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, 2024
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
37-1117216
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
401 North Hershey Rd
Bloomington, Illinois 61704
(309) 662-4444
(Address of principal executive offices,
including zip code)
(Registrant’s telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
HBT
The Nasdaq Stock Market LLC
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
☐
Accelerated filer
☒
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth 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 $258.0 million, determined using a per share closing price for the registrant’s common stock on that date of $20.42, as quoted on The Nasdaq Global Select Market.
As of February 19, 2025, there were 31,559,366 shares outstanding of the registrant’s common stock, $0.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12, 13 and 14 of Part III incorporate information by reference from the definitive Proxy Statement for the 2025 Annual Meeting of Stockholders of HBT Financial,
Inc. to be filed within 120 days of December 31, 2024.
Table of Contents
TABLE OF CONTENTS
HBT Financial, Inc.
Page
PART I.
3
Item 1.
Business
3
Item 1A.
Risk Factors
20
Item 1B.
Unresolved Staff Comments
40
Item 1C.
Cybersecurity
40
Item 2.
Properties
41
Item 3.
Legal Proceedings
41
Item 4.
Mine Safety Disclosures
41
PART II.
42
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Securities
42
Item 6.
[Reserved]
43
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
44
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
76
Item 8.
Financial Statements and Supplementary Data
78
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
152
Item 9A.
Controls and Procedures
152
Item 9B.
Other Information
155
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
155
PART III.
155
Item 10.
Directors, Executive Officers and Corporate Governance
155
Item 11.
Executive Compensation
155
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
156
Item 13.
Certain Relationships and Related Transactions, and Director Independence
156
Item 14.
Principal Accounting Fees and Services
156
PART IV.
157
Item 15.
Exhibits and Financial Statement Schedules
157
Item 16.
Form 10-K Summary
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report are forward-looking statements, within the meaning of such term in the Private Securities
Litigation Reform Act of 1995. 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,"
"continue," "expect," "estimate," "intend," "anticipate," "predict," "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 and financial markets (including effects of inflationary pressures
and supply chain constraints);
•
effects on the U.S. economy resulting from the implementation of policies proposed by the new presidential administration, including
tariffs, mass deportations and tax regulations;
•
the economic impact of any future terrorist threats and attacks, widespread disease or pandemics, acts of war or other threats
thereof (including the Russian invasion of Ukraine and ongoing conflicts in the Middle East), or other adverse 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;
•
new and revised accounting policies and practices, as may be adopted by state and federal regulatory banking agencies, the
Financial Accounting Standards Board or the Public Company Accounting Oversight Board;
•
changes in local, state and federal laws, regulations and governmental policies concerning the Company’s general business and any
changes in response to the bank failures in 2023;
•
the imposition of tariffs or other governmental policies impacting the value of products produced by the Company's commercial
borrowers;
•
changes in interest rates and prepayment rates of the Company’s assets;
•
increased competition in the financial services sector, including from non-bank competitors such as credit unions and “fintech”
companies, and the inability to attract new customers;
•
changes in technology and the ability to develop and maintain secure and reliable electronic systems;
•
unexpected results of acquisitions, which may include failure to realize the anticipated benefits of acquisitions and the possibility that
transaction costs may be greater than anticipated;
•
the loss of key executives and employees, talent shortages and employee turnover;
•
changes in consumer spending;
•
unexpected outcomes or costs of existing or new litigation or other legal proceedings and regulatory actions involving the Company;
•
the economic impact on the Company and its customers of climate change, natural disasters and of exceptional weather
occurrences such as tornadoes, floods and blizzards;
•
fluctuations in the value of securities held in our securities portfolio, including as a result of changes in interest rates;
•
credit risks and risks from concentrations (by type of borrower, geographic area, collateral and industry) within our loan portfolio
(including commercial real estate loans) and large loans to certain borrowers;
•
the overall health of the local and national real estate market;
•
the ability to maintain an adequate level of allowance for credit losses on loans;
•
the concentration of large deposits from certain clients who have balances above current FDIC insurance limits and who may
withdraw deposits to diversify their exposure;
•
the ability to successfully manage liquidity risk, which may increase dependence on non-core funding sources such as brokered
deposits, and may negatively impact the Company’s cost of funds;
•
the level of nonperforming assets on our balance sheets;
•
interruptions involving our information technology and communications systems or third-party servicers;
•
the occurrence of fraudulent activity, breaches or failures of our third-party vendors’ information security controls or cybersecurity-
related incidents, including as a result of sophisticated attacks using artificial intelligence and similar tools or as a result of insider
fraud;
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•
the effectiveness of the Company’s risk management framework and internal disclosure controls and procedures;
•
our asset quality and any loan charge-offs;
•
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;
•
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 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 attract and retain customer deposits;
•
our ability to maintain the Bank’s reputation;
•
possible impairment of our goodwill and other intangible assets;
•
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; and
•
the ability of the Company to manage the risks associated with the foregoing as well as anticipated.
Additional factors that could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries are
discussed in Part I, Item 1A "Risk Factors", Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this Annual Report on Form 10-K. These risks and uncertainties should be considered in evaluating forward-
looking statements and undue reliance should not be placed on such statements. All statements in this document, including 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” or "HBT Financial"), 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, 2024, we had
total assets of $5.0 billion, loans held for investment of $3.5 billion, and total deposits of $4.3 billion. Through our bank subsidiary, Heartland
Bank and Trust Company (“Heartland Bank” or the “Bank”), we provide a comprehensive suite of financial products and services to
consumers, businesses, and municipal entities throughout 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 Executive Chairman, Fred Drake, helped
found a community bank in Cornland, Illinois. The Drake family went on to operate several banks throughout central Illinois, and 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 cycles such as the 2008-
2009 global financial crisis and the COVID-19 pandemic.
•
Continue disciplined growth. We have a strong track record of successful organic and acquisitive growth with our seasoned senior
management team.
•
Uphold our Midwestern values. We convey the values of the Midwest through hard work and perseverance. We serve our
customers attentively; provide development opportunities and rewards for our staff; and generate positive 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 was successfully completed in April 2023. After
considering business combination accounting adjustments, Town and Country added total assets of $937.2 million, total loans held for
investment of $635.4 million, and total deposits of $720.4 million.
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. Goodwill of
$30.5 million was recorded in the acquisition.
PRODUCTS AND SERVICES
Our products and services are primarily deposit, lending, and ancillary products that offer a broad range of options to meet the financial
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.
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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.
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 rural Illinois communities, we have a long history of financing agriculture production and land. We originate loans to
agriculture producers for input costs, equipment, and land. Most of our agriculture loans are to family farms growing corn and soybeans.
One-to-Four Family Residential
These loans include both owner-occupied and non-owner occupied one-to-four family homes and condominiums. They consist of first
mortgage amortizing loans, second mortgage amortizing loans, and home equity lines of credit, primarily 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 small business and 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.
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Residential Mortgage Origination and Servicing
We originate one-to-four family residential mortgage loans primarily through our mortgage lenders within our branch network. 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.
MARKET AREA
As of December 31, 2024, our branch network included 66 full-service branch locations throughout Illinois and eastern Iowa. We hold a
leading deposit market share in many of our markets in central Illinois, which we define as a top three deposit share rank, providing the
foundation for our strong deposit base. The stability provided by this low-cost funding is a key driver of our strong track record of financial
performance. Our long history of providing relationship-based, personal banking services; the successful integration of several strategic in-
market acquisitions; and a relatively small presence of money center and super-regional banks in our mid-sized markets has enabled us to
maintain meaningful market share in these markets.
We believe 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, our comprehensive suite of banking and wealth management
products, and our commitment to building and maintaining customer relationships.
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 and perseverance. We attentively serve our customers and
provide development opportunities and rewards to our staff. Our senior management team lives and works in the communities we serve,
allowing us to deliver banking solutions tailored to our target customers' needs. This dedication strengthens our presence and drives growth
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. We believe 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 peers. 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 could 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 global financial crisis confirms the effectiveness of our strong credit underwriting.
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Pursue Strategic Acquisitions
Our management team has a history of successfully integrating strategic acquisitions over several decades. We believe this track record
positions the Company to be an attractive acquirer for many potential partners. We continue to opportunistically seek acquisitions that are
either located within our market footprint, in adjacent markets or provide a new growth opportunity that is strategically and financially
compelling and consistent with our culture.
HUMAN CAPITAL RESOURCES
Employees
At December 31, 2024, we had 844 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, 2024, our average tenure was 7.2 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. In 2025, we also
began offering paid parental leave for employees.
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. Competition for loans remains strong and has resulted in competitive pressures on loan interest rates and terms.
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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. Competition for deposits has increased in recent years and is strong, as excess liquidity at most financial
institutions has decreased and the current interest rates are at higher levels compared to the historically low levels experienced in 2020 and
2021.
Financial technology companies are becoming a more direct source of competition to traditional financial institutions as they begin to offer
deposit accounts insured by the Federal Deposit Insurance Corporation (the “FDIC”) and online lending platforms alongside their core
product offerings.
We seek to meet this competition by emphasizing relationship-based 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.
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 banking 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 FASB, securities laws administered by the SEC and state
securities authorities, and anti-money laundering and sanctions 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 banking 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 of the Company and the Bank 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
large banking organizations and systemically important financial institutions, their influence filtered down in varying degrees to community
banking organizations 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 banking 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. It is anticipated that the Trump Administration and the
current
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U.S. Congress likely will not increase the regulatory burden on community banking organizations and may seek to reduce and streamline
certain regulatory requirements applicable to these banking organizations at a federal level based on statements made by relevant
congressional leaders and the acting leaders of certain federal banking agencies. At this time, however, it is not possible to predict with any
certainty the actual impact that the Trump Administration may have on the banking industry or our operations.
The supervisory framework for U.S. banking organizations subjects banks and bank holding companies to regular examination by their
respective banking agencies, which results in examination reports and ratings that are not publicly available, and that can impact the conduct
and growth of their business. These examinations consider not only compliance with applicable laws and regulations, but also capital levels,
asset quality and risk, management ability and performance, earnings, liquidity, and various other factors. The banking 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 approach to supervision adopted by each banking agency may have significant impacts on the operations and results of the
Company and the Bank, as well as the banking industry in general. Based on statements made by congressional leaders and the acting
leaders of certain federal banking agencies, there may be changes in the supervisory processes and approach made by the Trump
Administration banking agencies, but it is not possible at this time to predict the specific changes (or the timing of such changes, if any) that
may be made.
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, such as banks, as well as their holding companies (i.e., banking organizations) 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 agencies recognized that the amount and quality of capital held by banking organizations prior to that
crisis was insufficient to absorb losses during periods of severe stress.
Capital Levels
Banking organizations have been required to hold minimum levels of capital based on guidelines established by the federal banking agencies
since 1983. The minimum capital levels for banking organizations have been expressed in terms of ratios of “capital” divided by “total assets.”
The capital guidelines for U.S. banking organizations beginning in 1989 have been based upon international capital accords (known as the
“Basel” accords) 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. federal banking 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 an agreement on a strengthened set of capital requirements for banking organizations around the world, known as the Basel III
accords, to address deficiencies recognized in connection with the global financial crisis.
The Basel III Rule
The U.S. banking agencies adopted the U.S. 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”). The Basel III Rule established capital
standards for banks and bank holding companies that are meaningfully more stringent than those in place previously.
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The Basel III Rule is applicable to all banking organizations that are subject to minimum capital requirements, including national 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
both subject to the Basel III Rule.
The Basel III Rule also increased the required quantity and quality of capital. Not only did it increase most of the required minimum capital
ratios in effect prior to January 1, 2015, but, in requiring that forms of capital be of higher quality to absorb loss, it introduced the concept of
Common Equity Tier 1 Capital, which consists primarily of common stock, related surplus (net of Treasury stock), retained earnings, and
Common Equity Tier 1 minority interests subject to certain regulatory adjustments. The Basel III Rule also changed the definition of capital by
establishing more stringent criteria that instruments must meet to be considered Additional Tier 1 Capital (primarily non-cumulative perpetual
preferred stock that meets certain requirements) and Tier 2 Capital (primarily other types of preferred stock and subordinated debt, subject to
limitations). The Basel III Rule also constrained the inclusion of minority interests, mortgage-servicing assets, and deferred tax assets in
capital, and it required deductions from Common Equity Tier 1 Capital if such assets exceeded a percentage of a banking organization's
Common Equity Tier 1 Capital.
The Basel III Rule requires banking organizations to maintain 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, banking organizations that want 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 organizations 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.
In July 2023, the Biden Administration federal banking agencies had proposed wide-ranging and significant changes to the Basel III Rule (the
"Basel III Endgame Proposal"), which would have, among other requirements, imposed structural changes to the calculation of capital
requirements and risk-weighted assets in an effort to finish the implementation of the Basel III accords. The Basel III Endgame Proposal
would generally have impacted the capital requirements applicable to banking organizations with $100 billion or more in total assets, and, as
a general matter, would not have had a significant impact on the Company or the Bank. The Basel III Endgame Proposal has not been, and
is not expected to be, adopted in a form substantially similar to the initial Basel III Endgame Proposal. The Trump Administration federal
banking agencies may issue their own version of this proposal.
Well-Capitalized Requirements
The capital ratios described above are minimum standards for banking organizations to be considered “adequately capitalized.” Banking
agencies uniformly encourage banking organizations to hold more capital and be “well-capitalized” and, to that end, federal law and
regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory
requirements. For example, a banking organization that is well-capitalized may: (i) qualify for exemptions from prior notice or application
requirements otherwise applicable to certain types of activities; (ii) qualify for expedited processing of other required notices or applications;
and (iii) accept, roll-over, or renew brokered deposits. Higher capital levels also could be required if warranted by the particular
circumstances or risk profiles of individual banking organizations. For example, the Federal Reserve’s capital guidelines contemplate that
additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of
credit, nontraditional activities, or securities trading activities. Further, any banking organization experiencing or anticipating significant growth
would be expected to maintain capital ratios, including tangible capital positions (i.e., Tier 1 Capital less all intangible assets), well above the
minimum levels.
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Under the capital regulations of the Federal Reserve, in order to be well capitalized, a banking organization must maintain:
•
A ratio of Common Equity Tier 1 Capital to risk-weighted assets of 6.5% or more;
•
A ratio of Tier 1 Capital to total risk-weighted assets of 8% or more;
•
A ratio of Total Capital to total risk-weighted assets of 10% or more; and
•
A leverage ratio of Tier 1 Capital to total adjusted average quarterly assets of 5% or more.
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, 2024: (i) the Bank was not subject to a directive from the FDIC or the IDFPR to increase its capital; and (ii) the Bank was
well-capitalized, as defined by FDIC regulations. As of December 31, 2024, the Company had regulatory capital in excess of the Federal
Reserve’s requirements and met the Basel III Rule requirements to be well-capitalized. The Company also is in compliance with the capital
conservation buffer.
Prompt Corrective Action
The concept of a banking organization being “well-capitalized” is part of a regulatory enforcement regime that provides the federal banking
agencies 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 banking agencies' powers depends on whether the banking organization 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 a banking organization is assigned, the banking agencies' 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 banking organizations have long raised concerns with the federal banking agencies about the regulatory burden, complexity, and
costs associated with certain provisions of the Basel III Rule. In response, the U.S. Congress provided an “off-ramp” for institutions, like the
Company, with total consolidated assets of less than $10 billion as part of the Regulatory Relief Act. Section 201 of the Regulatory Relief Act
specifically instructed the federal banking agencies 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 to comply with its capital requirements under the CBLR framework if
it has (i) less than $10 billion in total consolidated assets, (ii) limited amounts of certain assets and off-balance sheet exposures, and (iii) a
CBLR greater than 9%. The Company may elect the CBLR framework at any time, but has not currently determined to do so.
Supervision and Regulation of the Company
General
As the sole shareholder of the Bank, we are a bank holding company. As a bank holding company, we are registered with, and are subject to
regulation supervision and enforcement by, the Federal Reserve under the Bank Holding Company Act of 1956, as amended (the “BHCA”).
We are legally obligated to act as a source of financial strength to the Bank, and to commit resources to support the Bank in circumstances
where we might not otherwise do so. Under the BHCA, we are subject to periodic examination by the Federal Reserve. We are required to
file with the Federal Reserve periodic reports of our operations, and such additional information regarding us and our subsidiaries as the
Federal Reserve may require.
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Acquisitions, Activities and Financial Holding Company Election
The primary purpose of a bank holding company is to control and manage banks. The BHCA generally requires the prior approval of the
Federal Reserve for any merger involving a bank holding company, or any acquisition by a bank holding company of another bank or bank
holding company. Subject to certain conditions (including deposit concentration limits established by the BHCA), the Federal Reserve may
allow a bank holding company to acquire banks located in any state of the United States. In approving interstate acquisitions, the Federal
Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring
bank holding company and its FDIC-insured institution affiliates in the state in which the target bank is located (provided that those limits do
not discriminate against out-of-state institutions or their holding companies) and state laws that require that the target bank have been in
existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company.
Furthermore, in accordance with the Dodd-Frank Act, bank holding companies must be well-capitalized and well-managed in order to effect
interstate mergers or acquisitions. For a discussion of the capital requirements, see “—The Role of Capital” above.
The BHCA generally prohibits us from acquiring direct or indirect ownership or control of 5% or more of a class 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. In addition to approval from the Federal Reserve that may be required in certain circumstances, prior approval for acquisitions
made by the Company may be required from other agencies, such as the IDFPR or other agencies that regulate the target company of an
acquisition.
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 Community Reinvestment Act ("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 banking agency. “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.
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Dividend Payments
The Company’s ability to pay dividends to its stockholders may be affected by both general corporate law considerations and the policies and
capital requirements of the Federal Reserve applicable to bank holding companies. As a Delaware corporation, the Company is subject to
the limitations of the Delaware General Corporation Law (“DGCL”), which allow the Company to pay dividends only out of its surplus (as
defined and computed in accordance with the provisions of the DGCL) or if the Company has no such surplus, out of its net profits for the
fiscal year in which the dividend is declared and/or the preceding fiscal year.
As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should eliminate, defer or
significantly reduce dividends to shareholders if: (i) the company’s net income available to shareholders for the past four quarters, net of
dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) the prospective rate of earnings retention is
inconsistent with the company’s capital needs and overall current and prospective financial condition; or (iii) the company will not meet, or is
in danger of not meeting, its minimum regulatory capital adequacy ratios.
The Federal Reserve also possesses enforcement powers over bank holding companies and their nonbank subsidiaries to prevent or
remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the
ability to proscribe the payment of dividends by banks and bank holding companies. In addition, under the Basel III Rule, banking
organizations that want 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.
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 federal banking agencies and the U.S. Congress that flawed incentive compensation
practices in the financial industry were one of many factors contributing to the global financial crisis. The result is interagency guidance on
sound incentive compensation practices for banking organizations.
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 is directed at
large banking organizations and, because of the size and complexity of their operations, the federal banking agencies 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 that use incentive compensation arrangements, like us, are expected to implement
less extensive, formalized, and detailed policies, procedures, and systems than those of larger banks.
In May 2024, certain of the federal banking and other financial services agencies released a proposed rule regarding certain incentive-based
compensation arrangements at certain financial institutions with at least $1 billion in assets, as required under Section 956 of the Dodd-Frank
Act. This proposal was largely based on an earlier 2016 proposal. The Federal Reserve and the SEC, however, did not join this proposal and
it was not published in the Federal Register, signaling potential interagency misalignment. In March 2025, the FDIC withdrew its support for
this proposed rule, making it unlikely that any rule in a substantially similar form will be finalized.
Monetary Policy
The monetary policy of the Federal Reserve has a significant effect on the operating results of 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, which
may impact the Company's business and operations and that of its subsidiary bank.
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Federal Securities Regulation
The Company’s common stock is registered with the SEC under the Securities Act of 1933, as amended (“Securities Act”), and the Securities
Exchange Act of 1934, as amended (“Exchange Act”). Consequently, the Company is subject to the information, proxy solicitation, insider
trading, and other restrictions and requirements of the SEC under the Exchange Act.
Corporate Governance
The Dodd-Frank Act addressed many investor protection, corporate governance, and executive compensation matters that will affect most
U.S. publicly traded companies. The Dodd-Frank Act increased shareholder influence over boards of directors by requiring companies to give
shareholders a nonbinding vote on executive compensation and so-called “golden parachute” payments, and authorizing the SEC to
promulgate rules that would allow shareholders to nominate and solicit voters for their own candidates using a company’s proxy materials.
The Dodd-Frank Act also directed the Federal Reserve, together with the other federal banking and financial services agencies, to
promulgate rules prohibiting excessive compensation paid to executives of bank holding companies, regardless of whether such companies
are publicly traded.
Supervision and Regulation of the Bank
General
The Bank is an Illinois-chartered bank. The deposit accounts of the Bank are insured by the FDIC’s Deposit Insurance Fund (“DIF”) to the
maximum extent provided under federal law and FDIC regulations, currently $250,000 per insured depositor category. As an Illinois-chartered
FDIC-insured bank, the Bank is subject to the examination, supervision, reporting, and enforcement requirements of the IDFPR, the
chartering authority for Illinois banks. Because the Bank is not a member of the Federal Reserve System, it is subject to the examination,
supervision, reporting, and enforcement requirements of the FDIC, as the Bank’s primary federal regulator.
Deposit Insurance
As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a
risk-based assessment system, whereby FDIC-insured institutions pay insurance premiums at rates based on their risk classification. For
institutions like the Bank that are not considered large and highly complex banking organizations, the risk-based assessment is now based
on examination ratings and financial ratios. The total base assessment rates, effective as of January 1, 2023, currently range from 2.5 basis
points to 32 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. For this purpose, 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. In its October 2024 semiannual update, the FDIC stated that the reserve ratio likely will reach
the statutory minimum by the September 30, 2028 deadline, and no adjustments to the base assessment rates is currently projected.
In addition, because the total cost of the failures of Silicon Valley Bank and Signature Bank to the DIF was approximately $24.1 billion, the
FDIC adopted a special assessment applicable to banking organizations with assets of $5 billion or more, at an annual rate of 13.4 basis
points beginning with the first quarterly assessment period of 2024. The FDIC will continue to collect special assessments for an anticipated
total of eight quarterly assessment periods. The base for the special assessment is equal to an insured depository institution’s estimated
uninsured deposits for the December 31, 2022 reporting period, adjusted to exclude the first $5 billion in estimated uninsured deposits. The
Bank had less than $5 billion of uninsured deposits as of December 31, 2022 and therefore does not have to pay the special assessment.
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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, 2024, 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 meet financial obligations to pay deposits or other
funding sources. Banks are required to implement liquidity risk management frameworks that ensure they maintain sufficient liquidity,
including a cushion of unencumbered, high-quality liquid assets, to withstand a range of stress events. The level and speed of deposit
outflows contributing to the failures of Silicon Valley Bank, Signature Bank and First Republic Bank in the first half of 2023 was
unprecedented and contributed to acute liquidity and funding strain. These events have further underscored the importance of liquidity risk
management and contingency funding planning by insured depository institutions like the Bank, as highlighted in a 2023 addendum to
existing interagency guidance on funding and liquidity risk management.
The primary role of liquidity risk management is to: (i) prospectively assess the need for funds to meet obligations; and (ii) ensure the
availability of cash or collateral to fulfill those needs at the appropriate time by coordinating the various sources of funds available to the
institution under normal and stressed conditions. The Basel III Rule includes a liquidity framework that requires the largest insured institutions
to measure their liquidity against specific liquidity tests. One test, referred to as the Liquidity Coverage Ratio, or LCR, is designed to ensure
that the banking organization 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, or NSFR, is designed to promote more intermediate 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 bank 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).
Although these tests do not apply to the Bank, we continue to review our liquidity risk management policies in light of regulatory requirements
and industry developments. For instance, in July 2024, the FDIC released a request for information on deposits, soliciting information on
whether and to what extent certain types of deposits may behave differently from each other (particularly during periods of economic or
financial stress), the results of which may impact liquidity monitoring and risk management requirements, including for FDIC-insured
institutions, like the Bank, going forward.
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. As described above, the Bank exceeded its capital requirements under
applicable guidelines as of December 31, 2024. 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, banking organizations that want to pay unrestricted dividends have to maintain 2.5% in
Common Equity Tier 1 Capital attributable to the capital conservation buffer. See “—The Role of Capital” above.
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State Bank Investments, Activities and Acquisitions
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.
The Bank may be required to seek approval from the IDFPR, the FDIC and other banking or financial services agencies before engaging in
certain acquisitions or mergers under applicable state and federal law. In 2024, each of the OCC and the FDIC separately released updated
policy statements—and in the case of the OCC, a final rule—regarding how each banking agency reviews applications submitted pursuant to
the Bank Merger Act based on statutory factors. In March 2025, the FDIC issued a notice of proposed rulemaking to repeal its 2024 policy
statement and reinstate its prior policy statement on bank mergers, while it considers wider changes to its bank merger review practices.
Insider Transactions
The Bank is subject to certain restrictions imposed by federal law on “covered transactions” between the Bank and its “affiliates.” We are an
affiliate of the Bank for purposes of these restrictions, and covered transactions subject to the restrictions include extensions of credit to us,
investments in our stock or other securities, and the acceptance of our stock and other securities as collateral for loans made by the Bank.
The Dodd-Frank Act enhanced the requirements for certain transactions with affiliates, including an expansion of the definition of “covered
transactions” and an increase in the amount of time for which collateral requirements regarding covered transactions must be maintained.
Certain limitations and reporting requirements also are placed on extensions of credit by the Bank to its directors and officers, to directors
and officers of the Company and its subsidiaries, to principal shareholders of the Company, and to “related interests” of such directors,
officers and principal shareholders under state and/or federal law. 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 banking agency is required to issue an
order directing the institution to cure the deficiency. Until the deficiency cited in the banking agency's order is cured, the agency 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 agency deems appropriate under the circumstances. Noncompliance
with safety and soundness also may constitute grounds for other enforcement action by the federal banking agencies, including cease and
desist orders and civil money penalty assessments.
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During the past decade, the banking 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, new
third-party relationships, 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 organization 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.
The federal banking agencies also have released specific risk management guidance on certain topics, including third-party relationships, in
response to the proliferation of relationships between banking organizations and financial technology companies (although the guidance
applies more broadly).
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 personal and 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.
Risks and exposures related to cybersecurity require financial institutions to design multiple layers of security controls to establish lines of
defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including
security measures to reliably authenticate customers accessing internet-based services of the financial institution. Bank management is
expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the
institution's operations after a cyber-attack involving destructive malware. The Bank and the Company also are subject to a number of federal
and state laws and regulations requiring notifications and disclosures regarding certain cybersecurity incidents.
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.
In addition, 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.
Community Reinvestment Act Requirements
The Community Reinvestment Act of 1977 ("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. The FDIC regularly
assesses the Bank’s record of meeting the credit needs of its communities in dedicated examinations. The Bank's CRA rating derived from
these examinations can have significant impacts on the activities in which the Bank and Company may engage. For example, a low CRA
rating may impact the review of applications by the Bank or the Company's financial holding company status. On October 24, 2023, the
federal banking agencies issued a final rule to strengthen and modernize the CRA regulations (the “CRA Rule”). Elements of this rule were
supposed to become effective on April 1, 2024 (while other elements had much later effective dates). However, the effective date of the CRA
Rule was paused
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because of an order issued as part of ongoing litigation claiming that the federal banking agencies exceeded their statutory authority in
promulgating the CRA Rule. Despite the lawsuit, management of the Bank is continuing to assess the impact of the CRA Rule on its CRA
lending and investment activities in its respective markets.
The CRA Rule is designed to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA
activities are evaluated. More specifically, the federal banking agencies described the goals of the CRA Rule 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 underserved 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 banking agencies.
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, the 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/Sanctions
The Bank Secrecy Act ( “BSA”) is the common name for a series of laws and regulations enacted in the United States to combat money
laundering and the financing of terrorism. They 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. The so-called
Anti-Money Laundering / Countering the Financing of Terrorism (“AML/CFT”) regime under the BSA provides a foundation to promote
financial transparency and deter and detect those who seek to misuse the U.S. financial system to launder criminal proceeds, finance
terrorist acts, or move funds for other illicit purposes.
The laws mandate financial services companies to have policies and procedures with respect to measures designed to address: (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. The Bank must
also comply with stringent economic and trade sanctions administered and enforced by the Office of Foreign Assets Control.
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.
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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 CRE is
one example of regulatory concern, which has been subject to additional scrutiny by federal banking agencies as well as the SEC (for
publicly-traded banking organizations) in recent years. The Interagency Concentrations in 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 CRE 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 CRE concentrations. On December 18, 2015, and
again in recent years, the federal banking agencies issued statements to reinforce prudent risk-management practices related to CRE
lending, having observed substantial growth in many CRE asset and lending markets, increased competitive pressures, rising CRE
concentrations in banks, and an easing of CRE underwriting standards. The federal banking agencies have 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. On December 18, 2023, the FDIC issued a statement to reemphasize the importance of strong capital,
appropriate credit loss allowance levels, and robust credit risk-management practices for institutions with CRE concentrations. As of
December 31, 2024, 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 primary federal 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 one-to-four 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
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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.”
Over the last several years, the CFPB has taken an aggressive approach to the regulation (and supervision, where applicable) of providers of
consumer financial products and services. Given the increased number and expansive nature of its regulatory initiatives, the CFPB has been
subject to lawsuits brought by the banking industry and other providers of consumer financial products and services. The CFPB’s approach
will likely change under the Trump Administration, but it remains unclear exactly what changes will occur or how quickly. In addition, certain
rules that the Biden Administration CFPB finalized, such as rules relating to overdraft fees and reporting requirements for small business
lending, may be subject to reversal by either the U.S. Congress or the new CFPB administration.
The CFPB’s rules have not had a significant impact on the Bank’s operations, except for higher compliance costs.
The Bank must also comply with certain state consumer protection laws and requirements in the states in which it operates.
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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
Description
•
Credit Risks
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.
•
Interest Rate Risks
Fluctuations in interest rates may reduce our earnings or the value of our financial instruments.
•
Liquidity Risks
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.
•
Technology and Cybersecurity
Risks
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.
•
Legal and Regulatory Compliance
Risks
The banking industry is highly regulated. Failure to comply with regulatory capital requirements,
changes in the United States’ monetary policy, legislative and regulatory actions taken now or in
the future regarding the financial services industry, financial reform legislation and increased
regulatory rigor around consumer protection mortgage-related issues, or federal, state and local
consumer lending laws may adversely impact us.
•
Business Strategy
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.
•
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.
•
External Risks
Adverse changes in the economic conditions, particularly such changes in the Illinois and Iowa
markets in which 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.
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. Moreover, default
risk may arise from events or circumstances that are difficult to detect, such as fraud, or difficult to predict, such as the impact of catastrophic
events on certain industries. 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.
The small to mid-sized 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, may
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 or mid-sized business often depends
on the management talents and efforts of one person 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.
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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.
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 commercial real estate loans, which may have a higher degree of risk
than some other types of loans.
Commercial and commercial real estate loans, including multi-family loans, are often larger and may involve greater risks than some other
types of lending. Because payments on such loans are often dependent on the successful operation or development of the property or
business involved, repayment of such loans is often more sensitive than other types of loans to adverse conditions in the real estate market
or the general business climate and economy. Accordingly, a downturn in the real estate market or a challenging business and economic
environment, including those which disproportionately affect a class of borrower, may increase our risk associated with our loan portfolio.
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. Economic events, including
decreases in office occupancy following the COVID-19 pandemic as a result of the shift to remote and hybrid work environments, or
governmental regulations outside of our control or the control of the borrower could negatively impact the future cash flow and market values
of the affected properties. 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 commercial real estate loans could have a material adverse impact
on our financial condition and results of operations.
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Real estate construction loans are based upon estimates of costs and values associated with the complete project. These
estimates may be inaccurate, and we may be exposed to significant losses on loans for these projects.
Real estate construction lending involves additional risks because funds are advanced upon the security of the project, which is of uncertain
value prior to its completion, and costs may exceed realizable values. Because of the uncertainties inherent in estimating construction costs
and the realizable market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to
evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. As a result, construction loans often
involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the
borrower to sell or lease the property, rather than the ability of the borrower or guarantor to repay principal and interest. If our appraisal of the
value of the completed project proves to be overstated or market values or rental rates decline, we may have inadequate security for the
repayment of the loan upon completion of construction of the project. If we are forced to foreclose on a project prior to or at completion due to
a default, we may not be able to recover all of the unpaid balance of, and accrued interest on, the loan as well as related foreclosure and
holding costs. In addition, we may be required to fund additional amounts to complete the project and may have to hold the property for an
unspecified period of time while we attempt to dispose of it.
We provide loans and services to the agriculture industry and the health of this industry is impacted by factors outside our control
and the control of our customers.
Our loan portfolio includes loans to agricultural producers and loans secured by farmland. In addition, our commercial loan portfolio includes
loans to farm implement dealerships, grain elevators and other businesses that provide products and services to agricultural producers. 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 in the market prices or demand for agricultural products (both domestically and internationally), for any reason;
•
increases in production costs (such as the costs of labor, rent, feed, fuel and fertilizer);
•
adverse changes in interest rates, currency exchange rates, agricultural land values or other factors that may affect delinquency
levels and credit losses on agricultural loans;
•
the impact of government policies and regulations (including changes in price supports, subsidies, government-sponsored crop
insurance, minimum ethanol content requirements for gasoline, tariffs, trade barriers and health and environmental regulations);
•
access to technology and the successful implementation of production technologies; and
•
changes in the general economy that could affect the availability of off-farm sources of income and prices of real estate for
borrowers.
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.
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INTEREST RATE RISKS
Fluctuations in interest rates may reduce net interest income and otherwise negatively impact our financial condition and results
of operations.
The majority of our banking assets are monetary in nature and 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. Conversely, a decrease in the
general level of interest rates may, among other things, decrease 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 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 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 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 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.
The monetary policies and regulations of the Federal Reserve have a significant effect on the operating results of commercial banks. The
effects of such policies upon our business, financial condition and results of operations cannot be predicted.
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.
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Beginning in March 2022, the Federal Open Market Committee of the Federal Reserve (the "FOMC") made a series of significant increases
to the federal funds target range as part of an effort to combat elevated levels of inflation affecting the U.S. economy. While the significant
increase in prevailing interest rates increased our net interest income, it also led to increased losses in our available-for-sale debt securities
portfolio. Since 2022, the magnitude of our net unrealized losses on debt securities available-for-sale have partially reversed and were $59.4
million as of December 31, 2024.
It is currently expected that during 2025, and perhaps beyond, the FOMC may decrease interest rates. In September 2024, the FOMC began
lowering interest rates with the target range for the federal funds rate decreasing by 100 basis points to a range of 4.25% to 4.50% by the
end of 2024. The decrease was expressly made in response to inflation moderating and the labor market weakening. Any future change in
monetary policy by the FOMC, in an effort to stimulate the economy or otherwise, resulting in lower interest rates would likely result in lower
revenue through lower net interest income over time, which could adversely affect our results of operations. These effects from interest rate
changes or from other sustained economic stress or a recession, among other matters, could have a material adverse effect on our business,
financial condition, liquidity, and results of operations.
Given the complex factors affecting the strength of the U.S. economy, including uncertainties regarding the persistence of inflation; record-
high U.S. credit card debt; the implementation of policies proposed by the new presidential administration; and geopolitical developments,
such as future terrorist attacks and threats, widespread disease or pandemics, and acts of war including the Russian invasion of Ukraine and
ongoing conflicts in the Middle East, there is a meaningful risk that the Federal Reserve and other central banks may maintain interest rates
at elevated levels, which may negatively impact the entire national economy. 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.
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 trade-off. If customers move money out of bank deposits and into other investments, we could lose a relatively low-cost
source of funds, which could 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 may be available by borrowing
from the Federal Reserve Bank of Chicago or the Federal Home Loan Bank of Chicago (the "FHLB"), through federal funds lines with our
correspondent banks, and through other wholesale funding sources including brokered deposits. 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 other 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 two years, 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.
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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 failure of, one institution could lead to significant liquidity problems and losses or defaults by other
institutions, as the commercial and financial soundness of many financial institutions is closely related as a result of these credit, trading,
clearing and other relationships. Even the perceived lack of creditworthiness of, or questions about, a counterparty may lead to market-wide
liquidity problems and losses or defaults by various institutions. This systemic risk may adversely affect financial intermediaries with which we
interact on a daily basis or key funding providers such as the FHLB, any of which could have a material adverse effect on our access to
liquidity or otherwise have a material adverse effect on our business, financial condition or results of operations.
Loss of customer deposits could increase our funding costs.
We rely on deposits as a low cost and stable source of funding. We compete with banks and other financial services companies for deposits.
If our competitors raise the rates they pay on deposits, our funding costs may increase, either because we raise our rates to avoid losing
deposits or because we lose deposits and must rely on more expensive sources of funding. Higher funding costs could reduce our net
interest margin and net interest income and could have a material adverse effect on our business, financial condition, and results of
operations.
TECHNOLOGY AND CYBERSECURITY RISKS
The occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents
could have a material adverse effect on our business, financial condition or results of operations.
As a financial institution, we are susceptible to fraudulent activity, information security breaches and cybersecurity-related incidents that may
be committed against us or our customers, which may result in financial losses or increased costs to us or our clients, disclosure or misuse of
our information or our client information, misappropriation of assets, privacy breaches against our customers, litigation or damage to our
reputation. Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and
other dishonest acts. Information security breaches and cybersecurity-related incidents may include fraudulent or unauthorized access to
systems used by us or our customers, denial or degradation of service attacks, and malware or other cyber-attacks. There continues to be a
rise in electronic fraudulent activity, security breaches and cyber-attacks within the financial services industry, including as a result of
increasingly sophisticated methods of conducting cyber-attacks, including those employing artificial intelligence. 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
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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 and card processing
services, in a timely manner if they are unwilling or unable to provide us with these services in the future for any reason and even if we are
able to replace them, it may be at higher cost or result in the loss of customers. Any such events could have a material adverse effect on our
business, financial condition or results of operations.
Our operations rely heavily on the secure processing, storage and transmission of information and the monitoring of a large number of
transactions on a minute-by-minute basis, and even a short interruption in service could have significant consequences. We also interact with
and rely on retailers, for whom we process transactions, as well as financial counterparties and regulators. Each of these third parties may be
targets of the same types of fraudulent activity, computer break-ins and other cybersecurity breaches described above or herein, including as
a result of increasingly sophisticated methods of conducting cyber-attacks, including those employing artificial intelligence, 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.
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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. If our regulators conclude that we have not exercised
adequate oversight and control over our 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, emerging trends, such as generative artificial intelligence, have the potential to disrupt the banking industry. Although generative
artificial intelligence offers opportunities to enhance operational efficiency, it also introduces risks, including fraud, security vulnerabilities, and
compliance challenges. 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
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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.
Legal, regulatory and policy changes may directly affect financial institutions and the global economy.
Changes in policy and at banking agencies, including changes in interpretation and prioritization, occur over time through policy and
personnel changes following federal and state-level elections, which lead to changes involving the level of oversight and focus on the
financial services industry. The nature, timing and economic and political effects of potential changes to the current legal and regulatory
framework affecting financial institutions remain highly uncertain in connection with a change in presidential administration. Given the
complex factors affecting the strength of the U.S. economy, including uncertainties regarding the persistence of inflation, geopolitical
developments such as ongoing conflicts in the Middle East and the Russian invasion of Ukraine, and resulting disruptions in the global
energy market, tight labor market conditions domestically, supply chain issues both domestically and internationally and the potential effects
of a new presidential administration, including its response to the foregoing, potential imposition of new tariffs, mass deportations and
changes to tax or other financial regulations, uncertainty surrounding future changes may adversely affect our operating environment and
therefore our business, financial condition, results of operations and growth prospects.
Federal and state regulators periodically examine our business, and we may be required to remediate adverse examination
findings.
The Federal Reserve (with respect to us) and the FDIC and the IDFPR (with respect to the Bank) periodically examine our business,
including our compliance with applicable laws and regulations. These regulatory agencies have extremely broad discretion in their
interpretation of regulations and laws, and in their interpretation of the quality of our loan portfolio, securities portfolio and other assets. If, as
a result of an examination, a banking agency were to determine that our financial condition, capital resources, asset quality, lending
practices, investment practices, earnings prospects, management, liquidity or other aspects of any of our operations had become
unsatisfactory, or that we were in violation of any law or regulation, it may take a number of different remedial actions as it deems
appropriate. These actions include the power to enjoin "unsafe or unsound" practices, to require affirmative action to correct any conditions
resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to
restrict our growth, to assess civil money penalties, to fine or remove officers and directors and, if it is concluded that such conditions cannot
be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance and place us into receivership or
conservatorship. Any regulatory action against us could have an adverse effect on our business, financial condition, results of operations and
growth prospects.
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 requires 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%,
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and a capital conservation buffer of greater than 2.5% of risk-weighted assets (the "Capital Conservation Buffer"). Failure to maintain the
Capital Conservation Buffer would result in increasingly stringent restrictions on our ability to make dividend payments and other capital
distributions and to pay discretionary bonuses to our executive officers. See "Supervision and Regulation—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 bank, and to commit
resources to support such subsidiary bank. 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 bank 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 federal consumer
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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 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.
Laws impacting cannabis-related businesses may have an impact on the Company’s operations and risk profile.
The Controlled Substances Act makes it illegal under federal law to manufacture, distribute, or dispense marijuana. Starting January 1, 2020,
however, the Illinois Cannabis Regulation and Tax Act began permitting adults 21 years or older to legally purchase marijuana for
recreational use from licensed dispensaries. It is the
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Bank’s current practice to avoid knowingly providing banking products or services to entities or individuals that directly manufacture,
distribute, or dispense marijuana or hemp products, or those with a significant financial interest in such entities. The Bank uses reasonable
measures, including appropriate new account screening and customer due diligence measures, to ensure that existing and potential
customers that operate in the states in which the Bank operates do not engage in any such activities. Nonetheless, shifts in Illinois law
legalizing cannabis use have increased the number of direct and indirect cannabis-related businesses in Illinois, and therefore increases the
likelihood that the Bank could interact with such businesses, as well as their owners and employees. Such interactions could create
additional legal, regulatory, strategic, and reputational risk to the Bank and the Company.
Non-compliance with the USA PATRIOT Act, the Bank Secrecy Act, 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. 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, including with respect to the use of artificial
intelligence by financial institutions and service providers, 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
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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.
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 business activities or the prior business
activities of a company acquired by us. 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 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 have a material adverse effect on our business, results of operations, financial condition and cash flows.
