HBT Financial, Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Unless the context requires otherwise, references in this report to the “Company,” “we,” “us” and “our” refer to HBT Financial, Inc. and its subsidiaries. Management’s discussion and analysis should be read in conjunction with the following parts of this Annual Report on Form 10-K: Part I, Item 1 “Business”, Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk”, and Part II, Item 8 “Financial Statements and Supplementary Data”. Detailed discussion and analysis of the financial condition and results of operation for 2024 as compared to 2023 can be found below. Detailed discussion and analysis of the financial condition and results of operation for 2023 as compared to 2022 can be found in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” OVERVIEW HBT Financial, Inc., headquartered in Bloomington, Illinois, is the holding company for Heartland Bank and Trust Company, and has banking roots that can be traced back to 1920. We provide a comprehensive suite of financial products and services to consumers, businesses, and municipal entities throughout Illinois and eastern Iowa. As of December 31, 2024, the Company had total assets of $5.0 billion, loans held for investment of $3.5 billion, and total deposits of $4.3 billion. Market Area As of December 31, 2024, our branch network included 66 full-service branch locations throughout Illinois and eastern Iowa. We hold a leading deposit share in many of our central Illinois markets, which we define as a top three deposit share rank, providing the foundation for our strong deposit base. The stability provided by this low-cost funding is a key driver of our strong track record of financial performance. Below is a summary of our loan and deposit balances by geographic region: December 31, 2024 December 31, 2023 (dollars in thousands) Loans Deposits Loans Deposits Central $ 1,676,842 $ 2,984,820 $ 1,693,794 $ 3,094,305 Chicago MSA 1,443,777 1,218,098 1,406,348 1,197,865 Illinois 3,120,619 4,202,918 3,100,142 4,292,170 Iowa 345,527 115,336 304,275 109,267 Total $ 3,466,146 $ 4,318,254 $ 3,404,417 $ 4,401,437 Town and Country Financial Corporation Acquisition On February 1, 2023, HBT Financial completed its acquisition of Town and Country, the holding company for Town and Country Bank. The acquisition of Town and Country further enhanced HBT Financial’s footprint in central Illinois and expanded our footprint into metro-east St. Louis. At the time of acquisition, Town and Country Bank operated 10 full-service branch locations which began operating as branches of Heartland Bank. The core system conversion was successfully completed in April 2023. After considering business combination accounting adjustments, Town and Country added total assets of $937.2 million, total loans held for investment of $635.4 million, and total deposits of $720.4 million. Total consideration consisted of 3.4 million shares of HBT Financial’s common stock and $38.0 million in cash. Based upon the closing price of HBT Financial common stock of $21.12 on February 1, 2023, the aggregate consideration was approximately $109.4 million. Goodwill of $30.5 million was recorded in the acquisition. Total acquisition-related expenses were $13.7 million, including the recognition of an allowance for credit losses on non-purchased credit deteriorated loans (“non-PCD loans”) of $5.2 million and an allowance for credit losses on unfunded commitments of $0.7 million through provision for credit losses, during the year ended December 31, 2023 and were $1.1 million during the year ended December 31, 2022. There were no acquisition-related expenses during the year ended December 31, 2024. 44 Table of Contents RESULTS OF OPERATIONS Overview of Recent Financial Results Year Ended December 31, (dollars in thousands, except per share amounts) 2024 2023 2022 Total interest and dividend income $ 251,700 $ 228,999 $ 153,054 Total interest expense 62,850 37,927 7,180 Net interest income 188,850 191,072 145,874 Provision for credit losses 3,031 7,573 (706) Net interest income after provision for credit losses 185,819 183,499 146,580 Total noninterest income 35,571 36,046 34,717 Total noninterest expense 124,007 130,964 105,107 Income before income tax expense 97,383 88,581 76,190 Income tax expense 25,603 22,739 19,734 Net income $ 71,780 $ 65,842 $ 56,456 Adjusted net income (1) $ 75,002 $ 78,182 $ 55,805 Pre-provision net revenue (1) $ 100,414 $ 96,154 $ 75,484 Pre-provision net revenue less net charge-offs (recoveries) (1) 98,656 95,974 77,587 Adjusted pre-provision net revenue (1) 104,920 107,281 74,282 Adjusted pre-provision net revenue less net charge-offs (recoveries) (1) 103,162 107,101 76,385 Share and Per Share Information Earnings per share - Diluted $ 2.26 $ 2.07 $ 1.95 Adjusted earnings per share - Diluted (1) 2.37 2.46 1.93 Weighted average shares of common stock outstanding 31,590,117 31,626,308 28,853,697 Summary Ratios Net interest margin 3.96 % 4.09 % 3.54 % Net interest margin (tax-equivalent basis) (1) (2) 4.01 4.15 3.60 Yield on loans 6.36 6.04 4.91 Yield on interest-earning assets 5.28 4.90 3.72 Cost of total deposits 1.30 0.60 0.07 Cost of funds 1.41 0.86 0.19 Efficiency ratio 53.99 % 56.49 % 57.72 % Efficiency ratio (tax-equivalent basis) (1) (2) 53.46 55.81 56.93 Adjusted efficiency ratio (tax-equivalent basis) (1)(2) 52.42 51.68 57.05 Return on average assets 1.43 % 1.34 % 1.32 % Return on average stockholders' equity 13.93 14.60 14.73 Return on average tangible common equity (1) 16.45 17.63 16.02 Adjusted return on average assets (1) 1.50 % 1.59 % 1.31 % Adjusted return on average stockholders' equity (1) 14.55 17.34 14.56 Adjusted return on average tangible common equity (1) 17.19 20.94 15.83 _________________________________________________ (1) See "Non-GAAP Financial Information" for reconciliation of non-GAAP measures to their most closely comparable GAAP measures. (2) On a tax-equivalent basis assuming a federal income tax rate of 21% and a state income tax rate of 9.5%. 45 Table of Contents Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023 For the year ended December 31, 2024, net income was $71.8 million, increasing by $5.9 million, or 9.0%, when compared to net income for the year ended December 31, 2023. Notable changes include the following: • There were no Town and Country acquisition-related expenses during the year ended December 31, 2024, compared to $13.7 million of acquisition-related expenses incurred during the year ended December 31, 2023; • Net losses of $3.7 million were realized on the sale of debt securities during the year ended December 31, 2024, compared to net losses of $1.8 million realized during the year ended December 31, 2023; • A $2.2 million decrease in net interest income, primarily attributable to higher funding costs which were partially offset by higher asset yields and an increase in interest-earning assets; • A $0.2 million negative mortgage servicing rights fair value adjustment included in the 2024 results, compared to a $1.6 million negative mortgage servicing rights fair value adjustment included in the 2023 results; and • A $2.9 million increase in income tax expense, primarily reflecting higher pre-tax income resulting from the above items as well as an additional $0.5 million for a deferred tax expense write-down, primarily as a result of an Illinois tax change. This increased our effective tax rate to 26.3% during the year ended December 31, 2024, compared to 25.7% during the year ended December 31, 2023. Net Interest Income Net interest income equals the excess of interest income on interest earning assets (including discount accretion on acquired loans plus certain loan fees) over interest expense incurred on interest-bearing liabilities. Net interest margin, which is expressed as the percentage of net interest income to average interest-earning assets, is utilized to measure and explain changes in net interest income. The following table sets forth average balances, average yields and costs, and certain other information. Average balances are daily average balances. Nonaccrual loans are included in the computation of average balances but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees and costs, discounts and premiums, as well as purchase accounting adjustments that are accreted or amortized to interest income or expense. 