FAIR VALUE (Tables)

3 Months Ended

Mar. 31, 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 March 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
March 31, 2022
Assets

Securities available for sale
U.S. treasuries	$	1,001	$	1,001	$	—	$	—
U.S. agencies	86,109		—		86,109		—
Obligations of states and political subdivisions	1,637,917		—		1,637,917		—
Mortgage-backed securities - agency	2,128,163		—		2,128,163		—
Mortgage-backed securities - non-agency	2,013,936		—		2,013,936		—
Commercial mortgage-backed securities - agency	118,555		—		118,555		—
Commercial mortgage-backed securities - non-agency	693,963		—		693,963		—
Asset-backed securities	317,420		—		317,420		—
Corporate bonds	7,648		—		7,648		—
Equity securities with a readily determinable fair value	20,531		—		20,531		—
Derivative financial instruments(1)	11,657		—		11,657		—
Interest rate lock commitments	696		—		—		696
Forward commitments	1,008		—		1,008		—
Total assets at fair value	$	7,038,604	$	1,001	$	7,036,907	$	696
Liabilities
Derivative financial instruments(2)	$	11,682	$	—	$	11,682	$	—
Forward commitments	35		—		35		—

Total liabilities at fair value	$	11,717	$	—	$	11,717	$	—
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(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 back-to-back loan swaps and free standing derivative instruments.
(2) Includes embedded derivatives, fair value hedges, and back-to-back loan 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 March 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	$	10,547	$	—	$	—	$	10,547	$	4,186
Owner occupied commercial real estate	9,247		—		—		9,247		129
Non-owner occupied commercial real estate	11,738		—		—		11,738		—
Real estate construction	1,984		—		—		1,984		—
Agricultural and agricultural real estate	9,514		—		—		9,514		3,104
Residential real estate	863		—		—		863		—

Total collateral dependent individually assessed loans	$	43,893	$	—	$	—	$	43,893	$	7,419
Loans held for sale	$	22,685	$	—	$	22,685	$	—	$	(228)
Other real estate owned	1,422		—		—		1,422		5
Premises, furniture and equipment held for sale	14,073		—		—		14,073		128
Servicing rights	8,102		—		—		8,102		(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
3/31/2022

Valuation
Technique

Unobservable
Input

Range
(Weighted
Average)

Interest rate lock commitments

696

Discounted cash flows

Closing ratio

0-99% (88%)(1)

Other real estate owned

1,422

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Servicing rights

8,102

Discounted cash flows

Discount rate

9 - 11% (9.01%)(4)

Constant prepayment rate

9.8 - 20.0% (9.08%)(4)

Premises, furniture and equipment held for sale

14,073

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Collateral dependent individually assessed loans:

Commercial

10,547

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-6%(3)

Owner occupied commercial real estate

9,247

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-7%(3)

Non-owner occupied commercial real estate

11,738

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Real estate construction

1,984

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Agricultural and agricultural real estate

9,514

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-9%(3)

Residential real estate

863

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 Three Months Ended March 31, 2022		For the Year Ended December 31, 2021
Balance at January 1,	$	1,306	$	1,827

Total net gains included in earnings	(1,196)		(2,345)
Issuances	1,774		15,403
Settlements	(1,188)		(13,579)
Balance at period end	$	696	$	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 March 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	$	604,902	$	604,902	$	604,902	$	—	$	—
Time deposits in other financial institutions	2,894		2,894		2,894		—		—
Securities:

Carried at fair value	7,025,243		7,025,243		1,001		7,024,242		—
Held to maturity	81,785		86,486		—		86,486		—
Other investments	82,751		82,751		—		82,751		—
Loans held for sale	22,685		22,685		—		22,685		—
Loans, net:
Commercial and industrial	2,788,713		2,760,104		—		2,749,557		10,547
PPP	74,065		74,065		—		74,065		—
Owner occupied commercial real estate	2,248,101		2,236,484		—		2,227,237		9,247
Non-owner occupied commercial real estate	2,145,748		2,138,428		—		2,126,690		11,738
Real estate construction	821,086		829,465		—		827,481		1,984
Agricultural and agricultural real estate	763,776		756,586		—		747,072		9,514
Residential real estate	817,367		817,762		—		816,899		863
Consumer	418,007		421,081		—		421,081		—
Total Loans, net	10,076,863		10,033,975		—		9,990,082		43,893
Cash surrender value on life insurance	192,267		192,267		—		192,267		—
Derivative financial instruments(1)	11,657		11,657		—		11,657		—
Interest rate lock commitments	696		696		—		—		696
Forward commitments	1,008		1,008		—		1,008		—
Financial liabilities:
Deposits
Demand deposits	6,376,249		6,376,249		—		6,376,249		—
Savings deposits	9,236,427		9,236,427		—		9,236,427		—
Time deposits	1,054,008		1,054,008		—		1,054,008		—

Short term borrowings	107,372		107,372		—		107,372		—
Other borrowings	372,290		373,288		—		373,288		—
Derivative financial instruments(2)	11,682		11,682		—		11,682		—
Forward commitments	35		35		—		35		—

(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, 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.