UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For quarterly period ended March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from __________ to __________

Commission File Number: 001-15393

HEARTLAND FINANCIAL USA, INC.

(Exact name of Registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

42-1405748

(I.R.S. employer identification number)

1800 Larimer Street, Suite 1800, Denver, Colorado  80202

(Address of principal executive offices)(Zip Code)

(303) 285-9200

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $1.00 per share	HTLF	Nasdaq Stock Market
Depositary Shares, each representing 1/400th interest in a share of 7.00% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series E	HTLFP	Nasdaq Stock Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.    

Large accelerated filer	☒	Accelerated Filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the classes of Registrant's common stock as of the latest practicable date:  As of May 4, 2023, the Registrant had outstanding 42,558,995 shares of common stock, $1.00 par value per share.

HEARTLAND FINANCIAL USA, INC.

Form 10-Q Quarterly Report

Table of Contents

Part I
Item 1.	Financial Statements
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
Part II
Item 1.	Legal Proceedings
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Mine Safety Disclosures
Item 5.	Other Information
Item 6.	Exhibits

PART I

ITEM 1. FINANCIAL STATEMENTS

HEARTLAND FINANCIAL USA, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data)
	March 31, 2023 (Unaudited)		December 31, 2022
ASSETS
Cash and due from banks	$	274,354	$	309,045
Interest bearing deposits with other banks and other short-term investments	87,757		54,042
Cash and cash equivalents	362,111		363,087
Time deposits in other financial institutions	1,740		1,740
Securities:
Carried at fair value (cost of $6,670,971 at March 31, 2023, and $6,788,729 at December 31, 2022)	6,096,657		6,147,144
Held to maturity, net of allowance for credit losses of $0 at both March 31, 2023, and December 31, 2022 (fair value of $815,672 at March 31, 2023, and $776,557 at December 31, 2022)	832,098		829,403
Other investments, at cost	72,364		74,567
Loans held for sale	10,425		5,277
Loans receivable:
Held to maturity	11,495,353		11,428,352
Allowance for credit losses	(112,707)		(109,483)
Loans receivable, net	11,382,646		11,318,869
Premises, furniture and equipment, net	186,868		190,479
Premises, furniture and equipment held for sale	4,399		6,851
Other real estate, net	7,438		8,401
Goodwill	576,005		576,005
Core deposit intangibles and customer relationship intangibles, net	23,366		25,154
Servicing rights, net	—		7,840
Cash surrender value on life insurance	194,419		193,403
Other assets	432,008		496,008
TOTAL ASSETS	$	20,182,544	$	20,244,228
LIABILITIES AND EQUITY
LIABILITIES:
Deposits:
Demand	$	5,119,554	$	5,701,340
Savings	9,256,609		9,994,391
Time	3,305,183		1,817,278
Total deposits	17,681,346		17,513,009
Short-term borrowings	92,337		376,117
Other borrowings	372,097		371,753
Accrued expenses and other liabilities	207,359		248,294
TOTAL LIABILITIES	18,353,139		18,509,173
STOCKHOLDERS' EQUITY:
Preferred stock (par value $1 per share; authorized 6,104 shares at both March 31, 2023, and December 31, 2022; none issued or outstanding at both March 31, 2023, and December 31, 2022)	—		—
Series A Junior Participating preferred stock (par value $1 per share; authorized 16,000 shares; none issued or outstanding at both March 31, 2023, and December 31, 2022)	—		—
Series B Fixed Rate Cumulative Perpetual Preferred Stock (par value $1 per share; 81,698 shares authorized at both March 31, 2023, and December 31, 2022; none issued or outstanding at both March 31, 2023, and December 31, 2022)	—		—
Series C Senior Non-Cumulative Perpetual Preferred Stock (par value $1 per share; 81,698 shares authorized at both March 31, 2023, and December 31, 2022; none issued or outstanding at both March 31, 2023, and December 31, 2022)	—		—
Series D Senior Non-Cumulative Perpetual Convertible Preferred Stock (par value $1 per share; 3,000 shares authorized at both March 31, 2023, and December 31, 2022; none issued or outstanding at both March 31, 2023, and December 31, 2022)	—		—
Series E Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock (par value $1 per share; 11,500 shares authorized at both March 31, 2023, and December 31, 2022; 11,500 shares issued and outstanding at both March 31, 2023 and December 31, 2022)	110,705		110,705
Common stock (par value $1 per share; 60,000,000 shares authorized at both March 31, 2023, and December 31, 2022; issued 42,558,726 shares at March 31, 2023, and 42,467,394 shares at December 31, 2022)	42,559		42,467
Capital surplus	1,084,112		1,080,964
Retained earnings	1,158,948		1,120,925
Accumulated other comprehensive loss	(566,919)		(620,006)
TOTAL STOCKHOLDERS' EQUITY	1,829,405		1,735,055
TOTAL LIABILITIES AND EQUITY	$	20,182,544	$	20,244,228
See accompanying notes to consolidated financial statements.

HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share data)
	Three Months Ended March 31,
	2023		2022
INTEREST INCOME:
Interest and fees on loans	$	153,843	$	102,369
Interest on securities:
Taxable	55,976		32,620
Nontaxable	6,028		6,202
Interest on interest bearing deposits in other financial institutions	1,131		71
TOTAL INTEREST INCOME	216,978		141,262
INTEREST EXPENSE:
Interest on deposits	56,898		2,977
Interest on short-term borrowings	2,422		46
Interest on other borrowings (includes $591 and $0 of interest expense related to derivatives reclassified from accumulated other comprehensive income (loss) for the three months ended March 31, 2023 and 2022, respectively)	5,446		3,560
TOTAL INTEREST EXPENSE	64,766		6,583
NET INTEREST INCOME	152,212		134,679
Provision for credit losses	3,074		3,245
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	149,138		131,434
NONINTEREST INCOME:
Service charges and fees	17,136		15,251
Loan servicing income	714		286
Trust fees	5,657		6,079
Brokerage and insurance commissions	696		869
Capital markets fees	2,449		3,039
Securities (losses) gains, net (includes $(1,104) and $1,991 of net security (losses) gains reclassified from accumulated other comprehensive income (loss) for the three months ended March 31, 2023 and 2022, respectively)	(1,104)		2,872
Unrealized gain (loss) on equity securities, net	193		(283)
Net gains on sale of loans held for sale	1,831		3,411
Valuation adjustment on servicing rights	—		1,658
Income on bank owned life insurance	964		524
Other noninterest income	1,463		863
TOTAL NONINTEREST INCOME	29,999		34,569
NONINTEREST EXPENSES:
Salaries and employee benefits	62,149		66,174
Occupancy	7,209		7,362
Furniture and equipment	2,915		3,519
Professional fees	16,076		15,156
Advertising	1,985		1,555
Core deposit and customer relationship intangibles amortization	1,788		2,054
Other real estate and loan collection expenses	155		195
Loss on sales/valuations of assets, net	1,115		46
Acquisition, integration and restructuring costs	1,673		576
Partnership investment in tax credit projects	538		77
Other noninterest expenses	15,440		14,083
TOTAL NONINTEREST EXPENSES	111,043		110,797
INCOME BEFORE INCOME TAXES	68,094		55,206
Income taxes (includes $426 and $503 of income tax benefit reclassified from accumulated other comprehensive income (loss) for the three months ended March 31, 2023 and 2022, respectively)	15,318		12,117
NET INCOME	52,776		43,089
Preferred dividends	(2,013)		(2,013)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	50,763	$	41,076
EARNINGS PER COMMON SHARE - BASIC	$	1.19	$	0.97
EARNINGS PER COMMON SHARE - DILUTED	$	1.19	$	0.97
CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.30	$	0.27
See accompanying notes to consolidated financial statements.

HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands)
	Three Months Ended March 31,
	2023		2022
NET INCOME	$	52,776	$	43,089
OTHER COMPREHENSIVE INCOME (LOSS)
Changes in available for sale securities:
Net change in unrealized gain (loss) on securities	66,167		(378,690)
Reclassification adjustment for net (gains) losses realized in net income	1,104		(1,991)
Income tax (expense) benefit	(17,921)		99,370
Other comprehensive income (loss) on available for sale securities	49,350		(281,311)
Changes in securities held to maturity:
Net amortization of unrealized losses on securities transferred from AFS	2,740		—
Income tax expense	(1,060)		—
Other comprehensive income on held to maturity securities	1,680		—
Change in cash flow hedges:
Net change in unrealized gain on derivatives	1,952		—
Reclassification adjustment for net losses on derivatives realized in net income	764		181
Income taxes	(659)		(39)
Other comprehensive income on cash flow hedges	2,057		142
Other comprehensive income (loss)	53,087		(281,169)
TOTAL COMPREHENSIVE INCOME (LOSS)	$	105,863	$	(238,080)
See accompanying notes to consolidated financial statements.

HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)
	Three Months Ended March 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	52,776	$	43,089
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	5,484		6,831
Provision for credit losses	3,074		3,245
Net amortization of premium on securities	7,159		19,352
Securities losses (gains), net	1,104		(2,872)
Unrealized (gain) loss on equity securities, net	(193)		283
Stock based compensation	4,719		2,704
Loans originated for sale	(43,257)		(99,331)
Proceeds on sales of loans held for sale	39,916		101,260
Net gains on sale of loans held for sale	(1,807)		(2,974)
(Increase) decrease in accrued interest receivable	(130)		6,282
Decrease (increase) in prepaid expenses	806		(4,765)
Increase (decrease) in accrued interest payable	13,462		(100)
Capitalization of servicing rights	(24)		(437)
Valuation adjustment on servicing rights	—		(1,658)
Loss on sales/valuations of assets, net	1,115		46
Net excess tax benefit from stock based compensation	46		172
Other, net	(9,818)		12,652
NET CASH PROVIDED BY OPERATING ACTIVITIES	74,432		83,779
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of securities available for sale	146,448		824,071
Proceeds from the sale of securities held to maturity	—		2,337
Proceeds from the maturity of and principal paydowns on securities available for sale	150,941		290,347
Proceeds from the maturity of and principal paydowns on securities held to maturity	69		1,067
Proceeds from the sale, maturity of, redemption of and principal paydowns on other investments	3,644		1,982
Purchase of securities available for sale	(187,726)		(1,007,992)
Purchase of other investments	(1,441)		(1,385)
Net increase in loans	(66,180)		(235,696)
Purchase of bank owned life insurance policies	(51)		(5)
Proceeds from sale of mortgage servicing rights	6,714		—
Capital expenditures	(248)		(2,544)
Proceeds from the sale of equipment	1,270		214
Proceeds on sale of OREO and other repossessed assets	1,136		1,157
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES	$	54,576	$	(126,447)

HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED (Unaudited) (Dollars in thousands)
	Three Months Ended March 31,
	2023		2022
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits	$	(581,786)	$	(119,077)
Net (decrease) increase in savings deposits	(737,782)		338,518
Net increase in time deposit accounts	1,487,905		29,988
Net decrease in short-term borrowings	(234,780)		(24,225)
Proceeds from short term advances	1,000		—
Repayments of short term advances	(50,000)		—
Repayments of other borrowings	(30)		(79)
Proceeds from issuance of common stock	242		274
Dividends paid	(14,753)		(13,428)
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES	(129,984)		211,971
Net (decrease) increase in cash and cash equivalents	(976)		169,303
Cash and cash equivalents at beginning of year	363,087		435,599
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	362,111	$	604,902
Supplemental disclosures:
Cash paid for income/franchise taxes	$	1,264	$	32
Cash paid for interest	51,304		6,683
Loans transferred to OREO	211		653
Transfer of premises from premises, furniture and equipment, net, to premises, furniture and equipment held for sale	3,741		3,250
Transfer of premises from premises, furniture and equipment held for sale to premises, furniture and equipment, net	5,167		—
Dividends declared, not paid	2,013		2,013
See accompanying notes to consolidated financial statements.

HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited) (Dollars in thousands, except per share data)
	Heartland Financial USA, Inc. Stockholders' Equity
	Preferred  Stock		Common  Stock		Capital  Surplus		Retained  Earnings		Accumulated Other Comprehensive Income (Loss)		Total  Equity
Balance at January 1, 2022	$	110,705	$	42,275	$	1,071,956	$	962,994	$	(5,752)	$	2,182,178
Comprehensive income (loss)							43,089		(281,169)		(238,080)
Cash dividends declared:
Preferred, $175.00 per share							(2,013)				(2,013)
Common, $0.27 per share							(11,415)				(11,415)
Issuance of 94,644 shares of common stock			95		(1,612)						(1,517)
Stock based compensation					2,704						2,704
Balance at March 31, 2022	$	110,705	$	42,370	$	1,073,048	$	992,655	$	(286,921)	$	1,931,857
Balance at January 1, 2023	$	110,705	$	42,467	$	1,080,964	$	1,120,925	$	(620,006)	$	1,735,055
Comprehensive income (loss)							52,776		53,087		105,863
Cash dividends declared:
Preferred, $175.00 per share							(2,013)				(2,013)
Common, $0.30 per share							(12,740)				(12,740)
Issuance of 91,332 shares of common stock			92		(1,571)						(1,479)
Stock based compensation					4,719						4,719
Balance at March 31, 2023	$	110,705	$	42,559	$	1,084,112	$	1,158,948	$	(566,919)	$	1,829,405
See accompanying notes to consolidated financial statements.

HEARTLAND FINANCIAL USA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION

The interim unaudited consolidated financial statements contained herein should be read in conjunction with the audited consolidated financial statements and accompanying notes to the consolidated financial statements for the fiscal year ended December 31, 2022, included in the Annual Report on Form 10-K of Heartland Financial USA, Inc. ("HTLF") filed with the Securities and Exchange Commission ("SEC") on February 23, 2023. Footnote disclosures to the interim unaudited consolidated financial statements which would substantially duplicate the disclosure contained in the footnotes to the audited consolidated financial statements have been omitted.

The financial information included herein has been prepared in accordance with U.S. generally accepted accounting principles for interim financial reporting and has been prepared pursuant to the rules and regulations for reporting on Form 10-Q and Rule 10-01 of Regulation S-X. Such information reflects all adjustments (consisting of normal recurring adjustments), that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented. The results of the interim period ended March 31, 2023, are not necessarily indicative of the results expected for the year ending December 31, 2023.

During the first quarter of 2023, HTLF reclassified swap and loan syndication income (collectively, "capital markets fees") to capital markets fees from other noninterest income on the consolidated statements of income, and all prior periods have been adjusted.

Earnings Per Share

Basic earnings per share is determined using net income available to common stockholders and weighted average common shares outstanding. Diluted earnings per share is computed by dividing net income available to common stockholders by the weighted average common shares and assumed incremental common shares issued. Amounts used in the determination of basic and diluted earnings per share for the three months ended March 31, 2023 and 2022, are shown in the table below, dollars and number of shares in thousands, except per share data:

	Three Months Ended March 31,
	2023		2022
Net income	$	52,776	$	43,089
Preferred dividends	(2,013)		(2,013)
Net income available to stockholders	$	50,763	$	41,076
Weighted average common shares outstanding for basic earnings per share	42,615		42,360
Assumed incremental common shares issued upon vesting of outstanding restricted stock units	128		181
Weighted average common shares for diluted earnings per share	42,743		42,541
Earnings per common share — basic	$	1.19	$	0.97
Earnings per common share — diluted	$	1.19	$	0.97
Number of antidilutive common stock equivalents excluded from diluted earnings per share computation	50		—
Number of antidilutive stock options excluded from diluted earnings per share computation	61		—

Subsequent Events - HTLF has evaluated subsequent events that may require recognition or disclosure through the filing date of this Quarterly Report on Form 10-Q with the SEC.

Following the end of the first quarter, one of the Banks had deposit items returned to it resulting in an overdraft with respect to a single long-term customer totaling $5.3 million. Following the overdraft, HTLF's initial assessment indicates a potential credit exposure range of $5.3-$7.0 million. HTLF continues to assess the situation and plans to actively pursue potential remedies and strategies with respect to the customer to address the overdraft and mitigate any potential loss arising from it.

Effect of New Financial Accounting Standards

ASU 2022-02

In March 2022, the Financial Accounting Standards Board ("FASB") issued ASU 2022-02, "Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures." These amendments eliminate the troubled debt restructurings ("TDR") recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, these amendments require that an entity disclose current-period gross charge-offs by year of origination for loans receivable within the scope of Subtopic 326-20. The guidance was effective for entities that have adopted ASU 2016-13 for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. HTLF adopted this ASU on January 1, 2023, as required, and these amendments were applied prospectively.

In March 2023, the FASB issued ASU 2023-02 "Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force)." ASU 2023-02 expands the permitted use of the proportional amortization method, which is currently only available to low-income housing tax credit investments, to other tax equity investments if certain conditions are met. Under the proportional amortization method, the initial cost of an investment is amortized in proportion to the income tax benefits received and both the amortization of the investment and the income tax benefits received are recognized as a component of income tax expense. This ASU is effective on January 1, 2024 and may be applied on either a modified retrospective or retrospective basis or, for certain changes, on a prospective basis, and early adoption is permitted. The amendments in this ASU are not expected to have a material impact on the results of operations or financial position.

NOTE 2: SECURITIES

The amortized cost, gross unrealized gains and losses, and estimated fair values of debt securities available for sale and equity securities with a readily determinable fair value that are carried at fair value as of March 31, 2023, and December 31, 2022, are summarized in the table below, in thousands:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
March 31, 2023
U.S. treasuries	$	32,391	$	33	$	(492)	$	31,932
U.S. agencies	49,062		—		(5,478)		43,584
Obligations of states and political subdivisions	1,023,650		47		(135,775)		887,922
Mortgage-backed securities - agency	2,002,260		85		(244,876)		1,757,469
Mortgage-backed securities - non-agency	2,260,462		3,739		(146,319)		2,117,882
Commercial mortgage-backed securities - agency	99,914		—		(13,892)		86,022
Commercial mortgage-backed securities - non-agency	675,425		—		(17,551)		657,874
Asset-backed securities	448,001		—		(12,478)		435,523
Corporate bonds	59,202		—		(1,357)		57,845
Total debt securities	6,650,367		3,904		(578,218)		6,076,053
Equity securities with a readily determinable fair value	20,604		—		—		20,604
Total	$	6,670,971	$	3,904	$	(578,218)	$	6,096,657
December 31, 2022
U.S. treasuries	$	32,369	$	8	$	(678)	$	31,699
U.S. agencies	49,437		—		(6,302)		43,135
Obligations of states and political subdivisions	1,049,578		14		(170,155)		879,437
Mortgage-backed securities - agency	2,042,092		56		(270,043)		1,772,105
Mortgage-backed securities - non-agency	2,327,308		1,417		(146,849)		2,181,876
Commercial mortgage-backed securities - agency	100,518		—		(15,395)		85,123
Commercial mortgage-backed securities - non-agency	679,511		—		(20,052)		659,459
Asset-backed securities	428,397		—		(12,343)		416,054
Corporate bonds	59,205		—		(1,263)		57,942
Total debt securities	6,768,415		1,495		(643,080)		6,126,830
Equity securities with a readily determinable fair value	20,314		—		—		20,314
Total	$	6,788,729	$	1,495	$	(643,080)	$	6,147,144

The amortized cost, gross unrealized gains and losses and estimated fair values of held to maturity securities as of March 31, 2023, and December 31, 2022, are summarized in the table below, in thousands:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
March 31, 2023
Obligations of states and political subdivisions	$	832,098	$	3,882	$	(20,308)	$	815,672
Total	$	832,098	$	3,882	$	(20,308)	$	815,672
December 31, 2022
Obligations of states and political subdivisions	$	829,403	$	3,096	$	(55,942)	$	776,557
Total	$	829,403	$	3,096	$	(55,942)	$	776,557

As of March 31, 2023, and December 31, 2022, HTLF had $30.6 million and $33.0 million, respectively, of accrued interest receivable, which is included in other assets on the consolidated balance sheets. HTLF does not consider accrued interest receivable in the carrying amount of financial assets held at amortized cost basis or in the allowance for credit losses calculation.