46 Table of Contents Year Ended December 31, 2024 December 31, 2023 December 31, 2022 (dollars in thousands) Average Balance Interest Yield/Cost Average Balance Interest Yield/Cost Average Balance Interest Yield/Cost ASSETS Loans $ 3,378,059 $ 214,863 6.36 % $ 3,231,736 $ 195,197 6.04 % $ 2,514,549 $ 123,478 4.91 % Debt securities 1,200,444 27,903 2.32 1,343,419 29,971 2.23 1,396,704 27,806 1.99 Deposits with banks 178,436 8,272 4.64 84,544 3,020 3.57 197,030 1,541 0.78 Other 12,732 662 5.20 15,326 811 5.29 9,841 229 2.33 Total interest-earning assets 4,769,671 $ 251,700 5.28 % 4,675,025 $ 228,999 4.90 % 4,118,124 $ 153,054 3.72 % Allowance for credit losses (40,694) (37,504) (24,703) Noninterest-earning assets 279,106 290,383 176,452 Total assets $ 5,008,083 $ 4,927,904 $ 4,269,873 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Interest-bearing deposits: Interest-bearing demand $ 1,106,136 $ 5,499 0.50 % $ 1,188,680 $ 3,130 0.26 % $ 1,141,402 $ 607 0.05 % Money market 797,444 18,637 2.34 669,118 7,352 1.10 582,514 813 0.14 Savings 584,769 1,621 0.28 661,424 1,033 0.16 650,385 208 0.03 Time 757,456 28,183 3.72 481,466 10,784 2.24 283,232 883 0.31 Brokered 38,286 2,107 5.50 52,724 2,836 5.38 — — — Total interest-bearing deposits 3,284,091 56,047 1.71 3,053,412 25,135 0.82 2,657,533 2,511 0.09 Securities sold under agreements to repurchase 30,984 594 1.92 35,450 255 0.72 51,554 36 0.07 Borrowings 13,383 480 3.59 139,817 7,128 5.10 26,468 967 3.65 Subordinated notes 39,514 1,879 4.75 39,434 1,879 4.76 39,355 1,879 4.77 Junior subordinated debentures issued to capital trusts 52,819 3,850 7.29 51,489 3,530 6.86 37,746 1,787 4.73 Total interest-bearing liabilities 3,420,791 $ 62,850 1.84 % 3,319,602 $ 37,927 1.14 % 2,812,656 $ 7,180 0.26 % Noninterest-bearing deposits 1,033,811 1,113,300 1,051,187 Noninterest-bearing liabilities 38,113 44,074 22,724 Total liabilities 4,492,715 4,476,976 3,886,567 Stockholders' Equity 515,368 450,928 383,306 Total liabilities and stockholders’ equity $ 5,008,083 $ 4,927,904 $ 4,269,873 Net interest income/Net interest margin (1) $ 188,850 3.96 % $ 191,072 4.09 % $ 145,874 3.54 % Tax-equivalent adjustment (2) 2,242 0.05 2,758 0.06 2,499 0.06 Net interest income (tax-equivalent basis)/ Net interest margin (tax-equivalent basis) (2) (3) $ 191,092 4.01 % $ 193,830 4.15 % $ 148,373 3.60 % Net interest rate spread (4) 3.44 % 3.76 % 3.46 % Net interest-earning assets (5) $ 1,348,880 $ 1,355,423 $ 1,305,468 Ratio of interest-earning assets to interest-bearing liabilities 1.39 1.41 1.46 Cost of total deposits 1.30 % 0.60 % 0.07 % Cost of funds 1.41 0.86 0.19 _________________________________________________ (1) Net interest margin represents net interest income divided by average total interest-earning assets. (2) On a tax-equivalent basis assuming a federal income tax rate of 21% and a state income tax rate of 9.5%. (3) See "Non-GAAP Financial Information" for reconciliation of non-GAAP measure to their most closely comparable GAAP measures. (4) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. (5) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities. 47 Table of Contents The following table sets forth the components of loan interest income and their contributions to the total loan yield. Year Ended December 31, 2024 2023 2022 (dollars in thousands) Interest Yield Contribution Interest Yield Contribution Interest Yield Contribution Contractual interest $ 205,031 6.07 % $ 185,772 5.75 % $ 113,775 4.52 % Loan fees (excluding PPP loans) 4,264 0.13 4,584 0.14 4,454 0.18 PPP loan fees 1 — 2 — 1,488 0.06 Accretion of acquired loan discounts 4,450 0.13 4,136 0.13 933 0.04 Nonaccrual interest recoveries 1,117 0.03 703 0.02 2,828 0.11 Total loan interest income $ 214,863 6.36 % $ 195,197 6.04 % $ 123,478 4.91 % The following table sets forth the components of net interest income and their contributions to the net interest margin. Year Ended December 31, 2024 2023 2022 (dollars in thousands) Interest Net Interest Margin Contribution Interest Net Interest Margin Contribution Interest Net Interest Margin Contribution Interest income: Contractual interest on loans $ 205,031 4.30 % $ 185,772 3.97 % $ 113,775 2.76 % Loan fees (excluding PPP loans) 4,264 0.09 4,584 0.10 4,454 0.11 PPP loan fees 1 — 2 — 1,488 0.04 Accretion of acquired loan discounts 4,450 0.09 4,136 0.09 933 0.02 Nonaccrual interest recoveries 1,117 0.02 703 0.02 2,828 0.07 Debt securities 27,903 0.59 29,971 0.64 27,806 0.67 Interest-bearing deposits in bank 8,272 0.18 3,020 0.06 1,541 0.04 Other 662 0.01 811 0.02 229 0.01 Total interest income 251,700 5.28 228,999 4.90 153,054 3.72 Interest expense: Deposits 56,047 1.18 25,135 0.54 2,511 0.07 Other interest-bearing liabilities 6,803 0.14 12,792 0.27 4,669 0.11 Total interest expense 62,850 1.32 37,927 0.81 7,180 0.18 Net interest income 188,850 3.96 191,072 4.09 145,874 3.54 Tax-equivalent adjustment (1) 2,242 0.05 2,758 0.06 2,499 0.06 Net interest income (tax-equivalent) (1) (2) $ 191,092 4.01 % $ 193,830 4.15 % $ 148,373 3.60 % _________________________________________________ (1) On a tax-equivalent basis assuming a federal income tax rate of 21% and a state income tax rate of 9.5%. (2) See "Non-GAAP Financial Information" for reconciliation of non-GAAP measure to their most closely comparable GAAP measures. 48 Table of Contents Rate/Volume Analysis The following table sets forth the dollar amount of changes in interest income and interest expense for the major categories of our interest-earning assets and interest-bearing liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to changes attributable to volume ( i.e. , changes in average balances multiplied by the prior-period average rate), and changes attributable to rate ( i.e. , changes in average rate multiplied by prior-period average balances). For purposes of this table, changes attributable to both volume and rate that cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate. Year Ended December 31, 2024 vs. Year Ended December 31, 2023 Year Ended December 31, 2023 vs. Year Ended December 31, 2022 Increase (Decrease) Due to Total Increase (Decrease) Due to Total (dollars in thousands) Volume Rate Volume Rate Interest-earning assets: Loans $ 9,054 $ 10,612 $ 19,666 $ 39,701 $ 32,018 $ 71,719 Debt securities (3,286) 1,218 (2,068) (1,092) 3,257 2,165 Deposits with banks 4,141 1,111 5,252 (1,312) 2,791 1,479 Other (136) (13) (149) 177 405 582 Total interest-earning assets 9,773 12,928 22,701 37,474 38,471 75,945 Interest-bearing liabilities: Interest-bearing deposits: Interest-bearing demand (231) 2,600 2,369 26 2,497 2,523 Money market 1,641 9,644 11,285 139 6,400 6,539 Savings (132) 720 588 4 821 825 Time 8,080 9,319 17,399 1,007 8,894 9,901 Brokered (794) 65 (729) 2,836 — 2,836 Total interest-bearing deposits 8,564 22,348 30,912 4,012 18,612 22,624 Securities sold under agreements to repurchase (36) 375 339 (15) 234 219 Borrowings (5,008) (1,640) (6,648) 5,640 521 6,161 Subordinated notes 4 (4) — 4 (4) — Junior subordinated debentures issued to capital trusts 93 227 320 781 962 1,743 Total interest-bearing liabilities 3,617 21,306 24,923 10,422 20,325 30,747 Change in net interest income $ 6,156 $ (8,378) $ (2,222) $ 27,052 $ 18,146 $ 45,198 Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023 Net interest income for the year ended December 31, 2024 was $188.9 million, decreasing $2.2 million, or 1.2%, when compared to the year ended December 31, 2023. The decrease is primarily attributable to an increase in funding costs which were partially offset by higher yields on interest-earning assets and higher interest-earning asset balances following the Town and Country merger. Net interest margin decreased to 3.96% for the year ended December 31, 2024, compared to 4.09% for the year ended December 31, 2023. The decrease was primarily attributable to increases in funding costs outpacing increases in interest-earning asset yields. Additionally, the contribution of acquired loan discount accretion to net interest margin was 9 basis points for each of the years ended December 31, 2024 and 2023. 49 Table of Contents The quarterly net interest margins were as follows: 2024 2023 2022 Three months ended: March 31 3.94 % 4.20 % 3.08 % June 30 3.95 4.16 3.34 September 30 3.98 4.07 3.65 December 31 3.96 3.93 4.10 The FOMC began raising the target range for the federal funds rate in March 2022 and continued raising interest rates until its July 2023 meeting. As a result, market interest rates also rose during this time which led to improvements in our net interest margin through the first quarter of 2023. Our net interest margin decreased modestly beginning in the second quarter of 2023, as increased competition for deposits drove an increase in our funding costs. This continued during the remainder of 2023 with increases in funding costs outpacing increases in interest-earning asset yields. Our deposit balances and funding costs began to stabilize during the first quarter of 2024 while yields on loans continued to increase and debt securities continued to reprice at higher rates. The FOMC began lowering interest rates in September 2024, with the target range for the federal funds rate decreasing by 100 basis points to a range of 4.25% to 4.50% by the end of 2024. This decrease, and potential future decreases, may put downward pressure on our net interest margin, as the negative impact on floating rate loans may not be fully offset by the positive impacts of maturing fixed rate loans and securities repricing at higher rates or potential decreases in deposit costs. Generally, we expect increases in market interest rates will increase our net interest income and net interest margin in future periods, while decreases in market interest rates may decrease our net interest income and net interest margin in future periods; however, this depends upon the timing and extent of interest rate fluctuations and may not always be the case. 50 Table of Contents Provision for Credit Losses The following table sets forth the components of provision for credit losses for the years indicated: Year Ended December 31, (dollars in thousands) 2024 2023 2022 PROVISION FOR CREDIT LOSSES Loans $ 3,754 $ 6,665 $ (706) Unfunded lending-related commitments (723) 908 — Total provision for credit