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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, 2022
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. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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 $177.6 million, determined using a per share closing price for the registrant’s common stock on that date of $17.87, as
quoted on The Nasdaq Global Select Market.
As of February 15, 2023, there were 32,145,546 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 2023 Annual Meeting of Stockholders
of HBT Financial, Inc. to be filed within 120 days of December 31, 2022.
DOCUMENTS INCORPORATED BY REFERENCE
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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, 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:
● the strength of the local, state, national and international economies (including effects of inflationary
pressures and supply chain constraints);
● the economic impact of any future terrorist threats and attacks, widespread disease or pandemics
(including the COVID-19 pandemic in the United States), acts of war or other threats thereof, or other
adverse external events that could cause economic deterioration or instability in credit markets, and the
response of the local, state and national governments to any such adverse external events;
● our asset quality and any loan charge-offs;
● the composition of our loan portfolio;
● environmental liability associated with our lending activities;
● the effects of changes in interest rates on our net interest income, net interest margin, our investments,
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 the London Interbank Offered Rate (“LIBOR”);
● our access to sources of liquidity and capital to address our liquidity needs;
● our inability to receive dividends from the Bank, pay dividends to our common stockholders or satisfy
obligations as they become due;
● the effects of problems encountered by other financial institutions;
● our ability to achieve organic loan and deposit growth and the composition of such growth;
● our ability to attract and retain skilled employees or changes in our management personnel;
● any failure or interruption of our information and communications systems;
● our ability to identify and address cybersecurity risks;
● the effects of the failure of any component of our business infrastructure provided by a third party;
● our ability to keep pace with technological changes;
● our ability to successfully develop and commercialize new or enhanced products and services;
● current and future business, economic and market conditions in the United States (“U.S.”) generally or
in the States of Illinois and Iowa in particular;
● the geographic concentration of our operations in the States of 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;
● our ability to maintain the Bank’s reputation;
● possible impairment of our goodwill and other intangible assets;
● the impact of, and changes in applicable laws, regulations and accounting standards and policies;
● unexpected outcomes of existing or new litigation involving the Company, including the proposed
settlement of the legal actions discussed in “Note 23 – Commitments and Contingencies – Legal
Contingencies” to the consolidated financial statements;
● our prior status as an S corporation;
● possible changes in trade, monetary and fiscal policies of, and other activities undertaken by,
governments, agencies, central banks and similar organizations;
● the effectiveness of our risk management and internal disclosure controls and procedures;
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● market perceptions associated with certain aspects of our business;
● our ability to meet our obligations as a public company, including our obligations under Section 404 of
the Sarbanes-Oxley Act of 2002;
● damage to our reputation from any of the factors described above;
● our success at managing the risks involved in the foregoing items; and
● the factors discussed 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, 2022, we had total assets of $4.3 billion, loans held for investment of $2.6 billion, and total
deposits of $3.6 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.
TOWN AND COUNTRY FINANCIAL CORPORATION ACQUISITION
On February 1, 2023, HBT Financial completed its acquisition of Town and Country Financial Corporation
(“Town and Country”), the holding company for Town and Country Bank. The acquisition of Town and Country
further enhanced HBT Financial’s footprint in Central Illinois and expanded our footprint into metro-east St.
Louis. At the time of acquisition, Town and Country Bank operated ten full-service branch locations which began
operating as branches of Heartland Bank. The core system conversion is expected to occur in April 2023.
As of December 31, 2022, Town and Country Bank had total assets of $923.1 million, total loans of
$662.0 million, and total deposits of $762.2 million. This acquisition is a subsequent event and the financial
results of Town and Country are not recognized in this Form 10-K.
Total consideration consisted of 3.4 million shares of HBT Financial’s common stock and $38.0 million in cash.
Based upon the closing price of HBT Financial common stock of $21.12 on February 1, 2023, the aggregate
consideration was approximately $109.4 million.
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NXT BANCORPORATION, INC. ACQUISITION
On October 1, 2021, HBT Financial completed its acquisition of NXT Bancorporation, Inc. (“NXT”), the holding
company for NXT Bank. The acquisition expanded our footprint into Eastern Iowa with four locations that began
operating as branches of Heartland Bank following the merger and systems 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.
Total consideration consisted of 1.8 million shares of HBT Financial’s common stock and $10.6 million in cash.
Based upon the closing price of HBT Financial common stock of $16.27 on October 1, 2021, the aggregate
consideration was approximately $39.9 million. Goodwill of $5.7 million was recorded 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.
The acquisition of NXT provided an opportunity to utilize our excess liquidity at the time 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.
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 prudent, 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.
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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
loans
include both owner-occupied and non-owner occupied one-to-four
These
family homes and
condominiums. They consist of first mortgage amortizing loans, second mortgage amortizing loans, and home
equity lines of credit. These loans primarily consist of loans originated by our lenders through our branch
network on properties in the communities that we serve.
Deposit Products and Services
We offer traditional bank deposit account services as well as digital banking services tailored to meet the needs
of today's deposit consumers. Our deposit accounts consist of noninterest-bearing demand deposits, interest-
bearing transaction accounts, money market accounts, savings accounts, certificates of deposits, HSA, and IRA
accounts. Our digital banking services include online banking, mobile banking, digital payments, and personal
financial management tools. We also provide commercial checking accounts and related services such as
treasury management.
Wealth Management
Our wealth management division provides financial planning to consumers, trusts, and estates; trustee and
custodial services; investment management; corporate retirement plan consulting and administration; and retail
brokerage services. Further, our agriculture services department operates under our wealth management
division and provides farm management services and brokers farmland sales and crop insurance throughout
our markets.
Residential Mortgage Origination and Servicing
We originate one-to-four family residential mortgage loans and generally sell those loans in the secondary
market. Loans are originated by our mortgage lenders within our branch network. To a lesser extent, we
purchase loans originated by other banks that are in turn sold into the secondary market. We sell conventional
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
As of December 31, 2022, our branch network included 54 full-service 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
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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 loan growth opportunities
in attractive markets. We consider ourselves to be well positioned to meet the needs of commercial and retail
customers through our branch network, comprehensive suite of banking and wealth management products, and
our commitment to high-touch customer service.
BUSINESS STRATEGY
We intend to pursue the following strategies that we believe will continue to drive growth while maintaining our
high levels of asset quality and profitability:
Preserve Strong Ties to our Communities
Our community banking approach stems from our Midwestern values—hard work; perseverance; and doing the
right things for our customers, staff, stockholders, and communities. Our senior management team lives and
works in the communities we serve, and our commitment to delivering banking products and services that
support the needs of our target customers enables us to preserve and grow share in our markets. The quality of
our comprehensive suite of products and services coupled with our relationship-based approach to banking
contribute meaningfully to our growth and success.
Deploy Excess Deposit Funding into Loan Growth Opportunities
Our strong market share in our core mid-sized markets 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.
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HUMAN CAPITAL RESOURCES
Employees
At December 31, 2022, we had 711 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, 2022, our average tenure was 8.5 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.
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.
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.
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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 strong competition for new loan production, including competitive pressures on loan rates
and terms. Competition for deposit customers was minimal in 2020 and 2021, given the excess liquidity at most
financial institutions, but increased substantially during 2022, as the Federal Reserve started to raise short-term
interest rates. Continued loan and deposit 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.
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
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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.
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.
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
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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.
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.
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, 2022: (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, 2022, 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.
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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.
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.
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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.
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
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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.
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.
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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 DIF balance divided by estimated insured deposits. In response to the global financial
crisis, the Dodd-Frank Act increased the minimum reserve ratio from 1.15% to 1.35% of the estimated amount
of total insured deposits. Prior to the COVID-19 pandemic, the reserve ratio briefly exceeded the statutory
threshold, but because of extraordinary insured deposit growth caused by an unprecedented inflow of deposits
during the COVID-19 pandemic, the reserve ratio fell below 1.35% and continues to be below the threshold.
The FDIC staff closely monitors the factors that affect the reserve ratio, and, in order to raise the reserve ratio to
1.35% by September 30, 2028, the FDIC increased the initial deposit insurance rates by two basis points,
beginning with the first quarterly assessment period of 2023. As a result of this change, the Bank’s FDIC
insurance assessment will increase beginning in 2023.
The DIF balance was $125.5 billion on September 30, 2022, up $1.0 billion from the end of the second quarter.
The reserve ratio remained at 1.26%, 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, 2022, the Bank paid supervisory assessments to the IDFPR totaling $0.4 million.
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
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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.
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
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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
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.
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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 May 2022, the bank regulatory agencies issued a notice of proposed rulemaking called the Joint Proposal to
Strengthen and Modernize Community Reinvestment Act Regulations (the “CRA Proposal”). The CRA Proposal
is designed to update how CRA activities qualify for consideration, where CRA activities are considered, and
how CRA activities are evaluated. More specifically, the bank regulatory agencies described the goals of the
CRA Proposal as follows: (i) to expand access to credit, investment, and basic banking services in low and
moderate income communities; (ii) to adapt to changes in the banking industry, including mobile and internet
banking by modernizing assessment areas while maintaining a focus on branch based areas; (iii) to provide
greater clarity, consistency, and transparency in the application of the regulations through the use of
standardized metrics as part of CRA evaluation and clarifying eligible CRA activities focused on low and
moderate income communities and under–served rural communities; (iv) to tailor CRA rules and data collection
to bank size and business model; and (v) to maintain a unified approach among the regulators. A final rule has
not yet been issued.
In 2022, the Bank, like all Illinois chartered banks, became subject to state level CRA standards, following
passage of the Illinois Community Reinvestment Act (the “Illinois CRA”). This means that, in addition to the
federal CRA review, Bank will be reviewed by the IDFPR to assess the Bank’s record of meeting the credit
needs of its communities. Like the potential impact under the federal CRA, applications for additional
acquisitions or activities would be affected by the evaluation of the Bank’s effectiveness in meeting its Illinois
CRA requirements.
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.
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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).
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,
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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, 2022, 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
● 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
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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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, experience a 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. In general, these risks have increased as a result of the recent increases in prevailing interest
rates and uncertainties associated with inflation, which have potentially increased the risk of a near-term decline
in growth or an economic downturn.
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 credit 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 credit losses may prove to be insufficient to absorb potential losses in our loan
portfolio.
As of and prior to December 31, 2022, the Company estimated and established an allowance for loan losses
using an incurred loss method which considered historical losses and qualitative adjustments for current
conditions. Effective January 1, 2023 and after, with the adoption of ASU 2016-13 which is commonly referred
to as the current expected credit losses (“CECL”) model, our allowance for credit losses will be estimated using
a lifetime expected loss method which considers historical losses, qualitative adjustments for current conditions,
and reasonable and supportable forecasts. Under the CECL model, we are required to present certain financial
assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the
net amount expected to be collected. The CECL model also requires that an allowance for credit losses be
established for any unfunded loan commitments that are not cancelable. The measurement of expected credit
losses requires significant use of management judgments and is based on information from past events,
including historical experience, current conditions, and reasonable and supportable forecasts that affect the
collectability of the reported amount. This measurement takes place at the time the financial asset is first added
to the balance sheet and periodically thereafter. This differs significantly from the incurred loss model previously
required under accounting principles generally accepted in the United States of America (“GAAP”), which
delayed recognition until it is probable a loss has been incurred. Accordingly, the adoption of the CECL model
materially affected how we determine our allowance for credit losses and could require us to significantly
increase our allowance in future periods. Moreover, the CECL model may create more volatility in the level of
the allowance for credit losses.
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Although management believes that its credit loss estimates are appropriate, such estimates may prove to be
insufficient. As a result, we may be required to recognize additional provisions for credit losses in the future to
further supplement the allowance for credit losses, either due to management’s decision or because our
banking regulators require us to do so. 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 mid-sized 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 mid-sized borrowers may be disproportionately affected and their
ability to repay outstanding loans may be negatively affected, resulting in an adverse effect on our results of
operations and financial condition.
We depend on the accuracy and completeness of information about customers and counterparties.
In deciding whether to extend credit or enter into other transactions, and in evaluating and monitoring our loan
portfolio on an ongoing basis, we may rely on information furnished by or on behalf of customers and
counterparties, including financial statements, credit reports and other financial information. We may also rely
on representations of those customers or counterparties or of other third parties, such as independent auditors,
as to the accuracy and completeness of that information. Reliance on inaccurate, incomplete, fraudulent or
misleading financial statements, credit reports or other financial or business information, or the failure to receive
such information on a timely basis, could result in credit 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 real estate values may change significantly in relatively short periods of time (especially in periods of
heightened economic uncertainty). Therefore, 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.
We also 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 credit losses may not be accurate. This could have a material adverse
effect on our business, financial condition or results of operations.
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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 the vast majority of 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. For example, the
cumulative effects of decreased economic activity, changes in the economy and overall business environment,
and labor availability shortages have adversely affected some of our commercial and regulatory CRE loans.
This trend may continue or worsen for certain portions of our loan portfolio, depending on the strength of the
economy and other factors. Accordingly, a downturn in the real estate market or 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 commercial operating loans are primarily
made based on the identified cash flow of the borrower and secondarily on the collateral underlying the loans.
Most often, this collateral consists of accounts receivable, inventory and equipment. Inventory and equipment
may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the
business. If the cash flow from business operations is reduced, the borrower’s ability to repay the loan may be
impaired. Due to the larger average size of each commercial loan as compared with other loans such as
residential loans, as well as collateral that is generally less readily-marketable, losses incurred on a small
number of commercial or regulatory CRE loans could have a material adverse impact on our financial condition
and results of operations. Additionally, as a result of the recent increase in interest rates and other factors, we
have started to observe a decline in the value of some commercial real estate securing these loans.
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. 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
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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. The success of our agricultural loans, and
commercial loans serving the agriculture industry, may be adversely affected by many factors outside the
control of the borrower, including:
● adverse weather conditions, adverse impacts of climate change, 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.
Although we attempt to account for the possibility of such factors in underwriting, structuring and monitoring our
agriculture loans, there is no guarantee that our efforts will be successful. As a result, we may experience
increased delinquencies or defaults in this portfolio or be required to increase our provision for credit losses,
which could have an adverse effect on our business, financial condition and results of operations.
Additionally, we provide farm management advice, engage in farmland sale services, and arrange for crop
insurance as part of our wealth management services. Decreases in commodity prices or lower crop yields may
result in a decrease in wealth management fees collected for our agricultural services.
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 are 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. 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 prepayments on our
loan and securities portfolio. A decrease in the general level of interest rates may, among other things,
decrease
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our net interest margin and increase prepayments on our loan and securities portfolios. Although our asset-
liability management strategy is designed to control and mitigate exposure to the risks related to changes in
market interest rates, those rates are affected by many factors outside of our control, including governmental
monetary policies, inflation, deflation, recession, changes in unemployment, the money supply, international
disorder and instability in domestic and foreign financial markets.
We may seek to mitigate our interest rate risk by entering into interest rate swaps and other interest rate
derivative contracts from time to time with counterparties. Our hedging strategies rely on assumptions and
projections regarding interest rates, asset levels and general market factors and subject us to counterparty risk.
There is no assurance that our interest rate mitigation strategies will be successful and if our assumptions and
projections prove to be incorrect or our hedging strategies do not adequately mitigate the impact of changes in
interest rates, we may incur losses that could adversely affect our earnings.
The value of the financial instruments we own may decline in the future.
An increase in market interest rates may affect the fair value of our securities portfolio, potentially reducing
accumulated other comprehensive income and/or earnings. The fair value of these investments may also be
affected by factors other than the underlying performance of the issuer of the securities or the mortgages
underlying the securities, such as changes in the interest rate environment, negative trends in the residential
and commercial real estate markets, ratings downgrades, adverse changes in the business climate and a lack
of liquidity for certain investment securities. In addition, we may determine to sell securities in our available-for-
sale investment securities portfolio, and any such sale could cause us to realize currently unrealized losses that
resulted from the recent increases in the prevailing interest rates.
Additionally, an increase in market interest rates may reduce the value of our loan portfolio, although, in
accordance with GAAP, such a decline in value may not be reflected in the carrying balance of our loans in the
same manner as our debt securities available-for-sale.
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 to the federal funds target 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.
In the current environment, economic and business conditions are significantly affected by U.S. monetary policy,
particularly the actions of the Federal Reserve in its effort to fight elevated levels of inflation. The Federal
Reserve is mandated to pursue the goals of maximum employment and price stability, and beginning in March
2022 it made a series of significant increases to the target Federal Funds rate as part of an effort to combat
elevated levels of inflation affecting the U.S. economy. This has helped drive a significant increase in prevailing
interest rates and, while this increased our net interest income, it also lead to $105.5 million of unrealized losses
in the available-for-sale debt securities portfolio during the year ended December 31, 2022, which has
negatively affected our tangible book value per share. Higher interest rates can also negatively affect our
customers’ businesses and financial condition, and the value of collateral securing loans in our portfolio.
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Given the complex factors affecting the strength of the U.S. economy, including uncertainties regarding the
persistence of inflation, geopolitical developments such as the war in Ukraine and resulting disruptions in the
global energy market, the effects of the pandemic in China, and tight labor market conditions and supply chain
issues, there is a meaningful risk that the Federal Reserve and other central banks may raise interest rates too
much, thereby limiting economic growth and potentially causing an economic recession. As noted above, this
could decrease loan demand, harm the credit characteristics of our existing loan portfolio and decrease the
value of collateral securing loans in the portfolio.
RISKS RELATED TO REFERENCE RATE REFORM
We may be adversely impacted by the transition from LIBOR as a reference rate.
The United Kingdom Financial Conduct Authority (the “FCA”), the authority that regulates LIBOR, ceased to
publish the 1-week and 2-month U.S. dollar LIBOR at the end of 2021, with the remaining U.S. dollar LIBOR
rates 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 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.
The Alternative Reference Rates Committee (the "ARRC") has selected 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
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our correspondent banks, and through other wholesale funding sources including brokered certificates of
deposits or deposits placed with the Certificate of Deposit Account Registry Service. Our access to funding
sources in amounts adequate to finance or capitalize our activities or on terms that are acceptable to us could
be impaired by factors that affect us directly or the financial services industry or economy in general, such as
disruptions in the financial markets or negative views and expectations about the prospects for the financial
services industry. In addition, increased competition with the largest banks and Fintechs for retail deposits may
impact our ability to raise funds through deposits and could have a negative effect on our liquidity. For example,
as customer deposit levels have decreased over the past year, we have observed that the sensitivity of market
deposit rates to changes in prevailing interest rates has increased.
Any decline in available funding could adversely impact our ability to continue to implement our business plan,
including originating loans, investing in securities, meeting our expenses or fulfilling obligations such as
repaying our borrowings and meeting deposit withdrawal demands, any of which could have a material adverse
impact on our liquidity, business, financial condition and results of operations.
We may need to raise additional capital in the future, and such capital may not be available when
needed or at all.
We may need to raise additional capital, in the form of debt or equity securities, in the future to have sufficient
capital resources to meet our commitments and our regulatory requirements, and to fund our business needs
and future growth, particularly if the quality of our assets or earnings were to deteriorate significantly. Our ability
to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at
that time, which are outside of our control, and our financial condition. We may not be able to obtain capital on
acceptable terms or at all. Any occurrence that may limit our access to capital, such as a decline in the
confidence of debt purchasers, depositors of the Bank or counterparties participating in the capital markets or
other disruption in capital markets, may adversely affect our capital costs and our ability to raise capital and, in
turn, our liquidity. Further, if we need to raise capital in the future, we may have to do so when many other
financial institutions are also seeking to raise capital and would then have to compete with those institutions for
investors. In particular, if we were required to raise additional capital in the current interest rate environment, we
believe the pricing and other terms investors may require in such an offering may not be attractive to us. 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 are interconnected as a result of trading, investment, liquidity management, clearing,
counterparty and other relationships. Concerns about, or a default by, one institution could lead to significant
liquidity problems and losses or defaults by other institutions, as the commercial and financial soundness of
many financial institutions is closely related as a result of these credit, trading, clearing and other relationships.
