding shares and cash of $51.60 for the remaining 20% of Phoenix’s shares. This will result in the issuance of 723,915 shares of Mid Penn common shares with an estimated fair value of $11.6 million, for a total estimated purchase price of $14.5 million. The final purchase price will be determined based upon the estimated fair value of Mid Penn common stock and cash consideration paid at the completion date of the merger. 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 Phoenix’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 consolidated financial information has been prepared to include the estimated adjustments necessary to record the assets and liabilities of Phoenix at their respective fair values and represents management’s best estimate based upon the information available at this time. These 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 while changes to other assets and liabilities may impact the statement of income due to adjustments in the yield and/or amortization/accretion of the adjusted assets and liabilities.
The total estimated purchase price for the purpose of this unaudited pro forma combined consolidated financial information is $14.5 million. 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 as of September 30, 2014, goodwill of $636,000 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 based on operations subsequent to September 30, 2014, as additional information becomes available and as additional analyses are performed. The following table provides the calculation and allocation of the purchase price used in the pro forma financial statements and a reconcilement of pro forma shares to be outstanding.
Summary of Purchase Price Calculation and Goodwill Resulting From Merger
(In Thousands, Except Per Share Data) | ||||||||
Purchase Price Consideration in Common Stock | ||||||||
Phoenix shares outstanding to be exchanged | 228,581 | |||||||
Exchange ratio | 3.1670 | |||||||
Mid Penn shares to be issued | 723,915 | |||||||
Mid Penn assumed price based on per share consideration | $ | 16.00 | ||||||
Purchase price assigned to Phoenix shares exchanged for Mid Penn shares | $ | 11,583 | ||||||
Per share value assigned to Phoenix shares to be converted to cash consideration | $ | 51.60 | ||||||
Purchase price assigned to Phoenix shares exchanged for cash | $ | 2,949 | ||||||
Total purchase price | $ | 14,532 | ||||||
Net Assets Acquired: | ||||||||
Phoenix common shareholders’ equity | $ | 13,240 | ||||||
Core deposit intangible | 1,370 | |||||||
Adjustments to reflect assets acquired at fair value: | ||||||||
Loans – interest rate fair value | 579 | |||||||
Loans – credit | (1,570 | ) | ||||||
Allowance for loan losses | 1,344 | |||||||
OREO | (519 | ) | ||||||
Net tax impact of valuation adjustment | (338 | ) | ||||||
Adjustment to reflect liabilities acquired at fair value: | ||||||||
Interest bearing deposits | 61 | |||||||
Borrowings | (32 | ) | ||||||
Contingent liabilities | (239 | ) | ||||||
$ | 13,896 | |||||||
Goodwill resulting from merger | $ | 636 |
(2) | A fair value premium of $579 to reflect fair values of loans based on current interest rates of similar loans. The adjustment will be substantially recognized over approximately 10 years using an amortization method based upon the expected life of the loans and is expected to decrease pro formapre-tax interest income by $58 in the first year following consummation. |
(3) | A fair value discount of $1,570 to reflect the credit risk of the loan portfolio. No pro forma earnings impact was assumed from the loan credit adjustment. The estimated fair value of the loans in the loan portfolio approximates their carrying value. |
(4) | Reversal of the Phoenix allowance for loan losses of $1,344 in accordance with acquisition method of accounting for the acquisition. |
(5) | Reversal of the Phoenix foreclosed assets held for sale of $519 to write this asset to a $0 carrying value. |
(6) | Reflect the deferred tax impact of $338 from the accumulated purchase accounting adjustments using an assumed tax rate of 34%. |
(7) | A fair value discount of $61 to reflect the fair values of certaininterest-bearing deposit liabilities based on current interest rates for similar instruments. The adjustment will be recognized using an amortization method based upon the estimated maturities of the deposit liabilities. This adjustment is expected to decrease pro formapre-tax interest expense by $31 in the first year following consummation. |
(8) | A fair value adjustment of $32 to reflect fair values of FHLB borrowings with various terms and maturities. The adjustment will be recognized using an amortization method based on the maturities of these liabilities. This adjustment is expected to decrease pro formapre-tax interest expense by $16 in the first year following consummation. |
(9) | Long-term borrowings will be increased by $2,949 at a rate of 2% for a period of 5 years to be utilized to fund the cash payment portion of the merger consideration of $2,949. This adjustment will increasepre-tax interest expense by $59 in the first year following consummation. |
(10) | Adjustment to reflect the issuance of common shares of Mid Penn common stock with a $1.00 par value in connection with the acquisition and the adjustments to shareholders’ equity for the elimination of Phoenix historical equity accounts. |
Adjustment to common stock, par value $1.00 | $ | 724 | ||
Less: historical value of Phoenix common stock | 336 | |||
Adjustment to common stock in thepro-forma unaudited combined consolidated balance sheet | $ | 388 | ||
Adjustment to additionalpaid-in capital | $ | 10,859 | ||
Less: historical value of Phoenix common stock | 6,042 | |||
Adjustment to additionalpaid-in capital in thepro-forma unaudited combined consolidated balance sheet | $ | 4,817 |
(11) | Adjustment for core deposit intangible to reflect the fair value of this asset and the related amortization using an expected life of 10 years. The amortization of the core deposit intangible is expected to increase pro formapre-tax noninterest expense by $137 in the first year following consummation. |
(12) | Adjustment for contingent liabilities assumed from Phoenix for amounts due to employees upon a change in control. |
(13) | Adjustment assumes a tax rate of 34% related to fair value adjustments onpre-tax amounts in the unaudited pro forma combined consolidated statement of income. Adjustment is carried in other liabilities on the pro forma balance sheet. |