EX-99.3 5 exhibit993.htm UNAUDITED PRO FORMAS - HNC AND WFBC exhibit993.htm

 
Exhibit 99.3
 
HARLEYSVILLE NATIONAL CORPORATION
 
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
 
      The following unaudited pro forma combined consolidated financial information and explanatory notes present how the combined consolidated financial statements of Harleysville National Corporation (“Harleysville National”) and Willow Financial Bancorp, Inc. (“Willow Financial”) may have appeared had the businesses actually been combined as of the date indicated. The unaudited pro forma combined balance sheet at September 30, 2008 assumes the merger was completed on that date. The unaudited pro forma combined consolidated income statement for the nine months ended September 30, 2008 gives effect to the merger as if the merger had been completed on January 1, 2008. The unaudited pro forma combined financial information shows the impact of the merger on Harleysville National’s and Willow Financial’s combined consolidated financial position and results of operations under the purchase method of accounting with Harleysville National treated as the acquirer. Under this method of accounting, Harleysville National is required to record the assets and liabilities of Willow Financial at their estimated fair values as of the date the merger is completed. The allocation of the purchase price reflected in the unaudited pro forma combined consolidated financial information was based upon the estimated fair values measured at the effective merger date of December 5, 2008. Although Harleysville National has substantially completed its evaluation of the assets and liabilities of Willow Financial, management is in the process of finalizing the identifiable intangible assets and purchase accounting adjustments; thus, the allocation of the purchase price is subject to revision.
 
      The unaudited pro forma combined consolidated financial information has been derived from the historical consolidated financial statements and the accompanying notes of both Harleysville National and Willow Financial as filed with the Securities and Exchange Commission.
 
            The unaudited pro forma combined consolidated financial information is presented for illustrative purposes only and does not indicate the financial results of the combined company had the companies actually been combined at the beginning of the period presented. Furthermore, the information does not include the impact of possible revenue enhancements, expense efficiencies, asset dispositions and share repurchases, among other factors. In addition, as explained in more detail in the accompanying notes to unaudited pro forma combined consolidated financial information, the allocation of the purchase price reflected in the unaudited pro forma combined consolidated financial information is subject to adjustment and may vary from the actual purchase price allocation that was recorded upon completion of the merger based upon management’s finalization of the identifiable intangible assets and purchase accounting adjustments.
 

 
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HARLEYSVILLE NATIONAL CORPORATION
 
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
 
SEPTEMBER 30, 2008
               
Proforma
               
Combined
   
Harleysville
  
Willow
  
Pro-Forma
  
Harleysville
(Dollars in thousands)
     
National
     
Financial(m)(n)
     
Adjustments
     
National
Assets
                                
Cash and due from banks
  
$
50,870
    
$
26,193
    
$
(7,750
)(a)  
  
$
69,313
  
Federal funds sold and securities purchased under agreements to resell
    
100,600
      
—
              
100,600
  
Interest-bearing deposits in banks
    
3,366
      
6,692
      
—
      
10,058
  
     Total cash and cash equivalents
    
154,836
      
32,885
      
(7,750
)
    
179,971
  
Residential mortgage loans held for sale
    
1,222
      
14,444
              
15,666
  
Investment securities - trading
    
—
      
1,231
              
1,231
  
Investment securities available for sale, at fair value
    
912,099
      
195,032
      
(18,306
)(b)
    
1,088,825
  
Investment securities held to maturity
    
53,003
      
72,973
      
(11,860
) (b)
    
114,116
  
Federal Home Loan Bank stock, Federal Reserve Bank stock and other
  investments
    
18,247
      
17,869
              
36,116
  
Loans and leases
    
2,537,815
      
1,147,725
      
(29,366
)(b)
        
                     
(6,318
)(b)
    
3,649,856
  
Less: Allowance for loan losses
    
(31,668
)
    
(16,753
)
    
 6,318
(b)
    
(42,103
)
     Net loans
    
2,506,147
      
1,130,972
      
(29,366
) 
    
