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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, 2021
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 $164.7 million, determined using a per share closing price for the registrant’s common stock on that
date of $17.41, as quoted on The Nasdaq Global Select Market.
As of February 22, 2022, there were 28,989,366 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 2022 Annual Meeting of
Stockholders of HBT Financial, Inc. to be filed within 120 days of December 31, 2021.
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
[Reserved]
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
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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.
Item 9C.
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;
● 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
elimination of LIBOR;
● our access to sources of liquidity and capital to address our liquidity needs;
● our inability to receive dividends from Heartland Bank and Trust Company (“Heartland Bank” or 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 Illinois and Iowa;
● 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;
● severe weather, natural disasters, pandemics, acts of war or terrorism or other external events;
● 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;
● 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;
● market perceptions associated with certain aspects of our business;
● our ability to meet our obligations as a public company, including our obligations under Section 404 of
Sarbanes-Oxley; and
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● 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, 2021, we had total assets of $4.3 billion, loans held for investment of $2.5 billion, and total
deposits of $3.7 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 and
Eastern Iowa. The Company’s common stock is traded on the Nasdaq Global Select Market 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 even through
challenging times such as the 2008-2009 financial crisis as well as the COVID-19 pandemic.
● 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,
development opportunities, and rewards for our staff; and generate good returns for our stockholders.
NXT BANCORPORATION, INC. ACQUISITION
On October 1, 2021, HBT completed its acquisition of NXT Bancorporation, Inc. (NXT), the holding company for
NXT Bank. The acquisition expanded HBT’s footprint into Eastern Iowa with four locations that began operating
as branches of Heartland Bank in December 2021. NXT added total assets of $234 million, total loans of
$195 million, and total deposits of $182 million.
Cash consideration of approximately $10.6 million and stock consideration of approximately 1.8 million shares
of HBT common stock resulted in aggregate consideration of $39.9 million. Goodwill of $5.7 million was created
in the acquisition. Acquisition-related expenses totaled $1.4 million during 2021 and consisted primarily of
investment banker fees, legal fees, and data processing expenses.
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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.”
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.
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, retail, warehouse, office, senior
living, 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 and Eastern Iowa, 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
These
condominiums. They consist of first mortgage amortizing loans, second mortgage amortizing loans, and home
include both owner-occupied and non-owner occupied one-to-four
family homes and
loans
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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
loans to both Freddie Mac and Fannie Mae and retain the servicing for substantially all those loans. We also
originate FHA, VA, and Rural Development loans, which are typically sold servicing released.
MARKET AREA
We currently operate 57 branch locations in Central and Northeastern Illinois and four in Eastern Iowa. 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
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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 provides 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.
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, 2021, we had 728 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, 2021, our average tenure was 9.0 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 to 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.
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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 continued response to the COVID-19 pandemic and complying with federal, state, and local guidelines, we
have maintained heightened cleaning protocols and other safety measures at all locations, permitted work from
home to continue for many employees, and adjusted branch services to ensure a safe environment. Enhanced
employee benefits coverage related to the pandemic, including waiving costs associated with testing and
treatment, continue to be in place. Additional paid time off was granted to employees to get the vaccine and
recover from any side effects.
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.
Financial technology companies are becoming a more direct threat to traditional financial institutions as they
begin to offer deposit accounts insured by the Federal Deposit Insurance Corporation (the “FDIC”) alongside
their core product offerings.
We seek to meet this competition by emphasizing personalized service, efficient decision-making tailored to
individual needs, and offering robust digital functionality. 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. Competition for deposit
customers was minimal in 2021 given the excess liquidity at most financial institutions. 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.
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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 IPO.
SUPERVISION AND REGULATION
General
FDIC-insured institutions, their holding companies, and their affiliates are extensively regulated under federal
and state law. As a result, our growth and earnings performance may be affected not only by management
decisions and general economic conditions, but also by the requirements of federal and state statutes, and by
the regulations and policies of various bank regulatory agencies, including the Illinois Department of Financial
and Professional Regulation (the “IDFPR”), the Board of Governors of the Federal Reserve System (the
“Federal Reserve”), the FDIC, and the Consumer Financial Protection Bureau (the “CFPB”). Furthermore,
taxation laws administered by the Internal Revenue Service (the “IRS”) and state taxing authorities, accounting
rules developed by the Financial Accounting Standards Board (the “FASB”), securities laws administered by the
SEC and state securities authorities, and anti-money laundering laws enforced by the U.S. Department of the
Treasury (the “Treasury”) have an impact on our business. The effect of these statutes, regulations, regulatory
policies, and accounting rules are significant to our operations and results.
We are subject to federal and state banking laws that impose a comprehensive system of supervision,
regulation, and enforcement on our operations that is intended primarily for the protection of the FDIC-insured
deposits and depositors of banks, rather than shareholders. These laws, and the regulations of the bank
regulatory agencies issued under them, affect, among other things, the scope of our business, the kinds and
amounts of investments that the Company and the Bank may make, required capital levels relative to assets,
the nature and amount of collateral for loans, the establishment of branches, the ability to merge, consolidate
and acquire, dealings with the Company’s and the Bank’s insiders and affiliates, and our payment of dividends.
In reaction to the global financial crisis, and particularly following the passage of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (“Dodd-Frank Act”), we experienced heightened regulatory requirements
and scrutiny. Although the reforms primarily targeted systemically important financial service providers, their
influence filtered down in varying degrees to community banks over time and caused our compliance and risk
management processes, and the costs thereof, to increase. The Economic Growth, Regulatory Relief and
Consumer Protection Act of 2018 (“Regulatory Relief Act”) eliminated questions about the applicability of certain
Dodd-Frank Act reforms to community bank systems, including relieving us of any requirement to engage in
mandatory stress tests, maintain a risk committee or comply with the Volcker Rule’s complicated prohibitions on
proprietary trading and ownership of private funds. These reforms have been favorable to our operations.
The supervisory framework for U.S. banking organizations subjects banks and bank holding companies to
regular examination by their respective regulatory agencies, which results in examination reports and ratings
that are not publicly available, and that can impact the conduct and growth of their business. These
examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset
quality and risk, management ability and performance, earnings, liquidity, and various other factors. The
regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of a
regulated entity where the agencies determine, among other things, that such operations are unsafe or
unsound, fail to comply with applicable law, or are otherwise inconsistent with laws and regulations.
The following is a summary of the material elements of the supervisory and regulatory framework applicable to
the Company and our subsidiary bank. It does not describe all of the statutes, regulations and regulatory
policies that apply, nor does it restate all of the requirements of those that are described. The descriptions are
qualified in their entirety by reference to the particular statutory and regulatory provision.
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COVID-19 Pandemic
The federal bank regulatory agencies, along with their state counterparts, issued a steady stream of guidance
responding to the COVID-19 pandemic and took a number of unprecedented steps to help banks navigate the
pandemic and mitigate its impact. These included, without limitation: requiring banks to focus on business
continuity and pandemic planning; adding pandemic scenarios to stress testing; encouraging bank use of
capital buffers and reserves in lending programs; permitting certain regulatory reporting extensions; reducing
margin requirements on swaps; permitting certain otherwise prohibited investments in investment funds; issuing
guidance to encourage banks to work with customers affected by the pandemic and encourage loan workouts;
and providing credit under the Community Reinvestment Act (“CRA”) for certain pandemic-related loans,
investments and public service. Because of the need for social distancing measures, the agencies revamped
the manner in which they conducted periodic examinations of their regulated institutions, including making
greater use of off-site reviews, and they have continued using virtual bank examinations in 2022
Reference is made to the COVID-19 discussion under “Risks Related to the COVID-19 Pandemic” under Item
1A - “Risk Factors” and “COVID-19 Response and Impact Overview” under Item 7 - “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” for discussions of the impact of the COVID-19
pandemic. In addition, information as to selected topics is contained in the relevant sections of this Supervision
and Regulation discussion provided below.
The Role of Capital
Regulatory capital represents the net assets of a banking organization available to absorb losses. Because of
the risks attendant to their business, FDIC-insured institutions generally are required to hold more capital than
other businesses, which directly affects our earnings capabilities. Although capital historically has been one of
the key measures of the financial health of both bank holding companies and banks, its role became
fundamentally more important in the wake of the global financial crisis, as the banking regulators recognized
that the amount and quality of capital held by banks prior to the crisis was insufficient to absorb losses during
periods of severe stress.
Capital Levels
Banks have been required to hold minimum levels of capital based on guidelines established by the bank
regulatory agencies since 1983. The minimums have been expressed in terms of ratios of “capital” divided by
“total assets.” The capital guidelines for U.S. banks beginning in 1989 have been based upon international
capital accords (known as “Basel” rules) adopted by the Basel Committee on Banking Supervision, a committee
of central banks and bank supervisors that acts as the primary global standard-setter for prudential regulation,
as implemented by the U.S. bank regulatory agencies on an interagency basis. The accords recognized that
bank assets, for the purpose of the capital ratio calculations, needed to be risk weighted (the theory being that
riskier assets should require more capital), and that off-balance sheet exposures needed to be factored in the
calculations. Following the global financial crisis, the Group of Governors and Heads of Supervision, the
oversight body of the Basel Committee on Banking Supervision, announced agreement on a strengthened set
of capital requirements for banking organizations around the world, known as Basel III, to address deficiencies
recognized in connection with the global financial crisis.
The Basel III Rule
The U.S. bank regulatory agencies adopted the Basel III regulatory capital reforms, and, at the same time,
effected changes required by the Dodd-Frank Act, in regulations that were effective (with certain phase-ins) in
2015 (the “Basel III Rule”). Basel III established capital standards for banks and bank holding companies that
are meaningfully more stringent than those in place previously - it increased the required quantity and quality of
capital; and it required a more complex, detailed, and calibrated assessment of risk in the calculation of risk
weightings.
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The Basel III Rule is applicable to all banking organizations that are subject to minimum capital requirements,
including federal and state banks and savings and loan associations, as well as to most bank and savings and
loan holding companies. The Company and the Bank are each subject to the Basel III Rule.
Not only did the Basel III Rule increase most of the required minimum capital ratios in effect prior to January 1,
2015, but, in requiring that forms of capital be of higher quality to absorb loss, it introduced the concept of
Common Equity Tier 1 Capital, which consists primarily of common stock, related surplus (net of Treasury
stock), retained earnings, and Common Equity Tier 1 minority interests subject to certain regulatory
adjustments. The Basel III Rule also changed the definition of capital by establishing more stringent criteria that
instruments must meet to be considered Additional Tier 1 Capital (primarily non-cumulative perpetual preferred
stock that meets certain requirements) and Tier 2 Capital (primarily other types of preferred stock and
subordinated debt, subject to limitations). The Basel III Rule also constrained the inclusion of minority interests,
mortgage-servicing assets, and deferred tax assets in capital, and it required deductions from Common Equity
Tier 1 Capital in the event that such assets exceeded a percentage of a banking institution’s Common Equity
Tier 1 Capital.
The Basel III Rule requires minimum capital ratios as follows:
● A ratio of Common Equity Tier 1 Capital equal to 4.5% of risk-weighted assets;
● A ratio of Tier 1 Capital equal to 6% of risk-weighted assets;
● A continuation of the minimum required amount of Total Capital (Tier 1 plus Tier 2) at 8% of risk-
weighted assets; and
● A leverage ratio of Tier 1 Capital to total quarterly average assets equal to 4% in all circumstances.
In addition, institutions that seek the freedom to make capital distributions (including for dividends and
repurchases of stock), and pay discretionary bonuses to executive officers without restriction, also must
maintain 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation buffer. The purpose of the
conservation buffer is to ensure that banking institutions maintain a buffer of capital that can be used to absorb
losses during periods of financial and economic stress. Factoring in the conservation buffer increases the
minimum ratios depicted above to 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for
Total Capital. The federal bank regulators released a joint statement in response to the COVID-19 pandemic,
reminding the industry that capital and liquidity buffers were meant to give banks the means to support the
economy in adverse situations, and that the agencies would support banks that use the buffers for that purpose
if undertaken in a safe and sound manner.
Well-Capitalized Requirements
The ratios described above are minimum standards 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 also could be required
if warranted by the particular circumstances or risk profiles of individual banking organizations. For example, 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, or securities trading activities. Further, any banking organization experiencing or anticipating
significant growth would be expected to maintain capital ratios, including tangible capital positions (i.e., Tier 1
Capital less all intangible assets), well above the minimum levels.
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Under the capital regulations of the Federal Reserve, in order to be well capitalized, a banking organization
must maintain:
● A ratio of Common Equity Tier 1 Capital to risk-weighted assets of 6.5% or more;
● A ratio of Tier 1 Capital to total risk-weighted assets of 8% or more;
● A ratio of Total Capital to total risk-weighted assets of 10% or more; and
● A leverage ratio of Tier 1 Capital to total adjusted average quarterly assets of 5% or greater.
It is possible under the Basel III Rule to be well-capitalized while remaining out of compliance with the capital
conservation buffer discussed above.
As of December 31, 2021: (i) the Bank was not subject to a directive from the FDIC to increase its capital; and
(ii) the Bank was well-capitalized, as defined by FDIC regulations. As of December 31, 2021, the Company had
regulatory capital in excess of the Federal Reserve’s requirements and met the requirements to be well-
capitalized. The Company also is in compliance with the capital conservation buffer.
Prompt Corrective Action
The concept of an institution being “well-capitalized” is part of a regulatory enforcement regime that provides the
federal banking regulators with broad power to take “prompt corrective action” to resolve the problems of
depository institutions based on the capital level of each particular institution. The extent of the regulators’
powers depends on whether the institution in question is “adequately capitalized,” “undercapitalized,”
“significantly undercapitalized” or “critically undercapitalized,” in each case as defined by regulation. Depending
on the capital category to which an institution is assigned, the regulators’ corrective powers include: (i) requiring
the institution to submit a capital restoration plan; (ii) limiting the institution’s asset growth and restricting its
activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to sell
itself; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate that the
institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that
senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from
correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of
principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution.
Community Bank Capital Simplification
Community banks have long raised concerns with bank regulators about the regulatory burden, complexity, and
costs associated with certain provisions of the Basel III Rule. In response, Congress provided an “off-ramp” for
institutions, like the Company, with total consolidated assets of less than $10 billion. Section 201 of the
Regulatory Relief Act instructed the federal banking regulators to establish a single “Community Bank Leverage
Ratio” (“CBLR”) of between 8 and 10%. Under the final rule, a community banking organization is eligible to
elect the new framework if it has less than $10 billion in total consolidated assets, limited amounts of certain
assets and off-balance sheet exposures, and a CBLR greater than 9%. The Company may elect the CBLR
framework at any time, but has not currently determined to do so.
Supervision and Regulation of the Company
General
As the sole shareholder of the Bank, we are a bank holding company. As a bank holding company, we are
registered with, and are subject to regulation supervision and enforcement by, the Federal Reserve under the
Bank Holding Company Act of 1956, as amended (the “BHCA”). We are legally obligated to act as a source of
financial strength to the Bank, and to commit resources to support the Bank in circumstances where we might
not otherwise do so. Under the BHCA, we are subject to periodic examination by the Federal Reserve. We are
required to file with the Federal Reserve periodic reports of our operations, and such additional information
regarding us and our subsidiaries as the Federal Reserve may require.
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Acquisitions, Activities and Financial Holding Company Election
The primary purpose of a bank holding company is to control and manage banks. The BHCA generally requires
the prior approval of the Federal Reserve for any merger involving a bank holding company, or any acquisition
by a bank holding company of another bank or bank holding company. Subject to certain conditions (including
deposit concentration limits established by the BHCA), the Federal Reserve may allow a bank holding company
to acquire banks located in any state of the United States. In approving interstate acquisitions, the Federal
Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that
may be held by the acquiring bank holding company and its FDIC-insured institution affiliates in the state in
which the target bank is located (provided that those limits do not discriminate against out-of-state institutions or
their holding companies) and state laws that require that the target bank have been in existence for a minimum
period of time (not to exceed five years) before being acquired by an out-of-state bank holding company.
Furthermore, in accordance with the Dodd-Frank Act, bank holding companies must be well-capitalized and
well-managed in order to effect interstate mergers or acquisitions. For a discussion of the capital requirements,
see “-The Role of Capital” above.
The BHCA generally prohibits us from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company that is not a bank, and from engaging in any business other than that of banking,
managing and controlling banks, or furnishing services to banks and their subsidiaries. This general prohibition
is subject to a number of exceptions. The principal exception allows bank holding companies to engage in, and
to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November
11, 1999 to be “so closely related to banking ... as to be a proper incident thereto.” This authority permits the
Company to engage in a variety of banking-related businesses, including the ownership and operation of a
savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a
computer service bureau (including software development), and mortgage banking and brokerage services. The
BHCA does not place territorial restrictions on the domestic activities of nonbank subsidiaries of bank holding
companies.
Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and
elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a
wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant
banking, and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury,
determines by regulation or order is financial in nature or incidental to any such financial activity, or that the
Federal Reserve determines by order to be complementary to any such financial activity, as long as the activity
does not pose a substantial risk to the safety or soundness of FDIC-insured institutions or the financial system
generally. The Company has elected to operate as a financial holding company. To maintain its status as a
financial holding company, the Company and the Bank must be well-capitalized, well-managed, and the Bank
must have a least a satisfactory CRA rating. If the Federal Reserve determines that a financial holding company
is not well-capitalized or well-managed, the Federal Reserve will provide a period of time in which to achieve
compliance, but during the period of noncompliance, the Federal Reserve may place any limitations on the
Company that it deems to be appropriate. Furthermore, if the Federal Reserve determines that a financial
holding company’s subsidiary bank has not received a satisfactory CRA rating, that company will not be able to
commence any new financial activities or acquire a company that engages in such activities.
Change in Control
Federal law prohibits any person or company from acquiring “control” of an FDIC-insured depository institution
or its holding company without prior notice to the appropriate federal bank regulator. “Control” is conclusively
presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank
holding company, but may arise under certain circumstances between 10% and 24.99% ownership.
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Capital Requirements
Bank holding companies are required to maintain capital in accordance with Federal Reserve capital adequacy
requirements. For a discussion of capital requirements, see “—The Role of Capital” above.
Dividend Payments
The Company’s ability to pay dividends to its stockholders may be affected by both general corporate law
considerations and policies of the Federal Reserve applicable to bank holding companies. As a Delaware
corporation, the Company is subject to the limitations of the Delaware General Corporation Law (“DGCL”),
which allow the Company to pay dividends only out of its surplus (as defined and computed in accordance with
the provisions of the DGCL) or if the Company has no such surplus, out of its net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year.
As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company
should eliminate, defer or significantly reduce dividends to shareholders if: (i) the company’s net income
available to shareholders for the past four quarters, net of dividends previously paid during that period, is not
sufficient to fully fund the dividends; (ii) the prospective rate of earnings retention is inconsistent with the
company’s capital needs and overall current and prospective financial condition; or (iii) the company will not
meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. The Federal Reserve also
possesses enforcement powers over bank holding companies and their nonbank subsidiaries to prevent or
remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations.
Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies.
In addition, under the Basel III Rule, institutions that seek the freedom to pay dividends have to maintain 2.5%
in Common Equity Tier 1 Capital attributable to the capital conservation buffer. See “—The Role of Capital”
above.
Incentive Compensation
There have been a number of developments in recent years focused on incentive compensation plans
sponsored by bank holding companies and banks, reflecting recognition by the bank regulatory agencies and
Congress that flawed incentive compensation practices in the financial industry were one of many factors
contributing to the global financial crisis. Layered on top of that are the abuses in the headlines dealing with
product cross-selling incentive plans. The result is interagency guidance on sound incentive compensation
practices.
The interagency guidance recognized three core principles. Effective incentive plans should: (i) provide
employees incentives that appropriately balance risk and reward; (ii) be compatible with effective controls and
risk-management; and (iii) be supported by strong corporate governance, including active and effective
oversight by the organization’s board of directors. Much of the guidance addresses large banking organizations
and, because of the size and complexity of their operations, the regulators expect those organizations to
maintain systematic and formalized policies, procedures, and systems for ensuring that the incentive
compensation arrangements for all executive and non-executive employees covered by this guidance are
identified and reviewed, and appropriately balance risks and rewards. Smaller banking organizations like the
Company that use incentive compensation arrangements are expected to be less extensive, formalized, and
detailed than those of the larger banks.
Monetary Policy
The monetary policy of the Federal Reserve has a significant effect on the operating results of financial or bank
holding companies and their subsidiaries. Among the tools available to the Federal Reserve to affect the money
supply are open market transactions in U.S. government securities, and changes in the discount rate on bank
borrowings. These means are used in varying combinations to influence overall growth and distribution of bank
loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits.
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Federal Securities Regulation
The Company’s common stock is registered with the SEC under the Securities Act of 1933, as amended
(“Securities Act”), and the Securities Exchange Act of 1934, as amended (“Exchange Act”). Consequently, the
Company is subject to the information, proxy solicitation, insider trading, and other restrictions and requirements
of the SEC under the Exchange Act.
Corporate Governance
The Dodd-Frank Act addressed many investor protection, corporate governance, and executive compensation
matters that will affect most U.S. publicly traded companies. The Dodd-Frank Act increased shareholder
influence over boards of directors by requiring companies to give shareholders a nonbinding vote on executive
compensation and so-called “golden parachute” payments, and authorizing the SEC to promulgate rules that
would allow shareholders to nominate and solicit voters for their own candidates using a company’s proxy
materials. The legislation also directed the Federal Reserve to promulgate rules prohibiting excessive
compensation paid to executives of bank holding companies, regardless of whether such companies are
publicly traded.
Supervision and Regulation of the Bank
General
The Bank is an Illinois-chartered bank. The deposit accounts of the Bank are insured by the FDIC’s Deposit
Insurance Fund (“DIF”) to the maximum extent provided under federal law and FDIC regulations, currently
$250,000 per insured depositor category. As an Illinois-chartered FDIC-insured bank, the Bank is subject to the
examination, supervision, reporting, and enforcement requirements of the IDFPR, the chartering authority for
Illinois banks. Because the Bank is not a member of the Federal Reserve System, it is subject to the
examination, supervision, reporting, and enforcement requirements of the FDIC, as the Bank’s primary federal
regulator.
Deposit Insurance
As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the
FDIC. The FDIC has adopted a risk-based assessment system, whereby FDIC-insured institutions pay
insurance premiums at rates based on their risk classification. For institutions like the Bank that are not
considered large and highly complex banking organizations, assessments are now based on examination
ratings and financial ratios. The total base assessment rates currently range from 1.5 basis points to 30 basis
points. At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed,
increases or decreases the assessment rates, following notice and comment on proposed rulemaking.
