~~0000920112us-gaap:InterestBearingDepositsMemberus-gaap:FairValueInputsLevel2Member2021-12-31~~

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 ~~September 30, 2022~~March 31, 2023


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

For transition period from __________ to __________

Commission File Number: 001-15393

HEARTLAND FINANCIAL USA, INC.

(Exact name of Registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

42-1405748

(I.R.S. employer identification number)

~~1398 Central Avenue, Dubuque, Iowa 52001~~1800 Larimer Street, Suite 1800, Denver, Colorado 80202

(Address of principal executive offices)(Zip Code)

~~(563) 589-2100~~(303) 285-9200

(Registrant's telephone number, including area code)

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


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

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

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

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

Large accelerated filer

☒

Accelerated Filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

Indicate the number of shares outstanding of each of the classes of Registrant's common stock as of the latest practicable date: As of ~~November~~May 4, ~~2022,~~2023, the Registrant had outstanding ~~42,444,820~~42,558,995 shares of common stock, $1.00 par value per share.

HEARTLAND FINANCIAL USA, INC.

Form 10-Q Quarterly Report

Table of Contents

PART I

ITEM 1. FINANCIAL STATEMENTS


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)
		September 30, 2022 (Unaudited)		December 31, 2021			March 31, 2023 (Unaudited)		December 31, 2022
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	250,394	$	163,895	Cash and due from banks	$	274,354	$	309,045
Interest bearing deposits with other banks and other short-term investments	Interest bearing deposits with other banks and other short-term investments	149,466		271,704		Interest bearing deposits with other banks and other short-term investments	87,757		54,042
Cash and cash equivalents	Cash and cash equivalents	399,860		435,599		Cash and cash equivalents	362,111		363,087
Time deposits in other financial institutions	Time deposits in other financial institutions	1,740		2,894		Time deposits in other financial institutions	1,740		1,740
Securities:	Securities:					Securities:

Carried at fair value (cost of $6,739,802 at September 30, 2022, and $7,536,338 at December 31, 2021)		6,060,331		7,530,374
Held to maturity, net of allowance for credit losses of $0 at both September 30, 2022, and December 31, 2021 (fair value of $782,805 at September 30, 2022, and $94,139 at December 31, 2021)		830,247		84,709
Carried at fair value (cost of $6,670,971 at March 31, 2023, and $6,788,729 at December 31, 2022)						Carried at fair value (cost of $6,670,971 at March 31, 2023, and $6,788,729 at December 31, 2022)	6,096,657		6,147,144
Held to maturity, net of allowance for credit losses of $0 at both March 31, 2023, and December 31, 2022 (fair value of $815,672 at March 31, 2023, and $776,557 at December 31, 2022)						Held to maturity, net of allowance for credit losses of $0 at both March 31, 2023, and December 31, 2022 (fair value of $815,672 at March 31, 2023, and $776,557 at December 31, 2022)	832,098		829,403
Other investments, at cost	Other investments, at cost	80,286		82,567		Other investments, at cost	72,364		74,567
Loans held for sale	Loans held for sale	9,570		21,640		Loans held for sale	10,425		5,277
Loans receivable:	Loans receivable:					Loans receivable:
Held to maturity	Held to maturity	10,923,532		9,954,572		Held to maturity	11,495,353		11,428,352

Allowance for credit losses	Allowance for credit losses	(105,715)		(110,088)		Allowance for credit losses	(112,707)		(109,483)
Loans receivable, net	Loans receivable, net	10,817,817		9,844,484		Loans receivable, net	11,382,646		11,318,869
Premises, furniture and equipment, net	Premises, furniture and equipment, net	194,789		204,999		Premises, furniture and equipment, net	186,868		190,479
Premises, furniture and equipment held for sale	Premises, furniture and equipment held for sale	8,796		10,828		Premises, furniture and equipment held for sale	4,399		6,851
Other real estate, net	Other real estate, net	8,030		1,927		Other real estate, net	7,438		8,401
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	26,995		32,988		Core deposit intangibles and customer relationship intangibles, net	23,366		25,154
Servicing rights, net	Servicing rights, net	8,379		6,890		Servicing rights, net	—		7,840
Cash surrender value on life insurance	Cash surrender value on life insurance	193,184		191,722		Cash surrender value on life insurance	194,419		193,403

Other assets	Other assets	466,921		246,923		Other assets	432,008		496,008
TOTAL ASSETS	TOTAL ASSETS	$	19,682,950	$	19,274,549	TOTAL ASSETS	$	20,182,544	$	20,244,228
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
LIABILITIES:	LIABILITIES:					LIABILITIES:
Deposits:	Deposits:					Deposits:
Demand	Demand	$	6,083,563	$	6,495,326	Demand	$	5,119,554	$	5,701,340
Savings	Savings	10,060,523		8,897,909		Savings	9,256,609		9,994,391
Time	Time	1,123,035		1,024,020		Time	3,305,183		1,817,278
Total deposits	Total deposits	17,267,121		16,417,255		Total deposits	17,681,346		17,513,009

Short-term borrowings	Short-term borrowings	147,000		131,597		Short-term borrowings	92,337		376,117
Other borrowings	Other borrowings	371,446		372,072		Other borrowings	372,097		371,753
Accrued expenses and other liabilities	Accrued expenses and other liabilities	241,425		171,447		Accrued expenses and other liabilities	207,359		248,294
TOTAL LIABILITIES	TOTAL LIABILITIES	18,026,992		17,092,371		TOTAL LIABILITIES	18,353,139		18,509,173
STOCKHOLDERS' EQUITY:	STOCKHOLDERS' EQUITY:					STOCKHOLDERS' EQUITY:

Preferred stock (par value $1 per share; authorized 6,104 shares at both September 30, 2022, and December 31, 2021; none issued or outstanding at both September 30, 2022, and December 31, 2021)		—		—
Series A Junior Participating preferred stock (par value $1 per share; authorized 16,000 shares; none issued or outstanding at both September 30, 2022, and December 31, 2021)		—		—
Series B Fixed Rate Cumulative Perpetual Preferred Stock (par value $1 per share; 81,698 shares authorized at both September 30, 2022, and December 31, 2021; none issued or outstanding at both September 30, 2022, and December 31, 2021)		—		—
Series C Senior Non-Cumulative Perpetual Preferred Stock (par value $1 per share; 81,698 shares authorized at both September 30, 2022, and December 31, 2021; none issued or outstanding at both September 30, 2022, and December 31, 2021)		—		—
Series D Senior Non-Cumulative Perpetual Convertible Preferred Stock (par value $1 per share; 3,000 shares authorized at both September 30, 2022, and December 31, 2021; none issued or outstanding at both September 30, 2022, and December 31, 2021)		—		—
Series E Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock (par value $1 per share; 11,500 shares authorized at both September 30, 2022, and December 31, 2021; 11,500 shares issued and outstanding at both September 30, 2022 and December 31, 2021)		110,705		110,705
Common stock (par value $1 per share; 60,000,000 shares authorized at both September 30, 2022, and December 31, 2021; issued 42,444,106 shares at September 30, 2022, and 42,275,264 shares at December 31, 2021)		42,444		42,275
Preferred stock (par value $1 per share; authorized 6,104 shares at both March 31, 2023, and December 31, 2022; none issued or outstanding at both March 31, 2023, and December 31, 2022)						Preferred stock (par value $1 per share; authorized 6,104 shares at both March 31, 2023, and December 31, 2022; none issued or outstanding at both March 31, 2023, and December 31, 2022)	—		—
Series A Junior Participating preferred stock (par value $1 per share; authorized 16,000 shares; none issued or outstanding at both March 31, 2023, and December 31, 2022)						Series A Junior Participating preferred stock (par value $1 per share; authorized 16,000 shares; none issued or outstanding at both March 31, 2023, and December 31, 2022)	—		—
Series B Fixed Rate Cumulative Perpetual Preferred Stock (par value $1 per share; 81,698 shares authorized at both March 31, 2023, and December 31, 2022; none issued or outstanding at both March 31, 2023, and December 31, 2022)						Series B Fixed Rate Cumulative Perpetual Preferred Stock (par value $1 per share; 81,698 shares authorized at both March 31, 2023, and December 31, 2022; none issued or outstanding at both March 31, 2023, and December 31, 2022)	—		—
Series C Senior Non-Cumulative Perpetual Preferred Stock (par value $1 per share; 81,698 shares authorized at both March 31, 2023, and December 31, 2022; none issued or outstanding at both March 31, 2023, and December 31, 2022)						Series C Senior Non-Cumulative Perpetual Preferred Stock (par value $1 per share; 81,698 shares authorized at both March 31, 2023, and December 31, 2022; none issued or outstanding at both March 31, 2023, and December 31, 2022)	—		—
Series D Senior Non-Cumulative Perpetual Convertible Preferred Stock (par value $1 per share; 3,000 shares authorized at both March 31, 2023, and December 31, 2022; none issued or outstanding at both March 31, 2023, and December 31, 2022)						Series D Senior Non-Cumulative Perpetual Convertible Preferred Stock (par value $1 per share; 3,000 shares authorized at both March 31, 2023, and December 31, 2022; none issued or outstanding at both March 31, 2023, and December 31, 2022)	—		—
Series E Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock (par value $1 per share; 11,500 shares authorized at both March 31, 2023, and December 31, 2022; 11,500 shares issued and outstanding at both March 31, 2023 and December 31, 2022)						Series E Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock (par value $1 per share; 11,500 shares authorized at both March 31, 2023, and December 31, 2022; 11,500 shares issued and outstanding at both March 31, 2023 and December 31, 2022)	110,705		110,705
Common stock (par value $1 per share; 60,000,000 shares authorized at both March 31, 2023, and December 31, 2022; issued 42,558,726 shares at March 31, 2023, and 42,467,394 shares at December 31, 2022)						Common stock (par value $1 per share; 60,000,000 shares authorized at both March 31, 2023, and December 31, 2022; issued 42,558,726 shares at March 31, 2023, and 42,467,394 shares at December 31, 2022)	42,559		42,467
Capital surplus	Capital surplus	1,079,277		1,071,956		Capital surplus	1,084,112		1,080,964
Retained earnings	Retained earnings	1,074,168		962,994		Retained earnings	1,158,948		1,120,925
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(650,636)		(5,752)		Accumulated other comprehensive loss	(566,919)		(620,006)

TOTAL STOCKHOLDERS' EQUITY	TOTAL STOCKHOLDERS' EQUITY	1,655,958		2,182,178		TOTAL STOCKHOLDERS' EQUITY	1,829,405		1,735,055
TOTAL LIABILITIES AND EQUITY	TOTAL LIABILITIES AND EQUITY	$	19,682,950	$	19,274,549	TOTAL LIABILITIES AND EQUITY	$	20,182,544	$	20,244,228

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 September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
INTEREST INCOME:	INTEREST INCOME:									INTEREST INCOME:
Interest and fees on loans	Interest and fees on loans	$	122,913	$	112,062	$	334,000	$	336,416	Interest and fees on loans		$	153,843	$	102,369
Interest on securities:	Interest on securities:									Interest on securities:
Taxable	Taxable	45,648		32,384		116,366		94,373		Taxable		55,976		32,620
Nontaxable	Nontaxable	6,164		4,609		17,874		13,673		Nontaxable		6,028		6,202
Interest on federal funds sold		—		—		—		1

Interest on interest bearing deposits in other financial institutions	Interest on interest bearing deposits in other financial institutions	1,081		132		1,715		258		Interest on interest bearing deposits in other financial institutions		1,131		71
TOTAL INTEREST INCOME	TOTAL INTEREST INCOME	175,806		149,187		469,955		444,721		TOTAL INTEREST INCOME		216,978		141,262
INTEREST EXPENSE:	INTEREST EXPENSE:									INTEREST EXPENSE:
Interest on deposits	Interest on deposits	15,158		3,444		24,665		11,629		Interest on deposits		56,898		2,977
Interest on short-term borrowings	Interest on short-term borrowings	360		98		494		348		Interest on short-term borrowings		2,422		46
Interest on other borrowings (includes $189 and $(543) of interest expense (benefit) related to derivatives reclassified from accumulated other comprehensive income (loss) for the three months ended September 30, 2022 and 2021, respectively, and $552 and $(1,601) of interest expense (benefit) related to derivatives reclassified from accumulated other comprehensive income (loss) for the nine months ended September 30, 2022 and 2021, respectively)		4,412		3,102		11,780		9,378
Interest on other borrowings (includes $591 and $0 of interest expense related to derivatives reclassified from accumulated other comprehensive income (loss) for the three months ended March 31, 2023 and 2022, respectively)										Interest on other borrowings (includes $591 and $0 of interest expense related to derivatives reclassified from accumulated other comprehensive income (loss) for the three months ended March 31, 2023 and 2022, respectively)		5,446		3,560
TOTAL INTEREST EXPENSE	TOTAL INTEREST EXPENSE	19,930		6,644		36,939		21,355		TOTAL INTEREST EXPENSE		64,766		6,583
NET INTEREST INCOME	NET INTEREST INCOME	155,876		142,543		433,016		423,366		NET INTEREST INCOME		152,212		134,679
Provision (benefit) for credit losses		5,492		(4,534)		11,983		(12,262)
NET INTEREST INCOME AFTER PROVISION (BENEFIT) FOR CREDIT LOSSES		150,384		147,077		421,033		435,628
Provision for credit losses										Provision for credit losses		3,074		3,245
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES										NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		149,138		131,434
NONINTEREST INCOME:	NONINTEREST INCOME:									NONINTEREST INCOME:
Service charges and fees	Service charges and fees	17,282		15,551		50,599		44,354		Service charges and fees		17,136		15,251
Loan servicing income	Loan servicing income	831		784		1,951		2,495		Loan servicing income		714		286
Trust fees	Trust fees	5,372		6,221		17,130		18,037		Trust fees		5,657		6,079
Brokerage and insurance commissions	Brokerage and insurance commissions	649		866		2,357		2,584		Brokerage and insurance commissions		696		869
Securities gains (losses), net (includes $(1,070) and $1,535 of net security gains (losses) reclassified from accumulated other comprehensive income (loss) for the three months ended September 30, 2022 and 2021, respectively, and $(1,720) and $4,347 of net security gains (losses) reclassified from accumulated other comprehensive income (loss) for the nine months ended September 30, 2022 and 2021, respectively)		(1,055)		1,535		(272)		4,347
Capital markets fees										Capital markets fees		2,449		3,039
Securities (losses) gains, net (includes $(1,104) and $1,991 of net security (losses) gains reclassified from accumulated other comprehensive income (loss) for the three months ended March 31, 2023 and 2022, respectively)										Securities (losses) gains, net (includes $(1,104) and $1,991 of net security (losses) gains reclassified from accumulated other comprehensive income (loss) for the three months ended March 31, 2023 and 2022, respectively)		(1,104)		2,872

Unrealized gain (loss) on equity securities, net	Unrealized gain (loss) on equity securities, net	(211)		112		(615)		85		Unrealized gain (loss) on equity securities, net		193		(283)
Net gains on sale of loans held for sale	Net gains on sale of loans held for sale	1,832		5,281		8,144		16,454		Net gains on sale of loans held for sale		1,831		3,411
Valuation adjustment on servicing rights	Valuation adjustment on servicing rights	—		195		1,658		586		Valuation adjustment on servicing rights		—		1,658
Income on bank owned life insurance	Income on bank owned life insurance	694		940		1,741		2,706		Income on bank owned life insurance		964		524
Other noninterest income	Other noninterest income	3,787		1,239		15,596		4,557		Other noninterest income		1,463		863
TOTAL NONINTEREST INCOME	TOTAL NONINTEREST INCOME	29,181		32,724		98,289		96,205		TOTAL NONINTEREST INCOME		29,999		34,569
NONINTEREST EXPENSES:	NONINTEREST EXPENSES:									NONINTEREST EXPENSES:
Salaries and employee benefits	Salaries and employee benefits	62,661		60,689		192,867		177,083		Salaries and employee benefits		62,149		66,174
Occupancy	Occupancy	6,794		7,366		21,250		22,683		Occupancy		7,209		7,362
Furniture and equipment	Furniture and equipment	2,928		3,365		9,480		9,959		Furniture and equipment		2,915		3,519
Professional fees	Professional fees	16,277		17,242		47,420		46,969		Professional fees		16,076		15,156

Advertising	Advertising	1,554		1,921		4,392		5,039		Advertising		1,985		1,555
Core deposit and customer relationship intangibles amortization	Core deposit and customer relationship intangibles amortization	1,856		2,295		5,993		7,226		Core deposit and customer relationship intangibles amortization		1,788		2,054
Other real estate and loan collection expenses	Other real estate and loan collection expenses	304		78		577		627		Other real estate and loan collection expenses		155		195
(Gain)/loss on sales/valuations of assets, net		(251)		(3)		(3,435)		374
Loss on sales/valuations of assets, net										Loss on sales/valuations of assets, net		1,115		46
Acquisition, integration and restructuring costs	Acquisition, integration and restructuring costs	2,156		204		5,144		3,342		Acquisition, integration and restructuring costs		1,673		576
Partnership investment in tax credit projects	Partnership investment in tax credit projects	979		2,374		1,793		3,754		Partnership investment in tax credit projects		538		77
Other noninterest expenses	Other noninterest expenses	13,625		15,096		40,678		39,370		Other noninterest expenses		15,440		14,083
TOTAL NONINTEREST EXPENSES	TOTAL NONINTEREST EXPENSES	108,883		110,627		326,159		316,426		TOTAL NONINTEREST EXPENSES		111,043		110,797
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES	70,682		69,174		193,163		215,407		INCOME BEFORE INCOME TAXES		68,094		55,206
Income taxes (includes $302 and $524 of income tax benefit reclassified from accumulated other comprehensive income (loss) for the three months ended September 30, 2022 and 2021, respectively, and $466 and $1,501 of income tax benefit reclassified from accumulated other comprehensive income (loss) for the nine months ended September 30, 2022 and 2021, respectively)		14,118		13,250		41,637		45,064
Income taxes (includes $426 and $503 of income tax benefit reclassified from accumulated other comprehensive income (loss) for the three months ended March 31, 2023 and 2022, respectively)										Income taxes (includes $426 and $503 of income tax benefit reclassified from accumulated other comprehensive income (loss) for the three months ended March 31, 2023 and 2022, respectively)		15,318		12,117
NET INCOME	NET INCOME	56,564		55,924		151,526		170,343		NET INCOME		52,776		43,089

Preferred dividends	Preferred dividends	(2,013)		(2,013)		(6,038)		(6,038)		Preferred dividends		(2,013)		(2,013)

NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	54,551	$	53,911	$	145,488	$	164,305	NET INCOME AVAILABLE TO COMMON STOCKHOLDERS		$	50,763	$	41,076
EARNINGS PER COMMON SHARE - BASIC	EARNINGS PER COMMON SHARE - BASIC	$	1.28	$	1.27	$	3.43	$	3.89	EARNINGS PER COMMON SHARE - BASIC		$	1.19	$	0.97
EARNINGS PER COMMON SHARE - DILUTED	EARNINGS PER COMMON SHARE - DILUTED	$	1.28	$	1.27	$	3.42	$	3.88	EARNINGS PER COMMON SHARE - DILUTED		$	1.19	$	0.97
CASH DIVIDENDS DECLARED PER COMMON SHARE	CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.27	$	0.25	$	0.81	$	0.69	CASH DIVIDENDS DECLARED PER COMMON SHARE		$	0.30	$	0.27

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 September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
NET INCOME	NET INCOME	$	56,564	$	55,924	$	151,526	$	170,343	NET INCOME		$	52,776	$	43,089
OTHER COMPREHENSIVE INCOME (LOSS)	OTHER COMPREHENSIVE INCOME (LOSS)									OTHER COMPREHENSIVE INCOME (LOSS)
Securities:
Changes in available for sale securities:										Changes in available for sale securities:
Net change in unrealized gain (loss) on securities	Net change in unrealized gain (loss) on securities	(218,463)		(44,968)		(860,365)		(65,613)		Net change in unrealized gain (loss) on securities		66,167		(378,690)
Reclassification adjustment for net (gains) losses realized in net income										Reclassification adjustment for net (gains) losses realized in net income		1,104		(1,991)
Income tax (expense) benefit										Income tax (expense) benefit		(17,921)		99,370
Other comprehensive income (loss) on available for sale securities										Other comprehensive income (loss) on available for sale securities		49,350		(281,311)
Changes in securities held to maturity:										Changes in securities held to maturity:

Reclassification adjustment for net (gains) losses realized in net income		1,070		(1,535)		1,720		(4,347)

Income taxes		53,529		12,181		213,328		18,264
Other comprehensive loss on securities		(163,864)		(34,322)		(645,317)		(51,696)
Derivatives used in cash flow hedging relationships:
Net amortization of unrealized losses on securities transferred from AFS										Net amortization of unrealized losses on securities transferred from AFS		2,740		—
Income tax expense										Income tax expense		(1,060)		—
Other comprehensive income on held to maturity securities										Other comprehensive income on held to maturity securities		1,680		—
Change in cash flow hedges:										Change in cash flow hedges:
Net change in unrealized gain on derivatives	Net change in unrealized gain on derivatives	—		2,220		—		4,853		Net change in unrealized gain on derivatives		1,952		—
Reclassification adjustment for net (gains) losses on derivatives realized in net income		189		(543)		552		(1,601)
Reclassification adjustment for net losses on derivatives realized in net income										Reclassification adjustment for net losses on derivatives realized in net income		764		181
Income taxes	Income taxes	(43)		(392)		(119)		(725)		Income taxes		(659)		(39)
Other comprehensive income on cash flow hedges	Other comprehensive income on cash flow hedges	146		1,285		433		2,527		Other comprehensive income on cash flow hedges		2,057		142
Other comprehensive loss		(163,718)		(33,037)		(644,884)		(49,169)
Other comprehensive income (loss)										Other comprehensive income (loss)		53,087		(281,169)
TOTAL COMPREHENSIVE INCOME (LOSS)	TOTAL COMPREHENSIVE INCOME (LOSS)	$	(107,154)	$	22,887	$	(493,358)	$	121,174	TOTAL COMPREHENSIVE INCOME (LOSS)		$	105,863	$	(238,080)

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)
		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	Net income	$	151,526	$	170,343	Net income	$	52,776	$	43,089
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	18,758		20,342		Depreciation and amortization	5,484		6,831
Provision (benefit) for credit losses		11,983		(12,262)
Provision for credit losses						Provision for credit losses	3,074		3,245
Net amortization of premium on securities	Net amortization of premium on securities	50,886		30,975		Net amortization of premium on securities	7,159		19,352
Securities (gains) losses, net		272		(4,347)
Securities losses (gains), net						Securities losses (gains), net	1,104		(2,872)

Unrealized (gain) loss on equity securities, net	Unrealized (gain) loss on equity securities, net	615		(85)		Unrealized (gain) loss on equity securities, net	(193)		283
Stock based compensation	Stock based compensation	7,411		6,732		Stock based compensation	4,719		2,704

Loans originated for sale	Loans originated for sale	(244,908)		(364,808)		Loans originated for sale	(43,257)		(99,331)
Proceeds on sales of loans held for sale	Proceeds on sales of loans held for sale	263,904		401,078		Proceeds on sales of loans held for sale	39,916		101,260
Net gains on sale of loans held for sale	Net gains on sale of loans held for sale	(6,926)		(15,399)		Net gains on sale of loans held for sale	(1,807)		(2,974)
(Increase) decrease in accrued interest receivable	(Increase) decrease in accrued interest receivable	(5,348)		353		(Increase) decrease in accrued interest receivable	(130)		6,282
Decrease in prepaid expenses		1,479		318
Decrease (increase) in prepaid expenses						Decrease (increase) in prepaid expenses	806		(4,765)
Increase (decrease) in accrued interest payable	Increase (decrease) in accrued interest payable	483		(271)		Increase (decrease) in accrued interest payable	13,462		(100)

Capitalization of servicing rights	Capitalization of servicing rights	(1,218)		(1,055)		Capitalization of servicing rights	(24)		(437)
Valuation adjustment on servicing rights	Valuation adjustment on servicing rights	(1,658)		(586)		Valuation adjustment on servicing rights	—		(1,658)
(Gain) loss on sales/valuations of assets, net		(390)		1,970
Loss on sales/valuations of assets, net						Loss on sales/valuations of assets, net	1,115		46
Net excess tax benefit from stock based compensation	Net excess tax benefit from stock based compensation	129		304		Net excess tax benefit from stock based compensation	46		172
Other, net	Other, net	66,142		(751)		Other, net	(9,818)		12,652
NET CASH PROVIDED BY OPERATING ACTIVITIES	NET CASH PROVIDED BY OPERATING ACTIVITIES	313,140		232,851		NET CASH PROVIDED BY OPERATING ACTIVITIES	74,432		83,779
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of time deposits in other financial institutions		—		(9)

Proceeds from the sale of securities available for sale	Proceeds from the sale of securities available for sale	1,031,521		799,588		Proceeds from the sale of securities available for sale	146,448		824,071
Proceeds from the sale of securities held to maturity	Proceeds from the sale of securities held to maturity	2,337		—		Proceeds from the sale of securities held to maturity	—		2,337

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	758,453		722,512		Proceeds from the maturity of and principal paydowns on securities available for sale	150,941		290,347
Proceeds from the maturity of and principal paydowns on securities held to maturity	Proceeds from the maturity of and principal paydowns on securities held to maturity	2,500		4,634		Proceeds from the maturity of and principal paydowns on securities held to maturity	69		1,067
Proceeds from the maturity of time deposits in other financial institutions		1,154		—

Proceeds from the sale, maturity of, redemption of and principal paydowns on other investments	Proceeds from the sale, maturity of, redemption of and principal paydowns on other investments	13,674		2,843		Proceeds from the sale, maturity of, redemption of and principal paydowns on other investments	3,644		1,982
Purchase of securities available for sale	Purchase of securities available for sale	(1,982,073)		(2,941,662)		Purchase of securities available for sale	(187,726)		(1,007,992)

Purchase of other investments	Purchase of other investments	(10,045)		(10,922)		Purchase of other investments	(1,441)		(1,385)
Net (increase) decrease in loans		(1,002,220)		150,876
Net increase in loans						Net increase in loans	(66,180)		(235,696)
Purchase of bank owned life insurance policies	Purchase of bank owned life insurance policies	(209)		(196)		Purchase of bank owned life insurance policies	(51)		(5)
Proceeds from bank owned life insurance policies		502		—

Proceeds from sale of mortgage servicing rights						Proceeds from sale of mortgage servicing rights	6,714		—
Capital expenditures	Capital expenditures	(12,276)		(15,705)		Capital expenditures	(248)		(2,544)

Proceeds from the sale of equipment	Proceeds from the sale of equipment	6,789		7,332		Proceeds from the sale of equipment	1,270		214
Net cash expended in divestitures		(50,616)		(15,682)

Proceeds on sale of OREO and other repossessed assets	Proceeds on sale of OREO and other repossessed assets	2,564		5,032		Proceeds on sale of OREO and other repossessed assets	1,136		1,157
NET CASH USED BY INVESTING ACTIVITIES		$	(1,237,945)	$	(1,291,359)
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES						NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES	$	54,576	$	(126,447)


HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED (Unaudited) (Dollars in thousands)	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)
		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits		$	(396,552)	$	855,996
Net increase in savings deposits		1,204,574		411,864
Net increase (decrease) in time deposit accounts		105,695		(198,024)
Net decrease in demand deposits						Net decrease in demand deposits	$	(581,786)	$	(119,077)
Net (decrease) increase in savings deposits						Net (decrease) increase in savings deposits	(737,782)		338,518
Net increase in time deposit accounts						Net increase in time deposit accounts	1,487,905		29,988

Net increase in short-term borrowings		14,003		97,748
Net decrease in short-term borrowings						Net decrease in short-term borrowings	(234,780)		(24,225)
Proceeds from short term advances	Proceeds from short term advances	236,000		51,700		Proceeds from short term advances	1,000		—
Repayments of short term advances	Repayments of short term advances	(236,000)		(51,700)		Repayments of short term advances	(50,000)		—
Proceeds from other borrowings		—		147,614

Repayments of other borrowings	Repayments of other borrowings	(198)		(233,765)		Repayments of other borrowings	(30)		(79)

Proceeds from issuance of common stock	Proceeds from issuance of common stock	1,896		1,716		Proceeds from issuance of common stock	242		274
Dividends paid	Dividends paid	(40,352)		(35,139)		Dividends paid	(14,753)		(13,428)
NET CASH PROVIDED BY FINANCING ACTIVITIES		889,066		1,048,010
Net decrease in cash and cash equivalents		(35,739)		(10,498)
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES						NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES	(129,984)		211,971
Net (decrease) increase in cash and cash equivalents						Net (decrease) increase in cash and cash equivalents	(976)		169,303
Cash and cash equivalents at beginning of year	Cash and cash equivalents at beginning of year	435,599		337,903		Cash and cash equivalents at beginning of year	363,087		435,599
CASH AND CASH EQUIVALENTS AT END OF PERIOD	CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	399,860	$	327,405	CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	362,111	$	604,902
Supplemental disclosures:	Supplemental disclosures:					Supplemental disclosures:
Cash paid for income/franchise taxes	Cash paid for income/franchise taxes	$	33,412	$	42,425	Cash paid for income/franchise taxes	$	1,264	$	32
Cash paid for interest	Cash paid for interest	36,456		21,632		Cash paid for interest	51,304		6,683
Loans transferred to OREO	Loans transferred to OREO	8,458		2,713		Loans transferred to OREO	211		653
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	4,555		1,564		Transfer of premises from premises, furniture and equipment, net, to premises, furniture and equipment held for sale	3,741		3,250
Transfer of premises from premises, furniture and equipment held for sale to premises, furniture and equipment, net	Transfer of premises from premises, furniture and equipment held for sale to premises, furniture and equipment, net	—		396		Transfer of premises from premises, furniture and equipment held for sale to premises, furniture and equipment, net	5,167		—

Dividends declared, not paid	Dividends declared, not paid	2,013		2,013		Dividends declared, not paid	2,013		2,013

Transfer of available for sale securities to held to maturity securities		748,252		—

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 June 30, 2021		$	110,705	$	42,245	$	1,066,765	$	883,484	$	56,587			$	2,159,786
Comprehensive income (loss)								55,924		(33,037)				22,887

Cash dividends declared:
Preferred, $175.00 per share								(2,013)						(2,013)
Common, $0.25 per share								(10,561)						(10,561)

Issuance of 4,640 shares of common stock				5		192								197
Stock based compensation						1,956								1,956
Balance at September 30, 2021		$	110,705	$	42,250	$	1,068,913	$	926,834	$	23,550			$	2,172,252

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

Balance at January 1, 2022																Balance at January 1, 2022	$	110,705	$	42,275	$	1,071,956	$	962,994	$	(5,752)	$	2,182,178

Comprehensive income (loss)	Comprehensive income (loss)							170,343		(49,169)				121,174		Comprehensive income (loss)							43,089		(281,169)		(238,080)

Cash dividends declared:	Cash dividends declared:															Cash dividends declared:
Preferred, $525.00 per share								(6,038)						(6,038)
Preferred, $175.00 per share																Preferred, $175.00 per share							(2,013)				(2,013)

Common, $0.69 per share								(29,101)						(29,101)
Common, $0.27 per share																Common, $0.27 per share							(11,415)				(11,415)

Issuance of 156,230 shares of common stock				156		98								254
Issuance of 94,644 shares of common stock																Issuance of 94,644 shares of common stock			95		(1,612)						(1,517)
Stock based compensation	Stock based compensation					6,732								6,732		Stock based compensation					2,704						2,704
Balance at September 30, 2021		$	110,705	$	42,250	$	1,068,913	$	926,834	$	23,550			$	2,172,252
Balance at March 31, 2022																Balance at March 31, 2022	$	110,705	$	42,370	$	1,073,048	$	992,655	$	(286,921)	$	1,931,857

Balance at June 30, 2022		$	110,705	$	42,439	$	1,076,766	$	1,031,076	$	(486,918)			$	1,774,068
Comprehensive income (loss)								56,564		(163,718)				(107,154)

Cash dividends declared:
Preferred, $175.00 per share								(2,013)						(2,013)
Common, $0.27 per share								(11,459)						(11,459)

Issuance of 4,667 shares of common stock				5		190								195
Stock based compensation						2,321								2,321
Balance at September 30, 2022		$	110,705	$	42,444	$	1,079,277	$	1,074,168	$	(650,636)			$	1,655,958

Balance at January 1, 2022		$	110,705	$	42,275	$	1,071,956	$	962,994	$	(5,752)			$	2,182,178

Balance at January 1, 2023																Balance at January 1, 2023	$	110,705	$	42,467	$	1,080,964	$	1,120,925	$	(620,006)	$	1,735,055

Comprehensive income (loss)	Comprehensive income (loss)							151,526		(644,884)				(493,358)		Comprehensive income (loss)							52,776		53,087		105,863

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

Preferred, $525.00 per share								(6,038)						(6,038)
Common, $0.81 per share								(34,314)						(34,314)
Preferred, $175.00 per share																Preferred, $175.00 per share							(2,013)				(2,013)
Common, $0.30 per share																Common, $0.30 per share							(12,740)				(12,740)

Issuance of 168,842 shares of common stock				169		(90)								79
Issuance of 91,332 shares of common stock																Issuance of 91,332 shares of common stock			92		(1,571)						(1,479)
Stock based compensation	Stock based compensation					7,411								7,411		Stock based compensation					4,719						4,719
Balance at September 30, 2022		$	110,705	$	42,444	$	1,079,277	$	1,074,168	$	(650,636)			$	1,655,958
Balance at March 31, 2023																Balance at March 31, 2023	$	110,705	$	42,559	$	1,084,112	$	1,158,948	$	(566,919)	$	1,829,405

See accompanying notes to consolidated financial statements.	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, ~~2021,~~2022, included in the Annual Report on Form 10-K of Heartland Financial USA, Inc. ("HTLF") filed with the Securities and Exchange Commission ("SEC") on February ~~24, 2022~~23, 2023. Footnote disclosures to the interim unaudited consolidated financial statements which would substantially duplicate the disclosure contained in the footnotes to the audited consolidated financial statements have been omitted.

