HBT Financial, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are with December 31, 2023. HBT is the holding company for Heartland Bank and Trust Company, serving consumers, businesses, and municipalities across Illinois and eastern Iowa. It reported $5.04 billion in assets and operated 66 branches.
Financial performance
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Net interest income | $46.7 million | $46.8 million |
| Net interest margin | 3.94% | 4.20% |
| Provision for credit losses | $0.5 million | $6.2 million |
| Noninterest income | $5.6 million | $7.4 million |
| Noninterest expense | $31.3 million | $35.9 million |
| Net income / diluted EPS | $15.3 million / $0.48 | $9.2 million / $0.30 |
| Adjusted net income / adjusted diluted EPS (non-GAAP) | $18.1 million / $0.57 | $19.9 million / $0.64 |
| Efficiency ratio | 58.41% | 65.27% |
Interest income rose 19.7% to $62.0 million, but interest expense more than tripled to $15.3 million, principally reflecting higher deposit costs. Average loan yield increased to 6.33% from 5.80%; average cost of interest-bearing liabilities rose to 1.79% from 0.63%. Net interest income was nearly flat as higher asset balances and yields largely offset funding-cost pressure. Net income increased 65.7%, while adjusted net income declined; the comparisons are affected by $13.1 million of Town and Country acquisition-related expenses in Q1 2023 and by 2024 securities-sale losses and branch-premises impairment.
Balance sheet, liquidity, and capital
- Total assets were $5.04 billion, down $32.7 million from year-end. Loans before allowance were $3.35 billion, down $58.5 million (1.7%); deposits were $4.36 billion, down $40.9 million (0.9%). The loan-to-deposit ratio was 76.73%.
- Cash and cash equivalents increased $119.0 million to $260.2 million. Operating cash flow was $26.8 million; investing activities provided $153.4 million, mainly from security sales, paydowns, maturities, and loan repayments; financing activities used $61.2 million, including deposit outflows, dividends, and repurchases.
- Debt and funding included $31.9 million of repurchase agreements, $12.7 million of FHLB advances, $39.5 million of subordinated notes, and $52.8 million of junior subordinated debentures. Management said available liquidity was adequate for reasonably foreseeable short- and intermediate-term needs.
- Uninsured deposits were estimated at $867.9 million. Brokered deposits declined to $55.8 million from $144.9 million at year-end. Time deposits of $250,000 or more totaled $171.4 million.
- Consolidated total capital ratio was 15.79%, CET1 was 12.44%, and tangible common equity to tangible assets was 8.40%. The Bank met regulatory capital requirements and was well capitalized.
- Stockholders’ equity was $496.7 million. HBT paid a $0.19-per-share dividend and repurchased 179,281 shares for $3.4 million; $11.6 million remained under its $15 million authorization.
Credit quality and material changes
- Nonperforming assets increased to $9.9 million from $8.7 million at year-end; nonaccrual loans rose to $9.7 million from $7.8 million. Nonaccrual loans were 0.29% of loans, and allowance coverage was 422.65% of nonaccrual loans.
- Pass-watch loans increased to $109.3 million from $98.2 million; substandard loans rose to $68.5 million from $64.3 million. Management attributed increases to several credit downgrades. Net recoveries were $0.2 million in the quarter.
- The allowance for credit losses was $40.8 million, or 1.22% of loans, versus $40.0 million, or 1.18%, at year-end. Management’s forecast assumes an economic slowdown, but not a recession.
- Office commercial real estate loans were $167.3 million; 3.5% were pass-watch, less than 0.1% substandard, and 1.6% at least 30 days past due.
- Available-for-sale securities declined $90.4 million to $669.0 million, including $66.8 million of municipal securities sold. HBT recorded $3.4 million of realized securities losses, versus $1.0 million a year earlier. Available-for-sale securities had $71.1 million of gross unrealized losses at quarter-end; management said it did not intend to sell loss-position securities and expected to recover amortized cost before any required sale.
Outlook, risks, and unusual items
The filing provides no numerical earnings or margin guidance. Management said deposit balances and funding costs began to stabilize in Q1, but warned that higher market rates could further increase funding costs or reduce core deposits, potentially requiring more expensive funding. Management expects rate changes to affect net interest income and margin, but outcomes depend on the timing and extent of changes.
Notable items included impairment losses of $0.6 million on two branch properties classified as held for sale; a $0.6 million loss on other assets; and a positive $0.7 million year-over-year swing in the mortgage-servicing-rights fair-value adjustment. The filing also reported a proposed $0.3 million settlement in a Town and Country overdraft-fee class action, subject to court approval; $0.3 million was accrued at March 31. Earlier overdraft-fee class action settlements totaling $3.4 million were paid in 2023.
Key risks include interest-rate and deposit-pricing pressure, credit deterioration and loan concentrations, economic conditions in Illinois and Iowa, securities valuation and liquidity, competition, regulatory and litigation exposure, and cybersecurity or technology disruptions. HBT said there were no material changes to the risk factors in its 2023 Form 10-K. It reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether deposit costs stabilize and net interest margin holds up as deposits reprice and market rates change.
- Trends in nonaccrual, pass-watch, and substandard loans, especially commercial real estate and other concentrated exposures.
- Liquidity and deposit stability, including uninsured, large time, and brokered deposits, and the availability and cost of contingent funding.
- Whether securities-sale losses, unrealized portfolio marks, or asset sales create additional earnings or capital effects.
- The status and final cost of the proposed $0.3 million class action settlement, and any other material legal or regulatory developments.
- How reported earnings compare with non-GAAP adjusted results, including the assumptions and exclusions used in those adjustments.