UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8 - K
CURRENT REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): September 3, 2020
HBT FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Delaware | 001-39085 | 37-1117216 |
(State or other jurisdiction | (Commission File Number) | (IRS Employer |
| | |
401 North Hershey Road | | 61704 |
(Address of principal executive | | (Zip Code) |
(888) 897-2276
(Registrant’s telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | HBT | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). | |
| Emerging growth company ⌧ |
| |
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. ◻ | |
Item 1.01 Entry into a Material Definitive Agreement.
On September 3, 2020, HBT Financial, Inc. (the “Company”) entered into a Subordinated Note Purchase Agreement (the “Purchase Agreement”) with certain institutional accredited investors and qualified institutional buyers (collectively, the “Purchasers”) pursuant to which the Company issued and sold $40.0 million in aggregate principal amount of its 4.50% fixed-to-floating rate subordinated notes due 2030 (the “Notes”). The Notes were issued by the Company to the Purchasers at a price equal to 100% of their face amount. The Company intends to use the net proceeds it received from the sale of the Notes for general corporate purposes. The Purchase Agreement contains certain customary representations, warranties and covenants made by the Company, on the one hand, and the Purchasers, severally and not jointly, on the other hand.
The Notes are not subject to any sinking fund and are not convertible into or exchangeable for any other securities or assets of the Company or any of its subsidiaries.
The Notes have a stated maturity of September 15, 2030. Prior to September 15, 2025, the Company may redeem the Notes, in whole but not in part, only under certain limited circumstances set forth in the Notes. On or after September 15, 2025, the Company may redeem the Notes, in whole or in part, at its option, on any interest payment date. Any redemption by the Company would be at a redemption price equal to 100% of the principal amount of the Notes being redeemed, together with any accrued and unpaid interest on the Notes being redeemed to but excluding the date of redemption. The Notes are not subject to redemption at the option of the holder.
The Notes will bear interest at a fixed rate of 4.50% per year, from and including September 3, 2020 to, but excluding, September 15, 2025. From and including September 15, 2025 to, but excluding the maturity date or early redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term SOFR (as defined in the Notes) plus 437 basis points. As provided in the Notes, the interest rate on the Notes during the applicable floating rate period may be determined based on a rate other than three-month term SOFR.
Principal and interest on the Notes are subject to acceleration only in limited circumstances. The Notes are unsecured, subordinated obligations of the Company, and are not obligations of, and are not guaranteed by, any subsidiary of the Company. The Notes are intended to qualify as Tier 2 capital of the Company for regulatory capital purposes.
The Notes were offered and sold by the Company in a private placement transaction in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated thereunder (the “Private Placement”).
The form of the Note and the Purchase Agreement are attached as Exhibits 4.1 and 10.1, respectively, to this Current Report on Form 8-K (the “Report”) and are incorporated herein by reference. The foregoing descriptions of the Notes and the Purchase Agreement are summaries and are qualified in their entirety by reference to the full text of such documents.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The information set forth under Item 1.01 above is incorporated by reference into this Item 2.03.
Item 7.01 Regulation FD Disclosure.
On September 3, 2020, the Company issued a press release announcing the completion of the Private Placement. A copy of the press release is furnished as Exhibit 99.1 to this Report.
In connection with the Private Placement, the Company delivered an investor presentation to potential investors on a confidential basis (the “Presentation”). A copy of select pages of the Presentation is furnished as Exhibit 99.2 to this Report.
The information contained in Item 7.01, including Exhibits 99.1 and 99.2 furnished herewith, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities under that section, nor shall it be deemed incorporated by reference into any registration statement or other documents pursuant to the Securities Act of 1933, as amended, or into any filing or other document pursuant to the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits.
Exhibit Number | Description of Exhibit |
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4.1 | Form of 4.50% Fixed-to-Floating Rate Subordinated Note due 2030. |
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10.1 | |
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99.1 | |
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99.2 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| HBT FINANCIAL, INC. | |
| | |
| | |
| By: | /s/ Matthew J. Doherty |
| | Name: Matthew J. Doherty |
| | Title: Chief Financial Officer |
| | |
Date: September 3, 2020 | | |
Exhibit 4.1
HBT FINANCIAL, INC.
4.50% FIXED TO FLOATING RATE SUBORDINATED NOTE DUE 2030
THE INDEBTEDNESS EVIDENCED BY THIS SUBORDINATED NOTE IS NOT A DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY OR FUND.
THE INDEBTEDNESS EVIDENCED BY THIS SUBORDINATED NOTE IS SUBORDINATED AND JUNIOR IN RIGHT OF PAYMENT TO SENIOR INDEBTEDNESS (AS DEFINED IN SECTION 3 (SUBORDINATION) OF THIS SUBORDINATED NOTE) OF HBT FINANCIAL, INC. (THE “COMPANY”), INCLUDING OBLIGATIONS OF THE COMPANY TO ITS GENERAL AND SECURED CREDITORS AND IS UNSECURED. IT IS INELIGIBLE AS COLLATERAL FOR ANY EXTENSION OF CREDIT BY THE COMPANY OR ANY OF ITS SUBSIDIARIES.
THIS SUBORDINATED NOTE IS A GLOBAL SUBORDINATED NOTE WITHIN THE MEANING OF SECTION 5 OF THIS SUBORDINATED NOTE AND IS REGISTERED IN THE NAME OF CEDE & CO. AS NOMINEE OF THE DEPOSITORY TRUST COMPANY (“DTC”) OR A NOMINEE OF DTC. THIS SUBORDINATED NOTE IS EXCHANGEABLE FOR SUBORDINATED NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN DTC OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN SECTION 5 OF THIS SUBORDINATED NOTE, AND NO TRANSFER OF THIS SUBORDINATED NOTE (OTHER THAN A TRANSFER OF THIS SUBORDINATED NOTE AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC OR ANOTHER NOMINEE OF DTC) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES SPECIFIED IN THIS SUBORDINATED NOTE.
UNLESS THIS SUBORDINATED NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY SUBORDINATED NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO., OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS SUBORDINATED NOTE WILL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS SUBORDINATED NOTE WILL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 5 OF THIS SUBORDINATED NOTE.
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THIS SUBORDINATED NOTE WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN MINIMUM DENOMINATIONS OF $1,000 AND MULTIPLES OF $1,000 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF THIS SUBORDINATED NOTE IN A DENOMINATION OF LESS THAN $1,000 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH PURPORTED TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF THIS SUBORDINATED NOTE FOR ANY PURPOSE, INCLUDING, BUT NOT LIMITED TO, THE RECEIPT OF PAYMENTS ON THIS SUBORDINATED NOTE, AND SUCH PURPORTED TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN THIS SUBORDINATED NOTE.
THIS SUBORDINATED NOTE MAY BE SOLD ONLY IN COMPLIANCE WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS. THIS SUBORDINATED NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS, OR ANY OTHER APPLICABLE SECURITIES LAWS. NEITHER THIS SUBORDINATED NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
CERTAIN ERISA CONSIDERATIONS:
THE HOLDER OF THIS SUBORDINATED NOTE, OR ANY INTEREST HEREIN, BY ITS ACCEPTANCE HEREOF OR THEREOF AGREES, REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT PLAN, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE ”CODE”) (EACH, A “PLAN”), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE “PLAN ASSETS” BY REASON OF ANY PLAN’S INVESTMENT IN THE ENTITY, AND NO PERSON INVESTING “PLAN ASSETS” OF ANY PLAN MAY ACQUIRE OR HOLD THIS SUBORDINATED NOTE OR ANY INTEREST HEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND HOLDING OF THIS SUBORDINATED NOTE, OR ANY INTEREST HEREIN, ARE NOT PROHIBITED BY SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE AND HOLDING. ANY PURCHASER OR HOLDER OF THIS SUBORDINATED NOTE OR ANY INTEREST HEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER: (I) IT IS NOT AN EMPLOYEE BENEFIT PLAN OR OTHER PLAN TO WHICH TITLE I OF ERISA OR SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF ANY SUCH EMPLOYEE BENEFIT PLAN OR OTHER PLAN, OR ANY OTHER PERSON OR ENTITY USING THE “PLAN ASSETS” OF ANY SUCH PLAN OR OTHER PLAN TO FINANCE SUCH PURCHASE OR (II) SUCH PURCHASE OR HOLDING WILL NOT RESULT IN A
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PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH FULL EXEMPTIVE RELIEF IS NOT AVAILABLE UNDER APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.
ANY FIDUCIARY OF ANY PLAN WHO IS CONSIDERING THE ACQUISITION OF THIS SUBORDINATED NOTE OR ANY INTEREST HEREIN SHOULD CONSULT WITH HIS OR HER LEGAL COUNSEL PRIOR TO ACQUIRING THIS SUBORDINATED NOTE OR ANY INTEREST HEREIN.
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No. 2030-[●]
Accredited Investor CUSIP: 404111 AB2 / US404111AB23
QIB CUSIP: 404111 AA4 / US404111AA40
HBT FINANCIAL, INC.
4.50% FIXED TO FLOATING RATE SUBORDINATED NOTE DUE 2030
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For the avoidance of doubt, if the event giving rise to the Benchmark Replacement Date occurs on the same day as, but earlier than, the Reference Time in respect of any determination, the Benchmark Replacement Date will be deemed to have occurred prior to the Reference Time for purposes of such determination.
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For the avoidance of doubt, the calculation of Compounded SOFR will exclude the Benchmark Replacement Adjustment.
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Each of the following events shall constitute an “Event of Default”:
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Unless the principal amount of this Subordinated Note already shall have become due and payable, if an Event of Default set forth in Section 6(a) or Section 6(b) above shall have occurred and be continuing, the Noteholders holding not less than twenty-five percent (25%) in aggregate principal amount of the Subordinated Notes at the time outstanding, by notice in writing to the Company, may declare the principal amount of all outstanding Subordinated Notes to be due and payable immediately and, upon any such declaration, the same shall become and shall be immediately due and payable, and the Company waives demand, presentment for payment, notice of nonpayment, notice of protest, and all other notices. Notwithstanding the foregoing, because the Company will treat the Subordinated Notes as Tier 2 Capital, upon the occurrence of an Event of Default other than an Event of Default described in Section 6(a) or Section 6(b), no Noteholder may accelerate the Stated Maturity of the Subordinated Notes and make the principal of, and any accrued and unpaid interest on, the Subordinated Notes, immediately due and payable. The Company, within forty-five (45) calendar days after the receipt of written notice from any Noteholder of the occurrence of an Event of Default with respect to this Subordinated Note, shall mail to all Noteholders, at their addresses shown on the Security Register (as defined in Section 14 (Registration of Transfer, Security Register) below), such written notice of Event of Default, unless such Event of Default shall have been cured or waived before the giving of such notice as certified by the Company in writing.
