8-K/A
Stellar Bancorp, Inc. (STEL)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934
Date of Report (Date of earliest event Reported):
October 1, 2022
Stellar Bancorp, Inc.
(Exact Name of Registrant as Specified in Charter)
| Texas | 001-38280 | 20-8339782 |
|---|---|---|
| (State or Other Jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification Number) |
9 Greenway Plaza, Suite 110
Houston, Texas 77046
(Address of Principal Executive Offices) (Zip Code)
(713) 210-7600
(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR<br> 240.14d-2(b)) |
| --- | --- |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR<br> 240.13e-4(c)) |
| --- | --- |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common stock, par value $0.01 per share | STEL | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x
Introductory Note
As previously disclosed, effective October 1, 2022, Stellar Bancorp, Inc., a Texas corporation formerly known as CBTX, Inc. (the “Company”), completed its previously announced merger of equals (the “Merger”) with Allegiance Bancshares, Inc., a Texas corporation (“Allegiance”), pursuant to an Agreement and Plan of Merger, dated as of November 5, 2021, by and between the Company and Allegiance. At closing, Allegiance merged with and into the Company, with the Company as the surviving corporation.
This Amendment No. 1 on Form 8-K/A (this “Form 8-K/A”) is being filed to amend Item 9.01 of the Company’s Current Report filed with the Securities and Exchange Commission on October 3, 2022 (the “Original Form 8-K”) in order to include the historical financial statements of Allegiance required by Item 9.01(a) of Form 8-K and the pro forma financial information required by Item 9.01(b) of Form 8-K. Except as described in the Form 8-K/A, all other information in the Original Form 8-K remains unchanged.
| Item 9.01. | Financial Statements and Exhibits. |
|---|
(a) Financial Statements of Business Acquired.
The audited consolidated balance sheets of Allegiance as of December 31, 2021 and 2020 and consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the years ended December 31, 2021, 2020 and 2019 and related notes are included as Exhibit 99.1 to this Form 8-K/A and incorporated herein by reference.
The unaudited consolidated balance sheet of Allegiance at June 30, 2022 and consolidated statements of income for the three and six months ended June 30, 2022 and 2021, consolidated statements of comprehensive income for the three and six months ended June 30, 2022 and 2021, consolidated statements of changes in shareholders’ equity for the three and six months ended June 30, 2022 and 2021 and consolidated statements of cash flows for the six months ended June 30, 2022 and 2021 and related notes are included as Exhibit 99.2 to this Form 8-K/A and incorporated herein by reference.
(b) Pro Forma Financial Information.
The unaudited pro forma combined condensed consolidated statement of financial condition of Stellar Bancorp as of June 30, 2022 and the unaudited pro forma combined condensed statement of income for the six months ended June 30, 2022 and for the year ended December 31, 2021, after giving effect to the Merger and the adjustments described in such pro forma financial statements, are included as Exhibit 99.3 to this Form 8-K/A and incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: October 26, 2022
| STELLAR BANCORP, INC. | |
|---|---|
| By: | /s/ Paul P. Egge |
| Name: | Paul P. Egge |
| Title: | Chief Financial Officer |
Exhibit 23.1
CONSENT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements of Stellar Bancorp, Inc. (formerly known as CBTX, Inc.) on Form S-8 (file No. 333-221589 and file No. 333-262322) of our report dated February 25, 2022, with respect to the consolidated financial statements and effectiveness of internal control over financial reporting, included in the Annual Report on Form 10-K of Allegiance Bancshares, Inc. for the year ended December 31, 2021, which is incorporated by reference in this Current Report on Form 8-K/A.
