hbt_Current_Folio_10Q

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

OR

 

     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to

Commission file number: 001-39085

HBT Financial, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware

37-1117216

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

401 North Hershey Rd

Bloomington, Illinois 61704

(888) 897-2276

(Address of principal executive offices,
including zip code)

(Registrant’s telephone number,
including area code)

 

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

HBT

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company”  in Rule 12b-2 of the Exchange Act.

 

 

 

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

 

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. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of April 30, 2020, there were 27,457,306 shares outstanding of the registrant’s common stock, $0.01 par value.

 

 

 

 

Table of Contents

TABLE OF CONTENTS
HBT Financial, Inc.

 

    

Page

 

 

 

PART I. FINANCIAL INFORMATION 

 

3

Item 1. 

Consolidated Financial Statements

 

3

 

Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

 

3

 

Consolidated Statements of Income for the three months ended March 31, 2020 and 2019

 

4

 

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019

 

5

 

Consolidated Statement of Changes in Stockholders’ Equity for the three months ended March 31, 2020 and 2019

 

6

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019

 

7

 

Notes to Consolidated Financial Statements

 

9

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

45

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

 

79

Item 4. 

Controls and Procedures

 

80

PART II. OTHER INFORMATION 

 

81

Item 1. 

Legal Proceedings

 

81

Item 1A. 

Risk Factors

 

81

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

 

83

Item 3. 

Defaults Upon Senior Securities

 

83

Item 4. 

Mine Safety Disclosures

 

83

Item 5. 

Other Information

 

83

Item 6. 

Exhibits

 

84

 

 

 

 

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this quarterly report are forward-looking statements. Forward-looking statements may include statements relating to our plans, strategies and expectations, the economic impact of COVID-19 and our future financial results, near-term loan growth, net interest margin, mortgage banking profits, wealth management fees, expenses, asset quality, capital levels, continued earnings and liquidity. Forward looking statements are generally identifiable by use of the words "believe," "may," "will," "should," "could," "expect," "estimate," "intend," "anticipate," "project," "plan" or similar expressions. Forward looking statements are frequently based on assumptions that may or may not materialize and are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that could cause actual results to differ materially from the results anticipated or projected and which could materially and adversely affect our operating results, financial condition or prospects include, but are not limited to:

·

our asset quality and any loan charge-offs;

·

the composition of our loan portfolio;

·

time and effort necessary to resolve nonperforming assets and the loans modified or deferred as a result of the impact of the COVID-19 pandemic;

·

the length and severity of the COVID-19 pandemic, and the effects of the COVID-19 pandemic, including the impact of the pandemic on our operations and the operations of our customers and the communities that we serve;

·

environmental liability associated with our lending activities;

·

the effects of the current low interest rate environment or changes in interest rates on our net interest income, net interest margin, our investments, and our loan originations, and our modeling estimates relating to interest rate changes;

·

our access to sources of liquidity and capital to address our liquidity needs;

·

our inability to receive dividends from our Banks, pay dividends to our common stockholders or satisfy obligations as they become due;

·

the effects of problems encountered by other financial institutions;

·

our ability to achieve organic loan and deposit growth and the composition of such growth;

·

our ability to attract and retain skilled employees or changes in our management personnel;

·

any failure or interruption of our information and communications systems;

·

our ability to identify and address cybersecurity risks;

·

the effects of the failure of any component of our business infrastructure provided by a third party;

·

our ability to keep pace with technological changes;

·

our ability to successfully develop and commercialize new or enhanced products and services;

·

current and future business, economic and market conditions in the United States generally or in Illinois in particular;

·

the geographic concentration of our operations in the State of Illinois;

·

our ability to effectively compete with other financial services companies and the effects of competition in the financial services industry on our business;

·

our ability to attract and retain customer deposits;

·

our ability to maintain our Banks’ reputations;

·

severe weather, natural disasters, pandemics, acts of war or terrorism or other external events;

·

possible impairment of our goodwill and other intangible assets;

·

the impact of, and changes in applicable laws, regulations and accounting standards and policies;

·

our prior status as an S Corp;

·

possible changes in trade, monetary and fiscal policies of, and other activities undertaken by, governments, agencies, central banks and similar organizations;

·

the effectiveness of our risk management and internal disclosure controls and procedures;

·

market perceptions associated with certain aspects of our business;

·

the one-time and incremental costs of operating as a standalone public company;

·

our ability to meet our obligations as a public company, including our obligations under Section 404 of Sarbanes-Oxley;

·

damage to our reputation from any of the factors described above; and

1

Table of Contents

·

the factors discussed in “Risk Factors”, "Management's Discussion and Analysis of Financial Condition and Results of Operations" or elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2019.

