UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
⌧ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
◻ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-39085
HBT Financial, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 37-1117216 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| |
401 North Hershey Rd Bloomington, Illinois 61704 | (888) 897-2276 |
(Address of principal executive offices, | (Registrant’s telephone number, |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | HBT | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
| | | |
Non-accelerated filer | ☒ | Smaller reporting company | ☐ |
| | | |
Emerging growth company | ☒ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 31, 2020, there were 27,457,306 shares outstanding of the registrant’s common stock, $0.01 par value.
TABLE OF CONTENTS
HBT Financial, Inc.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this quarterly report are forward-looking statements. Forward-looking statements may include statements relating to our plans, strategies and expectations, the economic impact of the COVID-19 pandemic and our future financial results, near-term loan growth, net interest margin, mortgage banking profits, wealth management fees, expenses, asset quality, capital levels, continued earnings and liquidity. Forward looking statements are generally identifiable by use of the words "believe," "may," "will," "should," "could," "expect," "estimate," "intend," "anticipate," "project," "plan" or similar expressions. Forward looking statements are frequently based on assumptions that may or may not materialize and are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that could cause actual results to differ materially from the results anticipated or projected and which could materially and adversely affect our operating results, financial condition or prospects include, but are not limited to:
● | our asset quality and any loan charge-offs; |
● | the composition of our loan portfolio; |
● | time and effort necessary to resolve nonperforming assets and the loans modified or deferred as a result of the impact of the COVID-19 pandemic; |
● | the length and severity of the COVID-19 pandemic, and the effects of the COVID-19 pandemic, including the impact of the pandemic on our operations and the operations of our customers and the communities that we serve; |
● | environmental liability associated with our lending activities; |
● | the effects of the current low interest rate environment or changes in interest rates on our net interest income, net interest margin, our investments, and our loan originations, and our modeling estimates relating to interest rate changes; |
● | our access to sources of liquidity and capital to address our liquidity needs; |
● | our inability to receive dividends from our Banks, pay dividends to our common stockholders or satisfy obligations as they become due; |
● | the effects of problems encountered by other financial institutions; |
● | our ability to achieve organic loan and deposit growth and the composition of such growth; |
● | our ability to attract and retain skilled employees or changes in our management personnel; |
● | any failure or interruption of our information and communications systems; |
● | our ability to identify and address cybersecurity risks; |
● | the effects of the failure of any component of our business infrastructure provided by a third party; |
● | our ability to keep pace with technological changes; |
● | our ability to successfully develop and commercialize new or enhanced products and services; |
● | current and future business, economic and market conditions in the United States generally or in Illinois in particular; |
● | the geographic concentration of our operations in the State of Illinois; |
● | our ability to effectively compete with other financial services companies and the effects of competition in the financial services industry on our business; |
● | our ability to attract and retain customer deposits; |
● | our ability to maintain our Banks’ reputations; |
● | severe weather, natural disasters, pandemics, acts of war or terrorism or other external events; |
● | possible impairment of our goodwill and other intangible assets; |
● | the impact of, and changes in applicable laws, regulations and accounting standards and policies; |
● | our prior status as an S Corp; |
● | possible changes in trade, monetary and fiscal policies of, and other activities undertaken by, governments, agencies, central banks and similar organizations; |
● | the effectiveness of our risk management and internal disclosure controls and procedures; |
● | market perceptions associated with certain aspects of our business; |
● | the one-time and incremental costs of operating as a standalone public company; |
● | our ability to meet our obligations as a public company, including our obligations under Section 404 of Sarbanes-Oxley; |
● | damage to our reputation from any of the factors described above; and |
1
● | the factors discussed in “Risk Factors”, "Management's Discussion and Analysis of Financial Condition and Results of Operations" or elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2019. |
These risks and uncertainties, as well as the factors discussed under "Risk Factors," should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Forward-looking statements speak only as of the date they are made. We do not undertake any obligation to update any forward-looking statement in the future, or to reflect circumstances and events that occur after the date on which the forward-looking statement was made.
