0000920112us-gaap:~~RestrictedStockUnitsRSUMember2019-12-31~~RealEstateLoanMemberus-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:CommercialPortfolioSegmentMember2020-12-31

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,~~June 30, 2021


☐			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)

1398 Central Avenue, Dubuque, Iowa 52001

(Address of principal executive offices)(Zip Code)

(563) 589-2100

(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~~August 4, 2021, the Registrant had outstanding ~~42,176,282~~42,245,788 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


HEARTLAND FINANCIAL USA, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data)	HEARTLAND FINANCIAL USA, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data)					HEARTLAND FINANCIAL USA, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data)
		March 31, 2021 (Unaudited)		December 31, 2020			June 30, 2021 (Unaudited)		December 31, 2020
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	198,177	$	219,243	Cash and due from banks	$	208,702	$	219,243
Interest bearing deposits with other banks and other short-term investments	Interest bearing deposits with other banks and other short-term investments	269,685		118,660		Interest bearing deposits with other banks and other short-term investments	240,426		118,660
Cash and cash equivalents	Cash and cash equivalents	467,862		337,903		Cash and cash equivalents	449,128		337,903
Time deposits in other financial institutions	Time deposits in other financial institutions	3,138		3,129		Time deposits in other financial institutions	3,138		3,129
Securities:	Securities:					Securities:

Carried at fair value (cost of $6,357,582 at March 31, 2021, and $6,024,225 at December 31, 2020)		6,370,495		6,127,975
Held to maturity, net of allowance for credit losses of $48 at March 31, 2021 and $51 at December 31, 2020 (fair value of $95,082 at March 31, 2021, and $100,041 at December 31, 2020)		85,293		88,839
Carried at fair value (cost of $6,463,683 at June 30, 2021, and $6,024,225 at December 31, 2020)						Carried at fair value (cost of $6,463,683 at June 30, 2021, and $6,024,225 at December 31, 2020)	6,543,978		6,127,975
Held to maturity, net of allowance for credit losses of $51 at June 30, 2021, and $51 at December 31, 2020 (fair value of $95,421 at June 30, 2021, and $100,041 at December 31, 2020)						Held to maturity, net of allowance for credit losses of $51 at June 30, 2021, and $51 at December 31, 2020 (fair value of $95,421 at June 30, 2021, and $100,041 at December 31, 2020)	85,439		88,839
Other investments, at cost	Other investments, at cost	74,935		75,253		Other investments, at cost	76,809		75,253
Loans held for sale	Loans held for sale	43,037		57,949		Loans held for sale	33,248		57,949
Loans receivable:	Loans receivable:					Loans receivable:
Held to maturity	Held to maturity	10,050,456		10,023,051		Held to maturity	10,012,014		10,023,051

Allowance for credit losses	Allowance for credit losses	(130,172)		(131,606)		Allowance for credit losses	(120,726)		(131,606)
Loans receivable, net	Loans receivable, net	9,920,284		9,891,445		Loans receivable, net	9,891,288		9,891,445
Premises, furniture and equipment, net	Premises, furniture and equipment, net	217,414		219,595		Premises, furniture and equipment, net	219,433		219,595
Premises, furniture and equipment held for sale	Premises, furniture and equipment held for sale	7,633		6,499		Premises, furniture and equipment held for sale	6,925		6,499
Other real estate, net	Other real estate, net	6,236		6,624		Other real estate, net	6,314		6,624
Goodwill	Goodwill	576,005		576,005		Goodwill	576,005		576,005
Core deposit intangibles and customer relationship intangibles, net	Core deposit intangibles and customer relationship intangibles, net	39,867		42,383		Core deposit intangibles and customer relationship intangibles, net	37,452		42,383
Servicing rights, net	Servicing rights, net	6,953		6,052		Servicing rights, net	6,201		6,052
Cash surrender value on life insurance	Cash surrender value on life insurance	188,521		187,664		Cash surrender value on life insurance	189,619		187,664

Other assets	Other assets	236,754		281,024		Other assets	246,029		281,024
TOTAL ASSETS	TOTAL ASSETS	$	18,244,427	$	17,908,339	TOTAL ASSETS	$	18,371,006	$	17,908,339
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
LIABILITIES:	LIABILITIES:					LIABILITIES:
Deposits:	Deposits:					Deposits:
Demand	Demand	$	6,175,946	$	5,688,810	Demand	$	6,299,289	$	5,688,810
Savings	Savings	8,179,251		8,019,704		Savings	8,189,223		8,019,704
Time	Time	1,203,854		1,271,391		Time	1,126,606		1,271,391
Total deposits	Total deposits	15,559,051		14,979,905		Total deposits	15,615,118		14,979,905

Short-term borrowings	Short-term borrowings	140,597		167,872		Short-term borrowings	152,563		167,872
Other borrowings	Other borrowings	349,514		457,042		Other borrowings	271,244		457,042
Accrued expenses and other liabilities	Accrued expenses and other liabilities	139,058		224,289		Accrued expenses and other liabilities	172,295		224,289
TOTAL LIABILITIES	TOTAL LIABILITIES	16,188,220		15,829,108		TOTAL LIABILITIES	16,211,220		15,829,108
STOCKHOLDERS' EQUITY:	STOCKHOLDERS' EQUITY:					STOCKHOLDERS' EQUITY:

Preferred stock (par value $1 per share; authorized 6,104 shares; NaN issued or outstanding at both March 31, 2021, and December 31, 2020)		0		0
Series A Junior Participating preferred stock (par value $1 per share; authorized 16,000 shares; NaN issued or outstanding at both March 31, 2021, and December 31, 2020)		0		0
Series B Fixed Rate Cumulative Perpetual Preferred Stock (par value $1 per share; 81,698 shares authorized at both March 31, 2021 and December 31, 2020; NaN issued or outstanding at both March 31, 2021 and December 31, 2020)		0		0
Series C Senior Non-Cumulative Perpetual Preferred Stock (par value $1 per share; 81,698 shares authorized at both March 31, 2021, and December 31, 2020; NaN issued or outstanding at both March 31, 2021, and December 31, 2020)		0		0
Series D Senior Non-Cumulative Perpetual Convertible Preferred Stock (par value $1 per share; 3,000 shares authorized at both March 31, 2021, and December 31, 2020; NaN issued or outstanding at both March 31, 2021, and December 31, 2020)		0		0
Series E Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock (par value $1 per share; 11,500 authorized at both March 31, 2021 and December 31, 2020; issued and outstanding 11,500 shares at March 31, 2021, and 11,500 issued or outstanding at December 31, 2020)		110,705		110,705
Common stock (par value $1 per share; 60,000,000 shares authorized at both March 31, 2021, and December 31, 2020; issued 42,173,675 shares at March 31, 2021, and 42,093,862 shares at December 31, 2020)		42,174		42,094
Preferred stock (par value $1 per share; authorized 6,104 shares at both June 30, 2021, and December 31, 2020; NaN issued or outstanding at both June 30, 2021, and December 31, 2020)						Preferred stock (par value $1 per share; authorized 6,104 shares at both June 30, 2021, and December 31, 2020; NaN issued or outstanding at both June 30, 2021, and December 31, 2020)	0		0
Series A Junior Participating preferred stock (par value $1 per share; authorized 16,000 shares; NaN issued or outstanding at both June 30, 2021, and December 31, 2020)						Series A Junior Participating preferred stock (par value $1 per share; authorized 16,000 shares; NaN issued or outstanding at both June 30, 2021, and December 31, 2020)	0		0
Series B Fixed Rate Cumulative Perpetual Preferred Stock (par value $1 per share; 81,698 shares authorized at both June 30, 2021 and December 31, 2020; NaN issued or outstanding at both June 30, 2021 and December 31, 2020)						Series B Fixed Rate Cumulative Perpetual Preferred Stock (par value $1 per share; 81,698 shares authorized at both June 30, 2021 and December 31, 2020; NaN issued or outstanding at both June 30, 2021 and December 31, 2020)	0		0
Series C Senior Non-Cumulative Perpetual Preferred Stock (par value $1 per share; 81,698 shares authorized at both June 30, 2021, and December 31, 2020; NaN issued or outstanding at both June 30, 2021, and December 31, 2020)						Series C Senior Non-Cumulative Perpetual Preferred Stock (par value $1 per share; 81,698 shares authorized at both June 30, 2021, and December 31, 2020; NaN issued or outstanding at both June 30, 2021, and December 31, 2020)	0		0
Series D Senior Non-Cumulative Perpetual Convertible Preferred Stock (par value $1 per share; 3,000 shares authorized at both June 30, 2021, and December 31, 2020; NaN issued or outstanding at both June 30, 2021, and December 31, 2020)						Series D Senior Non-Cumulative Perpetual Convertible Preferred Stock (par value $1 per share; 3,000 shares authorized at both June 30, 2021, and December 31, 2020; NaN issued or outstanding at both June 30, 2021, and December 31, 2020)	0		0
Series E Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock (par value $1 per share; 11,500 shares authorized at both June 30, 2021, and December 31, 2020; 11,500 shares issued and outstanding at both June 30, 2021 and December 31, 2020)						Series E Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock (par value $1 per share; 11,500 shares authorized at both June 30, 2021, and December 31, 2020; 11,500 shares issued and outstanding at both June 30, 2021 and December 31, 2020)	110,705		110,705
Common stock (par value $1 per share; 60,000,000 shares authorized at both June 30, 2021, and December 31, 2020; issued 42,245,452 shares at June 30, 2021, and 42,093,862 shares at December 31, 2020)						Common stock (par value $1 per share; 60,000,000 shares authorized at both June 30, 2021, and December 31, 2020; issued 42,245,452 shares at June 30, 2021, and 42,093,862 shares at December 31, 2020)	42,245		42,094
Capital surplus	Capital surplus	1,063,497		1,062,083		Capital surplus	1,066,765		1,062,083
Retained earnings	Retained earnings	833,171		791,630		Retained earnings	883,484		791,630
Accumulated other comprehensive income	Accumulated other comprehensive income	6,660		72,719		Accumulated other comprehensive income	56,587		72,719

TOTAL STOCKHOLDERS' EQUITY	TOTAL STOCKHOLDERS' EQUITY	2,056,207		2,079,231		TOTAL STOCKHOLDERS' EQUITY	2,159,786		2,079,231
TOTAL LIABILITIES AND EQUITY	TOTAL LIABILITIES AND EQUITY	$	18,244,427	$	17,908,339	TOTAL LIABILITIES AND EQUITY	$	18,371,006	$	17,908,339

See accompanying notes to consolidated financial statements.	See accompanying notes to consolidated financial statements.					See accompanying notes to consolidated financial statements.


HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share data)	HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share data)							HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share data)
		Three Months Ended March 31,			Three Months Ended June 30,						Six Months Ended June 30,
			2021			2020			2021		2020		2021		2020
INTEREST INCOME:	INTEREST INCOME:							INTEREST INCOME:
Interest and fees on loans	Interest and fees on loans		$	112,439		$	106,414	Interest and fees on loans	$	111,915	$	107,005	$	224,354	$	213,419
Interest on securities:	Interest on securities:							Interest on securities:
Taxable	Taxable		30,443			21,731		Taxable	31,546		23,362		61,989		45,093
Nontaxable	Nontaxable		4,503			2,183		Nontaxable	4,561		3,344		9,064		5,527
Interest on federal funds sold	Interest on federal funds sold		1			0		Interest on federal funds sold	0		0		1		0
Interest on interest bearing deposits in other financial institutions	Interest on interest bearing deposits in other financial institutions		66			721		Interest on interest bearing deposits in other financial institutions	60		54		126		775
TOTAL INTEREST INCOME	TOTAL INTEREST INCOME		147,452			131,049		TOTAL INTEREST INCOME	148,082		133,765		295,534		264,814
INTEREST EXPENSE:	INTEREST EXPENSE:							INTEREST EXPENSE:
Interest on deposits	Interest on deposits		4,395			14,582		Interest on deposits	3,790		6,134		8,185		20,716
Interest on short-term borrowings	Interest on short-term borrowings		152			296		Interest on short-term borrowings	98		61		250		357
Interest on other borrowings (includes $(591) and $(183) of interest benefit related to derivatives reclassified from accumulated other comprehensive income for the three months ended March 31, 2021 and 2020, respectively)			3,300			3,660
Interest on other borrowings (includes $(461) and $(423) of interest expense related to derivatives reclassified from accumulated other comprehensive income (loss) for the three months ended June 30, 2021 and 2020, respectively, and $(1,058) and $(613) of interest expense related to derivatives reclassified from accumulated other comprehensive income (loss) for the six months ended June 30, 2021 and 2020, respectively)								Interest on other borrowings (includes $(461) and $(423) of interest expense related to derivatives reclassified from accumulated other comprehensive income (loss) for the three months ended June 30, 2021 and 2020, respectively, and $(1,058) and $(613) of interest expense related to derivatives reclassified from accumulated other comprehensive income (loss) for the six months ended June 30, 2021 and 2020, respectively)	2,976		3,424		6,276		7,084
TOTAL INTEREST EXPENSE	TOTAL INTEREST EXPENSE		7,847			18,538		TOTAL INTEREST EXPENSE	6,864		9,619		14,711		28,157
NET INTEREST INCOME	NET INTEREST INCOME		139,605			112,511		NET INTEREST INCOME	141,218		124,146		280,823		236,657
Provision (benefit) for credit losses	Provision (benefit) for credit losses		(648)			21,520		Provision (benefit) for credit losses	(7,080)		26,796		(7,728)		48,316
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		140,253			90,991		NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	148,298		97,350		288,551		188,341
NONINTEREST INCOME:	NONINTEREST INCOME:							NONINTEREST INCOME:
Service charges and fees	Service charges and fees		13,671			12,021		Service charges and fees	15,132		10,972		28,803		22,993
Loan servicing income	Loan servicing income		838			963		Loan servicing income	873		379		1,711		1,342
Trust fees	Trust fees		5,777			5,022		Trust fees	6,039		4,977		11,816		9,999
Brokerage and insurance commissions	Brokerage and insurance commissions		853			733		Brokerage and insurance commissions	865		595		1,718		1,328
Securities gains (losses), net (includes $(30) and $1,658 of net security gains (losses) reclassified from accumulated other comprehensive income for the three months ended March 31, 2021 and 2020, respectively)			(30)			1,658
Securities gains, net (includes $2,842 and $2,006 of net security gains reclassified from accumulated other comprehensive income (loss) for the three months ended June 30, 2021 and 2020, respectively, and $2,812 and $3,664 of net security gains reclassified from accumulated other comprehensive income (loss) for the six months ended June 30, 2021 and 2020, respectively)								Securities gains, net (includes $2,842 and $2,006 of net security gains reclassified from accumulated other comprehensive income (loss) for the three months ended June 30, 2021 and 2020, respectively, and $2,812 and $3,664 of net security gains reclassified from accumulated other comprehensive income (loss) for the six months ended June 30, 2021 and 2020, respectively)	2,842		2,006		2,812		3,664

Unrealized loss on equity securities, net			(110)			(231)
Unrealized gain (loss) on equity securities, net								Unrealized gain (loss) on equity securities, net	83		680		(27)		449
Net gains on sale of loans held for sale	Net gains on sale of loans held for sale		6,420			4,660		Net gains on sale of loans held for sale	4,753		7,857		11,173		12,517
Valuation adjustment on servicing rights	Valuation adjustment on servicing rights		917			(1,565)		Valuation adjustment on servicing rights	(526)		9		391		(1,556)
Income on bank owned life insurance	Income on bank owned life insurance		829			498		Income on bank owned life insurance	937		1,167		1,766		1,665
Other noninterest income	Other noninterest income		1,152			2,058		Other noninterest income	2,166		1,995		3,318		4,053
TOTAL NONINTEREST INCOME	TOTAL NONINTEREST INCOME		30,317			25,817		TOTAL NONINTEREST INCOME	33,164		30,637		63,481		56,454
NONINTEREST EXPENSES:	NONINTEREST EXPENSES:							NONINTEREST EXPENSES:
Salaries and employee benefits	Salaries and employee benefits		59,062			49,957		Salaries and employee benefits	57,332		50,118		116,394		100,075
Occupancy	Occupancy		7,918			6,471		Occupancy	7,399		6,502		15,317		12,973
Furniture and equipment	Furniture and equipment		3,093			3,108		Furniture and equipment	3,501		2,993		6,594		6,101
Professional fees	Professional fees		13,490			12,473		Professional fees	16,237		13,676		29,727		26,149

Advertising	Advertising		1,469			2,205		Advertising	1,649		995		3,118		3,200
Core deposit intangibles and customer relationship intangibles amortization			2,516			2,981
Core deposit and customer relationship intangibles amortization								Core deposit and customer relationship intangibles amortization	2,415		2,696		4,931		5,677
Other real estate and loan collection expenses	Other real estate and loan collection expenses		135			334		Other real estate and loan collection expenses	414		203		549		537
Loss on sales/valuations of assets, net	Loss on sales/valuations of assets, net		194			16		Loss on sales/valuations of assets, net	183		701		377		717
Acquisition, integration and restructuring costs	Acquisition, integration and restructuring costs		2,928			1,376		Acquisition, integration and restructuring costs	210		673		3,138		2,049
Partnership investment in tax credit projects	Partnership investment in tax credit projects		35			184		Partnership investment in tax credit projects	1,345		791		1,380		975
Other noninterest expenses	Other noninterest expenses		11,583			11,754		Other noninterest expenses	12,691		11,091		24,274		22,845
TOTAL NONINTEREST EXPENSES	TOTAL NONINTEREST EXPENSES		102,423			90,859		TOTAL NONINTEREST EXPENSES	103,376		90,439		205,799		181,298
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES		68,147			25,949		INCOME BEFORE INCOME TAXES	78,086		37,548		146,233		63,497
Income taxes (includes $143 and $466 of income tax expense reclassified from accumulated other comprehensive income for the three months ended March 31, 2021 and 2020, respectively)			15,333			5,909
Income taxes (includes $834 and $614 of income tax expense reclassified from accumulated other comprehensive income (loss) for the three months ended June 30, 2021 and 2020, respectively, and $977 and $1,080 of income tax expense reclassified from accumulated other comprehensive income (loss) for the six months ended June 30, 2021 and 2020, respectively)								Income taxes (includes $834 and $614 of income tax expense reclassified from accumulated other comprehensive income (loss) for the three months ended June 30, 2021 and 2020, respectively, and $977 and $1,080 of income tax expense reclassified from accumulated other comprehensive income (loss) for the six months ended June 30, 2021 and 2020, respectively)	16,481		7,417		31,814		13,326
NET INCOME	NET INCOME		52,814			20,040		NET INCOME	61,605		30,131		114,419		50,171

Preferred dividends	Preferred dividends		(2,013)			0		Preferred dividends	(2,012)		0		(4,025)		0

NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	NET INCOME AVAILABLE TO COMMON STOCKHOLDERS		$	50,801		$	20,040	NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	59,593	$	30,131	$	110,394	$	50,171
EARNINGS PER COMMON SHARE - BASIC	EARNINGS PER COMMON SHARE - BASIC		$	1.20		$	0.54	EARNINGS PER COMMON SHARE - BASIC	$	1.41	$	0.82	$	2.62	$	1.36
EARNINGS PER COMMON SHARE - DILUTED	EARNINGS PER COMMON SHARE - DILUTED		$	1.20		$	0.54	EARNINGS PER COMMON SHARE - DILUTED	$	1.41	$	0.82	$	2.61	$	1.36
CASH DIVIDENDS DECLARED PER COMMON SHARE	CASH DIVIDENDS DECLARED PER COMMON SHARE		$	0.22		$	0.20	CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.22	$	0.20	$	0.44	$	0.40

See accompanying notes to consolidated financial statements.	See accompanying notes to consolidated financial statements.							See accompanying notes to consolidated financial statements.


HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands)	HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands)		HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands)
		Three Months Ended March 31,				Three Months Ended June 30,						Six Months Ended June 30,
				2021			2020			2021		2020		2021		2020
NET INCOME	NET INCOME			$	52,814		$	20,040	NET INCOME	$	61,605	$	30,131	$	114,419	$	50,171
OTHER COMPREHENSIVE INCOME (LOSS)	OTHER COMPREHENSIVE INCOME (LOSS)								OTHER COMPREHENSIVE INCOME (LOSS)
Securities:	Securities:								Securities:
Net change in unrealized gain on securities				(90,869)			(28,328)
Net change in unrealized gain/(loss) on securities									Net change in unrealized gain/(loss) on securities	70,224		81,552		(20,645)		53,224

Reclassification adjustment for net gains/(losses) realized in net income				30			(1,658)
Reclassification adjustment for net gains realized in net income									Reclassification adjustment for net gains realized in net income	(2,842)		(2,006)		(2,812)		(3,664)

Income taxes	Income taxes			23,761			7,797		Income taxes	(17,678)		(20,729)		6,083		(12,932)
Other comprehensive loss on securities				(67,078)			(22,189)
Other comprehensive gain/(loss) on securities									Other comprehensive gain/(loss) on securities	49,704		58,817		(17,374)		36,628
Derivatives used in cash flow hedging relationships:	Derivatives used in cash flow hedging relationships:								Derivatives used in cash flow hedging relationships:
Net change in unrealized gain/(loss) on derivatives	Net change in unrealized gain/(loss) on derivatives			1,888			(3,680)		Net change in unrealized gain/(loss) on derivatives	745		317		2,633		(3,363)
Reclassification adjustment for net gains on derivatives realized in net income	Reclassification adjustment for net gains on derivatives realized in net income			(597)			(190)		Reclassification adjustment for net gains on derivatives realized in net income	(461)		(423)		(1,058)		(613)
Income taxes	Income taxes			(272)			814		Income taxes	(61)		18		(333)		832
Other comprehensive income (loss) on cash flow hedges	Other comprehensive income (loss) on cash flow hedges			1,019			(3,056)		Other comprehensive income (loss) on cash flow hedges	223		(88)		1,242		(3,144)
Other comprehensive loss				(66,059)			(25,245)
TOTAL COMPREHENSIVE LOSS				$	(13,245)		$	(5,205)
Other comprehensive income (loss)									Other comprehensive income (loss)	49,927		58,729		(16,132)		33,484
TOTAL COMPREHENSIVE INCOME									TOTAL COMPREHENSIVE INCOME	$	111,532	$	88,860	$	98,287	$	83,655

See accompanying notes to consolidated financial statements.	See accompanying notes to consolidated financial statements.								See accompanying notes to consolidated financial statements.


HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)	HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)					HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)
		Three Months Ended March 31,					Six Months Ended June 30,
		2021		2020			2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	Net income	$	52,814	$	20,040	Net income	$	114,419	$	50,171
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	6,801		7,100		Depreciation and amortization	13,671		14,071
Provision (benefit) for credit losses	Provision (benefit) for credit losses	(648)		21,520		Provision (benefit) for credit losses	(7,728)		48,316
Net amortization of premium on securities	Net amortization of premium on securities	8,991		3,685		Net amortization of premium on securities	18,439		6,251
Securities (gains)/losses, net		30		(1,658)
Securities gains, net						Securities gains, net	(2,812)		(3,664)

Unrealized loss on equity securities, net		110		231
Unrealized (gain) loss on equity securities, net						Unrealized (gain) loss on equity securities, net	27		(449)
Stock based compensation	Stock based compensation	2,760		2,222		Stock based compensation	4,776		3,558

Loans originated for sale	Loans originated for sale	(124,380)		(91,974)		Loans originated for sale	(244,752)		(271,167)
Proceeds on sales of loans held for sale	Proceeds on sales of loans held for sale	145,200		100,425		Proceeds on sales of loans held for sale	279,923		254,523
Net gains on sale of loans held for sale	Net gains on sale of loans held for sale	(5,908)		(4,660)		Net gains on sale of loans held for sale	(10,470)		(10,990)
(Increase) decrease in accrued interest receivable	(Increase) decrease in accrued interest receivable	26		(667)		(Increase) decrease in accrued interest receivable	813		(4,298)
Increase in prepaid expenses	Increase in prepaid expenses	(578)		(157)		Increase in prepaid expenses	(1,324)		(910)
Increase in accrued interest payable		236		316
Decrease in accrued interest payable						Decrease in accrued interest payable	(1,342)		(1,699)

Capitalization of servicing rights	Capitalization of servicing rights	(512)		(414)		Capitalization of servicing rights	(703)		(1,527)
Valuation adjustment on servicing rights	Valuation adjustment on servicing rights	(917)		1,565		Valuation adjustment on servicing rights	(391)		1,556
Loss on sales/valuations of assets, net	Loss on sales/valuations of assets, net	194		16		Loss on sales/valuations of assets, net	377		717
Net excess tax benefit (expense) from stock based compensation	Net excess tax benefit (expense) from stock based compensation	153		(25)		Net excess tax benefit (expense) from stock based compensation	303		(91)
Other, net	Other, net	(17,816)		(40,513)		Other, net	(9,645)		(53,313)
NET CASH PROVIDED BY OPERATING ACTIVITIES	NET CASH PROVIDED BY OPERATING ACTIVITIES	66,556		17,052		NET CASH PROVIDED BY OPERATING ACTIVITIES	153,581		31,055
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of time deposits in other financial institutions	Purchase of time deposits in other financial institutions	(9)		(4)		Purchase of time deposits in other financial institutions	(9)		(7)
Proceeds from the sale of securities available for sale	Proceeds from the sale of securities available for sale	207,067		328,890		Proceeds from the sale of securities available for sale	630,481		511,639

Proceeds from the maturity of and principal paydowns on securities available for sale	Proceeds from the maturity of and principal paydowns on securities available for sale	159,773		92,413		Proceeds from the maturity of and principal paydowns on securities available for sale	484,958		212,538
Proceeds from the maturity of and principal paydowns on securities held to maturity	Proceeds from the maturity of and principal paydowns on securities held to maturity	3,909		55		Proceeds from the maturity of and principal paydowns on securities held to maturity	4,127		1,832
Proceeds from the maturity of time deposits in other financial institutions	Proceeds from the maturity of time deposits in other financial institutions	0		150		Proceeds from the maturity of time deposits in other financial institutions	0		150
Proceeds from the sale, maturity of and principal paydowns on other investments	Proceeds from the sale, maturity of and principal paydowns on other investments	1,003		5,613		Proceeds from the sale, maturity of and principal paydowns on other investments	2,498		6,135
Purchase of securities available for sale	Purchase of securities available for sale	(709,690)		(627,246)		Purchase of securities available for sale	(1,571,281)		(1,491,459)

Purchase of other investments	Purchase of other investments	(685)		(9,662)		Purchase of other investments	(4,054)		(10,273)
Net increase in loans		(29,674)		(5,568)
Net (increase) decrease in loans						Net (increase) decrease in loans	5,203		(881,419)
Purchase of bank owned life insurance policies	Purchase of bank owned life insurance policies	(22)		(39)		Purchase of bank owned life insurance policies	(190)		(201)

Capital expenditures	Capital expenditures	(3,776)		(3,723)		Capital expenditures	(11,539)		(7,679)

Proceeds from the sale of equipment	Proceeds from the sale of equipment	1,311		0		Proceeds from the sale of equipment	3,090		3,331

Proceeds on sale of OREO and other repossessed assets	Proceeds on sale of OREO and other repossessed assets	1,209		1,019		Proceeds on sale of OREO and other repossessed assets	1,858		1,783
NET CASH USED BY INVESTING ACTIVITIES	NET CASH USED BY INVESTING ACTIVITIES	$	(369,584)	$	(218,102)	NET CASH USED BY INVESTING ACTIVITIES	$	(454,858)	$	(1,653,630)


HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED (Unaudited) (Dollars in thousands)	HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED (Unaudited) (Dollars in thousands)					HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED (Unaudited) (Dollars in thousands)
		Three Months Ended March 31,					Six Months Ended June 30,
		2021		2020			2021		2020
CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits	Net increase in demand deposits	$	487,136	$	153,111	Net increase in demand deposits	$	610,479	$	1,287,288
Net increase in savings deposits	Net increase in savings deposits	159,547		59,185		Net increase in savings deposits	169,519		502,871
Net decrease in time deposit accounts	Net decrease in time deposit accounts	(67,537)		(82,602)		Net decrease in time deposit accounts	(144,785)		(125,791)

Net decrease in short-term borrowings	Net decrease in short-term borrowings	(27,275)		(34,987)		Net decrease in short-term borrowings	(15,309)		(12,799)
Proceeds from short term advances	Proceeds from short term advances	0		491,545		Proceeds from short term advances	1,700		516,545
Repayments of short term advances	Repayments of short term advances	0		(517,742)		Repayments of short term advances	(1,700)		(597,741)
Proceeds from other borrowings	Proceeds from other borrowings	0		1,930		Proceeds from other borrowings	0		33,750
Repayments of other borrowings	Repayments of other borrowings	(107,807)		(1,832)		Repayments of other borrowings	(186,356)		(3,622)

Net proceeds from the issuance of preferred stock						Net proceeds from the issuance of preferred stock	0		110,705

Proceeds from issuance of common stock	Proceeds from issuance of common stock	196		804		Proceeds from issuance of common stock	1,519		928
Dividends paid	Dividends paid	(11,273)		(7,353)		Dividends paid	(22,565)		(14,715)
NET CASH PROVIDED BY FINANCING ACTIVITIES	NET CASH PROVIDED BY FINANCING ACTIVITIES	432,987		62,059		NET CASH PROVIDED BY FINANCING ACTIVITIES	412,502		1,697,419
Net increase (decrease) in cash and cash equivalents		129,959		(138,991)
Net increase in cash and cash equivalents						Net increase in cash and cash equivalents	111,225		74,844
Cash and cash equivalents at beginning of year	Cash and cash equivalents at beginning of year	337,903		378,734		Cash and cash equivalents at beginning of year	337,903		378,734
CASH AND CASH EQUIVALENTS AT END OF PERIOD	CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	467,862	$	239,743	CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	449,128	$	453,578
Supplemental disclosures:	Supplemental disclosures:					Supplemental disclosures:
Cash paid for income/franchise taxes	Cash paid for income/franchise taxes	$	15,744	$	12	Cash paid for income/franchise taxes	$	31,735	$	12,798
Cash paid for interest	Cash paid for interest	7,611		18,222		Cash paid for interest	16,053		29,856
Loans transferred to OREO	Loans transferred to OREO	585		245		Loans transferred to OREO	1,186		1,055
Transfer of premises from premises, furniture and equipment, net, to premises, furniture and equipment held for sale	Transfer of premises from premises, furniture and equipment, net, to premises, furniture and equipment held for sale	1,140		0		Transfer of premises from premises, furniture and equipment, net, to premises, furniture and equipment held for sale	1,564		0
Transfer of premises from premises, furniture and equipment held for sale to premises, furniture and equipment, net	Transfer of premises from premises, furniture and equipment held for sale to premises, furniture and equipment, net	6		0		Transfer of premises from premises, furniture and equipment held for sale to premises, furniture and equipment, net	6		0

Dividends declared, not paid	Dividends declared, not paid	2,013		0		Dividends declared, not paid	2,013		0
Purchases of securities available for sale, accrued, not settled		0		14,035

Transfer of available for sale securities to held to maturity securities	Transfer of available for sale securities to held to maturity securities	0		462		Transfer of available for sale securities to held to maturity securities	0		462

See accompanying notes to consolidated financial statements.	See accompanying notes to consolidated financial statements.					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. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited) (Dollars in thousands, except per share data)											HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited) (Dollars in thousands, except per share data)
		Heartland Financial USA, Inc. Stockholders' Equity											Heartland Financial USA, Inc. Stockholders' Equity
		Preferred Stock		Common Stock		Capital Surplus		Retained Earnings		Accumulated Other Comprehensive Income (Loss)				Total Equity			Preferred Stock		Common Stock		Capital Surplus		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Equity
Balance at March 31, 2020																Balance at March 31, 2020	$	0	$	36,807	$	842,780	$	700,298	$	(26,171)	$	1,553,714
Comprehensive income																Comprehensive income							30,131		58,729		88,860

Cash dividends declared:																Cash dividends declared:

Common, $0.20 per share																Common, $0.20 per share							(7,362)				(7,362)
Issuance of 11,500 shares of Series E preferred stock																Issuance of 11,500 shares of Series E preferred stock	110,705										110,705

Issuance of 37,527 shares of common stock																Issuance of 37,527 shares of common stock			38		86						124
Stock based compensation																Stock based compensation					1,336						1,336
Balance at June 30, 2020																Balance at June 30, 2020	$	110,705	$	36,845	$	844,202	$	723,067	$	32,558	$	1,747,377

Balance at January 1, 2020	Balance at January 1, 2020	$	0	$	36,704	$	839,857	$	702,502	$	(926)			$	1,578,137	Balance at January 1, 2020	$	0	$	36,704	$	839,857	$	702,502	$	(926)	$	1,578,137
Cumulative effect adjustment from the adoption of ASU 2016-13 on January 1, 2020	Cumulative effect adjustment from the adoption of ASU 2016-13 on January 1, 2020							(14,891)						(14,891)		Cumulative effect adjustment from the adoption of ASU 2016-13 on January 1, 2020							(14,891)				(14,891)
Adjusted balance on January 1, 2020	Adjusted balance on January 1, 2020	0		36,704		839,857		687,611		(926)				1,563,246		Adjusted balance on January 1, 2020	0		36,704		839,857		687,611		(926)		1,563,246
Comprehensive income	Comprehensive income							20,040		(25,245)				(5,205)		Comprehensive income							50,171		33,484		83,655

Cash dividends declared:	Cash dividends declared:															Cash dividends declared:

Common, $0.20 per share								(7,353)						(7,353)
Common, $0.40 per share																Common, $0.40 per share							(14,715)				(14,715)

Issuance of Series E Preferred Stock																Issuance of Series E Preferred Stock	110,705										110,705

Issuance of 140,466 shares of common stock																Issuance of 140,466 shares of common stock			141		787						928
Stock based compensation																Stock based compensation					3,558						3,558
Balance at June 30, 2020																Balance at June 30, 2020	$	110,705	$	36,845	$	844,202	$	723,067	$	32,558	$	1,747,377

Balance at March 31, 2021																Balance at March 31, 2021	$	110,705	$	42,174	$	1,063,497	$	833,171	$	6,660	$	2,056,207
Comprehensive income																Comprehensive income							61,605		49,927		111,532

Issuance of 102,939 shares of common stock				103		701								804
Cash dividends declared:																Cash dividends declared:
Preferred, $175.00 per share																Preferred, $175.00 per share							(2,012)				(2,012)
Common, $0.22 per share																Common, $0.22 per share							(9,280)				(9,280)

Issuance of 71,777 shares of common stock																Issuance of 71,777 shares of common stock			71		1,252						1,323
Stock based compensation	Stock based compensation					2,222								2,222		Stock based compensation					2,016						2,016
Balance at March 31, 2020		$	0	$	36,807	$	842,780	$	700,298	$	(26,171)			$	1,553,714

Balance at June 30, 2021																Balance at June 30, 2021	$	110,705	$	42,245	$	1,066,765	$	883,484	$	56,587	$	2,159,786

Balance at January 1, 2021	Balance at January 1, 2021	$	110,705	$	42,094	$	1,062,083	$	791,630	$	72,719			$	2,079,231	Balance at January 1, 2021	$	110,705	$	42,094	$	1,062,083	$	791,630	$	72,719	$	2,079,231

Comprehensive income	Comprehensive income							52,814		(66,059)				(13,245)		Comprehensive income							114,419		(16,132)		98,287

Cash dividends declared:	Cash dividends declared:															Cash dividends declared:

Preferred, $175.00 per share								(2,013)						(2,013)
Common, $0.22 per share								(9,260)						(9,260)
Preferred, $350.00 per share																Preferred, $350.00 per share							(4,025)				(4,025)
Common, $0.44 per share																Common, $0.44 per share							(18,540)				(18,540)

Issuance of 79,813 shares of common stock				80		(1,346)								(1,266)
Issuance of 151,590 shares of common stock																Issuance of 151,590 shares of common stock			151		(94)						57
Stock based compensation	Stock based compensation					2,760								2,760		Stock based compensation					4,776						4,776
Balance at March 31, 2021		$	110,705	$	42,174	$	1,063,497	$	833,171	$	6,660			$	2,056,207
Balance at June 30, 2021																Balance at June 30, 2021	$	110,705	$	42,245	$	1,066,765	$	883,484	$	56,587	$	2,159,786

See accompanying notes to consolidated financial statements.	See accompanying notes to consolidated financial statements.															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, 2020, included in the Form 10-K of Heartland Financial USA, Inc. ("HTLF") filed with the Securities and Exchange Commission ("SEC") on February 25, 2021. 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,~~June 30, 2021, are not necessarily indicative of the results expected for the year ending December 31, 2021.

