HBT Financial, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA HBT FINANCIAL, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID: 49 ) 77 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets 78 Consolidated Statements of Income 79 Consolidated Statements of Comprehensive Income (Loss) 80 Consolidated Statements of Changes in Stockholders’ Equity 81 Consolidated Statements of Cash Flows 82 Notes to Consolidated Financial Statements 84 76 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of HBT Financial, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of HBT Financial, Inc. and its subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income (loss), changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Adoption of New Accounting Standard As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit losses on financial instruments in 2023 due to the adoption of Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ RSM US LLP We have served as the Company's auditor since 2017. Chicago, Illinois March 6, 2024 77 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data) December 31, 2023 December 31, 2022 ASSETS Cash and due from banks $ 26,256 $ 18,970 Interest-bearing deposits with banks 114,996 95,189 Cash and cash equivalents 141,252 114,159 Interest-bearing time deposits with banks 509 — Debt securities available-for-sale, at fair value 759,461 843,524 Debt securities held-to-maturity (fair value of $ 466,496 at 2023 and $ 478,801 at 2022) 521,439 541,600 Equity securities with readily determinable fair value 3,360 3,029 Equity securities with no readily determinable fair value 2,505 1,977 Restricted stock, at cost 7,160 7,965 Loans held for sale 2,318 615 Loans, before allowance for credit losses 3,404,417 2,620,253 Allowance for credit losses ( 40,048 ) ( 25,333 ) Loans, net of allowance for credit losses 3,364,369 2,594,920 Bank owned life insurance 23,905 7,557 Bank premises and equipment, net 65,150 50,469 Bank premises held for sale — 235 Foreclosed assets 852 3,030 Goodwill 59,820 29,322 Intangible assets, net 20,682 1,070 Mortgage servicing rights, at fair value 19,001 10,147 Investments in unconsolidated subsidiaries 1,614 1,165 Accrued interest receivable 24,534 19,506 Other assets 55,239 56,444 Total assets $ 5,073,170 $ 4,286,734 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits: Noninterest-bearing $ 1,072,407 $ 994,954 Interest-bearing 3,329,030 2,592,070 Total deposits 4,401,437 3,587,024 Securities sold under agreements to repurchase 42,442 43,081 Federal Home Loan Bank advances 12,623 160,000 Subordinated notes 39,474 39,395 Junior subordinated debentures issued to capital trusts 52,789 37,780 Other liabilities 34,909 45,822 Total liabilities 4,583,674 3,913,102 COMMITMENTS AND CONTINGENCIES (Note 22) Stockholders' Equity Preferred stock, $ 0.01 par value; 25,000,000 shares authorized; none issued or outstanding — — Common stock, $ 0.01 par value; 125,000,000 shares authorized; shares issued of 32,730,698 at 2023 and 29,308,491 at 2022; shares outstanding of 31,695,828 at 2023 and 28,752,626 at 2022 327 293 Surplus 295,877 222,783 Retained earnings 269,051 232,004 Accumulated other comprehensive income (loss) ( 57,163 ) ( 71,759 ) Treasury stock at cost, 1,034,870 shares at 2023 and 555,865 at 2022 ( 18,596 ) ( 9,689 ) Total stockholders’ equity 489,496 373,632 Total liabilities and stockholders’ equity $ 5,073,170 $ 4,286,734 See accompanying Notes to Consolidated Financial Statements 78 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, (dollars in thousands, except per share data) 2023 2022 2021 INTEREST AND DIVIDEND INCOME Loans, including fees: Taxable $ 191,008 $ 120,343 $ 103,900 Federally tax exempt 4,189 3,135 2,384 Securities: Taxable 25,962 23,368 16,948 Federally tax exempt 4,225 4,569 4,400 Interest-bearing deposits in bank 3,020 1,541 527 Other interest and dividend income 595 98 64 Total interest and dividend income 228,999 153,054 128,223 INTEREST EXPENSE Deposits 25,135 2,511 2,472 Securities sold under agreements to repurchase 255 36 34 Borrowings 7,128 967 9 Subordinated notes 1,879 1,879 1,879 Junior subordinated debentures issued to capital trusts 3,530 1,787 1,426 Total interest expense 37,927 7,180 5,820 Net interest income 191,072 145,874 122,403 PROVISION FOR CREDIT LOSSES 7,573 ( 706 ) ( 8,077 ) Net interest income after provision for credit losses 183,499 146,580 130,480 NONINTEREST INCOME Card income 11,043 10,329 9,734 Wealth management fees 9,883 9,155 8,384 Service charges on deposit accounts 7,846 7,072 6,080 Mortgage servicing 4,678 2,609 2,825 Mortgage servicing rights fair value adjustment ( 1,615 ) 2,153 1,690 Gains on sale of mortgage loans 1,526 1,461 5,846 Realized gains (losses) on sales of securities ( 1,820 ) — — Unrealized gains (losses) on equity securities 160 ( 414 ) 107 Gains (losses) on foreclosed assets 501 ( 314 ) 310 Gains (losses) on other assets 166 136 ( 723 ) Income on bank owned life insurance 573 164 41 Other noninterest income 3,105 2,366 3,034 Total noninterest income 36,046 34,717 37,328 NONINTEREST EXPENSE Salaries 67,453 51,767 48,972 Employee benefits 10,037 8,325 6,513 Occupancy of bank premises 9,918 7,673 6,788 Furniture and equipment 2,790 2,476 2,676 Data processing 12,352 7,441 7,329 Marketing and customer relations 5,043 3,803 3,376 Amortization of intangible assets 2,670 873 1,054 FDIC insurance 2,280 1,164 1,043 Loan collection and servicing 1,402 1,049 1,317 Foreclosed assets 251 293 908 Other noninterest expense 16,768 20,243 11,270 Total noninterest expense 130,964 105,107 91,246 INCOME BEFORE INCOME TAX EXPENSE 88,581 76,190 76,562 INCOME TAX EXPENSE 22,739 19,734 20,291 NET INCOME $ 65,842 $ 56,456 $ 56,271 EARNINGS PER SHARE - BASIC $ 2.08 $ 1.95 $ 2.02 EARNINGS PER SHARE - DILUTED $ 2.07 $ 1.95 $ 2.02 WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING 31,626,308 28,853,697 27,795,806 See accompanying Notes to Consolidated Financial Statements 79 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Year Ended December 31, (dollars in thousands) 2023 2022 2021 NET INCOME $ 65,842 $ 56,456 $ 56,271 OTHER COMPREHENSIVE INCOME (LOSS) Unrealized gains (losses) on debt securities available-for-sale 16,949 ( 105,459 ) ( 24,798 ) Reclassification adjustment for losses on sale of debt securities available-for-sale realized in income 1,820 — — Reclassification adjustment for amortization of net unrealized losses on debt securities transferred to held-to-maturity 1,954 1,723 687 Unrealized gains on derivative instruments 161 1,183 366 Reclassification adjustment for net settlements on derivative instruments ( 468 ) 126 412 Total other comprehensive income (loss), before tax 20,416 ( 102,427 ) ( 23,333 ) Income tax expense (benefit) 5,820 ( 29,197 ) ( 6,651 ) Total other comprehensive income (loss) 14,596 ( 73,230 ) ( 16,682 ) TOTAL COMPREHENSIVE INCOME (LOSS) $ 80,438 $ ( 16,774 ) $ 39,589 See accompanying Notes to Consolidated Financial Statements 80 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Common Stock Surplus Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Stockholders’ Equity (dollars in thousands, except per share data) Shares Outstanding Amount Balance, December 31, 2020 27,457,306 $ 275 $ 190,875 $ 154,614 $ 18,153 $ — $ 363,917 Net income — — — 56,271 — — 56,271 Other comprehensive loss — — — — ( 16,682 ) — ( 16,682 ) Stock-based compensation — — 764 — — — 764 Issuance of common stock upon vesting of restricted stock units, net of tax withholdings 20,225 — — — — — — Issuance of common stock in NXT acquisition 1,799,016 18 29,252 — — — 29,270 Repurchase of common stock ( 290,486 ) — — — — ( 4,906 ) ( 4,906 ) Cash dividends and dividend equivalents ($ 0.60 per share) — — — ( 16,753 ) — — ( 16,753 ) Balance, December 31, 2021 28,986,061 293 220,891 194,132 1,471 ( 4,906 ) 411,881 Net income — — — 56,456 — — 56,456 Other comprehensive loss — — — — ( 73,230 ) — ( 73,230 ) Stock-based compensation — — 1,949 — — — 1,949 Issuance of common stock upon vesting of restricted stock units, net of tax withholdings 31,944 — ( 57 ) — — — ( 57 ) Repurchase of common stock ( 265,379 ) — — — — ( 4,783 ) ( 4,783 ) Cash dividends and dividend equivalents ($ 0.64 per share) — — — ( 18,584 ) — — ( 18,584 ) Balance, December 31, 2022 28,752,626 293 222,783 232,004 ( 71,759 ) ( 9,689 ) 373,632 Cumulative effect of change in accounting principle (ASU 2016-13) — — — ( 6,922 ) — — ( 6,922 ) Net income — — — 65,842 — — 65,842 Other comprehensive income — — — — 14,596 — 14,596 Stock-based compensation — — 1,953 — — — 1,953 Issuance of common stock upon vesting of restricted stock units, net of tax withholdings 43,607 — ( 181 ) — — — ( 181 ) Issuance of common stock in Town and Country acquisition 3,378,600 34 71,322 — — — 71,356 Repurchase of common stock ( 479,005 ) — — — — ( 8,907 ) ( 8,907 ) Cash dividends and dividend equivalents ($ 0.68 per share) — — — ( 21,873 ) — — ( 21,873 ) Balance, December 31, 2023 31,695,828 $ 327 $ 295,877 $ 269,051 $ ( 57,163 ) $ ( 18,596 ) $ 489,496 See accompanying Notes to Consolidated Financial Statements 81 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, (dollars in thousands) 2023 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 65,842 $ 56,456 $ 56,271 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 3,108 3,043 3,074 Provision for credit losses 7,573 ( 706 ) ( 8,077 ) Net amortization of debt securities 5,730 6,959 7,066 Deferred income tax expense (benefit) 3,817 ( 2,919 ) 2,908 Stock-based compensation 1,953 1,949 764 Net accretion of discount and deferred loan fees on loans ( 7,228 ) ( 5,337 ) ( 12,448 ) Net realized loss on sales of securities 1,820 — — Net unrealized loss (gain) on equity securities ( 160 ) 414 ( 107 ) Net loss (gain) on disposals of bank premises and equipment ( 84 ) ( 9 ) 33 Net gain on sales of bank premises held for sale ( 81 ) ( 187 ) — Impairment losses on bank premises held for sale — 60 661 Net gain on sales of foreclosed assets ( 764 ) ( 118 ) ( 505 ) Write-down of foreclosed assets 263 432 195 Amortization of intangibles 2,670 873 1,054 Decrease (increase) in mortgage servicing rights 1,615 ( 2,153 ) ( 1,690 ) Amortization of discount and issuance costs on subordinated notes and debentures 139 145 144 Amortization of discount on Federal Home Loan Bank advances 379 — ( 105 ) Amortization of premium on interest-bearing time deposits with banks — 5 4 Amortization of premium on time deposits ( 400 ) ( 188 ) ( 81 ) Mortgage loans originated for sale ( 69,663 ) ( 56,240 ) ( 179,921 ) Proceeds from sale of mortgage loans 71,098 62,028 195,538 Net gain on sale of mortgage loans ( 1,526 ) ( 1,461 ) ( 5,846 ) Increase in cash surrender value of bank owned life insurance ( 566 ) ( 164 ) ( 41 ) Decrease (increase) in accrued interest receivable ( 1,915 ) ( 4,605 ) 240 Decrease (increase) in other assets 2,174 ( 8,007 ) 1,676 Increase (decrease) in other liabilities ( 19,965 ) 22,316 ( 17,784 ) Net cash provided by operating activities 65,829 72,586 43,023 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of interest-bearing time deposits with banks 249 485 245 Purchase of interest-bearing time deposits with banks ( 509 ) — — Proceeds from sales of securities available-for-sale 185,280 — — Proceeds from paydowns, maturities, and calls of debt securities 102,625 154,166 213,491 Purchase of securities ( 3,037 ) ( 371,682 ) ( 513,838 ) Purchase of loans ( 61,009 ) — — Net increase in loans ( 81,641 ) ( 113,665 ) ( 50,089 ) Purchase of restricted stock ( 23,832 ) ( 6,151 ) ( 241 ) Proceeds from redemption of restricted stock 27,459 925 796 Purchases of bank premises and equipment ( 3,134 ) ( 1,047 ) ( 1,028 ) Proceeds from sales of bank premises and equipment 222 27 17 Proceeds from sales of bank premises held for sale 351 1,344 — Proceeds from sales of foreclosed assets 4,093 475 5,805 Net cash paid for acquisition of Town and Country ( 14,454 ) — — Net cash paid for acquisition of NXT Bancorporation, Inc. — — ( 4,771 ) Net cash provided by (used in) investing activities 132,663 ( 335,123 ) ( 349,613 ) See accompanying Notes to Consolidated Financial Statements 82 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Year Ended December 31, (dollars in thousands) 2023 2022 2021 CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposits 94,396 ( 150,973 ) 426,146 Net increase (decrease) in repurchase agreements ( 639 ) ( 18,175 ) 11,440 Net increase (decrease) in Federal Home Loan Bank advances ( 234,195 ) 160,000 ( 12,520 ) Taxes paid related to the vesting of restricted stock units ( 181 ) ( 57 ) — Repurchase of common stock ( 8,907 ) ( 4,783 ) ( 4,906 ) Cash dividends and dividend equivalents paid ( 21,873 ) ( 18,584 ) ( 16,753 ) Net cash provided by (used in) financing activities ( 171,399 ) ( 32,572 ) 403,407 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 27,093 ( 295,109 ) 96,817 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 114,159 409,268 312,451 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 141,252 $ 114,159 $ 409,268 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest $ 32,853 $ 6,860 $ 5,928 Cash paid for income taxes $ 20,512 $ 20,035 $ 20,861 SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES Transfers of loans to foreclosed assets $ 1,143 $ 541 $ 4,857 Sales of foreclosed assets through loan origination $ — $ — $ 252 Transfers of bank premises and equipment to bank premises held for sale $ 35 $ — $ 1,345 See accompanying Notes to Consolidated Financial Statements 83 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES HBT Financial, Inc. (“HBT Financial” or the “Company”) is headquartered in Bloomington, Illinois and is the holding company for Heartland Bank and Trust Company (“Heartland Bank” or the “Bank”). The Bank provides a comprehensive suite of financial products and services to individuals, businesses, and municipal entities throughout Illinois and Eastern Iowa. Additionally, the Company is subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory agencies. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Significant accounting policies are summarized below. The Company qualifies as an "emerging growth company" as defined by the Jumpstart Our Business Startups Act (“JOBS Act”). The JOBS Act permits emerging growth companies an extended transition period for complying with new or revised accounting standards affecting public companies. The Company may remain an emerging growth company until the earliest to occur of: (1) the end of the fiscal year following the fifth anniversary of the completion of our initial public offering, which is December 31, 2024, (2) the last day of the fiscal year in which the Company has $1.235 billion or more in annual revenues, (3) the date on which the Company is deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) or (4) the date on which the Company has, during the previous three year period, issued, publicly or privately, more than $1.0 billion in non-convertible debt securities. The Company has elected to use the extended transition period until the Company is no longer an emerging growth company or until the Company chooses to affirmatively and irrevocably opt out of the extended transition period. As a result, the Company’s financial statements may not be comparable to companies that comply with new or revised accounting pronouncements applicable to public companies. Basis of Consolidation The consolidated financial statements of HBT Financial include the accounts of the Company and its wholly owned bank subsidiary, Heartland Bank. Heartland Bank maintains a limited liability company that holds specific assets for risk mitigation purposes and is consolidated into HBT Financial's consolidated financial statements. The Company also has eight wholly owned subsidiaries, Heartland Bancorp, Inc. Capital Trust B; Heartland Bancorp, Inc. Capital Trust C; Heartland Bancorp, Inc. Capital Trust D; FFBI Capital Trust I; National Bancorp Statutory Trust I; Town and Country Statutory Trust II; Town and Country Statutory Trust III; and West Plains Investors Statutory Trust I, which, in accordance with GAAP, are not consolidated as more fully described in Note 13. Significant intercompany transactions and accounts have been eliminated in consolidation. Use of Estimates The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and the reported results of operations for the periods then ended. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for credit losses and fair value of assets acquired and liabilities assumed in business combinations. Business and Significant Concentrations of Credit Risk The Company provides several types of loans to individuals, businesses, and municipal entities, primarily located in its customer service area. Real estate and commercial loans are principal areas of concentration. The 84 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Company also strives to meet the borrowing needs of the consumers in its market areas. Extension of credit is generally limited to the primary trade areas of the Company. Primary deposit products of the Bank are noninterest-bearing and interest-bearing demand accounts, savings accounts, money market accounts, and term certificates of deposit. Cash and Cash Equivalents For purposes of reporting consolidated cash flows, cash and cash equivalents include cash on hand and amounts due from banks, all of which have an original maturity within 90 days or less. Cash flows from loans and deposits are reported net. Interest-Bearing Time Deposits with Banks Interest-bearing time deposits with banks are carried at cost . Debt Securities Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity and are carried at amortized cost. Debt securities not classified as held-to-maturity are classified as available-for-sale. Debt securities available-for-sale are carried at fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss). Realized gains and losses on debt securities available-for-sale are included in noninterest income when applicable and reported as a reclassification adjustment in other comprehensive income (loss). Gains and losses on sales are recorded on the trade date and determined using the specific identification method. Interest income includes amortization of purchase premium or discount. Premiums and discounts on debt securities are amortized on the level-yield method without anticipating prepayments, except for mortgage backed securities where prepayments are anticipated. Premiums on callable debt securities are amortized to their earliest call date. Any transfers of debt securities into the held-to-maturity category from the available-for-sale category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in accumulated other comprehensive income (loss) and in the carrying value of the held-to-maturity securities. Such amounts are amortized over the period to maturity. Allowance for Credit Losses - Debt Securities Available-for-Sale For debt securities available-for-sale in an unrealized loss position, the Company first assesses whether it intends to sell, or if it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security amortized cost basis is written down to fair value through earnings. For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income (loss). Changes in the allowance for credit losses are recorded as provision for credit losses. Losses are charged against the allowance for credit losses when management believes the uncollectibility of a security is confirmed or when either the criteria regarding intent or requirement to sell is met. 85 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Allowance for Credit Losses - Debt Securities Held-to-Maturity For debt securities held-to-maturity, the Company measures expected credit losses on a collective basis by major security type. Held-to-maturity securities are evaluated using historical probability of default and loss given default information specific to the investment category. If this evaluation determines that credit losses exist, an allowance for credit loss is recorded and included in earnings as a component of provision for credit losses. The Company's U.S. government agency and agency mortgage-backed securities are explicitly or implicitly guaranteed by the U.S. government, and as such are excluded from the credit loss evaluation as the expectation of non-payment is zero. Equity Securities Equity securities with readily determinable fair values are measured at fair value with changes in fair value recognized in unrealized gains (losses) on equity securities on the statements of income. The Company has elected to measure its equity securities with no readily determinable fair values at their cost minus impairment, if any, plus or minus charges resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Restricted Stock Restricted stock, which consists of Federal Home Loan Bank of Chicago (“FHLB”) stock, is carried at cost and evaluated for impairment. Loans Held for Sale Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value. The Company obtains quotes or bids on these loans directly from purchasing financial institutions. Typically, these quotes include a premium on sale and thus quotes typically indicate fair value of the held for sale loans is greater than cost. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. Mortgage loans held for sale are generally sold with the mortgage servicing rights retained by the Company. The carrying value of mortgage loans sold is reduced by fair value allocated to the associated mortgage servicing rights. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold. Loans Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost net of the allowance for credit losses. Amortized cost is the unpaid principal balance outstanding, adjusted for charge-offs, net of purchase premiums and discounts, and deferred loan fees and costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. The accrual of interest on loans is discontinued at the time the loan is 90 days past due, unless the credit is well-secured and in process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income if it was accrued during the current year and charged-off against the allowance for credit losses 86 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS if accrued in a prior year. Amortization of related deferred loan fees or costs and any purchase premium or discount is also suspended at this time. The interest on these loans is accounted for on the cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, future payments are reasonably assured, and the borrower must generally demonstrate at least 6 months of payment performance. Purchased Credit Deteriorated Loans Purchased credit deteriorated loans (“PCD loans”) are purchased loans, that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment. An allowance for credit losses is determined using the same methodology as other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of a loan's purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the unpaid principal balance of a loan is a non-credit discount or premium which is amortized into interest income over the life of the loan. Non-Purchased Credit Deteriorated Loans Non-purchased credit deteriorated loans (“non-PCD loans”) are purchased loans, that, as of the date of acquisition, have not experienced a more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment. The loan’s purchase price becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the unpaid principal balance of the loan is a discount or premium, which is comprised of a credit and non-credit component, and is accreted or amortized into interest income over the life of the loan. An allowance for credit losses is determined using the same methodology as other loans held for investment, but no "Day One" allowance for credit losses is established on the date of acquisition. Instead, a subsequent "Day Two" allowance for credit losses for non-PCD loans is recorded through the provision for credit losses, which reflects the estimated lifetime credit losses. Allowance for Credit Losses - Loans The allowance for credit losses for loans is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. The Company’s estimate of the allowance for credit losses for loans reflects losses expected over the remaining contractual life of the loans, considering past events, current conditions, and reasonable and supportable forecasts of future economic conditions. Loans are charged off against the allowance for credit losses when management believes the uncollectibility of a loan balance is confirmed. Recoveries are recognized up to the aggregate amount of previously charged-off balances. The allowance for credit losses is established through provision for credit loss expense charged to income. The allowance for credit losses is measured on a collective (pooled) basis when similar risk characteristics exist. The Company has identified the following portfolio segments: Commercial and Industrial : Consists of loans typically granted for working capital, asset acquisition and other business purposes. These loans are underwritten primarily based on the borrower’s cash flow with most loans secondarily supported by collateral. Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable, inventory, and equipment, and are typically supported by personal guarantees of the owners. Cash flows and collateral values may fluctuate based on general economic conditions, specific industry conditions and specific borrower circumstances. 87 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Commercial Real Estate - Owner Occupied : Consists of loans secured by commercial real estate that is both owned and occupied by the same or a related borrower. These loans are primarily underwritten based on the cash flow of the business occupying the property. As with commercial and industrial loans, cash flows and collateral values may fluctuate based on general economic conditions, specific industry conditions, and specific borrower circumstances. Commercial Real Estate - Non-owner Occupied : Consists of loans secured by commercial real estate for which the primary source of repayment is the sale or rental cash flows from the underlying collateral. These loans are underwritten based primarily on the historic or projected cash flow from the underlying collateral. Adverse economic developments, or an overbuilt market, typically impact commercial real estate projects. Trends in rental and vacancy rates of commercial properties may impact the credit quality of these loans. Construction and Land Development : Consists of loans for speculative and pre-sold construction projects for developers intending to either sell upon completion or hold for long-term investment, as well as construction of projects to be owner occupied. In addition, loans in this segment generally possess a higher inherent risk of loss than other portfolio segments due to risk of non-completion, changes in budgeted costs, and changes in market forces during the term of the construction period. Multi-family : Consists of loans secured by five or more unit apartment buildings. Multi-family loans may be affected by demographic and population trends, unemployment or underemployment, and deteriorating market values of real estate. One-to-four Family Residential : Consists of loans secured by one-to-four family residences, including both first and junior lien mortgage loans for owner occupied and non-owner occupied properties and home equity lines of credit. The degree of risk in residential mortgage lending depends on the local economy, including the local real estate market and unemployment rates. Agricultural and Farmland : Consists of loans typically secured by farmland, agricultural operating assets, or a combination of both, and are generally underwritten to existing cash flows of operating agricultural businesses. Debt repayment is provided by business cash flows. The credit quality of these loans is significantly influenced by changes in prices of corn and soybeans and, to a lesser extent, weather, which has been partially mitigated by federal crop insurance programs. Municipal, Consumer and Other : Loans to municipalities include obligations of municipal entities and loans sponsored by municipal entities for the benefit of a private entity where that private entity, rather than the municipal entity, is responsible for repayment of the obligation. Consumer loans include loans to individuals for consumer purposes and typically consist of small balance loans. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of the consumer loans. Loans to non-depository financial institutions, as well as leases, are also included. The Company uses the discounted cash flow method to estimate expected credit losses for all loan segments, except for consumer loans. Under this method, cash flow projections at the instrument-level are adjusted for estimated prepayments, probability of default, loss given default, and time to recovery. These cash flow projections are discounted at the instrument-level effective yield to calculate the present value of expected cash flows. An allowance for credit losses is established for the difference between a pool's total amortized cost basis and present value of expected cash flows. The Company uses the weighted average remaining maturity method to estimate expected credit losses for consumer loans. Under this method, an expected loss rate is applied to an estimate of future outstanding balance balances of the pool. The Company uses regression analysis of historical internal and peer data to determine which variables are best suited to be economic variables utilized when modeling lifetime probability of default in the discounted cash flow models and loss rates in the weighted average remaining maturity model. The analysis also determines 88 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS how expected probability of default and loss rates will react to forecasted levels of the economic variables. In addition, qualitative adjustments are made for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. Management estimates the allowance for credit losses on loans using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. As historical credit loss experience provides the basis for the estimation of expected credit losses for pooled loans, adjustments may be necessary to capture differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions. Loans that do not share risk characteristics are evaluated on an individual basis. Loan evaluated individually are not also included in the pooled evaluation. When management determines that foreclosure is probable, or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for anticipated selling costs as appropriate. Although management believes the allowance for credit losses to be adequate, ultimate losses may vary from its estimates. At least quarterly, the Allowance for Credit Losses Committee reviews the adequacy of the allowance, including consideration of the relevant risks in the portfolio, current economic conditions and other factors. In addition, the Company’s regulators review the adequacy of the allowance for credit losses and may require additions to the allowance for credit losses based on their judgment about information available at the time of their examinations. Unfunded Lending-related Commitments In the ordinary course of business, the Company has entered into commitments to extend credit, such as lines of credit, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded when they are funded. Allowance for Credit Losses - Unfunded Lending-related Commitments The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on unfunded lending-related commitments is adjusted through provision for credit losses. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credited losses on commitments expected to be funded over its estimated life. Loan Servicing The Company periodically sells mortgage loans on the secondary market with servicing retained. For sales of mortgage loans, a portion of the cost of originating the loan is allocated to the servicing right based on fair value. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds, and default rates and losses. Mortgage servicing rights are carried at fair value on the consolidated balance sheets and changes in fair value are recorded in mortgage servicing rights fair value adjustment on the consolidated statements of income. Bank Owned Life Insurance Bank owned life insurance represents life insurance policies on the lives of certain current and former employees and directors for which the Company is the sole owner and beneficiary. These policies are recorded as an asset in the consolidated balance sheets at their cash surrender value ("CSV") or the current amount that 89 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS could be realized if settled. The change in CSV and insurance proceeds received are included as a component of noninterest income in the consolidated statements of income. Bank Premises and Equipment Land is carried at cost. Bank premises and equipment are carried at cost less accumulated depreciation. Depreciation is computed over the estimated useful lives of the individual assets using the straight-line method. Bank Premises Held for Sale Bank premises held for sale is carried at the lower of cost or fair value less estimated costs to sell. Bank premises classified as held for sale are not depreciated. Impairment of Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of carrying amount or fair value less estimated costs to sell. Lease Obligations The Company leases certain bank premises under non-cancelable operating leases in the normal course of business operations. These lease obligations result in the recognition of right-of-use assets and associated lease contract liabilities. The amount of right-of-use assets and associated lease contract liabilities recorded is based on the present value of future minimum lease payments. The discount rate used is equal to the rate implicit in the lease, when readily determinable, or the Company’s incremental borrowing rate at lease inception, on a collateralized basis over a similar term. Right-of-use assets are included in other assets and lease contract liabilities are included in other liabilities in the consolidated balance sheets and were insignificant as of December 31, 2023 and 2022. Foreclosed Assets When it appears likely that we will obtain title to real estate collateral, we develop an exit strategy by assessing overall market conditions, the current use and condition of the asset, and its highest and best use. If determined necessary to maximize value, we complete the necessary improvements or tenant stabilization tasks, with the applicable time value discount and improvement expenses incorporated into our estimates of the expected costs to sell. Substantially all foreclosed real estate is valued on an "as-is" basis. Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less anticipated selling costs at the date of foreclosure, establishing a new cost basis. For foreclosed real estate, selling costs are generally estimated to be 7.0 % of the fair value. This estimate includes sales commissions and closing costs. Any write-down based on the fair value of the asset at the date of acquisition is charged to the allowance for credit losses. If the fair value of the asset less estimated cost to sell exceeds the recorded investment in the loan at the date of foreclosure, the increase in value is charged to current year operations unless there has been a prior charge-off, in which case a recovery to the allowance for credit losses is recorded. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less estimated cost to sell. Write-downs of foreclosed assets subsequent to foreclosure are charged to current year operations as are gains and losses from sale of foreclosed assets. Costs to maintain and hold foreclosed assets are expensed. 90 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Goodwill and Other Intangible Assets Goodwill represents the excess of the original cost over the fair value of assets acquired and liabilities assumed. Goodwill is not amortized but instead is subject to an annual impairment evaluation. The Company has selected December 31 as the date to perform the annual impairment test. At December 31, 2023 and 2022, the Company’s evaluations of goodwill indicated that goodwill was not impaired. Other identifiable intangible assets consist of core deposit intangible and customer relationship intangible assets with definite useful lives which are being amortized over 10 years. The Company will periodically review the status of core deposit intangible and customer relationship intangible assets for any events or circumstances which may change the recoverability of the underlying basis. Wealth Management Assets and Fees Assets of the wealth management department of the Bank are not included in the consolidated balance sheets as such assets are not assets of the Company or the Bank. Fee income generated from wealth management services is recorded in the consolidated statements of income as a source of noninterest income. Employee Benefit Plans The Company sponsors a profit sharing plan under which the Company may contribute, at the discretion of the Board of Directors, a discretionary amount to all participating employees for the plan year. The Company may also make discretionary matching contributions in an amount up to 5 % of compensation contributed by employees. Stock Based Compensation The Company recognizes compensation cost over the requisite service period, if any, which is generally defined as the vesting period. For awards classified as equity, compensation cost is based on the fair value of the awards on the grant date. For awards classified as liabilities, compensation cost also includes subsequent remeasurements of the fair value of the awards until the award is settled. The Company’s policy is to recognize forfeitures as they occur. Transfers of Financial Assets and Participating Interests Transfers of an entire financial asset or a participating interest in an entire financial asset are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. The transfer of a participating interest in an entire financial asset must also meet the definition of a participating interest. A participating interest in a financial asset has all of the following characteristics: (1) from the date of transfer, it must represent a proportionate (pro rata) ownership interest in the financial asset, (2) from the date of transfer, all cash flows received, except any cash flows allocated as any compensation for servicing or other services performed, must be divided proportionately among participating interest holders in the amount equal to their share ownership, (3) the rights of each participating interest holder must have the same priority, and (4) no party has the right to pledge or exchange the entire financial asset unless all participating interest holders agree to do so. Advertising Costs Advertising costs are expensed as incurred. 