HBT - HBT Financial Inc. Announces Third Quarter 2020 Financial Results

Third Quarter Highlights

• Net income of $10.6 million, or $0.38 per diluted share; return on average assets (ROAA) of 1.20%; return on average stockholders' equity (ROAE) of 11.83%; and return on average tangible common equity (ROATCE) ⁽¹⁾ of 12.80%
  
  
• A djusted net income ⁽¹⁾ of $10.8 million; or $0.39 per diluted share, adjusted ROAA ⁽¹⁾ of 1.22%; adjusted ROAE ⁽¹⁾ of 12.04%; and adjusted ROATCE ⁽¹⁾ of 13.03%

(1)  See "Reconciliation of Non-GAAP Financial Measures" below for reconciliation of non-GAAP financial measures to their most comparable GAAP financial measures.

BLOOMINGTON, Ill., Oct. 26, 2020 (GLOBE NEWSWIRE) -- HBT Financial, Inc. (NASDAQ: HBT) (the “Company” or “HBT Financial”), the holding company for Heartland Bank and Trust Company and State Bank of Lincoln, today reported net income of $10.6 million, or $0.38 diluted earnings per share, for the third quarter of 2020. This compares to net income of $7.4 million, or $0.27 diluted earnings per share, for the second quarter of 2020, and net income of $17.4 million, or $0.97 diluted earnings per share, for the third quarter of 2019.

Fred L. Drake, Chairman and Chief Executive Officer of HBT Financial, said, “We delivered solid results in the third quarter despite the challenges presented by the low interest rate environment and economic uncertainty. Our banks have long prioritized safety and soundness, disciplined growth, and consistent through-the-cycle profitability, and I am pleased to see this focus maintained as we completed our first year as a public company earlier this month. While we remain conservative in building our loan loss reserves to address possible credit deterioration as the pandemic continues, we are encouraged by the stability we are seeing in asset quality, which reflects the strength of our borrowers and our conservative approach to credit. Our nonperforming loans are down from a year ago and our annualized net charge-offs through the first nine months of 2020 amounted to just 0.04% of average loans. In addition, our COVID-19 loan modifications declined by 82% to $36 million, or just 1.6% of our total loans, at the end of the third quarter. With ample liquidity and capital levels, strong asset quality, and a stable deposit base, we are well positioned to continue supporting our customers and communities through this crisis while generating solid results for our shareholders.”

C Corp Equivalent Net Income

Prior to October 11, 2019, the Company operated as an S Corporation for U.S. federal and state income tax purposes. 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 state replacement taxes. To facilitate comparison, the Company reports its C Corp equivalent financial results, which do not reflect the additional shares issued in the initial public offering (the “IPO”) for periods prior to the IPO.

The Company reported C Corp equivalent net income of $13.1 million, or $0.73 diluted earnings per share, for the third quarter of 2019.

Adjusted Net Income

In addition to reporting C Corp equivalent results, the Company believes adjusted net income and adjusted earnings per share, which adjust for the additional C Corp equivalent tax expense for periods prior to October 11, 2019, net earnings (losses) from closed or sold operations, charges related to termination of certain employee benefit plans, realized gains (losses) on sales of securities, and mortgage servicing rights (“MSR”) fair value adjustments, provide investors with additional insight into its operational performance. The Company reported adjusted net income of $10.8 million, or $0.39 adjusted diluted earnings per share, for the third quarter of 2020. This compares to adjusted net income of $8.2 million, or $0.30 adjusted diluted earnings per share, for the second quarter of 2020, and adjusted net income of $14.3 million, or $0.80 adjusted diluted earnings per share, for the third quarter of 2019 (see "Reconciliation of Non-GAAP Financial Measures" tables).

Net Interest Income and Net Interest Margin

Net interest income for the third quarter of 2020 was $28.9 million, nearly unchanged from the second quarter of 2020 as growth in average interest-earning assets was largely offset by lower yields on loans and securities.

Relative to the third quarter of 2019, net interest income decreased $4.3 million, or 12.9%. The decline was primarily attributable to lower yields on average interest-earning assets.

Net interest margin for the third quarter of 2020 was 3.39% compared to 3.51% for the second quarter of 2020. The decrease was primarily attributable to the decline in the average yield on earning assets, partially due to the addition of lower yielding Paycheck Protection Program (PPP) loans. The contribution of acquired loan discount accretion to net interest margin remained low at 2 basis points during the third quarter of 2020 compared to less than 1 basis point during the second quarter of 2020.

