UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 5, 2020
FB FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
| Tennessee | 001-37875 | 62-1216058 | ||
|
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
|
211 Commerce Street, Suite 300 Nashville, Tennessee |
37201 | |
| (Address of principal executive offices) | (Zip Code) |
(615) 564-1212
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☒ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
||
| Common Stock, $1.00 par value | FBK | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
| Item 8.01 |
Other Events. |
As previously reported, on January 21, 2020, FB Financial Corporation, a Tennessee corporation (“FB Financial”), Paisley Acquisition Corporation, a Tennessee corporation and a direct, wholly owned subsidiary of FB Financial (“Merger Sub”), and Franklin Financial Network, Inc., a Tennessee corporation (“Franklin”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which, on the terms and subject to the conditions set forth therein, Merger Sub will merge with and into Franklin, with Franklin continuing as the surviving corporation (the “Merger”). Immediately following the Merger, Franklin will merge with and into FB Financial, with FB Financial continuing as the surviving corporation (the “Upstream Merger”). Immediately following the Upstream Merger, Franklin Synergy Bank, a Tennessee state-chartered bank and a wholly owned subsidiary of Franklin (“Franklin Synergy”), will merge with and into FirstBank, a Tennessee state-chartered bank and a wholly owned subsidiary of FB Financial (“FirstBank”), with FirstBank continuing as the surviving bank (the “Bank Merger,” and, together with the Merger and the Upstream Merger, the “Mergers”).
In connection with the proposed Mergers, the following financial statements are being incorporated by reference into this Current Report on Form 8-K (this “Report”) and the following financial information is being filed with this Report:
| • |
Audited consolidated financial statements of Franklin as of December 31, 2018 and December 31, 2017 and for each of the years in the three-year period ended December 31, 2018, the notes related thereto and the report of Crowe LLP, independent registered public accounting firm, dated March 18, 2019; |
| • |
Interim unaudited condensed consolidated financial statements of Franklin as of and for the three and nine months ended September 30, 2019 and September 30, 2018 and the notes related thereto; and |
| • |
Unaudited pro forma condensed combined balance sheet of FB Financial as of September 30, 2019 and unaudited pro forma condensed combined statements of income for the year ended December 31, 2018 and for the nine months ended September 30, 2019 and the notes related thereto. |
The pro forma financial information gives pro forma effect to the Mergers and the related transactions that will occur in connection with the Mergers. The pro forma condensed combined financial information is derived from the historical financial statements of FB Financial and Franklin. The pro forma condensed combined financial information is preliminary and reflects a number of assumptions, including, among others, that the Mergers and the related transactions will be consummated. There can be no assurance that any of such transactions will be consummated or that the actual terms of such transactions will not differ materially from FB Financial’s current expectations.
| Item 9.01. |
Financial Statements and Exhibits. |
| (a) |
Financial Statements of Business to be Acquired |
Audited consolidated financial statements of Franklin as of December 31, 2018 and December 31, 2017 and for each of the years in the three-year period ended December 31, 2018, the notes related thereto and the report of Crowe LLP, independent registered public accounting firm, dated March 18, 2019, that are included in Franklin’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as filed with the Securities and Exchange Commission (the “SEC”) on March 19, 2019 are incorporated by reference hereto. Interim unaudited consolidated financial statements of Franklin as of and for the three and nine months ended September 30, 2019 and September 30, 2018 and the notes related thereto that are included in Franklin’s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2019, as filed with the SEC on October 31, 2019 are incorporated by reference hereto.
| (b) |
Pro Forma Financial Information. |
Unaudited pro forma condensed combined balance sheet of FB Financial as of September 30, 2019 and unaudited pro forma condensed combined statements of income for the year ended December 31, 2018 and for the nine months ended September 30, 2019 and the notes related thereto are filed as Exhibit 99.1 hereto.
| (d) |
Exhibits. |
IMPORTANT INFORMATION FOR SHAREHOLDERS AND INVESTORS
In connection with the proposed Mergers, FB Financial will file a registration statement on Form S-4 with the SEC. The registration statement will contain the joint proxy statement of Franklin and FB Financial to be sent to the FB Financial and Franklin shareholders seeking their approvals in connection with the merger and the issuance of FB Financial common stock in the merger. The registration statement will also contain the prospectus of FB Financial to register the shares of FB Financial common stock to be issued in connection with the merger. A definitive joint proxy statement/prospectus will also be provided to FB Financial and Franklin shareholders as required by applicable law. Investors and shareholders are encouraged to read the registration statement, including the joint proxy statement/prospectus that will be part of the registration statement, as well as any other relevant documents filed by FB Financial and Franklin with the SEC, including any amendments or supplements to the registration statement and other documents filed with the SEC, because they will contain important information about the proposed merger, Franklin, and FB Financial. The registration statement and other documents filed with the SEC may be obtained for free on the SEC’s website (www.sec.gov). The definitive proxy statement/prospectus will also be made available for free by contacting FB Financial Corporation Investor Relations at (615) 564-1212 or investors@firstbankonline.com, or by contacting Franklin Investor Relations at (615) 236-8327 or investors@franklinsynergy.com. This communication does not constitute an offer to sell, the solicitation of an offer to sell or the solicitation of an offer to buy any securities, or the solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.
