FAIR VALUE

12 Months Ended

Dec. 31, 2022

Fair Value Disclosures [Abstract]

FAIR VALUE

FAIR VALUE

HTLF utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities carried at fair value, which include available for sale, trading securities and equity securities with a readily determinable fair value, and derivatives are recorded in the consolidated balance sheets at fair value on a recurring basis. Additionally, from time to time, HTLF may be required to record at fair value other assets on a nonrecurring basis such as loans held for sale, loans held to maturity and certain other assets including, but not limited to, mortgage servicing rights, commercial servicing rights and other real estate owned. These nonrecurring fair value adjustments typically involve application of lower of cost or fair value accounting or write-downs of individual assets.

Fair Value Hierarchy

Under ASC 820, assets and liabilities are grouped at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1 — Valuation is based upon quoted prices for identical instruments in active markets.

Level 2 — Valuation is based upon quoted prices for similar instruments in active markets, or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 — Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques. The following is a description of valuation methodologies used for assets and liabilities recorded at fair value on a recurring or non-recurring basis.

Assets

Securities Available for Sale and Held to Maturity

Securities available for sale are recorded at fair value on a recurring basis. Securities held to maturity are generally recorded at cost. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security's credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, as well as U.S. Treasury securities. Level 2 securities include U.S. government and agency securities, mortgage and asset-backed securities and private collateralized mortgage obligations, municipal bonds, equity securities and corporate debt securities. On a quarterly basis, a secondary independent pricing service is used for the securities portfolio to validate the pricing from HTLF's primary pricing service.

Equity Securities with a Readily Determinable Fair Value

Equity securities with a readily determinable fair value generally include Community Reinvestment Act mutual funds and are classified as Level 2 due to the infrequent trading of these securities. The fair value is based on the price per share.

Loans Held for Sale

Loans held for sale are carried at the lower of cost or fair value on an aggregate basis. The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, HTLF classifies loans held for sale subjected to nonrecurring fair value adjustments as Level 2.

Loans Held to Maturity

HTLF does not record loans held to maturity at fair value on a recurring basis. However, from time to time, certain loans are considered collateral dependent and an allowance for credit losses is established. The fair value of individually assessed loans is measured using the fair value of the collateral. In accordance with ASC 820, individually assessed loans measured at fair value are classified as nonrecurring Level 3 in the fair value hierarchy.

Premises, Furniture and Equipment Held for Sale

HTLF values premises, furniture and equipment held for sale based on third-party appraisals less estimated disposal costs. HTLF considers third party appraisals, as well as independent fair value assessments from Realtors or persons involved in

selling bank premises, furniture and equipment, in determining the fair value of particular properties. Accordingly, the valuation of premises, furniture and equipment held for sale is subject to significant external and internal judgment. HTLF periodically reviews premises, furniture and equipment held for sale to determine if the fair value of the property, less disposal costs, has declined below its recorded book value and records any adjustments accordingly. Premises, furniture and equipment held for sale are classified as nonrecurring Level 3 in the fair value hierarchy.

Mortgage Servicing Rights

Mortgage servicing rights assets represent the value associated with servicing residential real estate loans that have been sold to outside investors with servicing retained. The fair value for servicing assets is determined through discounted cash flow analysis and utilizes discount rates, prepayment speeds and delinquency rate assumptions as inputs. All these assumptions require a significant degree of management estimation and judgment. Mortgage servicing rights are subject to impairment testing. The carrying values of these rights are reviewed quarterly for impairment based upon the calculation of fair value as performed by an outside third party. For purposes of measuring impairment, the rights are stratified into certain risk characteristics including note type and note term. If the valuation model reflects a value less than the carrying value, mortgage servicing rights are adjusted to fair value through a valuation allowance. HTLF classifies mortgage servicing rights as nonrecurring with Level 3 measurement inputs.

Commercial Servicing Rights

Commercial servicing rights assets represent the value associated with servicing commercial loans guaranteed by the Small Business Administration and United States Department of Agriculture that have been sold with servicing retained by HTLF. HTLF uses the amortization method (i.e., the lower of amortized cost or estimated fair value measured on a nonrecurring basis), not fair value measurement accounting, to determine the carrying value of its commercial servicing rights. The fair value for servicing assets is determined through market prices for comparable servicing contracts, when available, or through a valuation model that calculates the present value of estimated future net servicing income. Inputs utilized include discount rates, prepayment speeds and delinquency rate assumptions as inputs. All these assumptions require a significant degree of management estimation and judgment. Commercial servicing rights are subject to impairment testing, and the carrying values of these rights are reviewed quarterly for impairment based upon the calculation of fair value as performed by an outside third party. If the valuation model reflects a fair value less than the carrying value, commercial servicing rights are adjusted to fair value through a valuation allowance. HTLF classifies commercial servicing rights as nonrecurring with Level 3 measurement inputs.