Even the perceived lack of creditworthiness of, or questions about, a counterparty may lead to market-wide
liquidity problems and losses or defaults by various institutions. This systemic risk may adversely affect financial
intermediaries with which we interact on a daily basis or key funding providers such as the FHLB, any of which
could have a material adverse effect on our access to liquidity or otherwise have a material adverse effect on
our business, financial condition or results of operations.
Loss of customer deposits could increase our funding costs.
We rely on deposits as a low cost and stable source of funding. We compete with banks and other financial
services companies for deposits. If our competitors raise the rates they pay on deposits, our funding costs may
increase, either because we raise our rates to avoid losing deposits or because we lose deposits and must rely
on more expensive sources of funding. Higher funding costs could reduce our net interest margin and net
interest income and could have a material adverse effect on our business, financial condition, and results of
operations.
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TECHNOLOGY AND CYBERSECURITY RISKS
The occurrence of fraudulent activity, breaches or failures of our information security controls or
cybersecurity-related incidents could have a material adverse effect on our business, financial
condition or results of operations.
As a financial institution, we are susceptible to fraudulent activity, information security breaches and
cybersecurity-related incidents that may be committed against us or our customers, which may result in
financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client
information, misappropriation of assets, privacy breaches against our customers, litigation or damage to our
reputation. Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud,
phishing, social engineering and other dishonest acts. Information security breaches and cybersecurity-related
incidents may include fraudulent or unauthorized access to systems used by us or our customers, denial or
degradation of service attacks, and malware or other cyber-attacks. There continues to be a rise in electronic
fraudulent activity, security breaches and cyber-attacks within the financial services industry, especially in the
commercial banking sector due to cyber criminals targeting commercial bank accounts. Moreover, several large
corporations, including financial institutions and retail companies, have suffered major data breaches, in some
cases exposing not only confidential and proprietary corporate information, but also sensitive financial and other
personal information of their customers and employees and subjecting them to potential fraudulent activity.
Some of our customers may have been affected by these breaches, which could increase their risks of identity
theft and other fraudulent activity that could involve their accounts with us.
We also face risks related to cyber-attacks and other security breaches in connection with debit card and credit
card transactions that typically involve the transmission of sensitive information regarding our customers
through various third parties, including retailers and payment processors. Some of these parties have in the
past been the target of security breaches and cyber-attacks, and because the transactions involve third parties
and environments such as the point of sale that we do not control or secure, future security breaches or cyber-
attacks affecting any of these third parties could affect us through no fault of our own. In some cases, we may
have exposure and suffer losses for breaches or attacks relating to them, including costs to replace
compromised debit and credit cards and to address fraudulent transactions.
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 secure 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 and card
processing systems. The failure of these systems, or the termination of a third-party software license or service
agreement on which any of these systems is based, could interrupt our operations. Because our information
technology and telecommunications systems interface with and depend on third-party systems, we could
experience service denials if demand for such services exceeds capacity or such third-party systems fail or
experience interruptions. If sustained or repeated, a system failure or service denial could result in a
deterioration of our ability to process loans or gather deposits and provide customer service, compromise our
ability to operate effectively, result in potential noncompliance with applicable laws or regulations, damage our
reputation, result in a loss of customer business and/or subject us to additional regulatory scrutiny and possible
financial liability, any of which could have a material adverse effect on our financial condition and results of
operations. In addition, failure of third parties to comply with applicable laws and regulations, or fraud or
misconduct on the part of employees of any of these third parties, could disrupt our operations or adversely
affect our reputation.
It may also 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,
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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.
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
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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,
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
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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 was 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 on
our ability to make dividend payments and other capital distributions and to pay discretionary bonuses to
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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
the CFPB. The FDIC has the primarily responsibility for supervising and examining the Bank’s compliance with
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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 intensified in recent years,
with regulators and prosecutors focusing on a variety of financial institution practices and requirements,
including foreclosure, overdraft fees, compliance with applicable consumer protection laws, and compliance
with anti-money laundering statutes, the BSA and sanctions administered by the Office of Foreign Assets
Control of the Treasury.
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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.
See “Note 23 – Commitments and Contingencies – Legal Contingencies” to the consolidated financial
statements for additional information regarding certain legal actions and litigation to which we are subject,
including a discussion of potential losses and related accruals.
The preparation of our consolidated financial statements requires us to make estimates and judgments,
which are subject to an inherent degree of uncertainty and which may differ from actual results.
Our consolidated financial statements are prepared in accordance with GAAP, which requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosure of contingent assets and liabilities. Some accounting policies, such as those pertaining to our
allowance, require the application of significant judgment by management in selecting the appropriate
assumptions for calculating financial estimates. By their nature, these estimates and judgments are subject to
an inherent degree of uncertainty and actual results may differ from these estimates and judgments under
different assumptions or conditions, which may have a material adverse effect on our financial condition or
results of operations in subsequent periods.
From time to time, the FASB and the SEC change the financial accounting and reporting standards or the
interpretation of those standards that govern the preparation of our external financial statements. In addition,
trends in financial and business reporting, including environmental social and governance (“ESG”) related
disclosures, could require us to incur additional reporting expense. These changes are beyond our control, can
be difficult to predict and could materially impact how we report our financial condition and 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
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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 maintain 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.
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;
● the failure to realize some or all of the anticipated transaction benefits within the expected time frame,
or ever;
● 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."
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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. This competition could increase prices for potential acquisitions, which could reduce our
potential returns and reduce the attractiveness of these opportunities to us.
RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK
Our principal stockholder, Heartland Bancorp, Inc. Voting Trust U/A/D 5/4/2016, has significant influence
over us, and its interests could conflict with those of our other stockholders.
As of December 31, 2022, our principal stockholder, Heartland Bancorp, Inc. Voting Trust U/A/D 5/4/2016 (“the
Voting Trust”), owned approximately 59.9% 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 may 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
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● the requirement that executive and officer compensation matters be decided solely by independent
directors.
Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to
all of the Nasdaq corporate governance requirements.
Our ability to continue to pay dividends to our stockholders is restricted by applicable laws and
regulations and by the ability of our subsidiaries to pay dividends to us.
Holders of our common stock are only entitled to receive such cash dividends as our board, in its sole
discretion, may declare out of funds legally available for such payments. Any decision to declare and pay
dividends will be dependent on a variety of factors, including our financial condition, earnings, legal
requirements, our general liquidity needs, and other factors that our board deems relevant. As a bank holding
company, our ability to declare and pay dividends to our stockholders is subject to certain banking laws,
regulations, and policies, including minimum capital requirements and, as a Delaware corporation, we are
subject to certain restrictions on dividends under the DGCL. In addition, we are a separate legal entity, and,
accordingly, our ability to pay dividends depends primarily upon the receipt of dividends or other capital
distributions from the Bank. The ability of the Bank to make distributions or pay dividends to us is subject to its
earnings, financial condition, and liquidity needs, as well as federal and state laws, regulations, and policies
applicable to the Bank, which limit the amount the Bank can pay as dividends or other capital distributions to us.
Finally, our ability to pay dividends to our stockholders, or the Bank’s ability to pay dividends or other
distributions to us, may be limited by covenants in any financing arrangements that we or the Bank may enter
into in the future. See “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. The shares of our common stock held by each of our executive officers and
directors and the trustee of the Voting Trust 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 until the end of the fiscal year following the
fifth anniversary of the completion of our initial public offering, which is December 31, 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 $1.235 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 contain provisions that may make
the acquisition of the Company more difficult without the approval of our board of directors. These provisions:
● authorize the issuance of undesignated preferred stock, the terms of which may be established and the
shares of which may be issued without stockholder approval, and which may include super voting,
special approval, dividend or other rights or preferences superior to the rights of the holders of common
stock;
● prohibit stockholder action by written consent, requiring all stockholder actions be taken at a meeting of
our stockholders, if the Voting Trust ceases to own more than 35% of our outstanding common stock;
● provide that the board of directors is expressly authorized to make, alter or repeal our amended and
restated bylaws;
● establish advance notice requirements for nominations for elections to our board of directors or for
proposing matters that can be acted upon by stockholders at stockholder meetings; and
● prohibit stockholders from calling special meetings of stockholders.
These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a
transaction involving a change in control of the Company, even if doing so would benefit our stockholders.
These provisions could also discourage proxy contests and make it more difficult for you and other stockholders
to elect directors of your choosing and to cause us to take other corporate actions you desire.
Furthermore, banking laws impose notice, approval and ongoing regulatory requirements on any stockholder or
other party that seeks to acquire direct or indirect "control," as defined under applicable law, of an FDIC-
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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; climate change; acts of terrorism or war; or a combination of these or other factors.
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The COVID-19 pandemic could continue to have adverse effects on our business.
The COVID-19 pandemic has had a significant economic impact on the communities in which we operate, our
borrowers and depositors, and the national economy generally. These effects have diminished in the past year,
but future developments and uncertainties will be difficult to predict, such as the potential emergence of a new
variant, the course of the pandemic in China and other major economies, the persistence of pandemic-related
work and lifestyle changes, changes in consumer preferences associated with the emergence of the pandemic,
and other market disruptions. Any such developments could have a complex and negative effect on our
business, including with respect to the prevailing economic environment, our lending and investment activities,
and our business operations.
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, elevated inflation harms consumer purchasing power, which could negatively affect our retail
customers and the economic environment and, ultimately, many of our business customers, and could also
negatively affect our levels of non-interest expense. In addition, if interest rates continue to rise in response to
elevated levels of inflation, the value of our securities and loan portfolios may be negatively impacted.
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, and potential government actions
affecting the labor force. Although we have not experienced any material labor shortage to date, we have
recently observed an overall tightening and 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 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.
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Climate change could have a material negative impact on the Company and our customers.
The Company’s business, as well as the operations and activities of our customers, could be negatively
impacted by climate change. Climate change presents both immediate and long-term risks to the Company and
our customers, and these risks are expected to increase over time. Climate change presents multi-faceted risks,
including, but not limited to:
● operational risk from the physical effects of climate events on the Company and our customers’
facilities and other assets;
● credit risk from borrowers with significant exposure to climate risk;
● legal and regulatory compliance risk as our regulators, investors, and other stakeholders have
increasingly viewed financial institutions as important in helping to address the risks related to climate
change, both directly and with respect to their customers, which may result in financial institutions
coming under increased pressure regarding the disclosure and management of their climate risks and
related lending and investment activities; and
● reputational risk from stakeholder concerns about the Company’s practices related to climate change,
the Company’s carbon footprint, and the Company’s business relationships with clients who operate in
carbon-intensive industries.
The risks associated with climate change are changing and evolving in an escalating fashion, making them
difficult to assess due to limited data and other uncertainties. The Company could experience increased
expenses resulting from strategic planning, litigation, and technology and market changes, and reputational
harm as a result of negative public sentiment, regulatory scrutiny, and reduced investor and stakeholder
confidence due to the Company’s response to climate change and its climate change strategy, which, in turn,
could have a material negative impact on business, results of operations, and financial condition.
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
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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.
Additionally, while we do not offer products relating to digital assets, including cryptocurrencies 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 deposits 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, recordkeeping, 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 15, 2023, HBT Financial, Inc. had approximately 123 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 2022, we paid quarterly cash dividends of $0.16 per share on our common stock. The quarterly cash
dividend was increased to $0.17 per share on January 24, 2023. 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 December 14, 2021, 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 January 1, 2023
(the “2022 Repurchase Plan”). On December 21, 2022, 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, 2024 (the “2023 Repurchase Plan”). The 2023 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 2022:
Period
October 1 - 31, 2022
November 1 - 30, 2022
December 1 - 31, 2022
Total
Average
Price Paid
Total Number
of Shares
Total Number of Shares
Purchased as Part of
Publicly Announced
Purchased Per Share Plans or Programs
—
—
—
—
— $
—
—
— $
— $
—
—
— $
Approximate Dollar Value of
Shares That May Yet be Purchased
Under the Plans or Programs
(in thousands)
10,217
10,217
10,217
10,217 (1)
(1) As of December 31, 2022, there was $10,217,000 left under the 2022 Repurchase Plan, which expired on January 1, 2023. There are
no longer any shares subject to repurchase under the 2022 Repurchase Plan. The 2023 Repurchase Plan took effect upon the
expiration of the 2022 Repurchase Plan, 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, 2022, 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, December 31, December 31, December 31, December 31,
2019
$ 100.00
100.00
100.00
$
2019
122.20
110.74
111.20
$
2020
101.97
132.84
97.80
$
2021
130.55
152.53
132.76
$
2022
141.07
121.36
122.30
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 2022 as compared to 2021 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. We provide 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,
2022, the Company had total assets of $4.3 billion, loans held for investment of $2.6 billion and total deposits of
$3.6 billion.
Market Area
As of December 31, 2022, our branch network included 58 full-service 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 our 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
49
December 31, 2022 December 31, 2021
(dollars in thousands)
$
$
$
$
499,477
235,537
1,294,327
76,690
94,516
117,795
2,318,342
301,911
2,620,253
857,988
218,291
1,216,423
179,923
385,117
597,711
3,455,453
131,571
3,587,024
$
$
$
$
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
Table of Contents
Acquisitions
The Company incurred the following pre-tax acquisition expenses during the years ended December 31:
Salaries
Furniture and equipment
Data processing
Marketing and customer relations
Loan collection and servicing
Legal fees and other noninterest expense
Total acquisition-related expenses
Town and Country Financial Corporation
2022
Year Ended December 31,
2021
(dollars in thousands)
2020
$
$
— $
—
304
—
—
788
1,092
65
18
355
12
11
955
1,416
$
$
—
—
—
—
—
—
—
On February 1, 2023, HBT Financial completed its acquisition of Town and Country Financial Corporation
(“Town and Country”), the holding company for Town and Country Bank. The acquisition of Town and Country
further enhanced HBT Financial’s footprint in Central Illinois and expanded our footprint into metro-east St.
Louis. At the time of acquisition, Town and Country Bank operated ten full-service branch locations which began
operating as branches of Heartland Bank. The core system conversion is expected to occur in April 2023.
As of December 31, 2022, Town and Country Bank had total assets of $923.1 million, total loans of
$662.0 million, and total deposits of $762.2 million. This acquisition is a subsequent event and the financial
results of Town and Country are not recognized in this Form 10-K.
Total consideration consisted of 3.4 million shares of HBT Financial’s common stock and $38.0 million in cash.
Based upon the closing price of HBT Financial common stock of $21.12 on February 1, 2023, the aggregate
consideration was approximately $109.4 million.
NXT Bancorporation, Inc.
On October 1, 2021, HBT Financial completed its acquisition of NXT Bancorporation, Inc. (“NXT”), the holding
company for NXT Bank. The acquisition expanded our 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 $234.1 million, total loans of $194.6 million, and total deposits of $181.6 million.
Total consideration consisted of 1.8 million shares of HBT Financial’s common stock and $10.6 million in cash.
Based upon the closing price of HBT Financial common stock of $16.27 on October 1, 2021, the aggregate
consideration was approximately $39.9 million. Goodwill of $5.7 million was recorded in the acquisition.
The acquisition of NXT provided an opportunity to utilize our excess liquidity at the time 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.
50
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Branch Rationalization Plan
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 estimated 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
$
$
(682)
53
6
7
66
748
Additionally, the Company recognized a net gain on sales of closed branch premises of $0.1 million during the
year ended December 31, 2022.
Paycheck Protection Program Loans
During 2021 and 2020, we funded a total of $290.1 million of Paycheck Protection Program (“PPP”) loans. The
vast majority of those loans have received full forgiveness, and outstanding PPP loans totaled $28 thousand as
of December 31, 2022.
Income recognition for the fees collected at origination, net of associated origination costs, is deferred and
recognized over the loan term on a level yield basis. Recognition of net deferred origination fees is accelerated
upon loan forgiveness or repayment prior to contractual maturity. Net deferred origination fees on PPP loans
recognized as taxable loan interest income totaled $1.5 million, $9.2 million, and $3.0 million during the years
ended December 31, 2022, 2021, and 2020, respectively.
51
Table of Contents
FACTORS AFFECTING OUR RESULTS OF OPERATIONS
Economic Conditions
The Company's business and financial performance are affected by economic conditions generally in the U.S.
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 (including the effect of inflationary pressures and supply chain
constraints), unemployment rates, real estate markets, and interest rates.
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 and market interest rates.
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’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’s actions. Our net interest income is therefore influenced by movements in such interest
rates and the pace at which such movements occur. Generally, we expect increases in market interest rates will
increase our net interest income and net interest margin in future periods, while decreases in market interest
rates may decrease 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 and credit review
processes are strengths that allow us to maintain a high quality loan portfolio, we recognize that credit trends in
the markets in which we operate and in our loan portfolio can materially impact our financial condition and
performance and that these trends are primarily driven by the economic conditions in our markets.
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, FinTechs 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. We have also observed an increase in competition
for deposits during 2022 with increases short-term market interest rates.
52
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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 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 Bank Secrecy Act
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.
FACTORS AFFECTING COMPARABILITY OF FINANCIAL RESULTS
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. The
Company may remain an emerging growth company until the earliest to occur of: (1) the end of the fiscal year
following the fifth anniversary of the completion of our initial public offering, which is December 31, 2024, (2) the
last day of the fiscal year in which the Company has $1.235 billion or more in annual revenues, (3) the date on
which the Company is deemed to be a “large accelerated filer” under the Exchange Act or (4) the date on which
the Company has, during the previous three year period, issued, publicly or privately, more than $1.0 billion in
non-convertible debt securities. 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.
53
Table of Contents
RESULTS OF OPERATIONS
Overview of Recent Financial Results
The following table presents selected financial results and measures for the years ended December 31.
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
Adjusted net income (1)
Net interest income (tax-equivalent basis) (1) (2)
Share and Per Share Information
Earnings per share - Diluted
Adjusted earnings per share - Diluted (1)
As of or for the Year Ended December 31,
2020
2021
2022
(dollars in thousands, except per share amounts)
153,054
7,180
145,874
(706)
146,580
34,717
105,107
76,190
19,734
56,456
55,805
148,373
1.95
1.93
$
$
$
$
128,223
5,820
122,403
(8,077)
130,480
37,328
91,246
76,562
20,291
56,271
56,840
124,431
2.02
2.04
$
$
$
$
124,065
6,460
117,605
10,532
107,073
34,456
91,956
49,573
12,728
36,845
39,734
119,548
1.34
1.44
$
$
$
$
Weighted average shares of common stock outstanding
28,853,697
27,795,806
27,457,306
Summary Ratios
Net interest margin
Net interest margin (tax-equivalent basis) (1) (2)
Yield on loans
Yield on interest-earning assets
Cost of interest-bearing liabilities
Cost of total deposits
Cost of funds
Efficiency ratio
Efficiency ratio (tax-equivalent basis) (1) (2)
Return on average assets
Return on average stockholders' equity
Return on average tangible common equity (1)
Adjusted return on average assets (1)
Adjusted return on average stockholders' equity (1)
Adjusted return on average tangible common equity (1)
3.54 %
3.60
4.91
3.72
0.26
0.07
0.19
3.18 %
3.23
4.68
3.33
0.23
0.07
0.16
57.72 %
56.93
56.46 %
55.76
1.32 %
1.41 %
14.73
16.02
14.81
15.95
1.31 %
1.43 %
14.56
15.83
14.95
16.12
3.54 %
3.60
4.69
3.74
0.29
0.14
0.21
59.66 %
58.91
1.07 %
10.51
11.38
1.15 %
11.33
12.28
(1) See "Non-GAAP Financial Information" for reconciliation of non-GAAP measures to their most closely comparable GAAP measures.
