EXHIBIT 99.3
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
The following pro forma unaudited consolidated balance sheet and income
statement at December 31, 2004 and explanatory notes present how the combined
financial statements of Benjamin Franklin Bancorp and Chart Bank may have
appeared had the businesses actually been combined, and had the Benjamin
Franklin Bancorp stock offering been consummated, at the beginning of the period
presented. The pro forma unaudited condensed financial statements give effect to
the stock conversion and the acquisition using purchase accounting as required
by accounting principles generally accepted in the United States.
The pro forma unaudited condensed financial information is provided for
informational purposes only. The pro forma financial information presented is
not necessarily indicative of the actual results that would have been achieved
had the conversion and the acquisition been consummated on December 31, 2004 or
at the beginning of the period presented, and is not indicative of future
results.
BENJAMIN FRANKLIN BANCORP, INC. AND CHART BANK
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
The following unaudited pro forma condensed combined balance sheet combines the
historical balance sheets of Benjamin Franklin Bancorp and Chart Bank, assuming
the companies had been combined on December 31, 2004, on a purchase accounting
basis:
BENJAMIN PRO FORMA BENJAMIN PRO FORMA
FRANKLIN CONVERSION FRANKLIN MERGER
BANCORP ADJUST- BANCORP AS CHART BANK ADJUST- PRO FORMA
HISTORICAL MENTS (1) CONVERTED HISTORICAL MENTS (2) CONSOLIDATED
------------- ---------------- -------------- ----------- ---------------- --------------
(DOLLARS IN THOUSANDS)
ASSETS
Cash and cash equivalents $ 14,204 $ 46,350 (3) $ 60,554 $ 39,358 $ (26,931)(11) $ 72,981
Securities available for sale, at - -
fair market value 86,070 86,070 3,510 89,580
Securities held to maturity, at - -
amortized cost 217 217 32,607 (607)(12) 32,217
Loans, net 383,373 383,373 176,511 (987)(13) 558,897
Restricted equity securities, at cost 6,975 6,975 1,680 8,655
Premises and equipment, net 11,147 11,147 2,123 569 (14) 13,839
Goodwill 4,248 4,248 4,248
Core deposit intangible and other - 29,235 (15) 29,235
intangibles 697 697 5,488 (16) 6,185
Other assets 10,462 1,360 (4) 11,822 2,682 (121)(17) 14,383
------------ ----------- ------------- ----------- ----------- -------------
Total assets $ 517,393 $ 47,710 $ 565,103 $ 258,471 $ 6,646 $ 830,220
============ =========== ============= =========== =========== =============
LIABILITIES
Deposits $ 396,499 $ 396,499 $ 208,683 $ 473 (18) $ 605,655
FHLB advances and other borrowings 76,250 (5) 76,250 31,000 (101)(19) 107,149
Other liabilities 4,316 4,316 1,023 5,339
Subordinated debt 9,000 9,000 - 9,000
------------ ------------- ----------- -------------
Total liabilities 486,065 - 486,065 240,706 372 727,143
------------ ----------- ------------- ----------- ----------- -------------
STOCKHOLDERS' EQUITY
Common stock (6) - 1,420 (1,420)(20) -
Additional paid-in capital 57,692 (7) 57,692 11,575 13,540 (21) 82,807
Retained earnings 32,997 (2,640) (8) 30,357 4,724 (5,800)(22) 29,281
Employee stock ownership plan - -
shares (4,880) (9) (4,880) (4,880)
Restricted shares under stock-based - -
incentive plan (2,462)(10) (2,462) (2,462)
Accumulated other comprehensive - -
(loss) income (1,669) (1,669) 46 (46)(23) (1,669)
------------ ------------- ----------- ----------- -------------
Total stockholders' equity 31,328 47,710 79,038 17,765 6,274 103,077
------------ ----------- ------------- ----------- ----------- -------------
Total liabilities and
stockholders' equity $ 517,393 $ 47,710 $ 565,103 $ 258,471 $ 6,646 $ 830,220
============ =========== ============= =========== =========== =============
BENJAMIN FRANKLIN BANCORP, INC. AND CHART BANK
PRO FORMA CONDENSED COMBINED INCOME STATEMENT
(UNAUDITED)
The following unaudited pro forma condensed combined statement of income
combines the historical statements of income of Benjamin Franklin Bancorp and
Chart Bank assuming the companies had been combined on January 1, 2004, on a
purchase accounting basis:
BENJAMIN BENJAMIN PRO FORMA
FRANKLIN PRO FORMA FRANKLIN MERGER
BANCORP CONVERSION BANCORP AS CHART BANK ADJUSTMENTS PRO FORMA