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 candidates for acquisitions. In addition, even if suitable targets are identified, we expect to compete for
such businesses with other potential bidders, which may have greater financial resources than we have, which may adversely affect
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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;
•
potential goodwill impairment;
•
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,
including, among other things:
•
customer loss and revenue loss;
•
the loss of key employees;
•
the disruption of its operations and business;
•
the inability to maintain and increase its competitive presence;
•
possible inconsistencies in standards, control procedures and policies; and
•
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
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any acquisition. These regulatory approvals and the factors considered in reviewing such applications are described in greater detail in
"Supervision and Regulation—Acquisitions and Branching."
We cannot assure you that we will be successful in overcoming these risks or any other problems encountered in connection with
acquisitions. Our inability to overcome risks associated with acquisitions could have an adverse effect on our ability to successfully
implement our acquisition growth strategy and grow our business and profitability.
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, 2024, our principal stockholder, Heartland Bancorp, Inc. Voting Trust U/A/D 5/4/2016 (the "Voting Trust”), owned
approximately 54.5% of the outstanding shares of our common stock and its trustee is our Executive Chairman. 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 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 our 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
•
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
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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 may also be sold pursuant to a Registration Statement on Form S-3 filed by the
Company, which was declared effective by the SEC on April 19, 2023.
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.
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.
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These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your
choosing and to cause us to take other corporate actions you desire.
Furthermore, banking laws impose notice, approval and ongoing regulatory requirements on any stockholder or other party that seeks to
acquire direct or indirect "control," as defined under applicable law, of an FDIC- insured depository institution. These laws include the BHCA
and the CBCA. These laws could, among other things, limit the equity held by certain stockholders, restrain a stockholder’s ability to
influence proxy matters, or prevent an acquisition of the Company, in each case without first obtaining regulatory approval. See “Supervision
and Regulation—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 credit 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; climate change; acts of terrorism or war (including the Israeli-Palestinian
conflict and the Russian invasion of Ukraine); or a combination of these or other factors.
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Continued elevated levels of inflation could adversely impact our business and results of operations.
The United States has recently experienced elevated levels of inflation. Continued levels of inflation could have complex effects on our
business and results of operations, some of which could be materially adverse. For example, 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 were 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.
Failure to attract and retain qualified employees could negatively impact our business, results of operations and financial
condition.
The Company’s success depends, in large part, on its ability to attract and retain key individuals. Competition for qualified candidates in the
activities in which the Company engages and markets that the Company serves is significant, and the Company may not be able to hire
candidates and retain them. Growth in the Company’s business, including through acquisitions, may increase its need for additional qualified
personnel. The Company is increasingly competing for personnel with financial technology providers and other less regulated entities who
may not have the same limitations on compensation as the Company does. This can be particularly constraining when competing for skill
sets which are in high demand, such as technology, risk and information security. Recruiting and compensation costs may increase as a
result of changes in the marketplace, which may increase costs and adversely impact the Company.
The increase in remote and hybrid-work arrangements and opportunities in regional, national and global labor markets has also increased
competition for the Company to attract and retain skilled personnel. The Company’s current or future approach to in-office and remote-work
arrangements may not meet the needs or expectations of current or prospective employees or may not be perceived as favorable as
compared with the arrangements offered by other companies, which could adversely affect the Company’s ability to attract and retain
employees. If the Company is not able to hire or retain highly skilled, qualified and diverse individuals, it may be unable to execute its
business strategies and may suffer adverse consequences to its business, financial condition and results of operations.
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; and
•
reputational risk from stakeholder concerns about the Company’s practices related to climate change 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.
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
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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, FinTechs,
digital asset service providers, 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. Customers can now maintain
funds in prepaid debit cards or digital currencies and pay bills and transfer funds directly without the direct assistance of banks. The
diminishing role of banks as financial intermediaries has resulted and could continue to result in the loss of fee income, as well as the loss of
customer deposits and the related income generated from those deposits. The loss of these revenue streams and the potential loss of lower
cost deposits as a source of funds could have a material adverse effect on our business, financial condition and results of operations.
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 1C. CYBERSECURITY
We rely extensively on various information systems and other electronic resources to operate our business. In addition, nearly all of our
customers, service providers and other business partners on whom we depend, including the providers of our online banking, mobile banking
and accounting systems, use these systems and their own electronic information systems. Any of these systems can be compromised,
including through the employees, customers and other individuals who are authorized to use them, and bad actors use a sophisticated and
constantly evolving set of software, tools and strategies to do so. Moreover, the nature of our business, as a financial services provider, and
our relative size, make us and our business partners high-value targets for these bad actors to pursue.
Accordingly, we have long devoted significant resources to assessing, identifying and managing risks associated with cybersecurity threats,
including:
•
internal resources who are responsible for conducting regular assessments of our information systems, existing controls,
vulnerabilities and potential improvements;
•
continuous monitoring tools that can detect, alert on, respond to, and help mitigate cybersecurity threats in real-time;
•
performing due diligence with respect to our third-party service providers, including their cybersecurity practices, and requiring
contractual commitments from our service providers to take certain cybersecurity measures;
•
third-party cybersecurity consultants, who conduct periodic penetration testing, vulnerability assessments, and other procedures
which identify potential weaknesses in our systems and help validate and improve internal processes and tooling; and
•
periodic cybersecurity training for our workforce.
This information security program is a key part of our overall risk management system, which is administered by our Chief Risk Officer. The
program includes administrative, technical and physical safeguards to help ensure the security and confidentiality of customer records and
information. These security and privacy policies and procedures are in effect across all of our lines of business and geographic locations.
From time-to-time, we have identified cybersecurity threats that require us to make changes to our processes and to implement additional
safeguards. While none of these identified threats or incidents have materially affected us, it is possible that threats and incidents we identify
in the future could have a material adverse effect on our business strategy, results of operations and financial condition. We continue to
evolve our controls to mitigate these threats as effectively as we can reasonably foresee them occurring.
Our management team is responsible for the day-to-day management of risks we face, including our Chief Information Officer. Our current
Chief Information Officer has over 20 years of technology experience, including 16 years in Banking.
In addition, our board of directors is responsible for the oversight of risk management. In that role, our board of directors, with support from
the Company’s cybersecurity advisors, are responsible for ensuring that the risk management processes designed and implemented by
management are adequate and functioning as designed. To carry out those duties, our board of directors receive reports from our
management team regarding cybersecurity risks, and the Company’s efforts to prevent, detect, mitigate and remediate any cybersecurity
incidents. These reports are delivered at least quarterly, with additional information and trainings provided at least twice per year.
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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. 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 19, 2025, HBT Financial, Inc. had approximately 113 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 2024, we paid quarterly cash dividends of $0.19 per share on our common stock. The quarterly cash dividend was increased to $0.21
per share on January 21, 2025. 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 19, 2023, 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, 2025 (the “2024 Repurchase Plan”). On December 17, 2024, 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, 2026 (the “2025 Repurchase Plan”). The 2025 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 2024:
Period
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Approximate Dollar Value of
Shares That May Yet be Purchased
Under the Plans or Programs
(in thousands)
October 1 - 31, 2024
— $
—
— $
10,603
November 1 - 30, 2024
—
—
—
10,603
December 1 - 31, 2024
—
—
—
10,603
Total
— $
—
— $
10,603
__________________________________
(1)
As of December 31, 2024, there was $10.6 million left under the 2024 Repurchase Plan, which expired on January 1, 2025. There are no longer any shares subject to
repurchase under the 2024 Repurchase Plan. The 2025 Repurchase Plan took effect upon the expiration of the 2024 Repurchase Plan, and there remains $15.0 million in
common stock subject to repurchase thereunder.
Unregistered Sales of Equity Securities
None.
(1)
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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 December 31, 2019
through December 31, 2024, 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.
COMPARISON OF CUMULATIVE TOTAL RETURN
Index
December 31,
2019
December 31,
2020
December 31,
2021
December 31,
2022
December 31,
2023
December 31,
2024
HBT Financial, Inc.
$
100.00
$
83.45
$
106.84
$
115.44
$
128.91
$
138.91
Russell 2000
100.00
119.96
137.74
109.59
128.14
142.93
S&P 600 Small Cap Bank Index
100.00
87.95
119.38
109.98
108.10
123.92
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
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 2024 as compared to 2023
can be found below. Detailed discussion and analysis of the financial condition and results of operation for 2023 as compared to 2022 can be
found in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, under the caption “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”
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 financial products and services to consumers, businesses, and
municipal entities throughout Illinois and eastern Iowa. As of December 31, 2024, the Company had total assets of $5.0 billion, loans held for
investment of $3.5 billion, and total deposits of $4.3 billion.
Market Area
As of December 31, 2024, our branch network included 66 full-service branch locations throughout Illinois and eastern Iowa. We hold a
leading deposit share in many of our central Illinois markets, 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:
December 31, 2024
December 31, 2023
(dollars in thousands)
Loans
Deposits
Loans
Deposits
Central
$
1,676,842
$
2,984,820
$
1,693,794
$
3,094,305
Chicago MSA
1,443,777
1,218,098
1,406,348
1,197,865
Illinois
3,120,619
4,202,918
3,100,142
4,292,170
Iowa
345,527
115,336
304,275
109,267
Total
$
3,466,146
$
4,318,254
$
3,404,417
$
4,401,437
Town and Country Financial Corporation Acquisition
On February 1, 2023, HBT Financial completed its acquisition of 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 10 full-service branch locations which began operating as branches of
Heartland Bank. The core system conversion was successfully completed in April 2023. After considering business combination accounting
adjustments, Town and Country added total assets of $937.2 million, total loans held for investment of $635.4 million, and total deposits of
$720.4 million.
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. Goodwill of
$30.5 million was recorded in the acquisition. Total acquisition-related expenses were $13.7 million, including the recognition of an allowance
for credit losses on non-purchased credit deteriorated loans (“non-PCD loans”) of $5.2 million and an allowance for credit losses on unfunded
commitments of $0.7 million through provision for credit losses, during the year ended December 31, 2023 and were $1.1 million during the
year ended December 31, 2022. There were no acquisition-related expenses during the year ended December 31, 2024.
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RESULTS OF OPERATIONS
Overview of Recent Financial Results
Year Ended December 31,
(dollars in thousands, except per share amounts)
2024
2023
2022
Total interest and dividend income
$
251,700
$
228,999
$
153,054
Total interest expense
62,850
37,927
7,180
Net interest income
188,850
191,072
145,874
Provision for credit losses
3,031
7,573
(706)
Net interest income after provision for credit losses
185,819
183,499
146,580
Total noninterest income
35,571
36,046
34,717
Total noninterest expense
124,007
130,964
105,107
Income before income tax expense
97,383
88,581
76,190
Income tax expense
25,603
22,739
19,734
Net income
$
71,780
$
65,842
$
56,456
Adjusted net income
$
75,002
$
78,182
$
55,805
Pre-provision net revenue
$
100,414
$
96,154
$
75,484
Pre-provision net revenue less net charge-offs (recoveries)
98,656
95,974
77,587
Adjusted pre-provision net revenue
104,920
107,281
74,282
Adjusted pre-provision net revenue less net charge-offs (recoveries)
103,162
107,101
76,385
Share and Per Share Information
Earnings per share - Diluted
$
2.26
$
2.07
$
1.95
Adjusted earnings per share - Diluted
2.37
2.46
1.93
Weighted average shares of common stock outstanding
31,590,117
31,626,308
28,853,697
Summary Ratios
Net interest margin
3.96 %
4.09 %
3.54 %
Net interest margin (tax-equivalent basis)
4.01
4.15
3.60
Yield on loans
6.36
6.04
4.91
Yield on interest-earning assets
5.28
4.90
3.72
Cost of total deposits
1.30
0.60
0.07
Cost of funds
1.41
0.86
0.19
Efficiency ratio
53.99 %
56.49 %
57.72 %
Efficiency ratio (tax-equivalent basis)
53.46
55.81
56.93
Adjusted efficiency ratio (tax-equivalent basis)
52.42
51.68
57.05
Return on average assets
1.43 %
1.34 %
1.32 %
Return on average stockholders' equity
13.93
14.60
14.73
Return on average tangible common equity
16.45
17.63
16.02
Adjusted return on average assets
1.50 %
1.59 %
1.31 %
Adjusted return on average stockholders' equity
14.55
17.34
14.56
Adjusted return on average tangible common equity
17.19
20.94
15.83
_________________________________________________
(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%.
(1)
(1)
(1)
(1)
(1)
(1)
(1) (2)
(1) (2)
(1)(2)
(1)
(1)
(1)
(1)
45
Table of Contents
Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023
For the year ended December 31, 2024, net income was $71.8 million, increasing by $5.9 million, or 9.0%, when compared to net income for
the year ended December 31, 2023. Notable changes include the following:
•
There were no Town and Country acquisition-related expenses during the year ended December 31, 2024, compared to $13.7 million
of acquisition-related expenses incurred during the year ended December 31, 2023;
•
Net losses of $3.7 million were realized on the sale of debt securities during the year ended December 31, 2024, compared to net
losses of $1.8 million realized during the year ended December 31, 2023;
•
A $2.2 million decrease in net interest income, primarily attributable to higher funding costs which were partially offset by higher
asset yields and an increase in interest-earning assets;
•
A $0.2 million negative mortgage servicing rights fair value adjustment included in the 2024 results, compared to a $1.6 million
negative mortgage servicing rights fair value adjustment included in the 2023 results; and
•
A $2.9 million increase in income tax expense, primarily reflecting higher pre-tax income resulting from the above items as well as an
additional $0.5 million for a deferred tax expense write-down, primarily as a result of an Illinois tax change. This increased our
effective tax rate to 26.3% during the year ended December 31, 2024, compared to 25.7% during the year ended December 31,
2023.
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. Net interest margin, which is expressed as the percentage of
net interest income to average interest-earning assets, is utilized to measure and explain changes in net interest income.
The following table sets forth average balances, average yields and costs, and certain other information. 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, as well as purchase accounting
adjustments that are accreted or amortized to interest income or expense.
46
Table of Contents
Year Ended
December 31, 2024
December 31, 2023
December 31, 2022
(dollars in thousands)
Average Balance
Interest
Yield/Cost
Average Balance
Interest
Yield/Cost
Average Balance
Interest
Yield/Cost
ASSETS
Loans
$
3,378,059
$
214,863
6.36 %
$
3,231,736
$
195,197
6.04 %
$
2,514,549
$
123,478
4.91 %
Debt securities
1,200,444
27,903
2.32
1,343,419
29,971
2.23
1,396,704
27,806
1.99
Deposits with banks
178,436
8,272
4.64
84,544
3,020
3.57
197,030
1,541
0.78
Other
12,732
662
5.20
15,326
811
5.29
9,841
229
2.33
Total interest-earning assets
4,769,671
$
251,700
5.28 %
4,675,025
$
228,999
4.90 %
4,118,124
$
153,054
3.72 %
Allowance for credit losses
(40,694)
(37,504)
(24,703)
Noninterest-earning assets
279,106
290,383
176,452
Total assets
$
5,008,083
$
4,927,904
$
4,269,873
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities
Interest-bearing deposits:
Interest-bearing demand
$
1,106,136
$
5,499
0.50 %
$
1,188,680
$
3,130
0.26 %
$
1,141,402
$
607
0.05 %
Money market
797,444
18,637
2.34
669,118
7,352
1.10
582,514
813
0.14
Savings
584,769
1,621
0.28
661,424
1,033
0.16
650,385
208
0.03
Time
757,456
28,183
3.72
481,466
10,784
2.24
283,232
883
0.31
Brokered
38,286
2,107
5.50
52,724
2,836
5.38
—
—
—
Total interest-bearing deposits
3,284,091
56,047
1.71
3,053,412
25,135
0.82
2,657,533
2,511
0.09
Securities sold under agreements to
repurchase
30,984
594
1.92
35,450
255
0.72
51,554
36
0.07
Borrowings
13,383
480
3.59
139,817
7,128
5.10
26,468
967
3.65
Subordinated notes
39,514
1,879
4.75
39,434
1,879
4.76
39,355
1,879
4.77
Junior subordinated debentures
issued to capital trusts
52,819
3,850
7.29
51,489
3,530
6.86
37,746
1,787
4.73
Total interest-bearing liabilities
3,420,791
$
62,850
1.84 %
3,319,602
$
37,927
1.14 %
2,812,656
$
7,180
0.26 %
Noninterest-bearing deposits
1,033,811
1,113,300
1,051,187
Noninterest-bearing liabilities
38,113
44,074
22,724
Total liabilities
4,492,715
4,476,976
3,886,567
Stockholders' Equity
515,368
450,928
383,306
Total liabilities and
stockholders’ equity
$
5,008,083
$
4,927,904
$
4,269,873
Net interest income/Net interest margin
$
188,850
3.96 %
$
191,072
4.09 %
$
145,874
3.54 %
Tax-equivalent adjustment
2,242
0.05
2,758
0.06
2,499
0.06
Net interest income (tax-equivalent
basis)/
Net interest margin (tax-equivalent
basis)
$
191,092
4.01 %
$
193,830
4.15 %
$
148,373
3.60 %
Net interest rate spread
3.44 %
3.76 %
3.46 %
Net interest-earning assets
$
1,348,880
$
1,355,423
$
1,305,468
Ratio of interest-earning assets to
interest-bearing liabilities
1.39
1.41
1.46
Cost of total deposits
1.30 %
0.60 %
0.07 %
Cost of funds
1.41
0.86
0.19
_________________________________________________
(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 measure 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.
(1)
(2)
(2) (3)
(4)
(5)
47
Table of Contents
The following table sets forth the components of loan interest income and their contributions to the total loan yield.
Year Ended December 31,
2024
2023
2022
(dollars in thousands)
Interest
Yield Contribution
Interest
Yield Contribution
Interest
Yield
Contribution
Contractual interest
$
205,031
6.07 %
$
185,772
5.75 %
$
113,775
4.52 %
Loan fees (excluding PPP loans)
4,264
0.13
4,584
0.14
4,454
0.18
PPP loan fees
1
—
2
—
1,488
0.06
Accretion of acquired loan discounts
4,450
0.13
4,136
0.13
933
0.04
Nonaccrual interest recoveries
1,117
0.03
703
0.02
2,828
0.11
Total loan interest income
$
214,863
6.36 %
$
195,197
6.04 %
$
123,478
4.91 %
The following table sets forth the components of net interest income and their contributions to the net interest margin.
Year Ended December 31,
2024
2023
2022
(dollars in thousands)
Interest
Net Interest Margin
Contribution
Interest
Net Interest Margin
Contribution
Interest
Net Interest Margin
Contribution
Interest income:
Contractual interest on loans
$
205,031
4.30 %
$
185,772
3.97 %
$
113,775
2.76 %
Loan fees (excluding PPP loans)
4,264
0.09
4,584
0.10
4,454
0.11
PPP loan fees
1
—
2
—
1,488
0.04
Accretion of acquired loan discounts
4,450
0.09
4,136
0.09
933
0.02
Nonaccrual interest recoveries
1,117
0.02
703
0.02
2,828
0.07
Debt securities
27,903
0.59
29,971
0.64
27,806
0.67
Interest-bearing deposits in bank
8,272
0.18
3,020
0.06
1,541
0.04
Other
662
0.01
811
0.02
229
0.01
Total interest income
251,700
5.28
228,999
4.90
153,054
3.72
Interest expense:
Deposits
56,047
1.18
25,135
0.54
2,511
0.07
Other interest-bearing liabilities
6,803
0.14
12,792
0.27
4,669
0.11
Total interest expense
62,850
1.32
37,927
0.81
7,180
0.18
Net interest income
188,850
3.96
191,072
4.09
145,874
3.54
Tax-equivalent adjustment
2,242
0.05
2,758
0.06
2,499
0.06
Net interest income (tax-equivalent)
$
191,092
4.01 %
$
193,830
4.15 %
$
148,373
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 measure to their most closely comparable GAAP measures.
(1)
(1) (2)
48
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, 2024
vs.
Year Ended December 31, 2023
Year Ended December 31, 2023
vs.
Year Ended December 31, 2022
Increase (Decrease) Due to
Total
Increase (Decrease) Due to
Total
(dollars in thousands)
Volume
Rate
Volume
Rate
Interest-earning assets:
Loans
$
9,054
$
10,612
$
19,666
$
39,701
$
32,018
$
71,719
Debt securities
(3,286)
1,218
(2,068)
(1,092)
3,257
2,165
Deposits with banks
4,141
1,111
5,252
(1,312)
2,791
1,479
Other
(136)
(13)
(149)
177
405
582
Total interest-earning assets
9,773
12,928
22,701
37,474
38,471
75,945
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand
(231)
2,600
2,369
26
2,497
2,523
Money market
1,641
9,644
11,285
139
6,400
6,539
Savings
(132)
720
588
4
821
825
Time
8,080
9,319
17,399
1,007
8,894
9,901
Brokered
(794)
65
(729)
2,836
—
2,836
Total interest-bearing deposits
8,564
22,348
30,912
4,012
18,612
22,624
Securities sold under agreements to repurchase
(36)
375
339
(15)
234
219
Borrowings
(5,008)
(1,640)
(6,648)
5,640
521
6,161
Subordinated notes
4
(4)
—
4
(4)
—
Junior subordinated debentures issued to capital
trusts
93
227
320
781
962
1,743
Total interest-bearing liabilities
3,617
21,306
24,923
10,422
20,325
30,747
Change in net interest income
$
6,156
$
(8,378)
$
(2,222)
$
27,052
$
18,146
$
45,198
Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023
Net interest income for the year ended December 31, 2024 was $188.9 million, decreasing $2.2 million, or 1.2%, when compared to the year
ended December 31, 2023. The decrease is primarily attributable to an increase in funding costs which were partially offset by higher yields
on interest-earning assets and higher interest-earning asset balances following the Town and Country merger.
Net interest margin decreased to 3.96% for the year ended December 31, 2024, compared to 4.09% for the year ended December 31, 2023.
The decrease was primarily attributable to increases in funding costs outpacing increases in interest-earning asset yields. Additionally, the
contribution of acquired loan discount accretion to net interest margin was 9 basis points for each of the years ended December 31, 2024
and 2023.
49
Table of Contents
The quarterly net interest margins were as follows:
2024
2023
2022
Three months ended:
March 31
3.94 %
4.20 %
3.08 %
June 30
3.95
4.16
3.34
September 30
3.98
4.07
3.65
December 31
3.96
3.93
4.10
The FOMC began raising the target range for the federal funds rate in March 2022 and continued raising interest rates until its July 2023
meeting. As a result, market interest rates also rose during this time which led to improvements in our net interest margin through the first
quarter of 2023. Our net interest margin decreased modestly beginning in the second quarter of 2023, as increased competition for deposits
drove an increase in our funding costs. This continued during the remainder of 2023 with increases in funding costs outpacing increases in
interest-earning asset yields. Our deposit balances and funding costs began to stabilize during the first quarter of 2024 while yields on loans
continued to increase and debt securities continued to reprice at higher rates.
The FOMC began lowering interest rates in September 2024, with the target range for the federal funds rate decreasing by 100 basis points
to a range of 4.25% to 4.50% by the end of 2024. This decrease, and potential future decreases, may put downward pressure on our net
interest margin, as the negative impact on floating rate loans may not be fully offset by the positive impacts of maturing fixed rate loans and
securities repricing at higher rates or potential decreases in deposit costs. 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; however, this depends upon the timing and extent of interest rate fluctuations and
may not always be the case.
50
Table of Contents
Provision for Credit Losses
The following table sets forth the components of provision for credit losses for the years indicated:
Year Ended December 31,
(dollars in thousands)
2024
2023
2022
PROVISION FOR CREDIT LOSSES
Loans
$
3,754
$
6,665
$
(706)
Unfunded lending-related commitments
(723)
908
—
Total provision for credit losses
$
3,031
$
7,573
$
(706)
Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023
The Company recorded a provision for credit losses of $3.0 million for the year ended December 31, 2024. The 2024 provision for credit
losses primarily reflects a $4.0 million increase in required reserves resulting from changes in qualitative factors; an $0.8 million increase in
required reserves driven by changes within the loan portfolio; a $1.2 million decrease in specific reserves on individually evaluated loans; and
a $0.6 million decrease in required reserves resulting from improvements in economic forecasts.
Additionally, the 2023 results included the recognition of an allowance for credit losses on non-PCD loans of $5.2 million and an allowance
for credit losses on unfunded commitments of $0.7 million through provision for credit losses which were related to the Town and Country
acquisition.
Credit losses are highly dependent on current and forecast economic conditions. Potential deterioration of economic conditions may lead to
higher credit losses and adversely impact our financial condition and results of operations. The economic forecasts utilized in estimating the
allowance for credit losses on loans and lending-related unfunded commitments include the unemployment rate and changes in gross
domestic product ("GDP") as macroeconomic variables, although other economic metrics are considered on a qualitative basis.
51
Table of Contents
Noninterest Income
The following table sets forth the major categories of noninterest income for the years indicated:
Year Ended December 31,
Year Ended December 31,
(dollars in thousands)
2024
2023
$ Change
% Change
2023
2022
$ Change
% Change
Card income
$
11,051
$
11,043
$
8
0.1 %
$
11,043
$
10,329
$
714
6.9 %
Wealth management fees
10,978
9,883
1,095
11.1
9,883
9,155
728
8.0
Service charges on deposit
accounts
7,932
7,846
86
1.1
7,846
7,072
774
10.9
Mortgage servicing
4,437
4,678
(241)
(5.2)
4,678
2,609
2,069
79.3
Mortgage servicing rights fair
value adjustment
(174)
(1,615)
1,441
NM
(1,615)
2,153
(3,768)
NM
Gains on sale of mortgage loans
1,611
1,526
85
5.6
1,526
1,461
65
4.4
Realized gains (losses) on sales
of securities
(3,697)
(1,820)
(1,877)
NM
(1,820)
—
(1,820)
NM
Unrealized gains (losses) on
equity securities
(59)
160
(219)
NM
160
(414)
574
NM
Gains (losses) on foreclosed
assets
22
501
(479)
(95.6)
501
(314)
815
NM
Gains (losses) on other assets
(635)
166
(801)
NM
166
136
30
22.1
Income on bank owned life
insurance
915
573
342
59.7
573
164
409
249.4
Other noninterest income
3,190
3,105
85
2.7
3,105
2,366
739
31.2
Total
$
35,571
$
36,046
$
(475)
(1.3)%
$
36,046
$
34,717
$
1,329
3.8 %
_________________________________________________
NM Not meaningful.
Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023
Total noninterest income for the year ended December 31, 2024, was $35.6 million, a decrease of $0.5 million, or 1.3%, from the year ended
December 31, 2023. Notable changes in noninterest income include the following:
•
Net losses of $3.7 million were realized on the sale of debt securities during the year ended December 31, 2024, compared to net
losses of $1.8 million realized during the year ended December 31, 2023;
•
A $0.2 million negative mortgage servicing rights fair value adjustment included in the 2024 results, compared to a $1.6 million
negative mortgage servicing rights fair value adjustment included in the 2023 results;
•
A $1.1 million increase in wealth management fees, driven by higher values of assets under management, partially offset by lower
farm management fees as a result of lower commodity prices;
•
Impairment losses on bank premises of $0.6 million related to the closure of two branch premises were recognized during 2024,
compared to a $0.1 million gain on sales of closed branch premises recognized during 2023; and
•
A $0.3 million increase in income on bank owned life insurance, primarily attributable to a $0.2 million gain on life insurance
proceeds.
52
Table of Contents
Noninterest Expense
The following table sets forth the major categories of noninterest expense for the years indicated:
Year Ended December 31,
Year Ended December 31,
(dollars in thousands)
2024
2023
$ Change
% Change
2023
2022
$ Change
% Change
Salaries
$
65,130
$
67,453
$
(2,323)
(3.4)%
$
67,453
$
51,767
$
15,686
30.3 %
Employee benefits
11,311
10,037
1,274
12.7
10,037
8,325
1,712
20.6
Occupancy of bank premises
10,293
9,918
375
3.8
9,918
7,673
2,245
29.3
Furniture and equipment
2,004
2,790
(786)
(28.2)
2,790
2,476
314
12.7
Data processing
11,169
12,352
(1,183)
(9.6)
12,352
7,441
4,911
66.0
Marketing and customer
relations
4,320
5,043
(723)
(14.3)
5,043
3,803
1,240
32.6
Amortization of intangible assets
2,839
2,670
169
6.3
2,670
873
1,797
205.8
FDIC insurance
2,254
2,280
(26)
(1.1)
2,280
1,164
1,116
95.9
Loan collection and servicing
2,056
1,402
654
46.6
1,402
1,049
353
33.7
Foreclosed assets
109
251
(142)
(56.6)
251
293
(42)
(14.3)
Other noninterest expense
12,522
16,768
(4,246)
(25.3)
16,768
20,243
(3,475)
(17.2)
Total
$
124,007
$
130,964
$
(6,957)
(5.3)%
$
130,964
$
105,107
$
25,857
24.6 %
Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023
Total noninterest expense for the year ended December 31, 2024, was $124.0 million, a decrease of $7.0 million, or 5.3%, from the year
ended December 31, 2023. Notable changes in noninterest expense include the following:
•
There were no Town and Country acquisition-related noninterest expenses for the year ended December 31, 2024, but acquisition-
related noninterest expenses totaled $7.8 million for the year ended December 31, 2023;
•
Excluding Town and Country acquisition-related expenses, the $1.3 million increase in salaries expense was primarily driven by
annual merit increases;
•
The $1.3 million increase in employee benefits expense was primarily attributable to higher medical benefits expenses; and
•
Excluding Town and Country acquisition-related expenses, the $2.3 million decrease in other noninterest expense primarily reflects
the absence of $0.8 million of legal fees and $1.0 million of accruals related to litigation matters disclosed in Note 23 to the
Company's Consolidated Financial Statements in this Annual Report on Form 10-K.
Income Taxes
During the years ended December 31, 2024 and 2023, we recorded income tax expense of $25.6 million, or an effective tax rate of 26.3%,
and $22.7 million, or an effective tax rate of 25.7%, respectively. The increase in effective tax rate during 2024 was primarily attributable to an
additional $0.5 million of tax expense for a deferred tax asset write-down, as a result of an Illinois tax change, as well as changes in the
proportion of federally tax-exempt interest income to pre-tax income.
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FINANCIAL CONDITION
(dollars in thousands, except per share data)
December 31,
2024
December 31,
2023
$ Change
% Change
Cash and cash equivalents
$
137,692
$
141,252
$
(3,560)
(2.5)%
Debt securities available-for-sale, at fair value
698,049
759,461
(61,412)
(8.1)
Debt securities held-to-maturity
499,858
521,439
(21,581)
(4.1)
Loans held for sale
1,586
2,318
(732)
(31.6)
Loans, before allowance for credit losses
3,466,146
3,404,417
61,729
1.8
Less: allowance for credit losses
42,044
40,048
1,996
5.0
Loans, net of allowance for credit losses
3,424,102
3,364,369
59,733
1.8
Goodwill
59,820
59,820
—
—
Intangible assets, net
17,843
20,682
(2,839)
(13.7)
Other assets
193,952
203,829
(9,877)
(4.8)
Total assets
$
5,032,902
$
5,073,170
$
(40,268)
(0.8)%
Total deposits
$
4,318,254
$
4,401,437
$
(83,183)
(1.9)%
Securities sold under agreements to repurchase
28,969
42,442
(13,473)
(31.7)
Borrowings
13,231
12,623
608
4.8
Subordinated notes
39,553
39,474
79
0.2
Junior subordinated debentures
52,849
52,789
60
0.1
Other liabilities
35,441
34,909
532
1.5
Total liabilities
4,488,297
4,583,674
(95,377)
(2.1)
Total stockholders' equity
544,605
489,496
55,109
11.3
Total liabilities and stockholders' equity
$
5,032,902
$
5,073,170
$
(40,268)
(0.8)%
Tangible assets
$
4,955,239
$
4,992,668
$
(37,429)
(0.7)%
Tangible common equity
466,942
408,994
57,948
14.2
Core deposits
$
4,116,058
$
4,126,374
$
(10,316)
(0.3)%
Share and Per Share Information
Book value per share
$
17.26
$
15.44
$
1.82
11.8 %
Tangible book value per share
14.80
12.90
1.90
14.7
Shares of common stock outstanding
31,559,366
31,695,828
Balance Sheet Ratios
Loan to deposit ratio
80.27 %
77.35 %
Core deposits to total deposits
95.32
93.75
Stockholders' equity to total assets
10.82
9.65
Tangible common equity to tangible assets
9.42
8.19
_________________________________________________
See "Non-GAAP Financial Information" for reconciliation of non-GAAP measure to their most closely comparable GAAP measures.
(1)
(1)
(1)
(1)
(1)
(1)
(1)
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Notable changes in our consolidated balance sheet include the following:
•
Debt securities decreased $83.0 million, largely due to the sale of $69.2 million of municipal securities with sales proceeds primarily
used to reduce wholesale funding. Additionally, paydowns, maturities, and calls of debt securities generated another $126.3 million of
cash proceeds with $105.1 million being reinvested into debt securities at higher yields;
•
Loans increased by $61.7 million, primarily attributable to new originations to recurring customers; and
•
Total deposits decreased by $83.2 million, primarily attributable to a $144.9 million decrease in brokered deposits. Deposit balances
continued to shift towards higher cost deposit products, such as time deposits, which increased $158.2 million, including the addition
of $65.0 million of time deposits from a State of Illinois loan matching program.
Loan Portfolio
The following table sets forth the composition of the loan portfolio, excluding loans held-for-sale, by type of loan.
December 31, 2024
December 31, 2023
(dollars in thousands)
Balance
Percent
Balance
Percent
Commercial and industrial
$
428,389
12.4 %
$
427,800
12.6 %
Commercial real estate - owner occupied
322,316
9.3
295,842
8.7
Commercial real estate - non-owner occupied
899,565
25.9
880,681
25.9
Construction and land development
374,657
10.8
363,983
10.7
Multi-family
431,524
12.4
417,923
12.3
One-to-four family residential
463,968
13.4
491,508
14.4
Agricultural and farmland
293,375
8.5
287,294
8.4
Municipal, consumer, and other
252,352
7.3
239,386
7.0
Loans, before allowance for credit losses
3,466,146
100.0 %
3,404,417
100.0 %
Allowance for credit losses
(42,044)
(40,048)
Loans, net of allowance for credit losses
$
3,424,102
$
3,364,369
Loans, before allowance for credit losses were $3.47 billion at December 31, 2024, an increase of $61.7 million, or 1.8%, from December 31,
2023. Notable changes include the following:
•
A $10.7 million increase in construction loans primarily attributable to draws on existing construction projects and new construction
loans to existing customers which were mostly offset by transfers of completed projects into other categories.
•
An $18.9 million increase in commercial real estate – non-owner occupied loans and a $13.6 million increase in multi-family loans,
primarily attributable to completed construction projects transferred from the construction and land development category, partially
offset by early payoffs; and
•
During 2024, we purchased pools of commercial and industrial loans totaling $14.6 million. One pool included equipment finance
loans purchased from a bank that originated the loans through its equipment finance division to borrowers across multiple industries
and geographic regions. The remaining pool consisted of loans originated by a financial services company with a long-standing
history of originating loans to healthcare and professional service borrowers across multiple geographic regions.
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Table of Contents
Commercial Real Estate Portfolios
Commercial real estate – owner occupied loans are primarily made based on the identified cash flows of the borrower and secondarily on the
underlying collateral provided by the borrower. The commercial real estate – owner occupied portfolio composition, segmented by the
owner’s business classification, as of December 31, 2024 was as follows:
December 31, 2024
(dollars in thousands)
Balance
Substandard
Risk Rating
Manufacturing
$
44,718
$
333
Health care and social assistance
38,658
319
Auto repair and dealers
33,991
—
Accommodation and food services
31,217
3,993
Retail trade
27,331
—
Real estate, rental, and leasing
21,430
26
Wholesale trade
20,055
—
Construction
19,777
1,405
Grain elevators
19,058
—
Arts, entertainment, and recreation
12,457
77
Other services (except public administration)
11,942
—
Administrative and support services
11,929
—
Professional, scientific, and technical services
8,312
—
Agriculture, forestry, fishing, and hunting
6,634
—
Education services
6,537
1,331
Finance and insurance
4,916
—
Other
3,354
—
Total
$
322,316
$
7,484
Commercial real estate – non-owner occupied loans are primarily made based on projected cash flows from the rental or sale of the
underlying collateral. The commercial real estate – non-owner occupied portfolio composition, segmented by the property type, as of
December 31, 2024 was as follows:
December 31, 2024
(dollars in thousands)
Balance
Substandard
Risk Rating
Weighted Average
LTV
Warehouse and manufacturing
$
189,982
$
—
56 %
Retail
179,843
9,191
55
Office
159,198
4,854
56
Senior Living
107,742
12,912
56
Hotel
86,151
7,527
55
Mixed use (commercial and residential)
67,103
—
63
Medical office
33,893
—
58
Gas station
24,780
—
62
Auto repair and dealers
20,697
—
54
Restaurant and bar
12,653
—
60
Other
17,523
—
55
Total
$
899,565
$
34,484
56 %
________________
(1) Weighted average LTV is based on the most recent appraisals available, which are generally obtained at the time of origination.
Multi-family loans totaled $431.5 million as of December 31, 2024, and are primarily made based on projected cash flows from the rental or
sale of the underlying collateral. As of December 31, 2024, multi-family loans had a weighted average LTV of 57%, based on the most recent
appraisals available, which are generally obtained at the time of origination.
(1)
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Management’s disciplined approach to credit risk management is exercised through portfolio diversification, robust underwriting policies, and
routine loan monitoring practices in order to identify and mitigate any credit weakness as early as possible. Management continually monitors
and evaluates commercial real estate concentrations by property class, industry, and relative to the Bank’s regulatory capital to remain in line
with board-established limits and adapt to changing industry conditions. A centralized credit underwriting group, independent of the
originating lender, evaluates a vast majority of the commercial exposures over $750 thousand annually, if not more frequently, through a
standardized credit review process to ensure uniform application of policies and procedures as well as analyze credit performance. All loans
require appropriate internal approval, with a centralized credit approval group reviewing all exposures over $500 thousand. Additionally, a
robust internal review process reviews more than 45% of loan commitments on a rolling 24 month basis that is in addition to an annual third-
party review of a sample of the portfolio.
Beginning in the fourth quarter of 2022 in response to the rapid increase in interest rates, we have prepared quarterly cash flow stress tests
for our commercial real estate – non-owner occupied and multi-family loans. For commercial real estate – non-owner occupied and multi-
family loans over $1 million, we evaluate the impact of current interest rates on the underlying cash flows of the properties securing these
loans, based on the most recent cash flow data available. This testing is completed in addition to the various sensitivity testing completed at
the initial extension of credit. Individual credits with a maturity scheduled within the next five quarters that are presenting stress under current
renewal terms are identified, so that ample time is available to develop solutions to manage credit risk.
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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, 2024. Demand loans (loans having no
stated repayment schedule or maturity) and overdraft loans are reported as being due in one year or less.
(dollars in thousands)
1 Year
or Less
After 1 Year
Through
5 Years
After 5 Years
Through
15 Years
After
15 Years
Total
Commercial and industrial
$
231,936
$
141,237
$
55,216
$
—
$
428,389
Commercial real estate - owner occupied
56,155
169,625
78,702
17,834
322,316
Commercial real estate - non-owner occupied
186,116
595,846
117,141
462
899,565
Construction and land development
179,950
170,567
13,993
10,147
374,657
Multi-family
114,333
269,453
46,423
1,315
431,524
One-to-four family residential
59,928
185,319
92,888
125,833
463,968
Agricultural and farmland
131,229
120,044
36,665
5,437
293,375
Municipal, consumer, and other
102,559
52,008
67,045
30,740
252,352
Total
$
1,062,206
$
1,704,099
$
508,073
$
191,768
$
3,466,146
The following table summarizes loans maturing after one year, segregated into variable and fixed interest rates.
Variable Interest Rates
(dollars in thousands)
Repricing
1 Year
or Less
Repricing
After
1 Year
Total
Variable
Interest Rates
Predetermined
(Fixed)
Interest Rates
Total
Commercial and industrial
$
41,830
$
6,770
$
48,600
$
147,853
$
196,453
Commercial real estate - owner occupied
58,037
43,707
101,744
164,417
266,161
Commercial real estate - non-owner occupied
92,372
18,285
110,657
602,792
713,449
Construction and land development
59,498
11,027
70,525
124,182
194,707
Multi-family
60,555
17,957
78,512
238,679
317,191
One-to-four family residential
81,134
56,056
137,190
266,850
404,040
Agricultural and farmland
4,101
10,741
14,842
147,304
162,146
Municipal, consumer, and other
32,964
18,534
51,498
98,295
149,793
Total
$
430,491
$
183,077
$
613,568
$
1,790,372
$
2,403,940
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Nonperforming Assets
Our nonperforming loans and nonperforming assets were as follows:
(dollars in thousands)
December 31, 2024
December 31, 2023
NONPERFORMING ASSETS
Nonaccrual
$
7,652
$
7,820
Past due 90 days or more, still accruing
4
37
Total nonperforming loans
7,656
7,857
Foreclosed assets
367
852
Total nonperforming assets
$
8,023
$
8,709
Nonperforming loans that are wholly or partially guaranteed by the U.S. Government
$
1,573
$
2,641
Allowance for credit losses
$
42,044
$
40,048
Loans, before allowance for credit losses
3,466,146
3,404,417
CREDIT QUALITY RATIOS
Allowance for credit losses to loans, before allowance for credit losses
1.21 %
1.18 %
Allowance for credit losses to nonaccrual loans
549.45
512.12
Allowance for credit losses to nonperforming loans
549.16
509.71
Nonaccrual loans to loans, before allowance for credit losses
0.22
0.23
Nonperforming loans to loans, before allowance for credit losses
0.22
0.23
Nonperforming assets to total assets
0.16
0.17
Nonperforming assets to loans, before allowance for credit losses, and foreclosed assets
0.23
0.26
Total nonperforming assets were $8.0 million at December 31, 2024, a slight decrease when compared to $8.7 million at December 31, 2023.
The slight decrease was primarily attributable to sales of foreclosed assets and a decrease in nonaccrual one-to-four family residential loans.
Additionally, of the $7.7 million of nonperforming loans held as of December 31, 2024, $1.6 million are either wholly or partially guaranteed by
the U.S. Government.