The reserve ratio is the FDIC insurance fund balance divided by estimated insured deposits. The Dodd-Frank
Act altered the minimum reserve ratio of the DIF, increasing the minimum from 1.15% to 1.35% of the estimated
amount of total insured deposits. The reserve ratio reached 1.36% as of September 30, 2018. As a result, the
FDIC provided assessment credits to insured depository institutions, like the Bank, with total consolidated
assets of less than $10 billion, for the portion of their regular assessments that contributed to growth in the
reserve ratio between 1.15% and 1.35%. The FDIC applied the small bank credits for quarterly assessment
periods beginning July 1, 2019. However, the reserve ratio fell to 1.30% in 2020 because of extraordinary
insured deposit growth caused by an unprecedented inflow of more than $1 trillion in estimated insured deposits
in the first half of 2020, stemming mainly from the COVID-19 pandemic. Although the FDIC could have ceased
the small bank credits, it waived the requirement that the reserve ratio be at least 1.35% for full remittance of
the remaining assessment credits, and it refunded all small bank credits to the Bank as of September 30, 2020.
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The DIF balance was $121.9 billion on September 30, 2021, up $1.4 billion from the end of the second quarter.
The reserve ratio remained at 1.27%, as growth in the fund balance kept pace with growth in insured deposits.
The FDIC staff continues to closely monitor the factors that affect the reserve ratio, and any change could
impact FDIC assessments.
Supervisory Assessments
All Illinois-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. During the
year ended December 31, 2021, the Bank paid supervisory assessments to the IDFPR totaling approximately
$294,000.
Capital Requirements
Banks are generally required to maintain capital levels in excess of other businesses. For a discussion of capital
requirements, see “—The Role of Capital” above.
Liquidity Requirements
Liquidity is a measure of the ability and ease with which bank assets may be converted to cash. Liquid assets
are those that can be converted to cash quickly if needed to meet financial obligations. To remain viable, FDIC-
insured institutions must have enough liquid assets to meet their near-term obligations, such as withdrawals by
depositors. Because the global financial crisis was in part a liquidity crisis, Basel III also includes a liquidity
framework that requires FDIC-insured institutions to measure their liquidity against specific liquidity tests. One
test, referred to as the liquidity coverage ratio (“LCR”) is designed to ensure that the banking entity has an
adequate stock of unencumbered high-quality liquid assets that can be converted easily and immediately in
private markets into cash to meet liquidity needs for a 30-calendar day liquidity stress scenario. The other test,
known as the net stable funding ratio (“NSFR”) is designed to promote more medium- and long-term funding of
the assets and activities of FDIC-insured institutions over a one-year horizon. These tests provide an incentive
for banks and holding companies to increase their holdings in Treasury securities and other sovereign debt as a
component of assets, increase the use of long-term debt as a funding source, and rely on stable funding like
core deposits (in lieu of brokered deposits).
In addition to liquidity guidelines already in place, the federal bank regulatory agencies implemented the Basel
III LCR in September 2014, which requires large financial firms to hold levels of liquid assets sufficient to protect
against constraints on their funding during times of financial turmoil, and in 2016 proposed implementation of
the NSFR. Although these rules do not, and will not, apply to the Bank, it continues to review its liquidity risk
management policies in light of developments.
Dividend Payments
Our primary source of funds is dividends from the Bank. Under Illinois banking law, Illinois-chartered banks
generally may pay dividends only out of undivided profits. The IDFPR may restrict the declaration or payment of
a dividend by an Illinois-chartered bank, such as the Bank. Moreover, the payment of dividends by any FDIC-
insured institution is affected by the requirement to maintain adequate capital pursuant to applicable capital
adequacy guidelines and regulations, and an FDIC-insured institution generally is prohibited from paying any
dividends if, following payment thereof, the institution would be undercapitalized. Notwithstanding the availability
of funds for dividends, however, the FDIC and the IDFPR may prohibit the payment of dividends by the Bank if
either or both determine that such payment would constitute an unsafe or unsound practice. In addition, under
the Basel III Rule, institutions that seek the freedom to pay unrestricted dividends have to maintain 2.5% in
Common Equity Tier 1 Capital attributable to the capital conservation buffer. See “—The Role of Capital” above.
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State Bank Investments and Activities
The Bank is permitted to make investments and engage in activities directly or through subsidiaries as
authorized by Illinois law. However, under federal law and FDIC regulations, FDIC-insured state banks are
prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount,
that are not permissible for a national bank. Federal law and FDIC regulations also prohibit FDIC-insured state
banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not
permitted for a national bank unless the bank meets, and continues to meet, its minimum regulatory capital
requirements and the FDIC determines that the activity would not pose a significant risk to the DIF. These
restrictions have not had, and are not currently expected to have, a material impact on the operations of the
Bank.
Insider Transactions
The Bank is subject to certain restrictions imposed by federal law on “covered transactions” between the Bank
and its “affiliates.” We are an affiliate of the Bank for purposes of these restrictions, and covered transactions
subject to the restrictions include extensions of credit to us, investments in our stock or other securities, and the
acceptance of our stock and other securities as collateral for loans made by the Bank. The Dodd-Frank Act
enhanced the requirements for certain transactions with affiliates, including an expansion of the definition of
“covered transactions” and an increase in the amount of time for which collateral requirements regarding
covered transactions must be maintained.
Certain limitations and reporting requirements also are placed on extensions of credit by the Bank to its
directors and officers, to directors and officers of the Company and its subsidiaries, to principal shareholders of
the Company, and to “related interests” of such directors, officers and principal shareholders. In addition, federal
law and regulations may affect the terms on which any person who is a director or officer of the Company or the
Bank, or a principal shareholder of the Company, may obtain credit from banks with which the Bank maintains a
correspondent relationship.
Safety and Soundness Standards/Risk Management
The federal banking agencies have adopted operational and managerial standards to promote the safety and
soundness of FDIC-insured institutions. The standards apply to internal controls, information systems, internal
audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation,
fees and benefits, asset quality, and earnings.
In general, the safety and soundness standards prescribe the goals to be achieved in each area, and each
institution is responsible for establishing its own procedures to achieve those goals. Although regulatory
standards do not have the force of law, if an institution operates in an unsafe and unsound manner, the FDIC-
insured institution’s primary federal regulator may require the institution to submit a plan for achieving and
maintaining compliance. If an FDIC-insured institution fails to submit an acceptable compliance plan, or fails in
any material respect to implement a compliance plan that has been accepted by its primary federal regulator,
the regulator is required to issue an order directing the institution to cure the deficiency. Until the deficiency
cited in the regulator’s order is cured, the regulator may restrict the FDIC-insured institution’s rate of growth,
require the FDIC-insured institution to increase its capital, restrict the rates that the institution pays on deposits,
or require the institution to take any action that the regulator deems appropriate under the circumstances.
Noncompliance with safety and soundness also may constitute grounds for other enforcement action by the
federal bank regulatory agencies, including cease and desist orders and civil money penalty assessments.
During the past decade, the bank regulatory agencies have increasingly emphasized the importance of sound
risk management processes and strong internal controls when evaluating the activities of the FDIC-insured
institutions that they supervise. Properly managing risks has been identified as critical to the conduct of safe
and sound banking activities and has become even more important as new technologies, product innovation,
and the size and speed of financial transactions have changed the nature of banking markets. The agencies
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have identified a spectrum of risks facing a banking institution including, but not limited to, credit, market,
liquidity, operational, legal, and reputational risk. The Bank is expected to have active board and senior
management oversight; adequate policies, procedures, and limits; adequate risk measurement, monitoring, and
management information systems; and comprehensive internal controls.
Privacy and Cybersecurity
The Bank is subject to many U.S. federal and state laws and regulations governing requirements for
maintaining policies and procedures to protect non-public confidential information of their customers. These
laws require the Bank to periodically disclose its privacy policies and practices relating to sharing such
information, and permit consumers to opt out of their ability to share information with unaffiliated third parties
under certain circumstances. They also impact the Bank’s ability to share certain information with affiliates and
non-affiliates for marketing and/or non-marketing purposes, or to contact customers with marketing offers. In
addition, the Bank is required to implement a comprehensive information security program that includes
administrative, technical, and physical safeguards to ensure the security and confidentiality of customer records
and information. These security and privacy policies and procedures are in effect across all businesses and
geographic locations.
Branching Authority
Illinois banks, such as the Bank, have the authority under Illinois law to establish branches anywhere in the
State of Illinois, subject to receipt of all required regulatory approvals. The Dodd-Frank Act permits well-
capitalized and well-managed banks to establish new interstate branches or acquire individual branches of a
bank in another state (rather than the acquisition of an out-of-state bank in its entirety) without impediments.
Federal law permits state and national banks to merge with banks in other states subject to: (i) regulatory
approval; (ii) federal and state deposit concentration limits; and (iii) state law limitations requiring the merging
bank to have been in existence for a minimum period of time (not to exceed five years) prior to the merger.
Transaction Account Reserves
Federal law requires FDIC-insured institutions to maintain reserves against their transaction accounts (primarily
NOW and regular checking accounts) to provide liquidity. The amount of reserves is determined by the Federal
Reserve based on tranches of zero, three and ten percent of a bank’s transaction account deposits. However,
in March 2020, in an unprecedented move, the Federal Reserve announced that the banking system had ample
reserves, and, as reserve requirements no longer played a significant role in this regime, it reduced all reserve
tranches to zero percent, thereby freeing banks from the legally mandated reserve maintenance requirement.
The action permits the Bank to loan or invest funds that previously were unavailable. The Federal Reserve has
indicated that it expects to continue to operate in an ample reserves regime for the foreseeable future.
Community Reinvestment Act Requirements
The CRA requires the Bank to have a continuing and affirmative obligation in a safe and sound manner to help
meet the credit needs of the entire community, including low- and moderate-income neighborhoods. Federal
regulators regularly assess the Bank’s record of meeting the credit needs of its communities. Applications for
acquisitions also would be affected by the evaluation of the Bank’s effectiveness in meeting its CRA
requirements. In a joint statement responding to the COVID-19 pandemic, the bank regulatory agencies
announced favorable CRA consideration for banks providing retail banking services and lending activities in
their assessment areas, consistent with safe and sound banking practices, that are responsive to the needs of
low- and moderate-income individuals, small businesses, and small farms affected by the pandemic. Those
activities include waiving certain fees, easing restrictions on out-of-state and non-customer checks, expanding
credit products, increasing credit limits for creditworthy borrowers, providing alternative service options, and
offering prudent payment accommodations. The joint statement also provided favorable CRA consideration for
certain pandemic-related community development activities.
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Anti-Money Laundering
The USA PATRIOT Act, the Bank Secrecy Act ( “BSA”) and other similar laws are designed to deny terrorists
and criminals the ability to obtain access to the U.S. financial system and have significant implications for FDIC-
insured institutions and other businesses involved in the transfer of money. These laws mandate financial
services companies to have policies and procedures with respect to measures designed to address the
following matters: (i) customer identification programs; (ii) money laundering; (iii) terrorist financing; (iv)
identifying and reporting suspicious activities and currency transactions; (v) currency crimes; and (vi)
cooperation between FDIC-insured institutions and law enforcement authorities.
Federal Home Loan Bank Membership
The Bank is a member of the Federal Home Loan Bank (“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.
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 the Truth in Lending Act, 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).
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Concentrations in Commercial Real Estate
Concentration risk exists when FDIC-insured institutions deploy too many assets to any one industry or
segment. A concentration in commercial real estate is one example of regulatory concern. The interagency
Concentrations in Commercial Real Estate (“CRE”) Lending, Sound Risk Management Practices guidance
(“CRE Guidance”) provides supervisory criteria, including the following numerical indicators, to assist bank
examiners in identifying banks with potentially significant commercial real estate loan concentrations that may
warrant greater supervisory scrutiny: (i) CRE loans exceeding 300% of capital and increasing 50% or more in
the preceding three years; or (ii) construction and land development loans exceeding 100% of capital. The CRE
Guidance does not limit banks’ levels of CRE lending activities, but rather guides institutions in developing risk
management practices and levels of capital that are commensurate with the level and nature of their
commercial real estate concentrations. On December 18, 2015, the federal banking agencies issued a
statement to reinforce prudent risk-management practices related to CRE lending, having observed substantial
growth in many CRE asset and lending markets, increased competitive pressures, rising CRE concentrations in
banks, and an easing of CRE underwriting standards. The federal bank agencies reminded FDIC-insured
institutions to maintain underwriting discipline and exercise prudent risk-management practices to identify,
measure, monitor, and manage the risks arising from CRE lending. In addition, FDIC-insured institutions must
maintain capital commensurate with the level and nature of their CRE concentration risk. As of December 31,
2021, the Bank did not exceed these guidelines.
Consumer Financial Services
The historical structure of federal consumer protection regulation applicable to all providers of consumer
financial products and services changed significantly on July 21, 2011, when the CFPB commenced operations
to supervise and enforce consumer protection laws. The CFPB has broad rulemaking authority for a wide range
of consumer protection laws that apply to all providers of consumer products and services, including the Bank,
as well as the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has examination
and enforcement authority over providers with more than $10 billion in assets. FDIC-insured institutions with
$10 billion or less in assets, like the Bank, continue to be examined by their applicable bank regulators.
Because abuses in connection with residential mortgages were a significant factor contributing to the global
financial crisis, many rules issued by the CFPB, as required by the Dodd-Frank Act, addressed mortgage and
mortgage-related products, their underwriting, origination, servicing and sales. The Dodd-Frank Act significantly
expanded underwriting requirements applicable to loans secured by 1-4 family residential real property and
augmented federal law combating predatory lending practices. In addition to numerous disclosure requirements,
the Dodd-Frank Act and the CFPB’s enabling rules imposed new standards for mortgage loan originations on all
lenders, including banks and savings associations, in an effort to strongly encourage lenders to verify a
borrower’s ability to repay, while also establishing a presumption of compliance for certain “qualified
mortgages.” The CFPB’s rules have not had a significant impact on the Bank’s operations, except for higher
compliance costs.
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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 disruption has
adversely affected our business operations, our financial results, and the
financial condition of our borrowers and counterparties. The duration,
severity, and lasting impacts 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 phase-out of LIBOR 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 and Iowa 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 lasting impacts on our business, financial position, results of
operations, liquidity and prospects is uncertain.
The COVID-19 pandemic (“COVID-19”) has caused significant economic disruption throughout the United
States and the communities we serve. While the economic outlook generally improved in 2021, and has
continued to improve into 2022, compared to 2020, uncertainty surrounding potential surges in COVID-19
infections with new virus variants and the longer lasting impacts on specific industries remains.
Declines in demand for the goods and services of our customers’ and counterparties’ businesses due to
COVID-19, such as in the hospitality industry, could result in increased risk of delinquencies, defaults,
foreclosures and losses on our loans. Additionally, staffing shortages, such as in the health care industry, and
supply chain disruptions have driven labor and operating costs higher for our customers’ and counterparties’
businesses which could adversely impact their ability to repay obligation to us and lead to unexpected credit
losses.
Although economic activity has generally increased since 2020, our business is dependent upon the willingness
and ability of our customers to conduct banking and other financial transactions. The uncertainty caused by
COVID-19 may result in 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
growth strategy, and our ability to make payments under our subordinated note and junior subordinated
debenture obligations as they become due.
Our workforce, and the workforces of our third-party service providers, have been, and may continue to be,
adversely impacted by COVID-19. We continue to take precautions to protect the safety and well-being of our
employees and customers, including complying with evolving mitigation guidelines and mandates, but no
assurance can be given that our actions will be adequate or appropriate. Our business continuity plan and the
efforts we have taken to adapt our workforce and business to the current environment has resulted in, and may
continue to require us to incur, increased expenses. Additionally, changing workforce preferences, such as work
from home arrangements, and heightened pressures on wage growth may adversely impact our ability to attract
and retain top talent and our 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.
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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.
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.
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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.
The appraisals and other valuation techniques we use in evaluating and monitoring loans secured by
real property, foreclosed real estate 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 real estate 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 foreclosed assets, 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,
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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.
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.
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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
the market prices or demand
in
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.
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.
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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
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.
The Federal Reserve has signaled that it will begin to increase rates, taper its quantitative easing program, and
reduce its balance sheet of bonds and other assets in 2022, but will do so with the goal of avoiding abrupt or
unpredictable changes in economic or financial conditions so as not to disrupt the financial systems, also known
as “shocks;” despite this, the impact of these changes cannot be certain. Vulnerabilities in the financial system
can amplify the impact of an initial shock following rate increases, potentially leading to unintended volatility, as
well as to disruptions in the provision of financial services, such as clearing payments, the provision of liquidity,
and the availability of credit. Furthermore, asset liquidation pressures can be amplified by liquidity mismatches
and the leverage of certain nonbank financial intermediaries such as hedge funds. The financial crisis in March
2020 also demonstrated that pressures on dealer intermediation can limit the availability of liquidity during times
of market stress. Given the interconnectedness of the global financial system, these vulnerabilities could
impact the Company’s business operations and financial condition.
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 “FCA”), 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. In March 2021, the FCA
announced that the 1-week and 2-month U.S. dollar LIBOR will cease to be published at the end of 2021, with
the remaining U.S. dollar LIBOR panels ceasing at the end of June 2023. 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
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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 announced SOFR as its recommended alternative to 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 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
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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 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.
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.
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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.
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.
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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,
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.
The widespread adoption of new technologies, including internet services, cryptocurrencies and payment
systems, could require us in the future to make substantial expenditures to modify or adapt our existing
products and services as we grow and develop new products to satisfy our customers’ expectations and comply
with regulatory guidance.
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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, 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.
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,
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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.
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 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 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 would assume 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 Basel III Rule require us to maintain a minimum Common Equity Tier 1 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
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on our ability to make dividend payments and other capital distributions and to pay discretionary bonuses to our
executive officers. See "Supervision and Regulation—The Role of Capital" for more information on the capital
adequacy standards that we must meet and maintain.
While we currently meet the requirements of the Basel III Rule, 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.
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
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the CFPB. The FDIC has the primarily responsibility for supervising and examining the Bank’s compliance with
federal consumer financial laws and regulations, including CFPB regulations. See "Supervision and Regulation
—Supervision and Regulation of the Bank—Consumer Financial Services" 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
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—Supervision and Regulation of the Bank—Community
Reinvestment Act Requirements".
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.
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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 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
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.
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
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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.
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, 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.
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.
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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.
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.
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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, 2021, our principal stockholder, Heartland Bancorp, Inc. Voting Trust U/A/D 5/4/2016 (“the
Voting Trust”), owned approximately 59.4% 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.
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
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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 “Supervision
and Regulation.”
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.
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.
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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 Jumpstart Our Business Act of 2012 (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 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.
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.
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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—Supervision and Regulation of the Company—Change in 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.
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 Illinois and Iowa. 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.
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Continued elevated levels of inflation could adversely impact our business and results of operations.
The United States has recently experienced elevated levels of inflation. Continued levels of inflation could have
complex effects on our business and results of operations, some of which could be materially adverse. For
example, if interest rates were to rise in response to, or as a result of, elevated levels of inflation, the value of
our securities portfolio would be negatively impacted. In addition, while we generally expect any inflation-
related increases in our interest expense to be offset by increases in our interest revenue, inflation-driven
increases in our levels of non-interest expense could negatively impact our results of operations. Continued
elevated levels of inflation could also cause increased volatility and uncertainty in the business environment,
which could adversely affect loan demand and our clients’ ability to repay indebtedness. It is also possible that
governmental responses to the current inflation environment could adversely affect our business, such as
changes to monetary and fiscal policy that are too strict, or the imposition or threatened imposition of price
controls. The duration and severity of the current inflationary period cannot be estimated with precision.
Labor shortages and failure to attract and retain qualified employees could negatively impact our
business, results of operations and financial condition.
A number of factors may adversely affect the labor force available to us or increase labor costs, including high
employment levels, decreased labor force size and participation rates as a result of the COVID-19 pandemic,
expanded unemployment benefits offered in response to the ongoing COVID-19 pandemic, and other
government actions. Although we have not experienced any material labor shortage to date, we have recently
observed an overall tightening and increasingly competitive local labor market. A sustained labor shortage or
increased turnover rates within our employee base could lead to increased costs, such as increased
compensation expense to attract and retain employees.
In addition, if we are unable to hire and retain employees capable of performing at a high-level, or if mitigation
measures we may take to respond to a decrease in labor availability have unintended negative effects, our
business could be adversely affected. An overall labor shortage, lack of skilled labor, increased turnover or
labor inflation, caused by COVID-19 or as a result of general macroeconomic factors, could have a material
adverse impact on our operations, results of operations, liquidity or cash flows.
The State of Illinois has experienced significant financial difficulties, and this could adversely impact
certain borrowers and our business.
Historically, the financial condition of the State of Illinois has been characterized by significant financial
difficulties, including material pension funding shortfalls and large budget deficits. 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 Illinois and Iowa. 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
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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 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.
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Additionally, while we do not offer products relating to digital assets, including cryptocurrencies, stablecoins and
other similar assets, there has been a significant increase in digital asset adoption globally over the past several
years. Certain characteristics of digital asset transactions, such as the speed with which such transactions can
be conducted, the ability to transact without the involvement of regulated intermediaries, the ability to engage in
transactions across multiple jurisdictions, and the anonymous nature of the transactions, are appealing to
certain consumers notwithstanding the various risks posed by such transactions. Accordingly, digital asset
service providers—which, at present are not subject to the same degree of scrutiny and oversight as banking
organizations and other financial institutions—are becoming active competitors to more traditional financial
institutions. The process of eliminating banks as intermediaries, known as “disintermediation,” could 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 lower cost of deposits as a source of funds could have a
material adverse effect on our financial condition and results of operations. Potential partnerships with digital
asset companies, moreover, could also entail significant investment.
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 under the symbol “HBT.”
As of February 22, 2022, HBT Financial, Inc. had approximately 65 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 2021, we paid quarterly cash dividends of $0.15 per share on our common stock. The quarterly cash
dividend was increased to $0.16 per share on January 25, 2022. 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 authorized
the Company to repurchase up to $15 million of its common stock which expired on December 31, 2021 (the
“2021 Repurchase Plan”). On December 14, 2021, the Company’s board of directors approved a new stock
repurchase program that took effect upon the expiration of the old stock repurchase program and expires on
January 1, 2023 (the “2022 Repurchase Plan”). The 2022 Repurchase Plan authorizes the Company to
repurchase up to $15 million of its common stock. The timing of purchases and number of shares repurchased
are 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 could 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 2021:
Period
Total Number
of Shares
Average
Price Paid
Purchased Per Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Approximate Dollar Value of
Shares That May Yet be Purchased
Under the Plans or Programs
(in thousands)
October 1 - 31, 2021
78,565
$
16.67
78,565
$
November 1 - 30, 2021
40,421
18.63
December 1 - 31, 2021
28,397
18.32
40,421
28,397
11,367
10,614
10,094
Total
147,383
$
17.52
147,383
$
10,094 (1)
(1) As of December 31, 2021, there was $10,094,000 left under the 2021 Repurchase Plan, which expired on December 31, 2021. There
are no longer any shares subject to repurchase under the 2021 Repurchase Plan. The 2022 Repurchase Plan took effect on January
1, 2022, and there remains $15 million in common stock subject to repurchase thereunder.
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 IPO and listing on the Nasdaq Global Select Market through
December 31, 2021, 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. 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
October 11,
2019
$ 100.00
100.00
100.00
December 31, December 31,
$
2019
122.20
110.74
109.98
$
2020
101.97
132.84
101.30
$
December 31,
2021
130.55
152.53
135.81
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.