The amortized cost and estimated fair value of investment securities carried at fair value at March 31, 2023, by contractual maturity, are as follows, in thousands. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties.

	March 31, 2023
	Amortized Cost		Estimated Fair Value
Due in 1 year or less	$	875	$	867
Due in 1 to 5 years	86,596		85,549
Due in 5 to 10 years	55,440		48,402
Due after 10 years	1,021,394		886,465
Total debt securities	1,164,305		1,021,283
Mortgage and asset-backed securities	5,486,062		5,054,770
Equity securities with a readily determinable fair value	20,604		20,604
Total investment securities	$	6,670,971	$	6,096,657

The amortized cost and estimated fair value of debt securities held to maturity at March 31, 2023, by contractual maturity, are as follows, in thousands. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties.

	March 31, 2023
	Amortized Cost		Estimated Fair Value
Due in 1 year or less	$	1,243	$	1,246
Due in 1 to 5 years	71,115		70,976
Due in 5 to 10 years	143,654		143,498
Due after 10 years	616,086		599,952
Total debt securities	$	832,098	$	815,672

As of March 31, 2023, and December 31, 2022, securities with a carrying value of $2.96 billion and $1.49 billion, respectively, were pledged to secure public and trust deposits, short-term borrowings and for other purposes as required or permitted by law.

Gross gains and losses realized related to the sales of securities carried at fair value for the three months ended March 31, 2023 and 2022, are summarized as follows, in thousands:

	Three Months Ended March 31,
	2023		2022
Proceeds from sales	$	146,448	$	824,071
Gross security gains	—		6,941
Gross security losses	1,104		4,950

The following table summarizes, in thousands, the amount of unrealized losses, defined as the amount by which cost or amortized cost exceeds fair value, and the related fair value of investments with unrealized losses in the securities portfolio as of March 31, 2023, and December 31, 2022. The investments were segregated into two categories: those that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 months or more. The reference point for determining how long an investment was in an unrealized loss position was March 31, 2022, and December 31, 2021, respectively.

Debt securities available for sale	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses		Count	Fair Value		Unrealized Losses		Count	Fair Value		Unrealized Losses		Count
March 31, 2023
U.S. treasuries	$	25,913	$	(492)	3	$	—	$	—	—	$	25,913	$	(492)	3
U.S. agencies	133		(2)		2	43,451		(5,476)		4	43,584		(5,478)		6
Obligations of states and political subdivisions	88,910		(3,541)		20	794,010		(132,234)		155	882,920		(135,775)		175
Mortgage-backed securities - agency	52,854		(4,839)		30	1,701,881		(240,037)		187	1,754,735		(244,876)		217
Mortgage-backed securities - non-agency	362,023		(26,315)		12	1,165,995		(120,004)		41	1,528,018		(146,319)		53
Commercial mortgage-backed securities - agency	3,607		(146)		2	82,415		(13,746)		18	86,022		(13,892)		20
Commercial mortgage-backed securities - non-agency	119,454		(5,360)		8	498,815		(12,191)		12	618,269		(17,551)		20
Asset-backed securities	137,105		(3,582)		3	94,100		(8,896)		10	231,205		(12,478)		13
Corporate bonds	51,892		(601)		3	5,953		(756)		5	57,845		(1,357)		8
Total temporarily impaired securities	$	841,891	$	(44,878)	83	$	4,386,620	$	(533,340)	432	$	5,228,511	$	(578,218)	515
December 31, 2022
U.S. treasuries	$	28,699	$	(678)	4	$	—	$	—	—	$	28,699	$	(678)	4
U.S. agencies	16,487		(222)		5	26,648		(6,080)		2	43,135		(6,302)		7
Obligations of states and political subdivisions	288,457		(28,378)		69	589,641		(141,777)		113	878,098		(170,155)		182
Mortgage-backed securities - agency	241,288		(21,420)		99	1,528,951		(248,623)		126	1,770,239		(270,043)		225
Mortgage-backed securities - non-agency	950,054		(70,213)		25	693,531		(76,636)		25	1,643,585		(146,849)		50
Commercial mortgage-backed securities - agency	27,732		(2,291)		12	57,392		(13,104)		7	85,124		(15,395)		19
Commercial mortgage-backed securities - non-agency	530,541		(16,830)		15	84,619		(3,222)		4	615,160		(20,052)		19
Asset-backed securities	118,613		(6,107)		7	56,621		(6,236)		6	175,234		(12,343)		13
Corporate bonds	57,544		(1,257)		7	398		(6)		1	57,942		(1,263)		8
Total temporarily impaired securities	$	2,259,415	$	(147,396)	243	$	3,037,801	$	(495,684)	284	$	5,297,216	$	(643,080)	527

HTLF reviews the investment securities portfolio at the security level on a quarterly basis for potential credit losses, which takes into consideration numerous factors, and the relative significance of any single factor can vary by security. Some factors HTLF may consider include changes in security ratings, financial condition of the issuer, as well as security and industry specific economic conditions. In addition, with regard to debt securities, HTLF may also evaluate payment structure, whether there are defaulted payments or expected defaults, prepayment speeds and the value of any underlying collateral. For certain debt securities in unrealized loss positions, HTLF prepares cash flow analyses to compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security.

The unrealized losses on HTLF's commercial mortgage, mortgage and asset-backed securities are the result of changes in market interest rates or widening of market spreads subsequent to the initial purchase of the securities. The losses are not related to concerns regarding the underlying credit of the issuers or the underlying collateral. It is expected that the securities will not be settled at a price less than the amortized cost of the investment. Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because HTLF has the intent and ability to hold these investments until a market price recovery or to maturity and does not believe it will be required to sell the securities before maturity, no credit losses were recognized on these securities during the three months ended March 31, 2023 and 2022.

The unrealized losses on HTLF's obligations of states and political subdivisions available for sale are the result of changes in market interest rates or widening of market spreads subsequent to the initial purchase of the securities. Management monitors the published credit ratings of these securities and the stability of the underlying municipalities. Because the decline in fair value is attributable to changes in interest rates or widening market spreads due to insurance company downgrades and not underlying credit quality, and because HTLF has the intent and ability to hold these investments until a market price recovery or to maturity and does not believe it will be required to sell the securities before maturity, no credit losses were recognized on these securities during the three months ended March 31, 2023 and 2022.

Based on HTLF's credit loss methodology applicable to held to maturity debt securities, no allowance for credit losses was required at both March 31, 2023, and December 31, 2022.

The following table summarizes, in thousands, the carrying amount of HTLF's held to maturity debt securities by investment rating as of March 31, 2023, and December 31, 2022, which are updated quarterly and used to monitor the credit quality of the securities:

	March 31, 2023		December 31, 2022
Rating
AAA	$	79,848	$	79,598
AA, AA+, AA-	590,034		588,354
A+, A, A-	137,368		136,624
BBB	20,599		20,623
Not Rated	4,249		4,204
Total	$	832,098	$	829,403

Included in other securities were shares of stock in each Federal Home Loan Bank (the "FHLB") of Des Moines, Chicago, Dallas and Topeka at an amortized cost of $8.9 million at March 31, 2023, and $12.3 million at December 31, 2022.

The HTLF banks are required by federal law to maintain FHLB stock as members of the various FHLBs. These equity securities are "restricted" in that they can only be sold back to the respective institutions from which they were acquired or another member institution at par. Therefore, the FHLB stock is less liquid than other marketable equity securities, and the fair value approximates amortized cost. HTLF considers its FHLB stock as a long-term investment that provides access to competitive products and liquidity. HTLF evaluates impairment in these investments based on the ultimate recoverability of the par value and, at March 31, 2023, and December 31, 2022, did not consider the investments to be impaired.

NOTE 3: LOANS

Loans as of March 31, 2023, and December 31, 2022, were as follows, in thousands:

	March 31, 2023		December 31, 2022
Loans receivable held to maturity:
Commercial and industrial	$	3,498,345	$	3,464,414
Paycheck Protection Program ("PPP")	8,258		11,025
Owner occupied commercial real estate	2,312,538		2,265,307
Non-owner occupied commercial real estate	2,421,341		2,330,940
Real estate construction	1,102,186		1,076,082
Agricultural and agricultural real estate	810,183		920,510
Residential real estate	841,084		853,361
Consumer	501,418		506,713
Total loans receivable held to maturity	11,495,353		11,428,352
Allowance for credit losses	(112,707)		(109,483)
Loans receivable, net	$	11,382,646	$	11,318,869

As of March 31, 2023, and December 31, 2022, HTLF had $51.7 million and $49.1 million, respectively, of accrued interest receivable, which is included in other assets on the consolidated balance sheets. HTLF does not consider accrued interest receivable in the allowance for credit losses calculation.

The following table shows the balance in the allowance for credit losses at March 31, 2023, and December 31, 2022, and the

related loan balances, disaggregated on the basis of measurement methodology, in thousands. If a loan no longer shares similar risk characteristics with other loans in the pool, it is evaluated on an individual basis and is not included in the collective evaluation. Lending relationships with $500,000 or more of total exposure and are on nonaccrual are individually assessed using a collateral dependency calculation. All other loans are collectively evaluated for losses.

	Allowance For Credit Losses						Gross Loans Receivable Held to Maturity
	Individually Evaluated for Credit Losses		Collectively Evaluated for Credit Losses		Total		Loans Individually Evaluated for Credit Losses		Loans Collectively Evaluated for Credit Losses		Total
March 31, 2023
Commercial and industrial	$	9,144	$	22,679	$	31,823	$	19,953	$	3,478,392	$	3,498,345
PPP	—		—		—		—		8,258		8,258
Owner occupied commercial real estate	376		13,775		14,151		7,784		2,304,754		2,312,538
Non-owner occupied commercial real estate	—		17,062		17,062		10,983		2,410,358		2,421,341
Real estate construction	—		30,138		30,138		1,498		1,100,688		1,102,186
Agricultural and agricultural real estate	62		2,484		2,546		5,116		805,067		810,183
Residential real estate	—		7,564		7,564		788		840,296		841,084
Consumer	—		9,423		9,423		—		501,418		501,418
Total	$	9,582	$	103,125	$	112,707	$	46,122	$	11,449,231	$	11,495,353
December 31, 2022
Commercial and industrial	$	6,670	$	22,401	$	29,071	$	18,712	$	3,445,702	$	3,464,414
PPP	—		—		—		—		11,025		11,025
Owner occupied commercial real estate	376		13,572		13,948		7,932		2,257,375		2,265,307
Non-owner occupied commercial real estate	—		16,539		16,539		11,371		2,319,569		2,330,940
Real estate construction	—		29,998		29,998		1,518		1,074,564		1,076,082
Agricultural and agricultural real estate	63		2,571		2,634		3,851		916,659		920,510
Residential real estate	—		7,711		7,711		1,607		851,754		853,361
Consumer	—		9,582		9,582		—		506,713		506,713
Total	$	7,109	$	102,374	$	109,483	$	44,991	$	11,383,361	$	11,428,352

The following table shows the amortized cost basis as of March 31, 2023, of the loans modified to borrowers experiencing financial difficulty by loan category and type of concession granted, dollars in thousands.

	Loan Modifications Made to Borrowers Experiencing Financial Difficulty
	Term Extension				Term Extension and Interest Only Payments
	Amortized Cost Basis		% of Loan Category		Amortized Cost Basis		% of Loan Category
March 31, 2023
Commercial	$	3,682	0.11	%	$	—	—	%
Owner occupied commercial real estate	—		—		5,043		0.22
Real estate construction	1,498		0.06		—		—
Residential real estate	762		0.01		—		—
Total	$	5,942	0.05	%	$	5,043	0.22	%

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty in the three months ending March 31, 2023.

Loan Type	Weighted Average Term Extension (months)	Weighted Average Term Extension and Interest Only Payments (months)
Commercial and industrial	10	0
Owner occupied commercial real estate	0	12
Real estate construction	6	0
Residential real estate	12	0

At March 31, 2023, there were no commitments to extend credit to any of the borrowers experiencing financial difficulty.

HTLF had no loans to borrowers experiencing financial difficulty that had a payment default during the three months ended March 31, 2023, that had been modified in the twelve-month period prior to the default.

HTLF closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table shows the performance of loans that have been modified in the three months ended March 31, 2023, dollars in thousands.

	Accruing Loans
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Nonaccrual
March 31, 2023
Commercial and industrial	$	—	$	—	$	—	$	—	$	3,682	$	—
Owner occupied commercial real estate	—		—		—		—		5,043		—
Real estate construction	—		—		—		—		—		1,498
Residential real estate	—		—		—		—		—		762
Total	$	—	$	—	$	—	$	—	$	8,725	$	2,260

HTLF's internal rating system is a series of grades reflecting management's credit risk assessment, based on its analysis of the borrower's financial condition. The "pass" category consists of all loans that are not in the "nonpass" category and categorized into a range of loan grades that reflect increasing, though still acceptable, risk. Movement of risk through the various grade levels in the pass category is monitored for early identification of credit deterioration and risk rating migration analysis.

The "nonpass" category consists of watch, substandard, doubtful and loss rated loans. The "watch" rating is attached to loans where the borrower exhibits negative trends in financial circumstances due to borrower specific or systemic conditions that, if left uncorrected, threaten the borrower's capacity to meet its debt obligations. The borrower is believed to have sufficient financial flexibility to react to and resolve its negative financial situation. These credits are closely monitored for improvement or deterioration.

The "substandard" rating is assigned to loans that are inadequately protected by the current net worth and repaying capacity of the borrower and that may be further at risk due to deterioration in the value of collateral pledged. Well-defined weaknesses jeopardize liquidation of the debt. These loans are still considered collectible; however, a distinct possibility exists that HTLF will sustain some loss if deficiencies are not corrected. Substandard loans may exhibit some or all of the following weaknesses: deteriorating financial trends, lack of earnings, inadequate debt service capacity, excessive debt and/or lack of liquidity.

The "doubtful" rating is assigned to loans where identified weaknesses in the borrowers' ability to repay the loan make collection or liquidation in full, on the basis of existing facts, conditions and values, highly questionable and improbable. These borrowers are usually in default, lack liquidity and capital, as well as resources necessary to remain as an operating entity. Specific pending events, such as capital injections, liquidations or perfection of liens on additional collateral, may strengthen the credit, thus deferring the rating of the loan as "loss" until the exact status of the loan can be determined. The "loss" rating is assigned to loans considered uncollectible. HTLF had no loans classified as "loss" or "doubtful" as of March 31, 2023, and December 31, 2022.

The following tables show the risk category of loans by loan category, year of origination and charge-offs as of March 31, 2023, in thousands:

As of March 31, 2023	Amortized Cost Basis of Term Loans by Year of Origination
	2023		2022		2021		2020		2019		2018 and Prior		Revolving		Total
Commercial and industrial
Pass	$	171,784	$	945,388	$	401,138	$	236,351	$	94,489	$	355,412	$	1,129,728	$	3,334,290
Watch	372		14,254		3,822		3,023		6,093		4,914		25,162		57,640
Substandard	2,116		10,883		14,284		9,093		21,814		11,594		36,631		106,415
Commercial and industrial total	$	174,272	$	970,525	$	419,244	$	248,467	$	122,396	$	371,920	$	1,191,521	$	3,498,345
Commercial and industrial charge-offs	$	—	$	219	$	95	$	8	$	—	$	788	$	341	$	1,451
PPP
Pass	$	—	$	—	$	6,731	$	102	$	—	$	—	$	—	$	6,833
Watch	—		—		6		—		—		—		—		6
Substandard	—		—		1,419		—		—		—		—		1,419
PPP total	$	—	$	—	$	8,156	$	102	$	—	$	—	$	—	$	8,258
PPP charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Owner occupied commercial real estate
Pass	$	90,398	$	524,526	$	753,107	$	241,589	$	263,294	$	261,584	$	34,578	$	2,169,076
Watch	—		21,288		13,401		13,915		7,105		12,568		—		68,277
Substandard	6,107		7,172		23,591		22,360		5,484		9,721		750		75,185
Owner occupied commercial real estate total	$	96,505	$	552,986	$	790,099	$	277,864	$	275,883	$	283,873	$	35,328	$	2,312,538
Owner occupied commercial real estate charge-offs	$	—	$	—	$	—	$	—	$	—	$	14	$	—	$	14
Non-owner occupied commercial real estate
Pass	$	141,649	$	730,364	$	543,098	$	208,137	$	257,733	$	305,784	$	73,088	$	2,259,853
Watch	—		8,093		1,368		3,566		38,876		53,877		—		105,780
Substandard	—		—		6,690		1,624		15,477		31,917		—		55,708
Non-owner occupied commercial real estate total	$	141,649	$	738,457	$	551,156	$	213,327	$	312,086	$	391,578	$	73,088	$	2,421,341
Non-owner occupied commercial real estate charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real estate construction
Pass	$	45,771	$	625,728	$	303,674	$	77,340	$	20,886	$	7,174	$	8,224	$	1,088,797
Watch	—		6,574		1,085		1,244		—		103		—		9,006
Substandard	—		3,428		356		121		434		44		—		4,383
Real estate construction total	$	45,771	$	635,730	$	305,115	$	78,705	$	21,320	$	7,321	$	8,224	$	1,102,186
Real estate construction charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Agricultural and agricultural real estate
Pass	$	39,667	$	249,164	$	125,673	$	73,366	$	31,283	$	56,019	$	197,976	$	773,148
Watch	241		1,225		549		3,843		496		935		1,346		8,635
Substandard	—		7,618		3,378		212		1,154		15,017		1,021		28,400
Agricultural and agricultural real estate total	$	39,908	$	258,007	$	129,600	$	77,421	$	32,933	$	71,971	$	200,343	$	810,183
Agricultural and agricultural real estate charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential real estate
Pass	$	18,663	$	181,925	$	260,225	$	62,951	$	37,551	$	238,866	$	21,172	$	821,353
Watch	—		2,549		2,618		85		1,372		5,415		433		12,472
Substandard	811		59		1,308		838		38		4,205		—		7,259
Residential real estate total	$	19,474	$	184,533	$	264,151	$	63,874	$	38,961	$	248,486	$	21,605	$	841,084
Residential real estate charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

As of March 31, 2023	Amortized Cost Basis of Term Loans by Year of Origination
	2023		2022		2021		2020		2019		2018 and Prior		Revolving		Total
Consumer
Pass	$	11,806	$	75,894	$	44,501	$	10,554	$	5,180	$	18,586	$	328,689	$	495,210
Watch	—		51		227		59		109		1,524		1,434		3,404
Substandard	9		209		339		220		261		1,565		201		2,804
Consumer total	$	11,815	$	76,154	$	45,067	$	10,833	$	5,550	$	21,675	$	330,324	$	501,418
Consumer charge-offs	$	—	$	24	$	26	$	11	$	11	$	6	$	608	$	686
Total Pass	$	519,738	$	3,332,989	$	2,438,147	$	910,390	$	710,416	$	1,243,425	$	1,793,455	$	10,948,560
Total Watch	613		54,034		23,076		25,735		54,051		79,336		28,375		265,220
Total Substandard	9,043		29,369		51,365		34,468		44,662		74,063		38,603		281,573
Total Loans	$	529,394	$	3,416,392	$	2,512,588	$	970,593	$	809,129	$	1,396,824	$	1,860,433	$	11,495,353
Total Charge-offs	$	—	$	243	$	121	$	19	$	11	$	808	$	949	$	2,151

The following table show the risk category of loans by loan category and year of origination as of December 31, 2022, in thousands.