The financial information included herein has been prepared in accordance with U.S. generally accepted accounting principles for interim financial reporting and has been prepared pursuant to the rules and regulations for reporting on Form 10-Q and Rule 10-01 of Regulation S-X. Such information reflects all adjustments (consisting of normal recurring adjustments), that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented. The results of the interim period ended ~~September 30, 2022,~~March 31, 2023, are not necessarily indicative of the results expected for the year ending December 31, ~~2022.~~2023.

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

Earnings Per Share

Basic earnings per share is determined using net income available to common stockholders and weighted average common shares outstanding. Diluted earnings per share is computed by dividing net income available to common stockholders by the weighted average common shares and assumed incremental common shares issued. Amounts used in the determination of basic and diluted earnings per share for the ~~three- and nine-~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ are shown in the table below, dollars and number of shares in thousands, except per share data:

Three Months Ended
September 30,
2022 2021
Net income $ 56,564 $ 55,924
Preferred dividends (2,013) (2,013)
Net income available to common stockholders $ 54,551 $ 53,911
Weighted average common shares outstanding for basic earnings per share 42,575 42,303
Assumed incremental common shares issued upon vesting of outstanding restricted stock units 69 113
Weighted average common shares for diluted earnings per share 42,644 42,416
Earnings per common share — basic $ 1.28 $ 1.27
Earnings per common share — diluted $ 1.28 $ 1.27
Number of antidilutive common stock equivalents excluded from diluted earnings per share computation 4 3
Nine Months Ended
September 30,
2022 2021
Net income $ 151,526 $ 170,343
Preferred dividends (6,038) (6,038)
Net income available to stockholders $ 145,488 $ 164,305
Weighted average common shares outstanding for basic earnings per share 42,471 42,241
Assumed incremental common shares issued upon vesting of outstanding restricted stock units 125 140
Weighted average common shares for diluted earnings per share 42,596 42,381
Earnings per common share — basic $ 3.43 $ 3.89
Earnings per common share — diluted $ 3.42 $ 3.88
Number of antidilutive common stock equivalents excluded from diluted earnings per share computation 8 1

















	Three Months Ended March 31,
	2023		2022
Net income	$	52,776	$	43,089
Preferred dividends	(2,013)		(2,013)

Net income available to stockholders	$	50,763	$	41,076

Weighted average common shares outstanding for basic earnings per share	42,615		42,360
Assumed incremental common shares issued upon vesting of outstanding restricted stock units	128		181
Weighted average common shares for diluted earnings per share	42,743		42,541
Earnings per common share — basic	$	1.19	$	0.97
Earnings per common share — diluted	$	1.19	$	0.97
Number of antidilutive common stock equivalents excluded from diluted earnings per share computation	50		—
Number of antidilutive stock options excluded from diluted earnings per share computation	61		—

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

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

Effect of New Financial Accounting Standards

ASU ~~2018-16~~2022-02

~~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 formed a working group that was responsible for the planning, assessment and execution of the transition from LIBOR as an interest rate benchmark to term SOFR. Currently, HTLF has adjustable rate loans, several debt obligations and securities and derivative instruments in place that reference LIBOR-based rates. HTLF’s transition plan included the cessation of the use of LIBOR as a reference rate to term SOFR as a replacement rate at December 31, 2021.

~~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.

~~ASU 2022-02~~

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

In March 2023, the FASB issued ASU 2023-02 "Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force)." ASU 2023-02 expands the permitted use of the proportional amortization method, which is currently only available to low-income housing tax credit investments, to other tax equity investments if certain conditions are met. Under the proportional amortization method, the initial cost of an investment is amortized in proportion to the income tax benefits received and both the amortization of the investment and the income tax benefits received are recognized as a component of income tax expense. This ASU is effective on January 1, 2024 and may be applied ~~prospectively. If an entity elects~~on either a modified retrospective or retrospective basis or, for certain changes, on a prospective basis, and early adoption is permitted. The amendments in this ASU are not expected to ~~early adopt ASU 2022-02 in an interim period,~~have a material impact on the guidance should be applied as of the beginning of the fiscal year that includes the interim period. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. Management is assessing the impact of ASU 2022-02 on its results of operations or financial ~~position and financial statement disclosures.~~position.

NOTE 2: SECURITIES

The amortized cost, gross unrealized gains and losses, and estimated fair values of debt securities available for sale and equity securities with a readily determinable fair value that are carried at fair value as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, 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
September 30, 2022
March 31, 2023										March 31, 2023
U.S. treasuries	U.S. treasuries	$	27,364	$	—	$	(627)	$	26,737	U.S. treasuries	$	32,391	$	33	$	(492)	$	31,932
U.S. agencies	U.S. agencies	49,604		—		(6,304)		43,300		U.S. agencies	49,062		—		(5,478)		43,584
Obligations of states and political subdivisions	Obligations of states and political subdivisions	1,052,960		1		(218,338)		834,623		Obligations of states and political subdivisions	1,023,650		47		(135,775)		887,922
Mortgage-backed securities - agency	Mortgage-backed securities - agency	2,097,286		67		(269,077)		1,828,276		Mortgage-backed securities - agency	2,002,260		85		(244,876)		1,757,469
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	2,261,005		2,730		(140,876)		2,122,859		Mortgage-backed securities - non-agency	2,260,462		3,739		(146,319)		2,117,882
Commercial mortgage-backed securities - agency	Commercial mortgage-backed securities - agency	102,289		—		(16,141)		86,148		Commercial mortgage-backed securities - agency	99,914		—		(13,892)		86,022
Commercial mortgage-backed securities - non-agency	Commercial mortgage-backed securities - non-agency	708,763		—		(19,088)		689,675		Commercial mortgage-backed securities - non-agency	675,425		—		(17,551)		657,874
Asset-backed securities	Asset-backed securities	411,063		—		(11,031)		400,032		Asset-backed securities	448,001		—		(12,478)		435,523
Corporate bonds	Corporate bonds	9,210		—		(787)		8,423		Corporate bonds	59,202		—		(1,357)		57,845
Total debt securities	Total debt securities	6,719,544		2,798		(682,269)		6,040,073		Total debt securities	6,650,367		3,904		(578,218)		6,076,053
Equity securities with a readily determinable fair value	Equity securities with a readily determinable fair value	20,258		—		—		20,258		Equity securities with a readily determinable fair value	20,604		—		—		20,604
Total	Total	$	6,739,802	$	2,798	$	(682,269)	$	6,060,331	Total	$	6,670,971	$	3,904	$	(578,218)	$	6,096,657
December 31, 2021
December 31, 2022										December 31, 2022
U.S. treasuries	U.S. treasuries	$	997	$	11	$	—	$	1,008	U.S. treasuries	$	32,369	$	8	$	(678)	$	31,699
U.S. agencies	U.S. agencies	193,932		264		(812)		193,384		U.S. agencies	49,437		—		(6,302)		43,135
Obligations of states and political subdivisions	Obligations of states and political subdivisions	2,045,386		56,263		(16,616)		2,085,033		Obligations of states and political subdivisions	1,049,578		14		(170,155)		879,437
Mortgage-backed securities - agency	Mortgage-backed securities - agency	2,388,601		11,870		(51,182)		2,349,289		Mortgage-backed securities - agency	2,042,092		56		(270,043)		1,772,105
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	1,749,838		4,570		(11,029)		1,743,379		Mortgage-backed securities - non-agency	2,327,308		1,417		(146,849)		2,181,876
Commercial mortgage-backed securities - agency	Commercial mortgage-backed securities - agency	125,397		1,429		(2,914)		123,912		Commercial mortgage-backed securities - agency	100,518		—		(15,395)		85,123
Commercial mortgage-backed securities - non-agency	Commercial mortgage-backed securities - non-agency	600,253		998		(363)		600,888		Commercial mortgage-backed securities - non-agency	679,511		—		(20,052)		659,459
Asset-backed securities	Asset-backed securities	408,167		2,803		(1,317)		409,653		Asset-backed securities	428,397		—		(12,343)		416,054
Corporate bonds	Corporate bonds	2,979		61		—		3,040		Corporate bonds	59,205		—		(1,263)		57,942
Total debt securities	Total debt securities	7,515,550		78,269		(84,233)		7,509,586		Total debt securities	6,768,415		1,495		(643,080)		6,126,830
Equity securities with a readily determinable fair value	Equity securities with a readily determinable fair value	20,788		—		—		20,788		Equity securities with a readily determinable fair value	20,314		—		—		20,314
Total	Total	$	7,536,338	$	78,269	$	(84,233)	$	7,530,374	Total	$	6,788,729	$	1,495	$	(643,080)	$	6,147,144

The amortized cost, gross unrealized gains and losses and estimated fair values of held to maturity securities as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, are summarized in the table below, in thousands:

Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair
Value Allowance for Credit Losses
September 30, 2022
Obligations of states and political subdivisions $ 830,247 $ 1,761 $ (49,203) $ 782,805 $ —
Total $ 830,247 $ 1,761 $ (49,203) $ 782,805 $ —
December 31, 2021
Obligations of states and political subdivisions $ 84,709 $ 9,430 $ — $ 94,139 $ —
Total $ 84,709 $ 9,430 $ — $ 94,139 $ —

During the third quarter of 2022, HTLF transferred taxable municipal bonds with an amortized cost basis of $934.5 million and fair value of $748.3 million from available for sale to held to maturity. On the date of the transfer, accumulated other

comprehensive income (loss) included $186.3 million of net unrealized losses, after tax, attributable to these securities, and the net unrealized losses will be amortized into interest income over the remaining life of the transferred securities. The bonds were transferred at fair value at the date of transfer.


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
March 31, 2023

Obligations of states and political subdivisions	$	832,098	$	3,882	$	(20,308)	$	815,672
Total	$	832,098	$	3,882	$	(20,308)	$	815,672
December 31, 2022

Obligations of states and political subdivisions	$	829,403	$	3,096	$	(55,942)	$	776,557
Total	$	829,403	$	3,096	$	(55,942)	$	776,557

As of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, HTLF had ~~$28.5~~$30.6 million and ~~$29.4~~$33.0 million, respectively, of accrued interest receivable, which is included in other assets on the consolidated balance sheets. HTLF does not consider accrued interest receivable in the carrying amount of financial assets held at amortized cost basis or in the allowance for credit losses calculation.

The amortized cost and estimated fair value of investment securities carried at fair value at ~~September 30, 2022,~~March 31, 2023, by contractual maturity, are as follows, in thousands. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties.


		September 30, 2022					March 31, 2023
		Amortized Cost		Estimated Fair Value			Amortized Cost		Estimated Fair Value
Due in 1 year or less	Due in 1 year or less	$	1,490	$	1,486	Due in 1 year or less	$	875	$	867
Due in 1 to 5 years	Due in 1 to 5 years	30,702		29,814		Due in 1 to 5 years	86,596		85,549
Due in 5 to 10 years	Due in 5 to 10 years	54,131		46,087		Due in 5 to 10 years	55,440		48,402
Due after 10 years	Due after 10 years	1,052,815		835,696		Due after 10 years	1,021,394		886,465
Total debt securities	Total debt securities	1,139,138		913,083		Total debt securities	1,164,305		1,021,283
Mortgage and asset-backed securities	Mortgage and asset-backed securities	5,580,406		5,126,990		Mortgage and asset-backed securities	5,486,062		5,054,770
Equity securities with a readily determinable fair value	Equity securities with a readily determinable fair value	20,258		20,258		Equity securities with a readily determinable fair value	20,604		20,604
Total investment securities	Total investment securities	$	6,739,802	$	6,060,331	Total investment securities	$	6,670,971	$	6,096,657

The amortized cost and estimated fair value of debt securities held to maturity at ~~September 30, 2022,~~March 31, 2023, by contractual maturity, are as follows, in thousands. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties.


		September 30, 2022					March 31, 2023
		Amortized Cost		Estimated Fair Value			Amortized Cost		Estimated Fair Value
Due in 1 year or less	Due in 1 year or less	$	4,772	$	4,773	Due in 1 year or less	$	1,243	$	1,246
Due in 1 to 5 years	Due in 1 to 5 years	68,014		67,496		Due in 1 to 5 years	71,115		70,976
Due in 5 to 10 years	Due in 5 to 10 years	125,603		121,978		Due in 5 to 10 years	143,654		143,498
Due after 10 years	Due after 10 years	631,858		588,558		Due after 10 years	616,086		599,952
Total debt securities	Total debt securities	$	830,247	$	782,805	Total debt securities	$	832,098	$	815,672

As of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, securities with a carrying value of ~~$1.27~~$2.96 billion and ~~$1.66~~$1.49 billion, respectively, were pledged to secure public and trust deposits, short-term borrowings and for other purposes as required or permitted by law.

Gross gains and losses realized related to the sales of securities carried at fair value for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ are summarized as follows, in thousands:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
Proceeds from sales	Proceeds from sales	$	57,610	$	169,108	$	1,031,521	$	799,588	Proceeds from sales		$	146,448	$	824,071
Gross security gains	Gross security gains	—		1,591		7,298		5,880		Gross security gains		—		6,941
Gross security losses	Gross security losses	1,070		56		9,018		1,533		Gross security losses		1,104		4,950

The following table summarizes, in thousands, the amount of unrealized losses, defined as the amount by which cost or amortized cost exceeds fair value, and the related fair value of investments with unrealized losses in the securities portfolio as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021.~~2022. The investments were segregated into two categories: those that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for

12 months or more. The reference point for determining how long an investment was in an unrealized loss position was ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020~~2021, respectively. ~~For the securities transferred to held to maturity during the third quarter of 2022, the reference point was the date of the transfer.~~


Debt securities available for sale	Debt securities available for sale	Less than 12 months					12 months or longer					Total					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		Fair Value		Unrealized Losses		Count	Fair Value		Unrealized Losses		Count	Fair Value		Unrealized Losses		Count
September 30, 2022
March 31, 2023																	March 31, 2023
U.S. treasuries	U.S. treasuries	$	26,737	$	(627)	4	$	—	$	—	—	$	26,737	$	(627)	4	U.S. treasuries	$	25,913	$	(492)	3	$	—	$	—	—	$	25,913	$	(492)	3
U.S. agencies	U.S. agencies	27,662		(2,398)		6	15,638		(3,906)		1	43,300		(6,304)		7	U.S. agencies	133		(2)		2	43,451		(5,476)		4	43,584		(5,478)		6
Obligations of states and political subdivisions	Obligations of states and political subdivisions	703,542		(175,773)		141	127,428		(42,565)		41	830,970		(218,338)		182	Obligations of states and political subdivisions	88,910		(3,541)		20	794,010		(132,234)		155	882,920		(135,775)		175
Mortgage-backed securities - agency	Mortgage-backed securities - agency	523,192		(53,036)		143	1,303,192		(216,041)		82	1,826,384		(269,077)		225	Mortgage-backed securities - agency	52,854		(4,839)		30	1,701,881		(240,037)		187	1,754,735		(244,876)		217
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	1,317,914		(93,124)		35	394,034		(47,752)		16	1,711,948		(140,876)		51	Mortgage-backed securities - non-agency	362,023		(26,315)		12	1,165,995		(120,004)		41	1,528,018		(146,319)		53
Commercial mortgage-backed securities - agency	Commercial mortgage-backed securities - agency	30,467		(2,733)		14	55,681		(13,408)		11	86,148		(16,141)		25	Commercial mortgage-backed securities - agency	3,607		(146)		2	82,415		(13,746)		18	86,022		(13,892)		20
Commercial mortgage-backed securities - non-agency	Commercial mortgage-backed securities - non-agency	626,025		(18,189)		19	63,650		(899)		2	689,675		(19,088)		21	Commercial mortgage-backed securities - non-agency	119,454		(5,360)		8	498,815		(12,191)		12	618,269		(17,551)		20
Asset-backed securities	Asset-backed securities	130,835		(4,860)		8	57,620		(6,171)		5	188,455		(11,031)		13	Asset-backed securities	137,105		(3,582)		3	94,100		(8,896)		10	231,205		(12,478)		13
Corporate bonds	Corporate bonds	8,422		(787)		7	—		—		—	8,422		(787)		7	Corporate bonds	51,892		(601)		3	5,953		(756)		5	57,845		(1,357)		8

Total temporarily impaired securities	Total temporarily impaired securities	$	3,394,796	$	(351,527)	377	$	2,017,243	$	(330,742)	158	$	5,412,039	$	(682,269)	535	Total temporarily impaired securities	$	841,891	$	(44,878)	83	$	4,386,620	$	(533,340)	432	$	5,228,511	$	(578,218)	515
December 31, 2021

December 31, 2022																	December 31, 2022
U.S. treasuries																	U.S. treasuries	$	28,699	$	(678)	4	$	—	$	—	—	$	28,699	$	(678)	4
U.S. agencies	U.S. agencies	$	100,839	$	(812)	2	$	—	$	—	—	$	100,839	$	(812)	2	U.S. agencies	16,487		(222)		5	26,648		(6,080)		2	43,135		(6,302)		7
Obligations of states and political subdivisions	Obligations of states and political subdivisions	596,866		(10,115)		113	236,329		(6,501)		49	833,195		(16,616)		162	Obligations of states and political subdivisions	288,457		(28,378)		69	589,641		(141,777)		113	878,098		(170,155)		182
Mortgage-backed securities - agency	Mortgage-backed securities - agency	1,383,808		(33,291)		83	474,724		(17,891)		19	1,858,532		(51,182)		102	Mortgage-backed securities - agency	241,288		(21,420)		99	1,528,951		(248,623)		126	1,770,239		(270,043)		225
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	929,515		(10,870)		27	23,821		(159)		5	953,336		(11,029)		32	Mortgage-backed securities - non-agency	950,054		(70,213)		25	693,531		(76,636)		25	1,643,585		(146,849)		50
Commercial mortgage-backed securities - agency	Commercial mortgage-backed securities - agency	26,999		(689)		8	53,025		(2,225)		5	80,024		(2,914)		13	Commercial mortgage-backed securities - agency	27,732		(2,291)		12	57,392		(13,104)		7	85,124		(15,395)		19
Commercial mortgage-backed securities - non-agency	Commercial mortgage-backed securities - non-agency	74,450		(145)		3	14,124		(218)		2	88,574		(363)		5	Commercial mortgage-backed securities - non-agency	530,541		(16,830)		15	84,619		(3,222)		4	615,160		(20,052)		19
Asset-backed securities	Asset-backed securities	113,945		(1,201)		6	13,799		(116)		6	127,744		(1,317)		12	Asset-backed securities	118,613		(6,107)		7	56,621		(6,236)		6	175,234		(12,343)		13

Corporate bonds																	Corporate bonds	57,544		(1,257)		7	398		(6)		1	57,942		(1,263)		8

Total temporarily impaired securities	Total temporarily impaired securities	$	3,226,422	$	(57,123)	242	$	815,822	$	(27,110)	86	$	4,042,244	$	(84,233)	328	Total temporarily impaired securities	$	2,259,415	$	(147,396)	243	$	3,037,801	$	(495,684)	284	$	5,297,216	$	(643,080)	527

Securities held to maturity Less than 12 months 12 months or longer Total
Fair
Value Unrealized
Losses Count Fair
Value Unrealized
Losses Count Fair
Value Unrealized
Losses Count
September 30, 2022
Obligations of states and political subdivisions $ 708,291 $ (49,203) 161 $ — $ — — $ 708,291 $ (49,203) 161
Total temporarily impaired securities $ 708,291 (49,203) 161 $ — $ — — $ 708,291 (49,203) 161

~~HTLF had no securities held to maturity with unrealized losses at December 31, 2021.~~

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

The unrealized losses on HTLF's commercial mortgage, mortgage and asset-backed securities are the result of changes in market interest rates or widening of market spreads subsequent to the initial purchase of the securities. The losses are not related to concerns regarding the underlying credit of the issuers or the underlying collateral. It is expected that the securities will not be settled at a price less than the amortized cost of the investment. Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because HTLF has the intent and ability to hold these investments until a market price recovery or to maturity and does not believe it will be required to sell the securities before maturity, no credit losses were recognized on these securities during the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

The unrealized losses on HTLF's obligations of states and political subdivisions available for sale are the result of changes in market interest rates or widening of market spreads subsequent to the initial purchase of the securities. Management monitors the published credit ratings of these securities and the stability of the underlying municipalities. Because the decline in fair value is attributable to changes in interest rates or widening market spreads due to insurance company downgrades and not underlying credit quality, and because HTLF has the intent and ability to hold these investments until a market price recovery or to maturity and does not believe it will be required to sell the securities before maturity, no credit losses were recognized on these securities during the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

In the first quarter of 2022, HTLF sold two obligations of states and political subdivisions securities from the held to maturity portfolio. Because the evaluation of the underlying credit quality of the individual securities indicated significant deterioration, it was unlikely HTLF would recover the remaining basis of the securities prior to maturity and therefore inconsistent with HTLF's original intent upon purchase and classification of these held to maturity securities. The carrying value of these securities was $2.2 million, and the associated gross gains were $100,000.

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 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 nine months ended September 30, 2022 and 2021:

Three Months Ended
September 30,
2022 2021
Beginning balance $ — $ 51
Provision (benefit) for credit losses — (51)
Balance at period end $ — $ —
Nine Months Ended
September 30,
2022 2021
Beginning balance $ — $ 51
Provision (benefit) for credit losses — (51)
Balance at period end $ — $ —

Based on HTLF's credit loss methodology applicable to held to maturity debt securities, no allowance for credit losses was required at both ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021.~~2022.

The following table summarizes, in thousands, the carrying amount of HTLF's held to maturity debt securities by investment rating as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, which are updated quarterly and used to monitor the credit quality of the securities:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Rating	Rating					Rating
AAA	AAA	$	94,727	$	3,265	AAA	$	79,848	$	79,598
AA, AA+, AA-	AA, AA+, AA-	576,141		61,471		AA, AA+, AA-	590,034		588,354
A+, A, A-	A+, A, A-	135,835		15,034		A+, A, A-	137,368		136,624
BBB	BBB	23,544		4,939		BBB	20,599		20,623
Not Rated	Not Rated	—		—		Not Rated	4,249		4,204
Total	Total	$	830,247	$	84,709	Total	$	832,098	$	829,403

Included in other securities were shares of stock in each Federal Home Loan Bank (the "FHLB") of Des Moines, Chicago, Dallas ~~San Francisco~~ and Topeka at an amortized cost of ~~$18.6~~$8.9 million at ~~September 30, 2022,~~March 31, 2023, and ~~$22.6~~$12.3 million at December 31, ~~2021.~~2022.

The HTLF banks are required by federal law to maintain FHLB stock as members of the various FHLBs. These equity securities are "restricted" in that they can only be sold back to the respective institutions from which they were acquired or another member institution at par. Therefore, the FHLB stock is less liquid than other marketable equity securities, and the fair value approximates amortized cost. HTLF considers its FHLB stock as a long-term investment that provides access to competitive products and liquidity. HTLF evaluates impairment in these investments based on the ultimate recoverability of the par value and, at ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, did not consider the investments to be impaired.

NOTE 3: LOANS

Loans as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, were as follows, in thousands:


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Loans receivable held to maturity:	Loans receivable held to maturity:					Loans receivable held to maturity:
Commercial and industrial	Commercial and industrial	$	3,278,703	$	2,645,085	Commercial and industrial	$	3,498,345	$	3,464,414
Paycheck Protection Program ("PPP")	Paycheck Protection Program ("PPP")	13,506		199,883		Paycheck Protection Program ("PPP")	8,258		11,025
Owner occupied commercial real estate	Owner occupied commercial real estate	2,285,973		2,240,334		Owner occupied commercial real estate	2,312,538		2,265,307
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	2,219,542		2,010,591		Non-owner occupied commercial real estate	2,421,341		2,330,940
Real estate construction	Real estate construction	996,017		856,119		Real estate construction	1,102,186		1,076,082
Agricultural and agricultural real estate	Agricultural and agricultural real estate	781,354		753,753		Agricultural and agricultural real estate	810,183		920,510
Residential real estate	Residential real estate	852,928		829,283		Residential real estate	841,084		853,361
Consumer	Consumer	495,509		419,524		Consumer	501,418		506,713
Total loans receivable held to maturity	Total loans receivable held to maturity	10,923,532		9,954,572		Total loans receivable held to maturity	11,495,353		11,428,352

Allowance for credit losses	Allowance for credit losses	(105,715)		(110,088)		Allowance for credit losses	(112,707)		(109,483)
Loans receivable, net	Loans receivable, net	$	10,817,817	$	9,844,484	Loans receivable, net	$	11,382,646	$	11,318,869

As of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, HTLF had ~~$41.4~~$51.7 million and ~~$35.3~~$49.1 million, respectively, of accrued interest receivable, which is included in other assets on the consolidated balance sheets. HTLF does not consider accrued interest receivable in the allowance for credit losses calculation.

The following table shows the balance in the allowance for credit losses at ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, and the

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

Allowance For Credit Losses Gross Loans Receivable Held to Maturity
Individually Evaluated for Credit Losses Collectively Evaluated for Credit Losses Total Loans Individually Evaluated for Credit Losses Loans Collectively Evaluated for Credit Losses Total
September 30, 2022
Commercial and industrial $ 7,260 $ 23,003 $ 30,263 $ 21,696 $ 3,257,007 $ 3,278,703
PPP — — — — 13,506 13,506
Owner occupied commercial real estate 365 16,607 16,972 8,851 2,277,122 2,285,973
Non-owner occupied commercial real estate — 14,809 14,809 11,643 2,207,899 2,219,542
Real estate construction — 24,270 24,270 1,547 994,470 996,017
Agricultural and agricultural real estate 128 2,439 2,567 6,343 775,011 781,354
Residential real estate — 7,426 7,426 1,622 851,306 852,928
Consumer — 9,408 9,408 — 495,509 495,509
Total $ 7,753 $ 97,962 $ 105,715 $ 51,702 $ 10,871,830 $ 10,923,532
December 31, 2021
Commercial and industrial $ 4,562 $ 23,176 $ 27,738 $ 13,551 $ 2,631,534 $ 2,645,085
PPP — — — — 199,883 199,883
Owner occupied commercial real estate 105 19,109 19,214 8,552 2,231,782 2,240,334
Non-owner occupied commercial real estate 610 17,298 17,908 12,557 1,998,034 2,010,591
Real estate construction — 22,538 22,538 — 856,119 856,119
Agricultural and agricultural real estate 2,369 2,844 5,213 13,773 739,980 753,753
Residential real estate — 8,427 8,427 855 828,428 829,283
Consumer — 9,050 9,050 — 419,524 419,524
Total $ 7,646 $ 102,442 $ 110,088 $ 49,288 $ 9,905,284 $ 9,954,572

HTLF had $15.9 million of troubled debt restructured loans at September 30, 2022, of which $7.9 million were classified as nonaccrual and $8.0 million were accruing according to the restructured terms. HTLF had $10.4 million of troubled debt restructured loans at December 31, 2021, of which $9.5 million were classified as nonaccrual and $817,000 were accruing according to the restructured terms.


	Allowance For Credit Losses						Gross Loans Receivable Held to Maturity
	Individually Evaluated for Credit Losses		Collectively Evaluated for Credit Losses		Total		Loans Individually Evaluated for Credit Losses		Loans Collectively Evaluated for Credit Losses		Total
March 31, 2023
Commercial and industrial	$	9,144	$	22,679	$	31,823	$	19,953	$	3,478,392	$	3,498,345
PPP	—		—		—		—		8,258		8,258
Owner occupied commercial real estate	376		13,775		14,151		7,784		2,304,754		2,312,538
Non-owner occupied commercial real estate	—		17,062		17,062		10,983		2,410,358		2,421,341
Real estate construction	—		30,138		30,138		1,498		1,100,688		1,102,186
Agricultural and agricultural real estate	62		2,484		2,546		5,116		805,067		810,183
Residential real estate	—		7,564		7,564		788		840,296		841,084
Consumer	—		9,423		9,423		—		501,418		501,418

Total	$	9,582	$	103,125	$	112,707	$	46,122	$	11,449,231	$	11,495,353

December 31, 2022
Commercial and industrial	$	6,670	$	22,401	$	29,071	$	18,712	$	3,445,702	$	3,464,414
PPP	—		—		—		—		11,025		11,025
Owner occupied commercial real estate	376		13,572		13,948		7,932		2,257,375		2,265,307
Non-owner occupied commercial real estate	—		16,539		16,539		11,371		2,319,569		2,330,940
Real estate construction	—		29,998		29,998		1,518		1,074,564		1,076,082
Agricultural and agricultural real estate	63		2,571		2,634		3,851		916,659		920,510
Residential real estate	—		7,711		7,711		1,607		851,754		853,361
Consumer	—		9,582		9,582		—		506,713		506,713

Total	$	7,109	$	102,374	$	109,483	$	44,991	$	11,383,361	$	11,428,352

The following ~~tables provide information on troubled debt restructured~~table shows the amortized cost basis as of March 31, 2023, of the loans ~~that were~~ modified ~~during the three-~~to borrowers experiencing financial difficulty by loan category and ~~nine- months ended September 30, 2022, and September 30, 2021,~~type of concession granted, dollars in thousands. The provisions of the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), which modified troubled debt restructured loan classification, expired on January 1, 2022, and any new troubled debt restructured loan modifications are evaluated in accordance with generally accepted accounting principles.


	Loan Modifications Made to Borrowers Experiencing Financial Difficulty
	Term Extension				Term Extension and Interest Only Payments
	Amortized Cost Basis		% of Loan Category		Amortized Cost Basis		% of Loan Category
March 31, 2023
Commercial	$	3,682	0.11	%	$	—	—	%

Owner occupied commercial real estate	—		—		5,043		0.22

Real estate construction	1,498		0.06		—		—

Residential real estate	762		0.01		—		—

Total	$	5,942	0.05	%	$	5,043	0.22	%

Three Months Ended
September 30,
2022 2021
Number
of Loans Pre-
Modification
Recorded
Investment Post-
Modification
Recorded
Investment Number
of Loans Pre-
Modification
Recorded
Investment Post-
Modification
Recorded
Investment
Commercial — $ — $ — — $ — $ —
PPP — — — — — —
Owner occupied commercial real estate 1 5,058 5,058 — — —
Non-owner occupied commercial real estate — — — — — —
Real estate construction — — — — — —
Agricultural and agricultural real estate 1 1,400 1,400 — — —
Residential real estate — — — — — —
Consumer — — — — — —
Total 2 $ 6,458 $ 6,458 — $ — $ —

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

Nine Months Ended
September 30,
2022 2021
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 — $ — $ — — $ — $ —
PPP — — — — — —
Owner occupied commercial real estate 1 5,058 5,058 — — —
Non-owner occupied commercial real estate — — — 2 7,850 7,850
Real estate construction — — — — — —
Agricultural and agricultural real estate 1 1,400 1,400 — — —
Residential real estate — — — — — —
Consumer — — — — — —
Total 2 $ 6,458 $ 6,458 2 $ 7,850 $ 7,850


Loan Type	Weighted Average Term Extension (months)	Weighted Average Term Extension and Interest Only Payments (months)
Commercial and industrial	10	0

Owner occupied commercial real estate	0	12

Real estate construction	6	0

Residential real estate	12	0

At ~~September 30, 2022,~~March 31, 2023, there were no commitments to extend credit to any of the borrowers ~~with an existing troubled debt restructured loan.~~experiencing financial difficulty.

HTLF had no ~~troubled debt restructured~~ loans ~~for which there was~~to borrowers experiencing financial difficulty that had a payment default during the ~~three- and nine-~~three months ended ~~September 30, 2022, and September 30, 2021,~~March 31, 2023, that had been modified ~~during~~in the twelve-month period prior to the default.

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


	Accruing Loans
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Nonaccrual
March 31, 2023
Commercial and industrial	$	—	$	—	$	—	$	—	$	3,682	$	—

Owner occupied commercial real estate	—		—		—		—		5,043		—

Real estate construction	—		—		—		—		—		1,498

Residential real estate	—		—		—		—		—		762

Total	$	—	$	—	$	—	$	—	$	8,725	$	2,260

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

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

The "substandard" rating is assigned to loans that are inadequately protected by the current net worth and repaying capacity of the borrower and that may be further at risk due to deterioration in the value of collateral pledged. Well-defined weaknesses jeopardize liquidation of the debt. These loans are still considered collectible; however, a distinct possibility exists that HTLF

will sustain some loss if deficiencies are not corrected. Substandard loans may exhibit some or all of the following weaknesses: deteriorating financial trends, lack of earnings, inadequate debt service capacity, excessive debt and/or lack of liquidity.

