HBT - HBT Financial Inc. Announces Fourth Quarter 2019 Financial Results

Fourth Quarter Highlights

• Net income of $16.1 million; Return on average assets (ROAA) of 1.97%; return on average stockholders' equity (ROAE) of 19.39%; and return on average tangible common equity (ROATCE)⁽¹⁾ of 21.17%
  
  
• C Corp equivalent net income of $15.1 million; C Corp equivalent ROAA of 1.85%; C Corp equivalent ROAE of 18.19%; and C Corp equivalent ROATCE⁽¹⁾ of 19.86%
  
  
• Adjusted C Corp equivalent net income⁽¹⁾ of $14.4 million; adjusted C Corp equivalent ROAA⁽¹⁾ of 1.77%; adjusted C Corp equivalent ROAE⁽¹⁾ of 17.38%; and adjusted C Corp equivalent ROATCE⁽¹⁾ of 18.97%
  
  
• Initial public offering priced on October 10, 2019

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(1)   See “Non-GAAP Financial Measures” and “Reconciliation of Non-GAAP Financial Measures” below for a discussion of non-GAAP financial measures and reconciliations to GAAP financial measures.

BLOOMINGTON, Ill., Jan. 30, 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 $16.1 million, or $0.61 diluted earnings per share, for the fourth quarter of 2019. This compares to net income of $17.4 million, or $0.97 diluted earnings per share, for the third quarter of 2019, and net income of $11.9 million, or $0.66 diluted earnings per share, for the fourth quarter of 2018.

Fred L. Drake, Chairman and Chief Executive Officer of HBT Financial, said, “Our 2019 performance is a result of strong execution on the strategies that have made HBT Financial a consistently high performing company.  HBT Financial has an attractive core deposit base, strong capital levels and solid asset quality.  We are pleased to initiate a quarterly cash dividend to enhance the total return we deliver for shareholders.  During 2019, we had continued momentum on our earnings and organic loan growth.  We are pleased to have completed our initial public offering and are well positioned for the future, and we expect to continue to enhance the value of our franchise through both organic and acquisition growth strategies.”

C Corp Equivalent Net Income and Adjusted C Corp Equivalent Net Income

The Company has historically operated as an S Corporation for U.S. federal and state income tax purposes.  Following the completion of the initial public offering during the fourth quarter of 2019, the Company was treated as a C Corporation (“C Corp”) for federal and state income tax purposes. For comparison, the Company reports its C Corp equivalent financial results, which does not reflect the additional shares issued in the initial public offering (the “IPO”) for periods prior to the IPO.

For the fourth quarter of 2019, the Company reported C Corp equivalent net income of $15.1 million, or $0.58 diluted earnings per share. This compares to C Corp equivalent net income of $13.1 million, or $0.73 diluted earnings per share, for the third quarter of 2019, and C Corp equivalent net income of $9.2 million, or $0.51 diluted earnings per share, for the fourth quarter of 2018.

In addition to reporting C Corp equivalent results, the Company believes adjusted C Corp equivalent results, which adjust for mortgage servicing rights (“MSR”) fair value adjustments, gains (losses) on sales of securities, and certain non-recurring items, provide investors with additional insight into its operational performance. The Company reported adjusted C Corp equivalent net income of $14.4 million, or $0.55 diluted earnings per share, for the fourth quarter of 2019. This compares to adjusted C Corp equivalent net income of $14.3 million, or $0.80 diluted earnings per share, for the third quarter of 2019, and adjusted C Corp equivalent net income of $10.9 million, or $0.60 diluted earnings per share, for the fourth quarter of 2018 (see "Reconciliation of Non-GAAP Financial Measures" tables).

Net Interest Income and Net Interest Margin

Net interest income for the fourth quarter of 2019 was $32.3 million, a decrease of 2.6% from $33.1 million for the third quarter of 2019. The decrease was primarily attributable to a decline in net interest margin, partially offset by an increase in average interest-earning assets.

Relative to the fourth quarter of 2018, net interest income decreased $0.8 million, or 2.4%. The decline was primarily attributable to a lower net interest margin, partially offset by an increase in average interest-earning assets.

Net interest margin for the fourth quarter of 2019 was 4.12%, including 2 basis points attributable to acquired loan discount accretion, compared to 4.31%, including 4 basis points attributable to acquired loan discount accretion, for the third quarter of 2019. The decrease was primarily attributable to a decline in average loan yields, lower average loan balances, and an increase in lower-yielding cash balances.

Relative to the fourth quarter of 2018, net interest margin decreased from 4.29%, including 9 basis points attributable to acquired loan discount accretion, due primarily to lower loan yields and an increase in lower-yielding cash balances.

The increase in lower yielding cash balances during the fourth quarter of 2019 was primarily due to higher balances for a small number of retail deposit accounts.  These funds were mainly invested in lower yielding cash balances, resulting in a $0.2 million increase in net interest income and a 4 basis point reduction in the net interest margin for the quarter.

The Federal Open Market Committee lowered its target federal funds rate for the first time in 11 years on July 31, 2019 and then again in September 2019 and October 2019. The Company expects the cumulative decrease of 75 basis points in the target federal funds rate in 2019 to continue placing downward pressure on its net interest margin in 2020.

