FAIR VALUE (Tables)

6 Months Ended

Jun. 30, 2023

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, 2023, and December 31, 2022, 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, 2023
Assets

Securities available for sale
U.S. treasuries	$	31,679	$	31,679	$	—	$	—
U.S. agencies	43,036		—		43,036		—
Obligations of states and political subdivisions	849,239		—		849,239		—
Mortgage-backed securities - agency	1,686,646		—		1,686,646		—
Mortgage-backed securities - non-agency	1,995,809		—		1,995,809		—
Commercial mortgage-backed securities - agency	83,825		—		83,825		—
Commercial mortgage-backed securities - non-agency	617,992		—		617,992		—
Asset-backed securities	412,716		—		412,716		—
Corporate bonds	56,411		—		56,411		—
Equity securities with a readily determinable fair value	20,688		—		20,688		—
Derivative financial instruments(1)	96,689		—		96,689		—
Interest rate lock commitments	306		—		—		306
Forward commitments	43		—		43		—
Total assets at fair value	$	5,895,079	$	31,679	$	5,863,094	$	306
Liabilities
Derivative financial instruments(2)	$	51,994	$	—	$	51,994	$	—
Forward commitments	4		—		4		—

Total liabilities at fair value	$	51,998	$	—	$	51,998	$	—
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(2)	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(1)	$	46,226	$	—	$	46,226	$	—
Forward commitments	99		—		99		—

Total liabilities at fair value	$	46,325	$	—	$	46,325	$	—

(1) Includes interest rate swaps, embedded derivatives and back-to-back loan swaps.
(2) Includes back-to-back loan swaps and free standing derivatives.

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, 2023
	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	$	9,234	$	—	$	—	$	9,234	$	799
Owner occupied commercial real estate	7,339		—		—		7,339		—
Non-owner occupied commercial real estate	13,761		—		—		13,761		—
Real estate construction	910		—		—		910		—
Agricultural and agricultural real estate	6,147		—		—		6,147		5,309
Residential real estate	2,254		—		—		2,254		—

Total collateral dependent individually assessed loans	$	39,645	$	—	$	—	$	39,645	$	6,108
Loans held for sale	$	14,353	$	—	$	14,353	$	—	$	(266)
Other real estate owned	2,677		—		—		2,677		737
Premises, furniture and equipment held for sale	3,741		—		—		3,741		759


	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)		Year-to- Date (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 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
6/30/2023

Valuation
Technique

Unobservable
Input

Range (Weighted
Average)

Interest rate lock commitments

306

Discounted cash flows

Closing ratio

0-99% (89%)(1)

Other real estate owned

2,677

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Premises, furniture and equipment held for sale

3,741

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Collateral dependent individually assessed loans:

Commercial

9,234

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Owner occupied commercial real estate

7,339

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-13%(3)

Non-owner occupied commercial real estate

13,761

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-9%(3)

Real estate construction

910

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Agricultural and agricultural real estate

6,147

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-15%(3)

Residential real estate

2,254

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.

Fair Value at 12/31/2022

Valuation
Technique

Unobservable
Input

Range (Weighted Average)

Interest rate lock commitments

174

Discounted cash flows

Closing ratio

0-99% (88%)(1)

Other real estate owned

8,401

Modified appraised value

Third party appraisal

(2)

Appraisal discount

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)

Premises, furniture and equipment held for sale

6,851

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

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)

(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, 2023		For the Year Ended December 31, 2022
Balance at January 1,	$	174	$	1,306

Total net gains included in earnings	282		(1,828)
Issuances	1,110		3,683
Settlements	(1,260)		(2,987)
Balance at period end	$	306	$	174

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, 2023
	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	$	400,187	$	400,187	$	400,187	$	—	$	—
Time deposits in other financial institutions	1,490		1,490		1,490		—		—
Securities:

Carried at fair value	5,798,041		5,798,041		31,679		5,766,362		—
Held to maturity	834,673		806,942		—		806,942		—
Other investments	72,291		72,291		—		72,291		—
Loans held for sale	14,353		14,353		—		14,353		—
Loans, net:
Commercial and industrial	3,561,284		3,380,572		—		3,371,338		9,234
PPP	4,139		4,139		—		4,139		—
Owner occupied commercial real estate	2,383,989		2,196,424		—		2,189,085		7,339
Non-owner occupied commercial real estate	2,512,760		2,370,988		—		2,357,227		13,761
Real estate construction	984,888		979,326		—		978,416		910
Agricultural and agricultural real estate	836,306		760,910		—		754,763		6,147
Residential real estate	820,793		708,992		—		706,738		2,254
Consumer	502,617		483,574		—		483,574		—
Total Loans, net	11,606,776		10,884,925		—		10,845,280		39,645
Cash surrender value on life insurance	195,793		195,793		—		195,793		—
Derivative financial instruments(1)	96,689		96,689		—		96,689		—
Interest rate lock commitments	306		306		—		—		306
Forward commitments	43		43		—		43		—
Financial liabilities:
Deposits
Demand deposits	4,897,858		4,897,858		—		4,897,858		—
Savings deposits	8,772,596		8,772,596		—		8,772,596		—
Time deposits	3,993,089		3,993,089		—		3,993,089		—

Short term borrowings	44,364		44,364		—		44,364		—
Other borrowings	372,403		374,127		—		374,127		—
Derivative financial instruments(2)	51,994		51,994		—		51,994		—
Forward commitments	4		4		—		4		—

(1) Includes interest rate swaps, embedded derivatives and back-to-back loan swaps.
(2) Includes back-to-back loan swaps and free standing derivative instruments.


					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 and industrial	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		—
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(1)	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.