2
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
| (Unaudited) |
| | ||
| | September 30, | | December 31, | ||
| | 2020 | | 2019 | ||
| | (dollars in thousands) | ||||
ASSETS | | | | | | |
Cash and due from banks | | $ | 22,347 | | $ | 22,112 |
Interest-bearing deposits with banks | | | 214,377 | | | 261,859 |
Cash and cash equivalents | | | 236,724 | | | 283,971 |
| | | | | | |
Interest-bearing time deposits with banks | | | — | | | 248 |
Debt securities available-for-sale, at fair value | | | 814,798 | | | 592,404 |
Debt securities held-to-maturity (fair value of $78,891 in 2020 and $90,529 in 2019) | | | 74,510 | | | 88,477 |
Equity securities | | | 4,814 | | | 4,389 |
Restricted stock, at cost | | | 2,498 | | | 2,425 |
Loans held for sale | | | 23,723 | | | 4,531 |
Loans, net of allowance for loan losses of $31,654 in 2020 and $22,299 in 2019 | | | 2,247,985 | | | 2,141,527 |
Bank premises and equipment, net | | | 53,271 | | | 53,987 |
Bank premises held for sale | | | 121 | | | 121 |
Foreclosed assets | | | 3,857 | | | 5,099 |
Goodwill | | | 23,620 | | | 23,620 |
Core deposit intangible assets, net | | | 3,103 | | | 4,030 |
Mortgage servicing rights, at fair value | | | 5,571 | | | 8,518 |
Investments in unconsolidated subsidiaries | | | 1,165 | | | 1,165 |
Accrued interest receivable | | | 13,820 | | | 13,951 |
Other assets | | | 25,643 | | | 16,640 |
Total assets | | $ | 3,535,223 | | $ | 3,245,103 |
| | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | |
Liabilities | | | | | | |
Deposits: | | | | | | |
Noninterest-bearing | | $ | 850,306 | | $ | 689,116 |
Interest-bearing | | | 2,166,355 | | | 2,087,739 |
Total deposits | | | 3,016,661 | | | 2,776,855 |
| | | | | | |
Securities sold under agreements to repurchase | | | 45,438 | | | 44,433 |
Subordinated notes | | | 39,218 | | | — |
Junior subordinated debentures issued to capital trusts | | | 37,632 | | | 37,583 |
Other liabilities | | | 40,980 | | | 53,314 |
Total liabilities | | | 3,179,929 | | | 2,912,185 |
| | | | | | |
COMMITMENTS AND CONTINGENCIES (Notes 7 and 18) | | | | | | |
| | | | | | |
Stockholders' Equity | | | | | | |
Preferred stock, $0.01 par value, 25,000,000 shares authorized, none issued or outstanding | | | — | | | — |
Common stock, $0.01 par value; 125,000,000 shares authorized; 27,457,306 shares issued and outstanding | | | 275 | | | 275 |
Surplus | | | 190,787 | | | 190,524 |
Retained earnings | | | 146,101 | | | 134,287 |
Accumulated other comprehensive income | | | 18,131 | | | 7,832 |
Total stockholders’ equity | | | 355,294 | | | 332,918 |
Total liabilities and stockholders’ equity | | $ | 3,535,223 | | $ | 3,245,103 |
See accompanying Notes to Consolidated Financial Statements (Unaudited)
3
HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||
| | 2020 |
| 2019 |
| 2020 |
| 2019 | | ||||
INTEREST AND DIVIDEND INCOME | | (dollars in thousands, except per share amounts) | | ||||||||||
Loans, including fees: | | | | | | | | | | | | | |
Taxable | | $ | 25,118 | | $ | 29,308 | | $ | 77,396 | | $ | 89,257 | |
Federally tax exempt | | | 542 | | | 684 | | | 1,748 | | | 2,130 | |
Securities: | | | | | | | | | | | | | |
Taxable | | | 3,266 | | | 3,572 | | | 9,772 | | | 11,295 | |
Federally tax exempt | | | 1,233 | | | 1,395 | | | 3,488 | | | 4,459 | |
Interest-bearing deposits in bank | | | 65 | | | 662 | | | 873 | | | 1,948 | |
Other interest and dividend income | | | 14 | | | 15 | | | 42 | | | 46 | |
Total interest and dividend income | | | 30,238 | | | 35,636 | | | 93,319 | | | 109,135 | |
| | | | | | | | | | | | | |
INTEREST EXPENSE | | | | | | | | | | | | | |
Deposits | | | 843 | | | 2,000 | | | 3,480 | | | 6,094 | |
Securities sold under agreements to repurchase | | | 9 | | | 17 | | | 40 | | | 48 | |
Borrowings | | | 1 | | | — | | | 2 | | | 7 | |
Subordinated notes | | | 147 | | | — | | | 147 | | | — | |
Junior subordinated debentures issued to capital trusts | | | 367 | | | 478 | | | 1,209 | | | 1,462 | |
Total interest expense | | | 1,367 | | | 2,495 | | | 4,878 | | | 7,611 | |
Net interest income | | | 28,871 | | | 33,141 | | | 88,441 | | | 101,524 | |
PROVISION FOR LOAN LOSSES | | | 2,174 | | | 684 | | | 10,102 | | | 3,266 | |
