HBT Financial, Inc. (NASDAQ:HBT) is a bank holding company headquartered in Bloomington, Illinois, with deep roots in the Midwest dating back to 1920. The company's wholly-owned subsidiary, Heartland Bank and Trust Company, provides a comprehensive suite of financial products and services to consumers, businesses, and municipal entities throughout Illinois and eastern Iowa.

Business Overview

HBT Financial operates a network of 66 full-service branch locations, giving it a strong presence in central Illinois and a growing footprint in the Chicago MSA and eastern Iowa markets. The company's relationship-driven banking approach and community-focused marketing programs have allowed it to build a stable deposit base, with a leading deposit share in many of its central Illinois markets.

In February 2023, HBT Financial completed the acquisition of Town and Country Financial Corporation, further enhancing its footprint in central Illinois and expanding into the metro-east St. Louis region. The integration of Town and Country's 10 branch locations was successfully completed in April 2023.

Financial Performance

For the full year 2023, HBT Financial reported net income of $65.8 million on revenue of $264.6 million. The company generated annual operating cash flow of $64.4 million and free cash flow of $61.3 million.

In the second quarter of 2024, the company reported net income of $18.1 million, or $0.57 per diluted share, compared to $15.3 million, or $0.48 per diluted share, in the first quarter of 2024. Revenue for the second quarter was $56.6 million, a slight decrease from $57.6 million in the prior quarter.

The company's net interest margin (tax-equivalent basis) was 4.00% in the second quarter of 2024, up from 3.99% in the first quarter, as higher yields on interest-earning assets offset an increase in funding costs. Noninterest income was $9.6 million in the second quarter, up from $5.6 million in the prior quarter, primarily due to the absence of losses on securities sales and impairment charges recognized in the first quarter.

Noninterest expense decreased 2.4% sequentially to $30.5 million in the second quarter, as the company realized planned cost savings following the Town and Country core system conversion. The company's efficiency ratio (tax-equivalent basis) improved to 52.1% in the second quarter, compared to 57.8% in the first quarter.

Geographic Breakdown

As of June 30, 2024, HBT Financial's loan portfolio was distributed as follows: Central Illinois (50%), Chicago MSA (40%), and Iowa (9%). On the deposit side, 70% of the company's deposits were sourced from its Central Illinois markets, 28% from the Chicago MSA, and 3% from Iowa.

Loan Portfolio and Asset Quality

HBT Financial's total loan portfolio stood at $3.39 billion as of June 30, 2024, up 1.2% from $3.35 billion at the end of the first quarter. The increase was primarily driven by growth in construction and land development loans, as well as the municipal, consumer, and other category.

Asset quality remained strong, with nonperforming loans at 0.25% of total loans and the allowance for credit losses at 1.21% of total loans as of June 30, 2024. Net charge-offs were 0.08% of average loans on an annualized basis in the second quarter, compared to net recoveries of 0.02% in the prior quarter.

Liquidity and Capital

HBT Financial maintained a strong liquidity position, with a loan-to-deposit ratio of 78.4% as of June 30, 2024. The company's total risk-based capital ratio was 16.01%, well above the 10.50% regulatory requirement for being considered "well-capitalized."

Outlook

In the company's second quarter earnings release, President and CEO J. Lance Carter stated, "We delivered another set of very strong performance metrics with net income of $18.1 million, a ROAA of 1.45% and ROATCE of 17.21%. We have seen the continued repricing of our loan portfolio and tight management of deposit costs positively impact our net interest margin (tax-equivalent basis) which expanded 1 basis point to 4.00% for the quarter."

Carter added, "While we continue to invest in our business, our costs were well controlled during the quarter as demonstrated by our efficiency ratio (tax-equivalent basis) of 52.1%. Our loan portfolio is performing well with no apparent signs of concentrated stress in sub portfolios, such as office and retail commercial real estate, while nonperforming assets represented only 0.17% of total assets and net charge-offs were only 0.08% of average loans on an annualized basis for the quarter."

Risks and Challenges

Some of the key risks facing HBT Financial include: - Exposure to economic conditions in its Midwest markets, including the potential impact of inflationary pressures and supply chain constraints - Increasing competition from non-bank competitors such as credit unions and fintech companies - Potential for rising interest rates to impact the company's net interest margin and loan origination volumes - Concentration risk in its loan portfolio, particularly in commercial real estate and municipal/public sector lending - Cybersecurity threats and the need to continuously invest in technology infrastructure

Conclusion

HBT Financial has demonstrated its ability to deliver consistent financial performance through its relationship-driven banking approach and focus on its core Midwest markets. The company's recent acquisition of Town and Country has further strengthened its franchise, and management remains committed to prudent expense management and maintaining strong asset quality. While the company faces some risks common to community banks, its solid capital position, ample liquidity, and experienced management team position it well to navigate the current operating environment.