The following table summarizes historical data of Assabet Valley Bancorp and pro forma data of Avidia Bancorp at and for the year ended December 31, 2024. This information, which is based on assumptions set forth below and in the table below, should not be used as a basis for projections of market value of the shares of common stock following the conversion and stock offering.
The net proceeds presented in the following table are based upon the following assumptions:
| • | all shares of common stock are sold in the subscription offering; |
| • | the ESOP purchases 8% of the sum of the number of shares of common stock sold in the stock offering and contributed to the charitable foundation with funds loaned by Avidia Bancorp. The loan will be repaid in substantially equal payments of principal and interest over a 20-year period; |
| • | KBW is paid a fee equal to 1.25% of the aggregate dollar amount of the common stock sold in the subscription offering (excluding shares purchased by directors, officers and employees of Avidia Bank and by corporators of Assabet Valley Bancorp and shares contributed to the charitable foundation); |
| • | Avidia Bancorp contributes $1.0 million in cash to the charitable foundation; and |
| • | estimated stock offering expenses, other than selling agent fees and expenses payable to KBW, are approximately $3.3 million. |
We calculated pro forma consolidated net income for the year ended December 31, 2024 as if the estimated net proceeds we received had been invested at the beginning of the period at an assumed interest rate of 4.38% (3.29%after-tax based on an effective combined federal/state tax rate of 25%). This represents the yield on the 5-Year U.S. Treasury Note as of December 31, 2024, which, in light of current market interest rates, we consider to more accurately reflect the pro forma reinvestment rate than the arithmetic average of the weighted average yield earned on our interest earning assets and the weighted average rate paid on our deposits, which is the reinvestment rate federal regulations provide that we assume in presenting pro forma data.
We further believe that the reinvestment rate is factually supportable because:
| • | the yield on the 5-Year U.S. Treasury Note can be determined and/or estimated from third-party sources; and |
| • | we believe that U.S. Treasury securities are not subject to credit losses due to a U.S. Government guarantee of payment of principal and interest. |
We calculated historical and pro forma per share amounts by dividing historical and pro forma amounts of consolidated net income and stockholders’ equity by the indicated number of shares of common stock. We adjusted these figures to give effect to the shares of common stock purchased by the ESOP. We computed per share amounts for each period as if the shares of common stock were outstanding at the beginning of each period, but we did not adjust per share historical or pro forma stockholders’ equity to reflect the earnings on the estimated net proceeds.
The pro forma tables give effect to the implementation of stock-based benefit plans. Subject to the receipt of stockholder approval, we have assumed that the stock-based benefit plans will acquire for restricted stock awards a number of shares of common stock equal to 4% of the sum of the shares of common sold in the stock offering and contributed to the charitable foundation at the $10.00 per share offering price in the stock offering. We assume that shares of common stock are granted under the plans in awards that vest over a five-year period.
We have also assumed that options will be granted under the stock-based benefit plans to acquire shares of common stock equal to 10% of the sum of the number of shares sold in the stock offering and contributed to the charitable foundation. In preparing the table below, we assumed that stockholder approval was obtained, that the exercise price of the stock options and the market price of the stock at the date of grant were $10.00 per share and that the stock options had a term of 10 years and vested over five years. We applied the Black-Scholes option pricing model to estimate a grant-date fair value of $5.32 for each option. In addition to the terms of the options described above, the Black-Scholes option pricing model assumed an estimated volatility rate of 32.51% for the shares of common stock, a dividend yield of 0%, an expected option life of 10 years and a risk-free interest rate of 4.58% (3.44%after-tax based on an effective combined federal/state tax rate of 25%).
We may grant options and award shares of common stock under one or more stock-based benefit plans in excess of 10% and 4%, respectively, of the sum of the number of shares sold in the stock offering and contributed to the charitable foundation if the stock-based benefit plans are adopted more than one year following the conversion and stock offering. In addition, we may grant options and award shares that vest sooner than over a five-year period if the stock-based benefit plans are adopted more than one year following the conversion and stock offering.
