EX-99.2 4 a06-3387_1ex99d2.htm UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION

Exhibit 99.2

 

The information in this Current Report on Form 8-K, including the information in the Exhibits hereto and incorporated herein by reference, does not constitute an offer to sell securities or a solicitation of an offer to buy and does not constitute solicitation material in respect of the proposed acquisition of Foothill Independent Bancorp. In connection with the proposed Foothill transaction, First Community intends to file with the Securities and Exchange Commission (the “SEC”) a registration statement on Form S-4 that will include a proxy statement-prospectus to be mailed to stockholders of Foothill and First Community and other relevant documents in connection with the proposed transaction. Shareholders of Foothill and First Community are urged to read the proxy statement-prospectus and any other relevant documents filed with the SEC because they will contain important information about First Community, Foothill and the proposed Foothill transaction. The final proxy statement-prospectus will be mailed to shareholders of Foothill and First Community.

 

Introduction

 

First Community Bancorp, which we refer to as “we”, “us”, “First Community” or the “Company”, completed the acquisitions of First American Bank (“First American”) and Pacific Liberty Bank (“Pacific Liberty”) during 2005 and completed the acquisition of Cedars Bank (“Cedars”) in January 2006.  On December 15, 2005, we announced that we had entered into a definitive agreement to acquire Foothill Independent Bancorp (“Foothill”).  We expect to complete the acquisition of Foothill during the second quarter of 2006.  Summary information for these acquisitions follows.

 

First American was acquired on August 12, 2005.  We paid approximately $59.7 million in cash to First American shareholders and caused First American to pay approximately $2.6 million in cash for all outstanding options to purchase First American common stock.  The aggregate transaction value was approximately $62.3 million.

 

We acquired Pacific Liberty on October 7, 2005.  We issued approximately 784,000 shares of our common stock to the Pacific Liberty shareholders and caused Pacific Liberty to pay approximately $5.0 million in cash for all outstanding options to purchase Pacific Liberty common stock.  The aggregate transaction value was approximately $41.6 million.

 

We acquired Cedars on January 4, 2006.  We paid approximately $114.2 million in cash to Cedars shareholders and approximately $5.8 million in cash for all outstanding options to purchase Cedars common stock.  The aggregate transaction value was approximately $120.0 million.

 

On December 14, 2005, we entered into a definitive agreement and plan of merger to acquire all of the outstanding common stock and options of Foothill for approximately $238.0 million in consideration consisting of the Company’s common stock for the

 

1


 

outstanding common stock of Foothill and cash for Foothill common stock options.  The definitive agreement provides a mechanism for determining an initial exchange ratio of approximately 0.4982 shares of First Community common stock for each Foothill share, but that exchange ratio is subject to adjustment as further described in the definitive agreement.  The completion of our acquisition of Foothill is subject to customary conditions, including the approval of both Foothill’s and First Community’s shareholders and bank regulatory authorities.

 

An unaudited summary of our preliminary purchase price allocations for the First American, Pacific Liberty, Cedars and Foothill acquisitions follows.  These purchase price allocations are based on estimates and are subject to change as more information becomes available and after final analyses of the fair values of both tangible and intangible assets acquired and liabilities assumed are completed.  Accordingly, the final fair value adjustments may be materially different from those presented in this report.

 

 

 

First
American

 

Pacific
Liberty

 

Cedars

 

Foothill

 

Assets acquired or to be acquired:

 

 

 

 

 

 

 

 

 

Cash and investments

 

$

122,785

 

$

32,427

 

$

81,424

 

$

247,123

 

Loans, net

 

106,227

 

119,212

 

376,167

 

504,526

 

Premises and equipment

 

4,458

 

44

 

1,149

 

4,553

 

Intangible assets

 

44,177

 

24,112

 

79,077

 

184,557

 

Other assets

 

8,293

 

4,487

 

15,304

 

27,499

 

Total assets acquired

 

285,940

 

180,282

 

553,121

 

968,258

 

 

 

 

 

 

 

 

 

 

 

Liabilities assumed or to be assumed:

 

 

 

 

 

 

 

 

 

Deposits

 

217,434

 

141,853

 

430,430

 

712,107

 

Other liabilities

 

8,820

 

1,787

 

8,538

 

33,151

 

Total liabilities assumed

 

226,524

 

143,640

 

438,968

 

745,258

 

 

