HBT Financial, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2019; results compare the three and nine months ended September 30, 2019 with the same periods in 2018. HBT is an Illinois-focused community banking holding company operating through Heartland Bank and Lincoln Bank. The company changed its name from Heartland Bancorp, Inc. in September 2019.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Net interest income | $33.1 million | $32.6 million | $101.5 million | $96.4 million |
| Provision for loan losses | $0.7 million | $1.2 million | $3.3 million | $1.8 million |
| Noninterest income | $7.6 million | $8.4 million | $22.4 million | $24.8 million |
| Noninterest expense | $22.3 million | $21.9 million | $69.1 million | $66.9 million |
| Net income | $17.4 million | $17.6 million | $50.8 million | $51.9 million |
| Reported diluted EPS | $0.97 | $0.98 | $2.82 | $2.87 |
| C Corp-equivalent diluted EPS | $0.73 | $0.73 | $2.12 | $2.17 |
- Net interest margin was 4.31% in Q3 2019 versus 4.22% in Q3 2018; nine-month margin was 4.37% versus 4.12%. The tax-equivalent margins were 4.38% and 4.45%, respectively, for Q3 and nine months 2019.
- Q3 efficiency ratio was 53.94% versus 52.55%; nine-month ratio was 54.86% versus 54.22%.
- At September 30, total assets were $3.17 billion, loans before allowance $2.17 billion, deposits $2.70 billion, and stockholders’ equity $348.9 million. Total assets were down 2.6% and deposits down 3.3% from December 31, 2018; loans rose 1.2%.
- Cash and cash equivalents were $154.9 million, down from $186.9 million at year-end 2018. For the first nine months, operating cash flow was $57.3 million, investing cash flow was positive $71.6 million, and financing cash flow was negative $160.8 million, including $55.0 million of dividends paid.
- Subordinated debentures totaled $37.6 million. No FHLB borrowings were outstanding; available FHLB credit was $331.9 million. The banks’ regulatory capital ratios exceeded applicable minimums, and management said the company and banks met capital adequacy requirements.
Material changes and notable items
- Net income declined 0.9% in Q3 and 2.1% for the first nine months. Management attributed the declines chiefly to weaker mortgage servicing rights (MSR) fair-value adjustments and costs from terminating the supplemental executive retirement plan (SERP).
- MSR fair-value adjustments were negative $0.9 million in Q3 and negative $3.0 million year to date, compared with negative $0.1 million and positive $0.3 million in 2018. SERP termination-related expense was approximately $0.8 million in Q3 and $4.2 million year to date.
- Net interest income increased, supported by higher loan yields and organic loan growth, partly funded by a smaller securities portfolio. Deposit interest expense rose as deposit costs increased.
- Nonperforming assets were $25.6 million, or 0.81% of assets, versus $25.5 million at year-end 2018; they declined from $34.8 million at June 30, 2019. The allowance for loan losses was $22.8 million, or 1.05% of loans. Nine-month net charge-offs were $1.0 million versus $0.4 million in 2018.
- The company sold substantially all of First Community Title Services in February 2019 for approximately $498,000 consideration, recognizing a $498,000 gain. This reduced title-related income and employee costs.
Outlook, risks and contingencies
- Management said Federal Reserve rate reductions in July and September 2019, followed by another in October, totaling 75 basis points, were expected to continue putting downward pressure on net interest margin. The filing gives no quantified earnings or full-year guidance.
- Management cited competitive pressure on loan pricing and deposits, heightened regulatory and compliance expectations, and the company’s concentration in Illinois. Other identified risks include credit quality, interest-rate movements, liquidity and capital access, deposit retention, cybersecurity and technology disruption, and public-company costs.
- The company completed its IPO after quarter-end: 9,429,794 shares were sold at $16 each, with approximately $138 million net proceeds. About $121 million of proceeds, together with bank dividends, funded a $170 million special dividend to pre-IPO shareholders; approximately $17 million was contributed to Heartland Bank. The company became a taxable C corporation effective October 11, 2019; the reported quarter reflects S corporation tax treatment, so C Corp-equivalent results are provided for comparison.
- Committed credit extensions were $542.6 million and standby letters of credit $8.7 million at September 30; many commitments may expire undrawn. Management did not expect routine legal matters to materially affect the company. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether lower interest rates and higher deposit costs continue to compress net interest margin and earnings.
- The causes and trend of MSR valuation losses, and the remaining effects of SERP termination and other adjustments on recurring profitability.
- Credit performance by loan category, including nonperforming loans, charge-offs, the allowance, and acquired-loan asset quality.
- Post-IPO share count, capital contribution, special dividend, and the effect of C corporation taxes and public-company costs on future per-share results.
- Deposit trends, liquidity availability, and the company’s capacity to meet credit commitments while maintaining regulatory capital and dividend flexibility.