as well as estimated dividends per share for United Bankshares for the years ending December 31, 2021 through December 31, 2025, as provided by the senior management of United Bankshares;Bankshares, and (iii)(c) certain assumptions relating to transaction costs,expenses, purchase accounting adjustments expectedand cost savings a core deposit intangible asset, a provision expense and United Bankshares’ issuance of a certain amount of perpetual preferred stock, as provided by the senior management of United Bankshares. The analysis indicated that the mergertransaction could be accretive to United Bankshares’ estimated earnings per share (excluding one-time transaction costs and expenses) in 2017the years ending December 31, 2022 through December 31, 2024 and accretive to United Bankshares’ estimated tangible book value per share at close.
In connection with this analysis, Piper Sandler O’Neill considered and discussed with the CardinalCommunity Bankers Trust’s board of directors how the analysis would be affected by changes in the underlying assumptions, including the impact of final purchase accounting adjustments determined at the closing of the transaction, and noted that the actual results achieved by the combined company may vary from projected results and the variations may be material.
Sandler O’Neill’sPiper Sandler’s Relationship.
Piper Sandler O’Neill has actedis acting as Community Bankers Trust’s financial advisor to Cardinal in connection with the mergertransaction and will receive a fee for such services in an amount equal to 0.75%1.25% of the aggregate purchase price, or approximately $6,840,000,transaction value, which fee shall be due and payable in immediately available funds onis contingent upon the day of closing of the merger. Based on the estimated aggregate transaction value at the time of announcement of the transaction, Piper Sandler’s fee would be approximately $3.8 million. Piper Sandler O’Neill also received a $500,000$300,000 fee from Community Bankers Trust upon rendering its fairness opinion, to the Cardinal Board of Directors, which opinion fee will be credited in full towards the transaction fee becoming due andthat will become payable to Piper Sandler O’Neill on the day ofupon closing of the merger. Cardinaltransaction. Community Bankers Trust has also agreed to indemnify Piper Sandler against certain claims and liabilities arising out of Piper Sandler’s engagement and to reimburse Piper Sandler O’Neill for certain of its reasonable out-of-pocket expenses incurred in connection with its engagement, including the reasonable fees and disbursements of its legal counsel. CardinalPiper Sandler’s engagement.
Piper Sandler has also agreednot provided any other investment banking services to indemnify Sandler O’Neill
and its affiliates and their respective partners, directors, officers, employees and agents against certain expenses and liabilities, including liabilities under applicable federal or state law.
InCommunity Bankers Trust in the two years preceding the date of its opinion. Piper Sandler O’Neill’s opinion, Sandler O’Neill has provided certain investment banking services to United Bankshares and has received customary compensation for such services. Most recently,in the two years preceding the date of its opinion. In summary, Piper Sandler O’Neill acted as financial advisor to United Bankshares in connection with its acquisition of Bank of Georgetown,Carolina Financial Corporation, which transaction closed on June 3, 2016in May 2020 and for which Piper Sandler O’Neill received a feeapproximately $2.1 million in an amount equal to $350,000. Sandler O’Neill has advised the Cardinal board of directors that it may provide, and receive customary compensation for, investment banking services to United Bankshares in the future, including during the pendency of the merger.compensation. In addition, in the ordinary course of Sandler O’Neill’sPiper Sandler’s business as a broker-dealer, Piper Sandler O’Neill may purchase securities from and sell securities to CardinalCommunity Bankers Trust and United Bankshares and its affiliates.Bankshares. Piper Sandler O’Neill may also actively trade the equity and debt securities of CardinalCommunity Bankers Trust and United Bankshares or its affiliates for its own account and for the accounts of itsPiper Sandler’s customers.
Opinion of United Bankshares’ Financial Advisor
United Bankshares engaged Keefe, Bruyette & Woods, Inc., or KBW, to render financial advisory and investment banking services to United Bankshares, including an opinion to the United Bankshares board of directors as to the fairness, from a financial point of view, to United Bankshares of the exchange ratio in the proposed merger. United Bankshares selected KBW because KBW is a nationally recognized investment banking firm with substantial experience in transactions similar to the merger. As part of its investment banking business, KBW is continually engaged in the valuation of financial services businesses and their securities in connection with mergers and acquisitions.
As part of its engagement, representatives of KBW attended the meeting of the United Bankshares board held on August 17, 2016 at which the United Bankshares board of directors evaluated the proposed merger. At this meeting, KBW reviewed the financial aspects of the proposed merger and rendered an opinion to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW as set forth in such opinion, the exchange ratio in the proposed merger was fair, from a financial point of view, to United Bankshares. The United Bankshares board of directors approved the merger agreement at this meeting.
The description of the opinion set forth herein is qualified in its entirety by reference to the full text of the opinion, which is attached as Appendix C to this document and is incorporated herein by reference, and describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW in preparing the opinion.
KBW’s opinion speaks only as of the date of the opinion. The opinion was for the information of, and was directed to, the United Bankshares board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion addressed only the fairness, from a financial point of view, of the exchange ratio in the merger to United Bankshares. It did not address the underlying business decision of United Bankshares to engage in the merger or enter into the merger agreement or constitute a recommendation to the United Bankshares board of directors in connection with the merger, and it does not constitute a recommendation to any holder of United Bankshares common stock or any shareholder of any other entity as to how to vote in connection with the merger or any other matter, nor does it constitute a recommendation as to whether or not any such shareholder should enter into a voting, shareholders’, affiliates’ or other agreement with respect to the Merger or exercise any dissenters’ or appraisal rights that may be available to such shareholder.
KBW’s opinion was reviewed and approved by KBW’s Fairness Opinion Committee in conformity with its policies and procedures established under the requirements of Rule 5150 of the Financial Industry Regulatory Authority.