HISTORICAL ADJUSTMENTS (24) CONVERTED HISTORICAL (26) (27) CONSOLIDATED
---------- ---------------- ------------ --------------- -------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Interest income $ 20,795 $ 20,795 $ 10,984 $ 890 (28) $ 32,669
Interest expense 7,032 7,032 3,772 322 (29) 11,126
--------- ------------ ------------ --------- ------------
Net interest income before
provision for loan losses 13,763 - 13,763 7,212 568 21,543
Provision for loan losses 620 620 120 740
--------- ------------ ------------ ------------
Net interest income after
provision for loan losses 13,143 - 13,143 7,092 568 20,803
Non-interest income 2,124 2,124 2,629 4,753
Non-interest expense 12,686 164(25) 12,850 7,782 1,665 (30) 22,297
--------- ----------- ------------ ------------ --------- ------------
Income before provision for
income taxes 2,581 (164) 2,417 1,939 (1,097) 3,259
Provision (benefit) for income taxes 892 (59) 833 955 (395)(31) 1,393
--------- ----------- ------------ ------------ --------- ------------
Net income $ 1,689 $ (105) $ 1,584 $ 984 $ (702) $ 1,866
========= =========== ============ ============ ========= ============
PER COMMON SHARE INFORMATION:
Earnings per share - basic N/A $ 0.20 $ 0.69 $ 0.23
Earnings per share - diluted N/A 0.20 N/A 0.23
Dividends paid N/A - 597 -
AVERAGE COMMON SHARES ISSUED
AND OUTSTANDING N/A 8,018,674 1,420,000 8,018,674
AVERAGE DILUTED COMMON SHARES
ISSUED AND OUTSTANDING N/A 8,018,674 N/A 8,018,674
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
BASIS OF PRO FORMA PRESENTATION
The unaudited pro forma condensed combined financial information related
to the merger is presented as of and for the year ended December 31, 2004.
The pro forma adjustments included herein reflect the $46.6 million
purchase price paid for the 1.4 million shares of Chart Bank common stock
outstanding at April 4, 2005. The total merger consideration consisted of
approximately $21.5 million in cash and 2.5 million shares of Benjamin
Franklin Bancorp common stock. The pro forma adjustments also include the
conversion of Benjamin Franklin Bancorp, a Massachusetts-chartered mutual
holding company, to a Massachusetts-chartered business corporation and
stock holding company and simultaneous stock offering of 5,577,419 shares
of common stock at $10.00 per share to eligible account holders. An
additional 400,000 shares were issued and contributed to the Benjamin
Franklin Bank Charitable Foundation as part of the conversion.
The merger has been accounted for using the purchase method of accounting;
and accordingly, Benjamin Franklin's cost to acquire Chart Bank has been
allocated to the assets and liabilities at their respective fair values as
of the date the merger was completed.
The unaudited pro forma condensed combined financial information includes
estimated adjustments to record the assets and liabilities of Chart Bank
at their respective fair values and represents management's estimates
based on available information. The pro forma adjustments included herein
may be revised as additional information becomes available and as
additional analyses are performed. The final allocation of the purchase
price will be determined after completion of a final analysis to determine
the fair values of Chart Bank's tangible and identifiable intangible
assets and liabilities as of the completion date. Accordingly, the final
purchase accounting adjustments and integration charges may be materially
different from the pro forma adjustments presented in this document.
Increases or decreases in the fair value of the assets and liabilities of
Chart Bank as compared to the information shown in this document may
change the amount of the purchase price allocated to goodwill and other
assets and liabilities and may impact the statement of income due to
adjustments in yield and/or amortization of the adjusted assets or
liabilities.
The unaudited pro forma condensed combined financial information presented
in this document does not necessarily indicate the results of operations
or the combined financial position that would have resulted had the merger
been completed at the beginning of the applicable period presented, nor is
it indicative of the results of operations in future periods or the future
financial position of the combined company.