As of December 31, 2022	Amortized Cost Basis of Term Loans by Year of Origination
	2022		2021		2020		2019		2018		2017 and Prior		Revolving		Total
Commercial and industrial
Pass	$	967,103	$	442,001	$	260,021	$	101,998	$	57,776	$	421,312	$	1,064,333	$	3,314,544
Watch	12,638		1,370		685		5,487		2,882		3,315		21,984		48,361
Substandard	6,691		14,366		9,369		22,171		5,546		6,758		36,608		101,509
Commercial and industrial total	$	986,432	$	457,737	$	270,075	$	129,656	$	66,204	$	431,385	$	1,122,925	$	3,464,414
PPP
Pass	$	—	$	7,807	$	526	$	—	$	—	$	—	$	—	$	8,333
Watch	—		7		—		—		—		—		—		7
Substandard	—		2,685		—		—		—		—		—		2,685
PPP total	$	—	$	10,499	$	526	$	—	$	—	$	—	$	—	$	11,025
Owner occupied commercial real estate
Pass	$	511,547	$	781,946	$	255,476	$	266,228	$	103,943	$	179,503	$	34,117	$	2,132,760
Watch	22,079		3,410		12,346		8,520		3,645		11,899		—		61,899
Substandard	2,971		23,802		26,490		6,358		2,574		7,353		1,100		70,648
Owner occupied commercial real estate total	$	536,597	$	809,158	$	294,312	$	281,106	$	110,162	$	198,755	$	35,217	$	2,265,307
Non-owner occupied commercial real estate
Pass	$	756,059	$	515,075	$	227,383	$	261,964	$	127,400	$	210,289	$	70,398	$	2,168,568
Watch	8,131		792		2,849		38,218		38,510		16,180		547		105,227
Substandard	202		6,784		1,838		16,019		22,332		9,970		—		57,145
Non-owner occupied commercial real estate total	$	764,392	$	522,651	$	232,070	$	316,201	$	188,242	$	236,439	$	70,945	$	2,330,940
Real estate construction
Pass	$	597,370	$	328,391	$	88,660	$	21,221	$	2,568	$	6,274	$	8,252	$	1,052,736
Watch	665		16,218		1,257		—		—		122		—		18,262
Substandard	2,587		356		173		446		1,478		44		—		5,084
Real estate construction total	$	600,622	$	344,965	$	90,090	$	21,667	$	4,046	$	6,440	$	8,252	$	1,076,082
Agricultural and agricultural real estate
Pass	$	324,791	$	140,252	$	79,307	$	34,447	$	22,600	$	38,672	$	239,686	$	879,755
Watch	3,795		515		3,865		641		444		672		902		10,834
Substandard	8,674		3,224		204		1,859		12,323		2,682		955		29,921
Agricultural and agricultural real estate total	$	337,260	$	143,991	$	83,376	$	36,947	$	35,367	$	42,026	$	241,543	$	920,510

As of December 31, 2022	Amortized Cost Basis of Term Loans by Year of Origination
	2022		2021		2020		2019		2018		2017 and Prior		Revolving		Total
Residential real estate
Pass	$	189,133	$	268,561	$	64,627	$	39,468	$	34,863	$	217,489	$	23,331	$	837,472
Watch	706		1,095		88		957		2,296		2,237		399		7,778
Substandard	28		1,273		1,024		99		792		4,895		—		8,111
Residential real estate total	$	189,867	$	270,929	$	65,739	$	40,524	$	37,951	$	224,621	$	23,730	$	853,361
Consumer
Pass	$	80,592	$	47,787	$	11,722	$	6,022	$	4,840	$	24,655	$	325,247	$	500,865
Watch	20		191		35		119		74		1,584		953		2,976
Substandard	188		331		242		303		75		1,539		194		2,872
Consumer total	$	80,800	$	48,309	$	11,999	$	6,444	$	4,989	$	27,778	$	326,394	$	506,713
Total Pass	$	3,426,595	$	2,531,820	$	987,722	$	731,348	$	353,990	$	1,098,194	$	1,765,364	$	10,895,033
Total Watch	48,034		23,598		21,125		53,942		47,851		36,009		24,785		255,344
Total Substandard	21,341		52,821		39,340		47,255		45,120		33,241		38,857		277,975
Total Loans	$	3,495,970	$	2,608,239	$	1,048,187	$	832,545	$	446,961	$	1,167,444	$	1,829,006	$	11,428,352

Included in the nonpass loans at March 31, 2023, and December 31, 2022, were $1.4 million and $2.7 million, respectively, of nonpass PPP loans as a result of risk ratings on non-PPP related credits. HTLF's risk rating methodology assigns a risk rating to the whole lending relationship. HTLF has no allowance recorded related to the PPP loans because of the 100% government guarantee through the United States Small Business Administration ("SBA").

As of March 31, 2023, HTLF had $1.3 million of loans secured by residential real estate property that were in the process of foreclosure.

The following table sets forth information regarding accruing and nonaccrual loans at March 31, 2023, and December 31, 2022, in thousands:

	Accruing Loans
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Nonaccrual		Total Loans
March 31, 2023
Commercial and industrial	$	2,783	$	800	$	24	$	3,607	$	3,470,831	$	23,907	$	3,498,345
PPP	—		—		—		—		8,258		—		8,258
Owner occupied commercial real estate	3,365		377		—		3,742		2,300,588		8,208		2,312,538
Non-owner occupied commercial real estate	748		—		—		748		2,409,369		11,224		2,421,341
Real estate construction	642		—		5		647		1,099,267		2,272		1,102,186
Agricultural and agricultural real estate	255		—		17		272		802,741		7,170		810,183
Residential real estate	1,073		41		41		1,155		835,781		4,148		841,084
Consumer	1,203		397		87		1,687		498,594		1,137		501,418
Total gross loans receivable held to maturity	$	10,069	$	1,615	$	174	$	11,858	$	11,425,429	$	58,066	$	11,495,353
December 31, 2022
Commercial and industrial	$	1,099	$	356	$	131	$	1,586	$	3,440,062	$	22,766	$	3,464,414
PPP	—		—		—		—		11,006		19		11,025
Owner occupied commercial real estate	12		127		—		139		2,256,365		8,803		2,265,307
Non-owner occupied commercial real estate	—		—		—		—		2,319,282		11,658		2,330,940
Real estate construction	16		28		—		44		1,073,687		2,351		1,076,082
Agricultural and agricultural real estate	48		—		142		190		914,088		6,232		920,510
Residential real estate	1,206		152		—		1,358		846,739		5,264		853,361
Consumer	1,526		196		—		1,722		503,853		1,138		506,713
Total gross loans receivable held to maturity	$	3,907	$	859	$	273	$	5,039	$	11,365,082	$	58,231	$	11,428,352

Loans delinquent 30 to 89 days as a percent of total loans were 0.10% at March 31, 2023, compared to 0.04% at December 31, 2022. Changes in credit risk are monitored on a continuous basis as part of relationship management, and changes in risk ratings are made when credit quality improves or deteriorates in accordance with HTLF's credit risk rating framework. All individually assessed loans are reviewed at least annually.

HTLF recognized $0 of interest income on nonaccrual loans during the three months ended March 31, 2023 and March 31, 2022. As of March 31, 2023, and December 31, 2022, HTLF had $28.8 million and $26.7 million of nonaccrual loans with no related allowance, respectively.

NOTE 4: ALLOWANCE FOR CREDIT LOSSES

Changes in the allowance for credit losses on loans for the three months ended March 31, 2023, and March 31, 2022, were as follows, in thousands:

	Commercial and Industrial		Owner Occupied Commercial Real Estate		Non-Owner Occupied Commercial Real Estate		Real Estate Construction		Agricultural and Agricultural Real Estate		Residential Real Estate		Consumer		Total
Balance at December 31, 2022	$	29,071	$	13,948	$	16,539	$	29,998	$	2,634	$	7,711	$	9,582	$	109,483
Charge-offs	(1,451)		(14)		—		—		—		—		(686)		(2,151)
Recoveries	1,722		112		—		17		10		19		1,311		3,191
Provision (benefit)	2,481		105		523		123		(98)		(166)		(784)		2,184
Balance at March 31, 2023	$	31,823	$	14,151	$	17,062	$	30,138	$	2,546	$	7,564	$	9,423	$	112,707

	Commercial and Industrial		Owner Occupied Commercial Real Estate		Non-Owner Occupied Commercial Real Estate		Real Estate Construction		Agricultural and Agricultural Real Estate		Residential Real Estate		Consumer		Total
Balance at December 31, 2021	$	27,738	$	19,214	$	17,908	$	22,538	$	5,213	$	8,427	$	9,050	$	110,088
Charge-offs	(4,500)		—		(129)		—		(3,104)		(88)		(5,396)		(13,217)
Recoveries	206		40		33		7		453		—		284		1,023
Provision (benefit)	2,356		(1,279)		(1,799)		(1,148)		105		(464)		4,857		2,628
Balance at March 31, 2022	$	25,800	$	17,975	$	16,013	$	21,397	$	2,667	$	7,875	$	8,795	$	100,522

Management allocates the allowance for credit losses by pools of risk within each loan portfolio. The total allowance for credit losses is available to absorb losses from any segment of the loan portfolio.

Changes in the allowance for credit losses for unfunded commitments for the three months ended March 31, 2023, and March 31, 2022, were as follows:

	For the Three Months Ended March 31,
	2023		2022
Balance at December 31,	$	20,196	$	15,462
Provision	890		617
Balance at March 31,	$	21,086	$	16,079

NOTE 5: GOODWILL, CORE DEPOSIT PREMIUM AND OTHER INTANGIBLE ASSETS

HTLF had goodwill of $576.0 million at both March 31, 2023, and December 31, 2022. HTLF conducts its annual internal assessment of the goodwill both at the consolidated level and at its subsidiaries as of September 30. HTLF 's annual assessment is completed in the fourth quarter of every year as of September 30. The most recent assessment was completed in the fourth quarter of 2022 as of September 30, 2022, and there was no goodwill impairment identified.

HTLF evaluated goodwill and core deposit intangibles for impairment triggering events as of March 31, 2023, and no triggering events were identified.

The gross carrying amount of other intangible assets, which consists of core deposit intangibles and mortgage servicing rights, and the associated accumulated amortization at March 31, 2023, and December 31, 2022, are presented in the table below, in thousands:

	March 31, 2023						December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizing intangible assets:
Core deposit intangibles	$	101,185	$	77,819	$	23,366	$	101,185	$	76,031	$	25,154
Mortgage servicing rights	—		—		—		13,700		5,860		7,840
Total	$	101,185	$	77,819	$	23,366	$	114,885	$	81,891	$	32,994

The following table shows the estimated future amortization expense for amortizable intangible assets, in thousands:

	Core Deposit Intangibles
Nine months ending December 31, 2023	$	4,951
Year ending December 31,
2024	5,591
2025	4,700
2026	3,533
2027	2,601
2028	1,287
Thereafter	703
Total	$	23,366

On March 31, 2023, First Bank & Trust closed on the sale of its mortgage servicing rights portfolio, which contained loans with an unpaid principal balance of $698.5 million, to two unrelated third-parties. The transaction qualified as a sale, and $7.7 million of mortgage servicing rights were de-recognized on the consolidated balance sheet as of March 31, 2023. Cash of approximately $6.7 million was received on March 31, 2023, and an estimated loss of $193,000 was recorded. A receivable of approximately $746,000 was recorded in other assets on the consolidated balance sheet as of March 31, 2023, due to the timing of the servicing transfer per the terms of the sale agreement. Pursuant to the agreement, which includes customary terms and conditions, First Bank & Trust provided interim servicing of the loans until the transfer date, which was May 1, 2023.

Custodial escrow balances maintained in connection with the interim servicing of the mortgage loan servicing portfolio were approximately $8.8 million at March 31, 2023.

The following table summarizes, in thousands, the changes in capitalized mortgage servicing rights for the three months ended March 31, 2023, and March 31, 2022:

	2023			2022
Balance at January 1,	$	7,840		$	6,412
Originations	24			437
Amortization	(210)			(405)
Sale of mortgage servicing rights	(7,654)			—
Valuation adjustment	—			1,658
Balance at period end	$	—		$	8,102
Mortgage servicing rights, net to servicing portfolio	—		%	1.11		%

The following table summarizes, in thousands, the book value, the fair value of each tranche of the mortgage servicing rights and any recorded valuation allowance at March 31, 2023, and December 31, 2022:

	Book Value 15-Year Tranche		Fair Value 15-Year Tranche		Valuation Allowance 15-Year Tranche		Book Value 30-Year Tranche		Fair Value 30-Year Tranche		Valuation Allowance 30-Year Tranche
March 31, 2023	$	—	$	—	$	—	$	—	$	—	$	—
December 31, 2022	$	1,388	$	1,388	$	—	$	6,452	$	6,452	$	—

NOTE 6: DERIVATIVE FINANCIAL INSTRUMENTS

HTLF uses derivative financial instruments as part of its interest rate risk management strategy. As part of the strategy, HTLF considers the use of interest rate swaps, risk participation agreements, caps, floors, collars, and certain interest rate lock commitments and forward sales of securities related to mortgage banking activities. HTLF's current strategy includes the use of interest rate swaps, interest rate lock commitments and forward sales of mortgage securities. In addition, HTLF is facilitating back-to-back loan swaps to assist customers in managing their interest rate risk while executing offsetting interest rate swaps with dealer counterparties. HTLF's objectives are to add stability to its net interest margin and to manage its exposure to movements in interest rates. The contract or notional amount of a derivative is used to determine, along with the other terms of the derivative, the amounts to be exchanged between the counterparties. HTLF is exposed to credit risk in the event of nonperformance by counterparties to financial instruments. HTLF minimizes this risk by entering into derivative contracts with counterparties that meet HTLF’s credit standards, and the contracts contain collateral provisions protecting the at-risk party. HTLF has not experienced any losses from nonperformance by these counterparties. HTLF monitors counterparty risk in accordance with the provisions of ASC 815.

HTLF's derivative and hedging instruments are recorded at fair value on the consolidated balance sheets. See Note 7, "Fair Value," for additional fair value information and disclosures.

Cash Flow Hedges

In 2021, two interest rate swap transactions were terminated, and the debt was converted to variable rate subordinated debentures. For the next twelve months, HTLF estimates cash payments and reclassification from accumulated other comprehensive income (loss) to interest expense related to the terminated swaps will total $704,000.

In the first quarter of 2023, HTLF terminated its interest rate swap agreement, which effectively converted $500.0 million of variable rate loans to fixed rate loans. For the next twelve months, Heartland estimates cash payments and reclassification from accumulated other comprehensive income (loss) to interest expense will total $985,000.

The table below identifies the balance sheet category and fair value of HTLF's derivative instrument designated as a cash flow hedges at March 31, 2023 and December 31, 2022, in thousands:

	Notional Amount		Fair Value		Balance Sheet Category
March 31, 2023
Interest rate swap	$	—	$	—	Other Assets
December 31, 2022
Interest rate swap	$	500,000	$	13	Other Assets

The table below identifies the gains recognized on HTLF's derivative instrument designated as a cash flow hedge for the three months ended March 31, 2023, and March 31, 2022, in thousands:

	Recognized in OCI		Reclassified from AOCI into Income
	Amount of Gain (Loss)		Category	Amount of Gain (Loss)
March 31, 2023
Interest rate swap	$	1,952	Interest income	$	591
March 31, 2022
Interest rate swap	$	—	Interest income	$	—

Fair Value Hedges

HTLF uses interest rate swaps to convert certain long term fixed rate loans to floating rates to hedge interest rate risk exposure. HTLF uses hedge accounting in accordance with ASC 815, with the unrealized gains and losses, representing the change in fair value of the derivative and the change in fair value of the risk being hedged on the related loan, being recorded in the consolidated statements of income. The ineffective portions of the unrealized gains or losses, if any, are recorded in interest income and interest expense in the consolidated statements of income. HTLF uses statistical regression to assess hedge effectiveness, both at the inception of the hedge as well as on a continual basis. The regression analysis involves regressing the periodic change in the fair value of the hedging instrument against the periodic changes in the fair value of the asset being hedged due to changes in the hedge risk.

HTLF was required to pledge $481,000 and $481,000 of cash as collateral for these fair value hedges at March 31, 2023, and December 31, 2022, respectively.

The table below identifies the notional amount, fair value and balance sheet category of HTLF's fair value hedges at March 31, 2023, and December 31, 2022, in thousands:

	Notional Amount		Fair Value		Balance Sheet Category
March 31, 2023
Fair value hedges	$	1,132	$	39	Other assets
December 31, 2022
Fair value hedges	$	1,185	$	54	Other assets

The table below identifies the gains and losses recognized on HTLF's fair value hedges for the three months ended March 31, 2023, and March 31, 2022, in thousands:

	Three Months Ended March 31,
	2023		2022
Gain (loss) recognized in interest income on fair value hedges	$	(15)	$	1,183

Embedded Derivatives

HTLF has fixed rate loans with embedded derivatives. These loans contain terms that affect the cash flows or value of the loan similar to a derivative instrument, and therefore are considered to contain an embedded derivative. The embedded derivatives are bifurcated from the loans because the terms of the derivative instrument are not clearly and closely related to the loans. The embedded derivatives are recorded at fair value on the consolidated balance sheets as a part of other assets, and changes in the fair value are a component of noninterest income. The table below identifies the notional amount, fair value and balance sheet category of the embedded derivatives at March 31, 2023, and December 31, 2022, in thousands:

	Notional Amount		Fair Value		Balance Sheet Category
March 31, 2023
Embedded derivatives	$	5,935	$	98	Other assets
December 31, 2022
Embedded derivatives	$	6,028	$	135	Other assets

The table below identifies the gains and losses recognized on HTLF's embedded derivatives for the three months ended March 31, 2023, and March 31, 2022, in thousands:

	Three Months Ended March 31,
	2023		2022
Gain (loss) recognized in other noninterest income on embedded derivatives	$	(37)	$	225

Back-to-Back Loan Swaps

HTLF has interest rate swap loan relationships with customers to assist them in managing their interest rate risk. Upon entering into these loan swaps, HTLF enters into offsetting positions with counterparties in order to minimize interest rate risk. These back-to-back loan swaps qualify as free standing financial derivatives with the fair values reported in other assets and other liabilities on the consolidated balance sheets. HTLF was required to post $103,000 of collateral at March 31, 2023, compared to $312,000 as of December 31, 2022, related to these back-to-back swaps. HTLF's counterparties were required to pledge $33.8 million at March 31, 2023, compared to $45.1 million at December 31, 2022. Any gains and losses on these back-to-back swaps are recorded in noninterest income on the consolidated statements of income, and for the three months ended March 31, 2023, and March 31, 2022, no gain or loss was recognized. The table below identifies the balance sheet category and fair values of the derivative instruments designated as loan swaps at March 31, 2023, and December 31, 2022, in thousands:

	Notional Amount		Fair Value		Balance Sheet Category	Weighted Average Receive Rate		Weighted Average Pay Rate
March 31, 2023
Customer interest rate swaps	$	1,017,539	$	27,805	Other assets	4.14	%	6.97	%
Customer interest rate swaps	1,017,539		(27,805)		Other liabilities	6.97		4.14
December 31, 2022
Customer interest rate swaps	$	819,662	$	46,091	Other assets	4.23	%	6.76	%
Customer interest rate swaps	819,662		(46,091)		Other liabilities	6.76		4.23

Other Free Standing Derivatives

HTLF has entered into interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans and mortgage backed securities that are considered derivative instruments. HTLF enters into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into and to economically hedge the effect of future changes in interest rates on the commitments to fund the loans as well as on residential mortgage loans available for sale. The fair value of these commitments is recorded on the consolidated balance sheets, with the changes in fair value recorded in the consolidated statements of income as a component of gains on sale of loans held for sale. These derivative contracts are designated as free standing derivative contracts and are not designated against specific assets and liabilities on the consolidated balance sheets or forecasted transactions and therefore do not qualify for hedge accounting treatment. HTLF was required to pledge no collateral at both March 31, 2023, and December 31, 2022. HTLF's counterparties were required to pledge no collateral at both March 31, 2023, and December 31, 2022, as collateral for these forward commitments.

