We see
Growth.
2021 Annual Report
C O R P O R A T E P R O F I L E
HTLF’s geographically diverse group of banks are located
across the Midwest, Southwest and West regions of
the United States. HTLF has banking locations serving
communities in Arizona, California, Colorado, Illinois, Iowa,
Kansas, Minnesota, Missouri, Montana, New Mexico,
Texas and Wisconsin.
Our unique model powers our 11 banks with technology,
efficiency and financial strength. Decision making is local
and focused on customers and relationships.
HTLF is committed to its core commercial business,
supported by a strong retail operation and provides a
diversified line of financial services including residential
mortgage, wealth management, investment services,
and insurance.
HTLF’s common stock is traded through the NASDAQ
Global Select Market System under the symbol “HTLF.”
Depository shares representing HTLF preferred stock are
also traded through the NASDAQ Global Select Market
System under the symbol “HTLFP.”
Complete information is available at HTLF.com.
H T L F . C O M
HTLF // 2021 Annual Report
Financial Highlights
For the years ended December 31, 2021, 2020 and 2019
(Dollars in thousands, except per share data)
F O R T H E Y E A R
2 0 2 1
%CHANGE
FROM 2020
TO 2021
2 0 2 0
2 0 1 9
Net income
$219,923
59.44
%
$137,938
$149,129
Net income available to common stockholders
Cash dividends, common
211,873
40,509
58.72
37.47
133,487
29,468
149,129
24,607
P E R S H A R E D ATA
Earnings per common share – diluted
Cash dividends, common
Book value at December 31
$5.00
0.96
49.00
40.06
%
20.00
4.77
$3.57
0.80
46.77
$4.14
0.68
43.00
3
AT Y E A R E N D
Total assets
$19,274,549
7.63
%
$17,908,339
$13,209,597
Total loans receivable
Total deposits
Total common stockholders’ equity
9,954,572
16,417,255
2,071,473
-0.68
10,023,051
8,367,917
9.60
5.23
14,979,905
11,044,331
1,968,526
1,578,137
F I N A N C I A L R AT I O S
Return on average total assets
1.19
%
27.96
%
Return on average stockholders’ equity
Return on average tangible common equity
(non-GAAP)1
Net interest margin (GAAP)
Net interest margin, fully tax-equivalent
(non-GAAP)2
Average common stockholders’ equity to
average total assets
Total capital to risk-adjusted assets
Tier 1 capital ratio
Common equity Tier 1 ratio
Tier 1 leverage ratio
10.49
15.59
3.29
3.33
10.92
15.90
12.39
11.53
8.57
30.15
26.95
-9.86
-9.76
-2.59
8.09
4.56
5.59
-4.99
0.93
%
8.06
12.28
3.65
3.69
11.21
14.71
11.85
10.92
9.02
1.24
%
10.12
15.73
4.00
4.04
12.26
13.75
12.31
10.88
10.10
1 Refer to the “Reconciliation of Return on Average Tangible Common Equity (non-GAAP)” table on page 54 of the annual report on Form 10-K.
2 Refer to the “Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)” table on page 54 of the annual report on Form 10-K.
Bruce K. Lee
President and CEO
To my fellow shareholders:
At HTLF, we see Growth. And in 2021, we saw tremendous
We accelerated several of our strategic investments
growth and success across our company, delivering
and initiatives to improve the customer experience.
against our ambitious and disciplined growth strategies.
We enhanced commercial account analytics and
Our results are record breaking:
Record net income available to common stockholders
of $211.9 million
Record earnings per diluted common share of $5.00,
a remarkable 40 percent increase over 2020
Strong organic loan growth of $689 million
Total deposit growth of $1.4 billion to a record
$16.4 billion. Our total deposits have grown for
11 consecutive quarters.
Our total assets are now over $19 billion, driven by strong
momentum in Commercial and Consumer lending, and
significant growth in deposits.
For the sixth consecutive year, HTLF was recognized by
Forbes as one of “America’s Best Banks.” HTLF ranked
#28 — our highest ranking to date.
We are realizing our vision to be a top-performing and
admired banking organization, driven in part by growth
strategies around talent acquisition and expansion into
adjacent high growth markets.
We introduced our HTLF Food and Agribusiness division
in California, offering a full suite of banking services and
solutions dedicated to meet the needs of businesses
across the entire food supply chain, and complementing
our other HTLF Specialized Industries teams across
our footprint.
In 2021, we also extended our reach in several high
growth adjacent markets in the Midwest. We opened
offices in Cedar Rapids, Des Moines, St. Paul, and two
offices in the western suburbs of Chicago. Meanwhile,
we closed, consolidated and sold branches as we
continue to optimize our branch network.
improved customer service operational efficiency.
We added HTLF’s first Chief Diversity, Equity and
Inclusion officer to lead our DEI efforts and reinforce
our company values.
And we refreshed our branding to better reflect the
company HTLF is today and reinforce the Strength,
Insight and Growth we bring to our employees,
customers, communities and shareholders.
We began executing the consolidation of our
11 separate bank charters into a single HTLF Bank
charter in Colorado to drive long-term efficiency,
5
improve agility, reduce expenses and enhance
scalability, supporting future growth both
organically and through M&A, all while enriching
the customer experience.
Our 11 banks will maintain their local brands, local
leadership and local decision-making, while HTLF
will maintain its strong and sizable presence in
Dubuque, Iowa.
Charter consolidation is expected to be complete
by late 2023.
I’d like to congratulate John K. Schmidt on being
elected independent Chairman of HTLF’s Board
of Directors. John has an extensive history with
the company and has served as a Director since
2001. I look forward to working with him in his
new role as Chairman.
Our momentum continues into 2022. We are
executing our strategy, we are well positioned,
and we see continued growth.
Together, we are HTLF.
HTLF is winding down our PPP operations, with most
Sincerely,
customers having completed the forgiveness process.
Over the lifetime of PPP, we processed nearly 8,000
loans totaling more than $1.6 billion, helping thousands
of small businesses in our communities.