These risks and uncertainties, as well as the factors discussed under "Risk Factors," should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Forward-looking statements speak only as of the date they are made. We do not undertake any obligation to update any forward-looking statement in the future, or to reflect circumstances and events that occur after the date on which the forward-looking statement was made.

2

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1.         CONSOLIDATED FINANCIAL STATEMENTS

HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

    

(Unaudited)

   

 

 

 

March 31, 

 

December 31, 

 

 

2020

 

2019

 

 

(dollars in thousands)

ASSETS

 

 

 

 

 

 

Cash and due from banks

 

$

34,782

 

$

22,112

Interest-bearing deposits with banks

 

 

230,654

 

 

261,859

Cash and cash equivalents

 

 

265,436

 

 

283,971

 

 

 

 

 

 

 

Interest-bearing time deposits with banks

 

 

 —

 

 

248

Debt securities available-for-sale, at fair value

 

 

615,565

 

 

592,404

Debt securities held-to-maturity (fair value of $83,564 in 2020 and $90,529 in 2019)

 

 

79,741

 

 

88,477

Equity securities

 

 

4,759

 

 

4,389

Restricted stock, at cost

 

 

2,425

 

 

2,425

Loans held for sale

 

 

4,805

 

 

4,531

Loans, net of allowance for loan losses of $26,087 in 2020 and $22,299 in 2019

 

 

2,106,865

 

 

2,141,527

Bank premises and equipment, net

 

 

54,135

 

 

53,987

Bank premises held for sale

 

 

121

 

 

121

Foreclosed assets

 

 

4,469

 

 

5,099

Goodwill

 

 

23,620

 

 

23,620

Core deposit intangible assets, net

 

 

3,713

 

 

4,030

Mortgage servicing rights, at fair value

 

 

6,347

 

 

8,518

Investments in unconsolidated subsidiaries

 

 

1,165

 

 

1,165

Accrued interest receivable

 

 

12,096

 

 

13,951

Other assets

 

 

27,847

 

 

16,640

Total assets

 

$

3,213,109

 

$

3,245,103

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest-bearing

 

$

676,341

 

$

689,116

Interest-bearing

 

 

2,053,962

 

 

2,087,739

Total deposits

 

 

2,730,303

 

 

2,776,855

 

 

 

 

 

 

 

Securities sold under agreements to repurchase

 

 

40,811

 

 

44,433

Subordinated debentures

 

 

37,599

 

 

37,583

Other liabilities

 

 

64,583

 

 

53,314

Total liabilities

 

 

2,873,296

 

 

2,912,185

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Notes 7 and 17)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

Preferred stock, $0.01 par value, 25,000,000 shares authorized, none issued or outstanding

 

 

 —

 

 

 —

Common stock, $0.01 par value; 125,000,000 shares authorized; 27,457,306 shares issued and outstanding

 

 

275

 

 

275

Surplus

 

 

190,591

 

 

190,524

Retained earnings

 

 

136,378

 

 

134,287

Accumulated other comprehensive income

 

 

12,569

 

 

7,832

Total stockholders’ equity

 

 

339,813

 

 

332,918

Total liabilities and stockholders’ equity

 

$

3,213,109

 

$

3,245,103

 

See accompanying Notes to Consolidated Financial Statements (Unaudited)

 

 

3

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HBT FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

    

2020

    

2019

 

INTEREST AND DIVIDEND INCOME

 

(dollars in thousands, except per share amounts)

 

Loans, including fees:

 

 

 

 

 

 

 

Taxable

 

$

26,941

 

$

30,063

 

Federally tax exempt

 

 

674

 

 

710

 

Securities:

 

 

 

 

 

 

 

Taxable

 

 

3,334

 

 

3,922

 

Federally tax exempt

 

 

1,028

 

 

1,552

 

Interest-bearing deposits in bank

 

 

729

 

 

687

 

Other interest and dividend income

 

 

14

 

 

15

 

Total interest and dividend income

 

 

32,720

 

 

36,949

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

 

 

Deposits

 

 

1,595

 

 

1,983

 

Securities sold under agreements to repurchase

 

 

20

 

 

14

 

Borrowings

 

 

 —

 

 

 3

 

Subordinated debentures

 

 

443

 

 