Noninterest Income

Noninterest income for the fourth quarter of 2019 was $10.3 million, an increase of 36.3% from $7.6 million for the third quarter of 2019. Fourth quarter 2019 results benefitted from a $0.6 million gain on the fair value adjustment of the MSR asset compared to a negative $0.9 million MSR fair value adjustment in the third quarter of 2019. Gains on foreclosed assets and fees on customer-related interest rate swaps, included in other noninterest income, also contributed to noninterest income growth.

Relative to the fourth quarter of 2018, noninterest income increased 60.8% from $6.4 million. The growth was primarily attributable to lower securities losses, gains on foreclosed assets, and higher other income.

Noninterest Expense

Noninterest expense for the fourth quarter of 2019 was $22.0 million, compared with $22.3 million for the third quarter of 2019. The decrease was primarily attributable to lower employee benefits expense, as third quarter of 2019 results included a $0.8 million charge for the supplemental executive retirement plan (SERP) which was terminated in June 2019.  The SERP liability varies inversely with interest rates, therefore there was a $0.4 million credit in the fourth quarter of 2019.  The SERP will be liquidated in June 2020. FDIC insurance expense was lower in the fourth quarter of 2019 due to the application of small bank assessment credits. Other noninterest and occupancy expenses were also lower in the fourth quarter of 2019, but were more than offset by higher salaries, marketing, and furniture and equipment costs. 

Relative to the fourth quarter of 2018, noninterest expense decreased 6.4% from $23.4 million. The decrease was primarily due to lower other, FDIC insurance, employee benefits, and occupancy expenses.

Loan Portfolio

Total loans, before allowance for loan losses outstanding were $2.16 billion at December 31, 2019, compared with $2.17 billion at September 30, 2019 and $2.14 billion at December 31, 2018. The $7.2 million decline in loans from September 30, 2019 was primarily due to a $41.2 million reduction in loan participations resulting primarily from the payoff of five loans, offset by organic loan growth primarily in commercial real estate – non-owner occupied and construction and development. The five loan participations that paid off included $22.3 million in commercial and industrial, $4.8 million in CRE – non-owner occupied, $8.8 million in multi-family and $3.6 million in municipal, consumer and other.  Loan participations make up a small portion of the Company’s loan portfolio totaling $71.7 million at December 31, 2019 compared to $112.9 million at September 30, 2019 and $131.4 million at December 31, 2018.

Based on loan trends experienced in 2019 and a healthy loan pipeline, the Company expects low-single digit loan growth in 2020.

Deposits

Total deposits were $2.78 billion at December 31, 2019, compared with $2.70 billion at September 30, 2019, and $2.80 billion at December 31, 2018. The $72.8 million increase in total deposits from September 30, 2019 was broad-based with growth in noninterest-bearing, interest-bearing demand, money market and savings balances more than offsetting a decline in time deposits.

The deposit growth in the fourth quarter of 2019 included approximately $40.2 million in increased balances in a small number of retail deposit accounts. The changes in these accounts included a $4.2 million increase in non-interest bearing, a $3.0 million decrease in interest bearing demand, a $31.1 million increase in money market, and a $8.0 million increase in savings.  The Company expects some outflow in these deposits during the first quarter of 2020.

Asset Quality

Nonperforming loans totaled $19.0 million, or 0.88% of total loans, at December 31, 2019, compared with $19.1 million, or 0.88% of total loans, at September 30, 2019, and $15.9 million, or 0.74% of total loans, at December 31, 2018.

Net charge-offs for the fourth quarter of 2019 were $0.6 million, or 0.11% of average loans on an annualized basis.

The Company recorded a provision for loan losses of $0.1 million for the fourth quarter of 2019, compared with $0.7 million for the third quarter of 2019. The reduction in provision for loan losses was primarily due to a reduction in specific reserves on two credits as a result of improved collateral positions. The Company’s allowance for loan losses was 1.03% of total loans and 117.06% of nonperforming loans at December 31, 2019, compared with 1.05% of total loans and 119.34% of nonperforming loans at September 30, 2019.

Capital

At December 31, 2019, the Company exceeded all regulatory capital requirements under Basel III and was considered to be ‘‘well-capitalized’’, as summarized in the following table:

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

Completion of Initial Public Offering

On October 10, 2019, the Company priced its initial public offering (the “IPO”), and issued 8,300,000 shares of its common stock at a price to the public of $16.00 per share on October 11, 2019.  On October 29, 2019, the underwriters purchased an additional 1,129,794 shares pursuant to the exercise of their option to purchase additional shares from HBT Financial at the initial public offering price, less underwriting discounts and commissions. In total, HBT sold 9,429,794 shares of common stock in the initial public offering, raising total net proceeds, after deducting estimated underwriting discounts and commissions and offering expenses payable by the Company, of approximately $138 million.

On October 22, 2019, the Company paid a $170 million distribution to its pre-IPO stockholders, using the net proceeds of the initial public offering and the proceeds of dividends from Heartland Bank and Trust Company and State Bank of Lincoln.

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 businesses, families and local governments throughout Central and Northeastern Illinois through 64 branches. As of December 31, 2019, HBT had total assets of $3.2 billion, total loans of $2.2 billion, and total deposits of $2.8 billion. HBT is a longstanding Central Illinois company, with banking roots that can be traced back nearly 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, efficiency ratio (tax-equivalent basis), tangible common equity to tangible assets, adjusted C Corp equivalent net income, adjusted C Corp equivalent return on average assets, adjusted C Corp equivalent return on average stockholders' equity, and adjusted C Corp equivalent 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, including changes in interest rates and other general economic, business and political conditions, including changes 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

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*    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 C Corp 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.