Net interest income after provision for loan losses | | | 26,697 | | | 32,457 | | | 78,339 | | | 98,258 | |
| | | | | | | | | | | | | |
NONINTEREST INCOME | | | | | | | | | | | | | |
Card income | | | 2,146 | | | 1,985 | | | 5,936 | | | 5,813 | |
Service charges on deposit accounts | | | 1,493 | | | 2,111 | | | 4,460 | | | 5,805 | |
Wealth management fees | | | 1,646 | | | 1,676 | | | 4,967 | | | 4,916 | |
Mortgage servicing | | | 724 | | | 795 | | | 2,175 | | | 2,342 | |
Mortgage servicing rights fair value adjustment | | | (268) | | | (860) | | | (2,947) | | | (2,982) | |
Gains on sale of mortgage loans | | | 3,184 | | | 992 | | | 5,855 | | | 2,177 | |
Gains (losses) on securities | | | (2) | | | (73) | | | 3 | | | 42 | |
Gains (losses) on foreclosed assets | | | 27 | | | (20) | | | 120 | | | 132 | |
Gains (losses) on other assets | | | 1 | | | (29) | | | (71) | | | 1,244 | |
Title insurance activity | | | — | | | — | | | — | | | 167 | |
Other noninterest income | | | 1,101 | | | 1,005 | | | 2,866 | | | 2,759 | |
Total noninterest income | | | 10,052 | | | 7,582 | | | 23,364 | | | 22,415 | |
| | | | | | | | | | | | | |
NONINTEREST EXPENSE | | | | | | | | | | | | | |
Salaries | | | 12,595 | | | 12,303 | | | 38,023 | | | 36,422 | |
Employee benefits | | | 1,666 | | | 2,253 | | | 6,555 | | | 8,220 | |
Occupancy of bank premises | | | 1,609 | | | 1,785 | | | 5,079 | | | 5,260 | |
Furniture and equipment | | | 679 | | | 545 | | | 1,891 | | | 2,050 | |
Data processing | | | 1,583 | | | 1,471 | | | 4,841 | | | 4,023 | |
Marketing and customer relations | | | 690 | | | 801 | | | 2,551 | | | 2,837 | |
Amortization of intangible assets | | | 305 | | | 335 | | | 927 | | | 1,087 | |
FDIC insurance | | | 222 | | | 8 | | | 476 | | | 435 | |
Loan collection and servicing | | | 450 | | | 547 | | | 1,292 | | | 1,901 | |
Foreclosed assets | | | 226 | | | 196 | | | 403 | | | 525 | |
Other noninterest expense | | | 2,460 | | | 2,059 | | | 7,253 | | | 6,316 | |
Total noninterest expense | | | 22,485 | | | 22,303 | | | 69,291 | | | 69,076 | |
INCOME BEFORE INCOME TAX EXPENSE | | | 14,264 | | | 17,736 | | | 32,412 | | | 51,597 | |
INCOME TAX EXPENSE | | | 3,701 | | | 299 | | | 8,209 | | | 819 | |
NET INCOME | | $ | 10,563 | | $ | 17,437 | | $ | 24,203 | | $ | 50,778 | |
| | | | | | | | | | | | | |
EARNINGS PER SHARE - BASIC | | $ | 0.38 | | $ | 0.97 | | $ | 0.88 | | $ | 2.82 | |
EARNINGS PER SHARE - DILUTED | | $ | 0.38 | | $ | 0.97 | | $ | 0.88 | | $ | 2.82 | |
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING | | | 27,457,306 | | | 18,027,512 | | | 27,457,306 | | | 18,027,512 | |
| | | | | | | | | | | | | |
UNAUDITED PRO FORMA C CORP EQUIVALENT INFORMATION (Note 1) | | | | | | | | | | | | | |
Historical income before income tax expense | | | | | $ | 17,736 | | | | | $ | 51,597 | |
Pro forma C Corp equivalent income tax expense | | | | | | 4,614 | | | | | | 13,313 | |
Pro forma C Corp equivalent net income | | | | | $ | 13,122 | | | | | $ | 38,284 | |
| | | | | | | | | | | | | |
PRO FORMA C CORP EQUIVALENT EARNINGS PER SHARE - BASIC | | | | | $ | 0.73 | | | | | $ | 2.12 | |
PRO FORMA C CORP EQUIVALENT EARNINGS PER SHARE - DILUTED | | | | | $ | 0.73 | | | | | $ | 2.12 | |
See accompanying Notes to Consolidated Financial Statements (Unaudited)
4
HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||
| | 2020 |
| 2019 |
| 2020 |
| 2019 | | ||||
| | (dollars in thousands) | | ||||||||||
NET INCOME | | $ | 10,563 | | $ | 17,437 | | $ | 24,203 | | $ | 50,778 | |
| | | | | | | | | | | | | |
OTHER COMPREHENSIVE INCOME | | | | | | | | | | | | | |
Unrealized gains on debt securities available-for-sale | | | 1,176 | | | 1,289 | | | 15,368 | | | 13,913 | |
Reclassification adjustment for accretion of net unrealized gain on debt securities transferred to held-to-maturity | | | 8 | | | (62) | | | 5 | | | (221) | |
Unrealized gains (losses) on derivative instruments | | | 5 | | | (208) | | | (1,098) | | | (897) | |
Reclassification adjustment for net settlements on derivative instruments | | | 97 | | | (24) | | | 138 | | | (76) | |
Total other comprehensive income, before tax | | | 1,286 | | | 995 | | | 14,413 | | | 12,719 | |
Income tax expense | | | 366 | | | — | | | 4,114 | | | — | |