In connection with the opinion, KBW reviewed, analyzed and relied upon material bearing upon the financial and operating condition of United Bankshares and Cardinal and bearing upon the merger, including, among other things:
a draft of the merger agreement, dated August 14, 2016 (the most recent draft then made available to KBW);
the audited financial statements and the Annual Reports on Form 10-K for the three fiscal years ended December 31, 2015 of United Bankshares;
the unaudited quarterly financial statements and Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2016 and June 30, 2016 of United Bankshares;
the audited financial statements and the Annual Reports on Form 10-K for the three fiscal years ended December 31, 2015 of Cardinal;
the unaudited quarterly financial statements and Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2016 and June 30, 2016 of Cardinal;
certain regulatory filings of United Bankshares and Cardinal and their respective subsidiaries, including the quarterly reports on Form FR Y-9C and the quarterly call reports required to be filed with respect to each quarter during the three year period ended June 30, 2016;
certain other interim reports and other communications of United Bankshares and Cardinal to their respective shareholders; and
other financial information concerning the businesses and operations of United Bankshares and Cardinal furnished to KBW by United Bankshares and Cardinal or which KBW was otherwise directed to use for purposes of its analysis.
KBW’s consideration of financial information and other factors that it deemed appropriate under the circumstances or relevant to its analyses included, among others, the following:
the historical and current financial position and results of operations of United Bankshares and Cardinal;
the assets and liabilities of United Bankshares and Cardinal;
the nature and terms of certain other merger transactions and business combinations in the banking industry;
a comparison of certain financial and stock market information of United Bankshares and Cardinal with similar information for certain other companies the securities of which were publicly traded;
publicly-available consensus “street estimates” of Cardinal for 2016 and 2017, as well as assumed Cardinal long term growth rates provided to KBW by United Bankshares management, all of which information was discussed with KBW by United Bankshares management and Cardinal management and used and relied upon by KBW at the direction of United Bankshares management with the consent of the United Bankshares board of directors;
publicly available consensus “street estimates” of United Bankshares for 2016 and 2017, as well as assumed United Bankshares long term growth rates provided to KBW by United Bankshares management, all of which information was discussed with KBW by such management and used and relied upon by KBW at the direction of such management and with the consent of the United Bankshares board of directors; and
estimates regarding certain pro forma financial effects of the merger on United Bankshares (including, without limitation, the potential cost savings and related expenses expected to result or be derived from the merger) that were prepared by United Bankshares management, provided to and discussed with KBW by such management, and used and relied upon at the direction of such management with the consent of the United Bankshares board of directors.
KBW also performed such other studies and analyses as it considered appropriate and took into account its assessment of general economic, market and financial conditions and its experience in other transactions, as well as its experience in securities valuation and knowledge of the banking industry generally. KBW also participated in discussions that were held with the respective managements of United Bankshares and Cardinal regarding the past and current business operations, regulatory relations, financial condition and future prospects of their respective companies and such other matters that KBW deemed relevant to its inquiry.
In conducting its review and arriving at its opinion, KBW relied upon and assumed the accuracy and completeness of all of the financial and other information that was provided to it or publicly available and did not independently verify the accuracy or completeness of any such information or assume any responsibility or liability for such verification, accuracy or completeness. KBW relied upon the management of United Bankshares as to the reasonableness and achievability of the publicly available consensus “street estimates” and long term growth rates of United Bankshares and Cardinal referred to above that were provided to or otherwise discussed with KBW by such management, and that in each case KBW was directed by such management to use. KBW further relied upon such management as to the reasonableness and achievability of the estimates regarding certain pro forma financial effects of the merger on United Bankshares (and the assumptions and bases therefor) that were prepared by, and provided to and discussed with KBW by, such management and that KBW was directed by such management to use. KBW assumed, at the direction of United Bankshares, that all of the foregoing information was reasonably prepared on bases reflecting, or in the case of the United Bankshares and Cardinal publicly available “street estimates” referred to above were consistent with, the best currently available estimates and judgments of United Bankshares management, and that the forecasts, projections and estimates reflected in such information would be realized in the amounts and in the time periods estimated.
It is understood that the assumed long term growth rates and estimates referred to above that were provided to KBW by United Bankshares were not prepared with the expectation of public disclosure, that all such assumed long term growth rates and estimates, together with the publicly available consensus “street estimates” of United Bankshares and Cardinal referred to above, were based on numerous variables and assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions and that, accordingly, actual results could vary significantly from those set forth in such information. KBW assumed, based on discussions with the respective managements of United Bankshares and Cardinal and with the consent of the United Bankshares board of directors, that all such information provided a reasonable basis upon which KBW could form its opinion and KBW expressed no view as to any such information or the assumptions or bases therefor. KBW relied on all such information without independent verification or analysis and did not in any respect assume any responsibility or liability for the accuracy or completeness thereof.
KBW assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of either United Bankshares or Cardinal since the date of the last financial statements of each such entity that were made available to KBW. KBW is not an expert in the independent verification of the adequacy of allowances for loan and lease losses and KBW assumed, without independent verification and with United Bankshares’ consent, that the aggregate allowances for loan and lease losses for United Bankshares and Cardinal are adequate to cover such losses. In rendering its opinion, KBW did not make or obtain any evaluations or appraisals or physical inspection of the property, assets or liabilities (contingent or otherwise) of United Bankshares or Cardinal, the collateral securing any of such assets or liabilities, or the collectability of any such assets, nor did KBW examine any individual loan or credit files, nor did it evaluate the solvency, financial capability or fair value of United Bankshares or Cardinal under any state or federal laws, including those relating to bankruptcy, insolvency or other matters. Estimates of values of companies and assets do not purport to be appraisals or necessarily reflect the prices at which companies or assets may actually be sold. Because such estimates are inherently subject to uncertainty, KBW assumed no responsibility or liability for their accuracy.