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Upon the occurrence of a failure by the Company to make any required payment of principal or interest on the Subordinated Notes or an Event of Default, until such Event of Default is cured by the Company or waived by the Noteholders in accordance with Section 18 (Waiver and Consent) hereof, except as may be required by any federal or state bank regulatory agency, the Company shall not: (a) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company’s capital stock; (b) make any payment of principal or interest or premium, if any, on or repay, repurchase or redeem any indebtedness of the Company that ranks equal with or junior to the Subordinated Notes; or (c) make any payments under any guarantee that ranks equal with or junior to the Subordinated Notes, other than: (i) any dividends or distributions in shares of, or options, warrants or rights to subscribe for or purchase shares of, any class of the Company’s common stock; (ii) any declaration of a non-cash dividend in connection with the implementation of a shareholders’ rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto; (iii) as a result of a reclassification of the Company’s capital stock or the exchange or conversion of one class or series of the Company’s capital stock for another class or series of the Company’s capital stock; (iv) the purchase of fractional interests in shares of the Company’s capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged; or (v) purchases of any class of the Company’s common stock related to the issuance of common stock or rights under any benefit plans for the Company’s directors, officers or employees or any of the Company’s dividend reinvestment plans (the foregoing clauses (i) through (v) are collectively referred to as the “Permitted Dividends”).
| 8. | Affirmative Covenants of the Company. |
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The Company may also from time to time designate one or more other offices or agencies where the Subordinated Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided that no such designation or rescission will in any manner relieve the Company of its obligation to maintain an office or agency in the State of Illinois. The Company will give prompt written notice to the Noteholders of any such designation or rescission and of any change in the location of any such other office or agency.
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| 9. | Negative Covenants of the Company. |
“Change in Bank Control” means the sale, transfer, lease or conveyance by the Company, or an issuance of equity securities by any Bank other than to the Company, in either case resulting in ownership by the Company of less than 50% of any Bank.
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[Signature Page Follows]
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IN WITNESS WHEREOF, the undersigned has caused this Subordinated Note to be duly executed and attested.
HBT FINANCIAL, INC.
By:_______________________________________
Name: [●]
Title: [●]
Authenticated for and on behalf of UMB Bank N.A., as paying agent: |
Name: |
Title: |
[Signature Page to Subordinated Note]
ASSIGNMENT FORM
To assign this Subordinated Note, fill in the form below: (I) or (we) assign and transfer this Subordinated Note to:
(Print or type assignee’s name, address and zip code)
(Insert assignee’s social security or tax I.D. No.)
and irrevocably appoint agent to transfer this Subordinated Note on the books of the Company. The agent may substitute another to act for him.
Date: Your signature:
(Sign exactly as your name appears on the face of this Subordinated Note)
Tax Identification No:
Signature Guarantee:
(Signatures must be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).
The undersigned certifies that it [is / is not] an Affiliate of the Company and that, to its knowledge, the proposed transferee [is / is not] an Affiliate of the Company.
In connection with any transfer or exchange of this Subordinated Note occurring prior to the date that is one year after the later of the date of original issuance of this Subordinated Note and the last date, if any, on which this Subordinated Note was owned by the Company or any Affiliate of the Company, the undersigned confirms that this Subordinated Note is being:
CHECK ONE BOX BELOW:
□ | (1) | acquired for the undersigned’s own account, without transfer; |
□ | (2) | transferred to the Company; |
□ | (3) | transferred in accordance and in compliance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”); |
□ | (4) | transferred under an effective registration statement under the Securities Act; |
□ | (5) | transferred in accordance with and in compliance with Regulation S under the Securities Act; |
□ | (6) | transferred to an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act); |
□ | (7) | transferred to an “accredited investor” (as defined in Rule 501(a)(4) under the Securities Act), not referred to in item (6) that has been provided with the information designated under Section 4(d) of the Securities Act; or |
□ | (8) | transferred in accordance with another available exemption from the registration requirements of the Securities Act. |
Unless one of the boxes is checked, the Company will refuse to register this Subordinated Note in the name of any person other than the registered holder thereof; provided, however, that if box (5), (6), (7) or (8) is checked, the Company may require, prior to registering any such transfer of this Subordinated Note, in its sole discretion, such legal opinions, certifications and other information as the Company may reasonably request to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act such as the exemption provided by Rule 144 under such Act.
Signature:
Signature Guarantee:
(Signatures must be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program), pursuant to Exchange Act Rule 17Ad-l5).
TO BE COMPLETED BY PURCHASER IF BOX (1) OR (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Subordinated Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned’s foregoing representations in order to claim the exemption from registration provided by Rule 144A.
Exhibit 10.1
SUBORDINATED NOTE PURCHASE AGREEMENT
This SUBORDINATED NOTE PURCHASE AGREEMENT (this “Agreement”) is dated as of September 3, 2020, and is made by and among HBT Financial, Inc., a Delaware corporation (the “Company”), and the several purchasers of the Subordinated Notes (as defined herein) identified on the signature pages hereto (each a “Purchaser” and collectively, the “Purchasers”).
RECITALS
WHEREAS, the Company has requested that the Purchasers purchase from the Company up to $40,000,000 in aggregate principal amount of Subordinated Notes, which aggregate amount is intended to qualify as Tier 2 Capital (as defined herein).
WHEREAS, the Company has engaged Piper Sandler & Co., as its exclusive placement agent (“Placement Agent”) for the offering of the Subordinated Notes.
WHEREAS, each of the Purchasers is an institutional “accredited investor” as such term is defined in Rule 501 of Regulation D (“Regulation D”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”), or a “qualified institutional buyer” as such term is defined in Rule 144A under the Securities Act (a “QIB”).
WHEREAS, the offer and sale of the Subordinated Notes by the Company is being made in reliance upon the exemptions from registration available under Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated under the Securities Act.
WHEREAS, each Purchaser is willing to purchase from the Company a Subordinated Note in the principal amount set forth on such Purchaser’s respective signature page hereto (the “Subordinated Note Amount”) in accordance with the terms, subject to the conditions and in reliance on, the recitals, representations, warranties, covenants and agreements set forth herein and in the Subordinated Notes.
NOW, THEREFORE, in consideration of the mutual covenants, conditions and agreements herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:
AGREEMENT
“Affiliate(s)” means, with respect to any Person, such Person’s immediate family members, partners, members or parent and subsidiary corporations, and any other Person directly or indirectly controlling, controlled by, or under common control with said Person and their respective Affiliates.
“Agreement” has the meaning set forth in the preamble hereto.
“Applicable Procedures” means, with respect to any creation, transfer or exchange of or for beneficial interests in any Subordinated Note represented by a global certificate, the rules and procedures of DTC that apply to such transfer or exchange.
“Banks” means collectively, Heartland Bank and Trust Company and State Bank of Lincoln, both Illinois state chartered banks and wholly owned subsidiaries of the Company.
“Business Day” means any day other than a Saturday, Sunday or any other day on which banking institutions in the State of Illinois are permitted or required by any applicable law or executive order to close.
“Bylaws” means the Bylaws of the Company, as amended and as in effect on the Closing Date.
“Charter” means the Certificate of Incorporation of the Company, as in effect on the Closing Date.
“Closing” has the meaning set forth in Section 2.5.
“Closing Date” means September 3, 2020.
“Company” has the meaning set forth in the preamble hereto and shall include any successors to the Company.
“Company Covered Person” has the meaning set forth in Section 4.2.4.
“Company’s Reports” means (i) the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as filed with the SEC, including the audited financial statements contained therein; (ii) the Company’s Quarterly Report on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020, as filed with the SEC, including the unaudited financial statements contained therein; and (iii) the Company’s public reports for the year ended December 31, 2019, and the period ended June 30, 2020, as filed with the FRB as required by regulations of the FRB.
“Disbursement” has the meaning set forth in Section 3.1.
“Disqualification Event” has the meaning set forth in Section 4.2.4.
“DTC” means The Depository Trust Company.
“Equity Interest” means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person which is not a corporation, and any and all warrants, options or other rights to purchase any of the foregoing.
“Event of Default” has the meaning set forth in the Subordinated Notes.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
“FDIC” means the Federal Deposit Insurance Corporation.
“FRB” means the Board of Governors of the Federal Reserve System.
“GAAP” means generally accepted accounting principles in effect from time to time in the United States of America.
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“Global Note” has the meaning set forth in Section 3.1.
“Governmental Agency(ies)” means, individually or collectively, any arbitrator, court, federal, state, county or local governmental department, commission, board, regulatory authority or administrative agency (including, without limitation, each applicable Regulatory Agency) with jurisdiction over the Company or a Subsidiary or any of their respective properties, assets or operations.
“Governmental Licenses” has the meaning set forth in Section 4.3.
“Hazardous Materials” means flammable explosives, asbestos, urea formaldehyde insulation, polychlorinated biphenyls, radioactive materials, hazardous wastes, toxic or contaminated substances or similar materials, including, without limitation, any substances which are “hazardous substances,” “hazardous wastes,” “hazardous materials” or “toxic substances” under the Hazardous Materials Laws and/or other applicable environmental laws, ordinances or regulations.
“Hazardous Materials Laws” mean any laws, regulations, permits, licenses or requirements pertaining to the protection, preservation, conservation or regulation of the environment which relates to real property, including: the Clean Air Act, as amended, 42 U.S.C. Section 7401 et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. Section 1251 et seq.; the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. Section 6901 et seq.; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (including the Superfund Amendments and Reauthorization Act of 1986), 42 U.S.C. Section 9601 et seq.; the Toxic Substances Control Act, as amended, 15 U.S.C. Section 2601 et seq.; the Occupational Safety and Health Act, as amended, 29 U.S.C. Section 651, the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq.; the Mine Safety and Health Act of 1977, as amended, 30 U.S.C. Section 801 et seq.; the Safe Drinking Water Act, 42 U.S.C. Section 300f et seq.; and all comparable state and local laws, laws of other jurisdictions or orders and regulations.
