The incoming CEO of Bloomington-based Heartland Bank and Trust says the $5 billion company will seek only growth opportunities that make sense to its core community bank mission.
J. Lance Carter takes over from Fred Drake late this month. HBT Financial Inc. just finished absorbing Town and Country Bank in February. But Carter said those kinds of acquisitions must make sense for Heartland to have an interest, and he doesn't foresee a change in direction for the institution.
“Growth in asset size has never been one of our goals. It has really been to serve our customers, our communities, make a nice profit for our shareholders, and stay focused on having a strong core bank. The growth is the result of that, not really the goal,” said Carter.
He said HBT will not seek to get out of its geographic, market specific, and business line profile. HBT has footprints that run from the Metro East area and St. Louis through central Illinois and up to Chicago. There is an Iowa presence. He said the company could try to go into the southern Wisconsin and northwest Indiana markets, but would try to stay in a circle that is a four- or five-hour drive.
“The big banks are not the banks that are making the loans in our communities. We're very proud of the fact that when COVID happened, we made nearly $300 million in PPP loans to small businesses and small depositors in our communities," Carter said. "And a lot of times, we were making loans to customers at large banks that couldn’t deliver that. The community banks need to be here and will survive. There will probably be fewer banks in five years than there are today, but I don't think (we) will turn into Canada with six banks.”
When banks grow larger than about $10 billion, they leave the community bank category and become more regional in nature. Carter said he does not see that as a goal, though one should never say never. With its recent expansion, though, Heartland could itself become a target for a takeover.
“We're not for sale today. It’s not something we're looking to do. We believe we've earned the right to be independent through our performance and it would be difficult for someone to acquire us, given our performance relative to some of the banks that might be trying to acquire us today. It would always be something from a shareholder and a fiduciary standpoint that you'd have to look at and listen to,” said Carter.
Impact of Fed action
Carter said the run-up in interest rates by the Federal Reserve is putting pressure on the banking sector.
"It's really starting to put pressure on interest rate margins. It has hurt securities portfolios. Banks were buying very secure, from a credit standpoint, securities but the interest rates have pushed those values down. Some banks got stock buying securities that have too long a date (of maturity). We monitor that here closely and feel very good about our securities portfolio," said Carter.
He said commercial development has slowed. Projects have been abandoned and loans are more difficult to get, though that will not last forever.
“Now as rates sort of stabilize, and may we get inflation to slow a little, rent rates are going to go up a little bit. We can see that commercial area pick up,” he said.
The home loan market softness is well known, with HBT's volume in mortgages down by 80%.
"From a home loan standpoint, we are down considerably from where we were in 2020 and 2021 when there were a lot of refinances going and record low mortgage rates. We are doing maybe 20% or less of the mortgage loan volume that we were doing then," said Carter, adding mortgage loan activity is starting to come back.
"You get seasonal increases now that we are into spring. People adjust and realize that rates are higher and may stay there for longer. And people who put off purchases are now starting to be active. I think you will see mortgage growth from this point forward. I think maybe we have hit the bottom," he said.
Carter said Heartland believes a mild recession is likely, but nothing pronounced or protracted.
“You see unemployment rates at record lows. You see job openings double those of unemployed. It's hard to see right now there's going to be a real deep recession,” said Carter.
Most experts acknowledge rising interest rates, and any potential recession will have a disproportionate effect on underserved communities and moderate- to low-income people. They will find it more difficult to get access to credit because they're viewed — rightly or wrongly — as having a higher risk.
Carter said HBT tries to counter that.
“We continue to look for opportunities to reach those underserved communities, whether it's geographic or ethnic," he said. "We just hired a new lender and one of our markets is focused completely on making loans and majority-minority census tracts and low-income areas. We have a couple other lenders that are focused on that 100%. It's something we think we need to do to serve our entire community and make opportunities so everybody can be successful.”
The future of banking
There are issues that keep Carter up at night. Cybersecurity is one. Interest rate volatility is another that presents the challenge of staying on top of a fluid situation.
“When I got into banking, just being able to do everything you need to from your phone has changed. I think that was part of the reason that Silicon Valley failed so fast. They may have still failed, but it would have taken a lot longer if everybody couldn't transfer their money with two clicks on their phone,” said Carter.
In 2009, there were about 85,000 bank branches in the U.S. As of the end of last year, there were 72,500, a steep decline. Carter said that will continue for at least 5-10 more years.
“At some point it levels out. You're going to need to have facilities. What we found is that we have far fewer transactions at all of our banks and COVID accelerated that trend. The numbers have bounced back a little bit as the last six months or so. There are still far fewer transactions. But customers still appreciate having a branch that's within an easy drive. They might not go there every week, but they still like to go there sometimes. I think you always need bank branches,” said Carter.