Relative to the third quarter of 2019, net interest margin decreased from 4.27%. The decrease was due primarily to the decline in the average yield on earning assets. The contribution of acquired loan discount accretion to net interest margin was 4 basis points during the third quarter of 2019.

Noninterest Income

Noninterest income for the third quarter of 2020 was $10.1 million, an increase of 24.7% from $8.1 million for the second quarter of 2020. The increase was primarily attributable to a $1.0 million increase in gains on sale of mortgage loans attributable to a strong mortgage refinancing environment and a $0.4 million increase in service charges on deposit accounts. Third quarter 2020 results included a negative $0.3 million mortgage servicing rights (“MSR”) fair value adjustment compared to a negative $0.5 million fair value adjustment in the second quarter of 2020.

Relative to the third quarter of 2019, noninterest income increased 32.6% from $7.6 million. The increase was primarily attributable to higher gains on sale of mortgage loans and a less negative MSR fair value adjustment. Partially offsetting these increases was a $0.6 million decline in service charges on deposit accounts.

Noninterest Expense

Noninterest expense for the third quarter of 2020 was $22.5 million, a decrease of 4.3% from $23.5 million for the second quarter of 2020. The decrease was primarily attributable to lower employee benefits expense as second quarter of 2020 results included a $0.6 million charge related to the termination of the supplemental executive retirement plan (SERP) that was paid out in June 2020.

Relative to the third quarter of 2019, noninterest expense increased 0.8% from $22.3 million. Lower employee benefits expense, due to the termination and liquidation of the SERP, was more than offset by increases in salaries, FDIC insurance, and other noninterest expenses. Higher salaries expense was driven by increases in mortgage lender commissions and overtime for mortgage support personnel, as a result of increased residential mortgage origination volume.

Loan Portfolio

Total loans outstanding, before allowance for loan losses, were $2.28 billion at September 30, 2020, compared with $2.28 billion at June 30, 2020 and $2.17 billion at September 30, 2019. The $3.8 million increase in loans from June 30, 2020 was primarily attributable to an $18.1 million increase in construction and land development loans and a $13.0 million increase in multi-family loans being largely offset by a $19.0 million reduction in commercial and industrial loans, a $3.5 million decline in agricultural and farmland loans and a $3.2 million reduction in commercial real estate - owner occupied loans. The $71.1 million decrease in total loans outstanding, net of PPP loans from September 30, 2019 was primarily due to a $65.7 million reduction in participation loan balances.

Deposits

Total deposits were $3.02 billion at September 30, 2020 and at June 30, 2020, compared with $2.70 billion at September 30, 2019. Increases in interest-bearing demand and savings balances were substantially offset by declines in noninterest-bearing, money market and time deposit balances in the third quarter.

Asset Quality

Nonperforming loans totaled $15.2 million, or 0.67% of total loans, at September 30, 2020, compared with $14.0 million, or 0.61% of total loans, at June 30, 2020, and $19.1 million, or 0.88% of total loans, at September 30, 2019. The increase in nonperforming loans from the end of the prior quarter was primarily attributable to the movement of one $4.1 million loan to nonaccrual partially offset by reductions from the pay-off or pay-down on three relationships combined with a charge-down of one relationship.

The Company recorded a provision for loan losses of $2.2 million for the third quarter of 2020, which was primarily due to adjustments to qualitative factors to reflect changes in the economic environment.

Net charge-offs for the third quarter of 2020 were $0.2 million, or 0.04% of average loans on an annualized basis compared to net recoveries of $63 thousand, or 0.01% of average loans on an annualized basis, for the second quarter of 2020, and net charge-offs of $0.5 million, or 0.08% of average loans on an annualized basis, for the third quarter of 2019.

The Company’s allowance for loan losses was 1.39% of total loans and 208.14% of nonperforming loans at September 30, 2020, compared with 1.31% of total loans and 213.04% of nonperforming loans at June 30, 2020.

Capital

At September 30, 2020, the Company exceeded all regulatory capital requirements under Basel III and was considered to be “well-capitalized,” as summarized in the following table:

(1)  See "Reconciliation of Non-GAAP Financial Measures" below for reconciliation of non-GAAP financial measures to their most comparable GAAP financial measures.