 

 

 

 

 

 

 

 

 

Total consideration paid

 

$

59,686

 

$

36,642

 

$

114,153

 

$

223,000

 

 

SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA

 

The following selected unaudited pro forma combined condensed financial data has been derived from and should be read in conjunction with the unaudited pro forma combined condensed financial information appearing on page 5 of this report, along with the sections relating to pro forma adjustments that follow.  The following data has been prepared and is presented as if the acquisitions of First American, Pacific Liberty, Cedars, and Foothill all had been consummated on January 1, 2004, for purposes of the statement

 

2


 

of earnings data and, for purposes of the balance sheet data as if the Pacific Liberty, Cedars and Foothill acquisitions were consummated on September 30, 2005.  The First American acquisition was consummated on August 12, 2005, and is reflected in First Community’s historical balance sheet as of September 30, 2005.  The purchase method of accounting is used to record the acquisitions.

 

The unaudited pro forma combined condensed financial data includes adjustments to record the assets acquired and liabilities assumed at their fair values.  Such adjustments are subject to change as additional information becomes available and as the acquisitions are consummated.  The unaudited pro forma combined condensed financial data is presented for illustrative purposes only, and does not indicate either the operating results that would have occurred had all the acquisitions been consummated on January 1, 2004, or on September 30, 2005, as the case may be, or future results of operations or financial condition. The unaudited pro forma financial statements are based upon assumptions and adjustments that we believe are reasonable. The unaudited pro forma financial statements and the accompanying notes should be read in conjunction with our historical financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2004, and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2005, June 30, 2005, and September 30, 2005, and the historical financial statements of Foothill Independent Bancorp, including the notes thereto, for the year ended December 31, 2004, and for the quarters ended March 31, 2005, June 30, 2005 and September 30, 2005, and incorporated by reference hereto as Exhibits 99.3, 99.4, 99.5 and 99.6 to this Current Report on Form 8-K.

 

Unaudited Pro Forma Combined Condensed Statement of Earnings Data

(In thousands except per share data)

 

 

 

Nine months
ended
September 30,
2005

 

Year ended
December 31, 2004

 

 

 

 

 

 

 

Total interest income

 

$

195,889

 

$

210,436

 

 

 

 

 

 

 

Total interest expense

 

27,464

 

24,010

 

 

 

 

 

 

 

Net interest income before provision for credit losses

 

168,425

 

186,426

 

 

 

 

 

 

 

Provision for credit losses

 

2,153

 

1,378

 

 

 

 

 

 

 

Net interest income after provision for credit losses

 

166,272

 

185,048

 

 

 

 

 

 

 

Total noninterest income

 

18,841

 

27,718

 

 

 

 

 

 

 

Total noninterest expense

 

101,619

 

128,906

 

 

 

 

 

 

 

Earnings before income taxes

 

83,494

 

83,860

 

Income taxes

 

33,132

 

32,333

 

Net earnings

 

$

50,362

 

$

51,527

 

 

 

 

 

 

 

Net earnings per share:

 

 

 

 

 

Basic

 

$

2.28

 

$

2.49

 

Diluted

 

$

2.21

 

$

2.40

 

 

 

 

 

 

 

Weighted average shares:

 

 

 

 

 

Basic

 

22,134

 

20,671

 

Diluted

 

22,771

 

21,445

 

 

 

 

 

 

 

 

3


 

Unaudited Pro Forma Combined Condensed Balance Sheet Data

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,
2005

 

 

 

 

 

 

 

 

 

Investments and interest bearing deposits

 

$

452,684

 

 

 

Loans, net

 

3,272,695

 

 

 

Goodwill

 

537,567

 

 

 

Core deposit intangible

 

50,852

 

 

 

Deposits

 

3,696,908

 

 

 

Borrowings

 

111,000

 

 

 

Subordinated debentures

 

129,902

 

 

 

Shareholders’ equity

 

711,729

 

 

 

 

UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION

 

The following unaudited combined condensed financial information presents the impact of the acquisitions of First American, Pacific Liberty and Cedars and the proposed acquisition of Foothill on our historical financial condition and results of operations under the purchase method of accounting.  Under the purchase method of accounting, First Community records the assets and liabilities of the acquired entities at their fair values on the closing date of the acquisition.  The unaudited pro forma combined condensed balance sheet as of September 30, 2005 has been prepared under the assumption that the Pacific Liberty, Cedars, and Foothill acquisitions were completed on that date.  The First American acquisition was consummated on August 12, 2005 and, accordingly, is reflected in First Community’s historical balance sheet as of September 30, 2005.  The unaudited pro forma combined statements of earnings for the nine months ended September 30, 2005, and the year ended December 31, 2004, have been prepared under the assumption that all of the acquisitions were completed on January 1, 2004.