losses $ 3,031 $ 7,573 $ (706) Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023 The Company recorded a provision for credit losses of $3.0 million for the year ended December 31, 2024. The 2024 provision for credit losses primarily reflects a $4.0 million increase in required reserves resulting from changes in qualitative factors; an $0.8 million increase in required reserves driven by changes within the loan portfolio; a $1.2 million decrease in specific reserves on individually evaluated loans; and a $0.6 million decrease in required reserves resulting from improvements in economic forecasts. Additionally, the 2023 results included the recognition of an allowance for credit losses on non-PCD loans of $5.2 million and an allowance for credit losses on unfunded commitments of $0.7 million through provision for credit losses which were related to the Town and Country acquisition. Credit losses are highly dependent on current and forecast economic conditions. Potential deterioration of economic conditions may lead to higher credit losses and adversely impact our financial condition and results of operations. The economic forecasts utilized in estimating the allowance for credit losses on loans and lending-related unfunded commitments include the unemployment rate and changes in gross domestic product ("GDP") as macroeconomic variables, although other economic metrics are considered on a qualitative basis. 51 Table of Contents Noninterest Income The following table sets forth the major categories of noninterest income for the years indicated: Year Ended December 31, Year Ended December 31, (dollars in thousands) 2024 2023 $ Change % Change 2023 2022 $ Change % Change Card income $ 11,051 $ 11,043 $ 8 0.1 % $ 11,043 $ 10,329 $ 714 6.9 % Wealth management fees 10,978 9,883 1,095 11.1 9,883 9,155 728 8.0 Service charges on deposit accounts 7,932 7,846 86 1.1 7,846 7,072 774 10.9 Mortgage servicing 4,437 4,678 (241) (5.2) 4,678 2,609 2,069 79.3 Mortgage servicing rights fair value adjustment (174) (1,615) 1,441 NM (1,615) 2,153 (3,768) NM Gains on sale of mortgage loans 1,611 1,526 85 5.6 1,526 1,461 65 4.4 Realized gains (losses) on sales of securities (3,697) (1,820) (1,877) NM (1,820) — (1,820) NM Unrealized gains (losses) on equity securities (59) 160 (219) NM 160 (414) 574 NM Gains (losses) on foreclosed assets 22 501 (479) (95.6) 501 (314) 815 NM Gains (losses) on other assets (635) 166 (801) NM 166 136 30 22.1 Income on bank owned life insurance 915 573 342 59.7 573 164 409 249.4 Other noninterest income 3,190 3,105 85 2.7 3,105 2,366 739 31.2 Total $ 35,571 $ 36,046 $ (475) (1.3) % $ 36,046 $ 34,717 $ 1,329 3.8 % _________________________________________________ NM Not meaningful. Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023 Total noninterest income for the year ended December 31, 2024, was $35.6 million, a decrease of $0.5 million, or 1.3%, from the year ended December 31, 2023. Notable changes in noninterest income include the following: • Net losses of $3.7 million were realized on the sale of debt securities during the year ended December 31, 2024, compared to net losses of $1.8 million realized during the year ended December 31, 2023; • A $0.2 million negative mortgage servicing rights fair value adjustment included in the 2024 results, compared to a $1.6 million negative mortgage servicing rights fair value adjustment included in the 2023 results; • A $1.1 million increase in wealth management fees, driven by higher values of assets under management, partially offset by lower farm management fees as a result of lower commodity prices; • Impairment losses on bank premises of $0.6 million related to the closure of two branch premises were recognized during 2024, compared to a $0.1 million gain on sales of closed branch premises recognized during 2023; and • A $0.3 million increase in income on bank owned life insurance, primarily attributable to a $0.2 million gain on life insurance proceeds. 52 Table of Contents Noninterest Expense The following table sets forth the major categories of noninterest expense for the years indicated: Year Ended December 31, Year Ended December 31, (dollars in thousands) 2024 2023 $ Change % Change 2023 2022 $ Change % Change Salaries $ 65,130 $ 67,453 $ (2,323) (3.4) % $ 67,453 $ 51,767 $ 15,686 30.3 % Employee benefits 11,311 10,037 1,274 12.7 10,037 8,325 1,712 20.6 Occupancy of bank premises 10,293 9,918 375 3.8 9,918 7,673 2,245 29.3 Furniture and equipment 2,004 2,790 (786) (28.2) 2,790 2,476 314 12.7 Data processing 11,169 12,352 (1,183) (9.6) 12,352 7,441 4,911 66.0 Marketing and customer relations 4,320 5,043 (723) (14.3) 5,043 3,803 1,240 32.6 Amortization of intangible assets 2,839 2,670 169 6.3 2,670 873 1,797 205.8 FDIC insurance 2,254 2,280 (26) (1.1) 2,280 1,164 1,116 95.9 Loan collection and servicing 2,056 1,402 654 46.6 1,402 1,049 353 33.7 Foreclosed assets 109 251 (142) (56.6) 251 293 (42) (14.3) Other noninterest expense 12,522 16,768 (4,246) (25.3) 16,768 20,243 (3,475) (17.2) Total $ 124,007 $ 130,964 $ (6,957) (5.3) % $ 130,964 $ 105,107 $ 25,857 24.6 % Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023 Total noninterest expense for the year ended December 31, 2024, was $124.0 million, a decrease of $7.0 million, or 5.3%, from the year ended December 31, 2023. Notable changes in noninterest expense include the following: • There were no Town and Country acquisition-related noninterest expenses for the year ended December 31, 2024, but acquisition-related noninterest expenses totaled $7.8 million for the year ended December 31, 2023; • Excluding Town and Country acquisition-related expenses, the $1.3 million increase in salaries expense was primarily driven by annual merit increases; • The $1.3 million increase in employee benefits expense was primarily attributable to higher medical benefits expenses; and • Excluding Town and Country acquisition-related expenses, the $2.3 million decrease in other noninterest expense primarily reflects the absence of $0.8 million of legal fees and $1.0 million of accruals related to litigation matters disclosed in Note 23 to the Company's Consolidated Financial Statements in this Annual Report on Form 10-K. Income Taxes During the years ended December 31, 2024 and 2023, we recorded income tax expense of $25.6 million, or an effective tax rate of 26.3%, and $22.7 million, or an effective tax rate of 25.7%, respectively. The increase in effective tax rate during 2024 was primarily attributable to an additional $0.5 million of tax expense for a deferred tax asset write-down, as a result of an Illinois tax change, as well as changes in the proportion of federally tax-exempt interest income to pre-tax income. 53 Table of Contents FINANCIAL CONDITION (dollars in thousands, except per share data) December 31, 2024 December 31, 2023 $ Change % Change Cash and cash equivalents $ 137,692 $ 141,252 $ (3,560) (2.5) % Debt securities available-for-sale, at fair value 698,049 759,461 (61,412) (8.1) Debt securities held-to-maturity 499,858 521,439 (21,581) (4.1) Loans held for sale 1,586 2,318 (732) (31.6) Loans, before allowance for credit losses 3,466,146 3,404,417 61,729 1.8 Less: allowance for credit losses 42,044 40,048 1,996 5.0 Loans, net of allowance for credit losses 3,424,102 3,364,369 59,733 1.8 Goodwill 59,820 59,820 — — Intangible assets, net 17,843 20,682 (2,839) (13.7) Other assets 193,952 203,829 (9,877) (4.8) Total assets $ 5,032,902 $ 5,073,170 $ (40,268) (0.8) % Total deposits $ 4,318,254 $ 4,401,437 $ (83,183) (1.9) % Securities sold under agreements to repurchase 28,969 42,442 (13,473) (31.7) Borrowings 13,231 12,623 608 4.8 Subordinated notes 39,553 39,474 79 0.2 Junior subordinated debentures 52,849 52,789 60 0.1 Other liabilities 35,441 34,909 532 1.5 Total liabilities 4,488,297 4,583,674 (95,377) (2.1) Total stockholders' equity 544,605 489,496 55,109 11.3 Total liabilities and stockholders' equity $ 5,032,902 $ 5,073,170 $ (40,268) (0.8) % Tangible assets (1) $ 4,955,239 $ 4,992,668 $ (37,429) (0.7) % Tangible common equity (1) 466,942 408,994 57,948 14.2 Core deposits (1) $ 4,116,058 $ 4,126,374 $ (10,316) (0.3) % Share and Per Share Information Book value per share $ 17.26 $ 15.44 $ 1.82 11.8 % Tangible book value per share (1) 14.80 12.90 1.90 14.7 Shares of common stock outstanding 31,559,366 31,695,828 Balance Sheet Ratios Loan to deposit ratio 80.27 % 77.35 % Core deposits to total deposits (1) 95.32 93.75 Stockholders' equity to total assets 10.82 9.65 Tangible common equity to tangible assets (1) 9.42 8.19 _________________________________________________ (1) See "Non-GAAP Financial Information" for reconciliation of non-GAAP measure to their most closely comparable GAAP measures. 