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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-39085
HBT Financial, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
401 North Hershey Road
Bloomington, Illinois 61704
(Address of principal executive offices,
including zip code)
37-1117216
(I.R.S. Employer
Identification No.)
(888) 897-2276
(Registrant’s telephone number,
including area code)
Title of each class
Common Stock, par value $0.01 per share
Trading Symbol(s)
HBT
Name of each exchange on which registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
☐
☐
☒
Accelerated filer
Smaller reporting company
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates on the last business day of the registrant’s most
recently completed second fiscal quarter was $128.7 million, determined using a per share closing price for the registrant’s common stock on that
date of $13.33, as quoted on The Nasdaq Global Select Market.
As of February 28, 2021, there were 27,411,281 shares outstanding of the registrant’s common stock, $0.01 par value.
Items 10, 11, 12, 13 and 14 of Part III incorporate information by reference from the definitive Proxy Statement for the 2021 Annual Meeting of
Stockholders of HBT Financial, Inc. to be filed within 120 days of December 31, 2020.
DOCUMENTS INCORPORATED BY REFERENCE
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TABLE OF CONTENTS
HBT Financial, Inc.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
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PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV.
Item 15.
Item 16.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K are forward-looking statements. Forward-
looking statements may include statements relating to our plans, strategies and expectations, the economic
impact of the COVID-19 pandemic and our future financial results, near-term loan growth, net interest margin,
mortgage banking profits, wealth management fees, expenses, asset quality, capital levels, continued earnings
and liquidity. Forward looking statements are generally identifiable by use of the words "believe," "may," "will,"
"should," "could," "expect," "estimate," "intend," "anticipate," "project," "plan" or similar expressions. Forward
looking statements are frequently based on assumptions that may or may not materialize and are subject to
numerous uncertainties that could cause actual results to differ materially from those anticipated in the forward-
looking statements. Factors that could cause actual results to differ materially from the results anticipated or
projected and which could materially and adversely affect our operating results, financial condition or prospects
include, but are not limited to:
● our asset quality and any loan charge-offs;
● the composition of our loan portfolio;
● time and effort necessary to resolve nonperforming assets and the loans modified or deferred as a
result of the impact of the COVID-19 pandemic;
● the length and severity of the COVID-19 pandemic, and the effects of the COVID-19 pandemic,
including the impact of the pandemic on our operations and the operations of our customers and the
communities that we serve;
● environmental liability associated with our lending activities;
● the effects of the current low interest rate environment or changes in interest rates on our net interest
income, net interest margin, our investments, and our loan originations, and our modeling estimates
relating to interest rate changes;
● changes in and uncertainty related to benchmark interest rates used to price our loans, including the
expected elimination of LIBOR;
● our access to sources of liquidity and capital to address our liquidity needs;
● our inability to receive dividends from the Bank, pay dividends to our common stockholders or satisfy
obligations as they become due;
● the effects of problems encountered by other financial institutions;
● our ability to achieve organic loan and deposit growth and the composition of such growth;
● our ability to attract and retain skilled employees or changes in our management personnel;
● any failure or interruption of our information and communications systems;
● our ability to identify and address cybersecurity risks;
● the effects of the failure of any component of our business infrastructure provided by a third party;
● our ability to keep pace with technological changes;
● our ability to successfully develop and commercialize new or enhanced products and services;
● current and future business, economic and market conditions in the United States generally or in Illinois
in particular;
● the geographic concentration of our operations in the State of Illinois;
● our ability to effectively compete with other financial services companies and the effects of competition
in the financial services industry on our business;
● our ability to attract and retain customer deposits;
● our ability to maintain the Bank’s reputation;
● severe weather, natural disasters, pandemics, acts of war or terrorism or other external events;
● possible impairment of our goodwill and other intangible assets;
● the impact of, and changes in applicable laws, regulations and accounting standards and policies;
● our prior status as an S Corp;
● possible changes in trade, monetary and fiscal policies of, and other activities undertaken by,
governments, agencies, central banks and similar organizations;
● the effectiveness of our risk management and internal disclosure controls and procedures;
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● market perceptions associated with certain aspects of our business;
● the one-time and incremental costs of operating as a standalone public company;
● our ability to meet our obligations as a public company, including our obligations under Section 404 of
Sarbanes-Oxley; and
● damage to our reputation from any of the factors described above, in Part I, Item 1A “Risk Factors”,
Part II, Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of
Operations", or elsewhere in this Annual Report on Form 10-K.
These risks and uncertainties, as well as the factors discussed in Part I, Item 1A "Risk Factors," should be
considered in evaluating forward-looking statements and undue reliance should not be placed on such
statements. Forward-looking statements speak only as of the date they are made. We do not undertake any
obligation to update any forward-looking statement in the future, or to reflect circumstances and events that
occur after the date on which the forward-looking statement was made.
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PART I
ITEM 1. BUSINESS
COMPANY OVERVIEW
HBT Financial, Inc. (the “Company”), a Delaware corporation incorporated in 1982, is a bank holding company
headquartered in Bloomington, Illinois that has elected to be regulated as a financial holding company. As of
December 31, 2020, we had total assets of $3.7 billion, loans held for investment of $2.2 billion, and total
deposits of $3.1 billion. Through our bank subsidiary, Heartland Bank and Trust Company (“Heartland Bank” or
the “Bank”), we provide a comprehensive suite of business, commercial and retail banking products and
services to consumers, businesses, and municipal entities throughout Central and Northeastern Illinois. The
Company’s common stock is traded on the Nasdaq exchange under the symbol “HBT.”
The roots of our Company can be traced back to 1920 when M.B. Drake, the grandfather of our current
Chairman and CEO, Fred Drake, helped found a community bank in Cornland, Illinois. The Drake family
operated several banks throughout Central Illinois, and eventually, in 1982, George Drake (M.B.'s son and
Fred's father) incorporated the Company as one of the first multi-bank holding companies in Illinois. Since that
time, we have grown both organically and through the successful integration of more than a dozen community
bank acquisitions.
The foundation for our success has been built upon a steadfast commitment to our core operating principles:
● Prioritize safety and soundness. We engage in safe and sound banking practices that preserve the
asset quality of our balance sheet and protect our deposit base.
● Maintain strong profitability. We have produced consistently strong earnings – before, during, and
since the 2008-2009 financial crisis.
● Continue disciplined growth. We have a strong track record of organic and acquisitive growth with
our seasoned senior management team.
● Uphold our Midwestern values. We convey the values of the Midwest through hard work,
perseverance and doing the right things. We serve our customers well; provide employment, challenges
and rewards for our staff; and generate good returns for our stockholders.
PRODUCTS AND SERVICES
Our products and services are primarily deposit, lending, and ancillary products that offer a broad range of
options to meet the needs of consumers, businesses, and municipal entities. We continue to enhance our digital
banking suite of products so that all consumer and commercial customers can do their banking at their
convenience, through their channels of choice.
Additionally, we provide traditional trust and investment services, farmland management and farmland sales
through our Wealth Management division.
Lending Products and Services
We offer a broad range of lending products with a focus on regulatory commercial real estate ("CRE"), which
includes non-owner occupied CRE, construction and land development (“C&D”) and multi-family; commercial
and industrial ("C&I") and owner-occupied CRE; agricultural and farmland; and one-to-four family residential
loans. We also provide municipal, consumer and other loans.
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We have a strong credit culture that is conservative, favors asset quality first, and balances local lenders'
knowledge of their marketplace with a strong centralized credit process. We maintain a well-diversified portfolio
of loans and control concentrations related to loan types and specific industries or businesses.
Regulatory CRE
We provide financing for a wide variety of property types including multi-family, senior living, retail, warehouse,
manufacturing, office, and hotel/motel. Our C&D portfolio includes both ground up construction projects and
renovation projects in addition to some developed and undeveloped land. We focus on borrowers with
successful backgrounds in owning, managing, and developing real estate projects.
C&I and Owner-occupied CRE
We make loans to a wide variety of businesses with no material concentration in any one industry. C&I loans
primarily include loans for working capital and equipment needs. Owner-occupied CRE primarily includes
amortizing first mortgage loans on properties occupied by our C&I customers. We focus on small and middle
market businesses in the communities that we serve.
Agriculture and Farmland
With our roots in smaller communities throughout Central Illinois, we have a long history of financing agriculture
production and land. We originate loans to agriculture producers for input costs, equipment and land. Most of
our agriculture loans are to family farms growing corn and soybeans.
One-to-Four Family Residential
loans
include both owner-occupied and non-owner occupied one-to-four
These
family homes and
condominiums. They consist of first mortgage amortizing loans, second mortgage amortizing loans and home
equity lines of credit. These loans primarily consist of loans originated by our lenders through our branch
network on properties in the communities that we serve.
Deposit Products and Services
We offer traditional bank deposit account services as well as digital banking services tailored to meet the needs
of today's deposit consumers. Our deposit accounts consist of noninterest-bearing demand deposits, interest-
bearing transaction accounts, money market accounts, savings accounts, certificates of deposits, HSA, and IRA
accounts. Our digital banking services include online banking, mobile banking, digital payments, and personal
financial management tools. We also provide commercial checking accounts and related services such as
treasury management.
Wealth Management
Our wealth management division provides financial planning to consumers, trusts and estates; trustee and
custodial services; investment management; corporate retirement plan consulting and administration; and retail
brokerage services. Further, our agriculture services department operates under our wealth management
division and provides farm management services and brokers farmland sales and crop insurance throughout
our markets.
Residential Mortgage Origination and Servicing
We originate one-to-four family residential mortgage loans and generally sell those loans in the secondary
market. Loans are originated by our mortgage lenders within our branch network. To a lesser extent, we
purchase loans originated by other banks that are in turn sold into the secondary market. We sell conventional
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loans to both Freddie Mac and Fannie Mae and retain the servicing for substantially all those loans. We also
originated FHA, VA and Rural Development loans, which are typically sold servicing released.
MERGER OF STATE BANK OF LINCOLN INTO HEARTLAND BANK
On October 20, 2020, Heartland Bank and State Bank of Lincoln, both wholly-owned bank subsidiaries of the
Company on that date, entered into a Bank Merger Agreement providing for the merger of State Bank of Lincoln
into Heartland Bank. The merger was consummated on December 31, 2020, resulting in Heartland Bank being
our sole bank subsidiary, with the branch locations in Lincoln, Illinois operating as “State Bank of Lincoln, a
division of Heartland Bank and Trust Company.”
MARKET AREA
We currently operate 60 full-service and three limited-service branch locations across 18 counties in Central
and Northeastern Illinois, including the Chicago metropolitan market. We hold a leading deposit market share in
many of our markets in Central Illinois, which we define as a top three deposit share rank, providing the
foundation for our strong deposit base. The stability provided by this low-cost funding is a key driver of our
strong track record of financial performance. Our long history of providing relationship-based, personal banking
services; the successful integration of several strategic in-market acquisitions; and a relatively small presence
of money center and super-regional banks in our mid-sized markets has enabled us to maintain meaningful
market share in these markets.
Our management team believes our diverse footprint in both urban and rural markets positions us well relative
to our competition in terms of access to both high quality, stable funding sources and a wealth of loan growth
opportunities in attractive markets. We consider ourselves to be well positioned to meet the needs of
commercial and retail customers through our branch network, comprehensive suite of banking and wealth
management products, and our commitment to high-touch customer service.
BUSINESS STRATEGY
We intend to pursue the following strategies that we believe will continue to drive growth while maintaining our
high levels of asset quality and profitability:
Preserve Strong Ties to our Communities
Our community banking approach stems from our Midwestern values—hard work; perseverance; and doing the
right things for our customers, staff, stockholders and communities. Our senior management team lives and
works in the communities we serve, and our commitment to delivering banking products and services that
support the needs of our target customers enables us to preserve and grow share in our markets. The quality of
our comprehensive suite of products and services coupled with our relationship-based approach to banking
contribute meaningfully to our growth and success.
Deploy Excess Deposit Funding into Loan Growth Opportunities
Our strong market share in our core mid-sized markets provide a stable source of attractive funding. Our
management believes our scale in these mid-sized markets and the relative scarcity of money center banking
institutions operating in them creates a highly defensible market position whereby we can continue to maintain
our funding cost advantage relative to our peer groups. We believe the Chicago MSA provides significant
opportunities for loan growth. Many competitors in this market are money center or super-regional banks, and
we believe our responsive, local decision-making provides a competitive advantage over these larger, more
bureaucratic institutions. Further, we expect to continue to benefit from continued market disruption in the
Chicago MSA, caused by recent significant bank acquisitions, by acquiring talent and customers experiencing
displacement.
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Maintain a Prudent Approach to Credit Underwriting
Robust underwriting and pricing standards have been a hallmark of the Company and continue to serve as a
central tenet of our banking strategy even as we grow our loan portfolio in newer markets. We intend to
prudently deploy our excess funding and liquidity into assets that optimize risk-adjusted returns with minimal
losses. Further, we believe our history of maintaining strong asset quality and minimal levels of problem assets
even through the Great Recession confirms the effectiveness of our strong credit underwriting.
Pursue Strategic Acquisitions
Our management team has a history of successfully integrating strategic acquisitions over several decades. We
believe this track record will position the Company to be an attractive acquirer for many potential partners. We
continue to opportunistically seek acquisitions that are either located within our market footprint, in adjacent
markets or provide a new growth opportunity that is strategically and financially compelling and consistent with
our culture.
HUMAN CAPITAL RESOURCES
Employees
At December 31, 2020, we had 747 full-time equivalent employees. Our employees are not represented by a
collective bargaining unit, and we consider our working relationship with our employees to be good. At
December 31, 2020, our average tenure was 9.1 years.
Employee Engagement and Retention
We recognize that the fulfillment of our mission requires attracting, developing, and retaining a diverse group of
highly qualified employees. To support these objectives, our human resources programs are designed to
identify, reward, and recognize excellent performance and loyalty. We utilize regular employee engagement
surveys to seek feedback on a variety of topics, including but not limited to, confidence in Company leadership,
competitiveness of compensation and benefits, career growth opportunities, corporate culture, and
communications. We provide a variety of employee recognition programs and an open, social work environment
that encourages employees be engaged and inclusive.
We understand the importance of offering employees a career path and career development opportunities. By
doing so, we are well-positioned to retain our talent, support our communities, and produce needed results. We
provide required and self-directed job and career development training to cultivate talent throughout the
Company, from entry-level to leadership.
Compensation & Benefits
To attract and retain high-performing, skilled individuals, we offer competitive base pay and benefits. Utilizing
various industry specific compensation surveys and member associations, we analyze pay practices for jobs
and job families on a regular basis to ensure we remain competitive in the markets we operate and to maintain
internal pay equity.
To support the well-being of our employees and their families, we provide access to a variety of flexible and
convenient healthcare programs for physical and mental health, long-term and short-term disability, paid time
off, and a Company-matched 401(k) plan.
In response to the COVID-19 pandemic and complying with federal, state, and local guidelines, we enhanced
cleaning protocols and other safety measures at all locations, enabled work from home for many employees,
and adjusted branch services to ensure a safe environment. Benefit changes were made to enhance coverage
for employees during the pandemic, including waiving costs associated with testing and treatment, as well as
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expanding telehealth services. Additional paid time off was granted to all employees specifically for COVID-19
related issues, including childcare, to limit financial hardships. We also elected not to eliminate any positions
during 2020 due to the pandemic.
COMPETITION
Our profitability and growth are affected by the highly competitive nature of the financial services industry. We
compete with community banks in all of our markets and, to a lesser extent, with money center banks, primarily
in the Chicago MSA. Additionally, we compete with non-bank financial services companies and other financial
institutions operating within the areas we serve.
Our competition for loans comes principally from commercial banks, savings banks, mortgage banking
companies, the U.S. Government, credit unions, leasing companies, insurance companies, real estate conduits
and other companies that provide financial services to businesses and individuals.
Our most direct competition for deposits has historically come from commercial banks and credit unions. We
face increasing competition for deposits from online financial institutions and non-depository competitors such
as the mutual fund industry, securities and brokerage firms and insurance companies.
We seek to meet this competition by emphasizing personalized service and efficient decision-making tailored to
individual needs. We do not rely on any individual, group, or entity for a material portion of our loans or our
deposits.
We continue to see increased competitive pressures on loan rates and terms and increased competition for
deposit customers. Continued loan pricing pressure may affect our financial results in the future.
COMPANY WEBSITE
The Company maintains a website at ir.hbtfinancial.com. The contents of this website are not a part of this
report. All periodic and current reports of the Company and amendments to these reports filed with the
Securities and Exchange Commission (“SEC”) can be accessed, free of charge, through this website and at
www.sec.gov as soon as reasonably practicable after these materials are filed with the SEC.
INITIAL PUBLIC OFFERING
On October 11, 2019, we priced our initial public offering (the “IPO”). In the IPO, we issued and sold 9,429,794
shares of common stock and received proceeds, net of offering costs, of approximately $138 million. The
proceeds were used to fund a $170 million special dividend, or $9.43 per share, to stockholders of record prior
to the initial public offering.
SUPERVISION AND REGULATION
We and the Bank are subject to extensive supervision, regulation and examination under federal and state
banking laws, which impose a comprehensive system of supervision, regulation and enforcement on our
operations. We are also subject to the disclosure and regulatory requirements of the Securities Act of 1933, as
amended (the “Securities Act”) and the Exchange Act of 1934 (the “Exchange Act”), both as administered by
the SEC, as well as the corporate governance rules that apply to companies with securities listed on the
Nasdaq.
Banking laws, regulations and policies are continually under review by Congress, state legislatures and federal
and state regulatory agencies. In addition, federal and state bank regulatory agencies may issue policy
statements, interpretive letters and similar written guidance applicable to us and our subsidiaries. This
regulatory framework has a significant effect on our growth and financial performance and is intended primarily
for the protection of bank depositors, bank customers, the Deposit Insurance Fund (the “DIF”), the U.S. banking
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and financial system and financial markets as a whole, and not for the protection of our stockholders and
creditors.
Both the scope of the laws and regulations and the intensity of the supervision to which we are subject have
increased in response to the global financial crisis of 2008, as well as other factors such as technological and
market changes. Regulatory enforcement and fines have also increased across the banking and financial
services sector. Many of these changes have occurred as a result of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (“Dodd-Frank Act”) and its implementing regulations, most of which are now in place.
While the regulatory environment has entered a period of tailoring and rebalancing of the post financial crisis
framework, we expect that our business will remain subject to extensive regulation and supervision.
The following discussion describes certain elements of the comprehensive bank regulatory framework
applicable to us, which descriptions are qualified in their entirety by reference to the subject laws, regulations
and written guidance. This discussion is not intended to describe all laws and regulations applicable to us and
the Bank.
General
We are a bank holding company under the Bank Holding Company Act of 1956 (the “BHCA”), subject to
supervision and regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”).
We have elected to be regulated as a financial holding company, although we currently do not conduct any non-
banking activities or have any non-bank subsidiaries. Heartland Bank is chartered as a commercial bank under
the laws of Illinois with its deposits insured by the Federal Deposit Insurance Corporation (“FDIC”) and is not a
member of the Federal Reserve System. Consequently, the primary banking regulators of the Bank are the
FDIC and the Illinois Department of Financial and Professional Regulations (the “IDFPR”). As the owner of an
Illinois-chartered bank, we also are subject to the supervision of the IDFPR.
We and the Bank are subject to regular examination by our respective banking regulators, which result in
examination reports and ratings that can impact the conduct and growth of our operations. Examination results
and many related supervisory matters are confidential. These examinations consider compliance with
applicable banking laws and regulations, capital levels, asset quality and risk, ability and performance of
management, earnings, liquidity, and various other factors.
The banking agencies generally have broad discretion to impose restrictions and limitations on the operations of
a bank or bank holding company if they determine that the financial condition, capital resources, asset quality,
earnings prospects, management, liquidity or other aspects of a banking organization's operations are
unsatisfactory, unsafe, unsound or fail to comply with applicable law, or are otherwise inconsistent with laws and
regulations or with the supervisory policies of the agency. Further, the banking agencies have great flexibility
and powers to undertake enforcement actions against bank holding companies, banks, and their respective
officers, directors and institution-affiliated parties, including the power to impose a capital plan and capital
directive, impose nonpublic supervisory agreements, issue cease and desist orders, impose civil money
penalties, appoint a conservator or receiver or the termination of deposit insurance.
Federal law requires us, as a bank holding company, to act as a source of financial and managerial strength to
the Bank. Under this requirement, we are expected to commit resources to support the Bank, even if we may
not be in a financial position to provide such resources or if it may not be in our stockholders' or creditors' best
interests to do so. In the event of our bankruptcy, any commitment by us to a banking agency to maintain the
capital of the Bank will be assumed by the bankruptcy trustee and entitled to priority of payment.
Permitted Activities
In general, the BHCA limits the business of bank holding companies to banking, managing or controlling banks
and other activities that the Federal Reserve has determined to be so closely related to banking as to be a
proper incident thereto. Bank holding companies that qualify and elect to be treated as "financial holding
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companies" may engage in a broader range of additional activities than bank holding companies, may obtain
regulatory approval for certain proposed acquisitions or mergers more quickly and, in certain circumstances,
may complete acquisitions without prior regulatory approval. In particular, financial holding companies may
engage in activities that are (i) financial in nature or incidental to such financial activities or (ii) complementary to
a financial activity and do not pose a substantial risk to the safety and soundness of depository institutions or
the financial system generally.
The Federal Reserve has the power to order a bank holding company or any of its subsidiaries to terminate any
activity or to terminate ownerships or control of any subsidiary if the Federal Reserve has reasonable grounds
to believe that continuing such activity, ownership or control constitutes a serious risk to the financial
soundness, safety or stability of any bank subsidiary of the bank holding company.
As an Illinois-chartered commercial bank, the Bank’s business is generally limited to activities permitted by
Illinois law and applicable federal laws. Under the Illinois Banking Act, the Bank generally may engage in all
usual banking activities, including accepting deposits, making commercial and consumer loans and buying and
selling certain investment securities. However, Illinois law also imposes restrictions on the activities of the Bank
which are intended to promote their safety and soundness. For example, the Bank is restricted under the Illinois
Banking Act from investing in certain types of investment securities and is generally limited in the amount that it
can lend to a single borrower or invest in securities issued by a single issuer.
Acquisitions and Branching
The BHCA, Section 18(c) of the Federal Deposit Insurance Act (the "Bank Merger Act"), the Illinois Banking Act,
the Illinois Bank Holding Company Act and other federal and state statutes regulate acquisitions of banks and
bank holding companies. Federal law permits state and national banks to merge with banks in other states,
subject to applicable regulatory approvals, deposit concentration limits, and any state law limitations requiring
the merging bank to have been in existence for a minimum period of time (not to exceed five years). We must
obtain the prior approval of the Federal Reserve before (i) acquiring direct or indirect ownership or control of
any voting shares of any bank or bank holding company, if after such acquisition, we will directly or indirectly
own or control 5% or more of any class of voting shares of the institution, (ii) acquiring all or substantially all of
the assets of any bank or bank holding company (other than directly through the Bank) or (iii) merging or
consolidating with any other bank holding company. Under the Bank Merger Act, the prior approval of the FDIC
is required for the Bank to merge with another bank or purchase all or substantially all of the assets or assume
any of the deposits of another bank. In reviewing applications seeking approval of merger and acquisition
transactions, banking agencies consider, among other things, the competitive effect and public benefits of the
transactions, the capital position and managerial resources of the combined organization, the risks to the
stability of the U.S. banking or financial system, the applicant's performance record under the CRA, the
applicant's compliance with fair housing and other consumer protection laws and the effectiveness of all
organizations involved in combating money laundering activities. In addition, failure to implement or maintain
adequate compliance programs could cause bank regulators not to approve an application in connection with
an acquisition, or to prohibit any further acquisition activity of a bank or bank holding company, whether or not
approval is required.
Illinois state-chartered banks have the authority under Illinois law to establish branches anywhere in the State of
Illinois, subject to receipt of all required regulatory approvals. Under federal law, the Bank may, with the
approval of the FDIC, open a branch in any state if the law of that state would permit a state bank chartered in
that state to establish the branch.
Acquisitions of Control of the Company
Acquisitions of our voting stock above certain thresholds are subject to prior regulatory notice or approval under
federal banking laws, including the BHCA and the Change in Bank Control Act of 1978 (the “CBCA”). Under the
CBCA, a person or entity generally must provide prior notice to the Federal Reserve before acquiring the power
to vote 10% or more of our outstanding common stock. Investors should be aware of these requirements
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when acquiring shares in our stock. In addition, under the Illinois Banking Act, any acquisition of our stock that
results in a change in control of the Company would require prior approval of the IDFPR.
Dividends, Share Repurchases and Redemptions
We are a legal entity separate and distinct from our subsidiaries and, because substantially all of our net
income comes from the Bank, our ability to pay dividends or repurchase or redeem shares depends upon our
receipt of dividends or other distributions from the Bank. There are limitations on the payment of dividends by
the Bank to the Company, as well as by the Company to its stockholders, under applicable banking laws and
regulations.
Federal banking agencies are authorized to determine, under certain circumstances relating to the financial
condition of a bank holding company or a bank, that the payment of dividends would be an unsafe or unsound
practice and to prohibit payment thereof. In particular, the banking agencies have stated that paying dividends
that deplete a banking organization's capital base to an inadequate level would be an unsafe and unsound
banking practice and that banking organizations should generally pay dividends only out of current operating
earnings. Under the Basel III Capital Rules, the Company and the Bank must maintain the applicable Capital
Conservation Buffer to avoid becoming subject to restrictions on capital distributions, including dividends. For
more information on these financial measures at the Company and Heartland Bank, see Note 21 to our audited
consolidated financial statements included in Item 8, "Financial Statements and Supplementary Data," of this
Form 10-K.
In addition, Federal Reserve policy provides that bank holding companies, such as the Company, should
generally pay dividends to stockholders only if (i) the organization's net income available to common
stockholders over the past year has been sufficient to fully fund the dividends; (ii) the prospective rate of
earnings retention appears consistent with the organization's capital needs, asset quality and overall financial
condition and (iii) the organization will continue to meet minimum capital adequacy ratios. The policy also
provides that a bank holding company should inform the Federal Reserve reasonably in advance of declaring or
paying a dividend that exceeds earnings for the period for which the dividend is being paid or that could result in
a material adverse change to the bank holding company's capital structure. In addition, the Federal Reserve
could prohibit or limit the payment of dividends by a bank holding company if it determines that payment of the
dividend would constitute an unsafe or unsound practice.
As an Illinois-chartered bank, the Bank, may pay dividends without the approval of its banking regulators only if
it meets applicable regulatory capital requirements before and after the payment of the dividends and total
dividends do not exceed an amount equal to the accumulated retained earnings of the Bank after giving effect
to any unrecognized losses and bad debts. For the purpose of determining the amount of dividends that an
Illinois bank may pay, bad debts are defined as debts upon which interest is past due and unpaid for a period of
six months or more unless such debts are well secured and in the process of collection.
Further, under the BHCA, we may be required to provide the Federal Reserve with prior written notice of any
purchase or redemption of our outstanding equity securities if the gross consideration for the purchase or
redemption, when combined with the net consideration paid for all such purchases or redemptions during the
preceding twelve months, is equal to 10% or more of our consolidated net worth. The Federal Reserve may
disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or
unsound practice or would violate any law, regulation, Federal Reserve order, or any condition imposed by or
written agreement with the Federal Reserve. This prior notice requirement does not apply to any bank holding
company that meets certain well-capitalized and well-managed standards and is not subject to any unresolved
supervisory issues.
Regulatory Capital Requirements
The Federal Reserve monitors our capital adequacy on a consolidated basis, and the FDIC and the IDFPR
monitor the capital adequacy of the Bank. The Company and the Bank are required to maintain minimum capital
ratios, as well as a capital conservation buffer, pursuant to final rules approved by federal bank regulators (the
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"Basel III Capital Rules") based on the Basel III framework set forth by the Basel Committee on Banking
Supervision (the "Basel Committee") as well as certain provisions of the Dodd-Frank Act.
Under the Basel III Capital Rules, the Company and the Bank are required to have minimum capital ratios of
(i) Common Equity Tier 1 (“CET1”) capital to risk-weighted assets of at least 4.5%, (ii) Tier 1 capital to risk-
weighted assets of at least 6.0%, (iii) total capital to risk-weighted assets of at least 8.0%, and (iv) Tier 1 capital
to average assets (known as the “leverage ratio”) of at least 4.0%.
In addition to meeting the minimum capital requirements, the Company and the Bank must also maintain the
required capital conservation buffer to avoid becoming subject to restrictions on capital distributions and certain
discretionary bonus payments to management. The capital conservation buffer is calculated as a ratio of CET1
capital to risk-weighted assets, and it effectively increases the required minimum risk-based capital ratios.
The capital conservation buffer requirement became fully phased-in on January 1, 2019 and is now 2.5%.
Therefore, the minimum capital requirements the Company and the Banks must satisfy to avoid limitations on
capital distributions and certain discretionary bonus payments (i.e., the required minimum capital ratios plus the
capital conservation buffer) were (i) CET1 capital to risk-weighted assets of at least 7.0%, (ii) Tier 1 capital to
risk-weighted assets of at least 8.5%, and (iii) total capital to risk-weighted assets of at least 10.5%. The
leverage ratio is not impacted by the capital conservation buffer.
Well-Capitalized Requirements
The ratios described above are minimum standards in order for banking organizations to be considered
“adequately capitalized.” Bank regulatory agencies uniformly encourage banks to hold more capital and be
“well-capitalized” and, to that end, federal law and regulations provide various incentives for banking
organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements. For
example, a banking organization that is well-capitalized may: (i) qualify for exemptions from prior notice or
application requirements otherwise applicable to certain types of activities; (ii) qualify for expedited processing
of other required notices or applications; and (iii) accept, roll-over or renew brokered deposits. Higher capital
levels could also be required if warranted by the particular circumstances or risk profiles of individual banking
organizations. The Federal Reserve’s capital guidelines contemplate that additional capital may be required to
take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit,
nontraditional activities, securities trading activities, or significant or anticipated growth.
In order to be considered well capitalized, the Bank must maintain minimum capital ratios of (i) CET1 capital to
risk-weighted assets of at least 6.5%, (ii) Tier 1 capital to risk-weighted assets of at least 8.0%, (iii) total capital
to risk-weighted assets of at least 10.0%, and (iv) leverage ratio of at least 5.0%. A banking institution may be
considered well-capitalized while remaining out of compliance with the capital conservation buffer.
Failure to be well-capitalized or to meet minimum capital requirements could result in certain mandatory and
possible additional discretionary actions by regulators that, if undertaken, could have an adverse material effect
on our operations or financial condition. Failure to be well-capitalized or to meet minimum capital requirements
could also result in restrictions on the Company's or the Bank’s ability to pay dividends or otherwise distribute
capital or to receive regulatory approval of applications.
Community Bank Leverage Ratio
Pursuant to the Regulatory Relief Act, banks and bank holding companies with assets of less than $10 billion
and that are not determined to be ineligible by their primary federal regulator due to their risk profile (a
"Qualifying Community Bank") may choose to satisfy their regulatory capital requirements by maintaining a
certain "community bank leverage ratio," which is equal to tangible equity capital divided by average total
consolidated assets. Under the final rule, effective January 1, 2020, a Qualifying Community Bank with a
community bank leverage ratio that exceeds 9.0% would be considered to be "well-capitalized" and to have met
generally applicable leverage and risk-based capital requirements. The community bank leverage ratio
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framework is an optional framework that is designed to reduce burden by removing the requirements for
calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into
the framework. We have not elected to be subject to the Community Bank Leverage Ratio.
Prompt Corrective Action Framework
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the "FDIC Improvement Act") requires
the banking agencies to take prompt corrective action with respect to banks that fall below minimum capital
standards, and prohibits any bank from making any capital distribution that would cause it to be
undercapitalized. Banks that are not adequately capitalized may be subject to a variety of supervisory actions,
including restrictions on growth, investment activities, capital distributions and affiliate transactions, and will be
required to submit a capital restoration plan which, to be accepted by the banking agencies, must be
guaranteed in part by any company having control of the institution. The FDIC Improvement Act also provides
for enhanced supervisory authority with respect to banks that fall below minimum capital standards, including
greater authority for the appointment of a conservator or receiver for critically undercapitalized institutions.
Acting as a conservator or receiver, the FDIC would have broad powers to transfer any assets or liabilities of the
institution without the approval of the institution's creditors or stockholders. Banks that are less than well-
capitalized are also subject to restrictions under the Federal Deposit Insurance Act (the "FDI Act") relating to
accepting and renewing brokered deposits, as well as deposit rate restrictions.
Under the Basel III Capital Rules, a bank qualifies as (i) "well capitalized" if it has a total risk-based capital ratio
of 10% or greater, a CET1 capital ratio of 6.5% or greater, a Tier 1 risk-based capital ratio of 8% or greater and
a Leverage Ratio of 5% or greater, and is not subject to any order or written directive by any such regulatory
authority to meet and maintain a specific capital level for any capital measure; (ii) "adequately capitalized" if it
has a total risk-based capital ratio of 8% or greater, a CET1 capital ratio of 4.5% or greater, a Tier 1 risk-based
capital ratio of 6% or greater and a Leverage Ratio of 4% or greater and is not "well capitalized"; (iii)
"undercapitalized" if it has a total risk-based capital ratio that is less than 8%, a CET1 capital ratio less than
4.5%, a Tier 1 risk-based capital ratio of less than 6% or a Leverage Ratio of less than 4%; (iv) "significantly
undercapitalized" if it has a total risk-based capital ratio of less than 6%, a CET1 capital ratio less than 3%, a
Tier 1 risk-based capital ratio of less than 4% or a Leverage Ratio of less than 3%; and (v) "critically
undercapitalized" if its tangible equity is equal to or less than 2% of average quarterly tangible assets.
As of December 31, 2020, the Bank qualified as “well capitalized”.
Transactions with Affiliates and Insiders
Sections 23A and 23B of the Federal Reserve Act and the Federal Reserve's Regulation W impose qualitative
standards and quantitative limitations upon certain transactions between FDIC-insured banks, such as the
Bank, and its affiliates, including between a bank and its holding company. Transactions covered by these
provisions include a loan or extension of credit to an affiliate, a purchase of securities issued by an affiliate, a
purchase of assets (unless otherwise exempted by the Federal Reserve) from an affiliate, derivative
transactions that create a credit exposure to an affiliate, securities borrowing and lending transactions with an
affiliate, the acceptance of securities issued by an affiliate as collateral for a loan, and the issuance of a
guarantee, acceptance or letter of credit on behalf of an affiliate. All such transactions with any one affiliate
cannot exceed 10% of the bank's total capital, and all such transactions with all affiliates cannot exceed 20% of
the bank's total capital. However, if the transaction is a loan or other extension of credit that is fully secured by
cash or other prescribed and limited types of collateral in a segregated, earmarked deposit account, it will not
be counted for purposes of the 10% and 20% thresholds. In addition, such transactions must be on terms that
are at least as favorable to the bank as those that it could obtain in a comparable transaction with a non-
affiliate.
The Federal Reserve's Regulation O also places similar restrictions on loans and other extensions of credit by
FDIC-insured banks, such as the Bank, to their directors, executive officers and principal stockholders, as well
as to entities controlled by such persons. Among other things, extensions of credit to such insiders are required
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to be made on terms that are substantially the same as, and follow credit underwriting procedures that are not
less stringent than, those prevailing for comparable transactions with unaffiliated persons. Also, the terms of
such extensions of credit may not involve more than the normal risk of non-repayment or present other
unfavorable features and may not exceed certain limitations on the amount of credit extended to such persons
individually and in the aggregate.
Safety and Soundness Standards
The FDIA requires the FDIC, together with the other banking agencies, to prescribe standards of safety and
soundness, by regulations or guidelines, relating generally to operations and management, asset growth, asset
quality, earnings, stock valuation, and compensation. In addition, the banking agencies have adopted a set of
guidelines prescribing safety and soundness standards pursuant to the FDIC Improvements Act which establish
general standards relating to internal controls, risk management and information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset growth, and compensation, fees
and benefits. In general, the guidelines require appropriate systems and practices to identify and manage
specified risks and exposures. The guidelines prohibit excessive compensation as an unsafe and unsound
practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate
to the services performed by an executive officer, employee, director or principal stockholder.
In addition, the banking agencies adopted regulations that authorize, but do not require, the agencies to order
an institution that has been given notice that it is not satisfying the safety and soundness guidelines to submit a
compliance plan. If after being so notified, an institution fails to submit an acceptable compliance plan or fails in
any material respect to implement an accepted compliance plan, the banking agency must issue an order
directing action to correct the deficiency and may issue an order directing other actions of the types to which an
undercapitalized institution is subject under the "prompt corrective action" provisions of the FDIA described
above. If an institution fails to comply with such an order, the banking agency may seek to enforce its order in
judicial proceedings and to impose civil money penalties. The banking agencies have also adopted guidelines
for asset quality and earning standards. State-chartered banks, including the Bank, may also be subject to a
state's statutes, regulations and guidelines relating to safety and soundness.
Source of Strength
The Company is required to serve as a source of financial and managerial strength to the Bank and, under
appropriate conditions, to commit resources to support the Bank. This support may be required by the Federal
Reserve at times when we might otherwise determine not to provide it or when doing so is not otherwise in the
interests of the Company or our stockholders or creditors. The Federal Reserve may require a bank holding
company to make capital injections into a troubled subsidiary bank and may charge the bank holding company
with engaging in unsafe and unsound practices if the bank holding company fails to commit resources to such a
subsidiary bank or if it undertakes actions that the Federal Reserve believes might jeopardize the bank holding
company's ability to commit resources to such subsidiary bank.
Under these requirements, the Company may in the future be required to provide financial assistance to the
Bank should it experience financial distress. Capital loans by the Company to the Bank would be subordinate in
right of payment to deposits and certain other debts of the Bank. In the event of the Company's bankruptcy, any
commitment by the Company to a federal bank regulatory agency to maintain the capital of the Bank would be
assumed by the bankruptcy trustee and entitled to a priority of payment.
Deposit Insurance, Depositor Preference and Assessments
The deposits of the Bank are insured by the DIF up to the standard maximum deposit insurance amount of
$250,000 per depositor. Deposit insurance may be terminated by the FDIC upon a finding that an institution has
engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by the FDIC. If contested, such
terminations can only occur following judicial review through the federal courts.
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In the event of the liquidation or other resolution of a bank, the claims of depositors of the bank, including the
claims of the FDIC as subrogee of insured depositors and certain claims for administrative expenses of the
FDIC as a receiver, will have priority in payment ahead of unsecured non-deposit creditors, including depositors
whose deposits are payable only outside of the United States and the parent bank holding company with
respect to any extensions of credit made to such bank.
The Bank must pay deposit insurance assessments to the FDIC based on average total assets minus average
tangible equity, among other factors. As an institution with less than $10 billion in total assets, the assessments
for the Bank are based on the level of risk it poses to the FDIC's deposit insurance fund. Pursuant to changes
adopted by the FDIC that were effective July 1, 2016, the initial base rate for deposit insurance is between three
and 30 basis points. Total base assessments after possible adjustments now range between 1.5 and 40 basis
points. For established smaller institutions, like Heartland Bank, supervisory ratings are used to calculate a total
base assessment rate, along with an initial base assessment rate, an unsecured debt adjustment (which can be
positive or negative), and a brokered deposit adjustment. The Dodd-Frank Act also set a new minimum deposit
insurance fund reserve ratio of 1.35% of estimated insured deposits by 2020, which was surpassed ahead of
schedule in 2018.
In addition to the amounts paid for FDIC deposit insurance described above, all Illinois state-chartered banks
are required to pay supervisory assessments to the IDFPR to fund the operations of that agency. The amount of
the assessment is calculated on the basis of the Bank’s total assets.
Consumer Financial Protection
We are subject to a number of federal and state consumer protection laws that extensively govern our
relationship with our customers. These laws include the Equal Credit Opportunity Act (“ECOA”), the Fair Credit
Reporting Act, the Truth in Lending Act (“TILA”), the Truth in Savings Act, the Electronic Fund Transfer Act, the
Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate
Settlement Procedures Act, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, the Service
Members Civil Relief Act, the Right to Financial Privacy Act, the Telephone Consumer Protection Act, the CAN-
SPAM Act, and these laws’ respective state-law counterparts, as well as state usury laws and laws regarding
unfair and deceptive acts and practices. These and other federal laws, among other things, require disclosures
of the cost of credit and terms of deposit accounts, provide substantive consumer rights, prohibit discrimination
in credit transactions, regulate the use of credit report information, provide financial privacy protections, restrict
our ability to raise interest rates on extensions of credit and subject us to substantial regulatory oversight.
Violations of applicable consumer protection laws can result in significant potential liability from litigation brought
by customers, including actual damages, restitution and attorneys’ fees. Federal banking regulators, state
attorneys general and state and local consumer protection agencies may also seek to enforce consumer
protection requirements and obtain these and other remedies, including regulatory sanctions, customer
rescission rights, action by the state and local attorneys general in each jurisdiction in which we operate and
civil money penalties. Failure to comply with consumer protection requirements may also result in our failure to
obtain any required bank regulatory approval for merger or acquisition transactions we may wish to pursue or
our prohibition from engaging in such transactions even if approval is not required.
The Dodd-Frank Act created an independent federal agency, the Consumer Financial Protection Bureau (the
“CFPB”), which has broad rulemaking, supervisory and enforcement authority over consumer financial products
and services, including the ability to require reimbursements and other payments to customers for alleged legal
violations. The CFPB has the authority to impose significant penalties, as well as injunctive relief that prohibits
lenders from engaging in allegedly unlawful practices. The CFPB is also authorized to engage in consumer
financial education, track consumer complaints, request data and promote the availability of financial services to
underserved consumers and communities. The CFPB has broad rulemaking authority for a wide range of
consumer financial laws that apply to all banks including TILA, ECOA and the authority to prohibit "unfair,
deceptive, or abusive" acts and practices. The review of products and practices to prevent such acts and
practices is a continuing focus of the CFPB, and of the banking agencies more broadly.
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The CFPB also has exclusive supervisory and examination authority and primary enforcement authority with
respect to various federal consumer financial laws and regulations for insured depository institutions with $10
billion or more in total assets. Because the Bank currently has less than $10 billion in total assets, the Bank is
not subject to the examination and supervisory authority of the CFPB, but are nevertheless required to comply
with various federal consumer financial laws and regulations, including laws and regulations implemented by
the CFPB. The FDIC is primarily responsible for examining the Bank’s compliance with federal consumer
financial laws and regulations, including CFPB regulations. The CFPB also has the authority to require reports
from institutions with less than $10 billion in assets, such as the Bank, to support the CFPB in implementing
federal consumer protection laws, supporting examination activities, and assessing and detecting risks to
consumers and financial markets.
Residential Mortgage Lending
As required by the Dodd-Frank Act, the CFPB issued a series of final rules in January 2013 amending
Regulation Z, implementing TILA, which requires mortgage lenders to make a reasonable and good faith
determination, based on verified and documented information, that a consumer applying for a residential
mortgage loan has a reasonable ability to repay the loan according to its terms. These final rules prohibit
creditors from extending residential mortgage loans without regard for the consumer's ability to repay and add
restrictions and requirements to residential mortgage origination and servicing practices. In addition, these rules
restrict the imposition of prepayment penalties and restrict compensation practices relating to residential
mortgage loan origination. Mortgage lenders are required to determine consumers' ability-to-repay in one of two
ways. The first alternative requires the mortgage lender to consider eight underwriting factors when making the
credit decision. Alternatively, the mortgage lender can originate "qualified mortgages," which are entitled to a
presumption that the creditor making the loan satisfied the ability to repay requirements. In general, a qualified
mortgage is a residential mortgage loan that does not have certain high risk features, such as negative
amortization, interest-only payments, balloon payments, or a term exceeding 30 years. In addition, to be a
qualified mortgage, the points and fees paid by a consumer cannot exceed 3% of the total loan amount and the
borrower's total debt-to-income ratio must be no higher than 43% (subject to certain limited exceptions for loans
eligible for purchase, guarantee or insurance by a government sponsored enterprise or a federal agency).
Privacy
The federal banking regulators have adopted rules limiting the ability of banks and other financial institutions to
disclose non-public information about consumers to unaffiliated third parties. These limitations require
disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure
of certain personal information to an unaffiliated third party. These regulations affect how consumer information
is transmitted through diversified financial companies and conveyed to outside vendors.
Data privacy and data security are areas of increasing state legislative focus. Some state laws also protect the
privacy of information of state residents and require adequate security for such data, and certain state laws
may, in some circumstances, require the Bank to notify affected individuals of security breaches of computer
databases that contain their personal information. These laws may also require the Bank to notify law
enforcement, regulators or consumer reporting agencies in the event of a data breach, as well as businesses
and governmental agencies that own data.
Cybersecurity
In March 2015, the banking agencies issued two related statements regarding cybersecurity. One statement
indicates that financial institutions should design multiple layers of security controls to establish lines of defense
and to ensure that their risk management processes also address the risk posed by compromised customer
credentials, including security measures to reliably authenticate customers accessing internet-based services of
the financial institution. The other statement indicates that a financial institution's management is expected to
maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and
maintenance of the institution's operations after a cyber-attack involving destructive malware. A financial
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institution is also expected to develop appropriate processes to enable recovery of data and business
operations and address rebuilding network capabilities and restoring data if the institution or its critical service
providers fall victim to this type of cyber-attack. If we fail to observe the regulatory guidance, we could be
subject to various regulatory sanctions, including financial penalties.
In the ordinary course of business, we rely on electronic communications and information systems to conduct
our operations and to store sensitive data. We employ an in-depth, layered, defensive approach that leverages
people, processes and technology to manage and maintain cybersecurity controls. We employ a variety of
preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to
report on any suspected advanced persistent threats. Notwithstanding the strength of our defensive measures,
the threat from cyberattacks is severe, attacks are sophisticated and increasing in volume, and attackers
respond rapidly to changes in defensive measures. While to-date we have not experienced a significant
compromise, significant data loss or any material financial losses related to cybersecurity attacks, our systems
and those of our customers and third party service providers are under constant threat and it is possible that we
could experience a significant event in the future. Risks and exposures related to cybersecurity attacks are
expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these
threats, as well as due to the expanding use of internet banking, mobile banking and other technology-based
products and services by us and our customers.
The SEC has also issued guidance on public company cybersecurity disclosures as well as ways for companies
to enhance their cybersecurity preparedness and operational resiliency. Any SEC guidelines would be in
addition to notification and disclosure requirements under state and federal banking law and regulations.
Lending Standards Guidance and Concentrations in Commercial Real Estate
The federal banking agencies have adopted uniform regulations prescribing standards for extensions of credit
that are secured by liens or interests in real estate or made for the purpose of financing permanent
improvements to real estate. Under these regulations, all insured depository institutions, such as the Bank, must
adopt and maintain written policies establishing appropriate limits and standards for extensions of credit that are
secured by liens or interests in real estate or are made for the purpose of financing permanent improvements to
real estate. These policies must establish loan portfolio diversification standards, prudent underwriting
standards (including loan-to-value limits) that are clear and measurable, loan administration procedures, and
documentation, approval and reporting requirements. The real estate lending policies must reflect consideration
of the federal bank regulators' Interagency Guidelines for Real Estate Lending Policies.
Also, in December 2015, the federal banking regulators released a statement entitled “Interagency Statement
on Prudent Risk Management for Commercial Real Estate Lending” (the “CRE Guidance”). In the CRE
Guidance, the federal banking regulators (i) expressed concerns with institutions that ease commercial real
estate underwriting standards, (ii) directed financial institutions to maintain underwriting discipline and exercise
risk management practices to identify, measure and monitor lending risks, and (iii) indicated that they will
continue to pay special attention to commercial real estate lending activities and concentrations going forward.
The federal banking regulators previously issued guidance in December 2006, entitled “Interagency Guidance
on Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices”, which stated that
an institution is potentially exposed to significant commercial real estate concentration risk, and should employ
enhanced risk management practices, where (1) total commercial real estate loans represent 300% or more of
its total capital and (2) the outstanding balance of such institution’s commercial real estate loan portfolio has
increased by 50% or more during the prior 36 months.
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Leveraged Lending Guidance
In March 2013, the banking agencies jointly issued guidance on leveraged lending, which updates and replaces
the guidance for leveraged finance activities issued by the banking agencies in April 2001. The revised
leveraged lending guidance describes regulatory expectations for the sound risk management of leveraged
lending activities, including the importance for institutions to maintain (i) a credit limit and concentration
framework consistent with the institution's risk appetite, (ii) underwriting standards that define acceptable
leverage levels, (iii) strong pipeline management policies and procedures and (iv) guidelines for conducting
periodic portfolio and pipeline stress tests.
Community Reinvestment Act
Under the Community Reinvestment Act (“CRA”), which the FDIC and the other banking regulators have
indicated will be significantly updated and revised, the Bank has an affirmative and continuing obligation,
consistent with safe and sound operations, to help meet the credit needs of the market areas where it operates,
which includes providing credit to low- and moderate-income individuals and communities.
In connection with its examination of the Bank, the FDIC is required to assess the Bank's compliance with the
CRA. The CRA requires the appropriate federal banking agency to take an insured depository institution's CRA
record into account when evaluating certain applications filed by us or the Bank, including applications for
charters, branch openings or relocations and applications to acquire, merge or consolidate with another bank or
bank holding company. The CRA also requires that all institutions publicly disclose their CRA ratings. The Bank
received a rating of "satisfactory" in its most recently completed CRA examination.
Federal Home Loan Bank Membership
The Bank is a member of the FHLB System, an organization created under the Federal Home Loan Bank Act of
1932 to serve as a central credit facility for its members through eleven U.S. government-sponsored banks,
including the FHLB of Chicago. The FHLB of Chicago makes loans to member banks in the form of advances,
all of which are required to be fully collateralized, as determined by the FHLB of Chicago. In the event that a
member financial institution fails, the right of the FHLB of Chicago to seek repayment of funds loaned to that
institution will take priority (a super lien) over the rights of all other creditors. To qualify for membership in the
FHLB System, and to be eligible to borrow funds from such Federal Home Loan bank under the FHLB System's
advance program, the Bank is required to hold a certain amount of common stock in one of the Federal Home
Loan banks. There is no secondary market for the FHLB of Chicago 's common stock, but additional purchases
from, or repurchases by, the FHLB of Chicago may occur under prescribed circumstances. Specifically, the
board of directors of the FHLB of Chicago can increase the minimum investment requirements in the event it
has concluded that additional capital is required to allow it to meet its own regulatory capital requirements. Any
increase in the minimum investment requirements outside of specified ranges requires the approval of the
Federal Housing Finance Agency. Because the extent of any obligation to increase the level of investment in
the FHLB of Chicago depends entirely upon the occurrence of future events, we are unable to determine the
extent of future required potential payments to the FHLB of Chicago at this time.