The "doubtful" rating is assigned to loans where identified weaknesses in the borrowers' ability to repay the loan make collection or liquidation in full, on the basis of existing facts, conditions and values, highly questionable and improbable. These borrowers are usually in default, lack liquidity and capital, as well as resources necessary to remain as an operating entity. Specific pending events, such as capital injections, liquidations or perfection of liens on additional collateral, may strengthen the credit, thus deferring the rating of the loan as "loss" until the exact status of the loan can be determined. The "loss" rating is assigned to loans considered uncollectible. HTLF had no loans classified as "loss" or "doubtful" as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021.~~2022.

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


As of March 31, 2023	Amortized Cost Basis of Term Loans by Year of Origination
	2023		2022		2021		2020		2019		2018 and Prior		Revolving		Total
Commercial and industrial
Pass	$	171,784	$	945,388	$	401,138	$	236,351	$	94,489	$	355,412	$	1,129,728	$	3,334,290
Watch	372		14,254		3,822		3,023		6,093		4,914		25,162		57,640
Substandard	2,116		10,883		14,284		9,093		21,814		11,594		36,631		106,415
Commercial and industrial total	$	174,272	$	970,525	$	419,244	$	248,467	$	122,396	$	371,920	$	1,191,521	$	3,498,345
Commercial and industrial charge-offs	$	—	$	219	$	95	$	8	$	—	$	788	$	341	$	1,451

PPP
Pass	$	—	$	—	$	6,731	$	102	$	—	$	—	$	—	$	6,833
Watch	—		—		6		—		—		—		—		6
Substandard	—		—		1,419		—		—		—		—		1,419
PPP total	$	—	$	—	$	8,156	$	102	$	—	$	—	$	—	$	8,258
PPP charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Owner occupied commercial real estate
Pass	$	90,398	$	524,526	$	753,107	$	241,589	$	263,294	$	261,584	$	34,578	$	2,169,076
Watch	—		21,288		13,401		13,915		7,105		12,568		—		68,277
Substandard	6,107		7,172		23,591		22,360		5,484		9,721		750		75,185
Owner occupied commercial real estate total	$	96,505	$	552,986	$	790,099	$	277,864	$	275,883	$	283,873	$	35,328	$	2,312,538
Owner occupied commercial real estate charge-offs	$	—	$	—	$	—	$	—	$	—	$	14	$	—	$	14

Non-owner occupied commercial real estate
Pass	$	141,649	$	730,364	$	543,098	$	208,137	$	257,733	$	305,784	$	73,088	$	2,259,853
Watch	—		8,093		1,368		3,566		38,876		53,877		—		105,780
Substandard	—		—		6,690		1,624		15,477		31,917		—		55,708
Non-owner occupied commercial real estate total	$	141,649	$	738,457	$	551,156	$	213,327	$	312,086	$	391,578	$	73,088	$	2,421,341
Non-owner occupied commercial real estate charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Real estate construction
Pass	$	45,771	$	625,728	$	303,674	$	77,340	$	20,886	$	7,174	$	8,224	$	1,088,797
Watch	—		6,574		1,085		1,244		—		103		—		9,006
Substandard	—		3,428		356		121		434		44		—		4,383
Real estate construction total	$	45,771	$	635,730	$	305,115	$	78,705	$	21,320	$	7,321	$	8,224	$	1,102,186
Real estate construction charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Agricultural and agricultural real estate
Pass	$	39,667	$	249,164	$	125,673	$	73,366	$	31,283	$	56,019	$	197,976	$	773,148
Watch	241		1,225		549		3,843		496		935		1,346		8,635
Substandard	—		7,618		3,378		212		1,154		15,017		1,021		28,400
Agricultural and agricultural real estate total	$	39,908	$	258,007	$	129,600	$	77,421	$	32,933	$	71,971	$	200,343	$	810,183
Agricultural and agricultural real estate charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Residential real estate
Pass	$	18,663	$	181,925	$	260,225	$	62,951	$	37,551	$	238,866	$	21,172	$	821,353
Watch	—		2,549		2,618		85		1,372		5,415		433		12,472
Substandard	811		59		1,308		838		38		4,205		—		7,259
Residential real estate total	$	19,474	$	184,533	$	264,151	$	63,874	$	38,961	$	248,486	$	21,605	$	841,084


Residential real estate charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


As of March 31, 2023	Amortized Cost Basis of Term Loans by Year of Origination
	2023		2022		2021		2020		2019		2018 and Prior		Revolving		Total
Consumer
Pass	$	11,806	$	75,894	$	44,501	$	10,554	$	5,180	$	18,586	$	328,689	$	495,210
Watch	—		51		227		59		109		1,524		1,434		3,404
Substandard	9		209		339		220		261		1,565		201		2,804
Consumer total	$	11,815	$	76,154	$	45,067	$	10,833	$	5,550	$	21,675	$	330,324	$	501,418
Consumer charge-offs	$	—	$	24	$	26	$	11	$	11	$	6	$	608	$	686

Total Pass	$	519,738	$	3,332,989	$	2,438,147	$	910,390	$	710,416	$	1,243,425	$	1,793,455	$	10,948,560
Total Watch	613		54,034		23,076		25,735		54,051		79,336		28,375		265,220
Total Substandard	9,043		29,369		51,365		34,468		44,662		74,063		38,603		281,573
Total Loans	$	529,394	$	3,416,392	$	2,512,588	$	970,593	$	809,129	$	1,396,824	$	1,860,433	$	11,495,353

Total Charge-offs	$	—	$	243	$	121	$	19	$	11	$	808	$	949	$	2,151

The following ~~tables~~table show the risk category of loans by loan category and year of origination as of ~~September 30, 2022, and~~ December 31, ~~2021,~~2022, in ~~thousands:~~thousands.


As of September 30, 2022		Amortized Cost Basis of Term Loans by Year of Origination
As of December 31, 2022																		As of December 31, 2022	Amortized Cost Basis of Term Loans by Year of Origination
		2022		2021		2020		2019		2018		2017 and Prior		Revolving		Total			2022		2021		2020		2019		2018		2017 and Prior		Revolving		Total
Commercial and industrial	Commercial and industrial																	Commercial and industrial
Pass	Pass	$	802,007	$	463,440	$	280,255	$	111,725	$	64,394	$	425,882	$	970,691	$	3,118,394	Pass	$	967,103	$	442,001	$	260,021	$	101,998	$	57,776	$	421,312	$	1,064,333	$	3,314,544
Watch	Watch	8,503		3,509		4,036		5,597		4,477		2,187		24,689		52,998		Watch	12,638		1,370		685		5,487		2,882		3,315		21,984		48,361
Substandard	Substandard	8,494		11,735		9,609		27,282		7,137		11,823		31,231		107,311		Substandard	6,691		14,366		9,369		22,171		5,546		6,758		36,608		101,509
Commercial and industrial total	Commercial and industrial total	$	819,004	$	478,684	$	293,900	$	144,604	$	76,008	$	439,892	$	1,026,611	$	3,278,703	Commercial and industrial total	$	986,432	$	457,737	$	270,075	$	129,656	$	66,204	$	431,385	$	1,122,925	$	3,464,414
PPP	PPP																	PPP
Pass	Pass	$	—	$	9,977	$	891	$	—	$	—	$	—	$	—	$	10,868	Pass	$	—	$	7,807	$	526	$	—	$	—	$	—	$	—	$	8,333
Watch	Watch	—		8		—		—		—		—		—		8		Watch	—		7		—		—		—		—		—		7
Substandard	Substandard	—		2,625		5		—		—		—		—		2,630		Substandard	—		2,685		—		—		—		—		—		2,685
PPP total	PPP total	$	—	$	12,610	$	896	$	—	$	—	$	—	$	—	$	13,506	PPP total	$	—	$	10,499	$	526	$	—	$	—	$	—	$	—	$	11,025
Owner occupied commercial real estate	Owner occupied commercial real estate																	Owner occupied commercial real estate
Pass	Pass	$	449,289	$	805,870	$	273,696	$	275,330	$	111,317	$	207,964	$	35,402	$	2,158,868	Pass	$	511,547	$	781,946	$	255,476	$	266,228	$	103,943	$	179,503	$	34,117	$	2,132,760
Watch	Watch	11,806		5,806		3,114		5,573		6,601		5,923		35		38,858		Watch	22,079		3,410		12,346		8,520		3,645		11,899		—		61,899
Substandard	Substandard	1,964		21,694		32,169		10,714		2,236		18,670		800		88,247		Substandard	2,971		23,802		26,490		6,358		2,574		7,353		1,100		70,648
Owner occupied commercial real estate total	Owner occupied commercial real estate total	$	463,059	$	833,370	$	308,979	$	291,617	$	120,154	$	232,557	$	36,237	$	2,285,973	Owner occupied commercial real estate total	$	536,597	$	809,158	$	294,312	$	281,106	$	110,162	$	198,755	$	35,217	$	2,265,307
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate																	Non-owner occupied commercial real estate
Pass	Pass	$	576,309	$	524,138	$	220,635	$	274,791	$	134,255	$	206,540	$	69,166	$	2,005,834	Pass	$	756,059	$	515,075	$	227,383	$	261,964	$	127,400	$	210,289	$	70,398	$	2,168,568
Watch	Watch	771		802		5,222		38,563		42,302		58,714		555		146,929		Watch	8,131		792		2,849		38,218		38,510		16,180		547		105,227
Substandard	Substandard	206		10,578		7,513		16,078		22,408		9,996		—		66,779		Substandard	202		6,784		1,838		16,019		22,332		9,970		—		57,145
Non-owner occupied commercial real estate total	Non-owner occupied commercial real estate total	$	577,286	$	535,518	$	233,370	$	329,432	$	198,965	$	275,250	$	69,721	$	2,219,542	Non-owner occupied commercial real estate total	$	764,392	$	522,651	$	232,070	$	316,201	$	188,242	$	236,439	$	70,945	$	2,330,940
Real estate construction																		Real estate construction
Pass																		Pass	$	597,370	$	328,391	$	88,660	$	21,221	$	2,568	$	6,274	$	8,252	$	1,052,736
Watch																		Watch	665		16,218		1,257		—		—		122		—		18,262
Substandard																		Substandard	2,587		356		173		446		1,478		44		—		5,084
Real estate construction total																		Real estate construction total	$	600,622	$	344,965	$	90,090	$	21,667	$	4,046	$	6,440	$	8,252	$	1,076,082

Agricultural and agricultural real estate																		Agricultural and agricultural real estate
Pass																		Pass	$	324,791	$	140,252	$	79,307	$	34,447	$	22,600	$	38,672	$	239,686	$	879,755
Watch																		Watch	3,795		515		3,865		641		444		672		902		10,834
Substandard																		Substandard	8,674		3,224		204		1,859		12,323		2,682		955		29,921
Agricultural and agricultural real estate total																		Agricultural and agricultural real estate total	$	337,260	$	143,991	$	83,376	$	36,947	$	35,367	$	42,026	$	241,543	$	920,510

As of September 30, 2022 Amortized Cost Basis of Term Loans by Year of Origination
2022 2021 2020 2019 2018 2017 and Prior Revolving Total
Real estate construction
Pass $ 475,313 $ 351,155 $ 103,214 $ 40,638 $ 2,983 $ 6,602 $ 7,915 $ 987,820
Watch 654 11 1,220 — — 16 — 1,901
Substandard — 356 1,027 543 4,304 66 — 6,296
Real estate construction total $ 475,967 $ 351,522 $ 105,461 $ 41,181 $ 7,287 $ 6,684 $ 7,915 $ 996,017
Agricultural and agricultural real estate
Pass $ 221,687 $ 153,294 $ 84,087 $ 37,598 $ 24,681 $ 43,203 $ 169,970 $ 734,520
Watch 4,131 536 3,892 706 471 1,036 2,539 13,311
Substandard 4,270 8,463 204 2,527 12,600 4,319 1,140 33,523
Agricultural and agricultural real estate total $ 230,088 $ 162,293 $ 88,183 $ 40,831 $ 37,752 $ 48,558 $ 173,649 $ 781,354
Residential real estate
Pass $ 168,663 $ 277,074 $ 67,491 $ 41,412 $ 36,411 $ 224,410 $ 21,187 $ 836,648
Watch 429 769 562 987 1,554 2,377 — 6,678
Substandard 29 1,487 1,046 140 1,648 5,102 150 9,602
Residential real estate total $ 169,121 $ 279,330 $ 69,099 $ 42,539 $ 39,613 $ 231,889 $ 21,337 $ 852,928
Consumer
Pass $ 65,800 $ 51,732 $ 13,587 $ 7,053 $ 5,496 $ 25,705 $ 320,071 $ 489,444
Watch 40 123 56 227 77 957 1,432 2,912
Substandard 160 265 267 316 125 1,581 439 3,153
Consumer total $ 66,000 $ 52,120 $ 13,910 $ 7,596 $ 5,698 $ 28,243 $ 321,942 $ 495,509
Total Pass $ 2,759,068 $ 2,636,680 $ 1,043,856 $ 788,547 $ 379,537 $ 1,140,306 $ 1,594,402 $ 10,342,396
Total Watch 26,334 11,564 18,102 51,653 55,482 71,210 29,250 263,595
Total Substandard 15,123 57,203 51,840 57,600 50,458 51,557 33,760 317,541
Total Loans $ 2,800,525 $ 2,705,447 $ 1,113,798 $ 897,800 $ 485,477 $ 1,263,073 $ 1,657,412 $ 10,923,532


As of December 31, 2021		Amortized Cost Basis of Term Loans by Year of Origination
As of December 31, 2022																		As of December 31, 2022	Amortized Cost Basis of Term Loans by Year of Origination
		2021		2020		2019		2018		2017		2016 and Prior		Revolving		Total			2022		2021		2020		2019		2018		2017 and Prior		Revolving		Total
Commercial and industrial
Pass		$	604,659	$	359,533	$	203,960	$	89,694	$	171,709	$	330,094	$	708,525	$	2,468,174
Watch		10,633		12,790		12,550		8,210		3,611		14,976		24,626		87,396
Substandard		19,888		6,391		13,050		8,535		6,619		12,052		22,980		89,515
Commercial and industrial total		$	635,180	$	378,714	$	229,560	$	106,439	$	181,939	$	357,122	$	756,131	$	2,645,085
PPP
Pass		$	146,370	$	25,707	$	—	$	—	$	—	$	—	$	—	$	172,077
Watch		10,726		127		—		—		—		—		—		10,853
Substandard		16,932		21		—		—		—		—		—		16,953
PPP total		$	174,028	$	25,855	$	—	$	—	$	—	$	—	$	—	$	199,883
Owner occupied commercial real estate
Pass		$	940,043	$	328,052	$	315,497	$	180,936	$	115,142	$	189,647	$	34,233	$	2,103,550
Watch		4,676		13,956		7,759		10,501		15,032		6,830		35		58,789
Substandard		11,958		20,769		13,734		2,809		13,912		13,063		1,750		77,995
Owner occupied commercial real estate total		$	956,677	$	362,777	$	336,990	$	194,246	$	144,086	$	209,540	$	36,018	$	2,240,334
Non-owner occupied commercial real estate
Pass		$	609,968	$	263,093	$	315,815	$	236,823	$	152,059	$	166,792	$	28,728	$	1,773,278
Watch		4,754		9,109		35,496		29,227		4,865		35,901		—		119,352
Substandard		15,722		10,612		21,798		3,599		14,023		51,766		441		117,961
Non-owner occupied commercial real estate total		$	630,444	$	282,814	$	373,109	$	269,649	$	170,947	$	254,459	$	29,169	$	2,010,591
Real estate construction
Pass		$	381,283	$	206,879	$	169,606	$	14,197	$	7,163	$	7,823	$	14,507	$	801,458
Watch		2,704		858		2,145		44,846		—		—		14		50,567
Substandard		—		50		46		3,944		—		54		—		4,094
Real estate construction total		$	383,987	$	207,787	$	171,797	$	62,987	$	7,163	$	7,877	$	14,521	$	856,119

Agricultural and agricultural real estate
Pass		$	217,179	$	102,030	$	47,927	$	32,913	$	22,029	$	35,548	$	220,065	$	677,691
Watch		4,018		10,390		4,688		2,270		33		2,038		2,948		26,385
Substandard		9,250		1,095		4,910		15,825		3,212		8,859		6,526		49,677
Agricultural and agricultural real estate total		$	230,447	$	113,515	$	57,525	$	51,008	$	25,274	$	46,445	$	229,539	$	753,753
Residential real estate	Residential real estate																	Residential real estate
Pass	Pass	$	311,292	$	86,355	$	50,762	$	53,773	$	43,619	$	230,566	$	29,017	$	805,384	Pass	$	189,133	$	268,561	$	64,627	$	39,468	$	34,863	$	217,489	$	23,331	$	837,472
Watch	Watch	3,928		1,499		750		1,452		734		1,977		1,000		11,340		Watch	706		1,095		88		957		2,296		2,237		399		7,778
Substandard	Substandard	2,528		444		410		2,317		1,139		5,721		—		12,559		Substandard	28		1,273		1,024		99		792		4,895		—		8,111
Residential real estate total	Residential real estate total	$	317,748	$	88,298	$	51,922	$	57,542	$	45,492	$	238,264	$	30,017	$	829,283	Residential real estate total	$	189,867	$	270,929	$	65,739	$	40,524	$	37,951	$	224,621	$	23,730	$	853,361

Consumer	Consumer																	Consumer
Pass	Pass	$	69,172	$	20,258	$	13,051	$	9,001	$	10,986	$	18,202	$	271,034	$	411,704	Pass	$	80,592	$	47,787	$	11,722	$	6,022	$	4,840	$	24,655	$	325,247	$	500,865
Watch	Watch	555		309		392		373		113		591		2,210		4,543		Watch	20		191		35		119		74		1,584		953		2,976
Substandard	Substandard	267		204		218		236		363		1,611		378		3,277		Substandard	188		331		242		303		75		1,539		194		2,872
Consumer total	Consumer total	$	69,994	$	20,771	$	13,661	$	9,610	$	11,462	$	20,404	$	273,622	$	419,524	Consumer total	$	80,800	$	48,309	$	11,999	$	6,444	$	4,989	$	27,778	$	326,394	$	506,713

Total Pass	Total Pass	$	3,279,966	$	1,391,907	$	1,116,618	$	617,337	$	522,707	$	978,672	$	1,306,109	$	9,213,316	Total Pass	$	3,426,595	$	2,531,820	$	987,722	$	731,348	$	353,990	$	1,098,194	$	1,765,364	$	10,895,033
Total Watch	Total Watch	41,994		49,038		63,780		96,879		24,388		62,313		30,833		369,225		Total Watch	48,034		23,598		21,125		53,942		47,851		36,009		24,785		255,344
Total Substandard	Total Substandard	76,545		39,586		54,166		37,265		39,268		93,126		32,075		372,031		Total Substandard	21,341		52,821		39,340		47,255		45,120		33,241		38,857		277,975
Total Loans	Total Loans	$	3,398,505	$	1,480,531	$	1,234,564	$	751,481	$	586,363	$	1,134,111	$	1,369,017	$	9,954,572	Total Loans	$	3,495,970	$	2,608,239	$	1,048,187	$	832,545	$	446,961	$	1,167,444	$	1,829,006	$	11,428,352

Included in the nonpass loans at ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, were ~~$2.6~~$1.4 million and ~~$27.8~~$2.7 million, respectively, of nonpass PPP loans as a result of risk ratings on non-PPP related credits. HTLF's risk rating methodology assigns a risk rating to the whole lending relationship. HTLF has no allowance recorded related to the PPP loans because of the 100% government ~~guarantee.~~guarantee through the United States Small Business Administration ("SBA").

As of ~~September 30, 2022,~~March 31, 2023, HTLF had ~~$846,000~~$1.3 million of loans secured by residential real estate property that were in the process of foreclosure.

The following table sets forth information regarding accruing and nonaccrual loans at ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, 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
September 30, 2022
March 31, 2023																March 31, 2023
Commercial and industrial	Commercial and industrial	$	1,406	$	2,692	$	144	$	4,242	$	3,249,305	$	25,156	$	3,278,703	Commercial and industrial	$	2,783	$	800	$	24	$	3,607	$	3,470,831	$	23,907	$	3,498,345
PPP	PPP	763		254		—		1,017		12,484		5		13,506		PPP	—		—		—		—		8,258		—		8,258
Owner occupied commercial real estate	Owner occupied commercial real estate	—		—		—		—		2,276,146		9,827		2,285,973		Owner occupied commercial real estate	3,365		377		—		3,742		2,300,588		8,208		2,312,538
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	32		—		—		32		2,207,606		11,904		2,219,542		Non-owner occupied commercial real estate	748		—		—		748		2,409,369		11,224		2,421,341
Real estate construction	Real estate construction	4,475		—		—		4,475		989,271		2,271		996,017		Real estate construction	642		—		5		647		1,099,267		2,272		1,102,186
Agricultural and agricultural real estate	Agricultural and agricultural real estate	—		—		534		534		772,666		8,154		781,354		Agricultural and agricultural real estate	255		—		17		272		802,741		7,170		810,183
Residential real estate	Residential real estate	650		103		—		753		846,063		6,112		852,928		Residential real estate	1,073		41		41		1,155		835,781		4,148		841,084
Consumer	Consumer	786		134		—		920		493,458		1,131		495,509		Consumer	1,203		397		87		1,687		498,594		1,137		501,418
Total gross loans receivable held to maturity	Total gross loans receivable held to maturity	$	8,112	$	3,183	$	678	$	11,973	$	10,846,999	$	64,560	$	10,923,532	Total gross loans receivable held to maturity	$	10,069	$	1,615	$	174	$	11,858	$	11,425,429	$	58,066	$	11,495,353
December 31, 2021
December 31, 2022																December 31, 2022
Commercial and industrial	Commercial and industrial	$	1,024	$	183	$	541	$	1,748	$	2,625,109	$	18,228	$	2,645,085	Commercial and industrial	$	1,099	$	356	$	131	$	1,586	$	3,440,062	$	22,766	$	3,464,414
PPP	PPP	—		—		—		—		199,883		—		199,883		PPP	—		—		—		—		11,006		19		11,025
Owner occupied commercial real estate	Owner occupied commercial real estate	130		—		—		130		2,229,054		11,150		2,240,334		Owner occupied commercial real estate	12		127		—		139		2,256,365		8,803		2,265,307
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	3,929		—		—		3,929		1,993,346		13,316		2,010,591		Non-owner occupied commercial real estate	—		—		—		—		2,319,282		11,658		2,330,940
Real estate construction	Real estate construction	238		50		—		288		855,463		368		856,119		Real estate construction	16		28		—		44		1,073,687		2,351		1,076,082
Agricultural and agricultural real estate	Agricultural and agricultural real estate	687		—		—		687		737,380		15,686		753,753		Agricultural and agricultural real estate	48		—		142		190		914,088		6,232		920,510
Residential real estate	Residential real estate	767		46		9		822		819,294		9,167		829,283		Residential real estate	1,206		152		—		1,358		846,739		5,264		853,361
Consumer	Consumer	251		57		—		308		417,762		1,454		419,524		Consumer	1,526		196		—		1,722		503,853		1,138		506,713
Total gross loans receivable held to maturity	Total gross loans receivable held to maturity	$	7,026	$	336	$	550	$	7,912	$	9,877,291	$	69,369	$	9,954,572	Total gross loans receivable held to maturity	$	3,907	$	859	$	273	$	5,039	$	11,365,082	$	58,231	$	11,428,352

Loans delinquent 30 to 89 days as a percent of total loans were 0.10% at ~~September 30, 2022,~~March 31, 2023, compared to ~~0.07%~~0.04% at December 31, ~~2021.~~2022. Changes in credit risk are monitored on a continuous basis as part of relationship management, and changes in risk ratings are made when ~~identified.~~credit quality improves or deteriorates in accordance with HTLF's credit risk rating framework. All individually assessed loans are reviewed at least annually.

HTLF recognized $0 of interest income on nonaccrual loans during the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~September 30, 2021.~~March 31, 2022. As of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, HTLF had ~~$32.5~~$28.8 million and ~~$25.5~~$26.7 million of nonaccrual loans with no related allowance, respectively.

NOTE 4: ALLOWANCE FOR CREDIT LOSSES

Changes in the allowance for credit losses on loans for the ~~three- and nine-~~three months ended ~~September 30,~~March 31, 2023, and March 31, 2022, ~~and September 30, 2021,~~ were as follows, in thousands:


		Commercial and Industrial		Owner Occupied Commercial Real Estate		Non-Owner Occupied Commercial Real Estate		Real Estate Construction		Agricultural and Agricultural Real Estate		Residential Real Estate		Consumer		Total
Balance at June 30, 2022		$	27,668	$	17,658	$	15,738	$	19,391	$	2,948	$	8,571	$	9,379	$	101,353
Charge-offs		(385)		—		—		(35)		(34)		(1)		(483)		(938)
Recoveries		506		—		20		3		76		—		307		912
Provision (benefit)		2,474		(686)		(949)		4,911		(423)		(1,144)		205		4,388
Balance at September 30, 2022		$	30,263	$	16,972	$	14,809	$	24,270	$	2,567	$	7,426	$	9,408	$	105,715

		Commercial and Industrial		Owner Occupied Commercial Real Estate		Non-Owner Occupied Commercial Real Estate		Real Estate Construction		Agricultural and Agricultural Real Estate		Residential Real Estate		Consumer		Total
Balance at December 31, 2021		$	27,738	$	19,214	$	17,908	$	22,538	$	5,213	$	8,427	$	9,050	$	110,088

																				Commercial and Industrial		Owner Occupied Commercial Real Estate		Non-Owner Occupied Commercial Real Estate		Real Estate Construction		Agricultural and Agricultural Real Estate		Residential Real Estate		Consumer		Total
Balance at December 31, 2022																		Balance at December 31, 2022		$	29,071	$	13,948	$	16,539	$	29,998	$	2,634	$	7,711	$	9,582	$	109,483

Charge-offs	Charge-offs	(5,528)		—		(322)		(35)		(3,163)		(138)		(6,442)		(15,628)			Charge-offs		(1,451)		(14)		—		—		—		—		(686)		(2,151)
Recoveries	Recoveries	1,157		40		53		12		653		—		779		2,694			Recoveries		1,722		112		—		17		10		19		1,311		3,191
Provision (benefit)	Provision (benefit)	6,896		(2,282)		(2,830)		1,755		(136)		(863)		6,021		8,561			Provision (benefit)		2,481		105		523		123		(98)		(166)		(784)		2,184
Balance at September 30, 2022		$	30,263	$	16,972	$	14,809	$	24,270	$	2,567	$	7,426	$	9,408	$	105,715
Balance at March 31, 2023																		Balance at March 31, 2023		$	31,823	$	14,151	$	17,062	$	30,138	$	2,546	$	7,564	$	9,423	$	112,707


		Commercial and Industrial		Owner Occupied Commercial Real Estate		Non-Owner Occupied Commercial Real Estate		Real Estate Construction		Agricultural and Agricultural Real Estate		Residential Real Estate		Consumer		Total
Balance at June 30, 2021		$	31,332	$	19,990	$	22,828	$	19,580	$	7,160	$	9,741	$	10,095	$	120,726
Charge-offs		(106)		(119)		—		—		(195)		(22)		(725)		(1,167)
Recoveries		1,553		46		20		2		466		2		333		2,422
Provision (benefit)		(4,871)		(789)		(733)		4,116		(1,105)		(483)		(583)		(4,448)
Balance at September 30, 2021		$	27,908	$	19,128	$	22,115	$	23,698	$	6,326	$	9,238	$	9,120	$	117,533

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

																				Commercial and Industrial		Owner Occupied Commercial Real Estate		Non-Owner Occupied Commercial Real Estate		Real Estate Construction		Agricultural and Agricultural Real Estate		Residential Real Estate		Consumer		Total
Balance at December 31, 2021																		Balance at December 31, 2021		$	27,738	$	19,214	$	17,908	$	22,538	$	5,213	$	8,427	$	9,050	$	110,088

Charge-offs	Charge-offs	(1,896)		(232)		(1,637)		(10)		(870)		(113)		(2,032)		(6,790)			Charge-offs		(4,500)		—		(129)		—		(3,104)		(88)		(5,396)		(13,217)
Recoveries	Recoveries	2,111		143		33		8		487		7		826		3,615			Recoveries		206		40		33		7		453		—		284		1,023
Provision (benefit)	Provision (benefit)	(11,125)		(784)		2,846		3,620		(420)		(2,591)		(2,444)		(10,898)			Provision (benefit)		2,356		(1,279)		(1,799)		(1,148)		105		(464)		4,857		2,628
Balance at September 30, 2021		$	27,908	$	19,128	$	22,115	$	23,698	$	6,326	$	9,238	$	9,120	$	117,533
Balance at March 31, 2022																		Balance at March 31, 2022		$	25,800	$	17,975	$	16,013	$	21,397	$	2,667	$	7,875	$	8,795	$	100,522

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

Changes in the allowance for credit losses for unfunded commitments for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023, and March 31, 2022, ~~and September 30, 2021,~~ were as follows:

For the Three Months Ended September 30,
2022 2021
Balance at June 30, $ 17,780 $ 14,002
Provision (benefit) 1,104 (35)
Balance at September 30, $ 18,884 $ 13,967

For the Nine Months Ended September 30,
2022 2021
Balance at December 31, $ 15,462 $ 15,280
Provision (benefit) 3,422 (1,313)
Balance at September 30, $ 18,884 $ 13,967


	For the Three Months Ended March 31,
	2023		2022
Balance at December 31,	$	20,196	$	15,462


Provision	890		617
Balance at March 31,	$	21,086	$	16,079

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

HTLF had goodwill of $576.0 million at both ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021.~~2022. HTLF conducts its annual internal assessment of the goodwill both at the consolidated level and at its subsidiaries as of September 30. HTLF 's annual ~~quantitative~~ assessment is completed in the fourth quarter of every year as of September 30. The most recent assessment was completed in the fourth quarter of ~~2021~~2022 as of September 30, ~~2021,~~2022, and there was no goodwill impairment identified.

~~At September 30, 2022, HTLF's~~HTLF evaluated goodwill and core deposit intangibles for impairment triggering events as of March 31, 2023, and no triggering events were identified.

The gross carrying amount of other intangible assets, ~~consisted~~which consists of core deposit intangibles and mortgage servicing ~~rights. At December 31, 2021, HTLF's intangible assets consisted 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 ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, are presented in the table below, in thousands:


		September 30, 2022						December 31, 2021							March 31, 2023						December 31, 2022
		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	$	74,190	$	26,995	$	101,185	$	68,330	$	32,855	Core deposit intangibles	$	101,185	$	77,819	$	23,366	$	101,185	$	76,031	$	25,154
Customer relationship intangibles		1,177		1,177		—		1,177		1,044		133

Mortgage servicing rights	Mortgage servicing rights	14,008		5,629		8,379		12,790		6,378		6,412		Mortgage servicing rights	—		—		—		13,700		5,860		7,840
Commercial servicing rights		7,054		7,054		—		7,054		6,576		478

Total	Total	$	123,424	$	88,050	$	35,374	$	122,206	$	82,328	$	39,878	Total	$	101,185	$	77,819	$	23,366	$	114,885	$	81,891	$	32,994

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


		Core Deposit Intangibles		Mortgage Servicing Rights		Total			Core Deposit Intangibles
Three months ending December 31, 2022		$	1,841	$	147	$	1,988
Nine months ending December 31, 2023								Nine months ending December 31, 2023	$	4,951
Year ending December 31,	Year ending December 31,							Year ending December 31,
2023		6,739		2,058		8,797
2024	2024	5,591		1,764		7,355		2024	5,591
2025	2025	4,700		1,470		6,170		2025	4,700
2026	2026	3,533		1,176		4,709		2026	3,533
2027	2027	2,601		882		3,483		2027	2,601
2028								2028	1,287
Thereafter	Thereafter	1,990		882		2,872		Thereafter	703
Total	Total	$	26,995	$	8,379	$	35,374	Total	$	23,366

~~Projections~~On March 31, 2023, First Bank & Trust closed on the sale of ~~amortization expense for~~its mortgage servicing rights ~~are based~~portfolio, which contained loans with an unpaid principal balance of $698.5 million, to two unrelated third-parties. The transaction qualified as a sale, and $7.7 million of mortgage servicing rights were de-recognized on ~~existing asset balances and~~ the ~~existing interest rate environment~~consolidated balance sheet as of ~~September 30, 2022. HTLF's actual experience may be significantly different depending upon changes~~March 31, 2023. Cash of approximately $6.7 million was received on March 31, 2023, and an estimated loss of $193,000 was recorded. A receivable of approximately $746,000 was recorded in ~~mortgage interest rates~~other assets on the consolidated balance sheet as of March 31, 2023, due to the timing of the servicing transfer per the terms of the sale agreement. Pursuant to the agreement, which includes customary terms and ~~market conditions. Mortgage~~conditions, First Bank & Trust provided interim servicing of the loans ~~serviced for others were approximately $734.9 million at September 30, 2022, compared to $723.3 million at December 31, 2021.~~ until the transfer date, which was May 1, 2023.