54 Table of Contents Notable changes in our consolidated balance sheet include the following: • Debt securities decreased $83.0 million, largely due to the sale of $69.2 million of municipal securities with sales proceeds primarily used to reduce wholesale funding. Additionally, paydowns, maturities, and calls of debt securities generated another $126.3 million of cash proceeds with $105.1 million being reinvested into debt securities at higher yields; • Loans increased by $61.7 million, primarily attributable to new originations to recurring customers; and • Total deposits decreased by $83.2 million, primarily attributable to a $144.9 million decrease in brokered deposits. Deposit balances continued to shift towards higher cost deposit products, such as time deposits, which increased $158.2 million, including the addition of $65.0 million of time deposits from a State of Illinois loan matching program. Loan Portfolio The following table sets forth the composition of the loan portfolio, excluding loans held-for-sale, by type of loan. December 31, 2024 December 31, 2023 (dollars in thousands) Balance Percent Balance Percent Commercial and industrial $ 428,389 12.4 % $ 427,800 12.6 % Commercial real estate - owner occupied 322,316 9.3 295,842 8.7 Commercial real estate - non-owner occupied 899,565 25.9 880,681 25.9 Construction and land development 374,657 10.8 363,983 10.7 Multi-family 431,524 12.4 417,923 12.3 One-to-four family residential 463,968 13.4 491,508 14.4 Agricultural and farmland 293,375 8.5 287,294 8.4 Municipal, consumer, and other 252,352 7.3 239,386 7.0 Loans, before allowance for credit losses 3,466,146 100.0 % 3,404,417 100.0 % Allowance for credit losses (42,044) (40,048) Loans, net of allowance for credit losses $ 3,424,102 $ 3,364,369 Loans, before allowance for credit losses were $3.47 billion at December 31, 2024, an increase of $61.7 million, or 1.8%, from December 31, 2023. Notable changes include the following: • A $10.7 million increase in construction loans primarily attributable to draws on existing construction projects and new construction loans to existing customers which were mostly offset by transfers of completed projects into other categories. • An $18.9 million increase in commercial real estate – non-owner occupied loans and a $13.6 million increase in multi-family loans, primarily attributable to completed construction projects transferred from the construction and land development category, partially offset by early payoffs; and • During 2024, we purchased pools of commercial and industrial loans totaling $14.6 million. One pool included equipment finance loans purchased from a bank that originated the loans through its equipment finance division to borrowers across multiple industries and geographic regions. The remaining pool consisted of loans originated by a financial services company with a long-standing history of originating loans to healthcare and professional service borrowers across multiple geographic regions. 55 Table of Contents Commercial Real Estate Portfolios Commercial real estate – owner occupied loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The commercial real estate – owner occupied portfolio composition, segmented by the owner’s business classification, as of December 31, 2024 was as follows: December 31, 2024 (dollars in thousands) Balance Substandard Risk Rating Manufacturing $ 44,718 $ 333 Health care and social assistance 38,658 319 Auto repair and dealers 33,991 — Accommodation and food services 31,217 3,993 Retail trade 27,331 — Real estate, rental, and leasing 21,430 26 Wholesale trade 20,055 — Construction 19,777 1,405 Grain elevators 19,058 — Arts, entertainment, and recreation 12,457 77 Other services (except public administration) 11,942 — Administrative and support services 11,929 — Professional, scientific, and technical services 8,312 — Agriculture, forestry, fishing, and hunting 6,634 — Education services 6,537 1,331 Finance and insurance 4,916 — Other 3,354 — Total $ 322,316 $ 7,484 Commercial real estate – non-owner occupied loans are primarily made based on projected cash flows from the rental or sale of the underlying collateral. The commercial real estate – non-owner occupied portfolio composition, segmented by the property type, as of December 31, 2024 was as follows: December 31, 2024 (dollars in thousands) Balance Substandard Risk Rating Weighted Average LTV (1) Warehouse and manufacturing $ 189,982 $ — 56 % Retail 179,843 9,191 55 Office 159,198 4,854 56 Senior Living 107,742 12,912 56 Hotel 86,151 7,527 55 Mixed use (commercial and residential) 67,103 — 63 Medical office 33,893 — 58 Gas station 24,780 — 62 Auto repair and dealers 20,697 — 54 Restaurant and bar 12,653 — 60 Other 17,523 — 55 Total $ 899,565 $ 34,484 56 % ________________ (1) Weighted average LTV is based on the most recent appraisals available, which are generally obtained at the time of origination. Multi-family loans totaled $431.5 million as of December 31, 2024, and are primarily made based on projected cash flows from the rental or sale of the underlying collateral. As of December 31, 2024, multi-family loans had a weighted average LTV of 57%, based on the most recent appraisals available, which are generally obtained at the time of origination. 56 Table of Contents Management’s disciplined approach to credit risk management is exercised through portfolio diversification, robust underwriting policies, and routine loan monitoring practices in order to identify and mitigate any credit weakness as early as possible. Management continually monitors and evaluates commercial real estate concentrations by property class, industry, and relative to the Bank’s regulatory capital to remain in line with board-established limits and adapt to changing industry conditions. A centralized credit underwriting group, independent of the originating lender, evaluates a vast majority of the commercial exposures over $750 thousand annually, if not more frequently, through a standardized credit review process to ensure uniform application of policies and procedures as well as analyze credit performance. All loans require appropriate internal approval, with a centralized credit approval group reviewing all exposures over $500 thousand. Additionally, a robust internal review process reviews more than 45% of loan commitments on a rolling 24 month basis that is in addition to an annual third-party review of a sample of the portfolio. Beginning in the fourth quarter of 2022 in response to the rapid increase in interest rates, we have prepared quarterly cash flow stress tests for our commercial real estate – non-owner occupied and multi-family loans. For commercial real estate – non-owner occupied and multi-family loans over $1 million, we evaluate the impact of current interest rates on the underlying cash flows of the properties securing these loans, based on the most recent cash flow data available. This testing is completed in addition to the various sensitivity testing completed at the initial extension of credit. Individual credits with a maturity scheduled within the next five quarters that are presenting stress under current renewal terms are identified, so that ample time is available to develop solutions to manage credit risk. 57 Table of Contents Loan Portfolio Maturities The following table summarizes the scheduled maturities of the loan portfolio as of December 31, 2024. Demand loans (loans having no stated repayment schedule or maturity) and overdraft loans are reported as being due in one year or less. (dollars in thousands) 1 Year or Less After 1 Year Through 5 Years After 5 Years Through 15 Years After 15 Years Total Commercial and industrial $ 231,936 $ 141,237 $ 55,216 $ — $ 428,389 Commercial real estate - owner occupied 56,155 169,625 78,702 17,834 322,316 Commercial real estate - non-owner occupied 186,116 595,846 117,141 462 899,565 Construction and land development 179,950 170,567 13,993 10,147 374,657 Multi-family 114,333 269,453 46,423 1,315 431,524 One-to-four family residential 59,928 185,319 92,888 125,833 463,968 Agricultural and farmland 131,229 120,044 36,665 5,437 293,375 Municipal, consumer, and other 102,559 52,008 67,045 30,740 252,352 Total $ 1,062,206 $ 1,704,099 $ 508,073 $ 191,768 $ 3,466,146 The following table summarizes loans maturing after one year, segregated into variable and fixed interest rates. Variable Interest Rates (dollars in thousands) Repricing 1 Year or Less Repricing After 1 Year Total Variable Interest Rates Predetermined (Fixed) Interest Rates Total Commercial and industrial $ 41,830 $ 6,770 $ 48,600 $ 147,853 $ 196,453 Commercial real estate - owner occupied 58,037 43,707 101,744 164,417 266,161 Commercial real estate - non-owner occupied 92,372 18,285 110,657 602,792 713,449 Construction and land development 59,498 11,027 70,525 124,182 194,707 Multi-family 60,555 17,957 78,512 238,679 317,191 One-to-four family residential 81,134 56,056 137,190 266,850 404,040 Agricultural and farmland 4,101 10,741 14,842 147,304 162,146 Municipal, consumer, and other 32,964 18,534 51,498 98,295 149,793 Total $ 430,491 $ 183,077 $ 613,568 $ 1,790,372 $ 2,403,940 58 Table of Contents Nonperforming Assets Our nonperforming loans and nonperforming assets were as follows: (dollars in thousands) December 31, 2024 December 31, 2023 NONPERFORMING ASSETS Nonaccrual $ 7,652 $ 7,820 Past due 90 days or more, still accruing 4 37 Total nonperforming loans 7,656 7,857 Foreclosed assets 367 852 Total nonperforming assets $ 8,023 $ 8,709 Nonperforming loans that are wholly or partially guaranteed by the U.S. Government $ 1,573 $ 2,641 Allowance for credit losses $ 42,044 $ 40,048 Loans, before allowance for credit losses 3,466,146 3,404,417 CREDIT QUALITY RATIOS Allowance for credit losses to loans, before allowance for credit losses 1.21 % 1.18 % Allowance for credit losses to nonaccrual loans 549.45 512.12 Allowance for credit losses to