 

The unaudited pro forma combined financial information is presented for illustrative purposes only, and does not indicate either the operating results that would have occurred had all the acquisitions been consummated on January 1, 2004 or on September 30, 2005,

 

4


 

as the case may be, or future results of operations or financial condition.  The unaudited pro forma combined condensed financial information is based upon assumptions and adjustments that we believe are reasonable. The unaudited pro forma combined condensed financial information and the accompanying notes should be read in conjunction with our historical financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2004, and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2005, June 30, 2005, and September 30, 2005, and the historical financial statements of Foothill Independent Bancorp, including the notes thereto, incorporated by reference hereto as Exhibits 99.2 and 99.3 to this Form 8-K.

 

As explained further in the accompanying notes to unaudited pro forma combined condensed financial information, the allocations of the purchase price with respect to the acquisitions are based on preliminary estimates and are subject to change as more information becomes available and after final analyses of the fair values of both tangible and intangible assets acquired and liabilities assumed are completed.  Accordingly, the final fair value adjustments may be materially different from those presented in this report.

 

Unaudited Pro Forma Combined
Condensed Balance Sheet
September 30, 2005
(In thousands)

 

 

 

 

 

 

 

 

 

 

 

(a)

 

(b)

 

(c)

 

(d)

 

 

 

 

 

First
Community

 

Pacific
Liberty

 

Cedars

 

Foothill

 

Investment
Sales and
Borrowings
Repayments

 

Fair
Value
Adjustments

 

Cash
Paid for
Stock
options
and
Common
Stock

 

Issuance of Common Stock
net of
acquired
equity

 

Pro Forma
Combined

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

185,874

 

$

18,141

 

$

28,820

 

$

63,898

 

$

77,712

 

$

—

 

$

(140,003

)

$

—

 

$

234,442

 

Investments and interest bearing deposits

 

252,729

 

20,991

 

84,967

 

198,225

 

(104,228

)

—

 

—

 

—

 

452,684

 

Loans, net

 

2,274,132

 

118,065

 

376,167

 

504,814

 

—

 

(483

)

—

 

—

 

3,272,695

 

Goodwill

 

271,600

 

—

 

—

 

—

 

—

 

—

 

140,003

 

125,964

 

537,567

 

Core deposit intangible

 

26,582

 

—

 

—

 

—

 

—

 

24,270

 

—

 

—

 

50,852

 

Other assets

 

118,617

 

5,874

 

17,173

 

27,133

 

—

 

12,797

 

—

 

—

 

181,594

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

3,129,534

 

$

163,071

 

$

507,127

 

$

794,070

 

$

(26,516

)

$

36,584

 

$

—

 

$

125,964

 

$

4,729,834

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

2,410,296

 

$

143,749

 

$

429,289

 

$

711,924

 

$

—

 

$

1,650

 

$

—

 

$

—

 

$

3,696,908

 

Borrowings

 

111,000

 

—

 

26,516

 

—

 

(26,516

)

—

 

—

 

—

 

111,000

 

Subordinated debentures

 

121,654

 

—

 

—

 

8,248

 

—

 

—

 

—

 

—

 

129,902

 

Other liabilities

 

34,489

 

1,601

 

3,715

 

5,587

 

—

 

34,903

 

—

 

—

 

80,295

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

2,677,439

 

145,350

 

459,520

 

725,759

 

(26,516

)

36,553

 

—

 

—

 

4,018,105

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

452,095

 

17,721

 

47,607

 

68,311

 

—

 

31

 

—

 

125,964

 

711,729

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

3,129,534

 

$

163,071

 

$

507,127

 

$

794,070

 

$

(26,516

)

$

36,584

 

$

—

 

$

125,964

 

$

4,729,834

 

 

See "Balance Sheet Pro Forma Adjustments" beginning on page 10.