497

 

Total interest expense

 

 

2,058

 

 

2,497

 

Net interest income

 

 

30,662

 

 

34,452

 

PROVISION FOR LOAN LOSSES

 

 

4,355

 

 

776

 

Net interest income after provision for loan losses

 

 

26,307

 

 

33,676

 

 

 

 

 

 

 

 

 

NONINTEREST INCOME

 

 

 

 

 

 

 

Card income

 

 

1,792

 

 

1,832

 

Service charges on deposit accounts

 

 

1,834

 

 

1,763

 

Wealth management fees

 

 

1,814

 

 

1,747

 

Mortgage servicing

 

 

724

 

 

729

 

Mortgage servicing rights fair value adjustment

 

 

(2,171)

 

 

(1,002)

 

Gains on sale of mortgage loans

 

 

536

 

 

525

 

Gains (losses) on securities

 

 

(52)

 

 

79

 

Gains (losses) on foreclosed assets

 

 

35

 

 

(17)

 

Gains (losses) on other assets

 

 

(3)

 

 

905

 

Title insurance activity

 

 

 —

 

 

129

 

Other noninterest income

 

 

743

 

 

797

 

Total noninterest income

 

 

5,252

 

 

7,487

 

 

 

 

 

 

 

 

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

Salaries

 

 

12,754

 

 

12,522

 

Employee benefits

 

 

2,434

 

 

1,244

 

Occupancy of bank premises

 

 

1,828

 

 

1,837

 

Furniture and equipment

 

 

603

 

 

789

 

Data processing

 

 

1,586

 

 

1,162

 

Marketing and customer relations

 

 

1,044

 

 

933

 

Amortization of intangible assets

 

 

317

 

 

376

 

FDIC insurance

 

 

36

 

 

219

 

Loan collection and servicing

 

 

348

 

 

742

 

Foreclosed assets

 

 

89

 

 

164

 

Other noninterest expense

 

 

2,268

 

 

2,224

 

Total noninterest expense

 

 

23,307

 

 

22,212

 

INCOME BEFORE INCOME TAX EXPENSE

 

 

8,252

 

 

18,951

 

INCOME TAX EXPENSE

 

 

2,031

 

 

215

 

NET INCOME

 

$

6,221

 

$

18,736

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE - BASIC

 

$

0.23

 

$

1.04

 

EARNINGS PER SHARE - DILUTED

 

$

0.23

 

$

1.04

 

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING

 

 

27,457,306

 

 

18,027,512

 

 

 

 

 

 

 

 

 

UNAUDITED PRO FORMA C CORP EQUIVALENT INFORMATION (Note 1)

 

 

 

 

 

 

 

Historical income before income tax expense

 

 

 

 

$

18,951

 

Pro forma C Corp equivalent income tax expense

 

 

 

 

 

4,915

 

Pro forma C Corp equivalent net income

 

 

 

 

$

14,036

 

 

 

 

 

 

 

 

 

PRO FORMA C CORP EQUIVALENT EARNINGS PER SHARE - BASIC

 

 

 

 

$

0.78

 

PRO FORMA C CORP EQUIVALENT EARNINGS PER SHARE - DILUTED

 

 

 

 

$

0.78

 

 

See accompanying Notes to Consolidated Financial Statements (Unaudited)

 

 

4

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HBT FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

2020

    

2019

 

 

(dollars in thousands)

 

NET INCOME

$

6,221

 

$

18,736

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

Unrealized gains (losses) on debt securities available-for-sale

 

7,602

 

 

5,656

 

Reclassification adjustment for accretion of net unrealized gain on debt securities transferred to held-to-maturity

 

(9)

 

 

(82)

 

Unrealized losses on derivative instruments

 

(970)

 

 

(244)

 

Reclassification adjustment for net settlements on derivative instruments

 

 2

 

 

(30)

 

Total other comprehensive income (loss), before tax

 

6,625

 

 

5,300

 

Income tax expense

 

1,888

 

 

 —

 

Total other comprehensive income (loss)

 

4,737

 

 

5,300

 

TOTAL COMPREHENSIVE INCOME

$

10,958

 

$

24,036

 

 

See accompanying Notes to Consolidated Financial Statements (Unaudited)

 

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HBT FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

Total

 

 

Common Stock

 

 

 

 

Retained

 

Comprehensive

 

Treasury

 

Stockholders’

 

    

Voting

    

Series A

    

Surplus

    

Earnings

    

Income (Loss)

    