As discussed under “How We Intend to Use the Proceeds from the Stock Offering,” we intend to contribute at least 50% of the net proceeds to Avidia Bank, lend funds to the ESOP, contribute cash to the charitable foundation, and retain the remainder for future use.
The pro forma table does not give effect to:
| • | withdrawals from deposit accounts at Avidia Bank to purchase shares of common stock in the stock offering; |
| • | our results of operations after the conversion and stock offering, including the impact of additional expenses we expect to incur as a result of operating as a public company; or |
| • | changes in the market price of the shares of common stock after the conversion and stock offering. |
The following pro forma information may not represent the financial effects of the conversion and stock offering at the date on which the transaction actually occurs, and you should not use the information presented to indicate future results of operations. Pro forma stockholders’ equity represents the difference between the stated amount of our assets and liabilities, computed according to U.S. GAAP. We did not increase or decrease stockholders’ equity to reflect the difference between the carrying value of loans and other assets and their market value. Pro forma stockholders’ equity is not intended to represent the fair market value of the shares of common stock and may be different than the amounts that would be available for distribution to stockholders if we liquidated. Pro forma stockholders’ equity does not give effect to the impact of intangible assets, the liquidation account we will establish in the conversion or tax bad debt reserves in the unlikely event we are liquidated.
| At or For the Year Ended December 31, 2024, Based on the Sale at $10.00 Per Share of: |
|---|
| 14,450,000 Shares | 17,000,000 Shares | 19,550,000 Shares | 22,482,500 Shares (1) |
|---|
| (Dollars in thousands, except per share amounts) |
|---|
| Gross offering proceeds | $144,500 | $170,000 | $195,500 | $224,825 |
|---|
| Plus: Market value of shares issued to charitable foundation | 10,500 | 10,500 | 10,500 | 10,500 |
|---|
| Pro forma market capitalization | $155,000 | $180,500 | $206,000 | $235,325 |
|---|
| Gross offering proceeds | $144,500 | $170,000 | $195,500 | $224,825 |
|---|
| Less: Estimated expenses | (5,180) | (5,499) | (5,818) | (6,184) |
|---|
| Estimated net proceeds | 139,320 | 164,501 | 189,682 | 218,641 |
|---|
| Less: Common stock purchased by ESOP (2) | (12,400) | (14,440) | (16,480) | (18,826) |
|---|
| Less: Cash contribution to charitable foundation | (1,000) | (1,000) | (1,000) | (1,000) |
|---|
| Less: Common stock awarded under stock-based benefit plans (3) | (6,200) | (7,220) | (8,240) | (9,413) |
|---|
| Estimated net cash proceeds | $119,720 | $141,841 | $163,962 | $189,402 |
|---|
| For the Year Ended December 31, 2024: |
|---|
| Net income: |
|---|
| Historical | $11,484 | $11,484 | $11,484 | $11,484 |
|---|
| Pro forma income on net proceeds | 3,933 | 4,659 | 5,386 | 6,222 |
|---|
| Pro forma ESOP adjustment (2) | (465) | (542) | (618) | (706) |
|---|
| Pro forma stock award adjustment (3) | (930) | (1,083) | (1,236) | (1,412) |
|---|
| Pro forma stock option adjustment (4) | (1,546) | (1,800) | (2,055) | (2,347) |
|---|
| Pro forma net income | $12,476 | $12,718 | $12,961 | $13,241 |
|---|
| Per share net income: |
|---|
| Historical | $0.80 | $0.69 | $0.60 | $0.53 |
|---|
| Pro forma income on net proceeds | 0.27 | 0.28 | 0.28 | 0.29 |
|---|
| Pro forma ESOP adjustment (2) | (0.03) | (0.03) | (0.03) | (0.03) |
|---|
| Pro forma stock award adjustment (3) | (0.06) | (0.06) | (0.06) | (0.06) |
|---|
| Pro forma stock option adjustment (4) | (0.11) | (0.11) | (0.11) | (0.11) |
|---|
| Pro forma net income per share | $0.87 | $0.77 | $0.68 | $0.62 |
|---|
| Offering price as a multiple of pro forma net income per share | 11.49x | 12.99x | 14.71x | 16.13x |
|---|
| Number of shares outstanding for pro forma net income per share calculations | 14,322,000 | 16,678,200 | 19,034,400 | 21,744,030 |
|---|
| At December 31, 2024: |
|---|
| Stockholders’ equity: |
|---|