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~~three- and six- months ended ~~March 31,~~June 30, 2021, and 2020, are shown in the table ~~below:~~below, dollars and number of shares in thousands, except per share data:


				Three Months Ended June 30,
								2021		2020
Net income							Net income	$	61,605	$	30,131
Preferred dividends							Preferred dividends	(2,012)		0

Net income available to common stockholders							Net income available to common stockholders	$	59,593	$	30,131

Weighted average common shares outstanding for basic earnings per share							Weighted average common shares outstanding for basic earnings per share	42,243		36,881
Assumed incremental common shares issued upon vesting of outstanding restricted stock units							Assumed incremental common shares issued upon vesting of outstanding restricted stock units	117		35
Weighted average common shares for diluted earnings per share							Weighted average common shares for diluted earnings per share	42,360		36,916
Earnings per common share — basic							Earnings per common share — basic	$	1.41	$	0.82
Earnings per common share — diluted							Earnings per common share — diluted	$	1.41	$	0.82
Number of antidilutive common stock equivalents excluded from diluted earnings per share computation							Number of antidilutive common stock equivalents excluded from diluted earnings per share computation	1		54

								Six Months Ended June 30,
								2021		2020

		Three Months Ended March 31,
(Dollars and number of shares in thousands, except per share data)		2021			2020
Net income	Net income	$	52,814		$	20,040	Net income	$	114,419	$	50,171
Preferred dividends	Preferred dividends	(2,013)			0		Preferred dividends	(4,025)		0

Net income available to stockholders	Net income available to stockholders	$	50,801		$	20,040	Net income available to stockholders	$	110,394	$	50,171

Weighted average common shares outstanding for basic earnings per share	Weighted average common shares outstanding for basic earnings per share	42,174			36,821		Weighted average common shares outstanding for basic earnings per share	42,210		36,851
Assumed incremental common shares issued upon vesting of outstanding restricted stock units	Assumed incremental common shares issued upon vesting of outstanding restricted stock units	162			75		Assumed incremental common shares issued upon vesting of outstanding restricted stock units	147		69
Weighted average common shares for diluted earnings per share	Weighted average common shares for diluted earnings per share	42,336			36,896		Weighted average common shares for diluted earnings per share	42,357		36,920
Earnings per common share — basic	Earnings per common share — basic	$	1.20		$	0.54	Earnings per common share — basic	$	2.62	$	1.36
Earnings per common share — diluted	Earnings per common share — diluted	$	1.20		$	0.54	Earnings per common share — diluted	$	2.61	$	1.36
Number of antidilutive common stock equivalents excluded from diluted earnings per share computation	Number of antidilutive common stock equivalents excluded from diluted earnings per share computation	25			0		Number of antidilutive common stock equivalents excluded from diluted earnings per share computation	60		1

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.

Effect of New Financial Accounting Standards

ASU 2018-16

In October 2018, the FASB issued ASU 2018-16, "Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting." In the United States, eligible benchmark interest rates under Topic 815 are interest rates on direct Treasury obligations of the U.S. government, the London Interbank Offered Rate ("LIBOR") swap rate, and the Overnight Index Swap ("OIS") Rate based on the Fed Funds Effective Rate. When the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, in August 2017, it introduced the Securities Industry and Financial Markets Association ("SIFMA") Municipal Swap Rate as the fourth permissible U.S. benchmark rate. ASU 2018-16 adds the OIS rate based on the Secured Overnight Financing Rate ("SOFR") as a U.S. benchmark interest rate to facilitate the LIBOR to SOFR transition and provide sufficient lead time for entities to prepare for changes to interest rate risk hedging strategies for both risk management and hedge accounting purposes. ASU 2018-16 became effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years and the financial statement impact immediately upon adoption was

immaterial. The future financial statement impact will depend on any new contracts entered into using new benchmark rates, as well as any existing contracts that are migrated from LIBOR to new benchmark interest rates. HTLF has a formal working group that is currently evaluating the impact of the transition from LIBOR as an interest rate benchmark to other potential alternative reference rates, including but not limited to the SOFR. Currently, HTLF has adjustable rate loans, several debt obligations and securities and derivative instruments in place that reference LIBOR-based rates. The transition from LIBOR is expected to take place at the end of 2021, and management will continue to actively assess the related opportunities and risks involved in this transition.

ASU 2019-12

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes." ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for outside basis differences. ASU 2019-12 also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. HTLF adopted this ASU on January 1, 2021, as required, and the adoption did not have a material impact on its results of operations, financial position and liquidity.

ASU 2020-04

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform," which provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For loan and lease agreements that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate, and the modifications would be considered "minor" with the result that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement, with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for derivative accounting. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic within the ASC, ASU 2020-04 must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. HTLF anticipates that ASU 2020-04 will simplify any modifications executed between the selected start date and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than extinguishment of the old contract that would result in writing off unamortized fees/costs. Management will continue to actively assess the impacts of ASU 2020-04 and the related opportunities and risks involved in the LIBOR transition.

NOTE 2: ACQUISITIONS

Johnson Bank branches

On December 4, 2020, Arizona Bank & Trust ("AB&T"), a wholly-owned subsidiary headquartered in Phoenix, Arizona, completed its acquisition of certain assets and assumed substantially all of the deposits and certain other liabilities of Johnson Bank's Arizona operations, which includes four banking centers. Johnson Bank is a wholly-owned subsidiary of Johnson Financial Group, Inc., headquartered in Racine, Wisconsin. As of the closing date, AB&T acquired, at fair value, total assets of $419.7 million, which included gross loans of $150.7 million and assumed deposits of $415.5 million and certain other liabilities.

AIM Bancshares, Inc.

On December 4, 2020, HTLF completed the acquisition of AIM Bancshares, Inc. ("AIM") and its wholly-owned subsidiary, AimBank, headquartered in Levelland, Texas. Pursuant to the agreement, each share of AimBank common stock was converted into the right to receive 207.0 shares of HTLF common stock and $1,887.16 of cash, subject to certain hold-back provisions of the agreement. Based on the closing price of $41.89 per share of HTLF common stock on December 4, 2020, the aggregate merger consideration received by AimBank stockholders was valued at approximately $264.5 million, which was paid by delivery of HTLF common stock valued at $217.2 million and cash of $47.3 million subject to certain hold-back provisions of the ~~agreement.~~merger agreement relating to the cash consideration. In addition, holders of in-the-money options to acquire shares of AimBank common stock received aggregate consideration of approximately $4.9 million in exchange for the cancellation of such stock options. The combined entity, resulting from the merger of AimBank into First Bank & Trust, ~~will operate~~operates as First Bank & Trust. The transaction included, at fair value, total assets of $1.97 billion, including $1.09 billion of gross loans held to maturity, and $1.67 billion of deposits. The transaction is

structured as a tax-free reorganization with respect to the stock consideration received by shareholders of AIM. On February 19, 2021, HTLF completed the systems conversion of AimBank, and subsequent to the systems conversion, seven of AimBank's twenty-five bank branches were transferred to HTLF's New Mexico Bank & Trust subsidiary.

NOTE 3: 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,~~June 30, 2021, and December 31, 2020, are summarized in the table below, in thousands:


		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
March 31, 2021
June 30, 2021										June 30, 2021
U.S. treasuries	U.S. treasuries	$	995	$	24	$	0	$	1,019	U.S. treasuries	$	996	$	20	$	0	$	1,016
U.S. agencies	U.S. agencies	212,805		1,222		(1,735)		212,292		U.S. agencies	35,591		272		(492)		35,371
Obligations of states and political subdivisions	Obligations of states and political subdivisions	1,737,638		41,460		(41,109)		1,737,989		Obligations of states and political subdivisions	1,817,708		66,037		(11,959)		1,871,786
Mortgage-backed securities - agency	Mortgage-backed securities - agency	1,442,422		19,675		(29,168)		1,432,929		Mortgage-backed securities - agency	1,741,389		19,890		(20,604)		1,740,675
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	1,490,868		14,957		(2,109)		1,503,716		Mortgage-backed securities - non-agency	1,349,005		16,062		(1,775)		1,363,292
Commercial mortgage-backed securities - agency	Commercial mortgage-backed securities - agency	123,797		2,150		(3,717)		122,230		Commercial mortgage-backed securities - agency	124,441		2,439		(1,800)		125,080
Commercial mortgage-backed securities - non-agency	Commercial mortgage-backed securities - non-agency	307,744		272		(242)		307,774		Commercial mortgage-backed securities - non-agency	534,682		823		(200)		535,305
Asset-backed securities	Asset-backed securities	1,017,016		12,837		(1,640)		1,028,213		Asset-backed securities	835,476		12,640		(1,129)		846,987
Corporate bonds	Corporate bonds	3,754		64		(28)		3,790		Corporate bonds	3,744		71		0		3,815
Total debt securities	Total debt securities	6,337,039		92,661		(79,748)		6,349,952		Total debt securities	6,443,032		118,254		(37,959)		6,523,327
Equity securities with a readily determinable fair value	Equity securities with a readily determinable fair value	20,543		—		—		20,543		Equity securities with a readily determinable fair value	20,651		—		—		20,651
Total	Total	$	6,357,582	$	92,661	$	(79,748)	$	6,370,495	Total	$	6,463,683	$	118,254	$	(37,959)	$	6,543,978
December 31, 2020	December 31, 2020									December 31, 2020
U.S. treasuries	U.S. treasuries	$	1,995	$	31	$	0	$	2,026	U.S. treasuries	$	1,995	$	31	$	0	$	2,026
U.S. agencies	U.S. agencies	167,048		657		(926)		166,779		U.S. agencies	167,048		657		(926)		166,779
Obligations of states and political subdivisions	Obligations of states and political subdivisions	1,562,631		75,555		(2,959)		1,635,227		Obligations of states and political subdivisions	1,562,631		75,555		(2,959)		1,635,227
Mortgage-backed securities - agency	Mortgage-backed securities - agency	1,351,964		16,029		(12,723)		1,355,270		Mortgage-backed securities - agency	1,351,964		16,029		(12,723)		1,355,270
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	1,428,068		22,688		(1,640)		1,449,116		Mortgage-backed securities - non-agency	1,428,068		22,688		(1,640)		1,449,116
Commercial mortgage-backed securities - agency	Commercial mortgage-backed securities - agency	171,451		3,440		(738)		174,153		Commercial mortgage-backed securities - agency	171,451		3,440		(738)		174,153
Commercial mortgage-backed securities - non-agency	Commercial mortgage-backed securities - non-agency	253,421		37		(691)		252,767		Commercial mortgage-backed securities - non-agency	253,421		37		(691)		252,767
Asset-backed securities	Asset-backed securities	1,064,255		9,421		(4,410)		1,069,266		Asset-backed securities	1,064,255		9,421		(4,410)		1,069,266
Corporate bonds	Corporate bonds	3,763		8		(29)		3,742		Corporate bonds	3,763		8		(29)		3,742
Total debt securities	Total debt securities	6,004,596		127,866		(24,116)		6,108,346		Total debt securities	6,004,596		127,866		(24,116)		6,108,346
Equity securities with a readily determinable fair value	Equity securities with a readily determinable fair value	19,629		—		—		19,629		Equity securities with a readily determinable fair value	19,629		—		—		19,629
Total	Total	$	6,024,225	$	127,866	$	(24,116)	$	6,127,975	Total	$	6,024,225	$	127,866	$	(24,116)	$	6,127,975

The amortized cost, gross unrealized gains and losses and estimated fair values of held to maturity securities as of ~~March 31,~~June 30, 2021, and December 31, 2020, are summarized in the table below, in thousands:


		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Allowance for Credit Losses			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Allowance for Credit Losses
March 31, 2021
June 30, 2021												June 30, 2021

Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	85,341	$	9,741	$	0	$	95,082	$	(48)	Obligations of states and political subdivisions	$	85,490	$	9,931	$	0	$	95,421	$	(51)
Total	Total	$	85,341	$	9,741	$	0	$	95,082	$	(48)	Total	$	85,490	$	9,931	$	0	$	95,421	$	(51)
December 31, 2020	December 31, 2020											December 31, 2020

Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	88,890	$	11,151	$	0	$	100,041	$	(51)	Obligations of states and political subdivisions	$	88,890	$	11,151	$	0	$	100,041	$	(51)
Total	Total	$	88,890	$	11,151	$	0	$	100,041	$	(51)	Total	$	88,890	$	11,151	$	0	$	100,041	$	(51)

As of ~~March~~June 30, 2021, and December 31, ~~2021,~~2020, HTLF had ~~$21.4~~$24.6 million and $20.8 million, respectively, of accrued interest receivable, which is included in other assets on the consolidated balance sheet. 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,~~June 30, 2021, 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, 2021					June 30, 2021
		Amortized Cost		Estimated Fair Value			Amortized Cost		Estimated Fair Value
Due in 1 year or less	Due in 1 year or less	$	2,839	$	2,873	Due in 1 year or less	$	13,286	$	13,351
Due in 1 to 5 years	Due in 1 to 5 years	30,793		31,575		Due in 1 to 5 years	18,199		19,153
Due in 5 to 10 years	Due in 5 to 10 years	250,514		250,981		Due in 5 to 10 years	198,036		202,564
Due after 10 years	Due after 10 years	1,671,046		1,669,661		Due after 10 years	1,628,518		1,676,920
Total debt securities	Total debt securities	1,955,192		1,955,090		Total debt securities	1,858,039		1,911,988
Mortgage and asset-backed securities	Mortgage and asset-backed securities	4,381,847		4,394,862		Mortgage and asset-backed securities	4,584,993		4,611,339
Equity securities with a readily determinable fair value	Equity securities with a readily determinable fair value	20,543		20,543		Equity securities with a readily determinable fair value	20,651		20,651
Total investment securities	Total investment securities	$	6,357,582	$	6,370,495	Total investment securities	$	6,463,683	$	6,543,978

The amortized cost and estimated fair value of debt securities held to maturity at ~~March 31,~~June 30, 2021, 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, 2021					June 30, 2021
		Amortized Cost		Estimated Fair Value			Amortized Cost		Estimated Fair Value
Due in 1 year or less	Due in 1 year or less	$	2,008	$	2,028	Due in 1 year or less	$	2,196	$	2,209
Due in 1 to 5 years	Due in 1 to 5 years	23,461		25,067		Due in 1 to 5 years	42,172		44,028
Due in 5 to 10 years	Due in 5 to 10 years	51,288		56,258		Due in 5 to 10 years	32,451		37,240
Due after 10 years	Due after 10 years	8,584		11,729		Due after 10 years	8,671		11,944
Total debt securities	Total debt securities	85,341		95,082		Total debt securities	85,490		95,421
Allowance for credit losses	Allowance for credit losses	(48)		0		Allowance for credit losses	(51)		0
Total investment securities	Total investment securities	$	85,293	$	95,082	Total investment securities	$	85,439	$	95,421

As of ~~March 31,~~June 30, 2021, and December 31, 2020, securities with a carrying value of ~~$1.78~~$1.87 billion and $2.12 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 and six months ended ~~March 31,~~June 30, 2021 and 2020, are summarized as follows, in thousands:


		Three Months Ended March 31,			Three Months Ended June 30,						Six Months Ended June 30,
			2021			2020			2021		2020		2021		2020
Proceeds from sales	Proceeds from sales		$	207,067		$	328,890	Proceeds from sales	$	423,415	$	182,749	$	630,481	$	511,639
Gross security gains	Gross security gains		445			2,904		Gross security gains	3,844		3,958		4,289		6,862
Gross security losses	Gross security losses		475			1,246		Gross security losses	1,002		1,952		1,477		3,198

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,~~June 30, 2021, and December 31, 2020. 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,~~June 30, 2020, and December 31, 2019, 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, 2021
U.S. treasuries $ 0 $ 0 0 $ 0 $ 0 0 $ 0 $ 0 0
U.S. agencies 23,581 (997) 2 95,757 (738) 73 119,338 (1,735) 75
Obligations of states and political subdivisions 1,000,647 (40,997) 169 13,126 (112) 2 1,013,773 (41,109) 171
Mortgage-backed securities - agency 774,060 (28,762) 51 27,063 (406) 2 801,123 (29,168) 53
Mortgage-backed securities - non-agency 568,107 (1,801) 18 30,172 (308) 5 598,279 (2,109) 23
Commercial mortgage-backed securities - agency 72,262 (3,717) 11 0 0 0 72,262 (3,717) 11
Commercial mortgage-backed securities - non-agency 57,789 (6) 1 34,659 (236) 4 92,448 (242) 5
Asset-backed securities 128,354 (533) 6 88,892 (1,107) 12 217,246 (1,640) 18
Corporate bonds 1,714 (28) 4 0 0 0 1,714 (28) 4
Total temporarily impaired securities $ 2,626,514 $ (76,841) 262 $ 289,669 $ (2,907) 98 $ 2,916,183 $ (79,748) 360
December 31, 2020
U.S. treasuries $ 0 $ 0 0 $ 0 $ 0 0 $ 0 $ 0 0
U.S. agencies 2,981 (8) 5 99,922 (918) 72 102,903 (926) 77
Obligations of states and political subdivisions 346,598 (2,959) 49 0 0 0 346,598 (2,959) 49
Mortgage-backed securities - agency 653,793 (12,342) 35 31,012 (381) 3 684,805 (12,723) 38
Mortgage-backed securities - non-agency 378,843 (1,639) 17 1,622 (1) 1 380,465 (1,640) 18
Commercial mortgage-backed securities - agency 46,541 (738) 6 0 0 0 46,541 (738) 6
Commercial mortgage-backed securities - non-agency 100,042 (15) 2 35,428 (676) 3 135,470 (691) 5
Asset-backed securities 141,824 (643) 9 340,452 (3,767) 24 482,276 (4,410) 33
Corporate bonds 1,908 (29) 4 0 0 0 1,908 (29) 4
Total temporarily impaired securities $ 1,672,530 $ (18,373) 127 $ 508,436 $ (5,743) 103 $ 2,180,966 $ (24,116) 230


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
June 30, 2021

U.S. agencies	18,983		(492)		1	0		0		0	18,983		(492)		1
Obligations of states and political subdivisions	591,597		(11,887)		107	6,719		(72)		2	598,316		(11,959)		109
Mortgage-backed securities - agency	1,025,619		(19,499)		58	37,181		(1,105)		4	1,062,800		(20,604)		62
Mortgage-backed securities - non-agency	541,131		(1,345)		12	33,988		(430)		5	575,119		(1,775)		17
Commercial mortgage-backed securities - agency	69,690		(1,800)		11	0		0		0	69,690		(1,800)		11
Commercial mortgage-backed securities - non-agency	0		0		0	15,960		(200)		2	15,960		(200)		2
Asset-backed securities	77,475		(319)		7	35,779		(810)		11	113,254		(1,129)		18
Corporate bonds	0		0		0	0		0		0	0		0		0


Total temporarily impaired securities	$	2,324,495	$	(35,342)	196	$	129,627	$	(2,617)	24	$	2,454,122	$	(37,959)	220
December 31, 2020

U.S. agencies	2,981		(8)		5	99,922		(918)		72	102,903		(926)		77
Obligations of states and political subdivisions	346,598		(2,959)		49	0		0		0	346,598		(2,959)		49
Mortgage-backed securities - agency	653,793		(12,342)		35	31,012		(381)		3	684,805		(12,723)		38
Mortgage-backed securities - non-agency	378,843		(1,639)		17	1,622		(1)		1	380,465		(1,640)		18
Commercial mortgage-backed securities - agency	46,541		(738)		6	0		0		0	46,541		(738)		6
Commercial mortgage-backed securities - non-agency	100,042		(15)		2	35,428		(676)		3	135,470		(691)		5
Asset-backed securities	141,824		(643)		9	340,452		(3,767)		24	482,276		(4,410)		33
Corporate bonds	1,908		(29)		4	0		0		0	1,908		(29)		4


Total temporarily impaired securities	$	1,672,530	$	(18,373)	127	$	508,436	$	(5,743)	103	$	2,180,966	$	(24,116)	230

HTLF had 0 securities held to maturity with unrealized losses at ~~March 31,~~June 30, 2021, or December 31, 2020.

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 remaining unrealized losses on HTLF's 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 and six months ended ~~March 31,~~June 30, 2021 and 2020.

The unrealized losses on HTLF's obligations of states and political subdivisions 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 and six months ended ~~March 31,~~June 30, 2021 and 2020.

The credit loss model under ASC 326-30, applicable to held to maturity debt securities, requires the recognition of lifetime expected credit losses through an allowance account at the time when the security is purchased. The following ~~table presents,~~tables present, in thousands, the activity in the allowance for credit losses for securities held to maturity by obligations of states and political subdivisions securities for the three and six months ended ~~March 31,~~June 30, 2021 and 2020:


							Three Months Ended June 30,
							2021		2020

Beginning balance						Beginning balance	$	48	$	197
Provision (benefit) for credit losses						Provision (benefit) for credit losses	3		(135)
Balance at period end						Balance at period end	$	51	$	62

		Three Months Ended March 31,					Six Months Ended June 30,
		2021		2020			2021		2020
Beginning balance	Beginning balance	$	51	$	0	Beginning balance	$	51	$	0
Impact of ASU 2016-13 adoption	Impact of ASU 2016-13 adoption	0		158		Impact of ASU 2016-13 adoption	0		158
Adjusted balance	Adjusted balance	51		158		Adjusted balance	51		158
Provision (benefit) for credit losses	Provision (benefit) for credit losses	(3)		39		Provision (benefit) for credit losses	0		(96)
Balance at period end	Balance at period end	$	48	$	197	Balance at period end	$	51	$	62

The following table summarizes, in thousands, the carrying amount of HTLF's held to maturity debt securities by investment rating as of ~~March 31,~~June 30, 2021 and December 31, 2020, which are updated quarterly and used to monitor the credit quality of the securities:

March 31, 2021 December 31, 2020
Rating
AAA $ 3,178 $ 0
AA, AA+, AA- 61,816 64,385
A+, A, A- 15,150 18,353
BBB 4,729 4,208
Not Rated 468 1,944
Total $ 85,341 $ 88,890


	June 30, 2021		December 31, 2020
Rating
AAA	$	3,207	$	0
AA, AA+, AA-	62,526		64,385
A+, A, A-	15,006		18,353
BBB	4,751		4,208
Not Rated	0		1,944
Total	$	85,490	$	88,890

Included in other securities were shares of stock in each Federal Home Loan Bank (the "FHLB") of Des Moines, Chicago, Dallas, San Francisco and Topeka at an amortized cost of ~~$19.2~~$20.8 million at ~~March 31,~~June 30, 2021 and $19.5 million at December 31, 2020.

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,~~June 30, 2021, did not consider the investments to be impaired.

NOTE 4: LOANS

Loans as of ~~March 31,~~June 30, 2021, and December 31, 2020, were as follows, in thousands:

March 31, 2021 December 31, 2020
Loans receivable held to maturity:
Commercial and industrial $ 2,421,260 $ 2,534,799
Paycheck Protection Program ("PPP") 1,155,328 957,785
Owner occupied commercial real estate 1,837,559 1,776,406
Non-owner occupied commercial real estate 1,967,183 1,921,481
Real estate construction 796,027 863,220
Agricultural and agricultural real estate 683,969 714,526
Residential real estate 786,994 840,442
Consumer 402,136 414,392
Total loans receivable held to maturity 10,050,456 10,023,051
Allowance for credit losses (130,172) (131,606)
Loans receivable, net $ 9,920,284 $ 9,891,445


	June 30, 2021		December 31, 2020
Loans receivable held to maturity:
Commercial and industrial	$	2,518,908	$	2,534,799
Paycheck Protection Program ("PPP")	829,175		957,785
Owner occupied commercial real estate	1,940,134		1,776,406
Non-owner occupied commercial real estate	1,987,369		1,921,481
Real estate construction	854,295		863,220
Agricultural and agricultural real estate	679,608		714,526
Residential real estate	800,884		840,442
Consumer	401,641		414,392
Total loans receivable held to maturity	10,012,014		10,023,051






Allowance for credit losses	(120,726)		(131,606)
Loans receivable, net	$	9,891,288	$	9,891,445

As of ~~March~~June 30, 2021, and December 31, ~~2021,~~2020, HTLF had ~~$41.6~~$37.7 million and $42.4 million, respectively, of accrued interest receivable, which is included in other assets on the consolidated balance sheet. 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,~~June 30, 2021, and December 31, 2020, and the related loan balances, disaggregated on the basis of measurement methodology, in thousands. ~~Individually assessed loans are collateral dependent and in the process of foreclosure or~~If a loan no longer ~~share the same~~shares similar risk characteristics ~~of the~~with other loans in the ~~pool.~~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, 2021
Commercial and industrial $ 3,433 $ 32,662 $ 36,095 $ 14,560 $ 2,406,700 $ 2,421,260
PPP 0 0 0 0 1,155,328 1,155,328
Owner occupied commercial real estate 110 19,306 19,416 10,720 1,826,839 1,837,559
Non-owner occupied commercial real estate 5,873 18,821 24,694 22,655 1,944,528 1,967,183
Real estate construction 0 19,931 19,931 0 796,027 796,027
Agricultural and agricultural real estate 2,481 4,630 7,111 14,926 669,043 683,969
Residential real estate 0 11,012 11,012 129 786,865 786,994
Consumer 0 11,913 11,913 0 402,136 402,136
Total $ 11,897 $ 118,275 $ 130,172 $ 62,990 $ 9,987,466 $ 10,050,456
December 31, 2020
Commercial and industrial $ 4,077 $ 34,741 $ 38,818 $ 16,578 $ 2,518,221 $ 2,534,799
PPP 0 0 0 0 957,785 957,785
Owner occupied commercial real estate 111 19,890 20,001 11,174 1,765,232 1,776,406
Non-owner occupied commercial real estate 3,250 17,623 20,873 13,490 1,907,991 1,921,481
Real estate construction 0 20,080 20,080 0 863,220 863,220
Agricultural and agricultural real estate 1,988 5,141 7,129 15,453 699,073 714,526
Residential real estate 0 11,935 11,935 535 839,907 840,442
Consumer 0 12,770 12,770 0 414,392 414,392
Total $ 9,426 $ 122,180 $ 131,606 $ 57,230 $ 9,965,821 $ 10,023,051


	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
June 30, 2021
Commercial and industrial	$	4,688	$	26,644	$	31,332	$	13,658	$	2,505,250	$	2,518,908
PPP	0		0		0		0		829,175		829,175
Owner occupied commercial real estate	110		19,880		19,990		7,547		1,932,587		1,940,134
Non-owner occupied commercial real estate	3,485		19,343		22,828		19,548		1,967,821		1,987,369
Real estate construction	0		19,580		19,580		0		854,295		854,295
Agricultural and agricultural real estate	3,106		4,054		7,160		17,948		661,660		679,608
Residential real estate	0		9,741		9,741		0		800,884		800,884
Consumer	0		10,095		10,095		0		401,641		401,641

Total	$	11,389	$	109,337	$	120,726	$	58,701	$	9,953,313	$	10,012,014


	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
December 31, 2020
Commercial and industrial	$	4,077	$	34,741	$	38,818	$	16,578	$	2,518,221	$	2,534,799
PPP	0		0		0		0		957,785		957,785
Owner occupied commercial real estate	111		19,890		20,001		11,174		1,765,232		1,776,406
Non-owner occupied commercial real estate	3,250		17,623		20,873		13,490		1,907,991		1,921,481
Real estate construction	0		20,080		20,080		0		863,220		863,220
Agricultural and agricultural real estate	1,988		5,141		7,129		15,453		699,073		714,526
Residential real estate	0		11,935		11,935		535		839,907		840,442
Consumer	0		12,770		12,770		0		414,392		414,392

Total	$	9,426	$	122,180	$	131,606	$	57,230	$	9,965,821	$	10,023,051

HTLF had ~~$6.1~~$13.7 million of troubled debt restructured loans at ~~March 31,~~June 30, 2021, of which ~~$3.7~~$11.6 million were classified as nonaccrual and ~~$2.4~~$2.1 million were accruing according to the restructured terms. HTLF had $6.2 million of troubled debt restructured loans at December 31, 2020, of which $3.8 million were classified as nonaccrual and $2.4 million were accruing according to the restructured terms.

The following tables provide information on troubled debt restructured loans that were modified during the ~~three~~three- and six- months ended ~~March 31,~~June 30, 2021, and ~~March 31,~~June 30, 2020, dollars in thousands:

Three Months Ended
March 31,


	Three Months Ended June 30,
	2021					2020
	Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment
Commercial	0	$	0	$	0	0	$	0	$	0
PPP	0	0		0		0	0		0
Owner occupied commercial real estate	0	0		0		0	0		0
Non-owner occupied commercial real estate	2	7,850		7,850		0	0		0
Real estate construction	0	0		0		0	0		0
Agricultural and agricultural real estate	0	0		0		0	0		0
Residential real estate	0	0		0		1	60		66
Consumer	0	0		0		0	0		0
Total	2	$	7,850	$	7,850	1	$	60	$	66


		Three Months Ended March 31,											Six Months Ended June 30,
		2021					2020						2021					2020
		Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment			Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment
Commercial and industrial	Commercial and industrial	0	$	0	$	0	0	$	0	$	0	Commercial and industrial	0	$	0	$	0	0	$	0	$	0
PPP	PPP	0	0		0		0	0		0		PPP	0	0		0		0	0		0
Owner occupied commercial real estate	Owner occupied commercial real estate	0	0		0		0	0		0		Owner occupied commercial real estate	0	0		0		0	0		0
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	0	0		0		0	0		0		Non-owner occupied commercial real estate	2	7,850		7,850		0	0		0
Real estate construction	Real estate construction	0	0		0		0	0		0		Real estate construction	0	0		0		0	0		0
Agricultural and agricultural real estate	Agricultural and agricultural real estate	0	0		0		0	0		0		Agricultural and agricultural real estate	0	0		0		0	0		0
Residential real estate		0	0		0		1	32		32
Consumer		0	0		0		0	0		0
Total		0	$	0	$	0	1	$	32	$	32


	Six Months Ended June 30,
	2021					2020
	Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment
Residential real estate	0	0		0		2	92		98
Consumer	0	0		0		0	0		0
Total	2	$	7,850	$	7,850	2	$	92	$	98

At ~~March 31,~~June 30, 2021, there were no commitments to extend credit to any of the borrowers with an existing troubled debt restructured loan. The tables above do not include any loan modifications made under COVID-19 modification programs. ~~Refer to the "Overview" section of Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," for further information on these modifications.~~

~~The following table shows~~There were 0 troubled debt restructured loans for which there was a payment default during the ~~three~~three- and six- months ended ~~March 31,~~June 30, 2021, and ~~March 31,~~June 30, 2020, that had been modified during the twelve-month period prior to ~~default, in thousands:~~default.

With Payment Defaults During the
Three Months Ended
March 31,
2021 2020
Number of Loans Recorded Investment Number of Loans Recorded Investment
Commercial and industrial 0 $ 0 0 $ 0
PPP 0 0 0 0
Owner occupied commercial real estate 0 0 0 0
Non-owner occupied commercial real estate 0 0 0 0
Real estate construction 0 0 0 0
Agricultural and agricultural real estate 0 0 0 0
Residential real estate 0 0 1 241
Consumer 0 0 0 0
Total 0 $ 0 1 $ 241

HTLF's internal rating system 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.

The "nonpass" category consists of watch, substandard, doubtful and loss 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 0 loans classified as loss or doubtful as of ~~March 31,~~June 30, 2021, and December 31, 2020.