Anti-Money Laundering and Similar Regulations
A major focus of governmental policy on banks and other financial institutions in recent years has been
combating money laundering and terrorist financing. The Bank Secrecy Act (“BSA”) and the USA PATRIOT Act
of 2001 impose significant obligations on banks and other financial institutions to detect and deter money
laundering and terrorist financing. Banks and other financial institutions are required to establish compliance
programs designed to implement BSA requirements that include, among other things: verifying customer
identification, reporting certain large cash transactions, responding to requests for information by law
enforcement, and monitoring, investigating and reporting suspicious transactions or activity. The Treasury's
Office of Foreign Assets Control enforces economic and trade sanctions based on U.S. foreign policy and
national security goals against entities such as targeted foreign countries, terrorists, international narcotics
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traffickers, and those engaged in the proliferation of weapons of mass destruction. The banking agencies
routinely examine banks for compliance with these obligations, and failure of a bank to maintain and implement
adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant
laws or regulations, could have serious legal and reputational consequences for the bank and its bank holding
company, including the ability to engage in merger or acquisition transactions. The banking agencies have
imposed cease and desist orders and significant civil money penalties against banks found to be violating these
obligations and have, in some cases, brought criminal actions against some bank and bank holding companies
for these types of violations.
Incentive Compensation
The federal banking agencies have issued joint guidance on incentive compensation designed to ensure that
the incentive compensation policies of banking organizations, such as the Company and the Bank, do not
encourage imprudent risk taking and are consistent with the safety and soundness of the organization. In
addition, the Dodd-Frank Act requires the federal banking agencies and the SEC to issue regulations or
guidelines requiring covered financial institutions, including the Company and the Bank, to prohibit incentive-
based payment arrangements that encourage inappropriate risks by providing compensation that is excessive
or that could lead to material financial loss to the institution. Also pursuant to the Dodd-Frank Act, in 2015, the
SEC proposed rules that would direct stock exchanges to require listed companies to implement clawback
policies to recover incentive-based compensation from current or former executive officers in the event of
certain financial restatements and would also require companies to disclose their clawback policies and their
actions under those policies.
Future Legislation and Regulation
Congress may enact legislation from time to time that affects the regulation of the financial services industry,
and state legislatures may enact legislation from time to time affecting the regulation of financial institutions
chartered by or operating in those states. Federal and state regulatory agencies also periodically propose and
adopt changes to their regulations or change the manner in which existing regulations are applied. The
substance or impact of pending or future legislation or regulation, or the application thereof, cannot be
predicted, although enactment of the proposed legislation could affect the regulatory structure under which we
operate and may significantly increase our costs, impede the efficiency of our internal business processes,
require us to increase our regulatory capital or modify our business strategy, or limit our ability to pursue
business opportunities in an efficient manner. Our business, financial condition, results of operations or
prospects may be adversely affected, perhaps materially, as a result.
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ITEM 1A. RISK FACTORS
The material risks and uncertainties that management believes affect us are described below. You should
carefully consider these risks, together with all of the information included herein. Any of the following risks, as
well as risks that we do not know or currently deem immaterial, could have a material adverse effect on our
business, financial condition or results of operations.
SUMMARY
Risk Factor
COVID-19 Pandemic
Credit Risks
Interest Rate Risks
Reference Rate
Reform
Liquidity Risks
Technology and
Cybersecurity Risks
Legal and Regulatory
Compliance Risks
Business Strategy
Ownership of Our
Common Stock
External Risks
Description
The COVD-19 pandemic and the associated economic slowdown has
adversely affected our business operations, our financial results, and the
financial condition of our borrowers and counterparties. The duration,
severity, and ultimate impact of the COVID-19 pandemic remain unknown at
this time.
Borrowers or counterparties may be unable or unwilling to repay their
obligations to us in accordance with the underlying contractual terms which
could lead to unexpected losses.
Fluctuations in interest rates may reduce our earnings or the value of our
financial instruments.
We have financial instruments – including loans, securities, debt, and
interest rate swaps – that include LIBOR as a “benchmark” or “reference
rate”. The expected phase-out of LIBOR after 2021 may adversely impact
the value of, return on, and market for our LIBOR-based financial
instruments or lead to disputes or litigation with counterparties.
An inability to obtain liquid funds at a reasonable price to timely meet our
financial obligations may have a material adverse impact on our operations
and jeopardize our business.
Our business is highly dependent upon secure and uninterrupted
information technology systems. A disruption or breach to these systems
may have a material adverse impact on our business.
The banking industry is highly regulated. Failure to comply with the laws and
regulations to which we are subject, or changes in them, may adversely
impact us.
Our strategy of pursuing growth via suitable acquisitions exposes us to
heightened operational risks and could have a material adverse impact on
our financial condition, results of operations, and growth prospects.
Our principal stockholder, Heartland Bancorp, Inc. Voting Trust U/A/D
5/4/2016, has significant influence over us, and its interests could conflict
with those of our other stockholders.
Adverse changes in the economic conditions, particularly such changes in
the Illinois markets we operate, may adversely impact our borrowers and
our business.
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RISK RELATED TO THE COVID-19 PANDEMIC
The COVID-19 pandemic is adversely affecting us, our business, employees, customers, counterparties
and third-party service providers, and the ultimate extent of the impacts on our business, financial
position, results of operations, liquidity and prospects is uncertain.
The COVID-19 pandemic (“COVID-19”) is causing significant economic disruption in the United States and
globally. COVID-19 has resulted in varying mitigation guidelines, such as stay-at-home orders and restrictions
on non-essential businesses, the effects of which have had, are currently having, and may continue to have an
adverse impact on global, national, and local economic and business activity.
Although the Bank has been deemed an essential business and has maintained business operations since the
beginning of the COVID-19 pandemic, the ultimate extent of the impact of the pandemic on our business, cash
flows, financial condition, liquidity, results of operations, customer confidence, profitability and growth prospects
will depend on continuing and future developments related to the virus, which are highly uncertain and cannot
be predicted. Continued deterioration in general business and economic conditions, including extended closure
of non-essential businesses, further increases in unemployment rates, or turbulence in U.S. or global financial
markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability
of funding, lead to a tightening of credit, and further increase stock price volatility. These and other potential
impacts of COVID-19 could therefore materially and adversely affect our business, revenue, operations,
financial condition, liquidity, results of operations and prospects. If the COVID-19 pandemic is prolonged or
intensifies due to the emergence of additional viral strains or otherwise, any such material adverse effects may
be exacerbated.
Our business is dependent upon the willingness and ability of our customers to conduct banking and other
financial transactions. The spread of COVID-19 has and is likely to continue to disrupt the business, activities,
and operations of our customers and, cause a decline in demand for our products and services, including loans
and deposits. This may result in a significant decrease in business and could negatively impact our results of
operations, our liquidity position, our growth strategy and our ability to make payments under our subordinated
note and junior subordinated debenture obligations as they become due. Our financial results could also be
impacted due to an inability of our customers to meet their loan commitments because of their losses
associated with impacts of the virus, and could result in an increased risk of loan delinquencies, defaults,
foreclosures, declining collateral values and a general inability of our borrowers to repay their loans. In addition,
the financial and other information we receive from and about our customers that we rely on in extending or
renewing credit and monitoring our loan portfolio may have changed significantly and no longer be accurate,
which could affect our ability to timely and accurately manage our credit risk. Any or all of these factors could
necessitate an increase in our allowance for loan losses, which would negatively impact our earnings and
results of operations. Moreover, current and future governmental actions may temporarily require us to conduct
business related to foreclosures, repossessions, payments, deferrals and other customer-related transactions
differently, which may result in an increase in expenses and a decrease in net income.
Our workforce has been, and may continue to be, impacted by COVID-19. We are taking precautions to protect
the safety and well-being of our employees and customers, but no assurance can be given that our actions will
be adequate or appropriate. The continued spread of the virus, and the associated mitigation guidelines, could
also negatively impact the availability of key personnel and employee productivity, as well as the business and
operations of third-party service providers who perform critical services for us. This could adversely impact our
ability to deliver products and services to our customers, opportunities to continue to grow our business, and
could negatively affect our reputation. Our business continuity plan and the efforts we have taken to adapt our
work and business to the current environment has resulted in, and will continue to require us to incur, increased
expenses.
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As a participating lender in the PPP, we are subject to additional risks of litigation from our customers
or other parties regarding our processing of loans for the PPP and risks that the SBA may not fund
some of or all PPP loan guarantees.
The Coronavirus Relief and Economic Security Act (the “CARES Act”) initiated the Paycheck Protection
Program (the “PPP”) under the Small Business Administration (“SBA”). The PPP was designed to help small
businesses maintain their workforce during the COVID-19 pandemic by providing forgivable loans, and we
assisted our customers in participating in the program. We understand that these loans are fully guaranteed by
the U.S. government and believe the majority of these loans will be forgiven. However, in the event of a loss
resulting from a default on a PPP loan or a determination by the SBA that there was a deficiency in the manner
in which the PPP loan was originated or serviced by us, the SBA may deny its liability under the guaranty,
reduce the amount of the guaranty, or, if it has already been paid under the guaranty, seek recovery of any loss
related to the deficiency from us.
Since the opening of the PPP, several larger banks have been subject to litigation regarding the process and
procedures that such banks followed in accepting and processing applications for the PPP. We may be exposed
to the risk of similar litigation, from both customers and non-customers that contacted the Bank regarding
obtaining PPP loans with respect to the processes and procedures we used in processing applications for the
PPP. If any such litigation is filed against us and is not resolved in a manner favorable to us, it may result in
significant financial liability to us or adversely affect our reputation. In addition, litigation can be costly,
regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP-related
litigation could have a material adverse impact on our reputation, business, financial condition, and results of
operations.
CREDIT RISKS
We may not be able to adequately measure and limit our credit risk, which could lead to unexpected
losses.
Our business depends on our ability to successfully measure and manage credit risk. As a lender, we are
exposed to the risk that the principal of, or interest on, a loan will not be repaid timely or at all or that the value
of any collateral supporting a loan will be insufficient to cover our outstanding exposure. In addition, we are
exposed to risks with respect to the period of time over which the loan may be repaid, risks relating to proper
loan underwriting, risks resulting from changes in economic and industry conditions, and risks inherent in
dealing with individual loans and borrowers. The creditworthiness of a borrower is affected by many factors
including local market conditions and general economic conditions. If the overall economic climate in the U.S.,
generally, or our market areas, specifically, experiences material disruption, our borrowers may experience
difficulties in repaying their loans, the collateral we hold may decrease in value or become illiquid, and the level
of nonperforming loans, charge-offs and delinquencies could rise and require significant additional provisions
for credit losses. Additional factors related to the credit quality of commercial loans include the quality of the
management of the business and the borrower’s ability both to properly evaluate changes in the supply and
demand characteristics affecting its market for products and services and to effectively respond to those
changes. Additional factors related to the credit quality of commercial real estate loans include tenant vacancy
rates and the quality of management of the property.
Our risk management practices, such as monitoring the concentration of our loans within specific industries and
our credit approval, review and administrative practices may not adequately reduce credit risk, and our credit
administration personnel, policies and procedures may not adequately adapt to changes in economic or any
other conditions affecting customers and the quality of the loan portfolio. A failure to effectively measure and
limit the credit risk associated with our loan portfolio may result in loan defaults, foreclosures and additional
charge-offs, and may necessitate that we significantly increase our allowance for loan losses, each of which
could adversely affect our net income. As a result, our inability to successfully manage credit risk could have an
adverse effect on our business, financial condition and results of operations.
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Our allowance for loan losses may prove to be insufficient to absorb potential losses in our loan
portfolio.
We establish our allowance for loan losses and maintain it at a level that management considers adequate to
absorb probable loan losses based on an analysis of our portfolio and market environment. The allowance for
loan losses represents our estimate of probable losses in the portfolio at each balance sheet date and is based
upon relevant information available to us. The allowance contains provisions for probable losses that have been
identified relating to specific borrowing relationships, as well as probable losses inherent in the loan portfolio
and credit undertakings that are not specifically identified. Additions to the allowance for loan losses, which are
charged to earnings through the provision for loan losses, are determined based on a variety of factors,
including an analysis of the loan portfolio, historical loss experience and an evaluation of current economic
conditions in our market areas. The actual amount of loan losses is affected by changes in economic, operating
and other conditions within our markets, which may be beyond our control, and such losses may exceed current
estimates.
Although management believes that the allowance for loan losses is adequate to absorb losses on existing
loans that may become uncollectible, we may be required to take additional provisions for loan losses in the
future to further supplement the allowance for loan losses, either due to management’s decision to do so or
because our banking regulators require us to do so. Our bank regulatory agencies will periodically review our
allowance for loan losses and the value attributed to nonaccrual loans or to real estate acquired through
foreclosure and may require us to adjust our determination of the value for these items. These adjustments may
adversely affect our business, financial condition and results of operations.
The small to midsized businesses to which we lend may have fewer resources to weather adverse
business developments, which may impair a borrower’s ability to repay a loan, and such impairment
could adversely affect our results of operations and financial condition.
We target our business development and marketing strategy primarily to serve the banking and financial
services needs of small to midsized businesses. These businesses generally have fewer financial resources in
terms of capital or borrowing capacity than larger entities, can have less access to capital sources and loan
facilities, frequently have smaller market shares than their competition, may be more vulnerable to economic
downturns, often need substantial additional capital to expand or compete, and may experience substantial
volatility in operating results, any of which may impair a borrower’s ability to repay a loan. In addition, the
success of a small and medium-sized business often depends on the management talents and efforts of one or
two people or a small group of people, and the death, disability or resignation of one or more of these people
could have a material adverse impact on the business and its ability to repay its loan. If general economic
conditions negatively impact the markets in which we operate or any of our borrowers otherwise are affected by
adverse business developments, our small to medium-sized borrowers may be disproportionately affected and
their ability to repay outstanding loans may be negatively affected, resulting in an adverse effect on our results
of operations and financial condition.
We depend on the accuracy and completeness of information about customers and counterparties.
In deciding whether to extend credit or enter into other transactions, and in evaluating and monitoring our loan
portfolio on an ongoing basis, we may rely on information furnished by or on behalf of customers and
counterparties, including financial statements, credit reports and other financial information. We may also rely
on representations of those customers or counterparties or of other third parties, such as independent auditors,
as to the accuracy and completeness of that information. Reliance on inaccurate, incomplete, fraudulent or
misleading financial statements, credit reports or other financial or business information, or the failure to receive
such information on a timely basis, could result in loan losses, reputational damage or other effects that could
have a material adverse effect on our business, financial condition or results of operations.
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The appraisals and other valuation techniques we use in evaluating and monitoring loans secured by
real property, other real estate owned ("OREO") and other repossessed assets may not accurately
describe the fair value of the asset.
In considering whether to make a loan secured by real property, we generally require an appraisal of the
property. However, an appraisal is only an estimate of the value of the property at the time the appraisal is
made, and, as real estate values may change significantly in relatively short periods of time (especially in
periods of heightened economic uncertainty), this estimate may not accurately describe the fair value of the real
property collateral after the loan is made. As a result, we may not be able to realize the full amount of any
remaining indebtedness when we foreclose on and sell the relevant property. In addition, we rely on appraisals
and other valuation techniques to establish the value of our OREO and personal property that we acquire
through foreclosure proceedings and to determine certain loan impairments. If any of these valuations are
inaccurate, our consolidated financial statements may not reflect the correct value of our OREO, and our
allowance for loan losses may not reflect accurate loan impairments. This could have a material adverse effect
on our business, financial condition or results of operations.
We are subject to environmental liability risk associated with lending activities.
A significant portion of our loan portfolio is, and is expected to be, secured by real property and during the
ordinary course of business, we may foreclose on and take title to properties securing certain loans. In addition,
we own our branch properties. If hazardous or toxic substances are found on our foreclosed or branch
properties, we may be liable for remediation costs, as well as for personal injury and property damage.
Environmental laws may require us to incur substantial expenses and may materially reduce the affected
property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent
interpretations or enforcement policies with respect to existing laws may increase our exposure to
environmental liability. The remediation costs and any other financial liabilities associated with an environmental
hazard could have a material adverse effect on our financial condition and results of operations.
The majority of our loan portfolio consists of commercial and regulatory CRE loans, which have a
higher degree of risk than other types of loans.
Commercial and regulatory CRE loans are often larger and involve greater risks than other types of lending.
Because payments on such loans are often dependent on the successful operation or development of the
property or business involved, repayment of such loans is often more sensitive than other types of loans to
adverse conditions in the real estate market or the general business climate and economy. Accordingly, a
downturn in the real estate market and a challenging business and economic environment may increase our
risk related to commercial loans, particularly commercial real estate loans. Unlike residential mortgage loans,
which generally are made on the basis of the borrowers’ ability to make repayment from their employment and
other income and which are secured by real property whose value tends to be more easily ascertainable,
commercial loans typically are made on the basis of the borrowers’ ability to make repayment from the cash
flow of the commercial venture. Our operating commercial loans are primarily made based on the identified
cash flow of the borrower and secondarily on the collateral underlying the loans. Most often, this collateral
consists of accounts receivable, inventory and equipment. Inventory and equipment may depreciate over time,
may be difficult to appraise and may fluctuate in value based on the success of the business. If the cash flow
from business operations is reduced, the borrower’s ability to repay the loan may be impaired. Due to the larger
average size of each commercial loan as compared with other loans such as residential loans, as well as
collateral that is generally less readily-marketable, losses incurred on a small number of commercial or
regulatory CRE loans could have a material adverse impact on our financial condition and results of operations.
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Real estate construction loans are based upon estimates of costs and values associated with the
complete project. These estimates may be inaccurate, and we may be exposed to significant losses on
loans for these projects.
Real estate construction lending involves additional risks because funds are advanced upon the security of the
project, which is of uncertain value prior to its completion, and costs may exceed realizable values in declining
real estate markets. Because of the uncertainties inherent in estimating construction costs and the realizable
market value of the completed project and the effects of governmental regulation of real property, it is relatively
difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio.
As a result, construction loans often involve the disbursement of substantial funds with repayment dependent, in
part, on the success of the ultimate project and the ability of the borrower to sell or lease the property, rather
than the ability of the borrower or guarantor to repay principal and interest. If our appraisal of the value of the
completed project proves to be overstated or market values or rental rates decline, we may have inadequate
security for the repayment of the loan upon completion of construction of the project. If we are forced to
foreclose on a project prior to or at completion due to a default, we may not be able to recover all of the unpaid
balance of, and accrued interest on, the loan as well as related foreclosure and holding costs. In addition, we
may be required to fund additional amounts to complete the project and may have to hold the property for an
unspecified period of time while we attempt to dispose of it.
We provide loans and services to the agriculture industry and the health of this industry is impacted by
factors outside our control and the control of our customers.
Our loan portfolio includes loans to agricultural producers and loans secured by farmland. In addition, our
commercial loan portfolio includes loans to farm implement dealerships, grain elevators and other businesses
that provide products and services to agricultural producers. We also provide farm management advice, engage
in farm sale services and arrange for crop insurance. Our agriculture loans generally consist of (i) real estate
loans secured by farmland, (ii) crop input loans primarily focused on corn and soybeans and (iii) equipment
financing for specific agriculture equipment. Decreases in commodity prices may negatively affect both the cash
flows of the borrowers and the value of the collateral supporting such loans, and could decrease the fees from
our other agricultural services. Although we attempt to account for the possibility of such commodity price
fluctuations in underwriting, structuring and monitoring our agriculture loans, there is no guarantee that our
efforts will be successful and we may experience increased delinquencies or defaults in this portfolio or be
required to increase our provision for loan losses, which could have an adverse effect on our business, financial
condition and results of operations.
Our agricultural loans are dependent on the profitable operation and management of the farmland securing the
loan and its cash flows. The success of our agricultural loans may be affected by many factors outside the
control of the borrower, including:
● adverse weather conditions (such as hail, drought and floods), restrictions on water supply or other
conditions that prevent the planting of a crop or limit crop yields, or that affect crop harvesting;
● loss of crops or livestock due to disease or other factors;
● declines in the market prices or demand for agricultural products (both domestically and internationally),
for any reason;
● increases in production costs (such as the costs of labor, rent, feed, fuel and fertilizer);
● adverse changes in interest rates, currency exchange rates, agricultural land values or other factors
that may affect delinquency levels and credit losses on agricultural loans;
● the impact of government policies and regulations (including changes in price supports, subsidies,
government-sponsored crop insurance, minimum ethanol content requirements for gasoline, tariffs,
trade barriers and health and environmental regulations);
● access to technology and the successful implementation of production technologies; and
● changes in the general economy that could affect the availability of off-farm sources of income and
prices of real estate for borrowers.
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INTEREST RATE RISKS
Fluctuations in interest rates may reduce net interest income and otherwise negatively impact our
financial condition and results of operations.
The majority of our banking assets are monetary in nature and subject to risk from changes in interest rates.
Like most financial institutions, our earnings and cash flows depend to a great extent upon the level of our net
interest income, or the difference between the interest income we earn on loans, investments and other
interest-earning assets, and the interest we pay on interest-bearing liabilities, such as deposits and borrowings.
Changes in interest rates can increase or decrease our net interest income, because different types of assets
and liabilities may react differently, and at different times, to market interest rate changes. When interest-
bearing liabilities mature or reprice more quickly, or to a greater degree than interest-earning assets in a period,
an increase in interest rates could reduce net interest income. Similarly, when interest-earning assets mature or
reprice more quickly, or to a greater degree than interest-bearing liabilities, falling interest rates could reduce
net interest income.
Additionally, an increase in interest rates may, among other things, reduce the demand for loans, increase the
cost of deposit and wholesale funding, reduce our ability to originate loans and decrease loan repayment rates.
A decrease in the general level of interest rates may, among other things, increase prepayments on our loan
and securities portfolios and result in a decrease in our net interest margin, negatively impacting our results.
Although our asset-liability management strategy is designed to control and mitigate exposure to the risks
related to changes in market interest rates, those rates are affected by many factors outside of our control,
including governmental monetary policies, inflation, deflation, recession, changes in unemployment, the money
supply, international disorder and instability in domestic and foreign financial markets.
We may seek to mitigate our interest rate risk by entering into interest rate swaps and other interest rate
derivative contracts from time to time with counterparties. Our hedging strategies rely on assumptions and
projections regarding interest rates, asset levels and general market factors and subject us to counterparty risk.
There is no assurance that our interest rate mitigation strategies will be successful and if our assumptions and
projections prove to be incorrect or our hedging strategies do not adequately mitigate the impact of changes in
interest rates, we may incur losses that could adversely affect our earnings.
The value of the financial instruments we own may decline in the future.
An increase in market interest rates may affect the market value of our securities portfolio, potentially reducing
accumulated other comprehensive income and/or earnings.
In addition, we evaluate our investment securities on at least a quarterly basis, and more frequently when
economic and market conditions warrant such an evaluation, to determine whether any decline in fair value
below amortized cost is the result of an other-than-temporary impairment. The process for determining whether
impairment is other-than-temporary usually requires complex, subjective judgments about the future financial
performance of the issuer in order to assess the probability of receiving all contractual principal and interest
payments on the security. Because of changing economic and market conditions affecting issuers, we may be
required to recognize other-than-temporary impairment in future periods, which could adversely affect our
business, results of operations or financial condition.
Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial
condition and results of operations.
In addition to being affected by general economic conditions, our earnings and growth are affected by the
policies of the Federal Reserve. An important function of the Federal Reserve is to regulate the money supply
and credit conditions. Among the instruments used by the Federal Reserve to implement these objectives are
open market purchases and sales of U.S. government securities, adjustments of the discount rate and changes
in banks’ reserve requirements against bank deposits. These instruments are used in varying combinations to
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influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their
use also affects interest rates charged on loans or paid on deposits.
The monetary policies and regulations of the Federal Reserve have had a significant effect on the operating
results of commercial banks in the past and are expected to continue to do so in the future. The effects of such
policies upon our business, financial condition and results of operations cannot be predicted.
RISKS RELATED TO REFERENCE RATE REFORM
We may be adversely impacted by the transition from LIBOR as a reference rate.
In 2017, the United Kingdom Financial Conduct Authority (the authority that regulates LIBOR) announced that it
will stop compelling banks to submit rates for the calculation of LIBOR after the end of 2021, creating
considerable uncertainty regarding the publication of such rates beyond 2021. The transition away from LIBOR
to alternative reference rates could have a negative impact on the value of, return on, and trading market for the
LIBOR-based loans and securities in our portfolio and an adverse impact on the availability and cost of hedging
instruments and borrowings. In addition, we may incur expenses if we are required to renegotiate the terms of
existing agreements that govern LIBOR-based products as a result of the transition away from LIBOR, and
could be subject to disputes or litigation with counterparties regarding the interpretation and enforceability of
provisions in existing LIBOR-based products regarding fallback language or other related provisions, as the
economics of various alternative reference rates differ from LIBOR. The impact on the valuation, pricing, and
operation of our LIBOR-based financial instruments and the cost of transitioning to the use of alternative
reference rates is not yet known and could have an adverse effect on our results of operations.
We have issued fixed-to-floating subordinated notes which include the Secured Overnight Financing
Rate (SOFR) as the reference rate during the floating rate period. SOFR differs fundamentally from, and
may not be a comparable substitute for, LIBOR.
In June 2017, the Alternative Reference Rates Committee (the "ARRC") convened by the Federal Reserve and
the Federal Reserve Bank of New York (FRBNY) announced SOFR as its recommended alternative to t LIBOR.
However, because SOFR is a broad U.S. Treasury repo financing rate that represents overnight secured
funding transactions, it differs fundamentally from LIBOR. For example, SOFR is a secured overnight rate, while
LIBOR is an unsecured rate that represents interbank funding over different maturities. In addition, because
SOFR is a transaction-based rate, it is backward-looking, whereas LIBOR is forward-looking. Because of these
and other differences, there can be no assurance that SOFR will perform in the same way as LIBOR would
have done at any time, and there is no guarantee that it is a comparable substitute for LIBOR.
LIQUIDITY RISKS
Liquidity risks could affect operations and jeopardize our business, financial condition and results of
operations.
Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans
and/or investment securities and from other sources could have a substantial negative effect on our liquidity.
Our most important source of funds consists of our customer deposits. Such deposit balances can decrease
when customers perceive alternative investments, such as the stock market, as providing a better risk/return
tradeoff. If customers move money out of bank deposits and into other investments, we could lose a relatively
low cost source of funds, which would require us to seek wholesale funding alternatives in order to continue to
grow, thereby increasing our funding costs and reducing our net interest income and net income.
In addition to our deposit base, our liquidity is provided by cash from operations and investment maturities,
redemptions and sales as well as cash flow from loan prepayments and maturing loans that are not renewed.
When needed, additional liquidity is sometimes provided by our ability to borrow from the Federal Reserve Bank
of Chicago and the Federal Home Loan Bank of Chicago (the "FHLB"), through federal funds lines with
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our correspondent banks, and through other wholesale funding sources including brokered certificates of
deposits or deposits placed with the Certificate of Deposit Account Registry Service. Our access to funding
sources in amounts adequate to finance or capitalize our activities or on terms that are acceptable to us could
be impaired by factors that affect us directly or the financial services industry or economy in general, such as
disruptions in the financial markets or negative views and expectations about the prospects for the financial
services industry.
Any decline in available funding could adversely impact our ability to continue to implement our business plan,
including originating loans, investing in securities, meeting our expenses or fulfilling obligations such as
repaying our borrowings and meeting deposit withdrawal demands, any of which could have a material adverse
impact on our liquidity, business, financial condition and results of operations.
We may need to raise additional capital in the future, and such capital may not be available when
needed or at all.
We may need to raise additional capital, in the form of debt or equity securities, in the future to have sufficient
capital resources to meet our commitments and our regulatory requirements, and to fund our business needs
and future growth, particularly if the quality of our assets or earnings were to deteriorate significantly. Our ability
to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at
that time, which are outside of our control, and our financial condition. We may not be able to obtain capital on
acceptable terms or at all. Any occurrence that may limit our access to capital, such as a decline in the
confidence of debt purchasers, depositors of the Bank or counterparties participating in the capital markets or
other disruption in capital markets, may adversely affect our capital costs and our ability to raise capital and, in
turn, our liquidity. Further, if we need to raise capital in the future, we may have to do so when many other
financial institutions are also seeking to raise capital and would then have to compete with those institutions for
investors. An inability to raise additional capital on acceptable terms when needed could have a material
adverse effect on our business, financial condition or results of operations.
We may be adversely affected by changes in the actual or perceived soundness or condition of other
financial institutions.
Financial services institutions that deal with each other are interconnected as a result of trading, investment,
liquidity management, clearing, counterparty and other relationships. Concerns about, or a default by, one
institution could lead to significant liquidity problems and losses or defaults by other institutions, as the
commercial and financial soundness of many financial institutions is closely related as a result of these credit,
trading, clearing and other relationships. Even the perceived lack of creditworthiness of, or questions about, a
counterparty may lead to market-wide liquidity problems and losses or defaults by various institutions. This
systemic risk may adversely affect financial intermediaries with which we interact on a daily basis or key funding
providers such as the FHLB, any of which could have a material adverse effect on our access to liquidity or
otherwise have a material adverse effect on our business, financial condition or results of operations.
Loss of customer deposits could increase our funding costs.
We rely on deposits as a low cost and stable source of funding. We compete with banks and other financial
services companies for deposits. If our competitors raise the rates they pay on deposits, our funding costs may
increase, either because we raise our rates to avoid losing deposits or because we lose deposits and must rely
on more expensive sources of funding. Higher funding costs could reduce our net interest margin and net
interest income and could have a material adverse effect on our business, financial condition, and results of
operations.
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TECHNOLOGY AND CYBERSECURITY RISKS
The occurrence of fraudulent activity, breaches or failures of our information security controls or
cybersecurity-related incidents could have a material adverse effect on our business, financial
condition or results of operations.
As a financial institution, we are susceptible to fraudulent activity, information security breaches and
cybersecurity-related incidents that may be committed against us or our customers, which may result in
financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client
information, misappropriation of assets, privacy breaches against our customers, litigation or damage to our
reputation. Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud,
phishing, social engineering and other dishonest acts. Information security breaches and cybersecurity-related
incidents may include fraudulent or unauthorized access to systems used by us or our customers, denial or
degradation of service attacks, and malware or other cyber-attacks. There continues to be a rise in electronic
fraudulent activity, security breaches and cyber-attacks within the financial services industry, especially in the
commercial banking sector due to cyber criminals targeting commercial bank accounts. Moreover, several large
corporations, including financial institutions and retail companies, have suffered major data breaches, in some
cases exposing not only confidential and proprietary corporate information, but also sensitive financial and other
personal information of their customers and employees and subjecting them to potential fraudulent activity.
Some of our customers may have been affected by these breaches, which could increase their risks of identity
theft and other fraudulent activity that could involve their accounts with us.
We also face risks related to cyber-attacks and other security breaches in connection with debit card and credit
card transactions that typically involve the transmission of sensitive information regarding our customers
through various third parties, including retailers and payment processors. Some of these parties have in the
past been the target of security breaches and cyber-attacks, and because the transactions involve third parties
and environments such as the point of sale that we do not control or secure, future security breaches or cyber-
attacks affecting any of these third parties could affect us through no fault of our own. In some cases, we may
have exposure and suffer losses for breaches or attacks relating to them, including costs to replace
compromised debit and credit cards and to address fraudulent transactions.
Information pertaining to us and our customers is maintained, and transactions are executed, on networks and
systems maintained by us and certain third-party partners, such as our digital banking systems. The secure
maintenance and transmission of confidential information, as well as execution of transactions over these
systems, are essential to protect us and our customers against fraud and security breaches and to maintain our
customers’ confidence. Breaches of information security may also occur through intentional or unintentional
acts by those having access to our systems or our customers’ or counterparties’ confidential information,
including employees. In addition, a number of developments could result in a compromise or breach of the
technology, processes and controls that we use to prevent fraudulent transactions and to protect data about us,
our customers and underlying transactions, as well as the technology used by our customers to access our
systems. These developments include increases in criminal activity levels and sophistication, advances in
computer capabilities, new discoveries and vulnerabilities in third-party technologies (including browsers and
operating systems).
Although we have developed, and continue to invest in, systems and processes that are designed to detect and
prevent security breaches and cyber-attacks and periodically test our security, our or our third-party partners’
inability to anticipate, or failure to adequately mitigate, breaches of security could result in losses to us or our
customers, loss of business and/or customers, reputational damage, the incurrence of additional expenses,
disruption to our business, our inability to grow our online services or other businesses, additional regulatory
scrutiny or penalties, or our exposure to civil litigation and possible financial liability, any of which could have a
material adverse effect on our business, financial condition or results of operations.
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We depend on information technology and telecommunications systems of third parties, and any
systems failures, interruptions or data breaches involving these systems could adversely affect our
operations and financial condition.
Our business is highly dependent on the successful and uninterrupted functioning of our information technology
and telecommunications systems, third-party servicers, accounting systems, digital banking platforms and
financial intermediaries. We outsource to third parties many of our major systems, such as digital banking, loan
servicing, and deposit processing systems. The failure of these systems, or the termination of a third-party
software license or service agreement on which any of these systems is based, could interrupt our operations.
Because our information technology and telecommunications systems interface with and depend on third-party
systems, we could experience service denials if demand for such services exceeds capacity or such third-party
systems fail or experience interruptions. If sustained or repeated, a system failure or service denial could result
in a deterioration of our ability to process loans or gather deposits and provide customer service, compromise
our ability to operate effectively, result in potential noncompliance with applicable laws or regulations, damage
our reputation, result in a loss of customer business and/or subject us to additional regulatory scrutiny and
possible financial liability, any of which could have a material adverse effect on our financial condition and
results of operations. In addition, failure of third parties to comply with applicable laws and regulations, or fraud
or misconduct on the part of employees of any of these third parties, could disrupt our operations or adversely
affect our reputation.
It may be difficult for us to replace some of our third-party vendors, particularly vendors providing our core
banking, debit card and credit card services and information services, in a timely manner if they are unwilling or
unable to provide us with these services in the future for any reason and even if we are able to replace them, it
may be at higher cost or result in the loss of customers. Any such events could have a material adverse effect
on our business, financial condition or results of operations.
Our operations rely heavily on the secure processing, storage and transmission of information and the
monitoring of a large number of transactions on a minute-by-minute basis, and even a short interruption in
service could have significant consequences. We also interact with and rely on retailers, for whom we process
transactions, as well as financial counterparties and regulators. Each of these third parties may be targets of the
same types of fraudulent activity, computer break-ins and other cybersecurity breaches described above or
herein, and the cybersecurity measures that they maintain to mitigate the risk of such activity may be different
than our own and may be inadequate.
As a result of financial entities and technology systems becoming more interdependent and complex, a cyber-
incident, information breach or loss, or technology failure that compromises the systems or data of one or more
financial entities could have a material impact on counterparties or other market participants, including
ourselves. Although we review business continuity and backup plans for our vendors and take other safeguards
to support our operations, such plans or safeguards may be inadequate. As a result of the foregoing, our ability
to conduct business may be adversely affected by any significant disruptions to us or to third parties with whom
we interact.
Our use of third-party vendors and our other ongoing third-party business relationships is subject to
increasing regulatory requirements and attention.
Our use of third-party vendors for certain information systems is subject to increasingly demanding regulatory
requirements and attention by our bank regulators. Regulatory guidance requires us to enhance our due
diligence, ongoing monitoring and control over our third-party vendors and other ongoing third-party business
relationships. In certain cases we may be required to renegotiate our agreements with these vendors to meet
these enhanced requirements, which could increase our costs. Our regulators may hold us responsible for
deficiencies in our oversight and control of our third-party relationships and in the performance of the parties
with which we have these relationships. As a result, if our regulators conclude that we have not exercised
adequate oversight and control over our third-party vendors or other ongoing third-party business relationships
or that such third parties have not performed appropriately, we could be subject to enforcement actions,
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including civil money penalties or other administrative or judicial penalties or fines as well as requirements for
customer remediation, any of which could have a material adverse effect our business, financial condition or
results of operations.
We continually encounter technological change and may have fewer resources than many of our larger
competitors to continue to invest in technological improvements.
The financial services industry is undergoing rapid technological changes, with frequent introductions of new
technology-driven products and services. The effective use of technology increases efficiency and enables
financial institutions to better serve customers and to reduce costs. Our future success will depend, in part,
upon our ability to address the needs of our customers by using technology to provide products and services
that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations.
Many of our competitors have substantially greater resources to invest in technological improvements. We also
may not be able to effectively implement new technology-driven products and services or be successful in
marketing these products and services to our customers.
In addition, we expect that new technologies and business processes applicable to the banking industry will
continue to emerge, and these new technologies and business processes may be better than those we
currently use. The implementation of technological changes and upgrades to maintain current systems and
integrate new ones may cause service interruptions, transaction processing errors and system conversion
delays and may cause us to fail to comply with applicable laws. Because the pace of technological change is
high and our industry is intensely competitive, we may not be able to sustain our investment in new technology
as critical systems and applications become obsolete or as better ones become available. A failure to maintain
current technology and business processes could cause disruptions in our operations or cause our products
and services to be less competitive, all of which could have a material adverse effect on our business, financial
condition or results of operations.
LEGAL AND REGULATORY COMPLIANCE RISKS
The banking industry is highly regulated, and the regulatory framework, together with any future
legislative or regulatory changes, may have a significant adverse effect on our business, financial
condition, results of operations and future prospects.
As a bank holding company, we and our subsidiaries are subject to extensive examination, supervision and
comprehensive regulation under both federal and state laws and regulations that are intended primarily for the
protection of depositors, customers, the DIF and the overall financial stability of the United States, not for the
protection of our stockholders and creditors. We are subject to regulation and supervision by the Federal
Reserve, and the Bank is subject to regulation and supervision by the FDIC and the IDFPR. The banking laws
and regulations applicable to us govern a variety of matters, including, among other things, the types of
business activities in which we and our subsidiaries can engage; permissible types, amounts and terms of loans
and investments we may make; the maximum interest rate that we may charge; the amount of reserves we
must hold against deposits we take; the types of deposits we may accept; maintenance of adequate capital and
liquidity; changes in the control of us and the Bank; restrictions on dividends or other capital distributions; and
establishment of new offices or branches. These requirements may constrain our operations or require us to
obtain approval from our regulators before engaging in certain activities, with no assurance that such approvals
may be obtained, either in a timely manner or at all. Also, the burden imposed by those federal and state
regulations may place banks in general at a competitive disadvantage compared to their non-bank competitors.
Applicable banking laws, regulations, interpretations, enforcement policies, and accounting principles have
been subject to significant changes in recent years and may be subject to significant future changes. In
addition, regulators may elect to alter standards or the interpretation of the standards used to measure
regulatory compliance or to determine the adequacy of liquidity, certain risk management or other operational
practices for bank holding companies in a manner that impacts our ability to implement our strategy and could
affect us in substantial and unpredictable ways. Compliance with existing and any potential new or changed
regulations,
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as well as regulatory scrutiny, may significantly increase our costs, impede the efficiency of our internal
business processes, require us to increase our regulatory capital and limit our ability to pursue business
opportunities in an efficient manner. Our failure to comply with banking laws, regulations and policies, even if
the failure follows good faith effort or reflects a difference in interpretation, could subject us to restrictions on our
business activities, fines and other penalties, the commencement of informal or formal enforcement actions
against us, and other negative consequences, including reputational damage, any of which could adversely
affect our business, financial condition, results of operations, capital base and the price of our securities.
Prior to October 11, 2019, we were treated as an S Corp, and claims of taxing authorities related to our
prior status as an S Corp could harm us.
Effective October 11, 2019, the Company revoked its S Corp status and became a taxable entity (C Corp) that
is subject to U.S. federal income tax. If the unaudited, open tax years in which we were an S Corp are audited
by the Internal Revenue Service (the "IRS") and we are determined not to have qualified for, or to have violated,
our S Corp status, we will be obligated to pay back taxes, interest and penalties. The amounts that we would be
obligated to pay could include tax on all of our taxable income while we were an S Corp. Any such claims could
result in additional costs to us and could have a material adverse effect on our results of operations and
financial condition.
We could become obligated to make payments to the pre-IPO stockholders for any additional federal,
state or local income taxes assessed against such pre-IPO stockholder for tax periods prior to the
completion of the IPO.
Prior to October 11, 2019, we were treated as an S Corp for U.S. federal income tax purposes. Because we had
been an S Corp, our pre-IPO stockholders had been taxed on our income as individuals. Therefore each pre-
IPO stockholder has received certain distributions ("tax distributions") from us that were generally intended to
equal the amount of tax such was required to pay with respect to our income. In connection with the IPO, our S
Corp status terminated and we are now subject to federal and increased state income taxes. In the event of an
adjustment to our reported taxable income for periods prior to termination of our S Corp status, it is possible that
each pre-IPO stockholder will be liable for additional income taxes for those prior periods. Pursuant to the
Amended Restated Stockholder Agreement, upon our filing any tax return (amended or otherwise), in the event
of any restatement of our taxable income or pursuant to a determination by, or a settlement with, a taxing
authority, for any period during which we were an S Corp, depending on the nature of the adjustment we may
be required to make a payment to each of the pre-IPO stockholders in an amount equal to such pre-IPO
stockholder's incremental tax liability, which amount may be material. In addition, we agreed to indemnify each
pre-IPO stockholder with respect to unpaid income tax liabilities to the extent that such unpaid income tax
liabilities are attributable to an adjustment to our taxable income for any period after our S Corp status
terminates. In both cases, the amount of the payment will be based on the assumption that such pre-IPO
stockholder is taxed at the highest rate applicable to individuals for the relevant periods. We also agreed to
indemnify each pre-IPO stockholder for any interest, penalties, losses, costs or expenses arising out of any
claim under the agreement. However, each pre-IPO stockholder agreed to indemnify us with respect to our
unpaid tax liabilities (including interest and penalties) to the extent that such unpaid tax liabilities are attributable
to a decrease in the shareholder's taxable income for any for tax period and a corresponding increase in the
Company's taxable income for any period.
We are subject to capital adequacy requirements and may be subject to more stringent capital
requirements and, if we fail to meet these requirements, we will be subject to restrictions on our ability
to make capital distributions and other restrictions.
The regulatory capital rules adopted by the U.S. banking agencies to implement the Basel III regulatory capital
framework developed by the Basel Committee on Banking Supervision (the "Basel III Capital Rules") increased
our capital requirements, including by introducing a Common Equity Tier 1 ("CET1") capital ratio and
establishing additional criteria for certain capital instruments to be considered Additional Tier 1 and Tier 2
capital. For example, trust preferred securities are generally excluded from being counted as Tier 1 capital
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under the Basel III Capital Rules, but our trust preferred securities were grandfathered in as a component of
Tier 1 capital because we have less than $15 billion in total consolidated assets. If we were to pursue sufficient
balance sheet growth through acquisitions or mergers, we could lose Tier 1 capital treatment of our
grandfathered trust preferred securities, although such trust preferred securities likely would continue to be
included as a component of Tier 2 capital.
The Basel III Capital Rules require us to maintain a minimum CET1 capital ratio of 4.5%, a minimum total Tier 1
capital ratio of 6%, a minimum total capital ratio of 8% and a minimum Tier 1 leverage ratio of 4%, and a capital
conservation buffer of greater than 2.5% of risk-weighted assets (the "Capital Conservation Buffer"). Failure to
maintain the Capital Conservation Buffer would result in increasingly stringent restrictions on our ability to make
dividend payments and other capital distributions and to pay discretionary bonuses to our executive officers.
See "Supervision and Regulation—Regulatory Capital Requirements" for more information on the capital
adequacy standards that we must meet and maintain.
While we currently meet the requirements of the Basel III Capital Rules, we may fail to do so in the future and
may be unable to raise additional capital to remediate any capital deficiencies. The failure to meet applicable
regulatory capital requirements could result in one or more of our regulators placing limitations or conditions on
our activities or restricting the commencement of new activities, including our growth initiatives, and could affect
customer and investor confidence, our costs of funds and level of required deposit insurance assessments to
the FDIC, our ability to pay dividends on our capital stock, our ability to make acquisitions, and our business,
results of operations and financial conditions generally.
Future legislative or regulatory change could impose higher capital standards on us or the Bank. The Federal
Reserve may also set higher capital requirements for holding companies whose circumstances warrant it. For
example, holding companies experiencing internal growth or making acquisitions are expected to maintain
strong capital positions substantially above the minimum supervisory levels, without significant reliance on
intangible assets.
The Federal Reserve may require us to commit capital resources to support the Bank.
Federal law requires a bank holding company to act as a source of financial and managerial strength to its
subsidiary banks, and to commit resources to support such subsidiary banks. Under the "source of strength"
doctrine, the Federal Reserve may require a bank holding company to make capital injections into a troubled
subsidiary bank and may charge the bank holding company with engaging in unsafe and unsound practices for
failure to commit resources to a subsidiary bank. A capital injection may be required at times when the
Company may not have the resources to provide it and therefore may be required to borrow the funds or raise
capital. Any loans by a holding company to its subsidiary banks are subordinate in right of payment to deposits
and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company’s
bankruptcy, the bankruptcy trustee will assume any commitment by the holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank. Moreover, bankruptcy law provides that claims
based on any such commitment will be entitled to a priority of payment over the claims of the institution’s
general unsecured creditors, including the holders of its note obligations. Thus, any borrowing that must be
done by the Company to make a required capital injection into the Bank could be more difficult and expensive to
obtain and could have an adverse effect on our business, financial condition and results of operations.
Our risk management framework may not be effective in mitigating risks and/or losses to us.
Our risk management framework is comprised of various processes, systems and strategies, and is designed to
manage the types of risk to which we are subject, including, among others, credit, market, liquidity, interest rate
and compliance. Our framework also includes financial or other modeling methodologies that involve
management assumptions and judgment. Our risk management framework may not be effective under all
circumstances or that it will adequately mitigate any risk or loss to us. If our framework is not effective, we could
suffer unexpected losses and our business, financial condition, results of operations or growth prospects could
be materially and adversely affected. We may also be subject to potentially adverse regulatory consequences.
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Federal and state regulators periodically examine our business, and we may be required to remediate
adverse examination findings.
The Federal Reserve (with respect to us) and the FDIC and the IDFPR (with respect to the Bank) periodically
examine our business, including our compliance with applicable laws and regulations. These regulatory
agencies have extremely broad discretion in their interpretation of regulations and laws, and in their
interpretation of the quality of our loan portfolio, securities portfolio and other assets. If, as a result of an
examination, a banking agency were to determine that our financial condition, capital resources, asset quality,
lending practices, investment practices, earnings prospects, management, liquidity or other aspects of any of
our operations had become unsatisfactory, or that we were in violation of any law or regulation, it may take a
number of different remedial actions as it deems appropriate. These actions include the power to enjoin "unsafe
or unsound" practices, to require affirmative action to correct any conditions resulting from any violation or
practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to
restrict our growth, to assess civil money penalties, to fine or remove officers and directors and, if it is concluded
that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our
deposit insurance and place us into receivership or conservatorship. Any regulatory action against us could
have an adverse effect on our business, financial condition, results of operations and growth prospects.
Future consumer legislation or regulation could harm our performance and competitive position.
The Dodd-Frank Act established the CFPB as an independent federal agency that has broad rulemaking
authority over consumer financial products and services for all financial institutions, including deposit products,
residential mortgages, home-equity loans and credit cards. In addition, the CFPB also has exclusive
supervisory and examination authority and primary enforcement authority with respect to various federal
consumer financial laws and regulations for insured depository institutions with more than $10 billion in total
consolidated assets. The Bank is not subject to the examination and supervisory authority of the CFPB because
it has less than $10 billion in total assets, but it is required to comply with the rules and regulations issued by
the CFPB. The FDIC has the primarily responsible for supervising and examining the Bank’s compliance with
federal consumer financial laws and regulations, including CFPB regulations. See "Supervision and Regulation
—Consumer Financial Protection" for additional information.
In addition to the enactment of the Dodd-Frank Act, various state and local legislative bodies have adopted or
have been considering augmenting their existing framework governing consumers’ rights. These considerations
could also be impacted by the recent changes in federal administration. Such legislative or regulatory changes
to consumer financial laws and regulations could result in changes to our pricing, practices, products and
procedures; increases in our costs related to regulatory oversight, supervision and examination; or result in
remediation efforts and possible penalties. We may be required to add additional compliance personnel or incur
other significant compliance-related expenses to meet the demands of these consumer protection laws. We
cannot predict whether new legislation or regulation will be enacted and, if enacted, the effect that it would have
on our activities, financial condition, or results of operations.
We are subject to numerous laws and regulations designed to protect consumers, including the
Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to
a wide variety of sanctions.
The Community Reinvestment Act of 1977 ("CRA") requires the Bank, consistent with safe and sound
operations, to ascertain and meet the credit needs of their entire communities, including low and moderate
income areas. The Bank’s failure to comply with the CRA could, among other things, result in the denial or
delay of certain corporate applications filed by us or the Bank, including applications for branch openings or
relocations and applications to acquire, merge or consolidate with another banking institution or holding
company. In addition, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and
regulations prohibit discriminatory lending practices by financial institutions. The U.S. Department of Justice,
federal banking agencies, and other federal agencies are responsible for enforcing these laws and regulations.
A challenge to an institution’s compliance with fair lending laws and regulations could result in a wide variety of
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sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and
acquisitions activity, restrictions on expansion, and restrictions on entering new business lines. Private parties
may also challenge an institution’s performance under fair lending laws in private class action litigation. Such
actions could have a material adverse effect on our business, financial condition, results of operations and
growth prospects. See "Supervision and Regulation—Community Reinvestment Act".
The expanding body of federal, state and local regulations and/or the licensing of loan servicing,
collections or other aspects of our business and our sales of loans to third parties may increase the
cost of compliance and the risks of noncompliance and subject us to litigation.
