Second Quarter Highlights

- Net income of $7.4 million, or $0.27 per diluted share; return on average assets (ROAA) of 0.86%; return on average stockholders’ equity (ROAE) of 8.56%; and return on average tangible common equity (ROATCE) of 9.29%

- Adjusted net income of $8.2 million; or $0.30 per diluted share, adjusted ROAA(1) of 0.95%; adjusted ROAE(1) of 9.49%; and adjusted ROATCE(1) of 10.29%

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 $7.4 million, or $0.27 diluted earnings per share, for the second quarter of 2020. This compares to net income of $6.2 million, or $0.23 diluted earnings per share, for the first quarter of 2020, and net income of $14.6 million, or $0.81 diluted earnings per share, for the second quarter of 2019.

Fred L. Drake, Chairman and Chief Executive Officer of HBT Financial, said, “I am proud of our team’s efforts to serve our customers and communities during the challenging circumstances of the last several months. We have worked hard to provide the high service levels our customers have come to expect while prioritizing health and safety. Our lenders continue to work closely with borrowers to find the best solutions to help them manage through this economic downturn. We are pleased to have approved and funded $184 million of Paycheck Protection Program (PPP) loans to 2,245 businesses supporting approximately 24,000 employees.”

“Although our second quarter results were impacted by the low interest rate environment and reserve build, we remained solidly profitable, which is a reflection of the strength and consistency of our franchise. While we remain cautious about the future impact of the pandemic on our borrowers, so far we have not experienced a significant impact on our portfolio. Our delinquent and nonperforming loans decreased during the second quarter and a relatively small number of our borrowers, for whom we provided a COVID-19 related loan modification, are requiring a second modification. Our strong capital and liquidity levels, solid asset quality trends, and attractive deposit base position us well to continue supporting our stakeholders through this crisis,” said Mr. Drake.

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 $11.1 million, or $0.62 diluted earnings per share, for the second 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 $8.2 million, or $0.30 adjusted diluted earnings per share, for the second quarter of 2020. This compares to adjusted net income of $8.4 million, or $0.30 adjusted diluted earnings per share, for the first quarter of 2020, and adjusted net income of $14.3 million, or $0.79 adjusted diluted earnings per share, for the second quarter of 2019 (see “Reconciliation of Non-GAAP Financial Measures” tables).

Net Interest Income and Net Interest Margin

Net interest income for the second quarter of 2020 was $28.9 million, a decrease of 5.7% from $30.7 million for the first quarter of 2020. The decrease was primarily attributable to lower yields on loans, securities and cash balances offset by an increase in average loans, due to PPP loans, and securities.

Relative to the second quarter of 2019, net interest income decreased $5.0 million, or 14.8%. The decline was primarily attributable to lower yields on average interest-earning assets offset by an increase in average loans due to PPP loans.

Net interest margin for the second quarter of 2020 was 3.49% compared to 4.00% for the first quarter of 2020. The decrease was primarily attributable to the decline in the average yield on earning assets; however, 4 basis points of the decline was due to less acquired loan discount accretion and approximately 15 basis points of the decline was due to excess liquidity that was used to fund the PPP loans and held in overnight funds at the Federal Reserve.

Relative to the second quarter of 2019, net interest margin decreased from 4.36%. The decrease was due primarily to the decline in the average yield on earning assets; however, 5 basis points of the decline was due to less acquired loan accretion and approximately 15 basis points of the decline was due to excess liquidity that was used to fund the PPP loans and held in overnight funds at the Federal Reserve.

Noninterest Income

Noninterest income for the second quarter of 2020 was $8.1 million, an increase of 53.5% from $5.3 million for the first quarter of 2020. Second quarter 2020 results included a negative $0.5 million mortgage servicing rights (“MSR”) fair value adjustment compared to a negative $2.2 million fair value adjustment in the first quarter of 2020. A $1.6 million increase in gains on sale of mortgage loans attributable to a strong mortgage refinancing environment more than offset a $0.7 million decline in service charges on deposit accounts associated with lower overdraft incidences and fee waivers.