PARTICIPANTS IN THE SOLICITATION
FB Financial, Franklin, and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from FB Financial and Franklin shareholders in connection with the proposed merger under the rules of the SEC. Information about the directors and executive officers of FB Financial may be found in the definitive proxy statement for FB Financial’s 2019 annual meeting of shareholders, filed with the SEC by FB Financial on April 16, 2019, and other documents subsequently filed by FB Financial with the SEC. Information about the directors and executive officers of Franklin may be found in the definitive proxy statement for Franklin’s 2019 annual meeting of shareholders, filed with the SEC by Franklin on April 12, 2019, and other documents subsequently filed by Franklin with the SEC. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the joint proxy statement/prospectus when it becomes available. Free copies of these documents may be obtained as described in the paragraph above.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this communication may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, without limitation, statements relating to the timing, benefits, costs, and synergies of the proposed merger with Franklin (which we refer to as the “Franklin merger”), FB Financial’s and Franklin’s future plans, results, strategies, and expectations, and FB Financial and Franklin’s future financial and operating results (including the anticipated impact of the Franklin merger on FB Financial and Franklin’s earnings and tangible book value). These statements can generally be identified by the use of the words and phrases “may,” “will,” “should,” “could,” “would,” “goal,” “plan,” “potential,”
“estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target,” “aim,” “predict,” “continue,” “seek,” “projection,” and other variations of such words and phrases and similar expressions. These forward-looking statements are not historical facts, and are based upon current expectations, estimates, and projections, many of which, by their nature, are inherently uncertain and beyond FB Financial’s or Franklin’s control. The inclusion of these forward-looking statements should not be regarded as a representation by FB Financial, Franklin or any other person that such expectations, estimates, and projections will be achieved. Accordingly, FB Financial and Franklin caution shareholders and investors that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, and uncertainties that are difficult to predict. Actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. A number of factors could cause actual results to differ materially from those contemplated by the forward-looking statements including, without limitation, (1) the risk that the cost savings and any revenue synergies from the proposed Franklin merger or another acquisition may not be realized or may take longer than anticipated to be realized, (2) disruption from the proposed Franklin merger with customer, supplier, or employee relationships, (3) the occurrence of any event, change, or other circumstances that could give rise to the termination of the merger agreement with Franklin, (4) the failure to obtain necessary regulatory approvals for the Franklin merger, (5) the failure to obtain the approval of FB Financial and Franklin’s shareholders in connection with the Franklin merger, (6) the possibility that the costs, fees, expenses, and charges related to the Franklin merger may be greater than anticipated, including as a result of unexpected or unknown factors, events, or liabilities, (7) the failure of the conditions to the Franklin merger to be satisfied, (8) the risks related to the integration of the combined businesses (Franklin, as well as FB Financial’s pending acquisition of FNB Financial Corp. and any future acquisitions), including the risk that the integration will be materially delayed or will be more costly or difficult than expected, (9) the diversion of management time on merger-related issues, (10) the ability of FB Financial to effectively manage the larger and more complex operations of the combined company following the Franklin merger, (11) the risks associated with FB Financial’s pursuit of future acquisitions, (12) the risk of expansion into new geographic or product markets, (13) reputational risk and the reaction of the parties’ customers to the Franklin merger, (14) FB Financial’s ability to successfully execute its various business strategies, including its ability to execute on potential acquisition opportunities, (15) the risk of potential litigation or regulatory action related to the Franklin merger, and (16) general competitive, economic, political, and market conditions. Further information regarding FB Financial, Franklin and factors which could affect the forward-looking statements contained herein can be found in FB Financial’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, its Quarterly Reports on Form 10-Q for the interim periods ended March 31, 2019, June 30, 2019 and September 30, 2019, and its other filings with the SEC, and in Franklin’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, its Quarterly Reports on Form 10-Q for the interim periods ended March 31, 2019 , June 30, 2019 and September 30, 2019, and its other filings with the SEC.
Many of these factors are beyond FB Financial’s and Franklin’s ability to control or predict. If one or more events related to these or other risks or uncertainties materialize, or if the underlying assumptions prove to be incorrect, actual results may differ materially from the forward-looking statements. Accordingly, shareholders and investors should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date of this communication, and neither FB Financial nor Franklin undertakes any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. New risks and uncertainties may emerge from time to time, and it is not possible for FB Financial or Franklin to predict their occurrence or how they will affect FB Financial or Franklin.
