FAIR VALUE (Tables)

6 Months Ended

Jun. 30, 2022

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

The table below presents HTLF's assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2022, and December 31, 2021, 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
June 30, 2022
Assets

Securities available for sale
U.S. treasuries	$	13,890	$	13,890	$	—	$	—
U.S. agencies	45,216		—		45,216		—
Obligations of states and political subdivisions	1,665,343		—		1,665,343		—
Mortgage-backed securities - agency	1,965,309		—		1,965,309		—
Mortgage-backed securities - non-agency	2,192,437		—		2,192,437		—
Commercial mortgage-backed securities - agency	97,851		—		97,851		—
Commercial mortgage-backed securities - non-agency	714,241		—		714,241		—
Asset-backed securities	382,822		—		382,822		—
Corporate bonds	8,672		—		8,672		—
Equity securities with a readily determinable fair value	20,437		—		20,437		—
Derivative financial instruments(1)	19,054		—		19,054		—
Interest rate lock commitments	955		—		—		955
Forward commitments	201		—		201		—
Total assets at fair value	$	7,126,428	$	13,890	$	7,111,583	$	955
Liabilities
Derivative financial instruments(2)	$	19,037	$	—	$	19,037	$	—
Forward commitments	196		—		196		—

Total liabilities at fair value	$	19,233	$	—	$	19,233	$	—
December 31, 2021
Assets

Securities available for sale
U.S. treasuries	$	1,008	$	1,008	$	—	$	—
U.S. agencies	193,384		—		193,384		—
Obligations of states and political subdivisions	2,085,033		—		2,085,033		—
Mortgage-backed securities - agency	2,349,289		—		2,349,289		—
Mortgage-backed securities - non-agency	1,743,379		—		1,743,379		—
Commercial mortgage-backed securities - agency	123,912		—		123,912		—
Commercial mortgage-backed securities - non-agency	600,888		—		600,888		—
Asset-backed securities	409,653		—		409,653		—
Corporate bonds	3,040		—		3,040		—
Equity securities with a readily determinable fair value	20,788		—		20,788		—
Derivative financial instruments(2)	23,891		—		23,891		—
Interest rate lock commitments	1,306		—		—		1,306
Forward commitments	32		—		32		—
Total assets at fair value	$	7,555,603	$	1,008	$	7,553,289	$	1,306
Liabilities
Derivative financial instruments(3)	$	25,099	$	—	$	25,099	$	—
Forward commitments	95		—		95		—

Total liabilities at fair value	$	25,194	$	—	$	25,194	$	—

(1) Includes fair value hedges, embedded derivatives and back-to-back loan swaps.
(2) Includes back-to-back loan swaps and free standing derivatives.
(3) Includes fair value hedges, embedded derivatives and customer interest rate swaps.

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 June 30, 2022
	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	$	12,545	$	—	$	—	$	12,545	$	4,158
Owner occupied commercial real estate	10,885		—		—		10,885		129
Non-owner occupied commercial real estate	11,959		—		—		11,959		—
Real estate construction	1,575		—		—		1,575		—
Agricultural and agricultural real estate	7,177		—		—		7,177		3,104
Residential real estate	845		—		—		845		—

Total collateral dependent individually assessed loans	$	44,986	$	—	$	—	$	44,986	$	7,391
Loans held for sale	$	18,803	$	—	$	18,803	$	—	$	(492)
Other real estate owned	4,528		—		—		4,528		213
Premises, furniture and equipment held for sale	9,959		—		—		9,959		128
Servicing rights	8,288		—		—		8,288		(1,658)


	Fair Value Measurements at December 31, 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	$	8,989	$	—	$	—	$	8,989	$	275
Owner occupied commercial real estate	8,447		—		—		8,447		—
Non-owner occupied commercial real estate	11,946		—		—		11,946		1,637

Agricultural and agricultural real estate	11,404		—		—		11,404		372
Residential real estate	855		—		—		855		—

Total collateral dependent individually assessed loans	$	41,641	$	—	$	—	$	41,641	$	2,284
Loans held for sale	$	21,640	$	—	$	21,640	$	—	$	(813)

Other real estate owned	1,927		—		—		1,927		686
Premises, furniture and equipment held for sale	10,828		—		—		10,828		241
Servicing rights	6,890		—		—		6,890		(1,088)

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
6/30/2022

Valuation
Technique

Unobservable
Input

Range
(Weighted
Average)

Interest rate lock commitments

955

Discounted cash flows

Closing ratio

0-99% (88%)(1)

Other real estate owned

4,528

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Servicing rights

8,288

Discounted cash flows

Discount rate

9 - 11% (9.01%)(4)

Constant prepayment rate

8.6 - 15.1% (8.60%)(4)

Premises, furniture and equipment held for sale

9,959

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Collateral dependent individually assessed loans:

Commercial

12,545

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Owner occupied commercial real estate

10,885

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-7%(3)

Non-owner occupied commercial real estate

11,959

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Real estate construction

1,575

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Agricultural and agricultural real estate