Loan servicing is subject to extensive regulation by federal, state and local governmental authorities as well as
to various laws and judicial and administrative decisions imposing requirements and restrictions on those
activities. The volume of new or modified laws and regulations has increased in recent years and, in addition,
some individual municipalities have begun to enact laws that restrict loan servicing activities including delaying
or temporarily preventing foreclosures or forcing the modification of certain mortgages. If regulators impose new
or more restrictive requirements, we may incur significant additional costs to comply with such requirements
which may adversely affect us. In addition, were we to be subject to regulatory investigation or regulatory action
regarding our loan modification and foreclosure practices, our financial condition and results of operation could
be adversely affected. We have also sold loans to third parties. In connection with these sales, we, or certain of
our subsidiaries, make or have made various representations and warranties, breaches of which may result in a
requirement that we repurchase the loans or otherwise make whole or provide other remedies to counterparties.
These aspects of our business or our failure to comply with applicable laws and regulations could possibly lead
to, among other things, civil and criminal liability, loss of licensure, damage to our reputation in the industry or
with customers, fines and penalties, litigation (including class action lawsuits) and administrative enforcement
actions. Any of these outcomes could materially and adversely affect us.
Non-compliance with the USA PATRIOT Act, the Bank Secrecy Act (the "BSA"), or other laws and
regulations could result in fines or sanctions.
Financial institutions are required under the USA PATRIOT Act of 2001 and the BSA to develop programs to
prevent financial institutions from being used for money-laundering, terrorist financing and other illicit activities.
Financial institutions are also obligated to file suspicious activity reports with the Office of Financial Crimes
Enforcement Network ("FinCEN") of the U.S. Department of the Treasury ("Treasury") if such activities are
detected. These rules also require financial institutions to establish procedures for identifying and verifying the
identity of customers seeking to open new financial accounts. Failure or the inability to comply with these
regulations could result in fines or penalties, curtailment of expansion opportunities, intervention or sanctions by
regulators and costly litigation or expensive additional controls and systems. In recent years, several banking
institutions have received large fines for non-compliance with these laws and regulations. In addition, FinCEN
requires financial institutions to enhance their Customer Due Diligence programs, including verifying the
identity of beneficial owners of qualifying business customers. We have developed policies and continue to
augment procedures and systems designed to assist in compliance with these laws and regulations, but these
policies may not be effective to provide such compliance. If we violate these laws and regulations, or our
policies, procedures and systems are deemed deficient, we could face severe consequences, including
sanctions, fines, regulatory actions and reputational consequences. Any of these results could have a material
adverse effect on our business, financial condition, results of operations and growth prospects.
Regulation in the areas of privacy and data security could increase our costs.
We are subject to various regulations related to privacy and data security, and we could be negatively impacted
by these regulations. For example, we are subject to the safeguards guidelines under the Gramm-Leach-Bliley
Act ("GLBA"). The safeguards guidelines require that each financial institution develop, implement and maintain
a written, comprehensive information security program containing safeguards that are appropriate to the
financial institution’s size and complexity, the nature and scope of the financial institution’s activities and the
sensitivity of any customer information at issue. Further, there are various other statutes and regulations
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relevant to the direct email marketing, debt collection and text-messaging industries including the Telephone
Consumer Protection Act.
In addition to the foregoing enhanced data security requirements, various federal banking regulatory agencies,
and all 50 states, the District of Columbia, Puerto Rico and the Virgin Islands, have enacted data security
regulations and laws requiring varying levels of consumer notification in the event of a security breach and/or
requirements to disclose to consumers information collected about them. Also, federal legislators and regulators
are increasingly pursuing new guidelines, laws and regulations that, if adopted, could further restrict how we
collect, use, share and secure consumer information, which could impact some of our current or planned
business initiatives. The interpretation of many of these statutes and regulations is evolving in the courts and
administrative agencies and an inability or failure to comply with them may have an adverse impact on our
business.
FDIC deposit insurance assessments may materially increase in the future, which would have an
adverse effect on earnings.
As an institution with deposits insured by the FDIC, the Bank is assessed a quarterly deposit insurance
premium. The failure of banks nationwide during the financial crisis significantly depleted the DIF and reduced
the ratio of reserves to insured deposits. The Bank could be required to pay significantly higher premiums or
additional special assessments if, among other reasons, future bank failures deplete the DIF. This would
adversely affect the Bank’s earnings, thereby reducing its availability of funds to pay dividends to us.
Litigation and regulatory actions, including possible enforcement actions, could subject us to
significant fines, penalties, judgments or other requirements resulting in increased expenses or
restrictions on our business activities.
Our business is subject to increased litigation and regulatory enforcement risks due to a number of factors,
including the highly regulated nature of the financial services industry and the focus of state and federal
prosecutors on banks and the financial services industry generally. This focus has only intensified in
recent years, with regulators and prosecutors focusing on a variety of financial institution practices and
requirements,
laws,
classification of "held for sale" assets and compliance with anti-money laundering statutes, the BSA and
sanctions administered by the Office of Foreign Assets Control of the Treasury.
foreclosure practices, compliance with applicable consumer protection
including
In the normal course of business, from time to time, we have in the past and may in the future be named as a
defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection
with our current and/or prior business activities. Legal actions could include claims for substantial compensatory
or punitive damages or claims for indeterminate amounts of damages. In addition, while the arbitration
provisions in certain of our customer agreements historically have limited our exposure to consumer class
action litigation, there can be no assurance that we will be successful in enforcing our arbitration clause in the
future. We may also, from time to time, be the subject of subpoenas, requests for information, reviews,
investigations and proceedings (both formal and informal) by governmental agencies regarding our current
and/or prior business activities. Any such legal or regulatory actions may subject us to substantial
compensatory or punitive damages, significant fines, penalties, obligations to change our business practices or
other requirements resulting in increased expenses, diminished income and damage to our reputation. Our
involvement in any such matters, whether tangential or otherwise and even if the matters are ultimately
determined in our favor, could also cause significant harm to our reputation and divert management attention
from the operation of our business. Further, any settlement, consent order or adverse judgment in connection
with any formal or informal proceeding or investigation by government agencies may result in litigation,
investigations or proceedings as other litigants and government agencies begin independent reviews of the
same activities. As a result, the outcome of legal and regulatory actions could be material to our business,
results of operations, financial condition and cash flows depending on, among other factors, the level of our
earnings for that period, and could have a material adverse effect on our business, financial condition or results
of operations.
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RISKS RELATED TO OUR BUSINESS STRATEGY
We may not be able to continue growing our business, particularly if we cannot make acquisitions or
increase loans through organic loan growth, either because of an inability to find suitable acquisition
candidates, constrained capital resources or otherwise.
We anticipate that much of our future growth will be dependent on our ability to successfully implement our
acquisition growth strategy because certain of our market areas are comprised of mature, rural communities
with limited population growth. A risk exists, however, that we will not be able to identify suitable additional
candidates for acquisitions. In addition, even if suitable targets are identified, we expect to compete for such
businesses with other potential bidders, many of which may have greater financial resources than we have,
which may adversely affect our ability to make acquisitions at attractive prices. In light of the foregoing, our
ability to continue to grow successfully will depend to a significant extent on our capital resources. It also will
depend, in part, upon our ability to attract deposits, identify favorable loan and investment opportunities and on
whether we can continue to fund growth while maintaining cost controls and asset quality, as well on other
factors beyond our control, such as national, regional and local economic conditions and interest rate trends.
Also, as our acquired loan portfolio, which produces higher yields than our originated loans due to loan discount
accretion, is paid down, we expect downward pressure on our income to the extent that the run-off is not
replaced with other high-yielding loans. The accretable yield represents the excess of the net present value of
expected future cash flows over the acquisition date fair value and includes both the expected coupon of the
loan and the discount accretion. As a result of the foregoing, if we are unable to replace loans in our existing
portfolio with comparable high-yielding loans or a larger volume of loans, we could be adversely affected. We
could also be materially and adversely affected if we choose to pursue riskier higher-yielding loans that fail to
perform.
Our strategy of pursuing growth via acquisitions exposes us to financial, execution and operational
risks that could have a material adverse effect on our business, financial position, results of operations
and growth prospects.
We have been pursuing a strategy of leveraging our human and financial capital by acquiring other financial
institutions in our target markets, including acquisitions of failed insured depository institutions with the
assistance of the FDIC. We continue to opportunistically seek acquisitions that are either located within our
market footprint, in adjacent markets or provide a new growth opportunity that is strategically and financially
compelling and consistent with our culture.
Our acquisition activities could require us to use a substantial amount of cash, other liquid assets, and/or issue
debt or additional equity. In addition to the general risks associated with any growth plans, acquiring other
banks, businesses, or branches involves various risks commonly associated with acquisitions, including, among
other things:
● the time and expense associated with identifying and evaluating potential acquisitions and negotiating
potential transactions;
● inaccuracies in the estimates and judgments used to evaluate credit, operations, management, and
market risks with respect to the target institution. If the actual results fall short or exceed our estimates,
our earnings, capital and financial condition may be materially and adversely affected;
● the ability to finance an acquisition and possible dilution to existing stockholders;
● compliance and legal risks associated with acquiring unfamiliar customers, products and services, and
branches in new geographical markets; and
● risks associated with integrating the operations and personnel of the acquired business in a manner
that permits growth opportunities and does not materially disrupt existing customer relationships or
result in decreased revenues resulting from any loss of customers.
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With respect to the risks particularly associated with the integration of an acquired business, we may encounter
a number of difficulties, such as: (1) customer loss and revenue loss; (2) the loss of key employees; (3) the
disruption of its operations and business; (4) the inability to maintain and increase its competitive presence;
(5) possible inconsistencies in standards, control procedures and policies; and/or (6) unexpected problems with
costs, operations, personnel, technology and credit. In addition to the risks posed by the integration process
itself, the focus of management’s attention and effort on integration may result in a lack of sufficient
management attention to other important issues, causing harm to our business. Also, general market and
economic conditions or governmental actions affecting the financial industry generally may inhibit our
successful integration of an acquired business.
Generally, any acquisition of financial institutions, banking centers or other banking assets by us will require
approval by, and cooperation from, a number of governmental regulatory agencies, including the Federal
Reserve, the IDFPR, and the FDIC. Such regulators could deny our applications based on various prescribed
criteria or other considerations, which would restrict our growth, or the regulatory approvals may not be granted
on terms that are acceptable to us. For example, we could be required to sell banking centers as a condition to
receiving regulatory approvals and such a condition may not be acceptable to us or may reduce the benefit of
any acquisition. These regulatory approvals and the factors considered in reviewing such applications are
described in greater detail in "Supervision and Regulation—Acquisitions and Branching."
We cannot assure you that we will be successful in overcoming these risks or any other problems encountered
in connection with acquisitions. Our inability to overcome risks associated with acquisitions could have an
adverse effect on our ability to successfully implement our acquisition growth strategy and grow our business
and profitability.
Attractive acquisition opportunities may not be available to us in the future.
While we seek continued organic growth, we anticipate continuing to evaluate merger and acquisition
opportunities presented to us in our core markets and beyond. We expect that other banking and financial
companies, many of which have significantly greater resources, will compete with us to acquire financial
services businesses. In addition, it has yet to be seen what impact the recent changes in federal administration
will have on the Economic Growth, Regulatory Relief, and Consumer Protection Act (the "Regulatory Relief
Act") and certain proposed regulations. Currently, there is a regulatory freeze until new department or regulatory
agency heads have an opportunity to review and approve new rules, and depending on whether certain rules
are ultimately published in the Federal Register. As a result, certain large bank holding companies could more
aggressively pursue expansion, including through acquisitions. This competition could increase prices for
potential acquisitions, which could reduce our potential returns and reduce the attractiveness of these
opportunities to us.
RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK
Our principal stockholder, Heartland Bancorp, Inc. Voting Trust U/A/D 5/4/2016, has significant influence
over us, and its interests could conflict with those of our other stockholders.
As of December 31, 2020, our principal stockholder, Heartland Bancorp, Inc. Voting Trust U/A/D 5/4/2016 (“the
Voting Trust”), owned approximately 62.7% of the outstanding shares of our common stock and its trustee is our
Chairman and Chief Executive Officer. As a result, the Voting Trust is able to influence matters requiring
approval by our stockholders, including the election of directors and the approval of mergers or other
extraordinary transactions. The Voting Trust may also have interests that differ from yours and may vote in a
way with which you disagree and which may be adverse to your interests. The concentration of ownership may
also have the effect of delaying, preventing or deterring a change of control of the Company, could deprive our
stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company
and might ultimately affect the market price of our common stock.
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The Voting Trust could sell its interest in us to a third-party in a private transaction, which may not lead to your
realization of any change of control premium on shares of our common stock and would subject us to the
influence of a presently unknown third-party.
The ability of the Voting Trust to sell its shares of our common stock privately, with no requirement for a
concurrent offer to be made to acquire all of the shares of our outstanding common stock, could prevent our
stockholders from realizing any change of control premium on shares of our common stock that they own that
may accrue to the Voting Trust on its private sale of our common stock.
Even if the Voting Trust’s ownership of our shares falls below a majority, the Voting Trust may continue to be
able to influence or effectively control out decisions.
We are classified as a "controlled company" for purposes of the Nasdaq Listing Rules and, as a result,
we qualify for certain exemptions from certain corporate governance requirements. You do not have the
same protections afforded to stockholders of companies that are subject to such requirements.
As of the date of this report, the Voting Trust controls a majority of the voting power of our outstanding common
stock. As a result, we are a "controlled company" within the meaning of the corporate governance standards of
the Nasdaq Listing Rules. Under the Nasdaq Listing Rules, a company of which more than 50% of the
outstanding voting power is held by an individual, group or another company is a "controlled company" and may
elect not to comply with certain stock exchange corporate governance requirements, including:
● the requirement that a majority of the board of directors consists of independent directors;
● the requirement that nominating and corporate governance matters be decided solely by independent
directors; and
● the requirement that executive and officer compensation matters be decided solely by independent
directors.
Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to
all of the Nasdaq corporate governance requirements.
Our ability to continue to pay dividends to our stockholders is restricted by applicable laws and
regulations and by the ability of our subsidiaries to pay dividends to us.
Holders of our common stock are only entitled to receive such cash dividends as our board, in its sole
discretion, may declare out of funds legally available for such payments. Any decision to declare and pay
dividends will be dependent on a variety of factors, including our financial condition, earnings, legal
requirements, our general liquidity needs, and other factors that our board deems relevant. As a bank holding
company, our ability to declare and pay dividends to our stockholders is subject to certain banking laws,
regulations, and policies, including minimum capital requirements and, as a Delaware corporation, we are
subject to certain restrictions on dividends under the DGCL. In addition, we are a separate legal entity, and,
accordingly, our ability to pay dividends depends primarily upon the receipt of dividends or other capital
distributions from the Bank. The ability of the Bank to make distributions or pay dividends to us is subject to its
earnings, financial condition, and liquidity needs, as well as federal and state laws, regulations, and policies
applicable to the Bank, which limit the amount the Bank can pay as dividends or other capital distributions to us.
Finally, our ability to pay dividends to our stockholders, or the Bank’s ability to pay dividends or other
distributions to us, may be limited by covenants in any financing arrangements that we or the Bank may enter
into in the future. See "Dividend Policy" and "Supervision and Regulation—Dividends and Share Repurchases."
As a consequence of these various limitations and restrictions, we may not be able to make, or may have to
reduce or eliminate at any time, future dividends on our common stock. Any change in the level of our dividends
or the suspension of the payment thereof could have a material adverse effect on the market price of our
common stock.
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We cannot guarantee that we will be able to pay dividends to our stockholders, or that the board of directors of
the Bank will be able to or will elect to pay dividends to us, nor can we guarantee the timing or amount of any
such dividends actually paid. As a result, you may not receive any return on an investment in our common stock
unless you sell our common stock for a price greater than that which you paid for it.
Future sales of our common stock, or the perception in the public markets that these sales may occur,
may depress our stock price.
Sales of substantial amounts of our common stock in the public market, or the perception that these sales could
occur, could adversely affect the price of our common stock and could impair our ability to raise capital through
the sale of additional shares. Following the expiration of the 180-day underwriter lock-up agreed to by each of
our executive officers and directors and the trustee of the Voting Trust in connection with our IPO, the shares of
our common stock held by these holders may be sold in accordance with the volume, manner of sale, and other
limitations under Rule 144, and holders of approximately 17,210,400 shares of our common stock will have the
right to require us to register the sales of their shares under the Securities Act, under the terms of an agreement
between us and the holders of these securities.
In the future, we may also issue securities in connection with acquisitions or investments. The number of shares
of our common stock issued in connection with an acquisition or investment could constitute a material portion
of our then-outstanding shares of our common stock.
We are an “emerging growth company” and may elect to comply with reduced public company
reporting requirements which could make our common stock less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act. For as long as we continue to be an
emerging growth company, we may choose to take advantage of exemptions from various public company
reporting requirements. These exemptions include, but are not limited to, (i) not being required to comply with
the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, (ii) reduced disclosure
obligations regarding executive compensation in our periodic reports, proxy statements and registration
statements, and (iii) exemptions from the requirements of holding a nonbinding advisory vote on executive
compensation and stockholder approval of any golden parachute payments not previously approved. We could
be an emerging growth company for up to five years after our IPO, which fifth anniversary will occur in 2024.
However, if certain events occur prior to the end of such five-year period, including if we become a "large
accelerated filer," our annual gross revenue exceeds $1.07 billion or we issue more than $1.0 billion of non-
convertible debt in any three-year period, we would cease to be an emerging growth company prior to the end
of such five-year period. We have taken advantage of certain of the reduced disclosure obligations regarding
executive compensation and may elect to take advantage of other reduced disclosure obligations in future
filings. As a result, the information that we provide to holders of our common stock may be different than you
might receive from other public reporting companies in which you hold equity interests. We cannot predict if
investors will find our common stock less attractive as a result of our reliance on these exemptions. If some
investors find our common stock less attractive as a result of any choice we make to reduce disclosure, there
may be a less active trading market for our common stock and the price for our common stock may be more
volatile.
Under the JOBS Act, emerging growth companies may also elect to delay adoption of new or revised
accounting standards until such time as those standards apply to private companies. We have elected to use
this extended transition period for complying with new or revised accounting standards and, therefore, we will
not be subject to the same new or revised accounting standards as other public companies.
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Anti-takeover provisions in our charter documents and Delaware law, and the banking laws and
regulations to which we are subject, might discourage or delay acquisition attempts for us that you
might consider favorable.
Our restated certificate of incorporation and amended and restated bylaws will contain provisions that may
make the acquisition of the Company more difficult without the approval of our board of directors. These
provisions:
● authorize the issuance of undesignated preferred stock, the terms of which may be established and
the shares of which may be issued without stockholder approval, and which may include super
voting, special approval, dividend or other rights or preferences superior to the rights of the holders
of common stock;
● prohibit stockholder action by written consent, requiring all stockholder actions be taken at a
meeting of our stockholders, if the Voting Trust ceases to own more than 35% of our outstanding
common stock;
● provide that the board of directors is expressly authorized to make, alter or repeal our amended and
restated bylaws;
● establish advance notice requirements for nominations for elections to our board of directors or for
proposing matters that can be acted upon by stockholders at stockholder meetings; and
● prohibit stockholders from calling special meetings of stockholders.
These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a
transaction involving a change in control of the Company, even if doing so would benefit our stockholders.
These provisions could also discourage proxy contests and make it more difficult for you and other stockholders
to elect directors of your choosing and to cause us to take other corporate actions you desire.
Furthermore, banking laws impose notice, approval and ongoing regulatory requirements on any stockholder or
other party that seeks to acquire direct or indirect "control," as defined under applicable law, of an FDIC-insured
depository institution. These laws include the BHCA and the CBCA. These laws could, among other things, limit
the equity held by certain stockholders, restrain a stockholder’s ability to influence proxy matters, or prevent an
acquisition of the Company, in each case without first obtaining regulatory approval. See "Supervision and
Regulation—Acquisition of Control."
Our restated certificate of incorporation designates the Court of Chancery of the State of Delaware as
the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our
stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for
disputes with us or our directors, officers or employees.
Our restated certificate of incorporation provides that, subject to limited exceptions, the Court of Chancery of the
State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District
of Delaware) will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our
behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or
other employees to us or our stockholders, (iii) any action asserting a claim against us or any of our directors,
officers or other employees arising pursuant to any provision of the DGCL, our certificate of incorporation or our
by-laws or (iv) any other action asserting a claim against us or any of our directors, officers or other employees
that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any
interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions
of our certificate of incorporation described above. This choice of forum provision may limit a stockholder's
ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or
other employees, which may discourage such lawsuits against us and our directors, officers and employees.
Alternatively, if a court were to find these provisions of our restated certificate of incorporation inapplicable to, or
unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur
additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our
business and financial condition.
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EXTERNAL RISKS
Adverse changes in local economic conditions and adverse conditions in an industry on which a local
market in which we do business depends could hurt our business in a material way.
Our financial performance generally, and in particular the ability of our borrowers to pay interest on and repay
principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and
other products and services we offer, is highly dependent upon the business environment in the markets in
which we operate and in the United States as a whole. Unlike larger banks that are more geographically
diversified, we provide banking and financial services to customers primarily in the State of Illinois. The
economic conditions in our local markets may be different from, or worse than, the economic conditions in the
United States as a whole. Some elements of the business environment that affect our financial performance
include short-term and long-term interest rates, the prevailing yield curve, inflation and price levels, tax policy,
monetary policy, unemployment and the strength of the domestic economy and the local economy in the
markets in which we operate.
Unfavorable market conditions can result in a deterioration in the credit quality of our borrowers and the
demand for our products and services, an increase in the number of loan delinquencies, defaults and charge-
offs, additional provisions for loan losses, adverse asset values and an overall material adverse effect on the
quality of our loan portfolio. Unfavorable or uncertain economic and market conditions can be caused by,
among other factors, declines in economic growth, business activity or investor or business confidence;
limitations on the availability or increases in the cost of credit and capital; changes in inflation or interest rates;
increases in real estate and other state and local taxes; high unemployment; natural disasters; pandemics, such
as COVID-19; severe weather; acts of terrorism or war; or a combination of these or other factors.
The State of Illinois has experienced significant financial difficulties, and this could adversely impact
certain borrowers and our business.
The State of Illinois is experiencing significant financial difficulties, including material pension funding shortfalls
and large budget deficits. In addition, the State’s debt ratings have been downgraded. These issues could
impact the economic vitality of the State of Illinois and our customers, and could specifically encourage
businesses to relocate, and discourage new employers from starting or moving businesses to Illinois. These
issues could also result in delays in the payment of accounts receivable owed to borrowers that conduct
business with the State of Illinois and Medicaid payments to nursing homes and other healthcare providers in
Illinois and impair their ability to repay their loans when due.
Our business is significantly dependent on the real estate markets in which we operate, as a
significant percentage of our loan portfolio is secured by real estate.
Many of the loans in our portfolio are secured by real estate as a primary or secondary component of collateral,
with substantially all of these real estate loans concentrated in the State of Illinois. Real property values in our
market may be different from, and in some instances worse than, real property values in other markets or in the
United States as a whole and may be affected by a variety of factors outside of our control and the control of
our borrowers. Cook County, in particular, has experienced volatility in real estate values over the past decade.
Declines in real estate values, including prices for homes and commercial properties, could result in a
deterioration of the credit quality of our borrowers, an increase in the number of loan delinquencies, defaults
and charge-offs, and reduced demand for our products and services, generally. Our CRE loans may have a
greater risk of loss than residential mortgage loans, in part because these loans are generally larger or more
complex to underwrite. In particular, real estate construction and land development loans have certain risks not
present in other types of loans, including risks associated with construction cost overruns, project completion
risk, general contractor credit risk and risks associated with the ultimate sale or use of the completed
construction. In addition, declines in real property values in the states in which we operate could reduce the
value of any collateral we realize following a default on these loans and could adversely affect our ability to
continue to grow our loan portfolio consistent with our underwriting standards. We may have to foreclose on
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real estate assets if borrowers default on their loans, in which case we are required to record the related asset
to the then fair market value of the collateral, which may ultimately result in a loss. An increase in the level of
nonperforming assets increases our risk profile and may affect the capital levels regulators believe are
appropriate in light of the ensuing risk profile. Our failure to effectively mitigate these risks could have a material
adverse effect on our business, financial condition or results of operations.
Our future growth and success will depend on our ability to compete effectively in a highly competitive
environment.
We face substantial competition in all phases of our operations from a variety of different competitors. Our
future growth and success will depend on our ability to compete effectively in this highly competitive
environment. To date, our competitive strategies have focused on attracting deposits in our local markets and
growing our loan portfolio by emphasizing specific loan products in which we have significant experience and
expertise, identifying and targeting markets in which we believe we can effectively compete with larger
institutions and other competitors, and offering highly competitive pricing to borrowers with appropriate risk
profiles. We compete for loans, deposits and other financial services with other commercial banks, credit
unions, brokerage houses, mutual funds, insurance companies, real estate conduits, mortgage brokers and
specialized finance companies. Many of our competitors offer products and services that we do not offer, and
some offer loan structures and have underwriting standards that are not as restrictive as our required loan
structures and underwriting standards. Some larger competitors have substantially greater resources and
lending limits, name recognition and market presence that benefit them in attracting business. In addition, larger
competitors may be able to price loans more aggressively than we do, and because of their larger capital
bases, their underwriting practices for smaller loans may be subject to less regulatory scrutiny than they would
be for smaller banks. Newer competitors may be more aggressive in pricing their products in order to increase
their market share.
Some of the financial institutions and financial services organizations with which we compete are not subject to
the extensive regulations imposed on banks insured by the FDIC and their holding companies. As a result,
these nonbank competitors have certain advantages over us in accessing funding and in providing various
financial services. Additionally, technology and other changes are allowing consumers and businesses to
complete financial transactions through alternative methods that historically have involved banks. For example,
the wide acceptance of Internet-based commerce has resulted in a number of alternative payment processing
systems and lending platforms in which banks play only minor roles. Customers can now maintain funds in
prepaid debit cards or digital currencies and pay bills and transfer funds directly without the direct assistance of
banks. The diminishing role of banks as financial intermediaries has resulted and could continue to result in the
loss of fee income, as well as the loss of customer deposits and the related income generated from those
deposits. The loss of these revenue streams and the potential loss of lower cost deposits as a source of funds
could have a material adverse effect on our business, financial condition and results of operations.
Our ability to maintain our reputation is critical to the success of our business, and the failure to do so
may materially adversely affect our business and the value of our stock.
We are a community bank, and our reputation is one of the most valuable components of our business. As
such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by
recruiting, hiring and retaining employees who share our core values of being an integral part of the
communities we serve, delivering superior service to our customers and caring about our customers and
associates. Maintenance of our reputation depends not only on our success in maintaining our service-focused
culture, but also on our success in identifying and appropriately addressing issues that may arise in areas such
as potential conflicts of interest, anti-money laundering, customer personal information and privacy issues,
employee, customer and other third-party fraud, record-keeping, regulatory investigations, and any litigation that
may arise from the failure or perceived failure of us to comply with legal and regulatory requirements. If our
reputation is negatively affected, by the intentional, inadvertent or unsubstantiated misconduct of our
employees, directors, customers, third parties, or otherwise, our business and, therefore, our operating results
and the value of our stock may be materially adversely affected.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
HBT Financial and Heartland Bank’s headquarters are
located at 401 North Hershey Road,
Bloomington, Illinois. The Company owns these headquarters, and it also owns or leases other facilities, such
as banking centers of Heartland Bank, for business operations.
HBT Financial and its subsidiaries own or lease all of the real property and/or buildings on which each
respective entity is located. The Company considers its properties to be suitable and adequate for its present
needs.
ITEM 3. LEGAL PROCEEDINGS
We are sometimes party to legal actions that are routine and incidental to our business. Management, in
consultation with legal counsel, does not expect the ultimate disposition of any or a combination of these
matters to have a material adverse effect on our assets, business, cash flow, condition (financial or otherwise),
liquidity, prospects and results of operations. However, given the nature, scope and complexity of the extensive
legal and regulatory landscape applicable to our business, including laws and regulations governing consumer
protection, fair lending, fair labor, privacy, information security and anti-money laundering and anti-terrorism
laws, we, like all banking organizations, are subject to heightened legal and regulatory compliance and litigation
risk.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Holders of Record
HBT Financial, Inc.’s common stock is listed on the Nasdaq Global Select Market (the “Nasdaq”) under the
symbol “HBT.”
As of February 28, 2021, HBT Financial, Inc. had approximately 36 shareholders of record. A substantially
greater number of holders of our common stock are “street name” or beneficial holders, whose shares are held
by banks, brokers and other financial institutions.
Dividends
During 2020, we paid quarterly cash dividends of $0.15 per share on our common stock. We expect to continue
our policy of paying quarterly cash dividends. Our board of directors may change or eliminate the payment of
future dividends at its discretion, without notice to our stockholders. Any future determination relating to our
dividend policy will be made at the discretion of our board of directors and will depend on a number of factors,
including general and economic conditions, industry standards, our financial condition and operating results, our
available cash and current and anticipated cash needs, capital requirements, banking regulations, contractual,
legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or
by our subsidiaries to us, and such other factors as our board of directors may deem relevant.
Issuer Purchases of Equity Securities
On November 2, 2020, the Company’s board of directors approved a stock repurchase program that authorizes
the Company to repurchase up to $15 million of its common stock. The stock repurchase program will be in
effect until December 31, 2021 with the timing of purchases and number of shares repurchased dependent
upon a variety of factors including price, trading volume, corporate and regulatory requirements, and market
conditions. The Company is not obligated to purchase any shares under the stock repurchase program, and the
stock repurchase program may be suspended or discontinued at any time without notice.
The following table sets forth information about the Company’s purchases of its common stock during the fourth
quarter of 2020:
Total Number
of Shares
Purchased as
Part of Publicly
Average
Price Paid Announced Plans
Total Number
of Shares
or Programs
Approximate
Dollar Value of Shares
That May Yet be
Purchased Under the
Plans or Programs
(in thousands)
— $
—
—
— $
—
15,000
15,000
15,000
Period
October 1 - 31, 2020
November 1 - 30, 2020
December 1 - 31, 2020
Total
Purchased Per Share
— $
—
—
— $
—
—
—
—
Unregistered Sales of Equity Securities
None.
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Stock Performance Graph
The performance graph and table below compares the cumulative total return on the Company’s common stock
from October 11, 2019 (the date of the Company’s initial public offering and listing on the Nasdaq) through
December 31, 2020, with the cumulative total return of: (a) the Russell 2000 Index which reflects a broad equity
market index, and (b) the S&P 600 Small Cap Bank Index and (c) the ABA Nasdaq Community Bank Index
which reflect published industry or line-of-business indexes. Beginning with this annual report, we are including
the S&P 600 Small Cap Bank Index in our comparison of cumulative total return. This index will replace the
ABA Nasdaq Community Bank Index in future filings because the ABA Nasdaq Community Bank Index is not
available from our service provider. The performance graph and table assume an initial investment of $100 and
reinvestment of dividends. Returns are presented on a total return basis.
Index
HBT Financial, Inc.
Russell 2000 Index
S&P 600 Small Cap Bank Index
ABA Nasdaq Community Bank Index
$
October 11,
2019
100.00
100.00
100.00
100.00
$
December 31,
2019
122.20
110.36
110.27
110.44
$
December 31,
2020
101.97
130.62
100.90
98.69
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The performance graph and table represent past performance and should not be considered to be an indication
of future performance. The information in the preceding paragraph, stock performance graph, and table shall
not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, other
than as provided in Item 201 of Regulation S-K, or to the liabilities of Section 18 of the Exchange Act, except to
the extent that we specifically request that such information be treated as soliciting material or specifically
incorporate it by reference into a filing under the Securities Act or the Exchange Act.
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ITEM 6. SELECTED FINANCIAL DATA
Consolidated financial information reflecting a summary of the results of operations and financial condition of
the Company for the years ended December 31, 2020, 2019, 2018, 2017 and 2016 is presented in the following
table. This summary should be read in conjunction with the consolidated financial statements, and
accompanying notes thereto, and other financial information included in Item 7, "Management’s Discussion and
Analysis of Financial Condition and Results of Operations," of this Form 10-K.
Statement of Income Information
Total interest and dividend income
Total interest expense
Net interest income
Provision for loan losses
Net income after provision for loan losses
Total noninterest income
Total noninterest expense
Income before income tax expense
Income tax expense
Net income
C Corp equivalent net income (2)
Adjusted net income (1)
Net interest income (tax-equivalent basis) (1)
Share and Per Share Information
Earnings per share - Diluted
C Corp equivalent earnings per share - Diluted (2)
Adjusted earnings per share - Diluted (1)
Book value per share
Tangible book value per share (1)
Closing stock price
Ending number shares of common stock
outstanding
Weighted average number shares of common
stock outstanding
Summary Ratios
Net interest margin
Net interest margin (tax-equivalent basis) (1)
Yield on loans
Yield on interest-earning assets
Cost of interest-bearing liabilities
Cost of total deposits
Efficiency ratio
Efficiency ratio (tax-equivalent basis) (1)
Return on average assets
Return on average stockholders' equity
Return on average tangible common equity
C Corp equivalent return on average assets (2)
C Corp equivalent return on average
stockholders' equity (2)
C Corp equivalent return on average tangible
common equity (2)
Adjusted return on average assets (1)
Adjusted return on average stockholders' equity
(1)
Adjusted return on average tangible common
equity (1)
$
$
$
$
$
$
2020
124,065
6,460
117,605
10,532
107,073
34,456
91,956
49,573
12,728
36,845
N/A
39,734
119,548
1.34
N/A
1.44
13.25
12.29
15.15
$
$
2019
2017
As of or for the Year Ended December 31,
2018
(dollars in thousands, except per share data)
127,593
$
6,595
120,998
3,139
117,859
33,171
94,057
56,973
870
56,103
37,294
39,758
137,432
7,990
129,442
5,697
123,745
31,240
90,317
64,668
869
63,799
48,297
50,252
143,735
9,935
133,800
3,404
130,396
32,751
91,026
72,121
5,256
66,865
53,372
57,427
$
$
$
$
$
$
$
$
$
136,109
3.33
2.66
2.86
12.12
11.12
18.99
$
$
$
132,103
3.54
2.68
2.78
18.88
17.27
N/A
$
$
$
126,525
3.10
2.06
2.20
17.92
16.23
N/A
$
$
$
$
$
$
2016
127,705
6,604
121,101
6,434
114,667
39,354
94,434
59,587
1,041
58,546
39,249
39,054
126,569
3.24
2.17
2.16
18.05
16.25
N/A
27,457,306
27,457,306
18,027,512
18,070,692
18,070,692
27,457,306
20,090,270
18,047,332
18,070,692
18,053,600
3.54 %
3.60
4.69
3.74
0.29
0.14
4.31 %
4.38
5.51
4.63
0.45
0.29
4.16 %
4.25
5.35
4.42
0.36
0.21
3.83 %
4.01
5.09
4.04
0.29
0.17
59.66 %
58.91
53.80 %
53.06
55.24 %
54.34
59.77 %
57.70
1.07 %
2.07 %
1.96 %
1.69 %
10.51
11.38
N/A
N/A
N/A
19.58
21.35
19.32
21.24
16.58
18.29
1.65 %
1.49 %
1.12 %
15.63
17.04
14.63
16.08
11.02
12.16
3.87 %
4.04
5.17
4.08
0.28
0.18
57.49 %
55.60
1.76 %
16.93
18.75
1.18 %
11.35
12.57
1.15 %
1.78 %
1.55 %
1.20 %
1.17 %
11.33
12.28
16.81
18.34
15.22
16.73
11.75
12.96
11.29
12.51
49
Table of Contents
Balance Sheet Information
Cash and cash equivalents
Securities available-for-sale, at fair value
Securities held-to-maturity
Equity securities
Loans held for sale
Loans, before allowance for loan losses
Allowance for loan losses
Loans, net of allowance for loan losses
Goodwill
Core deposit intangible assets, net
Other assets
Total Assets
Total deposits
Securities sold under agreements to repurchase
Borrowings
Subordinated notes
Junior subordinated debentures
Other liabilities
Total Liabilities
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
2020
$ 312,451
922,869
68,395
4,844
14,713
2019
2017
As of or for the Year Ended December 31,
2018
(dollars in thousands, except per share data)
$ 186,879
679,526
121,715
3,261
2,800
$ 165,683
769,571
129,322
3,203
4,863
$ 283,971
592,404
88,477
4,389
4,531
2016
$ 238,741
687,120
140,254
3,145
7,826
2,247,006
(31,838)
2,215,168
2,163,826
(22,299)
2,141,527
2,144,257
(20,509)
2,123,748
2,115,946
(19,765)
2,096,181
2,106,515
(19,708)
2,086,807
23,620
2,798
101,709
$ 3,666,567
23,620
4,030
102,154
$ 3,245,103
23,620
5,453
102,567
$ 3,249,569
23,620
7,012
113,420
$ 3,312,875
$ 3,130,534
45,736
$ 2,776,855
44,433
$ 2,795,970
46,195
—
39,238
37,648
49,494
3,302,650
363,917
$ 3,666,567
—
—
37,583
53,314
2,912,185
332,918
$ 3,245,103
—
—
37,517
29,491
2,909,173
340,396
$ 3,249,569
$ 2,855,685
37,838
29,000
—
37,451
28,985
2,988,959
323,916
$ 3,312,875
23,620
8,928
120,683
$ 3,317,124
$ 2,877,181
39,081
4,000
—
37,386
33,230
2,990,878
326,246
$ 3,317,124
Loans, before allowance for loan losses (originated) (1)
Loans, before allowance for loan losses (acquired) (1)
$ 2,126,323
120,683
$ 1,998,496
165,330
$ 1,923,859
220,398
$ 1,825,129
290,817
$ 1,689,186
417,329
Core deposits (1)
$ 3,103,847
$ 2,732,101
$ 2,759,095
$ 2,812,855
$ 2,839,109
Credit Quality Ratios
Allowance for loan losses to loans, before allowance for
loan losses
Allowance for loan losses to nonperforming loans
Nonperforming loans to loans, before allowance for loan
losses
Nonperforming assets to total assets
Nonperforming assets to loans, before allowance for
loan losses and foreclosed assets
Net charge-offs to average loans, before allowance for
loan losses
Balance Sheet Ratios
Loan to deposit ratio
Core deposits to total deposits (1)
Total stockholders' equity to total assets
Tangible common equity to tangible assets (1)
Regulatory Capital Ratios (Company)
Total capital (to risk weighted assets)
Tier 1 capital (to risk weighted assets)
Common Equity Tier 1 capital (to risk weighted assets)
Tier 1 capital (to average assets)
1.42 %
1.03 %
0.96 %
0.93 %
319.66
117.06
128.88
89.43
0.94 %
88.62
0.44
0.39
0.63
0.04
0.88
0.74
1.11
0.07
0.74
0.78
1.18
0.23
1.04
1.17
1.81
0.15
71.78 %
99.15
9.93
9.27
17.40 %
14.55
13.06
9.94
77.92 %
98.39
10.26
9.49
14.54 %
13.64
12.15
10.38
76.69 %
98.68
10.48
9.67
14.99 %
14.17
12.71
10.80
74.10 %
98.50
9.78
8.94
14.40 %
13.58
12.09
9.94
1.06
1.16
1.81
0.23
73.21 %
98.68
9.84
8.94
14.54 %
13.72
12.21
9.93
(1) See “Non-GAAP Financial Information” below for reconciliation of non-GAAP financial measures to their most comparable GAAP
financial measures.
(2) Reflects adjustment to our historical net income for each period to give effect to the C Corp equivalent provision for income tax for
such year.
N/A Not applicable.
50
Table of Contents
SELECTED QUARTERLY FINANCIAL DATA
Selected quarterly financial data is presented in the following tables.
Statement of Income Information
Total interest and dividend income
Total interest expense
Net interest income
Provision for loan losses
Net income after provision for loan losses
Total noninterest income
Total noninterest expense
Income before income tax expense
Income tax expense
Net income
Earnings per share - Basic
Earnings per share - Diluted
Weighted average number shares of common stock outstanding
Statement of Income Information
Total interest and dividend income
Total interest expense
Net interest income
Provision for loan losses
Net income after provision for loan losses
Total noninterest income
Total noninterest expense
Income before income tax expense
Income tax expense
Net income
Earnings per share - Basic
Earnings per share - Diluted
Weighted average number shares of common stock outstanding
C Corp Equivalent Information (1)
Historical income before income tax expense
C Corp equivalent income tax expense
C Corp equivalent net income
C Corp equivalent earnings per share - Basic
C Corp equivalent earnings per share - Diluted
Three Months Ended 2020
December September
June
March
(dollars in thousands, except per share data)
$
$
$
$
30,746
1,582
29,164
430
28,734
11,092
22,665
17,161
4,519
12,642
0.46
0.46
27,457,306
$
$
$
$
30,238
1,367
28,871
2,174
26,697
10,052
22,485
14,264
3,701
10,563
0.38
0.38
27,457,306
$
$
$
$
30,361
1,453
28,908
3,573
25,335
8,060
23,499
9,896
2,477
7,419
0.27
0.27
27,457,306
$
$
$
$
32,720
2,058
30,662
4,355
26,307
5,252
23,307
8,252
2,031
6,221
0.23
0.23
27,457,306
Three Months Ended 2019
December September
June
March
(dollars in thousands, except per share data)
$
$
$
$
$
$
$
$
34,600
2,324
32,276
138
32,138
10,336
21,950
20,524
4,437
16,087
0.61
0.61
26,211,282
20,524
5,436
15,088
0.58
0.58
$
$
$
$
$
$
$
$
35,636
2,495
33,141
684
32,457
7,582
22,303
17,736
299
17,437
0.97
0.97
18,027,512
17,736
4,614
13,122
0.73
0.73
$
$
$
$
$
$
$
$
36,550
2,619
33,931
1,806
32,125
7,346
24,561
14,910
305
14,605
0.81
0.81
18,027,512
14,910
3,784
11,126
0.62
0.62
$
$
$
$
$
$
$
$
36,949
2,497
34,452
776
33,676
7,487
22,212
18,951
215
18,736
1.04
1.04
18,027,512
18,951
4,915
14,036
0.78
0.78
(1) Reflects adjustment to our historical net income for each period to give effect to the C Corp equivalent provision for income tax for
such year.
51
Table of Contents
NON-GAAP FINANCIAL INFORMATION
This Annual Report on Form 10-K contains certain financial information determined by methods other than in
accordance with GAAP. Management believes that it is a standard practice in the banking industry to present
these non-GAAP financial measures, and accordingly believes that providing these measures may be useful for
peer comparison purposes. These disclosures should not be viewed as substitutes for the results determined to
be in accordance with GAAP; nor are they necessarily comparable to non-GAAP financial measures that may
be presented by other companies. See our reconciliation of non-GAAP financial measures to their most directly
comparable GAAP financial measures below.
Non-GAAP
Financial Measure
Adjusted Net Income
Definition
● Net income, with the following adjustments:
- adds additional C Corp equivalent tax
expense for periods prior to October 11,
2019,
- excludes net earnings (losses) from closed
or sold operations,
- excludes charges related to termination of
certain employee benefit plans,
- excludes certain non-cash charges such as
impairment losses related to the closure of
branches and a nonrecurring charge related
to an employee benefits policy change,
- excludes expenses related to terminated
FDIC Indemnification agreements,
- excludes realized gains (losses) on sales of
securities,
- excludes mortgage servicing rights fair value
-
adjustment, and
the income tax effect of these pre-tax
adjustments.
Net Interest Income
(Tax Equivalent Basis)
● Net interest income adjusted for the tax-
favored status of tax-exempt loans and
securities. (1)
How the Measure Provides Useful
Information to Investors
● Enhances comparisons to prior periods
and, accordingly, facilitates the
development of future projections and
earnings growth prospects.
● We also sometimes refer to ratios that
include Adjusted Net Income, such as:
- Adjusted Return on Average Assets,
which is Adjusted Net Income divided
by average assets.
- Adjusted Return on Average Equity,
which is Adjusted Net Income divided
by average equity.
- Adjusted Earnings Per Share - Basic,
which is Adjusted Net Income allocated
to common shares divided by weighted
average common shares outstanding.
- Adjusted Earnings Per Share – Diluted,
which is Adjusted Net Income allocated
to common shares divided by weighted
average common shares outstanding,
including all dilutive potential shares.
● We believe the tax equivalent basis is the
preferred industry measurement of net
interest income.
● Enhances comparability of net interest
income arising from taxable and tax-
exempt sources.
● We also sometimes refer to Net Interest
Margin (Tax Equivalent Basis), which is
Net Interest Income (Tax Equivalent
Basis) divided by average interest-
earning assets.
Efficiency Ratio (Tax
Equivalent Basis)
● Noninterest expense less amortization of
● Provides a measure of productivity in the
intangible assets divided by the sum of net
interest income (tax equivalent basis) and
noninterest income. (1)
banking industry.
● Calculated to measure the cost of
generating one dollar of revenue. That is,
the ratio is designed to reflect the
percentage of one dollar which must be
expended to generate that dollar of
revenue.
(1) Tax-equivalent basis assuming a federal income tax rate of 21% and a state tax rate of 9.50% during the years ended December 31,
2020, 2019 and 2018, a federal tax rate of 35% and state income tax rate of 8.63% for the year ended December 31, 2017, and a
federal tax rate of 35% and state income tax rate of 7.75% for the year ended December 31, 2016.
52
Table of Contents
Non-GAAP
Financial Measure
Tangible Common
Equity to Tangible
Assets
Definition
● Tangible Common Equity is total stockholders’
equity less goodwill and other intangible
assets.
● Tangible Assets is total assets less goodwill
and other intangible assets.
Core Deposits
● Total deposits, excluding:
- Time deposits of $250,000 or more, and
- Brokered deposits
How the Measure Provides Useful
Information to Investors
● Generally used by investors, our
management, and banking regulators to
evaluate capital adequacy.
● Facilitates comparison of our earnings
with the earnings of other banking
organization with significant amounts of
goodwill or intangible assets.
● We also sometimes refer to ratios that
include Tangible Common Equity, such
as:
- Tangible Book Value Per Share, which
is Tangible Common Equity divided by
shares of common stock outstanding.
- Return on Average Tangible Common
Equity, which is net income divided by
average Tangible Common Equity.
- Adjusted Return on Average Tangible
Common Equity, which is Adjusted Net
Income divided by average Tangible
Common Equity.
● Provides investors with information
regarding the stability of the Company’s
sources of funds.
● We also sometimes refer to the ratio of
Core Deposits to total deposits.
Originated Loans and
Acquired Loans
● Originated Loans represent loans initially
● Provides investors and our management
originated by the Company and acquired loans
that were refinanced using the Company’s
underwriting criteria.
● Acquired Loans represent loans originated
under the underwriting criteria used by a bank
that was acquired by the Company.
with information regarding the credit
quality of loans underwritten using the
Company’s policies and procedures.
● We also sometimes refer to ratios that
include Originated Loans and Acquired
Loans, such as:
- Net Charge-offs to Average Loans
(Originated and Acquired).
- Nonperforming Loans to Loans, Before
Allowance for Loan Losses (Originated
and Acquired).
- Nonperforming Assets to Loans, Before
Allowance for Loan losses and
Foreclosed Assets (Originated and
Acquired).
53
Table of Contents
Reconciliation of Non-GAAP Financial Measure - Adjusted Net Income and Adjusted Return on Average
Assets
Net income
C Corp equivalent adjustment (2)
C Corp equivalent net income (2)
Adjustments:
Net earnings (losses) from closed or sold operations,
including gains on sale (1)
Charges related to termination of certain employee
benefit plans
Impairment losses related to closure of branches
Nonrecurring charge related to an employee benefits
policy change
Expenses related to FDIC Indemnification assets and
liabilities
Realized gains (losses) on sales of securities
Mortgage servicing rights fair value adjustment
Total adjustments
Tax effect of adjustments
Less adjustments after tax effect
Adjusted net income
2020
Year Ended December 31,
2018
2019
2017
(dollars in thousands, except share and per share data)
56,103
$
(18,809)
37,294
63,799
(15,502)
48,297
66,865
(13,493)
53,372
36,845
—
36,845
$
$
$
2016
$
58,546
(19,297)
39,249
—
524
(822)
1,712
1,043
(1,457)
—
(3,796)
—
—
—
—
—
—
—
(2,584)
(4,041)
1,152
(2,889)
39,734
$
(2,400)
(5,672)
1,617
(4,055)
57,427
$
$
—
—
—
—
(2,541)
629
(2,734)
779
(1,955)
50,252
$
—
(1,936)
(1,336)
(999)
(1,275)
(315)
(4,149)
1,685
(2,464)
39,758
$
—
—
—
(1,021)
106
197
325
(130)
195
39,054
Average assets
$ 3,447,500
$ 3,233,386
$ 3,247,598
3,320,239
3,325,483
Return on average assets
C Corp equivalent return on average assets (2)
Adjusted return on average assets
1.07 %
N/A
1.15
2.07 %
1.65
1.78
1.96 %
1.49
1.55
1.69 %
1.12
1.20
1.76 %
1.18
1.17
(1) Closed or sold operations include HB Credit Company, HBT Insurance, and First Community Title Services, Inc.
(2) Reflects adjustment to our historical net income for each period to give effect to the C Corp equivalent provision for income tax for
such year.
N/A Not applicable.
54
Table of Contents
Reconciliation of Non-GAAP Financial Measure - Adjusted Earnings Per Share
Numerator:
Net income
Earnings allocated to unvested restricted stock units (1)
Numerator for earnings per share - basic and diluted
C Corp equivalent net income (3)
Earnings allocated to unvested restricted stock units (1)(3)
Numerator for C Corp equivalent earnings per share -
basic and diluted (3)
Adjusted net income
Earnings allocated to unvested restricted stock units (1)
Numerator for adjusted earnings per share - basic and
diluted
Denominator:
Weighted average common shares outstanding
Dilutive effect of outstanding restricted stock units (2)
Weighted average common shares outstanding, including
all dilutive potential shares
Earnings per share - Basic
Earnings per share - Diluted
C Corp equivalent earnings per share - Basic (3)
C Corp equivalent earnings per share - Diluted (3)
Adjusted earnings per share - Basic
Adjusted earnings per share - Diluted
$
$
$
$
$
$
$
$
2020
Year Ended December 31,
2018
(dollars in thousands, except per share amounts)
2017
2019
36,845
(93)
36,752
$
$
66,865
—
66,865
N/A $
N/A
53,372
—
N/A $
53,372
39,734
(101)
$
57,427
—
$
$
$
$
$
63,799
—
63,799
48,297
—
48,297
50,252
—
$
$
$
$
$
56,103
—
56,103
37,294
—
37,294
39,758
—
$
$
$
$
$
2016
58,546
—
58,546
39,249
—
39,249
39,054
—
39,633
$
57,427
$
50,252
$
39,758
$
39,054
27,457,306
—
20,090,270
—
18,047,332
—
18,070,692
—
18,053,600
—
27,457,306
20,090,270
18,047,332
18,070,692
18,053,600
1.34
1.34
$
$
N/A $
N/A $
1.44
1.44
$
$
3.33
3.33
2.66
2.66
2.86
2.86
$
$
$
$
$
$
3.54
3.54
2.68
2.68
2.78
2.78
$
$
$
$
$
$
3.10
3.10
2.06
2.06
2.20
2.20
$
$
$
$
$
$
3.24
3.24
2.17
2.17
2.16
2.16
(1) The Company has granted restricted stock units that contain non-forfeitable rights to dividend equivalents. Such restricted stock units
are considered participating securities. As such, we have included these restricted stock units in the calculation of basic earnings per
share and calculate basic earnings per share using the two-class method. The two-class method of computing earnings per share is
an earnings allocation formula that determines earnings per share for each class of common stock and participating security according
to dividends declared (or accumulated) and participation rights in undistributed earnings.
