HBT Financial, Inc. - Quarter Report: 2023 March (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐ 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	(888) 897-2276
(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

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 25, 2023, there were 32,040,881 shares outstanding of the registrant’s common stock, $0.01 par value.

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TABLE OF CONTENTS
HBT Financial, Inc.

		Page

PART I. FINANCIAL INFORMATION		3
Item 1.	Consolidated Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income (Loss)	5
	Consolidated Statement of Changes in Stockholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	57
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	84
Item 4.	Controls and Procedures	86
PART II. OTHER INFORMATION		87
Item 1.	Legal Proceedings	87
Item 1A.	Risk Factors	87
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	87
Item 3.	Defaults Upon Senior Securities	87
Item 4.	Mine Safety Disclosures	87
Item 5.	Other Information	88
Item 6.	Exhibits	88

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this quarterly report are forward-looking statements. Forward-looking statements may include statements relating to our plans, strategies and expectations, the economic impact of the COVID-19 pandemic and our future financial results, near-term loan growth, net interest margin, mortgage banking profits, wealth management fees, expenses, asset quality, capital levels, continued earnings, and liquidity. Forward-looking statements are generally identifiable by use of the words "believe," "may," "will," "should," "could," "expect," "estimate," "intend," "anticipate," "project," "plan" or similar expressions. Forward-looking statements are frequently based on assumptions that may or may not materialize and are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that could cause actual results to differ materially from the results anticipated or projected and which could materially and adversely affect our operating results, financial condition or prospects include, but are not limited to:

●

the strength of the local, state, national and international economies (including effects of inflationary pressures and supply chain constraints);

●

the economic impact of any future terrorist threats and attacks, widespread disease or pandemics (including the COVID-19 pandemic in the United States), acts of war or other threats thereof (including the Russian invasion of Ukraine), or other adverse external events that could cause economic deterioration or instability in credit markets, and the response of the local, state and national governments to any such adverse external events;

●

changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies, the Financial Accounting Standards Board (the “FASB”) or the Public Company Accounting Oversight Board (including the Company’s adoption of CECL methodology);

●

changes in state and federal laws, regulations and governmental policies concerning the Company’s general business and any changes in response to the recent failures of other banks;

●

changes in interest rates and prepayment rates of the Company’s assets (including the impact of LIBOR phase-out);

●

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 or employees;

●

changes in consumer spending;

●

unexpected outcomes of existing or new litigation involving the Company;

●

the economic impact of exceptional weather occurrences such as tornadoes, floods and blizzards;

●

fluctuations in the value of securities held in our securities portfolio;

●

concentrations within our loan portfolio, large loans to certain borrowers, and large deposits from certain clients;

●

the concentration of large deposits from certain clients who have balances above current FDIC insurance limits and may withdraw deposits to diversify their exposure;

●

the level of non-performing assets on our balance sheets;

●

interruptions involving our information technology and communications systems or third-party servicers;

●

breaches or failures of our information security controls or cybersecurity-related incidents;

●

our asset quality and any loan charge-offs;

●

the composition of our loan portfolio;

●

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;

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●

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;

●

our prior status as an S corporation;

●

possible changes in trade, monetary and fiscal policies of, and other activities undertaken by, governments, agencies, central banks and similar organizations;

●

the effectiveness of our risk management and internal disclosure controls and procedures;

●

market perceptions associated with certain aspects of our business;

●

our ability to meet our obligations as a public company, including our obligations under Section 404 of the Sarbanes-Oxley Act of 2002;

●

damage to our reputation from any of the factors described above;

●

our success at managing the risks involved in the foregoing items; and

●

the factors discussed in “Risk Factors”, "Management's Discussion and Analysis of Financial Condition and Results of Operations" or elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange (“SEC”) Commission on March 8, 2023.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Forward-looking statements speak only as of the date they are made. We do not undertake any obligation to update any forward-looking statement in the future, or to reflect circumstances and events that occur after the date on which the forward-looking statement was made.

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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

HBT FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)


	(Unaudited)
	March 31,		December 31,
	2023		2022
ASSETS
Cash and due from banks	$	35,244	$	18,970
Interest-bearing deposits with banks		141,868		95,189
Cash and cash equivalents		177,112		114,159

Interest-bearing time deposits with banks		249		—
Debt securities available-for-sale, at fair value (allowance for credit losses of $600 at 2023)		854,622		843,524
Debt securities held-to-maturity (fair value of $481,925 at 2023 and $478,801 at 2022)		536,429		541,600
Equity securities with readily determinable fair value		3,145		3,029
Equity securities with no readily determinable fair value		1,980		1,977
Restricted stock, at cost		4,991		7,965
Loans held for sale		5,130		615

Loans, before allowance for credit losses		3,195,540		2,620,253
Allowance for credit losses		(38,776)		(25,333)
Loans, net of allowance for credit losses		3,156,764		2,594,920

Bank owned life insurance		23,447		7,557
Bank premises and equipment, net		65,119		50,469
Bank premises held for sale		235		235
Foreclosed assets		3,356		3,030
Goodwill		59,876		29,322
Intangible assets, net		22,842		1,070
Mortgage servicing rights, at fair value		19,992		10,147
Investments in unconsolidated subsidiaries		1,614		1,165
Accrued interest receivable		20,301		19,506
Other assets		56,617		56,444
Total assets	$	5,013,821	$	4,286,734

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-bearing	$	1,218,888	$	994,954
Interest-bearing		3,091,633		2,592,070
Total deposits		4,310,521		3,587,024

Securities sold under agreements to repurchase		34,919		43,081
Federal Home Loan Bank advances		75,183		160,000
Subordinated notes		39,415		39,395
Junior subordinated debentures issued to capital trusts		52,746		37,780
Other liabilities		50,939		45,822
Total liabilities		4,563,723		3,913,102

COMMITMENTS AND CONTINGENCIES (Note 15)

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 32,730,698 at 2023 and 29,308,491 at 2022; shares outstanding of 32,095,370 at 2023 and 28,752,626 at 2022		327		293
Surplus		294,441		222,783
Retained earnings		228,782		232,004
Accumulated other comprehensive income (loss)		(62,175)		(71,759)
Treasury stock at cost, 635,328 shares at 2023 and 555,865 at 2022		(11,277)		(9,689)
Total stockholders’ equity		450,098		373,632
Total liabilities and stockholders’ equity	$	5,013,821	$	4,286,734

See accompanying Notes to Consolidated Financial Statements (Unaudited)

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HBT FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended March 31,
	2023		2022

INTEREST AND DIVIDEND INCOME	(dollars in thousands, except per share data)
Loans, including fees:
Taxable	$	42,159	$	26,806
Federally tax exempt		952		662
Securities:
Taxable		6,616		4,649
Federally tax exempt		1,197		1,040
Interest-bearing deposits in bank		739		159
Other interest and dividend income		116		19
Total interest and dividend income		51,779		33,335

INTEREST EXPENSE
Deposits		2,374		569
Securities sold under agreements to repurchase		38		9
Borrowings		1,297		1
Subordinated notes		470		470
Junior subordinated debentures issued to capital trusts		763		358
Total interest expense		4,942		1,407
Net interest income		46,837		31,928
PROVISION FOR CREDIT LOSSES		6,210		(584)
Net interest income after provision for credit losses		40,627		32,512

NONINTEREST INCOME
Card income		2,658		2,404
Wealth management fees		2,338		2,289
Service charges on deposit accounts		1,871		1,652
Mortgage servicing		1,099		658
Mortgage servicing rights fair value adjustment		(624)		1,729
Gains on sale of mortgage loans		276		587
Realized gains (losses) on sales of securities		(1,007)		—
Unrealized gains (losses) on equity securities		(22)		(187)
Gains (losses) on foreclosed assets		(10)		40
Gains (losses) on other assets		—		193
Income on bank owned life insurance		115		40
Other noninterest income		743		638
Total noninterest income		7,437		10,043

NONINTEREST EXPENSE
Salaries		19,411		12,801
Employee benefits		2,335		2,444
Occupancy of bank premises		2,102		2,060
Furniture and equipment		659		552
Data processing		4,323		1,653
Marketing and customer relations		836		851
Amortization of intangible assets		510		245
FDIC insurance		563		288
Loan collection and servicing		278		157
Foreclosed assets		61		132
Other noninterest expense		4,855		2,974
Total noninterest expense		35,933		24,157
INCOME BEFORE INCOME TAX EXPENSE		12,131		18,398
INCOME TAX EXPENSE		2,923		4,794
NET INCOME	$	9,208	$	13,604

EARNINGS PER SHARE - BASIC	$	0.30	$	0.47
EARNINGS PER SHARE - DILUTED	$	0.30	$	0.47
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING		30,977,204		28,986,593

See accompanying Notes to Consolidated Financial Statements (Unaudited)

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HBT FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Three Months Ended March 31,
	2023		2022

	(dollars in thousands)
NET INCOME	$	9,208	$	13,604

OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gains (losses) on debt securities available-for-sale		11,443		(53,422)
Reclassification adjustment for losses on securities available-for-sale realized in income		1,607		—
Reclassification adjustment for amortization of net unrealized losses on debt securities transferred to held-to-maturity		490		181
Unrealized (losses) gains on derivative instruments		(40)		594
Reclassification adjustment for net settlements on derivative instruments		(94)		96
Total other comprehensive income (loss), before tax		13,406		(52,551)
Income tax expense (benefit)		3,822		(14,980)
Total other comprehensive income (loss)		9,584		(37,571)
TOTAL COMPREHENSIVE INCOME (LOSS)	$	18,792	$	(23,967)

See accompanying Notes to Consolidated Financial Statements (Unaudited)

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HBT FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)


								Accumulated
	Common Stock							Other				Total
	Shares					Retained		Comprehensive		Treasury		Stockholders’
	Outstanding	Amount		Surplus		Earnings		Income (Loss)		Stock		Equity

	(dollars in thousands, except per share data)
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	—		—		—		9,208		—		—		9,208
Other comprehensive income	—		—		—		—		9,584		—		9,584
Stock-based compensation	—		—		517		—		—		—		517
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	(79,463)		—		—		—		—		(1,588)		(1,588)
Cash dividends and dividend equivalents ($0.17 per share)	—		—		—		(5,508)		—		—		(5,508)
Balance, March 31, 2023	32,095,370	$	327	$	294,441	$	228,782	$	(62,175)	$	(11,277)	$	450,098

Balance, December 31, 2021	28,986,061	$	293	$	220,891	$	194,132	$	1,471	$	(4,906)	$	411,881
Net income	—		—		—		13,604		—		—		13,604
Other comprehensive loss	—		—		—		—		(37,571)		—		(37,571)
Stock-based compensation	—		—		901		—		—		—		901
Issuance of common stock upon vesting of restricted stock units	31,944		—		(57)		—		—		—		(57)
Repurchase of common stock	(50,062)		—		—		—		—		(943)		(943)
Cash dividends and dividend equivalents ($0.16 per share)	—		—		—		(4,660)		—		—		(4,660)
Balance, March 31, 2022	28,967,943	$	293	$	221,735	$	203,076	$	(36,100)	$	(5,849)	$	383,155

See accompanying Notes to Consolidated Financial Statements (Unaudited)

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HBT FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,
	2023		2022

	(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	9,208	$	13,604
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense		793		763
Provision for credit losses		6,210		(584)
Net amortization of debt securities		1,518		1,763
Deferred income tax (benefit) expense		(1,079)		566
Stock-based compensation		517		901
Net accretion of discount and deferred loan fees on loans		(1,635)		(1,608)
Net realized loss on sales of securities		1,007		—
Net unrealized loss on equity securities		22		187
Net loss on disposals of bank premises and equipment		—		4
Net gain on sales of bank premises held for sale		—		(197)
Net gain on sales of foreclosed assets		(20)		(105)
Write-down of foreclosed assets		30		65
Amortization of intangibles		510		245
Decrease (increase) in mortgage servicing rights		624		(1,729)
Amortization of discount and issuance costs on subordinated notes and debentures		37		37
Amortization of premium on Federal Home Loan Bank borrowings		69		—
Amortization of premium on interest-bearing time deposits with banks		—		3
Amortization of premium on time deposits		(110)		(75)
Mortgage loans originated for sale		(15,734)		(20,440)
Proceeds from sale of mortgage loans		13,107		24,192
Net gain on sale of mortgage loans		(276)		(587)
Increase in cash surrender value of bank owned life insurance		(108)		(40)
Decrease in accrued interest receivable		2,318		1,374
Decrease in other assets		7,846		1,521
(Decrease) increase in other liabilities		(3,364)		1,379
Net cash provided by operating activities		21,490		21,239

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available-for-sale		145,844		—
Proceeds from paydowns, maturities, and calls of debt securities		26,513		41,117
Purchase of securities		(51)		(189,744)
Net decrease in loans		61,964		14,649
Purchase of restricted stock		(3,545)		—
Proceeds from redemption of restricted stock		9,341		—
Purchases of bank premises and equipment		(622)		(289)
Proceeds from sales of bank premises and equipment		7		—
Proceeds from sales of bank premises held for sale		—		568
Proceeds from sales of foreclosed assets		40		294
Net cash paid for acquisition of Town and Country		(14,454)		—
Net cash provided by (used in) investing activities		225,037		(133,405)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits		3,190		77,959
Net decrease in repurchase agreements		(8,162)		(10,422)
Net decrease in Federal Home Loan Bank advances		(171,325)		—
Taxes paid related to the vesting of restricted stock units		(181)		(57)
Repurchase of common stock		(1,588)		(943)
Cash dividends and dividend equivalents paid		(5,508)		(4,660)
Net cash (used in) provided by financing activities		(183,574)		61,877

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		62,953		(50,289)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		114,159		409,268
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	177,112	$	358,979

See accompanying Notes to Consolidated Financial Statements (Unaudited)

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HBT FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)


	Three Months Ended March 31,
	2023		2022

	(dollars in thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	$	4,903	$	1,890
Cash paid for income taxes	$	—	$	—

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES
Transfers of loans to foreclosed assets	$	105	$	19

See accompanying Notes to Consolidated Financial Statements (Unaudited)

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – ACCOUNTING POLICIES

Basis of Presentation

HBT Financial, Inc. (“HBT Financial” or the “Company”) is headquartered in Bloomington, Illinois and is the holding company for Heartland Bank and Trust Company (“Heartland Bank” or the “Bank”). The Bank provides a comprehensive suite of business, commercial, wealth management and retail banking products and services to individuals, businesses, and municipal entities throughout 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 unaudited consolidated financial statements, including the notes thereto, have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) interim reporting requirements. Certain information in footnote disclosures normally included in financial statements prepared in accordance with GAAP has been condensed or omitted pursuant to rules and regulations of the SEC. These interim unaudited consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 8, 2023.

The unaudited consolidated financial statements include all normal, recurring adjustments necessary for a fair presentation of the results for the interim periods. The results for interim periods are not necessarily indicative of results for a full year.

The Company qualifies as an "emerging growth company" as defined by the Jumpstart Our Business Startups Act (“JOBS Act”). The JOBS Act permits emerging growth companies an extended transition period for complying with new or revised accounting standards affecting public companies. The Company may remain an emerging growth company until the earliest to occur of: (1) the end of the fiscal year following the fifth anniversary of the completion of our initial public offering, which is December 31, 2024, (2) the last day of the fiscal year in which the Company has $1.235 billion or more in annual revenues, (3) the date on which the Company is deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) or (4) the date on which the Company has, during the previous three year period, issued, publicly or privately, more than $1.0 billion in non-convertible debt securities. The Company has elected to use the extended transition period until the Company is no longer an emerging growth company or until the Company chooses to affirmatively and irrevocably opt out of the extended transition period. As a result, the Company’s financial statements may not be comparable to companies that comply with new or revised accounting pronouncements applicable to public companies.

Use of Estimates

The accompanying consolidated financial statements have been prepared in conformity with GAAP. 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 and fair value of assets acquired and liabilities assumed in business combinations.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Segment Reporting

The Company’s operations consist of one reportable segment. The Company’s chief operating decision maker evaluates the operations of the Company using consolidated information for purposes of allocating resources and assessing performance.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation without any impact on the reported amounts of net income or stockholders’ equity.

Subsequent Events

In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the 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, Accounting Standards Codification (“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.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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
	Pre-ASC 326		Impact of		As Reported
	Adoption		ASC 326 Adoption		under ASC 326

	(dollars in thousands)
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

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, 2023, the Company also adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the recognition and measurement guidance for troubled debt restructurings (“TDRs”) by creditors in ASC 310-40. This Update also enhances disclosure requirements for certain loan restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity will apply refinancing and restructuring guidance to determine whether a modification or other form of restructuring results in a new loan or a continuation of an existing loan. Additionally, the amendments in this ASU require a public business entity to disclosure current-period gross write-offs by year of origination for financing receivables and net investments in leases in the existing vintage disclosures. This standard did not have a material impact on the Company’s consolidated results of operations or financial position.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Recent Accounting Pronouncements

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value and that contractual sale restrictions cannot be recognized and measured as a separate unit of account. The amendments in this update are effective for years beginning after December 15, 2023, including interim periods within those years. This standard is not expected to have a material impact on the Company’s consolidated results of operations or financial position.