/s/ Crowe LLP
Dallas, Texas
October 26, 2022
Exhibit 99.3
UNAUDITED PRO FORMA COMBINED CONDENSEDCONSOLIDATED FINANCIAL INFORMATION
The following tables present unaudited condensed consolidated financial information for each of CBTX and Allegiance, as well as unaudited pro forma combined condensed consolidated financial information for CBTX and Allegiance reflecting the merger and pro forma adjustments described in the accompanying notes. CBTX and Allegiance have prepared the unaudited pro forma combined condensed consolidated statements of income to give pro forma effect to the merger as if it had been consummated on January 1, 2021, and the unaudited pro forma combined condensed consolidated statement of financial condition to give pro forma to the merger as if it had been consummated on June 30, 2022.
The unaudited pro forma combined condensed consolidated financial information appearing below assumes that the merger is accounted for as a reverse acquisition using the acquisition method of accounting, pursuant to FASB Topic 805-10, Business Combinations, with CBTX treated as the legal acquirer and Allegiance treated as the accounting acquirer. In identifying Allegiance as the acquiring entity for accounting purposes, CBTX and Allegiance took into account a number of factors, including the relative size of CBTX and Allegiance prior to the consummation of the merger and the relative voting rights of all equity instruments in the combined company. No single factor was the sole determinant in the overall conclusion that Allegiance is the acquirer for accounting purposes; rather all factors were considered in arriving at such conclusion. Under the acquisition method of accounting, the assets and liabilities of CBTX, as the accounting acquiree, will be recorded at their respective fair values as of the date the merger is completed.
The unaudited pro forma adjustments, including the allocations of the purchase price, are preliminary and have been made solely for the purpose of providing unaudited pro forma combined condensed consolidated financial information with materially relevant estimated adjustments. Certain reclassifications have been made to the historical financial statements of CBTX to conform to the presentation in Allegiance’s financial statements. Accordingly, the unaudited pro forma combined condensed consolidated financial information is presented for illustrative purposes only and is not necessarily indicative of the results that might have occurred had the merger taken place on January 1, 2021, for statement of income purposes and on June 30, 2022, for statement of financial condition purposes, and is not intended to be a projection of future results. Historical results for any prior period are not necessarily indicative of results to be expected in any future period. A final determination of the acquisition consideration and fair values of CBTX’s assets and liabilities, which remains subject to final calculation and is not yet available, will be based on the actual net tangible and intangible assets of CBTX that existed as of the date of completion of the merger. Consequently, amounts preliminarily allocated to goodwill and identifiable intangibles could change significantly from those allocations used in the unaudited pro forma combined condensed consolidated financial information presented below and could result in a material change in amortization of acquired intangible assets.
The unaudited pro forma combined condensed consolidated financial information includes nonrecurring estimated after-tax merger costs, but does not include the benefits of expected cost savings or opportunities to earn additional revenue, as these are nonrecurring in nature and not factually supportable. Estimated after-tax merger costs are subject to change.