HTLF acquired undesignated interest rate swaps in 2015. These swaps were entered into primarily for the benefit of customers seeking to manage their interest rate risk and are not designated against specific assets or liabilities on the consolidated balance sheets or forecasted transactions and therefore do not qualify for hedge accounting in accordance with ASC 815. These swaps are carried at fair value on the consolidated balance sheets as a component of other liabilities, with changes in the fair value recorded as a component of other noninterest income.

The table below identifies the balance sheet category and fair values of HTLF's other free standing derivative instruments not designated as hedging instruments at March 31, 2023, and December 31, 2022, in thousands:

	Balance Sheet Category	Notional Amount		Fair Value
March 31, 2023
Interest rate lock commitments (mortgage)	Other assets	$	15,717	$	449
Forward commitments	Other assets	21,000		241
Forward commitments	Other liabilities	4,150		(21)
Undesignated interest rate swaps	Other liabilities	5,935		(98)
December 31, 2022
Interest rate lock commitments (mortgage)	Other assets	$	9,340	$	174
Forward commitments	Other assets	6,400		47
Forward commitments	Other liabilities	5,750		(99)
Undesignated interest rate swaps	Other liabilities	6,028		(135)

HTLF recognizes gains and losses on other free standing derivatives in two separate income statement categories. Interest rate lock commitments and forward commitments are recognized in net gains on sale of loans held for sale and undesignated interest rate swaps are recognized in other noninterest income. The table below identifies the gains and losses recognized in income on HTLF's other free standing derivative instruments not designated as hedging instruments for the three months ended March 31, 2023, and March 31, 2022, in thousands:

	Three Months Ended March 31,
	2023		2022
Interest rate lock commitments (mortgage)	$	410	$	(1,195)
Forward commitments	272		1,036
Undesignated interest rate swaps	37		(225)

NOTE 7: 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 the 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 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.

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 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 considers third party appraisals less estimated disposal costs, 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 held for sale. 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 of the assumptions in the discounted cash flow analysis 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 fair 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.

On March 31, 2023, HTLF sold its mortgage servicing rights portfolio. The transaction qualified as a sale, and $7.7 million of mortgage servicing rights were de-recognized on the consolidated balance sheet as of March 31, 2023. The book value and fair value were both $0 at March 31, 2023.

Derivative Financial Instruments

HTLF's current interest rate risk strategy includes 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 March 31, 2023, and

December 31, 2022, 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 are 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 table below presents HTLF's assets and liabilities that are measured at fair value on a recurring basis as of March 31, 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
March 31, 2023
Assets
Securities available for sale
U.S. treasuries	$	31,932	$	31,932	$	—	$	—
U.S. agencies	43,584		—		43,584		—
Obligations of states and political subdivisions	887,922		—		887,922		—
Mortgage-backed securities - agency	1,757,469		—		1,757,469		—
Mortgage-backed securities - non-agency	2,117,882		—		2,117,882		—
Commercial mortgage-backed securities - agency	86,022		—		86,022		—
Commercial mortgage-backed securities - non-agency	657,874		—		657,874		—
Asset-backed securities	435,523		—		435,523		—
Corporate bonds	57,845		—		57,845		—
Equity securities with a readily determinable fair value	20,604		—		20,604		—
Derivative financial instruments(1)	27,942		—		27,942		—
Interest rate lock commitments	449		—		—		449
Forward commitments	241		—		241		—
Total assets at fair value	$	6,125,289	$	31,932	$	6,092,908	$	449
Liabilities
Derivative financial instruments(2)	$	27,903	$	—	$	27,903	$	—
Forward commitments	21		—		21		—
Total liabilities at fair value	$	27,924	$	—	$	27,924	$	—
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 fair value hedges, embedded derivatives and back-to-back loan swaps.
(2) Includes back-to-back loan swaps and free standing derivatives.

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, 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	$	10,810	$	—	$	—	$	10,810	$	—
Owner occupied commercial real estate	7,408		—		—		7,408		—
Non-owner occupied commercial real estate	10,983		—		—		10,983		—
Real estate construction	1,498		—		—		1,498		—
Agricultural and agricultural real estate	5,053		—		—		5,053		—
Residential real estate	788		—		—		788		—
Total collateral dependent individually assessed loans	$	36,540	$	—	$	—	$	36,540	$	—
Loans held for sale	$	10,425	$	—	$	10,425	$	—	$	(251)
Other real estate owned	7,438		—		—		7,438		36
Premises, furniture and equipment held for sale	4,399		—		—		4,399		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

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 3/31/2023		Valuation Technique	Unobservable Input	Range (Weighted Average)
Interest rate lock commitments	$	449	Discounted cash flows	Closing ratio	0-99% (88%)(1)
Other real estate owned	7,438		Modified appraised value	Third party appraisal	(2)
				Appraisal discount	0-10%(3)
Premises, furniture and equipment held for sale	4,399		Modified appraised value	Third party appraisal	(2)
				Appraisal discount	0-10%(3)
Collateral dependent individually assessed loans:
Commercial	10,810		Modified appraised value	Third party appraisal	(2)
				Appraisal discount	0-15%(3)
Owner occupied commercial real estate	7,408		Modified appraised value	Third party appraisal	(2)
				Appraisal discount	0-13%(3)
Non-owner occupied commercial real estate	10,983		Modified appraised value	Third party appraisal	(2)
				Appraisal discount	0-10%(3)
Real estate construction	1,498		Modified appraised value	Third party appraisal	(2)
				Appraisal discount	0-10%(3)
Agricultural and agricultural real estate	5,053		Modified appraised value	Third party appraisal	(2)
				Appraisal discount	0-15%(3)
Residential real estate	788		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)
(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 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 measured on a recurring basis, are summarized in the following table, in thousands:

	For the Three Months Ended March 31, 2023		For the Year Ended December 31, 2022
Balance at January 1,	$	174	$	1,306
Total net gains included in earnings	410		(1,828)
Issuances	516		3,683
Settlements	(651)		(2,987)
Balance at period end	$	449	$	174

Gains included in gains (losses) on sale of loans held for sale attributable to interest rate lock commitments held at March 31, 2023, and December 31, 2022, were $449,000 and $174,000, respectively.

The table below is a summary of the estimated fair value of HTLF's financial instruments (as defined by ASC 825) as of March 31, 2023, and December 31, 2022, in thousands. The carrying amounts in the following tables 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, and other intangibles and other liabilities.

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, 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	$	362,111	$	362,111	$	362,111	$	—	$	—
Time deposits in other financial institutions	1,740		1,740		1,740		—		—
Securities:
Carried at fair value	6,096,657		6,096,657		31,932		6,064,725		—
Held to maturity	832,098		815,672		—		815,672		—
Other investments	72,364		72,364		—		72,364		—
Loans held for sale	10,425		10,425		—		10,425		—
Loans, net:
Commercial and industrial	3,466,522		3,286,723		—		3,275,913		10,810
PPP	8,258		8,258		—		8,258		—
Owner occupied commercial real estate	2,298,387		2,112,314		—		2,104,906		7,408
Non-owner occupied commercial real estate	2,404,279		2,265,664		—		2,254,681		10,983
Real estate construction	1,072,048		1,065,497		—		1,063,999		1,498
Agricultural and agricultural real estate	807,637		735,491		—		730,438		5,053
Residential real estate	833,520		718,281		—		717,493		788
Consumer	491,995		474,398		—		474,398		—
Total Loans, net	11,382,646		10,666,626		—		10,630,086		36,540
Cash surrender value on life insurance	194,419		194,419		—		194,419		—
Derivative financial instruments(1)	27,942		27,942		—		27,942		—
Interest rate lock commitments	449		449		—		—		449
Forward commitments	241		241		—		241		—
Financial liabilities:
Deposits
Demand deposits	5,119,554		5,119,554		—		5,119,554		—
Savings deposits	9,256,609		9,256,609		—		9,256,609		—
Time deposits	3,305,183		3,305,183		—		3,305,183		—
Short term borrowings	92,337		92,337		—		92,337		—
Other borrowings	372,097		373,923		—		373,923		—
Derivative financial instruments(2)	27,903		27,903		—		27,903		—
Forward commitments	21		21		—		21		—
(1) Includes fair value hedges, 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.

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 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 due to the restrictions placed on their transferability. The market for these securities is restricted to the issuer of the stock and subject to impairment evaluation.

Loans — The fair value of loans is 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.

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 prices, and, when appropriate, the current creditworthiness of the counterparty.

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.

NOTE 8: STOCK COMPENSATION

HTLF may grant, through its Compensation, Nominating and Corporate Governance Committee (the "Compensation Committee"), non-qualified and incentive stock options, stock appreciation rights, stock awards, restricted stock, restricted stock units and cash incentive awards, under its 2020 Long-Term Incentive Plan (the "Plan"). The Plan has 1,460,000 shares of common stock authorized for issuance. As of March 31, 2023, 789,565 shares of common stock were available for issuance under future awards that may be granted under the Plan to employees and directors of, and service providers to, HTLF or its subsidiaries.

ASC Topic 718, "Compensation-Stock Compensation," requires the measurement of the cost of employee services received in exchange for an award of equity instruments based upon the fair value of the award on the grant date. The cost of the award is based upon its fair value estimated on the date of grant and recognized in the consolidated statements of income over the vesting period of the award. The fair market value of restricted stock and restricted stock units is based on the fair value of the underlying shares of common stock on the date of grant. Forfeitures are accounted for as they occur.

HTLF's income tax expense included $46,000 of tax benefit during the three months ended March 31, 2023, and a tax benefit of $172,000 during the three months ended March 31, 2022, related to the exercise, vesting and forfeiture of equity-based awards.

Restricted Stock Units

The Plan permits the Compensation Committee to grant restricted stock units ("RSUs"). The time-based RSUs are generally granted in the first quarter of each year and represent the right, without payment, to receive shares of HTLF common stock on a specified date in the future. Generally, the time-based RSUs vest over three years in equal installments in March of each of the three years following the year of the grant.

The Compensation Committee has also granted three-year performance-based RSUs, generally in the first quarter of each year. These performance-based RSUs will be earned based on satisfaction of performance targets for the three-year performance

period as defined in the RSU agreement. These performance-based RSUs or a portion thereof may vest after measurement of performance in relation to the performance targets.

The time-based RSUs may also vest upon death or disability, upon a change in control or upon a "qualified retirement" (as defined in the RSU agreement), and the three-year performance-based RSUs may also vest to the extent that they are earned upon death, disability, upon a change in control or upon a "qualified retirement" (as defined in the RSU agreement).

All of HTLF's RSUs will be settled in common stock upon vesting. RSUs granted after March 2023 accrue dividends, which are paid in cash and without interest only upon vesting. Dividend equivalents with respect to RSUs forfeited are also forfeited. All RSUs granted prior to 2023 are not entitled to dividend equivalents.

A summary of the RSUs outstanding as of March 31, 2023, and March 31, 2022, and changes during the three months ended March 31, 2023 and 2022, follows:

	2023			2022
	Shares	Weighted-Average Grant Date Fair Value		Shares	Weighted-Average Grant Date Fair Value
Outstanding at January 1,	424,086	$	46.15	389,885	$	44.19
Granted	198,562	50.75		178,611	50.20
Vested	(125,870)	42.15		(125,343)	43.85
Forfeited	(21,338)	42.40		(12,656)	45.70
Outstanding at March 31,	475,440	$	49.30	430,497	$	46.74

Total compensation costs recorded for RSUs were $4.7 million and $2.7 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, there were $14.0 million of total unrecognized compensation costs related to the Plan for RSUs that are expected to be recognized through 2026.

Stock Options

The Plan provides the Compensation Committee the authority to grant stock options. During the year ended December 31, 2022, 64,518 options were granted, and the fair value of the options granted was determined using the Black-Scholes valuation model. The options granted generally vest over the first four years in equal installments on the anniversary date of the grant. The options may also vest upon death, disability, upon a change in control or upon a "qualified retirement" as defined in the stock option agreement.

The exercise price of the stock options was established by the Compensation Committee, but the exercise price may not be less than the fair market value of the shares on the date the options are granted.

A summary of the status of stock options as of March 31, 2023, and changes during the three months ended March 31, 2023, is shown in the table below. There were no options outstanding at March 31, 2022.

	2023
	Shares	Weighted Average  Exercise Price
Outstanding January 1,	64,518	$	48.79
Granted	—	—
Exercised	—	—
Forfeited	(3,226)	48.79
Outstanding at March 31,	61,292	48.79
Options exercisable at March 31,	—	$	—

At March 31, 2023, the options had a weighted average remaining contractual life of 9.67 years. The intrinsic value of the vested options as of March 31, 2023 was $0. The intrinsic value of the all options exercised during the three months ended March 31, 2023, was $0. The total fair value of the shares that vested during the three months ended March 31, 2023, was $0. Total compensation costs recorded for stock options during the three months ended March 31, 2023 and 2022 were $69,000 and $0, respectively. As of March 31, 2023, there were $703,000 of total unrecognized compensation costs related to the Plan for options that are expected to be recognized through 2026.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SAFE HARBOR STATEMENT

This Quarterly Report on Form 10-Q (including any information incorporated herein by reference) contains, and future oral and written statements of Heartland Financial USA, Inc. ("HTLF") and its management may contain, forward-looking statements within the meaning of such term in Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") with respect to the business, financial condition, results of operations, plans, objectives and future performance of HTLF. Any statements about HTLF's expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. Forward-looking statements may include information about possible or assumed future results of HTLF's operations or performance, and may be based upon beliefs, expectations and assumptions of HTLF's management. These forward-looking statements are generally identifiable by the use of words such as "believe," "expect," "anticipate," "plan," "intend," "estimate," "project," "may," "will," "would," "could," "should," "view," "opportunity," "potential," or other similar expressions. Although HTLF has made these statements based on management's experience and best estimate of future events, the ability of HTLF to predict results or the actual effect or outcomes of plans or strategies is inherently uncertain, and there may be events or factors that management has not anticipated. Therefore, the accuracy and achievement of such forward-looking statements and estimates are subject to a number of risks, many of which are beyond the ability of management to control or predict, that could cause actual results to differ materially from those in its forward-looking statements. These factors, which HTLF currently believes could have a material adverse effect on its operations and future prospects are detailed in the "Risk Factors" section include, among others, those described below and in the risk factors in HTLF's reports filed with the Securities and Exchange Commission ("SEC"), including the "Risk Factors" section under Item 1A of Part I of the company’s Annual Report on Form 10-K for the year ended December 31, 2022:

•Economic and Market Conditions Risks, including risks related to the deterioration of the U.S. economy in general and in the local economies in which HTLF conducts its operations and future civil unrest, natural disasters, pandemics and governmental measures addressing them, climate change and climate-related regulations, persistent inflation, higher interest rates, recession, supply chain issues, labor shortages, terrorist threats or acts of war;

•Credit Risks, including risks of increasing credit losses due to deterioration in the financial condition of HTLF's borrowers, changes in asset and collateral values due to climate and other borrower industry risks, which may impact the provision for credit losses and net charge-offs;

•Liquidity and Interest Rate Risks, including the impact of capital market conditions, rising interest rates and changes in monetary policy on our borrowings and net interest income;

•Operational Risks, including processing, information systems, cybersecurity, vendor, business interruption, and fraud risks;

•Strategic and External Risks, including economic, political, and competitive forces impacting our business;

•Legal, Compliance and Reputational Risks, including regulatory and litigation risks; and

•Risks of Owning Stock in HTLF, including stock price volatility and dilution as a result of future equity offerings and acquisitions.

These risks and uncertainties should be considered in evaluating forward-looking statements made by HTLF or on its behalf, and undue reliance should not be placed on these statements. There can be no assurance that other factors not currently anticipated by HTLF will not materially and adversely affect the company's business, financial condition and results of operations. All statements in this Quarterly Report on Form 10-Q, including forward-looking statements, speak only as of the date they are made. HTLF does not undertake and specifically disclaims any obligation to publicly release the results of any revisions which may be made or to correct or update any forward-looking statement to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events or to otherwise update any statement in light of new information or future events. Further information concerning HTLF and its business, including additional factors that could materially affect HTLF’s financial results, is included in the company’s filings with the SEC.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, income and expenses. These estimates are based upon historical experience and on various other assumptions that management believes are reasonable under the circumstances. Among other things, the estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The estimates and judgments that management believes have the most effect on HTLF's reported financial position and results of operations are described as critical accounting policies in the company's Annual Report on Form 10-K for the year ended December 31, 2022. There have

been no significant changes in the critical accounting estimates or the assumptions and judgments utilized in applying these estimates since December 31, 2022.

OVERVIEW

Heartland Financial USA, Inc. is a bank holding company operating under the brand name "HTLF". HTLF's independently branded and chartered banks (referred to herein collectively as the "Banks", "Bank Markets") serve communities in Arizona, California, Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Montana, New Mexico, Texas and Wisconsin. HTLF is committed to its core commercial business supported by a strong retail operation and provides a diversified line of financial services and products including treasury management, commercial credit cards, wealth management, investments and residential mortgages. As of March 31, 2023, HTLF had six Banks operating under 11 local bank brands through a total of 119 locations.

HTLF's results of operations depend primarily on net interest income, which is the difference between interest income from interest earning assets and interest expense on interest bearing liabilities. Noninterest income, which includes service charges and fees, loan servicing income, trust fees, brokerage and insurance commissions, capital markets fees, net securities gains/(losses), net gains on sale of loans held for sale, and income on bank owned life insurance, also affects the results of operations. HTLF's principal operating expenses, aside from interest expense, consist of the provision for credit losses, salaries and employee benefits, occupancy, furniture and equipment costs, professional fees, advertising, core deposit and customer relationship intangibles amortization, other real estate and loan collection expenses, losses on sales/valuation of assets, partnership investment in tax credit projects and acquisition, integration and restructuring costs.

HTLF Response to Recent Banking Industry Disruptions

During the first quarter of 2023, the banking industry experienced significant disruptions including bank failures and industry-wide concerns related to deposit outflows, liquidity, continued interest rate increases and unrealized losses on securities. HTLF took the following actions, primarily in response to the disruption:

•Proactively reached out to over 1,000 large depositors and helped facilitate additional FDIC insurance through Insured Cash Sweep ("ICS") products and Certificate of Deposit Registry Service ("CDARS") products,

•Increased deposit pricing to address highly competitive deposit environment,

•Strategically increased wholesale deposits to reduce short-term borrowings,

•Increased access and availability to sources of liquidity through the Federal Reserve and Federal Home Loan Bank ("FHLB") system by $1.68 billion,

•Total borrowing capacity through various programs, including the Federal Reserve's Bank Term Funding Program ("BTFP"), was $2.76 billion as of March 31, 2023, of which no balance was drawn, and

•Retail deposit campaign resulted in over 8,000 new consumer accounts opened.

