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

Table of Contents

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

Table of Contents

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

Table of Contents

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

Table of Contents

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

 

 

 —

 

 

46,579

Mortgage-backed:

 

 

 

 

 

 

 

 

 

 

 

 

Agency residential

 

 

19,072

 

 

161

 

 

(170)

 

 

19,063

Agency commercial

 

 

24,166

 

 

775

 

 

(54)

 

 

24,887

Total held-to-maturity

 

 

88,477

 

 

2,276

 

 

(224)

 

 

90,529

Total debt securities

 

$

672,984

 

$

10,784

 

$

(835)

 

$

682,933

 

As of March 31, 2020 and December 31, 2019, the Banks had debt securities with a carrying value of $286,716,000 and $284,895,000, respectively, which were pledged to secure public and trust deposits, securities sold under agreements to repurchase, and for other purposes required or permitted by law.

The Company has no direct exposure to the State of Illinois, but approximately 42% of the obligations of local municipalities portfolio consists of debt securities issued by municipalities located in Illinois as of March 31, 2020. Approximately 87% of such debt securities were general obligation issues as of March 31, 2020.

12

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The amortized cost and fair value of debt securities by contractual maturity, as of March 31, 2020, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-Sale

 

Held-to-Maturity

 

    

Amortized
Cost

    

Fair Value

    

Amortized
Cost

    

Fair Value

 

 

(dollars in thousands)

Due in 1 year or less

 

$

47,084

 

$

47,237

 

$

750

 

$

755

Due after 1 year through 5 years

 

 

93,864

 

 

95,997

 

 

17,243

 

 

17,745

Due after 5 years through 10 years

 

 

120,398

 

 

124,689

 

 

13,896

 

 

14,551

Due after 10 years

 

 

25,630

 

 

26,507

 

 

891

 

 

927

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed:

 

 

 

 

 

 

 

 

 

 

 

 

Agency residential

 

 

184,507

 

 

188,618

 

 

17,989

 

 

18,444

Agency commercial

 

 

128,583

 

 

132,517

 

 

28,972

 

 

31,142

Total

 

$

600,066

 

$

615,565

 

$

79,741

 

$

83,564

 

There were no sales of securities were as follows during the three months ended March 31, 2020 and 2019. Gains (losses) on securities were as follows during the three months ended March 31:

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

2020

    

2019

    

 

(dollars in thousands)

 

Net realized gains (losses) on sales

$

 —

 

$

 —

 

Net unrealized gains (losses) on equities:

 

 

 

 

 

 

Readily determinable fair value

 

(52)

 

 

79

 

No readily determinable fair value

 

 —

 

 

 —

 

Gains (losses) on securities

$

(52)

 

$

79

 

 

13

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following tables present gross unrealized losses and fair value of debt securities, aggregated by category and length of time that individual debt securities have been in a continuous unrealized loss position, as of March 31, 2020 and December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments in a Continuous Unrealized Loss Position

 

 

Less than 12 Months

 

12 Months or More

 

Total

March 31, 2020

    

Unrealized
Loss

    

Fair Value

    

Unrealized
Loss

    

Fair Value

    

Unrealized
Loss

    

Fair Value

Available-for-sale:

 

(dollars in thousands)

Municipal

 

$

(185)

 

$

5,049

 

$

 —

 

$

 —

 

$

(185)

 

$

5,049

Mortgage-backed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency residential

 

 

(648)

 

 

34,061

 

 

(256)

 

 

8,442

 

 

(904)

 

 

42,503

Agency commercial

 

 

 —

 

 

 —

 

 

(116)

 

 

14,322

 

 

(116)

 

 

14,322

Corporate

 

 

(58)

 

 

6,942

 

 

 —

 

 

 —

 

 

(58)

 

 

6,942

Total available-for-sale

 

 

(891)

 

 

46,052

 

 

(372)

 

 

22,764

 

 

(1,263)

 

 

68,816

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency residential

 

 

 —

 

 

 —

 

 

(16)

 

 

1,549

 

 

(16)

 

 

1,549

Agency commercial

 

 

 —

 

 

 —

 

 

(3)

 

 

534

 

 

(3)

 

 

534

Total held-to-maturity

 

 

 —

 

 

 —

 

 

(19)

 

 

2,083

 

 

(19)

 

 

2,083

Total debt securities

 

$

(891)

 

$

46,052

 

$

(391)

 

$

24,847

 

$

(1,282)

 

$

70,899

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments in a Continuous Unrealized Loss Position

 

 

Less than 12 Months

 

12 Months or More

 

Total

December 31, 2019

    

Unrealized
Loss

    

Fair Value

    

Unrealized
Loss

    

Fair Value

    

Unrealized
Loss

    

Fair Value

Available-for-sale:

 

(dollars in thousands)

U.S. government agency

 

$

(26)

 

$

18,865

 

$

(1)

 

$

1,998

 

$

(27)

 

$

20,863

Municipal

 

 

(6)

 

 

894

 

 

 —

 

 

 —

 

 

(6)

 

 

894

Mortgage-backed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency residential

 

 

(108)

 

 

25,563

 

 

(178)

 

 

27,296

 

 

(286)

 

 

52,859

Agency commercial

 

 

(100)

 

 

20,056

 

 

(192)

 

 

15,704

 

 

(292)

 

 

35,760

Total available-for-sale

 

$

(240)

 

$

65,378

 

$

(371)

 

$

44,998

 

$

(611)

 

$

110,376

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency residential

 

$

(30)

 

$

2,516

 

$

(140)

 

$

9,002

 

$

(170)

 

$

11,518

Agency commercial

 

 

(47)

 

 

7,016

 

 

(7)

 

 

599

 

 

(54)

 

 

7,615

Total held-to-maturity

 

 

(77)

 

 

9,532

 

 

(147)

 

 

9,601

 

 

(224)

 

 

19,133

Total debt securities

 

$

(317)

 

$

74,910

 

$

(518)

 

$

54,599

 

$

(835)

 

$

129,509

 

As of March 31, 2020, there were 17 debt securities in an unrealized loss position for a period of twelve months or more, and 53 debt securities in an unrealized loss position for a period of less than twelve months. These unrealized losses are primarily a result of fluctuations in market interest rates. In analyzing an issuer’s financial condition, management considers whether the debt securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports. Management believes that all declines in value of these debt securities are deemed to be temporary.

 

 

14

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES

Major categories of loans are summarized as follows:

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

    

2020

    

2019

 

 

(dollars in thousands)

Commercial and industrial

 

$

299,266

 

$

307,175

Agricultural and farmland

 

 

228,701

 

 

207,776

Commercial real estate - owner occupied

 

 

229,608

 

 

231,162

Commercial real estate - non-owner occupied

 

 

540,515

 

 

579,757

Multi-family

 

 

177,172

 

 

179,073

Construction and land development

 

 

232,311

 

 

224,887

One-to-four family residential

 

 

313,925

 

 

313,580

Municipal, consumer, and other

 

 

111,454

 

 

120,416

Loans, before allowance for loan losses

 

 

2,132,952

 

 

2,163,826

Allowance for loan losses

 

 

(26,087)

 

 

(22,299)

Loans, net of allowance for loan losses

 

$

2,106,865

 

$

2,141,527

 

The following tables detail activity in the allowance for loan losses for the three months ended March 31:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

Commercial

 

 

 

 

 

 

 

 

 

 

Municipal,

 

 

 

 

 

Commercial

 

Agricultural

 

Real Estate

 

Real Estate

 

 

 

 

Construction

 

One-to-four

 

Consumer,

 

 

 

 

 

and

 

and

 

Owner

 

Non-owner

 

 

 

 

and Land

 

Family

 

and

 

 

 

Three Months Ended March 31, 2020

    

Industrial

    

Farmland

    

Occupied

    

Occupied

    

Multi-Family

    

Development

    

Residential

    

Other

    

Total

Allowance for loan losses:

 

(dollars in thousands)

Balance, December 31, 2019

 

$

4,441

 

$

2,766

 

$

1,779

 

$

3,663

 

$

1,024

 

$

2,977

 

$

2,540

 

$

3,109

 

$

22,299

Provision for loan losses

 

 

538

 

 

254

 

 

(97)

 

 

820

 

 

450

 

 

237

 

 

777

 

 

1,376

 

 

4,355

Charge-offs

 

 

(809)

 

 

(27)

 

 

 —

 

 

(56)

 

 

 —

 

 

(1)

 

 

(104)

 

 

(224)

 

 

(1,221)

Recoveries

 

 

54

 

 

 —

 

 

440

 

 

 5

 

 

 —

 

 

10

 

 

71

 

 

74

 

 

654

Balance, March 31, 2020

 

$

4,224

 

$

2,993

 

$

2,122

 

$

4,432

 

$

1,474

 

$

3,223

 

$

3,284

 

$

4,335

 

$

26,087

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

Agricultural

 

Real Estate

 

Real Estate

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

 

 

 

and

 

and

 

Owner

 

Non-owner

 

 

 

 

Construction

 

Residential

 

and

 

 

 

Three Months Ended March 31, 2019

    

Industrial

    

Farmland

    

Occupied

    

Occupied

    

Multi-Family

    

and Land

    

Real Estate

    

Other

    

Total

Allowance for loan losses:

 

(dollars in thousands)

Balance, December 31, 2018

 

$

3,748

 

$

2,650

 

$

2,506

 

$

2,644

 

$

912

 

$

4,176

 

$

2,782

 

$

1,091

 

$

20,509

Provision for loan losses

 

 

222

 

 

598

 

 

(107)

 

 

74

 

 

60

 

 

(290)

 

 

211

 

 

 8

 

 

776

Charge-offs

 

 

(256)

 

 

 —

 

 

(65)

 

 

 —

 

 

 —

 

 

 —

 

 

(37)

 

 

(175)

 

 

(533)

Recoveries

 

 

48

 

 

 —

 

 

19

 

 

 4

 

 

 —

 

 

11

 

 

111

 

 

68

 

 

261

Balance, March 31, 2019

 

$

3,762

 

$

3,248

 

$

2,353

 

$

2,722

 

$

972

 

$

3,897

 

$

3,067

 

$

992

 

$

21,013

 

15

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following tables present the recorded investments in loans and the allowance for loan losses by category as of March 31, 2020 and December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

Commercial

 

 

 

 

 

 

 

 

 

 

Municipal,

 

 

 

 

 

Commercial

 

Agricultural

 

Real Estate

 

Real Estate

 

 

 

 

Construction

 

One-to-four

 

Consumer,

 

 

 

 

 

and

 

and

 

Owner

 

Non-owner

 

 

 

 

and Land

 

Family

 

and

 

 

 

March 31, 2020

    

Industrial

    

Farmland

    

Occupied

    

Occupied

    

Multi-Family

    

Development

    

Residential

    

Other

    

Total

Loan balances:

 

(dollars in thousands)

Collectively evaluated for impairment

 

$

287,998

 

$

214,328

 

$

210,206

 

$

522,305

 

$

175,874

 

$

225,768

 

$

292,250

 

$

97,603

 

$

2,026,332

Individually evaluated for impairment

 

 

9,122

 

 

13,303

 

 

11,171

 

 

3,367

 

 

 —

 

 

3,120

 

 

11,394

 

 

13,762

 

 

65,239

Acquired with deteriorated credit quality

 

 

2,146

 

 

1,070

 

 

8,231

 

 

14,843

 

 

1,298

 

 

3,423

 

 

10,281

 

 

89

 

 

41,381

Total

 

$

299,266

 

$

228,701

 

$

229,608

 

$

540,515

 

$

177,172

 

$

232,311

 

$

313,925

 

$

111,454

 

$

2,132,952

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for impairment

 

$

2,260

 

$

2,832

 

$

1,618

 

$

4,354

 

$

1,467

 

$

2,771

 

$

2,524

 

$

899

 

$

18,725

Individually evaluated for impairment

 

 

1,859

 

 

90

 

 

261

 

 

68

 

 

 —

 

 

323

 

 

719

 

 

3,435

 

 

6,755

Acquired with deteriorated credit quality

 

 

105

 

 

71

 

 

243

 

 

10

 

 

 7

 

 

129

 

 

41

 

 

 1

 

 

607

Total

 

$

4,224

 

$

2,993

 

$

2,122

 

$

4,432

 

$

1,474

 

$

3,223

 

$

3,284

 

$

4,335

 

$

26,087

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

Commercial

 

 

 

 

 

 

 

 

 

 

Municipal,

 

 

 

 

 

Commercial

 

Agricultural

 

Real Estate

 

Real Estate

 

 

 

 

Construction

 

One-to-four

 

Consumer,

 

 

 

 

 

and

 

and

 

Owner

 

Non-owner

 

 

 

 

and Land

 

Family

 

and

 

 

 

December 31, 2019

    

Industrial

    

Farmland

    

Occupied

    

Occupied

    

Multi-Family

    

Development

    

Residential

    

Other

    

Total

Loan balances:

 

(dollars in thousands)

Collectively evaluated for impairment

 

$

294,006

 

$

192,722

 

$

211,744

 

$

561,277

 

$

176,273

 

$

217,708

 

$

291,624

 

$

106,448

 

$

2,051,802

Individually evaluated for impairment

 

 

10,733

 

 

13,966

 

 

10,927

 

 

3,398

 

 

1,324

 

 

3,782

 

 

11,349

 

 

13,872

 

 

69,351

Acquired with deteriorated credit quality

 

 

2,436

 

 

1,088

 

 

8,491

 

 

15,082

 

 

1,476

 

 

3,397

 

 

10,607

 

 

96

 

 

42,673

Total

 

$

307,175

 

$

207,776

 

$

231,162

 

$

579,757

 

$

179,073

 

$

224,887

 

$

313,580

 

$

120,416

 

$

2,163,826

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collectively evaluated for impairment

 

$

1,926

 

$

2,576

 

$

1,486

 

$

3,591

 

$

1,019

 

$

2,283

 

$

1,684

 

$

931

 

$

15,496

Individually evaluated for impairment

 

 

2,170

 

 

105

 

 

270

 

 

70

 

 

 —

 

 

567

 

 

822

 

 

2,176

 

 

6,180

Acquired with deteriorated credit quality

 

 

345

 

 

85

 

 

23

 

 

 2

 

 

 5

 

 

127

 

 

34

 

 

 2

 

 

623

Total

 

$

4,441

 

$

2,766

 

$

1,779

 

$

3,663

 

$

1,024

 

$

2,977

 

$

2,540

 

$

3,109

 

$

22,299

 

16

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following tables present loans individually evaluated for impairment by category of loans as of March 31, 2020 and December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

    

Unpaid

 

 

 

   

 

 

 

 

Principal

 

Recorded

 

Related

March 31, 2020

    

Balance

    

Investment

    

Allowance

With an allowance recorded:

 

(dollars in thousands)

Commercial and industrial

 

$

3,458

 

$

3,458

 

$

1,859

Agricultural and farmland

 

 

569

 

 

565

 

 

90

Commercial real estate - owner occupied

 

 

824

 

 

824

 

 

261

Commercial real estate - non-owner occupied

 

 

98

 

 

98

 

 

68

Multi-family

 

 

 —

 

 

 —

 

 

 —

Construction and land development

 

 

3,014

 

 

3,014

 

 

323

One-to-four family residential

 

 

3,184

 

 

3,171

 

 

719

Municipal, consumer, and other

 

 

12,441

 

 

12,414

 

 

3,435

Total

 

$

23,588

 

$

23,544

 

$

6,755

 

 

 

 

 

 

 

 

 

 

With no related allowance:

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

5,665

 

$

5,664

 

$

 —

Agricultural and farmland

 

 

12,753

 

 

12,738

 

 

 —

Commercial real estate - owner occupied

 

 

10,348

 

 

10,347

 

 

 —

Commercial real estate - non-owner occupied

 

 

3,263

 

 

3,269

 

 

 —

Multi-family

 

 

 —

 

 

 —

 

 

 —

Construction and land development

 

 

107

 

 

106

 

 

 —

One-to-four family residential

 

 

8,257

 

 

8,223

 

 

 —

Municipal, consumer, and other

 

 

1,361

 

 

1,348

 

 

 —

Total

 

$

41,754

 

$

41,695

 

$

 —

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

9,123

 

$

9,122

 

$

1,859

Agricultural and farmland

 

 

13,322

 

 

13,303

 

 

90

Commercial real estate - owner occupied

 

 

11,172

 

 

11,171

 

 

261

Commercial real estate - non-owner occupied

 

 

3,361

 

 

3,367

 

 

68

Multi-family

 

 

 —

 

 

 —

 

 

 —

Construction and land development

 

 

3,121

 

 

3,120

 

 

323

One-to-four family residential

 

 

11,441

 

 

11,394

 

 

719

Municipal, consumer, and other

 

 

13,802

 

 

13,762

 

 

3,435

Total

 

$

65,342

 

$

65,239

 

$

6,755

 

17

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Unpaid

 

 

 

 

 

 

 

 

Principal

 

Recorded

 

Related

December 31, 2019

    

Balance

    

Investment

    

Allowance

With an allowance recorded:

 

(dollars in thousands)

Commercial and industrial

 

$

4,292

 

$

4,292

 

$

2,170

Agricultural and farmland

 

 

590

 

 

590

 

 

105

Commercial real estate - owner occupied

 

 

830

 

 

830

 

 

270

Commercial real estate - non-owner occupied

 

 

99

 

 

99

 

 

70

Multi-family

 

 

 —

 

 

 —

 

 

 —

Construction and land development

 

 

3,679

 

 

3,679

 

 

567

One-to-four family residential

 

 

3,401

 

 

3,390

 

 

822

Municipal, consumer, and other

 

 

9,138

 

 

9,111

 

 

2,176

Total

 

$

22,029

 

$

21,991

 

$

6,180

 

 

 

 

 

 

 

 

 

 

With no related allowance:

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

6,438

 

$

6,441

 

$

 —

Agricultural and farmland

 

 

13,369

 

 

13,376

 

 

 —

Commercial real estate - owner occupied

 

 

10,089

 

 

10,097

 

 

 —

Commercial real estate - non-owner occupied

 

 

3,297

 

 

3,299

 

 

 —

Multi-family

 

 

1,328

 

 

1,324

 

 

 —

Construction and land development

 

 

104

 

 

103

 

 

 —

One-to-four family residential

 

 

7,986

 

 

7,959

 

 

 —

Municipal, consumer, and other

 

 

4,775

 

 

4,761

 

 

 —

Total

 

$

47,386

 

$

47,360

 

$

 —

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

10,730

 

$

10,733

 

$

2,170

Agricultural and farmland

 

 

13,959

 

 

13,966

 

 

105

Commercial real estate - owner occupied

 

 

10,919

 

 

10,927

 

 

270

Commercial real estate - non-owner occupied

 

 

3,396

 

 

3,398

 

 

70

Multi-family

 

 

1,328

 

 

1,324

 

 

 —

Construction and land development

 

 

3,783

 

 

3,782

 

 

567

One-to-four family residential

 

 

11,387

 

 

11,349

 

 

822

Municipal, consumer, and other

 

 

13,913

 

 

13,872

 

 

2,176

Total

 

$

69,415

 

$

69,351

 

$

6,180

 

18

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table presents the average recorded investment and interest income recognized for loans individually evaluated for impairment by category of loans during the three months ended March 31, 2020 and 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

2020

 

2019

 

    

Average

 

Interest

 

Average

   

Interest

 

 

Recorded

 

Income

 

Recorded

 

Income

 

    

Investment

    

Recognized

    

Investment

    

Recognized

With an allowance recorded:

 

(dollars in thousands)

Commercial and industrial

 

$

3,486

 

$

49

 

$

3,122

 

$

35

Agricultural and farmland

 

 

573

 

 

 4

 

 

1,733

 

 

20

Commercial real estate - owner occupied

 

 

828

 

 

11

 

 

6,450

 

 

69

Commercial real estate - non-owner occupied

 

 

99

 

 

 2

 

 

103

 

 

 2

Multi-family

 

 

 —

 

 

 —

 

 

1,359

 

 

18

Construction and land development

 

 

3,064

 

 

41

 

 

2,892

 

 

44

One-to-four family residential

 

 

3,261

 

 

27

 

 

3,034

 

 

22

Municipal, consumer, and other

 

 

12,487

 

 

83

 

 

241

 

 

 2

Total

 

$

23,798

 

$

217

 

$

18,934

 

$

212

 

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

5,941

 

$

58

 

$

11,251

 

$

93

Agricultural and farmland

 

 

12,520

 

 

161

 

 

9,562

 

 

101

Commercial real estate - owner occupied

 

 

10,432

 

 

131

 

 

13,024

 

 

133

Commercial real estate - non-owner occupied

 

 

3,340

 

 

41

 

 

8,242

 

 

87

Multi-family

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Construction and land development

 

 

324

 

 

 4

 

 

123

 

 

 1

One-to-four family residential

 

 

8,344

 

 

62

 

 

9,641

 

 

69

Municipal, consumer, and other

 

 

1,370

 

 

56

 

 

146

 

 

 1

Total

 

$

42,271

 

$

513

 

$

51,989

 

$

485

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

9,427

 

$

107

 

$

14,373

 

$

128

Agricultural and farmland

 

 

13,093

 

 

165

 

 

11,295

 

 

121

Commercial real estate - owner occupied

 

 

11,260

 

 

142

 

 

19,474

 

 

202

Commercial real estate - non-owner occupied

 

 

3,439

 

 

43

 

 

8,345

 

 

89

Multi-family

 

 

 —

 

 

 —

 

 

1,359

 

 

18

Construction and land development

 

 

3,388

 

 

45

 

 

3,015

 

 

45

One-to-four family residential

 

 

11,605

 

 

89

 

 

12,675

 

 

91

Municipal, consumer, and other

 

 

13,857

 

 

139

 

 

387

 

 

 3

Total

 

$

66,069

 

$

730

 

$

70,923

 

$

697

 

19

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following tables present the recorded investment in loans by category based on current payment and accrual status as of March 31, 2020 and December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accruing Interest

 

 

 

 

 

 

 

 

 

 

 

30 - 89 Days

 

90+ Days

 

 

 

 

Total

March 31, 2020

    

Current

    

Past Due

    

Past Due

    

Nonaccrual

    

Loans

 

 

(dollars in thousands)

Commercial and industrial

 

$

295,114

 

$

244

 

$

 —

 

$

3,908

 

$

299,266

Agricultural and farmland

 

 

222,877

 

 

 —

 

 

 —

 

 

5,824

 

 

228,701

Commercial real estate - owner occupied

 

 

227,160

 

 

1,642

 

 

 —

 

 

806

 

 

229,608

Commercial real estate - non-owner occupied

 

 

539,807

 

 

485

 

 

 —

 

 

223

 

 

540,515

Multi-family

 

 

177,172

 