KBW assumed, in all respects material to its analyses:
the merger and any related transaction would be completed substantially in accordance with the terms set forth in the merger agreement (the final terms of which KBW assumed would not differ in any respect material to its analyses from the latest draft version of the merger agreement that had been reviewed by KBW (except as was otherwise described to KBW by representatives of United Bankshares)) with no adjustments to the exchange ratio;
that any related transactions (including the bank subsidiary merger and the United Bankshares preferred stock offering) would be completed substantially in accordance with the terms set forth in the merger agreement or as otherwise described to KBW by representatives of United Bankshares;
the representations and warranties of each party in the merger agreement and in all related documents and instruments referred to in the merger agreement were true and correct;
each party to the merger agreement or any of the related documents would perform all of the covenants and agreements required to be performed by such party under such documents;
that there are no factors that would delay or subject to any adverse conditions, any necessary regulatory or governmental approval for the merger and any related transactions (including the bank subsidiary merger and the United Bankshares preferred stock offering) and that all conditions to the completion of the merger and any related transaction would be satisfied without any waivers or modifications to the merger agreement or any related documents; and
in the course of obtaining the necessary regulatory, contractual, or other consents or approvals for the merger and any related transactions (including the bank subsidiary merger and the United Bankshares preferred stock offering), no restrictions, including any divestiture requirements, termination or other payments or amendments or modifications, would be imposed that would have a material adverse effect on the future results of operations or financial condition of United Bankshares, Cardinal or the pro forma entity or the contemplated benefits of the merger, including the cost savings and related expenses expected to result or be derived from the merger.
KBW assumed that the merger would be consummated in a manner that complied with the applicable provisions of the Securities Act, the Exchange Act and all other applicable federal and state statutes, rules and regulations. KBW was further advised by representatives of United Bankshares that United Bankshares relied upon advice from its advisors (other than KBW) or other appropriate sources as to all legal, financial reporting, tax, accounting and regulatory matters with respect to United Bankshares, Cardinal, UBV, the merger and any related transaction (including the bank subsidiary merger and the United Bankshares preferred stock offering), and the merger agreement. KBW did not provide advice with respect to any such matters. At the direction of United Bankshares and with the consent of the United Bankshares board of directors, KBW assumed, for purposes of certain of its analyses and KBW’s opinion, the completion of the United Bankshares preferred offering as described to KBW by representatives of United Bankshares.
KBW’s opinion addressed only the fairness, from a financial point of view, as of the date of such opinion, of the exchange ratio in the merger to United Bankshares. KBW expressed no view or opinion as to any other terms or aspects of the merger or any terms or aspects of any related transaction (including the bank subsidiary merger and the United Bankshares preferred stock offering), including without limitation, the form or structure of the merger or any related transaction, the treatment of outstanding trust preferred securities of Cardinal in the merger, any consequences of the merger or any related transaction to United Bankshares, its shareholders, creditors or otherwise, or any terms, aspects or implications of any employment, consulting, voting, support, stockholder or other agreements, arrangements or understandings contemplated or entered into in connection with the merger, any related transaction, or otherwise. KBW’s opinion was necessarily based upon conditions as they existed and could be evaluated on the date of such opinion and the information made available to KBW through such date. Developments subsequent to the date of KBW’s opinion may have affected, and may affect,
the conclusion reached in KBW’s opinion and KBW did not and does not have an obligation to update, revise or reaffirm its opinion. KBW’s opinion did not address, and KBW expressed no view or opinion with respect to:
the underlying business decision of United Bankshares to engage in the merger or enter into the merger agreement;
the relative merits of the merger as compared to any strategic alternatives that are, have been or may be available to or contemplated by United Bankshares or the United Bankshares board of directors;
the fairness of the amount or nature of any compensation to any of United Bankshares’ officers, directors or employees, or any class of such persons, relative to any compensation to the holders of United Bankshares common stock or relative to the exchange ratio;
the effect of the merger or any related transaction on, or the fairness of the consideration to be received by, holders of any class of securities of United Bankshares or Cardinal or any other party to any transaction contemplated by the merger agreement;
any adjustment (as provided in the merger agreement (except as has been otherwise described to KBW by representatives of United Bankshares)) to the exchange ratio assumed for purposes of KBW’s opinion;
the actual value of United Bankshares common stock to be issued in the merger;
the prices, trading range or volume at which United Bankshares common stock or Cardinal common stock might trade following the public announcement of the merger;
the prices, trading range or volume at which United Bankshares common stock might trade following the consummation of the merger;
any advice or opinions provided by any other advisor to any of the parties to the merger or any other transaction contemplated by the merger agreement; or
any legal, regulatory, accounting, tax or similar matters relating to United Bankshares, Cardinal, any of their respective shareholders, UBV, or relating to or arising out of or as a consequence of the merger or any other related transaction (including the bank subsidiary merger and the United Bankshares preferred stock offering), including whether or not the merger would qualify as atax-free reorganization for United Bankshares States federal income tax purposes.
In performing its analyses, KBW made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of KBW, United Bankshares and Cardinal. Any estimates contained in the analyses performed by KBW are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. In addition, the KBW opinion was among several factors taken into consideration by the United Bankshares board of directors in making its determination to approve the merger agreement and the merger. Consequently, the analyses described below should not be viewed as determinative of the decision of the United Bankshares board of directors with respect to the fairness of the exchange ratio. The type and amount of consideration payable in the merger were determined through negotiation between United Bankshares and Cardinal and the decision to enter into the merger agreement was solely that of the United Bankshares board of directors.