(2) On a tax-equivalent basis assuming a federal income tax rate of 21% and a state income tax rate of 9.5%.
54
Table of Contents
Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021
For the year ended December 31, 2022, net income was $56.5 million increasing by $0.2 million, or 0.3%, when
compared to net income for the year ended December 31, 2021. Notable changes include the following:
● A $23.5 million increase in net interest income, primarily attributable to higher average balances of
interest-earning assets following the NXT acquisition in the fourth quarter of 2021, a more favorable
asset mix, and higher yields on interest-earning assets which more than offset a $7.7 million decrease
in PPP loan fees recognized as loan interest income;
● A $13.9 million increase in noninterest expense, primarily reflecting accruals totaling $8.2 million
related to pending legal matters and a higher base level of noninterest expense following the NXT
acquisition;
● A negative provision for loan losses of $0.7 million was recognized during the year ended
December 31, 2022, compared to a negative provision for loan losses of $8.1 million during the year
ended December 31, 2021; and
● A $4.4 million decrease in gains on sale of mortgage loans, primarily attributable to a lower level of
mortgage refinancing activity due to increases in market interest rates.
Net Interest Income
Net interest income equals the excess of interest income on interest earning assets (including discount
accretion on acquired loans plus certain loan fees) 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.
55
Table of Contents
The following tables set forth average balances, average yields and costs, and certain other information for the
years ended December 31, 2022, 2021, and 2020. 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, 2022
Average
Balance
Interest Yield/Cost
Average
Balance
Year Ended
December 31, 2021
December 31, 2020
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
Cost of funds
$ 2,514,549
1,403,016
197,030
3,529
$
123,478
27,937
1,541
98
4.91 % $ 2,271,544
1,148,900
1.99
422,828
0.78
3,201
2.77
$
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 %
2.27
0.33
2.28
4,118,124
(24,703)
176,452
$ 4,269,873
$ 1,141,402
582,514
650,385
283,232
2,657,533
51,554
26,468
39,355
37,746
2,812,656
1,051,187
22,724
3,886,567
383,306
$ 4,269,873
$ 1,305,468
1.46
$
153,054
3.72 %
$
128,223
3,846,473
(27,999)
162,064
$ 3,980,538
3.33 % 3,318,764
(27,661)
156,397
$ 3,447,500
$ 124,065
3.74 %
$
607
813
208
883
2,511
36
967
1,879
0.05 % $ 1,024,888
521,366
0.14
595,887
0.03
295,788
0.31
2,437,929
0.09
50,104
0.07
1,653
3.65
39,275
4.77
1,787
7,180
$
4.73
0.26 %
37,680
2,566,641
1,004,757
29,060
3,600,458
380,080
$ 3,980,538
$
518
437
188
1,329
2,472
34
9
1,879
1,426
5,820
$
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
37,613
3.79
0.23 % 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 %
0.15
0.04
0.84
0.20
0.10
0.22
4.79
4.18
0.29 %
$
145,874
2,499
$
148,373
3.54 %
0.06
3.60 %
3.46 %
0.07 %
0.19
$ 1,279,832
1.50
$
122,403
2,028
$
124,431
3.18 %
0.05
3.23 %
3.10 %
$ 117,605
1,943
$ 119,548
$ 1,075,827
1.48
0.07 %
0.16
3.54 %
0.06
3.60 %
3.45 %
0.14 %
0.21
(1) Net interest margin represents net interest income divided by average total interest-earning assets.
(2) On a tax-equivalent basis assuming a federal income tax rate of 21% and a state income tax rate of 9.5%.
(3) See "Non-GAAP Financial Information" for reconciliation of non-GAAP measures to their most closely comparable GAAP measures.
(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.
56
Table of Contents
The following table sets forth the components of loan interest income and their contributions to the total yield on
loans.
2022
Yield
Year Ended December 31,
2021
Yield
2020
Yield
Interest
Contribution
Interest
Contribution
Interest
Contribution
Contractual interest
Loan fees (excluding PPP loans)
PPP loan fees
Accretion of acquired loan discounts
Nonaccrual interest recoveries
Net cash flow hedge earnings
Total loan interest income
$
$
113,775
4,454
1,488
933
2,828
—
123,478
4.52 % $
0.18
0.06
0.04
0.11
—
4.91 % $
(dollars in thousands)
90,647
3,840
9,181
1,102
1,514
—
106,284
3.99 % $
0.17
0.40
0.05
0.07
—
4.68 % $
96,543
3,926
2,953
724
986
64
105,196
4.30 %
0.19
0.13
0.03
0.04
—
4.69 %
The following table sets forth the components of net interest income and their contributions to the net interest
margin.
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
Nonaccrual interest recoveries
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)
2022
Net Interest
Margin
Contribution
Interest
Year Ended December 31,
2021
Interest
Net Interest
Margin
Contribution
(dollars in thousands)
2020
Net Interest
Margin
Contribution
Interest
$
$
113,775
34,896
1,541
4,454
1,488
933
2,828
(6,959)
98
153,054
2,687
4,398
95
7,180
145,874
2,499
148,373
2.76 % $
0.85
0.04
0.11
0.04
0.02
0.07
(0.17)
—
3.72
0.07
0.11
—
0.18
3.54
0.06
3.60 % $
90,647
28,426
530
3,840
9,181
1,102
1,514
(7,066)
49
128,223
2,541
2,903
376
5,820
122,403
2,028
124,431
2.35 % $
0.74
0.01
0.10
0.24
0.03
0.04
(0.18)
—
3.33
0.07
0.07
0.01
0.15
3.18
0.05
3.23 % $
96,543
22,920
938
3,926
2,953
724
986
(5,045)
120
124,065
4,201
1,846
413
6,460
117,605
1,943
119,548
2.91 %
0.69
0.03
0.12
0.09
0.02
0.03
(0.15)
—
3.74
0.13
0.06
0.01
0.20
3.54
0.06
3.60 %
(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 closely comparable GAAP measures.
57
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 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, 2022
vs.
Year Ended December 31, 2021
Increase (Decrease) Due to
Volume
Rate
Year Ended December 31, 2021
vs.
Year Ended December 31, 2020
Increase (Decrease) Due to
Total
Volume
(dollars in thousands)
Rate
Total
Interest-earning assets:
Loans
Securities
Deposits with banks
Other
Total interest-earning assets
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand
Money market
Savings
Time
Total interest-bearing deposits
Securities sold under agreements to repurchase
Borrowings
Subordinated notes
Junior subordinated debentures issued to capital trusts
Total interest-bearing liabilities
Change in net interest income
$
$ 11,755
4,977
(418)
7
16,321
5,439
1,612
1,432
27
8,510
$ 17,194
6,589
1,014
34
24,831
$
1,238
7,100
338
15
8,691
$
(150) $ 1,088
3,473
(411)
8
4,158
(3,627)
(749)
(7)
(4,533)
61
56
17
(54)
80
1
694
4
3
782
$ 15,539
$
28
320
3
(392)
(41)
1
264
(4)
358
578
7,932
89
376
20
(446)
39
2
958
—
361
1,360
$ 23,471
$
100
64
43
(171)
36
—
1
1,264
3
1,304
7,387
$
(129)
(229)
(260)
(324)
(8)
(51)
(1,352)
(1,181)
(1,749)
(1,785)
(14)
(14)
7
6
1,263
(1)
(147)
(150)
(1,944)
(640)
(2,589) $ 4,798
Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021
For the year ended December 31, 2022, net interest income was $145.9 million, increasing $23.5 million, or
19.2%, when compared to the year ended December 31, 2021. The increase is primarily attributable to higher
average balances of interest-earning assets following the NXT acquisition and a more favorable asset mix.
These balance changes, as well as higher yields on interest-earning assets driven by recent increases in
benchmark interest rates, more than offset a $7.7 million decrease in PPP loan fees recognized as loan interest
income.
Net interest margin increased to 3.54% for the year ended December 31, 2022 compared to 3.18% for the year
ended December 31, 2021. The contribution of PPP loans to net interest margin decreased to 4 basis points
during the year ended December 31, 2022 from 24 basis points during the year ended December 31, 2021.
This decrease was more than offset by an increase in contractual interest on loans, driven by recent increases
in benchmark interest rates.
58
Table of Contents
The quarterly net interest margins were as follows:
Three months ended:
March 31
June 30
September 30
December 31
2022
2021
2020
3.08 %
3.34
3.65
4.10
3.25 %
3.14
3.18
3.17
4.03 %
3.51
3.39
3.31
In March 2020, the Federal Open Markets Committee (“FOMC”), in response to the economic downturn caused
by the COVID-19 pandemic, lowered the target range for the federal funds rate to 0% to 0.25% and announced
the Federal Reserve would substantially increase its Treasury and agency mortgage-backed securities
holdings. This resulted in a historically low interest rate environment which lasted through the rest of 2020 and
into 2021, putting downward pressure on our net interest margin.
In 2021, the FOMC began to taper the pace of its security purchases, and, in March 2022, the FOMC raised the
target range for the federal funds rate to 0.25% to 0.50%. Since March 2022, the FOMC has raised the target
range for the federal funds rate several times, setting the target range for the federal funds rate to 4.50% to
4.75% at the February 2023 meeting and indicating that the Federal Reserve will continue reducing its security
holdings.
As a result of these developments, market interest rates rose during 2022 which has led to improvements in our
net interest margin. In general, we believe that increases in market interest rates will lead to improved net
interest margins while decreases in market interest rates will result in lower net interest margins. Additionally,
these recent increases in market interest rates have increased competition for deposits. As a result, we expect
deposit costs to increase during 2023 and deposits balances may decrease and be replaced by higher cost
funding sources, such as FHLB advances, brokered deposits, or other wholesale funding.
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).
Credit losses in our loan portfolio are highly dependent on the economic conditions in the communities that we
serve. The broad deterioration in economic conditions initially caused by 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 in our market
areas. During 2022, our allowance for loan losses as a percentage of total loans remained relatively stable,
primarily due to the stable economic conditions observed, as well as the low level of nonperforming loans
maintained, throughout 2022. Potential deterioration of economic conditions, whether due to the COVID-19
pandemic or other factors, may lead to higher credit losses and adversely impact our financial condition and
results of operations.
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Table of Contents
On January 1, 2023, the Company adopted ASU 2016-13 (Topic 326), Measurement of Credit Losses on
Financial Instruments, commonly referenced as the Current Expected Credit Loss (“CECL”) standard.
Management is finalizing macroeconomic conditions and forecast assumptions to be used in our CECL model;
however, we expect the initial allowance for credit losses and the reserve for unfunded commitments together to
be approximately 30% to 50% above the existing allowance for loan loss levels. When finalized, this one-time
increase will be recorded, net of tax, as an adjustment to beginning retained earnings. Ongoing impacts of the
CECL methodology will be dependent upon changes in economic conditions and forecasts, the credit quality of
our loan portfolio, originated and acquired loan portfolio composition, portfolio duration, and other factors.
Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021
The Company recorded a negative provision for loan losses of $0.7 million during the year ended December 31,
2022, compared to a negative provision for loan losses of $8.1 million during the year ended December 31,
2021. During the year ended December 31, 2022, net recoveries of $2.1 million were mostly offset by a
$1.4 million increase in required reserves, which included a $0.7 million increase in specific reserves on loans
individually evaluated for impairment.
Noninterest Income
The following table outlines the amount of and changes to the various noninterest income line items as of the
dates indicated.
2022
$ Change
$ Change
Year Ended December 31,
2021
(dollars in thousands)
$
Card income
Wealth management fees
Service charges on deposit accounts
Mortgage servicing
Mortgage servicing rights fair value adjustment
Gains on sale of mortgage loans
Unrealized gains (losses) on equity securities
Gains (losses) on foreclosed assets
Gains (losses) on other assets
Income on bank owned life insurance
Other noninterest income
Total noninterest income
$ 10,329
9,155
7,072
2,609
2,153
1,461
(414)
(314)
136
164
2,366
$ 34,717
$
$
$
595
771
992
(216)
463
(4,385)
(521)
(624)
859
123
(668)
9,734
8,384
6,080
2,825
1,690
5,846
107
310
(723)
41
3,034
(2,611) $ 37,328
$
1,647
1,147
93
(153)
4,274
(2,989)
74
168
(652)
41
(778)
2,872
2020
$
8,087
7,237
5,987
2,978
(2,584)
8,835
33
142
(71)
—
3,812
$ 34,456
Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021
Total noninterest income for the year ended December 31, 2022, was $34.7 million, a decrease of $2.6 million,
or 7.0%, from the year ended December 31, 2021. Notable changes in noninterest income include the following:
● A $4.4 million decrease in gains on sale of mortgage loans, primarily attributable to a lower level of
mortgage refinancing activity due to interest rate increases;
● A $1.0 million increase in service charges on deposit accounts;
● A $0.9 million improvement in gains (losses) on other assets, as the 2021 results include impairment
losses of $0.7 million related to branches closed pursuant to our 2021 branch rationalization plan;
● A $0.8 million increase in wealth management fees, reflecting a $1.0 million increase in farm
management and farmland brokerage fees;
● A $0.6 million increase in card income primarily due to increased debit and credit card transaction
volume; and
● A $0.5 million increase in the mortgage servicing rights fair value adjustment, primarily resulting from
slower mortgage prepayment speed assumptions.
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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
2022
$ 51,767
8,325
7,673
2,476
7,441
3,803
873
1,164
1,049
293
20,243
$ 105,107
$ Change
$ Change
2020
$
Year Ended December 31,
2021
(dollars in thousands)
$ 48,972
$
6,513
6,788
2,676
7,329
3,376
1,054
1,043
1,317
908
11,270
$ 91,246
2,795
1,812
885
(200)
112
427
(181)
121
(268)
(615)
8,973
$ 13,861
$
(1,253) $ 50,225
7,905
(1,392)
6,580
208
2,447
229
6,742
587
3,476
(100)
1,232
(178)
336
707
1,755
(438)
351
557
940
10,330
(710) $ 91,956
Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021
Total noninterest expense for the year ended December 31, 2022, was $105.1 million, an increase of
$13.9 million, or 15.2%, from the year ended December 31, 2021. Notable changes in noninterest expense
include following:
● Following the NXT acquisition on October 1, 2021, there was a higher base level of noninterest
expense, primarily related to personnel costs and branch operations;
● A $9.0 million increase in other noninterest expense, primarily attributable to accruals totaling
$8.2 million related to pending legal matters included in the 2022 results;
● The $1.8 million increase in employee benefits expenses also included accelerated recognition of $0.6
million of stock compensation expense during February 2022 as a result of a modification to all
outstanding restricted stock unit and performance restricted stock unit agreements to address
treatment upon retirement. Total compensation costs related to the modified agreements remains the
same, and stock compensation expense in periods subsequent to the modification are reduced as a
result. The net impact of this modification was a $0.4 million increase in stock compensation expense
during the year ended December 31, 2022; and
● A $0.6 million decrease in foreclosed assets expense, primarily due to fewer foreclosed properties held
during 2022 relative to 2021.
See “Note 23 – Commitments and Contingencies – Legal Contingencies” to the consolidated financial
statements for additional information regarding certain legal actions and litigation to which we are subject,
including a discussion of potential losses and related accruals.
Income Taxes
Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021
We recorded income tax expense of $19.7 million, or a 25.9% effective tax rate, during the year ended
December 31, 2022 compared to $20.3 million, or a 26.5% effective tax rate during the year ended
December 31, 2021. The effective income tax rate was lower than the combined federal and state statutory rate
primarily due to tax exempt interest income. The slight decrease in effective tax rate was primarily due to slightly
higher federally tax exempt interest income and slightly lower state income taxes.
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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
Borrowings
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,
2022
December 31,
2021
$ Change % Change
(dollars in thousands, except per share data)
$
114,159
843,524
541,600
615
$
409,268
942,168
336,185
4,942
$ (295,109)
(98,644)
205,415
(4,327)
2,620,253
25,333
2,594,920
2,499,689
23,936
2,475,753
120,564
1,397
119,167
29,322
1,070
161,524
$ 4,286,734
29,322
1,943
114,673
$ 4,314,254
$ 3,587,024
43,081
160,000
39,395
37,780
45,822
3,913,102
373,632
$ 4,286,734
$ 3,738,185
61,256
—
39,316
37,714
25,902
3,902,373
411,881
$ 4,314,254
—
(873)
46,851
$ (27,520)
$ (151,161)
(18,175)
160,000
79
66
19,920
10,729
(38,249)
$ (27,520)
$ 4,256,342
343,240
$ 4,282,989
380,616
$ (26,647)
(37,376)
(72.1)%
(10.5)
61.1
(87.6)
4.8
5.8
4.8
—
(44.9)
40.9
(0.6)%
(4.0)%
(29.7)
NM
0.2
0.2
76.9
0.3
(9.3)
(0.6)%
(0.6)%
(9.8)
$ 3,559,866
$ 3,674,435
$ (114,569)
(3.1)%
$
12.99
11.94
$
14.21
13.13
Shares of common stock outstanding
28,752,626
28,986,061
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)
73.05 %
99.24
8.72
8.06
66.87 %
98.29
9.55
8.89
(1) See "Non-GAAP Financial Information" for reconciliation of non-GAAP measures to their most comparable GAAP measures.
NM Not meaningful.
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Total assets were $4.29 billion at December 31, 2022, a decrease of $27.5 million, or 0.6%, from December 31,
2021. Notable changes in our consolidated balance sheet include the following:
● Excess liquidity, including excess cash held at December 31, 2021, was reinvested into debt securities,
which increased by $106.8 million, and loans held for investment which increased $120.6 million;
● Loans increased by $120.6 million despite a $29.5 million decrease in PPP loans due to forgiveness;
● Total deposits decreased by $151.2 million, primarily due to lower balances maintained in noninterest-
bearing business accounts and continued run-off of higher cost time deposits;
● Borrowings, consisting of short-term FHLB advances, increased $160.0 million and were utilized to
fund short-term liquidity needs; and
● Increases in market interest rates during 2022 drove a decrease in fair value of debt securities resulting
in $105.5 million of unrealized losses in the available-for-sale portfolio and substantially contributing to
a total decrease of $73.2 million in accumulated other comprehensive income (loss).
Loan Portfolio
The following table sets forth the composition of the loan portfolio by category, excluding loans held-for-sale.