Bruce K. Lee
6
To our valued shareholders:
It’s my honor and privilege to write my first letter
The Board is confident in the strategic plan
to you as independent Chairman. While my role
and charter consolidation initiative. A single
as Chairman is new, my history and experience
charter structure will allow us to retain a
with HTLF goes back nearly 40 years, having
cost-effective talent structure and realize
served in various leadership roles with the
higher profitability, while tapping into growth
company, Dubuque Bank and Trust and HTLF
industries and geographies.
Board of Directors.
This is an exciting time in the company’s history.
For decades HTLF has helped customers
With a more efficient organizational structure and
and communities create strong and thriving
an unshakable commitment to local communities,
futures. The company is grounded in the values
HTLF is prepared to help even more businesses
of integrity, accountability, excellence and
and customers achieve their financial goals.
community. It’s founded on the principle that
local decision-making best serves our customers
and the communities where we operate and
creates value for shareholders.
These core principles continue to guide us as we
adapt and grow in the rapidly changing banking
industry. Our Midwest roots remain deep while
we extend our reach in the West and Southwest,
now home to more than 60 percent of HTLF’s
total assets.
By changing HTLF’s operations and practices
but not our principles, we will better serve our
employees, customers, communities
and shareholders.
As we embrace our future, we also honor our past.
Lynn B. “Butch” Fuller announced his retirement
as an employee after 50 years in banking. We are
grateful for Butch’s many contributions through
the years — contributions that helped build the
foundation of the strong growth company
HTLF successfully operates a well-integrated
HTLF is today.
shared services model. To yield further benefits,
the HTLF Board of Directors unanimously
approved consolidation of our 11 separate bank
Please join me in recognizing and congratulating
Butch for five decades of service.
charters into one.
Thank you for this opportunity to serve you as
Consolidation is core to our strategy and will build
modern efficiencies into processes, supporting
the bank of the future and strengthening
prospects for growth, both organic and through
M&A. This does not alter HTLF’s commitment to
local brands, local leadership and local decision
making within our geographies.
independent Chairman.
Sincerely,
John K. Schmidt
John K. Schmidt
Chairman
8
Strength.
Insight.
Growth.
Financial Strength
to Deliver Growth.
HTLF refreshed our brand in 2021 to better reflect our
continued Growth and the company we are today.
Financial Strength is what we bring to our customers and
our communities, and what our unique business model
and diverse footprint brings to our shareholders.
The Strength of HTLF’s dedicated local talent, corporate
leadership and geographically diverse banks positions
us well for future Growth.
At HTLF, we see Growth.
9
10
Supporting Growth
in our banks.
In 2021, HTLF strategically added and
developed talent to accelerate our growth.
We continue to execute on our multi-year talent development, acquisition,
and succession strategies. HTLF focused our investments in customer
experience and growth initiatives. We’re building best-in-class Commercial
Banking teams. Since the beginning of 2021, we have attracted four new
commercial banking leaders and added more than 30 experienced bankers
across our footprint. We have a strong company culture focused on growth,
personal development, and service to our customers and communities.
This culture is supporting considerable momentum in talent acquisition
across our organization.
HTLF // 2021 Annual Report
We continue to actively contribute to the vitality of the communities
where we live and work by enriching lives one customer, employee
and community at a time with our thoughtful expansion in growth
markets and talent acquisition.
I N D U S T R Y E X P E R T S T O S U P P O R T O U R B A N K S :
Our competitive advantage of committing to deep industry expertise, strong customer relationships,
community connections and advanced technology provides a value proposition that allows us to compete
at any level while supporting our banks and delivering exceptional customer experiences.
Industry Experts Delivering
Business Solutions
Retaining Employees with
Robust Retirement Plans
11
HTLF’s industry experts, along with our banks, provide
HTLF’s Retirement Plan Services team assists
comprehensive solutions tailored to a businesses’
businesses in designing trusted retirement plans
unique needs. Our industry and financing expertise
to offer the best benefits to attract and retain
paired with a robust suite of treasury management and
semployees in today’s competitive talent environment.
payment products and services provide us the ability
By providing an unbiased investment menu, we assure
to create one-of-a-kind solutions to meet the needs
that employees are getting access to high-quality
of our customers. Our teams deliver solutions to our
funds while reducing the administrative burden for the
customers that support their plans for growth, buy-
company. This team’s additional expertise increases
outs, recapitalization, acquisitions, and refinancing.
and assists the capabilities and customer service of
We offer industry expertise in Healthcare, Professional
our banks.
The strength of our growing
specialized teams bring
additional expertise and
resources to our banks and
the communities they serve.
Business Services, Franchise Finance, Commercial
Real Estate, Specialty Manufacturing & Distribution,
Non-Profits, and Syndications.
Field to Fork Financial Expertise
HTLF added an exceptional Food and Agribusiness
commercial banking team of more than 20 relationship
managers, treasury management officers and
credit professionals in 2021. The new division added
capabilities and expertise to service local banks and
agribusiness customers in the Central Valley and
across the U.S. From large distribution operations to
family farms, we offer a broad range of solutions and
industry knowledge to meet our customers’ needs
and help fuel their growth.
12
Expanding in
Growth Markets.
Growth powers our ability to
be nimble, seek opportunities
and exceed our customers’
expectations.
Extending our reach into high growth markets has
resulted in new commercial relationships, as well
as community partnerships. Success has been
driven by our strong local banking teams combined
with our robust product offerings and advanced
banking technologies.
In 2021, we extended our reach in several high
growth markets in the Midwest, opening offices
in Cedar Rapids, Des Moines, St. Paul and two
locations in the western suburbs of Chicago.
These markets represent three different HTLF
brands — Dubuque Bank and Trust, Minnesota
Bank & Trust and Illinois Bank & Trust.
HTLF // 2021 Annual Report
This intentional expansion demonstrates a bold
move in the face of industry contraction. We’ve
taken advantage of our ability to achieve scale, a
key strategic pillar of our multi-year strategic plan, to
strengthen our presence and expand our footprint.
Our strength and momentum in these markets
provides additional opportunity to expand into even
more attractive markets, fueling our growth.