The following is a summary of the material financial analyses presented by KBW to the United Bankshares board of directors in connection with its opinion. The summary is not a complete description of the financial analyses underlying the opinion or the presentation made by KBW to the United Bankshares board of directors, but summarizes the material analyses performed and presented in connection with such opinion. The financial analyses summarized below include information presented in tabular format. The tables alone do not constitute a
complete description of the financial analyses. The preparation of a fairness opinion is a complex analytic process involving various determinations as to appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, KBW did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, KBW believes that its analyses and the summary of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying its analyses and opinion.
For purposes of the financial analyses described below, KBW utilized an implied transaction value for the proposed merger of $911.6 million, or $27.69 per outstanding share of Cardinal common stock, based on the exchange ratio in the proposed merger and the closing price of United Bankshares common stock on August 16, 2016. In addition to the financial analyses described below, KBW reviewed with the United Bankshares board of directors for informational purposes, among other things, the implied transaction multiple for the proposed merger of 17.5x Cardinal’s estimated 2017 earnings per share, or EPS, taken from consensus “street estimates” for Cardinal and based on the implied transaction value for the proposed merger of $27.69 per outstanding share of Cardinal common stock.
Cardinal Selected Companies Analysis.Using publicly available information, KBW compared the financial performance, financial condition and market performance of Cardinal to 19 major exchange-traded banks and bank holding companies, referred to as the Cardinal selected companies, headquartered in Maryland, Pennsylvania, Virginia, West Virginia, Delaware and Washington, D.C. with total assets between $2.0 billion and $10.0 billion. Merger targets were excluded from the Cardinal selected companies.
The Cardinal selected companies were as follows:
| | |
Customers Bancorp, Inc.
| | Sandy Spring Bancorp, Inc. |
Northwest Bancshares, Inc.
| | Bancorp, Inc. |
WesBanco, Inc.
Union Bankshares Corporation
| | City Holding Company
TriState Capital Holdings, Inc.
|
TowneBank
First Commonwealth Financial Corporation
S&T Bancorp, Inc.
Eagle Bancorp, Inc.
WSFS Financial Corporation
Beneficial Bancorp, Inc.
| | Univest Corporation of Pennsylvania
Bryn Mawr Bank Corporation
First Community Bancshares, Inc.
CNB Financial Corporation
Xenith Bankshares, Inc.
|
To perform this analysis, KBW used profitability data and other financial information for, as of, or, in the case of latest 12 months, or LTM, information, through, the fiscal quarter ended June 30, 2016 (which was the most recent completed quarter (“MRQ”) available) and market price information as of August 16, 2016. KBW also used 2016 and 2017 EPS estimates taken from consensus “street estimates” for Cardinal and the Cardinal selected companies. Certain financial data prepared by KBW, as referenced in the tables presented below, may not correspond to the data presented in Cardinal’s historical financial statements, or the data prepared by Sandler O’Neill + Partners, L.P. presented under the section “The Merger – Opinion of Cardinal’s Financial Advisor,” as a result of the different periods, assumptions and methods used by KBW to compute the financial data presented.
KBW’s analysis showed the following concerning the financial performance of Cardinal and the Cardinal selected companies:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Cardinal Selected Companies | |
| | | Cardinal | | | 25th
Percentile | | | Mean | | | Median | | | 75th
Percentile | |
MRQ Core Return on Average Assets (%)(1) | | | 1.40 | | | | 0.83 | | | | 0.95 | | | | 0.97 | | | | 1.13 | |
MRQ Core Return on Average Equity (%)(1) | | | 13.02 | | | | 6.67 | | | | 8.14 | | | | 8.29 | | | | 10.54 | |
MRQ Net Interest Margin (%) | | | 3.33 | | | | 3.26 | | | | 3.45 | | | | 3.49 | | | | 3.82 | |
MRQ Fee Income / Revenue Ratio (%)(2) | | | 34.9 | | | | 20.3 | | | | 27.2 | | | | 24.7 | | | | 35.0 | |
MRQ Efficiency Ratio (%) | | | 53.4 | | | | 63.8 | | | | 62.5 | | | | 60.8 | | | | 56.7 | |
(1) | Core income excludes extraordinary items, nonrecurring items, gain/loss on sale of securities and amortization of intangibles. |
(2) | Excludes gain/loss on sale of securities. |
KBW’s analysis also showed the following concerning the financial condition of Cardinal and the Cardinal selected companies:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Cardinal Selected Companies | |
| | Cardinal | | | 25th
Percentile | | | Mean | | | Median | | | 75th
Percentile | |
Tangible Common Equity / Tangible Assets (%) | | | 9.65 | | | | 8.28 | | | | 9.32 | | | | 8.75 | | | | 9.71 | |
Total Risk Based Capital Ratio (%) | | | 11.86 | | | | 12.43 | | | | 13.74 | | | | 12.77 | | | | 14.45 | |
Loans / Deposits (%) | | | 97.3 | | | | 91.5 | | | | 94.3 | | | | 97.5 | | | | 102.5 | |
Loan Loss Reserve / Gross Loans (%) | | | 0.91 | | | | 0.66 | | | | 0.87 | | | | 0.84 | | | | 1.10 | |