December 31, 2022
December 31, 2021
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
$
266,757
237,746
218,503
713,202
287,865
360,824
338,253
197,103
2,620,253
(25,333)
$ 2,594,920
$
$
28
—
—
28
10.2 % $
9.1
8.3
27.2
11.0
13.8
12.9
7.5
100.0 %
286,946
247,796
234,544
684,023
263,911
298,048
327,837
156,584
2,499,689
(23,936)
$ 2,475,753
11.5 %
9.9
9.4
27.4
10.5
11.9
13.1
6.3
100.0 %
— % $
—
—
— % $
28,404
913
171
29,488
1.1 %
0.1
—
1.2 %
Loans, before allowance for loan losses were $2.62 billion at December 31, 2022, an increase of $120.6 million,
or 4.8%, from December 31, 2021. Notable changes include the following:
● Loan growth was partially offset by a $29.5 million decrease in PPP loans due to forgiveness;
● Loan growth excluding PPP loans was predominantly in the Chicago metropolitan statistical area with
balances in our Iowa and Central Illinois markets also increasing; and
● Our loan growth during 2022 was highest in the regulatory CRE categories, which includes construction
and land development, commercial real estate – non-owner occupied, and multi-family loans.
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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, 2022.
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, 2022
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)
$
$
$
$
162,152
94,041
15,778
83,519
27,604
191,601
69,624
90,085
734,404
$
89,361
103,323
132,718
423,430
197,005
151,082
129,703
17,533
$ 1,244,155
$
15,244
37,211
67,760
205,747
63,256
17,919
72,762
69,584
549,483
— $
3,171
2,247
506
—
266,757
237,746
218,503
713,202
287,865
360,824
338,253
197,103
$ 2,620,253
222
66,164
19,901
92,211
$
The following table summarizes loans maturing after one year, segregated into variable and fixed interest rates.
December 31, 2022
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
$
$
25,953
7,568
30,113
74,175
17,689
87,961
68,152
31,209
342,820
$
$
(dollars in thousands)
17
5,798
18,447
14,615
3,550
738
27,734
11,680
82,579
$
$
25,970
13,366
48,560
88,790
21,239
88,699
95,886
42,889
425,399
$
$
78,635
130,339
154,165
540,893
239,022
80,524
172,743
64,129
1,460,450
Total
$
104,605
143,705
202,725
629,683
260,261
169,223
268,629
107,018
$ 1,885,849
Nonperforming loans consist of all loans 90 days or more past due 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 must
believe that all remaining principal and interest is fully collectible, before the loan is eligible to return to accrual
to managing
status. Management believes
nonperforming assets has resulted in timely resolution of problem assets.
lending practices and active approach
the Company’s
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Table of Contents
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 may be 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 on which
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
December 31.
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, 2022 December 31, 2021
(dollars in thousands)
$
$
$
2,155
1
2,156
3,030
5,186
25,333
2,620,253
$
$
$
2,763
16
2,779
3,278
6,057
23,936
2,499,689
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
0.97 %
0.96 %
1,175.55
1,175.00
0.08
0.08
0.12
0.20
866.30
861.32
0.11
0.11
0.14
0.24
(1) Excludes loans acquired with deteriorated credit quality that are past due 90 or more days totaling $145 thousand and $32 thousand
as of December 31, 2022 and 2021, respectively.
Comparison of December 31, 2022 to December 31, 2021
Total nonperforming assets were $5.2 million as of December 31, 2022, a decrease of $0.9 million, or 14.4%,
from December 31, 2021. Our level of nonperforming assets has remained low in recent years, representing
only 0.12% of total assets as of December 31, 2022 and 0.14% of total assets as of December 31, 2021. 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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Table of Contents
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
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
One-to-four family residential
Total troubled debt restructurings
December 31, 2022
December 31, 2021
Accruing Nonaccrual Total
Accruing Nonaccrual Total
$
84
1,514
1,204
189
$ 2,991
$
$
(dollars in thousands)
84
— $
1,514
—
1,204
—
—
189
— $ 2,991
$
203
1,671
1,278
360
$ 3,512
$
$
203
— $
1,671
—
1,278
—
—
360
— $ 3,512
TDRs have remained a small portion of our loan portfolio as loan modifications to borrowers with deteriorating
financial condition are generally offered only as part of an overall workout strategy to minimize losses to the
Company.
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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.
A doubtful loan 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, 2022 and 2021, our risk classifications of loans were as follows:
Pass
Pass-watch
Substandard
Doubtful
Total
December 31, 2022 December 31, 2021
(dollars in thousands)
$
$
$
2,479,488
66,934
73,831
—
$
2,620,253
2,269,228
148,285
82,176
—
2,499,689
Pass-watch loans decreased $81.4 million, or 54.9% from December 31, 2021 to December 31, 2022.
Additionally, substandard loans decreased $8.3 million, or 10.2%, from December 31, 2021 to December 31,
2022. These overall improvements were primarily driven by better economic conditions, relative to 2021, which
resulted in both risk rating upgrades and paydowns.
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Table of Contents
Net Charge-offs and Recoveries
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
2022
Year Ended December 31,
2021
(dollars in thousands)
2020
$
$
(751)
—
(1,006)
(283)
—
(1)
(302)
240
(2,103)
$
$
15
—
21
(24)
—
(342)
18
137
(175)
$
$
1,189
27
(401)
274
—
(223)
(155)
282
993
$
268,765
233,349
219,127
695,230
258,490
340,831
328,656
170,101
$ 2,514,549
$
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
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
(0.28)%
—
(0.46)
(0.04)
—
—
(0.09)
0.14
(0.08)%
— %
—
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 %
Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021
Our net charge-offs (recoveries) percentage has remained low for several years, including each of the years
ended December 31, 2022, 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, 2022 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.
68
Table of Contents
Due in 1 year or less
U.S. Treasury
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. 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, 2022
Held-to-Maturity
Weighted
Weighted
Amortized Average Amortized Average
Cost
Yield
Cost
(dollars in thousands)
Yield
Total
Weighted
Amortized Average
Cost
Yield
$ 10,073
4,431
1.51 % $
2.51
—
2,288
— % $
10,073
4.01
6,719
69
1,484
4,997
$ 21,054
3.22
1.98
2.58
2.01 % $
—
—
—
2,288
—
—
—
4.01 % $
69
1,484
4,997
23,342
$ 109,636
40,921
59,838
12,969
43,737
19,891
$ 286,992
$ 50,151
18,370
143,973
74,346
64,083
38,709
$ 389,632
1.32 % $
2.55
2.05
—
10,000
17,813
— % $ 109,636
2.18
3.19
50,921
77,651
8,364
2.33
16,708
2.02
4.65
—
2.03 % $ 52,885
1.62
2.64
21,333
60,445
19,891
2.58 % $ 339,877
—
1.49 % $
2.38
1.75
—
64,028
19,153
— % $
2.47
3.43
50,151
82,398
163,126
3,858
2.09
233,021
1.67
4.17
—
2.04 % $ 320,060
3.51
1.77
78,204
297,104
38,709
2.03 % $ 709,692
—
$
—
67,730
— % $ 14,396
2,913
1.88
2.72 % $
3.35
14,396
70,643
126,292
40,756
2,000
$ 236,778
90,506
2.52
58,552
2.03
4.50
—
2.27 % $ 166,367
3.59
1.98
216,798
99,308
2,000
2.94 % $ 403,145
—
1.51 %
3.02
3.22
1.98
2.58
2.21 %
1.32 %
2.48
2.31
2.05
2.19
4.65
2.12 %
1.49 %
2.45
1.95
2.16
1.75
4.17
2.04 %
2.72 %
1.94
2.97
2.00
4.50
2.55 %
$ 169,860
59,291
275,972
213,676
150,060
65,597
$ 934,456
1.38 % $
2.50
1.86
—
88,424
42,167
— % $ 169,860
147,715
318,139
2.48
3.36
1.38 %
2.49
2.06
3.43
1.86
316,404
458,341
65,597
2.37 % $ 1,476,056
—
2.71
1.86
4.20
2.20 %
102,728
2.36
308,281
1.87
4.20
—
2.09 % $ 541,600
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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 digital banking services
to solidify deposit relationships.
The following tables set forth the distribution of average deposits, by account type.
Year Ended December 31, 2022
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)
28.4 %
30.8
15.7
17.5
92.4
7.6
100.0 %
0.05
0.14
0.03
0.05
0.31
0.07 %
— %
1,051,187
1,141,402
582,514
650,385
3,425,488
283,232
3,708,720
2022 vs. 2021
4.6 %
11.4
11.7
9.1
8.9
(4.2)
7.7 %
Year Ended December 31, 2021
Percent
Change in
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
Average
Balance
Weighted
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
Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021
The average balances of non-maturity deposits increased 8.9% from the year ended December 31, 2021 to the
year ended December 31, 2022, with the increase primarily attributable to higher balances maintained by
deposit customers following the receipt of federal economic stimulus, in the form of PPP loan proceeds by
commercial customers and direct payments received by retail customers, although this trend began to reverse
in the second quarter of 2022. Additionally, the NXT acquisition added $139.4 million of non-maturity deposits
on October 1, 2021. Time deposits decreased slightly due to the continued run-off of higher cost time deposits,
although this was partially offset by the addition of $42.1 million of time deposits acquired from NXT.
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Table of Contents
The following table sets forth time deposits by remaining maturity as of December 31, 2022.
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
$ 36,773
$
34,962
$
49,768
$
48,858
$ 170,361
Amounts of $100,000 or more but less than $250,000
Amounts of $250,000 or more
12,262
5,743
11,480
3,414
24,515
12,128
17,192
5,873
65,449
27,158
Total time deposits
$ 54,778
$
49,856
$
86,411
$
71,923
$ 262,968
As of December 31, 2022 and 2021, the Bank’s uninsured deposits, including related accrued interest, were
estimated to be $739.0 million and $845.7 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
2022
As of or for the Years Ended December 31,
2021
(dollars in thousands)
$ 61,256
50,104
61,256
$ 45,736
49,714
58,839
$ 43,081
51,554
55,698
2020
Weighted average interest rate at end of year
Average interest rate during year
0.28 %
0.07
0.07 %
0.07
0.06 %
0.10
Borrowings
Deposits are the primary source of funds for our lending activities and general business purposes. However, we
may also obtain advances from the Federal Home Loan Bank of Chicago (“FHLB”), purchase federal funds, and
engage in overnight borrowing from the Federal Reserve. We may also use these sources of funds as part of
our asset liability management process to control our long-term interest rate risk exposure, even if it may
increase our short-term cost of funds. Our level of short-term borrowing can fluctuate on a daily basis
depending on funding needs and the source of funds to satisfy the needs.
Our use of FHLB advances and other borrowings was nominal during 2020 and 2021, but increased during the
second half of 2022 to fund increases in loan demand and to offset a decrease in deposits.
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The following table sets forth information concerning balances and interest rates on our borrowings.
As of or for the Years Ended December 31,
2021
(dollars in thousands)
2020
2022
Balance at end of year
FHLB advances
Federal funds purchased
Total borrowings
Average balance during year
FHLB advances
Federal funds purchased
Total borrowings
Maximum outstanding at any month end
FHLB advances
Federal funds purchased
Total borrowings
Weighted average interest rate at end of year
FHLB advances
Federal funds purchased
Total borrowings
Average interest rate during year
FHLB advances
Federal funds purchased
Total borrowings
LIQUIDITY
Bank Liquidity
$ 160,000
—
$ 160,000
$ 25,934
534
$ 26,468
$ 160,000
—
$ 160,000
$
$
$
$
$
$
— $
—
— $
—
—
—
1,310
343
1,653
$
$
656
424
1,080
— $
—
— $
4,000
—
4,000
4.29 %
—
4.29
— %
—
—
— %
—
—
3.68 %
2.11
3.65
0.56 %
0.48
0.54
0.02 %
0.52
0.22
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 positions 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 our daily cash flow needs, 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, 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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Additional sources of liquidity include unpledged securities, federal funds purchased, and borrowings from the
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 available
through federal funds purchased and FHLB borrowings are used primarily to meet daily liquidity needs. The
total remaining credit available to the Bank from the FHLB at December 31, 2022 was $409.9 million.
As of December 31, 2022, the Bank’s liquidity and available sources of liquidity were adequate to meet all of the
reasonably foreseeable short-term and intermediate-term demands of the Bank. As of December 31, 2022, the
Bank had no material commitments for capital expenditures.
Holding Company Liquidity
The Holding Company, or HBT Financial, Inc. on an unconsolidated basis, is a corporation separate and apart
from the Bank and, therefore, it must provide for its own liquidity. As of December 31, 2022, the Holding
Company had cash and cash equivalents of $24.3 million.
The Holding 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 Illinois Department of Financial and Professional Regulation. In addition, dividends paid by the
Bank to the Holding 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 Holding Company’s ability to meet its ongoing short-term and intermediate-term cash obligations.
During the years ended December 31, 2022, 2021, and 2020, the Bank paid dividends of $28.0 million, $20.0
million, and $17.6 million to the Holding Company, respectively.
The liquidity needs of the Holding Company on an unconsolidated basis consist primarily of operating
expenses, interest payments on the subordinated notes and junior subordinated debentures, and shareholder
distributions in the form of dividends and stock repurchases. During the years ended December 31, 2022, 2021,
and 2020, holding company operating expenses consisted of interest expense of $3.7 million, $3.3 million, and
$2.2 million, respectively, and other operating expenses of $5.3 million, $3.7 million, and $2.5 million,
respectively.
Additionally, the Holding Company paid $18.6 million, $16.8 million, and $16.5 million of dividends to
stockholders during the years ended December 31, 2022, 2021, and 2020, respectively. As of December 31,
2022, management was not aware of any known trends, events or uncertainties that had or were reasonably
likely to have a material impact on the Holding Company’s liquidity.
As of December 31, 2022, the Holding Company’s liquidity and available sources of liquidity were adequate to
meet all of the reasonably foreseeable short-term and intermediate-term demands of the Holding Company. As
of December 31, 2022, the Holding 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.
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Table of Contents
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.
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, 2022 and 2021, the capital conservation buffer
requirement was 2.5% of risk-weighted assets.
As of December 31, 2022 and 2021, 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 as of the dates indicated, as
well as 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,
2022
December 31,
2021
For Capital
Adequacy Purposes
With Capital
To Be Well
Capitalized Under
Prompt Corrective
Conversation Buffer (1) Action Provisions (2)
16.27 %
15.43
16.88 %
15.94
10.50 %
10.50
N/A
10.00 %
14.23 %
14.63
14.66 %
15.09
13.07 %
14.63
13.37 %
15.09
10.48 %
10.78
9.84 %
10.13
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.
As of December 31, 2022, 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 capital resources.
Cash Dividends
The Company paid quarterly cash dividends of $0.16 during 2022 and $0.15 per share during 2021 and 2020.
On January 24, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.17 per share.
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Stock Repurchase Program
The Company repurchased 265,379 shares of its common stock at a weighted average price of $18.02 during
2022 and 290,486 shares at a weighted average price of $16.89 during 2021. Repurchases were conducted in
compliance with Rule 10b-18 and in compliance with Regulation M under the Exchange Act. On December 21,
2022, 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, 2024.
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,
commitments to sell loans, and interest rate swaps. 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, 2022 and 2021, there were no reserves for unfunded commitments. For additional
information, see “Note 23 – 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 estimate 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 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.
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Table of Contents
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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Table of Contents
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 closely
comparable GAAP financial measures below.
Non-GAAP
Financial Measure
Adjusted Net Income
Definition
How the Measure Provides Useful
Information to Investors
● Net income, with the following adjustments:
● Enhances comparisons to prior periods
- 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
closed branch premises,
- 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)
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 income tax rate of 9.5%.
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Table of Contents
Non-GAAP
Financial Measure
Tangible Common
Equity to Tangible
Assets
Definition
● Tangible Common Equity is total stockholders’
equity less goodwill and other intangible
assets.
● Tangible Assets is total assets less goodwill
and other intangible assets.
Core Deposits
● Total deposits, excluding:
- Time deposits of $250,000 or more, and
- Brokered deposits
78
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
Adjustments:
Acquisition expenses
Branch closure expenses
Gains (losses) on sales of closed branch premises
Charges related to termination of certain employee benefit plans
Mortgage servicing rights fair value adjustment
Total adjustments
Tax effect of adjustments
Less adjustments after tax effect
Adjusted net income
Average assets
Return on average assets
Adjusted return on average assets
$
$
$
2022
Year Ended December 31,
2021
(dollars in thousands)
$
56,271
$
56,456
(1,092)
—
141
—
(1,416)
(748)
—
—
2,153
1,202
(551)
651
55,805
4,269,873
1,690
(474)
(95)
(569)
56,840
3,980,538
$
$
$
$
2020
36,845
—
—
—
(1,457)
(2,584)
(4,041)
1,152
(2,889)
39,734
3,447,500
1.32 %
1.31
1.41 %
1.43
1.07 %
1.15
Reconciliation of Non-GAAP Financial Measure - Adjusted Earnings Per Share
Year Ended December 31,
2021
(dollars in thousands, except per share amounts)
2020
2022
Numerator:
Net income
Earnings allocated to participating securities (1)
Numerator for earnings per share - basic and diluted
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
Adjusted earnings per share - Basic
Adjusted earnings per share - Diluted
$
$
$
$
$
$
$
$
56,456
(66)
56,390
55,805
(65)
55,740
$
$
$
$
56,271
(104)
56,167
56,840
(105)
56,735
$
$
$
$
36,845
(93)
36,752
39,734
(101)
39,633
28,853,697
65,619
27,795,806
15,487
27,457,306
—
28,919,316
27,811,293
27,457,306
1.95
1.95
1.93
1.93
$
$
$
$
2.02
2.02
2.04
2.04
$
$
$
$
1.34
1.34
1.44
1.44
(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.
79
Table of Contents
Reconciliation of Non-GAAP Financial Measure - Net Interest Margin (Tax Equivalent Basis)
Net interest income (tax equivalent basis)
Net interest income
Tax-equivalent adjustment (1)
Net interest income (tax equivalent basis) (1)
Net interest margin (tax equivalent basis)
Net interest margin
Tax-equivalent adjustment (1)
Net interest margin (tax equivalent basis) (1)
2022
Year Ended December 31,
2021
(dollars in thousands)
2020
$
$
145,874
2,499
148,373
$
$
122,403
2,028
124,431
$
$
117,605
1,943
119,548
3.54 %
0.06
3.60 %
3.18 %
0.05
3.23 %
3.54 %
0.06
3.60 %
Average interest-earning assets
$ 4,118,124
$ 3,846,473
$ 3,318,764
(1) On a tax-equivalent basis assuming a federal income tax rate of 21% and a state income tax rate of 9.5%.
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)
2022
Year Ended December 31,
2021
(dollars in thousands)
2020
$ 105,107
873
$ 104,234
$ 145,874
34,717
180,591
2,499
$ 183,090
$
$
$
$
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
Efficiency ratio
Efficiency ratio (tax equivalent basis) (1)
57.72 %
56.93
56.46 %
55.76
59.66 %
58.91
(1) On a tax-equivalent basis assuming a federal income tax rate of 21% and a state income tax rate of 9.5%.
