8-K: HBT Financial Reports Solid Third Quarter 2024 Results, Driven by Strong Asset Quality and Net Interest Margin Expansion

HBT Financial announced a net income of $18.2 million for the third quarter of 2024, supported by strong asset quality and an expanding net interest margin.

Summary

• HBT Financial reported a net income of $18.2 million, or $0.57 per diluted share, for the third quarter of 2024.
• Adjusted net income was $19.2 million, or $0.61 per diluted share.
• The company's return on average assets (ROAA) was 1.44%, and return on average tangible common equity (ROATCE) was 16.25%.
• Adjusted ROAA was 1.53%, and adjusted ROATCE was 17.20%.
• Asset quality remained strong, with nonperforming assets to total assets at 0.17% and net charge-offs to average loans at 0.07% on an annualized basis.
• Net interest margin expanded to 3.98%, and the tax-equivalent basis net interest margin was 4.03%.
• Tangible book value per share increased by 23.3% over the last year.
• Net interest income for the quarter was $47.7 million, a 1.5% increase from the previous quarter.
• Noninterest income was $8.7 million, a decrease from $9.6 million in the second quarter, primarily due to changes in mortgage servicing rights fair value adjustment.
• Noninterest expense was $31.3 million, a 2.1% increase compared to the third quarter of 2023.
• Total loans outstanding were $3.37 billion, and total deposits were $4.28 billion as of September 30, 2024.
• The company exceeded all regulatory capital requirements under Basel III.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to strong financial results, excellent asset quality, and a solid capital position. The company's performance is consistent with expectations and management's commentary is optimistic. However, there are some minor negatives such as a decrease in noninterest income and a slight increase in noninterest expense, which prevents a perfect score.

Positives

• HBT Financial demonstrated strong profitability with a net income of $18.2 million.
• The company's asset quality remains excellent, with low levels of nonperforming assets and net charge-offs.
• The net interest margin expanded, indicating improved profitability from lending activities.
• Tangible book value per share saw a significant increase of 23.3% over the last year, enhancing shareholder value.
• Capital ratios are strong and exceed regulatory requirements, providing a solid foundation for future growth.
• The company has a low cost deposit base with a cost of deposits at 1.35%.

Negatives

• Noninterest income decreased from the previous quarter, primarily due to a negative mortgage servicing rights fair value adjustment of $1.5 million.
• Noninterest expense increased by 2.1% compared to the third quarter of 2023, driven by increases in salaries and employee benefits.
• Total loans decreased slightly by $15.7 million from the previous quarter.
• Total deposits decreased by $38 million from the previous quarter.

Risks

• The company is exposed to changes in economic conditions, including inflationary pressures and supply chain constraints.
• Potential impacts from terrorist threats, pandemics, and acts of war could affect the company's performance.
• Changes in accounting policies and regulations could impact financial results.
• Increased competition in the financial services sector could affect the company's ability to attract new customers.
• Fluctuations in the value of securities held in the portfolio could impact financial results.
• Concentrations within the loan portfolio and large deposits from certain clients pose potential risks.
• Cybersecurity breaches and interruptions to information technology systems are ongoing concerns.
• The company expects a slight decrease in net interest margin in the next quarter due to potential interest rate reductions.

Future Outlook

The company anticipates loan growth in the lowto mid-single digits for the fourth quarter of 2024, stable deposit balances, a slight decrease in net interest margin, stable noninterest income, noninterest expense between $30 million and $32 million, and continued solid asset quality. The company will continue to use its stock repurchase program opportunistically and is open to M&A opportunities.

Management Comments

• J. Lance Carter, President and Chief Executive Officer of HBT Financial, said, 'In the third quarter, we continued our consistently solid financial performance with net income of $18.2 million, adjusted net income(1) of $19.2 million, adjusted ROAA(1) of 1.53% and adjusted ROATCE(1) of 17.20%.'
• He also noted, 'We have also seen tangible equity continue to build, with tangible book value per share increasing 23.3% over the last year.'
• Carter stated, 'Our net interest margin (tax-equivalent basis)(1) increased 3 basis points to 4.03% while funding costs remained modest, increasing 5 basis points to 1.47%.'
• He added, 'Our asset quality remains strong with net charge-offs at 0.07% of average loans on an annualized basis during the quarter and nonperforming assets to total assets at 0.17%.'
• Carter concluded, 'Lastly, all capital ratios had solid increases and can support future organic growth or acquisitions.'

Industry Context

HBT Financial's results reflect a continued trend of solid performance in the community banking sector, with a focus on maintaining strong asset quality and managing interest rate risk. The company's emphasis on a low-cost deposit base and relationship-based lending aligns with strategies employed by other successful regional banks. The company's comments on potential M&A activity also reflect the ongoing consolidation trend in the banking industry.

Comparison to Industry Standards

• HBT Financial's return on average assets (ROAA) of 1.44% and adjusted ROAA of 1.53% are strong compared to the industry average for community banks, which often ranges between 1.0% and 1.3%.
• The company's return on average tangible common equity (ROATCE) of 16.25% and adjusted ROATCE of 17.20% are also above average, indicating efficient use of equity.
• HBT Financial's net interest margin of 3.98% and tax-equivalent margin of 4.03% are competitive, especially given the current interest rate environment, with many banks struggling to maintain margins above 3.5%.
• The company's nonperforming assets to total assets ratio of 0.17% is significantly lower than the industry average, which can range from 0.3% to 0.7%, indicating a strong credit risk management.
• HBT Financial's net charge-offs to average loans of 0.07% is also very low compared to the industry average, which can range from 0.1% to 0.3%, further highlighting the company's conservative lending practices.
• Compared to peers, HBT Financial has a lower cost of deposits at 1.35% and a lower deposit beta of 23.6% during the latest interest rate tightening cycle, indicating a strong funding advantage.
• The company's tangible common equity to tangible assets ratio of 9.35% is also strong, providing a solid capital base compared to many regional banks.
• HBT Financial's performance is consistent with top-performing community banks, such as those recognized by Forbes and S&P Global Market Intelligence, which often exhibit similar metrics in profitability, asset quality, and capital strength.

Stakeholder Impact

• Shareholders will benefit from the company's strong profitability, increased tangible book value, and potential for future growth.
• Employees will benefit from the company's continued success and stability.
• Customers will continue to receive a comprehensive suite of financial products and services.
• The company's strong financial position ensures its ability to meet its obligations to creditors and suppliers.

Next Steps

• The company expects loan growth in the lowto mid-single digits for the fourth quarter of 2024.
• Deposit balances are expected to be stable in the fourth quarter of 2024.
• The investment portfolio may decrease slightly as the company plans to reinvest at least half of the forecasted principal cash flows.
• Net interest margin is expected to decrease slightly in the fourth quarter of 2024.
• Noninterest income is expected to be stable in the fourth quarter of 2024.
• Noninterest expense is expected to be between $30 million and $32 million in the fourth quarter of 2024.
• The stock repurchase program will continue to be used opportunistically.
• The company will continue to evaluate M&A opportunities.

Key Dates

Keywords

financial results, net income, asset quality, net interest margin, ROAA, ROATCE, tangible book value, loan portfolio, deposit base, capital ratios, nonperforming assets, charge-offs, banking, financial services