LOANS

9 Months Ended

Sep. 30, 2021

Receivables [Abstract]

LOANS

LOANS

Loans as of September 30, 2021, and December 31, 2020, were as follows, in thousands:

	September 30, 2021		December 31, 2020
Loans receivable held to maturity:
Commercial and industrial	$	2,538,369	$	2,534,799
Paycheck Protection Program ("PPP")	409,247		957,785
Owner occupied commercial real estate	2,135,227		1,776,406
Non-owner occupied commercial real estate	2,020,487		1,921,481
Real estate construction	814,001		863,220
Agricultural and agricultural real estate	684,670		714,526
Residential real estate	840,356		840,442
Consumer	412,550		414,392
Total loans receivable held to maturity	9,854,907		10,023,051
Allowance for credit losses	(117,533)		(131,606)
Loans receivable, net	$	9,737,374	$	9,891,445

As of September 30, 2021, and December 31, 2020, HTLF had $37.4 million and $42.4 million, respectively, of accrued interest receivable, which is included in other assets on the consolidated balance sheet. HTLF does not consider accrued interest receivable in the allowance for credit losses calculation.

The following table shows the balance in the allowance for credit losses at September 30, 2021, and December 31, 2020, and the related loan balances, disaggregated on the basis of measurement methodology, in thousands. If a loan no longer shares similar risk characteristics with other loans in the pool, it is evaluated on an individual basis and is not included in the collective evaluation. Lending relationships with $500,000 or more of total exposure and are on nonaccrual are individually assessed using a collateral dependency calculation. All other loans are collectively evaluated for losses.

	Allowance For Credit Losses						Gross Loans Receivable Held to Maturity
	Individually Evaluated for Credit Losses		Collectively Evaluated for Credit Losses		Total		Loans Individually Evaluated for Credit Losses		Loans Collectively Evaluated for Credit Losses		Total
September 30, 2021
Commercial and industrial	$	4,710	$	23,198	$	27,908	$	15,524	$	2,522,845	$	2,538,369
PPP	—		—		—		—		409,247		409,247
Owner occupied commercial real estate	110		19,018		19,128		10,166		2,125,061		2,135,227
Non-owner occupied commercial real estate	2,847		19,268		22,115		19,314		2,001,173		2,020,487
Real estate construction	—		23,698		23,698		—		814,001		814,001
Agricultural and agricultural real estate	3,062		3,264		6,326		13,917		670,753		684,670
Residential real estate	—		9,238		9,238		—		840,356		840,356
Consumer	—		9,120		9,120		—		412,550		412,550
Total	$	10,729	$	106,804	$	117,533	$	58,921	$	9,795,986	$	9,854,907

	Allowance For Credit Losses						Gross Loans Receivable Held to Maturity
	Individually Evaluated for Credit Losses		Collectively Evaluated for Credit Losses		Total		Loans Individually Evaluated for Credit Losses		Loans Collectively Evaluated for Credit Losses		Total
December 31, 2020
Commercial and industrial	$	4,077	$	34,741	$	38,818	$	16,578	$	2,518,221	$	2,534,799
PPP	—		—		—		—		957,785		957,785
Owner occupied commercial real estate	111		19,890		20,001		11,174		1,765,232		1,776,406
Non-owner occupied commercial real estate	3,250		17,623		20,873		13,490		1,907,991		1,921,481
Real estate construction	—		20,080		20,080		—		863,220		863,220
Agricultural and agricultural real estate	1,988		5,141		7,129		15,453		699,073		714,526
Residential real estate	—		11,935		11,935		535		839,907		840,442
Consumer	—		12,770		12,770		—		414,392		414,392
Total	$	9,426	$	122,180	$	131,606	$	57,230	$	9,965,821	$	10,023,051

HTLF had $13.2 million of troubled debt restructured loans at September 30, 2021, of which $11.4 million were classified as nonaccrual and $1.8 million were accruing according to the restructured terms. HTLF had $6.2 million of troubled debt restructured loans at December 31, 2020, of which $3.8 million were classified as nonaccrual and $2.4 million were accruing according to the restructured terms.