Growth through Talent
Development and Acquisition.
N E W H T L F B O A R D O F D I R E C T O R S
Kathryn Graves Unger
Director
N E W H T L F L E A D E R S H I P
Mark Frank
Executive Vice President
Head of Operations
Wendy Reynolds
Senior Vice President
Chief Diversity and Inclusion Officer
13
Shelley Reed
Executive Vice President
Corporate Strategy & Development
Kevin Quinn
Executive Vice President
Chief Banking Officer
N E W B A N K L E A D E R S H I P
Brent Giles
President and CEO
Bank of Blue Valley
Doug Kohlbeck
President and CEO
Wisconsin Bank & Trust
Tyson Leyendecker
President and CEO
Dubuque Bank and Trust
Michael Wamsganz
President and CEO
Citywide Banks
N E W I N D U S T R Y M A R K E T L E A D E R S H I P
Hakan Erdinc
Executive Vice President
Senior Managing Director
HTLF Food and Agribusiness
Brian Jones
Executive Vice President
Senior Managing Director
HTLF Specialized Industries
14
Insight to Deliver
Extraordinary Banking
Experiences.
Our bankers deeply understand our local markets, actively
listen and have strong relationships with customers.
This insight helps guide our strategies and investments.
It’s how we achieve our mission of enriching lives one
customer, employee and community at a time.
At HTLF, we offer comprehensive Insights.
15
Strength.
Insight.
Growth.
Tyson Leyendecker
President and CEO
Dubuque Bank and Trust
N A T I O N W I D E P R O D U C T S
Manufacturing growth.
Like many successful businesses, Nation Wide
“My greatest pride has come from watching
Products (NWP) started out small. It took years
our team members grow with us. The way we
of hard work, frustrations and even some
produce, warehouse, ship, account and deliver
failures to earn success. It didn’t happen
customer service have all evolved along
overnight. Now, 23 years later, NWP is a North
the way. Our employees make it happen,”
American category leader in the seasonal home
beamed Jason.
comfort business.
The robust relationship NWP has built with
16
Based in Abilene, Texas, NWP is a manufacturer
its customers and employees is the same it
with a wholesale presence in over 10,000 stores
expects from a financial partner. FirstBank &
in the United States and Canada — either selling
Trust (FBT) filled the order perfectly.
directly or producing a private label product.
NWP has distribution facilities in Abilene, Texas;
“David Green, SVP, Commercial Team Lead,
Columbia, South Carolina; and North Pekin, Illinois.
and the support staff at FBT are wonderful and
very willing to help get answers at any moment.
NWP provides on-shelf product solutions
We are a strong business with very seasonal
for retailers that satisfy the demands of the
product lines and cash flows. FBT has provided
consumer. It also provides inventory fulfillment
financing to support operations for a seasonal
solutions to ensure big box retailers are
business, financing for warehousing structures
positioned to be successful for their highly
and capital for acquisitions. FBT has proven
seasonal product lines, with products such as
itself in many areas for our business. Simply put,
outdoor faucet covers, accessories for window
I cannot say enough good things about FBT,”
and portable air conditioner units, filters for air
smiled Jason.
conditioners on recreational vehicles, mini split
air conditioner systems and pipe cutting guides.
NWP’s success has allowed it to contribute
and participate with many local nonprofits
Jason Darby joined the company in 2000.
and support the efforts of The Home Depot
He initially worked the production lines and
Foundation. NWP continues to evaluate and
warehousing, then navigated his way through
evolve its environmental programs, selling
purchasing and production forecasting. Jason
Energy Star-rated products and recycling over
is now president, and explains, “My hands-on
90 percent of its production scrap.
experience allowed me to understand the
products and design new ones. NWP has been
From humble beginnings in the heart of Texas,
awarded over 15 patents through the years.
NWP, its employees and FBT have manufactured
We continue to explore ways to fill customer
a winning plan for ongoing success.
needs, but at the heart of our day-to-day
success, you’ll find our employees.”
HTLF // 2021 Annual Report
JASON DARBY
President
Nation Wide Products
“The FBT team has provided financing to support
operations for a seasonal business, financing for
warehousing structures and capital for acquisitions.
FBT has proven itself in many areas for our business.
Simply put, I cannot say enough good things about FBT.”
17
17
T R I B E 9 F O O D S
Improving lives through food.
Improving Lives through Food is an inspiring
“We value the local touch of the WBT team.
mission. Tribe 9 Foods, as the largest certified
Any time a roadblock comes up, Jasin Pasho,
B Corporation in Wisconsin and the only B Corp
SVP, Commercial Banking Team Lead and Kyle
contract food manufacturer in the country,
Myhre, VP, Commercial Banker, always present
is accomplishing that mission and using it to
solutions. Combine that with the expanded
take a seat at your table as a growing Midwest
balance sheet of their corporate model, we
specialty food company.
know we have the right partner,” explained Brian.
18
Tribe 9 Foods’ evolution can be described
The recipe for Tribe 9 Food’s success goes
as focused and driven. Brian Durst, CEO &
even deeper. Improving Lives Through Food,
Chairman, had extensive experience in the
also encompasses being a good steward in the
food industry. His background provided a
community. Tribe 9 has earned B Corporate
vision into what was being missed in the food
certification, which includes the commitment
manufacturing industry — the opportunity to
to pay every employee above living wage,
adjust quickly to changing food preferences and
expand benefits to employees and spend time
to provide healthier alternatives.
volunteering for social causes tied to alleviation
This led him to start Tribe 9 Foods, acquiring
of hunger.
three smaller food companies and using them
Tribe 9 puts its money where its mouth is
to build a broader food manufacturing platform.
and contributes time and talent throughout
In 2017, Tribe 9 opened a state-of-the-art
the community. Furthermore, keeping the
manufacturing facility, allowing for contract
environment at the forefront, Tribe 9 Foods
manufacturing of other brands, private label
utilizes 100 percent renewable energy to
and food service. The strategy was focused on
power the plant, works continuously to reduce
building out other brands while also successfully
wastewater and has similar targets for other
launching their own products.
energy inputs.