Risk Classification of Loans
Our risk classifications of loans were as follows:
(dollars in thousands)
December 31, 2024
December 31, 2023
Pass
$
3,264,396 $
3,241,889
Pass-watch
83,947
98,206
Special mention
46,590
—
Substandard
71,213
64,322
Total
$
3,466,146 $
3,404,417
_________________________________________________
(1) In June 2024, the Company updated its risk rating categories to add the special mention category to provide another level of granularity in distinguishing risk levels of
loans. As of June 30, 2024, $19.5 million of the special mention loans would have been considered pass-watch and $10.6 million would have been considered substandard
under the previous risk rating categories.
Loans rated pass-watch or worse increased $39.2 million, or 24.1%, from December 31, 2023 to December 31, 2024, primarily attributable to
downgrades within the agricultural and farmland, commercial and industrial, and construction and land development segments.
(1)
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Net Charge-offs (Recoveries)
The following table summarizes net charge-offs (recoveries) to average loans by loan category.
Year Ended December 31,
(dollars in thousands)
2024
2023
2022
Net charge-offs (recoveries)
Commercial and industrial
$
1,300
$
369
$
(751)
Commercial real estate - owner occupied
(10)
(13)
(1,006)
Commercial real estate - non-owner occupied
(586)
(66)
(283)
Construction and land development
(3)
(53)
(1)
Multi-family
188
(281)
—
One-to-four family residential
(142)
(152)
(302)
Agricultural and farmland
51
(6)
—
Municipal, consumer, and other
960
382
240
Total
$
1,758
$
180
$
(2,103)
Average loans
Commercial and industrial
$
402,936
$
370,255
$
268,765
Commercial real estate - owner occupied
294,847
290,489
219,127
Commercial real estate - non-owner occupied
886,903
874,661
695,230
Construction and land development
364,138
368,111
340,831
Multi-family
423,532
372,201
258,490
One-to-four family residential
482,984
476,856
328,656
Agricultural and farmland
285,747
254,106
233,349
Municipal, consumer, and other
236,972
225,057
170,101
Total
$
3,378,059
$
3,231,736
$
2,514,549
Charge-offs (recoveries) to average loans
Commercial and industrial
0.32 %
0.10 %
(0.28)%
Commercial real estate - owner occupied
—
—
(0.46)
Commercial real estate - non-owner occupied
(0.07)
(0.01)
(0.04)
Construction and land development
—
(0.01)
—
Multi-family
0.04
(0.08)
—
One-to-four family residential
(0.03)
(0.03)
(0.09)
Agricultural and farmland
0.02
—
—
Municipal, consumer, and other
0.41
0.17
0.14
Total
0.05 %
0.01 %
(0.08)%
The net charge-offs (recoveries) to average total loans ratio has remained low for several years. While we believe our continuous credit
monitoring and collection efforts have resulted in lower levels of credit losses, we also recognize that substantial federal economic stimulus
during the COVID-19 pandemic and the relatively stable economic conditions after the pandemic have also contributed to reduced credit
losses.
Additionally, heightened net charge-offs within the commercial and industrial segment are primarily related to equipment finance loans which
were purchased as part of a pool of loans during 2023.
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Table of Contents
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, 2024, are
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.
December 31, 2024
Available-for-Sale
Held-to-Maturity
Total
(dollars in thousands)
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Due in 1 year or less
U.S. Treasury
$
30,011
1.46 %
$
—
— %
$
30,011
1.46 %
U.S. government agency
12,395
2.69
—
—
12,395
2.69
Municipal
3,437
2.54
7,084
3.05
10,521
2.89
Mortgage-backed:
Agency residential
138
3.10
—
—
138
3.10
Agency commercial
5,041
1.56
—
—
5,041
1.56
Total
$
51,022
1.85 %
$
7,084
3.05 %
$
58,106
2.00 %
Due after 1 year through 5 years
U.S. Treasury
$
70,026
1.25 %
$
—
— %
$
70,026
1.25 %
U.S. government agency
26,905
2.36
34,952
2.22
61,857
2.28
Municipal
56,385
1.61
17,398
3.11
73,783
1.97
Mortgage-backed:
Agency residential
8,934
2.73
11,170
2.13
20,104
2.40
Agency commercial
64,017
1.81
83,406
2.29
147,423
2.08
Corporate
24,953
5.12
—
—
24,953
5.12
Total
$
251,220
2.03 %
$
146,926
2.36 %
$
398,146
2.15 %
Due after 5 years through 10 years
U.S. Treasury
$
19,653
1.62 %
$
—
— %
$
19,653
1.62 %
U.S. government agency
16,442
3.40
53,520
2.64
69,962
2.82
Municipal
74,310
1.77
9,125
3.65
83,435
1.98
Mortgage-backed:
Agency residential
58,048
2.14
—
—
58,048
2.14
Agency commercial
22,019
1.66
167,059
1.85
189,078
1.83
Corporate
34,779
4.52
—
—
34,779
4.52
Total
$
225,251
2.38 %
$
229,704
2.11 %
$
454,955
2.25 %
Due after 10 years
Municipal
$
16,031
1.71 %
$
2,255
3.43 %
$
18,286
1.92 %
Mortgage-backed:
Agency residential
174,222
3.92
74,473
3.64
248,695
3.83
Agency commercial
37,746
2.47
39,416
1.89
77,162
2.17
Corporate
2,000
4.50
—
—
2,000
4.50
Total
$
229,999
3.53 %
$
116,144
3.04 %
$
346,143
3.37 %
Total
U.S. Treasury
$
119,690
1.36 %
$
—
— %
$
119,690
1.36 %
U.S. government agency
55,742
2.74
88,472
2.48
144,214
2.58
Municipal
150,163
1.72
35,862
3.26
186,025
2.02
Mortgage-backed:
Agency residential
241,342
3.45
85,643
3.44
326,985
3.44
Agency commercial
128,823
1.96
289,881
1.98
418,704
1.98
Corporate
61,732
4.76
—
—
61,732
4.76
Total
$
757,492
2.58 %
$
499,858
2.41 %
$
1,257,350
2.51 %
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SOURCES OF FUNDS
Deposits
Management continues to focus on growing deposits through the Company’s relationship-driven banking philosophy and community-focused
marketing programs. Additionally, we continue to add and improve digital banking services to solidify deposit relationships.
The following table sets forth the distribution of average deposits, by account type:
Year Ended December 31, 2024
Percent
Change in Average
Balance
2024 vs. 2023
(dollars in thousands)
Average
Balance
Percent of
Total Deposits
Weighted
Average Cost
Noninterest-bearing
$
1,033,811
23.9 %
— %
(7.1)%
Interest-bearing demand
1,106,136
25.6
0.50
(6.9)
Money market
797,444
18.6
2.34
19.2
Savings
584,769
13.5
0.28
(11.6)
Time
757,456
17.5
3.72
57.3
Brokered
38,286
0.9
5.50
(27.4)
Total deposits
$
4,317,902
100.0 %
1.30 %
3.6 %
Year Ended December 31, 2023
Percent
Change in Average
Balance
2023 vs. 2022
(dollars in thousands)
Average
Balance
Percent of
Total Deposits
Weighted
Average Cost
Noninterest-bearing
$
1,113,300
26.7 %
— %
5.9 %
Interest-bearing demand
1,188,680
28.5
0.26
4.1
Money market
669,118
16.1
1.10
14.9
Savings
661,424
15.9
0.16
1.7
Time
481,466
11.5
2.24
70.0
Brokered
52,724
1.3
5.38
100.0
Total deposits
$
4,166,712
100.0 %
0.60 %
12.3 %
Year Ended December 31, 2022
(dollars in thousands)
Average
Balance
Percent of
Total Deposits
Weighted
Average Cost
Noninterest-bearing
$
1,051,187
28.4 %
— %
Interest-bearing demand
1,141,402
30.8
0.05
Money market
582,514
15.7
0.14
Savings
650,385
17.5
0.03
Time
283,232
7.6
0.31
Brokered
—
—
—
Total deposits
$
3,708,720
100.0 %
0.07 %
The increase in average deposit balances in 2024 compared to 2023 was primarily attributable to increases in time deposits, including the
addition of $65.0 million from a State of Illinois loan matching program, and money market accounts as balances continued to shift towards
higher cost deposit products. Partially offsetting these increases was a decrease in brokered deposits due to planned repayment at
scheduled maturity. As a result of these changes, deposit costs increased during 2024 compared to 2023.
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The following table sets forth time deposits by remaining maturity as of December 31, 2024:
(dollars in thousands)
3 Months or
Less
Over 3 through
6 Months
Over 6 through
12 Months
Over
12 Months
Total
Time deposits:
Amounts less than $100,000
$
139,856
$
96,944
$
64,947
$
28,486
$
330,233
Amounts of $100,000 or more but less than $250,000
117,795
76,462
47,624
11,120
253,001
Amounts of $250,000 or more
105,284
72,534
21,295
3,083
202,196
Total time deposits
$
362,935
$
245,940
$
133,866
$
42,689
$
785,430
As of December 31, 2024 and 2023, the Bank’s uninsured deposits were estimated to be $949.4 million and $867.7 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.
As of or for the Years Ended December 31,
(dollars in thousands)
2024
2023
2022
Balance at end of year
$
28,969
$
42,442
$
43,081
Average balance during year
30,984
35,450
51,554
Average interest rate during year
1.92 %
0.72 %
0.07 %
Borrowings
Deposits are the Bank's primary source of funds for our lending activities and general business purposes. However, we may also obtain
advances from the 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 the first half of 2022, but increased during the second half of 2022 and
throughout most of 2023 to fund increases in loan demand and to offset a decrease in deposits. Our use of FHLB advances and other
borrowings returned to nominal levels during 2024, with loan demand funded primarily through cash flows from the debt securities portfolio.
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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,
(dollars in thousands)
2024
2023
2022
Balance at end of year
FHLB advances
$
13,231
$
12,623
$
160,000
Federal Reserve discount window
—
—
—
Federal funds purchased
—
—
—
Total borrowings
$
13,231
$
12,623
$
160,000
Average balance during year
FHLB advances
$
13,301
$
139,554
$
25,934
Federal Reserve discount window
—
3
—
Federal funds purchased
82
260
534
Total borrowings
$
13,383
$
139,817
$
26,468
Average interest rate during year
FHLB advances
3.57 %
5.10 %
3.68 %
Federal Reserve discount window
—
5.25
—
Federal funds purchased
5.93
5.56
2.11
Total borrowings
3.59
5.10
3.65
LIQUIDITY
Bank Liquidity
The overall objective of bank liquidity management is to ensure the availability of sufficient cash funds to meet all financial commitments and
to take advantage of investment opportunities. The Bank manages liquidity in order to meet deposit withdrawals on demand or at contractual
maturity, to repay borrowings as they mature, and to fund new loans and investments as opportunities arise.
The Bank continuously monitors its liquidity 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. 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.
Our on-balance sheet sources of liquidity included cash and cash equivalents as well as unpledged securities which may be sold or pledged
as collateral to meet liquidity needs. As of December 31, 2024 and December 31, 2023, our on-balance sheet sources of liquidity included
the following:
(dollars in thousands)
December 31, 2024
December 31, 2023
Cash and cash equivalents
$
137,692 $
141,252
Fair value of unpledged securities
705,106
827,760
Total cash and unpledged securities
$
842,798 $
969,012
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Additional sources of liquidity include borrowings from the FHLB, the Federal Reserve discount window, and federal fund lines of credit.
Interest is charged on outstanding borrowings at the prevailing market rate. As of December 31, 2024, our current borrowings and additional
available borrowing capacity were as follows:
December 31, 2024
(dollars in thousands)
Current Balance
Additional
Available Capacity
FHLB
$
13,231 $
1,019,027
Federal Reserve
—
91,860
Federal funds lines of credit
—
80,000
Total
$
13,231 $
1,190,887
Further, the Bank could utilize brokered deposits as an additional source of liquidity, as needed.
As of December 31, 2024, management believed the current liquidity and available sources of liquidity are adequate to meet all of the
reasonably foreseeable short-term and intermediate-term demands of the Bank. As of December 31, 2024, the Bank had no material
commitments for capital expenditures.
Holding Company Liquidity
The Holding Company, or HBT Financial 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, 2024, the Holding Company had cash and cash equivalents of $16.2 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 cash obligations. During the years ended December 31, 2024, 2023, and 2022, the Bank paid $34.0
million, $64.0 million, and $28.0 million in dividends 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, 2024, 2023, and 2022, holding company operating expenses consisted of interest expense of $5.7 million,
$5.4 million, and $3.7 million, respectively, and other operating expenses of $4.1 million, $5.5 million, and $5.3 million, respectively.
Additionally, the Holding Company paid $24.2 million, $21.9 million, and $18.6 million of dividends to stockholders during the years ended
December 31, 2024, 2023, and 2022, respectively. The Holding Company also paid $38.0 million in cash consideration in the acquisition of
Town and Country during 2023.
As of December 31, 2024, 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, 2024, management believed the current liquidity and available sources of liquidity are adequate to meet all of the
reasonably foreseeable short-term and intermediate-term demands of the Holding Company. As of December 31, 2024, the Holding
Company had no material commitments for capital expenditures.
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CAPITAL RESOURCES
The overall objectives of capital management are to ensure the availability of sufficient capital to support loan, deposit and other asset and
liability growth opportunities and to maintain capital to absorb unforeseen losses or write-downs that are inherent in the business risks
associated with the banking industry. The Company seeks to balance the need for higher capital levels to address such unforeseen risks and
the goal to achieve an adequate return on the capital invested by our stockholders.
Regulatory Capital Requirements
The Company and Bank are each subject to various regulatory capital requirements administered by federal and state banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that,
if undertaken, could have a direct material effect on the financial statements of the Company and the Bank.
In addition to meeting minimum capital requirements, the Company and the Bank must also maintain a “capital conservation buffer” to avoid
becoming subject to restrictions on capital distributions and certain discretionary bonus payments to management. The capital conservation
buffer requirement is 2.5% of risk-weighted assets.
As of December 31, 2024 and 2023, 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.
December 31,
2024
December 31,
2023
For Capital
Adequacy Purposes
With Capital
Conservation Buffer
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Consolidated HBT Financial, Inc.
Total Capital (to Risk Weighted Assets)
16.51 %
15.33 %
10.50 %
N/A
Tier 1 Capital (to Risk Weighted Assets)
14.50
13.42
8.50
N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)
13.21
12.12
7.00
N/A
Tier 1 Capital (to Average Assets)
11.51
10.49
4.00
N/A
Heartland Bank and Trust Company
Total Capital (to Risk Weighted Assets)
16.11 %
14.92 %
10.50 %
10.00 %
Tier 1 Capital (to Risk Weighted Assets)
15.10
14.01
8.50
8.00
Common Equity Tier 1 Capital (to Risk Weighted Assets)
15.10
14.01
7.00
6.50
Tier 1 Capital (to Average Assets)
11.98
10.96
4.00
5.00
_________________________________________________
(1)
The Tier 1 capital to average assets ratio (known as the “leverage ratio”) is not impacted by the capital conservation buffer.
(2)
The prompt corrective action provisions are not applicable to bank holding companies.
N/A Not applicable.
As of December 31, 2024, 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 $0.19 per share during 2024, $0.17 per share during 2023, and $0.16 per share during 2022.
On January 21, 2025, the Company’s Board of Directors increased the quarterly cash dividend by $0.02 per share to $0.21 per share.
(1)
(2)
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Table of Contents
Stock Repurchase Program
The Company repurchased 232,803 shares of its common stock at a weighted average price of $18.89 during 2024, 479,005 shares at a
weighted average price of $18.43 during 2023, and 265,379 shares at a weighted average price of $18.02 during 2022. Repurchases were
conducted in compliance with Rule 10b-18 and in compliance with Regulation M under the Exchange Act. On December 17, 2024, 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, 2025.
OFF-BALANCE SHEET ARRANGEMENTS
As a financial services provider, the Bank routinely is 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. 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 Credit Losses
The allowance for credit losses reflects an estimate of lifetime expected credit losses. Measurement of expected credit losses is based on
relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts. The
allowance for credit losses is established through a provision for credit losses which is charged to expense. Additions to the allowance for
credit losses are expected to maintain the adequacy of the total allowance for credit losses. Loan losses are charged off against the
allowance for credit losses when the Company determines the loan balance to be uncollectible. Cash received on previously charged off
amounts is recorded as a recovery to the allowance for credit losses.
Management uses the discounted cash flow method to estimate expected credit losses for all loan categories, except for consumer loans
where the weighted average remaining maturity method is utilized. The Company uses regression analysis of historical internal and peer
data to determine which macroeconomic variables are most closely correlated with credit losses, such as the unemployment rate and
changes in GDP. Management leverages economic projections from a reputable third party to form its economic forecasts with a reversion to
historical averages for periods beyond a reasonable and supportable forecast period.
Nonaccrual loans and loans which do not share risk characteristics with other loans in the pool are individually evaluated to determine
expected credit losses.
The allowance for credit losses on unfunded commitments is estimated in the same manner as the associated loans, adjusted for anticipated
funding rate.
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NON-GAAP FINANCIAL INFORMATION
This Annual Report on Form 10-K contains certain financial information determined by methods other than those 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
Definition
How the Measure Provides Useful Information to
Investors
Adjusted Net Income
• Net income, with the following adjustments:
- excludes acquisition expenses, including the day 2
provision for credit losses on non-PCD loans and
unfunded commitments,
- excludes branch closure expenses,
- excludes gains (losses) on 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.
• Enhances comparisons to prior periods and,
accordingly, facilitates the development of future
projections and earnings growth prospects.
• We also sometimes refer to ratios that include Adjusted
Net Income, such as:
- Adjusted Return on Average Assets, which is
Adjusted Net Income divided by average assets.
- Adjusted Return on Average Equity, which is
Adjusted Net Income divided by average equity.
- Adjusted Earnings Per Share – Basic, which is
Adjusted Net Income allocated to common shares
divided by weighted average common shares
outstanding.
- Adjusted Earnings Per Share – Diluted, which is
Adjusted Net Income allocated to common shares
divided by weighted average common shares
outstanding, including all dilutive potential shares.
• Adjusted Return on Average Assets is a performance
measure utilized in determining executive
compensation.
Pre-Provision Net Revenue
• Net interest income, plus noninterest income, less
noninterest expense.
• Provides investors with information regarding
profitability excluding provision for credit losses and
income tax expense, which may fluctuate from period to
period.
• We also sometimes refer to measures that include Pre-
Provision Net Revenue, such as:
- Adjusted Pre-Provision Net Revenue which reflects
the adjustments considered in Adjusted Net Income,
as necessary.
- Pre-Provision Net Revenue Less Charge-offs
(Recoveries).
- Adjusted Pre-Provision Net Revenue Less Charge-
offs (Recoveries) which reflects the adjustments
considered in Adjusted Net Income, as necessary.
• Adjusted Pre-Provision Net Revenue Less Net Charge-
Offs (Recoveries) is a performance measure utilized in
determining executive compensation.
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Table of Contents
Non-GAAP Financial
Measure
Definition
How the Measure Provides Useful Information
to Investors
Net Interest Income (Tax-
Equivalent Basis)
• Net interest income adjusted for the tax-favored status of
tax-exempt loans and securities.
• 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 intangible assets
divided by the sum of net interest income (tax-equivalent
basis) and noninterest income.
• Provides a measure of productivity in the 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.
• We also sometimes refer to Adjusted Efficiency Ratio
(Tax-Equivalent Basis) which reflects the adjustments
considered in Adjusted Net Income, as necessary.
• Adjusted Efficiency Ratio (Tax-Equivalent Basis) is a
performance measure utilized in determining
executive compensation.
Ratio of Tangible Common
Equity to Tangible Assets
• Tangible Common Equity is total stockholders’ equity less
goodwill and other intangible assets.
• Tangible Assets is total assets less goodwill and other
intangible assets.
• 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 varying
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.
Core Deposits
• Total deposits, excluding:
- Time deposits of $250,000 or more, and
- Brokered deposits
• 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.
_________________________________________________
(1)
Tax-equivalent basis assuming a federal income tax rate of 21% and a state tax rate of 9.5%.
(1)
(1)
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Reconciliation of Non-GAAP Financial Measure —
Adjusted Net Income and Adjusted Return on Average Assets
Year Ended December 31,
(dollars in thousands)
2024
2023
2022
Net income
$
71,780
$
65,842
$
56,456
Less: adjustments
Acquisition expenses
—
(13,691)
(1,092)
Gains (losses) on closed branch premises
(635)
75
141
Realized gains (losses) on sales of securities
(3,697)
(1,820)
—
Mortgage servicing rights fair value adjustment
(174)
(1,615)
2,153
Total adjustments
(4,506)
(17,051)
1,202
Tax effect of adjustments
1,284
4,711
(551)
Total adjustments after tax effect
(3,222)
(12,340)
651
Adjusted net income
$
75,002
$
78,182
$
55,805
Average assets
$
5,008,083
$
4,927,904
$
4,269,873
Return on average assets
1.43 %
1.34 %
1.32 %
Adjusted return on average assets
1.50
1.59
1.31
_________________________________________________
(1)
Includes recognition of an allowance for credit losses on non-PCD loans of $5.2 million and an allowance for credit losses on unfunded commitments of $0.7 million in
connection with the Town and Country merger during the first quarter of 2023 in accordance with ASC 326 which was adopted on January 1, 2023.
(2)
Assumes a federal income tax rate of 21% and a state tax rate of 9.5%.
(1)
(2)
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Table of Contents
Reconciliation of Non-GAAP Financial Measure —
Adjusted Earnings Per Share
Year Ended December 31,
(dollars in thousands, except per share amounts)
2024
2023
2022
Numerator:
Net income
$
71,780
$
65,842
$
56,456
Earnings allocated to participating securities
—
(36)
(66)
Numerator for earnings per share - basic and diluted
$
71,780
$
65,806
$
56,390
Adjusted net income
$
75,002
$
78,182
$
55,805
Earnings allocated to participating securities
—
(42)
(65)
Numerator for adjusted earnings per share - basic and diluted
$
75,002
$
78,140
$
55,740
Denominator:
Weighted average common shares outstanding
31,590,117
31,626,308
28,853,697
Dilutive effect of outstanding restricted stock units
122,363
111,839
65,619
Weighted average common shares outstanding, including all dilutive potential shares
31,712,480
31,738,147
28,919,316
Earnings per share - Basic
$
2.27
$
2.08
$
1.95
Earnings per share - Diluted
$
2.26
$
2.07
$
1.95
Adjusted earnings per share - Basic
$
2.37
$
2.47
$
1.93
Adjusted earnings per share - Diluted
$
2.37
$
2.46
$
1.93
_________________________________________________
(1)
The Company previously granted restricted stock units that contained non-forfeitable rights to dividend equivalents which were considered participating securities. Prior to
2024, these restricted stock units were included in the calculation of 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.
(1)
(1)
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Table of Contents
Reconciliation of Non-GAAP Financial Measure —
Pre-Provision Net Revenue, Pre-Provision Net Revenue Less Charge-offs (Recoveries),
Adjusted Pre-Provision Net Revenue, and
Adjusted Pre-Provision Net Revenue Less Charge-offs (Recoveries)
Year Ended December 31,
(dollars in thousands)
2024
2023
2022
Net interest income
$
188,850
$
191,072
$
145,874
Noninterest income
35,571
36,046
34,717
Noninterest expense
(124,007)
(130,964)
(105,107)
Pre-provision net revenue
100,414
96,154
75,484
Less: adjustments
Acquisition expenses
—
(7,767)
(1,092)
Gains (losses) on closed branch premises
(635)
75
141
Realized gains (losses) on sales of securities
(3,697)
(1,820)
—
Mortgage servicing rights fair value adjustment
(174)
(1,615)
2,153
Total adjustments
(4,506)
(11,127)
1,202
Adjusted pre-provision net revenue
$
104,920
$
107,281
$
74,282
Pre-provision net revenue
$
100,414
$
96,154
$
75,484
Less: net charge-offs (recoveries)
1,758
180
(2,103)
Pre-provision net revenue less net charge-offs (recoveries)
$
98,656
$
95,974
$
77,587
Adjusted pre-provision net revenue
$
104,920
$
107,281
$
74,282
Less: net charge-offs (recoveries)
1,758
180
(2,103)
Adjusted pre-provision net revenue less net charge-offs (recoveries)
$
103,162
$
107,101
$
76,385
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Reconciliation of Non-GAAP Financial Measure —
Net Interest Income and Net Interest Margin (Tax-Equivalent Basis)
Year Ended December 31,
(dollars in thousands)
2024
2023
2022
Net interest income (tax-equivalent basis)
Net interest income
$
188,850
$
191,072
$
145,874
Tax-equivalent adjustment
2,242
2,758
2,499
Net interest income (tax-equivalent basis)
$
191,092
$
193,830
$
148,373
Net interest margin (tax-equivalent basis)
Net interest margin
3.96 %
4.09 %
3.54 %
Tax-equivalent adjustment
0.05
0.06
0.06
Net interest margin (tax-equivalent basis)
4.01 %
4.15 %
3.60 %
Average interest-earning assets
$
4,769,671
$
4,675,025
$
4,118,124
_________________________________________________
(1)
On a tax-equivalent basis assuming a federal income tax rate of 21% and a state tax rate of 9.5%.
Reconciliation of Non-GAAP Financial Measure —
Efficiency Ratio (Tax-Equivalent Basis) and Adjusted Efficiency Ratio (Tax-Equivalent Basis)
Year Ended December 31,
(dollars in thousands)
2024
2023
2022
Total noninterest expense
$
124,007
$
130,964
$
105,107
Less: amortization of intangible assets
2,839
2,670
873
Noninterest expense excluding amortization of intangible assets
$
121,168
$
128,294
$
104,234
Less: adjustments to noninterest expense
Acquisition expenses
—
7,767
1,092
Total adjustments to noninterest expense
—
7,767
1,092
Adjusted noninterest expense
$
121,168
$
120,527
$
103,142
Net interest income
$
188,850
$
191,072
$
145,874
Total noninterest income
35,571
36,046
34,717
Operating revenue
224,421
227,118
180,591
Tax-equivalent adjustment
2,242
2,758
2,499
Operating revenue (tax-equivalent basis)
226,663
229,876
183,090
Less: adjustments to noninterest income
Gains (losses) on closed branch premises
(635)
75
141
Realized gains (losses) on sales of securities
(3,697)
(1,820)
—
Mortgage servicing rights fair value adjustment
(174)
(1,615)
2,153
Total adjustments to noninterest income
(4,506)
(3,360)
2,294
Adjusted operating revenue (tax-equivalent basis)
$
231,169
$
233,236
$
180,796
Efficiency ratio
53.99 %
56.49 %
57.72 %
Efficiency ratio (tax-equivalent basis)
53.46
55.81
56.93
Adjusted efficiency ratio (tax-equivalent basis)
52.42
51.68
57.05
_________________________________________________
(1)
On a tax-equivalent basis assuming a federal income tax rate of 21% and a state tax rate of 9.5%.
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
73
Table of Contents
Reconciliation of Non-GAAP Financial Measure —
Ratio of Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share
(dollars in thousands, except per share data)
December 31, 2024
December 31, 2023
Tangible Common Equity
Total stockholders' equity
$
544,605
$
489,496
Less: Goodwill
59,820
59,820
Less: Intangible assets, net
17,843
20,682
Tangible common equity
$
466,942
$
408,994
Tangible Assets
Total assets
$
5,032,902
$
5,073,170
Less: Goodwill
59,820
59,820
Less: Intangible assets, net
17,843
20,682
Tangible assets
$
4,955,239
$
4,992,668
Total stockholders' equity to total assets
10.82 %
9.65 %
Tangible common equity to tangible assets
9.42
8.19
Shares of common stock outstanding
31,559,366
31,695,828
Book value per share
$
17.26
$
15.44
Tangible book value per share
14.80
12.90
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
Year Ended December 31,
(dollars in thousands)
2024
2023
2022
Average Tangible Common Equity
Total stockholders' equity
$
515,368
$
450,928
$
383,306
Less: Goodwill
59,820
57,266
29,322
Less: Intangible assets, net
19,247
20,272
1,480
Average tangible common equity
$
436,301
$
373,390
$
352,504
Net income
$
71,780
$
65,842
$
56,456
Adjusted net income
75,002
78,182
55,805
Return on average stockholders' equity
13.93 %
14.60 %
14.73 %
Return on average tangible common equity
16.45
17.63
16.02
Adjusted return on average stockholders' equity
14.55 %
17.34 %
14.56 %
Adjusted return on average tangible common equity
17.19
20.94
15.83
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Table of Contents
Reconciliation of Non-GAAP Financial Measure —
Core Deposits
(dollars in thousands)
December 31, 2024
December 31, 2023
Core Deposits
Total deposits
$
4,318,254
$
4,401,437
Less: time deposits of $250,000 or more
202,196
130,183
Less: brokered deposits
—
144,880
Core deposits
$
4,116,058
$
4,126,374
Core deposits to total deposits
95.32 %
93.75 %
75
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 base and shock scenarios in the rate shock analysis assume a static balance sheet, static interest rates, no changes to product mix shift,
and cash flow reinvestment at current market interest rates. We also make assumptions for our deposit betas and asset prepayments, based
on historical experience.
Deposit Betas
Deposit pricing changes are primarily driven by changes in the federal funds rate, with the relationship between deposit rates and federal
funds rate defined as deposit beta. We define cumulative deposit beta as the change in our quarterly cost of deposits divided by the change
in the upper level of the stated federal funds rate range over a specified period. During the most recent rising rate cycle, which was from the
fourth quarter of 2021 through the second quarter of 2024, our cumulative deposit beta was 23.6%. During the current falling rate cycle,
which began with the third quarter of 2024, our cumulative deposit beta was 13.1%.
Asset Prepayments
We include prepayment assumptions for both our loan and securities portfolios, based on historical experience. Generally, mortgage portfolio
prepayments increase in lower rate environments, while commercial and consumer portfolios have historically remained more consistent
throughout rate cycles.
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The following table sets forth 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)
Estimated
Increase (Decrease)
in EVE
Increase (Decrease) in
Estimated Net Interest Income
Year 1
Year 2
December 31, 2024
+400
22.0 %
4.9 %
11.3 %
+300
18.3
3.9
9.0
+200
13.4
3.2
6.7
+100
7.3
2.0
3.8
-100
(9.1)
(4.2)
(6.2)
-200
(20.3)
(5.5)
(10.2)
-300
(22.1)
(5.7)
(14.0)
-400
(14.1)
(5.8)
(15.9)
December 31, 2023
+400
10.7 %
7.5 %
13.0 %
+300
9.7
5.8
10.3
+200
7.1
3.4
6.4
+100
4.2
1.4
3.1
-100
(6.3)
(4.4)
(6.1)
-200
(13.2)
(7.1)
(11.2)
-300
(4.5)
(9.5)
(16.0)
-400
5.4
(10.2)
(17.3)
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 credit risk in the loan portfolio by adhering to well-defined underwriting criteria and account administration
standards established by management. Our loan policy documents underwriting standards, approval levels, exposure limits and other limits
or standards deemed necessary and prudent. Portfolio diversification at the borrower, industry, and product levels is actively managed to
mitigate concentration risk. In addition, credit risk management also includes an independent loan review process that assesses compliance
with loan policy, compliance with loan documentation standards, accuracy of the risk rating and overall credit quality of the loan portfolio.
77
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HBT FINANCIAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID: 49)
79
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
81
Consolidated Statements of Income
82
Consolidated Statements of Comprehensive Income (Loss)
83
Consolidated Statements of Changes in Stockholders’ Equity
84
Consolidated Statements of Cash Flows
85
Notes to Consolidated Financial Statements
87
78
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of HBT Financial, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of HBT Financial, Inc. and Subsidiaries’ (the Company) as of December 31,
2024 and 2023, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 7,
2025, expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
Adoption of New Accounting Standard
As discussed in Note 1 to the financial statements, the Company changed its method of accounting for credit losses on financial instruments
in 2023 due to the adoption of Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments.
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 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. 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit
matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
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Table of Contents
Allowance for Credit Losses—Loans
As described in Notes 1 and 4 to the financial statements, the Company’s allowance for credit losses totaled $42.0 million, which consists of
a reserve on loans collectively evaluated for impairment of $39.0 million and a reserve on loans individually evaluated of $3.0 million at
December 31, 2024. The allowance for credit losses is measured on a collective loan pool basis when similar risk characteristics exist. A loan
may be evaluated on an individual basis based on disparate risk characteristics. Management estimates the allowance for credit losses for
pooled loans utilizing a discounted cash flow (DCF) method or weighted average remaining maturity (WARM) method. The DCF method
estimates a probability of default with a loss given default applied to future cash flows that are adjusted to present value. The WARM method
estimates expected losses through application of the Company’s historical losses. The measurement of expected credit losses on collectively
evaluated loans is based on relevant information about past events, current conditions and reasonable and supportable forecasts that affect
the collectability of the amortized cost basis. Adjustments to historical loss information are made for differences in current loan-specific risk
characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental
conditions. The calculation also contemplates that the Company may not be able to make or obtain such forecasts for the entire life of the
financial assets and employs a reversion to historical credit loss information. The development of estimated prepayments, probability of
default, loss given default, reasonable and supportable forecasts, and qualitative adjustments are inherently subjective as they require
estimates that are susceptible to significant revision as more information becomes available.
We identified the judgment in developing appropriate assumptions on which to base expected losses from economic forecasts and other
qualitative factors as a critical audit matter, as auditing the underlying adjustments required significant auditor judgment as amounts
determined by management rely on analysis that is highly subjective and includes significant estimation uncertainty.
Our audit procedures related to the assumptions to base expected losses from economic forecasts and other qualitative factors include the
following, among others:
•
We obtained an understanding of the relevant controls related to the evaluation and establishment of the economic forecasts and
qualitative factors, and tested such controls for design and implementation and operating effectiveness, including management's
review of the allowance in support of adjustments.
•
We evaluated management's rationale for significant assumptions.
•
We evaluated the reasonableness of data inputs used as a basis for the adjustments related to the qualitative factors, and tested the
completeness and accuracy of the data utilized by comparing to internal and external source data.
•
We evaluated the directional consistency and magnitude of the resulting qualitative component of the allowance for credit losses, as
compared to internal and external source data, and how the data correlated with the risk categorization and numeric framework
established by management.
/s/ RSM US LLP
We have served as the Company's auditor since 2017.
Chicago, Illinois
March 7, 2025
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HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
December 31,
2024
December 31,
2023
ASSETS
Cash and due from banks
$
29,552
$
26,256
Interest-bearing deposits with banks
108,140
114,996
Cash and cash equivalents
137,692
141,252
Interest-bearing time deposits with banks
—
509
Debt securities available-for-sale, at fair value
698,049
759,461
Debt securities held-to-maturity (fair value of $445,186 at 2024 and $466,496 at 2023)
499,858
521,439
Equity securities with readily determinable fair value
3,315
3,360
Equity securities with no readily determinable fair value
2,629
2,505
Restricted stock, at cost
5,086
7,160
Loans held for sale
1,586
2,318
Loans, before allowance for credit losses
3,466,146
3,404,417
Allowance for credit losses
(42,044)
(40,048)
Loans, net of allowance for credit losses
3,424,102
3,364,369
Bank owned life insurance
23,989
23,905
Bank premises and equipment, net
66,758
65,150
Bank premises held for sale
317
—
Foreclosed assets
367
852
Goodwill
59,820
59,820
Intangible assets, net
17,843
20,682
Mortgage servicing rights, at fair value
18,827
19,001
Investments in unconsolidated subsidiaries
1,614
1,614
Accrued interest receivable
24,770
24,534
Other assets
46,280
55,239
Total assets
$
5,032,902
$
5,073,170
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-bearing
$
1,046,405
$
1,072,407
Interest-bearing
3,271,849
3,329,030
Total deposits
4,318,254
4,401,437
Securities sold under agreements to repurchase
28,969
42,442
Federal Home Loan Bank advances
13,231
12,623
Subordinated notes
39,553
39,474
Junior subordinated debentures issued to capital trusts
52,849
52,789
Other liabilities
35,441
34,909
Total liabilities
4,488,297
4,583,674
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 32,827,039 at 2024 and 32,730,698 at 2023;
shares outstanding of 31,559,366 at 2024 and 31,695,828 at 2023
328
327
Surplus
297,297
295,877
Retained earnings
316,764
269,051
Accumulated other comprehensive income (loss)
(46,765)
(57,163)
Treasury stock at cost, 1,267,673 shares at 2024 and 1,034,870 at 2023
(23,019)
(18,596)
Total stockholders’ equity
544,605
489,496
Total liabilities and stockholders’ equity
$
5,032,902
$
5,073,170
See accompanying Notes to Consolidated Financial Statements
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Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
(dollars in thousands, except per share data)
2024
2023
2022
INTEREST AND DIVIDEND INCOME
Loans, including fees:
Taxable
$
210,340
$
191,008
$
120,343
Federally tax exempt
4,523
4,189
3,135
Debt securities:
Taxable
25,801
25,746
23,237
Federally tax exempt
2,102
4,225
4,569
Interest-bearing deposits in bank
8,272
3,020
1,541
Other interest and dividend income
662
811
229
Total interest and dividend income
251,700
228,999
153,054
INTEREST EXPENSE
Deposits
56,047
25,135
2,511
Securities sold under agreements to repurchase
594
255
36
Borrowings
480
7,128
967
Subordinated notes
1,879
1,879
1,879
Junior subordinated debentures issued to capital trusts
3,850
3,530
1,787
Total interest expense
62,850
37,927
7,180
Net interest income
188,850
191,072
145,874
PROVISION FOR CREDIT LOSSES
3,031
7,573
(706)
Net interest income after provision for credit losses
185,819
183,499
146,580
NONINTEREST INCOME
Card income
11,051
11,043
10,329
Wealth management fees
10,978
9,883
9,155
Service charges on deposit accounts
7,932
7,846
7,072
Mortgage servicing
4,437
4,678
2,609
Mortgage servicing rights fair value adjustment
(174)
(1,615)
2,153
Gains on sale of mortgage loans
1,611
1,526
1,461
Realized gains (losses) on sales of securities
(3,697)
(1,820)
—
Unrealized gains (losses) on equity securities
(59)
160
(414)
Gains (losses) on foreclosed assets
22
501
(314)
Gains (losses) on other assets
(635)
166
136
Income on bank owned life insurance
915
573
164
Other noninterest income
3,190
3,105
2,366
Total noninterest income
35,571
36,046
34,717
NONINTEREST EXPENSE
Salaries
65,130
67,453
51,767
Employee benefits
11,311
10,037
8,325
Occupancy of bank premises
10,293
9,918
7,673
Furniture and equipment
2,004
2,790
2,476
Data processing
11,169
12,352
7,441
Marketing and customer relations
4,320
5,043
3,803
Amortization of intangible assets
2,839
2,670
873
FDIC insurance
2,254
2,280
1,164
Loan collection and servicing
2,056
1,402
1,049
Foreclosed assets
109
251
293
Other noninterest expense
12,522
16,768
20,243
Total noninterest expense
124,007
130,964
105,107
INCOME BEFORE INCOME TAX EXPENSE
97,383
88,581
76,190
INCOME TAX EXPENSE
25,603
22,739
19,734
NET INCOME
$
71,780
$
65,842
$
56,456
EARNINGS PER SHARE - BASIC
$
2.27
$
2.08
$
1.95
EARNINGS PER SHARE - DILUTED
$
2.26
$
2.07
$
1.95
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING
31,590,117
31,626,308
28,853,697
See accompanying Notes to Consolidated Financial Statements
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HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Year Ended December 31,
(dollars in thousands)
2024
2023
2022
NET INCOME
$
71,780 $
65,842 $
56,456
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gains (losses) on debt securities available-for-sale
9,023
16,949
(105,459)
Reclassification adjustment for losses on sale of debt securities available-for-sale
realized in income
3,697
1,820
—
Reclassification adjustment for amortization of net unrealized losses on debt
securities transferred to held-to-maturity
1,992
1,954
1,723
Unrealized gains on derivative instruments
64
161
1,183
Reclassification adjustment for net settlements on derivative instruments
(348)
(468)
126
Total other comprehensive income (loss), before tax
14,428
20,416
(102,427)
Income tax expense (benefit)
4,030
5,820
(29,197)
Total other comprehensive income (loss)
10,398
14,596
(73,230)
TOTAL COMPREHENSIVE INCOME (LOSS)
$
82,178 $
80,438 $
(16,774)
See accompanying Notes to Consolidated Financial Statements
83
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Common Stock
Surplus
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Stockholders’
Equity
(dollars in thousands, except per share data)
Shares
Outstanding
Amount
Balance, December 31, 2021
28,986,061
$
293
$
220,891
$
194,132
$
1,471
$
(4,906)
$
411,881
Net income
—
—
—
56,456
—
—
56,456
Other comprehensive loss
—
—
—
—
(73,230)
—
(73,230)
Stock-based compensation
—
—
1,949
—
—
—
1,949
Issuance of common stock upon vesting of restricted stock
units, net of tax withholdings
31,944
—
(57)
—
—
—
(57)
Repurchase of common stock
(265,379)
—
—
—
—
(4,783)
(4,783)
Cash dividends and dividend equivalents ($0.64 per share)
—
—
—
(18,584)
—
—
(18,584)
Balance, December 31, 2022
28,752,626
293
222,783
232,004
(71,759)
(9,689)
373,632
Cumulative effect of change in accounting principle (ASU
2016-13)
—
—
—
(6,922)
—
—
(6,922)
Net income
—
—
—
65,842
—
—
65,842
Other comprehensive income
—
—
—
—
14,596
—
14,596
Stock-based compensation
—
—
1,953
—
—
—
1,953
Issuance of common stock upon vesting of restricted stock
units, net of tax withholdings
43,607
—
(181)
—
—
—
(181)
Issuance of common stock in Town and Country acquisition
3,378,600
34
71,322
—
—
—
71,356
Repurchase of common stock
(479,005)
—
—
—
—
(8,907)
(8,907)
Cash dividends and dividend equivalents ($0.68 per share)
—
—
—
(21,873)
—
—
(21,873)
Balance, December 31, 2023
31,695,828
327
295,877
269,051
(57,163)
(18,596)
489,496
Cumulative effect of change in accounting principle (ASU
2023-02)
—
—
—
116
—
—
116
Net income
—
—
—
71,780
—
—
71,780
Other comprehensive income
—
—
—
—
10,398
—
10,398
Stock-based compensation
—
—
1,752
—
—
—
1,752
Issuance of common stock upon vesting of restricted stock
units, net of tax withholdings
96,341
1
(332)
—
—
—
(331)
Repurchase of common stock
(232,803)
—
—
—
—
(4,423)
(4,423)
Cash dividends and dividend equivalents ($0.76 per share)
—
—
—
(24,183)
—
—
(24,183)
Balance, December 31, 2024
31,559,366
$
328
$
297,297
$
316,764
$
(46,765)
$
(23,019)
$
544,605
See accompanying Notes to Consolidated Financial Statements
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HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
(dollars in thousands)
2024
2023
2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
$
71,780
$
65,842
$
56,456
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense
2,944
3,108
3,043
Provision for credit losses
3,031
7,573
(706)
Net amortization of debt securities
3,641
5,730
6,959
Deferred income tax expense (benefit)
996
3,817
(2,919)
Stock-based compensation
1,752
1,953
1,949
Net accretion of discount and deferred loan fees on loans
(7,187)
(7,228)
(5,337)
Net realized loss on sales of securities
3,697
1,820
—
Net unrealized loss (gain) on equity securities
59
(160)
414
Net loss (gain) on disposals of bank premises and equipment
55
(84)
(9)
Net gain on sales of bank premises held for sale
—
(81)
(187)
Impairment losses on bank premises held for sale
580
—
60
Net gain on sales of foreclosed assets
(112)
(764)
(118)
Write-down of foreclosed assets
90
263
432
Amortization of intangibles
2,839
2,670
873
Decrease (increase) in mortgage servicing rights
174
1,615
(2,153)
Amortization of discount and issuance costs on subordinated notes and debentures
139
139
145
Amortization of discount on Federal Home Loan Bank advances
401
379
—
Amortization of premium on interest-bearing time deposits with banks
—
—
5
Amortization of premium on time deposits
(108)
(400)
(188)
Mortgage loans originated for sale
(62,649)
(69,663)
(56,240)
Proceeds from sale of mortgage loans
64,992
71,098
62,028
Net gain on sale of mortgage loans
(1,611)
(1,526)
(1,461)
Increase in cash surrender value of bank owned life insurance
(668)
(566)
(164)
Net gain on bank owned life insurance proceeds
(247)
—
—
Increase in accrued interest receivable
(236)
(1,915)
(4,605)
Decrease (increase) in other assets
3,053
2,174
(8,007)
Increase (decrease) in other liabilities
1,967
(19,965)
22,316
Net cash provided by operating activities
89,372
65,829
72,586
See accompanying Notes to Consolidated Financial Statements
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HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year Ended December 31,
(dollars in thousands)
2024
2023
2022
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of interest-bearing time deposits with banks
520
249
485
Purchase of interest-bearing time deposits with banks
(11)
(509)
—
Proceeds from sales of debt securities
69,174
185,280
—
Proceeds from sales and redemptions of equity securities
58
—
—
Proceeds from paydowns, maturities, and calls of debt securities
126,340
102,625
154,166
Purchase of debt securities
(105,147)
(2,640)
(371,631)
Purchase of equity securities
(196)
(397)
(51)
Purchase of loans
(14,566)
(61,009)
—
Net increase in loans
(42,623)
(81,641)
(113,665)
Purchase of restricted stock
—
(23,832)
(6,151)
Proceeds from redemption of restricted stock
2,074
27,459
925
Proceeds from bank owned life insurance
831
—
—
Purchases of bank premises and equipment
(5,506)
(3,134)
(1,047)
Proceeds from sales of bank premises and equipment
2
222
27
Proceeds from sales of bank premises held for sale
—
351
1,344
Proceeds from sales of foreclosed assets
1,396
4,093
475
Net cash paid for acquisition of Town and Country
—
(14,454)
—
Net cash provided by (used in) investing activities
32,346
132,663
(335,123)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits
(83,075)
94,396
(150,973)
Net decrease in repurchase agreements
(13,473)
(639)
(18,175)
Net increase (decrease) in short-term Federal Home Loan Bank advances
—
(234,195)
160,000
Proceeds from long-term Federal Home Loan Bank advances
907
—
—
Repayment of long-term Federal Home Loan Bank advances
(700)
—
—
Taxes paid related to the vesting of restricted stock units
(331)
(181)
(57)
Repurchase of common stock
(4,423)
(8,907)
(4,783)
Cash dividends and dividend equivalents paid
(24,183)
(21,873)
(18,584)
Net cash used in financing activities
(125,278)
(171,399)
(32,572)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(3,560)
27,093
(295,109)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
141,252
114,159
409,268
CASH AND CASH EQUIVALENTS AT END OF YEAR
$
137,692
$
141,252
$
114,159
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest
$
64,723
$
32,853
$
6,860
Net cash paid for income taxes
$
23,876
$
20,512
$
20,035
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES
Transfers of loans to foreclosed assets
$
889
$
1,143
$
541
Transfers of bank premises and equipment to bank premises held for sale
$
317
$
35
$
—
See accompanying Notes to Consolidated Financial Statements
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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 financial products and services to
consumers, businesses, and municipal entities throughout 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.