 

5


 

Unaudited Pro Forma Combined
Condensed Statements of Earnings

Nine Months Ended
September 30, 2005

(In thousands, except per
share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro

 

Pro

 

 

 

First

 

First

 

Pacific

 

 

 

 

 

Forma

 

Forma

 

 

 

Community

 

American(1)

 

Liberty

 

Cedars

 

Foothill

 

Adjustments

 

Combined

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

123,082

 

$

5,131

 

$

6,982

 

$

19,406

 

$

26,082

 

$

27

 (a)

$

180,710

 

Investment securities

 

6,551

 

2,156

 

617

 

2,254

 

5,888

 

(2,287

)(b)

15,179

 

Total interest income

 

129,633

 

7,287

 

7,599

 

21,660

 

31,970

 

(2,260

)

195,889

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

7,420

 

962

 

1,532

 

5,075

 

3,368

 

(424

)(c)

17,933

 

Borrowings

 

2,501

 

261

 

52

 

822

 

 

 

(810

)(d)

2,826

 

Subordinated debentures

 

6,135

 

—

 

—

 

—

 

570

 

—

 

6,705

 

Total interest expense

 

16,056

 

1,223

 

1,584

 

5,897

 

3,938

 

(1,234

)

27,464

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income before provision for credit losses

 

113,577

 

6,064

 

6,015

 

15,763

 

28,032

 

(1,026

)

168,425

 

Provision for credit losses

 

1,420

 

(20

)

258

 

495

 

—

 

—

 

2,153

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for credit losses

 

112,157

 

6,084

 

5,757

 

15,268

 

28,032

 

(1,026

)

166,272

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges, commissions and fees

 

7,984

 

549

 

431

 

1,352

 

3,139

 

—

 

13,455

 

Other

 

2,363

 

400

 

1,830

 

70

 

711

 

12

 (e)

5,386

 

Total noninterest income

 

10,347

 

949

 

2,261

 

1,422

 

3,850

 

12

 

18,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

35,396

 

2,575

 

1,861

 

4,624

 

8,922

 

—

 

53,378

 

Occupancy and furniture and equipment

 

9,857

 

638

 

349

 

1,236

 

3,337

 

27

 (f)

15,444

 

Data processing and communications

 

5,009

 

391

 

362

 

641

 

1,076

 

—

 

7,479

 

Professional services

 

3,563

 

315

 

156

 

657

 

1,656

 

—

 

6,347

 

Intangible asset amortization

 

2,541

 

—

 

—

 

—

 

—

 

2,310

 (g)

4,851

 

Other

 

6,690

 

996

 

855

 

1,380

 

4,199

 

—

 

14,120

 

Total noninterest expense

 

63,056

 

4,915

 

3,583

 

8,538

 

19,190

 

2,337

 

101,619

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes

 

59,448

 

2,118

 

4,435

 

8,152

 

12,692

 

(3,351

)

83,494

 

Income taxes

 

24,374

 

762

 

1,710

 

3,193

 

4,501

 

(1,408

)(h)

33,132

 

Net earnings

 

$

35,074

 

$

1,356

 

$

2,725

 

$

4,959

 

$

8,191

 

$

(1,943

)

$

50,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

2.18

 

 

 

 

 

 

 

 

 

 

 

$

2.28

 

Diluted

 

$

2.13

 

 

 

 

 

 

 

 

 

 

 

$

2.21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

16,087

 

 

 

 

 

 

 

 

 

 

 

22,134

 

Diluted

 

16,450

 

 

 

 

 

 

 

 

 

 

 

22,771

 

 

(1) For the period from January 1, 2005 to August 12, 2005.

 

See "Statements of Earnings Pro Forma Adjustments" on page 12.

 

6


 

Unaudited Pro Forma Combined
Condensed Statement of Earnings

 

Year Ended December 31, 2004

(In thousands, except per
share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro

 

Pro

 

 

 

First

 

First

 

Pacific

 

 

 

 

 

Forma

 

Forma

 

 

 

Community

 

American

 

Liberty

 

Cedars

 

Foothill

 

Adjustments

 

Combined

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

130,175

 

$

6,949

 

$

5,840

 

$

18,937

 

$

30,992

 

$

36

 (a)

$

192,929

 

Investment securities

 

9,972

 

3,150

 

922

 

2,692

 

6,038

 

(5,267

)(b)

17,507

 

Total interest income

 

140,147

 

10,099

 

6,762

 

21,629

 