FB Financial and Franklin qualify all forward-looking statements by these cautionary statements.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| FB FINANCIAL CORPORATION | ||
| By: |
/s/ James R. Gordon |
|
| James R. Gordon | ||
| Chief Financial Officer | ||
Date: February 5, 2020
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement on Form S-3 (Registration Number: 333-221149), Form S-4 (Registration Number: 333-235728) and Form S-8 (Registration Numbers: 333-228922 and 333-213703) of FB Financial Corporation of our report dated March 18, 2019 on the consolidated financial statements of Franklin Financial Network, Inc., appearing in the Annual Report on Form 10-K of Franklin Financial Network, Inc. for the year ended December 31, 2018.
/s/ Crowe LLP
Franklin, Tennessee
February 5, 2020
Exhibit 99.1
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On January 21, 2020, FB Financial Corporation, a Tennessee corporation (“FB Financial”), Paisley Acquisition Corporation, a Tennessee corporation and a direct, wholly owned subsidiary of FB Financial (“Merger Sub”), and Franklin Financial Network, Inc., a Tennessee corporation (“Franklin”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which, on the terms and subject to the conditions set forth therein, Merger Sub will merge with and into Franklin, with Franklin continuing as the surviving corporation (the “Merger”). Immediately following the Merger, Franklin will merge with and into FB Financial, with FB Financial continuing as the surviving corporation (the “Upstream Merger”). Immediately following the Upstream Merger, Franklin Synergy Bank, a Tennessee state-chartered bank and a wholly owned subsidiary of Franklin (“Franklin Synergy”), will merge with and into FirstBank, a Tennessee state-chartered bank and a wholly owned subsidiary of FB Financial (“FirstBank”), with FirstBank continuing as the surviving bank (the “Bank Merger,” and, together with the Merger and the Upstream Merger, the “Mergers”).
For a discussion of the consideration to be paid in the Mergers, please refer to the Current Report on Form 8-K that FB Financial filed with the United States Securities and Exchange Commission on January 24, 2020, which is incorporated herein by reference.
The following unaudited pro forma condensed combined financial information gives effect to:
| • |
FB Financial’s pending acquisition of Franklin; and |
| • |
the issuance of an estimated 15,081,327 shares of FB Financial common stock and approximately $31.3 million in cash to the shareholders of Franklin in connection with the Mergers, as if, in the case of the unaudited pro forma condensed combined balance sheet, the Mergers were completed as of September 30, 2019 and, in the case of the unaudited pro forma condensed combined statements of income, the Mergers were completed as of January 1, 2018. |
The unaudited pro forma condensed combined statements of income for the fiscal year ended December 31, 2018 and for the nine months ended September 30, 2019 combine the consolidated statements of income of FB Financial with the consolidated statements of income of Franklin for the respective periods giving effect to the Mergers as if they had been completed as of January 1, 2018. The unaudited pro forma condensed combined balance sheet as of September 30, 2019 combines the consolidated balance sheet of FB Financial as of that date with the consolidated balance sheet of Franklin as of that date and gives effect to the Mergers as if they had been completed as of that date.
The historical consolidated financial information contained in the unaudited pro forma condensed combined financial information has been adjusted to give effect to events that are (i) factually supportable, (ii) directly attributed to the Mergers, and (iii) with respect to the unaudited pro forma condensed combined statements of income, expected to have a continuing impact on the combined results of FB Financial and Franklin. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined financial information.
The unaudited pro forma condensed combined financial information appearing below does not give pro forma effect to the following transaction:
| • |
FB Financial’s pending acquisition of FNB Financial Corp, which is not required. |
The unaudited pro forma condensed combined statements of income appearing below do not give pro forma effect to the following transaction for any period prior to the date that such transaction was consummated:
| • |
FB Financial’s acquisition of fourteen branches of Atlantic Capital Bank, N.A., which was consummated on April 5, 2019. |
| • |
Franklin’s acquisition of Civic Bank and Trust, which was consummated on April 1, 2018. |
The unaudited pro forma condensed combined financial statements are prepared in accordance with historical regulatory and generally accepted accounting principles in the United States of America during the periods presented. As such, the unaudited pro forma condensed combined financial statements do not contemplate any impact as a result of changes to accounting standards or legislation that occurred after the historical periods presented.
Most notably, the unaudited pro forma condensed combined financial information does not reflect the adoption or ongoing potential impact of the following:
| • |
FB Financial’s and/or Franklin’s adoption of Accounting Standard Update (“ASU”) 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” on January 1, 2020 (commonly referred to as Cumulative Expected Credit Losses, or “CECL”). |
| • |
Legislation going into effect after the historical periods presented, including, but not limited to, the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. |
The unaudited pro forma condensed combined financial information appearing below also does not reflect any potential effects that changes in market conditions may have on the financial condition and/or the results of operations of FB Financial and Franklin.
