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 June 30, 2022
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 July 27, 2022, there were 28,806,827 shares outstanding of the registrant’s common stock, $0.01 par value.
TABLE OF CONTENTSHBT Financial, Inc.
Page
PART I. FINANCIAL INFORMATION
3
Item 1.
Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
4
Consolidated Statements of Comprehensive Income (Loss)
5
Consolidated Statement of Changes in Stockholders’ Equity
6
Consolidated Statements of Cash Flows
8
Notes to Consolidated Financial Statements
10
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
51
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
84
Item 4.
Controls and Procedures
85
PART II. OTHER INFORMATION
86
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
36
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
87
Item 6.
Exhibits
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:
1
These risks and uncertainties 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
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
HBT FINANCIAL, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
(Unaudited)
June 30,
December 31,
2022
2021
ASSETS
Cash and due from banks
$
25,478
23,387
Interest-bearing deposits with banks
134,553
385,881
Cash and cash equivalents
160,031
409,268
Interest-bearing time deposits with banks
—
490
Debt securities available-for-sale, at fair value
924,706
942,168
Debt securities held-to-maturity (fair value of $510,152 in 2022 and $336,027 in 2021)
548,236
336,185
Equity securities with readily determinable fair value
3,103
3,443
Equity securities with no readily determinable fair value
1,952
1,927
Restricted stock, at cost
2,813
2,739
Loans held for sale
5,312
4,942
Loans, before allowance for loan losses
2,451,826
2,499,689
Allowance for loan losses
(24,734)
(23,936)
Loans, net of allowance for loan losses
2,427,092
2,475,753
Bank owned life insurance
7,474
7,393
Bank premises and equipment, net
51,433
52,483
Bank premises held for sale
319
1,452
Foreclosed assets
2,891
3,278
Goodwill
29,322
Core deposit intangible assets, net
1,453
1,943
Mortgage servicing rights, at fair value
10,089
7,994
Investments in unconsolidated subsidiaries
1,165
Accrued interest receivable
14,263
14,901
Other assets
32,324
17,408
Total assets
4,223,978
4,314,254
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-bearing
1,028,790
1,087,659
Interest-bearing
2,673,196
2,650,526
Total deposits
3,701,986
3,738,185
Securities sold under agreements to repurchase
51,091
61,256
Subordinated notes
39,356
39,316
Junior subordinated debentures issued to capital trusts
37,747
37,714
Other liabilities
19,989
25,902
Total liabilities
3,850,169
3,902,373
COMMITMENTS AND CONTINGENCIES (Note 14)
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; shares issued of 29,308,491 at 2022 and 29,276,547 at 2021; shares outstanding of 28,831,197 at 2022 and 28,986,061 at 2021
293
Surplus
222,087
220,891
Retained earnings
212,506
194,132
Accumulated other comprehensive income (loss)
(52,820)
1,471
Treasury stock at cost, 477,294 shares at 2022 and 290,486 at 2021
(8,257)
(4,906)
Total stockholders’ equity
373,809
411,881
Total liabilities and stockholders’ equity
See accompanying Notes to Consolidated Financial Statements (Unaudited)
HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30,
Six Months Ended June 30,
INTEREST AND DIVIDEND INCOME
Loans, including fees:
Taxable
27,843
25,278
54,649
50,412
Federally tax exempt
679
540
1,341
1,150
Securities:
5,663
4,058
10,312
7,691
1,138
1,144
2,178
2,280
Interest-bearing deposits in bank
420
115
579
195
Other interest and dividend income
14
12
33
25
Total interest and dividend income
35,757
31,147
69,092
61,753
INTEREST EXPENSE
Deposits
506
613
1,075
1,257
17
15
Borrowings
469
939
400
357
758
712
Total interest expense
1,384
1,447
2,791
2,924
Net interest income
34,373
29,700
66,301
58,829
PROVISION FOR LOAN LOSSES
145
(2,162)
(439)
(5,567)
Net interest income after provision for loan losses
34,228
31,862
66,740
64,396
NONINTEREST INCOME
Card income
2,714
2,449
5,118
4,707
Wealth management fees
2,322
2,005
4,611
3,977
Service charges on deposit accounts
1,792
1,390
3,444
2,687
Mortgage servicing
661
711
1,319
1,396
Mortgage servicing rights fair value adjustment
366
(310)
2,095
1,385
Gains on sale of mortgage loans
326
1,562
913
3,662
Unrealized gains (losses) on equity securities
(153)
(340)
46
Gains (losses) on foreclosed assets
(7)
216
140
Gains (losses) on other assets
(43)
(48)
150
(47)
Income on bank owned life insurance
41
81
Other noninterest income
532
793
1,170
1,629
Total noninterest income
8,551
8,774
18,594
19,582
NONINTEREST EXPENSE
Salaries
12,936
12,173
25,737
24,651
Employee benefits
1,984
1,409
4,428
3,094
Occupancy of bank premises
1,741
1,463
3,801
3,401
Furniture and equipment
623
603
1,175
1,226
Data processing
1,990
1,721
3,643
3,409
Marketing and customer relations
1,205
843
2,056
1,408
Amortization of intangible assets
245
258
547
FDIC insurance
298
244
586
484
Loan collection and servicing
278
333
435
698
31
163
462
Other noninterest expense
2,511
2,788
5,485
5,318
Total noninterest expense
23,842
22,154
47,999
44,698
INCOME BEFORE INCOME TAX EXPENSE
18,937
18,482
37,335
39,280
INCOME TAX EXPENSE
4,852
4,765
9,646
10,318
NET INCOME
14,085
13,717
27,689
28,962
EARNINGS PER SHARE - BASIC
0.49
0.50
0.96
1.06
EARNINGS PER SHARE - DILUTED
0.95
1.05
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING
28,891,202
27,362,579
28,938,634
27,396,557
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands)
OTHER COMPREHENSIVE (LOSS) INCOME
Unrealized (losses) gains on debt securities available-for-sale
(24,151)
8,800
(77,573)
(14,274)
Reclassification adjustment for amortization of net unrealized losses on debt securities transferred to held-to-maturity
549
199
730
231
Unrealized gains (losses) on derivative instruments
149
(38)
743
181
Reclassification adjustment for net settlements on derivative instruments
67
102
201
Total other comprehensive (loss) income, before tax
(23,386)
9,063
(75,937)
(13,661)
Income tax (benefit) expense
(6,666)
2,583
(21,646)
(3,894)
Total other comprehensive (loss) income
(16,720)
6,480
(54,291)
(9,767)
TOTAL COMPREHENSIVE (LOSS) INCOME
(2,635)
20,197
(26,602)
19,195
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Accumulated
Common Stock
Other
Total
Shares
Retained
Comprehensive
Treasury
Stockholders’
Outstanding
Amount
Earnings
Income (Loss)
Stock
Equity
Balance, March 31, 2022
28,967,943
221,735
203,076
(36,100)
(5,849)
383,155
Net income
Other comprehensive loss
Stock-based compensation
352
Repurchase of common stock
(136,746)
(2,408)
Cash dividends and dividend equivalents ($0.16 per share)
(4,655)
Balance, June 30, 2022
28,831,197
Balance, March 31, 2021
27,382,069
275
191,004
165,735
1,906
(1,514)
357,406
Other comprehensive income
(27,016)
(466)
Cash dividends and dividend equivalents ($0.15 per share)
(4,124)
Balance, June 30, 2021
27,355,053
191,185
175,328
8,386
(1,980)
373,194
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)
Balance, December 31, 2021
28,986,061
1,253
Issuance of common stock upon vesting of restricted stock units, net of tax withholdings
31,944
(57)
(186,808)
(3,351)
Cash dividends and dividend equivalents ($0.32 per share)
(9,315)
Balance, December 31, 2020
27,457,306
190,875
154,614
18,153
363,917
310
Issuance of common stock upon vesting of restricted stock units
20,225
(122,478)
Cash dividends and dividend equivalents ($0.30 per share)
(8,248)
7
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense
1,532
1,545
Provision for loan losses
Net amortization of debt securities
3,609
3,553
Deferred income tax expense
141
1,137
Net accretion of discount and deferred loan fees on loans
(3,263)
(5,499)
Net unrealized loss (gain) on equity securities
340
(46)
Net loss on disposals of bank premises and equipment
Net gain on sales of bank premises held for sale
(187)
Impairment losses on bank premises held for sale
23
Net gain on sales of foreclosed assets
(98)
(213)
Write-down of foreclosed assets
65
73
Amortization of intangibles
Increase in mortgage servicing rights
(2,095)
(1,385)
Amortization of discount and issuance costs on subordinated notes and debentures
72
Amortization of premium on interest-bearing time deposits with banks
Amortization of premium on time deposits
(126)
Mortgage loans originated for sale
(38,091)
(114,768)
Proceeds from sale of mortgage loans
38,634
127,192
Net gain on sale of mortgage loans
(913)
(3,662)
Increase in cash surrender value of bank owned life insurance
(81)
Decrease in accrued interest receivable
638
1,470
Decrease in other assets
1,827
2,190
Increase in other liabilities
(245)
(12,311)
Net cash provided by operating activities
30,795
23,614
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of interest-bearing time deposits with banks
485
Proceeds from paydowns, maturities, and calls of debt securities
74,703
101,621
Purchase of securities
(349,769)
(273,352)
Net decrease in loans
52,336
95,944
Purchase of restricted stock
(74)
(241)
Purchases of bank premises and equipment
(496)
(572)
Proceeds from sales of bank premises and equipment
Proceeds from sales of bank premises held for sale
1,297
Proceeds from sales of foreclosed assets
447
1,229
Net cash used in investing activities
(221,071)
(75,354)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits
(36,073)
294,100
Net (decrease) increase in repurchase agreements
(10,165)
1,020
Taxes paid related to the vesting of restricted stock units
Cash dividends and dividend equivalents paid
Net cash (used in) provided by financing activities
(58,961)
284,892
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(249,237)
233,152
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
312,451
CASH AND CASH EQUIVALENTS AT END OF PERIOD
545,603
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest
2,860
3,118
Cash paid for income taxes
7,845
12,991
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES
Transfers of loans to foreclosed assets
27
4,856
Sales of foreclosed assets through loan origination
178
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ACCOUNTING POLICIES
Basis of Presentation
HBT Financial, Inc. (“HBT Financial” or the “Company”) is headquartered in Bloomington, Illinois and is the holding company for Heartland Bank and Trust Company (“Heartland Bank” or the “Bank”). The Bank provides 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 and Eastern Iowa. Additionally, the Company is subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory agencies.
The unaudited consolidated financial statements, including the notes thereto, have been prepared in accordance with accounting principles generally accepted in the U.S. (“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 SEC. 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 for the year ended December 31, 2021, filed with the SEC on March 11, 2022.
The unaudited consolidated financial statements include all 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 may remain an emerging growth company until the earliest to occur of: (1) the end of the fiscal year following the fifth anniversary of the completion of our initial public offering, which is December 31, 2024, (2) the last day of the fiscal year in which the Company has $1.07 billion or more in annual revenues, (3) the date on which the Company is deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) or (4) the date on which the Company has, during the previous three year period, issued, publicly or privately, more than $1.0 billion in non-convertible debt securities. 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 GAAP. 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 fair value of assets acquired and liabilities assumed in business combinations.
Segment Reporting
The Company’s operations consist of one reportable segment. The Company’s chief operating decision maker evaluates the operations of the Company using consolidated information for purposes of allocating resources and assessing performance.
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.
Subsequent Events
In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.
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 has formed an implementation team to assess the impact that ASU 2016-13 will have on the Company’s consolidated financial statements. For the majority of loans evaluated on a pooled basis, the Company anticipates using a discounted cash flow method which considers instrument level cash flows adjusted for, among other factors, prepayment speeds, probability of default, and loss given default. The Company also anticipates using regression analysis of historical internal and peer data to determine which variables are best suited to be economic variables utilized when modeling lifetime probability of default and loss given default.
The ultimate impact to the Company’s financial condition and results of operations of ASU 2016-13, at both adoption and each subsequent reporting period, is highly dependent on credit quality, macroeconomic forecasts and conditions, the composition of our loan and securities portfolios, along with other management judgments.
11
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies measurement of goodwill and eliminates Step 2 from the goodwill impairment test. Under ASU 2017-04, 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.
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. ASU 2020-04 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. In January 2021, the FASB also issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which refined the scope for certain optional expedients and exceptions for contract modifications and hedge accounting to apply to derivative contracts and certain hedging relationships affected by the discounting transition. 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 – ACQUISITIONS
NXT Bancorporation, Inc.
On October 1, 2021, HBT Financial acquired 100% of the issued and outstanding common stock of NXT Bancorporation, Inc. (“NXT”), the holding company for NXT Bank, pursuant to an Agreement and Plan of Merger dated June 7, 2021. Under the Agreement and Plan of Merger, NXT merged with and into HBT Financial, with HBT Financial as the surviving entity, on October 1, 2021. Additionally, NXT Bank was merged with and into Heartland Bank, with Heartland Bank as the surviving entity, in December 2021.
At the effective time of the merger, each share of NXT was converted into the right to receive 67.6783 shares of HBT Financial common stock, cash in lieu of fractional shares, and $400 in cash. There were 1,799,016 shares of HBT Financial common stock issued at the effective time of the acquisition with an aggregate market value of $29.3 million, based on the closing stock price of $16.27 on October 1, 2021. This transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair values on the date of acquisition. Goodwill of $5.7 million was recorded in the acquisition, which reflects expected synergies from combining the operations of HBT Financial and NXT, and is nondeductible for tax purposes.