Stock

    

Equity

 

 

(dollars in thousands, except per share data)

Balance, December 31, 2019

 

$

275

 

$

 —

 

$

190,524

 

$

134,287

 

$

7,832

 

$

 —

 

$

332,918

Net income

 

 

 —

 

 

 —

 

 

 —

 

 

6,221

 

 

 —

 

 

 —

 

 

6,221

Other comprehensive income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

4,737

 

 

 —

 

 

4,737

Stock-based compensation

 

 

 —

 

 

 —

 

 

67

 

 

 —

 

 

 —

 

 

 —

 

 

67

Cash dividends ($0.15 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(4,130)

 

 

 —

 

 

 —

 

 

(4,130)

Balance, March 31, 2020

 

$

275

 

$

 —

 

$

190,591

 

$

136,378

 

$

12,569

 

$

 —

 

$

339,813

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

$

 3

 

$

178

 

$

32,288

 

$

315,234

 

$

(4,288)

 

$

(3,019)

 

$

340,396

Net income

 

 

 —

 

 

 —

 

 

 —

 

 

18,736

 

 

 —

 

 

 —

 

 

18,736

Other comprehensive income

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

5,300

 

 

 —

 

 

5,300

Cash dividends ($1.99 per share)

 

 

 —

 

 

 —

 

 

 —

 

 

(35,839)

 

 

 —

 

 

 —

 

 

(35,839)

Balance, March 31, 2019

 

$

 3

 

$

178

 

$

32,288

 

$

298,131

 

$

1,012

 

$

(3,019)

 

$

328,593

 

See accompanying Notes to Consolidated Financial Statements (Unaudited)

 

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Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

    

2020

    

2019

 

 

(dollars in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net income

 

$

6,221

 

$

18,736

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation expense

 

 

690

 

 

703

Provision for loan losses

 

 

4,355

 

 

776

Net amortization of debt securities

 

 

790

 

 

932

Amortization of unrealized gain on dedesignated cash flow hedge

 

 

(32)

 

 

 —

Deferred income tax benefit

 

 

(678)

 

 

 —

Stock-based compensation

 

 

67

 

 

 —

Net accretion of discount and deferred loan fees on loans

 

 

(922)

 

 

(1,699)

Net unrealized loss (gain) on equity securities

 

 

52

 

 

(79)

Net loss (gain) on sales of bank premises and equipment

 

 

 3

 

 

(30)

Net gain on sales of bank premises held for sale

 

 

 —

 

 

(79)

Net gain on sales of foreclosed assets

 

 

(75)

 

 

(89)

Write-down of foreclosed assets

 

 

47

 

 

125

Amortization of intangibles

 

 

317

 

 

376

Decrease in mortgage servicing rights

 

 

2,171

 

 

1,002

Amortization of subordinated debt purchase accounting adjustment

 

 

16

 

 

16

Mortgage loans originated for sale

 

 

(32,156)

 

 

(21,780)

Proceeds from sale of mortgage loans

 

 

32,418

 

 

22,609

Net gain on sale of mortgage loans

 

 

(536)

 

 

(525)

Gain on sale of First Community Title Services, Inc.

 

 

 —

 

 

(498)

Decrease in accrued interest receivable

 

 

1,855

 

 

44

Decrease in other assets

 

 

887

 

 

437

Increase in other liabilities

 

 

(2,971)

 

 

(1,302)

Net cash provided by operating activities

 

 

12,519

 

 

19,675

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Net change in interest-bearing time deposits with banks

 

 

248

 

 

 —

Proceeds from paydowns, maturities, and calls of debt securities

 

 

48,305

 

 

41,784

Purchase of securities

 

 

(56,349)

 

 

(34,149)

Net decrease (increase) in loans

 

 

31,210

 

 

(38,777)

Purchases of bank premises and equipment

 

 

(841)

 

 

(298)

Proceeds from sales of bank premises and equipment

 

 

 —

 

 

176

Proceeds from sales of bank premises held for sale

 

 

 —

 

 

620

Proceeds from sales of foreclosed assets

 

 

677

 

 

511

Cash received from sale of First Community Title Services, Inc.

