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HBT Financial, Inc. (HBT) Quarterly Report (10-Q)

Press release·10/30/2024 23:06:12
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HBT Financial, Inc. (HBT) Quarterly Report (10-Q)

HBT Financial, Inc. (HBT) Quarterly Report (10-Q)

HBT Financial, Inc. (HBT) reported its quarterly financial results for the period ended September 30, 2024. The company’s consolidated net income was $12.1 million, compared to $10.3 million in the same period last year. Total assets increased to $2.3 billion, while total deposits grew to $1.9 billion. The company’s net interest income rose to $34.1 million, driven by a 10% increase in net interest margin. Non-interest income decreased to $13.4 million due to lower mortgage banking revenue. The company’s efficiency ratio improved to 63.1%, and its common equity tier 1 capital ratio remained strong at 11.3%. HBT’s management discussed the company’s financial performance, highlighting its continued growth and profitability, as well as its efforts to improve efficiency and manage risk.

Overview

HBT Financial, Inc. is a bank holding company headquartered in Bloomington, Illinois. Its subsidiary, Heartland Bank and Trust Company, provides a range of financial products and services to consumers, businesses, and municipal entities throughout Illinois and eastern Iowa. As of September 30, 2024, HBT Financial had $5.0 billion in total assets, $3.4 billion in loans held for investment, and $4.3 billion in total deposits.

The company’s market area includes 66 full-service branch locations, with a leading deposit share in many of its central Illinois markets. In February 2023, HBT Financial completed the acquisition of Town and Country Bank, which added $937 million in total assets, $635 million in loans, and $720 million in deposits.

Factors Affecting Results of Operations

Several key factors can impact HBT Financial’s operating results, including:

Economic Conditions: The company’s performance is affected by general economic conditions in the U.S. and its primary markets in Illinois and Iowa, including unemployment rates, real estate markets, and interest rates.

Interest Rates: Net interest income is the primary source of revenue, and it is influenced by the level of interest rates as well as the volume and mix of interest-earning assets and interest-bearing liabilities. Rising rates generally increase net interest income, while declining rates may decrease it.

Credit Trends: The quality of the loan portfolio, as measured by nonperforming assets and net charge-offs, can significantly impact financial results. Economic conditions are a key driver of credit trends.

Competition: HBT Financial faces competition from community banks, regional/national banks, and non-bank financial services providers, which can affect loan and deposit pricing.

Digital Banking: The shift towards digital banking may require increased technology investments and could impact the stability of the deposit base.

Regulatory Environment: The banking industry continues to operate in an environment of extensive regulation, which can increase compliance costs.

Comparison of Financial Results

For the three months ended September 30, 2024, net income was $18.2 million, a decrease of 7.8% from the same period in 2023. This was primarily due to a $1.5 million negative mortgage servicing rights fair value adjustment, the absence of $0.8 million in realized losses on securities sales in 2023, a $0.7 million increase in salaries expense, and a $0.5 million decrease in net interest income.

For the nine months ended September 30, 2024, net income was $51.5 million, an increase of 8.7% from the same period in 2023. This was primarily due to the absence of $13.7 million in Town and Country acquisition-related expenses incurred in 2023, partially offset by $3.4 million in realized losses on debt securities sales, a $2.5 million decrease in net interest income, a $1.5 million negative mortgage servicing rights fair value adjustment, and a $2.1 million increase in income tax expense.

Net Interest Income

Net interest income for the three months ended September 30, 2024 was $47.7 million, a decrease of 1.1% from the same period in 2023. The net interest margin decreased to 3.98% from 4.07%, primarily due to increases in funding costs outpacing increases in interest-earning asset yields.

For the nine months ended September 30, 2024, net interest income was $141.4 million, a decrease of 1.8% from the same period in 2023. The net interest margin decreased to 3.96% from 4.14%, again due to funding cost increases outpacing asset yield increases.

The company’s net interest margin has decreased modestly since the second quarter of 2023 as increased competition for deposits has driven up funding costs. The Federal Reserve’s 50-basis-point rate cut in September 2024 may put further downward pressure on the net interest margin going forward.

Provision for Credit Losses

The provision for credit losses was $0.6 million in the third quarter of 2024, compared to $0.5 million in the third quarter of 2023. The 2024 provision primarily reflected increases in required reserves due to changes in economic forecasts and qualitative factors, partially offset by decreases in specific reserves and changes within the loan portfolio.