ITEM 6. [RESERVED]
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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 7A, “Quantitative and Qualitative Disclosures About
Market Risk”, and Part II, Item 8 “Financial Statements and Supplementary Data”. Detailed discussion and
analysis of the financial condition and results of operation for 2021 as compared to 2020 can be found below.
OVERVIEW
HBT Financial, Inc., headquartered in Bloomington, Illinois, is the holding company for Heartland Bank and
Trust Company, and has banking roots that can be traced back to 1920. HBT 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 and Eastern Iowa. As of December 31,
2021, the Company had total assets of $4.3 billion, loans held for investment of $2.5 billion, and total deposits
of $3.7 billion.
Market Area
We currently operate 61 branch locations in Central and Northeastern Illinois and Eastern Iowa. 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 geographic region.
Total loans
Illinois by metropolitan and micropolitan statistical areas
Bloomington-Normal
Champaign-Urbana
Chicago
Lincoln
Ottawa-Peru
Peoria
Total Illinois
Iowa
Total loans
Total deposits
Illinois by metropolitan and micropolitan statistical areas
Bloomington-Normal
Champaign-Urbana
Chicago
Lincoln
Ottawa-Peru
Peoria
Total Illinois
Iowa
Total deposits
50
December 31, 2021 December 31, 2020
(dollars in thousands)
$
$
$
$
527,161
191,646
1,196,605
87,153
101,117
123,143
2,226,825
272,864
2,499,689
887,587
203,899
1,237,486
203,098
407,156
610,155
3,549,381
188,804
3,738,185
$
$
$
$
523,418
214,646
1,132,893
103,614
107,098
165,337
2,247,006
—
2,247,006
774,082
174,653
1,077,691
201,012
347,211
555,885
3,130,534
—
3,130,534
Table of Contents
NXT Bancorporation, Inc. Acquisition
On October 1, 2021, the Company completed its acquisition of NXT, the holding company for NXT Bank, which
was previously announced on June 7, 2021. The acquisition expands the Company’s footprint into Eastern Iowa
with four locations that began operating as branches of Heartland Bank following the merger and system
conversion of NXT Bank into Heartland Bank in December 2021. After considering business combination
accounting adjustments, NXT added total assets of $234 million, total loans of $195 million, and total deposits
of $182 million.
Cash consideration of approximately $10.6 million and stock consideration of approximately 1.8 million shares
of HBT common stock resulted in aggregate consideration of $39.9 million. Goodwill of $5.7 million was
recorded in the acquisition.
The acquisition of NXT provides an opportunity to utilize the Company’s existing excess liquidity to replace
NXT’s higher cost funding. Additionally, Heartland Bank’s broader range of products and services and greater
ability to meet larger borrowing needs provides an opportunity to expand NXT customer relationships.
The Company incurred the following pre-tax acquisition expenses related to the acquisition of NXT during the
year ended December 31, 2021 (dollars in thousands):
Salaries
Furniture and equipment
Data processing
Marketing and customer relations
Loan collection and servicing
Legal fees and other noninterest expense
Total NXT acquisition-related expenses
Branch Rationalization Plan
$
$
65
18
355
12
11
955
1,416
In April 2021, the Company made plans to close or consolidate six branches. One branch was consolidated
during the second quarter of 2021, and the remaining five branches were closed during the third quarter of
2021. The Company estimates annual pre-tax cost savings, net of associated revenue impacts, related to the
branch rationalization plan to be approximately $1.1 million.
The Company incurred the following pre-tax branch closure costs during the year ended December 31, 2021
(dollars in thousands):
NONINTEREST INCOME
Gains (losses) on other assets
NONINTEREST EXPENSE
Salaries
Marketing and customer relations
Legal fees and other noninterest expense
Total noninterest expense
Total branch closure costs
51
$
$
(682)
53
6
7
66
748
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COVID-19 Response and Impact Overview
The Company has taken a number of steps to support our employees and customers while prioritizing the
health and safety of all involved, including, but not limited to:
● Continued to place the health of customers and employees first by maintaining enhanced cleaning
protocols and other safety measures at all locations;
● Enabling work from home for many employees and social distancing for employees who need to report
to the office;
● Maintaining regular business hours at our branches and call center to continue serving our customers
throughout the pandemic;
● Participating in both rounds of the Small Business Administration’s Paycheck Protection Program; and
● Offering loan payment modifications to customers experiencing financial hardship due to COVID-19.
Paycheck Protection Program Loans
In December 2020, the Paycheck Protection Program (PPP) was extended and allowed eligible borrowers to
receive a second PPP loan. During 2021, we funded $104.7 million of PPP loans as part of the second round of
the program.
We continue to process forgiveness applications for PPP loans, with $185.3 million of PPP loans originated in
round 1 and $75.8 million of PPP loans originated in round 2 receiving full or partial forgiveness by
December 31, 2021.
The following table summarizes outstanding PPP loans as of December 31, 2021:
PPP loan balance, before net deferred origination fees
Net deferred origination fees
PPP loan balance
Round 1
Round 2
(dollars in thousands)
Total
$
$
54
(1)
53
30,926 $
(1,491)
29,435
$
30,980
(1,492)
29,488
During the year ended December 31, 2021 and 2020, the deferred origination fees on PPP loans were reduced
by direct origination costs of $0.5 million and $0.5 million, respectively, consisting primarily of salaries and
benefits costs. Net deferred origination fees on PPP loans of $9.2 million and $3.0 million during the years
ended December 31, 2021 and 2020, respectively, were recognized as taxable loan interest income.
Recognition of net deferred origination fees is accelerated upon loan forgiveness or repayment prior to
contractual maturity.
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Payment Modifications Related to COVID-19
Loan payment modifications were 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.
Consistent with the applicable accounting and regulatory guidance, short-term loan payment modifications such
as these are generally not considered to be a troubled debt restructuring.
The volume of loan modification requests related to a COVID-19 financial hardship have declined significantly
from its height during the second quarter of 2020. As of December 31, 2021 and 2020, the total outstanding
balance of loans with an existing payment modification related to a COVID-19 financial hardship were
$0.2 million and $28.0 million, respectively.
Industries Adversely Impacted by COVID-19
While many industries have been and may continue to be adversely impacted by the COVID-19 pandemic, the
restaurant and hotel industries have been particularly susceptible to significant adverse impacts. While many
areas of consumer and business spending have rebounded in recent months, there is uncertainty about the
longer lasting impact on the restaurant and hotel industries resulting from the COVID-19 pandemic. Adverse
impacts in these and other industries may result in a deterioration of the loan portfolio’s credit quality or an
increase in loan losses.
The below table summarizes loan balances within the restaurant and hotel industries, along with risk rating
information, as of December 31, 2021:
Restaurants
Commercial and industrial
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Construction and land development
Total
Hotels
Commercial and industrial
Commercial real estate - non-owner occupied
Construction and land development
Total
Non-PPP Loans
Carrying Balance
PPP Loans
Total
Substandard
Risk Rating
$
$
$
$
3,335 $
17,372
11,254
737
32,698 $
75 $
56,710
11,246
68,031 $
(dollars in thousands)
6,263
—
—
—
6,263
680
—
—
680
$
$
$
$
9,598 $
17,372
11,254
737
38,961 $
755 $
56,710
11,246
68,711 $
4
1,723
—
—
1,727
—
4,143
—
4,143
As of December 31, 2021, there were no loans within the restaurant and hotel industries that were granted a
loan payment modification related to a COVID-19 financial hardship that had not returned to regular payments.
53
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FACTORS AFFECTING OUR RESULTS OF OPERATIONS
Economic Conditions
The Company’s business and financial performance are affected by economic conditions generally in the United
States and more directly in the Illinois and Iowa markets where we primarily operate. The significant economic
factors that are most relevant to our business and our financial performance include the general economic
conditions in the U.S. and in the Company’s markets, unemployment rates, real estate markets, and interest
rates.
COVID-19 Pandemic
Although the Company has had continuous business operations since the beginning of the COVID-19
pandemic, the pandemic has caused significant economic disruption throughout the United States and the
communities that we serve. While the economic outlook generally improved in 2021 compared to 2020,
uncertainty surrounding potential surges in COVID-19 infections with new virus variants and the longer lasting
impact on specific industries remains. As a result, the businesses we serve may continue to be adversely
impacted and the ability of our customers to maintain historic deposit levels or to fulfill their contractual
obligations to us may deteriorate. This could adversely affect our asset valuations, financial condition, liquidity
and results of operations, and the impacts may be material.
During 2020, we experienced 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;
● Decrease in demand for loans, excluding PPP loans, as a result of the economic slow-down caused by
the COVID-19 pandemic.
While some of these trends reversed in 2021, and have continued such reversal in the beginning of 2022,
sustained improvements are highly dependent upon strengthening economic conditions. The COVID-19
pandemic continues to cause economic uncertainties which may again result in these and other adverse
impacts to our financial condition and results of operations.
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 is equal to 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.
54
Table of Contents
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.
Growth in deposit balances and the forgiveness of PPP loans has resulted in significant cash inflows and
excess liquidity. While some excess liquidity was invested into debt securities during 2021, the yields available
were lower than existing portfolio yields. Decreases in interest rates, as well as the ongoing economic
uncertainty, may decrease our net interest income and net interest margin in future periods, while increases in
interest rates are expected to increase our net interest income and net interest margin in future periods.
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 and the impact of
COVID-19 in our markets.
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 which may affect our financial results in the future.
Digital Banking
Throughout the banking industry, in-person branch traffic is expected to continue to decline as more customers
turn to digital banking for routine banking transactions. The COVID-19 pandemic has accelerated this transition,
and in-person branch traffic is not expected to return to pre-pandemic levels. We plan to continue investing in
our digital banking platforms, while maintaining an appropriately sized branch network. An inability to meet
evolving customer expectations, with the appropriate level of security, for both digital and in-person banking
may adversely 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.
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FACTORS AFFECTING COMPARABILITY OF FINANCIAL RESULTS
S Corp Status
Prior to October 11, 2019, the Company 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,
2020
(dollars in thousands, except per share amounts)
2021
2019
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
N/A Not applicable.
$
$
$
$
76,562
20,291
56,271
2.02
2.02
$
$
$
$
49,573
12,728
36,845
1.34
1.34
$
$
$
$
72,121
5,256
66,865
3.33
3.33
26.5 %
25.7 %
7.3 %
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
$
$
$
$
72,121
18,749
53,372
2.66
2.66
26.0 %
The C Corp equivalent effective rates reflect a federal tax rate of 21% and state income tax rate of 9.5%.
Jobs Act Accounting Election
We qualify as an “emerging growth company” under 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.
56
Table of Contents
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.
Consolidated Statement of Income Information
Total interest and dividend income
Total interest expense
Net interest income
Provision for loan losses
Net interest 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,
2019
2020
2021
(dollars in thousands, except per share amounts)
$
$
$
$
$
$
$
$
128,223
5,820
122,403
(8,077)
130,480
37,328
91,246
76,562
20,291
56,271
N/A
56,840
124,431
2.02
N/A
2.04
$
$
$
$
$
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
Weighted average shares of common stock outstanding
27,795,806
27,457,306
20,090,270
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)
3.18 %
3.23
4.68
3.33
0.23
0.07
3.54 %
3.60
4.69
3.74
0.29
0.14
56.46 %
55.76
59.66 %
58.91
1.41 %
1.07 %
14.81
15.95
N/A
N/A
N/A
10.51
11.38
N/A
N/A
N/A
1.43 %
1.15 %
14.95
16.12
11.33
12.28
4.31 %
4.38
5.51
4.63
0.45
0.29
53.80 %
53.06
2.07 %
19.58
21.35
1.65 %
15.63
17.04
1.78 %
16.81
18.34
(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" 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.
57
Table of Contents
Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020
For the year ended December 31, 2021, net income was $56.3 million increasing by $19.4 million, or 52.7%,
when compared to net income for the year ended December 31, 2020. Notable changes include the following:
● A $18.6 million improvement in the provision for loan losses, primarily reflecting the improvements in
the economic environment from a year ago.
● A $4.8 million improvement in net interest income, due primarily to a $6.2 million increase in PPP loan
fees recognized as loan interest income.
● A $4.3 million improvement in the mortgage servicing rights fair value adjustment, primarily resulting
from slower mortgage prepayment speed assumptions.
● A $1.6 million improvement in card income, primarily due to the 2020 results reflecting a lower volume
of debit and credit card transactions which coincided with the beginning of the COVID-19 pandemic
and the related initial economic slowdown.
● A $1.4 million decrease in employee benefits expense, primarily due to the 2020 results including a
$1.5 million charge for the supplemental executive retirement plan (SERP) which was terminated in
June 2019 and paid out in June 2020.
● Partially offsetting these improvements was a $7.6 million increase in income tax expense, primarily as
a result of higher pre-tax income.
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.
58
Table of Contents
The following tables set forth average balances, average yields and costs, and certain other information for the
years ended December 31, 2021, 2020, and 2019. 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, 2021
Average
Balance
Interest Yield/Cost
Average
Balance
Year Ended
December 31, 2020
December 31, 2019
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 (1)
Tax-equivalent adjustment (2)
Net interest income (tax-equivalent basis)/ Net
interest margin (tax-equivalent basis) (2) (3)
Net interest rate spread (4)
Net interest-earning assets (5)
Ratio of interest-earning assets to interest-bearing
liabilities
Cost of total deposits
$ 2,271,544
1,148,900
422,828
3,201
$
106,284
21,348
527
64
4.68 % $ 2,245,093
789,062
1.86
282,130
0.12
2,479
2.01
$
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 %
2.71
1.79
2.41
3,846,473
(27,999)
162,064
$ 3,980,538
$ 1,024,888
521,366
595,887
295,788
2,437,929
50,104
1,653
39,275
37,680
2,566,641
1,004,757
29,060
3,600,458
380,080
$ 3,980,538
$ 1,279,832
1.50
$
128,223
3.33 %
$
124,065
3,318,764
(27,661)
156,397
$ 3,447,500
3.74 % 3,105,863
(21,704)
149,227
$ 3,233,386
$ 143,735
4.63 %
$
518
437
188
1,329
2,472
34
9
1,879
0.05 % $ 873,060
474,033
0.08
477,260
0.03
317,308
0.45
2,141,661
0.10
49,714
0.07
1,080
0.54
12,869
4.78
1,426
5,820
$
3.79
0.23 %
37,613
2,242,937
807,864
45,996
3,096,797
350,703
$ 3,447,500
$
647
697
196
2,681
4,221
48
2
616
1,573
6,460
$
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
37,553
4.18
0.29 % 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 %
0.40
0.06
1.10
0.38
0.18
2.60
—
5.12
0.45 %
$
122,403
2,028
$
124,431
3.18 %
0.05
3.23 %
3.10 %
0.07 %
$ 1,075,827
1.48
$
117,605
1,943
$
119,548
3.54 %
0.06
3.60 %
3.45 %
$ 133,800
2,309
$ 136,109
$ 915,289
1.42
0.14 %
4.31 %
0.07
4.38 %
4.18 %
0.29 %
(1) See "Non-GAAP Financial Information" 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.
2021
2020
2019
Interest
Yield
Contribution
Interest
Yield
Contribution
Interest
Yield
Contribution
Year Ended December 31,
Contractual interest
Loan fees (excluding PPP loans)
PPP loan fees
Accretion of acquired loan discounts
Net cash flow hedge earnings
Total loan interest income
$
$
92,161
3,840
9,181
1,102
—
106,284
4.06 % $
0.17
0.40
0.05
—
4.68 % $
(dollars in thousands)
97,529
3,926
2,953
724
64
105,196
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 %
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)
2021
Net Interest
Margin
Contribution
Interest
Year Ended December 31,
2020
Interest
Net Interest
Margin
Contribution
(dollars in thousands)
2019
Net Interest
Margin
Contribution
Interest
$
$
92,161
28,426
530
3,840
9,181
1,102
(7,066)
49
128,223
2,541
2,903
376
5,820
122,403
2,028
124,431
2.39 % $
0.74
0.01
0.10
0.24
0.03
(0.18)
—
3.33
0.07
0.07
0.01
0.15
3.18
0.05
3.23 % $
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 %
(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" 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, 2021
vs.
Year Ended December 31, 2020
Increase (Decrease) Due to
Volume
Rate
Year Ended December 31, 2020
vs.
Year Ended December 31, 2019
Increase (Decrease) Due to
Total
Volume
(dollars in thousands)
Rate
Total
$
1,238
7,100
338
15
8,691
$
$
(150) $ 1,088
3,473
(411)
8
4,158
(3,627)
(749)
(7)
(4,533)
3,558
744
1,308
(1)
5,609
$ (18,504) $ (14,946)
(2,707)
(2,013)
(4)
(19,670)
(3,451)
(3,321)
(3)
(25,279)
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
$
100
64
43
(171)
36
—
1
1,264
3
1,304
7,387
(229)
(324)
(51)
(1,181)
(1,785)
(14)
6
(1)
(150)
(1,944)
(129)
(260)
(8)
(1,352)
(1,749)
(14)
7
1,263
(147)
(640)
$ (2,589) $ 4,798
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)
$
Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020
Net interest income for the year ended December 31, 2021 increased $4.8 million, or 4.1%, to $122.4 million
from $117.6 million for the year ended December 31, 2020. Declines in benchmark interest rates drove lower
yields on interest-earnings assets. These declines were more than offset by an increase in PPP loan fees
recognized as loan interest income which totaled $9.2 million and $3.0 million during the years ended
December 31, 2021 and 2020, respectively. Additionally, a substantial increase in interest-earning asset
balances further supported net interest income, driven by the NXT acquisition, PPP loan originations, and
federal economic stimulus payments received by our retail customers.
Net interest margin decreased to 3.18% for the year ended December 31, 2021 compared to 3.54% for the year
ended December 31, 2020. The decrease was primarily attributable to the decline in the average yield on
earning assets and increased balances being held in cash and lower-yielding securities.
Additionally, the $40 million of subordinated notes issued during the third quarter of 2020 added downward
pressure to net interest income and net interest margin in subsequent periods. However, the proceeds from the
issuance provided additional regulatory capital to buffer against higher than estimated credit losses and support
organic and acquisitive growth.
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Table of Contents
The quarterly net interest margins were as follows:
Three months ended:
March 31
June 30
September 30
December 31
2021
2020
2019
3.25 %
3.14
3.18
3.17
4.03 %
3.51
3.39
3.31
4.50 %
4.37
4.27
4.09
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.
These rate cuts, as well as quantitative easing, have resulted in a lower interest rate environment which has put
downward pressure on our net interest margin. In general, we believe that potential rate increases will lead to
improved net interest margins while rate decreases will result in lower net interest margins.
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 as 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 accounting for net charge-offs (recoveries).
The deterioration of economic conditions related to the COVID-19 pandemic adversely affected the
communities that we serve beginning in 2020. As a result, our allowance for loan losses initially increased at the
onset of the COVID-19 pandemic, remained elevated during the remainder of 2020, and then gradually returned
to near pre-pandemic levels during 2021 as economic conditions improved.
Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020
The Company recorded a negative provision for loan losses of $8.1 million during the year ended December 31,
2021, compared to a provision for loan losses of $10.5 million during the year ended December 31, 2020. The
negative provision was primarily due to a $4.4 million decrease in specific reserves on loans individually
evaluated for impairment. Additionally, changes to qualitative factors resulted in a $2.9 million decrease in
required reserve, primarily reflecting the shrinking impact of the COVID-19 pandemic on our borrowers, an
improved economic environment, and improved asset quality metrics.
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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.
2021
$ Change
Year Ended December 31,
2020
(dollars in thousands)
$ Change
2019
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
Income on bank owned life insurance
Title insurance activity
Other noninterest income
Total noninterest income
$
9,734
6,080
8,384
2,825
1,690
5,846
107
310
(723)
41
—
3,034
$ 37,328
$
$
1,647
93
1,147
(153)
4,274
(2,989)
74
168
(652)
41
—
(778)
2,872
$
$
8,087
5,987
7,237
2,978
(2,584)
8,835
33
142
(71)
—
—
3,812
$ 34,456
$
Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020
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
—
Total noninterest income for the year ended December 31, 2021, was $37.3 million, an increase of $2.9 million,
or 8.3%, from the year ended December 31, 2020. Notable changes in noninterest income include the following:
● A $4.3 million improvement in the mortgage servicing rights fair value adjustment, primarily resulting
from slower mortgage prepayment speed assumptions.
● A $1.6 million increase in card income was primarily due to increased debit and credit card transaction
volume. Additionally, the 2020 results were adversely impacted by the initial economic slowdown which
coincided with the beginning of the COVID-19 pandemic, while the 2021 results were positively
impacted by improved economic conditions and increased consumer demand.
● A $1.1 million increase in wealth management fees as a result of higher values of assets under
management during the year ended December 31, 2021 relative to the year ended December 31,
2020.
● Partially offsetting these improvements was a $3.0 million decrease in gains on sale of mortgage loans
due to a lower level of mortgage refinancing activity. A lower level of mortgage refinancing activity and
margin pressure are anticipated during 2022 and are expected to result in lower gains on sale of
mortgage loans relative to 2021.
● Additionally, there were impairment losses of $0.6 million related to branches closed during 2021,
pursuant to our branch rationalization plan, not present in the 2020 results.
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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
2021
$ 49,437
6,694
6,788
2,676
7,329
3,376
1,054
1,043
1,317
908
10,624
$ 91,246
$ Change
Year Ended December 31,
2020
(dollars in thousands)
$ Change
$
$
(1,179) $ 50,616
8,045
(1,351)
6,580
208
2,447
229
6,742
587
3,476
(100)
1,232
(178)
707
336
1,755
(438)
557
351
825
9,799
(710) $ 91,956
$
$
1,613
(1,838)
(287)
(366)
1,172
(397)
(191)
509
(878)
(119)
1,712
930
2019
$ 49,003
9,883
6,867
2,813
5,570
3,873
1,423
198
2,633
676
8,087
$ 91,026
Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020
Total noninterest expense for the year ended December 31, 2021, was $91.2 million, a decrease of $0.7 million,
or 0.8%, from the year ended December 31, 2020. Notable changes in noninterest expense include following:
● A $1.4 million decrease in employee benefits expense, primarily due to the 2020 results including a
$1.5 million charge for the supplemental executive retirement plan (SERP) which was terminated in
June 2019 and paid out in June 2020.
● A $1.2 million decrease in salaries expense, primarily due to a lower employee count during 2021
relative to 2020.
● A $0.6 million increase in data processing expenses, primarily due to $0.4 million of systems
conversion expenses related to the NXT acquisition.
● A $0.8 million increase in other noninterest expenses, primarily due to $1.0 million of investment
banker and legal fees related to the NXT acquisition.