Total other comprehensive income | | | 920 | | | 995 | | | 10,299 | | | 12,719 | |
TOTAL COMPREHENSIVE INCOME | | $ | 11,483 | | $ | 18,432 | | $ | 34,502 | | $ | 63,497 | |
See accompanying Notes to Consolidated Financial Statements (Unaudited)
5
HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| | | | | | | | | | | | | | Accumulated | | | | | | | |
| | | | | | | | | | | Other | | | | | Total | |||||
| | Common Stock | | | | | Retained | | Comprehensive | | Treasury | | Stockholders’ | ||||||||
|
| Voting |
| Series A |
| Surplus |
| Earnings |
| Income (Loss) |
| Stock |
| Equity | |||||||
| | (dollars in thousands, except per share data) | |||||||||||||||||||
Balance, June 30, 2020 | | $ | 275 | | $ | — | | $ | 190,687 | | $ | 139,667 | | $ | 17,211 | | $ | — | | $ | 347,840 |
Net income | | | — | | | — | | | — | | | 10,563 | | | — | | | — | | | 10,563 |
Other comprehensive income | | | — | | | — | | | — | | | — | | | 920 | | | — | | | 920 |
Stock-based compensation | | | — | | | — | | | 100 | | | — | | | — | | | — | | | 100 |
Cash dividends ($0.15 per share) | | | — | | | — | | | — | | | (4,129) | | | — | | | — | | | (4,129) |
Balance, September 30, 2020 | | $ | 275 | | $ | — | | $ | 190,787 | | $ | 146,101 | | $ | 18,131 | | $ | — | | $ | 355,294 |
| | | | | | | | | | | | | | | | | | | | | |
Balance, June 30, 2019 | | $ | 3 | | $ | 178 | | $ | 32,288 | | $ | 302,984 | | $ | 7,436 | | $ | (3,019) | | $ | 339,870 |
Net income | | | — | | | — | | | — | | | 17,437 | | | — | | | — | | | 17,437 |
Other comprehensive income | | | — | | | — | | | — | | | — | | | 995 | | | — | | | 995 |
Cash dividends ($0.52 per share) | | | — | | | — | | | — | | | (9,366) | | | — | | | — | | | (9,366) |
Balance, September 30, 2019 | | $ | 3 | | $ | 178 | | $ | 32,288 | | $ | 311,055 | | $ | 8,431 | | $ | (3,019) | | $ | 348,936 |
See accompanying Notes to Consolidated Financial Statements (Unaudited)
6
HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)
(Unaudited)
| | | | | | | | | | | | | | Accumulated | | | | | | | |
| | | | | | | | | | | Other | | | | | Total | |||||
| | Common Stock | | | | | Retained | | Comprehensive | | Treasury | | Stockholders’ | ||||||||
|
| Voting |
| Series A |
| Surplus |
| Earnings |
| Income (Loss) |
| Stock |
| Equity | |||||||
| | (dollars in thousands, except per share data) | |||||||||||||||||||
Balance, December 31, 2019 | | $ | 275 | | $ | — | | $ | 190,524 | | $ | 134,287 | | $ | 7,832 | | $ | — | | $ | 332,918 |
Net income | | | — | | | — | | | — | | | 24,203 | | | — | | | — | | | 24,203 |
Other comprehensive income | | | — | | | — | | | — | | | — | | | 10,299 | | | — | | | 10,299 |
Stock-based compensation | | | — | | | — | | | 263 | | | — | | | — | | | — | | | 263 |
Cash dividends ($0.45 per share) | | | — | | | — | | | — | | | (12,389) | | | — | | | — | | | (12,389) |
Balance, September 30, 2020 | | $ | 275 | | $ | — | | $ | 190,787 | | $ | 146,101 | | $ | 18,131 | | $ | — | | $ | 355,294 |
| | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2018 | | $ | 3 | | $ | 178 | | $ | 32,288 | | $ | 315,234 | | $ | (4,288) | | $ | (3,019) | | $ | 340,396 |
Net income | | | — | | | — | | | — | | | 50,778 | | | — | | | — | | | 50,778 |
Other comprehensive income | | | — | | | — | | | — | | | — | | | 12,719 | | | — | | | 12,719 |
Cash dividends ($3.05 per share) | | | — | | | — | | | — | | | (54,957) | | | — | | | — | | | (54,957) |
Balance, September 30, 2019 | | $ | 3 | | $ | 178 | | $ | 32,288 | | $ | 311,055 | | $ | 8,431 | | $ | (3,019) | | $ | 348,936 |
See accompanying Notes to Consolidated Financial Statements (Unaudited)
7
HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | Nine Months Ended September 30, | ||||
|
| 2020 |
| 2019 | ||
| | (dollars in thousands) | ||||
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | |
Net income | | $ | 24,203 | | $ | 50,778 |
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | | | | | | |
Depreciation expense | | | 2,176 | | | 2,042 |
Provision for loan losses | | | 10,102 | | | 3,266 |
Net amortization of debt securities | | | 3,298 | | | 2,759 |
Amortization of unrealized gain on dedesignated cash flow hedge | | | (64) | | | (53) |