37,030

 

(5,231

)

210,436

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

7,124

 

953

 

1,129

 

3,743

 

4,073

 

(1,131

)(c)

15,891

 

Borrowings

 

1,144

 

431

 

—

 

1,165

 

—

 

(1,164

)(d)

1,576

 

Subordinated debentures

 

6,149

 

—

 

—

 

—

 

394

 

—

 

6,543

 

Total interest expense

 

14,417

 

1,384

 

1,129

 

4,908

 

4,467

 

(2,295

)

24,010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income before provision for credit losses

 

125,730

 

8,715

 

5,633

 

16,721

 

32,563

 

(2,936

)

186,426

 

Provision for credit losses

 

465

 

(96

)

444

 

565

 

—

 

—

 

1,378

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for credit losses

 

125,265

 

8,811

 

5,189

 

16,156

 

32,563

 

(2,936

)

185,048

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges, commissions and fees

 

11,988

 

1,076

 

926

 

1,575

 

4,999

 

—

 

20,564

 

Other

 

4,926

 

887

 

1,094

 

(127

)

586

 

(212

)(e)

7,154

 

Total noninterest income

 

16,914

 

1,963

 

2,020

 

1,448

 

5,585

 

(212

)

27,718

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

45,220

 

3,869

 

1,918

 

5,329

 

11,697

 

—

 

68,033

 

Occupancy and furniture and equipment

 

13,381

 

897

 

460

 

1,411

 

4,296

 

36

 (f)

20,481

 

Data processing and communications

 

6,485

 

519

 

402

 

664

 

1,408

 

—

 

9,478

 

Professional services

 

4,126

 

451

 

122

 

488

 

1,290

 

—

 

6,477

 

Intangible asset amortization

 

3,253

 

—

 

—

 

—

 

—

 

3,080

 (g)

6,333

 

Other

 

9,055

 

1,530

 

979

 

1,621

 

4,919

 

—

 

18,104

 

Total noninterest expense

 

81,520

 

7,266

 

3,881

 

9,513

 

23,610

 

3,116

 

128,906

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes

 

60,659

 

3,508

 

3,328

 

8,091

 

14,538

 

(6,264

)

83,860

 

Income taxes

 

24,296

 

1,266

 

1,249

 

2,970

 

5,183

 

(2,631

)(h)

32,333

 

Net earnings

 

$

36,363

 

$

2,242

 

$

2,079

 

$

5,121

 

$

9,355

 

$

(3,633

)

$

51,527

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

2.34

 

 

 

 

 

 

 

 

 

 

 

$

2.49

 

Diluted

 

$

2.27

 

 

 

 

 

 

 

 

 

 

 

$

2.40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

15,521

 

 

 

 

 

 

 

 

 

 

 

20,671

 

Diluted

 

15,987

 

 

 

 

 

 

 

 

 

 

 

21,445

 

 

See "Statements of Earnings Pro Forma Adjustments" on page 12.

 

7


 

PRO FORMA ADJUSTMENTS

 

The unaudited pro forma combined condensed balance sheet as of September 30, 2005 has been prepared assuming the Pacific Liberty, Cedars and Foothill acquisitions were consummated on September 30, 2005.  The First American acquisition was consummated on August 12, 2005 and, accordingly, is reflected in First Community’s historical balance sheet as of September 30, 2005.  The unaudited pro form combined condensed statements of earnings for the nine months ended September 30, 2005, and the year ended December 31, 2004, have been prepared under the assumption that all of the acquisitions were consummated on January 1, 2004.

 