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method. ASU 2022-01 replaces the current last-of-layer hedge accounting method with an expanded portfolio layer method that permits multiple hedged layers of a single closed portfolio. The scope of the portfolio layer method is also expanded to include non-prepayable financial assets. ASU 2022-01 also provides additional guidance on the accounting for and disclosure of hedge basis adjustments that are applicable to the portfolio layer method, and specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. Amendments related to hedge basis adjustments which are included in this standard apply on a modified retrospective basis by means of a cumulative-effect adjustment to the opening balance of retained earnings on the initial application date. Amendments related to hedge basis adjustments which are included in this standard apply on a modified retrospective basis by means of a cumulative-effect adjustment to the opening balance of retained earnings on the initial application date. Amendments related to disclosure which are included in this standard may be applied on a prospective basis from the initial application date, or on a retrospective basis to each prior period presented after the date of adoption of the amendments in ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments in this update are effective for years beginning after December 15, 2023, including interim periods within those years. Early adoption is permitted. This standard is not expected to have a material impact on the Company’s consolidated results of operations or financial position.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform, if certain criteria are met. In January 2021, the FASB also issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which refined the scope for certain optional expedients and exceptions for contract modifications and hedge accounting to apply to derivative contracts and certain hedging relationships affected by the discounting transition. Entities may apply the provisions as of the beginning of the reporting period when the election is made and are available until December 31, 2024. The Company is currently evaluating the effect that this standard will have on the consolidated results of operations and financial position.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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. Goodwill of $30.6 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. During the three months ended March 31, 2023, HBT Financial incurred the following expenses related to the acquisition of Town and Country (dollars in thousands):


Provision for credit losses	$	5,924
Salaries		3,518
Data processing		1,855
Marketing and customer relations		14
Legal fees and other noninterest expense		1,753
Total acquisition-related expenses	$	13,064

There were no expenses related to the acquisition of Town and Country during the three months ended March 31, 2022.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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		90
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		8,061
Total assets acquired		905,568

Liabilities assumed:
Deposits		720,417
FHLB advances		86,439
Junior subordinated debentures		14,949
Other liabilities		4,965
Total liabilities assumed		826,770
Net assets acquired	$	78,798

Consideration paid:
Cash	$	37,996
Common stock		71,356
Total consideration paid	$	109,352

Goodwill	$	30,554

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 three months ended March 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
	Three Months Ended March 31,
(dollars in thousands, except per share data)	2023		2022
Total revenues (net interest income and noninterest income)	$	57,770	$	54,512
Net income		10,015		17,577
Earnings per share - basic		0.31		0.57
Earnings per share - diluted		0.31		0.57

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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:


March 31, 2023	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value

Available-for-sale:	(dollars in thousands)
U.S. Treasury	$	169,824	$	—	$	(12,804)	$	—	$	157,020
U.S. government agency		57,111		—		(3,413)		—		53,698
Municipal		274,849		114		(26,079)		—		248,884
Mortgage-backed:
Agency residential		218,509		20		(16,553)		—		201,976
Agency commercial		150,195		4		(15,190)		—		135,009
Corporate		62,616		—		(3,981)		(600)		58,035
Total available-for-sale	$	933,104	$	138	$	(78,020)	$	(600)	$	854,622

March 31, 2023	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance for Credit Losses

Held-to-maturity:	(dollars in thousands)
U.S. government agency	$	88,430	$	—	$	(8,257)	$	80,173	$	—
Municipal		41,121		426		(128)		41,419		—
Mortgage-backed:
Agency residential		100,500		—		(5,275)		95,225		—
Agency commercial		306,378		—		(41,270)		265,108		—
Total held-to-maturity	$	536,429	$	426	$	(54,930)	$	481,925	$	—

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


December 31, 2022	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

Available-for-sale:	(dollars in thousands)
U.S. Treasury	$	169,860	$	—	$	(15,345)	$	154,515
U.S. government agency		59,291		—		(4,134)		55,157
Municipal		275,972		46		(32,189)		243,829
Mortgage-backed:
Agency residential		213,676		5		(18,240)		195,441
Agency commercial		150,060		—		(17,172)		132,888
Corporate		65,597		55		(3,958)		61,694
Total available-for-sale	$	934,456	$	106	$	(91,038)	$	843,524

December 31, 2022	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

Held-to-maturity:	(dollars in thousands)
U.S. government agency	$	88,424	$	—	$	(9,728)	$	78,696
Municipal		42,167		195		(314)		42,048
Mortgage-backed:
Agency residential		102,728		—		(6,470)		96,258
Agency commercial		308,281		—		(46,482)		261,799
Total held-to-maturity	$	541,600	$	195	$	(62,994)	$	478,801

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
	Amortized
	Cost		Fair Value

	(dollars in thousands)
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, but will be amortized over the remaining life of the debt securities as an adjustment of yield in a manner consistent with amortization of any premium or discount. As a result, the amortization of an unrealized gain (loss) reported in accumulated other comprehensive income will offset or mitigate the effect on interest income of the amortization of the premium or discount for that held-to-maturity debt security.

As of March 31, 2023 and December 31, 2022, the Bank had debt securities with a carrying value of $369.7 million and $332.6 million, respectively, which were pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes required or permitted by law.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The amortized cost and fair value of debt securities by contractual maturity, as of March 31, 2023, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value

	(dollars in thousands)
Due in 1 year or less	$	30,344	$	29,783	$	1,211	$	1,213
Due after 1 year through 5 years		230,070		218,061		27,853		27,207
Due after 5 years through 10 years		242,248		214,337		94,481		87,530
Due after 10 years		61,738		55,456		6,006		5,642

Mortgage-backed:
Agency residential		218,509		201,976		100,500		95,225
Agency commercial		150,195		135,009		306,378		265,108
Total	$	933,104	$	854,622	$	536,429	$	481,925

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 March 31, 2023, aggregated by category and length of time that individual debt securities have been in a continuous unrealized loss position:


	Investments in a Continuous Unrealized Loss Position
	Less than 12 Months				12 Months or More				Total
March 31, 2023	Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value

Available-for-sale:	(dollars in thousands)
U.S. Treasury	$	—	$	—	$	(12,804)	$	157,020	$	(12,804)	$	157,020
U.S. government agency		(829)		22,107		(2,584)		31,591		(3,413)		53,698
Municipal		(475)		37,739		(25,604)		188,362		(26,079)		226,101
Mortgage-backed:
Agency residential		(1,301)		48,400		(15,252)		148,449		(16,553)		196,849
Agency commercial		(794)		22,044		(14,396)		112,275		(15,190)		134,319
Corporate		(1,426)		41,224		(2,516)		15,449		(3,942)		56,673
Total available-for-sale	$	(4,825)	$	171,514	$	(73,156)	$	653,146	$	(77,981)	$	824,660

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents gross unrealized losses and fair value of debt securities, aggregated by category and length of time that individual debt securities have been in a continuous unrealized loss position, as of December 31, 2022:


	Investments in a Continuous Unrealized Loss Position
	Less than 12 Months				12 Months or More				Total
December 31, 2022	Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value

Available-for-sale:	(dollars in thousands)
U.S. Treasury	$	(8,401)	$	92,445	$	(6,944)	$	62,070	$	(15,345)	$	154,515
U.S. government agency		(2,980)		47,370		(1,154)		7,787		(4,134)		55,157
Municipal		(10,906)		149,261		(21,283)		87,794		(32,189)		237,055
Mortgage-backed:
Agency residential		(8,332)		127,288		(9,908)		65,692		(18,240)		192,980
Agency commercial		(4,764)		62,672		(12,408)		70,216		(17,172)		132,888
Corporate		(2,594)		52,190		(1,364)		5,600		(3,958)		57,790
Total available-for-sale		(37,977)		531,226		(53,061)		299,159		(91,038)		830,385
Held-to-maturity:
U.S. government agency		(1,754)		15,751		(7,974)		62,945		(9,728)		78,696
Municipal		(314)		23,433		—		—		(314)		23,433
Mortgage-backed:
Agency residential		(4,039)		78,452		(2,431)		17,806		(6,470)		96,258
Agency commercial		(16,716)		103,298		(29,766)		158,501		(46,482)		261,799
Total held-to-maturity		(22,823)		220,934		(40,171)		239,252		(62,994)		460,186
Total debt securities	$	(60,800)	$	752,160	$	(93,232)	$	538,411	$	(154,032)	$	1,290,571

As of March 31, 2023, there were 531 debt securities in an unrealized loss position for a period of twelve months or more, and 316 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 approximately 81% general obligation bonds as of March 31, 2023, which have a very low historical default rate due to issuers generally having taxing authority to service the debt. The remainder of the municipal securities are also of high credit quality with ratings of A+/A1 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 financial data, and sector trends. For one bank subordinated debt security, a $0.6 million allowance for credit losses was established during the three months ended March 31, 2023, reflecting heightened potential credit risk following the recent failures of other banks. For the other corporate securities, 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of March 31, 2023, the Company does not intend to sell the debt securities that are in an unrealized or unrecognized loss position, and it is more likely than not that the Company will recover the amortized cost prior to being required to sell the debt securities.

Accrued interest on debt securities totaled $6.3 million as of March 31, 2023 and is excluded from the estimate of credit losses.

Sales of debt securities were as follows during the three months ended March 31:


	Three Months Ended March 31,
	2023		2022

	(dollars in thousands)
Proceeds from sales	$	145,844	$	—
Gross realized gains		—		—
Gross realized losses		(1,007)		—

Equity Securities

Equity securities with readily determinable fair values are measured at fair value with changes in fair value recognized in unrealized gains (losses) on equity securities on the consolidated statements of income.

The Company has elected to measure equity securities with no readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes for identical or similar securities of the same issuer.

The initial cost and carrying values of equity securities, with cumulative net unrealized gains and losses are as follows:


	Readily		No Readily
	Determinable		Determinable
March 31, 2023	Fair Value		Fair Value

	(dollars in thousands)
Initial cost	$	3,142	$	2,283
Cumulative net unrealized gains (losses)		3		(303)
Carrying value	$	3,145	$	1,980


	Readily		No Readily
	Determinable		Determinable
December 31, 2022	Fair Value		Fair Value

	(dollars in thousands)
Initial cost	$	3,142	$	2,142
Cumulative net unrealized gains (losses)		(113)		(165)
Carrying value	$	3,029	$	1,977

As of March 31, 2023, the cumulative net unrealized losses on equity securities with no readily determinable fair value reflect impairments of $0.1 million and downward adjustments based on observable price changes of an identical investment of $0.2 million. As of December 31, 2022, the cumulative net unrealized losses on equity securities with no readily determinable fair value reflect downward adjustments based on observable price changes of an identical investment. There have been no upward adjustments based on observable price changes to equity securities with no readily determinable fair value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

There were no sales of equity securities during the three months ended March 31, 2023 and 2022. Unrealized gains (losses) on equity securities were as follows during the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
	2023		2022

	(dollars in thousands)
Readily determinable fair value	$	116	$	(187)
No readily determinable fair value		(138)		—
Unrealized gains (losses) on equity securities	$	(22)	$	(187)

NOTE 4 – LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES

Major categories of loans are summarized as follows:


	March 31, 2023		December 31, 2022

	(dollars in thousands)
Commercial and industrial	$	333,013	$	266,757
Commercial real estate - owner occupied		317,103		218,503
Commercial real estate - non-owner occupied		854,024		713,202
Construction and land development		389,142		360,824
Multi-family		362,672		287,865
One-to-four family residential		482,732		338,253
Agricultural and farmland		243,357		237,746
Municipal, consumer, and other		213,497		197,103
Loans, before allowance for credit losses		3,195,540		2,620,253
Allowance for credit losses		(38,776)		(25,333)
Loans, net of allowance for credit losses	$	3,156,764	$	2,594,920

As of March 31, 2023 and December 31, 2022, commercial and industrial loans include $25 thousand and $28 thousand Paycheck Protection Program (“PPP”) loans, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 the consumer loans where the weighted average remaining maturity method is utilized.

At March 31, 2023, the economic forecasts used by management anticipates a mild recession starting in the second half of 2023, with the unemployment rate increasing and GDP growth slowing and then shrinking over the next 4 quarters considered in the forecast period. After the forecast period, the Company reverts to long-term averages over a 4-quarter reversion period. Additionally, management may make qualitative adjustments to the loss estimates as necessary to reflect other factors that may influence affect credit losses.

The following tables detail activity in the allowance for credit losses for the three months ended March 31:


	Three Months Ended March 31, 2023
			Commercial		Commercial										Municipal,
	Commercial		Real Estate		Real Estate		Construction				One-to-four		Agricultural		Consumer,
	and		Owner		Non-owner		and Land				Family		and		and
	Industrial		Occupied		Occupied		Development		Multi-Family		Residential		Farmland		Other		Total

	(dollars in thousands)
Beginning balance	$	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		387		619		305		1,139		526		1,081		305		739		5,101
Charge-offs		—		(3)		—		—		—		(22)		—		(117)		(142)
Recoveries		19		12		74		3		—		58		1		87		254
Ending balance	$	2,932	$	2,535	$	7,840	$	7,574	$	2,151	$	4,165	$	2,674	$	8,905	$	38,776

	Three Months Ended March 31, 2022
			Commercial		Commercial										Municipal,
	Commercial		Real Estate		Real Estate		Construction				One-to-four		Agricultural		Consumer,
	and		Owner		Non-owner		and Land				Family		and		and
	Industrial		Occupied		Occupied		Development		Multi-Family		Residential		Farmland		Other		Total

	(dollars in thousands)
Beginning balance	$	2,440	$	1,840	$	8,145	$	4,914	$	1,263	$	1,311	$	845	$	3,178	$	23,936
Provision for loan losses		(653)		(429)		(1,396)		(421)		91		120		(3)		2,107		(584)
Charge-offs		(5)		—		—		—		—		(2)		—		(127)		(134)
Recoveries		709		100		265		—		—		154		—		62		1,290
Ending balance	$	2,491	$	1,511	$	7,014	$	4,493	$	1,354	$	1,583	$	842	$	5,220	$	24,508

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Gross charge-offs, further sorted by origination year, were as follows during the three months ended March 31, 2023:


	Gross Charge-Offs for the Three Months Ended March 31, 2023
															Revolving
															Loans
	Term Loans by Origination Year												Revolving		Converted
	2023		2022		2021		2020		2019		Prior		Loans		to Term		Total

	(dollars in thousands)
Commercial and industrial	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate - owner occupied		—		3		—		—		—		—		—		—		3
Commercial real estate - non-owner occupied		—		—		—		—		—		—		—		—		—
Construction and land development		—		—		—		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—		—		—		—
One-to-four family residential		—		—		—		—		1		21		—		—		22
Agricultural and farmland		—		—		—		—		—		—		—		—		—
Municipal, consumer, and other		35		53		—		9		—		—		20		—		117
Total	$	35	$	56	$	—	$	9	$	1	$	21	$	20	$	—	$	142

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables present loans and the related allowance for credit losses by category:


			Commercial		Commercial										Municipal,
	Commercial		Real Estate		Real Estate		Construction				One-to-four		Agricultural		Consumer,
	and		Owner		Non-owner		and Land				Family		and		and
March 31, 2023	Industrial		Occupied		Occupied		Development		Multi-Family		Residential		Farmland		Other		Total

Loan balances:	(dollars in thousands)
Collectively evaluated for impairment	$	332,878	$	316,652	$	827,220	$	388,904	$	361,636	$	477,893	$	243,357	$	196,739	$	3,145,279
Individually evaluated for impairment		135		451		26,804		238		1,036		4,839		—		16,758		50,261
Total	$	333,013	$	317,103	$	854,024	$	389,142	$	362,672	$	482,732	$	243,357	$	213,497	$	3,195,540

Allowance for credit losses:
Collectively evaluated for impairment	$	2,932	$	2,524	$	5,747	$	7,574	$	2,151	$	3,718	$	2,674	$	5,333	$	32,653
Individually evaluated for impairment		—		11		2,093		—		—		447		—		3,572		6,123
Total	$	2,932	$	2,535	$	7,840	$	7,574	$	2,151	$	4,165	$	2,674	$	8,905	$	38,776

