HBT Financial, Inc. — Q1 2021 Form 10-Q
Business context and reporting period
Unaudited results cover the three months ended March 31, 2021, compared with Q1 2020; balance-sheet comparisons are to December 31, 2020. HBT is an Illinois-focused community bank holding company operating 63 branches across 18 counties through Heartland Bank and Trust Company. The December 2020 merger of State Bank of Lincoln into Heartland Bank left Heartland as the company’s sole bank subsidiary.
Key financial metrics
| Metric | Q1 2021 / March 31, 2021 | Comparable period / prior year-end |
|---|---|---|
| Total assets | $3.866 billion | $3.667 billion at Dec. 31, 2020 |
| Loans, before allowance | $2.271 billion | $2.247 billion at Dec. 31, 2020 |
| Total deposits | $3.356 billion | $3.131 billion at Dec. 31, 2020 |
| Net interest income | $29.1 million | $30.7 million in Q1 2020 |
| Net interest margin | 3.25% (3.30% tax-equivalent) | 4.03% (4.09% tax-equivalent) in Q1 2020 |
| Net income / diluted EPS | $15.2 million / $0.55 | $6.2 million / $0.23 in Q1 2020 |
| Adjusted net income / adjusted diluted EPS | $14.0 million / $0.51 | $8.4 million / $0.30 in Q1 2020 |
| Net cash from operating activities | $6.5 million | $12.5 million in Q1 2020 |
| Cash and cash equivalents | $429.7 million | $312.5 million at Dec. 31, 2020 |
| Stockholders’ equity | $357.4 million; tangible common equity ratio 8.63% | $363.9 million; 9.27% at Dec. 31, 2020 |
Q1 2021 net interest income after provision was $32.5 million, including a $3.4 million negative provision (reserve release), versus a $4.4 million provision in Q1 2020. Noninterest income rose to $10.8 million from $5.3 million; noninterest expense declined to $22.5 million from $23.3 million. Net income reflects a 26.7% effective tax rate, compared with 24.6% a year earlier.
Cash flow was $6.5 million provided by operating activities, $105.2 million used in investing activities, and $216.0 million provided by financing activities, resulting in a $117.3 million increase in cash. Financing inflows were principally deposit growth. Debt included $40 million face value of subordinated notes and $38.8 million of junior subordinated debentures; carrying values were $39.3 million and $37.7 million, respectively. No FHLB or Federal Reserve discount-window borrowings were outstanding. The Bank reported $311 million of remaining FHLB credit availability. The company reported $36.7 million of holding-company cash.
Material changes versus comparable periods
- Net income increased 145% year over year, chiefly reflecting a $7.8 million improvement in provision for loan losses, a $3.9 million improvement in mortgage servicing rights fair-value adjustment, and $1.6 million more mortgage loan sale gains.
- Net interest income declined 5%; the lower-rate environment reduced asset yields despite higher interest-earning balances and lower deposit costs. Net interest margin fell 78 basis points.
- Deposits rose $225.4 million, or 7.2%, from year-end, driven largely by PPP proceeds and federal stimulus payments. Cash increased $117.3 million; debt securities increased $58.6 million overall.
- Loans before allowance increased $23.7 million, or 1.1%, from year-end, mainly as second-round PPP originations exceeded forgiveness and paydowns. PPP loans totaled $190.6 million at quarter-end.
- Allowance for loan losses declined to $28.8 million from $31.8 million; nonperforming assets were $13.9 million versus $14.1 million at year-end. Nonperforming loans were 0.40% of loans and the allowance was 1.27% of loans.
- Accumulated other comprehensive income fell to $1.9 million from $18.2 million, primarily due to a $23.1 million pre-tax unrealized loss on available-for-sale debt securities. The company transferred $135.2 million amortized cost of securities from available-for-sale to held-to-maturity, citing potential market-value volatility from rising rates.
Outlook, commentary, risks and unusual items
- Management gave no formal earnings or financial guidance in the supplied filing text. It expects lower mortgage refinancing activity during the remainder of 2021 and consequently lower mortgage banking profits relative to Q1 2021 and the second half of 2020.
- Management noted that excess liquidity and PPP forgiveness proceeds are being reinvested at yields below existing portfolio yields, which could further pressure net interest income and margin. Competition for loan rates and terms is also a concern.
- COVID-19 remains a key uncertainty: continued or renewed economic disruption could weaken borrowers and increase credit losses. COVID-related modified loans not yet returned to regular payments were $16.7 million, down from $28.0 million at year-end. Restaurant and hotel exposures, including PPP loans, were $46.8 million and $25.1 million, respectively.
- In April 2021, the company planned to close or consolidate six branches in Q3 2021. It estimates approximately $0.8 million in pre-tax nonrecurring costs and $1.1 million in annual net cost savings when fully realized.
- Regulatory capital ratios remained above minimum requirements: consolidated total capital was 17.37%, and Bank total capital was 15.90%; the Bank was well capitalized. The company repurchased 95,462 shares for $1.5 million and paid a $0.15-per-share quarterly dividend.
- Other risks include interest-rate sensitivity, Illinois geographic concentration, credit quality, deposit retention, cybersecurity and technology, regulatory compliance, and the transition away from LIBOR. The filing says routine legal claims are not expected to have a material adverse effect; it reports $523.6 million of commitments to extend credit and $10.2 million of standby letters of credit.
Important facts for investors to verify
- Whether reserve releases and improving asset-quality indicators persist, particularly as pandemic-related support and loan modifications unwind.
- The sensitivity of net interest income and margin to market rates, deposit pricing, and reinvestment of excess cash and PPP-related funds.
- The quality and repayment prospects of commercial real estate, restaurant and hotel exposures, acquired loans, and the $16.7 million of modified loans still not back to regular payments.
- Whether mortgage banking income falls as management anticipates, and whether the branch plan achieves stated savings after costs and revenue impacts.
- The effect of securities valuation changes and the available-for-sale to held-to-maturity transfer on reported equity, liquidity, and future flexibility.
- Capital distribution capacity, including dividends and remaining stock repurchase authorization, in light of bank-level dividend restrictions and future credit needs.