Basis of Consolidation
The consolidated financial statements of HBT Financial include the accounts of the Company and its wholly owned bank subsidiary,
Heartland Bank. Heartland Bank maintains a limited liability company that holds specific assets for risk mitigation purposes and is
consolidated into HBT Financial's consolidated financial statements.
The Company also has eight 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; National Bancorp Statutory Trust I; Town and Country Statutory Trust II; Town
and Country Statutory Trust III; and West Plains Investors 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.
Use of Estimates
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the
United States of America. In preparing the financial statements, management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet and the reported results of operations for the periods then
ended.
Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes in the
near term relate to the determination of the allowance for credit losses.
Business and Significant Concentrations of Credit Risk
The Company provides several types of loans to consumers, 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 are recorded on the trade date and determined using the
specific identification method.
Interest income includes amortization of purchase premium or discount. Premiums and discounts on debt securities are amortized on the
level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Premiums
on callable debt securities are amortized to their earliest call date.
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.
Allowance for Credit Losses – Debt Securities Available-for-Sale
For debt securities available-for-sale in an unrealized loss position, the Company first assesses whether it intends to sell, or if it is more likely
than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or
requirement to sell is met, the security amortized cost basis is written down to fair value through earnings. For debt securities available-for-
sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or
other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to
the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this
assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the
amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit
loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any
impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income (loss).
Changes in the allowance for credit losses are recorded as provision for credit losses. Losses are charged against the allowance for credit
losses when management believes the uncollectibility of a security is confirmed or when either the criteria regarding intent or requirement to
sell is met.
Allowance for Credit Losses – Debt Securities Held-to-Maturity
For debt securities held-to-maturity, the Company measures expected credit losses on a collective basis by major security type. Held-to-
maturity securities are evaluated using historical probability of default and loss given default information specific to the investment category. If
this evaluation determines that credit losses exist, an allowance for credit loss is recorded and included in earnings as a component of
provision for credit losses. The Company's U.S. government agency and agency mortgage-backed securities are explicitly or implicitly
guaranteed by the U.S. government, and as such are excluded from the credit loss evaluation as the expectation of non-payment is zero.
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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 payoff are reported at amortized cost
net of the allowance for credit losses. Amortized cost is the unpaid principal balance outstanding, adjusted for charge-offs, net of purchase
premiums and discounts, and deferred loan fees and costs.
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 in interest income using the level-yield method without anticipating prepayments.
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 credit losses if accrued in a prior year. Amortization of related
deferred loan fees or costs and any purchase premium or discount is also suspended at this time. The interest on these loans is accounted
for on the 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, future payments are reasonably assured, and the borrower must generally demonstrate at
least 6 months of payment performance.
Purchased Credit Deteriorated Loans
Purchased credit deteriorated loans (“PCD loans”) are purchased loans, that, as of the date of acquisition, have experienced a more-than-
insignificant deterioration in credit quality since origination, as determined by the Company’s assessment. An allowance for credit losses is
determined using the same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective
basis is allocated to individual loans. The sum of a loan's purchase price and allowance for credit losses becomes its initial amortized cost
basis. The difference between the initial amortized cost basis and the unpaid principal balance of a loan is a non-credit discount or premium
which is amortized into interest income over the life of the loan.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-Purchased Credit Deteriorated Loans
Non-purchased credit deteriorated loans (“non-PCD loans”) are purchased loans, that, as of the date of acquisition, have not experienced a
more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment. The loan’s purchase
price becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the unpaid principal balance of the
loan is a discount or premium, which is comprised of a credit and non-credit component, and is accreted or amortized into interest income
over the life of the loan.
An allowance for credit losses is determined using the same methodology as other loans held for investment, but no "Day One" allowance for
credit losses is established on the date of acquisition. Instead, a subsequent "Day Two" allowance for credit losses for non-PCD loans is
recorded through the provision for credit losses, which reflects the estimated lifetime credit losses.
Allowance for Credit Losses – Loans
The allowance for credit losses for loans is a valuation account that is deducted from the loans' amortized cost basis to present the net
amount expected to be collected on the loans. The Company’s estimate of the allowance for credit losses for loans reflects losses expected
over the remaining contractual life of the loans, considering past events, current conditions, and reasonable and supportable forecasts of
future economic conditions.
Loans are charged off against the allowance for credit losses when management believes the uncollectibility of a loan balance is confirmed.
Recoveries are recognized up to the aggregate amount of previously charged-off balances. The allowance for credit losses is established
through provision for credit loss expense charged to income.
The allowance for credit losses is measured on a collective (pooled) basis when similar risk characteristics exist. The Company has identified
the following portfolio segments:
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.
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.
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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
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.
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.
The Company uses the discounted cash flow method to estimate expected credit losses for all loan segments, except for consumer loans.
Under this method, cash flow projections at the instrument-level are adjusted for estimated prepayments, probability of default, loss given
default, and time to recovery. These cash flow projections are discounted at the instrument-level effective yield to calculate the present value
of expected cash flows. An allowance for credit losses is established for the difference between a pool's total amortized cost basis and
present value of expected cash flows.
The Company uses the weighted average remaining maturity method to estimate expected credit losses for consumer loans. Under this
method, an expected loss rate is applied to an estimate of future outstanding balance balances of the pool.
The Company uses regression analysis of historical internal and peer data to determine which variables are best suited to be economic
variables utilized when modeling lifetime probability of default in the discounted cash flow models and loss rates in the weighted average
remaining maturity model. The analysis also determines how expected probability of default and loss rates will react to forecasted levels of
the economic variables. In addition, qualitative adjustments are made for risk factors that are not considered within our modeling processes
but are nonetheless relevant in assessing the expected credit losses within our loan pools.
Management estimates the allowance for credit losses on loans using relevant available information, from internal and external sources,
relating to past events, current conditions, and reasonable and supportable forecasts. As historical credit loss experience provides the basis
for the estimation of expected credit losses for pooled loans, adjustments may be necessary to capture differences in current loan-specific
risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in
environmental conditions.
Loans that do not share risk characteristics are evaluated on an individual basis. Loan evaluated individually are not also included in the
pooled evaluation. When management determines that foreclosure is probable, or when the borrower is experiencing financial difficulty at the
reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses
are based on the fair value of the collateral at the reporting date, adjusted for anticipated selling costs as appropriate.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Although management believes the allowance for credit losses to be adequate, ultimate losses may vary from its estimates. At least
quarterly, the Allowance for Credit Losses Committee reviews the adequacy of the allowance, including consideration of the relevant risks in
the portfolio, current economic conditions and other factors. In addition, the Company’s regulators review the adequacy of the allowance for
credit losses and may require additions to the allowance for credit losses based on their judgment about information available at the time of
their examinations.
Unfunded Lending-related Commitments
In the ordinary course of business, the Company has entered into commitments to extend credit, such as lines of credit, commercial letters of
credit, and standby letters of credit. Such financial instruments are recorded when they are funded.
Allowance for Credit Losses – Unfunded Lending-related Commitments
The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual
obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on unfunded
lending-related commitments is adjusted through provision for credit losses. The estimate includes consideration of the likelihood that funding
will occur and an estimate of expected credited losses on commitments expected to be funded over its estimated life.
Loan Servicing
The Company periodically sells mortgage loans on the secondary market with servicing retained. For sales of mortgage loans, a portion of
the cost of originating the loan is allocated to the servicing right based on fair value. Fair value is based on market prices for comparable
mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated
future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net
servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment
speeds, and default rates and losses. Mortgage servicing rights are carried at fair value on the consolidated balance sheets and changes in
fair value are recorded in mortgage servicing rights fair value adjustment on the consolidated statements of income.
Bank Owned Life Insurance
Bank owned life insurance represents life insurance policies on the lives of certain current and former employees and directors for which the
Company is the sole owner and beneficiary. These policies are recorded as an asset in the consolidated balance sheets at their cash
surrender value ("CSV") or the current amount that could be realized if settled. The change in CSV and insurance proceeds received are
included as a component of noninterest income in the consolidated statements of income.
Bank Premises and Equipment
Land is carried at cost. Bank premises and equipment are carried at cost less accumulated depreciation. Depreciation is computed over the
estimated useful lives of the individual assets using the straight-line method.
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
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2024 and 2023.
Foreclosed Assets
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.
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less anticipated selling costs at
the date of foreclosure, establishing a new cost basis. For foreclosed real estate, selling costs are generally estimated to be 7.0% of the fair
value. This estimate includes sales commissions and closing costs.
Any write-down based on the fair value of the asset at the date of acquisition is charged to the allowance for credit 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 credit 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. Costs to maintain and hold foreclosed assets are expensed.
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, 2024 and 2023, the Company’s evaluations of goodwill indicated that goodwill was not impaired.
Other identifiable intangible assets consist of core deposit intangible and customer relationship intangible assets with definite useful lives
which are being amortized over 10 years. The Company will periodically review the status of core deposit intangible and customer
relationship 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.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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, 2024 and 2023, 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Low Income Housing Tax Credits
The Company holds an ownership interest in a limited liability company, as a limited partner, that invests in affordable housing projects. This
investment is designed to generate a return primarily through the realization of federal tax credits and deductions, which may be subject to
recapture by taxing authorities if compliance requirements are not met. The Company accounts for its low income housing investments using
the proportional amortization method.
The Company’s investment in the qualified affordable housing project meets the definition of a variable interest entity ("VIE") as the entity is
structured such that the limited partner investors lack substantive voting rights. The managing member has both the power to direct the
activities that most significantly impact the economic performance of the entity and the obligation to absorb losses or the right to receive
benefits that could be significant to the entity. Accordingly, the Company is not the primary beneficiary and is not required to consolidate this
entity. The Company's maximum exposure to loss is limited to the carrying amount of the investment, which was $7.2 million as of December
31, 2024.
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).
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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 fair value changes of 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).
In conjunction with changes to the Company's applicable income tax rates, such as the impact of the conversion to a C Corporation in 2019,
the Company recorded deferred income tax expense of $3.4 million related to the unrealized gains (losses) on debt securities, and deferred
income tax benefit of $0.3 million related to derivatives, through the income statement in accordance with ASC 740, Income Taxes. This
difference will remain in accumulated other comprehensive income (loss) until the underlying debt securities are sold or mature or the
underlying cash flow hedging relationships terminate in accordance with the portfolio approach.
Fair Value of Financial Instruments
Fair value of financial instruments is estimated using relevant market information and other assumptions, as more fully disclosed in Note 22 –
Fair Value of Financial Instruments. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates,
credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in
market conditions could significantly affect these estimates.
Revenue from Contracts with Customers
ASC 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 noninterest 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.
Wealth management fees: Consists of revenue from the management and advisement of financial client assets and non-financial
client assets, such as farmland, 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.
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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation without any impact on the reported
amounts of net income or stockholders’ equity.
Subsequent Events
In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or
disclosure through the date the consolidated financial statements were issued.
Impact of Recently Adopted Accounting Standards
On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with an expected
loss methodology, commonly referred to as the current expected credit losses (“CECL”) methodology. The measurement of expected credit
losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and debt
securities held-to-maturity. It also applies to off-balance sheet credit exposures not accounted for as insurance, such as loan commitments
and letters of credit. In addition, ASC 326 made changes to the accounting for debt securities available-for-sale. One such change is to
require credit losses be presented as an allowance rather than as a write-down on debt securities available-for-sale management does not
intend to sell or believes that it is more likely than not they will be required to sell.
The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance
sheet credit exposures. Results for reporting periods beginning after December 31, 2022 are presented under ASC 326 while prior period
amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease to retained
earnings of $6.9 million as of January 1, 2023 for the cumulative effect of adopting ASC 326. The following table illustrates the impact of ASC
326 on the allowance for credit losses:
January 1, 2023
(dollars in thousands)
Pre-ASC 326
Adoption
Impact of
ASC 326 Adoption
As Reported
under ASC 326
Assets:
Allowance for credit losses on loans
Commercial and industrial
$
3,279 $
(822) $
2,457
Commercial real estate - owner occupied
1,193
587
1,780
Commercial real estate - non-owner occupied
6,721
501
7,222
Construction and land development
4,223
1,969
6,192
Multi-family
1,472
85
1,557
One-to-four family residential
1,759
797
2,556
Agricultural and farmland
796
1,567
2,363
Municipal, consumer, and other
5,890
2,299
8,189
Allowance for credit losses on loans
$
25,333 $
6,983 $
32,316
Liabilities:
Allowance for credit losses on unfunded commitments
$
— $
2,899 $
2,899
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company also adopted ASC 326 using the prospective transition approach for purchase credit deteriorated (“PCD”) financial assets that
were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30. In accordance with ASC 326,
management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2023, the
amortized cost basis of the PCD assets were adjusted to reflect the addition of $0.2 million to the allowance for credit losses. The remaining
noncredit discount will be accreted into interest income at the effective interest rate as of January 1, 2023.
On January 1, 2024, the Company adopted ASU 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for
Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force). ASU
2023-02 permits an election to use the proportional amortization method to account for equity investments made primarily for the purpose of
receiving income tax credits and other income tax benefits, regardless of the tax credit program from which the income tax credits are
received, provided that certain conditions are met. The proportional amortization method results in the cost of the investment being amortized
in proportion to the income tax credits and other income tax benefits received, with the amortization of the investment and the income tax
credits being presented net in the income statement as a component of income tax expense. The Company adopted ASU 2023-02 using the
modified retrospective method. The Company recorded a $0.1 million increase to retained earnings and decrease to deferred tax liability, as
well as a $7.2 million increase to other assets and other liabilities, as a result of the adoption.
On January 1, 2024, the Company adopted 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 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 did not
have an impact on the Company’s consolidated results of operations or financial position.
On January 1, 2024, the Company adopted 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 did not have an impact on the Company’s
consolidated results of operations or financial position.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 1, 2024, the Company adopted ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment
Disclosures. ASU 2023-07 expands disclosure requirements for significant segment expenses under Topic 280. The amendments require
public entities to disclose significant expense categories for each reportable segment, other segment items, the title and position of the chief
operating decision-maker, and interim disclosures of certain segment-related information previously required only on an annual basis. The
amendments clarify that entities reporting single segments must disclose both the new and existing segment disclosures under Topic 280,
and a public entity is permitted to disclose multiple measures of segment profit or loss if certain criteria are met. The amendments in this
update are effective for years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 31, 2024.
ASU 2023-07 must be applied on a retrospective basis. Early adoption is permitted. This standard did not have an impact on the Company’s
consolidated results of operations or financial position.
Recent Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09
expands income tax disclosure requirements. The amendments require annual disclosure of certain information relating to the rate
reconciliation, income taxes paid by jurisdiction, income (loss) from continuing operations before income tax expense (benefit) disaggregated
between domestic and foreign, income tax expense (benefit) from continuing operations disaggregated by federal (national), state, and
foreign. The amendments also eliminate certain requirements relating to unrecognized tax benefits and certain deferred tax disclosure
relating to subsidiaries and corporate joint ventures. The amendments in this update are effective for years beginning after December 15,
2024. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. 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 November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation
Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. ASU 2024-03 provides more decision-useful information
about a public entity's expenses by requiring additional detail on expenses reported in income statements. Under the ASU, public entities will
provide detailed disclosure in interim and annual periods of specified categories underlying certain expense captions. The ASU requires
public entities to apply the amendments prospectively, with an option to use retrospective application. The amendments in this update are
effective for years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
2022. Under the Agreement and Plan of Merger, Town and Country merged with and into HBT Financial, with HBT Financial as the surviving
entity, immediately followed by the 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, or (ii)
$35.66 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 received 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 was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and
consideration exchanged were recorded at estimated fair values on the date of acquisition. Fair values are subject to refinement for up to one
year after the closing date of February 1, 2023. Measurement period adjustments of $0.1 million were recorded in the third quarter of 2023 as
more information became available regarding Town and Country's tax assets and liabilities. Goodwill of $30.5 million was recorded in the
acquisition, which reflects expected synergies from combining the operations of HBT Financial and Town and Country, and is nondeductible
for tax purposes.
The acquisition of Town and Country further enhanced HBT Financial’s footprint in central Illinois, and expanded our footprint into metro-east
St. Louis. Acquisition-related expenses recognized during the years ended December 31, 2023 and 2022 are summarized below. There were
no Town and Country acquisition-related expenses recognized during 2024.
Year Ended
(dollars in thousands)
December 31, 2023
December 31, 2022
PROVISION FOR CREDIT LOSSES
$
5,924 $
—
NONINTEREST EXPENSE
Salaries
3,584
—
Furniture and equipment
39
—
Data processing
2,031
304
Marketing and customer relations
24
—
Loan collection and servicing
125
—
Legal fees and other noninterest expense
1,964
788
Total noninterest expense
7,767
1,092
Total Town and Country acquisition-related expenses
$
13,691 $
1,092
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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 Town and Country on the acquisition date of February 1, 2023 were as
follows (dollars in thousands):
Fair Value
Assets acquired:
Cash and cash equivalents
$
23,542
Interest-bearing time deposits with banks
249
Debt securities
167,869
Equity securities
301
Restricted stock
2,822
Loans held for sale
1,612
Loans, before allowance for credit losses
635,376
Allowance for credit losses
(1,247)
Loans, net of allowance for credit losses
634,129
Bank owned life insurance
15,782
Bank premises and equipment
14,828
Foreclosed assets
271
Intangible assets
22,282
Mortgage servicing rights
10,469
Investments in unconsolidated subsidiaries
449
Accrued interest receivable
3,113
Other assets
8,940
Total assets acquired
906,658
Liabilities assumed:
Deposits
720,417
FHLB advances
86,439
Junior subordinated debentures
14,949
Other liabilities
5,999
Total liabilities assumed
827,804
Net assets acquired
$
78,854
Consideration paid:
Cash
$
37,996
Common stock
71,356
Total consideration paid
$
109,352
Goodwill
$
30,498
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Of the loans acquired, there were $89.8 million which exhibited more-than-insignificant credit deterioration on the acquisition date. The
following table provides a summary of these PCD loans at acquisition (dollars in thousands):
Unpaid principal balance
$
89,822
Allowance for credit losses at acquisition
(1,247)
Non-credit discount
(2,218)
Purchase price
$
86,357
Additionally, subsequent to the Town and Country acquisition, HBT Financial recognized an allowance for credit losses on non-PCD loans of
$5.2 million and an allowance for credit losses on unfunded commitments of $0.7 million through an increase to the provision for credit
losses.
The following table provides the pro forma information for the results of operations for the years ended December 31, 2023 and 2022 as if the
acquisition of Town and Country had occurred on January 1, 2022. The pro forma results combine the historical results of Town and Country
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, 2022. No assumptions have been applied to the pro forma results of operations regarding
possible revenue enhancements, provision for credit losses, expense efficiencies or asset dispositions. The acquisition-related expenses that
have been recognized are included in net income in the following table.
Pro Forma
Year Ended December 31,
(dollars in thousands, except per share data)
2023
2022
Total revenues (net interest income and noninterest income)
$
230,171 $
226,229
Net income
66,056
68,417
Earnings per share - basic
2.07
2.12
Earnings per share - diluted
2.06
2.12
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – SECURITIES
Debt Securities
The amortized cost and fair values of debt securities, with gross unrealized gains and losses and allowance for credit losses, are as follows:
December 31, 2024
(dollars in thousands)
Amortized Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for Credit
Losses
Fair Value
Available-for-sale:
U.S. Treasury
$
119,690 $
— $
(8,545) $
— $
111,145
U.S. government agency
55,742
—
(2,544)
—
53,198
Municipal
150,163
—
(19,484)
—
130,679
Mortgage-backed:
Agency residential
241,342
253
(14,227)
—
227,368
Agency commercial
128,823
3
(12,145)
—
116,681
Corporate
61,732
156
(2,910)
—
58,978
Total available-for-sale
$
757,492 $
412 $
(59,855) $
— $
698,049
December 31, 2024
(dollars in thousands)
Amortized Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Fair Value
Allowance for Credit
Losses
Held-to-maturity:
U.S. government agency
$
88,472 $
— $
(8,819) $
79,653 $
—
Municipal
35,862
48
(371)
35,539
—
Mortgage-backed:
Agency residential
85,643
—
(5,796)
79,847
—
Agency commercial
289,881
—
(39,734)
250,147
—
Total held-to-maturity
$
499,858 $
48 $
(54,720) $
445,186 $
—
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
(dollars in thousands)
Amortized Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for Credit
Losses
Fair Value
Available-for-sale:
U.S. Treasury
$
159,715 $
— $
(11,093) $
— $
148,622
U.S. government agency
55,359
—
(3,262)
—
52,097
Municipal
229,030
26
(23,499)
—
205,557
Mortgage-backed:
Agency residential
188,641
61
(14,718)
—
173,984
Agency commercial
141,214
3
(14,205)
—
127,012
Corporate
57,665
9
(5,485)
—
52,189
Total available-for-sale
$
831,624 $
99 $
(72,262) $
— $
759,461
December 31, 2023
(dollars in thousands)
Amortized Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Fair Value
Allowance for Credit
Losses
Held-to-maturity:
U.S. government agency
$
88,448 $
— $
(8,292) $
80,156 $
—
Municipal
38,442
394
(163)
38,673
—
Mortgage-backed:
Agency residential
95,828
—
(5,569)
90,259
—
Agency commercial
298,721
—
(41,313)
257,408
—
Total held-to-maturity
$
521,439 $
394 $
(55,337) $
466,496 $
—
On March 31, 2022, 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 value 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:
March 31, 2022
(dollars in thousands)
Amortized
Cost
Fair Value
U.S. government agency
$
78,841 $
71,048
Mortgage-backed:
Agency residential
8,175
7,651
Agency commercial
27,834
25,432
Total
$
114,850 $
104,131
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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2024 and 2023, the Bank had debt securities with a carrying value of $468.8 million and $419.4 million, respectively,
which were pledged to secure public deposits, securities sold under agreements to repurchase, available borrowing capacity, and for other
purposes required or permitted by law.
The amortized cost and fair value of debt securities by contractual maturity, as of December 31, 2024, 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
(dollars in thousands)
Amortized
Cost
Fair Value
Amortized
Cost
Fair Value
Due in 1 year or less
$
45,843 $
45,201 $
7,084 $
7,063
Due after 1 year through 5 years
178,269
165,830
52,350
49,614
Due after 5 years through 10 years
145,184
127,690
62,645
56,321
Due after 10 years
18,031
15,279
2,255
2,194
Mortgage-backed:
Agency residential
241,342
227,368
85,643
79,847
Agency commercial
128,823
116,681
289,881
250,147
Total
$
757,492 $
698,049 $
499,858 $
445,186
The following table presents gross unrealized losses and fair value of debt securities available-for-sale that do not have an associated
allowance for credit losses as of December 31, 2024 and December 31, 2023, aggregated by category and length of time that individual debt
securities have been in a continuous unrealized loss position:
December 31, 2024
Investments in a Continuous Unrealized Loss Position
Less than 12 Months
12 Months or More
Total
(dollars in thousands)
Unrealized
Loss
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
Fair Value
Available-for-sale:
U.S. Treasury
$
— $
— $
(8,545) $
111,145 $
(8,545) $
111,145
U.S. government agency
(141)
7,594
(2,403)
45,604
(2,544)
53,198
Municipal
(8)
2,634
(19,476)
127,776
(19,484)
130,410
Mortgage-backed:
Agency residential
(2,041)
81,055
(12,186)
129,178
(14,227)
210,233
Agency commercial
(125)
3,327
(12,020)
112,118
(12,145)
115,445
Corporate
(4)
1,996
(2,906)
43,064
(2,910)
45,060
Total available-for-sale
$
(2,319) $
96,606 $
(57,536) $
568,885 $
(59,855) $
665,491
105
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
Investments in a Continuous Unrealized Loss Position
Less than 12 Months
12 Months or More
Total
(dollars in thousands)
Unrealized
Loss
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
Fair Value
Available-for-sale:
U.S. Treasury
$
— $
— $
(11,093) $
148,622 $
(11,093) $
148,622
U.S. government agency
(2)
168
(3,260)
51,910
(3,262)
52,078
Municipal
(26)
4,749
(23,473)
194,287
(23,499)
199,036
Mortgage-backed:
Agency residential
(163)
9,354
(14,555)
156,785
(14,718)
166,139
Agency commercial
(26)
3,016
(14,179)
123,404
(14,205)
126,420
Corporate
(414)
4,361
(5,071)
45,826
(5,485)
50,187
Total available-for-sale
$
(631) $
21,648 $
(71,631) $
720,834 $
(72,262) $
742,482
As of December 31, 2024, there were 615 debt securities in an unrealized loss position for a period of twelve months or more, and 91 debt
securities in an unrealized loss position for a period of less than twelve months.
U.S. Treasury, U.S. government agency, and agency mortgage-backed securities are considered to have no risk of credit loss as they are
either explicitly or implicitly guaranteed by the U.S. government. The changes in fair value in these portfolios are considered to be primarily
driven by changes in market interest rates and other non-credit risks, such as prepayment and liquidity risks.
Municipal securities include general obligation bonds which have a very low historical default rate due to issuers generally having taxing
authority to service the debt and represent approximately 72% of the total fair value of our municipal securities portfolio as of December 31,
2024. The remainder of the municipal securities are also of high credit quality with ratings of Aa3/AA- or better. The Company evaluates
credit risk through monitoring credit ratings and reviews of available financial data. The changes in fair value in these portfolios are
considered to be primarily driven by changes in market interest rates and other non-credit risks, such as call and liquidity risks. The estimated
allowance for credit losses for the municipal debt securities held-to-maturity was deemed insignificant.
Corporate securities include investment grade corporate and bank subordinated debt securities. The Company evaluates credit risk through
monitoring credit ratings, reviews of available issuer financial data, and sector trends. The changes in fair value in corporate securities were
considered to be primarily driven by changes in market interest rates and other non-credit risks, such as call and liquidity risks.
As of December 31, 2024, the Company did not intend to sell the debt securities that are in an unrealized loss position, and it was more likely
than not that the Company would recover the amortized cost prior to being required to sell the debt securities.
Accrued interest on debt securities is excluded from the estimate of credit losses and totaled $5.1 million and $6.0 million as of December 31,
2024 and 2023, respectively.
106
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sales of debt securities were as follows during the year ended December 31:
Year Ended December 31,
(dollars in thousands)
2024
2023
2022
Proceeds from sales
$
69,174 $
185,280 $
—
Gross realized gains
—
—
—
Gross realized losses
(3,697)
(1,820)
—
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 were as follows:
December 31, 2024
(dollars in thousands)
Readily
Determinable
Fair Value
No Readily
Determinable
Fair Value
Initial cost
$
3,124 $
2,998
Cumulative net unrealized gains (losses)
191
(369)
Carrying value
$
3,315 $
2,629
December 31, 2023
(dollars in thousands)
Readily
Determinable
Fair Value
No Readily
Determinable
Fair Value
Initial cost
$
3,143 $
2,840
Cumulative net unrealized gains (losses)
217
(335)
Carrying value
$
3,360 $
2,505
As of December 31, 2024 and December 31, 2023, the cumulative net unrealized losses on equity securities with no readily determinable fair
value reflect impairments of $0.2 million and downward adjustments based on observable price changes of an identical investment of $0.2
million. There have been no upward adjustments based on observable price changes to equity securities with no readily determinable fair
value.
Unrealized gains (losses) on equity securities were as follows during the years ended December 31, 2024 and 2023:
Year Ended December 31,
(dollars in thousands)
2024
2023
2022
Readily determinable fair value
$
(25) $
330 $
(414)
No readily determinable fair value
(34)
(170)
—
Unrealized gains (losses) on equity securities
$
(59) $
160 $
(414)
107
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 – LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES
Major categories of loans are summarized as follows:
(dollars in thousands)
December 31, 2024
December 31, 2023
Commercial and industrial
$
428,389 $
427,800
Commercial real estate - owner occupied
322,316
295,842
Commercial real estate - non-owner occupied
899,565
880,681
Construction and land development
374,657
363,983
Multi-family
431,524
417,923
One-to-four family residential
463,968
491,508
Agricultural and farmland
293,375
287,294
Municipal, consumer, and other
252,352
239,386
Loans, before allowance for credit losses
3,466,146
3,404,417
Allowance for credit losses
(42,044)
(40,048)
Loans, net of allowance for credit losses
$
3,424,102 $
3,364,369
Allowance for Credit Losses
Management estimates the allowance for credit losses using relevant available information from internal and external sources, relating to
past events, current conditions, and reasonable and supportable forecasts. The discounted cash flow method is used to estimate expected
credit losses for all loan categories, except for consumer loans where the weighted average remaining maturity method is utilized.
At December 31, 2024, the economic forecast used by management anticipates a mild economic slowdown, but not a recession, over the
next 4 quarters considered in the forecast period, with the unemployment rate remaining stable and GDP growth slowing slightly and then
increasing. After the forecast period, the Company reverts to long-term averages over a 4-quarter reversion period. Additionally,
management has made qualitative adjustments to the loss estimates to reflect other factors that influence credit losses.
108
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables detail activity in the allowance for credit losses:
(dollars in thousands)
Commercial
and
Industrial
Commercial
Real Estate
Owner
Occupied
Commercial
Real Estate
Non-owner
Occupied
Construction
and Land
Development
Multi-Family
One-to-four
Family
Residential
Agricultural
and
Farmland
Municipal,
Consumer,
and
Other
Total
Balance, December
31, 2021
$
2,440
$
1,840
$
8,145
$
4,914
$
1,263
$
1,311
$
845
$
3,178
$
23,936
Provision for loan
losses
88
(1,653)
(1,707)
(692)
209
146
(49)
2,952
(706)
Charge-offs
(23)
(25)
—
—
—
(67)
—
(569)
(684)
Recoveries
774
1,031
283
1
—
369
—
329
2,787
Balance, December
31, 2022
3,279
1,193
6,721
4,223
1,472
1,759
796
5,890
25,333
Adoption of ASC 326
(822)
587
501
1,969
85
797
1,567
2,299
6,983
PCD allowance
established in
acquisition
69
127
239
240
68
492
5
7
1,247
Provision for credit
losses
2,823
352
187
(487)
1,931
2,004
(1,399)
1,254
6,665
Charge-offs
(428)
(5)
(202)
—
—
(34)
—
(690)
(1,359)
Recoveries
59
18
268
53
281
186
6
308
1,179
Balance, December
31, 2023
4,980
2,272
7,714
5,998
3,837
5,204
975
9,068
40,048
Provision for credit
losses
1,677
825
3,407
(1,699)
682
(1,438)
246
54
3,754
Charge-offs
(1,448)
(6)
—
—
(188)
(298)
(62)
(1,282)
(3,284)
Recoveries
148
16
586
3
—
440
11
322
1,526
Balance, December
31, 2024
$
5,357
$
3,107
$
11,707
$
4,302
$
4,331
$
3,908
$
1,170
$
8,162
$
42,044
109
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Gross charge-offs, further sorted by origination year, were as follows during the year ended December 31, 2024 and 2023.
Gross Charge-Offs for the Year Ended December 31, 2024
Term Loans by Origination Year
Revolving
Loans
Revolving
Loans
Converted
to Term
Total
(dollars in thousands)
2024
2023
2022
2021
2020
Prior
Commercial and
industrial
$
—
$
1,264
$
75
$
—
$
—
$
11
$
98
$
—
$
1,448
Commercial real estate -
owner occupied
6
—
—
—
—
—
—
—
6
Commercial real estate -
non-owner occupied
—
—
—
—
—
—
—
—
—
Construction and land
development
—
—
—
—
—
—
—
—
—
Multi-family
—
—
—
188
—
—
—
—
188
One-to-four family
residential
—
1
8
15
4
182
88
—
298
Agricultural and farmland
—
—
44
—
—
—
18
—
62
Municipal, consumer,
and other
415
63
11
—
—
529
264
—
1,282
Total
$
421
$
1,328
$
138
$
203
$
4
$
722
$
468
$
—
$
3,284
Gross Charge-Offs for the Year Ended December 31, 2023
Term Loans by Origination Year
Revolving
Loans
Revolving
Loans
Converted
to Term
Total
(dollars in thousands)
2023
2022
2021
2020
2019
Prior
Commercial and
industrial
$
—
$
—
$
—
$
—
$
—
$
—
$
428
$
—
$
428
Commercial real estate -
owner occupied
—
5
—
—
—
—
—
—
5
Commercial real estate -
non-owner occupied
—
—
—
—
31
—
171
—
202
Construction and land
development
—
—
—
—
—
—
—
—
—
Multi-family
—
—
—
—
—
—
—
—
—
One-to-four family
residential
—
—
—
—
1
33
—
—
34
Agricultural and farmland
—
—
—
—
—
—
—
—
—
Municipal, consumer,
and other
309
100
13
17
10
32
209
—
690
Total
$
309
$
105
$
13
$
17
$
42
$
65
$
808
$
—
$
1,359
110
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present loans and the related allowance for credit losses by category:
December 31, 2024
(dollars in thousands)
Commercial
and
Industrial
Commercial
Real Estate
Owner
Occupied
Commercial
Real Estate
Non-owner
Occupied
Construction
and Land
Development
Multi-Family
One-to-four
Family
Residential
Agricultural
and
Farmland
Municipal,
Consumer,
and
Other
Total
Loan balances:
Collectively evaluated
for impairment
$
427,737
$
322,159
$
884,832
$
374,408
$
431,432
$
459,790
$
293,240
$
241,765
$
3,435,363
Individually evaluated
for impairment
652
157
14,733
249
92
4,178
135
10,587
30,783
Total
$
428,389
$
322,316
$
899,565
$
374,657
$
431,524
$
463,968
$
293,375
$
252,352
$
3,466,146
Allowance for credit
losses:
Collectively evaluated
for impairment
$
5,344
$
3,107
$
11,201
$
4,269
$
4,239
$
3,747
$
1,170
$
5,901
$
38,978
Individually evaluated
for impairment
13
—
506
33
92
161
—
2,261
3,066
Total
$
5,357
$
3,107
$
11,707
$
4,302
$
4,331
$
3,908
$
1,170
$
8,162
$
42,044
December 31, 2023
(dollars in thousands)
Commercial
and
Industrial
Commercial
Real Estate
Owner
Occupied
Commercial
Real Estate
Non-owner
Occupied
Construction
and Land
Development
Multi-Family
One-to-four
Family
Residential
Agricultural
and
Farmland
Municipal,
Consumer,
and
Other
Total
Loan balances:
Collectively evaluated
for impairment
$
427,528
$
295,672
$
865,394
$
363,767
$
417,608
$
486,049
$
287,150
$
224,345
$
3,367,513
Individually evaluated
for impairment
272
170
15,287
216
315
5,459
144
15,041
36,904
Total
$
427,800
$
295,842
$
880,681
$
363,983
$
417,923
$
491,508
$
287,294
$
239,386
$
3,404,417
Allowance for credit
losses:
Collectively evaluated
for impairment
$
4,960
$
2,272
$
6,693
$
5,998
$
3,837
$
4,957
$
975
$
6,137
$
35,829
Individually evaluated
for impairment
20
—
1,021
—
—
247
—
2,931
4,219
Total
$
4,980
$
2,272
$
7,714
$
5,998
$
3,837
$
5,204
$
975
$
9,068
$
40,048
111
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present collateral dependent loans, by the primary collateral type, which are individually evaluated to determine
expected credit losses, and the related allowance for credit losses allocated to these loans:
December 31, 2024
Amortized Cost
Allowance
for Credit
Losses
Primary Collateral Type
(dollars in thousands)
Real Estate
Vehicles
Other
Total
Commercial and industrial
$
— $
627 $
25 $
652 $
13
Commercial real estate - owner occupied
157
—
—
157
—
Commercial real estate - non-owner occupied
14,733
—
—
14,733
506
Construction and land development
249
—
—
249
33
Multi-family
92
—
—
92
92
One-to-four family residential
4,178
—
—
4,178
161
Agricultural and farmland
—
—
135
135
—
Municipal, consumer, and other
10,569
5
13
10,587
2,261
Total
$
29,978 $
632 $
173 $
30,783 $
3,066
December 31, 2023
Amortized Cost
Allowance
for Credit
Losses
Primary Collateral Type
(dollars in thousands)
Real Estate
Vehicles
Other
Total
Commercial and industrial
$
— $
37 $
235 $
272 $
20
Commercial real estate - owner occupied
170
—
—
170
—
Commercial real estate - non-owner occupied
15,287
—
—
15,287
1,021
Construction and land development
216
—
—
216
—
Multi-family
315
—
—
315
—
One-to-four family residential
5,459
—
—
5,459
247
Agricultural and farmland
144
—
—
144
—
Municipal, consumer, and other
14,978
39
24
15,041
2,931
Total
$
36,569 $
76 $
259 $
36,904 $
4,219
Accrued interest on loans is excluded from the estimate of credit losses and totaled $19.6 million and $18.4 million as of December 31, 2024
and 2023, respectively.