Derivative Financial Instruments

HTLF's current interest rate risk strategy includes cash flow hedges and interest rate swaps. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. To comply with the provisions of ASC 820, HTLF incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, HTLF has considered the impact of netting any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although HTLF has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2022, and December 31, 2021, HTLF has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, HTLF has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Interest Rate Lock Commitments

HTLF uses an internal valuation model that relies on internally developed inputs to estimate the fair value of its interest rate lock commitments which is based on unobservable inputs that reflect management's assumptions and specific information about each borrower. Interest rate lock commitments are classified in Level 3 of the fair value hierarchy.

Forward Commitments

The fair value of forward commitments is estimated using an internal valuation model, which includes current trade pricing for similar financial instruments in active markets that HTLF has the ability to access and are classified in Level 2 of the fair value hierarchy.

Other Real Estate Owned

Other real estate owned ("OREO") represents property acquired through foreclosures and settlements of loans. Property acquired is carried at the fair value of the property at the time of acquisition (representing the property's cost basis), plus any acquisition costs, or the estimated fair value of the property, less disposal costs. HTLF considers third party appraisals, as well as independent fair value assessments from realtors or persons involved in selling OREO, in determining the fair value of particular properties. Accordingly, the valuation of OREO is subject to significant external and internal judgment. HTLF periodically reviews OREO to determine if the fair value of the property, less disposal costs, has declined below its recorded book value and records any adjustments accordingly. OREO is classified as nonrecurring Level 3 of the fair value hierarchy.

The tables below present HTLF's assets and liabilities that are measured at fair value on a recurring basis as of December 31, 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
December 31, 2022
Assets
Securities available for sale
U.S. treasuries	$	31,699	$	31,699	$	—	$	—
U.S. agencies	43,135		—		43,135		—
Obligations of states and political subdivisions	879,437		—		879,437		—
Mortgage-backed securities - agency	1,772,105		—		1,772,105		—
Mortgage-backed securities - non-agency	2,181,876		—		2,181,876		—
Commercial mortgage-backed securities - agency	85,123		—		85,123		—
Commercial mortgage-backed securities - non-agency	659,459		—		659,459		—
Asset-backed securities	416,054		—		416,054		—
Corporate bonds	57,942		—		57,942		—
Equity securities with a readily determinable fair value	20,314		—		20,314		—
Derivative financial instruments(1)	46,293		—		46,293		—
Interest rate lock commitments	174		—		—		174
Forward commitments	47		—		47		—
Total assets at fair value	$	6,193,658	$	31,699	$	6,161,785	$	174
Liabilities
Derivative financial instruments(2)	$	46,226	$	—	$	46,226	$	—
Forward commitments	99		—		99		—
Total liabilities at fair value	$	46,325	$	—	$	46,325	$	—
(1) Includes interest rate swaps, fair value hedges, embedded derivatives, and back-to-back loan swaps.
(2) Includes back-to-back loan swaps and undesignated interest rate swaps.

	Total Fair Value		Level 1		Level 2		Level 3
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	20,788		—		20,788		—
Derivative financial instruments(1)	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(2)	$	25,099	$	—	$	25,099	$	—
Forward commitments	95		—		95		—
Total liabilities at fair value	$	25,194	$	—	$	25,194	$	—
(1) Includes embedded derivatives, back-to-back loan swaps and cash flow hedges.
(2) Includes cash flow hedges, fair value hedges, back-to-back loan swaps and free standing derivative instruments.