Deferred income tax benefit | | | (628) | | | — |
Stock-based compensation | | | 263 | | | — |
Net accretion of discount and deferred loan fees on loans | | | (3,459) | | | (3,150) |
Net unrealized gain on equity securities | | | (3) | | | (42) |
Net loss (gain) on sales of bank premises and equipment | | | 2 | | | (29) |
Net gain on sales of bank premises held for sale | | | — | | | (448) |
Impairment losses on bank premises held for sale | | | — | | | 37 |
Net gain on sales of foreclosed assets | | | (269) | | | (240) |
Write-down of foreclosed assets | | | 156 | | | 552 |
Amortization of intangibles | | | 927 | | | 1,087 |
Decrease in mortgage servicing rights | | | 2,947 | | | 2,982 |
Amortization of discount and issuance costs on subordinated notes and junior subordinated debentures | | | 56 | | | 49 |
Mortgage loans originated for sale | | | (271,903) | | | (106,885) |
Proceeds from sale of mortgage loans | | | 258,566 | | | 104,254 |
Net gain on sale of mortgage loans | | | (5,855) | | | (2,177) |
Gain on sale of First Community Title Services, Inc. | | | — | | | (498) |
Decrease in accrued interest receivable | | | 131 | | | 484 |
Increase in other assets | | | 437 | | | (2,175) |
(Decrease) increase in other liabilities | | | (26,156) | | | 4,705 |
Net cash (used in) provided by operating activities | | | (5,073) | | | 57,298 |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | |
Net change in interest-bearing time deposits with banks | | | 248 | | | — |
Proceeds from paydowns, maturities, and calls of debt securities | | | 147,561 | | | 134,347 |
Purchase of securities | | | (344,335) | | | (40,903) |
Net increase in loans | | | (113,533) | | | (26,049) |
Purchase of restricted stock | | | (73) | | | — |
Proceeds from redemption of restricted stock | | | — | | | 294 |
Purchases of bank premises and equipment | | | (1,463) | | | (1,558) |
Proceeds from sales of bank premises and equipment | | | 1 | | | 176 |
Proceeds from sales of bank premises held for sale | | | — | | | 1,039 |
Proceeds from sales of foreclosed assets | | | 1,793 | | | 4,142 |
Capital improvements to foreclosed assets | | | (6) | | | (41) |
Cash received from sale of First Community Title Services, Inc. | | | — | | | 114 |
Net cash used in investing activities | | | (309,807) | | | 71,561 |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | |
Net increase (decrease) in deposits | | | 239,806 | | | (91,912) |
Net increase (decrease) in repurchase agreements | | | 1,005 | | | (13,928) |
Issuance of subordinated notes, net of issuance costs | | | 39,211 | | | — |
Cash dividends paid | | | (12,389) | | | (54,957) |
Net cash provided by (used in) financing activities | | | 267,633 | | | (160,797) |
| | | | | | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | | (47,247) | | | (31,938) |
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | | | 283,971 | | | 186,879 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | | $ | 236,724 | | $ | 154,941 |
See accompanying Notes to Consolidated Financial Statements (Unaudited)
8
HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
| | Nine Months Ended September 30, | ||||
|
| 2020 |
| 2019 | ||
| | (dollars in thousands) | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | | | | |
Cash paid for interest | | $ | 5,191 | | $ | 7,646 |
Cash paid for income taxes | | $ | 14,308 | | $ | 880 |
| | | | | | |
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES | | | | | | |
Transfers of loans to foreclosed assets | | $ | 499 | | $ | 1,788 |
Sales of foreclosed assets through loan origination | | $ | 67 | | $ | 360 |
See accompanying Notes to Consolidated Financial Statements (Unaudited)
9
Basis of Presentation
HBT Financial, Inc. (the Company) is headquartered in Bloomington, Illinois and is the holding company for Heartland Bank and Trust Company (Heartland Bank) and State Bank of Lincoln. Heartland Bank and State Bank of Lincoln are collectively referred to as “the Banks”. The Banks provide a comprehensive suite of business, commercial, wealth management and retail banking products and services to individuals, businesses, and municipal entities throughout Central and Northeastern Illinois.