nonperforming loans 549.16 509.71 Nonaccrual loans to loans, before allowance for credit losses 0.22 0.23 Nonperforming loans to loans, before allowance for credit losses 0.22 0.23 Nonperforming assets to total assets 0.16 0.17 Nonperforming assets to loans, before allowance for credit losses, and foreclosed assets 0.23 0.26 Total nonperforming assets were $8.0 million at December 31, 2024, a slight decrease when compared to $8.7 million at December 31, 2023. The slight decrease was primarily attributable to sales of foreclosed assets and a decrease in nonaccrual one-to-four family residential loans. Additionally, of the $7.7 million of nonperforming loans held as of December 31, 2024, $1.6 million are either wholly or partially guaranteed by the U.S. Government. Risk Classification of Loans Our risk classifications of loans were as follows: (dollars in thousands) December 31, 2024 December 31, 2023 Pass $ 3,264,396 $ 3,241,889 Pass-watch 83,947 98,206 Special mention (1) 46,590 — Substandard 71,213 64,322 Total $ 3,466,146 $ 3,404,417 _________________________________________________ (1) In June 2024, the Company updated its risk rating categories to add the special mention category to provide another level of granularity in distinguishing risk levels of loans. As of June 30, 2024, $19.5 million of the special mention loans would have been considered pass-watch and $10.6 million would have been considered substandard under the previous risk rating categories. Loans rated pass-watch or worse increased $39.2 million, or 24.1%, from December 31, 2023 to December 31, 2024, primarily attributable to downgrades within the agricultural and farmland, commercial and industrial, and construction and land development segments. 59 Table of Contents Net Charge-offs (Recoveries) The following table summarizes net charge-offs (recoveries) to average loans by loan category. Year Ended December 31, (dollars in thousands) 2024 2023 2022 Net charge-offs (recoveries) Commercial and industrial $ 1,300 $ 369 $ (751) Commercial real estate - owner occupied (10) (13) (1,006) Commercial real estate - non-owner occupied (586) (66) (283) Construction and land development (3) (53) (1) Multi-family 188 (281) — One-to-four family residential (142) (152) (302) Agricultural and farmland 51 (6) — Municipal, consumer, and other 960 382 240 Total $ 1,758 $ 180 $ (2,103) Average loans Commercial and industrial $ 402,936 $ 370,255 $ 268,765 Commercial real estate - owner occupied 294,847 290,489 219,127 Commercial real estate - non-owner occupied 886,903 874,661 695,230 Construction and land development 364,138 368,111 340,831 Multi-family 423,532 372,201 258,490 One-to-four family residential 482,984 476,856 328,656 Agricultural and farmland 285,747 254,106 233,349 Municipal, consumer, and other 236,972 225,057 170,101 Total $ 3,378,059 $ 3,231,736 $ 2,514,549 Charge-offs (recoveries) to average loans Commercial and industrial 0.32 % 0.10 % (0.28) % Commercial real estate - owner occupied — — (0.46) Commercial real estate - non-owner occupied (0.07) (0.01) (0.04) Construction and land development — (0.01) — Multi-family 0.04 (0.08) — One-to-four family residential (0.03) (0.03) (0.09) Agricultural and farmland 0.02 — — Municipal, consumer, and other 0.41 0.17 0.14 Total 0.05 % 0.01 % (0.08) % The net charge-offs (recoveries) to average total loans ratio has remained low for several years. While we believe our continuous credit monitoring and collection efforts have resulted in lower levels of credit losses, we also recognize that substantial federal economic stimulus during the COVID-19 pandemic and the relatively stable economic conditions after the pandemic have also contributed to reduced credit losses. Additionally, heightened net charge-offs within the commercial and industrial segment are primarily related to equipment finance loans which were purchased as part of a pool of loans during 2023. 60 Table of Contents Securities The Company’s investment policy emphasizes safety of the principal, liquidity needs, expected returns, cash flow targets, and consistency with our interest rate risk management strategy. The composition and maturities of the debt securities portfolio as of December 31, 2024, are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur. Security yields have not been adjusted to a tax-equivalent basis. December 31, 2024 Available-for-Sale Held-to-Maturity Total (dollars in thousands) Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Due in 1 year or less U.S. Treasury $ 30,011 1.46 % $ — — % $ 30,011 1.46 % U.S. government agency 12,395 2.69 — — 12,395 2.69 Municipal 3,437 2.54 7,084 3.05 10,521 2.89 Mortgage-backed: Agency residential 138 3.10 — — 138 3.10 Agency commercial 5,041 1.56 — — 5,041 1.56 Total $ 51,022 1.85 % $ 7,084 3.05 % $ 58,106 2.00 % Due after 1 year through 5 years U.S. Treasury $ 70,026 1.25 % $ — — % $ 70,026 1.25 % U.S. government agency 26,905 2.36 34,952 2.22 61,857 2.28 Municipal 56,385 1.61 17,398 3.11 73,783 1.97 Mortgage-backed: Agency residential 8,934 2.73 11,170 2.13 20,104 2.40 Agency commercial 64,017 1.81 83,406 2.29 147,423 2.08 Corporate 24,953 5.12 — — 24,953 5.12 Total $ 251,220 2.03 % $ 146,926 2.36 % $ 398,146 2.15 % Due after 5 years through 10 years U.S. Treasury $ 19,653 1.62 % $ — — % $ 19,653 1.62 % U.S. government agency 16,442 3.40 53,520 2.64 69,962 2.82 Municipal 74,310 1.77 9,125 3.65 83,435 1.98 Mortgage-backed: Agency residential 58,048 2.14 — — 58,048 2.14 Agency commercial 22,019 1.66 167,059 1.85 189,078 1.83 Corporate 34,779 4.52 — — 34,779 4.52 Total $ 225,251 2.38 % $ 229,704 2.11 % $ 454,955 2.25 % Due after 10 years Municipal $ 16,031 1.71 % $ 2,255 3.43 % $ 18,286 1.92 % Mortgage-backed: Agency residential 174,222 3.92 74,473 3.64 248,695 3.83 Agency commercial 37,746 2.47 39,416 1.89 77,162 2.17 Corporate 2,000 4.50 — — 2,000 4.50 Total $ 229,999 3.53 % $ 116,144 3.04 % $ 346,143 3.37 % Total U.S. Treasury $ 119,690 1.36 % $ — — % $ 119,690 1.36 % U.S. government agency 55,742 2.74 88,472 2.48 144,214 2.58 Municipal 150,163 1.72 35,862 3.26 186,025 2.02 Mortgage-backed: Agency residential 241,342 3.45 85,643 3.44 326,985 3.44 Agency commercial 128,823 1.96 289,881 1.98 418,704 1.98 Corporate 61,732 4.76 — — 61,732 4.76 Total $ 757,492 2.58 % $ 499,858 2.41 % $ 1,257,350 2.51 % 61 Table of Contents SOURCES OF FUNDS Deposits Management continues to focus on growing deposits through the Company’s relationship-driven banking philosophy and community-focused marketing programs. Additionally, we continue to add and improve digital banking services to solidify deposit relationships. The following table sets forth the distribution of average deposits, by account type: Year Ended December 31, 2024 Percent Change in Average Balance 2024 vs. 2023 (dollars in thousands) Average Balance Percent of Total Deposits Weighted Average Cost Noninterest-bearing $ 1,033,811 23.9 % — % (7.1) % Interest-bearing demand 1,106,136 25.6 0.50 (6.9) Money market 797,444 18.6 2.34 19.2 Savings 584,769 13.5 0.28 (11.6) Time 757,456 17.5 3.72 57.3 Brokered 38,286 0.9 5.50 (27.4) Total deposits $ 4,317,902 100.0 % 1.30 % 3.6 % Year Ended December 31, 2023 Percent Change in Average Balance 2023 vs. 2022 (dollars in thousands) Average Balance Percent of Total Deposits Weighted Average Cost Noninterest-bearing $ 1,113,300 26.7 % — % 5.9 % Interest-bearing demand 1,188,680 28.5 0.26 4.1 Money market 669,118 16.1 1.10 14.9 Savings 661,424 15.9 0.16 1.7 Time 481,466 11.5 2.24 70.0 Brokered 52,724 1.3 5.38 100.0 Total deposits $ 4,166,712 100.0 % 0.60 % 12.3 % Year Ended December 31, 2022 (dollars in thousands) Average Balance Percent of Total Deposits Weighted Average Cost Noninterest-bearing $ 1,051,187 28.4 % — % Interest-bearing demand 1,141,402 30.8 0.05 Money market 582,514 15.7 0.14 Savings 650,385 17.5 0.03 Time 283,232 7.6 0.31 Brokered — — — Total deposits $ 3,708,720 100.0 % 0.07 % The increase in average deposit balances in 2024 compared to 2023 was primarily attributable to increases in time deposits, including the addition of $65.0 million from a State of Illinois loan matching program, and money market accounts as balances continued to shift towards higher cost deposit products. Partially offsetting these increases was a decrease in brokered deposits due to planned repayment at scheduled maturity. As a result of these changes, deposit costs increased during 2024 compared to 2023. 