(2) Restricted stock units were anti-dilutive and excluded from the calculation of common stock equivalents during the year ended
December 31, 2020. There were no restricted stock units outstanding during the years ended December 31, 2019, 2018, 2017, and
2016.
(3) Reflects adjustment to our historical net income for each period to give effect to the C Corp equivalent income tax expense for such
period. No such adjustment is necessary for periods subsequent to 2019.
N/A Not applicable.
55
Table of Contents
Reconciliation of Non-GAAP Financial Measure - Net Interest Margin (Tax Equivalent Basis)
Net interest income (tax equivalent
basis)
Net interest income
Tax-equivalent adjustment (1)
Net interest income (tax equivalent basis)
(1)
Net interest margin (tax equivalent
basis)
Net interest margin
Tax-equivalent adjustment (1)
Net interest margin (tax equivalent basis)
(1)
2020
2019
Year Ended December 31,
2018
(dollars in thousands)
2017
2016
$ 117,605
1,943
$ 133,800
2,309
$ 129,442
2,661
$ 120,998
5,527
$ 121,101
5,468
$ 119,548
$ 136,109
$ 132,103
$ 126,525
$ 126,569
3.54 %
0.06
4.31 %
0.07
4.16 %
0.09
3.60 %
4.38 %
4.25 %
3.83 %
0.18
4.01 %
3.87 %
0.17
4.04 %
Average interest-earning assets
$ 3,318,764
$ 3,105,863
$ 3,109,289
$ 3,157,195
$ 3,131,763
(1) On a tax-equivalent basis assuming a federal income tax rate of 21% and a state tax rate of 9.50% during the years ended
December 31, 2020, 2019 and 2018, a federal tax rate of 35% and state income tax rate of 8.63% for the year ended December 31,
2017, and a federal tax rate of 35% and state income tax rate of 7.75% for the year ended December 31, 2016.
Reconciliation of Non-GAAP Financial Measure - Efficiency Ratio (Tax Equivalent Basis)
2020
2019
Year Ended December 31,
2018
(dollars in thousands)
2017
2016
Efficiency ratio (tax equivalent basis)
Total noninterest expense
Less: amortization of intangible assets
Adjusted noninterest expense
$ 91,956
1,232
$ 90,724
$ 91,026
1,423
$ 89,603
$ 90,317
1,559
$ 88,758
$ 94,057
1,916
$ 92,141
$ 94,434
2,183
$ 92,251
Net interest income
Total noninterest income
Operating revenue
Tax-equivalent adjustment (1)
Operating revenue (tax-equivalent basis) (1)
$ 117,605
34,456
152,061
1,943
$ 154,004
$ 133,800
32,751
166,551
2,309
$ 168,860
$ 129,442
31,240
160,682
2,661
$ 163,343
$ 120,998
33,171
154,169
5,527
$ 159,696
$ 121,101
39,354
160,455
5,468
$ 165,923
Efficiency ratio
Efficiency ratio (tax equivalent basis) (1)
59.66 %
58.91
53.80 %
53.06
55.24 %
54.34
59.77 %
57.70
57.49 %
55.60
(1) On a tax-equivalent basis assuming a federal income tax rate of 21% and a state tax rate of 9.50% during the years ended
December 31, 2020, 2019 and 2018, a federal tax rate of 35% and state income tax rate of 8.63% for the year ended December 31,
2017, and a federal tax rate of 35% and state income tax rate of 7.75% for the year ended December 31, 2016.
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Reconciliation of Non-GAAP Financial Measure - Tangible Common Equity to Tangible Assets and
Tangible Book Value Per Share
Tangible Common Equity
Total stockholders' equity
Less: Goodwill
Less: Core deposit intangible assets, net
Tangible common equity
Tangible Assets
Total assets
Less: Goodwill
Less: Core deposit intangible assets, net
Tangible assets
2020
2019
December 31,
2018
(dollars in thousands)
2017
2016
$
$
363,917
23,620
2,798
337,499
$
$
332,918
23,620
4,030
305,268
$
$
340,396
23,620
5,453
311,323
$
$
323,916
23,620
7,012
293,284
$
$
326,246
23,620
8,928
293,698
$ 3,666,567
23,620
2,798
$ 3,640,149
$ 3,245,103
23,620
4,030
$ 3,217,453
$ 3,249,569
23,620
5,453
$ 3,220,496
$ 3,312,875
23,620
7,012
$ 3,282,243
$ 3,317,124
23,620
8,928
$ 3,284,576
Total stockholders' equity to total assets
Tangible common equity to tangible assets
9.93 %
9.27
10.26 %
9.49
10.48 %
9.67
9.78 %
8.94
9.84 %
8.94
Ending number shares of common stock outstanding
27,457,306
27,457,306
18,027,512
18,070,692
18,070,692
Book value per share
Tangible book value per share
$
$
13.25
12.29
$
12.12
11.12
18.88
17.27
$
17.92
16.23
18.05
16.25
Reconciliation of Non-GAAP Financial Measure – Adjusted Return on Average Stockholders’ Equity and
Adjusted Return on Tangible Common Equity
Average Tangible Common Equity
Total stockholders' equity
Less: Goodwill
Less: Core deposit intangible assets, net
Average tangible common equity
Net income
C Corp equivalent net income (1)
Adjusted net income
Return on average stockholders' equity
C Corp equivalent return on average
stockholders' equity (1)
Adjusted return on average stockholders' equity
Return on average tangible common equity
C Corp equivalent return on average tangible
common equity (1)
Adjusted return on average tangible common
equity
2020
2019
Year Ended December 31,
2018
(dollars in thousands)
2017
2016
$
$
$
$
$
$
350,703
23,620
3,436
323,647
36,845
N/A
39,734
341,544
23,620
4,748
313,176
66,865
53,372
57,427
$
$
$
330,214
23,620
6,256
300,338
63,799
48,297
50,252
$
$
$
338,317
23,620
7,943
306,754
56,103
37,294
39,758
$
$
$
345,895
23,620
10,072
312,203
58,546
39,249
39,054
10.51 %
19.58 %
19.32 %
16.58 %
16.93 %
N/A
11.33
15.63
16.81
14.63
15.22
11.02
11.75
11.35
11.29
11.38 %
21.35 %
21.24 %
18.29 %
18.75 %
N/A
12.28
17.04
18.34
16.08
16.73
12.16
12.96
12.57
12.51
(1) Reflects adjustment to our historical net income for each period to give effect to the C Corp equivalent provision for income tax for
such period.
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Reconciliation of Non-GAAP Financial Measure - Core Deposits
2020
2019
December 31,
2018
(dollars in thousands)
2017
2016
Core Deposits
Total deposits
Less: time deposits of $250,000 or more
Less: brokered deposits
Core deposits
$ 3,130,534
26,687
—
$ 3,103,847
$ 2,776,855
44,754
—
$ 2,732,101
$ 2,795,970
36,875
—
$ 2,759,095
$ 2,855,685
42,830
$ 2,812,855
$ 2,877,181
38,072
—
$ 2,839,109
—
Core deposits to total deposits
99.15 %
98.39 %
98.68 %
98.50 %
98.68 %
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Unless the context requires otherwise, references in this report to the “Company,” “we,” “us” and “our” refer to
HBT Financial, Inc. and its consolidated subsidiaries.
Management’s discussion and analysis should be read in conjunction with the following parts of this Annual
Report on Form 10-K: Part I, Item 1 “Business”, Part II, Item 6 “Selected Financial Data”, Part II, Item 7A,
“Quantitative and Qualitative Disclosures About Market Risk”, and Part II, Item 8 “Financial Statements and
Supplementary Data”
OVERVIEW
HBT Financial, Inc. is headquartered in Bloomington, Illinois and is the holding company for Heartland Bank.
The Bank provides a comprehensive suite of business, commercial, wealth management, and retail banking
products and services to businesses, families, and local governments throughout Central and Northeastern
Illinois. As of December 31, 2020, the Company had total assets of $3.7 billion, loans held for investment of
$2.2 billion, and total deposits of $3.1 billion. HBT Financial, Inc. is a longstanding Central Illinois company, with
banking roots that can be traced back 100 years.
Market Area
We currently operate 60 full-service and three limited-service branch locations across 18 counties in Central
and Northeastern Illinois. We hold a leading deposit share in many of our markets in Central Illinois, which we
define as a top three deposit share rank, providing the foundation for our strong deposit base. The stability
provided by this low-cost funding is a key driver of our strong track record of financial performance.
Below is a summary of the loan and deposit balances by the metropolitan and micropolitan statistical areas in
which we operate.
December 31, 2020 December 31, 2019 December 31, 2018
(dollars in thousands)
Loans, before allowance for loan losses
Bloomington-Normal
Champaign-Urbana
Chicago
Lincoln
Ottawa-Peru
Peoria
Loans, before allowance for loan losses
Total deposits
Bloomington-Normal
Champaign-Urbana
Chicago
Lincoln
Ottawa-Peru
Peoria
Total deposits
523,418
214,646
1,132,893
103,614
107,098
165,337
2,247,006
774,082
174,653
1,077,691
201,012
347,211
555,885
3,130,534
$
$
$
$
552,787
209,317
1,020,524
107,162
103,665
170,371
2,163,826
694,519
152,108
911,916
194,784
290,138
533,390
2,776,855
$
$
$
$
588,127
208,925
941,028
105,150
110,730
190,297
2,144,257
690,899
148,839
916,631
255,958
291,694
491,949
2,795,970
$
$
$
$
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The Bloomington-Normal metropolitan statistical area includes our branches within McLean and De Witt
counties. The Champaign-Urbana metropolitan statistical area includes our branches within Champaign and
Ford counties. The Chicago metropolitan statistical area includes our branches within Cook, DeKalb, Grundy,
Kane, Kendall, Lake, and Will counties. The Lincoln micropolitan statistical area includes our branches within
Logan county. The Ottawa-Peru micropolitan statistical area includes our branches within Bureau and LaSalle
counties. The Peoria metropolitan statistical area includes our branches within Peoria, Marshall, Tazewell, and
Woodford counties.
COVID-19 Response and Impact Overview
The Company has taken a number of steps to support our employees and customers while maintaining the
health and safety of all involved, including, but not limited to:
● Enabling work from home for many employees and social distancing for employees who need to report
to the office;
● Maintaining regular business hours at branches for drive-up services and the call center to serve
customers while branch lobby service was closed due to mitigation efforts;
● Branch lobby service was reopened for all locations, when permitted by resurgence mitigation
guidelines, except one location which was permanently closed and consolidated with an existing branch
on June 30, 2020;
● Offering loan payment modifications to customers experiencing financial hardship due to COVID-19;
● Waiving or refunding overdraft and ATM fees, as well as time deposit early withdrawal penalties, to
customers experiencing financial hardship due to COVID-19;
● Participating in the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) with
$185 million of PPP loans approved and funded to 2,329 businesses supporting approximately 24,000
employees in our communities.
The Company operates primarily in Illinois which has established a five-phase reopening plan. Illinois entered
Phase 4 of its reopening plan on June 26, 2020 which includes occupancy restrictions on indoor dining at
restaurants and bars, among other restrictions. Additionally, a three-tiered resurgence mitigation plan is used to
implement additional restrictions for specific regions of Illinois, when the test positivity rate or other metrics
exceed defined thresholds. Illinois is only likely to transition to Phase 5 of its reopening plan, a full reopening,
when a vaccine or highly effective COVID-19 treatment is available.
Paycheck Protection Program Loans
The Coronavirus Aid, Relief and Economic Security Act (CARES Act) established the Paycheck Protection
Program (PPP) which provides small businesses with funds to pay payroll costs, including benefits, and certain
non-payroll costs such as mortgage interest, rent, and utilities. Administered by the SBA, program funds are
provided to eligible businesses in the form of loans which may be fully forgiven when loan proceeds are used
for payroll costs and allowable non-payroll costs. PPP loans are unsecured, have a two-year or five-year term,
bear a fixed contractual interest rate of 1.00%, and are 100% guaranteed by the SBA.
Additionally, the SBA pays lenders fees for processing PPP loans, based on a set percentage of the loan
amount. In accordance with ASC 310-20, these fees, along with direct origination costs are deferred and
recognized over the life of the loan as an adjustment of yield (included in taxable loan interest income).
Recognition of net deferred origination fees are accelerated upon loan forgiveness or repayment prior to
contractual maturity.
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The following table summarizes PPP loans originated, along with the origination fees received from the SBA,
during the year ended December 31, 2020:
Range of Loan Amounts
Number
Loan
Amount
Fee
Percentage
Origination
Fee
(dollars in thousands)
Less than $350,000
Over $350,000, but less than $2,000,000
Over $2,000,000
Total
2,233 $ 109,063
69,254
7,085
$ 185,402
94
2
2,329
5.0% $
3.0%
1.0%
$
5,453
2,078
71
7,602
As of December 31, 2020, PPP loans, net of deferred origination fees, were $163.5 million or 7.3% of loans,
before allowance for loan losses. The deferred origination fees were reduced by direct origination costs,
primarily salaries and benefits costs, of $0.5 million during the year ended December 31, 2020. Net deferred
origination fees on PPP loans of $3.0 million were recognized as taxable loan interest income during the year
ended December 31, 2020. Remaining net deferred origination fees on PPP loans totaled $4.1 million as of
December 31, 2020.
Payment Modifications Related to COVID-19
Loan payment modifications have been made for borrowers experiencing financial hardship due to COVID-19,
with substantially all modifications in the form of a three-month interest-only period or a one-month payment
deferral. Some borrowers have received more than one loan payment modification. Consistent with the
applicable accounting and regulatory guidance, short-term loan payment modifications such as these are
generally not considered a TDR.
Following the phased reopening of Illinois businesses and federal economic stimulus received by commercial
and retail customers during the second quarter of 2020, the volume of loan modifications requests related to a
COVID-19 financial hardship slowed significantly. Additionally, many loans that received a short-term payment
modification returned to regular payments during the third and fourth quarters of 2020. The following table
presents the number and balance of loans granted a payment modification that have not returned to regular
payments.
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner
occupied
Commercial real estate - non-
owner occupied
Multi-family
Construction and land
development
One-to-four family residential
Municipal, consumer, and other
December 31, 2020
September 30, 2020
June 30, 2020
March 31, 2020
Number Balance Number Balance Number Balance Number Balance
12 $ 6,926
3,178
3
10 $ 4,739
3,178
3
69 $ 23,949
4,175
7
55 $ 21,529
143
1
(dollars in thousands)
10
1
—
1
9
4
15,522
1,171
—
383
664
142
7
15
2
1
17
2
7,294
18,021
992
361
1,779
30
61
98
17
40,104
102,407
12,031
6
124
13
5,148
15,048
370
43
48
8
2
29
5
38,648
61,353
2,981
612
3,806
69
Total
40 $
27,986
57 $
36,394
395 $ 203,232
191 $ 129,141
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Industries Adversely Impacted by COVID-19
While many industries have and will continue to be adversely impacted by the COVID-19 pandemic, the retail,
restaurant, and hotel industries are considered particularly susceptible to significant adverse impacts. Adverse
impacts in these and other industries may result in a deterioration of the loan portfolio’s credit quality or an
increase in provision for loan losses. The below table summarizes loan balances within the retail, restaurant,
and hotel industries along with select credit quality information as of December 31, 2020.
Retail
Commercial and industrial
Commercial real estate -
owner occupied
Commercial real estate -
non-owner occupied
Construction and land
development
Total
Restaurants
Commercial and industrial
Commercial real estate -
owner occupied
Commercial real estate -
non-owner occupied
Total
Hotels
Commercial and industrial
Commercial real estate -
non-owner occupied
Construction and land
development
Total
Carrying Balance
Modified Payments (1)
Non-PPP Loans PPP Loans
Total
Pass Pass-Watch Substandard Total
Substandard
Risk Rating (2)
(dollars in thousands)
$
9,667
$ 11,120
$ 20,787
$
— $
177
$
— $ 177
$
3,274
17,408
126,425
—
—
17,408
126,425
—
—
—
—
—
—
—
—
7,266
160,766
—
$ 11,120
7,266
$ 171,886
$
—
— $
—
177
$
—
—
— $ 177
$
2,279
690
—
6,243
2,729 $ 11,006
$ 13,735
$ 391
$
— $
330
$ 721 $
330
15,773
—
15,773
—
—
2,062
2,062
6,060
—
24,562 $ 11,006
6,060
$ 35,568
—
$ 391
$
—
— $
—
2,392
—
$ 2,783 $
2,749
469
3,548
250 $ 1,490
$
1,740
$
— $
— $
— $
— $
—
22,172
—
22,172
1,171
—
—
1,171
785
—
23,207 $ 1,490
785
$ 24,697
—
$ 1,171
$
—
— $
—
— $ 1,171 $
—
6,662
—
6,662
$
$
$
$
$
(1) Borrowers that were granted a loan payment modification related to a COVID-19 financial hardship that have not returned to regular
payments as of December 31, 2020.
Includes those loans shown as Modified Payments – Substandard.
(2)
Subordinated Note Issuance
On September 3, 2020, to further enhance the Company’s strong capital and liquidity positions, we successfully
completed a private placement of $40.0 million 4.50% Fixed-to-Floating Rate Subordinated Notes due 2030.
This issuance of subordinated notes, which qualify as Tier 2 regulatory capital, contributed to an increase in the
Company’s total risk based capital ratio, which was 17.40% at December 31, 2020, compared to 14.54% at
December 31, 2019, while also significantly bolstering the cash reserves held at the holding company.
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FACTORS AFFECTING OUR RESULTS OF OPERATIONS
Economic Conditions
Our business and financial performance are affected by the general economic conditions in the United States
and more directly in the Illinois markets where we operate. The significant economic factors that are most
relevant to our business and our financial performance include the general economic conditions, unemployment
rates, real estate markets, and interest rates in the U.S. and in our markets.
COVID-19 Pandemic
Although the Company has maintained business operations with appropriate social distancing procedures since
the beginning of the COVID-19 pandemic, it has caused significant economic disruption throughout the United
States and the communities that we serve. While the duration, severity, and ultimate impact of the COVID-19
pandemic is unknown at this time, it may adversely impact the businesses we serve and impair the ability of our
customers to fulfill their contractual obligations to us. This could adversely affect our asset valuations, financial
condition, liquidity and results of operations, and the impacts may be material. We experienced, and we may
continue to experience, the following adverse impacts of the COVID-19 pandemic:
● Decrease in net interest income and net interest margin, as a result of the lower interest rate
environment;
● Increase in provision for loan losses due to deterioration in the loan portfolio’s credit quality, as a result
of the economic slow-down caused by the COVID-19 pandemic;
● Decrease in debit and credit card interchange income, as a result of a lower level of consumer activity
and lower associated volume of debit and credit card transactions;
● Decrease in service charge income on deposit accounts, such as overdraft fees, as a result of federal
economic stimulus payments received by customers and an increase in waived or refunded fees;
● Decrease in demand for loans, as a result of the economic slow-down caused by the COVID-19
pandemic.
Adverse impacts may also include valuation impairments on our goodwill, intangible assets, investment
securities, loans, mortgage servicing rights, deferred tax assets or counter-party risk derivatives.
The Company’s executive management continues to closely monitor the COVID-19 pandemic. As of the date of
this filing, we anticipate we will continue to take actions to support our customers in a manner consistent with
the current guidance provided by federal banking regulatory authorities.
Interest Rates
Net interest income is our primary source of revenue. Net interest income equals the excess of interest income
earned on interest earning assets (including discount accretion on purchased loans plus certain loan fees) over
interest expense incurred on interest-bearing liabilities. The level of interest rates as well as the volume of
interest-earning assets and interest-bearing liabilities both impact net interest income. Net interest income is
also influenced by both the pricing and mix of interest-earning assets and interest-bearing liabilities which, in
turn, are impacted by external factors such as local economic conditions, competition for loans and deposits,
the monetary policy of the Federal Reserve Board and market interest rates.
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The cost of our deposits and short-term wholesale borrowings is largely based on short-term interest rates,
which are primarily driven by the Federal Reserve Board’s actions. The yields generated by our loans and
securities are typically driven by short-term and long-term interest rates, which are set by the market and, to
some degree, by the Federal Reserve Board’s actions. The level of net interest income is therefore influenced
by movements in such interest rates and the pace at which such movements occur. During 2019, overall market
interest rates started to decline. The Federal Open Markets Committee lowered Federal Funds target rates for
the first time in 11 years on July 31, 2019 and then again in September 2019 and October 2019, for a combined
decrease of 75 basis points during 2019. In March 2020, the Federal Open Markets Committee lowered Federal
Funds target rates twice, for a combined decrease of 150 basis points in response to the economic downturn
related to the COVID-19 pandemic.
We expect these rate cuts and potential increases in nonperforming loans as a result of the economic downturn
related to the COVID-19 pandemic to continue to put downward pressure on our net interest margin. In general,
we believe that rate increases will lead to improved net interest margins while rate decreases will result in lower
net interest margins.
Credit Trends
We focus on originating loans with appropriate risk / reward profiles. We have a detailed loan policy that guides
our overall loan origination philosophy and a well-established loan approval process that requires experienced
credit officers to approve larger loan relationships. Although we believe our loan approval process and credit
review process are strengths that allow us to maintain a high quality loan portfolio, we recognize that credit
trends in the markets in which we operate and in our loan portfolio can materially impact our financial condition
and performance and that these trends are primarily driven by the economic conditions in our markets. In
addition, the economic slow-down caused by the COVID-19 pandemic may result in decreases in loan demand
and increases in provision for loan losses due to increased net charge-offs and deterioration in the loan
portfolio’s credit quality.
Competition
Our profitability and growth are affected by the highly competitive nature of the financial services industry. We
compete with community banks in all our markets and, to a lesser extent, with money center banks, primarily in
the Chicago MSA. Additionally, we compete with non-bank financial services companies and other financial
institutions operating within the areas we serve. We compete by emphasizing personalized service and efficient
decision-making tailored to individual needs. We do not rely on any individual, group, or entity for a material
portion of our loans or our deposits. We continue to see increased competitive pressures on loan rates and
terms and increased competition for deposits. Continued loan and deposit pricing pressure may affect our
financial results in the future.
Regulatory Environment and Trends
We are subject to federal and state regulation and supervision, which continue to evolve as the legal and
regulatory framework governing our operations continues to change. The current operating environment
includes extensive regulation and supervision in areas such as consumer compliance, the BSA and anti-money
laundering compliance, risk management and internal audit. We anticipate that this environment of extensive
regulation and supervision will continue for the industry. As a result, changes in the regulatory environment may
result in additional costs for additional compliance, risk management and audit personnel or professional fees
associated with advisors and consultants. For additional information, please refer to “Supervision and
Regulation” as well as “Risk Factors – Legal and Regulatory Compliance Risks.”
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FACTORS AFFECTING COMPARABILITY OF FINANCIAL RESULTS
S Corp Status
Prior to the initial public offering, the Company, with the consent of its then current stockholders, elected to be
taxed under sections of federal and state income tax law as an "S Corporation" which provides that, in lieu of
Company income taxes, except for state replacement taxes, the stockholders separately account for their pro
rata shares of the Company’s items of income, deductions, losses and credits. As a result of this election, no
income taxes, other than state replacement taxes, had been recognized in the accompanying consolidated
financial statements prior to October 11, 2019.
Effective October 11, 2019, the Company voluntarily revoked its S Corporation status and became a taxable
entity (C Corporation). As such, any periods prior to October 11, 2019 will only reflect an effective state
replacement tax rate. In connection with the conversion of tax status, the Company recognized a deferred tax
asset, and the associated income tax benefit, of $0.5 million.
The following table illustrates the impact of being taxed as a C Corporation:
Year Ended December 31,
2019
(dollars in thousands, except per share amounts)
2018
2020
As Reported
Income before income tax expense
Income tax expense
Net income
Earnings per share - Basic
Earnings per share - Diluted
Effective tax rate
Unaudited Pro Forma C Corp Equivalent
Historical income before income tax expense
C Corp equivalent income tax expense
C Corp equivalent net income
C Corp equivalent earnings per share - Basic
C Corp equivalent earnings per share - Diluted
Effective tax rate
$
$
$
$
49,573
12,728
36,845
1.34
1.34
$
$
$
$
72,121
5,256
66,865
3.33
3.33
$
$
$
$
64,668
869
63,799
3.54
3.54
25.7 %
7.3 %
1.3 %
N/A
N/A
N/A
N/A
N/A
N/A
$
$
$
$
72,121
18,749
53,372
2.66
2.66
$
$
$
$
64,668
16,371
48,297
2.68
2.68
26.0 %
25.3 %
The C Corp equivalent effective rates reflect a federal tax rate of 21% and state income tax rate of 9.5%.
Public Company Costs
Following the completion of the initial public offering in 2019, the Company has incurred, and expects to
continue to incur, additional costs associated with operating as a public company, hiring additional personnel,
enhancing technology and expanding capabilities. The Company expects that these costs will include legal,
regulatory, accounting, investor relations and other expenses that were not incurred as a private company.
Sarbanes-Oxley and rules adopted by the SEC, the FDIC and national securities exchanges require public
companies to implement specified corporate governance practices that were inapplicable as a private company.
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RESULTS OF OPERATIONS
Overview of Recent Financial Results
The following table presents selected financial results and measures as of and for the year ended
December 31.
Statement of Income Information
Total interest and dividend income
Total interest expense
Net interest income
Provision for loan losses
Net income after provision for loan losses
Total noninterest income
Total noninterest expense
Income before income tax expense
Income tax expense
Net income
C Corp equivalent net income (1)
Adjusted net income (2)
Net interest income (tax-equivalent basis) (2) (3)
Share and Per Share Information
Earnings per share - Diluted
C Corp equivalent earnings per share - Diluted (1)
Adjusted earnings per share - Diluted (2)
As of or for the Year Ended December 31,
2018
2019
2020
(dollars in thousands, except per share amounts)
$
$
$
$
$
$
$
$
$
$
124,065
6,460
117,605
10,532
107,073
34,456
91,956
49,573
12,728
36,845
N/A
39,734
119,548
1.34
N/A
1.44
$
$
$
$
$
143,735
9,935
133,800
3,404
130,396
32,751
91,026
72,121
5,256
66,865
53,372
57,427
136,109
3.33
2.66
2.86
137,432
7,990
129,442
5,697
123,745
31,240
90,317
64,668
869
63,799
48,297
50,252
132,103
3.54
2.68
2.78
Weighted average number shares of common stock outstanding
27,457,306
20,090,270
18,047,332
Summary Ratios
Net interest margin
Net interest margin (tax-equivalent basis) (2) (3)
Yield on loans
Yield on interest-earning assets
Cost of interest-bearing liabilities
Cost of total deposits
Efficiency ratio
Efficiency ratio (tax-equivalent basis) (2) (3)
Return on average assets
Return on average stockholders' equity
Return on average tangible common equity (2)
C Corp equivalent return on average assets (1)
C Corp equivalent return on average stockholders' equity (1)
C Corp equivalent return on average tangible common equity (1) (2)
Adjusted return on average assets (2)
Adjusted return on average stockholders' equity (2)
Adjusted return on average tangible common equity (2)
3.54 %
3.60
4.69
3.74
0.29
0.14
4.31 %
4.38
5.51
4.63
0.45
0.29
59.66 %
58.91
53.80 %
53.06
1.07 %
2.07 %
10.51
11.38
N/A
N/A
N/A
19.58
21.35
1.65 %
15.63
17.04
1.15 %
1.78 %
11.33
12.28
16.81
18.34
4.16 %
4.25
5.35
4.42
0.36
0.21
55.24 %
54.34
1.96 %
19.32
21.24
1.49 %
14.63
16.08
1.55 %
15.22
16.73
(1) Reflects adjustment to our historical net income for each period to give effect to the C Corp equivalent provision for income tax for
such period.
(2) See "Non-GAAP Financial Information" in Part II, Item 6 “Selected Financial Data” for reconciliation of non-GAAP measures to their
most comparable GAAP measures.
(3) On a tax-equivalent basis assuming a federal tax rate of 21% and state income tax rate of 9.5%.
N/A Not applicable.
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Table of Contents
Comparison of the Year Ended December 31, 2020 to the Year Ended December 31, 2019
For the year ended December 31, 2020, net income was $36.8 million decreasing by $30.0 million, or
44.9%,when compared to net income for the year ended December 31, 2019, or a decrease of $16.5 million, or
31.0%, when compared to C Corp equivalent net income for the year ended December 31, 2019. Net income
declined primarily due to lower net interest income and higher provision for loan losses. Net interest income
declined by $16.2 million, primarily as a result of a lower interest rate environment. Provision for loan losses
increased by $7.1 million, primarily due to the economic weakness resulting from the COVID-19 pandemic.
Partially offsetting these declines was a $5.7 million increase in gains on sale of mortgage loans attributable to
a strong mortgage refinancing environment and higher premiums received on mortgage loans sold.
Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018
For the year ended December 31, 2019, net income was $66.9 million increasing by $3.1 million, or 4.8%, from
the year ended December 31, 2018. Net income increased primarily due to increases in net interest income as
a result of increases in asset yields offset by a smaller increase in the cost of interest-bearing liabilities.
Provision for loan losses for the year ended December 31, 2019 was $2.3 million lower than the provision for
the year ended December 31, 2018. The increases in net interest income were partially offset by a $3.0 million
decline in the mortgage servicing rights fair value adjustment and a charge of $3.8 million associated with the
termination of the supplemental executive retirement plan (SERP) included in employee benefits expense.
Income tax expense increased during the year ended December 31, 2019 as a result of the change in tax status
to become a C Corporation effective October 11, 2019. In connection with the change of tax status, the
Company recorded a nonrecurring income tax benefit of $0.5 million to recognize an initial deferred tax asset of
the same amount. The C Corp equivalent net income increased $5.1 million, or 10.5%, reflecting the
improvements in income before income tax expense previously discussed, partially offset by a slightly higher C
Corp equivalent effective tax rate as a result of declines in federally tax-exempt interest income. See the
“Factors Affecting Comparability of Financial Results: S Corp Status” section and Note 16 to the consolidated
financial statements for additional information related to the change in tax status.
Net Interest Income
Net interest income equals the excess of interest income (including discount accretion on acquired loans) plus
fees earned on interest earning assets over interest expense incurred on interest-bearing liabilities. Interest rate
spread and net interest margin are utilized to measure and explain changes in net interest income. Interest rate
spread is the difference between the yield on interest-earning assets and the rate paid for interest-bearing
liabilities that fund those assets. The net interest margin is expressed as the percentage of net interest income
to average interest-earning assets. The net interest margin exceeds the interest rate spread because
noninterest-bearing sources of funds, principally noninterest-bearing demand deposits and stockholders’ equity,
also support interest-earning assets.
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Table of Contents
The following tables sets forth average balances, average yields and costs, and certain other information for the
years ended December 31, 2020, 2019, and 2018. Average balances are daily average balances. Nonaccrual
loans are included in the computation of average balances but have been reflected in the table as loans
carrying a zero yield. The yields set forth below include the effect of deferred fees and costs, discounts and
premiums, and purchase accounting adjustments that are accreted or amortized to interest income or expense.
December 31, 2020
Average
Balance
Interest Yield/Cost
Average
Balance
Year Ended
December 31, 2019
December 31, 2018
Interest
(dollars in thousands)
Yield/Cost
Average
Balance
Interest
Yield/Cost
ASSETS
Loans
Securities
Deposits with banks
Other
Total interest-earning assets
Allowance for loan losses
Noninterest-earning assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Interest-bearing deposits:
Interest-bearing demand
Money market
Savings
Time
Total interest-bearing deposits
Securities sold under agreements to repurchase
Borrowings
Subordinated notes
Junior subordinated debentures issued to capital
trusts
Total interest-bearing liabilities
Noninterest-bearing deposits
Noninterest-bearing liabilities
Total liabilities
Stockholders' Equity
Total liabilities and stockholders’ equity
Net interest income/Net interest margin (3)
Tax-equivalent adjustment (2)
Net interest income (tax-equivalent basis)/ Net
interest margin (tax-equivalent basis) (1) (2)
Net interest rate spread (4)
Net interest-earning assets (5)
Ratio of interest-earning assets to interest-bearing
liabilities
Cost of total deposits
$ 2,245,093
789,062
282,130
2,479
$
105,196
17,875
938
56
4.69 % $ 2,178,897
759,479
2.27
164,986
0.33
2,501
2.28
$
120,142
20,582
2,951
60
5.51 % $ 2,131,512
860,804
2.71
114,202
1.79
2,771
2.41
$ 114,034
21,613
1,717
68
5.35 %
2.51
1.50
2.47
3,318,764
(27,661)
156,397
$ 3,447,500
$ 873,060
474,033
477,260
317,308
2,141,661
49,714
1,080
12,869
37,613
2,242,937
807,864
45,996
3,096,797
350,703
$ 3,447,500
$ 1,075,827
1.48
$
124,065
3.74 %
$
143,735
3,105,863
(21,704)
149,227
$ 3,233,386
4.63 % 3,109,289
(20,046)
158,355
$ 3,247,598
$ 137,432
4.42 %
$
647
697
196
2,681
4,221
48
2
616
0.07 % $ 821,480
463,233
0.15
430,220
0.04
396,560
0.84
2,111,493
0.20
41,177
0.10
351
0.22
—
4.79
1,573
6,460
$
4.18
0.29 %
37,553
2,190,574
666,055
35,213
2,891,842
341,544
$ 3,233,386
$
1,474
1,837
278
4,343
7,932
72
9
—
1,922
9,935
$
0.18 % $ 824,910
442,872
0.40
433,661
0.06
442,569
1.10
2,144,012
0.38
40,725
0.18
14,946
2.60
—
—
37,487
5.12
0.45 % 2,237,170
653,885
26,329
2,917,384
330,214
$ 3,247,598
$
1,378
685
283
3,541
5,887
48
260
—
1,795
7,990
$
0.17 %
0.15
0.07
0.80
0.27
0.12
1.74
—
4.79
0.36 %
$
117,605
1,943
$
119,548
3.54 %
0.06
3.60 %
3.45 %
0.14 %
$ 915,289
1.42
$
133,800
2,309
$
136,109
4.31 %
0.07
4.38 %
4.18 %
$ 129,442
2,661
$ 132,103
$ 872,119
1.39
0.29 %
4.16 %
0.09
4.25 %
4.06 %
0.21 %
(1) See "Non-GAAP Financial Information" in Part II, Item 6 “Selected Financial Data” for reconciliation of non-GAAP measures to their
most comparable GAAP measures.
(2) On a tax-equivalent basis assuming a federal tax rate of 21% and state income tax rate of 9.5%.
(3) Net interest margin represents net interest income divided by average total interest-earning assets.
(4) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average
interest-bearing liabilities.
(5) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
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Table of Contents
The following table sets forth the components of loan interest income. Loan interest income includes contractual
interest on loans, loan fees, accretion of acquired loan discounts and net earnings on cash flow hedges.
2020
Yield
Year Ended December 31,
2019
Yield
2018
Yield
Interest
Contribution
Interest
Contribution
Interest
Contribution
Contractual interest
Loan fees (excluding PPP loans)
PPP loan fees
Accretion of acquired loan discounts
Net cash flow hedge earnings
Total loan interest income
$
$
97,529
3,926
2,953
724
64
105,196
(dollars in thousands)
4.34 % $
0.19
0.13
0.03
—
4.69 % $
114,025
3,746
—
2,255
116
120,142
5.23 % $
0.17
—
0.10
0.01
5.51 % $
106,522
3,304
—
4,033
175
114,034
5.00 %
0.15
—
0.19
0.01
5.35 %
The following table sets forth the components of net interest income. Total interest income consists of
contractual interest on loans, contractual interest on securities, contractual interest on interest-bearing deposits
in banks, loan fees, accretion of acquired loan discounts, securities amortization, net, and other interest and
dividend income. Total interest expense consists of contractual interest on deposits, contractual interest on
other interest-bearing liabilities and other interest expense.
Interest income:
Contractual interest on loans
Contractual interest on securities
Contractual interest on deposits with banks
Loan fees (excluding PPP loans)
PPP loan fees
Accretion of acquired loan discounts
Securities amortization, net
Other
Total interest income
Interest expense:
Contractual interest on deposits
Contractual interest on other interest-bearing liabilities
Other
Total interest expense
Net interest income
Tax equivalent adjustment (1)
Net interest income (tax equivalent) (1) (2)
2020
Net Interest
Margin
Contribution
Interest
Year Ended December 31,
2019
Interest
Net Interest
Margin
Contribution
(dollars in thousands)
2018
Net Interest
Margin
Contribution
Interest
$
$
97,529
22,920
938
3,926
2,953
724
(5,045)
120
124,065
4,201
1,846
413
6,460
117,605
1,943
119,548
2.94 % $
0.69
0.03
0.12
0.09
0.02
(0.15)
—
3.74
0.13
0.06
0.01
0.20
3.54
0.06
3.60 % $
114,025
24,032
2,951
3,746
—
2,255
(3,450)
176
143,735
7,934
1,909
92
9,935
133,800
2,309
136,109
3.67 % $
0.77
0.10
0.12
—
0.07
(0.11)
0.01
4.63
0.26
0.06
—
0.32
4.31
0.07
4.38 % $
106,522
26,658
1,717
3,304
—
4,033
(5,045)
243
137,432
5,910
2,038
42
7,990
129,442
2,661
132,103
3.42 %
0.86
0.05
0.11
—
0.13
(0.16)
0.01
4.42
0.19
0.07
—
0.26
4.16
0.09
4.25 %
(1) On a tax-equivalent basis assuming a federal income tax rate of 21% and a state income tax rate of 9.5%.
(2) See "Non-GAAP Financial Information" in Part II, Item 6 “Selected Financial Data” for reconciliation of non-GAAP measures to their
most comparable GAAP measures.
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Table of Contents
Rate/Volume Analysis
The following table sets forth the dollar amount of changes in interest income and interest expense for the major
categories of our interest-earning assets and interest-bearing liabilities. Information is provided for each
category of interest-earning assets and interest-bearing liabilities with respect to changes attributable to
changes in volume (i.e., changes in average balances multiplied by the prior-period average rate), and changes
attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). For purposes of
this table, changes attributable to both volume and rate that cannot be segregated have been allocated
proportionately to the change due to volume and the change due to rate.
Year Ended December 31, 2020
vs.
Year Ended December 31, 2019
Increase (Decrease) Due to
Volume
Rate
Year Ended December 31, 2019
vs.
Year Ended December 31, 2018
Increase (Decrease) Due to
Total
Volume
(dollars in thousands)
Rate
Total
Interest-earning assets:
Loans
Securities
Deposits with banks
Other
Total interest-earning assets
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand
Money market
Savings
Time
Total interest-bearing deposits
Securities sold under agreements to repurchase
Borrowings
Subordinated notes
Junior subordinated debentures issued to capital trusts
Total interest-bearing liabilities
Change in net interest income
$
3,558
744
1,308
(1)
5,609
$ (18,504) $ (14,946) $
(3,451)
(3,321)
(3)
(25,279)
(2,707)
(2,013)
(4)
(19,670)
$
2,573
(2,644)
835
(6)
758
3,535
1,613
399
(2)
5,545
$ 6,108
(1,031)
1,234
(8)
6,303
88
42
27
(775)
(618)
13
6
616
3
20
5,589
$
(915)
(1,182)
(109)
(887)
(3,093)
(37)
(13)
—
(352)
(3,495)
(827)
(1,140)
(82)
(1,662)
(3,711)
(24)
(7)
616
(349)
(3,475)
$ (21,784) $ (16,195) $
(6)
56
(2)
(435)
(387)
1
(317)
—
3
(700)
1,458
$
102
1,096
(3)
1,237
2,432
23
66
—
124
2,645
2,900
96
1,152
(5)
802
2,045
24
(251)
—
127
1,945
$ 4,358
Comparison of the Year Ended December 31, 2020 to the Year Ended December 31, 2019
Net interest income for the year ended December 31, 2020 decreased $16.2 million, or 12.1%, to $117.6 million
from $133.8 million for the year ended December 31, 2019. The decrease is primarily attributable to declines in
benchmark interest rates, which drove lower yields on interest-earning assets. Partially offsetting this decline
were an increase in interest-earning asset balances, lower costs on deposits, and a decrease in time deposit
balances.
Net interest margin decreased as well to 3.54% for the year ended December 31, 2020 compared to 4.31% for
the year ended December 31, 2019. The decrease was primarily attributable to the decline in the average yield
on earning assets. The contribution of acquired loan discount accretion to net interest income declined to
$0.7 million or 2 basis points of the net interest margin, for the year ended December 31, 2020 from $2.3 million
or 7 basis points of the net interest margin, for the year ended December 31, 2019.
Additionally, the $40 million of subordinated notes issued during the third quarter of 2020 is expected to add
downward pressure to net interest income and net interest margin in subsequent periods. However, the
proceeds from the issuance, which were primarily invested in debt securities, provide additional regulatory
capital to buffer against higher than estimated credit losses and support organic or acquisitive growth.
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Table of Contents
Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018
Net interest income for the year ended December 31, 2019 increased $4.4 million, or 3.4%, to $133.8 million
from $129.4 million for the year ended December 31, 2018. The increase was primarily driven by higher rates in
the first half of 2019. Average rates on loans, securities, and interest-bearing deposits all increased in 2019, but
asset yield increases exceeded deposit cost increases. Organic loan growth also contributed to the increase in
net interest income, funded primarily through decreases in the securities portfolio, shifting our earning asset mix
from the securities portfolio to the higher yielding loan portfolio. Net interest margin increased as well to 4.31%
for the year ended December 31, 2019 compared to 4.16% for the year ended December 31, 2018. The
contribution of acquired loan discount accretion to net interest income declined to $2.3 million, or 7 basis points
of the net interest margin, for the year ended December 31, 2019 from $4.0 million, or 13 basis points of the net
interest margin, for the year ended December 31, 2018.
The quarterly net interest margins were as follows:
Three months ended
March 31,
June 30,
September 30,
December 31,
2020
2019
2018
4.03 %
3.51
3.39
3.31
4.50 %
4.37
4.27
4.09
4.07 %
4.15
4.19
4.25
As the table above illustrates, net interest margin rose during 2018, peaked in the first quarter of 2019, and then
declined during the remainder of 2019 and throughout 2020. During 2019, overall market interest rates started
to decline. The Federal Open Markets Committee lowered Federal Funds target rates for the first time in
11 years on July 31, 2019 and then again in September 2019 and October 2019, for a combined decrease of 75
basis points during 2019. In March 2020, the Federal Open Markets Committee lowered Federal Funds target
rates twice, for a combined decrease of 150 basis points in response to the economic downturn related to the
COVID-19 pandemic.
We expect these rate cuts and potential increases in nonperforming loans as a result of the economic downturn
related to the COVID-19 pandemic to continue to put downward pressure on our net interest margin. In general,
we believe that rate increases will lead to improved net interest margins while rate decreases will result in lower
net interest margins.
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Table of Contents
Provision for Loan Losses
Provisions for loan losses are charged to operations in order to maintain the allowance for loan losses at a level
we consider necessary to absorb probable incurred credit losses in the loan portfolio. In determining the level of
the allowance for loan losses, management considers past and current loss experience, evaluations of
collateral, current economic conditions, volume and type of lending, adverse situations that may affect a
borrower’s ability to repay a loan and the levels of nonperforming and other classified loans. The amount of the
allowance is based on estimates and the ultimate losses may vary from such estimates as more information
becomes available or events change. We assess the allowance for loan losses on a quarterly basis and make
provisions for loan losses in order to maintain the allowance. The provision for loan losses is a function of the
allowance for loan loss methodology we use to determine the appropriate level of the allowance for inherent
loan losses after net charge-offs have been deducted.
The deterioration of economic conditions related to the COVID-19 pandemic has adversely affected, and may
continue to adversely affect, the communities that we serve. As a result, our provision for loan losses increased
in 2020. If future economic conditions deteriorate, or if the COVID-19 pandemic is prolonged or intensifies, our
provision for loan losses may remain elevated, or increase, possibly materially, and adversely affect our
financial condition, results of operations, and cash flows.
Comparison of the Year Ended December 31, 2020 to the Year Ended December 31, 2019
The provision for loan losses was $10.5 million and $3.4 million for the years ended December 31, 2020 and
2019, respectively. The increase in provision for loan losses was primarily due to $5.8 million of reserve build
related to adjustments to qualitative factors to reflect the economic weakness resulting from the COVID-19
pandemic during the year ended December 31, 2020. Also contributing to the increase was a $3.8 million
increase in specific reserves on loans individually evaluated for impairment from December 31, 2019 to
December 31, 2020.
Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018
The provision for loan losses was $3.4 million and $5.7 million for the years ended December 31, 2019 and
2018, respectively. Net charge-offs to average loans decreased from 0.23% during the year ended
December 31, 2018 to 0.07% during the year ended December 31, 2019, reducing the need to provide for
additional allowance for loan losses. The allowance for loan losses as a percentage of loans increased from
0.96% at December 31, 2018 to 1.03% at December 31, 2019, primarily due to an increase in qualitative factor
adjustments applied to certain categories of loans collectively evaluated for impairment.
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Table of Contents
Noninterest Income
The following table outlines the amount of and changes to the various noninterest income line items as of the
dates indicated.
2020
$ Change
Year Ended December 31,
2019
(dollars in thousands)
$ Change
Card income
Service charges on deposit accounts
Wealth management fees
Mortgage servicing
Mortgage servicing rights fair value adjustment
Gains on sale of mortgage loans
Gains (losses) on securities
Gains (losses) on foreclosed assets
Gains (losses) on other assets
Title insurance activity
Other noninterest income
Total noninterest income
$
8,087
5,987
7,237
2,978
(2,584)
8,835
33
142
(71)
—
3,812
$ 34,456
$
$
322
(1,883)
410
(165)
(184)
5,743
38
(798)
(1,315)
(167)
(296)
1,705
$
7,765
7,870
6,827
3,143
(2,400)
3,092
(5)
940
1,244
167
4,108
$ 32,751
$
$
384
(271)
(575)
(118)
(3,029)
220
2,658
2,277
457
(1,040)
548
1,511
Comparison of the Year Ended December 31, 2020 to the Year Ended December 31, 2019
2018
$
7,381
8,141
7,402
3,261
629
2,872
(2,663)
(1,337)
787
1,207
3,560
$ 31,240
Total noninterest income for the year ended December 31, 2020 increased by $1.7 million, or 5.2%, to
$34.5 million from $32.8 million for the year ended December 31, 2019. The increase is primarily attributable to
a $5.7 million increase in gains on sale of mortgage loans, attributable to a strong mortgage refinancing
environment and higher premiums received on mortgage loans sold. A lower level of mortgage refinancing
activity is anticipated in 2021 and is expected to result in lower mortgage banking profits, relative to 2020.
Partially offsetting this increase were a $1.9 million decrease in service charges on deposit accounts,
associated with lower overdraft incidences and fee waivers, and nonrecurring gains contained in the 2019
results, including gains on sales of First Community Title Services, Inc. and HBT insurance of $0.8 million and
gains on sales of bank premises held for sale of $0.4 million.
Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018
Total noninterest income for the year ended December 31, 2019 increased by $1.5 million, or 4.8%, to $32.8
million from $31.2 million for the year ended December 31, 2018. The increase is primarily due to a $2.7 million
decrease in losses on securities, as a result of targeted security sales for tax purposes during the year ended
December 31, 2018 with no sales of securities during the year ended December 31, 2019. Gains (losses) on
foreclosed assets, which vary based on property specific circumstances, also contributed to an increase in total
noninterest income, increasing from a loss of a $1.3 million to a gain of $0.9 million. Fees on customer-related
interest rate swaps of $0.9 million during the year ended December 31, 2019, included in other noninterest
income, also contributed to noninterest income growth. There were no fees on customer-related interest rate
swaps during the year ended December 31, 2018.
Partially offsetting these improvements were the mortgage servicing rights fair value adjustment and title
insurance activity income. The mortgage servicing rights fair value adjustment declined from a gain of $0.6
million to a loss of $2.4 million, primarily due to actual and expected increases in mortgage refinances of
serviced loans driven by declines in mortgage interest rates. Title insurance activity income declined $1.0
million, due to the sale of First Community Title Services, Inc. on February 15, 2019.
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Table of Contents
Noninterest Expense
The following table outlines the amount of and changes to the various noninterest expense line items as of the
dates indicated.
Salaries
Employee benefits
Occupancy of bank premises
Furniture and equipment
Data processing
Marketing and customer relations
Amortization of intangible assets
FDIC insurance
Loan collection and servicing
Foreclosed assets
Other noninterest expense
Total noninterest expense
2020
$ 50,616
8,045
6,580
2,447
6,742
3,476
1,232
707
1,755
557
9,799
$ 91,956
$ Change
$ Change
2018
$
Year Ended December 31,
2019
(dollars in thousands)
$ 49,003
9,883
6,867
2,813
5,570
3,873
1,423
198
2,633
676
8,087
$ 91,026
1,613
(1,838)
(287)
(366)
1,172
(397)
(191)
509
(878)
(119)
1,712
930
$
$
$
(120) $ 49,123
6,759
7,352
3,000
5,234
4,211
1,559
942
2,710
772
8,655
$ 90,317
3,124
(485)
(187)
336
(338)
(136)
(744)
(77)
(96)
(568)
709
Comparison of the Year Ended December 31, 2020 to the Year Ended December 31, 2019
Total noninterest expense for the year ended December 31, 2020 increased by $0.9 million, or 1.0%, to
$92.0 million from $91.0 million for the year ended December 31, 2019. The increase in salaries expense was
primarily driven by higher bonuses for mortgage lenders and overtime and bonuses for mortgage support
personnel, as a result of increased residential mortgage origination volume. Partially offsetting this increase was
a reduction in employee count occurred as a result of the sale of First Community Title Services, Inc. and HBT
Insurance during the first quarter of 2019. Salaries and employee benefits expenses for First Community Title
Services, Inc. and HBT Insurance was $0.4 million for the year ended December 31, 2019. There were no
salaries and employee benefits expenses for First Community Title Services, Inc. or HBT Insurance subsequent
to 2019.