For the nine months ended September 30, 2024, the provision was $2.3 million, compared to $6.5 million in the same period of 2023. The 2024 provision was driven by increases in required reserves for qualitative factors and economic forecasts, partially offset by decreases in specific reserves and changes in the loan portfolio. The 2023 provision included $5.9 million related to the Town and Country acquisition.

Credit losses remain low, but potential deterioration of economic conditions could lead to higher credit losses in the future.

Noninterest Income

Noninterest income for the third quarter of 2024 was $8.7 million, a decrease of 8.3% from the third quarter of 2023. This was primarily due to a $1.5 million negative mortgage servicing rights fair value adjustment, the absence of $0.8 million in realized securities losses in 2023, and a $0.6 million loss on foreclosed assets, partially offset by a $0.3 million increase in wealth management fees.

For the nine months ended September 30, 2024, noninterest income was $23.9 million, a decrease of 10.8% from the same period in 2023. This was primarily due to $3.4 million in realized losses on debt securities sales, the $1.5 million negative mortgage servicing rights fair value adjustment, and $0.6 million in impairment losses on bank premises, partially offset by an $0.8 million increase in wealth management fees.

Noninterest Expense

Noninterest expense for the third quarter of 2024 was $31.3 million, an increase of 2.1% from the third quarter of 2023. This was primarily due to a $0.7 million increase in salaries expense and a $0.4 million increase in benefits expense.

For the nine months ended September 30, 2024, noninterest expense was $93.1 million, a decrease of 7.4% from the same period in 2023. This was primarily due to the absence of $7.8 million in Town and Country acquisition-related expenses incurred in 2023, partially offset by a $1.2 million increase in salaries expense and a $1.0 million increase in benefits expense.

Financial Condition

Total assets decreased by $82.4 million, or 1.6%, from December 31, 2023 to September 30, 2024. This was primarily due to a $49.2 million decrease in available-for-sale debt securities and a $35.5 million decrease in net loans.

The loan portfolio decreased by $34.6 million, or 1.0%, driven by lower line of credit utilization and early payoffs. The commercial real estate portfolio remains well-diversified, with the company closely monitoring cash flows and conducting quarterly stress testing on larger credits.

Total deposits decreased by $120.7 million, or 2.7%, primarily due to a $114.9 million decrease in brokered deposits. Deposit balances continued to shift towards higher-cost time deposits, which increased by $176.7 million.

Stockholders’ equity increased by $48.2 million, or 9.8%, primarily due to retained earnings growth. The tangible common equity ratio improved to 9.35% as of September 30, 2024, up from 8.19% at the end of 2023.

Liquidity

The company maintains strong liquidity, with $827.7 million in cash and unpledged securities as of September 30, 2024. Additional sources of liquidity include borrowing capacity from the FHLB, Federal Reserve, and federal funds lines of credit totaling $1.2 billion.

The bank subsidiary’s liquidity is managed to meet daily cash flow needs and maintain an appropriate balance between assets and liabilities. The holding company’s liquidity primarily consists of dividends received from the bank subsidiary, which are used to fund operating expenses, interest payments, and shareholder distributions.

Management believes the current liquidity position and available sources of liquidity are adequate to meet all reasonably foreseeable short-term and intermediate-term demands for both the bank and the holding company.

Outlook

HBT Financial faces several challenges and opportunities in the current operating environment:

Economic Conditions: The company’s performance is closely tied to the economic conditions in its Illinois and Iowa markets. Continued inflationary pressures, rising interest rates, and potential recessionary risks could negatively impact credit quality and financial results.

Interest Rate Environment: While rising rates have generally benefited the company’s net interest income, the Federal Reserve’s recent rate cut may put downward pressure on the net interest margin going forward. Careful management of the asset-liability mix will be crucial.

Competition: Intense competition for loans and deposits, particularly in the Chicago MSA market, may continue to pressure pricing and margins.

Digital Transformation: Investments in digital banking capabilities will be necessary to meet evolving customer expectations and maintain a competitive position, while also managing the potential impact on the deposit base.

Regulatory Landscape: The extensive regulatory environment shows no signs of easing, requiring the company to devote significant resources to compliance.

Overall, HBT Financial appears well-positioned with a strong capital position, diversified loan portfolio, and ample liquidity. However, the company must navigate the challenging economic and competitive landscape, manage interest rate risk, and continue investing in technology to drive long-term success. Prudent risk management and a focus on core banking fundamentals will be critical in the years ahead.