“Indebtedness” means: (i) all items arising from the borrowing of money that, according to GAAP, would be included in determining total liabilities as shown on the consolidated balance sheet of the Company; and (ii) all obligations secured by any lien in property owned by the Company or any Subsidiary whether or not such obligations shall have been assumed; provided, however, Indebtedness shall not include deposits or other Indebtedness created, incurred or maintained in the ordinary course of the Company’s or the Banks’ business (including, without limitation, federal funds purchased, advances from any Federal Home Loan Bank, secured deposits of municipalities, letters of credit issued by the Company or the Banks or any other Subsidiary and repurchase arrangements) and consistent with customary banking practices and applicable laws and regulations.
“Leases” means all leases, licenses or other documents providing for the use or occupancy of any portion of any Property, including all amendments, extensions, renewals, supplements, modifications, sublets and assignments thereof and all separate letters or separate agreements relating thereto.
“Material Adverse Effect” means, with respect to any Person, any change or effect that (i) is or would be reasonably likely to be material and adverse to the financial condition, results of operations or business of such Person and its Subsidiaries taken as a whole, or (ii) would materially impair the ability of such Person to perform its respective obligations under any of the Transaction Documents, or otherwise materially impede the consummation of the transactions contemplated hereby; provided, however, that “Material Adverse Effect” shall not be deemed to include the impact of (1) changes in banking and similar laws, rules or regulations of general applicability or interpretations thereof by Governmental Agencies which do not disproportionally affect the operations or business of the Company or the Banks in comparison to other banking institutions with similar operations, (2) changes in GAAP or regulatory accounting
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requirements applicable to financial institutions and their holding companies generally, (3) changes after the date of this Agreement in general economic or capital market conditions affecting financial institutions or their market prices generally and not specifically related to the Company, the Banks or the Purchasers, (4) direct effects of compliance with this Agreement on the operating performance of the Company, the Banks or the Purchasers, including expenses incurred by the Company, the Banks or the Purchasers in consummating the transactions contemplated by this Agreement, and (5) the effects of any action or omission taken by the Company with the prior written consent of the Purchasers, and vice versa, or as otherwise contemplated by this Agreement and the Subordinated Notes.
“Maturity Date” means September 15, 2030.
“Paying Agent” means UMB Bank N.A., as paying agent under the Paying Agent Agreement.
“Paying Agent Agreement” means the paying agent agreement, dated as of September 3, 2020, by and between the Company and UMB Bank N.A., as paying agent.
“Person” means an individual, a corporation (whether or not for profit), a partnership, a limited liability company, a joint venture, an association, a trust, an unincorporated organization, a government or any department or agency thereof (including a Governmental Agency) or any other entity or organization.
“Placement Agent” has the meaning set forth in the Recitals.
“Property” means any real property owned or leased by the Company or any Affiliate or Subsidiary of the Company.
“Purchaser” or “Purchasers” has the meaning set forth in the preamble hereto.
“QIB” has the meaning set forth in the Recitals.
“Regulation D” has the meaning set forth in the Recitals.
“Regulatory Agency” means any federal or state agency charged with the supervision or regulation of depository institutions or holding companies of depository institutions, or engaged in the insurance of depository institution deposits, or any court, administrative agency or commission or other authority, body or agency having supervisory or regulatory authority with respect to the Company, the Banks or any of their Subsidiaries.
“SEC” means the Securities and Exchange Commission.
“Secondary Market Transaction” has the meaning set forth in Section 5.5.
“Securities Act” has the meaning set forth in the Recitals.
“Subordinated Note” means the Subordinated Note (or collectively, the “Subordinated Notes”) in the form attached as Exhibit A hereto, as amended, restated, supplemented or modified from time to time, and each Subordinated Note delivered in substitution or exchange for such Subordinated Note.
“Subordinated Note Amount” has the meaning set forth in the Recitals.
“Subsidiary” means with respect to any Person, any corporation or entity in which a majority of the outstanding Equity Interest is directly or indirectly owned by such Person.
4
“Tier 2 Capital” has the meaning given to the term “Tier 2 capital” in 12 C.F.R. Part 217, as amended, modified and supplemented and in effect from time to time or any replacement thereof.
“Transaction Documents” has the meaning set forth in Section 3.2.1.1.
“Trust Indenture Act” means the Trust Indenture Act of 1939, as amended, and the rules and regulations of the SEC thereunder.
The Company hereby represents and warrants to each Purchaser as follows:
The Company hereby further covenants and agrees with each Purchaser as follows:
Each Purchaser hereby represents and warrants to the Company, and covenants with the Company, severally and not jointly, as follows:
17
if to the Company: | HBT Financial, Inc. 401 North Hershey Road Bloomington, Illinois 61704 Attention: Matthew J. Doherty |
with a copy to: | Kirkland & Ellis LLP 300 North LaSalle Street Chicago, Illinois 60654 Attention: Edwin S. del Hierro, P.C. |
if to the Purchasers: | To the address indicated on such Purchaser’s signature page. |
or to such other address or addresses as the party to be given notice may have furnished in writing to the party seeking or desiring to give notice, as a place for the giving of notice; provided that no change in address shall be effective until five (5) Business Days after being given to the other party in the manner provided for above. Any notice given in accordance with the foregoing shall be deemed given when delivered personally or, if mailed, three (3) Business Days after it shall have been deposited in the United States mails as aforesaid or, if sent by overnight courier, the Business Day following the date of delivery to such courier (provided next business day delivery was requested).
[Signature Pages Follow]
21
IN WITNESS WHEREOF, the Company has caused this Subordinated Note Purchase Agreement to be executed by its duly authorized representative as of the date first above written.
| COMPANY: HBT FINANCIAL, INC. By:/s/ Matthew J. Doherty Name: Matthew J. Doherty Title: Executive Vice President & Chief Financial Officer |
| |
[Company Signature Page to Subordinated Note Purchase Agreement]
IN WITNESS WHEREOF, the Purchaser has caused this Subordinated Note Purchase Agreement to be executed by its duly authorized representative as of the date first above written.
| |
| PURCHASER: [INSERT PURCHASER’S NAME] By: Name: [●] Title: [●] |
| Address of Purchaser: [●] |
| Principal Amount of Purchased Subordinated Note: $[●] |
[Purchaser Signature Page to Subordinated Note Purchase Agreement]
SCHEDULE 4.1.1.2
Subsidiaries
Subsidiary |
| State or Other Jurisdiction Of Incorporation |
Heartland Bank and Trust Company |
| Illinois |
State Bank of Lincoln | | Illinois |
Heartland Real Estate Holdings, LLC | | Illinois |
Lakewood & Barrington LLC | | Illinois |
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FORM OF SUBORDINATED NOTE
EXHIBIT B
OPINION OF COUNSEL
EXHIBIT 99.1
HBT FINANCIAL, INC. ANNOUNCES
ISSUANCE OF $40 MILLION IN SUBORDINATED NOTES
Bloomington, IL, September 3, 2020 – HBT Financial, Inc. (NASDAQ: HBT) (the “Company” or “HBT Financial”), the holding company for Heartland Bank and Trust Company and State Bank of Lincoln, announced today the sale and issuance of $40 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2030 (the "Notes") to certain qualified institutional buyers and institutional accredited investors in a private placement transaction. The Company intends to use the net proceeds from the offering for general corporate purposes.
The Notes will bear interest at an initial fixed rate of 4.50% for five years and will reset quarterly thereafter to the then current three-month SOFR plus 437 basis points. The Company may redeem the Notes, in whole or in part, at its option, on or after September 15, 2025, or prior to such date under certain limited circumstances. The Notes are intended to qualify as Tier 2 capital of the Company for regulatory purposes.
Piper Sandler & Co. acted as sole placement agent. Barack Ferrazzano Kirschbaum & Nagelberg LLP served as legal counsel to the placement agent and Kirkland & Ellis LLP served as legal counsel to the Company.
About HBT Financial, Inc.
HBT Financial, Inc. is headquartered in Bloomington, Illinois and is the holding company for Heartland Bank and Trust Company 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 63 branches. As of June 30, 2020, HBT had total assets of $3.5 billion, total loans of $2.3 billion, and total deposits of $3.0 billion. HBT is a longstanding Central Illinois company, with banking roots that can be traced back 100 years.