The decrease in employee benefits expense was primarily the result of smaller charges related to the
supplemental executive retirement plan (SERP) which was terminated in June 2019 and paid out in June 2020.
The charge related to termination of the SERP was $1.5 million and $3.8 million during the years ended
December 31, 2020 and 2019, respectively. The remaining $0.5 million increase in employee benefits expense
was primarily related to higher medical benefit expenses.
The increase in data processing expense includes $0.2 million of nonrecurring costs related to systems
conversion for the consolidation of State Bank of Lincoln into Heartland Bank and Trust Company as well as
upgrades to certain ancillary systems. Increased other noninterest expenses include higher legal and
professional fees associated with public company costs not incurred prior to the fourth quarter of 2019.
Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018
Total noninterest expense for the year ended December 31, 2019 increased by $0.7 million, or 0.8%, to $91.0
million from $90.3 million for the year ended December 31, 2018. The increase was primarily due to a $3.3
million increase in employee benefits expense driven by a $3.8 million charge during the year ended
December 31, 2019 related to the termination of the SERP. The SERP liability varied inversely with interest
rates and was paid out in June 2020.
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This increase in total noninterest expense was partially offset by a $0.7 million decrease in FDIC insurance
expense due in part to the application of small bank assessment credits. The remaining small bank assessment
credits available to the Bank was $0.4 million as of December 31, 2019, and may be applied, as determined by
the FDIC, against future FDIC insurance assessments which are paid quarterly, in arrears. Routine salary
increases were offset by a reduction in employee count as a result of the sale of First Community Title Services,
Inc. and HBT Insurance during the first quarter of 2019. Salaries and employee benefits expenses for First
Community Title Services, Inc. and HBT Insurance totaled $0.4 million and $1.3 million for the years ended
December 31, 2019 and 2018, respectively.
Income Taxes
The Company has historically been taxed under sections of federal and state tax law as an "S corporation"
which provides that with the exception of certain state replacement and franchise taxes, current stockholders
account separately for their share of the Company’s income, deductions, losses and credits. For additional
information, see “Factors Affecting Comparability of Financial Results: S Corp Status”.
Effective October 11, 2019, the Company voluntarily revoked its S Corporation status and became a taxable
entity (C Corporation). As such, any periods prior to October 11, 2019 will only reflect an effective state
replacement tax rate. In connection with the conversion of tax status, the Company recognized a deferred tax
asset, and the associated income tax benefit, of $0.5 million.
Comparison of the Year Ended December 31, 2020 to the Year Ended December 31, 2019
We recorded income tax expense of $12.7 million, or 25.7% effective tax rate, during the year ended
December 31, 2020 compared to $5.3 million, or 7.3% effective tax rate, on a historical basis and $18.7 million,
or 26.0% effective tax rate, on a pro forma C Corp equivalent basis during the year ended December 31, 2019.
The effective income tax rate was lower than the combined federal and state statutory rate of approximately
28.5% primarily due to tax exempt interest income. Relative to the pro forma C Corp equivalent effective tax
rate, the effective income tax rate decreased primarily due to tax exempt interest income making up a larger
portion of pre-tax net income during the year ended December 31, 2020 compared to the year ended
December 31, 2019.
Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018
We recorded income tax expense of $5.3 million, or 7.3% effective tax rate, during the year ended
December 31, 2020 compared to $0.9 million, or 1.3% effective tax rate, during the year ended December 31,
2019. The increase was primarily due to the transition to a C Corporation effective October 11, 2019. On a pro
forma C Corp equivalent basis, the effective tax rate increased to 26.0% during the year ended December 31,
2019, from 25.3% during the year ended December 31, 2018, due to tax exempt interest income making up a
smaller portion of pre-tax net income during the year ended December 31, 2019 compared to the year ended
December 31, 2018.
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FINANCIAL CONDITION
Balance Sheet Information
Cash and cash equivalents
Debt securities available-for-sale, at fair value
Debt securities held-to-maturity
Equity securities
Loans held for sale
Loans, before allowance for loan losses
Less: allowance for loan losses
Loans, net of allowance for loan losses
Goodwill
Core deposit intangible assets, net
Other assets
Total Assets
2020
December 31,
2019
2018
$ Change % Change $ Change % Change
2020 vs. 2019
2019 vs. 2018
(dollars in thousands, except per share data)
$
312,451
922,869
68,395
4,844
14,713
2,247,006
31,838
2,215,168
$
283,971
592,404
88,477
4,389
4,531
2,163,826
22,299
2,141,527
$
186,879
679,526
121,715
3,261
2,800
$ 28,480
330,465
(20,082)
455
10,182
10.0 % $ 97,092
(87,122)
55.8
(33,238)
(22.7)
1,128
10.4
1,731
224.7
2,144,257
20,509
2,123,748
83,180
9,539
73,641
23,620
2,798
101,709
$ 3,666,567
23,620
4,030
102,154
$ 3,245,103
23,620
5,453
102,567
$ 3,249,569
3.8
42.8
3.4
—
(30.6)
(0.4)
13.0
19,569
1,790
17,779
—
(1,423)
(413)
(4,466)
12.7 % $ (19,115)
(1,762)
—
66
23,823
3,012
(7,478)
(4,466)
2.9
NM
0.2
(7.2)
13.4
9.3
13.0
—
(1,232)
(445)
421,464
$ 353,679
1,303
39,238
65
(3,820)
390,465
30,999
421,464
52.0 %
(12.8)
(27.3)
34.6
61.8
0.9
8.7
0.8
—
(26.1)
(0.4)
(0.1)
(0.7)%
(3.8)
NM
0.2
80.8
0.1
(2.2)
(0.1)
(0.1)%
(2.0)
(1.0)%
Total deposits
Securities sold under agreements to repurchase
Subordinated notes
Junior subordinated debentures
Other liabilities
Total Liabilities
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
$ 3,130,534
45,736
39,238
37,648
49,494
3,302,650
363,917
$ 3,666,567
$ 2,776,855
44,433
—
37,583
53,314
2,912,185
332,918
$ 3,245,103
$ 2,795,970
46,195
—
37,517
29,491
2,909,173
340,396
$ 3,249,569
Tangible assets (1)
Tangible common equity (1)
$ 3,640,149
337,499
$ 3,217,453
305,268
$ 3,220,496
311,323
$ 422,696
32,231
13.1 % $ (3,043)
(6,055)
10.6
Core deposits (1)
$ 3,103,847
$ 2,732,101
$ 2,759,095
$ 371,746
13.6 % $ (26,994)
Share and Per Share Information
Book value per share
Tangible book value per share
Ending number shares of common stock
outstanding
Balance Sheet Ratios
Loan to deposit ratio
Core deposits to total deposits (1)
Stockholders' equity to total assets
Tangible common equity to tangible assets (1)
$
13.25
12.29
$
12.12
11.12
$
18.88
17.27
27,457,306
27,457,306
18,027,512
71.78 %
99.15
9.93
9.27
77.92 %
98.39
10.26
9.49
76.69 %
98.68
10.48
9.67
(1) See "Non-GAAP Financial Information" in Part II, Item 6 “Selected Financial Data” for reconciliation of non-GAAP measures to their
most comparable GAAP measures.
NM Not meaningful.
Balance Sheet Analysis
Comparison of December 31, 2020 to December 31, 2019
Total assets were $3.67 billion at December 31, 2020, an increase of $421.5 million, or 13.0%, from
December 31, 2019, which was primarily a result of an increase in total deposits that were invested primarily in
debt securities and loans. Loans, before allowance for loan losses increased $83.2 million, primarily due to the
origination of PPP loans which totaled $163.5 million as of December 31, 2020. Loans held for sale increased
$10.2 million, primarily due to a strong mortgage refinancing environment.
Total deposits were $3.13 billion at December 31, 2020, an increase of $353.7 million, or 12.7%, from
December 31, 2019. This increase is primarily due to PPP loan proceeds received by commercial customers
and federal economic stimulus received by retail customers.
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Table of Contents
Core deposits to total deposits remained very high at 99.1% at December 31, 2020 compared to 98.4% at
December 31, 2019, as we managed our deposit portfolio to retain higher value core deposit relationships and
maintain the lowest practicable cost of funds. The loan to deposit ratio was 71.8% at December 31, 2020,
decreasing from 77.9% at December 31, 2019.
Comparison of December 31, 2019 to December 31, 2018
Total assets remained almost unchanged from December 31, 2018 to December 31, 2019, decreasing $4.5
million, or 0.1%, to $3.25 billion as of December 31, 2019. Although total assets remained steady, the
Company’s asset mix shifted with a $120.4 million decrease in the debt securities portfolio, a $97.1 million
increase in cash and cash equivalents, and a $19.6 million increase in loans, before allowance for loan losses.
Total deposits were $2.78 billion at December 31, 2019, a decrease of $19.1 million, or 0.7%, from
December 31, 2018. This slight decrease is primarily due to decreases in higher cost deposit categories such
as time deposits, partially offset by increases in money market accounts. The decline in total deposits was also
partially offset by deposit growth in the fourth quarter of 2019 which included approximately $40.2 million in
increased balances in a small number of retail deposit accounts. The Company expected some outflow in these
deposits during the first quarter of 2020.
Core deposits to total deposits remained very high at 98.4% at December 31, 2019 compared to 98.7% at
December 31, 2018, as we managed our deposit portfolio to retain and increase higher value core deposit
relationships and maintain the lowest practicable cost of funds. The loan to deposit ratio was 77.9% at
December 31, 2019, increasing from 76.7% at December 31, 2018.
Loan Portfolio
The Company focuses on originating loans with appropriate risk / reward profiles. The Company has a detailed
loan policy that guides the overall loan origination philosophy and a well-established loan approval process that
requires experienced credit officers to approve larger loan relationships. The Company also has an active credit
department that underwrites and prepares annual reviews for larger and more complex loan relationships.
Management monitors credit quality closely with a series of monthly reports and a quarterly Credit Committee
meeting where performance and trends within the loan portfolio are reviewed. Portfolio diversification at the
borrower, industry, and product levels is actively managed to mitigate concentration risk. In addition, credit risk
management includes an independent loan review process that assesses compliance with loan policy,
compliance with loan documentation standards, accuracy of the risk rating and overall credit quality of the loan
portfolio.
Loan Categories
The principal categories of our loan portfolio are described below:
Commercial and Industrial: Consists of loans typically granted for working capital, asset acquisition
and other business purposes. These loans are underwritten primarily based on the borrower’s cash flow
with most loans secondarily supported by collateral. Most commercial and industrial loans are secured
by the assets being financed or other business assets, such as accounts receivable, inventory, and
equipment, and are typically supported by personal guarantees of the owners. Cash flows and collateral
values may fluctuate based on general economic conditions, specific industry conditions and specific
borrower circumstances.
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Agricultural and Farmland: Consists of loans typically secured by farmland, agricultural operating
assets, or a combination of both, and are generally underwritten to existing cash flows of operating
agricultural businesses. Debt repayment is provided by business cash flows. Economic trends
influenced by unemployment rates and other key economic indicators are not closely correlated to the
credit quality of agricultural and farmland loans. The credit quality of these loans is most correlated to
changes in prices of corn and soybeans and, to a lesser extent, weather, which has been partially
mitigated by federal crop insurance programs.
Commercial Real Estate - Owner Occupied: Consists of loans secured by commercial real estate that
is both owned and occupied by the same or a related borrower. These loans are primarily underwritten
based on the cash flow of the business occupying the property. As with commercial and industrial loans,
cash flows and collateral values may fluctuate based on general economic conditions, specific industry
conditions, and specific borrower circumstances.
Commercial Real Estate - Non-owner Occupied: Consists of loans secured by commercial real
estate for which the primary source of repayment is the sale or rental cash flows from the underlying
collateral. These loans are underwritten based primarily on the historic or projected cash flow from the
underlying collateral. Adverse economic developments or an overbuilt market typically impact
commercial real estate projects. Trends in rental and vacancy rates of commercial properties impact the
credit quality of these loans.
Multi-family: Consists of loans secured by five or more unit apartment buildings. Multi-family loans may
be affected by demographic and population trends, unemployment or underemployment, and
deteriorating market values of real estate.
Construction and Land Development: Consists of loans for speculative and pre-sold construction
projects for developers intending to either sell upon completion or hold for long term investment, as well
as construction of projects to be owner occupied. In addition, loans in this segment generally possess a
higher inherent risk of loss than other portfolio segments due to risk of non-completion, changes in
budgeted costs, and changes in market forces during the term of the construction period.
One-to-four Family Residential: Consists of loans secured by one-to-four family residences, including
both first and junior lien mortgage loans for owner occupied and non-owner occupied properties and
home equity lines of credit. The degree of risk in residential mortgage lending depends on the local
economy, including the local real estate market and unemployment rates.
Municipal, Consumer and Other: Loans to municipalities include obligations of municipal entities and
loans sponsored by municipal entities for the benefit of a private entity where that private entity, rather
than the municipal entity, is responsible for repayment of the obligation. Consumer loans include loans
to individuals for consumer purposes and typically consist of small balance loans. Economic trends
determined by unemployment rates and other key economic indicators are closely correlated to the
credit quality of the consumer loans. Loans to other financial institutions, as well as leases, are also
included.
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Table of Contents
Loans by Type
The following table sets forth the composition of the loan portfolio, excluding loans held-for-sale, by type of loan
as of December 31.
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner
occupied
Commercial real estate - non-
owner occupied
Multi-family
Construction and land
development
One-to-four family residential
Municipal, consumer, and other
Loans, before allowance for loan
losses
Allowance for loan losses
Loans, net of allowance for
loan losses
Loans, before allowance for loan
losses (originated) (1)
Loans, before allowance for loan
losses (acquired) (1)
Loans, before allowance for
loan losses
2020
2019
2018
2017
2016
Balance
Percent
Balance
Percent
Balance
Percent
(dollars in thousands)
Balance
Percent
Balance
Percent
$ 393,312
222,723
17.5 %$ 307,175
207,776
9.9
14.2 %$ 360,501
209,875
9.6
16.8 %$ 371,452
208,349
9.8
17.5 %$ 372,588
207,604
9.8
17.7 %
9.9
222,360
9.9
231,162
10.7
255,074
11.9
276,883
13.1
297,818
14.1
520,395
236,391
225,652
306,775
119,398
23.2
10.5
10.0
13.7
5.3
579,757
179,073
224,887
313,580
120,416
26.8
8.3
10.4
14.5
5.5
533,910
135,925
237,275
313,108
98,589
24.9
6.3
11.1
14.6
4.6
488,442
137,055
170,513
358,659
104,593
23.1
6.5
8.1
17.0
4.9
433,939
127,132
182,023
393,399
92,012
20.6
6.0
8.6
18.7
4.4
2,247,006
(31,838)
100.0 %
2,163,826
(22,299)
100.0 %
2,144,257
(20,509)
100.0 %
2,115,946
(19,765)
100.0 %
2,106,515
(19,708)
100.0 %
$
2,215,168
$
2,141,527
$
2,123,748
$
2,096,181
$
2,086,807
$
2,126,323
94.6 %$
1,998,496
92.4 %$
1,923,859
89.7 %$
1,825,129
86.3 %$
1,689,186
80.2 %
120,683
5.4
165,330
7.6
220,398
10.3
290,817
13.7
417,329
19.8
$
2,247,006
100.0 %$
2,163,826
100.0 %$
2,144,257
100.0 %$
2,115,946
100.0 %$
2,106,515
100.0 %
PPP loans (included above)
Commercial and industrial
Agricultural and farmland
Municipal, consumer, and other
Total PPP loans
$ 153,860
3,049
6,587
$ 163,496
$
$
—
—
—
—
$
$
—
—
—
—
$
$
—
—
—
—
$
$
—
—
—
—
(1) See "Non-GAAP Financial Information" in Part II, Item 6 “Selected Financial Data” for reconciliation of non-GAAP measures to their
most comparable GAAP measures.
Comparison of December 31, 2020 to December 31, 2019
Loans, before allowance for loan losses increased by $83.2 million, or 3.8%, to $2.25 billion as of December 31,
2020 from $2.16 billion as of December 31, 2019. The increase was primarily due to PPP loan originations
during the second and third quarters of 2020. The $80.3 million decrease in loans before allowance for loan
losses net of PPP loans from December 31, 2019 was primarily due to a $43.2 million reduction in balances on
existing lines of credit and a $19.0 million decrease in balances of participation loans purchased.
Comparison of December 31, 2019 to December 31, 2018
Loans, before the allowance for loan losses, increased by $19.5 million, or 0.9%, to $2.16 billion as of
December 31, 2019 as compared to $2.14 billion as of December 31, 2018. Loan growth during the year ended
December 31, 2019 was primarily attributable to continued organic loan growth in the commercial real estate –
non-owner occupied and multi-family categories in our northern Illinois markets. Offsetting the organic loan
growth was a $59.7 million reduction in the loan participations resulting primarily from the payoff of seven loans
during the year ended December 31, 2019. The seven loan participations that paid off predominantly included
$21.2 million in commercial and industrial, $4.8 million in commercial real estate – owner occupied, $4.9 million
in commercial real estate – non-owner occupied, $18.4 million in multi-family, and $4.7 million in municipal,
consumer, and other. Loan participations make up a small portion of the Company’s loan portfolio totaling $71.7
million and $131.4 million as of December 31, 2019, and 2018, respectively.
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Table of Contents
Loan Portfolio Maturities
The following table summarizes the scheduled maturities of the loan portfolio as of December 31, 2020.
Demand loans (loans having no stated repayment schedule or maturity) and overdraft loans are reported as
being due in one year or less.
Scheduled Maturities of Loans:
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Total
Loans Maturing After One Year:
Floating interest rates:
Repricing within one year or less
Repricing in more than one year
Total floating interest rates
Predetermined (fixed) interest rates
Total loans maturing after one year
Nonperforming Assets
As of December 31, 2020
One Year or Less
One Year Through
Five Years
After Five Years
Total
(dollars in thousands)
$
$
148,207
101,160
20,929
77,736
44,466
118,431
48,914
14,556
574,399
$
$
233,952
88,423
137,998
326,544
127,558
103,568
120,712
26,887
1,165,642
$
$
11,153
33,140
63,433
116,115
64,367
3,653
137,149
77,955
506,965
$
393,312
222,723
222,360
520,395
236,391
225,652
306,775
119,398
$ 2,247,006
$
357,598
82,131
439,729
1,232,878
$ 1,672,607
Nonperforming loans consist of all loans past due 90 days or more or on nonaccrual. Nonperforming assets
consist of all nonperforming loans and foreclosed assets. Typically, loans are placed on nonaccrual when they
reach 90 days past due, or when, in management’s opinion, there is reasonable doubt regarding the collection
of the amounts due through the normal means of the borrower. Interest accrued and unpaid at the time a loan is
placed on nonaccrual status is reversed from interest income. Interest payments received on nonaccrual loans
are recognized in accordance with our significant accounting policies. Once a loan is placed on nonaccrual
status, the borrower must generally demonstrate at least six months of payment performance and we believe
that all remaining principal and interest is fully collectible, before the loan is eligible to return to accrual status.
Management believes the Company’s lending practices and active approach to managing nonperforming assets
has resulted in timely resolution of problem assets.
Loans acquired with deteriorated credit quality are considered past due or delinquent when the contractual
principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date
of the scheduled payment. However, these loans are considered performing, even though they may be
contractually past due, as any non-payment of contractual principal or interest is considered in the periodic re-
estimation of expected cash flows and is included in the resulting recognition of current period loan loss
provision or future period yield adjustments. The accrual of interest is discontinued on loans acquired with
deteriorated credit quality if management can no longer estimate future cash flows on the loan. Therefore,
interest revenue, through accretion of the difference between the carrying value of the loans and the expected
cash flows, is being recognized on all loans acquired with deteriorated credit quality, except those management
can no longer estimate future cash flows.
When it appears likely that we will obtain title to real estate collateral, we develop an exit strategy by assessing
overall market conditions, the current use and condition of the asset, and its highest and best use. If determined
necessary to maximize value, we complete the necessary improvements or tenant stabilization tasks, with the
applicable time value discount and improvement expenses incorporated into our estimates of the expected
costs to sell. Substantially all foreclosed real estate is valued on an "as-is" basis.
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Table of Contents
Estimates of the net realizable value of real estate collateral also include a deduction for the expected selling
costs. For most real estate collateral and foreclosed real estate, we apply a 7.0% deduction to the value of the
asset to account for the expected costs to sell the asset. This estimate includes sales commissions and closing
costs. Expenses for real estate taxes are accrued and repairs are expensed when incurred.
The following table sets forth information concerning nonperforming loans and nonperforming assets as of each
of the dates indicated.
NONPERFORMING ASSETS
Nonaccrual
Past due 90 days or more, still accruing (1)
Total nonperforming loans
Foreclosed assets
Total nonperforming assets
NONPERFORMING ASSETS (Originated) (2)
Nonaccrual
Past due 90 days or more, still accruing
Total nonperforming loans
Foreclosed assets
Total nonperforming (originated)
NONPERFORMING ASSETS (Acquired) (2)
Nonaccrual
Past due 90 days or more, still accruing (1)
Total nonperforming loans
Foreclosed assets
Total nonperforming assets (acquired)
Allowance for loan losses
Loans, before allowance for loan losses
Loans, before allowance for loan losses (originated) (2)
Loans, before allowance for loan losses (acquired) (2)
CREDIT QUALITY RATIOS
Allowance for loan losses to loans, before allowance for loan losses
Allowance for loan losses to nonperforming loans
Nonperforming loans to loans, before allowance for loan losses
Nonperforming assets to total assets
Nonperforming assets to loans, before allowance for loan losses and foreclosed
assets
CREDIT QUALITY RATIOS (Originated) (2)
Nonperforming loans to loans, before allowance for loan losses
Nonperforming assets to loans, before allowance for loan losses and foreclosed
assets
CREDIT QUALITY RATIOS (Acquired) (2)
Nonperforming loans to loans, before allowance for loan losses
Nonperforming assets to loans, before allowance for loan losses and foreclosed
assets
2020
2019
As of December 31,
2018
(dollars in thousands)
2017
2016
$
$
$
$
$
$
$
$
9,939
21
9,960
4,168
14,128
2,908
21
2,929
674
3,603
$
$
$
$
19,019
30
19,049
5,099
24,148
10,811
30
10,841
1,022
11,863
$
$
$
$
15,876
37
15,913
9,559
25,472
10,329
37
10,366
1,395
11,761
$
$
$
$
22,074
28
22,102
16,545
38,647
15,505
28
15,533
5,950
21,483
$
$
$
$
7,031
$
—
8,208
$
—
5,547
$
—
6,569
$
—
7,031
3,494
10,525
31,838
2,247,006
2,126,323
120,683
$
$
$
8,208
4,077
12,285
22,299
2,163,826
1,998,496
165,330
$
$
$
5,547
8,164
13,711
20,509
2,144,257
1,923,859
220,398
$
$
$
6,569
10,595
17,164
19,765
2,115,946
1,825,129
290,817
$
$
$
20,494
1,745
22,239
16,224
38,463
9,511
1,745
11,256
4,595
15,851
10,983
—
10,983
11,629
22,612
19,708
2,106,515
1,689,186
417,329
1.42 %
1.03 %
0.96 %
0.93 %
0.94 %
319.66
0.44
0.39
0.63
117.06
0.88
0.74
1.11
128.88
0.74
0.78
1.18
89.43
1.04
1.17
1.81
88.62
1.06
1.16
1.81
0.14 %
0.54 %
0.54 %
0.85 %
0.67 %
0.17
0.59
0.61
1.17
0.94
5.83 %
4.96 %
2.52 %
2.26 %
2.63 %
8.48
7.25
6.00
5.69
5.27
(1) Excludes loans acquired with deteriorated credit quality that are past due 90 or more days totaling $0.6 million, $0.1 million,
$2.7 million, $0.3 million, and $4.6 million as of December 31, 2020, 2019, 2018, 2017, and 2016, respectively.
(2) See "Non-GAAP Financial Information" in Part II, Item 6 “Selected Financial Data” for reconciliation of non-GAAP measures to their
most comparable GAAP measures.
Comparison of December 31, 2019 to December 31, 2018
Total nonperforming assets were $14.1 million as of December 31, 2020, a decrease of $10.0 million, or 41.5%,
from $24.1 million as of December 31, 2019. The decline in nonperforming loans was primarily attributable to
the pay down and subsequent return to accrual status of one agriculture credit which totaled $3.8 million at
December 31, 2020 and $5.0 million at December 31, 2019, as well as the pay off or pay down of 5 loan
relationships that totaled approximately $4.2 million since December 31, 2019.
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Table of Contents
Comparison of December 31, 2019 to December 31, 2018
Total nonperforming assets were $24.1 million as of December 31, 2019, a decrease of $1.3 million, or 5.2%,
from $25.5 million as of December 31, 2018, due primarily to a $4.5 million reduction in foreclosed assets as a
result of sales, partially offset by a $3.1 million increase in nonaccrual loans. The increase in nonaccrual loans
consisted primarily of a $4.3 million increase in agricultural and farmland nonaccrual loans, related primarily to
one acquired loan relationship, partially offset by smaller variations in other loan categories. The one
agricultural and farmland loan relationship placed on nonaccrual previously mentioned was individually
evaluated for impairment and no specific reserves were required as of December 31, 2019.
Troubled Debt Restructurings
In general, if the Company grants a troubled debt restructuring (TDR) that involves either the absence of
principal amortization or a material extension of an existing loan amortization period in excess of our
underwriting standards, the loan will be placed on nonaccrual status. However, if a TDR is well secured by an
abundance of collateral and the collectability of both interest and principal is probable, the loan may remain on
accrual status. A nonaccrual TDR in full compliance with the payment requirements specified in the loan
modification for at least six months may return to accrual status, if the collectability of both principal and interest
is probable. All TDRs are individually evaluated for impairment.
The following table presents TDRs by loan category.
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Total accrual troubled debt restructurings
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Total nonaccrual troubled debt restructurings
Total troubled debt restructurings
2020
2019
As of December 31,
2018
(dollars in thousands)
2017
2016
$
$
296
—
6,491
1,354
—
—
454
—
8,595
75
—
141
—
—
—
139
—
355
8,950
$
$
867
—
5,746
1,427
—
—
517
—
8,557
135
283
149
—
—
—
191
—
758
9,315
$
467
$
—
620
$
—
6,244
2,061
—
—
556
—
9,328
206
166
3,112
—
—
—
550
—
1,811
2,099
—
—
340
—
4,870
194
—
5,126
468
—
—
74
—
4,034
$ 13,362
5,862
10,732
$
$
13
—
7,576
559
—
—
109
—
8,257
329
—
161
—
—
417
—
—
907
9,164
TDRs have remained a small portion of our loan portfolio as loan modifications to borrowers with deteriorating
financial condition are generally offered only as a part of an overall workout strategy to minimize losses to the
Company.
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Table of Contents
Risk Classification of Loans
Our policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that
are considered to be of lesser quality as pass-watch, substandard, doubtful, or loss.
A pass-watch loan is still considered a "pass" credit and is not a classified or criticized asset, but is a reflection
of a borrower who exhibits credit weaknesses or downward trends warranting close attention and increased
monitoring. These potential weaknesses may result in deterioration of the repayment prospects for the loan. No
loss of principal or interest is expected, and the borrower does not pose sufficient risk to warrant classification.
A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or
of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that
jeopardize the liquidation of the debt. They are characterized as probable that the borrower will not pay principal
and interest in accordance with the contractual terms.
An asset classified as doubtful has all the weaknesses inherent in one classified as substandard with the added
characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts,
conditions, and values, highly questionable and improbable. Assets classified as loss are those considered
uncollectible and of such little value that their continuance as assets is not warranted; such balances are
promptly charged-off as required by applicable federal regulations.
As of December 31, 2020 and 2019, our risk classifications of loans were as follows:
December 31, 2020
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Pass
$ 368,843
191,662
176,823
432,752
204,449
193,646
280,198
105,539
$ 18,258
25,540
31,990
58,699
31,066
28,193
14,526
312
6,211
5,521
13,547
28,944
876
3,813
12,051
13,547
Pass-Watch Substandard Doubtful
(dollars in thousands)
$
$
Total
— $ 393,312
222,723
—
222,360
—
520,395
—
236,391
—
225,652
—
306,775
—
119,398
—
Total
December 31, 2019
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
$ 1,953,912
$
208,584
$ 84,510
$
— $ 2,247,006
Pass
$ 267,645
180,735
198,710
531,694
175,807
217,120
287,036
106,063
Total
Pass-Watch Substandard Doubtful
(dollars in thousands)
$
$ 12,416
14,774
10,707
1,971
1,495
4,185
12,998
13,874
$ 27,114
12,267
21,745
46,092
1,771
3,582
13,546
479
— $ 307,175
207,776
—
231,162
—
579,757
—
179,073
—
224,887
—
313,580
—
120,416
—
Total
$ 1,964,810
$
126,596
$ 72,420
$
— $ 2,163,826
Pass-watch loans increased $82.0 million, or 64.8% from December 31, 2019 to December 31, 2020.
Additionally, substandard loans increased $12.1 million, or 16.7%, from December 31, 2019 to December 31,
2020. This downward credit migration was primarily due to current or emerging credit weaknesses exhibited by
borrowers negatively impacted by the economic downturn caused by the COVID-19 pandemic.
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Table of Contents
Allowance for Loan Losses
The allowance for loan losses is an estimate of loan losses inherent in the Company’s loan portfolio. The
allowance for loan losses represents amounts that have been established to recognize incurred credit losses in
the loan portfolio that are both probable and reasonably estimable at the date of the consolidated financial
statements. The allowance for loan losses is established through a provision for loan losses which is charged to
expense. Additions to the allowance are expected to maintain the adequacy of the total allowance. Loan losses
are charged off against the allowance when the Company determines the loan balance to be uncollectible.
Cash received on previously charged off amounts is recorded as a recovery to the allowance for loan losses.
The allowance for loan losses consists of two primary components, general reserves and specific reserves
related to impaired loans. The general component covers non-impaired loans and is based on historical losses
adjusted for qualitative factors. The historical loss experience is determined by portfolio segment and is based
on the actual loss history experienced by the Company over the most recent 16-quarter period. This actual loss
experience is adjusted for qualitative factors based on the risks present for each portfolio segment. These
qualitative factors include consideration of the following: levels of and trends in delinquencies and impaired
loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any
changes in risk selection and underwriting standards; other changes in lending policies, procedures, and
practices; experience, ability, and depth of lending management and other relevant staff; national and local
economic trends and conditions; industry conditions; and effects of changes in credit concentrations.
These qualitative factors are inherently subjective and are driven by the repayment risk associated with each
portfolio segment.
A loan is considered impaired when, based on current information and events, it is probable that the Company
will be unable to collect the scheduled payments of principal or interest when due according to the contractual
terms of the loan agreement. The Company reviews the loan portfolio on an ongoing basis to determine
whether any loans require classification and impairment testing in accordance with applicable regulations and
accounting principles. When a loan is classified as either substandard or doubtful and in certain other cases,
such as troubled debt restructurings, the Company generally measures impairment based on the fair value of
the collateral, but also may use the present value of expected future cash flows discounted at the original
contractual interest rate, when practical.
The Company evaluates the allowance for loan losses based upon the combined total of the specific and
general components. Generally, when the loan portfolio increases, absent other factors, the allowance for loan
loss methodology results in a higher dollar amount of estimated probable incurred credit losses than would be
the case without the increase. Conversely, when the loan portfolio decreases, absent other factors, the
allowance for loan loss methodology generally results in a lower dollar amount of estimated probable losses
than would be the case without the decrease.
While the Company uses the best information available to make evaluations, future adjustments to the
allowance for loan losses may become necessary if conditions change substantially from the conditions used in
previous evaluations. Determinations as to the risk classification of loans and the amount of the allowance for
loan losses are subject to review by regulatory agencies, which can require that the Company establish
additional loss allowances.
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Table of Contents
Net Charge-offs and Recoveries
The following table sets forth activity in the allowance for loan losses.
Balance, beginning of year
$
22,299
$
2020
2019
Year Ended December 31,
2018
(dollars in thousands)
$
19,765
$
20,509
Charge-offs:
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Total charge-offs
Recoveries:
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Total recoveries
Net charge-offs
Provision for loan losses
Balance, end of year
Net charge-offs
Net charge-offs (originated) (1)
Net charge-offs (acquired) (1)
(1,784)
(27)
(39)
(349)
—
(27)
(155)
(587)
(2,968)
(886)
(30)
(407)
(111)
(41)
(9)
(1,105)
(684)
(3,273)
595
—
440
75
—
440
—
56
20
—
250
310
305
1,975
(993)
10,532
31,838
993
345
648
$
$
450
350
343
1,659
(1,614)
3,404
22,299
1,614
732
882
$
$
$
$
(1,446)
—
(2,352)
(237)
(194)
(58)
(1,415)
(783)
(6,485)
315
—
54
141
—
260
490
272
1,532
(4,953)
5,697
20,509
4,953
3,137
1,816
2017
2016
19,708
$
18,248
(1,780)
(3)
(32)
(940)
(153)
(503)
(787)
(818)
(5,016)
188
—
38
958
—
27
414
309
1,934
(1,322)
(83)
(753)
(1,134)
—
(442)
(1,848)
(989)
(6,571)
890
—
9
95
6
19
258
320
1,597
$
$
(3,082)
3,139
19,765
3,082
2,500
582
$
$
(4,974)
6,434
19,708
4,974
1,245
3,729
Average loans, before allowance for loan losses
Average loans, before allowance for loan losses
(originated) (1)
Average loans, before allowance for loan losses
(acquired) (1)
$ 2,245,093
$ 2,178,897
$ 2,131,512
$ 2,091,863
$ 2,132,405
2,102,904
1,981,658
1,873,623
1,748,418
1,611,846
142,189
197,239
257,889
343,445
520,559
Net charge-offs to average loans, before allowance for
loan losses
Net charge-offs to average loans, before allowance for
loan losses (originated) (1)
Net charge-offs to average loans, before allowance for
loan losses (acquired) (1)
0.04 %
0.07 %
0.23 %
0.15 %
0.23 %
0.02
0.46
0.04
0.45
0.17
0.70
0.14
0.17
0.08
0.72
(1) See "Non-GAAP Financial Information" in Part II, Item 6 “Selected Financial Data” for reconciliation of non-GAAP measures to their
most comparable GAAP measures.
Comparison of the Year Ended December 31, 2020 to the Year Ended December 31, 2019
Net charge-offs to average total loans before allowance for loan losses have remained low during each of the
years ended December 31, 2020 and 2019. This ratio has remained low for several years, due primarily to the
favorable economic conditions prior to the economic weakness resulting from the COVID-19 pandemic and our
continuous credit monitoring and collection efforts.
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Table of Contents
Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018
Net charge-offs and the ratio of net charge-offs to average loans, before allowance for loan losses were
$1.6 million and 0.07%, respectively, for the year ended December 31, 2019 compared to $5.0 million and
0.23%, respectively, for the year ended December 31, 2018. This ratio has remained low for several years, due
primarily to favorable economic conditions and our continuous credit monitoring and collection efforts.
Allocation of Allowance for Loan Losses
The following table sets forth the allocation of allowance for loan losses by major loan categories.
December 31, 2020
December 31, 2019
December 31, 2018
December 31, 2017
December 31, 2016
Allowance
for Loan
Losses
Loan
Balances
Allowance
for Loan
Losses
Loan
Balances
Allowance
for Loan
Losses
Loan
Balances
Allowance
for Loan
Losses
Loan
Balances
Loan
Allowance
for Loan
Losses
(dollars in thousands)
$ 360,501
209,875
3,748
2,650
Balances
$
$
3,929
793
$ 393,312
222,723
$
4,441
2,766
$ 307,175
207,776
$
5,411
2,385
$ 371,452
208,349
$
4,870
3,455
$
372,588
207,604
3,141
222,360
1,779
231,162
2,506
255,074
1,510
276,883
1,622
297,818
11,251
1,957
4,232
1,801
4,734
$ 31,838
520,395
236,391
225,652
306,775
119,398
$ 2,247,006
3,663
1,024
2,977
2,540
3,109
$ 22,299
579,757
179,073
224,887
313,580
120,416
$ 2,163,826
2,644
912
4,176
2,782
1,091
$ 20,509
533,910
135,925
237,275
313,108
98,589
$ 2,144,257
2,476
997
2,981
2,723
1,282
$ 19,765
488,442
137,055
170,513
358,659
104,593
$ 2,115,946
2,701
1,282
1,983
2,720
1,075
$ 19,708
433,939
127,132
182,023
393,399
92,012
$ 2,106,515
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner
occupied
Commercial real estate - non-owner
occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Total
Securities
The Company’s investment policy is established by management and approved by the board of directors. The
policy emphasizes safety of the investment, liquidity requirements, potential returns, cash flow targets and
consistency with our interest rate risk management strategy. As of December 31, 2020, the Company did not
have any non-U.S. Treasury or non-U.S. government agency debt securities that exceeded 10% of the
Company’s total stockholders’ equity.
The following table sets forth the composition, amortized cost and fair values of debt securities available-for-
sale and held-to-maturity.
December 31, 2020
December 31, 2019
December 31, 2018
Amortized
Cost
Amortized
Amortized
Fair Value Cost
Fair Value Cost
Fair Value
Available-for-sale:
U.S. government agency
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Private-label
Corporate
Total available-for-sale
Held-to-maturity:
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Total held-to-maturity
Total debt securities
(dollars in thousands)
$ 118,282
265,309
$ 121,993
274,261
$ 49,113
131,241
$ 49,615
133,738
$ 46,977
161,957
$ 46,866
161,450
198,543
246,649
203,252
250,766
198,184
133,730
—
—
—
70,917
899,700
72,597
922,869
72,239
584,507
200,678
134,954
—
73,419
592,404
235,903
151,878
254
87,118
684,087
234,303
150,081
256
86,570
679,526
22,484
23,874
45,239
46,579
73,176
74,283
13,031
32,880
68,395
$ 968,095
13,483
35,084
72,441
$ 995,310
19,072
24,166
88,477
$ 672,984
19,063
24,887
90,529
$ 682,933
23,192
25,347
121,715
$ 805,802
22,194
25,029
121,506
$ 801,032
We evaluate securities with significant declines in fair value on a quarterly basis to determine whether they
should be considered other-than-temporarily impaired. There were no other-than-temporary impairments during
the years ended December 31, 2020, 2019, and 2018.
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Table of Contents
Portfolio Maturities and Yields
The composition and maturities of the debt securities portfolio as of December 31, 2020 is summarized in the
following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of
prepayments or early redemptions that may occur. Security yields have not been adjusted to a tax-equivalent
basis.
One Year or Less
More Than One Year More than Five Years
through Five Years
through Ten Years
Weighted
Weighted
Weighted
December 31, 2020
Amortized Average Amortized Average Amortized Average Amortized
Cost
Yield
Cost
Yield
Cost
Yield
(dollars in thousands)
Cost
More than Ten Years
Total
Weighted
Weighted
Average Amortized Average
Cost
Yield
Yield
$
4,519
2.18 % $
5,003
1.91 % $ 65,847
1.92 % $ 42,913
1.31 % $ 118,282
1.71 %
14,150
2.58
49,950
2.44
113,695
—
12,922
9,663
—
2.32
2.31
5,370
44,710
27,825
2.12
2.71
2.86
72,244
97,262
31,429
1.92
2.22
1.57
4.27
87,514
1.92
265,309
120,929
91,755
2,000
1.09
1.68
4.50
198,543
246,649
70,917
Available-for-sale:
U.S. government agency
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Corporate
Total available-for-sale
41,254
2.39
132,858
2.58
380,477
2.08
345,111
1.51
899,700
Held-to-maturity:
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Total held-to-maturity
1,396
2.45
13,895
3.69
6,302
3.55
891
—
—
1,396
—
—
2.45
—
5,301
19,196
—
2.51
3.36
—
16,655
22,957
—
2.59
2.85
13,031
10,924
24,846
3.76
2.35
2.89
2.64
22,484
13,031
32,880
68,395
Total debt securities
$
42,650
2.39 % $
152,054
2.68 % $
403,434
2.13 % $ 369,957
1.58 % $ 968,095
2.02 %
87
2.05
1.53
1.86
3.45
1.95
3.57
2.35
2.68
2.91
Table of Contents
SOURCES OF FUNDS
Deposits
Management continues to focus on growing non-maturity deposits, through the Company’s relationship driven
banking philosophy and community-focused marketing programs, and to deemphasize higher cost deposit
categories, such as time deposits. Additionally, the Bank continues to add and improve ancillary convenience
services tied to deposit accounts, such as mobile, remote deposits and peer-to-peer payments, to solidify
deposit relationships.
The following tables set forth the distribution of average deposits, by account type.
Year Ended December 31, 2020
Percent
Change in
Noninterest-bearing
Interest-bearing demand
Money market
Savings
Total non-maturity deposits
Time
Total deposits
Noninterest-bearing
Interest-bearing demand
Money market
Savings
Total non-maturity deposits
Time
Total deposits
Noninterest-bearing
Interest-bearing demand
Money market
Savings
Total non-maturity deposits
Time
Total deposits
$
$
$
$
$
$
Weighted Average Balance
Average
Balance
Percent of
Total Deposits Average Cost
(dollars in thousands)
27.4 %
29.6
16.1
16.2
89.3
10.7
— %
0.07
0.15
0.04
0.06
0.84
0.14 %
100.0 %
807,864
873,060
474,033
477,260
2,632,217
317,308
2,949,525
2020 vs. 2019
21.3 %
6.3
2.3
10.9
10.6
(20.0)
6.2 %
Year Ended December 31, 2019
Percent
Change in
Weighted Average Balance
Average
Balance
Percent of
Total Deposits Average Cost
(dollars in thousands)
24.0 %
29.5
16.7
15.5
85.7
14.3
— %
0.18
0.40
0.06
0.15
1.10
0.29 %
100.0 %
666,055
821,480
463,233
430,220
2,380,988
396,560
2,777,548
2019 vs. 2018
1.9 %
(0.4)
4.6
(0.8)
1.1
(10.4)
(0.7)%
Year Ended December 31, 2018
Average
Balance
Weighted
Percent of
Total Deposits Average Cost
(dollars in thousands)
23.4 %
29.5
15.8
15.5
84.2
15.8
0.17
0.15
0.07
0.10
0.80
0.21 %
100.0 %
— %
653,885
824,910
442,872
433,661
2,355,328
442,569
2,797,897
Comparison of the Year Ended December 31, 2020 to the Year Ended December 31, 2019
The average balances of non-maturity deposits increased 10.6% from the year ended December 31, 2019 to
the year ended December 31, 2020, with the increase primarily attributable to PPP loan proceeds received by
commercial customers and federal economic stimulus received by retail customers. Partially offsetting the
increase in non-maturity deposits was a 20.0% decline in the average balances of time deposits, which resulted
in a 6.2% increase in average balances of total deposits from the year ended December 31, 2019 to the year
ended December 31, 2020.
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Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018
The average balances of non-maturity deposits increased 1.1% from the year ended December 31, 2018 to the
year ended December 31, 2019, with the increase primarily attributable to an increase in money market
accounts due to interest rate specials promoted for new money market accounts. Partially offsetting the
increase in non-maturity deposits was a 10.4% decline in the average balances of time deposits, which resulted
in a 0.7% decrease in average balances of total deposits from the year ended December 31, 2018 to the year
ended December 31, 2019.
The following table sets forth time deposits by remaining maturity as of December 31, 2020.
3 Months or Over 3 through Over 6 through
Less
6 Months
12 Months
Over
12 Months
Total
(dollars in thousands)
Time deposits:
Amounts less than $100,000
$ 45,174
$
38,193
$
57,420
$
59,038
$ 199,825
Amounts of $100,000 but less than $250,000
Amounts of $250,000 or more
14,732
6,361
11,407
1,759
28,274
15,058
18,549
3,509
72,962
26,687
Total time deposits
$ 66,267
$
51,359
$ 100,752
$
81,096
$ 299,474
Securities Sold Under Agreements to Repurchase
All securities sold under agreements to repurchase are sweep instruments, maturing daily. The securities
underlying the agreements are held under our control in safekeeping at third-party financial institutions, and
include debt securities.
The following table sets forth information concerning balances and interest rates on our securities sold under
agreements to repurchase.
Balance at end of year
Average balance during year
Maximum outstanding at any month end
2020
As of or for the Years Ended December 31,
2019
(dollars in thousands)
$ 44,433
41,177
52,085
$ 46,195
40,725
52,303
$ 45,736
49,714
58,839
2018
Weighted average interest rate at end of year
Average interest rate during year
0.06 %
0.10
0.20 %
0.18
0.12 %
0.12
Borrowings
Deposits are the primary source of funds for our lending activities and general business purposes. However, we
may also obtain advances from the Federal Home Loan Bank of Chicago (FHLB), purchase federal funds, and
engage in overnight borrowing from the Federal Reserve. We may also use these sources of funds as part of
our asset liability management process to control our long-term interest rate risk exposure, even if it may
increase our short-term cost of funds. Our level of short-term borrowing can fluctuate on a daily basis
depending on funding needs and the source of funds to satisfy the needs.
Our use of FHLB advances and federal funds purchased has been infrequent and has had a nominal impact on
our total funding for the years ended December 31, 2020, 2019, and 2018.
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The following table sets forth information concerning balances and interest rates on our borrowings.
As of or for the Years Ended December 31,
2019
(dollars in thousands)
2018
2020
Average balance during year
FHLB Advances
Federal funds purchased
Total borrowings
Maximum outstanding at any month end
FHLB Advances
Federal funds purchased
Total borrowings
Average interest rate during year
FHLB Advances
Federal funds purchased
Total borrowings
IMPACT OF INFLATION
$
$
$
$
$
$
656
424
1,080
4,000
—
4,000
151
200
351
$ 14,518
428
$ 14,946
5,000
—
5,000
$ 74,000
—
74,000
0.02 %
0.52
0.22
2.52 %
2.66
2.60
1.73 %
2.08
1.74
The consolidated financial statements and the related notes have been prepared in conformity with GAAP.
GAAP generally requires the measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money over time due to inflation. The
impact of inflation, if any, is reflected in the increased cost of our operations. Unlike industrial companies, our
assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a
greater impact on performance than the effects of inflation.
LIQUIDITY
Bank Liquidity
The overall objective of bank liquidity management is to ensure the availability of sufficient cash funds to meet
all financial commitments and to take advantage of investment opportunities. The Bank manages liquidity in
order to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature,
and to fund new loans and investments as opportunities arise.
The Bank continuously monitors its liquidity position to ensure that assets and liabilities are managed in a
manner that will meet all of our short-term and long-term cash requirements. The Bank manages its liquidity
position to meet the daily cash flow needs of clients, while maintaining an appropriate balance between assets
and liabilities to meet the return on investment objectives. The Bank also monitors liquidity requirements in light
of interest rate trends, changes in the economy and the scheduled maturity and interest rate sensitivity of the
securities and loan portfolios and deposits.
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As part of the Bank’s liquidity management strategy, the Bank is also focused on minimizing costs of liquidity
and attempts to decrease these costs by promoting noninterest bearing and low-cost deposits and replacing
higher cost funding including time deposits and borrowed funds. While the Bank does not control the types of
deposit instruments our clients choose, those choices can be influenced with the rates and the deposit specials
offered.
Additional sources of liquidity include unpledged securities, federal funds purchased, and borrowings from the
Federal Home Loan Bank of Chicago (FHLB). Unpledged securities may be sold or pledged as collateral for
borrowings to meet liquidity needs. Interest is charged at the prevailing market rate on federal funds purchased
and FHLB borrowings. Funds obtained from federal funds purchased and FHLB borrowings are used primarily
to meet day to day liquidity needs. The total amount of the remaining credit available to the Bank from the FHLB
at December 31, 2020 was $342.8 million.
As of December 31, 2020, management believed adequate liquidity existed to meet all projected cash flow
obligations of the Bank. As of December 31, 2020, the Bank had no material commitments for capital
expenditures.
Holding Company Liquidity
The Company is a corporation separate and apart from the Bank and, therefore, it must provide for its own
liquidity. As of December 31, 2020, HBT Financial, Inc. had cash and cash equivalents of $44.1 million. The
private placement of $40.0 million of subordinated notes completed on September 3, 2020 significantly
bolstered the cash reserves at the holding company.
The Company’s main source of funding is dividends declared and paid to it by the Bank. Due to state banking
laws, the Bank may not declare dividends in any calendar year in an amount that would exceed the
accumulated retained earnings after giving effect to any unrecognized losses and bad debts without the prior
approval of the Illinois Department of Financial and Professional Regulation. In addition, dividends paid by the
Bank to the Company would be prohibited if the effect thereof would cause a Bank’s capital to be reduced below
applicable minimum capital requirements. Management believes that these limitations will not impact the
Company’s ability to meet its ongoing short-term cash obligations. During the years ended December 31, 2020,
2019, and 2018, the Bank paid $17.6 million, $110.0 million, and $44.4 million, in dividends to the Company,
respectively.
The liquidity needs of the Company on an unconsolidated basis consist primarily of operating expenses,
dividends to stockholders and interest payments on the subordinated notes and junior subordinated debentures.
During the years ended December 31, 2020, 2019, and 2018, holding company operating expenses consisted
of interest expense of $2.2 million, $1.9 million, and $1.8 million, respectively, and other operating expenses of
$2.5 million, $1.0 million, and $1.1 million, respectively. As of December 31, 2020, management was not aware
of any known trends, events or uncertainties that had or were reasonably likely to have a material impact on the
Company’s liquidity.
As of December 31, 2020, management believed adequate liquidity existed to meet all projected cash flow
obligations of the Company. As of December 31, 2020, the Company had no material commitments for capital
expenditures.
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CAPITAL RESOURCES
The overall objectives of capital management are to ensure the availability of sufficient capital to support loan,
deposit and other asset and liability growth opportunities and to maintain capital to absorb unforeseen losses or
write-downs that are inherent in the business risks associated with the banking industry. The Company seeks to
balance the need for higher capital levels to address such unforeseen risks and the goal to achieve an
adequate return on the capital invested by our stockholders.