PRO FORMA ADJUSTMENTS
The unaudited pro forma condensed combined financial information for the
merger includes the pro forma balance sheet as of December 31, 2004
assuming the merger was completed on December 31, 2004. The pro forma
statement of income for the year ended December 31, 2004 was prepared
assuming the merger was completed on January 1, 2004. The pro forma
adjustments included in the unaudited pro forma condensed combined
financial information are as follows:
(1) Shows the effect of the mutual-to-stock conversion of Benjamin
Franklin Bancorp, with gross proceeds of $55.8 million, offering
expenses of $2.1 million, a contribution to the Benjamin Franklin
Bank Charitable Foundation of $4.0 million of common stock, the
establishment of an employee stock ownership plan that is in the
process of acquiring, in the open market, 478,194 shares
representing 8% of the shares issued in the conversion (including
shares contributed to the Benjamin Franklin Bank Charitable
Foundation), and the stock-based incentive plan that is expected to
acquire 4.0% of the number of shares issued in the offering
including the shares issued to the Benjamin Franklin Bank Charitable
Foundation (239,097 shares). It is assumed that Benjamin Franklin
Bancorp will purchase shares in the open market, for grant as
restricted stock under the stock-based incentive plan, after
receiving stockholder approval to adopt the plan. Future open market
purchases by the employee stock ownership plan and stock-based
incentive plan are assumed at $10.30 per share, the closing bid
price of the stock on June 14, 2005. As of June 14, 2005, the
employee stock ownership plan has purchased 300,000 shares at an
average cost of $10.15 per share. The reduction in retained earnings
reflects the one-time expense of funding the Benjamin Franklin Bank
Charitable Foundation net of a deferred tax asset.
(2) Reflects the purchase accounting and acquisition adjustments related
to the acquisition of Chart Bank for a price of $30.75 per share in
cash and newly issued common stock.
(3) Calculate as follows:
(Dollars in thousands)
Gross conversion proceeds....................................................................... $ 55,774
Offering expenses............................................................................... (2,082)
ESOP adjustment................................................................................. (4,880)
Stock-based incentive plan (restricted stock grants) adjustment................................. (2,462)
----------
Pro forma cash adjustment................................................................ $ 46,350
==========
(4) Deferred tax asset resulting from the expense of funding the
Benjamin Franklin Bank Charitable Foundation with a contribution of
400,000 shares of common stock at $10 per share, based on marginal
tax rate of 34.0%.
(5) The employee stock ownership plan is being funded with a loan from
Benjamin Franklin Bancorp, thus no borrowing liability is recorded
on the consolidated balance sheet of Benjamin Franklin Bancorp.
(6) No par value common stock.
(7) Calculate as follows:
(Dollars in thousands)
Net proceeds of offering......................................................................... $ 53,692
Common stock issued to Foundation................................................................ 4,000
----------
Pro forma adjustment...................................................................... $ 57,692
==========
(8) After-tax impact to retained earnings from the $4.0 million expense
for funding the Benjamin Franklin Bank Charitable Foundation based
on a marginal tax rate of 34.0%.
(9) Contra-equity account established to reflect the unallocated shares
in the employee stock ownership plan, which is in the process of
acquiring, in the open market, 478,194 shares, representing 8.0% of
the shares issued in the offering (including shares contributed to
the Benjamin Franklin Bank Charitable Foundation). As of June 14,
2005, 300,000 shares had been purchased at an average price of
$10.15 per share. It is assumed that the remaining 178,194 shares to
be purchased will be acquired at a cost of $10.30, the closing bid
price of the stock on June 14, 2005.
(10) Contra-equity account established to reflect the unvested shares of
restricted stock under the stock-based incentive plan equal to 4.0%
of shares issued in the offering, including shares contributed to
the Foundation (239,097 shares). The cost of the unvested shares is
assumed to be $10.30 per share, the closing bid price of the stock
on June 14, 2005.
(11) Includes the cash portion of the merger consideration paid to Chart
Bank, non-tax deductible transaction costs incurred, tax deductible
one time transaction expenses, and one time expenses that will be
incurred by Benjamin Franklin Bancorp to consolidate Chart Bank, net
of cash received from return of the Chart Bank Cooperative Central
Bank deposit.
(Dollars in thousands)
Cash portion of merger consideration, net of tax effect of purchasing options................. $ 21,535
Non-tax deductible transaction costs.......................................................... 830
Tax deductible transaction expenses........................................................... 3,278
One time expenses incurred to consolidate Chart Bank ......... 1,824
Return of Chart Bank Cooperative Central Bank Deposit......................................... (536)
----------
Total cash adjustment......................................................................... $ 26,931
==========
(12) Reflects the difference between market values and net book values of
securities held to maturity acquired in the acquisition.