 

 —

 

 

 —

 

 

 —

 

 

177,172

Construction and land development

 

 

232,142

 

 

 —

 

 

 —

 

 

169

 

 

232,311

One-to-four family residential

 

 

307,003

 

 

2,416

 

 

264

 

 

4,242

 

 

313,925

Municipal, consumer, and other

 

 

111,040

 

 

214

 

 

 —

 

 

200

 

 

111,454

Total

 

$

2,112,315

 

$

5,001

 

$

264

 

$

15,372

 

$

2,132,952

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accruing Interest

 

 

 

 

 

 

 

 

 

 

 

30 - 89 Days

 

90+ Days

 

 

 

 

Total

December 31, 2019

    

Current

    

Past Due

    

Past Due

    

Nonaccrual

    

Loans

 

 

(dollars in thousands)

Commercial and industrial

 

$

301,975

 

$

558

 

$

 —

 

$

4,642

 

$

307,175

Agricultural and farmland

 

 

201,519

 

 

 —

 

 

 —

 

 

6,257

 

 

207,776

Commercial real estate - owner occupied

 

 

228,218

 

 

941

 

 

 —

 

 

2,003

 

 

231,162

Commercial real estate - non-owner occupied

 

 

579,626

 

 

131

 

 

 —

 

 

 —

 

 

579,757

Multi-family

 

 

177,696

 

 

 —

 

 

 —

 

 

1,377

 

 

179,073

Construction and land development

 

 

224,716

 

 

140

 

 

 —

 

 

31

 

 

224,887

One-to-four family residential

 

 

307,712

 

 

1,329

 

 

75

 

 

4,464

 

 

313,580

Municipal, consumer, and other

 

 

119,898

 

 

247

 

 

26

 

 

245

 

 

120,416

Total

 

$

2,141,360

 

$

3,346

 

$

101

 

$

19,019

 

$

2,163,826

 

20

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following tables present total loans by category based on their assigned risk ratings determined by management as of March 31, 2020 and December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

    

Pass

    

Watch

    

Substandard

    

Doubtful

    

Total

 

 

(dollars in thousands)

Commercial and industrial

 

$

262,646

 

$

25,831

 

$

10,789

 

$

 —

 

$

299,266

Agricultural and farmland

 

 

202,195

 

 

12,409

 

 

14,097

 

 

 —

 

 

228,701

Commercial real estate - owner occupied

 

 

197,131

 

 

20,884

 

 

11,593

 

 

 —

 

 

229,608

Commercial real estate - non-owner occupied

 

 

490,549

 

 

48,008

 

 

1,958

 

 

 —

 

 

540,515

Multi-family

 

 

175,824

 

 

1,348

 

 

 —

 

 

 —

 

 

177,172

Construction and land development

 

 

225,022

 

 

3,765

 

 

3,524

 

 

 —

 

 

232,311

One-to-four family residential

 

 

289,942

 

 

11,406

 

 

12,577

 

 

 —

 

 

313,925

Municipal, consumer, and other

 

 

97,404

 

 

293

 

 

13,757

 

 

 —

 

 

111,454

Total

 

$

1,940,713

 

$

123,944

 

$

68,295

 

$

 —

 

$

2,132,952

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

    

Pass

    

Watch

    

Substandard

    

Doubtful

    

Total

 

 

(dollars in thousands)

Commercial and industrial

 

$

267,645

 

$

27,114

 

$

12,416

 

$

 —

 

$

307,175

Agricultural and farmland

 

 

180,735

 

 

12,267

 

 

14,774

 

 

 —

 

 

207,776

Commercial real estate - owner occupied

 

 

198,710

 

 

21,745

 

 

10,707

 

 

 —

 

 

231,162

Commercial real estate - non-owner occupied

 

 

531,694

 

 

46,092

 

 

1,971

 

 

 —

 

 

579,757

Multi-family

 

 

175,807

 

 

1,771

 

 

1,495

 

 

 —

 

 

179,073

Construction and land development

 

 

217,120

 

 

3,582

 

 

4,185

 

 

 —

 

 

224,887

One-to-four family residential

 

 

287,036

 

 

13,546

 

 

12,998

 

 

 —

 

 

313,580

Municipal, consumer, and other

 

 

106,063

 

 

479

 

 

13,874

 

 

 —

 

 

120,416

Total

 

$

1,964,810

 

$

126,596

 

$

72,420

 

$

 —

 

$

2,163,826

 

There were no troubled debt restructurings during the three months ended March 31, 2020. The following tables present the financial effect of troubled debt restructurings for the three months ended March 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Charge-offs

 

 

 

 

Recorded Investment

 

and Specific

Three Months Ended March 31, 2019

    

Number

    

Pre-Modification

    

Post-Modification

    

Reserves

 

 

(dollars in thousands)

Agricultural and farmland

 

 1

 

$

285

 

$

285

 

$

30

Total

 

 1

 

$

285

 

$

285

 

$

30

 

During the three months ended March 31, 2019, all troubled debt restructurings were the result of a payment concession.

Of the troubled debt restructurings entered into during the last 12 months, there were none which had subsequent payment defaults during the three months ended March 31, 2020 and $672,000 which had subsequent payment defaults during the three months ended March 31, 2019. For purposes of this disclosure, the Company considers “default” to mean 90 days or more past due as to interest or principal or were on nonaccrual status subsequent to restructuring.

As of March 31, 2020 and December 31, 2019, the Company had $8,805,000 and $9,315,000 of troubled debt restructurings, respectively. Restructured loans are evaluated for impairment quarterly as part of the Company’s determination of the allowance for loan losses. There were no material commitments to lend additional funds to debtors owing receivables whose terms have been modified in troubled debt restructurings.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Changes in the accretable yield for loans acquired with deteriorated credit quality were as follows for the three months ended March 31, 2020 and 2019:

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

 

2020

    

2019

 

 

 

(dollars in thousands)

 

Beginning balance

 

$

1,662

 

$

2,101

 

Reclassification from non-accretable difference

 

 

 8

 

 

136

 

Accretion income

 

 

(160)

 

 

(527)

 

Ending balance

 

$

1,510

 

$

1,710

 

 

 

NOTE 4 – LOAN SERVICING

Mortgage loans serviced for others, not included in the accompanying consolidated balance sheets, amounted to $1,127,059,000 and $1,152,535,000 as of March 31, 2020 and December 31, 2019, respectively. Activity in mortgage servicing rights is as follows for the three months ended March 31, 2020 and 2019:

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

 

2020

    

2019

 

 

 

(dollars in thousands)

 

Beginning balance

 

$

8,518

 

$

10,918

 

Capitalized servicing rights

 

 

214

 

 

160

 

Fair value adjustment:

 

 

 

 

 

 

 

Attributable to payments and principal reductions

 

 

(403)

 

 

(306)

 

Attributable to changes in valuation inputs and assumptions

 

 

(1,982)

 

 

(856)

 

Total fair value adjustment

 

 

(2,385)

 

 

(1,162)

 

Ending balance

 

$

6,347

 

$

9,916

 

 

 

NOTE 5 – FORECLOSED ASSETS

Foreclosed assets activity is as follows for the three months ended March 31, 2020 and 2019:

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

    

2020

    

2019

    

 

 

(dollars in thousands)

 

Beginning balance

 

$

5,099

 

$

9,559

 

Transfers from loans

 

 

19

 

 

1,408

 

Proceeds from sales

 

 

(677)

 

 

(511)

 

Sales through loan origination

 

 

 —

 

 

(269)

 

Net gain (loss) on sales

 

 

75

 

 

89

 

Direct write-downs

 

 

(47)

 

 

(125)

 

Ending balance

 

$

4,469

 

$

10,151

 

 

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Gains (losses) on foreclosed assets includes the following for the three months ended March 31, 2020 and 2019.

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

    

2020

    

2019

    

 

 

(dollars in thousands)

 

Direct write-downs

 

$

(47)

 

$

(125)

 

Net gain (loss) on sales

 

 

75

 

 

89

 

Guarantee reimbursements

 

 

 7

 

 

19

 

Gains (losses) on foreclosed assets

 

$

35

 

$

(17)

 

 

The carrying value of foreclosed one-to-four family residential real estate property as of March 31, 2020 and December 31, 2019, was $980,000 and $1,037,000, respectively. As of March 31, 2020, there were 8 one-to-four family residential real estate loans in the process of foreclosure totaling approximately $564,000. As of December 31, 2019, there were 10 residential real estate loans in the process of foreclosure totaling approximately $588,000.

 

NOTE 6 – DEPOSITS

The Company’s deposits are summarized below:

 

 

 

 

 

 

 

 

 

March 31, 2020

    

December 31, 2019

 

 

(dollars in thousands)

Noninterest-bearing deposits

 

$

676,341

 

$

689,116

Interest-bearing deposits:

 

 

 

 

 

 

Interest-bearing demand

 

 

810,074

 

 

814,639

Money market

 

 

472,532

 

 

477,765

Savings

 

 

444,137

 

 

438,927

Time

 

 

327,219

 

 

356,408

Total interest-bearing deposits

 

 

2,053,962

 

 

2,087,739

Total deposits

 

$

2,730,303

 

$

2,776,855

 

Money market deposits include $24,510,000 and $14,309,000 of reciprocal transaction deposits as of March 31, 2020 and December 31, 2019, respectively. Time deposits include $3,679,000 and $3,538,000 of reciprocal time deposits as of March 31, 2020 and December 31, 2019, respectively.

The aggregate amounts of time deposits in denominations of $250,000 or more amounted to $28,060,000 and $44,754,000 as of March 31, 2020 and December 31, 2019, respectively. The aggregate amounts of time deposits in denominations of $100,000 or more amounted to $110,055,000 and $130,293,000 as of March 31, 2020 and December 31, 2019, respectively.

23

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The components of interest expense on deposits for the three months ended March 31, 2020 and 2019 are as follows:

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

2020

    

2019

 

 

(dollars in thousands)

Interest-bearing demand

 

$

251

 

$

417

Money market

 

 

394

 

 

370

Savings

 

 

70

 

 

68

Time

 

 

880

 

 

1,128

Total interest expense on deposits

 

$

1,595

 

$

1,983

 

 

NOTE 7 – BORROWINGS

There were no Federal Home Loan Bank of Chicago (FHLB) borrowings outstanding as of March 31, 2020 and December 31, 2019.  Available borrowings from the FHLB are secured by FHLB stock held by the Company and pledged security in the form of qualifying loans. The total amount of loans pledged as of March 31, 2020 and December 31, 2019 was $534,220,000 and $548,229,000, respectively. As of March 31, 2020 and December 31, 2019, loans pledged also served as collateral for credit exposure of approximately $355,000 associated with the Banks’ participation in the FHLB’s Mortgage Partnership Finance Program.

The Banks also have available a line of credit from the FHLB with available borrowings based on the collateral pledged. There was no outstanding balance under the line of credit as of March 31, 2020 and December 31, 2019. The line, when drawn upon, is due on demand and bears interest at a variable rate.

State Bank of Lincoln also has available a line of credit from the Federal Reserve Bank of Chicago (FRB) with available borrowings based on the collateral pledged. As of March 31, 2020 and December 31, 2019, the carrying value of debt securities pledged amounted to $531,000 and $515,000, respectively. There was no outstanding balance under the line of credit as of March 31, 2020 and December 31, 2019. The line, when drawn upon, is due on demand and bears interest at a variable rate.

NOTE 8 – SUBORDINATED DEBENTURES

Five subsidiary business trusts of the Company have issued floating rate capital securities (“capital securities”) which are guaranteed by the Company.

The Company owns all of the outstanding stock of the five subsidiary business trusts. The trusts used the proceeds from the issuance of their capital securities to buy floating rate junior subordinated deferrable interest debentures (“debentures”) issued by the Company. These debentures are the only assets of the trusts and the interest payments from the debentures finance the distributions paid on the capital securities. The debentures are unsecured and rank junior and subordinate in the right of payment to all senior debt of the Company.

The trusts are not consolidated in the Company’s financial statements.

24

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The carrying value of subordinated debentures are summarized as follows:

 

 

 

 

 

 

 

 

    

March 31, 2020

    

December 31, 2019

 

 

(dollars in thousands)

Heartland Bancorp, Inc. Capital Trust B

 

$

10,310

 

$

10,310

Heartland Bancorp, Inc. Capital Trust C

 

 

10,310

 

 

10,310

Heartland Bancorp, Inc. Capital Trust D

 

 

5,155

 

 

5,155

FFBI Capital Trust I

 

 

7,217

 

 

7,217

National Bancorp Statutory Trust I

 

 

4,607

 

 

4,591

Total

 

$

37,599

 

$

37,583

 

The National Bancorp Statutory Trust I debenture was assumed through a business combination and has a contractual obligation of $5,773,000.

The interest rates on the subordinated debentures are variable, reset quarterly, and are equal to the three-month LIBOR, as determined on the LIBOR Determination Date immediately preceding each Distribution Payment Date specific to each subordinated debenture, plus a fixed percentage. The interest rates and maturities of the subordinated debentures are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Rate at

 

 

 

 

Variable

 

March 31, 

 

December 31, 

 

Maturity

 

    

Interest Rate

    

2020

    

2019

    

Date

Heartland Bancorp, Inc. Capital Trust B

 

LIBOR plus

2.75

%  

4.58

%  

4.74

%  

April 6, 2034

Heartland Bancorp, Inc. Capital Trust C

 

LIBOR plus

1.53

 

2.27

 

3.42

 

June 15, 2037

Heartland Bancorp, Inc. Capital Trust D

 

LIBOR plus

1.35

 

2.09

 

3.24

 

September 15, 2037

FFBI Capital Trust I

 

LIBOR plus

2.80

 

4.63

 

4.79

 

April 6, 2034

National Bancorp Statutory Trust I

 

LIBOR plus

2.90

 

3.64

 

4.79

 

December 31, 2037

 

The distribution rate payable on the debentures is cumulative and payable quarterly in arrears. The Company has the right, subject to events in default, to defer payments of interest on the debentures at any time by extending the interest payment period for a period not exceeding 10 quarterly periods with respect to each deferral period, provided that no extension period may extend beyond the redemption or maturity date of the debentures. The capital securities are subject to mandatory redemption upon payment of the debentures and carry an interest rate identical to that of the related debenture. The debentures maturity dates may be shortened if certain conditions are met, or at any time within 90 days following the occurrence and continuation of certain changes in either tax treatment or the capital treatment of the debentures or the capital securities. If the debentures are redeemed before they mature, the redemption price will be the principal amount plus any accrued but unpaid interest. The Company has the right to terminate each Capital Trust and cause the debentures to be distributed to the holders of the capital securities in liquidation of such trusts.

Under current banking regulations, bank holding companies are allowed to include qualifying trust preferred securities in their Tier 1 Capital for regulatory capital purposes, subject to a 25% limitation to all core (Tier 1) capital elements, net of goodwill and other intangible assets less any associated deferred tax liability. As of March 31, 2020 and December 31, 2019,  100% of the trust preferred securities qualified as Tier 1 capital under the final rule adopted in March 2005.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 9 – DERIVATIVE FINANCIAL INSTRUMENTS

Derivative financial instruments are negotiated contracts entered into by two issuing counterparties containing specific agreement terms, including the underlying instrument, amount, exercise price, and maturities. The derivatives accounting guidance requires that the Company recognize all derivative financial instruments as either assets or liabilities at fair value in the consolidated balance sheets. The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position.

Interest Rate Swaps Designated as Cash Flow Hedges

The Company designated certain interest rate swap agreements as cash flow hedges on variable-rate borrowings. For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on interest rate swaps designated as cash flow hedging instruments are reported as a component of accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings.

The interest rate swap agreements designated as cash flow hedges are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

December 31, 2019

 

 

Notional

 

Fair

 

Notional

 

Fair

 

   

Amount

   

Value

   

Amount

   

Value

Designated as cash flow hedges:

 

(dollars in thousands)

Fair value recorded in other liabilities

 

$

17,000

 

$

(1,612)

 

$

17,000

 

$

(676)

 

As of March 31, 2020, the interest rate swap agreements designated as cash flow hedges had contractual maturities between 2024 and 2025. As of March 31, 2020 and December 31, 2019, the Company had cash pledged of $1,630,000 and $710,000, respectively, held on deposit at counterparties.

During the three months ended March 31, 2019, the Company had an interest rate swap contract with a notional amount of $10,000,000 designated as a cash flow hedge on variable-rate loans. Beginning April 1, 2019, this hedging relationship was no longer considered highly effective, and the Company discontinued hedge accounting. In accordance with hedge accounting guidance, the net unrealized gain associated with the discontinued hedging relationship, recorded within accumulated other comprehensive income, will be reclassified into earnings through April 7, 2020, the period the hedged forecasted transactions affect earnings. On June 25, 2019, the Company cancelled the interest rate swap agreement and received $174,000 to settle the financial instrument. As of March 31, 2020, the remaining unrealized gain recognized as a component of accumulated other comprehensive income was $29,000.

For the three months ended March 31, 2020 and 2019, the effect of interest rate swap agreements designated as cash flow hedges on the consolidated statements of income are summarized as follows:

 

 

 

 

 

 

 

Location of gross gain (loss) reclassified

 

Amounts of gross gain (loss)

from accumulated other

 

reclassified from accumulated

comprehensive income to income

 

other comprehensive income

 

 

Three Months Ended

 

 

March 31, 

 

    

2020

    

2019

Designated as cash flow hedges:

 

(dollars in thousands)

Taxable loan interest income

 

$

32

 

$

30

Subordinated debentures interest expense

 

 

(34)

 

 

 —

Total

 

$

(2)

 

$

30

26

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Interest Rate Swaps Not Designated as Hedging Instruments

The Company may offer interest rate swap agreements to its commercial borrowers in connection with their risk management needs. The Company manages the risk associated with these contracts by entering into an equal and offsetting derivative with a third-party financial institution. While these interest rate swap agreements generally worked together as an economic interest rate hedge, the Company did not designate them for hedge accounting treatment. Consequently, changes in fair value of the corresponding derivative financial asset or liability were recorded as either a charge or credit to current earnings during the period in which the changes occurred.

The interest rate swap agreements not designated as hedging instruments are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

December 31, 2019

 

 

Notional

 

Fair

 

Notional

 

Fair

 

   

Amount

   

Value

   

Amount

   

Value

Not designated as hedging instruments:

 

(dollars in thousands)

Fair value recorded in other assets:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps with commercial borrower counterparties

 

$

137,216

 

$

21,946

 

$

114,140

 

$

8,532

Interest rate swaps with financial institution counterparty

 

 

 —

 

 

 —

 

 

24,216

 

 

110

Total fair value recorded in other assets

 

$

137,216

 

$

21,946

 

$

138,356

 

$

8,642

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value recorded in other liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps with commercial borrower counterparties

 

$

 —

 

$

 —

 

$

24,216

 

$

(110)

Interest rate swaps with financial institution counterparty

 

 

137,216

 

 

(21,946)

 

 

114,140

 

 

(8,532)

Total fair value recorded in other liabilities

 

$

137,216

 

$

(21,946)

 

$

138,356

 

$

(8,642)

 

As of March 31, 2020, the interest rate swap agreements not designated as hedging instruments had contractual maturities between 2022 and 2042. As of March 31, 2020 and December 31, 2019, the Company had $10,618,000 and $8,713,000, respectively, of debt securities pledged and held in safekeeping at the financial institution counterparty.

For the three months ended March 31, 2020 and 2019, the effect of interest rate contracts not designated as hedging instruments recognized in other noninterest income on the consolidated statements of income are summarized as follows:

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2020

    

2019

Not designated as hedging instruments:

 

(dollars in thousands)

Gross gains

 

$

13,571

 

$

1,169

Gross losses

 

 

(13,571)

 

 

(1,169)

Net gains (losses)

 

$

 —

 

$

 —

 

 

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 10 – ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table presents the activity and accumulated balances for components of other comprehensive income (loss) for the three months ended March 31, 2020 and 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized Gains (Losses)

 

 

 

 

 

 

 

 

on Debt Securities

 

 

 

 

 

 

 

    

Available-for-Sale

    

Held-to-Maturity

    

Derivatives

    

      Total      

 

 

(dollars in thousands)

Three Months Ended March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2019

 

$

8,659

 

$

(131)

 

$

(696)

 

$

7,832

Other comprehensive income (loss) before reclassifications

 

 

7,602

 

 

 —

 

 

(970)

 

 

6,632

Reclassifications

 

 

 —

 

 

(9)

 

 

 2

 

 

(7)

Other comprehensive income (loss), before tax

 

 

7,602

 

 

(9)

 

 

(968)

 

 

6,625

Income tax expense (benefit)

 

 

2,166

 

 

(2)

 

 

(276)

 

 

1,888

Other comprehensive income (loss), after tax

 

 

5,436

 

 

(7)

 

 

(692)

 

 

4,737

Balance, March 31, 2020

 

$

14,095

 

$

(138)

 

$

(1,388)

 

$

12,569

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

$

(4,561)

 

$

122

 

$

151

 

$

(4,288)

Other comprehensive income (loss) before reclassifications

 

 

5,656

 

 

 —

 

 

(244)

 

 

5,412

Reclassifications

 

 

 —

 

 

(82)

 

 

(30)

 

 

(112)

Other comprehensive loss

 

 

5,656

 

 

(82)

 

 

(274)

 

 

5,300

Balance, March 31, 2019

 

$

1,095

 

$

40

 

$

(123)

 

$

1,012

 

The amounts reclassified from accumulated other comprehensive income (loss) for unrealized gains (losses) on debt securities available-for-sale are included in gain (loss) on securities in the accompanying consolidated statements of income.

The amounts reclassified from accumulated other comprehensive income (loss) for unrealized gains on debt securities held-to-maturity are included in securities interest income in the accompanying consolidated statements of income.

The amounts reclassified from accumulated other comprehensive income (loss) for the fair value of derivative financial instruments represent net interest payments received or made on derivatives designated as cash flow hedges. See Note 9 for additional information.

28

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 11 – INCOME TAXES

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 will only reflect an effective state replacement tax rate. The consolidated statements of income present unaudited pro forma C Corp equivalent information for the three months ended March 31, 2019.