The Mergers will be accounted for using the acquisition method of accounting. The total purchase price will be allocated to the tangible and intangible assets and liabilities acquired based upon their respective fair values at the closing of the Mergers. The allocation of the purchase price reflected in the following unaudited pro forma condensed combined financial information is preliminary, is subject to adjustment upon receipt of, among other things, appraisals of some of the assets and liabilities of Franklin, and may vary significantly from the actual purchase price allocation that will be recorded upon completion of FB Financial’s acquisition of Franklin.
The unaudited pro forma condensed combined financial information should be read in conjunction with (i) FB Financial’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and FB Financial’s historical financial statements and the notes thereto included in FB Financial’s annual report on Form 10-K for the fiscal year ended December 31, 2018 and FB Financial’s quarterly report on Form 10-Q for the three and nine months ended September 30, 2019, and (ii) with Franklin’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Franklin’s historical financial statements and the notes thereto included in Franklin’s annual report on Form 10-K for the fiscal year ended December 31, 2018 and Franklin’s quarterly report on Form 10-Q for the three and nine months ended September 30, 2019.
The unaudited pro forma condensed combined financial information appearing below is presented for illustrative purposes only, is based upon a number of assumptions and estimates and is subject to uncertainties. The unaudited pro forma condensed combined financial information does not purport to be indicative of the actual financial condition or results of operations of FB Financial had the Mergers in fact occurred on the dates indicated, nor does it purport to be indicative of the financial condition or results of operations of FB Financial in the future.
FB Financial Corporation and subsidiaries
Unaudited Pro Forma Condensed Combined Balance Sheet
(in thousands)
| As of September 30, 2019 | ||||||||||||||||
|
FB Financial
Corporation |
Franklin Financial
Network, Inc. |
Purchase
Accounting and Other Adjustments |
Pro Forma
Company |
|||||||||||||
| (as reported) | (as reported) | Combined | ||||||||||||||
|
ASSETS |
||||||||||||||||
|
Cash and cash equivalents |
$ | 242,997 | $ | 182,337 | $ | (31,257 | )(a) | $ | 394,077 | |||||||
|
Investments, at fair value |
687,757 | 637,135 | — | 1,324,892 | ||||||||||||
|
Loans held for sale, at fair value |
305,493 | 56,570 | — | 362,063 | ||||||||||||
|
Loans |
4,345,344 | 2,796,233 | (74,912 | )(b) | 7,066,665 | |||||||||||
|
Less: allowance for loan losses |
(31,464 | ) | (26,474 | ) | 26,474 | (c) | (31,464 | ) | ||||||||
|
|
|
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|
|
|
|
|
|||||||||
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Net loans |
4,313,880 | 2,769,759 | (48,438 | ) | 7,035,201 | |||||||||||
|
Premises and equipment, net |
91,815 | 12,449 | — | 104,264 | ||||||||||||
|
Other real estate owned |
16,076 | — | — | 16,076 | ||||||||||||
|
Operating lease right-of-use assets |
34,812 | 40,285 | — | 75,097 | ||||||||||||
|
Mortgage servicing rights, net |
66,156 | 3,128 | 182 | (d) | 69,466 | |||||||||||
|
Goodwill |
168,486 | 18,176 | 186,050 | (e) | 372,712 | |||||||||||
|
Core deposit and other intangibles, net |
18,748 | 556 | 25,875 | (f) | 45,179 | |||||||||||
|
Other assets |
142,675 | 97,929 | — | 240,604 | ||||||||||||
|
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|
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|
|||||||||
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Total assets |
$ | 6,088,895 | $ | 3,818,324 | $ | 132,412 | $ | 10,039,631 | ||||||||
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||||||||||
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Liabilities: |
||||||||||||||||
|
Noninterest-bearing deposits |
$ | 1,214,373 | $ | 346,441 | $ | — | $ | 1,560,814 | ||||||||
|
Interest-bearing deposits |
3,707,390 | 2,715,509 | 4,212 | (g) | 6,427,111 | |||||||||||
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|
|||||||||
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Total deposits |
4,921,763 | 3,061,950 | 4,212 | 7,987,925 | ||||||||||||
|
Borrowings |
307,129 | 278,827 | 2,413 | (h) | 588,369 | |||||||||||
|
Operating lease liabilities |
37,760 | 41,938 | — | 79,698 | ||||||||||||
|
Accrued expenses and other liabilities |
77,408 | 27,348 | 9,459 | (i) | 114,215 | |||||||||||
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|
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Total liabilities |
5,344,060 | 3,410,063 | 16,084 | 8,770,207 | ||||||||||||
|
Common stock and additional paid-in capital |
457,744 | 269,842 | 267,714 | (j) | 995,300 | |||||||||||
|
Retained earnings |
274,491 | 138,579 | (151,639 | )(k) | 261,431 | |||||||||||
|
Accumulated other comprehensive income (loss), net |
12,600 | (253 | ) | 253 | (k) | 12,600 | ||||||||||
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|||||||||
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Total shareholders’ equity |
