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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 June 30, 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 July 31, 2020, there were 27,457,306 shares outstanding of the registrant’s common stock, $0.01 par value.

 


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TABLE OF CONTENTS
HBT Financial, Inc.

    

Page

PART I. FINANCIAL INFORMATION

3

Item 1.

Consolidated Financial Statements

3

Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019

3

Consolidated Statements of Income for the three and six months ended June 30, 2020 and 2019

4

Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020 and 2019

5

Consolidated Statement of Changes in Stockholders’ Equity for the three and six months ended June 30, 2020 and 2019

6

Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019

8

Notes to Consolidated Financial Statements

10

Item 2.

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

51

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

90

Item 4.

Controls and Procedures

91

PART II. OTHER INFORMATION

92

Item 1.

Legal Proceedings

92

Item 1A.

Risk Factors

92

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

94

Item 3.

Defaults Upon Senior Securities

94

Item 4.

Mine Safety Disclosures

94

Item 5.

Other Information

94

Item 6.

Exhibits

95


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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 the COVID-19 pandemic 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

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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.

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PART I. FINANCIAL INFORMATION

ITEM 1.         CONSOLIDATED FINANCIAL STATEMENTS

HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

    

(Unaudited)

   

June 30, 

December 31, 

2020

2019

(dollars in thousands)

ASSETS

Cash and due from banks

$

21,789

$

22,112

Interest-bearing deposits with banks

292,576

261,859

Cash and cash equivalents

314,365

283,971

Interest-bearing time deposits with banks

248

Debt securities available-for-sale, at fair value

701,353

592,404

Debt securities held-to-maturity (fair value of $78,317 in 2020 and $90,529 in 2019)

73,823

88,477

Equity securities

4,815

4,389

Restricted stock, at cost

2,498

2,425

Loans held for sale

25,934

4,531

Loans, net of allowance for loan losses of $29,723 in 2020 and $22,299 in 2019

2,246,072

2,141,527

Bank premises and equipment, net

53,883

53,987

Bank premises held for sale

121

121

Foreclosed assets

4,450

5,099

Goodwill

23,620

23,620

Core deposit intangible assets, net

3,408

4,030

Mortgage servicing rights, at fair value

5,839

8,518

Investments in unconsolidated subsidiaries

1,165

1,165

Accrued interest receivable

12,661

13,951

Other assets

27,405

16,640

Total assets

$

3,501,412

$

3,245,103

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities

Deposits:

Noninterest-bearing

$

856,030

$

689,116

Interest-bearing

2,159,083

2,087,739

Total deposits

3,015,113

2,776,855

Securities sold under agreements to repurchase

51,354

44,433

Subordinated debentures

37,616

37,583

Other liabilities

49,489

53,314

Total liabilities

3,153,572

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

190,687

190,524

Retained earnings

139,667

134,287

Accumulated other comprehensive income

17,211

7,832

Total stockholders’ equity

347,840

332,918

Total liabilities and stockholders’ equity

$

3,501,412

$

3,245,103

See accompanying Notes to Consolidated Financial Statements (Unaudited)

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HBT FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

2020

    

2019

    

2020

    

2019

INTEREST AND DIVIDEND INCOME

(dollars in thousands, except per share amounts)

Loans, including fees:

Taxable

$

25,337

$

29,886

$

52,278

$

59,949

Federally tax exempt

532

736

1,206

1,446

Securities:

Taxable

3,172

3,801

6,506

7,723

Federally tax exempt

1,227

1,512

2,255

3,064

Interest-bearing deposits in bank

79

599

808

1,286

Other interest and dividend income

14

16

28

31

Total interest and dividend income

30,361

36,550

63,081

73,499

INTEREST EXPENSE

Deposits

1,042

2,111

2,637

4,094

Securities sold under agreements to repurchase

11

17

31

31

Borrowings

1

4

1

7

Subordinated debentures

399

487

842

984

Total interest expense

1,453

2,619

3,511

5,116

Net interest income

28,908

33,931

59,570

68,383

PROVISION FOR LOAN LOSSES

3,573

1,806

7,928

2,582

Net interest income after provision for loan losses

25,335

32,125

51,642

65,801

NONINTEREST INCOME

Card income

1,998

1,996

3,790

3,828

Service charges on deposit accounts

1,133

1,931

2,967

3,694

Wealth management fees

1,507

1,493

3,321

3,240

Mortgage servicing

727

818

1,451

1,547

Mortgage servicing rights fair value adjustment

(508)