The unaudited pro forma combined condensed consolidated financial information is provided for illustrative information purposes only. The unaudited pro forma combined condensed consolidated financial information is not necessarily, and should not be assumed to be, an indication of the actual results that would have been achieved had the merger been completed as of the dates indicated or that may be achieved in the future. The preparation of the unaudited pro forma combined financial statements and related adjustments required management to make certain assumptions and estimates. The unaudited pro forma combined condensed consolidated financial statements should be read together with:
| • | the accompanying notes to the unaudited pro forma combined condensed consolidated financial statements; |
|---|---|
| • | CBTX’s separate audited historical consolidated financial statements and accompanying notes as of and for the year ended December 31,<br>2021, included in CBTX’s Annual Report on Form 10-K for the year ended December 31, 2021; |
| --- | --- |
| • | CBTX’s separate unaudited historical consolidated financial statements and accompanying notes as of and for the six months ended<br>June 30, 2022, included in CBTX’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022; |
| --- | --- |
| • | Allegiance’s separate audited historical consolidated financial statements and accompanying notes as of and for the year ended<br>December 31, 2021, included in Allegiance’s Annual Report on Form 10-K for the year ended December 31, 2021; and |
| --- | --- |
| • | Allegiance’s separate unaudited historical consolidated financial statements and accompanying notes as of and for the six months<br>ended June 30, 2022, included in Allegiance’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022. |
| --- | --- |
Pro Forma Combined Condensed Consolidated Statementof Financial ConditionAs of June 30, 2022(Unaudited)
(Dollars in thousands, except share data)
| CBTX | Allegiance | Pro Forma<br> Adjustments<br> (See Note 4 ) | Pro Forma<br> Combined | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||||||||
| Cash and cash equivalents | $ | 483,966 | $ | 292,837 | $ | — | $ | 776,803 | ||||||
| Investment securities | 550,083 | 1,709,321 | — | 2,259,404 | ||||||||||
| Loans held for investment | 3,032,914 | 4,348,833 | (112,592 | ) | (1 | ) | 7,269,155 | |||||||
| Allowance for credit losses on loans | (32,087 | ) | (50,242 | ) | 5,971 | (2 | ) | (76,358 | ) | |||||
| Loans, net | 3,000,827 | 4,298,591 | (106,621 | ) | 7,192,797 | |||||||||
| Premises and equipment, net | 56,010 | 58,482 | — | 114,492 | ||||||||||
| Goodwill | 80,950 | 223,642 | 183,841 | (3 | ) | 488,433 | ||||||||
| Core deposit intangibles, net | 130 | 13,156 | 16,811 | (4 | ) | 30,097 | ||||||||
| Other intangibles, net | 3,223 | — | — | 3,223 | ||||||||||
| Other assets | 147,114 | 135,735 | 28,580 | (5 | ) | 311,429 | ||||||||
| TOTAL ASSETS | $ | 4,322,303 | $ | 6,731,764 | $ | 122,611 | $ | 11,176,678 | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||
| LIABILITIES: | ||||||||||||||
| Deposits: | ||||||||||||||
| Noninterest-bearing | $ | 1,810,275 | $ | 2,394,719 | $ | — | $ | 4,204,994 | ||||||
| Interest-bearing | 1,946,359 | 3,485,913 | 1,284 | (6 | ) | 5,433,556 | ||||||||
| Total deposits | 3,756,634 | 5,880,632 | 1,284 | 9,638,550 | ||||||||||
| Subordinated debt | — | 109,109 | — | 109,109 | ||||||||||
| Other liabilities | 38,990 | 36,694 | 45,000 | (7 | ) | 120,684 | ||||||||
| Total liabilities | 3,795,624 | 6,026,435 | 46,284 | 9,868,343 | ||||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||||||||
| Common stock | 253 | 20,154 | (19,868 | ) | (8 | ) | 539 | |||||||
| Common stock surplus | 334,104 | 504,165 | 351,244 | (9 | ) | 1,189,513 | ||||||||
| Retained earnings | 253,180 | 296,477 | (301,861 | ) | (10 | ) | 247,796 | |||||||
| Treasury stock, at cost, 826,995 shares held | (14,046 | ) | — | — | (14,046 | ) | ||||||||
| Accumulated other comprehensive loss | (46,812 | ) | (115,467 | ) | 46,812 | (11 | ) | (115,467 | ) | |||||
| Total shareholders’ equity | 526,679 | 705,329 | 76,327 | 1,308,335 | ||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 4,322,303 | $ | 6,731,764 | $ | 122,611 | $ | 11,176,678 |
See accompanying notes to unaudited pro forma combined condensed consolidated financial statements.