The acquisition of NXT provided an opportunity to utilize Heartland Bank’s excess liquidity at the time of acquisition to replace NXT Bank’s higher-cost funding. Additionally, Heartland Bank’s broader range of products and services, as well as a greater ability to meet larger borrowing needs, has provided an opportunity to expand NXT Bank’s customer relationships.
During the three and six months ended June 30, 2021, HBT Financial incurred $0.2 million in pre-tax acquisition expenses related to the acquisition of NXT, comprised primarily of professional fees. These expenses are reflected in noninterest expense on the consolidated statements of income. There were no acquisition expenses related to the acquisition of NXT during the three and six months ended June 30, 2022.
The fair value of the assets acquired and liabilities assumed from NXT on the acquisition date were as follows (dollars in thousands):
Fair Value
Assets acquired:
5,862
739
Debt securities
18,295
43
Restricted stock
796
Loans
194,576
7,352
Bank premises and equipment
3,667
Core deposit intangible assets
Mortgage servicing rights
370
886
1,340
Total assets acquired
234,125
Liabilities assumed:
181,586
4,080
FHLB advances
12,625
1,633
Total liabilities assumed
199,924
Net assets acquired
34,201
Consideration paid:
Cash
10,633
Common stock
29,270
Total consideration paid
39,903
5,702
The following table presents the acquired non-impaired loans as of the acquisition date (dollars in thousands):
Gross contractual amounts receivable
196,104
Estimate of contractual cash flows not expected to be collected
1,045
There were no loans acquired with deteriorated credit quality from NXT.
13
The following table provides the pro forma information for the results of operations for the three and six months ended June 30, 2021, as if the acquisition had occurred on January 1, 2020. The pro forma results combine the historical results of NXT into HBT Financial’s consolidated statements of income, including the impact of certain acquisition accounting adjustments, which include loan discount accretion, intangible assets amortization, deposit premium amortization, and borrowing premium amortization. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results that would have been obtained had the acquisition actually occurred on January 1, 2020. No assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, provision for loan losses, expense efficiencies or asset dispositions. The acquisition-related expenses that have been recognized are included in net income in the following table.
Pro Forma
Three Months Ended
Six Months Ended
June 30, 2021
Total revenues (net interest income and noninterest income)
40,621
83,164
14,222
30,192
Earnings per share - basic
1.03
Earnings per share - diluted
NOTE 3 – SECURITIES
Debt Securities
The amortized cost and fair values of debt securities, with gross unrealized gains and losses, are as follows:
June 30, 2022
AmortizedCost
GrossUnrealizedGains
GrossUnrealizedLosses
Available-for-sale:
U.S. Treasury
169,930
(10,725)
159,205
U.S. government agency
60,373
(2,156)
58,217
Municipal
286,012
190
(25,661)
260,541
Mortgage-backed:
Agency residential
236,516
152
(11,626)
225,042
Agency commercial
160,576
(11,355)
149,236
Corporate
74,345
215
72,465
Total available-for-sale
987,752
572
(63,618)
Held-to-maturity:
88,413
(5,364)
83,049
40,920
376
(66)
41,230
108,711
276
(1,971)
107,016
310,192
45
(31,380)
278,857
Total held-to-maturity
697
(38,781)
510,152
Total debt securities
1,535,988
1,269
(102,399)
1,434,858
December 31, 2021
109,002
328
(354)
108,976
129,269
1,303
(2,467)
128,105
293,837
6,144
(2,904)
297,077
178,236
2,149
(919)
179,466
164,875
1,234
(2,048)
164,061
63,141
1,638
(296)
64,483
938,360
12,796
(8,988)
12,349
42
(51)
12,340
15,666
809
16,475
20,555
196
(102)
20,649
287,615
1,749
(2,801)
286,563
2,796
(2,954)
336,027
1,274,545
15,592
(11,942)
1,278,195
On March 31, 2022, June 30, 2021, and March 31, 2021, the Company transferred certain debt securities from the available-for-sale category to the held-to-maturity category in order to better reflect the revised intentions of the Company due to possible market value volatility, resulting from a potential rise in interest rates. The following is a summary of the amortized cost and fair value of securities transferred to the held-to-maturity category:
March 31, 2022
March 31, 2021
Amortized
Cost
78,841
71,048
7,593
7,323
8,175
7,651
8,776
8,536
27,834
25,432
99,271
99,275
118,792
113,861
114,850
104,131
135,161
129,720
The debt securities were transferred between categories at fair value, with the transfer date fair value becoming the new amortized cost for each security transferred. The unrealized gain (loss), net of tax, at the date of transfer remains a component of accumulated other comprehensive income, but will be amortized over the remaining life of the debt securities as an adjustment of yield in a manner consistent with amortization of any premium or discount. As a result, the amortization of an unrealized gain (loss) reported in accumulated other comprehensive income will offset or mitigate the effect on interest income of the amortization of the premium or discount for that held-to-maturity debt security.
As of June 30, 2022 and December 31, 2021, the Bank had debt securities with a carrying value of $394.0 million and $353.3 million, respectively, which were pledged to secure public 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 49% of the municipal portfolio consists of debt securities issued by municipalities located in Illinois as of June 30, 2022. Approximately 81% of such debt securities were general obligation issues as of June 30, 2022.
The amortized cost and fair value of debt securities by contractual maturity, as of June 30, 2022, 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
Due in 1 year or less
29,520
29,517
2,140
2,159
Due after 1 year through 5 years
209,572
202,398
26,318
26,058
Due after 5 years through 10 years
272,306
247,656
77,431
73,997
Due after 10 years
79,262
70,857
23,444
22,065
16
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 June 30, 2022 and December 31, 2021:
Investments in a Continuous Unrealized Loss Position
Less than 12 Months
12 Months or More
UnrealizedLoss
58,197
(15,751)
176,771
(9,910)
50,424
227,195
(11,320)
203,603
(306)
4,556
208,159
(8,812)
114,025
(2,543)
22,685
136,710
(1,085)
46,792
(1,010)
3,952
50,744
(49,849)
758,593
(13,769)
81,617
840,210
(2,564)
40,773
(2,800)
42,276
6,513
74,978
(31,078)
274,153
(302)
2,238
276,391
(35,679)
396,417
(3,102)
44,514
440,931
(85,528)
1,155,010
(16,871)
126,131
1,281,141
68,410
(2,183)
80,219
(284)
5,578
85,797
(2,018)
89,424
(886)
17,327
106,751
(851)
91,703
(68)
4,305
96,008
(1,921)
113,111
(127)
6,443
119,554
2,737
(289)
4,671
7,408
(7,334)
445,604
(1,654)
38,324
483,928
4,949
14,932
(2,673)
174,428
(128)
2,776
177,204
(2,826)
194,309
197,085
(10,160)
639,913
(1,782)
41,100
681,013
As of June 30, 2022, there were 87 debt securities in an unrealized loss position for a period of twelve months or more, and 603 debt securities in an unrealized loss position for a period of less than twelve months. These unrealized losses are primarily a result of fluctuations in market interest rates. In analyzing an issuer’s financial condition, management considers whether the debt securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports. Management believes that all declines in value of these debt securities are deemed to be temporary.
There were no sales of debt securities during the three and six months ended June 30, 2022 and 2021.
Equity Securities
Equity securities with readily determinable fair values are measured at fair value with changes in fair value recognized in gains (losses) on securities on the consolidated statements of income.
The Company has elected to measure equity securities with no readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes for identical or similar securities of the same issuer.
The initial cost and carrying values of equity securities, with cumulative net unrealized gains and losses are as follows:
Readily
No Readily
Determinable
Initial cost
3,142
2,117
Cumulative net unrealized gains (losses)
(39)
(165)
Carrying value
2,092
301
As of June 30, 2022 and December 31, 2021, the cumulative net unrealized losses on equity securities with no readily determinable fair value reflect downward adjustments based on observable price changes of an identical investment. There have been no impairments or upward adjustments based on observable price changes to equity securities with no readily determinable fair value.
18
There were no sales of equity securities during the three and six months ended June 30, 2022 and 2021. Unrealized gains (losses) on equity securities were as follows during the three and six months ended June 30, 2022:
Readily determinable fair value
No readily determinable fair value
NOTE 4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES
Major categories of loans are summarized as follows:
Commercial and industrial
249,839
286,946
Agricultural and farmland
230,370
247,796
Commercial real estate - owner occupied
228,997
234,544
Commercial real estate - non-owner occupied
656,093
684,023
Multi-family
269,452
263,911
Construction and land development
332,041
298,048
One-to-four family residential
325,047
327,837
Municipal, consumer, and other
159,987
156,584
Paycheck Protection Program (PPP) loans (included above)
2,823
28,404
171
Total PPP loans
2,832
29,488
19
The following tables detail activity in the allowance for loan losses for the three and six months ended June 30:
Commercial
Municipal,
Agricultural
Real Estate
Construction
One-to-four
Consumer,
and
Owner
Non-owner
and Land
Family
Three Months Ended June 30, 2022
Industrial
Farmland
Occupied
Multi-Family
Development
Residential
Allowance for loan losses:
2,491
842
1,511
7,014
1,354
4,493
1,583
5,220
24,508
450
82
(287)
(408)
21
(434)
670
Charge-offs
(112)
(159)
Recoveries
40
109
240
2,981
924
1,224
6,611
1,375
4,059
1,696
5,864
24,734
Three Months Ended June 30, 2021
2,420
865
2,715
11,330
2,090
4,006
1,573
3,760
28,759
578
(84)
(769)
(1,511)
(261)
(45)
(295)
(41)
(402)
179
80
312
2,717
781
1,946
9,825
2,009
3,924
1,520
3,785
26,507
Six Months Ended June 30, 2022
2,440
845
1,840
8,145
1,263
4,914
1,311
3,178
23,936
(203)
79
(716)
(1,804)
112
(855)
2,777
(5)
(49)
(239)
(293)
749
100
270
263
148
1,530
Consumer
Six Months Ended June 30, 2021
3,929
3,141
11,251
1,957
4,232
1,801
4,734
31,838
(1,224)
(12)
(1,195)
(1,439)
52
(577)
(243)
(929)
(113)
(189)
(597)
307
269
75
169
833
20
The following tables present the recorded investments in loans and the allowance for loan losses by category:
Loan balances:
Collectively evaluated for impairment
240,604
229,409
211,886
611,614
268,880
328,912
311,353
147,226
2,349,884
Individually evaluated for impairment
9,101
247
12,524
32,430
2,008
8,560
12,737
77,607
Acquired with deteriorated credit quality
134
714
4,587
12,049
1,121
5,134
24
24,335
2,827
993
3,968
1,372
4,056
1,594
1,873
17,607
154
208
2,641
3,991
7,094
272,064
247,021
216,794
641,555
262,701
293,548
314,807
143,510
2,392,000
14,744
12,332
29,575
2,018
6,897
13,041
78,619
138
763
5,418
12,893
1,210
2,482
6,133
29,070
2,253
1,480
5,138
1,259
4,895
1,099
1,302
18,271
187
327
2,999
210
1,875
5,598
The following tables present loans individually evaluated for impairment by category of loans:
Unpaid
Principal
Recorded
Related
Balance
Investment
Allowance
With an allowance recorded:
254
742
14,526
14,513
576
534
8,312
8,289
24,410
24,332
With no related allowance:
8,861
8,847
11,936
11,782
17,997
17,917
2,108
9,337
8,026
4,488
4,448
54,974
53,275
Total loans individually evaluated for impairment:
9,115
12,678
32,523
9,913
12,800
79,384
22
303
3,013
14,912
14,893
1,421
1,314
8,523
8,498
28,172
28,021
14,452
14,441
9,534
9,319
14,755
14,682
2,112
7,129
5,583
4,603
4,543
52,597
50,598
12,547
29,667
8,550
13,126
80,769
The following tables present the average recorded investment and interest income recognized for loans individually evaluated for impairment by category of loans:
Average
Interest
Income
Recognized
267
1,888
165
745
2,744
14,603
185
15,564
197
548
2,165
8,344
8,726
39
24,507
250
31,252
334
15,156
156
76
252
383
11,887
5,530
70
17,947
5,586
874
2,012
26
1,971
8,181
6,600
48
4,480
4,704
59,915
783
33,041
291
15,423
160
9,281
103
12,632
8,274
116
32,550
525
21,150
8,729
88
8,765
71
12,824
13,430
61
84,422
1,033
64,293
625
280
2,076
58
166
1,580
44
2,993
14,728
371
17,949
405
1,118
597
2,404
8,426
8,764
25,611
517
35,470
706
17,316
356
4,248
90
11,460
7,554
192
16,728
538
5,625
875
2,014
1,868
8,453
6,789
97
4,511
54
4,725
60,726
1,387
32,067
608
17,596
364
6,324
13,040
10,547
279
31,456
909
23,574
543
2,986
53
9,050
9,193
143
12,937
139
13,489
123
86,337
1,904
67,537
The following tables present the recorded investment in loans by category based on current payment and accrual status:
Accruing Interest
30 - 89 Days
90+ Days
Current
Past Due
Nonaccrual
249,547
182
89
229,878
492
655,089
1,004
331,393
131
322,580
869
1,575
159,726
198
63
2,446,662
1,711
205
3,248
374
247,772
234,441
683,029
823
297,465
64
519
325,780
32
1,642
156,297
214
57
2,495,258
1,620
2,763
The following tables present total loans by category based on their assigned risk ratings determined by management:
Pass
Pass-Watch
Substandard
Doubtful
231,925
8,813
215,962
13,530
878
199,482
17,815
11,700
609,298
11,543
35,252
264,487
4,965
329,700
332
309,631
6,280
9,136
146,964
286
2,307,449
63,564
80,813
267,088
5,114
221,898
25,213
685
198,862
24,098
11,584
619,212
32,372
32,439
241,362
22,549
268,556
27,474
308,951
11,221
7,665
143,299
2,269,228
148,285
82,176
There were no new troubled debt restructurings during the three and six months ended June 30, 2022 or 2021.