			Commercial		Commercial										Municipal,
	Commercial		Real Estate		Real Estate		Construction				One-to-four		Agricultural		Consumer,
	and		Owner		Non-owner		and Land				Family		and		and
December 31, 2022	Industrial		Occupied		Occupied		Development		Multi-Family		Residential		Farmland		Other		Total

Loan balances:	(dollars in thousands)
Collectively evaluated for impairment	$	261,833	$	203,558	$	671,663	$	359,892	$	287,298	$	325,621	$	233,118	$	184,579	$	2,527,562
Individually evaluated for impairment		4,818		11,366		30,509		82		—		8,399		4,033		12,508		71,715
Acquired with deteriorated credit quality		106		3,579		11,030		850		567		4,233		595		16		20,976
Total	$	266,757	$	218,503	$	713,202	$	360,824	$	287,865	$	338,253	$	237,746	$	197,103	$	2,620,253

Allowance for loan losses:
Collectively evaluated for impairment	$	3,121	$	1,008	$	4,332	$	4,221	$	1,470	$	1,709	$	796	$	2,327	$	18,984
Individually evaluated for impairment		158		168		2,388		—		—		44		—		3,562		6,320
Acquired with deteriorated credit quality		—		17		1		2		2		6		—		1		29
Total	$	3,279	$	1,193	$	6,721	$	4,223	$	1,472	$	1,759	$	796	$	5,890	$	25,333

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents 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:


	Amortized Cost								Allowance
	Primary Collateral Type								for Credit
March 31, 2023	Real Estate		Vehicles		Other		Total		Losses

	(dollars in thousands)
Commercial and industrial	$	—	$	—	$	135	$	135	$	—
Commercial real estate - owner occupied		451		—		—		451		11
Commercial real estate - non-owner occupied		26,804		—		—		26,804		2,093
Construction and land development		238		—		—		238		—
Multi-family		1,036		—		—		1,036		—
One-to-four family residential		4,839		—		—		4,839		447
Agricultural and farmland		—		—		—		—		—
Municipal, consumer, and other		16,671		52		35		16,758		3,572
Total	$	50,039	$	52	$	170	$	50,261	$	6,123

Accrued interest on loans totaled $13.8 million as of March 31, 2023 and is excluded from the estimate of credit losses.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Pre-ASC 326 Adoption Impaired Loan Disclosures

The following table presents loans individually evaluated for impairment by category of loans:


	Unpaid
	Principal		Recorded		Related
December 31, 2022	Balance		Investment		Allowance

With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	268	$	254	$	158
Commercial real estate - owner occupied		635		610		168
Commercial real estate - non-owner occupied		14,269		14,261		2,388
Construction and land development		—		—		—
Multi-family		—		—		—
One-to-four family residential		569		524		44
Agricultural and farmland		—		—		—
Municipal, consumer, and other		8,152		8,131		3,562
Total	$	23,893	$	23,780	$	6,320

With no related allowance:
Commercial and industrial	$	4,564	$	4,564	$	—
Commercial real estate - owner occupied		10,912		10,756		—
Commercial real estate - non-owner occupied		16,327		16,248		—
Construction and land development		92		82		—
Multi-family		—		—		—
One-to-four family residential		9,181		7,875		—
Agricultural and farmland		4,440		4,033		—
Municipal, consumer, and other		4,410		4,377		—
Total	$	49,926	$	47,935	$	—

Total loans individually evaluated for impairment:
Commercial and industrial	$	4,832	$	4,818	$	158
Commercial real estate - owner occupied		11,547		11,366		168
Commercial real estate - non-owner occupied		30,596		30,509		2,388
Construction and land development		92		82		—
Multi-family		—		—		—
One-to-four family residential		9,750		8,399		44
Agricultural and farmland		4,440		4,033		—
Municipal, consumer, and other		12,562		12,508		3,562
Total	$	73,819	$	71,715	$	6,320

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the average recorded investment and interest income recognized for loans individually evaluated for impairment by category of loans:


	Three Months Ended March 31, 2022
	Average		Interest
	Recorded		Income
	Investment		Recognized

With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	292	$	4
Commercial real estate - owner occupied		2,425		33
Commercial real estate - non-owner occupied		14,854		186
Construction and land development		—		—
Multi-family		—		—
One-to-four family residential		647		5
Agricultural and farmland		—		—
Municipal, consumer, and other		8,509		39
Total	$	26,727	$	267

With no related allowance:
Commercial and industrial	$	19,498	$	200
Commercial real estate - owner occupied		11,028		106
Commercial real estate - non-owner occupied		15,495		198
Construction and land development		2,016		22
Multi-family		—		—
One-to-four family residential		8,728		57
Agricultural and farmland		236		—
Municipal, consumer, and other		4,544		21
Total	$	61,545	$	604

Total loans individually evaluated for impairment:
Commercial and industrial	$	19,790	$	204
Commercial real estate - owner occupied		13,453		139
Commercial real estate - non-owner occupied		30,349		384
Construction and land development		2,016		22
Multi-family		—		—
One-to-four family residential		9,375		62
Agricultural and farmland		236		—
Municipal, consumer, and other		13,053		60
Total	$	88,272	$	871

Changes in the accretable yield for loans acquired with deteriorated credit quality were as follows:


	Three Months Ended March 31, 2022
	(dollars in thousands)
Beginning balance	$	413
Reclassification from non-accretable difference		117
Accretion income		(46)
Ending balance	$	484

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.

The following tables present loans by category based on current payment and accrual status:


	Accruing Interest
			30 - 89 Days		90+ Days				Total
March 31, 2023	Current		Past Due		Past Due		Nonaccrual		Loans

	(dollars in thousands)
Commercial and industrial	$	332,741	$	137	$	—	$	135	$	333,013
Commercial real estate - owner occupied		316,651		—		—		452		317,103
Commercial real estate - non-owner occupied		853,634		—		—		390		854,024
Construction and land development		388,777		127		—		238		389,142
Multi-family		361,636		—		—		1,036		362,672
One-to-four family residential		475,504		3,059		—		4,169		482,732
Agricultural and farmland		243,357		—		—		—		243,357
Municipal, consumer, and other		213,251		148		10		88		213,497
Total	$	3,185,551	$	3,471	$	10	$	6,508	$	3,195,540


	Accruing Interest
			30 - 89 Days		90+ Days				Total
December 31, 2022	Current		Past Due		Past Due		Nonaccrual		Loans

	(dollars in thousands)
Commercial and industrial	$	266,521	$	17	$	—	$	219	$	266,757
Commercial real estate - owner occupied		218,242		187		—		74		218,503
Commercial real estate - non-owner occupied		713,031		—		—		171		713,202
Construction and land development		360,763		61		—		—		360,824
Multi-family		287,854		11		—		—		287,865
One-to-four family residential		335,576		894		145		1,638		338,253
Agricultural and farmland		237,727		19		—		—		237,746
Municipal, consumer, and other		196,892		157		1		53		197,103
Total	$	2,616,606	$	1,346	$	146	$	2,155	$	2,620,253

Table of Contents

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents nonaccrual loans with and without a related allowance for credit losses:


	Nonaccrual		Nonaccrual
	With		With No
	Allowance for		Allowance for		Total
March 31, 2023	Credit Losses		Credit Losses		Nonaccrual

	(dollars in thousands)
Commercial and industrial	$	—	$	135	$	135
Commercial real estate - owner occupied		75		377		452
Commercial real estate - non-owner occupied		219		171		390
Construction and land development		—		238		238
Multi-family		—		1,036		1,036
One-to-four family residential		386		3,783		4,169
Agricultural and farmland		—		—		—
Municipal, consumer, and other		52		36		88
Total	$	732	$	5,776	$	6,508

Credit Quality Indicators

The Company assigns a risk rating to all loans and periodically performs detailed internal reviews of all such loans that are part of relationships with over $750,000 in total exposure to identify credit risks and to assess the overall collectability of the portfolio. These risk ratings are also subject to review by the Company’s regulators, external loan review, and internal loan review. During the internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which the borrowers operate and the fair values of collateral securing the loans. The risk rating is reviewed annually, at a minimum, and on an as needed basis depending on the specific circumstances of the loan. These credit quality indicators are used to assign a risk rating to each individual loan. Risk ratings are grouped into four major categories, defined as follows:

Pass – a pass loan is a credit with no existing or known potential weaknesses deserving of management’s close attention.

Pass-Watch – a pass-watch loan is still considered a "pass" credit and is not a classified or criticized asset, but is a reflection of a borrower who exhibits credit weaknesses or downward trends warranting close attention and increased monitoring. These potential weaknesses may result in deterioration of the repayment prospects for the loan. No loss of principal or interest is expected, and the borrower does not pose sufficient risk to warrant classification.

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables present loans by category based on their assigned risk ratings determined by management:


March 31, 2023	Pass		Pass-Watch		Substandard		Doubtful		Total

	(dollars in thousands)
Commercial and industrial	$	315,892	$	4,793	$	12,328	$	—	$	333,013
Commercial real estate - owner occupied		289,875		16,520		10,708		—		317,103
Commercial real estate - non-owner occupied		788,300		29,253		36,471		—		854,024
Construction and land development		387,057		1,759		326		—		389,142
Multi-family		358,538		3,098		1,036		—		362,672
One-to-four family residential		464,444		7,544		10,744		—		482,732
Agricultural and farmland		231,171		8,000		4,186		—		243,357
Municipal, consumer, and other		195,514		1,080		16,903		—		213,497
Total	$	3,030,791	$	72,047	$	92,702	$	—	$	3,195,540


December 31, 2022	Pass		Pass-Watch		Substandard		Doubtful		Total

	(dollars in thousands)
Commercial and industrial	$	255,309	$	6,630	$	4,818	$	—	$	266,757
Commercial real estate - owner occupied		198,546		10,105		9,852		—		218,503
Commercial real estate - non-owner occupied		652,691		27,282		33,229		—		713,202
Construction and land development		358,215		2,527		82		—		360,824
Multi-family		283,682		4,183		—		—		287,865
One-to-four family residential		323,632		5,907		8,714		—		338,253
Agricultural and farmland		223,114		10,004		4,628		—		237,746
Municipal, consumer, and other		184,299		296		12,508		—		197,103
Total	$	2,479,488	$	66,934	$	73,831	$	—	$	2,620,253

Table of Contents

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Risk ratings of loans, further sorted by origination year, are as follows as of March 31, 2023:


															Revolving
															Loans
	Term Loans by Origination Year												Revolving		Converted
(dollars in thousands)	2023		2022		2021		2020		2019		Prior		Loans		to Term		Total
Commercial and industrial
Pass	$	9,832	$	65,070	$	30,388	$	34,196	$	8,452	$	15,757	$	150,357	$	1,840	$	315,892
Pass-Watch		123		523		288		366		861		218		1,807		607		4,793
Substandard		12		107		—		50		—		54		7,522		4,583		12,328
Total	$	9,967	$	65,700	$	30,676	$	34,612	$	9,313	$	16,029	$	159,686	$	7,030	$	333,013

Commercial real estate - owner occupied
Pass	$	8,384	$	66,985	$	63,754	$	61,743	$	35,222	$	39,497	$	14,290	$	—	$	289,875
Pass-Watch		684		2,401		2,804		373		5,089		2,795		2,374		—		16,520
Substandard		—		1,841		3,483		270		—		3,620		1,494		—		10,708
Total	$	9,068	$	71,227	$	70,041	$	62,386	$	40,311	$	45,912	$	18,158	$	—	$	317,103

Commercial real estate - non-owner occupied
Pass	$	29,617	$	225,057	$	268,322	$	105,503	$	92,546	$	53,639	$	9,772	$	3,844	$	788,300
Pass-Watch		289		1,186		6,823		155		2,872		4,396		13,532		—		29,253
Substandard		12,429		128		—		248		9,511		13,984		—		171		36,471
Total	$	42,335	$	226,371	$	275,145	$	105,906	$	104,929	$	72,019	$	23,304	$	4,015	$	854,024

Construction and land development
Pass	$	28,833	$	250,925	$	73,087	$	5,311	$	3,159	$	1,872	$	23,359	$	511	$	387,057
Pass-Watch		—		—		—		—		—		312		1,447		—		1,759
Substandard		—		—		—		—		—		318		8		—		326
Total	$	28,833	$	250,925	$	73,087	$	5,311	$	3,159	$	2,502	$	24,814	$	511	$	389,142

Multi-family
Pass	$	26,271	$	76,239	$	111,750	$	73,568	$	32,623	$	31,406	$	6,435	$	246	$	358,538
Pass-Watch		—		867		317		—		62		1,843		—		9		3,098
Substandard		—		—		—		—		556		480		—		—		1,036
Total	$	26,271	$	77,106	$	112,067	$	73,568	$	33,241	$	33,729	$	6,435	$	255	$	362,672

One-to-four family residential
Pass	$	40,422	$	92,760	$	96,041	$	73,385	$	26,003	$	71,976	$	59,510	$	4,347	$	464,444
Pass-Watch		103		802		573		487		894		4,204		224		257		7,544
Substandard		75		2,447		697		815		474		3,169		36		3,031		10,744
Total	$	40,600	$	96,009	$	97,311	$	74,687	$	27,371	$	79,349	$	59,770	$	7,635	$	482,732

Agricultural and farmland
Pass	$	12,841	$	41,470	$	39,924	$	41,320	$	9,494	$	10,545	$	66,379	$	9,198	$	231,171
Pass-Watch		2,307		2,371		97		1,062		211		382		1,570		—		8,000
Substandard		—		—		17		3,312		265		592		—		—		4,186
Total	$	15,148	$	43,841	$	40,038	$	45,694	$	9,970	$	11,519	$	67,949	$	9,198	$	243,357

Municipal, Consumer, and other
Pass	$	9,428	$	71,121	$	34,055	$	15,304	$	5,335	$	45,153	$	15,116	$	2	$	195,514
Pass-Watch		—		112		27		21		—		920		—		—		1,080
Substandard		14		114		9		—		51		16,711		4		—		16,903
Total	$	9,442	$	71,347	$	34,091	$	15,325	$	5,386	$	62,784	$	15,120	$	2	$	213,497

Total by Risk Rating
Pass	$	165,628	$	889,627	$	717,321	$	410,330	$	212,834	$	269,845	$	345,218	$	19,988	$	3,030,791
Pass-Watch		3,506		8,262		10,929		2,464		9,989		15,070		20,954		873		72,047
Substandard		12,530		4,637		4,206		4,695		10,857		38,928		9,064		7,785		92,702
Total	$	181,664	$	902,526	$	732,456	$	417,489	$	233,680	$	323,843	$	375,236	$	28,646	$	3,195,540

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(Unaudited)

Modifications and Troubled Debt Restructurings

There were no loan modifications to borrowers in financial distress during the three months ended March 31, 2023.

There were no new troubled debt restructurings during the three months ended March 31, 2022. As of December 31, 2022, the Company had $3.0 million of troubled debt restructurings.

Pledged Loans

As of March 31, 2023 and December 31, 2022, the Company pledged loans totaling $996.3 million and $892.1 million, respectively, to the Federal Home Loan Bank of Chicago (“FHLB”) to secure available FHLB advance borrowing capacity.

NOTE 5 – LOAN SERVICING

Mortgage loans serviced for others, which are not included in the accompanying consolidated balance sheets, amounted to $1.76 billion and $955.8 million as of March 31, 2023 and December 31, 2022, respectively. Activity in mortgage servicing rights is as follows:


	Three Months Ended March 31,
	2023		2022

	(dollars in thousands)
Beginning balance	$	10,147	$	7,994
Acquired		10,469		—
Capitalized servicing rights		129		171
Fair value adjustment:
Attributable to payments and principal reductions		(431)		(307)
Attributable to changes in valuation inputs and assumptions		(322)		1,865
Total fair value adjustment		(753)		1,558
Ending balance	$	19,992	$	9,723

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(Unaudited)

NOTE 6 – FORECLOSED ASSETS

Foreclosed assets activity is as follows:


	Three Months Ended March 31,
	2023		2022

	(dollars in thousands)
Beginning balance	$	3,030	$	3,278
Acquired		271		—
Transfers from loans		105		19
Proceeds from sales		(40)		(294)
Net gain on sales		20		105
Direct write-downs		(30)		(65)
Ending balance	$	3,356	$	3,043

Gains (losses) on foreclosed assets includes the following:


	Three Months Ended March 31,
	2023		2022

	(dollars in thousands)
Direct write-downs	$	(30)	$	(65)
Net gain on sales		20		105
Gains (losses) on foreclosed assets	$	(10)	$	40

The carrying value of foreclosed one-to-four family residential real estate properties held was $0.3 million and $20 thousand as of March 31, 2023 and December 31, 2022, respectively. As of March 31, 2023, there were 14 one-to-four family residential real estate loans in the process of foreclosure totaling $1.1 million. As of December 31, 2022, there were 4 one-to-four family residential real estate loans in the process of foreclosure totaling $0.2 million.