62 Table of Contents The following table sets forth time deposits by remaining maturity as of December 31, 2024: (dollars in thousands) 3 Months or Less Over 3 through 6 Months Over 6 through 12 Months Over 12 Months Total Time deposits: Amounts less than $100,000 $ 139,856 $ 96,944 $ 64,947 $ 28,486 $ 330,233 Amounts of $100,000 or more but less than $250,000 117,795 76,462 47,624 11,120 253,001 Amounts of $250,000 or more 105,284 72,534 21,295 3,083 202,196 Total time deposits $ 362,935 $ 245,940 $ 133,866 $ 42,689 $ 785,430 As of December 31, 2024 and 2023, the Bank’s uninsured deposits were estimated to be $949.4 million and $867.7 million, respectively. Securities Sold Under Agreements to Repurchase All securities sold under agreements to repurchase are sweep instruments, maturing daily. The securities underlying the agreements are held under our control in safekeeping at third-party financial institutions, and include debt securities. The following table sets forth information concerning balances and interest rates on our securities sold under agreements to repurchase. As of or for the Years Ended December 31, (dollars in thousands) 2024 2023 2022 Balance at end of year $ 28,969 $ 42,442 $ 43,081 Average balance during year 30,984 35,450 51,554 Average interest rate during year 1.92 % 0.72 % 0.07 % Borrowings Deposits are the Bank's primary source of funds for our lending activities and general business purposes. However, we may also obtain advances from the FHLB, purchase federal funds, and engage in overnight borrowing from the Federal Reserve. We may also use these sources of funds as part of our asset liability management process to control our long-term interest rate risk exposure, even if it may increase our short-term cost of funds. Our level of short-term borrowing can fluctuate on a daily basis depending on funding needs and the source of funds to satisfy the needs. Our use of FHLB advances and other borrowings was nominal during the first half of 2022, but increased during the second half of 2022 and throughout most of 2023 to fund increases in loan demand and to offset a decrease in deposits. Our use of FHLB advances and other borrowings returned to nominal levels during 2024, with loan demand funded primarily through cash flows from the debt securities portfolio. 63 Table of Contents The following table sets forth information concerning balances and interest rates on our borrowings. As of or for the Years Ended December 31, (dollars in thousands) 2024 2023 2022 Balance at end of year FHLB advances $ 13,231 $ 12,623 $ 160,000 Federal Reserve discount window — — — Federal funds purchased — — — Total borrowings $ 13,231 $ 12,623 $ 160,000 Average balance during year FHLB advances $ 13,301 $ 139,554 $ 25,934 Federal Reserve discount window — 3 — Federal funds purchased 82 260 534 Total borrowings $ 13,383 $ 139,817 $ 26,468 Average interest rate during year FHLB advances 3.57 % 5.10 % 3.68 % Federal Reserve discount window — 5.25 — Federal funds purchased 5.93 5.56 2.11 Total borrowings 3.59 5.10 3.65 LIQUIDITY Bank Liquidity The overall objective of bank liquidity management is to ensure the availability of sufficient cash funds to meet all financial commitments and to take advantage of investment opportunities. The Bank manages liquidity in order to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature, and to fund new loans and investments as opportunities arise. The Bank continuously monitors its liquidity positions to ensure that assets and liabilities are managed in a manner that will meet all of our short-term and long-term cash requirements. The Bank manages its liquidity position to meet our daily cash flow needs, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives. The Bank also monitors liquidity requirements in light of interest rate trends, changes in the economy, the scheduled maturity and interest rate sensitivity of the investment and loan portfolios and deposits, and regulatory capital requirements. As part of the Bank’s liquidity management strategy, the Bank is also focused on minimizing costs of liquidity and attempts to decrease these costs by promoting noninterest-bearing and low-cost deposits. While the Bank does not control the types of deposit instruments our clients choose, those choices can be influenced with the rates and the deposit specials offered. Our on-balance sheet sources of liquidity included cash and cash equivalents as well as unpledged securities which may be sold or pledged as collateral to meet liquidity needs. As of December 31, 2024 and December 31, 2023, our on-balance sheet sources of liquidity included the following: (dollars in thousands) December 31, 2024 December 31, 2023 Cash and cash equivalents $ 137,692 $ 141,252 Fair value of unpledged securities 705,106 827,760 Total cash and unpledged securities $ 842,798 $ 969,012 64 Table of Contents Additional sources of liquidity include borrowings from the FHLB, the Federal Reserve discount window, and federal fund lines of credit. Interest is charged on outstanding borrowings at the prevailing market rate. As of December 31, 2024, our current borrowings and additional available borrowing capacity were as follows: December 31, 2024 (dollars in thousands) Current Balance Additional Available Capacity FHLB $ 13,231 $ 1,019,027 Federal Reserve — 91,860 Federal funds lines of credit — 80,000 Total $ 13,231 $ 1,190,887 Further, the Bank could utilize brokered deposits as an additional source of liquidity, as needed. As of December 31, 2024, management believed the current liquidity and available sources of liquidity are adequate to meet all of the reasonably foreseeable short-term and intermediate-term demands of the Bank . As of December 31, 2024, the Bank had no material commitments for capital expenditures. Holding Company Liquidity The Holding Company, or HBT Financial on an unconsolidated basis, is a corporation separate and apart from the Bank and, therefore, it must provide for its own liquidity. As of December 31, 2024, the Holding Company had cash and cash equivalents of $16.2 million. The Holding Company’s main source of funding is dividends declared and paid to it by the Bank. Due to state banking laws, the Bank may not declare dividends in any calendar year in an amount that would exceed accumulated retained earnings, after giving effect to any unrecognized losses and bad debts, without the prior approval of the Illinois Department of Financial and Professional Regulation. In addition, dividends paid by the Bank to the Holding Company would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements. Management believes that these limitations will not impact the Holding Company’s ability to meet its ongoing short-term cash obligations. During the years ended December 31, 2024, 2023, and 2022, the Bank paid $34.0 million, $64.0 million, and $28.0 million in dividends to the Holding Company, respectively. The liquidity needs of the Holding Company on an unconsolidated basis consist primarily of operating expenses, interest payments on the subordinated notes and junior subordinated debentures, and shareholder distributions in the form of dividends and stock repurchases. During the years ended December 31, 2024, 2023, and 2022, holding company operating expenses consisted of interest expense of $5.7 million, $5.4 million, and $3.7 million, respectively, and other operating expenses of $4.1 million, $5.5 million, and $5.3 million, respectively. Additionally, the Holding Company paid $24.2 million, $21.9 million, and $18.6 million of dividends to stockholders during the years ended December 31, 2024, 2023, and 2022, respectively. The Holding Company also paid $38.0 million in cash consideration in the acquisition of Town and Country during 2023. As of December 31, 2024, management was not aware of any known trends, events or uncertainties that had or were reasonably likely to have a material impact on the Holding Company’s liquidity. As of December 31, 2024, management believed the current liquidity and available sources of liquidity are adequate to meet all of the reasonably foreseeable short-term and intermediate-term demands of the Holding Company . As of December 31, 2024, the Holding Company had no material commitments for capital expenditures. 65 Table of Contents CAPITAL RESOURCES The overall objectives of capital management are to ensure the availability of sufficient capital to support loan, deposit and other asset and liability growth opportunities and to maintain capital to absorb unforeseen losses or write-downs that are inherent in the business risks associated with the banking industry. The Company seeks to balance the need for higher capital levels to address such unforeseen risks and the goal to achieve an adequate return on the capital invested by our stockholders. Regulatory Capital Requirements The Company and Bank are each subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the financial statements of the Company and the Bank. In addition to meeting minimum capital requirements, the Company and the Bank must also maintain a “capital conservation buffer” to avoid becoming subject to restrictions on capital distributions and certain discretionary bonus payments to management. The capital conservation buffer requirement is 2.5% of risk-weighted assets. As of December 31, 2024 and 2023, the Company and the Bank met all capital adequacy requirements to which they were subject. As of those dates, the Bank was “well capitalized” under the regulatory prompt corrective action provisions. The following table sets forth actual capital ratios of the Company and the Bank as of the dates indicated, as well as the minimum ratios for capital adequacy purposes with the capital conservation buffer, and the minimum ratios to be well capitalized under regulatory prompt corrective action provisions. December 31, 2024 December 31, 2023 For Capital Adequacy Purposes With Capital Conservation Buffer (1) To Be Well Capitalized Under Prompt Corrective Action Provisions (2) Consolidated HBT Financial, Inc. Total Capital (to Risk Weighted Assets) 16.51 % 15.33 % 10.50 % N/A Tier 1 Capital (to Risk Weighted Assets) 14.50 13.42 8.50 N/A Common Equity Tier 1 Capital (to Risk Weighted Assets) 13.21 12.12 7.00 N/A Tier 1 Capital (to Average Assets) 11.51 10.49 4.00 N/A Heartland Bank and Trust Company Total Capital (to Risk Weighted Assets) 16.11 % 14.92 % 10.50 % 10.00 % Tier 1 Capital (to Risk Weighted Assets) 15.10 14.01 8.50 8.00 Common Equity Tier 1 Capital (to Risk Weighted Assets) 15.10 14.01 7.00 6.50 Tier 1 Capital (to Average Assets) 11.98 10.96 4.00 5.00 _________________________________________________ (1) The Tier 1 capital to average assets ratio (known as the “leverage ratio”) is not impacted by the capital conservation buffer. (2) The prompt corrective action provisions are not applicable to bank holding companies. N/A Not applicable. As of December 31, 2024, management was not aware of any known trends, events or uncertainties that had or were reasonably likely to have a material impact on the Company’s capital resources. Cash Dividends The Company paid quarterly cash dividends of $0.19 per share during 2024, $0.17 per share during 2023, and $0.16 per share during 2022. On January 21, 2025, the Company’s Board of Directors increased the quarterly cash dividend by $0.02 per share to $0.21 per share. 