| Historical | $193,827 | $193,827 | $193,827 | $193,827 |
|---|
| Estimated net proceeds | 139,320 | 164,501 | 189,682 | 218,641 |
|---|
| Market value of shares issued to charitable foundation | 10,500 | 10,500 | 10,500 | 10,500 |
|---|
| Expense of contribution to charitable foundation | (11,500) | (11,500) | (11,500) | (11,500) |
|---|
| Tax benefit of contribution to charitable foundation | 2,875 | 2,875 | 2,875 | 2,875 |
|---|
| Common stock acquired by ESOP (2) | (12,400) | (14,440) | (16,480) | (18,826) |
|---|
| Common stock awarded under stock-based benefit plans (3) | (6,200) | (7,220) | (8,240) | (9,413) |
|---|
| Pro forma stockholders’ equity (5) | 316,422 | 338,543 | 360,664 | 386,104 |
|---|
| Intangible assets | (11,936) | (11,936) | (11,936) | (11,936) |
|---|
| Pro forma tangible stockholders’ equity | $304,486 | $326,607 | $348,728 | $374,168 |
|---|
| Stockholders’ equity per share: |
|---|
| Historical | $12.50 | $10.74 | $9.41 | $8.24 |
|---|
| Estimated net proceeds | 8.99 | 9.11 | 9.21 | 9.29 |
|---|
| Market value of shares issued to charitable foundation | 0.68 | 0.58 | 0.51 | 0.45 |
|---|
| Expense of contribution to charitable foundation | (0.74) | (0.64) | (0.56) | (0.49) |
|---|
| Tax benefit of contribution to charitable foundation | 0.19 | 0.16 | 0.14 | 0.12 |
|---|
| Common stock acquired by ESOP (2) | (0.80) | (0.80) | (0.80) | (0.80) |
|---|
| Common stock awarded under stock-based benefit plans (3) | (0.40) | (0.40) | (0.40) | (0.40) |
|---|
| Pro forma stockholders’ equity per share (5) | 20.42 | 18.75 | 17.51 | 16.41 |
|---|
| Intangible assets | $(0.77) | $(0.66) | $(0.58) | $(0.51) |
|---|
| Pro forma tangible stockholders’ equity per share | 19.65 | 18.09 | 16.93 | 15.90 |
|---|
| Offering price as percentage of pro forma stockholders’ equity per share | 48.97% | 53.33% | 57.11% | 60.94% |
|---|
| Offering price as percentage of pro forma tangible stockholders’ equity per share | 50.89% | 55.28% | 59.07% | 62.89% |
|---|
| Number of shares outstanding for pro forma book value per share calculations | 15,500,000 | 18,050,000 | 20,600,000 | 25,532,500 |
|---|
| (1) | As adjusted to give effect to an increase in the number of shares which could occur due to a 15% increase in the offering range to reflect demand for the shares or changes in market conditions following the commencement of the stock offering. |
| (2) | Assumes that the ESOP will purchase 8% of the sum of the number of shares of common stock sold in the stock offering and contributed to the charitable foundation. For purposes of the table, the funds used to acquire these shares are assumed to have been borrowed by the ESOP from Avidia Bancorp. Avidia Bank intends to make annual contributions to the ESOP in an amount at least equal to the required principal and interest payments on the debt. Avidia Bank’s total annual payments on the debt are based upon 20 equal annual installments of principal and interest. ASC 718-40 requires that an employer record compensation expense in an amount equal to the fair value of the shares committed to be released to employees. The pro forma adjustments assume that the shares are allocated in equal annual installments based on the number of loan repayment installments assumed to be paid by Avidia Bank, the fair value of the common stock remains equal to the subscription price and the related expense reflects an effective combined federal/state tax rate of 25%. The unallocated shares are reflected as a reduction of stockholders’ equity. No reinvestment is assumed on proceeds contributed to fund the ESOP. The pro forma net income further assumes that 62,000, 72,200, 82,400 and 94,130 shares were committed to be released during the year ended December 31, 2024 at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, according to ASC 718-40. Only the shares committed to be released during the period were considered outstanding for purposes of income per share calculations. |