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(Unaudited)

NOTE 7 – DEPOSITS

The Company’s deposits are summarized below:


	March 31, 2023		December 31, 2022

	(dollars in thousands)
Noninterest-bearing deposits	$	1,218,888	$	994,954
Interest-bearing deposits:
Interest-bearing demand		1,270,454		1,139,150
Money market		662,088		555,425
Savings		738,719		634,527
Time		420,372		262,968
Total interest-bearing deposits		3,091,633		2,592,070
Total deposits	$	4,310,521	$	3,587,024

There were no brokered deposits as of March 31, 2023 and December 31, 2022. Interest-bearing demand deposits included $40.4 million of reciprocal transaction deposits as of March 31, 2023. Money market deposits included $10.1 million and $1.7 million of reciprocal transaction deposits as of March 31, 2023 and December 31, 2022, respectively. Time deposits included $45.5 million and $1.6 million of reciprocal time deposits as of March 31, 2023, and December 31, 2022, respectively.

The aggregate amounts of time deposits in denominations of $250 thousand or more amounted to $59.8 million and $27.2 million as of March 31, 2023 and December 31, 2022, respectively. The aggregate amounts of time deposits in denominations of $100 thousand or more amounted to $202.3 million and $92.6 million as of March 31, 2023 and December 31, 2022, respectively.

The components of interest expense on deposits are as follows:


	Three Months Ended March 31,
	2023		2022

	(dollars in thousands)
Interest-bearing demand	$	458	$	142
Money market		935		121
Savings		178		50
Time		803		256
Total interest expense on deposits	$	2,374	$	569

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(Unaudited)

NOTE 8 – 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. Three of these (Town and Country Statutory Trust II, Town and Country Statutory Trust III, and West Plains Investors Statutory Trust I “WPI Statutory Trust I”) were acquired by the Company as part of its acquisition of Town and Country.

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 and rank junior and subordinate in the right of payment to all senior debt of the Company.

In accordance with GAAP, the trusts are not consolidated in the Company’s financial statements.

The face values and carrying values of the junior subordinated debentures are summarized as follows:


			Carrying Value
	Face Value		March 31, 2023		December 31, 2022

	(dollars in thousands)
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		4,804		4,788
Town and Country Statutory Trust II		4,124		4,426		—
Town and Country Statutory Trust III		7,732		7,568		—
WPI Statutory Trust I		3,093		2,956		—
Total	$	53,714	$	52,746	$	37,780

The interest rates on the junior subordinated debentures are variable, reset quarterly, and are equal to the three-month LIBOR, as determined on the LIBOR Determination Date immediately preceding the Distribution Payment Date specific to each junior subordinated debenture, plus a fixed percentage. The interest rates and maturities of the junior subordinated debentures are summarized as follows:


				Interest Rate at
	Variable			March 31,		December 31,		Maturity
	Interest Rate			2023		2022		Date
Heartland Bancorp, Inc. Capital Trust B	LIBOR plus	2.75	%	7.58	%	6.83	%	April 6, 2034
Heartland Bancorp, Inc. Capital Trust C	LIBOR plus	1.53		6.40		6.30		June 15, 2037
Heartland Bancorp, Inc. Capital Trust D	LIBOR plus	1.35		6.22		6.12		September 15, 2037
FFBI Capital Trust I	LIBOR plus	2.80		7.63		6.88		April 6, 2034
National Bancorp Statutory Trust I	LIBOR plus	2.90		7.77		7.67		December 15, 2037
Town and Country Statutory Trust II	LIBOR plus	2.79		7.70		N/A		March 17, 2034
Town and Country Statutory Trust III	LIBOR plus	1.68		6.55		N/A		March 22, 2037
WPI Statutory Trust I	LIBOR plus	1.45		6.32		N/A		June 15, 2037

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(Unaudited)

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.

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 March 31, 2023 and 2022, 100% of the trust preferred securities qualified as Tier 1 capital under the final rule adopted in March 2005.

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(Unaudited)

NOTE 9 – 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 are summarized as follows:


	March 31, 2023				December 31, 2022
	Notional		Fair		Notional		Fair
	Amount		Value		Amount		Value

	(dollars in thousands)
Fair value recorded in other assets	$	17,000	$	495	$	17,000	$	629

As of March 31, 2023, the interest rate swap agreements designated as cash flow hedges had contractual maturities between 2024 and 2025. As of March 31, 2023 and December 31, 2022, counterparties had cash pledged and held on deposit by the Company of $0.6 million and $0.6 million, respectively.

The effect of interest rate swap agreements designated as cash flow hedges on the consolidated statements of income are summarized as follows:


Location of gross gain (loss) reclassified	Amounts of gross gain (loss)
from accumulated other	reclassified from accumulated
comprehensive income (loss) to income	other comprehensive income (loss)
	Three Months Ended
	March 31,
	2023		2022

Designated as cash flow hedges:	(dollars in thousands)
Junior subordinated debentures interest expense	$	94	$	(96)

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Interest Rate Swaps Not Designated as Hedging Instruments

The Company may offer interest rate swap agreements to its commercial borrowers in connection with their risk management needs. The Company manages the interest rate risk associated with these contracts by entering into an equal and offsetting derivative with a third-party financial institution. While these interest rate swap agreements generally work together as an economic interest rate hedge, the Company did not designate them for hedge accounting treatment. Consequently, changes in fair value of the corresponding derivative financial asset or liability were recorded as either a charge or credit to current earnings during the period in which the changes occurred.

The interest rate swap agreements not designated as hedging instruments are summarized as follows:


	March 31, 2023				December 31, 2022
	Notional		Fair		Notional		Fair
	Amount		Value		Amount		Value

	(dollars in thousands)
Fair value recorded in other assets:
Interest rate swaps with a commercial borrower counterparty	$	—	$	—	$	—	$	—
Interest rate swaps with a financial institution counterparty		119,605		7,089		106,995		6,981
Total fair value recorded in other assets	$	119,605	$	7,089	$	106,995	$	6,981

Fair value recorded in other liabilities:
Interest rate swaps with a commercial borrower counterparty	$	119,605	$	(7,089)	$	106,995	$	(6,981)
Interest rate swaps with a financial institution counterparty		—		—		—		—
Total fair value recorded in other liabilities	$	119,605	$	(7,089)	$	106,995	$	(6,981)

As of March 31, 2023, the interest rate swap agreements not designated as hedging instruments had contractual maturities between 2023 and 2042.

The effect of interest rate contracts not designated as hedging instruments recognized in other noninterest income on the consolidated statements of income are summarized as follows:


	Three Months Ended
	March 31,
	2023		2022

Not designated as hedging instruments:	(dollars in thousands)
Gross gains	$	2,737	$	5,413
Gross losses		(2,737)		(5,413)
Net gains (losses)	$	—	$	—

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(Unaudited)

NOTE 10 – 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
	Available-for-Sale		Held-to-Maturity		Derivatives		Total

	(dollars in thousands)
Three Months Ended March 31, 2023
Balance, December 31, 2022	$	(61,998)	$	(9,946)	$	185	$	(71,759)
Other comprehensive income (loss) before reclassifications		11,443		—		(40)		11,403
Reclassifications		1,607		490		(94)		2,003
Other comprehensive income (loss), before tax		13,050		490		(134)		13,406
Income tax expense (benefit)		3,720		140		(38)		3,822
Other comprehensive income (loss), after tax		9,330		350		(96)		9,584
Balance, March 31, 2023	$	(52,668)	$	(9,596)	$	89	$	(62,175)

Three Months Ended March 31, 2022
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 loss before reclassifications		(53,422)		—		594		(52,828)
Reclassifications		—		181		96		277
Other comprehensive income (loss), before tax		(53,422)		181		690		(52,551)
Income tax expense		(15,228)		51		197		(14,980)
Other comprehensive income (loss), after tax		(38,194)		130		493		(37,571)
Balance, March 31, 2022	$	(24,794)	$	(11,048)	$	(258)	$	(36,100)

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.

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 9 for additional information.

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(Unaudited)

NOTE 11 – EARNINGS PER SHARE

The Company has granted certain restricted stock units that contain non-forfeitable rights to dividend equivalents. Such restricted stock units are considered participating securities. As such, we have included these restricted stock units in the calculation of basic earnings per share and calculate basic earnings per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings.

Diluted earnings per share is computed using the treasury stock method and reflects the potential dilution from the Company’s outstanding restricted stock units and performance restricted stock units.

The following table sets forth the computation of basic and diluted earnings per share:


	Three Months Ended March 31,
	2023		2022

	(dollars in thousands)
Numerator:
Net income	$	9,208	$	13,604
Earnings allocated to participating securities		(5)		(17)
Numerator for earnings per share - basic and diluted	$	9,203	$	13,587

Denominator:
Weighted average common shares outstanding		30,977,204		28,986,593
Dilutive effect of outstanding restricted stock units		69,947		43,646
Weighted average common shares outstanding, including all dilutive potential shares		31,047,151		29,030,239

Earnings per share - Basic	$	0.30	$	0.47
Earnings per share - Diluted	$	0.30	$	0.47

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(Unaudited)

NOTE 12 – 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 (vi) 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):


	Three Months Ended March 31,
	2023		2022

	(dollars in thousands)
Restricted stock units	$	277	$	608
Performance restricted stock units		240		293
Total awards classified as equity		517		901
Stock appreciation rights		1		(23)
Total stock-based compensation expense	$	518	$	878

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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(Unaudited)

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 or paid at the same time as dividends on common stock, are classified as dividends charged to retained earnings.

During the three months ended March 31, 2023 and 2022, the total grant date fair value of the restricted stock units granted was $1.0 million and $0.9 million, respectively, based on the grant date closing prices. The total intrinsic value of restricted stock that vested during the three months ended March 31, 2023 and 2022 was $1.1 million and $0.7 million, respectively.

The following is a summary of restricted stock unit activity:


	Three Months Ended March 31,
	2023			2022
		Weighted			Weighted
		Average			Average
	Restricted	Grant Date		Restricted	Grant Date
	Stock Units	Fair Value		Stock Units	Fair Value
Beginning balance	139,986	$	18.01	109,244	$	17.27
Granted	41,847		22.72	46,312		19.11
Vested	(51,693)		17.91	(34,925)		17.26
Forfeited	(718)		16.58	—		—
Ending balance	129,422	$	19.58	120,631	$	17.98

As of March 31, 2023, unrecognized compensation cost related to the non-vested restricted stock units was $1.9 million. This cost is expected to be recognized over the weighted average remaining service period of 2.0 years.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 three months ended March 31, 2023 and 2022, the total fair value of the performance restricted stock units granted was $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 following is a summary of performance restricted stock unit activity:


	Three months ended March 31,
	2023			2022
		Weighted			Weighted
	Performance	Average		Performance	Average
	Restricted	Grant Date		Restricted	Grant Date
	Stock Units	Fair Value		Stock Units	Fair Value
Beginning balance	62,067	$	17.02	38,344	$	15.72
Granted	17,030		22.72	23,723		19.14
Vested	—		—	—		—
Forfeited	—		—	—		—
Ending balance	79,097	$	18.25	62,067	$	17.02

As of March 31, 2023, unrecognized compensation cost related to non-vested performance restricted stock units was $0.6 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 1.8 years.

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(Unaudited)

Stock Appreciation Rights

A stock appreciation right grants a participant the right to receive an amount of cash, the value of which equals the appreciation in the Company’s stock price between the grant date and the exercise date. Stock appreciation rights are classified as liabilities. The liability is based on an option-pricing model used to estimate the fair value of the stock appreciation rights. Compensation cost for non-vested stock appreciation rights is recognized on a straight line basis over the service period of the entire award. The non-vested stock appreciation rights vest in four equal annual installments beginning on the first anniversary of the grant date.

The following is a summary of stock appreciation rights activity:


	Three Months Ended March 31,
	2023			2022
	Stock Appreciation Rights	Weighted Average Grant Date Assigned Value		Stock Appreciation Rights	Weighted Average Grant Date Assigned Value
Beginning balance	73,440	$	16.32	97,920	$	16.32
Granted	—		—	—		—
Exercised	—		—	(6,120)		16.32
Expired	—		—	—		—
Forfeited	—		—	—		—
Ending balance	73,440	$	16.32	91,800	$	16.32

A further summary of stock appreciation rights as of March 31, 2023, is as follows:


			Weighted Average
	Stock Appreciation Rights		Remaining
Grant Date Assigned Values	Outstanding	Exercisable	Contractual Term
$ 16.32	73,440	67,320	6.4	years

As of March 31, 2023, unrecognized compensation cost related to non-vested stock appreciation rights was $17 thousand.

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(Unaudited)

As of March 31, 2023 and December 31, 2022, the liability recorded for outstanding stock appreciation rights was $0.5 million and $0.5 million, respectively. The Company used an option pricing model to value the stock appreciation rights, using the assumptions in the following table. Expected volatility is derived from the historical volatility of the Company’s stock price and a selected peer group of industry-related companies.


	March 31, 2023			December 31, 2022
Risk-free interest rate		3.57	%		3.95	%
Expected volatility		37.14	%		36.54	%
Expected life (in years)		6.4			6.7
Expected dividend yield		3.45	%		3.27	%

As of March 31, 2023, the liability recorded for previously exercised stock appreciation rights was $0.2 million, which will be paid in one remaining annual installment in 2024. As of December 31, 2022, the liability recorded for previously exercised stock appreciation rights was $0.5 million.

NOTE 13 – REGULATORY MATTERS

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. As of March 31, 2023 and December 31, 2022, the capital conservation buffer was 2.5% of risk-weighted assets.

As of March 31, 2023, the Company and the Bank each met all capital adequacy requirements to which they were subject.

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(Unaudited)

The actual and required capital amounts and ratios of the Company (on a consolidated basis) and the Bank are as follows:


	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
March 31, 2023	Amount		Ratio		Amount		Ratio		Amount		Ratio

		(dollars in thousands)
Total Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.	$	565,048	15.11	%	$	299,236	8.00	%		N/A	N/A
Heartland Bank and Trust Company		560,249	15.00			298,729	8.00		$	373,411	10.00	%

Tier 1 Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.	$	492,111	13.16	%	$	224,427	6.00	%		N/A	N/A
Heartland Bank and Trust Company		526,727	14.11			224,047	6.00		$	298,729	8.00	%

Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.	$	440,979	11.79	%	$	168,320	4.50	%		N/A	N/A
Heartland Bank and Trust Company		526,727	14.11			168,035	4.50		$	242,717	6.50	%

Tier 1 Capital (to Average Assets)
Consolidated HBT Financial, Inc.	$	492,111	10.29	%	$	191,227	4.00	%		N/A	N/A
Heartland Bank and Trust Company		526,727	11.03			190,973	4.00		$	238,716	5.00	%


	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
December 31, 2022	Amount		Ratio		Amount		Ratio		Amount		Ratio

		(dollars in thousands)
Total Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.	$	516,556	16.27	%	$	254,052	8.00	%		N/A	N/A
Heartland Bank and Trust Company		489,316	15.43			253,643	8.00		$	317,054	10.00	%

Tier 1 Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.	$	451,828	14.23	%	$	190,539	6.00	%		N/A	N/A
Heartland Bank and Trust Company		463,983	14.63			190,233	6.00		$	253,643	8.00	%

Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.	$	415,213	13.07	%	$	142,904	4.50	%		N/A	N/A
Heartland Bank and Trust Company		463,983	14.63			142,674	4.50		$	206,085	6.50	%

Tier 1 Capital (to Average Assets)
Consolidated HBT Financial, Inc.	$	451,828	10.48	%	$	172,427	4.00	%		N/A	N/A
Heartland Bank and Trust Company		463,983	10.78			172,240	4.00		$	215,300	5.00	%

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 14 – FAIR VALUE OF FINANCIAL INSTRUMENTS

Recurring Basis

The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Additional information on fair value measurements is summarized in Note 1 to the Company’s annual consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 8, 2023. There were no transfers between levels during the three months ended March 31, 2023 and 2022. The Company’s policy for determining transfers between levels occurs at the end of the reporting period when circumstances in the underlying valuation criteria change and result in transfer between levels.