The unaudited pro forma combined condensed financial information reflects the issuance of First Community common stock.  Although the First American acquisition was a cash transaction, the Company sold approximately 1,045,000 common shares in 2005 in order to augment regulatory capital at both First Community and its banking subsidiary, Pacific Western National Bank.  These common shares have been added to First Community’s historical weighted average number of common shares used to calculate basic and diluted earnings per share for purposes of determining the pro forma earnings per share amounts for both the nine months ended September 30, 2005, and the year ended December 31, 2004.  The Company issued 784,000 common shares in the Pacific Liberty acquisition.  These share have been added to First Community’s historical weighted average number of common shares used to calculate basic and diluted earnings per share for purposes of determining the pro forma earnings per share amounts for the nine months ended September 30, 2005.  We applied the ultimate exchange ratio of 0.812 to Pacific Liberty’s historical weighted average shares outstanding for 2004 to determine the pro forma basic and diluted earnings per share amounts for the year ended December 31, 2004.  While the exchange ratio for determining the shares of common stock to be issued to Foothill common shareholders is subject to adjustment, as described in the definitive agreement and plan of merger, for purposes of the pro forma earnings per share calculations we have used the exchange ratio of 0.4982 First Community shares for each Foothill common share outstanding, which was the initial exchange ratio at the time of the signing of the definitive agreement.  As a result, the Company increased its historical basic and diluted share averages using the exchange ratio of 0.4982 applied to Foothill’s historical basic and diluted share averages for both the nine months ended September 30, 2005, and the year ended December 31, 2004.  The Cedars transaction was a cash transaction, and as such our regulatory capital positions require an increase in order to support the assets acquired.  For purposes of the pro forma financial data and information presented in this report, we have made no assumption regarding the issuance of any type of security which would augment regulatory capital.  A reconciliation of First Community’s historical diluted share averages to the pro forma averages follows.

 

8


 

 

 

First Community Pro Forma Average Diluted
Shares

 

 

 

(In thousands)

 

 

 

Nine months
ended
September 30,
2005

 

Year ended
December 31,
2004

 

 

 

 

 

 

 

Historical amounts

 

16,450

 

15,987

 

First American shares

 

1,045

 

1,045

 

Pacific Liberty shares

 

784

(1)

847

(3)

Foothill shares

 

4,492

(2)

3,566

(4)

 

 

 

 

 

 

Pro forma shares

 

22,771

 

21,445

 

 

(1) Represents actual number of shares issued to Pacific Liberty common shareholders.

 

(2) Represents Foothill’s historical average for the nine months ended September 30, 2005, of 9,017 multiplied by an assumed exchange ratio of 0.4982.  The actual exchange ratio at consummation is subject to adjustment and may be higher or lower.

 

(3) Represents Pacific Liberty’s historical average for the year ended December 31, 2004, of 1,044 multiplied by the exchange ratio of 0.812.

 

(4) Represents Foothill’s historical average for the year ended December 31, 2004, of 7,158 multiplied by an assumed exchange ratio of 0.4982.  The actual exchange ratio at consummation is subject to adjustment and may be higher or lower.

 

9


 

BALANCE SHEET PRO FORMA ADJUSTMENTS

 

(a)          Investment sales and borrowings repayments:  Covenants in definitive acquisition agreements with each of the First American, Pacific Liberty and Cedars required the acquired entity to liquidate substantially of its investment securities immediately prior to the close of the acquisition.  Since these investment securities were sold at or near the acquisition consummation date in accordance with the terms of the agreements, the historical balance sheets have been adjusted to reflect the elimination of such investment securities at September 30, 2005.  A portion of the cash generated from the sale of Cedars’ investment securities was used to repay Cedars outstanding borrowings.  Accordingly, the historical balance sheet has been adjusted to reflect the elimination of such borrowings.

 

(b)          Fair value adjustments:  All of the acquisitions are accounted for using the purchase method of accounting.  Under this method, the fair values of the assets acquired and the liabilities assumed are determined at the acquisition consummation date.  The historical amounts of the assets and liabilities are then adjusted to such fair values and these fair values are added to First Community’s balance sheet.  The pro forma fair value adjustments are preliminary, based on estimates, and are subject to change as more information becomes available and after final analyses of the fair values of both tangible and intangible assets acquired and liabilities assumed are completed.  Accordingly, the final fair value adjustments may be materially different from those presented in this report.  A summary of these estimated fair value adjustments follows.

 

Adjustment of loans to fair value:  Such estimated fair value adjustments are $195,000, -0- and $288,000 for Pacific Liberty, Cedars, and Foothill, respectively.  These adjustments result in an unearned discount which will be amortized to interest income on loans over the remaining life of the loan portfolios acquired.

 

Establishment of core deposit intangible:  Such estimated fair value adjustments are $1,781,000, $5,527,000, and $16,962,000 for Pacific Liberty, Cedars, and Foothill, respectively.  These amounts represent the estimated future economic benefits from certain of the customer balances acquired or to be acquired.  This intangible asset will be amortized to expense over the estimated life of the deposits acquired.  This intangible asset will also be reviewed for impairment periodically.  The amount of the core deposit intangible related to the First American acquisition is $6,529,000.  This amount is not reflected as a pro forma adjustment because First American was acquired prior to September 30, 2005, and such core deposit intangible is already included in First Community’s historical balance sheet as of September 30, 2005.