The following tables show the risk category of loans by loan category and year of origination as of ~~March 31,~~June 30, 2021, and December 31, 2020, in thousands:

As of March 31, 2021 Amortized Cost Basis of Term Loans by Year of Origination
2021 2020 2019 2018 2017 2016 and Prior Revolving Total
Commercial and industrial
Pass $ 85,059 $ 523,968 $ 305,803 $ 142,927 $ 206,293 $ 386,530 $ 481,837 $ 2,132,417
Watch 1,213 31,058 23,144 19,494 15,308 21,877 78,657 190,751
Substandard 825 24,203 10,191 8,278 11,890 26,002 16,703 98,092
Commercial and industrial total $ 87,097 $ 579,229 $ 339,138 $ 170,699 $ 233,491 $ 434,409 $ 577,197 $ 2,421,260
PPP
Pass $ 400,126 $ 671,099 $ 0 $ 0 $ 0 $ 0 $ 0 $ 1,071,225
Watch 9,625 20,344 0 0 0 0 0 29,969
Substandard 5,750 48,384 0 0 0 0 0 54,134
PPP total $ 415,501 $ 739,827 $ 0 $ 0 $ 0 $ 0 $ 0 $ 1,155,328
Owner occupied commercial real estate
Pass $ 97,898 $ 415,729 $ 387,953 $ 271,720 $ 152,313 $ 289,744 $ 36,676 $ 1,652,033
Watch 768 16,775 22,063 22,059 20,427 19,212 7,131 108,435
Substandard 1,907 14,332 7,797 10,340 12,830 28,937 948 77,091
Owner occupied commercial real estate total $ 100,573 $ 446,836 $ 417,813 $ 304,119 $ 185,570 $ 337,893 $ 44,755 $ 1,837,559
Non-owner occupied commercial real estate
Pass $ 94,856 $ 334,303 $ 379,230 $ 297,195 $ 181,937 $ 307,473 $ 20,154 $ 1,615,148
Watch 0 20,932 91,095 31,107 20,494 67,914 5,013 236,555
Substandard 2,140 30,469 14,010 23,383 14,853 30,625 0 115,480
Non-owner occupied commercial real estate total $ 96,996 $ 385,704 $ 484,335 $ 351,685 $ 217,284 $ 406,012 $ 25,167 $ 1,967,183
Real estate construction
Pass $ 66,643 $ 342,374 $ 229,345 $ 54,006 $ 10,730 $ 9,485 $ 18,588 $ 731,171
Watch 0 2,832 11,164 47,532 317 25 414 62,284
Substandard 158 0 28 1,995 0 391 0 2,572
Real estate construction total $ 66,801 $ 345,206 $ 240,537 $ 103,533 $ 11,047 $ 9,901 $ 19,002 $ 796,027
Agricultural and agricultural real estate
Pass $ 56,474 $ 149,863 $ 81,301 $ 49,483 $ 32,928 $ 49,165 $ 132,606 $ 551,820
Watch 1,268 17,561 12,753 6,863 1,636 6,667 10,136 56,884
Substandard 6,686 13,163 6,943 22,012 5,855 12,370 8,236 75,265
Agricultural and agricultural real estate total $ 64,428 $ 180,587 $ 100,997 $ 78,358 $ 40,419 $ 68,202 $ 150,978 $ 683,969
Residential real estate
Pass $ 46,700 $ 125,274 $ 80,624 $ 95,884 $ 64,961 $ 312,167 $ 26,634 $ 752,244
Watch 1,188 1,989 1,676 2,067 1,620 8,062 0 16,602
Substandard 4,324 947 201 2,073 1,410 8,393 800 18,148
Residential real estate total $ 52,212 $ 128,210 $ 82,501 $ 100,024 $ 67,991 $ 328,622 $ 27,434 $ 786,994
Consumer
Pass $ 17,483 $ 32,613 $ 23,111 $ 16,259 $ 13,336 $ 22,480 $ 266,620 $ 391,902
Watch 29 104 361 840 324 708 1,455 3,821
Substandard 0 546 739 1,423 386 2,499 820 6,413
Consumer total $ 17,512 $ 33,263 $ 24,211 $ 18,522 $ 14,046 $ 25,687 $ 268,895 $ 402,136
Total Pass $ 865,239 $ 2,595,223 $ 1,487,367 $ 927,474 $ 662,498 $ 1,377,044 $ 983,115 $ 8,897,960
Total Watch 14,091 111,595 162,256 129,962 60,126 124,465 102,806 705,301
Total Substandard 21,790 132,044 39,909 69,504 47,224 109,217 27,507 447,195
Total Loans $ 901,120 $ 2,838,862 $ 1,689,532 $ 1,126,940 $ 769,848 $ 1,610,726 $ 1,113,428 $ 10,050,456


As of June 30, 2021	Amortized Cost Basis of Term Loans by Year of Origination
	2021		2020		2019		2018		2017		2016 and Prior		Revolving		Total
Commercial and industrial
Pass	$	330,626	$	475,749	$	277,874	$	122,550	$	197,617	$	370,896	$	528,785	$	2,304,097
Watch	7,252		13,154		22,947		12,886		8,633		17,574		35,506		117,952
Substandard	2,171		21,377		10,899		8,780		11,706		21,646		20,280		96,859
Commercial and industrial total	$	340,049	$	510,280	$	311,720	$	144,216	$	217,956	$	410,116	$	584,571	$	2,518,908


As of December 31, 2020		Amortized Cost Basis of Term Loans by Year of Origination
As of June 30, 2021																		As of June 30, 2021	Amortized Cost Basis of Term Loans by Year of Origination
		2020		2019		2018		2017		2016		2015 and Prior		Revolving		Total			2021		2020		2019		2018		2017		2016 and Prior		Revolving		Total
Commercial and industrial
Pass		$	557,853	$	340,809	$	168,873	$	215,696	$	101,010	$	337,834	$	541,627	$	2,263,702
Watch		41,574		24,676		19,672		14,262		8,072		2,474		49,432		160,162
Substandard		23,024		16,274		8,897		15,717		9,098		19,537		18,388		110,935
Commercial and industrial total		$	622,451	$	381,759	$	197,442	$	245,675	$	118,180	$	359,845	$	609,447	$	2,534,799
PPP	PPP																	PPP
Pass	Pass	$	880,709	$	0	$	0	$	0	$	0	$	0	$	0	$	880,709	Pass	$	409,922	$	327,475	$	0	$	0	$	0	$	0	$	0	$	737,397
Watch	Watch	22,533		0		0		0		0		0		0		22,533		Watch	21,880		28,769		0		0		0		0		0		50,649
Substandard	Substandard	54,543		0		0		0		0		0		0		54,543		Substandard	20,697		20,432		0		0		0		0		0		41,129
PPP total	PPP total	$	957,785	$	0	$	0	$	0	$	0	$	0	$	0	$	957,785	PPP total	$	452,499	$	376,676	$	0	$	0	$	0	$	0	$	0	$	829,175
Owner occupied commercial real estate	Owner occupied commercial real estate																	Owner occupied commercial real estate
Pass	Pass	$	400,662	$	369,401	$	300,242	$	167,470	$	107,234	$	213,780	$	33,759	$	1,592,548	Pass	$	331,097	$	402,216	$	371,104	$	232,062	$	143,692	$	264,190	$	27,773	$	1,772,134
Watch	Watch	15,345		13,764		22,488		20,811		8,717		15,282		4,311		100,718		Watch	428		17,998		14,979		18,715		19,869		10,305		2,250		84,544
Substandard	Substandard	15,914		9,522		12,164		14,147		8,580		21,708		1,105		83,140		Substandard	743		18,083		13,464		7,908		13,903		28,201		1,154		83,456
Owner occupied commercial real estate total	Owner occupied commercial real estate total	$	431,921	$	392,687	$	334,894	$	202,428	$	124,531	$	250,770	$	39,175	$	1,776,406	Owner occupied commercial real estate total	$	332,268	$	438,297	$	399,547	$	258,685	$	177,464	$	302,696	$	31,177	$	1,940,134
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate																	Non-owner occupied commercial real estate
Pass	Pass	$	334,722	$	411,301	$	305,456	$	194,101	$	108,070	$	233,153	$	24,466	$	1,611,269	Pass	$	206,934	$	332,479	$	355,445	$	275,853	$	163,047	$	266,547	$	32,340	$	1,632,645
Watch	Watch	22,826		55,225		24,718		18,724		20,954		45,672		5,114		193,233		Watch	16,873		18,884		76,447		30,786		8,233		53,339		4,524		209,086
Substandard	Substandard	30,899		15,035		23,290		17,046		9,147		21,060		502		116,979		Substandard	16,968		13,315		20,879		23,329		24,802		46,035		310		145,638
Non-owner occupied commercial real estate total	Non-owner occupied commercial real estate total	$	388,447	$	481,561	$	353,464	$	229,871	$	138,171	$	299,885	$	30,082	$	1,921,481	Non-owner occupied commercial real estate total	$	240,775	$	364,678	$	452,771	$	329,968	$	196,082	$	365,921	$	37,174	$	1,987,369
Real estate construction	Real estate construction																	Real estate construction
Pass	Pass	$	311,625	$	309,678	$	157,171	$	12,625	$	6,954	$	5,110	$	21,431	$	824,594	Pass	$	151,473	$	338,101	$	215,455	$	49,360	$	10,003	$	8,959	$	17,078	$	790,429
Watch	Watch	2,105		26,659		2,403		332		55		388		1,295		33,237		Watch	0		1,865		11,474		47,460		240		210		413		61,662
Substandard	Substandard	196		2,760		2,036		0		39		358		0		5,389		Substandard	0		0		28		1,993		0		183		0		2,204
Real estate construction total	Real estate construction total	$	313,926	$	339,097	$	161,610	$	12,957	$	7,048	$	5,856	$	22,726	$	863,220	Real estate construction total	$	151,473	$	339,966	$	226,957	$	98,813	$	10,243	$	9,352	$	17,491	$	854,295
Agricultural and agricultural real estate	Agricultural and agricultural real estate																	Agricultural and agricultural real estate
Pass	Pass	$	171,578	$	90,944	$	62,349	$	39,252	$	17,626	$	37,696	$	148,456	$	567,901	Pass	$	115,287	$	125,764	$	79,157	$	46,698	$	28,105	$	43,350	$	134,975	$	573,336
Watch	Watch	20,500		16,202		8,854		2,448		3,515		3,157		12,282		66,958		Watch	3,480		13,591		5,746		2,197		256		3,735		4,735		33,740
Substandard	Substandard	17,403		7,044		23,519		6,758		3,917		9,952		11,074		79,667		Substandard	9,082		8,793		6,886		20,498		5,641		11,210		10,422		72,532
Agricultural and agricultural real estate total	Agricultural and agricultural real estate total	$	209,481	$	114,190	$	94,722	$	48,458	$	25,058	$	50,805	$	171,812	$	714,526	Agricultural and agricultural real estate total	$	127,849	$	148,148	$	91,789	$	69,393	$	34,002	$	58,295	$	150,132	$	679,608

Residential real estate	Residential real estate																	Residential real estate
Pass	Pass	$	153,017	$	99,440	$	118,854	$	83,534	$	63,477	$	244,852	$	33,467	$	796,641	Pass	$	144,046	$	116,571	$	65,840	$	82,530	$	56,628	$	277,236	$	28,244	$	771,095
Watch	Watch	3,986		4,507		2,188		1,896		3,117		8,525		0		24,219		Watch	1,236		1,966		1,634		1,703		2,039		6,998		0		15,576
Substandard	Substandard	980		442		2,507		1,528		884		12,141		1,100		19,582		Substandard	4,147		859		299		1,889		1,259		5,760		0		14,213
Residential real estate total	Residential real estate total	$	157,983	$	104,389	$	123,549	$	86,958	$	67,478	$	265,518	$	34,567	$	840,442	Residential real estate total	$	149,429	$	119,396	$	67,773	$	86,122	$	59,926	$	289,994	$	28,244	$	800,884
Consumer	Consumer																	Consumer
Pass	Pass	$	37,037	$	27,646	$	18,811	$	15,034	$	4,009	$	19,483	$	280,996	$	403,016	Pass	$	39,485	$	26,718	$	20,157	$	13,147	$	12,112	$	21,088	$	259,705	$	392,412
Watch	Watch	168		352		647		340		82		646		1,622		3,857		Watch	4		132		220		1,362		130		508		1,234		3,590
Substandard	Substandard	481		959		1,884		500		897		1,976		822		7,519		Substandard	848		432		612		474		371		2,104		798		5,639
Consumer total	Consumer total	$	37,686	$	28,957	$	21,342	$	15,874	$	4,988	$	22,105	$	283,440	$	414,392	Consumer total	$	40,337	$	27,282	$	20,989	$	14,983	$	12,613	$	23,700	$	261,737	$	401,641

Total Pass	Total Pass	$	2,847,203	$	1,649,219	$	1,131,756	$	727,712	$	408,380	$	1,091,908	$	1,084,202	$	8,940,380	Total Pass	$	1,728,870	$	2,145,073	$	1,385,032	$	822,200	$	611,204	$	1,252,266	$	1,028,900	$	8,973,545
Total Watch	Total Watch	129,037		141,385		80,970		58,813		44,512		76,144		74,056		604,917		Total Watch	51,153		96,359		133,447		115,109		39,400		92,669		48,662		576,799
Total Substandard	Total Substandard	143,440		52,036		74,297		55,696		32,562		86,732		32,991		477,754		Total Substandard	54,656		83,291		53,067		64,871		57,682		115,139		32,964		461,670
Total Loans	Total Loans	$	3,119,680	$	1,842,640	$	1,287,023	$	842,221	$	485,454	$	1,254,784	$	1,191,249	$	10,023,051	Total Loans	$	1,834,679	$	2,324,723	$	1,571,546	$	1,002,180	$	708,286	$	1,460,074	$	1,110,526	$	10,012,014


As of December 31, 2020	Amortized Cost Basis of Term Loans by Year of Origination
	2020		2019		2018		2017		2016		2015 and Prior		Revolving		Total
Commercial and industrial
Pass	$	557,853	$	340,809	$	168,873	$	215,696	$	101,010	$	337,834	$	541,627	$	2,263,702
Watch	41,574		24,676		19,672		14,262		8,072		2,474		49,432		160,162
Substandard	23,024		16,274		8,897		15,717		9,098		19,537		18,388		110,935
Commercial and industrial total	$	622,451	$	381,759	$	197,442	$	245,675	$	118,180	$	359,845	$	609,447	$	2,534,799
PPP
Pass	$	880,709	$	0	$	0	$	0	$	0	$	0	$	0	$	880,709


As of December 31, 2020	Amortized Cost Basis of Term Loans by Year of Origination
	2020		2019		2018		2017		2016		2015 and Prior		Revolving		Total
Watch	22,533		0		0		0		0		0		0		22,533
Substandard	54,543		0		0		0		0		0		0		54,543
PPP total	$	957,785	$	0	$	0	$	0	$	0	$	0	$	0	$	957,785
Owner occupied commercial real estate
Pass	$	400,662	$	369,401	$	300,242	$	167,470	$	107,234	$	213,780	$	33,759	$	1,592,548
Watch	15,345		13,764		22,488		20,811		8,717		15,282		4,311		100,718
Substandard	15,914		9,522		12,164		14,147		8,580		21,708		1,105		83,140
Owner occupied commercial real estate total	$	431,921	$	392,687	$	334,894	$	202,428	$	124,531	$	250,770	$	39,175	$	1,776,406
Non-owner occupied commercial real estate
Pass	$	334,722	$	411,301	$	305,456	$	194,101	$	108,070	$	233,153	$	24,466	$	1,611,269
Watch	22,826		55,225		24,718		18,724		20,954		45,672		5,114		193,233
Substandard	30,899		15,035		23,290		17,046		9,147		21,060		502		116,979
Non-owner occupied commercial real estate total	$	388,447	$	481,561	$	353,464	$	229,871	$	138,171	$	299,885	$	30,082	$	1,921,481
Real estate construction
Pass	$	311,625	$	309,678	$	157,171	$	12,625	$	6,954	$	5,110	$	21,431	$	824,594
Watch	2,105		26,659		2,403		332		55		388		1,295		33,237
Substandard	196		2,760		2,036		0		39		358		0		5,389
Real estate construction total	$	313,926	$	339,097	$	161,610	$	12,957	$	7,048	$	5,856	$	22,726	$	863,220
Agricultural and agricultural real estate
Pass	$	171,578	$	90,944	$	62,349	$	39,252	$	17,626	$	37,696	$	148,456	$	567,901
Watch	20,500		16,202		8,854		2,448		3,515		3,157		12,282		66,958
Substandard	17,403		7,044		23,519		6,758		3,917		9,952		11,074		79,667
Agricultural and agricultural real estate total	$	209,481	$	114,190	$	94,722	$	48,458	$	25,058	$	50,805	$	171,812	$	714,526
Residential real estate
Pass	$	153,017	$	99,440	$	118,854	$	83,534	$	63,477	$	244,852	$	33,467	$	796,641
Watch	3,986		4,507		2,188		1,896		3,117		8,525		0		24,219
Substandard	980		442		2,507		1,528		884		12,141		1,100		19,582
Residential real estate total	$	157,983	$	104,389	$	123,549	$	86,958	$	67,478	$	265,518	$	34,567	$	840,442
Consumer
Pass	$	37,037	$	27,646	$	18,811	$	15,034	$	4,009	$	19,483	$	280,996	$	403,016
Watch	168		352		647		340		82		646		1,622		3,857
Substandard	481		959		1,884		500		897		1,976		822		7,519
Consumer total	$	37,686	$	28,957	$	21,342	$	15,874	$	4,988	$	22,105	$	283,440	$	414,392

Total Pass	$	2,847,203	$	1,649,219	$	1,131,756	$	727,712	$	408,380	$	1,091,908	$	1,084,202	$	8,940,380
Total Watch	129,037		141,385		80,970		58,813		44,512		76,144		74,056		604,917
Total Substandard	143,440		52,036		74,297		55,696		32,562		86,732		32,991		477,754
Total Loans	$	3,119,680	$	1,842,640	$	1,287,023	$	842,221	$	485,454	$	1,254,784	$	1,191,249	$	10,023,051

Included in the nonpass loans at ~~March 31,~~June 30, 2021 and December 31, 2020 were ~~$84.1~~$91.8 million and $77.1 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 0 allowance recorded related to the PPP loans because of the 100% government guarantee.

As of ~~March 31,~~June 30, 2021, HTLF had ~~$1.6~~$1.7 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,~~June 30, 2021, and December 31, 2020, in thousands:


		Accruing Loans															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			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, 2021
June 30, 2021																June 30, 2021
Commercial and industrial	Commercial and industrial	$	3,632	$	219	$	49	$	3,900	$	2,397,518	$	19,842	$	2,421,260	Commercial and industrial	$	1,537	$	1,034	$	12	$	2,583	$	2,498,207	$	18,118	$	2,518,908
PPP	PPP	0		0		0		0		1,155,328		0		1,155,328		PPP	0		0		0		0		829,175		0		829,175
Owner occupied commercial real estate	Owner occupied commercial real estate	519		0		0		519		1,824,298		12,742		1,837,559		Owner occupied commercial real estate	1,134		0		0		1,134		1,929,086		9,914		1,940,134
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	4,174		584		0		4,758		1,938,728		23,697		1,967,183		Non-owner occupied commercial real estate	1,374		1,350		0		2,724		1,963,775		20,870		1,987,369
Real estate construction	Real estate construction	393		0		0		393		795,057		577		796,027		Real estate construction	2,834		0		0		2,834		851,053		408		854,295
Agricultural and agricultural real estate	Agricultural and agricultural real estate	830		5		0		835		665,069		18,065		683,969		Agricultural and agricultural real estate	2,759		1,716		0		4,475		654,135		20,998		679,608
Residential real estate	Residential real estate	4,088		1,101		122		5,311		768,401		13,282		786,994		Residential real estate	2,192		118		85		2,395		785,637		12,852		800,884
Consumer	Consumer	525		86		0		611		398,012		3,513		402,136		Consumer	679		222		0		901		398,632		2,108		401,641
Total gross loans receivable held to maturity	Total gross loans receivable held to maturity	$	14,161	$	1,995	$	171	$	16,327	$	9,942,411	$	91,718	$	10,050,456	Total gross loans receivable held to maturity	$	12,509	$	4,440	$	97	$	17,046	$	9,909,700	$	85,268	$	10,012,014
December 31, 2020	December 31, 2020															December 31, 2020
Commercial and industrial	Commercial and industrial	$	5,825	$	2,322	$	720	$	8,867	$	2,504,170	$	21,762	$	2,534,799	Commercial and industrial	$	5,825	$	2,322	$	720	$	8,867	$	2,504,170	$	21,762	$	2,534,799
PPP	PPP	1		0		0		1		957,784		0		957,785		PPP	1		0		0		1		957,784		0		957,785
Owner occupied commercial real estate	Owner occupied commercial real estate	2,815		167		0		2,982		1,759,649		13,775		1,776,406		Owner occupied commercial real estate	2,815		167		0		2,982		1,759,649		13,775		1,776,406
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	2,143		2,674		0		4,817		1,902,003		14,661		1,921,481		Non-owner occupied commercial real estate	2,143		2,674		0		4,817		1,902,003		14,661		1,921,481
Real estate construction	Real estate construction	2,446		96		0		2,542		859,784		894		863,220		Real estate construction	2,446		96		0		2,542		859,784		894		863,220
Agricultural and agricultural real estate	Agricultural and agricultural real estate	1,688		0		0		1,688		694,150		18,688		714,526		Agricultural and agricultural real estate	1,688		0		0		1,688		694,150		18,688		714,526
Residential real estate	Residential real estate	1,675		83		0		1,758		825,047		13,637		840,442		Residential real estate	1,675		83		0		1,758		825,047		13,637		840,442
Consumer	Consumer	807		139		0		946		409,477		3,969		414,392		Consumer	807		139		0		946		409,477		3,969		414,392
Total gross loans receivable held to maturity	Total gross loans receivable held to maturity	$	17,400	$	5,481	$	720	$	23,601	$	9,912,064	$	87,386	$	10,023,051	Total gross loans receivable held to maturity	$	17,400	$	5,481	$	720	$	23,601	$	9,912,064	$	87,386	$	10,023,051

Loans delinquent 30 to 89 days as a percent of total loans were ~~0.16%~~0.17% at ~~March 31,~~June 30, 2021, compared to 0.23% at December 31, 2020. Changes in credit risk are monitored on a continuous basis as part of relationship management, and changes in risk ratings are made when identified. All individually assessed loans are reviewed at least annually.

HTLF recognized $0 of interest income on nonaccrual loans during the three and six months ended ~~March 31,~~June 30, 2021 and ~~March 31,~~June 30, 2020. As of ~~March 31,~~June 30, 2021, and December 31, 2020, HTLF had ~~$30.5~~$24.0 million and $32.5 million of nonaccrual loans with no related allowance, respectively.

On December 4, 2020, HTLF's Arizona Bank & Trust subsidiary completed the acquisition of certain assets and substantially all of the deposits and certain other liabilities of Johnson Bank's Arizona operations, headquartered in Racine, Wisconsin. As of December 4, 2020, the Johnson Bank branches acquired had gross loans with a fair value of $150.7 million.

On December 4, 2020, HTLF completed the acquisition of AimBank, headquartered in Levelland, Texas. As of December 4, 2020, AimBank had gross loans with a fair value of $1.09 billion.

NOTE 5: ALLOWANCE FOR CREDIT LOSSES

Changes in the allowance for credit losses on loans for the ~~three~~three- and six- months ended ~~March 31,~~June 30, 2021, and ~~March 31,~~June 30, 2020, were as follows, in thousands:


																						Commercial and Industrial			PPP			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 March 31, 2021																				Balance at March 31, 2021		$	36,095		$	0		$	19,416		$	24,694		$	19,931		$	7,111		$	11,012		$	11,913		$	130,172
Charge-offs																				Charge-offs		(842)			0			(72)			(1,637)			(10)			(357)			(70)			(509)			(3,497)
Recoveries																				Recoveries		265			0			44			13			4			0			0			191			517
Provision																				Provision		(4,186)			0			602			(242)			(345)			406			(1,201)			(1,500)			(6,466)
Balance at June 30, 2021																				Balance at June 30, 2021		$	31,332		$	0		$	19,990		$	22,828		$	19,580		$	7,160		$	9,741		$	10,095		$	120,726

		Commercial and Industrial		PPP		Owner Occupied Commercial Real Estate		Non-Owner Occupied Commercial Real Estate		Real Estate Construction		Agricultural and Agricultural Real Estate		Residential Real Estate		Consumer		Total					Commercial and Industrial			PPP			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, 2020	Balance at December 31, 2020	$	38,818	$	0	$	20,001	$	20,873	$	20,080	$	7,129	$	11,935	$	12,770	$	131,606		Balance at December 31, 2020		$	38,818		$	0		$	20,001		$	20,873		$	20,080		$	7,129		$	11,935		$	12,770		$	131,606

Charge-offs	Charge-offs	(948)		0		(41)		0		0		(318)		(21)		(798)		(2,126)			Charge-offs		(1,790)			0			(113)			(1,637)			(10)			(675)			(91)			(1,307)			(5,623)
Recoveries	Recoveries	293		0		53		0		2		21		5		302		676			Recoveries		558			0			97			13			6			21			5			493			1,193
Provision	Provision	(2,068)		0		(597)		3,821		(151)		279		(907)		(361)		16			Provision		(6,254)			0			5			3,579			(496)			685			(2,108)			(1,861)			(6,450)
Balance at March 31, 2021		$	36,095	$	0	$	19,416	$	24,694	$	19,931	$	7,111	$	11,012	$	11,913	$	130,172
Balance at June 30, 2021																				Balance at June 30, 2021		$	31,332		$	0		$	19,990		$	22,828		$	19,580		$	7,160		$	9,741		$	10,095		$	120,726

Commercial
and
Industrial PPP 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, 2019 $ 34,207 $ 0 $ 7,921 $ 7,584 $ 8,677 $ 5,680 $ 1,504 $ 4,822 $ 70,395
Impact of ASU 2016-13 adoption (272) 0 (114) (2,617) 6,335 (387) 4,817 4,309 12,071
Adjusted balance at January 1, 2020 33,935 0 7,807 4,967 15,012 5,293 6,321 9,131 82,466
Charge-offs (5,230) 0 0 0 (21) (253) (79) (717) (6,300)
Recoveries 264 0 1 0 5 826 3 220 1,319
Provision 3,486 0 2,529 3,353 7,955 (1,069) 2,480 1,131 19,865
Balance at March 31, 2020 $ 32,455 $ 0 $ 10,337 $ 8,320 $ 22,951 $ 4,797 $ 8,725 $ 9,765 $ 97,350

~~Changes in the allowance for credit losses on unfunded commitments for the three months ended March 31, 2021 and March 31, 2020, were as follows:~~






~~Balance at December 31, 2020~~	$	~~15,280~~


~~Provision~~	~~(661)~~
~~Balance at March 31, 2021~~	$	~~14,619~~






~~Balance at December 31, 2019~~	$	~~248~~
~~Impact of ASU 2016-13 adoption on January 1, 2020~~	~~13,604~~
~~Adjusted balance at January 1, 2020~~	~~13,852~~
~~Provision~~	~~1,616~~
~~Balance at March 31, 2020~~	$	~~15,468~~


	Commercial and Industrial				PPP		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 March 31, 2020	$	32,455			0		10,337		8,320		22,951		$	4,797	$	8,725	$	9,765	$	97,350
Charge-offs	(2,536)				0		(213)		(19)		(84)		(1)		(235)		(476)		(3,564)
Recoveries	345				0		191		8		210		0		92		298		1,144
Provision	2,254				0		13,087		1,852		5,590		905		722		597		25,007
Balance at June 30, 2020	$	32,518	$	32,531	$	0	$	23,402	$	10,161	$	28,667	$	5,701	$	9,304	$	10,184	$	119,937

	Commercial and Industrial				PPP		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, 2019	$	34,207			$	0	$	7,921	$	7,584	$	8,677	$	5,680	$	1,504	$	4,822	$	70,395
Impact of ASU 2016-13 adoption	(272)				0		(114)		(2,617)		6,335		(387)		4,817		4,309		12,071
Adjusted balance at January 1, 2020	33,935				0		7,807		4,967		15,012		5,293		6,321		9,131		82,466
Charge-offs	(7,767)				0		(213)		(19)		(105)		(254)		(314)		(1,193)		(9,865)
Recoveries	610				0		192		8		215		826		95		518		2,464
Provision	5,740				0		15,616		5,205		13,545		(164)		3,202		1,728		44,872
Balance at June 30, 2020	$	32,518			$	0	$	23,402	$	10,161	$	28,667	$	5,701	$	9,304	$	10,184	$	119,937

Management allocates the allowance for credit losses by pools of risk within each loan portfolio. The allocation of the allowance for credit losses by loan portfolio is made for analytical purposes and is not necessarily indicative of the trend of future loan losses in any particular category. 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 on unfunded commitments for the three and six months ended June 30, 2021 and June 30, 2020, were as follows:


	For the Three Months Ended June 30,
	2021		2020
Balance at March 31,	$	14,619	$	15,468
Provision	(617)		1,924
Balance at June 30,	$	14,002	$	17,392


	For the Six Months Ended June 30,
	2021		2020
Balance at December 31,	$	15,280	$	248
Impact of ASU 2016-13 adoption on January 1, 2020	0		13,604
Adjusted balance at January 1,	15,280		13,852
Provision	(1,278)		3,540
Balance at June 30,	$	14,002	$	17,392

NOTE 6: GOODWILL, CORE DEPOSIT PREMIUM AND OTHER INTANGIBLE ASSETS

HTLF had goodwill of $576.0 million at both ~~March 31,~~June 30, 2021 and December 31, 2020. HTLF conducts its annual internal assessment of the goodwill both at the consolidated level and at its subsidiaries as of September 30. Due to the COVID-19 pandemic and economic conditions, HTLF performed an interim quantitative assessment of goodwill in the second quarter of 2020, which was the most recent annual assessment, and there was 0 goodwill impairment.

HTLF recorded $91.4 million of goodwill and $3.1 million of core deposit intangible in connection with the acquisition of AimBank, headquartered in Levelland, Texas on December 4, 2020.

HTLF recorded $38.4 million of goodwill and $1.3 million of core deposit intangible in connection with the acquisition of certain assets and substantially all of the deposits and certain other liabilities of Johnson Bank's Arizona operations, headquartered in Racine, Wisconsin, on December 4, 2020.

The core deposit intangible recorded with the AimBank acquisition is not deductible for tax purposes and is expected to be amortized over a period of 10 years on an accelerated basis.

Goodwill related to the AimBank acquisition resulted from expected operational synergies, increased market presence, cross-selling opportunities, and expanded business lines and is not deductible for tax purposes.

The core deposit intangible and goodwill recorded with the Johnson Bank transaction are deductible for tax purposes, and the core deposit intangible is expected to be amortized over a period of 10 years on an accelerated basis.

HTLF's intangible assets consist of core deposit intangibles, mortgage servicing rights, customer relationship intangibles, and commercial servicing rights. The gross carrying amount of these intangible assets and the associated accumulated amortization at ~~March 31,~~June 30, 2021, and December 31, 2020, are presented in the table below, in thousands:


		March 31, 2021						December 31, 2020							June 30, 2021						December 31, 2020
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizing intangible assets:	Amortizing intangible assets:													Amortizing intangible assets:
Core deposit intangibles	Core deposit intangibles	$	101,185	$	61,477	$	39,708	$	101,185	$	58,970	$	42,215	Core deposit intangibles	$	101,185	$	63,883	$	37,302	$	101,185	$	58,970	$	42,215
Customer relationship intangibles	Customer relationship intangibles	1,177		1,018		159		1,177		1,009		168		Customer relationship intangibles	1,177		1,027		150		1,177		1,009		168
Mortgage servicing rights	Mortgage servicing rights	11,781		5,563		6,218		11,268		6,079		5,189		Mortgage servicing rights	11,971		6,412		5,559		11,268		6,079		5,189
Commercial servicing rights	Commercial servicing rights	7,054		6,319		735		7,054		6,191		863		Commercial servicing rights	7,054		6,412		642		7,054		6,191		863
Total	Total	$	121,197	$	74,377	$	46,820	$	120,684	$	72,249	$	48,435	Total	$	121,387	$	77,734	$	43,653	$	120,684	$	72,249	$	48,435

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

Core
Deposit
Intangibles Customer
Relationship
Intangibles Mortgage
Servicing
Rights Commercial
Servicing
Rights

Total
Nine months ending December 31, 2021 $ 6,852 $ 27 $ 1,201 $ 177 $ 8,257
Year ending December 31,
2022 7,702 34 1,254 207 9,197
2023 6,739 33 1,075 149 7,996
2024 5,591 33 896 98 6,618
2025 4,700 32 717 104 5,553
2026 3,533 0 538 0 4,071
Thereafter 4,591 0 537 0 5,128
Total $ 39,708 $ 159 $ 6,218 $ 735 $ 46,820


	Core Deposit Intangibles		Customer Relationship Intangibles		Mortgage Servicing Rights		Commercial Servicing Rights		Total
Six months ending December 31, 2021	$	4,446	$	18	$	648	$	110	$	5,222
Year ending December 31,
2022	7,702		34		1,228		194		9,158
2023	6,739		33		1,052		139		7,963
2024	5,591		33		877		96		6,597
2025	4,700		32		702		103		5,537
2026	3,533		0		526		0		4,059
Thereafter	4,591		0		526		0		5,117
Total	$	37,302	$	150	$	5,559	$	642	$	43,653

Projections of amortization expense for mortgage servicing rights are based on existing asset balances and the existing interest rate environment as of ~~March 31,~~June 30, 2021. HTLF's actual experience may be significantly different depending upon changes in mortgage interest rates and market conditions. Mortgage loans serviced for others were approximately ~~$745.1~~$719.6 million at ~~March 31,~~June 30, 2021, compared to $743.3 million at December 31, 2020. Custodial escrow balances maintained in connection with the mortgage loan servicing portfolio were approximately ~~$9.4~~$13.1 million at ~~March 31,~~June 30, 2021, and $5.7 million at December 31, 2020.

At ~~March 31,~~June 30, 2021, the fair value of the mortgage servicing rights was estimated at ~~$6.2~~$5.6 million compared to $5.2 million at December 31, 2020. The fair value of mortgage servicing rights is calculated based upon a discounted cash flow analysis. Cash flow assumptions, including prepayment speeds, servicing costs and escrow earnings of the mortgage servicing rights are

considered in the calculation. The average constant prepayment rate was ~~14.20%~~15.90% for the ~~March 31,~~June 30, 2021, valuation compared to 16.20% for the December 31, 2020 valuation. The discount rate was 9.02% for both ~~March 31,~~June 30, 2021, and December 31, 2020. The average capitalization rate for the first ~~three~~six months of 2021 ranged from 7679 to ~~112~~120 basis points compared to a range of 9576 to 116 basis points for the first ~~three~~six months of 2020. Fees collected for the servicing of mortgage loans for others were ~~$464,000~~$459,000 and ~~$409,000~~$410,000 for the ~~quarter~~quarters ended ~~March 31,~~June 30, 2021 and ~~March 31, 2020.~~June 30, 2020, respectively. Fees collected for the servicing of mortgage loans for others were $923,000 and $819,000 for the six months ended June 30, 2021 and 2020, respectively.

The following table summarizes, in thousands, the changes in capitalized mortgage servicing rights for the ~~three~~six months ended ~~March 31,~~June 30, 2021, and ~~March 31,~~June 30, 2020:

2021 2020
Balance at January 1, $ 5,189 $ 5,621
Originations 512 376
Amortization (400) (307)
Sale of mortgage servicing rights 0 0
Valuation adjustment 917 (1,565)
Balance at period end $ 6,218 $ 4,125
Mortgage servicing rights, net to servicing portfolio 0.83 % 0.67 %


	2021			2020
Balance at January 1,	$	5,189		$	5,621
Originations	703			1,490
Amortization	(724)			(1,070)



Valuation adjustment	391			(1,556)
Balance at period end	$	5,559		$	4,485

Mortgage servicing rights, net to servicing portfolio	0.77		%	0.68		%

HTLF's commercial servicing portfolio is comprised of loans guaranteed by the United States Small Business Administration ("SBA") and United States Department of Agriculture that have been sold with servicing retained by HTLF, which totaled ~~$62.4~~$57.5 million at ~~March 31,~~June 30, 2021 and $66.2 million at December 31, 2020. The commercial servicing rights portfolio is separated into two tranches at the respective HTLF subsidiary, loans with a term of less than 20 years and loans with a term of more than 20 years. Fees collected for the servicing of commercial loans for others were ~~$129,000~~$165,000 and ~~$118,000~~$54,000 for the ~~quarter~~quarters ended ~~March 31,~~June 30, 2021 and ~~March 31, 2020.~~June 30, 2020, respectively, and $294,000 and $172,000 for the six months ended June 30, 2021 and June 30, 2020, respectively.

The fair value of each commercial servicing rights portfolio is calculated based upon a discounted cash flow analysis. Cash flow assumptions, including prepayment speeds and servicing costs, are considered in the calculation. The range of average constant prepayment rates for the valuations was ~~13.83%~~13.70% to ~~17.76%~~17.49% as of ~~March 31,~~June 30, 2021 compared to 14.95% to 19.25% as of December 31, 2020. The discount rate range was ~~6.89%~~5.70% to ~~8.53%~~9.96% for the ~~March 31,~~June 30, 2021, valuations compared to 7.70% to 12.88% for the December 31, 2020 valuations. The capitalization rate for 2020 ranged from 310 to 445 basis points. The total fair value of the commercial servicing rights was estimated at ~~$1.2~~$1.1 million as of ~~March 31,~~June 30, 2021, and $1.3 million as of December 31, 2020.

The following table summarizes, in thousands, the changes in capitalized commercial servicing rights for the ~~three~~six months ended ~~March 31,~~June 30, 2021, and ~~March 31,~~June 30, 2020:


		2021			2020				2021			2020
Balance at January 1,	Balance at January 1,	$	863		$	1,115		Balance at January 1,	$	863		$	1,115

Originations	Originations	0			38			Originations	0			38
Amortization	Amortization	(128)			(58)			Amortization	(221)			(169)

Balance at period end	Balance at period end	$	735		$	1,095		Balance at period end	$	642		$	984
Fair value of commercial servicing rights	Fair value of commercial servicing rights	$	1,239		$	1,407		Fair value of commercial servicing rights	$	1,104		$	1,417
Commercial servicing rights, net to servicing portfolio	Commercial servicing rights, net to servicing portfolio	1.18		%	1.41		%	Commercial servicing rights, net to servicing portfolio	1.12		%	1.32		%

Mortgage and commercial servicing rights are initially recorded at fair value in net gains on sale of loans held for sale when they are capitalized through loan sales. Fair value is based on market prices for comparable servicing contracts, when available, or based on a valuation model that calculates the present value of estimated future net servicing income.