744,835 | 408,168 | 116,328 | 1,269,331 | ||||||||||||
|
Non-controlling interest in consolidated subsidiary |
— | 93 | — | 93 | ||||||||||||
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Total shareholders’ equity |
744,835 | 408,261 | 116,328 | 1,269,424 | ||||||||||||
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|
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|
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Total liabilities and shareholders’ equity |
$ | 6,088,895 | $ | 3,818,324 | $ | 132,412 | $ | 10,039,631 | ||||||||
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FB Financial Corporation and subsidiaries
Unaudited Pro Forma Condensed Combined Statement of Income
(in thousands, except share data)
| Nine Months Ended September 30, 2019 | ||||||||||||||||
|
FB Financial
Corporation |
Franklin
Financial Network, Inc. |
Pro Forma |
Pro Forma
Company |
|||||||||||||
| (as reported) | (as reported) | Adjustments | (Combined) | |||||||||||||
|
Interest income: |
||||||||||||||||
|
Interest and fees on loans |
$ | 194,363 | $ | 118,658 | $ | 7,080 | (a) | $ | 320,101 | |||||||
|
Interest on securities |
13,732 | 20,145 | — | 33,877 | ||||||||||||
|
Other |
2,799 | 2,704 | — | 5,503 | ||||||||||||
|
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|
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|
|
|||||||||
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Total interest income |
210,894 | 141,507 | 7,080 | 359,481 | ||||||||||||
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Interest expense: |
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Deposits |
38,865 | 48,689 | — | 87,554 | ||||||||||||
|
Borrowings |
3,685 | 9,771 | (312 | )(h) | 13,144 | |||||||||||
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|
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Total interest expense |
42,550 | 58,460 | (312 | ) | 100,698 | |||||||||||
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|
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Net interest income |
168,344 | 83,047 | 7,392 | 258,783 | ||||||||||||
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Provision for loan losses |
4,103 | 13,086 | — | (c) | 17,189 | |||||||||||
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Net interest income after provision for loan losses |
164,241 | 69,961 | 7,392 | 241,594 | ||||||||||||
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Noninterest income: |
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Mortgage banking income |
74,740 | 6,847 | — | 81,587 | ||||||||||||
|
Service charges on deposit accounts |
6,822 | 2,963 | — | 9,785 | ||||||||||||
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Other income |
18,601 | 3,392 | — | 21,993 | ||||||||||||
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Total noninterest income |
100,163 | 13,202 | — | 113,365 | ||||||||||||
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Noninterest expenses: |
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Salaries, commissions and employee benefits |
112,495 | 37,740 | — | 150,235 | ||||||||||||
|
Occupancy and equipment expense |
12,107 | 9,756 | — | 21,863 | ||||||||||||
|
Legal and professional fees |
5,412 | 3,114 | — | 8,526 | ||||||||||||
|
Amortization of core deposit intangibles |
3,180 | 396 | 1,586 | (f) | 5,162 | |||||||||||
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Other expense |
48,961 | 9,594 | — | 58,555 | ||||||||||||
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|
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|
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Total noninterest expense |
182,155 | 60,600 | 1,586 | 244,341 | ||||||||||||
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Income before income taxes |
82,249 | 22,563 | 5,806 | 110,618 | ||||||||||||
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Income tax expense |
20,007 | 3,157 | 1,513 | (l) | 24,677 | |||||||||||
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Net income before noncontrolling interest |
62,242 | 19,406 | 4,293 | 85,941 | ||||||||||||
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Earnings attributable to noncontrolling interest |
— | (8 | ) | — | (8 | ) | ||||||||||
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Net income |
$ | 62,242 | $ | 19,398 | $ | 4,293 | $ | 85,933 | ||||||||
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|||||||||
|
Per share information: |
||||||||||||||||
|
Basic |
30,849,035 | 14,469,033 | 15,081,327 | (m) | 45,930,362 | |||||||||||
|
Fully diluted |
31,378,786 | 14,906,044 | 15,081,327 | (m) | 46,460,113 | |||||||||||
|
Earnings per share: |
||||||||||||||||
|
Basic |
$ | 2.01 | $ | 1.33 | $ | — | $ | 1.87 | ||||||||
|
Fully diluted |
1.97 | 1.29 | — | 1.85 | ||||||||||||
FB Financial Corporation and subsidiaries
Unaudited Pro Forma Condensed Combined Statement of Income
(in thousands, except share data)
| Year Ended December 31, 2018 | ||||||||||||||||
|
FB Financial
Corporation |
Franklin Financial
Network, Inc. |
Pro Forma
Adjustments |
Pro Forma
Company |
|||||||||||||
| (as reported) | (as reported) | (Combined) | ||||||||||||||
|
Interest income: |
||||||||||||||||
|
Interest and fees on loans |