2
Pro Forma Combined Condensed Consolidated Statementof IncomeFor The Six Month Period Ended June 30, 2022(Unaudited)
(Dollars and shares in thousands, except per share data)
| CBTX | Allegiance | Pro Forma <br> Adjustments<br> (See Note 4 ) | Pro Forma <br> Combined | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Interest income: | |||||||||||
| Loans, including fees | $ | 62,989 | $ | 106,205 | $ | 15,166 | (12 | ) | $ | 184,360 | |
| Securities | 5,229 | 15,721 | 3,395 | (13 | ) | 24,345 | |||||
| Other | 1,898 | 1,217 | — | 3,115 | |||||||
| Total interest income | 70,116 | 123,143 | 18,561 | 211,820 | |||||||
| Interest expense: | |||||||||||
| Deposits | 2,342 | 7,284 | (1,284 | ) | (14 | ) | 8,342 | ||||
| Other borrowings | 272 | 3,205 | — | 3,477 | |||||||
| Total interest expense | 2,614 | 10,489 | (1,284 | ) | 11,819 | ||||||
| Net interest income | 67,502 | 112,654 | 19,845 | 200,001 | |||||||
| Provision for credit losses | 561 | 3,957 | 16,621 | (15 | ) | 21,139 | |||||
| Net interest income after provision for credit losses | 66,941 | 108,697 | 3,224 | 178,862 | |||||||
| Noninterest income | 8,875 | 6,722 | — | 15,597 | |||||||
| Noninterest expense | 48,410 | 72,421 | 2,108 | (16 | ) | 122,939 | |||||
| Net income before taxes | 27,406 | 42,998 | 1,116 | 71,520 | |||||||
| Income tax expense | 5,104 | 7,904 | 234 | (17 | ) | 13,242 | |||||
| Net income | $ | 22,302 | $ | 35,094 | $ | 882 | $ | 58,278 | |||
| Pro Forma Combined Per Share Data | |||||||||||
| Earnings(a): | |||||||||||
| Basic | $ | 0.91 | $ | 1.72 | $ | 1.10 | |||||
| Diluted | $ | 0.91 | $ | 1.71 | $ | 1.09 | |||||
| Dividends(b) | $ | 0.26 | $ | 0.28 | $ | 0.26 | |||||
| Weighted average shares outstanding: | |||||||||||
| Basic | 24,495 | 20,360 | 8,226 | (18 | ) | 53,081 | |||||
| Diluted | 24,613 | 20,522 | 8,311 | (18 | ) | 53,446 | |||||
| (a) | The pro forma combined earnings per share amounts were calculated by totaling the historical earnings of CBTX and Allegiance,<br>adjusted for purchase accounting entries, and dividing the resulting amount by the average pro forma shares of CBTX and Allegiance,<br>giving effect to the merger as if it had occurred as of January 1, 2021. The average pro forma shares of CBTX and Allegiance<br>reflect historical basic and diluted shares of CBTX, plus historical basic and diluted average shares of Allegiance, as adjusted based<br>on the fixed exchange ratio of 1.4184 shares of CBTX common stock for each share of Allegiance common stock. The number of shares to be<br>issued is subject to adjustment in certain limited circumstances. See pro forma adjustment (18) in Note 4. | ||||||||||
| --- | --- | ||||||||||
| (b) | Pro forma combined cash dividends per share represents CBTX’s historical amounts only. Total dividends paid by CBTX during<br>the six months ended June 30, 2022, were $6.4 million. | ||||||||||
| --- | --- |
See accompanying notes to unaudited pro forma combined condensed consolidated financial statements.