112
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pre-ASC 326 Adoption Impaired Loan Disclosures
The following table presents the average recorded investment and interest income recognized for loans individually evaluated for impairment
by category of loans for the year ended December 31, 2022:
(dollars in thousands)
Average
Recorded
Investment
Interest
Income
Recognized
With an allowance recorded:
Commercial and industrial
$
204 $
18
Commercial real estate - owner occupied
970
63
Commercial real estate - non-owner occupied
10,943
740
Construction and land development
—
—
Multi-family
—
—
One-to-four family residential
384
16
Agricultural and farmland
—
—
Municipal, consumer, and other
6,259
236
Total
$
18,760 $
1,073
With no related allowance:
Commercial and industrial
$
9,568 $
453
Commercial real estate - owner occupied
8,619
525
Commercial real estate - non-owner occupied
12,636
1,278
Construction and land development
1,505
106
Multi-family
—
—
One-to-four family residential
6,238
352
Agricultural and farmland
228
13
Municipal, consumer, and other
3,361
148
Total
$
42,155 $
2,875
Total loans individually evaluated for impairment:
Commercial and industrial
$
9,772 $
471
Commercial real estate - owner occupied
9,589
588
Commercial real estate - non-owner occupied
23,579
2,018
Construction and land development
1,505
106
Multi-family
—
—
One-to-four family residential
6,622
368
Agricultural and farmland
228
13
Municipal, consumer, and other
9,620
384
Total
$
60,915 $
3,948
113
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in the accretable yield for loans acquired with deteriorated credit quality were as follows during the year ended December 31, 2022:
(dollars in thousands)
2022
Beginning balance
$
413
Reclassification from non-accretable difference
548
Accretion income
(231)
Ending balance
$
730
Past Due and Nonaccrual Status
Past due status is based on the contractual terms of the loan. 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 status.
114
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present loans by category based on current payment and accrual status:
December 31, 2024
Accruing Interest
(dollars in thousands)
Current
30 - 89 Days
Past Due
90+ Days
Past Due
Nonaccrual
Total
Loans
Commercial and industrial
$
425,859 $
1,878 $
— $
652 $
428,389
Commercial real estate - owner occupied
321,805
354
—
157
322,316
Commercial real estate - non-owner occupied
897,445
299
—
1,821
899,565
Construction and land development
373,933
475
—
249
374,657
Multi-family
431,432
—
—
92
431,524
One-to-four family residential
459,069
721
—
4,178
463,968
Agricultural and farmland
293,231
9
—
135
293,375
Municipal, consumer, and other
251,798
182
4
368
252,352
Total
$
3,454,572 $
3,918 $
4 $
7,652 $
3,466,146
December 31, 2023
Accruing Interest
(dollars in thousands)
Current
30 - 89 Days
Past Due
90+ Days
Past Due
Nonaccrual
Total
Loans
Commercial and industrial
$
427,300 $
228 $
— $
272 $
427,800
Commercial real estate - owner occupied
295,672
—
—
170
295,842
Commercial real estate - non-owner occupied
878,591
255
—
1,835
880,681
Construction and land development
363,735
32
—
216
363,983
Multi-family
417,597
11
—
315
417,923
One-to-four family residential
484,969
1,735
—
4,804
491,508
Agricultural and farmland
286,820
330
—
144
287,294
Municipal, consumer, and other
239,033
252
37
64
239,386
Total
$
3,393,717 $
2,843 $
37 $
7,820 $
3,404,417
115
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present nonaccrual loans with and without a related allowance for credit losses:
December 31, 2024
(dollars in thousands)
Nonaccrual
With
Allowance for
Credit Losses
Nonaccrual
With No
Allowance for
Credit Losses
Total
Nonaccrual
Commercial and industrial
$
185 $
467 $
652
Commercial real estate - owner occupied
—
157
157
Commercial real estate - non-owner occupied
—
1,821
1,821
Construction and land development
216
33
249
Multi-family
92
—
92
One-to-four family residential
654
3,524
4,178
Agricultural and farmland
—
135
135
Municipal, consumer, and other
—
368
368
Total
$
1,147 $
6,505 $
7,652
December 31, 2023
(dollars in thousands)
Nonaccrual
With
Allowance for
Credit Losses
Nonaccrual
With No
Allowance for
Credit Losses
Total
Nonaccrual
Commercial and industrial
$
120 $
152 $
272
Commercial real estate - owner occupied
—
170
170
Commercial real estate - non-owner occupied
188
1,647
1,835
Construction and land development
216
—
216
Multi-family
—
315
315
One-to-four family residential
14
4,790
4,804
Agricultural and farmland
—
144
144
Municipal, consumer, and other
—
64
64
Total
$
538 $
7,282 $
7,820
116
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit Quality Indicators
In June 2024, the Company updated its risk rating categories to add a special mention category to provide another level of granularity in
distinguishing risk levels of loans. As of June 30, 2024, $19.5 million of the special mention loans would have been considered pass-watch
and $10.6 million would have been considered substandard under the previous risk rating categories.
The Company assigns a risk rating to all loans and periodically performs detailed internal reviews of all loans that are part of relationships
with over $750 thousand 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. Risk ratings are 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 the following major categories:
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 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 a special mention, substandard, or doubtful classification.
Special Mention – a special mention loan has potential weaknesses that deserve management's close attention. If left uncorrected,
these potential weaknesses may result in deterioration of the repayment prospects for the assets or in the institution's credit position
at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant
adverse classification.
Substandard – 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.
Doubtful – 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. There were no loans classified as doubtful as of December 31, 2024 and December 31, 2023.
117
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present loans by category based on their assigned risk ratings determined by management:
December 31, 2024
(dollars in thousands)
Pass
Pass-Watch
Special Mention
Substandard
Total
Commercial and industrial
$
404,779 $
16,429 $
1,957 $
5,224 $
428,389
Commercial real estate - owner occupied
297,150
14,969
2,713
7,484
322,316
Commercial real estate - non-owner
occupied
843,487
21,594
—
34,484
899,565
Construction and land development
351,657
1,376
20,847
777
374,657
Multi-family
411,842
3,855
15,735
92
431,524
One-to-four family residential
448,869
6,641
710
7,748
463,968
Agricultural and farmland
269,926
18,154
521
4,774
293,375
Municipal, consumer, and other
236,686
929
4,107
10,630
252,352
Total
$
3,264,396 $
83,947 $
46,590 $
71,213 $
3,466,146
December 31, 2023
(dollars in thousands)
Pass
Pass-Watch
Substandard
Total
Commercial and industrial
$
419,494 $
7,128 $
1,178 $
427,800
Commercial real estate - owner occupied
275,649
14,072
6,121
295,842
Commercial real estate - non-owner occupied
822,012
33,283
25,386
880,681
Construction and land development
351,087
12,604
292
363,983
Multi-family
397,951
19,656
316
417,923
One-to-four family residential
472,355
6,671
12,482
491,508
Agricultural and farmland
280,867
3,071
3,356
287,294
Municipal, consumer, and other
222,474
1,721
15,191
239,386
Total
$
3,241,889 $
98,206 $
64,322 $
3,404,417
118
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Risk ratings of loans, further sorted by origination year, are as follows as of December 31, 2024:
(dollars in thousands)
Term Loans by Origination Year
Revolving
Loans
Revolving
Loans
Converted
to Term
Total
2024
2023
2022
2021
2020
Prior
Commercial and industrial
Pass
$
46,635
$
43,007
$
44,701
$
11,617
$
17,913
$
41,397
$
197,516
$
1,993
$
404,779
Pass-Watch
475
1,310
186
1,121
—
1,775
10,613
949
16,429
Special Mention
—
281
272
173
—
—
1,231
—
1,957
Substandard
—
1,913
1,016
721
—
—
939
635
5,224
Total
$
47,110
$
46,511
$
46,175
$
13,632
$
17,913
$
43,172
$
210,299
$
3,577
$
428,389
Commercial real estate - owner occupied
Pass
$
63,546
$
23,607
$
56,509
$
48,867
$
39,679
$
44,108
$
19,766
$
1,068
$
297,150
Pass-Watch
6,478
395
3,698
2,111
542
1,374
371
—
14,969
Special Mention
1,877
—
—
150
—
—
686
—
2,713
Substandard
819
700
506
3,707
1,241
511
—
—
7,484
Total
$
72,720
$
24,702
$
60,713
$
54,835
$
41,462
$
45,993
$
20,823
$
1,068
$
322,316
Commercial real estate - non-owner occupied
Pass
$
92,125
$
108,688
$
245,168
$
222,479
$
84,054
$
65,935
$
23,425
$
1,613
$
843,487
Pass-Watch
3,173
421
6,656
4,031
2,442
4,871
—
—
21,594
Special Mention
—
—
—
—
—
—
—
—
—
Substandard
23,245
9,191
—
—
—
2,048
—
—
34,484
Total
$
118,543
$
118,300
$
251,824
$
226,510
$
86,496
$
72,854
$
23,425
$
1,613
$
899,565
Construction and land development
Pass
$
181,274
$
73,773
$
65,045
$
21,542
$
590
$
693
$
8,228
$
512
$
351,657
Pass-Watch
—
—
—
—
—
18
697
661
1,376
Special Mention
—
—
8,750
12,097
—
—
—
—
20,847
Substandard
475
—
216
—
—
86
—
—
777
Total
$
181,749
$
73,773
$
74,011
$
33,639
$
590
$
797
$
8,925
$
1,173
$
374,657
Multi-family
Pass
$
46,969
$
80,450
$
88,823
$
101,284
$
50,652
$
40,839
$
2,375
$
450
$
411,842
Pass-Watch
2,791
—
567
—
—
492
—
5
3,855
Special Mention
6,936
—
—
—
8,799
—
—
—
15,735
Substandard
92
—
—
—
—
—
—
—
92
Total
$
56,788
$
80,450
$
89,390
$
101,284
$
59,451
$
41,331
$
2,375
$
455
$
431,524
One-to-four family residential
Pass
$
44,914
$
87,184
$
79,834
$
71,466
$
57,258
$
43,455
$
59,446
$
5,312
$
448,869
Pass-Watch
1,126
1,271
936
242
405
2,252
134
275
6,641
Special Mention
—
—
—
592
118
—
—
—
710
Substandard
281
522
861
473
382
4,824
16
389
7,748
Total
$
46,321
$
88,977
$
81,631
$
72,773
$
58,163
$
50,531
$
59,596
$
5,976
$
463,968
Agricultural and farmland
Pass
$
42,272
$
35,593
$
32,146
$
28,714
$
27,865
$
7,656
$
94,977
$
703
$
269,926
Pass-Watch
100
2,671
1,424
1,403
508
861
10,633
554
18,154
Special Mention
134
87
—
—
—
—
300
—
521
Substandard
332
51
494
9
3,183
—
319
386
4,774
Total
$
42,838
$
38,402
$
34,064
$
30,126
$
31,556
$
8,517
$
106,229
$
1,643
$
293,375
119
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Term Loans by Origination Year
Revolving
Loans
Revolving
Loans
Converted
to Term
Total
2024
2023
2022
2021
2020
Prior
Municipal, consumer, and other
Pass
$
77,779
$
37,678
$
14,475
$
23,204
$
12,479
$
37,460
$
33,611
$
—
$
236,686
Pass-Watch
103
50
6
12
—
757
1
—
929
Special Mention
—
—
—
—
—
4,107
—
—
4,107
Substandard
21
5
33
—
—
10,570
1
—
10,630
Total
$
77,903
$
37,733
$
14,514
$
23,216
$
12,479
$
52,894
$
33,613
$
—
$
252,352
Total by risk rating
Pass
$
595,514
$
489,980
$
626,701
$
529,173
$
290,490
$
281,543
$
439,344
$
11,651
$
3,264,396
Pass-Watch
14,246
6,118
13,473
8,920
3,897
12,400
22,449
2,444
83,947
Special Mention
8,947
368
9,022
13,012
8,917
4,107
2,217
—
46,590
Substandard
25,265
12,382
3,126
4,910
4,806
18,039
1,275
1,410
71,213
Total
$
643,972
$
508,848
$
652,322
$
556,015
$
308,110
$
316,089
$
465,285
$
15,505
$
3,466,146
120
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Risk ratings of loans, further sorted by origination year, are as follows as of December 31, 2023:
(dollars in thousands)
Term Loans by Origination Year
Revolving
Loans
Revolving
Loans
Converted
to Term
Total
2023
2022
2021
2020
2019
Prior
Commercial and industrial
Pass
$
90,931
$
58,364
$
19,283
$
26,816
$
5,269
$
29,550
$
187,579
$
1,702
$
419,494
Pass-Watch
2,025
1,340
892
144
753
471
956
547
7,128
Substandard
111
73
327
60
—
—
323
284
1,178
Total
$
93,067
$
59,777
$
20,502
$
27,020
$
6,022
$
30,021
$
188,858
$
2,533
$
427,800
Commercial real estate - owner occupied
Pass
$
27,516
$
64,229
$
55,376
$
53,634
$
32,469
$
28,876
$
13,549
$
—
$
275,649
Pass-Watch
4,061
943
5,210
1,474
1,573
811
—
—
14,072
Substandard
2,734
86
1,550
64
164
1,523
—
—
6,121
Total
$
34,311
$
65,258
$
62,136
$
55,172
$
34,206
$
31,210
$
13,549
$
—
$
295,842
Commercial real estate - non-owner occupied
Pass
$
121,536
$
240,323
$
237,953
$
88,894
$
82,094
$
39,228
$
10,274
$
1,710
$
822,012
Pass-Watch
810
6,893
7,013
353
4,230
154
13,585
245
33,283
Substandard
13,376
124
286
—
2,410
9,190
—
—
25,386
Total
$
135,722
$
247,340
$
245,252
$
89,247
$
88,734
$
48,572
$
23,859
$
1,955
$
880,681
Construction and land development
Pass
$
153,499
$
119,005
$
56,954
$
5,596
$
2,662
$
796
$
12,050
$
525
$
351,087
Pass-Watch
153
10,750
—
—
—
—
163
1,538
12,604
Substandard
—
216
—
—
—
76
—
—
292
Total
$
153,652
$
129,971
$
56,954
$
5,596
$
2,662
$
872
$
12,213
$
2,063
$
363,983
Multi-family
Pass
$
83,898
$
81,507
$
115,402
$
53,126
$
34,053
$
23,570
$
5,904
$
491
$
397,951
Pass-Watch
3,111
7,197
—
8,821
51
468
—
8
19,656
Substandard
—
—
316
—
—
—
—
—
316
Total
$
87,009
$
88,704
$
115,718
$
61,947
$
34,104
$
24,038
$
5,904
$
499
$
417,923
One-to-four family residential
Pass
$
105,337
$
91,636
$
82,289
$
64,094
$
21,986
$
44,241
$
57,248
$
5,524
$
472,355
Pass-Watch
2,382
286
940
486
212
1,804
203
358
6,671
Substandard
1,507
1,527
623
646
1,037
4,166
64
2,912
12,482
Total
$
109,226
$
93,449
$
83,852
$
65,226
$
23,235
$
50,211
$
57,515
$
8,794
$
491,508
Agricultural and farmland
Pass
$
52,766
$
37,600
$
36,604
$
33,960
$
8,910
$
7,756
$
100,486
$
2,785
$
280,867
Pass-Watch
953
361
425
30
71
719
172
340
3,071
Substandard
—
—
13
3,199
—
144
—
—
3,356
Total
$
53,719
$
37,961
$
37,042
$
37,189
$
8,981
$
8,619
$
100,658
$
3,125
$
287,294
Municipal, consumer, and other
Pass
$
43,575
$
57,404
$
27,904
$
14,342
$
1,016
$
42,499
$
35,734
$
—
$
222,474
Pass-Watch
9
6
13
—
—
1,693
—
—
1,721
Substandard
51
103
2
6
8
15,012
8
1
15,191
Total
$
43,635
$
57,513
$
27,919
$
14,348
$
1,024
$
59,204
$
35,742
$
1
$
239,386
Total by risk rating
Pass
$
679,058
$
750,068
$
631,765
$
340,462
$
188,459
$
216,516
$
422,824
$
12,737
$
3,241,889
Pass-Watch
13,504
27,776
14,493
11,308
6,890
6,120
15,079
3,036
98,206
Substandard
17,779
2,129
3,117
3,975
3,619
30,111
395
3,197
64,322
Total
$
710,341
$
779,973
$
649,375
$
355,745
$
198,968
$
252,747
$
438,298
$
18,970
$
3,404,417
121
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Modifications
The Company modified one commercial and industrial loan to a borrower experiencing financial difficulty during the year ended
December 31, 2024. The modification included an interest rate reduction and a term extension. As of December 31, 2024, the book balance
of the modified loan was $0.5 million, and the loan was current and performing in accordance with the modified terms. There were no loan
modifications to borrowers experiencing financial difficulty during the year ended December 31, 2023.
NOTE 5 – LOAN SERVICING
Mortgage loans serviced for others, which are not included in the accompanying consolidated balance sheets, amounted to $1.55 billion and
$1.66 billion as of December 31, 2024 and 2023, respectively. Activity in mortgage servicing rights was as follows:
Year Ended December 31,
(dollars in thousands)
2024
2023
2022
Beginning balance
$
19,001 $
10,147 $
7,994
Acquired
—
10,469
—
Capitalized servicing rights
726
726
530
Fair value adjustments attributable to payments and principal reductions
(2,083)
(2,110)
(1,343)
Fair value adjustments attributable to changes in valuation inputs and
assumptions
1,183
(231)
2,966
Ending balance
$
18,827 $
19,001 $
10,147
NOTE 6 - BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated depreciation as follows:
(dollars in thousands)
December 31, 2024
December 31, 2023
Land, buildings, and improvements
$
98,426 $
93,955
Furniture, fixtures, and equipment
26,270
26,205
Total bank premises and equipment
124,696
120,160
Less accumulated depreciation
57,938
55,010
Total bank premises and equipment, net
$
66,758 $
65,150
Depreciation expense by category is as follows:
Year Ended December 31,
(dollars in thousands)
2024
2023
2022
Buildings and improvements
$
1,990 $
1,879 $
1,623
Furniture, fixtures, and equipment
954
1,229
1,420
Total depreciation expense
$
2,944 $
3,108 $
3,043
122
Table of Contents
HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – FORECLOSED ASSETS
Foreclosed assets activity was as follows:
Year Ended December 31,
(dollars in thousands)
2024
2023
2022
Beginning balance
$
852 $
3,030 $
3,278
Acquired
—
271
—
Transfers from loans
889
1,143
541
Proceeds from sales
(1,396)
(4,093)
(475)
Net gain on sales
112
764
118
Direct write-downs
(90)
(263)
(432)
Ending balance
$
367 $
852 $
3,030
Gains (losses) on foreclosed assets included the following:
Year Ended December 31,
(dollars in thousands)
2024
2023
2022
Direct write-downs
$
(90) $
(263) $
(432)
Net gain on sales
112
764
118
Gains (losses) on foreclosed assets
$
22 $
501 $
(314)
As of December 31, 2024 and 2023, the carrying value of foreclosed one-to-four family residential real estate properties held was $0.3 million
and $0.1 million, respectively. As of December 31, 2024, there were 19 one-to-four family residential real estate loans in the process of
foreclosure totaling $1.8 million. As of December 31, 2023, there were 16 one-to-four family residential real estate loans in the process of
foreclosure totaling $1.2 million.
NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS
The Company did not record additions to goodwill for the years ended December 31, 2024 and 2022. During the year ended December 31,
2023, the Company recorded goodwill of $30.5 million related to the acquisition of Town and Country.
The following table summarizes the changes in the Company's intangible assets:
Year Ended December 31,
2024
2023
2022
(dollars in thousands)
Core Deposit
Intangible
Customer
Relationship
Intangible
Core Deposit
Intangible
Customer
Relationship
Intangible
Core Deposit
Intangible
Customer
Relationship
Intangible
Beginning balance
$
19,774 $
908 $
1,070 $
— $
1,943 $
—
Additions
—
—
21,282
1,000
—
—
Amortization
(2,739)
(100)
(2,578)
(92)
(873)
—
Ending balance
$
17,035 $
808 $
19,774 $
908 $
1,070 $
—
Accumulated amortization
$
26,164 $
192 $
23,425 $
92 $
20,847 $
—
123
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amortization of intangible assets for the years subsequent to December 31, 2024 is expected to be as follows (dollars in thousands):
Year ended December 31,
2025
$
2,726
2026
2,411
2027
2,338
2028
2,255
2029
2,162
Thereafter
5,951
Total
$
17,843
NOTE 9 – DEPOSITS
The Company’s deposits are summarized below:
(dollars in thousands)
December 31, 2024
December 31, 2023
Noninterest-bearing deposits
$
1,046,405 $
1,072,407
Interest-bearing deposits:
Interest-bearing demand
1,099,061
1,145,092
Money market
820,825
803,381
Savings
566,533
608,424
Time
785,430
627,253
Brokered
—
144,880
Total interest-bearing deposits
3,271,849
3,329,030
Total deposits
$
4,318,254 $
4,401,437
Reciprocal deposits included in interest-bearing demand deposits, money market deposits, and time deposits totaled $229.4 million and
$236.8 million as of December 31, 2024 and 2023, respectively. The aggregate amounts of time deposits in denominations of $250 thousand
or more amounted to $202.2 million and $130.2 million as of December 31, 2024 and 2023, respectively. The aggregate amounts of time
deposits in denominations of $100 thousand or more amounted to $455.2 million and $342.8 million as of December 31, 2024 and 2023,
respectively.
The components of interest expense on deposits were as follows:
Year Ended December 31,
(dollars in thousands)
2024
2023
2022
Interest-bearing demand
$
5,499 $
3,130 $
607
Money market
18,637
7,352
813
Savings
1,621
1,033
208
Time
28,183
10,784
883
Brokered
2,107
2,836
—
Total interest expense on deposits
$
56,047 $
25,135 $
2,511
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2024, the scheduled maturities of time deposits are as follows (dollars in thousands):
Year ended December 31,
2025
$
742,741
2026
29,443
2027
7,445
2028
3,582
2029
2,128
Thereafter
91
Total
$
785,430
NOTE 10 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
All repurchase agreements are sweep instruments. The securities underlying the agreements as of December 31, 2024 and 2023 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 is as follows:
(dollars in thousands)
December 31, 2024
December 31, 2023
Balance at end of year
$
28,969
$
42,442
Weighted average rate as of end of year
2.58 %
2.42 %
Fair value of securities underlying the agreements
$
34,335
$
49,303
Carrying value of securities underlying the agreements
$
37,628
$
52,958
NOTE 11 - BORROWINGS
FHLB advances totaled $13.2 million with a weighted average interest rate of 0.54% as of December 31, 2024 and totaled $12.6 million with
a weighted average interest rate of 0.55% as of December 31, 2023. The FHLB advances outstanding as of December 31, 2024 mature
between 2025 and 2029.
Borrowings from the FHLB are secured by the FHLB stock held by the Company and pledged security in the form of qualifying loans. The
loans pledged as of December 31, 2024 and 2023 totaled $1.91 billion and $1.20 billion, respectively. As of December 31, 2024 and 2023,
loans pledged also served as collateral for credit exposure of $0.4 million associated with the Bank’s participation in the FHLB’s Mortgage
Partnership Finance Program. As of December 31, 2024, loans pledged also served as collateral for a $70.0 million letter of credit for the
benefit of uninsured public funds deposits.
The Bank also had available borrowings through the discount window of the Federal Reserve Bank of Chicago. Available borrowings are
based on the collateral pledged. As of December 31, 2024 and 2023, debt securities with a carrying value of $108.0 million and $9.8 million,
respectively, were pledged to secure available borrowings.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 is being amortized over 10 years. As of
December 31, 2024 and 2023, 100% of the subordinated notes qualified as Tier 2 capital.
The face value and carrying value of the subordinated notes are summarized below:
(dollars in thousands)
December 31, 2024
December 31, 2023
Subordinated notes, at face value
$
40,000 $
40,000
Unamortized issuance costs
(447)
(526)
Subordinated notes, at carrying value
$
39,553 $
39,474
NOTE 13 – JUNIOR SUBORDINATED DEBENTURES ISSUED TO CAPITAL TRUSTS
Eight 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 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, rank junior and
subordinate in the right of payment to all senior debt of the Company, and have an optional redemption in whole or in part on any interest
payment date.
In accordance with GAAP, the trusts are not consolidated in the Company’s financial statements.
126
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The face values and carrying values of the junior subordinated debentures are summarized as follows:
Carrying Value
(dollars in thousands)
Face Value
December 31, 2024
December 31, 2023
Heartland Bancorp, Inc. Capital Trust B
$
10,310 $
10,310 $
10,310
Heartland Bancorp, Inc. Capital Trust C
10,310
10,310
10,310
Heartland Bancorp, Inc. Capital Trust D
5,155
5,155
5,155
FFBI Capital Trust I
7,217
7,217
7,217
National Bancorp Statutory Trust I
5,773
4,919
4,853
Town and Country Statutory Trust II
4,124
4,374
4,401
Town and Country Statutory Trust III
7,732
7,590
7,578
West Plains Investors Statutory Trust I
3,093
2,974
2,965
Total
$
53,714 $
52,849 $
52,789
The interest rates on the junior subordinated debentures are variable, reset quarterly, and are equal to the three-month term SOFR, as
determined on the SOFR 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:
Interest Rate at
Variable
Interest Rate
December 31,
2024
December 31,
2023
Maturity Date
Heartland Bancorp, Inc. Capital Trust B
SOFR plus 3.01%
7.67 %
8.41 %
April 6, 2034
Heartland Bancorp, Inc. Capital Trust C
SOFR plus 1.79
6.15
7.18
June 15, 2037
Heartland Bancorp, Inc. Capital Trust D
SOFR plus 1.61
5.97
7.00
September 15, 2037
FFBI Capital Trust I
SOFR plus 3.06
7.72
8.46
April 6, 2034
National Bancorp Statutory Trust I
SOFR plus 3.16
7.52
8.55
December 15, 2037
Town and Country Statutory Trust II
SOFR plus 3.05
7.40
8.43
March 17, 2034
Town and Country Statutory Trust III
SOFR plus 1.94
6.30
7.33
March 22, 2037
West Plains Investors Statutory Trust I
SOFR plus 1.71
6.07
7.10
June 15, 2037
The distribution rate payable on the debentures is cumulative and payable quarterly in arrears. The Company has the right, subject to events
of 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.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2024 and 2023, 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
recognize all derivative financial instruments as either assets or liabilities at fair value in the consolidated balance sheets. The Company may
utilize interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position.
Interest Rate Swaps Designated as Cash Flow Hedges
The Company designated certain interest rate swap agreements as cash flow hedges on variable-rate borrowings. For derivative instruments
that are designated and qualify as a cash flow hedge, the gain or loss on interest rate swaps designated as cash flow hedging instruments,
net of tax, is 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 were as follows:
December 31, 2024
December 31, 2023
(dollars in thousands)
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Fair value recorded in other assets
$
7,000 $
38 $
17,000 $
322
As of December 31, 2024, the interest rate swap agreement designated as a cash flow hedge matures in April 2025. The counterparty had
cash pledged and held on deposit by the Company of $0.6 million as of December 31, 2023.
The effect of interest rate swap agreements designated as cash flow hedges on the consolidated statements of income was as follows:
Location of gross gain (loss) reclassified
from accumulated other
comprehensive income (loss) to income
Amounts of gross gain (loss)
reclassified from accumulated
other comprehensive income (loss)
Year Ended
December 31,
(dollars in thousands)
2024
2023
2022
Designated as cash flow hedges:
Junior subordinated debentures interest expense
$
348 $
468 $
(126)
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest Rate Swaps Not Designated as Hedging Instruments
The Company may offer interest rate swap agreements to its commercial borrowers in connection with their risk management needs. The
Company manages the 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 were as follows:
December 31, 2024
December 31, 2023
(dollars in thousands)
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Fair value recorded in other assets:
Interest rate swaps with a commercial borrower counterparty $
— $
— $
— $
—
Interest rate swaps with a financial institution counterparty
79,416
5,515
94,497
6,227
Total fair value recorded in other assets
$
79,416 $
5,515 $
94,497 $
6,227
Fair value recorded in other liabilities:
Interest rate swaps with a commercial borrower counterparty $
79,416 $
(5,515) $
94,497 $
(6,227)
Interest rate swaps with a financial institution counterparty
—
—
—
—
Total fair value recorded in other liabilities
$
79,416 $
(5,515) $
94,497 $
(6,227)
As of December 31, 2024, the interest rate swap agreements not designated as hedging instruments had contractual maturities between
2027 and 2035.
The effect of interest rate contracts not designated as hedging instruments recognized in other noninterest income on the consolidated
statements of income was as follows:
Year Ended
December 31,
(dollars in thousands)
2024
2023
2022
Not designated as hedging instruments:
Gross gains
$
10,781 $
11,198 $
16,002
Gross losses
(10,781)
(11,198)
(16,002)
Net gains (losses)
$
— $
— $
—
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Risk Participation Agreements
We have entered into a risk participation agreement to share credit exposure with a counterparty related to an interest rate swap agreement
associated with a loan participation. Under the risk participation agreement, the Company sold a portion of its credit exposure, receiving an
up-front fee, and will be required to make a payment to the counterparty if the loan customer defaults on its obligations. The risk participation
agreement matures in 2035 and is summarized as follows:
(dollars in thousands)
December 31, 2024
December 31, 2023
Risk participation agreements sold
Notional amount
$
5,268 $
—
Fair value
(10)
—
NOTE 15 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents the activity and accumulated balances for components of other comprehensive income (loss):
Unrealized Gains (Losses)
on Debt Securities
Derivatives
Total
(dollars in thousands)
Available-for-Sale
Held-to-Maturity
Balance, December 31, 2021
$
5,736
$
(3,514)
$
(751)
$
1,471
Transfer from available-for-sale to held-to-maturity
7,664
(7,664)
—
—
Other comprehensive income (loss) before reclassifications
(105,459)
—
1,183
(104,276)
Reclassifications
—
1,723
126
1,849
Other comprehensive income (loss), before tax
(105,459)
1,723
1,309
(102,427)
Income tax expense (benefit)
(30,061)
491
373
(29,197)
Other comprehensive income (loss), after tax
(75,398)
1,232
936
(73,230)
Balance, December 31, 2022
(61,998)
(9,946)
185
(71,759)
Other comprehensive income before reclassifications
16,949
—
161
17,110
Reclassifications
1,820
1,954
(468)
3,306
Other comprehensive income (loss), before tax
18,769
1,954
(307)
20,416
Income tax expense (benefit)
5,350
557
(87)
5,820
Other comprehensive income (loss), after tax
13,419
1,397
(220)
14,596
Balance, December 31, 2023
(48,579)
(8,549)
(35)
(57,163)
Other comprehensive income before reclassifications
9,023
—
64
9,087
Reclassifications
3,697
1,992
(348)
5,341
Other comprehensive income (loss), before tax
12,720
1,992
(284)
14,428
Income tax expense (benefit)
3,549
562
(81)
4,030
Other comprehensive income (loss), after tax
9,171
1,430
(203)
10,398
Balance, December 31, 2024
(39,408)
(7,119)
(238)
(46,765)
Reclassifications from accumulated other comprehensive income (loss) for unrealized gains (losses) on debt securities available-for-sale are
included in either gains (losses) on sales of securities or provision for credit losses in the accompanying consolidated statements of income.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reclassifications from accumulated other comprehensive income (loss) for unrealized gains on debt securities held-to-maturity are included
in securities interest income in the accompanying consolidated statements of income.
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.
NOTE 16 – INCOME TAXES
Allocation of income tax expense between current and deferred portions is as follows:
Year Ended December 31,
(dollars in thousands)
2024
2023
2022
Current
Federal
$
17,090 $
12,538 $
15,194
State
7,517
6,384
7,459
Total current
24,607
18,922
22,653
Deferred
Federal
307
2,811
(2,045)
State
689
1,006
(874)
Total deferred
996
3,817
(2,919)
Income tax expense
$
25,603 $
22,739 $
19,734
Income tax expense differs from the statutory federal rate due to the following:
Year Ended December 31,
2024
2023
2022
(dollars in thousands)
Amount
Percentage
Amount
Percentage
Amount
Percentage
Federal income tax, at statutory rate
$
20,450
21.0 % $
18,602
21.0 % $
16,000
21.0 %
Increase (decrease) resulting from:
Federally tax exempt interest income
(1,391)
(1.4)
(1,767)
(2.0)
(1,618)
(2.1)
State taxes, net of federal benefit
6,481
6.7
5,838
6.6
5,285
6.9
Other
63
—
66
0.1
67
0.1
Income tax expense
$
25,603
26.3 % $
22,739
25.7 % $
19,734
25.9 %
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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:
(dollars in thousands)
December 31, 2024
December 31, 2023
Deferred tax assets
Allowance for credit losses
$
12,523 $
12,247
Compensation related
3,119
3,230
Deferred loan fees
692
676
Nonaccrual interest
673
596
Foreclosed assets
—
18
Goodwill
3
74
Net operating loss carryforward
99
144
Net unrealized losses on debt securities
19,424
23,967
Other purchase accounting adjustments
4,012
5,250
Other
699
575
Total deferred tax assets
41,244
46,777
Deferred tax liabilities
Fixed asset depreciation
3,172
3,044
Mortgage servicing rights
5,224
5,306
Intangible assets
4,899
5,584
Prepaid assets
982
816
Other
532
566
Total deferred tax liabilities
14,809
15,316
Net deferred tax asset
$
26,435 $
31,461
As of December 31, 2024, the Company had an Illinois net operating loss carryforward of $1.3 million which is available to offset future
Illinois taxable income. The Illinois net operating loss carryforward is subject to a $500 thousand limitation through 2027 and will begin to
expire in 2047. Management believes that it is more likely than not that the deferred tax assets included in the balance sheet will be realized,
and that a valuation allowance was not required for deferred tax assets as of December 31, 2024 and 2023.
The Company files consolidated federal and state income tax returns. The Company is generally no longer subject to federal or state income
tax examinations for years prior to 2021.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 – EARNINGS PER SHARE
The Company previously granted restricted stock units that contained non-forfeitable rights to dividend equivalents which were considered
participating securities. Prior to 2024, these restricted stock units were included in the calculation of 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.
The following table sets forth the computation of basic and diluted earnings per share:
Year Ended December 31,
(dollars in thousands)
2024
2023
2022
Numerator:
Net income
$
71,780 $
65,842 $
56,456
Earnings allocated to participating securities
—
(36)
(66)
Numerator for earnings per share - basic and diluted
$
71,780 $
65,806 $
56,390
Denominator:
Weighted average common shares outstanding
31,590,117
31,626,308
28,853,697
Dilutive effect of outstanding restricted stock units
122,363
111,839
65,619
Weighted average common shares outstanding, including all dilutive potential
shares
31,712,480
31,738,147
28,919,316
Earnings per share - Basic
$
2.27 $
2.08 $
1.95
Earnings per share - Diluted
$
2.26 $
2.07 $
1.95
NOTE 18 - EMPLOYEE BENEFIT PLANS
Profit Sharing Plan
During the years ended December 31, 2024, 2023, and 2022, the Company’s profit sharing plan contribution expense amounted to $1.8
million, $1.7 million, and $1.3 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. During the years ended December 31, 2024, 2023, and 2022,
medical benefits expense amounted to $7.8 million, $6.2 million, and $4.9 million, respectively.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 – STOCK-BASED COMPENSATION PLANS
The Company has adopted the HBT Financial, Inc. Omnibus Incentive Plan (the “Omnibus Incentive Plan”). The Omnibus Incentive Plan
provides for grants of (i) stock options, (ii) stock appreciation rights, (iii) restricted shares, (iv) restricted stock units, (v) performance awards,
(vi) other share-based awards and (vii) other cash-based awards to eligible employees, non-employee directors and consultants of the
Company. The maximum number of shares of common stock available for issuance under the Omnibus Incentive Plan is 1,820,000 shares.
The following is a summary of stock-based compensation expense (benefit):
Year Ended December 31,
(dollars in thousands)
2024
2023
2022
Restricted stock units
$
1,061 $
1,204 $
1,334
Performance restricted stock units
691
749
615
Total awards classified as equity
1,752
1,953
1,949
Stock appreciation rights
(32)
95
88
Total stock-based compensation expense
$
1,720 $
2,048 $
2,037
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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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock Units
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, are classified as dividends charged to retained earnings.
During the years ended December 31, 2024, 2023, and 2022, the total grant date fair value of the restricted stock units granted was $1.0
million, $1.0 million, and $1.3 million, respectively, based on the grant date closing prices. The total intrinsic value of restricted stock units
that vested during the years ended December 31, 2024, 2023, 2022 were $1.4 million, $1.1 million, and $0.7 million, respectively.
The following is a summary of restricted stock unit activity:
Year Ended December 31,
2024
2023
2022
Restricted
Stock Units
Weighted
Average
Grant Date
Fair Value
Restricted
Stock Units
Weighted
Average
Grant Date
Fair Value
Restricted
Stock Units
Weighted
Average
Grant Date
Fair Value
Beginning balance
128,159 $
19.56
139,986 $
18.01
109,244 $
17.27
Granted
51,246
19.06
41,847
22.72
66,995
18.81
Vested
(70,540)
18.96
(51,693)
17.91
(34,925)
17.26
Forfeited
(262)
19.06
(1,981)
19.55
(1,328)
18.35
Ending balance
108,603 $
19.71
128,159 $
19.56
139,986 $
18.01
As of December 31, 2024, unrecognized compensation cost related to the non-vested restricted stock units was $0.9 million. This cost is
expected to be recognized over the weighted average remaining service period of 1.5 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, 2024, 2023, and 2022, the total fair value of the performance restricted stock units granted was $0.4
million, $0.4 million, and $0.5 million, respectively, based on the grant date closing prices and an assessment of the probable outcome of the
performance condition on the grant date. The total intrinsic value of performance restricted stock units that vested during the year ended
December 31, 2024 was $0.8 million.
The following is a summary of performance restricted stock unit activity:
Year Ended December 31,
2024
2023
2022
Performance
Restricted
Stock Units
Weighted
Average
Grant Date
Fair Value
Performance
Restricted
Stock Units
Weighted
Average
Grant Date
Fair Value
Performance
Restricted
Stock Units
Weighted
Average
Grant Date
Fair Value
Beginning balance
79,097 $
18.25
62,067 $
17.02
38,344 $
15.72
Granted
19,933
19.06
17,030
22.72
23,723
19.14
Adjustment for performance
condition
14,349
15.53
—
—
—
—
Vested
(43,046)
15.53
—
—
—
—
Forfeited
—
—
—
—
—
—
Ending balance
70,333 $
19.59
79,097 $
18.25
62,067 $
17.02
As of December 31, 2024, unrecognized compensation cost related to non-vested performance restricted stock units was $0.4 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 1.2 years.
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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 following is a summary of stock appreciation rights activity:
Year Ended December 31,
2024
2023
2022
Stock
Appreciation
Rights
Weighted
Average
Grant Date
Assigned Value
Stock
Appreciation
Rights
Weighted
Average
Grant Date
Assigned Value
Stock
Appreciation
Rights
Weighted
Average
Grant Date
Assigned Value
Beginning balance
73,440 $
16.32
73,440 $
16.32
97,920 $
16.32
Granted
—
—
—
—
—
—
Exercised
—
—
—
—
(24,480)
16.32
Expired
—
—
—
—
—
—
Forfeited
—
—
—
—
—
—
Ending balance
73,440 $
16.32
73,440 $
16.32
73,440 $
16.32
As of December 31, 2024, all stock appreciation rights were exercisable and had a weighted average remaining term of 4.3 years. There was
no unrecognized compensation cost for stock appreciation rights as of December 31, 2024.
As of December 31, 2024 and 2023, the liability recorded for outstanding stock appreciation rights was $0.5 million and $0.6 million,
respectively. The Company uses 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.
December 31, 2024
December 31, 2023
Risk-free interest rate
4.37 %
3.85 %
Expected volatility
30.95 %
37.37 %
Expected life (in years)
4.7
5.7
Expected dividend yield
3.47 %
3.22 %
As of December 31, 2023, the liability recorded for previously exercised stock appreciation rights was $0.2 million which was paid in 2024.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20 – 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 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 debt 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. The capital conservation buffer is 2.5% of risk-weighted assets.
As of December 31, 2024 and 2023, the Company and the Bank each met all capital adequacy requirements to which they were subject. The
actual and required capital amounts and ratios of the Company (on a consolidated basis) and the Bank were as follows:
December 31, 2024
Actual
For Capital
Adequacy
Purposes
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
(dollars in thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
Consolidated HBT Financial, Inc.
Total Capital (to Risk Weighted Assets)
$
652,563
16.51 % $
316,145
8.00 %
N/A
N/A
Tier 1 Capital (to Risk Weighted Assets)
573,203
14.50
237,109
6.00
N/A
N/A
Common Equity Tier 1 Capital (to Risk
Weighted Assets)
521,968
13.21
177,831
4.50
N/A
N/A
Tier 1 Capital (to Average Assets)
573,203
11.51
199,167
4.00
N/A
N/A
Heartland Bank and Trust Company
Total Capital (to Risk Weighted Assets)
$
635,878
16.11 % $
315,825
8.00 % $
394,781
10.00 %
Tier 1 Capital (to Risk Weighted Assets)
596,071
15.10
236,869
6.00
315,825
8.00
Common Equity Tier 1 Capital (to Risk
Weighted Assets)
596,071
15.10
177,651
4.50
256,608
6.50
Tier 1 Capital (to Average Assets)
596,071
11.98
199,030
4.00
248,787
5.00
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023
Actual
For Capital
Adequacy
Purposes
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
(dollars in thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
Consolidated HBT Financial, Inc.
Total Capital (to Risk Weighted Assets)
$
603,234
15.33 % $
314,814
8.00 %
N/A
N/A
Tier 1 Capital (to Risk Weighted Assets)
527,964
13.42
236,110
6.00
N/A
N/A
Common Equity Tier 1 Capital (to Risk
Weighted Assets)
476,789
12.12
177,083
4.50
N/A
N/A
Tier 1 Capital (to Average Assets)
527,964
10.49
201,231
4.00
N/A
N/A
Heartland Bank and Trust Company
Total Capital (to Risk Weighted Assets)
$
586,604
14.92 % $
314,496
8.00 % $
393,119
10.00 %
Tier 1 Capital (to Risk Weighted Assets)
550,808
14.01
235,872
6.00
314,496
8.00
Common Equity Tier 1 Capital (to Risk
Weighted Assets)
550,808
14.01
176,904
4.50
255,528
6.50
Tier 1 Capital (to Average Assets)
550,808
10.96
201,063
4.00
251,329
5.00
NOTE 21 – SEGMENT INFORMATION
The Company’s operations consist of one reportable segment. The President and Chief Executive Officer is the designated chief operating
decision maker. The chief operating decision maker uses consolidated financial information for purposes of allocating resources and
assessing performance. The chief operating decision maker uses consolidated net income to benchmark the Company against its
competitors. The benchmarking analysis coupled with monitoring of budget to actual results are used to assess performance and in
establishing compensation. Interest income from loans and investments as well as noninterest income from deposit customer activity, wealth
management activities, and mortgage servicing generate the significant revenues. Interest expense, provisions for credit losses, and
noninterest expenses such as compensation, occupancy, and data processing costs constitute the significant expenses. Significant revenues
and expenses regularly provided to the chief operating decision maker are detailed in the consolidated statements of income.