3,607,753
  
Premises and equipment, net
    
35,316
      
9,823
      
(1,192
) (b)
    
43,947
  
Accrued interest receivable
    
16,029
      
6,376
              
22,405
  
Goodwill
    
110,278
      
57,247
      
70,555
(c)
    
238,080
  
Core deposit intangibles, net
    
7,045
      
8,818
      
5,561
(d)
    
21,424
  
Other intangibles, net
    
5,832
      
4,965
      
 (1,901)
(d)
    
8,896
  
Bank-owned life insurance
    
74,316
      
12,534
              
86,850
  
Other assets
    
55,360
      
21,801
      
 20,375
(e)
    
97,536
  
     Total assets
  
$
3,949,730
    
$
1,586,970
    
$
26,116
    
$
5,562,816
  
Liabilities and Shareholders’ Equity
                                
Deposits:
                                
   Noninterest-bearing
  
$
343,308
    
$
121,604
            
$
464,912
  
     Interest-bearing:
                                
          Checking
    
430,607
      
117,550
              
548,157
  
          Money market
    
727,693
      
408,612
              
1,136,305
  
          Savings
    
182,342
      
76,040
              
258,382
  
          Time deposits
    
1,334,326
      
248,165
      
776
(b)
    
1,583,267
  
               Total deposits
    
3,018,276
      
971,971
      
776
      
3,991,023
  
Short-term securities sold under agreements to repurchase
    
94,043
      
—
              
94,043
  
Other short-term borrowings
    
1,163
      
30,000
              
31,163
  
Long-term borrowings
    
368,755
      
404,319
      
23,437
(b)
    
796,511
  
Accrued interest payable
    
35,062
      
1,630
              
36,692
  
Subordinated debt    
82,992 
      
25,774 
      
(15,029
  )(b)    
93,737 
  
Other liabilities
    
38,445
      
9,416
              
47,861
  
               Total liabilities
    
3,638,736
      
1,443,110
      
9,184
      
5,091,030
  
Shareholders’ Equity:
                                
     Common stock
    
31,507
      
178
      
(178
)(f)
        
                     
11,515
(g)
    
43,022
  
     Additional paid-in capital
    
230,705
      
191,013
      
(191,013
)(f)
        
                     
149,277
(g)
    
379,982
  
     Retained earnings
    
84,762
      
(7,926
)
    
7,926
(f)
    
84,762
  
     Accumulated other comprehensive loss
    
(34,469
)
    
(7,580
)
    
7,580
(f)
    
(34,469
)
     Treasury stock, at cost
    
(1,511
)
    
(30,205
)
    
30,205
(f)
    
(1,511
)
     Obligation of deferred compensation plan
    
—
      
1,228
      
(1,228
)(f)
    
—
  
     Unallocated common stock held by:
                                
          Employee Stock Ownership Plan
    
—
      
(1,963
)
    
1,963
(f)
    
—
  
          Recognition and Retention Plan Trust
    
—
      
(885
)
    
885
(f)
    
—
  
               Total shareholders’ equity
    
310,994
      
143,860
      
16,932
      
471,786
  
          Total liabilities and shareholders’ equity
  
$
3,949,730
    
$
1,586,970
    
$
26,116
    
$
5,562,816
  
 

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HARLEYSVILLE NATIONAL CORPORATION
 
UNAUDITED PRO FORMA COMBINED CONSOLIDATED INCOME STATEMENT
 
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008

               
Proforma Combined
(Dollars in thousands, except per share information)
     
Harleysville National
     
Willow
Financial(m)(n)
     
Pro-Forma Adjustments
     
Harleysville National
Interest Income
                                
Loans and leases, including fees
  
$
112,747
  
$
50,614
    
$
3,523
(h)
    
$
166,884
  
Investment securities:
                                
     Taxable
    
28,894
    
9,731
      
301
(h)
      
38,926
  
     Exempt from federal taxes
    
9,025
    
1,052
      
989
 (h)
      
