XML 54 R15.htm IDEA: XBRL DOCUMENT v3.21.2
GOODWILL, CORE DEPOSIT PREMIUM AND OTHER INTANGIBLE ASSETS
6 Months Ended
Jun. 30, 2021
Goodwill and Intangible Assets Disclosure [Abstract]  
GOODWILL, CORE DEPOSIT PREMIUM AND OTHER INTANGIBLE ASSETS GOODWILL, CORE DEPOSIT PREMIUM AND OTHER INTANGIBLE ASSETS
HTLF had goodwill of $576.0 million at both June 30, 2021 and December 31, 2020. HTLF conducts its annual internal assessment of the goodwill both at the consolidated level and at its subsidiaries as of September 30. Due to the COVID-19 pandemic and economic conditions, HTLF performed an interim quantitative assessment of goodwill in the second quarter of 2020, which was the most recent annual assessment, and there was no goodwill impairment.

HTLF recorded $91.4 million of goodwill and $3.1 million of core deposit intangible in connection with the acquisition of AimBank, headquartered in Levelland, Texas on December 4, 2020.

HTLF recorded $38.4 million of goodwill and $1.3 million of core deposit intangible in connection with the acquisition of certain assets and substantially all of the deposits and certain other liabilities of Johnson Bank's Arizona operations, headquartered in Racine, Wisconsin, on December 4, 2020.

The core deposit intangible recorded with the AimBank acquisition is not deductible for tax purposes and is expected to be amortized over a period of 10 years on an accelerated basis.

Goodwill related to the AimBank acquisition resulted from expected operational synergies, increased market presence, cross-selling opportunities, and expanded business lines and is not deductible for tax purposes.

The core deposit intangible and goodwill recorded with the Johnson Bank transaction are deductible for tax purposes, and the core deposit intangible is expected to be amortized over a period of 10 years on an accelerated basis.
HTLF's intangible assets consist of core deposit intangibles, mortgage servicing rights, customer relationship intangibles, and commercial servicing rights. The gross carrying amount of these intangible assets and the associated accumulated amortization at June 30, 2021, and December 31, 2020, are presented in the table below, in thousands:
 June 30, 2021December 31, 2020
 Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Amortizing intangible assets:    
Core deposit intangibles$101,185 $63,883 $37,302 $101,185 $58,970 $42,215 
Customer relationship intangibles1,177 1,027 150 1,177 1,009 168 
Mortgage servicing rights11,971 6,412 5,559 11,268 6,079 5,189 
Commercial servicing rights7,054 6,412 642 7,054 6,191 863 
Total$121,387 $77,734 $43,653 $120,684 $72,249 $48,435 

The following table shows the estimated future amortization expense for amortizable intangible assets, in thousands:
 Core
Deposit
Intangibles
Customer
Relationship
Intangibles
Mortgage
Servicing
Rights
Commercial
Servicing
Rights
 
 
Total
Six months ending December 31, 2021$4,446 $18 $648 $110 $5,222 
Year ending December 31, 
20227,702 34 1,228 194 9,158 
20236,739 33 1,052 139 7,963 
20245,591 33 877 96 6,597 
20254,700 32 702 103 5,537 
20263,533 — 526 — 4,059 
Thereafter4,591 — 526 — 5,117 
Total$37,302 $150 $5,559 $642 $43,653 

Projections of amortization expense for mortgage servicing rights are based on existing asset balances and the existing interest rate environment as of June 30, 2021. HTLF's actual experience may be significantly different depending upon changes in mortgage interest rates and market conditions. Mortgage loans serviced for others were approximately $719.6 million at June 30, 2021, compared to $743.3 million at December 31, 2020. Custodial escrow balances maintained in connection with the mortgage loan servicing portfolio were approximately $13.1 million at June 30, 2021, and $5.7 million at December 31, 2020.

At June 30, 2021, the fair value of the mortgage servicing rights was estimated at $5.6 million compared to $5.2 million at December 31, 2020. The fair value of mortgage servicing rights is calculated based upon a discounted cash flow analysis. Cash flow assumptions, including prepayment speeds, servicing costs and escrow earnings of the mortgage servicing rights are considered in the calculation. The average constant prepayment rate was 15.90% for the June 30, 2021, valuation compared to 16.20% for the December 31, 2020 valuation. The discount rate was 9.02% for both June 30, 2021, and December 31, 2020. The average capitalization rate for the first six months of 2021 ranged from 79 to 120 basis points compared to a range of 76 to 116 basis points for the first six months of 2020. Fees collected for the servicing of mortgage loans for others were $459,000 and $410,000 for the quarters ended June 30, 2021 and June 30, 2020, respectively. Fees collected for the servicing of mortgage loans for others were $923,000 and $819,000 for the six months ended June 30, 2021 and 2020, respectively.
The following table summarizes, in thousands, the changes in capitalized mortgage servicing rights for the six months ended June 30, 2021, and June 30, 2020:
 20212020
Balance at January 1,$5,189 $5,621 
Originations703 1,490 
Amortization(724)(1,070)
Valuation adjustment391 (1,556)
Balance at period end$5,559 $4,485 
Mortgage servicing rights, net to servicing portfolio0.77 %0.68 %

