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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 September 30, 2022

☐ 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 November 2, 2022, there were 28,752,626 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	8
	Notes to Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	52
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	86
Item 4.	Controls and Procedures	87
PART II. OTHER INFORMATION		88
Item 1.	Legal Proceedings	88
Item 1A.	Risk Factors	88
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	88
Item 3.	Defaults Upon Senior Securities	88
Item 4.	Mine Safety Disclosures	89
Item 5.	Other Information	89
Item 6.	Exhibits	89

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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, or other adverse external events that could cause economic deterioration or instability in credit markets, and the response of the local, state and national governments to any such adverse external events;

●

our asset quality and any loan charge-offs;

●

the composition of our loan portfolio;

●

environmental liability associated with our lending activities;

●

the effects of changes in interest rates on our net interest income, net interest margin, our investments, our loan originations, and our modeling estimates relating to interest rate changes;

●

changes in and uncertainty related to benchmark interest rates used to price our loans, including the elimination of the London Interbank Offered Rate (“LIBOR”);

●

our access to sources of liquidity and capital to address our liquidity needs;

●

our inability to receive dividends from the Bank, pay dividends to our common stockholders or satisfy obligations as they become due;

●

the effects of problems encountered by other financial institutions;

●

our ability to achieve organic loan and deposit growth and the composition of such growth;

●

our ability to attract and retain skilled employees or changes in our management personnel;

●

any failure or interruption of our information and communications systems;

●

our ability to identify and address cybersecurity risks;

●

the effects of the failure of any component of our business infrastructure provided by a third party;

●

our ability to keep pace with technological changes;

●

our ability to successfully develop and commercialize new or enhanced products and services;

●

current and future business, economic and market conditions in the United States (“U.S.”) generally or in the States of Illinois and Iowa in particular;

●

the geographic concentration of our operations in the States of Illinois and Iowa;

●

our ability to effectively compete with other financial services companies and the effects of competition in the financial services industry on our business;

●

our ability to attract and retain customer deposits;

●

our ability to maintain the Bank’s reputation;

●

possible impairment of our goodwill and other intangible assets;

●

the impact of, and changes in applicable laws, regulations and accounting standards and policies;

●

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;

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●

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, 2021, filed with the Securities and Exchange (“SEC”) Commission on March 11, 2022.

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)
	September 30,		December 31,
	2022		2021
ASSETS
Cash and due from banks	$	22,169	$	23,387
Interest-bearing deposits with banks		56,046		385,881
Cash and cash equivalents		78,215		409,268

Interest-bearing time deposits with banks		—		490
Debt securities available-for-sale, at fair value		853,740		942,168
Debt securities held-to-maturity (fair value of $481,692 in 2022 and $336,027 in 2021)		546,694		336,185
Equity securities with readily determinable fair value		2,996		3,443
Equity securities with no readily determinable fair value		1,977		1,927
Restricted stock, at cost		4,050		2,739
Loans held for sale		2,297		4,942

Loans, before allowance for loan losses		2,579,928		2,499,689
Allowance for loan losses		(25,060)		(23,936)
Loans, net of allowance for loan losses		2,554,868		2,475,753

Bank owned life insurance		7,515		7,393
Bank premises and equipment, net		50,854		52,483
Bank premises held for sale		281		1,452
Foreclosed assets		2,637		3,278
Goodwill		29,322		29,322
Core deposit intangible assets, net		1,210		1,943
Mortgage servicing rights, at fair value		10,440		7,994
Investments in unconsolidated subsidiaries		1,165		1,165
Accrued interest receivable		16,881		14,901
Other assets		48,182		17,408
Total assets	$	4,213,324	$	4,314,254

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-bearing	$	1,017,710	$	1,087,659
Interest-bearing		2,625,733		2,650,526
Total deposits		3,643,443		3,738,185

Securities sold under agreements to repurchase		48,130		61,256
Federal Home Loan Bank advances		60,000		—
Subordinated notes		39,376		39,316
Junior subordinated debentures issued to capital trusts		37,763		37,714
Other liabilities		25,539		25,902
Total liabilities		3,854,251		3,902,373

COMMITMENTS AND CONTINGENCIES (Note 14)

Stockholders' Equity
Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued or outstanding		—		—
Common stock, $0.01 par value; 125,000,000 shares authorized; shares issued of 29,308,491 at 2022 and 29,276,547 at 2021; shares outstanding of 28,752,626 at 2022 and 28,986,061 at 2021		293		293
Surplus		222,436		220,891
Retained earnings		223,495		194,132
Accumulated other comprehensive income (loss)		(77,462)		1,471
Treasury stock at cost, 555,865 shares at 2022 and 290,486 at 2021		(9,689)		(4,906)
Total stockholders’ equity		359,073		411,881
Total liabilities and stockholders’ equity	$	4,213,324	$	4,314,254

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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

INTEREST AND DIVIDEND INCOME	(dollars in thousands, except per share data)
Loans, including fees:
Taxable	$	29,855	$	25,604	$	84,504	$	76,016
Federally tax exempt		842		572		2,183		1,722
Securities:
Taxable		6,635		4,632		16,947		12,323
Federally tax exempt		1,207		1,103		3,385		3,383
Interest-bearing deposits in bank		458		190		1,037		385
Other interest and dividend income		17		14		50		39
Total interest and dividend income		39,014		32,115		108,106		93,868

INTEREST EXPENSE
Deposits		587		564		1,662		1,821
Securities sold under agreements to repurchase		9		8		26		23
Borrowings		85		1		87		2
Subordinated notes		470		470		1,409		1,409
Junior subordinated debentures issued to capital trusts		473		357		1,231		1,069
Total interest expense		1,624		1,400		4,415		4,324
Net interest income		37,390		30,715		103,691		89,544
PROVISION FOR LOAN LOSSES		386		(1,667)		(53)		(7,234)
Net interest income after provision for loan losses		37,004		32,382		103,744		96,778

NONINTEREST INCOME
Card income		2,569		2,509		7,687		7,216
Wealth management fees		2,059		2,036		6,670		6,013
Service charges on deposit accounts		1,927		1,677		5,371		4,364
Mortgage servicing		697		699		2,016		2,095
Mortgage servicing rights fair value adjustment		351		40		2,446		1,425
Gains on sale of mortgage loans		354		1,257		1,267		4,919
Unrealized gains (losses) on equity securities		(107)		28		(447)		74
Gains (losses) on foreclosed assets		(225)		(14)		(192)		126
Gains (losses) on other assets		(31)		(672)		119		(719)
Income on bank owned life insurance		41		—		122		—
Other noninterest income		599		832		1,769		2,461
Total noninterest income		8,234		8,392		26,828		27,974

NONINTEREST EXPENSE
Salaries		12,752		11,835		38,489		36,486
Employee benefits		1,771		1,455		6,199		4,549
Occupancy of bank premises		1,979		1,610		5,780		5,011
Furniture and equipment		668		657		1,843		1,883
Data processing		1,631		1,767		5,274		5,176
Marketing and customer relations		880		883		2,936		2,291
Amortization of intangible assets		243		252		733		799
FDIC insurance		302		279		888		763
Loan collection and servicing		336		400		771		1,098
Foreclosed assets		97		242		260		704
Other noninterest expense		3,339		2,787		8,824		8,105
Total noninterest expense		23,998		22,167		71,997		66,865
INCOME BEFORE INCOME TAX EXPENSE		21,240		18,607		58,575		57,887
INCOME TAX EXPENSE		5,613		4,892		15,259		15,210
NET INCOME	$	15,627	$	13,715	$	43,316	$	42,677

EARNINGS PER SHARE - BASIC	$	0.54	$	0.50	$	1.50	$	1.56
EARNINGS PER SHARE - DILUTED	$	0.54	$	0.50	$	1.49	$	1.56
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING		28,787,662		27,340,926		28,887,757		27,377,809

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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

	(dollars in thousands)
NET INCOME	$	15,627	$	13,715	$	43,316	$	42,677

OTHER COMPREHENSIVE LOSS
Unrealized losses on debt securities available-for-sale		(35,358)		(5,676)		(112,931)		(19,950)
Reclassification adjustment for amortization of net unrealized losses on debt securities transferred to held-to-maturity		504		195		1,234		426
Unrealized gains (losses) on derivative instruments		374		(8)		1,117		173
Reclassification adjustment for net settlements on derivative instruments		14		105		177		306
Total other comprehensive loss, before tax		(34,466)		(5,384)		(110,403)		(19,045)
Income tax benefit		(9,824)		(1,535)		(31,470)		(5,429)
Total other comprehensive loss		(24,642)		(3,849)		(78,933)		(13,616)
TOTAL COMPREHENSIVE (LOSS) INCOME	$	(9,015)	$	9,866	$	(35,617)	$	29,061

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, June 30, 2022	28,831,197	$	293	$	222,087	$	212,506	$	(52,820)	$	(8,257)	$	373,809
Net income	—		—		—		15,627		—		—		15,627
Other comprehensive loss	—		—		—		—		(24,642)		—		(24,642)
Stock-based compensation	—		—		349		—		—		—		349
Repurchase of common stock	(78,571)		—		—		—		—		(1,432)		(1,432)
Cash dividends and dividend equivalents ($0.16 per share)	—		—		—		(4,638)		—		—		(4,638)
Balance, September 30, 2022	28,752,626	$	293	$	222,436	$	223,495	$	(77,462)	$	(9,689)	$	359,073

Balance, June 30, 2021	27,355,053	$	275	$	191,185	$	175,328	$	8,386	$	(1,980)	$	373,194
Net income	—		—		—		13,715		—		—		13,715
Other comprehensive loss	—		—		—		—		(3,849)		—		(3,849)
Stock-based compensation	—		—		228		—		—		—		228
Repurchase of common stock	(20,625)										(343)		(343)
Cash dividends and dividend equivalents ($0.15 per share)	—		—		—		(4,124)		—		—		(4,124)
Balance, September 30, 2021	27,334,428	$	275	$	191,413	$	184,919	$	4,537	$	(2,323)	$	378,821

See accompanying Notes to Consolidated Financial Statements (Unaudited)

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HBT FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)

(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, 2021	28,986,061	$	293	$	220,891	$	194,132	$	1,471	$	(4,906)	$	411,881
Net income	—		—		—		43,316		—		—		43,316
Other comprehensive loss	—		—		—		—		(78,933)		—		(78,933)
Stock-based compensation	—		—		1,602		—		—		—		1,602
Issuance of common stock upon vesting of restricted stock units, net of tax withholdings	31,944		—		(57)		—		—		—		(57)
Repurchase of common stock	(265,379)		—		—		—		—		(4,783)		(4,783)
Cash dividends and dividend equivalents ($0.48 per share)	—		—		—		(13,953)		—		—		(13,953)
Balance, September 30, 2022	28,752,626	$	293	$	222,436	$	223,495	$	(77,462)	$	(9,689)	$	359,073

Balance, December 31, 2020	27,457,306	$	275	$	190,875	$	154,614	$	18,153	$	—	$	363,917
Net income	—		—		—		42,677		—		—		42,677
Other comprehensive loss	—		—		—		—		(13,616)		—		(13,616)
Stock-based compensation	—		—		538		—		—		—		538
Issuance of common stock upon vesting of restricted stock units	20,225		—		—		—		—		—		—
Repurchase of common stock	(143,103)		—		—		—		—		(2,323)		(2,323)
Cash dividends and dividend equivalents ($0.45 per share)	—		—		—		(12,372)		—		—		(12,372)
Balance, September 30, 2021	27,334,428	$	275	$	191,413	$	184,919	$	4,537	$	(2,323)	$	378,821

See accompanying Notes to Consolidated Financial Statements (Unaudited)

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HBT FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
	2022		2021

	(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	43,316	$	42,677
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense		2,296		2,297
Provision for loan losses		(53)		(7,234)
Net amortization of debt securities		5,337		5,205
Deferred income tax (benefit) expense		(245)		2,409
Stock-based compensation		1,602		538
Net accretion of discount and deferred loan fees on loans		(4,320)		(9,529)
Net unrealized loss (gain) on equity securities		447		(74)
Net loss on disposals of bank premises and equipment		8		33
Net gain on sales of bank premises held for sale		(187)		—
Impairment losses on bank premises held for sale		61		652
Net gain on sales of foreclosed assets		(118)		(321)
Write-down of foreclosed assets		310		195
Amortization of intangibles		733		799
Increase in mortgage servicing rights		(2,446)		(1,425)
Amortization of discount and issuance costs on subordinated notes and debentures		109		109
Amortization of premium on interest-bearing time deposits with banks		5		—
Amortization of premium on time deposits		(164)		—
Mortgage loans originated for sale		(50,467)		(152,036)
Proceeds from sale of mortgage loans		54,379		163,086
Net gain on sale of mortgage loans		(1,267)		(4,919)
Increase in cash surrender value of bank owned life insurance		(122)		—
(Increase) decrease in accrued interest receivable		(1,980)		879
Decrease in other assets		289		1,639
Increase (decrease) in other liabilities		1,583		(18,284)
Net cash provided by operating activities		49,106		26,696

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of interest-bearing time deposits with banks		485		—
Proceeds from paydowns, maturities, and calls of debt securities		129,629		149,659
Purchase of securities		(368,794)		(398,387)
Net (increase) decrease in loans		(74,769)		104,376
Purchase of restricted stock		(1,311)		(241)
Purchases of bank premises and equipment		(683)		(773)
Proceeds from sales of bank premises and equipment		8		17
Proceeds from sales of bank premises held for sale		1,297		—
Proceeds from sales of foreclosed assets		476		1,583
Net cash used in investing activities		(313,662)		(143,766)

CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits		(94,578)		289,022
Net (decrease) increase in repurchase agreements		(13,126)		2,221
Net increase in Federal Home Loan Bank advances		60,000		—
Taxes paid related to the vesting of restricted stock units		(57)		—
Repurchase of common stock		(4,783)		(2,323)
Cash dividends and dividend equivalents paid		(13,953)		(12,372)
Net cash (used in) provided by financing activities		(66,497)		276,548

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(331,053)		159,478
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		409,268		312,451
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	78,215	$	471,929

See accompanying Notes to Consolidated Financial Statements (Unaudited)

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HBT FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)


	Nine Months Ended September 30,
	2022		2021

	(dollars in thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	$	4,851	$	4,992
Cash paid for income taxes	$	13,805	$	17,295

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES
Transfers of loans to foreclosed assets	$	27	$	4,856
Sales of foreclosed assets through loan origination	$	—	$	252
Transfers of bank premises and equipment to bank premises held for sale	$	—	$	1,345

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 Central and Northeastern Illinois and Eastern Iowa. Additionally, the Company is subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory agencies.

The unaudited consolidated financial statements, including the notes thereto, have been prepared in accordance with accounting principles generally accepted in the United States (“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, 2021, filed with the SEC on March 11, 2022.

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 $1.07 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 loan 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.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses on debt securities available-for-sale and purchased financial assets with credit deterioration. ASU 2016-13 is effective for years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for years beginning after December 31, 2018, including interim periods within those years.

The Company has formed an implementation team to assess the impact that ASU 2016-13 will have on the Company’s consolidated financial statements. For the majority of loans evaluated on a pooled basis, the Company anticipates using a discounted cash flow method which considers instrument level cash flows adjusted for, among other factors, prepayment speeds, probability of default, and loss given default. The Company also anticipates using regression analysis of historical internal and peer data to determine which variables are best suited to be economic variables utilized when modeling lifetime probability of default and loss given default.

The ultimate impact to the Company’s financial condition and results of operations of ASU 2016-13, at both adoption and each subsequent reporting period, is highly dependent on credit quality, macroeconomic forecasts and conditions, the composition of our loan and securities portfolios, along with other management judgments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies measurement of goodwill and eliminates Step 2 from the goodwill impairment test. Under ASU 2017-04, a company should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The impairment charge is limited to the amount of goodwill allocated to that reporting unit. The amendments in this update are effective for annual or any interim goodwill impairment tests in years beginning after December 15, 2022, including interim periods within those years. Early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. This standard is not expected to have a material impact on the Company’s consolidated results of operations or financial position.

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, 2022. The Company is currently evaluating the effect that this standard will have on the consolidated results of operations and financial position.

NOTE 2 – ACQUISITIONS

Town and Country Financial Corporation

Under the terms of the merger agreement, total consideration consists of approximately 3.4 million shares of HBT Financial’s common stock and $38.0 million in cash. Town and Country shareholders may elect to receive either (i) 1.9010 shares of HBT Financial’s common stock for each share of Town and Country, or (ii) $35.66 per share in cash, or (iii) a combination of cash and stock consideration, subject to adjustment and to the election and proration provisions in the merger agreement. Based upon the closing price of HBT Financial common stock of $18.76 on August 22, 2022, the implied per share purchase price is $35.66 with an aggregate transaction value of approximately $101.4 million. Upon closing of the transaction, shareholders of Town and Country are expected to hold approximately 10.5% of HBT Financial’s outstanding common stock.

The transaction is expected to close in the first quarter of 2023, subject to customary closing conditions, approval of Town and Country’s shareholders, and regulatory approvals.

