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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2020

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

For the transition period from to

Commission file number: 001-39085

HBT Financial, Inc.

(Exact name of registrant as specified in its charter)


Delaware	37-1117216
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

401 North Hershey Rd Bloomington, Illinois 61704	(888) 897-2276
(Address of principal executive offices, including zip code)	(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	HBT	The Nasdaq Stock Market LLC

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

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

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


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☐

Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

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

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TABLE OF CONTENTS
HBT Financial, Inc.

		Page

PART I. FINANCIAL INFORMATION		3
Item 1.	Consolidated Financial Statements	3
	Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	3
	Consolidated Statements of Income for the three and nine months ended September 30, 2020 and 2019	4
	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019	5
	Consolidated Statement of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019	6
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019	8
	Notes to Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	92
Item 4.	Controls and Procedures	93
PART II. OTHER INFORMATION		94
Item 1.	Legal Proceedings	94
Item 1A.	Risk Factors	94
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	96
Item 3.	Defaults Upon Senior Securities	96
Item 4.	Mine Safety Disclosures	96
Item 5.	Other Information	96
Item 6.	Exhibits	97

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

●

our asset quality and any loan charge-offs;

●

the composition of our loan portfolio;

●

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

●

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

●

environmental liability associated with our lending activities;

●

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

●

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

●

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

●

the effects of problems encountered by other financial institutions;

●

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

●

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

●

any failure or interruption of our information and communications systems;

●

our ability to identify and address cybersecurity risks;

●

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

●

our ability to keep pace with technological changes;

●

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

●

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

●

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

●

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

●

our ability to attract and retain customer deposits;

●

our ability to maintain our Banks’ reputations;

●

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

●

possible impairment of our goodwill and other intangible assets;

●

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

●

our prior status as an S Corp;

●

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

●

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

●

market perceptions associated with certain aspects of our business;

●

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

●

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

●

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

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●

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

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

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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS


	(Unaudited)
	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)

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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)

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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)

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HBT FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)


									Accumulated
									Other				Total
	Common Stock						Retained		Comprehensive		Treasury		Stockholders’
	Voting		Series A		Surplus		Earnings		Income (Loss)		Stock		Equity

	(dollars in thousands, except per share data)
Balance, 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)

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HBT FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)

(Unaudited)


									Accumulated
									Other				Total
	Common Stock						Retained		Comprehensive		Treasury		Stockholders’
	Voting		Series A		Surplus		Earnings		Income (Loss)		Stock		Equity

	(dollars in thousands, except per share data)
Balance, December 31, 2019	$	275	$	—	$	190,524	$	134,287	$	7,832	$	—	$	332,918
Net income		—		—		—		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)

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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)

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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)

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – ACCOUNTING POLICIES

Basis of Presentation

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

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

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

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

Use of Estimates

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

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

Income Taxes

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

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

The Company files consolidated federal and state income tax returns. The Company is no longer subject to federal 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.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.

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(Unaudited)

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


September 30, 2020	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		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 Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

Available-for-sale:	(dollars in thousands)
U.S. government agency	$	49,113	$	529	$	(27)	$	49,615
Municipal		131,241		2,503		(6)		133,738
Mortgage-backed:
Agency residential		198,184		2,780		(286)		200,678
Agency commercial		133,730		1,516		(292)		134,954
Corporate		72,239		1,180		—		73,419
Total available-for-sale		584,507		8,508		(611)		592,404
Held-to-maturity:
Municipal		45,239		1,340		—		46,579
Mortgage-backed:
Agency residential		19,072		161		(170)		19,063
Agency commercial		24,166		775		(54)		24,887
Total held-to-maturity		88,477		2,276		(224)		90,529
Total debt securities	$	672,984	$	10,784	$	(835)	$	682,933

As of 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.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The amortized cost and fair value of debt securities by contractual maturity, as of 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 Cost		Fair Value		Amortized Cost		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

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables present gross unrealized losses and fair value of debt securities, aggregated by category and length of time that individual debt securities have been in a continuous unrealized loss position, as of 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 Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		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)		4,378