The following tables provide information on troubled debt restructured loans that were modified during the three- and nine- months ended September 30, 2021, and September 30, 2020, dollars in thousands:

	Three Months Ended September 30,
	2021					2020
	Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment
Commercial	—	$	—	$	—	1	$	20	$	20
PPP	—	—		—		—	—		—
Owner occupied commercial real estate	—	—		—		—	—		—
Non-owner occupied commercial real estate	—	—		—		1	9,434		9,434
Real estate construction	—	—		—		—	—		—
Agricultural and agricultural real estate	—	—		—		—	—		—
Residential real estate	—	—		—		—	—		—
Consumer	—	—		—		—	—		—
Total	—	$	—	$	—	2	$	9,454	$	9,454

	Nine Months Ended September 30,
	2021					2020
	Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment
Commercial and industrial	—	$	—	$	—	1	$	20	$	20
PPP	—	—		—		—	—		—
Owner occupied commercial real estate	—	—		—		—	—		—
Non-owner occupied commercial real estate	2	7,850		7,850		1	9,434		9,434
Real estate construction	—	—		—		—	—		—
Agricultural and agricultural real estate	—	—		—		—	—		—

	Nine Months Ended September 30,
	2021					2020
	Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment
Residential real estate	—	—		—		2	92		98
Consumer	—	—		—		—	—		—
Total	2	$	7,850	$	7,850	4	$	9,546	$	9,552

At September 30, 2021, there were no commitments to extend credit to any of the borrowers with an existing troubled debt restructured loan. The tables above do not include any loan modifications made under COVID-19 modification programs.

The following tables show troubled debt restructured loans for which there was a payment default during the three- and nine- months ended September 30, 2021, and September 30, 2020, that had been modified during the twelve-month period prior to default.

	With Payment Defaults During the Three Months Ended September 30,
	2021			2020
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Commercial and industrial	—	$	—	—	$	—
PPP	—	—		—	—
Owner occupied commercial real estate	—	—		—	—
Non-owner occupied commercial real estate	—	—		—	—
Real estate construction	—	—		—	—
Agricultural and agricultural real estate	—	—		—	—
Residential real estate	—	—		—	—
Consumer	—	—		—	—
Total	—	$	—	—	$	—

	With Payment Defaults During the Nine Months Ended September 30,
	2021			2020
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Commercial and industrial	—	$	—	—	$	—
PPP	—	—		—	—
Owner occupied commercial real estate	—	—		—	—
Non-owner occupied commercial real estate	—	—		—	—
Real estate construction	—	—		—	—
Agricultural and agricultural real estate	—	—		—	—
Residential real estate	—	—		1	236
Consumer	—	—		—	—
Total	—	$	—	1	$	236

HTLF's internal rating system is a series of grades reflecting management's risk assessment, based on its analysis of the borrower's financial condition. The "pass" category consists of all loans that are not in the "nonpass" category and categorized

into a range of loan grades that reflect increasing, though still acceptable, risk. Movement of risk through the various grade levels in the pass category is monitored for early identification of credit deterioration.

The "nonpass" category consists of watch, substandard, doubtful and loss rated loans. The "watch" rating is attached to loans where the borrower exhibits negative trends in financial circumstances due to borrower specific or systemic conditions that, if left uncorrected, threaten the borrower's capacity to meet its debt obligations. The borrower is believed to have sufficient financial flexibility to react to and resolve its negative financial situation. These credits are closely monitored for improvement or deterioration.

The "substandard" rating is assigned to loans that are inadequately protected by the current net worth and repaying capacity of the borrower and that may be further at risk due to deterioration in the value of collateral pledged. Well-defined weaknesses jeopardize liquidation of the debt. These loans are still considered collectible; however, a distinct possibility exists that HTLF will sustain some loss if deficiencies are not corrected. Substandard loans may exhibit some or all of the following weaknesses: deteriorating financial trends, lack of earnings, inadequate debt service capacity, excessive debt and/or lack of liquidity.

The "doubtful" rating is assigned to loans where identified weaknesses in the borrowers' ability to repay the loan make collection or liquidation in full, on the basis of existing facts, conditions and values, highly questionable and improbable. These borrowers are usually in default, lack liquidity and capital, as well as resources necessary to remain as an operating entity. Specific pending events, such as capital injections, liquidations or perfection of liens on additional collateral, may strengthen the credit, thus deferring the rating of the loan as "loss" until the exact status of the loan can be determined. The "loss" rating is assigned to loans considered uncollectible. HTLF had no loans classified as "loss" or "doubtful" as of September 30, 2021, and December 31, 2020.