Mortgage and commercial servicing rights are subsequently measured using the amortization method, which requires the asset to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Servicing rights are evaluated for impairment at each HTLF subsidiary based upon the fair value of the assets as compared to the carrying amount. Impairment is recognized through a valuation allowance for specific tranches to the extent that fair value is less than the carrying amount at each HTLF subsidiary. At ~~March 31,~~June 30, 2021, a ~~$401,000~~$470,000 valuation allowance was required on the mortgage servicing rights 15-year tranche and a ~~$1.4~~$1.9 million valuation allowance was required on the mortgage servicing rights 30-year tranche. At December 31, 2020, a $422,000 valuation allowance was required on the mortgage servicing rights 15-year tranche and a $1.4 million valuation allowance was required on the mortgage servicing rights

30-year tranche. At both ~~March 31,~~June 30, 2021 and December 31, 2020, 0 valuation allowance was required on commercial servicing rights with a term less than 20 years and 0 valuation allowance was required on commercial servicing rights with a term greater than 20 years.

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 ~~each respective subsidiary at March 31,~~June 30, 2021, and December 31, 2020:

March 31, 2021 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
First Bank & Trust $ 1,667 $ 1,266 $ 401 $ 6,380 $ 4,952 $ 1,428
December 31, 2020
First Bank & Trust $ 1,522 $ 1,100 $ 422 $ 5,445 $ 4,089 $ 1,356


	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

June 30, 2021	$	1,627	$	1,157	$	470	$	6,287	$	4,402	$	1,885



December 31, 2020	$	1,522	$	1,100	$	422	$	5,445	$	4,089	$	1,356

The following table summarizes, in thousands, the book value, the fair value of each tranche of the commercial servicing rights and any recorded valuation allowance at ~~each respective subsidiary at March 31,~~June 30, 2021, and December 31, 2020:


		Book Value Less than 20 Years		Fair Value Less than 20 Years		Valuation Allowance 15-Year Tranche		Book Value More than 20 Years		Fair Value More than 20 Years		Valuation Allowance 30-Year Tranche			Book Value Less than 20 Years		Fair Value Less than 20 Years		Valuation Allowance 15-Year Tranche		Book Value More than 20 Years		Fair Value More than 20 Years		Valuation Allowance 30-Year Tranche

March 31, 2021		$	80	$	230	$	0	$	655	$	1,009	$	0
June 30, 2021														June 30, 2021	$	58	$	170	$	0	$	584	$	934	$	0

December 31, 2020	December 31, 2020	$	87	$	203	$	0	$	776	$	1,085	$	0	December 31, 2020	$	87	$	203	$	0	$	776	$	1,085	$	0

NOTE 7: 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, 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 interest rate risk. 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.

In addition, interest rate-related derivative instruments generally contain language outlining collateral pledging requirements for each counterparty. Collateral must be posted when the market value exceeds certain threshold limits which are determined by credit ratings of each counterparty. HTLF was required to pledge $2.9 million of cash as collateral at ~~March 31,~~June 30, 2021 compared to $3.8 million at December 31, 2020. At both ~~March 31,~~June 30, 2021 and December 31, 2020, 0 collateral was required to be pledged by HTLF's counterparties.

HTLF's derivative and hedging instruments are recorded at fair value on the consolidated balance sheets. See Note 8, “Fair Value,” for additional fair value information and disclosures.

Cash Flow Hedges

HTLF has variable rate funding which creates exposure to variability in interest payments due to changes in interest rates. To manage the interest rate risk related to the variability of interest payments, HTLF has entered into various interest rate swap agreements. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are received or made on HTLF's variable-rate liabilities. For the ~~three~~six months ended ~~March 31,~~June 30, 2021, the change in net unrealized losses on cash flow hedges reflects changes in the fair value of the swaps and reclassification from accumulated other comprehensive income to interest expense totaling ~~$591,000.~~$1.8 million. For the next twelve months, HTLF estimates that cash payments and reclassification from accumulated other comprehensive income to interest expense will total $2.4 million.

HTLF entered into forward starting interest rate swap transactions to effectively convert Heartland Financial Statutory Trust ~~IV,~~ VI and VII, which total ~~$65.0~~$40.0 million, from variable rate subordinated debentures to fixed rate debt. For accounting purposes, these swap transactions are designated as cash flow hedges of the changes in LIBOR, the benchmark interest rate being hedged, associated with the interest payments made on ~~$65.0~~$40.0 million of HTLF's subordinated debentures that reset quarterly on a

specified reset date. At inception, HTLF asserted that the underlying principal balance would remain outstanding throughout the hedge transaction, making it probable that sufficient LIBOR-based interest payments would exist through the maturity date of the swaps. During the first quarter of 2021, the interest rate swap transaction associated with Heartland Financial Statutory Trust IV, totaling $25.0 million, matured and the fixed rate debt has been converted to a variable rate subordinated debenture.

On May 18, 2018, HTLF acquired cash flow hedges related to OCGI Statutory Trust III and OCGI Capital Trust IV with notional amounts of $3.0 million and $6.0 million, respectively, in the First Bank Lubbock Bancshares, Inc. transaction. The cash flow hedges effectively convert OCGI Statutory Trust III and OGCI Capital Trust IV from variable rate subordinated debentures to fixed rate debt. These swaps are designated as cash flow hedges of the changes in LIBOR, the benchmark interest rate being hedged, associated with the interest payments made on $9.0 million of HTLF's subordinated debentures that reset quarterly on a specified reset date. These swaps matured in June of 2021.

The table below identifies the balance sheet category and fair values of HTLF's derivative instruments designated as cash flow hedges at ~~March 31,~~June 30, 2021, and December 31, 2020, in thousands:


		Notional Amount		Fair Value		Balance Sheet Category	Receive Rate		Weighted Average Pay Rate		Maturity		Notional Amount		Fair Value		Balance Sheet Category	Receive Rate		Weighted Average Pay Rate		Maturity
March 31, 2021
June 30, 2021												June 30, 2021

Interest rate swap		$	25,000	$	0	Other liabilities	0	%	0	%	03/17/2021

Interest rate swap	Interest rate swap	20,667		(37)		Other liabilities	2.606		3.674		05/10/2021	Interest rate swap	$	21,250	$	(1,636)	Other liabilities	2.591	%	5.425	%	07/24/2028
Interest rate swap	Interest rate swap	22,000		(1,669)		Other liabilities	2.607		5.425		07/24/2028	Interest rate swap	20,000		(1,107)		Other liabilities	0.119		2.390		06/15/2024
Interest rate swap	Interest rate swap	20,000		(1,194)		Other liabilities	0.184		2.390		06/15/2024	Interest rate swap	20,000		(1,049)		Other liabilities	0.135		2.352		03/01/2024
Interest rate swap		20,000		(1,144)		Other liabilities	0.225		2.352		03/01/2024
Interest rate swap		6,000		(26)		Other liabilities	0.184		1.866		06/15/2021
Interest rate swap		3,000		(13)		Other liabilities	0.184		1.878		06/30/2021

December 31, 2020	December 31, 2020											December 31, 2020
Interest rate swap	Interest rate swap	$	25,000	$	(127)	Other liabilities	0.229	%	2.255	%	03/17/2021	Interest rate swap	$	25,000	$	(127)	Other liabilities	0.229	%	2.255	%	03/17/2021

Interest rate swap	Interest rate swap	21,667		(91)		Other liabilities	2.649		3.674		05/10/2021	Interest rate swap	21,667		(91)		Other liabilities	2.649		3.674		05/10/2021
Interest rate swap	Interest rate swap	22,750		(2,220)		Other liabilities	2.643		5.425		07/24/2028	Interest rate swap	22,750		(2,220)		Other liabilities	2.643		5.425		07/24/2028
Interest rate swap	Interest rate swap	20,000		(1,482)		Other liabilities	0.217		2.390		06/15/2024	Interest rate swap	20,000		(1,482)		Other liabilities	0.217		2.390		06/15/2024
Interest rate swap	Interest rate swap	20,000		(1,385)		Other liabilities	0.225		2.352		03/01/2024	Interest rate swap	20,000		(1,385)		Other liabilities	0.225		2.352		03/01/2024
Interest rate swap	Interest rate swap	6,000		(50)		Other liabilities	0.217		1.866		06/15/2021	Interest rate swap	6,000		(50)		Other liabilities	0.217		1.866		06/15/2021
Interest rate swap	Interest rate swap	3,000		(25)		Other liabilities	0.241		1.878		06/30/2021	Interest rate swap	3,000		(25)		Other liabilities	0.241		1.878		06/30/2021

The table below identifies the gains and losses recognized on HTLF's derivative instruments designated as cash flow hedges for the ~~three~~three- and six- months ended ~~March 31,~~June 30, 2021, and ~~March 31,~~June 30, 2020, in thousands:

Effective Portion Ineffective Portion
Recognized in OCI Reclassified from AOCI into Income Recognized in Income on Derivatives
Amount of
Gain (Loss) Category Amount of
Gain (Loss) Category Amount of
Gain (Loss)
Three Months Ended March 31, 2021
Interest rate swaps $ 1,297 Interest expense $ 591 Other income $ 0
Three Months Ended March 31, 2020
Interest rate swaps $ (3,863) Interest expense $ 183 Other income $ 0


	Effective Portion					Ineffective Portion
	Recognized in OCI		Reclassified from AOCI into Income			Recognized in Income on Derivatives
	Amount of Gain (Loss)		Category	Amount of Gain (Loss)		Category	Amount of Gain (Loss)
Three Months Ended June 30, 2021












Interest rate swaps	$	291	Interest expense	$	454	Other income	$	0
Six Months Ended June 30, 2021












Interest rate swaps	$	1,588	Interest expense	$	1,045	Other income	$	0
Three Months Ended June 30, 2020
Interest rate swap	$	(100)	Interest Expense	$	417	Other Income	$	0










Six Months Ended June 30, 2020
Interest rate swap	$	(3,963)	Interest Expense	$	600	Other Income	$	0

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 $3.8 million and $4.2 million of cash as collateral for these fair value hedges at ~~March 31,~~June 30, 2021, and December 31, 2020, respectively.

The table below identifies the notional amount, fair value and balance sheet category of HTLF's fair value hedges at ~~March 31,~~June 30, 2021, and December 31, 2020, in thousands:


		Notional Amount		Fair Value		Balance Sheet Category		Notional Amount		Fair Value		Balance Sheet Category
March 31, 2021
June 30, 2021							June 30, 2021

Fair value hedges	Fair value hedges	$	20,734	$	(1,717)	Other liabilities	Fair value hedges	$	16,901	$	(1,585)	Other liabilities
December 31, 2020	December 31, 2020						December 31, 2020

Fair value hedges	Fair value hedges	$	20,841	$	(2,480)	Other liabilities	Fair value hedges	$	20,841	$	(2,480)	Other liabilities

The table below identifies the gains and losses recognized on HTLF's fair value hedges for the ~~three~~three- and six- months ended ~~March 31,~~June 30, 2021, and ~~March 31,~~June 30, 2020, in thousands:

Amount of Gain (Loss)

Income Statement Category

Three Months Ended ~~March 31,~~June 30, 2021

Fair value hedges

~~763~~132

Interest income

Six Months Ended June 30, 2021

Fair value hedges

895

Interest income

Three Months Ended ~~March 31,~~June 30, 2020

Fair value hedges

~~(1,677)~~4

Interest income

Six Months Ended June 30, 2020

Fair value hedges

(1,673)

Interest income

Embedded Derivatives

HTLF has fixed rate loans with embedded derivatives. The 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,~~June 30, 2021, and December 31, 2020, in thousands:


		Notional Amount		Fair Value		Balance Sheet Category		Notional Amount		Fair Value		Balance Sheet Category
March 31, 2021
June 30, 2021							June 30, 2021
Embedded derivatives	Embedded derivatives	$	9,084	$	551	Other assets	Embedded derivatives	$	8,971	$	497	Other assets

December 31, 2020	December 31, 2020						December 31, 2020
Embedded derivatives	Embedded derivatives	$	9,198	$	680	Other assets	Embedded derivatives	$	9,198	$	680	Other assets

The table below identifies the gains and losses recognized on HTLF's embedded derivatives for the ~~three~~three- and six- months ended ~~March 31,~~June 30, 2021, and ~~March 31,~~June 30, 2020, in thousands:

Amount of Gain (Loss)

Income Statement Category

Three Months Ended ~~March 31,~~June 30, 2021

Embedded derivatives

~~(129)~~(54)

Other noninterest income

Six Months Ended June 30, 2021

Embedded derivatives

(183)

Other noninterest income

Three Months Ended ~~March 31,~~June 30, 2020

Embedded derivatives

~~361~~1

Other noninterest income

Six Months Ended June 30, 2020

Embedded derivatives

362

Other noninterest income

Back-to-Back Loan Swaps

HTLF has interest rate swap loan relationships with customers to meet their financing needs. 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 ~~$27.9~~$30.6 million and $46.5 million as of ~~March 31,~~June 30, 2021, and December 31, 2020, respectively, as collateral related to these back-to-back swaps. HTLF's counterparties were required to pledge $0 at both ~~March 31,~~June 30, 2021, and December 31, 2020. 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 and six months ended ~~March 31,~~June 30, 2021 and ~~March 31,~~June 30, 2020, 0 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,~~June 30, 2021, and December 31, 2020, in thousands:


		Notional Amount		Fair Value		Balance Sheet Category	Weighted Average Receive Rate		Weighted Average Pay Rate			Notional Amount		Fair Value		Balance Sheet Category	Weighted Average Receive Rate		Weighted Average Pay Rate
March 31, 2021
June 30, 2021											June 30, 2021
Customer interest rate swaps	Customer interest rate swaps	$	444,056	$	23,440	Other assets	4.51	%	2.48	%	Customer interest rate swaps	$	438,415	$	29,394	Other assets	4.50	%	2.43	%
Customer interest rate swaps	Customer interest rate swaps	444,056		(23,440)		Other liabilities	2.48		4.51		Customer interest rate swaps	438,415		(29,394)		Other liabilities	2.43		4.50
December 31, 2020	December 31, 2020										December 31, 2020
Customer interest rate swaps	Customer interest rate swaps	$	440,719	$	43,422	Other assets	4.46	%	2.46	%	Customer interest rate swaps	$	440,719	$	43,422	Other assets	4.46	%	2.46	%
Customer interest rate swaps	Customer interest rate swaps	440,719		(43,422)		Other liabilities	2.46		4.46		Customer interest rate swaps	440,719		(43,422)		Other liabilities	2.46		4.46

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 in order 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 0 collateral at both ~~March 31,~~June 30, 2021, and December 31, 2020. HTLF's counterparties were required to pledge 0 collateral at both ~~March 31,~~June 30, 2021 and December 31, 2020, 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 sheet 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,~~June 30, 2021, and December 31, 2020, in thousands:


		Balance Sheet Category	Notional Amount		Fair Value			Balance Sheet Category	Notional Amount		Fair Value
March 31, 2021
June 30, 2021							June 30, 2021
Interest rate lock commitments (mortgage)	Interest rate lock commitments (mortgage)	Other assets	$	54,369	$	1,857	Interest rate lock commitments (mortgage)	Other assets	$	39,922	$	1,425

Forward commitments	Forward commitments	Other assets	83,500		1,213		Forward commitments	Other assets	9,500		8
Forward commitments	Forward commitments	Other liabilities	2,000		(4)		Forward commitments	Other liabilities	59,000		(202)
Undesignated interest rate swaps	Undesignated interest rate swaps	Other liabilities	9,084		(551)		Undesignated interest rate swaps	Other liabilities	8,971		(497)

December 31, 2020	December 31, 2020						December 31, 2020
Interest rate lock commitments (mortgage)	Interest rate lock commitments (mortgage)	Other assets	$	42,078	$	1,827	Interest rate lock commitments (mortgage)	Other assets	$	42,078	$	1,827

Forward commitments	Forward commitments	Other assets	0		0		Forward commitments	Other assets	0		0
Forward commitments	Forward commitments	Other liabilities	86,500		(697)		Forward commitments	Other liabilities	86,500		(697)
Undesignated interest rate swaps	Undesignated interest rate swaps	Other liabilities	9,198		(680)		Undesignated interest rate swaps	Other liabilities	9,198		(680)

The table below identifies the income statement category of the gains and losses recognized in income on HTLF's other free standing derivative instruments not designated as hedging instruments for the ~~three~~three- and six- months ended ~~March 31,~~June 30, 2021, and ~~March 31,~~June 30, 2020, in thousands:


	Income Statement Category	Gain (Loss) Recognized




Three Months Ended ~~March 31,~~June 30, 2021
Interest rate lock commitments (mortgage)	Net gains on sale of loans held for sale	$	~~(1,485)~~(250)
Forward commitments	Net gains on sale of loans held for sale	~~1,906~~ (1,403)
Undesignated interest rate swaps	Other noninterest income	~~129~~54
Six Months Ended June 30, 2021
Interest rate lock commitments (mortgage)	Net gains on sale of loans held for sale	$	(1,735)
Forward commitments	Net gains on sale of loans held for sale	503
Undesignated interest rate swaps	Other noninterest income	183
Three Months Ended ~~March 31,~~June 30, 2020
Interest rate lock commitments (mortgage)	Net gains on sale of loans held for sale	$	~~1,698~~1,296
Forward commitments	Net gains on sale of loans held for sale	962
Undesignated interest rate swaps	Other noninterest income	(1)
Six Months Ended June 30, 2020
Interest rate lock commitments (mortgage)	Net gains on sale of loans held for sale	$	2,994

Forward commitments	Net gains on sale of loans held for sale	~~(1,146)~~(184)
Undesignated interest rate swaps	Other noninterest income	~~(361)~~(362)

NOTE 8: 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 and are recorded at fair value only to the extent a decline in fair value is determined to be other-than-temporary. 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 values premises, furniture and equipment held for sale based on third-party appraisals less estimated disposal costs. HTLF considers third party appraisals, as well as independent fair value assessments from realtors or persons involved in selling bank premises, furniture and equipment, in determining the fair value of particular properties. Accordingly, the valuation of premises, furniture and equipment held for sale is subject to significant external and internal judgment. HTLF periodically reviews premises, furniture and equipment held for sale to determine if the fair value of the property, less disposal costs, has declined below its recorded book value and records any adjustments accordingly. Premises, furniture and equipment held for sale are classified as nonrecurring Level 3 in the fair value hierarchy.

Mortgage Servicing Rights

Mortgage servicing rights assets represent the value associated with servicing residential real estate loans that have been sold to outside investors with servicing retained. The fair value for servicing assets is determined through discounted cash flow analysis and utilizes discount rates, prepayment speeds and delinquency rate assumptions as inputs. All 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.

Commercial Servicing Rights

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

Derivative Financial Instruments

HTLF's current interest rate risk strategy includes 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 ashas 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,~~June 30, 2021, and December 31, 2020, 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 HTLFs assets and liabilities that are measured at fair value on a recurring basis as of ~~March 31,~~June 30, 2021, and December 31, 2020, 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			Total Fair Value		Level 1		Level 2		Level 3
March 31, 2021
June 30, 2021										June 30, 2021
Assets	Assets									Assets

Securities available for sale	Securities available for sale									Securities available for sale
U.S. treasuries	U.S. treasuries	$	1,019	$	1,019	$	0	$	0	U.S. treasuries	$	1,016	$	1,016	$	0	$	0
U.S. agencies	U.S. agencies	212,292		0		212,292		0		U.S. agencies	35,371		0		35,371		0
Obligations of states and political subdivisions	Obligations of states and political subdivisions	1,737,989		0		1,737,989		0		Obligations of states and political subdivisions	1,871,786		0		1,871,786		0
Mortgage-backed securities - agency	Mortgage-backed securities - agency	1,432,929		0		1,432,929		0		Mortgage-backed securities - agency	1,740,675		0		1,740,675		0
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	1,503,716		0		1,503,716		0		Mortgage-backed securities - non-agency	1,363,292		0		1,363,292		0
Commercial mortgage-backed securities - agency	Commercial mortgage-backed securities - agency	122,230		0		122,230		0		Commercial mortgage-backed securities - agency	125,080		0		125,080		0
Commercial mortgage-backed securities - non-agency	Commercial mortgage-backed securities - non-agency	307,774		0		307,774		0		Commercial mortgage-backed securities - non-agency	535,305		0		535,305		0
Asset-backed securities	Asset-backed securities	1,028,213		0		1,028,213		0		Asset-backed securities	846,987		0		846,987		0
Corporate bonds	Corporate bonds	3,790		0		3,790		0		Corporate bonds	3,815		0		3,815		0
Equity securities with a readily determinable fair value	Equity securities with a readily determinable fair value	20,543		0		20,543		0		Equity securities with a readily determinable fair value	20,651		0		20,651		0
Derivative financial instruments(1)	Derivative financial instruments(1)	23,991		0		23,991		0		Derivative financial instruments(1)	29,891		0		29,891		0
Interest rate lock commitments	Interest rate lock commitments	1,857		0		0		1,857		Interest rate lock commitments	1,425		0		0		1,425
Forward commitments	Forward commitments	1,213		0		1,213		0		Forward commitments	8		0		8		0
Total assets at fair value	Total assets at fair value	$	6,397,556	$	1,019	$	6,394,680	$	1,857	Total assets at fair value	$	6,575,302	$	1,016	$	6,572,861	$	1,425
Liabilities	Liabilities									Liabilities
Derivative financial instruments(2)	Derivative financial instruments(2)	$	29,791	$	0	$	29,791	$	0	Derivative financial instruments(2)	$	35,268	$	0	$	35,268	$	0
Forward commitments	Forward commitments	4		0		4		0		Forward commitments	202		0		202		0

Total liabilities at fair value	Total liabilities at fair value	$	29,795	$	0	$	29,795	$	0	Total liabilities at fair value	$	35,470	$	0	$	35,470	$	0
December 31, 2020	December 31, 2020									December 31, 2020
Assets	Assets									Assets

Securities available for sale	Securities available for sale									Securities available for sale
U.S. treasuries	U.S. treasuries	$	2,026	$	2,026	$	0	$	0	U.S. treasuries	$	2,026	$	2,026	$	0	$	0
U.S. agencies	U.S. agencies	166,779		0		166,779		0		U.S. agencies	166,779		0		166,779		0
Obligations of states and political subdivisions	Obligations of states and political subdivisions	1,635,227		0		1,635,227		0		Obligations of states and political subdivisions	1,635,227		0		1,635,227		0
Mortgage-backed securities - agency	Mortgage-backed securities - agency	1,355,270		0		1,355,270		0		Mortgage-backed securities - agency	1,355,270		0		1,355,270		0
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	1,449,116		0		1,449,116		0		Mortgage-backed securities - non-agency	1,449,116		0		1,449,116		0
Commercial mortgage-backed securities - agency	Commercial mortgage-backed securities - agency	174,153		0		174,153		0		Commercial mortgage-backed securities - agency	174,153		0		174,153		0
Commercial mortgage-backed securities - non-agency	Commercial mortgage-backed securities - non-agency	252,767		0		252,767		0		Commercial mortgage-backed securities - non-agency	252,767		0		252,767		0
Asset-backed securities	Asset-backed securities	1,069,266		0		1,069,266		0		Asset-backed securities	1,069,266		0		1,069,266		0
Corporate bonds	Corporate bonds	3,742		0		3,742		0		Corporate bonds	3,742		0		3,742		0
Equity securities with a readily determinable fair value	Equity securities with a readily determinable fair value	19,629		0		19,629		0		Equity securities with a readily determinable fair value	19,629		0		19,629		0
Derivative financial instruments(1)	Derivative financial instruments(1)	44,102		0		44,102		0		Derivative financial instruments(1)	44,102		0		44,102		0
Interest rate lock commitments	Interest rate lock commitments	1,827		0		0		1,827		Interest rate lock commitments	1,827		0		0		1,827

Total assets at fair value	Total assets at fair value	$	6,173,904	$	2,026	$	6,170,051	$	1,827	Total assets at fair value	$	6,173,904	$	2,026	$	6,170,051	$	1,827
Liabilities	Liabilities									Liabilities
Derivative financial instruments(2)	Derivative financial instruments(2)	$	51,962	$	0	$	51,962	$	0	Derivative financial instruments(2)	$	51,962	$	0	$	51,962	$	0
Forward commitments	Forward commitments	697		0		697		0		Forward commitments	697		0		697		0

Total liabilities at fair value	Total liabilities at fair value	$	52,659	$	0	$	52,659	$	0	Total liabilities at fair value	$	52,659	$	0	$	52,659	$	0

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

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


		Fair Value Measurements at March 31, 2021											Fair Value Measurements at June 30, 2021
		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Year-to- Date (Gains) Losses			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:	Collateral dependent individually assessed loans:											Collateral dependent individually assessed loans:
Commercial and industrial	Commercial and industrial	$	10,621	$	0	$	0	$	10,621	$	859	Commercial and industrial	$	8,969	$	0	$	0	$	8,969	$	214
Owner occupied commercial real estate	Owner occupied commercial real estate	1,233		0		0		1,233		0		Owner occupied commercial real estate	3,573		0		0		3,573		0
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	12,050		0		0		12,050		0		Non-owner occupied commercial real estate	14,742		0		0		14,742		1,637
Real estate construction		0		0		0		0		0

Agricultural and agricultural real estate	Agricultural and agricultural real estate	7,271		0		0		7,271		0		Agricultural and agricultural real estate	14,161		0		0		14,161		0

Total collateral dependent individually assessed loans	Total collateral dependent individually assessed loans	$	31,175	$	0	$	0	$	31,175	$	859	Total collateral dependent individually assessed loans	$	41,445	$	0	$	0	$	41,445	$	1,851
Loans held for sale	Loans held for sale	$	43,037	$	0	$	43,037	$	0	$	(1,121)	Loans held for sale	$	33,248	$	0	$	33,248	$	0	$	(1,304)
Other real estate owned	Other real estate owned	6,236		0		0		6,236		(154)		Other real estate owned	6,314		0		0		6,314		(88)
Premises, furniture and equipment held for sale	Premises, furniture and equipment held for sale	7,633		0		0		7,633		0		Premises, furniture and equipment held for sale	6,925		0		0		6,925		(44)
Servicing rights	Servicing rights	6,218		0		0		6,218		(917)		Servicing rights	5,559		0		0		5,559		(391)


		Fair Value Measurements at December 31, 2020											Fair Value Measurements at December 31, 2020
		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			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:	Collateral dependent individually assessed loans:											Collateral dependent individually assessed loans:
Commercial and industrial	Commercial and industrial	$	11,256	$	0	$	0	$	11,256	$	451	Commercial and industrial	$	11,256	$	0	$	0	$	11,256	$	451
Owner occupied commercial real estate	Owner occupied commercial real estate	5,874		0		0		5,874		11,631		Owner occupied commercial real estate	5,874		0		0		5,874		11,631
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	4,907		0		0		4,907		0		Non-owner occupied commercial real estate	4,907		0		0		4,907		0
Real estate construction		0		0		0		0		0

Agricultural and agricultural real estate	Agricultural and agricultural real estate	12,451		0		0		12,451		0		Agricultural and agricultural real estate	12,451		0		0		12,451		0

Total collateral dependent individually assessed loans	Total collateral dependent individually assessed loans	$	34,488	$	0	$	0	$	34,488	$	12,082	Total collateral dependent individually assessed loans	$	34,488	$	0	$	0	$	34,488	$	12,082
Loans held for sale	Loans held for sale	$	57,949	$	0	$	57,949	$	0	$	(982)	Loans held for sale	$	57,949	$	0	$	57,949	$	0	$	(982)

Other real estate owned	Other real estate owned	6,624		0		0		6,624		1,044		Other real estate owned	6,624		0		0		6,624		1,044
Premises, furniture and equipment held for sale	Premises, furniture and equipment held for sale	6,499		0		0		6,499		3,288		Premises, furniture and equipment held for sale	6,499		0		0		6,499		3,288
Servicing rights	Servicing rights	5,189		0		0		5,189		1,778		Servicing rights	5,189		0		0		5,189		1,778

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
3/31/2021

Valuation
Technique

Unobservable
Input

Range
(Weighted Average)

Fair Value
at
6/30/2021

Valuation
Technique

Unobservable
Input

Range
(Weighted
Average)

Interest rate lock commitments

1,857

Discounted cash flows

Closing ratio

0-99% (88%)(1)

Interest rate lock commitments

1,425

Discounted cash flows

Closing ratio

0-99% (88%)(1)

Other real estate owned

6,236

Modified appraised value

Third party appraisal

(2)

Other real estate owned

6,314

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Appraisal discount

0-10%(3)

Servicing rights

6,218

Discounted cash flows

Third party valuation

(4)

Servicing rights

5,559

Discounted cash flows

Third party valuation

(4)

Premises, furniture and equipment held for sale

7,633

Modified appraised value

Third party appraisal

(2)

Premises, furniture and equipment held for sale

6,925

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Appraisal discount

0-10%(3)

Collateral dependent individually assessed loans:

Commercial

10,621

Modified appraised value

Third party appraisal

(2)

Commercial

8,969

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-7%(3)

Appraisal discount

0-8%(3)

Owner occupied commercial real estate

1,233

Modified appraised value

Third party appraisal

(2)

Owner occupied commercial real estate

3,573

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-12%(3)

Appraisal discount

0-7%(3)

Non-owner occupied commercial real estate

12,050

Modified appraised value

Third party appraisal

(2)

Non-owner occupied commercial real estate

14,742

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Appraisal discount

0-10%(3)

Agricultural and agricultural real estate

7,271

Modified appraised value

Third party appraisal

(2)

Agricultural and agricultural real estate

14,161

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-9%(3)

Appraisal discount

0-15%(3)

(1) The significant unobservable input used in the fair value measurement is the closing ratio, which represents the percentage of loans currently in a lock position which management estimates will ultimately close. The closing ratio calculation takes into consideration historical data and loan-level data.

(2) Third party appraisals are obtained and updated at least annually to establish the value of the underlying asset, but the disclosure of the unobservable inputs used by the appraisers would not be meaningful because the range will vary widely from appraisal to appraisal.

(3) Discounts applied to the appraised values primarily include estimated sales costs, but also consider the age of the appraisal, changes in local market conditions and changes in the current condition of the collateral.

(4) The significant unobservable input used in the fair value measurement are the value indices, which are weighted-average spreads to LIBOR based on maturity groups.

Fair Value
at
12/31/2020

Valuation
Technique

Unobservable
Input

Range
(Weighted
Average)

Interest rate lock commitments

1,827

Discounted cash flows

Closing ratio

0-99% (86%)(1)

Other real estate owned

6,624

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Servicing rights

5,189

Discounted cash flows

Third party valuation

(4)

Premises, furniture and equipment held for sale

6,499

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Collateral dependent individually assessed loans:

Commercial and industrial

11,256

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-8%(3)

Fair Value at
12/31/2020

Valuation
Technique

Unobservable
Input

Range
(Weighted Average)

Interest rate lock commitments

1,827

Discounted cash flows

Closing ratio

0-99% (86%)(1)

Other real estate owned

6,624

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Servicing rights

5,189

Discounted cash flows

Third party valuation

(4)

Premises, furniture and equipment held for sale

6,499

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Collateral dependent individually assessed loans:

Commercial and industrial

11,256

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-8%(3)

Fair Value
at
12/31/2020

Valuation
Technique

Unobservable
Input

Range
(Weighted
Average)

Owner occupied commercial real estate

5,874

Modified appraised value

Third party appraisal

(2)

Owner occupied commercial real estate

5,874

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-12%(3)

Appraisal discount

0-12%(3)

Non-owner occupied commercial real estate

4,907

Modified appraised value

Third party appraisal

(2)

Non-owner occupied commercial real estate

4,907

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Appraisal discount

0-10%(3)

Agricultural and agricultural real estate

12,451

Modified appraised value

Third party appraisal

(2)

Agricultural and agricultural real estate

12,451

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Appraisal discount

0-10%(3)

(4) The significant unobservable input used in the fair value measurement are the value indices, which are weighted-average spreads to LIBOR based on maturity groups.

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, 2021		For the Year Ended December 31, 2020			For the Six Months Ended June 30, 2021		For the Year Ended December 31, 2020
Balance at January 1,	Balance at January 1,	$	1,827	$	681	Balance at January 1,	$	1,827	$	681

Total net gains included in earnings	Total net gains included in earnings	(1,485)		2,803		Total net gains included in earnings	(1,735)		2,803
Issuances	Issuances	5,279		17,221		Issuances	8,892		17,221
Settlements	Settlements	(3,764)		(18,878)		Settlements	(7,559)		(18,878)
Balance at period end	Balance at period end	$	1,857	$	1,827	Balance at period end	$	1,425	$	1,827

Gains included in gains (losses) on sale of loans held for sale attributable to interest rate lock commitments held at ~~March 31,~~June 30, 2021, and December 31, 2020, were ~~$1.9~~$1.4 million and $1.8 million, respectively.

The table below is a summary of the estimated fair value of HTLF's financial instruments (as defined by ASC 825) as of ~~March 31,~~June 30, 2021, and December 31, 2020, 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, 2021
Carrying
Amount Estimated
Fair
Value Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Financial assets:
Cash and cash equivalents $ 467,862 $ 467,862 $ 467,862 $ 0 $ 0
Time deposits in other financial institutions 3,138 3,138 3,138 0 0
Securities:
Carried at fair value 6,370,495 6,370,495 1,019 6,369,476 0
Held to maturity 85,293 95,082 0 95,082 0
Other investments 74,935 74,935 0 74,935 0
Loans held for sale 43,037 43,037 0 43,037 0
Loans, net:
Commercial and industrial 2,385,165 2,368,895 0 2,358,274 10,621
PPP 1,155,328 1,155,328 0 1,155,328 0
Owner occupied commercial real estate 1,818,143 1,804,021 0 1,802,788 1,233
Non-owner occupied commercial real estate 1,942,489 1,933,621 0 1,921,571 12,050
Real estate construction 776,096 782,155 0 782,155 0
Agricultural and agricultural real estate 676,858 669,714 0 662,443 7,271
Residential real estate 775,982 775,020 0 775,020 0
Consumer 390,223 394,731 0 394,731 0
Total Loans, net 9,920,284 9,883,485 0 9,852,310 31,175
Cash surrender value on life insurance 188,521 188,521 0 188,521 0
Derivative financial instruments(1)
23,991 23,991 0 23,991 0
Interest rate lock commitments 1,857 1,857 0 0 1,857
Forward commitments 1,213 1,213 0 1,213 0
Financial liabilities:
Deposits
Demand deposits 6,175,946 6,175,946 0 6,175,946 0
Savings deposits 8,179,251 819,251 0 819,251 0
Time deposits 1,203,854 1,203,854 0 1,203,854 0
Short term borrowings 140,597 140,597 0 140,597 0
Other borrowings 349,514 350,964 0 350,964 0
Derivative financial instruments(2)
29,791 29,791 0 29,791 0
Forward commitments 4 4 0 4 0
(1) Includes embedded derivatives, back-to-back loan swaps and fair value hedges.
(2) Includes cash flow hedges, fair value hedges, back-to-back loan swaps and free standing derivative instruments.


