FAIR VALUE (Tables)

9 Months Ended

Sep. 30, 2021

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

The table below presents HTLFs assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2021, and December 31, 2020, in thousands, aggregated by the level in the fair value hierarchy within which those measurements fall:


	Total Fair Value		Level 1		Level 2		Level 3
September 30, 2021
Assets

Securities available for sale
U.S. treasuries	$	1,013	$	1,013	$	—	$	—
U.S. agencies	35,033		—		35,033		—
Obligations of states and political subdivisions	1,823,465		—		1,823,465		—
Mortgage-backed securities - agency	2,371,264		—		2,371,264		—
Mortgage-backed securities - non-agency	1,627,903		—		1,627,903		—
Commercial mortgage-backed securities - agency	127,861		—		127,861		—
Commercial mortgage-backed securities - non-agency	561,667		—		561,667		—
Asset-backed securities	877,646		—		877,646		—
Corporate bonds	3,294		—		3,294		—
Equity securities with a readily determinable fair value	20,790		—		20,790		—
Derivative financial instruments(1)	26,232		—		26,232		—
Interest rate lock commitments	1,204		—		—		1,204
Forward commitments	278		—		278		—
Total assets at fair value	$	7,477,650	$	1,013	$	7,475,433	$	1,204
Liabilities
Derivative financial instruments(2)	$	27,782	$	—	$	27,782	$	—
Forward commitments	59		—		59		—

Total liabilities at fair value	$	27,841	$	—	$	27,841	$	—
December 31, 2020
Assets

Securities available for sale
U.S. treasuries	$	2,026	$	2,026	$	—	$	—
U.S. agencies	166,779		—		166,779		—
Obligations of states and political subdivisions	1,635,227		—		1,635,227		—
Mortgage-backed securities - agency	1,355,270		—		1,355,270		—
Mortgage-backed securities - non-agency	1,449,116		—		1,449,116		—
Commercial mortgage-backed securities - agency	174,153		—		174,153		—
Commercial mortgage-backed securities - non-agency	252,767		—		252,767		—
Asset-backed securities	1,069,266		—		1,069,266		—
Corporate bonds	3,742		—		3,742		—
Equity securities with a readily determinable fair value	19,629		—		19,629		—
Derivative financial instruments(1)	44,102		—		44,102		—
Interest rate lock commitments	1,827		—		—		1,827

Total assets at fair value	$	6,173,904	$	2,026	$	6,170,051	$	1,827
Liabilities
Derivative financial instruments(2)	$	51,962	$	—	$	51,962	$	—
Forward commitments	697		—		697		—

Total liabilities at fair value	$	52,659	$	—	$	52,659	$	—

(1) Includes embedded derivatives, back-to-back loan swaps and fair value hedges.
(2) Includes cash flow hedges, fair value hedges, back-to-back loan swaps, embedded derivatives and free standing derivative instruments.

Fair Value Measurements, Nonrecurring

The tables below present HTLF's assets that are measured at fair value on a nonrecurring basis, in thousands:


	Fair Value Measurements at September 30, 2021
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Year-to- Date (Gains) Losses
Collateral dependent individually assessed loans:
Commercial and industrial	$	10,270	$	—	$	—	$	10,270	$	248
Owner occupied commercial real estate	3,552		—		—		3,552		—
Non-owner occupied commercial real estate	15,212		—		—		15,212		1,637

Agricultural and agricultural real estate	9,145		—		—		9,145		—


Total collateral dependent individually assessed loans	$	38,179	$	—	$	—	$	38,179	$	1,885
Loans held for sale	$	37,078	$	—	$	37,078	$	—	$	(1,335)
Other real estate owned	4,744		—		—		4,744		(119)
Premises, furniture and equipment held for sale	2,699		—		—		2,699		(86)
Servicing rights	5,801		—		—		5,801		(586)


	Fair Value Measurements at December 31, 2020
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Year-to- Date (Gains) Losses
Collateral dependent individually assessed loans:
Commercial and industrial	$	11,256	$	—	$	—	$	11,256	$	451
Owner occupied commercial real estate	5,874		—		—		5,874		11,631
Non-owner occupied commercial real estate	4,907		—		—		4,907		—