The following tables show the risk category of loans by loan category and year of origination as of September 30, 2021, and December 31, 2020, in thousands:

As of September 30, 2021	Amortized Cost Basis of Term Loans by Year of Origination
	2021		2020		2019		2018		2017		2016 and Prior		Revolving		Total
Commercial and industrial
Pass	$	460,258	$	401,606	$	239,419	$	100,840	$	179,241	$	343,238	$	602,155	$	2,326,757
Watch	13,274		14,096		13,982		11,230		6,363		16,657		30,157		105,759
Substandard	14,511		9,315		14,949		8,858		10,880		16,921		30,419		105,853
Commercial and industrial total	$	488,043	$	425,017	$	268,350	$	120,928	$	196,484	$	376,816	$	662,731	$	2,538,369
PPP
Pass	$	297,218	$	59,481	$	—	$	—	$	—	$	—	$	—	$	356,699
Watch	19,656		11,210		—		—		—		—		—		30,866
Substandard	19,434		2,248		—		—		—		—		—		21,682
PPP total	$	336,308	$	72,939	$	—	$	—	$	—	$	—	$	—	$	409,247
Owner occupied commercial real estate
Pass	$	679,698	$	378,366	$	337,572	$	207,982	$	128,973	$	220,013	$	29,446	$	1,982,050
Watch	2,517		16,981		13,277		18,264		15,618		9,216		1,853		77,726
Substandard	4,490		17,518		13,338		2,866		13,857		21,632		1,750		75,451
Owner occupied commercial real estate total	$	686,705	$	412,865	$	364,187	$	229,112	$	158,448	$	250,861	$	33,049	$	2,135,227
Non-owner occupied commercial real estate
Pass	$	394,782	$	316,992	$	353,092	$	274,618	$	166,123	$	199,072	$	37,518	$	1,742,197
Watch	12,832		17,170		48,377		35,098		7,595		35,783		—		156,855
Substandard	18,113		15,291		22,011		2,828		14,848		48,036		308		121,435
Non-owner occupied commercial real estate total	$	425,727	$	349,453	$	423,480	$	312,544	$	188,566	$	282,891	$	37,826	$	2,020,487
Real estate construction
Pass	$	240,048	$	282,023	$	177,594	$	15,228	$	8,501	$	9,628	$	13,269	$	746,291
Watch	2,191		876		15,006		47,267		—		—		112		65,452
Substandard	—		50		47		1,992		—		169		—		2,258
Real estate construction total	$	242,239	$	282,949	$	192,647	$	64,487	$	8,501	$	9,797	$	13,381	$	814,001
Agricultural and agricultural real estate
Pass	$	174,014	$	114,928	$	66,869	$	37,763	$	24,751	$	39,479	$	128,684	$	586,488

As of September 30, 2021	Amortized Cost Basis of Term Loans by Year of Origination
	2021		2020		2019		2018		2017		2016 and Prior		Revolving		Total
Watch	5,343		10,435		5,967		3,013		38		3,711		6,840		35,347
Substandard	7,559		6,354		8,570		18,243		3,937		9,826		8,346		62,835
Agricultural and agricultural real estate total	$	186,916	$	131,717	$	81,406	$	59,019	$	28,726	$	53,016	$	143,870	$	684,670
Residential real estate
Pass	$	251,931	$	103,529	$	58,179	$	68,551	$	50,817	$	244,641	$	32,474	$	810,122
Watch	1,086		4,650		1,205		1,503		807		5,043		—		14,294
Substandard	4,085		537		496		2,555		1,185		7,082		—		15,940
Residential real estate total	$	257,102	$	108,716	$	59,880	$	72,609	$	52,809	$	256,766	$	32,474	$	840,356
Consumer
Pass	$	57,680	$	22,845	$	16,732	$	10,290	$	11,722	$	18,442	$	265,241	$	402,952
Watch	912		196		281		1,368		190		542		1,387		4,876
Substandard	891		359		511		259		335		1,742		625		4,722
Consumer total	$	59,483	$	23,400	$	17,524	$	11,917	$	12,247	$	20,726	$	267,253	$	412,550
Total Pass	$	2,555,629	$	1,679,770	$	1,249,457	$	715,272	$	570,128	$	1,074,513	$	1,108,787	$	8,953,556
Total Watch	57,811		75,614		98,095		117,743		30,611		70,952		40,349		491,175
Total Substandard	69,083		51,672		59,922		37,601		45,042		105,408		41,448		410,176
Total Loans	$	2,682,523	$	1,807,056	$	1,407,474	$	870,616	$	645,781	$	1,250,873	$	1,190,584	$	9,854,907