Regulatory Capital Requirements
The ability of the Company to pay dividends to its stockholders is dependent upon the ability of the Bank to pay
dividends to the Company.
The Company and Bank are each subject to various regulatory capital requirements administered by federal
and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on
the financial statements of the Company and the Bank.
In addition to meeting minimum capital requirements, the Company and the Bank must also maintain a “capital
conservation buffer” to avoid becoming subject to restrictions on capital distributions and certain discretionary
bonus payments to management. The capital conservation buffer requirement began phasing in on January 1,
2016 and became fully implemented on January 1, 2019 at 2.5% of risk-weighted assets.
2020
December 31,
2019
For Capital
Adequacy Purposes
With Capital
To Be Well
Capitalized Under
Prompt Corrective
2018
Conversation Buffer (1) Action Provisions (2)
Total Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.
Heartland Bank
State Bank of Lincoln
Tier 1 Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.
Heartland Bank
State Bank of Lincoln
Common Equity Tier 1 Capital (to Risk Weighted
Assets)
Consolidated HBT Financial, Inc.
Heartland Bank
State Bank of Lincoln
Tier 1 Capital (to Average Assets)
Consolidated HBT Financial, Inc.
Heartland Bank
State Bank of Lincoln
17.40 %
15.63
N/A
14.54 %
14.02
17.58
14.99 %
14.44
21.02
14.55 %
14.38
N/A
13.64 %
13.12
16.50
14.17 %
13.62
20.17
13.06 %
14.38
N/A
12.15 %
13.12
16.50
12.71 %
13.62
20.17
9.94 %
9.82
N/A
10.38 %
10.25
9.82
10.80 %
11.03
10.21
10.50 %
10.50
10.50
8.50 %
8.50
8.50
7.00 %
7.00
7.00
4.00
4.00
4.00
N/A
10.00 %
10.00
N/A
8.00 %
8.00
N/A
6.50 %
6.50
N/A
5.00 %
5.00
(1) The Tier 1 capital to average assets ratio (known as the “leverage ratio”) is not impacted by the capital conservation buffer.
(2) The prompt corrective action provisions are not applicable to bank holding companies.
N/A Not applicable.
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Cash Dividends
The below table summarizes the cash dividends paid by quarter for years ended December 31.
First Quarter Second Quarter Third Quarter Fourth Quarter
Total
2020
Regular
Restricted stock unit dividend equivalent
Total cash dividends
$
$
4,119
11
4,130
$
$
4,119
11
4,130
(dollars in thousands)
$
$
4,118
11
4,129
4,118
11
4,129
$
$
16,474
44
16,518
Regular
Tax
Special
Total cash dividends
Regular
Tax
Special
Total cash dividends
First Quarter Second Quarter Third Quarter Fourth Quarter
Total
2019
(dollars in thousands)
$
$
$
$
$
2,704
7,048
—
9,752
2,105
7,092
—
9,197
$
$
$
2,704
6,662
—
9,366
2,101
7,055
—
9,156
(dollars in thousands)
$
$
— $
—
169,999
169,999
8,112
19,804
197,040
$ 224,956
2,101
6,751
2,000
10,852
$
$
8,412
27,203
7,006
42,621
$
$
2,704
6,094
27,041
35,839
$
$
$
$
2,105
6,305
5,006
13,416
$
$
First Quarter Second Quarter Third Quarter Fourth Quarter
Total
2018
On October 1, 2019, the Company’s board of directors declared a special dividend payable to the Company’s
stockholders of record as of October 2, 2019, in the aggregate amount of approximately $170.0 million. The
special dividend was paid on October 22, 2019 using net proceeds from the Company’s initial public offering
and the proceeds of dividends received from Heartland Bank and State Bank of Lincoln.
During 2020, the Company paid quarterly cash dividends of $0.15 per share.
Stock Repurchase Program
On November 2, 2020, the Company’s board of directors approved a stock repurchase program that authorizes
the Company to repurchase up to $15 million of its common stock. The stock repurchase program will be in
effect until December 31, 2021 with the timing of purchases and number of shares repurchased dependent
upon a variety of factors including price, trading volume, corporate and regulatory requirements, and market
conditions. The Company is not obligated to purchase any shares under the stock repurchase program, and the
stock repurchase program may be suspended or discontinued at any time without notice.
OFF-BALANCE SHEET ARRANGEMENTS
As a financial services provider, the Bank is routinely a party to various financial instruments with off-balance
sheet risks, such as commitments to extend credit, standby letters of credit, unused lines of credit and
commitments to sell loans. While these contractual obligations represent our future cash requirements, a
significant portion of commitments to extend credit may expire without being drawn upon. Such commitments
are subject to the same credit policies and approval process afforded to loans originated by the Bank. Although
commitments to extend credit are considered while evaluating our allowance for loan losses, at December 31,
2020 and 2019, there were no reserves for unfunded commitments. For additional information, see “Note 23 –
Commitments and Contingencies” to the consolidated financial statements.
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CONTRACTUAL OBLIGATIONS
In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include
operating leases for premises and equipment. The following table summarizes our significant fixed and
determinable contractual obligations and other funding needs by payment date at December 31, 2020.
Less Than One One to Three Three to Five More Than Five
Payments Due In
Time deposits (1)
Subordinated notes (1)(2)
Junior subordinated debentures issued to
capital trusts(1)(2)
Limited partnership investment (3)
Operating leases
Total
Commitments to extend credit
Standby letters of credit
$
$
$
$
Year
Years
218,378
—
$
64,640
—
Years
(dollars in thousands)
$
$
16,309
—
—
1,695
144
220,217
360,135
3,346
$
$
$
—
—
173
64,813
88,096
1,683
$
$
$
—
—
104
16,413
34,120
5,002
$
$
$
Years
Total
147
40,000
$
38,765
—
—
$
$
— $
78,912
47,840
299,474
40,000
38,765
1,695
421
380,355
530,191
10,031
(1) Excludes interest.
(2) Represents amounts due to the recipient and does not include unamortized issuance costs or discounts.
(3) This commitment represents amounts we are obligated to contribute to a limited partnership investment in accordance with the
provisions of the respective limited partnership agreements. The capital contributions may be required at any time, and are therefore
reflected in the "less than one year" category.
JOBS ACT ACCOUNTING ELECTION
We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the
“JOBS Act”). The JOBS Act permits us an extended transition period for complying with new or revised
accounting standards affecting public companies. We have elected to use the extended transition period until
we are no longer an emerging growth company or until we choose to affirmatively and irrevocably opt out of the
extended transition period. As a result, our financial statements may not be comparable to companies that
comply with new or revised accounting pronouncements applicable to public companies.
CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are those that are critical to the portrayal and understanding of the Company’s
financial condition and results of operations and require management to make assumptions that are difficult,
subjective or complex. These estimates involve judgments, assumptions and uncertainties that are susceptible
to change. In the event that different assumptions or conditions were to prevail, and depending on the severity
of such changes, the possibility of a materially different financial condition or materially different results of
operations is a reasonable likelihood. Further, changes in accounting standards could impact the Company’s
critical accounting estimates. The following accounting estimates could be deemed critical:
Allowance for Loan losses
The allowance for loan losses (allowance) is an estimate of loan losses inherent in the Company's loan
portfolio. The allowance is established through a provision for loan losses which is charged to expense.
Additions to the allowance are expected to maintain the adequacy of the total allowance. Loan losses are
charged off against the allowance when the Company determines the loan balance to be uncollectible. Cash
received on previously charged off amounts is recorded as a recovery to the allowance.
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The allowance consists of two primary components, general reserves and specific reserves related to impaired
loans. The general component covers non-impaired loans and is based on historical losses adjusted for
qualitative factors. The historical loss experience is determined by portfolio segment and is based on the actual
loss history experienced by the Company over the most recent 16-quarter period. This actual loss experience is
adjusted for qualitative factors based on the risks present for each portfolio segment. These qualitative factors
include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and
trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk
selection and underwriting standards; other changes in lending policies, procedures, and practices; experience,
ability, and depth of lending management and other relevant staff; national and local economic trends and
conditions; industry conditions; and effects of changes in credit concentrations. These qualitative factors are
inherently subjective and are driven by the repayment risk associated with each portfolio segment.
Loans acquired that have evidence of deterioration in credit quality since origination and for which it is probable,
at acquisition, that the Company will be unable to collect all contractually required payments receivable, are
initially recorded at fair value (as determined by the present value of expected future cash flows) with no
allowance for loan losses. Loans are evaluated by management at the time of purchase to determine if there is
evidence of deterioration in credit quality since origination. Loans where there is evidence of deterioration of
credit quality since origination may be aggregated and accounted for as a pool of loans if the loans being
aggregated have common risk characteristics. The difference between the undiscounted cash flows expected at
acquisition and the investment in the loan, or the "accretable yield," is recognized as interest income over the
life of the loan. Contractually required payments for interest and principal that exceed the undiscounted cash
flows expected at acquisition, or the "nonaccretable difference," are not recognized as a yield adjustment.
Subsequent decreases to the expected cash flows will generally result in a provision for loan losses.
Subsequent increases in expected cash flows result in a reversal of the provision for loan losses to the extent of
prior charges or a reclassification of the difference from nonaccretable to accretable yield with a positive impact
on interest income on a prospective basis. If the Company does not have the information necessary to
reasonably estimate cash flows to be expected, it may use the cost recovery method or cash basis method of
income recognition.
Goodwill
Goodwill represents the excess of purchase price over the fair value of net assets acquired using the acquisition
method of accounting. Determining the fair value often involves estimates based on third-party valuations, such
as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques.
Goodwill is not amortized, instead, the Company assesses the potential for impairment on an annual basis or
more frequently if events and circumstances indicate that goodwill might be impaired.
Income Taxes
The Company estimates income tax expense based on amounts expected to be owed to federal and state tax
jurisdictions. Estimated income tax expense is reported in the statements of income. Accrued and deferred
taxes, as reported in other assets or other liabilities in the balance sheets, represent the net estimated amount
due to or to be received from taxing jurisdictions either currently or in the future. Management judgment is
involved in estimating accrued and deferred taxes, as it may be necessary to evaluate the risks and merits of
the tax treatment of transactions, filing positions, and taxable income calculations after considering tax-related
statutes, regulations and other relevant factors. Because of the complexity of tax laws and interpretations,
interpretation is subject to judgment.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Managing risk is an essential part of successfully managing a financial institution. Our most prominent risk
exposures are interest rate risk and credit risk. Interest rate risk is the potential reduction of net interest income
as a result of changes in interest rates. Credit risk is the risk of not collecting the interest and/or the principal
balance of a loan or investment when it is due and is disclosed in detail above.
Interest Rate Risk
The most significant form of market risk is interest rate risk inherent in the normal course of lending and deposit-
taking activities. Management believes that our ability to successfully respond to changes in interest rates will
have a significant impact on our financial results. To that end, management actively monitors and manages our
interest rate exposure.
The Asset/Liability Management Committee (ALCO), which is authorized by the Company’s board of directors,
monitors our interest rate sensitivity and makes decisions relating to that process. The ALCO’s goal is to
structure our asset/liability composition to maximize net interest income while managing interest rate risk so as
to minimize the adverse impact of changes in interest rates on net interest income and capital in either a rising
or declining interest rate environment. Profitability is affected by fluctuations in interest rates. A sudden and
substantial change in interest rates may adversely impact our earnings because the interest rates borne by
assets and liabilities do not change at the same speed, to the same extent or on the same basis.
We monitor the impact of changes in interest rates on our net interest income and economic value of equity
(EVE) using rate shock analysis. Net interest income simulations measure the short-term earnings exposure
from changes in market rates of interest in a rigorous and explicit fashion. Our current financial position is
combined with assumptions regarding future business to calculate net interest income under varying
hypothetical rate scenarios. EVE measures our long-term earnings exposure from changes in market rates of
interest. EVE is defined as the present value of assets minus the present value of liabilities at a point in time. A
decrease in EVE due to a specified rate change indicates a decline in the long-term earnings capacity of the
balance sheet assuming that the rate change remains in effect over the life of the current balance sheet.
The following table sets forth, as of December 31, 2020 and 2019, the estimated impact on our EVE and net
interest income of immediate changes in interest rates at the specified levels.
Change in Interest Rates (basis points)
Amount
Percent
Amount
Percent
Amount
Percent
(dollars in thousands)
Estimated Increase
(Decrease) in EVE
Increase (Decrease) in
Estimated Net Interest Income
Year 1
Year 2
December 31, 2020
+400
+300
+200
+100
Flat
-100
December 31, 2019
+400
+300
+200
+100
Flat
-100
$ 81,406
50,943
11,166
(26,976)
—
29,295
21.1 % $ 27,461
21,149
13.2
14,272
2.9
6,851
(7.0)
—
(4,088)
—
7.6
23.8 % $ 44,487
34,815
18.3
24,197
12.4
12,350
5.9
—
—
(7,262)
(3.5)
42.1 %
32.9
22.9
11.7
—
(6.9)
37.8 % $ 28,585
22,265
31.2
15,413
23.1
8,061
12.8
—
(12,878)
—
(20.1)
23.5 % $ 35,711
28,128
18.3
19,788
12.6
10,550
6.6
—
—
(17,568)
(10.6)
30.0 %
23.7
16.6
8.9
—
(14.8)
$ 200,797
165,809
122,859
68,303
—
(106,615)
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This data does not reflect any actions that we may undertake in response to changes in interest rates, such as
changes in rates paid on certain deposit accounts based on local competitive factors or changes in earning
assets mix, which could reduce the actual impact on EVE and net interest income, if any.
Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements.
Modeling changes in EVE and net interest income requires that we make certain assumptions that may or may
not reflect the manner in which actual yields and costs respond to changes in market interest rates. The EVE
and net interest income table presented above assumes that the composition of our interest-rate-sensitive
assets and liabilities existing at the beginning of a period remains constant over the period being measured and,
accordingly, the data does not reflect any actions that we may undertake in response to changes in interest
rates, such as changes in rates paid on certain deposit accounts based on local competitive factors. The table
also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of
the duration to maturity or the repricing characteristics of specific assets and liabilities. Accordingly, although the
EVE and net interest income table provides an indication of our sensitivity to interest rate changes at a
particular point in time, such measurements are not intended to and do not provide a precise forecast of the
effect of changes in market interest rates on our net interest income and will differ from actual results.
Credit Risk
Credit risk is the risk that borrowers or counterparties will be unable or unwilling to repay their obligations in
accordance with the underlying contractual terms. We manage and control credit risk in the loan portfolio by
adhering
to well-defined underwriting criteria and account administration standards established by
management. Our loan policy documents underwriting standards, approval levels, exposure limits and other
limits or standards deemed necessary and prudent. Portfolio diversification at the borrower, industry, and
product levels is actively managed to mitigate concentration risk. In addition, credit risk management also
includes an independent loan review process that assesses compliance with loan policy, compliance with loan
documentation standards, accuracy of the risk rating and overall credit quality of the loan portfolio.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HBT FINANCIAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
99
100
101
102
103
104
106
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors
HBT Financial, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of HBT Financial, Inc. and its subsidiaries (the
Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive
income, changes in stockholders' equity and cash flows for each of the three years in the period ended
December 31, 2020, and the related notes to the consolidated financial statements (collectively, the financial
statements). In our opinion, the financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2020, in conformity with accounting principles
generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to
be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express
no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We
believe that our audits provide a reasonable basis for our opinion.
/s/ RSM US LLP
We have served as the Company's auditor since 2017.
Chicago, Illinois
March 12, 2021
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HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
ASSETS
Cash and due from banks
Interest-bearing deposits with banks
Cash and cash equivalents
Interest-bearing time deposits with banks
Debt securities available-for-sale, at fair value
Debt securities held-to-maturity (fair value of $72,441 in 2020 and $90,529 in 2019)
Equity securities
Restricted stock, at cost
Loans held for sale
Loans, net of allowance for loan losses of $31,838 in 2020 and $22,299 in 2019
Bank premises and equipment, net
Bank premises held for sale
Foreclosed assets
Goodwill
Core deposit intangible assets, net
Mortgage servicing rights, at fair value
Investments in unconsolidated subsidiaries
Accrued interest receivable
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-bearing
Interest-bearing
Total deposits
Securities sold under agreements to repurchase
Subordinated notes
Junior subordinated debentures issued to capital trusts
Other liabilities
Total liabilities
COMMITMENTS AND CONTINGENCIES (Notes 11 and 23)
December 31, December 31,
2020
2019
$
$
24,912
287,539
312,451
22,112
261,859
283,971
—
922,869
68,395
4,844
2,498
14,713
2,215,168
52,904
121
4,168
23,620
2,798
5,934
1,165
14,255
20,664
3,666,567
882,939
2,247,595
3,130,534
45,736
39,238
37,648
49,494
3,302,650
$
$
248
592,404
88,477
4,389
2,425
4,531
2,141,527
53,987
121
5,099
23,620
4,030
8,518
1,165
13,951
16,640
3,245,103
689,116
2,087,739
2,776,855
44,433
—
37,583
53,314
2,912,185
$
$
Stockholders' Equity
Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued or outstanding
Common stock, $0.01 par value; 125,000,000 shares authorized; 27,457,306 shares issued and
outstanding
Surplus
Retained earnings
Accumulated other comprehensive income
Total stockholders’ equity
Total liabilities and stockholders’ equity
—
—
275
190,875
154,614
18,153
363,917
3,666,567
275
190,524
134,287
7,832
332,918
3,245,103
$
$
See accompanying Notes to Consolidated Financial Statements
100
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
INTEREST AND DIVIDEND INCOME
Loans, including fees:
Taxable
Federally tax exempt
Securities:
Taxable
Federally tax exempt
Interest-bearing deposits in bank
Other interest and dividend income
Total interest and dividend income
INTEREST EXPENSE
Deposits
Securities sold under agreements to repurchase
Borrowings
Subordinated notes
Junior subordinated debentures issued to capital trusts
Total interest expense
Net interest income
PROVISION FOR LOAN LOSSES
Net interest income after provision for loan losses
NONINTEREST INCOME
Card income
Service charges on deposit accounts
Wealth management fees
Mortgage servicing
Mortgage servicing rights fair value adjustment
Gains on sale of mortgage loans
Gains (losses) on securities
Gains (losses) on foreclosed assets
Gains (losses) on other assets
Title insurance activity
Other noninterest income
Total noninterest income
NONINTEREST EXPENSE
Salaries
Employee benefits
Occupancy of bank premises
Furniture and equipment
Data processing
Marketing and customer relations
Amortization of intangible assets
FDIC insurance
Loan collection and servicing
Foreclosed assets
Other noninterest expense
Total noninterest expense
INCOME BEFORE INCOME TAX EXPENSE
INCOME TAX EXPENSE
NET INCOME
EARNINGS PER SHARE - BASIC
EARNINGS PER SHARE - DILUTED
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING
UNAUDITED PRO FORMA C CORP EQUIVALENT INFORMATION (Note 1)
Historical income before income tax expense
Pro forma C Corp equivalent income tax expense
Pro forma C Corp equivalent net income
PRO FORMA C CORP EQUIVALENT EARNINGS PER SHARE - BASIC
PRO FORMA C CORP EQUIVALENT EARNINGS PER SHARE - DILUTED
See accompanying Notes to Consolidated Financial Statements
101
Year Ended December 31,
2019
(dollars in thousands, except per share data)
2020
2018
$
102,893
2,303
$
117,296
2,846
$
13,179
4,696
938
56
124,065
4,221
48
2
616
1,573
6,460
117,605
10,532
107,073
8,087
5,987
7,237
2,978
(2,584)
8,835
33
142
(71)
—
3,812
34,456
50,616
8,045
6,580
2,447
6,742
3,476
1,232
707
1,755
557
9,799
91,956
49,573
12,728
36,845
1.34
1.34
27,457,306
$
$
$
14,854
5,728
2,951
60
143,735
7,932
72
9
—
1,922
9,935
133,800
3,404
130,396
7,765
7,870
6,827
3,143
(2,400)
3,092
(5)
940
1,244
167
4,108
32,751
49,003
9,883
6,867
2,813
5,570
3,873
1,423
198
2,633
676
8,087
91,026
72,121
5,256
66,865
3.33
3.33
20,090,270
72,121
18,749
53,372
2.66
2.66
$
$
$
$
$
$
$
$
$
$
$
$
$
$
111,349
2,685
14,459
7,154
1,717
68
137,432
5,887
48
260
—
1,795
7,990
129,442
5,697
123,745
7,381
8,141
7,402
3,261
629
2,872
(2,663)
(1,337)
787
1,207
3,560
31,240
49,123
6,759
7,352
3,000
5,234
4,211
1,559
942
2,710
772
8,655
90,317
64,668
869
63,799
3.54
3.54
18,047,332
64,668
16,371
48,297
2.68
2.68
Table of Contents
NET INCOME
HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
2020
Year Ended December 31,
2019
(dollars in thousands)
$ 66,865
2018
$ 63,799
$ 36,845
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gains (losses) on debt securities available-for-sale
Reclassification adjustment for losses on securities available-for-sale
realized in income
Reclassification adjustment for amortization (accretion) of net unrealized
gain (loss) on debt securities transferred to held-to-maturity
Unrealized losses on derivative instruments
Reclassification adjustment for net settlements on derivative instruments
Total other comprehensive income (loss), before tax
Income tax expense (benefit)
Total other comprehensive income (loss)
TOTAL COMPREHENSIVE INCOME
15,272
12,458
(5,692)
—
—
2,541
18
(1,084)
238
14,444
4,123
10,321
$ 47,166
(264)
(698)
(87)
11,409
(711)
12,120
$ 78,985
(382)
(83)
(175)
(3,791)
—
(3,791)
$ 60,008
See accompanying Notes to Consolidated Financial Statements
102
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HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Common Stock
Retained
Accumulated
Other
Comprehensive
Treasury
Voting Series A Surplus Earnings Income (Loss) Stock
Total
Stockholders’
Equity
(dollars in thousands, except per share and per unit data)
$ (2,112)
—
—
—
$ 293,934
122
63,799
—
$ 32,288
—
—
—
(375)
(122)
—
(3,791)
$
178
—
—
—
Balance, December 31, 2017
Adoption of ASU 2016-01
Net income
Other comprehensive loss
Repurchase of common stock -Series
A (43,180 shares)
Cash dividends ($2.36 per share)
Balance, December 31, 2018
Net income
Other comprehensive income
Reclassification of undistributed S-
Corp earnings
Issuance of common stock - Voting,
net of issuance costs (9,429,794
shares)
Conversion of common stock - Series
A to common stock - Voting
Cancelation of 124,228 shares of
treasury stock
Cash dividends ($12.48 per share)
Balance, December 31, 2019
Net income
Other comprehensive income
Stock-based compensation
Cash dividends ($0.60 per share)
Restricted stock unit cash dividend
equivalents ($0.60 per unit)
Balance, December 31, 2020
$
$
3
—
—
—
—
—
3
—
—
—
—
—
178
—
—
—
—
32,288
—
—
—
(42,621)
315,234
66,865
—
—
20,472
(20,472)
95
—
138,398
178
(178)
—
—
—
(1)
—
275
—
—
—
—
—
—
—
—
—
—
—
(634)
—
190,524
—
—
351
—
(2,384)
(224,956)
134,287
36,845
—
—
(16,474)
See accompanying Notes to Consolidated Financial Statements
103
$
323,916
—
63,799
(3,791)
(907)
(42,621)
340,396
66,865
12,120
—
138,493
—
—
(224,956)
332,918
36,845
10,321
351
(16,474)
—
—
(4,288)
—
12,120
(907)
—
(3,019)
—
—
—
—
—
—
—
7,832
—
10,321
—
—
—
—
—
3,019
—
—
—
—
—
—
—
$ 275
$
—
—
— $ 190,875
(44)
$ 154,614
$
—
18,153
$
—
— $
(44)
363,917
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
2020
Year Ended December 31,
2019
(dollars in thousands)
2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense
Provision for loan losses
Net amortization of debt securities
Amortization of unrealized gain on dedesignated cash flow hedge
Deferred income tax benefit
Stock-based compensation
Net accretion of discount and deferred loan fees on loans
Net realized loss on sales of securities
Net unrealized (gain) loss on equity securities
Net loss (gain) on sales of bank premises and equipment
Net gain on sales of bank premises held for sale
Impairment losses on bank premises held for sale
Net (gain) loss on sales of foreclosed assets
Gain on loan foreclosures
Write-down of foreclosed assets
Amortization of intangibles
Decrease in mortgage servicing rights
Amortization of discount and issuance costs on subordinated notes and debentures
Mortgage loans originated for sale
Proceeds from sale of mortgage loans
Net gain on sale of mortgage loans
Gain on sale of First Community Title Services, Inc.
(Increase) decrease in accrued interest receivable
(Increase) decrease in other assets
(Decrease) increase in other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-bearing time deposits with banks
Proceeds from sales of securities available-for-sale
Proceeds from paydowns, maturities, and calls of debt securities
Purchase of securities
Net increase in loans
Purchase of restricted stock
Proceeds from redemption of restricted stock
Purchases of bank premises and equipment
Proceeds from sales of bank premises and equipment
Proceeds from sales of bank premises held for sale
Proceeds from sales of foreclosed assets
Capital improvements to foreclosed assets
Cash received from sale of First Community Title Services, Inc.
Net cash (used in) provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits
Net increase (decrease) in repurchase agreements
Repayment of Federal Home Loan Bank borrowings
Issuance of subordinated notes, net of issuance costs
Issuance of common stock, net of issuance costs
Repurchase of common stock
Cash dividends and dividend equivalents paid
Net cash provided by (used in) financing activities
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF PERIOD
See accompanying Notes to Consolidated Financial Statements
104
$ 36,845
$ 66,865
$ 63,799
2,941
10,532
5,045
(64)
(339)
351
(4,902)
—
(33)
2
—
—
(348)
—
213
1,232
2,584
92
(370,112)
368,765
(8,835)
—
(304)
(1,090)
(11,320)
31,255
248
—
222,999
(523,559)
(80,278)
(73)
—
(1,861)
1
—
2,079
(6)
—
(380,450)
353,679
1,303
—
39,211
—
—
(16,518)
377,675
2,709
3,404
3,450
(86)
(2,695)
—
(3,707)
—
5
(29)
(448)
37
(1,048)
—
563
1,423
2,400
66
(150,652)
152,013
(3,092)
(498)
1,349
(516)
17,579
89,092
—
—
201,472
(73,117)
(17,950)
—
294
(2,107)
176
1,039
5,460
(41)
114
115,340
(19,115)
(1,762)
—
—
138,493
—
(224,956)
(107,340)
3,219
5,697
5,045
—
—
—
(5,091)
2,541
122
6
(734)
52
268
(96)
1,165
1,559
(629)
66
(128,514)
133,449
(2,872)
—
(553)
35
1,460
79,994
496
104,303
171,462
(189,412)
(29,375)
(2,374)
2,531
(1,656)
10
2,252
6,851
—
—
65,088
(59,715)
8,357
(29,000)
—
—
(907)
(42,621)
(123,886)
28,480
283,971
$ 312,451
97,092
186,879
$ 283,971
21,196
165,683
$ 186,879
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
2020
Year Ended December 31,
2019
(dollars in thousands)
2018
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest
Cash paid for income taxes
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES
Transfers of loans to foreclosed assets
Sales of foreclosed assets through loan origination
See accompanying Notes to Consolidated Financial Statements
105
$
6,441
$ 17,451
$ 10,010
880
$
$
$
1,074
67
$
$
2,520
2,046
$
$
$
$
7,826
851
2,518
1,220
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HBT Financial, Inc. (the Company) is headquartered in Bloomington, Illinois and is the holding company for
Heartland Bank and Trust Company (Heartland Bank or the Bank). The Bank provides a comprehensive suite of
business, commercial, wealth management and retail banking products and services to individuals, businesses,
and municipal entities throughout Central and Northeastern Illinois. Additionally, the Company is subject to the
regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory
agencies.
The consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America (GAAP) and reporting practices applicable to the banking industry.
Significant accounting policies are summarized below.
On September 13, 2019, the Company effected a twenty-for-one stock split of its issued and outstanding shares
of common stock and its issued and outstanding shares of Series A nonvoting common stock. Accordingly, all
share and per share amounts for all periods presented in these financial statements and notes thereto have
been adjusted retroactively, where applicable, to reflect the stock split.
On October 10, 2019, each share of Series A nonvoting common stock was reclassified and converted into one
share of common stock. Additionally, the Company increased the authorized shares to 150,000,000, of which
125,000,000 shares, par value of $0.01 per share, are designated as common stock and 25,000,000 shares,
par value of $0.01 per share, are designated as preferred stock.
Merger of State Bank of Lincoln into Heartland Bank
On October 20, 2020, Heartland Bank and State Bank of Lincoln, both wholly-owned bank subsidiaries of the
Company on that date, entered into a Bank Merger Agreement providing for the merger of State Bank of Lincoln
into Heartland Bank. The merger was consummated on December 31, 2020, resulting in Heartland Bank being
our sole bank subsidiary, with the branch locations in Lincoln, Illinois operating as “State Bank of Lincoln, a
division of Heartland Bank and Trust Company.”
Loan Payment Modifications Related to COVID-19
The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), along with a joint statement issued
by banking regulatory agencies, provided that short-term loan payment modifications to borrowers experiencing
financial hardship due to COVID-19 generally do not need to be accounted for as a troubled debt restructuring.
As of December 31, 2020, the Company had loans totaling $27,986,000 that were granted a payment
modification due to a COVID-19 related financial hardship and have not returned to regular payments.
Substantially all modifications were in the form of a three-month interest-only period or a one-month payment
deferral. Some borrowers have received more than one loan payment modification.
Initial Public Offering
On September 13, 2019, the Company filed a Registration Statement on Form S-1 with the Securities and
Exchange Commission (SEC). The Registration Statement was declared effective by the SEC on October 10,
2019. The Company issued and sold 9,429,794 shares of common stock at a price of $16 per share pursuant to
that Registration Statement. Total proceeds received by the Company, net of offering costs, were $138,493,000.
The proceeds were used to fund a $170 million special dividend, or $9.43 per share, to stockholders of record
prior to the initial public offering.
106
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company qualifies as an “emerging growth company” as defined by the Jumpstart Our Business Startups
Act (JOBS Act). Under the JOBS Act, emerging growth companies may also elect to delay adoption of new or
revised accounting standards until such time as those standards apply to private companies. The Company has
elected to use this extended transition period for complying with new or revised accounting standards and,
therefore, the Company will not be subject to the same new or revised accounting standards as other public
companies.
Sale of First Community Title Services, Inc.
On February 15, 2019, the Company consummated an agreement to sell substantially all assets and liabilities
of First Community Title Services, Inc. to Illinois Real Estate Title Center, LLC, an Illinois limited liability
company, for a combination of cash and an equity interest in Illinois Real Estate Title Center, LLC representing
total consideration of approximately $498,000.
Basis of Consolidation
The consolidated financial statements of HBT Financial, Inc. include the accounts of the Company and its
wholly owned bank subsidiary, Heartland Bank.
The Company also has five wholly owned subsidiaries, Heartland Bancorp, Inc. Capital Trust B, Heartland
Bancorp, Inc. Capital Trust C, Heartland Bancorp, Inc. Capital Trust D, FFBI Capital Trust I, and National
Bancorp Statutory Trust I, which, in accordance with GAAP, are not consolidated as more fully described in
Note 13.
Significant intercompany transactions and accounts have been eliminated in consolidation.
Unaudited Pro Forma Income Statement Information
Effective October 11, 2019, the Company revoked its S Corporation status and became a taxable entity (C
Corporation). As such, any periods prior to October 11, 2019 will only reflect state replacement taxes.
The unaudited pro forma C Corp equivalent income tax expense information gives effect to the income tax
expense had the Company been a C Corporation during the years ended December 31, 2019 and 2018. The
unaudited pro forma C Corp equivalent net income information, therefore, includes an adjustment for income
tax expense as if the Company had been a C Corporation during the years ended December 31, 2019 and
2018.
The unaudited pro forma basic and diluted earnings per share information is computed using the unaudited pro
forma C Corp equivalent net income and weighted average shares of common stock outstanding. There were
no dilutive instruments outstanding during the years ended December 31, 2019 and 2018; therefore, the
unaudited pro forma C Corp equivalent basic and diluted earnings per share amounts are the same.
Use of Estimates
The accompanying consolidated financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America. In preparing the financial statements,
management is required to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and the reported results of operations for the periods then ended.
107
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible
to significant changes in the near term relate to the determination of the allowance for loan losses, goodwill, and
income taxes.
Business and Significant Concentrations of Credit Risk
The Company provides several types of loans to individuals, businesses, and municipal entities primarily
located in their customer service areas. Real estate and commercial loans are principal areas of concentration.
The Company also strives to meet the borrowing needs of the consumers in its market areas. Extension of
credit is generally limited to the primary trade areas of the Company. Primary deposit products of the Bank are
noninterest-bearing and interest-bearing demand accounts, savings accounts, money market accounts, and
term certificate of deposit accounts.
Cash and Cash Equivalents
For purposes of reporting consolidated cash flows, cash and cash equivalents include cash on hand and
amounts due from banks, all of which have an original maturity within 90 days or less. Cash flows from loans
and deposits are reported net.
Interest-Bearing Time Deposits with Banks
Interest-bearing time deposits with banks are carried at cost.
Debt Securities
Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold
the securities to maturity and are carried at amortized cost. Debt securities not classified as held-to-maturity are
classified as available-for-sale. Debt securities available-for-sale are carried at fair value with unrealized gains
and losses reported in accumulated other comprehensive income (loss). Realized gains and losses on debt
securities available-for-sale are included in noninterest income when applicable and reported as a
reclassification adjustment in other comprehensive income (loss). Gains and losses on sales of securities are
determined using the specific identification method on the trade date. The amortization of premiums and
accretion of discounts are recognized in interest income using methods approximating the interest method over
the period to maturity.
Any transfers of debt securities into the held-to-maturity category from the available-for-sale category are made
at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in
accumulated other comprehensive income (loss) and in the carrying value of the held-to-maturity securities.
Such amounts are amortized over the period to maturity. There were no such transfers in 2020, 2019, and
2018.
Declines in the fair value of individual securities below their cost that are other-than-temporary result in write-
downs of the individual securities to their fair value. The Company monitors the investment security portfolio for
impairment on an individual security basis and has a process in place to identify securities that could potentially
have a credit impairment that is other-than-temporary. This process involves analyzing the length of time and
the extent to which the fair value has been less than the amortized cost basis, the market liquidity for the
security, the financial condition and near-term prospects of the issuer, expected cash flows, and the intent of the
Company to not sell the security or whether it is more likely than not that the Company will be required to sell
the security before its anticipated recovery. A decline in value due to a credit event that is considered other-
than-temporary is recorded as a loss in noninterest income.
108
Table of Contents
Equity Securities
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Equity securities with readily determinable fair values are measured at fair value with changes in fair value
recognized in gains (losses) on securities on the statements of income.
The Company has elected to measure its equity securities with no readily determinable fair values at their cost
minus impairment, if any, plus or minus charges resulting from observable price changes in orderly transactions
for the identical or a similar investment of the same issuer.
Restricted Stock
Restricted stock, which consists of Federal Home Loan Bank of Chicago (FHLB) stock, is carried at cost and
evaluated for impairment.
Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate
cost or fair value, as determined by aggregate outstanding commitments from investors or current investor
yield. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.
Mortgage loans held for sale are generally sold with the mortgage servicing rights retained by the Company.
The carrying value of mortgage loans sold is reduced by fair value allocated to the associated mortgage
servicing rights. Gains or losses on sales of mortgage loans are recognized based on the difference between
the selling price and the carrying value of the related mortgage loans sold.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off
generally are reported at their outstanding unpaid principal balances adjusted for charge-offs and the allowance
for loan losses, deferred loan fees or costs on originated loans, and unamortized premiums or discounts on
acquired loans.
Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct
origination costs, as well as premiums and discounts, are deferred and recognized as an adjustment of the
related loan yield using the interest method.
The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well-
secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases,
loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered
doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against
interest income if it was accrued during the current year and charged-off against the allowance for loan losses if
accrued in a prior year. Amortization of related deferred loan fees or costs is also suspended at this time. The
interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to
accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are
brought current and future payments are reasonably assured.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allowance for Loan Losses
The allowance for loan losses (allowance) is an estimate of loan losses inherent in the Company’s loan
portfolio. The allowance is established through a provision for loan losses which is charged to expense.
Additions to the allowance are expected to maintain the adequacy of the total allowance. Loan losses are
charged off against the allowance when the Company determines the loan balance to be uncollectible. Cash
received on previously charged off amounts is recorded as a recovery to the allowance.
The allowance consists of two primary components, general reserves and specific reserves related to impaired
loans. The general component covers non-impaired loans and is based on historical losses adjusted for
qualitative factors. The historical loss experience is determined by portfolio segment and is based on the actual
loss history experienced by the Company over the most recent 16-quarter period. This actual loss experience is
adjusted for qualitative factors based on the risks present for each portfolio segment. These qualitative factors
include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and
trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk
selection and underwriting standards; other changes in lending policies, procedures, and practices; experience,
ability, and depth of lending management and other relevant staff; national and local economic trends and
conditions; industry conditions; and effects of changes in credit concentrations.
These qualitative factors are inherently subjective and are driven by the repayment risk associated with each
portfolio segment.
A loan is considered impaired when, based on current information and events, it is probable that the Company
will be unable to collect the scheduled payments of principal or interest when due according to the contractual
terms of the loan agreement. Loans determined to be impaired are individually evaluated for impairment. When
a loan is impaired, the Company generally measures impairment based on the fair value of the collateral, but
also may use the present value of expected future cash flows discounted at the original contractual interest rate,
when practical.
Under certain circumstances, the Company will provide borrowers relief through loan restructurings. A
restructuring of debt constitutes a troubled debt restructuring (TDR) if the Company for economic or legal
reasons related to the borrower’s financial difficulties grants a concession to the borrower that it would not
otherwise consider. Restructured loans typically present an elevated level of credit risk as the borrowers are not
able to perform according to the original contractual terms. TDR concessions can include reduction of interest
rates, extension of maturity dates, forgiveness of principal or interest due, or acceptance of other assets in full
or partial satisfaction of the debt.
In general, if the Company grants a TDR that involves either the absence of principal amortization or a material
extension of an existing loan amortization period in excess of our underwriting standards, the loan will be placed
on nonaccrual status. However, if a TDR is well secured by an abundance of collateral and the collectability of
both interest and principal is probable, the loan may remain on accrual status. A nonaccrual TDR in full
compliance with the payment requirements specified in the loan modification for at least six months may return
to accrual status, if the collectability of both principal and interest is probable. All TDRs are individually
evaluated for impairment.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company assigns a risk rating to all loans and periodically performs detailed internal reviews of all such
loans that are part of relationships with over $500,000 in total exposure to identify credit risks and to assess the
overall collectability of the portfolio. These risk ratings are also subject to review by the Company’s regulators,
external loan review, and internal loan review. During the internal reviews, management monitors and analyzes
the financial condition of borrowers and guarantors, trends in the industries in which the borrowers operate and
the fair values of collateral securing the loans. The risk rating is reviewed annually, at a minimum, and on an as
needed basis depending on the specific circumstances of the loan. These credit quality indicators are used to
assign a risk rating to each individual loan. Risk ratings are grouped into four major categories, defined as
follows:
Pass: A Pass loan is a credit with no existing or known potential weaknesses deserving of management’s
close attention.
Pass-Watch: A Pass-Watch loan is still considered a Pass credit and not a classified or criticized asset, but
is a reflection of a borrower who exhibits credit weaknesses or downward trends warranting close attention
and increased monitoring. These potential weaknesses may result in deterioration of the repayment
prospects for the loan. No loss of principal or interest is expected, and the borrower does not pose sufficient
risk to warrant classification.
Substandard: A Substandard loan is inadequately protected by the current sound worth and paying
capacity of the borrower or of the collateral pledged, if any. Loans classified as Substandard have a well-
defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized as
probable that the borrower will not pay principal and interest in accordance with the contractual terms.
Doubtful: A Doubtful loan has all the weaknesses inherent in those classified as Substandard, with the
added characteristic that the weaknesses make collection or repayment in full, on the basis of currently
existing facts, conditions, and values, highly questionable and improbable.
The Company maintains a separate general valuation allowance for each portfolio segment. These portfolio
segments include commercial and industrial, agricultural and farmland, commercial real estate – owner
occupied, commercial real estate – non-owner occupied, multi-family, construction and land development, one-
to-four family residential, and municipal, consumer and other, with risk characteristics described as follows:
Commercial and Industrial: Consists of loans typically granted for working capital, asset acquisition and
other business purposes. These loans are underwritten primarily based on the borrower’s cash flow with
most loans secondarily supported by collateral. Most commercial and industrial loans are secured by the
assets being financed or other business assets, such as accounts receivable, inventory, and equipment,
and are typically supported by personal guarantees of the owners. Cash flows and collateral values may
fluctuate based on general economic conditions, specific industry conditions and specific borrower
circumstances.
Agricultural and Farmland: Consists of loans typically secured by farmland, agricultural operating assets,
or a combination of both, and are generally underwritten to existing cash flows of operating agricultural
businesses. Debt repayment is provided by business cash flows. Economic trends influenced by
unemployment rates and other key economic indicators are not closely correlated to the credit quality of
agricultural and farmland loans. The credit quality of these loans is most correlated to changes in prices of
corn and soybeans and, to a lesser extent, weather, which has been partially mitigated by federal crop
insurance programs.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commercial Real Estate - Owner Occupied: Consists of loans secured by commercial real estate that is
both owned and occupied by the same or a related borrower. These loans are primarily underwritten based
on the cash flow of the business occupying the property. As with commercial and industrial loans, cash
flows and collateral values may fluctuate based on general economic conditions, specific industry
conditions, and specific borrower circumstances.
Commercial Real Estate - Non-owner Occupied: Consists of loans secured by commercial real estate for
which the primary source of repayment is the sale or rental cash flows from the underlying collateral. These
loans are underwritten based primarily on the historic or projected cash flow from the underlying collateral.
Adverse economic developments or an overbuilt market typically impact commercial real estate projects.
Trends in rental and vacancy rates of commercial properties impact the credit quality of these loans.
Multi-family: Consists of loans secured by five or more unit apartment buildings. Multi-family loans may be
affected by demographic and population trends, unemployment or underemployment, and deteriorating
market values of real estate.
Construction and Land Development: Consists of loans for speculative and pre-sold construction projects
for developers intending to either sell upon completion or hold for long term investment, as well as
construction of projects to be owner occupied. In addition, loans in this segment generally possess a higher
inherent risk of loss than other portfolio segments due to risk of non-completion, changes in budgeted costs,
and changes in market forces during the term of the construction period.
One-to-four Family Residential: Consists of loans secured by one-to-four family residences, including
both first and junior lien mortgage loans for owner occupied and non-owner occupied properties and home
equity lines of credit. The degree of risk in residential mortgage lending depends on the local economy,
including the local real estate market and unemployment rates.
Municipal, Consumer and Other: Loans to municipalities include obligations of municipal entities and
loans sponsored by municipal entities for the benefit of a private entity where that private entity, rather than
the municipal entity, is responsible for repayment of the obligation. Consumer loans include loans to
individuals for consumer purposes and typically consist of small balance loans. Economic trends
determined by unemployment rates and other key economic indicators are closely correlated to the credit
quality of the consumer loans. Loans to other financial institutions, as well as leases, are also included.
Although management believes the allowance to be adequate, ultimate losses may vary from its estimates. At
least quarterly, the Board of Directors reviews the adequacy of the allowance, including consideration of the
relevant risks in the portfolio, current economic conditions and other factors. If the Board of Directors and
management determine that changes are warranted based on those reviews, the allowance is adjusted. In
addition, the Company’s regulators review the adequacy of the allowance and may require additions to the
allowance based on their judgment about information available at the time of their examinations.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans Acquired with Deteriorated Credit Quality
Loans acquired that have evidence of deterioration in credit quality since origination and for which it is probable,
at acquisition, that the Company will be unable to collect all contractually required payments receivable, are
initially recorded at fair value (as determined by the present value of expected future cash flows) with no
allowance for loan losses. Loans are evaluated by management at the time of purchase to determine if there is
evidence of deterioration in credit quality since origination. Loans where there is evidence of deterioration of
credit quality since origination may be aggregated and accounted for as a pool of loans if the loans being
aggregated have common risk characteristics. The difference between the undiscounted cash flows expected at
acquisition and the investment in the loan, or the “accretable yield,” is recognized as interest income over the
life of the loan. Contractually required payments for interest and principal that exceed the undiscounted cash
flows expected at acquisition, or the “nonaccretable difference,” are not recognized as a yield adjustment.
Subsequent decreases to the expected cash flows will generally result in a provision for loan losses.
Subsequent increases in expected cash flows result in a reversal of the provision for loan losses to the extent of
prior charges or a reclassification of the difference from nonaccretable to accretable yield with a positive impact
on interest income on a prospective basis. If the Company does not have the information necessary to
reasonably estimate cash flows to be expected, it may use the cost recovery method or cash basis method of
income recognition.
Off-Balance Sheet Credit Related Financial Instruments
In the ordinary course of business, the Bank has entered into commitments to extend credit, including
commitments under credit arrangements, commercial letters of credit, and standby letters of credit. Such
financial instruments are recorded when they are funded.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the original cost over the fair value of assets acquired and liabilities
assumed. Goodwill is not amortized but instead is subject to an annual impairment evaluation. The Company
has selected December 31 as the date to perform the annual impairment test. At December 31, 2020 and 2019,
the Company’s evaluations of goodwill indicated that goodwill was not impaired.
Additionally, due to the economic weakness resulting from the COVID-19 pandemic, the Company completed a
quantitative assessment of goodwill as of March 31, 2020 which indicated that goodwill was not impaired.
Further goodwill impairment evaluations, which may result in goodwill impairment, may be necessary if events
or circumstance changes would more likely than not reduce the fair value of a reporting unit below its carrying
amount.
Other identifiable intangible assets consist of core deposit intangible assets with definite useful lives which are
being amortized using straight-line and accelerated methods over 10 years. The Company will periodically
review the status of core deposit intangible assets for any events or circumstances which may change the
recoverability of the underlying basis.
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Loan Servicing
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company periodically sells mortgage loans on the secondary market with servicing retained. For sales of
mortgage loans, a portion of the cost of originating the loan is allocated to the servicing right based on fair
value. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or
alternatively, is based on a valuation model that calculates the present value of estimated future net servicing
income. The valuation model incorporates assumptions that market participants would use in estimating future
net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate,
ancillary income, prepayment speeds, and default rates and losses. Mortgage servicing rights are carried at fair
value on the consolidated balance sheets and changes in fair value are recorded in mortgage servicing rights
fair value adjustment on the consolidated statements of income.
Bank Premises and Equipment
Land is carried at cost. Bank premises and equipment are carried at cost less accumulated depreciation.
Depreciation is computed over the estimated useful lives of the individual assets using the straight-line method.
Bank Premises Held for Sale
Bank premises held for sale is carried at the lower of cost or fair value less estimated costs to sell. The bank
premises are not depreciated while classified as held for sale.
As of December 31, 2020 and 2019, the related branch buildings classified as held for sale totaled $121,000.
During the year ended December 31, 2020, there were no impairment losses on bank premises held for sale.
During the years ended December 31, 2019, and 2018, there were impairment losses of $37,000 and $52,000,
respectively, included in gains (losses) on other assets on the consolidated statements of income.
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate
the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of carrying amount or fair value less estimated costs to sell.
Wealth Management Assets and Fees
Assets of the wealth management department of the Bank are not included in the consolidated balance sheets
as such assets are not assets of the Company or the Bank. Fee income generated from wealth management
services is recorded in the consolidated statements of income as a source of noninterest income.
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Foreclosed Assets
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value
less estimated cost to sell at the date of foreclosure, establishing a new cost basis. Any write-down based on
the fair value of the asset at the date of acquisition is charged to the allowance for loan losses. If the fair value
of the asset less estimated cost to sell exceeds the recorded investment in the loan at the date of foreclosure,
the increase in value is charged to current year operations unless there has been a prior charge-off, in which
case a recovery to the allowance for loan losses is recorded. Subsequent to foreclosure, valuations are
periodically performed by management and the assets are carried at the lower of carrying amount or fair value
less estimated cost to sell. Write-downs of foreclosed assets subsequent to foreclosure are charged to
current year operations as are gains and losses from sale of foreclosed assets, as well as expenses to maintain
and hold foreclosed assets.
Employee Benefit Plans
The Company sponsors a profit sharing plan under which the Company may contribute, at the discretion of the
Board of Directors, a discretionary amount to all participating employees for the plan year. Participating
employees are those employees in service on the valuation date who were employed on the last day of the
plan year then ended, were on leave of absence on the last day of the plan year then ended, or any participant
whose service was terminated during the plan year then ended due to retirement, disability, or death. A
401(k) feature also allows the Bank to make discretionary matching contributions in an amount up to 5% of
compensation contributed by employees.
Stock Based Compensation
The Company recognizes compensation cost over the requisite service period, if any, which is generally defined
as the vesting period. For awards classified as equity, compensation cost is based on the fair value of the
awards on the grant date. For awards classified as liabilities, compensation cost also includes subsequent
remeasurements of the fair value of the awards until the award is settled. The Company’s policy is to recognize
forfeitures as they occur.
Transfers of Financial Assets and Participating Interests
Transfers of an entire financial asset or a participating interest in an entire financial asset are accounted for as
sales when control over the assets has been surrendered. Control over transferred assets is deemed to be
surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free
of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets,
and (3) the Company does not maintain effective control over the transferred assets through an agreement to
repurchase them before their maturity.
The transfer of a participating interest in an entire financial asset must also meet the definition of a participating
interest. A participating interest in a financial asset has all of the following characteristics: (1) from the date of
transfer, it must represent a proportionate (pro rata) ownership interest in the financial asset, (2) from the date
of transfer, all cash flows received, except any cash flows allocated as any compensation for servicing or other
services performed, must be divided proportionately among participating interest holders in the amount equal to
their share ownership, (3) the rights of each participating interest holder must have the same priority, and (4) no
party has the right to pledge or exchange the entire financial asset unless all participating interest holders agree
to do so.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Advertising Costs
Advertising costs are expensed as incurred.