(1,120)

(2,679)

(2,122)

Gains on sale of mortgage loans

2,135

660

2,671

1,185

Gains (losses) on securities

57

36

5

115

Gains (losses) on foreclosed assets

58

169

93

152

Gains (losses) on other assets

(69)

368

(72)

1,273

Title insurance activity

38

167

Other noninterest income

1,022

957

1,765

1,754

Total noninterest income

8,060

7,346

13,312

14,833

NONINTEREST EXPENSE

Salaries

12,674

11,597

25,428

24,119

Employee benefits

2,455

4,723

4,889

5,967

Occupancy of bank premises

1,642

1,638

3,470

3,475

Furniture and equipment

609

716

1,212

1,505

Data processing

1,672

1,390

3,258

2,552

Marketing and customer relations

817

1,103

1,861

2,036

Amortization of intangible assets

305

376

622

752

FDIC insurance

218

208

254

427

Loan collection and servicing

494

612

842

1,354

Foreclosed assets

88

165

177

329

Other noninterest expense

2,525

2,033

4,793

4,257

Total noninterest expense

23,499

24,561

46,806

46,773

INCOME BEFORE INCOME TAX EXPENSE

9,896

14,910

18,148

33,861

INCOME TAX EXPENSE

2,477

305

4,508

520

NET INCOME

$

7,419

$

14,605

$

13,640

$

33,341

EARNINGS PER SHARE - BASIC

$

0.27

$

0.81

$

0.50

$

1.85

EARNINGS PER SHARE - DILUTED

$

0.27

$

0.81

$

0.50

$

1.85

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING

27,457,306

18,027,512

27,457,306

18,027,512

UNAUDITED PRO FORMA C CORP EQUIVALENT INFORMATION (Note 1)

Historical income before income tax expense

$

14,910

$

33,861

Pro forma C Corp equivalent income tax expense

3,784

8,699

Pro forma C Corp equivalent net income

$

11,126

$

25,162

PRO FORMA C CORP EQUIVALENT EARNINGS PER SHARE - BASIC

$

0.62

$

1.40

PRO FORMA C CORP EQUIVALENT EARNINGS PER SHARE - DILUTED

$

0.62

$

1.40

See accompanying Notes to Consolidated Financial Statements (Unaudited)

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HBT FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended June 30, 

Six Months Ended June 30, 

2020

    

2019

    

2020

    

2019

(dollars in thousands)

NET INCOME

$

7,419

$

14,605

$

13,640

$

33,341

OTHER COMPREHENSIVE INCOME (LOSS)

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

6,590

6,968

14,192

12,624

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

6

(77)

(3)

(159)

Unrealized losses on derivative instruments

(133)

(445)

(1,103)

(689)

Reclassification adjustment for net settlements on derivative instruments

39

(22)

41

(52)

Total other comprehensive income (loss), before tax

6,502

6,424

13,127

11,724

Income tax expense

1,860

3,748

Total other comprehensive income (loss)

4,642

6,424

9,379

11,724

TOTAL COMPREHENSIVE INCOME

$

12,061

$

21,029

$

23,019

$

45,065

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, March 31, 2020

$

275

$

$

190,591

$

136,378

$

12,569

$

$

339,813

Net income

7,419

7,419

Other comprehensive income

4,642

4,642

Stock-based compensation

96

96

Cash dividends ($0.15 per share)

(4,130)

(4,130)

Balance, June 30, 2020

$

275

$

$

190,687

$

139,667

$

17,211

$

$

347,840

Balance, March 31, 2019

$

3

$

178

$

32,288

$

298,131

$

1,012

$

(3,019)

$

328,593

Net income

14,605

14,605

Other comprehensive income

6,424

6,424

Cash dividends ($0.54 per share)