11,066
  
Federal funds sold and securities purchased
                                
     under agreements to resell
    
963
            
(29
)(i)
      
934
  
Deposits in banks
    
82
    
67
                
149
  
          Total interest income
    
151,711
    
61,464
      
4,784
        
217,959
  
Interest Expense
                                
Savings and money market
    
19,536
    
8,590
                
28,126
  
Time deposits
    
40,414
    
8,107
      
(693
)(h)
      
47,828
  
Short-term borrowings
    
1,847
    
40
                
1,887
  
Long-term borrowings
    
15,221
    
11,981
      
(3,873
)(h)
      
23,329
  
          Total interest expense
    
77,018
    
28,718
      
(4,566
)
      
101,170
  
          Net interest income
    
74,693
    
32,746
      
9,350
        
116,789
  
Provision for loan losses
    
7,647
    
4,862
                
12,509
  
Net interest income after provision
                                
     for loan losses
    
67,046
    
27,884
      
9,350
        
104,280
  
Noninterest Income
                                
Service charges
    
9,849
    
2,797
                
12,646
  
Gain (loss) on sales of investment
                                
     securities, net
    
225
    
(3,289
)
              
(3,064
)
Wealth management
    
12,623
    
5,271
                
17,894
  
Bank-owned life insurance
    
2,047
    
365
                
2,412
  
Other income
    
8,129
    
4,003
                
12,132
  
          Total noninterest income
    
32,873
    
9,147
      
—
        
42,020
  
Noninterest Expense
                                
Salaries, wages and employee benefits
    
41,599
    
21,801
                
63,400
  
Occupancy
    
7,438
    
4,715
      
(367
)(h)
      
11,786
  
Furniture and equipment
    
3,251
    
2,111
                
5,362
  
Marketing
    
995
    
1,511
                
2,506
  
Amortization of intangibles
    
1,997
    
1,757
      
565
(k)
      
4,319
  
Merger Charges
    
974
    
1,398
                
2,372
  
Other expense
    
17,075
    
12,635
                
29,710
  
          Total noninterest expense
    
73,329
    
45,928
      
198
        
119,455
  
Income (loss) before income
                                
     tax expense (benefit)
    
26,590
    
(8,897
)
    
9,152
        
26,845
  
Income tax expense (benefit)
    
5,320
    
(2,200
)
    
3,203
        
6,323
  
Net income (loss)
  
$
21,270
  
$
(6,697
)
  
$
5,949
      
$
20,522
  
Net income (loss) per share information:
                                
     Basic
  
$
0.68
  
$
(0.44
)
            
$
0.48
  
     Diluted
  
$
0.67
  
$
(0.44
)
            
$
0.48
  
Cash dividends per share
  
$
0.60
  
$
0.35
              
$
0.60
  
Weighted average number of common shares:
                                
     Basic
    
31,363,779
    
15,200,923
      
(3,685,557
)(l)
      
42,879,145
  
     Diluted
    
31,531,942
    
15,261,321
      
(3,745,955
)(l)
      
43,047,308
  
 
See Notes to Unaudited Pro Forma Combined Consolidated Financial Information
 
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NOTE 1 – ALLOCATION OF PURCHASE PRICE
 
     The allocation of the purchase price, based upon the estimated fair values measured at the effective merger date of December 5, 2008, is as follows:

Purchase Price:
    
(Dollars in thousands, except share data)
      
Purchase Price assigned to shares exchanged for stock:
      
Willow Financial common shares outstanding as of December 5, 2008
  
15,774,474
  
Exchange Ratio
  
0.73
  
Harleysville National shares to be issued as consideration
  
11,515,366
  
Average per share stock price for Harleysville National shares to be issued in the merger
$
13.79
  
Purchase price for Willow Financial common shares
$
158,797
  
Additional value ascribed to Willow Financial stock options that vest upon the merger date
  
1,995
  
Total value of the equity issued in the merger
  
160,792
  
Purchase price assigned to fractional shares exchanged for cash
  
18
  
Estimated fees and expenses directly related to the merger
  
2,389
  
Total purchase price
  
163,199
  
       
Net Assets Acquired:
      
