10-Q: HBT Financial Reports Q3 2024 Results, Net Income Declines Slightly Amidst Interest Rate Pressures

HBT Financial's third-quarter earnings saw a slight decrease compared to the previous year, influenced by higher funding costs and a negative mortgage servicing rights adjustment.

Summary

• HBT Financial reported a net income of $18.2 million for the third quarter of 2024, a decrease of 7.8% compared to $19.7 million in the same period of 2023.
• The company's net interest income decreased by 1.1% to $47.7 million, primarily due to higher funding costs, partially offset by higher asset yields and an increase in interest-earning assets.
• Noninterest income decreased by 8.3% to $8.7 million, mainly due to a $1.5 million negative mortgage servicing rights fair value adjustment.
• Noninterest expenses increased by 2.1% to $31.3 million, driven by higher salaries and benefits expenses.
• For the nine months ended September 30, 2024, net income increased by 8.7% to $51.5 million compared to $47.4 million in the same period of 2023.
• The company's net interest income for the nine months decreased by 1.8% to $141.4 million, while noninterest income decreased by 10.8% to $23.9 million.
• Total assets decreased slightly to $4.99 billion from $5.07 billion at the end of 2023, with loans decreasing to $3.37 billion and total deposits decreasing to $4.28 billion.

Sentiment

Score: 5

Explanation: The document presents a mixed picture with some positive aspects like increased wealth management fees and strong capital ratios, but also negative aspects like decreased net income and net interest margin. The overall sentiment is neutral to slightly negative due to the challenges faced by the company.

Positives

• Wealth management fees increased by 12.1% in Q3 2024 and 12.0% for the nine months ended September 30, 2024.
• Income on bank owned life insurance increased by 11.1% in Q3 2024 and 20.5% for the nine months ended September 30, 2024.
• The company's core deposits to total deposits ratio remained strong at 94.30% as of September 30, 2024.
• The company's total stockholders' equity increased by 9.8% to $537.7 million as of September 30, 2024.

Negatives

• The company experienced a $1.5 million negative mortgage servicing rights fair value adjustment in Q3 2024.
• Net interest income decreased by 1.1% in Q3 2024 and 1.8% for the nine months ended September 30, 2024.
• Total deposits decreased by $120.7 million, primarily due to a decrease in brokered deposits.
• The company's net interest margin decreased to 3.98% in Q3 2024 and 3.96% for the nine months ended September 30, 2024.
• Realized losses on sales of securities were $3.4 million for the nine months ended September 30, 2024.

Risks

• The company's financial performance is affected by economic conditions in the U.S., Illinois, and Iowa.
• Changes in interest rates can impact net interest income and net interest margin.
• Increased competition in the financial services sector may affect profitability and growth.
• The company faces risks related to digital banking and cybersecurity.
• Credit trends in the markets and loan portfolio can materially impact financial condition and performance.
• Potential deterioration of economic conditions may lead to higher credit losses.

Future Outlook

The company expects that increases in market interest rates will generally increase net interest income and net interest margin, while decreases in market interest rates may decrease net interest income and net interest margin, but this depends on the timing and extent of interest rate fluctuations.

Management Comments

• Management believes that the company's ability to successfully respond to changes in interest rates will have a significant impact on its financial results.
• Management believes that the current liquidity and available sources of liquidity are adequate to meet all of the reasonably foreseeable short-term and intermediate-term demands of the Bank and the Holding Company.

Industry Context

The report reflects the challenges faced by many financial institutions in the current environment of fluctuating interest rates and increased competition for deposits. The company's focus on digital banking and managing credit risk aligns with broader industry trends.

Comparison to Industry Standards

• HBT Financial's net interest margin of 3.98% for Q3 2024 is within the range of many regional banks, but lower than some high-performing peers.
• The company's efficiency ratio of 54.24% is comparable to other community banks, but there is room for improvement compared to more efficient institutions.
• The company's loan to deposit ratio of 78.72% is within the range of industry standards, indicating a balanced approach to funding.
• The company's capital ratios are above regulatory requirements, indicating a strong capital position.
• Compared to peers, HBT Financial's reliance on brokered deposits is relatively low, which may indicate a more stable funding base.

Legal Proceedings

• The Bank is a defendant in a purported class action lawsuit filed in October 2023, in the Circuit Court of Sangamon County, Illinois, related to overdraft fees.
• The Bank is involved in a lawsuit with Meadows Mennonite Retirement Community Association, Inc. for breach of a note and commercial security agreement, with a counterclaim for rescission of the note.

Stakeholder Impact

• Shareholders may be concerned about the decrease in net income and net interest margin.
• Employees may be affected by changes in the company's strategy and operations.
• Customers may be impacted by changes in interest rates and digital banking services.
• Creditors may be concerned about the company's ability to repay its obligations.

Next Steps

• The company plans to continue investing in its digital banking platforms while maintaining an appropriately sized branch network.
• Management will continue to monitor and manage interest rate exposure to maximize net interest income while minimizing the adverse impact of changes in interest rates.
• The company will continue to focus on growing deposits through relationship-driven banking and community-focused marketing programs.

Key Dates

Keywords

net interest income, mortgage servicing rights, credit losses, interest rates, deposits, loans, noninterest income, noninterest expense, financial results, capital, regulatory capital, asset quality, economic conditions, market risk, liquidity