3
Pro Forma Combined Condensed Consolidated Statementof IncomeFor The Year Ended December 31, 2021(Unaudited)
(Dollars and shares in thousands, except per share data)
| CBTX | Allegiance | Pro Forma <br> Adjustments<br> (See Note 4 ) | Pro Forma <br> Combined | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Interest income: | |||||||||||||
| Loans, including fees | $ | 124,605 | $ | 230,713 | $ | 30,333 | (12 | ) | $ | 385,651 | |||
| Securities | 5,736 | 21,798 | 6,789 | (13 | ) | 34,323 | |||||||
| Other | 1,752 | 673 | — | 2,425 | |||||||||
| Total interest income | 132,093 | 253,184 | 37,122 | 422,399 | |||||||||
| Interest expense: | |||||||||||||
| Deposits | 5,024 | 16,993 | (1,284 | ) | (14 | ) | 20,733 | ||||||
| Other borrowings | 902 | 7,627 | — | 8,529 | |||||||||
| Total interest expense | 5,926 | 24,620 | (1,284 | ) | 29,262 | ||||||||
| Net interest income | 126,167 | 228,564 | 38,406 | 393,137 | |||||||||
| Provision for credit losses | (10,773 | ) | (2,322 | ) | 16,621 | (15 | ) | 3,526 | |||||
| Net interest income after provision for credit losses | 136,940 | 230,886 | 21,785 | 389,611 | |||||||||
| Noninterest income | 16,264 | 8,562 | — | 24,826 | |||||||||
| Noninterest expense | 107,686 | 139,554 | 2,108 | (16 | ) | 249,348 | |||||||
| Net income before taxes | 45,518 | 99,894 | 19,677 | 165,089 | |||||||||
| Income tax expense | 9,920 | 18,341 | 4,132 | (17 | ) | 32,393 | |||||||
| Net income | $ | 35,598 | $ | 81,553 | $ | 15,545 | $ | 132,696 | |||||
| Pro Forma Combined Per Share Data | |||||||||||||
| Earnings(a): | |||||||||||||
| Basic | $ | 1.46 | $ | 4.04 | $ | 2.49 | |||||||
| Diluted | $ | 1.45 | $ | 4.01 | $ | 2.47 | |||||||
| Dividends(b) | $ | 0.52 | $ | 0.48 | $ | 0.52 | |||||||
| Weighted average shares outstanding: | |||||||||||||
| Basic | 24,456 | 20,206 | 8,640 | (18 | ) | 53,302 | |||||||
| Diluted | 24,572 | 20,355 | 8,703 | (18 | ) | 53,630 | |||||||
| (a) | The pro forma combined earnings per share amounts were calculated by totaling the historical earnings of CBTX and Allegiance,<br>adjusted for purchase accounting entries, and dividing the resulting amount by the average pro forma shares of CBTX and Allegiance,<br>giving effect to the merger as if it had occurred as of January 1, 2021. The average pro forma shares of CBTX and Allegiance<br>reflect historical basic and diluted shares of CBTX, plus historical basic and diluted average shares of Allegiance, as adjusted based<br>on the fixed exchange ratio of 1.4184 shares of CBTX common stock for each share of Allegiance common stock. The number of shares to be<br>issued is subject to adjustment in certain limited circumstances. See pro forma adjustment (18) in Note 4. | ||||||||||||
| --- | --- | ||||||||||||
| (b) | Pro forma combined cash dividends per share represents CBTX’s historical amounts only. Total dividends declared by CBTX<br>during the year ended December 31, 2021, were $12.9 million. | ||||||||||||
| --- | --- |
See accompanying notes to unaudited pro forma combined condensed consolidated financial statements.
4
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The unaudited pro forma combined condensed consolidated financial information and explanatory notes have been prepared to give pro forma effect to the merger under the acquisition method of accounting with CBTX treated as the legal acquirer and Allegiance treated as the accounting acquirer. The unaudited pro forma combined condensed consolidated financial information is presented for illustrative purposes only and does not necessarily indicate the financial results of the combined companies had the companies actually been combined at the beginning of the periods presented, nor does it necessarily indicate the results of operations in future periods or the future financial position of the combined entity. Under the acquisition method of accounting, the assets and liabilities of CBTX (as the accounting acquiree), as of the effective date of the merger, will be recorded at their respective fair values, and the excess of the purchase price consideration over the fair value of CBTX’s net assets will be allocated to goodwill. See Note 2 to the unaudited pro forma combined condensed consolidated financial information for detailed calculations of the estimated purchase price.
The merger agreement provides for Allegiance common shareholders to receive 1.4184 shares of CBTX common stock for each share of Allegiance common stock they hold immediately prior to the merger.