During the three months ended September 30, 2022, HBT Financial incurred $0.5 million in pre-tax acquisition expenses related to the planned acquisition of Town and Country, comprised of legal and professional fees included in other noninterest expense in the consolidated statements of income.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NXT Bancorporation, Inc.

On October 1, 2021, HBT Financial acquired 100% of the issued and outstanding common stock of NXT Bancorporation, Inc. (“NXT”), the holding company for NXT Bank, pursuant to an Agreement and Plan of Merger dated June 7, 2021. Under the Agreement and Plan of Merger, NXT merged with and into HBT Financial, with HBT Financial as the surviving entity, on October 1, 2021. Additionally, NXT Bank was merged with and into Heartland Bank, with Heartland Bank as the surviving entity, in December 2021.

At the effective time of the merger, each share of NXT was converted into the right to receive 67.6783 shares of HBT Financial common stock, cash in lieu of fractional shares, and $400 in cash. There were 1,799,016 shares of HBT Financial common stock issued at the effective time of the acquisition with an aggregate market value of $29.3 million, based on the closing stock price of $16.27 on October 1, 2021. This transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair values on the date of acquisition. Goodwill of $5.7 million was recorded in the acquisition, which reflects expected synergies from combining the operations of HBT Financial and NXT, and is nondeductible for tax purposes.

The acquisition of NXT provided an opportunity to utilize Heartland Bank’s excess liquidity at the time of acquisition to replace NXT Bank’s higher-cost funding. Additionally, Heartland Bank’s broader range of products and services, as well as a greater ability to meet larger borrowing needs, has provided an opportunity to expand NXT Bank’s customer relationships.

During the three and nine months ended September 30, 2021, HBT Financial incurred $0.4 million and $0.5 million, respectively, in pre-tax acquisition expenses related to the acquisition of NXT, comprised primarily of professional fees and data processing expense. These expenses are reflected in noninterest expense on the consolidated statements of income. There were no acquisition expenses related to the acquisition of NXT during the three and nine months ended September 30, 2022.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The fair value of the assets acquired and liabilities assumed from NXT on the acquisition date were as follows (dollars in thousands):


	Fair Value
Assets acquired:
Cash and cash equivalents	$	5,862
Interest-bearing time deposits with banks		739
Debt securities		18,295
Equity securities with readily determinable fair value		43
Restricted stock		796
Loans		194,576
Bank owned life insurance		7,352
Bank premises and equipment		3,667
Core deposit intangible assets		199
Mortgage servicing rights		370
Accrued interest receivable		886
Other assets		1,340
Total assets acquired		234,125

Liabilities assumed:
Deposits		181,586
Securities sold under agreements to repurchase		4,080
FHLB advances		12,625
Other liabilities		1,633
Total liabilities assumed		199,924
Net assets acquired	$	34,201

Consideration paid:
Cash	$	10,633
Common stock		29,270
Total consideration paid	$	39,903

Goodwill	$	5,702

The following table presents the acquired non-impaired loans as of the acquisition date (dollars in thousands):


Fair Value	$	194,576
Gross contractual amounts receivable		196,104
Estimate of contractual cash flows not expected to be collected		1,045

There were no loans acquired with deteriorated credit quality from NXT.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table provides the pro forma information for the results of operations for the three and nine months ended September 30, 2021, as if the acquisition had occurred on January 1, 2020. The pro forma results combine the historical results of NXT into HBT Financial’s consolidated statements of income, including the impact of certain acquisition accounting adjustments, which include loan discount accretion, intangible assets amortization, deposit premium amortization, and borrowing premium amortization. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results that would have been obtained had the acquisition actually occurred on January 1, 2020. No assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, provision for loan losses, expense efficiencies or asset dispositions. The acquisition-related expenses that have been recognized are included in net income in the following table.


	Pro Forma
	Three Months Ended		Nine Months Ended
(dollars in thousands, except per share data)	September 30, 2021		September 30, 2021
Total revenues (net interest income and noninterest income)	$	41,296	$	124,460
Net income		14,093		44,285
Earnings per share - basic		0.48		1.52
Earnings per share - diluted		0.48		1.51

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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, are as follows:


September 30, 2022	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

Available-for-sale:	(dollars in thousands)
U.S. Treasury	$	169,895	$	—	$	(16,323)	$	153,572
U.S. government agency		61,428		1		(4,406)		57,023
Municipal		279,711		4		(37,804)		241,911
Mortgage-backed:
Agency residential		223,738		20		(18,851)		204,907
Agency commercial		154,677		1		(17,302)		137,376
Corporate		62,695		16		(3,760)		58,951
Total available-for-sale		952,144		42		(98,446)		853,740
Held-to-maturity:
U.S. government agency		88,418		—		(10,342)		78,076
Municipal		42,844		50		(1,357)		41,537
Mortgage-backed:
Agency residential		105,330		—		(6,491)		98,839
Agency commercial		310,102		—		(46,862)		263,240
Total held-to-maturity		546,694		50		(65,052)		481,692
Total debt securities	$	1,498,838	$	92	$	(163,498)	$	1,335,432


December 31, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

Available-for-sale:	(dollars in thousands)
U.S. Treasury	$	109,002	$	328	$	(354)	$	108,976
U.S. government agency		129,269		1,303		(2,467)		128,105
Municipal		293,837		6,144		(2,904)		297,077
Mortgage-backed:
Agency residential		178,236		2,149		(919)		179,466
Agency commercial		164,875		1,234		(2,048)		164,061
Corporate		63,141		1,638		(296)		64,483
Total available-for-sale		938,360		12,796		(8,988)		942,168
Held-to-maturity:
U.S. government agency		12,349		42		(51)		12,340
Municipal		15,666		809		—		16,475
Mortgage-backed:
Agency residential		20,555		196		(102)		20,649
Agency commercial		287,615		1,749		(2,801)		286,563
Total held-to-maturity		336,185		2,796		(2,954)		336,027
Total debt securities	$	1,274,545	$	15,592	$	(11,942)	$	1,278,195

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On March 31, 2022, June 30, 2021, and March 31, 2021, the Company transferred certain debt securities from the available-for-sale category to the held-to-maturity category in order to better reflect the revised intentions of the Company due to possible market 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				June 30, 2021				March 31, 2021
	Amortized				Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value

	(dollars in thousands)
U.S. government agency	$	78,841	$	71,048	$	—	$	—	$	7,593	$	7,323
Mortgage-backed:
Agency residential		8,175		7,651		—		—		8,776		8,536
Agency commercial		27,834		25,432		99,271		99,275		118,792		113,861
Total	$	114,850	$	104,131	$	99,271	$	99,275	$	135,161	$	129,720

The debt securities were transferred between categories at fair value, with the transfer date fair value becoming the new amortized cost for each security transferred. The unrealized gain (loss), net of tax, at the date of transfer remains a component of accumulated other comprehensive income, but will be amortized over the remaining life of the debt securities as an adjustment of yield in a manner consistent with amortization of any premium or discount. As a result, the amortization of an unrealized gain (loss) reported in accumulated other comprehensive income will offset or mitigate the effect on interest income of the amortization of the premium or discount for that held-to-maturity debt security.

As of September 30, 2022 and December 31, 2021, the Bank had debt securities with a carrying value of $413.4 million and $353.3 million, respectively, which were pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes required or permitted by law.

The Company has no direct exposure to the State of Illinois, but approximately 49% of the municipal portfolio consists of debt securities issued by municipalities located in Illinois as of September 30, 2022. Approximately 81% of such debt securities were general obligation issues as of September 30, 2022.

The amortized cost and fair value of debt securities by contractual maturity, as of September 30, 2022, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


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

	(dollars in thousands)
Due in 1 year or less	$	12,575	$	12,506	$	2,492	$	2,494
Due after 1 year through 5 years		235,438		220,181		25,934		24,801
Due after 5 years through 10 years		250,903		216,108		79,440		71,686
Due after 10 years		74,813		62,662		23,396		20,632

Mortgage-backed:
Agency residential		223,738		204,907		105,330		98,839
Agency commercial		154,677		137,376		310,102		263,240
Total	$	952,144	$	853,740	$	546,694	$	481,692

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables present 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 September 30, 2022 and December 31, 2021:


	Investments in a Continuous Unrealized Loss Position
	Less than 12 Months				12 Months or More				Total
September 30, 2022	Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value

Available-for-sale:	(dollars in thousands)
U.S. Treasury	$	(15,245)	$	144,691	$	(1,078)	$	8,881	$	(16,323)	$	153,572
U.S. government agency		(3,831)		51,799		(575)		3,394		(4,406)		55,193
Municipal		(16,557)		157,183		(21,247)		82,613		(37,804)		239,796
Mortgage-backed:
Agency residential		(15,072)		176,467		(3,779)		24,808		(18,851)		201,275
Agency commercial		(9,292)		89,378		(8,010)		45,474		(17,302)		134,852
Corporate		(2,527)		53,213		(1,233)		3,730		(3,760)		56,943
Total available-for-sale		(62,524)		672,731		(35,922)		168,900		(98,446)		841,631
Held-to-maturity:
U.S. government agency		(2,316)		20,176		(8,026)		57,900		(10,342)		78,076
Municipal		(1,357)		35,066		—		—		(1,357)		35,066
Mortgage-backed:
Agency residential		(6,320)		97,876		(171)		963		(6,491)		98,839
Agency commercial		(24,304)		150,113		(22,558)		113,127		(46,862)		263,240
Total held-to-maturity		(34,297)		303,231		(30,755)		171,990		(65,052)		475,221
Total debt securities	$	(96,821)	$	975,962	$	(66,677)	$	340,890	$	(163,498)	$	1,316,852


	Investments in a Continuous Unrealized Loss Position
	Less than 12 Months				12 Months or More				Total
December 31, 2021	Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value

Available-for-sale:	(dollars in thousands)
U.S. Treasury	$	(354)	$	68,410	$	—	$	—	$	(354)	$	68,410
U.S. government agency		(2,183)		80,219		(284)		5,578		(2,467)		85,797
Municipal		(2,018)		89,424		(886)		17,327		(2,904)		106,751
Mortgage-backed:
Agency residential		(851)		91,703		(68)		4,305		(919)		96,008
Agency commercial		(1,921)		113,111		(127)		6,443		(2,048)		119,554
Corporate		(7)		2,737		(289)		4,671		(296)		7,408
Total available-for-sale		(7,334)		445,604		(1,654)		38,324		(8,988)		483,928
Held-to-maturity:
U.S. government agency		(51)		4,949		—		—		(51)		4,949
Mortgage-backed:
Agency residential		(102)		14,932		—		—		(102)		14,932
Agency commercial		(2,673)		174,428		(128)		2,776		(2,801)		177,204
Total held-to-maturity		(2,826)		194,309		(128)		2,776		(2,954)		197,085
Total debt securities	$	(10,160)	$	639,913	$	(1,782)	$	41,100	$	(11,942)	$	681,013

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of September 30, 2022, there were 183 debt securities in an unrealized loss position for a period of twelve months or more, and 641 debt securities in an unrealized loss position for a period of less than twelve months. These unrealized losses are primarily a result of fluctuations in market interest rates. In analyzing an issuer’s financial condition, management considers whether the debt securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports. Management believes that all declines in value of these debt securities are deemed to be temporary.

There were no sales of debt securities during the three and nine months ended September 30, 2022 and 2021.

Equity Securities

Equity securities with readily determinable fair values are measured at fair value with changes in fair value recognized in gains (losses) on securities on the 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
September 30, 2022	Fair Value		Fair Value

	(dollars in thousands)
Initial cost	$	3,142	$	2,142
Cumulative net unrealized losses		(146)		(165)
Carrying value	$	2,996	$	1,977


	Readily		No Readily
	Determinable		Determinable
December 31, 2021	Fair Value		Fair Value

	(dollars in thousands)
Initial cost	$	3,142	$	2,092
Cumulative net unrealized gains (losses)		301		(165)
Carrying value	$	3,443	$	1,927

As of September 30, 2022 and December 31, 2021, the cumulative net unrealized losses on equity securities with no readily determinable fair value reflect downward adjustments based on observable price changes of an identical investment. There have been no impairments or upward adjustments based on observable price changes to equity securities with no readily determinable fair value.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

There were no sales of equity securities during the three and nine months ended September 30, 2022 and 2021. Unrealized gains (losses) on equity securities were as follows during the three and nine months ended September 30, 2022:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

	(dollars in thousands)
Readily determinable fair value	$	(107)	$	28	$	(447)	$	74
No readily determinable fair value		—		—		—		—
Unrealized gains (losses) on equity securities	$	(107)	$	28	$	(447)	$	74

NOTE 4 – LOANS AND THE ALLOWANCE FOR LOAN LOSSES

Major categories of loans are summarized as follows:


	September 30, 2022		December 31, 2021

	(dollars in thousands)
Commercial and industrial	$	240,671	$	286,946
Agricultural and farmland		245,234		247,796
Commercial real estate - owner occupied		226,524		234,544
Commercial real estate - non-owner occupied		718,089		684,023
Multi-family		260,630		263,911
Construction and land development		364,290		298,048
One-to-four family residential		328,667		327,837
Municipal, consumer, and other		195,823		156,584
Loans, before allowance for loan losses		2,579,928		2,499,689
Allowance for loan losses		(25,060)		(23,936)
Loans, net of allowance for loan losses	$	2,554,868	$	2,475,753

Paycheck Protection Program (PPP) loans (included above)
Commercial and industrial	$	65	$	28,404
Agricultural and farmland		—		913
Municipal, consumer, and other		—		171
Total PPP loans	$	65	$	29,488

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables detail activity in the allowance for loan losses for the three and nine months ended September 30:


					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate				Construction		One-to-four		Consumer,
	and		and		Owner		Non-owner				and Land		Family		and
Three Months Ended September 30, 2022	Industrial		Farmland		Occupied		Occupied		Multi-Family		Development		Residential		Other		Total

Allowance for loan losses:	(dollars in thousands)
Balance, June 30, 2022	$	2,981	$	924	$	1,224	$	6,611	$	1,375	$	4,059	$	1,696	$	5,864	$	24,734
Provision for loan losses		14		(83)		(65)		268		(52)		316		(78)		66		386
Charge-offs		(17)		—		—		—		—		—		(18)		(187)		(222)
Recoveries		6		—		1		3		—		1		60		91		162
Balance, September 30, 2022	$	2,984	$	841	$	1,160	$	6,882	$	1,323	$	4,376	$	1,660	$	5,834	$	25,060

					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate				Construction		One-to-four		Consumer,
	and		and		Owner		Non-owner				and Land		Family		and
Three Months Ended September 30, 2021	Industrial		Farmland		Occupied		Occupied		Multi-Family		Development		Residential		Other		Total

Allowance for loan losses:	(dollars in thousands)
Balance, June 30, 2021	$	2,717	$	781	$	1,946	$	9,825	$	2,009	$	3,924	$	1,520	$	3,785	$	26,507
Provision for loan losses		162		(26)		(395)		(710)		(228)		413		(499)		(384)		(1,667)
Charge-offs		(135)		—		—		—		—		—		(48)		(95)		(278)
Recoveries		114		—		—		6		—		1		135		43		299
Balance, September 30, 2021	$	2,858	$	755	$	1,551	$	9,121	$	1,781	$	4,338	$	1,108	$	3,349	$	24,861


					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate				Construction		One-to-four		Consumer,
	and		and		Owner		Non-owner				and Land		Family		and
Nine Months Ended September 30, 2022	Industrial		Farmland		Occupied		Occupied		Multi-Family		Development		Residential		Other		Total

Allowance for loan losses:	(dollars in thousands)
Balance, December 31, 2021	$	2,440	$	845	$	1,840	$	8,145	$	1,263	$	4,914	$	1,311	$	3,178	$	23,936
Provision for loan losses		(189)		(4)		(781)		(1,536)		60		(539)		93		2,843		(53)
Charge-offs		(22)		—		—		—		—		—		(67)		(426)		(515)
Recoveries		755		—		101		273		—		1		323		239		1,692
Balance, September 30, 2022	$	2,984	$	841	$	1,160	$	6,882	$	1,323	$	4,376	$	1,660	$	5,834	$	25,060

					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate								Consumer
	and		and		Owner		Non-owner				Construction		Residential		and
Nine Months Ended September 30, 2021	Industrial		Farmland		Occupied		Occupied		Multi-Family		and Land		Real Estate		Other		Total

Allowance for loan losses:	(dollars in thousands)
Balance, December 31, 2020	$	3,929	$	793	$	3,141	$	11,251	$	1,957	$	4,232	$	1,801	$	4,734	$	31,838
Provision for loan losses		(1,062)		(38)		(1,590)		(2,149)		(176)		(164)		(742)		(1,313)		(7,234)
Charge-offs		(430)		—		—		—		—		—		(161)		(284)		(875)
Recoveries		421		—		—		19		—		270		210		212		1,132
Balance, September 30, 2021	$	2,858	$	755	$	1,551	$	9,121	$	1,781	$	4,338	$	1,108	$	3,349	$	24,861

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables present the recorded investments in loans and the allowance for loan losses by category:


					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate				Construction		One-to-four		Consumer,
	and		and		Owner		Non-owner				and Land		Family		and
September 30, 2022	Industrial		Farmland		Occupied		Occupied		Multi-Family		Development		Residential		Other		Total

Loan balances:	(dollars in thousands)
Collectively evaluated for impairment	$	237,839	$	244,236	$	210,461	$	675,121	$	260,060	$	361,305	$	315,209	$	183,181	$	2,487,412
Individually evaluated for impairment		2,702		385		11,607		31,553		—		2,007		8,427		12,622		69,303
Acquired with deteriorated credit quality		130		613		4,456		11,415		570		978		5,031		20		23,213
Total	$	240,671	$	245,234	$	226,524	$	718,089	$	260,630	$	364,290	$	328,667	$	195,823	$	2,579,928

Allowance for loan losses:
Collectively evaluated for impairment	$	2,826	$	841	$	930	$	4,416	$	1,320	$	4,374	$	1,619	$	2,342	$	18,668
Individually evaluated for impairment		158		—		208		2,465		—		—		39		3,492		6,362
Acquired with deteriorated credit quality		—		—		22		1		3		2		2		—		30
Total	$	2,984	$	841	$	1,160	$	6,882	$	1,323	$	4,376	$	1,660	$	5,834	$	25,060

					Commercial		Commercial								Municipal,
	Commercial		Agricultural		Real Estate		Real Estate				Construction		One-to-four		Consumer,
	and		and		Owner		Non-owner				and Land		Family		and
December 31, 2021	Industrial		Farmland		Occupied		Occupied		Multi-Family		Development		Residential		Other		Total

Loan balances:	(dollars in thousands)
Collectively evaluated for impairment	$	272,064	$	247,021	$	216,794	$	641,555	$	262,701	$	293,548	$	314,807	$	143,510	$	2,392,000
Individually evaluated for impairment		14,744		12		12,332		29,575		—		2,018		6,897		13,041		78,619
Acquired with deteriorated credit quality		138		763		5,418		12,893		1,210		2,482		6,133		33		29,070
Total	$	286,946	$	247,796	$	234,544	$	684,023	$	263,911	$	298,048	$	327,837	$	156,584	$	2,499,689

Allowance for loan losses:
Collectively evaluated for impairment	$	2,253	$	845	$	1,480	$	5,138	$	1,259	$	4,895	$	1,099	$	1,302	$	18,271
Individually evaluated for impairment		187		—		327		2,999		—		—		210		1,875		5,598
Acquired with deteriorated credit quality		—		—		33		8		4		19		2		1		67
Total	$	2,440	$	845	$	1,840	$	8,145	$	1,263	$	4,914	$	1,311	$	3,178	$	23,936

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables present loans individually evaluated for impairment by category of loans:


	Unpaid
	Principal		Recorded		Related
September 30, 2022	Balance		Investment		Allowance

With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	256	$	256	$	158
Agricultural and farmland		—		—		—
Commercial real estate - owner occupied		734		734		208
Commercial real estate - non-owner occupied		14,359		14,348		2,465
Multi-family		—		—		—
Construction and land development		—		—		—
One-to-four family residential		350		340		39
Municipal, consumer, and other		8,223		8,201		3,492
Total	$	23,922	$	23,879	$	6,362

With no related allowance:
Commercial and industrial	$	2,460	$	2,446	$	—
Agricultural and farmland		385		385		—
Commercial real estate - owner occupied		11,030		10,873		—
Commercial real estate - non-owner occupied		17,284		17,205		—
Multi-family		—		—		—
Construction and land development		2,107		2,007		—
One-to-four family residential		9,403		8,087		—
Municipal, consumer, and other		4,455		4,421		—
Total	$	47,124	$	45,424	$	—

Total loans individually evaluated for impairment:
Commercial and industrial	$	2,716	$	2,702	$	158
Agricultural and farmland		385		385		—
Commercial real estate - owner occupied		11,764		11,607		208
Commercial real estate - non-owner occupied		31,643		31,553		2,465
Multi-family		—		—		—
Construction and land development		2,107		2,007		—
One-to-four family residential		9,753		8,427		39
Municipal, consumer, and other		12,678		12,622		3,492
Total	$	71,046	$	69,303	$	6,362

Table of Contents

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Unpaid
	Principal		Recorded		Related
December 31, 2021	Balance		Investment		Allowance

With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	303	$	303	$	187
Agricultural and farmland		—		—		—
Commercial real estate - owner occupied		3,013		3,013		327
Commercial real estate - non-owner occupied		14,912		14,893		2,999
Multi-family		—		—		—
Construction and land development		—		—		—
One-to-four family residential		1,421		1,314		210
Municipal, consumer, and other		8,523		8,498		1,875
Total	$	28,172	$	28,021	$	5,598

With no related allowance:
Commercial and industrial	$	14,452	$	14,441	$	—
Agricultural and farmland		12		12		—
Commercial real estate - owner occupied		9,534		9,319		—
Commercial real estate - non-owner occupied		14,755		14,682		—
Multi-family		—		—		—
Construction and land development		2,112		2,018		—
One-to-four family residential		7,129		5,583		—
Municipal, consumer, and other		4,603		4,543		—
Total	$	52,597	$	50,598	$	—

Total loans individually evaluated for impairment:
Commercial and industrial	$	14,755	$	14,744	$	187
Agricultural and farmland		12		12		—
Commercial real estate - owner occupied		12,547		12,332		327
Commercial real estate - non-owner occupied		29,667		29,575		2,999
Multi-family		—		—		—
Construction and land development		2,112		2,018		—
One-to-four family residential		8,550		6,897		210
Municipal, consumer, and other		13,126		13,041		1,875
Total	$	80,769	$	78,619	$	5,598

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


	Three Months Ended September 30,
	2022				2021
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized

With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	258	$	5	$	1,925	$	26
Agricultural and farmland		—		—		—		—
Commercial real estate - owner occupied		739		11		3,192		45
Commercial real estate - non-owner occupied		14,441		185		15,136		194
Multi-family		—		—		—		—
Construction and land development		—		—		—		—
One-to-four family residential		349		2		1,827		18
Municipal, consumer, and other		8,254		66		8,641		40
Total	$	24,041	$	269	$	30,721	$	323

With no related allowance:
Commercial and industrial	$	3,894	$	41	$	7,137	$	115
Agricultural and farmland		425		5		385		6
Commercial real estate - owner occupied		11,651		141		6,551		81
Commercial real estate - non-owner occupied		17,220		369		15,283		101
Multi-family		—		—		—		—
Construction and land development		2,010		57		2,439		1
One-to-four family residential		8,119		99		5,713		45
Municipal, consumer, and other		4,457		44		4,635		21
Total	$	47,776	$	756	$	42,143	$	370

Total loans individually evaluated for impairment:
Commercial and industrial	$	4,152	$	46	$	9,062	$	141
Agricultural and farmland		425		5		385		6
Commercial real estate - owner occupied		12,390		152		9,743		126
Commercial real estate - non-owner occupied		31,661		554		30,419		295
Multi-family		—		—		—		—
Construction and land development		2,010		57		2,439		1
One-to-four family residential		8,468		101		7,540		63
Municipal, consumer, and other		12,711		110		13,276		61
Total	$	71,817	$	1,025	$	72,864	$	693

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Nine Months Ended September 30,
	2022				2021
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized

With an allowance recorded:	(dollars in thousands)
Commercial and industrial	$	272	$	13	$	2,025	$	84
Agricultural and farmland		—		—		110		4
Commercial real estate - owner occupied		1,297		55		3,060		132
Commercial real estate - non-owner occupied		14,631		556		17,001		599
Multi-family		—		—		—		—
Construction and land development		—		—		741		27
One-to-four family residential		513		11		2,209		64
Municipal, consumer, and other		8,368		151		8,722		119
Total	$	25,081	$	786	$	33,868	$	1,029

With no related allowance:
Commercial and industrial	$	12,793	$	397	$	5,222	$	205
Agricultural and farmland		305		8		384		17
Commercial real estate - owner occupied		11,524		388		7,216		273
Commercial real estate - non-owner occupied		16,894		907		8,880		239
Multi-family		—		—		580		10
Construction and land development		2,012		105		2,060		27
One-to-four family residential		8,341		240		6,427		142
Municipal, consumer, and other		4,493		98		4,695		65
Total	$	56,362	$	2,143	$	35,464	$	978

Total loans individually evaluated for impairment:
Commercial and industrial	$	13,065	$	410	$	7,247	$	289
Agricultural and farmland		305		8		494		21
Commercial real estate - owner occupied		12,821		443		10,276		405
Commercial real estate - non-owner occupied		31,525		1,463		25,881		838
Multi-family		—		—		580		10
Construction and land development		2,012		105		2,801		54
One-to-four family residential		8,854		251		8,636		206
Municipal, consumer, and other		12,861		249		13,417		184
Total	$	81,443	$	2,929	$	69,332	$	2,007

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables present the recorded investment in loans by category based on current payment and accrual status:


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

	(dollars in thousands)
Commercial and industrial	$	240,391	$	191	$	—	$	89	$	240,671
Agricultural and farmland		245,234		—		—		—		245,234
Commercial real estate - owner occupied		226,424		100		—		—		226,524
Commercial real estate - non-owner occupied		717,085		—		—		1,004		718,089
Multi-family		260,630		—		—		—		260,630
Construction and land development		362,367		1,429		—		494		364,290
One-to-four family residential		325,926		1,159		22		1,560		328,667
Municipal, consumer, and other		195,651		113		—		59		195,823
Total	$	2,573,708	$	2,992	$	22	$	3,206	$	2,579,928


	Accruing Interest
			30 - 89 Days		90+ Days				Total
December 31, 2021	Current		Past Due		Past Due		Nonaccrual		Loans

	(dollars in thousands)
Commercial and industrial	$	286,563	$	9	$	—	$	374	$	286,946
Agricultural and farmland		247,772		24		—		—		247,796
Commercial real estate - owner occupied		234,441		103		—		—		234,544
Commercial real estate - non-owner occupied		683,029		823		—		171		684,023
Multi-family		263,911		—		—		—		263,911
Construction and land development		297,465		64		—		519		298,048
One-to-four family residential		325,780		383		32		1,642		327,837
Municipal, consumer, and other		156,297		214		16		57		156,584
Total	$	2,495,258	$	1,620	$	48	$	2,763	$	2,499,689

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


September 30, 2022	Pass		Pass-Watch		Substandard		Doubtful		Total

	(dollars in thousands)
Commercial and industrial	$	229,239	$	8,730	$	2,702	$	—	$	240,671
Agricultural and farmland		230,636		13,601		997		—		245,234
Commercial real estate - owner occupied		202,250		13,465		10,809		—		226,524
Commercial real estate - non-owner occupied		673,481		10,336		34,272		—		718,089
Multi-family		255,665		4,965		—		—		260,630
Construction and land development		361,954		329		2,007		—		364,290
One-to-four family residential		313,608		6,074		8,985		—		328,667
Municipal, consumer, and other		182,902		298		12,623		—		195,823
Total	$	2,449,735	$	57,798	$	72,395	$	—	$	2,579,928


December 31, 2021	Pass		Pass-Watch		Substandard		Doubtful		Total

	(dollars in thousands)
Commercial and industrial	$	267,088	$	5,114	$	14,744	$	—	$	286,946
Agricultural and farmland		221,898		25,213		685		—		247,796
Commercial real estate - owner occupied		198,862		24,098		11,584		—		234,544
Commercial real estate - non-owner occupied		619,212		32,372		32,439		—		684,023
Multi-family		241,362		22,549		—		—		263,911
Construction and land development		268,556		27,474		2,018		—		298,048
One-to-four family residential		308,951		11,221		7,665		—		327,837
Municipal, consumer, and other		143,299		244		13,041		—		156,584
Total	$	2,269,228	$	148,285	$	82,176	$	—	$	2,499,689

There were no new troubled debt restructurings during the three and nine months ended September 30, 2022 or 2021.

Of the troubled debt restructurings entered into during the last 12 months, there were none which had subsequent payment defaults during the three and nine months ended September 30, 2022 or 2021. For purposes of this disclosure, the Company considers “default” to mean 90 days or more past due as to interest or principal or were on nonaccrual status subsequent to restructuring.

As of September 30, 2022 and December 31, 2021, the Company had $3.1 million and $3.5 million of troubled debt restructurings, respectively. Restructured loans are evaluated for impairment quarterly as part of the Company’s determination of the allowance for loan losses. There were no material commitments to lend additional funds to debtors owing loans whose terms have been modified in troubled debt restructurings.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), along with a joint statement issued by banking regulatory agencies, provided that short-term loan payment modifications made prior to December 31, 2021 to borrowers experiencing financial hardship due to the COVID-19 pandemic generally do not need to be accounted for as a troubled debt restructuring. As of September 30, 2022, the Company had no loans that were granted a payment modification due to a COVID-19 related financial hardship which had not returned to regular payments. As of December 31, 2021, the Company had $0.2 million of loans that were granted a payment modification due to a COVID-19 related financial hardship and had not returned to regular payments. Substantially all modifications were in the form of a three-month interest-only period or a one-month payment deferral. Some borrowers received more than one loan payment modification.

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of September 30, 2022 and December 31, 2021, the Company pledged loans totaling $824.9 million and $567.0 million, respectively, to the Federal Home Loan Bank of Chicago (“FHLB”) to secure available FHLB advance borrowing capacity.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

	(dollars in thousands)
Beginning balance	$	537	$	1,350	$	413	$	1,397
Reclassification from non-accretable difference		283		280		500		433
Accretion income		(58)		(86)		(151)		(286)
Ending balance	$	762	$	1,544	$	762	$	1,544

NOTE 5 – LOAN SERVICING

Mortgage loans serviced for others, which are not included in the accompanying consolidated balance sheets, amounted to $976.1 million and $1.04 billion as of September 30, 2022 and December 31, 2021, respectively. Activity in mortgage servicing rights is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

	(dollars in thousands)
Beginning balance	$	10,089	$	7,319	$	7,994	$	5,934
Capitalized servicing rights		144		241		451		994
Fair value adjustment:
Attributable to payments and principal reductions		(362)		(451)		(1,048)		(1,408)
Attributable to changes in valuation inputs and assumptions		569		250		3,043		1,839
Total fair value adjustment		207		(201)		1,995		431
Ending balance	$	10,440	$	7,359	$	10,440	$	7,359

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 6 – FORECLOSED ASSETS

Foreclosed assets activity is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

	(dollars in thousands)
Beginning balance	$	2,891	$	7,757	$	3,278	$	4,168
Transfers from loans		—		—		27		4,856
Proceeds from sales		(29)		(354)		(476)		(1,583)
Sales through loan origination		—		(74)		—		(252)
Net gain on sales		20		108		118		321
Direct write-downs		(245)		(122)		(310)		(195)
Ending balance	$	2,637	$	7,315	$	2,637	$	7,315

Gains (losses) on foreclosed assets includes the following:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

	(dollars in thousands)
Direct write-downs	$	(245)	$	(122)	$	(310)	$	(195)
Net gain on sales		20		108		118		321
Gains (losses) on foreclosed assets	$	(225)	$	(14)	$	(192)	$	126

There were no foreclosed one-to-four family residential real estate properties held as of September 30, 2022. The carrying value of foreclosed one-to-four family residential real estate properties held as of December 31, 2021 was $0.2 million. As of September 30, 2022, there were 4 one-to-four family residential real estate loans in the process of foreclosure totaling $0.4 million. As of December 31, 2021, there were 4 one-to-four family residential real estate loans in the process of foreclosure totaling $0.1 million.

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 7 – DEPOSITS

The Company’s deposits are summarized below:


	September 30, 2022		December 31, 2021

	(dollars in thousands)
Noninterest-bearing deposits	$	1,017,710	$	1,087,659
Interest-bearing deposits:
Interest-bearing demand		1,131,284		1,105,949
Money market		584,202		583,198
Savings		641,139		633,171
Time		269,108		328,208
Total interest-bearing deposits		2,625,733		2,650,526
Total deposits	$	3,643,443	$	3,738,185

Money market deposits include $4.2 million of brokered deposits as of December 31, 2021. There were no brokered deposits as of September 30, 2022. Money market deposits also include $5.7 million and $6.9 million of reciprocal transaction deposits as of September 30, 2022 and December 31, 2021, respectively. Time deposits include $0.7 million and $0.9 million of reciprocal time deposits as of September 30, 2022, and December 31, 2021, respectively.

The aggregate amounts of time deposits in denominations of $250 thousand or more amounted to $25.8 million and $59.5 million as of September 30, 2022 and December 31, 2021, respectively. The aggregate amounts of time deposits in denominations of $100 thousand or more amounted to $89.9 million and $133.1 million as of September 30, 2022 and December 31, 2021, respectively.