Allocation of income tax expense between current and deferred portions for the three months ended March 31 is as follows:

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2020

    

2019

 

 

(dollars in thousands)

Current

 

 

 

 

 

 

Federal

 

$

1,721

 

$

 —

State

 

 

988

 

 

215

Total current

 

 

2,709

 

 

215

 

 

 

 

 

 

 

Deferred

 

 

 

 

 

 

Federal

 

 

(457)

 

 

 —

State

 

 

(221)

 

 

 —

Total deferred

 

 

(678)

 

 

 —

Income tax expense

 

$

2,031

 

$

215

 

Income tax expense differs from the statutory federal rate for the three months ended March 31 due to the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended March 31, 

    

    

 

    

2020

    

2019

    

    

 

 

Amount

    

Percentage

 

Amount

    

Percentage

 

 

 

 

(dollars in thousands)

 

 

Federal income tax, at statutory rate

 

$

1,733

 

21.0

%

$

 —

 

 —

%

 

Increase (decrease) resulting from:

 

 

 

 

 

 

 

 

 

 

 

 

Federally tax exempt interest income

 

 

(357)

 

(4.3)

 

 

 —

 

 —

 

 

State taxes, net of federal benefit

 

 

631

 

7.6

 

 

215

 

1.1

 

 

Other

 

 

24

 

0.3

 

 

 —

 

 —

 

 

Income tax expense

 

$

2,031

 

24.6

%

$

215

 

1.1

%

 

 

29

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The components of the net deferred tax asset as of March 31, 2020 and December 31, 2019 are as follows:

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

2020

 

2019

 

 

(dollars in thousands)

Deferred tax assets

    

 

 

 

 

 

Allowance for loan losses

 

$

7,378

 

$

6,309

Compensation related

 

 

5,482

 

 

5,859

Nonaccrual interest

 

 

631

 

 

858

Foreclosed assets

 

 

74

 

 

574

Goodwill

 

 

482

 

 

531

Other

 

 

1,460

 

 

1,282

Total deferred tax assets

 

 

15,507

 

 

15,413

 

 

 

 

 

 

 

Deferred tax liabilities

 

 

 

 

 

 

Fixed asset depreciation

 

 

4,146

 

 

4,201

Mortgage servicing rights

 

 

1,809

 

 

2,428

Other purchase accounting adjustments

 

 

1,327

 

 

1,356

Intangible assets

 

 

773

 

 

841

Prepaid assets

 

 

425

 

 

504

Net unrealized gain on debt securities available-for-sale

 

 

4,418

 

 

2,251

Other

 

 

413

 

 

426

Total deferred tax liabilities

 

 

13,311

 

 

12,007

Net deferred tax asset

 

$

2,196

 

 

3,406

 

 

NOTE 12 – EARNINGS PER SHARE

ASC 260, Earnings Per Share, requires unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents as a separate class of securities in calculating earnings per share. The Company has granted restricted stock units that contain non-forfeitable rights to dividend equivalents. Such restricted stock units are considered participating securities. As such, we have included these restricted stock units in the calculation of basic earnings per share and calculate basic earnings per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings.

Diluted earnings per share is computed using the treasury stock and reflects the potential dilution that could occur if the Company’s outstanding restricted stock units were vested. At March 31, 2020, 14,880 restricted stock units were anti-dilutive and excluded from the calculation of common stock equivalents. There were no restricted stock units outstanding during the three months ended March 31, 2019.

30

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table sets forth the computation of basic and diluted earnings per share:

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

    

2020

    

2019

 

 

(dollars in thousands)

Numerator:

 

 

 

 

 

 

Net income

 

$

6,221

 

$

18,736

Earnings allocated to unvested restricted stock units

 

 

(15)

 

 

 —

Numerator for earnings per share - basic and diluted

 

$

6,206

 

$

18,736

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

27,457,306

 

 

18,027,512

Dilutive effect of outstanding restricted stock units

 

 

 —

 

 

 —

Weighted average common shares outstanding, including all dilutive potential shares

 

 

27,457,306

 

 

18,027,512

 

 

 

 

 

 

 

Earnings per share - Basic

 

$

0.23

 

$

1.04

Earnings per share - Diluted

 

$

0.23

 

$

1.04

 

 

NOTE 13 – DEFERRED COMPENSATION

The Company maintained a supplemental executive retirement plan (the SERP) for certain key executive officers. The SERP benefit payments were scheduled to be paid in equal monthly installments over 30 years. In June 2019, the Company approved termination of the SERP agreements, and each participant will receive a lump sum payment equal to the present value of any remaining installment payments, payable in June 2020. As of March 31, 2020 and December 31, 2019, the deferred compensation liability for the SERP was $13,589,000 and $12,789,000, respectively. During the three months ended March 31, 2020 and 2019, the Company recognized deferred compensation expense for the SERP of $970,000 and $125,000, respectively.

NOTE 14 – STOCK-BASED COMPENSATION PLANS

The Company has adopted the HBT Financial, Inc. Omnibus Incentive Plan (the “Omnibus Incentive Plan”). The Omnibus Incentive Plan provides for grants of (i) stock options, (ii) stock appreciation rights, (iii) restricted shares, (iv) restricted stock units, (v) performance awards, (vi) other share-based awards and (vi) other cash-based awards to eligible employees, non-employee directors and consultants of the Company. The maximum number of shares of common stock available for issuance under the Omnibus Incentive Plan is 1,820,000 shares.

The following is a summary of stock-based compensation expense (benefit) during the three months ended March 31, 2020 and 2019:

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

    

2020

    

2019

 

 

(dollars in thousands)

Restricted stock units

 

$

67

 

$

 —

Stock appreciation rights

 

 

(335)

 

 

(115)

Total stock-based compensation expense (benefit)

 

$

(268)

 

$

(115)

31

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Restricted Stock Units

A restricted stock unit grants a participant the right to receive one share of common stock, following the completion of the requisite service period. Restricted stock units are classified as equity. Compensation cost is based on the Company’s stock price on the grant date and is recognized on a straight-line basis over the vesting period for the entire award. Non-forfeitable dividend equivalents are paid on non-vested restricted stock units and are classified as dividends charged to retained earnings. If restricted stock units are subsequently forfeited, the non-forfeitable dividends related to the forfeited restricted stock units are reclassified to compensation cost in the period the forfeiture occurs.

On January 28, 2020, the Company granted 70,400 restricted stock units to certain key employees which vest in four equal annual installments beginning on February 1, 2021. On January 28, 2020, the Company also granted 2,750 restricted stock units to non-employee directors which vest on February  1, 2021. The total fair value of the restricted stock units granted was $1,392,000, based on the grant date closing price of $19.03 per share.

The following is a summary of outstanding restricted stock unit activity during the three months ended March 31, 2020 and 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

2020

 

2019

 

 

 

 

Weighted

 

 

 

Weighted

 

 

Restricted

 

Average

 

Restricted

 

Average

 

 

Stock Units

 

Grant Date

 

Stock Units

 

Grant Date

 

    

Outstanding

    

Fair Value

    

Outstanding

    

Fair Value

Beginning balance

 

 —

 

$

 —

 

 —

 

$

 —

Granted

 

73,150

 

 

19.03

 

 —

 

 

 —

Vested

 

 —

 

 

 —

 

 —

 

 

 —

Forfeited

 

 —

 

 

 —

 

 —

 

 

 —

Ending balance

 

73,150

 

$

19.03

 

 —

 

$

 —

 

A further summary of outstanding restricted stock units as of March 31, 2020, is as follows:

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

 

Remaining

Range of Grant Date Fair Values

    

Outstanding

    

Contractual Term

$ 19.03

 

73,150

 

3.7

years

 

As of March 31, 2020, unrecognized compensation cost related to non-vested restricted stock units was $1,325,000.  

32

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Stock Appreciation Rights

A stock appreciation right grants a participant the right to receive an amount of cash, the value of which equals the appreciation in the Company’s stock price between the grant date and the exercise date. Stock appreciation rights units are classified as liabilities. Prior to becoming a public entity, the liability was based on the intrinsic value of the stock appreciation rights, calculated using the grant date assigned value and an independent appraisal of the Company’s stock price that was subject to approval by the Board of Directors. Since becoming a public entity on October 11, 2019, the liability was based on an option-pricing model used to estimate the fair value of the stock appreciation rights. Compensation cost for unvested stock appreciation rights is recognized on a straight line basis over the vesting period of the entire award. The unvested stock appreciation rights vest in four equal annual installments beginning on the first anniversary of the grant date.

The following is a summary of outstanding stock appreciation rights activity during the three months ended March 31, 2020 and 2019, is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

2020

 

2019

 

    

Stock
Appreciation
Rights
Outstanding

    

Weighted
Average
Grant Date
Assigned Value

    

Stock
Appreciation
Rights
Outstanding

    

Weighted
Average
Grant Date
Assigned Value

Beginning balance

 

110,160

 

$

16.32

 

91,800

 

$

5.73

Granted

 

 —

 

 

 —

 

 —

 

 

 —

Exercised

 

 —

 

 

 —

 

 —

 

 

 —

Forfeited

 

 —

 

 

 —

 

 —

 

 

 —

Ending balance

 

110,160

 

$

16.32

 

91,800

 

$

5.73

 

A further summary of outstanding stock appreciation rights as of March 31, 2020, is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

 

Remaining

Range of Grant Date Assigned Values

    

Outstanding

    

Exercisable

    

Contractual Term

$ 16.32

 

110,160

 

79,560

 

9.4

years

 

As of March 31, 2020, unrecognized compensation cost related to non-vested stock appreciation rights was $23,000.

33

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

As of March 31, 2020 and December 31, 2019, the liability recorded for outstanding stock appreciation rights was $74,000 and $409,000, respectively. As of March 31, 2020 and December 31, 2019, the Company used an option pricing model to value the stock appreciation rights, using the assumptions in the following table. Expected volatility is derived from the historical volatility of the Company’s stock price and a selected peer group of industry-related companies.

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

    

2020

    

2019

 

Risk-free interest rate

 

 

0.67

%

 

1.90

%

Expected volatility

 

 

32.47

%

 

28.83

%

Expected life (in years)

 

 

9.4

 

 

9.7

 

Expected dividend yield

 

 

5.70

%

 

3.16

%

 

As of March 31, 2020, the liability recorded for previously exercised stock appreciation rights was $1,206,000, which will be paid in four remaining equal annual installments. As of December 31, 2019, the liability recorded for previously exercised units was $1,512,000.

 

NOTE 15 – REGULATORY MATTERS

The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. As allowed under the Basel III rules, the Banks and Company elected to exclude accumulated other comprehensive income, including unrealized gains and losses on debt securities, in the computation of regulatory capital.

The ability of the Company to pay dividends to its stockholders is dependent upon the ability of the Banks to pay dividends to the Company. The Banks are subject to certain statutory and regulatory restrictions on the amount it may pay in dividends. Under the Basel III regulations, a capital conservation buffer calculation will phase in over five years which limits allowable bank dividends if regulatory capital ratios fall below specific thresholds. As of March 31, 2020 and December 31, 2019, the capital conservation buffer was 2.5%.

HBT Financial, Inc. (on a consolidated basis) and the Banks are each subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by the regulators that, if undertaken, could have a direct material effect on the financial statements of HBT Financial, Inc. and the Banks. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, HBT Financial, Inc. (on a consolidated basis) and the Banks must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Management believes, as of March 31, 2020 and December 31, 2019, that HBT Financial, Inc. and the Banks each met all capital adequacy requirements to which they are subject.

34

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The actual and required capital amounts and ratios of HBT Financial, Inc.  (on a consolidated basis) and the Banks are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actual

 

For Capital
Adequacy
Purposes

 

To Be Well
Capitalized Under
Prompt Corrective
Action Provisions

 

March 31, 2020

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

 

 

 

(dollars in thousands)

 

Total Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated HBT Financial, Inc.

 

$

363,205

 

15.03

%  

$

193,326

 

8.00

%  

 

N/A

 

N/A

 

Heartland Bank

 

 

322,026

 

14.54

 

 

177,196

 

8.00

 

$

221,495

 

10.00

%

State Bank of Lincoln

 

 

35,356

 

17.74

 

 

15,944

 

8.00

 

 

19,930

 

10.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated HBT Financial, Inc.

 

$

337,118

 

13.95

%  

$

144,995

 

6.00

%  

 

N/A

 

N/A

 

Heartland Bank

 

 

298,547

 

13.48

 

 

132,897

 

6.00

 

$

177,196

 

8.00

%

State Bank of Lincoln

 

 

32,863

 

16.49

 

 

11,958

 

6.00

 

 

15,944

 

8.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Equity Tier 1 Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated HBT Financial, Inc.

 

$

300,684

 

12.44

%  

$

108,746

 

4.50

%  

 

N/A

 

N/A

 

Heartland Bank

 

 

298,547

 

13.48

 

 

99,673

 

4.50

 

$

143,972

 

6.50

%

State Bank of Lincoln

 

 

32,863

 

16.49

 

 

8,969

 

4.50

 

 

12,955

 

6.50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Capital (to Average Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated HBT Financial, Inc.

 

$

337,118

 

10.70

%  

$

125,991

 

4.00

%  

 

N/A

 

N/A

 

Heartland Bank

 

 

298,547

 

10.55

 

 

113,149

 

4.00

 

$

141,436

 

5.00

%

State Bank of Lincoln

 

 

32,863

 

10.32

 

 

12,735

 

4.00

 

 

15,919

 

5.00

 

 

35

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actual

 

For Capital
Adequacy
Purposes

 

To Be Well
Capitalized Under
Prompt Corrective
Action Provisions

 

December 31, 2019

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

 

 

 

 

(dollars in thousands)

 

Total Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated HBT Financial, Inc.

 

$

356,994

 

14.54

%  

$

196,358

 

8.00

%  

 

N/A

 

N/A

 

Heartland Bank

 

 

315,516

 

14.02

 

 

180,071

 

8.00

 

$

225,088

 

10.00

%

State Bank of Lincoln

 

 

35,390

 

17.58

 

 

16,104

 

8.00

 

 

20,130

 

10.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated HBT Financial, Inc.

 

$

334,695

 

13.64

%  

$

147,268

 

6.00

%  

 

N/A

 

N/A

 

Heartland Bank

 

 

295,385

 

13.12

 

 

135,053

 

6.00

 

$

180,071

 

8.00

%

State Bank of Lincoln

 

 

33,222

 

16.50

 

 

12,078

 

6.00

 

 

16,104

 

8.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Equity Tier 1 Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated HBT Financial, Inc.

 

$

298,277

 

12.15

%  

$

110,451

 

4.50

%  

 

N/A

 

N/A

 

Heartland Bank

 

 

295,385

 

13.12

 

 

101,290

 

4.50

 

$

146,307

 

6.50

%

State Bank of Lincoln

 

 

33,222

 

16.50

 

 

9,058

 

4.50

 

 

13,084

 

6.50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Capital (to Average Assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated HBT Financial, Inc.

 

$

334,695

 

10.38

%  

$

129,027

 

4.00

%  

 

N/A

 

N/A

 

Heartland Bank

 

 

295,385

 

10.25

 

 

115,281

 

4.00

 

$

144,102

 

5.00

%

State Bank of Lincoln

 

 

33,222

 

9.82

 

 

13,531

 

4.00

 

 

16,914

 

5.00

 

 

 

NOTE 16 – FAIR VALUE OF FINANCIAL INSTRUMENTS

Recurring Basis

The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Additional information on fair value measurements are summarized in Note 1 to the Company’s annual consolidated financial statements included in the Annual Report on Form 10-K filed with the SEC on March 27, 2020. There were no transfers between levels during the three months ended March 31, 2020 and 2019. The Company’s policy for determining transfers between levels occurs at the end of the reporting period when circumstances in the underlying valuation criteria change and result in transfer between levels.

36

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following tables present the balances of the assets measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

    

Level 1  
Inputs

    

Level 2
Inputs

    

Level 3
Inputs

    

Total
Fair Value

 

 

 

(dollars in thousands)

Debt securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency

 

$

 —

 

$

51,175

 

$

 —

 

$

51,175

Municipal

 

 

 —

 

 

168,245

 

 

 —

 

 

168,245

Mortgage-backed:

 

 

 

 

 

 

 

 

 

 

 

 

Agency residential

 

 

 —

 

 

188,618

 

 

 —

 

 

188,618

Agency commercial

 

 

 —

 

 

132,517

 

 

 —

 

 

132,517

Corporate

 

 

 —

 

 

75,010

 

 

 —

 

 

75,010

Equity securities with readily determinable fair values

 

 

3,207

 

 

 —

 

 

 —

 

 

3,207

Mortgage servicing rights

 

 

 —

 

 

 —

 

 

6,347

 

 

6,347

Derivative financial assets

 

 

 —

 

 

21,946

 

 

 —

 

 

21,946

Derivative financial liabilities

 

 

 —

 

 

23,558

 

 

 —

 

 

23,558

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

    

Level 1
Inputs

    

Level 2
Inputs

    

Level 3
Inputs

    

Total
Fair Value

 

 

 

(dollars in thousands)

Debt securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency

 

$

 —

 

$

49,615

 

$

 —

 

$

49,615

Municipal

 

 

 —

 

 

133,738

 

 

 —

 

 

133,738

Mortgage-backed:

 

 

 

 

 

 

 

 

 

 

 

 

Agency residential

 

 

 —

 

 

200,678

 

 

 —

 

 

200,678

Agency commercial

 

 

 —

 

 

134,954

 

 

 —

 

 

134,954

Corporate

 

 

 —

 

 

73,419

 

 

 —

 

 

73,419

Equity securities with readily determinable fair values

 

 

3,241

 

 

 —

 

 

 —

 

 

3,241

Mortgage servicing rights

 

 

 —

 

 

 —

 

 

8,518

 

 

8,518

Derivative financial assets

 

 

 —

 

 

8,642

 

 

 —

 

 

8,642

Derivative financial liabilities

 

 

 —

 

 

9,318

 

 

 —

 

 

9,318

 

The following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy. There were no changes to the valuation techniques from December 31, 2019 to March 31, 2020.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Investment Securities

When available, the Company uses quoted market prices to determine the fair value of securities; such items are classified in Level 1 of the fair value hierarchy. For the Company’s securities where quoted prices are not available for identical securities in an active market, the Company determines fair value utilizing vendors who apply matrix pricing for similar bonds where no price is observable or may compile prices from various sources. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace. Fair values from these models are verified, where possible, against quoted market prices for recent trading activity of assets with similar characteristics to the security being valued. Such methods are generally classified as Level 2. However, when prices from independent sources vary, cannot be obtained or cannot be corroborated, a security is generally classified as Level 3. The change in fair value of debt securities available-for-sale is recorded through an adjustment to the consolidated statement of comprehensive income. The change in fair value of equity securities with readily determinable fair values is recorded through an adjustment to the consolidated statement of income.

Derivative Financial Instruments

Interest rate swap agreements are carried at fair value as determined by dealer valuation models. Based on the inputs used, the derivative financial instruments subjected to recurring fair value adjustments are classified as Level 2. For derivative financial instruments designated as a hedging instruments, the change in fair value is recorded through an adjustment to the consolidated statement of comprehensive income. For derivative financial instruments not designated as a hedging instruments, the change in fair value is recorded through an adjustment to the consolidated statement of income.

Mortgage Servicing Rights

The Company has elected to record its mortgage servicing rights at fair value. Mortgage servicing rights do not trade in an active market with readily observable prices. Accordingly, the Company determines the fair value of mortgage servicing rights by estimating the fair value of the future cash flows associated with the mortgage loans being serviced as calculated by an independent third party. Key economic assumptions used in measuring the fair value of mortgage servicing rights include, but are not limited to, prepayment speeds and discount rates. Due to the nature of the valuation inputs, mortgage servicing rights are classified in Level 3 of the fair value hierarchy. The change in fair value is recorded through an adjustment to the consolidated statement of income.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following tables present additional information about the unobservable inputs used in the fair value measurement of the mortgage servicing rights (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

    

Fair Value

    

Valuation Technique

    

Unobservable Inputs

    

Range
(Weighted Average)

Mortgage servicing rights

 

$

6,347

 

Discounted cash flows

 

Constant pre-payment rates (CPR)

 

7.0% to 59.1%  (15.7%)

 

 

 

 

 

 

 

Discount rate

 

9.0% to 11.0%  (9.0%)

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

Fair Value

 

Valuation Technique

 

Unobservable Inputs

 

Range
(Weighted Average)

Mortgage servicing rights

 

$

8,518

 

Discounted cash flows

 

Constant pre-payment rates (CPR)

 

7.0% to 68.5%  (12.3%)

 

 

 

 

 

 

 

Discount rate

 

9.0% to 11.0%  (9.0%)

 

Nonrecurring Basis

Certain assets are measured at fair value on a nonrecurring basis. These assets are not measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as there is evidence of impairment or a change in the amount of previously recognized impairment.

The following tables present the balances of the assets measured at fair value on a nonrecurring basis as of March 31, 2020 and December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

    

Level 1
Inputs

    

Level 2
Inputs

    

Level 3
Inputs

    

Total
Fair Value

 

 

 

(dollars in thousands)

Loans held for sale

 

$

 —

 

$

4,805

 

$

 —

 

$

4,805

Collateral-dependent impaired loans

 

 

 —

 

 

 —

 

 

16,789

 

 

16,789

Bank premises held for sale

 

 

 —

 

 

 —

 

 

121

 

 

121

Foreclosed assets

 

 

 —

 

 

 —

 

 

4,469

 

 

4,469

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

    

Level 1
Inputs

    

Level 2
Inputs

    

Level 3
Inputs

    

Total
Fair Value

 

 

 

(dollars in thousands)

Loans held for sale

 

$

 —

 

$

4,531

 

$

 —

 

$

4,531

Collateral-dependent impaired loans

 

 

 —

 

 

 —

 

 

15,811

 

 

15,811

Bank premises held for sale

 

 

 —

 

 

 —

 

 

121

 

 

121

Foreclosed assets

 

 

 —

 

 

 —

 

 

5,099

 

 

5,099

 

Loans Held for Sale

Mortgage loans originated and held for sale are carried at the lower of cost or estimated fair value. The Company obtains quotes or bids on these loans directly from purchasing financial institutions. Typically, these quotes include a premium on the sale and thus these quotes indicate fair value of the held for sale loans is greater than cost.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Collateral-Dependent Impaired Loans

In accordance with the provisions of the loan impairment guidance, impairment was measured for loans which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement. The fair value of collateral-dependent impaired loans is estimated based on the fair value of the underlying collateral supporting the loan. Collateral-dependent impaired loans require classification in the fair value hierarchy. Impaired loans include loans acquired with deteriorated credit quality. Collateral values are estimated using Level 3 inputs based on customized discounting criteria.

Bank Premises Held for Sale

Bank premises held for sale are recorded at the lower of cost or fair value, less estimated selling costs, at the date classified as held for sale. Values are estimated using Level 3 inputs based on appraisals and customized discounting criteria. The carrying value of bank premises held for sale is not re-measured to fair value on a recurring basis but is subject to fair value adjustments when the carrying value exceeds the fair value, less estimated selling costs.