91 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Income Taxes Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. With regard to uncertain tax matters, the Company recognizes in the consolidated financial statements the impact of a tax position taken, or expected to be taken, if it is more likely than not that the position will be sustained on audit based on the technical merit of the position. Management has analyzed the tax positions taken by the Company and concluded as of December 31, 2023 and 2022, there are no material uncertain tax positions taken or expected to be taken that require recognition of a liability or disclosure in the consolidated financial statements. When applicable, the Company recognizes interest accrued related to unrecognized tax benefits and penalties in operating expenses. Derivative Financial Instruments As part of the Company’s asset/liability management, the Company may use interest rate swaps to hedge various exposures or to modify interest rate characteristics of various balance sheet accounts. Derivatives that are used as part of the asset/liability management process are linked to specific assets or liabilities, or pools of assets or liabilities, and have high correlation between the contract and the underlying item being hedged, both at inception and throughout the hedge period. All derivatives are recognized on the consolidated balance sheet at their fair value. On the date the derivative contract is entered into, the Company may designate the derivative as a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability "cash flow" hedge. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash-flow hedge are recorded in other comprehensive income (loss), until earnings are affected by the variability of cash flows (e.g., when periodic settlements on a variable-rate asset or liability are recorded in earnings). The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedged transactions. This process includes linking all derivatives that are designated as cash flow hedges to specific assets and liabilities on the balance sheet or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively. The Company discontinues hedge accounting prospectively when (a) it is determined that the derivative is no longer highly effective in offsetting changes in the cash flows of a hedged item (including forecasted transactions); (b) the derivative expires or is sold, terminated, or exercised; (c) the derivative is dedesignated as a hedge instrument, because it is unlikely that a forecasted transaction will occur; or (d) management determines that designation of the derivative as a hedge instrument is no longer appropriate. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the derivative will continue to be carried on the consolidated balance sheet at its fair value, and gains and losses that were accumulated in other comprehensive income (loss) will be recognized immediately in earnings. In all other situations in which hedge accounting is discontinued, the derivative will be carried at its fair value on the balance sheet, with subsequent changes in its fair value recognized in current-period earnings. Comprehensive Income (Loss) Accounting principles generally require that recognized revenue, expenses, gains, and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on securities available-for-sale and interest rate swap agreements designated as cash flow hedges, are reported as a 92 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS separate component of the equity section of the consolidated balance sheets, such items, along with net income, are components of comprehensive income (loss). During 2019, in recording the impact of the conversion to a C Corporation, the Company recorded a deferred income tax expense of $ 3.0 million related to the unrealized gains (losses) on debt securities, and a deferred income tax benefit of $ 0.3 million related to derivatives, through the income statement in accordance with ASC 740, Income Taxes . This difference will remain in accumulated other comprehensive income (loss) until the underlying debt securities are sold or mature or the underlying cash flow hedging relationships terminate in accordance with the portfolio approach. Fair Value of Financial Instruments Fair value of financial instruments is estimated using relevant market information and other assumptions, as more fully disclosed in Note 21 - Fair Value of Financial Instruments. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates. Revenue from Contracts with Customers ASC 606, Revenue from Contracts with Customers , requires an entity to recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. To achieve this, the Company takes the following steps: identify the contract(s) with a customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; and recognize revenue when (or as) the Company satisfies a performance obligation. The noninterest revenue streams that are considered to be in the scope of this guidance are discussed below. Card income: Consists of debit and credit card interchange fees. For debit and credit card transactions, the Company considers the merchant as the customer for interchange revenue with the performance obligation being satisfied when the cardholder purchases goods or services from the merchant. Interchange revenue is recognized as the services are provided. Payment is typically received daily. Wealth management fees: Consists of revenue from the management and advisement of client assets and trust administration. The Company’s performance obligation is generally satisfied over time, and the fees are recognized monthly. Payment is typically received quarterly or annually. Service charges on deposit accounts: Consists of account analysis fees, monthly service fees, and other deposit account related fees. The Company’s performance obligation account analysis fees and monthly service fees are ongoing and either party may cancel at any time. These fees are generally recognized as the services are rendered on a monthly basis. Payment is typically received monthly. Other deposit account related fees are largely transaction based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for other deposit account related fees is primarily received immediately through a direct charge to customers’ accounts. 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. 93 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Reclassifications Certain prior period amounts have been reclassified to conform to the current period presentation without any impact on the reported amounts of net income or stockholders’ equity. Subsequent Events In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the consolidated financial statements were issued. Impact of Recently Adopted Accounting Standards On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , as amended, which replaces the incurred loss methodology with an expected loss methodology, commonly referred to as the current expected credit losses (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and debt securities held-to-maturity. It also applies to off-balance sheet credit exposures not accounted for as insurance, such as loan commitments and letters of credit. In addition, ASC 326 made changes to the accounting for debt securities available-for-sale. One such change is to require credit losses be presented as an allowance rather than as a write-down on debt securities available-for-sale management does not intend to sell or believes that it is more likely than not they will be required to sell. 94 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after December 31, 2022 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease to retained earnings of $ 6.9 million as of January 1, 2023 for the cumulative effect of adopting ASC 326. The following table illustrates the impact of ASC 326 on the allowance for credit losses: January 1, 2023 (dollars in thousands) Pre-ASC 326 Adoption Impact of ASC 326 Adoption As Reported under ASC 326 Assets: Allowance for credit losses on loans Commercial and industrial $ 3,279 $ ( 822 ) $ 2,457 Commercial real estate - owner occupied 1,193 587 1,780 Commercial real estate - non-owner occupied 6,721 501 7,222 Construction and land development 4,223 1,969 6,192 Multi-family 1,472 85 1,557 One-to-four family residential 1,759 797 2,556 Agricultural and farmland 796 1,567 2,363 Municipal, consumer, and other 5,890 2,299 8,189 Allowance for credit losses on loans $ 25,333 $ 6,983 $ 32,316 Liabilities: Allowance for credit losses on unfunded commitments $ — $ 2,899 $ 2,899 The Company also adopted ASC 326 using the prospective transition approach for purchase credit deteriorated (“PCD”) financial assets that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30. In accordance with ASC 326, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2023, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $ 0.2 million to the allowance for credit losses. The remaining noncredit discount will be accreted into interest income at the effective interest rate as of January 1, 2023. On January 1, 2023, the Company also adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures . ASU 2022-02 eliminates the recognition and measurement guidance for troubled debt restructurings (“TDRs”) by creditors in ASC 310-40. This ASU also enhances disclosure requirements for certain loan restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity will apply refinancing and restructuring guidance to determine whether a modification or other form of restructuring results in a new loan or a continuation of an existing loan. Additionally, the amendments in ASU 2022-02 require a public business entity to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases in the existing vintage disclosures. This standard did not have a material impact on the Company’s consolidated results of operations or financial position. 95 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform, if certain criteria are met. In January 2021, the FASB also issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which refined the scope for certain optional expedients and exceptions for contract modifications and hedge accounting to apply to derivative contracts and certain hedging relationships affected by the discounting transition. Entities may apply the provisions as of the beginning of the reporting period when the election is made and are available until December 31, 2024. Adoption of this standard did not have a material impact on the Company’s financial position or results of operations. Recent Accounting Pronouncements In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method . ASU 2022-01 replaces the current last-of-layer hedge accounting method with an expanded portfolio layer method that permits multiple hedged layers of a single closed portfolio. The scope of the portfolio layer method is also expanded to include non-prepayable financial assets. ASU 2022-01 also provides additional guidance on the accounting for and disclosure of hedge basis adjustments that are applicable to the portfolio layer method, and specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. Amendments related to hedge basis adjustments which are included in this standard apply on a modified retrospective basis by means of a cumulative-effect adjustment to the opening balance of retained earnings on the initial application date. Amendments related to disclosure which are included in this standard may be applied on a prospective basis from the initial application date, or on a retrospective basis to each prior period presented after the date of adoption of the amendments in ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities . The amendments in this update are effective for years beginning after December 15, 2023, including interim periods within those years. Early adoption is permitted. This standard is not expected to have a material impact on the Company’s consolidated results of operations or financial position. In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions . ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value and that contractual sale restrictions cannot be recognized and measured as a separate unit of account. The amendments in this update are effective for years beginning after December 15, 2023, including interim periods within those years. This standard is not expected to have a material impact on the Company’s consolidated results of operations or financial position. In March 2023, the FASB issued ASU 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force) . ASU 2023-02 permits an election to use the proportional amortization method to account for equity investments made primarily for the purpose of receiving income tax credits and other income tax benefits, regardless of the tax credit program from which the income tax credits are received, provided that certain conditions are met. The proportional amortization method results in the cost of the investment being amortized in proportion to the income tax credits and other income tax benefits received, with the amortization of the investment and the income tax credits being presented net in the income statement as a component of income tax expense. The amendments in this update are effective for years beginning after December 15, 2023, including interim periods within those years. ASU 2023-02 must be applied on a retrospective or modified retrospective basis. Early adoption is permitted. This standard is not expected to have a material impact on the Company’s consolidated results of operations or financial position. 96 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 expands disclosure requirements for significant segment expenses under Topic 280. The amendments require public entities to disclose significant expense categories for each reportable segment, other segment items, the title and position of the chief operating decision-maker, and interim disclosures of certain segment-related information previously required only on an annual basis. The amendments clarify that entities reporting single segments must disclose both the new and existing segment disclosures under Topic 280, and a public entity is permitted to disclose multiple measures of segment profit or loss if certain criteria are met. The amendments in this update are effective for years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 31, 2024. ASU 2023-07 must be applied on a retrospective basis. Early adoption is permitted. This standard is not expected to have a material impact on the Company’s consolidated results of operations or financial position. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . ASU 2023-09 expands income tax disclosure requirements. The amendments require annual disclosure of certain information relating to the rate reconciliation, income taxes paid by jurisdiction, income (loss) from continuing operations before income tax expense (benefit) disaggregated between domestic and foreign, income tax expense (benefit) from continuing operations disaggregated by federal (national), state, and foreign. The amendments also eliminate certain requirements relating to unrecognized tax benefits and certain deferred tax disclosure relating to subsidiaries and corporate joint ventures. The amendments in this update are effective for years beginning after December 15, 2024. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. Early adoption is permitted. This standard is not expected to have a material impact on the Company’s consolidated results of operations or financial position. 