The unaudited consolidated financial statements, including the notes thereto, have been prepared in accordance with generally accepted accounting principles (GAAP) interim reporting requirements. Certain information in footnote disclosures normally included in financial statements prepared in accordance with GAAP has been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. These interim unaudited consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 27, 2020.
The unaudited consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results for interim periods are not necessarily indicative of results for a full year.
The Company qualifies as an "emerging growth company" as defined by the Jumpstart Our Business Startups Act (JOBS Act). The JOBS Act permits emerging growth companies an extended transition period for complying with new or revised accounting standards affecting public companies. The Company has elected to use the extended transition period until the Company is no longer an emerging growth company or until the Company chooses to affirmatively and irrevocably opt out of the extended transition period. As a result, the Company’s financial statements may not be comparable to companies that comply with new or revised accounting pronouncements applicable to public companies.
Use of Estimates
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and the reported results of operations for the periods then ended.
Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for loan losses and income taxes.
Income Taxes
Through October 10, 2019, the Company, with the consent of its then current stockholders, elected to be taxed under sections of federal and state income tax law as an "S Corporation" which provides that, in lieu of Company income taxes, except for state replacement taxes, the stockholders separately account for their pro rata shares of the Company’s items of income, deductions, losses and credits. As a result of this election, no income taxes, other than state replacement taxes, have been recognized in the accompanying consolidated financial statements. No provision has been made for any amounts which were advanced or paid as dividends to the stockholders to assist them in paying their personal taxes on the income from the Company.
10
Effective October 11, 2019, the Company voluntarily revoked its S Corporation status and became a taxable entity (C Corporation). As such, any periods prior to October 11, 2019 only reflect an effective state replacement tax rate.
The Company files consolidated federal and state income tax returns. The Company is no longer subject to federal and state income tax examinations for years prior to 2017.
Unaudited Pro Forma Income Statement Information
The unaudited pro forma C Corp equivalent income tax expense information gives effect to the income tax expense had the Company been a C Corporation during the three and nine months ended September 30, 2019. The unaudited pro forma C Corp equivalent net income information, therefore, includes an adjustment for income tax expense as if the Company had been a C Corporation during the three and nine months ended September 30, 2019.
The unaudited pro forma basic and diluted earnings per share information is computed using the unaudited pro forma C Corp equivalent net income and weighted average shares of common stock outstanding. There were no dilutive instruments outstanding during 2019, therefore, the unaudited pro forma C Corp equivalent basic and diluted earnings per share amounts are the same.
Segment Reporting
The Company’s operations consist of one reportable segment called community banking. While the Company’s management monitors both bank subsidiaries’ operations and profitability separately, these subsidiaries have been aggregated into one reportable segment due to the similarities in products and services, customer base, operations, profitability measures, and economic characteristics.
Goodwill
Goodwill represents the excess of the original cost over the fair value of assets acquired and liabilities assumed. Goodwill is not amortized but instead is subject to an annual impairment evaluation. The Company has selected December 31 as the date to perform the annual impairment test, and at December 31, 2019, the Company’s evaluation of goodwill indicated that goodwill was not impaired.
Due to the economic weakness resulting from the COVID-19 pandemic, the Company completed a quantitative assessment of goodwill as of March 31, 2020 which indicated that goodwill was not impaired. Subsequently, the Company determined there were no adverse changes in criteria and key considerations to the previous assessment. Accordingly, the Company concluded that there is no impairment of goodwill as of September 30, 2020. Further goodwill impairment evaluations, which may result in goodwill impairment, may be necessary if events or circumstance changes would more likely than not reduce the fair value of a reporting unit below its carrying amount.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation without any impact on the reported amounts of net income or stockholders’ equity.
11
Subsequent Events
In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential of recognition or disclosure through the date the financial statements were issued.