The shift to work-from-home and hybrid work arrangements have caused decreased utilization of and demand for office space. During the first quarter of 2023, HTLF performed a detailed, thorough review of its exposure to office space in the non-owner occupied commercial real estate portfolio and securities portfolio. As of March 31, 2023:

•Outstanding loans totaling $424.8 million were collateralized by non-owner occupied office space, which represents 3.7% of the total loans held to maturity, and the average loan size was $1.3 million.

•There were no loans collateralized by office space on nonaccrual.

•The collateral consists primarily of multi-tenant, non-central business district properties.

•The amount of office exposure in the securities portfolio was less than 1% of the total portfolio.

As of March 31, 2023:

• 35% of HTLF's deposits were uninsured and uncollateralized.

•HTLF's capital ratios substantially exceeded the well-capitalized thresholds, and management believes regulatory capital ratio buffers would withstand any changes in regulatory rules that require the inclusion of unrealized losses in the total investment portfolio and remain well capitalized.

Subsequent to March 31, 2023, HTLF repositioned its hedges and entered into new swaps totaling approximately $1.34 billion primarily designed to provide protection for unrealized securities losses against the impact of higher mid-to-long term interest rates.

Overview of First Quarter 2023 Results

HTLF reported the following results for the quarter ended March 31, 2023, compared to the quarter ended March 31, 2022:

•net income available to common stockholders of $50.8 million compared to $41.1 million, an increase of $9.7 million or 24%,

•earnings per diluted common share of $1.19 compared to $0.97, an increase of $0.22 or 23%,

•net interest income of $152.2 million compared to $134.7 million, an increase of $17.5 million or 13%,

•return on average assets was 1.06% compared to 0.91%,

•return on average common equity was 12.43% compared to 8.32%, and

•return on average tangible common equity (non-GAAP) was 20.05% compared to 12.41%.

During the first quarter of 2023, HTLF reclassified swap and loan syndication income (collectively, "capital markets fees") to capital markets fees from other noninterest income on the consolidated statements of income, and all prior periods have been adjusted.

For the first quarter of 2023, net interest margin was 3.36% (3.40% on a fully tax-equivalent basis, non-GAAP), which compares to 3.61% (3.65% on a fully tax-equivalent basis, non-GAAP) for the fourth quarter of 2022, and 3.08% (3.12% on a fully tax-equivalent basis, non-GAAP) for the first quarter of 2022.

The efficiency ratio was 60.94% (57.16% on an adjusted fully tax-equivalent basis, non-GAAP) for the first quarter of 2023 compared to 65.46% (64.65% on an adjusted fully-tax equivalent basis, non-GAAP) for the same quarter of 2022.

Total assets were $20.18 billion at March 31, 2023, a decrease of $61.7 million or less than 1% since December 31, 2022. Securities represented 35% of total assets at both March 31, 2023 and December 31, 2022. Total loans held to maturity were $11.50 billion at March 31, 2023, compared to $11.43 billion at December 31, 2022, which was an increase of $67.0 million or 1%.

The total allowance for lending related credit losses was $133.8 million or 1.16% of total loans at March 31, 2023, compared to $129.7 million or 1.13% of total loans at December 31, 2022.

Total deposits were $17.68 billion as of March 31, 2023, compared to $17.51 billion at December 31, 2022, an increase of $168.3 million or 1%.

Total equity was $1.83 billion at March 31, 2023, compared to $1.74 billion at December 31, 2022. Book value per common share was $40.38 at March 31, 2023, compared to $38.25 at year-end 2022. The unrealized loss on securities available for sale, net of applicable taxes, was $568.2 million at March 31, 2023, compared to an unrealized loss of $619.2 million, net of applicable taxes, at December 31, 2022.

Refer to "Non-GAAP Financial Measures" for additional information on the usage and presentation of the foregoing non-GAAP measures, and refer to the financial tables under "Financial Highlights" for the reconciliations to the most directly comparable GAAP measures.

2023 Developments

As of March 29, 2023, HTLF's subsidiary, Dubuque Bank & Trust, entered into an agreement to sell and transfer the recordkeeping and administration services component of HTLF’s Retirement Plan Services business to July Business Services ("July"). Through the new partnership with July, HTLF expects to augment the comprehensive retirement plan solutions offered to clients with enhanced technology and an expanded suite of product offerings that clients expect from a top retirement services provider. The transaction is expected to be completed and recordkeeping and administration services transferred in the second quarter of 2023.

On March 31, 2023, HTLF's subsidiary, First Bank & Trust, closed on the sale of its mortgage servicing rights portfolio, which consisted of approximately 4,500 loans serviced for others with an unpaid principal balance of $698.5 million. In the agreement, which includes customary terms and conditions, First Bank & Trust provided interim servicing of the loans until the transfer date of May 1, 2023.

Following the end of the first quarter, one of the Banks had deposit items returned to it resulting in an overdraft with respect to a single long-term customer totaling $5.3 million. Following the overdraft, HTLF's initial assessment indicates a potential credit exposure range of $5.3-$7.0 million. HTLF continues to assess the situation and plans to actively pursue potential remedies and strategies with respect to the customer to address the overdraft and mitigate any potential loss arising from it.

Charter Consolidation Update

During the first quarter of 2023, Wisconsin Bank & Trust was consolidated into HTLF Bank. Subsequent to March 31, 2023, Bank of Blue Valley was consolidated into HTLF Bank. Citywide Banks, Premier Valley Bank, Minnesota Bank & Trust, Arizona Bank & Trust, Illinois Bank & Trust, Wisconsin Bank & Trust and Bank of Blue Valley are now operating as divisions of HTLF Bank. The remaining four charters are expected to be consolidated by the end of 2023. Charter consolidation follows a template that retains the current brands, local leadership and local decision making.

Consolidation restructuring costs are projected to be $19-$20 million with approximately $8-$9 million of expenses remaining to be incurred in 2023. Total costs incurred since the project started in the fourth quarter of 2021 through March 31, 2023, were $11.0 million, of which $1.7 million was incurred in the first quarter of 2023. Charter consolidation is designed to eliminate redundancies and improve HTLF’s operating efficiency and capacity to support ongoing product and service enhancements, as well as current and future growth. HTLF has realized some operating efficiencies and financial benefits with the completion of seven charter consolidations. The resulting efficiencies and expansion in capacity are projected to generate benefits of approximately $20 million annually when the project is completed with core operating expenses expected to decline to 2.10% or less of average assets.

FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data)	Three Months Ended March 31,
	2023			2022
STATEMENT OF INCOME DATA
Interest income	$	216,978		$	141,262
Interest expense	64,766			6,583
Net interest income	152,212			134,679
Provision for credit losses	3,074			3,245
Net interest income after provision for credit losses	149,138			131,434
Noninterest income	29,999			34,569
Noninterest expenses	111,043			110,797
Income taxes	15,318			12,117
Net income	52,776			43,089
Preferred dividends	(2,013)			(2,013)
Net income available to common stockholders	$	50,763		$	41,076
KEY PERFORMANCE RATIOS
Annualized return on average assets	1.06		%	0.91		%
Annualized return on average common equity (GAAP)	12.43			8.32
Annualized return on average tangible common equity (non-GAAP)(1)	20.05			12.41
Annualized ratio of net charge-offs/(recoveries) to average loans	(0.04)			0.49
Annualized net interest margin (GAAP)	3.36			3.08
Annualized net interest margin, fully tax-equivalent (non-GAAP)(1)	3.40			3.12
Efficiency ratio (GAAP)	60.94			65.46
Adjusted efficiency ratio, fully tax-equivalent (non-GAAP)(1)	57.16			64.65
Total noninterest expenses to average assets	2.24			2.34
Core noninterest expenses to average assets (non-GAAP)(1)	2.14			2.28
(1) Refer to "Non-GAAP Financial Measures" for additional information on the usage and presentation of these non-GAAP measures, and refer to these financial tables for the reconciliations to the most directly comparable GAAP measures.

Dollars in thousands, expect per share data	As Of and For the Quarter Ended
	3/31/2023		12/31/2022		9/30/2022		6/30/2022		3/31/2022
BALANCE SHEET DATA
Investments	$	7,001,119	$	7,051,114	$	6,970,864	$	7,274,056	$	7,189,779
Loans held for sale	10,425		5,277		9,570		18,803		22,685
Loans receivable held to maturity	11,495,353		11,428,352		10,923,532		10,678,218		10,177,385
Allowance for credit losses	112,707		109,483		105,715		101,353		100,522
Total assets	20,182,544		20,244,228		19,682,950		19,658,399		19,230,879
Total deposits	17,681,346		17,513,009		17,267,121		17,225,550		16,666,684
Long-term obligations	372,097		371,753		371,446		372,538		372,290
Common equity	1,718,700		1,624,350		1,545,253		1,663,363		1,821,152

Dollars in thousands, expect per share data	As Of and For the Quarter Ended
	3/31/2023			12/31/2022			9/30/2022			6/30/2022			3/31/2022
COMMON SHARE DATA
Book value per common share (GAAP)	$	40.38		$	38.25		$	36.41		$	39.19		$	42.98
Tangible book value per common share (non-GAAP)(1)	$	26.30		$	24.09		$	22.20		$	24.94		$	28.66
ASC 320 effect on book value per common share	$	(13.35)		$	(14.58)		$	(15.31)		$	(11.43)		$	(6.74)
Common shares outstanding, net of treasury stock	42,558,726			42,467,394			42,444,106			42,439,439			42,369,908
Tangible common equity ratio (non-GAAP)(1)	5.72		%	5.21		%	4.94		%	5.56		%	6.52		%
Adjusted tangible common equity ratio (non-GAAP)(1)	8.61		%	8.37		%	8.35		%	8.11		%	8.06		%
(1) Refer to "Non-GAAP Financial Measures" for additional information on the usage and presentation of these non-GAAP measures, and refer to these financial tables for the reconciliations to the most directly comparable GAAP measures.

Non-GAAP Reconciliations (Dollars in thousands, except per share data)
	As Of and For the Quarter Ended
	3/31/2023			12/31/2022					9/30/2022					6/30/2022					3/31/2022
Reconciliation of Tangible Book Value Per Common Share (non-GAAP)
Common equity (GAAP)	$	1,718,700		$	1,624,350				$	1,545,253				$	1,663,363				$	1,821,152
Less goodwill	576,005			576,005					576,005					576,005					576,005
Less core deposit and customer relationship intangibles, net	23,366			25,154					26,995					28,851					30,934
Tangible common equity (non-GAAP)	$	1,119,329		$	1,023,191				$	942,253				$	1,058,507				$	1,214,213
Common shares outstanding, net of treasury stock	42,558,726			42,467,394					42,444,106					42,439,439					42,369,908
Common equity (book value) per share (GAAP)	$	40.38		$	38.25				$	36.41				$	39.19				$	42.98
Tangible book value per common share (non-GAAP)	$	26.30		$	24.09				$	22.20				$	24.94				$	28.66
Reconciliation of Tangible Common Equity Ratio (non-GAAP)
Tangible common equity (non-GAAP)	$	1,119,329		$	1,023,191				$	942,253				$	1,058,507				$	1,214,213
Total assets (GAAP)	$	20,182,544		$	20,244,228				$	19,682,950				$	19,658,399				$	19,230,879
Less goodwill	576,005			576,005					576,005					576,005					576,005
Less core deposit and customer relationship intangibles, net	23,366			25,154					26,995					28,851					30,934
Total tangible assets (non-GAAP)	$	19,583,173		$	19,643,069				$	19,079,950				$	19,053,543				$	18,623,940
Tangible common equity ratio (non-GAAP)	5.72		%	5.21		%			4.94		%			5.56		%			6.52		%
Reconciliation of Adjusted Tangible Common Equity Ratio (non-GAAP)
Tangible common equity (non-GAAP)	$	1,119,329		$	1,023,191				$	942,253				$	1,058,507				$	1,214,213
Accumulated other comprehensive loss	566,919			620,006					650,636					486,918					286,921
Adjusted tangible common equity (non-GAAP)	$	1,686,248		$	1,643,197		$	—	$	1,592,889		$	—	$	1,545,425		$	—	$	1,501,134
Total tangible assets (non-GAAP)	$	19,583,173		$	19,643,069				$	19,079,950				$	19,053,543				$	18,623,940
Adjusted tangible common equity ratio (non-GAAP)	8.61		%	8.37		%			8.35		%			8.11		%			8.06		%
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.

Non-GAAP Reconciliations (Dollars in thousands, except per share data)	For the Three Months Ended March 31,
	2023			2022
Reconciliation of Annualized Return on Average Tangible Common Equity (non-GAAP)
Net income available to common stockholders (GAAP)	$	50,763		$	41,076
Plus core deposit and customer relationship intangibles amortization, net of tax(1)	1,413			1,623
Net income available to common stockholders excluding intangible amortization (non-GAAP)	$	52,176		$	42,699
Average common equity (GAAP)	$	1,655,860		$	2,003,424
Less average goodwill	576,005			576,005
Less average core deposit and customer relationship intangibles, net	24,238			31,931
Average tangible common equity (non-GAAP)	$	1,055,617		$	1,395,488
Annualized return on average common equity (GAAP)	12.43		%	8.32		%
Annualized return on average tangible common equity (non-GAAP)	20.05		%	12.41		%
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)
Net interest income (GAAP)	$	152,212		$	134,679
Plus tax-equivalent adjustment(1)	2,209			2,119
Net interest income, fully tax-equivalent (non-GAAP)	$	154,421		$	136,798
Average earning assets	$	18,392,649		$	17,757,067
Annualized net interest margin (GAAP)	3.36		%	3.08		%
Annualized net interest margin, fully tax-equivalent (non-GAAP)	3.40			3.12
Net purchase accounting discount accretion on loans included in annualized net interest margin	0.02			0.05

Reconciliation of Adjusted Efficiency Ratio (non-GAAP)
Net interest income (GAAP)	$	152,212		$	134,679
Tax-equivalent adjustment(1)	2,209			2,119
Fully tax-equivalent net interest income	154,421			136,798
Noninterest income (GAAP)	29,999			34,569
Securities (gains)/losses, net	1,104			(2,872)
Unrealized (gain)/loss on equity securities, net	(193)			283
Valuation adjustment on servicing rights	—			(1,658)
Adjusted revenue (non-GAAP)	$	185,331		$	167,120
Total noninterest expenses (GAAP)	$	111,043		$	110,797
Less:
Core deposit and customer relationship intangibles amortization	1,788			2,054
Partnership investment in tax credit projects	538			77
(Gain)/loss on sales/valuation of assets, net	1,115			46
Acquisition, integration and restructuring costs	1,673			576
Core expenses (non-GAAP)	$	105,929		$	108,044
Efficiency ratio (GAAP)	60.94		%	65.46		%
Adjusted efficiency ratio, fully tax-equivalent (non-GAAP)	57.16		%	64.65		%
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.

Non-GAAP Reconciliations (Dollars in thousands, except per share data)	For the Three Months Ended March 31,
	2023			2022
Reconciliation of Annualized Ratio of Core Expenses to Average Assets (non-GAAP)
Total noninterest expenses (GAAP)	$	111,043		$	110,797
Core expenses (non-GAAP)	105,929			108,044
Average assets	$	20,118,005		$	19,228,872
Total noninterest expenses to average assets (GAAP)	2.24		%	2.34		%
Core expenses to average assets (non-GAAP)	2.14		%	2.28		%
Acquisition, integration and restructuring costs
Salaries and employee benefits	$	74		$	340
Professional fees	934			236
Advertising	122			—
Other noninterest expenses	543			—
Total acquisition, integration and restructuring costs	$	1,673		$	576
After tax impact on diluted earnings per common share(1)	$	0.03		$	0.01
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.

Non-GAAP Financial Measures

This Quarterly Report on Form 10-Q contains references to financial measures which are not defined by generally accepted accounting principles ("GAAP"). Management believes the non-GAAP measures are helpful for investors to analyze and evaluate HTLF's financial condition and operating results. However, these non-GAAP measures have inherent limitations and should not be considered a substitute for operating results determined in accordance with GAAP. Additionally, because non-GAAP measures are not standardized, it may not be possible to compare the non-GAAP measures presented in this section with other companies' non-GAAP measures. Reconciliations of each non-GAAP measure to the most directly comparable GAAP measure may be found in the financial tables above.

The non-GAAP measures presented in this Quarterly Report on Form 10-Q, management's reason for including each measure and the method of calculating each measure are presented below:

•Annualized net interest margin, fully tax-equivalent, adjusts net interest income for the tax-favored status of certain loans and securities. Management believes this measure enhances the comparability of net interest income arising from taxable and tax-exempt sources.

•Adjusted efficiency ratio, fully tax equivalent, expresses noninterest expenses as a percentage of fully tax-equivalent net interest income and noninterest income. This adjusted efficiency ratio is presented on a tax-equivalent basis which adjusts net interest income and noninterest expenses for the tax favored status of certain loans, securities, and tax credit projects. Management believes the presentation of this non-GAAP measure provides supplemental useful information for proper understanding of the financial results as it enhances the comparability of income and expenses arising from taxable and nontaxable sources and excludes specific items as noted in the reconciliation contained in this Quarterly Report on Form 10-Q.

•Net interest income, fully tax equivalent, is net income adjusted for the tax-favored status of certain loans and securities. Management believes this measure enhances the comparability of net interest income arising from taxable and tax-exempt sources.

•Tangible book value per common share is total common equity less goodwill and core deposit and customer relationship intangibles, net, divided by common shares outstanding, net of treasury. This measure is included as it is considered to be a critical metric to analyze and evaluate use of equity, financial condition and capital strength.

•Tangible common equity ratio is total common equity less goodwill and core deposit and customer relationship intangibles, net, divided by total assets less goodwill and core deposit and customer relationship intangibles, net. This measure is included as it is considered to be a critical metric to analyze and evaluate financial condition and capital strength.

•Adjusted tangible common equity ratio is total common equity less goodwill, core deposit and customer relationship intangibles, net, and accumulated other comprehensive loss divided by total assets less goodwill and core deposit and customer relationship intangibles, net. This measure is included as it is considered to be a critical metric to analyze and evaluate financial condition and capital strength excluding the variability of accumulated other comprehensive income (loss).

•Annualized return on average tangible common equity is net income excluding intangible amortization calculated as (1) net income excluding tax-effected core deposit and customer relationship intangibles amortization, divided by (2) average common equity less goodwill and core deposit and customer relationship intangibles, net. This measure is included as it is considered to be a critical metric to analyze and evaluate use of equity, financial condition and capital strength.

•Annualized ratio of core expenses to average assets adjusts noninterest expenses to exclude specific items noted in the reconciliation. Management includes this measure as it is considered to be a critical metric to analyze and evaluate controllable expenses related to primary business operations.

RESULTS OF OPERATIONS

Net Interest Margin and Net Interest Income

HTLF's management seeks to optimize net interest income and net interest margin through the growth of earning assets and management of asset and liability positions because they are key indicators of HTLF's profitability.