					Fair Value Measurements at June 30, 2021
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	449,128	$	449,128	$	449,128	$	0	$	0
Time deposits in other financial institutions	3,138		3,138		3,138		0		0
Securities:

Carried at fair value	6,543,978		6,543,978		1,016		6,542,962		0
Held to maturity	85,439		95,421		0		95,421		0
Other investments	76,809		76,809		0		76,809		0
Loans held for sale	33,248		33,248		0		33,248		0
Loans, net:
Commercial and industrial	2,487,576		2,469,136		0		2,460,167		8,969
PPP	829,175		829,175		0		829,175		0
Owner occupied commercial real estate	1,920,144		1,901,531		0		1,897,958		3,573
Non-owner occupied commercial real estate	1,964,541		1,953,264		0		1,938,522		14,742
Real estate construction	834,715		838,001		0		838,001		0
Agricultural and agricultural real estate	672,448		660,650		0		646,489		14,161
Residential real estate	791,143		789,274		0		789,274		0
Consumer	391,546		394,337		0		394,337		0
Total Loans, net	9,891,288		9,835,368		0		9,793,923		41,445
Cash surrender value on life insurance	189,619		189,619		0		189,619		0
Derivative financial instruments(1)	29,891		29,891		0		29,891		0
Interest rate lock commitments	1,425		1,425		0		0		1,425
Forward commitments	8		8		0		8		0
Financial liabilities:
Deposits
Demand deposits	6,299,289		6,299,289		0		6,299,289		0
Savings deposits	8,189,223		8,189,223		0		8,189,223		0
Time deposits	1,126,606		1,126,788		0		1,126,788		0

Short term borrowings	152,563		152,563		0		152,563		0
Other borrowings	271,244		274,631		0		274,631		0
Derivative financial instruments(2)	35,268		35,368		0		35,368		0
Forward commitments	202		202		0		202		0

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


					Fair Value Measurements at December 31, 2020
	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	$	337,903	$	337,903	$	337,903	$	0	$	0
Time deposits in other financial institutions	3,129		3,129		3,129		0		0
Securities:

Carried at fair value	6,127,975		6,127,975		2,026		6,125,949		0
Held to maturity	88,839		100,041		0		100,041		0
Other investments	75,253		75,523		0		75,523		0
Loans held for sale	57,949		57,949		0		57,949		0
Loans, net:
Commercial and industrial	2,495,981		2,391,041		0		2,379,785		11,256
PPP	957,785		957,785		0		957,785		0
Owner occupied commercial real estate	1,756,405		1,745,397		0		1,739,523		5,874
Non-owner occupied commercial real estate	1,900,608		1,892,213		0		1,887,306		4,907
Real estate construction	843,140		849,224		0		849,224		0
Agricultural and agricultural real estate	707,397		697,729		0		685,278		12,451
Residential real estate	828,507		828,366		0		828,366		0
Consumer	401,622		407,914		0		407,914		0
Total Loans, net	9,891,445		9,769,669		0		9,735,181		34,488
Cash surrender value on life insurance	187,664		187,664		0		187,664		0
Derivative financial instruments(1)	44,102		44,102		0		44,102		0
Interest rate lock commitments	1,827		1,827		0		0		1,827

Financial liabilities:
Deposits
Demand deposits	5,688,810		5,688,810		0		5,688,810		0
Savings deposits	8,019,704		8,019,704		0		8,019,704		0
Time deposits	1,271,391		1,273,468		0		1,273,468		0

Short term borrowings	167,872		167,872		0		167,872		0
Other borrowings	457,042		458,806		0		458,806		0
Derivative financial instruments(1)	51,962		51,962		0		51,962		0
Forward commitments	697		697		0		697		0

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

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 counter-party.

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

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

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

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

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

NOTE 9: REVENUE

Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, requires revenue to be recognized at an amount that reflects the consideration to which HTLF expects to be entitled in exchange for transferring goods or services to a customer. ASC 606 applies to all contracts with customers to provide goods or services in the ordinary course of business, except for contracts that are specifically excluded from its scope. The majority of HTLF's revenue streams including interest income, loan servicing income, net securities gain, net unrealized gains and losses on equity securities, net gains on sale of loans held for sale, valuation adjustment on servicing rights, income from bank owned life insurance and other noninterest income are outside the scope of ASC 606. Revenue streams including service charges and fees, interchange fees on credit and debit cards, trust fees and brokerage and insurance commissions are within the scope of ASC 606.

Service Charges and Fees

Service charges and fees consist of revenue generated from deposit account related service charges and fees, overdraft fees, customer service fees and other service charges, credit card fee income, debit card income and other service charges and fees.

Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders and other deposit account related fees. HTLF's performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees, including overdraft fees, are largely transaction based, and therefore, the performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.

Customer service fees and other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. HTLF's performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.

Credit card fee income and debit card income are comprised of interchange fees, ATM fees, and merchant services income. Credit card fee income and debit card income are earned whenever the banks' debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a bank cardholder uses an ATM that is not owned by one of HTLF's banks or a non-bank cardholder uses a HTLF-owned ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees.

Trust Fees

Trust fees are primarily comprised of fees earned from the management and administration of trusts and other customer assets. HTLF's performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the average daily market value or month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days before or after month end through a direct charge to customers’ accounts. HTLF does not earn performance-based incentives. ~~Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers.~~ HTLF's performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered.

Brokerage and Insurance Commissions

Brokerage commission primarily consist of commissions related to broker-dealer contracts. The contracts are between the customer and the broker-dealer, and HTLF satisfies its performance obligation and earns commission when the transactions are completed. The recognition of revenue is based on a defined fee schedule and does not require significant judgment. Payment is received shortly after services are rendered. Insurance commissions are related to commissions received directly from the insurance carrier. HTLF acts as an insurance agent between the customer and the insurance carrier. HTLF's performance obligations and associated fee and commission income are defined with each insurance product with the insurance company. When insurance payments are received from customers, a portion of the payment is recognized as commission revenue.

The following table presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and six months ended ~~March 31,~~June 30, 2021, and 2020, in thousands:


		Three Months Ended March 31,			Three Months Ended June 30,						Six Months Ended June 30,
			2021			2020			2021		2020		2021		2020
In-scope of Topic 606	In-scope of Topic 606							In-scope of Topic 606
Service charges and fees	Service charges and fees							Service charges and fees
Service charges and fees on deposit accounts	Service charges and fees on deposit accounts		$	3,936		$	3,438	Service charges and fees on deposit accounts	$	4,014	$	3,476	$	7,950	$	6,913
Overdraft fees	Overdraft fees		2,592			2,809		Overdraft fees	2,549		1,634		5,141		4,443
Customer service and other service fees	Customer service and other service fees		46			59		Customer service and other service fees	54		35		100		94
Credit card fee income	Credit card fee income		4,308			3,900		Credit card fee income	5,854		4,067		10,162		7,967
Debit card income	Debit card income		2,789			1,815		Debit card income	2,661		1,760		5,450		3,576

Total service charges and fees	Total service charges and fees		13,671			12,021		Total service charges and fees	15,132		10,972		28,803		22,993
Trust fees	Trust fees		5,777			5,022		Trust fees	6,039		4,977		11,816		9,999
Brokerage and insurance commissions	Brokerage and insurance commissions		853			733		Brokerage and insurance commissions	865		595		1,718		1,328
Total noninterest income in-scope of Topic 606	Total noninterest income in-scope of Topic 606		20,301			17,776		Total noninterest income in-scope of Topic 606	22,036		16,544		42,337		34,320

Out-of-scope of Topic 606	Out-of-scope of Topic 606							Out-of-scope of Topic 606
Loan servicing income	Loan servicing income		$	838		$	963	Loan servicing income	$	873	$	379	$	1,711	$	1,342
Securities gains (losses), net			(30)			1,658
Unrealized loss on equity securities, net			(110)			(231)
Securities gains, net								Securities gains, net	2,842		2,006		2,812		3,664
Unrealized gain/ (loss) on equity securities, net								Unrealized gain/ (loss) on equity securities, net	83		680		(27)		449
Net gains on sale of loans held for sale	Net gains on sale of loans held for sale		6,420			4,660		Net gains on sale of loans held for sale	4,753		7,857		11,173		12,517
Valuation adjustment on servicing rights	Valuation adjustment on servicing rights		917			(1,565)		Valuation adjustment on servicing rights	(526)		9		391		(1,556)
Income on bank owned life insurance	Income on bank owned life insurance		829			498		Income on bank owned life insurance	937		1,167		1,766		1,665
Other noninterest income	Other noninterest income		1,152			2,058		Other noninterest income	2,166		1,995		3,318		4,053
Total noninterest income out-of-scope of Topic 606	Total noninterest income out-of-scope of Topic 606		10,016			8,041		Total noninterest income out-of-scope of Topic 606	11,128		14,093		21,144		22,134
Total noninterest income	Total noninterest income		$	30,317		$	25,817	Total noninterest income	$	33,164	$	30,637	$	63,481	$	56,454

Contract Balances

HTLF does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of ~~March 31,~~June 30, 2021, and December 31, 2020, HTLF did not have any significant contract balances or capitalized contract acquisition costs.

NOTE 10: STOCK COMPENSATION

HTLF may grant, through its Nominating, Compensation 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 was approved by stockholders in May 2020 and replaces the 2012 Long-Term Incentive Plan. The Plan increased the number of shares of common stock authorized for issuance to 1,460,000 and made certain other changes to the Plan. As of ~~March 31,~~June 30, 2021, ~~1,239,003~~1,200,807 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 ~~$153,000~~$303,000 of tax benefit during the ~~three~~six months ended ~~March 31,~~June 30, 2021 and a tax expense of ~~$25,000~~$91,000 during the ~~three~~six months ended ~~March 31,~~June 30, 2020, 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"). In the first quarter of 2021, the Compensation Committee granted time-based RSUs with respect to 104,462 shares of common stock, and in the first quarter of 2020, the Compensation Committee granted time-based RSUs with respect to 114,944 shares of common stock to selected officers and employees. The time-based RSUs represent the right, without payment, to receive shares of HTLF common stock on a specified date in the future. The time-based RSUs granted in 2021 and 2020 vest over three years in equal installments in March of each of the three years following the year of the grant. 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). The retiree is required to sign a non-solicitation agreement as a condition to vesting.

The Compensation Committee also granted three-year performance-based RSUs with respect to 60,339 shares and 50,787 shares of common stock in the first quarter of 2021 and 2020, respectively. These performance-based RSUs will be earned based on satisfaction of performance targets for the three-year performance period ended December 31, 2023, and December 31, 2022, respectively. These performance-based RSUs or a portion thereof may vest in 2024 and 2023, respectively, after measurement of performance in relation to the performance targets.

The three-year performance-based RSUs vest to the extent that they are earned upon death or disability or upon a "qualified retirement." Upon a change in control, performance-based RSUs shall become vested at 100% of target if the RSU obligations are not assumed by the successor company. If the successor company does assume the RSU obligations, the 2021 and 2020 performance-based RSUs will vest at 100% of target upon a "Termination of Service" within the period beginning six months prior to a change in control and ending twenty-four months after a change in control.

All of HTLF's RSUs will be settled in common stock upon vesting and are not entitled to dividends until vested.

The Compensation Committee may grant RSUs under the Plan to non-employee HTLF and subsidiary bank directors as part of their compensation, to new management level employees at commencement of employment, and to other employees and service providers as incentives. During the ~~three~~six months ended ~~March 31,~~June 30, 2021, and ~~March 31,~~June 30, 2020, ~~3,778~~41,974 and 046,613 time-based RSUs, respectively, were granted to directors and new employees.

A summary of the RSUs outstanding as of ~~March 31,~~June 30, 2021, and June 30, 2020, and changes during the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020, follows:


		2021			2020				2021			2020
		Shares	Weighted-Average Grant Date Fair Value		Shares	Weighted-Average Grant Date Fair Value			Shares	Weighted-Average Grant Date Fair Value		Shares	Weighted-Average Grant Date Fair Value
Outstanding at January 1,	Outstanding at January 1,	348,275	$	38.22	254,383	$	46.76	Outstanding at January 1,	348,275	$	38.22	254,383	$	46.76
Granted	Granted	170,317	52.08		165,731	32.57		Granted	208,513	51.63		212,344	32.00
Vested	Vested	(106,255)	44.14		(86,441)	45.48		Vested	(146,381)	40.89		(118,686)	44.52
Forfeited	Forfeited	(4,215)	50.59		(11,929)	48.38		Forfeited	(18,861)	42.88		(14,648)	47.00
Outstanding at March 31,		408,122	$	42.11	321,744	$	40.14
Outstanding at June 30,								Outstanding at June 30,	391,546	$	44.08	333,393	$	38.55

Total compensation costs recorded for RSUs were ~~$2.7~~$4.6 million and ~~$2.2~~$3.4 million for the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020. As of ~~March 31,~~June 30, 2021, there were ~~$11.9~~$11.3 million of total unrecognized compensation costs related to the Plan for RSUs that are expected to be recognized through ~~2023.~~2024.

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 Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, 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. These forward-looking statements are generally identified by the use of words such as "believe," "expect," "anticipate," "plan," "intend," "estimate," "project," "may," "will," "would," "could," "should," "opportunity," "potential" or other similar or negative expressions of these words or phrases. Although HTLF has made these statements based on management's experience, beliefs, expectations, assumptions and best estimate of future events, the ability of the company 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 the company currently believes could have a material effect on its operations and future prospects 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, 2020:

•COVID-19 Pandemic Risks, including risks related to the ongoing COVID-19 pandemic and measures enacted by the U.S. federal and state governments and adopted by private businesses in response to the COVID-19 pandemic;

•Economic and Market Conditions Risks, including risks related to changes in the U.S. economy in general and in the local economies in which HTLF conducts its operations and future civil unrest, natural disasters, 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 and 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 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 competitive forces impacting our business and strategic acquisition risks;

•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. In addition, many of these risks and uncertainties are currently amplified by and may continue to be amplified by the COVID-19 pandemic and the impact of varying governmental responses that affect HTLF’s customers and the economies where they operate. Additionally, 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 POLICIES

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, 2020. There have been no significant changes in the critical accounting policies or the assumptions and judgments utilized in applying these policies since December 31, 2020.

OVERVIEW

Heartland Financial USA, Inc. is a financial services company operating under the brand name HTLF. HTLF's banks 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 including residential mortgage, wealth management, investments and insurance. As of ~~the date of this Quarterly Report on Form 10-Q,~~June 30, 2021, HTLF has eleven banking subsidiaries with 132 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 income, brokerage and insurance commissions, securities gains, 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 and equipment costs, professional fees, advertising, core deposit and customer relationship intangibles amortization and other real estate and loan collection expenses.

HTLF reported the following results for the ~~three months~~quarter ended ~~March 31,~~June 30, 2021, compared to the ~~three months~~quarter ended ~~March 31,~~June 30, 2020:

•net income available to common stockholders of ~~$50.8~~$59.6 million compared to ~~$20.0~~$30.1 million,

•earnings per diluted common share of ~~$1.20~~$1.41 compared to ~~$0.54~~$0.82,

•return on average common equity was ~~10.49%~~12.07% compared to ~~4.98%~~7.69,%

•return on average assets was ~~1.19%~~1.35% compared to ~~0.61%.~~0.84%, and

•return on average tangible common equity (non-GAAP) was ~~15.90%~~18.05% compared to ~~8.00%~~11.97%.

HTLF reported the following results for the six months ended June 30, 2021, compared to the six months ended June 30, 2020:

•net income available to common stockholders of $110.4 million compared to $50.2 million,

•earnings per diluted common share of $2.61 compared to $1.36,

•return on average common equity was 11.29% compared to 6.32%,

•return on average assets was 1.27% compared to 0.73%, and

•return on average tangible common equity (non-GAAP) was 16.99% compared to 9.95%.

For the ~~first~~second quarter of 2021, net interest margin was ~~3.44% (3.48%~~3.37% (3.41% on a fully tax-equivalent basis, non-GAAP), which compares to ~~3.51% (3.55%~~3.44% (3.48% on a fully tax-equivalent basis, non-GAAP) and 3.81% ~~(3.84%~~(3.85% on a fully-tax equivalent basis, non-GAAP) for the ~~fourth~~first quarter of 2021 and second quarter of 2020, ~~and~~respectively. For the first ~~quarter~~six months of ~~2020, respectively.~~2021, net interest margin was 3.40% (3.45% on a fully tax-equivalent basis, non-GAAP), which compares to 3.81% (3.85% on a fully tax-equivalent basis, non-GAAP), for the first six months of 2020.

The efficiency ratio on a fully tax-equivalent basis (non-GAAP) was ~~56.61%~~57.11% for the ~~first~~second quarter of 2021 compared to ~~61.82%~~55.75% for the same quarter of 2020. For the first six months of 2021, the efficiency ratio on a fully tax-equivalent basis (non-GAAP) was 56.86% compared to 58.64% for the first six months of 2020.

Total assets were ~~$18.24~~$18.37 billion at ~~March 31,~~June 30, 2021, an increase of ~~$336.1~~$462.7 million or 2%3% since December 31, 2020. Securities represented ~~36%~~37% of total assets at ~~March 31,~~June 30, 2021, and 35% of total assets at December 31, 2020. Total loans held to maturity were ~~$10.05~~$10.01 billion at ~~March 31,~~June 30, 2021 compared to $10.02 billion at December 31, 2020, which was ~~an increase~~a decrease of ~~$27.4~~$11.0 million

or less than 1%. Excluding total Paycheck Protection Program ("PPP") loans, total loans held to maturity increased $117.6 million or 1.30% since year-end 2020.

The total allowance for lending related credit losses was $134.7 million or 1.35% of total loans at June 30, 2021, compared to $146.9 million or 1.47% of total loans at December 31, 2020. Excluding total PPP loans, the allowance for lending related credit losses as percentage of loans was 1.47% and 1.62% as of June 30, 2021, and December 31, 2020, respectively.

Total deposits were ~~$15.56~~$15.62 billion as of ~~March 31,~~June 30, 2021, compared to $14.98 billion at December 31, 2020, an increase of ~~$579.1~~$635.2 million or 4%.

Total equity was ~~$2.06~~$2.16 billion at ~~March 31,~~June 30, 2021, compared to $2.08 billion at December 31, 2020. Book value per common share was ~~$46.13~~$48.50 at ~~March 31,~~June 30, 2021, compared to $46.77 at year-end 2020. The unrealized gain on securities available for sale, net of applicable taxes, was ~~$9.7~~$59.4 million at ~~March 31,~~June 30, 2021, compared to an unrealized gain of $76.8 million, net of applicable taxes, at December 31, 2020.

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.

2021 Developments

AimBank Systems Conversion

On February 19, 2021, HTLF successfully completed the systems conversion of AimBank, which was acquired by HTLF in the fourth quarter of 2020 and merged into HTLF's Texas subsidiary, First Bank & Trust. Subsequent to the systems conversion, seven of AimBank's twenty-five bank branches were transferred to HTLF's New Mexico Bank & Trust subsidiary.

Paycheck Protection Program Loans

HTLF ~~has~~ originated a second round of Paycheck Protection Program loans ("PPP II") totaling ~~$429.0~~$473.9 million since the beginning of 2021. PPP II loans are 100% United States Small Business Administration ("SBA") guaranteed, and borrowers may be eligible to have an amount up to the entire principal balance forgiven and paid by the SBA.

As of June 30, 2021, approximately 95% of the PPP loans originated in 2020 ("PPP I") have been forgiven or are in the process of being forgiven.

Branch Optimization

During the first ~~quarter~~six months of 2021, HTLF consolidated six legacy bank branches and three AimBank ~~branches.~~branches as it continues to respond to customer preferences and closely manage expenses. HTLF ~~continues~~will continue to review its branch network for optimization and consolidation opportunities and anticipates reducing branch locations by approximately 10%, which may result in additional write-downs of fixed assets in future periods.

Branding Change

On April 14, 2021, a branding change from Heartland Financial to HTLF was ~~announced.~~announced and rolled out across the organization. The branding was refreshed to better reflect the strength of the diverse footprint and continued growth of the company.

FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data) Three Months Ended
March 31,
2021 2020
STATEMENT OF INCOME DATA
Interest income $ 147,452 $ 131,049
Interest expense 7,847 18,538
Net interest income 139,605 112,511
Provision (benefit) for credit losses (648) 21,520
Net interest income after provision for credit losses 140,253 90,991
Noninterest income 30,317 25,817
Noninterest expenses 102,423 90,859
Income taxes 15,333 5,909
Net income 52,814 20,040
Preferred dividends (2,013) —
Net income available to common stockholders $ 50,801 $ 20,040
KEY PERFORMANCE RATIOS
Annualized return on average assets 1.19 % 0.61 %
Annualized return on average common equity (GAAP) 10.49 4.98
Annualized return on average tangible common equity (non-GAAP)(1)
15.90 8.00
Annualized ratio of net charge-offs to average loans 0.06 0.24
Annualized net interest margin (GAAP) 3.44 3.81
Annualized net interest margin, fully tax-equivalent (non-GAAP)(1)
3.48 3.84
Efficiency ratio, fully tax-equivalent (non-GAAP)(1)
56.61 61.82
Common Stock Dividend Increase

Dollars in thousands, expect per share data As Of and For the Quarter Ended
3/31/2021 12/31/2020 9/30/2020 6/30/2020 3/31/2020
BALANCE SHEET DATA
Investments $ 6,530,723 $ 6,292,067 $ 5,075,338 $ 4,252,832 $ 3,615,866
Loans held for sale 43,037 57,949 65,969 54,382 22,957
Subsequent to June 30, 2021, the HTLF Board of Directors approved a 14% increase in its quarterly common share dividend to $0.25 from $0.22. The dividend was increased to $0.22 per common share in January 2021 from $0.20 per common share in each quarter of 2020.

Dollars in thousands, expect per share data As Of and For the Quarter Ended
3/31/2021 12/31/2020 9/30/2020 6/30/2020 3/31/2020
BALANCE SHEET DATA
Loans receivable held to maturity 10,050,456 10,023,051 9,099,646 9,246,830 8,374,236
Allowance for credit losses 130,172 131,606 103,377 119,937 97,350
Total assets 18,244,427 17,908,339 15,612,664 15,026,153 13,294,509
Total deposits 15,559,051 14,979,905 12,767,110 12,708,699 11,174,025
Long-term obligations 349,514 457,042 524,045 306,459 276,150
Common equity 1,945,502 1,968,526 1,700,899 1,636,672 1,553,714
COMMON SHARE DATA
Book value per common share (GAAP) $ 46.13 $ 46.77 $ 46.11 $ 44.42 $ 42.21
Tangible book value per common share (non-GAAP)(1)
$ 31.53 $ 32.07 $ 32.91 $ 31.14 $ 28.84
Common shares outstanding, net of treasury stock 42,173,675 42,093,862 36,885,390 36,844,744 36,807,217
Tangible common equity ratio (non-GAAP)(1)
7.54 % 7.81 % 8.03 % 7.89 % 8.29 %
(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.


FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data)	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
STATEMENT OF INCOME DATA
Interest income	$	148,082		$	133,765		$	295,534		$	264,814
Interest expense	6,864			9,619			14,711			28,157
Net interest income	141,218			124,146			280,823			236,657
Provision (benefit) for credit losses	(7,080)			26,796			(7,728)			48,316
Net interest income after provision for credit losses	148,298			97,350			288,551			188,341
Noninterest income	33,164			30,637			63,481			56,454
Noninterest expenses	103,376			90,439			205,799			181,298
Income taxes	16,481			7,417			31,814			13,326
Net income	61,605			30,131			114,419			50,171
Preferred dividends	(2,012)			—			(4,025)			—

Net income available to common stockholders	$	59,593		$	30,131		$	110,394		$	50,171

KEY PERFORMANCE RATIOS
Annualized return on average assets	1.35		%	0.84		%	1.27		%	0.73		%
Annualized return on average common equity (GAAP)	12.07			7.69			11.29			6.32
Annualized return on average tangible common equity (non-GAAP)(1)	18.05			11.97			16.99			9.95

Annualized ratio of net charge-offs to average loans	0.12			0.11			0.09			0.17
Annualized net interest margin (GAAP)	3.37			3.81			3.40			3.81
Annualized net interest margin, fully tax-equivalent (non-GAAP)(1)	3.41			3.85			3.45			3.85
Efficiency ratio, fully tax-equivalent (non-GAAP)(1)	57.11			55.75			56.86			58.64

NON-GAAP Reconciliations
(Dollars in thousands, except per share data)
As Of and For the Quarter Ended
3/31/2021 12/31/2020 9/30/2020 6/30/2020 3/31/2020
Reconciliation of Annualized Return on Average Tangible Common Equity (non-GAAP)
Net income available to common stockholders (GAAP) $ 50,801 $ 37,795 $ 45,521 $ 30,131 $ 20,040
Plus core deposit and customer relationship intangibles amortization, net of tax(1)
1,988 1,975 1,969 2,130 2,355
Net income excluding intangible amortization (non-GAAP) $ 52,789 $ 39,770 $ 47,490 $ 32,261 $ 22,395
Average common equity (GAAP) $ 1,963,674 $ 1,769,575 $ 1,661,381 $ 1,574,902 $ 1,619,682
Less average goodwill 576,005 488,151 446,345 446,345 446,345
Less average core deposit and customer relationship intangibles, net 41,399 42,733 42,145 44,723 47,632
Average tangible common equity (non-GAAP) $ 1,346,270 $ 1,238,691 $ 1,172,891 $ 1,083,834 $ 1,125,705
Annualized return on average common equity (GAAP) 10.49 % 8.50 % 10.90 % 7.69 % 4.98 %
Annualized return on average tangible common equity (non-GAAP) 15.90 % 12.77 % 16.11 % 11.97 % 8.00 %
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)
Net Interest Income (GAAP) $ 139,605 $ 132,575 $ 122,497 $ 124,146 $ 112,511
Plus tax-equivalent adjustment(1)
1,761 1,529 1,390 1,416 1,131
Net interest income, fully tax-equivalent (non-GAAP) $ 141,366 $ 134,104 $ 123,887 $ 125,562 $ 113,642
Average earning assets $ 16,460,124 $ 15,042,079 $ 13,868,360 $ 13,103,159 $ 11,891,455
Annualized net interest margin (GAAP) 3.44 % 3.51 % 3.51 % 3.81 % 3.81 %
Annualized net interest margin, fully tax-equivalent (non-GAAP) 3.48 3.55 3.55 3.85 3.84
Purchase accounting discount accretion on loans included in annualized net interest margin 0.12 0.10 0.10 0.16 0.09


Dollars in thousands, expect per share data	As Of and For the Quarter Ended
	6/30/2021			3/31/2021			12/31/2020			9/30/2020			6/30/2020
BALANCE SHEET DATA
Investments	$	6,706,226		$	6,530,723		$	6,292,067		$	5,075,338		$	4,252,832
Loans held for sale	33,248			43,037			57,949			65,969			54,382
Loans receivable held to maturity	10,012,014			10,050,456			10,023,051			9,099,646			9,246,830
Allowance for credit losses	120,726			130,172			131,606			103,377			119,937
Total assets	18,371,006			18,244,427			17,908,339			15,612,664			15,026,153
Total deposits	15,615,118			15,559,051			14,979,905			12,767,110			12,708,699
Long-term obligations	271,244			349,514			457,042			524,045			306,459

Common equity	2,049,081			1,945,502			1,968,526			1,700,899			1,636.672

COMMON SHARE DATA
Book value per common share (GAAP)	$	48.50		$	46.13		$	46.77		$	46.11		$	44.42
Tangible book value per common share (non-GAAP)(1)	$	33.98		$	31.53		$	32.07		$	32.91		$	31.14

Common shares outstanding, net of treasury stock	42,245,452			42,173,675			42,093,862			36,885,390			36,844,744
Tangible common equity ratio (non-GAAP)(1)	8.08		%	7.54		%	7.81		%	8.03		%	7.89		%

(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.

As Of and For the Quarter Ended
3/31/2021 12/31/2020 9/30/2020 6/30/2020 3/31/2020
Reconciliation of Tangible Book Value Per Common Share (non-GAAP)
Common equity (GAAP) $ 1,945,502 $ 1,968,526 $ 1,700,899 $ 1,636,672 $ 1,553,714
Less goodwill 576,005 576,005 446,345 446,345 446,345
Less core deposit and customer relationship intangibles, net 39,867 42,383 40,520 43,011 45,707
Tangible common equity (non-GAAP) $ 1,329,630 $ 1,350,138 $ 1,214,034 $ 1,147,316 $ 1,061,662
Common shares outstanding, net of treasury stock 42,173,675 42,093,862 36,885,390 36,844,744 36,807,217
Common equity (book value) per share (GAAP) $ 46.13 $ 46.77 $ 46.11 $ 44.42 $ 42.21
Tangible book value per common share (non-GAAP) $ 31.53 $ 32.07 $ 32.91 $ 31.14 $ 28.84
Reconciliation of Tangible Common Equity Ratio (non-GAAP)
Tangible common equity (non-GAAP) $ 1,329,630 $ 1,350,138 $ 1,214,034 $ 1,147,316 $ 1,061,662
Total assets (GAAP) $ 18,244,427 $ 17,908,339 $ 15,612,664 $ 15,026,153 $ 13,294,509
Less goodwill 576,005 576,005 446,345 446,345 446,345
Less core deposit and customer relationship intangibles, net 39,867 42,383 40,520 43,011 45,707
Total tangible assets (non-GAAP) $ 17,628,555 $ 17,289,951 $ 15,125,799 $ 14,536,797 $ 12,802,457
Tangible common equity ratio (non-GAAP) 7.54 % 7.81 % 8.03 % 7.89 % 8.29 %
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.


Non-GAAP Reconciliations (Dollars in thousands, except per share data)
	As Of and For the Quarter Ended
	6/30/2021			3/31/2021			12/31/2020			9/30/2020			6/30/2020
Reconciliation of Annualized Return on Average Tangible Common Equity (non-GAAP)
Net income available to common stockholders (GAAP)	$	59,593		$	50,801		$	37,795		$	45,521		$	30,131
Plus core deposit and customer relationship intangibles amortization, net of tax(1)	1,907			1,988			1,975			1,969			2,130
Net income excluding intangible amortization (non-GAAP)	$	61,500		$	52,789		$	39,770		$	47,490		$	32,261

Average common equity (GAAP)	$	1,980,904		$	1,963,674		$	1,769,575		$	1,661,381		$	1,574,902
Less average goodwill	576,005			576,005			488,151			446,345			446,345
Less average core deposit and customer relationship intangibles, net	38,614			41,399			42,733			42,145			44,723
Average tangible common equity (non-GAAP)	$	1,366,285		$	1,346,270		$	1,238,691		$	1,172,891		$	1,083,834
Annualized return on average common equity (GAAP)	12.07		%	10.49		%	8.50		%	10.90		%	7.69		%
Annualized return on average tangible common equity (non-GAAP)	18.05		%	15.90		%	12.77		%	16.11		%	11.97		%

Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)
Net Interest Income (GAAP)	$	141,218		$	139,605		$	132,575		$	122,497		$	124,146
Plus tax-equivalent adjustment(1)	1,762			1,761			1,529			1,390			1,416
Net interest income, fully tax-equivalent (non-GAAP)	$	142,980		$	141,366		$	134,104		$	123,887		$	125,562

Average earning assets	$	16,819,978		$	16,460,124		$	15,042,079		$	13,868,360		$	13,103,159

Annualized net interest margin (GAAP)	3.37		%	3.44		%	3.51		%	3.51		%	3.81		%
Annualized net interest margin, fully tax-equivalent (non-GAAP)	3.41			3.48			3.55			3.55			3.85
Net purchase accounting discount accretion on loans included in annualized net interest margin	0.09			0.12			0.10			0.10			0.16


	As Of and For the Quarter Ended
	6/30/2021			3/31/2021			12/31/2020			9/30/2020			6/30/2020
Reconciliation of Tangible Book Value Per Common Share (non-GAAP)
Common equity (GAAP)	$	2,049,081		$	1,945,502		$	1,968,526		$	1,700,899		$	1,636,672
Less goodwill	576,005			576,005			576,005			446,345			446,345
Less core deposit and customer relationship intangibles, net	37,452			39,867			42,383			40,520			43,011
Tangible common equity (non-GAAP)	$	1,435,624		$	1,329,630		$	1,350,138		$	1,214,034		$	1,147,316

Common shares outstanding, net of treasury stock	42,245,452			42,173,675			42,093,862			36,885,390			36,844,744
Common equity (book value) per share (GAAP)	$	48.50		$	46.13		$	46.77		$	46.11		$	44.42
Tangible book value per common share (non-GAAP)	$	33.98		$	31.53		$	32.07		$	32.91		$	31.14

Reconciliation of Tangible Common Equity Ratio (non-GAAP)
Tangible common equity (non-GAAP)	$	1,435,624		$	1,329,630		$	1,350,138		$	1,214,034		$	1,147,316

Total assets (GAAP)	$	18,371,006		$	18,244,427		$	17,908,339		$	15,612,664		$	15,026,153
Less goodwill	576,005			576,005			576,005			446,345			446,345
Less core deposit and customer relationship intangibles, net	37,452			39,867			42,383			40,520			43,011
Total tangible assets (non-GAAP)	$	17,757,549		$	17,628,555		$	17,289,951		$	15,125,799		$	14,536,797
Tangible common equity ratio (non-GAAP)	8.08		%	7.54		%	7.81		%	8.03		%	7.89		%

(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.

Reconciliation of Efficiency Ratio (non-GAAP) For the Quarter Ended
3/31/2021 12/31/2020 9/30/2020 6/30/2020 3/31/2020
Net interest income (GAAP) $ 139,605 $ 132,575 $ 122,497 $ 124,146 $ 112,511
Tax-equivalent adjustment(1)
1,761 1,529 1,390 1,416 1,131
Fully tax-equivalent net interest income 141,366 134,104 123,887 125,562 113,642
Noninterest income 30,317 32,621 31,216 30,637 25,817
Securities (gains)/losses, net 30 (2,829) (1,300) (2,006) (1,658)
Unrealized (gain)/loss on equity securities, net 110 (36) (155) (680) 231
Valuation adjustment on servicing rights (917) 102 120 (9) 1,565
Adjusted revenue (non-GAAP) $ 170,906 $ 163,962 $ 153,768 $ 153,504 $ 139,597
Total noninterest expenses (GAAP) $ 102,423 $ 99,269 $ 90,396 $ 90,439 $ 90,859
Less:
Core deposit and customer relationship intangibles amortization 2,516 2,501 2,492 2,696 2,981
Partnership investment in tax credit projects 35 1,899 927 791 184
Loss on sales/valuation of assets, net 194 2,621 1,763 701 16
Acquisition, integration and restructuring costs 2,928 2,186 1,146 673 1,376
Adjusted noninterest expenses (non-GAAP) $ 96,750 $ 90,062 $ 84,068 $ 85,578 $ 86,302
Efficiency ratio, fully tax-equivalent (non-GAAP) 56.61 % 54.93 % 54.67 % 55.75 % 61.82 %
Acquisition, integration and restructuring costs
Salaries and employee benefits $ 534 $ 232 $ — $ 122 $ 44
Occupancy 9 — — — —
Furniture and equipment 607 423 496 15 24
Professional fees 670 1,422 476 505 996
Advertising 156 42 8 4 89
Other noninterest expenses 952 67 166 27 223
Total acquisition, integration and restructuring costs $ 2,928 $ 2,186 $ 1,146 $ 673 $ 1,376
After tax impact on diluted earnings per share(1)
$ 0.05 $ 0.04 $ 0.02 $ 0.01 $ 0.03
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.


Reconciliation of Efficiency Ratio (non-GAAP)	For the Quarter Ended
	6/30/2021			3/31/2021			12/31/2020			9/30/2020			6/30/2020
Net interest income (GAAP)	$	141,218		$	139,605		$	132,575		$	122,497		$	124,146
Tax-equivalent adjustment(1)	1,762			1,761			1,529			1,390			1,416
Fully tax-equivalent net interest income	142,980			141,366			134,104			123,887			125,562
Noninterest income	33,164			30,317			32,621			31,216			30,637
Securities (gains)/losses, net	(2,842)			30			(2,829)			(1,300)			(2,006)
Unrealized (gain)/loss on equity securities, net	(83)			110			(36)			(155)			(680)

Valuation adjustment on servicing rights	526			(917)			102			120			(9)
Adjusted revenue (non-GAAP)	$	173,745		$	170,906		$	163,962		$	153,768		$	153,504

Total noninterest expenses (GAAP)	$	103,376		$	102,423		$	99,269		$	90,396		$	90,439
Less:
Core deposit and customer relationship intangibles amortization	2,415			2,516			2,501			2,492			2,696
Partnership investment in tax credit projects	1,345			35			1,899			927			791
Loss on sales/valuation of assets, net	183			194			2,621			1,763			701
Acquisition, integration and restructuring costs	210			2,928			2,186			1,146			673
Adjusted noninterest expenses (non-GAAP)	$	99,223		$	96,750		$	90,062		$	84,068		$	85,578
Efficiency ratio, fully tax-equivalent (non-GAAP)	57.11		%	56.61		%	54.93		%	54.67		%	55.75		%

Acquisition, integration and restructuring costs
Salaries and employee benefits	$	44		$	534		$	232		$	—		$	122
Occupancy	1			9			—			—			—
Furniture and equipment	41			607			423			496			15
Professional fees	63			670			1,422			476			505
Advertising	6			156			42			8			4

Other noninterest expenses	55			952			67			166			27
Total acquisition, integration and restructuring costs	$	210		$	2,928		$	2,186		$	1,146		$	673
After tax impact on diluted earnings per common share(1)	$	—		$	0.05		$	0.04		$	0.02		$	0.01
















(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.




DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
	For the Quarter Ended June 30,						For the Six Months Ended June 30,
	2021			2020			2021			2020
Reconciliation of Annualized Return on Average Tangible Common Equity (non-GAAP)
Net income available to common stockholders (GAAP)	$	59,593		$	30,131		$	110,394		$	50,171
Plus core deposit and customer relationship intangibles amortization, net of tax(1)	1,907			2,130			3,895			4,485
Net income available to common stockholders excluding intangible amortization (non-GAAP)	$	61,500		$	32,261		$	114,289		$	54,656

Average common equity (GAAP)	$	1,980,904		$	1,574,902		$	1,972,337		$	1,597,292
Less average goodwill	576,005			446,345			576,005			446,345
Less average core deposit and customer relationship intangibles, net	38,614			44,723			39,999			46,177
Average tangible common equity (non-GAAP)	$	1,366,285		$	1,083,834		$	1,356,333		$	1,104,770
Annualized return on average common equity (GAAP)	12.07		%	7.69		%	11.29		%	6.32		%
Annualized return on average tangible common equity (non-GAAP)	18.05		%	11.97		%	16.99		%	9.95		%

Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)
Net Interest Income (GAAP)	$	141,218		$	124,146		$	280,823		$	236,657
Plus tax-equivalent adjustment(1)	1,762			1,416			3,523			2,547
Net interest income, fully tax-equivalent (non-GAAP)	$	142,980		$	125,562		$	284,346		$	239,204

Average earning assets	$	16,819,978		$	13,103,159		$	16,641,045		$	12,497,307

Annualized net interest margin (GAAP)	3.37		%	3.81		%	3.40		%	3.81		%
Annualized net interest margin, fully tax-equivalent (non-GAAP)	3.41			3.85			3.45			3.85
Net purchase accounting discount accretion on loans included in annualized net interest margin	0.09			0.16			0.11			0.10

(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.




DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
Reconciliation of Efficiency Ratio (non-GAAP)	For the Quarter Ended June 30,						For the Six Months Ended June 30,
	2021			2020			2021			2020
Net interest income (GAAP)	$	141,218		$	124,146		$	280,823		$	236,657
Tax-equivalent adjustment(1)	1,762			1,416			3,523			2,547
Fully tax-equivalent net interest income	142,980			125,562			284,346			239,204
Noninterest income	33,164			30,637			63,481			56,454
Securities gains, net	(2,842)			(2,006)			(2,812)			(3,664)
Unrealized (gain)/loss on equity securities, net	(83)			(680)			27			(449)

Valuation adjustment on servicing rights	526			(9)			(391)			1,556
Adjusted revenue (non-GAAP)	$	173,745		$	153,504		$	344,651		$	293,101

Total noninterest expenses (GAAP)	$	103,376		$	90,439		$	205,799		$	181,298
Less:
Core deposit and customer relationship intangibles amortization	2,415			2,696			4,931			5,677
Partnership investment in tax credit projects	1,345			791			1,380			975
Loss on sales/valuation of assets, net	183			701			377			717
Acquisition, integration and restructuring costs	210			673			3,138			2,049
Adjusted noninterest expenses (non-GAAP)	$	99,223		$	85,578		$	195,973		$	171,880
Efficiency ratio, fully tax-equivalent (non-GAAP)	57.11		%	55.75		%	56.86		%	58.64		%

Acquisition, integration and restructuring costs
Salaries and employee benefits	$	44		$	122		$	578		$	166
Occupancy	1			—			10			—
Furniture and equipment	41			15			648			39
Professional fees	63			505			733			1,501
Advertising	6			4			162			93

Other noninterest expenses	55			27			1,007			250
Total acquisition, integration and restructuring costs	$	210		$	673		$	3,138		$	2,049
After tax impact on diluted earnings per common share(1)	$	—		$	0.01		$	0.06		$	0.04
















(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.

•Efficiency ratio, fully tax equivalent, expresses noninterest expenses as a percentage of fully tax-equivalent net interest income and noninterest income. This 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.

•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.

RESULTS OF OPERATIONS

Net Interest Margin and Net Interest Income

Management closely monitors and manages net interest income and net interest margin, ~~and share~~ the results of which are shared with investors because they are important indicators of the company's profitability and growth of earning assets.

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.

HTLF's success in maintaining competitive net interest margin despite the low-interest rate environment has been the result of an increase in average earning assets and a favorable deposit mix. Also contributing to HTLF's ability to maintain its net interest margin has been the amortization of purchase accounting discounts associated with acquisitions completed since 2015. ~~For the quarters ended March 31, 2021 and 2020, net interest margin included 12 basis points and 9 basis points, respectively, of net purchase accounting discount amortization.~~

For the Quarters ended ~~March 31,~~June 30, 2021 and 2020

Net interest margin, expressed as a percentage of average earning assets, was ~~3.44% (3.48%~~3.37% (3.41% on a fully tax-equivalent basis, non-GAAP) during the ~~first~~second quarter of 2021, compared to 3.81% ~~(3.84%~~(3.85% on a fully tax-equivalent basis, non-GAAP) during the ~~first~~second quarter of 2020. For the quarters ended June 30, 2021 and 2020, net interest margin included 9 basis points and 16 basis points, respectively, of net purchase accounting discount amortization.

Total interest income and average earning asset changes for the ~~first~~second quarter of 2021 compared to the ~~first~~second quarter of 2020 were:

•Total interest income was ~~$147.5~~$148.1 million, which was an increase of ~~$16.4~~$14.3 million or ~~13%~~11% from ~~$131.0~~$133.8 million and primarily attributable to an increase in average earning assets partially offset by lower yields.

•Total interest income on a tax-equivalent basis (non-GAAP) was ~~$149.2~~$149.8 million, which was an increase of ~~$17.0~~$14.7 million or ~~13%~~11% from ~~$132.2~~$135.2 million.

•Average earning assets increased ~~$4.57~~$3.72 billion or ~~38%~~28% to ~~$16.46~~$16.82 billion compared to ~~$11.89~~$13.10 billion, which was primarily attributable to recent acquisitions and loan growth, including PPP loans.

•The average rate on earning assets decreased 7958 basis points to ~~3.68%~~3.57% compared to ~~4.47%~~4.15%, which was primarily due to recent decreases in market interest rates and a shift in earning asset mix. Total average securities were 39% of total average earning ~~average~~ assets compared to 29%~~, and the average tax-effected rate on securities was 2.28% compared to 2.88%~~.

Total interest expense and average interest bearing liability changes for the ~~first~~second quarter of 2021 compared to the ~~first~~second quarter of 2020 were:

•Total interest expense was ~~$7.8~~$6.9 million, a decrease of ~~$10.7~~$2.8 million or ~~58%~~29% from ~~$18.5~~$9.6 million, based on a decrease in the average interest rate paid, which was partially offset by an increase in average interest bearing liabilities.

•The average interest rate paid on interest bearing liabilities decreased to ~~0.32%~~0.28% compared to ~~0.95%~~0.47%, which was primarily due to recent decreases in market interest rates.

•Average interest bearing deposits increased ~~$1.84~~$1.62 billion or ~~25%~~21% to ~~$9.27~~$9.41 billion from ~~$7.42~~$7.79 billion which was primarily attributable to recent acquisitions and deposit growth, including deposits ~~from~~related to government stimulus payments and other COVID-19 relief programs.

•The average interest rate paid on interest bearing deposits decreased 6016 basis points to ~~0.19%~~0.16% compared to ~~0.79%~~0.32%.

•Average borrowings increased ~~$233.4~~$97.0 million or ~~56%~~26% to ~~$651.2~~$465.9 million from ~~$417.8~~$368.9 million, which was primarily attributable to outstanding advances from the ~~Paycheck Protection Program ("PPP")~~PPP lending fund used to fund PPP loans to borrowers. The average interest rate paid on borrowings was ~~2.15%~~2.65% compared to ~~3.81%~~3.80%.

Net interest income increased for the ~~first~~second quarter of 2021 compared to the ~~first~~second quarter of 2020:

•Net interest income totaled ~~$139.6~~$141.2 million compared to ~~$112.5~~$124.1 million, which was an increase of ~~$27.1~~$17.1 million or ~~24%~~14%.

•Net interest income on a tax-equivalent basis (non-GAAP) totaled ~~$141.4~~$143.0 million compared to ~~$113.6~~$125.6 million, which was an increase of ~~$27.7~~$17.4 million or ~~24%~~14%.

For the Six Months ended June 30, 2021 and 2020

Net interest margin, expressed as a percentage of average earning assets, was 3.40% (3.45% on a fully tax-equivalent basis, non-GAAP) during the first six months of 2021, compared to 3.81% (3.85% on a fully tax-equivalent basis, non-GAAP) during the first six months of 2020. For the six months ended June 30, 2021 and 2020, net interest margin included 11 basis points and 10 basis points, respectively, of net purchase accounting discount amortization.

Total interest income and average earning asset changes for the first six months of 2021 compared to the first six months of 2020 were:

•Total interest income was $295.5 million, which was an increase of $30.7 million or 12% from $264.8 million, primarily attributable to an increase in average earning assets partially offset by lower yields.

•Total interest income on a tax-equivalent basis (non-GAAP) was $299.1 million, which was an increase of $31.7 million or 12% from $267.4 million.

•Average earning assets increased $4.14 billion or 33% to $16.64 billion compared to $12.50 billion which was primarily attributable to recent acquisitions and loan growth, including PPP loans.

•The average rate on earning assets decreased 68 basis points to 3.62% compared to 4.30%, which was primarily due to recent decreases in market interest rates and a shift in earning asset mix. Total average securities were 39% of total average earning assets compared to 29%, and the average tax-effected rate on securities was 2.27% compared to 2.90%.

Total interest expense and average interest bearing liability changes for the first six months of 2021 compared to the first six months of 2020 were:

•Total interest expense was $14.7 million, a decrease of $13.4 million or 48% from $28.2 million, based on a decrease in the average interest rate paid, which was partially offset by an increase in average interest bearing liabilities.

•The average interest rate paid on interest bearing liabilities decreased to 0.30% compared to 0.71%, which was primarily due to recent decreases in market interest rates.

•Average interest bearing deposits increased $1.73 billion or 23% to $9.34 billion from $7.61 billion which was primarily attributable to recent acquisitions and deposit growth, including deposits related to government stimulus payments and other COVID-19 relief programs.

•The average interest rate paid on interest bearing deposits decreased 37 basis points to 0.18% compared to 0.55%.

•Average borrowings increased $164.7 million or 42% to $558.0 million from $393.3 million, which was primarily attributable to outstanding advances from the PPP lending fund used to fund PPP loans to borrowers. The average interest rate paid on borrowings was 2.36% compared to 3.80%.

Net interest income increased for the first six months of 2021 compared to the first six months of 2020:

•Net interest income totaled $280.8 million compared to $236.7 million, which was an increase of $44.2 million or 19%.

•Net interest income on a tax-equivalent basis (non-GAAP) totaled $284.3 million compared to $239.2 million, which was an increase of $45.1 million or 19%.

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.

Management believes net interest margin expressed in dollars will continue to increase as the amount of earning assets grows, however net interest margin as a percentage of average earning assets may decrease because of interest rate changes. The Federal Reserve has indicated it will closely assess economic data and be patient before moving ahead with any additional changes to the Federal Funds rate; therefore, the timing and magnitude of any such changes are uncertain and will depend on domestic and global economic conditions.

HTLF attempts to manage its balance sheet to minimize the effect that a change in interest rates has on its net interest ~~margin.~~income. Management ~~plans to continue~~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 produces and reviews simulations of various 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 7 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) (DOLLARS IN THOUSANDS)

	For the Quarter Ended
	June 30, 2021							March 31, 2021							June 30, 2020
	Average Balance			Interest		Rate		Average Balance			Interest		Rate		Average Balance			Interest		Rate
Earning Assets
Securities:
Taxable	$	5,862,683		$	31,546	2.16	%	$	5,693,097		$	30,443	2.17	%	$	3,375,245		$	23,362	2.78	%
Nontaxable(1)	740,601			5,773		3.13		730,565			5,700		3.16		433,329			4,233		3.93
Total securities	6,603,284			37,319		2.27		6,423,662			36,143		2.28		3,808,574			27,595		2.91
Interest on deposits with other banks and short-term investments	271,891			60		0.09		204,488			66		0.13		210,347			54		0.10
Federal funds sold	—			—		—		14,020			1		0.03		—			—		—
Loans:(2)
Commercial and industrial(1)	2,469,742			28,562		4.64		2,500,250			28,222		4.58		2,453,066			30,759		5.04
PPP loans	1,047,559			11,186		4.28		992,517			10,149		4.15		916,405			6,017		2.64
Owner occupied commercial real estate	1,858,891			20,097		4.34		1,778,829			19,565		4.46		1,426,019			17,670		4.98
Non-owner occupied commercial real estate	1,980,374			21,734		4.40		1,937,564			22,121		4.63		1,540,958			19,055		4.97
Real estate construction	815,738			9,212		4.53		806,315			9,698		4.88		1,100,514			12,589		4.60
Agricultural and agricultural real estate	672,560			7,267		4.33		681,279			8,051		4.79		532,668			6,171		4.66
Residential mortgage	827,291			9,255		4.49		849,923			9,830		4.69		795,149			9,586		4.85
Consumer	399,916			5,152		5.17		405,475			5,367		5.37		422,134			5,685		5.42
Less: allowance for credit losses-loans	(127,268)			—		—		(134,198)			—		—		(102,675)			—		—
Net loans	9,944,803			112,465		4.54		9,817,954			113,003		4.67		9,084,238			107,532		4.76
Total earning assets	16,819,978			149,844		3.57	%	16,460,124			149,213		3.68	%	13,103,159			135,181		4.15	%
Nonearning Assets	1,473,778							1,504,599							1,288,697
Total Assets	$	18,293,756						$	17,964,723						$	14,391,856
Interest Bearing Liabilities
Savings	$	8,234,151		$	2,233	0.11	%	$	8,032,308		$	2,430	0.12	%	$	6,690,504		$	2,372	0.14	%
Time deposits	1,171,266			1,557		0.53		1,233,682			1,965		0.65		1,096,386			3,762		1.38
Short-term borrowings	169,822			98		0.23		240,037			152		0.26		82,200			61		0.30
Other borrowings	296,063			2,976		4.03		411,132			3,300		3.26		286,663			3,424		4.80
Total interest bearing liabilities	9,871,302			6,864		0.28	%	9,917,159			7,847		0.32	%	8,155,753			9,619		0.47
Noninterest Bearing Liabilities
Noninterest bearing deposits	6,170,928							5,778,571							4,501,488
Accrued interest and other liabilities	159,917							194,614							153,618
Total noninterest bearing liabilities	6,330,845							5,973,185							4,655,106
Equity	2,091,609							2,074,379							1,580,997
Total Liabilities and Equity	$	18,293,756						$	17,964,723						$	14,391,856
Net interest income, fully tax-equivalent (non-GAAP)(1)(3)				$	142,980						$	141,366						$	125,562
Net interest spread(1)						3.29	%						3.36	%						3.68	%
Net interest income, fully tax-equivalent to total earning assets (non-GAAP)(1)(3)						3.41	%						3.48	%						3.85	%
Interest bearing liabilities to earning assets	58.69		%					60.25		%					62.24		%









(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.

ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT YIELDS AND RATES (1) (DOLLARS IN THOUSANDS)
For the Quarter Ended
March 31, 2021 December 31, 2020 March 31, 2020
Average
Balance Interest Rate Average
Balance Interest Rate Average
Balance Interest Rate
Earning Assets
Securities:
Taxable $ 5,693,097 $ 30,443 2.17 % $ 4,957,680 $ 28,154 2.26 % $ 3,132,103 $ 21,731 2.79 %
Nontaxable(1)
730,565 5,700 3.16 543,845 4,728 3.46 288,535 2,763 3.85
Total securities 6,423,662 36,143 2.28 5,501,525 32,882 2.38 3,420,638 24,494 2.88
Interest on deposits with other banks and short-term investments 204,488 66 0.13 292,436 77 0.10 181,320 721 1.60
Federal funds sold 14,020 1 0.03 427 — — — — —
Loans:(2)
Commercial and industrial(1)
2,500,250 28,222 4.58 2,357,056 27,523 4.65 2,607,513 32,454 5.01
PPP loans 992,517 10,149 4.15 1,064,863 11,806 4.41 — — —
Owner occupied commercial real estate 1,778,829 19,565 4.46 1,597,446 18,605 4.63 1,433,160 18,581 5.21
Non-owner occupied commercial real estate 1,937,564 22,121 4.63 1,756,443 20,733 4.70 1,472,268 19,530 5.34
Real estate construction 806,315 9,698 4.88 859,941 9,723 4.50 1,045,836 12,845 4.94
Agricultural and agricultural real estate 681,279 8,051 4.79 554,596 6,535 4.69 552,968 7,039 5.12
Residential mortgage 849,923 9,830 4.69 785,852 9,288 4.70 819,730 10,421 5.11
Consumer 405,475 5,367 5.37 390,233 5,188 5.29 432,745 6,095 5.66
Less: allowance for credit losses-loans (134,198) — — (118,739) — — (74,723) — —
Net loans 9,817,954 113,003 4.67 9,247,691 109,401 4.71 8,289,497 106,965 5.19
Total earning assets 16,460,124 149,213 3.68 % 15,042,079 142,360 3.77 % 11,891,455 132,180 4.47 %
Nonearning Assets 1,504,599 1,359,073 1,256,718
Total Assets $ 17,964,723 $ 16,401,152 $ 13,148,173
Interest Bearing Liabilities
Savings $ 8,032,308 $ 2,430 0.12 % $ 7,176,563 $ 2,166 0.12 % $ 6,277,528 $ 10,082 0.65 %
Time deposits 1,233,682 1,965 0.65 1,074,746 2,443 0.90 1,146,619 4,500 1.58
Short-term borrowings 240,037 152 0.26 268,464 175 0.26 141,807 296 0.84
Other borrowings 411,132 3,300 3.26 534,082 3,472 2.59 275,987 3,660 5.33
Total interest bearing liabilities 9,917,159 7,847 0.32 % 9,053,855 8,256 0.36 % 7,841,941 18,538 0.95
Noninterest Bearing Liabilities
Noninterest bearing deposits 5,778,571 5,266,711 3,547,046
Accrued interest and other liabilities 194,614 200,306 139,504
Total noninterest bearing liabilities 5,973,185 5,467,017 3,686,550
Equity 2,074,379 1,880,280 1,619,682
Total Liabilities and Equity $ 17,964,723 $ 16,401,152 $ 13,148,173
Net interest income, fully tax-equivalent (non-GAAP)(3)
$ 141,366 $ 134,104 $ 113,642
Net interest spread(1)
3.36 % 3.41 % 3.52 %
Net interest income, fully tax-equivalent to total earning assets (non-GAAP)(3)
3.48 % 3.55 % 3.84 %
(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.


ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT YIELDS AND RATES (1) (DOLLARS IN THOUSANDS)
	For the Six Months Ended
	June 30, 2021							June 30, 2020
	Average Balance			Interest		Rate		Average Balance			Interest		Rate
Earning Assets
Securities:
Taxable	$	5,778,333		$	61,989	2.16	%	$	3,253,675		$	45,093	2.79	%
Nontaxable(1)	735,636			11,473		3.15		360,932			6,996		3.90
Total securities	6,513,969			73,462		2.27		3,614,607			52,089		2.90
Interest bearing deposits with other banks and other short-term investments	238,376			126		0.11		195,833			775		0.80
Federal funds sold	6,971			1		0.03		—			—		—
Loans:(2)
Commercial and industrial(1)	2,485,210			56,784		4.61		2,530,349			63,213		5.02
PPP loans	1,020,190			21,335		4.22		458,202			6,017		2.64
Owner occupied commercial real estate	1,818,932			39,662		4.40		1,429,560			36,251		5.10
Non-owner occupied commercial real estate	1,958,938			43,855		4.51		1,506,583			38,585		5.15
Real estate construction	811,053			18,910		4.70		1,073,175			25,434		4.77
Agricultural and agricultural real estate	676,895			15,318		4.56		542,818			13,210		4.89
Residential mortgage	838,545			19,085		4.59		807,440			20,007		4.98
Consumer	402,680			10,519		5.27		427,439			11,780		5.54

Less: allowance for loan losses	(130,714)			—		—		(88,699)			—		—
Net loans	9,881,729			225,468		4.60		8,686,867			214,497		4.97
Total earning assets	16,641,045			299,057		3.62	%	12,497,307			267,361		4.30	%
Nonearning Assets	1,489,103							1,272,708
Total Assets	$	18,130,148						$	13,770,015
Interest Bearing Liabilities
Savings	$	8,133,787		$	4,663	0.12	%	$	6,484,016		$	12,454	0.39	%
Time deposits	1,202,301			3,522		0.59		1,121,502			8,262		1.48
Short-term borrowings	204,735			250		0.25		112,004			357		0.64
Other borrowings	353,280			6,276		3.58		281,325			7,084		5.06
Total interest bearing liabilities	9,894,103			14,711		0.30	%	7,998,847			28,157		0.71	%
Noninterest Bearing Liabilities
Noninterest bearing deposits	5,975,833							4,024,267
Accrued interest and other liabilities	177,170							146,561
Total noninterest bearing liabilities	6,153,003							4,170,828
Equity	2,083,042							1,600,340
Total Liabilities and Equity	$	18,130,148						$	13,770,015
Net interest income, fully tax-equivalent (non-GAAP)(1)(3)				$	284,346						$	239,204
Net interest spread(1)						3.32	%						3.59	%
Net interest income, fully tax-equivalent (non-GAAP) to total earning assets(1)(3)						3.45	%						3.85	%
Interest bearing liabilities to earning assets	59.46		%					64.00		%




(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.

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 and six months ended ~~March 31,~~June 30, 2021 and 2020, in thousands:


		Three Months Ended March 31,			Three Months Ended June 30,						Six Months Ended June 30,
			2021			2020			2021		2020		2021		2020
Provision for credit losses-loans			$	16		$	19,865
Provision (benefit) for credit losses-loans								Provision (benefit) for credit losses-loans	$	(6,466)	$	25,007	$	(6,450)	$	44,872
Provision (benefit) for credit losses-unfunded commitments	Provision (benefit) for credit losses-unfunded commitments		(661)			1,616		Provision (benefit) for credit losses-unfunded commitments	(617)		1,924		(1,278)		3,540
Provision (benefit) for credit losses-held to maturity securities	Provision (benefit) for credit losses-held to maturity securities		(3)			39		Provision (benefit) for credit losses-held to maturity securities	3		(135)		—		(96)
Total provision expense (benefit)	Total provision expense (benefit)		$	(648)		$	21,520	Total provision expense (benefit)	$	(7,080)	$	26,796	$	(7,728)	$	48,316

~~Provision~~The provision benefit for credit losses for loans ~~totaled $16,000~~was $6.5 million for the ~~first~~second quarter of 2021, which was a decrease of ~~$19.8~~$31.5 million from ~~$19.9~~provision expense of $25.0 million recorded in the ~~first~~second quarter of 2020. The provision ~~expense~~benefit for the ~~first~~second quarter of 2021 was impacted by several factors, including:

•~~decreases~~increases in balances of loans held to maturity of $287.7 million during the second quarter excluding total PPP loans, which included an increase of ~~$170.1~~$92.7 million ~~from year-end 2020;~~in government guaranteed loans for which no provision was required,

•modest ~~changes~~improvements in credit quality marked by ~~delinquencies~~a decrease in nonperforming loans of ~~0.16% of total loans~~$6.5 million to $85.4 million and nonpass loans of ~~11.5%~~10.37% of total loans ~~for the quarter~~as of June 30, 2021, compared to ~~delinquencies~~nonperforming loans of ~~0.23% of total loans~~$91.9 million and nonpass loans of ~~10.8%~~11.47% of total loans at March 31, 2021, and

•improved macroeconomic factors compared to previous quarters.

The provision benefit for credit losses for loans was $6.5 million for the first six months of 2021 compared to provision expense of $44.9 million for the first six months of 2020, which was a decrease of $51.3 million. The provision benefit for the first six months of 2021 was impacted by several factors, including:

•increases in balances of loans held to maturity of $117.6 million excluding total PPP loans from year-end 2020, which included an increase of $165.8 million of government guaranteed loans for which no provision was required.

•modest improvements in credit quality marked by a decrease in nonperforming loans of $2.7 million to $85.4 million and nonpass loans of 10.37% of total loans as of June 30, 2021, compared to nonperforming loans of $88.1 million and nonpass loans of 10.80% of total loans at December 31, 2020, and

•~~consistent~~improved macroeconomic factors compared to previous quarters.

Given 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, such as economic conditions, considered when determining the appropriateness of the allowance for credit losses, the provision for credit losses will vary 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 policies 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, 2020, "Allowance For Credit Losses" and "Provision for Credit Losses" in Item 2 of this Quarterly Report on Form 10-Q and Note 5, "Allowance for Credit Losses," to the consolidated financial statements included herein.

Management believes the allowance for credit losses as of ~~March 31,~~June 30, 2021, was at a level commensurate with the overall risk exposure of the loan portfolio. However, ifnegative changes in current economic conditions ~~resulting from~~related to the COVID-19 ~~continue or further deteriorate,~~pandemic could cause certain borrowers ~~may~~to experience ~~difficulty and the level of nonperforming loans, charge-offs and delinquencies could rise and require further increases in the provision for credit losses.~~difficulty. Due to the uncertainty of future economic conditions resulting from the COVID-19 pandemic, including recent concerns over COVID-19 variants, the provision for credit losses could be volatile over the next several quarters.

Noninterest Income

The ~~table~~tables below ~~shows~~show noninterest income for the ~~three~~three- and six- months ended ~~March 31,~~June 30, 2021 and 2020, in thousands:


	Three Months Ended June 30,
	2021		2020		Change		% Change
Service charges and fees	$	15,132	$	10,972	$	4,160	38	%
Loan servicing income	873		379		494		130
Trust fees	6,039		4,977		1,062		21
Brokerage and insurance commissions	865		595		270		45
Securities gains, net	2,842		2,006		836		42
Unrealized gain/(loss) on equity securities, net	83		680		(597)		(88)

Net gains on sale of loans held for sale	4,753		7,857		(3,104)		(40)
Valuation adjustment on servicing rights	(526)		9		(535)		(5,944)
Income on bank owned life insurance	937		1,167		(230)		(20)
Other noninterest income	2,166		1,995		171		9
Total noninterest income	$	33,164	$	30,637	$	2,527	8	%


		Three Months Ended March 31,									Six Months Ended June 30,
		2021		2020		Change		% Change			2021		2020		Change		% Change
Service charges and fees	Service charges and fees	$	13,671	$	12,021	$	1,650	14	%	Service charges and fees	$	28,803	$	22,993	$	5,810	25	%
Loan servicing income	Loan servicing income	838		963		(125)		(13)		Loan servicing income	1,711		1,342		369		27
Trust fees	Trust fees	5,777		5,022		755		15		Trust fees	11,816		9,999		1,817		18
Brokerage and insurance commissions	Brokerage and insurance commissions	853		733		120		16		Brokerage and insurance commissions	1,718		1,328		390		29
Securities gains/(losses), net		(30)		1,658		(1,688)		(102)
Unrealized loss on equity securities, net		(110)		(231)		121		52
Securities gains, net										Securities gains, net	2,812		3,664		(852)		(23)
Unrealized gain/(loss) on equity securities, net										Unrealized gain/(loss) on equity securities, net	(27)		449		(476)		(106)

Net gains on sale of loans held for sale	Net gains on sale of loans held for sale	6,420		4,660		1,760		38		Net gains on sale of loans held for sale	11,173		12,517		(1,344)		(11)
Valuation adjustment on servicing rights	Valuation adjustment on servicing rights	917		(1,565)		2,482		159		Valuation adjustment on servicing rights	391		(1,556)		1,947		125
Income on bank owned life insurance	Income on bank owned life insurance	829		498		331		66		Income on bank owned life insurance	1,766		1,665		101		6
Other noninterest income	Other noninterest income	1,152		2,058		(906)		(44)		Other noninterest income	3,318		4,053		(735)		(18)
Total noninterest income	Total noninterest income	$	30,317	$	25,817	$	4,500	17	%	Total noninterest income	$	63,481	$	56,454	$	7,027	12	%

Total noninterest income totaled ~~$30.3~~$33.2 million during the ~~first~~second quarter of 2021 compared to ~~$25.8~~$30.6 million during the ~~first~~second quarter of 2020, an increase of ~~$4.5~~$2.5 million or ~~17%~~8%. Total noninterest income was $63.5 million for the first six months of 2021 compared to $56.5 million for the same period of 2020, which was an increase of $7.0 million or 12%.

Notable changes in noninterest income categories for the ~~three~~three- and six months ended ~~March 31,~~June 30, 2021 and 2020 are as follows:

Service Charges and Fees

The following ~~table summarizes~~tables summarize the changes in service charges and fees for the ~~three~~three- and six- months ended ~~March 31,~~June 30, 2021 and 2020, in thousands:


		Three Months Ended March 31,									Three Months Ended June 30,
		2021		2020		Change		% Change			2021		2020		Change		% Change
Service charges and fees on deposit accounts	Service charges and fees on deposit accounts	$	3,936	$	3,438	$	498	14	%	Service charges and fees on deposit accounts	$	4,014	$	3,476	$	538	15	%
Overdraft fees	Overdraft fees	2,592		2,809		(217)		(8)		Overdraft fees	2,549		1,634		915		56
Customer service and other service fees	Customer service and other service fees	46		59		(13)		(22)		Customer service and other service fees	54		35		19		54
Credit card fee income	Credit card fee income	4,308		3,900		408		10		Credit card fee income	5,854		4,067		1,787		44
Debit card income	Debit card income	2,789		1,815		974		54		Debit card income	2,661		1,760		901		51
Total service charges and fees										Total service charges and fees	$	15,132	$	10,972	$	4,160	38	%

											Six Months Ended June 30,
											2021		2020		Change		% Change
Service charges and fees on deposit accounts										Service charges and fees on deposit accounts	$	7,950	$	6,913	$	1,037	15	%
Overdraft fees										Overdraft fees	5,141		4,443		698		16
Customer service and other service fees										Customer service and other service fees	100		94		6		6
Credit card fee income										Credit card fee income	10,162		7,967		2,195		28
Debit card income										Debit card income	5,450		3,576		1,874		52
Total service charges and fees	Total service charges and fees	$	13,671	$	12,021	$	1,650	14	%	Total service charges and fees	$	28,803	$	22,993	$	5,810	25	%

Notable changes in total service charges and fees for the second quarter of 2021 compared to the second quarter of 2020 were:

•Service charges and fees on deposit accounts totaled $4.0 million compared to $3.5 million, an increase of $538,000 or 15%.

•Overdraft fees increased $915,000 or 56% to $2.5 million from $1.6 million.

•Credit card fee income increased $1.8 million or 44% to $5.9 million from $4.1 million.

•Debit card income totaled $2.7 million compared to $1.8 million, an increase of $901,000 or 51%.

Notable changes in total service charges and fees for the first ~~quarter~~six months of 2021 compared to the first ~~quarter~~six months of 2020 were:

•Service charges and fees on deposit accounts totaled ~~$3.9~~$8.0 million compared to ~~$3.4~~$6.9 million, an increase of ~~$498,000~~$1.0 million or ~~14%~~15%.

•Overdraft fees increased $698,000 or 16% to $5.1 million from $4.4 million.

•Credit card fee income increased ~~$408,000~~$2.2 million or ~~10%~~28% to ~~$4.3~~$10.2 million from ~~$3.9 million~~$8.0 million.

•Debit card income totaled ~~$2.8~~$5.5 million compared to ~~$1.8~~$3.6 million, an increase of ~~$974,000~~$1.9 million or ~~54%~~52%.

~~These~~The changes detailed above were primarily attributable to HTLF's larger customer base as a result of recent acquisitions. Additionally, HTLF was waiving retail and small business service charges and fees and transaction volumes were lower in the second quarter of 2020 due to ~~recent acquisitions.~~the COVID-19 pandemic.

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 ~~table shows~~tables show the changes in loan servicing income for the ~~three~~three- and six- months ended ~~March 31,~~June 30, 2021, and 2020, in thousands:


								Three Months Ended June 30,
												2021		2020		Change		% Change

Commercial and agricultural loan servicing fees(1)											Commercial and agricultural loan servicing fees(1)	$	738	$	730	$	8	1	%
Residential mortgage servicing fees											Residential mortgage servicing fees	459		410		49		12
Mortgage servicing rights amortization											Mortgage servicing rights amortization	(324)		(761)		437		57
Total loan servicing income											Total loan servicing income	$	873	$	379	$	494	130	%

		Three Months Ended March 31,										Six Months Ended June 30,
		2021		2020		Change			% Change			2021		2020		Change		% Change
Commercial and agricultural loan servicing fees(1)	Commercial and agricultural loan servicing fees(1)	$	774	$	861	$	(87)		(10)	%	Commercial and agricultural loan servicing fees(1)	$	1,512	$	1,591	$	(79)	(5)	%
Residential mortgage servicing fees	Residential mortgage servicing fees	464		409		55			13		Residential mortgage servicing fees	923		819		104		13
Mortgage servicing rights amortization	Mortgage servicing rights amortization	(400)		(307)		(93)			(30)		Mortgage servicing rights amortization	(724)		(1,068)		344		32
Total loan servicing income	Total loan servicing income	$	838	$	963	$	(125)		(13)	%	Total loan servicing income	$	1,711	$	1,342	$	369	27	%

(1) Includes servicing fees for commercial, commercial real estate, agricultural and agricultural real estate loans.	(1) Includes servicing fees for commercial, commercial real estate, agricultural and agricultural real estate loans.										(1) Includes servicing fees for commercial, commercial real estate, agricultural and agricultural real estate loans.

~~Securities Gains/(Losses), Net~~

~~Net securities losses totaled $30,000~~Stable residential mortgage rates for the second quarter and first six months of 2021 compared to the same periods of 2020 caused residential mortgage loan refinancing activity to decrease, which reduced mortgage servicing rights amortization.

Trust Fees

Trust fees increased $1.1 million or 21% to $6.0 million for the second quarter of 2021 compared to ~~net gains of $1.7~~$5.0 million for the ~~first~~same quarter of 2020. For the six months ended June 30, 2021 and 2020, trust fees totaled $11.8 million compared to $10.0 million, respectively, and was an increase of $1.8 million or 18%. The increase for both the three- and six month periods was attributable to an increase in the fair market value of assets under management.

Securities Gains, Net

For the second quarter of 2021, net securities gains totaled $2.8 million compared to $2.0 million for the second quarter of 2020, which was an increase of $836,000 or 42%. For the six months ended June 30, 2021 and 2020, net securities gains totaled $2.8 million and $3.7 million, respectively, which was a decrease of ~~$1.7 million was primarily the result of a decline in fair value of the~~$852,000 or 23%. The net unrealized gain on securities ~~portfolio. Securities~~ carried at fair value ~~had a net unrealized gain of~~was $80.3 million at June 30, 2021, $12.9 million at March 31, 2021, ~~compared to a net unrealized gain of~~and $103.8 million at year-end 2020.