97 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 – ACQUISITIONS Town and Country Financial Corporation On February 1, 2023, HBT Financial acquired 100 % of the issued and outstanding common stock of Town and Country Financial Corporation (“Town and Country”), the holding company for Town and Country Bank, pursuant to an Agreement and Plan of Merger dated August 23, 2022. Under the Agreement and Plan of Merger, Town and Country merged with and into HBT Financial, with HBT Financial as the surviving entity, immediately followed by the merger of Town and Country Bank with and into Heartland Bank, with Heartland Bank as the surviving entity. At the effective time of the merger, each share of Town and Country was converted into the right to receive, subject to the election and proration procedures as provided in the Merger Agreement, one of the following: (i) 1.9010 shares of HBT Financial’s common stock, or (ii) $ 35.66 in cash, or (iii) a combination of cash and HBT Financial common stock. Total consideration consisted of 3,378,600 shares of HBT Financial’s common stock and $ 38.0 million in cash. In lieu of fractional shares, holders of Town and Country common stock received cash. Based upon the closing price of HBT Financial common stock of $ 21.12 on February 1, 2023, the aggregate transaction value was approximately $ 109.4 million. This transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair values on the date of acquisition. Fair values are subject to refinement for up to one year after the closing date of February 1, 2023. Measurement period adjustments of $ 0.1 million were recorded in the third quarter of 2023 as more information became available regarding Town and Country's tax assets and liabilities. Goodwill of $ 30.5 million was recorded in the acquisition, which reflects expected synergies from combining the operations of HBT Financial and Town and Country, and is nondeductible for tax purposes. The acquisition of Town and Country further enhanced HBT Financial’s footprint in Central Illinois, and expanded our footprint into metro-east St. Louis. During the years ended December 31, 2023 and 2022, HBT Financial incurred the following expenses related to the acquisition of Town and Country: Year Ended (dollars in thousands) December 31, 2023 December 31, 2022 PROVISION FOR CREDIT LOSSES $ 5,924 $ — NONINTEREST EXPENSE Salaries 3,584 — Furniture and equipment 39 — Data processing 2,031 304 Marketing and customer relations 24 — Loan collection and servicing 125 — Legal fees and other noninterest expense 1,964 788 Total noninterest expense 7,767 1,092 Total Town and Country acquisition-related expenses $ 13,691 $ 1,092 98 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The fair value of the assets acquired and liabilities assumed from Town and Country on the acquisition date of February 1, 2023 were as follows (dollars in thousands): Fair Value Assets acquired: Cash and cash equivalents $ 23,542 Interest-bearing time deposits with banks 249 Debt securities 167,869 Equity securities 301 Restricted stock 2,822 Loans held for sale 1,612 Loans, before allowance for credit losses 635,376 Allowance for credit losses ( 1,247 ) Loans, net of allowance for credit losses 634,129 Bank owned life insurance 15,782 Bank premises and equipment 14,828 Foreclosed assets 271 Intangible assets 22,282 Mortgage servicing rights 10,469 Investments in unconsolidated subsidiaries 449 Accrued interest receivable 3,113 Other assets 8,940 Total assets acquired 906,658 Liabilities assumed: Deposits 720,417 FHLB advances 86,439 Junior subordinated debentures 14,949 Other liabilities 5,999 Total liabilities assumed 827,804 Net assets acquired $ 78,854 Consideration paid: Cash $ 37,996 Common stock 71,356 Total consideration paid $ 109,352 Goodwill $ 30,498 99 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Of the loans acquired, there were $ 89.8 million which exhibited more-than-insignificant credit deterioration on the acquisition date. The following table provides a summary of these PCD loans at acquisition (dollars in thousands): Unpaid principal balance $ 89,822 Allowance for credit losses at acquisition ( 1,247 ) Non-credit discount ( 2,218 ) Purchase price $ 86,357 Additionally, subsequent to the Town and Country acquisition, HBT Financial recognized an allowance for credit losses on non-PCD loans of $ 5.2 million and an allowance for credit losses on unfunded commitments of $ 0.7 million through an increase to the provision for credit losses. The following table provides the pro forma information for the results of operations for the years ended December 31, 2023 and 2022, as if the acquisition of Town and Country had occurred on January 1, 2022. The pro forma results combine the historical results of Town and Country into HBT Financial’s consolidated statements of income, including the impact of certain acquisition accounting adjustments, which include loan discount accretion, intangible assets amortization, deposit premium amortization, and borrowing premium amortization. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results that would have been obtained had the acquisition actually occurred on January 1, 2022. No assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, provision for credit losses, expense efficiencies or asset dispositions. The acquisition-related expenses that have been recognized are included in net income in the following table. Pro Forma Year Ended December 31, (dollars in thousands, except per share data) 2023 2022 Total revenues (net interest income and noninterest income) $ 230,171 $ 226,229 Net income 66,056 68,417 Earnings per share - basic 2.07 2.12 Earnings per share - diluted 2.06 2.12 100 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NXT Bancorporation, Inc. On October 1, 2021, HBT Financial acquired 100 % of the issued and outstanding common stock of NXT Bancorporation, Inc. (“NXT”), the holding company for NXT Bank, pursuant to an Agreement and Plan of Merger dated June 7, 2021. Under the Agreement and Plan of Merger, NXT merged with and into HBT Financial, with HBT Financial as the surviving entity, on October 1, 2021. Additionally, NXT Bank was merged with and into Heartland Bank, with Heartland Bank as the surviving entity, in December 2021. At the effective time of the merger, each share of NXT was converted into the right to receive 67.6783 shares of HBT Financial common stock, cash in lieu of fractional shares, and $ 400 in cash. There were 1,799,016 shares of HBT Financial common stock issued at the effective time of the acquisition with an aggregate market value of $ 29.3 million, based on the closing stock price of $ 16.27 on October 1, 2021. This transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged was recorded at estimated fair values on the date of acquisition. Goodwill of $ 5.7 million was recorded in the acquisition, which reflects expected synergies from combining the operations of HBT Financial and NXT, and is nondeductible for tax purposes. The acquisition of NXT provided an opportunity to utilize Heartland Bank’s excess liquidity at the time of acquisition to replace NXT Bank’s higher-cost funding. Additionally, Heartland Bank’s broader range of products and services, as well as a greater ability to meet larger borrowing needs, has provided an opportunity to expand NXT Bank’s customer relationships. During the year ended December 31, 2021, HBT Financial incurred the following expenses related to the acquisition of NXT (dollars in thousands): Salaries $ 65 Furniture and equipment 18 Data processing 355 Marketing and customer relations 12 Loan collection and servicing 11 Legal fees and other noninterest expense 955 Total NXT acquisition-related expenses $ 1,416 101 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The fair value of the assets acquired and liabilities assumed from NXT on the acquisition date were as follows (dollars in thousands): 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. 102 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – SECURITIES Debt Securities The amortized cost and fair values of debt securities, with gross unrealized gains and losses and allowance for credit losses, are as follows: December 31, 2023 (dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair Value Available-for-sale: U.S. Treasury $ 159,715 $ — $ ( 11,093 ) $ — $ 148,622 U.S. government agency 55,359 — ( 3,262 ) — 52,097 Municipal 229,030 26 ( 23,499 ) — 205,557 Mortgage-backed: Agency residential 188,641 61 ( 14,718 ) — 173,984 Agency commercial 141,214 3 ( 14,205 ) — 127,012 Corporate 57,665 9 ( 5,485 ) — 52,189 Total available-for-sale $ 831,624 $ 99 $ ( 72,262 ) $ — $ 759,461 December 31, 2023 (dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Allowance for Credit Losses Held-to-maturity: U.S. government agency $ 88,448 $ — $ ( 8,292 ) $ 80,156 $ — Municipal 38,442 394 ( 163 ) 38,673 — Mortgage-backed: Agency residential 95,828 — ( 5,569 ) 90,259 — Agency commercial 298,721 — ( 41,313 ) 257,408 — Total held-to-maturity $ 521,439 $ 394 $ ( 55,337 ) $ 466,496 $ — 103 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 (dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available-for-sale: U.S. Treasury $ 169,860 $ — $ ( 15,345 ) $ 154,515 U.S. government agency 59,291 — ( 4,134 ) 55,157 Municipal 275,972 46 ( 32,189 ) 243,829 Mortgage-backed: Agency residential 213,676 5 ( 18,240 ) 195,441 Agency commercial 150,060 — ( 17,172 ) 132,888 Corporate 65,597 55 ( 3,958 ) 61,694 Total available-for-sale $ 934,456 $ 106 $ ( 91,038 ) $ 843,524 December 31, 2022 (dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Held-to-maturity: U.S. government agency $ 88,424 $ — $ ( 9,728 ) $ 78,696 Municipal 42,167 195 ( 314 ) 42,048 Mortgage-backed: Agency residential 102,728 — ( 6,470 ) 96,258 Agency commercial 308,281 — ( 46,482 ) 261,799 Total held-to-maturity $ 541,600 $ 195 $ ( 62,994 ) $ 478,801 On March 31, 2022, the Company transferred certain debt securities from the available-for-sale category to the held-to-maturity category in order to better reflect the revised intentions of the Company due to possible market value volatility, resulting from a potential rise in interest rates. The following is a summary of the amortized cost and fair value of securities transferred to the held-to-maturity category: March 31, 2022 (dollars in thousands) Amortized Cost Fair Value U.S. government agency $ 78,841 $ 71,048 Mortgage-backed: Agency residential 8,175 7,651 Agency commercial 27,834 25,432 Total $ 114,850 $ 104,131 The debt securities were transferred between categories at fair value, with the transfer date fair value becoming the new amortized cost for each security transferred. The unrealized gain (loss), net of tax, at the date of transfer remains a component of accumulated other comprehensive income (loss), but will be amortized over the remaining life of the debt securities as an adjustment of yield in a manner consistent with amortization of any premium or discount. As a result, the amortization of an unrealized gain (loss) reported in accumulated other comprehensive income (loss) will offset or mitigate the effect on interest income of the amortization of the premium or discount for that held-to-maturity debt security. 104 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2023 and 2022, the Bank had debt securities with a carrying value of $ 419.4 million and $ 332.6 million, respectively, which were pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes required or permitted by law. The amortized cost and fair value of debt securities by contractual maturity, as of December 31, 2023, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Available-for-Sale Held-to-Maturity (dollars in thousands) Amortized Cost Fair Value Amortized Cost Fair Value Due in 1 year or less $ 46,534 $ 45,564 $ 2,138 $ 2,141 Due after 1 year through 5 years 208,581 196,431 35,590 34,269 Due after 5 years through 10 years 199,695 174,573 83,488 77,094 Due after 10 years 46,959 41,897 5,674 5,325 Mortgage-backed: Agency residential 188,641 173,984 95,828 90,259 Agency commercial 141,214 127,012 298,721 257,408 Total $ 831,624 $ 759,461 $ 521,439 $ 466,496 The following table presents gross unrealized losses and fair value of debt securities available-for-sale that do not have an associated allowance for credit losses as of December 31, 2023, aggregated by category and length of time that individual debt securities have been in a continuous unrealized loss position: December 31, 2023 Investments in a Continuous Unrealized Loss Position Less than 12 Months 12 Months or More Total (dollars in thousands) Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Available-for-sale: U.S. Treasury $ — $ — $ ( 11,093 ) $ 148,622 $ ( 11,093 ) $ 148,622 U.S. government agency ( 2 ) 168 ( 3,260 ) 51,910 ( 3,262 ) 52,078 Municipal ( 26 ) 4,749 ( 23,473 ) 194,287 ( 23,499 ) 199,036 Mortgage-backed: Agency residential ( 163 ) 9,354 ( 14,555 ) 156,785 ( 14,718 ) 166,139 Agency commercial ( 26 ) 3,016 ( 14,179 ) 123,404 ( 14,205 ) 126,420 Corporate ( 414 ) 4,361 ( 5,071 ) 45,826 ( 5,485 ) 50,187 Total available-for-sale $ ( 631 ) $ 21,648 $ ( 71,631 ) $ 720,834 $ ( 72,262 ) $ 742,482 105 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents gross unrealized losses and fair value of debt securities, aggregated by category and length of time that individual debt securities have been in a continuous unrealized loss position, as of December 31, 2022: December 31, 2022 Investments in a Continuous Unrealized Loss Position Less than 12 Months 12 Months or More Total (dollars in thousands) Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Available-for-sale: U.S. Treasury $ ( 8,401 ) $ 92,445 $ ( 6,944 ) $ 62,070 $ ( 15,345 ) $ 154,515 U.S. government agency ( 2,980 ) 47,370 ( 1,154 ) 7,787 ( 4,134 ) 55,157 Municipal ( 10,906 ) 149,261 ( 21,283 ) 87,794 ( 32,189 ) 237,055 Mortgage-backed: Agency residential ( 8,332 ) 127,288 ( 9,908 ) 65,692 ( 18,240 ) 192,980 Agency commercial ( 4,764 ) 62,672 ( 12,408 ) 70,216 ( 17,172 ) 132,888 Corporate ( 2,594 ) 52,190 ( 1,364 ) 5,600 ( 3,958 ) 57,790 Total available-for-sale ( 37,977 ) 531,226 ( 53,061 ) 299,159 ( 91,038 ) 830,385 Held-to-maturity: U.S. government agency ( 1,754 ) 15,751 ( 7,974 ) 62,945 ( 9,728 ) 78,696 Municipal ( 314 ) 23,433 — — ( 314 ) 23,433 Mortgage-backed: Agency residential ( 4,039 ) 78,452 ( 2,431 ) 17,806 ( 6,470 ) 96,258 Agency commercial ( 16,716 ) 103,298 ( 29,766 ) 158,501 ( 46,482 ) 261,799 Total held-to-maturity ( 22,823 ) 220,934 ( 40,171 ) 239,252 ( 62,994 ) 460,186 Total debt securities $ ( 60,800 ) $ 752,160 $ ( 93,232 ) $ 538,411 $ ( 154,032 ) $ 1,290,571 As of December 31, 2023, there were 665 debt securities in an unrealized loss position for a period of twelve months or more, and 116 debt securities in an unrealized loss position for a period of less than twelve months. U.S. Treasury, U.S. government agency, and agency mortgage-backed securities are considered to have no risk of credit loss as they are either explicitly or implicitly guaranteed by the U.S. government. The changes in fair value in these portfolios are considered to be primarily driven by changes in market interest rates and other non-credit risks, such as prepayment and liquidity risks. Municipal securities include approximately 79 % general obligation bonds as of December 31, 2023, which have a very low historical default rate due to issuers generally having taxing authority to service the debt. The remainder of the municipal securities are also of high credit quality with ratings of A1/A+ or better. The Company evaluates credit risk through monitoring credit ratings and reviews of available financial data. The changes in fair value in these portfolios are considered to be primarily driven by changes in market interest rates and other non-credit risks, such as call and liquidity risks. The estimated allowance for credit losses for the municipal debt securities held-to-maturity was deemed insignificant. 106 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Corporate securities include investment grade corporate and bank subordinated debt securities. The Company evaluates credit risk through monitoring credit ratings, reviews of available issuer financial data, and sector trends. The changes in fair value in corporate securities was considered to be primarily driven by changes in market interest rates and other non-credit risks, such as call and liquidity risks. As of December 31, 2023, the Company did not intend to sell the debt securities that are in an unrealized loss position, and it was more likely than not that the Company would recover the amortized cost prior to being required to sell the debt securities. Accrued interest on debt securities totaled $ 6.0 million as of December 31, 2023 and is excluded from the estimate of credit losses. Sales of debt securities were as follows during the year ended December 31: Year Ended December 31, (dollars in thousands) 2023 2022 2021 Proceeds from sales $ 185,280 $ — $ — Gross realized gains — — — Gross realized losses ( 1,820 ) — — Subsequent to December 31, 2023, the Company recognized $ 3.4 million of net losses on the sale of $ 66.8 million of municipal securities with the proceeds used to reduce wholesale funding. Equity Securities Equity securities with readily determinable fair values are measured at fair value with changes in fair value recognized in unrealized gains (losses) on equity securities on the consolidated statements of income. The Company has elected to measure equity securities with no readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes for identical or similar securities of the same issuer. The initial cost and carrying values of equity securities, with cumulative net unrealized gains and losses are as follows: December 31, 2023 (dollars in thousands) Readily Determinable Fair Value No Readily Determinable Fair Value Initial cost $ 3,143 $ 2,840 Cumulative net unrealized gains (losses) 217 ( 335 ) Carrying value $ 3,360 $ 2,505 December 31, 2022 (dollars in thousands) Readily Determinable Fair Value No Readily Determinable Fair Value Initial cost $ 3,142 $ 2,142 Cumulative net unrealized gains (losses) ( 113 ) ( 165 ) Carrying value $ 3,029 $ 1,977 107 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2023, the cumulative net unrealized losses on equity securities with no readily determinable fair value reflect impairments of $ 0.2 million and downward adjustments based on observable price changes of an identical investment of $ 0.2 million. As of December 31, 2022, the cumulative net unrealized losses on equity securities with no readily determinable fair value reflect downward adjustments based on observable price changes of an identical investment. There have been no upward adjustments based on observable price changes to equity securities with no readily determinable fair value. There were no sales of equity securities during the years ended December 31, 2023, 2022 and 2021. Unrealized gains (losses) on equity securities were as follows during the years ended December 31, 2023, 2022, and 2021: Year Ended December 31, (dollars in thousands) 2023 2022 2021 Readily determinable fair value $ 330 $ ( 414 ) $ 107 No readily determinable fair value ( 170 ) — — Unrealized gains (losses) on equity securities $ 160 $ ( 414 ) $ 107 108 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 – LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES Major categories of loans are summarized as follows: (dollars in thousands) December 31, 2023 December 31, 2022 Commercial and industrial $ 427,800 $ 266,757 Commercial real estate - owner occupied 295,842 218,503 Commercial real estate - non-owner occupied 880,681 713,202 Construction and land development 363,983 360,824 Multi-family 417,923 287,865 One-to-four family residential 491,508 338,253 Agricultural and farmland 287,294 237,746 Municipal, consumer, and other 239,386 197,103 Loans, before allowance for credit losses 3,404,417 2,620,253 Allowance for credit losses ( 40,048 ) ( 25,333 ) Loans, net of allowance for credit losses $ 3,364,369 $ 2,594,920 Allowance for Credit Losses Management estimates the allowance for credit losses using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The discounted cash flow method is used to estimate expected credit losses for all loan categories, except for consumer loans where the weighted average remaining maturity method is utilized. At December 31, 2023, the economic forecast used by management anticipates a mild recession in 2024, with the unemployment rate increasing modestly and GDP growth slowing and then shrinking over the next 4 quarters considered in the forecast period. After the forecast period, the Company reverts to long-term averages over a 4-quarter reversion period. Additionally, management has made qualitative adjustments to the loss estimates to reflect other factors that influence credit losses. 