Of the troubled debt restructurings entered into during the last 12 months, there were none which had subsequent payment defaults during the three and six months ended June 30, 2022 or 2021. For purposes of this disclosure, the Company considers “default” to mean 90 days or more past due as to interest or principal or were on nonaccrual status subsequent to restructuring.
As of June 30, 2022 and December 31, 2021, the Company had $3.3 million and $3.5 million of troubled debt restructurings, respectively. Restructured loans are evaluated for impairment quarterly as part of the Company’s determination of the allowance for loan losses. There were no material commitments to lend additional funds to debtors owing loans whose terms have been modified in troubled debt restructurings.
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), along with a joint statement issued by banking regulatory agencies, provided that short-term loan payment modifications made prior to December 31, 2021 to borrowers experiencing financial hardship due to the COVID-19 pandemic generally do not need to be accounted for as a troubled debt restructuring. As of June 30, 2022, the Company had no loans that were granted a payment modification due to a COVID-19 related financial hardship which had not returned to regular payments. As of December 31, 2021, the Company had $0.2 million of loans that were granted a
payment modification due to a COVID-19 related financial hardship and had not returned to regular payments. Substantially all modifications were in the form of a three-month interest-only period or a one-month payment deferral. Some borrowers have received more than one loan payment modification.
As of June 30, 2022 and December 31, 2021, the Company pledged loans totaling $570.7 million and $567.0 million, respectively, to the Federal Home Loan Bank of Chicago (“FHLB”) to secure available FHLB advance borrowing capacity.
Changes in the accretable yield for loans acquired with deteriorated credit quality were as follows:
Beginning balance
1,338
413
1,397
Reclassification from non-accretable difference
217
153
Accretion income
(67)
(93)
(200)
Ending balance
537
1,350
NOTE 5 – LOAN SERVICING
Mortgage loans serviced for others, which are not included in the accompanying consolidated balance sheets, amounted to $997.6 million and $1.04 billion as of June 30, 2022 and December 31, 2021, respectively. Activity in mortgage servicing rights is as follows:
9,723
7,629
5,934
Capitalized servicing rights
136
753
Fair value adjustment:
Attributable to payments and principal reductions
(379)
(490)
(686)
(957)
Attributable to changes in valuation inputs and assumptions
609
(176)
2,474
1,589
Total fair value adjustment
230
(666)
1,788
632
7,319
28
NOTE 6 – FORECLOSED ASSETS
Foreclosed assets activity is as follows:
3,043
4,748
4,168
Transfers from loans
4,185
Proceeds from sales
(1,214)
(447)
(1,229)
Sales through loan origination
(178)
Net gain (loss) on sales
98
213
Direct write-downs
(65)
(73)
7,757
Gains (losses) on foreclosed assets includes the following:
The carrying value of foreclosed one-to-four family residential real estate properties held as of June 30, 2022 and December 31, 2021 was $8 thousand and $0.2 million, respectively. As of June 30, 2022, there was 1 one-to-four family residential real estate loan in the process of foreclosure totaling $0.2 million. As of December 31, 2021, there were 4 one-to-four family residential real estate loans in the process of foreclosure totaling $0.1 million.
29
NOTE 7 – DEPOSITS
The Company’s deposits are summarized below:
Noninterest-bearing deposits
Interest-bearing deposits:
Interest-bearing demand
1,162,292
1,105,949
Money market
581,058
583,198
Savings
654,953
633,171
Time
274,893
328,208
Total interest-bearing deposits
Money market deposits include $4.2 million of brokered deposits as of December 31, 2021. Money market deposits also include $6.9 million and $6.9 million of reciprocal transaction deposits as of June 30, 2022 and December 31, 2021, respectively. Time deposits include $1.0 million and $0.9 million of reciprocal time deposits as of June 30, 2022, and December 31, 2021, respectively.
The aggregate amounts of time deposits in denominations of $250 thousand or more amounted to $25.4 million and $59.5 million as of June 30, 2022 and December 31, 2021, respectively. The aggregate amounts of time deposits in denominations of $100 thousand or more amounted to $90.5 million and $133.1 million as of June 30, 2022 and December 31, 2021, respectively.
The components of interest expense on deposits are as follows:
144
127
110
94
183
200
346
456
Total interest expense on deposits
30
NOTE 8 – DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are negotiated contracts entered into by two issuing counterparties containing specific agreement terms, including the underlying instrument, amount, exercise price, and maturities. The derivatives accounting guidance requires that the Company recognize all derivative financial instruments as either assets or liabilities at fair value in the consolidated balance sheets. The Company may utilize interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position.
Interest Rate Swaps Designated as Cash Flow Hedges
The Company designated certain interest rate swap agreements as cash flow hedges on variable-rate borrowings. For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on interest rate swaps designated as cash flow hedging instruments, net of tax, is reported as a component of accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings.
The interest rate swap agreements designated as cash flow hedges are summarized as follows:
Notional
Fair
Value
Fair value recorded in other assets
17,000
226
Fair value recorded in other liabilities
(680)
As of June 30, 2022, the interest rate swap agreements designated as cash flow hedges had contractual maturities between 2024 and 2025. As of December 31, 2021, the Company had cash pledged and held on deposit at counterparties of $0.8 million.
The effect of interest rate swap agreements designated as cash flow hedges on the consolidated statements of income are summarized as follows:
Location of gross gain (loss) reclassified
Amounts of gross gain (loss)
from accumulated other
reclassified from accumulated
comprehensive income (loss) to income
other comprehensive income
Designated as cash flow hedges:
Junior subordinated debentures interest expense
(163)
(201)
Interest Rate Swaps Not Designated as Hedging Instruments
The Company may offer interest rate swap agreements to its commercial borrowers in connection with their risk management needs. The Company manages the interest rate risk associated with these contracts by entering into an equal and offsetting derivative with a third-party financial institution. While these interest rate swap agreements generally work together as an economic interest rate hedge, the Company did not designate them for hedge accounting treatment. Consequently, changes in fair value of the corresponding derivative financial asset or liability were recorded as either a charge or credit to current earnings during the period in which the changes occurred.
The interest rate swap agreements not designated as hedging instruments are summarized as follows:
Fair value recorded in other assets:
Interest rate swaps with a commercial borrower counterparty
36,495
657
112,041
8,622
Interest rate swaps with a financial institution counterparty
74,142
3,052
3,880
Total fair value recorded in other assets
110,637
3,709
115,921
8,697
Fair value recorded in other liabilities:
(3,052)
(75)
(657)
(8,622)
Total fair value recorded in other liabilities
(3,709)
(8,697)
As of June 30, 2022, the interest rate swap agreements not designated as hedging instruments had contractual maturities between 2022 and 2042. As of December 31, 2021, the carrying value of debt securities pledged and held in safekeeping at a financial institution counterparty was $7.5 million.
The effect of interest rate contracts not designated as hedging instruments recognized in other noninterest income on the consolidated statements of income are summarized as follows:
Not designated as hedging instruments:
Gross gains
4,681
2,874
10,094
10,438
Gross losses
(4,681)
(2,874)
(10,094)
(10,438)
Net gains (losses)
NOTE 9 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents the activity and accumulated balances for components of other comprehensive income (loss):
Unrealized Gains (Losses)
on Debt Securities
Derivatives
(24,794)
(11,048)
(258)
Other comprehensive income (loss) before reclassifications
(24,002)
616
Other comprehensive income (loss), before tax
Income tax expense (benefit)
(6,884)
157
Other comprehensive income (loss), after tax
(17,267)
392
155
(42,061)
(10,656)
(103)
6,971
(3,985)
(1,080)
Transfer from available-for-sale to held-to-maturity
(3)
8,762
Other comprehensive income, before tax
Income tax expense
2,508
Other comprehensive income, after tax
6,292
142
13,260
(3,840)
(1,034)
5,736
(3,514)
(751)
7,664
(7,664)
(76,830)
893
906
(22,112)
(55,461)
522
648
19,578
(118)
(1,307)
3,887
(3,887)
(14,093)
432
382
(4,069)
66
(10,205)
273
Reclassifications from accumulated other comprehensive income (loss) for unrealized gains (losses) on debt securities available-for-sale are included in gain (loss) on securities in the accompanying consolidated statements of income.
Reclassifications from accumulated other comprehensive income (loss) for unrealized gains on debt securities held-to-maturity are included in securities interest income in the accompanying consolidated statements of income.
Reclassifications from accumulated other comprehensive income (loss) for the fair value of derivative financial instruments represent net interest payments received or made on derivatives designated as cash flow hedges. See Note 8 for additional information.
34
NOTE 10 – EARNINGS PER SHARE
The Company has granted certain restricted stock units that contain non-forfeitable rights to dividend equivalents. Such restricted stock units are considered participating securities. As such, we have included these restricted stock units in the calculation of basic earnings per share and calculate basic earnings per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings.
Diluted earnings per share is computed using the treasury stock method and reflects the potential dilution from the Company’s outstanding restricted stock units and performance restricted stock units.
The following table sets forth the computation of basic and diluted earnings per share:
Numerator:
Earnings allocated to participating securities
(17)
(25)
(34)
(56)
Numerator for earnings per share - basic and diluted
14,068
13,692
27,655
28,906
Denominator:
Weighted average common shares outstanding
Dilutive effect of outstanding restricted stock units
53,674
17,701
48,688
10,137
Weighted average common shares outstanding, including all dilutive potential shares
28,944,876
27,380,280
28,987,322
27,406,694
Earnings per share - Basic
Earnings per share - Diluted
35
NOTE 11 – STOCK-BASED COMPENSATION PLANS
The Company has adopted the HBT Financial, Inc. Omnibus Incentive Plan (the “Omnibus Incentive Plan”). The Omnibus Incentive Plan provides for grants of (i) stock options, (ii) stock appreciation rights, (iii) restricted shares, (iv) restricted stock units, (v) performance awards, (vi) other share-based awards and (vi) other cash-based awards to eligible employees, non-employee directors and consultants of the Company. The maximum number of shares of common stock available for issuance under the Omnibus Incentive Plan is 1,820,000 shares.
The following is a summary of stock-based compensation expense (benefit):
Restricted stock units
234
262
Performance restricted stock units
118
411
Total awards classified as equity
Stock appreciation rights
(16)
130
Total stock-based compensation expense
359
1,237
440
In February 2022, all outstanding restricted stock unit and performance restricted stock unit agreements were modified to address treatment upon retirement. In the event of retirement, and if the retirement eligibility requirements are met, then 100% of unvested restricted stock units and performance restricted stock units will continue to vest in accordance with the originally established vesting schedule. The retirement modification resulted in the acceleration of $0.6 million of expense, although total compensation costs related to the modified agreements remained the same.
Restricted Stock Units
A restricted stock unit grants a participant the right to receive one share of the Company’s common stock, following the completion of the requisite service period. Restricted stock units are classified as equity. Compensation cost is based on the Company’s stock price on the grant date and is recognized on a straight-line basis over the service period for the entire award. Dividend equivalents on restricted stock units, which are either accrued until vested or paid at the same time as dividends on common stock, are classified as dividends charged to retained earnings.
During the six months ended June 30, 2022 and 2021, the total grant date fair value of the restricted stock units granted was $0.9 million and $0.8 million, respectively, based on the grant date closing prices. The total intrinsic value of restricted stock that vested during the six months ended June 30, 2022 and 2021 was $0.7 million and $0.3 million, respectively.
The following is a summary of restricted stock unit activity:
Weighted
Restricted
Grant Date
Stock Units
120,631
17.98
97,122
17.36
Granted
4,000
17.93
Vested
Forfeited
(1,525)
18.11
99,597
17.37
109,244
17.27
71,000
18.98
46,312
19.11
50,347
15.72
(34,925)
17.26
(20,225)
18.86
As of June 30, 2022, unrecognized compensation cost related to the non-vested restricted stock units was $1.4 million. This cost is expected to be recognized over the weighted average remaining service period of 1.9 years.
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Performance Restricted Stock Units
A performance restricted stock unit is similar to a restricted stock unit, except that the number of shares of the Company’s common stock awarded is based on a performance condition and the completion of the requisite service period. The number of shares of the Company’s common stock that may be earned ranges from 0% to 150% of the number of performance restricted stock units granted. Performance restricted stock units are classified as equity. Compensation cost is based on the Company’s stock price on the grant date and an assessment of the probable outcome of the performance condition. Compensation cost is recognized on a straight-line basis over the service period of the entire award. Changes in the performance condition probability assessment result in cumulative catch-up adjustments to the compensation cost recognized. Dividend equivalents on performance restricted stock units, which are accrued until vested, are classified as dividends charged to retained earnings.