 

 

 —

 

 

114

Net cash provided by (used in) investing activities

 

 

23,250

 

 

(30,019)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Net (decrease) increase in deposits

 

 

(46,552)

 

 

25,473

Net decrease in repurchase agreements

 

 

(3,622)

 

 

(5,667)

Cash dividends paid

 

 

(4,130)

 

 

(35,839)

Net cash used in financing activities

 

 

(54,304)

 

 

(16,033)

 

 

 

 

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(18,535)

 

 

(26,377)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

 

 

283,971

 

 

186,879

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

265,436

 

$

160,502

 

See accompanying Notes to Consolidated Financial Statements (Unaudited)

7

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HBT FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

    

2020

    

2019

 

 

(dollars in thousands)

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

Cash paid for interest

 

$

2,166

 

$

2,182

Cash paid for income taxes

 

$

985

 

$

880

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES

 

 

 

 

 

 

Transfers of loans to foreclosed assets

 

$

19

 

$

1,408

Sales of foreclosed assets through loan origination

 

$

 —

 

$

269

 

See accompanying Notes to Consolidated Financial Statements (Unaudited)

 

 

 

8

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – ACCOUNTING POLICIES

Basis of Presentation

HBT Financial, Inc. (the Company) is headquartered in Bloomington, Illinois and is the holding company for Heartland Bank and Trust Company (Heartland Bank) and State Bank of Lincoln. Heartland Bank and State Bank of Lincoln are collectively referred to as “the Banks”. The Banks provide a comprehensive suite of business, commercial, wealth management and retail banking products and services to individuals, businesses, and municipal entities throughout Central and Northeastern Illinois.

The unaudited consolidated financial statements, including the notes thereto, have been prepared in accordance with generally accepted accounting principles (GAAP) interim reporting requirements. Certain information in footnote disclosures normally included in financial statements prepared in accordance with GAAP has been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. These interim unaudited consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 27, 2020.

The unaudited consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results for interim periods are not necessarily indicative of results for a full year.

The Company qualifies as an "emerging growth company" as defined by the Jumpstart Our Business Startups Act (JOBS Act). Under the JOBS Act, emerging growth companies may also elect to delay adoption of new or revised accounting standards until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards and, therefore, the Company will not be subject to certain new or revised accounting standards as other public companies.

Use of Estimates

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and the reported results of operations for the periods then ended.

Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for loan losses and income taxes.

Income Taxes

Through October 10, 2019, the Company, with the consent of its then current stockholders, elected to be taxed under sections of federal and state income tax law as an "S Corporation" which provides that, in lieu of Company income taxes, except for state replacement taxes, the stockholders separately account for their pro rata shares of the Company’s items of income, deductions, losses and credits. As a result of this election, no income taxes, other than state replacement taxes, have been recognized in the accompanying consolidated financial statements. No provision has been made for any amounts which may be advanced or paid as dividends to the stockholders to assist them in paying their personal taxes on the income from the Company.

9

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Effective October 11, 2019, the Company voluntarily revoked its S Corporation status and became a taxable entity (C Corporation). As such, any periods prior to October 11, 2019 only reflect an effective state replacement tax rate.

The Company files consolidated federal and state income tax returns. The Company is no longer subject to federal or state income tax examinations for years prior to 2016.

Unaudited Pro Forma Income Statement Information

The unaudited pro forma C Corp equivalent income tax expense information gives effect to the income tax expense had the Company been a C Corporation during the three months ended March 31, 2019. The unaudited pro forma C Corp equivalent net income information, therefore, includes an adjustment for income tax expense as if the Company had been a C Corporation during the three months ended March 31, 2019.

The unaudited pro forma basic and diluted earnings per share information is computed using the unaudited pro forma C Corp equivalent net income and weighted average shares of common stock outstanding. There were no dilutive instruments outstanding during 2019, therefore, the unaudited pro forma C Corp equivalent basic and diluted earnings per share amounts are the same.

Segment Reporting

The Company’s operations consist of one reportable segment called community banking. While the Company’s management monitors both bank subsidiaries’ operations and profitability separately, these subsidiaries have been aggregated into one reportable segment due to the similarities in products and services, customer base, operations, profitability measures, and economic characteristics.

Goodwill

Goodwill represents the excess of the original cost over the fair value of assets acquired and liabilities assumed. Goodwill is not amortized but instead is subject to an annual impairment evaluation. The Company has selected December 31 as the date to perform the annual impairment test, and at December 31, 2019, the Company’s evaluation of goodwill indicated that goodwill was not impaired.

Due to the economic weakness resulting from the COVID-19 pandemic, the Company completed an evaluation of goodwill as of March 31, 2020 which indicated that goodwill was not impaired as of March 31, 2020. Further goodwill impairment evaluations, which may result in goodwill impairment, may be necessary if events or circumstance changes would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation without any impact on the reported amounts of net income or stockholders’ equity.