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

	Fair Value Measurements at December 31, 2022
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)		(Gains)/Losses
Collateral dependent individually assessed loans:
Commercial and industrial	$	12,042	$	—	$	—	$	12,042	$	4,186
Owner occupied commercial real estate	7,556		—		—		7,556		—
Non-owner occupied commercial real estate	11,371		—		—		11,371		—
Real estate construction	1,518		—		—		1,518		—
Agricultural and agricultural real estate	3,788		—		—		3,788		—
Residential real estate	1,607		—		—		1,607		—
Total collateral dependent individually assessed loans	$	37,882	$	—	$	—	$	37,882	$	4,186
Loans held for sale	$	5,277	$	—	$	5,277	$	—	$	(116)
Other real estate owned	8,401		—		—		8,401		180
Premises, furniture and equipment held for sale	6,851		—		—		6,851		1,562
Servicing rights	7,840		—		—		7,840		516

	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)		(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
Real estate construction	—		—		—		—		—
Agricultural and agricultural real estate	11,404		—		—		11,404		372
Residential real estate	855		—		—		855		—
Total collateral dependent impaired 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)

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 12/31/22		Valuation Technique	Unobservable Input	Range (Weighted Average)
Interest rate lock commitments	$	174	Discounted cash flows	Closing ratio	0 - 99% (88%)(1)
Premises, furniture and equipment held for sale	6,851		Modified appraised value	Third party appraisal	(2)
				Appraisal discount	0-10%(3)
Other real estate owned	8,401		Modified appraised value	Third party appraisal	(2)
				Appraisal discounts	0-10%(3)
Servicing rights	7,840		Discounted cash flows	Discount rate	9.98 - 11.72% (10.02%)(4)
				Constant prepayment rate	7.8 - 14.2% (7.9%)(4)
Collateral dependent individually assessed loans:
Commercial and industrial	12,042		Modified appraised value	Third party appraisal	(2)
				Appraisal discount	0-10%(3)
Owner occupied commercial real estate	7,556		Modified appraised value	Third party appraisal	(2)
				Appraisal discount	0-10%(3)
Non-owner occupied commercial real estate	11,371		Modified appraised value	Third party appraisal	(2)
				Appraisal discount	0-10%(3)
Real estate construction	1,518		Modified appraised value	Third party appraisal	(2)
				Appraisal discount	0-10%(3)
Agricultural and agricultural real estate	3,788		Modified appraised value	Third party appraisal	(2)
				Appraisal discount	0%-15%(3)
Residential real estate	1,607		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 inputs used in the discounted cash flow analysis are the discount rate and constant prepayment rate.

	Fair Value at 12/31/21		Valuation Technique	Unobservable Input	Range (Weighted Average)
Interest rate lock commitments	$	1,306	Discounted cash flows	Closing ratio	0 - 99% (88%)(1)
Premises, furniture and equipment held for sale	10,828		Modified appraised value	Third party appraisal	(2)
				Appraisal discount	0-10%(3)
Other real estate owned	1,927		Modified appraised value	Third party appraisal	(2)
				Appraisal discounts	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)
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 discounts	0-7%(3)
Non-owner occupied commercial real estate	11,946		Modified appraised value	Third party appraisal	(2)
				Appraisal discounts	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%(5)
(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 inputs used in the discounted cash flow analysis are the discount rate and constant prepayment rate.

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

	For the Years Ended
	December 31, 2022		December 31, 2021
Balance at January 1,	$	1,306	$	1,827
Total gains (losses), net, included in earnings	(1,828)		(2,345)
Issuances	3,683		15,403
Settlements	(2,987)		(13,579)
Balance at period end,	$	174	$	1,306

Gains included in net gains on sale of loans held for sale attributable to interest rate lock commitments held at December 31, 2022, and December 31, 2021, were $174,000 and $1.3 million, respectively.

The table below is a summary of the estimated fair value of HTLF's financial instruments (as defined by ASC 825) as of December 31, 2022, and December 31, 2021, in thousands. The carrying amounts in the following table are recorded in the consolidated balance sheets under the indicated captions. In accordance with ASC 825, the assets and liabilities that are not financial instruments are not included in the disclosure, including the value of the commercial and mortgage servicing rights, premises, furniture and equipment, premises, furniture and equipment held for sale, OREO, goodwill, other intangibles and other liabilities.