Net interest income is the difference between interest income on earning assets and interest expense paid on interest bearing liabilities. As such, net interest income is affected by changes in volumes and yields on earning assets and the volume and rates paid on interest bearing liabilities. Net interest margin is the ratio of net interest income to average earning assets.

For the Quarters ended March 31, 2023 and 2022

Net interest margin, expressed as a percentage of average earning assets, was 3.36% (3.40% on a fully tax-equivalent basis, non-GAAP) during the first quarter of 2023 compared to 3.08% (3.12% on a fully tax-equivalent basis, non-GAAP) during the first quarter of 2022. For the quarters ended March 31, 2023 and 2022, net interest margin included 2 basis points and 5 basis points, respectively, of net purchase accounting discount amortization. HTLF's net interest margin may be impacted in future periods as a result of market pressures to increase deposit pricing and the strategic decision to increase wholesale deposits to maintain strong liquidity during the current banking disruptions.

Total interest income and average earning asset changes for the first quarter of 2023 compared to the first quarter of 2022 were:

•Total interest income was $217.0 million compared to $141.3 million, which was an increase of $75.7 million or 54% and primarily attributable to an increase in average earning assets and higher yields.

•Total interest income on a tax-equivalent basis (non-GAAP) was $219.2 million, which was an increase of $75.8 million or 53% from $143.4 million.

•Average earning assets increased $635.6 million or 4% to $18.39 billion compared to $17.76 billion.

•The average rate on earning assets increased 156 basis points to 4.83% compared to 3.27%, which was primarily due to recent interest rate increases.

Total interest expense and average interest bearing liability changes for the first quarter of 2023 compared to the first quarter of 2022 were:

•Total interest expense was $64.8 million, an increase of $58.2 million from $6.6 million, which was attributable to an increase in the average interest rate paid and an increase in average interest bearing liabilities.

•The average interest rate paid on interest bearing liabilities increased 183 basis points to 2.09% compared to 0.26%.

•Average interest bearing deposits increased $2.03 billion or 20% to $11.99 billion from $9.96 billion, including an increase of $1.04 billion in wholesale deposits.

•The average interest rate paid on interest bearing deposits increased 180 basis points to 1.92% compared to 0.12%.

•Average borrowings increased $102.9 million or 21% to $594.7 million from $491.8 million, and the average interest rate paid on borrowings was 5.37% compared to 2.97%.

Net interest income changes for the first quarter of 2023 compared to the first quarter of 2022 were:

•Net interest income totaled $152.2 million compared to $134.7 million, which was an increase of $17.5 million or 13%.

•Net interest income on a tax-equivalent basis (non-GAAP) totaled $154.4 million compared to $136.8 million, which was an increase of $17.6 million or 13%.

See "Analysis of Average Balances, Tax-Equivalent Yields and Rates" for additional information relating to net interest income on a fully tax-equivalent basis, which is not defined by GAAP.

HTLF attempts to manage its balance sheet to minimize the effect that a change in interest rates has on its net interest income. Management continues to work toward improving both its earning assets and funding mix through targeted organic growth

strategies, which management believes will result in additional net interest income. HTLF models and reviews simulations using various improving and deteriorating interest rate scenarios to assist in monitoring its exposure to interest rate risk. Based on these simulations, it is management's opinion that HTLF maintains a well-balanced and manageable interest rate posture. Item 3 of Part I of this Quarterly Report on Form 10-Q contains additional information about the results of the most recent net interest income simulations. Note 6 to the consolidated financial statements included in this Quarterly Report on Form 10-Q contains a detailed discussion of the derivative instruments utilized to manage its interest rate risk.

The following tables set forth certain information relating to average consolidated balance sheets and reflect the yield on average earning assets and the cost of average interest bearing liabilities for the periods indicated, in thousands. Such yields and costs are calculated by dividing income or expense by the average balance of assets or liabilities. Average balances are derived from daily balances, and nonaccrual loans and loans held for sale are included in each respective loan category. Assets that receive favorable tax treatment are evaluated on a tax-equivalent basis assuming a federal income tax rate of 21%. Tax-favored assets generally have lower contractual pre-tax yields than fully taxable assets. A tax-equivalent yield is calculated by adding the tax savings to the interest earned on tax favored assets and dividing this amount by the average balance of the tax favorable assets.

ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT YIELDS AND RATES (1)
	For the Quarter Ended
	March 31, 2023						December 31, 2022						March 31, 2022
	Average Balance		Interest		Rate		Average Balance		Interest		Rate		Average Balance		Interest		Rate
Earning Assets
Securities:
Taxable	$	6,096,888	$	55,976	3.72	%	$	6,122,313	$	53,178	3.45	%	$	6,501,664	$	32,620	2.03	%
Nontaxable(1)	922,676		7,630		3.35		890,368		7,762		3.46		1,106,951		7,851		2.88
Total securities	7,019,564		63,606		3.67		7,012,681		60,940		3.45		7,608,615		40,471		2.16
Interest on deposits with other banks and short-term investments	105,400		1,131		4.35		151,405		1,410		3.69		216,451		71		0.13
Federal funds sold	—		—		—		739		11		5.91		11		—		—
Loans:(2)
Commercial and industrial(1)	3,459,317		49,907		5.85		3,346,843		45,290		5.37		2,744,336		27,053		4.00
PPP loans	9,970		26		1.06		12,252		397		12.86		132,050		4,323		13.28
Owner occupied commercial real estate	2,289,002		26,769		4.74		2,277,055		26,194		4.56		2,243,522		21,278		3.85
Non-owner occupied commercial real estate	2,331,318		30,749		5.35		2,286,298		29,273		5.08		2,060,548		21,163		4.17
Real estate construction	1,099,026		18,131		6.69		1,050,802		16,585		6.26		847,250		9,276		4.44
Agricultural and agricultural real estate	835,648		11,353		5.51		785,647		10,159		5.13		745,348		7,006		3.81
Residential mortgage	852,561		9,273		4.41		858,767		9,168		4.24		843,881		8,085		3.89
Consumer	501,236		8,242		6.67		499,849		7,426		5.89		426,659		4,655		4.42
Less: allowance for credit losses-loans	(110,393)		—		—		(106,500)		—		—		(111,604)		—		—
Net loans	11,267,685		154,450		5.56		11,011,013		144,492		5.21		9,931,990		102,839		4.20
Total earning assets	18,392,649		219,187		4.83	%	18,175,838		206,853		4.52	%	17,757,067		143,381		3.27	%
Nonearning Assets	1,725,356						1,738,011						1,472,805
Total Assets	$	20,118,005					$	19,913,849					$	19,229,872
Interest Bearing Liabilities
Savings	$	9,730,494	$	37,893	1.58	%	$	9,987,692	$	25,950	1.03	%	$	8,889,950	$	2,394	0.11	%
Time deposits	2,257,047		19,005		3.41		1,322,094		6,265		1.88		1,071,675		583		0.22
Short-term borrowings	222,772		2,422		4.41		298,804		2,223		2.95		119,588		46		0.16
Other borrowings	371,921		5,446		5.94		371,442		5,043		5.39		372,187		3,560		3.88
Total interest bearing liabilities	12,582,234		64,766		2.09	%	11,980,032		39,481		1.31	%	10,453,400		6,583		0.26	%
Noninterest Bearing Liabilities
Noninterest bearing deposits	5,518,326						6,009,432						6,497,753
Accrued interest and other liabilities	250,880						264,941						164,590
Total noninterest bearing liabilities	5,769,206						6,274,373						6,662,343
Equity	1,766,565						1,659,444						2,114,129
Total Liabilities and Equity	$	20,118,005					$	19,913,849					$	19,229,872
Net interest income, fully tax-equivalent (non-GAAP)(1)(3)			$	154,421					$	167,372					$	136,798
Net interest spread(1)					2.74	%					3.21	%					3.01	%
Net interest income, fully tax-equivalent to total earning assets (non-GAAP)(1)(3)					3.40	%					3.65	%					3.12	%
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.
(2) Nonaccrual loans and loans held for sale are included in the average loans outstanding.
(3) Refer to "Non-GAAP Financial Measures" for additional information on the usage and presentation of these non-GAAP measures, and refer to the financial tables under "Financial Highlights" for the reconciliations to the most directly comparable GAAP measures.

The following table presents the dollar amount of changes in interest income and interest expense for the major components of interest earning assets and interest bearing liabilities, in thousands. It quantifies the changes in interest income and interest expense related to changes in the average outstanding balances (volume) and those changes caused by fluctuating interest rates. For each category of interest earning assets and interest bearing liabilities, information is provided on changes attributable to (i) changes in volume, calculated by multiplying the difference between the average balance for the current period and the average balance for the prior period by the rate for the prior period, and (ii) changes in rate, calculated by multiplying the difference between the rate for the current period and the rate for the prior period by the average balance for the prior period. The unallocated change has been allocated pro rata to volume and rate variances.

	Three Months Ended
	March 31, 2023 Compared to March 31, 2022 Change Due to						March 31, 2023 Compared to December 31, 2022 Changes Due to						March 31, 2022 Compared to March 31, 2021 Change Due to
	Volume		Rate		Net		Volume		Rate		Net		Volume		Rate		Net
Earnings Assets/Interest Income
Investment securities:
Taxable	$	(13,693)	$	37,049	$	23,356	$	(1,529)	$	4,327	$	2,798	$	12,144	$	(9,967)	$	2,177
Nontaxable(1)	(5,403)		5,182		$	(221)	946		(1,078)		$	(132)	5,403		(3,252)		2,151
Interest bearing deposits	(274)		1,334		$	1,060	(1,431)		1,152		$	(279)	4		1		5
Federal funds sold	—		—		$	—	(6)		(5)		$	(11)	—		(1)		(1)
Loans(1)(2)	15,144		36,467		$	51,611	2,548		7,410		$	9,958	8,488		(18,652)		(10,164)
Total earning assets	(4,226)		80,032		75,806		528		11,806		12,334		26,039		(31,871)		(5,832)
Liabilities/Interest Expense
Interest bearing deposits:
Savings	248		35,251		$	35,499	(4,506)		16,449		$	11,943	1,049		(1,085)		(36)
Time deposits	1,307		17,115		$	18,422	5,913		6,827		$	12,740	(230)		(1,152)		(1,382)
Short-term borrowings	73		2,303		$	2,376	(2,894)		3,093		$	199	(59)		(47)		(106)
Other borrowings	(18)		1,904		$	1,886	5		398		$	403	(1,611)		1,871		260
Total interest bearing liabilities	1,610		56,573		58,183		(1,482)		26,767		25,285		(851)		(413)		(1,264)
Net interest income	$	(5,836)	$	23,459	$	17,623	$	2,010	$	(14,961)	$	(12,951)	$	26,890	$	(31,458)	$	(4,568)
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.
(2) Nonaccrual loans and loans held for sale are included in average loans outstanding.

Provision For Credit Losses

The allowance for credit losses is established through provision expense to provide, in management's opinion, an appropriate allowance for credit losses. The following table shows the components of provision for credit losses for the three months ended March 31, 2023 and 2022, in thousands:

	Three Months Ended March 31,
	2023		2022
Provision expense for credit losses-loans	$	2,184	$	2,628
Provision expense for credit losses-unfunded commitments	890		617
Total provision expense	$	3,074	$	3,245

The provision expense for credit losses for loans was $2.2 million for the first quarter of 2023, which was a decrease of $444,000 or 17% from provision expense of $2.6 million recorded in the first quarter of 2022. The provision expense for the first quarter of 2023 compared to the first quarter of 2022 was impacted by several factors, including:

•Provision expense for individually assessed loans totaled $2.5 million in the first quarter of 2023,

•Provision expense for the first quarter of 2022 was negatively impacted by two charge-offs totaling $9.2 million related to two lending relationships with collateral deficiencies due to customer fraud,

•Net recoveries of $1.0 million compared to net charge-offs of $12.2 million, and

•Use of a macroeconomic outlook which anticipated a moderate recession developing withing the next twelve months compared to an improved macroeconomic outlook.

The size of the loan portfolio, the level of organic loan growth including government guaranteed loans, changes in credit quality and the variability that can occur in the factors, including the impact of economic conditions, are all considered when determining the appropriateness of the allowance for credit losses and will contribute to the variability in the provision for credit losses from quarter to quarter. For additional details on the specific factors considered in establishing the allowance for credit losses, refer to the discussion of critical accounting estimates set forth in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in HTLF's Annual Report on Form 10-K for the year ended December

31, 2022, "Allowance For Credit Losses" and "Provision for Credit Losses" in Item 2 of this Quarterly Report on Form 10-Q and Note 4, "Allowance for Credit Losses," to the consolidated financial statements included herein.

Management believes the allowance for credit losses as of March 31, 2023, was at a level commensurate with the overall risk exposure of the loan portfolio. However, deterioration in economic conditions, including a recession, could cause certain borrowers to experience difficulty and impede their ability to meet debt service. Due to the uncertainty of future economic conditions, including ongoing concerns regarding higher interest rates, supply chain challenges, workforce shortages and wage pressures, the provision for credit losses could be volatile in future quarters.

Noninterest Income

The tables below show noninterest income for the three months ended March 31, 2023 and 2022, in thousands:

	Three Months Ended March 31,
	2023		2022		Change		% Change
Service charges and fees	$	17,136	$	15,251	$	1,885	12	%
Loan servicing income	714		286		428		150
Trust fees	5,657		6,079		(422)		(7)
Brokerage and insurance commissions	696		869		(173)		(20)
Capital markets fees	2,449		3,039		(590)		(19)
Securities (losses)/gains, net	(1,104)		2,872		(3,976)		(138)
Unrealized gain/(loss) on equity securities, net	193		(283)		476		168
Net gains on sale of loans held for sale	1,831		3,411		(1,580)		(46)
Valuation adjustment on servicing rights	—		1,658		(1,658)		(100)
Income on bank owned life insurance	964		524		440		84
Other noninterest income	1,463		863		600		70
Total noninterest income	$	29,999	$	34,569	$	(4,570)	(13)	%

Total noninterest income was $30.0 million during the first three months of 2023 compared to $34.6 million during the first three months of 2022, a decrease of $4.6 million or 13%. Notable changes in noninterest income categories for the three months ended March 31, 2023 and 2022 are as follows:

Service Charges and Fees

The following tables summarize the changes in service charges and fees for the three months ended March 31, 2023 and 2022, in thousands:

	Three Months Ended March 31,
	2023		2022		Change		% Change
Service charges and fees on deposit accounts	$	4,911	$	4,395	$	516	12	%
Overdraft fees	2,969		2,825		144		5
Customer service and other service fees	93		81		12		15
Credit card fee income	7,003		5,649		1,354		24
Debit card income	2,160		2,301		(141)		(6)
Total service charges and fees	$	17,136	$	15,251	$	1,885	12	%

The increase in service charges and fees on deposit accounts was primarily attributable to a larger customer base. The increase in credit card fee income was primarily the result of a larger commercial credit card customer base and increased utilization.

Management is monitoring and assessing industry changes related to the consumer overdraft fees, and any future changes could negatively impact overdraft fee income.

Loan Servicing Income

Loan servicing income includes the fees collected for the servicing of commercial, agricultural, and mortgage loans, which are dependent upon the aggregate outstanding balances of these loans, rather than quarterly production and sale of these loans. The

following tables show the changes in loan servicing income for the three months ended March 31, 2023, and 2022, in thousands:

	Three Months Ended March 31,
	2023		2022		Change		% Change
Commercial and agricultural loan servicing fees(1)	$	473	$	237	$	236	100	%
Residential mortgage servicing fees	451		454		(3)		(1)
Mortgage servicing rights amortization	(210)		(405)		195		48
Total loan servicing income	$	714	$	286	$	428	150	%
(1) Includes servicing fees for commercial, commercial real estate, agricultural and agricultural real estate loans.

Securities Losses/Gains, Net

For the first quarter of 2023, net security losses totaled $1.1 million compared to net gains of $2.9 million for the first quarter of 2022, a decrease of $4.0 million.

Net Gains on Sale of Loans Held for Sale

For the first quarter of 2023, net gains on sale of loans held for sale totaled $1.8 million, which was a decrease of $1.6 million or 46% from $3.4 million in the same quarter of 2022. Loans sold to investors in the first quarter of 2023 totaled $38.1 million compared to $98.3 million during the first quarter of 2022, which was a decrease of $60.2 million or 61%. The decrease was primarily attributable to a reduction in residential mortgage activity due to recent increases in residential mortgage loan interest rates.

Valuation Adjustment on Servicing Rights

The valuation adjustment on servicing rights was $0 for the first quarter of 2023 compared to $1.7 million for the first quarter of 2022. HTLF sold its mortgage servicing rights portfolio in the first quarter of 2023. HTLF recovered its valuation allowance in the first quarter of 2022 due to recent increases in residential mortgage loan interest rates.

Noninterest Expenses

The tables below show noninterest expenses for the three months ended March 31, 2023, and 2022, in thousands:

	Three Months Ended March 31,
	2023		2022		Change		% Change
Salaries and employee benefits	$	62,149	$	66,174	$	(4,025)	(6)	%
Occupancy	7,209		7,362		(153)		(2)
Furniture and equipment	2,915		3,519		(604)		(17)
Professional fees	16,076		15,156		920		6
Advertising	1,985		1,555		430		28
Core deposit and customer relationship intangibles amortization	1,788		2,054		(266)		(13)
Other real estate and loan collection expenses	155		195		(40)		(21)
Loss on sales/valuations of assets, net	1,115		46		1,069		2,324
Acquisition, integration and restructuring costs	1,673		576		1,097		190
Partnership investment in tax credit projects	538		77		461		599
Other noninterest expenses	15,440		14,083		1,357		10
Total noninterest expenses	$	111,043	$	110,797	$	246	—	%

For the first three months of 2023, noninterest expenses totaled $111.0 million compared to $110.8 million during the first three months of 2022, an increase of $246,000 or less than 1%.

Notable changes in noninterest expense categories for the three months ended March 31, 2023 and 2022 are as follows:

Salaries and employee benefits

Salaries and employee benefits totaled $62.1 million for the first quarter of 2023 compared to $66.2 million for the first quarter of 2022, which was a decrease of $4.0 million or 6%. The decrease was primarily attributable to a reduction of full-time

equivalent employees and lower incentive compensation expense. Full-time equivalent employees totaled 1,991 compared to 2,208, which was a decrease of 217 or 10%.

Occupancy

Occupancy expense totaled $7.2 million for the first quarter of 2023, which was a decrease of $153,000 or 2% from $7.4 million for the first quarter of 2022.

Furniture and Equipment

Furniture and equipment expense totaled $2.9 million for the first quarter of 2023, which was a decrease of $604,000 or 17% from $3.5 million for the first quarter of 2022.

The decreases in occupancy expense and furniture and equipment expense are primarily attributable to the decreased number of branch locations as a result of HTLF's branch optimization strategy. At March 31, 2023, HTLF had 119 branches compared to 130 at March 31, 2022.

Professional Fees

Professional fees totaled $16.1 million for the first quarter of 2023 compared to $15.2 million for the first quarter of 2022, which was an increase of $920,000 or 6%. FDIC insurance assessments totaled $3.3 million compared to $1.6 million, an increase of $1.7 million due to assessment rate changes that were effective with the first quarter 2023 assessment.

Loss on sales/valuations of assets, net

Net losses on sales/valuations of assets were $1.1 million for the first quarter of 2023 compared to $46,000 for the first quarter of 2022. HTLF recorded $813,000 of losses on fixed assets associated with branch optimization activities and a loss of $193,000 associated with the sale of the mortgage servicing rights portfolio in the first quarter of 2023.