Nonperforming Assets / Loans + OREO (%) | | | 0.01 | | | | 1.52 | | | | 1.28 | | | | 0.89 | | | | 0.67 | |
MRQ Net Charge-Offs / Average Loans (%) | | | (0.02 | ) | | | 0.19 | | | | 0.11 | | | | 0.11 | | | | 0.03 | |
In addition, KBW’s analysis showed the following concerning the market performance of Cardinal and the Cardinal selected companies (excluding the impact of the LTM EPS multiples of three of the Cardinal selected companies and the 2016 estimated EPS multiples of two of the Cardinal selected companies, which multiples were not considered to be meaningful because they were greater than 30.0x or negative):
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Cardinal Selected Companies | |
| | Cardinal | | | 25th
Percentile | | | Mean | | | Median | | | 75th
Percentile | |
One – Year Stock Price Change (%) | | | 9.2 | | | | 4.3 | | | | 8.7 | | | | 11.5 | | | | 16.3 | |
One – Year Total Return (%) | | | 11.6 | | | | 5.8 | | | | 11.1 | | | | 14.6 | | | | 18.0 | |
Year-to-date (“YTD”) Stock Price Change (%) | | | 13.3 | | | | 4.8 | | | | 6.1 | | | | 7.5 | | | | 11.9 | |
Stock Price / Book Value per Share (x) | | | 1.91 | | | | 1.18 | | | | 1.31 | | | | 1.24 | | | | 1.37 | |
Stock Price / Tangible Book Value per Share (x) | | | 2.08 | | | | 1.53 | | | | 1.69 | | | | 1.74 | | | | 1.86 | |
Stock Price / LTM EPS (x) | | | 18.2 | | | | 13.7 | | | | 16.3 | | | | 16.5 | | | | 18.2 | |
Stock Price / 2016 EPS (x) | | | 16.9 | | | | 13.7 | | | | 15.0 | | | | 15.4 | | | | 16.3 | |
Stock Price / 2017 EPS (x) | | | 16.4 | | | | 12.5 | | | | 14.1 | | | | 13.5 | | | | 15.0 | |
Dividend Yield (%) | | | 1.9 | | | | 0.3 | | | | 2.1 | | | | 2.7 | | | | 3.1 | |
2016 Dividend Payout (%) | | | 31.4 | | | | 5.4 | | | | 34.1 | | | | 41.7 | | | | 48.7 | |
No company used as a comparison in the above selected companies analysis is identical to Cardinal. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.
United Bankshares Selected Companies Analysis.Using publicly available information, KBW compared the financial performance, financial condition and market performance of United Bankshares to 18 major exchange-traded U.S. banks and bank holding companies, referred to as the United Bankshares selected companies, with total assets between $10.0 billion and $20.0 billion. Merger targets were excluded from the United Bankshares selected companies.
The United Bankshares selected companies were as follows:
| | |
UMB Financial Corporation
| | Cathay General Bancorp
|
Fulton Financial Corporation
| | Hilltop Holdings Inc.
|
Western Alliance Bancorporation
MB Financial, Inc.
| | Sterling Bancorp
Trustmark Corporation
|
Bank of Hawaii Corporation
Washington Federal, Inc.
Old National Bancorp
BancorpSouth, Inc.
Flagstar Bancorp, Inc.
| | Bank of the Ozarks, Inc.
International Bancshares Corporation
Great Western Bancorp, Inc.
First Midwest Bancorp, Inc.
Banc of California, Inc.
|
To perform this analysis, KBW used profitability data and other financial information for, as of, or, in the case of LTM information, through, the fiscal quarter ended June 30, 2016 and market price information as of August 16, 2016. KBW also used 2016 and 2017 EPS estimates taken from consensus “street estimates” for United Bankshares and, to the extent available, the United Bankshares selected companies. Certain financial data prepared by KBW, as referenced in the tables presented below, may not correspond to the data presented in United Bankshares’ historical financial statements, or the data prepared by Sandler O’Neill + Partners, L.P. presented under the section “The Merger – Opinion of Cardinal’s Financial Advisor,” as a result of the different periods, assumptions and methods used by KBW to compute the financial data presented.
KBW’s analysis showed the following concerning the financial performance of United Bankshares and the United Bankshares selected companies:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | United Selected Companies | |
| | | United | | | 25th
Percentile | | | Mean | | | Median | | | 75th
Percentile | |
MRQ Core Return on Average Assets (%)(1) | | | 1.10 | | | | 0.97 | | | | 1.11 | | | | 1.08 | | | | 1.17 | |
MRQ Core Return on Average Equity (%)(1) | | | 7.69 | | | | 7.63 | | | | 9.38 | | | | 8.58 | | | | 11.00 | |
MRQ Net Interest Margin (%) | | | 3.63 | | | | 3.23 | | | | 3.53 | | | | 3.54 | | | | 3.76 | |
MRQ Fee Income / Revenue Ratio (%)(2) | | | 14.7 | | | | 14.3 | | | | 30.4 | | | | 30.5 | | | | 37.3 | |
MRQ Efficiency Ratio (%) | | | 46.6 | | | | 68.4 | | | | 60.8 | | | | 63.6 | | | | 50.7 | |
(1) | Core income excludes extraordinary items, nonrecurring items, gain/loss on sale of securities and amortization of intangibles. |
(2) | Excludes gain/loss on sale of securities. |
KBW’s analysis also showed the following concerning the financial condition of United Bankshares and the United Bankshares selected companies:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | United Selected Companies | |
| | | United | | | 25th
Percentile | | | Mean | | | Median | | | 75th
Percentile | |
Tangible Common Equity / Tangible Assets (%) | | | 8.33 | | | | 8.30 | | | | 9.31 | | | | 8.94 | | | | 10.44 | |
Total Risk Based Capital Ratio (%) | | | 12.63 | | | | 12.54 | | | | 14.35 | | | | 13.28 | | | | 14.96 | |
