Exhibit 99.1
The following unaudited pro forma combined condensed balance sheet as of September 30, 2004 and unaudited pro forma combined statements of income for the nine months ended during fiscal year 2004 and the fiscal year ended 2003 combine the historical financial statements of First Community Corporation and DutchFork Bancshares, Inc. The pro forma combined condensed statements give effect to the merger of DutchFork with and into First Community for the merger that closed on October 1, 2004. First Community reports on a calendar year basis while DutchFork reported on a fiscal year ending on September 30. For purposes of the unaudited pro forma combined condensed statement of income for the year ended December 31, 2003, and the nine months ended during fiscal year 2004, the companies have been combined using DutchFork’s fiscal year ended September 30, 2003 and nine months ended June 30, 2004 as though they reported using the same year for accounting purposes as First Community. The pro forma combined condensed statements give effect to the proposed merger under the purchase method of accounting using an exchange value of $23.30 per share for First Community common stock.
The purchase method of accounting requires that all of DutchFork’s assets and liabilities be adjusted to their estimated fair market values as of the date of acquisition. For purposes of the pro forma combined condensed statements, fair market value of September 30, 2004 assets and liabilities has been estimated by management of First Community using market information available on September 30, 2004. Accordingly, these adjustments are only approximations.
The pro forma combined condensed statements also contain adjustments based on assumed interest rates and estimates by First Community management regarding changes in revenues and expenses that management believes will be achieved. Of course, there can be no assurance that such changes will be of the magnitude estimated or that they will occur at all.
In an attempt to manage current and future interest rate spreads, control liquidity, and preserve investment value, DutchFork management periodically restructured portions of its investment portfolio. These restructurings resulted i n positive income gains for DutchFork for the year ended September 30, 2003 and nine months ended June 30, 2004. Restructuring also can impact future income capabilities due to lower rates of return afforded from reinvestment opportunities. Future changes in the interest rate and economic environment may require management to restructure portions of the investment portfolio. There can be no assurance that future restructurings will result in the positive gains experienced in prior periods nor that interest rate spreads will be preserved at the levels previously experienced.
First Community Corporation and DutchFork Bancshares Inc
Pro Forma Post-Merger Balance Sheet
As of September 30, 2004
| | | | | | | |
Actual | | Actual | | Pro Forma | |
First Community | | DutchFork | | Purchase | | First Community | |
| | Corporation | | Bancshares | | Adjustments | | Corporation | |
ASSETS | | | | | | | | | |
Cash and due from banks | | $ | 7,947 | | $ | 6,433 | | | | $ | 14,380 | |
Interest-bearing bank balances | | 3,236 | | | | | | 3,236 | |
Federal funds sold and securities purchased under agreements to resell | | 36,883 | | | | (18,967 | )(2) | 17,916 | |
Investment securities - available for sale | | 65,607 | | 121,765 | | — | | 187,372 | |
Investment securities - held to maturity | | 5,380 | | — | | | | 5,380 | |
Loans | | 132,814 | | 50,672 | | 530 | (3) | 184,016 | |
Less, allowance for loan losses | | 1,858 | | 994 | | | | 2,852 | |
Net loans | | 130,956 | | 49,678 | | | | 181,164 | |
Property, furniture and equipment - net | | 9,323 | | 2,920 | | 1,000 | (3) | 13,243 | |
Core deposit intangible | | 595 | | — | | 2,916 | (3) | 3,511 | |
Goodwill | | 35 | | — | | 24,109 | (3) | 24,144 | |
Other assets | | 2,549 | | 13,894 | | (758 | )(3) | 15,685 | |