The preparation of the unaudited pro forma condensed combined financial statements and related adjustments required the combined companies’ management to make certain assumptions and estimates, which it believes are reasonable under the circumstances. Accordingly, the unaudited pro forma adjustments, including the allocations of the purchase price, are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information. The unaudited pro forma condensed combined financial statements and other unaudited pro forma condensed combined financial information are presented for illustrative purposes only and are not necessarily indicative of the results that might have occurred had the merger taken place on January 1, 2021, for statement of income purposes and on June 30, 2022, for statement of financial condition purposes. A final determination of the fair values of each company’s assets and liabilities will be based on the actual net tangible and intangible assets of each respective company that existed as of the date of completion of the merger and are subject to adjustments for up to a year after the completion of the merger. Consequently, amounts preliminarily allocated to goodwill and identifiable intangibles could change significantly from those allocations used in the unaudited pro forma condensed combined financial statements presented below and could result in a material change in amortization of acquired intangible assets.
The accounting policies of both CBTX and Allegiance are in the process of being reviewed in detail, and CBTX and Allegiance have not identified all adjustments necessary to conform the respective accounting policies of CBTX and Allegiance to a single accounting policy. As a result of that review, differences could be identified between the accounting policies of the two companies that, when conformed, could have a material impact on the combined company’s financial information.
As a result of the foregoing, the pro forma adjustments are preliminary and are subject to change as additional information becomes available and as additional analysis is performed. Additionally, market conditions, particularly interest rates, were dynamic between June 30, 2022 and October 1, 2022 (the date of the completion of the merger), and therefore certain purchase accounting adjustments may be impacted. The preliminary pro forma adjustments have been made solely for the purpose of providing the unaudited pro forma combined condensed consolidated financial information.
Note 2. Purchase Price Determination
The unaudited pro forma combined condensed consolidated statement of financial condition has been adjusted to reflect the preliminary calculation of the estimated purchase price to identifiable net assets acquired. Since the merger will be accounted for as a reverse acquisition, the estimated purchase price was determined in accordance with FASB ASC 805-40-30-2, which provides that the purchase price in a reverse acquisition is determined based on “the number of equity interests the legal acquiree would have had to issue to give the owners of the legal acquirer the same percentage equity interest in the combined entity that results from the reverse acquisition.”
The first step in estimating the purchase price in the merger is to determine the pro forma ownership of the combined entity following the merger. The tables below show the calculation to determine the pro forma ownership of CBTX common stock following the merger using shares of CBTX common stock and Allegiance common stock outstanding at June 30, 2022 and the fixed exchange ratio of 1.4184 applied to Allegiance outstanding shares.
5
| CBTX | Allegiance | ||||
|---|---|---|---|---|---|
| Shares of common stock outstanding as of June 30, 2022 | 24,425,261 | 20,154,284 | |||
| Fixed exchange ratio | 1.4184 | ||||
| CBTX shares to be issued to Allegiance shareholders | 28,586,836 | ||||
| Pro Forma CBTX Ownership as of June 30, 2022: | Pro Forma Shares | Percentage <br> Ownership | |||
| --- | --- | --- | --- | --- | --- |
| CBTX pro forma shares | 24,425,261 | 46 | % | ||
| Allegiance pro forma shares | 28,586,836 | 54 | % | ||
| 53,012,097 | 100 | % | |||
| Pro Forma Ratio of CBTX to Allegiance | 85 | % |
Next, the hypothetical number of shares Allegiance would have to issue to give CBTX owners the same percentage ownership in the combined company is calculated in the table below using the pro forma ratio of CBTX shares to Allegiance shares noted above:
| Hypothetical Allegiance ownership as of June 30, 2022: | Allegiance <br> Number of Shares | Percentage <br> Ownership | |||
|---|---|---|---|---|---|
| Hypothetical number of Allegiance shares issued to CBTX | 17,220,291 | 46 | % | ||
| Current Allegiance shares outstanding | 20,154,284 | 54 | % | ||
| 37,374,575 | 100 | % |
Finally, the purchase price is calculated based on the number of hypothetical shares of Allegiance common stock issued to CBTX shareholders multiplied by the closing share price of Allegiance common stock as of June 30, 2022, plus the value of the outstanding CBTX stock options assumed to be converted to Allegiance stock options, as demonstrated in the table below (dollars in thousands except per share data).