Income Taxes
Through October 10, 2019, the Company, with the consent of its then current stockholders, elected to be taxed
under sections of federal and state income tax law as an "S Corporation" which provides that, in lieu of
Company income taxes, except for state replacement taxes, the stockholders separately account for their pro
rata shares of the Company’s items of income, deductions, losses and credits. As a result of this election, no
income taxes, other than state replacement taxes, have been recognized in the accompanying consolidated
financial statements prior to October 11, 2019. No provision has been made for any amounts which may be
advanced or paid as dividends to the stockholders to assist them in paying their personal taxes on the income
from the Company.
Effective October 11, 2019, the Company voluntarily revoked its S Corporation status and became a taxable
entity (C Corporation). In connection with the conversion of tax status, the Company recognized a deferred tax
asset of $534,000 and an income tax benefit of $534,000.
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax
assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary
differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax
rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
With regard to uncertain tax matters, the Company recognizes in the consolidated financial statements the
impact of a tax position taken, or expected to be taken, if it is more likely than not that the position will be
sustained on audit based on the technical merit of the position. Management has analyzed the tax positions
taken by the Company and concluded as of December 31, 2020 and 2019, there are no uncertain tax positions
taken or expected to be taken that require recognition of a liability or disclosure in the consolidated financial
statements. When applicable, the Company recognizes interest accrued related to unrecognized tax benefits
and penalties in operating expenses.
The Company files consolidated federal and state income tax returns. The Company is no longer subject to
federal or state income tax examinations for years prior to 2017.
Derivative Financial Instruments
As part of the Company’s asset/liability management, the Company uses interest rate swaps to hedge various
exposures or to modify interest rate characteristics of various balance sheet accounts. Derivatives that are used
as part of the asset/liability management process are linked to specific assets or liabilities, or pools of assets or
liabilities, and have high correlation between the contract and the underlying item being hedged, both at
inception and throughout the hedge period.
All derivatives are recognized on the consolidated balance sheet at their fair value. On the date the derivative
contract is entered into, the Company may designate the derivative as a hedge of a forecasted transaction or of
the variability of cash flows to be received or paid related to a recognized asset or liability "cash flow" hedge.
Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash-
flow hedge are recorded in other comprehensive income (loss), until earnings are affected by the variability of
cash flows (e.g., when periodic settlements on a variable-rate asset or liability are recorded in earnings).
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company formally documents all relationships between hedging instruments and hedged items, as well as
its risk-management objective and strategy for undertaking various hedged transactions. This process includes
linking all derivatives that are designated as cash-flow hedges to specific assets and liabilities on the balance
sheet or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an
ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting
changes in cash flows of hedged items. When it is determined that a derivative is not highly effective as a
hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting
prospectively.
The Company discontinues hedge accounting prospectively when (a) it is determined that the derivative is no
longer highly effective in offsetting changes in the cash flows of a hedged item (including forecasted
transactions); (b) the derivative expires or is sold, terminated, or exercised; (c) the derivative is dedesignated as
a hedge instrument, because it is unlikely that a forecasted transaction will occur; or (d) management
determines that designation of the derivative as a hedge instrument is no longer appropriate.
When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the
derivative will continue to be carried on the consolidated balance sheet at its fair value, and gains and losses
that were accumulated in other comprehensive income (loss) will be recognized immediately in earnings. In all
other situations in which hedge accounting is discontinued, the derivative will be carried at its fair value on the
balance sheet, with subsequent changes in its fair value recognized in current-period earnings.
Comprehensive Income (Loss)
Accounting principles generally require that recognized revenue, expenses, gains, and losses be included in net
income. Although certain changes in assets and liabilities, such as unrealized gains and losses on securities
available-for-sale and interest rate swap agreements designated as cash flow hedges, are reported as a
separate component of the equity section of the consolidated balance sheets, such items, along with net
income, are components of comprehensive income (loss).
Fair Value Measurements
The Company categorizes its assets and liabilities measured at fair value into a three-level hierarchy based on
the priority of the inputs to the valuation technique used to determine fair value. The fair value hierarchy gives
the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3). If the inputs used in the determination of the fair value measurement
fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant
to the fair value measurement. Assets and liabilities valued at fair value are categorized based on the inputs to
the valuation techniques as follows:
Level 1 - Inputs that are quoted prices (unadjusted) for identical assets or liabilities in active markets that
the Company has the ability to access as of the measurement date.
Level 2 - Inputs that are significant other observable inputs other than Level 1 prices such as quoted prices
for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data.
Level 3 - Inputs that are unobservable inputs that reflect a Company’s own assumptions about the
assumptions that market participants would use in pricing as asset or liability.
Subsequent to initial recognition, the Company may re-measure the carrying value of assets and liabilities
measured on a nonrecurring basis to fair value. Adjustments to fair value usually result when certain assets are
impaired. Such assets are written down from their carrying amounts to their fair value.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting standards allow entities the irrevocable option to elect to measure certain financial instruments and
other items at fair value for the initial and subsequent measurement on an instrument-by-instrument basis. The
Company adopted the policy and has not elected to measure any existing financial instruments at fair value,
except for mortgage servicing rights; however, it may elect to measure newly acquired financial instruments at
fair value in the future.
Revenue from Contracts with Customers
ASC Topic 606, Revenue from Contracts with Customers, requires an entity to recognize revenue in an amount
that reflects the consideration to which the entity expects to be entitled in exchange for those goods and
services. To achieve this, the Company takes the following steps: identify the contract(s) with a customer;
identify the performance obligations in the contract; determine the transaction price; allocate the transaction
price to the performance obligations in the contract; and recognize revenue when (or as) the Company satisfies
a performance obligation. The non-interest revenue streams that are considered to be in the scope of this
guidance are discussed below.
Card income: Consists of debit and credit card interchange fees. For debit and credit card
transactions, the Company considers the merchant as the customer for interchange revenue with the
performance obligation being satisfied when the cardholder purchases goods or services from the
merchant. Interchange revenue is recognized as the services are provided. Payment is typically
received daily.
Service charges on deposit accounts: Consists of account analysis fees, monthly service fees, and
other deposit account related fees. The Company’s performance obligation account analysis fees and
monthly service fees are ongoing and either party may cancel at any time. These fees are generally
recognized as the services are rendered on a monthly basis. Payment is typically received monthly.
Other deposit account related fees are largely transaction based, and therefore, the Company’s
performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for
other deposit account related fees is primarily received immediately through a direct charge to
customers’ accounts.
Wealth management fees: Consists of revenue from the management and advisement of client assets
and trust administration. The Company’s performance obligation is generally satisfied over time, and
the fees are recognized monthly. Payment is typically received quarterly or annually.
Title insurance activity: Consists of fees related to real estate sale closings, title search fees, and title
insurance premiums with First Community Title Services, Inc. acting as an agent. The Company’s
performance obligations were generally satisfied and payment was typically received at the time a real
estate transaction was finalized. In 2019, First Community Title Services, Inc. was sold, and the
Company did not have title insurance activity revenue in subsequent periods.
Segment Reporting
The Company’s operations consist of one reportable segment called community banking. While the Company’s
management monitored operations and profitability of Heartland Bank and State Bank of Lincoln separately,
these subsidiaries have been aggregated into one reportable segment due to the similarities in products and
services, customer base, operations, profitability measures, and economic characteristics.
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Reclassifications
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain prior period amounts have been reclassified to conform to the current period presentation without any
impact on the reported amounts of net income or stockholders’ equity.
Subsequent Events
In preparing these consolidated financial statements, the Company has evaluated events and transactions for
potential recognition or disclosure through the date the consolidated financial statements were issued.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Financial Instruments -
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires the
measurement of all expected credit losses for financial assets held at the reporting date based on historical
experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures
related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality
and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for
credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU
2016-13 is effective for years beginning after December 15, 2022, including interim periods within those
fiscal years. Early adoption is permitted. The Company is currently evaluating the effect that this standard will
have on the consolidated results of operations and financial position.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the
Test for Goodwill Impairment. This ASU simplifies measurement of goodwill and eliminates Step 2 from the
goodwill impairment test. Under the ASU, a company should perform its goodwill impairment test by comparing
the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the
amount by which the carrying amount exceeds the reporting unit’s fair value. The impairment charge is limited
to the amount of goodwill allocated to that reporting unit. The amendments in this update are effective for
annual or any interim goodwill impairment tests in years beginning after December 15, 2022, including interim
periods within those years. Early adoption is permitted for goodwill impairment tests performed on testing dates
after January 1, 2017. This standard is not expected to have a material impact on the Company’s consolidated
results of operations or financial position.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects
of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions for
applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform, if
certain criteria are met. Entities may apply the provisions as of the beginning of the reporting period when the
election is made and are available until December 31, 2022. The Company is currently evaluating the effect that
this standard will have on the consolidated results of operations and financial position.
NOTE 2 – RESTRICTED CASH AND DUE FROM BANKS
The Federal Reserve Bank required the Bank to maintain balances on reserve of $23,100,000 as of
December 31, 2019. There was no reserve requirement by the Federal Reserve Bank as of December 31,
2020.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – SECURITIES
The carrying balances of the securities were as follows:
Debt securities available-for-sale
Debt securities held-to-maturity
Equity securities:
Readily determinable fair value
No readily determinable fair value
Total securities
Sales of securities were as follows during the years ended December 31:
Proceeds from sales
Gross realized gains
Gross realized losses
December 31,
2020
December 31,
2019
(dollars in thousands)
$
$
922,869
68,395
3,292
1,552
996,108
$
$
592,404
88,477
3,241
1,148
685,270
2020
Year Ended December 31,
2019
(dollars in thousands)
2018
$
—
—
—
— $ 104,303
281
—
(2,822)
—
Gains (losses) on securities were as follows during the years ended December 31:
Net realized losses on sales
Net unrealized gains (losses) on equity securities:
Readily determinable fair value
No readily determinable fair value
Gains (losses) on securities
2020
Year Ended December 31,
2019
(dollars in thousands)
2018
$
$
—
33
—
33
— $ (2,541)
160
(165)
(122)
—
(5) $ (2,663)
The $165,000 unrealized loss on equity securities with no readily determinable fair value during the year ended
December 31, 2019 reflects a downward adjustment based on observable price changes of an identical
investment.
120
Table of Contents
Debt Securities
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and fair values of debt securities, with gross unrealized gains and losses, are as follows:
December 31, 2020
Available-for-sale:
U.S. government agency
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Corporate
Total available-for-sale
Held-to-maturity:
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Total held-to-maturity
Total debt securities
December 31, 2019
Available-for-sale:
U.S. government agency
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Corporate
Total available-for-sale
Held-to-maturity:
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Total held-to-maturity
Total debt securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses Fair Value
(dollars in thousands)
$ 118,282
265,309
$ 3,720
9,232
$
(9) $ 121,993
274,261
(280)
198,543
246,649
70,917
899,700
4,871
4,651
1,786
24,260
(162)
(534)
(106)
(1,091)
203,252
250,766
72,597
922,869
22,484
1,390
—
23,874
13,031
32,880
68,395
$ 968,095
452
2,222
4,064
$ 28,324
—
(18)
(18)
13,483
35,084
72,441
$ (1,109) $ 995,310
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses Fair Value
(dollars in thousands)
$ 49,113
131,241
$
529
2,503
$
(27) $ 49,615
133,738
(6)
198,184
133,730
72,239
584,507
2,780
1,516
1,180
8,508
(286)
(292)
—
(611)
200,678
134,954
73,419
592,404
45,239
1,340
—
46,579
19,072
24,166
88,477
$ 672,984
161
775
2,276
$ 10,784
(170)
(54)
(224)
19,063
24,887
90,529
$ (835) $ 682,933
121
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2020 and 2019, the Bank had securities with a carrying value of $308,064,000 and
$284,895,000, respectively, which were pledged to secure public and trust deposits, securities sold under
agreements to repurchase, and for other purposes required or permitted by law.
The Company has no direct exposure to the State of Illinois, but approximately 41% of the obligations of local
municipalities portfolio consists of securities issued by municipalities located in Illinois as of December 31,
2020. Approximately 75% of such securities were general obligation issues as of December 31, 2020.
The amortized cost and fair value of debt securities by contractual maturity, as of December 31, 2020, are
shown below. Expected maturities may differ from contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or prepayment penalties.
Due in 1 year or less
Due after 1 year through 5 years
Due after 5 years through 10 years
Due after 10 years
Mortgage-backed:
Agency residential
Agency commercial
Total
Available-for-Sale
Held-to-Maturity
Amortized
Cost
Fair Value
Amortized
Cost
(dollars in thousands)
Fair Value
$ 28,332
82,778
210,971
132,427
$ 28,626
85,859
218,710
135,656
$ 1,396
13,895
6,302
891
$ 1,424
14,806
6,723
921
198,543
246,649
$ 899,700
203,252
250,766
$ 922,869
13,031
32,880
$ 68,395
13,483
35,084
$ 72,441
122
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present gross unrealized losses and fair value of investments, aggregated by investment
category and length of time that individual securities have been in a continuous unrealized loss position, as of
December 31:
December 31, 2020
Available-for-sale:
U.S. government agency
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Corporate
Total available-for-sale
Held-to-maturity:
Mortgage-backed:
Agency commercial
Total held-to-maturity
Total debt securities
December 31, 2019
Available-for-sale:
U.S. government agency
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Total available-for-sale
Held-to-maturity:
Mortgage-backed:
Agency residential
Agency commercial
Total held-to-maturity
Total debt securities
Less than 12 Months
Investments in a Continuous Unrealized Loss Position
12 Months or More
Fair
Value
Unrealized
Loss
Unrealized
Loss
Fair Value
Total
Unrealized
Loss
Fair Value
$
(9) $
(280)
5,919
19,652
(dollars in thousands)
— $
$
—
— $
—
(9) $
(280)
5,919
19,652
(142)
20,387
(20)
4,490
(162)
24,877
(524)
(106)
57,126
4,849
(10)
—
3,449
—
(534)
(106)
60,575
4,849
(1,061)
107,933
(30)
7,939
(1,091)
115,872
(18)
(18)
2,983
2,983
—
—
—
—
(18)
(18)
2,983
2,983
$ (1,079) $ 110,916
$
(30) $
7,939
$ (1,109) $ 118,855
Less than 12 Months
Investments in a Continuous Unrealized Loss Position
12 Months or More
Total
Unrealized
Loss
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
Fair Value
$
(26) $ 18,865
894
(6)
$
(dollars in thousands)
(1) $ 1,998
—
—
$
(27) $ 20,863
894
(6)
(108)
(100)
(240)
25,563
20,056
65,378
(178)
(192)
(371)
27,296
15,704
44,998
(286)
(292)
(611)
52,859
35,760
110,376
(30)
(47)
(77)
2,516
7,016
9,532
$ (317) $ 74,910
(140)
(7)
(147)
9,002
599
9,601
$ (518) $ 54,599
(170)
(54)
(224)
11,518
7,615
19,133
$ (835) $ 129,509
As of December 31, 2020, there were 8 securities in an unrealized loss position for a period of twelve months or
more, and 60 securities in an unrealized loss position for a period of less than twelve months. These unrealized
losses are primarily a result of fluctuations in interest rates in the bond market. In analyzing an issuer’s financial
condition, management considers whether the securities are issued by the federal government or its agencies,
whether downgrades by bond rating agencies have occurred, and industry analysts’ reports. Management
believes that all declines in value of these securities are deemed to be temporary.
123
Table of Contents
Equity Securities
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has elected to measure equity securities with no readily determinable fair value at cost minus
impairment, if any, plus or minus changes resulting from observable price changes for identical or similar
securities of the same issuer.
The initial cost and carrying values of equity securities, with cumulative net unrealized gains and losses, are as
follows:
December 31, 2020
Readily determinable fair value
No readily determinable fair value
Total equity securities
December 31, 2019
Readily determinable fair value
No readily determinable fair value
Total equity securities
Cumulative
Net Unrealized
Initial Cost Gains (Losses) Carrying Value
$ 3,098
1,717
$ 4,815
$
(dollars in thousands)
$
$
194
(165)
29
$
3,292
1,552
4,844
Cumulative
Net Unrealized
Initial Cost Gains (Losses) Carrying Value
$ 3,080
1,313
$ 4,393
(dollars in thousands)
$
$
161
(165)
$
(4) $
3,241
1,148
4,389
As of December 31, 2020 and 2019, the cumulative net unrealized losses on equity securities with no readily
determinable fair value reflects downward adjustments based on observable price changes of an identical
investment. There have been no impairments or upward adjustments based on observable price changes to
equity securities with no readily determinable fair value.
124
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES
Major categories of loans as of December 31, 2020 and 2019 are summarized as follows:
December 31,
2020
December 31,
2019
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Loans, before allowance for loan losses
Allowance for loan losses
Loans, net of allowance for loan losses
Paycheck Protection Program (PPP) loans (included above)
Commercial and industrial
Agricultural and farmland
Municipal, consumer, and other
Total PPP loans
$
$
$
$
$
(dollars in thousands)
393,312
222,723
222,360
520,395
236,391
225,652
306,775
119,398
2,247,006
(31,838)
2,215,168
307,175
207,776
231,162
579,757
179,073
224,887
313,580
120,416
2,163,826
(22,299)
$ 2,141,527
153,860
3,049
6,587
163,496
$
$
—
—
—
—
The following tables detail activity in the allowance for loan losses for the years ended December 31:
Commercial Agricultural Real Estate
and
Commercial Commercial
Real Estate
Non-owner
Owner
Municipal,
Construction One-to-four Consumer,
and
Industrial
and
Farmland Occupied Occupied Multi-Family Development Residential Other
and Land
Family
Total
Allowance for loan
losses:
Balance,
December 31, 2017
Provision for loan
losses
Charge-offs
Recoveries
Balance,
December 31, 2018
Provision for loan
losses
Charge-offs
Recoveries
Balance,
December 31, 2019
Provision for loan
losses
Charge-offs
Recoveries
Balance,
December 31, 2020
(dollars in thousands)
$
5,411
$
2,385
$
1,510
$
2,476
$
997
$
2,981
$
2,723
$
1,282
$
19,765
(532)
(1,446)
315
3,748
1,139
(886)
440
265
—
—
3,294
(2,352)
54
2,650
2,506
146
(30)
—
(376)
(407)
56
4,441
2,766
1,779
677
(1,784)
595
(1,946)
(27)
—
961
(39)
440
264
(237)
141
2,644
1,110
(111)
20
3,663
7,862
(349)
75
109
(194)
—
912
153
(41)
—
993
(58)
260
984
(1,415)
490
320
(783)
272
5,697
(6,485)
1,532
4,176
2,782
1,091
20,509
(1,640)
(9)
450
513
(1,105)
350
2,359
(684)
343
3,404
(3,273)
1,659
1,024
2,977
2,540
3,109
22,299
933
—
—
1,032
(27)
250
(894)
(155)
310
1,907
(587)
305
10,532
(2,968)
1,975
$
3,929
$
793
$
3,141
$
11,251
$
1,957
$
4,232
$
1,801
$
4,734
$
31,838
125
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present the recorded investments in loans and the allowance for loan losses by category
as of December 31:
Commercial Agricultural Real Estate
and
Commercial Commercial
Real Estate
Non-owner
Municipal,
Construction One-to-four Consumer,
December 31, 2020
Loan balances:
Collectively
evaluated for
impairment
Individually
evaluated for
impairment
Acquired with
deteriorated credit
quality
and
Industrial
and
Farmland Occupied Occupied Multi-Family Development Residential Other
and Land
Family
Owner
Total
(dollars in thousands)
$ 387,072
$ 217,077
$ 201,417
$ 480,165
$ 234,252
$
219,822
$ 287,845
$ 105,796
$
2,133,446
5,312
4,793
13,132
25,993
876
3,809
10,343
13,546
77,804
928
853
7,811
14,237
1,263
2,021
8,587
56
35,756
Total
$ 393,312
$ 222,723
$ 222,360
$ 520,395
$ 236,391
$
225,652
$ 306,775
$ 119,398
$
2,247,006
Allowance for loan
losses:
Collectively
evaluated for
impairment
Individually
evaluated for
impairment
Acquired with
deteriorated credit
quality
Total
December 31, 2019
Loan balances:
Collectively
evaluated for
impairment
Individually
evaluated for
impairment
Acquired with
deteriorated credit
quality
$
2,736
$
771
$
2,306
$
6,736
$
1,950
$
3,984
$
1,237
$
1,432
$
21,152
1,193
22
429
4,255
—
222
560
3,301
9,982
—
3,929
$
$
—
793
$
406
3,141
260
11,251
$
$
7
1,957
$
26
4,232
$
4
1,801
$
1
4,734
704
31,838
$
Commercial Agricultural Real Estate
and
Commercial Commercial
Real Estate
Non-owner
Municipal,
Construction One-to-four Consumer,
and
Industrial
and
Farmland Occupied Occupied Multi-Family Development Residential Other
and Land
Family
Owner
Total
(dollars in thousands)
$ 294,006
$ 192,722
$ 211,744
$ 561,277
$ 176,273
$
217,708
$ 291,624
$ 106,448
$
2,051,802
10,733
13,966
10,927
3,398
1,324
3,782
11,349
13,872
69,351
2,436
1,088
8,491
15,082
1,476
3,397
10,607
96
42,673
Total
$ 307,175
$ 207,776
$ 231,162
$ 579,757
$ 179,073
$
224,887
$ 313,580
$ 120,416
$
2,163,826
Allowance for loan
losses:
Collectively
evaluated for
impairment
Individually
evaluated for
impairment
Acquired with
deteriorated credit
quality
Total
$
1,926
$
2,576
$
1,486
$
3,591
$
1,019
$
2,283
$
1,684
$
931
$
15,496
2,170
105
270
70
—
567
822
2,176
6,180
345
4,441
$
85
2,766
$
23
1,779
$
2
3,663
$
5
1,024
$
$
127
2,977
$
34
2,540
$
2
3,109
623
22,299
$
126
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present loans individually evaluated for impairment by category of loans as of
December 31:
December 31, 2020
With an allowance recorded:
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Total
With no related allowance:
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Total
Total
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Total
127
Unpaid
Principal
Recorded
Related
Balance Investment Allowance
$ 2,737
169
3,072
20,726
—
2,081
2,963
12,207
$ 43,955
(dollars in thousands)
$ 2,725
$
168
3,040
20,394
—
2,055
2,739
12,181
$ 43,302
$
$ 3,322
4,625
10,164
5,727
876
1,762
9,325
1,431
$ 37,232
$ 6,059
4,794
13,236
26,453
876
3,843
12,288
13,638
$ 81,187
$ 2,587
4,625
10,092
5,599
876
1,754
7,604
1,365
$ 34,502
$ 5,312
4,793
13,132
25,993
876
3,809
10,343
13,546
$ 77,804
$
$
$
$
1,193
22
429
4,255
—
222
560
3,301
9,982
—
—
—
—
—
—
—
—
—
1,193
22
429
4,255
—
222
560
3,301
9,982
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
With an allowance recorded:
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Total
With no related allowance:
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Total
Total
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Total
128
Unpaid
Principal
Recorded
Related
Balance Investment Allowance
$ 4,292
590
830
99
—
3,679
3,401
9,138
$ 22,029
(dollars in thousands)
$
$ 4,292
590
830
99
—
3,679
3,390
9,111
$ 21,991
$
$ 6,438
13,369
10,089
3,297
1,328
104
7,986
4,775
$ 47,386
$ 10,730
13,959
10,919
3,396
1,328
3,783
11,387
13,913
$ 69,415
$ 6,441
13,376
10,097
3,299
1,324
103
7,959
4,761
$ 47,360
$ 10,733
13,966
10,927
3,398
1,324
3,782
11,349
13,872
$ 69,351
$
$
$
$
2,170
105
270
70
—
567
822
2,176
6,180
—
—
—
—
—
—
—
—
—
2,170
105
270
70
—
567
822
2,176
6,180
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the average recorded investment and interest income recognized for loans
individually evaluated for impairment by category of loans during the years ended December 31:
Year Ended December 31,
2020
2019
2018
Average
Recorded
Interest
Income
Average
Recorded
Interest
Income
Average
Recorded
Interest
Income
Investment Recognized Investment Recognized Investment Recognized
With an allowance recorded:
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner
occupied
Commercial real estate - non-owner
occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Total
With no related allowance:
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner
occupied
Commercial real estate - non-owner
occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Total
Total
169
9
98
(dollars in thousands)
152
$
12
$ 5,275
464
$ 4,274
566
$
874
43
3,574
$ 3,031
273
$
1,622
6,345
—
2,441
3,120
10,617
$ 27,449
220
—
116
110
286
$ 1,008
101
—
3,988
3,414
9,284
$ 23,400
$ 4,004
11,061
$
251
561
$ 6,744
14,826
7
—
171
79
396
860
640
1,472
2,593
3,377
302
$ 16,798
206
824
$ 5,093
8,815
$
$
$
$
106
16
67
7
66
161
82
5
510
59
526
384
11,056
528
10,190
483
12,217
14,412
447
892
8,022
3,089
$ 52,983
458
10
23
316
115
$ 2,262
3,465
1,344
107
8,360
4,874
$ 49,910
131
9
4
240
104
$ 2,001
7,110
355
528
10,706
297
$ 45,121
147
17
3
168
5
$ 1,309
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner
occupied
Commercial real estate - non-owner
occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Total
$ 7,035
11,334
$
420
570
$ 12,019
15,290
$
358
836
$ 9,367
9,381
$
12,678
626
11,064
526
15,791
165
542
451
20,757
447
3,333
11,142
13,706
$ 80,432
678
10
139
426
401
$ 3,270
3,566
1,344
4,095
11,774
14,158
$ 73,310
138
9
175
319
500
$ 2,861
7,750
1,827
3,121
14,083
599
$ 61,919
154
83
164
250
10
$ 1,819
129
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present the recorded investment in loans by category based on current payment and
accrual status as of December 31:
December 31, 2020
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Total
Current
$ 392,490
222,723
221,308
516,387
236,391
225,508
301,282
119,055
$ 2,235,144
Accruing Interest
30 - 89 Days
$
90+ Days
Past Due Past Due Nonaccrual
(dollars in thousands)
— $
—
112
—
—
—
984
211
$ 1,307
822
—
940
4,008
—
144
3,914
111
$ 9,939
— $
—
—
—
—
—
595
21
616
$
Total
Loans
$ 393,312
222,723
222,360
520,395
236,391
225,652
306,775
119,398
$ 2,247,006
Total
Loans
December 31, 2019
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Total
Current
$ 301,975
201,519
228,218
579,626
177,696
224,716
307,712
119,898
$ 2,141,360
130
Accruing Interest
30 - 89 Days
90+ Days
Past Due Past Due Nonaccrual
(dollars in thousands)
$
558
—
941
131
—
140
1,329
247
$ 3,346
$
$
— $ 4,642
6,257
—
2,003
—
—
—
1,377
—
31
—
4,464
75
245
26
$ 19,019
101
$ 307,175
207,776
231,162
579,757
179,073
224,887
313,580
120,416
$ 2,163,826
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present total loans by category based on their assigned risk ratings determined by
management as of December 31:
December 31, 2020
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Pass
$ 368,843
191,662
176,823
432,752
204,449
193,646
280,198
105,539
$ 18,258
25,540
31,990
58,699
31,066
28,193
14,526
312
6,211
5,521
13,547
28,944
876
3,813
12,051
13,547
Pass-Watch Substandard Doubtful
(dollars in thousands)
$
$
Total
— $ 393,312
222,723
—
222,360
—
520,395
—
236,391
—
225,652
—
306,775
—
119,398
—
Total
December 31, 2019
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
$ 1,953,912
$
208,584
$ 84,510
$
— $ 2,247,006
Pass
$ 267,645
180,735
198,710
531,694
175,807
217,120
287,036
106,063
Total
Pass-Watch Substandard Doubtful
(dollars in thousands)
$
$ 12,416
14,774
10,707
1,971
1,495
4,185
12,998
13,874
$ 27,114
12,267
21,745
46,092
1,771
3,582
13,546
479
— $ 307,175
207,776
—
231,162
—
579,757
—
179,073
—
224,887
—
313,580
—
120,416
—
Total
$ 1,964,810
$
126,596
$ 72,420
$
— $ 2,163,826
131
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present the financial effect of troubled debt restructurings for the years ended
December 31:
Year Ended December 31, 2020
Commercial real estate - owner occupied
Total
Year Ended December 31, 2019
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
One-to-four family residential
Total
Year Ended December 31, 2018
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
One-to-four family residential
Total
Recorded Investment
Number Pre-Modification Post-Modification Reserves
Charge-offs
and Specific
1
1
$
$
(dollars in thousands)
$
853
$
853
853
853
$
$
—
—
Recorded Investment
Number Pre-Modification Post-Modification Reserves
Charge-offs
and Specific
3
2
1
1
7
$
$
(dollars in thousands)
$
516
392
170
21
1,099
516
392
170
21
1,099
$
$
$
—
—
—
—
—
Recorded Investment
Number Pre-Modification Post-Modification Reserves
Charge-offs
and Specific
2
1
2
4
9
$
$
(dollars in thousands)
296
$
171
5,173
1,230
6,870
296
171
5,189
1,255
6,911
$
$
$
157
—
47
480
684
During the years ended December 31, 2020, 2019, and 2018, all troubled debt restructurings were the result of
a payment concession.
The following table presents the recorded investment of troubled debt restructurings which had subsequent
payment defaults within 12 months following the modification as of December 31:
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
One-to-four family residential
Total
$
$
December 31,
2020
December 31,
2018
December 31,
2019
(dollars in thousands)
— $
98
—
—
98
— $
—
—
—
— $
$
47
166
172
542
927
For purposes of this disclosure, the Company considers “default” to mean 90 days or more past due as to
interest or principal or were on nonaccrual status subsequent to restructuring.
132
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2020 and 2019, the Company had $8,950,000 and $9,315,000 of troubled debt
restructurings, respectively. Restructured loans are evaluated for impairment quarterly as part of the Company’s
determination of the allowance for loan losses. There were no material commitments to lend additional funds to
debtors owing receivables whose terms have been modified in troubled debt restructurings.
Changes in the accretable yield for loans acquired with deteriorated credit quality were as follows for the years
ended December 31:
2020
Year Ended December 31,
2019
(dollars in thousands)
2018
Beginning balance
Reclassification from non-accretable difference
Accretion income
Ending balance
NOTE 5 – LOAN SERVICING
$
1,662
288
(553)
$ 2,101
822
(1,261)
$ 2,723
2,092
(2,714)
$
1,397
$ 1,662
$ 2,101
Mortgage loans serviced for others, not included in the accompanying consolidated balance sheets, amounted
to $1,090,219,000 and $1,152,535,000 as of December 31, 2020 and 2019, respectively. Activity in mortgage
servicing rights is as follows for years ended December 31:
Beginning balance
Capitalized servicing rights
Fair value adjustment:
2020
Year Ended December 31,
2019
(dollars in thousands)
$ 10,918
1,018
$ 10,289
885
2018
$ 8,518
1,981
Attributable to payments and principal reductions
Attributable to changes in valuation inputs and assumptions
Total fair value adjustment
Ending balance
(2,364)
(2,201)
(4,565)
$ 5,934
(1,614)
(1,804)
(3,418)
$ 8,518
(1,350)
1,094
(256)
$ 10,918
133
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated depreciation as of December 31 as follows:
Land, buildings, and improvements
Furniture, fixtures, and equipment
Total bank premises and equipment
Less accumulated depreciation
Total bank premises and equipment, net
Depreciation expense by category for the years ended December 31 is as follows:
2020
2019
(dollars in thousands)
$ 75,790
23,035
98,825
45,921
$ 52,904
$ 75,878
21,200
97,078
43,091
$ 53,987
Buildings and improvements
Furniture, fixtures, and equipment
Total depreciation expense
NOTE 7 – FORECLOSED ASSETS
$
$
Foreclosed assets activity is as follows for the years ended December 31:
Beginning balance
Transfers from loans
Capitalized improvements
Proceeds from sales
Sales through loan origination
Net gain (loss) on sales
Direct write-downs
Ending balance
2020
Year Ended December 31,
2019
(dollars in thousands)
$
$
1,761
1,180
2,941
$
1,813
896
2,709
$
2018
2,107
1,112
3,219
2018
2020
Year Ended December 31,
2019
(dollars in thousands)
$ 9,559
2,520
41
(5,460)
(2,046)
1,048
(563)
$ 5,099
$ 16,545
2,518
—
(6,851)
(1,220)
(268)
(1,165)
$ 9,559
$ 5,099
1,074
6
(2,079)
(67)
348
(213)
$ 4,168
Gains (losses) on foreclosed assets includes the following for the years ended December 31:
2020
Year Ended December 31,
2019
(dollars in thousands)
2018
Direct write-downs
Net gain (loss) on sales
Guarantee reimbursements
Gain on settlement
Gain on foreclosure
Gains (losses) on foreclosed assets
134
$ (213) $
348
7
—
—
142
$
$
(563) $ (1,165)
(268)
1,048
—
80
—
375
—
96
$ (1,337)
940
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The carrying value of foreclosed one-to-four family residential real estate property as of December 31, 2020 and
2019, was $868,000 and $1,037,000, respectively. As of December 31, 2020, there were 11 one-to-four family
residential real estate loans in the process of foreclosure totaling approximately $1,526,000. As of
December 31, 2019, there were 10 residential real estate loans in the process of foreclosure totaling
approximately $588,000.
NOTE 8 – CORE DEPOSIT INTANGIBLE ASSETS
Core deposit intangible assets as of December 31 are as follows:
Gross carrying amount
Accumulated amortization
Core deposit intangible assets, net
$
$
2020
2019
(dollars in thousands)
21,718
(18,920)
2,798
21,718
(17,688)
4,030
$
$
Amortization of core deposit intangible assets for the years subsequent to December 31, 2020 is expected to be
as follows (dollars in thousands):
Year ended December 31,
2021
2022
2023
2024
2025
Total
NOTE 9 – DEPOSITS
The Company’s deposits are summarized below as December 31:
Noninterest-bearing deposits
Interest-bearing deposits:
Interest-bearing demand
Money market
Savings
Time
Total interest-bearing deposits
Total deposits
$
$
1,047
852
330
316
253
2,798
December 31, 2020 December 31, 2019
(dollars in thousands)
$
882,939
$
689,116
968,592
462,056
517,473
299,474
2,247,595
3,130,534
$
814,639
477,765
438,927
356,408
2,087,739
2,776,855
$
Money market deposits include $6,489,000 and $14,309,000 of reciprocal transaction deposits as of
December 31, 2020 and 2019, respectively. Time deposits include $3,164,000 and $3,538,000 of reciprocal
time deposits as of December 31, 2020 and 2019, respectively.
The aggregate amounts of time deposits in denominations of $250,000 or more amounted to $26,687,000 and
$44,754,000 as of December 31, 2020 and 2019, respectively. The aggregate amounts of time deposits in
denominations of $100,000 or more amounted to $99,649,000 and $130,293,000 as of December 31, 2020 and
2019, respectively.
135
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2020, the scheduled maturities of time deposits are as follows (dollars in thousands):
Year ended December 31,
2021
2022
2023
2024
2025
Thereafter
Total
$
$
218,378
49,776
14,864
8,208
8,101
147
299,474
The components of interest expense on deposits for the years ended December 31 are as follows:
Interest-bearing demand
Money market
Savings
Time
Total interest expense on deposits
2020
Year Ended December 31,
2019
(dollars in thousands)
2018
$
$
647
697
196
2,681
4,221
$
$
1,474
1,837
278
4,343
7,932
$
$
1,378
685
283
3,541
5,887
NOTE 10 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
All repurchase agreements are sweep instruments. The securities underlying the agreements as of
December 31, 2020 and 2019 were under the Company’s control in safekeeping at third-party financial
institutions, and included debt securities.
Information pertaining to securities sold under agreements to repurchase as of December 31 is as follows:
Balance at end of year
Weighted average rate as of end of year
Fair value of securities underlying the agreements
Carrying value of securities underlying the agreements
$
$
$
136
2020
2019
(dollars in thousands)
45,736
$
44,433
0.06 %
62,472
62,415
$
$
0.20 %
57,760
57,760
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – BORROWINGS
There were no Federal Home Loan Bank of Chicago (FHLB) borrowings outstanding as of December 31, 2020
and 2019. Available borrowings from the FHLB are secured by FHLB stock held by the Company and pledged
security in the form of qualifying loans. The total amount of loans pledged as of December 31, 2020 and 2019
was $493,690,000 and $548,229,000, respectively. As of December 31, 2020 and 2019, loans pledged also
served as collateral for credit exposure of approximately $355,000 associated with the Bank’s participation in
the FHLB’s Mortgage Partnership Finance Program.
The Bank also had available borrowings through the discount window of the Federal Reserve Bank of Chicago
(FRB). Available borrowings are based on the collateral pledged. As of December 31, 2020 and 2019, the
carrying value of securities pledged amounted to $499,000 and $515,000, respectively. There was no
outstanding balance from the FRB discount window as of December 31, 2020 and 2019.
NOTE 12 – SUBORDINATED NOTES
On September 3, 2020, the Company issued $40,000,000 of fixed-to-floating rate subordinated notes that
mature on September 15, 2030. The subordinated notes, which are unsecured obligations of the Company,
bear a fixed interest rate of 4.50% for the first five years after issuance and thereafter bear interest at a floating
rate equal to three-month SOFR, as determined on the Floating Interest Determination Date, plus 4.37%.
Interest is payable semi-annually during the five year fixed rate period and quarterly during the subsequent five
year floating rate period. The subordinated notes have an optional redemption in whole or in part on any interest
payment date on or after September 15, 2025. If the subordinated notes are redeemed before they mature, the
redemption price will be the principal amount plus any accrued but unpaid interest. The transaction resulted in
debt issuance costs of $789,000 which will be amortized over 10 years. As of December 31, 2020, 100% of the
subordinated notes qualified as Tier 2 capital.
The face value and carrying value of the subordinated notes are summarized below:
December 31, 2020 December 31, 2019
Subordinated notes, at face value
Unamortized issuance costs
Subordinated notes, at carrying value
$
$
(dollars in thousands)
40,000
(762)
39,238
$
$
—
—
—
NOTE 13 – JUNIOR SUBORDINATED DEBENTURES ISSUED TO CAPITAL TRUSTS
Five subsidiary business trusts of the Company have issued floating rate capital securities (“capital securities”)
which are guaranteed by the Company.
The Company owns all of the outstanding stock of the five subsidiary business trusts. The trusts used the
proceeds from the issuance of their capital securities to buy floating rate junior subordinated deferrable interest
debentures (“junior subordinated debentures”) issued by the Company. These junior subordinated debentures
are the only assets of the trusts and the interest payments from the junior subordinated debentures finance the
distributions paid on the capital securities. The junior subordinated debentures are unsecured and rank junior
and subordinate in the right of payment to all senior debt of the Company.
The trusts are not consolidated in the Company’s financial statements.
137
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The carrying value of the junior subordinated debentures are summarized as follows:
December 31, 2020 December 31, 2019
Heartland Bancorp, Inc. Capital Trust B
Heartland Bancorp, Inc. Capital Trust C
Heartland Bancorp, Inc. Capital Trust D
FFBI Capital Trust I
National Bancorp Statutory Trust I
Total junior subordinated debentures, at face value
National Bancorp Statutory Trust I unamortized discount
Total junior subordinated debentures, at carrying value
$
$
$
(dollars in thousands)
10,310
10,310
5,155
7,217
5,773
38,765
(1,117)
37,648
$
10,310
10,310
5,155
7,217
5,773
38,765
(1,182)
37,583
The interest rates on the subordinated debentures are variable, reset quarterly, and are equal to the three-
month LIBOR, as determined on the LIBOR Determination Date immediately preceding each Distribution
Payment Date specific to each junior subordinated debenture, plus a fixed percentage. The interest rates and
maturities of the junior subordinated debentures are summarized as follows:
Variable
Interest Rate
December 31,
2020
December 31,
2019
Interest Rate at
Heartland Bancorp, Inc. Capital Trust B
Heartland Bancorp, Inc. Capital Trust C
Heartland Bancorp, Inc. Capital Trust D
FFBI Capital Trust I
National Bancorp Statutory Trust I
LIBOR plus 2.75 %
LIBOR plus 1.53
LIBOR plus 1.35
LIBOR plus 2.80
LIBOR plus 2.90
2.99 %
1.75
1.57
3.04
3.12
4.74 %
3.42
3.24
4.79
4.79
Maturity
Date
April 6, 2034
June 15, 2037
September 15, 2037
April 6, 2034
December 31, 2037
The distribution rate payable on the debentures is cumulative and payable quarterly in arrears. The Company
has the right, subject to events in default, to defer payments of interest on the junior subordinated debentures at
any time by extending the interest payment period for a period not exceeding 10 quarterly periods with respect
to each deferral period, provided that no extension period may extend beyond the redemption or maturity date
of the junior subordinated debentures. The capital securities are subject to mandatory redemption upon
payment of the junior subordinated debentures and carry an interest rate identical to that of the related
debenture. The junior subordinated debentures maturity dates may be shortened if certain conditions are met,
or at any time within 90 days following the occurrence and continuation of certain changes in either tax
treatment or the capital treatment of the junior subordinated debentures or the capital securities. If the junior
subordinated debentures are redeemed before they mature, the redemption price will be the principal amount
plus any accrued but unpaid interest. The Company has the right to terminate each Capital Trust and cause the
junior subordinated debentures to be distributed to the holders of the capital securities in liquidation of such
trusts.
Under current banking regulations, bank holding companies are allowed to include qualifying trust preferred
securities in their Tier 1 Capital for regulatory capital purposes, subject to a 25% limitation to all core (Tier 1)
capital elements, net of goodwill and other intangible assets less any associated deferred tax liability. As of
December 31, 2020 and 2019, 100% of the trust preferred securities qualified as Tier 1 capital under the final
rule adopted in March 2005.
138
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are negotiated contracts entered into by two issuing counterparties containing
specific agreement terms, including the underlying instrument, amount, exercise price, and maturities. The
derivatives accounting guidance requires that the Company recognize all derivative financial instruments as
either assets or liabilities at fair value in the consolidated balance sheets. The Company may utilize interest rate
swap agreements as part of its asset liability management strategy to help manage its interest rate risk position.
Interest Rate Swaps Designated as Cash Flow Hedges
The Company designated certain interest rate swap agreements as cash flow hedges on variable-rate
borrowings. For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on
interest rate swaps designated as cash flow hedging instruments are reported as a component of accumulated
other comprehensive income (loss) and reclassified into earnings in the same period or periods during which
the hedged transactions affect earnings.
The interest rate swap agreements designated as cash flow hedges are summarized as follows:
Fair value recorded in other liabilities
$ 17,000
December 31, 2020
Fair
Value
Notional
Amount
December 31, 2019
Fair
Value
Notional
Amount
(dollars in thousands)
$ (1,458) $ 17,000
$ (676)
As of December 31, 2020, the interest rate swap agreements designated as cash flow hedges had contractual
maturities between 2024 and 2025. As of December 31, 2020 and 2019, the Company had cash pledged and
held on deposit at counterparties of $1,630,000 and $710,000, respectively.
During the three months ended March 31, 2019, the Company had an interest rate swap contract with a
notional amount of $10,000,000 designated as a cash flow hedge on variable-rate loans. Beginning April 1,
2019, this hedging relationship was no longer considered highly effective, and the Company discontinued
hedge accounting. In accordance with hedge accounting guidance, the net unrealized gain associated with the
discontinued hedging relationship, recorded within accumulated other comprehensive income, was reclassified
into earnings through April 7, 2020, the period the hedged forecasted transactions affect earnings.
For the years ended December 31, 2020, 2019, and 2018, the effect of interest rate swap agreements
designated as cash flow hedges on the consolidated statements of income are summarized as follows:
Location of gross gain (loss) reclassified
from accumulated other
comprehensive income to income
Designated as cash flow hedges:
Taxable loan interest income
Junior subordinated debentures interest expense
Total
2020
Amounts of gross gain (loss)
reclassified from accumulated
other comprehensive income
Year Ended December 31,
2019
(dollars in thousands)
64
(302)
(238)
$
$
116
(29)
87
$
$
$
$
2018
175
—
175
139
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest Rate Swaps Not Designated as Hedging Instruments
The Company may offer interest rate swap agreements to its commercial borrowers in connection with their risk
management needs. The Company manages the risk associated with these contracts by entering into an equal
and offsetting derivative with a third-party financial institution. While these interest rate swap agreements
generally worked together as an economic interest rate hedge, the Company did not designate them for hedge
accounting treatment. Consequently, changes in fair value of the corresponding derivative financial asset or
liability were recorded as either a charge or credit to current earnings during the period in which the changes
occurred.
The interest rate swap agreements not designated as hedging instruments are summarized as follows:
Notional
Amount
December 31, 2020
Fair
Value
December 31, 2019
Fair
Notional
Value
Amount
(dollars in thousands)
Fair value recorded in other assets:
Interest rate swaps with a commercial borrower counterparty
Interest rate swaps with a financial institution counterparty
Total fair value recorded in other assets
Fair value recorded in other liabilities:
Interest rate swaps with a commercial borrower counterparty
Interest rate swaps with a financial institution counterparty
Total fair value recorded in other liabilities
$ 122,313 $ 15,360 $ 114,140 $ 8,532
110
$ 122,313 $ 15,360 $ 138,356 $ 8,642
24,216
—
—
$
— $
— $ 24,216 $ (110)
(8,532)
$ 122,313 $ (15,360) $ 138,356 $ (8,642)
(15,360)
114,140
122,313
As of December 31, 2020, the interest rate swap agreements not designated as hedging instruments had
contractual maturities between 2022 and 2042. As of December 31, 2020 and 2019, the Company had
$15,490,000 and $8,713,000, respectively, of debt securities pledged and held in safekeeping at the financial
institution counterparty.
For the years ended December 31, 2020, 2019 and 2018, the effect of interest rate contracts not designated as
hedging instruments recognized in other noninterest income on the consolidated statements of income are
summarized as follows:
Not designated as hedging instruments:
Gross gains
Gross losses
Net gains
2020
Year Ended December 31,
2019
(dollars in thousands)
2018
$
$
24,758
(24,758)
$
— $
13,537
(13,500)
37
$
$
1,758
(1,758)
—
140
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 – ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table presents the activity and accumulated balances for components of other comprehensive
income (loss) for the years ended December 31:
Unrealized Gains (Losses)
on Debt Securities
Available-for-Sale Held-to-Maturity Derivatives
Total
Balance, December 31, 2017
Adoption of ASU 2016-01
Other comprehensive loss before reclassifications
Reclassifications
Other comprehensive loss
Balance, December 31, 2018
Other comprehensive income (loss) before
reclassifications
Reclassifications
Other comprehensive income (loss), before tax
Income tax (benefit) expense
Other comprehensive income (loss), after tax
Balance, December 31, 2019
Other comprehensive income (loss) before
reclassifications
Reclassifications
Other comprehensive income (loss), before tax
Income tax expense (benefit)
Other comprehensive income (loss), after tax
Balance, December 31, 2020
$
$
(1,288) $
(122)
(5,692)
2,541
(3,151)
(4,561)
$
(dollars in thousands)
504
—
—
(382)
(382)
122
409
—
(83)
(175)
(258)
151
(698)
(87)
(785)
62
(847)
(696)
$
(375)
(122)
(5,775)
1,984
(3,791)
(4,288)
11,760
(351)
11,409
(711)
12,120
7,832
—
(264)
(264)
(11)
(253)
(131)
—
18
18
5
13
14,188
(1,084)
256
238
14,444
(846)
4,123
(235)
(611)
10,321
(118) $ (1,307) $ 18,153
12,458
—
12,458
(762)
13,220
8,659
15,272
—
15,272
4,353
10,919
19,578
$
The amounts reclassified from accumulated other comprehensive income (loss) for unrealized gains (losses) on
debt securities available-for-sale are included in gain (loss) on securities in the accompanying consolidated
statements of income.
The amounts reclassified from accumulated other comprehensive income (loss) for unrealized gains on debt
securities held-to-maturity are included in securities interest income in the accompanying consolidated
statements of income.
The amounts reclassified from accumulated other comprehensive income (loss) for the fair value of derivative
instruments represent net interest payments received or made on derivatives designated as cash flow hedges.
See Note 14 for additional information.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 – INCOME TAXES
Effective October 11, 2019, the Company voluntarily revoked its S Corporation status and became a taxable
entity (C Corporation). As such, any periods prior to October 11, 2019 will only reflect an effective state income
tax rate. In connection with the conversion of tax status, the Company recognized a deferred tax asset of
$534,000 and an income tax benefit of $534,000.
In recording the impact of the conversion to a C Corporation, the Company recorded a deferred income tax
expense of $2,741,000 related to the unrealized gains (losses) on debt securities and derivatives, through the
income statement in accordance with ASC 740-20-45-8; therefore, the amount shown in other comprehensive
income has not been reduced by the above expense. This difference will remain in accumulated other
comprehensive income until the underlying securities are sold or mature and the underlying cash flow hedging
relationships terminate in accordance with the portfolio approach allowed under ASC 740.
Allocation of income tax expense between current and deferred portions for the years ended December 31 is as
follows:
Current
Federal
State
Total current
Deferred
Federal
State
Change in tax status
Total deferred
Income tax expense
2020
2019
(dollars in thousands)
2018
$ 8,358
4,709
13,067
$ 4,849
3,102
7,951
(226)
(113)
—
(339)
$ 12,728
(1,437)
(724)
(534)
(2,695)
$ 5,256
$
$
—
869
869
—
—
—
—
869
Income tax expense differs from the statutory federal rate for the years ended December 31 due to the
following:
Federal income tax, at statutory rate
Increase (decrease) resulting from:
2020
2019
2018
Amount
Percentage
Amount Percentage Amount Percentage
(dollars in thousands)
$ 10,410
21.0 %$
3,933
5.5 %$ —
— %
Federally tax exempt interest income
(1,470)
(3.0)
(372)
(0.5)
—
State taxes, net of federal benefit
Change in tax status
Other
3,631
—
157
7.4
—
0.3
2,212
(534)
17
3.1
(0.8)
—
869
—
—
—
1.3
—
—
Income tax expense
$ 12,728
25.7 %$
5,256
7.3 %$ 869
1.3 %
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the deferred tax assets and liabilities are as follows:
Deferred tax assets
Allowance for loan losses
Compensation related
Deferred loan fees
Nonaccrual interest
Foreclosed assets
Goodwill
Other
Total deferred tax assets
Deferred tax liabilities
Fixed asset depreciation
Mortgage servicing rights
Other purchase accounting adjustments
Intangible assets
Prepaid assets
Net unrealized gain on debt securities available-for-sale
Other
Total deferred tax liabilities
Net deferred tax (liability) asset
NOTE 17 – EARNINGS PER SHARE
December 31,
2020
December 31,
2019
(dollars in thousands)
$
$
9,046 $
2,301
1,595
660
45
336
1,046
15,029
4,361
1,692
1,115
580
685
6,604
370
15,407
(378)
6,309
5,859
497
858
574
531
785
15,413
4,201
2,428
1,356
841
504
2,251
426
12,007
3,406
ASC 260, Earnings Per Share, requires unvested share-based payment awards that have non-forfeitable rights
to dividends or dividend equivalents to be treated as a separate class of securities in calculating earnings per
share. The Company has granted restricted stock units that contain non-forfeitable rights to dividend
equivalents. Such restricted stock units are considered participating securities. As such, we have included these
restricted stock units in the calculation of basic earnings per share and calculate basic earnings per share using
the two-class method. The two-class method of computing earnings per share is an earnings allocation formula
that determines earnings per share for each class of common stock and participating security according to
dividends declared (or accumulated) and participation rights in undistributed earnings.