Subordinated Note Issuance

To further enhance the Company’s strong capital and liquidity positions, HBT Financial successfully completed a private placement of $40.0 million 4.50% Fixed-to-Floating Rate Subordinated Notes due 2030 during the quarter. This issuance of subordinated notes, which qualify as Tier 2 regulatory capital, contributed to an increase in HBT Financial’s total risk based capital ratio, which was 16.81% at September 30, 2020, compared to 15.13% at June 30, 2020, while also significantly bolstering the cash reserves held at the holding company.

Annualization Factor

The method used to calculate annualization factors for interim period ratios has changed from financial information previously presented. The annualization factor is now calculated using the number of days in the year divided by the number of days in the interim period. Previously, annualization factors were calculated as 4 divided by the number of quarters in the interim period, or an annualization factor of 4 for a quarterly period. The change was applied retrospectively to all periods presented and did not have a material impact on the annualized interim ratios.

About HBT Financial, Inc.

HBT Financial, Inc. is headquartered in Bloomington, Illinois and is the holding company for Heartland Bank and Trust Company and State Bank of Lincoln. The banks provide a comprehensive suite of business, commercial, wealth management, and retail banking products and services to individuals, businesses and municipal entities throughout Central and Northeastern Illinois through 63 branches. As of September 30, 2020, HBT had total assets of $3.5 billion, total loans of $2.3 billion, and total deposits of $3.0 billion. HBT is a longstanding Central Illinois company, with banking roots that can be traced back 100 years.

Non-GAAP Financial Measures

Some of the financial measures included in this press release are not measures of financial performance recognized in accordance with GAAP. These non-GAAP financial measures include net interest income (tax-equivalent basis), net interest margin (tax-equivalent basis), originated loans and acquired loans and any ratios derived therefrom, efficiency ratio (tax-equivalent basis), tangible common equity to tangible assets, tangible book value per share, adjusted net income, adjusted return on average assets, adjusted return on average stockholders' equity, and adjusted return on average tangible common equity. Our management uses these non-GAAP financial measures, together with the related GAAP financial measures, in its analysis of our performance and in making business decisions. Management believes that it is a standard practice in the banking industry to present these non-GAAP financial measures, and accordingly believes that providing these measures may be useful for peer comparison purposes. These disclosures should not be viewed as substitutes for the results determined to be in accordance with GAAP; nor are they necessarily comparable to non-GAAP financial measures that may be presented by other companies. See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures in the "Reconciliation of Non-GAAP Financial Measures" tables.

Forward-Looking Statements

Readers should note that in addition to the historical information contained herein, this press release includes "forward-looking statements" within the meanings of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including but not limited to statements about the Company’s plans, objectives, future performance, goals, future earnings levels, and future loan growth. These statements are subject to many risks and 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 these forward-looking statements include, but are not limited to: the severity, magnitude and duration of the COVID-19 pandemic; the direct and indirect impacts of the COVID-19 pandemic and governmental responses to the pandemic on our operations and our customers’ businesses; the disruption of global, national, state and local economies associated with the COVID-19 pandemic, which could affect our capital levels and earnings, impair the ability of our borrowers to repay outstanding loans, impair collateral values and further increase our allowance for credit losses; our asset quality and any loan charge-offs; changes in interest rates and general economic, business and political conditions in the United States generally or in Illinois in particular, including in the financial markets; changes in business plans as circumstances warrant; risks relating to acquisitions; and other risks detailed from time to time in filings made by the Company with the Securities and Exchange Commission. Readers should note that the forward-looking statements included in this press release are not a guarantee of future events, and that actual events may differ materially from those made in or suggested by the forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "will," "propose," "may," "plan," "seek," "expect," "intend," "estimate," "anticipate," "believe" or "continue," or similar terminology. Any forward-looking statements presented herein are made only as of the date of this press release, and the Company does not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

CONTACT:
Matthew Keating
HBTIR@hbtbank.com
(310) 622-8230

HBT Financial, Inc.
Consolidated Financial Summary
Consolidated Statements of Income

HBT Financial, Inc.
Consolidated Financial Summary
Consolidated Balance Sheets

HBT Financial, Inc.
Consolidated Financial Summary

HBT Financial, Inc.
Consolidated Financial Summary

*  Annualized measure.
(1)  See "Reconciliation of Non-GAAP Financial Measures" below for reconciliation of non-GAAP financial measures to their most comparable GAAP financial measures.
(2)  On a tax-equivalent basis assuming a federal income tax rate of 21% and a state income tax rate of 9.5%.
(3)  Net interest margin represents net interest income divided by average total interest-earning assets.
(4)  Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(5)  Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

HBT Financial, Inc.
Consolidated Financial Summary