CONTACT:
Matthew Keating
HBTIR@hbtbank.com
(310) 622-8230
Exhibit 99.2
| STRICTLY PRIVATE AND CONFIDENTIAL Investor Presentation A u g u s t 2020 HBT Financial, Inc. |
| Forward-Looking Statements Certain statements contained in this presentation are forward-looking statements. Forward-looking statements may include statements relating to our future plans, strategies and expectations, as well as the economic impact of COVID-19 and the related impacts on our future financial results and statements about our near-term outlook, including near-term loan growth, net interest margin, provision for loan losses, service charges on deposit accounts, mortgage banking profits, wealth management fees, expenses, asset quality, capital levels and continued earnings. 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: the severity, magnitude and duration of the COVID-19 pandemic; the direct and indirect impacts of the COVID-19 pandemic and governmental responses to the pandemic on our operations and our customers’ businesses; the disruption of global, national, state and local economies associated with the COVID-19 pandemic, which could affect our capital levels and earnings, impair the ability of our borrowers to repay outstanding loans, impair collateral values and further increase our allowance for credit losses; our asset quality and any loan charge-offs; the composition of our loan portfolio; time and effort necessary to resolve nonperforming assets; 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 modelling 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 the chartered banks we own (the “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; 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 Corporation” under the applicable provisions of the Internal Revenue Code of 1986, as amended; 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; and damage to our reputation from any of the factors described above or elsewhere in this presentation. These risks and uncertainties 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. Non-GAAP Financial Measures This presentation includes certain non-GAAP financial measures. While HBT Financial, Inc. (“HBT” or the “Company”) believes these are useful measures for investors, they are not presented in accordance with GAAP. You should not consider non-GAAP measures in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Because not all companies use identical calculations, the presentation herein of non-GAAP financial measures may not be comparable to other similarly titled measures of other companies. Tax equivalent adjustments assume a federal tax rate of 21% and state income tax rate of 9.50% during the three and six months ended June 30, 2020, three months ended March 31, 2020, and years ended December 31, 2019 and 2018, a federal tax rate of 35% and state income tax rate of 8.63% for the year ended December 31, 2017, and a federal tax rate of 35% and state income tax rate of 7.75% for the year ended December 31, 2016. For a reconciliation of the non-GAAP measures we use to the most comparable GAAP measures, see the Appendix to this presentation. 2 |
| 3 C&I 18% CRE–Owner occupied 10% Agricultural & farm land 10% CRE–Non-owner occupied 24% C&D 11% Multi-family 8% 1-4 Family residential 14% Municipal, consumer & other 5% Company snapshot ✓ Company incorporated in 1982 from base of family-owned banks and completed its IPO in October 2019 ✓ Headquartered in Bloomington, IL, with operations in Central Illinois and the Chicago MSA ✓ Leading market position in majority of core mid-sized markets in Central Illinois ✓ Strong deposit franchise with 14bps cost of deposits, 99% core deposits2 ✓ Conservative credit culture, with 2bps NCOs on originated loans during the six months ended June 30, 20203 ✓ High profitability sustained through cycles Overview As of or for the period ended 2017 2018 2019 1H20 Total assets $3,313 $3,250 $3,245 $3,501 Total gross loans, HFI1 2,116 2,144 2,164 2,276 Total deposits 2,856 2,796 2,777 3,015 % Core deposits2 98.5% 98.7% 98.4% 99.2% Loans-to-deposits 74.1% 76.7% 77.9% 75.5% Adjusted ROAA4 1.20% 1.55% 1.78% 1.00% Adjusted ROATCE4 13.0% 16.7% 18.3% 10.5% Cost of deposits 0.17% 0.21% 0.29% 0.19% NIM5 4.01% 4.25% 4.38% 3.79% Yield on loans 5.09% 5.35% 5.51% 4.86% Efficiency ratio5 57.7% 54.3% 53.1% 62.6% NCOs / loans 0.15% 0.23% 0.07% 0.05% Originated NCOs / loans3 0.14% 0.17% 0.04% 0.02% NPLs / gross loans 1.04% 0.74% 0.88% 0.61% Originated NPLs / loans3 0.85% 0.54% 0.54% 0.43% NPAs / Loans + OREO 1.81% 1.18% 1.11% 0.81% Originated NPAs / Loans + OREO 1.17% 0.61% 0.59% 0.48% CET1 (%) 12.1% 12.7% 12.2% 12.4% Financial highlights ($mm) Balance sheet Key performance i ndicators Credit & capital Loan composition Note: Financial data as of and for the three months ended June 30, 2020 unless otherwise indicated; 1 Gross loans includes loans before allowance for loan losses; excludes loans held for sale; 2 Core deposits defined as all deposits excluding time deposits of $250,000 or more and brokered deposits; for reconciliation with GAAP metric, see “Non-GAAP reconciliations”; 3 Originated loans represent loans initially originated by the Company and acquired loans that were refinanced using the Company’s underwriting criteria; metrics derived from originated loan data are non-GAAP metrics; for a reconciliation with GAAP metrics, see “Non-GAAP reconciliations”; 4 Metric based on adjusted net income, which is a non-GAAP metric; for reconciliation with GAAP metric, see “Non-GAAP reconciliations”; net income presented on C- Corporation equivalent basis; 5 Tax-equivalent basis metric; for reconciliation with GAAP metric, see “Non-GAAP reconciliations” Commercial Regulatory CRE Deposit composition Noninterest- bearing demand 29% Interest- bearing demand 29% Money Market 16% Savings 16% Time 10% |
| Experienced executive management team with deep community ties Fred L. Drake Chairman and CEO 37 years with Company 40 years in industry J. Lance Carter President and Chief Operating Officer 18 years with Company 26 years in industry Patrick F. Busch Chief Lending Officer, President of Heartland Bank 25 years with Company 42 years in industry Matthew J. Doherty Chief Financial Officer 10 years with Company 28 years in industry Lawrence J. Horvath Senior Regional Lender, Heartland Bank 10 years with Company 34 years in industry Larry J. Kallembach Chief Information Officer 4 years with Company 42 years in industry Mark W. Scheirer Chief Credit Officer 9 years with Company 28 years in industry Andrea E. Zurkamer Chief Risk Officer 7 years with Company 20 years in industry Diane H. Lanier Chief Retail Officer 23 years with Company 35 years in industry 4 |
| Our history Fred Drake named President and CEO of Heartland Bank and Trust Company and led its entry into Bloomington-Normal 1992 1964 - 1982 George Drake purchases El Paso National Bank and assembles group of banks in rural communities in Central IL M.B. Drake starts bank in Central IL 1920 HBT Financial, Inc. incorporated as a multi- bank holding company owning three banks 1982 1997 All five banks owned by HBT Financial, Inc. were merged into Heartland Bank and Trust Company Wave of FDIC- assisted and strategic acquisitions, including expansion into the Chicago MSA 2010-2015 Acquisition of Lincoln S.B. Corp (State Bank of Lincoln) 20181 Company crosses $1bn in assets 2007 1999 - 2008 Entry into several new markets in Central IL through de novo branches and acquisitions 1 Although the Lincoln Acquisition is identified as an acquisition above, the transaction was accounted for as a change of reporting entity due to its common control with the Company 2019 Completed IPO in October 5 |
| Our markets Company branches outside of Chicago MSA Company branches in Chicago MSA Lake Kane DeKalb Cook Will Kendall LaSalle Bureau Grundy Ford McLean De Witt Logan Tazewell Peoria Marshall Woodford Champaign Exposure to mid-sized markets and the Chicago MSA Branch locations Chicago MSA 34% Mid-sized markets 66% Deposits Chicago MSA 50% Mid-sized markets 50% Loans Chicago MSA 33% Mid-sized markets 67% Branches $2.3bn $3.0bn 63 branches Note: Financial data as of June 30, 2020 6 |
| Our core operating principles Continue disciplined growth ◼ Grow conservatively in our core mid-sized markets and in the Chicago MSA via organic channels and through M&A ◼ Pursue strategically compelling and financially attractive growth opportunities that are consistent with our culture Uphold our Midwestern values ◼ Long-time family-owned bank that demonstrates our values through hard work, perseverance, and doing the right thing ◼ Committed to all stakeholders, including our customers, employees, communities, and shareholders Prioritize safety and soundness ◼ Preserve asset quality through prudent underwriting standards ◼ Robust compliance management framework emphasizing sound governance practices ◼ Protect stable core deposit base through excellent customer service Maintain strong profitability ◼ Consistently generate strong earnings throughout various economic cycles, supported by: ◼ Leading deposit share in our core markets ◼ Underwriting attractively priced loans ◼ Robust credit risk management framework ◼ Diversified sources of fee income 7 |
