HBT Financial, Inc. quarterly report, Q2 FY2021

全文

HBT Financial, Inc. — Q2 2021 Form 10-Q

Business context and reporting period

Unaudited results cover the quarter and six months ended June 30, 2021; balance-sheet comparisons are to December 31, 2020. HBT is an Illinois-focused community bank operating 62 branches through Heartland Bank and Trust Company. It reported $4.0 billion in assets, $2.2 billion in loans, and $3.4 billion in deposits at quarter-end.

Financial performance and position

  • Q2 earnings: Net income was $13.7 million, up 84.9% year over year; diluted EPS was $0.50 versus $0.27. For the first half, net income was $29.0 million, up 112.3%, and diluted EPS was $1.05 versus $0.50.
  • Revenue and expenses: Q2 net interest income was $29.7 million, up 2.7%; noninterest income was $8.8 million, up 8.9%; and noninterest expense was $22.2 million, down 5.7%. First-half net interest income was $58.8 million, down 1.2%, while noninterest income rose 47.1% to $19.6 million and noninterest expense fell 4.5% to $44.7 million.
  • Margins and returns: Net interest margin was 3.14% in Q2 versus 3.51% a year earlier; first-half margin was 3.19% versus 3.76%. Q2 return on average assets was 1.40% and return on average equity was 15.07%.
  • Credit provision: HBT recorded a $2.2 million provision benefit (negative provision) in Q2, compared with a $3.6 million provision expense a year earlier. The first-half benefit was $5.6 million versus $7.9 million of expense in 2020. The allowance for loan losses was $26.5 million, or 1.23% of loans, down from $31.8 million and 1.42% at year-end.
  • Cash flow: For the first half, operating activities provided $23.6 million, investing activities used $75.4 million, and financing activities provided $284.9 million. Cash and cash equivalents increased $233.2 million to $545.6 million.
  • Loans and credit quality: Gross loans declined 4.2% from year-end to $2.15 billion, partly reflecting PPP forgiveness and loan payoffs. Nonperforming loans were $7.4 million, or 0.34% of loans, versus $10.0 million and 0.44% at year-end. Nonperforming assets rose to $15.2 million from $14.1 million, with foreclosed assets increasing to $7.8 million from $4.2 million.
  • Deposits, liquidity, and debt: Deposits increased 9.4% to $3.42 billion; the loan-to-deposit ratio fell to 62.84% from 71.78%. HBT reported $39.3 million of subordinated notes, $37.7 million of junior subordinated debentures, and $46.8 million of repurchase agreements. No FHLB or Federal Reserve discount-window borrowings were outstanding. The Bank had $314.5 million of remaining FHLB credit availability; the holding company had $34.0 million of cash.
  • Capital: At June 30, the consolidated total capital ratio was 18.55%, Tier 1 capital ratio 15.79%, and common equity Tier 1 ratio 14.25%. The Bank met applicable capital requirements and was well capitalized.

Material changes versus comparable periods

  • Q2 and first-half net income improved substantially, principally because loan-loss provision expense fell to a provision benefit. Lower employee-benefit costs also contributed, including the absence of 2020 SERP termination charges.
  • Net interest margin contracted despite Q2 net interest income growth: deposit inflows increased cash and lower-yielding securities, while asset yields declined. First-half net interest income was lower year over year.
  • First-half noninterest income benefited from a $4.1 million year-over-year improvement in mortgage servicing rights fair-value adjustments and higher mortgage-sale gains, card income, and wealth-management fees.
  • Asset growth of 7.8% since year-end was driven mainly by deposit growth and higher cash balances. Deposits and cash were bolstered by PPP proceeds, loan forgiveness, and customer stimulus payments.
  • Accumulated other comprehensive income fell to $8.4 million from $18.2 million at year-end, largely reflecting first-half unrealized losses on available-for-sale debt securities. HBT transferred certain securities to held-to-maturity in response to potential interest-rate-driven market-value volatility.

Outlook, commentary, risks, and unusual items

  • Management described economic conditions as generally improved but noted continued uncertainty from COVID-19 variants and lasting effects on certain industries. COVID-related loans still outside regular payments were $3.0 million at June 30, down from $28.0 million at year-end and $203.2 million a year earlier.
  • Management expected lower mortgage refinancing activity during the remainder of 2021 and lower mortgage banking profits relative to the first half and second half of 2020. It also cautioned that excess liquidity invested in lower-yielding assets and interest-rate conditions could pressure future net interest income and margin. No quantified earnings or margin guidance was provided.
  • HBT agreed to acquire NXT Bancorporation for approximately $42.8 million in an announced mix of HBT shares and cash; the deal was expected to close in Q4 2021, subject to shareholder, regulatory, and customary approvals. NXT holders were expected to own about 6.2% of HBT after closing. Q2 acquisition expenses were $157,000.
  • HBT planned to close or consolidate six branches: one was consolidated in Q2 and five were expected to close in Q3. The plan was expected to incur about $0.8 million of pretax nonrecurring costs and generate about $1.1 million of annual net cost savings when fully realized. Q2 branch-closure expenses were $104,000.
  • Other key risks include credit deterioration, particularly in restaurants and hotels; Illinois geographic concentration; interest-rate sensitivity; competition and deposit retention; cybersecurity and technology risks; and regulatory and compliance costs. Management reported effective disclosure controls and no material change in internal control over financial reporting. It did not expect routine legal proceedings to have a material effect.

Important facts for investors to verify

  • Whether NXT receives required approvals and closes on expected terms and timing, including the final share issuance, cash consideration, and integration costs.
  • Whether the provision benefit is sustainable and how allowance levels, nonperforming assets, foreclosed assets, and COVID-related borrower performance evolve.
  • Whether deposit growth and excess liquidity can be deployed without further material pressure on net interest margin and earnings.
  • How quickly PPP fee income runs off and whether lower mortgage refinancing activity reduces mortgage banking revenue as management anticipated.
  • The market, earnings, and capital implications of the securities portfolio’s interest-rate exposure and the transfers to held-to-maturity classification.