Net Gains on Sale of Loans Held for Sale

During the ~~first~~second quarter of 2021, net gains on sale of loans held for sale totaled ~~$6.4~~$4.8 million compared to ~~$4.7~~$7.9 million during the same period in 2020, ~~an increase~~a decrease of ~~$1.8~~$3.1 million or ~~38%~~40%. Loans sold to investors in the ~~first~~second quarter of 2021 totaled ~~$130.6~~$130.2 million compared to ~~$84.5~~$147.8 million during the ~~first~~second quarter of 2020, which was ~~an increase~~a decrease of ~~$46.1~~$17.6 million or ~~55%~~12%.

~~Valuation Adjustment on Servicing Rights~~

Valuation adjustment on servicing rights reflects an increase to income of $2.5 million due to a recovery of $917,000 in the first quarter of 2021 compared to an impairment of $1.6 million in the same quarter of 2020, primarily due to recent increases in long-term interest rates.

~~Other Noninterest Income~~

Other noninterest income decreased $906,000 or 44% to $1.2 million for the first quarter of 2021 compared to $2.1 million for the same quarter of 2020. Included in other noninterest income for the three months ended March 31, 2020 were recoveries of $336,000 on a lending relationship charged off prior to acquisition, and no comparable transactions were recorded in the first quarter of 2021.

~~Noninterest Expenses~~

~~The table below shows noninterest expenses for the three months ended March 31, 2021, and 2020, in thousands:~~

Three Months Ended
March 31,
2021 2020 Change % Change
Salaries and employee benefits $ 59,062 $ 49,957 $ 9,105 18 %
Occupancy 7,918 6,471 1,447 22
Furniture and equipment 3,093 3,108 (15) —
Professional fees 13,490 12,473 1,017 8
Advertising 1,469 2,205 (736) (33)
Core deposit and customer relationship intangibles amortization 2,516 2,981 (465) (16)
Other real estate and loan collection expenses, net 135 334 (199) (60)
Loss on sales/valuations of assets, net 194 16 178 1,113
Acquisition, integration and restructuring costs 2,928 1,376 1,552 113
Partnership investment in tax credit projects 35 184 (149) (81)
Other noninterest expenses 11,583 11,754 (171) (1)
Total noninterest expenses $ 102,423 $ 90,859 $ 11,564 13 %

For the first ~~quarter~~six months of 2021, ~~noninterest expenses~~net gains on sales of loans held for sale totaled ~~$102.4~~$11.2 million compared to ~~$90.9~~$12.5 million, ~~during~~which was a decrease of $1.3 million or 11%. Loans sold to investors for the first ~~quarter~~six months of ~~2020,~~2021 totaled $269.5 million compared to $243.5 million, which was an increase of ~~$11.6~~$25.9 million or ~~13%~~11%.

Noninterest Expenses

The tables below show noninterest expenses for the three- and six months ended June 30, 2021, and 2020, in thousands:


	Three Months Ended June 30,
	2021		2020		Change		% Change
Salaries and employee benefits	$	57,332	$	50,118	$	7,214	14	%
Occupancy	7,399		6,502		897		14
Furniture and equipment	3,501		2,993		508		17
Professional fees	16,237		13,676		2,561		19

Advertising	1,649		995		654		66
Core deposit and customer relationship intangibles amortization	2,415		2,696		(281)		(10)
Other real estate and loan collection expenses	414		203		211		104
Loss on sales/valuations of assets, net	183		701		(518)		(74)
Acquisition, integration and restructuring costs	210		673		(463)		(69)
Partnership investment in tax credit projects	1,345		791		554		70
Other noninterest expenses	12,691		11,091		1,600		14
Total noninterest expenses	$	103,376	$	90,439	$	12,937	14	%


	Six Months Ended June 30,
	2021		2020		Change		% Change
Salaries and employee benefits	$	116,394	$	100,075	$	16,319	16	%
Occupancy	15,317		12,973		2,344		18
Furniture and equipment	6,594		6,101		493		8
Professional fees	29,727		26,149		3,578		14

Advertising	3,118		3,200		(82)		(3)
Core deposit and customer relationship intangibles amortization	4,931		5,677		(746)		(13)
Other real estate and loan collection expenses	549		537		12		2
Loss on sales/valuations of assets, net	377		717		(340)		(47)
Acquisition, integration and restructuring costs	3,138		2,049		1,089		53
Partnership investment in tax credit projects	1,380		975		405		42
Other noninterest expenses	24,274		22,845		1,429		6
Total noninterest expenses	$	205,799	$	181,298	$	24,501	14	%

For the second quarter of 2021, noninterest expenses totaled $103.4 million compared to $90.4 million during the second quarter of 2020, an increase of $12.9 million or 14%. For the six months ended June 30, 2021, noninterest expenses totaled $205.8 million, which was an increase of $24.5 million or 14% from $181.3 million for the same period in 2020.

Notable changes in noninterest expense categories for the ~~three~~three- and six months ended ~~March 31,~~June 30, 2021 and 2020 are as follows:

Salaries and employee benefits

Salaries and employee benefits increased ~~$9.1~~$7.2 million or ~~18%~~14% to ~~$59.1~~$57.3 million for the ~~first~~second quarter of 2021 compared to ~~$50.0~~$50.1 million for the ~~first~~second quarter of 2020. ~~Significant changes in~~For the first six months of 2021, salaries and ~~employee~~ benefits ~~for the first quarter of 2021 compared to the first quarter of 2020 were:~~

•~~Full-time equivalent employees increased to 2,131 from 1,817, an increase of 314 or 17%. The increase was primarily attributable to the acquisitions completed in the fourth quarter of 2020.~~

•~~Salary expense increased $5.6~~totaled $116.4 million, ~~or 15% to $38.4 million from $32.9 million. Correspondingly, payroll taxes, 401(k) and profit sharing expenses increased $1.2 million or 23% to $6.6 million from $5.3 million.~~

~~Occupancy~~

~~Occupancy expense totaled $7.9 million for the first quarter of 2021 compared to $6.5 million for the first quarter of 2020,~~ which was an increase of ~~$1.4~~$16.3 million or ~~22%. The increase~~16% from $100.1 million for the same period of 2020. Full-time equivalent employees totaled 2,091 at June 30, 2021 compared to 1,821 at June 30, 2020, which was primarily attributable to the acquisitions completed in the fourth quarter of 2020.

Occupancy

Occupancy expense totaled $7.4 million for the second quarter of 2021 compared to $6.5 million for the second quarter of 2020, which was an increase of $897,000 or 14%. Occupancy expense totaled $15.3 million and $13.0 million for the six

months ended June 30, 2021 and 2020, respectively, which was an increase of $2.3 million or 18%. The increase for the three and six month periods was a result of acquisitions completed in the fourth quarter of 2020.

Professional Fees

Professional fees increased ~~$1.0~~$2.6 million or 8%19% to ~~$13.5~~$16.2 million for the ~~first~~second quarter of 2021 compared to ~~$12.5~~$13.7 million for the same period of 2020. For the six months ended June 30, 2021 and 2020, professional fees totaled $29.7 million and $26.1 million, respectively, which was an increase of $3.6 million or 14%. The increase ~~was~~for the three and six month periods were primarily attributable to recent ~~acquisitions, which resulted in a larger deposit base, and~~acquisitions. The increase was also driven by several technology and automation improvement ~~projects.~~projects that require utilization of specialized resources, including the customer service call center.

Advertising

Advertising expense totaled ~~$1.5~~$1.6 million for the quarter ended ~~March 31,~~June 30, 2021 compared to ~~$2.2 million~~$995,000 for the same quarter in 2020, which was an increase of $654,000 or 66%. Advertising expense for six months ended June 30, 2021 totaled $3.1 million compared to $3.2 million for the same period of 2020, which was a decrease of ~~$736,000~~$82,000 or ~~33%~~3%. In 2020, HTLF ~~has~~ adjusted its advertising strategy and reduced in-person customer events in response to changes in business practices due to the COVID-19 pandemic, ~~including the reduction~~some of ~~in-person customer events.~~which has resumed in 2021.

Acquisition, integration and restructuring costs

~~Acquisitions,~~Acquisition, integration and restructuring costs ~~increased $1.6~~decreased $463,000 or 69% to $210,000 for the second quarter of 2021 compared to $673,000 for the second quarter of 2020. Acquisition, integration and restructuring costs totaled $3.1 million for the first six months of 2021 compared to $2.0 million for the same period of 2020, which was an increase of $1.1 million or ~~113% to $2.9 million compared to $1.4 million, which was primarily attributable to~~53%. HTLF completed the AimBank conversion in February 2021.

Other noninterest expenses

Other noninterest expenses totaled $12.7 million for the second quarter of 2021 compared to $11.1 million for the second quarter of 2020, which was an increase of $1.6 million or 14%. For the six months ended June 30, 2021, other noninterest expenses totaled $24.3 million compared to $22.8 million for the same period of 2020, which was an increase of $1.4 million or 6%. The increase for the three and six month periods was primarily attributable to the acquisitions completed in the fourth quarter of 2020.

Efficiency Ratio

One of ~~the~~HTLF's top priorities ~~has been~~is to improve its efficiency ratio, on a fully tax-equivalent basis (non-GAAP), with the goal of reducing to below 57%. During the ~~first~~second quarter of 2021, the efficiency ratio on a fully tax-equivalent basis (non-GAAP) ~~decreased~~increased by ~~521~~136 basis points to ~~56.61%~~57.11% in comparison with ~~61.82%~~55.75% for the quarter ended ~~March 31,~~June 30, 2020. ~~The improvement of~~For the six months ended June 30, 2021, the efficiency ratio ~~was primarily attributable to higher~~on a fully tax-equivalent ~~net interest income~~basis, (non-GAAP) was 56.86% compared to 58.64% for the same period of 2020, which was an improvement of 178 basis points.

Management continues to pursue opportunities to reduce expenses through the centralization and adoption of cost-efficient technologies. HTLF anticipates reducing branch locations by approximately 10%, which ~~increased $27.7 million or 24% to $141.4 million for~~could lower the ~~first quarter of 2021 from $113.6 million for the first quarter of 2020.~~efficiency ratio in future quarters. Additionally, systems conversions of newly acquired entities are completed as soon as possible after the closing of the transaction to optimize cost savings. ~~Management continues to review branch locations for optimization and consolidation opportunities, which could reduce the efficiency ratio in future quarters.~~

Income Taxes

The effective tax rate was ~~22.50%~~21.11% for the ~~first~~second quarter of 2021 compared to ~~22.77%~~19.75% for the ~~first~~second quarter of 2020. The following items impacted the ~~first~~second quarter 2021 and 2020 tax calculations:

•Solar energy tax credits of ~~$97,000~~$1.3 million compared to ~~$76,000.~~$798,000.

•Federal low-income housing tax credits of $135,000 compared to $195,000.

•New markets tax credits of $75,000 in each quarterly calculation.

•Historic rehabilitation tax credits of $123,000 compared to $0.

•Tax-exempt interest income as a percentage of pre-tax income of ~~9.72%~~8.49% compared to ~~16.40%~~14.19%.

•Tax benefit of ~~$153,000~~$150,000 compared to tax expense of ~~$25,000~~$66,000 resulting from the vesting of restricted stock unit awards.

The effective tax rate was 21.76% for the first six months of 2021 compared to 20.99% for the first six months of 2020. The following items impacted HTLF's tax calculation for the first six months of 2021 and 2020:

•Solar energy tax credits of $1.4 million compared to $874,000.

•Federal low-income housing tax credits of $269,000 compared to $390,000.

•New markets tax credits of $150,000 for each six-month period.

•Historic rehabilitation tax credits of $123,000 compared to $0.

•Tax-exempt interest income as a percentage of pre-tax income of 9.06% compared to 15.09%.

•Tax benefit of $303,000 compared to tax expense of $91,000 resulting from the vesting of restricted stock unit awards.

FINANCIAL CONDITION

LENDING ACTIVITIES

~~HTLF has~~HTLF's board of directors establishes an acceptable level of credit risk appetite, and the subsidiary banks have certain lending policies and procedures in place that are designed to provide for ~~an acceptable~~a level of credit risk ~~which are reviewed and approved by~~commensurate within the ~~board of directors.~~defined risk parameters. A reporting system supplements the review process by providing management and the board with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies, nonperforming loans and potential problem loans.

HTLF originates commercial and industrial loans and owner occupied commercial real estate loans for a wide variety of business purposes, including lines of credit for working capital and operational purposes and term loans for the acquisition of equipment and real estate. Although most loans are made on a secured basis, loans may be made on an unsecured basis if warranted by the overall financial condition of the borrower. Terms of commercial business loans generally range from one to five years. Commercial loans are primarily made based on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The risks in the commercial and industrial portfolio include the unpredictability of the cash flow of the borrowers and the variability in the value of the collateral securing the loans. Owner occupied commercial real estate loans are dependent upon the cash flow of the borrowers and the collateral value of the real estate.

HTLF originated PPP loans in 2020 ("PPP I") totaling $1.20 billion and acquired $53.1 million of PPP loans in the AimBank transaction. Additionally, in 2021, HTLF originated ~~$429.0~~$473.9 million of PPP II loans. At ~~March 31,~~June 30, 2021, total PPP I loans outstanding totaled ~~$739.6~~$374.2 million, which was net of ~~$11.8~~$4.5 million of unamortized deferred fees. Total PPP II loans outstanding at ~~March 31,~~June 30, 2021 was ~~$415.8~~$455.0 million, which was net of ~~$13.1~~$18.9 million of unamortized deferred fees. Both PPP I and PPP II loans are 100% SBA guaranteed, and borrowers may be eligible to have an amount up to the entire principal balance forgiven and paid by the SBA. All PPP loans also carry a zero risk rating for regulatory capital purposes and the Federal Reserve has made available a liquidity facility to facilitate funding of PPP loans held by banks. Because these loans are 100% guaranteed by the SBA, there is no allowance recorded related to the PPP loans.

Non-owner occupied commercial real estate loans provide financing for various non-owner occupied or income producing properties. Real estate construction loans are generally short-term or interim loans that provide financing for acquiring or developing commercial income properties, multi-family projects or single-family residential homes. The collateral required for most of these loans is based upon the discounted market value of the collateral. Non-owner occupied commercial real estate loans are typically dependent, in large part, on sufficient income from the properties securing the loans to cover the operating expenses and debt service. Real estate construction loans involve additional risks because funds are advanced based upon estimates of costs and the estimated value of the completed project. Additionally, real estate construction loans have a greater risk of default in a weaker economy because the source of repayment is reliant on the successful and timely sale of the project. Personal guarantees are frequently required as a tertiary form of repayment. In addition, when underwriting loans for commercial real estate, careful consideration is given to the property's operating history, future operating projections, current and projected occupancy, location and physical condition.

Agricultural and agricultural real estate loans, many of which are secured by crops, machinery and real estate, are provided to finance capital improvements and farm operations as well as acquisitions of livestock and machinery. Agricultural and agricultural real estate loans present unique credit risks relating to adverse weather conditions, loss of livestock due to disease or other reasons, declines in market prices for agricultural products and the impact of government regulations. The ultimate repayment of agricultural and agricultural real estate loans is dependent upon the profitable operation or management of the agricultural entity. Loans secured by farm equipment, livestock or crops may not provide an adequate source of repayment because of damage or depreciation. In underwriting agricultural and agricultural real estate loans, lending personnel work closely with their customers to review budgets and cash flow projections for crop production for the ensuing year. These budgets and cash flow projections are monitored closely during the year and reviewed with the customers at least annually.

Lending personnel work closely with governmental agencies, including the SBA and U.S. Department of Agriculture's Rural Development Business and Industry Program Farm Service Agency, to help agricultural customers obtain credit enhancement products, such as loan guarantees, longer-term funding or interest assistance, to reduce risk.

Residential real estate loans are originated for the purchase or refinancing of single family residential properties. Residential real estate loans are dependent upon the borrower's ability to repay the loan and the underlying collateral value. The acquisition of First Bank & Trust in Lubbock, Texas, in 2018 included its wholly owned mortgage subsidiary, PrimeWest Mortgage Corporation, which was merged into First Bank & Trust in April 2020. First Bank & Trust provides mortgage loans to customers in Texas and has expanded to also serve the mortgage needs of customers in many of HTLF's markets. First Bank & Trust services the conventional mortgage loans it sells into the secondary market.

Consumer lending includes home equity lines and term loans, motor vehicle, home improvement ~~home equity~~ and small personal credit lines. Consumer loans typically have shorter terms, lower balances, higher yields and higher risks of default than one-to-four-family residential mortgage loans. Consumer loan collections are dependent on the borrower's continuing financial stability and are therefore more likely to be affected by adverse personal circumstances. Risk is reduced through underwriting criteria, which include credit verification, appraisals, a review of the borrower's financial condition, and personal cash flows. A security interest, with title insurance when necessary, is taken in the underlying real estate.

Total loans held to maturity were ~~$10.05~~$10.01 billion at ~~March 31,~~June 30, 2021, and $10.02 billion at December 31, 2020, ~~an increase~~a decrease of ~~$27.4~~$11.0 million or less than 1%. Excluding PPP loans, total loans held to maturity increased $117.6 million or 1.30% since year-end 2020.

The following table shows the changes in loan balances by loan category since December 31, 2020, in thousands:


		March 31, 2021		December 31, 2020		Change		% Change			June 30, 2021		December 31, 2020		Change		% Change
Commercial and industrial	Commercial and industrial	$	2,421,260	$	2,534,799	$	(113,539)	(4)	%	Commercial and industrial	$	2,518,908	$	2,534,799	$	(15,891)	(1)	%
PPP	PPP	1,155,328		957,785		197,543		21	%	PPP	829,175		957,785		(128,610)		(13)	%
Owner occupied commercial real estate	Owner occupied commercial real estate	1,837,559		1,776,406		61,153		3		Owner occupied commercial real estate	1,940,134		1,776,406		163,728		9
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	1,967,183		1,921,481		45,702		2		Non-owner occupied commercial real estate	1,987,369		1,921,481		65,888		3
Real estate construction	Real estate construction	796,027		863,220		(67,193)		(8)		Real estate construction	854,295		863,220		(8,925)		(1)
Agricultural and agricultural real estate	Agricultural and agricultural real estate	683,969		714,526		(30,557)		(4)		Agricultural and agricultural real estate	679,608		714,526		(34,918)		(5)
Residential mortgage	Residential mortgage	786,994		840,442		(53,448)		(6)		Residential mortgage	800,884		840,442		(39,558)		(5)
Consumer	Consumer	402,136		414,392		(12,256)		(3)		Consumer	401,641		414,392		(12,751)		(3)
Total loans held to maturity	Total loans held to maturity	$	10,050,456	$	10,023,051	$	27,405	—	%	Total loans held to maturity	$	10,012,014	$	10,023,051	$	(11,037)	—	%

Notable changes in the loan portfolio include:

•~~Commercial and industrial~~PPP loans decreased ~~$113.5~~$128.6 million or 4%13% to ~~$2.42 billion~~$829.2 million at March 31, 2021 compared to $2.53 billion at year-end 2020. The decrease was primarily attributable to reduced commercial line of credit utilization, which was 28% at March 31, 2021 compared to 30% at December 31, 2020.

•~~PPP loans increased $197.5 million or 21% to $1.16 billion at March 31,~~June 30, 2021 compared to $957.8 million at year-end 2020. PPP I loans decreased ~~$218.2~~$583.6 million during the first ~~quarter~~six months of 2021 due to forgiveness payments from the SBA. PPP II loans ~~originated in the first quarter of~~outstanding at June 30, 2021, totaled ~~$429.0~~$455.0 million, which is exclusive of ~~$13.1~~$18.9 million of deferred fees.

•Owner occupied commercial real estate loans increased $163.7 million or 9% to $1.94 billion at June 30, 2021 compared to $1.78 billion at year-end 2020, which included an increase of $70.2 million in government guaranteed loans.

The table below presents the composition of the loan portfolio as of ~~March 31,~~June 30, 2021, and December 31, 2020, in thousands:


		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
		Amount		Percent		Amount		Percent			Amount		Percent		Amount		Percent
Loans receivable held to maturity:	Loans receivable held to maturity:									Loans receivable held to maturity:
Commercial and industrial	Commercial and industrial	$	2,421,260	24.09	%	$	2,534,799	25.29	%	Commercial and industrial	$	2,518,908	25.16	%	$	2,534,799	25.29	%
PPP	PPP	1,155,328		11.50		957,785		9.56		PPP	829,175		8.28		957,785		9.56
Owner occupied commercial real estate	Owner occupied commercial real estate	1,837,559		18.28		1,776,406		17.72		Owner occupied commercial real estate	1,940,134		19.38		1,776,406		17.72
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	1,967,183		19.57		1,921,481		19.17		Non-owner occupied commercial real estate	1,987,369		19.85		1,921,481		19.17
Real estate construction	Real estate construction	796,027		7.92		863,220		8.61		Real estate construction	854,295		8.53		863,220		8.61
Agricultural and agricultural real estate	Agricultural and agricultural real estate	683,969		6.81		714,526		7.13		Agricultural and agricultural real estate	679,608		6.79		714,526		7.13
Residential mortgage	Residential mortgage	786,994		7.83		840,442		8.39		Residential mortgage	800,884		8.00		840,442		8.39
Consumer	Consumer	402,136		4.00		414,392		4.13		Consumer	401,641		4.01		414,392		4.13
Gross loans receivable held to maturity	Gross loans receivable held to maturity	10,050,456		100.00	%	10,023,051		100.00	%	Gross loans receivable held to maturity	10,012,014		100.00	%	10,023,051		100.00	%

Allowance for credit losses-loans	Allowance for credit losses-loans	(130,172)				(131,606)				Allowance for credit losses-loans	(120,726)				(131,606)
Loans receivable, net	Loans receivable, net	$	9,920,284			$	9,891,445			Loans receivable, net	$	9,891,288			$	9,891,445

The ~~continued~~following table shows the total loans exposure as of June 30, 2021 and December 31, 2020, to customer segment profiles that HTLF believes have been and could continue to be more heavily impact by COVID-19, dollars in thousands:


	As of June 30, 2021				As of December 31, 2020
Industry	Total Exposure(1)		% of Gross Exposure(1)		Total Exposure(1)		% of Gross Exposure(1)
Lodging	$	523,943	3.89	%	$	539,434	4.38	%
Retail trade	389,525		2.90		465,980		3.78
Retail properties	398,845		2.97		422,794		3.43
Restaurants and bars	241,654		1.80		266,053		2.16

Total	$	1,553,967	11.56	%	$	1,694,261	13.75	%

(1) Total loans outstanding and unfunded commitments excluding PPP loans

While HTLF has seen overall improvement in customers' financial position since the onset of the COVID-19 pandemic, further economic disruption resulting from ~~the~~ COVID-19 ~~pandemic~~and its variants could make it difficult for some customers to repay the principal and interest on their ~~loans, and HTLF subsidiary banks have been working with customers to modify the terms of certain existing~~ loans. The following table shows the total loans exposure as of March 31, 2021 and December 31, 2020, to customer segment profiles that HTLF believes will be more heavily impact by COVID-19, dollars in thousands:

As of March 31, 2021 As of December 31, 2020
Industry
Total Exposure(1)
% of Gross Exposure(1)
Total Exposure(1)
% of Gross Exposure(1)
Lodging $ 525,786 4.31 % $ 539,434 4.38 %
Retail trade 471,221 3.86 465,980 3.78
Retail properties 427,835 3.51 422,794 3.43
Restaurants and bars 264,604 2.17 266,053 2.16
Oil and gas 117,895 0.97 122,256 0.99
Total $ 1,807,341 14.82 % $ 1,816,517 14.74 %
(1) Total loans outstanding and unfunded commitments excluding PPP loans

As of ~~March 31,~~June 30, 2021, of the approximately ~~$1.15~~$1.09 billion of loans modified under COVID-19 relief programs, ~~$1.02~~$1.00 billion of loans have returned to full payment status and ~~$80.9~~$81.2 million of loans remain in the original deferral status. Additional loan modifications have been made on approximately ~~$50.2~~$11.7 million of loans in the portfolio, which are primarily interest-only payment modifications.

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 for HTLF. 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 policies section of HTLF's Annual Report on Form 10-K for the year ended December 31, 2020.

Total Allowance for Lending Related Credit Losses

The total allowance for lending related credit losses was ~~$144.8~~$134.7 million at ~~March 31,~~June 30, 2021, which was ~~1.44%~~1.35% of loans as of ~~March 31,~~June 30, 2021, compared to $146.9 million or 1.47% of loans at December 31, 2020. The following table shows, in thousands, the components of the allowance for lending related credit losses as of ~~March 31,~~June 30, 2021, and December 31, 2020:


		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
		Amount		% of Allowance		Amount		% of Allowance			Amount		% of Allowance		Amount		% of Allowance
Quantitative	Quantitative	$	102,105	70.52	%	$	102,398	69.71	%	Quantitative	$	99,170	73.61	%	$	102,398	69.71	%
Qualitative	Qualitative	27,804		19.20		29,101		19.81		Qualitative	25,798		19.15		29,101		19.81
Economic Forecast	Economic Forecast	14,882		10.28		15,387		10.48		Economic Forecast	9,760		7.24		15,387		10.48
Total	Total	$	144,791	100.00	%	$	146,886	100.00	%	Total	$	134,728	100.00	%	$	146,886	100.00	%

Quantitative Allowance

The quantitative allowance ~~totaled $102.1~~decreased $3.2 million to $99.2 million or ~~71%~~74% of the total allowance for lending related credit losses at ~~March 31,~~June 30, 2021, compared to $102.4 million or 70% of the total allowance at December 31, 2020. Positively impacting the quantitative allowance was a reduction of $44.2 million in nonpass loans and an increase of $165.8 million in government guaranteed loans, for which no provision expense is required, since year-end 2020. Included in the quantitative allowance for ~~March 31,~~June 30, 2021, and December 31, 2020, were specific reserves of ~~$11.9~~$11.4 million and $9.4 million, ~~respectively, for individually assessed loans.~~respectively.

Qualitative Allowance

The qualitative allowance totaled ~~$27.8~~$25.8 million or 19% of the total allowance for lending related credit losses at ~~March 31,~~June 30, 2021, compared to $29.1 million or 20% at December 31, 2020. Management assesses several risk factors ~~including an overall assessment of "other external factors." At~~in the ~~end of the first quarter of 2020,~~qualitative calculation, and in making its assessment ~~management increased~~at June 30, 2021, decreased the level of ~~other external factors risk from moderate to high, which remained high at March 31, 2021. This level reflects the uncertainty of both the economic forecasting~~qualitative adjustment based on improving market conditions and ~~quantitative allowance component results given the high level of market and economic volatility that have existed due to the COVID-19 pandemic.~~credit quality trends.

Economic Forecasting

The economic forecast allowance was $9.8 million or 7% of the total allowance for lending related credit losses at June 30, 2021, compared to $15.4 million or 10% of the total allowance for lending related credit losses at December 31, 2020. HTLF has access to various third-party economic forecast scenarios provided by Moody's, which are updated quarterly in the methodology. At ~~March 31,~~June 30, 2021, Moody's ~~March 8,~~June 7, 2021, baseline forecast scenario was utilized, which was the most currently available forecast, and ~~the reasonable and supportable forecast period was one year. At March 31, 2021,~~ HTLF continued to use a one year reasonable and supportable forecast ~~period, which resulted in an~~period.

For the June 30, 2021 calculation, the economic outlook factors used to develop the allowance ~~of $14.9 million or 10%~~were upgraded to incorporate a portion of the ~~total allowance~~forecasted economic improvement, but the factors still retain a measured level of caution and uncertainty that management deemed appropriate for

~~lending related credit losses at March 31, 2021 compared~~ lingering economic headwinds, such as COVID-19 variants, supply chain challenges, and workforce shortages, that are yet to ~~$15.4 million or 10% of the total allowance for lending related credit losses at December 31, 2020.~~be resolved.

Allowance for Credit Losses-Loans

The ~~table~~tables below ~~presents~~present the changes in the allowance for credit losses for loans during the ~~three~~three- and six- months ended ~~March 31,~~June 30, 2021 and 2020, in thousands:


		Three Months Ended March 31,							Three Months Ended June 30,
		2021			2020				2021			2020
Balance at beginning of period	Balance at beginning of period	$	131,606		$	70,395		Balance at beginning of period	$	130,172		$	97,350
Impact of ASU 2016-13 adoption on January 1, 2020		—			12,071
Adjusted balance at January 1, 2020		131,606			82,466
Provision for credit losses		16			19,865

Provision (benefit) for credit losses								Provision (benefit) for credit losses	(6,466)			25,007
Recoveries on loans previously charged off	Recoveries on loans previously charged off	676			1,320			Recoveries on loans previously charged off	517			1,144
Charge-offs on loans	Charge-offs on loans	(2,126)			(6,301)			Charge-offs on loans	(3,497)			(3,564)
Balance at end of period	Balance at end of period	$	130,172		$	97,350		Balance at end of period	$	120,726		$	119,937

Allowance for credit losses for loans as a percent of loans	Allowance for credit losses for loans as a percent of loans	1.30		%	1.16		%	Allowance for credit losses for loans as a percent of loans	1.21		%	1.30		%
Annualized ratio of net charge offs to average loans	Annualized ratio of net charge offs to average loans	0.06		%	0.24		%	Annualized ratio of net charge offs to average loans	0.12		%	0.11		%


	Six Months Ended June 30,
	2021			2020
Balance at beginning of period	$	131,606		$	70,395
Impact of ASU 2016-13 adoption on January 1, 2020	—			12,071
Adjusted balance at January 1, 2020	131,606			82,466
Provision (benefit) for credit losses	(6,450)			44,872
Recoveries on loans previously charged off	1,193			2,464
Charge-offs on loans	(5,623)			(9,865)
Balance at end of period	$	120,726		$	119,937

Allowance for credit losses for loans as a percent of loans	1.21		%	1.30		%
Annualized ratio of net charge offs to average loans	0.09		%	0.17		%

The allowance for credit losses for loans totaled ~~$130.2~~$120.7 million at ~~March 31,~~June 30, 2021, compared to $131.6 million at December 31, 2020, and ~~$97.4~~$119.9 million at ~~March 31,~~June 30, 2020. The allowance for credit losses for loans at ~~March 31,~~June 30, 2021, was ~~1.30%~~1.21% of loans compared to 1.31% of loans at December 31, 2020. The following items have impacted the allowance for credit losses for loans for the ~~three~~six months ended ~~March 31,~~June 30, 2021:

•Provision ~~expense for the first quarter~~benefit of ~~$16,000.~~$6.5 million, which was primarily attributable to improved macroeconomic factors compared to prior periods.

•Net charge offs for the first ~~quarter~~six months of 2021 totaled ~~$1.5~~$4.4 million compared to ~~$5.0~~$7.4 million for the first ~~quarter~~six months of 2020, which was a ~~$3.5~~$3.0 million decrease.

The following ~~table shows,~~tables show, in thousands, the changes in the allowance for unfunded commitments for the three and six months ended ~~March 31,~~June 30, 2021 and 2020:


				Three Months Ended June 30,
								2021		2020

Balance at beginning of period							Balance at beginning of period	14,619		15,468
Provision (benefit) for credit losses							Provision (benefit) for credit losses	(617)		1,924
Balance at end of period							Balance at end of period	$	14,002	$	17,392

		Three Months Ended March 31,						Six Months Ended June 30,
		2021			2020			2021		2020
Balance at beginning of period	Balance at beginning of period	$	15,280		$	248	Balance at beginning of period	$	15,280	$	248
Impact of ASU 2016-13 adoption on January 1, 2020	Impact of ASU 2016-13 adoption on January 1, 2020	—			13,604		Impact of ASU 2016-13 adoption on January 1, 2020	—		13,604
Adjusted balance at January 1, 2020	Adjusted balance at January 1, 2020	15,280			13,852		Adjusted balance at January 1, 2020	15,280		13,852
Provision (benefit) for credit losses	Provision (benefit) for credit losses	(661)			1,616		Provision (benefit) for credit losses	(1,278)		3,540
Balance at end of period	Balance at end of period	$	14,619		$	15,468	Balance at end of period	$	14,002	$	17,392

The allowance for unfunded commitments totaled ~~$14.6~~$14.0 million as of ~~March 31,~~June 30, 2021, compared to $15.3 million as of December 31, 2020, and ~~$15.5~~$17.4 million as of ~~March 31,~~June 30, 2020. Unfunded commitments increased ~~$59.1~~$186.1 million to ~~$3.31~~$3.43 billion at ~~March 31,~~June 30, 2021 compared to $3.25 billion at December 31, 2020. Included in the increase of unfunded commitments was ~~$33.0~~$59.8 million of commitments related to 100% government guaranteed lending, for which no provision expense was required.

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 4 of the consolidated financial statements in this Quarterly Report on Form 10-Q.

The nonpass loans totaled ~~$1.15~~$1.04 billion or ~~11.5%~~10.37% of total loans as of ~~March 31,~~June 30, 2021 compared to $1.08 billion or ~~10.8%~~10.80% of total loans as of December 31, 2020. As of ~~March~~June 30, 2021, and December 31, 2021, the nonpass loans consisted of approximately ~~61%~~56% watch loans and ~~39% substandard loans compared to 56% watch and~~ 44% substandard ~~as of December 31, 2020.~~loans. The percent of nonpass loans on nonaccrual status as of ~~March 31,~~June 30, 2021, was 8%.

Included in the nonpass loans at ~~March 31,~~June 30, 2021 were ~~$84.1~~$91.8 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% SBA guarantee.

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


		March 31,						December 31,							June 30,						December 31,
		2021			2020			2020			2019				2021			2020			2020			2019
Nonaccrual loans	Nonaccrual loans	$	91,718		$	79,280		$	87,386		$	76,548		Nonaccrual loans	$	85,268		$	91,609		$	87,386		$	76,548
Loans contractually past due 90 days or more	Loans contractually past due 90 days or more	171			—			720			4,105			Loans contractually past due 90 days or more	97			1,360			720			4,105
Total nonperforming loans	Total nonperforming loans	91,889			79,280			88,106			80,653			Total nonperforming loans	85,365			92,969			88,106			80,653
Other real estate	Other real estate	6,236			6,074			6,624			6,914			Other real estate	6,314			5,539			6,624			6,914
Other repossessed assets	Other repossessed assets	239			17			240			11			Other repossessed assets	50			29			240			11
Total nonperforming assets	Total nonperforming assets	$	98,364		$	85,371		$	94,970		$	87,578		Total nonperforming assets	$	91,729		$	98,537		$	94,970		$	87,578

Performing troubled debt restructured loans(1)	Performing troubled debt restructured loans(1)	$	2,394		$	2,858		$	2,370		$	3,794		Performing troubled debt restructured loans(1)	$	2,122		$	2,636		$	2,370		$	3,794
Nonperforming loans to total loans	Nonperforming loans to total loans	0.91		%	0.95		%	0.88		%	0.96		%	Nonperforming loans to total loans	0.85		%	1.01		%	0.88		%	0.96		%
Nonperforming assets to total loans plus repossessed property	Nonperforming assets to total loans plus repossessed property	0.98			1.02			0.95			1.05			Nonperforming assets to total loans plus repossessed property	0.92			1.06			0.95			1.05
Nonperforming assets to total assets	Nonperforming assets to total assets	0.54			0.64			0.53			0.66			Nonperforming assets to total assets	0.50			0.66			0.53			0.66

(1) Represents accruing troubled debt restructured loans performing according to their restructured terms.	(1) Represents accruing troubled debt restructured loans performing according to their restructured terms.													(1) Represents accruing troubled debt restructured loans performing according to their restructured terms.