| Business strategy ◼ Drake family involved in Central IL banking since 1920 ◼ Management lives and works in our communities ◼ Community banking and relationship-based approach stems from adherence to our Midwestern values ◼ Committed to providing products and services to support the unique needs of our customer base ◼ Nearly all loans originated to borrowers domiciled within 60 miles of a branch ◼ Robust underwriting standards will continue to be a hallmark of the Company ◼ Maintained sound credit quality and minimal originated problem asset levels during the Great Recession ◼ Diversified loan portfolio primarily within footprint ◼ Underwriting continues to be a strength as evidenced by only 4bps NCOs on loans originated by the Company in 20191 ◼ Positioned to be the acquirer of choice for many potential partners in and adjacent to our existing markets ◼ Successful integration of 8 community bank acquisitions in the last 13 years ◼ Chicago MSA, in particular, has ~100 banking institutions with less than $1bn in assets ◼ 1.78 ROAA%2 and 4.38% NIM3 in 2019, well above peer medians ◼ Highly profitable through the Great Recession ◼ Highly defensible market position (Top 3 deposit market share rank in 6 of 7 largest core mid-sized markets in Central Illinois) that contributes to our strong core deposit base and funding advantage ◼ Continue to deploy our excess deposit funding (75% loan-to-deposit ratio) into attractive loan opportunities in larger, more diversified markets ◼ Efficient decision-making process provides a competitive advantage over the larger and more bureaucratic money center and super regional financial institutions that compete in our markets Preserve strong ties to our communities Deploy excess deposit funding into loan growth opportunities Maintain a prudent approach to credit underwriting Pursue strategic acquisitions and sustain strong profitability 1 Originated loans represent loans initially originated by the Company and acquired loans that were refinanced using the Company’s underwriting criteria; metrics derived from originated loan data are non-GAAP metrics; for a reconciliation with GAAP metrics, see "Non-GAAP reconciliations“; 2 Metrics based on adjusted net income, which is a non-GAAP metric; for reconciliation with GAAP metrics, see “Non-GAAP reconciliations”; net income presented on C-Corporation equivalent basis; 3 Metrics presented on tax equivalent basis; peer metrics shown FTE where available; for reconciliation with GAAP metric, see “Non-GAAP reconciliations” Small enough to know you, big enough to serve you 8 |
| Q2 2020 highlights Continued disciplined growth ◼ Total assets increased $288 million, or 9%, from the linked quarter, driven by strong deposit growth and the addition of $178 million of PPP loans ◼ Total deposits increased by $284 million, or 10%, from the linked quarter, as cost of total deposits declined by 9 basis points to just 0.14% ◼ Loan-to-deposits ratio decreased to 75% from 78% in 1Q20 Upheld Midwestern values ◼ Supported clients through waiving or refunding certain deposit fees, loan deferrals and PPP loans ◼ Placed the health of customers and employees first by implementing enhanced cleaning protocols and other safety measures at all locations Maintained strong profitability ◼ Net income of $7.4 million, or $0.27 per diluted share; return on average assets (ROAA) of 0.86%; and return on average tangible common equity (ROATCE)(1) of 9.29% ◼ Adjusted net income(1) of $8.2 million; or $0.30 per diluted share, adjusted ROAA(1) of 0.95%; and adjusted ROATCE(1) of 10.29% Prioritized safety and soundness ◼ Nonperforming loans totaled $14.0 million, or 0.61% of total loans, compared with $15.4 million, or 0.72% of total loans, at 1Q20, and $25.1 million, or 1.14% of total loans, at 2Q19 ◼ Recorded net recoveries of $63 thousand, delinquencies declined, nonperforming assets declined, a relatively small number of borrowers required a second deferral, and over 60% of loans modified due to a COVID-19 financial hardship have returned to regular payments 1 See "Reconciliation of Non-GAAP Financial Measures" below for reconciliation of non-GAAP financial measures to their most comparable GAAP financial measures. 9 |
| Near-Term Outlook ◼ Active participant in the Paycheck Protection Program (PPP); through June 30, 2020: ➢ Approved and funded $184 million of PPP loans to 2,245 businesses representing approximately 24,000 employees ➢ Average loan size of $82,000 and median loan size of $25,000 ➢ Fees of $7.5 million collected or expected on loans funded ◼ Loan pipelines are lower year-over-year and near-term loan growth (excluding the impact of PPP loans) is expected to be flat to a slight decline ◼ NIM pressure (excluding the impact of PPP loans and excess liquidity) is expected to moderate in Q3 2020 ◼ Unless economic conditions and outlook worsen, we expect a smaller provision for loan losses in the second half of 2020 compared to the first half of 2020 ◼ Service charges on deposit accounts are expected to improve in the second half of 2020, but still be below 2019 levels ◼ Mortgage banking profits are expected to remain strong in Q3 2020 based on current pipelines and premiums ◼ Noninterest expenses are expected to decline modestly from Q2 2020 levels in Q3 2020 ◼ Conservative underwriting philosophy helps to mitigate near-term asset quality pressure and current credit metrics remain solid ◼ As an emerging growth company relying on the extended transition period for new or revised accounting standards, the Current Expected Credit Loss (CECL) standard will be effective for the company in 2023 ◼ We believe our strong capital levels and continued earnings should allow the company to continue supporting clients and its current cash dividend 10 |
| Investment highlights 4 1 2 3 5 Track record of successfully integrating acquisitions Consistent performance through cycles Leading market position in core mid-sized markets, with growth opportunity in the Chicago MSA Stable, low-cost deposit base Prudent risk management 11 |
| Company’s performance compares favorably to peers . . . Cost of deposits 0.29% 0.84% Yield on loans 5.51% 5.27% Net interest margin (tax equivalent basis)2 4.38% 3.80% 77.9% 92.4% Loans-to-deposits 53.1% 56.8% Efficiency ratio (tax equivalent basis)2 Source: S&P Global Market Intelligence Note: Financial data as of and for the twelve months ended December 31, 2019; Peer data as of and for the twelve months ended December 31, 2019 (as available as of May 15, 2020) 1 Represents 30 high performing major exchange-traded banks headquartered in the Midwest with $1.5-10bn in assets, core return on average assets greater than 1.10% and non-performing assets-to- assets less than 2.00% for the year ended December 31, 2019; 2 Metrics presented on tax equivalent basis; peer metrics shown FTE where available; for reconciliation with GAAP metric, see “Non- GAAP reconciliations”; 3 Metrics based on adjusted net income, which is a non-GAAP metric; for reconciliation with GAAP metric, see “Non-GAAP reconciliations”; net income presented on C- Corporation equivalent basis Company High-performing peers1 1.78% 1.49% Adjusted ROAA3 18.3% 14.9% Adjusted ROATCE3 1 2019 Performance 12 |
| . . . and has been sustained through cycles . . . Drivers of profitability Pre-tax return on average assets (%) 0.00% 0.25% 0.50% 0.75% 1.00% 1.25% 1.50% 1.75% 2.00% 2.25% 2.50% 2.75% 3.00% 2006 2007 2008 2009 2010 2011¹ 2012¹ 2013¹ 2014 2015 2016 2017 2018 2019 Source: S&P Global Market Intelligence; For January 1, 2006 through June 30, 2012, the Company’s pre-tax ROAA does not include Lincoln S.B. Corp. and its subsidiaries; 1 This non-GAAP presentation adjusts HBT’s pre-tax ROAA to exclude the following significant non-recurring items in the following years: 2011: $25.4 million bargain purchase gains; 2012: $11.4 million bargain purchase gains, $9.7 million net realized gain on securities, and $6.7 million net positive adjustments on FDIC indemnification asset and true-up liability; 2013: $9.1 million net realized loss on securities and $6.9 million net loss related to the sale of branches; 2 Represents 30 high performing major exchange-traded banks headquartered in the Midwest with $1.5-10bn in assets, core return on average assets greater than 1.10% and non-performing assets-to-assets less than 2.00% for the year ended December 31, 2019 Strong, low-cost deposits supported by our leading market share in core mid-sized markets 1 Relationship-based business model that has allowed us to cultivate and underwrite attractively priced loans A robust credit risk management framework to prudently manage credit quality Diversified sources of fee income, including in wealth management 4 Company Adjusted1 Company High Performing Peer Median2 Consistent outperformance, even during periods of broad economic stress 1 2 3 13 |
| . . . driving compelling tangible book value growth Tangible book value per share over time ($ per share)1 1 For reconciliation with GAAP metric, see “Non-GAAP reconciliations”; 2 In 2019, HBT Financial issued and sold 9,429,794 shares of common stock at a price of $16 per share. Total proceeds received by the Company, net of offering costs, were $138.5 million and were used to fund a $170 million special dividend to stockholders of record prior to the initial public offering. Amount reflects dilution per share attributable to newly issued shares in initial public offering (IPO) and special dividend payment. For reconciliation with GAAP metric, see “Non-GAAP reconciliations” 3 Excludes dividends paid to S Corp shareholders for estimated tax liability prior to conversion to C Corp status on October 11, 2019. Excludes $170 million special dividend funded primarily from IPO proceeds. For reconciliation with GAAP metric, see “Non-GAAP reconciliations” 1 $4.69 $5.38 $6.10 $6.91 $10.15 $12.56 $12.93 $14.72 $15.33 $16.25 $16.23 $17.27 $17.80 $10.54 $11.12 $11.68 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 3Q19 3Q19 2019 2Q20 IPO Diultion2 $(7.26) IPO Adjusted2 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 3Q19 3Q19 2019 2Q20 $0.30 $0.20 $0.40 $0.60 $0.79 $1.53 $1.76 $2.03 $2.37 $3.21 $5.01 $5.88 $7.83 Cumulative effect of dividends paid ($ per share)3 14 |
| Leading market position in core mid-sized markets . . . Top 3 deposit share rank in 6 of 7 largest core mid-sized markets in Central Illinois Company Market County % of Company deposits Deposits ($mm) Branches Market share Rank Population (000) Money Center share1 McLean $508 9 16.6% 2 172 13.0% DeKalb 334 7 14.2% 4 105 – Tazewell 228 7 8.2% 2 133 – Logan 226 4 38.6% 1 29 – Woodford 209 7 28.5% 2 39 – Cook 198 2 0.1% 57 5,197 38.5% Bureau 192 4 20.7% 1 33 – De Witt 157 3 37.9% 2 16 – Other Counties 721 21 Company market share by county 26% 6% 7% 7% 8% 8% 8% 12% 18% Note: Data as of June 30, 2019 Source: S&P Global Market Intelligence; Note: Analysis excludes deposits from non-retail branches; McLean County excludes State Farm Bank given its lack of retail banking locations 1 Money Center banks include Chase, Bank of America, Wells Fargo, and Citibank Shaded counties denote Company’s top mid-sized markets by deposit share 2 15 |