109 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables detail activity in the allowance for credit losses: (dollars in thousands) Commercial and Industrial Commercial Real Estate Owner Occupied Commercial Real Estate Non-owner Occupied Construction and Land Development Multi-Family One-to-four Family Residential Agricultural and Farmland Municipal, Consumer, and Other Total Balance, December 31, 2020 $ 3,929 $ 3,141 $ 11,251 $ 4,232 $ 1,957 $ 1,801 $ 793 $ 4,734 $ 31,838 Provision for loan losses ( 1,474 ) ( 1,280 ) ( 3,130 ) 340 ( 694 ) ( 472 ) 52 ( 1,419 ) ( 8,077 ) Charge-offs ( 668 ) ( 30 ) — — — ( 267 ) — ( 449 ) ( 1,414 ) Recoveries 653 9 24 342 — 249 — 312 1,589 Balance, December 31, 2021 $ 2,440 $ 1,840 $ 8,145 $ 4,914 $ 1,263 $ 1,311 $ 845 $ 3,178 $ 23,936 Provision for loan losses 88 ( 1,653 ) ( 1,707 ) ( 692 ) 209 146 ( 49 ) 2,952 ( 706 ) Charge-offs ( 23 ) ( 25 ) — — — ( 67 ) — ( 569 ) ( 684 ) Recoveries 774 1,031 283 1 — 369 — 329 2,787 Balance, December 31, 2022 $ 3,279 $ 1,193 $ 6,721 $ 4,223 $ 1,472 $ 1,759 $ 796 $ 5,890 $ 25,333 Adoption of ASC 326 ( 822 ) 587 501 1,969 85 797 1,567 2,299 6,983 PCD allowance established in acquisition 69 127 239 240 68 492 5 7 1,247 Provision for loan losses 2,823 352 187 ( 487 ) 1,931 2,004 ( 1,399 ) 1,254 6,665 Charge-offs ( 428 ) ( 5 ) ( 202 ) — — ( 34 ) — ( 690 ) ( 1,359 ) Recoveries 59 18 268 53 281 186 6 308 1,179 Balance, December 31, 2023 $ 4,980 $ 2,272 $ 7,714 $ 5,998 $ 3,837 $ 5,204 $ 975 $ 9,068 $ 40,048 110 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Gross charge-offs, further sorted by origination year, were as follows during the year ended December 31, 2023: Gross Charge-Offs for the Year Ended December 31, 2023 Term Loans by Origination Year Revolving Loans Revolving Loans Converted to Term Total (dollars in thousands) 2023 2022 2021 2020 2019 Prior Commercial and industrial $ — $ — $ — $ — $ — $ — $ 428 $ — $ 428 Commercial real estate - owner occupied — 5 — — — — — — 5 Commercial real estate - non-owner occupied — — — — 31 — 171 — 202 Construction and land development — — — — — — — — — Multi-family — — — — — — — — — One-to-four family residential — — — — 1 33 — — 34 Agricultural and farmland — — — — — — — — — Municipal, consumer, and other 309 100 13 17 10 32 209 — 690 Total $ 309 $ 105 $ 13 $ 17 $ 42 $ 65 $ 808 $ — $ 1,359 111 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables present loans and the related allowance for credit losses by category: December 31, 2023 (dollars in thousands) Commercial and Industrial Commercial Real Estate Owner Occupied Commercial Real Estate Non-owner Occupied Construction and Land Development Multi-Family One-to-four Family Residential Agricultural and Farmland Municipal, Consumer, and Other Total Loan balances: Collectively evaluated for impairment $ 427,528 $ 295,672 $ 865,394 $ 363,767 $ 417,608 $ 486,049 $ 287,150 $ 224,345 $ 3,367,513 Individually evaluated for impairment 272 170 15,287 216 315 5,459 144 15,041 36,904 Total $ 427,800 $ 295,842 $ 880,681 $ 363,983 $ 417,923 $ 491,508 $ 287,294 $ 239,386 $ 3,404,417 Allowance for credit losses: Collectively evaluated for impairment $ 4,960 $ 2,272 $ 6,693 $ 5,998 $ 3,837 $ 4,957 $ 975 $ 6,137 $ 35,829 Individually evaluated for impairment 20 — 1,021 — — 247 — 2,931 4,219 Total $ 4,980 $ 2,272 $ 7,714 $ 5,998 $ 3,837 $ 5,204 $ 975 $ 9,068 $ 40,048 December 31, 2022 (dollars in thousands) Commercial and Industrial Commercial Real Estate Owner Occupied Commercial Real Estate Non-owner Occupied Construction and Land Development Multi-Family One-to-four Family Residential Agricultural and Farmland Municipal, Consumer, and Other Total Loan balances: Collectively evaluated for impairment $ 261,833 $ 203,558 $ 671,663 $ 359,892 $ 287,298 $ 325,621 $ 233,118 $ 184,579 $ 2,527,562 Individually evaluated for impairment 4,818 11,366 30,509 82 — 8,399 4,033 12,508 71,715 Acquired with deteriorated credit quality 106 3,579 11,030 850 567 4,233 595 16 20,976 Total $ 266,757 $ 218,503 $ 713,202 $ 360,824 $ 287,865 $ 338,253 $ 237,746 $ 197,103 $ 2,620,253 Allowance for loan losses: Collectively evaluated for impairment $ 3,121 $ 1,008 $ 4,332 $ 4,221 $ 1,470 $ 1,709 $ 796 $ 2,327 $ 18,984 Individually evaluated for impairment 158 168 2,388 — — 44 — 3,562 6,320 Acquired with deteriorated credit quality — 17 1 2 2 6 — 1 29 Total $ 3,279 $ 1,193 $ 6,721 $ 4,223 $ 1,472 $ 1,759 $ 796 $ 5,890 $ 25,333 112 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents collateral dependent loans, by the primary collateral type, which are individually evaluated to determine expected credit losses, and the related allowance for credit losses allocated to these loans: December 31, 2023 Amortized Cost Allowance for Credit Losses Primary Collateral Type (dollars in thousands) Real Estate Vehicles Other Total Commercial and industrial $ — $ 37 $ 235 $ 272 $ 20 Commercial real estate - owner occupied 170 — — 170 — Commercial real estate - non-owner occupied 15,287 — — 15,287 1,021 Construction and land development 216 — — 216 — Multi-family 315 — — 315 — One-to-four family residential 5,459 — — 5,459 247 Agricultural and farmland 144 — — 144 — Municipal, consumer, and other 14,978 39 24 15,041 2,931 Total $ 36,569 $ 76 $ 259 $ 36,904 $ 4,219 Accrued interest on loans totaled $ 18.4 million as of December 31, 2023 and is excluded from the estimate of credit losses. 113 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Pre-ASC 326 Adoption Impaired Loan Disclosures The following table presents loans individually evaluated for impairment by category of loans: December 31, 2022 (dollars in thousands) Unpaid Principal Balance Recorded Investment Related Allowance With an allowance recorded: Commercial and industrial $ 268 $ 254 $ 158 Commercial real estate - owner occupied 635 610 168 Commercial real estate - non-owner occupied 14,269 14,261 2,388 Construction and land development — — — Multi-family — — — One-to-four family residential 569 524 44 Agricultural and farmland — — — Municipal, consumer, and other 8,152 8,131 3,562 Total $ 23,893 $ 23,780 $ 6,320 With no related allowance: Commercial and industrial $ 4,564 $ 4,564 $ — Commercial real estate - owner occupied 10,912 10,756 — Commercial real estate - non-owner occupied 16,327 16,248 — Construction and land development 92 82 — Multi-family — — — One-to-four family residential 9,181 7,875 — Agricultural and farmland 4,440 4,033 — Municipal, consumer, and other 4,410 4,377 — Total $ 49,926 $ 47,935 $ — Total loans individually evaluated for impairment: Commercial and industrial $ 4,832 $ 4,818 $ 158 Commercial real estate - owner occupied 11,547 11,366 168 Commercial real estate - non-owner occupied 30,596 30,509 2,388 Construction and land development 92 82 — Multi-family — — — One-to-four family residential 9,750 8,399 44 Agricultural and farmland 4,440 4,033 — Municipal, consumer, and other 12,562 12,508 3,562 Total $ 73,819 $ 71,715 $ 6,320 114 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables present the average recorded investment and interest income recognized for loans individually evaluated for impairment by category of loans: Year Ended December 31, 2022 2021 (dollars in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With an allowance recorded: Commercial and industrial $ 204 $ 18 $ 1,593 $ 89 Commercial real estate - owner occupied 970 63 3,052 177 Commercial real estate - non-owner occupied 10,943 740 16,494 791 Construction and land development — — 554 27 Multi-family — — — — One-to-four family residential 384 16 1,988 77 Agricultural and farmland — — 83 4 Municipal, consumer, and other 6,259 236 8,681 158 Total $ 18,760 $ 1,073 $ 32,445 $ 1,323 With no related allowance: Commercial and industrial $ 9,568 $ 453 $ 7,125 $ 330 Commercial real estate - owner occupied 8,619 525 7,771 344 Commercial real estate - non-owner occupied 12,636 1,278 10,339 432 Construction and land development 1,505 106 2,107 28 Multi-family — — 434 10 One-to-four family residential 6,238 352 6,248 192 Agricultural and farmland 228 13 290 17 Municipal, consumer, and other 3,361 148 4,666 86 Total $ 42,155 $ 2,875 $ 38,980 $ 1,439 Total loans individually evaluated for impairment: Commercial and industrial $ 9,772 $ 471 $ 8,718 $ 419 Commercial real estate - owner occupied 9,589 588 10,823 521 Commercial real estate - non-owner occupied 23,579 2,018 26,833 1,223 Construction and land development 1,505 106 2,661 55 Multi-family — — 434 10 One-to-four family residential 6,622 368 8,236 269 Agricultural and farmland 228 13 373 21 Municipal, consumer, and other 9,620 384 13,347 244 Total $ 60,915 $ 3,948 $ 71,425 $ 2,762 115 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Changes in the accretable yield for loans acquired with deteriorated credit quality were as follows: Year Ended December 31, (dollars in thousands) 2022 2021 Beginning balance $ 413 $ 1,397 Reclassification from non-accretable difference 548 508 Disposals — ( 1,089 ) Accretion income ( 231 ) ( 403 ) Ending balance $ 730 $ 413 Past Due and Nonaccrual Status Past due status is based on the contractual terms of the loan. Typically, loans are placed on nonaccrual when they reach 90 days past due, or when, in management’s opinion, there is reasonable doubt regarding the collection of the amounts due through the normal means of the borrower. Interest accrued and unpaid at the time a loan is placed on nonaccrual status is reversed from interest income. Interest payments received on nonaccrual loans are recognized in accordance with our significant accounting policies. Once a loan is placed on nonaccrual status, the borrower must generally demonstrate at least six months of payment performance and we must believe that all remaining principal and interest is fully collectible, before the loan is eligible to return to accrual status. 116 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables present loans by category based on current payment and accrual status: December 31, 2023 Accruing Interest (dollars in thousands) Current 30 - 89 Days Past Due 90+ Days Past Due Nonaccrual Total Loans Commercial and industrial $ 427,300 $ 228 $ — $ 272 $ 427,800 Commercial real estate - owner occupied 295,672 — — 170 295,842 Commercial real estate - non-owner occupied 878,591 255 — 1,835 880,681 Construction and land development 363,735 32 — 216 363,983 Multi-family 417,597 11 — 315 417,923 One-to-four family residential 484,969 1,735 — 4,804 491,508 Agricultural and farmland 286,820 330 — 144 287,294 Municipal, consumer, and other 239,033 252 37 64 239,386 Total $ 3,393,717 $ 2,843 $ 37 $ 7,820 $ 3,404,417 December 31, 2022 Accruing Interest (dollars in thousands) Current 30 - 89 Days Past Due 90+ Days Past Due Nonaccrual Total Loans Commercial and industrial $ 266,521 $ 17 $ — $ 219 $ 266,757 Commercial real estate - owner occupied 218,242 187 — 74 218,503 Commercial real estate - non-owner occupied 713,031 — — 171 713,202 Construction and land development 360,763 61 — — 360,824 Multi-family 287,854 11 — — 287,865 One-to-four family residential 335,576 894 145 1,638 338,253 Agricultural and farmland 237,727 19 — — 237,746 Municipal, consumer, and other 196,892 157 1 53 197,103 Total $ 2,616,606 $ 1,346 $ 146 $ 2,155 $ 2,620,253 117 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents nonaccrual loans with and without a related allowance for credit losses: December 31, 2023 (dollars in thousands) Nonaccrual With Allowance for Credit Losses Nonaccrual With No Allowance for Credit Losses Total Nonaccrual Commercial and industrial $ 120 $ 152 $ 272 Commercial real estate - owner occupied — 170 170 Commercial real estate - non-owner occupied 188 1,647 1,835 Construction and land development 216 — 216 Multi-family — 315 315 One-to-four family residential 14 4,790 4,804 Agricultural and farmland — 144 144 Municipal, consumer, and other — 64 64 Total $ 538 $ 7,282 $ 7,820 Credit Quality Indicators The Company assigns a risk rating to all loans and periodically performs detailed internal reviews of all such loans that are part of relationships with over $ 750,000 in total exposure to identify credit risks and to assess the overall collectability of the portfolio. These risk ratings are also subject to review by the Company’s regulators, external loan review, and internal loan review. During the internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, trends in the industries in which the borrowers operate and the fair values of collateral securing the loans. The risk rating is reviewed annually, at a minimum, and on an as needed basis depending on the specific circumstances of the loan. These credit quality indicators are used to assign a risk rating to each individual loan. Risk ratings are grouped into four major categories, defined as follows: Pass – a pass loan is a credit with no existing or known potential weaknesses deserving of management’s close attention. Pass-Watch – a pass-watch loan is still considered a "pass" credit and is not a classified or criticized asset, but is a reflection of a borrower who exhibits credit weaknesses or downward trends warranting close attention and increased monitoring. These potential weaknesses may result in deterioration of the repayment prospects for the loan. No loss of principal or interest is expected, and the borrower does not pose sufficient risk to warrant classification. Substandard – a substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized as probable that the borrower will not pay principal and interest in accordance with the contractual terms. Doubtful – a doubtful loan has all the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. 118 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables present loans by category based on their assigned risk ratings determined by management: December 31, 2023 (dollars in thousands) Pass Pass-Watch Substandard Doubtful Total Commercial and industrial $ 419,494 $ 7,128 $ 1,178 $ — $ 427,800 Commercial real estate - owner occupied 275,649 14,072 6,121 — 295,842 Commercial real estate - non-owner occupied 822,012 33,283 25,386 — 880,681 Construction and land development 351,087 12,604 292 — 363,983 Multi-family 397,951 19,656 316 — 417,923 One-to-four family residential 472,355 6,671 12,482 — 491,508 Agricultural and farmland 280,867 3,071 3,356 — 287,294 Municipal, consumer, and other 222,474 1,721 15,191 — 239,386 Total $ 3,241,889 $ 98,206 $ 64,322 $ — $ 3,404,417 December 31, 2022 (dollars in thousands) Pass Pass-Watch Substandard Doubtful Total Commercial and industrial $ 255,309 $ 6,630 $ 4,818 $ — $ 266,757 Commercial real estate - owner occupied 198,546 10,105 9,852 — 218,503 Commercial real estate - non-owner occupied 652,691 27,282 33,229 — 713,202 Construction and land development 358,215 2,527 82 — 360,824 Multi-family 283,682 4,183 — — 287,865 One-to-four family residential 323,632 5,907 8,714 — 338,253 Agricultural and farmland 223,114 10,004 4,628 — 237,746 Municipal, consumer, and other 184,299 296 12,508 — 197,103 Total $ 2,479,488 $ 66,934 $ 73,831 $ — $ 2,620,253 119 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Risk ratings of loans, further sorted by origination year, are as follows as of December 31, 2023: (dollars in thousands) Term Loans by Origination Year Revolving Loans Revolving Loans Converted to Term Total 2023 2022 2021 2020 2019 Prior Commercial and industrial Pass $ 90,931 $ 58,364 $ 19,283 $ 26,816 $ 5,269 $ 29,550 $ 187,579 $ 1,702 $ 419,494 Pass-Watch 2,025 1,340 892 144 753 471 956 547 7,128 Substandard 111 73 327 60 — — 323 284 1,178 Total $ 93,067 $ 59,777 $ 20,502 $ 27,020 $ 6,022 $ 30,021 $ 188,858 $ 2,533 $ 427,800 Commercial real estate - owner occupied Pass $ 27,516 $ 64,229 $ 55,376 $ 53,634 $ 32,469 $ 28,876 $ 13,549 $ — $ 275,649 Pass-Watch 4,061 943 5,210 1,474 1,573 811 — — 14,072 Substandard 2,734 86 1,550 64 164 1,523 — — 6,121 Total $ 34,311 $ 65,258 $ 62,136 $ 55,172 $ 34,206 $ 31,210 $ 13,549 $ — $ 295,842 Commercial real estate - non-owner occupied Pass $ 121,536 $ 240,323 $ 237,953 $ 88,894 $ 82,094 $ 39,228 $ 10,274 $ 1,710 $ 822,012 Pass-Watch 810 6,893 7,013 353 4,230 154 13,585 245 33,283 Substandard 13,376 124 286 — 2,410 9,190 — — 25,386 Total $ 135,722 $ 247,340 $ 245,252 $ 89,247 $ 88,734 $ 48,572 $ 23,859 $ 1,955 $ 880,681 Construction and land development Pass $ 153,499 $ 119,005 $ 56,954 $ 5,596 $ 2,662 $ 796 $ 12,050 $ 525 $ 351,087 Pass-Watch 153 10,750 — — — — 163 1,538 12,604 Substandard — 216 — — — 76 — — 292 Total $ 153,652 $ 129,971 $ 56,954 $ 5,596 $ 2,662 $ 872 $ 12,213 $ 2,063 $ 363,983 Multi-family Pass $ 83,898 $ 81,507 $ 115,402 $ 53,126 $ 34,053 $ 23,570 $ 5,904 $ 491 $ 397,951 Pass-Watch 3,111 7,197 — 8,821 51 468 — 8 19,656 Substandard — — 316 — — — — — 316 Total $ 87,009 $ 88,704 $ 115,718 $ 61,947 $ 34,104 $ 24,038 $ 5,904 $ 499 $ 417,923 One-to-four family residential Pass $ 105,337 $ 91,636 $ 82,289 $ 64,094 $ 21,986 $ 44,241 $ 57,248 $ 5,524 $ 472,355 Pass-Watch 2,382 286 940 486 212 1,804 203 358 6,671 Substandard 1,507 1,527 623 646 1,037 4,166 64 2,912 12,482 Total $ 109,226 $ 93,449 $ 83,852 $ 65,226 $ 23,235 $ 50,211 $ 57,515 $ 8,794 $ 491,508 Agricultural and farmland Pass $ 52,766 $ 37,600 $ 36,604 $ 33,960 $ 8,910 $ 7,756 $ 100,486 $ 2,785 $ 280,867 Pass-Watch 953 361 425 30 71 719 172 340 3,071 Substandard — — 13 3,199 — 144 — — 3,356 Total $ 53,719 $ 37,961 $ 37,042 $ 37,189 $ 8,981 $ 8,619 $ 100,658 $ 3,125 $ 287,294 Municipal, Consumer, and other Pass $ 43,575 $ 57,404 $ 27,904 $ 14,342 $ 1,016 $ 42,499 $ 35,734 $ — $ 222,474 Pass-Watch 9 6 13 — — 1,693 — — 1,721 Substandard 51 103 2 6 8 15,012 8 1 15,191 Total $ 43,635 $ 57,513 $ 27,919 $ 14,348 $ 1,024 $ 59,204 $ 35,742 $ 1 $ 239,386 Total by Risk Rating Pass $ 679,058 $ 750,068 $ 631,765 $ 340,462 $ 188,459 $ 216,516 $ 422,824 $ 12,737 $ 3,241,889 Pass-Watch 13,504 27,776 14,493 11,308 6,890 6,120 15,079 3,036 98,206 Substandard 17,779 2,129 3,117 3,975 3,619 30,111 395 3,197 64,322 Total $ 710,341 $ 779,973 $ 649,375 $ 355,745 $ 198,968 $ 252,747 $ 438,298 $ 18,970 $ 3,404,417 120 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Modifications and Troubled Debt Restructurings There were no loan modifications to borrowers in financial distress during the year ended December 31, 2023. There were no new troubled debt restructurings during the years ended December 31, 2022 and 2021. As of December 31, 2022, the Company had $ 3.0 million of troubled debt restructurings. NOTE 5 – LOAN SERVICING Mortgage loans serviced for others, which are not included in the accompanying consolidated balance sheets, amounted to $ 1.66 billion and $ 955.8 million as of December 31, 2023 and December 31, 2022, respectively. Activity in mortgage servicing rights is as follows: Year Ended December 31, (dollars in thousands) 2023 2022 2021 Beginning balance $ 10,147 $ 7,994 $ 5,934 Acquired 10,469 — 370 Capitalized servicing rights 726 530 1,200 Fair value adjustments attributable to payments and principal reductions ( 2,110 ) ( 1,343 ) ( 1,788 ) Fair value adjustments attributable to changes in valuation inputs and assumptions ( 231 ) 2,966 2,278 Ending balance $ 19,001 $ 10,147 $ 7,994 NOTE 6 - BANK PREMISES AND EQUIPMENT Bank premises and equipment are stated at cost less accumulated depreciation as follows: (dollars in thousands) December 31, 2023 December 31, 2022 Land, buildings, and improvements $ 93,955 $ 77,869 Furniture, fixtures, and equipment 26,205 24,512 Total bank premises and equipment 120,160 102,381 Less accumulated depreciation 55,010 51,912 Total bank premises and equipment, net $ 65,150 $ 50,469 Depreciation expense by category is as follows: Year Ended December 31, (dollars in thousands) 2023 2022 2021 Buildings and improvements $ 1,879 $ 1,623 $ 1,694 Furniture, fixtures, and equipment 1,229 1,420 1,380 Total depreciation expense $ 3,108 $ 3,043 $ 3,074 During 2021, six branches were closed or consolidated as part of a branch rationalization plan. The related bank premises were transferred to held for sale at the lower of the carrying value or the fair value, less estimated costs to sell. There was no bank premises held for sale as of December 31, 2023 and $ 0.2 million of bank premises held for sale as of December 31, 2022. 