Custodial escrow balances maintained in connection with the interim servicing of the mortgage loan servicing portfolio were approximately ~~$17.0~~$8.8 million at ~~September 30, 2022, and $4.5 million at December~~March 31, ~~2021.~~

Fees collected for the servicing of mortgage loans for others were $472,000 and $446,000 for the quarters ended September 30, 2022, and September 30, 2021, respectively. Fees collected for the servicing of mortgage loans for others were $1.4 million and $1.4 million for the nine months ended September 30, 2022, and September 30, 2021, respectively.2023.

The following table summarizes, in thousands, the changes in capitalized mortgage servicing rights for the ~~nine months ended September 30, 2022, and September 30, 2021:~~

2022 2021
Balance at January 1, $ 6,412 $ 5,189
Originations 1,218 1,055
Amortization (909) (1,029)
Valuation adjustment 1,658 586
Balance at period end $ 8,379 $ 5,801
Mortgage servicing rights, net to servicing portfolio 1.14 % 0.82 %

Mortgage 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 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 which has servicing rights 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 which has servicing rights, and a valuation adjustment is recorded into noninterest income.

At September 30, 2022, no valuation allowance was required on the mortgage servicing rights 15-year tranche, and no valuation allowance was required on the mortgage servicing rights 30-year tranche. At December 31, 2021, a $327,000 valuation allowance was required on the mortgage servicing rights 15-year tranche and a $1.3 million valuation allowance was required on the mortgage servicing rights 30-year tranche.

~~For the~~ three months ended ~~September 30, 2022,~~March 31, 2023, and September 30, 2021, a valuation adjustment benefit of $0 and $195,000, respectively, was recorded for the total mortgage servicing rights portfolio. For the nine months ended September 30, 2022, and September 30, 2021, a valuation adjustment benefit of $1.7 million and $586,000, respectively, was recorded for the total mortgage servicing rights portfolio.March 31, 2022:


	2023			2022
Balance at January 1,	$	7,840		$	6,412
Originations	24			437
Amortization	(210)			(405)

Sale of mortgage servicing rights	(7,654)			—

Valuation adjustment	—			1,658
Balance at period end	$	—		$	8,102

Mortgage servicing rights, net to servicing portfolio	—		%	1.11		%

The following table summarizes, in thousands, the book value, the fair value of each tranche of the mortgage servicing rights and any recorded valuation allowance at ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021:~~2022:

Book Value 15-Year Tranche Fair Value 15-Year Tranche Valuation Allowance
15-Year Tranche Book Value 30-Year Tranche Fair Value 30-Year Tranche Valuation Allowance
30-Year Tranche
September 30, 2022 $ 1,540 $ 1,871 $ — $ 6,839 $ 8,176 $ —
December 31, 2021 $ 1,607 $ 1,280 $ 327 $ 6,463 $ 5,132 $ 1,331


	Book Value 15-Year Tranche		Fair Value 15-Year Tranche		Valuation Allowance 15-Year Tranche		Book Value 30-Year Tranche		Fair Value 30-Year Tranche		Valuation Allowance 30-Year Tranche

March 31, 2023	$	—	$	—	$	—	$	—	$	—	$	—



December 31, 2022	$	1,388	$	1,388	$	—	$	6,452	$	6,452	$	—

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 following table presents key assumptions used to value the mortgage servicing rights as of September 30, 2022, and December 31, 2021, dollars in thousands:~~

As of
September 30, 2022 December 31, 2021
Weighted average constant prepayment rate 7.80 % 13.40 %
Weighted average discount rate 10.05 % 9.02 %
Fair value of mortgage servicing rights $ 10,047 $ 6,412

The average capitalization rate of mortgage servicing rights for the first nine months of 2022 ranged from 83 to 133 basis points compared to a range of 76 to 120 basis points for the first nine months of 2021.

NOTE 6: DERIVATIVE FINANCIAL INSTRUMENTS

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

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 the credit ratings of each counterparty. HTLF was required to pledge no cash as collateral at both September 30, 2022, and December 31, 2021. At both September 30, 2022, and December 31, 2021, no 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 7, "Fair Value," for additional fair value information and disclosures.

Cash Flow Hedges

~~During the third quarter of~~In 2021, ~~the~~two interest rate swap transactions ~~associated with Heartland Financial Statutory VI and VII~~ were terminated, and the debt was converted to variable rate subordinated debentures. In addition, HTLF had two swap transactions associated with an unaffiliated bank, one of which matured in the second quarter, and the other was terminated in the third quarter. The underlying debt with the unaffiliated bank was paid off in the third quarter of 2021. For the next twelve months, HTLF estimates ~~that~~ cash payments and reclassification from accumulated other comprehensive income (loss) to interest expense related to the terminated swaps will total ~~$733,000.~~$704,000.

~~At both September 30, 2022,~~In the first quarter of 2023, HTLF terminated its interest rate swap agreement, which effectively converted $500.0 million of variable rate loans to fixed rate loans. For the next twelve months, Heartland estimates cash payments and reclassification from accumulated other comprehensive income (loss) to interest expense will total $985,000.

The table below identifies the balance sheet category and fair value of HTLF's derivative instrument designated as a cash flow hedges at March 31, 2023 and December 31, ~~2021, HTLF had no~~2022, in thousands:


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

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



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

Fair Value Hedges

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

HTLF was required to pledge $481,000 and ~~$3.8 million~~$481,000 of cash as collateral for these fair value hedges at ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, respectively.

The table below identifies the notional amount, fair value and balance sheet category of HTLF's fair value hedges at ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, in thousands:


		Notional Amount		Fair Value		Balance Sheet Category		Notional Amount		Fair Value		Balance Sheet Category
September 30, 2022
March 31, 2023							March 31, 2023

Fair value hedges	Fair value hedges	$	1,237	$	56	Other assets	Fair value hedges	$	1,132	$	39	Other assets
December 31, 2021
December 31, 2022							December 31, 2022

Fair value hedges	Fair value hedges	$	16,755	$	(1,208)	Other liabilities	Fair value hedges	$	1,185	$	54	Other assets

The table below identifies the gains and losses recognized on HTLF's fair value hedges for the ~~three- and nine-~~three months ended ~~September 30,~~March 31, 2023, and March 31, 2022, ~~and September 30, 2021,~~ in thousands:

Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Gain recognized in interest income on fair value hedges $ 39 $ 35 $ 1,264 $ 930


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

Embedded Derivatives

HTLF has fixed rate loans with embedded derivatives. These loans contain terms that affect the cash flows or value of the loan similar to a derivative instrument, and therefore are considered to contain an embedded derivative. The embedded derivatives are bifurcated from the loans because the terms of the derivative instrument are not clearly and closely related to the loans. The embedded derivatives are recorded at fair value on the consolidated balance sheets as a part of other assets, and changes in the fair value are a component of noninterest income. The table below identifies the notional amount, fair value and balance sheet category of the embedded derivatives at ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, in thousands:


		Notional Amount		Fair Value		Balance Sheet Category		Notional Amount		Fair Value		Balance Sheet Category
September 30, 2022
March 31, 2023							March 31, 2023
Embedded derivatives	Embedded derivatives	$	6,118	$	129	Other assets	Embedded derivatives	$	5,935	$	98	Other assets

December 31, 2021
December 31, 2022							December 31, 2022
Embedded derivatives	Embedded derivatives	$	7,496	$	(317)	Other liabilities	Embedded derivatives	$	6,028	$	135	Other assets

The table below identifies the gains and losses recognized on HTLF's embedded derivatives for the ~~three- and nine-~~three months ended ~~September 30,~~March 31, 2023, and March 31, 2022, ~~and September 30, 2021,~~ in thousands:

Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Gain (loss) recognized in other noninterest income on embedded derivatives $ 121 $ (66) $ 446 $ (249)


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

Back-to-Back Loan Swaps

HTLF has interest rate swap loan relationships with customers to assist them in managing their interest rate risk. Upon entering into these loan swaps, HTLF enters into offsetting positions with counterparties in order to minimize interest rate risk. These back-to-back loan swaps qualify as free standing financial derivatives with the fair values reported in other assets and other liabilities on the consolidated balance sheets. HTLF was required to post ~~$101,000~~$103,000 of collateral at ~~September 30, 2022,~~March 31, 2023, compared to ~~$24.1 million~~$312,000 as of December 31, ~~2021, respectively, as collateral~~2022, related to these back-to-back swaps. HTLF's counterparties were required to pledge ~~$44.7~~$33.8 million at ~~September 30, 2022,~~March 31, 2023, compared to $0$45.1 million at December 31, ~~2021.~~2022. Any gains and losses on these back-to-back swaps are recorded in noninterest income on the consolidated statements of income, and for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023, and March 31, 2022, ~~and September 30, 2021,~~ no gain or loss was recognized. The table below identifies the balance sheet category and fair values of the derivative instruments designated as loan swaps at ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, 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
September 30, 2022
March 31, 2023											March 31, 2023
Customer interest rate swaps	Customer interest rate swaps	$	740,620	$	48,708	Other assets	4.16	%	5.83	%	Customer interest rate swaps	$	1,017,539	$	27,805	Other assets	4.14	%	6.97	%
Customer interest rate swaps	Customer interest rate swaps	740,620		(48,708)		Other liabilities	5.83		4.16		Customer interest rate swaps	1,017,539		(27,805)		Other liabilities	6.97		4.14
December 31, 2021
December 31, 2022											December 31, 2022
Customer interest rate swaps	Customer interest rate swaps	$	463,069	$	23,574	Other assets	4.44	%	2.35	%	Customer interest rate swaps	$	819,662	$	46,091	Other assets	4.23	%	6.76	%
Customer interest rate swaps	Customer interest rate swaps	463,069		(23,574)		Other liabilities	2.35		4.44		Customer interest rate swaps	819,662		(46,091)		Other liabilities	6.76		4.23

Other Free Standing Derivatives

HTLF has entered into interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans and mortgage backed securities that are considered derivative instruments. HTLF enters into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into and to economically hedge the effect of future changes in interest rates on the commitments to fund the loans as well as on residential mortgage loans available for sale. The fair value of these commitments is recorded on the consolidated balance sheets, with the changes in fair value recorded in the consolidated statements of income as a component of gains on sale of loans held for sale. These derivative contracts are designated as free standing derivative contracts and are not designated against specific assets and liabilities on the consolidated balance sheets or forecasted transactions and therefore do not qualify for hedge accounting treatment. HTLF was required to pledge no collateral at both ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021.~~2022. HTLF's counterparties were required to pledge no collateral at both ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, as collateral for these forward commitments.

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

The table below identifies the balance sheet category and fair values of HTLF's other free standing derivative instruments not designated as hedging instruments at ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, in thousands:


		Balance Sheet Category	Notional Amount		Fair Value			Balance Sheet Category	Notional Amount		Fair Value
September 30, 2022
March 31, 2023							March 31, 2023
Interest rate lock commitments (mortgage)	Interest rate lock commitments (mortgage)	Other assets	$	20,476	$	231	Interest rate lock commitments (mortgage)	Other assets	$	15,717	$	449

Forward commitments	Forward commitments	Other assets	24,750		829		Forward commitments	Other assets	21,000		241
Forward commitments	Forward commitments	Other liabilities	2,000		(11)		Forward commitments	Other liabilities	4,150		(21)
Undesignated interest rate swaps	Undesignated interest rate swaps	Other liabilities	6,118		(129)		Undesignated interest rate swaps	Other liabilities	5,935		(98)

December 31, 2021
December 31, 2022							December 31, 2022
Interest rate lock commitments (mortgage)	Interest rate lock commitments (mortgage)	Other assets	$	37,046	$	1,306	Interest rate lock commitments (mortgage)	Other assets	$	9,340	$	174

Forward commitments	Forward commitments	Other assets	19,000		32		Forward commitments	Other assets	6,400		47
Forward commitments	Forward commitments	Other liabilities	35,500		(95)		Forward commitments	Other liabilities	5,750		(99)
Undesignated interest rate swaps	Undesignated interest rate swaps	Other assets	7,496		317		Undesignated interest rate swaps	Other liabilities	6,028		(135)

HTLF recognizes gains and losses on other free standing derivatives in two separate income statement categories. Interest rate lock commitments and forward commitments are recognized in net gains on sale of loans held for sale and undesignated interest rate swaps are recognized in other noninterest income. The table below identifies the gains and losses recognized in income on HTLF's other free standing derivative instruments not designated as hedging instruments for the ~~three- and nine-~~three months ended ~~September 30,~~March 31, 2023, and March 31, 2022, ~~and September 30, 2021,~~ in thousands:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021				2023		2022
Interest rate lock commitments (mortgage)	Interest rate lock commitments (mortgage)	$	(1,337)	$	(189)	$	(2,009)	$	(1,924)	Interest rate lock commitments (mortgage)		$	410	$	(1,195)

Forward commitments	Forward commitments	813		413		881		916		Forward commitments		272		1,036
Undesignated interest rate swaps	Undesignated interest rate swaps	(121)		66		(446)		249		Undesignated interest rate swaps		37		(225)

NOTE 7: FAIR VALUE

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

Fair Value Hierarchy

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

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

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

Level 3 — Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value on a recurring or non-recurring basis.

Securities Available for Sale and Held to Maturity

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

Equity Securities with a Readily Determinable Fair Value

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

Loans Held for Sale

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

Loans Held to Maturity

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

Premises, Furniture and Equipment Held for Sale

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

Mortgage Servicing Rights

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

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

Derivative Financial Instruments

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

Although HTLF has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of ~~September 30, 2022,~~March 31, 2023, and

December 31, ~~2021,~~2022, HTLF has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, HTLF has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Interest rate lock commitments

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

Forward commitments

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

Other Real Estate Owned

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

The table below presents HTLF's assets and liabilities that are measured at fair value on a recurring basis as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, in thousands, aggregated by the level in the fair value hierarchy within which those measurements fall:


		Total Fair Value		Level 1		Level 2		Level 3			Total Fair Value		Level 1		Level 2		Level 3
September 30, 2022
March 31, 2023										March 31, 2023
Assets	Assets									Assets

Securities available for sale	Securities available for sale									Securities available for sale
U.S. treasuries	U.S. treasuries	$	26,737	$	26,737	$	—	$	—	U.S. treasuries	$	31,932	$	31,932	$	—	$	—
U.S. agencies	U.S. agencies	43,000		—		43,000		—		U.S. agencies	43,584		—		43,584		—
Obligations of states and political subdivisions	Obligations of states and political subdivisions	834,623		—		834,623		—		Obligations of states and political subdivisions	887,922		—		887,922		—
Mortgage-backed securities - agency	Mortgage-backed securities - agency	1,828,276		—		1,828,276		—		Mortgage-backed securities - agency	1,757,469		—		1,757,469		—
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	2,122,859		—		2,122,859		—		Mortgage-backed securities - non-agency	2,117,882		—		2,117,882		—
Commercial mortgage-backed securities - agency	Commercial mortgage-backed securities - agency	86,148		—		86,148		—		Commercial mortgage-backed securities - agency	86,022		—		86,022		—
Commercial mortgage-backed securities - non-agency	Commercial mortgage-backed securities - non-agency	689,675		—		689,675		—		Commercial mortgage-backed securities - non-agency	657,874		—		657,874		—
Asset-backed securities	Asset-backed securities	400,032		—		400,032		—		Asset-backed securities	435,523		—		435,523		—
Corporate bonds	Corporate bonds	8,423		—		8,423		—		Corporate bonds	57,845		—		57,845		—
Equity securities with a readily determinable fair value	Equity securities with a readily determinable fair value	20,258		—		20,258		—		Equity securities with a readily determinable fair value	20,604		—		20,604		—
Derivative financial instruments(1)	Derivative financial instruments(1)	48,893		—		48,893		—		Derivative financial instruments(1)	27,942		—		27,942		—
Interest rate lock commitments	Interest rate lock commitments	231		—		—		231		Interest rate lock commitments	449		—		—		449
Forward commitments	Forward commitments	829		—		829		—		Forward commitments	241		—		241		—
Total assets at fair value	Total assets at fair value	$	6,109,984	$	26,737	$	6,083,016	$	231	Total assets at fair value	$	6,125,289	$	31,932	$	6,092,908	$	449
Liabilities	Liabilities									Liabilities
Derivative financial instruments(2)	Derivative financial instruments(2)	$	48,837	$	—	$	48,837	$	—	Derivative financial instruments(2)	$	27,903	$	—	$	27,903	$	—
Forward commitments	Forward commitments	11		—		11		—		Forward commitments	21		—		21		—

Total liabilities at fair value	Total liabilities at fair value	$	48,848	$	—	$	48,848	$	—	Total liabilities at fair value	$	27,924	$	—	$	27,924	$	—
December 31, 2021
December 31, 2022										December 31, 2022
Assets	Assets									Assets

Securities available for sale	Securities available for sale									Securities available for sale
U.S. treasuries	U.S. treasuries	$	1,008	$	1,008	$	—	$	—	U.S. treasuries	$	31,699	$	31,699	$	—	$	—
U.S. agencies	U.S. agencies	193,384		—		193,384		—		U.S. agencies	43,135		—		43,135		—
Obligations of states and political subdivisions	Obligations of states and political subdivisions	2,085,033		—		2,085,033		—		Obligations of states and political subdivisions	879,437		—		879,437		—
Mortgage-backed securities - agency	Mortgage-backed securities - agency	2,349,289		—		2,349,289		—		Mortgage-backed securities - agency	1,772,105		—		1,772,105		—
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	1,743,379		—		1,743,379		—		Mortgage-backed securities - non-agency	2,181,876		—		2,181,876		—
Commercial mortgage-backed securities - agency	Commercial mortgage-backed securities - agency	123,912		—		123,912		—		Commercial mortgage-backed securities - agency	85,123		—		85,123		—
Commercial mortgage-backed securities - non-agency	Commercial mortgage-backed securities - non-agency	600,888		—		600,888		—		Commercial mortgage-backed securities - non-agency	659,459		—		659,459		—
Asset-backed securities	Asset-backed securities	409,653		—		409,653		—		Asset-backed securities	416,054		—		416,054		—
Corporate bonds	Corporate bonds	3,040		—		3,040		—		Corporate bonds	57,942		—		57,942		—
Equity securities with a readily determinable fair value	Equity securities with a readily determinable fair value	20,788		—		20,788		—		Equity securities with a readily determinable fair value	20,314		—		20,314		—
Derivative financial instruments(2)	Derivative financial instruments(2)	23,891		—		23,891		—		Derivative financial instruments(2)	46,293		—		46,293		—
Interest rate lock commitments	Interest rate lock commitments	1,306		—		—		1,306		Interest rate lock commitments	174		—		—		174
Forward commitments	Forward commitments	32		—		32		—		Forward commitments	47		—		47		—
Total assets at fair value	Total assets at fair value	$	7,555,603	$	1,008	$	7,553,289	$	1,306	Total assets at fair value	$	6,193,658	$	31,699	$	6,161,785	$	174
Liabilities	Liabilities									Liabilities
Derivative financial instruments(1)	Derivative financial instruments(1)	$	25,099	$	—	$	25,099	$	—	Derivative financial instruments(1)	$	46,226	$	—	$	46,226	$	—
Forward commitments	Forward commitments	95		—		95		—		Forward commitments	99		—		99		—

Total liabilities at fair value	Total liabilities at fair value	$	25,194	$	—	$	25,194	$	—	Total liabilities at fair value	$	46,325	$	—	$	46,325	$	—

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

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


		Fair Value Measurements at September 30, 2022											Fair Value Measurements at March 31, 2023
		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Year-to- Date (Gains) Losses			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	$	14,436	$	—	$	—	$	14,436	$	4,158	Commercial and industrial	$	10,810	$	—	$	—	$	10,810	$	—
Owner occupied commercial real estate	Owner occupied commercial real estate	8,486		—		—		8,486		129		Owner occupied commercial real estate	7,408		—		—		7,408		—
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	11,643		—		—		11,643		—		Non-owner occupied commercial real estate	10,983		—		—		10,983		—
Real estate construction	Real estate construction	1,547		—		—		1,547		—		Real estate construction	1,498		—		—		1,498		—
Agricultural and agricultural real estate	Agricultural and agricultural real estate	6,215		—		—		6,215		533		Agricultural and agricultural real estate	5,053		—		—		5,053		—
Residential real estate	Residential real estate	1,622		—		—		1,622		—		Residential real estate	788		—		—		788		—

Total collateral dependent individually assessed loans	Total collateral dependent individually assessed loans	$	43,949	$	—	$	—	$	43,949	$	4,820	Total collateral dependent individually assessed loans	$	36,540	$	—	$	—	$	36,540	$	—
Loans held for sale	Loans held for sale	$	9,570	$	—	$	9,570	$	—	$	121	Loans held for sale	$	10,425	$	—	$	10,425	$	—	$	(251)
Other real estate owned	Other real estate owned	8,030		—		—		8,030		224		Other real estate owned	7,438		—		—		7,438		36
Premises, furniture and equipment held for sale	Premises, furniture and equipment held for sale	8,796		—		—		8,796		163		Premises, furniture and equipment held for sale	4,399		—		—		4,399		759


		Fair Value Measurements at December 31, 2021											Fair Value Measurements at December 31, 2022
		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Year-to- Date (Gains) Losses			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	$	8,989	$	—	$	—	$	8,989	$	275	Commercial and industrial	$	12,042	$	—	$	—	$	12,042	$	4,186
Owner occupied commercial real estate	Owner occupied commercial real estate	8,447		—		—		8,447		—		Owner occupied commercial real estate	7,556		—		—		7,556		—
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	11,946		—		—		11,946		1,637		Non-owner occupied commercial real estate	11,371		—		—		11,371		—

Real estate construction												Real estate construction	1,518		—		—		1,518		—
Agricultural and agricultural real estate	Agricultural and agricultural real estate	11,404		—		—		11,404		372		Agricultural and agricultural real estate	3,788		—		—		3,788		—
Residential real estate	Residential real estate	855		—		—		855		—		Residential real estate	1,607		—		—		1,607		—

Total collateral dependent individually assessed loans	Total collateral dependent individually assessed loans	$	41,641	$	—	$	—	$	41,641	$	2,284	Total collateral dependent individually assessed loans	$	37,882	$	—	$	—	$	37,882	$	4,186
Loans held for sale	Loans held for sale	$	21,640	$	—	$	21,640	$	—	$	(813)	Loans held for sale	$	5,277	$	—	$	5,277	$	—	$	(116)

Other real estate owned	Other real estate owned	1,927		—		—		1,927		686		Other real estate owned	8,401		—		—		8,401		180
Premises, furniture and equipment held for sale	Premises, furniture and equipment held for sale	10,828		—		—		10,828		241		Premises, furniture and equipment held for sale	6,851		—		—		6,851		1,562
Servicing rights	Servicing rights	6,890		—		—		6,890		(1,088)		Servicing rights	7,840		—		—		7,840		516

The following tables present additional quantitative information about assets measured at fair value on a recurring and nonrecurring basis and for which HTLF has utilized Level 3 inputs to determine fair value, in thousands:

Fair Value at
9/30/2022

Valuation
Technique

Unobservable
Input

Range (Weighted
Average)

Fair Value at
3/31/2023

Valuation
Technique

Unobservable
Input

Range (Weighted
Average)

Interest rate lock commitments

231

Discounted cash flows

Closing ratio

0-99% (88%)(1)

Interest rate lock commitments

449

Discounted cash flows

Closing ratio

0-99% (88%)(1)

Other real estate owned

8,030

Modified appraised value

Third party appraisal

(2)

Other real estate owned

7,438

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Appraisal discount

0-10%(3)

Premises, furniture and equipment held for sale

8,796

Modified appraised value

Third party appraisal

(2)

Premises, furniture and equipment held for sale

4,399

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Appraisal discount

0-10%(3)

Collateral dependent individually assessed loans:

Commercial

14,436

Modified appraised value

Third party appraisal

(2)

Commercial

10,810

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Appraisal discount

0-15%(3)

Owner occupied commercial real estate

8,486

Modified appraised value

Third party appraisal

(2)

Owner occupied commercial real estate

7,408

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-7%(3)

Appraisal discount

0-13%(3)

Non-owner occupied commercial real estate

11,643

Modified appraised value

Third party appraisal

(2)

Non-owner occupied commercial real estate

10,983

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Appraisal discount

0-10%(3)

Real estate construction

1,547

Modified appraised value

Third party appraisal

(2)

Real estate construction

1,498

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Appraisal discount

0-10%(3)

Agricultural and agricultural real estate

6,215

Modified appraised value

Third party appraisal

(2)

Agricultural and agricultural real estate

5,053

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-6%(3)

Appraisal discount

0-15%(3)

Residential real estate

1,622

Modified appraised value

Third party appraisal

(2)

Residential real estate

788

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-7%(3)

Appraisal discount

0-10%(3)

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

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

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

Fair Value at 12/31/2021

Valuation
Technique

Unobservable
Input

Range (Weighted Average)

Fair Value at 12/31/2022

Valuation
Technique

Unobservable
Input

Range (Weighted Average)

Interest rate lock commitments

1,306

Discounted cash flows

Closing ratio

0-99% (88%)(1)

Interest rate lock commitments

174

Discounted cash flows

Closing ratio

0-99% (88%)(1)

Other real estate owned

1,927

Modified appraised value

Third party appraisal

(2)

Other real estate owned

8,401

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Appraisal discount

0-10%(3)

Servicing rights

6,890

Discounted cash flows

Discount rate

9 - 11% (9.02%)(4)

Servicing rights

7,840

Discounted cash flows

Discount rate

9.98 - 11.72% (10.02%)(4)

Constant prepayment rate

13.1 - 18.6% (13.4%)(4)

Constant prepayment rate

7.8 - 14.2% (7.9%)(4)

Premises, furniture and equipment held for sale

10,828

Modified appraised value

Third party appraisal

(2)

Premises, furniture and equipment held for sale

6,851

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Appraisal discount

0-10%(3)

Collateral dependent individually assessed loans:

Commercial and industrial

8,989

Modified appraised value

Third party appraisal

(2)

Commercial and industrial

12,042

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-6%(3)

Appraisal discount

0-10%(3)

Owner occupied commercial real estate

8,447

Modified appraised value

Third party appraisal

(2)

Owner occupied commercial real estate

7,556

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-7%(3)

Appraisal discount

0-10%(3)

Non-owner occupied commercial real estate

11,946

Modified appraised value

Third party appraisal

(2)

Non-owner occupied commercial real estate

11,371

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Appraisal discount

0-10%(3)

Real estate construction

1,518

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Agricultural and agricultural real estate

11,404

Modified appraised value

Third party appraisal

(2)

Agricultural and agricultural real estate

3,788

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-7%(3)

Appraisal discount

0-15%(3)

Residential real estate

855

Modified appraised value

Third party appraisal

(2)

Residential real estate

1,607

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-7%(3)

Appraisal discount

0-10%(3)

(4) The significant unobservable input used in the discounted cash flow analysis are the discount rate and constant prepayment rate.

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 Nine Months Ended September 30, 2022		For the Year Ended December 31, 2021			For the Three Months Ended March 31, 2023		For the Year Ended December 31, 2022
Balance at January 1,	Balance at January 1,	$	1,306	$	1,827	Balance at January 1,	$	174	$	1,306

Total net gains included in earnings	Total net gains included in earnings	(2,009)		(2,345)		Total net gains included in earnings	410		(1,828)
Issuances	Issuances	3,640		15,403		Issuances	516		3,683
Settlements	Settlements	(2,706)		(13,579)		Settlements	(651)		(2,987)
Balance at period end	Balance at period end	$	231	$	1,306	Balance at period end	$	449	$	174

Gains included in gains (losses) on sale of loans held for sale attributable to interest rate lock commitments held at ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, were ~~$231,000~~$449,000 and ~~$1.3 million,~~$174,000, respectively.

The table below is a summary of the estimated fair value of HTLF's financial instruments (as defined by ASC 825) as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, in thousands. The carrying amounts in the following tables are recorded in the consolidated balance sheets under the indicated captions. In accordance with ASC 825, the assets and liabilities that are not financial instruments are not included in the disclosure, including the value of the commercial and mortgage servicing rights, premises, furniture and equipment, premises, furniture and equipment held for sale, OREO, goodwill, and other intangibles and other liabilities.

HTLF does not believe that the estimated information presented herein is representative of the earnings power or value of HTLF. The following analysis, which is inherently limited in depicting fair value, also does not consider any value associated with either existing customer relationships or the ability of HTLF to create value through loan origination, deposit gathering or fee generating activities. Many of the estimates presented herein are based upon the use of highly subjective information and assumptions and, accordingly, the results may not be precise. Management believes that fair value estimates may not be comparable between financial institutions due to the wide range of permitted valuation techniques and numerous estimates which must be made. Furthermore, because the disclosed fair value amounts were estimated as of the balance sheet date, the amounts actually realized or paid upon maturity or settlement of the various financial instruments could be significantly different.