80
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Reconciliation of Non-GAAP Financial Measure - Tangible Common Equity to Tangible Assets and
Tangible Book Value Per Share
Tangible Common Equity
Total stockholders' equity
Less: Goodwill
Less: Core deposit intangible assets, net
Tangible common equity
Tangible Assets
Total assets
Less: Goodwill
Less: Core deposit intangible assets, net
Tangible assets
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, 2022 December 31, 2021
(dollars in thousands, except per share data)
$
$
$
$
$
373,632
29,322
1,070
343,240
4,286,734
29,322
1,070
4,256,342
8.72 %
8.06
28,752,626
12.99
11.94
$
$
$
$
$
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
Reconciliation of Non-GAAP Financial Measure – Return on Average Tangible Common Equity, Adjusted
Return on Average Stockholders’ Equity, and Adjusted Return on Average Tangible Common Equity
Average Tangible Common Equity
Total stockholders' equity
Less: Goodwill
Less: Core deposit intangible assets, net
Average tangible common equity
Net income
Adjusted net income
Return on average stockholders' equity
Return on average tangible common equity
Adjusted return on average stockholders' equity
Adjusted return on average tangible common equity
2022
Year Ended December 31,
2021
(dollars in thousands)
2020
$
$
$
383,306
29,322
1,480
352,504
56,456
55,805
$
$
$
14.73 %
16.02
14.56 %
15.83
380,080
25,057
2,333
352,690
56,271
56,840
$
$
$
14.81 %
15.95
14.95 %
16.12
350,703
23,620
3,436
323,647
36,845
39,734
10.51 %
11.38
11.33 %
12.28
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, 2022 December 31, 2021
(dollars in thousands)
$
$
3,587,024
27,158
—
3,559,866
$
$
3,738,185
59,512
4,238
3,674,435
Core deposits to total deposits
99.24 %
98.29 %
81
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
Our most significant form of market risk is interest rate risk inherent in the normal course of lending and deposit-
taking activities. Interest rate risk is the potential reduction of net interest income as a result of changes in
interest rates. 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 Company’s 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, 2022 and 2021, the estimated impact on our EVE and net
interest income of immediate and parallel changes in interest rates at the specified levels.
Change in Interest Rates (basis points)
Amount
Percent
Amount
Percent
Amount
Percent
(dollars in thousands)
Estimated Increase
(Decrease) in EVE
Increase (Decrease) in
Estimated Net Interest Income
Year 1
Year 2
December 31, 2022
+400
+300
+200
+100
-100
-200
-300
December 31, 2021
+400
+300
+200
+100
-100
$ 96,824
89,504
71,015
43,269
(64,289)
(159,079)
(219,755)
11.9 % $ 14,631
11,587
11.0
8,152
8.7
4,308
5.3
(7.9)
(6,808)
(16,218)
(19.5)
(24,834)
(27.0)
8.7 % $ 22,157
18,225
6.9
13,266
4.8
7,307
2.5
(10,305)
(4.0)
(23,694)
(9.6)
(35,743)
(14.7)
12.7 %
10.5
7.6
4.2
(5.9)
(13.6)
(20.5)
$ 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)
82
Table of Contents
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, which
could change the actual impact on EVE and net interest income. 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
to well-defined underwriting criteria and account administration standards established by
adhering
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.
83
Table of Contents
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 (Loss)
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
84
Page
85
86
87
88
89
90
92
Table of Contents
Report of Independent Registered Public Accounting Firm
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, 2022 and 2021, the related consolidated statements of income, comprehensive
income (loss), changes in stockholders’ equity and cash flows for each of the three years in the period ended
December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2022, 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 8, 2023
85
Table of Contents
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 $478,801 at 2022 and $336,027 at 2021)
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
Federal Home Loan Bank advances
Subordinated notes
Junior subordinated debentures issued to capital trusts
Other liabilities
Total liabilities
COMMITMENTS AND CONTINGENCIES (Note 23)
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 29,308,491 at
2022 and 29,276,547 at 2021; shares outstanding of 28,752,626 at 2022 and 28,986,061 at 2021
Surplus
Retained earnings
Accumulated other comprehensive income (loss)
Treasury stock at cost, 555,865 shares at 2022 and 290,486 at 2021
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying Notes to Consolidated Financial Statements
86
December 31, December 31,
2022
2021
$
$
$
$
$
$
$
18,970
95,189
114,159
—
843,524
541,600
3,029
1,977
7,965
615
2,620,253
(25,333)
2,594,920
7,557
50,469
235
3,030
29,322
1,070
10,147
1,165
19,506
56,444
4,286,734
994,954
2,592,070
3,587,024
43,081
160,000
39,395
37,780
45,822
3,913,102
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
—
—
293
222,783
232,004
(71,759)
(9,689)
373,632
4,286,734
$
293
220,891
194,132
1,471
(4,906)
411,881
4,314,254
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
Wealth management fees
Service charges on deposit accounts
Mortgage servicing
Mortgage servicing rights fair value adjustment
Gains on sale of mortgage loans
Unrealized gains (losses) on equity securities
Gains (losses) on foreclosed assets
Gains (losses) on other assets
Income on bank owned life insurance
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
See accompanying Notes to Consolidated Financial Statements
87
Year Ended December 31,
2021
(dollars in thousands, except per share data)
2020
2022
$
120,343
3,135
$
103,900
2,384
$
23,368
4,569
1,541
98
153,054
2,511
36
967
1,879
1,787
7,180
145,874
(706)
146,580
10,329
9,155
7,072
2,609
2,153
1,461
(414)
(314)
136
164
2,366
34,717
51,767
8,325
7,673
2,476
7,441
3,803
873
1,164
1,049
293
20,243
105,107
76,190
19,734
56,456
1.95
1.95
28,853,697
$
$
$
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
8,384
6,080
2,825
1,690
5,846
107
310
(723)
41
3,034
37,328
48,972
6,513
6,788
2,676
7,329
3,376
1,054
1,043
1,317
908
11,270
91,246
76,562
20,291
56,271
2.02
2.02
27,795,806
$
$
$
$
$
$
102,893
2,303
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
7,237
5,987
2,978
(2,584)
8,835
33
142
(71)
—
3,812
34,456
50,225
7,905
6,580
2,447
6,742
3,476
1,232
707
1,755
557
10,330
91,956
49,573
12,728
36,845
1.34
1.34
27,457,306
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Year Ended December 31,
2022
2021
2020
NET INCOME
$
(dollars in thousands)
$ 56,271
56,456
$ 36,845
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 (LOSS) INCOME
(105,459)
(24,798)
15,272
1,723
1,183
126
(102,427)
(29,197)
(73,230)
687
366
412
(23,333)
(6,651)
(16,682)
$ (16,774) $ 39,589
18
(1,084)
238
14,444
4,123
10,321
$ 47,166
See accompanying Notes to Consolidated Financial Statements
88
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Common Stock
Shares
Accumulated
Other
Comprehensive
Treasury
Retained
Outstanding Amount Surplus Earnings Income (Loss) Stock
(dollars in thousands, except per share data)
Total
Stockholders’
Equity
27,457,306
—
$ 275
—
$ 190,524
—
$ 134,287
36,845
$
7,832
—
$
— $
—
332,918
36,845
—
—
—
—
—
—
—
351
—
—
—
(16,518)
27,457,306
—
275
—
190,875
—
154,614
56,271
—
764
—
29,252
—
—
—
—
—
—
20,225
1,799,016
(290,486)
—
—
—
—
18
—
—
10,321
—
—
18,153
—
(16,682)
—
—
—
—
—
—
—
—
—
—
—
—
10,321
351
(16,518)
363,917
56,271
(16,682)
764
—
29,270
(4,906)
(4,906)
—
(16,753)
—
—
(16,753)
28,986,061
—
293
—
220,891
—
194,132
56,456
1,471
—
(4,906)
—
—
—
31,944
(265,379)
—
—
—
—
—
—
—
1,949
(57)
—
—
—
—
—
—
(18,584)
(73,230)
—
—
—
—
411,881
56,456
(73,230)
1,949
(57)
—
—
—
(4,783)
(4,783)
—
(18,584)
28,752,626
$ 293
$ 222,783
$ 232,004
$
(71,759) $ (9,689) $
373,632
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 upon vesting of
restricted stock units
Issuance of common
stock in NXT acquisition
Repurchase of common
stock
Cash dividends and
dividend equivalents
($0.60 per share)
Balance,
December 31, 2021
Net income
Other comprehensive
loss
Stock-based
compensation
Issuance of common
stock upon vesting of
restricted stock units, net
of tax withholdings
Repurchase of common
stock
Cash dividends and
dividend equivalents
($0.64 per share)
Balance,
December 31, 2022
See accompanying Notes to Consolidated Financial Statements
89
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HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
2022
Year Ended December 31,
2021
(dollars in thousands)
2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense
Provision for loan losses
Net amortization of debt securities
Amortization of unrealized gain on dedesignated cash flow hedge
Deferred income tax (benefit) expense
Stock-based compensation
Net accretion of discount and deferred loan fees on loans
Net unrealized loss (gain) on equity securities
Net (gain) loss 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
Amortization of premium on interest-bearing time deposits with banks
Amortization of premium on time deposits
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
(Increase) decrease in accrued interest receivable
(Increase) decrease in other assets
Increase (decrease) in other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of 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.
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits
Net (decrease) increase in repurchase agreements
Net increase (decrease) in Federal Home Loan Bank advances
Issuance of subordinated notes, net of issuance costs
Taxes paid related to the vesting of restricted stock units
Repurchase of common stock
Cash dividends and dividend equivalents paid
Net cash (used in) provided by financing activities
$
56,456
$
56,271
$
36,845
3,043
(706)
6,959
—
(2,919)
1,949
(5,337)
414
(9)
(187)
60
(118)
432
873
(2,153)
145
—
5
(188)
(56,240)
62,028
(1,461)
(164)
(4,605)
(8,007)
22,316
72,586
485
154,166
(371,682)
(113,665)
(6,151)
925
(1,047)
27
1,344
475
—
—
(335,123)
(150,973)
(18,175)
160,000
—
(57)
(4,783)
(18,584)
(32,572)
3,074
(8,077)
7,066
—
2,908
764
(12,448)
(107)
33
—
661
(505)
195
1,054
(1,690)
144
(105)
4
(81)
(179,921)
195,538
(5,846)
(41)
240
1,676
(17,784)
43,023
245
213,491
(513,838)
(50,089)
(241)
796
(1,028)
17
—
5,805
—
(4,771)
(349,613)
426,146
11,440
(12,520)
—
—
(4,906)
(16,753)
403,407
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
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF PERIOD
(295,109)
409,268
$ 114,159
96,817
312,451
$ 409,268
28,480
283,971
$ 312,451
See accompanying Notes to Consolidated Financial Statements
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HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
2022
Year Ended December 31,
2021
(dollars in thousands)
2020
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
91
$
$
$
$
$
6,860
20,035
$
5,928
$ 20,861
$
6,441
$ 17,451
541
$
— $
— $
4,857
252
1,345
$
$
$
1,074
67
—
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”). Significant accounting policies are summarized below.
The Company qualifies as an "emerging growth company" as defined by the Jumpstart Our Business Startups
Act (“JOBS Act”). The JOBS Act permits emerging growth companies an extended transition period for
complying with new or revised accounting standards affecting public companies. The Company may remain an
emerging growth company until the earliest to occur of: (1) the end of the fiscal year following the fifth
anniversary of the completion of our initial public offering, which is December 31, 2024, (2) the last day of the
fiscal year in which the Company has $1.235 billion or more in annual revenues, (3) the date on which the
Company is deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended,
(the “Exchange Act”) or (4) the date on which the Company has, during the previous three year period, issued,
publicly or privately, more than $1.0 billion in non-convertible debt securities. The Company has elected to use
the extended transition period until the Company is no longer an emerging growth company or until the
Company chooses to affirmatively and irrevocably opt out of the extended transition period. As a result, the
Company’s financial statements may not be comparable to companies that comply with new or revised
accounting pronouncements applicable to public companies.
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.”
Basis of Consolidation
The consolidated financial statements of HBT Financial include the accounts of the Company and its wholly
owned bank subsidiary, Heartland Bank.
The Company also has five wholly owned subsidiaries, Heartland Bancorp, Inc. Capital Trust B, Heartland
Bancorp, Inc. Capital Trust C, Heartland Bancorp, Inc. Capital Trust D, FFBI Capital Trust I, and National
Bancorp Statutory Trust I, which, in accordance with GAAP, are not consolidated as more fully described in
Note 13.
Significant intercompany transactions and accounts have been eliminated in consolidation.
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Use of Estimates
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 certificates of deposit.
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.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Equity Securities
Equity securities with readily determinable fair values are measured at fair value with changes in fair value
recognized in unrealized gains (losses) on equity 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.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
95
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 $750,000 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.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. The credit quality of these loans is
significantly influenced by 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 may 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.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 non-depository 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.
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.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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. Bank
premises classified as held for sale are not depreciated.
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, 2022 and 2021.
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.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2022 and 2021,
the Company’s evaluations of goodwill indicated that goodwill was not impaired.
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. The Company may
also 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.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Income Taxes
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, 2022 and 2021, there are no material 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 generally is no longer
subject to federal or state income tax examinations for years prior to 2019.
Derivative Financial Instruments
As part of the Company’s asset/liability management, the Company may use interest rate swaps to hedge
various exposures or to modify interest rate characteristics of various balance sheet accounts. Derivatives that
are used as part of the asset/liability management process are linked to specific assets or liabilities, or pools of
assets or liabilities, and have high correlation between the contract and the underlying item being hedged, both
at inception and throughout the hedge period.
All derivatives are recognized on the consolidated balance sheet at their fair value. On the date the derivative
contract is entered into, the Company may designate the derivative as a hedge of a forecasted transaction or of
the variability of cash flows to be received or paid related to a recognized asset or liability "cash flow" hedge.
Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash-
flow hedge are recorded in other comprehensive income (loss), until earnings are affected by the variability of
cash flows (e.g., when periodic settlements on a variable-rate asset or liability are recorded in earnings).
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company formally documents all relationships between hedging instruments and hedged items, as well as
its risk-management objective and strategy for undertaking various hedged transactions. This process includes
linking all derivatives that are designated as cash flow hedges to specific assets and liabilities on the balance
sheet or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an
ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting
changes in cash flows of hedged items. When it is determined that a derivative is not highly effective as a
hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting
prospectively.
The Company discontinues hedge accounting prospectively when (a) it is determined that the derivative is no
longer highly effective in offsetting changes in the cash flows of a hedged item (including forecasted
transactions); (b) the derivative expires or is sold, terminated, or exercised; (c) the derivative is dedesignated as
a hedge instrument, because it is unlikely that a forecasted transaction will occur; or (d) management
determines that designation of the derivative as a hedge instrument is no longer appropriate.
When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the
derivative will continue to be carried on the consolidated balance sheet at its fair value, and gains and losses
that were accumulated in other comprehensive income (loss) will be recognized immediately in earnings. In all
other situations in which hedge accounting is discontinued, the derivative will be carried at its fair value on the
balance sheet, with subsequent changes in its fair value recognized in current-period earnings.
Comprehensive Income (Loss)
Accounting principles generally require that recognized revenue, expenses, gains, and losses be included in net
income. Although certain changes in assets and liabilities, such as unrealized gains and losses on securities
available-for-sale and interest rate swap agreements designated as cash flow hedges, are reported as a
separate component of the equity section of the consolidated balance sheets, such items, along with net
income, are components of comprehensive income (loss).
Fair Value Measurements
The Company categorizes its assets and liabilities measured at fair value into a three-level hierarchy based on
the priority of the inputs to the valuation technique used to determine fair value. The fair value hierarchy gives
the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3). If the inputs used in the determination of the fair value measurement
fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant
to the fair value measurement. Assets and liabilities valued at fair value are categorized based on the inputs to
the valuation techniques as follows:
Level 1 - Inputs that are quoted prices (unadjusted) for identical assets or liabilities in active markets that
the Company has the ability to access as of the measurement date.
Level 2 - Inputs that are significant other observable inputs other than Level 1 prices such as quoted prices
for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data.
Level 3 - Inputs that are unobservable inputs that reflect a Company’s own assumptions about the
assumptions that market participants would use in pricing as asset or liability.
Subsequent to initial recognition, the Company may re-measure the carrying value of assets and liabilities
measured on a nonrecurring basis to fair value. Adjustments to fair value usually result when certain assets are
impaired. Such assets are written down from their carrying amounts to their fair value.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting standards allow entities the irrevocable option to elect to measure certain financial instruments and
other items at fair value for the initial and subsequent measurement on an instrument-by-instrument basis. The
Company adopted the policy and has not elected to measure any existing financial instruments at fair value,
except for mortgage servicing rights; however, it may elect to measure newly acquired financial instruments at
fair value in the future.
Revenue from Contracts with Customers
ASC Topic 606, Revenue from Contracts with Customers, requires an entity to recognize revenue in an amount
that reflects the consideration to which the entity expects to be entitled in exchange for those goods and
services. To achieve this, the Company takes the following steps: identify the contract(s) with a customer;
identify the performance obligations in the contract; determine the transaction price; allocate the transaction
price to the performance obligations in the contract; and recognize revenue when (or as) the Company satisfies
a performance obligation. The non-interest revenue streams that are considered to be in the scope of this
guidance are discussed below.
Card income: Consists of debit and credit card interchange fees. For debit and credit card
transactions, the Company considers the merchant as the customer for interchange revenue with the
performance obligation being satisfied when the cardholder purchases goods or services from the
merchant. Interchange revenue is recognized as the services are provided. Payment is typically
received daily.
Service charges on deposit accounts: Consists of account analysis fees, monthly service fees, and
other deposit account related fees. The Company’s performance obligation account analysis fees and
monthly service fees are ongoing and either party may cancel at any time. These fees are generally
recognized as the services are rendered on a monthly basis. Payment is typically received monthly.
Other deposit account related fees are largely transaction based, and therefore, the Company’s
performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for
other deposit account related fees is primarily received immediately through a direct charge to
customers’ accounts.
Wealth management fees: Consists of revenue from the management and advisement of client assets
and trust administration. The Company’s performance obligation is generally satisfied over time, and
the fees are recognized monthly. Payment is typically received quarterly or annually.
Segment Reporting
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.
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Subsequent Events
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Other than the acquisition of Town and Country Financial Corporation, as disclosed in Note 2 – Acquisitions,
and further developments in a pending legal matter, as disclosed in Note 23 – Commitments and
Contingencies, there were no significant subsequent events through the issuance of these consolidated
financial statements that warranted adjustment or disclosure.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“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 debt securities available-for-sale 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 for years beginning after
December 31, 2018, including interim periods within those years.
The Company has formed an implementation team to assess the impact that ASU 2016-13 will have on the
Company’s consolidated financial statements. For the majority of loans evaluated on a pooled basis, the
Company anticipates using a discounted cash flow method which considers instrument-level cash flows
adjusted for, among other factors, prepayment speeds, probability of default, and loss given default. The
Company also anticipates using regression analysis of historical internal and peer data to determine which
economic variables are best suited to be utilized when modeling lifetime probability of default and loss given
default.
The ultimate impact to the Company’s financial condition and results of operations of ASU 2016-13, at both
adoption and each subsequent reporting period, is highly dependent on credit quality, macroeconomic forecasts
and conditions, the composition of our loan and debt securities portfolios, along with other management
judgments. Management is finalizing macroeconomic conditions and forecast assumptions to be used in the
model; however, upon adoption of ASU 2016-13 on January 1, 2023, we expect the initial allowance for credit
losses and the reserve for unfunded commitments together to be approximately 30% to 50% above the existing
allowance for loan loss levels. When finalized, this one-time increase will be recorded, net of tax, as an
adjustment to beginning retained earnings.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of
Equity Securities Subject to Contractual Sale Restrictions. ASU 2022-03 clarifies that a contractual restriction
on the sale of an equity security is not considered part of the unit of account of the equity security and,
therefore, is not considered in measuring fair value and that contractual sale restrictions cannot be recognized
and measured as a separate unit of account. The amendments in this update are effective for years beginning
after December 15, 2023, including interim periods within those years. This standard is not expected to have a
material impact on the Company’s consolidated results of operations or financial position.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled
Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the recognition and measurement
guidance for troubled debt restructurings (“TDRs”) by creditors in ASC 310-40. This Update also enhances
disclosure requirements for certain loan restructurings by creditors when a borrower is experiencing financial
difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity will
apply refinancing and restructuring guidance to determine whether a modification or other form of restructuring
results in a new loan or a continuation of an existing loan. Additionally, the amendments in this ASU require a
public business entity to disclosure current-period gross write-offs by year of origination for financing
receivables and net investments in leases in the existing vintage disclosures. The amendments in this update
are effective for years beginning after December 15, 2022, including interim periods within those years. This
standard is not expected to have a material impact on the Company’s consolidated results of operations or
financial position.