121 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 – FORECLOSED ASSETS Foreclosed assets activity is as follows: Year Ended December 31, (dollars in thousands) 2023 2022 2021 Beginning balance $ 3,030 $ 3,278 $ 4,168 Acquired 271 — — Transfers from loans 1,143 541 4,857 Proceeds from sales ( 4,093 ) ( 475 ) ( 5,805 ) Sales through loan origination — — ( 252 ) Net gain on sales 764 118 505 Direct write-downs ( 263 ) ( 432 ) ( 195 ) Ending balance $ 852 $ 3,030 $ 3,278 Gains (losses) on foreclosed assets includes the following: Year Ended December 31, (dollars in thousands) 2023 2022 2021 Direct write-downs $ ( 263 ) $ ( 432 ) $ ( 195 ) Net gain on sales 764 118 505 Gains (losses) on foreclosed assets $ 501 $ ( 314 ) $ 310 The carrying value of foreclosed one-to-four family residential real estate properties held was $ 0.1 million and $ 20 thousand as of December 31, 2023 and 2022, respectively. As of December 31, 2023, there were 16 one-to-four family residential real estate loans in the process of foreclosure totaling $ 1.2 million. As of December 31, 2022, there were 4 one-to-four family residential real estate loans in the process of foreclosure totaling $ 0.2 million. NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS The Company recorded goodwill of $ 30.5 million related to the acquisition of Town and Country during the year ended December 31, 2023. There were no additions to goodwill for the year ended December 31, 2022. For the year ended December 31, 2021, the Company recorded goodwill of $ 5.7 million related to the acquisition of NXT. The goodwill recorded in connection with the acquisitions of Town and Country and NXT were allocated to the Company's only reportable segment, Community Banking. 122 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the changes in the Company's intangible assets: Year Ended December 31, 2023 2022 2021 (dollars in thousands) Core Deposit Intangible Customer Relationship Intangible Core Deposit Intangible Customer Relationship Intangible Core Deposit Intangible Customer Relationship Intangible Beginning balance $ 1,070 $ — $ 1,943 $ — $ 2,798 $ — Additions 21,282 1,000 — — 199 — Amortization ( 2,578 ) ( 92 ) ( 873 ) — ( 1,054 ) — Ending balance $ 19,774 $ 908 $ 1,070 $ — $ 1,943 $ — Accumulated amortization $ 23,425 $ 92 $ 20,847 $ — $ 19,974 $ — Amortization of intangible assets for the years subsequent to December 31, 2023 is expected to be as follows (dollars in thousands): Year ended December 31, 2024 $ 2,839 2025 2,726 2026 2,411 2027 2,338 2028 2,255 Thereafter 8,113 Total $ 20,682 NOTE 9 – DEPOSITS The Company’s deposits are summarized below: (dollars in thousands) December 31, 2023 December 31, 2022 Noninterest-bearing deposits $ 1,072,407 $ 994,954 Interest-bearing deposits: Interest-bearing demand 1,145,092 1,139,150 Money market 803,381 555,425 Savings 608,424 634,527 Time 627,253 262,968 Brokered 144,880 — Total interest-bearing deposits 3,329,030 2,592,070 Total deposits $ 4,401,437 $ 3,587,024 Interest-bearing demand deposits included $ 51.3 million of reciprocal transaction deposits as of December 31, 2023. Money market deposits included $ 155.1 million and $ 1.7 million of reciprocal transaction deposits as of December 31, 2023 and 2022, respectively. Time deposits included $ 30.5 million and $ 1.6 million of reciprocal time deposits as of December 31, 2023, and 2022, respectively. 123 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The aggregate amounts of time deposits in denominations of $250 thousand or more amounted to $ 130.2 million and $ 27.2 million as of December 31, 2023 and 2022, respectively. The aggregate amounts of time deposits in denominations of $100 thousand or more amounted to $ 342.8 million and $ 92.6 million as of December 31, 2023 and 2022, respectively. The components of interest expense on deposits are as follows: Year Ended December 31, (dollars in thousands) 2023 2022 2021 Interest-bearing demand $ 3,130 $ 607 $ 518 Money market 7,352 813 437 Savings 1,033 208 188 Time 10,784 883 1,329 Brokered 2,836 — — Total interest expense on deposits $ 25,135 $ 2,511 $ 2,472 At December 31, 2023, the scheduled maturities of time and brokered time deposits are as follows (dollars in thousands): Year ended December 31, 2024 $ 676,895 2025 76,274 2026 10,593 2027 4,992 2028 3,255 Thereafter 124 Total $ 772,133 NOTE 10 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE All repurchase agreements are sweep instruments. The securities underlying the agreements as of December 31, 2023 and 2022 were under the Company’s control in safekeeping at third-party financial institutions, and included debt securities. Information pertaining to securities sold under agreements to repurchase is as follows: (dollars in thousands) December 31, 2023 December 31, 2022 Balance at end of year $ 42,442 $ 43,081 Weighted average rate as of end of year 2.42 % 0.28 % Fair value of securities underlying the agreements $ 49,303 $ 50,771 Carrying value of securities underlying the agreements $ 52,958 $ 55,850 124 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 - BORROWINGS FHLB advances totaled $ 12.6 million with a weighted average interest rate of 0.55 % as of December 31, 2023 and totaled $ 160.0 million with a weighted average interest rate of 4.29 % as of December 31, 2022. The FHLB advances outstanding as of December 31, 2023 mature between 2024 and 2029. Borrowings from the FHLB are secured by FHLB stock held by the Company and pledged security in the form of qualifying loans. The loans pledged as of December 31, 2023 and 2022 totaled $ 1.20 billion and $ 892.1 million, respectively. As of December 31, 2023 and 2022, loans pledged also served as collateral for credit exposure of $ 0.4 million and $ 0.3 million, respectively, associated with the Bank’s participation in the FHLB’s Mortgage Partnership Finance Program. The Bank also had available borrowings through the discount window of the Federal Reserve Bank of Chicago. Available borrowings are based on the collateral pledged. As of December 31, 2023, debt securities with a carrying value of $ 9.8 million were pledged, and there was no outstanding balance. As of December 31, 2022, there was no collateral pledged and no outstanding balance. NOTE 12 - SUBORDINATED NOTES On September 3, 2020, the Company issued $ 40.0 million of fixed-to-floating rate subordinated notes that mature on September 15, 2030. The subordinated notes, which are unsecured obligations of the Company, bear a fixed interest rate of 4.50 % for the first five years after issuance and thereafter bear interest at a floating rate equal to three-month SOFR, as determined on the Floating Interest Determination Date, plus 4.37 %. Interest is payable semi-annually during the five year fixed rate period and quarterly during the subsequent five year floating rate period. The subordinated notes have an optional redemption in whole or in part on any interest payment date on or after September 15, 2025. If the subordinated notes are redeemed before they mature, the redemption price will be the principal amount plus any accrued but unpaid interest. The transaction resulted in debt issuance costs of $ 0.8 million which will be amortized over 10 years. As of December 31, 2023 and 2022, 100 % of the subordinated notes qualified as Tier 2 capital. The face value and carrying value of the subordinated notes are summarized below: (dollars in thousands) December 31, 2023 December 31, 2022 Subordinated notes, at face value $ 40,000 $ 40,000 Unamortized issuance costs ( 526 ) ( 605 ) Subordinated notes, at carrying value $ 39,474 $ 39,395 125 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 – JUNIOR SUBORDINATED DEBENTURES ISSUED TO CAPITAL TRUSTS Eight subsidiary business trusts of the Company have issued floating rate capital securities (“capital securities”) which are guaranteed by the Company. Three of these (Town and Country Statutory Trust II, Town and Country Statutory Trust III, and West Plains Investors Statutory Trust I) were acquired by the Company as part of its acquisition of Town and Country. The Company owns all of the outstanding stock of the subsidiary business trusts. The trusts used the proceeds from the issuance of their capital securities to buy floating rate junior subordinated deferrable interest debentures (“junior subordinated debentures”) issued by the Company. These junior subordinated debentures are the only assets of the trusts and the interest payments from the junior subordinated debentures finance the distributions paid on the capital securities. The junior subordinated debentures are unsecured, rank junior and subordinate in the right of payment to all senior debt of the Company, and have an optional redemption in whole or in part on any interest payment date. In accordance with GAAP, the trusts are not consolidated in the Company’s financial statements. The face values and carrying values of the junior subordinated debentures are summarized as follows: Carrying Value (dollars in thousands) Face Value December 31, 2023 December 31, 2022 Heartland Bancorp, Inc. Capital Trust B $ 10,310 $ 10,310 $ 10,310 Heartland Bancorp, Inc. Capital Trust C 10,310 10,310 10,310 Heartland Bancorp, Inc. Capital Trust D 5,155 5,155 5,155 FFBI Capital Trust I 7,217 7,217 7,217 National Bancorp Statutory Trust I 5,773 4,853 4,788 Town and Country Statutory Trust II 4,124 4,401 — Town and Country Statutory Trust III 7,732 7,578 — West Plains Investors Statutory Trust I 3,093 2,965 — Total $ 53,714 $ 52,789 $ 37,780 The interest rates on the junior subordinated debentures are variable, reset quarterly, and are equal to the three-month LIBOR, as determined on the LIBOR Determination Date immediately preceding the Distribution Payment Date specific to each junior subordinated debenture, plus a fixed percentage. Beginning in July 2023, the three-month LIBOR index was replaced by the three-month term SOFR index plus a spread adjustment. 126 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The interest rates and maturities of the junior subordinated debentures are summarized as follows: Interest Rate at Variable Interest Rate December 31, 2023 December 31, 2022 Maturity Date Heartland Bancorp, Inc. Capital Trust B SOFR plus 3.01 % 8.41 % 6.83 % April 6, 2034 Heartland Bancorp, Inc. Capital Trust C SOFR plus 1.79 7.18 6.30 June 15, 2037 Heartland Bancorp, Inc. Capital Trust D SOFR plus 1.61 7.00 6.12 September 15, 2037 FFBI Capital Trust I SOFR plus 3.06 8.46 6.88 April 6, 2034 National Bancorp Statutory Trust I SOFR plus 3.16 8.55 7.67 December 15, 2037 Town and Country Statutory Trust II SOFR plus 3.05 8.43 N/A March 17, 2034 Town and Country Statutory Trust III SOFR plus 1.94 7.33 N/A March 22, 2037 West Plains Investors Statutory Trust I SOFR plus 1.71 7.10 N/A June 15, 2037 The distribution rate payable on the debentures is cumulative and payable quarterly in arrears. The Company has the right, subject to events of default, to defer payments of interest on the junior subordinated debentures at any time by extending the interest payment period for a period not exceeding 20 quarterly periods with respect to each deferral period, provided that no extension period may extend beyond the redemption or maturity date of the junior subordinated debentures. The capital securities are subject to mandatory redemption upon payment of the junior subordinated debentures and carry an interest rate identical to that of the related debenture. The junior subordinated debentures maturity dates may be shortened if certain conditions are met, or at any time within 90 days following the occurrence and continuation of certain changes in either tax treatment or the capital treatment of the junior subordinated debentures or the capital securities. If the junior subordinated debentures are redeemed before they mature, the redemption price will be the principal amount plus any accrued but unpaid interest. The Company has the right to terminate each Capital Trust and cause the junior subordinated debentures to be distributed to the holders of the capital securities in liquidation of such trusts. Under current banking regulations, bank holding companies are allowed to include qualifying trust preferred securities in their Tier 1 Capital for regulatory capital purposes, subject to a 25% limitation to all core (Tier 1) capital elements, net of goodwill and other intangible assets less any associated deferred tax liability. As of December 31, 2023 and 2022, 100 % of the trust preferred securities qualified as Tier 1 capital under the final rule adopted in March 2005. 127 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 – DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments are negotiated contracts entered into by two issuing counterparties containing specific agreement terms, including the underlying instrument, amount, exercise price, and maturities. The derivatives accounting guidance requires that the Company recognize all derivative financial instruments as either assets or liabilities at fair value in the consolidated balance sheets. The Company may utilize interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. Interest Rate Swaps Designated as Cash Flow Hedges The Company designated certain interest rate swap agreements as cash flow hedges on variable-rate borrowings. For derivative instruments that are designated and qualify as a cash flow hedge, the gain or loss on interest rate swaps designated as cash flow hedging instruments, net of tax, is reported as a component of accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. The interest rate swap agreements designated as cash flow hedges are summarized as follows: December 31, 2023 December 31, 2022 (dollars in thousands) Notional Amount Fair Value Notional Amount Fair Value Fair value recorded in other assets $ 17,000 $ 322 $ 17,000 $ 629 As of December 31, 2023, the interest rate swap agreements designated as cash flow hedges had contractual maturities between 2024 and 2025. As of December 31, 2023 and 2022, counterparties had cash pledged and held on deposit by the Company of $ 0.6 million and $ 0.6 million, respectively. The effect of interest rate swap agreements designated as cash flow hedges on the consolidated statements of income are summarized as follows: Location of gross gain (loss) reclassified from accumulated other comprehensive income (loss) to income Amounts of gross gain (loss) reclassified from accumulated other comprehensive income (loss) Year Ended December 31, (dollars in thousands) 2023 2022 2021 Designated as cash flow hedges: Junior subordinated debentures interest expense $ 468 $ ( 126 ) $ ( 412 ) 128 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Interest Rate Swaps Not Designated as Hedging Instruments The Company may offer interest rate swap agreements to its commercial borrowers in connection with their risk management needs. The Company manages the interest rate risk associated with these contracts by entering into an equal and offsetting derivative with a third-party financial institution. While these interest rate swap agreements generally work together as an economic interest rate hedge, the Company did not designate them for hedge accounting treatment. Consequently, changes in fair value of the corresponding derivative financial asset or liability were recorded as either a charge or credit to current earnings during the period in which the changes occurred. The interest rate swap agreements not designated as hedging instruments are summarized as follows: December 31, 2023 December 31, 2022 (dollars in thousands) Notional Amount Fair Value Notional Amount Fair Value Fair value recorded in other assets: Interest rate swaps with a commercial borrower counterparty $ — $ — $ — $ — Interest rate swaps with a financial institution counterparty 94,497 6,227 106,995 6,981 Total fair value recorded in other assets $ 94,497 $ 6,227 $ 106,995 $ 6,981 Fair value recorded in other liabilities: Interest rate swaps with a commercial borrower counterparty $ 94,497 $ ( 6,227 ) $ 106,995 $ ( 6,981 ) Interest rate swaps with a financial institution counterparty — — — — Total fair value recorded in other liabilities $ 94,497 $ ( 6,227 ) $ 106,995 $ ( 6,981 ) As of December 31, 2023, the interest rate swap agreements not designated as hedging instruments had contractual maturities between 2027 and 2035. The effect of interest rate contracts not designated as hedging instruments recognized in other noninterest income on the consolidated statements of income are summarized as follows: Year Ended December 31, 2023 (dollars in thousands) 2023 2022 2021 Not designated as hedging instruments: Gross gains $ 11,198 $ 16,002 $ 13,773 Gross losses ( 11,198 ) ( 16,002 ) ( 13,773 ) Net gains (losses) $ — $ — $ — 129 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The following table presents the activity and accumulated balances for components of other comprehensive income (loss): Unrealized Gains (Losses) on Debt Securities Derivatives Total (dollars in thousands) Available-for-Sale Held-to-Maturity Balance, December 31, 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 ( 24,798 ) — 366 ( 24,432 ) Reclassifications — 687 412 1,099 Other comprehensive income (loss), before tax ( 24,798 ) 687 778 ( 23,333 ) Income tax expense (benefit) ( 7,069 ) 196 222 ( 6,651 ) Other comprehensive income (loss), after tax ( 17,729 ) 491 556 ( 16,682 ) Balance, December 31, 2021 5,736 ( 3,514 ) ( 751 ) 1,471 Transfer from available-for-sale to held-to-maturity 7,664 ( 7,664 ) — — Other comprehensive income (loss) before reclassifications ( 105,459 ) — 1,183 ( 104,276 ) Reclassifications — 1,723 126 1,849 Other comprehensive income (loss), before tax ( 105,459 ) 1,723 1,309 ( 102,427 ) Income tax expense (benefit) ( 30,061 ) 491 373 ( 29,197 ) Other comprehensive income (loss), after tax ( 75,398 ) 1,232 936 ( 73,230 ) Balance, December 31, 2022 ( 61,998 ) ( 9,946 ) 185 ( 71,759 ) Other comprehensive income before reclassifications 16,949 — 161 17,110 Reclassifications 1,820 1,954 ( 468 ) 3,306 Other comprehensive income (loss), before tax 18,769 1,954 ( 307 ) 20,416 Income tax expense (benefit) 5,350 557 ( 87 ) 5,820 Other comprehensive income (loss), after tax 13,419 1,397 ( 220 ) 14,596 Balance, December 31, 2023 ( 48,579 ) ( 8,549 ) ( 35 ) ( 57,163 ) Reclassifications from accumulated other comprehensive income (loss) for unrealized gains (losses) on debt securities available-for-sale are included in either gains (losses) on sales of securities or provision for credit losses in the accompanying consolidated statements of income. Reclassifications from accumulated other comprehensive income (loss) for unrealized gains on debt securities held-to-maturity are included in securities interest income in the accompanying consolidated statements of income. 