The company’s rapid success and growth
With their number one goal of always delighting
required the right partner. Wisconsin Bank &
the customer, Tribe 9 Foods prides itself on
Trust (WBT) took the time to look deeper into
bringing innovation and entrepreneurial spirit to
Tribe 9’s initial needs and used its understanding
the table, while demonstrating it can be a force
of the food manufacturing model to offer a
for good by balancing profits and purpose.
broader, more comprehensive solution. The
table was set for a successful partnership.
HTLF // 2021 Annual Report
BRIA N DURST
CEO & Chairman
Tribe 9 Foods
“We value the local touch of the WBT team. Any
time a roadblock comes up, WBT always presents
solutions. Combine that with the expanded
balance sheet of their corporate model, we know
we have the right partner”
20
W A L L A R O O H A T C O M P A N Y
Balancing purpose and profits.
For more than two decades, Wallaroo Hat
“It was a great move financially. Citywide
Company, a woman-owned business located in
Banks helped us leverage equity in our owner-
Boulder, Colorado, has offered a vast collection
occupied property to refinance debt and
of high-quality, stylish, sun protective hats for
reduce costs.”
women, men and children. Wallaroo is at the
forefront of innovation with sun protection
“We have a great banking relationship
technologies and textiles, providing the best
that includes a commercial line of credit,
hats for the next great adventure.
deposit accounts and a full suite of treasury
Its mission is to help eliminate the threat of skin
provide all the products we need, but not so big
cancer through information and prevention –
that we lose the personal touch.”
management products. They’re big enough to
hats are tested and rated according to the UV
radiation blocking capabilities of materials used.
“Wallaroo is in a dynamic market that has been
As a leader in the sun-protective hat industry,
affected by Covid, tariffs and supply chain
Wallaroo takes this health threat very seriously.
issues,” said Narciso Garibay, SVP, Commercial
Wallaroo is also dedicated to the elimination of
their team keeps us up to date on their business
skin cancer. The company donates 1 percent
and the ability to understand any potential
of its profits each year to skin cancer research,
issues that may arise as a member of their team
education and prevention.
rather than just the bank.”
Banker at Citywide Banks. “Communication with
Wallaroo Hat Company is a Certified B
The Wallaroo team takes pride in everything
Corporation – a business that balances purpose
it does. Carter has created an environment
and profit. To maintain that standard, Wallaroo
where employees feel vested in their jobs and
must consider the impact of its decisions on
are happy to be fulfilling a grander purpose.
its workers, customers, suppliers, community
Wallaroo employees participate in team-
and the environment. With standards this high,
building activities that support causes they’re
Wallaroo needed a financial partner with the
passionate about. These experiences foster
same depth and commitment.
employee bonding and provide opportunities
to interact with the community. For more
“Citywide Banks earned our respect by
information on Wallaroo and their products
understanding who we are. They listened to us
please visit their website at wallaroohats.com.
and provided customized financing solutions,
looking at each account separately and
Wallaroo Hat Company’s and Citywide Banks’s
consolidating all our loans. No other bank could
partnership is built on trust, respect, and has
touch the deal they were offering and made it
developed a great relationship you can hang
more than attractive to move our account,”
your hat on.
said Stephanie Carter, CEO and Founder.
HTLF // 2021 Annual Report
STEPHANIE CARTER
CEO and Founder
Wallaroo Hat Company
“We have a great banking relationship that includes a
commercial line of credit, deposit accounts and a full
suite of treasury management products. They’re big
enough to provide all the products we need, but not
so big that we lose the personal touch.”
S I T E W O R K S
Going green in the desert.
SiteWorks, one of the top landscapers in the
SiteWorks is a steadfast promoter of installing low
United States, has a lot to be proud of. When
water use plant material along with the utilization
you dig into their story, you see how SiteWorks’
of smart sprinkler systems. They advocate for the
commitment to people and the planet forges a
reduction and/or complete elimination of natural
path to a thing of beauty.
grass in place of equally aesthetic synthetic turf.
The building of their beautiful business began
SiteWorks was the very first landscape contractor
22 years ago. Through the years, SiteWorks
to voluntarily take the leap of faith and invest in
has weathered its share of storms. The Great
the utilization of non-gas operated landscape
22
Recession hit particularly hard as investments
maintenance equipment for commercial properties.
in landscaping came to an abrupt halt.
Marketed as an EcoCare platform, it is a separate
But as fortune would have it, SiteWorks won a
coveted landscaping contract for the Chicago
Cubs spring training complex in Mesa, Arizona.
Business was back on track and it was time to
find a banking partner more aligned with
SiteWorks’ vision.
business unit that exclusively operates with only
battery-operated equipment, tools, mowers,
etc. The value-add for EcoCare is twofold: First,
it further validates the advancing commitment to
environmental and global sustainability; Secondly,
it presents a viable option for a selective and
evolving customer-base who prefer “quiet zones”,
The team at Arizona Bank & Trust (ABT) dug into
such as hospitals, schools and resorts.
SiteWorks’ organization and management style
and clearly saw the potential. The relationship
formed through mutual respect, and ABT earned
the business using a consultative approach.
SiteWorks’ commitment to the environment is
clear and so is their dedication to their people. In
early 2021, the owners elected to form an Employee
Stock Ownership Plan (ESOP). Their ESOP advisor
“We focused our attention on their business plan,
mandated Siteworks utilize an RFP to ensure the
profit maximization and helping them become a
best program. After several months of interviews
leader in the industry. We demonstrated how our
and offers from competing banks, ABT’s team was
broad banking capabilities would assist with their
awarded the retirement plan services of SiteWorks
growth, and the rest is history. We knew together,
business, expanding the already deep relationship
we would be successful” said Troy Norris, SVP,
that includes a revolving line of credit, commercial
Commercial Banking Team Lead, ABT.
credit card, full treasury management services
Part of SiteWorks’ business plan was taking
a proactive approach to the “growing green”
including Electronic Accounts Payable as well as
their deposit accounts.
industry. Chris Malham, Co-Founder and
As a 100% employee-owned company, all SiteWorks
President of SiteWorks explains, “By focusing
stock is held exclusively for the benefit of employees.
on being green, we enable our company to
Chris explained, “We wanted to focus on the
positively promote the sustainability and
future and establish something wonderful for our
longevity of the environment.”
employees. Offering this to our coworkers and
expanding our relationship with ABT allows us to focus
on nurturing our work and our people.”
