Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended 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,
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.

 


Table of Contents

TABLE OF CONTENTS
HBT Financial, Inc.

    

Page

PART I. FINANCIAL INFORMATION

3

Item 1.

Consolidated Financial Statements

3

Consolidated Balance Sheets as of 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


Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this quarterly report are forward-looking statements. Forward-looking statements may include statements relating to our plans, strategies and expectations, the economic impact of 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


Table of Contents

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

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

2


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1.         CONSOLIDATED FINANCIAL STATEMENTS

HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

    

(Unaudited)

   

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


Table of Contents

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


Table of Contents

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


Table of Contents

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


Table of Contents

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


Table of Contents

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


Table of Contents

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


Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – ACCOUNTING POLICIES

Basis of Presentation

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

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

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

The Company qualifies as an "emerging growth company" as defined by the Jumpstart Our Business Startups Act (JOBS Act). 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


Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

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


Table of Contents

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.

12


Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

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.

13


Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

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.

14


Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The amortized cost and fair value of debt securities by contractual maturity, as of 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

15


Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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