| (3) | If approved by Avidia Bancorp’s stockholders, one or more stock-based benefit plans may grant an aggregate number of shares of common stock equal to 4% of the sum of the number of shares sold in the stock offering and contributed to the charitable foundation (or possibly a greater number of shares if the plan is implemented more than one year after completion of the conversion and stock offering), as restricted stock awards to our officers, employees and directors. Stockholder approval of the stock-based benefit plans, and purchases by the plan, may not occur earlier than six months after the completion of the conversion and stock offering. The shares may be acquired directly from Avidia Bancorp or through open market purchases. Avidia Bancorp will provide the funds to be used by the stock-based benefit plans to purchase the shares. The table assume that (i) the stock-based benefit plans acquire the shares through open market purchases at $10.00 per share, (ii) 20% of the amount contributed to the stock-based benefit plans is amortized as an expense during the year and (iii) the stock-based benefit plans expense reflects an effective combined federal/state tax rate of 25%. Assuming stockholder approval of the stock-based benefit plans and that shares of common stock (equal to 4% of the sum of the number of shares sold in the stock offering and contributed to the charitable foundation are awarded through the issuance of authorized but unissued shares of common stock, stockholders would have their ownership and voting interests diluted by approximately 3.85%. |
| (4) | If approved by Avidia Bancorp’s stockholders, one or more stock-based benefit plans may grant options to acquire an aggregate number of shares of common stock equal to 10% of the sum of the number of shares sold in the stock offering and contributed to the charitable foundation (or possibly a greater number of shares if the plan is implemented more than one year after completion of the conversion and stock offering). Stockholder approval of the stock-based benefit plans may not occur earlier than six months after the completion of the conversion and stock offering. In calculating the pro forma effect of the stock options to be granted under stock-based benefit plans, it is assumed that the exercise price of the stock options and the trading price of the common stock at the date of grant were $10.00 per share, the estimated grant-date fair value determined using the Black-Scholes option pricing model was $5.32 for each option, the aggregate grant-date fair value of the stock options was amortized to expense on a straight-line basis over a five-year vesting period, and that 25% of the amortization expense (or the assumed portion relating to options granted to directors) resulted in a tax benefit using an assumed effective combined federal/state tax rate of 25%. The actual expense of the stock options to be granted under the stock-based benefit plans will be determined by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used in the option pricing model ultimately adopted. Under the above assumptions, the grant of options under the stock-based benefit plans will result in no additional shares under the treasury stock method for purposes of calculating earnings per share. There can be no assurance that the actual exercise price of the stock options will be equal to the $10.00 price per share. If a portion of the shares to satisfy the exercise of options under the stock-based benefit plans is obtained from the issuance of authorized but unissued shares, our net income per share and stockholders’ equity per share would decrease. Assuming stockholder approval of the stock-based benefit plans and that shares of common stock used to fund stock options (equal to 10% of the sum of the number of shares sold in the stock offering and contributed to the charitable foundation) are awarded through the issuance of authorized but unissued shares of common stock, stockholders would have their ownership and voting interests diluted by approximately 9.09%. |
| (5) | The retained earnings of Avidia Bank will be substantially restricted after the conversion and stock offering. See “Our Policy Regarding Dividends,” “The Conversion and Stock Offering – Liquidation Rights” and “Supervision and Regulation.” |