$ | 221,001 | $ | 131,854 | $ | 11,800 | (a) | $ | 364,655 | |||||||
|
Interest on securities |
16,444 | 35,167 | — | 51,611 | ||||||||||||
|
Other |
2,126 | 2,924 | — | 5,050 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total interest income |
239,571 | 169,945 | 11,800 | 421,316 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Interest expense: |
||||||||||||||||
|
Deposits |
29,536 | 53,326 | (4,212 | )(g) | 78,650 | |||||||||||
|
Borrowings |
5,967 | 11,116 | (452 | )(h) | 16,631 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total interest expense |
35,503 | 64,442 | (4,664 | ) | 95,282 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Net interest income |
204,068 | 105,503 | 16,464 | 326,035 | ||||||||||||
|
Provision for loan losses |
5,398 | 2,254 | — | (c) | 7,652 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Net interest income after provision for loan losses |
198,670 | 103,249 | 16,464 | 318,383 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Noninterest income: |
||||||||||||||||
|
Mortgage banking income |
100,661 | 6,696 | — | 107,357 | ||||||||||||
|
Service charges on deposit accounts |
8,502 | 3,368 | — | 11,870 | ||||||||||||
|
Other income |
21,479 | 598 | — | 22,077 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total noninterest income |
130,642 | 10,662 | — | 141,304 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Noninterest expenses: |
||||||||||||||||
|
Salaries, commissions and employee benefits |
136,892 | 43,837 | — | 180,729 | ||||||||||||
|
Occupancy and equipment expense |
13,976 | 11,628 | — | 25,604 | ||||||||||||
|
Legal and professional fees |
7,903 | 4,413 | — | 12,316 | ||||||||||||
|
Amortization of core deposit intangibles |
3,185 | 612 | 2,031 | (f) | 5,828 | |||||||||||
|
Other expense |
61,502 | 12,988 | — | 74,490 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total noninterest expense |
223,458 | 73,478 | 2,031 | 298,967 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Income before income taxes |
105,854 | 40,433 | 14,433 | 160,720 | ||||||||||||
|
Income tax expense |
25,618 | 5,912 | 3,761 | (l) | 35,291 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Net income before noncontrolling interest |
80,236 | 34,521 | 10,672 | 125,429 | ||||||||||||
|
Earnings attributable to noncontrolling interest |
— | (16 | ) | — | (16 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Net income |
$ | 80,236 | $ | 34,505 | $ | 10,672 | $ | 125,413 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Per share information: |
||||||||||||||||
|
Basic |
30,675,755 | 14,016,656 | 15,081,327 | (m) | 45,757,082 | |||||||||||
|
Fully diluted |
31,314,981 | 14,556,958 | 15,081,327 | (m) | 46,396,308 | |||||||||||
|
Earnings per share: |
||||||||||||||||
|
Basic |
$ | 2.60 | $ | 2.44 | $ | — | $ | 2.74 | ||||||||
|
Fully diluted |
2.55 | 2.34 | — | 2.70 | ||||||||||||
Note 1. Basis of Presentation
The unaudited pro forma condensed combined balance sheet as of September 30, 2019 and the unaudited pro forma condensed combined income statements for the nine months ended September 30, 2019 and year ended December 31, 2018 are based on the historical financial statements of FB Financial Corporation and Franklin after giving effect to the completion of the merger and the assumptions and adjustments described in the accompanying notes. The statements of income give effect to the transaction at January 1, 2018. Such financial statements do not include estimated cost savings, revenue synergies expected to result from the merger, or the costs to achieve these cost savings or revenue synergies, or any anticipated disposition of assets that may result from the integration of operations.
The transaction will be accounted for under the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). In business combination transactions in which the consideration given is not in the form of cash (that is, in the form of non-cash assets, liabilities incurred, or equity interests issued), measurement of the acquisition consideration is based on the fair value of the consideration given or the fair value of the asset (or net assets) acquired, whichever is more clearly evident and, thus, a more reliable measure.
Under ASC 805, all of the assets acquired and liabilities assumed in a business combination are recognized at their acquisition-date fair value, while transaction costs and restructuring costs associated with the business combination are expensed as incurred. The excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. Subsequent to the completion of the merger, FB Financial will finalize an integration plan, which may affect how the assets acquired, including intangible assets, will be utilized by the combined company. For those assets in the combined company that will be phased out or disposed of, additional amortization, depreciation and possibly impairment charges will be recorded after management completes the integration plan.
The unaudited pro forma condensed combined financial information has been compiled in a manner consistent with the accounting policies adopted by FB Financial. Certain balances from the consolidated financial statements of Franklin were reclassified to conform presentation to that of FB Financial.