Acquisition, integration and restructuring costs

Acquisition, integration and restructuring costs totaled $1.7 million in the first quarter of 2023 compared to $576,000 in the first quarter of 2022, an increase of $1.1 million due to the progression of the charter consolidation project which will continue through the end of 2023.

Efficiency Ratio

One of HTLF's strategic priorities is to improve its adjusted efficiency ratio, on a fully tax-equivalent basis (non-GAAP), with the goal of maintaining it at or below 57%. During the first quarter of 2023, the efficiency ratio was 60.94% (57.16% on an adjusted fully tax-equivalent basis, non-GAAP) compared to 65.46% (64.65% on an adjusted fully tax-equivalent basis, non-GAAP) for the first quarter of 2022.

HTLF continues to pursue strategies to improve operational efficiency, which include the following initiatives:

Consolidation of its bank charters

Charter consolidation is designed to eliminate redundancies and improve HTLF’s operating efficiency and capacity to support ongoing product and service enhancements and current and future growth. Through the end of the first quarter of 2023, six charters have been consolidated into HTLF Bank, and subsequent to March 31, 2023, one additional charter was consolidated. The consolidated charters are now operating as divisions of HTLF Bank. The remaining charters are expected to be consolidated throughout the remainder of 2023.

Consolidation restructuring costs are projected to be $19-20 million with approximately $8-$9 million of expenses remaining to be incurred in 2023. Total costs incurred since the project started in the fourth quarter of 2021 through March 31, 2023, were $11.0 million, of which $1.7 million was incurred in the first quarter of 2023. HTLF has realized some operating efficiencies and financial benefits with the completed charter consolidations. The resulting efficiencies and expansion in capacity are projected to generate benefits of approximately $20 million annually when the project is completed with core operating expenses expected to decline to 2.10% or less of average assets.

Branch optimization strategy

HTLF continues to review its branch network and physical facilities as part of its branch optimization strategy and anticipates closing 2-3 branches in 2023, which may result in write-downs of fixed assets in future periods.

Income Taxes

The effective tax rate was 22.50% for the first quarter of 2023 compared to 21.95% for the first quarter of 2022. The following items impacted the first quarter 2023 and 2022 tax calculations:

•Solar energy tax credits of $310,000 compared to $0.

•Federal low-income housing tax credits of $311,000 compared to $135,000.

•New markets tax credits of $90,000 compared to $75,000.

•Historic rehabilitation tax credits of $258,000 compared to $63,000.

•Tax-exempt interest income as a percentage of pre-tax income of 12.20% compared to 14.44%.

•Tax benefit of $46,000 compared to $172,000 resulting from the vesting of restricted stock units.

•Tax expense of $929,000 compared to $58,000 resulting from the disallowed interest expense related to tax-exempt loans and securities, aligning with increases in total interest expense.

FINANCIAL CONDITION

Total assets were $20.18 billion at March 31, 2023, a decrease of $61.7 million or less than 1% from $20.24 billion at December 31, 2022. Securities represented 35% of total assets at both March 31, 2023, and December 31, 2022.

LENDING ACTIVITIES

Total loans held to maturity were $11.50 billion at March 31, 2023, and $11.43 billion at December 31, 2022, an increase of $67.0 million or 1%.

The following table shows the changes in loan balances by loan category since December 31, 2022, in thousands:

	March 31, 2023		December 31, 2022		Change		% Change
Commercial and industrial	$	3,498,345	$	3,464,414	$	33,931	1	%
Paycheck Protection Program ("PPP")	8,258		11,025		(2,767)		(25)
Owner occupied commercial real estate	2,312,538		2,265,307		47,231		2
Non-owner occupied commercial real estate	2,421,341		2,330,940		90,401		4
Real estate construction	1,102,186		1,076,082		26,104		2
Agricultural and agricultural real estate	810,183		920,510		(110,327)		(12)
Residential mortgage	841,084		853,361		(12,277)		(1)
Consumer	501,418		506,713		(5,295)		(1)
Total loans held to maturity	$	11,495,353	$	11,428,352	$	67,001	1	%

The loan growth in the first three months of 2023 was primarily in commercial, commercial real estate and real estate construction, which was attributable to an emphasis on organic loan growth, expansion of specific commercial and agribusiness lending teams and further market penetration in various HTLF growth markets.

Notable changes in the loan portfolio include:

•Commercial and industrial loans increased $33.9 million or 1% to $3.50 billion at March 31, 2023, compared to $3.46 billion at December 31, 2022.

•Owner occupied commercial real estate loans increased $47.2 million or 2% to $2.31 billion at March 31, 2023, compared to $2.27 billion at December 31, 2022.

•Non-owner occupied commercial real estate loans increased $90.4 million or 4% to $2.42 billion at March 31, 2023, compared to $2.33 billion at December 31, 2022.

•Real estate construction loans increased $26.1 million or 2% to $1.10 billion at March 31, 2023, compared to $1.08 billion at December 31, 2022.

•Agricultural and agricultural real estate loans decreased $110.3 million or 12% to $810.2 million at March 31, 2023 compared to $920.5 million at December 31, 2022, which was attributable to paydowns of credit lines and delayed utilization primarily due to weather concerns in the California markets.

The table below presents the composition of the loan portfolio as of March 31, 2023, and December 31, 2022, in thousands:

	March 31, 2023				December 31, 2022
	Amount		Percent		Amount		Percent
Loans receivable held to maturity:
Commercial and industrial	$	3,498,345	30.43	%	$	3,464,414	30.31	%
PPP	8,258		0.07		11,025		0.10
Owner occupied commercial real estate	2,312,538		20.12		2,265,307		19.82
Non-owner occupied commercial real estate	2,421,341		21.06		2,330,940		20.40
Real estate construction	1,102,186		9.59		1,076,082		9.42
Agricultural and agricultural real estate	810,183		7.05		920,510		8.05
Residential mortgage	841,084		7.32		853,361		7.47
Consumer	501,418		4.36		506,713		4.43
Gross loans receivable held to maturity	11,495,353		100.00	%	11,428,352		100.00	%
Allowance for credit losses-loans	(112,707)				(109,483)
Loans receivable, net	$	11,382,646			$	11,318,869

ALLOWANCE FOR CREDIT LOSSES

The process utilized by HTLF to determine the appropriateness of the allowance for credit losses is considered a critical accounting practice. The allowance for credit losses represents management's estimate of lifetime losses in the existing loan portfolio. For additional details on the specific factors considered in determining the allowance for credit losses, refer to the critical accounting estimates section of HTLF's Annual Report on Form 10-K for the year ended December 31, 2022.

Total Allowance for Lending Related Credit Losses

The total allowance for lending related credit losses was $133.8 million at March 31, 2023, which was 1.16% of loans, compared to $129.7 million or 1.13% of loans at December 31, 2022. The following table shows, in thousands, the components of the allowance for lending related credit losses as of March 31, 2023, and December 31, 2022:

	March 31, 2023				December 31, 2022
	Amount		% of Allowance		Amount		% of Allowance
Quantitative	$	86,462	64.62	%	$	84,409	65.09	%
Qualitative/Economic Forecast	47,331		35.38		45,270		34.91
Total	$	133,793	100.00	%	$	129,679	100.00	%

Quantitative Allowance

The quantitative allowance increased $2.1 million or 2% to $86.5 million or 65% of the total allowance for lending related credit losses at March 31, 2023, compared to $84.4 million or 65% of the total allowance at December 31, 2022. Specific reserves for individually assessed loans totaled $9.6 million at March 31, 2023, an increase of $2.5 million or 35% from $7.1 million at December 31, 2022.

Qualitative Allowance/Economic Forecast

The qualitative allowance totaled $47.3 million or 35% of the total allowance for lending related credit losses at March 31, 2023, compared to $45.3 million or 35% at December 31, 2022.

HTLF has access to various third-party economic forecast scenarios provided by Moody's, which are updated quarterly in HTLF's methodology. HTLF continued to use a one year reasonable and supportable forecast period. At March 31, 2023, Moody's March 14, 2023, baseline forecast scenario was utilized, and management considered other downturn forecast scenarios, which anticipated a moderate recession developing withing the next twelve months, in addition to the baseline forecast to support the macroeconomic outlook used in the allowance for credit losses calculation.

Allowance for Credit Losses-Loans

The tables below present the changes in the allowance for credit losses for loans during the three months ended March 31, 2023 and 2022, in thousands:

	Three Months Ended March 31,
	2023			2022
Balance at beginning of period	$	109,483		$	110,088
Provision for credit losses	2,184			2,628
Recoveries on loans previously charged off	3,191			1,023
Charge-offs on loans	(2,151)			(13,217)
Balance at end of period	$	112,707		$	100,522
Allowance for credit losses for loans as a percent of loans	0.98		%	0.99		%
Annualized ratio of net charge offs/(recoveries) to average loans	(0.04)		%	0.49		%

The allowance for credit losses for loans totaled $112.7 million at March 31, 2023, compared to $109.5 million at December 31, 2022, and $100.5 million at March 31, 2022. The allowance for credit losses for loans at March 31, 2023, was 0.98% of loans compared to 0.96% of loans at December 31, 2022. The following items impacted the allowance for credit losses for loans for the three months ended March 31, 2023:

•Provision expense for individually assessed loans totaled $2.5 million in the first quarter of 2023.

•Net recoveries for the first three months of 2023 totaled $1.0 million compared to net charge-offs of $12.2 million for the first three months of 2022, which was a decrease of $13.2 million. Included in net charge-offs for the first three months of 2022 were two charge-offs due to customer fraud totaling $9.2 million related to two lending relationships which had collateral deficiencies.

•Nonpass loans increased $13.5 million or 3% to $546.8 million at March 31, 2023, from $533.3 million at December 31, 2022.

The following tables show, in thousands, the changes in the allowance for unfunded commitments for the three months ended March 31, 2023 and 2022:

	Three Months Ended March 31,
	2023		2022
Balance at beginning of period	$	20,196	$	15,462
Impact of ASU 2016-13 adoption on January 1, 2020	—		—
Adjusted balance at January 1, 2020	20,196		15,462
Provision for credit losses	890		617
Balance at end of period	$	21,086	$	16,079

The allowance for unfunded commitments totaled $21.1 million as of March 31, 2023, compared to $20.2 million as of December 31, 2022, and $16.1 million as of March 31, 2022. Unfunded commitments increased $138.2 million or 3% to $4.87 billion at March 31, 2023, compared to $4.73 billion at December 31, 2022.

CREDIT QUALITY AND NONPERFORMING ASSETS

The internal rating system for the credit quality of its loans is a series of grades reflecting management's risk assessment, based on its analysis of the borrower's financial condition. The "pass" category consists of all loans that are not in the "nonpass" category and categorized into a range of loan grades that reflect increasing, though still acceptable, risk. Movement of risk through the various grade levels in the pass category is monitored for early identification of credit deterioration. For more information on this internal rating system, see Note 3, "Loans" of the consolidated financial statements in this Quarterly Report on Form 10-Q.

The nonpass loans totaled $546.8 million or 4.8% of total loans as of March 31, 2023, compared to $533.3 million or 4.7% of total loans as of December 31, 2022. As of March 31, 2023, the nonpass loans consisted of approximately 49% watch loans and 51% substandard loans compared to approximately 48% watch loans and 52% substandard loans as of December 31, 2022. The percent of nonpass loans on nonaccrual status as of March 31, 2023, was 11%.

Included in the nonpass loans at March 31, 2023, were $1.4 million of nonpass PPP loans as a result of risk ratings on non-PPP related credits. HTLF's risk rating methodology assigns a risk rating to the whole lending relationship. No allowance was

recorded related to the PPP loans because of the 100% government guarantee through the United States Small Business Administration ("SBA").

The table below presents the amounts of nonperforming loans and other nonperforming assets on the dates indicated, in thousands:

	March 31,						December 31,
	2023			2022			2022			2021
Nonaccrual loans	$	58,066		$	64,174		$	58,231		$	69,369
Loans contractually past due 90 days or more	174			246			273			550
Total nonperforming loans	58,240			64,420			58,504			69,919
Other real estate	7,438			1,422			8,401			1,927
Other repossessed assets	24			34			26			43
Total nonperforming assets	$	65,702		$	65,876		$	66,931		$	71,889
Nonperforming loans to total loans	0.51		%	0.63		%	0.51		%	0.70		%
Nonperforming assets to total loans plus repossessed property	0.57			0.65			0.59			0.72
Nonperforming assets to total assets	0.33			0.34			0.33			0.37

The schedules below summarize the changes in nonperforming assets during the three months ended March 31, 2023, in thousands:

	Nonperforming Loans		Other Real Estate Owned		Other Repossessed Assets		Total Nonperforming Assets
December 31, 2022	$	58,504	$	8,401	$	26	$	66,931
Loan foreclosures	(219)		211		8		—
Net loan recoveries	1,040		—		—		1,040
New nonperforming loans	4,626		—		—		4,626
Reduction of nonperforming loans(1)	(5,711)		—		—		(5,711)
OREO/Repossessed assets sales proceeds	—		(1,132)		(4)		(1,136)
OREO/Repossessed assets writedowns, net	—		(42)		(6)		(48)
March 31, 2023	$	58,240	$	7,438	$	24	$	65,702
(1) Includes principal reductions and transfers to performing status.

Total nonperforming assets decreased $1.2 million or 2% to $65.7 million or 0.33% of total assets at March 31, 2023, compared to $66.9 million or 0.33% of total assets at December 31, 2022. Nonperforming loans were $58.2 million at March 31, 2023, compared to $58.5 million at December 31, 2022, which represented 0.51% of total loans at both March 31, 2023, and December 31, 2022. At March 31, 2023, approximately $40.0 million or 69% of HTLF's nonperforming loans had individual loan balances exceeding $1.0 million and represented loans to fifteen borrowers. The portion of the nonperforming nonresidential real estate loans covered by government guarantees totaled $9.0 million and $12.5 million at March 31, 2023, and December 31, 2022, respectively.

SECURITIES

The composition of the securities portfolio is managed to ensure liquidity needs are met while maximizing the return on the portfolio within the established HTLF risk appetite parameters and in consideration of the impact it has on HTLF's asset/liability position. Securities represented 35% of total assets at both March 31, 2023, and December 31, 2022. Total securities carried at fair value as of March 31, 2023, were $6.10 billion, a decrease of $50.5 million or 1% from $6.15 billion at December 31, 2022.

As of March 31, 2023, and December 31, 2022, securities with a carrying value of $2.96 billion and $1.49 billion, respectively, were pledged to secure public and trust deposits, short-term borrowings and for other purposes as required or permitted by law. HTLF pledged additional securities totaling $1.48 billion to increase borrowing capacity with various short-term borrowing programs. As of March 31, 2023, approximately $3.83 billion of securities remained available to pledge.

The table below presents the composition of the securities portfolio, including securities carried at fair value, held to maturity securities, net of allowance for credit losses, and other, by major category, as of March 31, 2023, and December 31, 2022, in thousands:

	March 31, 2023				December 31, 2022
	Amount		Percent		Amount		Percent
U.S. treasuries	$	31,932	0.46	%	$	31,699	0.45	%
U.S. agencies	43,584		0.62		43,135		0.61
Obligations of states and political subdivisions	1,720,020		24.57		1,708,840		24.24
Mortgage-backed securities - agency	1,757,469		25.10		1,772,105		25.13
Mortgage-backed securities - non-agency	2,117,882		30.25		2,181,876		30.94
Commercial mortgage-backed securities - agency	86,022		1.23		85,123		1.21
Commercial mortgage-backed securities - non-agency	657,874		9.40		659,459		9.35
Asset-backed securities	435,523		6.22		416,054		5.90
Corporate bonds	57,845		0.83		57,942		0.82
Equity securities with a readily determinable fair value	20,604		0.29		20,314		0.29
Other securities	72,364		1.03		74,567		1.06
Total securities	$	7,001,119	100.00	%	$	7,051,114	100.00	%

HTLF's securities portfolio had an expected modified duration of 6.19 years as of both March 31, 2023, and December 31, 2022.

At March 31, 2023, HTLF had $72.4 million of other securities, including capital stock in each Federal Home Loan Bank ("FHLB") of which each of its Banks is a member. All these securities were classified as other securities held at cost.

DEPOSITS

Total deposits were $17.68 billion as of March 31, 2023, compared to $17.51 billion at December 31, 2022, an increase of $168.3 million or 1%. As of March 31, 2023, 35% of HTLF's deposits were uninsured and uncollateralized.

HTLF maintains a granular and diverse deposit base. As of March 31, 2023, no Bank Market represented more than 12% of total customers deposits, and no major industry represented more than 10% of total customer deposits.

The following table shows the changes in deposit balances by deposit type since year-end 2022, in thousands:

	March 31, 2023		December 31, 2022		Change		% Change
Demand-customer	$	5,119,554	$	5,701,340	$	(581,786)	(10)	%
Savings-customer	8,647,396		8,903,747		(256,351)		(3)
Savings-wholesale	609,213		1,090,644		(481,431)		(44)
Total savings	9,256,609		9,994,391		(737,782)		(7)
Time-customer	1,071,476		851,539		219,937		26
Time-wholesale	2,233,707		965,739		1,267,968		131
Total time	3,305,183		1,817,278		1,487,905		82
Total deposits	$	17,681,346	$	17,513,009	$	168,337	1	%
Total customer deposits	$	14,838,426	$	15,456,626	$	(618,200)	(4)	%
Total wholesale deposits	2,842,920		2,056,383		786,537		38	%
Total deposits	$	17,681,346	$	17,513,009	$	168,337

At March 31, 2023, HTLF had $2.84 billion of wholesale deposits, of which $609.2 million were included in savings deposits and $2.23 billion were included in time deposits. HTLF had $1.09 billion of wholesale savings deposits and $965.7 million of wholesale time deposits at December 31, 2022.

The table below presents the composition of deposits by category as of March 31, 2023, and December 31, 2022, in thousands:

	March 31, 2023				December 31, 2022
	Amount		Percent		Amount		Percent
Demand-customer	$	5,119,554	28.95	%	$	5,701,340	32.55	%
Savings-customer	8,647,396		48.91		8,903,747		50.85
Savings-wholesale	609,213		3.45		1,090,644		6.23
Time-customer	1,071,476		6.06		851,539		4.86
Time-wholesale	2,233,707		12.63		965,739		5.51
Total	$	17,681,346	100.00	%	$	17,513,009	100.00	%

SHORT-TERM BORROWINGS

Short-term borrowings, which HTLF defines as borrowings with an original maturity of one year or less, were as follows as of March 31, 2023, and December 31, 2022, in thousands:

	March 31, 2023		December 31, 2022		Change		% Change
Securities sold under agreement to repurchase	$	81,641	$	95,303	$	(13,662)	(14)	%
Advances from the FHLB	1,000		50,000		(49,000)		(98)
Advances from the federal discount window	—		224,000		(224,000)		(100)
Other short-term borrowings	9,696		6,814		2,882		42
Total	$	92,337	$	376,117	$	(283,780)	(75)	%

Short-term borrowings generally include federal funds purchased, securities sold under agreements to repurchase, short-term FHLB advances and discount window borrowings from the Federal Reserve Bank. These funding alternatives are utilized in varying degrees depending on their pricing and availability. All Banks own FHLB stock in one of the Chicago, Dallas, Des Moines or Topeka FHLBs, enabling them to borrow funds from their respective FHLB for short-term or long-term purposes under a variety of programs. Short-term borrowings totaled $92.3 million at March 31, 2023, compared to $376.1 million at December 31, 2022, a decrease of $283.8 million or 75%.