 

Other assets:  This estimated fair value adjustment reflects a $12,000 reduction in office premises, a $75,000 reduction in prepaid assets, and a net $12,884,000 increase in tax assets.  The income tax adjustments result from basis differences of the

 

10


 

assets acquired and liabilities assumed and either deferred income tax assets or income tax receivables resulting from tax deductible items such as severance and deferred compensation payouts and compensation deductions related to cash payments to option holders of the acquired entities.  Further income tax adjustments may be made as more information becomes available and analyses are finalized in order to complete final tax returns.

 

Deposits:  This estimated fair value adjustment reflects a discount on certain time deposits whose interest rates are above market.  The individual amounts are $326,000, $1,141,000, and $183,000 for Pacific Liberty, Cedars, and Foothill, respectively.  The amount related to the First American acquisition is $46,000.  This amount is not reflected as a pro forma adjustment because First American was acquired prior to September 30, 2005, and such amount is already included in First Community’s historical balance sheet as of September 30, 2005.  This estimated discount on certain time deposits will be amortized to interest expense over the remaining contractual life of such deposits.

 

Other liabilities:  This estimated pro forma adjustment represents accruals made or to be made at the time the acquisitions are consummated to reflect the direct costs of the acquisitions and include investment banker and professional fees, severance, change in control and other compensation payments, contract termination costs, system conversion costs, and miscellaneous items.  The estimated individual amounts are $3,838,000, $4,823,000, and $26,242,000 for Pacific Liberty, Cedars, and Foothill, respectively.

 

(c)          Cash paid for stock options and common stock:  The terms of the acquisition agreements with each of the acquired entities required or require a cash payment to their respective common stock option holders for the difference between the per share merger consideration and the option exercise price.  The estimated individual amounts are $5,003,000, $5,847,000, and $15,000,000 for Pacific Liberty, Cedars and Foothill, respectively.  The Cedars acquisition was a cash transaction and First Community paid to the common shareholders of Cedars approximately $114,153,000 in cash. The amount payable to Foothill option holders is estimated based on the exchange ratio used for purposes of the pro forma calculation and, as described above, is subject to adjustment.

 

(d)          Issuance of common stock:   The Pacific Liberty shareholders received approximately 784,000 shares of First Community common stock having a fair value of approximately $36,634,000.  Based on the terms of the acquisition agreement, the Foothill shareholders are estimated to receive First Community common stock having a value of approximately $223,000,000.    These amounts result in $259,634,000 being added to shareholders’ equity on the pro forma balance sheet.  The amount added to shareholders’ equity is then reduced by the combined shareholders’ equity amounts of Pacific Liberty, Cedars and Foothill offset by the net effect of the fair value adjustments.  The Cedars transaction was a cash transaction, and as such our regulatory capital positions require an increase in order to support the assets acquired.  For purposes

 

11


 

of the pro forma financial data and information presented in this report, we have made no assumption regarding the issuance of any type of security which would augment regulatory capital.

 

STATEMENTS OF EARNINGS PRO FORMA ADJUSTMENTS

 

(a)

Represents accretion of discount on loans over eight years.

(b)

Elimination of interest on investment securities due to liquidation of the portfolios offset by interest on federal funds sold arising from the investment of net cash generated from the sales. The interest on federal funds sold was assumed at 2.94% for the nine months ended September 30, 2005, and at 1.21% for the year ended December 31, 2004.

(c)

Amortization of the time deposit fair value adjustment. Such amortization is over two years using an accelerated method.

(d)

Elimination of interest expense on Cedars’ Federal Home Loan Bank borrowings due to repayment from cash generated by sale of investment securities.

(e)

Elimination of net gain or loss on sales of investment securities due to liquidation of the investment portfolios.

(f)

Additional depreciation adjustment resulting from fair value adjustments to office premises. The largest portion of this adjustment relates to the First American office building fair value adjustment of approximately $916,000 which is being amortized over 25 years.

(g)

Represents amortization of the core deposit intangible asset over its estimated life of 10 years.

(h)

Represents income taxes on the pro forma adjustments at a combined Federal and California effective tax rate of approximately 42%.

 

12