The unaudited pro forma information is presented solely for information purposes and is not necessarily indicative of the combined results of operations or financial position that might have been achieved for the period, nor is it necessarily indicative of the future results of the combined company.
Note 2. Preliminary Estimated Allocation of Purchase Price
Under the acquisition method of accounting, the total acquisition consideration is allocated to the acquired tangible and intangible assets and assumed liabilities of Franklin based on the estimated fair values as of the closing of the merger. The excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill.
The allocation of the estimated acquisition consideration with regard to Franklin is preliminary because the proposed merger has not yet been completed. The preliminary allocation is based on estimates, assumptions, valuations, and other studies which have not progressed to a stage where there is sufficient information to make a definitive allocation. Accordingly, the acquisition consideration allocation in the unaudited pro forma adjustments will remain preliminary until FB Financial management determines the final acquisition consideration and the fair values of assets acquired and liabilities assumed. The final determination of the acquisition consideration allocation is anticipated to be completed as soon as practicable after the completion of the merger and will be based on the value of the FB Financial common stock in accordance with the merger agreement. The final amounts allocated to assets acquired and liabilities assumed could differ significantly from the amounts presented in the unaudited pro forma condensed combined financial statements.
Goodwill totaling $231.3 million is included in the pro forma adjustments and is not subject to amortization. The purchase price is contingent on FB Financial’s price per common share at the closing of the merger, which has not yet occurred. A 10% increase or decrease in FB Financial’s closing sale price per share of common stock on January 31, 2020 of $35.65 would result in a corresponding goodwill adjustment of approximately $53.8 million.
The following table shows a preliminary pro forma allocation of purchase price to net assets acquired and the pro forma goodwill generated from the transaction.
| Pro Forma Allocations of Purchase Price |
| (in thousands, except share and per share data) |
|
Stock consideration: |
||||||||
|
Franklin shares outstanding (includes restricted stock awards to be vested) as of September 30, 2019 |
14,794,235 | |||||||
|
Franklin options converted to net shares |
834,083 | |||||||
|
|
|
|||||||
| 15,628,318 | ||||||||
|
Exchange ratio to FB Financial shares |
0.9650 | |||||||
|
FB Financial shares to issue |
15,081,327 | |||||||
|
Assumed purchase price |
$ | 35.65 | ||||||
|
Value of FB Financial stock to be issued |
$ | 537,649 | ||||||
|
Cash consideration: |
||||||||
|
Total Franklin shares and net shares outstanding |
15,628,318 | |||||||
|
Cash consideration per share |
$ | 2.00 | ||||||
|
Total cash to be paid to Franklin |
$ | 31,257 | ||||||
|
Total pro forma purchase price |
$ | 568,906 | ||||||
|
Net Assets Acquired (at fair value): |
||||||||
|
Cash and due from banks |
$ | 182,337 | ||||||
|
Securities |
637,135 | |||||||
|
Loans held for sale |
56,570 | |||||||
|
Loans, net of unearned income |
2,721,321 | |||||||
|
Premises and equipment |
12,449 | |||||||
|
Operating lease right of use asset |
40,285 | |||||||
|
Mortgage servicing rights |
3,310 | |||||||
|
Core deposit intangible |
26,431 | |||||||
|
Other assets |
97,929 | |||||||
|
|
|
|||||||
|
Total assets |
3,777,767 | |||||||
|
Deposits: |
||||||||
|
Non-interest bearing |
346,441 | |||||||
|
Interest bearing |
2,719,721 | |||||||
|
|
|
|||||||
|
Total deposits |
3,066,162 | |||||||
|
Borrowings |
281,240 | |||||||
|
Operating lease liability |
41,938 | |||||||
|
Other liabilities |
23,747 | |||||||
|
|
|
|||||||
|
Total liabilities assumed |
3,413,087 | |||||||
|
Net assets acquired |
$ | 364,680 | ||||||
|
|
|
|||||||
|
Preliminary pro forma goodwill |
$ | 204,226 | ||||||
|
|
|
Note 3. Unaudited Pro Forma Adjustments
The following pro forma adjustments have been reflected in the unaudited pro forma condensed combined financial information for the announced acquisition of Franklin. All adjustments are based on current valuations and assumptions which are subject to change.