						Fair Value Measurements at September 30, 2022											Fair Value Measurements at March 31, 2023
		Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			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:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	399,860	$	399,860	$	399,860	$	—	$	—	Cash and cash equivalents	$	362,111	$	362,111	$	362,111	$	—	$	—
Time deposits in other financial institutions	Time deposits in other financial institutions	1,740		1,740		1,740		—		—		Time deposits in other financial institutions	1,740		1,740		1,740		—		—
Securities:	Securities:											Securities:

Carried at fair value	Carried at fair value	6,060,331		6,060,031		26,737		6,033,294		—		Carried at fair value	6,096,657		6,096,657		31,932		6,064,725		—
Held to maturity	Held to maturity	830,247		782,805		—		782,805		—		Held to maturity	832,098		815,672		—		815,672		—
Other investments	Other investments	80,286		80,286		—		80,286		—		Other investments	72,364		72,364		—		72,364		—
Loans held for sale	Loans held for sale	9,570		9,570		—		9,570		—		Loans held for sale	10,425		10,425		—		10,425		—
Loans, net:	Loans, net:											Loans, net:
Commercial and industrial	Commercial and industrial	3,248,440		3,131,766		—		3,117,330		14,436		Commercial and industrial	3,466,522		3,286,723		—		3,275,913		10,810
PPP	PPP	13,506		13,506		—		13,506		—		PPP	8,258		8,258		—		8,258		—
Owner occupied commercial real estate	Owner occupied commercial real estate	2,269,001		2,148,135		—		2,139,649		8,486		Owner occupied commercial real estate	2,298,387		2,112,314		—		2,104,906		7,408
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	2,204,733		2,112,901		—		2,101,258		11,643		Non-owner occupied commercial real estate	2,404,279		2,265,664		—		2,254,681		10,983
Real estate construction	Real estate construction	971,747		968,343		—		966,796		1,547		Real estate construction	1,072,048		1,065,497		—		1,063,999		1,498
Agricultural and agricultural real estate	Agricultural and agricultural real estate	778,787		728,514		—		722,299		6,215		Agricultural and agricultural real estate	807,637		735,491		—		730,438		5,053
Residential real estate	Residential real estate	845,502		810,833		—		809,211		1,622		Residential real estate	833,520		718,281		—		717,493		788
Consumer	Consumer	486,101		480,968		—		480,968		—		Consumer	491,995		474,398		—		474,398		—
Total Loans, net	Total Loans, net	10,817,817		10,394,966		—		10,351,017		43,949		Total Loans, net	11,382,646		10,666,626		—		10,630,086		36,540
Cash surrender value on life insurance	Cash surrender value on life insurance	193,184		193,184		—		193,184		—		Cash surrender value on life insurance	194,419		194,419		—		194,419		—
Derivative financial instruments(1)	Derivative financial instruments(1)	48,893		48,893		—		48,893		—		Derivative financial instruments(1)	27,942		27,942		—		27,942		—
Interest rate lock commitments	Interest rate lock commitments	231		231		—		—		231		Interest rate lock commitments	449		449		—		—		449
Forward commitments	Forward commitments	829		829		—		829		—		Forward commitments	241		241		—		241		—
Financial liabilities:	Financial liabilities:											Financial liabilities:
Deposits	Deposits											Deposits
Demand deposits	Demand deposits	6,083,563		6,083,563		—		6,083,563		—		Demand deposits	5,119,554		5,119,554		—		5,119,554		—
Savings deposits	Savings deposits	10,060,523		10,060,523		—		10,060,523		—		Savings deposits	9,256,609		9,256,609		—		9,256,609		—
Time deposits	Time deposits	1,123,035		1,123,035		—		1,123,035		—		Time deposits	3,305,183		3,305,183		—		3,305,183		—

Short term borrowings	Short term borrowings	147,000		147,000		—		147,000		—		Short term borrowings	92,337		92,337		—		92,337		—
Other borrowings	Other borrowings	371,446		372,308		—		372,308		—		Other borrowings	372,097		373,923		—		373,923		—
Derivative financial instruments(2)	Derivative financial instruments(2)	48,837		48,837		—		48,837		—		Derivative financial instruments(2)	27,903		27,903		—		27,903		—
Forward commitments	Forward commitments	11		11		—		11		—		Forward commitments	21		21		—		21		—

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


						Fair Value Measurements at December 31, 2021											Fair Value Measurements at December 31, 2022
		Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			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:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	435,599	$	435,599	$	435,599	$	—	$	—	Cash and cash equivalents	$	363,087	$	363,087	$	363,087	$	—	$	—
Time deposits in other financial institutions	Time deposits in other financial institutions	2,894		2,894		2,894		—		—		Time deposits in other financial institutions	1,740		1,740		1,740		—		—
Securities:	Securities:											Securities:

Carried at fair value	Carried at fair value	7,530,374		7,530,374		1,008		7,529,366		—		Carried at fair value	6,147,144		6,147,144		31,699		6,115,445		—
Held to maturity	Held to maturity	84,709		94,139		—		94,139		—		Held to maturity	829,403		776,557		—		776,557		—
Other investments	Other investments	82,567		82,567		—		82,567		—		Other investments	74,567		74,567		—		74,567		—
Loans held for sale	Loans held for sale	21,640		21,640		—		21,640		—		Loans held for sale	5,277		5,277		—		5,277		—
Loans, net:	Loans, net:											Loans, net:
Commercial and industrial	Commercial and industrial	2,617,347		2,603,001		—		2,594,012		8,989		Commercial and industrial	3,435,343		3,270,127		—		3,258,085		12,042
PPP	PPP	199,883		199,883		—		199,883		—		PPP	11,025		11,025		—		11,025		—
Owner occupied commercial real estate	Owner occupied commercial real estate	2,221,120		2,222,030		—		2,213,583		8,447		Owner occupied commercial real estate	2,251,359		2,084,665		—		2,077,109		7,556
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	1,992,683		1,998,161		—		1,986,215		11,946		Non-owner occupied commercial real estate	2,314,401		2,184,796		—		2,173,425		11,371
Real estate construction	Real estate construction	833,581		844,578		—		844,578		—		Real estate construction	1,046,084		1,039,244		—		1,037,726		1,518
Agricultural and agricultural real estate	Agricultural and agricultural real estate	748,540		749,238		—		737,834		11,404		Agricultural and agricultural real estate	917,876		842,637		—		838,849		3,788
Residential real estate	Residential real estate	820,856		819,178		—		818,323		855		Residential real estate	845,650		741,325		—		739,718		1,607
Consumer	Consumer	410,474		415,487		—		415,487		—		Consumer	497,131		480,018		—		480,018		—
Total Loans, net	Total Loans, net	9,844,484		9,851,556		—		9,809,915		41,641		Total Loans, net	11,318,869		10,653,837		—		10,615,955		37,882
Cash surrender value on life insurance	Cash surrender value on life insurance	191,722		191,722		—		191,722		—		Cash surrender value on life insurance	193,403		193,403		—		193,403		—
Derivative financial instruments(1)	Derivative financial instruments(1)	23,891		23,891		—		23,891		—		Derivative financial instruments(1)	46,293		46,293		—		46,293		—
Interest rate lock commitments	Interest rate lock commitments	1,306		1,306		—		—		1,306		Interest rate lock commitments	174		174		—		—		174
Forward commitments	Forward commitments	32		32		—		32		—		Forward commitments	47		47		—		47		—
Financial liabilities:	Financial liabilities:											Financial liabilities:
Deposits	Deposits											Deposits
Demand deposits	Demand deposits	6,495,326		6,495,326		—		6,495,326		—		Demand deposits	5,701,340		5,701,340		—		5,701,340		—
Savings deposits	Savings deposits	8,897,909		8,897,909		—		8,897,909		—		Savings deposits	9,994,391		9,994,391		—		9,994,391		—
Time deposits	Time deposits	1,024,020		1,024,020		—		1,024,020		—		Time deposits	1,817,278		1,817,278		—		1,817,278		—

Short term borrowings	Short term borrowings	131,597		131,597		—		131,597		—		Short term borrowings	376,117		376,117		—		376,117		—
Other borrowings	Other borrowings	372,072		373,194		—		373,194		—		Other borrowings	371,753		372,473		—		372,473		—
Derivative financial instruments(1)	Derivative financial instruments(1)	25,099		25,099		—		25,099		—		Derivative financial instruments(1)	46,226		46,226		—		46,226		—
Forward commitments	Forward commitments	95		95		—		95		—		Forward commitments	99		99		—		99		—

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

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

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

Securities — For equity securities with a readily determinable fair value and debt securities either held to maturity, available for sale or trading, fair value equals quoted market price if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. For Level 3 securities, HTLF utilizes independent pricing provided by third party vendors or brokers.

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

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

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

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

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

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

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

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

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

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

NOTE 8: STOCK COMPENSATION

HTLF may grant, through its Compensation, Nominating and Corporate Governance Committee (the "Compensation Committee"), non-qualified and incentive stock options, stock appreciation rights, stock awards, restricted stock, restricted stock units and cash incentive awards, under its 2020 Long-Term Incentive Plan (the "Plan"). The Plan has 1,460,000 shares of common stock authorized for issuance. As of ~~September 30, 2022, 954,256~~March 31, 2023, 789,565 shares of common stock were available for issuance under future awards that may be granted under the Plan to employees and directors of, and service providers to, HTLF or its subsidiaries.

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

HTLF's income tax expense included ~~$129,000~~$46,000 of tax benefit during the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, and a tax benefit of ~~$304,000~~$172,000 during the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, related to the exercise, vesting and forfeiture of equity-based awards.

Restricted Stock Units

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

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

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

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

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

A summary of the RSUs outstanding as of ~~September 30,~~March 31, 2023, and March 31, 2022, ~~and September 30, 2021,~~ and changes during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ follows:


		2022			2021				2023			2022
		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,	389,885	$	44.19	348,275	$	38.22	Outstanding at January 1,	424,086	$	46.15	389,885	$	44.19
Granted	Granted	238,495	48.41		214,943	51.49		Granted	198,562	50.75		178,611	50.20
Vested	Vested	(158,702)	45.04		(146,864)	40.87		Vested	(125,870)	42.15		(125,343)	43.85
Forfeited	Forfeited	(27,316)	46.69		(24,088)	42.98		Forfeited	(21,338)	42.40		(12,656)	45.70
Outstanding at September 30,		442,362	$	46.01	392,266	$	44.14
Outstanding at March 31,								Outstanding at March 31,	475,440	$	49.30	430,497	$	46.74

Total compensation costs recorded for RSUs were ~~$7.4~~$4.7 million and ~~$6.7~~$2.7 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. As of ~~September 30, 2022,~~March 31, 2023, there were ~~$10.8~~$14.0 million of total unrecognized compensation costs related to the Plan for RSUs that are expected to be recognized through ~~2025.~~2026.

Stock Options

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

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

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


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

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

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

SAFE HARBOR STATEMENT

This Quarterly Report on Form 10-Q (including any information incorporated herein by reference) contains, and future oral and written statements of Heartland Financial USA, Inc. ("HTLF") and its management may contain, forward-looking statements within the meaning of such term in Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") with respect to the business, financial condition, results of operations, plans, objectives and future performance of HTLF.

Any statements about HTLF's expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. Forward-looking statements may include information about possible or assumed future results of HTLF's operations or performance, and may be based upon beliefs, expectations and assumptions of HTLF's management. These forward-looking statements are generally ~~identified~~identifiable by the use of words such as "believe," "expect," "anticipate," "plan," "intend," "estimate," "project," "may," "will," "would," "could," "should," "view," "opportunity," ~~"potential"~~"potential," or other similar ~~or negative expressions of these words or phrases.~~expressions. 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~~HTLF to predict results or the actual effect or outcomes of plans or strategies is inherently uncertain, and there may be events or factors that management has not anticipated. Therefore, the accuracy and achievement of such forward-looking statements and estimates are subject to a number of risks, many of which are beyond the ability of management to control or predict, that could cause actual results to differ materially from those in its forward-looking statements. These factors, which ~~the company~~HTLF currently believes could have a material adverse effect on its operations and future prospects are detailed in the "Risk Factors" section include, among others, those described below and in the risk factors in HTLF's reports filed with the Securities and Exchange Commission ("SEC"), including the "Risk Factors" section under Item 1A of Part I of the company’s Annual Report on Form 10-K for the year ended December 31, ~~2021:~~

•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;2022:

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

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

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

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

•Strategic and External Risks, including economic, political, and competitive forces impacting our ~~business and strategic acquisition risks;~~business;

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

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

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

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, income and expenses. These estimates are based upon historical experience and on various other assumptions that management believes are reasonable under the circumstances. Among other things, the estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The estimates and judgments that management believes have the most effect on HTLF's reported financial position and results of operations are described as critical accounting policies in the company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. There have

been no significant changes in the critical accounting estimates or the assumptions and judgments utilized in applying these estimates since December 31, ~~2021.~~2022.

OVERVIEW

Heartland Financial USA, Inc. is a ~~financial services~~bank holding company operating under the brand name "HTLF". HTLF's independently branded and chartered banks (referred to herein collectively as the "Banks", "Bank Markets") serve communities in Arizona, California, Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Montana, New Mexico, Texas and Wisconsin. HTLF is committed to its core commercial business supported by a strong retail operation and provides a diversified line of financial services and products including treasury management, commercial credit cards, wealth management, investments and residential mortgages. As of ~~September 30, 2022,~~March 31, 2023, HTLF had ~~nine banking subsidiaries~~six Banks operating under 11 local bank brands through a total of ~~121~~119 locations.

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

HTLF Response to Recent Banking Industry Disruptions

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

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

•Increased deposit pricing to address highly competitive deposit environment,

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

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

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

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

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

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

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

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

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

As of March 31, 2023:

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

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

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

Overview of First Quarter 2023 Results

HTLF reported the following results for the quarter ended ~~September 30, 2022,~~March 31, 2023, compared to the quarter ended ~~September 30, 2021:~~March 31, 2022:

•net income available to common stockholders of ~~$54.6~~$50.8 million compared to ~~$53.9~~$41.1 million, an increase of ~~$640,000~~$9.7 million or 1%24%,

•earnings per diluted common share of ~~$1.28~~$1.19 compared to ~~$1.27,~~$0.97, an increase of ~~$0.01~~$0.22 or 1%23%,

•net interest income of ~~$155.9~~$152.2 million compared to ~~$142.6~~$134.7 million, an increase of ~~$13.3~~$17.5 million or 9%13%,

•return on average assets was ~~1.13%~~1.06% compared to ~~1.19%~~0.91%,

•return on average common equity was ~~12.93%~~12.43% compared to ~~10.32%~~8.32%, and

•return on average tangible common equity (non-GAAP) was ~~20.76%~~20.05% compared to ~~15.14%~~12.41%.

During the first quarter of 2023, HTLF ~~reported~~reclassified swap and loan syndication income (collectively, "capital markets fees") to capital markets fees from other noninterest income on the ~~following results for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021:~~

•~~net~~consolidated statements of income, ~~available to common stockholders of $145.5 million compared to $164.3 million, a decrease of $18.8 million or 11%,~~

•~~earnings per diluted common share of $3.42 compared to $3.88, a decrease of $0.46 or 12%,~~

•~~net interest income of $433.0 million compared to $423.4 million, an increase of $9.7 million or 2%,~~

•~~return on average assets was 1.04% compared to 1.25%,~~

•~~return on average common equity was 10.80% compared to 10.95%,~~ and

•~~return on average tangible common equity (non-GAAP) was 16.79% compared to 16.34%,~~ all prior periods have been adjusted.

For the ~~third~~first quarter of ~~2022,~~2023, net interest margin was ~~3.41% (3.45%~~3.36% (3.40% on a fully tax-equivalent basis, non-GAAP), which compares to ~~3.30% (3.34%~~3.61% (3.65% on a fully tax-equivalent basis, non-GAAP) for the ~~third~~fourth quarter of ~~2021. For the first nine months of~~ 2022, ~~net interest margin was 3.22% (3.27%~~and 3.08% (3.12% on a fully tax-equivalent basis, non-GAAP) ~~which compares~~for the first quarter of 2022.

The efficiency ratio was 60.94% (57.16% on an adjusted fully tax-equivalent basis, non-GAAP) for the first quarter of 2023 compared to ~~3.37% (3.41%~~65.46% (64.65% on ~~a fully tax~~an adjusted fully-tax equivalent basis, non-GAAP) for the ~~first nine months of 2021.~~

~~The efficiency ratio on a fully tax-equivalent basis (non-GAAP) was 55.26% for the third quarter of 2022 compared to 60.38% for the~~ same quarter of ~~2021. For the first nine months of 2022, the efficiency ratio on a fully tax-equivalent basis (non-GAAP) was 58.99% compared to 58.05% for the first nine months of 2021.~~2022.

Total assets were ~~$19.68~~$20.18 billion at ~~September 30, 2022, an increase~~March 31, 2023, a decrease of ~~$408.4~~$61.7 million or 2%less than 1% since December 31, ~~2021.~~2022. Securities represented 35% of total assets at ~~September 30, 2022,~~both March 31, 2023 and ~~40% of total assets at~~ December 31, ~~2021.~~2022. Total loans held to maturity were ~~$10.92~~$11.50 billion at ~~September 30, 2022,~~March 31, 2023, compared to ~~$9.95~~$11.43 billion at December 31, ~~2021,~~2022, which was an increase of ~~$969.0~~$67.0 million or ~~10%~~1%. ~~Excluding total Paycheck Protection Program ("PPP") loans, total loans held to maturity increased $1.16 billion or 12% since year-end 2021.~~

The total allowance for lending related credit losses was ~~$124.6~~$133.8 million or ~~1.14%~~1.16% of total loans at ~~September 30, 2022,~~March 31, 2023, compared to ~~$125.6~~$129.7 million or ~~1.26%~~1.13% of total loans at December 31, ~~2021.~~2022.

Total deposits were ~~$17.27~~$17.68 billion as of ~~September 30, 2022,~~March 31, 2023, compared to ~~$16.42~~$17.51 billion at December 31, ~~2021,~~2022, an increase of ~~$849.9~~$168.3 million or 5%1%.

Total equity was ~~$1.66~~$1.83 billion at ~~September 30, 2022,~~March 31, 2023, compared to ~~$2.18~~$1.74 billion at December 31, ~~2021.~~2022. Book value per common share was ~~$36.41~~$40.38 at ~~September 30, 2022,~~March 31, 2023, compared to ~~$49.00~~$38.25 at year-end ~~2021.~~2022. The unrealized loss on securities available for sale, net of applicable taxes, was ~~$649.7~~$568.2 million at ~~September 30, 2022,~~March 31, 2023, compared to an unrealized loss of ~~$4.4~~$619.2 million, net of applicable taxes, at December 31, ~~2021.~~2022.

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

~~2022~~2023 Developments

~~Charter Consolidation Update~~

InAs of March 29, 2023, HTLF's subsidiary, Dubuque Bank & Trust, entered into an agreement to sell and transfer the recordkeeping and administration services component of HTLF’s Retirement Plan Services business to July Business Services ("July"). Through the new partnership with July, HTLF expects to augment the comprehensive retirement plan solutions offered to clients with enhanced technology and an expanded suite of product offerings that clients expect from a top retirement services provider. The transaction is expected to be completed and recordkeeping and administration services transferred in the second quarter of ~~2022, the consolidation of~~2023.

On March 31, 2023, HTLF's eleven separate bank charters advanced from planning to execution with Citywide Banks operating as a division of HTLF Bank. During the third quarter of 2022, the charters of Premier Valley Bank and Minnesotasubsidiary, First Bank & Trust, ~~were~~closed on the sale of its mortgage servicing rights portfolio, which consisted of approximately 4,500 loans serviced for others with an unpaid principal balance of $698.5 million. In the agreement, which includes customary terms and conditions, First Bank & Trust provided interim servicing of the loans until the transfer date of May 1, 2023.

Charter Consolidation Update

During the first quarter of 2023, Wisconsin Bank & Trust was consolidated into HTLF Bank. Subsequent to ~~September 30, 2022, the Arizona~~March 31, 2023, Bank ~~& Trust charter~~of Blue Valley was consolidated into HTLF Bank. Citywide Banks, Premier Valley Bank, Minnesota Bank & Trust, ~~and~~ Arizona Bank & Trust, Illinois Bank & Trust, Wisconsin Bank & Trust and Bank of Blue Valley are now operating as divisions of HTLF Bank. ~~During the fourth quarter of 2022, one additional charter consolidation is expected to be completed, and the~~The remaining ~~six~~four charters are expected to be consolidated by the end of 2023. Charter consolidation follows a template that retains the current brands, local leadership and local decision making.

Consolidation restructuring costs are projected to be $19-$20 million with approximately ~~$12-~~$8-$139 million of expenses remaining to be incurred ~~through~~in 2023. Total costs incurred since the project started in the fourth quarter of 2021 through ~~September 30, 2022,~~March 31, 2023, were ~~$6.9~~$11.0 million, of which ~~$2.1~~$1.7 million was incurred in the ~~third~~first quarter of ~~2022. For the nine months ended September 30, 2022, consolidation restructuring costs of $5.0 million have been incurred.~~2023. Charter consolidation is designed to eliminate redundancies and improve HTLF’s operating efficiency and capacity to support ongoing product and service enhancements, as well as current and future growth. HTLF has realized some operating ~~efficiency~~efficiencies and financial benefits ~~in the third quarter of 2022~~ with the completion of ~~two additional~~seven charter consolidations. The resulting efficiencies and expansion in capacity are projected to generate benefits of approximately ~~$20.0~~$20 million annually when the project is completed with core operating expenses expected to decline to 2.10% or less of average assets.


FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data)	Three Months Ended March 31,
		2023			2022
STATEMENT OF INCOME DATA
Interest income		$	216,978		$	141,262
Interest expense		64,766			6,583
Net interest income		152,212			134,679
Provision for credit losses		3,074			3,245
Net interest income after provision for credit losses		149,138			131,434
Noninterest income		29,999			34,569
Noninterest expenses		111,043			110,797
Income taxes		15,318			12,117
Net income		52,776			43,089
Preferred dividends		(2,013)			(2,013)

Net income available to common stockholders		$	50,763		$	41,076

KEY PERFORMANCE RATIOS
Annualized return on average assets		1.06		%	0.91		%
Annualized return on average common equity (GAAP)		12.43			8.32
Annualized return on average tangible common equity (non-GAAP)(1)		20.05			12.41

Annualized ratio of net charge-offs/(recoveries) to average loans		(0.04)			0.49
Annualized net interest margin (GAAP)		3.36			3.08
Annualized net interest margin, fully tax-equivalent (non-GAAP)(1)		3.40			3.12
Efficiency ratio (GAAP)		60.94			65.46
Adjusted efficiency ratio, fully tax-equivalent (non-GAAP)(1)		57.16			64.65
Total noninterest expenses to average assets		2.24			2.34
Core noninterest expenses to average assets (non-GAAP)(1)		2.14			2.28

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


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

Common equity	1,718,700		1,624,350		1,545,253		1,663,363		1,821,152

FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data) Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
STATEMENT OF INCOME DATA
Interest income $ 175,806 $ 149,187 $ 469,955 $ 444,721
Interest expense 19,930 6,644 36,939 21,355
Net interest income 155,876 142,543 433,016 423,366
Provision (benefit) for credit losses 5,492 (4,534) 11,983 (12,262)
Net interest income after provision (benefit) for credit losses 150,384 147,077 421,033 435,628
Noninterest income 29,181 32,724 98,289 96,205
Noninterest expenses 108,883 110,627 326,159 316,426
Income taxes 14,118 13,250 41,637 45,064
Net income 56,564 55,924 151,526 170,343
Preferred dividends (2,013) (2,013) (6,038) (6,038)
Net income available to common stockholders $ 54,551 $ 53,911 $ 145,488 $ 164,305
KEY PERFORMANCE RATIOS
Annualized return on average assets 1.13 % 1.19 % 1.04 % 1.25 %
Annualized return on average common equity (GAAP) 12.93 10.32 10.80 10.95
Annualized return on average tangible common equity (non-GAAP)(1)
20.76 15.14 16.79 16.34
Annualized ratio of net charge-offs/(recoveries) to average loans 0.00 (0.05) 0.17 0.04
Annualized net interest margin (GAAP) 3.41 3.30 3.22 3.37
Annualized net interest margin, fully tax-equivalent (non-GAAP)(1)
3.45 3.34 3.27 3.41
Efficiency ratio, fully tax-equivalent (non-GAAP)(1)
55.26 60.38 58.99 58.05
Total noninterest expenses to average assets 2.18 2.36 2.23 2.31
Core noninterest expenses to average assets (non-GAAP)(1)
2.09 2.25 2.17 2.21

Dollars in thousands, expect per share data As Of and For the Quarter Ended
9/30/2022 6/30/2022 3/31/2022 12/31/2021 9/30/2021
BALANCE SHEET DATA
Investments $ 6,970,864 $ 7,274,056 $ 7,189,779 $ 7,697,650 $ 7,618,622
Loans held for sale 9,570 18,803 22,685 21,640 37,078
Loans receivable held to maturity 10,923,532 10,678,218 10,177,385 9,954,572 9,854,907
Allowance for credit losses 105,715 101,353 100,522 110,088 117,533
Total assets 19,682,950 19,658,399 19,230,879 19,274,549 18,996,225
Total deposits 17,267,121 17,225,550 16,666,684 16,417,255 16,022,243
Long-term obligations 371,446 372,538 372,290 372,072 371,765
Common equity 1,545,253 1,663,363 1,821,152 2,071,473 2,061,547
COMMON SHARE DATA
Book value per common share (GAAP) $ 36.41 $ 39.19 $ 42.98 $ 49.00 $ 48.79
Tangible book value per common share (non-GAAP)(1)
$ 22.20 $ 24.94 $ 28.66 $ 34.59 $ 34.33
Common shares outstanding, net of treasury stock 42,444,106 42,439,439 42,369,908 42,275,264 42,250,092
Tangible common equity ratio (non-GAAP)(1)
4.94 % 5.56 % 6.52 % 7.84 % 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.


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

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


Non-GAAP Reconciliations (Dollars in thousands, except per share data)	Non-GAAP Reconciliations (Dollars in thousands, except per share data)																Non-GAAP Reconciliations (Dollars in thousands, except per share data)
		As Of and For the Quarter Ended																As Of and For the Quarter Ended
		9/30/2022			6/30/2022			3/31/2022			12/31/2021			9/30/2021				3/31/2023			12/31/2022					9/30/2022					6/30/2022					3/31/2022
Reconciliation of Tangible Book Value Per Common Share (non-GAAP)	Reconciliation of Tangible Book Value Per Common Share (non-GAAP)																Reconciliation of Tangible Book Value Per Common Share (non-GAAP)
Common equity (GAAP)	Common equity (GAAP)	$	1,545,253		$	1,663,363		$	1,821,152		$	2,071,473		$	2,061,547		Common equity (GAAP)	$	1,718,700		$	1,624,350				$	1,545,253				$	1,663,363				$	1,821,152
Less goodwill	Less goodwill	576,005			576,005			576,005			576,005			576,005			Less goodwill	576,005			576,005					576,005					576,005					576,005
Less core deposit and customer relationship intangibles, net	Less core deposit and customer relationship intangibles, net	26,995			28,851			30,934			32,988			35,157			Less core deposit and customer relationship intangibles, net	23,366			25,154					26,995					28,851					30,934
Tangible common equity (non-GAAP)	Tangible common equity (non-GAAP)	$	942,253		$	1,058,507		$	1,214,213		$	1,462,480		$	1,450,385		Tangible common equity (non-GAAP)	$	1,119,329		$	1,023,191				$	942,253				$	1,058,507				$	1,214,213

Common shares outstanding, net of treasury stock	Common shares outstanding, net of treasury stock	42,444,106			42,439,439			42,369,908			42,275,264			42,250,092			Common shares outstanding, net of treasury stock	42,558,726			42,467,394					42,444,106					42,439,439					42,369,908
Common equity (book value) per share (GAAP)	Common equity (book value) per share (GAAP)	$	36.41		$	39.19		$	42.98		$	49.00		$	48.79		Common equity (book value) per share (GAAP)	$	40.38		$	38.25				$	36.41				$	39.19				$	42.98
Tangible book value per common share (non-GAAP)	Tangible book value per common share (non-GAAP)	$	22.20		$	24.94		$	28.66		$	34.59		$	34.33		Tangible book value per common share (non-GAAP)	$	26.30		$	24.09				$	22.20				$	24.94				$	28.66

Reconciliation of Tangible Common Equity Ratio (non-GAAP)	Reconciliation of Tangible Common Equity Ratio (non-GAAP)																Reconciliation of Tangible Common Equity Ratio (non-GAAP)
Tangible common equity (non-GAAP)	Tangible common equity (non-GAAP)	$	942,253		$	1,058,507		$	1,214,213		$	1,462,480		$	1,450,385		Tangible common equity (non-GAAP)	$	1,119,329		$	1,023,191				$	942,253				$	1,058,507				$	1,214,213

Total assets (GAAP)	Total assets (GAAP)	$	19,682,950		$	19,658,399		$	19,230,879		$	19,274,549		$	18,996,225		Total assets (GAAP)	$	20,182,544		$	20,244,228				$	19,682,950				$	19,658,399				$	19,230,879
Less goodwill	Less goodwill	576,005			576,005			576,005			576,005			576,005			Less goodwill	576,005			576,005					576,005					576,005					576,005
Less core deposit and customer relationship intangibles, net	Less core deposit and customer relationship intangibles, net	26,995			28,851			30,934			32,988			35,157			Less core deposit and customer relationship intangibles, net	23,366			25,154					26,995					28,851					30,934
Total tangible assets (non-GAAP)	Total tangible assets (non-GAAP)	$	19,079,950		$	19,053,543		$	18,623,940		$	18,665,556		$	18,385,063		Total tangible assets (non-GAAP)	$	19,583,173		$	19,643,069				$	19,079,950				$	19,053,543				$	18,623,940
Tangible common equity ratio (non-GAAP)	Tangible common equity ratio (non-GAAP)	4.94		%	5.56		%	6.52		%	7.84		%	7.89		%	Tangible common equity ratio (non-GAAP)	5.72		%	5.21		%			4.94		%			5.56		%			6.52		%

Reconciliation of Adjusted Tangible Common Equity Ratio (non-GAAP)																	Reconciliation of Adjusted Tangible Common Equity Ratio (non-GAAP)
Tangible common equity (non-GAAP)																	Tangible common equity (non-GAAP)	$	1,119,329		$	1,023,191				$	942,253				$	1,058,507				$	1,214,213
Accumulated other comprehensive loss																	Accumulated other comprehensive loss	566,919			620,006					650,636					486,918					286,921
Adjusted tangible common equity (non-GAAP)																	Adjusted tangible common equity (non-GAAP)	$	1,686,248		$	1,643,197		$	—	$	1,592,889		$	—	$	1,545,425		$	—	$	1,501,134

Total tangible assets (non-GAAP)																	Total tangible assets (non-GAAP)	$	19,583,173		$	19,643,069				$	19,079,950				$	19,053,543				$	18,623,940
Adjusted tangible common equity ratio (non-GAAP)																	Adjusted tangible common equity ratio (non-GAAP)	8.61		%	8.37		%			8.35		%			8.11		%			8.06		%

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

For the Quarter Ended
September 30, For the Nine Months
Ended September 30,
2022 2021 2022 2021
Reconciliation of Annualized Return on Average Tangible Common Equity (non-GAAP)
Net income available to common stockholders (GAAP) $ 54,551 $ 53,911 $ 145,488 $ 164,305
Plus core deposit and customer relationship intangibles amortization, net of tax(1)
1,466 1,814 4,734 5,709
Net income available to common stockholders excluding intangible amortization (non-GAAP) $ 56,017 $ 55,725 $ 150,222 $ 170,014
Average common equity (GAAP) $ 1,674,306 $ 2,072,593 $ 1,801,835 $ 2,006,123
Less average goodwill 576,005 576,005 576,005 576,005
Less average core deposit and customer relationship intangibles, net 27,902 36,279 29,878 38,745
Average tangible common equity (non-GAAP) $ 1,070,399 $ 1,460,309 $ 1,195,952 $ 1,391,373
Annualized return on average common equity (GAAP) 12.93 % 10.32 % 10.80 % 10.95 %
Annualized return on average tangible common equity (non-GAAP) 20.76 % 15.14 % 16.79 % 16.34 %
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)
Net Interest Income (GAAP) $ 155,876 $ 142,543 $ 433,016 $ 423,366
Plus tax-equivalent adjustment(1)
2,151 1,714 6,247 5,237
Net interest income, fully tax-equivalent (non-GAAP) $ 158,027 $ 144,257 $ 439,263 $ 428,603
Average earning assets $ 18,157,795 $ 17,123,824 $ 17,969,001 $ 16,803,740
Annualized net interest margin (GAAP) 3.41 % 3.30 % 3.22 % 3.37 %
Annualized net interest margin, fully tax-equivalent (non-GAAP) 3.45 3.34 3.27 3.41
Net purchase accounting discount accretion on loans included in annualized net interest margin 0.03 0.08 0.05 0.10
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.


Non-GAAP Reconciliations (Dollars in thousands, except per share data)	For the Three Months Ended March 31,
		2023			2022
Reconciliation of Annualized Return on Average Tangible Common Equity (non-GAAP)
Net income available to common stockholders (GAAP)		$	50,763		$	41,076
Plus core deposit and customer relationship intangibles amortization, net of tax(1)		1,413			1,623
Net income available to common stockholders excluding intangible amortization (non-GAAP)		$	52,176		$	42,699

Average common equity (GAAP)		$	1,655,860		$	2,003,424
Less average goodwill		576,005			576,005
Less average core deposit and customer relationship intangibles, net		24,238			31,931
Average tangible common equity (non-GAAP)		$	1,055,617		$	1,395,488
Annualized return on average common equity (GAAP)		12.43		%	8.32		%
Annualized return on average tangible common equity (non-GAAP)		20.05		%	12.41		%

Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)
Net interest income (GAAP)		$	152,212		$	134,679
Plus tax-equivalent adjustment(1)		2,209			2,119
Net interest income, fully tax-equivalent (non-GAAP)		$	154,421		$	136,798

Average earning assets		$	18,392,649		$	17,757,067

Annualized net interest margin (GAAP)		3.36		%	3.08		%
Annualized net interest margin, fully tax-equivalent (non-GAAP)		3.40			3.12
Net purchase accounting discount accretion on loans included in annualized net interest margin		0.02			0.05





Reconciliation of Adjusted Efficiency Ratio (non-GAAP)
Net interest income (GAAP)	$	152,212		$	134,679
Tax-equivalent adjustment(1)	2,209			2,119
Fully tax-equivalent net interest income	154,421			136,798
Noninterest income (GAAP)	29,999			34,569
Securities (gains)/losses, net	1,104			(2,872)
Unrealized (gain)/loss on equity securities, net	(193)			283

Valuation adjustment on servicing rights	—			(1,658)
Adjusted revenue (non-GAAP)	$	185,331		$	167,120

Total noninterest expenses (GAAP)	$	111,043		$	110,797
Less:
Core deposit and customer relationship intangibles amortization	1,788			2,054
Partnership investment in tax credit projects	538			77
(Gain)/loss on sales/valuation of assets, net	1,115			46
Acquisition, integration and restructuring costs	1,673			576
Core expenses (non-GAAP)	$	105,929		$	108,044
Efficiency ratio (GAAP)	60.94		%	65.46		%
Adjusted efficiency ratio, fully tax-equivalent (non-GAAP)	57.16		%	64.65		%

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


Non-GAAP Reconciliations (Dollars in thousands, except per share data)	Non-GAAP Reconciliations (Dollars in thousands, except per share data)													Non-GAAP Reconciliations (Dollars in thousands, except per share data)	For the Three Months Ended March 31,
Reconciliation of Efficiency Ratio (non-GAAP)		For the Quarter Ended September 30,						For the Nine Months Ended September 30,
		2022			2021			2022			2021
Net interest income (GAAP)		$	155,876		$	142,543		$	433,016		$	423,366
Tax-equivalent adjustment(1)		2,151			1,714			6,247			5,237
Fully tax-equivalent net interest income		158,027			144,257			439,263			428,603
Noninterest income		29,181			32,724			98,289			96,205
Securities (gains)/losses, net		1,055			(1,535)			272			(4,347)
Unrealized (gain)/loss on equity securities, net		211			(112)			615			(85)

Valuation adjustment on servicing rights		—			(195)			(1,658)			(586)
Adjusted revenue (non-GAAP)		$	188,474		$	175,139		$	536,781		$	519,790

Total noninterest expenses (GAAP)		$	108,883		$	110,627		$	326,159		$	316,426
Less:
Core deposit and customer relationship intangibles amortization		1,856			2,295			5,993			7,226
Partnership investment in tax credit projects		979			2,374			1,793			3,754
(Gain)/loss on sales/valuation of assets, net		(251)			(3)			(3,435)			374
Acquisition, integration and restructuring costs		2,156			204			5,144			3,342
Core expenses (non-GAAP)		$	104,143		$	105,757		$	316,664		$	301,730
Efficiency ratio, fully tax-equivalent (non-GAAP)		55.26		%	60.38		%	58.99		%	58.05		%
																2023			2022
Reconciliation of Annualized Ratio of Core Expenses to Average Assets (non-GAAP)	Reconciliation of Annualized Ratio of Core Expenses to Average Assets (non-GAAP)													Reconciliation of Annualized Ratio of Core Expenses to Average Assets (non-GAAP)
Total noninterest expenses (GAAP)	Total noninterest expenses (GAAP)	$	108,883		$	110,627		$	326,159		$	316,426		Total noninterest expenses (GAAP)		$	111,043		$	110,797
Core expenses (non-GAAP)	Core expenses (non-GAAP)	104,143			105,757			316,664			301,730			Core expenses (non-GAAP)		105,929			108,044

Average assets	Average assets	$	19,775,341		$	18,608,775		$	19,523,433		$	18,291,444		Average assets		$	20,118,005		$	19,228,872
Total noninterest expenses to average assets (GAAP)	Total noninterest expenses to average assets (GAAP)	2.18		%	2.36		%	2.23		%	2.31		%	Total noninterest expenses to average assets (GAAP)		2.24		%	2.34		%
Core expenses to average assets (non-GAAP)	Core expenses to average assets (non-GAAP)	2.09		%	2.25		%	2.17		%	2.21		%	Core expenses to average assets (non-GAAP)		2.14		%	2.28		%

Acquisition, integration and restructuring costs	Acquisition, integration and restructuring costs													Acquisition, integration and restructuring costs
Salaries and employee benefits	Salaries and employee benefits	$	365		$	—		$	980		$	578		Salaries and employee benefits		$	74		$	340
Occupancy		—			—			—			10
Furniture and equipment		—			7			—			655

Professional fees	Professional fees	1,480			145			3,495			878			Professional fees		934			236
Advertising	Advertising	131			11			287			173			Advertising		122			—
(Gain)/loss on sales/valuations of assets, net		—			39			—			39

Other noninterest expenses	Other noninterest expenses	180			2			382			1,009			Other noninterest expenses		543			—
Total acquisition, integration and restructuring costs	Total acquisition, integration and restructuring costs	$	2,156		$	204		$	5,144		$	3,342		Total acquisition, integration and restructuring costs		$	1,673		$	576
After tax impact on diluted earnings per common share(1)	After tax impact on diluted earnings per common share(1)	$	0.04		$	—		$	0.10		$	0.06		After tax impact on diluted earnings per common share(1)		$	0.03		$	0.01

(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.	(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.													(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~~Adjusted efficiency ratio, fully tax equivalent, expresses noninterest expenses as a percentage of fully tax-equivalent net interest income and noninterest income. This adjusted efficiency ratio is presented on a tax-equivalent basis which adjusts net interest income and noninterest expenses for the tax favored status of certain loans, securities, and tax credit projects. Management believes the presentation of this non-GAAP measure provides supplemental useful information for proper understanding of the financial results as it enhances the comparability of income and expenses arising from taxable and nontaxable sources and excludes specific items as noted in the reconciliation contained in this Quarterly Report on Form 10-Q.