Total assets | | $ | 262,511 | | $ | 194,690 | | $ | 8,830 | | $ | 466,031 | |
| | | | | | | | | |
LIABILITIES | | | | | | | | | |
Deposits | | $ | 214,653 | | $ | 132,793 | | $ | 299 | (3) | $ | 347,745 | |
Federal Home Loan Bank advances | | 4,000 | | 35,000 | | 3,610 | (3) | 42,610 | |
Securities sold under agreements to repurchase | | 6,270 | | — | | | | 6,270 | |
Lon-term debt, trust preferred securities | | 15,464 | | — | | | | 15,464 | |
Other borrowed money | | 136 | | 70 | | — | | 206 | |
Other liabilities | | 1,151 | | 1,546 | | 356 | (3) | 3,053 | |
Total liabilities | | 241,674 | | 169,409 | | | | 415,348 | |
SHAREHOLDERS' EQUITY | | | | | | | | | |
Preferred stock-none issued and outstanding | | | | | | | | | |
Common stock | | 1,616 | | 15 | | 1,155 | (1) | 2,786 | |
Additional paid in capital | | 13,065 | | 15,221 | | 13,455 | (1) | 41,741 | |
Retained earnings | | 6,015 | | 30,914 | | (30,914 | )(1) | 6,015 | |
Other | | 141 | | (20,869 | ) | 20,869 | (1) | 141 | |
Total shareholders' equity | | 20,837 | | 25,281 | | | | 50,683 | |
Total liabilities and shareholders' equity | | $ | 262,511 | | $ | 194,690 | | $ | 8,830 | | $ | 466,031 | |
| | | | | | | | | | | | | | | | | |
(1) | Record issuance of 1,169,898 of First Community Corporation Stock based on a price of $23.30 calculated in accordance with EITF 99-12 "Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination" |
| | |
(2) | Record cash paid for DFBS shares in the amount of $18,342 thousand and for estimated transaction cost in the amount of $625 thousand. |
| | |
(3) | Adjust acquired assets & liabilities of DFBS to fair value and related tax effects as follows (in thousands): |
Puchase price and transaction cost in excess of DFBS equity at 9/30/2004 | | $ | 20,945 | |
Fair value purchase accounting adjustments: | | | |
Loans | | 530 | |
Property & Equipment | | 1,000 | |
Deposits | | (299 | ) |
Advances to FHLB | | (3,610 | ) |
Other, including income taxes | | 833 | |
| | (1,546 | ) |
Exit cost purchase accounting adjustments: | | | |
Contract cancellation | | 356 | |
Fair value of options granted | | 2,587 | |
Savings & Loan bad debt reserve tax liability | | 1,600 | |
Income taxes | | (1,030 | ) |
| | 3,513 | |
Total purchase intangibles | | 26,004 | |
Deposit base intangible | | 2,916 | |
Deffered income tax | | (1,021 | ) |
Goodwill | | 24,109 | |
First Community Corporation
Unaudited Pro Forma Combined Condensed Statement of Income
For the Fiscal Year Ended 2003
(Dollars in thousands, except per share amounts)
| | First Community
Corporation
December 31, | | DutchFork
Bancshares
September 30, | | Pro Forma | |
| | 2003 | | 2003 | | Adjustments | | Combined | |
| | | | | | | | | |
Interest income | | $ | 10,028 | | $ | 10,986 | | $ | (116 | )(1) | $ | 20,898 | |
Interest expense | | 2,381 | | 4,848 | | (357 | )(2) | 6,872 | |
Net interest income | | 7,647 | | 6,138 | | | | 14,026 | |
Provision for loan losses | | 167 | | 195 | | | | 362 | |
Net interest income after provision for loan losses | | 7,480 | | 5,943 | | | | 13,664 | |
Gain on sale of securities | | — | | 2,465 | | | | 2,465 | |
Gain on disposition of assets | | — | | 1,080 | | (1,080 | )(3) | — | |
Other non interest income | | 1,440 | | 1,017 | | | | 2,457 | |
Total non interest income | | 1,440 | | 4,562 | | | | 4,922 | |
Contributions | | — | | 1,140 | | (1,080 | )(3) | 60 | |
Other non interest expense | | 6,158 | | 5,705 | | (508 | )(4) | 11,355 | |
Total non interest expense | | 6,158 | | 6,845 | | | | 11,415 | |
Income before income taxes | | 2,762 | | 3,660 | | | | 7,171 | |
Income taxes | | 965 | | 279 | | 258 | (5) | 1,502 | |
Net Income | | $ | 1,797 | | $ | 3,381 | | 491 | | $ | 5,669 | |
| | | | | | | | | |
Basic net income per share | | $ | 1.13 | | $ | 3.31 | | | (6) | $ | 2.05 | |
Diluted net income per share | | $ | 1.08 | | $ | 3.13 | | | (6) | $ | 1.94 | |
| | | | | | | | | |
Weighted avarage common shares outstanding | | | | | | | | | |
Basic | | 1,590,052 | | 1,022,804 | | | | 2,759,950 | |
Diluted | | 1,660,977 | | 1,081,582 | | | | 2,918,891 | |