The Banks pledged securities that provided borrowing capacity totaling $476.9 million as of March 31, 2023, to the BTFP, which is a Federal Reserve Bank program created in the first quarter of 2023 to assist banks in meeting all the needs of depositors. There were no advances from the BTFP during the first quarter of 2023.

The Banks provide retail repurchase agreements to their customers as a cash management tool, which sweep excess funds from demand deposit accounts into these agreements. Although the aggregate balance of these retail repurchase agreements is subject to variation, the account relationships represented by these balances are principally local. The balances of retail repurchase agreements were $81.6 million at March 31, 2023, compared to $95.3 million at December 31, 2022, a decrease of $13.7 million or 14%.

HTLF renewed its revolving credit line agreement with an unaffiliated bank on June 14, 2022. This revolving credit line agreement, which has $100.0 million of borrowing capacity, is included in short-term borrowings, and the primary purpose of this credit line agreement is to provide liquidity. No advances occurred on this line during the first three months of 2023, and the outstanding balance was $0 at both March 31, 2023, and December 31, 2022.

OTHER BORROWINGS

The outstanding balances of other borrowings, which HTLF defines as borrowings with an original maturity date of more than one year, are shown in the table below, net of discount and issuance costs amortization as of March 31, 2023, and December 31, 2022, in thousands:

	March 31, 2023		December 31, 2022		Change		% Change
Advances from the FHLB	$	710	$	740	$	(30)	(4)	%
Trust preferred securities	148,565		148,284		281		—
Contracts payable	80		82		(2)		(2)
Subordinated notes	222,742		222,647		95		—
Total	$	372,097	$	371,753	$	344	—	%

A schedule of HTLF's trust preferred securities outstanding excluding deferred issuance costs as of March 31, 2023, is as follows, in thousands:

	Amount Issued		Issuance Date	Interest Rate	Interest Rate as of 3/31/2023(1)	Maturity Date	Callable Date
Heartland Financial Statutory Trust IV	$	10,310	03/17/2004	2.75% over LIBOR	7.66%	03/17/2034	06/17/2023
Heartland Financial Statutory Trust V	20,619		01/27/2006	1.33% over LIBOR	6.16	04/07/2036	07/07/2023
Heartland Financial Statutory Trust VI	20,619		06/21/2007	1.48% over LIBOR	6.35	09/15/2037	06/15/2023
Heartland Financial Statutory Trust VII	18,042		06/26/2007	1.48% over LIBOR	6.44	09/01/2037	06/01/2023
Morrill Statutory Trust I	9,393		12/19/2002	3.25% over LIBOR	8.38	12/26/2032	06/26/2023
Morrill Statutory Trust II	9,115		12/17/2003	2.85% over LIBOR	7.76	12/17/2033	06/17/2023
Sheboygan Statutory Trust I	6,812		09/17/2003	2.95% over LIBOR	7.86	09/17/2033	06/17/2023
CBNM Capital Trust I	4,570		09/10/2004	3.25% over LIBOR	8.12	12/15/2034	06/15/2023
Citywide Capital Trust III	6,619		12/19/2003	2.80% over LIBOR	7.60	12/19/2033	07/23/2023
Citywide Capital Trust IV	4,483		09/30/2004	2.20% over LIBOR	7.12	09/30/2034	05/23/2023
Citywide Capital Trust V	12,480		05/31/2006	1.54% over LIBOR	6.41	07/25/2036	06/15/2023
OCGI Statutory Trust III	3,022		06/27/2002	3.65% over LIBOR	8.91	09/30/2032	06/30/2023
OCGI Capital Trust IV	5,525		09/23/2004	2.50% over LIBOR	7.37	12/15/2034	06/15/2023
BVBC Capital Trust II	7,329		04/10/2003	3.25% over LIBOR	8.06	04/24/2033	07/24/2023
BVBC Capital Trust III	9,627		07/29/2005	1.60% over LIBOR	6.76	09/30/2035	06/30/2023
Total trust preferred costs	148,565
(1) Effective weighted average interest rate as of March 31, 2023, was 7.60%.

CAPITAL REQUIREMENTS

The Federal Reserve Board, which supervises bank holding companies, has adopted capital adequacy guidelines that are used to assess the adequacy of capital of a bank holding company. Under Basel III, HTLF must hold a conservation buffer above the adequately capitalized risk-based capital ratios; however, the transition provisions related to the conservation buffer have been extended indefinitely.

The most recent notification from the FDIC categorized HTLF and each of its Banks as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the categorization of any of these entities.

HTLF's capital ratios are calculated in accordance with Federal Reserve Board instructions and are required regulatory financial measures. The following table illustrates the capital ratios and the Federal Reserve Board's current capital adequacy guidelines for the dates indicated, in thousands. The table also indicates the fully-phased in capital conservation buffer, but the requirements to comply have been extended indefinitely.

	Total Capital (to Risk- Weighted Assets)			Tier 1 Capital (to Risk- Weighted Assets)			Common Equity Tier 1 (to Risk- Weighted Assets)			Tier 1 Capital (to Average Assets)
March 31, 2023	14.98		%	12.02		%	11.28		%	9.25		%
Minimum capital requirement	8.00			6.00			4.50			4.00
Well capitalized requirement	10.00			8.00			6.50			5.00
Minimum capital requirement, including fully-phased in capital conservation buffer	10.50			8.50			7.00			N/A
Risk-weighted assets	$	15,035,898		$	15,035,898		$	15,035,898		N/A
Average assets	N/A			N/A			N/A			$	19,528,724
December 31, 2022	14.76		%	11.81		%	11.07		%	9.13		%
Minimum capital requirement	8.00			6.00			4.50			4.00
Well capitalized requirement	10.00			8.00			6.50			5.00
Minimum capital requirement, including fully-phased in capital conservation buffer	10.50			8.50			7.00			N/A
Risk-weighted assets	$	14,937,128		$	14,937,128		$	14,937,128		N/A
Average assets	N/A			N/A			N/A			$	19,322,778

Retained earnings that could be available for the payment of dividends to HTLF from its banks totaled approximately $756.5 million and $702.2 million at March 31, 2023, and December 31, 2022, respectively, under the most restrictive minimum capital requirements. Retained earnings that could be available for the payment of dividends to HTLF from its banks totaled approximately $456.3 million and $403.9 million at March 31, 2023, and December 31, 2022, respectively, under the capital requirements to remain well capitalized. These dividends are the principal source of funds to pay dividends on HTLF's common and preferred stock and to pay interest and principal on its debt.

As of March 31, 2023, management believes regulatory capital ratio buffers would withstand any changes in regulatory rules that require the inclusion of unrealized losses in the total investment portfolio and remain well capitalized.

On June 26, 2020, HTLF issued and sold 4.6 million depositary shares, each representing a 1/400th interest in a share of 7.00% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series E. The depositary shares are listed on The Nasdaq Global Select Market under the symbol "HTLFP." If declared, dividends are paid quarterly in arrears at a rate of 7.00% per annum beginning on October 15, 2020. For the dividend period beginning on the first reset date of July 15, 2025, and for dividend periods beginning every fifth anniversary thereafter, each a reset date, the rate per annum will be reset based on a recent five-year treasury rate plus 6.675%. The earliest redemption date for the preferred shares is July 15, 2025. Dividends payable on common shares are subject to quarterly dividends payable on these outstanding preferred shares at the applicable dividend rate.

On August 8, 2022, HTLF filed a universal shelf registration statement with the SEC to register debt or equity securities. This shelf registration statement, which was effective immediately, provides HTLF with the ability to raise capital, subject to market conditions and SEC rules and limitations, if the board of directors decides to do so. This registration statement permits HTLF, from time to time, in one or more public offerings, to offer debt securities, subordinated notes, common stock, preferred stock, depositary shares, warrants, rights or units of any combination of these securities. The amount of securities that may be offered was not specified in the registration statement, and the terms of any future offerings are to be established at the time of the offering. The registration statement expires on August 8, 2025.

COMMITMENTS AND CONTRACTUAL OBLIGATIONS

Commitments and Contractual Obligations

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Banks evaluate the creditworthiness of customers to which they extend a credit commitment on a case-by-case basis and may require collateral to secure any credit extended. The amount of collateral obtained is based upon management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties. Standby letters of credit and

financial guarantees are conditional commitments issued by the Banks to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. At March 31, 2023, and December 31, 2022, commitments to extend credit aggregated $4.87 billion and $4.73 billion, respectively. Standby letters of credit aggregated $55.6 million at March 31, 2023, and $55.1 million at December 31, 2022.

At March 31, 2023, and December 31, 2022, HTLF's banks had $614.3 million and $682.9 million, respectively, of standby letters of credit with the respective FHLB to secure public funds and municipal deposits.

Contractual obligations and other commitments were disclosed in HTLF's Annual Report on Form 10-K for the year ended December 31, 2022. There have been no other material changes to HTLF's contractual obligations and other commitments since the Annual Report on Form 10-K was filed.

There are certain legal proceedings pending against HTLF and its subsidiaries at March 31, 2023, that are ordinary routine litigation incidental to business.

HTLF continues to explore opportunities to expand the size of its banking footprint by opportunistically augmenting organic growth by identifying acquisition targets that complement or supplement its current banking strategy. This includes transactions that increase penetration in existing geographic Bank Markets and expansion into adjacent markets, as well as acquisitions of fee income businesses that complement and build on existing businesses or further meet the needs of customers. Future expenditures relating to expansion efforts, in addition to those identified above, cannot be estimated at this time.

Derivative Financial Instruments

HTLF enters into mortgage banking derivatives, which are classified as free standing derivatives. These derivatives include interest rate lock commitments provided to customers to fund certain mortgage loans to be sold into the secondary market and forward commitments for the future delivery of these loans. HTLF enters into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of future interest rate changes on the commitments to fund these loans and on the residential mortgage loans held as available for sale. See Note 6 to the consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information on derivative financial instruments.

LIQUIDITY

Liquidity refers to the ability to maintain a cash flow that is adequate to meet maturing obligations and existing commitments, to withstand fluctuations in deposit levels, to fund operations and to provide for customers’ credit needs. The liquidity of HTLF principally depends on cash flows from operating activities, investment in and maturity of assets, changes in balances of deposits and borrowings and its ability to borrow funds in the money or capital markets.

At March 31, 2023, HTLF had $362.1 million of cash and cash equivalents, time deposits in other financial institutions of $1.7 million and securities carried at fair value of $6.10 billion. Management expects the securities portfolio to produce cash flows of approximately $1.3 billion over the next twelve months.

Management of investing and financing activities, and market conditions, determine the level and the stability of net interest cash flows. Management attempts to mitigate the impact of changes in market interest rates to the extent possible, so that balance sheet growth is the principal determinant of growth in net interest cash flows.

The Banks' FHLB memberships give them the ability to borrow funds for short-term and long-term purposes under a variety of programs. Short-term borrowing balances are dependent on commercial cash management and smaller correspondent bank relationships and, as a result, will normally fluctuate. Management believes these balances, on average, to be stable sources of funds. In the event of short-term liquidity needs, HTLF's banks may purchase federal funds from each other or from correspondent banks and may also borrow from the Federal Reserve Bank, including the BTFP.

Additional funding is provided by long-term debt and short-term borrowings. As of March 31, 2023, HTLF had $372.1 million of long-term debt outstanding, and it is an important funding source because of its multi-year borrowing structure.

During the first quarter of 2023, HTLF shifted out of overnight borrowings and into brokered CDs, which allowed for more immediate funding availability through various sources. HTLF pledged additional securities totaling $1.48 billion to increase borrowing capacity, and as of March 31, 2023, pledged securities totaled $2.96 billion. As of March 31, 2023, approximately $3.83 billion of securities remained available to pledge.

The following table shows the source of funding, balance outstanding and available borrowing capacity as of March 31, 2023, dollars in thousands:

	As of March 31, 2023
Source	Outstanding		Available
Federal Reserve Discount Window	$	—	$	1,604,904
Bank Term Funding Program	—		476,925
Federal Home Loan Bank	1,711		679,588
Federal Funds	—		247,500
Wholesale deposits/brokered CDs	2,842,920		1,689,420
Total	$	2,844,631	$	4,698,337

HTLF is focused on loan growth and strives to fund loan growth with the least expensive source of deposits, sales of securities or borrowings. Management believes it is unlikely HTLF would be required to sell securities at a loss for such funding needs. The securities portfolio is expected to produce cash flows of approximately $1.3 billion over the next twelve months, which could be used to fund loan growth. Additionally, growing deposits will continue to be a focus. During the first quarter of 2023, HTLF initiated a deposit campaign that resulted in over 8,000 new consumer deposit accounts. HTLF offers the ICS and CDARS products accessed through the Intrafi network of financial institutions, which helps to reduce the amount of pledged securities.

On a consolidated basis, HTLF maintains a large balance of short-term securities that, when combined with cash from operations, management believes are adequate to meet its funding obligations.

At the parent company level, routine funding requirements consist primarily of dividends paid to stockholders, debt service on revolving credit arrangements and trust preferred securities issuances, repayment requirements under other debt obligations and payments for acquisitions. The parent company obtains the funding to meet these obligations from dividends paid by its Banks and the issuance of debt and equity securities.

At March 31, 2023, the parent company had cash of $284.4 million. Additionally, HTLF has a revolving credit agreement with an unaffiliated bank, which was renewed most recently on June 14, 2022. The revolving credit agreement has $100.0 million of maximum borrowing capacity, of which none was outstanding at March 31, 2023. This credit agreement contains specific financial covenants, all of which HTLF complied with as of March 31, 2023.

The ability of HTLF to pay dividends to its stockholders is dependent upon dividends paid to HTLF by its Banks. The Banks are subject to statutory and regulatory restrictions on the amount they may pay in dividends. To maintain acceptable capital ratios at HTLF's Banks, certain portions of their retained earnings are not available for the payment of dividends.

HTLF has filed a universal shelf registration statement with the SEC that provides HTLF the ability to raise both debt and capital, subject to SEC rules and limitations, if HTLF's board of directors decides to do so. This registration statement expires in August 2025.

Management believes that cash on hand, cash flows from operations and cash availability under existing borrower programs and facilities will be sufficient to meet any recurring and additional operating cash needs in 2023.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in market prices and rates. HTLF's market risk is comprised primarily of interest rate risk resulting from its core banking activities of lending and accepting deposits. Interest rate risk measures the impact on earnings from changes in interest rates and the effect on the current fair market values of HTLF's assets, liabilities and off-balance sheet contracts. HTLF's objective is to measure this risk and manage its balance sheet to avoid unacceptable potential for economic loss.

Management continually develops and applies strategies to mitigate market risk. Exposure to market risk is reviewed on a regular basis by the asset/liability committees of the Banks, and, on a consolidated basis, by HTLF's executive management and board of directors. At least quarterly, a detailed review of the balance sheet risk profile is performed for HTLF and each of its Banks. Included in these reviews are interest rate sensitivity analyses, which simulate changes in net interest income in response to various interest rate scenarios. These analyses consider current portfolio rates, existing maturities, repricing opportunities and market interest rates, in addition to prepayments and growth under different interest rate assumptions. Selected strategies are modeled prior to implementation to determine their effect on HTLF's interest rate risk profile and net interest income.

The core interest rate risk analysis utilized examines the balance sheet under increasing and decreasing interest rate scenarios that are neither too modest nor too extreme. All rate changes are ramped over a 12-month horizon based upon a parallel shift in the yield curve and then maintained at those levels over the remainder of the simulation horizon. Using this approach, management is able to see the effect that both a gradual change of rates (year one) and a rate shock (year two and beyond) could have on net interest income. Starting balances in the model reflect actual balances on the "as of" date, adjusted for material transactions. Pro-forma balances remain static. This methodology enables interest rate risk embedded within the existing balance sheet structure to be isolated from the interest rate risk often caused by growth in assets and liabilities. Due to the low interest rate environment, the simulations under a decreasing interest rate scenario were prepared using a 100 basis point shift in rates. The most recent reviews at March 31, 2023, and March 31, 2022, provided the following results, in thousands:

	2023				2022
	Net Interest Margin		% Change From Base		Net Interest Margin		% Change From Base
Year 1
Down 100 Basis Points	$	632,070	(1.32)	%	$	528,585	(1.79)	%
Base	640,512		—		538,243		—
Up 200 Basis Points	654,132		2.13		560,459		4.13
Year 2
Down 100 Basis Points	$	658,497	2.81	%	$	517,169	(3.92)	%
Base	688,624		7.51		557,176		3.52
Up 200 Basis Points	713,149		11.34		610,213		13.37

HTLF uses derivative financial instruments to manage the impact of changes in interest rates on its future interest income or interest expense. HTLF is exposed to credit-related losses in the event of nonperformance by the counterparties to these derivative instruments but believes it has minimized the risk of these losses by entering into the contracts with large, stable financial institutions. The estimated fair market values of these derivative instruments are presented in Note 6 to the consolidated financial statements included in this Quarterly Report on Form 10-Q.

HTLF enters into financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. Commitments to extend credit are agreements to lend funds to a customer as long as there is no violation of any condition established in the contract relating to the commitment. Commitments generally have fixed expiration dates and may require collateral from the borrower. Standby letters of credit are conditional commitments issued by HTLF to guarantee the performance of a customer to a third party up to a stated amount and subject to specified terms and conditions. These commitments to extend credit and standby letters of credit are not recorded on the consolidated balance sheets until the loan is made or the letter or credit is issued.

ITEM 4. CONTROLS AND PROCEDURES

Based on an evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer have concluded that:

•HTLF's disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) were effective.

•During the three months ended March 31, 2023, there have been no changes in internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

There are certain legal proceedings pending against HTLF and its subsidiaries at March 31, 2023, that are ordinary routine litigation incidental to business.

ITEM 1A. RISK FACTORS

There have been no material changes in the risk factors applicable to HTLF from those disclosed in Part I, Item 1A. "Risk Factors" in HTLF's 2022 Annual Report on Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On March 17, 2020, the board of directors authorized management to acquire and hold up to 5% of capital or $85.9 million as of March 31, 2023, as treasury shares at any one time. HTLF and its affiliated purchasers made no purchases of its common stock during the quarter ended March 31, 2023.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

Exhibits

10.1	(1)	Form of Time-Based Restricted Stock Unit Award Agreement under the Heartland Financial USA, Inc. 2020 Long-Term Incentive Plan.
10.2	(1)	Form of Performance-Based Restricted Stock Unit Award Agreement Three-Year Performance Period under the Heartland Financial USA, Inc. 2020 Long-Term Incentive Plan.
31.1	(1)	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.
31.2	(1)	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.
32.1	(1)	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	(1)	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		Financial statement formatted in Inline Extensible Business Reporting Language: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Changes in Equity, and (vi) the Notes to Consolidated Financial Statements.
104		Cover page formatted in Inline Extensible Business Reporting Language

______________

(1) Filed or furnished herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized.

HEARTLAND FINANCIAL USA, INC.

(Registrant)

/s/ Bruce K. Lee

By: Bruce K. Lee

President and Chief Executive Officer

(Principal Executive Officer and Duly Authorized Officer)

/s/ Bryan R. McKeag

By: Bryan R. McKeag

Executive Vice President and Chief Financial Officer

(Principal Financial Officer and Duly Authorized Officer)

/s/ Janet M. Quick

By: Janet M. Quick

Executive Vice President and Deputy Chief Financial Officer

(Principal Accounting Officer and Duly Authorized Officer)

Dated: May 5, 2023