HTLF // 2021 Annual Report
From Left to Right:
ROB SPOOR
CHRIS MA LHAM
Co-Founders, SiteWorks
“We wanted to focus on the future and establish
something wonderful for our employees. Offering
this to our coworkers and expanding our banking
relationship with the ABT team allows us to focus on
nurturing our work and our people.”
N A T U R I P E B E R R Y G R O W E R S
Truly a sweet business.
Growing berries is truly a sweet business.
NBG’s evolving business required a financial
Naturipe Berry Growers (NBG) brings the finest
partner who was able to support the fruits of its
strawberries, blueberries, raspberries and
labor. HTLF Food & AgriBusiness division had
blackberries, both conventional and organic,
the industry expertise and financial depth to be
to market. Owned “by growers for growers,”
that partner.
NBG is an undisputed industry leader in the
berry business.
NBG has taken advantage of the broad services
HTLF has to offer, including credit and deposit
24
The self-proclaimed “granddaddy of the
services, treasury management support and
strawberry business” was founded in 1917. As a
Remote Deposit, to name just a few.
grower cooperative, NBG provided its members
the bargaining power and security needed to
“Patrick Bishop, SVP, Managing Director and his
effectively control the marketing and distribution
team, Daisha Donham, Portfolio Team Manager,
of their crops. In addition, farmers learned from
Briana Guestin, Portfolio Manager, and Dominick
each other and the quality of the strawberries
Patterson, Commercial Banking Assistant
benefited from their collective knowledge.
Supervisor, have thoroughly impressed me,”
In 2002, NBG teamed up with Michigan
Officer. The team speaks clearly, acts quickly
Blueberry Growers and Hortifrut of Chile to
and is easy to understand.”
establish Naturipe Farms, one of the largest full
line, all season berry marketing companies in
On the surface, being an effective leader in the
complimented Jeff Mink, NBG’s Chief Financial
the world.
berry business might seem straightforward,
but continuing to lead its customers and berry
In 2007, NBG converted from an agricultural
growers requires innovation. NBG is working
cooperative to a corporation. This change
on several advancements including developing
allowed the grower owners to maintain a solidly
more flavorful varieties, integrating solar
capitalized company, ready to move forward to
technology and exploring robotics.
the next 100 years of successful fruit marketing.
NBG succeeds by matching its customers
right partners, using innovation and taking care
with the right segments. The dynamics of
of its growers, NBG continues to enjoy the sweet
the business are always changing, yet NBG
taste of success.
By living “farmer” values, connecting with the
has thrived because of strong leadership,
successful partnerships and its people.
HTLF // 2021 Annual Report
JEFF M INK
Chief Financial Officer
Naturipe Berry Growers
“Patrick Bishop, SVP, Managing Director and his team
have thoroughly impressed me,” complimented Jeff
Mink, NBG’s Chief Financial Officer. The team speaks
clearly, acts quickly and is easy to understand.”
25
25
Growth through
Enhanced Customer
Experiences.
26
HTLF’s commitment to people, processes and technology powers our delivery
of exceptional customer experiences. Our vision is to be a top-performing and
admired banking organization. To help accomplish this, we are continuously
investing in our multi-year strategy, Customer Compass, to improve how we
operate our business to serve our customers and communities.
Customer Compass is integrated in HTLF’s culture. Each component supports
and aligns with our strategic pillars, providing a cohesive framework to
drive efficiency, improve agility and fulfill our mission of enriching lives one
customer, employee and community at a time.
•C U
•C U
N
N
O
O
I
I
S TOM
S TOM
E
E
R
R
•
•
C
C
O
O
M
M
T
T
A
A
R
R
PASS
PASSOPE
OPE
Investing in Our People
We are focused on doing what is best for our
employees and customers. Through a combination
of developing existing team members by investing
in their success and executing our talent acquisition
strategy, we’ve built a top-notch team committed
to excellent experiences for internal and
external customers.
Our annual employee effort survey highlights
successes and outlines opportunities, providing a path
for continued growth and evolution. By focusing on
being better at what we do every day, employees feel
a sense of engagement and customers benefit from
exceptional customer experiences.
Enhancing Our Processes
Harnessing Technology to
Improve Customer Experiences
Using technology to work more efficiently, we
accelerated several of our strategic investments
and initiatives to improve the customer experience.
We are adapting our document management
capabilities to offer more customer digital
experiences. Specifically, we completed
improvements for customer service agents to access
real time transaction and account data, increasing
first call resolution and improving customer service
operation efficiency. We enhanced commercial online
account analytics, document management and form
availability. We improved loan document handling
27
and Loan Administration processing time. Digitization
reduces administrative burden for our customers and
bankers and demonstrates HTLF’s commitment to
technology integration into every component of our
How we define and deliver an exceptional
business including:
customer experience is determined through our
customer experience processes. We actively listen
Paylocity, a payroll and human capital software
to our customers through our bankers and
structured research.
management system, implemented within our
Retirement Plan Services (RPS) organization
We routinely conduct experience research through
focus groups and surveys, using our partnerships with
ServiceNow, utilizing workflow productivity and
the ability to scale projects quickly
Greenwich Partners and Phoenix Research Groups.
Salesforce Community Cloud, deploying an easily
Our consumer banking results are above national NPS
assessable knowledgebase, providing real-time
benchmarks by 21+ points, and we exceed several
access to transaction and account data, and in
national benchmarks in commercial banking as well.
development, custom digital experiences through
This collection and application of market insight
informs our strategies and investments. Our diligent
methodology and process adjustments provide the
framework that empowers our teams to enrich the
customer experience.
our customer portal
These enhancements enable us to continue to
optimize our branch network. In 2021, we consolidated
eight percent of our network.