During the six months ended June 30, 2022 and 2021, the total fair value of the performance restricted stock units granted was $0.5 million and $0.4 million, respectively, based on the grant date closing prices and an assessment of the probable outcome of the performance condition on the grant date.
The following is a summary of performance restricted stock unit activity:
Performance
62,067
17.02
28,697
15.53
Six months ended June 30,
38,344
23,723
19.14
As of June 30, 2022, unrecognized compensation cost related to non-vested performance restricted stock units was $0.5 million, based on the current assessment of the probable outcome of the performance conditions. This cost is expected to be recognized over the weighted average remaining service period of 1.8 years.
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Stock Appreciation Rights
A stock appreciation right grants a participant the right to receive an amount of cash, the value of which equals the appreciation in the Company’s stock price between the grant date and the exercise date. Stock appreciation rights are classified as liabilities. The liability is based on an option-pricing model used to estimate the fair value of the stock appreciation rights. Compensation cost for non-vested stock appreciation rights is recognized on a straight line basis over the service period of the entire award. The non-vested stock appreciation rights vest in four equal annual installments beginning on the first anniversary of the grant date.
The following is a summary of stock appreciation rights activity:
StockAppreciationRightsOutstanding
WeightedAverageGrant DateAssigned Value
91,800
16.32
104,040
Exercised
(6,120)
Expired
97,920
StockAppreciationRights
105,570
(1,530)
A further summary of stock appreciation rights as of June 30, 2022, is as follows:
Weighted Average
Remaining
Grant Date Assigned Values
Exercisable
Contractual Term
$ 16.32
79,560
6.7
years
As of June 30, 2022, unrecognized compensation cost related to non-vested stock appreciation rights was $38 thousand.
As of June 30, 2022 and December 31, 2021, the liability recorded for outstanding stock appreciation rights was $0.5 million and $0.5 million, respectively. The Company used an option pricing model to value the stock appreciation rights, using the assumptions in the following table. Expected volatility is derived from the historical volatility of the Company’s stock price and a selected peer group of industry-related companies.
Risk-free interest rate
3.00
%
1.40
Expected volatility
35.99
35.52
Expected life (in years)
7.2
7.7
Expected dividend yield
3.58
3.20
As of June 30, 2022, the liability recorded for previously exercised stock appreciation rights was $0.5 million, which will be paid in two remaining annual installments in 2023 and 2024. As of December 31, 2021, the liability recorded for previously exercised stock appreciation rights was $0.8 million.
NOTE 12 – REGULATORY MATTERS
The Company (on a consolidated basis) and the Bank are each subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by the regulators that, if undertaken, could have a direct material effect on the consolidated financial statements of the Company and the Bank. Additionally, the ability of the Company to pay dividends to its stockholders is dependent upon the ability of the Bank to pay dividends to the Company.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by regulators about components, risk weightings, and other factors. As allowed under the regulations, the Company and the Bank elected to exclude accumulated other comprehensive income, including unrealized gains and losses on debt securities, in the computation of regulatory capital. Prompt corrective action provisions are not applicable to bank holding companies.
Additionally, the Company and the Bank must maintain a “capital conservation buffer” to avoid becoming subject to restrictions on capital distributions and certain discretionary bonus payments to management. As of June 30, 2022 and December 31, 2021, the capital conservation buffer was 2.5% of risk-weighted assets.
As of June 30, 2022, the Company and the Bank each met all capital adequacy requirements to which they were subject.
The actual and required capital amounts and ratios of the Company (on a consolidated basis) and the Bank are as follows:
Actual
For Capital Adequacy Purposes
To Be Well Capitalized Under Prompt Corrective Action Provisions
Ratio
Total Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.
496,810
16.76
237,210
8.00
N/A
Heartland Bank and Trust Company
472,112
15.93
237,035
296,294
10.00
Tier 1 Capital (to Risk Weighted Assets)
432,720
14.59
177,908
6.00
447,378
15.10
177,777
Common Equity Tier 1 Capital (to Risk Weighted Assets)
396,138
13.36
133,431
4.50
133,332
192,591
6.50
Tier 1 Capital (to Average Assets)
10.05
172,307
4.00
10.39
172,215
215,269
5.00
479,320
16.88
227,115
452,162
15.94
226,950
283,688
416,068
14.66
170,336
428,226
15.09
170,213
379,519
13.37
127,752
127,659
184,397
9.84
169,171
10.13
169,070
211,337
NOTE 13 – FAIR VALUE OF FINANCIAL INSTRUMENTS
Recurring Basis
The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Additional information on fair value measurements is summarized in Note 1 to the Company’s annual consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 11, 2022. There were no transfers between levels during the three and six months ended June 30, 2022 and 2021. The Company’s policy for determining transfers between levels occurs at the end of the reporting period when circumstances in the underlying valuation criteria change and result in transfer between levels.
The following tables present the balances of the assets measured at fair value on a recurring basis:
Level 1 Inputs
Level 2Inputs
Level 3 Inputs
Total Fair Value
Debt securities available-for-sale:
Equity securities with readily determinable fair values
Derivative financial assets
3,935
Derivative financial liabilities
9,377
The following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy. There were no changes to the valuation techniques from December 31, 2021 to June 30, 2022.
Investment Securities
When available, the Company uses quoted market prices to determine the fair value of securities; such items are classified in Level 1 of the fair value hierarchy. For the Company’s securities where quoted prices are not available for identical securities in an active market, the Company determines fair value utilizing vendors who apply matrix pricing for similar bonds where no price is observable or may compile prices from various sources. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace. Fair values from these models are verified, where possible, against quoted market prices for recent trading activity of assets with similar characteristics to the security being valued. Such methods are generally classified as Level 2; however, when prices from independent sources vary, cannot be obtained or cannot be corroborated, a security is generally classified as Level 3. The change in fair value of debt securities available-for-sale is recorded through an adjustment to the consolidated statement of comprehensive income (loss). The change in fair value of equity securities with readily determinable fair values is recorded through an adjustment to the consolidated statement of income.
Derivative Financial Instruments
Interest rate swap agreements are carried at fair value as determined by dealer valuation models. Based on the inputs used, the derivative financial instruments subjected to recurring fair value adjustments are classified as Level 2. For derivative financial instruments designated as hedging instruments, the change in fair value is recorded through an adjustment to the consolidated statement of comprehensive income (loss). For derivative financial instruments not designated as hedging instruments, the change in fair value is recorded through an adjustment to the consolidated statement of income.
Mortgage Servicing Rights
The Company has elected to record its mortgage servicing rights at fair value. Mortgage servicing rights do not trade in an active market with readily observable prices. Accordingly, the Company determines the fair value of mortgage servicing rights by estimating the fair value of the future cash flows associated with the mortgage loans being serviced as calculated by an independent third party. Key economic assumptions used in measuring the fair value of mortgage servicing rights include, but are not limited to, prepayment speeds and discount rates. Due to the nature of the valuation inputs, mortgage servicing rights are classified as Level 3. The change in fair value is recorded through an adjustment to the consolidated statement of income.
The following tables present additional information about the unobservable inputs used in the fair value measurement of the mortgage servicing rights (dollars in thousands):
Valuation Technique
Unobservable Inputs
Range(Weighted Average)
Discounted cash flows
Constant pre-payment rates (CPR)
7.0% to 41.2% (7.9%)
Discount rate
9.0% to 11.0% (9.1%)
7.0% to 88.9% (11.7%)
9.0% to 11.0% (9.0%)
Nonrecurring Basis
Certain assets are measured at fair value on a nonrecurring basis. These assets are not measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as there is evidence of impairment or a change in the amount of previously recognized impairment.
The following tables present the balances of the assets measured at fair value on a nonrecurring basis:
Collateral-dependent impaired loans
17,238
22,423
Loans Held for Sale
Mortgage loans originated and held for sale are carried at the lower of cost or estimated fair value. The Company obtains quotes or bids on these loans directly from purchasing financial institutions. Typically, these quotes include a premium on the sale and thus these quotes indicate fair value of the held for sale loans is greater than cost.
Collateral-Dependent Impaired Loans
In accordance with the provisions of the loan impairment guidance, impairment was measured for loans with respect to which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement. The fair value of collateral-dependent impaired loans is estimated based on the fair value of the underlying collateral supporting the loan. Collateral-dependent impaired loans require classification in the fair value hierarchy. Impaired loans include loans acquired with deteriorated credit quality. Collateral values are estimated using Level 3 inputs based on customized discounting criteria.
Bank Premises Held for Sale
Bank premises held for sale are recorded at the lower of cost or fair value, less estimated selling costs, at the date classified as held for sale. Values are estimated using Level 3 inputs based on appraisals and customized discounting criteria. The carrying value of bank premises held for sale is not re-measured to fair value on a recurring basis but is subject to fair value adjustments when the carrying value exceeds the fair value, less estimated selling costs.
Foreclosed Assets
Foreclosed assets are recorded at fair value based on property appraisals, less estimated selling costs, at the date of the transfer. Subsequent to the transfer, foreclosed assets are carried at the lower of cost or fair value, less estimated selling costs. Values are estimated using Level 3 inputs based on appraisals and customized discounting criteria. The carrying value of foreclosed assets is not re-measured to fair value on a recurring basis but is subject to fair value adjustments when the carrying value exceeds the fair value, less estimated selling costs.
Collateral-Dependent Impaired Loans, Bank Premises Held for Sale, and Foreclosed Assets
The estimated fair value of collateral-dependent impaired loans, bank premises held for sale, and foreclosed assets is based on the appraised fair value of the collateral, less estimated costs to sell. Collateral-dependent impaired loans, bank premises held for sale, and foreclosed assets are classified within Level 3 of the fair value hierarchy.
The Company considers the appraisal or a similar evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals or a similar evaluation of the collateral underlying collateral-dependent loans and foreclosed assets are obtained at the time a loan is first considered impaired or a loan is transferred to foreclosed assets. Appraisals or a similar evaluation of bank premises held for sale are obtained when first classified as held for sale. Appraisals or similar evaluations are obtained subsequently as deemed necessary by management but at least annually on foreclosed assets and bank premises held for sale. Appraisals are reviewed for accuracy and consistency by management. Appraisals are performed by individuals selected from the list of approved appraisers maintained by management. The appraised values are reduced by estimated costs to sell. These discounts and estimates are developed by management by comparison to historical results.
The following tables present quantitative information about unobservable inputs used in nonrecurring Level 3 fair value measurements (dollars in thousands):
FairValue
ValuationTechnique
Range (Weighted Average)
Appraisal of collateral
Appraisal adjustments
Not meaningful
Appraisal
7% (7%)
Other Fair Value Methods
The following methods and assumptions were used by the Company in estimating fair value disclosures of its other financial instruments. There were no changes in the methods and significant assumptions used to estimate the fair value of these financial instruments.
Cash and Cash Equivalents
The carrying amounts of these financial instruments approximate their fair values.
Restricted Stock
The carrying amount of FHLB stock approximates fair value based on the redemption provisions of the FHLB.
The fair value estimation process for the loan portfolio uses an exit price concept and reflects discounts the Company believes are consistent with discounts in the marketplace. Fair values are estimated for portfolios of loans with similar characteristics. Loans are segregated by type such as commercial and industrial, agricultural and farmland, commercial real estate - owner occupied, commercial real estate - non-owner occupied, multi-family, construction and land development, one-to-four family residential, and municipal, consumer, and other. The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for similar maturities. The fair value analysis also includes other assumptions to estimate fair value, intended to approximate those a market participant would use in an orderly transaction, with adjustments for discount rates, interest rates, liquidity, and credit spreads, as appropriate.
Investments in Unconsolidated Subsidiaries
The fair values of the Company’s investments in unconsolidated subsidiaries are presumed to approximate carrying amounts.
Time Deposits
Fair values of certificates of deposit with stated maturities have been estimated using the present value of estimated future cash flows discounted at rates currently offered for similar instruments. Time deposits also include public funds time deposits.
Securities Sold Under Agreements to Repurchase
The fair values of repurchase agreements with variable interest rates are presumed to approximate their recorded carrying amounts.
Subordinated Notes
The fair values of subordinated notes are estimated using discounted cash flow analyses based on rates observed on recent debt issuances by other financial institutions.
Junior Subordinated Debentures
The fair values of subordinated debentures are estimated using discounted cash flow analyses based on rates observed on recent debt issuances by other financial institutions.
Accrued Interest
The carrying amounts of accrued interest approximate fair value.
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair values have been estimated using data which management considered the best available and estimation methodologies deemed suitable for the pertinent category of financial instrument.
47
The following table provides summary information on the carrying amounts and estimated fair values of the Company’s financial instruments:
Hierarchy
Carrying
Estimated
Level
Financial assets:
Level 1
Debt securities held-to-maturity
Level 2
Level 3
Loans, net
2,450,897
2,494,686
Financial liabilities:
Time deposits
268,761
327,779
38,854
41,602
Junior subordinated debentures
33,787
33,640
Accrued interest payable
974
1,043
The Company estimated the fair value of lending related commitments as described in Note 14 to be immaterial based on limited interest rate exposure due to their variable nature, short-term commitment periods and termination clauses provided in the agreements.
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Financial Instruments
The Bank is party to credit-related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.