| Loans within the Chicago MSA ($mm) CAGR of 6.8% .. . . with growth opportunity in the Chicago MSA ◼ Entered market in 2011 with acquisition of Western Springs National Bank ◼ Chicago MSA is home to >9.5mm residents, with an annual GDP >$675bn ◼ Second largest MSA in the country for middle market businesses1 ◼ In-market disruption from recent bank M&A in Chicago MSA has provided attractive source of local talent ◼ Scale and diversity of Chicago MSA provides continued growth opportunities, both in lending and deposits ◼ Match-funded loan growth as evidenced by 110% loan-to-deposit ratio within the Chicago MSA ◼ Loan growth in Chicago MSA spread across a variety of commercial asset classes, including multifamily, mixed use, industrial, retail, and office Overview Chicago MSA comprises a major component of our business . . . 34% of deposits 50% of loans 33% of branches .. . . and continues to grow Note: Financial data as of June 30, 2020 unless otherwise indicated 1 Middle market firms are defined as businesses with revenues between $10mm and $1bn 2 897 900 941 1,021 1,063 68 2016 2017 2018 2019 2Q20 Non-PPP Chicago MSA PPP Chicago MSA CAGR of 4.9% ex. PPP loans 16 |
| 18% 20% 10% 18% 2016 2Q19 2016 1Q19 0.17% 0.16% 0.16% 0.15% 0.17% 0.17% 0.18% 0.17% 0.17% 0.20% 0.24% 0.24% 0.29% 0.30% 0.29% 0.26% 0.23% 0.14% 0.25% 0.24% 0.27% 0.27% 0.26% 0.30% 0.35% 0.36% 0.40% 0.51% 0.63% 0.70% 0.77% 0.87% 0.89% 0.83% 0.70% 0.43% Company cost of deposits High performing peers cost of deposits Stable, low-cost deposit base . . . Cost of deposits remains considerably below peers Source: S&P Global Market Intelligence Note: Financial data as of and for the three months ended June 30, 2020 unless otherwise indicated; Peer data as of and for the three months ended June 30, 2020 (as available as of August 17, 2020); 1 Represents 30 high performing major exchange-traded banks headquartered in the Midwest with $1.5-10bn in assets, core return on average assets greater than 1.10% and non-performing assets-to-assets less than 2.00% for the year ended December 31, 2019 Historical time deposit composition (%) 1 Company High performing peers1 (8%) (2%) 2Q20 2Q20 3 17 |
| 3.72% 3.83% 3.71% 3.37% 2017 2018 2019 1Q20 2Q20 3.80% .. . . has supported NIM trends FTE NIM1 Source: S&P Global Market Intelligence; Note: Peer group NIMs shown on FTE basis when available; (data for peers as available through August 17, 2020); 1 Tax-equivalent basis metric; for reconciliation with GAAP metric, see “Non-GAAP reconciliations”; 2 Represents 30 high performing major exchange-traded banks headquartered in the Midwest with $1.5-10bn in assets, core return on average assets greater than 1.10% and non-performing assets-to-assets less than 2.00% for the year ended December 31, 2019 GAAP NIM Company High performing peers2 Accretion of acquired loan discounts contribution to Company GAAP NIM 3 5bps 7bps 13bps 16bps 1bp 3.83% 4.16% 4.31% 4.00% 3.49% 4.01% 4.25% 4.38% 4.06% 3.55% 2017 2018 2019 1Q20 2Q20 ◼ The 150 basis point reduction in the target federal funds rate in March 2020 pressured the net interest margin in 2Q20 ◼ Approximately 15 basis points of the decline in NIM during 2Q20 was due to excess liquidity that was used to fund the PPP loans and held in overnight funds at the Federal Reserve ◼ 45% of the loan portfolio matures or reprices within the next 12 months ◼ Loan mix is 62% fixed rate and 38% variable rate; 50% of variable rate loans have floors and 79% of those loans have hit their floors 18 |
| Track record of successfully integrating acquisitions BankPlus Morton, IL $231mm deposits 2007 2012 Bank of Illinois Normal, IL FDIC-assisted $176mm deposits Western Springs National Bank Western Springs, IL FDIC-assisted $184mm deposits 2011 Citizens First National Bank Princeton, IL FDIC-assisted $808mm deposits 2018 Farmer City State Bank Farmer City, IL $70mm deposits 2015 2010 Bank of Shorewood Shorewood, IL FDIC-assisted $105mm deposits National Bancorp, Inc. (American Midwest Bank) Schaumburg, IL $447mm deposits Lincoln S.B. Corp (State Bank of Lincoln)1 Lincoln, IL $357mm deposits 1 Although the Lincoln Acquisition is identified as an acquisition in the above table, the transaction was accounted for as a change of reporting entity due to its common control with Company 4 19 |
| Prudent risk management Framework and key policies Balance sheet composition as of June 30, 2020 Originated and acquired loans1 ($mm) ◼ Risk management culture instilled by management ◼ Well-diversified loan portfolio across commercial, regulatory CRE, and residential ◼ Primarily originated across in-footprint borrowers with 93% of portfolio originated by HBT team (vs. acquired) ◼ Centralized credit underwriting group that evaluates all exposures over $500,000 to ensure uniform application of policies and procedures ◼ Conservative credit culture, strong underwriting criteria, and regular loan portfolio monitoring Loans Cash & securities Other assets Noninterest- bearing deposits Interest-bearing deposits Borrowings Other liabilities Equity 75% L/D ratio Historical net charge-offs (%) 1 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 Lincoln Bank; originated loan CAGR excludes PPP loans 5 1,689 1,825 1,924 1,998 1,954 417 291 220 165 144 2016 2017 2018 2019 2Q20 Originated Originated - PPP Acquired 178 4.3% Originated Loan CAGR 0.23% 0.15% 0.23% 0.07% 0.05% 0.08% 0.14% 0.17% 0.04% 0.02% 2016 2017 2018 2019 1H20 NCOs / Loans Originated NCOs / Originated Loans¹ 20 |
| Impact of COVID-19 in Illinois Source: U.S. CDC, Johns Hopkins Coronavirus Resource Center, the Illinois Department of Public Health (IDPH), and Illinois.gov; COVID-19 case data is as of or through August 17, 2020 Cumulative COVID-19 Cases in Illinois ◼ Illinois is averaging approximately 1,700 new COVID-19 cases each day thus far in August. That’s about 550 more new infections per day compared to July, when an average of 1,150 new cases were being confirmed daily but still down from peak levels in May ◼ With COVID-19 metrics headed in the right direction, Illinois entered Phase 4 of its reopening plan on June 26th ➢ Allows restaurants and bars to open for indoor dining at fractional capacity and gatherings of up to 50 people ➢ Gyms, movie theaters, casinos, and video game establishments are also allowed to operate ◼ Illinois has declined from the state with the third highest number of cumulative COVID-19 cases in May to number six after CA, FL, TX, NY and GA ◼ 56% of Illinois’ cumulative COVID-19 cases are in Cook County ◼ The impact of COVID-19 is more moderate in markets outside Cook County and adjacent counties ◼ Illinois is only likely to transition to Phase 5 of its reopening plan, a full reopening, when a vaccine or highly effective COVID-19 treatment is available ➢ All sectors reopen in Phase 5 with businesses, schools, and recreation resuming normal operations and festivals and large events permitted to take place ◼ Illinois may return to Phase 3 if there is a resurgence in COVID-19 cases ➢ Manufacturing, offices, retail, barbershops and salons would be open to the public, but with capacity restrictions and gatherings limited to 10 people or fewer. Bars and restaurants would be allowed to remain open for delivery, carry-out, and drive through service only. 0 50,000 100,000 150,000 200,000 250,000 2/28 3/31 4/30 5/31 6/30 7/31 8/17 COVID-19 Cases in the last 7 Days in Select U.S. States 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 CA TX FL GA IL 21 |
| COVID-19: Customer, Community, and Employee Support Efforts Initial Response ◼ Business Continuity Plan (BCP) activated ◼ Executive leaders began meeting daily to discuss COVID-19 considerations ◼ Enhanced disinfecting and cleaning protocols implemented at all facilities Customer and Community Initiatives ◼ Keeping customers updated via our COVID-19 Response web page and email communications ◼ Offering loan payment deferrals to customers experiencing financial hardship due to COVID-19 ◼ Participating in the SBA’s Paycheck Protection Program (PPP) ◼ Selectively waiving or refunding overdraft and ATM fees, as well as time deposit early withdrawal penalties, to customers experiencing financial hardship due to COVID-19 ◼ Maintaining regular business hours at branches and the call center to serve customers ◼ Reopened branch lobby service in all but one location by July 13, 2020 ◼ Providing faster turnaround for increased online deposit account opening demand ◼ Providing access to 20+ digital courses for students in grades K-12 on critical topics including financial education, mental wellness, compassion, digital wellness, and more Employee Programs ◼ Executive leaders and HR department communicating frequently with employees around COVID-19 risks, including the addition of an employee reference page on Company intranet ◼ Enabling work from home for many employees and adjusting branch services to ensure a safe environment ◼ Social distancing employees who need to report to the office, postponing nonessential travel and group training events, and mandating meetings be held by conference call ◼ Providing employees and their families access to a free confidential counseling service ◼ No layoffs or furloughs 22 |
| Paycheck Protection Program (PPP) Details PPP Loan Originations during the Three Months Ended June 30, 2020 PPP Loans by Portfolio as of June 30, 2020 Portfolio Balance ($000) Commercial and industrial $166,868 Agricultural and farmland 4,027 Municipal, consumer, and other 7,063 Total PPP Loans $177,958 ◼ Originated $184 million of PPP loans during the three months ended June 30, 2020 ◼ PPP loan balances, net of deferred origination fees, totaled $178 million (8% of total loans) as of June 30, 2020 ◼ Net deferred origination fees on PPP loans totaled $6.2 million as of June 30, 2020 ◼ Fee income of $7.5 million amortized over life of loan; accelerated upon forgiveness or repayment ◼ Direct origination costs of $0.5 million reduced primarily salaries and benefits expenses during the three months ended June 30, 2020 ◼ Net deferred origination fees on PPP loans of $0.9 million were recognized as loan interest income during the three months ended June 30, 2020 ◼ PPP loans support an estimated 24,000 jobs By Loan Size Count Loan Amount ($000) Fee Percentage Origination Fee ($000) Less than $350,000 2,149 $107,833 5.0% $5,392 Over $350,000, but less than $2,000,000 94 69,254 3.0% 2,077 Over $2,000,000 2 7,085 1.0% 71 Total 2,245 $184,172 $7,540 23 |