130 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Reclassifications from accumulated other comprehensive income (loss) for the fair value of derivative financial instruments represent net interest payments received or made on derivatives designated as cash flow hedges. See Note 14 for additional information. NOTE 16 – INCOME TAXES Allocation of income tax expense between current and deferred portions is as follows: Year Ended December 31, (dollars in thousands) 2023 2022 2021 Current Federal $ 12,538 $ 15,194 $ 11,330 State 6,384 7,459 6,053 Total current 18,922 22,653 17,383 . Deferred Federal 2,811 ( 2,045 ) 1,945 State 1,006 ( 874 ) 963 Total deferred 3,817 ( 2,919 ) 2,908 Income tax expense $ 22,739 $ 19,734 $ 20,291 Income tax expense differs from the statutory federal rate due to the following: Year Ended December 31, 2023 2022 2021 (dollars in thousands) Amount Percentage Amount Percentage Amount Percentage Federal income tax, at statutory rate $ 18,602 21.0 % $ 16,000 21.0 % $ 16,078 21.0 % Increase (decrease) resulting from: Federally tax exempt interest income ( 1,767 ) ( 2.0 ) ( 1,618 ) ( 2.1 ) ( 1,426 ) ( 1.9 ) State taxes, net of federal benefit 5,838 6.6 5,285 6.9 5,430 7.1 Other 66 0.1 67 0.1 209 0.3 Income tax expense $ 22,739 25.7 % $ 19,734 25.9 % $ 20,291 26.5 % 131 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The components of the deferred tax assets and liabilities are as follows: (dollars in thousands) December 31, 2023 December 31, 2022 Deferred tax assets Allowance for credit losses $ 12,247 $ 7,151 Compensation related 3,230 2,623 Deferred loan fees 676 965 Nonaccrual interest 596 480 Foreclosed assets 18 142 Goodwill 74 153 Net operating loss carryforward 144 — Net unrealized losses on debt securities 23,967 29,874 Other purchase accounting adjustments 5,250 — Other 575 5,237 Total deferred tax assets 46,777 46,625 Deferred tax liabilities Fixed asset depreciation 3,044 3,940 Mortgage servicing rights 5,306 2,868 Other purchase accounting adjustments — 610 Intangible assets 5,584 214 Prepaid assets 816 756 Other 566 2,756 Total deferred tax liabilities 15,316 11,144 Net deferred tax asset $ 31,461 $ 35,481 As of December 31, 2023, the Company had an Illinois net operating loss carryforward of $ 1.9 million which is available to offset future Illinois taxable income. The Illinois net operating loss carryforward is subject to a $100 thousand limitation through 2023 and will begin to expire in 2044. Management believes that it is more likely than not that the deferred tax assets included in the balance sheet will be realized, and that a valuation allowance was not required for deferred tax assets as of December 31, 2023 and 2022. The Company files consolidated federal and state income tax returns. The Company is generally no longer subject to federal or state income tax examinations for years prior to 2020. NOTE 17 – 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. 132 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table sets forth the computation of basic and diluted earnings per share: Year Ended December 31, (dollars in thousands) 2023 2022 2021 Numerator: Net income $ 65,842 $ 56,456 $ 56,271 Earnings allocated to participating securities ( 36 ) ( 66 ) ( 104 ) Numerator for earnings per share - basic and diluted $ 65,806 $ 56,390 $ 56,167 Denominator: Weighted average common shares outstanding 31,626,308 28,853,697 27,795,806 Dilutive effect of outstanding restricted stock units 111,839 65,619 15,487 Weighted average common shares outstanding, including all dilutive potential shares 31,738,147 28,919,316 27,811,293 Earnings per share - Basic $ 2.08 $ 1.95 $ 2.02 Earnings per share - Diluted $ 2.07 $ 1.95 $ 2.02 NOTE 18 - EMPLOYEE BENEFIT PLANS Profit Sharing Plan During the years ended December 31, 2023, 2022, and 2021, the Company’s profit sharing plan contribution expense amounted to $ 1.7 million, $ 1.3 million, and $ 1.3 million, respectively. The Company’s contributions vest to employees ratably over a six-year period. Medical Insurance Benefits The Company is partially self-insured for medical claims filed by its employees. During the years ended December 31, 2023, 2022, and 2021, medical benefits expense amounted to $ 6.2 million, $ 4.9 million, and $ 4.2 million, respectively. 133 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 – STOCK-BASED COMPENSATION PLANS The Company has adopted the HBT Financial, Inc. Omnibus Incentive Plan (the “Omnibus Incentive Plan”). The Omnibus Incentive Plan provides for grants of (i) stock options, (ii) stock appreciation rights, (iii) restricted shares, (iv) restricted stock units, (v) performance awards, (vi) other share-based awards and (vii) other cash-based awards to eligible employees, non-employee directors and consultants of the Company. The maximum number of shares of common stock available for issuance under the Omnibus Incentive Plan is 1,820,000 shares. The following is a summary of stock-based compensation expense (benefit): Year Ended December 31, (dollars in thousands) 2023 2022 2021 Restricted stock units $ 1,204 $ 1,334 $ 579 Performance restricted stock units 749 615 185 Total awards classified as equity 1,953 1,949 764 Stock appreciation rights 95 88 226 Total stock-based compensation expense $ 2,048 $ 2,037 $ 990 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. 134 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Restricted Stock Units A restricted stock unit grants a participant the right to receive one share of the Company’s common stock, following the completion of the requisite service period. Restricted stock units are classified as equity. Compensation cost is based on the Company’s stock price on the grant date and is recognized on a straight-line basis over the service period for the entire award. Dividend equivalents on restricted stock units, which are either accrued until vested or paid at the same time as dividends on common stock, are classified as dividends charged to retained earnings. During the years ended December 31, 2023, 2022, and 2021, the total grant date fair value of the restricted stock units granted was $ 1.0 million, $ 1.3 million, and $ 0.9 million, respectively, based on the grant date closing prices. The total intrinsic value of restricted stock that vested during the years ended December 31, 2023, 2022, 2021 were $ 1.1 million, $ 0.7 million, and $ 0.3 million, respectively. The following is a summary of restricted stock unit activity: Year Ended December 31, 2023 2022 2021 Restricted Stock Units Weighted Average Grant Date Fair Value Restricted Stock Units Weighted Average Grant Date Fair Value Restricted Stock Units Weighted Average Grant Date Fair Value Beginning balance 139,986 $ 18.01 109,244 $ 17.27 71,000 $ 18.98 Granted 41,847 22.72 66,995 18.81 59,994 15.81 Vested ( 51,693 ) 17.91 ( 34,925 ) 17.26 ( 20,225 ) 18.86 Forfeited ( 1,981 ) 19.55 ( 1,328 ) 18.35 ( 1,525 ) 18.11 Ending balance 128,159 $ 19.56 139,986 $ 18.01 109,244 $ 17.27 As of December 31, 2023, unrecognized compensation cost related to the non-vested restricted stock units was $ 0.9 million. This cost is expected to be recognized over the weighted average remaining service period of 1.7 years. 135 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Performance Restricted Stock Units A performance restricted stock unit is similar to a restricted stock unit, except that the number of shares of the Company’s common stock awarded is based on a performance condition and the completion of the requisite service period. The number of shares of the Company’s common stock that may be earned ranges from 0 % to 150 % of the number of performance restricted stock units granted. Performance restricted stock units are classified as equity. Compensation cost is based on the Company’s stock price on the grant date and an assessment of the probable outcome of the performance condition. Compensation cost is recognized on a straight-line basis over the service period of the entire award. Changes in the performance condition probability assessment result in cumulative catch-up adjustments to the compensation cost recognized. Dividend equivalents on performance restricted stock units, which are accrued until vested, are classified as dividends charged to retained earnings. During the years ended December 31, 2023, 2022, and 2021, the total fair value of the performance restricted stock units granted was $ 0.4 million, $ 0.5 million, and $ 0.6 million, respectively, based on the grant date closing prices and an assessment of the probable outcome of the performance condition on the grant date. The following is a summary of performance restricted stock unit activity: Year Ended December 31, 2023 2022 2021 Performance Restricted Stock Units Weighted Average Grant Date Fair Value Performance Restricted Stock Units Weighted Average Grant Date Fair Value Performance Restricted Stock Units Weighted Average Grant Date Fair Value Beginning balance 62,067 $ 17.02 38,344 $ 15.72 — $ — Granted 17,030 22.72 23,723 19.14 38,344 15.72 Vested — — — — — — Forfeited — — — — — — Ending balance 79,097 $ 18.25 62,067 $ 17.02 38,344 $ 15.72 As of December 31, 2023, unrecognized compensation cost related to non-vested performance restricted stock units was $ 0.3 million, based on the current assessment of the probable outcome of the performance conditions. This cost is expected to be recognized over the weighted average remaining service period of 1.5 years. 136 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock Appreciation Rights A stock appreciation right grants a participant the right to receive an amount of cash, the value of which equals the appreciation in the Company’s stock price between the grant date and the exercise date. Stock appreciation rights are classified as liabilities. The liability is based on an option-pricing model used to estimate the fair value of the stock appreciation rights. Compensation cost for non-vested stock appreciation rights is recognized on a straight line basis over the service period of the entire award. The following is a summary of stock appreciation rights activity: Year Ended December 31, 2023 2022 2021 Stock Appreciation Rights Weighted Average Grant Date Assigned Value Stock Appreciation Rights Weighted Average Grant Date Assigned Value Stock Appreciation Rights Weighted Average Grant Date Assigned Value Beginning balance 73,440 $ 16.32 97,920 $ 16.32 105,570 $ 16.32 Granted — — — — — — Exercised — — ( 24,480 ) 16.32 ( 6,120 ) 16.32 Expired — — — — ( 1,530 ) 16.32 Forfeited — — — — — — Ending balance 73,440 $ 16.32 73,440 $ 16.32 97,920 $ 16.32 As of December 31, 2023, all stock appreciation rights were exercisable and have a weighted average remaining term of 5.7 years. Additionally, a s of December 31, 2023, there was no unrecognized compensation cost for stock appreciation rights. As of December 31, 2023 and 2022, the liability recorded for outstanding stock appreciation rights was $ 0.6 million and $ 0.5 million, respectively. The Company uses an option pricing model to value the stock appreciation rights, using the assumptions in the following table. Expected volatility is derived from the historical volatility of the Company’s stock price and a selected peer group of industry-related companies. December 31, 2023 December 31, 2022 Risk-free interest rate 3.85 % 3.95 % Expected volatility 37.37 % 36.54 % Expected life (in years) 5.7 6.7 Expected dividend yield 3.22 % 3.27 % As of December 31, 2023, the liability recorded for previously exercised stock appreciation rights was $ 0.2 million, which will be paid in 2024. As of December 31, 2022, the liability recorded for previously exercised stock appreciation rights was $ 0.5 million. 137 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 20 – 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 December 31, 2023 and 2022, the capital conservation buffer was 2.5 % of risk-weighted assets. As of December 31, 2023, the Company and the Bank each met all capital adequacy requirements to which they were subject. The actual and required capital amounts and ratios of the Company (on a consolidated basis) and the Bank are as follows: December 31, 2023 Actual For Capital Adequacy Purposes To Be Well Capitalized Under Prompt Corrective Action Provisions (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Consolidated HBT Financial, Inc. Total Capital (to Risk Weighted Assets) $ 603,234 15.33 % $ 314,814 8.00 % N/A N/A Tier 1 Capital (to Risk Weighted Assets) 527,964 13.42 236,110 6.00 N/A N/A Common Equity Tier 1 Capital (to Risk Weighted Assets) 476,789 12.12 177,083 4.50 N/A N/A Tier 1 Capital (to Average Assets) 527,964 10.49 201,231 4.00 N/A N/A Heartland Bank and Trust Company Total Capital (to Risk Weighted Assets) $ 586,604 14.92 % $ 314,496 8.00 % $ 393,119 10.00 % Tier 1 Capital (to Risk Weighted Assets) 550,808 14.01 235,872 6.00 314,496 8.00 Common Equity Tier 1 Capital (to Risk Weighted Assets) 550,808 14.01 176,904 4.50 255,528 6.50 Tier 1 Capital (to Average Assets) 550,808 10.96 201,063 4.00 251,329 5.00 138 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 Actual For Capital Adequacy Purposes To Be Well Capitalized Under Prompt Corrective Action Provisions (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Consolidated HBT Financial, Inc. Total Capital (to Risk Weighted Assets) $ 516,556 16.27 % $ 254,052 8.00 % N/A N/A Tier 1 Capital (to Risk Weighted Assets) 451,828 14.23 190,539 6.00 N/A N/A Common Equity Tier 1 Capital (to Risk Weighted Assets) 415,213 13.07 142,904 4.50 N/A N/A Tier 1 Capital (to Average Assets) 451,828 10.48 172,427 4.00 N/A N/A Heartland Bank and Trust Company Total Capital (to Risk Weighted Assets) $ 489,316 15.43 % $ 253,643 8.00 % $ 317,054 10.00 % Tier 1 Capital (to Risk Weighted Assets) 463,983 14.63 190,233 6.00 253,643 8.00 Common Equity Tier 1 Capital (to Risk Weighted Assets) 463,983 14.63 142,674 4.50 206,085 6.50 Tier 1 Capital (to Average Assets) 463,983 10.78 172,240 4.00 215,300 5.00 139 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 21 – FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values: Level 1 - Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date. Level 2 - Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3 - Significant unobservable inputs that reflect a Company’s own assumptions about the assumptions that market participants would use in pricing as asset or liability. The Company uses fair value to measure certain assets and liabilities on a recurring basis, such as investment securities, mortgage servicing rights, and derivatives. For assets measured at the lower of cost or fair value, the fair value measurement criteria may or may not be met during a reporting period, and such measurements are therefore considered "nonrecurring" for purposes of disclosing the Company's fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for loans held for sale, collateral-dependent loans, bank premises held for sale, and foreclosed assets. Recurring Basis The following is a description of the methods and significant assumptions used to measure the fair value of assets and liabilities on a recurring basis. Investment Securities When available, the Company uses quoted market prices to determine the fair value of securities; such items are classified in Level 1 of the fair value hierarchy. For the Company’s securities where quoted prices are not available for identical securities in an active market, the Company determines fair value utilizing vendors who apply matrix pricing for similar bonds where no price is observable or may compile prices from various sources. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace. Fair values from these models are verified, where possible, against quoted market prices for recent trading activity of assets with similar characteristics to the security being valued. Such methods are generally classified as Level 2; however, when prices from independent sources vary, cannot be obtained or cannot be corroborated, a security is generally classified as Level 3. The change in fair value of debt securities available-for-sale is recorded through an adjustment to the consolidated statement of comprehensive income (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. 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. 