As of December 31, 2020	Amortized Cost Basis of Term Loans by Year of Origination
	2020		2019		2018		2017		2016		2015 and Prior		Revolving		Total
Commercial and industrial
Pass	$	557,853	$	340,809	$	168,873	$	215,696	$	101,010	$	337,834	$	541,627	$	2,263,702
Watch	41,574		24,676		19,672		14,262		8,072		2,474		49,432		160,162
Substandard	23,024		16,274		8,897		15,717		9,098		19,537		18,388		110,935
Commercial and industrial total	$	622,451	$	381,759	$	197,442	$	245,675	$	118,180	$	359,845	$	609,447	$	2,534,799
PPP
Pass	$	880,709	$	—	$	—	$	—	$	—	$	—	$	—	$	880,709
Watch	22,533		—		—		—		—		—		—		22,533
Substandard	54,543		—		—		—		—		—		—		54,543
PPP total	$	957,785	$	—	$	—	$	—	$	—	$	—	$	—	$	957,785
Owner occupied commercial real estate
Pass	$	400,662	$	369,401	$	300,242	$	167,470	$	107,234	$	213,780	$	33,759	$	1,592,548
Watch	15,345		13,764		22,488		20,811		8,717		15,282		4,311		100,718
Substandard	15,914		9,522		12,164		14,147		8,580		21,708		1,105		83,140
Owner occupied commercial real estate total	$	431,921	$	392,687	$	334,894	$	202,428	$	124,531	$	250,770	$	39,175	$	1,776,406
Non-owner occupied commercial real estate
Pass	$	334,722	$	411,301	$	305,456	$	194,101	$	108,070	$	233,153	$	24,466	$	1,611,269
Watch	22,826		55,225		24,718		18,724		20,954		45,672		5,114		193,233
Substandard	30,899		15,035		23,290		17,046		9,147		21,060		502		116,979
Non-owner occupied commercial real estate total	$	388,447	$	481,561	$	353,464	$	229,871	$	138,171	$	299,885	$	30,082	$	1,921,481
Real estate construction
Pass	$	311,625	$	309,678	$	157,171	$	12,625	$	6,954	$	5,110	$	21,431	$	824,594
Watch	2,105		26,659		2,403		332		55		388		1,295		33,237
Substandard	196		2,760		2,036		—		39		358		—		5,389
Real estate construction total	$	313,926	$	339,097	$	161,610	$	12,957	$	7,048	$	5,856	$	22,726	$	863,220

As of December 31, 2020	Amortized Cost Basis of Term Loans by Year of Origination
	2020		2019		2018		2017		2016		2015 and Prior		Revolving		Total
Agricultural and agricultural real estate
Pass	$	171,578	$	90,944	$	62,349	$	39,252	$	17,626	$	37,696	$	148,456	$	567,901
Watch	20,500		16,202		8,854		2,448		3,515		3,157		12,282		66,958
Substandard	17,403		7,044		23,519		6,758		3,917		9,952		11,074		79,667
Agricultural and agricultural real estate total	$	209,481	$	114,190	$	94,722	$	48,458	$	25,058	$	50,805	$	171,812	$	714,526
Residential real estate
Pass	$	153,017	$	99,440	$	118,854	$	83,534	$	63,477	$	244,852	$	33,467	$	796,641
Watch	3,986		4,507		2,188		1,896		3,117		8,525		—		24,219
Substandard	980		442		2,507		1,528		884		12,141		1,100		19,582
Residential real estate total	$	157,983	$	104,389	$	123,549	$	86,958	$	67,478	$	265,518	$	34,567	$	840,442
Consumer
Pass	$	37,037	$	27,646	$	18,811	$	15,034	$	4,009	$	19,483	$	280,996	$	403,016
Watch	168		352		647		340		82		646		1,622		3,857
Substandard	481		959		1,884		500		897		1,976		822		7,519
Consumer total	$	37,686	$	28,957	$	21,342	$	15,874	$	4,988	$	22,105	$	283,440	$	414,392
Total Pass	$	2,847,203	$	1,649,219	$	1,131,756	$	727,712	$	408,380	$	1,091,908	$	1,084,202	$	8,940,380
Total Watch	129,037		141,385		80,970		58,813		44,512		76,144		74,056		604,917
Total Substandard	143,440		52,036		74,297		55,696		32,562		86,732		32,991		477,754
Total Loans	$	3,119,680	$	1,842,640	$	1,287,023	$	842,221	$	485,454	$	1,254,784	$	1,191,249	$	10,023,051