(9,752)

(9,752)

Balance, June 30, 2019

$

3

$

178

$

32,288

$

302,984

$

7,436

$

(3,019)

$

339,870

See accompanying Notes to Consolidated Financial Statements (Unaudited)

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HBT FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)

(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

13,640

13,640

Other comprehensive income

9,379

9,379

Stock-based compensation

163

163

Cash dividends ($0.30 per share)

(8,260)

(8,260)

Balance, June 30, 2020

$

275

$

$

190,687

$

139,667

$

17,211

$

$

347,840

Balance, December 31, 2018

$

3

$

178

$

32,288

$

315,234

$

(4,288)

$

(3,019)

$

340,396

Net income

33,341

33,341

Other comprehensive income

11,724

11,724

Cash dividends ($2.53 per share)

(45,591)

(45,591)

Balance, June 30, 2019

$

3

$

178

$

32,288

$

302,984

$

7,436

$

(3,019)

$

339,870

See accompanying Notes to Consolidated Financial Statements (Unaudited)

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HBT FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Six Months Ended June 30, 

    

2020

    

2019

(dollars in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

13,640

$

33,341

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

Depreciation expense

1,406

1,381

Provision for loan losses

7,928

2,582

Net amortization of debt securities

1,825

1,868

Amortization of unrealized gain on dedesignated cash flow hedge

(64)

(20)

Deferred income tax benefit

185

Stock-based compensation

163

Net accretion of discount and deferred loan fees on loans

(1,313)

(2,450)

Net unrealized gain on equity securities

(5)

(115)

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

3

(30)

Net gain on sales of bank premises held for sale

(448)

Impairment losses on bank premises held for sale

9

Net gain on sales of foreclosed assets

(144)

(105)

Write-down of foreclosed assets

58

389

Amortization of intangibles

622

752

Decrease in mortgage servicing rights

2,679

2,122

Amortization of subordinated debt purchase accounting adjustment

33

33

Mortgage loans originated for sale

(152,706)

(54,948)

Proceeds from sale of mortgage loans

133,974

53,630

Net gain on sale of mortgage loans

(2,671)

(1,185)

Gain on sale of First Community Title Services, Inc.

(498)

Decrease in accrued interest receivable

1,290

691

Increase in other assets

(375)

(541)

(Decrease) increase in other liabilities

(19,146)

2,490

Net cash (used in) provided by operating activities

(12,618)

38,948

CASH FLOWS FROM INVESTING ACTIVITIES

Net change in interest-bearing time deposits with banks

248

Proceeds from paydowns, maturities, and calls of debt securities

97,066

91,196

Purchase of securities

(179,418)

(40,424)

Net increase in loans

(111,420)

(58,339)

Purchase of restricted stock

(73)

Proceeds from redemption of restricted stock

294

Purchases of bank premises and equipment

(1,305)

(784)

Proceeds from sales of bank premises and equipment

176

Proceeds from sales of bank premises held for sale

1,039

Proceeds from sales of foreclosed assets

1,001

969

Capital improvements to foreclosed assets

(6)

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

114

Net cash used in investing activities

(193,907)

(5,759)

CASH FLOWS FROM FINANCING ACTIVITIES

Net increase (decrease) in deposits

238,258

(22,202)

Net increase (decrease) in repurchase agreements

6,921

(10,549)

Cash dividends paid

(8,260)

(45,591)

Net cash provided by (used in) financing activities

236,919

(78,342)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

30,394

(45,153)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

283,971

186,879

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

314,365

$

141,726

See accompanying Notes to Consolidated Financial Statements (Unaudited)

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HBT FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)

Six Months Ended June 30, 

    

2020

    

2019

(dollars in thousands)

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid for interest

$

3,822

$

4,976

Cash paid for income taxes

$

2,935

$

880

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES

Transfers of loans to foreclosed assets

$

327

$

1,761

Sales of foreclosed assets through loan origination

$

67

$

360

See accompanying Notes to Consolidated Financial Statements (Unaudited)