| 191 247 58 49 5 $128 $128 $13 $14 $2 March April May June July 17 Number Balance as of July 17 COVID-19 Related Loan Modifications 1 Includes non-owner occupied CRE, construction and land development, and multi-family 2 Includes commercial and industrial and owner-occupied CRE 3 Original month modified Loan Modifications as of July 17, 2020 ($mm) Portfolio Number of Loans Modified Balance with Modification June 30, 2020 Portfolio Balance Percentage Modified Commercial Real Estate1 161 $175.5 $969.4 18.1% Commercial2 183 85.0 636.8 13.3% Agriculture and Farmland 7 4.2 239.1 1.7% 1-4 Family Residential 168 19.6 308.1 6.4% Municipal, Consumer, & Other 31 0.6 122.4 0.5% Total 550 $284.9 $2,275.8 12.5% ◼ Substantially all loan modifications were for a three-month interest-only period or a one-month payment deferral ◼ 66% of the balances modified were granted interest-only payments and 34% of the balances modified were granted a full payment deferral Monthly Loan Modification Trends3 ($mm) Current Status of Modified Loans as of July 17, 2020 ($mm) Number Balance Percentage Returned to Regular Payments 317 $172.7 60.6% Received Additional Modification 31 29.2 10.3% Still in Original Modification 202 83.0 29.1% Total 550 $284.9 ◼ Majority of loans still in original modification are expected to return to regular payments during Q3 2020 24 |
| Loan Portfolio Overview: Commercial Real Estate ◼ $969 million portfolio as of June 30, 2020 ➢ $535 million in non-owner occupied CRE primarily supported by rental cash flow of the underlying properties ➢ $248 million in construction and land development loans primarily to developers to sell upon completion or for long-term investment ➢ $186 million in multi-family loans secured by 5+ unit apartment buildings ◼ Vast majority of loans originated to experienced real estate developers within our markets ◼ Guarantees required on majority of originated loans Multi-Family 28% Retail 14% Warehouse/ Manufacturing 13% Office 12% Senior Living Facilities 9% 1-4 Family Construction 7% Land and Lots 5% Medical 3% Hotels 3% Auto Repair & Dealers 2% Other* 4% Commercial Real Estate Loan Mix * Includes restaurant/bar exposure of $11.0 million or 1.1% of CRE loans 25 |
| Loan Portfolio Overview: Commercial ◼ $408 million C&I loans outstanding as of June 30, 2020 ➢ For working capital, asset acquisition, and other business purposes ➢ Underwritten primarily based on borrower’s cash flow and majority further supported by collateral and personal guarantees; loans based primarily in-market ◼ $229 million owner-occupied CRE outstanding as of June 30, 2020 ➢ Primarily underwritten based on cash flow of business occupying properties and supported by personal guarantees; loans based primarily in-market ◼ Balances on existing lines of credit were $58.4 million lower at June 30, 2020 compared to March 31, 2020 and $45.8 million lower compared to June 30, 2019 Auto Repair & Dealers 15% Health Care and Social Assistance 15% Other 12% Real Estate and Rental and Leasing 11% Wholesale Trade 10% Construction 8% Arts, Entertainment, and Recreation 7% Retail Trade- Other 6% Professional, Scientific, and Technical Services 5% Manufacturing 4% Restaurants and Bars 4% Finance and Insurance 3% Commercial Loan Mix1 1 Commercial loan mix excludes $167 million in PPP loans 26 |
| Loan Portfolio Overview: Agriculture and Farmland ◼ $239 million portfolio as of June 30, 2020 ➢ 57% real estate loans secured by farmland ➢ 41% production, of which most is corn and soybeans ➢ 2% PPP loans ◼ Federal crop insurance programs mitigate production risks ◼ No customer accounts for more than 4% of ag portfolio ◼ Over 70% of agricultural borrowers have been with the Company for at least 10 years, and nearly half for more than 20 years Agriculture and Farmland Loan Mix1 Farmland 58% Crops 35% Equipment finance 4% Livestock 3% 1 Agriculture and Farmland loan mix excludes $4 million in PPP loans 27 |
| Loan Portfolio Overview: 1-4 Family Residential Mortgage ◼ $308 million in-house portfolio as of June 30, 2020 1st Mortgages Non-owner Occupied 48% HELOCs and 2nd Mortgages 27% 1st Mortgages Owner Occupied 25% 1-4 Family Residential Loan Mix ◼ $1.09 billion sold to the secondary market with servicing retained as of June 30, 2020 ◼ Loan modifications related to COVID-19 offered in the form of forbearance ➢ As of July 17, 2020, made 182 loan modifications for $22 million which represents 2% of the June 30, 2020 secondary market residential portfolio ◼ Q3 2020 residential mortgage origination volume is expected to remain elevated with increased gain on sale due to strong refinance activity In-house 1-4 Family Residential Mortgage Portfolio Secondary Market 1-4 Family Residential Mortgage Portfolio Residential Mortgage Loan Origination Volume ($mm) $0 $20 $40 $60 $80 $100 $120 $140 2Q19 3Q19 4Q19 1Q20 2Q20 28 |
| Loan Portfolio Overview: Asset Quality and Reserves ◼ At June 30, 2020, non-performing assets were $18.4 million, or 0.53% of total assets compared to $24.1 million, or 0.74% of total assets at December 31, 2019 ◼ Net charge-offs were $0.5 million, or 0.05% on an annualized basis for the six months ended June 30, 2020 ◼ Substandard loans increased $24.5 million to $92.8 million and Watch loans increased $26.2 million to $150.1 million as of June 30, 2020 when compared to March 31, 2020 Non-performing assets/ Total assets % and Net charge-off % ◼ Allowance for loan losses totaled $29.7 million, or 1.31% of loans before allowance, at June 30, 2020 compared to $22.3 million, or 1.03% at December 31, 2019 ◼ Excluding $178 million of PPP loans, the ALLL ratio is 1.42% ◼ Allocation for the quarter ended June 30, 2020 included $3.7 million of reserve build related to changes in certain qualitative factors for loan portfolios that we believe could be impacted by COVID-19, which brought our total COVID-19 reserve build to $7.0 million ◼ In addition to our allowance for loan losses, we had $3.0 million in credit-related discounts on acquired loans at June 30, 2020 which is unchanged from March 31, 2020 Asset quality impact from COVID-19 is modest so far Augmenting allowance for loan losses Allowance for loan losses to total loans (%) 1.16 1.17 0.78 0.74 0.53 0.23 0.15 0.23 0.07 0.05 2016 2017 2018 2019 1H20 NPAs/ Total Assets % NCO % 0.94 0.93 0.96 1.03 1.31 2016 2017 2018 2019 2Q20 29 |
| 1 For reconciliation with GAAP metric, see “Non-GAAP reconciliations” Capital and Liquidity Overview CET 1 Risk-based Capital Ratio (%) Leverage Ratio (%) Tangible Common Equity to Tangible Assets (%)1 Liquidity Sources ($000) 12.21 12.09 12.71 12.15 12.43 2016 2017 2018 2019 2Q20 9.93 9.94 10.80 10.38 10.00 2016 2017 2018 2019 1Q20 8.94 8.94 9.67 9.49 9.23 2016 2017 2018 2019 2Q20 Liquidity Source As of 6/30/20 Balance of Cash and Cash Equivalents $314,365 Market Value of Unpledged Securities 434,327 Available FHLB Advance Capacity 335,687 Available Fed Fund Lines of Credit 90,000 Total Estimated Liquidity $1,174,379 30 |
| Securities Portfolio Overview ◼ Company owns debt securities with a total carrying value of $775mm, consisting primarily of the following types of fixed income instruments: ◼ Agency MBS: MBS pass-throughs, CMOs, and Agency CMBS ◼ Municipal Bonds: weighted average NRSRO credit rating of AA/Aa2 ◼ Corporate Bonds: AAA covered bonds, Supra Sovereign Debt, and Investment Grade Corporate and Bank Subordinate Debt ◼ Government Agency Debentures and SBA-backed Full Faith and Credit Debt ◼ Investment strategy focused on increasing returns on excess liquidity while minimizing volatility of GAAP equity from mark-to-market changes in Accumulated Other Comprehensive Income ◼ Company emphasizes predictable cash flows that limit faster prepayments when rates decline or extended durations when rates rise ◼ Current portfolio performance outperforms peers with higher average book yield, greater unrealized gains, lower duration (market value sensitivity) and superior convexity Financial data as of June 30, 2020 31 Available for Sale Held to Maturity Balance: $701mm Yield: 2.33% Balance: $74mm Yield: 2.98% ($000) AFS HTM Total Amortized Cost $679,264 $73,823 $753,087 Fair Value 701,353 78,317 779,670 Unrealized Gain/(Loss) 22,089 4,494 26,583 Book Yield 2.33% 2.98% 2.39% Effective Duration 3.42 3.61 3.44 Municipal 3.50% Agency RMBS 2.33% Agency CMBS 2.83% U.S. Gov’t Agencies 1.99% Municipal 2.41% Agency RMBS 1.88% Agency CMBS 2.48% Corporate 3.62% Overview Key investment portfolio metrics |
| Interest Rate Sensitivity Financial data as of June 30, 2020 Impact of Parallel Rate Shocks to Net Interest Income Impact of Parallel Rate Shocks to Economic Value of Equity 2.0% (3.6%) 8.7% 21.4% 31.5% Rates -100 Rates + 100 Rates + 200 Rates + 300 Rates + 400 (1.6%) 5.3% 11.1% 16.5% 21.5% (3.1%) 11.0% 21.4% 30.7% 39.0% Rates -100 Rates + 100 Rates + 200 Rates + 300 Rates + 400 Year 1 Net Interest Income Year 2 Net Interest Income 32 |
| Appendix 33 |