Included in the nonpass loans at September 30, 2021 and December 31, 2020 were $52.5 million and $77.1 million, respectively, of nonpass PPP loans as a result of risk ratings on non-PPP related credits. HTLF's risk rating methodology assigns a risk rating to the whole lending relationship. HTLF has no allowance recorded related to the PPP loans because of the 100% government guarantee.

As of September 30, 2021, HTLF had $712,000 of loans secured by residential real estate property that were in the process of foreclosure.

The following table sets forth information regarding accruing and nonaccrual loans at September 30, 2021, and December 31, 2020, in thousands:

	Accruing Loans
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Nonaccrual		Total Loans
September 30, 2021
Commercial and industrial	$	3,800	$	653	$	727	$	5,180	$	2,513,785	$	19,404	$	2,538,369
PPP	—		—		—		—		409,247		—		409,247
Owner occupied commercial real estate	1,255		952		6		2,213		2,120,755		12,259		2,135,227
Non-owner occupied commercial real estate	41		26		—		67		1,999,904		20,516		2,020,487
Real estate construction	50		101		52		203		813,343		455		814,001
Agricultural and agricultural real estate	625		—		—		625		668,065		15,980		684,670
Residential real estate	2,168		903		76		3,147		825,013		12,196		840,356
Consumer	1,112		27		—		1,139		409,846		1,565		412,550
Total gross loans receivable held to maturity	$	9,051	$	2,662	$	861	$	12,574	$	9,759,958	$	82,375	$	9,854,907
December 31, 2020
Commercial and industrial	$	5,825	$	2,322	$	720	$	8,867	$	2,504,170	$	21,762	$	2,534,799
PPP	1		—		—		1		957,784		—		957,785
Owner occupied commercial real estate	2,815		167		—		2,982		1,759,649		13,775		1,776,406
Non-owner occupied commercial real estate	2,143		2,674		—		4,817		1,902,003		14,661		1,921,481
Real estate construction	2,446		96		—		2,542		859,784		894		863,220
Agricultural and agricultural real estate	1,688		—		—		1,688		694,150		18,688		714,526
Residential real estate	1,675		83		—		1,758		825,047		13,637		840,442
Consumer	807		139		—		946		409,477		3,969		414,392
Total gross loans receivable held to maturity	$	17,400	$	5,481	$	720	$	23,601	$	9,912,064	$	87,386	$	10,023,051

Loans delinquent 30 to 89 days as a percent of total loans were 0.12% at September 30, 2021, compared to 0.23% at December 31, 2020. Changes in credit risk are monitored on a continuous basis as part of relationship management, and changes in risk ratings are made when identified. All individually assessed loans are reviewed at least annually.

HTLF recognized $0 of interest income on nonaccrual loans during the three and nine months ended September 30, 2021 and September 30, 2020. As of September 30, 2021, and December 31, 2020, HTLF had $28.6 million and $32.5 million of nonaccrual loans with no related allowance, respectively.

On December 4, 2020, HTLF's Arizona Bank & Trust subsidiary completed 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. As of December 4, 2020, the Johnson Bank branches acquired had gross loans with a fair value of $150.7 million.

On December 4, 2020, HTLF completed the acquisition of AimBank, headquartered in Levelland, Texas. As of December 4, 2020, AimBank had gross loans with a fair value of $1.09 billion.