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Table of Contents
Income Taxes
Prior to October 11, 2019, the Company was 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, 2021 to the Year Ended December 31, 2020
We recorded income tax expense of $20.3 million, or 26.5% effective tax rate, during the year ended
December 31, 2021 compared to $12.7 million, or 25.7% effective tax rate during the year ended December 31,
2020. 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. The effective income tax rate increased
primarily due to tax exempt interest income making up a smaller portion of pre-tax net income during the year
ended December 31, 2021 compared to the year ended December 31, 2020. Additionally, the non-deductibility
of certain acquisition-related contributed to a higher effective tax rate.
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FINANCIAL CONDITION
Consolidated Balance Sheet Information
Cash and cash equivalents
Debt securities available-for-sale, at fair value
Debt securities held-to-maturity
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
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
Tangible assets (1)
Tangible common equity (1)
Core deposits (1)
Share and Per Share Information
Book value per share
Tangible book value per share (1)
December 31,
2021
December 31,
2020
$ Change % Change
(dollars in thousands, except per share data)
$
409,268
942,168
336,185
4,942
$
312,451
922,869
68,395
14,713
$ 96,817
19,299
267,790
(9,771)
2,499,689
23,936
2,475,753
2,247,006
31,838
2,215,168
252,683
(7,902)
260,585
29,322
1,943
114,673
$ 4,314,254
23,620
2,798
106,553
$ 3,666,567
$ 3,738,185
61,256
39,316
37,714
25,902
3,902,373
411,881
$ 4,314,254
$ 3,130,534
45,736
39,238
37,648
49,494
3,302,650
363,917
$ 3,666,567
5,702
(855)
8,120
$ 647,687
$ 607,651
15,520
78
66
(23,592)
599,723
47,964
$ 647,687
$ 4,282,989
380,616
$ 3,640,149
337,499
$ 642,840
43,117
31.0 %
2.1
391.5
(66.4)
11.2
(24.8)
11.8
24.1
(30.6)
7.6
17.7 %
19.4 %
33.9
0.2
0.2
(47.7)
18.2
13.2
17.7 %
17.7 %
12.8
$ 3,674,435
$ 3,103,847
$ 570,588
18.4 %
$
14.21
13.13
$
13.25
12.29
Shares of common stock outstanding
28,986,061
27,457,306
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)
66.87 %
98.29
9.55
8.89
71.78 %
99.15
9.93
9.27
(1) See "Non-GAAP Financial Information" for reconciliation of non-GAAP measures to their most comparable GAAP measures.
Total assets were $4.3 billion at December 31, 2021, an increase of $648.7 million, or 17.7%, from
December 31, 2020. Significant changes in our balance sheet include the following:
● Total deposits increased $607.7 million, primarily due to funds received by our commercial customers
from round 2 PPP loans and federal economic stimulus payments received by retail customers.
Additionally, the NXT acquisition added $181.6 million of deposits.
● Cash and cash equivalents increased $96.8 million, primarily as a result of funds received from the
forgiveness of PPP loans and federal economic stimulus received by retail customers.
● Excess liquidity was invested in debt securities which increased $287.1 million.
● Loans, before allowance for loan losses, increased $252.7 million, primarily as a result of the
$194.6 million of loans acquired in the NXT acquisition.
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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.
Loans by Category
The following table sets forth the composition of the loan portfolio by category, excluding loans held-for-sale.
December 31, 2021
December 31, 2020
Balance
Percent
Balance
Percent
(dollars in thousands)
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
PPP loans (included above)
Commercial and industrial
Agricultural and farmland
Municipal, consumer, and other
Total PPP loans
$
286,946
247,796
234,544
684,023
263,911
298,048
327,837
156,584
2,499,689
(23,936)
$ 2,475,753
$
$
28,404
913
171
29,488
11.5 % $
9.9
9.4
27.4
10.5
11.9
13.1
6.3
100.0 %
393,312
222,723
222,360
520,395
236,391
225,652
306,775
119,398
2,247,006
(31,838)
$ 2,215,168
17.5 %
9.9
9.9
23.2
10.5
10.0
13.7
5.3
100.0 %
1.1 % $
0.1
—
1.2 % $
153,860
3,049
6,587
163,496
6.9 %
0.1
0.3
7.3 %
Loans, before allowance for loan losses were $2.50 billion at December 31, 2021, an increase of $252.7 million,
or 11.2%, from December 31, 2020. Notable changes include the following:
● The NXT acquisition, which closed on October 1, 2021, added $194.6 million of loans and expanded
the Company’s footprint into Eastern Iowa.
● PPP loans decreased $134.0 million, with forgiveness far exceeding the $104.7 million of round 2 PPP
loans originated during 2021.
● Utilization of revolving lines of credit improved during 2021, increasing from 40% at December 31, 2020
to 44% at December 31, 2021, driving a $56.6 million increase in revolving line of credit balances.
● The higher lending limits of HBT Financial allowed for the repurchase of $22.4 million of participations
previously sold by NXT.
● Improved economic conditions, the expiration of certain federal economic stimulus programs, and our
expansion into Eastern Iowa, drove increased loan demand across the majority of our loan categories.
67
Table of Contents
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.
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
Loan Portfolio Maturities
The following table summarizes the scheduled maturities of the loan portfolio as of December 31, 2021.
Demand loans (loans having no stated repayment schedule or maturity) and overdraft loans are reported as
being due in one year or less.
After 1 Year After 5 Years
December 31, 2021
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
1 Year
or Less
Through
5 Years
After
15 Years
Total
Through
15 Years
(dollars in thousands)
$
$
$
$
167,300
106,164
30,563
88,733
35,712
160,665
45,705
24,452
659,294
$
96,854
93,170
134,012
411,531
159,391
122,797
142,491
22,088
$ 1,182,334
$
22,792
45,550
66,187
183,203
68,808
14,215
82,991
81,467
565,213
— $
2,912
3,782
556
—
286,946
247,796
234,544
684,023
263,911
298,048
327,837
156,584
$ 2,499,689
371
56,650
28,577
92,848
$
The following table summarizes loans maturing after one year, segregated into variable and fixed interest rates.
December 31, 2021
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
Nonperforming Assets
Repricing
1 Year
or Less
Variable Interest Rates
Repricing
After
1 Year
Total
Variable
Predetermined
(Fixed)
Interest Rates Interest Rates
$
$
9,271
10,670
28,976
56,990
30,620
70,759
97,701
41,605
346,592
$
$
(dollars in thousands)
308
5,682
19,188
21,903
3,239
84
19,639
4,498
74,541
$
$
9,579
16,352
48,164
78,893
33,859
70,843
117,340
46,103
421,133
$
$
110,067
125,280
155,817
516,397
194,340
66,540
164,792
86,029
1,419,262
Total
$
119,646
141,632
203,981
595,290
228,199
137,383
282,132
132,132
$ 1,840,395
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.
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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.
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
Allowance for loan losses
Loans, before allowance for loan losses
December 31, 2021 December 31, 2020
(dollars in thousands)
$
$
$
2,763
16
2,779
3,278
6,057
23,936
2,499,689
$
$
$
9,939
21
9,960
4,168
14,128
31,838
2,247,006
CREDIT QUALITY RATIOS
Allowance for loan losses to loans, before allowance for loan losses
Allowance for loan losses to nonaccrual loans
Allowance for loan losses to nonperforming loans
Nonaccrual loans to loans, before allowance for loan losses
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
0.96 %
1.42 %
866.30
861.32
0.11
0.11
0.14
0.24
320.33
319.66
0.44
0.44
0.39
0.63
(1) Excludes loans acquired with deteriorated credit quality that are past due 90 or more days totaling $32 thousand and $0.6 million as of
December 31, 2021 and 2020, respectively.
Comparison of December 31, 2021 to December 31, 2020
Total nonperforming assets were $6.1 million as of December 31, 2021, a decrease of $8.1 million, or 57.1%,
from December 31, 2020. Our level of nonperforming assets has remained low in recent years, representing
only 0.14% of total assets as of December 31, 2021 and 0.39% of total assets as of December 31, 2020. We
believe our continuous credit monitoring and collection efforts have resulted in lower levels of nonperforming
assets, while also recognizing that favorable economic conditions prior to the COVID-19 pandemic and
substantial federal economic stimulus during the pandemic have also contributed to these lower levels.
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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
December 31, 2021 December 31, 2020
(dollars in thousands)
$
$
203
$
—
1,671
1,278
—
—
360
—
3,512
—
—
—
—
—
—
—
—
—
$
3,512
296
—
6,491
1,354
—
—
454
—
8,595
75
—
141
—
—
—
139
—
355
8,950
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. The $5.4 million decrease, or 60.8%, from December 31, 2020 was primarily due to the pay down of
one relationship by $3.6 million.
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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, 2021 and 2020, our risk classifications of loans were as follows:
Pass
Pass-watch
Substandard
Doubtful
Total
December 31, 2021 December 31, 2020
(dollars in thousands)
$
$
$
2,269,228
148,285
82,176
—
$
2,499,689
1,953,912
208,584
84,510
—
2,247,006
Pass-watch loans decreased $60.3 million, or 28.9% from December 31, 2020 to December 31, 2021.
Additionally, substandard loans decreased $2.3 million, or 2.8%, from December 31, 2020 to December 31,
2021. These improvements were primarily driven by improving economic conditions, which resulted in both risk
rating upgrades and paydowns. Additionally, the transfer of one larger loan to foreclosed assets further
contributed to the decrease in substandard loans.
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Net Charge-offs and Recoveries
The following table sets forth activity in the allowance for loan losses.
2021
Balance, beginning of year
$
31,838
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 recoveries (charge-offs)
Provision for loan losses
Balance, end of year
Year Ended December 31,
2020
(dollars in thousands)
$
22,299
$
(668)
—
(30)
—
—
—
(267)
(449)
(1,414)
653
—
9
24
—
342
249
312
1,589
(1,784)
(27)
(39)
(349)
—
(27)
(155)
(587)
(2,968)
595
—
440
75
—
250
310
305
1,975
2019
20,509
(886)
(30)
(407)
(111)
(41)
(9)
(1,105)
(684)
(3,273)
440
—
56
20
—
450
350
343
1,659
175
(8,077)
23,936
$
(993)
10,532
31,838
$
(1,614)
3,404
22,299
$
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Table of Contents
The following table summarizes net charge-offs (recoveries) to average loans, before allowance for loan losses
by loan category.
Net 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
Average loans, before allowance for loan losses
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
2021
Year Ended December 31,
2020
(dollars in thousands)
2019
$
$
15
$
—
21
(24)
—
(342)
18
137
(175)
$
1,189
27
(401)
274
—
(223)
(155)
282
993
$
$
446
30
351
91
41
(441)
755
341
1,614
$
347,547
230,364
204,148
583,084
227,736
226,035
314,871
137,759
$ 2,271,544
$
372,927
223,381
222,593
543,227
196,632
242,800
324,645
118,888
$ 2,245,093
$
346,540
206,490
243,572
553,683
170,878
225,506
324,039
108,189
$ 2,178,897
Net charge-offs (recoveries) to average loans, before allowance for
loan losses
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
— %
—
0.01
—
—
(0.15)
0.01
0.10
(0.01)%
0.32 %
0.01
(0.18)
0.05
—
(0.09)
(0.05)
0.24
0.04 %
0.13 %
0.01
0.14
0.02
0.02
(0.20)
0.23
0.32
0.07 %
Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020
Net charge-offs (recoveries) to average total loans before allowance for loan losses have remained low for
several years, including each of the years ended December 31, 2021 and 2020. We believe our continuous
credit monitoring and collection efforts have resulted in lower levels of loan losses, while also recognizing that
favorable economic conditions prior to the COVID-19 pandemic and substantial federal economic stimulus
during the pandemic have also contributed to reduced loan losses.
Securities
The Company’s investment policy emphasizes safety of the principal, liquidity needs, expected returns, cash
flow targets and consistency with our interest rate risk management strategy. The composition and maturities of
the debt securities portfolio as of December 31, 2021 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.
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Table of Contents
Due in 1 year or less
U.S. Treasury
U.S. government agency
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Corporate
Total
Due after 1 year through 5 years
U.S. Treasury
U.S. government agency
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Corporate
Total
Due after 5 years through 10 years
U.S. Treasury
U.S. government agency
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Corporate
Total
Due after 10 years
U.S. Treasury
U.S. government agency
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Corporate
Total
Total
U.S. Treasury
U.S. government agency
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Corporate
Total
Available-for-Sale
December 31, 2021
Held-to-Maturity
Weighted
Weighted
Amortized Average Amortized Average
Cost
Yield
Cost
(dollars in thousands)
Yield
Total
Weighted
Amortized Average
Cost
Yield
$
—
3,067
9,789
337
6,248
20,459
$ 39,900
$ 39,585
11,016
52,651
11,478
20,070
7,723
$ 142,523
$ 69,417
85,765
144,424
41,228
93,076
32,959
$ 466,869
— % $
0.17
2.59
1.57
2.55
2.85
2.53 % $
—
—
2,394
—
—
—
2,394
— % $
—
3.51
—
3,067
12,183
—
—
—
3.51 % $
337
6,248
20,459
42,294
0.97 % $
1.81
2.15
—
5,000
10,887
— % $
1.10
3.71
39,585
16,016
63,538
—
2.08
4,614
2.93
3.61
—
1.98 % $ 20,501
2.25
—
11,478
24,684
7,723
2.74 % $ 163,024
—
1.41 % $
1.69
1.76
—
7,349
1,994
— % $
1.63
3.36
69,417
93,114
146,418
8,463
2.15
201,116
1.47
3.89
—
1.82 % $ 218,922
1.62
1.73
49,691
294,192
32,959
1.73 % $ 685,791
—
$
—
— % $
29,421
86,973
1.39
1.89
—
—
391
— % $
—
4.26
—
29,421
87,364
125,193
45,481
2,000
$ 289,068
12,092
1.43
81,885
1.67
4.50
—
1.63 % $ 94,368
2.12
1.94
137,285
127,366
2,000
1.97 % $ 383,436
—
— %
0.17
2.77
1.57
2.55
2.85
2.58 %
0.97 %
1.59
2.42
2.08
2.80
3.61
2.08 %
1.41 %
1.68
1.78
2.06
1.65
3.89
1.79 %
— %
1.39
1.90
1.49
1.84
4.50
1.71 %
$ 109,002
129,269
293,837
178,236
164,875
63,141
$ 938,360
1.25 % $
1.59
1.90
—
12,349
15,666
— % $ 109,002
141,618
309,503
1.42
3.65
1.25 %
1.58
1.98
1.92
1.80
198,791
452,490
63,141
1.87 % $ 1,274,545
—
1.67
1.78
3.54
1.83 %
20,555
1.64
287,615
1.74
3.54
—
1.81 % $ 336,185
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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, 2021
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)
29.2 %
29.8
15.1
17.3
91.4
8.6
100.0 %
0.05
0.08
0.03
0.04
0.45
0.07 %
— %
1,004,757
1,024,888
521,366
595,887
3,146,898
295,788
3,442,686
2021 vs. 2020
24.4 %
17.4
10.0
24.9
19.6
(6.8)
16.7 %
Year Ended December 31, 2020
Percent
Change in
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
Average
Balance
Weighted
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
Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020
The average balances of non-maturity deposits increased 19.6% from the year ended December 31, 2020 to
the year ended December 31, 2021, with the increase primarily attributable to PPP loan proceeds received by
commercial customers, federal economic stimulus received by retail customers, and $139.4 million of non-
maturity deposits added through the NXT acquisition on October 1, 2021. Partially offsetting the increase in
non-maturity deposits was a 6.8% decline in the average balances of time deposits, which resulted in a 16.7%
increase in average balances of total deposits from the year ended December 31, 2020 to the year ended
December 31, 2021.
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Table of Contents
The following table sets forth time deposits by remaining maturity as of December 31, 2021.
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
$ 41,565
$
40,847
$
55,886
$
56,843
$ 195,141
Amounts of $100,000 but less than $250,000
16,312
15,092
20,126
22,025
73,555
Amounts of $250,000 or more
12,924
5,182
27,166
14,240
59,512
Total time deposits
$ 70,801
$
61,121
$ 103,178
$
93,108
$ 328,208
As of December 31, 2021 and 2020, the Bank’s uninsured deposits, including related accrued interest, were
estimated to be $845.7 million and $573.8 million, respectively.
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
2021
As of or for the Years Ended December 31,
2020
(dollars in thousands)
$ 45,736
49,714
58,839
$ 44,433
41,177
52,085
$ 61,256
50,104
61,256
2019
Weighted average interest rate at end of year
Average interest rate during year
0.07 %
0.07
0.06 %
0.10
0.20 %
0.18
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
investment and loan portfolios and deposits, and regulatory capital requirements.
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.
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Table of Contents
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 daily liquidity needs. The total amount of the remaining credit available to the Bank from the FHLB at
December 31, 2021 was $316.7 million.
As of December 31, 2021, management believed adequate liquidity existed to meet all projected cash flow
obligations of the Bank. As of December 31, 2021, 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, 2021, HBT Financial, Inc. had cash and cash equivalents of $25.8 million.
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 accumulated
retained earnings, after giving effect to any unrecognized losses and bad debts, without the prior approval of the
IDFPR. In addition, dividends paid by the Bank to the Company would be prohibited if the effect thereof would
cause the 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, 2021, 2020, and 2019, the Bank paid $20.0 million, $17.6 million, and
$110.0 million, in dividends to the Company, respectively.
The liquidity needs of the Company on an unconsolidated basis consist primarily of interest payments on the
subordinated notes and junior subordinated debentures, operating expenses, and dividends to stockholders.
During the years ended December 31, 2021, 2020, and 2019, holding company operating expenses consisted
of interest expense of $3.3 million, $2.2 million, and $1.9 million, respectively; other operating expenses of $3.7
million, $2.5 million, and $1.0 million, respectively; and dividends to stockholders of $16.8 million, $16.5 million,
and $225.0 million, respectively. As of December 31, 2021, 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, 2021, management believed adequate liquidity existed to meet all projected cash flow
obligations of the Company. As of December 31, 2021, the Company had no material commitments for capital
expenditures.
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 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.
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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. As of December 31, 2021 and 2020, the capital conservation buffer
requirement was 2.5% of risk-weighted assets.
As of December 31, 2021 and 2020, the Company and the Bank met all capital adequacy requirements to
which they were subject. As of those dates, the Bank was “well capitalized” under the regulatory prompt
corrective action provisions.
The following table sets forth actual capital ratios of the Company and the Bank for the dates indicated, the
minimum ratios for capital adequacy purposes with the capital conservation buffer, and the minimum ratios to be
well capitalized under regulatory prompt corrective action provisions.
Total Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.
Heartland Bank and Trust Company
Tier 1 Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.
Heartland Bank and Trust Company
Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.
Heartland Bank and Trust Company
Tier 1 Capital (to Average Assets)
Consolidated HBT Financial, Inc.
Heartland Bank and Trust Company
December 31,
2021
December 31,
2020
For Capital
Adequacy Purposes
With Capital
To Be Well
Capitalized Under
Prompt Corrective
Conversation Buffer (1) Action Provisions (2)
16.88 %
15.94
17.40 %
15.63
10.50 %
10.50
N/A
10.00 %
14.66 %
15.09
14.55 %
14.38
13.37 %
15.09
13.06 %
14.38
9.84 %
10.13
9.94 %
9.82
8.50 %
8.50
7.00 %
7.00
4.00
4.00
N/A
8.00 %
N/A
6.50 %
N/A
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.
Cash Dividends
During the 2021 and 2020, the Company paid quarterly cash dividend of $0.15 per share. On January 25, 2022,
the Company’s board of directors declared a quarterly cash dividend of $0.16 per share.
During 2019, the Company paid a $170.0 million dividend to shareholders of record prior to the Company’s IPO.
The dividend was paid using net proceeds from the IPO and the proceeds of dividends received from Heartland
Bank and State Bank of Lincoln.
Stock Repurchase Program
The Company repurchased 290,486 shares of its common stock at a weighted average price of $16.89 during
the year ended December 31, 2021 under the Company’s stock repurchase program which expired on
December 31, 2021. Repurchases were conducted in compliance with Rule 10b-18 and in compliance with
Regulation M under the Securities Exchange Act of 1934, as amended. On December 14, 2021, the Company’s
Board of Directors approved a new stock repurchase program which authorizes the Company to repurchase up
to $15.0 million of its common stock. The new stock repurchase program took effect upon the expiration of the
prior stock repurchase program and expires on January 1, 2023.
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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,
2021 and 2020, there were no reserves for unfunded commitments. For additional information, see “Note 24 –
Commitments and Contingencies” to the consolidated financial statements.
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 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 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. General reserves cover non-impaired loans, or loans collectively evaluated for impairment, and are
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. Qualitative factor adjustments primarily consider current economic metrics, such as national and
regional unemployment rates, and current credit quality metrics of each portfolio segment, such as past due and
risk rating percentages, relative to historical levels. These qualitative factor adjustments are inherently
subjective.
Specific reserves cover impaired loans, or loans individually evaluated for impairment, and are primarily
measured based on the fair value of collateral. Adjustments to the fair value of collateral are made for
anticipated selling costs. A specific reserve may be zero if the fair value of collateral on the measurement date
is greater than the carrying balance of the impaired loan. Additionally, the present value of expected future cash
flows discounted at the original contractual interest rate may also be used, when practical.
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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Fair Value of Assets Acquired and Liabilities Assumed in Business Combinations
Business combinations are accounted for using the acquisition method of accounting. Under the acquisition
method of accounting, assets acquired and liabilities assumed are recorded at their estimated fair value on the
acquisition date. Estimating such fair values may require highly subjective assumptions or the use of a valuation
specialist. In the NXT acquisition, the fair value for loans was most significant estimate and relatively small
changes in assumptions used in this estimate could result in a materially different conclusion.
The fair value for loans was based on a discounted cash flow methodology that considered credit loss and
prepayment expectations, market interest rates and other market factors, such as liquidity, from the perspective
of a market participant. Loan cash flows were generated on an individual loan basis. The probability of default,
loss given default, exposure at default, and prepayment assumptions are key factors in this analysis.
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NON-GAAP FINANCIAL MEASURES
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 acquisition expenses,
- excludes branch closure expenses,
- excludes charges related to termination of
certain employee benefit plans,
- excludes net earnings (losses) from closed
or sold operations,
- 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 9.5%.
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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
83
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.
Table of Contents
Reconciliation of Non-GAAP Financial Measure - Adjusted Net Income and Adjusted Return on Average
Assets
Net income
C Corp equivalent adjustment (1)
C Corp equivalent net income (1)
Adjustments:
Acquisition expenses
Branch closure expenses
Charges related to termination of certain employee benefit plans
Net earnings from sold operations, including gains on sale (2)
Mortgage servicing rights fair value adjustment
Total adjustments
Tax effect of adjustments
Less adjustments after tax effect
Adjusted net income
Average assets
$
$
$
Year Ended December 31,
2020
(dollars in thousands)
$
$
36,845
—
36,845
2021
56,271
—
56,271
(1,416)
(748)
—
—
—
—
(1,457)
—
1,690
(474)
(95)
(569)
56,840
3,980,538
(2,584)
(4,041)
1,152
(2,889)
39,734
3,447,500
$
$
$
$
2019
66,865
(13,493)
53,372
—
—
(3,796)
524
(2,400)
(5,672)
1,617
(4,055)
57,427
3,233,386
Return on average assets
C Corp equivalent return on average assets (2)
Adjusted return on average assets
1.41 %
1.07 %
N/A
1.43
N/A
1.15
2.07 %
1.65
1.78
(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.