| Non-GAAP reconciliations Adjusted net income and adjusted ROAA ($000) 2017 2018 2019 2Q20 1H20 Net income $56,103 $63,799 $66,865 $7,419 $13,640 C-Corp equivalent adjustment 2 (18,809) (15,502) (13,493) -- -- C-Corp equivalent net income 2 $37,294 $48,297 $53,372 $7,419 $13,640 Adjustments: Net earnings (losses) from closed or sold operations, including gains on sale 1 1,712 (822) 524 -- -- Charges related to termination of certain employee benefit plans -- -- (3,796) (609) (1,457) Impairment losses related to closure of branches (1,936) -- -- -- -- Nonrecurring charge related to an employee benefits policy change (1,336) -- -- -- -- Expenses related to FDIC indemnification assets and liabilities (999) -- -- -- -- Realized gain (loss) on sales of securities (1,275) (2,541) -- -- -- Mortgage servicing rights fair value adjustment (315) 629 (2,400) (508) (2,679) Total adjustments (4,149) (2,734) (5,672) (1,117) (4,136) Tax effect of adjustments 1,685 779 1,617 318 1,179 Less adjustments after tax effect (2,464) (1,955) (4,055) (799) (2,957) Adjusted net income $39,758 $50,252 $57,427 $8,218 $16,597 Average assets $3,320,239 $3,247,598 $3,233,386 $3,453,149 $3,320,946 Return on average assets 1.69% 1.96% 2.07% 0.86%* 0.82%* C Corp equivalent return on average assets 1.12% 1.49% 1.65% N/A N/A Adjusted return on average assets 1.20% 1.55% 1.78% 0.95%* 1.00%* * 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 year. No such adjustment is necessary for periods subsequent to 2019. 34 |
| Non-GAAP reconciliations (cont’d) Average tangible common equity and adjusted ROATCE ($000) 2017 2018 2019 2Q20 1H20 Total stockholders’ equity $338,317 $330,214 $341,544 $346,540 $344,030 Less: goodwill (23,620) (23,620) (23,620) (23,620) (23,620) Less: core deposit intangible assets (7,943) (6,256) (4,748) (3,589) (3,743) Average tangible common equity $306,754 $300,338 $313,176 $319,331 $316,667 Net income $56,103 $63,799 $66,865 $7,419 $13,640 C Corp equivalent net income 1 37,294 48,297 53,372 N/A N/A Adjusted net income 39,758 50,252 57,427 8,218 16.597 Return on average stockholders’ equity 16.58% 19.32% 19.58% 8.56%* 7.93%* C Corp equivalent return on average stockholders’ equity 1 11.02% 14.63% 15.63% N/A N/A Adjusted return on average stockholders’ equity 11.75% 15.22% 16.81% 9.49%* 9.65%* Return on average tangible common equity 18.29% 21.24% 21.35% 9.29%* 8.61%* C Corp equivalent return on average tangible common equity 1 12.16% 16.08% 17.04% N/A N/A Adjusted return on average tangible common equity 12.96% 16.73% 18.34% 10.29%* 10.48%* * 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 year. No such adjustment is necessary for periods subsequent to 2019. 35 |
| Non-GAAP reconciliations (cont’d) ($000) 2016 2017 2018 2019 2Q20 1H20 Net interest income $121,101 $120,998 $129,442 $133,800 $28,908 $59,570 Tax equivalent adjustment 5,468 5,527 2,661 2,309 483 946 Net interest income (tax-equivalent basis) $126,569 $126,525 $132,103 $136,109 $29,391 $60,516 Average interest-earnings assets $3,131,763 $3,157,195 $3,109,289 $3,105,863 $3,315,561 $3,189,323 Net interest income (tax-equivalent basis) Net interest margin (tax-equivalent basis) * Annualized measure. (%) 2016 2017 2018 2019 2Q20 1H20 Net interest margin 3.87% 3.83% 4.16% 4.31% 3.49%* 3.74%* Tax equivalent adjustment 0.17% 0.18% 0.09% 0.07% 0.06%* 0.05%* Net interest margin (tax-equivalent basis) 4.04% 4.01% 4.25% 4.38% 3.55%* 3.79%* 36 |
| Non-GAAP reconciliations (cont’d) Efficiency ratio (tax-equivalent basis) ($000) 2017 2018 2019 2Q20 1H20 Total noninterest expense $94,057 $90,317 $91,026 $23,499 $46,806 Less: amortization of intangible assets (1,916) (1,559) (1,423) (305) (622) Adjusted noninterest expense $92,141 $88,758 $89,603 $23,194 $46,184 Net interest income $120,998 $129,442 $133,800 $28,908 $59,570 Total noninterest income 33,171 31,240 32,751 8,060 13,312 Operating revenue 154,169 160,862 166,551 36,968 72,882 Tax-equivalent adjustment 5,527 2,661 2,309 483 946 Operating revenue (tax-equivalent basis) $159,696 $163,343 $168,860 $37,451 $73,828 Efficiency ratio 59.77% 55.24% 53.80% 62.74% 63.37% Efficiency ratio (tax-equivalent basis) 57.70% 54.34% 53.06% 61.93% 62.56% 37 |
| Non-GAAP reconciliations (cont’d) ($000) 2016 2017 2018 2019 1H20 Net charge-offs $4,974 $3,082 $4,953 $1,614 $504 Net charge-offs (originated) 1 1,245 2,500 3,137 732 175 Net charge-offs (acquired) 1 3,729 582 1,816 882 329 Average loans, before allowance for loan losses $2,132,405 $2,091,863 $2,131,512 $2,178,897 $2,203,031 Average loans, before allowance for loan losses (originated) 1 1,611,846 1,748,418 1,873,623 1,981,658 2,050,377 Average loans, before allowance for loan losses (acquired) 1 520,559 343,445 257,889 197,239 152,654 Net charge-offs percentage 0.23% 0.15% 0.23% 0.07% 0.05%* Net charge-offs percentage (originated) 1 0.08% 0.14% 0.17% 0.04% 0.02%* Net charge-offs percentage (acquired) 1 0.72% 0.17% 0.70% 0.45% 0.43%* Originated and acquired NCOs / loans * Annualized measure; 1 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 and Trust Company or State Bank of Lincoln. 38 |
| 39 Non-GAAP reconciliations (cont’d) ($000) 2017 2018 2019 2Q20 Non-performing loans 2 $22,102 $15,913 $19,049 $13,952 Foreclosed assets 16,545 9,559 5,099 4,450 Non-performing assets 2 $38,647 $25,472 $24,148 $18,402 Loans, before allowance for loan losses $2,115,946 $2,144,257 $2,163,826 $2,275,795 Nonperforming loans to loans, before allowance for loan losses 1.04% 0.74% 0.88% 0.61% Nonperforming assets to loans, before allowance for loan losses and foreclosed assets 1.81% 1.18% 1.11% 0.81% Credit quality ratios ($000) 2017 2018 2019 2Q20 Non-performing loans $15,533 $10,366 $10,841 $9,066 Foreclosed assets 5,950 1,395 1,022 1,092 Non-performing assets $21,483 $11,761 $11,863 $10,158 Loans, before allowance for loan losses $1,825,129 $1,923,859 $1,998,496 $2,132,189 Nonperforming loans to loans, before allowance for loan losses 0.85% 0.54% 0.54% 0.43% Nonperforming assets to loans, before allowance for loan losses and foreclosed assets 1.17% 0.61% 0.59% 0.48% Credit quality ratios (originated) 1 Credit quality ratios (acquired) 1 ($000) 2017 2018 2019 2Q20 Non-performing loans 2 $6,569 $5,547 $8,208 $4,886 Foreclosed assets 10,595 8,164 4,077 3,358 Non-performing assets 2 $17,164 $13,711 $12,285 $8,244 Loans, before allowance for loan losses $290,817 $220,398 $165,330 $143,606 Nonperforming loans to loans, before allowance for loan losses 2.26% 2.52% 4.96% 3.40% Nonperforming assets to loans, before allowance for loan losses and foreclosed assets 5.69% 6.00% 7.25% 5.61% 1 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 and Trust Company or State Bank of Lincoln; 2 Excludes loans acquired with deteriorated credit quality that are past due 90 or more days, still accruing totaling $0.3 million as of December 31, 2017, $2.7 million as of December 31, 2018, $0.1 million as of December 31, 2019, and $0.1 million as of June 30, 2020. |
| Non-GAAP reconciliations (cont’d) Tangible book value per share and cumulative effect of dividends (2007 to 3Q19) ($mm) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 3Q19 Tangible book value per share Total equity $109 $120 $130 $143 $197 $262 $257 $287 $311 $326 $324 $340 $349 Less goodwill (23) (23) (23) (23) (23) (23) (12) (12) (24) (24) (24) (24) (24) Less core deposit intangible (9) (9) (7) (7) (7) (15) (11) (9) (11) (9) (7) (5) (4) Tangible common equity $77 $88 $99 $113 $167 $224 $233 $265 $276 $294 $293 $311 $321 Shares outstanding (mm) 16.47 16.28 16.30 16.33 16.45 17.84 18.03 18.03 18.02 18.07 18.07 18.03 18.03 Book value per share $6.65 $7.36 $7.95 $8.73 $12.00 $14.68 $14.23 $15.92 $17.26 $18.05 $17.92 $18.88 $19.36 Tangible book value per share $4.69 $5.38 $6.10 $6.91 $10.15 $12.56 $12.93 $14.72 $15.33 $16.25 $16.23 $17.27 $17.80 TBVPS CAGR (%) 12.0% Cumulative effect of dividends per share Cumulative regular dividends $-- $3 $7 $10 $13 $17 $22 $26 $33 $38 $46 $54 $62 Cumulative special dividends -- -- -- -- -- 10 10 10 10 20 45 52 79 Cumulative effect of dividends $-- $3 $7 $10 $13 $27 $32 $36 $43 $58 $91 $106 $141 Shares outstanding (mm) 16.47 16.28 16.30 16.33 16.45 17.84 18.03 18.03 18.02 18.07 18.07 18.03 18.03 Cumulative effect of dividends per share $-- $0.20 $0.40 $0.60 $0.79 $1.53 $1.77 $2.02 $2.36 $3.21 $5.01 $5.88 $7.83 40 |
| Non-GAAP reconciliations (cont’d) IPO adjusted tangible book value per share ($mm) IPO Adjusted 3Q19 2019 2Q20 Tangible book value per share Total equity $333 $347 Less goodwill (24) (24) Less core deposit intangible (4) (3) Tangible common equity $305 $321 Shares outstanding (mm) 27.46 27.46 Book value per share $12.12 $12.67 Tangible book value per share $10.54 $11.12 $11.68 TBVPS CAGR (%) 14.7% Tangible book value per share (IPO adjusted 3Q19 to 2Q20) ($000) 3Q19 Tangible common equity Total equity $348,936 Less goodwill (23,620) Less core deposit intangible (4,366) Tangible common equity 320,950 Net proceeds from initial public offering 138,493 Use of proceeds from initial public offering (special dividend) (169,999) IPO adjusted tangible common equity $289,444 Shares outstanding 18,027,512 New shares issued during initial public offering 9,429,794 Shares outstanding, following the initial public offering 27,457,306 Tangible book value per share $17.80 Dilution per share attributable to new investors and special dividend payment (7.26) IPO adjusted tangible book value per share $10.54 41 |
| Non-GAAP reconciliations (cont’d) ($000) 2016 2017 2018 2019 2Q20 Tangible common equity Total equity $326,246 $323,916 $340,396 $332,918 $347,840 Less goodwill (23,620) (23,620) (23,620) (23,620) (23,620) Less core deposit intangible (8,928) (7,012) (5,453) (4,030) (3,408) Tangible common equity $293,698 $293,284 $311,323 $305,268 $320,812 Tangible assets Total assets $3,317,124 $3,312,875 $3,249,569 $3,245,103 $3,501,412 Less goodwill (23,620) (23,620) (23,620) (23,620) (23,620) Less core deposit intangible (8,928) (7,012) (5,453) (4,030) (3,408) Tangible assets $3,284,576 $3,282,243 $3,220,496 $3,217,453 $3,474,384 Total stockholders’ equity to total assets 9.84% 9.78% 10.48% 10.26% 9.93% Tangible common equity to tangible assets 8.94% 8.94% 9.67% 9.49% 9.23% Tangible common equity to tangible assets 42 |
| Non-GAAP reconciliations (cont’d) ($000) 2017 2018 2019 2Q20 Total deposits $2,855,685 $2,795,970 $2,776,855 $3,015,113 Less time deposits of $250,000 or more (42,830) (36,875) (44,754) (24,602) Less brokered deposits -- -- -- -- Core deposits $2,812,855 $2,759,095 $2,732,101 $2,990,511 Core deposits to total deposits 98.50% 98.68% 98.39% 99.18% Core deposits 43 |
| HBT Financial, Inc. 44 |