Based upon our proven success of investing in talent, maximizing value-added processes
and implementing best-in-class technology, HTLF’s strategic investments through Customer
Compass have been a key driver of our growth. We are committed to providing exceptional
customer experiences that support and enhance how and where we grow.
28
D I V E R S I T Y
A D V I S O R Y C O U N C I L
H T L F D I V E R S I T Y , E Q U I T Y A N D I N C L U S I O N M I S S I O N S T A T E M E N T
“We all come from diverse backgrounds and experiences
that help shape our company values. Our values are rooted
in the belief that respect, equity and inclusiveness make us
stronger together. The variety of experiences and lifestyles
we bring to work every day provides insights that help us
better understand each other and our customers.”
Download the DEI 2021 Report
Growth in Environmental, Social
and Governance Initiatives.
We continue to work towards our mission of enriching lives,
one customer, employee and community at a time.
Health and Safety
HTLF is proud to invest in our communities as a socially
continues to be our top priority. We instituted daily
responsible corporate citizen. A few of the investments
health attestations to ensure healthy employees are
The health and safety of our employees and customers
we’ve made include:
in the office, and implemented new safety protocols,
signage, as well as distributed personal protective
Financing the development of low-income housing
equipment kits. HTLF is focused on providing its
Investing in solar energy
employees with opportunities to improve health for
long-lasting wellbeing through educational classes
29
Contributing nearly $1.2 million to local organizations
and motivating wellness challenges.
Volunteering over 2,000 employee volunteer hours
in 2021
Community Support
Rehabilitating historic buildings, including our HTLF
offices in Dubuque, Iowa, where we installed energy-
efficient LED lighting, air-purifier systems and increased
fresh air intake, improving air quality.
Diversity, Equity and Inclusion
In our Diversity, Equity and Inclusion (DEI) journey we have
made positive strides in building a culture of belonging.
In July 2021, Wendy Reynolds was named HTLF’s first
Chief Diversity and Inclusion Officer. This new senior
position reinforces our company values and will lead
our DEI efforts.
We launched our first ever employee-driven Diversity
Advisory Council. The primary role of the council is to
oversee, advise and connect DEI activities to a broader
business-driven, results-oriented strategy, as well as to
align with our corporate values and the future of HTLF.
This includes efforts to hire, promote and retain
diverse employee groups. That’s why diversity, equity
and inclusion training is embedded in our learning
and development program.
In 2021, HTLF is proud to have helped another 2,600
small businesses obtain loans totaling $473.9 million
during the second draw of PPP. Our teams helped
provide a critical lifeline in our communities. Over
the lifetime of PPP, we processed nearly 8,000 loans
totaling more than $1.6 billion.
We also supported small businesses through our
Buy Local program. Our banks offered consumer
customers loans up to $5,000 at zero percent interest
for 36 months to help them make needed purchases
and generate important business growth within our
communities. In 2021, we funded more than 3,300
Buy Local loans totaling $15 million.
We also established a $15 minimum wage for all
employees beginning November 1.
As a company, we know we are better together. We’ve
learned how to connect in many ways, and our ability
to adapt and grow has helped us better serve our
customers, communities and each other.
E X E C U T I V E M A N A G E M E N T A N D D I R E C T O R S
EXECUTIVE MANAGEMENT
Bruce K. Lee
President and CEO
Janet M. Quick
Executive Vice President
Deputy Chief Financial Officer
Principal Accounting Officer
Christopher S. Hylen
Board Member and CEO
Reltio, Inc.
Redwood City, CA
Susan G. Murphy
Principal
The Grace Alliance, LLC
Denver, CO
Barry H. Orr
FirstBank & Trust
Lubbock, TX
Martin J. Schmitz
Chairman
Citywide Banks
Greenwood Village, CO
Kathryn Graves Unger
Vice President, North America-
Government Relations
Cargill
Washington, DC
Duane E. White
Executive Vice President and
Chief Product Officer
Medecision
Minneapolis, MN
30
Kevin G. Quinn
Executive Vice President
Chief Banking Officer
Shelley R. Reed
Executive Vice President
Corporate Strategy and
Development
BOARD OF DIRECTORS
John K. Schmidt
Chairman
Senior Vice President and
Chief Financial Officer
A.Y. McDonald
Dubuque, IA
Bruce K. Lee
President and CEO
HTLF
Dubuque, IA
Robert B. Engel
Managing Director and CEO
BLT Advisory Services, LLC
Naples, FL
Thomas L. Flynn
Past President and CEO
Flynn Ready-Mix Concrete Co.