HTLF does not believe that the estimated information presented below 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, obtaining deposits or fee generating activities. Many of the estimates presented below 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 December 31, 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	$	363,087	$	363,087	$	363,087	$	—	$	—
Time deposits in other financial institutions	1,740		1,740		1,740		—		—
Securities:
Carried at fair value	6,147,144		6,147,144		31,699		6,115,445		—
Held to maturity	829,403		776,557		—		776,557		—
Other investments	74,567		74,567		—		74,567		—
Loans held for sale	5,277		5,277		—		5,277		—
Loans, net:
Commercial	3,435,343		3,270,127		—		3,258,085		12,042
PPP	11,025		11,025		—		11,025		—
Owner occupied commercial real estate	2,251,359		2,084,665		—		2,077,109		7,556
Non-owner occupied commercial real estate	2,314,401		2,184,796		—		2,173,425		11,371
Real estate construction	1,046,084		1,039,244		—		1,037,726		1,518
Agricultural and agricultural real estate	917,876		842,637		—		838,849		3,788
Residential real estate	845,650		741,325		—		739,718		1,607
Consumer	497,131		480,018		—		480,018		—
Total Loans, net	11,318,869		10,653,837		—		10,615,955		37,882
Cash surrender value on life insurance	193,403		193,403		—		193,403		—
Derivative financial instruments(1)	46,293		46,293		—		46,293		—
Interest rate lock commitments	174		174		—		—		174
Forward commitments	47		47		—		47		—

					Fair Value Measurements at December 31, 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 liabilities:
Deposits
Demand deposits	$	5,701,340	$	5,701,340	$	—	$	5,701,340	$	—
Savings deposits	9,994,391		9,994,391		—		9,994,391		—
Time deposits	1,817,278		1,817,278		—		1,817,278		—
Short term borrowings	376,117		376,117		—		376,117		—
Other borrowings	371,753		372,473		—		372,473		—
Derivative financial instruments(2)	46,226		46,226		—		46,226		—
Forward commitments	99		99		—		99		—
(1) Includes interest rate swaps, fair value hedges, embedded derivatives, and back-to-back loan swaps.
(2) Includes back-to-back loan swaps and undesignated interest rate swaps.

					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

					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 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(2)	25,099		25,099		—		25,099		—
Forward commitments	95		95		—		95		—
(1) Includes embedded derivatives, back-to-back loan swaps and cash flow hedges.
(2) Includes cash flow hedges, fair value hedges, back-to-back loan swaps and free standing derivative instruments.

Cash and Cash Equivalents — The carrying amount is a reasonable estimate of fair value due to the short-term nature of these instruments.

Time Deposits in Other Financial Institutions — The carrying amount is a reasonable estimate of the fair value due to the short-term nature of these instruments.

Securities — For equity securities with a readily determinable fair value and debt securities either held to maturity, available for

sale or trading, fair value equals quoted market price if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. For Level 3 securities, HTLF utilizes independent pricing provided by third-party vendors or brokers.

Other Investments — Fair value measurement of other investments, which consists primarily of FHLB stock, are based on their redeemable value, which is at cost. The market for these securities is restricted to the issuer of the stock and subject to impairment evaluation.

Loans — The fair value of loans were determined using an exit price methodology. The exit price estimation of fair value is based on the present value of the expected cash flows. The projected cash flows are based on the contractual terms of the loans, adjusted for prepayments and a discount rate based on the relative risk of the cash flows. Other considerations include the loan type, remaining life of the loan and credit risk.

The fair value of individually assessed or impaired loans is measured using the fair value of the underlying collateral. The fair value of loans held for sale is estimated using quoted market prices or sales contracts.

Cash surrender value on life insurance — Life insurance policies are held on certain officers. The carrying value of these policies approximates fair value as it is based on the cash surrender value adjusted for other charges or amounts due that are probable at settlement. As such, HTLF classifies the estimated fair value of the cash surrender value on life insurance as Level 2.

Derivative Financial Instruments — The fair value of all derivatives is estimated based on the amount that HTLF would pay or would be paid to terminate the contract or agreement, using current rates, and when appropriate, the current creditworthiness of the counter-party.

Interest Rate Lock Commitments — The fair value of interest rate lock commitments is estimated using an internal valuation model, which includes grouping the interest rate lock commitments by interest rate and terms, applying an estimated closing ratio based on historical experience, and then multiplying by quoted investor prices determined to be reasonably applicable to the loan commitment groups based on interest rate, terms, and rate lock expiration dates of the loan commitment group.

Forward Commitments — The fair value of these instruments is estimated using an internal valuation model, which includes current trade pricing for similar financial instruments.

Deposits — The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. If the fair value of the fixed maturity certificates of deposit is calculated at less than the carrying amount, the carrying value of these deposits is reported as the fair value.

Short-term and Other Borrowings — Rates currently available to HTLF for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.

Commitments to Extend Credit, Unused Lines of Credit and Standby Letters of Credit — Based upon management's analysis of the off balance sheet financial instruments, there are no significant unrealized gains or losses associated with these financial instruments based upon review of the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.