The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
Such commitments and conditional obligations were as follows:
Contractual Amount
Commitments to extend credit
656,359
609,947
Standby letters of credit
14,485
12,960
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, by the Bank upon extension of credit is based on management’s credit evaluation of the customer. Collateral held varies, but may include real estate, accounts receivable, inventory, property, plant, and equipment, and income-producing properties.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those standby letters of credit are primarily issued to support extensions of credit. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. The Bank secures the standby letters of credit with the same collateral used to secure the related loan.
49
Legal Contingencies
In the normal course of business, the Company, or its subsidiaries, are involved in various legal proceedings. In the opinion of management, any liability resulting from pending proceedings would not be expected to have a material adverse effect on the Company's consolidated financial statements.
DeBaere, et al v. Heartland Bank and Trust Company
The Bank is a defendant in a purported class action lawsuit filed in June 2020, in the Circuit Court of Cook County, Illinois, DeBaere, et al v. Heartland Bank and Trust Company. The plaintiff, a customer of the Bank, alleges that the Bank breached its contract with the plaintiff by (1) charging multiple insufficient funds fees or overdraft fees on a single customer-initiated transaction, and (2) charging overdraft fees for transactions that were authorized on a positive account balance, but when settled, settled into a negative balance.
The Bank intends to vigorously defend the lawsuit. The Company does not believe a loss is probable at this time, as that term is used in assessing loss contingencies. Accordingly, consistent with the authoritative guidance in the evaluation of contingencies, an accrual related to this matter has not been recorded. However, an unfavorable outcome is reasonably possible, and the Company would not characterize the chance of any loss as “remote.” Given the early stage of this case, the Company cannot yet offer an opinion on the estimated range of any possible loss, in the event of an unfavorable opinion.
Miller, et al v. State Bank of Lincoln and Heartland Bank and Trust Company
The Bank is a defendant in a purported class action lawsuit filed in May 2020, in the Circuit Court of Logan County, Illinois, Miller, et al v. State Bank of Lincoln and the Bank. The plaintiff, a customer of State Bank of Lincoln, which previously merged with the Bank, alleges that the Bank breached its contract with the plaintiff by charging multiple insufficient funds fees or overdraft fees on a single customer-initiated transaction.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context requires otherwise, references in this report to the “Company,” “we,” “us” and “our” refer to HBT Financial, Inc. and its subsidiaries.
The following is management’s discussion and analysis of the financial condition as of June 30, 2022 (unaudited), as compared with December 31, 2021, and the results of operations for the three and six months ended June 30, 2022 and 2021 (unaudited). Management’s discussion and analysis should be read in conjunction with the Company’s unaudited consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q, as well as the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 11, 2022. Results of operations for the three and six months ended June 30, 2022 and 2021 are not necessarily indicative of results to be attained for any other period.
OVERVIEW
HBT Financial, Inc., headquartered in Bloomington, Illinois, is the holding company for Heartland Bank and Trust Company, and has banking roots that can be traced back to 1920. We 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 and Eastern Iowa. As of June 30, 2022, the Company had total assets of $4.2 billion, loans held for investment of $2.5 billion, and total deposits of $3.7 billion.
Market Area
We currently operate 61 branch locations. We hold a leading deposit share in many of our Central Illinois markets, which we define as a top three deposit share rank, providing the foundation for our strong deposit base. The stability provided by this low-cost funding is a key driver of our strong track record of financial performance. Below is a summary of our loan and deposit balances by geographic region.
Total loans
Illinois by metropolitan and micropolitan statistical areas
Bloomington-Normal
482,857
527,161
Champaign-Urbana
207,188
191,646
Chicago
1,201,306
1,196,605
Lincoln
80,252
87,153
Ottawa-Peru
92,547
101,117
Peoria
121,539
123,143
Total Illinois
2,185,689
2,226,825
Iowa
266,137
272,864
862,265
887,587
210,429
203,899
1,262,718
1,237,486
204,439
203,098
401,417
407,156
606,973
610,155
3,548,241
3,549,381
153,745
188,804
NXT Bancorporation, Inc. Acquisition
On October 1, 2021, the Company completed its acquisition of NXT Bancorporation, Inc. (“NXT”), the holding company for NXT Bank. The acquisition expanded the Company’s footprint into Eastern Iowa with four locations that began operating as branches of Heartland Bank following the merger and system conversion of NXT Bank into Heartland Bank in December 2021. After considering business combination accounting adjustments, NXT added total assets of $234.1 million, total loans of $194.6 million, and total deposits of $181.6 million.
Cash consideration of $10.6 million and stock consideration of approximately 1.8 million shares of HBT common stock resulted in aggregate consideration of $39.9 million. Goodwill of $5.7 million was recorded in the acquisition.
The Company did not incur expenses related to the acquisition of NXT during the three and six months ended June 30, 2022. The Company incurred the following pre-tax acquisition expenses related to the acquisition of NXT during the second quarter of 2021 (dollars in thousands):
Legal fees and other noninterest expense
Total NXT acquisition-related expenses
Branch Rationalization Plan
In April 2021, the Company made plans to close or consolidate six branches. One branch was consolidated during the second quarter of 2021, and the remaining five branches were closed during the third quarter of 2021. The Company estimates annual pre-tax cost savings, net of associated revenue impacts, related to the branch rationalization plan to be approximately $1.1 million.
The Company incurred the following pre-tax branch closure expenses during the second quarter of 2021 (dollars in thousands):
Total branch closure costs
104
Paycheck Protection Program Loans
During 2021 and 2020, we funded a total of $290.1 million of Paycheck Protection Program (“PPP”) loans. The vast majority of those loans have received full forgiveness, and we continue to process forgiveness applications.
As of June 30, 2022, PPP loans totaled $2.8 million, net of $0.1 million of net deferred origination fees remaining to be recognized as loan interest income. Recognition of net deferred origination fees is accelerated upon loan forgiveness or repayment prior to contractual maturity. Net deferred origination fees on PPP loans recognized as taxable loan interest income totaled $0.6 million and $2.4 million during the three months ended June 30, 2022 and 2021, respectively, and $1.4 million and $4.6 million during the six months ended June 30, 2022 and 2021, respectively.
FACTORS AFFECTING OUR RESULTS OF OPERATIONS
Economic Conditions
The Company's business and financial performance are affected by economic conditions generally in the U.S. and more directly in the Illinois and Iowa markets where we primarily operate. The significant economic factors that are most relevant to our business and our financial performance include the general economic conditions in the U.S. and in the Company's markets (including the effect of inflationary pressures), unemployment rates, real estate markets, and interest rates.
COVID-19 Pandemic
Although the Company has had continuous business operations since the beginning of the COVID-19 pandemic, the pandemic has caused significant economic disruption throughout the U.S. and the communities that we serve. While the economic outlook has generally improved relative to 2020 and 2021, there remains uncertainty surrounding the longer lasting impact on specific industries and potential surges in COVID-19 infections with new virus variants. As a result, the businesses we serve may be adversely impacted and the ability of our customers to fulfill their contractual obligations to us may deteriorate.
Interest Rates
Net interest income is our primary source of revenue. Net interest income is equal to the excess of interest income earned on interest earning assets (including discount accretion on purchased loans plus certain loan fees) over interest expense incurred on interest-bearing liabilities. The level of interest rates as well as the volume of interest-earning assets and interest-bearing liabilities both impact net interest income. Net interest income is also influenced by both the pricing and mix of interest-earning assets and interest-bearing liabilities which, in turn, are impacted by external factors such as local economic conditions, competition for loans and deposits, the monetary policy of the Federal Reserve Board (“FRB”) and market interest rates.
The cost of our deposits and short-term wholesale borrowings is largely based on short-term interest rates, which are primarily driven by the FRB’s actions. The yields generated by our loans and securities are typically driven by short-term and long-term interest rates, which are set by the market and, to some degree, by the FRB’s actions. Our net interest income is therefore influenced by movements in such interest rates and the pace at which such movements occur. Generally, we expect increases in market interest rates will increase our net interest income and net interest margin in future periods, while decreases in market interest rates may decrease our net interest income and net interest margin in future periods.
Credit Trends
We focus on originating loans with appropriate risk/reward profiles. We have a detailed loan policy that guides our overall loan origination philosophy and a well-established loan approval process that requires experienced credit officers to approve larger loan relationships. Although we believe our loan approval and credit review processes are strengths that allow us to maintain a high quality loan portfolio, we recognize that credit trends in the markets in which we operate and in our loan portfolio can materially impact our financial condition and performance and that these trends are primarily driven by the economic conditions in our markets.
Competition
Our profitability and growth are affected by the highly competitive nature of the financial services industry. We compete with community banks in all our markets and, to a lesser extent, with money center banks, primarily in the Chicago MSA. Additionally, we compete with non-bank financial services companies and other financial institutions operating within the areas we serve. We compete by emphasizing personalized service and efficient decision-making tailored to individual needs. We do not rely on any individual, group, or entity for a material portion of our loans or our deposits. We continue to see increased competitive pressures on loan rates and terms which may affect our financial results in the future.
Digital Banking
Throughout the banking industry, in-person branch traffic is expected to continue to decline as more customers turn to digital banking for routine banking transactions. The COVID-19 pandemic has accelerated this transition, and in-person branch traffic is not expected to return to pre-pandemic levels. We plan to continue investing in our digital banking platforms, while maintaining an appropriately sized branch network. An inability to meet evolving customer expectations, with the appropriate level of security, for both digital and in-person banking may adversely affect our financial results in the future.
Regulatory Environment and Trends
We are subject to federal and state regulation and supervision, which continue to evolve as the legal and regulatory framework governing our operations continues to change. The current operating environment includes extensive regulation and supervision in areas such as consumer compliance, the Bank Secrecy Act and anti-money laundering compliance, risk management and internal audit. We anticipate that this environment of extensive regulation and supervision will continue for the industry. As a result, changes in the regulatory environment may result in additional costs for additional compliance, risk management and audit personnel or professional fees associated with advisors and consultants.
FACTORS AFFECTING COMPARABILITY OF FINANCIAL RESULTS
JOBS Act Accounting Election
We qualify as an “emerging growth company” under the JOBS Act. The JOBS Act permits us an extended transition period for complying with new or revised accounting standards affecting public companies. The Company may remain an emerging growth company until the earliest to occur of: (1) the end of the fiscal year following the fifth anniversary of the completion of our initial public offering, which is December 31, 2024, (2) the last day of the fiscal year in which the Company has $1.07 billion or more in annual revenues, (3) the date on which the Company is deemed to be a “large accelerated filer” under the Exchange Act or (4) the date on which the Company has, during the previous three year period, issued, publicly or privately, more than $1.0 billion in non-convertible debt securities. We have elected to use the extended transition period until we are no longer an emerging growth company or until we choose to affirmatively and irrevocably opt out of the extended transition period. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements applicable to public companies.
RESULTS OF OPERATIONS
Overview of Recent Financial Results
The following table presents selected financial results and measures:
(dollars in thousands, except per share amounts)
Consolidated Statement of Income Information
Income before income tax expense
Adjusted net income (1)
13,836
14,168
26,063
28,201
Net interest income (tax-equivalent basis) (1) (2)
34,971
30,203
67,428
59,835
Share and Per Share Information
Adjusted earnings per share - Diluted (1)
0.48
0.52
0.90
Weighted average shares of common stock outstanding
Summary Ratios
Net interest margin *
3.34
3.14
3.21
3.19
Net interest margin (tax-equivalent basis) * (1) (2)
3.39
3.26
3.25
Yield on loans *
4.64
4.63
4.54
4.60
Yield on interest-earning assets *
3.47
3.29
3.35
Cost of interest-bearing liabilities *
0.20
0.23
0.24
Cost of total deposits *
0.05
0.07
0.06
0.08
Efficiency ratio
54.97
56.91
55.96
56.31
Efficiency ratio (tax-equivalent basis) (1) (2)
54.22
56.18
55.23
55.59
Return on average assets *
1.32
1.29
1.52
Return on average stockholders' equity *
14.92
15.07
14.23
16.03
Return on average tangible common equity * (1)
16.25
16.22
15.45
Adjusted return on average assets * (1)
1.45
1.22
1.48
Adjusted return on average stockholders' equity * (1)
15.56
13.40
15.61
Adjusted return on average tangible common equity * (1)
15.96
14.55
16.81
* Annualized measure.
55
Comparison of the Three Months Ended June 30, 2022 to the Three Months Ended June 30, 2021
For the three months ended June 30, 2022, net income was $14.1 million increasing by $0.4 million, or 2.7%, when compared to net income for the three months ended June 30, 2021. Notable changes include the following:
Comparison of the Six Months Ended June 30, 2022 to the Six Months Ended June 30, 2021
For the six months ended June 30, 2022, net income was $27.7 million decreasing by $1.3 million, or 4.4%, when compared to net income for the six months ended June 30, 2021. Notable changes include the following:
Net Interest Income
Net interest income equals the excess of interest income (including discount accretion on acquired loans) plus fees earned on interest earning assets over interest expense incurred on interest-bearing liabilities. Interest rate spread and net interest margin are utilized to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on interest-earning assets and the rate paid for interest-bearing liabilities that fund those assets. The net interest margin is expressed as the percentage of net interest income to average interest-earning assets. The net interest margin exceeds the interest rate spread because noninterest-bearing sources of funds, principally noninterest-bearing demand deposits and stockholders’ equity, also support interest-earning assets.