The following tables present the balances of the assets measured at fair value on a recurring basis:


March 31, 2023	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value

		(dollars in thousands)
Debt securities available-for-sale:
U.S. Treasury	$	157,020	$	—	$	—	$	157,020
U.S. government agency		—		53,698		—		53,698
Municipal		—		248,884		—		248,884
Mortgage-backed:
Agency residential		—		201,976		—		201,976
Agency commercial		—		135,009		—		135,009
Corporate		—		58,035		—		58,035
Equity securities with readily determinable fair values		3,145		—		—		3,145
Mortgage servicing rights		—		—		19,992		19,992
Derivative financial assets		—		7,584		—		7,584
Derivative financial liabilities		—		7,089		—		7,089


December 31, 2022	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value

		(dollars in thousands)
Debt securities available-for-sale:
U.S. Treasury	$	154,515	$	—	$	—	$	154,515
U.S. government agency		—		55,157		—		55,157
Municipal		—		243,829		—		243,829
Mortgage-backed:
Agency residential		—		195,441		—		195,441
Agency commercial		—		132,888		—		132,888
Corporate		—		61,694		—		61,694
Equity securities with readily determinable fair values		3,029		—		—		3,029
Mortgage servicing rights		—		—		10,147		10,147
Derivative financial assets		—		7,610		—		7,610
Derivative financial liabilities		—		6,981		—		6,981

The following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy. There were no changes to the valuation techniques from December 31, 2022 to March 31, 2023.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 (loss). The change in fair value of equity securities with readily determinable fair values is recorded through an adjustment to the consolidated statement of income.

Derivative Financial Instruments

Interest rate swap agreements are carried at fair value as determined by dealer valuation models. Based on the inputs used, the derivative financial instruments subjected to recurring fair value adjustments are classified as Level 2. For derivative financial instruments designated as hedging instruments, the change in fair value is recorded through an adjustment to the consolidated statement of comprehensive income (loss). For derivative financial instruments not designated as hedging instruments, the change in fair value is recorded through an adjustment to the consolidated statement of income.

Mortgage Servicing Rights

The Company has elected to record its mortgage servicing rights at fair value. Mortgage servicing rights do not trade in an active market with readily observable prices. Accordingly, the Company determines the fair value of mortgage servicing rights by estimating the fair value of the future cash flows associated with the mortgage loans being serviced as calculated by an independent third party. Key economic assumptions used in measuring the fair value of mortgage servicing rights include, but are not limited to, prepayment speeds and discount rates. Due to the nature of the valuation inputs, mortgage servicing rights are classified as Level 3. The change in fair value is recorded through an adjustment to the consolidated statement of income.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables present additional information about the unobservable inputs used in the fair value measurement of the mortgage servicing rights (dollars in thousands):


March 31, 2023	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Mortgage servicing rights	$	19,992	Discounted cash flows	Constant pre-payment rates (CPR)	6.5% to 59.7% (8.2%)
				Discount rate	9.0% to 11.5% (9.5%)

December 31, 2022	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Mortgage servicing rights	$	10,147	Discounted cash flows	Constant pre-payment rates (CPR)	5.3% to 59.7% (8.2%)
				Discount rate	9.0% to 11.7% (9.3%)

Nonrecurring Basis

Certain assets are measured at fair value on a nonrecurring basis. These assets are not measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as there is evidence of impairment or a change in the amount of previously recognized impairment.

The following tables present the balances of the assets measured at fair value on a nonrecurring basis:


March 31, 2023	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value

		(dollars in thousands)
Loans held for sale	$	—	$	5,130	$	—	$	5,130
Collateral-dependent loans		—		—		44,138		44,138
Bank premises held for sale		—		—		235		235
Foreclosed assets		—		—		3,356		3,356


December 31, 2022	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value

		(dollars in thousands)
Loans held for sale	$	—	$	615	$	—	$	615
Collateral-dependent loans		—		—		17,460		17,460
Bank premises held for sale		—		—		235		235
Foreclosed assets		—		—		3,030		3,030

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 indicate fair value of the held for sale loans is greater than cost.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Collateral-Dependent Loans

In accordance with the provisions of the loan impairment guidance, impairment was measured for loans with respect to which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement. The fair value of collateral-dependent impaired loans is estimated based on the fair value of the underlying collateral supporting the loan. Collateral-dependent loans require classification in the fair value hierarchy. Impaired loans include loans acquired with deteriorated credit quality. Collateral values are estimated using Level 3 inputs based on customized discounting criteria.

Bank Premises Held for Sale

Bank premises held for sale are recorded at the lower of cost or fair value, less estimated selling costs, at the date classified as held for sale. Values are estimated using Level 3 inputs based on appraisals and customized discounting criteria. The carrying value of bank premises held for sale is not re-measured to fair value on a recurring basis but is subject to fair value adjustments when the carrying value exceeds the fair value, less estimated selling costs.

Foreclosed Assets

Foreclosed assets are recorded at fair value based on property appraisals, less estimated selling costs, at the date of the transfer. Subsequent to the transfer, foreclosed assets are carried at the lower of cost or fair value, less estimated selling costs. Values are estimated using Level 3 inputs based on appraisals and customized discounting criteria. The carrying value of foreclosed assets is not re-measured to fair value on a recurring basis but is subject to fair value adjustments when the carrying value exceeds the fair value, less estimated selling costs.

Collateral-Dependent Loans, Bank Premises Held for Sale, and Foreclosed Assets

The estimated fair value of collateral-dependent loans, bank premises held for sale, and foreclosed assets is based on the appraised fair value of the collateral, less estimated costs to sell. Collateral-dependent loans, bank premises held for sale, and foreclosed assets are classified within Level 3 of the fair value hierarchy.

The Company considers the appraisal or a similar evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals or a similar evaluation of the collateral underlying collateral-dependent loans and foreclosed assets are obtained at the time a loan is first considered impaired or a loan is transferred to foreclosed assets. Appraisals or a similar evaluation of bank premises held for sale are obtained when first classified as held for sale. Appraisals or similar evaluations are obtained subsequently as deemed necessary by management but at least annually on foreclosed assets and bank premises held for sale. Appraisals are reviewed for accuracy and consistency by management. Appraisals are performed by individuals selected from the list of approved appraisers maintained by management. The appraised values are reduced by estimated costs to sell. These discounts and estimates are developed by management by comparison to historical results.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables present quantitative information about unobservable inputs used in nonrecurring Level 3 fair value measurements (dollars in thousands):


March 31, 2023	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Collateral-dependent loans	$	44,138	Appraisal of collateral	Appraisal adjustments	Not meaningful
Bank premises held for sale		235	Appraisal	Appraisal adjustments	7% (7%)
Foreclosed assets		3,356	Appraisal	Appraisal adjustments	7% (7%)

December 31, 2022	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Collateral-dependent loans	$	17,460	Appraisal of collateral	Appraisal adjustments	Not meaningful
Bank premises held for sale		235	Appraisal	Appraisal adjustments	7% (7%)
Foreclosed assets		3,030	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. There were no changes in the methods and significant assumptions used to estimate the fair value of these financial instruments.

Cash and Cash Equivalents

The carrying amounts of these financial instruments approximate their fair values.

Restricted Stock

The carrying amount of FHLB stock approximates fair value based on the redemption provisions of the FHLB.

Loans

The fair value estimation process for the loan portfolio uses an exit price concept and reflects discounts the Company believes are consistent with discounts in the marketplace. Fair values are estimated for portfolios of loans with similar characteristics. 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.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Time Deposits

Fair values of certificates of deposit with stated maturities have been estimated using the present value of estimated future cash flows discounted at rates currently offered for similar instruments. Time deposits also include public funds time deposits.

Securities Sold Under Agreements to Repurchase

The fair values of repurchase agreements with variable interest rates are presumed to approximate their recorded carrying amounts.

Subordinated Notes

The fair values of subordinated 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.

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

(Unaudited)

The following table provides summary information on the carrying amounts and estimated fair values of the Company’s financial instruments:


	Fair Value	March 31, 2023				December 31, 2022
	Hierarchy	Carrying		Estimated		Carrying		Estimated
	Level	Amount		Fair Value		Amount		Fair Value

			(dollars in thousands)
Financial assets:
Cash and cash equivalents	Level 1	$	177,112	$	177,112	$	114,159	$	114,159
Debt securities held-to-maturity	Level 2		536,429		481,925		541,600		478,801
Restricted stock	Level 3		4,991		4,991		7,965		7,965
Loans, net	Level 3		3,156,764		3,105,661		2,594,920		2,566,930
Investments in unconsolidated subsidiaries	Level 3		1,614		1,614		1,165		1,165
Accrued interest receivable	Level 2		20,301		20,301		19,506		19,506

Financial liabilities:
Time deposits	Level 3		420,372		409,454		262,968		253,619
Securities sold under agreements to repurchase	Level 2		34,919		34,919		43,081		43,081
Subordinated notes	Level 3		39,415		36,863		39,395		37,205
Junior subordinated debentures	Level 3		52,746		50,720		37,780		37,030
Accrued interest payable	Level 2		1,402		1,402		1,363		1,363

The Company estimated the fair value of lending related commitments as described in Note 15 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.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 15 – 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
	March 31, 2023		December 31, 2022

		(dollars in thousands)
Commitments to extend credit	$	838,714	$	756,885
Standby letters of credit		19,146		17,785

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 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 $3.4 million as of March 31, 2023.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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”); 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.

Pursuant to the agreement in principle, the parties would settle and dismiss the Class Action and Receiver’s Action and seek the entry of bar orders from the U.S. District Court for the Northern District of Illinois (the “Court”) prohibiting any continued or future claims against the Bank and its related parties relating to the Class Action and the Receiver’s Action, whether asserted to date or not. If definitive settlement agreements, including the bar orders described in the preceding sentence, are approved by the Court and are not subject to appeal, the Bank will make one-time cash payments totaling $13.0 million.

The agreement in principle is subject to the execution and delivery of definitive settlement agreements reflecting the terms of the agreement in principle, notice to TGC’s investor claimants and final, non-appealable approvals by the Court. While the Bank believes that the proposed settlements are consistent with the terms of similar settlements that have been approved by other courts and were not successfully appealed, it is possible that the Court may decide not to approve the definitive settlement agreements or that the Seventh Circuit Court of Appeals may decide to accept an appeal thereof.

The proposed settlements do not include any admission of liability or wrongdoing by the Bank, and the Bank expressly denies any liability or wrongdoing with respect to any matter alleged in the Class Action and Receiver’s Action. The Bank has agreed in principle to the settlements to avoid the cost, risks and distraction of continued litigation. The Company believes the proposed settlements are in the best interests of the Company and its shareholders.

Accordingly, the Bank had a $13.0 million accrual related to these matters as of March 31, 2023 and December 31, 2022. The Bank’s insurer has agreed to reimburse $7.4 million of the settlement payment which was recorded as an insurance recovery receivable as of March 31, 2023 and December 31, 2022. The estimated 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.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

DeBaere, et al v. Heartland Bank and Trust Company

The Bank is a defendant in a purported class action lawsuit filed in June 2020, in the Circuit Court of Cook County, Illinois. The plaintiff, a customer of the Bank, alleges that the Bank breached its contract with the plaintiff by (1) charging multiple insufficient funds fees or overdraft fees on a single customer-initiated transaction, and (2) charging overdraft fees for transactions that were authorized on a positive account balance, but when settled, settled into a negative balance.

Miller, et al v. State Bank of Lincoln and Heartland Bank and Trust Company

The Bank is a defendant in a purported class action lawsuit filed in May 2020, in the Circuit Court of Logan County, Illinois. The plaintiff, a customer of State Bank of Lincoln, which previously merged with the Bank, alleges that the Bank breached its contract with the plaintiff by charging multiple insufficient funds fees or overdraft fees on a single customer-initiated transaction.

The Bank intends to vigorously defend in both the DeBaere and Miller cases; however, the Company believes an unfavorable outcome in each case is probable at this time, as that term is used in assessing loss contingencies. Accordingly, consistent with the authoritative guidance in the evaluation of contingencies, the Bank had in the aggregate a $2.6 million accrual related to these matters as of March 31, 2023 and December 31, 2022. The $2.6 million accrual was included in other noninterest expense in the consolidated statements of income during the fourth quarter of 2022. While the amount recorded reflects management’s best estimate as of March 31, 2023, the Company cannot yet offer an opinion on the estimated range of possible loss.

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ITEM 2. 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.

The following is management’s discussion and analysis of the financial condition as of March 31, 2023 (unaudited), as compared with December 31, 2022, and the results of operations for the three months ended March 31, 2023 and 2022 (unaudited). Management’s discussion and analysis should be read in conjunction with the Company’s unaudited consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q, as well as the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 8, 2023. Results of operations for the three months ended March 31, 2023 and 2022 are not necessarily indicative of results to be attained for the year ended December 31, 2023 or for any other period.

OVERVIEW

HBT Financial, Inc., headquartered in Bloomington, Illinois, is the holding company for Heartland Bank and Trust Company, and has banking roots that can be traced back to 1920. We provide a comprehensive suite of business, commercial, wealth management, and retail banking products and services to businesses, families, and local governments throughout Illinois and Eastern Iowa. As of March 31, 2023, the Company had total assets of $5.0 billion, loans held for investment of $3.2 billion, and total deposits of $4.3 billion.

Market Area

As of March 31, 2023, our branch network included 68 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:


	March 31, 2023				December 31, 2022
	Loans		Deposits		Loans		Deposits

	(dollars in thousands)
Central Illinois	$	1,436,524	$	2,870,680	$	1,024,015	$	2,239,030
Chicago MSA		1,282,595		1,232,421		1,294,327		1,216,423
St. Louis Metro East		180,171		75,771		—		—
Illinois		2,899,290		4,178,872		2,318,342		3,455,453
Iowa		296,250		131,649		301,911		131,571
Total	$	3,195,540	$	4,310,521	$	2,620,253	$	3,587,024

Town and Country 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 $906 million, total loans held for investment of $635 million, and total deposits of $720 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 $30.6 million was recorded in the acquisition.

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Acquisition-related expenses totaled $13.1 million during the first quarter of 2023, including 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.

FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Economic Conditions

The Company's business and financial performance are affected by economic conditions generally in the U.S. and more directly in the Illinois and Iowa markets where we primarily operate. The significant economic factors that are most relevant to our business and our financial performance include the general economic conditions in the U.S. and in the Company's markets (including the effect of inflationary pressures and supply chain constraints), unemployment rates, real estate markets, and interest rates.

Interest Rates

Net interest income is our primary source of revenue. Net interest income is equal to the excess of interest income earned on interest earning assets (including discount accretion on purchased loans plus certain loan fees) over interest expense incurred on interest-bearing liabilities. The level of interest rates as well as the volume of interest-earning assets and interest-bearing liabilities both impact net interest income. Net interest income is also influenced by both the pricing and mix of interest-earning assets and interest-bearing liabilities which, in turn, are impacted by external factors such as local economic conditions, competition for loans and deposits, the monetary policy of the Federal Reserve Board (“FRB”) and market interest rates.

The cost of our deposits and short-term wholesale borrowings is largely based on short-term interest rates, which are primarily driven by the FRB’s actions. The yields generated by our loans and securities are typically driven by short-term and long-term interest rates, which are set by the market and, to some degree, by the FRB’s actions. Our net interest income is therefore influenced by movements in such interest rates and the pace at which such movements occur. Generally, we expect increases in market interest rates will increase our net interest income and net interest margin in future periods, while decreases in market interest rates may decrease our net interest income and net interest margin in future periods.

Credit Trends

We focus on originating loans with appropriate risk/reward profiles. We have a detailed loan policy that guides our overall loan origination philosophy and a well-established loan approval process that requires experienced credit officers to approve larger loan relationships. Although we believe our loan approval and credit review processes are strengths that allow us to maintain a high quality loan portfolio, we recognize that credit trends in the markets in which we operate and in our loan portfolio can materially impact our financial condition and performance and that these trends are primarily driven by the economic conditions in our markets.

Competition

Our profitability and growth are affected by the highly competitive nature of the financial services industry. We compete with community banks in all our markets and, to a lesser extent, with money center banks, primarily in the Chicago MSA. Additionally, we compete with non-bank financial services companies, FinTechs and other financial institutions operating within the areas we serve. We compete by emphasizing personalized service and efficient decision-making tailored to individual needs. We do not rely on any individual, group, or entity for a material portion of our loans or our deposits. We continue to see increased competitive pressures on loan rates and terms which may affect our financial results in the future.

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Digital Banking

Throughout the banking industry, in-person branch traffic is expected to continue to decline as more customers turn to digital banking for routine banking transactions. The COVID-19 pandemic has accelerated this transition, and in-person branch traffic is not expected to return to pre-pandemic levels. We plan to continue investing in our digital banking platforms, while maintaining an appropriately sized branch network. An inability to meet evolving customer expectations, with the appropriate level of security, for both digital and in-person banking may adversely affect our financial results in the future.