The components of interest expense on deposits are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

	(dollars in thousands)
Interest-bearing demand	$	144	$	129	$	430	$	373
Money market		203		96		434		279
Savings		53		48		155		135
Time		187		291		643		1,034
Total interest expense on deposits	$	587	$	564	$	1,662	$	1,821

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 8 – 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:


	September 30, 2022				December 31, 2021
	Notional		Fair		Notional		Fair
	Amount		Value		Amount		Value

	(dollars in thousands)
Fair value recorded in other assets	$	17,000	$	614	$	—	$	—
Fair value recorded in other liabilities		—		—		17,000		(680)

As of September 30, 2022, the interest rate swap agreements designated as cash flow hedges had contractual maturities between 2024 and 2025. As of September 30, 2022, counterparties had cash pledged and held on deposit by the Company of $0.6 million. As of December 31, 2021, the Company had cash pledged and held on deposit at counterparties of $0.8 million.

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

Three Months Ended

Nine Months Ended

September 30,

2022

2021

2022

2021

Designated as cash flow hedges:

(dollars in thousands)

Junior subordinated debentures interest expense

(14)

(105)

(177)

(306)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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:


	September 30, 2022				December 31, 2021
	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	$	—	$	—	$	112,041	$	8,622
Interest rate swaps with a financial institution counterparty		109,468		7,431		3,880		75
Total fair value recorded in other assets	$	109,468	$	7,431	$	115,921	$	8,697

Fair value recorded in other liabilities:
Interest rate swaps with a commercial borrower counterparty	$	109,468	$	(7,431)	$	3,880	$	(75)
Interest rate swaps with a financial institution counterparty		—		—		112,041		(8,622)
Total fair value recorded in other liabilities	$	109,468	$	(7,431)	$	115,921	$	(8,697)

As of September 30, 2022, the interest rate swap agreements not designated as hedging instruments had contractual maturities between 2022 and 2042. As of December 31, 2021, the carrying value of debt securities pledged and held in safekeeping at a financial institution counterparty was $7.5 million.

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				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021

Not designated as hedging instruments:	(dollars in thousands)
Gross gains	$	5,209	$	1,843	$	15,303	$	12,281
Gross losses		(5,209)		(1,843)		(15,303)		(12,281)
Net gains (losses)	$	—	$	—	$	—	$	—

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 9 – 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 September 30, 2022
Balance, June 30, 2022	$	(42,061)	$	(10,656)	$	(103)	$	(52,820)
Other comprehensive income (loss) before reclassifications		(35,358)		—		374		(34,984)
Reclassifications		—		504		14		518
Other comprehensive income (loss), before tax		(35,358)		504		388		(34,466)
Income tax expense (benefit)		(10,079)		144		111		(9,824)
Other comprehensive income (loss), after tax		(25,279)		360		277		(24,642)
Balance, September 30, 2022	$	(67,340)	$	(10,296)	$	174	$	(77,462)

Three Months Ended September 30, 2021
Balance, June 30, 2021	$	13,260	$	(3,840)	$	(1,034)	$	8,386
Other comprehensive loss before reclassifications		(5,676)		—		(8)		(5,684)
Reclassifications		—		195		105		300
Other comprehensive income (loss), before tax		(5,676)		195		97		(5,384)
Income tax expense		(1,618)		56		27		(1,535)
Other comprehensive income (loss), after tax		(4,058)		139		70		(3,849)
Balance, September 30, 2021	$	9,202	$	(3,701)	$	(964)	$	4,537

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Unrealized Gains (Losses)
	on Debt Securities
	Available-for-Sale		Held-to-Maturity		Derivatives		Total

	(dollars in thousands)
Nine Months Ended September 30, 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 income (loss) before reclassifications		(112,931)		—		1,117		(111,814)
Reclassifications		—		1,234		177		1,411
Other comprehensive income (loss), before tax		(112,931)		1,234		1,294		(110,403)
Income tax expense (benefit)		(32,191)		352		369		(31,470)
Other comprehensive income (loss), after tax		(80,740)		882		925		(78,933)
Balance, September 30, 2022	$	(67,340)	$	(10,296)	$	174	$	(77,462)

Nine Months Ended September 30, 2021
Balance, December 31, 2020	$	19,578	$	(118)	$	(1,307)	$	18,153
Transfer from available-for-sale to held-to-maturity		3,887		(3,887)		—		—
Other comprehensive income (loss) before reclassifications		(19,950)		—		173		(19,777)
Reclassifications		—		426		306		732
Other comprehensive income (loss), before tax		(19,950)		426		479		(19,045)
Income tax expense (benefit)		(5,687)		122		136		(5,429)
Other comprehensive income (loss), after tax		(14,263)		304		343		(13,616)
Balance, September 30, 2021	$	9,202	$	(3,701)	$	(964)	$	4,537

Reclassifications from accumulated other comprehensive income (loss) for unrealized gains (losses) on debt securities available-for-sale are included in gains (losses) on sales of securities in the accompanying consolidated statements of income.

Reclassifications from accumulated other comprehensive income (loss) for unrealized gains 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 8 for additional information.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 10 – 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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

	(dollars in thousands)
Numerator:
Net income	$	15,627	$	13,715	$	43,316	$	42,677
Earnings allocated to participating securities		(17)		(25)		(51)		(81)
Numerator for earnings per share - basic and diluted	$	15,610	$	13,690	$	43,265	$	42,596

Denominator:
Weighted average common shares outstanding		28,787,662		27,340,926		28,887,757		27,377,809
Dilutive effect of outstanding restricted stock units		72,643		13,921		56,761		11,412
Weighted average common shares outstanding, including all dilutive potential shares		28,860,305		27,354,847		28,944,518		27,389,221

Earnings per share - Basic	$	0.54	$	0.50	$	1.50	$	1.56
Earnings per share - Diluted	$	0.54	$	0.50	$	1.49	$	1.56

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 11 – 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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

	(dollars in thousands)
Restricted stock units	$	230	$	153	$	1,072	$	415
Performance restricted stock units		119		75		530		123
Total awards classified as equity		349		228		1,602		538
Stock appreciation rights		51		(87)		35		43
Total stock-based compensation expense	$	400	$	141	$	1,637	$	581

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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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 nine months ended September 30, 2022 and 2021, the total grant date fair value of the restricted stock units granted was $0.9 million and $0.8 million, respectively, based on the grant date closing prices. The total intrinsic value of restricted stock that vested during the nine months ended September 30, 2022 and 2021 was $0.7 million and $0.3 million, respectively.

The following is a summary of restricted stock unit activity:


	Three Months Ended September 30,
	2022			2021
		Weighted			Weighted
		Average			Average
	Restricted	Grant Date		Restricted	Grant Date
	Stock Units	Fair Value		Stock Units	Fair Value
Beginning balance	120,631	$	17.98	99,597	$	17.37
Granted	—		—	—		—
Vested	—		—	—		—
Forfeited	(1,328)		18.35	—		—
Ending balance	119,303	$	17.98	99,597	$	17.37

	Nine Months Ended September 30,
	2022			2021
		Weighted			Weighted
		Average			Average
	Restricted	Grant Date		Restricted	Grant Date
	Stock Units	Fair Value		Stock Units	Fair Value
Beginning balance	109,244	$	17.27	71,000	$	18.98
Granted	46,312		19.11	50,347		15.72
Vested	(34,925)		17.26	(20,225)		18.86
Forfeited	(1,328)		18.35	(1,525)		18.11
Ending balance	119,303	$	17.98	99,597	$	17.37

As of September 30, 2022, unrecognized compensation cost related to the non-vested restricted stock units was $1.1 million. This cost is expected to be recognized over the weighted average remaining service period of 1.7 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 nine months ended September 30, 2022 and 2021, the total fair value of the performance restricted stock units granted was $0.5 million and $0.4 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 September 30,
	2022			2021
		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	28,697	$	15.53
Granted	—		—	—		—
Vested	—		—	—		—
Forfeited	—		—	—		—
Ending balance	62,067	$	17.02	28,697	$	15.53

	Nine months ended September 30,
	2022			2021
		Weighted			Weighted
	Performance	Average		Performance	Average
	Restricted	Grant Date		Restricted	Grant Date
	Stock Units	Fair Value		Stock Units	Fair Value
Beginning balance	38,344	$	15.72	—	$	—
Granted	23,723		19.14	28,697		15.53
Vested	—		—	—		—
Forfeited	—		—	—		—
Ending balance	62,067	$	17.02	28,697	$	15.53

As of September 30, 2022, unrecognized compensation cost related to non-vested performance restricted stock units was $0.5 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 1.7 years.

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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 September 30,
	2022			2021
	Stock Appreciation Rights Outstanding	Weighted Average Grant Date Assigned Value		Stock Appreciation Rights Outstanding	Weighted Average Grant Date Assigned Value
Beginning balance	91,800	$	16.32	97,920	$	16.32
Granted	—		—	—		—
Exercised	—		—	—		—
Expired	—		—	—		—
Forfeited	—		—	—		—
Ending balance	91,800	$	16.32	97,920	$	16.32

	Nine Months Ended September 30,
	2022			2021
	Stock Appreciation Rights	Weighted Average Grant Date Assigned Value		Stock Appreciation Rights	Weighted Average Grant Date Assigned Value
Beginning balance	97,920	$	16.32	105,570	$	16.32
Granted	—		—	—		—
Exercised	(6,120)		16.32	(6,120)		16.32
Expired	—		—	(1,530)		16.32
Forfeited	—		—	—		—
Ending balance	91,800	$	16.32	97,920	$	16.32

A further summary of stock appreciation rights as of September 30, 2022, is as follows:


			Weighted Average
	Stock Appreciation Rights		Remaining
Grant Date Assigned Values	Outstanding	Exercisable	Contractual Term
$ 16.32	91,800	85,680	6.5	years

As of September 30, 2022, unrecognized compensation cost related to non-vested stock appreciation rights was $33 thousand.

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HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of September 30, 2022 and December 31, 2021, the liability recorded for outstanding stock appreciation rights was $0.5 million and $0.5 million, respectively. The Company used an option pricing model to value the stock appreciation rights, using the assumptions in the following table. Expected volatility is derived from the historical volatility of the Company’s stock price and a selected peer group of industry-related companies.


	September 30, 2022			December 31, 2021
Risk-free interest rate		3.97	%		1.40	%
Expected volatility		36.17	%		35.52	%
Expected life (in years)		6.9			7.7
Expected dividend yield		3.53	%		3.20	%

As of September 30, 2022, the liability recorded for previously exercised stock appreciation rights was $0.5 million, which will be paid in two remaining annual installments in 2023 and 2024. As of December 31, 2021, the liability recorded for previously exercised stock appreciation rights was $0.8 million.

NOTE 12 – 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 September 30, 2022 and December 31, 2021, the capital conservation buffer was 2.5% of risk-weighted assets.

As of September 30, 2022, the Company and the Bank each met all capital adequacy requirements to which they were subject.

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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
September 30, 2022	Amount		Ratio		Amount		Ratio		Amount		Ratio

		(dollars in thousands)
Total Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.	$	507,277	16.34	%	$	248,395	8.00	%		N/A	N/A
Heartland Bank and Trust Company		484,065	15.60			248,216	8.00		$	310,271	10.00	%

Tier 1 Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.	$	442,841	14.26	%	$	186,296	6.00	%		N/A	N/A
Heartland Bank and Trust Company		459,005	14.79			186,162	6.00		$	248,216	8.00	%

Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.	$	406,243	13.08	%	$	139,722	4.50	%		N/A	N/A
Heartland Bank and Trust Company		459,005	14.79			139,622	4.50		$	201,676	6.50	%

Tier 1 Capital (to Average Assets)
Consolidated HBT Financial, Inc.	$	442,841	10.44	%	$	169,611	4.00	%		N/A	N/A
Heartland Bank and Trust Company		459,005	10.83			169,515	4.00		$	211,894	5.00	%


	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
December 31, 2021	Amount		Ratio		Amount		Ratio		Amount		Ratio

		(dollars in thousands)
Total Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.	$	479,320	16.88	%	$	227,115	8.00	%		N/A	N/A
Heartland Bank and Trust Company		452,162	15.94			226,950	8.00		$	283,688	10.00	%

Tier 1 Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.	$	416,068	14.66	%	$	170,336	6.00	%		N/A	N/A
Heartland Bank and Trust Company		428,226	15.09			170,213	6.00		$	226,950	8.00	%

Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.	$	379,519	13.37	%	$	127,752	4.50	%		N/A	N/A
Heartland Bank and Trust Company		428,226	15.09			127,659	4.50		$	184,397	6.50	%

Tier 1 Capital (to Average Assets)
Consolidated HBT Financial, Inc.	$	416,068	9.84	%	$	169,171	4.00	%		N/A	N/A
Heartland Bank and Trust Company		428,226	10.13			169,070	4.00		$	211,337	5.00	%

Table of Contents

HBT FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 13 – 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, 2021, filed with the SEC on March 11, 2022. There were no transfers between levels during the three and nine months ended September 30, 2022 and 2021. The Company’s policy for determining transfers between levels occurs at the end of the reporting period when circumstances in the underlying valuation criteria change and result in transfer between levels.

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


September 30, 2022	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value

		(dollars in thousands)
Debt securities available-for-sale:
U.S. Treasury	$	153,572	$	—	$	—	$	153,572
U.S. government agency		—		57,023		—		57,023
Municipal		—		241,911		—		241,911
Mortgage-backed:
Agency residential		—		204,907		—		204,907
Agency commercial		—		137,376		—		137,376
Corporate		—		58,951		—		58,951
Equity securities with readily determinable fair values		2,996		—		—		2,996
Mortgage servicing rights		—		—		10,440		10,440
Derivative financial assets		—		8,045		—		8,045
Derivative financial liabilities		—		7,431		—		7,431


December 31, 2021	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value

		(dollars in thousands)
Debt securities available-for-sale:
U.S. Treasury	$	108,976	$	—	$	—	$	108,976
U.S. government agency		—		128,105		—		128,105
Municipal		—		297,077		—		297,077
Mortgage-backed:
Agency residential		—		179,466		—		179,466
Agency commercial		—		164,061		—		164,061
Corporate		—		64,483		—		64,483
Equity securities with readily determinable fair values		3,443		—		—		3,443
Mortgage servicing rights		—		—		7,994		7,994
Derivative financial assets		—		8,697		—		8,697
Derivative financial liabilities		—		9,377		—		9,377

The following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy. There were no changes to the valuation techniques from December 31, 2021 to September 30, 2022.

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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):


September 30, 2022	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Mortgage servicing rights	$	10,440	Discounted cash flows	Constant pre-payment rates (CPR)	5.5% to 59.7% (8.2%)
				Discount rate	9.0% to 11.5% (9.3%)

December 31, 2021	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Mortgage servicing rights	$	7,994	Discounted cash flows	Constant pre-payment rates (CPR)	7.0% to 88.9% (11.7%)
				Discount rate	9.0% to 11.0% (9.0%)

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:


September 30, 2022	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value

		(dollars in thousands)
Loans held for sale	$	—	$	2,297	$	—	$	2,297
Collateral-dependent impaired loans		—		—		17,517		17,517
Bank premises held for sale		—		—		281		281
Foreclosed assets		—		—		2,637		2,637


December 31, 2021	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value

		(dollars in thousands)
Loans held for sale	$	—	$	4,942	$	—	$	4,942
Collateral-dependent impaired loans		—		—		22,423		22,423
Bank premises held for sale		—		—		1,452		1,452
Foreclosed assets		—		—		3,278		3,278

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 Impaired 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 impaired loans require classification in the fair value hierarchy. Impaired loans include loans acquired with deteriorated credit quality. Collateral values are estimated using Level 3 inputs based on customized discounting criteria.

Bank Premises Held for Sale

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

Foreclosed Assets

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

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

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

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


September 30, 2022	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Collateral-dependent impaired loans	$	17,517	Appraisal of collateral	Appraisal adjustments	Not meaningful
Bank premises held for sale		281	Appraisal	Appraisal adjustments	7% (7%)
Foreclosed assets		2,637	Appraisal	Appraisal adjustments	7% (7%)

December 31, 2021	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Collateral-dependent impaired loans	$	22,423	Appraisal of collateral	Appraisal adjustments	Not meaningful
Bank premises held for sale		1,452	Appraisal	Appraisal adjustments	7% (7%)
Foreclosed assets		3,278	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	September 30, 2022				December 31, 2021
	Hierarchy	Carrying		Estimated		Carrying		Estimated
	Level	Amount		Fair Value		Amount		Fair Value

			(dollars in thousands)
Financial assets:
Cash and cash equivalents	Level 1	$	78,215	$	78,215	$	409,268	$	409,268
Debt securities held-to-maturity	Level 2		546,694		481,692		336,185		336,027
Restricted stock	Level 3		4,050		4,050		2,739		2,739
Loans, net	Level 3		2,554,868		2,548,050		2,475,753		2,494,686
Investments in unconsolidated subsidiaries	Level 3		1,165		1,165		1,165		1,165
Accrued interest receivable	Level 2		16,881		16,881		14,901		14,901

Financial liabilities:
Time deposits	Level 3		269,108		260,220		328,208		327,779
Securities sold under agreements to repurchase	Level 2		48,130		48,130		61,256		61,256
Subordinated notes	Level 3		39,376		37,667		39,316		41,602
Junior subordinated debentures	Level 3		37,763		36,210		37,714		33,640
Accrued interest payable	Level 2		607		607		1,043		1,043

The Company estimated the fair value of lending related commitments as described in Note 14 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 14 – 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
	September 30, 2022		December 31, 2021

		(dollars in thousands)
Commitments to extend credit	$	667,788	$	609,947
Standby letters of credit		16,918		12,960

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.