Loans / Deposits (%) | | | 101.0 | | | | 79.3 | | | | 85.1 | | | | 88.4 | | | | 92.8 | |
Loan Loss Reserve / Gross Loans (%) | | | 0.69 | | | | 0.72 | | | | 0.97 | | | | 1.02 | | | | 1.16 | |
Nonperforming Assets / Loans + OREO (%) | | | 1.36 | | | | 1.53 | | | | 1.30 | | | | 1.24 | | | | 0.84 | |
MRQ Net Charge-Offs / Average Loans (%) | | | 0.44 | | | | 0.22 | | | | 0.20 | | | | 0.09 | | | | 0.03 | |
In addition, KBW’s analysis showed the following concerning the market performance of United Bankshares and, to the extent publicly available, the United Bankshares selected companies:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | United Selected Companies | |
| | | United | | | 25th
Percentile | | | Mean | | | Median | | | 75th
Percentile | |
One – Year Stock Price Change (%) | | | (2.3 | ) | | | 2.8 | | | | 10.9 | | | | 6.2 | | | | 14.6 | |
One – Year Total Return (%) | | | 1.2 | | | | 4.2 | | | | 13.2 | | | | 8.9 | | | | 17.3 | |
Year-to-date (“YTD”) Stock Price Change (%) | | | 5.4 | | | | 1.8 | | | | 10.2 | | | | 8.7 | | | | 16.3 | |
Stock Price / Book Value per Share (x) | | | 1.48 | | | | 1.17 | | | | 1.43 | | | | 1.26 | | | | 1.43 | |
Stock Price / Tangible Book Value per Share (x) | | | 2.66 | | | | 1.55 | | | | 1.84 | | | | 1.71 | | | | 2.23 | |
Stock Price / LTM EPS (x) | | | 20.3 | | | | 15.1 | | | | 16.5 | | | | 16.4 | | | | 17.9 | |
Stock Price / 2016 EPS (x) | | | 19.6 | | | | 14.1 | | | | 15.2 | | | | 15.3 | | | | 16.0 | |
Stock Price / 2017 EPS (x) | | | 18.3 | | | | 12.7 | | | | 13.8 | | | | 13.6 | | | | 15.0 | |
Dividend Yield (%) | | | 3.4 | | | | 1.7 | | | | 1.9 | | | | 2.0 | | | | 2.3 | |
2016 Dividend Payout (%) | | | 66.4 | | | | 25.5 | | | | 29.4 | | | | 31.7 | | | | 33.0 | |
No company used as a comparison in the above selected companies analysis is identical to United Bankshares. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.
Select Transactions Analysis.KBW reviewed publicly available information related to 17 selected U.S. bank transactions, referred to as the Group 1 selected transactions, announced since January 1, 2013, with announced deal values greater than $500 million. Transactions where the acquired company was a mutual holding company, transactions with non-bank buyers, mergers of equals and terminated transactions were excluded from the selected transactions. The selected transactions were as follows:
| | |
Acquiror
| | Acquired Company
|
F.N.B. Corporation
| | Yadkin Financial Corporation |
Canadian Imperial Bank of Commerce
| | PrivateBancorp, Inc. |
Huntington Bancshares Incorporated
| | FirstMerit Corporation |
KeyCorp
| | First Niagara Financial Group, Inc. |
New York Community Bancorp, Inc.
Bank of the Ozarks, Inc.
BB&T Corporation
PacWest Bancorp
Royal Bank of Canada
BB&T Corporation
Banner Corporation
Sterling Bancorp
First Citizens BancShares, Inc.
Umpqua Holdings Corporation
PacWest Bancorp
MB Financial, Inc.
Banco de Credito e Inversiones SA
| | Astoria Financial Corporation
Community & Southern Holdings, Inc.
National Penn Bancshares, Inc.
Square 1 Financial, Inc.
City National Corporation
Susquehanna Bancshares, Inc.
Starbuck Bancshares, Inc.
Hudson Valley Holding Corp.
First Citizens Bancorporation, Inc.
Sterling Financial Corporation
CapitalSource Inc.
Taylor Capital Group, Inc.
CM Florida Holdings, Inc.
|
For each Group 1 selected transaction, KBW derived the following implied transaction statistics, in each case based on the transaction consideration value paid for the acquired company and using financial data based on the acquired company’s then latest publicly available financial statements and, to the extent publicly available, forward year EPS consensus “street estimates” prior to the announcement of the respective transaction:
Price per common share to tangible book value per share of the acquired company (in the case of selected transactions involving a private acquired company, this transaction statistic was calculated as total transaction consideration divided by total tangible common equity);
Tangible equity premium to core deposits (total deposits less time deposits greater than $100,000) of the acquired company, referred to as core deposit premium;
Price per common share to LTM EPS of the acquired company (in the case of selected transactions involving a private acquired company, this transaction statistic was calculated as total transaction consideration divided by LTM net income); and
Price per common share to estimated EPS of the acquired company in the 13 Group 1 selected transactions in which consensus “street estimates” for the acquired company were then available.
KBW also reviewed the price per common share paid for the acquired company for the 15 Group 1 selected transactions in which the acquired company was publicly traded as a premium/discount to the closing price of the acquired company one day prior to the announcement of the acquisition (expressed as a percentage and referred to as the one-day market premium). The above transaction statistics for the Group 1 selected transactions were compared with the corresponding transaction statistics for the proposed merger based on the implied transaction value for the proposed merger of $911.6 million and using historical financial information for Cardinal as of or for the 12 months ended June 30, 2016 and 2016 EPS consensus “street estimates” for Cardinal.