66 Table of Contents Stock Repurchase Program The Company repurchased 232,803 shares of its common stock at a weighted average price of $18.89 during 2024, 479,005 shares at a weighted average price of $18.43 during 2023, and 265,379 shares at a weighted average price of $18.02 during 2022. Repurchases were conducted in compliance with Rule 10b-18 and in compliance with Regulation M under the Exchange Act. On December 17, 2024, the Company’s Board of Directors approved a new stock repurchase program which authorizes the Company to repurchase up to $15.0 million of its common stock. The new stock repurchase program took effect upon the expiration of the prior stock repurchase program and expires on January 1, 2025. OFF-BALANCE SHEET ARRANGEMENTS As a financial services provider, the Bank routinely is a party to various financial instruments with off-balance sheet risks, such as commitments to extend credit, standby letters of credit, unused lines of credit, commitments to sell loans, and interest rate swaps. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process afforded to loans originated by the Bank. For additional information, see “Note 23 – Commitments and Contingencies” to the consolidated financial statements. CRITICAL ACCOUNTING ESTIMATES Critical accounting estimates are those that are critical to the portrayal and understanding of the Company’s financial condition and results of operations and require management to make assumptions that are difficult, subjective, or complex. These estimates involve judgments, assumptions, and uncertainties that are susceptible to change. In the event that different assumptions or conditions were to prevail, and depending on the severity of such changes, the possibility of a materially different financial condition or materially different results of operations is a reasonable likelihood. Further, changes in accounting standards could impact the Company’s critical accounting estimates. The following accounting estimate could be deemed critical: Allowance for Credit Losses The allowance for credit losses reflects an estimate of lifetime expected credit losses. Measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts. The allowance for credit losses is established through a provision for credit losses which is charged to expense. Additions to the allowance for credit losses are expected to maintain the adequacy of the total allowance for credit losses. Loan losses are charged off against the allowance for credit losses when the Company determines the loan balance to be uncollectible. Cash received on previously charged off amounts is recorded as a recovery to the allowance for credit losses. Management uses the discounted cash flow method to estimate expected credit losses for all loan categories, except for consumer loans where the weighted average remaining maturity method is utilized. The Company uses regression analysis of historical internal and peer data to determine which macroeconomic variables are most closely correlated with credit losses, such as the unemployment rate and changes in GDP. Management leverages economic projections from a reputable third party to form its economic forecasts with a reversion to historical averages for periods beyond a reasonable and supportable forecast period. Nonaccrual loans and loans which do not share risk characteristics with other loans in the pool are individually evaluated to determine expected credit losses. The allowance for credit losses on unfunded commitments is estimated in the same manner as the associated loans, adjusted for anticipated funding rate. 67 Table of Contents NON-GAAP FINANCIAL INFORMATION This Annual Report on Form 10-K contains certain financial information determined by methods other than those in accordance with GAAP. Management believes that it is a standard practice in the banking industry to present these non-GAAP financial measures, and accordingly believes that providing these measures may be useful for peer comparison purposes. These disclosures should not be viewed as substitutes for the results determined to be in accordance with GAAP; nor are they necessarily comparable to non-GAAP financial measures that may be presented by other companies. See our reconciliation of non-GAAP financial measures to their most closely comparable GAAP financial measures below. Non-GAAP Financial Measure Definition How the Measure Provides Useful Information to Investors Adjusted Net Income • Net income, with the following adjustments: - excludes acquisition expenses, including the day 2 provision for credit losses on non-PCD loans and unfunded commitments, - excludes branch closure expenses, - excludes gains (losses) on closed branch premises, - excludes realized gains (losses) on sales of securities, - excludes mortgage servicing rights fair value adjustment, and - the income tax effect of these pre-tax adjustments. • Enhances comparisons to prior periods and, accordingly, facilitates the development of future projections and earnings growth prospects. • We also sometimes refer to ratios that include Adjusted Net Income, such as: - Adjusted Return on Average Assets, which is Adjusted Net Income divided by average assets. - Adjusted Return on Average Equity, which is Adjusted Net Income divided by average equity. - Adjusted Earnings Per Share – Basic, which is Adjusted Net Income allocated to common shares divided by weighted average common shares outstanding. - Adjusted Earnings Per Share – Diluted, which is Adjusted Net Income allocated to common shares divided by weighted average common shares outstanding, including all dilutive potential shares. • Adjusted Return on Average Assets is a performance measure utilized in determining executive compensation. Pre-Provision Net Revenue • Net interest income, plus noninterest income, less noninterest expense. • Provides investors with information regarding profitability excluding provision for credit losses and income tax expense, which may fluctuate from period to period. • We also sometimes refer to measures that include Pre-Provision Net Revenue, such as: - Adjusted Pre-Provision Net Revenue which reflects the adjustments considered in Adjusted Net Income, as necessary. - Pre-Provision Net Revenue Less Charge-offs (Recoveries). - Adjusted Pre-Provision Net Revenue Less Charge-offs (Recoveries) which reflects the adjustments considered in Adjusted Net Income, as necessary. • Adjusted Pre-Provision Net Revenue Less Net Charge-Offs (Recoveries) is a performance measure utilized in determining executive compensation. 68 Table of Contents Non-GAAP Financial Measure Definition How the Measure Provides Useful Information to Investors Net Interest Income (Tax-Equivalent Basis) • Net interest income adjusted for the tax-favored status of tax-exempt loans and securities. (1) • We believe the tax-equivalent basis is the preferred industry measurement of net interest income. • Enhances comparability of net interest income arising from taxable and tax-exempt sources. • We also sometimes refer to Net Interest Margin (Tax-Equivalent Basis), which is Net Interest Income (Tax-Equivalent Basis) divided by average interest-earning assets. Efficiency Ratio (Tax-Equivalent Basis) • Noninterest expense less amortization of intangible assets divided by the sum of net interest income (tax-equivalent basis) and noninterest income. (1) • Provides a measure of productivity in the banking industry. • Calculated to measure the cost of generating one dollar of revenue. That is, the ratio is designed to reflect the percentage of one dollar which must be expended to generate that dollar of revenue. • We also sometimes refer to Adjusted Efficiency Ratio (Tax-Equivalent Basis) which reflects the adjustments considered in Adjusted Net Income, as necessary. • Adjusted Efficiency Ratio (Tax-Equivalent Basis) is a performance measure utilized in determining executive compensation. Ratio of Tangible Common Equity to Tangible Assets • Tangible Common Equity is total stockholders’ equity less goodwill and other intangible assets. • Tangible Assets is total assets less goodwill and other intangible assets. • Generally used by investors, our management, and banking regulators to evaluate capital adequacy. • Facilitates comparison of our earnings with the earnings of other banking organization with varying amounts of goodwill or intangible assets. • We also sometimes refer to ratios that include Tangible Common Equity, such as: - Tangible Book Value Per Share, which is Tangible Common Equity divided by shares of common stock outstanding. - Return on Average Tangible Common Equity, which is net income divided by average Tangible Common Equity. - Adjusted Return on Average Tangible Common Equity, which is Adjusted Net Income divided by average Tangible Common Equity. Core Deposits • Total deposits, excluding: - Time deposits of $250,000 or more, and - Brokered deposits • Provides investors with information regarding the stability of the Company’s sources of funds. • We also sometimes refer to the ratio of Core Deposits to total deposits. _________________________________________________ (1) Tax-equivalent basis assuming a federal income tax rate of 21% and a state tax rate of 9.5%. 