Agricultural and agricultural real estate	12,451		—		—		12,451		—


Total collateral dependent individually assessed loans	$	34,488	$	—	$	—	$	34,488	$	12,082
Loans held for sale	$	57,949	$	—	$	57,949	$	—	$	(982)

Other real estate owned	6,624		—		—		6,624		1,044
Premises, furniture and equipment held for sale	6,499		—		—		6,499		3,288
Servicing rights	5,189		—		—		5,189		1,778

Fair Value Inputs, Assets, Quantitative Information

The following tables present additional quantitative information about assets measured at fair value on a recurring and nonrecurring basis and for which HTLF has utilized Level 3 inputs to determine fair value, in thousands:

Fair Value
at
9/30/2021

Valuation
Technique

Unobservable
Input

Range
(Weighted
Average)

Interest rate lock commitments

1,204

Discounted cash flows

Closing ratio

0-99% (88%)(1)

Other real estate owned

4,744

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Servicing rights

5,801

Discounted cash flows

Third party valuation

(4)

Premises, furniture and equipment held for sale

2,699

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Collateral dependent individually assessed loans:

Commercial

10,270

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-15%(3)

Owner occupied commercial real estate

3,552

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-11%(3)

Non-owner occupied commercial real estate

15,212

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-11%(3)

Agricultural and agricultural real estate

9,145

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

(1) The significant unobservable input used in the fair value measurement is the closing ratio, which represents the percentage of loans currently in a lock position which management estimates will ultimately close. The closing ratio calculation takes into consideration historical data and loan-level data.

(2) Third party appraisals are obtained and updated at least annually to establish the value of the underlying asset, but the disclosure of the unobservable inputs used by the appraisers would not be meaningful because the range will vary widely from appraisal to appraisal.

(3) Discounts applied to the appraised values primarily include estimated sales costs, but also consider the age of the appraisal, changes in local market conditions and changes in the current condition of the collateral.

(4) The significant unobservable input used in the fair value measurement are the value indices, which are weighted-average spreads to LIBOR based on maturity groups.

Fair Value
at
12/31/2020

Valuation
Technique

Unobservable
Input

Range
(Weighted
Average)

Interest rate lock commitments

1,827

Discounted cash flows

Closing ratio

0-99% (86%)(1)

Other real estate owned

6,624

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Servicing rights

5,189

Discounted cash flows

Third party valuation

(4)

Premises, furniture and equipment held for sale

6,499

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Collateral dependent individually assessed loans:

Commercial and industrial

11,256

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-8%(3)

Fair Value
at
12/31/2020

Valuation
Technique

Unobservable
Input

Range
(Weighted
Average)

Owner occupied commercial real estate

5,874

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-12%(3)

Non-owner occupied commercial real estate

4,907

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Agricultural and agricultural real estate

12,451

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

(4) The significant unobservable input used in the fair value measurement are the value indices, which are weighted-average spreads to LIBOR based on maturity groups.

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation

The changes in fair value of the interest rate lock commitments, which are Level 3 financial instruments measured on a recurring basis, are summarized in the following table, in thousands:


	For the Nine Months Ended September 30, 2021		For the Year Ended December 31, 2020
Balance at January 1,	$	1,827	$	681

Total net gains included in earnings	(1,924)		2,803
Issuances	12,548		17,221
Settlements	(11,247)		(18,878)
Balance at period end	$	1,204	$	1,827

Fair Value, by Balance Sheet Grouping

HTLF does not believe that the estimated information presented herein is representative of the earnings power or value of HTLF. The following analysis, which is inherently limited in depicting fair value, also does not consider any value associated with either existing customer relationships or the ability of HTLF to create value through loan origination, deposit gathering or fee generating activities. Many of the estimates presented herein are based upon the use of highly subjective information and assumptions and, accordingly, the results may not be precise. Management believes that fair value estimates may not be comparable between financial institutions due to the wide range of permitted valuation techniques and numerous estimates which must be made. Furthermore, because the disclosed fair value amounts were estimated as of the balance sheet date, the amounts actually realized or paid upon maturity or settlement of the various financial instruments could be significantly different.