In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging –
Portfolio Layer Method. ASU 2022-01 replaces the current last-of-layer hedge accounting method with an
expanded portfolio layer method that permits multiple hedged layers of a single closed portfolio. The scope of
the portfolio layer method is also expanded to include non-prepayable financial assets. ASU 2022-01 also
provides additional guidance on the accounting for and disclosure of hedge basis adjustments that are
applicable to the portfolio layer method, and specifies how hedge basis adjustments should be considered when
determining credit losses for the assets included in the closed portfolio. Amendments related to hedge basis
adjustments which are included in this standard apply on a modified retrospective basis by means of a
cumulative-effect adjustment to the opening balance of retained earnings on the initial application date.
Amendments related to hedge basis adjustments which are included in this standard apply on a modified
retrospective basis by means of a cumulative-effect adjustment to the opening balance of retained earnings on
the initial application date. Amendments related to disclosure which are included in this standard may be
applied on a prospective basis from the initial application date, or on a retrospective basis to each prior period
presented after the date of adoption of the amendments in ASU 2017-12, Derivatives and Hedging (Topic 815):
Targeted Improvements to Accounting for Hedging Activities. The amendments in this update are effective for
years beginning after December 15, 2023, including interim periods within those years. Early adoption is
permitted. This standard is not expected to have a material impact on the Company’s consolidated results of
operations or financial position.
In January 2017, the FASB issued ASU 2017 04, Intangibles – Goodwill and Other (Topic 350): Simplifying the
Test for Goodwill Impairment. ASU 2017-04 simplifies measurement of goodwill and eliminates Step 2 from the
goodwill impairment test. Under ASU 2017-04, 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.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. ASU 2020-04 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. In January 2021, the FASB also issued ASU 2021-01, Reference Rate Reform (Topic
848): Scope, which refined the scope for certain optional expedients and exceptions for contract modifications
and hedge accounting to apply to derivative contracts and certain hedging relationships affected by the
discounting transition. Entities may apply the provisions as of the beginning of the reporting period when the
election is made and are available until December 31, 2024. The Company is currently evaluating the effect that
this standard will have on the consolidated results of operations and financial position.
NOTE 2 – ACQUISITIONS
Town and Country Financial Corporation
On February 1, 2023, HBT Financial acquired 100% of the issued and outstanding common stock of Town and
Country Financial Corporation (“Town and Country”), the holding company for Town and Country Bank,
pursuant to an Agreement and Plan of Merger dated August 23, 2023. Under the Agreement and Plan of
Merger, Town and Country merged with and into HBT Financial, with HBT Financial as the surviving entity, on
February 1, 2023, immediately followed by merger of Town and Country Bank with and into Heartland Bank,
with Heartland Bank as the surviving entity.
At the effective time of the merger, each share of Town and Country was converted into the right to receive,
subject to the election and proration procedures as provided in the Merger Agreement, one of the following: (i)
1.9010 shares of HBT Financial’s common stock for each share of Town and Country, or (ii) $35.66 per share in
cash, or (iii) a combination of cash and HBT Financial common stock. Total consideration consisted of
3,378,600 shares of HBT Financial’s common stock and $38.0 million in cash. In lieu of fractional shares,
holders of Town and Country common stock will receive cash. Based upon the closing price of HBT Financial
common stock of $21.12 on February 1, 2023, the aggregate transaction value was approximately
$109.4 million.
This transaction will be 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. Fair value assessments are incomplete as of the filing date of this Form 10-K. Fair values are
subject to refinement for up to one year after the closing date of February 1, 2023. This acquisition is a
subsequent event and the financial results of Town and Country are not recognized in this Form 10-K.
The acquisition of Town and Country further enhanced HBT Financial’s footprint in Central Illinois as well as
expanding our footprint into metro-east St. Louis. During the year ended December 31, 2022, HBT Financial
incurred $1.1 million in pre-tax acquisition expenses related to the planned acquisition of Town and Country,
comprised of professional fees and data processing expense.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NXT Bancorporation, Inc.
On October 1, 2021, HBT Financial acquired 100% of the issued and outstanding common stock of NXT
Bancorporation, Inc. (“NXT”), the holding company for 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 an aggregate market value of
$29.3 million, 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
$5.7 million 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 provided an opportunity to utilize Heartland Bank’s excess liquidity at the time of
acquisition to replace NXT Bank’s higher-cost funding. Additionally, Heartland Bank’s broader range of products
and services, as well as a greater ability to meet larger borrowing needs, has provided an opportunity to expand
NXT Bank’s customer relationships.
During the year ended December 31, 2021, HBT Financial incurred $1.4 million 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. There were no
acquisition expenses related to the acquisition of NXT during the year ended December 31, 2022.
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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.
(dollars in thousands, except per share data)
Total revenues (net interest income and noninterest income)
Net income
Earnings per share - basic
Earnings per share - diluted
$
Pro Forma
Year Ended December 31,
2020
2021
$
166,677
57,883
1.98
1.98
161,005
39,263
1.34
1.34
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NOTE 3 – SECURITIES
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, 2022
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, 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
110
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(dollars in thousands)
Fair Value
$
169,860 $
59,291
275,972
213,676
150,060
65,597
934,456
88,424
42,167
— $ (15,345) $
—
46
(4,134)
(32,189)
154,515
55,157
243,829
5
—
55
106
—
195
(18,240)
(17,172)
(3,958)
(91,038)
(9,728)
(314)
195,441
132,888
61,694
843,524
78,696
42,048
102,728
308,281
541,600
$ 1,476,056 $
96,258
—
261,799
—
195
478,801
301 $ (154,032) $ 1,322,325
(6,470)
(46,482)
(62,994)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
$
109,002 $
129,269
293,837
178,236
164,875
63,141
938,360
12,349
15,666
(dollars in thousands)
328 $
(354) $
1,303
6,144
2,149
1,234
1,638
12,796
42
809
(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
20,649
286,563
336,027
$ 1,274,545 $ 15,592 $ (11,942) $ 1,278,195
(102)
(2,801)
(2,954)
196
1,749
2,796
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 31, 2022, 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
March 31, 2022
June 30, 2021
March 31, 2021
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
$ 78,841
$ 71,048
(dollars in thousands)
— $
— $
$
7,593
$
7,323
8,175
27,834
$ 114,850
7,651
25,432
$ 104,131
—
99,271
$ 99,271
—
99,275
$ 99,275
8,776
118,792
$ 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 (loss), 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 (loss) will offset or mitigate the effect on interest income of the amortization of the
premium or discount for that held-to-maturity debt security.
As of December 31, 2022 and 2021, the Company had securities with a carrying value of $332.6 million and
$353.3 million, 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 49% of the municipal portfolio
consists of securities issued by municipalities located in Illinois as of December 31, 2022. Approximately 81% of
such securities were general obligation issues as of December 31, 2022.
The amortized cost and fair value of debt securities by contractual maturity, as of December 31, 2022, 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.
Available-for-Sale
Held-to-Maturity
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
$ 19,501 $ 19,127 $
2,288 $
(dollars in thousands)
230,286
251,203
69,730
216,799
217,722
61,547
27,813
83,181
17,309
2,290
26,908
76,214
15,332
213,676
150,060
96,258
261,799
$ 934,456 $ 843,524 $ 541,600 $ 478,801
102,728
308,281
195,441
132,888
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
111
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present gross unrealized losses and fair value of investments, aggregated by investment
category and length of time that individual securities have been in a continuous unrealized loss position, as of
December 31:
December 31, 2022
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, 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
Investments in a Continuous Unrealized Loss Position
Less than 12 Months
12 Months or More
Total
Unrealized
Loss
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
Fair Value
(dollars in thousands)
$ (8,401) $ 92,445 $ (6,944) $ 62,070 $ (15,345) $
(1,154)
(21,283)
(4,134)
(32,189)
(2,980)
(10,906)
47,370
149,261
7,787
87,794
(8,332)
(4,764)
(2,594)
(37,977)
127,288
62,672
52,190
531,226
(9,908)
(12,408)
(1,364)
(53,061)
65,692
70,216
5,600
299,159
(1,754)
(314)
15,751
23,433
(7,974)
—
62,945
—
(18,240)
(17,172)
(3,958)
(91,038)
(9,728)
(314)
154,515
55,157
237,055
192,980
132,888
57,790
830,385
78,696
23,433
(4,039)
(16,716)
(22,823)
96,258
261,799
460,186
$ (60,800) $ 752,160 $ (93,232) $ 538,411 $ (154,032) $ 1,290,571
(6,470)
(46,482)
(62,994)
(2,431)
(29,766)
(40,171)
78,452
103,298
220,934
17,806
158,501
239,252
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 $
(dollars in thousands)
— $
— $
$
(2,183)
(2,018)
(851)
(1,921)
(7)
(7,334)
80,219
89,424
91,703
113,111
2,737
445,604
(284)
(886)
5,578
17,327
(68)
(127)
(289)
(1,654)
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
177,204
197,085
$ (10,160) $ 639,913 $ (1,782) $ 41,100 $ (11,942) $ 681,013
14,932
174,428
194,309
(102)
(2,801)
(2,954)
—
2,776
2,776
—
(128)
(128)
112
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022, there were 261 securities in an unrealized loss position for a period of twelve months
or more, and 519 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.
There were no sales of debt securities during the years ended December 31, 2022, 2021, and 2020.
Equity Securities
Equity securities with readily determinable fair values are measured at fair value with changes in fair value
recognized in unrealized gains (losses) on equity securities on the consolidated statements of income.
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, 2022
Initial cost
Cumulative net unrealized losses
Carrying value
December 31, 2021
Initial cost
Cumulative net unrealized gains (losses)
Carrying value
Readily
Determinable
Fair Value
No Readily
Determinable
Fair Value
(dollars in thousands)
$
$
3,142
(113)
3,029
$
$
2,142
(165)
1,977
Readily
Determinable
Fair Value
No Readily
Determinable
Fair Value
(dollars in thousands)
$
$
3,142
301
3,443
$
$
2,092
(165)
1,927
As of December 31, 2022 and 2021, the cumulative net unrealized losses on equity securities with no readily
determinable fair value reflect downward adjustments based on observable price changes of an identical
investment. There have been no impairments or upward adjustments based on observable price changes to
equity securities with no readily determinable fair value.
There were no sales of equity securities during the years ended December 31, 2022, 2021, and 2020.
Unrealized gains (losses) on equity securities were as follows during the years ended December 31:
Readily determinable fair value
No readily determinable fair value
Unrealized gains (losses) on equity securities
2022
Year Ended December 31,
2021
(dollars in thousands)
2020
(414)
—
(414)
$
107
—
107
$
33
—
33
113
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES
Major categories of loans as of December 31, 2022 and 2021 are summarized as follows:
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
$
$
December 31, 2022 December 31, 2021
(dollars in thousands)
266,757
237,746
218,503
713,202
287,865
360,824
338,253
197,103
2,620,253
(25,333)
2,594,920
286,946
247,796
234,544
684,023
263,911
298,048
327,837
156,584
2,499,689
(23,936)
2,475,753
$
$
Paycheck Protection Program (PPP) loans (included above)
Commercial and industrial
Agricultural and farmland
Municipal, consumer, and other
Total PPP loans
$
$
28
—
—
28
$
$
28,404
913
171
29,488
The following tables detail activity in the allowance for loan losses for the years ended December 31:
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
Provision for loan
losses
Charge-offs
Recoveries
Balance,
December 31, 2022
Commercial Commercial
Commercial Agricultural Real Estate Real Estate
Non-owner
Owner
and
and
Industrial
and
Farmland Occupied Occupied Multi-Family Development Residential Other
(dollars in thousands)
and Land
Family
Total
Municipal,
Construction One-to-four Consumer,
$
4,441
$
2,766
$
1,779
$
3,663
$
1,024
$
2,977
$
2,540
$
3,109
$ 22,299
677
(1,784)
595
3,929
(1,474)
(668)
653
2,440
88
(23)
774
793
52
—
—
845
(49)
—
—
(1,946)
(27)
—
961
(39)
440
7,862
(349)
75
933
—
—
3,141
11,251
1,957
(1,280)
(30)
9
(3,130)
—
24
(694)
—
—
1,032
(27)
250
4,232
340
—
342
(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
1,840
8,145
1,263
4,914
1,311
3,178
23,936
(1,653)
(25)
1,031
(1,707)
—
283
209
—
—
(692)
—
1
146
(67)
369
2,952
(569)
329
(706)
(684)
2,787
$
3,279
$
796
$
1,193
$
6,721
$
1,472
$
4,223
$
1,759
$
5,890
$ 25,333
114
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, 2022
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, 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
Commercial Commercial
Commercial Agricultural Real Estate Real Estate
Non-owner
Municipal,
Construction One-to-four Consumer,
and
Industrial
and
and
Farmland Occupied Occupied Multi-Family Development Residential Other
and Land
Family
Owner
Total
(dollars in thousands)
$
261,833
$
233,118
$
203,558
$
671,663
$
287,298
$
359,892
$ 325,621
$ 184,579
$ 2,527,562
4,818
4,033
11,366
30,509
—
82
8,399
12,508
71,715
106
266,757
595
237,746
$
$
3,579
218,503
$
11,030
713,202
$
567
287,865
$
$
850
360,824
4,233
$ 338,253
16
$ 197,103
20,976
$ 2,620,253
$
3,121
$
796
$
1,008
$
4,332
$
1,470
$
4,221
$
1,709
$
2,327
$
18,984
158
—
168
2,388
—
—
44
3,562
6,320
—
3,279
$
$
—
796
$
17
1,193
$
1
6,721
$
2
1,472
$
2
4,223
$
6
1,759
$
1
5,890
$
29
25,333
Commercial Commercial
Commercial Agricultural Real Estate Real Estate
Non-owner
Municipal,
Construction One-to-four Consumer,
and
Industrial
and
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
115
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, 2022
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
116
Unpaid
Principal
Recorded
Related
Balance Investment Allowance
(dollars in thousands)
$
$
268
—
635
14,269
—
—
569
8,152
$ 23,893
$
254
—
610
14,261
—
—
524
8,131
$ 23,780
158
—
168
2,388
—
—
44
3,562
6,320
—
—
—
—
—
—
—
—
—
158
—
168
2,388
—
—
44
3,562
6,320
$
$
$
$
$
$
4,564
4,440
10,912
16,327
—
92
9,181
4,410
$ 49,926
$
4,832
4,440
11,547
30,596
—
92
9,750
12,562
$ 73,819
$
4,564
4,033
10,756
16,248
—
82
7,875
4,377
$ 47,935
$
4,818
4,033
11,366
30,509
—
82
8,399
12,508
$ 71,715
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
117
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
The following table presents the average recorded investment and interest income recognized for loans
individually evaluated for impairment by category of loans during the years ended December 31:
Year Ended December 31,
2022
2021
2020
Average
Recorded
Interest
Income
Average
Recorded
Interest
Income
Average
Recorded
Interest
Income
Investment Recognized Investment Recognized Investment Recognized
With an allowance recorded:
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner
occupied
Commercial real estate - non-owner
occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Total
With no related allowance:
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner
occupied
Commercial real estate - non-owner
occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
Total
Total 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
$
204
—
970
10,943
—
—
384
6,259
$ 18,760
$ 9,568
228
8,619
12,636
—
1,505
6,238
3,361
$ 42,155
$ 9,772
228
9,589
23,579
—
1,505
6,622
9,620
$ 60,915
$
$
$
$
$
$
18
—
63
740
—
—
16
236
1,073
453
13
525
1,278
—
106
352
148
2,875
471
13
588
2,018
—
106
368
384
3,948
118
(dollars in thousands)
89
4
$ 1,593
83
$
$ 3,031
273
$
3,052
177
1,622
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
$
$
$
$
$
169
9
98
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
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present loans by category based on current payment and accrual status as of
December 31:
December 31, 2022
Current
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
Accruing Interest
30 - 89 Days
Total
Loans
90+ Days
Past Due Past Due Nonaccrual
(dollars in thousands)
17 $
19
187
—
11
61
894
157
1,346 $
— $
—
—
—
—
—
145
1
146 $
219 $
—
74
171
—
—
1,638
53
266,757
237,746
218,503
713,202
287,865
360,824
338,253
197,103
2,155 $ 2,620,253
$
266,521 $
237,727
218,242
713,031
287,854
360,763
335,576
196,892
$ 2,616,606 $
Accruing Interest
30 - 89 Days
90+ Days
Past Due Past Due Nonaccrual
(dollars in thousands)
9 $
Total
Loans
December 31, 2021
Current
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
$
286,563 $
247,772
234,441
683,029
263,911
297,465
325,780
156,297
$ 2,495,258 $
24
103
823
—
64
383
214
1,620 $
— $
—
—
—
—
—
32
16
48 $
374 $
—
—
171
—
519
1,642
57
286,946
247,796
234,544
684,023
263,911
298,048
327,837
156,584
2,763 $ 2,499,689
119
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, 2022
Pass
Pass-Watch Substandard Doubtful
Total
$
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
255,309 $
223,114
198,546
652,691
283,682
358,215
323,632
184,299
6,630 $
(dollars in thousands)
4,818 $
4,628
9,852
33,229
—
82
8,714
12,508
10,004
10,105
27,282
4,183
2,527
5,907
296
Total
$ 2,479,488 $ 66,934 $ 73,831 $
266,757
— $
237,746
—
218,503
—
713,202
—
287,865
—
360,824
—
338,253
—
—
197,103
— $ 2,620,253
December 31, 2021
Pass
Pass-Watch Substandard Doubtful
(dollars in thousands)
5,114 $ 14,744 $
Total
$
Commercial and industrial
Agricultural and farmland
Commercial real estate - owner occupied
Commercial real estate - non-owner occupied
Multi-family
Construction and land development
One-to-four family residential
Municipal, consumer, and other
267,088 $
221,898
198,862
619,212
241,362
268,556
308,951
143,299
25,213
24,098
32,372
22,549
27,474
11,221
244
685
11,584
32,439
—
2,018
7,665
13,041
Total
$ 2,269,228 $ 148,285 $ 82,176 $
286,946
— $
247,796
—
234,544
—
684,023
—
263,911
—
298,048
—
327,837
—
—
156,584
— $ 2,499,689
There were no troubled debt restructurings during the years ended December 31, 2022 and 2021. The following
table presents the financial effect of troubled debt restructurings for the year ended December 31, 2020:
Year Ended December 31, 2020
Recorded Investment
Number Pre-Modification Post-Modification Reserves
Charge-offs
and Specific
(dollars in thousands)
Commercial real estate - owner occupied
1 $
853 $
853 $
—
During the year ended December 31, 2020, the troubled debt restructuring was the result of a payment
concession. As of December 31, 2022 and 2021, 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.