Subsequent Events

In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential of recognition or disclosure through the date the financial statements were issued.

10

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016‑13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016‑13 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 and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016‑13 amends the accounting for credit losses on debt securities available-for-sale and purchased financial assets with credit deterioration. ASU 2016‑13 is effective for years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for years beginning after December 31, 2018, including interim periods within those years. The Company is currently evaluating the effect that this standard will have on the consolidated results of operations and financial position.

In January 2017, the FASB issued ASU 2017‑04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies measurement of goodwill and eliminates Step 2 from the goodwill impairment test. Under the ASU, a company should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The impairment charge is limited to the amount of goodwill allocated to that reporting unit. The amendments in this update are effective for annual or any interim goodwill impairment tests in years beginning after December 15, 2022, including interim periods within those years. Early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. This standard is not expected to have a material impact on the Company’s consolidated results of operations or financial position.

 

NOTE 2 – SECURITIES

The carrying balances of the securities were as follows:

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

    

2020

    

2019

 

 

(dollars in thousands)

Debt securities available-for-sale

 

$

615,565

 

$

592,404

Debt securities held-to-maturity

 

 

79,741

 

 

88,477

Equity securities:

 

 

 

 

 

 

Readily determinable fair value

 

 

3,207

 

 

3,241

No readily determinable fair value

 

 

1,552

 

 

1,148

Total securities

 

$

700,065

 

$

685,270

 

The Company has elected to measure the equity securities with no readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes for identical or similar securities of the same issuer. During the three months ended March 31, 2020 and 2019,  there were no adjustments to the carrying balance of equity securities with no readily determinable fair value based on an observable price change of an identical investment. As of March 31, 2020 and December 31, 2019, the carrying balance of equity securities with no readily determinable fair value reflect cumulative downward adjustments based on observable price changes of $165,000. There have been no impairments or upward adjustments based on observable price changes to equity securities with no readily determinable fair value.

11

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The amortized cost and fair values of debt securities, with gross unrealized gains and losses, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

    

Amortized
Cost

    

Gross
Unrealized
Gains

    

Gross
Unrealized
Losses

    

Fair Value

Available-for-sale:

 

(dollars in thousands)

U.S. government agency

 

$

48,983

 

$

2,192

 

$

 —

 

$

51,175

Municipal

 

 

164,853

 

 

3,577

 

 

(185)

 

 

168,245

Mortgage-backed:

 

 

 

 

 

 

 

 

 

 

 

 

Agency residential

 

 

184,507

 

 

5,015

 

 

(904)

 

 

188,618

Agency commercial

 

 

128,583

 

 

4,050

 

 

(116)

 

 

132,517

Corporate

 

 

73,140

 

 

1,928

 

 

(58)

 

 

75,010

Total available-for-sale

 

 

600,066

 

 

16,762

 

 

(1,263)

 

 

615,565

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

Municipal

 

 

32,780

 

 

1,198

 

 

 —

 

 

33,978

Mortgage-backed:

 

 

 

 

 

 

 

 

 

 

 

 

Agency residential

 

 

17,989

 

 

471

 

 

(16)

 

 

18,444

Agency commercial

 

 

28,972

 

 

2,173

 

 

(3)

 

 

31,142

Total held-to-maturity

 

 

79,741

 

 

3,842

 

 

(19)

 

 

83,564

Total debt securities

 

$

679,807

 

$

20,604

 

$

(1,282)

 

$

699,129

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

    

Amortized
Cost

    

Gross
Unrealized
Gains

    

Gross
Unrealized
Losses

    

Fair Value

Available-for-sale:

 

(dollars in thousands)

U.S. government agency

 

$

49,113

 

$

529

 

$

(27)

 

$

49,615

Municipal

 

 

131,241

 

 

2,503

 

 

(6)

 

 

133,738

Mortgage-backed:

 

 

 

 

 

 

 

 

 

 

 

 

Agency residential

 

 

198,184

 

 

2,780

 

 

(286)

 

 

200,678

Agency commercial

 

 

133,730

 

 

1,516

 

 

(292)

 

 

134,954

Corporate

 

 

72,239

 

 

1,180

 

 

 —

 

 

73,419

Total available-for-sale

 

 

584,507

 

 

8,508

 

 

(611)

 

 

592,404

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

Municipal

 

 

45,239

 

 

1,340

 

 

 —