On October 20, 2020, Heartland Bank and State Bank of Lincoln, our two bank subsidiaries, entered into a Bank Merger Agreement providing for the merger of State Bank of Lincoln into Heartland Bank. If the merger is consummated, the resulting institution will be Heartland Bank, which will then be our sole bank subsidiary, and the branch locations of State Bank of Lincoln will operate as “State Bank of Lincoln, a division of Heartland Bank and Trust Company.” The proposed merger is subject to conditions, including, among others, approval by the FDIC and the Illinois Department of Financial and Professional Regulation.
On November 2, 2020, the Company’s board of directors approved a stock repurchase program that authorizes the Company to repurchase up to $15 million of its common stock. The stock repurchase program will be in effect until December 31, 2021 with the timing of purchases and number of shares repurchased dependent upon a variety of factors including price, trading volume, corporate and regulatory requirements, and market conditions. The Company is not obligated to purchase any shares under the stock repurchase program, and the stock repurchase program may be suspended or discontinued at any time without notice.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on debt securities available-for-sale and purchased financial assets with credit deterioration. ASU 2016-13 is effective for years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for years beginning after December 31, 2018, including interim periods within those years. The Company is currently evaluating the effect that this standard will have on the consolidated results of operations and financial position.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies measurement of goodwill and eliminates Step 2 from the goodwill impairment test. Under the ASU, a company should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The impairment charge is limited to the amount of goodwill allocated to that reporting unit. The amendments in this update are effective for annual or any interim goodwill impairment tests in years beginning after December 15, 2022, including interim periods within those years. Early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. This standard is not expected to have a material impact on the Company’s consolidated results of operations or financial position.
12
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform, if certain criteria are met. Entities may apply the provisions as of the beginning of the reporting period when the election is made and are available until December 31, 2022. The Company is currently evaluating the effect that this standard will have on the consolidated results of operations and financial position.
NOTE 2 – SECURITIES
The carrying balances of the securities were as follows:
| | September 30, | | December 31, | ||
|
| 2020 |
| 2019 | ||
| | (dollars in thousands) | ||||
Debt securities available-for-sale | | $ | 814,798 | | $ | 592,404 |
Debt securities held-to-maturity | | | 74,510 | | | 88,477 |
Equity securities: | | | | | | |
Readily determinable fair value | | | 3,262 | | | 3,241 |
No readily determinable fair value | | | 1,552 | | | 1,148 |
Total securities | | $ | 894,122 | | $ | 685,270 |
The Company has elected to measure the equity securities with no readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes for identical or similar securities of the same issuer. During the three and nine months ended September 30, 2020, there were no adjustments to the carrying balance of equity securities with no readily determinable fair value based on an observable price change of an identical investment. During the three and nine months ended September 30, 2019, there were downward adjustments of $128,000 to the carrying balance of equity securities with no readily determinable fair value based on an observable price change of an identical investment. As of September 30, 2020 and December 31, 2019, the carrying balance of equity securities with no readily determinable fair value reflect cumulative downward adjustments based on observable price changes of $165,000. There have been no impairments or upward adjustments based on observable price changes to the equity securities with no readily determinable fair value held at September 30, 2020 and December 31, 2019.
13
The amortized cost and fair values of debt securities, with gross unrealized gains and losses, are as follows:
September 30, 2020 |
| Amortized |
| Gross |
| Gross |
| Fair Value | ||||
Available-for-sale: | | (dollars in thousands) | ||||||||||
U.S. government agency | | $ | 100,462 | | $ | 3,866 | | $ | (2) | | $ | 104,326 |
Municipal | | | 232,795 | | | 7,962 | | | (347) | | | 240,410 |
Mortgage-backed: | | | | | | | | | | | | |
Agency residential | | | 220,970 | | | 5,462 | | | (115) | | | 226,317 |