(2) Sold operations include HBT Insurance and First Community Title Services, Inc.
N/A Not applicable.
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Reconciliation of Non-GAAP Financial Measure - Adjusted Earnings Per Share
Year Ended December 31,
2020
(dollars in thousands, except per share amounts)
2019
2021
Numerator:
Net income
Earnings allocated to participating securities (1)
Numerator for earnings per share - basic and diluted
C Corp equivalent net income (2)
Earnings allocated to unvested restricted stock units (1)(2)
Numerator for C Corp equivalent earnings per share - basic and diluted (2)
Adjusted net income
Earnings allocated to participating securities (1)
Numerator for adjusted 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
C Corp equivalent earnings per share - Basic (2)
C Corp equivalent earnings per share - Diluted (2)
Adjusted earnings per share - Basic
Adjusted earnings per share - Diluted
$
$
$
$
$
$
$
$
56,271
(104)
56,167
N/A
N/A
N/A
56,840
(105)
56,735
$
$
$
$
36,845
(93)
36,752
N/A
N/A
N/A
39,734
(101)
39,633
$
$
$
$
$
$
66,865
—
66,865
53,372
—
53,372
57,427
—
57,427
27,795,806
15,487
27,457,306
—
20,090,270
—
27,811,293
27,457,306
20,090,270
2.02
2.02
N/A
N/A
2.04
2.04
$
$
$
$
1.34
1.34
N/A
N/A
1.44
1.44
$
$
$
$
$
$
3.33
3.33
2.66
2.66
2.86
2.86
(1) The Company has granted certain 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) 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.
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)
2021
Year Ended December 31,
2020
(dollars in thousands)
2019
$
$
122,403
2,028
124,431
$
$
117,605
1,943
119,548
$
$
133,800
2,309
136,109
3.18 %
0.05
3.23 %
3.54 %
0.06
3.60 %
4.31 %
0.07
4.38 %
Average interest-earning assets
$ 3,846,473
$ 3,318,764
$ 3,105,863
(1) On a tax-equivalent basis assuming a federal income tax rate of 21% and a state tax rate of 9.5%.
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Reconciliation of Non-GAAP Financial Measure - Efficiency Ratio (Tax Equivalent Basis)
Efficiency ratio (tax equivalent basis)
Total noninterest expense
Less: amortization of intangible assets
Adjusted noninterest expense
Net interest income
Total noninterest income
Operating revenue
Tax-equivalent adjustment (1)
Operating revenue (tax-equivalent basis) (1)
2021
Year Ended December 31,
2020
(dollars in thousands)
2019
$
$
91,246
1,054
90,192
$ 122,403
37,328
159,731
2,028
$ 161,759
$
$
$
$
91,956
1,232
90,724
117,605
34,456
152,061
1,943
154,004
$
$
$
$
91,026
1,423
89,603
133,800
32,751
166,551
2,309
168,860
Efficiency ratio
Efficiency ratio (tax equivalent basis) (1)
56.46 %
55.76
59.66 %
58.91
53.80 %
53.06
(1) On a tax-equivalent basis assuming a federal income tax rate of 21% and a state tax rate of 9.5%.
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
Total stockholders' equity to total assets
Tangible common equity to tangible assets
Shares of common stock outstanding
Book value per share
Tangible book value per share
December 31, 2021 December 31, 2020
(dollars in thousands, except per share data)
$
$
$
$
$
411,881
29,322
1,943
380,616
4,314,254
29,322
1,943
4,282,989
9.55 %
8.89
28,986,061
14.21
13.13
$
$
$
$
$
363,917
23,620
2,798
337,499
3,666,567
23,620
2,798
3,640,149
9.93 %
9.27
27,457,306
13.25
12.29
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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
Return on average tangible common equity
C Corp equivalent return on average stockholders' equity (1)
C Corp equivalent return on average tangible common equity (1)
Adjusted return on average stockholders' equity
Adjusted return on average tangible common equity
$
$
$
2021
Year Ended December 31,
2020
(dollars in thousands)
2019
$
$
$
380,080
25,057
2,333
352,690
56,271
N/A
56,840
14.81 %
15.95
N/A
N/A
14.95 %
16.12
$
$
$
350,703
23,620
3,436
323,647
36,845
N/A
39,734
10.51 %
11.38
N/A
N/A
11.33 %
12.28
341,544
23,620
4,748
313,176
66,865
53,372
57,427
19.58 %
21.35
15.63 %
17.04
16.81 %
18.34
(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.
Reconciliation of Non-GAAP Financial Measure - Core Deposits
Core Deposits
Total deposits
Less: time deposits of $250,000 or more
Less: brokered deposits
Core deposits
December 31, 2021 December 31, 2020
(dollars in thousands)
$
$
3,738,185
59,512
4,238
3,674,435
$
$
3,130,534
26,687
—
3,103,847
Core deposits to total deposits
98.29 %
99.15 %
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Table of Contents
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, 2021 and 2020, 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 2
Year 1
December 31, 2021
+400
+300
+200
+100
Flat
-100
December 31, 2020
+400
+300
+200
+100
Flat
-100
$ 92,106
76,708
51,627
12,453
—
34,852
19.7 % $ 23,230
17,938
16.4
12,154
11.1
5,818
2.7
—
—
(4,098)
7.5
18.7 % $ 38,485
30,487
14.5
21,339
9.8
11,062
4.7
—
—
(7,746)
(3.3)
31.7 %
25.1
17.6
9.1
—
(6.4)
$ 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)
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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 (PCAOB ID: 49)
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
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92
93
94
95
96
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Table of Contents
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, 2021 and 2020, the related consolidated statements of income, comprehensive
income, changes in stockholders’ equity and cash flows for the years then ended, 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, 2021 and 2020,
and the results of its operations and its cash flows for the years then ended, 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 11, 2022
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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 $336,027 in 2021 and $72,441 in 2020)
Equity securities with readily determinable fair value
Equity securities with no readily determinable fair value
Restricted stock, at cost
Loans held for sale
Loans, before allowance for loan losses
Allowance for loan losses
Loans, net of allowance for loan losses
Bank owned life insurance
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 12 and 24)
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; shares issued of 29,276,547 in
2021 and 27,457,306 in 2020; shares outstanding of 28,986,061 in 2021 and 27,457,306 in 2020
Surplus
Retained earnings
Accumulated other comprehensive income
Treasury stock at cost, 290,486 shares in 2021 and none in 2020
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying Notes to Consolidated Financial Statements
92
December 31, December 31,
2021
2020
$
$
$
$
$
$
$
23,387
385,881
409,268
490
942,168
336,185
3,443
1,927
2,739
4,942
2,499,689
(23,936)
2,475,753
7,393
52,483
1,452
3,278
29,322
1,943
7,994
1,165
14,901
17,408
4,314,254
1,087,659
2,650,526
3,738,185
61,256
39,316
37,714
25,902
3,902,373
24,912
287,539
312,451
—
922,869
68,395
3,292
1,552
2,498
14,713
2,247,006
(31,838)
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
—
—
293
220,891
194,132
1,471
(4,906)
411,881
4,314,254
$
275
190,875
154,614
18,153
—
363,917
3,666,567
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
Income on bank owned life insurance
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
93
Year Ended December 31,
2020
(dollars in thousands, except per share data)
2021
2019
$
103,900
2,384
$
102,893
2,303
$
16,948
4,400
527
64
128,223
2,472
34
9
1,879
1,426
5,820
122,403
(8,077)
130,480
9,734
6,080
8,384
2,825
1,690
5,846
107
310
(723)
41
—
3,034
37,328
49,437
6,694
6,788
2,676
7,329
3,376
1,054
1,043
1,317
908
10,624
91,246
76,562
20,291
56,271
2.02
2.02
27,795,806
$
$
$
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
$
$
$
$
$
$
$
$
$
$
117,296
2,846
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
Table of Contents
NET INCOME
HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
2021
Year Ended December 31,
2020
(dollars in thousands)
$ 36,845
$ 56,271
2019
$ 66,865
OTHER COMPREHENSIVE (LOSS) INCOME
Unrealized (losses) gains on debt securities available-for-sale
Reclassification adjustment for amortization of net unrealized losses on
debt securities transferred to held-to-maturity
Unrealized gains (losses) on derivative instruments
Reclassification adjustment for net settlements on derivative instruments
Total other comprehensive (loss) income, before tax
Income tax (benefit) expense
Total other comprehensive (loss) income
TOTAL COMPREHENSIVE INCOME
(24,798)
15,272
12,458
687
366
412
(23,333)
(6,651)
(16,682)
$ 39,589
18
(1,084)
238
14,444
4,123
10,321
$ 47,166
(264)
(698)
(87)
11,409
(711)
12,120
$ 78,985
See accompanying Notes to Consolidated Financial Statements
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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
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 and dividend
equivalents ($0.60 per share)
Balance, December 31, 2020
Net income
Other comprehensive loss
Stock-based compensation
Issuance of common stock - voting
upon vesting of restricted stock units
(20,225 shares)
Issuance of common stock - voting in
NXT acquisition (1,799,016 shares)
Repurchase of common stock - voting
(290,486 shares)
Cash dividends and dividend
equivalents ($0.60 per share)
Balance, December 31, 2021
3
—
—
—
95
178
(1)
—
275
—
—
—
—
275
—
—
—
—
18
—
(dollars in thousands, except per share data)
$
178
—
—
$ 32,288
—
—
$ 315,234
66,865
—
$
(4,288)
—
12,120
$ (3,019)
—
—
$
20,472
(20,472)
—
—
138,398
(178)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(634)
—
190,524
—
—
351
—
190,875
—
—
764
—
29,252
—
—
—
(2,384)
(224,956)
134,287
36,845
—
—
(16,518)
154,614
56,271
—
—
—
—
—
—
—
—
3,019
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,832
—
10,321
—
—
18,153
—
(16,682)
—
—
—
—
340,396
66,865
12,120
—
138,493
—
—
(224,956)
332,918
36,845
10,321
351
(16,518)
363,917
56,271
(16,682)
764
—
29,270
—
$ 293
$
—
—
— $ 220,891
(16,753)
$ 194,132
$
—
1,471
—
$ (4,906)
$
(16,753)
411,881
(4,906)
(4,906)
See accompanying Notes to Consolidated Financial Statements
95
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HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
2021
Year Ended December 31,
2020
(dollars in thousands)
2019
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 expense
Stock-based compensation
Net accretion of discount and deferred loan fees on loans
Net unrealized gain (loss) on equity securities
Net loss (gain) on disposals 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 on sales of foreclosed assets
Write-down of foreclosed assets
Amortization of intangibles
(Increase) decrease in mortgage servicing rights
Amortization of discount and issuance costs on subordinated notes and debentures
Amortization of premium on Federal Home Loan Bank borrowings
Mortgage loans originated for sale
Proceeds from sale of mortgage loans
Net gain on sale of mortgage loans
Increase in cash surrender value of bank owned life insurance
Gain on sale of First Community Title Services, Inc.
Decrease (increase) in accrued interest receivable
Decrease (increase) 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 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
Net cash paid for acquisition of NXT Bancorporation, Inc.
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
96
$
56,271
$
36,845
$
66,865
3,074
(8,077)
7,066
—
2,908
764
(12,448)
(107)
33
—
661
(505)
195
1,054
(1,690)
144
(105)
(179,921)
195,538
(5,846)
(41)
—
240
1,676
(17,784)
43,100
249
213,491
(513,838)
(50,089)
(241)
796
(1,028)
17
—
5,805
—
(4,771)
—
(349,609)
426,065
11,440
(12,520)
—
—
(4,906)
(16,753)
403,326
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)
96,817
312,451
$ 409,268
28,480
283,971
$ 312,451
97,092
186,879
$ 283,971
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
2021
Year Ended December 31,
2020
(dollars in thousands)
2019
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
Transfers of bank premises and equipment to bank premises held for sale
See accompanying Notes to Consolidated Financial Statements
97
$
5,928
$ 20,861
$
6,441
$ 17,451
$ 10,010
880
$
$
$
$
4,857
252
1,345
$
$
$
$
1,074
67
$
— $
2,520
2,046
—
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HBT Financial, Inc. (“HBT Financial” or 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 and Eastern Iowa.
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.”
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 $169,000,000 special dividend, or $9.43 per share, to stockholders of record
prior to the IPO.
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.
98
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 14.
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 year ended December 31, 2019. 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 year ended December 31, 2019.
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 year ended December 31, 2019; 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.
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 and fair value
of assets acquired and liabilities assumed in business combinations.
99
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Business and Significant Concentrations of Credit Risk
The Company provides several types of loans to individuals, businesses, and municipal entities primarily
located in its customer service area. 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.
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.
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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 cost or fair
value. The Company obtains quotes or bids on these loans directly from purchasing financial institutions.
Typically, these quotes include a premium on sale and thus quotes typically indicate fair value of the held for
sale loans is greater than cost. 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 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 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. 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. Loans determined to be impaired are individually evaluated for impairment. 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.
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 Company 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.
Loan Servicing
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 Owned Life Insurance
Bank owned life insurance represents life insurance policies on the lives of certain current and former
employees and directors for which the Company is the sole owner and beneficiary. These policies are recorded
as an asset in the consolidated balance sheets at their cash surrender value ("CSV") or the current amount that
could be realized if settled. The change in CSV and insurance proceeds received are included as a component
of noninterest income in 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.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
Lease Obligations
The Company leases certain bank premises under non-cancelable operating leases in the normal course of
business operations. These lease obligations result in the recognition of right-of-use assets and associated
lease contract liabilities. The amount of right-of-use assets and associated lease contract liabilities recorded is
based on the present value of future minimum lease payments. The discount rate used is equal to the rate
implicit in the lease, when readily determinable, or the Company’s incremental borrowing rate at lease
inception, on a collateralized basis over a similar term. Right-of-use assets are included in other assets and
lease contract liabilities are included in other liabilities in the consolidated balance sheets and were insignificant
as of December 31, 2021 and 2020.
Foreclosed Assets
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.
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, 2021 and 2020,
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.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other identifiable intangible assets consist of core deposit intangible assets with definite useful lives which are
being amortized using an accelerated depreciation method 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.
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.
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.
Advertising Costs
Advertising costs are expensed as incurred.
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Income Taxes
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2021 and 2020, 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 2018.
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.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
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Segment Reporting
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s operations consist of one reportable segment. The Company’s chief operating decision maker
evaluates the operations of the Company using consolidated information for purposes of allocating resources
and assessing performance.
Reclassifications
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.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – ACQUISITIONS
NXT Bancorporation, Inc.
On October 1, 2021, HBT Financial acquired 100% of the outstanding common stock of NXT Bancorporation,
Inc. (“NXT”), and its wholly-owned subsidiary NXT Bank, pursuant to an Agreement and Plan of Merger dated
June 7, 2021. Under the Agreement and Plan of Merger, NXT merged with and into HBT Financial, with HBT
Financial as the surviving entity, on October 1, 2021. Additionally, NXT Bank was merged with and into
Heartland Bank, with Heartland Bank as the surviving entity, in December 2021.
At the effective time of the merger, each share of NXT was converted into the right to receive 67.6783 shares of
HBT Financial common stock, cash in lieu of fractional shares, and $400 in cash. There were 1,799,016 shares
of HBT Financial common stock issued at the effective time of the acquisition with a market value of
$29,270,000, based on the closing stock price of $16.27 on October 1, 2021. This transaction was accounted
for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and
consideration exchanged was recorded at estimated fair values on the date of acquisition. Goodwill of
$5,702,000 was recorded in the acquisition, which reflects expected synergies from combining the operations of
HBT Financial and NXT, and is nondeductible for tax purposes.
The acquisition of NXT provides an opportunity to utilize Heartland Bank’s existing excess liquidity to replace
NXT Bank’s higher cost funding. Additionally, Heartland Bank’s broader range of products and services and
greater ability to meet larger borrowing needs provides an opportunity to expand NXT Bank customer
relationships.
During the year ended December 31, 2021, the HBT Financial incurred $1,416,000 in pre-tax acquisition
expenses related to the acquisition of NXT, comprised primarily of professional fees and data processing
expense. These expenses are reflected in noninterest expense on the consolidated statements of income.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of the assets acquired and liabilities assumed from NXT on the acquisition date were as follows
(dollars in thousands):
Assets acquired:
Cash and cash equivalents
Interest-bearing time deposits with banks
Debt securities
Equity securities with readily determinable fair value
Restricted stock
Loans
Bank owned life insurance
Bank premises and equipment
Core deposit intangible assets
Mortgage servicing rights
Accrued interest receivable
Other assets
Total assets acquired
Liabilities assumed:
Deposits
Securities sold under agreements to repurchase
FHLB advances
Other liabilities
Total liabilities assumed
Net assets acquired
Consideration paid:
Cash
Common stock
Total consideration paid
Goodwill
Fair Value
5,862
739
18,295
43
796
194,576
7,352
3,667
199
370
886
1,340
234,125
181,586
4,080
12,625
1,633
199,924
34,201
10,633
29,270
39,903
5,702
$
$
$
$
$
The following table presents the acquired non-impaired loans as of the acquisition date (dollars in thousands):
Fair Value
Gross contractual amounts receivable
Estimate of contractual cash flows not expected to be collected
$
194,576
196,104
1,045
There were no loans acquired with deteriorated credit quality from NXT.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides the pro forma information for the results of operations for the years ended
December 31, 2021 and 2020, as if the acquisition had occurred on January 1, 2020. The pro forma results
combine the historical results of NXT into HBT Financial’s consolidated statements of income, including the
impact of certain acquisition accounting adjustments, which include loan discount accretion, intangible assets
amortization, deposit premium amortization, and borrowing premium amortization. The pro forma results have
been prepared for comparative purposes only and are not necessarily indicative of the results that would have
been obtained had the acquisition actually occurred on January 1, 2020. No assumptions have been applied to
the pro forma results of operations regarding possible revenue enhancements, provision for loan losses,
expense efficiencies or asset dispositions. The acquisition-related expenses that have been recognized are
included in net income in the following table.
Pro Forma
Year Ended December 31,
2021
2020
Total revenues (net interest income and noninterest income)
Net income
Earnings per share - basic
Earnings per share - diluted
NOTE 3 – RESTRICTED CASH AND DUE FROM BANKS
(dollars in thousands, except per share data)
161,005
$
39,263
1.34
1.34
166,677
57,883
1.98
1.98
$
There was no reserve requirement by the Federal Reserve Bank as of December 31, 2021 and 2020.
NOTE 4 – SECURITIES
The carrying balances of the securities were as follows:
December 31,
2021
December 31,
2020
Debt securities available-for-sale
Debt securities held-to-maturity
Equity securities with readily determinable fair value
Equity securities with no readily determinable fair value
Total securities
$
$
114
$
(dollars in thousands)
942,168
336,185
3,443
1,927
1,283,723
922,869
68,395
3,292
1,552
996,108
$
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There were no sales of securities during the years ended December 31, 2021, 2020, and 2019. Gains (losses)
on securities were as follows during the years ended December 31:
Net realized gains (losses) on sales
Net unrealized gains (losses) on equity securities:
Readily determinable fair value
No readily determinable fair value
Gains (losses) on securities
$
$
2021
Year Ended December 31,
2020
(dollars in thousands)
— $
—
2019
107
—
107
33
—
33
$
—
160
(165)
(5)
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.
On June 30, 2021 and March 31, 2021, the Company transferred certain debt securities from the available-for-
sale category to the held-to-maturity category in order to better reflect the revised intentions of the Company
due to possible market volatility, resulting from a potential rise in interest rates. The following is a summary of
the amortized cost and fair value of securities transferred to the held-to-maturity category:
U.S. government agency
Mortgage-backed:
Agency residential
Agency commercial
Total
June 30, 2021
March 31, 2021
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
$
— $
(dollars in thousands)
7,593
— $
$
7,323
—
99,271
8,776
—
118,792
99,275
$ 99,271 $ 99,275 $ 135,161
8,536
113,861
$ 129,720
The debt securities were transferred between categories at fair value, with the transfer date fair value becoming
the new amortized cost for each security transferred. The unrealized gain (loss), net of tax, at the date of
transfer remains a component of accumulated other comprehensive income, but will be amortized over the
remaining life of the debt securities as an adjustment of yield in a manner consistent with amortization of any
premium or discount. As a result, the amortization of an unrealized gain (loss) reported in accumulated other
comprehensive income will offset or mitigate the effect on interest income of the amortization of the premium or
discount for that held-to-maturity debt security.
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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, 2021
Available-for-sale:
U.S. Treasury
U.S. government agency
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Corporate
Total available-for-sale
Held-to-maturity:
U.S. government agency
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Total held-to-maturity
Total debt securities
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
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(dollars in thousands)
Fair Value
$
109,002
129,269
293,837
$
328
1,303
6,144
178,236
164,875
63,141
938,360
12,349
15,666
2,149
1,234
1,638
12,796
42
809
$
(354) $
(2,467)
(2,904)
(919)
(2,048)
(296)
(8,988)
(51)
—
108,976
128,105
297,077
179,466
164,061
64,483
942,168
12,340
16,475
20,555
287,615
336,185
$ 1,274,545
196
1,749
2,796
$ 15,592
(102)
(2,801)
(2,954)
20,649
286,563
336,027
$ (11,942) $ 1,278,195
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
116
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2021 and 2020, the Company had securities with a carrying value of $353,338,000 and
$308,064,000, 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 46% of the obligations of local
municipalities portfolio consists of securities issued by municipalities located in Illinois as of December 31,
2021. Approximately 95% of such securities were general obligation issues as of December 31, 2021.
The amortized cost and fair value of debt securities by contractual maturity, as of December 31, 2021, 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
Fair Value
(dollars in thousands)
$ 33,315
110,975
332,565
118,394
$ 33,640
113,251
332,954
118,796
$
2,394
15,887
9,343
391
$
2,410
16,417
9,587
401
178,236
164,875
$ 938,360
179,466
164,061
$ 942,168
20,555
287,615
$ 336,185
20,649
286,563
$ 336,027
117
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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, 2021
Available-for-sale:
U.S. Treasury
U.S. government agency
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Corporate
Total available-for-sale
Held-to-maturity:
U.S. government agency
Mortgage-backed:
Agency residential
Agency commercial
Total held-to-maturity
Total debt securities
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
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
$
(354) $ 68,410
80,219
89,424
(2,183)
(2,018)
(851)
(1,921)
(7)
(7,334)
91,703
113,111
2,737
445,604
(dollars in thousands)
— $
$
— $
(284)
(886)
(68)
(127)
(289)
(1,654)
5,578
17,327
4,305
6,443
4,671
38,324
(354) $ 68,410
85,797
106,751
(2,467)
(2,904)
(919)
(2,048)
(296)
(8,988)
96,008
119,554
7,408
483,928
(51)
4,949
—
—
(51)
4,949
(102)
(2,673)
(2,826)
14,932
174,428
194,309
$ (10,160) $ 639,913
—
(128)
(128)
—
2,776
2,776
$ (1,782) $ 41,100
(102)
(2,801)
(2,954)
14,932
177,204
197,085
$ (11,942) $ 681,013
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)
(524)
(106)
(1,061)
20,387
57,126
4,849
107,933
(20)
(10)
—
(30)
4,490
3,449
—
7,939
(162)
(534)
(106)
(1,091)
24,877
60,575
4,849
115,872
(18)
(18)
2,983
2,983
$ (1,079) $ 110,916
$
—
—
—
—
(30) $ 7,939
(18)
(18)
2,983
2,983
$ (1,109) $ 118,855
As of December 31, 2021, there were 37 securities in an unrealized loss position for a period of twelve months
or more, and 235 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.