Foreclosed Assets

Foreclosed assets are recorded at fair value based on property appraisals, less estimated selling costs, at the date of the transfer. Subsequent to the transfer, foreclosed assets are carried at the lower of cost or fair value, less estimated selling costs. Values are estimated using Level 3 inputs based on appraisals and customized discounting criteria. The carrying value of foreclosed assets is not re-measured to fair value on a recurring basis but is subject to fair value adjustments when the carrying value exceeds the fair value, less estimated selling costs.

Collateral-Dependent Impaired Loans, Bank Premises Held for Sale, and Foreclosed Assets

The estimated fair value of collateral-dependent impaired loans, bank premises held for sale, and foreclosed assets is based on the appraised fair value of the collateral, less estimated costs to sell. Collateral-dependent impaired loans, bank premises held for sale, and foreclosed assets are classified within Level 3 of the fair value hierarchy.

The Company considers the appraisal or a similar evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals or a similar evaluation of the collateral underlying collateral-dependent loans and foreclosed assets are obtained at the time a loan is first considered impaired or a loan is transferred to foreclosed assets. Appraisals or a similar evaluation of bank premises held for sale are obtained when first classified as held for sale. Appraisals or similar evaluations are obtained subsequently as deemed necessary by management but at least annually on foreclosed assets and bank premises held for sale. Appraisals are reviewed for accuracy and consistency by management. Appraisals are performed by individuals selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated costs to sell. These discounts and estimates are developed by management by comparison to historical results.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following tables present quantitative information about unobservable inputs used in nonrecurring Level 3 fair value measurements (dollars in thousands).

 

 

 

 

 

 

 

 

 

 

March 31, 2020

    

Fair
Value

    

Valuation
Technique

    

Unobservable Inputs

    

Range
(Weighted Average)

Collateral-dependent impaired loans

 

$

16,789

 

Appraisal of collateral

 

Appraisal adjustments

 

Not meaningful

Bank premises held for sale

 

 

121

 

Appraisal

 

Appraisal adjustments

 

7%  (7%)

Foreclosed assets

 

 

4,469

 

Appraisal

 

Appraisal adjustments

 

7%  (7%)

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

Fair
Value

 

Valuation
Technique

 

Unobservable Inputs

 

Range
(Weighted Average)

Collateral-dependent impaired loans

 

$

15,811

 

Appraisal of collateral

 

Appraisal adjustments

 

Not meaningful

Bank premises held for sale

 

 

121

 

Appraisal

 

Appraisal adjustments

 

7%  (7%)

Foreclosed assets

 

 

5,099

 

Appraisal

 

Appraisal adjustments

 

7%  (7%)

 

Other Fair Value Methods

The following methods and assumptions were used by the Company in estimating fair value disclosures of its other financial instruments. There were no changes in the methods and significant assumptions used to estimate the fair value of these financial instruments.

Cash and Cash Equivalents

The carrying amounts of these financial instruments approximate their fair values.

Interest-bearing Time Deposits with Banks

The carrying values of interest-bearing time deposits with banks approximate their fair values.

Restricted Stock

The carrying amount of FHLB stock approximates fair value based on the redemption provisions of the FHLB.

Loans

The fair value estimation process for the loan portfolio uses an exit price concept and reflects discounts the Company believes are consistent with discounts in the market place. Fair values are estimated for portfolios of loans with similar characteristics. Loans are segregated by type such as commercial and industrial, agricultural and farmland, commercial real estate - owner occupied, commercial real estate - non-owner occupied, multi-family, construction and land development, one-to-four family residential, and municipal, consumer, and other. The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for similar maturities. The fair value analysis also includes other assumptions to estimate fair value, intended to approximate those a market participant would use in an orderly transaction, with adjustments for discount rates, interest rates, liquidity, and credit spreads, as appropriate.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Investments in Unconsolidated Subsidiaries

The fair values of the Company’s investments in unconsolidated subsidiaries are presumed to approximate carrying amounts.

Time Deposits

Fair values of certificates of deposit with stated maturities have been estimated using the present value of estimated future cash flows discounted at rates currently offered for similar instruments. Time deposits also include public funds time deposits.

Securities Sold Under Agreements to Repurchase

The fair values of repurchase agreements with variable interest rates are presumed to approximate their recorded carrying amounts.

Subordinated Debentures

The fair values of subordinated debentures are estimated using discounted cash flow analyses based on rates observed on recent debt issuances by other financial institutions.

Accrued Interest

The carrying amounts of accrued interest approximate fair value.

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair values have been estimated using data which management considered the best available and estimation methodologies deemed suitable for the pertinent category of financial instrument.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table provides summary information on the carrying amounts and estimated fair values of the Company’s financial instruments as of March 31, 2020 and December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value

 

March 31, 2020

 

December 31, 2019

 

 

Hierarchy

 

Carrying

 

Estimated

 

Carrying

 

Estimated

 

    

Level

    

Amount

    

Fair Value

    

Amount

    

Fair Value

 

 

 

 

 

(dollars in thousands)

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

Level 1

 

$

265,436

 

$

265,436

 

$

283,971

 

$

283,971

Interest-bearing time deposits with banks

 

Level 1

 

 

 —

 

 

 —

 

 

248

 

 

248

Debt securities held-to-maturity

 

Level 2

 

 

79,741

 

 

83,564

 

 

88,477

 

 

90,529

Restricted stock

 

Level 3

 

 

2,425

 

 

2,425

 

 

2,425

 

 

2,425

Loans, net

 

Level 3

 

 

2,106,865

 

 

2,134,424

 

 

2,141,527

 

 

2,181,103

Investments in unconsolidated subsidiaries

 

Level 3

 

 

1,165

 

 

1,165

 

 

1,165

 

 

1,165

Accrued interest receivable

 

Level 2

 

 

12,096

 

 

12,096

 

 

13,951

 

 

13,951

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Time deposits

 

Level 3

 

 

327,219

 

 

328,587

 

 

356,408

 

 

355,340

Securities sold under agreements to repurchase

 

Level 2

 

 

40,811

 

 

40,811

 

 

44,433

 

 

44,433

Subordinated debentures

 

Level 3

 

 

37,599

 

 

31,431

 

 

37,583

 

 

31,959

Accrued interest payable

 

Level 2

 

 

1,024

 

 

1,024

 

 

1,132

 

 

1,132

 

The Company estimated the fair value of lending related commitments as described in Note 17 to be immaterial based on limited interest rate exposure due to their variable nature, short-term commitment periods and termination clauses provided in the agreements.

NOTE 17 – COMMITMENTS AND CONTINGENCIES

Financial Instruments

The Banks are party to credit-related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

The Banks’ exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Banks use the same credit policies in making commitments and conditional obligations as they do for on-balance sheet instruments.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Such commitments and conditional obligations were as follows as of March 31, 2020 and December 31, 2019:

 

 

 

 

 

 

 

 

 

Contractual Amount

 

 

March 31, 

 

December 31, 

 

    

2020

    

2019

 

 

 

(dollars in thousands)

Commitments to extend credit

 

$

502,244

 

$

542,705

Standby letters of credit

 

 

9,474

 

 

8,991

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Banks evaluate each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, by the Banks upon extension of credit is based on management’s credit evaluation of the customer. Collateral held varies, but may include real estate, accounts receivable, inventory, property, plant, and equipment, and income-producing properties.

Standby letters of credit are conditional commitments issued by the Banks to guarantee the performance of a customer to a third party. Those standby letters of credit are primarily issued to support extensions of credit. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. The Banks secure the standby letters of credit with the same collateral used to secure the related loan.

Legal Contingencies

Various legal claims arise from time to time in the normal course of business which, in the opinion of management, will have no material effect on the Company’s consolidated financial statements.

 

 

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ITEM 2.       MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless the context requires otherwise, references in this report to the “Company,” “we,” “us” and “our” refer to HBT Financial, Inc. and its consolidated subsidiaries.

The following is management’s discussion and analysis of the financial condition as of March 31, 2020 (unaudited), as compared with December 31, 2019, and the results of operations for the three months ended March 31, 2020 and 2019 (unaudited). Management’s discussion and analysis should be read in conjunction with the Company’s unaudited consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10‑Q, as well as the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Results of operations for the three months ended March 31, 2020 are not necessarily indicative of results to be attained for any other period.

OVERVIEW

HBT Financial, Inc. is headquartered in Bloomington, Illinois and is the holding company for Heartland Bank and State Bank of Lincoln. 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 through 64 branches. As of March 31, 2020,  the Company had total assets of $3.2 billion, total loans held for investment of $2.1 billion, total deposits of $2.7 billion and stockholders’ equity of $340 million. HBT Financial, Inc. is a longstanding Central Illinois company, with banking roots that can be traced back 100 years.

Market Area

We currently operate 61 full-service and three limited-service branch locations across 18 counties in Central and Northeastern Illinois. We hold a leading deposit share in many of our markets in Central Illinois, which we define as a top three deposit share rank, providing the foundation for our strong deposit base. The stability provided by this low-cost funding is a key driver of our strong track record of financial performance.

Below is a summary of the loan and deposit balances by the metropolitan and micropolitan statistical areas in which we operate:

 

 

 

 

 

 

 

 

    

March 31, 2020

    

December 31, 2019

 

 

(dollars in thousands)

Loans, before allowance for loan losses

 

 

 

 

 

 

Bloomington-Normal

 

$

508,101

 

$

552,787

Champaign-Urbana

 

 

210,254

 

 

209,317

Chicago

 

 

1,038,953

 

 

1,020,524

Lincoln

 

 

113,484

 

 

107,162

Ottawa-Peru

 

 

97,631

 

 

103,665

Peoria

 

 

164,529

 

 

170,371

Loans, before allowance for loan losses

 

$

2,132,952

 

$

2,163,826

 

 

 

 

 

 

 

Total deposits

 

 

 

 

 

 

Bloomington-Normal

 

$

692,635

 

$

694,519

Champaign-Urbana

 

 

149,284

 

 

152,108

Chicago

 

 

916,405

 

 

911,916

Lincoln

 

 

172,070

 

 

194,784

Ottawa-Peru

 

 

298,047

 

 

290,138

Peoria

 

 

501,862

 

 

533,390

Total deposits

 

$

2,730,303

 

$

2,776,855

 

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The Bloomington-Normal metropolitan statistical area includes our branches within McLean and De Witt counties. The Champaign-Urbana metropolitan statistical area includes our branches within Champaign and Ford counties. The Chicago metropolitan statistical area includes our branches within Cook, DeKalb, Grundy, Kane, Kendall, Lake, and Will counties. The Lincoln micropolitan statistical area includes our branches within Logan county. The Ottawa-Peru micropolitan statistical area includes our branches within Bureau and LaSalle counties. The Peoria metropolitan statistical area includes our branches within Peoria, Marshall, Tazewell, and Woodford counties.

FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Economic Conditions

The Company's business and financial performance are affected by economic conditions generally in the United States and more directly in the Illinois markets where we primarily operate. The significant economic factors that are most relevant to our business and our financial performance include the general economic conditions in the U.S. and in the Company's markets, unemployment rates, real estate markets, and interest rates.

COVID-19 Response and Impact Overview

The COVID-19 pandemic has presented significant health and economic disruption throughout the U.S. and the communities we serve.  We have taken a number of steps to support our employees and customers while maintaining the health and safety of all involved, including, but not limited to:

·

Enabling work from home for many employees and social distancing employees who need to report to the office;

·

Maintaining regular business hours at branches for drive-up services and the call center to serve customers;

·

Limiting branch lobby service to appointment only with only four out of 64 branch locations closed temporarily;

·

Offering loan payment modifications to customers experiencing financial hardship due to COVID-19;

·

Waiving or refunding overdraft and ATM fees, as well as time deposit early withdrawal penalties, to customers experiencing financial hardship due to COVID-19;

·

Participating in the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) with $147.2 million of PPP loans for 1,225 businesses in our communities approved and funded subsequent to March 31, 2020 through April 30, 2020.

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While the COVID-19 pandemic has not materially impacted our operations as of March 31, 2020, it has caused significant economic disruption throughout the United States as state and local governments issued “shelter at home” orders along with the closing of non-essential businesses. While the length, duration and ultimate impact of these actions are unknown at this time, if these actions are sustained, they may adversely impact the businesses we serve and impair the ability of our customers to fulfill their contractual obligations to us. This could adversely affect our asset valuations, financial condition, liquidity and results of operations, and the impacts may be material. Adverse impacts of the COVID-19 pandemic to our results of operations may include, but are not limited to:

·

Decrease in net interest income and net interest margin, as a result of the lower interest rate environment;

·

Increase in provision for loan losses due to increased net charge-offs and deterioration in the loan portfolio’s credit quality, as a result of the economic slow-down caused by the COVID-19 pandemic;

·

Decrease in debit and credit card interchange income, as a result of a lower level of consumer activity and lower associated volume of debit and credit card transactions;

·

Decrease in service charge income on deposit accounts, such as overdraft fees, as a result of an increase in waived or refunded fees and federal economic stimulus payments received by customers;

·

Decrease in wealth management fees, as a result of decreases in values of assets held under management or administration;

·

Increase in loan servicing, collection, and other administrative costs, as a result of loan modifications granted to customers experiencing financial hardship due to COVID-19 or an increase in the level of non-performing assets; and

·

Decrease in demand for loans, as a result of the economic slow-down caused by the COVID-19 pandemic.

Adverse impacts may also include valuation impairments on our goodwill, intangible assets, investment securities, loans, mortgage servicing rights, deferred tax assets or counter-party risk derivatives.

The Company’s executive management continues to closely monitor the COVID-19 pandemic. As of the date of this filing, we anticipate we will continue to take actions to support our customers in a manner consistent with the current guidance provided by Federal banking regulatory authorities.

Interest Rates

Net interest income is our primary source of revenue. Net interest income equals the excess of interest income earned on interest earning assets (including discount accretion on purchased loans plus certain loan fees) over interest expense incurred on interest-bearing liabilities. The level of interest rates as well as the volume of interest-earning assets and interest-bearing liabilities both impact net interest income. Net interest income is also influenced by both the pricing and mix of interest-earning assets and interest-bearing liabilities which, in turn, are impacted by external factors such as local economic conditions, competition for loans and deposits, the monetary policy of the Federal Reserve Board and market interest rates.

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The cost of our deposits and short-term wholesale borrowings is largely based on short-term interest rates, which are primarily driven by the Federal Reserve Board’s actions. The yields generated by our loans and securities are typically driven by short-term and long-term interest rates, which are set by the market and, to some degree, by the Federal Reserve Board’s actions. The level of net interest income is therefore influenced by movements in such interest rates and the pace at which such movements occur. During 2019, overall market interest rates started to decline. The Federal Open Markets Committee lowered Federal Funds target rates for the first time in 11 years on July 31, 2019 and then again in September 2019 and October 2019, for a combined decrease of 75 basis points during 2019. In March 2020, the Federal Open Markets Committee lowered Federal Funds target rates twice, for a combined decrease of 150 basis points in response to recent economic downturn related to the COVID-19 pandemic. We expect these rate cuts, and potential future decreases in interest rates and increases in nonperforming loans as a result of the recent economic downturn related to the COVID-19 pandemic, to continue to put downward pressure on our net interest margin. In general, we believe that rate increases will lead to improved net interest margins while rate decreases will result in lower net interest margins.

Credit Trends

We focus on originating loans with appropriate risk / reward profiles. We have a detailed loan policy that guides our overall loan origination philosophy and a well-established loan approval process that requires experienced credit officers to approve larger loan relationships. Although we believe our loan approval process and credit review process is a strength that allows us to maintain a high quality loan portfolio, we recognize that credit trends in the markets in which we operate and in our loan portfolio can materially impact our financial condition and performance and that these trends are primarily driven by the economic conditions in our markets. In addition, the economic slow-down caused by the COVID-19 pandemic may result in decreases in loan demand and increases in provision for loan losses due to increased net charge-offs and deterioration in the loan portfolio’s credit quality.

Competition

Our profitability and growth are affected by the highly competitive nature of the financial services industry. We compete with community banks in all our markets and, to a lesser extent, with money center banks, primarily in the Chicago MSA. Additionally, we compete with non-bank financial services companies and other financial institutions operating within the areas we serve. We compete by emphasizing personalized service and efficient decision-making tailored to individual needs. We do not rely on any individual, group, or entity for a material portion of our loans or our deposits. We continue to see increased competitive pressures on loan rates and terms and increased competition for deposits. Continued loan and deposit pricing pressure may affect our financial results in the future.

Regulatory Environment / Trends

We are subject to extensive regulation and supervision, which continue to evolve as the legal and regulatory framework governing our operations continues to change. The current operating environment also has heightened supervisory expectations in areas such as consumer compliance, the BSA and anti-money laundering compliance, risk management and internal audit. We anticipate that this environment of heightened scrutiny will continue for the industry. As a result of these heightened expectations, we expect to incur additional costs for additional compliance, risk management and audit personnel or professional fees associated with advisors and consultants.

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Table of Contents

FACTORS AFFECTING COMPARABILITY OF FINANCIAL RESULTS

S Corp Status

Prior to the initial public offering, 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, had been recognized in the accompanying consolidated financial statements prior to October 11, 2019.

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 will only reflect an effective state replacement tax rate.

The following table illustrates the impact of being taxed as a C Corporation for the three months ended March 31, 2019:

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

 

2020

    

2019

 

    

 

(dollars in thousands, except per share amounts)

 

 

As Reported

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

Effective tax rate

 

24.6

%  

 

1.1

%

 

 

 

 

 

 

 

 

 

Unaudited Pro Forma C Corp Equivalent

 

  

 

 

  

 

 

Historical income before income tax expense

 

N/A

 

$

18,951

 

 

C Corp equivalent income tax expense

 

N/A

 

 

4,915

 

 

C Corp equivalent net income

 

N/A

 

$

14,036

 

 

 

 

  

 

 

 

 

 

C Corp equivalent earnings per share - Basic

 

N/A

 

$

0.78

 

 

C Corp equivalent earnings per share - Diluted

 

N/A

 

$

0.78

 

 

 

 

  

 

 

 

 

 

Effective tax rate

 

N/A

 

 

25.9

%

 


N/A  Not applicable.

 

The C Corp equivalent effective rate reflects a federal income tax rate of 21% and state income tax rate of 9.5% for the three months ended March 31, 2019.

Public Company Costs

Following the completion of the initial public offering, the Company has incurred, and expects to continue to incur, additional costs associated with operating as a public company, hiring additional personnel, enhancing technology and expanding capabilities. The Company expects that these costs will include legal, regulatory, accounting, investor relations and other expenses that were not incurred as a private company. Sarbanes-Oxley and rules adopted by the SEC, the FDIC and national securities exchanges require public companies to implement specified corporate governance practices that were inapplicable as a private company.

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Table of Contents

RESULTS OF OPERATIONS

Overview of Recent Financial Results

The following table presents selected financial results and measures for the three months ended March 31, 2020 and 2019:

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

2020

    

2019

 

 

(dollars in thousands, except per share amounts)

 

Statement of Income Information

 

 

 

 

 

 

Total interest and dividend income

$

32,720

 

$

36,949

 

Total interest expense

 

2,058

 

 

2,497

 

Net interest income

 

30,662

 

 

34,452

 

Provision for loan losses

 

4,355

 

 

776

 

Net income after provision for loan losses

 

26,307

 

 

33,676

 

Total noninterest income

 

5,252

 

 

7,487

 

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

 

 

 

 

 

 

 

 

C Corp equivalent net income (1)

 

N/A

 

$

14,036

 

Adjusted net income (2)

$

8,379

 

 

14,359

 

 

 

 

 

 

 

 

Net interest income (tax-equivalent basis) (2)

$

31,125

 

$

35,062

 

 

 

 

 

 

 

 

Share and Per Share Information

 

  

 

 

  

 

Earnings per share - Diluted

$

0.23

 

$

1.04

 

C Corp equivalent earnings per share - Diluted (1)

 

N/A

 

 

0.78

 

Adjusted earnings per share - Diluted (2)

 

0.30

 

 

0.80

 

 

 

 

 

 

 

 

Weighted average number shares of common stock outstanding

 

27,457,306

 

 

18,027,512

 

 

 

 

 

 

 

 

Summary Ratios

 

  

 

 

  

 

Net interest margin *

 

4.00

%  

 

4.44

%

Net interest margin (tax-equivalent basis) * (2)

 

4.06

 

 

4.52

 

Yield on loans *

 

5.16

 

 

5.69

 

Yield on interest-earning assets *

 

4.27

 

 

4.76

 

Cost of interest-bearing liabilities *

 

0.39

 

 

0.45

 

Cost of total deposits *

 

0.23

 

 

0.29

 

 

 

 

 

 

 

 

Efficiency ratio

 

64.01

%  

 

52.07

%

Efficiency ratio (tax-equivalent basis) (2)

 

63.20

 

 

51.32

 

 

 

 

 

 

 

 

Return on average assets *

 

0.78

%  

 

2.32

%

Return on average stockholders' equity *

 

7.29

 

 

21.59

 

Return on average tangible common equity * (2)

 

7.92

 

 

23.55

 

 

 

 

 

 

 

 

C Corp equivalent return on average assets * (1)

 

N/A

 

 

1.74

%

C Corp equivalent return on average stockholders' equity * (1)

 

N/A

 

 

16.17

 

C Corp equivalent return on average tangible common equity * (1) (2)

 

N/A

 

 

17.64

 

 

 

 

 

 

 

 

Adjusted return on average assets * (2)

 

1.05

%  

 

1.78

%

Adjusted return on average stockholders' equity * (2)

 

9.81

 

 

16.54

 

Adjusted return on average tangible common equity * (2)

 

10.67

 

 

18.05

 


*       Annualized measure.

(1)

Reflects adjustment to our historical net income for each period to give effect to the C Corp equivalent provision for income tax for such period. No such adjustment is necessary for periods subsequent to 2019.

(2)

See "Non-GAAP Financial Information" for reconciliation of non-GAAP measure to their most comparable GAAP measures.

N/A  Not applicable.

 

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Table of Contents

Comparison of the Three Months Ended March 31, 2020 to the Three Months Ended March 31, 2019

For the three months ended March 31, 2020, net income was $6.2 million decreasing by $12.5 million, or 66.8%, when compared to net income for the three months ended March 31, 2019, or a decrease of $7.8 million, or 55.7%, when compared to C Corp equivalent net income for the three months ended March 31, 2019.  Net income declined primarily due to lower net interest income, higher provision for loan losses, and a larger negative mortgage servicing rights adjustment. Net interest income declined by $3.8 million, primarily as a result of a lower interest rate environment. Provision for loan losses increased by $3.6 million, primarily due to the economic weakness resulting from the COVID-19 pandemic. The $1.2 million larger decline in the mortgage servicing rights fair value adjustment was primarily attributable to faster expected prepayment rates within the serviced loan portfolio as a result of increased refinance activity driven by the low interest rate environment. Also contributing to lower earnings were a charge of $0.8 million associated with the termination of the supplemental executive retirement plan (SERP) included in the employee benefits expense, and net earnings from First Community Title Services, Inc. and HBT Insurance of $0.6 million, including gains on sales, which were sold during the three months ended March 31, 2019.  