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

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

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

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

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

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

RESULTS OF OPERATIONS

Net Interest Margin and Net Interest Income

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

Net interest income is the difference between interest income on earning assets and interest expense paid on interest bearing liabilities. As such, net interest income is affected by changes in volumes and yields on earning assets and the volume and rates paid on interest bearing liabilities. Net interest margin is the ratio of net interest income to average earning assets. ~~Net interest income, net interest margin and the mix and growth of earning assets are important indicators of HTLF's profitability.~~

HTLF's ability to maintain a favorable net interest margin 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 ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~

Net interest margin, expressed as a percentage of average earning assets, was ~~3.41% (3.45%~~3.36% (3.40% on a fully tax-equivalent basis, non-GAAP) during the ~~third~~first quarter of ~~2022,~~2023 compared to ~~3.30% (3.34%~~3.08% (3.12% on a fully tax-equivalent basis, non-GAAP) during the ~~third~~first quarter of ~~2021.~~2022. For the quarters ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ net interest margin included 32 basis points and 85 basis points, respectively, of net purchase accounting discount amortization. HTLF's net interest margin may be impacted in future periods as a result of market pressures to increase deposit pricing and the strategic decision to increase wholesale deposits to maintain strong liquidity during the current banking disruptions.

Total interest income and average earning asset changes for the ~~third~~first quarter of ~~2022~~2023 compared to the ~~third~~first quarter of ~~2021~~2022 were:

•Total interest income was ~~$175.8~~$217.0 million compared to ~~$149.2~~$141.3 million, which was an increase of ~~$26.6~~$75.7 million or ~~18%~~54% and primarily attributable to an increase in average earning assets and higher ~~yields partially offset by a reduction of PPP loan interest income. PPP loan interest income totaled $363,000 compared to $11.2 million, which was a decrease of $10.8 million or 97%.~~yields.

•Total interest income on a tax-equivalent basis (non-GAAP) was ~~$178.0~~$219.2 million, which was an increase of ~~$27.1~~$75.8 million or ~~18%~~53% from ~~$150.9~~$143.4 million.

•Average earning assets increased ~~$1.03 billion~~$635.6 million or 6%4% to ~~$18.16~~$18.39 billion compared to ~~$17.12~~$17.76 billion.

•The average rate on earning assets increased 39156 basis points to ~~3.89%~~4.83% compared to ~~3.50%~~3.27%, which was primarily due to recent interest rate increases.

Total interest expense and average interest bearing liability changes for the ~~third~~first quarter of ~~2022~~2023 compared to the ~~third~~first quarter of ~~2021~~2022 were:

•Total interest expense was ~~$19.9~~$64.8 million, an increase of ~~$13.3~~$58.2 million from $6.6 million, ~~based on~~which was attributable to an increase in the average interest rate paid and an increase in average interest bearing liabilities.

•The average interest rate paid on interest bearing liabilities increased 183 basis points to ~~0.67% from 0.27%~~2.09% compared to 0.26%.

•Average interest bearing deposits increased ~~$1.76~~$2.03 billion or ~~19%~~20% to ~~$11.22~~$11.99 billion from ~~$9.46 billion. Average~~$9.96 billion, including an increase of $1.04 billion in wholesale ~~funding deposits totaled $1.25 billion for the third quarter of 2022 compared to $0 for the third quarter of 2021.~~deposits.

•The average interest rate paid on interest bearing deposits increased 40180 basis points to ~~0.54%~~1.92% compared to ~~0.14%~~0.12%.

•Average borrowings increased ~~$86.6~~$102.9 million or 21% to ~~$506.5~~$594.7 million from ~~$419.9~~$491.8 million, and the average interest rate paid on borrowings was ~~3.74%~~5.37% compared to ~~3.02%~~2.97%.

Net interest income ~~increased~~changes for the ~~third~~first quarter of 2023 compared to the first quarter of 2022 ~~compared to the third quarter of 2021:~~were:

•Net interest income totaled ~~$155.9~~$152.2 million compared to ~~$142.5~~$134.7 million, which was an increase of ~~$13.3~~$17.5 million or ~~9%. PPP loan interest income totaled $363,000 compared to $11.2 million, which was a decrease of $10.8 million or 97%~~13%.

•Net interest income on a tax-equivalent basis (non-GAAP) totaled ~~$158.0~~$154.4 million compared to ~~$144.3~~$136.8 million, which was an increase of ~~$13.8~~$17.6 million or ~~10%~~13%.

~~For the Nine Months ended September 30, 2022 and 2021~~

Net interest margin, expressed as a percentage of average earning assets, was 3.22% (3.27% on a fully tax-equivalent basis, non-GAAP) during the first nine months of 2022, compared to 3.37% (3.41% on a fully tax-equivalent basis, non-GAAP) during the first nine months of 2021. For the nine months ended September 30, 2022 and 2021, net interest margin included 5 basis points and 10 basis points, respectively, of net purchase accounting discount amortization.

~~Total interest income and average earning asset changes for the first nine months of 2022 compared to the first nine months of 2021 were:~~

•Total interest income was $470.0 million, which was an increase of $25.2 million or 6% from $444.7 million. PPP loan interest income totaled $6.5 million compared to $32.5 million, which was a decrease of $26.0 million or 80%.

•~~Total interest income on a tax-equivalent basis (non-GAAP) was $476.2 million, which was an increase of $26.2 million or 6% from $450.0 million.~~

•~~Average earning assets increased $1.17 billion or 7% to $17.97 billion compared to $16.80 billion.~~

~~Total interest expense and average interest bearing liability changes for the first nine months of 2022 compared to the first nine months of 2021 were:~~

•Total interest expense was $36.9 million, an increase of $15.6 million or 73% from $21.4 million, based on an increase in the average interest rate paid and an increase in average interest bearing liabilities.

•~~The average interest rate paid on interest bearing liabilities increased to 0.44% compared to 0.29%.~~

•Average interest bearing deposits increased $1.38 billion or 15% to $10.76 billion from $9.38 billion. Average wholesale funding deposits totaled $845.7 million for the first nine months of 2022 compared to $0 for the first nine months of 2021.

•~~The average interest rate paid on interest bearing deposits increased to 0.31% compared to 0.17%.~~

~~Net interest income increased for the first nine months of 2022 compared to the first nine months of 2021:~~

•Net interest income totaled $433.0 million compared to $423.4 million, which was an increase of $9.7 million or 2%. PPP loan interest income totaled $6.5 million compared to $32.5 million, which was a decrease of $26.0 million or 80%.

•~~Net interest income on a tax-equivalent basis (non-GAAP) totaled $439.3 million compared to $428.6 million, which was an increase of $10.7 million or 2%.~~

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 earning assets grow and a favorable deposit profile is maintained. In 2022, the Federal Reserve has increased the federal funds rates five times for a total of 300 basis points through its September 2022 meeting. The Federal Reserve has indicated it will closely assess economic data and is expected to continue to raise the federal funds interest rate in the fourth quarter of 2022. Ultimately, the timing and magnitude of any such changes are uncertain and will depend on domestic and global economic conditions. The increases to the federal funds interest rate in 2022 have had a positive impact on HTLF's net interest income due to its asset sensitive balance sheet, and any future increases to the federal funds interest rate would be favorable to HTLF's net interest income.

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

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

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


ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT YIELDS AND RATES (1)	ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT YIELDS AND RATES (1)																			ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT YIELDS AND RATES (1)

		For the Quarter Ended																			For the Quarter Ended
		September 30, 2022						June 30, 2022						September 30, 2021							March 31, 2023						December 31, 2022						March 31, 2022
		Average Balance		Interest		Rate		Average Balance		Interest		Rate		Average Balance		Interest		Rate			Average Balance		Interest		Rate		Average Balance		Interest		Rate		Average Balance		Interest		Rate
Earning Assets	Earning Assets																			Earning Assets
Securities:	Securities:																			Securities:
Taxable	Taxable	$	6,303,278	$	45,648	2.87	%	$	6,419,615	$	38,098	2.38	%	$	6,244,097	$	32,384	2.06	%	Taxable	$	6,096,888	$	55,976	3.72	%	$	6,122,313	$	53,178	3.45	%	$	6,501,664	$	32,620	2.03	%
Nontaxable(1)	Nontaxable(1)	951,232		7,802		3.25		915,880		6,972		3.05		759,073		5,835		3.05		Nontaxable(1)	922,676		7,630		3.35		890,368		7,762		3.46		1,106,951		7,851		2.88
Total securities	Total securities	7,254,510		53,450		2.92		7,335,495		45,070		2.46		7,003,170		38,219		2.17		Total securities	7,019,564		63,606		3.67		7,012,681		60,940		3.45		7,608,615		40,471		2.16
Interest on deposits with other banks and short-term investments	Interest on deposits with other banks and short-term investments	222,170		1,081		1.93		277,773		563		0.81		322,430		132		0.16		Interest on deposits with other banks and short-term investments	105,400		1,131		4.35		151,405		1,410		3.69		216,451		71		0.13
Federal funds sold	Federal funds sold	11		—		—		—		—		—		—		—		—		Federal funds sold	—		—		—		739		11		5.91		11		—		—
Loans:(2)	Loans:(2)																			Loans:(2)
Commercial and industrial(1)	Commercial and industrial(1)	3,182,134		37,526		4.68		3,002,822		30,441		4.07		2,588,270		28,224		4.33		Commercial and industrial(1)	3,459,317		49,907		5.85		3,346,843		45,290		5.37		2,744,336		27,053		4.00
PPP loans	PPP loans	17,859		363		8.06		41,370		1,801		17.46		602,675		11,186		7.36		PPP loans	9,970		26		1.06		12,252		397		12.86		132,050		4,323		13.28
Owner occupied commercial real estate	Owner occupied commercial real estate	2,272,666		23,601		4.12		2,294,524		22,863		4.00		1,990,538		20,048		4.00		Owner occupied commercial real estate	2,289,002		26,769		4.74		2,277,055		26,194		4.56		2,243,522		21,278		3.85
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	2,258,424		25,895		4.55		2,179,048		22,871		4.21		1,964,609		22,129		4.47		Non-owner occupied commercial real estate	2,331,318		30,749		5.35		2,286,298		29,273		5.08		2,060,548		21,163		4.17
Real estate construction	Real estate construction	914,520		12,382		5.37		878,555		10,015		4.57		835,976		9,591		4.55		Real estate construction	1,099,026		18,131		6.69		1,050,802		16,585		6.26		847,250		9,276		4.44
Agricultural and agricultural real estate	Agricultural and agricultural real estate	799,823		8,966		4.45		782,610		7,933		4.07		674,510		7,415		4.36		Agricultural and agricultural real estate	835,648		11,353		5.51		785,647		10,159		5.13		745,348		7,006		3.81
Residential mortgage	Residential mortgage	858,119		8,665		4.01		849,174		8,358		3.95		855,734		9,068		4.20		Residential mortgage	852,561		9,273		4.41		858,767		9,168		4.24		843,881		8,085		3.89
Consumer	Consumer	479,590		6,028		4.99		449,265		4,949		4.42		407,735		4,889		4.76		Consumer	501,236		8,242		6.67		499,849		7,426		5.89		426,659		4,655		4.42
Less: allowance for credit losses-loans	Less: allowance for credit losses-loans	(102,031)		—		—		(102,902)		—		—		(121,823)		—		—		Less: allowance for credit losses-loans	(110,393)		—		—		(106,500)		—		—		(111,604)		—		—
Net loans	Net loans	10,681,104		123,426		4.58		10,374,466		109,231		4.22		9,798,224		112,550		4.56		Net loans	11,267,685		154,450		5.56		11,011,013		144,492		5.21		9,931,990		102,839		4.20
Total earning assets	Total earning assets	18,157,795		177,957		3.89	%	17,987,734		154,864		3.45	%	17,123,824		150,901		3.50	%	Total earning assets	18,392,649		219,187		4.83	%	18,175,838		206,853		4.52	%	17,757,067		143,381		3.27	%
Nonearning Assets	Nonearning Assets	1,617,546						1,571,357						1,484,951						Nonearning Assets	1,725,356						1,738,011						1,472,805
Total Assets	Total Assets	$	19,775,341					$	19,559,091					$	18,608,775					Total Assets	$	20,118,005					$	19,913,849					$	19,229,872
Interest Bearing Liabilities	Interest Bearing Liabilities																			Interest Bearing Liabilities
Savings	Savings	$	10,059,652	$	12,907	0.51	%	$	9,995,497	$	5,372	0.22	%	$	8,364,326	$	2,240	0.11	%	Savings	$	9,730,494	$	37,893	1.58	%	$	9,987,692	$	25,950	1.03	%	$	8,889,950	$	2,394	0.11	%
Time deposits	Time deposits	1,156,908		2,251		0.77		1,088,765		1,158		0.43		1,097,126		1,204		0.44		Time deposits	2,257,047		19,005		3.41		1,322,094		6,265		1.88		1,071,675		583		0.22
Short-term borrowings	Short-term borrowings	134,974		360		1.06		118,646		88		0.30		139,001		98		0.28		Short-term borrowings	222,772		2,422		4.41		298,804		2,223		2.95		119,588		46		0.16
Other borrowings	Other borrowings	371,492		4,412		4.71		372,411		3,808		4.10		280,897		3,102		4.38		Other borrowings	371,921		5,446		5.94		371,442		5,043		5.39		372,187		3,560		3.88
Total interest bearing liabilities	Total interest bearing liabilities	11,723,026		19,930		0.67	%	11,575,319		10,426		0.36	%	9,881,350		6,644		0.27	%	Total interest bearing liabilities	12,582,234		64,766		2.09	%	11,980,032		39,481		1.31	%	10,453,400		6,583		0.26	%
Noninterest Bearing Liabilities	Noninterest Bearing Liabilities																			Noninterest Bearing Liabilities
Noninterest bearing deposits	Noninterest bearing deposits	6,065,729						5,960,217						6,356,326						Noninterest bearing deposits	5,518,326						6,009,432						6,497,753
Accrued interest and other liabilities	Accrued interest and other liabilities	201,575						181,457						187,801						Accrued interest and other liabilities	250,880						264,941						164,590
Total noninterest bearing liabilities	Total noninterest bearing liabilities	6,267,304						6,141,674						6,544,127						Total noninterest bearing liabilities	5,769,206						6,274,373						6,662,343
Equity	Equity	1,785,011						1,842,098						2,183,298						Equity	1,766,565						1,659,444						2,114,129
Total Liabilities and Equity	Total Liabilities and Equity	$	19,775,341					$	19,559,091					$	18,608,775					Total Liabilities and Equity	$	20,118,005					$	19,913,849					$	19,229,872
Net interest income, fully tax-equivalent (non-GAAP)(1)(3)	Net interest income, fully tax-equivalent (non-GAAP)(1)(3)			$	158,027					$	144,438					$	144,257			Net interest income, fully tax-equivalent (non-GAAP)(1)(3)			$	154,421					$	167,372					$	136,798
Net interest spread(1)	Net interest spread(1)					3.22	%					3.09	%					3.23	%	Net interest spread(1)					2.74	%					3.21	%					3.01	%
Net interest income, fully tax-equivalent to total earning assets (non-GAAP)(1)(3)	Net interest income, fully tax-equivalent to total earning assets (non-GAAP)(1)(3)					3.45	%					3.22	%					3.34	%	Net interest income, fully tax-equivalent to total earning assets (non-GAAP)(1)(3)					3.40	%					3.65	%					3.12	%

(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.	(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.																			(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.	(2) Nonaccrual loans and loans held for sale are included in the average loans outstanding.																			(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.	(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.																			(3) Refer to "Non-GAAP Financial Measures" for additional information on the usage and presentation of these non-GAAP measures, and refer to the financial tables under "Financial Highlights" for the reconciliations to the most directly comparable GAAP measures.

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

ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT YIELDS AND RATES (1)
For the Nine Months Ended
September 30, 2022 September 30, 2021
Average
Balance Interest Rate Average
Balance Interest Rate
Earning Assets
Securities:
Taxable $ 6,407,459 $ 116,366 2.43 % $ 5,935,295 $ 94,373 2.13 %
Nontaxable(1)
990,784 22,625 3.05 743,534 17,308 3.11
Total securities 7,398,243 138,991 2.51 6,678,829 111,681 2.24
Interest bearing deposits with other banks and other short-term investments 238,819 1,715 0.96 266,701 258 0.13
Federal funds sold 7 — — 4,622 1 0.03
Loans:(2)
Commercial and industrial(1)
2,977,751 95,020 4.27 2,519,608 85,008 4.51
PPP loans 63,342 6,487 13.69 879,489 32,521 4.94
Owner occupied commercial real estate 2,270,486 67,742 3.99 1,876,929 59,710 4.25
Non-owner occupied commercial real estate 2,166,873 69,929 4.31 1,961,016 65,984 4.50
Real estate construction 880,354 31,673 4.81 819,452 28,501 4.65
Agricultural and agricultural real estate 776,127 23,905 4.12 676,091 22,733 4.50
Residential mortgage 850,444 25,108 3.95 844,337 28,153 4.46
Consumer 452,032 15,632 4.62 404,384 15,408 5.09
Less: allowance for loan losses (105,477) — — (127,718) — —
Net loans 10,331,932 335,496 4.34 9,853,588 338,018 4.59
Total earning assets 17,969,001 476,202 3.54 % 16,803,740 449,958 3.58 %
Nonearning Assets 1,554,432 1,487,704
Total Assets $ 19,523,433 $ 18,291,444
Interest Bearing Liabilities
Savings $ 9,652,651 $ 20,673 0.29 % $ 8,211,478 $ 6,903 0.11 %
Time deposits 1,106,095 3,992 0.48 1,166,858 4,726 0.54
Short-term borrowings 124,459 494 0.53 182,583 348 0.25
Other borrowings 372,027 11,780 4.23 328,887 9,378 3.81
Total interest bearing liabilities 11,255,232 36,939 0.44 % 9,889,806 21,355 0.29 %
Noninterest Bearing Liabilities
Noninterest bearing deposits 6,172,984 6,104,058
Accrued interest and other liabilities 182,677 180,752
Total noninterest bearing liabilities 6,355,661 6,284,810
Equity 1,912,540 2,116,828
Total Liabilities and Equity $ 19,523,433 $ 18,291,444
Net interest income, fully tax-equivalent (non-GAAP)(1)(3)
$ 439,263 $ 428,603
Net interest spread(1)
3.10 % 3.29 %
Net interest income, fully tax-equivalent (non-GAAP) to total earning assets(1)(3)
3.27 % 3.41 %
Interest bearing liabilities to earning assets 62.64 % 58.85 %
(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.


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

(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.
(2) Nonaccrual loans and loans held for sale are included in average loans outstanding.

Provision For Credit Losses

The allowance for credit losses is established through provision expense to provide, in management's opinion, an appropriate allowance for credit losses. The following table shows the components of provision for credit losses for the ~~three- and nine-~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ in thousands:

Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Provision expense (benefit) for credit losses-loans $ 4,388 $ (4,448) $ 8,561 $ (10,898)
Provision expense (benefit) for credit losses-unfunded commitments 1,104 (35) 3,422 (1,313)
Provision expense (benefit) for credit losses-held to maturity securities — (51) — (51)
Total provision expense (benefit) $ 5,492 $ (4,534) $ 11,983 $ (12,262)


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

Total provision expense		$	3,074	$	3,245

The provision expense for credit losses for loans was ~~$4.4~~$2.2 million for the ~~third~~first quarter of ~~2022,~~2023, which was a ~~change~~decrease of ~~$8.8 million~~$444,000 or 17% from provision ~~benefit~~expense of ~~$4.4~~$2.6 million recorded in the ~~third~~first quarter of ~~2021.~~2022. The provision expense for the ~~third~~first quarter of ~~2022~~2023 compared to the ~~third~~first quarter of ~~2021~~2022 was impacted by several factors, including:

•~~loan growth exclusive of PPP loans totaled of $254.8 million compared to $262.8 million,~~

•~~provision~~Provision expense ~~of $2.8 million was recorded~~ for individually assessed loans totaled $2.5 million in the first quarter of 2023,

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

•Net recoveries of $1.0 million compared to ~~a provision benefit~~net charge-offs of ~~$661,000,~~$12.2 million, and

•~~declines in~~Use of a macroeconomic ~~factors due to~~outlook which anticipated a moderate recession developing withing the ~~long-term impact of rising interest rates and record high inflation~~next twelve months compared to an improved macroeconomic ~~factors in the third quarter of 2021 due to waning COVID concerns.~~

The provision expense for credit losses for loans was $8.6 million for the first nine months of 2022 compared to a benefit of $10.9 million for the first nine months of 2021. The provision expense for the first nine months of 2022 compared to the first nine months of 2021 was impacted by several factors, including

•~~loan growth of $1.16 billion and $380.4 million excluding PPP loans since December 31, 2021 and 2020, respectively,~~

•~~net charge-offs of $12.9 million for the first nine months of 2022 compared to $3.2 million for first nine months of 2021, and~~

•~~deteriorated macroeconomic factors compared to the first nine months of 2021 as described above.~~outlook.

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

31, ~~2021,~~2022, "Allowance For Credit Losses" and "Provision for Credit Losses" in Item 2 of this Quarterly Report on Form 10-Q and Note 4, "Allowance for Credit Losses," to the consolidated financial statements included herein.

Management believes the allowance for credit losses as of ~~September 30, 2022,~~March 31, 2023, was at a level commensurate with the overall risk exposure of the loan portfolio. However, deterioration in ~~current~~ economic conditions, including a recession, could cause certain borrowers to experience difficulty and impede their ability to meet debt service. Due to the uncertainty of future economic conditions, ~~resulting from the COVID-19 pandemic and other economic headwinds,~~ including ~~recent~~ongoing concerns ~~over COVID-19 variants, inflation,~~regarding higher interest rates, supply chain challenges, workforce shortages and wage pressures, ~~and the waning effects of recent economic stimulus,~~ the provision for credit losses could be volatile ~~over the next several~~in future quarters.

Noninterest Income

The tables below show noninterest income for the ~~three- and nine-~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ in thousands:

Three Months Ended
September 30,
2022 2021 Change % Change
Service charges and fees $ 17,282 $ 15,551 $ 1,731 11 %
Loan servicing income 831 784 47 6
Trust fees 5,372 6,221 (849) (14)
Brokerage and insurance commissions 649 866 (217) (25)
Securities gains/(losses), net (1,055) 1,535 (2,590) (169)
Unrealized gain/(loss) on equity securities, net (211) 112 (323) (288)
Net gains on sale of loans held for sale 1,832 5,281 (3,449) (65)
Valuation adjustment on servicing rights — 195 (195) (100)
Income on bank owned life insurance 694 940 (246) (26)
Other noninterest income 3,787 1,239 2,548 206
Total noninterest income $ 29,181 $ 32,724 $ (3,543) (11) %


		Nine Months Ended September 30,									Three Months Ended March 31,
		2022		2021		Change		% Change			2023		2022		Change		% Change
Service charges and fees	Service charges and fees	$	50,599	$	44,354	$	6,245	14	%	Service charges and fees	$	17,136	$	15,251	$	1,885	12	%
Loan servicing income	Loan servicing income	1,951		2,495		(544)		(22)		Loan servicing income	714		286		428		150
Trust fees	Trust fees	17,130		18,037		(907)		(5)		Trust fees	5,657		6,079		(422)		(7)
Brokerage and insurance commissions	Brokerage and insurance commissions	2,357		2,584		(227)		(9)		Brokerage and insurance commissions	696		869		(173)		(20)
Securities gains/(losses), net		(272)		4,347		(4,619)		(106)
Capital markets fees										Capital markets fees	2,449		3,039		(590)		(19)
Securities (losses)/gains, net										Securities (losses)/gains, net	(1,104)		2,872		(3,976)		(138)
Unrealized gain/(loss) on equity securities, net	Unrealized gain/(loss) on equity securities, net	(615)		85		(700)		(824)		Unrealized gain/(loss) on equity securities, net	193		(283)		476		168

Net gains on sale of loans held for sale	Net gains on sale of loans held for sale	8,144		16,454		(8,310)		(51)		Net gains on sale of loans held for sale	1,831		3,411		(1,580)		(46)
Valuation adjustment on servicing rights	Valuation adjustment on servicing rights	1,658		586		1,072		183		Valuation adjustment on servicing rights	—		1,658		(1,658)		(100)
Income on bank owned life insurance	Income on bank owned life insurance	1,741		2,706		(965)		(36)		Income on bank owned life insurance	964		524		440		84
Other noninterest income	Other noninterest income	15,596		4,557		11,039		242		Other noninterest income	1,463		863		600		70
Total noninterest income	Total noninterest income	$	98,289	$	96,205	$	2,084	2	%	Total noninterest income	$	29,999	$	34,569	$	(4,570)	(13)	%

Total noninterest income ~~totaled $29.2 million during the third quarter of 2022 compared to $32.7 million for the third quarter of 2021, a decrease of $3.5 million or 11%. Total noninterest income~~ was ~~$98.3~~$30.0 million during the first ~~nine~~three months of ~~2022~~2023 compared to ~~$96.2~~$34.6 million during the first ~~nine~~three months of ~~2021, an increase~~2022, a decrease of ~~$2.1~~$4.6 million or 2%13%.

Notable changes in noninterest income categories for the ~~three- and nine-~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ are as follows:

Service Charges and Fees

The following tables summarize the changes in service charges and fees for the ~~three- and nine-~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ in thousands:


		Three Months Ended September 30,									Three Months Ended March 31,
		2022		2021		Change		% Change			2023		2022		Change		% Change
Service charges and fees on deposit accounts	Service charges and fees on deposit accounts	$	4,764	$	4,146	$	618	15	%	Service charges and fees on deposit accounts	$	4,911	$	4,395	$	516	12	%
Overdraft fees	Overdraft fees	3,152		3,044		108		4		Overdraft fees	2,969		2,825		144		5
Customer service and other service fees	Customer service and other service fees	102		52		50		96		Customer service and other service fees	93		81		12		15
Credit card fee income	Credit card fee income	6,885		5,673		1,212		21		Credit card fee income	7,003		5,649		1,354		24
Debit card income	Debit card income	2,379		2,636		(257)		(10)		Debit card income	2,160		2,301		(141)		(6)
Total service charges and fees	Total service charges and fees	$	17,282	$	15,551	$	1,731	11	%	Total service charges and fees	$	17,136	$	15,251	$	1,885	12	%

		Nine Months Ended September 30,
		2022		2021		Change		% Change
Service charges and fees on deposit accounts		$	13,831	$	12,096	$	1,735	14	%
Overdraft fees		8,959		8,185		774		9
Customer service and other service fees		289		152		137		90
Credit card fee income		20,419		15,835		4,584		29
Debit card income		7,101		8,086		(985)		(12)
Total service charges and fees		$	50,599	$	44,354	$	6,245	14	%

The increase in service charges and fees on deposit accounts was primarily attributable to a larger customer base. The increase in credit card fee income ~~for the three and nine month comparisons~~ was primarily the result of a larger commercial credit card customer base and increased utilization. ~~The decline in debit card income for the three and nine month comparisons was primarily attributable to reduced volume due to shifting customer behavior.~~

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

Loan Servicing Income

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

following tables show the changes in loan servicing income for the ~~three- and nine-~~three months ended ~~September 30,~~March 31, 2023, and 2022, ~~and 2021,~~ in thousands:


		Three Months Ended September 30,
		2022		2021		Change		% Change
Commercial and agricultural loan servicing fees(1)		$	583	$	642	$	(59)	(9)	%
Residential mortgage servicing fees		471		446		25		6
Mortgage servicing rights amortization		(223)		(304)		81		27
Total loan servicing income		$	831	$	784	$	47	6	%

		Nine Months Ended September 30,									Three Months Ended March 31,
		2022		2021		Change		% Change			2023		2022		Change		% Change
Commercial and agricultural loan servicing fees(1)	Commercial and agricultural loan servicing fees(1)	$	1,469	$	2,155	$	(686)	(32)	%	Commercial and agricultural loan servicing fees(1)	$	473	$	237	$	236	100	%
Residential mortgage servicing fees	Residential mortgage servicing fees	1,391		1,369		22		2		Residential mortgage servicing fees	451		454		(3)		(1)
Mortgage servicing rights amortization	Mortgage servicing rights amortization	(909)		(1,029)		120		12		Mortgage servicing rights amortization	(210)		(405)		195		48
Total loan servicing income	Total loan servicing income	$	1,951	$	2,495	$	(544)	(22)	%	Total loan servicing income	$	714	$	286	$	428	150	%

(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,~~Losses/Gains, Net

For the ~~third~~first quarter of ~~2022,~~2023, net security losses totaled $1.1 million compared to net gains of ~~$1.5~~$2.9 million for the ~~third~~first quarter of ~~2021,~~2022, a decrease of $2.6 million. During the third quarter of 2022, HTLF sold approximately $59.1 million of securities with an average yield of 2.32%, which resulted in a net loss of $1.1 million. The proceeds were used to purchase securities with an average yield of 5.75%.

For the nine months ended September 30, 2022, net securities losses totaled $272,000 compared to net securities gains of $4.3 million for nine months ended September 30, 2021, which was a decrease of $4.6 million. During the first nine months of 2022, HTLF sold $217.8 million of lower yielding securities, resulting in net losses of $3.7$4.0 million.

Net Gains on Sale of Loans Held for Sale

For the ~~third~~first quarter of ~~2022,~~2023, net gains on sale of loans held for sale totaled $1.8 million, which was a decrease of ~~$3.4~~$1.6 million or ~~65%~~46% from ~~$5.3~~$3.4 million in the same quarter of ~~2021.~~2022. Loans sold to investors in the ~~third~~first quarter of ~~2022~~2023 totaled ~~$74.1~~$38.1 million compared to ~~$116.2~~$98.3 million during the ~~third~~first quarter of ~~2021,~~2022, which was a decrease of ~~$42.2~~$60.2 million or ~~36%.~~

~~For the nine months ended September 30, 2022, net gains on sale of loans held for sale totaled $8.1 million compared to $16.5 million during the same period in 2021, a decrease of $8.3 million or 51%~~61%. ~~Loans sold to investors in first nine months of 2022 totaled $257.0 million compared to $385.7 million for the first nine months of 2021, which was a decrease of $128.7 million or 33%.~~

The decrease ~~for both the quarterly and year-to date comparisons~~ was primarily attributable to a reduction in residential mortgage activity due to recent increases in residential mortgage loan interest rates.