(13) Yield adjustment to reflect the difference between portfolio yields
and market rates as of April 4, 2005 for loans acquired in the
acquisition. Yield adjustments were calculated using present value
analysis as follows: (a) the acquired loan portfolio was segregated
into pools of similar loans; (b) cash flow projections were prepared
for each loan pool based interest rates, balances, remaining terms
to maturity, and estimated prepayment speeds for each pool; (c) cash
flows were discounted to present value using risk adjusted discount
rates for comparable loans; and (d) the resulting difference between
the present value of future cash flows for each pool and the
corresponding principal balance was the yield adjustment. Yield
adjustments on acquired loans are amortized into interest income
using the interest method over the estimated lives of the acquired
loans.
(14) Reflects the difference between market values and net book values of
fixed assets acquired in the acquisition.
(15) Goodwill is an intangible asset that is not subject to amortization.
The goodwill balance will be tested annually for impairment.
Goodwill is calculated as:
(Dollars in thousands,
except per share data)
Purchase price per share ...................................................................... $ 30.75
Number of shares acquired...................................................................... 1,485,000
Number of options acquired..................................................................... 72,000
Average exercise price of options.............................................................. $ 10.00
Cost of purchasing shares...................................................................... $ 45,664
Cost of purchasing options..................................................................... 1,494
Tax effect of purchasing options............................................................... (508)
----------
Purchase price (net of tax effect of purchasing options)....................................... 46,650
Less: acquired stockholders' equity............................................................ (17,765)
Plus: estimated non-tax deductible transaction costs........................................... 830
Plus: taxable purchase accounting adjustments
Estimated tax deductible transaction expenses (pre-tax)................................... 3,278
Yield adjustment for acquired CDs......................................................... 473
Yield adjustment for acquired borrowings.................................................. (101)
Yield adjustment for acquired loans....................................................... 987
Yield adjustment for acquired investment securities .................. 607
Core deposit intangible................................................................... (5,488)
Market value adjustment for fixed assets.................................................. (569)
Tax effect at 41.0% marginal tax rate..................................................... 333
----------
Goodwill....................................................................................... $ 29,235
----------
(16) Core deposit intangible is an identifiable intangible asset
representing the economic value of the acquired Chart Bank deposit
base, calculated as the present value benefit of funding operations
with the acquired deposit base versus using an alternative wholesale
funding source. The core deposit intangible asset is amortized into
expense on an accelerated basis using the double declining balance
method over 15 years.
(17) Calculate as follows:
(Dollars in thousands)
Deferred tax entry for taxable transaction costs (footnote 15) $ (333)
Deferred tax entry for one time merger charges (footnote 22)................................ 748
Return of Chart Bank Cooperative Central Bank deposit....................................... (536)
----------
Pro forma adjustment........................................................................ $ (121)
==========
(18) Yield adjustment to reflect the difference between portfolio yields
and market rates as of April 4, 2005 for time deposits acquired in
the acquisition. Yield adjustment is calculated as the difference
between the current portfolio balances for time deposits and the
present value of projected cash flows related to the time deposits
discounted using current market rates. Current market rates were
based on average rates paid by institutions competing in the
regional market area based on rate surveys on or around April 4,
2005. The yield adjustment for time deposits will be accreted into
income using the interest method over the lives of the acquired time
deposits based on their monthly maturities (4.5 years).
(19) Yield adjustment to reflect the difference between portfolio yields
and market rates as of April 4, 2005 for borrowings acquired in the
acquisition. Yield adjustment is calculated as the difference
between the current portfolio balance for borrowings and the present
value of projected cash flows related to the borrowings discounted
using current market rates. Current market rates were based on rates
offered by the Federal Home Loan Bank of Boston as of April 4, 2005.
The yield adjustment for borrowings will be amortized into expense
using the interest method over the lives of the acquired borrowings
based on their monthly maturities (3 years).
(20) Eliminate Chart Bank common stock par value. Newly issued shares of
Benjamin Franklin Bancorp have no par value.