Net Interest Income

Net interest income equals the excess of interest income (including discount accretion on acquired loans) plus fees earned on interest earning assets over interest expense incurred on interest-bearing liabilities. Interest rate spread and net interest margin are utilized to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on interest-earning assets and the rate paid for interest-bearing liabilities that fund those assets. The net interest margin is expressed as the percentage of net interest income to average interest-earning assets. The net interest margin exceeds the interest rate spread because noninterest-bearing sources of funds, principally noninterest-bearing demand deposits and stockholders’ equity, also support interest-earning assets.

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Table of Contents

The following tables sets forth average balances, average yields and costs, and certain other information for the three months ended March 31, 2020 and 2019. Average balances are daily average balances. Nonaccrual loans are included in the computation of average balances but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees and costs, discounts and premiums, as well as purchase accounting adjustments that are accreted or amortized to interest income or expense.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 2020

 

March 31, 2019

 

 

    

Average

    

 

    

 

    

Average

    

 

    

 

 

 

 

Balance

 

Interest

 

Yield/Cost *

 

Balance

 

Interest

 

Yield/Cost *

 

 

 

(dollars in thousands)

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

2,141,031

 

$

27,615

 

5.16

%  

$

2,164,330

 

$

30,773

 

5.69

%

Securities

 

 

668,572

 

 

4,362

 

2.61

 

 

806,504

 

 

5,474

 

2.71

 

Deposits with banks

 

 

251,058

 

 

729

 

1.16

 

 

131,663

 

 

687

 

2.09

 

Other

 

 

2,425

 

 

14

 

2.37

 

 

2,719

 

 

15

 

2.24

 

Total interest-earning assets

 

 

3,063,086

 

$

32,720

 

4.27

%  

 

3,105,216

 

$

36,949

 

4.76

%

Allowance for loan losses

 

 

(22,474)

 

 

 

 

  

 

 

(20,441)

 

 

  

 

  

 

Noninterest-earning assets

 

 

148,131

 

 

 

 

  

 

 

148,518

 

 

  

 

  

 

Total assets

 

$

3,188,743

 

 

 

 

  

 

$

3,233,293

 

 

  

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

  

 

 

  

 

  

 

 

  

 

 

  

 

  

 

Liabilities

 

 

  

 

 

  

 

  

 

 

  

 

 

  

 

  

 

Interest-bearing deposits:

 

 

  

 

 

  

 

  

 

 

  

 

 

  

 

  

 

Interest-bearing demand

 

$

811,866

 

$

251

 

0.12

%  

$

826,456

 

$

417

 

0.20

%

Money market

 

 

464,124

 

 

394

 

0.34

 

 

442,520

 

 

370

 

0.33

 

Savings

 

 

434,276

 

 

70

 

0.06

 

 

424,986

 

 

68

 

0.06

 

Time

 

 

341,770

 

 

880

 

1.03

 

 

432,877

 

 

1,128

 

1.04

 

Total interest-bearing deposits

 

 

2,052,036

 

 

1,595

 

0.31

 

 

2,126,839

 

 

1,983

 

0.37

 

Securities sold under agreements to repurchase

 

 

41,968

 

 

20

 

0.19

 

 

42,089

 

 

14

 

0.13

 

Borrowings

 

 

221

 

 

 —

 

0.52

 

 

557

 

 

 3

 

2.56

 

Subordinated debentures

 

 

37,589

 

 

443

 

4.72

 

 

37,528

 

 

497

 

5.30

 

Total interest-bearing liabilities

 

 

2,131,814

 

$

2,058

 

0.39

%  

 

2,207,013

 

$

2,497

 

0.45

%

Noninterest-bearing deposits

 

 

670,714

 

 

 

 

  

 

 

650,630

 

 

  

 

  

 

Noninterest-bearing liabilities

 

 

44,696

 

 

 

 

  

 

 

28,493

 

 

  

 

  

 

Total liabilities

 

 

2,847,224

 

 

 

 

  

 

 

2,886,136

 

 

  

 

  

 

Stockholders' Equity

 

 

341,519

 

 

 

 

  

 

 

347,157

 

 

  

 

  

 

Total liabilities and stockholders’ equity

 

$

3,188,743

 

 

 

 

  

 

 

3,233,293

 

 

  

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income/Net interest margin (3)

 

 

 

 

$

30,662

 

4.00

%  

 

 

 

$

34,452

 

4.44

%  

Tax-equivalent adjustment (2)

 

 

 

 

 

463

 

0.06

 

 

 

 

 

610

 

0.08

 

Net interest income (tax-equivalent basis)/ Net interest margin (tax-equivalent basis) (1) (2)

 

 

 

 

$

31,125

 

4.06

%  

 

 

 

$

35,062

 

4.52

%  

Net interest rate spread (4)

 

 

 

 

 

 

 

3.88

%  

 

  

 

 

  

 

4.31

%

Net interest-earning assets (5)

 

$

931,272

 

 

 

 

  

 

$

898,203

 

 

  

 

  

 

Ratio of interest-earning assets to interest-bearing liabilities

 

 

1.44

 

 

 

 

  

 

 

1.41

 

 

  

 

  

 

Cost of  total deposits

 

 

 

 

 

 

 

0.23

%  

 

  

 

 

  

 

0.29

%  


*       Annualized measure.

(1)

See "Non-GAAP Financial Information" for reconciliation of non-GAAP measure to their most comparable GAAP measures.

(2)

On a tax-equivalent basis assuming a federal income tax rate of 21% and a state income tax rate of 9.5%.

(3)

Net interest margin represents net interest income divided by average total interest-earning assets.

(4)

Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(5)

Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

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Table of Contents

The following tables set forth the components of loan interest income, which includes contractual interest on loans, loan fees, accretion of acquired loan discounts and earnings on net cash flow hedges.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

 

2020

 

2019

 

 

    

 

 

    

Yield

    

 

 

    

Yield

 

 

 

Interest

 

Contribution *

 

Interest

 

Contribution *

 

 

 

(dollars in thousands)

 

Contractual interest

 

$

26,022

 

4.86

%  

$

28,581

 

5.28

%

Loan fees

 

 

1,164

 

0.22

 

 

799

 

0.15

 

Accretion of acquired loan discounts

 

 

397

 

0.07

 

 

1,363

 

0.25

 

Net cash flow hedge earnings

 

 

32

 

0.01

 

 

30

 

0.01

 

Total loan interest income

 

$

27,615

 

5.16

%  

$

30,773

 

5.69

%


*       Annualized measure.

The following tables set forth the components of net interest income, which includes contractual interest on loans, contractual interest on securities, contractual interest on interest-bearing deposits in banks, loan fees, accretion of acquired loan discounts, securities amortization, net and other interest and dividend income. Total interest expense consists of contractual interest on deposits, contractual interest on other interest-bearing liabilities and other.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

 

2020

 

2019

 

 

    

 

 

 

Net Interest

 

 

 

 

Net Interest

 

 

 

 

 

 

Margin

 

 

 

 

Margin

 

 

 

Interest

 

Contribution *

 

Interest

 

Contribution *

 

 

 

(dollars in thousands)

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

Contractual interest on loans

 

$

26,022

 

3.40

%

$

28,581

 

3.68

%

Contractual interest on securities

 

 

5,151

 

0.67

 

 

6,406

 

0.82

 

Contractual interest on deposits with banks

 

 

729

 

0.09

 

 

687

 

0.09

 

Loan fees

 

 

1,164

 

0.15

 

 

799

 

0.10

 

Accretion of loan discounts

 

 

397

 

0.05

 

 

1,363

 

0.18

 

Securities amortization, net

 

 

(790)

 

(0.10)

 

 

(932)

 

(0.12)

 

Other

 

 

47

 

0.01

 

 

45

 

0.01

 

Total interest income

 

 

32,720

 

4.27

 

 

36,949

 

4.76

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

Contractual interest on deposits

 

 

1,588

 

0.21

 

 

2,001

 

0.26

 

Contractual interest on other interest-bearing liabilities

 

 

413

 

0.05

 

 

498

 

0.06

 

Other

 

 

57

 

0.01

 

 

(2)

 

 —

 

Total interest expense

 

 

2,058

 

0.27

 

 

2,497

 

0.32

 

Net interest income

 

 

30,662

 

4.00

 

 

34,452

 

4.44

 

Tax equivalent adjustment (1)

 

 

463

 

0.06

 

 

610

 

0.08

 

Net interest income (tax equivalent) (1) (2)

 

$

31,125

 

4.06

%

$

35,062

 

4.52

%


*       Annualized measure.

(1)

On a tax-equivalent basis assuming a federal income tax rate of 21% and a state income tax rate of 9.5%.

(2)

See "Non-GAAP Financial Information" for reconciliation of non-GAAP measure to their most comparable GAAP measures.

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Table of Contents

Rate/Volume Analysis

The following table sets forth the dollar amount of changes in interest income and interest expense for the major categories of our interest-earning assets and interest-bearing liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to changes attributable to changes in volume (i.e., changes in average balances multiplied by the prior-period average rate), and changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). For purposes of this table, changes attributable to both volume and rate that cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2020

 

 

vs.

 

 

Three Months Ended March 31, 2019

 

 

Increase (Decrease) Due to

 

 

 

 

    

Volume

    

Rate

    

Total

 

 

(dollars in thousands)

Interest-earning assets:

 

 

 

 

 

 

 

 

 

Loans

 

$

(328)

 

$

(2,830)

 

$

(3,158)

Securities

 

 

(913)

 

 

(199)

 

 

(1,112)

Deposits with banks

 

 

437

 

 

(395)

 

 

42

Other

 

 

(2)

 

 

 1

 

 

(1)

Total interest-earning assets

 

 

(806)

 

 

(3,423)

 

 

(4,229)

 

 

 

 

 

 

 

 

 

 

Interest-earning liabilities:

 

 

  

 

 

  

 

 

  

Interest-bearing deposits:

 

 

  

 

 

  

 

 

  

Interest-bearing demand

 

 

(7)

 

 

(159)

 

 

(166)

Money market

 

 

19

 

 

 5

 

 

24

Savings

 

 

 1

 

 

 1

 

 

 2

Time

 

 

(235)

 

 

(13)

 

 

(248)

Total interest-bearing deposits

 

 

(222)

 

 

(166)

 

 

(388)

Securities sold under agreements to repurchase

 

 

 —

 

 

 6

 

 

 6

Borrowings

 

 

(1)

 

 

(2)

 

 

(3)

Subordinated debentures

 

 

 1

 

 

(55)

 

 

(54)

Total interest-bearing liabilities

 

 

(222)

 

 

(217)

 

 

(439)

Change in net interest income

 

$

(584)

 

$

(3,206)

 

$

(3,790)

 

Comparison of the Three Months Ended March 31, 2020 to the Three Months Ended March 31, 2019

Net interest income for the three months ended March 31, 2020 decreased $3.8 million, or 11.0%, to $30.7 million from $34.5 million for the three months ended March 31, 2019. The decrease is primarily attributable to declines in benchmark interest rates, which drove lower yields on interest-earning assets, and a lower level of interest-earning assets. Partially offsetting these declines were a lower average balance in time deposits and a lower cost of interest-bearing demand deposits. Net interest margin decreased as well to 4.00% for the three months ended March 31, 2020 compared to 4.44% for the three months ended March 31, 2019. The contribution of acquired loan discount accretion to net interest income declined to $0.4 million or 5 basis points of the net interest margin, for the three months ended March 31, 2020 from $1.4 million or 18 basis points of the net interest margin, for the three months ended March 31, 2019.

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Table of Contents

The quarterly net interest margins were as follows:

 

 

 

 

 

 

 

    

2020

    

2019

 

Three months ended

 

 

 

 

 

March 31,

 

4.00

%  

4.44

%

June 30,

 

 —

 

4.36

 

September 30,

 

 —

 

4.31

 

December 31,

 

 —

 

4.12

 

 

During 2019, overall market interest rates started to decline. The Federal Open Markets Committee lowered Federal Funds target rates for the first time in 11 years on July 31, 2019 and then again in September 2019 and October 2019, for a combined decrease of 75 basis points during 2019. In March 2020, the Federal Open Markets Committee lowered Federal Funds target rates twice, for a combined decrease of 150 basis points in response to recent economic downturn related to the COVID-19 pandemic. We expect these rate cuts, and potential future decreases in interest rates and increases in nonperforming loans as a result of the recent economic downturn related to the COVID-19 pandemic, to continue to put downward pressure on our net interest margin. In general, we believe that rate increases will lead to improved net interest margins while rate decreases will result in lower net interest margins.

Provision for Loan Losses

Provisions for loan losses are charged to operations in order to maintain the allowance for loan losses at a level we consider necessary to absorb probable incurred credit losses in the loan portfolio. In determining the level of the allowance for loan losses, management considers past and current loss experience, evaluations of collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of nonperforming and other classified loans. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or events change. We assess the allowance for loan losses on a quarterly basis and make provisions for loan losses in order to maintain the allowance. The provision for loan losses is a function of the allowance for loan loss methodology we use to determine the appropriate level of the allowance for inherent loan losses after net charge-offs have been deducted.

The deterioration of economic conditions related to the COVID-19 pandemic has adversely affected, and may continue to adversely affect, the communities that we serve. As a result, our provision for loan losses may increase, possibly materially, and adversely affect our financial condition, results of operations, and cash flows.

Comparison of the Three Months Ended March 31, 2020 to the Three Months Ended March 31, 2019

The provision for loan losses was $4.4 million and $0.8 million for the three months ended March 31, 2020 and 2019, respectively. The increase in provision for loan losses was primarily due to $3.3 million reserve build related to adjustments to qualitative factors to reflect the economic weakness resulting from the COVID-19 pandemic. The remaining $1.1 million of the provision was primarily due to a $1.3 million increase in a specific reserve related to one credit offset by a decrease in specific reserves related to several other credits.

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Noninterest Income

The following table outlines the amount of and changes to the various noninterest income line items as of the dates indicated.

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

    

2020

    

2019

    

$ Change

 

 

(dollars in thousands)

Card income

 

$

1,792

 

$

1,832

 

$

(40)

Service charges on deposit accounts

 

 

1,834

 

 

1,763

 

 

71

Wealth management fees

 

 

1,814

 

 

1,747

 

 

67

Mortgage servicing

 

 

724

 

 

729

 

 

(5)

Mortgage servicing rights fair value adjustment

 

 

(2,171)

 

 

(1,002)

 

 

(1,169)

Gains on sale of mortgage loans

 

 

536

 

 

525

 

 

11

Gains (losses) on securities

 

 

(52)

 

 

79

 

 

(131)

Gains (losses) on foreclosed assets

 

 

35

 

 

(17)

 

 

52

Gains (losses) on other assets

 

 

(3)

 

 

905

 

 

(908)

Title insurance activity

 

 

 —

 

 

129

 

 

(129)

Other noninterest income

 

 

743

 

 

797

 

 

(54)

Total noninterest income

 

$

5,252

 

$

7,487

 

$

(2,235)

 

Comparison of the Three Months Ended March 31, 2020 to the Three Months Ended March 31, 2019

Total noninterest income for the three months ended March 31, 2020 decreased by $2.2 million, or 29.9%, to $5.3 million from $7.5 million for the three months ended March 31, 2019. The decrease is primarily attributable to a $1.2 million larger negative mortgage servicing rights fair value adjustment and nonrecurring gains on sales of First Community Title Services, Inc. and HBT Insurance of $0.8 million during the three months ended March 31, 2019. Partially offsetting these decreases were higher service charges on deposit accounts and higher wealth management fees.

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Noninterest Expense

The following table outlines the amount of and changes to the various noninterest expense line items as of the dates indicated.

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

    

2020

    

2019

    

$ Change

 

 

(dollars in thousands)

Salaries

 

$

12,754

 

$

12,522

 

$

232

Employee benefits

 

 

2,434

 

 

1,244

 

 

1,190

Occupancy of bank premises

 

 

1,828

 

 

1,837

 

 

(9)

Furniture and equipment

 

 

603

 

 

789

 

 

(186)

Data processing

 

 

1,586

 

 

1,162

 

 

424

Marketing and customer relations

 

 

1,044

 

 

933

 

 

111

Amortization of intangible assets

 

 

317

 

 

376

 

 

(59)

FDIC insurance

 

 

36

 

 

219

 

 

(183)

Loan collection and servicing

 

 

348

 

 

742

 

 

(394)

Foreclosed assets

 

 

89

 

 

164

 

 

(75)

Other noninterest expense

 

 

2,268

 

 

2,224

 

 

44

Total noninterest expense

 

$

23,307

 

$

22,212

 

$

1,095

 

Comparison of the Three Months Ended March 31, 2020 to the Three Months Ended March 31, 2019

Total noninterest expense for the three months ended March 31, 2020 increased by $1.1 million, or 4.9%, to $23.3 million from $22.2 million for the three months ended March 31, 2019. The increase is primarily due to higher employee benefits expense driven by a $0.8 million charge during the three months ended March 31, 2020 related to the termination of the SERP. The SERP liability varies inversely with interest rates and is payable in June 2020. In addition, an increase in medical benefit expenses were partially offset by a decrease in the cash-settled stock appreciation rights (SAR) liability due primarily to changes in the Company’s stock price. The employee benefits expense related to the cash-settled SAR liability resulted in a benefit of $0.3 million and a benefit of $0.1 million during the three months ended March 31, 2020 and 2019, respectively.

Routine salary increases were offset by a reduction in employee count as a result of the sale of First Community Title Services, Inc. and HBT Insurance during the first quarter of 2019. Salaries and employee benefits expenses for First Community Title Services, Inc. and HBT Insurance was $0.3 million for the three months ended March 31, 2019. There was no salaries and employee benefits expenses for First Community Title Services, Inc. or HBT Insurance during the three months ended March 31, 2020. The decrease in FDIC insurance expense was due in part to the impact of the application of small bank assessment credits during the three months ended March 31, 2020. We expect that the small bank assessment credits were fully utilized as of March 31, 2020.

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Table of Contents

Income Taxes

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 will only reflect an effective state replacement tax rate. For additional information, see “Factors Affecting Comparability of Financial Results: S Corp Status”.

We recorded income tax expense of $2.0 million, or 24.6% effective tax rate, during the three months ended March 31, 2020 compared to $0.2 million, or 1.1% effective tax rate, on a historical basis and $4.9 million, or 25.9% effective tax rate, on a C Corp equivalent basis during the three months ended March 31, 2019. The effective income tax rate was lower than the combined federal and state statutory rate of approximately 28.5% primarily due to tax exempt interest income. Relative to the C Corp equivalent effective tax rate, the effective income tax rate decreased primarily due to tax exempt interest income making up a larger portion of pre-tax net income during the three months ended March 31, 2020 compared to the three months ended March 31, 2019.

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Table of Contents

FINANCIAL CONDITION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

    

 

 

 

     

2020

     

2019

     

$ Change

     

% Change

 

 

 

(dollars in thousands, except per share amounts)

 

Balance Sheet Information

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

265,436

 

$

283,971

 

$

(18,535)

 

(6.5)

%

Securities available-for-sale, at fair value

 

 

615,565

 

 

592,404

 

 

23,161

 

3.9

 

Securities held-to-maturity

 

 

79,741

 

 

88,477

 

 

(8,736)

 

(9.9)

 

Equity securities

 

 

4,759

 

 

4,389

 

 

370

 

8.4

 

Loans held for sale

 

 

4,805

 

 

4,531

 

 

274

 

6.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, before allowance for loan losses

 

 

2,132,952

 

 

2,163,826

 

 

(30,874)

 

(1.4)

 

Less: allowance for loan losses

 

 

26,087

 

 

22,299

 

 

3,788

 

17.0

 

Loans, net of allowance for loan losses

 

 

2,106,865

 

 

2,141,527

 

 

(34,662)

 

(1.6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

23,620

 

 

23,620

 

 

 —

 

 —

 

Core deposit intangible assets, net

 

 

3,713

 

 

4,030

 

 

(317)

 

(7.9)

 

Other assets

 

 

108,605

 

 

102,154

 

 

6,451

 

6.3

 

Total Assets

 

$

3,213,109

 

$

3,245,103

 

 

(31,994)

 

(1.0)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total deposits

 

$

2,730,303

 

$

2,776,855

 

$

(46,552)

 

(1.7)

%

Securities sold under agreements to repurchase

 

 

40,811

 

 

44,433

 

 

(3,622)

 

(8.2)

 

Subordinated debentures

 

 

37,599

 

 

37,583

 

 

16

 

 —

 

Other liabilities

 

 

64,583

 

 

53,314

 

 

11,269

 

21.1

 

Total Liabilities

 

 

2,873,296

 

 

2,912,185

 

 

(38,889)

 

(1.3)

 

Total Stockholders' Equity

 

 

339,813

 

 

332,918

 

 

6,895

 

2.1

 

Total Liabilities and Stockholders' Equity

 

$

3,213,109

 

$

3,245,103

 

 

(31,994)

 

(1.0)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tangible assets (1)

 

$

3,185,776

 

$

3,217,453

 

$

(31,677)

 

(1.0)

%

Tangible common equity (1)

 

 

312,480

 

 

305,268

 

 

7,212

 

2.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core deposits (1)

 

$

2,702,243

 

$

2,732,101

 

$

(29,858)

 

(1.1)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Share and Per Share Information

 

 

 

 

 

 

 

 

 

 

 

 

Book value per share

 

$

12.38

 

$

12.12

 

 

 

 

 

 

Tangible book value per share (1)

 

 

11.38

 

 

11.12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending number shares of common stock outstanding

 

 

27,457,306

 

 

27,457,306

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Ratios

 

 

  

 

 

  

 

 

  

 

  

 

Loan to deposit ratio

 

 

78.12

%  

 

77.92

%  

 

  

 

  

 

Core deposits to total deposits (1)

 

 

98.97

 

 

98.39

 

 

  

 

  

 

Stockholders' equity to total assets

 

 

10.58

 

 

10.26

 

 

  

 

  

 

Tangible common equity to tangible assets (1)

 

 

9.81

 

 

9.49

 

 

  

 

  

 


(1)

See "Non-GAAP Financial Information" for reconciliation of non-GAAP measure to their most comparable GAAP measures.

Total assets were $3.21 billion at March 31, 2020, a decrease of $32.0 million, or 1.0%, from December 31, 2019,  which was primarily a result of a decline in total deposits. The asset mix remained almost unchanged with decreases in loans and cash and cash equivalents partially offset by an increase in debt securities, primarily due to purchases exceeding proceeds from paydowns, maturities, and calls and a $7.6 million increase in the fair value of debt securities available-for-sale.

