What changed in this filing

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Item 1. Business

2023-03-08 compared with 2022-03-11 · 58 added, 56 removed, 409 unchanged (22% of the section changed)

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and generate good returns for our stockholders.

TOWN AND COUNTRY FINANCIAL CORPORATION ACQUISITION

On February 1, 2023, HBT Financial completed its acquisition of Town and Country Financial Corporation (“Town and Country”), the holding company for Town and Country Bank.

The acquisition of Town and Country further enhanced HBT Financial’s footprint in Central Illinois and expanded our footprint into metro-east St.

At the time of acquisition, Town and Country Bank operated ten full-service branch locations which began operating as branches of Heartland Bank.

The core system conversion is expected to occur in April 2023.

As of December 31, 2022, Town and Country Bank had total assets of $923.1 million, total loans of $662.0 million, and total deposits of $762.2 million.

This acquisition is a subsequent event and the financial results of Town and Country are not recognized in this Form 10-K.

Total consideration consisted of 3.4 million shares of HBT Financial’s common stock and $38.0 million in cash.

Based upon the closing price of HBT Financial common stock of $21.12 on February 1, 2023, the aggregate consideration was approximately $109.4 million.

NXT BANCORPORATION, INC.

On October 1, 2021, HBT completed its acquisition of NXT Bancorporation, Inc.

On October 1, 2021, HBT Financial completed its acquisition of NXT Bancorporation, Inc.

(“NXT”), the holding company for NXT Bank.

The acquisition expanded HBT’s footprint into Eastern Iowa with four locations that began operating as branches of Heartland Bank in December 2021.

NXT added total assets of $234 million, total loans of $195 million, and total deposits of $182 million.

Cash consideration of approximately $10.6 million and stock consideration of approximately 1.8 million shares of HBT common stock resulted in aggregate consideration of $39.9 million.

Goodwill of $5.7 million was created in the acquisition.

The acquisition expanded our footprint into Eastern Iowa with four locations that began operating as branches of Heartland Bank following the merger and systems conversion of NXT Bank into Heartland Bank in December 2021.

After considering business combination accounting adjustments, NXT added total assets of $234 million, total loans of $195 million, and total deposits of $182 million.

Total consideration consisted of 1.8 million shares of HBT Financial’s common stock and $10.6 million in cash.

Based upon the closing price of HBT Financial common stock of $16.27 on October 1, 2021, the aggregate consideration was approximately $39.9 million.

Goodwill of $5.7 million was recorded in the acquisition.

Acquisition-related expenses totaled $1.4 million during 2021 and consisted primarily of investment banker fees, legal fees, and data processing expenses.

The acquisition of NXT provided an opportunity to utilize our excess liquidity at the time to replace NXT’s higher cost funding.

Additionally, Heartland Bank’s broader range of products and services and greater ability to meet larger borrowing needs provides an opportunity to expand NXT customer relationships.

MERGER OF STATE BANK OF LINCOLN INTO HEARTLAND BANK

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We also provide municipal, consumer and other loans.

We have a strong credit culture that is conservative, favors asset quality first, and balances local lenders' knowledge of their marketplace with a strong centralized credit process.

We have a strong credit culture that is prudent, favors asset quality first, and balances local lenders' knowledge of their marketplace with a strong centralized credit process.

We maintain a well-diversified portfolio of loans and control concentrations related to loan types and specific industries or businesses.

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These loans include both owner-occupied and non-owner occupied one-to-four family homes and condominiums.

They consist of first mortgage amortizing loans, second mortgage amortizing loans, and home

equity lines of credit.

They consist of first mortgage amortizing loans, second mortgage amortizing loans, and home equity lines of credit.

These loans primarily consist of loans originated by our lenders through our branch network on properties in the communities that we serve.

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We also originate FHA, VA, and Rural Development loans, which are typically sold servicing released.

We currently operate 57 branch locations in Central and Northeastern Illinois and four in Eastern Iowa.

As of December 31, 2022, our branch network included 54 full-service branch locations in Central and Northeastern Illinois and four in Eastern Iowa.

We hold a leading deposit market share in many of our markets in Central Illinois, which we define as a top three deposit share rank, providing the foundation for our strong deposit base.

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the successful integration of several strategic in-market acquisitions;

and a relatively small presence of money center and super-regional banks in our mid-sized markets has enabled us to maintain meaningful market share in these markets.

