Note 1 – Basis of Presentation
HBT Financial completed its merger with Town and Country on February 1, 2023. The merger is accounted for under the acquisition method of accounting and, accordingly the assets and liabilities of Town and Country, presented in this unaudited pro forma condensed combined financial information have been adjusted to their fair values based upon conditions as of the merger date and as if the merger had been effective on January 1, 2022 for the unaudited pro forma condensed combined income statement.
The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not indicate the financial results of the combined company had the companies actually been combined at the beginning of the period presented. The unaudited pro forma condensed combined financial information also does not consider any expense efficiencies, increased revenue or other potential financial benefits of the merger. The fair value adjustments are estimates as of the date hereof and are subject to refinement for up to one year after the closing date as additional information regarding the closing date fair values becomes available.
Note 2 – Purchase Price
Pursuant to the merger agreement, shares of Town and Country common stock, in the aggregate, were exchanged for 3,378,600 shares of HBT common stock and $38.0 million in cash. Based upon the closing price of HBT Financial common stock of $21.12 on February 1, 2023, this represents total consideration of $109.4 million.
Note 3 – recent accounting pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13, also commonly referred to as the current expected credit loss (“CECL”) standard, requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.
Additionally, under the CECL standard, an acquiror is required to determine whether purchased loans held for investment have experienced more-than-insignificant deterioration in credit quality since origination, referred to as purchase credit deteriorated (“PCD”). An acquiror initially measures the amortized cost of a PCD loan by adding the acquisition date estimate of expected credit losses to the loan’s purchase price.
HBT Financial and Town and Country each adopted the CECL standard on January 1, 2023 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Accordingly, the unaudited pro forma condensed combined financial information as of and for the year ended December 31, 2022 does not reflect the effects of the CECL standard.
Upon adoption of the CECL standard, a cumulative effect adjustment was recognized by HBT Financial resulting in an after-tax decrease to retained earnings of $6.9 million as of January 1, 2023. This transition adjustment includes a $7.0 million impact due to the increase in the allowance for credit losses, a $2.9 million impact due to the establishment of a liability for off-balance sheet credit losses, and a $2.7 million impact due to the tax effect of the transition adjustment.