118
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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, 2021
Initial cost
Cumulative net unrealized gains (losses)
Carrying value
December 31, 2020
Initial cost
Cumulative net unrealized gains (losses)
Carrying value
Readily
Determinable
Fair Value
No Readily
Determinable
Fair Value
(dollars in thousands)
$
$
3,142
301
3,443
$
$
2,092
(165)
1,927
Readily
Determinable
Fair Value
No Readily
Determinable
Fair Value
(dollars in thousands)
$
$
3,098
194
3,292
$
$
1,717
(165)
1,552
As of December 31, 2021 and 2020, 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 in a prior period. There have been no impairments or upward adjustments based on observable
price changes to equity securities with no readily determinable fair value.
119
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES
Major categories of loans as of December 31, 2021 and 2020 are summarized as follows:
December 31,
2021
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
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)
286,946
247,796
234,544
684,023
263,911
298,048
327,837
156,584
2,499,689
(23,936)
2,475,753
393,312
222,723
222,360
520,395
236,391
225,652
306,775
119,398
2,247,006
(31,838)
2,215,168
$
28,404
913
171
29,488
$
$
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
and
Industrial
and
Farmland Occupied Occupied Multi-Family Development Residential Other
(dollars in thousands)
and Land
Family
Owner
Total
Municipal,
Construction One-to-four Consumer,
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
Provision for loan
losses
Charge-offs
Recoveries
Balance,
December 31, 2021
$
3,748
$
2,650
$
2,506
$
2,644
$
912
$
4,176
$
2,782
$
1,091
$ 20,509
1,139
(886)
440
4,441
677
(1,784)
595
3,929
(1,474)
(668)
653
146
(30)
—
2,766
(1,946)
(27)
—
793
52
—
—
(376)
(407)
56
1,779
961
(39)
440
1,110
(111)
20
3,663
7,862
(349)
75
153
(41)
—
1,024
933
—
—
3,141
11,251
1,957
(1,280)
(30)
9
(3,130)
—
24
(694)
—
—
(1,640)
(9)
450
2,977
1,032
(27)
250
4,232
340
—
342
513
(1,105)
350
2,359
(684)
343
3,404
(3,273)
1,659
2,540
3,109
22,299
(894)
(155)
310
1,907
(587)
305
10,532
(2,968)
1,975
1,801
4,734
31,838
(472)
(267)
249
(1,419)
(449)
312
(8,077)
(1,414)
1,589
$
2,440
$
845
$
1,840
$
8,145
$
1,263
$
4,914
$
1,311
$
3,178
$ 23,936
120
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:
December 31, 2021
Loan balances:
Collectively
evaluated for
impairment
Individually
evaluated for
impairment
Acquired with
deteriorated credit
quality
Total
Allowance for loan
losses:
Collectively
evaluated for
impairment
Individually
evaluated for
impairment
Acquired with
deteriorated credit
quality
Total
December 31, 2020
Loan balances:
Collectively
evaluated for
impairment
Individually
evaluated for
impairment
Acquired with
deteriorated credit
quality
Total
Allowance for loan
losses:
Collectively
evaluated for
impairment
Individually
evaluated for
impairment
Acquired with
deteriorated credit
quality
Total
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)
$
272,064
$ 247,021
$
216,794
$
641,555
$
262,701
$
293,548
$ 314,807
$ 143,510
$ 2,392,000
14,744
12
12,332
29,575
—
2,018
6,897
13,041
78,619
138
286,946
$
763
$ 247,796
5,418
234,544
$
12,893
684,023
$
1,210
263,911
$
$
2,482
298,048
6,133
$ 327,837
33
$ 156,584
29,070
$ 2,499,689
$
2,253
$
845
$
1,480
$
5,138
$
1,259
$
4,895
$
1,099
$
1,302
$
18,271
187
—
327
2,999
—
—
210
1,875
5,598
—
2,440
$
$
—
845
$
33
1,840
$
8
8,145
$
4
1,263
$
19
4,914
$
2
1,311
$
1
3,178
$
67
23,936
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)
$
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
393,312
$
853
$ 222,723
7,811
222,360
$
14,237
520,395
$
1,263
236,391
$
$
2,021
225,652
8,587
$ 306,775
56
$ 119,398
35,756
$ 2,247,006
$
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
121
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, 2021
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 loans individually evaluated for impairment:
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
122
Unpaid
Principal
Recorded
Related
Balance Investment Allowance
(dollars in thousands)
$
$
303
—
3,013
14,912
—
—
1,421
8,523
$ 28,172
$
303
—
3,013
14,893
—
—
1,314
8,498
$ 28,021
187
—
327
2,999
—
—
210
1,875
5,598
—
—
—
—
—
—
—
—
—
187
—
327
2,999
—
—
210
1,875
5,598
$
$
$
$
$
$ 14,452
12
9,534
14,755
—
2,112
7,129
4,603
$ 52,597
$ 14,755
12
12,547
29,667
—
2,112
8,550
13,126
$ 80,769
$ 14,441
12
9,319
14,682
—
2,018
5,583
4,543
$ 50,598
$ 14,744
12
12,332
29,575
—
2,018
6,897
13,041
$ 78,619
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 loans individually evaluated for impairment:
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
123
Unpaid
Principal
Recorded
Related
Balance Investment Allowance
(dollars in thousands)
$
$
2,737
169
3,072
20,726
—
2,081
2,963
12,207
$ 43,955
$
2,725
168
3,040
20,394
—
2,055
2,739
12,181
$ 43,302
1,193
22
429
4,255
—
222
560
3,301
9,982
—
—
—
—
—
—
—
—
—
1,193
22
429
4,255
—
222
560
3,301
9,982
$
$
$
$
$
$
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
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:
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 loans individually evaluated
for impairment:
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
Year Ended December 31,
2021
2020
2019
Average
Recorded
Interest
Income
Average
Recorded
Interest
Income
Average
Recorded
Interest
Income
Investment Recognized Investment Recognized Investment Recognized
$ 1,593
83
$
(dollars in thousands)
169
$
9
$ 3,031
273
89
4
$ 5,275
464
$
3,052
177
1,622
98
874
16,494
—
554
1,988
8,681
$ 32,445
$ 7,125
290
7,771
10,339
434
2,107
6,248
4,666
$ 38,980
$ 8,718
373
10,823
26,833
434
2,661
8,236
13,347
$ 71,425
791
—
27
77
158
1,323
330
17
344
432
10
28
192
86
1,439
419
21
521
1,223
10
55
269
244
2,762
6,345
—
2,441
3,120
10,617
$ 27,449
$ 4,004
11,061
11,056
14,412
447
892
8,022
3,089
$ 52,983
$ 7,035
11,334
12,678
20,757
447
3,333
11,142
13,706
$ 80,432
$
$
$
$
$
124
220
—
116
110
286
1,008
251
561
528
458
10
23
316
115
2,262
420
570
626
678
10
139
426
401
3,270
101
—
3,988
3,414
9,284
$ 23,400
$ 6,744
14,826
10,190
3,465
1,344
107
8,360
4,874
$ 49,910
$ 12,019
15,290
11,064
3,566
1,344
4,095
11,774
14,158
$ 73,310
$
$
$
$
$
$
$
$
$
$
152
12
43
7
—
171
79
396
860
206
824
483
131
9
4
240
104
2,001
358
836
526
138
9
175
319
500
2,861
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, 2021
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
$
286,563
247,772
234,441
683,029
263,911
297,465
325,780
156,297
$ 2,495,258
Accruing Interest
30 - 89 Days
$
$
90+ Days
Past Due Past Due Nonaccrual
(dollars in thousands)
9
24
103
823
—
64
383
214
1,620
— $
—
—
—
—
—
32
16
48
374
—
—
171
—
519
1,642
57
2,763
$
$
$
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
125
Accruing Interest
30 - 89 Days
$
90+ Days
Past Due Past Due Nonaccrual
(dollars in thousands)
— $
—
112
—
—
—
984
211
1,307
— $
—
—
—
—
—
595
21
616
822
—
940
4,008
—
144
3,914
111
9,939
$
$
$
Total
Loans
$
286,946
247,796
234,544
684,023
263,911
298,048
327,837
156,584
$ 2,499,689
Total
Loans
$
393,312
222,723
222,360
520,395
236,391
225,652
306,775
119,398
$ 2,247,006
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, 2021
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
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
Pass
$
267,088
221,898
198,862
619,212
241,362
268,556
308,951
143,299
$ 2,269,228
$
Total
Pass-Watch Substandard Doubtful
(dollars in thousands)
$ 14,744
685
11,584
32,439
—
2,018
7,665
13,041
$ 82,176
5,114
25,213
24,098
32,372
22,549
27,474
11,221
244
$ 148,285
$ — $
—
—
—
—
—
—
—
286,946
247,796
234,544
684,023
263,911
298,048
327,837
156,584
$ — $ 2,499,689
Pass
Pass-Watch Substandard Doubtful
(dollars in thousands)
Total
$
368,843
191,662
176,823
432,752
204,449
193,646
280,198
105,539
$ 1,953,912
$ 18,258
25,540
31,990
58,699
31,066
28,193
14,526
312
$ 208,584
$
6,211
5,521
13,547
28,944
876
3,813
12,051
13,547
$ 84,510
$ — $
—
—
—
—
—
—
—
393,312
222,723
222,360
520,395
236,391
225,652
306,775
119,398
$ — $ 2,247,006
There were no troubled debt restructurings during the year ended December 31, 2021. The following tables
present the financial effect of troubled debt restructurings for the years ended December 31, 2020 and 2019:
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
Recorded Investment
Number Pre-Modification Post-Modification Reserves
Charge-offs
and Specific
(dollars in thousands)
1
1
$
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
$
$
—
—
—
—
—
During the years ended December 31, 2020 and 2019, all troubled debt restructurings were the result of a
payment concession. As of December 31, 2021 and 2020, there were no troubled debt restructurings which had
subsequent payment defaults within 12 months of the modification. 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.
126
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2021 and 2020, the Company had $3,512,000 and $8,950,000 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.
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 made prior to January 1, 2022 generally do not need to be accounted for as
a troubled debt restructuring. As of December 31, 2021 and 2020, the Company had loans totaling $204,000
and $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.
Changes in the accretable yield for loans acquired with deteriorated credit quality were as follows for the years
ended December 31:
Beginning balance
Reclassification from non-accretable difference
Disposals
Accretion income
Ending balance
NOTE 6 – LOAN SERVICING
2019
2021
Year Ended December 31,
2020
(dollars in thousands)
$ 1,662
288
—
(553)
$ 1,397
$ 2,101
822
—
(1,261)
$ 1,662
$ 1,397
508
(1,089)
(403)
413
$
Mortgage loans serviced for others, not included in the accompanying consolidated balance sheets, amounted
to $1,040,809,000 and $1,090,219,000 as of December 31, 2021 and 2020, respectively. Activity in mortgage
servicing rights is as follows for years ended December 31:
Beginning balance
Acquired
Capitalized servicing rights
Fair value adjustment:
2021
2019
Year Ended December 31,
2020
(dollars in thousands)
$ 8,518
—
1,981
$ 10,918
—
1,018
$ 5,934
370
1,200
Attributable to payments and principal reductions
Attributable to changes in valuation inputs and assumptions
Total fair value adjustment
Ending balance
(1,788)
2,278
490
$ 7,994
(2,364)
(2,201)
(4,565)
$ 5,934
(1,614)
(1,804)
(3,418)
$ 8,518
127
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated depreciation as of December 31 as follows:
December 31, 2021 December 31, 2020
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:
$
(dollars in thousands)
77,180
24,199
101,379
48,896
52,483
$
Buildings and improvements
Furniture, fixtures, and equipment
Total depreciation expense
$
$
2021
Year Ended December 31,
2020
(dollars in thousands)
$
$
1,694
1,380
3,074
$
1,761
1,180
2,941
$
75,790
23,035
98,825
45,921
52,904
2019
1,813
896
2,709
During 2021, six branch locations were closed or consolidated as part of a branch rationalization plan. The
related bank premises were transferred to held for sale based on the lower of the carrying value or fair value,
less estimated costs to sell. As of December 31, 2021 and 2020, bank premises held for sale totaled
$1,452,000 and $121,000, respectively. During the year ended December 31, 2021, there were impairment
losses of $661,000 on bank premises held for sale included in gains (losses) on other assets in the
consolidated statements of income. During the year ended December 31, 2020, there were no impairment
losses on bank premises held for sale. During the year ended December 31, 2019, there were impairment
losses of $37,000 on bank premises held for sale included in gains (losses) on other assets in the consolidated
statements of income
NOTE 8 – 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
128
2021
2019
Year Ended December 31,
2020
(dollars in thousands)
$ 5,099
1,074
6
(2,079)
(67)
348
(213)
$ 4,168
$ 9,559
2,520
41
(5,460)
(2,046)
1,048
(563)
$ 5,099
$ 4,168
4,857
—
(5,805)
(252)
505
(195)
$ 3,278
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Gains (losses) on foreclosed assets includes the following for the years ended December 31:
2021
Year Ended December 31,
2020
(dollars in thousands)
2019
Direct write-downs
Net gain (loss) on sales
Guarantee reimbursements
Gain on settlement
Gains (losses) on foreclosed assets
$
$
(195) $
505
—
—
310
$
(213) $
348
7
—
142
$
(563)
1,048
80
375
940
The carrying value of foreclosed one-to-four family residential real estate property as of December 31, 2021 and
2020, was $169,000 and $868,000, respectively. As of December 31, 2021, there were 4 one-to-four family
residential real estate loans in the process of foreclosure totaling approximately $55,000. As of December 31,
2020, there were 11 residential real estate loans in the process of foreclosure totaling approximately
$1,526,000.
NOTE 9 – GOODWILL AND OTHER INTANGIBLE ASSETS
The following table summarizes the changes in the Company’s goodwill and core deposit intangible assets for
the years ended December 31:
Beginning balance
Additions
Amortization
Ending balance
Accumulated amortization
2021
Core
Deposit
Year Ended December 31,
2020
Core
Deposit
2019
Core
Deposit
Goodwill
Intangible Goodwill
Intangible Goodwill
Intangible
$ 23,620
5,702
—
$ 29,322
$
$ 2,798
199
(1,054)
$ 1,943
— $ 19,974
(dollars in thousands)
$ 4,030
—
(1,232)
$ 2,798
— $ 18,920
$ 23,620
—
—
$ 23,620
$
$ 23,620
—
—
$ 23,620
$
$ 5,453
—
(1,423)
$ 4,030
— $ 17,688
Amortization of core deposit intangible assets for the years subsequent to December 31, 2021 is expected to be
as follows (dollars in thousands):
Year ended December 31,
2022
2023
2024
2025
2026
Thereafter
Total
129
$
$
873
353
337
275
20
85
1,943
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – 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
December 31, 2021 December 31, 2020
(dollars in thousands)
$
1,087,659
$
882,939
1,105,949
583,198
633,171
328,208
2,650,526
3,738,185
$
968,592
462,056
517,473
299,474
2,247,595
3,130,534
$
Money market deposits include $4,238,000 of brokered deposits as of December 31, 2021. Money market
deposits also include $6,895,000 and $6,489,000 of reciprocal transaction deposits as of December 31, 2021
and 2020, respectively. Time deposits include $850,000 and $3,164,000 of reciprocal time deposits as of
December 31, 2021 and 2020, respectively.
The aggregate amounts of time deposits in denominations of $250,000 or more amounted to $59,512,000 and
$26,687,000 as of December 31, 2021 and 2020, respectively. The aggregate amounts of time deposits in
denominations of $100,000 or more amounted to $133,067,000 and $99,649,000 as of December 31, 2021 and
2020, respectively.
At December 31, 2021, the scheduled maturities of time deposits are as follows (dollars in thousands):
Year ended December 31,
2022
2023
2024
2025
2026
Thereafter
Total
$
$
235,100
64,106
13,179
9,042
6,562
219
328,208
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
2021
Year Ended December 31,
2020
(dollars in thousands)
2019
$
$
518
437
188
1,329
2,472
$
$
647
697
196
2,681
4,221
$
$
1,474
1,837
278
4,343
7,932
130
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
All repurchase agreements are sweep instruments. The securities underlying the agreements as of
December 31, 2021 and 2020 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
NOTE 12 – BORROWINGS
December 31, 2021 December 31, 2020
$
$
$
(dollars in thousands)
61,256
$
45,736
0.07 %
64,164
64,262
$
$
0.06 %
62,472
62,415
There were no Federal Home Loan Bank of Chicago (FHLB) borrowings outstanding as of December 31, 2021
and 2020. 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, 2021 and 2020
was $566,996,000 and $493,690,000, respectively. As of December 31, 2021 and 2020, 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, 2021, there was no
collateral pledged. As of December 31, 2020, the carrying value of securities pledged amounted to $499,000.
There was no outstanding balance from the FRB discount window as of December 31, 2021 and 2020.
NOTE 13 – 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, 2021, 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, 2021 December 31, 2020
Subordinated notes, at face value
Unamortized issuance costs
Subordinated notes, at carrying value
$
$
131
(dollars in thousands)
40,000
(684)
39,316
$
$
40,000
(762)
39,238
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – 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.
In accordance with GAAP, the trusts are not consolidated in the Company’s financial statements.
The carrying value of the junior subordinated debentures are summarized as follows:
December 31, 2021 December 31, 2020
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
(1,051)
37,714
$
10,310
10,310
5,155
7,217
5,773
38,765
(1,117)
37,648
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 the 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,
2021
December 31,
2020
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
2.87 %
1.73
1.55
2.92
3.10
2.99 %
1.75
1.57
3.04
3.12
Maturity
Date
April 6, 2034
June 15, 2037
September 15, 2037
April 6, 2034
December 31, 2037
132
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 20 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, 2021 and 2020, 100%of the trust preferred securities qualified as Tier 1 capital under the final
rule adopted in March 2005.
NOTE 15 – 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.
133
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2021
Fair
Value
Notional
Amount
December 31, 2020
Fair
Value
Notional
Amount
(dollars in thousands)
(680) $ 17,000
$
$ (1,458)
As of December 31, 2021, the interest rate swap agreements designated as cash flow hedges had contractual
maturities between 2024 and 2025. As of December 31, 2021 and 2020, the Company had cash pledged and
held on deposit at counterparties of $780,000 and $1,630,000, 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 affected earnings.
For the years ended December 31, 2021, 2020, and 2019, 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
Amounts of gross gain (loss)
reclassified from accumulated
other comprehensive income
Designated as cash flow hedges:
Taxable loan interest income
Junior subordinated debentures interest expense
Total
2021
Year Ended December 31,
2020
(dollars in thousands)
2019
$
$
— $
(412)
(412)
$
64
(302)
(238)
$
$
116
(29)
87
134
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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:
December 31, 2021
Fair
Notional
Amount
Value
December 31, 2020
Fair
Value
Notional
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
$ 112,041 $ 8,622 $ 122,313 $ 15,360
—
$ 115,921 $ 8,697 $ 122,313 $ 15,360
3,880
75
—
$
3,880 $
—
(15,360)
$ 115,921 $ (8,697) $ 122,313 $ (15,360)
122,313
112,041
(8,622)
(75) $
— $
As of December 31, 2021, the interest rate swap agreements not designated as hedging instruments had
contractual maturities between 2022 and 2042. As of December 31, 2021 and 2020, the Company had
$7,483,000 and $15,490,000, respectively, of debt securities pledged and held in safekeeping at the financial
institution counterparty.
For the years ended December 31, 2021, 2020 and 2019, 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 (losses)
2021
Year Ended December 31,
2020
(dollars in thousands)
2019
$
$
13,773
(13,773)
$
— $
24,758
(24,758)
$
— $
13,537
(13,500)
37
135
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 – 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
$
(4,561) $
(dollars in thousands)
122
$
151
$ (4,288)
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
Transfer from available-for-sale to held-to-maturity
Other comprehensive (loss) income before
reclassifications
Reclassifications
Other comprehensive (loss) income, before tax
Income tax (benefit) expense
Other comprehensive (loss) income, after tax
Balance, December 31, 2021
$
12,458
—
12,458
(762)
13,220
8,659
15,272
—
15,272
4,353
10,919
19,578
3,887
—
(264)
(264)
(11)
(253)
(131)
—
18
18
5
13
(118)
(3,887)
(698)
(87)
(785)
62
(847)
(696)
(1,084)
238
(846)
(235)
(611)
(1,307)
—
11,760
(351)
11,409
(711)
12,120
7,832
14,188
256
14,444
4,123
10,321
18,153
—
(24,798)
—
(24,798)
(7,069)
(17,729)
5,736
$
—
687
687
196
491
(3,514) $
366
412
778
222
556
(751) $
(24,432)
1,099
(23,333)
(6,651)
(16,682)
1,471
The amounts reclassified from accumulated other comprehensive income (loss) for unrealized gains (losses) on
debt securities available-for-sale are included in gains (losses) 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 15 for additional information.
136
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 – 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:
2021
Year Ended December 31,
2020
(dollars in thousands)
2019
Current
Federal
State
Total current
Deferred
Federal
State
Change in tax status
Total deferred
Income tax expense
$ 11,330
6,053
17,383
$
8,358
4,709
13,067
1,945
963
—
2,908
$ 20,291
(226)
(113)
—
(339)
$ 12,728
$
$
4,849
3,102
7,951
(1,437)
(724)
(534)
(2,695)
5,256
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:
Federally tax exempt interest income
State taxes, net of federal benefit
Change in tax status
Other
Income tax expense
2021
Amount
Percentage
Year Ended December 31,
2020
Percentage
Amount
(dollars in thousands)
2019
Amount Percentage
$ 16,078
21.0 %$ 10,410
21.0 %$ 3,933
5.5 %
(1,426)
5,430
—
209
$ 20,291
(1.9)
7.1
—
0.3
(1,470)
3,631
—
157
26.5 %$ 12,728
(3.0)
7.4
—
0.3
(372)
2,212
(534)
17
25.7 %$ 5,256
(0.5)
3.1
(0.8)
—
7.3 %
137
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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
Net unrealized losses on debt securities
Other
Total deferred tax assets
Deferred tax liabilities
Fixed asset depreciation
Mortgage servicing rights
Other purchase accounting adjustments
Intangible assets
Prepaid assets
Net unrealized gains on debt securities
Other
Total deferred tax liabilities
Net deferred tax asset (liability)
NOTE 18 – EARNINGS PER SHARE
December 31, 2021
December 31, 2020
(dollars in thousands)
$
$
6,756 $
2,314
1,059
489
43
316
304
853
12,134
4,188
2,262
776
374
664
—
505
8,769
3,365
$
9,046
2,301
1,595
660
45
336
—
1,011
14,994
4,361
1,692
1,115
580
685
6,569
370
15,372
(378)
The Company has granted certain 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 from
the Company’s outstanding restricted stock units.