NOTE 22 – FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are
three levels of inputs that may be used to measure fair values:
Level 1 - 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 - Significant 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 - Significant unobservable inputs that reflect a Company’s own assumptions about the assumptions that market participants
would use in pricing as asset or liability.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company uses fair value to measure certain assets and liabilities on a recurring basis, such as investment securities, mortgage servicing
rights, and derivatives. For assets measured at the lower of cost or fair value, the fair value measurement criteria may or may not be met
during a reporting period, and such measurements are therefore considered "nonrecurring" for purposes of disclosing the Company's fair
value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for loans held for sale, collateral-dependent loans,
bank premises held for sale, and foreclosed assets.
Recurring Basis
The following is a description of the methods and significant assumptions used to measure the fair value of assets and liabilities on a
recurring basis.
Investment Securities
When available, the Company uses quoted market prices to determine the fair value of securities; such items are classified in Level 1 of the
fair value hierarchy. For the Company’s securities where quoted prices are not available for identical securities in an active market, the
Company determines fair value utilizing vendors who apply matrix pricing for similar bonds where no price is observable or may compile
prices from various sources. These models are primarily industry-standard models that consider various assumptions, including time value,
yield curve, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying
financial instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the
marketplace. Fair values from these models are verified, where possible, against quoted market prices for recent trading activity of assets
with similar characteristics to the security being valued. Such methods are generally classified as Level 2; however, when prices from
independent sources vary, cannot be obtained or cannot be corroborated, a security is generally classified as Level 3. The change in fair
value of debt securities available-for-sale is recorded through an adjustment to the consolidated statement of comprehensive income. The
change in fair value of equity securities with readily determinable fair values is recorded through an adjustment to the consolidated statement
of income.
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 statement of income.
Derivative Financial Instruments
Derivative financial instruments 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 statement of comprehensive income.
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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables summarize assets and liabilities measured at fair value on a recurring basis as of December 31, 2024 and 2023 by level
within the fair value hierarchy:
December 31, 2024
(dollars in thousands)
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Fair Value
Debt securities available-for-sale:
U.S. Treasury
$
— $
111,145 $
— $
111,145
U.S. government agency
—
53,198
—
53,198
Municipal
—
130,679
—
130,679
Mortgage-backed:
Agency residential
—
227,368
—
227,368
Agency commercial
—
116,681
—
116,681
Corporate
—
58,978
—
58,978
Equity securities with readily determinable fair values
3,315
—
—
3,315
Mortgage servicing rights
—
—
18,827
18,827
Derivative financial assets
—
5,553
—
5,553
Derivative financial liabilities
—
5,525
—
5,525
December 31, 2023
(dollars in thousands)
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Fair Value
Debt securities available-for-sale:
U.S. Treasury
$
148,622 $
— $
— $
148,622
U.S. government agency
—
52,097
—
52,097
Municipal
—
205,557
—
205,557
Mortgage-backed:
Agency residential
—
173,984
—
173,984
Agency commercial
—
127,012
—
127,012
Corporate
—
52,189
—
52,189
Equity securities with readily determinable fair values
3,360
—
—
3,360
Mortgage servicing rights
—
—
19,001
19,001
Derivative financial assets
—
6,549
—
6,549
Derivative financial liabilities
—
6,227
—
6,227
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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, 2024
Fair Value
Valuation Technique
Unobservable Inputs
Range
(Weighted Average)
Mortgage servicing rights
$
18,827
Discounted cash
flows
Constant pre-payment rates
(CPR)
0.8% to 94.3% (7.6%)
Discount rate
9.0% to 96.4% (10.4%)
December 31, 2023
Fair Value
Valuation Technique
Unobservable Inputs
Range
(Weighted Average)
Mortgage servicing rights
$
19,001
Discounted cash
flows
Constant pre-payment rates
(CPR)
6.2% to 49.4% (8.4%)
Discount rate
9.0% to 37.3% (9.6%)
Nonrecurring Basis
The following is a description of the methods and significant assumptions used to measure the fair value of assets and liabilities on a
nonrecurring basis.
Loans Held for Sale
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
generally indicate fair value of the held for sale loans is greater than cost. Loans held for sale have been classified as Level 2.
Collateral-Dependent Loans
Periodically, a collateral-dependent loan is evaluated individually and is reported at the fair value of the underlying collateral, less estimated
costs to sell, if repayment is expected solely from the collateral. If the collateral value is not sufficient, a specific reserve is recorded.
Collateral values are estimated using recent appraisals and customized discounting criteria. Due to the significance of unobservable inputs,
fair values of collateral-dependent loans have been classified as Level 3.
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 recent appraisals and customized discounting criteria. Due to the significance of unobservable inputs, fair values
of collateral-dependent loans have been classified as Level 3.
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 recent appraisals and customized discounting criteria. Due to the significance of unobservable inputs, fair values of collateral-
dependent loans have been classified as Level 3.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables summarize assets measured at fair value on a nonrecurring basis as of December 31, 2024 and 2023 by level within the
fair value hierarchy:
December 31, 2024
(dollars in thousands)
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Fair Value
Loans held for sale
$
— $
1,586 $
— $
1,586
Collateral-dependent loans
—
—
27,717
27,717
Bank premises held for sale
—
—
317
317
Foreclosed assets
—
—
367
367
December 31, 2023
(dollars in thousands)
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total
Fair Value
Loans held for sale
$
— $
2,318 $
— $
2,318
Collateral-dependent loans
—
—
32,685
32,685
Foreclosed assets
—
—
852
852
The following tables present quantitative information about unobservable inputs used in nonrecurring Level 3 fair value measurements
(dollars in thousands):
December 31, 2024
Fair Value
Valuation
Technique
Unobservable Inputs
Range
(Weighted Average)
Collateral-dependent loans
$
27,717
Appraisal of collateral
Appraisal adjustments
Not meaningful
Bank premises held for sale
317
Appraisal
Appraisal adjustments
7% (7%)
Foreclosed assets
367
Appraisal
Appraisal adjustments
7% (7%)
December 31, 2023
Fair Value
Valuation Technique
Unobservable Inputs
Range
(Weighted Average)
Collateral-dependent loans
$
32,685
Appraisal of collateral
Appraisal adjustments
Not meaningful
Foreclosed assets
852
Appraisal
Appraisal adjustments
7% (7%)
Other Fair Value Methods
The following methods and assumptions were used by the Company in estimating fair value disclosures of its other 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.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans
The fair value estimation process for the loan portfolio uses an exit price concept and reflects discounts the Company believes are consistent
with discounts in the marketplace. Fair values are estimated for portfolios of loans with similar characteristics. Loans are segregated by type
such as commercial and industrial, agricultural and farmland, commercial real estate – owner occupied, commercial real estate – non-owner
occupied, multi-family, construction and land development, one-to-four family residential, and municipal, consumer, and other. The fair value
of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for similar maturities. The fair value analysis also includes other assumptions to estimate fair value, intended to
approximate those a market participant would use in an orderly transaction, with adjustments for discount rates, interest rates, liquidity, and
credit spreads, as appropriate.
Investments in Unconsolidated Subsidiaries
The fair values of the Company’s investments in unconsolidated subsidiaries are presumed to approximate carrying amounts.
Time and Brokered Time Deposits
Fair values of certificates of deposit with stated maturities have been estimated using the present value of estimated future cash flows
discounted at rates currently offered for similar instruments. Time deposits also include public funds time deposits.
Securities Sold Under Agreements to Repurchase
The fair values of repurchase agreements with variable interest rates are presumed to approximate their recorded carrying amounts.
FHLB Advances
The fair values of FHLB advances are estimated using discounted cash flow analyses based on current rates offered for borrowings with
similar remaining maturities and characteristics.
Subordinated Notes
The fair values of subordinated notes 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.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides summary information on the carrying amounts and estimated fair values of the Company’s other financial
instruments:
(dollars in thousands)
Fair Value
Hierarchy
Level
December 31, 2024
December 31, 2023
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Financial assets:
Cash and cash equivalents
Level 1
$
137,692 $
137,692 $
141,252 $
141,252
Debt securities held-to-maturity
Level 2
499,858
445,186
521,439
466,496
Restricted stock
Level 3
5,086
5,086
7,160
7,160
Loans, net
Level 3
3,424,102
3,418,318
3,364,369
3,349,540
Investments in unconsolidated
subsidiaries
Level 3
1,614
1,614
1,614
1,614
Accrued interest receivable
Level 2
24,770
24,770
24,534
24,534
Financial liabilities:
Time deposits
Level 3
785,430
779,997
627,253
619,682
Brokered time deposits
Level 3
—
—
144,880
144,944
Securities sold under agreements to
repurchase
Level 2
28,969
28,969
42,442
42,442
FHLB advances
Level 3
13,231
13,159
12,623
12,621
Subordinated notes
Level 3
39,553
38,316
39,474
36,993
Junior subordinated debentures
Level 3
52,849
47,942
52,789
48,529
Accrued interest payable
Level 2
5,096
5,096
6,969
6,969
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.
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.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
Contractual Amount
(dollars in thousands)
December 31, 2024
December 31, 2023
Commitments to extend credit
$
845,413 $
869,013
Standby letters of credit
18,329
23,732
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.
Allowance for Credit Losses on Unfunded Lending-related Commitments
The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual
obligation to extend credit, unless that obligation is unconditionally cancelable by the Company. The allowance for credit losses on unfunded
commitments is included in other liabilities on the consolidated balance sheets and is adjusted through a charge to provision for credit loss
expense on the consolidated statements of income. The allowance for credit losses on unfunded commitments estimate includes
consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over
its estimated life. The allowance for credit losses on unfunded commitments was $3.1 million and $3.8 million as of December 31, 2024 and
2023, respectively.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Legal Contingencies
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”); and 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.
On August 16, 2023, definitive settlement agreements reflecting the terms of the agreement in principle were approved by the Court, and the
Bank made the one-time cash payments totaling $13.0 million during the third quarter of 2023. The 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 agreed in principle to the settlements to avoid the cost, risks and distraction of continued
litigation. The Company believes the settlements are in the best interests of the Company and its shareholders.
Accordingly, the Bank had $13.0 million accrued related to these matters as of December 31, 2022. The Bank’s insurer reimbursed $7.4
million of the settlement payment which was recorded as an insurance recovery receivable as of December 31, 2022. The net settlement
amount of $5.6 million was included in other noninterest expense in the consolidated statements of income during the fourth quarter of 2022.
DeBaere, et al v. Heartland Bank and Trust Company
The Bank was 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 was 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.
On May 15, 2023, the Bank reached an agreement in principle to settle both the DeBaere, et al and Miller, et al cases in which the Bank
would make one-time cash payments totaling $3.4 million, without admitting fault, to release the Bank from further liability and claims in both
the cases.
147
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Definitive settlement agreements reflecting the terms of the agreement in principle were approved by the Court on December 15, 2023 in the
DeBaere, et al case and on February 16, 2024 in the Miller, et al case. The Bank made the one-time cash payments totaling $3.4 million
during the fourth quarter of 2023. The 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 agreed to
the settlements to avoid the cost, risks and distraction of continued litigation. The Company believes the settlements are in the best interests
of the Company and its shareholders.
An initial $2.6 million accrual was recognized in other noninterest expense during the fourth quarter of 2022, reflecting management’s best
estimate at that time, and an additional $0.8 million accrual was recognized in other noninterest expense during the second quarter of 2023,
following the agreement in principle to settle both the DeBaere, et al and Miller, et al cases.
John Pickett v. Town and Country Bank
The Bank is a defendant in a purported class action lawsuit filed in October 2023, in the Circuit Court of Sangamon County, Illinois. The
plaintiff, a customer of Town and Country Bank, which previously merged with the Bank, alleges that the Bank breached its contract with the
plaintiff by charging overdraft fees for transactions that were authorized on a positive account balance, but when settled, settled into a
negative balance.
On March 29, 2024, the Bank reached an agreement in principle to settle this case in which the Bank would make a one-time cash payment
of $0.3 million, without admitting fault, to release the Bank from further liability and claims in the case.
A definitive settlement agreement reflecting the terms of the agreement in principle was approved by the Court on July 9, 2024. The Bank
made the one-time cash payment of $0.3 million during the third quarter of 2024. The settlement does 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 case. The Bank
has agreed to the settlement to avoid the cost, risks, and distraction of continued litigation. The Company believes the settlement is in the
best interests of the Company and its shareholders.
An initial accrual of $0.2 million was recorded during the fourth quarter of 2023, reflecting management's best estimate at that time, and an
additional $0.1 million accrual was recorded during the first quarter of 2024. As of December 31, 2023, the Company had $0.2 million
accrued related to this matter.
Heartland Bank and Trust Company v. Meadows Mennonite Retirement Community Association, Inc.
This lawsuit arises out of a suit filed in the Circuit Court of Woodford County, Illinois, (the "Trial Court") by the Bank for breach of a note and
commercial security agreement. The defendant, Meadows Mennonite Retirement Community Association, Inc. ("Meadows"), a beneficiary of
a trust for which Bank was trustee, filed a counterclaim for rescission of the note seeking compensatory and punitive damages, including
attorneys’ fees. In September 2024, the Appellate Court of Illinois Fourth District (the "Appellate Court") entered an order directing that
summary judgment should be entered in favor of Meadows and against the Bank, rescinding the note and commercial security agreement.
The Appellate Court remanded the case to the Trial Court which will now determine Meadows' compensatory and punitive damages,
including reasonable attorneys’ fees.
The Bank intends to vigorously defend the lawsuit. However, the Company believes an unfavorable outcome is reasonably possible at this
time, as that term is used in assessing loss contingencies. The Company is unable to predict when the matter will be resolved or potential
costs or damages to be incurred.
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 24 - RELATED PARTY TRANSACTIONS
Loans
As of December 31, 2024 and 2023, loans to directors, executive officers, principal shareholders and their affiliated entities (“related parties”)
totaled $0.5 million and $1.1 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
As of December 31, 2024 and 2023, deposits of related parties totaled $4.8 million and $4.0 million, 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
(dollars in thousands)
December 31, 2024
December 31, 2023
ASSETS
Cash and cash equivalents
$
16,179 $
17,214
Investment in subsidiaries:
Bank
618,914
563,513
Non-bank
1,614
1,614
Other assets
1,929
2,347
Total assets
$
638,636 $
584,688
LIABILITIES
Subordinated notes
$
39,553 $
39,474
Junior subordinated debentures
52,849
52,789
Other liabilities
1,629
2,929
Total liabilities
94,031
95,192
STOCKHOLDERS' EQUITY
544,605
489,496
Total liabilities and stockholders' equity
$
638,636 $
584,688
149
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Parent Company Only Statements of Income
Year ended December 31,
(dollars in thousands)
2024
2023
2022
INCOME
Dividends received from bank subsidiary
$
34,000 $
64,000 $
28,000
Undistributed earnings from bank subsidiary
44,684
9,199
35,044
Other income
183
870
51
Total income
78,867
74,069
63,095
EXPENSES
Interest expense
5,729
5,409
3,666
Other expense
4,106
5,517
5,292
Total expenses
9,835
10,926
8,958
INCOME BEFORE INCOME TAX BENEFIT
69,032
63,143
54,137
TAX BENEFIT
(2,748)
(2,699)
(2,319)
NET INCOME
$
71,780 $
65,842 $
56,456
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HBT FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Parent Company Only Statements of Cash Flow
Year ended December 31,
(dollars in thousands)
2024
2023
2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
$
71,780 $
65,842 $
56,456
Adjustments to reconcile net income to net cash provided by operating
activities:
Undistributed earnings of consolidated subsidiaries
(44,684)
(9,199)
(35,044)
Stock-based compensation
1,752
1,953
1,949
Amortization of discount and issuance costs on subordinated notes and
debentures
139
139
145
Net gain on sale of foreclosed assets
—
(563)
—
Changes in other assets and liabilities, net
(1,105)
360
769
Net cash provided by operating activities
27,882
58,532
24,275
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of equity securities
20
—
—
Purchase of foreclosed assets from Heartland Bank
—
—
(2,325)
Proceeds from sale of foreclosed assets
—
2,888
—
Net cash paid for acquisition of Town and Country
—
(37,523)
—
Net cash provided by (used in) investing activities
20
(34,635)
(2,325)
CASH FLOWS FROM FINANCING ACTIVITIES
Taxes paid related to the vesting of restricted stock units
(331)
(181)
(57)
Repurchase of common stock
(4,423)
(8,907)
(4,783)
Cash dividends and dividend equivalents paid
(24,183)
(21,873)
(18,584)
Net cash used in financing activities
(28,937)
(30,961)
(23,424)
NET DECREASE IN CASH AND EQUIVALENTS
(1,035)
(7,064)
(1,474)
CASH AND CASH EQUIVALENTS
Beginning of year
17,214
24,278
25,752
End of year
$
16,179 $
17,214 $
24,278
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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, 2024, 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, 2024. 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, 2024 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.
RSM US LLP, the independent registered public accounting firm that audited the Company's Consolidated Financial Statements included in
this Annual Report, has issued an audit opinion on the effectiveness of the Company's internal control over financial reporting as of
December 31, 2024. The report, which expresses an unqualified opinion on the effectiveness of the Company's internal control over financial
reporting as of December 31, 2024, is included in this Item.
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, 2024 that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of HBT Financial, Inc.
Opinion on the Internal Control Over Financial Reporting
We have audited HBT Financial, Inc. and Subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2024,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated statements of income,
comprehensive income (loss), changes in stockholders’ equity and cash flows of the Company for each of the three years in the period
ended December 31, 2024, and the related notes to the consolidated financial statements and our report dated March 7, 2025 expressed an
unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a
public accounting firm registered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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.
/s/ RSM US LLP
Chicago, Illinois
March 7, 2025
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ITEM 9B. OTHER INFORMATION
During the fiscal quarter ended December 31, 2024, none of the Company’s directors or executive officers adopted or terminated any
contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense
conditions of Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement.
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 set forth under the captions “Proposal 1—Election of Directors,” “Board of Directors, Board
Meetings and Committees,” “Stock Ownership Matters,” and “Executive Officers” in the Company’s Definitive Proxy Statement for the 2025
Annual Meeting of Stockholders (the “Definitive Proxy Statement”) and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
All information required by this item is set forth under the captions “Executive Compensation,” "Compensation Discussion and Analysis,"
"Compensation Committee Report," "Compensation Committee Interlocks and Insider Participation", and "Director Compensation" in the
Company’s Definitive Proxy Statement and is herein incorporated by reference.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The following table summarizes information as of December 31, 2024 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
Number of Securities to be
issued upon exercise of
outstanding options, warrants
and rights
(A)
Weighted-Average exercise
price of outstanding options,
warrants and rights
(B)
Number of Securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected in
column (A)) (C)
Equity compensation plans approved by security
holders
214,103
$
—
1,413,780
Equity compensation plans not approved by
security holders
—
—
—
Total
214,103
$
—
1,413,780
__________________________________
(1)
Balance reflects the assumed payout of outstanding performance restricted stock units awards at maximum level and outstanding restricted stock unit awards and does not
include any outstanding stock appreciation rights, which settle exclusively in cash. Balance relates solely to outstanding awards under the Omnibus Incentive Plan.
(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.
(3)
Reflects the number of shares that remain available for issuance under the Omnibus Incentive Plan.
All other information required by this item is set forth under the caption “Stock Ownership Matters—Security Ownership of Management and
Certain Beneficial Owners” in the Company’s Definitive Proxy Statement and is herein incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
All information required by this item is set forth under the caption “Certain Relationships and Related Party Transactions” in the Company’s
Definitive Proxy Statement and is herein incorporated by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
All information required by this item is set forth under the caption “Proposal 4—Ratification of the Appointment of the Independent Registered
Public Accounting Firm” in the Company’s Definitive Proxy Statement and is herein incorporated by reference.
(2)
(1)
(3)
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PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1).See Index to Consolidated Financial Statements on page 78.
(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
Exhibit No.
Description
3.1
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).
3.2
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).
4.1
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).
4.2
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).
4.3
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).
9.1
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).
10.1
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).
10.2
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).
10.3 §
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).
10.4 §
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).
10.5 §
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).
10.6 §
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).
10.7 * §
Amended and Restated Employment Agreement, dated as of February 22, 2021, by and between the Company and Mark W. Scheirer.
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10.8 §
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).
10.9 §
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).
10.10 * §
Amendment to the Amended and Restated Employment Agreement, dated January 1, 2023, by and between the Company, the Bank,
and Lawrence J. Horvath.
10.11 §
Amendment to Amended and Restated Employment Agreement, dated March 15, 2024, by and between the Company, the Bank, and
Fred L. Drake. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission
on May 1, 2024).
10.12 §
Amendment to Amended and Restated Employment Agreement, dated March 15, 2024, by and between the Company, the Bank, and J.
Lance Carter. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on
May 1, 2024).
10.13 §
Amendment to Employment Agreement, dated March 15, 2024, by and between the Company, the Bank, and Peter Chapman.
(incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on May 1,
2024).
10.14 * §
Amendment to the Amended and Restated Employment Agreement, dated March 15, 2024, by and between the Company, the Bank,
and Lawrence J. Horvath.
10.15 * §
Amendment to the Amended and Restated Employment Agreement, dated March 15, 2024, by and between the Company, the Bank,
and Mark W. Scheirer.
10.16 §
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).
10.17 §
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).
10.18 §
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).
10.19 §
Form of Director Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.15 to the Company’s Annual Report
on Form 10-K, filed with the Commission on March 12, 2021).
10.20 §
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).
10.21 §
Form of Performance Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.18 to the Company’s Annual
Report on Form 10-K, filed with the Commission on March 8, 2023).
19.1 *
Insider Trading Policy.
21.1 *
Subsidiaries of the Registrant.
23.1 *
Consent of RSM US LLP.
31.1 *
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.
31.2 *
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.
32.1 **
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.
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32.2 **
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.
97.1 *
Incentive Compensation Clawback Policy
101.INS
Inline XBRL Instance Document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document.
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF
Inline XBRL 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.
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Table of Contents
SIGNATURES
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.
HBT FINANCIAL, INC.
Dated: March 7, 2025
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
Date
/s/ J. Lance Carter
President, Chief Executive Officer, and Director
March 7, 2025
J. Lance Carter
(Principal executive officer)
/s/ Peter R. Chapman
Executive Vice President and Chief Financial Officer
March 7, 2025
Peter R. Chapman
(Principal financial officer and principal accounting officer)
/s/ Fred L. Drake
Executive Chairman and Director
March 7, 2025
Fred L. Drake
/s/ Roger A. Baker
Director
March 7, 2025
Roger A. Baker
/s/ C. Alvin Bowman
Director
March 7, 2025
C. Alvin Bowman
/s/ Eric E. Burwell
Director
March 7, 2025
Eric E. Burwell
/s/ Patrick F. Busch
Director
March 7, 2025
Patrick F. Busch
/s/ Allen C. Drake
Director
March 7, 2025
Allen C. Drake
/s/ Linda J. Koch
Director
March 7, 2025
Linda J. Koch
/s/ Gerald E. Pfeiffer
Director
March 7, 2025
Gerald E. Pfeiffer
160
EXHIBIT 10.7
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (“Agreement”) is made and entered into as of the Effective Date
(defined in Exhibit A) by and among HBT Financial, Inc., a Delaware corporation (“HBT”), Heartland Bank and Trust Company,
an Illinois state chartered bank (the “Bank,” and together with HBT, “Heartland”), and Employee (defined in Exhibit A) (“you”).
All references in this Agreement to Exhibit A are to Exhibit A hereto.
RECITALS
A. Heartland desires to continue to employ you in the Position (defined in Exhibit A) under the terms of this Agreement,
and you desire to continue to be so employed.
B. Heartland and you have made commitments to each other on a variety of important issues concerning your
employment, including the performance that will be expected of you, the compensation you will be paid, how long and under
what circumstances you will remain employed and the financial details relating to any decision that either Heartland or you may
make to terminate this Agreement.
C. Heartland and you desire to amend and restate the existing employment agreement (“Existing Employment
Agreement”) between you and HBT, the Bank, or any Affiliate.
AGREEMENTS
In consideration of the foregoing and the mutual promises and covenants of you and Heartland set forth in this
Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, you
and Heartland, intending to be legally bound, hereby expressly covenant and agree as follows:
1.
Existing Employment Agreement. The Existing Employment Agreement is hereby amended and restated in its
entirety as of the Effective Date.
2.
Employment Period. Heartland will employ you, and you will be employed, during the Employment Period in
accordance with the terms of this Agreement. The “Employment Period” will be the period beginning on the Effective Date and
ending on the Initial Expiration Date (defined in Exhibit A), unless terminated earlier under Section 5 below, provided that the
Employment Period will automatically be extended for 1 additional year beginning on the Initial Expiration Date and on each
December 31st thereafter unless either party hereto notifies the other, by written notice delivered no later than 60 days before
such December 31st, that the Employment Period will not be extended for an additional year.
3.
Duties. During the Employment Period, you will devote your full business time, energies, and talents to serving in
the Position, at the direction of HBT’s Board of Directors (the “Board”), the Bank’s Board of Directors, and the Reporting Person
(defined in Exhibit A). You will have such duties and responsibilities as may be assigned to you from time to time by the
Reporting Person, which duties and responsibilities will be commensurate with your Position.
You will perform all duties assigned to you faithfully and efficiently, subject to the direction of the Reporting Person. You will
have such authorities and powers as are inherent to the undertakings applicable to your Position and necessary to carry out the
responsibilities and duties required of you under this Agreement. You will perform the duties required by this Agreement at
Location of Employment (defined in Exhibit A), or such other location agreed to by you and Heartland, unless the nature of such
duties requires otherwise. Notwithstanding the foregoing terms of this Section 3, during the Employment Period, you may devote
reasonable time to activities other than those required under this Agreement, including activities of a charitable, educational,
religious, or similar nature (including professional associations) to the extent such activities do not, in the judgment of the
Reporting Person, inhibit, prohibit, interfere with, or conflict with your duties under this Agreement or conflict in any material
way with the business of Heartland or any Affiliate; provided, however, that you will not serve on the board of directors of any
business (other than Heartland or an Affiliate) or hold any other position with any business without receiving the prior written
consent of the Reporting Person.
4.
Compensation and Benefits. Subject to the terms of this Agreement, during the Employment Period, Heartland
will compensate you for your services as follows:
a.
Base Salary. You will be entitled to receive a salary at an annual rate of the Base Salary (defined in
Exhibit A), which will be payable in accordance with the normal payroll practices of Heartland then in effect. Beginning on the
Effective Date and on each January 1st thereafter during the Employment Period, your Base Salary will be reviewed by the Board
or its designee.
b.
Annual Bonuses. You will be eligible to receive performance-based annual incentive bonuses (each, an
“Incentive Bonus”) for each fiscal year ending during the Employment Period. Any such Incentive Bonus will be paid to you
within 30 days of the completion of the respective fiscal year audit by Heartland’s auditor, but in no event later than 74 days after
the close of each such fiscal year. During the Employment Period, your target Incentive Bonus opportunity will be as determined
by the Board or its designee from time to time, subject at all times to the discretion of the Board or its designee; provided,
however, that as of the Effective Date, your target Incentive Bonus opportunity will be the Target Bonus (defined in Exhibit A).
The Board or its designee will establish reasonable performance goals necessary for you to receive an Incentive Bonus (the
“Performance Goals”), and your actual Incentive Bonus will scale above and below the Target Bonus in proportion to your
achievement of the Performance Goals. For the avoidance of doubt, your actual Incentive Bonus payable for any year may be $0.
c.
Annual LTI Awards; Other Incentive Plans. Beginning in 2021, you will be eligible to receive annual long-
term incentive awards (“LTI Awards”). During the Employment Period, your target annual LTI Awards will be as determined by
the Board or its designee from time to time, subject at all times to the discretion of the Board or its designee; provided, however,
that as of the Effective Date, your target annual LTI Awards opportunity will be the Annual LTI Awards Target (defined in
Exhibit A) The actual amount of your annual LTI awards will be determined by the Board or its designee on as favorable a basis
as other similarly situated and performing senior executives of Heartland and shall generally be subject to the same terms and
conditions applicable to similarly situated and performing senior executives of Heartland, subject at all times to the discretion of
the Board or its designee. Each LTI Award will be subject to and governed in all respects by the terms of the award agreement
applicable to such LTI Award. You will also be eligible to participate, subject to the terms thereof, in all other incentive plans and
programs of Heartland as may be in effect from time to time with respect to similarly situated and performing senior executives
of Heartland, on as favorable a basis as other similarly situated and performing senior executives of Heartland.
2
d.
Employee Benefits. During the Employment Period, you and your dependents (where applicable) will be
eligible to participate, subject to the terms thereof, in all retirement plans and all medical, dental, vision, disability, group and
executive life, accidental death and travel accident insurance, and other similar welfare benefit plans and programs of Heartland
as may be in effect from time to time with respect to similarly situated and performing senior executives of Heartland, on as
favorable a basis as other similarly situated and performing senior executives of Heartland.
e.
Paid Time Off. You will be entitled to accrue paid time off (“PTO”) at a rate of Annual PTO Days (defined
in Exhibit A) per calendar year, subject to Heartland’s PTO programs and policies, including with respect to forfeiture of unused
PTO days, as may be in effect during the Employment Period.
f.
Reimbursements. You will be eligible for reimbursement of all reasonable business expenses that you
actually incur in the course of performing your duties and responsibilities under this Agreement, subject to Heartland’s
reimbursement programs and policies as may be in effective during the Employment Period.
5.
Termination and Rights upon Termination. Your right to compensation, if any, upon Termination will be
determined in accordance with this Section 5. Section 5.f below contains certain definitions applicable under this Section 5 and
this Agreement overall.
a.
Minimum Benefits. Upon your Termination for any reason, you will be entitled to the Minimum Benefits
from Heartland, in addition to any other compensation to which you may be entitled under this Section 5, under the express terms
of any Heartland or Affiliate employee benefit plan, or under applicable law.
b.
Termination for Cause, Disability, Death, Resignation, Non-Extension. Upon your Termination for any
reason other than Involuntary Termination—including your Termination (i) for Cause, (ii) due to your Disability, (iii) due to your
death, (iv) initiated by you without Good Reason, or (v) due to non-extension of the Employment Period by you in accordance
with Section 2 above—then, other than the Minimum Benefits, you will have no right to compensation under this Agreement
(and Heartland will have no obligation to provide any such compensation) for periods after your Termination.
c.
Involuntary Termination. If you incur an Involuntary Termination, then, in addition to the Minimum
Benefits, Heartland will provide you the following compensation (the “Severance Benefits”), subject to Section 5.c.iii below:
i.
Outside a Covered Period. If your Involuntary Termination occurs outside of a Covered Period, you
will be entitled to continued payment of your Base Salary for Outside Covered Period Severance Months (defined in
Exhibit A), in accordance with Heartland’s normal payroll practices, commencing on the 60th day following your
Involuntary Termination;
ii.
Inside a Covered Period. If your Involuntary Termination occurs inside a Covered Period, you will
be entitled to the following Severance Benefits:
A.
a lump sum payment equal to Covered Period Severance Amount (defined in Exhibit A),
payable upon your Involuntary Termination; and
B.
a lump sum payment equal to the cost of COBRA Months (defined in Exhibit A) of
COBRA premiums as of your Involuntary Termination, payable upon your Involuntary Termination.
3
iii.
Release. Notwithstanding anything in this Agreement to the contrary, no Severance Benefits will be
owed to you unless you execute and deliver to Heartland a general release and waiver of claims against Heartland and
each Affiliate within 45 days after your Termination, and any applicable revocation period has expired before 60 days
after your Termination.
d.
LTI Awards, Incentives and Employee Benefits. Your rights after a Termination with respect to any
benefits, incentives, or awards, including but not limited to LTI Awards and other incentives, provided to you under any plan,
program, or arrangement sponsored or maintained by Heartland or an Affiliate, whether tax-qualified or not, which are not
specifically addressed in this Agreement, will be subject to the terms of such plan, program, arrangement or award agreement,
and this Agreement will have no effect upon such terms except as specifically provided herein.
e.
Removal from any Boards and Positions. Upon Termination, you will be deemed to resign (i) if a member,
from any board to which you have been appointed or nominated by or on behalf of Heartland or an Affiliate, (ii) from each
position with Heartland and each Affiliate, including as an officer of Heartland and each Affiliate, and (iii) as a fiduciary of any
employee benefit plan of Heartland or an Affiliate.
f.
Definitions.
“Affiliate” means: (a) any corporation, trade, or business that is directly or indirectly controlled 50% or more
(whether by ownership of stock, assets, or an equivalent ownership interest or voting interest) by HBT or the Bank; (b) any trade
or business that directly or indirectly controls 50% or more (whether by ownership of stock, assets, or an equivalent ownership
interest or voting interest) of HBT or the Bank; and (c) any other entity in which HBT or the Bank has a material equity interest.
“Cause” means any of the following acts or omissions committed by you:
i.
material breach of any written agreement entered into with Heartland or an Affiliate, including this
Agreement;
ii.
material failure to adhere to, or material breach of, any written Heartland or Affiliate policy, code
of conduct, rule, or procedure;
iii.
misconduct, dishonesty, fraud, negligence, malfeasance, intentional misrepresentation, moral
turpitude, illegality, harassment, or insubordination, which subjects, or if generally known would subject, Heartland or an
Affiliate, or any customer or client or former customer or client of Heartland or an Affiliate (collectively, the “Heartland
Parties”) to financial or reputational harm or public ridicule or embarrassment;
iv.
breach of a fiduciary duty owed to a Heartland Party;
v.
commission of a criminal act, whether or not performed in the workplace, that subjects, or if
generally known would subject, a Heartland Party to financial or reputational harm or public ridicule or embarrassment;
or
vi.
improper or intentional conduct causing material financial or reputational harm to a Heartland
Party.
4
A Termination for Cause will be deemed to include a determination by Heartland after your Termination that
circumstances existing before your Termination would have entitled Heartland or an Affiliate to have terminated your service for
Cause.
“Change in Control” means:
i.
any “person,” as that term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”) (other than HBT, any trustee or other fiduciary holding securities under any
employee benefit plan of HBT, or any company owned, directly or indirectly, by the HBT stockholders in substantially the
same proportions as their ownership of HBT common stock), becomes the beneficial owner (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of HBT representing 50% or more of the combined voting
power of HBT’s then outstanding securities;
ii.
during any period of 24 consecutive calendar months, individuals who were directors serving on
the Board on the first day of such period (the “Incumbent Directors”) cease for any reason to constitute a majority of the
Board; provided, however, that any individual becoming a director subsequent to the first day of such period whose
election, or nomination for election, by the HBT stockholders was approved by a vote of at least 2/3 of the Incumbent
Directors will be considered as though such individual were an Incumbent Director, but excluding, for purposes of this
proviso, any such individual whose initial assumption of office occurs as a result of an actual or threatened proxy contest
with respect to election or removal of directors or other actual or threatened solicitation of proxies or consents by or on
behalf of a “person” (as used in Section 13(d) of the Exchange Act), in each case other than the Board;
iii.
consummation of a reorganization, merger, consolidation, or other business combination (any of the
foregoing, a “Business Combination”) of HBT or any direct or indirect subsidiary of HBT with any other corporation, in
any case with respect to which HBT voting securities outstanding immediately prior to such Business Combination do
not, immediately following such Business Combination, continue to represent (either by remaining outstanding or being
converted into voting securities of HBT or any ultimate parent thereof) more than 50% of the then outstanding voting
securities entitled to vote generally in the election of directors of HBT (or its successor) or any ultimate parent thereof
after the Business Combination; or
iv.
a complete liquidation or dissolution of HBT or the consummation of a sale or disposition by HBT
of all or substantially all of HBT’s assets other than the sale or disposition of all or substantially all of the assets of HBT
to a person or entity who beneficially own, directly or indirectly, 50% or more of the combined voting power of the
outstanding voting securities of HBT at the time of the sale.
Notwithstanding the foregoing terms of this definition, with respect to any amount that is characterized as
“nonqualified deferred compensation” within the meaning of Section 409A, an event will not be considered to be a Change in
Control under this Agreement for purposes of payment of such amount unless such event is also a “change in control event”
within the meaning of Section 409A. Further notwithstanding the foregoing terms of this definition, the occurrence of the date on
which HBT consummates the sale of its common stock in a bona fide, firm commitment underwriting pursuant to a registration
statement under the
5
Securities Act (the “Registration Date”), or any change in the composition of the Board within 1 year after the Registration Date,
will not be considered a Change in Control.
“Covered Period” means the period beginning upon a Change in Control and ending 12 months after the Change
in Control.
“Disability” means that (i) you are unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous
period of not less than 12 months, or (ii) you are, by reason of any medically determinable physical or mental impairment that
can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income
replacement benefits for a period of not less than 3 months under an accident or health plan covering employees of Heartland.
“Good Reason” means the occurrence of any one of the following events, unless you agree in writing that such
event will not constitute Good Reason:
i.
a material and adverse change in the nature, scope, or status of your position, authorities, or duties;
ii.
a reduction of 10% or more in your Base Salary, Target Bonus opportunity or Annual LTI Awards
Target opportunity, other than as a result of a change in mix which occurs before a Change in Control and does not result
in a reduction of 10% or more in the aggregate amount of your Base Salary, Target Bonus opportunity and Annual LTI
Awards Target opportunity;
iii.
relocation of your primary place of employment by more than 25 miles;
iv.
a material breach by Heartland of this Agreement.
Notwithstanding anything in this definition to the contrary, before your Termination for Good Reason, you must
give Heartland written notice of the existence of any condition set forth in clause i. – iv. immediately above within 30 days of the
date you become (or reasonably should have become) aware of its existence and Heartland will have 30 days from the date of
such notice in which to cure the condition giving rise to Good Reason. If, during such 30-day period, Heartland cures the
condition giving rise to Good Reason, the condition will not constitute Good Reason.
“Involuntary Termination” means your Termination either initiated:
i.
by Heartland without Cause, including non-extension of the Employment Period by Heartland
without Cause in accordance with Section 2 above (but not including your Termination due to death or Disability); or
ii.
by you for Good Reason (but not including non-extension of the Employment Period by you in
accordance with Section 2 above).
6
“Minimum Benefits” means, as applicable, the following:
i.
your earned but unpaid Base Salary for the period ending on your Termination;
ii.
your earned but unpaid Incentive Bonus, if any, for any completed fiscal year preceding your
Termination, payable within 30 days of your Termination; provided, however, that you will not, in any event, be entitled
to any Incentive Bonus if your Termination is for Cause;
iii.
your accrued but unpaid PTO for the period ending on your Termination; and
iv.
your rights with respect to any benefits, incentives, or awards as described in Section 5.d above.
“Termination” means termination of your employment with Heartland and all Affiliates, after the Effective Date
and before the end of the Employment Period.
6.
Restrictive Covenants. You acknowledge that you have been and will continue to be provided intimate knowledge
of the business practices, trade secrets, and other confidential and proprietary information of Heartland and the Affiliates, which,
if exploited by you, would seriously, adversely, and irreparably affect the interests of Heartland and the Affiliates and the ability
of each to continue its business; you therefore will be bound by the restrictions contained in this Section 6 (the “Restrictive
Covenants”).
a.
Confidential Information.
i.
You acknowledge that, during the course of your employment with Heartland, you may produce
and have access to confidential or proprietary, non-public information concerning the Heartland Parties, including
marketing materials, financial and other information concerning customers and prospective customers, customer lists,
records, data, trade secrets, proprietary business information, pricing and profitability information and policies, strategic
planning, commitments, plans, procedures, litigation, pending litigation and other information not generally available to
the public (collectively, “Confidential Information”). You will not, at any time, directly or indirectly use, disclose, copy,
or make lists of Confidential Information for the benefit of anyone other than Heartland, except to the extent such
disclosure is authorized in writing by the Reporting Person, required by law or any competent administrative agency or
judicial authority, or otherwise as necessary or appropriate in connection with the performance of your duties under this
Agreement. If you receive a subpoena or other court order or are otherwise required by law to provide information to a
governmental authority or other person concerning the activities of Heartland or an Affiliate, or your activities in
connection with the business of Heartland or an Affiliate, you will immediately notify the Reporting Person of such
subpoena, court order, or other requirement and deliver forthwith a copy thereof and any attachments and non-privileged
correspondence related thereto. You will take reasonable precautions to protect against the inadvertent disclosure of
Confidential Information. You will abide by Heartland’s policies respecting avoidance of interests conflicting with those
of Heartland or an Affiliate.
ii.
You will not be held criminally or civilly liable under any federal or state trade secret law for the
disclosure of a trade secret that (A) is made (1) in
7
confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and (2) solely for
the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document
filed in a lawsuit or other proceeding, if such filing is made under seal. Accordingly, you have the right to disclose in
confidence trade secrets to federal, state, and local government officials, or to an attorney, for the sole purpose of
reporting or investigating a suspected violation of law. You also have the right to disclose trade secrets in a document filed
in a lawsuit or other proceeding, but only if the filing is made under seal and protected from public disclosure. Nothing in
this Agreement is intended to conflict with 18 U.S.C. § 1833(b) or create liability for disclosures of trade secrets that are
expressly allowed by 18 U.S.C. § 1833(b). Nothing in this Agreement will be construed to authorize, or limit liability for,
an act that is otherwise prohibited by law, such as the unlawful access of material by unauthorized means.
iii.
Nothing contained in this Agreement, including this Section 6.a, will limit your ability to file a
charge or complaint with any governmental, administrative, or judicial agency (each, an “Agency”) under any applicable
whistleblower statute or program (each, a “Whistleblower Program”). You acknowledge that nothing in this Agreement or
this Section 6.a limits (A) your ability to communicate in connection with a charge or complaint under any Whistleblower
Program with any Agency or otherwise participate in any investigation or proceeding that may be conducted by such
Agency, including providing documents or other information, without notice to Heartland or any Affiliate, or (ii) your
right to receive an award for information provided to such Agency under any Whistleblower Program.
b.
Documents and Property.
i.
All records, files, documents, and other materials or copies thereof relating to the business of
Heartland or an Affiliate that you prepare, receive, or use will be and remain the sole property of Heartland and, other
than in connection with the performance of your duties under this Agreement, may not be removed from the premises of
Heartland or an Affiliate without Heartland’s prior written consent, and will be promptly returned to Heartland upon your
Termination, together with all copies (including copies or recordings in electronic form), abstracts, notes, or reproductions
of any kind made from or about the records, files, documents, or other materials.
ii.