140 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. The following tables summarize assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 and 2022 by level within the fair value hierarchy: December 31, 2023 (dollars in thousands) Level 1 Inputs Level 2 Inputs Level 3 Inputs Total Fair Value Debt securities available-for-sale: U.S. Treasury $ 148,622 $ — $ — $ 148,622 U.S. government agency — 52,097 — 52,097 Municipal — 205,557 — 205,557 Mortgage-backed: Agency residential — 173,984 — 173,984 Agency commercial — 127,012 — 127,012 Corporate — 52,189 — 52,189 Equity securities with readily determinable fair values 3,360 — — 3,360 Mortgage servicing rights — — 19,001 19,001 Derivative financial assets — 6,549 — 6,549 Derivative financial liabilities — 6,227 — 6,227 December 31, 2022 (dollars in thousands) Level 1 Inputs Level 2 Inputs Level 3 Inputs Total Fair Value Debt securities available-for-sale: U.S. Treasury $ 154,515 $ — $ — $ 154,515 U.S. government agency — 55,157 — 55,157 Municipal — 243,829 — 243,829 Mortgage-backed: Agency residential — 195,441 — 195,441 Agency commercial — 132,888 — 132,888 Corporate — 61,694 — 61,694 Equity securities with readily determinable fair values 3,029 — — 3,029 Mortgage servicing rights — — 10,147 10,147 Derivative financial assets — 7,610 — 7,610 Derivative financial liabilities — 6,981 — 6,981 141 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables present additional information about the unobservable inputs used in the fair value measurement of the mortgage servicing rights (dollars in thousands): December 31, 2023 Fair Value Valuation Technique Unobservable Inputs Range (Weighted Average) Mortgage servicing rights $ 19,001 Discounted cash flows Constant pre-payment rates (CPR) 6.2 % to 49.4 % ( 8.4 %) Discount rate 9.0 % to 37.3 % ( 9.6 %) December 31, 2022 Fair Value Valuation Technique Unobservable Inputs Range (Weighted Average) Mortgage servicing rights $ 10,147 Discounted cash flows Constant pre-payment rates (CPR) 5.3 % to 59.7 % ( 8.2 %) Discount rate 9.0 % to 11.7 % ( 9.3 %) Nonrecurring Basis The following is a description of the methods and significant assumptions used to measure the fair value of assets and liabilities on a nonrecurring basis. Loans Held for Sale Mortgage loans originated and held for sale are carried at the lower of cost or estimated fair value. The Company obtains quotes or bids on these loans directly from purchasing financial institutions. Typically, these quotes include a premium on the sale and thus these quotes generally indicate fair value of the held for sale loans is greater than cost. Loans held for sale have been classified as Level 2. Collateral-Dependent Loans Periodically, a collateral-dependent loan is evaluated individually and is reported at the fair value of the underlying collateral, less estimated costs to sell, if repayment is expected solely from the collateral. If the collateral value is not sufficient, a specific reserve is recorded. Collateral values are estimated using recent appraisals and customized discounting criteria. Due to the significance of unobservable inputs, fair values of collateral-dependent loans have been classified as Level 3. Bank Premises Held for Sale Bank premises held for sale are recorded at the lower of cost or fair value, less estimated selling costs, at the date classified as held for sale. Values are estimated using recent appraisals and customized discounting criteria. Due to the significance of unobservable inputs, fair values of collateral-dependent loans have been classified as Level 3. Foreclosed Assets Foreclosed assets are recorded at fair value based on property appraisals, less estimated selling costs, at the date of the transfer. Subsequent to the transfer, foreclosed assets are carried at the lower of cost or fair value, less estimated selling costs. Values are estimated using recent appraisals and customized discounting criteria. Due to the significance of unobservable inputs, fair values of collateral-dependent loans have been classified as Level 3. 142 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables summarize assets measured at fair value on a nonrecurring basis as of December 31, 2023 and 2022 by level within the fair value hierarchy: December 31, 2023 (dollars in thousands) Level 1 Inputs Level 2 Inputs Level 3 Inputs Total Fair Value Loans held for sale $ — $ 2,318 $ — $ 2,318 Collateral-dependent loans — — 32,685 32,685 Foreclosed assets — — 852 852 December 31, 2022 (dollars in thousands) Level 1 Inputs Level 2 Inputs Level 3 Inputs Total Fair Value Loans held for sale $ — $ 615 $ — $ 615 Collateral-dependent loans — — 17,460 17,460 Bank premises held for sale — — 235 235 Foreclosed assets — — 3,030 3,030 The following tables present quantitative information about unobservable inputs used in nonrecurring Level 3 fair value measurements (dollars in thousands): December 31, 2023 Fair Value Valuation Technique Unobservable Inputs Range (Weighted Average) Collateral-dependent loans $ 32,685 Appraisal of collateral Appraisal adjustments Not meaningful Foreclosed assets 852 Appraisal Appraisal adjustments 7 % ( 7 %) December 31, 2022 Fair Value Valuation Technique Unobservable Inputs Range (Weighted Average) Collateral-dependent loans $ 17,460 Appraisal of collateral Appraisal adjustments Not meaningful Bank premises held for sale 235 Appraisal Appraisal adjustments 7 % ( 7 %) Foreclosed assets 3,030 Appraisal Appraisal adjustments 7 % ( 7 %) Other Fair Value Methods The following methods and assumptions were used by the Company in estimating fair value disclosures of its other financial instruments. There were no changes in the methods and significant assumptions used to estimate the fair value of these financial instruments. Cash and Cash Equivalents The carrying amounts of these financial instruments approximate their fair values. Restricted Stock The carrying amount of FHLB stock approximates fair value based on the redemption provisions of the FHLB. 143 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Loans The fair value estimation process for the loan portfolio uses an exit price concept and reflects discounts the Company believes are consistent with discounts in the marketplace. Fair values are estimated for portfolios of loans with similar characteristics. Loans are segregated by type such as commercial and industrial, agricultural and farmland, commercial real estate - owner occupied, commercial real estate - non-owner occupied, multi-family, construction and land development, one-to-four family residential, and municipal, consumer, and other. The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for similar maturities. The fair value analysis also includes other assumptions to estimate fair value, intended to approximate those a market participant would use in an orderly transaction, with adjustments for discount rates, interest rates, liquidity, and credit spreads, as appropriate. Investments in Unconsolidated Subsidiaries The fair values of the Company’s investments in unconsolidated subsidiaries are presumed to approximate carrying amounts. Time and Brokered Time Deposits Fair values of certificates of deposit with stated maturities have been estimated using the present value of estimated future cash flows discounted at rates currently offered for similar instruments. Time deposits also include public funds time deposits. Securities Sold Under Agreements to Repurchase The fair values of repurchase agreements with variable interest rates are presumed to approximate their recorded carrying amounts. 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. 144 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table provides summary information on the carrying amounts and estimated fair values of the Company’s financial instruments: (dollars in thousands) Fair Value Hierarchy Level December 31, 2023 December 31, 2022 Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value Financial assets: Cash and cash equivalents Level 1 $ 141,252 $ 141,252 $ 114,159 $ 114,159 Debt securities held-to-maturity Level 2 521,439 466,496 541,600 478,801 Restricted stock Level 3 7,160 7,160 7,965 7,965 Loans, net Level 3 3,364,369 3,349,540 2,594,920 2,566,930 Investments in unconsolidated subsidiaries Level 3 1,614 1,614 1,165 1,165 Accrued interest receivable Level 2 24,534 24,534 19,506 19,506 Financial liabilities: Time deposits Level 3 627,253 619,682 262,968 253,619 Brokered deposits Level 3 144,880 144,944 — — Securities sold under agreements to repurchase Level 2 42,442 42,442 43,081 43,081 Subordinated notes Level 3 39,474 36,993 39,395 37,205 Junior subordinated debentures Level 3 52,789 48,529 37,780 37,030 Accrued interest payable Level 2 6,969 6,969 1,363 1,363 The Company estimated the fair value of lending related commitments as described in Note 22 to be immaterial based on limited interest rate exposure due to their variable nature, short-term commitment periods and termination clauses provided in the agreements. Limitations Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair values have been estimated using data which management considered the best available and estimation methodologies deemed suitable for the pertinent category of financial instrument. 145 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 22 – COMMITMENTS AND CONTINGENCIES Financial Instruments The Bank is party to credit-related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Such commitments and conditional obligations were as follows: Contractual Amount (dollars in thousands) December 31, 2023 December 31, 2022 Commitments to extend credit $ 869,013 $ 756,885 Standby letters of credit 23,732 17,785 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, by the Bank upon extension of credit is based on management’s credit evaluation of the customer. Collateral held varies, but may include real estate, accounts receivable, inventory, property, plant, and equipment, and income-producing properties. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those standby letters of credit are primarily issued to support extensions of credit. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. The Bank secures the standby letters of credit with the same collateral used to secure the related loan. Allowance for Credit Losses on Unfunded Lending-related Commitments The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancelable by the Company. The allowance for credit losses on unfunded commitments is included in other liabilities on the consolidated balance sheets and is adjusted through a charge to provision for credit loss expense on the consolidated statements of income. The allowance for credit losses on unfunded commitments estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The allowance for credit losses on unfunded commitments was $ 3.8 million as of December 31, 2023. 146 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Legal Contingencies In the normal course of business, the Company, or its subsidiaries, are involved in various legal proceedings. In the opinion of management, any liability resulting from pending proceedings would not be expected to have a material adverse effect on the Company's consolidated financial statements. PLB Investments LLC, John Kuehner, and A.S. Palmer Investments LLC v. Heartland Bank and Trust Company and PNC Bank N.A., In the United States District Court for the Northern District of Illinois, Case No. 1:20-cv-1023 (“Class Action”); and Melanie E. Damian, As Receiver of Today’s Growth Consultant, Inc. (dba The Income Store) v. Heartland Bank and Trust Company and PNC Bank N.A., In the United States District Court for the Northern District of Illinois, Case No. 1:20-cv-7819 (“Receiver’s Action”) The Bank was a defendant in the purported Class Action lawsuit that was filed on February 12, 2020, in the U.S. District Court for the Northern District of Illinois. The plaintiffs in the Class Action alleged that the Bank negligently enabled and facilitated a fraudulent, Ponzi-like scheme perpetrated by Today’s Growth Consultant, Inc. (dba The Income Store) (“TGC”). Additionally, the Receiver for TGC filed the Receiver’s Action on December 30, 2020, in the U.S. District Court for the Northern District of Illinois, with similar allegations. On February 20, 2023, the Bank reached an agreement in principle to settle both the Class Action and Receiver’s Action in which the Bank would make one-time cash payments totaling $ 13.0 million, without admitting fault, to release the Bank from further liability and claims in both the Class Action and Receiver’s Action. On August 16, 2023, definitive settlement agreements reflecting the terms of the agreement in principle were approved by the Court, and the Bank made the one-time cash payments totaling $ 13.0 million during the third quarter of 2023. The settlements do not include any admission of liability or wrongdoing by the Bank, and the Bank expressly denies any liability or wrongdoing with respect to any matter alleged in the Class Action and Receiver’s Action. The Bank agreed in principle to the settlements to avoid the cost, risks and distraction of continued litigation. The Company believes the settlements are in the best interests of the Company and its shareholders. Accordingly, the Bank had $ 13.0 million accrued related to these matters as of December 31, 2022. The Bank’s insurer reimbursed $ 7.4 million of the settlement payment which was recorded as an insurance recovery receivable as of December 31, 2022. The net settlement amount of $ 5.6 million was included in other noninterest expense in the consolidated statements of income during the fourth quarter of 2022. DeBaere, et al v. Heartland Bank and Trust Company The Bank was a defendant in a purported class action lawsuit filed in June 2020, in the Circuit Court of Cook County, Illinois. The plaintiff, a customer of the Bank, alleges that the Bank breached its contract with the plaintiff by (1) charging multiple insufficient funds fees or overdraft fees on a single customer-initiated transaction, and (2) charging overdraft fees for transactions that were authorized on a positive account balance, but when settled, settled into a negative balance. Miller, et al v. State Bank of Lincoln and Heartland Bank and Trust Company The Bank was a defendant in a purported class action lawsuit filed in May 2020, in the Circuit Court of Logan County, Illinois. The plaintiff, a customer of State Bank of Lincoln, which previously merged with the Bank, alleges that the Bank breached its contract with the plaintiff by charging multiple insufficient funds fees or overdraft fees on a single customer-initiated transaction. 147 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On May 15, 2023, the Bank reached an agreement in principle to settle both the DeBaere, et al and Miller, et al cases in which the Bank would make one-time cash payments totaling $ 3.4 million, without admitting fault, to release the Bank from further liability and claims in both the cases. Definitive settlement agreements reflecting the terms of the agreement in principle were approved by the Court on December 15, 2023 in the DeBaere, et al case and on February 16, 2024 in the Miller, et al case. The Bank made the one-time cash payments totaling $ 3.4 million during the fourth quarter of 2023. The settlements do not include any admission of liability or wrongdoing by the Bank, and the Bank expressly denies any liability or wrongdoing with respect to any matter alleged in the Class Action and Receiver’s Action. The Bank agreed in principle to the settlements to avoid the cost, risks and distraction of continued litigation. The Company believes the settlements are in the best interests of the Company and its shareholders. Accordingly, the Bank had in the aggregate $ 2.6 million accrued as of December 31, 2022 related to these matters. An initial $ 2.6 million accrual was recognized in other noninterest expense during the fourth quarter of 2022, reflecting management’s best estimate at that time, and an additional $ 0.8 million accrual was recognized in other noninterest expense during the second quarter of 2023 following the agreement in principle to settle both the DeBaere, et al and Miller, et al cases. John Pickett v. Town and Country Bank The Bank is a defendant in a purported class action lawsuit filed in October 2023, in the Circuit Court of Sangamon County, Illinois. The plaintiff, a customer of Town and Country Bank, which previously merged with the Bank, alleges that the Bank breached its contract with the plaintiff by charging overdraft fees for transactions that were authorized on a positive account balance, but when settled, settled into a negative balance. The Bank intends to vigorously defend the lawsuit. However, the Company believes an unfavorable outcome is probable at this time, as that term is used in assessing loss contingencies. Accordingly, consistent with the authoritative guidance in the evaluation of contingencies, an accrual has been recorded related to these matters of $ 0.2 million in the aggregate during the fourth quarter and year ended December 31, 2023. While the amount recorded reflects management’s best estimate as of December 31, 2023, the Company cannot yet offer an opinion on the estimated range of possible loss. NOTE 23 - RELATED PARTY TRANSACTIONS Loans As of December 31, 2023 and 2022, loans to directors, executive officers, principal shareholders and their affiliated entities (“related parties”) totaled $ 1.1 million and $ 2.2 million, respectively. These loans were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing for comparable loans with persons not related to us. Deposits Deposits of related parties totaled $ 4.0 million and $ 22.0 million as of December 31, 2023 and 2022, respectively. 148 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 24 - CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS Following are the condensed parent company only financial statements of HBT Financial. Condensed Parent Company Only Balance Sheets (dollars in thousands) December 31, 2023 December 31, 2022 ASSETS Cash and cash equivalents $ 17,214 $ 24,278 Investment in subsidiaries: Bank 563,513 422,217 Non-bank 1,614 1,165 Other assets 2,347 5,338 Total assets $ 584,688 $ 452,998 LIABILITIES Subordinated notes $ 39,474 $ 39,395 Junior subordinated debentures 52,789 37,780 Other liabilities 2,929 2,191 Total liabilities 95,192 79,366 STOCKHOLDERS' EQUITY 489,496 373,632 Total liabilities and stockholders' equity $ 584,688 $ 452,998 Condensed Parent Company Only Statements of Income Year ended December 31, (dollars in thousands) 2023 2022 2021 INCOME Dividends received from bank subsidiary $ 64,000 $ 28,000 $ 20,000 Undistributed earnings from bank subsidiary 9,199 35,044 41,227 Other income 870 51 454 Total income 74,069 63,095 61,681 EXPENSES Interest expense 5,409 3,666 3,305 Other expense 5,517 5,292 3,741 Total expenses 10,926 8,958 7,046 INCOME BEFORE INCOME TAX BENEFIT 63,143 54,137 54,635 TAX BENEFIT ( 2,699 ) ( 2,319 ) ( 1,636 ) NET INCOME $ 65,842 $ 56,456 $ 56,271 149 Table of Contents HBT FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Parent Company Only Statements of Cash Flow Year ended December 31, (dollars in thousands) 2023 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 65,842 $ 56,456 $ 56,271 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed earnings of consolidated subsidiaries ( 9,199 ) ( 35,044 ) ( 41,227 ) Stock-based compensation 1,953 1,949 764 Amortization of discount and issuance costs on subordinated notes and debentures 139 145 144 Net gain on sale of foreclosed assets ( 563 ) — ( 74 ) Changes in other assets and liabilities, net 360 769 ( 2,231 ) Net cash provided by operating activities 58,532 24,275 13,647 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of securities — — ( 48 ) Purchase of foreclosed assets from Heartland Bank — ( 2,325 ) — Proceeds from sale of foreclosed assets 2,888 — 74 Net cash paid for acquisition of NXT Bancorporation, Inc. — — ( 10,411 ) Net cash paid for acquisition of Town and Country ( 37,523 ) — — Net cash used in investing activities ( 34,635 ) ( 2,325 ) ( 10,385 ) CASH FLOWS FROM FINANCING ACTIVITIES Taxes paid related to the vesting of restricted stock units ( 181 ) ( 57 ) — Repurchase of common stock ( 8,907 ) ( 4,783 ) ( 4,906 ) Cash dividends and dividend equivalents paid ( 21,873 ) ( 18,584 ) ( 16,753 ) Net cash used in financing activities ( 30,961 ) ( 23,424 ) ( 21,659 ) NET DECREASE IN CASH AND EQUIVALENTS ( 7,064 ) ( 1,474 ) ( 18,397 ) CASH AND CASH EQUIVALENTS Beginning of year 24,278 25,752 44,149 End of year $ 17,214 $ 24,278 $ 25,752 150 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES. None.