The performing troubled debt restructured loans above do not include any loan modifications initially made under COVID-19 modification programs. Refer to the "Lending Activities" discussion included in the "Financial Condition" section of Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, for further information on these modifications.

The ~~schedule~~schedules below ~~summarizes~~summarize the changes in nonperforming assets during the three and six months ended ~~March 31,~~June 30, 2021, in thousands:


	Nonperforming Loans		Other Real Estate Owned		Other Repossessed Assets		Total Nonperforming Assets
March 31, 2021	$	91,889	$	6,236	$	239	$	98,364
Loan foreclosures	(585)		583		2		—
Net loan charge-offs	(2,980)		—		—		(2,980)

New nonperforming loans	7,989		—		—		7,989
Reduction of nonperforming loans(1)	(10,948)		—		—		(10,948)
OREO/Repossessed assets sales proceeds	—		(439)		(211)		(650)
OREO/Repossessed assets writedowns, net	—		(66)		20		(46)

June 30, 2021	$	85,365	$	6,314	$	50	$	91,729
(1) Includes principal reductions and transfers to performing status.


		Nonperforming Loans		Other Real Estate Owned		Other Repossessed Assets		Total Nonperforming Assets			Nonperforming Loans		Other Real Estate Owned		Other Repossessed Assets		Total Nonperforming Assets
December 31, 2020	December 31, 2020	$	88,106	$	6,624	$	240	$	94,970	December 31, 2020	$	88,106	$	6,624	$	240	$	94,970
Loan foreclosures	Loan foreclosures	(819)		585		234		—		Loan foreclosures	(1,404)		1,168		236		—
Net loan charge-offs	Net loan charge-offs	(1,450)		—		—		(1,450)		Net loan charge-offs	(4,430)		—		—		(4,430)

New nonperforming loans	New nonperforming loans	14,936		—		—		14,936		New nonperforming loans	22,925		—		—		22,925
Reduction of nonperforming loans(1)	Reduction of nonperforming loans(1)	(8,884)		—		—		(8,884)		Reduction of nonperforming loans(1)	(19,832)		—		—		(19,832)
OREO/Repossessed assets sales proceeds	OREO/Repossessed assets sales proceeds	—		(1,127)		(82)		(1,209)		OREO/Repossessed assets sales proceeds	—		(1,566)		(293)		(1,859)
OREO/Repossessed assets writedowns, net	OREO/Repossessed assets writedowns, net	—		154		(153)		1		OREO/Repossessed assets writedowns, net	—		88		(133)		(45)

March 31, 2021		$	91,889	$	6,236	$	239	$	98,364
June 30, 2021										June 30, 2021	$	85,365	$	6,314	$	50	$	91,729

(1) Includes principal reductions and transfers to performing status.	(1) Includes principal reductions and transfers to performing status.									(1) Includes principal reductions and transfers to performing status.

Total nonperforming assets ~~increased $3.4~~decreased $3.2 million or 4%3% to ~~$98.4~~$91.7 million or ~~0.54%~~0.50% of total assets at ~~March 31,~~June 30, 2021, compared to $95.0 million or 0.53% of total assets at December 31, 2020. Nonperforming loans were ~~$91.9~~$85.4 million at ~~March 31,~~June 30, 2021, compared to $88.1 million at December 31, 2020, which represented ~~0.91%~~0.85% and 0.88% of total loans at ~~March 31,~~June 30, 2021, and December 31, 2020, respectively. At ~~March 31,~~June 30, 2021, approximately ~~$55.1~~$49.9 million or ~~60%~~58% of HTLF's nonperforming loans had individual loan balances exceeding $1.0 million and represented loans to sixteen borrowers. The portion of the nonperforming nonresidential real estate loans covered by government guarantees totaled ~~$13.8~~$13.3 million at ~~March 31,~~June 30, 2021, compared to $14.6 million at December 31, 2020.

SECURITIES

The composition of the securities portfolio is managed to ~~maximize~~ensure liquidity needs are met while maximizing the return on the portfolio ~~while considering~~within the established HTLF risk appetite parameters and in consideration of the impact it has on HTLF's asset/liability ~~position and liquidity needs.~~position. Securities represented ~~36%~~37% and 35% of total assets at ~~March 31,~~June 30, 2021, and December 31, 2020, respectively. Total securities carried at fair value as of ~~March 31,~~June 30, 2021, were ~~$6.37~~$6.54 billion, an increase of ~~$242.5~~$416.0 million or 4%7% from $6.13 billion at December 31, 2020.

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,~~June 30, 2021, and December 31, 2020, in thousands:

March 31, 2021 December 31, 2020
Amount Percent Amount Percent
U.S. treasuries $ 1,019 0.02 % $ 2,026 0.03 %
U.S. agencies 212,292 3.25 166,779 2.65
Obligations of states and political subdivisions 1,823,282 27.92 1,724,066 27.40
Mortgage-backed securities - agency 1,432,929 21.94 1,355,270 21.54
Mortgage-backed securities - non-agency 1,503,716 23.03 1,449,116 23.03
Commercial mortgage-backed securities - agency 122,230 1.87 174,153 2.77
Commercial mortgage-backed securities - non-agency 307,774 4.71 252,767 4.02
Asset-backed securities 1,028,213 15.74 1,069,266 16.99
Corporate bonds 3,790 0.06 3,742 0.06
Equity securities with a readily determinable fair value 20,543 0.31 19,629 0.31
Other securities 74,935 1.15 75,253 1.20
Total securities $ 6,530,723 100.00 % $ 6,292,067 100.00 %


	June 30, 2021				December 31, 2020
	Amount		Percent		Amount		Percent
U.S. treasuries	$	1,016	0.02	%	$	2,026	0.03	%
U.S. agencies	35,371		0.53		166,779		2.65
Obligations of states and political subdivisions	1,957,225		29.19		1,724,066		27.40
Mortgage-backed securities - agency	1,740,675		25.96		1,355,270		21.54
Mortgage-backed securities - non-agency	1,363,292		20.33		1,449,116		23.03
Commercial mortgage-backed securities - agency	125,080		1.87		174,153		2.77
Commercial mortgage-backed securities - non-agency	535,305		7.98		252,767		4.02
Asset-backed securities	846,987		12.63		1,069,266		16.99
Corporate bonds	3,815		0.06		3,742		0.06

Equity securities with a readily determinable fair value	20,651		0.31		19,629		0.31
Other securities	76,809		1.12		75,253		1.20
Total securities	$	6,706,226	100.00	%	$	6,292,067	100.00	%

HTLF's securities portfolio had an expected modified duration of ~~5.94~~5.37 years as of ~~March 31,~~June 30, 2021, compared to 5.52 years as of December 31, 2020.

At ~~March 31,~~June 30, 2021, HTLF had ~~$74.9~~$76.8 million of other securities, including capital stock in each Federal Home Loan Bank ("FHLB") of which each of its bank subsidiaries is a member. All of these securities were classified as other securities held at cost.

DEPOSITS

Total deposits were ~~$15.56~~$15.62 billion as of ~~March 31,~~June 30, 2021, compared to $14.98 billion at December 31, 2020, an increase of ~~$579.1~~$635.2 million or 4%. Growth in non-time deposits during the first ~~three~~six months of 2021 was positively impacted by payments related to federal government stimulus ~~payments~~programs and other COVID-19 relief programs.

The following table shows the changes in deposit balances by deposit type since year-end 2020, in thousands:


		March 31, 2021		December 31, 2020		Change		% Change			June 30, 2021		December 31, 2020		Change		% Change
Demand deposits	Demand deposits	$	6,175,946	$	5,688,810	$	487,136	9	%	Demand deposits	$	6,299,289	$	5,688,810	$	610,479	11	%
Savings deposits	Savings deposits	8,179,251		8,019,704		159,547		2		Savings deposits	8,189,223		8,019,704		169,519		2
Time deposits	Time deposits	1,203,854		1,271,391		(67,537)		(5)		Time deposits	1,126,606		1,271,391		(144,785)		(11)
Total	Total	$	15,559,051	$	14,979,905	$	579,146	4	%	Total	$	15,615,118	$	14,979,905	$	635,213	4	%

The table below presents the composition of deposits by category as of ~~March 31,~~June 30, 2021, and December 31, 2020, in thousands:

March 31, 2021 December 31, 2020
Amount Percent Amount Percent
Demand $ 6,175,946 39.69 % $ 5,688,810 37.98 %
Savings 8,179,251 52.57 8,019,704 53.54
Time 1,203,854 7.74 1,271,391 8.48
Total $ 15,559,051 100.00 % $ 14,979,905 100.00 %


	June 30, 2021				December 31, 2020
	Amount		Percent		Amount		Percent
Demand	$	6,299,289	40.35	%	$	5,688,810	37.98	%
Savings	8,189,223		52.44		8,019,704		53.54
Time	1,126,606		7.21		1,271,391		8.48
Total	$	15,615,118	100.00	%	$	14,979,905	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,~~June 30, 2021, and December 31, 2020, in thousands:


		March 31, 2021		December 31, 2020		Change		% Change			June 30, 2021		December 31, 2020		Change		% Change
Securities sold under agreement to repurchase	Securities sold under agreement to repurchase	$	98,908	$	118,293	$	(19,385)	(16)	%	Securities sold under agreement to repurchase	$	106,053	$	118,293	$	(12,240)	(10)	%
Federal funds purchased	Federal funds purchased	3,400		2,100		1,300		62		Federal funds purchased	2,900		2,100		800		38
Advances from the FHLB		—		—		—		—

Advances from the federal discount window	Advances from the federal discount window	25,000		35,000		(10,000)		(29)	%	Advances from the federal discount window	30,000		35,000		(5,000)		(14)	%
Other short-term borrowings	Other short-term borrowings	13,289		12,479		810		6		Other short-term borrowings	13,610		12,479		1,131		9
Total	Total	$	140,597	$	167,872	$	(27,275)	(16)	%	Total	$	152,563	$	167,872	$	(15,309)	(9)	%

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 of HTLF's bank subsidiaries own FHLB stock in one of the Chicago, Dallas, Des Moines, San Francisco or Topeka FHLBs, enabling them to borrow funds from their respective FHLB for short-term or long-term purposes under a variety of programs. The amount of short-term borrowings was ~~$140.6~~$152.6 million at ~~March 31,~~June 30, 2021, compared to $167.9 million at year-end 2020, a decrease of ~~$27.3~~$15.3 million or ~~16%~~9%.

All of the bank subsidiaries 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 ~~$98.9~~$106.1 million at ~~March 31,~~June 30, 2021, compared to $118.3 million at December 31, 2020, a decrease of ~~$19.4~~$12.2 million or ~~16%~~10%.

HTLF renewed its revolving credit line agreement with an unaffiliated bank on June 14, ~~2020.~~2021. This revolving credit line agreement, which has ~~$45.0~~$75.0 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~~six months of 2021, and the outstanding balance was $0 at both ~~March 31,~~June 30, 2021, and December 31, 2020.

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,~~June 30, 2021, and December 31, 2020, in thousands:


		March 31, 2021		December 31, 2020		Change		% Change			June 30, 2021		December 31, 2020		Change		% Change
Advances from the FHLB	Advances from the FHLB	$	988	$	1,018	$	(30)	(3)	%	Advances from the FHLB	$	958	$	1,018	$	(60)	(6)	%

Trust preferred securities	Trust preferred securities	146,568		146,323		245		—		Trust preferred securities	146,812		146,323		489		—

Note payable to unaffiliated bank	Note payable to unaffiliated bank	42,667		44,417		(1,750)		(4)		Note payable to unaffiliated bank	21,250		44,417		(23,167)		(52)
Contracts payable for purchase of real estate and other assets	Contracts payable for purchase of real estate and other assets	1,970		1,983		(13)		(1)		Contracts payable for purchase of real estate and other assets	1,779		1,983		(204)		(10)
Subordinated notes	Subordinated notes	74,464		74,429		35		—		Subordinated notes	74,500		74,429		71		—
Paycheck Protection Program Liquidity Fund	Paycheck Protection Program Liquidity Fund	82,857		188,872		(106,015)		(56)		Paycheck Protection Program Liquidity Fund	25,945		188,872		(162,927)		(86)
Total	Total	$	349,514	$	457,042	$	(107,528)	(24)	%	Total	$	271,244	$	457,042	$	(185,798)	(41)	%

As of ~~March 31,~~June 30, 2021, the amount of other borrowings was ~~$349.5~~$271.2 million, ana decrease of ~~$107.5~~$185.8 million or ~~24%~~41% since year-end 2020.

Each of HTLF's subsidiary banks ~~has~~had been approved by their respective Federal Reserve Bank for the Paycheck Protection Program Liquidity Fund ("PPPLF"). As of ~~March 31,~~June 30, 2021, ~~$82.9~~$25.9 million was outstanding, which was a decrease of ~~$106.0~~$162.9 million or ~~56%~~86% from $188.9 million outstanding as of December 31, 2020. ~~HTLF anticipates limited additional utilization~~The PPPLF program ended on July 31, 2021, and the remainder of the ~~PPPLF through the end of~~advances outstanding at June 30, 2021 were repaid in July 2021.

HTLF has a non-revolving credit facility with an unaffiliated bank, ~~which provides a borrowing capacity of up to $55.0 million. At March 31,~~and at June 30, 2021, ~~$42.7~~$21.3 million was outstanding on this non-revolving credit line compared to $44.4 million outstanding at December 31, 2020. The decrease in this non-revolving credit line was primarily attributable to a paydown of $20.3 million in conjunction with the renewal of the credit line in the second quarter of 2021. At ~~March 31,~~June 30, 2021, ~~$6.5~~$3.5 million of borrowing capacity was available on this non-revolving credit facility, of which no balance was drawn.

A schedule of HTLF's trust preferred securities outstanding excluding deferred issuance costs as of ~~March 31,~~June 30, 2021, is as follows, in thousands:

Amount
Issued

Issuance
Date

Interest
Rate

Interest

Rate as of 3/31/2021(1)

Maturity
Date

Callable
Date

Amount
Issued

Issuance
Date

Interest
Rate

Interest

Rate as of 6/30/2021(1)

Maturity
Date

Callable
Date

Heartland Financial Statutory Trust IV

10,310

03/17/2004

2.75% over LIBOR

2.93%

03/17/2034

06/17/2021

Heartland Financial Statutory Trust IV

10,310

03/17/2004

2.75% over LIBOR

2.88%

03/17/2034

09/17/2021

Heartland Financial Statutory Trust V

20,619

01/27/2006

1.33% over LIBOR

1.57%

04/07/2036

07/07/2021

Heartland Financial Statutory Trust V

20,619

01/27/2006

1.33% over LIBOR

1.51

04/07/2036

10/07/2021

Heartland Financial Statutory Trust VI

20,619

06/21/2007

1.48% over LIBOR

1.66%

(2)

09/15/2037

06/15/2021

Heartland Financial Statutory Trust VI

20,619

06/21/2007

1.48% over LIBOR

1.60

(2)

09/15/2037

09/15/2021

Heartland Financial Statutory Trust VII

18,042

06/26/2007

1.48% over LIBOR

1.67%

(3)

09/01/2037

06/01/2021

Heartland Financial Statutory Trust VII

18,042

06/26/2007

1.48% over LIBOR

1.61

(3)

09/01/2037

09/01/2021

Morrill Statutory Trust I

9,205

12/19/2002

3.25% over LIBOR

3.45%

12/26/2032

06/26/2021

Morrill Statutory Trust I

9,229

12/19/2002

3.25% over LIBOR

3.40

12/26/2032

09/26/2021

Morrill Statutory Trust II

8,893

12/17/2003

2.85% over LIBOR

3.03%

12/17/2033

06/17/2021

Morrill Statutory Trust II

8,920

12/17/2003

2.85% over LIBOR

2.98

12/17/2033

09/17/2021

Sheboygan Statutory Trust I

6,637

09/17/2003

2.95% over LIBOR

3.13%

09/17/2033

06/17/2021

Sheboygan Statutory Trust I

6,659

09/17/2003

2.95% over LIBOR

3.08

09/17/2033

09/17/2021

CBNM Capital Trust I

4,471

09/10/2004

3.25% over LIBOR

3.43%

12/15/2034

06/15/2021

CBNM Capital Trust I

4,483

09/10/2004

3.25% over LIBOR

3.37

12/15/2034

09/15/2021

Citywide Capital Trust III

6,508

12/19/2003

2.80% over LIBOR

3.01%

12/19/2033

07/23/2021

Citywide Capital Trust III

6,522

12/19/2003

2.80% over LIBOR

2.99

12/19/2033

10/23/2021

Citywide Capital Trust IV

4,368

09/30/2004

2.20% over LIBOR

2.38%

09/30/2034

05/23/2021

Citywide Capital Trust IV

4,382

09/30/2004

2.20% over LIBOR

2.35

09/30/2034

08/23/2021

Citywide Capital Trust V

12,029

05/31/2006

1.54% over LIBOR

1.72%

07/25/2036

06/15/2021

Citywide Capital Trust V

12,086

05/31/2006

1.54% over LIBOR

1.66

07/25/2036

09/15/2021

OCGI Statutory Trust III

3,006

06/27/2002

3.65% over LIBOR

3.83%

(4)

09/30/2032

06/30/2021

OCGI Statutory Trust III

3,008

06/27/2002

3.65% over LIBOR

3.83

09/30/2032

09/30/2021

OCGI Capital Trust IV

5,413

09/23/2004

2.50% over LIBOR

2.68%

(5)

12/15/2034

06/15/2021

OCGI Capital Trust IV

5,427

09/23/2004

2.50% over LIBOR

2.62

12/15/2034

09/15/2021

BVBC Capital Trust II

7,248

04/10/2003

3.25% over LIBOR

3.46%

04/24/2033

07/24/2021

BVBC Capital Trust II

7,258

04/10/2003

3.25% over LIBOR

3.43

04/24/2033

10/24/2021

BVBC Capital Trust III

9,270

07/29/2005

1.60% over LIBOR

1.80%

09/30/2035

06/30/2021

BVBC Capital Trust III

9,315

07/29/2005

1.60% over LIBOR

1.75

09/30/2035

09/30/2021

Total trust preferred costs

146,638

Total trust preferred costs

146,879

Less: deferred issuance costs

(70)

Less: deferred issuance costs

(67)

146,568

146,812

(1) Effective weighted average interest rate as of March 31, 2021, was 3.23% due to interest rate swap transactions on the variable rate securities as discussed in Note 7 to the consolidated financial statements included herein.

(2) Effective interest rate as of March 31, 2021, was 3.87% due to an interest rate swap transaction as discussed in Note 7 to the consolidated financial statements included herein.

(3) Effective interest rate as of March 31, 2021, was 3.83% due to an interest rate swap transaction as discussed in Note 7 to the consolidated financial statements included herein.

(4) Effective interest rate as of March 31, 2021, was 5.53% due to an interest rate swap transaction as discussed in Note 7 to the consolidated financial statements included herein.

(5) Effective interest rate as of March 31, 2021, was 4.37% due to an interest rate swap transaction as discussed in Note 7 to the consolidated financial statements included herein.

(1) Effective weighted average interest rate as of June 30, 2021, was 3.07% due to interest rate swap transactions on the variable rate securities as discussed in Note 7 to the consolidated financial statements included herein.

(2) Effective interest rate as of June 30, 2021, was 3.87% due to an interest rate swap transaction as discussed in Note 7 to the consolidated financial statements included herein.

(3) Effective interest rate as of June 30, 2021, was 3.83% due to an interest rate swap transaction as discussed in Note 7 to the consolidated financial statements included herein.

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 bank subsidiaries 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)				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, 2021		15.31		%	12.42		%	11.47		%	8.40		%
June 30, 2021														June 30, 2021	15.04		%	12.36		%	11.45		%	8.50		%
Minimum capital requirement	Minimum capital requirement	8.00		%	6.00		%	4.50		%	4.00		%	Minimum capital requirement	8.00			6.00			4.50			4.00
Well capitalized requirement	Well capitalized requirement	10.00		%	8.00		%	6.50		%	5.00		%	Well capitalized requirement	10.00			8.00			6.50			5.00
Minimum capital requirement, including fully-phased in capital conservation buffer	Minimum capital requirement, including fully-phased in capital conservation buffer	10.50		%	8.50		%	7.00		%	N/A			Minimum capital requirement, including fully-phased in capital conservation buffer	10.50			8.50			7.00			N/A
Risk-weighted assets	Risk-weighted assets	$	11,638,600		$	11,638,600		$	11,638,600		N/A			Risk-weighted assets	$	12,146,479		$	12,146,479		$	12,146,479		N/A
Average Assets		N/A			N/A			N/A			$	17,217,420
Average assets														Average assets	N/A			N/A			N/A			$	17,649,785

December 31, 2020	December 31, 2020	14.71		%	11.85		%	10.92		%	9.02		%	December 31, 2020	14.71		%	11.85		%	10.92		%	9.02		%
Minimum capital requirement	Minimum capital requirement	8.00		%	6.00		%	4.50		%	4.00		%	Minimum capital requirement	8.00			6.00			4.50			4.00
Well capitalized requirement	Well capitalized requirement	10.00		%	8.00		%	6.50		%	5.00		%	Well capitalized requirement	10.00			8.00			6.50			5.00
Minimum capital requirement, including fully-phased in capital conservation buffer	Minimum capital requirement, including fully-phased in capital conservation buffer	10.50		%	8.50		%	7.00		%	N/A			Minimum capital requirement, including fully-phased in capital conservation buffer	10.50			8.50			7.00			N/A
Risk-weighted assets	Risk-weighted assets	$	11,819,037		$	11,819,037		$	11,819,037		N/A			Risk-weighted assets	$	11,819,037		$	11,819,037		$	11,819,037		N/A
Average Assets		N/A			N/A			N/A			$	15,531,884
Average assets														Average assets	N/A			N/A			N/A			$	15,531,884

At ~~March 31,~~June 30, 2021, and December 31, 2020, retained earnings that could be available for the payment of dividends to meet the minimum capital requirements totaled ~~$804.2~~$752.7 million and $736.5 million, respectively. Retained earnings that could be available for the payment of dividends to HTLF from its banks totaled approximately ~~$571.7~~$509.8 million and $500.9 million at ~~March 31,~~June 30, 2021, and December 31, 2020, 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.

On June 26, 2020, ~~Heartland~~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, 2019, 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, 2022.

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. HTLF's bank subsidiaries 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 bank subsidiaries 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,~~June 30, 2021, and December 31, 2020, commitments to extend credit aggregated ~~$3.34~~$3.87 billion and $3.26 billion, respectively. Standby letters of credit aggregated ~~$67.5~~$63.9 million at ~~March 31,~~June 30, 2021, and $73.2 million at December 31, 2020.

At ~~March 31,~~June 30, 2021, and December 31, 2020, HTLF's banks had ~~$880.3~~$873.2 million and $607.0 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, 2020. On July 1, 2021, HTLF and Fiserv Solutions, LLC executed a master agreement that replaced an existing license and service agreement between HTLF and Fiserv Solutions, LLC. The agreement is filed as an exhibit to this Quarterly Report on Form 10-Q. There have been no other material changes to HTLF's contractual obligations and other commitments since ~~that report~~the Annual Report on Form 10-K was filed.

HTLF continues to explore opportunities to expand the size of its independent community banks. In the current banking industry environment, HTLF seeks these opportunities for growth through acquisitions. HTLF is primarily focused on possible acquisitions in the markets it currently serves, in which there would be an opportunity to increase market share, achieve efficiencies and provide greater convenience for current customers. However, HTLF may also pursue acquisitions in areas outside of its current geographic footprint. 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 7 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,~~June 30, 2021, HTLF had ~~$467.9~~$449.1 million of cash and cash equivalents, time deposits in other financial institutions of $3.1 million and securities carried at fair value of ~~$6.37~~$6.54 billion.

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.

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; however, HTLF intends to rely on deposit growth and additional FHLB and discount window borrowings as needed in the future.

Additional funding is provided by long-term debt and short-term borrowings. 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. As of ~~March 31,~~June 30, 2021, short-term borrowings outstanding totaled ~~$140.6~~$152.6 million.

As of ~~March 31,~~June 30, 2021, HTLF had ~~$349.5~~$271.2 million of long-term debt outstanding, and it is an important funding source because of its multi-year borrowing structure. Additionally, the subsidiary banks' FHLB memberships give them the ability to borrow funds for short-term and long-term purposes under a variety of programs. At ~~March 31,~~June 30, 2021, HTLF had ~~$1.65~~$1.51 billion of borrowing capacity under these programs. ~~Under the PPPLF, HTLF had $1.10 billion of borrowing capacity as of March 31, 2021.~~ Additionally, at ~~March 31,~~June 30, 2021, HTLF had ~~$1.20~~$1.15 billion of borrowing capacity at the Federal Reserve Banks' discount window.

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 bank subsidiaries and the issuance of debt and equity securities.

At ~~March 31,~~June 30, 2021, the parent company had cash of ~~$71.3~~$108.3 million. Additionally, HTLF has a revolving credit agreement and non-revolving credit line with an unaffiliated bank, which is renewed annually, most recently on June 14, ~~2020.~~2021. The revolving credit agreement has ~~$45.0~~$75.0 million of maximum borrowing capacity, of which none was outstanding at ~~March 31,~~June 30, 2021. At ~~March 31,~~June 30, 2021, ~~$6.5~~$3.5 million was available on the non-revolving credit line. These credit agreements contain specific financial covenants, all of which HTLF complied with as of ~~March 31,~~June 30, 2021.

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

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 bank subsidiaries 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 bank subsidiaries. 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,~~June 30, 2021, and ~~March 31,~~June 30, 2020, provided the following results, in thousands:

2021 2020
Net Interest
Margin % Change
From Base Net Interest
Margin % Change
From Base
Year 1
Down 100 Basis Points $ 492,640 (2.09) % $ 426,450 (2.20) %
Base 503,131 — 436,047 —
Up 200 Basis Points 529,261 5.19 455,706 4.51
Year 2
Down 100 Basis Points 454,170 (9.73) 394,839 (9.45)
Base 489,874 (2.63) 417,950 (4.15)
Up 200 Basis Points 562,260 11.75 466,853 7.06


	2021				2020
	Net Interest Margin		% Change From Base		Net Interest Margin		% Change From Base
Year 1
Down 100 Basis Points	$	500,955	(1.95)	%	$	440,176	(0.92)	%
Base	510,916		—		444,243		—
Up 200 Basis Points	534,488		4.61		468,051		5.36
Year 2
Down 100 Basis Points	$	462,500	(9.48)	%	$	427,344	(3.80)	%
Base	492,979		(3.51)		442,038		(0.50)
Up 200 Basis Points	555,444		8.72		508,018		14.36

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 7 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 sheet 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,~~June 30, 2021, 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,~~June 30, 2021, that are ordinary routine litigation incidental to business.

The aggregate amount of cash consideration paid in the AimBank transaction was reduced by $5.3 million as a holdback against any losses that might be incurred as a result of pending litigation involving a former customer. HTLF does not currently anticipate any material exposure from the litigation, and that if any litigation losses are incurred, the holdback amount will be sufficient to cover such losses. The shareholders of AimBank are entitled to any remaining amount from the holdback after payment for any potential settlement and related legal expenses. While the ultimate outcome of this and any other ordinary routine litigation proceedings incidental to business cannot be predicted with certainty, it is the opinion of management that the resolution of these legal actions should not have a material effect on HTLF's consolidated financial position or results of operations.

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 2020 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 ~~$97.3~~$102.5 million as of ~~March 31,~~June 30, 2021, 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,~~June 30, 2021.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

Exhibits

3.1
Amended and Restated ByLaws of Heartland Financial USA, Inc. Amended and Restated as of March 16, 2021
10.1
Form of Time-Based Restricted Stock Unit Award Agreement under the Heartland Financial USA, Inc. 2020 Long-Term Incentive Plan for time-based awards vesting in the first, second and third years following the original grant award
10.2
Form of Performance -Based Restricted Stock Unit Award Agreement Three-Year Performance Period under the Heartland Financial USA, Inc. 2020 Long-Term Incentive Plan
10.3
Form of Time-Based Restricted Stock Unit Award Agreement under the Heartland Financial USA, Inc. 2020 Long-Term Incentive Plan for the time - based awards 3 year cliff vesting
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




10.1	(1)(2)	Form of Director Restricted Stock Unit Award Agreement under the Heartland Financial USA, Inc. 2020 Long-Term Incentive Plan

10.2	(2)(3)	Master Agreement between Fiserv Solutions LLC and Heartland Financial USA, Inc. dated July 1, 2021, and Amendment 1 to Agreement dated as of July 1, 2021.

31.1	(2)	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.

31.2	(2)	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.

32.1	(2)	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	(2)	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) Management contracts or compensatory plans or arrangements

(2) Filed or furnished ~~herewith.~~herewith

(3) Portions of the contract have been omitted pursuant to SEC confidential treatment under 17 C.F.R. Section 229.601(b)(10)(iv)

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 6,~~August 5, 2021


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


As of March 31, 2021	Amortized Cost Basis of Term Loans by Year of Origination
	2021		2020		2019		2018		2017		2016 and Prior		Revolving		Total
Commercial and industrial
Pass	$	85,059	$	523,968	$	305,803	$	142,927	$	206,293	$	386,530	$	481,837	$	2,132,417
Watch	1,213		31,058		23,144		19,494		15,308		21,877		78,657		190,751
Substandard	825		24,203		10,191		8,278		11,890		26,002		16,703		98,092
Commercial and industrial total	$	87,097	$	579,229	$	339,138	$	170,699	$	233,491	$	434,409	$	577,197	$	2,421,260
PPP
Pass	$	400,126	$	671,099	$	0	$	0	$	0	$	0	$	0	$	1,071,225
Watch	9,625		20,344		0		0		0		0		0		29,969
Substandard	5,750		48,384		0		0		0		0		0		54,134
PPP total	$	415,501	$	739,827	$	0	$	0	$	0	$	0	$	0	$	1,155,328
Owner occupied commercial real estate
Pass	$	97,898	$	415,729	$	387,953	$	271,720	$	152,313	$	289,744	$	36,676	$	1,652,033
Watch	768		16,775		22,063		22,059		20,427		19,212		7,131		108,435
Substandard	1,907		14,332		7,797		10,340		12,830		28,937		948		77,091
Owner occupied commercial real estate total	$	100,573	$	446,836	$	417,813	$	304,119	$	185,570	$	337,893	$	44,755	$	1,837,559
Non-owner occupied commercial real estate
Pass	$	94,856	$	334,303	$	379,230	$	297,195	$	181,937	$	307,473	$	20,154	$	1,615,148
Watch	0		20,932		91,095		31,107		20,494		67,914		5,013		236,555
Substandard	2,140		30,469		14,010		23,383		14,853		30,625		0		115,480
Non-owner occupied commercial real estate total	$	96,996	$	385,704	$	484,335	$	351,685	$	217,284	$	406,012	$	25,167	$	1,967,183
Real estate construction
Pass	$	66,643	$	342,374	$	229,345	$	54,006	$	10,730	$	9,485	$	18,588	$	731,171
Watch	0		2,832		11,164		47,532		317		25		414		62,284
Substandard	158		0		28		1,995		0		391		0		2,572
Real estate construction total	$	66,801	$	345,206	$	240,537	$	103,533	$	11,047	$	9,901	$	19,002	$	796,027
Agricultural and agricultural real estate
Pass	$	56,474	$	149,863	$	81,301	$	49,483	$	32,928	$	49,165	$	132,606	$	551,820
Watch	1,268		17,561		12,753		6,863		1,636		6,667		10,136		56,884
Substandard	6,686		13,163		6,943		22,012		5,855		12,370		8,236		75,265
Agricultural and agricultural real estate total	$	64,428	$	180,587	$	100,997	$	78,358	$	40,419	$	68,202	$	150,978	$	683,969
Residential real estate
Pass	$	46,700	$	125,274	$	80,624	$	95,884	$	64,961	$	312,167	$	26,634	$	752,244
Watch	1,188		1,989		1,676		2,067		1,620		8,062		0		16,602
Substandard	4,324		947		201		2,073		1,410		8,393		800		18,148
Residential real estate total	$	52,212	$	128,210	$	82,501	$	100,024	$	67,991	$	328,622	$	27,434	$	786,994
Consumer
Pass	$	17,483	$	32,613	$	23,111	$	16,259	$	13,336	$	22,480	$	266,620	$	391,902
Watch	29		104		361		840		324		708		1,455		3,821
Substandard	0		546		739		1,423		386		2,499		820		6,413
Consumer total	$	17,512	$	33,263	$	24,211	$	18,522	$	14,046	$	25,687	$	268,895	$	402,136

Total Pass	$	865,239	$	2,595,223	$	1,487,367	$	927,474	$	662,498	$	1,377,044	$	983,115	$	8,897,960
Total Watch	14,091		111,595		162,256		129,962		60,126		124,465		102,806		705,301
Total Substandard	21,790		132,044		39,909		69,504		47,224		109,217		27,507		447,195
Total Loans	$	901,120	$	2,838,862	$	1,689,532	$	1,126,940	$	769,848	$	1,610,726	$	1,113,428	$	10,050,456


NON-GAAP Reconciliations
(Dollars in thousands, except per share data)
	As Of and For the Quarter Ended
	3/31/2021			12/31/2020			9/30/2020			6/30/2020			3/31/2020
Reconciliation of Annualized Return on Average Tangible Common Equity (non-GAAP)
Net income available to common stockholders (GAAP)	$	50,801		$	37,795		$	45,521		$	30,131		$	20,040
Plus core deposit and customer relationship intangibles amortization, net of tax(1)	1,988			1,975			1,969			2,130			2,355
Net income excluding intangible amortization (non-GAAP)	$	52,789		$	39,770		$	47,490		$	32,261		$	22,395

Average common equity (GAAP)	$	1,963,674		$	1,769,575		$	1,661,381		$	1,574,902		$	1,619,682
Less average goodwill	576,005			488,151			446,345			446,345			446,345
Less average core deposit and customer relationship intangibles, net	41,399			42,733			42,145			44,723			47,632
Average tangible common equity (non-GAAP)	$	1,346,270		$	1,238,691		$	1,172,891		$	1,083,834		$	1,125,705
Annualized return on average common equity (GAAP)	10.49		%	8.50		%	10.90		%	7.69		%	4.98		%
Annualized return on average tangible common equity (non-GAAP)	15.90		%	12.77		%	16.11		%	11.97		%	8.00		%

Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)
Net Interest Income (GAAP)	$	139,605		$	132,575		$	122,497		$	124,146		$	112,511
Plus tax-equivalent adjustment(1)	1,761			1,529			1,390			1,416			1,131
Net interest income, fully tax-equivalent (non-GAAP)	$	141,366		$	134,104		$	123,887		$	125,562		$	113,642

Average earning assets	$	16,460,124		$	15,042,079		$	13,868,360		$	13,103,159		$	11,891,455

Annualized net interest margin (GAAP)	3.44		%	3.51		%	3.51		%	3.81		%	3.81		%
Annualized net interest margin, fully tax-equivalent (non-GAAP)	3.48			3.55			3.55			3.85			3.84
Purchase accounting discount accretion on loans included in annualized net interest margin	0.12			0.10			0.10			0.16			0.09



3.1		Amended and Restated ByLaws of Heartland Financial USA, Inc. Amended and Restated as of March 16, 2021

10.1		Form of Time-Based Restricted Stock Unit Award Agreement under the Heartland Financial USA, Inc. 2020 Long-Term Incentive Plan for time-based awards vesting in the first, second and third years following the original grant award

10.2		Form of Performance -Based Restricted Stock Unit Award Agreement Three-Year Performance Period under the Heartland Financial USA, Inc. 2020 Long-Term Incentive Plan

10.3		Form of Time-Based Restricted Stock Unit Award Agreement under the Heartland Financial USA, Inc. 2020 Long-Term Incentive Plan for the time - based awards 3 year cliff vesting

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