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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.

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, DeBaere, et al v. Heartland Bank and Trust Company. 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.

The Bank intends to vigorously defend the lawsuit. The Company does not believe a loss is probable at this time, as that term is used in assessing loss contingencies. Accordingly, consistent with the authoritative guidance in the evaluation of contingencies, an accrual related to this matter has not been recorded. However, an unfavorable outcome is reasonably possible, and the Company would not characterize the chance of any loss as “remote.” Given the early stage of this case, the Company cannot yet offer an opinion on the estimated range of any possible loss, in the event of an unfavorable opinion.

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, Miller, et al v. State Bank of Lincoln and the Bank. 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.

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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 September 30, 2022 (unaudited), as compared with December 31, 2021, and the results of operations for the three and nine months ended September 30, 2022 and 2021 (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, 2021, filed with the SEC on March 11, 2022. Results of operations for the three and nine months ended September 30, 2022 and 2021 are not necessarily indicative of results to be attained for the year ended December 31, 2022 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 Central and Northeastern Illinois and Eastern Iowa. As of September 30, 2022, the Company had total assets of $4.2 billion, loans held for investment of $2.6 billion, and total deposits of $3.6 billion.

Market Area

We currently operate 58 full-service branches. 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.


	September 30, 2022		December 31, 2021

Total loans	(dollars in thousands)
Illinois by metropolitan and micropolitan statistical areas
Bloomington-Normal	$	495,896	$	527,161
Champaign-Urbana		217,792		191,646
Chicago		1,272,588		1,196,605
Lincoln		79,564		87,153
Ottawa-Peru		90,418		101,117
Peoria		124,094		123,143
Total Illinois		2,280,352		2,226,825
Iowa		299,576		272,864
Total loans	$	2,579,928	$	2,499,689

Total deposits
Illinois by metropolitan and micropolitan statistical areas
Bloomington-Normal	$	851,612	$	887,587
Champaign-Urbana		218,068		203,899
Chicago		1,257,235		1,237,486
Lincoln		187,056		203,098
Ottawa-Peru		383,932		407,156
Peoria		606,430		610,155
Total Illinois		3,504,333		3,549,381
Iowa		139,110		188,804
Total deposits	$	3,643,443	$	3,738,185

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Pending Town and Country Acquisition

On August 23, 2022, HBT Financial and Town and Country Financial Corporation (“Town and Country”), the holding company for Town and Country Bank, jointly announced the signing of a merger agreement pursuant to which HBT Financial will acquire Town and Country and Town and Country Bank. The acquisition will further enhance HBT Financial’s footprint in Central Illinois and expand HBT Financial’s footprint into metro-east St. Louis. The acquisition is expected to close in the first quarter of 2023, subject to Town and Country shareholder approval, regulatory approvals, and other customary closing conditions. During the three months ended September 30, 2022, HBT Financial incurred $0.5 million in pre-tax acquisition expenses related to the planned acquisition of Town and Country, comprised of legal and professional fees included in other noninterest expense in the consolidated statements of income.

NXT Bancorporation, Inc. Acquisition

On October 1, 2021, HBT Financial completed its acquisition of NXT Bancorporation, Inc. (“NXT”), the holding company for NXT Bank. The acquisition expanded HBT Financial’s footprint into Eastern Iowa with four locations that began operating as branches of Heartland Bank following the merger and system conversion of NXT Bank into Heartland Bank in December 2021. After considering business combination accounting adjustments, NXT added total assets of $234.1 million, total loans of $194.6 million, and total deposits of $181.6 million.

Cash consideration of $10.6 million and stock consideration of approximately 1.8 million shares of HBT Financial common stock resulted in aggregate consideration of $39.9 million. Goodwill of $5.7 million was recorded in the acquisition.

The acquisition of NXT provides an opportunity to utilize HBT Financial’s existing excess liquidity to replace NXT’s higher cost funding. Additionally, our broader range of products and services and greater ability to meet larger borrowing needs provides an opportunity to expand NXT customer relationships.

We did not incur expenses related to the acquisition of NXT during the three and nine months ended September 30, 2022. We incurred the following pre-tax acquisition expenses related to the acquisition of NXT during the three and nine months ended September 30, 2021:


	Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021

	(dollars in thousands)
Furniture and equipment	$	1	$	1
Data processing		150		157
Marketing and customer relations		4		4
Legal fees and other noninterest expense		225		375
Total NXT acquisition-related expenses	$	380	$	537

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Branch Rationalization Plan

In April 2021, the Company made plans to close or consolidate six branches. One branch was consolidated during the second quarter of 2021, and the remaining five branches were closed during the third quarter of 2021. The Company estimated annual pre-tax cost savings, net of associated revenue impacts, related to the branch rationalization plan to be approximately $1.1 million.

The Company incurred the following pre-tax branch closure expenses during the three and nine months ended September 30, 2021:


	Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021

	(dollars in thousands)
NONINTEREST INCOME
Gains (losses) on other assets	$	(648)	$	(682)

NONINTEREST EXPENSE
Salaries		(5)		53
Marketing and customer relations		1		6
Legal fees and other noninterest expense		—		7
Total noninterest expense		(4)		66
Total branch closure costs	$	644	$	748

Paycheck Protection Program Loans

During 2021 and 2020, we funded a total of $290.1 million of Paycheck Protection Program (“PPP”) loans. The vast majority of those loans have received full forgiveness, and outstanding PPP loans totaled $0.1 million as of September 30, 2022.

Income recognition for the fees collected at origination, net of associated origination costs, is deferred and recognized over the loan term on a level yield basis. Recognition of net deferred origination fees is accelerated upon loan forgiveness or repayment prior to contractual maturity. Net deferred origination fees on PPP loans recognized as taxable loan interest income totaled $0.1 million and $3.0 million during the three months ended September 30, 2022 and 2021, respectively, and $1.5 million and $7.6 million during the nine months ended September 30, 2022 and 2021, respectively.

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FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Economic Conditions

The Company's business and financial performance are affected by economic conditions generally in the 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.

COVID-19 Pandemic

Although the Company has had continuous business operations since the beginning of the COVID-19 pandemic, the pandemic has caused significant economic disruption throughout the U.S. and the communities that we serve. While the economic outlook has generally improved relative to 2020 and 2021, there remains uncertainty surrounding the longer lasting impact on specific industries and potential surges in COVID-19 infections with new virus variants. As a result, the businesses we serve may be adversely impacted, and the ability of our customers to fulfill their contractual obligations to us may deteriorate.

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.

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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.

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 $1.07 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 September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021

	(dollars in thousands, except per share amounts)
Consolidated Statement of Income Information
Total interest and dividend income	$	39,014		$	32,115		$	108,106		$	93,868
Total interest expense		1,624			1,400			4,415			4,324
Net interest income		37,390			30,715			103,691			89,544
Provision for loan losses		386			(1,667)			(53)			(7,234)
Net interest income after provision for loan losses		37,004			32,382			103,744			96,778
Total noninterest income		8,234			8,392			26,828			27,974
Total noninterest expense		23,998			22,167			71,997			66,865
Income before income tax expense		21,240			18,607			58,575			57,887
Income tax expense		5,613			4,892			15,259			15,210
Net income	$	15,627		$	13,715		$	43,316		$	42,677

Adjusted net income ⁽¹⁾	$	15,856			14,479		$	41,919		$	42,680

Net interest income (tax-equivalent basis) ^{(1) (2)}	$	38,064		$	31,223		$	105,492		$	91,058

Share and Per Share Information
Earnings per share - Diluted	$	0.54		$	0.50		$	1.49		$	1.56
Adjusted earnings per share - Diluted ⁽¹⁾		0.55			0.53			1.45			1.56

Weighted average shares of common stock outstanding		28,787,662			27,340,926			28,887,757			27,377,809

Summary Ratios
Net interest margin *		3.65	%		3.18	%		3.36	%		3.19	%
Net interest margin (tax-equivalent basis) * ^{(1) (2)}		3.72			3.23			3.41			3.24
Yield on loans *		4.91			4.86			4.66			4.69
Yield on interest-earning assets *		3.81			3.33			3.50			3.34
Cost of interest-bearing liabilities *		0.23			0.22			0.21			0.23
Cost of total deposits *		0.06			0.07			0.06			0.07

Efficiency ratio		52.07	%		56.04	%		54.60	%		56.22	%
Efficiency ratio (tax-equivalent basis) ^{(1) (2)}		51.31			55.32			53.86			55.50

Return on average assets *		1.47	%		1.37	%		1.35	%		1.47	%
Return on average stockholders' equity *		16.27			14.29			14.91			15.42
Return on average tangible common equity * ⁽¹⁾		17.70			15.32			16.20			16.59

Adjusted return on average assets * ⁽¹⁾		1.49	%		1.45	%		1.31	%		1.47	%
Adjusted return on average stockholders' equity * ⁽¹⁾		16.51			15.08			14.43			15.43
Adjusted return on average tangible common equity * ⁽¹⁾		17.96			16.18			15.67			16.59

* 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%.

Table of Contents

Comparison of the Three Months Ended September 30, 2022 to the Three Months Ended September 30, 2021

For the three months ended September 30, 2022, net income was $15.6 million, increasing by $1.9 million, or 13.9%, when compared to net income for the three months ended September 30, 2021. Notable changes include the following:

●

A $6.7 million increase in net interest income, primarily attributable to higher average balances of interest-earning assets following the NXT acquisition in the fourth quarter of 2021, a more favorable asset mix, and higher yields on interest-earning assets which more than offset a $2.9 million decrease in PPP loan fees recognized as loan interest income;

●

A provision for loan losses of $0.4 million was recognized during the three months ended September 30, 2022, compared to a negative provision for loan losses of $1.7 million during the three months ended September 30, 2021;

●

A $1.8 million increase in noninterest expense, primarily reflecting a higher base level of noninterest expense following the NXT acquisition; and

●

A $0.9 million decrease in gains on sale of mortgage loans, primarily attributable to a lower level of mortgage refinancing activity due to increases in interest rates.

Comparison of the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021

For the nine months ended September 30, 2022, net income was $43.3 million, increasing by $0.6 million, or 1.5%, when compared to net income for the nine months ended September 30, 2021. Notable changes include the following:

●

A $14.1 million increase in net interest income, primarily attributable to higher average balances of interest-earning assets following the NXT acquisition in the fourth quarter of 2021, a more favorable asset mix, and higher yields on interest-earning assets which more than offset a $6.1 million decrease in PPP loan fees recognized as loan interest income;

●

A negative provision for loan losses of $0.1 million was recognized during the nine months ended September 30, 2022, compared to a negative provision for loan losses of $7.2 million during the nine months ended September 30, 2021;

●

A $3.7 million decrease in gains on sale of mortgage loans, primarily attributable to a lower level of mortgage refinancing activity due to increases in interest rates; and

●

A $5.1 million increase in noninterest expense, primarily reflecting a higher base level of noninterest expense following the NXT acquisition.

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 tables set forth average balances, average yields and costs, and certain other information for the three and nine months ended September 30, 2022 and 2021. 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
	September 30, 2022						September 30, 2021
	Average						Average
	Balance		Interest		Yield/Cost *		Balance		Interest		Yield/Cost *

	(dollars in thousands)
ASSETS
Loans	$	2,481,920	$	30,697	4.91	%	$	2,135,476	$	26,176	4.86	%
Securities		1,470,092		7,842	2.12			1,180,513		5,735	1.93
Deposits with banks		105,030		458	1.73			513,158		190	0.15
Other		2,936		17	2.25			2,739		14	2.00
Total interest-earning assets		4,059,978	$	39,014	3.81	%		3,831,886	$	32,115	3.33	%
Allowance for loan losses		(24,717)						(26,470)
Noninterest-earning assets		173,461						159,635
Total assets	$	4,208,722					$	3,965,051

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Interest-bearing deposits:
Interest-bearing demand	$	1,137,072	$	144	0.05	%	$	1,020,216	$	129	0.05	%
Money market		577,388		203	0.14			510,183		96	0.07
Savings		649,752		53	0.03			608,436		48	0.03
Time		271,870		187	0.27			275,224		291	0.42
Total interest-bearing deposits		2,636,082		587	0.09			2,414,059		564	0.09
Securities sold under agreements to repurchase		50,427		9	0.07			49,923		8	0.06
Borrowings		11,967		85	2.80			326		1	0.46
Subordinated notes		39,365		470	4.73			39,285		470	4.74
Junior subordinated debentures issued to capital trusts		37,755		473	4.97			37,688		357	3.76
Total interest-bearing liabilities		2,775,596	$	1,624	0.23	%		2,541,281	$	1,400	0.22	%
Noninterest-bearing deposits		1,031,407						1,016,384
Noninterest-bearing liabilities		20,736						26,523
Total liabilities		3,827,739						3,584,188
Stockholders' Equity		380,983						380,863
Total liabilities and stockholders’ equity	$	4,208,722					$	3,965,051

Net interest income/Net interest margin ⁽¹⁾			$	37,390	3.65	%			$	30,715	3.18	%
Tax-equivalent adjustment ⁽²⁾				674	0.07					508	0.05
Net interest income (tax-equivalent basis)/ Net interest margin (tax-equivalent basis) ^{(2) (3)}			$	38,064	3.72	%			$	31,223	3.23	%
Net interest rate spread ⁽⁴⁾					3.58	%					3.11	%
Net interest-earning assets ⁽⁵⁾	$	1,284,382					$	1,290,605
Ratio of interest-earning assets to interest-bearing liabilities		1.46						1.51
Cost of total deposits					0.06	%					0.07	%

* 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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	Nine Months Ended
	September 30, 2022						September 30, 2021
	Average						Average
	Balance		Interest		Yield/Cost *		Balance		Interest		Yield/Cost *

	(dollars in thousands)
ASSETS
Loans	$	2,485,501	$	86,687	4.66	%	$	2,217,463	$	77,738	4.69	%
Securities		1,405,245		20,332	1.93			1,102,808		15,706	1.90
Deposits with banks		237,646		1,037	0.58			432,971		385	0.12
Other		2,829		50	2.36			2,655		39	1.95
Total interest-earning assets		4,131,221	$	108,106	3.50	%		3,755,897	$	93,868	3.34	%
Allowance for loan losses		(24,467)						(29,069)
Noninterest-earning assets		172,243						157,287
Total assets	$	4,278,997					$	3,884,115

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Interest-bearing deposits:
Interest-bearing demand	$	1,146,635	$	430	0.05	%	$	1,012,557	$	373	0.05	%
Money market		585,815		434	0.10			498,441		279	0.07
Savings		653,659		155	0.03			584,226		135	0.03
Time		289,000		643	0.30			286,685		1,034	0.48
Total interest-bearing deposits		2,675,109		1,662	0.08			2,381,909		1,821	0.10
Securities sold under agreements to repurchase		51,503		26	0.07			47,827		23	0.06
Borrowings		4,344		87	2.67			421		2	0.43
Subordinated notes		39,345		1,409	4.79			39,265		1,409	4.80
Junior subordinated debentures issued to capital trusts		37,738		1,231	4.36			37,671		1,069	3.79
Total interest-bearing liabilities		2,808,039	$	4,415	0.21	%		2,507,093	$	4,324	0.23	%
Noninterest-bearing deposits		1,060,566						976,884
Noninterest-bearing liabilities		21,883						30,205
Total liabilities		3,890,488						3,514,182
Stockholders' Equity		388,509						369,933
Total liabilities and stockholders’ equity	$	4,278,997						3,884,115

Net interest income/Net interest margin ⁽¹⁾			$	103,691	3.36	%			$	89,544	3.19	%
Tax-equivalent adjustment ⁽²⁾				1,801	0.05					1,514	0.05
Net interest income (tax-equivalent basis)/ Net interest margin (tax-equivalent basis) ^{(2) (3)}			$	105,492	3.41	%			$	91,058	3.24	%
Net interest rate spread ⁽⁴⁾					3.29	%					3.11	%
Net interest-earning assets ⁽⁵⁾	$	1,323,182					$	1,248,804
Ratio of interest-earning assets to interest-bearing liabilities		1.47						1.50
Cost of total deposits					0.06	%					0.07	%

* 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.

Table of Contents

The following table sets forth the components of loan interest income, which includes contractual interest on loans, loan fees, and accretion of acquired loan discounts.


	Three Months Ended September 30,								Nine Months Ended September 30,
	2022				2021				2022				2021
			Yield				Yield				Yield				Yield
	Interest		Contribution *		Interest		Contribution *		Interest		Contribution *		Interest		Contribution *

	(dollars in thousands)
Contractual interest	$	29,308	4.69	%	$	22,324	4.14	%	$	81,195	4.36	%	$	67,096	4.04	%
Loan fees (excluding PPP loans)		1,030	0.16			631	0.12			3,309	0.18			2,609	0.16
PPP loan fees		106	0.02			3,017	0.56			1,487	0.08			7,604	0.46
Accretion of acquired loan discounts		253	0.04			204	0.04			696	0.04			429	0.03
Total loan interest income	$	30,697	4.91	%	$	26,176	4.86	%	$	86,687	4.66	%	$	77,738	4.69	%

* Annualized measure.