| Reverse Acquisition Purchase Price Determination | ||
|---|---|---|
| Hypothetical number of Allegiance shares issued to CBTX | 17,220,291 | |
| Allegiance price per share as of June 30, 2022 | $ | 37.76 |
| Hypothetical purchase price for accounting purposes | $ | 650,238 |
| Value of stock options converted as part of consideration | 1,450 | |
| Purchase Price Consideration | $ | 651,688 |
Note 3. Preliminary Purchase Price Allocation
The pro forma financial statements include the estimated acquisition accounting entries to record the completion of the merger. The excess of the purchase price over the fair value of net assets acquired, net of deferred taxes, is allocated to goodwill. Estimated fair value adjustments included in the pro forma financial statements are based upon available information and certain assumptions considered reasonable, and may be revised as additional information becomes available.
Core deposit intangible assets of $16.9 million are included in the pro forma adjustments separate from goodwill and will be amortized using an accelerated method over seven years. Goodwill totaling $264.8 million is included in the pro forma adjustments and is not subject to amortization. The purchase price is variable based on, among other factors, the price per share of Allegiance’s common stock at the closing date of the merger. For example, a 10% increase or decrease in the price per share of Allegiance common stock would result in a corresponding purchase price and goodwill adjustment of approximately $65.5 million.
6
| (Amounts in thousands) | ||||
|---|---|---|---|---|
| Purchase price consideration: | $ | 651,688 | ||
| Fair value of assets acquired: | ||||
| Cash and cash equivalents | $ | 483,966 | ||
| Investment securities | 550,083 | |||
| Loans held for investment, net of allowance for credit losses on loans | 2,910,827 | |||
| Premises and equipment, net | 56,010 | |||
| Core deposit intangibles, net | 16,941 | |||
| Other intangible assets, net | 3,223 | |||
| Other assets | 162,755 | |||
| Total assets acquired | $ | 4,183,805 | ||
| Fair value of liabilities assumed: | ||||
| Deposits | $ | 3,757,918 | ||
| Other liabilities | 38,990 | |||
| Total liabilities | 3,796,908 | |||
| Net assets acquired | 386,897 | |||
| Preliminary pro forma goodwill | $ | 264,791 |
Note 4. Pro Forma Adjustments
The following pro forma adjustments have been reflected in the unaudited pro forma combined condensed consolidated financial information. All taxable adjustments were calculated using a 21.0% tax rate to arrive at deferred tax asset or liability adjustments. All adjustments are based on current assumptions and valuations, which are subject to change.