56
The following tables set forth average balances, average yields and costs, and certain other information for the three and six months ended June 30, 2022 and 2021. Average balances are daily average balances. Nonaccrual loans are included in the computation of average balances but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees and costs, discounts and premiums, as well as purchase accounting adjustments that are accreted or amortized to interest income or expense.
Yield/Cost *
2,467,851
28,522
2,234,388
25,818
Securities
1,422,096
6,801
1.92
1,121,104
5,202
1.86
Deposits with banks
240,692
0.70
438,001
0.11
2,809
2.07
2,726
1.83
Total interest-earning assets
4,133,448
3,796,219
(24,579)
(28,939)
Noninterest-earning assets
177,433
156,559
4,286,302
3,923,839
1,159,077
1,019,488
582,016
502,448
661,661
0.03
601,615
284,880
0.28
290,865
2,687,634
2,414,416
0.10
51,057
47,170
1.34
0.39
39,346
4.79
39,265
4.80
37,738
4.26
37,671
3.80
Total interest-bearing liabilities
2,816,215
2,538,962
1,072,883
992,699
Noninterest-bearing liabilities
18,673
26,988
3,907,771
3,558,649
378,531
365,190
Net interest income/Net interest margin (1)
Tax-equivalent adjustment (2)
598
503
Net interest income (tax-equivalent basis)/ Net interest margin (tax-equivalent basis) (2) (3)
Net interest rate spread (4)
3.27
3.06
Net interest-earning assets (5)
1,317,233
1,257,257
Ratio of interest-earning assets to interest-bearing liabilities
1.47
1.50
Cost of total deposits
2,487,320
55,990
2,259,136
51,562
1,372,284
12,490
1.84
1,063,312
9,971
1.89
305,053
0.38
392,213
2,775
2.43
2,612
1.93
4,167,432
3,717,273
(24,340)
(30,390)
171,624
156,093
4,314,716
3,842,976
1,151,495
1,008,664
590,098
492,472
655,645
571,921
297,706
0.31
292,509
0.51
2,694,944
2,365,566
52,050
46,761
470
1.01
0.42
39,335
4.82
39,255
4.83
37,730
4.05
37,663
3.81
2,824,529
2,489,715
1,075,387
956,806
22,466
32,077
3,922,382
3,478,598
392,334
364,378
1,127
1,006
3.11
1,342,903
1,227,558
1.49
The following table sets forth the components of loan interest income, which includes contractual interest on loans, loan fees, and accretion of acquired loan discounts.
Yield
Contribution *
Contractual interest
26,433
4.31
22,089
3.96
51,887
4.21
44,772
3.99
Loan fees (excluding PPP loans)
1,124
0.18
1,202
0.22
2,279
1,978
PPP loan fees
642
2,361
1,381
0.41
Accretion of acquired loan discounts
323
443
0.04
225
0.02
Total loan interest income
The following table sets forth the components of net interest income. Total interest income consists of contractual interest on loans, contractual interest on securities, contractual interest on interest-bearing deposits in banks, loan fees, accretion of acquired loan discounts, net securities amortization, and other interest and dividend income. Total interest expense consists of contractual interest on deposits, contractual interest on other interest-bearing liabilities and other interest expense.
Net Interest
Margin
Interest income:
Contractual interest on loans
2.57
2.33
2.51
Contractual interest on securities
8,647
0.84
7,023
0.74
16,099
0.78
13,524
0.73
Contractual interest on deposits with banks
0.01
0.13
0.25
Securities amortization, net
(1,846)
(0.18)
(1,821)
(0.19)
(3,609)
(3,553)
Total interest income
Interest expense:
Contractual interest on deposits
552
610
1,193
1,251
Contractual interest on other interest-bearing liabilities
777
696
1,482
1,394
0.15
0.16
Tax equivalent adjustment (1)
Net interest income (tax equivalent) (1) (2)
59
Rate/Volume Analysis
The following table sets forth the dollar amount of changes in interest income and interest expense for the major categories of our interest-earning assets and interest-bearing liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to changes attributable to volume (i.e., changes in average balances multiplied by the prior-period average rate), and changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). For purposes of this table, changes attributable to both volume and rate that cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.
vs.
Increase (Decrease) Due to
Volume
Rate
Interest-earning assets:
2,698
2,704
5,145
(717)
1,435
164
1,599
2,820
(301)
2,519
379
305
(52)
436
384
551
4,610
7,915
(576)
7,339
Interest-bearing liabilities:
(139)
(146)
(300)
(138)
(107)
(282)
(182)
(1)
(2)
(96)
(63)
105
(238)
(133)
Change in net interest income
4,026
647
4,673
7,810
(338)
7,472
Net interest income for the three months ended June 30, 2022, was $34.4 million, increasing $4.7 million, or 15.7%, from the three months ended June 30, 2021. The increase is primarily attributable to higher average balances of interest-earnings assets following the NXT acquisition and an increased interest-earning asset yield primarily due to a more favorable asset mix. These higher average balances, as well as higher yields on interest-earning assets driven by recent increases in benchmark interest rates, more than offset a $1.7 million decrease in PPP loan fees recognized as loan interest income.
Net interest margin increased to 3.34% for the three months ended June 30, 2022 compared to 3.14% for the three months ended June 30, 2021. The increase was primarily attributable to a more favorable mix of interest-earnings assets. Additionally, the contribution of PPP loan fees to net interest margin decreased to 6 basis points during the three months ended June 30, 2022 from 25 basis points during the three months ended June 30, 2021.
60
Net interest income for the six months ended June 30, 2022, was $66.3 million, increasing $7.5 million, or 12.7%, from the six months ended June 30, 2021. The increase is primarily attributable to higher average balances of interest-earning assets following the NXT acquisition. These higher average balances more than offset a $3.2 million decrease in PPP loan fees recognized as loan interest income.
Net interest margin increased slightly to 3.21% for the six months ended June 30, 2022 compared to 3.19% for the six months ended June 30, 2021. The contribution of PPP loans to net interest margin decreased to 7 basis points during the six months ended June 30, 2022 from 25 basis points during the six months ended June 30, 2021. This decrease was more than offset by an increase in contractual interest on loans, driven by recent increases in benchmark interest rates.
The quarterly net interest margins were as follows:
Three months ended:
March 31
3.08
June 30
September 30
3.18
December 31
3.17
In March 2020, the Federal Open Markets Committee (“FOMC”), in response to the economic downturn caused by the COVID-19 pandemic, lowered the target range for the federal funds rate to 0% to 0.25% and announced the FRB would substantially increase its Treasury and agency mortgage-backed securities holdings. This resulted in a historically low interest rate environment which lasted through the rest of 2020 and into 2021, putting downward pressure on our net interest margin.
In 2021, the FOMC began to taper the pace of its security purchases, and, in March 2022, the FOMC raised the target range for the federal funds rate. Since March 2022, the FOMC has raised the target range for the federal funds rate three additional times, set the target range for the federal funds rate to 2.25% to 2.50% at the July 2022 meeting, and indicated that the FRB will continue reducing its security holdings. Additionally, the FOMC indicated that it anticipates that ongoing increases in the target range will be appropriate, although this stance may be adjusted if risks emerge that impede the FRB’s dual mandate of maximum employment and price stability.
As a result of these developments, interest rates have risen which we expect will lead to improvements in our net interest margin. In general, we believe that increases in market interest rates will lead to improved net interest margins while decreases in market interest rates will result in lower net interest margins. Additionally, deposit costs are expected to increase in the second half of 2022, but should be more than offset by continued increases in earning asset yields resulting from higher rates.
Provision for Loan Losses
Provisions for loan losses are charged to operations in order to maintain the allowance for loan losses at a level we consider necessary to absorb probable incurred credit losses in the loan portfolio. In determining the level of the allowance for loan losses, management considers past and current loss experience, evaluations of collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of nonperforming and other classified loans. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or as events change. We assess the allowance for loan losses on a quarterly basis and make provisions for loan losses in order to maintain the allowance. The provision for loan losses is a function of the allowance for loan loss methodology we use to determine the appropriate level of the allowance for inherent loan losses after accounting for net charge-offs (recoveries).
Credit losses in our loan portfolio are highly dependent on the economic conditions in the communities that we serve. The general deterioration in economic conditions initially caused by the COVID-19 pandemic adversely affected the communities that we serve beginning in 2020. As a result, our allowance for loan losses initially increased at the onset of the COVID-19 pandemic, remained elevated during the remainder of 2020, and then gradually returned to near pre-pandemic levels during 2021 as economic conditions improved in our market areas. Potential deterioration of economic conditions, whether due to the COVID-19 pandemic or other factors, may lead to higher credit losses and adversely impact our financial condition and results of operations.
The Company recorded a provision for loan losses of $0.1 million during the three months ended June 30, 2022, compared to a negative provision for loan losses of $2.2 million during the three months ended June 30, 2021. The provision during the three months ended June 30, 2022 was primarily due to changes in qualitative factors, resulting in a $0.4 million increase in required reserve, reflecting a slight deterioration in the economic environment since the first quarter of 2022 such as emerging concerns regarding inflation adversely affecting the buying power of households and a slowing housing market. Mostly offsetting the change in qualitative factors was a $0.2 million decrease in specific reserves on loans individually evaluated for impairment, and a $0.1 million net recovery.
The Company recorded a negative provision for loan losses of $0.4 million during the six months ended June 30, 2022, compared to a negative provision for loan losses of $5.6 million during the six months ended June 30, 2021. The negative provision during the six months ended June 30, 2022 was primarily due to net recoveries of $1.2 million during this period. This was partially offset by a $0.8 million increase in required reserves, reflecting a $1.5 million increase in specific reserves on loans individually evaluated for impairment and improvements in qualitative factors, relative to December 31, 2021, which resulted in a $0.7 million decrease in required reserves.
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Noninterest Income
The following table sets forth the major categories of noninterest income for the periods indicated:
$ Change
265
317
634
402
757
(50)
(77)
676
710
(1,236)
(2,749)
(386)
(223)
(459)
(988)
Total noninterest income for the three months ended June 30, 2022, was $8.6 million, a decrease of $0.2 million, or 2.5%, from the three months ended June 30, 2021. Notable changes in noninterest income include the following:
Total noninterest income for the six months ended June 30, 2022, was $18.6 million, a decrease of $1.0 million, or 5.0%, from the six months ended June 30, 2021. Notable changes in noninterest income include the following:
Noninterest Expense
The following table sets forth the major categories of noninterest expense for the periods indicated:
1,086
575
1,334
362
(13)
(55)
(263)
(288)
(299)
(277)
167
1,688
3,301
Total noninterest expense for the three months ended June 30, 2022, was $23.8 million, an increase of $1.7 million, or 7.6%, from the three months ended June 30, 2021. Notable changes in noninterest expense include the following:
Total noninterest expense for the six months ended June 30, 2022, was $48.0 million, an increase of $3.3 million, or 7.4%, from the six months ended June 30, 2021. Notable changes in noninterest expense include the following:
Income Taxes
We recorded income tax expense of $4.9 million, or 25.6% effective tax rate, during the three months ended June 30, 2022, compared to $4.8 million, or 25.8% effective tax rate, during the three months ended June 30, 2021. The slight decrease in effective tax rate was primarily due to lower overall state income taxes.
We recorded income tax expense of $9.6 million, or 25.8% effective tax rate, during the six months ended June 30, 2022, compared to $10.3 million, or 26.3% effective tax rate, during the six months ended June 30, 2021. The slight decrease in effective tax rate was primarily due to lower overall state income taxes.
FINANCIAL CONDITION
% Change
Consolidated Balance Sheet Information
(60.9)
(17,462)
(1.9)
212,051
63.1
7.5
(47,863)
Less: allowance for loan losses
798
3.3
(48,661)
(2.0)
(25.2)
127,826
114,673
13,153
11.5
(90,276)
(2.1)
(36,199)
(1.0)
(16.6)
0.1
(5,913)
(22.8)
(52,204)
(1.3)
Total stockholders' equity
(38,072)
(9.2)
Total liabilities and stockholders' equity
Tangible assets (1)
4,193,203
4,282,989
(89,786)
Tangible common equity (1)
343,034
380,616
(37,582)
(9.9)
Core deposits (1)
3,676,617
3,674,435
2,182
Book value per share
12.97
14.21
Tangible book value per share (1)
11.90
13.13
Shares of common stock outstanding
Balance Sheet Ratios
Loan to deposit ratio
66.23
66.87
Core deposits to total deposits (1)
99.31
98.29
Stockholders' equity to total assets
8.85
9.55
Tangible common equity to tangible assets (1)
8.18
8.89
Total assets were $4.22 billion at June 30, 2022, a decrease of $90.3 million, or 2.1%, from December 31, 2021. Notable changes in our consolidated balance sheet include the following:
Loan Portfolio
The following table sets forth the composition of the loan portfolio, excluding loans held-for-sale, by type of loan.
Percent
10.2
9.4
9.9
9.3
26.8
27.4
11.0
10.5
13.5
11.9
13.3
13.1
6.5
6.3
100.0
PPP loans (included above)
1.1
1.2
Loans, before allowance for loan losses were $2.45 billion at June 30, 2022, a decrease of $47.9 million, or 1.9%, from December 31, 2021, primarily due to the ongoing forgiveness of PPP loans which decreased by $26.7 million. Additionally, new loan production was impacted by seasonally lighter demand in the first quarter of 2022, project delays due to higher materials costs and interest rates, and an increasingly competitive loan pricing environment in our markets.