As of December 31, 2022 and 2021, the Company had $3.0 million and $3.5 million 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 loans whose terms have been modified in troubled debt restructurings.
120
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 made prior to
December 31, 2021 to borrowers experiencing financial hardship due to the COVID-19 pandemic generally do
not need to be accounted for as a troubled debt restructuring. As of December 31, 2022, the Company had no
loans that were granted a payment modification due to a COVID-19 related financial hardship which had not
returned to regular payments. As of December 31, 2021, the Company had $0.2 million of loans that were
granted a payment modification due to a COVID-19 related financial hardship and had 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 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 5 – LOAN SERVICING
$
$
2022
2020
Year Ended December 31,
2021
(dollars in thousands)
$ 1,397
508
(1,089)
(403)
413
413
548
—
(231)
730
$ 1,662
288
—
(553)
$ 1,397
$
Mortgage loans serviced for others, not included in the accompanying consolidated balance sheets, amounted
to $955.8 million and $1.04 billion as of December 31, 2022 and 2021, respectively. Activity in mortgage
servicing rights is as follows for years ended December 31:
Beginning balance
Acquired
Capitalized servicing rights
Fair value adjustment:
2022
2020
Year Ended December 31,
2021
(dollars in thousands)
$ 5,934
370
1,200
$ 8,518
—
1,981
$ 7,994
—
530
Attributable to payments and principal reductions
Attributable to changes in valuation inputs and assumptions
Total fair value adjustment
Ending balance
(1,343)
2,966
1,623
$ 10,147
(1,788)
2,278
490
$ 7,994
(2,364)
(2,201)
(4,565)
$ 5,934
121
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated depreciation as of December 31 as follows:
December 31, 2022 December 31, 2021
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)
77,869
24,512
102,381
51,912
50,469
$
77,180
24,199
101,379
48,896
52,483
Buildings and improvements
Furniture, fixtures, and equipment
Total depreciation expense
$
$
2022
Year Ended December 31,
2021
(dollars in thousands)
$
$
1,623
1,420
3,043
$
1,694
1,380
3,074
$
2020
1,761
1,180
2,941
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 at the lower of the carrying value or fair value, less
estimated costs to sell. As of December 31, 2022 and 2021, bank premises held for sale totaled $0.2 million
and $1.5 million, respectively. During the years ended December 31, 2022 and 2021, there were impairment
losses of $0.1 million and $0.7 million, respectively, 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.
NOTE 7 – FORECLOSED ASSETS
Foreclosed assets activity is as follows for the years ended December 31:
Beginning balance
Transfers from loans
Capitalized improvements
Proceeds from sales
Sales through loan origination
Net gain on sales
Direct write-downs
Ending balance
122
2020
2022
Year Ended December 31,
2021
(dollars in thousands)
$ 4,168
4,857
—
(5,805)
(252)
505
(195)
$ 3,278
$ 5,099
1,074
6
(2,079)
(67)
348
(213)
$ 4,168
$ 3,278
541
—
(475)
—
118
(432)
$ 3,030
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:
2022
Year Ended December 31,
2021
(dollars in thousands)
2020
Direct write-downs
Net gain on sales
Guarantee reimbursements
Gains (losses) on foreclosed assets
$
$
(432) $
118
—
(314) $
(195) $
505
—
310
$
(213)
348
7
142
The carrying value of foreclosed one-to-four family residential real estate property as of December 31, 2022 and
2021, was $20 thousand and $0.2 million, respectively. As of December 31, 2022, there were 4 one-to-four
family residential real estate loans in the process of foreclosure totaling approximately $0.2 million. As of
December 31, 2021, there were 4 residential real estate loans in the process of foreclosure totaling
approximately $0.1 million.
NOTE 8 – 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
2022
Core
Deposit
Year Ended December 31,
2021
Core
Deposit
2020
Core
Deposit
Goodwill
Intangible Goodwill
Intangible Goodwill
Intangible
$ 29,322
—
—
$ 29,322
$
$ 1,943
—
(873)
$ 1,070
— $ 20,847
(dollars in thousands)
$ 2,798
199
(1,054)
$ 1,943
— $ 19,974
$ 23,620
5,702
—
$ 29,322
$
$ 23,620
—
—
$ 23,620
$
$ 4,030
—
(1,232)
$ 2,798
— $ 18,920
Amortization of core deposit intangible assets for the years subsequent to December 31, 2022 is expected to be
as follows (dollars in thousands):
Year ended December 31,
2023
2024
2025
2026
2027
Thereafter
Total
123
$
$
353
337
275
20
20
65
1,070
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – DEPOSITS
The Company’s deposits are summarized below as of December 31:
Noninterest-bearing deposits
Interest-bearing deposits:
Interest-bearing demand
Money market
Savings
Time
Total interest-bearing deposits
Total deposits
December 31, 2022
December 31, 2021
(dollars in thousands)
994,954
$
1,139,150
555,425
634,527
262,968
2,592,070
3,587,024
$
1,087,659
1,105,949
583,198
633,171
328,208
2,650,526
3,738,185
$
$
There were no brokered deposits as of December 31, 2022. Money market deposits include $4.2 million of
brokered deposits as of December 31, 2021. Money market deposits also include $1.7 million and $6.9 million
of reciprocal transaction deposits as of December 31, 2022 and 2021, respectively. Time deposits include
$1.6 million and $0.9 million of reciprocal time deposits as of December 31, 2022 and 2021, respectively.
The aggregate amounts of time deposits in denominations of $250 thousand or more amounted to $27.2 million
and $59.5 million as of December 31, 2022 and 2021, respectively. The aggregate amounts of time deposits in
denominations of $100 thousand or more amounted to $92.6 million and $133.1 million as of December 31,
2022 and 2021, respectively.
At December 31, 2022, the scheduled maturities of time deposits are as follows (dollars in thousands):
Year ended December 31,
2023
2024
2025
2026
2027
Thereafter
Total
$
$
191,045
44,573
14,544
8,822
3,855
129
262,968
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
2022
Year Ended December 31,
2021
(dollars in thousands)
2020
$
$
607
813
208
883
2,511
$
$
518
437
188
1,329
2,472
$
$
647
697
196
2,681
4,221
124
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
All repurchase agreements are sweep instruments. The securities underlying the agreements as of
December 31, 2022 and 2021 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 11 – BORROWINGS
December 31, 2022 December 31, 2021
$
$
$
(dollars in thousands)
43,081
$
61,256
0.28 %
50,771
55,850
$
$
0.07 %
64,164
64,262
As of December 31, 2022, Federal Home Loan Bank of Chicago (“FHLB”) borrowings totaled $160.0 million and
consisted of short-term borrowings which had a weighted average rate of 4.29% and mature within 30 days.
There were no FHLB borrowings outstanding as of December 31, 2021. Borrowings from the FHLB are secured
by FHLB stock held by the Company and pledged security in the form of qualifying loans. The loans pledged as
of December 31, 2022 and 2021 totaled $892.1 million and $567.0 million, respectively. As of December 31,
2022 and 2021, loans pledged also served as collateral for credit exposure of $0.3 million and $0.4 million,
respectively, 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, 2022 and 2021, there
was no collateral pledged and there was no outstanding balance.
NOTE 12 – SUBORDINATED NOTES
On September 3, 2020, the Company issued $40.0 million 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 $0.8 million which will be amortized over 10 years. As of December 31, 2022 and 2021,
100% of the subordinated notes qualified as Tier 2 capital.
The face value and carrying value of the subordinated notes are summarized below:
Subordinated notes, at face value
Unamortized issuance costs
Subordinated notes, at carrying value
125
$
December 31, 2022 December 31, 2021
(dollars in thousands)
40,000 $
(605)
39,395 $
40,000
(684)
39,316
$
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 – JUNIOR SUBORDINATED DEBENTURES ISSUED TO CAPITAL TRUSTS
Five subsidiary business trusts of the Company have issued floating rate capital securities (“capital securities”)
which are guaranteed by the Company.
The Company owns all of the outstanding stock of the five subsidiary business trusts. The trusts used the
proceeds from the issuance of their capital securities to buy floating rate junior subordinated deferrable interest
debentures (“junior subordinated debentures”) issued by the Company. These junior subordinated debentures
are the only assets of the trusts and the interest payments from the junior subordinated debentures finance the
distributions paid on the capital securities. The junior subordinated debentures are unsecured and rank junior
and subordinate in the right of payment to all senior debt of the Company.
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:
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
$
December 31, 2022 December 31, 2021
(dollars in thousands)
10,310 $
10,310
5,155
7,217
5,773
38,765
(985)
37,780 $
10,310
10,310
5,155
7,217
5,773
38,765
(1,051)
37,714
$
The interest rates on the junior 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,
2022
December 31,
2021
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
6.83 %
6.30
6.12
6.88
7.67
2.87 %
1.73
1.55
2.92
3.10
Maturity
Date
April 6, 2034
June 15, 2037
September 15, 2037
April 6, 2034
December 15, 2037
126
Table of Contents
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, 2022 and 2021, 100% of the trust preferred securities qualified as Tier 1 capital under the final
rule adopted in March 2005.
NOTE 14 – DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are negotiated contracts entered into by two issuing counterparties containing
specific agreement terms, including the underlying instrument, amount, exercise price, and maturities. The
derivatives accounting guidance requires that the Company to 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.
127
Table of Contents
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:
December 31, 2022
Fair
Value
Notional
Amount
December 31, 2021
Fair
Value
Notional
Amount
(dollars in thousands)
Fair value recorded in other assets
Fair value recorded in other liabilities
$ 17,000
—
$
629
—
$
— $
17,000
—
(680)
As of December 31, 2022, the interest rate swap agreements designated as cash flow hedges had contractual
maturities between 2024 and 2025. As of December 31, 2022, counterparties had cash pledged and held on
deposit by the Company of $0.6 million. As of December 31, 2021, the Company had cash pledged and held on
deposit at counterparties of $0.8 million.
In 2019, the Company had an interest rate swap contract with a notional amount of $10.0 million 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, 2022, 2021, and 2020, 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 (loss) to income
Designated as cash flow hedges:
Taxable loan interest income
Junior subordinated debentures interest expense
Total
Amounts of gross gain (loss)
reclassified from accumulated
other comprehensive income (loss)
Year Ended December 31,
2021
(dollars in thousands)
2022
2020
$
$
— $
(126)
(126)
$
— $
(412)
(412)
$
64
(302)
(238)
128
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest Rate Swaps Not Designated as Hedging Instruments
The Company may offer interest rate swap agreements to its commercial borrowers in connection with their risk
management needs. The Company manages the interest rate 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 work 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, 2022
Fair
Notional
Amount
Value
December 31, 2021
Fair
Notional
Value
Amount
(dollars in thousands)
Fair value recorded in other assets:
Interest rate swaps with a commercial borrower counterparty
Interest rate swaps with a financial institution counterparty
Total fair value recorded in other assets
Fair value recorded in other liabilities:
Interest rate swaps with a commercial borrower counterparty
Interest rate swaps with a financial institution counterparty
Total fair value recorded in other liabilities
$
— $
— $ 112,041 $ 8,622
75
3,880
$ 106,995 $ 6,981 $ 115,921 $ 8,697
106,995
6,981
$ 106,995 $ (6,981) $
(75)
(8,622)
$ 106,995 $ (6,981) $ 115,921 $ (8,697)
— 112,041
3,880 $
—
As of December 31, 2022, the interest rate swap agreements not designated as hedging instruments had
contractual maturities between 2023 and 2042. As of December 31, 2021, the Company had $7.5 million of
debt securities pledged and held in safekeeping at the financial institution counterparty.
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 for the years ended
December 31:
Not designated as hedging instruments:
Gross gains
Gross losses
Net gains (losses)
2022
Year Ended December 31,
2021
(dollars in thousands)
2020
$
$
16,002
(16,002)
$
— $
13,773
(13,773)
$
— $
24,758
(24,758)
—
129
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 – ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table presents the activity and accumulated balances for components of other comprehensive
income (loss) for the years ended December 31:
Unrealized Gains (Losses)
on Debt Securities
Available-for-Sale Held-to-Maturity Derivatives
Total
(dollars in thousands)
$
8,659
$
(131) $
(696) $
7,832
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
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, 2022
$
15,272
—
15,272
4,353
10,919
19,578
3,887
(24,798)
—
(24,798)
(7,069)
(17,729)
5,736
7,664
—
18
18
5
13
(118)
(3,887)
—
687
687
196
491
(3,514)
(7,664)
(1,084)
238
(846)
(235)
(611)
(1,307)
—
366
412
778
222
556
(751)
—
14,188
256
14,444
4,123
10,321
18,153
—
(24,432)
1,099
(23,333)
(6,651)
(16,682)
1,471
—
(105,459)
—
(105,459)
(30,061)
(75,398)
(61,998) $
—
1,723
1,723
491
1,232
(9,946) $
1,183
126
1,309
373
936
185
(104,276)
1,849
(102,427)
(29,197)
(73,230)
$ (71,759)
Reclassifications from accumulated other comprehensive income (loss) for unrealized gains (losses) on debt
securities available-for-sale are included in gains (losses) on sales of securities in the accompanying
consolidated statements of income.
Reclassifications from accumulated other comprehensive income (loss) for unrealized gains (losses) on debt
securities held-to-maturity are included in securities interest income in the accompanying consolidated
statements of income.
Reclassifications from accumulated other comprehensive income (loss) for the fair value of derivative financial
instruments represent net interest payments received or made on derivatives designated as cash flow hedges.
See Note 14 for additional information.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 – INCOME TAXES
Allocation of income tax expense between current and deferred portions for the years ended December 31 is as
follows:
2022
Year Ended December 31,
2021
(dollars in thousands)
2020
Current
Federal
State
Total current
Deferred
Federal
State
Total deferred
Income tax expense
$ 15,194
7,459
22,653
$ 11,330
6,053
17,383
$
8,358
4,709
13,067
(2,045)
(874)
(2,919)
$ 19,734
1,945
963
2,908
$ 20,291
(226)
(113)
(339)
$ 12,728
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
Other
Income tax expense
2022
Amount
Percentage
Year Ended December 31,
2021
Amount
(dollars in thousands)
Percentage
Amount
2020
Percentage
$ 16,000
21.0 %$ 16,078
21.0 %$ 10,410
21.0 %
(1,618)
5,285
67
$ 19,734
(2.1)
6.9
0.1
(1,426)
5,430
209
25.9 %$ 20,291
(1.9)
7.1
0.3
(1,470)
3,631
157
26.5 %$ 12,728
(3.0)
7.4
0.3
25.7 %
131
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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
Other
Total deferred tax liabilities
Net deferred tax asset
NOTE 17 – EARNINGS PER SHARE
December 31, 2022
December 31, 2021
(dollars in thousands)
$
$
7,151 $
2,623
965
480
142
153
29,874
5,237
46,625
3,940
2,868
610
214
756
2,756
11,144
35,481
$
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
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 and performance restricted stock units.
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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 18 – DEFERRED COMPENSATION
2022
Year Ended December 31,
2021
(dollars in thousands)
2020
56,456
(66)
56,390
$
$
56,271
(104)
56,167
$
$
36,845
(93)
36,752
28,853,697
65,619
27,795,806
15,487
27,457,306
—
28,919,316
27,811,293
27,457,306
1.95
1.95
$
$
2.02
2.02
$
$
1.34
1.34
$
$
$
$
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, 2022 and 2021, there was no remaining deferred compensation liability for the SERP. During the
year ended December 31, 2020, the Company recognized deferred compensation expense for the SERP of
$1.7 million.
NOTE 19 – EMPLOYEE BENEFIT PLANS
Profit Sharing Plan
During the years ended December 31, 2022, 2021, and 2020, the Company’s profit sharing plan contribution
expense amounted to $1.3 million, $1.3 million, and $1.1 million, 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, 2022 and
2021, the Company’s maximum aggregate liability under the plan was $6.4 million and $6.6 million, respectively.
During the years ended December 31, 2022, 2021, and 2020, medical benefits expense amounted to
$4.9 million, $4.2 million, and $4.8 million, respectively.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 – STOCK-BASED COMPENSATION PLANS
The Company adopted the HBT Financial, Inc. Omnibus Incentive Plan (the “Omnibus Incentive Plan”) in 2019.
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
$
$
1,334
615
1,949
88
2,037
579
185
764
226
990
$
$
351
—
351
(137)
214
2022
Year Ended December 31,
2021
(dollars in thousands)
$
$
2020
In February 2022, all outstanding restricted stock unit and performance restricted stock unit agreements were
modified to address treatment upon retirement. In the event of retirement, and if the retirement eligibility
requirements are met, then 100% of unvested restricted stock units and performance restricted stock units will
continue to vest in accordance with the originally established vesting schedule. The retirement modification
resulted in the acceleration of $0.6 million of expense, although total compensation costs related to the modified
agreements remained the same.
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Restricted Stock Units
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A restricted stock unit grants a participant the right to receive one share of the Company’s 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, 2022, 2021, and 2020, the total grant date fair value of the restricted
stock units granted was $1.3 million, $0.9 million, and $1.4 million, respectively, based on the grant date closing
prices. The total intrinsic value of restricted stock units that vested during the year ended December 31, 2022
and 2021 were $0.7 million and $0.3 million, respectively.
The following is a summary of outstanding restricted stock unit activity:
Balance, December 31, 2019
Granted
Vested
Forfeited
Balance, December 31, 2020
Granted
Vested
Forfeited
Balance, December 31, 2021
Granted
Vested
Forfeited
Balance, December 31, 2022
Restricted
Stock Units
— $
73,700
—
(2,700)
71,000
59,994
(20,225)
(1,525)
109,244
66,995
(34,925)
(1,328)
139,986
$
$
$
Weighted
Average
Grant Date
Fair Value
—
18.98
—
19.03
18.98
15.81
18.86
18.11
17.27
18.81
17.26
18.35
18.01
As of December 31, 2022, unrecognized compensation cost related to non-vested restricted stock units was
$1.2 million. This cost is expected to be recognized over the weighted average remaining contractual term of
2.0 years.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Performance Restricted Stock Units
A performance restricted stock unit is similar to a restricted stock unit, except that the number of shares of the
Company’s common stock awarded is based on a performance condition and the completion of the requisite
service period. The number of shares of the Company’s 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 years ended December 31, 2022 and 2021, the total fair value of the performance restricted stock
units granted was $0.5 million and $0.6 million, respectively, based on the grant date closing prices and an
assessment of the probable outcome of the performance condition on the grant date. 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, 2019
Granted
Vested
Forfeited
Balance, December 31, 2020
Granted
Vested
Forfeited
Balance, December 31, 2021
Granted
Vested
Forfeited
Balance, December 31, 2022
Performance
Restricted
Stock Units
Weighted
Average
Grant Date
Fair Value
— $
—
—
—
— $
38,344
—
—
38,344
23,723
—
—
62,067
$
$
—
—
—
—
—
15.72
—
—
15.72
19.14
—
—
17.02
As of December 31, 2022, unrecognized compensation cost related to non-vested performance restricted stock
units was $0.3 million, based on the current assessment of the probable outcome of the performance
conditions. This cost is expected to be recognized over the weighted average remaining service period of
1.6 years.
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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 are classified as liabilities. The liability is based on an option-pricing model used to estimate the fair value
of the stock appreciation rights. Compensation cost for non-vested stock appreciation rights is recognized on a
straight line basis over the service period of the entire award. The non-vested stock appreciation rights vest in
four equal annual installments beginning on the first anniversary of the grant date.