					Fair Value Measurements at September 30, 2021
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	327,405	$	327,405	$	327,405	$	—	$	—
Time deposits in other financial institutions	3,138		3,138		3,138		—		—
Securities:

Carried at fair value	7,449,936		7,449,936		1,013		7,448,923		—
Held to maturity	85,354		95,010		—		95,010		—
Other investments	83,332		83,332		—		83,332		—
Loans held for sale	37,078		37,078		—		37,078		—
Loans, net:
Commercial and industrial	2,510,461		2,498,314		—		2,488,044		10,270
PPP	409,247		409,247		—		409,247		—
Owner occupied commercial real estate	2,116,099		2,119,011		—		2,115,459		3,552
Non-owner occupied commercial real estate	1,998,372		2,008,824		—		1,993,612		15,212
Real estate construction	790,303		803,298		—		803,298		—
Agricultural and agricultural real estate	678,344		680,701		—		671,556		9,145
Residential real estate	831,118		831,021		—		831,021		—
Consumer	403,430		408,147		—		408,147		—
Total Loans, net	9,737,374		9,758,563		—		9,720,384		38,179
Cash surrender value on life insurance	190,576		190,576		—		190,576		—
Derivative financial instruments(1)	26,232		26,232		—		26,232		—
Interest rate lock commitments	1,204		1,204		—		—		1,204
Forward commitments	278		278		—		278		—
Financial liabilities:
Deposits
Demand deposits	6,537,722		6,537,722		—		6,537,722		—
Savings deposits	8,416,204		8,416,204		—		8,416,204		—
Time deposits	1,068,317		1,070,957		—		1,070,957		—

Short term borrowings	265,620		265,620		—		265,620		—
Other borrowings	371,765		372,902		—		372,902		—
Derivative financial instruments(2)	27,782		27,782		—		27,782		—
Forward commitments	59		59		—		59		—

(1) Includes embedded derivatives, back-to-back loan swaps and fair value hedges.
(2) Includes cash flow hedges, fair value hedges, back-to-back loan swaps and free standing derivative instruments.


					Fair Value Measurements at December 31, 2020
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	337,903	$	337,903	$	337,903	$	—	$	—
Time deposits in other financial institutions	3,129		3,129		3,129		—		—
Securities:

Carried at fair value	6,127,975		6,127,975		2,026		6,125,949		—
Held to maturity	88,839		100,041		—		100,041		—
Other investments	75,253		75,523		—		75,523		—
Loans held for sale	57,949		57,949		—		57,949		—
Loans, net:
Commercial and industrial	2,495,981		2,391,041		—		2,379,785		11,256
PPP	957,785		957,785		—		957,785		—
Owner occupied commercial real estate	1,756,405		1,745,397		—		1,739,523		5,874
Non-owner occupied commercial real estate	1,900,608		1,892,213		—		1,887,306		4,907
Real estate construction	843,140		849,224		—		849,224		—
Agricultural and agricultural real estate	707,397		697,729		—		685,278		12,451
Residential real estate	828,507		828,366		—		828,366		—
Consumer	401,622		407,914		—		407,914		—
Total Loans, net	9,891,445		9,769,669		—		9,735,181		34,488
Cash surrender value on life insurance	187,664		187,664		—		187,664		—
Derivative financial instruments(1)	44,102		44,102		—		44,102		—
Interest rate lock commitments	1,827		1,827		—		—		1,827

Financial liabilities:
Deposits
Demand deposits	5,688,810		5,688,810		—		5,688,810		—
Savings deposits	8,019,704		8,019,704		—		8,019,704		—
Time deposits	1,271,391		1,273,468		—		1,273,468		—

Short term borrowings	167,872		167,872		—		167,872		—
Other borrowings	457,042		458,806		—		458,806		—
Derivative financial instruments(1)	51,962		51,962		—		51,962		—
Forward commitments	697		697		—		697		—

(1) Includes embedded derivatives, back-to-back loan swaps and fair value hedges.
(2) Includes cash flow hedges, fair value hedges, back-to-back loan swaps and free standing derivative instruments.