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Table of Contents

Total deposits were $2.73 billion at March 31, 2020, a decrease of $46.6 million, or 1.7%, from December 31, 2019. This decrease is primarily due to expected outflows from a small number of retail deposit accounts that had increased by $40.2 million in the fourth quarter 2019.

Core deposits to total deposits remained very high at 99.0% at March 31, 2020 compared to 98.4% at December 31, 2019, as we managed our deposit portfolio to retain higher value core deposit relationships and maintain the lowest practicable cost of funds. The loan to deposit ratio was 78.1% at March 31, 2020, increasing from 77.9% at December 31, 2019.

Loan Portfolio

The Company focuses on originating loans with appropriate risk / reward profiles. The Company has a detailed loan policy that guides the overall loan origination philosophy and a well-established loan approval process that requires experienced credit officers to approve larger loan relationships. The Company also has an active Credit Department that underwrites and prepares annual reviews for larger and more complex loan relationships.

Management monitors credit quality closely with a series of monthly reports and a quarterly Credit Committee meeting where performance and trends within the loan portfolio are reviewed. Portfolio diversification at the borrower, industry, and product levels is actively managed to mitigate concentration risk. In addition, credit risk management includes an independent loan review process that assesses compliance with loan policy, compliance with loan documentation standards, accuracy of the risk rating and overall credit quality of the loan portfolio.

Loans by Type

The following table sets forth the composition of the loan portfolio, excluding loans held-for-sale, by type of loan as of March 31, 2020 and December 31, 2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

December 31, 2019

 

 

    

Balance

    

Percent

 

Balance

    

Percent

 

 

 

(dollars in thousands)

 

Commercial and industrial

 

$

299,266

 

14.0

%

$

307,175

 

14.2

%

Agricultural and farmland

 

 

228,701

 

10.7

 

 

207,776

 

9.6

 

Commercial real estate - owner occupied

 

 

229,608

 

10.8

 

 

231,162

 

10.7

 

Commercial real estate - non-owner occupied

 

 

540,515

 

25.4

 

 

579,757

 

26.8

 

Multi-family

 

 

177,172

 

8.3

 

 

179,073

 

8.3

 

Construction and land development

 

 

232,311

 

10.9

 

 

224,887

 

10.4

 

One-to-four family residential

 

 

313,925

 

14.7

 

 

313,580

 

14.5

 

Municipal, consumer, and other

 

 

111,454

 

5.2

 

 

120,416

 

5.5

 

Loans, before allowance for loan losses

 

 

2,132,952

 

100.0

%

 

2,163,826

 

100.0

%

Allowance for loan losses

 

 

(26,087)

 

 

 

 

(22,299)

 

  

 

Loans, net of allowance for loan losses

 

$

2,106,865

 

 

 

$

2,141,527

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, before allowance for loan losses (originated) (1)

 

$

1,982,067

 

92.9

%

$

1,998,496

 

92.4

%

Loans, before allowance for loan losses (acquired) (1)

 

 

150,885

 

7.1

 

 

165,330

 

7.6

 

Loans, before allowance for loan losses

 

$

2,132,952

 

100.0

%

$

2,163,826

 

100.0

%


(1)

See "Non-GAAP Financial Information" for reconciliation of non-GAAP measure to their most comparable GAAP measures.

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Table of Contents

Loans, before allowance for loan losses decreased by $30.9 million, or 1.4%, to $2.13 billion as of March 31, 2020 from $2.16 billion as of December 31, 2019. The decline was primarily due to a $39.2 million reduction in CRE – non-owner occupied balances, a $9.0 million decline in municipal, consumer and other loans, and a $7.9 million reduction in commercial and industrial balances. Partially offsetting these declines was a $20.9 million increase in agricultural and farmland loans, primarily due to the addition of a new senior lender in one of our markets at the beginning of the year, and a $7.4 million increase in construction and land development loans

Loan Portfolio Maturities

The following table summarizes the scheduled maturities of the loan portfolio as of March 31, 2020.  Demand loans (loans having no stated repayment schedule or maturity) and overdraft loans are reported as being due in one year or less.

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2020

 

    

 

 

    

One Year Through

    

 

 

    

 

 

 

 

One Year or Less

 

Five Years

 

After Five Years

 

Total

 

 

(dollars in thousands)

Scheduled Maturities of Loans:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial

 

$

199,864

 

$

71,888

 

$

27,514

 

$

299,266

Agricultural and farmland

 

 

118,199

 

 

84,853

 

 

25,649

 

 

228,701

Commercial real estate - owner occupied

 

 

36,966

 

 

128,185

 

 

64,457

 

 

229,608

Commercial real estate - non-owner occupied

 

 

79,052

 

 

357,950

 

 

103,513

 

 

540,515

Multi-family

 

 

15,868

 

 

122,815

 

 

38,489

 

 

177,172

Construction and land development

 

 

141,331

 

 

87,024

 

 

3,956

 

 

232,311

One-to-four family residential

 

 

75,348

 

 

107,031

 

 

131,546

 

 

313,925

Municipal, consumer, and other

 

 

19,846

 

 

24,892

 

 

66,716

 

 

111,454

Total

 

$

686,474

 

$

984,638

 

$

461,840

 

$

2,132,952

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans Maturing After One Year:

 

 

  

 

 

  

 

 

  

 

 

  

Floating interest rates:

 

 

  

 

 

  

 

 

  

 

 

  

Repricing within one year or less

 

 

 

 

 

  

 

 

  

 

$

383,158

Repricing in more than one year

 

 

 

 

 

  

 

 

  

 

 

104,095

Total floating interest rates

 

 

 

 

 

  

 

 

  

 

 

487,253

Predetermined (fixed) interest rates

 

 

 

 

 

  

 

 

  

 

 

959,225

Total loans maturing after one year

 

 

 

 

 

  

 

 

  

 

$

1,446,478

 

Nonperforming Assets

Nonperforming loans consist of all loans past due 90 days or more or on nonaccrual. Nonperforming assets consist of all nonperforming loans and foreclosed assets. Typically, loans are placed on nonaccrual when they reach 90 days past due, or when, in management’s opinion, there is reasonable doubt regarding the collection of the amounts due through the normal means of the borrower. Interest accrued and unpaid at the time a loan is placed on nonaccrual status is reversed from interest income. Interest payments received on nonaccrual loans are recognized in accordance with our significant accounting policies. Once a loan is placed on nonaccrual status, the borrower must generally demonstrate at least six months of payment performance and we must believe that all remaining principal and interest is fully collectible, before the loan is eligible to return to accrual status. Management believes the Company’s lending practices and active approach to managing nonperforming assets has resulted in timely resolution of problem assets.

Loans acquired with deteriorated credit quality are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. However, these loans may be considered performing, even though they may be contractually past due, as any non-payment of contractual principal or interest is considered in the periodic re-estimation of expected cash flows and is included in the resulting recognition of current period loan loss provision or future period yield adjustments. The accrual of interest is discontinued on loans acquired with deteriorated credit quality if management can no longer estimate future cash flows on the loan. Therefore, interest revenue, through accretion of the difference between the carrying value of the loans and the expected

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Table of Contents

cash flows, is being recognized on all loans acquired with deteriorated credit quality, except those management can no longer estimate future cash flows.

The following table below sets forth information concerning nonperforming loans and nonperforming assets as of each of the dates indicated.

 

 

 

 

 

 

 

 

 

    

March 31, 2020

    

December 31, 2019

    

 

 

(dollars in thousands)

NONPERFORMING ASSETS

 

 

 

 

 

 

 

Nonaccrual

 

$

15,372

 

$

19,019

 

Past due 90 days or more, still accruing (1)

 

 

 —

 

 

30

 

Total nonperforming loans

 

 

15,372

 

 

19,049

 

Foreclosed assets

 

 

4,469

 

 

5,099

 

Total nonperforming assets

 

$

19,841

 

$

24,148

 

 

 

 

 

 

 

 

 

NONPERFORMING ASSETS (Originated) (2)

 

 

  

 

 

  

 

Nonaccrual

 

$

10,041

 

$

10,811

 

Past due 90 days or more, still accruing

 

 

 —

 

 

30

 

Total nonperforming loans (originated)

 

 

10,041

 

 

10,841

 

Foreclosed assets

 

 

965

 

 

1,022

 

Total nonperforming (originated)

 

$

11,006

 

$

11,863

 

 

 

 

 

 

 

 

 

NONPERFORMING ASSETS (Acquired) (2)

 

 

  

 

 

  

 

Nonaccrual

 

$

5,331

 

$

8,208

 

Past due 90 days or more, still accruing (1)

 

 

 —

 

 

 —

 

Total nonperforming loans (acquired)

 

 

5,331

 

 

8,208

 

Foreclosed assets

 

 

3,504

 

 

4,077

 

Total nonperforming assets (acquired)

 

$

8,835

 

$

12,285

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

$

26,087

 

$

22,299

 

 

 

 

 

 

 

 

 

Loans, before allowance for loan losses

 

$

2,132,952

 

$

2,163,826

 

Loans, before allowance for loan losses (originated) (2)

 

 

1,982,067

 

 

1,998,496

 

Loans, before allowance for loan losses (acquired) (2)

 

 

150,885

 

 

165,330

 

 

 

 

 

 

 

 

 

CREDIT QUALITY RATIOS

 

 

  

 

 

  

 

Allowance for loan losses to loans, before allowance for loan losses

 

 

1.22

%  

 

1.03

%  

Allowance for loan losses to nonperforming loans

 

 

169.70

 

 

117.06

 

Nonperforming loans to loans, before allowance for loan losses

 

 

0.72

 

 

0.88

 

Nonperforming assets to total assets

 

 

0.62

 

 

0.74

 

Nonperforming assets to loans, before allowance for loan losses and foreclosed assets

 

 

0.93

 

 

1.11

 

 

 

 

 

 

 

 

 

CREDIT QUALITY RATIOS (Originated) (2)

 

 

  

 

 

  

 

Nonperforming loans to loans, before allowance for loan losses

 

 

0.51

%  

 

0.54

%  

Nonperforming assets to loans, before allowance for loan losses and foreclosed assets

 

 

0.56

 

 

0.59

 

 

 

 

 

 

 

 

 

CREDIT QUALITY RATIOS (Acquired) (2)

 

 

  

 

 

  

 

Nonperforming loans to loans, before allowance for loan losses

 

 

3.53

%  

 

4.96

%  

Nonperforming assets to loans, before allowance for loan losses and foreclosed assets

 

 

5.72

 

 

7.25

 


(1)

Excludes loans acquired with deteriorated credit quality that are past due 90 or more days totaling $0.3 million and $0.1 million as of March 31, 2020 and December 31, 2019, respectively.

(2)

See "Non-GAAP Financial Information" for reconciliation of non-GAAP measure to their most comparable GAAP measures.

Total nonperforming assets decreased by $4.3 million, or 17.8%, to $19.8 million as of March 31, 2020 from $24.1 million as of December 31, 2019. The decline in nonperforming loans was primarily attributable to payoffs and paydowns.

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Table of Contents

Troubled Debt Restructurings

In general, if the Company grants a troubled debt restructuring (TDR) that involves either the absence of principal amortization or a material extension of an existing loan amortization period in excess of our underwriting standards, the loan will be placed on nonaccrual status. However, if a TDR is well secured by an abundance of collateral and the collectability of both interest and principal is probable, the loan may remain on accrual status. A nonaccrual TDR in full compliance with the payment requirements specified in the loan modification for at least six months may return to accrual status, if the collectability of both principal and interest is probable. All TDRs are individually evaluated for impairment.

The following table presents TDRs by loan category.

 

 

 

 

 

 

 

 

    

March 31, 2020

 

December 31, 2019

 

 

(dollars in thousands)

Commercial and industrial

 

$

363

 

$

867

Agricultural and farmland

 

 

 —

 

 

 —

Commercial real estate - owner occupied

 

 

5,667

 

 

5,746

Commercial real estate - non-owner occupied

 

 

1,409

 

 

1,427

Multi-family

 

 

 —

 

 

 —

Construction and land development

 

 

 —

 

 

 —

One-to-four family residential

 

 

556

 

 

517

Municipal, consumer, and other

 

 

 —

 

 

 —

Total accrual troubled debt restructurings

 

 

7,995

 

 

8,557

 

 

 

 

 

 

 

Commercial and industrial

 

 

233

 

 

135

Agricultural and farmland

 

 

283

 

 

283

Commercial real estate - owner occupied

 

 

149

 

 

149

Commercial real estate - non-owner occupied

 

 

 —

 

 

 —

Multi-family

 

 

 —

 

 

 —

Construction and land development

 

 

 —

 

 

 —

One-to-four family residential

 

 

145

 

 

191

Municipal, consumer, and other

 

 

 —

 

 

 —

Total nonaccrual troubled debt restructurings

 

 

810

 

 

758

Total troubled debt restructurings

 

$

8,805

 

$

9,315

 

TDRs have remained a small portion of our loan portfolio as loan modifications to borrowers with deteriorating financial condition are generally offered only as part of an overall workout strategy to minimize losses to the Company. The $0.5 million reduction in TDRs balances from December 31, 2019 to March 31, 2020 is primarily due to the payoff of one $0.4 million TDR.

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Table of Contents

Payment Modifications Related to COVID-19

Loan payment modifications have been made for borrowers experiencing financial hardship due to COVID-19 in the form of three-month interest only payments, one- to two-month payment deferrals, or short-term forbearance. Consistent with the applicable accounting and regulatory guidance, short-term loan payment modifications such as these are generally not considered a TDR. The following table presents the number and balances of loans with payment modifications granted to customers experiencing financial hardship due to COVID-19 through April 30, 2020 and through March 31, 2020. Balances are presented as of April 30, 2020 and March 31, 2020.

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative

 

Cumulative

 

 

Through April 30, 2020

 

Through March 31, 2020

 

    

Number

    

Balance

    

Number

    

Balance

 

 

(dollars in thousands)

Commercial and industrial

 

84

 

$

26,366

 

55

 

$

21,529

Agricultural and farmland

 

 6

 

 

3,621

 

 1

 

 

143

Commercial real estate - owner occupied

 

72

 

 

50,849

 

43

 

 

35,179

Commercial real estate - non-owner occupied

 

108

 

 

131,446

 

48

 

 

64,822

Multi-family

 

24

 

 

26,344

 

 8

 

 

2,981

Construction and land development

 

 8

 

 

5,320

 

 2

 

 

612

One-to-four family residential

 

120

 

 

14,225

 

29

 

 

3,806

Municipal, consumer, and other

 

16

 

 

347

 

 5

 

 

69

Total

 

438

 

$

258,518

 

191

 

$

129,141

 

 

 

 

 

 

 

 

 

 

 

Secondary market one-to-four family residential

 

146

 

$

18,031

 

47

 

$

6,758

 

64

Table of Contents

Risk Classification of Loans

Our policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality as watch, substandard, doubtful, or loss.

A watch loan is still considered a "pass" credit and is not a classified asset, but is a reflection of a borrower who exhibits credit weaknesses or downward trends warranting close attention and increased monitoring. These potential weaknesses may result in deterioration of the repayment prospects for the loan. No loss of principal or interest is expected, and the borrower does not pose sufficient risk to warrant classification.

A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized as probable that the borrower will not pay principal and interest in accordance with the contractual terms.

An asset classified as doubtful has all the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted; such balances are promptly charged-off as required by applicable federal regulations.

As of March 31, 2020 and December 31, 2019, our risk classifications of loans were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

    

Pass

    

Watch

    

Substandard

    

Doubtful

    

Total

 

 

(dollars in thousands)

Commercial and industrial

 

$

262,646

 

$

25,831

 

$

10,789

 

$

 —

 

$

299,266

Agricultural and farmland

 

 

202,195

 

 

12,409

 

 

14,097

 

 

 —

 

 

228,701

Commercial real estate - owner occupied

 

 

197,131

 

 

20,884

 

 

11,593

 

 

 —

 

 

229,608

Commercial real estate - non-owner occupied

 

 

490,549

 

 

48,008

 

 

1,958

 

 

 —

 

 

540,515

Multi-family

 

 

175,824

 

 

1,348

 

 

 —

 

 

 —

 

 

177,172

Construction and land development

 

 

225,022

 

 

3,765

 

 

3,524

 

 

 —

 

 

232,311

One-to-four family residential

 

 

289,942

 

 

11,406

 

 

12,577

 

 

 —

 

 

313,925

Municipal, consumer, and other

 

 

97,404

 

 

293

 

 

13,757

 

 

 —

 

 

111,454

Total

 

$

1,940,713

 

$

123,944

 

$

68,295

 

$

 —

 

$

2,132,952

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

    

Pass

    

Watch

    

Substandard

    

Doubtful

    

Total

 

 

(dollars in thousands)

Commercial and industrial

 

$

267,645

 

$

27,114

 

$

12,416

 

$

 —

 

$

307,175

Agricultural and farmland

 

 

180,735

 

 

12,267

 

 

14,774

 

 

 —

 

 

207,776

Commercial real estate - owner occupied

 

 

198,710

 

 

21,745

 

 

10,707

 

 

 —

 

 

231,162

Commercial real estate - non-owner occupied

 

 

531,694

 

 

46,092

 

 

1,971

 

 

 —

 

 

579,757

Multi-family

 

 

175,807

 

 

1,771

 

 

1,495

 

 

 —

 

 

179,073

Construction and land development

 

 

217,120

 

 

3,582

 

 

4,185

 

 

 —

 

 

224,887

One-to-four family residential

 

 

287,036

 

 

13,546

 

 

12,998

 

 

 —

 

 

313,580

Municipal, consumer, and other

 

 

106,063

 

 

479

 

 

13,874

 

 

 —

 

 

120,416

Total

 

$

1,964,810

 

$

126,596

 

$

72,420

 

$

 —

 

$

2,163,826

 

65

Table of Contents

Net Charge-offs and Recoveries

The following table sets forth activity in the allowance for loan losses.

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

    

2020

    

2019

 

 

 

(dollars in thousands)

 

Balance, beginning of period

 

$

22,299

 

$

20,509

 

 

 

 

 

 

 

 

 

Charge-offs:

 

 

 

 

 

 

 

Commercial and industrial

 

 

(809)

 

 

(256)

 

Agricultural and farmland

 

 

(27)

 

 

 —

 

Commercial real estate - owner occupied

 

 

 —

 

 

(65)

 

Commercial real estate - non-owner occupied

 

 

(56)

 

 

 —

 

Multi-family

 

 

 —

 

 

 —

 

Construction and land development

 

 

(1)

 

 

 —

 

One-to-four family residential

 

 

(104)

 

 

(37)

 

Municipal, consumer, and other

 

 

(224)

 

 

(175)

 

Total charge-offs

 

 

(1,221)

 

 

(533)

 

 

 

 

 

 

 

 

 

Recoveries:

 

 

  

 

 

  

 

Commercial and industrial

 

 

54

 

 

48

 

Agricultural and farmland

 

 

 —

 

 

 —

 

Commercial real estate - owner occupied

 

 

440

 

 

19

 

Commercial real estate - non-owner occupied

 

 

 5

 

 

 4

 

Multi-family

 

 

 —

 

 

 —

 

Construction and land development

 

 

10

 

 

11

 

One-to-four family residential

 

 

71

 

 

111

 

Municipal, consumer, and other

 

 

74

 

 

68

 

Total recoveries

 

 

654

 

 

261

 

 

 

 

 

 

 

 

 

Net charge-offs

 

 

(567)

 

 

(272)

 

Provision for loan losses

 

 

4,355

 

 

776

 

Balance, end of period

 

$

26,087

 

$

21,013

 

 

 

 

 

 

 

 

 

Net charge-offs

 

$

567

 

$

272

 

Net charge-offs - (originated) (1)

 

 

172

 

 

196

 

Net charge-offs - (acquired) (1)

 

 

395

 

 

76

 

 

 

 

 

 

 

 

 

Average loans, before allowance for loan losses

 

$

2,141,031

 

$

2,164,330

 

Average loans, before allowance for loan losses (originated) (1)

 

 

1,984,066

 

 

1,946,035

 

Average loans, before allowance for loan losses (acquired) (1)

 

 

156,965

 

 

218,295

 

 

 

 

 

 

 

 

 

Net charge-offs to average loans, before allowance for loan losses *

 

 

0.11

%  

 

0.05

%

Net charge-offs to average loans, before allowance for loan losses (originated) * (1)

 

 

0.03

 

 

0.04

 

Net charge-offs to average loans, before allowance for loan losses (acquired) * (1)

 

 

1.01

 

 

0.14

 


*       Annualized measure.

(1)

See "Non-GAAP Financial Information" for reconciliation of non-GAAP measure to their most comparable GAAP measures.

Net charge-offs to average total loans before allowance for loan losses have remained low during each of the three months ended March 31, 2020 and 2019. This ratio has remained low for several years, due primarily to the favorable economic conditions prior to the economic weakness resulting from the COVID-19 pandemic and our continuous credit monitoring and collection efforts.

66

Table of Contents

Allocation of Allowance for Loan Losses

The following table sets forth the allocation of allowance for loan losses by major loan categories.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

December 31, 2019

 

    

Allowance for

    

Loan 

    

Allowance for

    

Loan 

 

 

Loan Losses

 

Balances

 

Loan Losses

 

Balances

 

 

(dollars in thousands)

Commercial and industrial

 

$

4,224

 

$

299,266

 

$

4,441

 

$

307,175

Agricultural and farmland

 

 

2,993

 

 

228,701

 

 

2,766

 

 

207,776

Commercial real estate - owner occupied

 

 

2,122

 

 

229,608

 

 

1,779

 

 

231,162

Commercial real estate - non-owner occupied

 

 

4,432

 

 

540,515

 

 

3,663

 

 

579,757

Multi-family

 

 

1,474

 

 

177,172

 

 

1,024

 

 

179,073

Construction and land development

 

 

3,223

 

 

232,311

 

 

2,977

 

 

224,887

One-to-four family residential

 

 

3,284

 

 

313,925

 

 

2,540

 

 

313,580

Municipal, consumer, and other

 

 

4,335

 

 

111,454

 

 

3,109

 

 

120,416

Total

 

$

26,087

 

$

2,132,952

 

$

22,299

 

$

2,163,826

 

Securities

The Company’s investment policy is established by management and approved by the board of directors. The policy emphasizes safety of the investment, liquidity requirements, potential returns, cash flow targets and consistency with our interest rate risk management strategy. As of March 31, 2020, the Company did not have any non-U.S. Treasury or non-U.S. government agency debt securities that exceeded 10% of the Company’s total stockholders’ equity.