The following is a summary of stock appreciation rights activity:
Balance, December 31, 2019
Granted
Exercised
Expired
Forfeited
Balance, December 31, 2020
Granted
Exercised
Expired
Forfeited
Balance, December 31, 2021
Granted
Exercised
Expired
Forfeited
Balance, December 31, 2022
Stock
Appreciation
Rights
110,160
—
—
—
(4,590)
105,570
—
(6,120)
(1,530)
—
97,920
—
(24,480)
—
—
73,440
Weighted
Average
Grant Date
Assigned Value
16.32
—
—
—
16.32
16.32
—
16.32
16.32
—
16.32
—
16.32
—
—
16.32
$
$
$
$
A further summary of outstanding stock appreciation rights as of December 31, 2022, is as follows:
Stock Appreciation Rights
Weighted Average
Remaining
Grant Date Assigned Values
$ 16.32
Outstanding Exercisable Contractual Term
67,320
6.7 years
73,440
As of December 31, 2022, unrecognized compensation cost related to non-vested stock appreciation rights was
$28 thousand.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2022 and 2021, the liability recorded for outstanding stock appreciation rights was
$0.5 million and $0.5 million, 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, 2022 December 31, 2021
3.95 %
36.54 %
6.7
3.27 %
1.40 %
35.52 %
7.7
3.20 %
As of December 31, 2022, the liability recorded for previously exercised stock appreciation rights was
$0.5 million, which will be paid in two remaining annual installments in 2023 and 2024. As of December 31,
2021, the liability recorded for previously exercised stock appreciation rights was $0.8 million.
NOTE 21 – 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, 2022 and 2021, the capital conservation buffer was 2.5% of risk-weighted assets.
As of December 31, 2022, 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, 2022
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
Total Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.
Heartland Bank and Trust Company
Tier 1 Capital (to Risk Weighted Assets)
Actual
Amount
Ratio
For Capital
Adequacy
Purposes
Amount
Ratio
(dollars in thousands)
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Amount
Ratio
$ 516,556
489,316
16.27 % $ 254,052
253,643
15.43
8.00 %
8.00
N/A
$ 317,054
N/A
10.00 %
$ 451,828
463,983
14.23 % $ 190,539
190,233
14.63
6.00 %
6.00
N/A
$ 253,643
N/A
8.00 %
$ 415,213
463,983
13.07 % $ 142,904
142,674
14.63
4.50 %
4.50
N/A
$ 206,085
N/A
6.50 %
$ 451,828
463,983
10.48 % $ 172,427
172,240
10.78
4.00 %
4.00
N/A
$ 215,300
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
$ 479,320
452,162
16.88 % $ 227,115
226,950
15.94
8.00 %
8.00
N/A
$ 283,688
N/A
10.00 %
Consolidated HBT Financial, Inc.
Heartland Bank and Trust Company
$ 416,068
428,226
14.66 % $ 170,336
170,213
15.09
6.00 %
6.00
N/A
$ 226,950
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
$ 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 %
139
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22 – FAIR VALUE OF FINANCIAL INSTRUMENTS
Recurring Basis
The Company uses fair value measurements to record fair value adjustments to certain assets and to determine
fair value disclosures. Additional information on fair value measurements are summarized in Note 1. There were
no transfers between levels during the years ended December 31, 2022 and 2021. 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, 2022
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, 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
Level 1
Inputs
$ 154,515
—
—
—
—
—
3,029
—
—
—
Level 1
Inputs
Level 2
Inputs
(dollars in thousands)
Level 3
Inputs
Total
Fair Value
$
— $
55,157
243,829
195,441
132,888
61,694
—
—
7,610
6,981
— $ 154,515
55,157
—
243,829
—
—
—
—
—
10,147
—
—
195,441
132,888
61,694
3,029
10,147
7,610
6,981
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
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, 2021 to December 31, 2022.
140
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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 statements of comprehensive income (loss). The change in fair value of equity securities with
readily determinable fair values is recorded through an adjustment to the consolidated statements 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 hedging instruments, the change in fair value is
recorded through an adjustment to the consolidated statements of comprehensive income (loss). For derivative
financial instruments not designated as 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 as Level 3. The
change in fair value is recorded through an adjustment to the consolidated statements of income.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present additional information about the unobservable inputs used in the fair value
measurement of the mortgage servicing rights (dollars in thousands):
December 31, 2022
Mortgage servicing rights
Fair Value Valuation Technique Unobservable Inputs
$ 10,147
Discounted cash
flows
Constant pre-
payment rates
(CPR)
Discount rate
December 31, 2021
Mortgage servicing rights
Fair Value
$ 7,994
Valuation Technique
Discounted cash
flows
Unobservable Inputs
Constant pre-
payment rates
(CPR)
Discount rate
Nonrecurring Basis
Range
(Weighted Average)
5.3% to 59.7% (8.2%)
9.0% to 11.7% (9.3%)
Range
(Weighted Average)
7.0% to 88.9% (11.7%)
9.0% to 11.0% (9.0%)
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, 2022
Loans held for sale
Collateral-dependent impaired loans
Bank premises held for sale
Foreclosed assets
December 31, 2021
Loans held for sale
Collateral-dependent impaired loans
Bank premises held for sale
Foreclosed assets
Loans Held for Sale
Level 1
Inputs
Level 3
Inputs
Level 2
Inputs
(dollars in thousands)
$
— $
Total
Fair Value
$ — $
—
—
—
615
—
—
—
17,460
235
3,030
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
615
17,460
235
3,030
Total
Fair Value
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
The fair value of collateral-dependent impaired loans is estimated based on the fair value of the underlying
collateral supporting the loan. Collateral values are estimated using Level 3 inputs based on appraisals and
other valuation estimates of the underlying collateral and 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.
143
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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, 2022
Collateral-dependent impaired
loans
Bank premises held for sale
Foreclosed assets
December 31, 2021
Collateral-dependent impaired
loans
Bank premises held for sale
Foreclosed assets
Other Fair Value Methods
Fair
Value
Valuation
Technique
Unobservable Inputs
Range
(Weighted
Average)
$ 17,460 Appraisal of collateral Appraisal adjustments Not meaningful
235
3,030
Appraisal
Appraisal
Appraisal adjustments
Appraisal adjustments
Fair
Value
Valuation
Technique
Unobservable Inputs
7% (7%)
7% (7%)
Range
(Weighted
Average)
$ 22,423 Appraisal of collateral Appraisal adjustments Not meaningful
1,452
3,278
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.
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. 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.
Investments in Unconsolidated Subsidiaries
The fair values of the Company’s investments in unconsolidated subsidiaries are presumed to approximate
carrying amounts.
144
Table of Contents
Time Deposits
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
145
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides summary information on the carrying amounts and estimated fair values of the
Company’s financial instruments as of December 31:
Financial assets:
Cash and cash equivalents
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, 2022
December 31, 2021
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
$
114,159
541,600
7,965
2,594,920
$
114,159
478,801
7,965
2,566,930
$
409,268
336,185
2,739
2,475,753
$
409,268
336,027
2,739
2,494,686
1,165
19,506
1,165
19,506
1,165
14,901
1,165
14,901
Level 3
262,968
253,619
328,208
327,779
Level 2
Level 3
Level 3
Level 2
43,081
39,395
37,780
1,363
43,081
37,205
37,030
1,363
61,256
39,316
37,714
1,043
61,256
41,602
33,640
1,043
The Company estimated the fair value of lending related commitments as described in Note 23 to be immaterial
based on limited interest rate exposure due to their variable nature, short-term commitment periods and
termination clauses provided in the agreements.
NOTE 23 – COMMITMENTS AND CONTINGENCIES
Financial Instruments
The Bank is party to credit-related financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers. These financial instruments include commitments to
extend credit and standby letters of credit. Such instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the consolidated balance sheets.
The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument
for commitments to extend credit and standby letters of credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments.
Such commitments and conditional obligations were as follows as of December 31:
Contractual Amount
December 31, 2022 December 31, 2021
Commitments to extend credit
Standby letters of credit
$
146
(dollars in thousands)
$
756,885
17,785
609,947
12,960
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The
Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary, by the Bank upon extension of credit is based on management’s credit evaluation of the
customer. Collateral held varies, but may include real estate, accounts receivable, inventory, property, plant, and
equipment, and income-producing properties.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a
customer to a third party. Those standby letters of credit are primarily issued to support extensions of credit. The
credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans
to customers. The Bank secures the standby letters of credit with the same collateral used to secure the related
loan.
Lease Commitments
The Company leases office space under operating leases. Certain leases contain renewal options for periods
from three to five years at their fair rental value at the time of renewal. Future minimum lease payments under
these leases are as follows (dollars in thousands):
Year ended December 31,
2023
2024
2025
Total
Legal Contingencies
$
$
191
123
42
356
In the normal course of business, the Company, or its subsidiaries, are involved in various legal proceedings. In
the opinion of management, any liability resulting from pending proceedings would not be expected to have a
material adverse effect on the Company's consolidated financial statements.
PLB Investments LLC, John Kuehner, and A.S. Palmer Investments LLC v. Heartland Bank and Trust Company
and PNC Bank N.A., In the United States District Court for the Northern District of Illinois, Case No. 1:20-cv-
1023 (“Class Action”); Melanie E. Damian, As Receiver of Today’s Growth Consultant, Inc. (dba The Income
Store) v. Heartland Bank and Trust Company and PNC Bank N.A., In the United States District Court for the
Northern District of Illinois, Case No. 1:20-cv-7819 (“Receiver’s Action”)
The Bank was a defendant in the purported Class Action lawsuit that was filed on February 12, 2020, in the
U.S. District Court for the Northern District of Illinois. The plaintiffs in the Class Action alleged that the Bank
negligently enabled and facilitated a fraudulent, Ponzi-like scheme perpetrated by Today’s Growth Consultant,
Inc. (dba The Income Store) (“TGC”). Additionally, the Receiver for TGC filed the Receiver’s Action on
December 30, 2020, in the U.S. District Court for the Northern District of Illinois, with similar allegations.
On February 20, 2023, the Bank reached an agreement in principle to settle both the Class Action and
Receiver’s Action in which the Bank would make one-time cash payments totaling $13.0 million, without
admitting fault, to release the Bank from further liability and claims in both the Class Action and Receiver’s
Action.
147
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to the agreement in principle, the parties would settle and dismiss the Class Action and Receiver’s
Action and seek the entry of bar orders from the U.S. District Court for the Northern District of Illinois (the
“Court”) prohibiting any continued or future claims against the Bank and its related parties relating to the Class
Action and the Receiver’s Action, whether asserted to date or not. If definitive settlement agreements, including
the bar orders described in the preceding sentence, are approved by the Court and are not subject to appeal,
the Bank will make one-time cash payments totaling $13.0 million.
The agreement in principle is subject to the execution and delivery of definitive settlement agreements reflecting
the terms of the agreement in principle, notice to TGC’s investor claimants and final, non-appealable approvals
by the Court. While the Bank believes that the proposed settlements are consistent with the terms of similar
settlements that have been approved by other courts and were not successfully appealed, it is possible that the
Court may decide not to approve the definitive settlement agreements or that the Seventh Circuit Court of
Appeals may decide to accept an appeal thereof.
The proposed settlements do not include any admission of liability or wrongdoing by the Bank, and the Bank
expressly denies any liability or wrongdoing with respect to any matter alleged in the Class Action and
Receiver’s Action. The Bank has agreed in principle to the settlements to avoid the cost, risks and distraction of
continued litigation. The Company believes the proposed settlements are in the best interests of the Company
and its shareholders.
Accordingly, the Bank recorded a $13.0 million accrual related to these matters as of December 31, 2022. The
Bank’s insurer has agreed to reimburse $7.4 million of the settlement payment which was recorded as an
insurance recovery receivable as of December 31, 2022. During the fourth quarter and year ended December
31, 2022, the estimated net settlement amount of $5.6 million was included in other noninterest expense in the
consolidated statements of income.
DeBaere, et al v. Heartland Bank and Trust Company
The Bank is a defendant in a purported class action lawsuit filed in June 2020, in the Circuit Court of Cook
County, Illinois. The plaintiff, a customer of the Bank, alleges that the Bank breached its contract with the
plaintiff by (1) charging multiple insufficient funds fees or overdraft fees on a single customer-initiated
transaction, and (2) charging overdraft fees for transactions that were authorized on a positive account balance,
but when settled, settled into a negative balance.
Miller, et al v. State Bank of Lincoln and Heartland Bank and Trust Company
The Bank is a defendant in a purported class action lawsuit filed in May 2020, in the Circuit Court of Logan
County, Illinois. The plaintiff, a customer of State Bank of Lincoln, which previously merged with the Bank,
alleges that the Bank breached its contract with the plaintiff by charging multiple insufficient funds fees or
overdraft fees on a single customer-initiated transaction.
The Bank intends to vigorously defend in both the DeBaere and Miller cases. However, the Company believes
an unfavorable outcome in each case is probable at this time, as that term is used in assessing loss
contingencies. Accordingly, consistent with the authoritative guidance in the evaluation of contingencies, an
accrual has been recorded related to these matters of $2.6 million in the aggregate during the fourth quarter
and year ended December 31, 2022. While the amount recorded reflects management’s best estimate as of
December 31, 2022, the Company cannot yet offer an opinion on the estimated range of possible loss.
148
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 24 – RELATED PARTY TRANSACTIONS
Loans
As of December 31, 2022 and 2021, loans to directors, executive officers, principal shareholders and their
affiliated entities (“related parties”) amounted to $2.2 million and $2.6 million, 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 $22.0 million and $4.0 million as of December 31, 2022 and 2021,
respectively.
NOTE 25 – CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
Following are the condensed parent company only financial statements of HBT Financial.
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
149
December 31, 2022 December 31, 2021
$
$
$
$
(dollars in thousands)
24,278
$
25,752
422,217
1,165
5,338
452,998
39,395
37,780
2,191
79,366
373,632
452,998
$
$
$
461,339
1,165
1,283
489,539
39,316
37,714
628
77,658
411,881
489,539
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Parent Company Only Statements of Income
INCOME
Dividends received from subsidiaries:
Bank
Non-bank
Undistributed earnings from subsidiaries:
Bank
Non-bank
Other income
Total income
EXPENSES
Interest expense
Other expense
Total expenses
INCOME BEFORE INCOME TAX BENEFIT
INCOME TAX BENEFIT
NET INCOME
150
2022
Years ended December 31
2021
(dollars in thousands)
2020
$ 28,000
—
$ 20,000
—
$ 17,600
36
35,044
—
51
63,095
41,227
—
454
61,681
22,462
(36)
215
40,277
3,666
5,292
8,958
54,137
(2,319)
$ 56,456
3,305
3,741
7,046
54,635
(1,636)
$ 56,271
2,189
2,519
4,708
35,569
(1,276)
$ 36,845
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
Purchase of foreclosed assets from Heartland Bank
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
Taxes paid related to the vesting of restricted stock units
Repurchase of common stock
Cash dividends and dividend equivalents paid
Net cash (used in) provided by financing activities
2022
$ 56,456
Year ended December 31
2021
(dollars in thousands)
$ 56,271
2020
$ 36,845
(35,044)
1,949
(41,227)
764
(22,426)
351
145
—
769
24,275
—
—
—
(2,325)
—
—
(2,325)
—
—
(57)
(4,783)
(18,584)
(23,424)
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
NET CHANGE IN CASH AND EQUIVALENTS
CASH AND CASH EQUIVALENTS
Beginning of year
End of year
(1,474)
(18,397)
39,171
25,752
$ 24,278
44,149
$ 25,752
4,978
$ 44,149
151
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, 2022, 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, 2022. 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, 2022 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, 2022
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
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Table of Contents
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 2023 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 will be included in our Definitive Proxy Statement, which we expect to file
with the SEC within 120 days after our fiscal year end, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table summarizes information as of December 31, 2022 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)
233,087 (1) $
—
233,087
$
Weighted-Average
exercise price of
outstanding
options, warrants
and rights
(B) (2)
—
—
—
Number of
Securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (A)) (C)
1,534,744
—
1,534,744
(1) Balance reflects the assumed payout of outstanding performance restricted stock units awards at maximum level and outstanding
restricted stock unit awards.
(2) This “Weighted-Average exercise price of outstanding options, warrants and rights” column does not reflect the outstanding restricted
stock unit or performance share unit awards. Because there are no outstanding awards that have exercise prices, no weighted-
average exercise price is provided in this column.
153
Table of Contents
All other information required by this item is incorporated by reference to our Definitive Proxy Statement, which
we expect to file with the SEC within 120 days after our fiscal year end.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this item is incorporated by reference to our Definitive Proxy Statement, which we
expect to file with the SEC within 120 days after our fiscal year end.
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 84.
(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
154
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 §
Agreement and Plan of Merger between HBT Financial, Inc., HB-T&C Merger, Inc. and Town and Country
Financial Corporation dated August 23, 2022 (incorporated by reference to Exhibit 2.1 to the Company’s
Current Report on Form 8-K, filed with the Commission on August 23, 2022).
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).
Employment Agreement, effective October 1, 2022, by and among HBT Financial, Inc., Heartland Bank and
Trust Company and Peter Chapman. (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K, filed with the Commission on August 18, 2022).
Transition Agreement by and among HBT Financial, Inc., Heartland Bank and Trust Company and Matthew
J. Doherty, dated as of August 17, 2022. (incorporated by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K, filed with the Commission on August 18, 2022).
Amendment to Amended and Restated Employment Agreement, dated November 18, 2022, by and among
HBT Financial, Inc., Heartland Bank and Trust Company and Patrick F. Busch. (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on November 23,
2022).
155
Table of Contents
10.12 §
10.13 §
10.14 §
10.15 §
10.16 §
10.17 §
Form of Stock Appreciation Rights Agreement (incorporated by reference to Exhibit 10.9 to the Company’s
Registration Statement on Form S-1, filed with the Commission on September 13, 2019).
Form of Option Award Agreement (incorporated by reference to Exhibit 10.8 to the Company’s Registration
Statement on Form S-1/A, filed with the Commission on October 1, 2019).
Form of Restricted Shares Award Agreement (incorporated by reference to Exhibit 10.9 to the Company’s
Registration Statement on Form S-1/A, filed with the Commission on October 1, 2019).
Form of Restricted Stock Unit Award Agreement (with dividend equivalent rights) (incorporated by reference
to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on February 3,
2020).
Form of 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).
Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.14 to the
Company’s Annual Report on Form 10-K, filed with the Commission on March 11, 2022).
10.18 § *
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.
156
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 8, 2023
HBT FINANCIAL, INC.
By: /s/ Peter R. Chapman
Peter R. Chapman
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/ Peter R. Chapman
Peter R. Chapman
/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
Director
Date
March 8, 2023
March 8, 2023
March 8, 2023
March 8, 2023
March 8, 2023
March 8, 2023
President, Chief Operating Officer and Director
March 8, 2023
Director
Director
Director
157
March 8, 2023
March 8, 2023
March 8, 2023
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 10.18
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:
[●]
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.
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.
(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.
Your Representations. You represent to the Company that you have read and fully understand this
11.
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
[●]
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 8, 2023, 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, 2022.
/s/ RSM US LLP
Chicago, Illinois
March 8, 2023
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 8, 2023
/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, Peter R. Chapman, 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 8, 2023
/s/ Peter R. Chapman
Peter R. Chapman
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, 2022 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 8, 2023
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, 2022 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/ Peter R. Chapman
Peter R. Chapman
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
March 8, 2023