HTLF's commercial servicing portfolio is comprised of loans guaranteed by the United States Small Business Administration ("SBA") and United States Department of Agriculture that have been sold with servicing retained by HTLF, which totaled $57.5 million at June 30, 2021 and $66.2 million at December 31, 2020. The commercial servicing rights portfolio is separated into two tranches at the respective HTLF subsidiary, loans with a term of less than 20 years and loans with a term of more than 20 years. Fees collected for the servicing of commercial loans for others were $165,000 and $54,000 for the quarters ended June 30, 2021 and June 30, 2020, respectively, and $294,000 and $172,000 for the six months ended June 30, 2021 and June 30, 2020, respectively.

The fair value of each commercial servicing rights portfolio is calculated based upon a discounted cash flow analysis. Cash flow assumptions, including prepayment speeds and servicing costs, are considered in the calculation. The range of average constant prepayment rates for the valuations was 13.70% to 17.49% as of June 30, 2021 compared to 14.95% to 19.25% as of December 31, 2020. The discount rate range was 5.70% to 9.96% for the June 30, 2021, valuations compared to 7.70% to 12.88% for the December 31, 2020 valuations. The capitalization rate for 2020 ranged from 310 to 445 basis points. The total fair value of the commercial servicing rights was estimated at $1.1 million as of June 30, 2021, and $1.3 million as of December 31, 2020.

The following table summarizes, in thousands, the changes in capitalized commercial servicing rights for the six months ended June 30, 2021, and June 30, 2020:
20212020
Balance at January 1,$863 $1,115 
Originations— 38 
Amortization(221)(169)
Balance at period end $642 $984 
Fair value of commercial servicing rights $1,104 $1,417 
Commercial servicing rights, net to servicing portfolio 1.12 %1.32 %

Mortgage and commercial servicing rights are initially recorded at fair value in net gains on sale of loans held for sale when they are capitalized through loan sales. Fair value is based on market prices for comparable servicing contracts, when available, or based on a valuation model that calculates the present value of estimated future net servicing income.

Mortgage and commercial servicing rights are subsequently measured using the amortization method, which requires the asset to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Servicing rights are evaluated for impairment at each HTLF subsidiary based upon the fair value of the assets as compared to the carrying amount. Impairment is recognized through a valuation allowance for specific tranches to the extent that fair value is less than the carrying amount at each HTLF subsidiary. At June 30, 2021, a $470,000 valuation allowance was required on the mortgage servicing rights 15-year tranche and a $1.9 million valuation allowance was required on the mortgage servicing rights 30-year tranche. At December 31, 2020, a $422,000 valuation allowance was required on the mortgage servicing rights 15-year tranche and a $1.4 million valuation allowance was required on the mortgage servicing rights 30-year tranche. At both June 30, 2021 and December 31, 2020, no valuation allowance was required on commercial servicing rights with a term less than 20 years and no valuation allowance was required on commercial servicing rights with a term greater than 20 years.
The following table summarizes, in thousands, the book value, the fair value of each tranche of the mortgage servicing rights and any recorded valuation allowance at June 30, 2021, and December 31, 2020:
Book Value 15-Year TrancheFair Value 15-Year TrancheValuation Allowance
15-Year Tranche
Book Value 30-Year TrancheFair Value 30-Year TrancheValuation Allowance
30-Year Tranche
June 30, 2021$1,627 $1,157 $470 $6,287 $4,402 $1,885 
December 31, 2020$1,522 $1,100 $422 $5,445 $4,089 $1,356 

The following table summarizes, in thousands, the book value, the fair value of each tranche of the commercial servicing rights and any recorded valuation allowance at June 30, 2021, and December 31, 2020:
Book Value
Less than
20 Years
Fair Value
Less than
20 Years
Valuation Allowance
15-Year Tranche
Book Value
More than
20 Years
Fair Value
More than
20 Years
Valuation Allowance
30-Year Tranche
June 30, 2021$58 $170 $— $584 $934 $— 
December 31, 2020$87 $203 $— $776 $1,085 $—