Valuation Adjustment on Servicing Rights

The valuation adjustment on servicing rights was $0 for the ~~third~~first quarter of ~~2022~~2023 compared to ~~$195,000 for the third quarter of 2021. The valuation adjustment on servicing rights totaled~~ $1.7 million for the first ~~nine months~~quarter of ~~2022 compared to $586,000 for~~2022. HTLF sold its mortgage servicing rights portfolio in the first ~~nine months~~quarter of ~~2021, which was an increase of $1.1 million.~~2023. HTLF recovered its valuation allowance in the first quarter of 2022 due to recent increases in residential mortgage loan interest ~~rates, and no valuation allowance was required for the three and nine months ended September 30, 2022.~~

~~Other Noninterest Income~~

Other noninterest income totaled $3.8 million for the third quarter of 2022, which was an increase of $2.5 million from $1.2 million for the third quarter of 2021. Commercial swap fees and syndication income totaled $1.8 million in the third quarter of 2022 compared to $131,000 for the third quarter of 2021, which was an increase of $1.7 million.

Other noninterest income totaled $15.6 million for the first nine months of 2022 compared to $4.6 million for the first nine months of 2021. Commercial swap fees and syndication income totaled $9.7 million in the first nine months of 2022 compared

to $402,000 for the first nine months of 2021, which was an increase of $9.3 million. Gains of $1.9 million were recorded in the second quarter of 2022 on the sale of VISA B shares held by two subsidiary banks.rates.

Noninterest Expenses

The tables below show noninterest expenses for the ~~three- and nine-~~three months ended ~~September 30,~~March 31, 2023, and 2022, ~~and 2021,~~ in thousands:

Three Months Ended
September 30,
2022 2021 Change % Change
Salaries and employee benefits $ 62,661 $ 60,689 $ 1,972 3 %
Occupancy 6,794 7,366 (572) (8)
Furniture and equipment 2,928 3,365 (437) (13)
Professional fees 16,277 17,242 (965) (6)
Advertising 1,554 1,921 (367) (19)
Core deposit and customer relationship intangibles amortization 1,856 2,295 (439) (19)
Other real estate and loan collection expenses 304 78 226 290
(Gain)/loss on sales/valuations of assets, net (251) (3) (248) (8,267)
Acquisition, integration and restructuring costs 2,156 204 1,952 957
Partnership investment in tax credit projects 979 2,374 (1,395) (59)
Other noninterest expenses 13,625 15,096 (1,471) (10)
Total noninterest expenses $ 108,883 $ 110,627 $ (1,744) (2) %


		Nine Months Ended September 30,									Three Months Ended March 31,
		2022		2021		Change		% Change			2023		2022		Change		% Change
Salaries and employee benefits	Salaries and employee benefits	$	192,867	$	177,083	$	15,784	9	%	Salaries and employee benefits	$	62,149	$	66,174	$	(4,025)	(6)	%
Occupancy	Occupancy	21,250		22,683		(1,433)		(6)		Occupancy	7,209		7,362		(153)		(2)
Furniture and equipment	Furniture and equipment	9,480		9,959		(479)		(5)		Furniture and equipment	2,915		3,519		(604)		(17)
Professional fees	Professional fees	47,420		46,969		451		1		Professional fees	16,076		15,156		920		6

Advertising	Advertising	4,392		5,039		(647)		(13)		Advertising	1,985		1,555		430		28
Core deposit and customer relationship intangibles amortization	Core deposit and customer relationship intangibles amortization	5,993		7,226		(1,233)		(17)		Core deposit and customer relationship intangibles amortization	1,788		2,054		(266)		(13)
Other real estate and loan collection expenses	Other real estate and loan collection expenses	577		627		(50)		(8)		Other real estate and loan collection expenses	155		195		(40)		(21)
(Gain)/loss on sales/valuations of assets, net		(3,435)		374		(3,809)		(1,018)
Loss on sales/valuations of assets, net										Loss on sales/valuations of assets, net	1,115		46		1,069		2,324
Acquisition, integration and restructuring costs	Acquisition, integration and restructuring costs	5,144		3,342		1,802		54		Acquisition, integration and restructuring costs	1,673		576		1,097		190
Partnership investment in tax credit projects	Partnership investment in tax credit projects	1,793		3,754		(1,961)		(52)		Partnership investment in tax credit projects	538		77		461		599
Other noninterest expenses	Other noninterest expenses	40,678		39,370		1,308		3		Other noninterest expenses	15,440		14,083		1,357		10
Total noninterest expenses	Total noninterest expenses	$	326,159	$	316,426	$	9,733	3	%	Total noninterest expenses	$	111,043	$	110,797	$	246	—	%

For the ~~third quarter~~first three months of ~~2022, total~~2023, noninterest expenses ~~were $108.9~~totaled $111.0 million compared to ~~$110.6 million for the third quarter of 2021, a decrease of $1.7 million or 2%. For the first nine months of 2022, noninterest expenses totaled $326.2 million compared to $316.4~~$110.8 million during the first ~~nine~~three months of ~~2021,~~2022, an increase of ~~$9.7 million~~$246,000 or 3%less than 1%.

Notable changes in noninterest expense categories for the ~~three- and nine-~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ are as follows:

Salaries and employee benefits

Salaries and employee benefits totaled ~~$62.7~~$62.1 million for the ~~third~~first quarter of 2023 compared to $66.2 million for the first quarter of 2022, ~~compared to $60.7 million for the third quarter of 2021,~~ which was ~~an increase~~a decrease of ~~$2.0~~$4.0 million or ~~3%. Salaries and employee benefits totaled $192.9 million and $177.1 million for the nine months ended September 30, 2022 and 2021, respectively, which was an increase of $15.8 million or 9%~~6%. The ~~increases for the three and nine month periods are~~decrease was primarily attributable to ~~higher salaries expense due to inflationary wage pressures and normalized health care usage in 2022 compared to 2021.~~

a reduction of full-time

~~Occupancy~~

~~Occupancy expense~~equivalent employees and lower incentive compensation expense. Full-time equivalent employees totaled ~~$6.8 million for the third quarter of 2022,~~1,991 compared to 2,208, which was a decrease of ~~$572,000~~217 or 8%10%.

Occupancy

Occupancy expense totaled $7.2 million for the first quarter of 2023, which was a decrease of $153,000 or 2% from $7.4 million for the ~~third~~first quarter of ~~2021. For the nine months ended September 30, 2022 and 2021, occupancy expense totaled $21.3 million and $22.7 million, respectively, which was a decrease of $1.4 million or 6%.~~2022.

Furniture and Equipment

Furniture and equipment expense totaled $2.9 million for the ~~third~~first quarter of ~~2022,~~2023, which was a decrease of ~~$437,000~~$604,000 or ~~13%~~17% from ~~$3.4 million for the third quarter of 2021. For the nine months ended September 30, 2022, furniture and equipment expense totaled $9.5 million, which was a decrease of $479,000 or 5% from $10.0~~$3.5 million for the first ~~nine months~~quarter of ~~2021.~~2022.

The decreases in occupancy expense and furniture and equipment expense are primarily attributable to the decreased number of branch locations as a result of HTLF's branch optimization strategy. At ~~September 30, 2022,~~March 31, 2023, HTLF had ~~121~~119 branches compared to ~~131~~130 at ~~September 30, 2021.~~March 31, 2022.

~~Gain/loss~~Professional Fees

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

Loss on sales/valuations of assets, net

Net ~~gains~~losses on sales/valuations of assets were ~~$251,000~~$1.1 million for the ~~third~~first quarter of ~~2022~~2023 compared to ~~net gains of $3,000~~$46,000 for the ~~third~~first quarter of ~~2021. For the nine months ended September 30, 2022, net gains~~2022. HTLF recorded $813,000 of losses on ~~sales/valuations of~~fixed assets ~~were $3.4 million compared to net losses of $374,000 for the nine months ended September 30, 2021. During the second quarter of 2022, two branches in Illinois were sold for a gain of $3.0 million,~~associated with branch optimization activities and a ~~gain~~loss of ~~$413,000 was also recorded in conjunction~~$193,000 associated with the sale of ~~an insurance subsidiary.~~the mortgage servicing rights portfolio in the first quarter of 2023.

Acquisition, integration and restructuring costs

Acquisition, integration and restructuring costs ~~were $2.2~~totaled $1.7 million ~~for~~in the ~~third~~first quarter of 2023 compared to $576,000 in the first quarter of 2022, ~~which was~~ an increase of ~~$2.0~~$1.1 million ~~from $204,000 for~~due to the ~~third quarter~~progression of 2021. Acquisition, integration and restructuring costs increased $1.8 million or 54% to $5.1 million for the first nine months of 2022 compared to $3.3 million for the first nine months of 2021. The expenses incurred in the third quarter and first nine months of 2022 were primarily related to further progress on the charter consolidation project ~~and~~which will continue through the end of 2023. ~~The expenses incurred in the first nine months of 2021 were primarily attributable to the AimBank conversion in February 2021.~~

~~Partnership investment in tax credit projects~~

Partnership investments in tax credit projects decreased $1.4 million or 59% to $979,000 for the third quarter of 2022 compared to $2.4 million for the same quarter of 2021. For the first nine months of 2022, partnership investment in tax credit projects decreased $2.0 million or 52% to $1.8 million from $3.8 million for the first nine months of 2021. The expense is dependent upon the number of tax credit projects placed into service during the period.

Efficiency Ratio

One of HTLF's strategic priorities is to improve its adjusted efficiency ratio, on a fully tax-equivalent basis (non-GAAP), with the goal of maintaining it at or below 57%. During the ~~third~~first quarter of ~~2022,~~2023, the efficiency ratio was 60.94% (57.16% on aan adjusted fully tax-equivalent basis, ~~(non-GAAP) decreased 512 basis points~~non-GAAP) compared to ~~55.26% from 60.38% for the third quarter of 2021. For the nine months ended September 30, 2022, the efficiency ratio~~65.46% (64.65% on aan adjusted fully tax-equivalent basis, ~~(non-GAAP) increased by 94 basis points to 58.99% in comparison with 58.05%~~non-GAAP) for the ~~nine months ended September 30, 2021.~~

The efficiency ratio for the three months ended September 30, 2022, was positively impacted by higher net interest income. The efficiency ratio for the nine months ended September 30, 2022, was positively impacted by higher net interest income and noninterest income, which was partially offset by increases in noninterest expenses as noted above.first quarter of 2022.

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

•
~~The consolidation~~

Consolidation of its ~~eleven~~ bank ~~charters.~~ charters

Charter consolidation is designed to eliminate redundancies and improve HTLF’s operating efficiency and capacity to support ongoing product and service enhancements and current and future growth. Through the end of the ~~third~~first quarter of ~~2022, three~~2023, six charters have been consolidated into HTLF Bank, and subsequent to ~~September 30, 2022,~~March 31, 2023, one additional charter was consolidated. The consolidated charters are now operating as divisions of HTLF Bank. ~~HTLF expects to complete one additional charter consolidation in the fourth quarter of 2022, and the~~The remaining ~~six~~ charters are expected to be consolidated inthroughout the remainder of 2023.

Consolidation restructuring costs are projected to be $19-20 million with approximately ~~$12-13~~$8-$9 million of expenses remaining to be incurred ~~through~~in 2023. Total costs incurred since the project started in the fourth quarter of 2021 through ~~September 30, 2022~~March 31, 2023, were ~~$6.9~~$11.0 million, of which ~~$2.1~~$1.7 million was incurred in the ~~third~~first quarter of ~~2022. For the~~

~~nine months ended September 30, 2022, consolidation restructuring costs of $5.0 million have been incurred.~~2023. HTLF has realized some operating efficiencies and financial benefits ~~in the third quarter of 2022~~ with the ~~completion of two~~completed charter consolidations. The resulting efficiencies and expansion in capacity are projected to generate benefits of approximately ~~$20.0~~$20 million annually when the project is completed with core operating expenses expected to decline to 2.10% or less of average assets.

•

Branch optimization ~~strategy. During the nine months ended September 30, 2022,~~ strategy

HTLF ~~sold, closed or consolidated 9 branch locations and expects~~continues to ~~reduce~~review its branch ~~count by one additional~~network and physical facilities as part of its branch ~~before December 31, 2022.~~optimization strategy and anticipates closing 2-3 branches in 2023, which may result in write-downs of fixed assets in future periods.

Income Taxes

The effective tax rate was ~~19.97%~~22.50% for the ~~third~~first quarter of ~~2022~~2023 compared to ~~19.15%~~21.95% for the ~~third~~first quarter of ~~2021.~~2022. The following items impacted the ~~third~~first quarter ~~2022~~2023 and ~~2021~~2022 tax calculations:

•Solar energy tax credits of ~~$1.1 million~~$310,000 compared to ~~$2.1 million.~~$0.

•Federal low-income housing tax credits of ~~$519,000~~$311,000 compared to $135,000.

•New markets tax credits of ~~$75,000 in each quarterly calculation.~~$90,000 compared to $75,000.

•Historic rehabilitation tax credits of ~~$63,000~~$258,000 compared to ~~$327,000.~~$63,000.

•Tax-exempt interest income as a percentage of pre-tax income of ~~11.45%~~12.20% compared to ~~9.32%.~~

The effective tax rate was 21.56% for the nine months ended September 30, 2022, compared to 20.92% for the nine months ended September 30, 2021. The following items impacted HTLF's tax calculation for the first nine months of 2022 and 2021:

•~~Solar energy tax credits of $1.8 million compared to $3.5 million.~~

•~~Federal low-income housing tax credits of $789,000 compared to $404,000.~~

•~~New markets tax credits of $225,000 in each period.~~

•~~Historic rehabilitation tax credits of $190,000 compared to $450,000.~~

•~~Tax-exempt interest income as a percentage of pre-tax income of 12.17% compared to 9.15%~~14.44%.

•Tax benefit of ~~$129,000~~$46,000 compared to ~~a tax benefit of $304,000~~$172,000 resulting from the vesting of restricted stock units.

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

FINANCIAL CONDITION

Total assets were ~~$19.68~~$20.18 billion at ~~September 30, 2022, an increase~~March 31, 2023, a decrease of ~~$408.4~~$61.7 million or 2%less than 1% from ~~$19.27~~$20.24 billion at December 31, ~~2021.~~2022. Securities represented 35% ~~and 40%~~ of total assets at ~~September 30, 2022,~~both March 31, 2023, and December 31, ~~2021, respectively.~~2022.

LENDING ACTIVITIES

HTLF's board of directors establishes an acceptable level of credit risk appetite, and the subsidiary banks follow certain centralized lending policies and procedures that are designed to provide for a level of credit risk commensurate within the 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 $473.9 million of PPP II loans. At September 30, 2022, HTLF had $1.9 million of PPP I loans outstanding. PPP II loans outstanding at September 30, 2022 totaled $11.6 million, which was net of $366,000 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. 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, changes 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 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 ~~$10.92~~$11.50 billion at ~~September 30, 2022,~~March 31, 2023, and ~~$9.95~~$11.43 billion at December 31, ~~2021,~~2022, an increase of ~~$969.0~~$67.0 million or ~~10%~~1%. ~~Excluding PPP loans, total loans held to maturity increased $1.16 billion or 12% since year-end 2021.~~

The following table shows the changes in loan balances by loan category since December 31, ~~2021,~~2022, in thousands:


		September 30, 2022		December 31, 2021		Change		% Change			March 31, 2023		December 31, 2022		Change		% Change
Commercial and industrial	Commercial and industrial	$	3,278,703	$	2,645,085	$	633,618	24	%	Commercial and industrial	$	3,498,345	$	3,464,414	$	33,931	1	%
PPP		13,506		199,883		(186,377)		(93)
Paycheck Protection Program ("PPP")										Paycheck Protection Program ("PPP")	8,258		11,025		(2,767)		(25)
Owner occupied commercial real estate	Owner occupied commercial real estate	2,285,973		2,240,334		45,639		2		Owner occupied commercial real estate	2,312,538		2,265,307		47,231		2
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	2,219,542		2,010,591		208,951		10		Non-owner occupied commercial real estate	2,421,341		2,330,940		90,401		4
Real estate construction	Real estate construction	996,017		856,119		139,898		16		Real estate construction	1,102,186		1,076,082		26,104		2
Agricultural and agricultural real estate	Agricultural and agricultural real estate	781,354		753,753		27,601		4		Agricultural and agricultural real estate	810,183		920,510		(110,327)		(12)
Residential mortgage	Residential mortgage	852,928		829,283		23,645		3		Residential mortgage	841,084		853,361		(12,277)		(1)
Consumer	Consumer	495,509		419,524		75,985		18		Consumer	501,418		506,713		(5,295)		(1)
Total loans held to maturity	Total loans held to maturity	$	10,923,532	$	9,954,572	$	968,960	10	%	Total loans held to maturity	$	11,495,353	$	11,428,352	$	67,001	1	%

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

Notable changes in the loan portfolio include:

•Commercial and industrial loans increased ~~$633.6~~$33.9 million or ~~24%~~1% to ~~$3.28~~$3.50 billion at ~~September 30, 2022,~~March 31, 2023, compared to ~~$2.65~~$3.46 billion at December 31, ~~2021.~~2022.

•~~PPP~~Owner occupied commercial real estate loans ~~decreased $186.4~~increased $47.2 million or ~~93%~~2% to ~~$13.5 million~~$2.31 billion at ~~September 30, 2022,~~March 31, 2023, compared to ~~$199.9 million~~$2.27 billion at ~~year-end 2021 due to forgiveness payments from the SBA. Approximately 99% of total PPP loans have been forgiven.~~December 31, 2022.

•Non-owner occupied commercial real estate loans increased ~~$209.0~~$90.4 million or ~~10%~~4% to ~~$2.22~~$2.42 billion at ~~September 30, 2022,~~March 31, 2023, compared to ~~$2.01~~$2.33 billion at ~~year-end 2021.~~December 31, 2022.

•Real estate construction loans increased ~~$139.9~~$26.1 million or ~~16%~~2% to ~~$996.0~~$1.10 billion at March 31, 2023, compared to $1.08 billion at December 31, 2022.

•Agricultural and agricultural real estate loans decreased $110.3 million or 12% to $810.2 million at ~~September 30, 2022,~~March 31, 2023 compared to ~~$856.1~~$920.5 million at ~~year-end 2021.~~December 31, 2022, which was attributable to paydowns of credit lines and delayed utilization primarily due to weather concerns in the California markets.

~~The loan growth in the first nine months of 2022 was primarily attributable to the expansion of specific commercial lending teams and further market penetration in various HTLF growth markets.~~

The table below presents the composition of the loan portfolio as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, in thousands:


		September 30, 2022				December 31, 2021					March 31, 2023				December 31, 2022
		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	$	3,278,703	30.01	%	$	2,645,085	26.57	%	Commercial and industrial	$	3,498,345	30.43	%	$	3,464,414	30.31	%
PPP	PPP	13,506		0.12		199,883		2.01		PPP	8,258		0.07		11,025		0.10
Owner occupied commercial real estate	Owner occupied commercial real estate	2,285,973		20.93		2,240,334		22.51		Owner occupied commercial real estate	2,312,538		20.12		2,265,307		19.82
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	2,219,542		20.32		2,010,591		20.20		Non-owner occupied commercial real estate	2,421,341		21.06		2,330,940		20.40
Real estate construction	Real estate construction	996,017		9.12		856,119		8.60		Real estate construction	1,102,186		9.59		1,076,082		9.42
Agricultural and agricultural real estate	Agricultural and agricultural real estate	781,354		7.15		753,753		7.57		Agricultural and agricultural real estate	810,183		7.05		920,510		8.05
Residential mortgage	Residential mortgage	852,928		7.81		829,283		8.33		Residential mortgage	841,084		7.32		853,361		7.47
Consumer	Consumer	495,509		4.54		419,524		4.21		Consumer	501,418		4.36		506,713		4.43
Gross loans receivable held to maturity	Gross loans receivable held to maturity	10,923,532		100.00	%	9,954,572		100.00	%	Gross loans receivable held to maturity	11,495,353		100.00	%	11,428,352		100.00	%

Allowance for credit losses-loans	Allowance for credit losses-loans	(105,715)				(110,088)				Allowance for credit losses-loans	(112,707)				(109,483)
Loans receivable, net	Loans receivable, net	$	10,817,817			$	9,844,484			Loans receivable, net	$	11,382,646			$	11,318,869

ALLOWANCE FOR CREDIT LOSSES

The process utilized by HTLF to determine the appropriateness of the allowance for credit losses is considered a critical accounting practice. The allowance for credit losses represents management's estimate of lifetime losses in the existing loan portfolio. For additional details on the specific factors considered in determining the allowance for credit losses, refer to the critical accounting estimates section of HTLF's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~

2022.

Total Allowance for Lending Related Credit Losses

The total allowance for lending related credit losses was ~~$124.6~~$133.8 million at ~~September 30, 2022,~~March 31, 2023, which was ~~1.14%~~1.16% of loans, compared to ~~$125.6~~$129.7 million or ~~1.26%~~1.13% of loans at December 31, ~~2021.~~2022. The following table shows, in thousands, the components of the allowance for lending related credit losses as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021:~~2022:


		September 30, 2022				December 31, 2021					March 31, 2023				December 31, 2022
		Amount		% of Allowance		Amount		% of Allowance			Amount		% of Allowance		Amount		% of Allowance
Quantitative	Quantitative	$	85,026	68.24	%	$	88,635	70.60	%	Quantitative	$	86,462	64.62	%	$	84,409	65.09	%
Qualitative/Economic Forecast	Qualitative/Economic Forecast	39,573		31.76		36,915		29.40		Qualitative/Economic Forecast	47,331		35.38		45,270		34.91

Total	Total	$	124,599	100.00	%	$	125,550	100.00	%	Total	$	133,793	100.00	%	$	129,679	100.00	%

Quantitative Allowance

The quantitative allowance ~~decreased $3.6 million to $85.0~~increased $2.1 million or ~~68%~~2% to $86.5 million or 65% of the total allowance for lending related credit losses at ~~September 30, 2022,~~March 31, 2023, compared to ~~$88.6~~$84.4 million or ~~71%~~65% of the total allowance at December 31, ~~2021. Positively impacting the quantitative allowance was a reduction~~2022. Specific reserves for individually assessed loans totaled $9.6 million at March 31, 2023, an increase of ~~$160.1~~$2.5 million ~~in nonpass loans since year-end 2021. Included in the quantitative allowance for September 30, 2022, and~~or 35% from $7.1 million at December 31, ~~2021, were specific reserves of $7.8 million and $7.6 million, respectively.~~2022.

Qualitative Allowance/Economic Forecast

The qualitative allowance totaled ~~$39.6~~$47.3 million or ~~32%~~35% of the total allowance for lending related credit losses at ~~September 30, 2022,~~March 31, 2023, compared to ~~$36.9~~$45.3 million or ~~29%~~35% at December 31, ~~2021. Management's assessment of the risk factors in the qualitative calculation at September 30, 2022, reflected an adjustment for the sustainability of current credit quality trends.~~ 2022.

HTLF has access to various third-party economic forecast scenarios provided by Moody's, which are updated quarterly in ~~the~~HTLF's methodology. ~~At September 30, 2022, Moody's September 6, 2022, baseline forecast scenario was utilized, which was the most currently available forecast, and~~ HTLF continued to use a one year reasonable and supportable forecast period. ~~For~~At March 31, 2023, Moody's March 14, 2023, baseline forecast scenario was utilized, and management considered other downturn forecast scenarios, which anticipated a moderate recession developing withing the ~~September 30, 2022, calculation,~~next twelve months, in addition to the ~~economic~~baseline forecast to support the macroeconomic outlook ~~factors~~ used ~~to develop~~in the allowance ~~retained a measured level of caution and uncertainty that management deemed appropriate~~ for ~~continued economic headwinds, such as inflation, supply chain challenges, workforce shortages, wage pressures and COVID-19 variants, which are leading to higher interest rates and recession concerns.~~credit losses calculation.

Allowance for Credit Losses-Loans

The tables below present the changes in the allowance for credit losses for loans during the ~~three- and nine-~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ in thousands:

Three Months Ended
September 30,
2022 2021
Balance at beginning of period $ 101,353 $ 120,726
Provision (benefit) for credit losses 4,388 (4,448)
Recoveries on loans previously charged off 912 2,422
Charge-offs on loans (938) (1,167)
Balance at end of period $ 105,715 $ 117,533
Allowance for credit losses for loans as a percent of loans 0.97 % 1.19 %
Annualized ratio of net charge offs (recoveries) to average loans — % (0.05) %


		Nine Months Ended September 30,							Three Months Ended March 31,
		2022			2021				2023			2022
Balance at beginning of period	Balance at beginning of period	$	110,088		$	131,606		Balance at beginning of period	$	109,483		$	110,088

Provision (benefit) for credit losses		8,561			(10,898)
Provision for credit losses								Provision for credit losses	2,184			2,628
Recoveries on loans previously charged off	Recoveries on loans previously charged off	2,694			3,615			Recoveries on loans previously charged off	3,191			1,023
Charge-offs on loans	Charge-offs on loans	(15,628)			(6,790)			Charge-offs on loans	(2,151)			(13,217)
Balance at end of period	Balance at end of period	$	105,715		$	117,533		Balance at end of period	$	112,707		$	100,522
Allowance for credit losses for loans as a percent of loans	Allowance for credit losses for loans as a percent of loans	0.97		%	1.19		%	Allowance for credit losses for loans as a percent of loans	0.98		%	0.99		%
Annualized ratio of net charge offs to average loans		0.17		%	0.04		%
Annualized ratio of net charge offs/(recoveries) to average loans								Annualized ratio of net charge offs/(recoveries) to average loans	(0.04)		%	0.49		%

The allowance for credit losses for loans totaled ~~$105.7~~$112.7 million at ~~September 30, 2022,~~March 31, 2023, compared to ~~$110.1~~$109.5 million at December 31, ~~2021,~~2022, and ~~$117.5~~$100.5 million at ~~September 30, 2021.~~March 31, 2022. The allowance for credit losses for loans at ~~September 30, 2022,~~March 31, 2023, was ~~0.97%~~0.98% of loans compared to ~~1.11%~~0.96% of loans at December 31, ~~2021.~~2022. The following items ~~have~~ impacted the allowance for credit losses for loans for the ~~nine~~three months ended ~~September 30, 2022:~~March 31, 2023:

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

•Net ~~charge offs~~recoveries for the first ~~nine~~three months of ~~2022~~2023 totaled ~~$12.9~~$1.0 million compared to ~~$3.2~~net charge-offs of $12.2 million for the first ~~nine~~three months of ~~2021,~~2022, which was ~~an increase~~a decrease of ~~$9.8~~$13.2 million. Included in net charge-offs for the first ~~nine~~three months of 2022 were two charge-offs due to customer fraud totaling $9.2 million related to two lending relationships which had collateral deficiencies. ~~Additionally, in the first nine months of 2022, a charge-off totaling $2.6 million was recorded for one agricultural-related credit that had been substantially reserved for in a prior period.~~

•Nonpass loans ~~decreased $160.1~~increased $13.5 million or ~~22%~~3% to ~~$581.1~~$546.8 million at ~~September 30, 2022,~~March 31, 2023, from ~~$741.3~~$533.3 million at December 31, ~~2021.~~2022.

The following tables show, in thousands, the changes in the allowance for unfunded commitments for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


		Three Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
Balance at beginning of period	Balance at beginning of period	17,780		14,002		Balance at beginning of period	$	20,196	$	15,462
Provision (benefit) for credit losses		1,104		(35)
Impact of ASU 2016-13 adoption on January 1, 2020						Impact of ASU 2016-13 adoption on January 1, 2020	—		—
Adjusted balance at January 1, 2020						Adjusted balance at January 1, 2020	20,196		15,462
Provision for credit losses						Provision for credit losses	890		617
Balance at end of period	Balance at end of period	$	18,884	$	13,967	Balance at end of period	$	21,086	$	16,079

		Nine Months Ended September 30,
		2022		2021
Balance at beginning of period		$	15,462	$	15,280

Provision (benefit) for credit losses		3,422		(1,313)
Balance at end of period		$	18,884	$	13,967

The allowance for unfunded commitments totaled ~~$18.9~~$21.1 million as of ~~September 30, 2022,~~March 31, 2023, compared to ~~$15.5~~$20.2 million as of December 31, ~~2021,~~2022, and ~~$14.0~~$16.1 million as of ~~September 30, 2021.~~March 31, 2022. Unfunded commitments increased ~~$834.2~~$138.2 million or 3% to ~~$4.66~~$4.87 billion at ~~September 30, 2022,~~March 31, 2023, compared to ~~$3.83~~$4.73 billion at December 31, ~~2021.~~2022.

CREDIT QUALITY AND NONPERFORMING ASSETS

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

The nonpass loans totaled ~~$581.1~~$546.8 million or ~~5.3%~~4.8% of total loans as of ~~September 30, 2022,~~March 31, 2023, compared to ~~$741.3~~$533.3 million or ~~7.4%~~4.7% of total loans as of December 31, ~~2021.~~2022. As of ~~September 30, 2022,~~March 31, 2023, the nonpass loans consisted of approximately ~~45%~~49% watch loans and ~~55%~~51% substandard loans compared to approximately ~~50%~~48% watch loans and ~~50%~~52% substandard loans as of December 31, ~~2021.~~2022. The percent of nonpass loans on nonaccrual status as of ~~September 30, 2022,~~March 31, 2023, was 11% ~~compared to 9% as of December 31, 2021.~~.

Included in the nonpass loans at ~~September 30, 2022,~~March 31, 2023, were ~~$2.6~~$1.4 million of nonpass PPP loans as a result of risk ratings on non-PPP related credits. HTLF's risk rating methodology assigns a risk rating to the whole lending relationship. No allowance was

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

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


		September 30,						December 31,							March 31,						December 31,
		2022			2021			2021			2020				2023			2022			2022			2021
Nonaccrual loans	Nonaccrual loans	$	64,560		$	82,375		$	69,369		$	87,386		Nonaccrual loans	$	58,066		$	64,174		$	58,231		$	69,369
Loans contractually past due 90 days or more	Loans contractually past due 90 days or more	678			861			550			720			Loans contractually past due 90 days or more	174			246			273			550
Total nonperforming loans	Total nonperforming loans	65,238			83,236			69,919			88,106			Total nonperforming loans	58,240			64,420			58,504			69,919
Other real estate	Other real estate	8,030			4,744			1,927			6,624			Other real estate	7,438			1,422			8,401			1,927
Other repossessed assets	Other repossessed assets	—			166			43			240			Other repossessed assets	24			34			26			43
Total nonperforming assets	Total nonperforming assets	$	73,268		$	88,146		$	71,889		$	94,970		Total nonperforming assets	$	65,702		$	65,876		$	66,931		$	71,889

Performing troubled debt restructured loans(1)		$	8,047		$	1,817		$	817		$	2,370

Nonperforming loans to total loans	Nonperforming loans to total loans	0.60		%	0.84		%	0.70		%	0.88		%	Nonperforming loans to total loans	0.51		%	0.63		%	0.51		%	0.70		%
Nonperforming assets to total loans plus repossessed property	Nonperforming assets to total loans plus repossessed property	0.67			0.89			0.72			0.95			Nonperforming assets to total loans plus repossessed property	0.57			0.65			0.59			0.72
Nonperforming assets to total assets	Nonperforming assets to total assets	0.37			0.46			0.37			0.53			Nonperforming assets to total assets	0.33			0.34			0.33			0.37

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

The schedules below summarize the changes in nonperforming assets during the ~~three- and nine-~~three months ended ~~September 30, 2022,~~March 31, 2023, in thousands:

Nonperforming
Loans Other
Real Estate
Owned Other
Repossessed
Assets Total
Nonperforming
Assets
June 30, 2022 $ 63,004 $ 4,528 $ — $ 67,532
Loan foreclosures (4,113) 3,774 339 —
Net loan charge-offs (26) — — (26)
New nonperforming loans 8,388 — — 8,388
Reduction of nonperforming loans(1)
(2,015) — — (2,015)
OREO/Repossessed assets sales proceeds — (239) (398) (637)
OREO/Repossessed assets writedowns, net — (33) 59 26
September 30, 2022 $ 65,238 $ 8,030 $ — $ 73,268
(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, 2021		$	69,919	$	1,927	$	43	$	71,889
December 31, 2022										December 31, 2022	$	58,504	$	8,401	$	26	$	66,931
Loan foreclosures	Loan foreclosures	(8,850)		8,458		392		—		Loan foreclosures	(219)		211		8		—
Net loan charge-offs		(12,934)		—		—		(12,934)
Net loan recoveries										Net loan recoveries	1,040		—		—		1,040

New nonperforming loans	New nonperforming loans	32,810		—		—		32,810		New nonperforming loans	4,626		—		—		4,626
Reduction of nonperforming loans(1)	Reduction of nonperforming loans(1)	(15,707)		—		—		(15,707)		Reduction of nonperforming loans(1)	(5,711)		—		—		(5,711)
OREO/Repossessed assets sales proceeds	OREO/Repossessed assets sales proceeds	—		(2,074)		(490)		(2,564)		OREO/Repossessed assets sales proceeds	—		(1,132)		(4)		(1,136)
OREO/Repossessed assets writedowns, net	OREO/Repossessed assets writedowns, net	—		(281)		55		(226)		OREO/Repossessed assets writedowns, net	—		(42)		(6)		(48)

September 30, 2022		$	65,238	$	8,030	$	—	$	73,268
March 31, 2023										March 31, 2023	$	58,240	$	7,438	$	24	$	65,702

(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 $1.4~~decreased $1.2 million or 2% to ~~$73.3~~$65.7 million or ~~0.37%~~0.33% of total assets at ~~September 30, 2022,~~March 31, 2023, compared to ~~$71.9~~$66.9 million or ~~0.37%~~0.33% of total assets at December 31, ~~2021.~~2022. Nonperforming loans were ~~$65.2~~$58.2 million at ~~September 30, 2022,~~March 31, 2023, compared to ~~$69.9~~$58.5 million at December 31, ~~2021,~~2022, which represented ~~0.60% and 0.70%~~0.51% of total loans at ~~September 30, 2022,~~both March 31, 2023, and December 31, ~~2021, respectively.~~2022. At ~~September 30, 2022,~~March 31, 2023, approximately ~~$40.6~~$40.0 million or ~~62%~~69% of HTLF's nonperforming loans had individual loan balances exceeding $1.0 million and represented loans to ~~fourteen~~fifteen borrowers. The portion of the nonperforming nonresidential real estate loans covered by government guarantees totaled ~~$14.5~~$9.0 million and $12.5 million at ~~both September 30, 2022,~~March 31, 2023, and December 31, ~~2021.~~2022, respectively.