68
Loan Portfolio Maturities
The following table summarizes the scheduled maturities of the loan portfolio. Demand loans (loans having no stated repayment schedule or maturity) and overdraft loans are reported as being due in one year or less.
After 1 Year
After 5 Years
1 Year
Through
After
or Less
5 Years
15 Years
160,468
69,566
19,805
90,820
94,507
42,242
2,801
18,723
141,283
65,256
3,735
77,032
408,702
169,831
528
23,434
171,746
74,272
176,270
143,995
11,478
73,121
112,475
81,550
57,901
49,817
17,229
71,876
21,065
669,685
1,159,503
536,310
86,328
The following table summarizes loans maturing after one year, segregated into variable and fixed interest rates.
Variable Interest Rates
Repricing
Predetermined
Variable
(Fixed)
8,056
8,078
81,293
89,371
7,643
5,788
13,431
126,119
139,550
19,467
48,984
161,290
210,274
67,933
20,931
88,864
490,197
579,061
26,370
26,400
219,618
246,018
81,035
81,110
74,661
155,771
67,059
21,493
88,552
163,374
251,926
31,544
11,987
43,531
66,639
110,170
319,157
79,793
398,950
1,383,191
1,782,141
Nonperforming Assets
Nonperforming loans consist of all loans 90 days or more past due or on nonaccrual. Nonperforming assets consist of all nonperforming loans and foreclosed assets. Typically, loans are placed on nonaccrual when they reach 90 days past due, or when, in management’s opinion, there is reasonable doubt regarding the collection of the amounts due through the normal means of the borrower. Interest accrued and unpaid at the time a loan is placed on nonaccrual status is reversed from interest income. Interest payments received on nonaccrual loans are recognized in accordance with our significant accounting policies. Once a loan is placed on nonaccrual status, the borrower must generally demonstrate at least six months of payment performance and we must believe that all remaining principal and interest is fully collectible, before the loan is eligible to return to accrual status. Management believes the Company’s lending practices and active approach to managing nonperforming assets has resulted in timely resolution of problem assets.
Loans acquired with deteriorated credit quality are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. However, these loans may be considered performing, even though they may be contractually past due, as any non-payment of contractual principal or interest is considered in the periodic re-estimation of expected cash flows and is included in the resulting recognition of current period loan loss provision or future period yield adjustments. The accrual of interest is discontinued on loans acquired with deteriorated credit quality if management can no longer estimate future cash flows on the loan. Therefore, interest revenue, through accretion of the difference between the carrying value of the loans and the expected cash flows, is being recognized on all loans acquired with deteriorated credit quality, except those on which management can no longer estimate future cash flows.
69
The following table sets forth information concerning nonperforming loans and nonperforming assets as of each of the dates indicated.
NONPERFORMING ASSETS
Past due 90 days or more, still accruing (1)
Total nonperforming loans
3,430
2,779
Total nonperforming assets
6,321
6,057
CREDIT QUALITY RATIOS
Allowance for loan losses to loans, before allowance for loan losses
Allowance for loan losses to nonaccrual loans
761.51
866.30
Allowance for loan losses to nonperforming loans
721.11
861.32
Nonaccrual loans to loans, before allowance for loan losses
Nonperforming loans to loans, before allowance for loan losses
0.14
Nonperforming assets to total assets
Nonperforming assets to loans, before allowance for loan losses, and foreclosed assets
0.26
Total nonperforming assets were $6.3 million at June 30, 2022, increasing slightly since December 31, 2021. Our level of nonperforming assets has remained low in recent years, representing only 0.15% and 0.14% of total assets as of June 30, 2022 and December 31, 2021, respectively. We believe our continuous credit monitoring and collection efforts have resulted in lower levels of nonperforming assets, while also recognizing that favorable economic conditions prior to the COVID-19 pandemic and substantial federal economic stimulus during the pandemic have also contributed to these lower levels.
Troubled Debt Restructurings
In general, if the Company grants a troubled debt restructuring (“TDR”) that involves either the absence of principal amortization or a material extension of an existing loan amortization period in excess of our underwriting standards, the loan will be placed on nonaccrual status. However, if a TDR is well secured by an abundance of collateral and the collectability of both interest and principal is probable, the loan may remain on accrual status. A nonaccrual TDR in full compliance with the payment requirements specified in the loan modification for at least six months may return to accrual status, if the collectability of both principal and interest is probable. All TDRs are individually evaluated for impairment.
The following table presents TDRs by loan category.
Accruing
203
1,595
1,671
1,238
1,278
344
360
Total troubled debt restructurings
3,344
3,512
TDRs have remained a small portion of our loan portfolio as loan modifications to borrowers with deteriorating financial condition are generally offered only as part of an overall workout strategy to minimize losses to the Company.
Risk Classification of Loans
Our policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality as pass-watch, substandard, doubtful, or loss.
A pass-watch loan is still considered a "pass" credit and is not a classified or criticized asset, but is a reflection of a borrower who exhibits credit weaknesses or downward trends warranting close attention and increased monitoring. These potential weaknesses may result in deterioration of the repayment prospects for the loan. No loss of principal or interest is expected, and the borrower does not pose sufficient risk to warrant classification.
A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized as probable that the borrower will not pay principal and interest in accordance with the contractual terms.
An asset classified as doubtful has all the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted; such balances are promptly charged-off as required by applicable federal regulations.
As of June 30, 2022 and December 31, 2021, our risk classifications of loans were as follows:
Pass-watch
Pass-watch loans decreased $84.7 million, or 57.1% and substandard loans decreased $1.4 million, or 1.7%, from December 31, 2021 to June 30, 2022. This overall improvement was primarily driven by better economic conditions, relative to 2021, which resulted in both risk rating upgrades and paydowns.
Net Charge-offs and Recoveries
The following table summarizes net charge-offs (recoveries) to average loans, before allowance for loan losses, by loan category.
Net charge-offs (recoveries)
(40)
281
(744)
(100)
(6)
(270)
(179)
(269)
(62)
(214)
(14)
91
(1,237)
(236)
Average loans, before allowance for loan losses
274,696
383,383
290,496
401,174
230,755
229,253
231,486
220,837
223,757
202,252
224,257
205,145
682,317
538,888
693,092
545,942
251,840
220,691
249,319
226,564
324,806
210,745
320,033
213,559
327,191
308,808
328,671
312,593
152,489
140,368
149,966
133,322
Net charge-offs (recoveries) to average loans, before allowance for loan losses *
(0.06)
0.29
(0.52)
(0.01)
(0.09)
(0.08)
(0.34)
(0.25)
(0.13)
(0.04)
0.12
(0.10)
(0.02)
The net charge-offs (recoveries) to average total loans before allowance for loan losses ratio has remained low for several years. We believe our continuous credit monitoring and collection efforts have resulted in lower levels of loan losses, while also recognizing that favorable economic conditions prior to the COVID-19 pandemic and substantial federal economic stimulus during the pandemic have also contributed to reduced loan losses.
The Company’s investment policy emphasizes safety of the principal, liquidity needs, expected returns, cash flow targets and consistency with our interest rate risk management strategy. The composition and maturities of the debt securities portfolio as of June 30, 2022, are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. Security yields have not been adjusted to a tax-equivalent basis.
3,039
0.17
5,973
2.85
3.63
8,113
3.05
256
1.99
5,135
2.31
20,508
2.87
34,911
2.54
37,051
2.61
110,241
26,853
2.41
10,000
2.18
36,853
2.35
55,602
2.20
16,318
71,920
2.45
12,782
8,415
1.62
21,197
2.06
37,719
2.27
8,280
2.72
45,999
16,876
4.29
260,073
2.01
43,013
2.59
303,086
2.09
59,689
1.46
30,481
2.32
57,626
88,107
147,175
1.75
166,980
1.94
85,685
2.10
4,138
3.51
89,823
2.17
73,813
1.63
295,548
1.80
34,961
3.85
431,804
1.97
303,304
735,108
2.02
20,787
2.71
77,262
2,657
3.62
79,919
1.95
137,793
2.21
96,158
233,951
2.77
43,909
1.98
80,177
124,086
2.00
2,000
260,964
199,779
2.86
460,743
1.38
2.26
2.48
148,786
2.39
1.90
3.36
326,932
2.08
3.43
345,227
470,768
1.91
3.70
2.03
2.42
SOURCES OF FUNDS
Management continues to focus on growing non-maturity deposits, through the Company’s relationship-driven banking philosophy and community-focused marketing programs, and to deemphasize higher cost deposit categories, such as time deposits. Additionally, the Bank continues to add and improve digital banking services to solidify deposit relationships.
The following table sets forth the distribution of average deposits, by account type:
Change in
Percent of
Total Deposits
Average Cost *
28.5
29.1
8.1
30.8
29.9
13.7
15.5
14.8
15.8
17.6
17.7
10.0
Total non-maturity deposits
3,475,637
92.4
3,116,250
91.5
7.6
8.5
3,760,517
3,407,115
10.4
28.8
12.4
30.5
30.4
14.2
15.7
19.8
17.4
17.2
14.6
3,472,625
92.1
3,029,863
91.2
7.9
8.8
1.8
3,770,331
3,322,372
The average balances of non-maturity deposits increased 11.5% from the three months ended June 30, 2021 to the three months ended June 30, 2022, with the increase primarily attributable to higher balances maintained by deposit customers following the receipt of federal economic stimulus, in the form of PPP loan proceeds by commercial customers and direct payments received by retail customers, although this trend reversed slightly late in the second quarter of 2022. Additionally, the NXT acquisition added $139.4 million of non-maturity deposits on October 1, 2021. Time deposits decreased slightly due to continued run-off of higher cost time deposits which were mostly offset by the addition of $42.1 million of time deposits acquired from NXT.
The average balances of non-maturity deposits increased 14.6% from the six months ended June 30, 2021 to the six months ended June 30, 2022, with the increase primarily attributable to higher balances maintained by deposit customers following the receipt of federal economic stimulus, in the form of PPP loan proceeds by commercial customers and direct payments received by retail customers, although this trend reversed slightly late in the second quarter of 2022. Additionally, the NXT acquisition added $139.4 million of non-maturity deposits on October 1, 2021. Time deposits increased slightly due to the addition of $42.1 million of time deposits acquired from NXT which were mostly offset by the continued run-off of higher cost time deposits.
74
The following table sets forth time deposits by remaining maturity as of June 30, 2022:
3 Months or
Over 3 through
Over 6 through
Over
Less
6 Months
12 Months
Time deposits:
Amounts less than $100,000
38,457
36,936
56,008
53,013
184,414
Amounts of $100,000 but less than $250,000
14,327
13,369
18,704
18,710
65,110
Amounts of $250,000 or more
8,190
8,188
5,690
25,369
Total time deposits
60,974
58,493
80,402
75,024
As of June 30, 2022 and December 31, 2021, the Bank’s uninsured deposits, including related accrued interest, were estimated to be $800.9 million and $845.7 million, respectively.
LIQUIDITY
Bank Liquidity
The overall objective of bank liquidity management is to ensure the availability of sufficient cash funds to meet all financial commitments and to take advantage of investment opportunities. The Bank manages liquidity in order to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature, and to fund new loans and investments as opportunities arise.
The Bank continuously monitors its liquidity positions to ensure that assets and liabilities are managed in a manner that will meet all of our short-term and long-term cash requirements. The Bank manages its liquidity position to meet our daily cash flow needs, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives. The Bank also monitors liquidity requirements in light of interest rate trends, changes in the economy, the scheduled maturity and interest rate sensitivity of the investment and loan portfolios and deposits, and regulatory capital requirements.
As part of the Bank’s liquidity management strategy, the Bank is also focused on minimizing costs of liquidity and attempts to decrease these costs by promoting noninterest bearing and low-cost deposits and replacing higher cost funding including time deposits and borrowed funds. While the Bank does not control the types of deposit instruments our clients choose, those choices can be influenced with the rates and the deposit specials offered.
Additional sources of liquidity include unpledged securities, federal funds purchased, and borrowings from the FHLB. Unpledged securities may be sold or pledged as collateral for borrowings to meet liquidity needs. Interest is charged at the prevailing market rate on federal funds purchased and FHLB borrowings. Funds available through federal funds purchased and FHLB borrowings are used primarily to meet daily liquidity needs. The total remaining credit available to the Bank from the FHLB at June 30, 2022 was $361.6 million.
As of June 30, 2022, management believed adequate liquidity existed to meet all projected cash flow obligations of the Bank. As of June 30, 2022, the Bank had no material commitments for capital expenditures.
Holding Company Liquidity
The Company is a corporation separate and apart from the Bank and, therefore, it must provide for its own liquidity. As of June 30, 2022, HBT Financial, Inc. had cash and cash equivalents of $24.0 million.
The Company’s main source of funding is dividends declared and paid to it by the Bank. Due to state banking laws, the Bank may not declare dividends in any calendar year in an amount that would exceed accumulated retained earnings, after giving effect to any unrecognized losses and bad debts, without the prior approval of the Illinois Department of Financial and Professional Regulation. In addition, dividends paid by the Bank to the Company would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements. Management believes that these limitations will not impact the Company’s ability to meet its ongoing short-term cash obligations. During the three and six months ended June 30, 2022, the Bank paid $6.0 million and $12.0 million in dividends to the Company, respectively. During the three and six months ended June 30, 2021, the Bank did not pay a dividend to the Company.