Regulatory Environment and Trends

We are subject to federal and state regulation and supervision, which continue to evolve as the legal and regulatory framework governing our operations continues to change. The current operating environment includes extensive regulation and supervision in areas such as consumer compliance, the Bank Secrecy Act and anti-money laundering compliance, risk management and internal audit. We anticipate that this environment of extensive regulation and supervision will continue for the industry. As a result, changes in the regulatory environment may result in additional costs for additional compliance, risk management and audit personnel or professional fees associated with advisors and consultants.

FACTORS AFFECTING COMPARABILITY OF FINANCIAL RESULTS

JOBS Act Accounting Election

We qualify as an “emerging growth company” under the JOBS Act. The JOBS Act permits us an extended transition period for complying with new or revised accounting standards affecting public companies. The Company may remain an emerging growth company until the earliest to occur of: (1) the end of the fiscal year following the fifth anniversary of the completion of our initial public offering, which is December 31, 2024, (2) the last day of the fiscal year in which the Company has $1.235 billion or more in annual revenues, (3) the date on which the Company is deemed to be a “large accelerated filer” under the Exchange Act or (4) the date on which the Company has, during the previous three year period, issued, publicly or privately, more than $1.0 billion in non-convertible debt securities. We have elected to use the extended transition period until we are no longer an emerging growth company or until we choose to affirmatively and irrevocably opt out of the extended transition period. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements applicable to public companies.

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RESULTS OF OPERATIONS

Overview of Recent Financial Results

The following table presents selected financial results and measures:


	Three Months Ended March 31,
	2023			2022

	(dollars in thousands, except per share amounts)
Total interest and dividend income	$	51,779		$	33,335
Total interest expense		4,942			1,407
Net interest income		46,837			31,928
Provision for credit losses		6,210			(584)
Net interest income after provision for credit losses		40,627			32,512
Total noninterest income		7,437			10,043
Total noninterest expense		35,933			24,157
Income before income tax expense		12,131			18,398
Income tax expense		2,923			4,794
Net income	$	9,208		$	13,604

Adjusted net income ⁽¹⁾	$	19,859		$	12,227

Net interest income (tax-equivalent basis) ^{(1) (2)}	$	47,539		$	32,457

Share and Per Share Information
Earnings per share - Diluted	$	0.30		$	0.47
Adjusted earnings per share - Diluted ⁽¹⁾		0.64			0.42

Weighted average shares of common stock outstanding		30,977,204			28,986,593

Summary Ratios
Net interest margin		4.20	%		3.08	%
Net interest margin (tax-equivalent basis) ^{(1) (2)}		4.26			3.13
Yield on loans		5.80			4.44
Yield on interest-earning assets		4.64			3.22
Cost of interest-bearing liabilities		0.63			0.20
Cost of total deposits		0.24			0.06
Cost of funds		0.47			0.15

Efficiency ratio		65.27	%		56.97	%
Efficiency ratio (tax-equivalent basis) ^{(1) (2)}		64.43			56.26

Return on average assets		0.78	%		1.27	%
Return on average stockholders' equity		8.84			13.58
Return on average tangible common equity ⁽¹⁾		10.45			14.71

Adjusted return on average assets ⁽¹⁾		1.69	%		1.14	%
Adjusted return on average stockholders' equity ⁽¹⁾		19.08			12.20
Adjusted return on average tangible common equity ⁽¹⁾		22.55			13.22

* Annualized measure.

(1)	See "Non-GAAP Financial Information" for reconciliation of non-GAAP measure 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%.

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Comparison of the Three Months Ended March 31, 2023 to the Three Months Ended March 31, 2022

For the three months ended March 31, 2023, net income was $9.2 million, decreasing by $4.4 million, or 32.3%, when compared to net income for the three months ended March 31, 2022. Notable changes include the following:

●

A $14.9 million increase in net interest income, primarily attributable to higher yields on interest-earning assets and the increase in average interest-earning assets following the Town and Country merger;

●

Town and Country acquisition-related expenses totaled $13.1 million during the three months ended March 31, 2023, including 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;

●

Excluding Town and Country acquisition-related expenses, noninterest expense increased by $4.6 million primarily reflecting higher base costs following the completion of the Town and Country merger on February 1, 2023; and

●

Realized losses on sales of securities totaled $1.0 million during the three months ended March 31, 2023, as the vast majority of the securities acquired from Town and Country were sold with the sales proceeds used to reduce FHLB borrowings.

Net Interest Income

Net interest income equals the excess of interest income on interest earning assets (including discount accretion on acquired loans plus certain loan fees) over interest expense incurred on interest-bearing liabilities. Interest rate spread and net interest margin are utilized to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on interest-earning assets and the rate paid for interest-bearing liabilities that fund those assets. The net interest margin is expressed as the percentage of net interest income to average interest-earning assets. The net interest margin exceeds the interest rate spread because noninterest-bearing sources of funds, principally noninterest-bearing demand deposits and stockholders’ equity, also support interest-earning assets.

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The following table sets forth average balances, average yields and costs, and certain other information for the three months ended March 31, 2023 and 2022. 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.


	Three Months Ended
	March 31, 2023						March 31, 2022
	Average						Average
	Balance		Interest		Yield/Cost *		Balance		Interest		Yield/Cost *

	(dollars in thousands)
ASSETS
Loans	$	3,012,320	$	43,111	5.80	%	$	2,507,006	$	27,468	4.44	%
Securities		1,411,613		7,813	2.24			1,321,918		5,689	1.75
Deposits with banks		92,363		739	3.24			370,130		159	0.17
Other		7,425		116	6.33			2,739		19	2.80
Total interest-earning assets		4,523,721	$	51,779	4.64	%		4,201,793	$	33,335	3.22	%
Allowance for credit losses		(33,301)						(24,099)
Noninterest-earning assets		274,870						165,752
Total assets	$	4,765,290					$	4,343,446

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Interest-bearing deposits:
Interest-bearing demand	$	1,230,644	$	458	0.15	%	$	1,143,829	$	142	0.05	%
Money market		634,608		935	0.60			598,271		121	0.08
Savings		709,862		178	0.10			649,563		50	0.03
Time		356,779		803	0.91			310,675		256	0.33
Total interest-bearing deposits		2,931,893		2,374	0.33			2,702,338		569	0.09
Securities sold under agreements to repurchase		39,619		38	0.38			53,054		9	0.07
Borrowings		113,896		1,297	4.62			500		1	0.71
Subordinated notes		39,403		470	4.83			39,325		470	4.84
Junior subordinated debentures issued to capital trusts		47,586		763	6.50			37,721		358	3.85
Total interest-bearing liabilities		3,172,397	$	4,942	0.63	%		2,832,938	$	1,407	0.20	%
Noninterest-bearing deposits		1,121,365						1,077,917
Noninterest-bearing liabilities		49,316						26,302
Total liabilities		4,343,078						3,937,157
Stockholders' Equity		422,212						406,289
Total liabilities and stockholders’ equity	$	4,765,290					$	4,343,446

Net interest income/Net interest margin ⁽¹⁾			$	46,837	4.20	%			$	31,928	3.08	%
Tax-equivalent adjustment ⁽²⁾				702	0.06					529	0.05
Net interest income (tax-equivalent basis)/ Net interest margin (tax-equivalent basis) ^{(2) (3)}			$	47,539	4.26	%			$	32,457	3.13	%
Net interest rate spread ⁽⁴⁾					4.01	%					3.02	%
Net interest-earning assets ⁽⁵⁾	$	1,351,324					$	1,368,855
Ratio of interest-earning assets to interest-bearing liabilities		1.43						1.48
Cost of total deposits					0.24	%					0.06	%
Cost of funds					0.47						0.15

* Annualized measure.

(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.

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The following table sets forth the components of loan interest income and their contributions to the total loan yield.


	Three Months Ended March 31,
	2023				2022
			Yield				Yield
	Interest		Contribution *		Interest		Contribution *

	(dollars in thousands)
Contractual interest	$	40,976	5.51	%	$	24,742	3.99	%
Loan fees (excluding PPP loans)		1,106	0.15			1,155	0.19
PPP loan fees		1	—			739	0.12
Accretion of acquired loan discounts		813	0.11			120	0.02
Nonaccrual interest recoveries		215	0.03			712	0.12
Total loan interest income	$	43,111	5.80	%	$	27,468	4.44	%

* Annualized measure.

The following table sets forth the components of net interest income and their contributions to the net interest margin.


	Three Months Ended March 31,
	2023				2022
			Net Interest				Net Interest
			Margin				Margin
	Interest		Contribution *		Interest		Contribution *

	(dollars in thousands)
Interest income:
Contractual interest on loans	$	40,976	3.67	%	$	24,742	2.39	%
Loan fees (excluding PPP loans)		1,106	0.10			1,155	0.11
PPP loan fees		1	—			739	0.07
Accretion of acquired loan discounts		813	0.07			120	0.01
Nonaccrual interest recoveries		215	0.02			712	0.07
Securities		7,813	0.70			5,689	0.55
Deposits with banks		739	0.07			159	0.02
Other		116	0.01			19	—
Total interest income		51,779	4.64			33,335	3.22

Interest expense:
Deposits		2,374	0.21			569	0.06
Other interest-bearing liabilities		2,568	0.23			838	0.08
Total interest expense		4,942	0.44			1,407	0.14
Net interest income		46,837	4.20			31,928	3.08
Tax equivalent adjustment ⁽¹⁾		702	0.06			529	0.05
Net interest income (tax equivalent) ^{(1) (2)}	$	47,539	4.26	%	$	32,457	3.13	%

* Annualized measure.

(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.

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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.


	Three Months Ended March 31, 2023
	vs.
	Three Months Ended March 31, 2022
	Increase (Decrease) Due to
	Volume		Rate		Total

	(dollars in thousands)
Interest-earning assets:
Loans	$	6,209	$	9,434	$	15,643
Securities		407		1,717		2,124
Deposits with banks		(205)		785		580
Other		56		41		97
Total interest-earning assets		6,467		11,977		18,444

Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand		11		305		316
Money market		8		806		814
Savings		5		123		128
Time		43		504		547
Total interest-bearing deposits		67		1,738		1,805
Securities sold under agreements to repurchase		(3)		32		29
Borrowings		1,265		31		1,296
Subordinated notes		1		(1)		—
Junior subordinated debentures issued to capital trusts		111		294		405
Total interest-bearing liabilities		1,441		2,094		3,535
Change in net interest income	$	5,026	$	9,883	$	14,909

Comparison of the Three Months Ended March 31, 2023 to the Three Months Ended March 31, 2022

Net interest income for the three months ended March 31, 2023 was $46.8 million, increasing $14.9 million, or 46.7%, from the three months ended March 31, 2022. The increase is primarily attributable to higher yields on interest-earning assets and the increase in average interest-earning assets following the Town and Country merger.

Net interest margin increased to 4.20% for the three months ended March 31, 2023, compared to 3.08% for the three months ended March 31, 2022. The increase was primarily attributable to higher yields on interest-earning assets, driven by significant increases in market rates since early 2022. Additionally, the contribution of acquired loan discount accretion to net interest margin increased to 7 basis points during the three months ended March 31, 2023, from 1 basis point during the three months ended March 31, 2022.

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The quarterly net interest margins were as follows:


	2023		2022
Three months ended:
March 31	4.20	%	3.08	%
June 30	—		3.34
September 30	—		3.65
December 31	—		4.10

In March 2022, the Federal Open Markets Committee (“FOMC”) raised the target range for the federal funds rate to 0.25% to 0.50%, the first rate hike since December 2018. Since March 2022, the FOMC has raised the target range for the federal funds rate several times, setting the target range for the federal funds rate to 4.75% to 5.00% at the March 2023 meeting.

As a result, market interest rates have also risen since March 2022 which has led to improvements in our net interest margin. In general, we believe that increases in market interest rates will lead to improved net interest margins while decreases in market interest rates will result in lower net interest margins. Additionally, these recent increases in market interest rates have increased competition for deposits. As a result, we expect deposit costs to increase during 2023 and deposits balances may decrease and be replaced by higher cost funding sources, such as FHLB advances, brokered deposits, or other wholesale funding.

Provision for Credit Losses

The following table sets forth the components of provision for credit losses for the periods indicated:


	Three Months Ended March 31,
	2023		2022

	(dollars in thousands)
Provision for credit losses
Loans	$	5,101	$	(584)
Unfunded lending-related commitments		509		—
Debt securities		600		—
Total provision for credit losses	$	6,210	$	(584)

In connection with the Town and Country merger, we 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. The remaining provision for credit losses primarily reflects the establishment of an allowance for credit losses of $0.6 million on debt securities available-for-sale, related to one bank subordinated debt security, a $0.2 million decrease in specific reserves on individually evaluated loans, and net recoveries of $0.1 million.

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 utlized in estimating the allowance for credit losses on loans include the unemployment rate and changes in GDP as macroeconomic variables, although other economic metrics are considered on a qualitative basis.

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Noninterest Income

The following table sets forth the major categories of noninterest income for the periods indicated:


	Three Months Ended March 31,
	2023		2022		$ Change

	(dollars in thousands)
Card income	$	2,658	$	2,404	$	254
Wealth management fees		2,338		2,289		49
Service charges on deposit accounts		1,871		1,652		219
Mortgage servicing		1,099		658		441
Mortgage servicing rights fair value adjustment		(624)		1,729		(2,353)
Gains on sale of mortgage loans		276		587		(311)
Realized gains (losses) on sales of securities		(1,007)		—		(1,007)
Unrealized gains (losses) on equity securities		(22)		(187)		165
Gains (losses) on foreclosed assets		(10)		40		(50)
Gains (losses) on other assets		—		193		(193)
Income on bank owned life insurance		115		40		75
Other noninterest income		743		638		105
Total noninterest income	$	7,437	$	10,043	$	(2,606)

Comparison of the Three Months Ended March 31, 2023 to the Three Months Ended March 31, 2022

Total noninterest income for the three months ended March 31, 2023, was $7.4 million, a decrease of $2.6 million, or 25.9%, from the three months ended March 31, 2022. Notable changes in noninterest income include the following:

●

A $2.4 million change in the mortgage servicing rights fair value adjustment, primarily due to changes in valuation assumptions;

●

The vast majority of the securities portfolio acquired from Town and Country was sold during the first quarter of 2023, with the sales proceeds used to reduce FHLB borrowings. Net losses of $1.0 million were realized on the sales;

●

A $0.4 million increase in mortgage servicing revenue, primarily due to the addition of the Town and Country servicing portfolio which nearly doubled the size of our existing mortgage servicing portfolio;

●

A $0.3 million decrease in gains on sale of mortgage loans, primarily attributable to a lower level of mortgage refinancing activity due to interest rate increases since the beginning of 2022; and

●

A $0.3 million increase in card income, mostly attributable to debit card activity on deposit accounts acquired from Town and Country.

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Noninterest Expense

The following table sets forth the major categories of noninterest expense for the periods indicated:


	Three Months Ended March 31,
	2023		2022		$ Change

	(dollars in thousands)
Salaries	$	19,411	$	12,801	$	6,610
Employee benefits		2,335		2,444		(109)
Occupancy of bank premises		2,102		2,060		42
Furniture and equipment		659		552		107
Data processing		4,323		1,653		2,670
Marketing and customer relations		836		851		(15)
Amortization of intangible assets		510		245		265
FDIC insurance		563		288		275
Loan collection and servicing		278		157		121
Foreclosed assets		61		132		(71)
Other noninterest expense		4,855		2,974		1,881
Total noninterest expense	$	35,933	$	24,157	$	11,776

Comparison of the Three Months Ended March 31, 2023 to the Three Months Ended March 31, 2022

Total noninterest expense for the three months ended March 31, 2023, was $35.9 million, an increase of $11.8 million, or 48.7%, from the three months ended March 31, 2022. Notable changes in noninterest expense include the following:

●

Town and Country acquisition-related noninterest expenses totaled $7.1 million, including $3.5 million in salaries, $1.9 million in data processing, and $1.8 million in legal, professional, and other noninterest expenses; and

●

The $4.6 million increase in noninterest expense, excluding the Town and Country acquisition-related expenses was primarily attributable to a higher base level of noninterest expense, primarily related to personnel costs.

Income Taxes

Comparison of the Three Months Ended March 31, 2023 to the Three Months Ended March 31, 2022

During the three months ended March 31, 2023 and 2022, we recorded income tax expense of $2.9 million, or an effective tax rate of 24.1%, and $4.8 million, or an effective tax rate of 26.1%, respectively. The decrease in effective tax rate was primarily attributable to a slightly higher proportion of federally tax-exempt interest income and slightly lower combined state income tax rates.