Our management team believes our diverse footprint in both urban and rural markets positions us well relative to our competition in terms of access to both high quality, stable funding sources and a wealth of loan growth opportunities in attractive markets.

and a relatively small presence of money center and

super-regional banks in our mid-sized markets has enabled us to maintain meaningful market share in these markets.

We consider ourselves to be well positioned to meet the needs of commercial and retail customers through our branch network, comprehensive suite of banking and wealth management products, and our commitment to high-touch customer service.

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and doing the right things for our customers, staff, stockholders, and communities.

Our senior management team lives and works in the communities we serve, and our commitment to delivering banking products and services that

support the needs of our target customers enables us to preserve and grow share in our markets.

Our senior management team lives and works in the communities we serve, and our commitment to delivering banking products and services that support the needs of our target customers enables us to preserve and grow share in our markets.

The quality of our comprehensive suite of products and services coupled with our relationship-based approach to banking contribute meaningfully to our growth and success.

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To support the well-being of our employees and their families, we provide access to a variety of flexible and convenient healthcare programs for physical and mental health, long-term and short-term disability, paid time off, and a Company-matched 401(k) plan.

In continued response to the COVID-19 pandemic and complying with federal, state, and local guidelines, we have maintained heightened cleaning protocols and other safety measures at all locations, permitted work from home to continue for many employees, and adjusted branch services to ensure a safe environment.

Enhanced employee benefits coverage related to the pandemic, including waiving costs associated with testing and treatment, continue to be in place.

Additional paid time off was granted to employees to get the vaccine and recover from any side effects.

Our profitability and growth are affected by the highly competitive nature of the financial services industry.

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We do not rely on any individual, group, or entity for a material portion of our loans or our deposits.

We continue to see increased competitive pressures on loan rates and terms.

Competition for deposit customers was minimal in 2021 given the excess liquidity at most financial institutions.

Continued loan pricing pressure may affect our financial results in the future.

We continue to see strong competition for new loan production, including competitive pressures on loan rates and terms.

Competition for deposit customers was minimal in 2020 and 2021, given the excess liquidity at most financial institutions, but increased substantially during 2022, as the Federal Reserve started to raise short-term interest rates.

Continued loan and deposit pricing pressure may affect our financial results in the future.

COMPANY WEBSITE

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All periodic and current reports of the Company and amendments to these reports filed with the Securities and Exchange Commission (“SEC”) can be accessed, free of charge, through this website and at www.sec.gov as soon as reasonably practicable after these materials are filed with the SEC.

INITIAL PUBLIC OFFERING

On October 11, 2019, we priced our initial public offering (the “IPO”).

In the IPO, we issued and sold 9,429,794 shares of common stock and received proceeds, net of offering costs, of approximately $138 million.

The proceeds were used to fund a $170 million special dividend, or $9.43 per share, to stockholders of record prior to the IPO.

SUPERVISION AND REGULATION

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banking organizations subjects banks and bank holding companies to regular examination by their respective regulatory agencies, which results in examination reports and ratings that are not publicly available, and that can impact the conduct and growth of their business.

These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management ability and performance, earnings, liquidity, and various other factors.

These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset

quality and risk, management ability and performance, earnings, liquidity, and various other factors.

The regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law, or are otherwise inconsistent with laws and regulations.

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The descriptions are qualified in their entirety by reference to the particular statutory and regulatory provision.

COVID-19 Pandemic

The federal bank regulatory agencies, along with their state counterparts, issued a steady stream of guidance responding to the COVID-19 pandemic and took a number of unprecedented steps to help banks navigate the pandemic and mitigate its impact.

These included, without limitation:

requiring banks to focus on business continuity and pandemic planning;

adding pandemic scenarios to stress testing;

encouraging bank use of capital buffers and reserves in lending programs;

permitting certain regulatory reporting extensions;

reducing margin requirements on swaps;

permitting certain otherwise prohibited investments in investment funds;

issuing guidance to encourage banks to work with customers affected by the pandemic and encourage loan workouts;

and providing credit under the Community Reinvestment Act (“CRA”) for certain pandemic-related loans, investments and public service.

Because of the need for social distancing measures, the agencies revamped the manner in which they conducted periodic examinations of their regulated institutions, including making greater use of off-site reviews, and they have continued using virtual bank examinations in 2022

Reference is made to the COVID-19 discussion under “Risks Related to the COVID-19 Pandemic” under Item 1A - “Risk Factors” and “COVID-19 Response and Impact Overview” under Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for discussions of the impact of the COVID-19 pandemic.