The following table sets forth the components of net interest income. Total interest income consists of contractual interest on loans, contractual interest on securities, contractual interest on interest-bearing deposits in banks, loan fees, accretion of acquired loan discounts, net securities amortization, and other interest and dividend income. Total interest expense consists of contractual interest on deposits, contractual interest on other interest-bearing liabilities and other interest expense.


	Three Months Ended September 30,								Nine Months Ended September 30,
	2022				2021				2022				2021
			Net Interest				Net Interest				Net Interest				Net Interest
			Margin				Margin				Margin				Margin
	Interest		Contribution *		Interest		Contribution *		Interest		Contribution *		Interest		Contribution *

	(dollars in thousands)
Interest income:
Contractual interest on loans	$	29,308	2.86	%	$	22,324	2.31	%	$	81,195	2.63	%	$	67,096	2.39	%
Contractual interest on securities		9,570	0.94			7,387	0.77			25,669	0.83			20,911	0.75
Contractual interest on deposits with banks		458	0.05			190	0.02			1,037	0.03			385	0.01
Loan fees (excluding PPP loans)		1,030	0.10			631	0.07			3,309	0.11			2,609	0.09
PPP loan fees		106	0.01			3,017	0.31			1,487	0.05			7,604	0.27
Accretion of acquired loan discounts		253	0.02			204	0.02			696	0.02			429	0.02
Securities amortization, net		(1,728)	(0.17)			(1,652)	(0.17)			(5,337)	(0.17)			(5,205)	(0.19)
Other		17	—			14	—			50	—			39	—
Total interest income		39,014	3.81			32,115	3.33			108,106	3.50			93,868	3.34

Interest expense:
Contractual interest on deposits		624	0.06			561	0.06			1,817	0.06			1,812	0.06
Contractual interest on other interest-bearing liabilities		985	0.10			694	0.08			2,467	0.08			2,088	0.07
Other		15	—			145	0.01			131	—			424	0.02
Total interest expense		1,624	0.16			1,400	0.15			4,415	0.14			4,324	0.15
Net interest income		37,390	3.65			30,715	3.18			103,691	3.36			89,544	3.19
Tax equivalent adjustment ⁽¹⁾		674	0.07			508	0.05			1,801	0.05			1,514	0.05
Net interest income (tax equivalent) ^{(1) (2)}	$	38,064	3.72	%	$	31,223	3.23	%	$	105,492	3.41	%	$	91,058	3.24	%

* 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 September 30, 2022						Nine Months Ended September 30, 2022
	vs.						vs.
	Three Months Ended September 30, 2021						Nine Months Ended September 30, 2021
	Increase (Decrease) Due to						Increase (Decrease) Due to
	Volume		Rate		Total		Volume		Rate		Total

	(dollars in thousands)
Interest-earning assets:
Loans	$	4,283	$	238	$	4,521	$	9,350	$	(401)	$	8,949
Securities		1,506		601		2,107		4,372		254		4,626
Deposits with banks		(262)		530		268		(244)		896		652
Other		1		2		3		3		8		11
Total interest-earning assets		5,528		1,371		6,899		13,481		757		14,238

Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand		15		—		15		50		7		57
Money market		14		93		107		55		100		155
Savings		3		2		5		17		3		20
Time		(4)		(100)		(104)		8		(399)		(391)
Total interest-bearing deposits		28		(5)		23		130		(289)		(159)
Securities sold under agreements to repurchase		—		1		1		2		1		3
Borrowings		73		11		84		55		30		85
Subordinated notes		1		(1)		—		3		(3)		—
Junior subordinated debentures issued to capital trusts		1		115		116		2		160		162
Total interest-bearing liabilities		103		121		224		192		(101)		91
Change in net interest income	$	5,425	$	1,250	$	6,675	$	13,289	$	858	$	14,147

Comparison of the Three Months Ended September 30, 2022 to the Three Months Ended September 30, 2021

Net interest income for the three months ended September 30, 2022, was $37.4 million, increasing $6.7 million, or 21.7%, from the three months ended September 30, 2021. The increase is primarily attributable to higher average balances of interest-earnings assets following the NXT acquisition and a more favorable asset mix. These balance changes, as well as higher yields on interest-earning assets driven by recent increases in benchmark interest rates, more than offset a $2.9 million decrease in PPP loan fees recognized as loan interest income.

Net interest margin increased to 3.65% for the three months ended September 30, 2022 compared to 3.18% for the three months ended September 30, 2021. The increase was primarily attributable to a more favorable mix of interest-earnings assets as well as higher yields on interest-earning assets. Additionally, the contribution of PPP loan fees to net interest margin decreased to 1 basis point during the three months ended September 30, 2022 from 31 basis points during the three months ended September 30, 2021. This decrease was more than offset by an increase in contractual interest on loans, driven by recent increases in benchmark interest rates.

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Comparison of the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021

Net interest income for the nine months ended September 30, 2022, was $103.7 million, increasing $14.1 million, or 15.8%, from the nine months ended September 30, 2021. The increase is primarily attributable to higher average balances of interest-earning assets following the NXT acquisition and a more favorable asset mix. These balances changes more than offset a $6.1 million decrease in PPP loan fees recognized as loan interest income.

Net interest margin increased to 3.36% for the nine months ended September 30, 2022 compared to 3.19% for the nine months ended September 30, 2021. The contribution of PPP loans to net interest margin decreased to 5 basis points during the nine months ended September 30, 2022 from 27 basis points during the nine months ended September 30, 2021. This decrease was more than offset by an increase in contractual interest on loans, driven by recent increases in benchmark interest rates.

The quarterly net interest margins were as follows:


	2022		2021
Three months ended:
March 31	3.08	%	3.25	%
June 30	3.34		3.14
September 30	3.65		3.18
December 31	—		3.17

In March 2020, the Federal Open Markets Committee (“FOMC”), in response to the economic downturn caused by the COVID-19 pandemic, lowered the target range for the federal funds rate to 0% to 0.25% and announced the FRB would substantially increase its Treasury and agency mortgage-backed securities holdings. This resulted in a historically low interest rate environment which lasted through the rest of 2020 and into 2021, putting downward pressure on our net interest margin.

In 2021, the FOMC began to taper the pace of its security purchases, and, in March 2022, the FOMC raised the target range for the federal funds rate. 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 3.75% to 4.00% at the November 2022 meeting, and indicated that the FRB will continue reducing its security holdings. Additionally, the FOMC indicated that it will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments in determining the pace of future increases in the target range.

As a result of these developments, market interest rates have risen 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 the rest of 2022 and deposits balances may decrease and be replaced by higher cost funding sources, such as FHLB advances, brokered deposits, or other wholesale funding. Although funding costs are expected to increase during the remainder of 2022, such increased funding costs should be more than offset by continued increases in interest-earning asset yields resulting from the higher market interest rates.

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Provision for Loan Losses

Provisions for loan losses are charged to operations in order to maintain the allowance for loan losses at a level we consider necessary to absorb probable incurred credit losses in the loan portfolio. In determining the level of the allowance for loan losses, management considers past and current loss experience, evaluations of collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of nonperforming and other classified loans. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or as events change. We assess the allowance for loan losses on a quarterly basis and make provisions for loan losses in order to maintain the allowance. The provision for loan losses is a function of the allowance for loan loss methodology we use to determine the appropriate level of the allowance for inherent loan losses after accounting for net charge-offs (recoveries).

Credit losses in our loan portfolio are highly dependent on the economic conditions in the communities that we serve. The general deterioration in economic conditions initially caused by the COVID-19 pandemic adversely affected the communities that we serve beginning in 2020. As a result, our allowance for loan losses initially increased at the onset of the COVID-19 pandemic, remained elevated during the remainder of 2020, and then gradually returned to near pre-pandemic levels during 2021 as economic conditions improved in our market areas. Potential deterioration of economic conditions, whether due to the COVID-19 pandemic or other factors, may lead to higher credit losses and adversely impact our financial condition and results of operations.

Comparison of the Three Months Ended September 30, 2022 to the Three Months Ended September 30, 2021

The Company recorded a provision for loan losses of $0.4 million during the three months ended September 30, 2022, compared to a negative provision for loan losses of $1.7 million during the three months ended September 30, 2021. The provision during the three months ended September 30, 2022 was primarily due to a $128.1 million increase in loans, resulting in a $1.1 million increase in general reserves. Mostly offsetting this increase was a $0.7 million decrease in specific reserves on loans individually evaluated for impairment.

Comparison of the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021

The Company recorded a negative provision for loan losses of $0.1 million during the nine months ended September 30, 2022, compared to a negative provision for loan losses of $7.2 million during the nine months ended September 30, 2021. During the nine months ended September 30, 2022, net recoveries of $1.2 million were mostly offset by a $1.1 million increase in required reserves, which included a $0.8 million increase in specific reserves on loans individually evaluated for impairment.

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Noninterest Income

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022		2021		$ Change		2022		2021		$ Change

	(dollars in thousands)
Card income	$	2,569	$	2,509	$	60	$	7,687	$	7,216	$	471
Wealth management fees		2,059		2,036		23		6,670		6,013		657
Service charges on deposit accounts		1,927		1,677		250		5,371		4,364		1,007
Mortgage servicing		697		699		(2)		2,016		2,095		(79)
Mortgage servicing rights fair value adjustment		351		40		311		2,446		1,425		1,021
Gains on sale of mortgage loans		354		1,257		(903)		1,267		4,919		(3,652)
Unrealized gains (losses) on equity securities		(107)		28		(135)		(447)		74		(521)
Gains (losses) on foreclosed assets		(225)		(14)		(211)		(192)		126		(318)
Gains (losses) on other assets		(31)		(672)		641		119		(719)		838
Income on bank owned life insurance		41		—		41		122		—		122
Other noninterest income		599		832		(233)		1,769		2,461		(692)
Total noninterest income	$	8,234	$	8,392	$	(158)	$	26,828	$	27,974	$	(1,146)

Comparison of the Three Months Ended September 30, 2022 to the Three Months Ended September 30, 2021

Total noninterest income for the three months ended September 30, 2022, was $8.2 million, a decrease of $0.2 million, or 1.9%, from the three months ended September 30, 2021. Notable changes in noninterest income include the following:

●

A $0.9 million decrease in gains on sale of mortgage loans, primarily attributable to a lower level of mortgage refinancing activity due to recent interest rate increases;

●

A $0.6 million improvement in gains (losses) on other assets, as the 2021 results include impairment losses of $0.6 million related to branches closed during the third quarter of 2021, pursuant to our branch rationalization plan;

●

A $0.3 million increase in the mortgage servicing rights fair value adjustment, primarily resulting from slower mortgage prepayment speed assumptions; and

●

A $0.3 million increase in service charges on deposit accounts.

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Comparison of the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021

Total noninterest income for the nine months ended September 30, 2022, was $26.8 million, a decrease of $1.1 million, or 4.1%, from the nine months ended September 30, 2021. Notable changes in noninterest income include the following:

●

A $3.7 million decrease in gains on sale of mortgage loans, primarily attributable to a lower level of mortgage refinancing activity, due to recent interest rate increases;

●

A $1.0 million increase in the mortgage servicing rights fair value adjustment, primarily resulting from slower mortgage prepayment speed assumptions;

●

A $1.0 million increase in service charges on deposit accounts;

●

A $0.8 million improvement in gains (losses) on other assets, as the 2021 results include impairment losses of $0.7 million related to branches closed during the third quarter of 2021, pursuant to our branch rationalization plan;

●

A $0.7 million increase in wealth management fees, reflecting a $0.4 million increase in farm management fees, primarily due to a $0.3 million increase in farm real estate brokerage fees;

●

A $0.7 million decrease in other noninterest income, primarily resulting from a $0.4 million decrease in fees collected on loans due to a lower level of mortgage refinancing activity; and

●

A $0.5 million increase in card income primarily due to increased debit and credit card transaction volume.

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Noninterest Expense

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022		2021		$ Change		2022		2021		$ Change

	(dollars in thousands)
Salaries	$	12,752	$	11,835	$	917	$	38,489	$	36,486	$	2,003
Employee benefits		1,771		1,455		316		6,199		4,549		1,650
Occupancy of bank premises		1,979		1,610		369		5,780		5,011		769
Furniture and equipment		668		657		11		1,843		1,883		(40)
Data processing		1,631		1,767		(136)		5,274		5,176		98
Marketing and customer relations		880		883		(3)		2,936		2,291		645
Amortization of intangible assets		243		252		(9)		733		799		(66)
FDIC insurance		302		279		23		888		763		125
Loan collection and servicing		336		400		(64)		771		1,098		(327)
Foreclosed assets		97		242		(145)		260		704		(444)
Other noninterest expense		3,339		2,787		552		8,824		8,105		719
Total noninterest expense	$	23,998	$	22,167	$	1,831	$	71,997	$	66,865	$	5,132

Comparison of the Three Months Ended September 30, 2022 to the Three Months Ended September 30, 2021

Total noninterest expense for the three months ended September 30, 2022, was $24.0 million, an increase of $1.8 million, or 8.3%, from the three months ended September 30, 2021. Notable changes in noninterest expense include the following:

●

Following the NXT acquisition on October 1, 2021, there was a higher base level of noninterest expense, primarily related to personnel costs and branch operations; and

●

A $0.6 million increase in other noninterest expense, in part due to legal and professional fees related to the acquisition of Town and Country.

Comparison of the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021

Total noninterest expense for the nine months ended September 30, 2022, was $72.0 million, an increase of $5.1 million, or 7.7%, from the nine months ended September 30, 2021. Notable changes in noninterest expense include the following:

●

Following the NXT acquisition on October 1, 2021, there was a higher base level of noninterest expense, primarily related to personnel costs and branch operations;

●

The $1.7 million increase in employee benefits expenses also included accelerated recognition of $0.6 million of stock compensation expense during February 2022 as a result of a modification to all outstanding restricted stock unit and performance restricted stock unit agreements to address treatment upon retirement. Total compensation costs related to the modified agreements remains the same, and stock compensation expense in periods subsequent to the modification are reduced as a result. The net impact of the modification was a $0.5 million increase in stock compensation expense during the nine months ended September 30, 2022;

●

A $0.6 million increase in marketing expense, primarily due to variations in timing of marketing campaigns as well as a slightly higher marketing budget relative to 2021; and

●

A $0.4 million decrease in foreclosed asset expense, primarily due to fewer foreclosed properties held in 2022 relative to 2021.

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Income Taxes

Comparison of the Three Months Ended September 30, 2022 to the Three Months Ended September 30, 2021

During the three months ended September 30, 2022 and 2021, we recorded income tax expense of $5.6 million and $4.9 million, respectively, with the effective tax rates remaining nearly unchanged at 26.4% and 26.3%, respectively.

Comparison of the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021

We recorded income tax expense of $15.3 million, or a 26.1% effective tax rate, during the nine months ended September 30, 2022, compared to $15.2 million, or a 26.3% effective tax rate, during the nine months ended September 30, 2021. The slight decrease in effective tax rate was primarily due to lower overall state income taxes.

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FINANCIAL CONDITION


	September 30,			December 31,
	2022			2021			$ Change		% Change

Consolidated Balance Sheet Information	(dollars in thousands, except per share data)
Cash and cash equivalents	$	78,215		$	409,268		$	(331,053)	(80.9)	%
Debt securities available-for-sale, at fair value		853,740			942,168			(88,428)	(9.4)
Debt securities held-to-maturity		546,694			336,185			210,509	62.6
Loans held for sale		2,297			4,942			(2,645)	(53.5)

Loans, before allowance for loan losses		2,579,928			2,499,689			80,239	3.2
Less: allowance for loan losses		25,060			23,936			1,124	4.7
Loans, net of allowance for loan losses		2,554,868			2,475,753			79,115	3.2

Goodwill		29,322			29,322			—	—
Core deposit intangible assets, net		1,210			1,943			(733)	(37.7)
Other assets		146,978			114,673			32,305	28.2
Total assets	$	4,213,324		$	4,314,254		$	(100,930)	(2.3)	%

Total deposits	$	3,643,443		$	3,738,185		$	(94,742)	(2.5)	%
Securities sold under agreements to repurchase		48,130			61,256			(13,126)	(21.4)
Borrowings		60,000			—			60,000	NM
Subordinated notes		39,376			39,316			60	0.2
Junior subordinated debentures		37,763			37,714			49	0.1
Other liabilities		25,539			25,902			(363)	(1.4)
Total liabilities		3,854,251			3,902,373			(48,122)	(1.2)
Total stockholders' equity		359,073			411,881			(52,808)	(12.8)
Total liabilities and stockholders' equity	$	4,213,324		$	4,314,254		$	(100,930)	(2.3)	%

Tangible assets ⁽¹⁾	$	4,182,792		$	4,282,989		$	(100,197)	(2.3)	%
Tangible common equity ⁽¹⁾		328,541			380,616			(52,075)	(13.7)

Core deposits ⁽¹⁾	$	3,617,614		$	3,674,435		$	(56,821)	(1.5)	%

Share and Per Share Information
Book value per share	$	12.49		$	14.21
Tangible book value per share ⁽¹⁾		11.43			13.13

Shares of common stock outstanding		28,752,626			28,986,061

Balance Sheet Ratios
Loan to deposit ratio		70.81	%		66.87	%
Core deposits to total deposits ⁽¹⁾		99.29			98.29
Stockholders' equity to total assets		8.52			9.55
Tangible common equity to tangible assets ⁽¹⁾		7.85			8.89

(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 $4.21 billion at September 30, 2022, a decrease of $100.9 million, or 2.3%, from December 31, 2021. Notable changes in our consolidated balance sheet include the following:

●

Excess liquidity, including excess cash held at December 31, 2021, was reinvested into debt securities, which increased by $122.1 million, and loans held for investment which increased $80.2 million;

●

Loans increased by $80.2 million with growth in most of our geographic markets, which was partially offset by a $29.4 million decrease due to forgiveness of PPP loans;

●

Total deposits decreased by $94.7 million, primarily due to lower balances maintained in retail and business accounts;

●

Increases in market interest rates since December 31, 2021 drove a decrease in fair value of debt securities resulting in $112.9 million of unrealized losses in the available-for-sale portfolio and substantially contributing to a total decrease of $78.9 million in accumulated other comprehensive income (loss); and

●

Borrowings, consisting of short-term FHLB advances, increased $60.0 million and were utilized to fund short-term liquidity needs.