The following table sets forth the composition, amortized cost and fair values of debt securities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

December 31, 2019

 

    

Amortized

    

 

 

    

Amortized

    

 

 

    

Cost

    

Fair Value

    

Cost

    

Fair Value

 

 

(dollars in thousands)

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency

 

$

48,983

 

$

51,175

 

$

49,113

 

$

49,615

Municipal

 

 

164,853

 

 

168,245

 

 

131,241

 

 

133,738

Mortgage-backed:

 

 

  

 

 

  

 

 

  

 

 

  

Agency residential

 

 

184,507

 

 

188,618

 

 

198,184

 

 

200,678

Agency commercial

 

 

128,583

 

 

132,517

 

 

133,730

 

 

134,954

Corporate

 

 

73,140

 

 

75,010

 

 

72,239

 

 

73,419

Total available-for-sale

 

 

600,066

 

 

615,565

 

 

584,507

 

 

592,404

Held-to-maturity:

 

 

  

 

 

  

 

 

  

 

 

  

Municipal

 

 

32,780

 

 

33,978

 

 

45,239

 

 

46,579

Mortgage-backed:

 

 

  

 

 

  

 

 

  

 

 

  

Agency residential

 

 

17,989

 

 

18,444

 

 

19,072

 

 

19,063

Agency commercial

 

 

28,972

 

 

31,142

 

 

24,166

 

 

24,887

Total held-to-maturity

 

 

79,741

 

 

83,564

 

 

88,477

 

 

90,529

Total debt securities

 

$

679,807

 

$

699,129

 

$

672,984

 

$

682,933

 

We evaluate securities with significant declines in fair value on a quarterly basis to determine whether they should be considered other-than-temporarily impaired. There were no other-than-temporary impairments during the three months ended March 31, 2020 and 2019.

67

Table of Contents

Portfolio Maturities and Yields

The composition and maturities of the debt securities portfolio as of March 31,  2020 are summarized in the following tables. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. Security yields have not been adjusted to a tax-equivalent basis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

 

 

 

 

 

 

 

More Than One Year

 

More than Five Years

 

 

 

 

 

 

 

 

 

 

 

 

 

One Year or Less

 

through Five Years

 

through Ten Years

 

More than Ten Years

 

Total

 

 

    

 

 

    

Weighted

    

 

 

    

Weighted

    

 

 

    

Weighted

    

 

 

 

Weighted

    

 

 

    

Weighted

 

 

 

Amortized

 

Average

 

Amortized

 

Average

 

Amortized

 

Average

 

Amortized

 

Average

 

Amortized

 

Average

 

 

 

Cost

 

Yield

 

Cost

 

Yield

 

Cost

 

Yield

 

Cost

 

Yield

 

Cost

 

Yield

 

 

 

(dollars in thousands)

 

Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency

 

$

 —

 

 —

%

$

4,553

 

2.20

%  

$

44,430

 

2.51

%  

$

 —

 

 —

%

$

48,983

 

2.48

%

Municipal

 

 

29,235

 

2.55

 

 

54,491

 

2.62

 

 

55,497

 

2.39

 

 

25,630

 

2.43

 

 

164,853

 

2.50

 

Mortgage-backed:

 

 

  

 

  

 

 

  

 

  

 

 

  

 

  

 

 

  

 

  

 

 

  

 

  

 

Agency residential

 

 

 4

 

3.90

 

 

4,706

 

2.27

 

 

79,276

 

2.40

 

 

100,521

 

2.13

 

 

184,507

 

2.25

 

Agency commercial

 

 

7,249

 

2.20

 

 

63,354

 

2.57

 

 

19,939

 

2.56

 

 

38,041

 

2.73

 

 

128,583

 

2.59

 

Corporate

 

 

17,849

 

2.74

 

 

34,820

 

2.84

 

 

20,471

 

4.88

 

 

 —

 

 —

 

 

73,140

 

3.39

 

Total available-for-sale

 

 

54,337

 

2.57

 

 

161,924

 

2.62

 

 

219,613

 

2.66

 

 

164,192

 

2.32

 

 

600,066

 

2.55

 

Held-to-maturity:

 

 

  

 

  

 

 

  

 

  

 

 

  

 

  

 

 

  

 

  

 

 

  

 

  

 

Municipal

 

 

750

 

2.34

 

 

17,243

 

3.29

 

 

13,896

 

3.61

 

 

891

 

3.76

 

 

32,780

 

3.42

 

Mortgage-backed:

 

 

  

 

  

 

 

  

 

  

 

 

  

 

  

 

 

  

 

  

 

 

  

 

  

 

Agency residential

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

17,989

 

2.32

 

 

17,989

 

2.32

 

Agency commercial

 

 

 —

 

 —

 

 

5,386

 

2.51

 

 

12,224

 

2.89

 

 

11,362

 

2.87

 

 

28,972

 

2.81

 

Total held-to-maturity

 

 

750

 

2.34

 

 

22,629

 

3.11

 

 

26,120

 

3.27

 

 

30,242

 

2.57

 

 

79,741

 

2.95

 

Total debt securities

 

$

55,087

 

2.56

%  

$

184,553

 

2.68

%  

$

245,733

 

2.73

%  

$

194,434

 

2.36

%  

$

679,807

 

2.60

%

 

Deposits

Management continues to focus on growing non-maturity deposits, through the Company’s relationship driven banking philosophy and community-focused marketing programs, and to deemphasize higher cost deposit categories, such as time deposits. Additionally, the Banks continue to add and improve ancillary convenience services tied to deposit accounts, such as mobile, remote deposits and peer-to-peer payments, to solidify deposit relationships.

The following tables set forth the distribution of average deposits, by account type.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

Percent

 

 

 

2020

 

2019

 

Change in

 

 

 

Average

    

Percent of

    

Weighted

    

Average

    

Percent of

    

Weighted

    

Average

 

 

 

Balance

 

Total Deposits

 

Average Cost *

 

Balance

 

Total Deposits

 

Average Cost *

 

Balance

 

 

 

(dollars in thousands)

 

 

Noninterest-bearing

 

$

670,714

 

24.6

%  

 —

%  

$

650,630

 

23.4

%  

 —

%  

3.1

%

Interest-bearing demand

 

 

811,866

 

29.8

 

0.12

 

 

826,456

 

29.8

 

0.20

 

(1.8)

 

Money market

 

 

464,124

 

17.0

 

0.34

 

 

442,520

 

15.9

 

0.33

 

4.9

 

Savings

 

 

434,276

 

16.0

 

0.06

 

 

424,986

 

15.3

 

0.06

 

2.2

 

Total non-maturity deposits

 

 

2,380,980

 

87.4

 

0.12

 

 

2,344,592

 

84.4

 

0.15

 

1.6

 

Time

 

 

341,770

 

12.6

 

1.03

 

 

432,877

 

15.6

 

1.04

 

(21.0)

 

Total deposits

 

$

2,722,750

 

100.0

%  

0.23

%  

$

2,777,469

 

100.0

%  

0.29

%  

(2.0)

%


*      Annualized measure.

 

The average balances of non-maturity deposits increased 1.6% from the three months ended March 31, 2019 to the three months ended March 31, 2020, with the increase primarily attributable to increases in the money market and noninterest-bearing categories. Offsetting the increase in non-maturity deposits was a 21.0% decline in the average balances of time deposits, which resulted in a 2.0% decline in average balances of total deposits from the three months ended March 31, 2019 to the three months ended March 31, 2020.

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The following table sets forth time deposits by remaining maturity as of March 31, 2020.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

3 Months or

    

Over 3 through

    

Over 6 through 

    

 

 

    

 

 

 

 

 Less

 

6 Months

 

12 Months

 

Over 12 Months

 

Total

 

 

(dollars in thousands)

Time deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts less than $100,000

 

$

49,131

 

$

40,025

 

$

64,962

 

$

63,046

 

$

217,164

Amounts of $100,000 but less than $250,000

 

 

17,049

 

 

16,302

 

 

23,825

 

 

24,819

 

 

81,995

Amounts of $250,000 or more

 

 

5,212

 

 

6,149

 

 

12,125

 

 

4,574

 

 

28,060

Total time deposits

 

$

71,392

 

$

62,476

 

$

100,912

 

$

92,439

 

$

327,219

 

IMPACT OF INFLATION

The consolidated financial statements and the related notes have been prepared in conformity with GAAP. GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The impact of inflation, if any, is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.

LIQUIDITY

Bank Liquidity

The overall objective of bank liquidity management is to ensure the availability of sufficient cash funds to meet all financial commitments and to take advantage of investment opportunities. The Banks manage liquidity in order to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature, and to fund new loans and investments as opportunities arise.

The Banks continuously monitor their liquidity positions to ensure that assets and liabilities are managed in a manner that will meet all of our short-term and long-term cash requirements. The Banks manage their liquidity position to meet the daily cash flow needs of clients, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives. The Banks also monitor liquidity requirements in light of interest rate trends, changes in the economy and the scheduled maturity and interest rate sensitivity of the investment and loan portfolios and deposits.

As part of the Banks' liquidity management strategy, the Banks are also focused on minimizing costs of liquidity and attempt to decrease these costs by promoting noninterest bearing and low-cost deposits and replacing higher cost funding including time deposits and borrowed funds. While the Banks do not control the types of deposit instruments our clients choose, those choices can be influenced with the rates and the deposit specials offered.

Additional sources of liquidity include unpledged securities, federal funds purchased, and borrowings from the Federal Home Loan Bank of Chicago (FHLB).  Unpledged securities may be sold or pledged as collateral for borrowings to meet liquidity needs. Interest is charged at the prevailing market rate on federal funds purchased and FHLB borrowings. There were no outstanding federal funds purchased or FHLB borrowings at March 31, 2020 and December 31, 2019. Funds obtained from federal funds purchased and FHLB borrowings are used primarily to meet day to day liquidity needs. The total amount of the remaining credit available to the Banks from the FHLB at March 31, 2020 and December 31, 2019 was $335.7 million and $343.8 million, respectively.

As of March 31, 2020, management believed adequate liquidity existed to meet all projected cash flow obligations of the Banks. As of March 31, 2020, the Banks had no material commitments for capital expenditures.

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Holding Company Liquidity

The Company is a corporation separate and apart from the Banks and, therefore, it must provide for its own liquidity. The Company’s main source of funding is dividends declared and paid to it by the Banks. Statutory and regulatory limitations exist that affect the ability of the Banks to pay dividends to the Company. Management believes that these limitations will not impact the Company’s ability to meet its ongoing short-term cash obligations.

Due to state banking laws, neither Bank may declare dividends in any calendar year in an amount that would exceed the accumulated retained earnings of such Bank after giving effect to any unrecognized losses and bad debts without the prior approval of the Illinois Department of Financial and Professional Regulation. In addition, dividends paid by a Bank to the Company would be prohibited if the effect thereof would cause a Bank’s capital to be reduced below applicable minimum capital requirements. During the three months ended March 31, 2020 and 2019, the Banks paid $4.4 million and $37.4 million, in dividends to the Company, respectively.

The liquidity needs of the Company on an unconsolidated basis consist primarily of operating expenses, dividends to stockholders and interest payments on the subordinated debentures. During the three months ended March 31, 2020 and 2019, holding company operating expenses consisted of interest expense of $0.4 million and $0.5 million, respectively, and other operating expenses of $0.5 million and $0.3 million, respectively, respectively. As of March 31, 2020, management was not aware of any known trends, events or uncertainties that had or were reasonably likely to have a material impact on the Company’s liquidity.

As of March 31, 2020, the Company had no material commitments for capital expenditures. As of March 31, 2020, management believed adequate liquidity existed to meet all projected cash flow obligations of the Company.

CAPITAL RESOURCES

The overall objectives of capital management are to ensure the availability of sufficient capital to support loan, deposit and other asset and liability growth opportunities and to maintain capital to absorb unforeseen losses or write-downs that are inherent in the business risks associated with the banking industry. The Company seeks to balance the need for higher capital levels to address such unforeseen risks and the goal to achieve an adequate return on the capital invested by our stockholders.

The actual and required capital amounts and ratios of the Company (on a consolidated basis) and the Banks are listed below. Management believed that, as of March 31, 2020 and December 31, 2019, the Company and the Banks met all capital adequacy requirements to which we were subject. As of those dates, the Banks were “well capitalized” under regulatory prompt corrective action provisions. For additional information, see “Note 15 – Regulatory Matters” to the consolidated financial statements.

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The following table presents the capital ratios of the Company (on a consolidated basis) and the Banks as well as the minimum ratios to be well capitalized under regulatory prompt corrective action provisions.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

To Be Well

 

 

 

 

 

 

 

 

Capitalized Under

 

 

 

 

 

 

 

 

Prompt Corrective

 

    

March 31, 2020

    

December 31, 2019

    

Action Provisions

Total Capital (to Risk Weighted Assets)

 

 

 

 

 

 

 

 

 

Consolidated HBT Financial, Inc.

 

15.03

%  

 

14.54

%  

 

N/A

 

Heartland Bank

 

14.54

 

 

14.02

 

 

10.00

%

State Bank of Lincoln

 

17.74

 

 

17.58

 

 

10.00

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Capital (to Risk Weighted Assets)

 

  

 

 

 

 

 

  

 

Consolidated HBT Financial, Inc.

 

13.95

%  

 

13.64

%  

 

N/A

 

Heartland Bank

 

13.48

 

 

13.12

 

 

8.00

%

State Bank of Lincoln

 

16.49

 

 

16.50

 

 

8.00

 

 

 

 

 

 

 

 

 

 

 

Common Equity Tier 1 Capital (to Risk Weighted Assets)

 

  

 

 

 

 

 

  

 

Consolidated HBT Financial, Inc.

 

12.44

%  

 

12.15

%  

 

N/A

 

Heartland Bank

 

13.48

 

 

13.12

 

 

6.50

%

State Bank of Lincoln

 

16.49

 

 

16.50

 

 

6.50

 

 

 

 

 

 

 

 

 

 

 

Tier 1 Capital (to Average Assets)

 

  

 

 

 

 

 

  

 

Consolidated HBT Financial, Inc.

 

10.70

%  

 

10.38

%  

 

N/A

 

Heartland Bank

 

10.55

 

 

10.25

 

 

5.00

%

State Bank of Lincoln

 

10.32

 

 

9.82

 

 

5.00

 

 

Cash Dividends

The below table summarizes the cash dividends paid by quarter for three months ended March 31, 2020 and the year ended December 31, 2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

    

First Quarter

    

Second Quarter

    

Third Quarter

    

Fourth Quarter

    

Total

 

 

(dollars in thousands)

Regular

 

$

4,119

 

$

 —

 

$

 —

 

$

 —

 

$

4,119

Restricted stock unit dividend equivalent

 

 

11

 

 

 —

 

 

 —

 

 

 —

 

 

11

Total cash dividends

 

$

4,130

 

$

 —

 

$

 —

 

$

 —

 

$

4,130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

2019

 

 

First Quarter

    

Second Quarter

    

Third Quarter

    

Fourth Quarter

    

Total

 

 

(dollars in thousands)

Regular

 

$

2,704

 

$

2,704

 

$

2,704

 

$

 —

 

$

8,112

Tax

 

 

6,094

 

 

7,048

 

 

6,662

 

 

 —

 

 

19,804

Special

 

 

27,041

 

 

 —

 

 

 —

 

 

169,999

 

 

197,040

Total cash dividends

 

$

35,839

 

$

9,752

 

$

9,366

 

$

169,999

 

$

224,956

 

On October 1, 2019, the Company’s board of directors declared a special dividend payable to the Company’s stockholders of record as of October 2, 2019, in the aggregate amount of approximately $170.0 million. The special dividend was paid on October 22, 2019 using net proceeds from the Company’s initial public offering and the proceeds of dividends received from Heartland Bank and State Bank of Lincoln.

On January 30, 2020, the Company announced a quarterly cash dividend of $0.15 per share.

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OFF-BALANCE SHEET ARRANGEMENTS

As financial services providers, the Banks routinely are a party to various financial instruments with off-balance sheet risks, such as commitments to extend credit, standby letters of credit, unused lines of credit and commitments to sell loans. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process afforded to loans originated by the Banks. Although commitments to extend credit are considered while evaluating our allowance for loan losses, as of March 31, 2020 and December 31, 2019, there were no reserves for unfunded commitments. For additional information, see “Note 17 – Commitments and Contingencies” to the consolidated financial statements.

CONTRACTUAL OBLIGATIONS

There have been no material changes to our contractual obligations and other funding needs as disclosed in our Annual Report on Form 10-K filed with the SEC on March 27, 2020.

JOBS ACT ACCOUNTING ELECTION

We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The JOBS Act permits us an extended transition period for complying with new or revised accounting standards affecting public companies. We have elected to use the extended transition period until we are no longer an emerging growth company or until we choose to affirmatively and irrevocably opt out of the extended transition period. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements applicable to public companies.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company has established various accounting policies that govern the application of accounting principles generally accepted in the United State of America in the preparation of its consolidated financial statements.

Critical accounting estimates are those that are critical to the portrayal and understanding of the Company's financial condition and results of operations and require management to make assumptions that are difficult, subjective or complex. These estimates involve judgments, assumptions and uncertainties that are susceptible to change. In the event that different assumptions or conditions were to prevail, and depending on the severity of such changes, the possibility of a materially different financial condition or materially different results of operations is a reasonable likelihood. Further, changes in accounting standards could impact the Company's critical accounting estimates.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in the Company's Annual Report on Form 10-K filed with the SEC on March 27, 2020. For more information, please refer to “Note 1 – Summary of Significant Accounting Policies” to our consolidated financial statements included in the Company's Annual Report on Form 10-K filed with the SEC on March 27, 2020.

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NON-GAAP FINANCIAL INFORMATION

This Quarterly Report on Form 10‑Q contains certain financial information determined by methods other than in accordance with GAAP. These measures include net interest income (tax-equivalent basis), net interest margin (tax-equivalent basis), efficiency ratio (tax-equivalent basis), tangible common equity, tangible assets, tangible common equity to tangible assets, tangible book value per share, originated loans and acquired loans and any ratios derived therefrom,  core deposits, core deposits to total deposits, return on tangible common equity, adjusted net income, adjusted earnings per share – basic and diluted, adjusted return on average assets, adjusted return on average stockholders’ equity, and adjusted return on average tangible common equity. Our management uses these non-GAAP financial measures, together with the related GAAP financial measures, in its analysis of our performance and in making business decisions. The tax equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a federal tax rate of 21% and state income tax rate of 9.5%.

Originated loans and acquired loans along with the related credit quality ratios such as net charge-offs to average loans, before allowance for loan losses (originated and acquired), nonperforming loans to loans, before allowance for loan losses (originated and acquired), and nonperforming assets to loans, before allowance for loan losses and foreclosed assets (originated and acquired) are non-GAAP financial measures. Originated loans represent loans initially originated by the Company and acquired loans that were refinanced using the Company’s underwriting criteria. Acquired loans represent loans originated under the underwriting criteria used by a bank that was acquired by Heartland Bank or State Bank of Lincoln. We believe these non-GAAP financial measures provide investors with information regarding the credit quality of loans underwritten using the Company’s policies and procedures.

Management believes that it is a standard practice in the banking industry to present these non-GAAP financial measures, and accordingly believes that providing these measures may be useful for peer comparison purposes. These disclosures should not be viewed as substitutes for the results determined to be in accordance with GAAP; nor are they necessarily comparable to non-GAAP financial measures that may be presented by other companies. See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures appear below.

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Reconciliation of Non-GAAP Financial Measure - Adjusted Net Income and Adjusted Return on Average Assets

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

2020

    

2019

 

 

 

 

 

 

 

 

Net income

$

6,221

 

$

18,736

 

C Corp equivalent adjustment (2)

 

 —

 

 

(4,700)

 

C Corp equivalent net income (2)

 

6,221

 

 

14,036

 

Adjustments:

 

 

 

 

 

 

Net earnings (losses) from closed or sold operations, including gains on sale (1)

 

 —

 

 

550

 

Charges related to termination of certain employee benefit plans

 

(848)

 

 

 —

 

Mortgage servicing rights fair value adjustment

 

(2,171)

 

 

(1,002)

 

Total adjustments

 

(3,019)

 

 

(452)

 

Tax effect of adjustments

 

861

 

 

129

 

Less adjustments after tax effect

 

(2,158)

 

 

(323)

 

Adjusted net income

$

8,379

 

$

14,359

 

 

 

 

 

 

 

 

Average assets

$

3,188,743

 

$

3,233,293

 

 

 

 

 

 

 

 

Return on average assets *

 

0.78

%  

 

2.32

%

C Corp equivalent return on average assets * (2)

 

N/A

 

 

1.74

 

Adjusted return on average assets *

 

1.05

 

 

1.78

 


*       Annualized measure.

(1)

Closed or sold operations include HB Credit Company, HBT Insurance, and First Community Title Services, Inc.

(2)

Reflects adjustment to our historical net income for each period to give effect to the C Corp equivalent provision for income tax for such period. No such adjustment is necessary for periods subsequent to 2019.

N/A  Not applicable.

Adjusted net income adjusts for the additional C Corp equivalent tax expense for the periods prior to October 11, 2019, net earnings (losses) from closed or sold operations, charges related to termination of certain employee benefit plans, realized gains (losses) on sales of securities, and mortgage servicing rights fair value adjustment. Adjusted return on average assets is calculated by dividing adjusted net income for a period by average assets for the period. We believe these non-GAAP financial measures provide investors additional insights into operational performance of the Company.

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Reconciliation of Non-GAAP Financial Measure - Adjusted Earnings Per Share

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

2020

   

2019

   

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

Net income

$

6,221

 

$

18,736

 

Earnings allocated to unvested restricted stock units (1)

 

(15)

 

 

 —

 

Numerator for earnings per share - basic and diluted

$

6,206

 

$

18,736

 

 

 

 

 

 

 

 

C Corp equivalent net income (3)

 

N/A

 

$

14,036

 

Earnings allocated to unvested restricted stock units (1)(3)

 

N/A

 

 

 —

 

Numerator for C Corp equivalent earnings per share - basic and diluted (3)

 

N/A

 

$

14,036

 

 

 

 

 

 

 

 

Adjusted net income

$

8,379

 

$

14,359

 

Earnings allocated to unvested restricted stock units (1)

 

(19)

 

 

 —

 

Numerator for adjusted earnings per share - basic and diluted

$

8,360

 

$

14,359

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

Weighted average common shares outstanding

 

27,457,306

 

 

18,027,512

 

Dilutive effect of outstanding restricted stock units (2)

 

 —

 

 

 —

 

Weighted average common shares outstanding, including all dilutive potential shares

 

27,457,306

 

 

18,027,512

 

 

 

 

 

 

 

 

Earnings per share - Basic

$

0.23

 

$

1.04

 

Earnings per share - Diluted

$

0.23

 

$

1.04

 

 

 

 

 

 

 

 

C Corp equivalent earnings per share - Basic (3)

 

N/A

 

$

0.78

 

C Corp equivalent earnings per share - Diluted (3)

 

N/A

 

$

0.78

 

 

 

 

 

 

 

 

Adjusted earnings per share - Basic

$

0.30

 

$

0.80

 

Adjusted earnings per share - Diluted

$

0.30

 

$

0.80

 


(1)

The Company has granted restricted stock units that contain non-forfeitable rights to dividend equivalents. Such restricted stock units are considered participating securities. As such, we have included these restricted stock units in the calculation of basic earnings per share and calculate basic earnings per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings.