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – ACCOUNTING POLICIES

Basis of Presentation

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

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

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

The Company qualifies as an "emerging growth company" as defined by the Jumpstart Our Business Startups Act (JOBS Act). The JOBS Act permits emerging growth companies an extended transition period for complying with new or revised accounting standards affecting public companies. The Company has elected to use the extended transition period until the Company is no longer an emerging growth company or until the Company chooses to affirmatively and irrevocably opt out of the extended transition period. As a result, the Company’s financial statements may not be comparable to companies that comply with new or revised accounting pronouncements applicable to 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 were advanced or paid as dividends to the stockholders to assist them in paying their personal taxes on the income from the Company.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

The Company files consolidated federal and state income tax returns. The Company is no longer subject to federal income tax examinations for years prior to 2017 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 and six months ended June 30, 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 and six months ended June 30, 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.

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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:

June 30, 

December 31, 

    

2020

    

2019

(dollars in thousands)

Debt securities available-for-sale

$

701,353

$

592,404

Debt securities held-to-maturity

73,823

88,477

Equity securities:

Readily determinable fair value

3,263

3,241

No readily determinable fair value

1,552

1,148

Total securities

$

779,991

$

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 and six months ended June 30, 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 June 30, 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.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

June 30, 2020

    

Amortized
Cost

    

Gross
Unrealized
Gains

    

Gross
Unrealized
Losses

    

Fair Value

Available-for-sale:

(dollars in thousands)

U.S. government agency

$

75,881

$

3,061

$

(7)

$

78,935

Municipal

191,453

6,885

(28)

198,310

Mortgage-backed:

Agency residential

211,577

5,393

(101)

216,869

Agency commercial

133,149

5,022

(22)

138,149

Corporate

67,204

1,962

(76)

69,090

Total available-for-sale

679,264

22,323

(234)

701,353

Held-to-maturity:

Municipal

28,528

1,507

30,035

Mortgage-backed:

Agency residential

16,516

567

17,083

Agency commercial

28,779

2,420

31,199

Total held-to-maturity

73,823

4,494

78,317

Total debt securities

$

753,087

$

26,817

$

(234)

$

779,670

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 June 30, 2020 and December 31, 2019, the Banks had debt securities with a carrying value of $342,031,000 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 43% of the obligations of local municipalities portfolio consists of debt securities issued by municipalities located in Illinois as of June 30, 2020. Approximately 89% of such debt securities were general obligation issues as of June 30, 2020.

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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 June 30, 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

$

32,518

$

32,748

$

748

$

754

Due after 1 year through 5 years

92,615

95,593

14,963

15,733

Due after 5 years through 10 years

151,731

158,201

11,926

12,620

Due after 10 years

57,674

59,793

891

928

Mortgage-backed:

Agency residential

211,577

216,869

16,516

17,083

Agency commercial

133,149

138,149

28,779

31,199

Total

$

679,264

$

701,353

$

73,823

$

78,317

There were no sales of securities during the three and six months ended June 30, 2020 and 2019. Gains (losses) on securities were as follows during the three and six months ended June 30:

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2020

    

2019

2020

    

2019

(dollars in thousands)

Net realized gains (losses) on sales

$

$

$

$

Net unrealized gains (losses) on equities:

Readily determinable fair value

57

36

5

115

No readily determinable fair value

Gains (losses) on securities

$

57

$

36

$

5

$

115

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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 June 30, 2020 and December 31, 2019:

Investments in a Continuous Unrealized Loss Position

Less than 12 Months

12 Months or More

Total

June 30, 2020

    

Unrealized
Loss

    

Fair Value

    

Unrealized
Loss

    

Fair Value

    

Unrealized
Loss

    

Fair Value

Available-for-sale:

(dollars in thousands)

U.S. government agency

$

(7)

$

3,605

$

$

$

(7)

$

3,605

Municipal

(28)

4,989

(28)

4,989

Mortgage-backed:

Agency residential

(77)

15,955

(24)

7,194

(101)

23,149

Agency commercial

(22)

6,038

(22)

6,038

Corporate

(76)

9,924

(76)

9,924

Total available-for-sale

​</