Agency commercial | | | 166,444 | | | 4,831 | | | (203) | | | 171,072 |
Corporate | | | 70,862 | | | 1,907 | | | (96) | | | 72,673 |
Total available-for-sale | | | 791,533 | | | 24,028 | | | (763) | | | 814,798 |
Held-to-maturity: | | | | | | | | | | | | |
Municipal | | | 26,830 | | | 1,480 | | | — | | | 28,310 |
Mortgage-backed: | | | | | | | | | | | | |
Agency residential | | | 14,556 | | | 523 | | | — | | | 15,079 |
Agency commercial | | | 33,124 | | | 2,378 | | | — | | | 35,502 |
Total held-to-maturity | | | 74,510 | | | 4,381 | | | — | | | 78,891 |
Total debt securities | | $ | 866,043 | | $ | 28,409 | | $ | (763) | | $ | 893,689 |
December 31, 2019 |
| Amortized |
| Gross |
| Gross |
| Fair Value | ||||
Available-for-sale: | | (dollars in thousands) | ||||||||||
U.S. government agency | | $ | 49,113 | | $ | 529 | | $ | (27) | | $ | 49,615 |
Municipal | | | 131,241 | | | 2,503 | | | (6) | | | 133,738 |
Mortgage-backed: | | | | | | | | | | | | |
Agency residential | | | 198,184 | | | 2,780 | | | (286) | | | 200,678 |
Agency commercial | | | 133,730 | | | 1,516 | | | (292) | | | 134,954 |
Corporate | | | 72,239 | | | 1,180 | | | — | | | 73,419 |
Total available-for-sale | | | 584,507 | | | 8,508 | | | (611) | | | 592,404 |
Held-to-maturity: | | | | | | | | | | | | |
Municipal | | | 45,239 | | | 1,340 | | | — | | | 46,579 |
Mortgage-backed: | | | | | | | | | | | | |
Agency residential | | | 19,072 | | | 161 | | | (170) | | | 19,063 |
Agency commercial | | | 24,166 | | | 775 | | | (54) | | | 24,887 |
Total held-to-maturity | | | 88,477 | | | 2,276 | | | (224) | | | 90,529 |
Total debt securities | | $ | 672,984 | | $ | 10,784 | | $ | (835) | | $ | 682,933 |
As of September 30, 2020 and December 31, 2019, the Banks had debt securities with a carrying value of $349,412,000 and $284,895,000, respectively, which were pledged to secure public and trust deposits, securities sold under agreements to repurchase, and for other purposes required or permitted by law.
The Company has no direct exposure to the State of Illinois, but approximately 41% of the obligations of local municipalities portfolio consists of debt securities issued by municipalities located in Illinois as of September 30, 2020. Approximately 87% of such debt securities were general obligation issues as of September 30, 2020.
14
The amortized cost and fair value of debt securities by contractual maturity, as of September 30, 2020, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
| | Available-for-Sale | | Held-to-Maturity | ||||||||
|
| Amortized |
| Fair Value |
| Amortized |
| Fair Value | ||||
| | (dollars in thousands) | ||||||||||
Due in 1 year or less | | $ | 36,762 | | $ | 37,033 | | $ | 747 | | $ | 749 |
Due after 1 year through 5 years | | | 85,100 | | | 87,897 | | | 14,702 | | | 15,452 |
Due after 5 years through 10 years | | | 183,944 | | | 191,538 | | | 10,490 | | | 11,186 |
Due after 10 years | | | 98,313 | | | 100,941 | | | 891 | | | 923 |
| | | | | | | | | | | | |
Mortgage-backed: | | | | | | | | | | | | |
Agency residential | | | 220,970 | | | 226,317 | | | 14,556 | | | 15,079 |
Agency commercial | | | 166,444 | | | 171,072 | | | 33,124 | | | 35,502 |
Total | | $ | 791,533 | | $ | 814,798 | | $ | 74,510 | | $ | 78,891 |
There were no sales of securities during the three and nine months ended September 30, 2020 and 2019. Gains (losses) on securities were as follows during the three and nine months ended September 30:
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2020 |
| 2019 | | 2020 |
| 2019 | ||||
| | (dollars in thousands) | ||||||||||
Net realized gains (losses) on sales | | $ | — | | $ | — | | $ | — | | $ | — |
Net unrealized gains (losses) on equities: | | | | | | | | | | | | |
Readily determinable fair value | | | (2) | | | 55 | | | 3 | | | 170 |
No readily determinable fair value | | | — | | | (128) | | | — | | | (128) |
Gains (losses) on securities | | $ | (2) | | $ | (73) | | $ | 3 | | $ | 42 |
15
The following tables present gross unrealized losses and fair value of debt securities, aggregated by category and length of time that individual debt securities have been in a continuous unrealized loss position, as of September 30, 2020 and December 31, 2019:
| | Investments in a Continuous Unrealized Loss Position | ||||||||||||||||
| | Less than 12 Months | | 12 Months or More | | Total | ||||||||||||
September 30, 2020 |
| Unrealized |
| Fair Value |
| Unrealized |
| Fair Value |
| Unrealized |
| Fair Value | ||||||
Available-for-sale: | | (dollars in thousands) | ||||||||||||||||
U.S. government agency | | $ | (2) | | $ | 3,493 | | $ | — | | $ | — | | $ | (2) | | $ | 3,493 |
Municipal | | | (347) | | | 28,955 | | | — | | | — | | | (347) | | | 28,955 |
Mortgage-backed: | | | | | | | | | | | | | | | | | | |
Agency residential | | | (101) | | | 20,386 | | | (14) | |