| | | | | | | | | | | | | |
Pro forma adjustments | | | |
(1) Interest income adjustments: | | | |
Opportunity cost on $4.0 million in net cashed disbursed at 1.0%. | | $ | (40 | ) |
Estimated amortization of fair value adjustment to loans | | (76 | ) |
| | $ | (116 | ) |
(2) Interest expense adjustment: | | | |
Interest expense on $15.0 million Trust Preferred Securities issued at 3.85% | | $ | 577 | |
Estimated amortization of fair value adjustment on deposits | | (299 | ) |
Estimated amortization of fair value adjustment on FHLB advances | | (635 | ) |
| | $ | (357 | ) |
(3) During the year ended September 30,2003, DutchFork Bancshares sold to two local not-for-profit organizations land with an appraised value of $1.5 million and book value of $420 thousand. The excess of value over cost of $1.08 million was recognized as income and recorded as a contribution. This transaction has been eliminated for pro forma purposes. | | | |
| | | |
(4) Non interest expense adjustments: | | | |
Amortization of $4.2 million core deposit premium over seven years straightline | | $ | 414 | |
Record estimated 16% reduction in non interest expenses subsequent to the merger. | | (922 | ) |
| | $ | (508 | ) |
(5) Record tax effect of pro forma adjustments at a 34.5% effective tax rate. | | | |
| | | |
(6) Pro forma earnings per share is based on an exchange ratio of 1.78125 or the issuance of 1,169,898 shares | | | |
First Community Corporation
Unaudited Pro Forma Combined Condensed Statement of Income
For the Nine Months Ended During Fiscal Year 2004
(Dollars in thousands, except per share amounts)
| | First Community | | DutchFork | | | | | |
| | Corporation | | Bancshares | | | | | |
| | September 30, | | June 30, | | Pro Forma | |
| | 2004 | | 2004 | | Adjustments | | Combined | |
| | | | | | | | | |
Interest income | | $ | 8,009 | | $ | 7,542 | | $ | (94 | )(1) | $ | 15,457 | |
Interest expense | | 1,812 | | 3,027 | | (300 | )(2) | 4,539 | |
Net interest income | | 6,197 | | 4,515 | | | | 10,918 | |
Provision for loan losses | | 170 | | 206 | | | | 376 | |
Net interest income after provision for loan losses | | 6,027 | | 4,309 | | | | 10,542 | |
Gain on sale of securities | | — | | 669 | | | | 669 | |
Other non interest income | | 1,222 | | 584 | | | | 1,806 | |
Total non interest income | | 1,222 | | 1,253 | | | | 2,475 | |
Non interest expense | | 5,206 | | 4,959 | | (482 | )(3) | 9,683 | |
Income before income taxes | | 2,043 | | 603 | | | | 3,334 | |
Income taxes | | 697 | | 75 | | 237 | (4) | 1,009 | |
Net Income | | $ | 1,346 | | $ | 528 | | 451 | | $ | 2,325 | |
| | | | | | | | | |
Basic net income per share | | $ | 0.84 | | $ | 0.53 | | | (5) | $ | 0.84 | |
Diluted net income per share | | $ | 0.80 | | $ | 0.50 | | | (5) | $ | 0.79 | |
| | | | | | | | | |
Weighted avarage common shares outstanding | | | | | | | | | |
Basic | | 1,606,390 | | 992,026 | | | | 2,776,288 | |
Diluted | | 1,680,553 | | 1,062,270 | | | | 2,955,570 | |
| | | | | | | | | | | | | |
Pro forma adjustments | | | |
(1) Interest income adjustments: | | | |
Opportunity cost on $4.0 million in net cashed disbursed at 1.25%. | | $ | (37 | ) |
Estimated amortization of fair value adjustment to loans | | (57 | ) |
| | $ | (94 | ) |
(2) Interest expense adjustment: | | | |
Interest expense on $15.0 million Trust Preferred Securities issued at 4.21% | | $ | 472 | |
Estimated amortization of fair value adjustment on deposits | | (299 | ) |
Estimated amortization of fair value adjustment on FHLB advances | | (473 | ) |
| | $ | (300 | ) |
(3) Non interest expense adjustments: | | | |
Amortization of $2.9 million core deposit premium over seven years straightline | | $ | 311 | |
Record estimated 16% reduction in non interest expenses subsequent to the merger. | | (793 | ) |
| | $ | (482) | |
(4) Record tax effect of pro forma adjustments at a 34.5% effective tax rate. | | | |
| | | |
(5) Pro forma earnings per share is based on an exchange ratio of 1.78125 or the issuance of 1,169,898 shares | | | |