The liquidity needs of the Company on an unconsolidated basis consist primarily of operating expenses, interest payments on the subordinated notes and junior subordinated debentures, and shareholder distributions in the form of dividends and stock repurchases. During the three months ended June 30, 2022 and 2021, holding company operating expenses consisted of interest expense of $0.9 million and $0.8 million, respectively, and other operating expenses of $1.0 million and $0.7 million, respectively. During the six months ended June 30, 2022 and 2021, holding company operating expenses consisted of interest expense of $1.7 million and $1.7 million, respectively, and other operating expenses of $2.5 million and $1.3 million, respectively.
Additionally, the Company paid $4.7 million and $4.1 million of dividends to stockholders during the three months ended June 30, 2022 and 2021, respectively, and paid $9.3 million and $8.2 million of dividends to stockholders during the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, management was not aware of any known trends, events or uncertainties that had or were reasonably likely to have a material impact on the Company’s liquidity.
As of June 30, 2022, management believed adequate liquidity existed to meet all projected cash flow obligations of the Company. As of June 30, 2022, the Company had no material commitments for capital expenditures.
CAPITAL RESOURCES
The overall objectives of capital management are to ensure the availability of sufficient capital to support loan, deposit and other asset and liability growth opportunities and to maintain capital to absorb unforeseen losses or write-downs that are inherent in the business risks associated with the banking industry. The Company seeks to balance the need for higher capital levels to address such unforeseen risks and the goal to achieve an adequate return on the capital invested by our stockholders.
Regulatory Capital Requirements
The Company and Bank are each subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the financial statements of the Company and the Bank.
In addition to meeting minimum capital requirements, the Company and the Bank must also maintain a “capital conservation buffer” to avoid becoming subject to restrictions on capital distributions and certain discretionary bonus payments to management. As of June 30, 2022 and December 31, 2021, the capital conservation buffer requirement was 2.5% of risk-weighted assets.
As of June 30, 2022 and December 31, 2021, the Company and the Bank met all capital adequacy requirements to which they were subject. As of those dates, the Bank was “well capitalized” under the regulatory prompt corrective action provisions.
The following table sets forth actual capital ratios of the Company and the Bank as of the dates indicated, as well as the minimum ratios for capital adequacy purposes with the capital conservation buffer, and the minimum ratios to be well capitalized under regulatory prompt corrective action provisions.
For Capital
To Be Well
Adequacy Purposes
Capitalized Under
With Capital
Prompt Corrective
Conversation Buffer (1)
Action Provisions (2)
10.50
8.50
7.00
N/A Not applicable.
As of June 30, 2022, management was not aware of any known trends, events or uncertainties that had or were reasonably likely to have a material impact on the Company’s capital resources.
Cash Dividends
During 2021, the Company paid quarterly cash dividends of $0.15 per share. On January 25, 2022, the Company announced an increase of $0.01 and paid a $0.16 per share dividend during the first and second quarters of 2022.
Stock Repurchase Program
Under the Company’s stock repurchase program, the Company repurchased 136,746 shares of its common stock at a weighted average price of $17.61 during the three months ended June 30, 2022. Repurchases were conducted in compliance with Rule 10b-18 and in compliance with Regulation M under the Exchange Act. The Company’s Board of Directors authorized the repurchase of up to $15.0 million of its common stock under its stock repurchase program in effect until January 1, 2023. As of June 30, 2022, the Company had $11.6 million remaining under the current stock repurchase authorization.
77
OFF-BALANCE SHEET ARRANGEMENTS
As a financial services provider, the Bank routinely is a party to various financial instruments with off-balance sheet risks, such as commitments to extend credit, standby letters of credit, unused lines of credit, commitments to sell loans, and interest rate swaps. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process afforded to loans originated by the Bank. Although commitments to extend credit are considered while evaluating our allowance for loan losses, as of June 30, 2022 and December 31, 2021, there were no reserves for unfunded commitments. For additional information, see “Note 14 – Commitments and Contingencies” to the consolidated financial statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company has established various accounting policies that govern the application of GAAP in the preparation of its consolidated financial statements.
Critical accounting estimates are those that are critical to the portrayal and understanding of the Company's financial condition and results of operations and require management to make assumptions that are difficult, subjective or complex. These estimates involve judgments, assumptions and uncertainties that are susceptible to change. In the event that different assumptions or conditions were to prevail, and depending on the severity of such changes, the possibility of a materially different financial condition or materially different results of operations is a reasonable likelihood. Further, changes in accounting standards could impact the Company's critical accounting estimates.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 11, 2022. For more information, please refer to “Note 1 – Summary of Significant Accounting Policies” to our consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 11, 2022.
78
NON-GAAP FINANCIAL INFORMATION
This Quarterly Report on Form 10-Q contains certain financial information determined by methods other than those in accordance with GAAP. 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 closely comparable GAAP financial measures below.
Non-GAAP Financial Measure
Definition
How the Measure Provides Useful Information to Investors
Adjusted Net Income
Net Interest Income (Tax Equivalent Basis)
Efficiency Ratio (Tax Equivalent Basis)
Tangible Common Equity to Tangible Assets
Core Deposits
Reconciliation of Non-GAAP Financial Measure - Adjusted Net Income and Adjusted Return on Average Assets
Adjustments:
Acquisition expenses
(157)
Branch closure expenses
(104)
Gains (losses) on sales of closed branch premises
(18)
Total adjustments
348
(571)
2,274
Tax effect of adjustments
(99)
120
(648)
(363)
Less adjustments after tax effect
249
(451)
1,626
761
Adjusted net income
Average assets
Adjusted return on average assets *
Reconciliation of Non-GAAP Financial Measure - Adjusted Earnings Per Share
Earnings allocated to participating securities (1)
(26)
(32)
(54)
Numerator for adjusted earnings per share - basic and diluted
13,819
14,142
26,031
28,147
Adjusted earnings per share - Basic
Adjusted earnings per share - Diluted
Reconciliation of Non-GAAP Financial Measure – Net Interest Income and Net Interest Margin (Tax Equivalent Basis)
Net interest income (tax equivalent basis)
Tax-equivalent adjustment (1)
Net interest income (tax equivalent basis) (1)
Net interest margin (tax equivalent basis)
Tax-equivalent adjustment * (1)
Net interest margin (tax equivalent basis) * (1)
Average interest-earning assets
Reconciliation of Non-GAAP Financial Measure - Efficiency Ratio (Tax Equivalent Basis)
Efficiency ratio (tax equivalent basis)
Less: amortization of intangible assets
Adjusted noninterest expense
23,597
21,896
47,509
44,151
Operating revenue
42,924
38,474
84,895
78,411
Operating revenue (tax-equivalent basis) (1)
43,522
38,977
86,022
79,417
Efficiency ratio (tax equivalent basis) (1)
Reconciliation of Non-GAAP Financial Measure - Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share
Tangible Common Equity
Less: Goodwill
Less: Core deposit intangible assets, net
Tangible common equity
Tangible Assets
Tangible assets
Total stockholders' equity to total assets
Tangible common equity to tangible assets
Tangible book value per share
Reconciliation of Non-GAAP Financial Measure – Return on Average Tangible Common Equity, Adjusted Return on Average Stockholders’ Equity, and Adjusted Return on Average Tangible Common Equity
Average Tangible Common Equity
23,620
1,597
2,410
1,720
2,547
Average tangible common equity
347,612
339,160
361,292
338,211
Return on average tangible common equity *
Adjusted return on average stockholders' equity *
Adjusted return on average tangible common equity *
Reconciliation of Non-GAAP Financial Measure - Core Deposits
Less: time deposits of $250,000 or more
59,512
Less: brokered deposits
4,238
Core deposits
Core deposits to total deposits
83
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Managing risk is an essential part of successfully managing a financial institution. Our most prominent risk exposures are interest rate risk and credit risk.
Interest Rate Risk
Our most significant form of market risk is interest rate risk inherent in the normal course of lending and deposit-taking activities. Interest rate risk is the potential reduction of net interest income as a result of changes in interest rates. Management believes that our ability to successfully respond to changes in interest rates will have a significant impact on our financial results. To that end, management actively monitors and manages our interest rate exposure.
The Company’s Asset/Liability Management Committee (“ALCO”), which is authorized by the Company’s board of directors, monitors our interest rate sensitivity and makes decisions relating to that process. The ALCO’s goal is to structure our asset/liability composition to maximize net interest income while managing interest rate risk so as to minimize the adverse impact of changes in interest rates on net interest income and capital in either a rising or declining interest rate environment. Profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact our earnings because the interest rates borne by assets and liabilities do not change at the same speed, to the same extent or on the same basis.
We monitor the impact of changes in interest rates on our net interest income and economic value of equity (“EVE”) using rate shock analysis. Net interest income simulations measure the short-term earnings exposure from changes in market rates of interest in a rigorous and explicit fashion. Our current financial position is combined with assumptions regarding future business to calculate net interest income under varying hypothetical rate scenarios. EVE measures our long-term earnings exposure from changes in market rates of interest. EVE is defined as the present value of assets minus the present value of liabilities at a point in time. A decrease in EVE due to a specified rate change indicates a decline in the long-term earnings capacity of the balance sheet assuming that the rate change remains in effect over the life of the current balance sheet.
The following table sets forth the estimated impact on our EVE and net interest income of immediate and parallel changes in interest rates at the specified levels.
Increase (Decrease) in
Estimated Increase
Estimated Net Interest Income
(Decrease) in EVE
Year 1
Year 2
Change in Interest Rates (basis points)
+400
130,759
18.1
23,121
37,496
24.0
+300
116,344
16.1
17,920
12.0
29,675
19.0
+200
91,283
12.7
8.3
20,886
13.4
+100
53,725
6,401
4.3
11,122
7.1
Flat
-100
(88,870)
(12.3)
(11,591)
(7.8)
(17,837)
(11.4)
92,106
19.7
23,230
18.7
38,485
31.7
76,708
16.4
17,938
14.5
30,487
25.1
51,627
11.1
12,154
9.8
21,339
12,453
2.7
5,818
4.7
11,062
9.1
34,852
(4,098)
(3.3)
(7,746)
(6.4)
Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in EVE and net interest income requires that we make certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The EVE and net interest income table presented above assumes that the composition of our interest-rate-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and, accordingly, the data does not reflect any actions that we may undertake in response to changes in interest rates, such as changes in rates paid on certain deposit accounts based on local competitive factors, which could change the actual impact on EVE and net interest income. The table also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or the repricing characteristics of specific assets and liabilities. Accordingly, although the EVE and net interest income table provides an indication of our sensitivity to interest rate changes at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.
Credit Risk
Credit risk is the risk that borrowers or counterparties will be unable or unwilling to repay their obligations in accordance with the underlying contractual terms. We manage and control credit risk in the loan portfolio by adhering to well-defined underwriting criteria and account administration standards established by management. Our loan policy documents underwriting standards, approval levels, exposure limits and other limits or standards deemed necessary and prudent. Portfolio diversification at the borrower, industry, and product levels is actively managed to mitigate concentration risk. In addition, credit risk management also includes an independent loan review process that assesses compliance with loan policy, compliance with loan documentation standards, accuracy of the risk rating and overall credit quality of the loan portfolio.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this report was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and other members of the Company’s senior management. The Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2022, the end of the period covered by this report, the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is: (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure; and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 1. LEGAL PROCEEDINGS
We are sometimes party to legal actions that are routine and incidental to our business. Management, in consultation with legal counsel, does not expect the ultimate disposition of any or a combination of these matters to have a material adverse effect on our assets, business, cash flow, financial condition, liquidity, prospects and results of operations; however, given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to our business, including laws and regulations governing consumer protection, fair lending, fair labor, privacy, information security and anti-money laundering and anti-terrorism laws, we, like all banking organizations, are subject to heightened legal and regulatory compliance and litigation risk.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 11, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
On December 14, 2021, 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 January 1, 2023 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.
The following table sets forth information about the Company’s purchases of its common stock during the second quarter of 2022, all of which were conducted in compliance with Rule 10b-18 and Regulation M under the Exchange Act:
Total Number of Shares
Approximate Dollar Value of
Total Number
Purchased as Part of
Shares That May Yet be Purchased
of Shares
Price Paid
Publicly Announced
Under the Plans or Programs
Period
Purchased
Per Share
Plans or Programs
(in thousands)
April 1 - 30, 2022
51,535
18.29
13,114
May 1 - 31, 2022
55,030
16.94
12,182
June 1 - 30, 2022
30,181
17.64
11,649
136,746
17.61
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibit No.
Description
31.1
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a).
31.2
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a).
32.1 *
Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350.
32.2 *
Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350.
101.INS
iXBRL Instance Document.
101.SCH
iXBRL Taxonomy Extension Schema Document.
101.CAL
iXBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB
iXBRL Taxonomy Extension Label Linkbase Document.
101.PRE
iXBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF
iXBRL Taxonomy Extension Definition Linkbase Document.
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibits 101).
*
This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HBT FINANCIAL, INC.
August 3, 2022
By:
/s/ Matthew J. Doherty
Matthew J. Doherty
Chief Financial Officer
(on behalf of the registrant and as principal financial officer)