69 Table of Contents Reconciliation of Non-GAAP Financial Measure — Adjusted Net Income and Adjusted Return on Average Assets Year Ended December 31, (dollars in thousands) 2024 2023 2022 Net income $ 71,780 $ 65,842 $ 56,456 Less: adjustments Acquisition expenses (1) — (13,691) (1,092) Gains (losses) on closed branch premises (635) 75 141 Realized gains (losses) on sales of securities (3,697) (1,820) — Mortgage servicing rights fair value adjustment (174) (1,615) 2,153 Total adjustments (4,506) (17,051) 1,202 Tax effect of adjustments (2) 1,284 4,711 (551) Total adjustments after tax effect (3,222) (12,340) 651 Adjusted net income $ 75,002 $ 78,182 $ 55,805 Average assets $ 5,008,083 $ 4,927,904 $ 4,269,873 Return on average assets 1.43 % 1.34 % 1.32 % Adjusted return on average assets 1.50 1.59 1.31 _________________________________________________ (1) Includes recognition of an allowance for credit losses on non-PCD loans of $5.2 million and an allowance for credit losses on unfunded commitments of $0.7 million in connection with the Town and Country merger during the first quarter of 2023 in accordance with ASC 326 which was adopted on January 1, 2023. (2) Assumes a federal income tax rate of 21% and a state tax rate of 9.5%. 70 Table of Contents Reconciliation of Non-GAAP Financial Measure — Adjusted Earnings Per Share Year Ended December 31, (dollars in thousands, except per share amounts) 2024 2023 2022 Numerator: Net income $ 71,780 $ 65,842 $ 56,456 Earnings allocated to participating securities (1) — (36) (66) Numerator for earnings per share - basic and diluted $ 71,780 $ 65,806 $ 56,390 Adjusted net income $ 75,002 $ 78,182 $ 55,805 Earnings allocated to participating securities (1) — (42) (65) Numerator for adjusted earnings per share - basic and diluted $ 75,002 $ 78,140 $ 55,740 Denominator: Weighted average common shares outstanding 31,590,117 31,626,308 28,853,697 Dilutive effect of outstanding restricted stock units 122,363 111,839 65,619 Weighted average common shares outstanding, including all dilutive potential shares 31,712,480 31,738,147 28,919,316 Earnings per share - Basic $ 2.27 $ 2.08 $ 1.95 Earnings per share - Diluted $ 2.26 $ 2.07 $ 1.95 Adjusted earnings per share - Basic $ 2.37 $ 2.47 $ 1.93 Adjusted earnings per share - Diluted $ 2.37 $ 2.46 $ 1.93 _________________________________________________ (1) The Company previously granted restricted stock units that contained non-forfeitable rights to dividend equivalents which were considered participating securities. Prior to 2024, these restricted stock units were included in the calculation of basic earnings per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. 71 Table of Contents Reconciliation of Non-GAAP Financial Measure — Pre-Provision Net Revenue, Pre-Provision Net Revenue Less Charge-offs (Recoveries), Adjusted Pre-Provision Net Revenue, and Adjusted Pre-Provision Net Revenue Less Charge-offs (Recoveries) Year Ended December 31, (dollars in thousands) 2024 2023 2022 Net interest income $ 188,850 $ 191,072 $ 145,874 Noninterest income 35,571 36,046 34,717 Noninterest expense (124,007) (130,964) (105,107) Pre-provision net revenue 100,414 96,154 75,484 Less: adjustments Acquisition expenses — (7,767) (1,092) Gains (losses) on closed branch premises (635) 75 141 Realized gains (losses) on sales of securities (3,697) (1,820) — Mortgage servicing rights fair value adjustment (174) (1,615) 2,153 Total adjustments (4,506) (11,127) 1,202 Adjusted pre-provision net revenue $ 104,920 $ 107,281 $ 74,282 Pre-provision net revenue $ 100,414 $ 96,154 $ 75,484 Less: net charge-offs (recoveries) 1,758 180 (2,103) Pre-provision net revenue less net charge-offs (recoveries) $ 98,656 $ 95,974 $ 77,587 Adjusted pre-provision net revenue $ 104,920 $ 107,281 $ 74,282 Less: net charge-offs (recoveries) 1,758 180 (2,103) Adjusted pre-provision net revenue less net charge-offs (recoveries) $ 103,162 $ 107,101 $ 76,385 72 Table of Contents Reconciliation of Non-GAAP Financial Measure — Net Interest Income and Net Interest Margin (Tax-Equivalent Basis) Year Ended December 31, (dollars in thousands) 2024 2023 2022 Net interest income (tax-equivalent basis) Net interest income $ 188,850 $ 191,072 $ 145,874 Tax-equivalent adjustment (1) 2,242 2,758 2,499 Net interest income (tax-equivalent basis) (1) $ 191,092 $ 193,830 $ 148,373 Net interest margin (tax-equivalent basis) Net interest margin 3.96 % 4.09 % 3.54 % Tax-equivalent adjustment (1) 0.05 0.06 0.06 Net interest margin (tax-equivalent basis) (1) 4.01 % 4.15 % 3.60 % Average interest-earning assets $ 4,769,671 $ 4,675,025 $ 4,118,124 _________________________________________________ (1) On a tax-equivalent basis assuming a federal income tax rate of 21% and a state tax rate of 9.5%. Reconciliation of Non-GAAP Financial Measure — Efficiency Ratio (Tax-Equivalent Basis) and Adjusted Efficiency Ratio (Tax-Equivalent Basis) Year Ended December 31, (dollars in thousands) 2024 2023 2022 Total noninterest expense $ 124,007 $ 130,964 $ 105,107 Less: amortization of intangible assets 2,839 2,670 873 Noninterest expense excluding amortization of intangible assets $ 121,168 $ 128,294 $ 104,234 Less: adjustments to noninterest expense Acquisition expenses — 7,767 1,092 Total adjustments to noninterest expense — 7,767 1,092 Adjusted noninterest expense $ 121,168 $ 120,527 $ 103,142 Net interest income $ 188,850 $ 191,072 $ 145,874 Total noninterest income 35,571 36,046 34,717 Operating revenue 224,421 227,118 180,591 Tax-equivalent adjustment (1) 2,242 2,758 2,499 Operating revenue (tax-equivalent basis) (1) 226,663 229,876 183,090 Less: adjustments to noninterest income Gains (losses) on closed branch premises (635) 75 141 Realized gains (losses) on sales of securities (3,697) (1,820) — Mortgage servicing rights fair value adjustment (174) (1,615) 2,153 Total adjustments to noninterest income (4,506) (3,360) 2,294 Adjusted operating revenue (tax-equivalent basis) (1) $ 231,169 $ 233,236 $ 180,796 Efficiency ratio 53.99 % 56.49 % 57.72 % Efficiency ratio (tax-equivalent basis) (1) 53.46 55.81 56.93 Adjusted efficiency ratio (tax-equivalent basis) (1) 52.42 51.68 57.05 _________________________________________________ (1) On a tax-equivalent basis assuming a federal income tax rate of 21% and a state tax rate of 9.5%. 73 Table of Contents Reconciliation of Non-GAAP Financial Measure — Ratio of Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share (dollars in thousands, except per share data) December 31, 2024 December 31, 2023 Tangible Common Equity Total stockholders' equity $ 544,605 $ 489,496 Less: Goodwill 59,820 59,820 Less: Intangible assets, net 17,843 20,682 Tangible common equity $ 466,942 $ 408,994 Tangible Assets Total assets $ 5,032,902 $ 5,073,170 Less: Goodwill 59,820 59,820 Less: Intangible assets, net 17,843 20,682 Tangible assets $ 4,955,239 $ 4,992,668 Total stockholders' equity to total assets 10.82 % 9.65 % Tangible common equity to tangible assets 9.42 8.19 Shares of common stock outstanding 31,559,366 31,695,828 Book value per share $ 17.26 $ 15.44 Tangible book value per share 14.80 12.90 Reconciliation of Non-GAAP Financial Measure — Return on Average Tangible Common Equity, Adjusted Return on Average Stockholders’ Equity, and Adjusted Return on Average Tangible Common Equity Year Ended December 31, (dollars in thousands) 2024 2023 2022 Average Tangible Common Equity Total stockholders' equity $ 515,368 $ 450,928 $ 383,306 Less: Goodwill 59,820 57,266 29,322 Less: Intangible assets, net 19,247 20,272 1,480 Average tangible common equity $ 436,301 $ 373,390 $ 352,504 Net income $ 71,780 $ 65,842 $ 56,456 Adjusted net income 75,002 78,182 55,805 Return on average stockholders' equity 13.93 % 14.60 % 14.73 % Return on average tangible common equity 16.45 17.63 16.02 Adjusted return on average stockholders' equity 14.55 % 17.34 % 14.56 % Adjusted return on average tangible common equity 17.19 20.94 15.83 74 Table of Contents Reconciliation of Non-GAAP Financial Measure — Core Deposits (dollars in thousands) December 31, 2024 December 31, 2023 Core Deposits Total deposits $ 4,318,254 $ 4,401,437 Less: time deposits of $250,000 or more 202,196 130,183 Less: brokered deposits — 144,880 Core deposits $ 4,116,058 $ 4,126,374 Core deposits to total deposits 95.32 % 93.75 % 75 Table of Contents