| (1) | Adjustment to CBTX's total loans, net of unrecognized fees of $8.7 million, to reflect the estimated<br> credit fair value adjustment of the non-purchase credit deteriorated (“non-PCD”) loan portfolio of $16.6 million and the estimated interest rate fair value adjustment of the loan portfolio of $104.7 million. The<br> fair value adjustment on loans has been updated as market conditions, particularly interest rates, were dynamic between<br> June 30, 2022 and the completion of the merger. No other changes to purchase accounting adjustments are reflected. The fair<br> value adjustments are subject to change and will be updated in connection with closing. As such, the financial statements of the<br> resulting company will differ from the analysis presented above. The fair value adjustments will be accreted through loan interest<br> income over the estimated lives of the affected loans. The weighted average remaining life of the loan portfolio was estimated at<br> approximately four years. |
|---|---|
| (2) | Elimination of CBTX’s existing allowance for credit losses on loans of $32.1 million and the recognition of an allowance<br>at close for PCD loans of $9.5 million. In addition, an allowance for non-PCD loans of $16.6 million is reflected in the pro forma<br>adjustments and represents the amount that will be recognized in the statement of income immediately following the close of the merger. |
| --- | --- |
| (3) | Adjustments to goodwill to eliminate CBTX’s goodwill of $81.0 million associated with prior acquisitions and to record<br>estimated goodwill associated with the merger of $264.8 million, calculated as the fair value consideration paid in the acquisition<br>of CBTX (see Note 2. Purchase Price Determination), less amounts allocated to fair value of identifiable assets acquired and liabilities<br>assumed. |
| --- | --- |
| (4) | Adjustment to eliminate CBTX’s core deposit intangibles of $130 thousand related to prior acquisitions and record estimated<br>core deposit intangible assets associated with the merger of $16.9 million. Core deposit intangible assets recorded as a result of<br>the merger are expected to be amortized using an accelerated basis over a period of seven years. |
| --- | --- |
7
| (5) | Adjustment to net deferred tax assets to reflect the after-tax effects of the acquisition accounting<br> adjustments of $15.6 million, the $16.6 million provision for credit losses for non-PCD loans and $45.0 million of<br> estimated merger expenses expected to be incurred, using a 21% tax rate. |
|---|---|
| (6) | Adjustment to CBTX’s time deposits to reflect the differences in interest rates, which was based primarily on an analysis of<br>current market interest rates and maturity dates. |
| --- | --- |
| (7) | Adjustment to reflect the estimated merger expenses of $45.0 million. |
| --- | --- |
| (8) | Adjustment to reflect the issuance of 28.6 million shares of CBTX common stock, with $0.01 par value per share in connection<br>with the merger and elimination of 20.2 million shares of Allegiance common stock with $1.00 par value per share. |
| --- | --- |
| (9) | Adjustments to eliminate CBTX’s surplus of $334.1 million, record the hypothetical issuance of Allegiance common stock<br>in excess of par value of $651.7 million, which represents the purchase price consideration less 28.6 million common shares<br>classified as $0.01 par value common stock and reclassify Allegiance’s historical equity accounts (common stock) into surplus due<br>to the elimination of Allegiance’s common stock and record the purchase price consideration. |
| --- | --- |
| (10) | Adjustments to retained earnings to reflect the after-tax effect of the provision for credit losses for non-PCD loans and estimated<br>contractually obligated merger expenses expected to be incurred. See adjustment (9). |
| --- | --- |
| (11) | Adjustments to eliminate historical accumulated other comprehensive income of CBTX. |
| --- | --- |
| (12) | Adjustment to interest income to recognize estimated discounted accretion attributable to recording CBTX’s loan portfolio at<br>fair value as of transaction date. |
| --- | --- |
| (13) | Adjustment to interest income to recognize estimated accretion, net of reversal of historical accretion<br> / amortization, associated with purchased discount on securities. |
| (14) | Adjustment to deposit interest expense to reflect accretion of deposit premium from fair value adjustment to CBTX’s time deposits<br>over an estimated one year average life. |
| --- | --- |
| (15) | Provision expense for estimated lifetime credit losses for non-PCD loans of $16.6 million to be recorded immediately following<br>consummation of the merger. |
| --- | --- |
| (16) | Adjustment to reverse CBTX amortization and reflect amortization of acquired identifiable intangible assets based on amortization<br>period of seven years using an accelerated method. |
| --- | --- |
| (17) | Adjustment to recognize the tax impact related to pro forma adjustments at 21.0%. |
| --- | --- |
| (18) | Adjustment to eliminate Allegiance’s average common shares outstanding during the periods presented and recognize the issuance<br>of 28.6 million shares of CBTX common stock based on Allegiance’s 20.2 million common shares outstanding at June 30,<br>2022 and the issuance of 28.8 million shares of CBTX common stock based on Allegiance’s 20.3 million common shares outstanding<br>at December 31, 2021, and the merger exchange ratio of 1.4184. Average diluted shares outstanding also include the effect of performance<br>share units and stock options, adjusted for the merger exchange ratio of 1.4184. |
| --- | --- |
8