SECURITIES

The composition of the securities portfolio is managed to ensure liquidity needs are met while maximizing the return on the portfolio within the established HTLF risk appetite parameters and in consideration of the impact it has on HTLF's asset/liability position. Securities represented 35% ~~and 40%~~ of total assets at ~~September 30, 2022,~~both March 31, 2023, and December 31, ~~2021, respectively.~~2022. Total securities carried at fair value as of ~~September 30, 2022,~~March 31, 2023, were ~~$6.06~~$6.10 billion, a decrease of ~~$1.47 billion~~$50.5 million or ~~20%~~1% from ~~$7.53~~$6.15 billion at December 31, ~~2021.~~2022.

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

The table below presents the composition of the securities portfolio, including securities carried at fair value, held to maturity securities, net of allowance for credit losses, and other, by major category, as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, in thousands:


		September 30, 2022				December 31, 2021					March 31, 2023				December 31, 2022
		Amount		Percent		Amount		Percent			Amount		Percent		Amount		Percent
U.S. treasuries	U.S. treasuries	$	26,737	0.38	%	$	1,008	0.01	%	U.S. treasuries	$	31,932	0.46	%	$	31,699	0.45	%
U.S. agencies	U.S. agencies	43,300		0.62		193,384		2.51		U.S. agencies	43,584		0.62		43,135		0.61
Obligations of states and political subdivisions	Obligations of states and political subdivisions	1,664,870		23.88		2,169,742		28.19		Obligations of states and political subdivisions	1,720,020		24.57		1,708,840		24.24
Mortgage-backed securities - agency	Mortgage-backed securities - agency	1,828,276		26.23		2,349,289		30.52		Mortgage-backed securities - agency	1,757,469		25.10		1,772,105		25.13
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	2,122,859		30.46		1,743,379		22.65		Mortgage-backed securities - non-agency	2,117,882		30.25		2,181,876		30.94
Commercial mortgage-backed securities - agency	Commercial mortgage-backed securities - agency	86,148		1.24		123,912		1.61		Commercial mortgage-backed securities - agency	86,022		1.23		85,123		1.21
Commercial mortgage-backed securities - non-agency	Commercial mortgage-backed securities - non-agency	689,675		9.89		600,888		7.81		Commercial mortgage-backed securities - non-agency	657,874		9.40		659,459		9.35
Asset-backed securities	Asset-backed securities	400,032		5.74		409,653		5.32		Asset-backed securities	435,523		6.22		416,054		5.90
Corporate bonds	Corporate bonds	8,423		0.12		3,040		0.04		Corporate bonds	57,845		0.83		57,942		0.82

Equity securities with a readily determinable fair value	Equity securities with a readily determinable fair value	20,258		0.29		20,788		0.27		Equity securities with a readily determinable fair value	20,604		0.29		20,314		0.29
Other securities	Other securities	80,286		1.15		82,567		1.07		Other securities	72,364		1.03		74,567		1.06
Total securities	Total securities	$	6,970,864	100.00	%	$	7,697,650	100.00	%	Total securities	$	7,001,119	100.00	%	$	7,051,114	100.00	%

HTLF's securities portfolio had an expected modified duration of ~~6.09~~6.19 years as of ~~September 30, 2022, compared to 5.26 years as of~~both March 31, 2023, and December 31, ~~2021.~~

At ~~September 30, 2022,~~March 31, 2023, HTLF had ~~$80.3~~$72.4 million of other securities, including capital stock in each Federal Home Loan Bank ("FHLB") of which each of its ~~bank subsidiaries~~Banks is a member. All of these securities were classified as other securities held at cost.

DEPOSITS

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

The following table shows the changes in deposit balances by deposit type since year-end ~~2021,~~2022, in thousands:

September 30, 2022 December 31, 2021 Change % Change
Demand deposits $ 6,083,563 $ 6,495,326 $ (411,763) (6) %
Savings deposits 10,060,523 8,897,909 1,162,614 13
Time deposits 1,123,035 1,024,020 99,015 10
Total $ 17,267,121 $ 16,417,255 $ 849,866 5 %


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

Total customer deposits	$	14,838,426	$	15,456,626	$	(618,200)	(4)	%
Total wholesale deposits	2,842,920		2,056,383		786,537		38	%
Total deposits	$	17,681,346	$	17,513,009	$	168,337

At ~~September 30, 2022,~~March 31, 2023, HTLF had ~~$1.28~~$2.84 billion of wholesale ~~funding~~ deposits, of which ~~$1.13 billion~~$609.2 million were included in savings deposits and ~~$150.0 million~~$2.23 billion were included in time deposits. HTLF had ~~$235.0~~$1.09 billion of wholesale savings deposits and $965.7 million of wholesale ~~funding~~time deposits at December 31, ~~2021, which were included in savings deposits.~~2022.

The table below presents the composition of deposits by category as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, in thousands:

September 30, 2022 December 31, 2021
Amount Percent Amount Percent
Demand $ 6,083,563 35.23 % $ 6,495,326 39.57 %
Savings 10,060,523 58.27 8,897,909 54.20
Time 1,123,035 6.50 1,024,020 6.23
Total $ 17,267,121 100.00 % $ 16,417,255 100.00 %


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

SHORT-TERM BORROWINGS

Short-term borrowings, which HTLF defines as borrowings with an original maturity of one year or less, were as follows as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, in thousands:


		September 30, 2022		December 31, 2021		Change		% Change			March 31, 2023		December 31, 2022		Change		% Change
Securities sold under agreement to repurchase	Securities sold under agreement to repurchase	$	111,047	$	122,996	$	(11,949)	(10)	%	Securities sold under agreement to repurchase	$	81,641	$	95,303	$	(13,662)	(14)	%

Advances from the FHLB										Advances from the FHLB	1,000		50,000		(49,000)		(98)
Advances from the federal discount window	Advances from the federal discount window	30,000		—		30,000		100		Advances from the federal discount window	—		224,000		(224,000)		(100)
Other short-term borrowings	Other short-term borrowings	5,953		8,601		(2,648)		(31)		Other short-term borrowings	9,696		6,814		2,882		42
Total	Total	$	147,000	$	131,597	$	15,403	12	%	Total	$	92,337	$	376,117	$	(283,780)	(75)	%

Short-term borrowings generally include federal funds purchased, securities sold under agreements to repurchase, short-term FHLB advances and discount window borrowings from the Federal Reserve Bank. These funding alternatives are utilized in varying degrees depending on their pricing and availability. All ~~of HTLF's bank subsidiaries~~Banks 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. Short-term borrowings totaled ~~$147.0~~$92.3 million at ~~September 30, 2022,~~March 31, 2023, compared to ~~$131.6~~$376.1 million at December 31, ~~2021, an increase~~2022, a decrease of ~~$15.4~~$283.8 million or ~~12%~~75%.

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

The Banks provide retail repurchase agreements to their customers as a cash management tool, which sweep excess funds from demand deposit accounts into these agreements. Although the aggregate balance of these retail repurchase

agreements is subject to variation, the account relationships represented by these balances are principally local. The balances of retail repurchase agreements were ~~$111.0~~$81.6 million at ~~September 30, 2022,~~March 31, 2023, compared to ~~$123.0~~$95.3 million at December 31, ~~2021,~~2022, a decrease of ~~$11.9~~$13.7 million or ~~10%~~14%.

HTLF renewed its revolving credit line agreement with an unaffiliated bank on June 14, 2022. This revolving credit line agreement, which has $100.0 million of borrowing capacity, is included in short-term borrowings, and the primary purpose of this credit line agreement is to provide liquidity. No advances occurred on this line during the first ~~nine~~three months of ~~2022,~~2023, and the outstanding balance was $0 at both ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021.~~2022.

OTHER BORROWINGS

The outstanding balances of other borrowings, which HTLF defines as borrowings with an original maturity date of more than one year, are shown in the table below, net of discount and issuance costs amortization as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, in thousands:

September 30, 2022 December 31, 2021 Change % Change
Advances from the FHLB $ 770 $ 898 $ (128) (14) %
Trust preferred securities 148,042 147,316 726 —
Contracts payable 82 1,593 (1,511) (95)
Subordinated notes 222,552 222,265 287 —
Total $ 371,446 $ 372,072 $ (626) — %

~~As of September 30, 2022, other borrowings totaled $371.4 million compared to $372.1 million as of December 31, 2021, a decrease of $626,000 or less than 1% since year-end 2021.~~


	March 31, 2023		December 31, 2022		Change		% Change
Advances from the FHLB	$	710	$	740	$	(30)	(4)	%

Trust preferred securities	148,565		148,284		281		—


Contracts payable	80		82		(2)		(2)
Subordinated notes	222,742		222,647		95		—

Total	$	372,097	$	371,753	$	344	—	%

A schedule of HTLF's trust preferred securities outstanding excluding deferred issuance costs as of ~~September 30, 2022,~~March 31, 2023, is as follows, in thousands:

Amount
Issued

Issuance
Date

Interest
Rate

Interest

Rate as of 9/30/2022(1)

Maturity
Date

Callable
Date

Amount
Issued

Issuance
Date

Interest
Rate

Interest

Rate as of 3/31/2023(1)

Maturity
Date

Callable
Date

Heartland Financial Statutory Trust IV

10,310

03/17/2004

2.75% over LIBOR

6.28%

03/17/2034

12/17/2022

Heartland Financial Statutory Trust IV

10,310

03/17/2004

2.75% over LIBOR

7.66%

03/17/2034

06/17/2023

Heartland Financial Statutory Trust V

20,619

01/27/2006

1.33% over LIBOR

3.84

04/07/2036

01/07/2023

Heartland Financial Statutory Trust V

20,619

01/27/2006

1.33% over LIBOR

6.16

04/07/2036

07/07/2023

Heartland Financial Statutory Trust VI

20,619

06/21/2007

1.48% over LIBOR

4.77

09/15/2037

12/15/2022

Heartland Financial Statutory Trust VI

20,619

06/21/2007

1.48% over LIBOR

6.35

09/15/2037

06/15/2023

Heartland Financial Statutory Trust VII

18,042

06/26/2007

1.48% over LIBOR

4.56

09/01/2037

12/01/2022

Heartland Financial Statutory Trust VII

18,042

06/26/2007

1.48% over LIBOR

6.44

09/01/2037

06/01/2023

Morrill Statutory Trust I

9,346

12/19/2002

3.25% over LIBOR

6.89

12/26/2032

12/26/2022

Morrill Statutory Trust I

9,393

12/19/2002

3.25% over LIBOR

8.38

12/26/2032

06/26/2023

Morrill Statutory Trust II

9,059

12/17/2003

2.85% over LIBOR

6.38

12/17/2033

12/17/2022

Morrill Statutory Trust II

9,115

12/17/2003

2.85% over LIBOR

7.76

12/17/2033

06/17/2023

Sheboygan Statutory Trust I

6,769

09/17/2003

2.95% over LIBOR

6.48

09/17/2033

12/17/2022

Sheboygan Statutory Trust I

6,812

09/17/2003

2.95% over LIBOR

7.86

09/17/2033

06/17/2023

CBNM Capital Trust I

4,545

09/10/2004

3.25% over LIBOR

6.54

12/15/2034

12/15/2022

CBNM Capital Trust I

4,570

09/10/2004

3.25% over LIBOR

8.12

12/15/2034

06/15/2023

Citywide Capital Trust III

6,591

12/19/2003

2.80% over LIBOR

5.58

12/19/2033

01/23/2023

Citywide Capital Trust III

6,619

12/19/2003

2.80% over LIBOR

7.60

12/19/2033

07/23/2023

Citywide Capital Trust IV

4,454

09/30/2004

2.20% over LIBOR

5.16

09/30/2034

11/23/2022

Citywide Capital Trust IV

4,483

09/30/2004

2.20% over LIBOR

7.12

09/30/2034

05/23/2023

Citywide Capital Trust V

12,368

05/31/2006

1.54% over LIBOR

4.83

07/25/2036

12/15/2022

Citywide Capital Trust V

12,480

05/31/2006

1.54% over LIBOR

6.41

07/25/2036

06/15/2023

OCGI Statutory Trust III

3,018

06/27/2002

3.65% over LIBOR

6.16

09/30/2032

12/30/2022

OCGI Statutory Trust III

3,022

06/27/2002

3.65% over LIBOR

8.91

09/30/2032

06/30/2023

OCGI Capital Trust IV

5,497

09/23/2004

2.50% over LIBOR

5.79

12/15/2034

12/15/2022

OCGI Capital Trust IV

5,525

09/23/2004

2.50% over LIBOR

7.37

12/15/2034

06/15/2023

BVBC Capital Trust II

7,308

04/10/2003

3.25% over LIBOR

6.03

04/24/2033

01/24/2023

BVBC Capital Trust II

7,329

04/10/2003

3.25% over LIBOR

8.06

04/24/2033

07/24/2023

BVBC Capital Trust III

9,538

07/29/2005

1.60% over LIBOR

5.27

09/30/2035

12/30/2022

BVBC Capital Trust III

9,627

07/29/2005

1.60% over LIBOR

6.76

09/30/2035

06/30/2023

Total trust preferred costs

148,083

Total trust preferred costs

148,565

Less: deferred issuance costs

(41)

148,042

(1) Effective weighted average interest rate as of September 30, 2022, was 5.75%.

(1) Effective weighted average interest rate as of March 31, 2023, was 7.60%.

CAPITAL REQUIREMENTS

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

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

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

Total
Capital
(to Risk-
Weighted
Assets) Tier 1
Capital
(to Risk-
Weighted
Assets) Common Equity
Tier 1
(to Risk-
Weighted
Assets) Tier 1
Capital
(to Average Assets)
September 30, 2022 15.01 % 11.89 % 11.12 % 8.93 %
Minimum capital requirement 8.00 6.00 4.50 4.00
Well capitalized requirement 10.00 8.00 6.50 5.00
Minimum capital requirement, including fully-phased in capital conservation buffer 10.50 8.50 7.00 N/A
Risk-weighted assets $ 14,418,824 $ 14,418,824 $ 14,418,824 N/A
Average assets N/A N/A N/A $ 19,182,687
December 31, 2021 15.90 % 12.39 % 11.53 % 8.57 %
Minimum capital requirement 8.00 6.00 4.50 4.00
Well capitalized requirement 10.00 8.00 6.50 5.00
Minimum capital requirement, including fully-phased in capital conservation buffer 10.50 8.50 7.00 N/A
Risk-weighted assets $ 12,829,318 $ 12,829,318 $ 12,829,318 N/A
Average assets N/A N/A N/A $ 18,553,872


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

December 31, 2022	14.76		%	11.81		%	11.07		%	9.13		%
Minimum capital requirement	8.00			6.00			4.50			4.00
Well capitalized requirement	10.00			8.00			6.50			5.00
Minimum capital requirement, including fully-phased in capital conservation buffer	10.50			8.50			7.00			N/A
Risk-weighted assets	$	14,937,128		$	14,937,128		$	14,937,128		N/A
Average assets	N/A			N/A			N/A			$	19,322,778

At September 30, 2022, and December 31, 2021, retained earnings that could be available for the payment of dividends to meet the minimum capital requirements totaled $704.3 million and $758.6 million, respectively. Retained earnings that could be available for the payment of dividends to HTLF from its banks totaled approximately ~~$416.2~~$756.5 million and ~~$502.1~~$702.2 million at ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, respectively, under the most restrictive minimum capital requirements. Retained earnings that could be available for the payment of dividends to HTLF from its banks totaled approximately $456.3 million and $403.9 million at March 31, 2023, and December 31, 2022, respectively, under the capital requirements to remain well capitalized. These dividends are the principal source of funds to pay dividends on HTLF's common and preferred stock and to pay interest and principal on its debt.

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

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

On August 8, 2022, HTLF filed a universal shelf registration statement with the SEC to register debt or equity securities. This shelf registration statement, which was effective immediately, provides HTLF with the ability to raise capital, subject to market conditions and SEC rules and limitations, if the board of directors decides to do so. This registration statement permits HTLF, from time to time, in one or more public offerings, to offer debt securities, subordinated notes, common stock, preferred stock,

depositary shares, warrants, rights or units of any combination of these securities. The amount of securities that may be offered was not specified in the registration statement, and the terms of any future offerings are to be established at the time of the offering. The registration statement expires on August 8, 2025.

COMMITMENTS AND CONTRACTUAL OBLIGATIONS

Commitments and Contractual Obligations

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

financial guarantees are conditional commitments issued by the ~~bank subsidiaries~~Banks to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. At ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, commitments to extend credit aggregated ~~$4.66~~$4.87 billion and ~~$3.83~~$4.73 billion, respectively. Standby letters of credit aggregated ~~$63.6~~$55.6 million at ~~September 30, 2022,~~March 31, 2023, and ~~$51.4~~$55.1 million at December 31, ~~2021.~~2022.

At ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, HTLF's banks had ~~$723.5~~$614.3 million and ~~$735.3~~$682.9 million, respectively, of standby letters of credit with the respective FHLB to secure public funds and municipal deposits.

Contractual obligations and other commitments were disclosed in HTLF's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. There have been no other material changes to HTLF's contractual obligations and other commitments since the Annual Report on Form 10-K was filed.

There are certain legal proceedings pending against HTLF and its subsidiaries at ~~September 30, 2022,~~March 31, 2023, that are ordinary routine litigation incidental to business.

On August 5, 2022, HTLF paid $4.5 million to settle a lawsuit related to pending litigation involving a former customer of AimBank. The aggregate amount of cash consideration paid in the AimBank transaction in December 2020 was reduced by $5.3 million as a holdback against any litigation losses and expenses, net of any tax benefits, that might be incurred as a result of this litigation. The final amount payable to the AimBank shareholders under the holdback will be determined in accordance with the terms of the merger agreement.

HTLF continues to explore opportunities to expand the size of its banking ~~footprint. In the~~footprint by opportunistically augmenting organic growth by identifying acquisition targets that complement or supplement its current banking ~~industry environment, HTLF seeks these opportunities for growth through acquisitions. HTLF is primarily focused~~strategy. This includes transactions that increase penetration in existing geographic Bank Markets and expansion into adjacent markets, as well as acquisitions of fee income businesses that complement and build on ~~possible acquisitions in~~existing businesses or further meet the ~~markets it currently serves, in which there would be an opportunity to increase market share, achieve efficiencies and provide greater convenience for current~~needs of 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 6 to the consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information on derivative financial instruments.

LIQUIDITY

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

At ~~September 30, 2022,~~March 31, 2023, HTLF had ~~$399.9~~$362.1 million of cash and cash equivalents, time deposits in other financial institutions of $1.7 million and securities carried at fair value of ~~$6.06~~$6.10 billion. Management expects the securities portfolio to produce cash flows ~~exceeding $1~~of approximately $1.3 billion over the next twelve months.

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

The Banks' FHLB memberships give them the ability to borrow funds for short-term and long-term purposes under a variety of programs. Short-term borrowing balances are dependent on commercial cash management and smaller correspondent bank relationships and, as a result, will normally fluctuate. Management believes these balances, on average, to be stable sources of ~~funds; 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.~~funds. In the event of short-term liquidity needs, HTLF's banks may purchase federal funds from each other or from correspondent banks and may also borrow from the Federal Reserve ~~Bank. As of September 30, 2022, short-term borrowings outstanding totaled $147.0 million.~~Bank, including the BTFP.

Additional funding is provided by long-term debt and short-term borrowings. As of ~~September 30, 2022,~~March 31, 2023, HTLF had ~~$371.4~~$372.1 million of long-term debt outstanding, and it is an important funding source because of its multi-year borrowing structure. ~~Additionally,~~

During the ~~subsidiary banks' FHLB memberships give them the ability~~first quarter of 2023, HTLF shifted out of overnight borrowings and into brokered CDs, which allowed for more immediate funding availability through various sources. HTLF pledged additional securities totaling $1.48 billion to ~~borrow funds for short-term and long-term purposes under a variety of programs. At September 30, 2022, HTLF had $762.0 million of~~increase borrowing capacity, ~~under these programs. Additionally, at September 30, 2022, HTLF had $567.3 million~~and as of March 31, 2023, pledged securities totaled $2.96 billion. As of March 31, 2023, approximately $3.83 billion of securities remained available to pledge.

The following table shows the source of funding, balance outstanding and available borrowing capacity ~~at the Federal Reserve Banks' discount window.~~as of March 31, 2023, dollars in thousands:


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

HTLF is focused on loan growth and strives to fund ~~the~~ loan growth with the least expensive source of deposits, sales of securities or borrowings. ~~While securities are generally considered as a source of cash, in the current environment,~~Management believes it is unlikely ~~that they~~HTLF would be ~~sold~~required to sell securities at a loss for such funding needs. The securities portfolio is expected to produce cash flows ~~exceeding $1~~of approximately $1.3 billion over the next twelve months, which could be used to fund loan growth. Additionally, growing deposits will continue to be a focus. During the first quarter of 2023, HTLF initiated a deposit campaign that resulted in over 8,000 new consumer deposit accounts. HTLF offers the ~~Insured Cash Sweep ("ICS") product~~ICS and CDARS products accessed through the ~~Promontory~~Intrafi network of financial institutions, which helps to reduce the amount of pledged securities.

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

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

At ~~September 30, 2022,~~March 31, 2023, the parent company had cash of ~~$297.3~~$284.4 million. Additionally, HTLF has a revolving credit agreement with an unaffiliated bank, which iswas renewed ~~annually,~~ most recently on June 14, 2022. The revolving credit agreement has $100.0 million of maximum borrowing capacity, of which none was outstanding at ~~September 30, 2022.~~March 31, 2023. This credit agreement contains specific financial covenants, all of which HTLF complied with as of ~~September 30, 2022.~~March 31, 2023.

The ability of HTLF to pay dividends to its stockholders is dependent upon dividends paid to HTLF by its ~~subsidiaries.~~Banks. The ~~bank subsidiaries~~Banks 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,~~Banks, certain portions of their retained earnings are not available for the payment of dividends.

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

Management believes that cash on hand, cash flows from operations and cash availability under existing borrower programs and facilities will be sufficient to meet any recurring and additional operating cash needs in ~~2022.~~2023.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

The core interest rate risk analysis utilized examines the balance sheet under increasing and decreasing interest rate scenarios that are neither too modest nor too extreme. All rate changes are ramped over a 12-month horizon based upon a parallel shift in the yield curve and then maintained at those levels over the remainder of the simulation horizon. Using this approach, management is able to see the effect that both a gradual change of rates (year one) and a rate shock (year two and beyond) could have on net interest income. Starting balances in the model reflect actual balances on the "as of" date, adjusted for material transactions. Pro-forma balances remain static. This methodology enables interest rate risk embedded within the existing balance sheet structure to be isolated from the interest rate risk often caused by growth in assets and liabilities. Due to the low interest rate environment, the simulations under a decreasing interest rate scenario were prepared using a 100 basis point shift in rates. The most recent reviews at ~~September 30,~~March 31, 2023, and March 31, 2022, ~~and September 30, 2021,~~ provided the following results, in thousands:


		2022				2021					2023				2022
		Net Interest Margin		% Change From Base		Net Interest Margin		% Change From Base			Net Interest Margin		% Change From Base		Net Interest Margin		% Change From Base
Year 1	Year 1									Year 1
Down 100 Basis Points	Down 100 Basis Points	$	680,345	(1.29)	%	$	503,448	(2.15)	%	Down 100 Basis Points	$	632,070	(1.32)	%	$	528,585	(1.79)	%
Base	Base	689,218		—		514,512		—		Base	640,512		—		538,243		—
Up 200 Basis Points	Up 200 Basis Points	694,854		0.82		543,113		5.56		Up 200 Basis Points	654,132		2.13		560,459		4.13
Year 2	Year 2									Year 2
Down 100 Basis Points	Down 100 Basis Points	$	682,744	(0.94)	%	$	462,454	(10.12)	%	Down 100 Basis Points	$	658,497	2.81	%	$	517,169	(3.92)	%
Base	Base	720,883		4.59		494,746		(3.84)		Base	688,624		7.51		557,176		3.52
Up 200 Basis Points	Up 200 Basis Points	734,620		6.59		556,171		8.10		Up 200 Basis Points	713,149		11.34		610,213		13.37

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

HTLF enters into financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. Commitments to extend credit are agreements to lend funds to a customer as long as there is no violation of any condition established in the contract relating to the commitment. Commitments generally have fixed expiration dates and may require collateral from the borrower. Standby letters of credit are conditional commitments issued by HTLF to guarantee the performance of a customer to a third party up to a stated amount and subject to specified terms and conditions.

These commitments to extend credit and standby letters of credit are not recorded on the consolidated balance sheets until the loan is made or the letter or credit is issued.

ITEM 4. CONTROLS AND PROCEDURES

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

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

•During the three months ended ~~September 30, 2022,~~March 31, 2023, there have been no changes in internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

There are certain legal proceedings pending against HTLF and its subsidiaries at ~~September 30, 2022,~~March 31, 2023, that are ordinary routine litigation incidental to business.

ITEM 1A. RISK FACTORS

There have been no material changes in the risk factors applicable to HTLF from those disclosed in Part I, Item 1A. "Risk Factors" in HTLF's ~~2021~~2022 Annual Report on Form 10-K.

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

On March 17, 2020, the board of directors authorized management to acquire and hold up to 5% of capital or ~~$77.3~~$85.9 million as of ~~September 30, 2022,~~March 31, 2023, as treasury shares at any one time. HTLF and its affiliated purchasers made no purchases of its common stock during the quarter ended ~~September 30, 2022.~~March 31, 2023.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

Exhibits


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

10.2				10.2	(1)	Form of Performance-Based Restricted Stock Unit Award Agreement Three-Year Performance Period under the Heartland Financial USA, Inc. 2020 Long-Term Incentive Plan.

31.1	31.1	(1)	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.	31.1	(1)	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.

31.2	31.2	(1)	Certification of Chief Financial 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	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.	32.1	(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	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.	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	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.	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	104		Cover page formatted in Inline Extensible Business Reporting Language	104		Cover page formatted in Inline Extensible Business Reporting Language

______________

(1) Filed or furnished herewith

SIGNATURES

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


HEARTLAND FINANCIAL USA, INC.
(Registrant)


/s/ Bruce K. Lee
By: Bruce K. Lee
President and Chief Executive Officer
(Principal Executive Officer and Duly Authorized Officer)


/s/ Bryan R. McKeag
By: Bryan R. McKeag
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)


/s/ Janet M. Quick
By: Janet M. Quick
Executive Vice President and Deputy Chief Financial Officer
(Principal Accounting Officer and Duly Authorized Officer)

Dated: ~~November 7, 2022~~May 5, 2023


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


Securities held to maturity	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses		Count	Fair Value		Unrealized Losses		Count	Fair Value		Unrealized Losses		Count
September 30, 2022

Obligations of states and political subdivisions	$	708,291	$	(49,203)	161	$	—	$	—	—	$	708,291	$	(49,203)	161
Total temporarily impaired securities	$	708,291	(49,203)		161	$	—	$	—	—	$	708,291	(49,203)		161


	For the Nine Months Ended September 30,
	2022		2021
Balance at December 31,	$	15,462	$	15,280


Provision (benefit)	3,422		(1,313)
Balance at September 30,	$	18,884	$	13,967


	As of
	September 30, 2022			December 31, 2021
Weighted average constant prepayment rate	7.80		%	13.40		%
Weighted average discount rate	10.05		%	9.02		%
Fair value of mortgage servicing rights	$	10,047		$	6,412





	For the Quarter Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
Reconciliation of Annualized Return on Average Tangible Common Equity (non-GAAP)
Net income available to common stockholders (GAAP)	$	54,551		$	53,911		$	145,488		$	164,305
Plus core deposit and customer relationship intangibles amortization, net of tax(1)	1,466			1,814			4,734			5,709
Net income available to common stockholders excluding intangible amortization (non-GAAP)	$	56,017		$	55,725		$	150,222		$	170,014

Average common equity (GAAP)	$	1,674,306		$	2,072,593		$	1,801,835		$	2,006,123
Less average goodwill	576,005			576,005			576,005			576,005
Less average core deposit and customer relationship intangibles, net	27,902			36,279			29,878			38,745
Average tangible common equity (non-GAAP)	$	1,070,399		$	1,460,309		$	1,195,952		$	1,391,373
Annualized return on average common equity (GAAP)	12.93		%	10.32		%	10.80		%	10.95		%
Annualized return on average tangible common equity (non-GAAP)	20.76		%	15.14		%	16.79		%	16.34		%

Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)
Net Interest Income (GAAP)	$	155,876		$	142,543		$	433,016		$	423,366
Plus tax-equivalent adjustment(1)	2,151			1,714			6,247			5,237
Net interest income, fully tax-equivalent (non-GAAP)	$	158,027		$	144,257		$	439,263		$	428,603

Average earning assets	$	18,157,795		$	17,123,824		$	17,969,001		$	16,803,740

Annualized net interest margin (GAAP)	3.41		%	3.30		%	3.22		%	3.37		%
Annualized net interest margin, fully tax-equivalent (non-GAAP)	3.45			3.34			3.27			3.41
Net purchase accounting discount accretion on loans included in annualized net interest margin	0.03			0.08			0.05			0.10

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


ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT YIELDS AND RATES (1)
	For the Nine Months Ended
	September 30, 2022							September 30, 2021
	Average Balance			Interest		Rate		Average Balance			Interest		Rate
Earning Assets
Securities:
Taxable	$	6,407,459		$	116,366	2.43	%	$	5,935,295		$	94,373	2.13	%
Nontaxable(1)	990,784			22,625		3.05		743,534			17,308		3.11
Total securities	7,398,243			138,991		2.51		6,678,829			111,681		2.24
Interest bearing deposits with other banks and other short-term investments	238,819			1,715		0.96		266,701			258		0.13
Federal funds sold	7			—		—		4,622			1		0.03
Loans:(2)
Commercial and industrial(1)	2,977,751			95,020		4.27		2,519,608			85,008		4.51
PPP loans	63,342			6,487		13.69		879,489			32,521		4.94
Owner occupied commercial real estate	2,270,486			67,742		3.99		1,876,929			59,710		4.25
Non-owner occupied commercial real estate	2,166,873			69,929		4.31		1,961,016			65,984		4.50
Real estate construction	880,354			31,673		4.81		819,452			28,501		4.65
Agricultural and agricultural real estate	776,127			23,905		4.12		676,091			22,733		4.50
Residential mortgage	850,444			25,108		3.95		844,337			28,153		4.46
Consumer	452,032			15,632		4.62		404,384			15,408		5.09

Less: allowance for loan losses	(105,477)			—		—		(127,718)			—		—
Net loans	10,331,932			335,496		4.34		9,853,588			338,018		4.59
Total earning assets	17,969,001			476,202		3.54	%	16,803,740			449,958		3.58	%
Nonearning Assets	1,554,432							1,487,704
Total Assets	$	19,523,433						$	18,291,444
Interest Bearing Liabilities
Savings	$	9,652,651		$	20,673	0.29	%	$	8,211,478		$	6,903	0.11	%
Time deposits	1,106,095			3,992		0.48		1,166,858			4,726		0.54
Short-term borrowings	124,459			494		0.53		182,583			348		0.25
Other borrowings	372,027			11,780		4.23		328,887			9,378		3.81
Total interest bearing liabilities	11,255,232			36,939		0.44	%	9,889,806			21,355		0.29	%
Noninterest Bearing Liabilities
Noninterest bearing deposits	6,172,984							6,104,058
Accrued interest and other liabilities	182,677							180,752
Total noninterest bearing liabilities	6,355,661							6,284,810
Equity	1,912,540							2,116,828
Total Liabilities and Equity	$	19,523,433						$	18,291,444
Net interest income, fully tax-equivalent (non-GAAP)(1)(3)				$	439,263						$	428,603
Net interest spread(1)						3.10	%						3.29	%
Net interest income, fully tax-equivalent (non-GAAP) to total earning assets(1)(3)						3.27	%						3.41	%
Interest bearing liabilities to earning assets	62.64		%					58.85		%




(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.