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FINANCIAL CONDITION


	March 31,			December 31,
	2023			2022			$ Change		% Change

Consolidated Balance Sheet Information	(dollars in thousands, except per share data)
Cash and cash equivalents	$	177,112		$	114,159		$	62,953	55.1	%
Debt securities available-for-sale, at fair value		854,622			843,524			11,098	1.3
Debt securities held-to-maturity		536,429			541,600			(5,171)	(1.0)
Loans held for sale		5,130			615			4,515	734.1

Loans, before allowance for credit losses		3,195,540			2,620,253			575,287	22.0
Less: allowance for credit losses		38,776			25,333			13,443	53.1
Loans, net of allowance for credit losses		3,156,764			2,594,920			561,844	21.7

Goodwill		59,876			29,322			30,554	104.2
Intangible assets, net		22,842			1,070			21,772	2,034.8
Other assets		201,046			161,524			39,522	24.5
Total assets	$	5,013,821		$	4,286,734		$	727,087	17.0	%

Total deposits	$	4,310,521		$	3,587,024		$	723,497	20.2	%
Securities sold under agreements to repurchase		34,919			43,081			(8,162)	(18.9)
Borrowings		75,183			160,000			(84,817)	(53.0)
Subordinated notes		39,415			39,395			20	0.1
Junior subordinated debentures		52,746			37,780			14,966	39.6
Other liabilities		50,939			45,822			5,117	11.2
Total liabilities		4,563,723			3,913,102			650,621	16.6
Total stockholders' equity		450,098			373,632			76,466	20.5
Total liabilities and stockholders' equity	$	5,013,821		$	4,286,734		$	727,087	17.0	%

Tangible assets ⁽¹⁾	$	4,931,103		$	4,256,342		$	674,761	15.9	%
Tangible common equity ⁽¹⁾		367,380			343,240			24,140	7.0

Core deposits ⁽¹⁾	$	4,250,705		$	3,559,866		$	690,839	19.4	%

Share and Per Share Information
Book value per share	$	14.02		$	12.99
Tangible book value per share ⁽¹⁾		11.45			11.94

Shares of common stock outstanding		32,095,370			28,752,626

Balance Sheet Ratios
Loan to deposit ratio		74.13	%		73.05	%
Core deposits to total deposits ⁽¹⁾		98.61			99.24
Stockholders' equity to total assets		8.98			8.72
Tangible common equity to tangible assets ⁽¹⁾		7.45			8.06

(1)	See "Non-GAAP Financial Information" for reconciliation of non-GAAP measure to their most closely comparable GAAP measures.

NM Not meaningful

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Total assets were $5.01 billion at March 31, 2023, an increase of $727.1 million, or 17.0%, from December 31, 2022. Notable changes in our consolidated balance sheet include the following:

●

The Town and Country merger added $905.6 milliion in total assets, $635.4 million in loans held for investment, and $720.4 million in deposits;

●

Following the Town and Country merger, $145.8 million of the securities acquired from Town and Country were sold with the sales proceeds used to reduce FHLB borrowings; and

●

Excluding the impact of the Town and Country merger, total deposits remained nearly unchanged, with a $30.5 million increase in noninterest-bearing deposits and a $13.8 million increase in time deposits being mostly offset by a $28.6 million decrease in money market accounts and a $16.3 million decrease in savings accounts.

Loan Portfolio

The following table sets forth the composition of the loan portfolio, excluding loans held-for-sale, by type of loan.


	March 31, 2023				December 31, 2022
	Balance		Percent		Balance		Percent

	(dollars in thousands)
Commercial and industrial	$	333,013	10.4	%	$	266,757	10.2	%
Commercial real estate - owner occupied		317,103	9.9			218,503	8.3
Commercial real estate - non-owner occupied		854,024	26.7			713,202	27.2
Construction and land development		389,142	12.2			360,824	13.8
Multi-family		362,672	11.4			287,865	11.0
One-to-four family residential		482,732	15.1			338,253	12.9
Agricultural and farmland		243,357	7.6			237,746	9.1
Municipal, consumer, and other		213,497	6.7			197,103	7.5
Loans, before allowance for credit losses		3,195,540	100.0	%		2,620,253	100.0	%
Allowance for credit losses		(38,776)				(25,333)
Loans, net of allowance for credit losses	$	3,156,764			$	2,594,920

Loans, before allowance for loan losses were $3.20 billion at March 31, 2023, an increase of $575.3 million, or 22.0%, from December 31, 2022. Excluding the impact of the Town and Country merger, the $60.1 million decrease in total loans was primarily driven by a variety of balance reductions across the portfolio, including $21.9 million of multi-family loans refinanced to the secondary market and $14.9 million of payoffs on loans exited due to the current credit environment. Additionally, significantly lower seasonal usage on grain elevator lines of credit presented a headwind to loan growth during the first quarter of 2023.

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Loan Portfolio Maturities

The following table summarizes the scheduled maturities of the loan portfolio. Demand loans (loans having no stated repayment schedule or maturity) and overdraft loans are reported as being due in one year or less.


			After 1 Year		After 5 Years
	1 Year		Through		Through		After
March 31, 2023	or Less		5 Years		15 Years		15 Years		Total

	(dollars in thousands)
Commercial and industrial	$	179,800	$	112,781	$	40,432	$	—	$	333,013
Commercial real estate - owner occupied		30,786		158,767		117,126		10,424		317,103
Commercial real estate - non-owner occupied		99,014		498,921		250,273		5,816		854,024
Construction and land development		181,911		172,216		34,832		183		389,142
Multi-family		25,423		249,497		85,746		2,006		362,672
One-to-four family residential		54,859		189,335		125,386		113,152		482,732
Agricultural and farmland		91,256		107,127		40,992		3,982		243,357
Municipal, consumer, and other		79,730		35,245		72,693		25,829		213,497
Total	$	742,779	$	1,523,889	$	767,480	$	161,392	$	3,195,540

The following table summarizes loans maturing after one year, segregated into variable and fixed interest rates.


	Variable Interest Rates
	Repricing		Repricing		Total		Predetermined
	1 Year		After		Variable		(Fixed)
March 31, 2023	or Less		1 Year		Interest Rates		Interest Rates		Total

	(dollars in thousands)
Commercial and industrial	$	31,230	$	8,767	$	39,997	$	113,216	$	153,213
Commercial real estate - owner occupied		38,531		44,912		83,443		202,874		286,317
Commercial real estate - non-owner occupied		95,762		33,175		128,937		626,073		755,010
Construction and land development		103,474		5,689		109,163		98,068		207,231
Multi-family		34,116		34,992		69,108		268,141		337,249
One-to-four family residential		88,146		64,984		153,130		274,743		427,873
Agricultural and farmland		8,830		10,910		19,740		132,361		152,101
Municipal, consumer, and other		19,823		18,175		37,998		95,769		133,767
Total	$	419,912	$	221,604	$	641,516	$	1,811,245	$	2,452,761

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Nonperforming Assets

The following table sets forth information concerning nonperforming loans and nonperforming assets as of each of the dates indicated.


	March 31, 2023			December 31, 2022

	(dollars in thousands)
NONPERFORMING ASSETS
Nonaccrual	$	6,508		$	2,155
Past due 90 days or more, still accruing ⁽¹⁾		10			1
Total nonperforming loans		6,518			2,156
Foreclosed assets		3,356			3,030
Total nonperforming assets	$	9,874		$	5,186

Allowance for credit losses	$	38,776		$	25,333
Loans, before allowance for credit losses		3,195,540			2,620,253

CREDIT QUALITY RATIOS
Allowance for credit losses to loans, before allowance for credit losses		1.21	%		0.97	%
Allowance for credit losses to nonaccrual loans		595.82			1,175.55
Allowance for credit losses to nonperforming loans		594.91			1,175.00
Nonaccrual loans to loans, before allowance for credit losses		0.20			0.08
Nonperforming loans to loans, before allowance for credit losses		0.20			0.08
Nonperforming assets to total assets		0.20			0.12
Nonperforming assets to loans, before allowance for credit losses, and foreclosed assets		0.31			0.20

(1)	Prior to 2023, excludes loans acquired with deteriorated credit quality that are past due 90 or more days and accruing. Such loans totaled $145 thousand as of December 31, 2022.

Total nonperforming assets were $9.9 million at March 31, 2023, increasing by $4.7 million since December 31, 2022. The increase was primarily attributable to the Town and Country merger which added $3.8 million in nonaccrual loans and $0.3 million of foreclosed assets.

Risk Classification of Loans

As of March 31, 2023 and December 31, 2022, our risk classifications of loans were as follows:


	March 31, 2023		December 31, 2022

	(dollars in thousands)
Pass	$	3,030,791	$	2,479,488
Pass-watch		72,047		66,934
Substandard		92,702		73,831
Doubtful		—		—
Total	$	3,195,540	$	2,620,253

Pass-watch loans increased $5.1 million, or 7.6%, and substandard loans increased $18.9 million, or 25.6%, from December 31, 2022 to March 31, 2023. These increases were primarily driven by the Town and Country merger which added $10.3 million in pass-watch loans and $17.6 million in substandard loans as of March 31, 2023.

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Net Charge-offs and Recoveries

The following table summarizes net charge-offs (recoveries) to average loans, before allowance for loan losses, by loan category.


	Three Months Ended March 31,
	2023			2022

	(dollars in thousands)
Net charge-offs (recoveries)
Commercial and industrial	$	(19)		$	(704)
Commercial real estate - owner occupied		(9)			(100)
Commercial real estate - non-owner occupied		(74)			(265)
Construction and land development		(3)			—
Multi-family		—			—
One-to-four family residential		(36)			(152)
Agricultural and farmland		(1)			—
Municipal, consumer, and other		30			65
Total	$	(112)		$	(1,156)

Average loans, before allowance for loan losses
Commercial and industrial	$	325,411		$	306,471
Commercial real estate - owner occupied		276,225			224,763
Commercial real estate - non-owner occupied		814,702			703,988
Construction and land development		379,677			315,207
Multi-family		341,301			246,771
One-to-four family residential		434,969			330,167
Agricultural and farmland		227,230			232,225
Municipal, consumer, and other		212,805			147,414
Total	$	3,012,320		$	2,507,006

Net charge-offs (recoveries) to average loans, before allowance for loan losses *
Commercial and industrial		(0.02)	%		(0.93)	%
Commercial real estate - owner occupied		(0.01)			(0.18)
Commercial real estate - non-owner occupied		(0.04)			(0.15)
Construction and land development		—			—
Multi-family		—			—
One-to-four family residential		(0.03)			(0.19)
Agricultural and farmland		—			—
Municipal, consumer, and other		0.06			0.18
Total		(0.02)	%		(0.19)	%

* Annualized measure.

The net charge-offs (recoveries) to average total loans before allowance for loan losses ratio has remained low for several years. We believe our continuous credit monitoring and collection efforts have resulted in lower levels of loan losses, while also recognizing that favorable economic conditions prior to the COVID-19 pandemic and substantial federal economic stimulus during the pandemic have also contributed to reduced loan losses.

Securities

The Company’s investment policy emphasizes safety of the principal, liquidity needs, expected returns, cash flow targets and consistency with our interest rate risk management strategy. The composition and maturities of the debt securities portfolio as of March 31, 2023, 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.

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	March 31, 2023
	Available-for-Sale				Held-to-Maturity				Total
			Weighted				Weighted				Weighted
	Amortized		Average		Amortized		Average		Amortized		Average
	Cost		Yield		Cost		Yield		Cost		Yield

	(dollars in thousands)
Due in 1 year or less
U.S. Treasury	$	20,111	1.54	%	$	—	—	%	$	20,111	1.54	%
Municipal		5,234	2.47			1,211	3.63			6,445	2.68
Mortgage-backed:
Agency residential		47	3.55			—	—			47	3.55
Agency commercial		11	6.44			—	—			11	6.44
Corporate		4,999	2.58			—	—			4,999	2.58
Total	$	30,402	1.87	%	$	1,211	3.63	%	$	31,613	1.94	%

Due after 1 year through 5 years
U.S. Treasury	$	109,534	1.30	%	$	—	—	%	$	109,534	1.30	%
U.S. government agency		40,988	2.58			10,000	2.18			50,988	2.50
Municipal		62,649	2.07			17,853	3.21			80,502	2.32
Mortgage-backed:
Agency residential		14,656	2.79			8,337	1.62			22,993	2.36
Agency commercial		57,863	1.96			16,618	2.65			74,481	2.11
Corporate		16,899	4.29			—	—			16,899	4.29
Total	$	302,589	2.00	%	$	52,808	2.59	%	$	355,397	2.08	%

Due after 5 years through 10 years
U.S. Treasury	$	40,179	1.53	%	$	—	—	%	$	40,179	1.53	%
U.S. government agency		16,123	2.41			75,332	2.50			91,455	2.49
Municipal		147,228	1.73			19,149	3.44			166,377	1.93
Mortgage-backed:
Agency residential		73,959	2.14			3,771	3.51			77,730	2.21
Agency commercial		49,525	1.66			242,729	1.93			292,254	1.88
Corporate		38,718	4.17			—	—			38,718	4.17
Total	$	365,732	2.07	%	$	340,981	2.16	%	$	706,713	2.11	%

Due after 10 years
U.S. government agency	$	—	—	%	$	3,098	2.83	%	$	3,098	2.83	%
Municipal		59,738	1.91			2,908	3.35			62,646	1.98
Mortgage-backed:
Agency residential		129,847	2.71			88,392	3.61			218,239	3.07
Agency commercial		42,796	2.29			47,031	2.02			89,827	2.15
Corporate		2,000	4.50			—	—			2,000	4.50
Total	$	234,381	2.45	%	$	141,429	3.06	%	$	375,810	2.68	%

Total
U.S. Treasury	$	169,824	1.38	%	$	—	—	%	$	169,824	1.38	%
U.S. government agency		57,111	2.53			88,430	2.48			145,541	2.50
Municipal		274,849	1.86			41,121	3.34			315,970	2.05
Mortgage-backed:
Agency residential		218,509	2.53			100,500	3.44			319,009	2.81
Agency commercial		150,195	1.95			306,378	1.98			456,573	1.97
Corporate		62,616	4.09			—	—			62,616	4.09
Total	$	933,104	2.13	%	$	536,429	2.44	%	$	1,469,533	2.25	%

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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, the Bank continues to add and improve digital banking services to solidify deposit relationships.

The following table sets forth the distribution of average deposits, by account type:


	Three Months Ended March 31,												Percent
	2023						2022						Change in
	Average		Percent of		Weighted		Average		Percent of		Weighted		Average
	Balance		Total Deposits		Average Cost *		Balance		Total Deposits		Average Cost *		Balance

	(dollars in thousands)
Noninterest-bearing	$	1,121,365	27.7	%	—	%	$	1,077,917	28.5	%	—	%	4.0	%
Interest-bearing demand		1,230,644	30.4		0.15			1,143,829	30.3		0.05		7.6
Money market		634,608	15.6		0.60			598,271	15.8		0.08		6.1
Savings		709,862	17.5		0.10			649,563	17.2		0.03		9.3
Total non-maturity deposits		3,696,479	91.2		0.17			3,469,580	91.8		0.04		6.5
Time		356,779	8.8		0.91			310,675	8.2		0.33		14.8
Total deposits	$	4,053,258	100.0	%	0.24	%	$	3,780,255	100.0	%	0.06	%	7.2	%

* Annualized measure.

Comparison of the Three Months Ended March 31, 2023 to the Three Months Ended March 31, 2022

The average balances of deposits increased 7.2% from the three months ended March 31, 2022 to the three months ended March 31, 2023, primarily due to the Town and Country merger which added $576.8 million of non-maturity deposits and $143.6 million in time deposits on February 1, 2023.

Recent increases in market interest rates have increased competition for deposits. As a result, we expect deposit costs to increase during 2023, relative to 2022, and deposits balances may decrease. Additionally, outgoing deposits may be replaced by higher cost funding sources, such as FHLB advances, brokered deposits, or other wholesale funding.

The following table sets forth time deposits by remaining maturity as of March 31, 2023:


	3 Months or		Over 3 through		Over 6 through		Over
	Less		6 Months		12 Months		12 Months		Total

	(dollars in thousands)
Time deposits:
Amounts less than $100,000	$	43,957	$	36,253	$	71,983	$	65,836	$	218,029
Amounts of $100,000 or more but less than $250,000		26,668		31,423		51,986		32,450		142,527
Amounts of $250,000 or more		4,913		8,260		34,858		11,785		59,816
Total time deposits	$	75,538	$	75,936	$	158,827	$	110,071	$	420,372

As of March 31, 2023 and December 31, 2022, the Bank’s uninsured deposits were estimated to be $936.1 million and $739.0 million, respectively.

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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.

Additional sources of liquidity include unpledged securities, federal funds purchased, borrowings from the FHLB and FRB, and brokered deposits. Unpledged securities may be sold or pledged as collateral for borrowings to meet liquidity needs. Interest is charged at the prevailing market rate on federal funds purchased and FHLB borrowings. Funds available through federal funds purchased and FHLB borrowings are used primarily to meet daily liquidity needs.