You acknowledge that your access to and permission to use Heartland’s and the Affiliates’
computer systems, networks, and equipment, and all Heartland and Affiliate information contained therein, is restricted to
legitimate business purposes on behalf of Heartland. Any other access to or use of such systems, network, equipment, and
information is without authorization and is prohibited except you may use a Heartland-provided computer for reasonable
personal use in accordance with Heartland’s technology use policy as in effect from time to time. The restrictions
contained in this Section 6.b extend to any of your personal computers or other electronic devices that are used for
business purposes relating to Heartland or an Affiliate. You may not transfer any Heartland or Affiliate information to any
personal computer or other electronic device that is not otherwise used for any business purpose relating to Heartland.
Upon your Termination, your authorization to access and permission to use Heartland’s and the Affiliates’ computer
systems, networks, and equipment, and any Heartland and Affiliate information contained therein, will cease.
c.
Non-Competition and Non-Solicitation. You and Heartland have agreed that the primary service area of
Heartland’s operations, including its lending and deposit taking functions, in which you will actively participate extends to an
area that encompasses a 25-mile
8
radius from each banking or other office location of Heartland and each Affiliate where you have provided services to Heartland
or an Affiliate during the 6-month period immediately before your Termination (the “Restricted Area”). Therefore, as an essential
ingredient of and in consideration of this Agreement and your employment with Heartland, you, during your employment with
Heartland and during the Restricted Period (as defined in Exhibit A), whether your employment termination occurs during the
Employment Period or thereafter, will not directly or indirectly do any of the following:
i.
Engage or invest in, own, manage, operate, finance, control, participate in the ownership,
management, operation or control of, be employed by, associated with or in any manner connected with, serve as a
director, officer or consultant to, lend your name or any similar name to, lend your credit to or render services or advice
to, in each case in the capacity that you provided services to Heartland or an Affiliate, any person, firm, partnership,
corporation, or trust that owns, operates, or is in the process of forming a bank, savings bank, savings and loan
association, credit union, or similar financial institution (each, a “Financial Institution”) with an office located, or to be
located at an address identified in a filing with any regulatory authority, within the Restricted Area; provided, however,
that your ownership of shares of capital stock of any Financial Institution, which shares are listed on a securities exchange
or quoted on the National Association of Securities Dealers Automated Quotation System and which do not represent
more than 5% of the institution’s outstanding capital stock, will not violate any terms of this Agreement;
ii.
Either on your own behalf or on behalf of any Financial Institution: (A) induce or attempt to induce
any employee of Heartland or any Affiliate with whom you had significant contact to leave the employ of Heartland or
any Affiliate; (B) in any way interfere with the relationship between Heartland or any Affiliate and any employee of
Heartland or any Affiliate with whom you had significant contact; or (C) induce or attempt to induce any customer,
supplier, licensee, or business relation of Heartland or any Affiliate with whom you had significant contact to cease doing
business with Heartland or any Affiliate or in any way interfere with the relationship between Heartland or any Affiliate
and their respective customers, suppliers, licensees, or business relations with whom you had significant contact;
iii.
Either on your own behalf or on behalf of any Financial Institution, solicit the business of any
person or entity known to you to be a customer of Heartland or any Affiliate, where you had significant contact with such
person or entity, with respect to products, activities, or services that compete in whole or in part with the products,
activities, or services of Heartland or any Affiliate; or
iv.
Serve as the agent, broker, or representative of, or otherwise assist, any person or entity in obtaining
services or products from any Financial Institution within the Restricted Area, with respect to products, activities, or
services that you devoted time to on behalf of Heartland or any Affiliate and that compete in whole or in part with the
products, activities, or services of Heartland or any Affiliate.
d.
Works Made for Hire Provisions. You and Heartland acknowledge that all work performed by you for
Heartland or any Affiliate will be deemed a “work made for hire.” Heartland will at all times own and have exclusive right, title,
and interest in and to all Confidential Information and Inventions, and Heartland will retain the exclusive right to license, sell,
transfer, and otherwise use and dispose of the same. Any and all enhancements of the technology of Heartland or any Affiliate
that are developed by you will be the exclusive property of Heartland. You hereby assign to Heartland any right, title, and interest
in and to all Inventions that you may have, by law or equity, without additional consideration of any kind whatsoever
9
from Heartland or any Affiliate. You will execute and deliver any instruments or documents and do all other things (including the
giving of testimony) requested by Heartland (both during and after your Termination) in order to vest more fully in Heartland all
ownership rights in the Inventions (including obtaining patent, copyright, or trademark protection therefor in the United States or
foreign countries). “Inventions” means all systems, procedures, techniques, manuals, databases, plans, lists, inventions, trade
secrets, copyrights, patents, trademarks, discoveries, innovations, concepts, ideas, and software conceived, compiled, or
developed by you in the course of your employment with Heartland or any Affiliate or comprised, in whole or part, of
Confidential Information. Notwithstanding the foregoing sentence, Inventions will not include: (i) any inventions independently
developed by you and not derived, in whole or part, from any Confidential Information or (ii) any invention made by you before
your exposure to any Confidential Information.
e.
Remedies for Breach of Restrictive Covenant. You have reviewed this Agreement with legal counsel, or
have been given adequate opportunity to seek such counsel, and you acknowledge that Restrictive Covenants are reasonable with
respect to their duration, geographical area, and scope. You further acknowledge that the Restrictive Covenants are reasonable
and necessary for the protection of the legitimate business interests of Heartland, that they create no undue hardships, that any
violation of the Restrictive Covenants would cause substantial injury to Heartland and such interests, and that such Restrictive
Covenants were a material inducement to Heartland to enter into this Agreement. In the event of any violation or threatened
violation of any Restrictive Covenants, Heartland, in addition to and not in limitation of, any other rights, remedies, or damages
available to it under this Agreement or otherwise at law or in equity, will be entitled to preliminary and permanent injunctive
relief to prevent or restrain any such violation by you and any and all persons directly or indirectly acting for or with you.
f.
Other Agreements. In the event of the existence of any other agreement between you and Heartland or an
Affiliate that (i) is in effect during the Restricted Period, and (ii) contains restrictive covenants that conflict with any of the terms
of this Section 6, then the more restrictive of such terms from such agreements will control for the period during which such
agreements would otherwise be in effect.
g.
Tolling. If you violate any of the terms of the Restrictive Covenants, the obligation at issue will run from
the first date on which you cease to be in violation of such obligation.
7.
Notices. Notices and all other communications under this Agreement will be in writing and will be deemed given
when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: if to
Heartland, to Heartland’s principal headquarters to the attention of the Reporting Person; and if to you, to your most recent
address on file with Heartland, or, in either case, to such other address as either party hereto may furnish to the other in writing,
except that notices of changes of address will be effective only upon receipt.
8.
Applicable Law. All questions concerning the construction, validity, and interpretation of this Agreement and the
performance of the obligations imposed by this Agreement will be governed by the internal laws of the State of Illinois applicable
to agreements made and wholly to be performed in such state without regard to conflicts of law provisions of any jurisdiction.
9.
Mandatory Arbitration. Except as provided in Section 6 above, if any dispute or controversy arises under or in
connection with this Agreement, and such dispute or controversy cannot be settled through negotiation, you and Heartland will
first try in good faith to settle the
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dispute or controversy by mediation administered by the American Arbitration Association under its Commercial Mediation
Procedures. If such mediation is not successful, the dispute or controversy will be settled exclusively by arbitration in accordance
with the Employment Arbitration Rules of the American Arbitration Association then in effect. Judgment may be entered on the
arbitrator’s award in any court having jurisdiction. Notwithstanding the foregoing, Heartland may resort to the Circuit Court of
McLean County, Illinois for injunctive and such other relief as may be available if you engage in conduct, after termination of
your employment with Heartland and its Affiliates, that amounts to a violation of the Illinois Trade Secrets Act, amounts to
unlawful interference with the business expectations of Heartland or any Affiliate, or violates the Restrictive Covenants. The
FDIC may appear at any arbitration hearing but any decision made thereunder will not be binding on the FDIC.
10.
Entire Agreement. This Agreement constitutes the entire agreement between you and Heartland concerning the
subject matter hereof, and supersedes all prior negotiations, undertakings, agreements, and arrangements with respect thereto,
whether written or oral, including the Prior Agreement. If a court of competent jurisdiction determines that any term of this
Agreement is invalid or unenforceable, then the invalidity or unenforceability of that term will not affect the validity or
enforceability of any other term of this Agreement and all other terms will remain in full force and effect. The various terms of
this Agreement are intended to be severable and to constitute independent and distinct binding obligations. Without limiting the
generality of the foregoing, if the scope of any term contained in this Agreement is too broad to permit enforcement to its full
extent, such term will be enforced to the maximum extent permitted by law, and such scope may be judicially modified
accordingly.
11.
Withholding of Taxes. Heartland may withhold from any amounts payable under this Agreement all taxes as may
be required by law.
12.
No Assignment. Your rights to receive benefits under this Agreement will not be assignable or transferable
whether by pledge, creation of a security interest, or otherwise, other than a transfer by will or by the laws of descent or
distribution. In the event of any attempted assignment or transfer contrary to this Section 12, Heartland will have no liability to
pay any amount so attempted to be assigned or transferred. This Agreement will inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
13.
Successors. This Agreement will be binding upon and inure to the benefit of HBT, the Bank, and their successors
and assigns.
14.
Amendment. This Agreement may not be amended or modified except by written agreement signed by you and
Heartland.
15.
Section 409A. This Agreement is intended to comply with Section 409A (“Section 409A”) of the Internal
Revenue Code of 1986, as amended, or an exemption thereunder and will be construed and administered in accordance with
Section 409A. Notwithstanding any other provision of this Agreement, payments provided under this Agreement may only be
made upon an event and in a manner that complies with Section 409A or an applicable exemption. Any payments under this
Agreement that may be excluded from Section 409A either as separation pay due to an involuntary separation from service or as
a short-term deferral will be excluded from Section 409A to the maximum extent possible. For purposes of Section 409A, each
installment payment provided under this Agreement will be treated as a separate payment. Any payments to be made under this
Agreement upon a termination of employment will only be made upon a “separation from service” under Section 409A. To the
extent any reimbursements or in-kind benefit payments under this Agreement are subject to Section 409A, such reimbursements
and in-kind benefit payments will be made in accordance
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with Treasury Regulation Section 1.409A-3(i)(1)(iv). Notwithstanding anything in this Agreement to the contrary, if any payment
or benefit provided to you in connection with your termination of employment is determined to constitute “nonqualified deferred
compensation” within the meaning of Section 409A and you are determined to be a “specified employee” under Section 409A,
then such payment or benefit will not be paid until the first payroll date to occur following the 6-month anniversary of your
termination of employment or, if earlier, upon your death (the “Specified Employee Payment Date”). The aggregate of any
payments that would otherwise have been paid before the Specified Employee Payment Date will be paid to you, without interest,
in a lump sum on the Specified Employee Payment Date and thereafter, any remaining payments will be paid without delay in
accordance with their original schedule. Notwithstanding the foregoing, Heartland makes no representations that the payments
and benefits provided under this Agreement comply with Section 409A, and in no event will Heartland be liable for all or any
portion of any taxes, penalties, interest, or other expenses that may be incurred by you on account of non-compliance with
Section 409A.
16.
Survival. The terms of Sections 5 through Section 15 above and this Section 16 will survive the termination of this
Agreement.
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IN WITNESS WHEREOF, you, HBT, and the Bank have executed this Agreement as of the Effective Date.
EXECUTIVE
Sign name: /s/ Mark W. Scheirer
Print name: Mark W. Scheirer
HBT FINANCIAL, INC.
Sign name: /s/ J. Lance Carter
Print name: J. Lance Carter
Title: President and Chief Operating Officer
HEARTLAND BANK AND TRUST COMPANY
Sign name: /s/ J. Lance Carter
Print name: J. Lance Carter
Title: Chief Operating Officer
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Exhibit A
“Employee”: Mark W. Scheirer
“Effective Date”: February 22, 2021
“Position”: Senior Vice President and Chief Credit Officer of HBT Financial, Inc. and Heartland Bank and Trust Company
“Initial Expiration Date”: December 31, 2023
“Reporting Person”: President of HBT Financial, Inc.
“Location of Employment”: Bloomington-Normal, IL
“Base Salary”: $234,612
“Target Bonus”: 20% of Base Salary
“Annual LTI Awards Target”: 20% of Base Salary
“Annual PTO Days”: 20 vacation days plus 8 personal days (which includes sick days)
“Outside Covered Period Severance Months”: 6
“Covered Period Severance Amount”: Base Salary and Target Bonus for the year in which Involuntary Termination occurs
“COBRA Months”: 18
“Restricted Period”: 6 months following your Involuntary Termination outside of a Covered Period or your Termination due to
your Disability inside or outside of a Covered Period; 12 months following your Termination initiated by HBT and Heartland for
Cause or by you without Good Reason (including non-extension of the Employment Period by you in accordance with Section 2
above), in each case either inside or outside of a Covered Period; or 12 months following your Involuntary Termination inside of
a Covered Period
Exhibit A – Page 1
EXHIBIT 10.10
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (“Agreement”) is made and entered into as of the Effective Date
(defined in Exhibit A) by and among HBT Financial, Inc., a Delaware corporation (“HBT”), Heartland Bank and Trust Company,
an Illinois state chartered bank (the “Bank,” and together with HBT, “Heartland”), and Employee (defined in Exhibit A) (“you”).
All references in this Agreement to Exhibit A are to Exhibit A hereto.
RECITALS
A. Heartland desires to continue to employ you in the Position (defined in Exhibit A) under the terms of this Agreement,
and you desire to continue to be so employed.
B. Heartland and you have made commitments to each other on a variety of important issues concerning your
employment, including the performance that will be expected of you, the compensation you will be paid, how long and under
what circumstances you will remain employed and the financial details relating to any decision that either Heartland or you may
make to terminate this Agreement.
C. Heartland and you desire to amend and restate the existing employment agreement (“Existing Employment
Agreement”) between you and HBT, the Bank, or any Affiliate.
AGREEMENTS
In consideration of the foregoing and the mutual promises and covenants of you and Heartland set forth in this
Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, you
and Heartland, intending to be legally bound, hereby expressly covenant and agree as follows:
1.
Existing Employment Agreement. The Existing Employment Agreement is hereby amended and restated in its
entirety as of the Effective Date.
2.
Employment Period. Heartland will employ you, and you will be employed, during the Employment Period in
accordance with the terms of this Agreement. The “Employment Period” will be the period beginning on the Effective Date and
ending on the Initial Expiration Date (defined in Exhibit A), unless terminated earlier under Section 5 below, provided that the
Employment Period will automatically be extended for 1 additional year beginning on the Initial Expiration Date and on each
December 31st thereafter unless either party hereto notifies the other, by written notice delivered no later than 60 days before
such December 31st, that the Employment Period will not be extended for an additional year.
3.
Duties. During the Employment Period, you will devote your full business time, energies, and talents to serving in
the Position, at the direction of HBT’s Board of Directors (the “Board”), the Bank’s Board of Directors, and the Reporting Person
(defined in Exhibit A). You will have such duties and responsibilities as may be assigned to you from time to time by the
Reporting Person, which duties and responsibilities will be commensurate with your Position.
You will perform all duties assigned to you faithfully and efficiently, subject to the direction of the Reporting Person. You will
have such authorities and powers as are inherent to the undertakings applicable to your Position and necessary to carry out the
responsibilities and duties required of you under this Agreement. You will perform the duties required by this Agreement at
Location of Employment (defined in Exhibit A), or such other location agreed to by you and Heartland, unless the nature of such
duties requires otherwise. Notwithstanding the foregoing terms of this Section 3, during the Employment Period, you may devote
reasonable time to activities other than those required under this Agreement, including activities of a charitable, educational,
religious, or similar nature (including professional associations) to the extent such activities do not, in the judgment of the
Reporting Person, inhibit, prohibit, interfere with, or conflict with your duties under this Agreement or conflict in any material
way with the business of Heartland or any Affiliate; provided, however, that you will not serve on the board of directors of any
business (other than Heartland or an Affiliate) or hold any other position with any business without receiving the prior written
consent of the Reporting Person.
4.
Compensation and Benefits. Subject to the terms of this Agreement, during the Employment Period, Heartland
will compensate you for your services as follows:
a.
Base Salary. You will be entitled to receive a salary at an annual rate of the Base Salary (defined in
Exhibit A), which will be payable in accordance with the normal payroll practices of Heartland then in effect. Beginning on the
Effective Date and on each January 1st thereafter during the Employment Period, your Base Salary will be reviewed by the Board
or its designee.
b.
Annual Bonuses. You are eligible to receive performance-based annual incentive bonuses (each, an
“Incentive Bonus”) for each fiscal year ending during the Employment Period. Any such Incentive Bonus will be paid to you
within 30 days of the completion of the respective fiscal year audit by Heartland’s auditor, but in no event later than 74 days after
the close of each such fiscal year. During the Employment Period, your target Incentive Bonus opportunity will be as determined
by the Board or its designee from time to time, subject at all times to the discretion of the Board or its designee; provided,
however, that as of the Effective Date, your target Incentive Bonus opportunity will be the Target Bonus (defined in Exhibit A).
The Board or its designee will establish reasonable performance goals necessary for you to receive an Incentive Bonus (the
“Performance Goals”), and your actual Incentive Bonus will scale above and below the Target Bonus in proportion to your
achievement of the Performance Goals. For the avoidance of doubt, your actual Incentive Bonus payable for any year may be $0.
c.
Annual LTI Awards; Other Incentive Plans. You are eligible to receive annual long-term incentive awards
(“LTI Awards”). During the Employment Period, your target annual LTI Awards will be as determined by the Board or its
designee from time to time, subject at all times to the discretion of the Board or its designee; provided, however, that as of the
Effective Date, your target annual LTI Awards opportunity will be the Annual LTI Awards Target (defined in Exhibit A) The
actual amount of your annual LTI awards will be determined by the Board or its designee on as favorable a basis as other
similarly situated and performing senior executives of Heartland and shall generally be subject to the same terms and conditions
applicable to similarly situated and performing senior executives of Heartland, subject at all times to the discretion of the Board
or its designee. Each LTI Award will be subject to and governed in all respects by the terms of the award agreement applicable to
such LTI Award. You will also be eligible to participate, subject to the terms thereof, in all other incentive plans and programs of
Heartland as may be in effect from time to time with respect to similarly situated and performing senior executives of Heartland,
on as favorable a basis as other similarly situated and performing senior executives of Heartland.
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d.
Employee Benefits. During the Employment Period, you and your dependents (where applicable) will be
eligible to participate, subject to the terms thereof, in all retirement plans and all medical, dental, vision, disability, group and
executive life, accidental death and travel accident insurance, and other similar welfare benefit plans and programs of Heartland
as may be in effect from time to time with respect to similarly situated and performing senior executives of Heartland, on as
favorable a basis as other similarly situated and performing senior executives of Heartland.
e.
Paid Time Off. You will be entitled to accrue paid time off (“PTO”) at a rate of Annual PTO Days (defined
in Exhibit A) per calendar year, subject to Heartland’s PTO programs and policies, including with respect to forfeiture of unused
PTO days, as may be in effect during the Employment Period.
f.
Reimbursements. You will be eligible for reimbursement of all reasonable business expenses that you
actually incur in the course of performing your duties and responsibilities under this Agreement, subject to Heartland’s
reimbursement programs and policies as may be in effective during the Employment Period.
5.
Termination and Rights upon Termination. Your right to compensation, if any, upon Termination will be
determined in accordance with this Section 5. Section 5.f below contains certain definitions applicable under this Section 5 and
this Agreement overall.
a.
Minimum Benefits. Upon your Termination for any reason, you will be entitled to the Minimum Benefits
from Heartland, in addition to any other compensation to which you may be entitled under this Section 5, under the express terms
of any Heartland or Affiliate employee benefit plan, or under applicable law.
b.
Termination for Cause, Disability, Death, Resignation, Non-Extension. Upon your Termination for any
reason other than Involuntary Termination—including your Termination (i) for Cause, (ii) due to your Disability, (iii) due to your
death, (iv) initiated by you without Good Reason, or (v) due to non-extension of the Employment Period by you in accordance
with Section 2 above—then, other than the Minimum Benefits, you will have no right to compensation under this Agreement
(and Heartland will have no obligation to provide any such compensation) for periods after your Termination.
c.
Involuntary Termination. If you incur an Involuntary Termination, then, in addition to the Minimum
Benefits, Heartland will provide you the following compensation (the “Severance Benefits”), subject to Section 5.c.iii below:
i.
Outside a Covered Period. If your Involuntary Termination occurs outside of a Covered Period, you
will be entitled to continued payment of your Base Salary for Outside Covered Period Severance Months (defined in
Exhibit A), in accordance with Heartland’s normal payroll practices, commencing on the 60th day following your
Involuntary Termination;
ii.
Inside a Covered Period. If your Involuntary Termination occurs inside a Covered Period, you will
be entitled to the following Severance Benefits:
A.
a lump sum payment equal to Covered Period Severance Amount (defined in Exhibit A),
payable upon your Involuntary Termination; and
B.
a lump sum payment equal to the cost of COBRA Months (defined in Exhibit A) of
COBRA premiums as of your Involuntary Termination, payable upon your Involuntary Termination.
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iii.
Release. Notwithstanding anything in this Agreement to the contrary, no Severance Benefits will be
owed to you unless you execute and deliver to Heartland a general release and waiver of claims against Heartland and
each Affiliate within 45 days after your Termination, and any applicable revocation period has expired before 60 days
after your Termination.
d.
LTI Awards, Incentives and Employee Benefits. Your rights after a Termination with respect to any
benefits, incentives, or awards, including but not limited to LTI Awards and other incentives, provided to you under any plan,
program, or arrangement sponsored or maintained by Heartland or an Affiliate, whether tax-qualified or not, which are not
specifically addressed in this Agreement, will be subject to the terms of such plan, program, arrangement or award agreement,
and this Agreement will have no effect upon such terms except as specifically provided herein.
e.
Removal from any Boards and Positions. Upon Termination, you will be deemed to resign (i) if a member,
from any board to which you have been appointed or nominated by or on behalf of Heartland or an Affiliate, (ii) from each
position with Heartland and each Affiliate, including as an officer of Heartland and each Affiliate, and (iii) as a fiduciary of any
employee benefit plan of Heartland or an Affiliate.
f.
Definitions.
“Affiliate” means: (a) any corporation, trade, or business that is directly or indirectly controlled 50% or more
(whether by ownership of stock, assets, or an equivalent ownership interest or voting interest) by HBT or the Bank; (b) any trade
or business that directly or indirectly controls 50% or more (whether by ownership of stock, assets, or an equivalent ownership
interest or voting interest) of HBT or the Bank; and (c) any other entity in which HBT or the Bank has a material equity interest.
“Cause” means any of the following acts or omissions committed by you:
i.
material breach of any written agreement entered into with Heartland or an Affiliate, including this
Agreement;
ii.
material failure to adhere to, or material breach of, any written Heartland or Affiliate policy, code
of conduct, rule, or procedure;
iii.
misconduct, dishonesty, fraud, negligence, malfeasance, intentional misrepresentation, moral
turpitude, illegality, harassment, or insubordination, which subjects, or if generally known would subject, Heartland or an
Affiliate, or any customer or client or former customer or client of Heartland or an Affiliate (collectively, the “Heartland
Parties”) to financial or reputational harm or public ridicule or embarrassment;
iv.
breach of a fiduciary duty owed to a Heartland Party;
v.
commission of a criminal act, whether or not performed in the workplace, that subjects, or if
generally known would subject, a Heartland Party to financial or reputational harm or public ridicule or embarrassment;
or
vi.
improper or intentional conduct causing material financial or reputational harm to a Heartland
Party.
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A Termination for Cause will be deemed to include a determination by Heartland after your Termination that
circumstances existing before your Termination would have entitled Heartland or an Affiliate to have terminated your service for
Cause.
“Change in Control” means:
i.
any “person,” as that term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”) (other than HBT, any trustee or other fiduciary holding securities under any
employee benefit plan of HBT, or any company owned, directly or indirectly, by the HBT stockholders in substantially the
same proportions as their ownership of HBT common stock), becomes the beneficial owner (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of HBT representing 50% or more of the combined voting
power of HBT’s then outstanding securities;
ii.
during any period of 24 consecutive calendar months, individuals who were directors serving on
the Board on the first day of such period (the “Incumbent Directors”) cease for any reason to constitute a majority of the
Board; provided, however, that any individual becoming a director subsequent to the first day of such period whose
election, or nomination for election, by the HBT stockholders was approved by a vote of at least 2/3 of the Incumbent
Directors will be considered as though such individual were an Incumbent Director, but excluding, for purposes of this
proviso, any such individual whose initial assumption of office occurs as a result of an actual or threatened proxy contest
with respect to election or removal of directors or other actual or threatened solicitation of proxies or consents by or on
behalf of a “person” (as used in Section 13(d) of the Exchange Act), in each case other than the Board;
iii.
consummation of a reorganization, merger, consolidation, or other business combination (any of the
foregoing, a “Business Combination”) of HBT or any direct or indirect subsidiary of HBT with any other corporation, in
any case with respect to which HBT voting securities outstanding immediately prior to such Business Combination do
not, immediately following such Business Combination, continue to represent (either by remaining outstanding or being
converted into voting securities of HBT or any ultimate parent thereof) more than 50% of the then outstanding voting
securities entitled to vote generally in the election of directors of HBT (or its successor) or any ultimate parent thereof
after the Business Combination; or
iv.
a complete liquidation or dissolution of HBT or the consummation of a sale or disposition by HBT
of all or substantially all of HBT’s assets other than the sale or disposition of all or substantially all of the assets of HBT
to a person or entity who beneficially own, directly or indirectly, 50% or more of the combined voting power of the
outstanding voting securities of HBT at the time of the sale.
Notwithstanding the foregoing terms of this definition, with respect to any amount that is characterized as
“nonqualified deferred compensation” within the meaning of Section 409A, an event will not be considered to be a Change in
Control under this Agreement for purposes of payment of such amount unless such event is also a “change in control event”
within the meaning of Section 409A. Further notwithstanding the foregoing terms of this definition, the occurrence of the date on
which HBT consummates the sale of its common stock in a bona fide, firm commitment underwriting pursuant to a registration
statement under the
5
Securities Act (the “Registration Date”), or any change in the composition of the Board within 1 year after the Registration Date,
will not be considered a Change in Control.
“Covered Period” means the period beginning upon a Change in Control and ending 12 months after the Change
in Control.
“Disability” means that (i) you are unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous
period of not less than 12 months, or (ii) you are, by reason of any medically determinable physical or mental impairment that
can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income
replacement benefits for a period of not less than 3 months under an accident or health plan covering employees of Heartland.
“Good Reason” means the occurrence of any one of the following events, unless you agree in writing that such
event will not constitute Good Reason:
i.
a material and adverse change in the nature, scope, or status of your position, authorities, or duties;
ii.
a reduction of 10% or more in your Base Salary, Target Bonus opportunity or Annual LTI Awards
Target opportunity, other than as a result of a change in mix which occurs before a Change in Control and does not result
in a reduction of 10% or more in the aggregate amount of your Base Salary, Target Bonus opportunity and Annual LTI
Awards Target opportunity;
iii.
relocation of your primary place of employment by more than 25 miles;
iv.
a material breach by Heartland of this Agreement.
Notwithstanding anything in this definition to the contrary, before your Termination for Good Reason, you must
give Heartland written notice of the existence of any condition set forth in clause i. – iv. immediately above within 30 days of the
date you become (or reasonably should have become) aware of its existence and Heartland will have 30 days from the date of
such notice in which to cure the condition giving rise to Good Reason. If, during such 30-day period, Heartland cures the
condition giving rise to Good Reason, the condition will not constitute Good Reason.
“Involuntary Termination” means your Termination either initiated:
i.
by Heartland without Cause, including non-extension of the Employment Period by Heartland
without Cause in accordance with Section 2 above (but not including your Termination due to death or Disability); or
ii.
by you for Good Reason (but not including non-extension of the Employment Period by you in
accordance with Section 2 above).
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“Minimum Benefits” means, as applicable, the following:
i.
your earned but unpaid Base Salary for the period ending on your Termination;
ii.
your earned but unpaid Incentive Bonus, if any, for any completed fiscal year preceding your
Termination, payable within 30 days of your Termination; provided, however, that you will not, in any event, be entitled
to any Incentive Bonus if your Termination is for Cause;
iii.
your accrued but unpaid PTO for the period ending on your Termination; and
iv.
your rights with respect to any benefits, incentives, or awards as described in Section 5.d above.
“Termination” means termination of your employment with Heartland and all Affiliates, after the Effective Date
and before the end of the Employment Period.
6.
Restrictive Covenants. You acknowledge that you have been and will continue to be provided intimate knowledge
of the business practices, trade secrets, and other confidential and proprietary information of Heartland and the Affiliates, which,
if exploited by you, would seriously, adversely, and irreparably affect the interests of Heartland and the Affiliates and the ability
of each to continue its business; you therefore will be bound by the restrictions contained in this Section 6 (the “Restrictive
Covenants”).
a.
Confidential Information.
i.
You acknowledge that, during the course of your employment with Heartland, you may produce
and have access to confidential or proprietary, non-public information concerning the Heartland Parties, including
marketing materials, financial and other information concerning customers and prospective customers, customer lists,
records, data, trade secrets, proprietary business information, pricing and profitability information and policies, strategic
planning, commitments, plans, procedures, litigation, pending litigation and other information not generally available to
the public (collectively, “Confidential Information”). You will not, at any time, directly or indirectly use, disclose, copy,
or make lists of Confidential Information for the benefit of anyone other than Heartland, except to the extent such
disclosure is authorized in writing by the Reporting Person, required by law or any competent administrative agency or
judicial authority, or otherwise as necessary or appropriate in connection with the performance of your duties under this
Agreement. If you receive a subpoena or other court order or are otherwise required by law to provide information to a
governmental authority or other person concerning the activities of Heartland or an Affiliate, or your activities in
connection with the business of Heartland or an Affiliate, you will immediately notify the Reporting Person of such
subpoena, court order, or other requirement and deliver forthwith a copy thereof and any attachments and non-privileged
correspondence related thereto. You will take reasonable precautions to protect against the inadvertent disclosure of
Confidential Information. You will abide by Heartland’s policies respecting avoidance of interests conflicting with those
of Heartland or an Affiliate.
ii.
You will not be held criminally or civilly liable under any federal or state trade secret law for the
disclosure of a trade secret that (A) is made (1) in
7
confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and (2) solely for
the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document
filed in a lawsuit or other proceeding, if such filing is made under seal. Accordingly, you have the right to disclose in
confidence trade secrets to federal, state, and local government officials, or to an attorney, for the sole purpose of
reporting or investigating a suspected violation of law. You also have the right to disclose trade secrets in a document filed
in a lawsuit or other proceeding, but only if the filing is made under seal and protected from public disclosure. Nothing in
this Agreement is intended to conflict with 18 U.S.C. § 1833(b) or create liability for disclosures of trade secrets that are
expressly allowed by 18 U.S.C. § 1833(b). Nothing in this Agreement will be construed to authorize, or limit liability for,
an act that is otherwise prohibited by law, such as the unlawful access of material by unauthorized means.
iii.
Nothing contained in this Agreement, including this Section 6.a, will limit your ability to file a
charge or complaint with any governmental, administrative, or judicial agency (each, an “Agency”) under any applicable
whistleblower statute or program (each, a “Whistleblower Program”). You acknowledge that nothing in this Agreement or
this Section 6.a limits (A) your ability to communicate in connection with a charge or complaint under any Whistleblower
Program with any Agency or otherwise participate in any investigation or proceeding that may be conducted by such
Agency, including providing documents or other information, without notice to Heartland or any Affiliate, or (ii) your
right to receive an award for information provided to such Agency under any Whistleblower Program.
b.
Documents and Property.
i.
All records, files, documents, and other materials or copies thereof relating to the business of
Heartland or an Affiliate that you prepare, receive, or use will be and remain the sole property of Heartland and, other
than in connection with the performance of your duties under this Agreement, may not be removed from the premises of
Heartland or an Affiliate without Heartland’s prior written consent, and will be promptly returned to Heartland upon your
Termination, together with all copies (including copies or recordings in electronic form), abstracts, notes, or reproductions
of any kind made from or about the records, files, documents, or other materials.
ii.
You acknowledge that your access to and permission to use Heartland’s and the Affiliates’
computer systems, networks, and equipment, and all Heartland and Affiliate information contained therein, is restricted to
legitimate business purposes on behalf of Heartland. Any other access to or use of such systems, network, equipment, and
information is without authorization and is prohibited except you may use a Heartland-provided computer for reasonable
personal use in accordance with Heartland’s technology use policy as in effect from time to time. The restrictions
contained in this Section 6.b extend to any of your personal computers or other electronic devices that are used for
business purposes relating to Heartland or an Affiliate. You may not transfer any Heartland or Affiliate information to any
personal computer or other electronic device that is not otherwise used for any business purpose relating to Heartland.
Upon your Termination, your authorization to access and permission to use Heartland’s and the Affiliates’ computer
systems, networks, and equipment, and any Heartland and Affiliate information contained therein, will cease.
c.
Non-Competition and Non-Solicitation. You and Heartland have agreed that the primary service area of
Heartland’s operations, including its lending and deposit taking functions, in which you will actively participate extends to an
area that encompasses a 25-mile
8
radius from each banking or other office location of Heartland and each Affiliate where you have provided services to Heartland
or an Affiliate during the 6-month period immediately before your Termination (the “Restricted Area”). Therefore, as an essential
ingredient of and in consideration of this Agreement and your employment with Heartland, you, during your employment with
Heartland and during the Restricted Period (as defined in Exhibit A), whether your employment termination occurs during the
Employment Period or thereafter, will not directly or indirectly do any of the following:
i.
Engage or invest in, own, manage, operate, finance, control, participate in the ownership,
management, operation or control of, be employed by, associated with or in any manner connected with, serve as a
director, officer or consultant to, lend your name or any similar name to, lend your credit to or render services or advice
to, in each case in the capacity that you provided services to Heartland or an Affiliate, any person, firm, partnership,
corporation, or trust that owns, operates, or is in the process of forming a bank, savings bank, savings and loan
association, credit union, or similar financial institution (each, a “Financial Institution”) with an office located, or to be
located at an address identified in a filing with any regulatory authority, within the Restricted Area; provided, however,
that your ownership of shares of capital stock of any Financial Institution, which shares are listed on a securities exchange
or quoted on the National Association of Securities Dealers Automated Quotation System and which do not represent
more than 5% of the institution’s outstanding capital stock, will not violate any terms of this Agreement;
ii.
Either on your own behalf or on behalf of any Financial Institution: (A) induce or attempt to induce
any employee of Heartland or any Affiliate with whom you had significant contact to leave the employ of Heartland or
any Affiliate; (B) in any way interfere with the relationship between Heartland or any Affiliate and any employee of
Heartland or any Affiliate with whom you had significant contact; or (C) induce or attempt to induce any customer,
supplier, licensee, or business relation of Heartland or any Affiliate with whom you had significant contact to cease doing
business with Heartland or any Affiliate or in any way interfere with the relationship between Heartland or any Affiliate
and their respective customers, suppliers, licensees, or business relations with whom you had significant contact;
iii.
Either on your own behalf or on behalf of any Financial Institution, solicit the business of any
person or entity known to you to be a customer of Heartland or any Affiliate, where you had significant contact with such
person or entity, with respect to products, activities, or services that compete in whole or in part with the products,
activities, or services of Heartland or any Affiliate; or
iv.
Serve as the agent, broker, or representative of, or otherwise assist, any person or entity in obtaining
services or products from any Financial Institution within the Restricted Area, with respect to products, activities, or
services that you devoted time to on behalf of Heartland or any Affiliate and that compete in whole or in part with the
products, activities, or services of Heartland or any Affiliate.
d.
Works Made for Hire Provisions. You and Heartland acknowledge that all work performed by you for
Heartland or any Affiliate will be deemed a “work made for hire.” Heartland will at all times own and have exclusive right, title,
and interest in and to all Confidential Information and Inventions, and Heartland will retain the exclusive right to license, sell,
transfer, and otherwise use and dispose of the same. Any and all enhancements of the technology of Heartland or any Affiliate
that are developed by you will be the exclusive property of Heartland. You hereby assign to Heartland any right, title, and interest
in and to all Inventions that you may have, by law or equity, without additional consideration of any kind whatsoever
9
from Heartland or any Affiliate. You will execute and deliver any instruments or documents and do all other things (including the
giving of testimony) requested by Heartland (both during and after your Termination) in order to vest more fully in Heartland all
ownership rights in the Inventions (including obtaining patent, copyright, or trademark protection therefor in the United States or
foreign countries). “Inventions” means all systems, procedures, techniques, manuals, databases, plans, lists, inventions, trade
secrets, copyrights, patents, trademarks, discoveries, innovations, concepts, ideas, and software conceived, compiled, or
developed by you in the course of your employment with Heartland or any Affiliate or comprised, in whole or part, of
Confidential Information. Notwithstanding the foregoing sentence, Inventions will not include: (i) any inventions independently
developed by you and not derived, in whole or part, from any Confidential Information or (ii) any invention made by you before
your exposure to any Confidential Information.
e.
Remedies for Breach of Restrictive Covenant. You have reviewed this Agreement with legal counsel, or
have been given adequate opportunity to seek such counsel, and you acknowledge that Restrictive Covenants are reasonable with
respect to their duration, geographical area, and scope. You further acknowledge that the Restrictive Covenants are reasonable
and necessary for the protection of the legitimate business interests of Heartland, that they create no undue hardships, that any
violation of the Restrictive Covenants would cause substantial injury to Heartland and such interests, and that such Restrictive
Covenants were a material inducement to Heartland to enter into this Agreement. In the event of any violation or threatened
violation of any Restrictive Covenants, Heartland, in addition to and not in limitation of, any other rights, remedies, or damages
available to it under this Agreement or otherwise at law or in equity, will be entitled to preliminary and permanent injunctive
relief to prevent or restrain any such violation by you and any and all persons directly or indirectly acting for or with you.
f.
Other Agreements. In the event of the existence of any other agreement between you and Heartland or an
Affiliate that (i) is in effect during the Restricted Period, and (ii) contains restrictive covenants that conflict with any of the terms
of this Section 6, then the more restrictive of such terms from such agreements will control for the period during which such
agreements would otherwise be in effect.
g.
Tolling. If you violate any of the terms of the Restrictive Covenants, the obligation at issue will run from
the first date on which you cease to be in violation of such obligation.
7.
Notices. Notices and all other communications under this Agreement will be in writing and will be deemed given
when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: if to
Heartland, to Heartland’s principal headquarters to the attention of the Reporting Person; and if to you, to your most recent
address on file with Heartland, or, in either case, to such other address as either party hereto may furnish to the other in writing,
except that notices of changes of address will be effective only upon receipt.
8.
Applicable Law. All questions concerning the construction, validity, and interpretation of this Agreement and the
performance of the obligations imposed by this Agreement will be governed by the internal laws of the State of Illinois applicable
to agreements made and wholly to be performed in such state without regard to conflicts of law provisions of any jurisdiction.
9.
Mandatory Arbitration. Except as provided in Section 6 above, if any dispute or controversy arises under or in
connection with this Agreement, and such dispute or controversy cannot be settled through negotiation, you and Heartland will
first try in good faith to settle the
10
dispute or controversy by mediation administered by the American Arbitration Association under its Commercial Mediation
Procedures. If such mediation is not successful, the dispute or controversy will be settled exclusively by arbitration in accordance
with the Employment Arbitration Rules of the American Arbitration Association then in effect. Judgment may be entered on the
arbitrator’s award in any court having jurisdiction. Notwithstanding the foregoing, Heartland may resort to the Circuit Court of
McLean County, Illinois for injunctive and such other relief as may be available if you engage in conduct, after termination of
your employment with Heartland and its Affiliates, that amounts to a violation of the Illinois Trade Secrets Act, amounts to
unlawful interference with the business expectations of Heartland or any Affiliate, or violates the Restrictive Covenants. The
FDIC may appear at any arbitration hearing but any decision made thereunder will not be binding on the FDIC.
10.
Entire Agreement. This Agreement constitutes the entire agreement between you and Heartland concerning the
subject matter hereof, and supersedes all prior negotiations, undertakings, agreements, and arrangements with respect thereto,
whether written or oral, including the Prior Agreement. If a court of competent jurisdiction determines that any term of this
Agreement is invalid or unenforceable, then the invalidity or unenforceability of that term will not affect the validity or
enforceability of any other term of this Agreement and all other terms will remain in full force and effect. The various terms of
this Agreement are intended to be severable and to constitute independent and distinct binding obligations. Without limiting the
generality of the foregoing, if the scope of any term contained in this Agreement is too broad to permit enforcement to its full
extent, such term will be enforced to the maximum extent permitted by law, and such scope may be judicially modified
accordingly.
11.
Withholding of Taxes. Heartland may withhold from any amounts payable under this Agreement all taxes as may
be required by law.
12.
No Assignment. Your rights to receive benefits under this Agreement will not be assignable or transferable
whether by pledge, creation of a security interest, or otherwise, other than a transfer by will or by the laws of descent or
distribution. In the event of any attempted assignment or transfer contrary to this Section 12, Heartland will have no liability to
pay any amount so attempted to be assigned or transferred. This Agreement will inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
13.
Successors. This Agreement will be binding upon and inure to the benefit of HBT, the Bank, and their successors
and assigns.
14.
Amendment. This Agreement may not be amended or modified except by written agreement signed by you and
Heartland.
15.