Equity of Willow Financial
  
138,517
  
Estimated adjustments to reflect assets acquired at fair value:
      
Investments
  
(30,166
)
Loans
  
(29,366
)
Premises and equipment
  
(1,192
)
Core deposit intangibles, incremental to Willow Financial’s historical core deposit intangible
  
5,561
  
Customer list intangibles, incremental to Willow Financial’s historical customer list intangibles
  
(1,901
)
Estimated adjustments to reflect liabilities assumed at fair value:
      
Time deposits
  
(776
)
Long-term borrowings
  
(23,437
)
Subordinated Debt
  
15,029
  
Deferred tax on purchase accounting adjustments
  
20,375
  
Net assets acquired
  
92,644
  
Goodwill, incremental to Willow Financial’s historical goodwill
$
70,555
  
 
     The pro forma adjustments included in the unaudited pro forma combined consolidated balance sheet and income statements are as follows:

(a)     
Direct merger costs associated with the transaction including estimated cash outlays for one-time direct merger costs such as investment banking, legal and accounting services, severance, contract cancellations third party data processing costs and litigation costs as well as approximately $18,000 in cash outlay for fractional shares of common stock exchanged for cash. Willow Financial’s costs are reflected as a reduction of equity, and therefore, the equity balance will not agree with Willow Financial’s reported September 30, 2008 equity.
 
(b)
Adjustments to reflect assets acquired and liabilities assumed in the merger at estimated fair values measured  at December 5, 2008, the effective date of the merger, in accordance with SFAS No. 141, “Business Combinations.” In addition, a purchase accounting adjustment of $6.3 million was recorded to reflect a reduction in the carrying value of loans and the allowance for loan losses related to acquired impaired loans in accordance with SOP 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer.”
 
(c)
To record estimated goodwill associated with the transaction, incremental to Willow Financial’s historical goodwill.
 
(d)
To record the estimated core deposit intangible and customer list intangible associated with the transaction, incremental to Willow Financial’s historical intangibles, with an expected life of ten years using the sum of the years digits amortization method.
 

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NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
 
NOTE 1 – ALLOCATION OF PURCHASE PRICE (Continued)
 

(e)
To record the net deferred tax impact arising from adjustments to record fair value of assets and liabilities. The tax effects of proforma adjustments are reflected at an assumed tax rate of 35%.
 
(f)
Adjustment to eliminate Willow Financial’s historical equity balances.
 
(g)     
To record the issuance of 11,515,366 shares of Harleysville National common stock in connection with the merger based on the fixed conversion ratio of 100% of outstanding Willow Financial common stock at December 5, 2008 into shares of Harleysville National common stock at the fixed exchange ratio of 0.73 in the merger agreement at an estimated average purchase price of $13.79 and the exchange of Willow Financial common stock options into vested Harleysville National common stock options with a fair value of $2.0 million. The purchase price is based upon the average Harleysville National stock price for two days before and two days after the agreement date of May 20, 2008 and the agreement date.
 
(h)
Fair value related amortization over the estimated life of the related asset/liability.
 
(i)
Foregone interest income assumed to have been earned on the cash used to pay the one-time direct merger costs associated with the transaction at an assumed rate of 0.50% per annum.
 
(j)
Footnote letter intentionally not used.
 
(k)
Adjustment for amortization of core deposit intangible and customer list intangible created as a result of the transaction based upon an expected life of ten years and using the sum of the years digits basis.
 
(l)
Adjustment for estimated weighted average shares to be issued in the merger with Willow Financial utilizing the fixed exchange ratio of 0.73 in the merger agreement.
 
(m)
Willow Financial traditionally reports its year ended as of June 30, 2008. These statements reflect Willow Financial’s nine months ended September 30, 2008 to be comparable to Harleysville National.
   
(n)
Certain items in the pro forma combined consolidated statements have been reclassified for Willow Financial in order to conform with Harleysville National’s historical classifications.
 

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