The results of the analysis are set forth in the following table (excluding the impact of the LTM EPS multiple for one of the Group 1 selected transactions, which multiple was not considered to be meaningful because it was greater than 75.0x):
| | | | | | | | | | | | | | | | | | | | |
| | | United /
Cardinal
Merger | | | Group 1 Selected Transactions | |
| | | 25th
Percentile | | | Mean | | | Median | | | 75th
Percentile | |
Transaction Price to | | | | | |
Price to Tangible Book Value (x) | | | 2.24 | | | | 1.68 | | | | 1.89 | | | | 1.82 | | | | 2.19 | |
Core Deposit Premium (%) | | | 19.5 | | | | 7.8 | | | | 13.1 | | | | 12.3 | | | | 17.2 | |
Price to LTM EPS (x) | | | 19.5 | | | | 15.1 | | | | 20.6 | | | | 19.2 | | | | 22.9 | |
Price to Estimated EPS (x) | | | 18.1 | | | | 17.4 | | | | 21.2 | | | | 19.1 | | | | 21.1 | |
One – Day Market Premium (%) | | | 7.4 | | | | 11.8 | | | | 22.2 | | | | 20.1 | | | | 32.9 | |
KBW then reviewed publicly available information related to 9 selected U.S. bank transactions, referred to as the Group 2 selected transactions, announced since January 1, 2013 with announced deal values greater than $250 million, and the acquired company’s return on average assets greater than 1.00% and the acquired company’s non-performing assets / total assets less than 1.50%. Transactions with non-bank buyers, mergers of equals and terminated transactions were excluded from the selected transactions. The selected transactions were as follows:
| | |
Acquiror
| | Acquired Company
|
Canadian Imperial Bank of Commerce
South State Corporation
MB Financial, Inc.
BB&T Corporation
Western Alliance Bancorporation
PacWest Bancorp
ViewPoint Financial Group, Inc.
Prosperity Bancshares, Inc.
Banco de Credito e Inversiones SA
| | PrivateBancorp, Inc.
Southeastern Bank Financial Corporation
American Chartered Bancorp, Inc.
National Penn Bancshares, Inc.
Bridge Capital Holdings
Square 1 Financial, Inc.
LegacyTexas Group, Inc.
FVNB Corp.
CM Florida Holdings, Inc.
|
For each Group 2 selected transaction, KBW derived the following implied transaction statistics, in each case based on the transaction consideration value paid for the acquired company and using financial data based on the acquired company’s then latest publicly available financial statements and, to the extent publicly available, forward year EPS consensus “street estimates” prior to the announcement of the respective transaction:
Price per common share to tangible book value per share of the acquired company (in the case of selected transactions involving a private acquired company, this transaction statistic was calculated as total transaction consideration divided by total tangible common equity);
Price per common share to LTM EPS of the acquired company (in the case of selected transactions involving a private acquired company, this transaction statistic was calculated as total transaction consideration divided by LTM net income); and
Price per common share to estimated EPS of the acquired company in the four Group 2 selected transactions in which consensus “street estimates” for the acquired company were then available.
KBW also reviewed the one-day market premiums for the six Group 2 selected transactions in which the acquired company was publicly traded. The above transaction statistics for the Group 2 selected transactions were compared with the corresponding transaction statistics for the proposed merger based on the implied transaction value for the proposed merger of $911.6 million and using historical financial information for Cardinal as of or for the 12 months ended June 30, 2016 and 2016 EPS consensus “street estimates” for Cardinal.
The results of the analysis are set forth in the following table:
| | | | | | | | | | | | | | | | | | | | |
| | | United /
Cardinal
Merger | | | Group 2 Selected Transactions | |
| | | | 25th
Percentile | | | Mean | | | Median | | | 75th
Percentile | |
Transaction Price to | | | | | |
Price to Tangible Book Value (x) | | | 2.24 | | | | 2.19 | | | | 2.25 | | | | 2.22 | | | | 2.39 | |
Core Deposit Premium (%) | | | 19.5 | | | | 13.2 | | | | 14.7 | | | | 14.7 | | | | 15.6 | |
Price to LTM EPS (x) | | | 19.5 | | | | 16.7 | | | | 18.2 | | | | 17.7 | | | | 19.4 | |
Price to Estimated EPS (x) | | | 18.1 | | | | 18.1 | | | | 19.2 | | | | 19.0 | | | | 20.1 | |
One – Day Market Premium (%) | | | 7.4 | | | | 18.4 | | | | 25.1 | | | | 24.9 | | | | 37.5 | |
No company or transaction used as a comparison in the above selected transactions analysis is identical to Cardinal or the proposed merger. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.
Relative Contribution Analysis.KBW analyzed the relative standalone contribution of United Bankshares and Cardinal to various pro forma balance sheet and income statement items of the combined entity. This analysis did not include purchase accounting adjustments or cost savings. To perform this analysis, KBW used (i) balance sheet data for United Bankshares and Cardinal as of June 30, 2016, and (ii) estimated earnings data for United Bankshares and Cardinal taken from consensus “street estimates” for United Bankshares and Cardinal. The results of KBW’s analysis are set forth in the following table, which also compares the results of KBW’s analysis with the implied pro forma ownership percentages of United Bankshares and Cardinal shareholders in the combined company based on the exchange ratio in the merger:
| | | | | | | | |
| | | United
as a % of
Total | | | Cardinal
as a % of
Total | |
Ownership | | | | | | | | |
Ownership at 100% Stock | | | 77.0 | % | | | 23.0 | % |
Balance Sheet | | | | | | | | |
Assets | | | 77 | % | | | 23 | % |
Gross Loans | | | 77 | % | | | 23 | % |
Deposits | | | 76 | % | | | 24 | % |
Tangible Common Equity | | | 74 | % | | | 26 | % |
Income Statement | | | | | | | | |
2016 Est. GAAP Net Income | | | 74 | % | | | 26 | % |
2017 Est. GAAP Net Income | | | 76 | % | | | 24 | % |
Pro Forma Financial Impact Analysis.KBW performed a pro forma financial impact analysis that combined projected income statement and balance sheet information of United Bankshares and Cardinal. Using closing balance sheet estimates as of June 30, 2017 for United Bankshares and Cardinal provided by United Bankshares management, EPS consensus “street estimates” for United Bankshares and Cardinal and pro forma assumptions (including, without limitation, the cost savings and related expenses expected to result from the merger, certain accounting adjustments assumed with respect thereto and assumptions relating to the United Bankshares preferred offering) provided by United Bankshares management, KBW analyzed the estimated financial impact of the merger on certain projected financial results. This analysis indicated that the merger could be accretive to United Bankshares’ 2017 and 2018 estimated EPS both including and excluding the United Bankshares preferred offering and could also be accretive to United Bankshares’ estimated tangible book value per share as of June 30, 2017. Furthermore, the analysis indicated that, pro forma for the merger and the United Bankshares preferred offering, United Bankshares’ tangible common equity to tangible assets ratio and Total Risk-Based Capital Ratio could be higher, while United Bankshares’ leverage ratio, Common Equity Tier 1
Ratio, and Tier 1Risk-Based Capital Ratio as of June 30, 2017 could be lower. For all of the above analysis, the actual results achieved by United Bankshares following the merger may vary from the projected results, and the variations may be material.