In addition, information as to selected topics is contained in the relevant sections of this Supervision and Regulation discussion provided below.

The Role of Capital

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Not only did the Basel III Rule increase most of the required minimum capital ratios in effect prior to January 1, 2015, but, in requiring that forms of capital be of higher quality to absorb loss, it introduced the concept of Common Equity Tier 1 Capital, which consists primarily of common stock, related surplus (net of Treasury stock), retained earnings, and Common Equity Tier 1 minority interests subject to certain regulatory adjustments.

The Basel III Rule also changed the definition of capital by establishing more stringent criteria that instruments must meet to be considered Additional Tier 1 Capital (primarily non-cumulative perpetual preferred stock that meets certain requirements) and Tier 2 Capital (primarily other types of preferred stock and subordinated debt, subject to limitations).

stock that meets certain requirements) and Tier 2 Capital (primarily other types of preferred stock and subordinated debt, subject to limitations).

The Basel III Rule also constrained the inclusion of minority interests, mortgage-servicing assets, and deferred tax assets in capital, and it required deductions from Common Equity Tier 1 Capital in the event that such assets exceeded a percentage of a banking institution’s Common Equity Tier 1 Capital.

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Factoring in the conservation buffer increases the minimum ratios depicted above to 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for Total Capital.

The federal bank regulators released a joint statement in response to the COVID-19 pandemic, reminding the industry that capital and liquidity buffers were meant to give banks the means to support the economy in adverse situations, and that the agencies would support banks that use the buffers for that purpose if undertaken in a safe and sound manner.

Well-Capitalized Requirements

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(ii) the prospective rate of earnings retention is inconsistent with the company’s capital needs and overall current and prospective financial condition;

or (iii) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.

or (iii) the company will not

meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.

The Federal Reserve also possesses enforcement powers over bank holding companies and their nonbank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations.

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At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, increases or decreases the assessment rates, following notice and comment on proposed rulemaking.

The reserve ratio is the FDIC insurance fund balance divided by estimated insured deposits.

The Dodd-Frank Act altered the minimum reserve ratio of the DIF, increasing the minimum from 1.15% to 1.35% of the estimated amount of total insured deposits.

The reserve ratio reached 1.36% as of September 30, 2018.

As a result, the FDIC provided assessment credits to insured depository institutions, like the Bank, with total consolidated assets of less than $10 billion, for the portion of their regular assessments that contributed to growth in the reserve ratio between 1.15% and 1.35%.

The FDIC applied the small bank credits for quarterly assessment periods beginning July 1, 2019.

However, the reserve ratio fell to 1.30% in 2020 because of extraordinary insured deposit growth caused by an unprecedented inflow of more than $1 trillion in estimated insured deposits in the first half of 2020, stemming mainly from the COVID-19 pandemic.

Although the FDIC could have ceased the small bank credits, it waived the requirement that the reserve ratio be at least 1.35% for full remittance of the remaining assessment credits, and it refunded all small bank credits to the Bank as of September 30, 2020.

The reserve ratio is the DIF balance divided by estimated insured deposits.

In response to the global financial crisis, the Dodd-Frank Act increased the minimum reserve ratio from 1.15% to 1.35% of the estimated amount of total insured deposits.

Prior to the COVID-19 pandemic, the reserve ratio briefly exceeded the statutory threshold, but because of extraordinary insured deposit growth caused by an unprecedented inflow of deposits during the COVID-19 pandemic, the reserve ratio fell below 1.35% and continues to be below the threshold.

The FDIC staff closely monitors the factors that affect the reserve ratio, and, in order to raise the reserve ratio to 1.35% by September 30, 2028, the FDIC increased the initial deposit insurance rates by two basis points, beginning with the first quarterly assessment period of 2023.

As a result of this change, the Bank’s FDIC insurance assessment will increase beginning in 2023.

The DIF balance was $125.5 billion on September 30, 2022, up $1.0 billion from the end of the second quarter.

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The amount of the assessment is calculated on the basis of the Bank’s total assets.

During the year ended December 31, 2021, the Bank paid supervisory assessments to the IDFPR totaling approximately $294,000.

During the year ended December 31, 2022, the Bank paid supervisory assessments to the IDFPR totaling $0.4 million.

Capital Requirements

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To remain viable, FDIC-insured institutions must have enough liquid assets to meet their near-term obligations, such as withdrawals by depositors.