As of March 31, 2023, 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 March 31, 2023, the Bank had no material commitments for capital expenditures.

Holding Company Liquidity

The Holding Company, or HBT Financial, Inc. on an unconsolidated basis, is a corporation separate and apart from the Bank and, therefore, it must provide for its own liquidity. As of March 31, 2023, the Holding Company had cash and cash equivalents of $1.2 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 three months ended March 31, 2023 and 2022, the Bank paid $25.0 million and $6.0 million in dividends to the Holding Company, respectively.

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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 three months ended March 31, 2023 and 2022, holding company operating expenses consisted of interest expense of $1.2 million and $0.8 million, respectively, and other operating expenses of $2.2 million and $1.5 million, respectively. Additionally, the Holding Company paid $5.5 million and $4.7 million of dividends to stockholders during the three months ended March 31, 2023 and 2022, respectively, and paid $38.0 million in cash consideration in the acquisition of Town and Country during the first quarter of 2023.

As of March 31, 2023, 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 March 31, 2023, 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 March 31, 2023, the Holding Company had no material commitments for capital expenditures.

CAPITAL RESOURCES

The overall objectives of capital management are to ensure the availability of sufficient capital to support loan, deposit and other asset and liability growth opportunities and to maintain capital to absorb unforeseen losses or write-downs that are inherent in the business risks associated with the banking industry. The Company seeks to balance the need for higher capital levels to address such unforeseen risks and the goal to achieve an adequate return on the capital invested by our stockholders.

Regulatory Capital Requirements

The Company and Bank are each subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the financial statements of the Company and the Bank.

In addition to meeting minimum capital requirements, the Company and the Bank must also maintain a “capital conservation buffer” to avoid becoming subject to restrictions on capital distributions and certain discretionary bonus payments to management. As of March 31, 2023 and December 31, 2022, the capital conservation buffer requirement was 2.5% of risk-weighted assets.

As of March 31, 2023 and December 31, 2022, 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.

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					For Capital		To Be Well
					Adequacy Purposes		Capitalized Under
	March 31,		December 31,		With Capital		Prompt Corrective
	2023		2022		Conversation Buffer ⁽¹⁾		Action Provisions ⁽²⁾
Total Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.	15.11	%	16.27	%	10.50	%	N/A
Heartland Bank and Trust Company	15.00		15.43		10.50		10.00	%

Tier 1 Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.	13.16	%	14.23	%	8.50	%	N/A
Heartland Bank and Trust Company	14.11		14.63		8.50		8.00	%

Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.	11.79	%	13.07	%	7.00	%	N/A
Heartland Bank and Trust Company	14.11		14.63		7.00		6.50	%

Tier 1 Capital (to Average Assets)
Consolidated HBT Financial, Inc.	10.29	%	10.48	%	4.00		N/A
Heartland Bank and Trust Company	11.03		10.78		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 March 31, 2023, 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

During 2022, the Company paid quarterly cash dividends of $0.16 per share. On January 24, 2023, the Company announced an increase of $0.01 and paid a $0.17 per share dividend during the first quarter of 2023.

Stock Repurchase Program

Under the Company’s stock repurchase program, the Company repurchased 79,463 shares of its common stock at a weighted average price of $19.92 during the three months ended March 31, 2023. The Company’s Board of Directors authorized the repurchase of up to $15.0 million of its common stock under its stock repurchase program in effect until January 1, 2024. As of March 31, 2023, the Company had $13.4 million remaining under the current stock repurchase authorization.

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. Although commitments to extend credit are considered while evaluating our allowance for loan losses, as of March 31, 2023 and December 31, 2022, there were no reserves for unfunded commitments. For additional information, see “Note 15 – Commitments and Contingencies” to the consolidated financial statements.

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CRITICAL ACCOUNTING ESTIMATES

Critical accounting estimates are those that are critical to the portrayal and understanding of the Company’s financial condition and results of operations and require management to make assumptions that are difficult, subjective or complex. These estimates involve judgments, assumptions and uncertainties that are susceptible to change. In the event that different assumptions or conditions were to prevail, and depending on the severity of such changes, the possibility of a materially different financial condition or materially different results of operations is a reasonable likelihood. Further, changes in accounting standards could impact the Company’s critical accounting estimates. The following accounting estimates could be deemed critical:

Allowance for 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 credit loss drivers, such as the unemployment rate and changes in GDP. Management leverages economic projections from a reputable third party to inform 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.

Fair Value of Assets Acquired and Liabilities Assumed in Business Combinations

Business combinations are accounted for using the acquisition method of accounting. Under the acquisition method of accounting, assets acquired and liabilities assumed are recorded at their estimated fair value on the acquisition date. Estimating such fair values may require highly subjective assumptions or the use of a valuation specialist. In the Town and Country acquisition, the fair value for loans was most significant estimate and relatively small changes in assumptions used in this estimate could result in a materially different conclusion.

The fair value for loans was based on a discounted cash flow methodology that considered credit loss and prepayment expectations, market interest rates and other market factors, such as liquidity, from the perspective of a market participant. Loan cash flows were generated on an individual loan basis. The probability of default, loss given default, exposure at default, and prepayment assumptions are key factors in this analysis.

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NON-GAAP FINANCIAL INFORMATION

This Quarterly Report on Form 10-Q 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, - excludes branch closure expenses, - excludes charges related to termination of certain employee benefit plans, - excludes net earnings (losses) from closed or sold operations, - excludes realized gains (losses) on sales of closed branch premises, - excludes realized gains (losses) on sales of securities, - excludes mortgage servicing rights fair value adjustment, and - the income tax effect of these pre-tax adjustments.	● 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.
Net Interest Income (Tax Equivalent Basis)	● Net interest income adjusted for the tax-favored status of tax-exempt loans and securities. ⁽¹⁾	● 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. ⁽¹⁾	● 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.

(1)	Tax-equivalent basis assuming a federal income tax rate of 21% and a state tax rate of 9.5%.

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Non-GAAP Financial Measure	Definition	How the Measure Provides Useful Information to Investors
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 significant amounts of goodwill or intangible assets. ● We also sometimes refer to ratios that include Tangible Common Equity, such as: - Tangible Book Value Per Share, which is Tangible Common Equity divided by shares of common stock outstanding. - Return on Average Tangible Common Equity, which is net income divided by average Tangible Common Equity. - Adjusted Return on Average Tangible Common Equity, which is Adjusted Net Income divided by average Tangible Common Equity.
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.

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Reconciliation of Non-GAAP Financial Measure - Adjusted Net Income and Adjusted Return on Average Assets


	Three Months Ended March 31,
	2023			2022

	(dollars in thousands)
Net income	$	9,208		$	13,604
Adjustments:
Acquisition expenses ⁽¹⁾		(13,064)			—
Gains (losses) on sales of closed branch premises		—			197
Realized gains (losses) on sales of securities		(1,007)			—
Mortgage servicing rights fair value adjustment		(624)			1,729
Total adjustments		(14,695)			1,926
Tax effect of adjustments		4,044			(549)
Less adjustments after tax effect		(10,651)			1,377
Adjusted net income	$	19,859		$	12,227

Average assets	$	4,765,290		$	4,343,446

Return on average assets *		0.78	%		1.27	%
Adjusted return on average assets *		1.69			1.14

* Annualized measure.

(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.

Reconciliation of Non-GAAP Financial Measure - Adjusted Earnings Per Share


	Three Months Ended March 31,
	2023		2022

	(dollars in thousands, except per share amounts)
Numerator:
Net income	$	9,208	$	13,604
Earnings allocated to participating securities ⁽¹⁾		(5)		(17)
Numerator for earnings per share - basic and diluted	$	9,203	$	13,587

Adjusted net income	$	19,859	$	12,227
Earnings allocated to participating securities ⁽¹⁾		(13)		(15)
Numerator for adjusted earnings per share - basic and diluted	$	19,846	$	12,212

Denominator:
Weighted average common shares outstanding		30,977,204		28,986,593
Dilutive effect of outstanding restricted stock units		69,947		43,646
Weighted average common shares outstanding, including all dilutive potential shares		31,047,151		29,030,239

Earnings per share - Basic	$	0.30	$	0.47
Earnings per share - Diluted	$	0.30	$	0.47

Adjusted earnings per share - Basic	$	0.64	$	0.42
Adjusted earnings per share - Diluted	$	0.64	$	0.42

(1)

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Reconciliation of Non-GAAP Financial Measure – Net Interest Income and Net Interest Margin (Tax Equivalent Basis)


	Three Months Ended March 31,
	2023			2022

	(dollars in thousands)
Net interest income (tax equivalent basis)
Net interest income	$	46,837		$	31,928
Tax-equivalent adjustment ⁽¹⁾		702			529
Net interest income (tax equivalent basis) ⁽¹⁾	$	47,539		$	32,457

Net interest margin (tax equivalent basis)
Net interest margin *		4.20	%		3.08	%
Tax-equivalent adjustment * ⁽¹⁾		0.06			0.05
Net interest margin (tax equivalent basis) * ⁽¹⁾		4.26	%		3.13	%

Average interest-earning assets	$	4,523,721		$	4,201,793

* Annualized measure.

(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)


	Three Months Ended March 31,
	2023			2022

	(dollars in thousands)
Efficiency ratio (tax equivalent basis)
Total noninterest expense	$	35,933		$	24,157
Less: amortization of intangible assets		510			245
Adjusted noninterest expense	$	35,423		$	23,912

Net interest income	$	46,837		$	31,928
Total noninterest income		7,437			10,043
Operating revenue		54,274			41,971
Tax-equivalent adjustment ⁽¹⁾		702			529
Operating revenue (tax-equivalent basis) ⁽¹⁾	$	54,976		$	42,500

Efficiency ratio		65.27	%		56.97	%
Efficiency ratio (tax equivalent basis) ⁽¹⁾		64.43			56.26

(1)	On a tax-equivalent basis assuming a federal income tax rate of 21% and a state tax rate of 9.5%.

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Reconciliation of Non-GAAP Financial Measure - Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share


	March 31, 2023			December 31, 2022

	(dollars in thousands, except per share data)
Tangible Common Equity
Total stockholders' equity	$	450,098		$	373,632
Less: Goodwill		59,876			29,322
Less: Intangible assets, net		22,842			1,070
Tangible common equity	$	367,380		$	343,240

Tangible Assets
Total assets	$	5,013,821		$	4,286,734
Less: Goodwill		59,876			29,322
Less: Intangible assets, net		22,842			1,070
Tangible assets	$	4,931,103		$	4,256,342

Total stockholders' equity to total assets		8.98	%		8.72	%
Tangible common equity to tangible assets		7.45			8.06

Shares of common stock outstanding		32,095,370			28,752,626

Book value per share	$	14.02		$	12.99
Tangible book value per share		11.45			11.94

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


	Three Months Ended March 31,
	2023			2022

	(dollars in thousands)
Average Tangible Common Equity
Total stockholders' equity	$	422,212		$	406,289
Less: Goodwill		49,352			29,322
Less: Intangible assets, net		15,635			1,844
Average tangible common equity	$	357,225		$	375,123

Net income	$	9,208		$	13,604
Adjusted net income		19,859			12,227

Return on average stockholders' equity *		8.84	%		13.58	%
Return on average tangible common equity *		10.45			14.71

Adjusted return on average stockholders' equity *		19.08	%		12.20	%
Adjusted return on average tangible common equity *		22.55			13.22

* Annualized measure.

Reconciliation of Non-GAAP Financial Measure - Core Deposits


	March 31, 2023			December 31, 2022

	(dollars in thousands)
Core Deposits
Total deposits	$	4,310,521		$	3,587,024
Less: time deposits of $250,000 or more		59,816			27,158
Less: brokered deposits		—			—
Core deposits	$	4,250,705		$	3,559,866

Core deposits to total deposits		98.61	%		99.24	%

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ITEM 3. 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.

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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.


					Increase (Decrease) in
	Estimated Increase				Estimated Net Interest Income
	(Decrease) in EVE				Year 1				Year 2
Change in Interest Rates (basis points)	Amount		Percent		Amount		Percent		Amount		Percent

	(dollars in thousands)
March 31, 2023
+300	$	77,730	9.6	%	$	5,550	2.8	%	$	14,165	7.0	%
+200		63,328	7.8			4,047	2.0			10,406	5.1
+100		40,200	5.0			2,298	1.1			6,066	3.0
-100		(70,665)	(8.8)			(6,179)	(3.1)			(10,559)	(5.2)
-200		(168,618)	(20.9)			(15,330)	(7.7)			(24,847)	(12.3)
-300		(197,346)	(24.4)			(25,128)	(12.6)			(37,565)	(18.6)

December 31, 2022
+300	$	89,504	11.0	%	$	11,587	6.9	%	$	18,225	10.5	%
+200		71,015	8.7			8,152	4.8			13,266	7.6
+100		43,269	5.3			4,308	2.5			7,307	4.2
-100		(64,289)	(7.9)			(6,808)	(4.0)			(10,305)	(5.9)
-200		(159,079)	(19.5)			(16,218)	(9.6)			(23,694)	(13.6)
-300		(219,755)	(27.0)			(24,834)	(14.7)			(35,743)	(20.5)

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in EVE and net interest income requires that we make certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The EVE and net interest income table presented above assumes that the composition of our interest-rate-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and, accordingly, the data does not reflect any actions that we may undertake in response to changes in interest rates, such as changes in rates paid on certain deposit accounts based on local competitive factors, which could change the actual impact on EVE and net interest income. The table also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or the repricing characteristics of specific assets and liabilities. Accordingly, although the EVE and net interest income table provides an indication of our sensitivity to interest rate changes at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

Credit Risk

Credit risk is the risk that borrowers or counterparties will be unable or unwilling to repay their obligations in accordance with the underlying contractual terms. We manage and control credit risk in the loan portfolio by adhering to well-defined underwriting criteria and account administration standards established by management. Our loan policy documents underwriting standards, approval levels, exposure limits and other limits or standards deemed necessary and prudent. Portfolio diversification at the borrower, industry, and product levels is actively managed to mitigate concentration risk. In addition, credit risk management also includes an independent loan review process that assesses compliance with loan policy, compliance with loan documentation standards, accuracy of the risk rating and overall credit quality of the loan portfolio.

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ITEM 4. 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 March 31, 2023, 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.

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 March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. 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, financial condition, 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 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 8, 2023.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

None.

Issuer Purchases of Equity Securities

On December 20, 2022, the Company’s board of directors approved a stock repurchase program that authorizes the Company to repurchase up to $15 million of its common stock. The stock repurchase program will be in effect until January 1, 2024 with the timing of purchases and number of shares repurchased dependent upon a variety of factors including price, trading volume, corporate and regulatory requirements, and market conditions. The Company is not obligated to purchase any shares under the stock repurchase program, and the stock repurchase program may be suspended or discontinued at any time without notice. The stock repurchase program has been paused until completion of the vote of Town and Country’s shareholders on the merger.

The following table sets forth information about the Company’s purchases of its common stock during the first quarter of 2023:


				Total Number of Shares	Approximate Dollar Value of
	Total Number	Average		Purchased as Part of	Shares That May Yet be Purchased
	of Shares	Price Paid		Publicly Announced	Under the Plans or Programs
Period	Purchased	Per Share		Plans or Programs	(in thousands)
January 1 - 31, 2023	—	$	—	—	$	15,000
February 1 - 28, 2023	—		—	—		15,000
March 1 - 31, 2023	79,463		19.92	79,463		13,417
Total	79,463	$	19.92	79,463	$	13,417

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

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ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS


Exhibit No.		Description
10.1 §		Amendment to Amended and Restated Employment Agreement, dated March 31, 2023, by and among HBT Financial, Inc., Heartland Bank and Trust 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 April 3, 2023).

10.2 §		Amendment to Amended and Restated Employment Agreement, dated March 31, 2023, by and among HBT Financial, Inc., Heartland Bank and Trust 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 April 3, 2023).

31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a).

31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a).

32.1 *		Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350.

32.2 *		Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350.

101.INS		iXBRL Instance Document.

101.SCH		iXBRL Taxonomy Extension Schema Document.

101.CAL		iXBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB		iXBRL Taxonomy Extension Label Linkbase Document.

101.PRE		iXBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF		iXBRL Taxonomy Extension Definition Linkbase Document.

104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibits 101).

This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent the Company specifically incorporates it by reference.

§	A management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 601 of Regulation S-K.

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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.

May 3, 2023	By:	/s/ Peter R. Chapman
		Peter R. Chapman
		Chief Financial Officer
		(on behalf of the registrant and as principal financial officer)