Dubuque, IA
Lynn B. Fuller
Director
Dubuque, IA
Jennifer K. Hopkins
Managing Partner
Crescendo Capital Partners
Centennial, CO
Deborah K. Deters
Executive Vice President
Chief Human Resources Officer
Mark A. Frank
Executive Vice President
Chief Operations Officer
Laura J. Hughes
Executive Vice President
Chief Marketing Officer
Nathan R. Jones
Executive Vice President
Chief Credit Officer
Jay L. Kim
Executive Vice President
General Counsel
Kevin C. Karrels
Executive Vice President
Head of Consumer Banking
Bryan R. McKeag
Executive Vice President
Chief Financial Officer
Dennis J. Mochal
Executive Vice President
Chief Information Officer
Tamina L. O’Neill
Executive Vice President
Chief Risk Officer
David A. Prince
Executive Vice President
Head of Commercial Banking
HTLF // 2021 Annual Report
S U B S I D I A R Y P R E S I D E N T S A N D B O A R D M E M B E R S
DUBUQUE BANK AND
TRUST COMPANY
Tyson J. Leyendecker
President and CEO
—
Chad M. Chandlee
Richard C. Cody
David C. Davis
Thomas L. Flynn
Donnelle M. Fuerste
Charles D. Glab
Timothy W. Hodge
Douglas J. Horstmann
Zachary C. Keeling
Robert D. McDonald II
James C. Mulgrew
John B. (J.B.) Priest
John K. Schmidt
Cheryl D. Syke
FIRSTBANK & TRUST
Greg Garland
President and CEO
—
Troy D. Allcorn
Barry L. Brown
Ricky R. Green
Bruce K. Lee
Fred W. Locker
Barry H. Orr
R. Bruce Orr
Gary L. Rothwell
Lisa B. West
ARIZONA BANK & TRUST
William H. Callahan
President and CEO
—
David M. Adame
John D. Benton
Paul F. Muscenti
Kevin G. Quinn
Christian Roe
R. Randy Stolworthy
Dr. Philip To
Frank E. Walter
BANK OF BLUE VALLEY
Brent M. Giles
President and CEO
—
Thomas A. McDonnell
Rhonda S. McHenry
Kent P. Saylor
Kurt M. Saylor
Anne D. St. Peter
Robert D. Regnier
Robert D. Taylor
Steven E. Ward
William R. Wilkerson IV
Steven D. Wilkinson
CITYWIDE BANKS
Michael A. Wamsganz
President and CEO
—
Robert B. Engel
Jennifer K. Hopkins
Bruce K. Lee
Susan G. Murphy
Kevin G. Quinn
W. Scott Reichenberg
Martin J. Schmitz
Kwame Spearman
Mike A. Zoellner
ILLINOIS BANK & TRUST
PREMIER VALLEY BANK
Jeffrey S. Hultman
CEO
Thomas D. Budd
President and Head of
Commercial
—
Charles E. Box
Michael K. Broski
Todd B. Colin
Frederick A. Eck
Craig A. Erdmier
Monica B. Glenny
Damon C. Heim
Dana S. Kiley, Jr.
Pamela R. Maher
Amiee Schoenhaar
Michael J. Rogers
Frank E. Walter
Steven E. Ward
Laurel S. Wurster
MINNESOTA
BANK & TRUST
Stephen G. Bishop
President and CEO
—
Timothy S. Clark
Randy T. Morgan
Steven M. Thul
Steven E. Ward
NEW MEXICO
BANK & TRUST
R. Greg Leyendecker
President and CEO
—
Robert W. Eaton
Cole G. Flanagan
Mary G. Martinez
Lillian J. Montoya
Sherman C. McCorkle
G. Michael Mechenbier
Kevin G. Quinn
Craig L. Reeves
Ben F. Spencer
31
Lo B. Nestman
President and CEO
—
Linda F. East
Marvell French
Richard H. Lehman
J. Mike McGowan
Thomas G. Richards
Kevin G. Quinn
ROCKY MOUNTAIN BANK
Tod M. Petersen
President and CEO
—
Catherine L. Bergman
Max Griffin
Michael P. Johns
Pamela K. Mower
Gerald G. Pearsall
Kevin G. Quinn
WISCONSIN BANK &
TRUST
Douglas M. Kohlbeck
President and CEO
—
Erik A. Huschitt
Ramesh C. Kapur
Jack R. Liebl
Stephan Nickels
J. Cory Recknor
Steven F. Streff
Paul W. Sweeney
Thomas J. Wilkinson
As of March 31, 2022
Corporate and
Investor Information
A N N U A L M E E T I N G
The Board of Directors of Heartland Financial USA, Inc. (HTLF) will hold
a “virtual” Annual Meeting. We invite you to electronically attend the
Annual Meeting which will be held on Wednesday, June 15, 2022 at
1:00 p.m. Central Daylight Time. You will be able to attend the Annual
Meeting, vote and submit your questions during the meeting by
visiting: www.virtualshareholdermeeting.com/HTLF2022. Prior to the
meeting, you will be able to vote at www.proxyvote.com.
32
FORM 10-K AND OTHER INFORMATION
The company submits an annual report to the Securities and
Exchange Commission on Form 10-K. Stockholders may obtain
copies of our Form 10-K without charge by writing to Jay Kim,
Executive Vice President, General Counsel, HTLF, 700 Locust Street,
Suite 400, P.O. Box 778, Dubuque, Iowa 52004-0778. The Form
10-K is also available on the HTLF website, HTLF.com, under the
heading Investor Relations. Securities analysts and other investors
seeking additional information about HTLF should contact Bryan
R. McKeag, Executive Vice President, Chief Financial Officer, at the
above address or call him at 563.589.1994. Additional information
is also available at HTLF’s website: HTLF.com.
P R O F I L E
MAILING ADDRESS
Heartland Financial USA, Inc.
700 Locust Street
P.O. Box 778
Dubuque, Iowa 52004-0778
563.589.2100
INDEPENDENT AUDITORS
KPMG LLP
Des Moines, Iowa
STOCK LISTING
HTLF’s common stock is traded
through the NASDAQ Global
Select Market System under
the symbol “HTLF.” Depository
shares representing HTLF
preferred stock are also traded
through the NASDAQ Global
Select Market System under
the symbol “HTLFP.” Complete
information is available at
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
HTLF.com.
HTLF offers stockholders of record a simple and convenient method
of increasing holdings in our company by participating in HTLF’s
Dividend Reinvestment and Stock Purchase Plan. Participants can
directly reinvest dividends and make optional cash purchases to
acquire additional shares. They may elect to reinvest dividends on
either all or a portion of the shares they hold. Participants may also
elect to purchase shares of common stock by making optional cash
payments. For additional information regarding the Plan, or to request
a copy of the Plan’s prospectus, please call HTLF’s transfer agent,
Broadridge Corporate Issuer Solutions, toll free at 1.866.741.7520.
TRANSFER AGENT/
STOCKHOLDER SERVICES
Inquiries related to stockholder
records, stock transfers,
changes of ownership,
changes of address and
dividend payments should be
sent to HTLF’s transfer agent
at the following address:
Broadridge Corporate Issuer
Solutions, P.O. Box 1342,
Brentwood, NY 11717. They may
also be contacted by phone
at 1.866.741.7520.