Section 409A. This Agreement is intended to comply with Section 409A (“Section 409A”) of the Internal
Revenue Code of 1986, as amended, or an exemption thereunder and will be construed and administered in accordance with
Section 409A. Notwithstanding any other provision of this Agreement, payments provided under this Agreement may only be
made upon an event and in a manner that complies with Section 409A or an applicable exemption. Any payments under this
Agreement that may be excluded from Section 409A either as separation pay due to an involuntary separation from service or as
a short-term deferral will be excluded from Section 409A to the maximum extent possible. For purposes of Section 409A, each
installment payment provided under this Agreement will be treated as a separate payment. Any payments to be made under this
Agreement upon a termination of employment will only be made upon a “separation from service” under Section 409A. To the
extent any reimbursements or in-kind benefit payments under this Agreement are subject to Section 409A, such reimbursements
and in-kind benefit payments will be made in accordance
11
with Treasury Regulation Section 1.409A-3(i)(1)(iv). Notwithstanding anything in this Agreement to the contrary, if any payment
or benefit provided to you in connection with your termination of employment is determined to constitute “nonqualified deferred
compensation” within the meaning of Section 409A and you are determined to be a “specified employee” under Section 409A,
then such payment or benefit will not be paid until the first payroll date to occur following the 6-month anniversary of your
termination of employment or, if earlier, upon your death (the “Specified Employee Payment Date”). The aggregate of any
payments that would otherwise have been paid before the Specified Employee Payment Date will be paid to you, without interest,
in a lump sum on the Specified Employee Payment Date and thereafter, any remaining payments will be paid without delay in
accordance with their original schedule. Notwithstanding the foregoing, Heartland makes no representations that the payments
and benefits provided under this Agreement comply with Section 409A, and in no event will Heartland be liable for all or any
portion of any taxes, penalties, interest, or other expenses that may be incurred by you on account of non-compliance with
Section 409A.
16.
Survival. The terms of Sections 5 through Section 15 above and this Section 16 will survive the termination of this
Agreement.
12
IN WITNESS WHEREOF, you, HBT, and the Bank have executed this Agreement as of the Effective Date.
EXECUTIVE
Sign name: /s/ Lawrence J. Horvath
Print name: Lawrence J. Horvath
HBT FINANCIAL, INC.
Sign name: /s/ J. Lance Carter
Print name: J. Lance Carter
Title: President and Chief Operating Officer
HEARTLAND BANK AND TRUST COMPANY
Sign name: /s/ J. Lance Carter
Print name: J. Lance Carter
Title: EVP and Chief Operating Officer
13
Exhibit A
“Employee”: Lawrence J. Horvath
“Effective Date”: January 1, 2023
“Position”: Executive Vice-President and Chief Lending Officer of HBT Financial, Inc. and Heartland Bank and Trust
Company
“Initial Expiration Date”: December 31,2023
“Reporting Person”: President of HBT Financial, Inc.
“Location of Employment”: Bloomington-Normal, IL
“Base Salary”: $320,000
“Target Bonus”: 30% of Base Salary
“Annual LTI Awards Target”: 30% of Base Salary
“Annual PTO Days”: 20 vacation days plus 8 personal days (which includes sick days)
“Outside Covered Period Severance Months”: 6
“Covered Period Severance Amount”: Base Salary and Target Bonus for the year in which Involuntary Termination
occurs
“COBRA Months”: 18
“Restricted Period”: 6 months following your Involuntary Termination outside of a Covered Period or your Termination
due to your Disability inside or outside of a Covered Period; 12 months following your Termination initiated by HBT and
Heartland for Cause or by you without Good Reason (including non-extension of the Employment Period by you in
accordance with Section 2 above), in each case either inside or outside of a Covered Period; or 12 months following your
Involuntary Termination inside of a Covered Period
Exhibit A – Page 1
EXHIBIT 10.14
AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amendment to Amended and Restated Employment Agreement (this “Amendment”) is made and entered into as of March 15,
2024, by and among HBT Financial, Inc., a Delaware corporation (“HBT”), Heartland Bank and Trust Company, an Illinois state-chartered
bank (the “Bank,” and together with HBT, “Heartland”), and Lawrence J. Horvath (“Employee”) (HBT, the Bank and Employee, the
“Parties”).
RECITALS
A. Employee is currently employed by Heartland as Executive Vice President and Chief Lending Officer of Heartland, pursuant to
that certain Amended and Restated Employment Agreement by and among Heartland and Employee dated February 22, 2021, which was
amended January 1, 2023 (the “Employment Agreement”).
B. As part of its retention strategy for its executive officers, the Parties have discussed from time-to-time Employee’s performance
and plans to retain and reward Employee’s service to Heartland.
C. Pursuant to Section 14 of the Employment Agreement, Heartland and Employee may amend the Employment Agreement in
writing executed by all parties thereto.
D. Heartland and Employee desire to amend the Employment Agreement as provided herein for the purpose of setting forth
provisions applicable to Employee’s employment and service as of the Effective Date.
AGREEMENTS
In consideration of the foregoing and of the mutual promises and covenants of the Parties set forth in this Amendment, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound,
hereby covenant and agree to the following revisions to the Employment Agreement:
1.
Effective as of March 4, 2024, Exhibit A of the Employment Agreement shall be amended and restated in its entirety to read
as set forth on Exhibit 1 to this Amendment.
2.
Except as expressly amended pursuant to clause 1 above, the Employment Agreement shall continue in full force and effect.
3.
Capitalized terms not defined in this Amendment shall have the meanings proscribed to such terms in the Employment
Agreement.
4.
Employee acknowledges and agrees that nothing contained in this Amendment will constitute Good Reason for purposes of
the Employment Agreement.
IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date first set forth above.
EXHIBIT 10.14
HBT FINANCIAL, INC.
By: /s/ J. Lance Carter
Name: J. Lance Carter
Its: President and Chief Executive Officer
EMPLOYEE
By: /s/ Lawrence J. Horvath
Name: Lawrence J. Horvath
HEARTLAND BANK AND TRUST COMPANY
By: /s/ J. Lance Carter
Name: J. Lance Carter
Its: President and Chief Executive Officer
Exhibit 1
“Employee”: Lawrence J. Horvath
“Effective Date”: March 4, 2024
“Position”: Executive Vice-President and Chief Lending Officer of HBT Financial, Inc. and Heartland Bank and Trust
Company
“Initial Expiration Date”: December 31, 2026
“Reporting Person”: President and Chief Executive Officer of HBT Financial, Inc., and Heartland Bank and Trust
“Location of Employment”: Bloomington-Normal, IL
“Base Salary”: $332,800
“Target Bonus”: 30% of Base Salary
“Annual LTI Awards Target”: 30% of Base Salary
“Annual PTO Days”: 20 vacation days plus 8 personal days (which includes sick days)
“Outside Covered Period Severance Months”: 6
“Covered Period Severance Amount”: Base Salary and Target Bonus for the year in which Involuntary Termination
occurs
“COBRA Months”: 18
“Restricted Period”: 6 months following your Involuntary Termination outside of a Covered Period or your Termination
due to your Disability inside or outside of a Covered Period; 12 months following your Termination initiated by HBT and
Heartland for Cause or by you without Good Reason (including non-extension of the Employment Period by you in
accordance with Section 2 above), in each case either inside or outside of a Covered Period; or 12 months following your
Involuntary Termination inside of a Covered Period
EXHIBIT 10.15
AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amendment to Amended and Restated Employment Agreement (this “Amendment”) is made and entered into as of March 15,
2024, by and among HBT Financial, Inc., a Delaware corporation (“HBT”), Heartland Bank and Trust Company, an Illinois state-chartered
bank (the “Bank,” and together with HBT, “Heartland”), and Mark W. Scheirer (“Employee”) (HBT, the Bank and Employee, the “Parties”).
RECITALS
A. Employee is currently employed by Heartland as Executive Vice President and Chief Credit Officer of Heartland, pursuant to that
certain Amended and Restated Employment Agreement by and among Heartland and Employee dated February 22, 2021, which was
amended May 25, 2023 (the “Employment Agreement”).
B. As part of its retention strategy for its executive officers, the Parties have discussed from time-to-time Employee’s performance
and plans to retain and reward Employee’s service to Heartland.
C. Pursuant to Section 14 of the Employment Agreement, Heartland and Employee may amend the Employment Agreement in
writing executed by all parties thereto.
D. Heartland and Employee desire to amend the Employment Agreement as provided herein for the purpose of setting forth
provisions applicable to Employee’s employment and service as of the Effective Date.
AGREEMENTS
In consideration of the foregoing and of the mutual promises and covenants of the Parties set forth in this Amendment, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound,
hereby covenant and agree to the following revisions to the Employment Agreement:
1.
Effective as of March 4, 2024, Exhibit A of the Employment Agreement shall be amended and restated in its entirety to read
as set forth on Exhibit 1 to this Amendment.
2.
Except as expressly amended pursuant to clause 1 above, the Employment Agreement shall continue in full force and effect.
3.
Capitalized terms not defined in this Amendment shall have the meanings proscribed to such terms in the Employment
Agreement.
4.
Employee acknowledges and agrees that nothing contained in this Amendment will constitute Good Reason for purposes of
the Employment Agreement.
IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date first set forth above.
EXHIBIT 10.15
HBT FINANCIAL, INC.
By: /s/ J. Lance Carter
Name: J. Lance Carter
Its: President and Chief Executive Officer
EMPLOYEE
By: /s/ Mark W. Scheirer
Name: Mark W. Scheirer
HEARTLAND BANK AND TRUST COMPANY
By: /s/ J. Lance Carter
Name: J. Lance Carter
Its: President and Chief Executive Officer
Exhibit 1
(Modifies Exhibit A to Amended and Restated Employment Agreement)
“Employee”: Mark W. Scheirer
“Effective Date”: March 4, 2024
“Position”: Executive Vice President and Chief Credit Officer of HBT Financial, Inc. and Heartland Bank and Trust Company
“Initial Expiration Date”: December 31, 2026
“Reporting Person”: President and Chief Executive Officer of HBT Financial and Heartland Bank and Trust Company
“Location of Employment”: Bloomington-Normal, IL
“Base Salary”: $266,444
“Target Bonus”: 30% of Base Salary
“Annual LTI Awards Target”: 30% of Base Salary
“Annual PTO Days”: 28 days (which includes vacation, personal and sick days)
“Outside Covered Period Severance Months”: 6
“Covered Period Severance Amount”: Base Salary and Target Bonus for the year in which Involuntary Termination occurs
“COBRA Months”: 18
“Restricted Period”: 6 months following your Involuntary Termination outside of a Covered Period or your Termination due to
your Disability inside or outside of a Covered Period; 12 months following your Termination initiated by HBT and Heartland for
Cause or by you without Good Reason (including non-extension of the Employment Period by you in accordance with Section 2
above), in each case either inside or outside of a Covered Period; or 12 months following your Involuntary Termination inside of
a Covered Period
EXHIBIT 19.1
HBT Financial, Inc.
INSIDER TRADING POLICY
October 2024
_____________________________________________________________________________________
Purpose
The Board of Directors (the “Board”) of HBT Financial, Inc. (together with its subsidiaries, the “Company”) has adopted this Insider Trading
Policy (this “Policy”) for the Company’s officers, directors and employees with respect to their trading activities.
For purposes of this Policy, the term “employee” includes all employees, independent contractors, advisors and consultants of the Company.
The federal securities laws prohibit any member of the Board or employee of the Company from purchasing or selling any securities of the
Company on the basis of material, nonpublic information (as defined in Appendix A of this Policy) concerning the Company, or from
disclosing material, nonpublic information to others who might trade on the basis of that information. These laws impose severe sanctions on
individuals who violate them and may impose large fines on the Company if the Company fails to take appropriate steps to prevent
violations. This Policy is designed to prevent insider trading, or allegations of insider trading, and to protect the Company’s reputation for
integrity and ethical conduct.
Applicability of This Policy
This Policy applies to the Company’s officers, directors and employees, as well as to their family members (as defined below) and to any
partnership, trust or other entity under the control of an officer, director or employee of the Company or his or her family members
(collectively, “Covered Persons”). As used in this Policy, the term “family members” means children, stepchildren, grandchildren, parents,
stepparents, grandparents, spouses, siblings, mothers-in-law, fathers-in-law, sons-in-law, daughters-in-law, brothers-in-law or sisters-in-law
and any adoptive or guardianship relationships, provided that such family member either (i) shares one’s household or (ii) is materially
dependent upon one for financial support.
Covered Persons are responsible for ensuring that the purchase or sale of any Securities (as defined below) complies with this Policy, which
imposes three principal restrictions with respect to trading activity:
•
a prohibition against insider trading or tipping;
•
a prohibition against specified transactions in Company securities; and
•
trading restrictions.
Prohibition Against Insider Trading
Company Securities. This Policy applies to all of the Company’s securities, including, without limitation, common stock, preferred stock,
debt securities and derivative securities, which are securities whose value is derived from the value of Securities, such as exchange-traded put
or call options or swaps relating to the Company’s securities (collectively, the “Securities”). Covered Persons may not, directly or indirectly,
engage in any transaction involving the purchase or sale of Securities if they are aware of material nonpublic information relating the
Company (see Appendix A of this Policy for definitions and discussions of “material” and “nonpublic”).
Covered Companies. The prohibition on insider trading set forth in this Policy is also applicable to trading in securities of other firms,
including customers or vendors of the Company and those with which the Company may be negotiating major transactions, such as an
acquisition, investment or sale. Information that is not material to the Company may nevertheless be material to one of these other firms. The
prohibition is also applicable to trading in securities of other firms if the Covered Person engaging in the trading activity is aware of material
nonpublic information about such other firm, including information obtained while serving as a director, officer or employee of such other
firm.
Unauthorized Disclosure. Covered Persons may not pass on material nonpublic information to others without the approval of the Board or
recommend to anyone the purchase or sale of any Securities or any securities of other firms when they are aware of such information. This
practice is known as “tipping” and violates the securities laws, even if the Covered Person does not trade or gain any benefit from another
person’s trading.
Prohibited Transactions in Securities
Certain Transactions Under Company Plans and Other Transactions. Certain transactions under plans maintained or sponsored by the
Company may involve the purchase or sale of Securities at a time when a Covered Person is in possession of material nonpublic information.
Accordingly, this Policy will apply to certain transactions under these plans and will not apply to others.
•
Stock Option Exercises. This Policy’s trading restrictions apply to the exercise of a stock option if a Covered Person, directly or
indirectly, sells any of the shares he or she received as a result of the option exercise, including as part of a broker-assisted cashless
exercise of an option or any other market sale for the purpose of generating the cash needed to pay the exercise price of an option.
This Policy does not apply to the surrender to the Company of shares or the withholding of shares by the Company, if any, to fund
the exercise price or pay taxes in connection with the exercise of a stock option.
•
Restricted Stock Awards. This Policy does not apply to the vesting of restricted stock, or the surrender or withholding of shares to pay
for taxes incident to such vesting. Shares may not be sold, however, to satisfy such tax obligations.
•
401(k) Plan or Employee Stock Purchase Plan. Should the Company offer investing in Securities as an option under its 401(k) plan
or its Employee Stock Purchase Plan, this Policy’s trading restrictions will not apply to purchases of Securities in the plans resulting
from a Covered Person’s periodic contribution of money to either plan pursuant to his or her payroll deduction election, or to
purchases of Securities resulting from a Covered Person’s reinvestment of dividends paid on shares of Securities held in his or her
plan accounts. The trading restrictions will apply, however, to a Covered Person’s election to participate in the plans as well as to
elections made under the plans to: (i) increase or decrease the periodic contributions to such plans that will be used to purchase
Company stock (including through allocations to the Company stock fund, in the case of the 401(k) plan); (ii) sell Company stock
under the Employee Stock Purchase Plan or to make an intra-plan transfer of an existing account balance into or out of the Company
stock fund in the 401(k) plan; (iii) borrow money against the 401(k) plan account, if the loan will result in a liquidation of some or all
of the Covered Person’s Company stock fund balance; and (iv) prepay a 401(k) plan loan if the prepayment will result in a change in
the Covered Person’s Company stock fund balance.
•
Gifts or Donations. Bona fide gifts or donations are not transactions subject to this Policy, unless the Covered Person making the gift
has reason to believe (or is reckless in not knowing) that the recipient intends to sell the Securities while the Covered Person is aware
of material nonpublic information, or the Covered Person is subject to the trading restrictions specified below under the heading
“Trading Restrictions” and the sales by the recipient of the Securities occur prior to the disclosure of material nonpublic information.
No Short-Term or Speculative Transactions. Short-term or speculative transactions in Securities are prohibited. Such transactions may create
incentives conflicting with those of the Company generally or may lead to inadvertent violations of the insider trading laws. These prohibited
transactions include:
•
Short Sales. Short sales of Securities (i.e., the sale of a security that the seller does not own) may evidence an expectation on the part
of the seller that Securities will decline in value and may thus signal to the market that the seller lacks confidence in the Company’s
prospects.
•
Publicly-Traded Options. Given the relatively short term of publicly-traded options (i.e., put options, call options) or transactions in
other derivative securities, such transactions may create the appearance that an officer, director or other employee is trading based on
material, nonpublic information and may focus an officer’s, director’s or other employee’s attention on the Company’s short-term
performance at the expense of its long-term business objectives.
•
Hedging Transactions. As hedging or monetization transactions through the use of financial instruments, such as prepaid variable
forwards, equity swaps, collars and exchange funds, result in the ownership of Securities without the full risks and rewards of
ownership, the owner of Securities may no longer have the same objectives as the Company’s other stockholders do.
•
Margin Accounts and Pledging. Securities held in a margin account or pledged as collateral for a loan may be sold without the
security holder’s consent by the broker if the holder fails to meet a margin call, or by the lender in foreclosure if the holder defaults
on the loan. Such sale may occur at a time when the holder is aware of material, nonpublic information or otherwise is not permitted
to trade in Securities for a loan. As a result, no officer, director or employee may place Securities in margin accounts, unless they are
treated as non-marginable by the brokerage firm.
Trading Restrictions
The Company has established additional trading restrictions in order to assist the Company in the administration of this Policy, to facilitate
compliance with laws prohibiting insider trading while in possession of material nonpublic information and to avoid the appearance of any
impropriety. These additional procedures are applicable only to directors, executive officers, their family members, their controlled entities,
and other persons designated by the Company’s General Counsel (the “Section 16 Compliance Officer”) as being subject to these restrictions
(the “Designated Persons”). A list of other persons designated by the Section 16 Compliance Officer to be included as Designated Persons is
attached as Appendix B.
Window Periods. Transaction in Securities by Designated Persons may be affected only during the period of time designated for trading by
the Company (such periods, “Window Periods”). Window Periods will commence at the open of market on the second trading day following
the date of public disclosure of the Company’s financial results for a particular fiscal quarter or year and will continue until the close of
market on the day that is two full weeks prior to the end of the next fiscal quarter.
Standard Blackout Periods. Each period outside of a Window Period (each such period, a “Blackout Period”) is a particularly sensitive period
of time for transactions in Securities. This sensitivity is due to the fact that certain Designated Persons will, during that period, often be aware
of or possess or at the very least be presumed to possess material nonpublic information about the expected financial results for the quarter
during that period. Consequently, trading by Designated Persons will be prohibited in each Blackout Period.
Special Blackout Periods. From time to time, the Company may also prohibit some or all Designated Persons from trading Securities because
of material developments known to the Company and not yet disclosed to the public. No applicable Designated Person may engage in any
transaction in Securities during any special blackout period that the Section 16 Compliance Officer may designate (each such period, a
“Special Blackout Period”). No applicable Designated Person may disclose the designation of a Special Blackout Period to any third party
without the approval of the Board. The Company will announce the beginning and end of a Special Blackout Period by providing written
notice, including by email, to all Designated Persons to whom the Special Blackout Period applies.
No Trading on Material Nonpublic Information at Any Time. Even during a Window Period, any Designated Person who is aware of or
possesses material, nonpublic information concerning the Company may not engage in any transactions in the Securities until the second
trading day following the public disclosure of such information, whether or not the Company has imposed a Blackout Period or a Special
Blackout Period. Trading in Securities during the Window Period should not be considered a “safe harbor”.
Preclearance of Transactions in Securities by Designated Persons. Any trade or transaction in Securities by a Designated Person, including
any transfer, gift, pledge, or loan of the Securities, even during a Window Period, must be preapproved by the Section 16 Compliance
Officer, or in her absence, the Chief Risk Officer, Chief Executive Officer, or the Chief Financial Officer. Transactions in Securities by the
Section 16 Compliance Officer must be approved by the Chief Executive Officer. A request for preapproval should be submitted to the
Section 16 Compliance Officer at least two trading days in advance of the proposed transaction. The Company is under no obligation to
approve a trade submitted for preapproval and may determine not to permit the trade.
Unless revoked, a grant of permission will normally remain valid until the close of two business days following the day on which it was
granted. If the proposed transaction has not been entered into during this time frame, such Designated Person must resubmit the request for
preapproval. Preapproval of a transaction does not constitute a recommendation by the Company or any of its employees or agents that any
Designated Person engage in the subject transaction. The execution of a precleared transaction must be reported to the Section 16
Compliance Officer (through email, duplicate confirmation directly from the broker, or otherwise) promptly, but no later than the day after
execution of the transaction.
Approved 10b5-1 Plan. The trading restrictions described above do not apply to transactions executed pursuant to a preexisting written plan,
contract or instruction under Rule 10b5-1 promulgated under the Exchange Act (an “Approved 10b5-1 Plan”) that:
•
has been reviewed and approved by the Section 16 Compliance Officer at least five business days in advance of being entered into
(or, if revised or amended, the revisions or amendments have been reviewed and approved by the Section 16 Compliance Officer at
least five business days prior to the effectiveness of the revisions or amendments);
•
was entered into or modified (or, with respect to an instruction, given) in good faith by a Designated Person and not as part of a plan
or scheme to evade the prohibitions of Rule 10b5-1; and
•
either (i) gives a third party the discretionary authority to execute purchases and sales of securities of the Company, outside the
influence of the Designated Person, so long as the third party is not aware of any material, nonpublic information about the
Company; or (ii) explicitly specifies the amount of securities to be purchased or sold, the price at which the securities are to be
purchased or sold and the date on which the securities are to be purchased or sold, or a written formula, algorithm or computer
program for determining the amount, price and date of such transactions.
Directors and executive officers may not initiate trades under an Approved 10b5-1 Plan until the later of: (i) 90 days after adoption or
modification of the plan; or (ii) two business days following the disclosure in Forms 10-K or 10-Q of the Company’s financial results for the
fiscal quarter in which the plan was adopted or modified (but not to exceed 120 days following plan adoption or modification). For all other
persons, trades under an Approved 10b5-1 Plan may not be made until 30 days after the adoption of the plan.
Designated Persons must include a representation in their 10b5-1 plans certifying, at the time of the adoption of a new or modified plan, that:
(i) they are not aware of material nonpublic information about the Company or its Securities; and (ii) they are adopting the plan in good faith
and not as part of a plan or scheme to evade the prohibitions of Rule 10b-5.
Any modification or termination of an Approved 10b5-1 Plan must comply with this Policy and such modification or termination may only
be adopted (i) upon receipt of approval of the Section 16 Compliance Officer, (ii) at a time that is not during a Blackout Period or Special
Blackout Period, and (iii) while the Designated Person is not in possession of material nonpublic information. Modifications to existing
Approved 10b5-1 Plans that do not change the sales or purchase prices or price ranges, the amount of securities to be sold or purchased, or
the timing of transactions under the plan (such as an adjustment for stock splits or a change in account information) will not trigger a new
cooling-off period referred to in the preceding paragraph.
Generally, persons may not have more than one 10b5-1 plan for open market purchases or sales of the Securities; provided that two
successive trading plans may be maintained so long as (i) one of them is a successor trading plan under which trades are not authorized to
begin until completion or expiration of the predecessor plan and (ii) the predecessor plan is not terminated early. Additionally, persons are
generally limited to one single-trade plan (one designed to effect the open market purchase or sale of the total amount of the securities subject
to the plan as a single transaction) in any 12 month period. All 10b5-1 plans must be entered into and operated in accordance with all
applicable Securities and Exchange Commission rules, as amended from time to time.
With respect to any purchase or sale under an Approved 10b5-1 Plan, the third party effecting transactions on the behalf of the Designated
Person should be instructed to send duplicative confirmations of all such transactions to the Section 16 Compliance Officer (through email,
duplicate confirmation directly from the broker, or otherwise) promptly, but no later than the day after execution of the transaction.
You must notify the Section 16 Compliance Officer no later than 10 business days prior to entering into, modifying or terminating a
trading plan with respect to the Securities. The Company considers the adherence to the securities laws to be of utmost importance,
and a Designated Person’s reliance on a trading plan will not necessarily relieve the Designated Person of liability.
Administrative Matters
Post-Termination Transactions. This Policy continues to apply to Covered Persons’ transactions in Securities even after they have terminated
employment with or other services to the Company. Thus, if a Covered Person is aware of material, nonpublic information when his or her
employment or service relationship with the Company terminates, the Covered Person may not trade in Securities until such information has
become public or is no longer material.
Reporting of Violations. If Covered Persons become aware of a violation of this Policy, Covered Persons should promptly report the violation
by following the reporting guidelines in the Company’s Code of Ethics, under the “Reporting Illegal or Unethical Behavior” section.
Exceptions. Personal financial emergencies do not excuse Covered Persons from compliance with this Policy. However, there may be
circumstances from time to time in which the application of this Policy produces unfair or undesirable results and in which a proposed
transaction is not inconsistent with the purposes of this Policy. In these circumstances, the Designated Person may be granted an exemption
from any provision of this Policy based on the Company’s determination that the exempted transaction is not inconsistent with this Policy.
Responsibility for Noncompliance
Covered Persons are ultimately responsible for adhering to this Policy and determining whether they are in possession of material, nonpublic
information, and any action on the part of the Company, the Section 16 Compliance Officer or any other officer, director or employee
pursuant to this Policy (or otherwise) does not in any way constitute legal advice or insulate an individual from liability under applicable
securities laws. Covered Persons with any questions about this Policy or its application to a proposed transaction may obtain additional
guidance from the Section 16 Compliance Officer. Covered Persons will receive a copy of this Policy and must acknowledge in writing that
they have read and understand it promptly after the Policy is adopted. Periodically, they will receive a copy of the Policy and will be required
to certify that they have complied with it and will continue to do so.
Civil and Criminal Penalties. Potential penalties for insider trading violations include imprisonment for up to twenty years, criminal fines of
up to $5 million and civil fines of up to three times the profit gained or loss avoided.
Controlling Person Liability. If the Company fails to take appropriate steps to prevent illegal insider trading, the Company may have
“controlling person” liability for a trading violation, with civil penalties of up to the greater of $1 million and three times the profit gained or
loss avoided, as well as a criminal penalty of up to $25 million. The civil penalties can extend personal liability to the Company’s officers,
directors and other supervisory personnel if they fail to take appropriate steps to prevent insider trading.
Company Sanctions. Failure to comply with this Policy may subject Covered Persons to Company disciplinary action, including dismissal for
cause, whether or not the Covered Person’s failure to comply with this Policy results in a violation of law. The Company reserves the right to
determine, in its own discretion and on the basis of information available to it, whether this Policy has been violated. The Company may
determine that specific conduct violates this Policy, whether or not the conduct also violates the law. It is not necessary for the Company to
await the filing or conclusion of a civil or criminal action against the alleged violator before taking disciplinary action.
Responsibility for Annual Review, Amendment and Modification
The Nominating and Corporate Governance Committee of the Board will be responsible for an annual review of this Policy and
recommending clarifications, amendments or necessary changes to the Policy to the Board.
Appendix A
Material Nonpublic Information. Because trading that receives scrutiny will be evaluated after the fact with the benefit of hindsight,
questions concerning the materiality of particular information should be resolved in favor of materiality, and questionable trading should be
avoided. Information is material if it could reasonably be expected that an investor would consider it important in deciding whether to buy,
hold or sell a security, or if the disclosure of the information could reasonably be expected to alter significantly the total mix of information
in the marketplace about the Company. In other words, any information, whether positive or negative, that could reasonably be expected to
affect the price of the security is considered “material” for the purposes of this Policy. While it is not possible to identify all information that
could be deemed material, the following items or types of information should be considered carefully in determining their materiality:
•
financial results or potential restatements of financial statements;
•
projections of future earnings or losses or other earnings guidance, particularly if they differ significantly from external expectations;
•
proposals, plans or agreements, even if preliminary in nature, of a pending or proposed merger, acquisition, tender offer, acquisition
or disposition of significant assets, or corporate restructuring or reorganization;
•
significant regulatory developments, as well as events having a significant regulatory effect or involving significant regulatory
intervention;
•
significant developments involving corporate relationships;
•
significant related party transactions;
•
changes in key personnel, external auditors or notification that the auditor’s report may no longer be relied upon;
•
major events regarding Securities, including changes in the Company’s dividend policy, the declaration of a stock split or the offering
of additional Securities or the establishment of a repurchase program for Securities;
•
defaults or potential defaults under the Company’s material agreements or the existence of material liquidity deficiencies;
•
changes in the Company’s ratings;
•
events that may result in the creation of a significant reserve or write-off or other significant adjustment to the financial statements;
•
actual or threatened significant litigation, inquiry by a governmental or regulatory authority, or major positive or negative
developments in such matters;
•
cybersecurity risks and incidents, including vulnerabilities and breaches; and
•
any other facts which might cause the Company’s financial results or stock price to be affected.
When in doubt, Covered Persons should treat nonpublic, confidential information as material and should consult with the Section 16
Compliance Officer prior to engaging in a Securities transaction.
Nonpublic Information. Nonpublic information is information that is not generally known or available to the public. The fact that information
has been disclosed to a few members of the public does not make it public for insider trading purposes. Information becomes public when (i)
it is disclosed in a way designed to achieve broad dissemination to the investing public generally, without favoring any special person or
group, and (ii) there has been adequate time for the public to digest that information, which for the purposes of this Policy is at least two
trading days since the public disclosure by the Company of the information. Examples of broad dissemination include press releases, filings
with the Securities and Exchange Commission and meetings, conference calls or webcasts that are open to the public.
Nonpublic information may include:
•
information available to a select group of analysts or brokers or institutional investors;
•
undisclosed facts that are the subject of rumors, even if the rumors are widely circulated; or
•
information that has been entrusted to the Company on a confidential basis until a public announcement of the information has been
made and enough time has elapsed for the market to respond to a public announcement.
When in doubt, Covered Persons should treat information as nonpublic and should consult with the Section 16 Compliance Officer prior to
engaging in a Securities transaction.
EXHIBIT 21.1
Subsidiaries of the Registrant
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 Statements (No. 333-270466) on Form S-3 and (No. 333-234385) on Form
S-8 of HBT Financial, Inc., of our report dated March 7, 2025, relating to the consolidated financial statements and the effectiveness of
internal control over financial reporting of HBT Financial, Inc., appearing in this Annual Report on Form 10-K of HBT Financial, Inc., for the
year ended December 31, 2024.
/s/ RSM US LLP
Chicago, Illinois
March 7, 2025
EXHIBIT 31.1
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
I, J. Lance Carter, certify that:
1.
I have reviewed this annual report on Form 10-K of HBT Financial, Inc.;
2.
Based on my knowledge, this 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
report;
3.
Based on my knowledge, the financial statements, and other financial information included in this 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 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 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 report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this 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 7, 2025
/s/ J. Lance Carter
J. Lance Carter
President and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
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
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 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
report;
3.
Based on my knowledge, the financial statements, and other financial information included in this 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 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 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 report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this 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 7, 2025
/s/ Peter R. Chapman
Peter R. Chapman
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
EXHIBIT 32.1
Certification Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of HBT Financial, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2024 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/ J. Lance Carter
J. Lance Carter
President and Chief Executive Officer
(Principal Executive Officer)
March 7, 2025
EXHIBIT 32.2
Certification Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of HBT Financial, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2024 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 7, 2025
EXHIBIT 97.1
HBT Financial, Inc.
CLAWBACK POLICY
October 2024
_____________________________________________________________________________________
Purpose
The Board of Directors (the “Board”) of HBT Financial, Inc., (the “Company”) believes that it is in the best interests of the Company and
its shareholders to adopt this Clawback Policy (the “Policy”), which provides for the recovery of certain incentive compensation in the event
of an Accounting Restatement (as defined below). This Policy is designed to comply with, and shall be interpreted consistent with, Section
10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rule 10D-1 promulgated under the Exchange Act (“Rule
10D-1”) and Nasdaq Listing Rule 5608 (the “Listing Standards”).
Administration
Except as specifically set forth herein, this Policy shall be administered by the Board or, if so designated by the Board, the Company’s
Compensation Committee (the Board or the Compensation Committee charged with administration of this Policy, the “Administrator”). The
Administrator is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate or advisable for the
administration of this Policy. Any determinations made by the Administrator shall be final and binding on all affected individuals and need
not be uniform with respect to each individual covered by the Policy. In the administration of this Policy, the Administrator is authorized and
directed to consult with the full Board or such other committees of the Board, as may be necessary or appropriate as to matters within the
scope of such other committee’s responsibility and authority. Subject to any limitation of applicable law, the Administrator may authorize and
empower any officer or employee of the Company to take any and all actions necessary or appropriate to carry out the purpose and intent of
this Policy (other than with respect to any recovery under this Policy involving such officer or employee).
Definitions
As used in this Policy, the following definitions shall apply:
“Accounting Restatement” means an accounting restatement of the Company’s financial statements due to the Company’s material
noncompliance with any financial reporting requirement under the securities laws, including any required accounting restatement to correct
an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a
material misstatement if the error were corrected in the current period or left uncorrected in the current period.
“Applicable Period” means the three completed fiscal years immediately preceding the date on which the Company is required to
prepare an Accounting Restatement, as well as any transition period (that results from a change in the Company’s fiscal year) within or
immediately following those three completed fiscal years (except that a transition period that comprises a period of at least nine months shall
count as a completed fiscal year). The “date on which the Company is required to prepare an Accounting Restatement” is the earlier to occur
of (a) the date the Board concludes, or reasonably should have concluded, that the Company is required to prepare an Accounting
Restatement or (b) the date a court, regulator or other legally authorized body directs the Company to prepare an Accounting Restatement, in
each case regardless of if or when the restated financial statements are filed.
“Covered Executives” means the current and former executive officers of the Company and its subsidiaries, as determined by the
Administrator in accordance with the definition of executive officer set forth in Rule 10D-1 and the Listing Standards.
“Erroneously Awarded Compensation” has the meaning set forth in this Policy.
A “Financial Reporting Measure” is any measure that is determined and presented in accordance with the accounting principles
used in preparing the Company’s financial statements, and any measure that is derived wholly or in part from such measure. Financial
Reporting Measures include but are not limited to the following (and any measures derived from the following): Company stock price; total
shareholder return (“TSR”); revenues; net income; operating income; profitability of one or more reportable segments; financial ratios (e.g.,
accounts receivable turnover and inventory turnover rates); earnings before interest, taxes, depreciation and amortization; funds from
operations and adjusted funds from operations; liquidity measures (e.g., working capital, operating cash flow); return measures (e.g., return
on invested capital, return on assets); earnings measures (e.g., earnings per share); sales per square foot or same store sales, where sales is
subject to an Accounting Restatement; revenue per user, or average revenue per user, where revenue is subject to an Accounting Restatement;
cost per employee, where cost is subject to an Accounting Restatement; any of such financial reporting measures relative to a peer group,
where the Company’s financial reporting measure is subject to an Accounting Restatement; and tax basis income. A Financial Reporting
Measure need not be presented within the Company’s financial statements or included in a filing with the Securities Exchange Commission.
“Incentive-Based Compensation” means any compensation that is granted, earned, or vested based wholly or in part upon the attainment of
a Financial Reporting Measure. Incentive-Based Compensation is “received” for purposes of this Policy in the Company’s fiscal period
during which the Financial Reporting Measure specified in the Incentive-Based Compensation award is attained, even if the payment or grant
of such Incentive-Based Compensation occurs after the end of that period.
Covered Executives; Incentive-Based Compensation
This Policy applies to Incentive-Based Compensation received by a Covered Executive (a) after beginning services as a Covered Executive;
(b) if that person served as a Covered Executive at any time during the performance period for such Incentive-Based Compensation; and (c)
while the Company had a listed class of securities on a national securities exchange.
Required Recoupment
In the event the Company is required to prepare an Accounting Restatement, the Company shall promptly recoup the amount of any
Erroneously Awarded Compensation received by any Covered Executive, as calculated pursuant to this Policy, during the Applicable Period.
Erroneously Awarded Compensation: Amount Subject to Recovery
The amount of “Erroneously Awarded Compensation” subject to recovery under the Policy, as determined by the Administrator, is the
amount of Incentive-Based Compensation received by the Covered Executive that exceeds the amount of Incentive-Based Compensation that
would have been received by the Covered Executive had it been determined based on the restated amounts.
Erroneously Awarded Compensation shall be computed by the Administrator without regard to any taxes paid by the Covered Executive in
respect of the Erroneously Awarded Compensation.
By way of example, with respect to any compensation plans or programs that take into account Incentive-Based Compensation, the amount
of Erroneously Awarded Compensation subject to recovery hereunder includes, but is not limited to, the amount contributed to any notional
account based on Erroneously Awarded Compensation and any earnings accrued to date on that notional amount.
For Incentive-Based Compensation based on stock price or TSR: (a) the Administrator shall determine the amount of Erroneously Awarded
Compensation based on a reasonable estimate of the effect of the Accounting Restatement on the stock price or TSR upon which the
Incentive-Based Compensation was received; and (b) the Company shall maintain documentation of the determination of that reasonable
estimate and provide such documentation to The Nasdaq Stock Market (“Nasdaq”).
Method of Recoupment
The Administrator shall determine, in its sole discretion, the timing and method for promptly recouping Erroneously Awarded Compensation
hereunder, which may include without limitation (a) seeking reimbursement of all or part of any cash or equity-based award, (b) cancelling
prior cash or equity-based awards, whether vested or unvested or paid or unpaid, (c) cancelling or offsetting against any planned future cash
or equity-based awards, (d) forfeiture of deferred compensation, subject to compliance with Section 409A of the Internal Revenue Code and
the regulations promulgated thereunder and (e) any other method authorized by applicable law or contract. Subject to compliance with any
applicable law, the Administrator may affect recovery under this Policy from any amount otherwise payable to the Covered Executive,
including amounts payable to such individual under any otherwise applicable Company plan or program, including base salary, bonuses or
commissions and compensation previously deferred by the Covered Executive.
The Company is authorized and directed pursuant to this Policy to recoup Erroneously Awarded Compensation in compliance with
this Policy unless the Compensation Committee of the Board has determined that recovery would be impracticable solely for the following
limited reasons, and subject to the following procedural and disclosure requirements:
a.
The direct expense paid to a third party to assist in enforcing the Policy would exceed the amount to be recovered. Before
concluding that it would be impracticable to recover any amount of Erroneously Awarded Compensation based on expense
of enforcement, the Administrator must make a reasonable attempt to recover such erroneously awarded compensation,
document such reasonable attempt(s) to recover and provide that documentation to Nasdaq;
b.
Recovery would violate home country law of the issuer where that law was adopted prior to November 28, 2022. Before
concluding that it would be impracticable to recover any amount of Erroneously Awarded Compensation based on violation
of home country law of the issuer, the Administrator must satisfy the applicable opinion and disclosure requirements of Rule
10D-1 and the Listing Standards; or
c.
Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to
employees of the Company, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations
thereunder.
No Indemnification of Covered Executives
Notwithstanding the terms of any indemnification or insurance policy or any contractual arrangement with any Covered Executive that may
be interpreted to the contrary, the Company shall not indemnify any Covered Executives against the loss of any Erroneously Awarded
Compensation, including any payment or reimbursement for the cost of third-party insurance purchased by any Covered Executives to fund
potential clawback obligations under this Policy.
Indemnification of Administrator
Any members of the Administrator, and any other members of the Board who assist in the administration of this Policy, shall not be
personally liable for any action, determination or interpretation made with respect to this Policy and shall be fully indemnified by the
Company to the fullest extent under applicable law and Company policy with respect to any such action, determination, or interpretation. The
foregoing sentence shall not limit any other rights to indemnification of the members of the Board under applicable law or Company policy.
Effective Date; Retroactive Application
This Policy shall be effective as of October 2, 2023, (the “Effective Date”). The terms of this Policy shall apply to any Incentive-Based
Compensation that is received by Covered Executives on or after the Effective Date, even if such Incentive-Based Compensation was
approved, awarded, granted, or paid to Covered Executives prior to the Effective Date. Without limiting the generality of the preceding
Section hereof, and subject to applicable law, the Administrator may affect recovery under this Policy from any amount of compensation
approved, awarded, granted, payable or paid to the Covered Executive prior to, on or after the Effective Date.
Amendment; Termination
The Board may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary to reflect final
regulations adopted by the Securities and Exchange Commission under Section 10D of the Exchange Act and to comply with any rules or
standards adopted by a national securities exchange on which the Company’s securities are listed. The Board may terminate this Policy at any
time.
Other Recoupment Rights
The Board intends that this Policy will be applied to the fullest extent of the law. The Board may require that any employment agreement,
equity award agreement, incentive award agreement or similar agreement entered into on or after the Effective Date shall, as a condition to
the grant of any benefit thereunder, require a Covered Executive to agree to abide by the terms of this Policy. Any right of recoupment under
this Policy is in addition to, and not in lieu of, any other remedies or rights of recoupment that may be available to the Company pursuant to
the terms of any similar policy in any employment agreement, equity award agreement, or similar agreement and any other legal remedies
available to the Company.
Choice of Law; Venue
This Policy shall be interpreted under the laws of the State of Illinois. Any legal proceedings relating to this Policy shall be brought in a court
of competent jurisdiction in McLean County, Illinois.
Attorney Fees, Costs and Expenses of Enforcement
Covered Executives shall be responsible for all attorney fees, costs or expenses the Company incurs to enforce any provision of this Policy.
Successors
This Policy shall be binding and enforceable against all Covered Executives and their beneficiaries, heirs, executors, administrators, or other
legal representatives.
Exhibit Filing Requirement
A copy of this Policy and any amendments thereto shall be posted on the Company’s website and filed as an exhibit to the Company’s annual
report on Form 10-K.
* * *
HBT FINANCIAL, INC.
CLAWBACK POLICY ACKNOWLEDGEMENT
I, the undersigned, agree and acknowledge that I have read, fully understand, and I am fully bound by, and subject to, all of the terms and
conditions of the HBT Financial, Inc.’s Clawback Policy (as may be amended, restated, supplemented or otherwise modified from time to
time, the “Policy”). In the event of any inconsistency between the Policy and the terms of any employment agreement to which I am a party,
or the terms of any compensation plan, program or agreement under which any compensation has been granted, awarded, earned or paid, the
terms of the Policy shall govern. In the event it is determined by the Administrator that any amounts granted, awarded, earned or paid, to me
(whether or not deferred) must be forfeited or reimbursed to the Company, I will promptly take any action necessary to effectuate such
forfeiture and/or reimbursement. I further agree and acknowledge that I am not entitled to indemnification or right of advancement of
expense in connection with any enforcement of the Policy. Any capitalized terms used in this Acknowledgment without definition shall have
the meaning set forth in the Policy.
Acknowledged and agreed as of: .
By:
Name:__________________________________
Title:___________________________________