138
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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 participating securities
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 19 – DEFERRED COMPENSATION
2021
Year Ended December 31,
2020
(dollars in thousands)
2019
56,271
(104)
56,167
$
$
36,845
(93)
36,752
$
$
66,865
—
66,865
27,795,806
15,487
27,457,306
—
20,090,270
—
27,811,293
27,457,306
20,090,270
2.02
2.02
$
$
1.34
1.34
$
$
3.33
3.33
$
$
$
$
The Company maintained a supplemental executive retirement plan (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 the termination of the SERP, 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, 2021 and 2020, there was no remaining deferred compensation liability for the SERP. During the
years ended December 31, 2020 and 2019, the Company recognized deferred compensation expense for the
SERP of $1,660,000 and $4,291,000, respectively.
NOTE 20 – EMPLOYEE BENEFIT PLANS
Profit Sharing Plan
During the years ended December 31, 2021, 2020, and 2019, the Company’s profit sharing plan contribution
expense amounted to $1,269,000, $1,118,000, and $1,223,000, 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, 2021 and
2020, the Company’s maximum aggregate liability under the plan was $6,588,000 and $6,287,000, respectively.
During the years ended December 31, 2021, 2020, and 2019, medical benefits expense amounted to
$4,161,000, $4,840,000, and $3,734,000, respectively.
139
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 – 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
Performance restricted stock units
Total awards classified as equity
Stock appreciation rights
Total stock-based compensation expense
Restricted Stock Units
$
$
2021
Year Ended December 31,
2020
(dollars in thousands)
$
$
2019
579
185
764
226
990
351
—
351
(137)
214
$
$
—
—
—
343
343
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
service period for the entire award. Dividend equivalents on restricted stock units, which are either accrued until
vested or paid at the same time as dividends on common stock, are classified as dividends charged to retained
earnings.
During the years ended December 31, 2021 and 2020, the total grant date fair value of the restricted stock units
granted was $948,000 and $1,399,000, respectively, based on the grant date closing prices. The total intrinsic
value of restricted stock units that vested during the year ended December 31, 2021 was $305,000.
The following is a summary of outstanding restricted stock unit activity:
Balance, December 31, 2018
Granted
Vested
Forfeited
Balance, December 31, 2019
Granted
Vested
Forfeited
Balance, December 31, 2020
Granted
Vested
Forfeited
Balance, December 31, 2021
140
Restricted
Stock Units
Weighted
Average
Grant Date
Fair Value
— $
—
—
—
— $
73,700
—
(2,700)
71,000
59,994
(20,225)
(1,525)
109,244
$
$
—
—
—
—
—
18.98
—
19.03
18.98
15.81
18.86
18.11
17.27
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2021, unrecognized compensation cost related to non-vested restricted stock units was
$1,339,000. This cost is expected to be recognized over the weighted average remaining contractual term of
2.3 years
Performance Restricted Stock Units
A performance restricted stock unit is similar to a restricted stock unit, except that the number of shares of
common stock awarded is based on a performance condition and the completion of the requisite service period.
The number of shares of common stock that may be earned ranges from 0% to 150% of the number of
performance restricted stock units granted. Performance restricted stock units are classified as equity.
Compensation cost is based on the Company’s stock price on the grant date and an assessment of the
probable outcome of the performance condition. Compensation cost is recognized on a straight-line basis over
the service period of the entire award. Changes in the performance condition probability assessment result in
cumulative catch-up adjustments to the compensation cost recognized. Dividend equivalents on performance
restricted stock units, which are accrued until vested, are classified as dividends charged to retained earnings.
During the year ended December 31, 2021, the total grant date fair value of the performance restricted stock
units granted was $603,000, based on the grant date closing prices. Performance conditions are based on
either the average annual return on average tangible common equity during the performance period or average
loan balances for a specified geographic region during the performance period, with downward adjustments if
certain credit quality criteria are not maintained.
The following is a summary of performance restricted stock unit activity:
Balance, December 31, 2018
Granted
Vested
Forfeited
Balance, December 31, 2019
Granted
Vested
Forfeited
Balance, December 31, 2020
Granted
Vested
Forfeited
Balance, December 31, 2021
Performance
Restricted
Stock Units
Weighted
Average
Grant Date
Fair Value
— $
—
—
—
— $
—
—
—
— $
38,344
—
—
38,344
$
—
—
—
—
—
—
—
—
—
15.72
—
—
15.72
As of December 31, 2021, unrecognized compensation cost related to non-vested performance restricted stock
units was $579,000, based on the current assessment of the probable outcome of the performance condition.
This cost is expected to be recognized over the weighted average remaining contractual term of 2.5 years.
141
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
The following is a summary of outstanding stock appreciation rights activity:
Balance, December 31, 2018
Granted
Exercised
Expired
Forfeited
Balance, December 31, 2019
Granted
Exercised
Expired
Forfeited
Balance, December 31, 2020
Granted
Exercised
Expired
Forfeited
Balance, December 31, 2021
Stock
Appreciation
Rights
91,800
110,160
(91,800)
—
—
110,160
—
—
—
(4,590)
105,570
—
(6,120)
(1,530)
—
97,920
Weighted
Average
Grant Date
Assigned Value
5.73
16.32
5.73
—
—
16.32
—
—
—
16.32
16.32
—
16.32
16.32
—
16.32
$
$
$
$
A further summary of outstanding stock appreciation rights as of December 31, 2021, is as follows:
Stock Appreciation Rights
Weighted Average
Remaining
Grant Date Assigned Values
$ 16.32
Outstanding Exercisable Contractual Term
85,680
7.2 years
97,920
As of December 31, 2021, unrecognized compensation cost related to non-vested stock appreciation rights was
$56,000.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2021 and 2020, the liability recorded for outstanding stock appreciation rights was
$485,000 and $272,000, respectively. 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, 2021 December 31, 2020
1.40 %
35.52 %
7.7
3.20 %
0.80 %
34.72 %
8.7
3.96 %
As of December 31, 2021, the liability recorded for previously exercised stock appreciation rights was $797,000,
which will be paid in three remaining equal annual installments. As of December 31, 2020, the liability recorded
for previously exercised units was $1,087,000.
NOTE 22 – REGULATORY CAPITAL
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. Additionally, 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.
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, 2021 and 2020, the capital conservation buffer was 2.5%of risk-weighted assets.
As of December 31, 2021, 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, 2021
Amount
Ratio
Amount
Ratio
(dollars in thousands)
Actual
For Capital
Adequacy
Purposes
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Amount
Ratio
Total Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.
Heartland Bank and Trust Company
Tier 1 Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.
Heartland Bank and Trust Company
Common Equity Tier 1 Capital (to Risk
Weighted Assets)
Consolidated HBT Financial, Inc.
Heartland Bank and Trust Company
Tier 1 Capital (to Average Assets)
Consolidated HBT Financial, Inc.
Heartland Bank and Trust Company
December 31, 2020
Total Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.
Heartland Bank and Trust Company
Tier 1 Capital (to Risk Weighted Assets)
$ 479,320
452,162
16.88 % $ 227,115
226,950
15.94
8.00 %
8.00
N/A
$ 283,688
N/A
10.00 %
$ 416,068
428,226
14.66 % $ 170,336
170,213
15.09
6.00 %
6.00
N/A
$ 226,950
N/A
8.00 %
$ 379,519
428,226
13.37 % $ 127,752
127,659
15.09
4.50 %
4.50
N/A
$ 184,397
N/A
6.50 %
$ 416,068
428,226
9.84 % $ 169,171
169,070
10.13
4.00 %
4.00
N/A
$ 211,337
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
$ 426,283
382,511
17.40 % $ 195,970
195,787
15.63
8.00 %
8.00
N/A
$ 244,733
N/A
10.00 %
Consolidated HBT Financial, Inc.
Heartland Bank and Trust Company
$ 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 and Trust Company
Tier 1 Capital (to Average Assets)
Consolidated HBT Financial, Inc.
Heartland Bank and Trust Company
$ 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 %
144
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 23 – 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, 2021 and 2020. 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, 2021
Debt securities available-for-sale:
U.S. Treasury
U.S. government agency
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Corporate
Equity securities with readily determinable fair values
Mortgage servicing rights
Derivative financial assets
Derivative financial liabilities
December 31, 2020
Debt securities available-for-sale:
U.S. government agency
Municipal
Mortgage-backed:
Agency residential
Agency commercial
Corporate
Equity securities with readily determinable fair values
Mortgage servicing rights
Derivative financial assets
Derivative financial liabilities
Level 1
Inputs
Level 2
Inputs
(dollars in thousands)
Level 3
Inputs
Total
Fair Value
$
$ 108,976
—
—
— $ — $ 108,976
128,105
297,077
—
—
128,105
297,077
—
—
—
3,443
—
—
—
179,466
164,061
64,483
—
—
8,697
9,377
—
—
—
—
7,994
—
—
179,466
164,061
64,483
3,443
7,994
8,697
9,377
Level 1
Inputs
Level 2
Inputs
(dollars in thousands)
Level 3
Inputs
Total
Fair Value
$ — $ 121,993
274,261
—
$ — $ 121,993
274,261
—
—
—
—
3,292
—
—
—
203,252
250,766
72,597
—
—
15,360
16,818
—
—
—
—
5,934
—
—
203,252
250,766
72,597
3,292
5,934
15,360
16,818
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, 2020 to December 31, 2021.
145
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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.
146
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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, 2021
Mortgage servicing rights
Fair Value Valuation Technique Unobservable Inputs
$ 7,994
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 88.9% (11.7%)
9.0% to 11.0% (9.0%)
Range
(Weighted Average)
7.0% to 85.0% (17.3%)
9.0% to 11.0% (9.0%)
December 31, 2020
Mortgage servicing rights
Fair Value Valuation Technique
Discounted cash
$ 5,934
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, 2021
Loans held for sale
Collateral-dependent impaired loans
Bank premises held for sale
Foreclosed assets
December 31, 2020
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)
$
$ — $ 4,942
—
—
—
—
—
—
— $ 4,942
22,423
1,452
3,278
22,423
1,452
3,278
Total
Fair Value
Level 1
Inputs
Level 3
Inputs
Level 2
Inputs
(dollars in thousands)
$
$ — $ 14,713
—
—
—
—
—
—
— $ 14,713
33,320
121
4,168
33,320
121
4,168
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.
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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, 2021
Collateral-dependent impaired
loans
Bank premises held for sale
Foreclosed assets
December 31, 2020
Collateral-dependent impaired
loans
Bank premises held for sale
Foreclosed assets
Other Fair Value Methods
Fair
Value
Valuation
Technique
Unobservable Inputs
Range
(Weighted
Average)
$ 22,423 Appraisal of collateral Appraisal adjustments Not meaningful
1,452
3,278
Appraisal
Appraisal
Appraisal adjustments
Appraisal adjustments
Fair
Value
Valuation
Technique
Unobservable Inputs
7% (7%)
7% (7%)
Range
(Weighted
Average)
$ 33,320 Appraisal of collateral Appraisal adjustments Not meaningful
121
4,168
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 marketplace. 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.
149
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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.
150
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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
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, 2021
December 31, 2020
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
(dollars in thousands)
Estimated
Fair Value
Level 1
Level 2
Level 3
Level 3
Level 3
Level 2
$
409,268
336,185
2,739
2,475,753
$
409,268
336,027
2,739
2,494,686
$
312,451
68,395
2,498
2,215,168
$
312,451
72,441
2,498
2,235,767
1,165
14,901
1,165
14,901
1,165
14,255
1,165
14,255
Level 3
328,208
327,779
299,474
300,989
Level 2
Level 3
Level 3
Level 2
61,256
39,316
37,714
1,043
61,256
41,602
33,640
1,043
45,736
39,238
37,648
1,151
45,736
38,403
23,766
1,151
The Company estimated the fair value of lending related commitments as described in Note 24 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 24 – 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.
Such commitments and conditional obligations were as follows as of December 31:
Contractual Amount
December 31, 2021 December 31, 2020
Commitments to extend credit
Standby letters of credit
$
(dollars in thousands)
$
609,947
12,960
530,191
10,031
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
151
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
2022
2023
2024
2025
Total
Legal Contingencies
$
$
167
131
81
33
412
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.
NOTE 25 – RELATED PARTY TRANSACTIONS
Loans
As of December 31, 2021 and 2020, loans to directors, executive officers, principal shareholders and their
affiliated entities (related parties) amounted to $2,633,000 and $3,072,000, 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 $4,023,000 and $2,596,000 as of December 31, 2021 and 2020,
respectively.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 26 – CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
Following are the condensed financial statements of HBT Financial, Inc. (Parent only).
Condensed Parent Company Only Balance Sheets
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
December 31, 2021 December 31, 2020
$
$
$
$
(dollars in thousands)
25,752
$
44,149
461,339
1,165
1,283
489,539
39,316
37,714
628
77,658
411,881
489,539
$
$
$
397,201
1,165
1,140
443,655
39,238
37,648
2,852
79,738
363,917
443,655
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
153
2021
Years ended December 31
2020
(dollars in thousands)
2019
$ 20,000
—
$ 17,600
36
$ 109,969
385
41,227
—
454
61,681
22,462
(36)
215
40,277
(41,202)
(151)
52
69,053
3,305
3,741
7,046
54,635
(1,636)
$ 56,271
2,189
2,519
4,708
35,569
(1,276)
$ 36,845
$
1,922
1,025
2,947
66,106
(759)
66,865
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
Net gain on sale of foreclosed assets
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
Proceeds from sale of foreclosed assets
Net cash paid for acquisition of NXT Bancorporation, Inc.
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 (used in) provided by financing activities
2021
$ 56,271
Year ended December 31
2020
(dollars in thousands)
$
$ 36,845
(41,227)
764
(22,426)
351
144
(74)
(2,231)
13,647
92
—
1,633
16,495
—
—
(48)
74
(10,411)
(10,385)
—
—
(4,906)
(16,753)
(21,659)
—
—
(17)
—
—
(17)
39,211
—
—
(16,518)
22,693
2019
66,865
41,353
—
66
—
(1,912)
106,372
(17,000)
(100)
—
—
—
(17,100)
—
138,493
—
(224,956)
(86,463)
2,809
2,169
4,978
NET CHANGE IN CASH AND EQUIVALENTS
CASH AND CASH EQUIVALENTS
Beginning of year
End of year
(18,397)
39,171
44,149
$ 25,752
4,978
$ 44,149
$
154
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, 2021, 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, 2021. 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, 2021 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, 2021
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
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ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
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 2022 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, 2021 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)
166,760
—
166,760
$
$
16.74
—
16.74
Number of
Securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (A)) (C)
1,633,015
—
1,633,015
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.
156
Table of Contents
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.
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 90.
(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
157
Table of Contents
Exhibit No.
Description
2.1
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 §
Agreement and Plan of Merger between HBT Financial, Inc., HB-NXT Merger, Inc. and NXT
Bancorporation, Inc. dated June 7, 2021 (incorporated by reference to Exhibit 2.1 to the Company’s Current
Report on Form 8-K, filed with the Commission on June 7, 2021).
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).
158
Table of Contents
10.13 §
Form of Director Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.15 to the
Company’s Annual Report on Form 10-K, filed with the Commission on March 12, 2021).
10.14 § *
Form of Restricted Stock Unit Award Agreement.
10.15 § *
Form of Performance 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
iXBRL Instance Document.
101.SCH
iXBRL Taxonomy Extension Schema Document.
101.CAL
iXBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB
iXBRL Taxonomy Extension Label Linkbase Document.
101.PRE
iXBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF
iXBRL Taxonomy Extension Definition Linkbase Document.
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
*
**
§
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.
159
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 11, 2022
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/ Roger A. Baker
Roger A. Baker
/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
Chairman and Chief Executive Officer
(Principal executive officer)
Executive Vice President and Chief Financial
Officer (Principal financial officer and principal
accounting officer)
Director
Director
Director
Executive Vice President, Chief Lending
Officer and Director
Date
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
President, Chief Operating Officer and Director
March 11, 2022
Director
Director
Director
160
March 11, 2022
March 11, 2022
March 11, 2022
EXHIBIT 10.14
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 (this “Agreement” or “Award
Agreement”).
Governing Plan: HBT Financial, Inc. Omnibus Incentive Plan (the “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, together with accrued Dividend Equivalents, in the future,
subject to the terms of this Agreement.
Earning and
Payment:
Subject to the terms of this Agreement, the RSUs will become vested and payable as follows, as long as
you do not have a Separation from Service before the applicable vesting date:
Vesting Date
% of RSUs 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; Rights as Stockholders.
(a)
You will have no rights or privileges of a Stockholder as to the Shares underlying the RSUs before
Settlement under Section 5 below, 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(a) 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, vest and become payable under the terms set
forth in the table at the beginning of this Agreement or as provided in Section 4 below.
4.
Forfeiture; Qualifying Separation; Retirement; Change in Control.
(a)
Except as otherwise provided in the remainder of this Section 4, 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 vesting 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.
(b)
If you incur a Separation from Service due to your death or a Disability (such Separation from
Service a “Qualifying Separation”) prior to [●], then 100% of your unvested RSUs shall become vested RSUs. The
RSUs which become vested pursuant to this Section 4(b) will be payable in accordance with Section 5 below.
(c)
If you incur a Separation from Service due to your Retirement on or after [●] and prior to [●], then
your unvested RSUs will not terminate and will instead continue to vest under the terms set forth in the table at the
beginning of this Agreement as if you had not incurred a Separation from Service. For purposes of this Award
Agreement, “Retirement” means your Separation from Service for any reason other than a Qualifying Separation or
termination for Cause if:
(i)
you are (A) at least 55 years of age and have at least 15 years of continuous service with the
Company and its Affiliates, or (B) at least 60 years of age and have at least five years of such continuous service;
and
(ii)
you have provided for an orderly transition of your duties to a successor as determined by
the Committee, including by: (A) providing notice that you are considering retirement sufficiently in advance
2
(generally at least 90 days unless the Committee approves a shorter period) of your anticipated retirement date; and
(B) assisting with the transition of your duties to a successor.
In addition, as a condition for your Separation from Service to qualify as a Retirement, on or effective on the date of
your Retirement, you will be required to enter into an agreement with the Company (the “Post-Retirement
Agreement”) providing that during the period following your Retirement in which unvested RSUs are outstanding
and for one year after the date the last of such unvested RSUs become vested (the “Post-Retirement Restricted
Covenant Period”), you will comply with and not violate any of the restrictive covenants (the “Post-Retirement
Restrictive Covenants”) set forth on Schedule 1 of this Agreement or any post-employment covenant applicable to
you under an Employment Agreement or other agreement in effect with, or policy of, the Company or any of its
Affiliates (any such violation a “Post-Retirement Violation”). Without limiting any other provision of this
Agreement, including Section 10(i), if a Post-Retirement Violation occurs during the Post-Retirement Restricted
Covenant Period (A) any unvested RSUs will immediately terminate and be forfeited in their entirety and (B) any
Shares received upon vesting of RSUs after the date of your Retirement will be subject to repayment to the
Company (either the actual Shares or the current value thereof).
(d)
If a Change in Control occurs prior to the date the RSUs become vested under the terms set forth in
the table at the beginning of this Agreement, and you incur a Separation from Service due to a Qualifying
Separation, Retirement, without Cause or for Good Reason upon such Change in Control or within the 24 months
after the Change in Control, but prior to the date all of the RSUs have become vested, then any RSUs (or a
Substitute Award as described below, as the case may be) which are then unvested shall become vested in full on the
date of such Separation from Service and will be payable in accordance with Section 5 below. If your Separation
from Service occurs for any other reason (including for Cause or without Good Reason (other than Retirement))
upon or within the 24 months after such Change in Control but prior to the time that all of the RSUs (or a Substitute
Award, as the case may be) have become vested, then the unvested RSUs (or a Substitute Award, as the case may
be) shall be immediately forfeited and all of your rights hereunder shall terminate.
(e)
For purposes of this Award Agreement, a Separation from Service “without Cause” means
termination of your employment by the Company or any Subsidiary without Cause, and “for Good Reason” means
your resignation from employment for Good Reason. If you are a party to an employment agreement with the
Company or any Subsidiary (such agreement, the “Employment Agreement”), the determination of whether your
employment terminated “without Cause” or “for Good Reason” shall be determined in accordance with the terms of
your Employment Agreement, including but not limited to provisions relating to involuntary termination or words of
similar import. If you do not have an Employment Agreement with the Company or any Subsidiary with such
terms, then the following terms shall apply:
(i)
“Cause” shall have the meaning ascribed to it in the Plan.
(ii)
“Good Reason” shall mean the occurrence of any event, other than in connection with
termination of your employment by the Company or any Subsidiary, which results in (1) a material diminution of
your principal duties or responsibilities from those in effect immediately prior to the Change in Control, including,
without limitation, a significant change in the nature or scope of your principal duties or responsibilities, such that
your duties or responsibilities are inconsistent with those immediately prior to the Change in Control, and
commonly (in the banking industry) considered to be of lesser responsibility; or (2) a material diminution of your
total compensation from that immediately prior to the Change in Control; or (3) you being required to be based at an
office or location which is more than 35 miles from your office or location immediately prior to the Change in
Control. Notwithstanding the foregoing, in order for your resignation for Good Reason to occur, (x) you must
provide written notice of the Good Reason event to the Company or its subsidiary within 30 days after the initial
existence of such event, (y) the Company or its subsidiary must not have cured such condition within 30 days of
receipt of your written notice or the Company or Subsidiary must have stated unequivocally in writing that it does
not intend to attempt to cure such condition and (z) you must resign from employment at the end of the period
3
within which the Company or Subsidiary was entitled to remedy the condition constituting Good Reason but failed
to do so.
(f)
A Change in Control shall not, by itself, result in acceleration of vesting or payment of the unvested
RSUs, except as provided in this Section (4)(f).
(i)
Upon a Change in Control, the unvested RSUs will become earned and vest in full upon the
date of the Change in Control and become payable on the first regular payroll day following the Change in Control
unless another award meeting the requirements of this Section (4)(f) (a “Substitute Award”) is provided to you to
replace this Award (the “Original Award”). The earned RSUs represented by such Substitute Award, if applicable,
shall continue to vest and become payable as provided in Section 3, subject to earlier vesting in accordance with
Section 4(b) and 4(d), above.