7,177

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-8%(3)

Residential real estate

845

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-7%(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 12/31/2021

Valuation
Technique

Unobservable
Input

Range (Weighted Average)

Interest rate lock commitments

1,306

Discounted cash flows

Closing ratio

0-99% (88%)(1)

Other real estate owned

1,927

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Servicing rights

6,890

Discounted cash flows

Discount rate

9 - 11% (9.02%)(4)

Constant prepayment rate

13.1 - 18.6% (13.4%)(4)

Premises, furniture and equipment held for sale

10,828

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Collateral dependent individually assessed loans:

Commercial and industrial

8,989

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-6%(3)

Owner occupied commercial real estate

8,447

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-7%(3)

Non-owner occupied commercial real estate

11,946

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Agricultural and agricultural real estate

11,404

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-7%(3)

Residential real estate

855

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-7%(3)

(4) The significant unobservable input used in the discounted cash flow analysis are the discount rate and constant prepayment rate.

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 Six Months Ended June 30, 2022		For the Year Ended December 31, 2021
Balance at January 1,	$	1,306	$	1,827

Total net gains included in earnings	(672)		(2,345)
Issuances	2,494		15,403
Settlements	(2,173)		(13,579)
Balance at period end	$	955	$	1,306

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 June 30, 2022
	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	$	384,794	$	384,794	$	384,794	$	—	$	—
Time deposits in other financial institutions	1,855		1,855		1,855		—		—
Securities:

Carried at fair value	7,106,218		7,106,218		13,890		7,092,328		—
Held to maturity	81,939		85,212		—		85,212		—
Other investments	85,899		85,899		—		85,899		—
Loans held for sale	18,803		18,803		—		18,803		—
Loans, net:
Commercial and industrial	3,059,519		2,954,333		—		2,941,788		12,545
PPP	23,031		23,031		—		23,031		—
Owner occupied commercial real estate	2,282,833		2,203,738		—		2,192,853		10,885
Non-owner occupied commercial real estate	2,321,718		2,253,693		—		2,241,734		11,959
Real estate construction	845,045		827,809		—		826,234		1,575
Agricultural and agricultural real estate	836,703		800,984		—		793,807		7,177
Residential real estate	845,270		820,580		—		819,735		845
Consumer	464,099		453,836		—		453,836		—
Total Loans, net	10,678,218		10,338,004		—		10,293,018		44,986
Cash surrender value on life insurance	192,474		192,474		—		192,474		—
Derivative financial instruments(1)	19,054		19,054		—		19,054		—
Interest rate lock commitments	955		955		—		—		955
Forward commitments	201		201		—		201		—
Financial liabilities:
Deposits
Demand deposits	6,087,304		6,087,304		—		6,087,304		—
Savings deposits	10,059,678		10,059,678		—		10,059,678		—
Time deposits	1,078,568		1,078,568		—		1,078,568		—

Short term borrowings	97,749		97,749		—		97,749		—
Other borrowings	372,538		373,465		—		373,465		—
Derivative financial instruments(2)	19,037		19,037		—		19,037		—
Forward commitments	196		196		—		196		—

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


					Fair Value Measurements at December 31, 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	$	435,599	$	435,599	$	435,599	$	—	$	—
Time deposits in other financial institutions	2,894		2,894		2,894		—		—
Securities:

Carried at fair value	7,530,374		7,530,374		1,008		7,529,366		—
Held to maturity	84,709		94,139		—		94,139		—
Other investments	82,567		82,567		—		82,567		—
Loans held for sale	21,640		21,640		—		21,640		—
Loans, net:
Commercial and industrial	2,617,347		2,603,001		—		2,594,012		8,989
PPP	199,883		199,883		—		199,883		—
Owner occupied commercial real estate	2,221,120		2,222,030		—		2,213,583		8,447
Non-owner occupied commercial real estate	1,992,683		1,998,161		—		1,986,215		11,946
Real estate construction	833,581		844,578		—		844,578		—
Agricultural and agricultural real estate	748,540		749,238		—		737,834		11,404
Residential real estate	820,856		819,178		—		818,323		855
Consumer	410,474		415,487		—		415,487		—
Total Loans, net	9,844,484		9,851,556		—		9,809,915		41,641
Cash surrender value on life insurance	191,722		191,722		—		191,722		—
Derivative financial instruments(1)	23,891		23,891		—		23,891		—
Interest rate lock commitments	1,306		1,306		—		—		1,306
Forward commitments	32		32		—		32		—
Financial liabilities:
Deposits
Demand deposits	6,495,326		6,495,326		—		6,495,326		—
Savings deposits	8,897,909		8,897,909		—		8,897,909		—
Time deposits	1,024,020		1,024,020		—		1,024,020		—

Short term borrowings	131,597		131,597		—		131,597		—
Other borrowings	372,072		373,194		—		373,194		—
Derivative financial instruments(1)	25,099		25,099		—		25,099		—
Forward commitments	95		95		—		95		—

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