| a) |
Cash was adjusted to reflect cash consideration of $31.3 million paid in exchange for Franklin’s outstanding common stock, restricted stock units and stock options. |
| b) |
Loans were adjusted based upon FB Financial’s initial evaluation of the acquired portfolio. The adjustment reflects both a discount for credit deterioration and accretable yield adjustment, recognized as an adjustment to reflect the difference between actual interest rates and current market rates on similar loans. FB Financial has estimated the nonaccretable credit discount on purchased credit impaired (“PCI”) loans to be $44.4 million. The remaining accretable discount on PCI loans and non-PCI loans is estimated at $13.2 million and $22.2 million, respectively. The accretable yield adjustment will be recognized over the remaining life of the loan portfolio. The adjustment to loans also reflects the reversal of deferred loan fees of $4.0 million and purchase accounting discount recorded by Franklin on previously acquired loans of $0.9 million. The impact of this adjustment was to increase loan interest income by $11.8 million and $7.1 million for the year ended December 31, 2018 and nine months ended September 30, 2019, respectively. The unaudited pro forma condensed combined financial statements do not give pro forma effect of FB Financial’s plans to dispose of approximately $430.0 million of loans after acquisition or the use of proceeds from such sale, of which management expects to result in a reduction to interest income on loans and interest expenses on borrowings from the net proceeds. |
| c) |
The allowance for loan losses was adjusted to reflect the reversal of the Franklin recorded allowance. Purchased loans acquired in a business combination are required to be recorded at fair value, and the recorded allowance for loan losses may not be carried over. While FB Financial anticipates increasing the allowance for loan losses and corresponding provision for loan losses as a result of the adoption of ASU 2016-13, “Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, no adjustment to the historic amounts of Franklin’s or FB Financial’s provision for loan losses has been recorded in the unaudited pro forma condensed combined statements of income. |
| d) |
Mortgage servicing rights was adjusted to reflect a fair value adjustment of $0.2 million to record at fair value. |
| e) |
Goodwill has been adjusted to reverse Franklin’s existing goodwill of $18.2 million and recognize $204.2 million in goodwill generated as a result of the purchase price and fair value of liabilities assumed exceeding the fair value of assets purchased. The adjustment has no impact on the unaudited pro forma condensed combined statements of income. |
| f) |
Core deposit and other intangibles was adjusted to reverse Franklin’s existing core deposit intangible of $0.6 million and recognize an estimated core deposit intangible of $26.4 million. The core deposit intangible is recognized over an estimated useful life of ten years on a straight line basis. The amortization expense associated with the core deposit intangible increased noninterest expense by $2.0 million and $1.6 million for the year ended December 31, 2018 and nine months ended September 30, 2019, respectively. |
| g) |
Interest-bearing deposits was adjusted to reflect the fair value adjustment premium of $4.2 million to fixed-rate time deposit liabilities based on current market interest rates offered by FB Financial for similar instruments. The adjustment will be recognized over an estimated remaining term of the deposit liability, which is expected to be approximately 1 year. As such, the adjustment resulted in a decrease in deposit interest expense of $4.2 million for the year ended December 31, 2018. |
| h) |
Borrowings was adjusted to reflect a fair value adjustment to Franklin’s FHLB advances and subordinated debt of $0.2 million and $2.3 million, respectively, to reflect current market interest rates available to FB Financial on similar instruments. These interest rate premiums will be accreted over the remaining term of the advances and subordinated debt of 1.5 years and 6.75 years, respectively. The impact of these adjustments will decrease interest expense related to the advances and subordinated debt by $0.1 million and $0.3 million, respectively, for the year ended December 31, 2018 and $0.1 million and $0.3 million, respectively, for the nine months ended September 30, 2019. |
| i) |
Accrued expenses and other liabilities were adjusted to accrue for an estimated $5.0 million in pre-tax transaction expenses to be incurred prior to closing by Franklin and an additional $16.5 million in pre-tax transaction expenses to be incurred prior to or at closing by FB Financial. Anticipated merger expenses to be incurred by FB Financial are not included in the unaudited pro forma condensed combined statements of income but will be expensed in the period prior to and after the merger is completed. Anticipated merger related expenses consist of investment banking fees, legal fees, accounting fees, registration fees, contract termination fees, printing costs and additional fees and expenses. An additional estimated $27.5 million of pre-tax conversion, integration, and other charges anticipated to be incurred subsequent to the close of the transaction are not included in the unaudited pro forma condensed combined balance sheet or statements of income presented. Accrued expenses and other liabilities were also adjusted to decrease the net current and deferred tax liability generated by the transaction of $12.0 million. |
| j) |
Common stock and additional paid-in capital were adjusted to reverse Franklin’s common stock outstanding and to recognize the $1.00 par value of 15.1 million shares of FB Financial Corporation shares to be issued to affect the transaction. The adjustment has no impact on the unaudited pro forma condensed combined statements of income. |
| k) |
Other stockholders’ equity accounts were adjusted to reverse Franklin’s historical stockholders’ equity balances and to reflect the net impact of all purchase accounting adjustments. The adjustment has no impact on the unaudited pro forma condensed combined statements of income. |
| l) |
Income taxes were adjusted to reflect the tax effects of purchase accounting adjustments using FB Financial’s combined federal and state statutory rate of 26.06%. |
| m) |
Weighted average basic and diluted shares outstanding were adjusted to record shares of FB Financial stock issued to affect the transaction. |