Discounted Cash Flow Analysis.KBW performed a discounted cash flow analysis to estimate a range for the implied equity value of Cardinal, taking into account the cost savings and related expenses expected to result from the merger as well as certain accounting adjustments assumed with respect thereto. In this analysis, KBW used EPS consensus “street estimates” of Cardinal for 2016 and 2017, assumed long term growth rates provided by United Bankshares management, and estimated cost savings and related expenses and accounting adjustments provided by United Bankshares management. KBW assumed discount rates ranging from 9.0% to 13.0%. The ranges of values were derived by adding (i) the present value of the estimated excess cash flows that Cardinal could generate over thefive-year period from 2017 to 2021 and (ii) the present value of Cardinal’s implied terminal value at the end of such period, in each case applying estimated cost savings and related expenses and accounting adjustments. KBW assumed that Cardinal would maintain a tangible common equity to tangible assets ratio of 8.50% and would retain sufficient earnings to maintain that level. In calculating the terminal value of Cardinal, KBW applied a range of 12.0x to 18.0x estimated 2022 earnings. This discounted cash flow analysis resulted in a range of implied values per share of Cardinal common stock, taking into account the cost savings and related expenses expected to result from the merger as well as certain accounting adjustments assumed with respect thereto, of $24.52 per share to $38.25 per share.
The discounted cash flow analysis is a widely used valuation methodology, but the results of such methodology are highly dependent on the assumptions that must be made, including asset and earnings growth rates, terminal values, dividend payout rates, and discount rates. The analysis did not purport to be indicative of the actual values or expected values of Cardinal.
Miscellaneous.KBW acted as financial advisor to United Bankshares in connection with the proposed merger and did not act as an advisor to or agent of any other person. As part of its investment banking business, KBW is continually engaged in the valuation of bank and bank holding company securities in connection with acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for various other purposes. As specialists in the securities of banking companies, KBW has experience in, and knowledge of, the valuation of banking enterprises. In the ordinary course of theirbroker-dealer businesses, KBW and its affiliates may from time to time purchase securities from, and sell securities to, United Bankshares and Cardinal and their respective affiliates, and as market makers in securities, KBW and its affiliates may from time to time have a long or short position in, and buy or sell, debt or equity securities of United Bankshares or Cardinal for its and their own accounts and for the accounts of its and their respective customers and clients.
Pursuant to the KBW engagement agreement, United Bankshares agreed to pay KBW a non-refundable cash fee of $1,500,000, $300,000 of which became payable concurrently with the rendering of KBW’s opinion and the balance of which is contingent upon the consummation of the merger. United Bankshares also agreed to reimburse KBW for reasonable out-of-pocket expenses and disbursements incurred in connection with its engagement and to indemnify KBW against certain liabilities relating to or arising out of KBW’s engagement or KBW’s role in connection therewith. Other than in connection with the present engagement, KBW has not provided investment banking and financial advisory services to United Bankshares during the two years preceding the date of its opinion. In the two years preceding the date of its opinion, KBW did not provide investment banking and financial advisory services to Cardinal. KBW may in the future provide investment banking and financial advisory services to United Bankshares or Cardinal and receive compensation for such services. KBW expects to serve as co-lead book running manager underwriter, co-lead initial purchaser or co-lead placement agent, as the case may be, in connection with the United Bankshares preferred stock offering.
Certain Unaudited Prospective Financial Information
United Bankshares and CardinalCommunity Bankers Trust do not as a matter of course make public projections as to future performance, revenues, earnings or other financial results due to, among other reasons, the inherent uncertainty of the underlying assumptions and estimates. However, United Bankshares and CardinalCommunity Bankers Trust are including in this prospectus and joint proxy statement certain unaudited prospective financial information that each of United Bankshares and CardinalCommunity Bankers Trust made available to the other party in connection with the other party’s evaluation of the merger and to Piper Sandler, O’Neill, in its capacity as Cardinal’s financial advisor, and that United Bankshares made available to KBW, in its capacity as United Bankshares’Community Bankers Trust’s financial advisor. The inclusion of this information should not be regarded as an indication that any of United Bankshares, Cardinal, KBW,Community Bankers Trust, Piper Sandler, O’Neill, their respective representatives or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future results or that it should be construed as financial guidance, and it should not be relied on as such.
The following unaudited financial information was prepared solely for internal use and is subjective in many respects. The unaudited prospective financial information reflects numerous estimates and assumptions made with respect to business, economic, market, competition, regulatory and financial conditions and matters
