Business context and reporting period
HBT Financial, Inc. is a bank holding company headquartered in Bloomington, Illinois, operating through Heartland Bank and Trust Company across Central and Northeastern Illinois and Eastern Iowa. This Form 10-K covers the fiscal year ended December 31, 2022; it does not provide a standalone fourth-quarter income statement. At year-end, the company reported $4.29 billion in assets, $2.62 billion in loans held for investment and $3.59 billion in deposits.
Key financial metrics
| Metric | FY 2022 / year-end | FY 2021 / comparison |
|---|---|---|
| Net interest income | $145.9 million | $122.4 million |
| Net interest margin | 3.54%; 4.10% in Q4 | 3.18% |
| Net income | $56.5 million; diluted EPS $1.95 | $56.3 million; diluted EPS $2.02 |
| Adjusted net income / diluted EPS (non-GAAP) | $55.8 million / $1.93 | $56.8 million / $2.04 |
| Noninterest income | $34.7 million | $37.3 million |
| Noninterest expense | $105.1 million | $91.2 million |
| Loans, before allowance | $2.62 billion, up 4.8% | $2.50 billion |
| Deposits | $3.59 billion, down 4.0% | $3.74 billion |
| Allowance for loan losses | $25.3 million; 0.97% of loans | $23.9 million; 0.96% |
| Operating cash flow | $72.6 million | $43.0 million |
Reported income before tax was $76.2 million. Return on average assets was 1.32% (1.41% in 2021), and the efficiency ratio was 57.72% (56.46%).
Material changes versus the prior comparable period
- Net interest income rose 19.2%, reflecting higher average earning-asset balances following the NXT acquisition, a more favorable asset mix and higher asset yields as rates increased. This more than offset a $7.7 million decline in PPP loan-fee income.
- Net interest margin improved from 3.18% to 3.54%; the quarterly margin reached 4.10% in Q4. Management noted that deposit pricing and funding costs were expected to rise as competition intensified.
- Noninterest expense increased 15.2%, including $8.2 million of net expense accruals for pending legal matters and a higher post-NXT operating cost base. Noninterest income fell 7.0%, principally because mortgage-loan sale gains declined $4.4 million as refinancing slowed.
- Loan balances grew $120.6 million despite PPP loan runoff of $29.5 million. Growth was strongest in regulatory commercial real estate categories. Deposits declined $151.2 million, while year-end FHLB advances rose to $160.0 million from none in 2021.
- Cash and cash equivalents declined $295.1 million to $114.2 million as excess cash was redeployed into securities and loans and deposits fell. Investing cash flow was negative $335.1 million; financing cash flow was negative $32.6 million.
- Rising rates produced $105.5 million of pretax unrealized losses in available-for-sale securities and a $73.2 million after-tax decline in accumulated other comprehensive income. Year-end stockholders’ equity fell 9.3% to $373.6 million; tangible book value per share declined to $11.94 from $13.13.
- Credit indicators remained low: nonperforming assets were $5.2 million, or 0.12% of assets, versus $6.1 million, or 0.14%, in 2021. The company recorded net recoveries of $2.1 million and a negative provision for loan losses of $0.7 million.
Outlook, commentary, risks and unusual items
- Management expects higher market rates generally to support net interest margin, but also expects deposit costs to increase during 2023. Deposit balances may fall and be replaced with higher-cost funding, including FHLB advances or brokered deposits. The filing gives no numerical earnings or margin guidance.
- The company adopted CECL on January 1, 2023. Management expected the initial allowance for credit losses and reserve for unfunded commitments together to be approximately 30%–50% above the prior allowance level; the one-time, after-tax adjustment was to opening retained earnings. The estimate was not final in the filing.
- On February 1, 2023, HBT completed its acquisition of Town and Country Financial Corporation for approximately $109.4 million in stock and cash. Town and Country had $923.1 million of assets, $662.0 million of loans and $762.2 million of deposits at December 31, 2022; its results are not included in this 10-K. Core system conversion was expected in April 2023.
- Pending litigation is a significant unusual item. The company accrued $13.0 million for a proposed settlement of two related cases, with a $7.4 million insurer recovery receivable; it also accrued $2.6 million for two overdraft-fee class actions. Court approval and final settlement terms remained outstanding for the proposed settlement. Management’s total 2022 legal accruals net of the insurance recovery were $8.2 million.
- Key risks include rate sensitivity and securities valuation, deposit retention and liquidity, credit exposure in CRE and agriculture, economic conditions in Illinois and Iowa, and operational, cybersecurity, regulatory and acquisition-integration risks. The bank reported it was well-capitalized; its year-end total capital ratio was 15.43%, and tangible common equity to tangible assets was 8.06%.
- The Bank reported $409.9 million of remaining FHLB credit availability and management considered liquidity adequate for reasonably foreseeable needs. Uninsured deposits were estimated at $739.0 million. The company also reported $756.9 million of commitments to extend credit and $17.8 million of standby letters of credit.
- The independent auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not attest to internal controls because the company qualified as an emerging growth company.
Important facts for investors to verify
- Track deposit outflows, uninsured-deposit levels, borrowing dependence and the cost of funding after year-end.
- Review the realized and unrealized effects of rate changes on securities, tangible book value and net interest margin.
- Assess the final CECL adoption adjustment and subsequent allowance levels, particularly given CRE loan growth and portfolio concentrations.
- Confirm court approval, final payments and insurance recovery for the proposed litigation settlement, and monitor the overdraft-fee cases.
- Evaluate Town and Country integration, final purchase accounting, dilution and realized synergies against the stated acquisition terms.
- Compare reported results with non-GAAP adjusted figures, noting the legal accruals and other adjustments affecting comparability.