(2)

Restricted stock units were anti-dilutive and excluded from the calculation of common stock equivalents during the three months ended March 31, 2020. There were no restricted stock units outstanding during the three months ended March 31, 2019.

(3)

Reflects adjustment to our historical net income for each period to give effect to the C Corp equivalent provision for income tax for such period. No such adjustment is necessary for periods subsequent to 2019.

N/A  Not applicable.

Adjusted earnings per share – basic is a non-GAAP financial measure that is calculated dividing the previously described adjusted net income allocated to common shares by the weighted average common shares outstanding. Adjusted earnings per share – diluted is a non-GAAP financial measure that is calculated dividing the previously described adjusted net income allocated to common shares by the weighted average common shares outstanding, including all dilutive potential shares. We believe these non-GAAP financial measures provide investors additional insights into operational performance of the Company.

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Reconciliation of Non-GAAP Financial Measure - Net Interest Margin (Tax Equivalent Basis)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

 

2020

    

2019

 

    

 

 

 

 

 

 

 

 

Net interest income (tax equivalent basis)

 

 

 

 

 

 

 

Net interest income

$

30,662

 

$

34,452

 

 

Tax-equivalent adjustment (1)

 

463

 

 

610

 

 

Net interest income (tax equivalent basis) (1)

$

31,125

 

$

35,062

 

 

 

 

 

 

 

 

 

 

Net interest margin (tax equivalent basis)

 

  

 

 

  

 

 

Net interest margin *

 

4.00

%  

 

4.44

%

 

Tax-equivalent adjustment * (1)

 

0.06

 

 

0.08

 

 

Net interest margin (tax equivalent basis) * (1)

 

4.06

%  

 

4.52

%

 

 

 

 

 

 

 

 

 

Average interest-earning assets

$

3,063,086

 

$

3,105,216

 

 


*       Annualized measure.

(1)

On a tax-equivalent basis assuming a federal income tax rate of 21% and a state tax rate of 9.5%.

Net interest income (tax-equivalent basis) and net interest margin (tax-equivalent basis) are non-GAAP financial measures that adjust for the tax-favored status of net interest income from loans and investments. We believe net interest income (tax-equivalent basis) and net interest margin (tax-equivalent basis) are the preferred industry measurement of net interest income, and these non-GAAP financial measures enhance comparability of net interest income arising from taxable and tax-exempt sources. The most directly comparable financial measure calculated in accordance with GAAP is our net interest income and net interest margin.

Reconciliation of Non-GAAP Financial Measure - Efficiency Ratio (Tax Equivalent Basis)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

 

2020

    

2019

 

    

 

 

 

 

 

 

 

 

Efficiency ratio (tax equivalent basis)

 

 

 

 

 

 

 

Total noninterest expense

$

23,307

 

$

22,212

 

 

Less: amortization of intangible assets

 

317

 

 

376

 

 

Adjusted noninterest expense

$

22,990

 

$

21,836

 

 

 

 

 

 

 

 

 

 

Net interest income

$

30,662

 

$

34,452

 

 

Total noninterest income

 

5,252

 

 

7,487

 

 

Operating revenue

 

35,914

 

 

41,939

 

 

Tax-equivalent adjustment (1)

 

463

 

 

610

 

 

Operating revenue (tax-equivalent basis) (1)

$

36,377

 

$

42,549

 

 

 

 

 

 

 

 

 

 

Efficiency ratio

 

64.01

%  

 

52.07

%

 

Efficiency ratio (tax equivalent basis) (1)

 

63.20

 

 

51.32

 

 


(1)

On a tax-equivalent basis assuming a federal income tax rate of 21% and a state tax rate of 9.5%.

Efficiency ratio (tax-equivalent basis) provides a measure of productivity in the banking industry. This ratio is calculated to measure the cost of generating one dollar of revenue. That is, the ratio is designed to reflect the percentage of one dollar which must be expended to generate that dollar of revenue. We calculate this ratio by dividing adjusted noninterest expense by the sum of net interest income on a tax equivalent basis.

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Reconciliation of Non-GAAP Financial Measure - Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share

 

 

 

 

 

 

 

 

 

    

March 31, 2020

    

December 31, 2019

 

 

 

(dollars in thousands)

 

Tangible Common Equity

 

 

 

 

 

 

 

Total stockholders' equity

 

$

339,813

 

$

332,918

 

Less: Goodwill

 

 

23,620

 

 

23,620

 

Less: Core deposit intangible assets, net

 

 

3,713

 

 

4,030

 

Tangible common equity

 

$

312,480

 

$

305,268

 

 

 

 

 

 

 

 

 

Tangible Assets

 

 

 

 

 

 

 

Total assets

 

$

3,213,109

 

$

3,245,103

 

Less: Goodwill

 

 

23,620

 

 

23,620

 

Less: Core deposit intangible assets, net

 

 

3,713

 

 

4,030

 

Tangible assets

 

$

3,185,776

 

$

3,217,453

 

 

 

 

 

 

 

 

 

Total stockholders' equity to total assets

 

 

10.58

%

 

10.26

%

Tangible common equity to tangible assets

 

 

9.81

 

 

9.49

 

 

 

 

 

 

 

 

 

Ending number shares of common stock outstanding

 

 

27,457,306

 

 

27,457,306

 

 

 

 

 

 

 

 

 

Book value per share

 

$

12.38

 

$

12.12

 

Tangible book value per share

 

 

11.38

 

 

11.12

 

 

Tangible book value per share and tangible common equity to tangible assets are non-GAAP financial measures generally used by investors to evaluate capital adequacy. We calculate: (i) tangible common equity as total stockholders’ equity less goodwill and core deposit intangible assets; (ii) tangible assets as total assets less goodwill and core deposit intangible assets, (iii) tangible common equity to tangible assets as the ratio of tangible common equity (as described in clause (i)) to tangible assets (as described in clause (ii)). The most directly comparable financial measure calculated in accordance with GAAP is total stockholders’ equity to total assets.

Tangible book value per share is calculated as tangible common equity (as described in the previous paragraph) divided by shares of common stock outstanding. The most directly comparable financial measure calculated in accordance with GAAP is book value per share.

We believe that these non-GAAP financial measures are important information useful in comparing our capital adequacy with the capital adequacy of other banking organizations.

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Reconciliation of Non-GAAP Financial Measure – Adjusted Return on Average Stockholders’ Equity and Adjusted Return on Tangible Common Equity

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

 

    

2020

    

2019

 

    

 

 

 

 

 

 

 

 

 

Average Tangible Common Equity

 

 

 

 

 

 

 

 

Total stockholders' equity

 

$

341,519

 

$

347,157

 

 

Less: Goodwill

 

 

23,620

 

 

23,620

 

 

Less: Core deposit intangible assets, net

 

 

3,898

 

 

5,301

 

 

Average tangible common equity

 

$

314,001

 

$

318,236

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

6,221

 

$

18,736

 

 

C Corp equivalent net income (1)

 

 

N/A

 

 

14,036

 

 

Adjusted net income

 

 

8,379

 

 

14,359

 

 

 

 

 

 

 

 

 

 

 

Return on average stockholders' equity *

 

 

7.29

%  

 

21.59

%

 

C Corp equivalent return on average stockholders' equity * (1)

 

 

N/A

 

 

16.17

 

 

Adjusted return on average stockholders' equity *

 

 

9.81

 

 

16.54

 

 

 

 

 

 

 

 

 

 

 

Return on average tangible common equity *

 

 

7.92

%  

 

23.55

%

 

C Corp equivalent return on average tangible common equity * (1)

 

 

N/A

 

 

17.64

 

 

Adjusted return on average tangible common equity *

 

 

10.67

 

 

18.05

 

 

 


*       Annualized measure.

(1)

Reflects adjustment to our historical net income for each period to give effect to the C Corp equivalent provision for income tax for such period. No such adjustment is necessary for periods subsequent to 2019.

N/A  Not applicable.

Adjusted return on average stockholders’ equity is a non-GAAP financial measure that is calculated by dividing adjusted net income for a period by average stockholders’ equity for the period. Adjusted return on average tangible common equity is a non-GAAP financial measure that is calculated by dividing adjusted net income for a period by average tangible common equity for the period. We believe that these non-GAAP financial measures are important information to be provided to investors because investors, our management, and banking regulators can use the tangible book value to assess our earnings without the effect of our goodwill and core deposit intangible assets and compare our earnings with the earnings of other banking organizations with significant amounts of goodwill and/or core deposit intangible assets.

Reconciliation of Non-GAAP Financial Measure - Core Deposits

 

 

 

 

 

 

 

 

 

    

March 31, 2020

    

December 31, 2019

 

 

 

(dollars in thousands)

 

Core Deposits

 

 

 

 

 

 

 

Total deposits

 

$

2,730,303

 

$

2,776,855

 

Less: time deposits of $250,000 or more

 

 

28,060

 

 

44,754

 

Less: brokered deposits

 

 

 —

 

 

 —

 

Core deposits

 

$

2,702,243

 

$

2,732,101

 

 

 

 

 

 

 

 

 

Core deposits to total deposits

 

 

98.97

%

 

98.39

%

 

Core deposits exclude time deposits of $250,000 or more and brokered deposits. We believe this non-GAAP financial measure provides investors with information regarding the stability of the Company's sources of funds.

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ITEM 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Managing risk is an essential part of successfully managing a financial institution. Our most prominent risk exposures are interest rate risk and credit risk. Interest rate risk is the potential reduction of net interest income as a result of changes in interest rates. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or investment when it is due and is disclosed in detail above.

Interest Rate Risk

The most significant form of market risk is interest rate risk inherent in the normal course of lending and deposit-taking activities. Management believes that our ability to successfully respond to changes in interest rates will have a significant impact on our financial results. To that end, management actively monitors and manages our interest rate exposure.

The Asset/Liability Management Committee (ALCO), which is authorized by the Company’s board of directors, monitors our interest rate sensitivity and makes decisions relating to that process. The ALCO’s goal is to structure our asset/liability composition to maximize net interest income while managing interest rate risk so as to minimize the adverse impact of changes in interest rates on net interest income and capital in either a rising or declining interest rate environment. Profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact our earnings because the interest rates borne by assets and liabilities do not change at the same speed, to the same extent or on the same basis.

We monitor the impact of changes in interest rates on our net interest income and economic value of equity, or EVE, using rate shock analysis. Net interest income simulations measure the short-term earnings exposure from changes in market rates of interest in a rigorous and explicit fashion. Our current financial position is combined with assumptions regarding future business to calculate net interest income under varying hypothetical rate scenarios. EVE measures our long-term earnings exposure from changes in market rates of interest. EVE is defined as the present value of assets minus the present value of liabilities at a point in time. A decrease in EVE due to a specified rate change indicates a decline in the long-term earnings capacity of the balance sheet assuming that the rate change remains in effect over the life of the current balance sheet.

The following table sets forth, as of March 31, 2020 and December 31, 2019, the estimated impact on our EVE and net interest income of immediate changes in interest rates at the specified levels.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (Decrease) in

 

 

 

Estimated Increase

 

Estimated Net Interest Income

 

 

 

(Decrease) in EVE

 

Year 1

 

Year 2

 

Change in Interest Rates (basis points)

    

Amount

    

Percent

    

Amount

    

Percent

    

Amount

    

Percent

 

 

 

(dollars in thousands)

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

+400

 

$

250,209

 

69.0

%  

$

25,043

 

24.5

%  

$

32,285

 

33.2

%

+300

 

 

208,476

 

57.5

 

 

19,393

 

19.0

 

 

25,445

 

26.2

 

+200

 

 

155,560

 

42.9

 

 

13,312

 

13.0

 

 

17,958

 

18.5

 

+100

 

 

84,819

 

23.4

 

 

6,786

 

6.6

 

 

9,611

 

9.9

 

Flat

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 -100

 

 

7,110

 

2.0

 

 

(7,141)

 

(7.0)

 

 

(9,882)

 

(10.2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

+400

 

$

200,797

 

37.8

%  

$

28,585

 

23.5

%  

$

35,711

 

30.0

%

+300

 

 

165,809

 

31.2

 

 

22,265

 

18.3

 

 

28,128

 

23.7

 

+200

 

 

122,859

 

23.1

 

 

15,413

 

12.6

 

 

19,788

 

16.6

 

+100

 

 

68,303

 

12.8

 

 

8,061

 

6.6

 

 

10,550

 

8.9

 

Flat

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 -100

 

 

(106,615)

 

(20.1)

 

 

(12,878)

 

(10.6)

 

 

(17,568)

 

(14.8)

 

 

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This data does not reflect any actions that we may undertake in response to changes in interest rates, such as changes in rates paid on certain deposit accounts based on local competitive factors or changes in earning assets mix, which could reduce the actual impact on EVE and net interest income, if any.

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in EVE and net interest income requires that we make certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The EVE and net interest income table presented above assumes that the composition of our interest-rate-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and, accordingly, the data does not reflect any actions that we may undertake in response to changes in interest rates, such as changes in rates paid on certain deposit accounts based on local competitive factors. The table also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or the repricing characteristics of specific assets and liabilities. Accordingly, although the EVE and net interest income table provides an indication of our sensitivity to interest rate changes at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

Credit Risk

Credit risk is the risk that borrowers or counterparties will be unable or unwilling to repay their obligations in accordance with the underlying contractual terms. We manage and control credit risk in the loan and lease portfolio by adhering to well-defined underwriting criteria and account administration standards established by management. Our loan policy documents underwriting standards, approval levels, exposure limits and other limits or standards deemed necessary and prudent. Portfolio diversification at the borrower, industry, and product levels is actively managed to mitigate concentration risk. In addition, credit risk management also includes an independent loan review process that assesses compliance with loan policy, compliance with loan documentation standards, accuracy of the risk rating and overall credit quality of the loan portfolio.

ITEM 4.         CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this report was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and other members of the Company’s senior management. The Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2020, the end of the period covered by this report, the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is: (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure; and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

(b) Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1.         LEGAL PROCEEDINGS

We are sometimes party to legal actions that are routine and incidental to our business. Management, in consultation with legal counsel, does not expect the ultimate disposition of any or a combination of these matters to have a material adverse effect on our assets, business, cash flow, condition (financial or otherwise), liquidity, prospects and results of operations. However, given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to our business, including laws and regulations governing consumer protection, fair lending, fair labor, privacy, information security and anti-money laundering and anti-terrorism laws, we, like all banking organizations, are subject to heightened legal and regulatory compliance and litigation risk.

ITEM 1A.       RISK FACTORS

There have been no material changes to the risk factors disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 27, 2020, except as described below.

The COVID-19 pandemic is adversely affecting us, our business, employees, customers, counterparties and third-party service providers, and the ultimate extent of the impacts on our business, financial position, results of operations, liquidity and prospects is uncertain.

Coronavirus disease 2019, known as COVID-19, which has been identified as a pandemic by the World Health Organization, is causing worldwide health concerns as well as significant economic disruption in the United States and globally. In March 2020, U.S. President Trump declared a public health and national emergency due to COVID-19, which resulted in mandatory stay-at-home orders in most U.S. states, including Illinois. The associated impacts have had, are currently having and may for some time continue to have a destabilizing and negative effect on U.S. and global financial and capital markets and have caused significant disruption in global, national and local economic and business activity.

Although the Banks have been deemed essential businesses and continue to currently operate and serve our customers, the ultimate extent of the impact of the pandemic on our business, cash flows, financial condition, liquidity, results of operations, customer confidence, profitability and growth prospects will depend on continuing and future developments related to the virus, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the pandemic, and governmental, regulatory and private sector actions and responses taken to contain or prevent further spread. Continued deterioration in general business and economic conditions, including extended closure of non-essential businesses, further increases in unemployment rates, or turbulence in U.S. or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility. These and other potential impacts of the COVID-19 pandemic could therefore materially and adversely affect our business, revenue, operations, financial condition, liquidity, results of operations and prospects. If the response and efforts to contain COVID-19 prove to be unsuccessful, any such material adverse effects may be exacerbated.

Due in large part to actions taken by the Federal Reserve to lower interest rates in response to the severe financial market reaction to the COVID-19 outbreak, market interest rates have declined significantly. We expect that these reductions in interest rates, especially if prolonged, will adversely affect our net interest income, margins and profitability. Our assets and liabilities may be significantly impacted by changes in interest rates.

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Our business is dependent upon the willingness and ability of our customers to conduct banking and other financial transactions. The spread of COVID-19 has and is likely to continue to disrupt the business, activities, and operations of our customers and, cause a decline in demand for our products and services, including loans and deposits, which may result in a significant decrease in business and could negatively impact our results of operations, our liquidity position, our growth strategy and our ability to make payments under our subordinated debenture obligations as they become due. Our financial results could also be impacted due to an inability of our customers to meet their loan and lease commitments because of their losses associated with impacts of the virus, and could result in an increased risk of loan and lease delinquencies, defaults, foreclosures, declining collateral values and a general inability of our borrowers to repay their loans and leases. In addition, the financial and other information we receive from and about our customers that we rely on in extending or renewing credit and monitoring our loan portfolio may have changed significantly and no longer be accurate, which could affect our ability to timely and accurately manage our credit risk.  Any or all of these factors could necessitate an increase in our allowance for loan losses, which would negatively impact our earnings and results of operations. Moreover, current and future governmental actions may temporarily require us to conduct business related to foreclosures, repossessions, payments, deferrals and other customer-related transactions differently, which may result in an increase in expenses and a decrease in net income.

Our workforce has been, and may continue to be, impacted by COVID-19. We are taking precautions to protect the safety and well-being of our employees and customers, including limiting branch lobby service to appointment only, but no assurance can be given that our actions will be adequate or appropriate, nor can we predict the level of disruption which will occur to our employees’ ability to provide customer support and service over an extended period of time. The continued spread of the virus and social distancing mandate could also negatively impact the availability of key personnel and employee productivity, as well as the business and operations of third-party service providers who perform critical services for us, which could adversely impact our ability to deliver products and services to our customers and continue to grow our business, which could negatively affect our reputation. Our business continuity plan and the efforts we have taken to adapt our work and business to the current environment has resulted in and will continue to require us to incur increased expenses. 

In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways. President Trump has signed into law three economic stimulus packages, including the $2 trillion Coronavirus Relief and Economic Security Act (the “CARES Act”) on March 27, 2020, which, among other things, initiated the Paycheck Protection Program (the “PPP”) under the Small Business Administration (“SBA”). We assisted our customers in participating in the PPP, which was designed to help small businesses maintain their workforce during the COVID-19 pandemic. We understand that these loans are fully guaranteed by the U.S. government and believe the majority of these loans will be forgiven. However, in the event of a loss resulting from a default on a PPP loan or a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated or serviced by us, which may or may not be related to an ambiguity in the laws, rules or guidance regarding the operation of the PPP, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already been paid under the guaranty, seek recovery of any loss related to the deficiency from us.

Since the opening of the PPP, several larger banks have been subject to litigation regarding the process and procedures that such banks followed in accepting and processing applications for the PPP. We may be exposed to the risk of similar litigation, from both customers and non-customers that contacted the Bank regarding obtaining PPP loans with respect to the processes and procedures we used in processing applications for the PPP. If any such litigation is filed against us and is not resolved in a manner favorable to us, it may result in significant financial liability to us or adversely affect our reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP-related litigation could have a material adverse impact on our reputation, business, financial condition and results of operations.

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Table of Contents

ITEM 2.         UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

None.

Repurchases of Equity Securities

None.

ITEM 3.         DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.         MINE SAFETY DISCLOSURES

None.

ITEM 5.         OTHER INFORMATION

None.

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Table of Contents

ITEM 6.         EXHIBITS

 

 

 

Exhibit No.

   

Description

 

 

 

31.1

 

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a).

 

 

 

31.2

 

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a).

 

 

 

32.1  *

 

Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350.

 

 

 

32.2  *

 

Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350.

 

 

 

101.INS

 

XBRL Instance Document.

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document.

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document.

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document.

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document.

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document.


*This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.

 

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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 thereunto duly authorized.

 

 

 

 

HBT FINANCIAL, INC.

 

 

 

May 12, 2020

By:

/s/ Matthew J. Doherty

 

 

Matthew J. Doherty

 

 

Chief Financial Officer

 

 

(on behalf of the registrant and as principal financial officer)

 

85

hbt_Ex31_1

EXHIBIT 31.1

 

Certification of Chief Executive Officer

Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934

and Section 302 of the Sarbanes-Oxley Act of 2002

I, Fred L. Drake, certify that:

1.            I have reviewed this quarterly report on Form 10-Q of HBT Financial, Inc.:

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.            The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)            Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)           [Paragraph omitted in accordance with Exchange Act Rule 13a-14(a)];

c)            Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)           Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and

5.            The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):

a)            All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and

b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.

 

 

 

Date: May 12, 2020

/s/ Fred L. Drake

 

Fred L. Drake

 

Chairman and Chief Executive Officer

 

(Principal Executive Officer)

 

hbt_Ex31_2

EXHIBIT 31.2

 

Certification of Chief Financial Officer Officer

Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934

and Section 302 of the Sarbanes-Oxley Act of 2002

I, Matthew J. Doherty, certify that:

1.            I have reviewed this quarterly report on Form 10-Q of HBT Financial, Inc.:

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.            The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)            Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)           [Paragraph omitted in accordance with Exchange Act Rule 13a-14(a)];

c)            Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)           Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and

5.            The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):

a)            All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and

b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.

 

 

 

Date: May 12, 2020

/s/ Matthew J. Doherty

 

Matthew J. Doherty

 

Executive Vice President and Chief Financial Officer

 

(Principal Financial Officer)

 

hbt_Ex32_1

EXHIBIT 32.1

 

Certification Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of HBT Financial, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

1.            The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.            The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

/s/ Fred L. Drake

 

Fred L. Drake

 

Chairman and Chief Executive Officer

 

(Principal Executive Officer)

 

May 12, 2020

 

 

 

 

hbt_Ex32_2

EXHIBIT 32.2

 

Certification Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of HBT Financial, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

1.            The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.            The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

/s/ Matthew J. Doherty

 

Matthew J. Doherty

 

Executive Vice President and Chief Financial Officer

 

(Principal Financial Officer)

 

May 12, 2020