(ii)
An award shall meet the requirements of this Section (4)(f), and thereby qualify as a
Substitute Award, if the following conditions are met:
(1)
the award has a value at least equal to the value of the Original Award;
(2)
the award relates to publicly traded equity securities of the Company or its
successor following the Change in Control or another entity that is affiliated with the
Company or its successor following the Change in Control; and
(3)
the other terms and conditions of the award are not less favorable to you
than the terms and conditions of the Original Award, including the vesting provisions of
Section 4(d) above (except that in the event of a subsequent Change in Control of the
Company or its successor, the Substitute Award shall be fully vested and freely transferable
upon such subsequent Change in Control).
Without limiting the generality of the foregoing, a Substitute Award may take the form of a continuation of the
Original Award if the requirements of the preceding sentence are satisfied. The determination of whether the
conditions of this Section 4 are satisfied shall be made by the Committee, as constituted immediately before the
Change in Control, in its sole discretion.
Settlement of RSUs. Delivery of Shares or payment of other amounts (“Settlement”) which become vested
5.
and payable under this Agreement will be subject to the following:
(a)
The Company will deliver to you one Share for each RSU that has become vested, and any
Dividend Equivalents with respect thereto shall be 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.
4
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.
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); provided that you will be permitted to elect
to have the Company withhold from the Shares and any Dividend Equivalents otherwise payable to you under this
Award the amounts necessary to satisfy such withholding obligations as described in said Section 14.5 of the Plan.
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) occurring
7.
after the Grant Date, the adjustment terms of that section will apply to the Award.
8.
Bound by Plan and Committee Decisions. By accepting the Award, you acknowledge that you have 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.
9.
Regulatory and Other Limitations. Notwithstanding anything else in this Agreement, the 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.
5
(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 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 online 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
acknowledge that you are relying solely on your own advisors regarding the tax consequences of the Award.
6
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:
7
Sign name:
Print name:
Title:
PERFORMANCE RSU AWARD AGREEMENT
HBT FINANCIAL, INC. OMNIBUS INCENTIVE PLAN
HBT Financial, Inc. (the “Company”) grants to the Participant named below (“you”) the number of performance
restricted stock units (“PRSUs”) set forth below (the “Award” or “PRSU Award”), under this PRSU Award
Agreement (this “Agreement” or “Award Agreement”).
EXHIBIT 10.15
Governing Plan: HBT Financial, Inc. Omnibus Incentive Plan (the “Plan”)
Defined Terms: As set forth in the Plan, unless otherwise defined in this Agreement
Participant:
[Name]
Grant Date:
[Date]
Target Number
of PRSUs:
[●] (the “target number of PRSUs”)
Definition of
PRSU:
Each PRSU earned entitles you to receive one Share, together with accrued Dividend Equivalents, in the
future subject to the terms of this Agreement.
Performance
Period:
Earning and
Payment:
[●] through [●] (the “Performance Period”)
Subject to the terms of the Agreement, the number of PRSUs which may earned and become vested and
payable is as follows:
If average annual ROATCE for the
Performance Period, as determined in
accordance with Exhibit A is:
PRSUs Earned and Payable
(% of target number of PRSUs)
[●]% or greater
150%
[●]% or more, but less than [●]%
25% to 150% depending upon relative performance
as determined in accordance with Exhibit A to this
Agreement
Less than [●]%
0%
1.
Grant of PRSUs.
PRSU 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.
Rights as Stockholder..
(a)
You will have no rights or privileges of a Stockholder as to the Shares underlying the PRSUs before
Settlement under Section 5 below, 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 PRSUs 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 PRSUs or any rights under the PRSUs before Settlement;
(iii)
you will forfeit all of the PRSUs and all of your rights under the PRSUs will terminate in
their entirety on the terms set forth in Section 4(a) and Section 10(j) below; and
(iv)
each earned PRSU 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 will be accumulated and will vest and be paid
in the same form (cash or stock) at the same time as such earned PRSUs vest and are paid.
(b)
Any attempt to dispose of the PRSUs or any interest in the PRSUs in a manner contrary to the terms
of this Agreement will be void and of no effect.
Vesting. Earned PRSUs, if any, determined in accordance with this Agreement will vest on [ ● ] (the “[ ● ]
3.
Vesting Date”), subject to Section 4 below.
4.
Effect of Separation from Service; Forfeiture; Change in Control.
(a) Except as otherwise provided in the remainder of this Section 4, if (i) you incur a Separation from
Service prior to the [●] Vesting Date (for the avoidance of doubt, which does not otherwise result in the immediate
or continued earning and payment of the PRSUs), (ii) you materially breach this Agreement or (iii) you fail to meet
the tax withholding obligations described in Section 6 below, all of your rights to the PRSUs will terminate
immediately and be forfeited in their entirety.
(b) Except as provided in the following paragraphs of this Section 4, if you incur a Separation from Service
due to your death or a Disability (such Separation from Service a “Qualifying Separation”) on or prior to [●], then
a percentage of your target number of PRSUs shall remain outstanding and may become earned and vested PRSUs,
and the remainder of your target number of PRSUs shall be forfeited and will not become earned or vested after
such Separation from Service. In the event of such Qualifying Separation, the percentage of your target number of
PRSUs that will remain outstanding and eligible to become earned and vested will be equal to the product of (i) the
2
target number of PRSUs multiplied by (ii) a fraction, the numerator of which is the number of whole months that
have elapsed from [●] to the date your Qualifying Separation and the denominator of which is 36; provided, that if at
the time of your Qualifying Separation you had satisfied the Retirement Age and Service Requirement (as defined in
Section 4(c) below), then such product shall be 100% of your target number of PRSUs. Such product shall become
your target number PRSUs for purposes of determining the number of earned PRSUs under Exhibit A, if any,
following the end the of the Performance Period. Your earned PRSUs, if any, will vest and become payable in
Shares on the [●] Vesting Date.
(c) If you incur a Separation from Service due to your Retirement on or after [●] and prior to the [●] Vesting
Date, then your target number of PRSUs shall remain outstanding and may become earned and vested PRSUs after
such Separation from Service and such target number PRSUs shall apply for purposes of determining the number of
earned PRSUs under Exhibit A, if any, following the end the of the Performance Period. Your earned PRSUs, if any,
will vest and become payable in Shares on the [ ● ] Vesting Date. For purposes of this Award Agreement,
“Retirement” means your Separation from Service for any reason other than a Qualifying Separation or termination
for Cause if:
(i)
you are (A) at least 55 years of age and have at least 15 years of continuous service with the
Company and its Affiliates, or (B) at least 60 years of age and have at least five years of such continuous service
(the “Retirement Age and Service Requirement”); and
(ii)
you have provided for an orderly transition of your duties to a successor as determined by
the Committee, including by: (A) providing notice that you are considering retirement sufficiently in advance
(generally at least 90 days unless the Committee approves a shorter period) of your anticipated retirement date; and
(B) assisting with the transition of your duties to a successor.
In addition, as a condition for your Separation from Service to qualify as a Retirement, on or effective on the date of
your Retirement, you will be required to enter into an agreement with the Company (the “Post-Retirement
Agreement”) providing that during the period following your Retirement in which unvested PRSUs are outstanding
and for one year after the date any of such PRSUs become vested (the “Post-Retirement Restricted Covenant
Period”), you will comply with and not violate any of the restrictive covenants (the “Post-Retirement Restrictive
Covenants”) set forth on Schedule 1 or any post-employment covenant applicable to you under an Employment
Agreement or other agreement in effect with, or policy of, the Company or any of its Affiliates (any such violation a
“Post-Retirement Violation”). Without limiting any other provision of this Agreement, including Section 10(i), if a
Post-Retirement Violation occurs during the Post-Retirement Restricted Covenant Period (A) any unvested PRSUs
will immediately terminate and be forfeited in their entirety and (B) any Shares received upon vesting of the PRSUs
after the date of your Retirement will be subject to repayment to the Company (either the actual Shares or the
current value thereof).
(d) Except as provided in the following paragraphs of this Section 4, if you incur a Separation from Service
after [●] but prior to the [●] Vesting Date due to a Qualifying Separation, or without Cause or for Good Reason, then
100% of your target number of PRSUs shall remain outstanding and may become earned PRSUs and vest and
become payable on the [●] Vesting Date as if such Separation from Service had not occurred.
(e) If a Change in Control occurs prior to [●] and you incur a Separation from Service due to a Qualifying
Separation, Retirement, without Cause or for Good Reason upon such Change in Control or within the 24 months
after the Change in Control, but prior to the date all of the earned PRSUs have become vested, then any earned
PRSUs (or a Substitute Award as described below, as the case may be) which are then unvested shall vest in full on
the date of such Separation from Service and become immediately payable. If your Separation from Service occurs
for any other reason (including for Cause or without Good Reason (other than Retirement) upon or within the
24 months after such Change in Control but prior to the time that all of the earned PRSUs (or a Substitute Award,
3
as the case may be) have become vested, then the unvested earned PRSUs (or a Substitute Award, as the case may
be) shall be immediately forfeited and all of your rights hereunder shall terminate.
(f) For purposes of this Award Agreement, a Separation from Service “without Cause” means termination of
your employment by the Company or any Subsidiary without Cause, and “for Good Reason” means your
resignation from employment for Good Reason. If you are a party to an employment agreement with the Company
or any Subsidiary (such agreement the “Employment Agreement”), the determination of whether your employment
terminated “without Cause” or “for Good Reason” shall be determined in accordance with the terms of your
Employment Agreement, including but not limited to provisions relating to involuntary termination or words of
similar import. If you do not have an Employment Agreement with the Company or any Subsidiary with such
terms, then the following terms shall apply:
(i)
“Cause” shall have the meaning ascribed to it in the Plan.
(ii)
“Good Reason” shall mean the occurrence of any event, other than in connection
with termination of your employment by the Company or any Subsidiary, which results in (1) a material
diminution of your principal duties or responsibilities from those in effect immediately prior to the Change
in Control, including, without limitation, a significant change in the nature or scope of your principal duties
or responsibilities, such that your duties or responsibilities are inconsistent with those immediately prior to
the Change in Control, and commonly (in the banking industry) considered to be of lesser responsibility, or
(2) a material diminution of your total compensation from that immediately prior to the Change in Control
or (3) you being required to be based at an office or location which is more than 35 miles from your office
or location immediately prior to the Change in Control. Notwithstanding the foregoing, in order for your
resignation for Good Reason to occur, (x) you must provide written notice of the Good Reason event to the
Company or its subsidiary within 30 days after the initial existence of such event, (y) the Company or its
subsidiary must not have cured such condition within 30 days of receipt of your written notice or the
Company or Subsidiary must have stated unequivocally in writing that it does not intend to attempt to cure
such condition; and (z) you must resign from employment at the end of the period within which the
Company or Subsidiary was entitled to remedy the condition constituting Good Reason but failed to do so.
(g) In the event of a Change in Control after the completion of the Performance Period on [●], but prior to the
[●] Vesting Date, the earned PRSUs will continue to vest and become payable as provided above.
(h) In the event and concurrently with the effectiveness of a Change in Control during the Performance
Period, the Performance Period shall end and the number of earned PRSUs shall be determined in accordance with
Exhibit A. The earned PRSUs shall vest and become payable as provided in Section 4(i) below.
(i) A Change in Control shall not, by itself, result in acceleration of vesting or payment of the earned PRSUs,
except as provided in this Section (4)(i).
(i)
Upon a Change in Control, the earned PRSUs (as determined in accordance with
Exhibit A) will vest in full upon the date of the Change in Control and become payable on the first regular
payroll day following the Change in Control unless another award meeting the requirements of this Section
(4)(i) (a “Substitute Award”) is provided to you to replace this Award (the “Original Award”). The
earned PRSUs represented by such Substitute Award, if applicable, shall continue to vest and become
payable as provided in Section 3 and Section 4(b) and (d), subject to earlier vesting in accordance with
Section 4(e), above.
(ii)
An award shall meet the requirements of this Section (4)(i), and thereby qualify as a
Substitute Award, if the following conditions are met:
4
(1)
the award has a value at least equal to the value of the Original Award;
(2)
the award relates to publicly traded equity securities of the Company or its
successor following the Change in Control or another entity that is affiliated with the Company or
its successor following the Change in Control; and
(3)
the other terms and conditions of the award are not less favorable to you
than the terms and conditions of the Original Award, including the vesting provisions of Section
4(d) above (except that in the event of a subsequent Change in Control of the Company or its
successor, the Substitute Award shall be fully vested and freely transferable upon such subsequent
Change in Control).
Without limiting the generality of the foregoing, a Substitute Award may take the form of a continuation of
the Original Award if the requirements of the preceding sentence are satisfied. The determination of
whether the conditions of this Section 4 are satisfied shall be made by the Committee, as constituted
immediately before the Change in Control, in its sole discretion.
Settlement of PRSUs. Delivery of Shares or payment of other amounts (“Settlement”) which become
5.
vested and payable under this Agreement will be subject to the following:
(a)
The Company will deliver to you one Share and the accrued Dividend Equivalents with respect
thereto for each earned PRSU within 15 days after the date the earned PRSU has become vested and payable (the
2024 Vesting Date or such earlier date as provided in Section 4(d) or 4(h) above).
(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 a
PRSU 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.
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); provided that you will be permitted to
5
elect to have the Company withhold from the Shares and any Dividend Equivalents otherwise payable to you under
this Award the amounts necessary to satisfy such withholding obligations as described in said Section 14.5 of the
Plan. The PRSUs 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) occurring
7.
after the Grant Date, the adjustment terms of that section will apply to the Award.
8.
Bound by Plan and Committee Decisions. By accepting the Award, you acknowledge that you have 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 Committee may
9.
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 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.
6
(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
PRSUs 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 PRSUs 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 online 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
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 PRSU
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:
7
Exhibit A to Performance RSU Award Agreement
References herein to “Award Agreement” shall mean the Performance RSU Award Agreement to which this
Exhibit is attached and references to “Participant” means you.
(1)
Definitions. For purposes of this Exhibit A, the following terms will have the meanings set forth
below:
(a)
may be adjusted as described therein.
“Comparison Group” means the companies listed on Appendix 1 to this Exhibit A, as
(b)
“S&P Global” means S&P Global Market Intelligence (sometimes referred to as SNL)
or any successor organization designated by the Committee, and “as reported by S&P Global” means
comparative financial data for an applicable period as defined and reported by S&P Global based upon publicly
reported financial information.
(c)
(d)
“Performance Period” means the three-year period commencing [●] and ending [●].
“Calendar Year” means each of the calendar years [●] (or a portion thereof as may be
applicable under this Exhibit A).
(e)
“Calendar Year ROATCE” means ROATCE for the applicable Calendar Year.
(f)
“ROATCE”, as applied to the Company or any company in the Comparison Group,
means with respect to any specified period net income, adjusted for tax-affected amortization of intangibles, as a
percent of average tangible common equity, for such period as reported by S&P Global. If during a period a
company: (i) files for bankruptcy, reorganization or liquidation under any chapter of the U.S. Bankruptcy Code;
(ii) is the subject of an involuntary bankruptcy proceeding that is not dismissed within 30 days; (iii) is the
subject of a stockholder approved plan of liquidation or dissolution; or (iv) ceases to conduct substantial
business operations other than by virtue of a merger, consolidation, share exchange or similar transaction, then
the ROATCE for that company for such period will be negative one hundred percent (-100%).
(g)
“AAROATCE” means, as applied to the Company or any company in the Comparison
Group, the average Calendar Year ROATCE for the Calendar Years in the Performance Period; provided that in
the event of a Change in Control during the Performance Period, the Average Calendar Year ROATCE shall be
determined for the number of full Calendar Years in the Performance Period that have elapsed as of the calendar
quarter end immediately preceding the Change in Control (the “Measurement Quarter End”); provided,
however, that for this purpose the Calendar Year including the Measurement Quarter End shall be treated as a
full Calendar Year and the Calendar Year ROATCE for such year shall be determined by annualizing the net
income through the Measurement Quarter End and dividing that amount by the average tangible common equity
during such Calendar Year through the Measurement Quarter End.
(h)
Other Capitalized Terms. All capitalized terms used but not otherwise defined in this
Exhibit A shall have the same definitions stated in the Award Agreement or the Plan, as applicable.
(2)
Average Annual ROATCE Performance Goal.
(a)
Performance Goal. The Performance Goal applicable to the PRSU Award is average
annual return on tangible common equity or AAROATCE during the Performance Period.
Exhibit A – Page 1
(b)
Determination of Achievement Relative to Performance Criteria. Following the end of
the Performance Period, the Committee will determine the level of the AAROATCE performance goal achieved
by the Company. Performance at or above the threshold level set forth below will result in PRSUs becoming
earned (“earned PRSUs”). The determination of the level of the AAROATCE performance goal achieved and
the number of earned PRSUs shall occur no later than 60 days after the end of the Performance Period. Such
determination shall be made as described in Sections 3 through 5 below. Earned PRSUs will vest as set forth in
the Award Agreement. The PRSUs will be forfeited and cancelled in full if the Company’s performance during
the Performance Period does not meet or exceed the threshold. To the extent the earned PRSUs are less than the
target numbers of PRSUs, such unearned PRSUs shall be forfeited and cancelled.
(3)
Calculation. For purposes of this Exhibit A, the number of PRSUs which shall become earned
PRSUs will be calculated as follows:
(a)
FIRST: Determine the AAROATCE for the Performance Period for the Company and
for each other company in the Comparison Group. If the AAROATCE for the Company is:
(i)
[ ● ]% or greater, then the number of earned PRSUs shall be 150% of the target
number of PRSUs granted under the PRSU Award;
(ii)
Less than [●]%, then the number of earned PRSUs shall be 0% of the target number
of PRSUs granted under the PRSU Award; or
(iii)
[ ● ]% or greater, but less than [ ● ]%, the number of earned PRSUs shall be
determined in accordance with the second and third steps below.
(b)
SECOND: Rank the AAROATCE values determined in the first step from low to high
(with the company having the lowest AAROATCE being ranked number 1, the company with the second lowest
Average Calendar Year ROATCE Percentile ranked number 2, and so on) and determine the Company’s
AAROATCE percentile rank (expressed as a percentage) by dividing the Company’s rank by the total number of
companies (including the Company) in the list and rounding the quotient to the nearest hundredth. For example,
if the Company’s, number rank is 14 on a list of 22 companies (including the Company), the Company’s
percentile rank would be 63.63%, reflecting the fact that the AAROATCE value for 13 companies was lower
than the Company’s AAROATCE value.
(c)
THIRD: Plot the percentile rank for the Company determined in the second step into
the appropriate band in the left-hand column of the table below and determine the number of PRSUs earned as a
percent of the number of the target number of PRSUs, which is the figure in the right-hand column of the table
below corresponding to that percentile rank. Use linear interpolation between points in the table below to
determine the percentile rank and the corresponding percent of the target number of PRSUs earned if the
Company’s percentile rank is greater than 25% and less than 75% but not exactly one of the percentile ranks
listed in the left-hand column. For example, if the Company’s percentile rank is 63.63%, then the number of
earned PRSUs would be equal to 127.36% of the target number of PRSUs.
PERCENTILE RANK
<25%
25%
50%
75% or above
PERCENT OF TARGET NUMBER OF PRSUS EARNED
25%
50%
100%
150%
(4)
Rules. The following rules apply to the computation of the number of PRSUs earned:
Exhibit A – Page 2
(a)
No Guaranteed Payout. The minimum number of PRSUs that may be earned is zero and
the maximum number of PRSUs which may be earned is 150% of the target number of PRSUs.
(b)
Committee Discretion. In determining the level of AAROATCE achieved, and the
resulting number of earned PRSUs, the Committee may, in its sole discretion, (i) make equitable adjustments in
the determination of the Company’s ROATCE for any period as the Committee may deem appropriate in
recognition of certain events affecting the Company or its financial statements, in response to changes in
applicable laws, accounting principles or policies, or to account for items of gain, loss or expense determined to
be extraordinary, uncommon or unusual in nature or infrequent in occurrence, or related to the divestiture of
assets or a business segment or related to a change in accounting principles, or other events or transactions
comparable to the foregoing; (ii) make adjustments to the ROATCE for any period reported by S&P Global for
the Company or any company in the Comparison Group as the Committee may deem appropriate to correct
errors or inconsistencies in such reported amounts and (iii) determine, or direct that an alternative method be
used to determine, the ROATCE for any period for the Company or any company in the Comparison Group to
the extent such amount has not been reported by S&P Global or is otherwise unavailable (which alternative
method may include excluding a company from the Comparison Group to the extent its ROATCE is not
reasonably determinable).
(5)
Effect of Certain Events. The following provisions will apply in the event the Participant incurs a
Separation of Service or the occurrence of a Change in Control:
(a)
Termination of Employment Prior to a Change in Control. The effect of a Separation
from Service prior to a Change in Control shall be governed by Section 4 of the Award Agreement to which this
Exhibit A is a part.
(b)
Effect of Change in Control. In the event of a Change in Control, the number of PRSUs
that shall be earned shall be calculated and determined by the Committee as follows:
FIRST: If the Performance Period has not been completed, there shall be determined the number of PRSUs
that would be earned if the Performance Period was the period that began on [●] and ended on the effective date of
the Change in Control. The Compensation Committee shall determine the number of PRSUs earned in accordance
with Sections 1(c) and 3 of this Exhibit A. Notwithstanding the foregoing, if the number of earned PRSUs so
determined is less than 100% of the target number of PRSUs, the number of earned PRSUs shall be equal to the
target number of PRSUs.
SECOND: If the Performance Period has been completed, then the number of earned PRSUs shall be equal
to the number determined in accordance with Sections 1(c) and 3 of this Exhibit A.
The Earned PRSUs shall vest and be payable in accordance with Section 4 of the Award Agreement.
Exhibit A – Page 3
Appendix 1 to Exhibit A to Performance RSU Award Agreement
Comparison Group
[●]
Companies shall be removed from the Comparison Group if they undergo a Specified Corporate Change. A
company that is removed from the Comparison Group before the end of a Performance Period will not be included
at all in the calculation of the percentile rank of the Company’s AAROATCE for the Performance Period.
A company in the Comparison Group will be deemed to have undergone a “Specified Corporate Change” if it:
(i)
ceases to be a domestically domiciled publicly traded company on a national stock exchange or
market system, unless such cessation of such listing is due to a low stock price or low trading volume; or
(ii)
has gone private; or
(iii)
has reincorporated in a foreign (e.g., non-U.S.) jurisdiction, regardless of whether it is a reporting
company in that or another jurisdiction; or
(iv)
has been acquired or merged, or has announced a transaction whereby it will be acquired by or
merged, into another company (whether by another company in the Comparison Group or otherwise, but not
including internal reorganizations), or has sold or will sell all or substantially all of its assets.
The Committee may rely on press releases, public filings, website postings and other reasonably reliable information
available regarding a company in the Comparison Group in making a determination that a Specified Corporate
Change has occurred.
Subsidiaries of the Registrant
EXHIBIT 21.1
Subsidiary of HBT Financial, Inc.
Heartland Bank and Trust Company (Illinois)
Subsidiary of Heartland Bank and Trust Company
Heartland Real Estate Holdings, 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 11, 2022, 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, 2021.
/s/ RSM US LLP
Chicago, Illinois
March 11, 2022
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 11, 2022
/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 11, 2022
/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, 2021 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 11, 2022
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, 2021 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 11, 2022