Relative to the second quarter of 2019, noninterest income increased 9.7% from $7.3 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 $0.8 million decline in service charges on deposit accounts associated with lower overdraft incidences and fee waivers.

Noninterest Expense

Noninterest expense for the second quarter of 2020 was $23.5 million, an increase of 0.8% from $23.3 million for the first quarter of 2020. The increase was primarily attributable to higher other noninterest expense, FDIC insurance, and loan collection and servicing expenses. Second quarter of 2020 results included a $0.6 million charge related to the termination of the supplemental executive retirement plan (SERP). The SERP was terminated in June 2019 and was liquidated in June 2020. During the period between termination and liquidation of the SERP, the SERP liability varied inversely with interest rates and resulted in a $0.8 million charge in the first quarter of 2020. The SERP liability will no longer affect earnings in periods subsequent to the second quarter of 2020.

Relative to the second quarter of 2019, noninterest expense decreased 4.3% from $24.6 million. The decrease was primarily due to lower employee benefits costs, which included a $3.3 million charge related to the termination of the SERP in the second quarter of 2019, that was partially offset by higher salaries and medical benefit expenses. Increased other noninterest expenses include higher legal and professional fees associated with public company costs not incurred in the second quarter of 2019.

Loan Portfolio

Total loans outstanding, before allowance for loan losses, were $2.28 billion at June 30, 2020, compared with $2.13 billion at March 31, 2020 and $2.20 billion at June 30, 2019. The $142.8 million increase in loans from March 31, 2020 was primarily due to PPP loans which totaled $178.0 million as of June 30, 2020. Net of PPP loans, the $35.1 million decrease in total loans outstanding, before allowance for loan losses, from March 31, 2020 was primarily attributed to a $49.4 million reduction in balances on existing business lines of credit and a $13.7 million reduction in participation loan balances. The decrease was concentrated in a $57.9 million reduction in commercial and industrial loans partially offset by a $15.3 million increase in construction and land development loans. The $105.3 million decrease in total loans outstanding, net of PPP loans, from June 30, 2019 was primarily due to a $67.1 million reduction in participation loan balances and a $36.6 million reduction in balances on existing business lines of credit.

Deposits

Total deposits were $3.02 billion at June 30, 2020, compared with $2.73 billion at March 31, 2020, and $2.77 billion at June 30, 2019. The $284.8 million increase in total deposits from June 30, 2020 was primarily due to PPP loan proceeds received by commercial customers and federal economic stimulus payments received by retail customers.

Asset Quality

Nonperforming loans totaled $14.0 million, or 0.61% of total loans, at June 30, 2020, compared with $15.4 million, or 0.72% of total loans, at March 31, 2020, and $25.1 million, or 1.14% of total loans, at June 30, 2019. The decrease in nonperforming loans from the end of the prior quarter was primarily attributable to the pay-off of two loans, and to a lesser extent, the transfer of one loan to foreclosed assets. The reduction in nonperforming loans from June 30, 2019 was primarily due to the pay-down or pay-off of several loans, and to a significantly lesser degree, the charge-down and transfer to foreclosed assets of a few loans.

The Company recorded a provision for loan losses of $3.6 million for the second quarter of 2020, which was primarily due to adjustments to qualitative factors to reflect the economic weakness resulting from the COVID-19 pandemic.

Net recoveries for the second quarter of 2020 were $63 thousand, or 0.01% of average loans on an annualized basis compared to net charge-offs of $0.6 million, or 0.11% of average loans on an annualized basis, for the first quarter of 2020, and net charge-offs of $0.3 million, or 0.05% of average loans on an annualized basis, for the second quarter of 2019.

The Company’s allowance for loan losses was 1.31% of total loans and 213.04% of nonperforming loans at June 30, 2020, compared with 1.22% of total loans and 169.70% of nonperforming loans at March 31, 2020.

Capital

At June 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:

Disclaimer: The table has been omitted (The document can be viewed at https://ir.hbtfinancial.com/news-releases/news-release-details/hbt-financial-inc-announces-second-quarter-2020-financial)

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 June 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.

Source: HBT Financial, Inc.

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