(21) Calculate as follows:
(Dollars in thousands)
Eliminate existing Chart Bank paid-in capital............................................ $ (11,575)
Common stock (paid-in capital) issued in acquisition..................................... 25,115
----------
Adjustment to paid-in capital............................................................ $ 13,540
==========
(22) Eliminate Chart Bank retained earnings:
(Dollars in thousands)
Eliminate existing Chart Bank retained earnings........................................... $ (4,724)
One-time merger charges incurred:
Restructure FHLB advances and marketing program....................................... (1,824)
Tax effect at marginal rate of 41.0%.................................................. 748
----------
Adjustment to retained earnings........................................................... $ (5,800)
----------
(23) Calculate to eliminate the capital account entries of Chart Bank
pursuant to purchase accounting.
(24) Shows the effect of the mutual-to-stock conversion of Benjamin
Franklin Bancorp, with gross proceeds of $55.8 million, offering
expenses of $2.1 million, a contribution to the Benjamin Franklin
Bank Charitable Foundation of $4.0 million of common stock, and
establishment of an employee stock ownership plan that is in the
process of acquiring, in the open market, 8.0% of the number of
shares issued in the offering including the shares issued to the
Benjamin Franklin Bank Charitable Foundation (478,194 shares in
total). As of June 14, 2005, 300,000 shares had been purchased at an
average price of $10.15 per share. It is assumed that the remaining
178,194 shares to be purchased will be acquired at a cost of $10.30,
the closing bid price of the stock on June 14, 2005. The loan taken
down by the employee stock ownership plan will be amortized over 30
years on a straight-line basis. The employee stock ownership plan
expense shown reflects the estimated amortization expense on a
pretax basis for the period shown. Benjamin Franklin Bancorp also
intends to adopt a stock-based incentive plan that will award shares
of restricted stock in the amount of 4.0% of the number of shares
issued in the offering, including the shares issued to the Benjamin
Franklin Bank Charitable Foundation (a total of 239,097 shares). The
shares expected to be granted under the stock-based incentive plan
as restricted stock are assumed to be purchased in the open market
after receiving stockholder approval for the plan. Open market
purchases for the stock-based incentive plan are assumed at $10.30
per share, the closing bid price of the stock on June 14, 2005. Also
under the stock-based incentive plan, Benjamin Franklin Bancorp
intends to grant options to purchase 10.0% of the number of shares
issued in the offering, including shares issued to the Benjamin
Franklin Bank Charitable Foundation. Adjustments to record estimated
stock-based incentive plan expenses, including expenses of the
restricted stock awards and option grants, and interest income to be
earned on net proceeds of the offering, will be recorded as
incurred. Since these estimates are non-recurring, they are not
reflected in the calculations of pro forma income. Further, no
expenses are included for the shares issued to the Benjamin Franklin
Bank Charitable Foundation or other merger-related charges, all of
which are one-time expenses. Employee stock ownership plan shares
are assumed to be released at $10.30 per share, the closing bid
price of the stock as of June 14, 2005. Taxes are calculated on an
assumed marginal rate of 36.0%.
(25) The expense of the employee stock ownership plan represents the
number of shares to be released to participants (15,940 shares per
year) times the average price of the stock for the year (assumed to
be $10.30 per share).
(26) Chart Bank operating results for the year ended December 31, 2004
include $637,000 of merger-related expenses.
(27) Reflects the purchase accounting and acquisition adjustments related
to the acquisition of Chart Bank for a price of $30.75 per share in
cash and newly issued common stock.
(28) Adjustment to interest income is the accretion of the discounts on
the Chart Bank loans and investment securities resulting from
purchase accounting. Accretion of the loan discount in the first
year is estimated to amount to $513,000. Accretion of the discount
on investment securities is estimated at $377,000 in the first year
following the acquisition. Adjustments to record estimated interest
income to be foregone as a result of funding the cash portion of the
merger consideration paid to stockholders of Chart Bank and the
expense of the acquisition will be recorded as incurred. Since these
estimates are non-recurring, they are not reflected in the pro forma
income statement
(29) Adjustment to interest expense is calculated as follows:
(Dollars in thousands)
Accretion of deposit premium from purchase accounting................................................ $ 369
Amortization of borrowings discount from purchase accounting......................................... (47)
-----
Adjustment to interest income........................................................................ $ 322
-----
(30) Adjustment to non-interest expense is calculated as follows:
Amortization of new core deposit intangible.......................................................... $(1,656)
Depreciation adjustment for market value of fixed assets............................................. (9)
--------
Adjustment to non-interest expense................................................................... $(1,665)
--------
(31) Marginal tax rate of 36.0%.