Diluted earnings per share is computed using the treasury stock method and reflects the potential dilution that
could occur if the Company’s outstanding restricted stock units were vested. During the year ended
December 31, 2020, the restricted stock units were considered anti-dilutive and excluded from the calculation of
common stock equivalents. There were no restricted stock units outstanding during the years ended
December 31, 2019 and 2018.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the computation of basic and diluted earnings per share:
Numerator:
Net income
Earnings allocated to unvested restricted stock units
Numerator for earnings per share - basic and diluted
Denominator:
Weighted average common shares outstanding
Dilutive effect of outstanding restricted stock units
Weighted average common shares outstanding, including all
dilutive potential shares
Earnings per share - Basic
Earnings per share - Diluted
NOTE 18 – DEFERRED COMPENSATION
2020
Year Ended December 31,
2019
(dollars in thousands)
2018
36,845
(93)
36,752
$
$
66,865
—
66,865
$
$
63,799
—
63,799
27,457,306
—
20,090,270
—
18,047,332
—
27,457,306
20,090,270
18,047,332
1.34
1.34
$
$
3.33
3.33
$
$
3.54
3.54
$
$
$
$
The Company maintained a supplemental executive retirement plan (the SERP) for certain key executive
officers. The SERP benefit payments were scheduled to be paid in equal monthly installments over 30 years. In
June 2019, the Company approved termination of the SERP agreements, and a lump sum payment was made
in June 2020 to each participant equal to the present value of any remaining installment payments. As of
December 31, 2020, there was no remaining deferred compensation liability for the SERP. As of December 31,
2019, the deferred compensation liability for the SERP was $12,789,000. During the years ended December 31,
2020, 2019, and 2018, the Company recognized deferred compensation expense for the SERP of $1,660,000,
$4,291,000, and 505,000, respectively.
NOTE 19 – EMPLOYEE BENEFIT PLANS
Profit Sharing Plan
During the years ended December 31, 2020, 2019, and 2018, the Company’s profit sharing plan contribution
expense amounted to $1,118,000, $1,223,000, and $1,109,000, respectively. The Company’s contributions vest
to employees ratably over a six-year period.
Medical Insurance Benefits
The Company is partially self-insured for medical claims filed by its employees. As of December 31, 2020 and
2019, the Company’s maximum aggregate liability under the plan was $6,287,000 and $6,194,000, respectively.
During the years ended December 31, 2020, 2019, and 2018, medical benefits expense amounted to
$4,840,000, $3,734,000, and $4,387,000, respectively.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 – STOCK-BASED COMPENSATION PLANS
The Company has adopted the HBT Financial, Inc. Omnibus Incentive Plan (the “Omnibus Incentive Plan”). The
Omnibus Incentive Plan provides for grants of (i) stock options, (ii) stock appreciation rights, (iii) restricted
shares, (iv) restricted stock units, (v) performance awards, (vi) other share-based awards and (vii) other cash-
based awards to eligible employees, non-employee directors and consultants of the Company. The maximum
number of shares of common stock available for issuance under the Omnibus Incentive Plan is 1,820,000
shares.
The following is a summary of stock-based compensation expense (benefit):
Restricted stock units
Stock appreciation rights
Total stock-based compensation expense
Restricted Stock Units
$
$
2020
Year Ended December 31,
2019
(dollars in thousands)
— $
$
2018
351
(137)
214
343
343
$
$
—
540
540
A restricted stock unit grants a participant the right to receive one share of common stock, following the
completion of the requisite service period. Restricted stock units are classified as equity. Compensation cost is
based on the Company’s stock price on the grant date and is recognized on a straight-line basis over the
vesting period for the entire award. Non-forfeitable dividend equivalents are paid on non-vested restricted stock
units and are classified as dividends charged to retained earnings. If restricted stock units are subsequently
forfeited, the non-forfeitable dividends related to the forfeited restricted stock units are reclassified to
compensation cost in the period the forfeiture occurs.
On January 28, 2020, the Company granted 70,400 restricted stock units to certain key employees which vest
in four equal annual installments beginning on February 1, 2021. On January 28, 2020, the Company also
granted 2,750 restricted stock units to non-employee directors which vest on February 1, 2021. The total fair
value of the restricted stock units granted on January 28, 2020 was $1,392,000, based on the grant date closing
price of $19.03 per share.
On June 24, 2020, the Company also granted 550 restricted stock units to a non-employee director which vest
on February 1, 2021. The total fair value of the restricted stock units granted on June 24, 2020 was $7,000,
based on the grant date closing price of $12.71 per share.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of outstanding restricted stock unit activity:
Balance, December 31, 2017
Granted
Vested
Forfeited
Balance, December 31, 2018
Granted
Vested
Forfeited
Balance, December 31, 2019
Granted
Vested
Forfeited
Balance, December 31, 2020
Restricted
Stock Units
Outstanding
Weighted
Average
Grant Date
Fair Value
— $
—
—
—
— $
—
—
—
— $
73,700
—
(2,700)
71,000
$
—
—
—
—
—
—
—
—
—
18.98
—
19.03
18.98
A further summary of outstanding restricted stock units as of December 31, 2020, is as follows:
Range of Grant Date Fair Values
$ 12.71
$ 19.03
Weighted Average
Remaining
Outstanding Contractual Term
550
70,450
0.1 years
3.0 years
As of December 31, 2020, unrecognized compensation cost related to non-vested restricted stock units was
$997,000.
Stock Appreciation Rights
A stock appreciation right grants a participant the right to receive an amount of cash, the value of which equals
the appreciation in the Company’s stock price between the grant date and the exercise date. Stock appreciation
rights units are classified as liabilities. Prior to becoming a public entity, the liability was based on the intrinsic
value of the stock appreciation rights, calculated using the grant date assigned value and an independent
appraisal of the Company’s stock price that was subject to approval by the Board of Directors. Since becoming
a public entity on October 11, 2019, the liability was based on an option-pricing model used to estimate the fair
value of the stock appreciation rights. Compensation cost for unvested stock appreciation rights is recognized
on a straight line basis over the vesting period of the entire award. The unvested stock appreciation rights vest
in four equal annual installments beginning on the first anniversary of the grant date.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of outstanding stock appreciation rights activity:
Balance, December 31, 2017
Granted
Exercised
Expired
Forfeited
Balance, December 31, 2018
Granted
Exercised
Expired
Forfeited
Balance, December 31, 2019
Granted
Exercised
Expired
Forfeited
Balance, December 31, 2020
Stock
Appreciation
Rights
Outstanding
116,280
—
(24,480)
—
—
91,800
110,160
(91,800)
—
—
110,160
—
—
—
(4,590)
105,570
Weighted
Average
Grant Date
Assigned Value
5.66
—
5.43
—
—
5.73
16.32
5.73
—
—
16.32
—
—
—
16.32
16.32
$
$
$
$
A further summary of outstanding stock appreciation rights as of December 31, 2020, is as follows:
Range of Grant Date Assigned Values
$ 16.32
Outstanding Exercisable
105,570
87,210
Weighted
Average
Remaining
Contractual
Term
8.5 years
As of December 31, 2020, unrecognized compensation cost related to non-vested stock appreciation rights was
$51,000.
As of December 31, 2020 and 2019, the liability recorded for outstanding stock appreciation rights was
$272,000 and $409,000, respectively. As of December 31, 2020 and 2019, the Company used an option pricing
model to value the stock appreciation rights, using the assumptions in the following table. Expected volatility is
derived from the historical volatility of the Company’s stock price and a selected peer group of industry-related
companies.
Risk-free interest rate
Expected volatility
Expected life (in years)
Expected dividend yield
December 31,
2020
December 31,
2019
0.80 %
34.72 %
8.7
3.96 %
1.90 %
28.83 %
9.7
3.16 %
As of December 31, 2020, the liability recorded for previously exercised stock appreciation rights was
$1,087,000, which will be paid in four remaining equal annual installments. As of December 31, 2019, the
liability recorded for previously exercised units was $1,512,000.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 – REGULATORY CAPITAL
The ability of the Company to pay dividends to its stockholders is dependent upon the ability of the Bank to pay
dividends to the Company.
The Company (on a consolidated basis) and the Bank are each subject to various regulatory capital
requirements administered by the federal and state banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional discretionary, actions by the regulators that,
if undertaken, could have a direct material effect on the consolidated financial statements of the Company and
the Bank.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and
the Bank must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the regulators about components, risk weightings, and
other factors. As allowed under the regulations, the Company and the Bank elected to exclude accumulated
other comprehensive income, including unrealized gains and losses on securities, in the computation of
regulatory capital. Prompt corrective action provisions are not applicable to bank holding companies.
Additionally, the Company and the Bank must maintain a “capital conservation buffer” to avoid becoming subject
to restrictions on capital distributions and certain discretionary bonus payments to management. As of
December 31, 2020 and 2019, the capital conservation buffer was 2.5% of risk-weighted assets.
As of December 31, 2020, the Company and the Bank meet all capital adequacy requirements to which they
are subject.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The actual and required capital amounts and ratios of HBT Financial, Inc. (consolidated) and the Bank are as
follows:
December 31, 2020
Amount
Ratio
Amount
Ratio
(dollars in thousands)
Total Capital (to Risk Weighted Assets)
Actual
For Capital
Adequacy
Purposes
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Amount
Ratio
Consolidated HBT Financial, Inc.
$ 426,283
17.40 % $ 195,970
8.00 %
N/A
N/A
Heartland Bank
382,511
15.63
195,787
8.00
$ 244,733
10.00 %
Tier 1 Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.
Heartland Bank
$ 356,410
351,904
14.55 % $ 146,977
146,840
14.38
6.00 %
6.00
N/A
$ 195,787
N/A
8.00 %
Common Equity Tier 1 Capital (to Risk
Weighted Assets)
Consolidated HBT Financial, Inc.
Heartland Bank
Tier 1 Capital (to Average Assets)
Consolidated HBT Financial, Inc.
Heartland Bank
December 31, 2019
Total Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.
Heartland Bank
State Bank of Lincoln
Tier 1 Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.
Heartland Bank
State Bank of Lincoln
Common Equity Tier 1 Capital (to Risk
Weighted Assets)
Consolidated HBT Financial, Inc.
Heartland Bank
State Bank of Lincoln
Tier 1 Capital (to Average Assets)
Consolidated HBT Financial, Inc.
Heartland Bank
State Bank of Lincoln
$ 319,927
351,904
13.06 % $ 110,233
110,130
14.38
4.50 %
4.50
N/A
$ 159,077
N/A
6.50 %
$ 356,410
351,904
9.94 % $ 143,454
143,296
9.82
4.00 %
4.00
N/A
$ 179,120
N/A
5.00 %
Actual
Amount
Ratio
For Capital
Adequacy
Purposes
Amount
Ratio
(dollars in thousands)
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Amount
Ratio
$ 356,994
315,516
35,390
14.54 % $ 196,358
180,071
14.02
16,104
17.58
8.00 %
8.00
8.00
N/A
$ 225,088
20,130
N/A
10.00 %
10.00
$ 334,695
295,385
33,222
13.64 % $ 147,268
135,053
13.12
12,078
16.50
6.00 %
6.00
6.00
N/A
$ 180,071
16,104
N/A
8.00 %
8.00
$ 298,277
295,385
33,222
12.15 % $ 110,451
101,290
13.12
9,058
16.50
4.50 %
4.50
4.50
N/A
$ 146,307
13,084
N/A
6.50 %
6.50
$ 334,695
295,385
33,222
10.38 % $ 129,027
115,281
10.25
13,531
9.82
4.00 %
4.00
4.00
N/A
$ 144,102
16,914
N/A
5.00 %
5.00
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22 – FAIR VALUE OF FINANCIAL INSTRUMENTS
Recurring Basis
The Company uses fair value measurements to record fair value adjustments to certain assets and to determine
fair value disclosures. Additional information on fair value measurements are summarized in Note 1. There were
no transfers between levels during the years ended December 31, 2020 and 2019. The Company’s policy for
determining transfers between levels occurs at the end of the reporting period when circumstances in the
underlying valuation criteria change and result in transfer between levels.
The following tables present the balances of the assets measured at fair value on a recurring basis as of
December 31:
December 31, 2020
Debt securities available-for-sale:
U.S. government agency
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Corporate
Level 1
Inputs
Level 2
Inputs
(dollars in thousands)
Level 3
Inputs
Total
Fair Value
$
— $ 121,993
— 274,261
$
— $ 121,993
— 274,261
— 203,252
— 250,766
72,597
—
— 203,252
— 250,766
72,597
—
Equity securities with readily determinable fair values
3,292
—
—
3,292
Mortgage servicing rights
Derivative financial assets
Derivative financial liabilities
December 31, 2019
Debt securities available-for-sale:
U.S. government agency
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Corporate
—
—
—
—
15,360
16,818
5,934
—
—
5,934
15,360
16,818
Level 1
Inputs
Level 2
Inputs
(dollars in thousands)
Level 3
Inputs
Total
Fair Value
$
— $ 49,615
— 133,738
$
— $ 49,615
— 133,738
— 200,678
— 134,954
73,419
—
— 200,678
— 134,954
73,419
—
Equity securities with readily determinable fair values
3,241
—
—
3,241
Mortgage servicing rights
Derivative financial assets
Derivative financial liabilities
—
—
—
—
8,642
9,318
8,518
—
—
8,518
8,642
9,318
The following is a description of the valuation methodologies used for instruments measured at fair value on a
recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy.
There were no changes to the valuation techniques from December 31, 2019 to December 31, 2020.
150
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Investment Securities
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
When available, the Company uses quoted market prices to determine the fair value of securities; such items
are classified in Level 1 of the fair value hierarchy. For the Company’s securities where quoted prices are not
available for identical securities in an active market, the Company determines fair value utilizing vendors who
apply matrix pricing for similar bonds where no price is observable or may compile prices from various sources.
These models are primarily industry-standard models that consider various assumptions, including time value,
yield curve, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual
prices for the underlying financial instruments, as well as other relevant economic measures. Substantially all of
these assumptions are observable in the marketplace. Fair values from these models are verified, where
possible, against quoted market prices for recent trading activity of assets with similar characteristics to the
security being valued. Such methods are generally classified as Level 2. However, when prices from
independent sources vary, cannot be obtained or cannot be corroborated, a security is generally classified as
Level 3. The change in fair value of debt securities available-for-sale is recorded through an adjustment to the
consolidated statement of comprehensive income. The change in fair value of equity securities with readily
determinable fair values is recorded through an adjustment to the consolidated statement of income.
Derivative Financial Instruments
Interest rate swap agreements are carried at fair value as determined by dealer valuation models. Based on the
inputs used, the derivative financial instruments subjected to recurring fair value adjustments are classified as
Level 2. For derivative financial instruments designated as a hedging instruments, the change in fair value is
recorded through an adjustment to the consolidated statement of comprehensive income. For derivative
financial instruments not designated as a hedging instruments, the change in fair value is recorded through an
adjustment to the consolidated statement of income.
Mortgage Servicing Rights
The Company has elected to record its mortgage servicing rights at fair value. Mortgage servicing rights do not
trade in an active market with readily observable prices. Accordingly, the Company determines the fair value of
mortgage servicing rights by estimating the fair value of the future cash flows associated with the mortgage
loans being serviced as calculated by an independent third party. Key economic assumptions used in
measuring the fair value of mortgage servicing rights include, but are not limited to, prepayment speeds and
discount rates. Due to the nature of the valuation inputs, mortgage servicing rights are classified in Level 3 of
the fair value hierarchy. The change in fair value is recorded through an adjustment to the consolidated
statement of income.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present additional information about the unobservable inputs used in the fair value
measurement of the mortgage servicing rights (dollars in thousands):
December 31, 2020
Mortgage servicing rights
Fair Value Valuation Technique Unobservable Inputs
$ 5,934
Discounted cash
flows
Constant pre-
payment rates
(CPR)
Discount rate
Unobservable Inputs
Constant pre-
payment rates
(CPR)
Discount rate
Range
(Weighted Average)
7.0% to 85.0% (17.3%)
9.0% to 11.0% (9.0%)
Range
(Weighted Average)
7.0% to 68.5% (12.3%)
9.0% to 11.0% (9.0%)
December 31, 2019
Mortgage servicing rights
Fair Value Valuation Technique
Discounted cash
$ 8,518
flows
Nonrecurring Basis
Certain assets are measured at fair value on a nonrecurring basis. These assets are not measured at fair value
on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as
there is evidence of impairment or a change in the amount of previously recognized impairment.
The following tables present the balances of the assets measured at fair value on a nonrecurring basis as of
December 31:
December 31, 2020
Loans held for sale
Collateral-dependent impaired loans
Bank premises held for sale
Foreclosed assets
December 31, 2019
Loans held for sale
Collateral-dependent impaired loans
Bank premises held for sale
Foreclosed assets
Loans Held for Sale
Total
Fair Value
$
Level 1
Inputs
Level 3
Inputs
Level 2
Inputs
(dollars in thousands)
$
— 33,320
—
121
4,168
—
— $ 14,713
—
—
—
— $ 14,713
33,320
121
4,168
Total
Fair Value
Level 1
Inputs
$
Level 3
Inputs
Level 2
Inputs
(dollars in thousands)
$
— $ 4,531
—
—
—
— 15,811
121
—
5,099
—
— $ 4,531
15,811
121
5,099
Mortgage loans originated and held for sale are carried at the lower of cost or estimated fair value. The
Company obtains quotes or bids on these loans directly from purchasing financial institutions. Typically, these
quotes include a premium on the sale and thus these quotes indicate fair value of the held for sale loans is
greater than cost.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Collateral-dependent Impaired Loans
In accordance with the provisions of the loan impairment guidance, impairment was measured for loans which it
is probable that payment of interest and principal will not be made in accordance with the contractual terms of
the loan agreement. The fair value of collateral-dependent impaired loans is estimated based on the fair value
of the underlying collateral supporting the loan. Collateral-dependent impaired loans require classification in the
fair value hierarchy. Impaired loans include loans acquired with deteriorated credit quality. Collateral values are
estimated using Level 3 inputs based on customized discounting criteria.
Bank Premises Held for Sale
Bank premises held for sale are recorded at the lower of cost or fair value, less estimated selling costs, at the
date classified as held for sale. Values are estimated using Level 3 inputs based on appraisals and customized
discounting criteria. The carrying value of bank premises held for sale is not re-measured to fair value on a
recurring basis but is subject to fair value adjustments when the carrying value exceeds the fair value, less
estimated selling costs.
Foreclosed Assets
Foreclosed assets are recorded at fair value based on property appraisals, less estimated selling costs, at the
date of the transfer. Subsequent to the transfer, foreclosed assets are carried at the lower of cost or fair value,
less estimated selling costs. Values are estimated using Level 3 inputs based on appraisals and customized
discounting criteria. The carrying value of foreclosed assets is not re-measured to fair value on a recurring basis
but is subject to fair value adjustments when the carrying value exceeds the fair value, less estimated selling
costs.
Collateral-Dependent Impaired Loans, Bank Premises Held for Sale, and Foreclosed Assets
The estimated fair value of collateral-dependent impaired loans, bank premises held for sale, and foreclosed
assets is based on the appraised fair value of the collateral, less estimated costs to sell. Collateral-dependent
impaired loans, bank premises held for sale, and foreclosed assets are classified within Level 3 of the fair value
hierarchy.
The Company considers the appraisal or a similar evaluation as the starting point for determining fair value and
then considers other factors and events in the environment that may affect the fair value. Appraisals or a similar
evaluation of the collateral underlying collateral-dependent loans and foreclosed assets are obtained at the time
a loan is first considered impaired or a loan is transferred to foreclosed assets. Appraisals or a similar
evaluation of bank premises held for sale are obtained when first classified as held for sale. Appraisals or
similar evaluations are obtained subsequently as deemed necessary by management but at least annually on
foreclosed assets and bank premises held for sale. Appraisals are reviewed for accuracy and consistency by
management. Appraisals are performed by individuals selected from the list of approved appraisers maintained
by management. The appraised values are reduced by discounts to consider lack of marketability and
estimated costs to sell. These discounts and estimates are developed by management by comparison to
historical results.
153
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present quantitative information about unobservable inputs used in nonrecurring Level 3
fair value measurements (dollars in thousands).
December 31, 2020
Collateral-dependent impaired
loans
Bank premises held for sale
Foreclosed assets
December 31, 2019
Collateral-dependent impaired
loans
Bank premises held for sale
Foreclosed assets
Other Fair Value Methods
Fair
Value
Valuation
Technique
Unobservable Inputs
Range
(Weighted
Average)
$ 33,320 Appraisal of collateral Appraisal adjustments Not meaningful
121
4,168
Fair
Value
Appraisal
Appraisal
Appraisal adjustments
Appraisal adjustments
Valuation
Technique
Unobservable Inputs
7% (7%)
7% (7%)
Range
(Weighted
Average)
$ 15,811 Appraisal of collateral Appraisal adjustments Not meaningful
121
5,099
Appraisal
Appraisal
Appraisal adjustments
Appraisal adjustments
7% (7%)
7% (7%)
The following methods and assumptions were used by the Company in estimating fair value disclosures of its
other financial instruments. There were no changes in the methods and significant assumptions used to
estimate the fair value of these financial instruments.
Cash and Cash Equivalents
The carrying amounts of these financial instruments approximate their fair values.
Interest-bearing Time Deposits with Banks
The carrying values of interest-bearing time deposits with banks approximate their fair values.
Restricted Stock
The carrying amount of FHLB stock approximates fair value based on the redemption provisions of the FHLB.
Loans
The fair value estimation process for the loan portfolio uses an exit price concept and reflects discounts the
Company believes are consistent with discounts in the market place. Fair values are estimated for portfolios of
loans with similar characteristics. Loans are segregated by type such as commercial and industrial, agricultural
and farmland, commercial real estate - owner occupied, commercial real estate - non-owner occupied, multi-
family, construction and land development, one-to-four family residential, and municipal, consumer, and other.
The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for similar maturities. The fair value analysis
also includes other assumptions to estimate fair value, intended to approximate those a market participant
would use in an orderly transaction, with adjustments for discount rates, interest rates, liquidity, and credit
spreads, as appropriate.
154
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Investments in Unconsolidated Subsidiaries
The fair values of the Company’s investments in unconsolidated subsidiaries are presumed to approximate
carrying amounts.
Time Deposits
Fair values of certificates of deposit with stated maturities have been estimated using the present value of
estimated future cash flows discounted at rates currently offered for similar instruments. Time deposits also
include public funds time deposits.
Securities Sold Under Agreements to Repurchase
The fair values of repurchase agreements with variable interest rates are presumed to approximate their
recorded carrying amounts.
Subordinated Notes
The fair values of subordinated debentures are estimated using discounted cash flow analyses based on rates
observed on recent debt issuances by other financial institutions.
Junior Subordinated Debentures
The fair values of subordinated debentures are estimated using discounted cash flow analyses based on rates
observed on recent debt issuances by other financial institutions.
Accrued Interest
The carrying amounts of accrued interest approximate fair value.
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information
about the financial instrument. Because no market exists for a significant portion of the Company’s financial
instruments, fair value estimates are based on judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various financial instruments, and other factors. These estimates
are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be
determined with precision. Changes in assumptions could significantly affect the estimates.
Fair values have been estimated using data which management considered the best available and estimation
methodologies deemed suitable for the pertinent category of financial instrument.
155
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides summary information on the carrying amounts and estimated fair values of the
Company’s financial instruments as of December 31:
Financial assets:
Cash and cash equivalents
Interest-bearing time deposits with
banks
Debt securities held-to-maturity
Restricted stock
Loans, net
Investments in unconsolidated
subsidiaries
Accrued interest receivable
Financial liabilities:
Time deposits
Securities sold under agreements to
repurchase
Subordinated notes
Junior subordinated debentures
Accrued interest payable
Fair Value
Hierarchy
Level
December 31, 2020
December 31, 2019
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
(dollars in thousands)
Estimated
Fair Value
Level 1
$ 312,451
$ 312,451
$ 283,971
$ 283,971
Level 1
Level 2
Level 3
Level 3
Level 3
Level 2
—
68,395
2,498
2,215,168
—
72,441
2,498
2,235,767
248
88,477
2,425
2,141,527
248
90,529
2,425
2,181,103
1,165
14,255
1,165
14,255
1,165
13,951
1,165
13,951
Level 3
299,474
300,989
356,408
355,340
Level 2
Level 3
Level 3
Level 2
45,736
39,238
37,648
1,151
45,736
38,403
23,766
1,151
44,433
—
37,583
1,132
44,433
—
31,959
1,132
The Company estimated the fair value of lending related commitments as described in Note 23 to be immaterial
based on limited interest rate exposure due to their variable nature, short-term commitment periods and
termination clauses provided in the agreements.
NOTE 23 – COMMITMENTS AND CONTINGENCIES
Financial Instruments
The Bank is party to credit-related financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers. These financial instruments include commitments to
extend credit and standby letters of credit. Such instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the consolidated balance sheets.
The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument
for commitments to extend credit and standby letters of credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments.
156
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Such commitments and conditional obligations were as follows as of December 31:
Commitments to extend credit
Standby letters of credit
Contractual Amount
December 31,
2020
December 31,
2019
(dollars in thousands)
$
530,191
10,031
$
542,705
8,991
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The
Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary, by the Bank upon extension of credit is based on management’s credit evaluation of the
customer. Collateral held varies, but may include real estate, accounts receivable, inventory, property, plant, and
equipment, and income-producing properties.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a
customer to a third party. Those standby letters of credit are primarily issued to support extensions of credit. The
credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans
to customers. The Bank secures the standby letters of credit with the same collateral used to secure the related
loan.
Lease Commitments
The Company leases office space under operating leases. Certain leases contain renewal options for periods
from three to five years at their fair rental value at the time of renewal. Future minimum lease payments under
these leases are as follows (dollars in thousands):
Year ended December 31,
2021
2022
2023
2024
2025
Total
Legal Contingencies
$
$
144
102
71
71
33
421
Various legal claims arise from time to time in the normal course of business which, in the opinion of
management, will have no material effect on the Company’s consolidated financial statements.
157
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 24 – RELATED PARTY TRANSACTIONS
Loans
As of December 31, 2020 and 2019, loans to directors, executive officers, principal shareholders and their
affiliated entities (related parties) amounted to $3,072,000 and $4,162,000, respectively. These loans were
made in the ordinary course of business on substantially the same terms, including interest rates and collateral,
as those prevailing for comparable loans with persons not related to us.
Deposits
Deposits of related parties amounted to $2,596,000 and $11,949,000 as of December 31, 2020 and 2019,
respectively.
NOTE 25 – CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
Following are the condensed financial statements of HBT Financial, Inc. (Parent only).
Condensed Parent Company Only Balance Sheets
December 31
ASSETS
Cash and cash equivalents
Investment in subsidiaries:
Bank
Non-bank
Other assets
Total assets
LIABILITIES
Subordinated notes
Junior subordinated debentures
Other liabilities
Total liabilities
STOCKHOLDERS' EQUITY
Total liabilities and stockholders' equity
158
2020
2019
(dollars in thousands)
44,149
$
4,978
$
397,201
1,165
1,140
$ 443,655
363,860
1,201
1,081
$ 371,120
$
39,238
37,648
2,852
79,738
$
—
37,583
619
38,202
363,917
$ 443,655
332,918
$ 371,120
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Parent Company Only Statements of Income
INCOME
Dividends received from subsidiaries:
Bank
Non-bank
Undistributed earnings from subsidiaries:
Bank
Non-bank
Other income
Total income
EXPENSES
Interest expense
Other expense
Total expenses
INCOME BEFORE INCOME TAX BENEFIT
INCOME TAX BENEFIT
NET INCOME
159
2020
Years ended December 31
2019
(dollars in thousands)
2018
$ 17,600
36
$ 109,969
385
$ 44,446
941
22,462
(36)
215
40,277
(41,202)
(151)
52
69,053
23,239
(1,984)
1
66,643
2,189
2,519
4,708
35,569
(1,276)
$ 36,845
1,922
1,025
2,947
66,106
(759)
$ 66,865
1,795
1,085
2,880
63,763
(36)
$ 63,799
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Parent Company Only Statements of Cash Flows
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Undistributed earnings of consolidated subsidiaries
Stock-based compensation
Amortization of discount and issuance costs on subordinated
notes and debentures
Changes in other assets and liabilities, net
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Capital contribution to bank subsidiary
Capital contribution to non-bank subsidiary
Purchase of securities
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of subordinated notes, net of issuance costs
Issuance of common stock
Repurchase of common stock
Cash dividends and dividend equivalents paid
Net cash provided by (used in) financing activities
NET CHANGE IN CASH AND EQUIVALENTS
CASH AND CASH EQUIVALENTS
Beginning of year
End of year
160
2020
$ 36,845
Year ended December 31
2019
(dollars in thousands)
$ 66,865
2018
$ 63,799
(22,426)
351
41,353
—
(21,255)
—
92
1,633
16,495
66
(1,912)
106,372
66
700
43,310
—
—
(17)
(17)
(17,000)
(100)
—
(17,100)
—
—
—
—
39,211
—
—
(16,518)
22,693
39,171
4,978
$ 44,149
$
—
138,493
—
(224,956)
(86,463)
2,809
2,169
4,978
—
—
(907)
(42,621)
(43,528)
(218)
2,387
$ 2,169
Table of Contents
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-
15(e) under the Exchange Act) as of the end of the period covered by this report was carried out under the
supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and
other members of the Company’s senior management. The Company’s Chief Executive Officer and Chief
Financial Officer concluded that, as of December 31, 2020, the end of the period covered by this report, the
Company’s disclosure controls and procedures were effective in ensuring that the information required to be
disclosed by the Company in the reports it files or submits under the Exchange Act is: (i) accumulated and
communicated to the Company’s management (including the Chief Executive Officer and Chief Financial
Officer) to allow timely decisions regarding required disclosure; and (ii) recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms.
Management’s Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining effective internal control over
financial reporting. Internal control is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of published financial statements. Internal control over financial reporting
includes self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2020. This assessment was based on criteria for effective internal control over financial reporting
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) in 2013. Based on this assessment, our Chief Executive Officer and Chief
Financial Officer have determined that the Company maintained effective internal control over financial reporting
as of December 31, 2020 based on the specified criteria.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
This annual report does not include an attestation report of the Company's independent registered public
accounting firm regarding internal control over financial reporting. As an emerging growth company,
management's report was not subject to attestation by the Company's independent registered public accounting
firm in accordance with the JOBS Act.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-
15(f) or Rule 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2020
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
161
Table of Contents
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our Code of Ethics applies to all of our officers, directors and employees, including our principal executive
officer, principal financial officer and principal accounting officer. The Code of Ethics is publicly available on our
internet website at ir.hbtfinancial.com. We intend to satisfy the disclosure requirements of Item 5.05 of Form 8-K
regarding any amendment to, or waiver from, a provision of the Code of Ethics that applies to our principal
executive officer, principal financial officer or principal accounting officer and relates to any element of the
definition of code of ethics set forth in Item 406(b) of Regulation S-K by posting such information on our
website, ir.hbtfinancial.com.
All other information required by this item is incorporated by reference to the information set forth in our
Definitive Proxy Statement for our 2021 Annual Meeting of Stockholders (the “Definitive Proxy Statement”),
which we expect to file with the SEC within 120 days after our fiscal year end.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to our Definitive Proxy Statement, which we
expect to file with the SEC within 120 days after our fiscal year end.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table summarizes information as of December 31, 2020 relating to our equity compensation plans
pursuant to which grants of options, restricted stock or other rights to acquire shares may be granted from time
to time.
Plan Category
Equity Compensation Plans approved by security holders
Equity Compensation Plans not approved by security holders
Total
Number of
Securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights
(A)
Weighted-Average
exercise price of
outstanding
options, warrants
and rights
(B)
Number of
Securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (A)) (C)
71,000
—
71,000
$
$
—
—
—
1,749,000
—
1,749,000
All other information required by this item is incorporated by reference to our Definitive Proxy Statement, which
we expect to file with the SEC within 120 days after our fiscal year end.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this item is incorporated by reference to our Definitive Proxy Statement, which we
expect to file with the SEC within 120 days after our fiscal year end.
162
Table of Contents
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference to our Definitive Proxy Statement, which we
expect to file with the SEC within 120 days after our fiscal year end.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1). See Index to Consolidated Financial Statements on page 98.
(a)(2). Financial Statement Schedule
All financial statement schedules are omitted because they are either not applicable or not required, or because
the required information is included in the Consolidated Financial Statements or the Notes thereto included in
Part II, Item 8.
(a)(3). Exhibits
163
Table of Contents
Exhibit No.
Description
3.1
3.2
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5 §
10.6 §
10.7 §
10.8 §
10.9 §
10.10 §
10.11 §
10.12 §
10.13 §
10.14 §
Restated Certificate of Incorporation of HBT Financial, Inc. (incorporated by reference to Exhibit 4.1 to the
Company’s Registration Statement on Form S-8, filed with the Commission on October 30, 2019).
Amended and Restated By-law of HBT Financial, Inc. (incorporated by reference to Exhibit 4.2 to the
Company’s Registration Statement on Form S-8, filed with the Commission on October 30, 2019).
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s
Registration Statement on Form S-1/A, filed with the Commission on October 1, 2019).
Description of Common Stock (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on
Form 10-K, filed with the Commission on March 27, 2020).
Form of 4.50% Fixed-to-Floating Rate Subordinated Note due 2030 (incorporated by reference to Exhibit
4.1 to the Company’s Current Report on Form 8-K, filed with the Commission on September 3, 2020).
Voting Trust Agreement, dated as of May 4, 2016, among Fred L. Drake, the Company and the depositors
party thereto (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form
S-1, filed with the Commission on September 13, 2019).
Amended Restated Stockholder Agreement, dated as of September 27, 2019, by and among the Company
and the stockholders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Registration
Statement on Form S-1/A, filed with the Commission on October 1, 2019).
Registration Rights Agreement, dated as of October 16, 2019, by and among the Company and the
stockholders party thereto (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2019, filed with the Commission on November 20, 2019).
Subordinated Note Purchase Agreement, dated September 3, 2020, by and among HBT Financial, Inc. and
the Purchasers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K,
filed with the Commission on September 3, 2020).
HBT Financial, Inc. Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s
Registration Statement on Form S-8, filed with the Commission on October 30, 2019).
Amended and Restated Employment Agreement, dated as of February 22, 2021, by and between the
Company and Fred L. Drake (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K, filed with the Commission on February 25, 2021).
Amended and Restated Employment Agreement, dated as of February 22, 2021, by and between the
Company and J. Lance Carter (incorporated by reference to Exhibit 10.2 to the Company’s Current Report
on Form 8-K, filed with the Commission on February 25, 2021).
Amended and Restated Employment Agreement, dated as of February 22, 2021, by and between the
Company and Patrick F. Busch (incorporated by reference to Exhibit 10.3 to the Company’s Current Report
on Form 8-K, filed with the Commission on February 25, 2021).
Form of Stock Appreciation Rights Agreement (incorporated by reference to Exhibit 10.9 to the Company’s
Registration Statement on Form S-1, filed with the Commission on September 13, 2019).
Form of Option Award Agreement (incorporated by reference to Exhibit 10.8 to the Company’s Registration
Statement on Form S-1/A, filed with the Commission on October 1, 2019).
Form of Restricted Shares Award Agreement (incorporated by reference to Exhibit 10.9 to the Company’s
Registration Statement on Form S-1/A, filed with the Commission on October 1, 2019).
Form of Restricted Stock Unit Award Agreement (with dividend equivalent rights) (incorporated by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on February 3,
2020).
Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.4 to the
Company’s Current Report on Form 8-K, filed with the Commission on February 25, 2021).
Form of Performance Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.5 to
the Company’s Current Report on Form 8-K, filed with the Commission on February 25, 2021).
164
Table of Contents
10.15 § *
Form of Director Restricted Stock Unit Award Agreement.
21.1 *
23.1 *
31.1 *
31.2 *
32.1 **
32.2 **
Subsidiaries of the Registrant.
Consent of RSM US LLP.
Certification of the Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities
Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities
Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document.
101.SCH
XBRL Taxonomy Extension Schema Document.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
*
**
§
Filed herewith.
This exhibit is furnished herewith and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or
otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934.
A management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-
K.
ITEM 16. FORM 10-K SUMMARY
None.
165
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
SIGNATURES
Dated: March 12, 2021
HBT FINANCIAL, INC.
By: /s/ Matthew J. Doherty
Matthew J. Doherty
Chief Financial Officer
(on behalf of the registrant and as principal
financial officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ Fred L. Drake
Fred L. Drake
/s/ Matthew J. Doherty
Matthew J. Doherty
/s/ C. Alvin Bowman
C. Alvin Bowman
/s/ Eric E. Burwell
Eric E. Burwell
/s/ Patrick F. Busch
Patrick F. Busch
/s/ J. Lance Carter
J. Lance Carter
/s/ Allen C. Drake
Allen C. Drake
/s/ Linda J. Koch
Linda J. Koch
/s/ Gerald E. Pfeiffer
Gerald E. Pfeiffer
/s/ Dale S. Strassheim
Dale S. Strassheim
Chairman and Chief Executive Officer
(Principal executive officer)
Executive Vice President and Chief Financial
Officer (Principal financial officer and principal
accounting officer)
Director
Director
Executive Vice President, Chief Lending
Officer and Director
Date
March 12, 2021
March 12, 2021
March 12, 2021
March 12, 2021
March 12, 2021
President, Chief Operating Officer and Director
March 12, 2021
Director
Director
Director
Director
166
March 12, 2021
March 12, 2021
March 12, 2021
March 12, 2021
RSU AWARD AGREEMENT
HBT FINANCIAL, INC. OMNIBUS INCENTIVE PLAN
HBT Financial, Inc. (the “Company”) grants to the Participant named below (“you”) the number of
restricted stock units (“RSUs”) set forth below (the “Award”), under this RSU Award Agreement
(“Agreement”).
Governing Plan:
HBT Financial, Inc. Omnibus Incentive Plan
Defined Terms:
As set forth in the Plan, unless otherwise defined in this Agreement
Participant:
[Name]
Grant Date:
[Date]
Number of RSUs:
[●]
Definition of RSU: Each RSU entitles you to receive one Share in the future subject to the terms of this Agreement
Earning and
Payment:
The RSUs will become earned and payable as follows, as long as you do not have a Separation from
Service before the applicable date:
Date
[●]
RSUs Earned and Payable
[●]%
1.
Grant of RSUs.
RSU TERMS
(a)
The Award is subject to the terms of the Plan. The terms of the Plan are incorporated into
this Agreement by this reference.
(b)
You must accept the terms of this Agreement by returning a signed copy to the Company
within 30 days after the Agreement is presented to you for review. The Committee may unilaterally cancel
and forfeit the Award in its entirety if you do not accept the terms of this Agreement.
2.
Restrictions.
(a)
You will have no rights or privileges of a Stockholder as to the Shares underlying the RSUs
before settlement under Section 5 below (“Settlement”), including no right to vote or receive dividends or
other distributions; in addition, the following terms will apply:
(i)
you will not be entitled to delivery of any Share certificates for the RSUs until
Settlement (if at all), and upon the satisfaction of all other terms;
(ii)
you may not sell, transfer (other than by will or the laws of descent and
distribution), assign, pledge, or otherwise encumber or dispose of the RSUs or any rights under the RSUs
before Settlement;
(iii)
you will forfeit all of the RSUs and all of your rights under the RSUs will terminate
in their entirety on the terms set forth in Section 4 and Section 10(j) below; and
(iv)
each RSU will be credited with cash and stock dividends, if any, paid by the
Company during the period commencing on the Grant Date and ending on the date of Settlement in
respect of one Share (“Dividend Equivalents”), and any such Dividend Equivalents accumulated will vest
and be paid in the same form (cash or stock) at the time the vested RSU is paid.
(b)
Any attempt to dispose of the RSUs or any interest in the RSUs in a manner contrary to the
terms of this Agreement will be void and of no effect.
3.
Restricted Period and Payment. The “Restricted Period” is the period beginning on the Grant
Date and ending on the date the RSUs, or such applicable portion of the RSUs, are deemed earned and
payable under the terms set forth in the table at the beginning of this Agreement.
4.
Forfeiture. If, during the Restricted Period, (a) you incur a Separation from Service (for the
avoidance of doubt, which does not otherwise result in the immediate or continued earning and payment of
the RSUs), (b) you materially breach this Agreement, or (c) you fail to meet the tax withholding
obligations described in Section 6 below, all of your rights to the RSUs will terminate immediately and be
forfeited in their entirety.
Settlement of RSUs. Delivery of Shares or other amounts under this Agreement will be subject to
5.
the following:
(a)
The Company will deliver to you one Share for each RSU that has become earned and
payable within 30 days after the end of the applicable Restricted Period.
(b)
Any issuance of Shares under the Award may be effected on a non-certificated basis, to the
extent not prohibited by applicable law or the applicable rules of any securities exchange or similar entity.
(c)
If a certificate for Shares is delivered to you under the Award, the certificate may bear the
following or a similar legend as determined by the Company:
The ownership and transferability of this certificate and the shares of stock represented
hereby are subject to the terms (including forfeiture) of the HBT Financial, Inc. Omnibus
Incentive Plan and an RSU award agreement entered into between the registered owner and
HBT Financial, Inc. Copies of such plan and agreement are on file in the executive offices
of HBT Financial, Inc.
In addition, any stock certificates for Shares will be subject to any stop-transfer orders and other
restrictions as the Company may deem advisable under the rules, regulations, and other requirements of
the SEC, any securities exchange or similar entity upon which the Shares are then listed, and any
applicable federal or state securities law, and the Company may cause a legend or legends to be placed on
any certificates to make appropriate reference to these restrictions.
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6.
Withholding.
(a)
Regardless of any action the Company may take that is related to any or all income tax,
payroll tax, or other tax-related withholding (“Tax-Related Items”), the ultimate liability for all Tax-
Related Items owed by you is and will remain your responsibility. The Company (i) makes no
representations or undertakings regarding the treatment of any Tax-Related Items under the Award and (ii)
does not commit to structure the terms of the Award to reduce or eliminate your liability for Tax-Related
Items.
(b)
You will be required to meet any applicable tax withholding obligation in accordance with
the tax withholding terms of Section 14.5 of the Plan (and any successor terms). The RSUs are intended to
be exempt from Section 409A, and this Agreement will be administered and interpreted consistently with
that intent and with the terms of Section 14.16 of the Plan (and any successor terms).
Adjustment. Upon any event described in Section 4.2 of the Plan (and any successor sections)
7.
occurring after the Grant Date, the adjustment terms of that section will apply to the Award.
Bound by Plan and Committee Decisions. By accepting the Award, you acknowledge that you have
8.
received a copy of the Plan, have had an opportunity to review the Plan, and agree to be bound by all of
the terms of the Plan. If there is any conflict between this Agreement and the Plan, the Plan will control.
The authority to manage and control the operation and administration of this Agreement and the Plan is
vested in the Committee. The Committee has all powers under this Agreement that it has under the Plan.
Any interpretation of this Agreement or the Plan by the Committee and any decision made by the
Committee related to the Agreement or the Plan will be final and binding on all Persons.
Regulatory and Other Limitations. Notwithstanding anything else in this Agreement, the
9.
Committee may impose conditions, restrictions, and limitations on the issuance of Shares under the Award
unless and until the Committee determines that the issuance complies with (a) all registration requirements
under the Securities Act, (b) all listing requirements of any securities exchange or similar entity on which
the Shares are listed, (c) all Company policies and administrative rules, and (d) all applicable laws.
10. Miscellaneous.
(a)
Notices. Any notice that may be required or permitted under this Agreement must be in
writing and may be delivered personally, by intraoffice mail, or by electronic mail or via a postal service
(postage prepaid) to the electronic mail or postal address and directed to the person as the receiving party
may designate in writing from time to time.
(b) Waiver. The waiver by any party to this Agreement of a breach of any term of the
Agreement will not operate or be construed as a waiver of any other or subsequent breach.
(c)
Entire Agreement. This Agreement and the Plan constitute the entire agreement between
you and the Company related to the Award. Any prior agreements, commitments, or negotiations
concerning the Award are superseded.
(d)
Binding Effect; Successors. The obligations and rights of the Company under this
Agreement will be binding upon and inure to the benefit of the Company and any successor corporation or
organization resulting from the merger, consolidation, sale, or other reorganization of the Company, or
3
upon any successor corporation or organization succeeding to substantially all of the assets and business of
the Company. Your obligations and rights under this Agreement will be binding upon and inure to your
benefit and the benefit of your beneficiaries, executors, administrators, heirs, and successors.
(e)
Governing Law; Jurisdiction; Waiver of Jury Trial. You acknowledge and expressly agree
to the governing law terms of Section 14.9 of the Plan (and any successor terms) and the jurisdiction and
waiver of jury trial terms of Section 14.10 of the Plan (and any successor terms).
(f)
Amendment. This Agreement may be amended at any time by the Committee, except that
no amendment may, without your consent, materially impair your rights under the Award.
(g)
Severability. The invalidity or unenforceability of any term of the Plan or this Agreement
will not affect the validity or enforceability of any other term of the Plan or this Agreement, and each other
term of the Plan and this Agreement will be severable and enforceable to the extent permitted by law.
(h)
No Rights to Service; No Impact on Other Benefits. Nothing in this Agreement will be
construed as giving you any right to be retained in any position with the Company or its Affiliates.
Nothing in this Agreement will interfere with or restrict the rights of the Company or its Affiliates—which
are expressly reserved—to remove, terminate, or discharge you at any time for any reason whatsoever or
for no reason, subject to the Company’s certificate of incorporation, bylaws, and other similar governing
documents and applicable law. The value of the RSUs is not part of your normal or expected compensation
for purposes of calculating any severance, retirement, welfare, insurance, or similar employee benefit. The
grant of the RSUs does not create any right to receive any future awards.
(i)
Further Assurances. You must, upon request of the Company or the Committee, do all acts
and execute, deliver, and perform all additional documents, instruments, and agreements that may be
reasonably required by the Company or the Committee to implement this Agreement.
(j)
Clawback. All awards, amounts, or benefits received or outstanding under the Plan will be
subject to clawback, cancellation, recoupment, rescission, payback, reduction, or other similar action in
accordance with the terms of any Company clawback or similar policy or any applicable law related to
such actions, as may be in effect from time to time. You acknowledge and consent to the Company’s
application, implementation, and enforcement of any applicable Company clawback or similar policy that
may apply to you, whether adopted before or after the Grant Date (including the forfeiture, clawback, and
detrimental conduct terms contained in Section 14.22 of the Plan as of the Grant Date (and any successor
terms)), and any term of applicable law relating to clawback, cancellation, recoupment, rescission,
payback, or reduction of compensation, and the Company may take such actions as may be necessary to
effectuate any such policy or applicable law, without further consideration or action.
(k)
Electronic Delivery and Acceptance. The Company may deliver any documents related to
current or future participation in the Plan by electronic means. You consent to receive those documents by
electronic delivery and to participate in the Plan through any on-line or electronic system established and
maintained by the Company or a third party designated by the Company.
11.
Your Representations. You represent to the Company that you have read and fully understand this
Agreement and the Plan and that your decision to participate in the Plan is completely voluntary. You also
4
acknowledge that you are relying solely on your own advisors regarding the tax consequences of the
Award.
By signing below, you agree that the Award is granted under and governed by the terms of the Plan and
this RSU Award Agreement—and you agree to all such terms—as of the Grant Date.
PARTICIPANT
HBT FINANCIAL, INC.
Sign name:
Print name:
Sign name:
Print name:
Title:
5
Subsidiaries of the Registrant
EXHIBIT 21.1
Subsidiaries of HBT Financial, Inc.
Heartland Bank and Trust Company (Illinois)
Subsidiaries of Heartland Bank and Trust Company
Heartland Real Estate Holdings, LLC (Illinois)
Lakewood Barrington LLC (Illinois)
EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement (No. 333-234385) on Form S-8
of HBT Financial, Inc. of our report dated March 12, 2021, relating to the consolidated financial statements
of HBT Financial, Inc., appearing in this Annual Report on Form 10-K of HBT Financial, Inc. for the year
ended December 31, 2020.
/s/ RSM US LLP
Chicago, Illinois
March 12, 2021
1
Certification of Chief Executive Officer
Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934
and Section 302 of the Sarbanes-Oxley Act of 2002
EXHIBIT 31.1
I, Fred L. Drake, certify that:
1. I have reviewed this annual report on Form 10-K of HBT Financial, Inc.:
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this annual report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual
report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this annual report based on such evaluation; and
d) Disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 12, 2021
/s/ Fred L. Drake
Fred L. Drake
Chairman and Chief Executive Officer
(Principal Executive Officer)
Certification of Chief Financial Officer
Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934
and Section 302 of the Sarbanes-Oxley Act of 2002
EXHIBIT 31.2
I, Matthew J. Doherty, certify that:
1. I have reviewed this annual report on Form 10-K of HBT Financial, Inc.:
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this annual report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual
report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this annual report based on such evaluation; and
d) Disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 12, 2021
/s/ Matthew J. Doherty
Matthew J. Doherty
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Certification Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
EXHIBIT 32.1
In connection with the Annual Report of HBT Financial, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2020 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:
1. The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
/s/ Fred L. Drake
Fred L. Drake
Chairman and Chief Executive Officer
(Principal Executive Officer)
March 12, 2021
Certification Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
EXHIBIT 32.2
In connection with the Annual Report of HBT Financial, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2020 as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:
1. The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
/s/ Matthew J. Doherty
Matthew J. Doherty
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
March 12, 2021