Loan Portfolio

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


	September 30, 2022				December 31, 2021
	Balance		Percent		Balance		Percent

	(dollars in thousands)
Commercial and industrial	$	240,671	9.4	%	$	286,946	11.5	%
Agricultural and farmland		245,234	9.5			247,796	9.9
Commercial real estate - owner occupied		226,524	8.8			234,544	9.4
Commercial real estate - non-owner occupied		718,089	27.8			684,023	27.4
Multi-family		260,630	10.1			263,911	10.5
Construction and land development		364,290	14.1			298,048	11.9
One-to-four family residential		328,667	12.7			327,837	13.1
Municipal, consumer, and other		195,823	7.6			156,584	6.3
Loans, before allowance for loan losses		2,579,928	100.0	%		2,499,689	100.0	%
Allowance for loan losses		(25,060)				(23,936)
Loans, net of allowance for loan losses	$	2,554,868			$	2,475,753

PPP loans (included above)
Commercial and industrial	$	65	—	%	$	28,404	1.1	%
Agricultural and farmland		—	—			913	0.1
Municipal, consumer, and other		—	—			171	—
Total PPP loans	$	65	—	%	$	29,488	1.2	%

Loans, before allowance for loan losses were $2.58 billion at September 30, 2022, an increase of $80.2 million, or 3.2%, from December 31, 2021, with growth in most of our geographic markets that was partially offset by a $29.4 million decrease due to forgiveness of PPP loans. Additionally, we saw a slower pace of prepayments, beginning in the third quarter of 2022, as a result of recent increases in interest rates.

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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
September 30, 2022	or Less		5 Years		15 Years		15 Years		Total

	(dollars in thousands)
Commercial and industrial	$	148,942	$	74,439	$	17,290	$	—	$	240,671
Agricultural and farmland		102,255		94,534		45,160		3,285		245,234
Commercial real estate - owner occupied		15,409		142,469		65,635		3,011		226,524
Commercial real estate - non-owner occupied		80,362		433,608		203,610		509		718,089
Multi-family		22,742		169,870		68,018		—		260,630
Construction and land development		179,018		169,457		15,585		230		364,290
One-to-four family residential		77,530		110,074		79,327		61,736		328,667
Municipal, consumer, and other		85,266		18,681		70,953		20,923		195,823
Total	$	711,524	$	1,213,132	$	565,578	$	89,694	$	2,579,928

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)
September 30, 2022	or Less		1 Year		Interest Rates		Interest Rates		Total

	(dollars in thousands)
Commercial and industrial	$	11,999	$	19	$	12,018	$	79,711	$	91,729
Agricultural and farmland		7,602		5,917		13,519		129,460		142,979
Commercial real estate - owner occupied		33,033		18,964		51,997		159,118		211,115
Commercial real estate - non-owner occupied		69,743		14,891		84,634		553,093		637,727
Multi-family		25,774		431		26,205		211,683		237,888
Construction and land development		86,059		58		86,117		99,155		185,272
One-to-four family residential		63,235		23,618		86,853		164,284		251,137
Municipal, consumer, and other		31,375		11,845		43,220		67,337		110,557
Total	$	328,820	$	75,743	$	404,563	$	1,463,841	$	1,868,404

Nonperforming Assets

Nonperforming loans consist of all loans 90 days or more past due or on nonaccrual. Nonperforming assets consist of all nonperforming loans and foreclosed assets. Typically, loans are placed on nonaccrual when they reach 90 days past due, or when, in management’s opinion, there is reasonable doubt regarding the collection of the amounts due through the normal means of the borrower. Interest accrued and unpaid at the time a loan is placed on nonaccrual status is reversed from interest income. Interest payments received on nonaccrual loans are recognized in accordance with our significant accounting policies. Once a loan is placed on nonaccrual status, the borrower must generally demonstrate at least six months of payment performance and we must believe that all remaining principal and interest is fully collectible, before the loan is eligible to return to accrual status. Management believes the Company’s lending practices and active approach to managing nonperforming assets has resulted in timely resolution of problem assets.

Loans acquired with deteriorated credit quality are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. However, these loans may be considered performing, even though they may be contractually past due, as any non-payment of contractual principal or interest is considered in the periodic re-estimation of expected cash flows and is included in the resulting recognition of current period loan loss provision or future period yield adjustments. The accrual of interest is discontinued on loans acquired with deteriorated credit quality if management can no longer estimate future cash flows on the loan. Therefore, interest revenue, through accretion of the difference between the carrying value of the loans and the expected cash flows, is being recognized on all loans acquired with deteriorated credit quality, except those on which management can no longer estimate future cash flows.

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


	September 30, 2022			December 31, 2021

	(dollars in thousands)
NONPERFORMING ASSETS
Nonaccrual	$	3,206		$	2,763
Past due 90 days or more, still accruing ⁽¹⁾		—			16
Total nonperforming loans		3,206			2,779
Foreclosed assets		2,637			3,278
Total nonperforming assets	$	5,843		$	6,057

Allowance for loan losses	$	25,060		$	23,936
Loans, before allowance for loan losses		2,579,928			2,499,689

CREDIT QUALITY RATIOS
Allowance for loan losses to loans, before allowance for loan losses		0.97	%		0.96	%
Allowance for loan losses to nonaccrual loans		781.66			866.30
Allowance for loan losses to nonperforming loans		781.66			861.32
Nonaccrual loans to loans, before allowance for loan losses		0.12			0.11
Nonperforming loans to loans, before allowance for loan losses		0.12			0.11
Nonperforming assets to total assets		0.14			0.14
Nonperforming assets to loans, before allowance for loan losses, and foreclosed assets		0.23			0.24

(1)	Excludes loans acquired with deteriorated credit quality that are past due 90 or more days totaling $22 thousand and $32 thousand as of September 30, 2022, and December 31, 2021, respectively.

Total nonperforming assets were $5.8 million at September 30, 2022, decreasing slightly since December 31, 2021. Our level of nonperforming assets has remained low in recent years, representing only 0.14% of total assets at both September 30, 2022 and December 31, 2021. We believe our continuous credit monitoring and collection efforts have resulted in lower levels of nonperforming assets, while also recognizing that favorable economic conditions prior to the COVID-19 pandemic and substantial federal economic stimulus during the pandemic have also contributed to these lower levels.

Troubled Debt Restructurings

In general, if the Company grants a troubled debt restructuring (“TDR”) that involves either the absence of principal amortization or a material extension of an existing loan amortization period in excess of our underwriting standards, the loan will be placed on nonaccrual status. However, if a TDR is well secured by an abundance of collateral and the collectability of both interest and principal is probable, the loan may remain on accrual status. A nonaccrual TDR in full compliance with the payment requirements specified in the loan modification for at least six months may return to accrual status, if the collectability of both principal and interest is probable. All TDRs are individually evaluated for impairment.

The following table presents TDRs by loan category.


	September 30, 2022						December 31, 2021
	Accruing		Nonaccrual		Total		Accruing		Nonaccrual		Total

	(dollars in thousands)
Commercial and industrial	$	111	$	—	$	111	$	203	$	—	$	203
Commercial real estate - owner occupied		1,532		—		1,532		1,671		—		1,671
Commercial real estate - non-owner occupied		1,225		—		1,225		1,278		—		1,278
One-to-four family residential		191		—		191		360		—		360
Total troubled debt restructurings	$	3,059	$	—	$	3,059	$	3,512	$	—	$	3,512

TDRs have remained a small portion of our loan portfolio as loan modifications to borrowers with deteriorating financial condition are generally offered only as part of an overall workout strategy to minimize losses to the Company.

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Risk Classification of Loans

Our policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality as pass-watch, substandard, doubtful, or loss.

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

A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized as probable that the borrower will not pay principal and interest in accordance with the contractual terms.

An asset classified as doubtful has all the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted; such balances are promptly charged-off as required by applicable federal regulations.

As of September 30, 2022 and December 31, 2021, our risk classifications of loans were as follows:


	September 30, 2022		December 31, 2021

	(dollars in thousands)
Pass	$	2,449,735	$	2,269,228
Pass-watch		57,798		148,285
Substandard		72,395		82,176
Doubtful		—		—
Total	$	2,579,928	$	2,499,689

Pass-watch loans decreased $90.5 million, or 61.0%, and substandard loans decreased $9.8 million, or 11.9%, from December 31, 2021 to September 30, 2022. This overall improvement was primarily driven by better economic conditions, relative to 2021, which resulted in both risk rating upgrades and paydowns.

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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 September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021

	(dollars in thousands)
Net charge-offs (recoveries)
Commercial and industrial	$	11		$	21		$	(733)		$	9
Agricultural and farmland		—			—			—			—
Commercial real estate - owner occupied		(1)			—			(101)			—
Commercial real estate - non-owner occupied		(3)			(6)			(273)			(19)
Multi-family		—			—			—			—
Construction and land development		(1)			(1)			(1)			(270)
One-to-four family residential		(42)			(87)			(256)			(49)
Municipal, consumer, and other		96			52			187			72
Total	$	60		$	(21)		$	(1,177)		$	(257)

Average loans, before allowance for loan losses
Commercial and industrial	$	233,046		$	289,372		$	271,136		$	363,497
Agricultural and farmland		235,273			236,444			232,762			226,096
Commercial real estate - owner occupied		212,997			192,419			220,463			200,857
Commercial real estate - non-owner occupied		675,086			554,279			687,024			548,752
Multi-family		265,690			212,980			254,836			221,986
Construction and land development		348,958			214,159			329,781			213,761
One-to-four family residential		327,272			302,214			328,199			309,095
Municipal, consumer, and other		183,598			133,609			161,300			133,419
Total	$	2,481,920		$	2,135,476		$	2,485,501		$	2,217,463

Net charge-offs (recoveries) to average loans, before allowance for loan losses *
Commercial and industrial		0.02	%		0.03	%		(0.36)	%		—	%
Agricultural and farmland		—			—			—			—
Commercial real estate - owner occupied		—			—			(0.06)			—
Commercial real estate - non-owner occupied		—			—			(0.05)			—
Multi-family		—			—			—			—
Construction and land development		—			—			—			(0.17)
One-to-four family residential		(0.05)			(0.11)			(0.10)			(0.02)
Municipal, consumer, and other		0.21			0.15			0.16			0.07
Total		0.01	%		—	%		(0.06)	%		(0.02)	%

* 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 September 30, 2022, 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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	September 30, 2022
	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. government agency	$	2,005	0.15	%	$	—	—	%	$	2,005	0.15	%
Municipal		5,575	2.74			2,492	3.56			8,067	2.99
Mortgage-backed:
Agency residential		134	2.09			—	—			134	2.09
Agency commercial		2,994	2.24			—	—			2,994	2.24
Corporate		4,995	2.58			—	—			4,995	2.58
Total	$	15,703	2.26	%	$	2,492	3.56	%	$	18,195	2.44	%

Due after 1 year through 5 years
U.S. Treasury	$	119,734	1.33	%	$	—	—	%	$	119,734	1.33	%
U.S. government agency		40,920	2.55			10,000	2.18			50,920	2.48
Municipal		57,900	2.09			15,934	3.24			73,834	2.34
Mortgage-backed:
Agency residential		13,673	2.32			8,389	1.62			22,062	2.06
Agency commercial		36,833	2.25			11,563	3.07			48,396	2.45
Corporate		16,884	4.29			—	—			16,884	4.29
Total	$	285,944	2.00	%	$	45,886	2.67	%	$	331,830	2.09	%

Due after 5 years through 10 years
U.S. Treasury	$	50,161	1.49	%	$	—	—	%	$	50,161	1.49	%
U.S. government agency		18,503	2.24			59,640	2.46			78,143	2.41
Municipal		143,423	1.74			19,800	3.35			163,223	1.94
Mortgage-backed:
Agency residential		78,677	2.10			3,964	3.51			82,641	2.17
Agency commercial		73,171	1.62			234,337	1.75			307,508	1.72
Corporate		38,816	4.00			—	—			38,816	4.00
Total	$	402,751	2.00	%	$	317,741	2.00	%	$	720,492	2.00	%

Due after 10 years
U.S. government agency	$	—	—	%	$	18,778	2.71	%	$	18,778	2.71	%
Municipal		72,813	1.88			4,618	3.56			77,431	1.98
Mortgage-backed:
Agency residential		131,254	2.42			92,977	3.61			224,231	2.92
Agency commercial		41,679	2.01			64,202	1.94			105,881	1.97
Corporate		2,000	4.50			—	—			2,000	4.50
Total	$	247,746	2.21	%	$	180,575	2.92	%	$	428,321	2.51	%

Total
U.S. Treasury	$	169,895	1.38	%	$	—	—	%	$	169,895	1.38	%
U.S. government agency		61,428	2.38			88,418	2.48			149,846	2.44
Municipal		279,711	1.87			42,844	3.34			322,555	2.07
Mortgage-backed:
Agency residential		223,738	2.30			105,330	3.45			329,068	2.67
Agency commercial		154,677	1.89			310,102	1.84			464,779	1.85
Corporate		62,695	3.98			—	—			62,695	3.98
Total	$	952,144	2.06	%	$	546,694	2.37	%	$	1,498,838	2.17	%

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SOURCES OF FUNDS

Deposits

Management continues to focus on growing non-maturity deposits, through the Company’s relationship-driven banking philosophy and community-focused marketing programs, and to deemphasize higher cost deposit categories, such as time deposits. Additionally, the Bank continues to add and improve digital banking services to solidify deposit relationships.

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


	Three Months Ended September 30,												Percent
	2022						2021						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	$	1,031,407	28.1	%	—	%	$	1,016,384	29.6	%	—	%	1.5	%
Interest-bearing demand		1,137,072	31.0		0.05			1,020,216	29.8		0.05		11.5
Money market		577,388	15.8		0.14			510,183	14.9		0.07		13.2
Savings		649,752	17.7		0.03			608,436	17.7		0.03		6.8
Total non-maturity deposits		3,395,619	92.6		0.05			3,155,219	92.0		0.03		7.6
Time		271,870	7.4		0.27			275,224	8.0		0.42		(1.2)
Total deposits	$	3,667,489	100.0	%	0.06	%	$	3,430,443	100.0	%	0.07	%	6.9	%

	Nine Months Ended September 30,												Percent
	2022						2021						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	$	1,060,566	28.4	%	—	%	$	976,884	29.1	%	—	%	8.6	%
Interest-bearing demand		1,146,635	30.7		0.05			1,012,557	30.2		0.05		13.2
Money market		585,815	15.7		0.10			498,441	14.8		0.07		17.5
Savings		653,659	17.5		0.03			584,226	17.4		0.03		11.9
Total non-maturity deposits		3,446,675	92.3		0.04			3,072,108	91.5		0.03		12.2
Time		289,000	7.7		0.30			286,685	8.5		0.48		0.8
Total deposits	$	3,735,675	100.0	%	0.06	%	$	3,358,793	100.0	%	0.07	%	11.2	%

* Annualized measure.

Comparison of the Three Months Ended September 30, 2022 to the Three Months Ended September 30, 2021

The average balances of non-maturity deposits increased 7.6% from the three months ended September 30, 2021 to the three months ended September 30, 2022, with the increase primarily attributable to the NXT acquisition which added $139.4 million of non-maturity deposits on October 1, 2021. Time deposits decreased slightly due to continued run-off of higher cost time deposits which were mostly offset by the addition of $42.1 million of time deposits acquired from NXT.

Recent increases in market interest rates have increased competition for deposits. As a result, we expect deposit costs to increase during the rest of 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.