Because the global financial crisis was in part a liquidity crisis, Basel III also includes a liquidity framework that requires FDIC-insured institutions to measure their liquidity against specific liquidity tests.

Because the global financial crisis was in part a liquidity crisis, Basel III also includes a liquidity

framework that requires FDIC-insured institutions to measure their liquidity against specific liquidity tests.

One test, referred to as the liquidity coverage ratio (“LCR”) is designed to ensure that the banking entity has an adequate stock of unencumbered high-quality liquid assets that can be converted easily and immediately in private markets into cash to meet liquidity needs for a 30-calendar day liquidity stress scenario.

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The Dodd-Frank Act enhanced the requirements for certain transactions with affiliates, including an expansion of the definition of “covered transactions” and an increase in the amount of time for which collateral requirements regarding covered transactions must be maintained.

Certain limitations and reporting requirements also are placed on extensions of credit by the Bank to its directors and officers, to directors and officers of the Company and its subsidiaries, to principal shareholders of the Company, and to “related interests” of such directors, officers and principal shareholders.

Company, and to “related interests” of such directors, officers and principal shareholders.

In addition, federal law and regulations may affect the terms on which any person who is a director or officer of the Company or the Bank, or a principal shareholder of the Company, may obtain credit from banks with which the Bank maintains a correspondent relationship.

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Properly managing risks has been identified as critical to the conduct of safe and sound banking activities and has become even more important as new technologies, product innovation, and the size and speed of financial transactions have changed the nature of banking markets.

have identified a spectrum of risks facing a banking institution including, but not limited to, credit, market, liquidity, operational, legal, and reputational risk.

The agencies have identified a spectrum of risks facing a banking institution including, but not limited to, credit, market, liquidity, operational, legal, and reputational risk.

The Bank is expected to have active board and senior management oversight;

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Applications for acquisitions also would be affected by the evaluation of the Bank’s effectiveness in meeting its CRA requirements.

In a joint statement responding to the COVID-19 pandemic, the bank regulatory agencies announced favorable CRA consideration for banks providing retail banking services and lending activities in their assessment areas, consistent with safe and sound banking practices, that are responsive to the needs of low- and moderate-income individuals, small businesses, and small farms affected by the pandemic.

Those activities include waiving certain fees, easing restrictions on out-of-state and non-customer checks, expanding credit products, increasing credit limits for creditworthy borrowers, providing alternative service options, and offering prudent payment accommodations.

The joint statement also provided favorable CRA consideration for certain pandemic-related community development activities.

In May 2022, the bank regulatory agencies issued a notice of proposed rulemaking called the Joint Proposal to Strengthen and Modernize Community Reinvestment Act Regulations (the “CRA Proposal”).

The CRA Proposal is designed to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated.

More specifically, the bank regulatory agencies described the goals of the CRA Proposal as follows:

(i) to expand access to credit, investment, and basic banking services in low and moderate income communities;

(ii) to adapt to changes in the banking industry, including mobile and internet banking by modernizing assessment areas while maintaining a focus on branch based areas;

(iii) to provide greater clarity, consistency, and transparency in the application of the regulations through the use of standardized metrics as part of CRA evaluation and clarifying eligible CRA activities focused on low and moderate income communities and under–served rural communities;

(iv) to tailor CRA rules and data collection to bank size and business model;

and (v) to maintain a unified approach among the regulators.

A final rule has not yet been issued.

In 2022, the Bank, like all Illinois chartered banks, became subject to state level CRA standards, following passage of the Illinois Community Reinvestment Act (the “Illinois CRA”).

This means that, in addition to the federal CRA review, Bank will be reviewed by the IDFPR to assess the Bank’s record of meeting the credit needs of its communities.

Like the potential impact under the federal CRA, applications for additional acquisitions or activities would be affected by the evaluation of the Bank’s effectiveness in meeting its Illinois CRA requirements.

Anti-Money Laundering

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The CRE Guidance does not limit banks’ levels of CRE lending activities, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their commercial real estate concentrations.

On December 18, 2015, the federal banking agencies issued a statement to reinforce prudent risk-management practices related to CRE lending, having observed substantial growth in many CRE asset and lending markets, increased competitive pressures, rising CRE concentrations in banks, and an easing of CRE underwriting standards.

and an easing of CRE underwriting standards.

The federal bank agencies reminded FDIC-insured institutions to maintain underwriting discipline and exercise prudent risk-management practices to identify, measure, monitor, and manage the risks arising from CRE lending.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business