Comparison of the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021

The average balances of non-maturity deposits increased 12.2% from the nine months ended September 30, 2021 to the nine months ended September 30, 2022, with the increase primarily attributable to higher balances maintained by deposit customers following the receipt of federal economic stimulus, in the form of PPP loan proceeds by commercial customers and direct payments received by retail customers, although this trend began to reverse in the second quarter of 2022. Additionally, the NXT acquisition added $139.4 million of non-maturity deposits on October 1, 2021. Time deposits increased slightly due to the addition of $42.1 million of time deposits acquired from NXT which were mostly offset by the continued run-off of higher cost time deposits.

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The following table sets forth time deposits by remaining maturity as of September 30, 2022:


	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	$	38,274	$	34,853	$	51,659	$	54,376	$	179,162
Amounts of $100,000 or more but less than $250,000		13,524		11,564		19,639		19,390		64,117
Amounts of $250,000 or more		9,190		4,766		7,175		4,698		25,829
Total time deposits	$	60,988	$	51,183	$	78,473	$	78,464	$	269,108

As of September 30, 2022 and December 31, 2021, the Bank’s uninsured deposits, including related accrued interest, were estimated to be $772.0 million and $845.7 million, respectively.

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 and replacing higher cost funding including time deposits and borrowed funds. While the Bank does not control the types of deposit instruments our clients choose, those choices can be influenced with the rates and the deposit specials offered.

Additional sources of liquidity include unpledged securities, federal funds purchased, and borrowings from the FHLB. Unpledged securities may be sold or pledged as collateral for borrowings to meet liquidity needs. Interest is charged at the prevailing market rate on federal funds purchased and FHLB borrowings. Funds available through federal funds purchased and FHLB borrowings are used primarily to meet daily liquidity needs. The total remaining credit available to the Bank from the FHLB at September 30, 2022 was $330.6 million.

As of September 30, 2022, 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 September 30, 2022, the Bank had no material commitments for capital expenditures.

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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 September 30, 2022, the Holding Company had cash and cash equivalents of $22.7 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 and nine months ended September 30, 2022, the Bank paid $6.0 million and $18.0 million in dividends to the Holding Company, respectively. During the three and nine months ended September 30, 2021, the Bank did not pay a dividend to the Holding Company.

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 September 30, 2022 and 2021, holding company operating expenses consisted of interest expense of $0.9 million and $0.8 million, respectively, and other operating expenses of $1.4 million and $1.3 million, respectively. During the nine months ended September 30, 2022 and 2021, holding company operating expenses consisted of interest expense of $2.6 million and $2.5 million, respectively, and other operating expenses of $4.0 million and $2.6 million, respectively.

Additionally, the Holding Company paid $4.6 million and $4.1 million of dividends to stockholders during the three months ended September 30, 2022 and 2021, respectively, and paid $14.0 million and $12.4 million of dividends to stockholders during the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, management was not aware of any known trends, events or uncertainties that had or were reasonably likely to have a material impact on the Holding Company’s liquidity.

As of September 30, 2022, 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 September 30, 2022, the Holding Company had no material commitments for capital expenditures.

CAPITAL RESOURCES

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

Regulatory Capital Requirements

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

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In addition to meeting minimum capital requirements, the Company and the Bank must also maintain a “capital conservation buffer” to avoid becoming subject to restrictions on capital distributions and certain discretionary bonus payments to management. As of September 30, 2022 and December 31, 2021, the capital conservation buffer requirement was 2.5% of risk-weighted assets.

As of September 30, 2022 and December 31, 2021, the Company and the Bank met all capital adequacy requirements to which they were subject. As of those dates, the Bank was “well capitalized” under the regulatory prompt corrective action provisions.

The following table sets forth actual capital ratios of the Company and the Bank as of the dates indicated, as well as the minimum ratios for capital adequacy purposes with the capital conservation buffer, and the minimum ratios to be well capitalized under regulatory prompt corrective action provisions.


					For Capital		To Be Well
					Adequacy Purposes		Capitalized Under
	September 30,		December 31,		With Capital		Prompt Corrective
	2022		2021		Conversation Buffer ⁽¹⁾		Action Provisions ⁽²⁾
Total Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.	16.34	%	16.88	%	10.50	%	N/A
Heartland Bank and Trust Company	15.60		15.94		10.50		10.00	%

Tier 1 Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.	14.26	%	14.66	%	8.50	%	N/A
Heartland Bank and Trust Company	14.79		15.09		8.50		8.00	%

Common Equity Tier 1 Capital (to Risk Weighted Assets)
Consolidated HBT Financial, Inc.	13.08	%	13.37	%	7.00	%	N/A
Heartland Bank and Trust Company	14.79		15.09		7.00		6.50	%

Tier 1 Capital (to Average Assets)
Consolidated HBT Financial, Inc.	10.44	%	9.84	%	4.00		N/A
Heartland Bank and Trust Company	10.83		10.13		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 September 30, 2022, management was not aware of any known trends, events or uncertainties that had or were reasonably likely to have a material impact on the Company’s capital resources.

Cash Dividends

During 2021, the Company paid quarterly cash dividends of $0.15 per share. On January 25, 2022, the Company announced an increase of $0.01 and paid a $0.16 per share dividend during the first, second, and third quarters of 2022.

Stock Repurchase Program

Under the Company’s stock repurchase program, the Company repurchased 78,571 shares of its common stock at a weighted average price of $18.22 during the three months ended September 30, 2022. The stock repurchase program has been paused until completion of the vote of Town and Country’s shareholders on the merger. Repurchases were conducted in compliance with Rule 10b-18 and in compliance with Regulation M under the Exchange Act. 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, 2023. As of September 30, 2022, the Company had $10.2 million remaining under the current stock repurchase authorization.

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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 September 30, 2022 and December 31, 2021, there were no reserves for unfunded commitments. For additional information, see “Note 14 – Commitments and Contingencies” to the consolidated financial statements.

CRITICAL ACCOUNTING ESTIMATES

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

Allowance for Loan losses

The allowance for loan losses (“allowance”) is an estimate of loan losses inherent in the Company’s loan portfolio. The allowance represents amounts that have been established to recognize incurred credit losses in the loan portfolio that are both probable and reasonably estimable at the date of the consolidated financial statements. The allowance is established through a provision for loan losses which is charged to expense. Additions to the allowance are expected to maintain the adequacy of the total allowance. Loan losses are charged off against the allowance when the Company determines the loan balance to be uncollectible. Cash received on previously charged off amounts is recorded as a recovery to the allowance.

The allowance consists of two primary components, general reserves and specific reserves related to impaired loans. General reserves cover non-impaired loans, or loans collectively evaluated for impairment, and are based on historical losses adjusted for qualitative factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent 16-quarter period. Qualitative factor adjustments primarily consider current economic metrics, such as national and regional unemployment rates, and current credit quality metrics of each portfolio segment, such as past due and risk rating percentages, relative to historical levels. These qualitative factor adjustments are inherently subjective.

Specific reserves cover impaired loans, or loans individually evaluated for impairment, and are primarily measured based on the fair value of collateral. Adjustments to the fair value of collateral are made for anticipated selling costs. A specific reserve may be zero if the fair value of collateral on the measurement date is greater than the carrying balance of the impaired loan. Additionally, the present value of expected future cash flows discounted at the original contractual interest rate may also be used, when practical.

While the Company uses the best information available to make evaluations, future adjustments to the allowance for loan losses may become necessary if conditions change substantially from the conditions used in previous evaluations. Determinations as to the risk classification of loans and the amount of the allowance for loan losses are subject to review by regulatory agencies, which can require that the Company establish additional loss allowances.

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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 September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021

	(dollars in thousands)
Net income	$	15,627		$	13,715		$	43,316		$	42,677
Adjustments:
Acquisition expenses		(462)			(380)			(462)			(537)
Branch closure expenses		—			(644)			—			(748)
Gains (losses) on sales of closed branch premises		(38)			—			141			—
Mortgage servicing rights fair value adjustment		351			40			2,446			1,425
Total adjustments		(149)			(984)			2,125			140
Tax effect of adjustments		(80)			220			(728)			(143)
Less adjustments after tax effect		(229)			(764)			1,397			(3)
Adjusted net income	$	15,856		$	14,479		$	41,919		$	42,680

Average assets	$	4,208,722		$	3,965,051		$	4,278,997		$	3,884,115

Return on average assets *		1.47	%		1.37	%		1.35	%		1.47	%
Adjusted return on average assets *		1.49			1.45			1.31			1.47

* Annualized measure.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

	(dollars in thousands, except per share amounts)
Numerator:
Net income	$	15,627	$	13,715	$	43,316	$	42,677
Earnings allocated to participating securities ⁽¹⁾		(17)		(25)		(51)		(81)
Numerator for earnings per share - basic and diluted	$	15,610	$	13,690	$	43,265	$	42,596

Adjusted net income	$	15,856	$	14,479	$	41,919	$	42,680
Earnings allocated to participating securities ⁽¹⁾		(17)		(27)		(49)		(81)
Numerator for adjusted earnings per share - basic and diluted	$	15,839	$	14,452	$	41,870	$	42,599

Denominator:
Weighted average common shares outstanding		28,787,662		27,340,926		28,887,757		27,377,809
Dilutive effect of outstanding restricted stock units		72,643		13,921		56,761		11,412
Weighted average common shares outstanding, including all dilutive potential shares		28,860,305		27,354,847		28,944,518		27,389,221

Earnings per share - Basic	$	0.54	$	0.50	$	1.50	$	1.56
Earnings per share - Diluted	$	0.54	$	0.50	$	1.49	$	1.56

Adjusted earnings per share - Basic	$	0.55	$	0.53	$	1.45	$	1.56
Adjusted earnings per share - Diluted	$	0.55	$	0.53	$	1.45	$	1.56

(1)

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021

	(dollars in thousands)
Net interest income (tax equivalent basis)
Net interest income	$	37,390		$	30,715		$	103,691		$	89,544
Tax-equivalent adjustment ⁽¹⁾		674			508			1,801			1,514
Net interest income (tax equivalent basis) ⁽¹⁾	$	38,064		$	31,223		$	105,492		$	91,058

Net interest margin (tax equivalent basis)
Net interest margin *		3.65	%		3.18	%		3.36	%		3.19	%
Tax-equivalent adjustment * ⁽¹⁾		0.07			0.05			0.05			0.05
Net interest margin (tax equivalent basis) * ⁽¹⁾		3.72	%		3.23	%		3.41	%		3.24	%

Average interest-earning assets	$	4,059,978		$	3,831,886		$	4,131,221		$	3,755,897

* 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 September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021

	(dollars in thousands)
Efficiency ratio (tax equivalent basis)
Total noninterest expense	$	23,998		$	22,167		$	71,997		$	66,865
Less: amortization of intangible assets		243			252			733			799
Adjusted noninterest expense	$	23,755		$	21,915		$	71,264		$	66,066

Net interest income	$	37,390		$	30,715		$	103,691		$	89,544
Total noninterest income		8,234			8,392			26,828			27,974
Operating revenue		45,624			39,107			130,519			117,518
Tax-equivalent adjustment ⁽¹⁾		674			508			1,801			1,514
Operating revenue (tax-equivalent basis) ⁽¹⁾	$	46,298		$	39,615		$	132,320		$	119,032

Efficiency ratio		52.07	%		56.04	%		54.60	%		56.22	%
Efficiency ratio (tax equivalent basis) ⁽¹⁾		51.31			55.32			53.86			55.50

(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


	September 30, 2022			December 31, 2021

	(dollars in thousands, except per share data)
Tangible Common Equity
Total stockholders' equity	$	359,073		$	411,881
Less: Goodwill		29,322			29,322
Less: Core deposit intangible assets, net		1,210			1,943
Tangible common equity	$	328,541		$	380,616

Tangible Assets
Total assets	$	4,213,324		$	4,314,254
Less: Goodwill		29,322			29,322
Less: Core deposit intangible assets, net		1,210			1,943
Tangible assets	$	4,182,792		$	4,282,989

Total stockholders' equity to total assets		8.52	%		9.55	%
Tangible common equity to tangible assets		7.85			8.89

Shares of common stock outstanding		28,752,626			28,986,061

Book value per share	$	12.49		$	14.21
Tangible book value per share		11.43			13.13

Reconciliation of Non-GAAP Financial Measure – Return on Average Tangible Common Equity, Adjusted Return on Average Stockholders’ Equity, and Adjusted Return on Average Tangible Common Equity


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021

	(dollars in thousands)
Average Tangible Common Equity
Total stockholders' equity	$	380,983		$	380,863		$	388,509		$	369,933
Less: Goodwill		29,322			23,620			29,322			23,620
Less: Core deposit intangible assets, net		1,356			2,152			1,597			2,414
Average tangible common equity	$	350,305		$	355,091		$	357,590		$	343,899

Net income	$	15,627		$	13,715		$	43,316		$	42,677
Adjusted net income		15,856			14,479			41,919			42,680

Return on average stockholders' equity *		16.27	%		14.29	%		14.91	%		15.42	%
Return on average tangible common equity *		17.70			15.32			16.20			16.59

Adjusted return on average stockholders' equity *		16.51	%		15.08	%		14.43	%		15.43	%
Adjusted return on average tangible common equity *		17.96			16.18			15.67			16.59

* Annualized measure.

Reconciliation of Non-GAAP Financial Measure - Core Deposits


	September 30, 2022			December 31, 2021

	(dollars in thousands)
Core Deposits
Total deposits	$	3,643,443		$	3,738,185
Less: time deposits of $250,000 or more		25,829			59,512
Less: brokered deposits		—			4,238
Core deposits	$	3,617,614		$	3,674,435

Core deposits to total deposits		99.29	%		98.29	%

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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.

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)
September 30, 2022
+400	$	100,521	12.7	%	$	18,090	10.8	%	$	30,453	16.9	%
+300		92,248	11.7			14,152	8.4			24,407	13.5
+200		73,526	9.3			9,817	5.9			17,334	9.6
+100		44,161	5.6			5,115	3.0			9,293	5.1
-100		(70,856)	(9.0)			(8,801)	(5.2)			(13,809)	(7.6)
-200		(168,345)	(21.3)			(20,005)	(11.9)			(31,410)	(17.4)

December 31, 2021
+400	$	92,106	19.7	%	$	23,230	18.7	%	$	38,485	31.7	%
+300		76,708	16.4			17,938	14.5			30,487	25.1
+200		51,627	11.1			12,154	9.8			21,339	17.6
+100		12,453	2.7			5,818	4.7			11,062	9.1
-100		34,852	7.5			(4,098)	(3.3)			(7,746)	(6.4)

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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.

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 September 30, 2022, the end of the period covered by this report, the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is: (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure; and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

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 September 30, 2022, 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, 2021, filed with the SEC on March 11, 2022.

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

Unregistered Sales of Equity Securities

None.

Issuer Purchases of Equity Securities

On December 14, 2021, 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, 2023 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 third quarter of 2022, all of which were conducted in compliance with Rule 10b-18 and Regulation M under the Exchange Act:


				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)
July 1 - 31, 2022	24,828	$	17.71	24,828	$	11,209
August 1 - 31, 2022	39,842		18.63	39,842		10,467
September 1 - 30, 2022	13,901		17.96	13,901		10,217
Total	78,571	$	18.22	78,571	$	10,217

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS


Exhibit No.		Description
2.1 *		Agreement and Plan of Merger between HBT Financial, Inc., HB-T&C Merger, Inc. and Town and Country Financial Corporation dated August 23, 2022 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the Commission on August 23, 2022).

10.1 §		Employment Agreement, effective October 1, 2022, by and among HBT Financial, Inc., Heartland Bank and Trust Company and Peter Chapman (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on August 18, 2022).

10.2 §		Transition Agreement by and among HBT Financial, Inc., Heartland Bank and Trust Company and Matthew J. Doherty, dated as of August 17, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on August 18, 2022).

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).

Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule will be furnished to the SEC upon request; provided, however, that the parties may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any document so furnished.

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.

November 8, 2022	By:	/s/ Matthew J. Doherty
		Matthew J. Doherty
		Chief Financial Officer
		(on behalf of the registrant and as principal financial officer)

EXHIBIT 31.1

Certification of Chief Executive Officer

Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934

and Section 302 of the Sarbanes-Oxley Act of 2002

I, Fred L. Drake, certify that:

1. I have reviewed this quarterly report on Form 10-Q of HBT Financial, Inc.:

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: November 8, 2022	/s/ Fred L. Drake
	Fred L. Drake
	Chairman and Chief Executive Officer
	(Principal Executive Officer)

EXHIBIT 31.2

Certification of Chief Financial Officer

Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934

and Section 302 of the Sarbanes-Oxley Act of 2002

I, Matthew J. Doherty, certify that:

1. I have reviewed this quarterly report on Form 10-Q of HBT Financial, Inc.:

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: November 8, 2022	/s/ Matthew J. Doherty
	Matthew J. Doherty
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

EXHIBIT 32.1

Certification Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of HBT Financial, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

1. The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Fred L. Drake
Fred L. Drake
Chairman and Chief Executive Officer
(Principal Executive Officer)
November 8, 2022

EXHIBIT 32.2

Certification Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

1. The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Matthew J. Doherty
Matthew J. Doherty
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
November 8, 2022