HTLF // 2021 Annual Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 001-15393
HEARTLAND FINANCIAL USA, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
42-1405748
(I.R.S. Employer identification number)
1398 Central Avenue, Dubuque, Iowa 52001
(Address of principal executive offices) (Zip Code)
(563) 589-2100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Class
Common Stock $1.00 par value
Trading Symbol(s)
HTLF
Name of Each Exchange on Which Registered
The Nasdaq Global Select 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
The Nasdaq Global Select Market
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Securities registered pursuant to Section 12(g) of the Act:
None
Yes ☐ No ☑
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, 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 ☑
Emerging growth company ☐
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting 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 has filed a report on or attestation to its management's assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No ☑
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant (assuming, for purposes of
this calculation only, that the Registrant's directors, executive officers and greater than 10% shareholders are affiliates of the Registrant),
based on the last sales price quoted on the Nasdaq Global Select Market on June 30, 2021, the last business day of the registrant's most
recently completed second fiscal quarter, was approximately $1,898,763,868.
As of February 23, 2022, the Registrant had issued and outstanding 42,278,047 shares of common stock, $1.00 par value per share.
Portions of the Proxy Statement for the 2022 Annual Meeting of Stockholders, which will be filed no later than 120 days after December 31,
2021, are incorporated by reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
HEARTLAND FINANCIAL USA, INC.
Form 10-K Annual Report
Table of Contents
Part I
Item 1.
A.
B.
C.
D.
E.
Business
General Description
Market Areas
Competition
Human Capital
Supervision and Regulation
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
Information About Our Executive Officers
Part II
[Reserved]
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Part IV
Principal Accountant Fees and Services
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 15. Exhibits and Financial Statement Schedules
Item 16.
10-K Summary
Index of Exhibits
PART I
SAFE HARBOR STATEMENT
This Annual Report on Form 10-K (including any information incorporated herein by reference) contains, and future oral and
written statements of Heartland Financial USA, Inc. ("HTLF") and its management may contain, forward-looking statements
within the meaning of such term in Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") with respect to the business, financial condition,
results of operations, plans, objectives and future performance of HTLF. Any statements about HTLF's expectations, beliefs,
plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. Forward-
looking statements may include information about possible or assumed future results of HTLF's operations or performance, and
may be based upon beliefs, expectations and assumptions of HTLF's management. These forward-looking statements, are
generally identifiable by the use of words such as "believe," "expect," "anticipate," "plan," "intend," "estimate," "project,"
"may," "will," "would," "could," "should," "view," "opportunity." "potential," or other similar expressions. Although HTLF has
made these statements based on management's experience and best estimate of future events, the ability of HTLF to predict
results or the actual effect or outcomes of plans or strategies is inherently uncertain, and there may be events or factors that
management has not anticipated. Therefore, the accuracy and achievement of such forward-looking statements and estimates
are subject to a number of risks, many of which are beyond the ability of management to control or predict, that could cause
actual results to differ materially from those in its forward-looking statements. These factors, which HTLF currently believes
could have a material adverse effect on its operations and future prospects are detailed in the "Risk Factors" section included
under Item 1A. of Part I of this Annual Report on Form 10-K, include, among others:
• Coronavirus Disease 2019 ("COVID-19") Pandemic Risks, including risks related to the ongoing COVID-19
pandemic and measures enacted by the U.S. federal and state governments and adopted by private businesses in
response to the COVID-19 pandemic;
• Economic and Market Conditions Risks, including risks related to 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,
persistent inflation, 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 climate and other borrower industry risks, which may impact the
provision for credit losses and net charge-offs;
• Liquidity and Interest Rate Risks, including the impact of capital market conditions, rising interest rates and changes in
monetary policy on our borrowings and net interest income;
• Operational Risks, including processing, information systems, cybersecurity, vendor, business interruption, and fraud
risks;
Strategic and External Risks, including economic, political, and competitive forces impacting our business;
•
• Legal, Compliance and Reputational Risks, including regulatory and litigation risks; and
• Risks of Owning Stock in HTLF, including stock price volatility and dilution as a result of future equity offerings and
acquisitions.
However, there can be no assurance that other factors not currently anticipated by HTLF will not materially and adversely
affect HTLF’s business, financial condition and results of operations. In addition, many of these risks and uncertainties are
currently amplified by and may continue to be amplified by the COVID-19 pandemic and the impact of varying governmental
responses that affect HTLF’s customers and the economies where they operate. Additionally, all statements in this Annual
Report on Form 10-K, 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 to 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 HTLF’s filings with the Securities and Exchange Commission (the "SEC").
1
ITEM 1. BUSINESS
A. GENERAL DESCRIPTION
Heartland Financial USA, Inc. (individually referred to herein as "Parent Company" and collectively with all of its subsidiaries
and affiliates referred to herein as "HTLF," "we," "us," or "our") is a multi-bank holding company registered under the Bank
Holding Company Act of 1956, as amended (the "BHCA"), that was originally formed in the state of Iowa in 1981 and
reincorporated in the State of Delaware in 1993. HTLF's headquarters are located at 1398 Central Avenue, Dubuque, Iowa. Our
website address is www.htlf.com. You can access, free of charge, our filings with the SEC, including our Annual Report on
Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K and any other amendments to those reports, at our
website under the Investor Relations tab, or at the SEC website at www.sec.gov. Proxy materials for our upcoming 2022
Annual Shareholders Meeting to be held on May 18, 2022, will be available electronically via a link on our website at
www.htlf.com.
At December 31, 2021, HTLF had total assets of $19.27 billion, total loans held to maturity of $9.95 billion and total deposits
of $16.42 billion. HTLF’s total stockholders' equity as of December 31, 2021, was $2.18 billion. Net income available to
common stockholders for 2021 was $211.9 million.
HTLF conducts a community banking business through eleven independently branded and chartered community banks
(collectively, the "Banks") operating in the states of Iowa, Illinois, Wisconsin, New Mexico, Arizona, Montana, Colorado,
Minnesota, Kansas, Missouri, Texas and California. Each Bank serves a separate state banking market, with the exception of
Kansas and Missouri which constitute a single banking market (collectively the "Bank Markets"). In the fourth quarter of 2021,
HTLF completed evaluating the consolidation of its eleven bank charters as part of its ongoing efforts to improve operational
efficiency. As a result, the HTLF Board of Directors approved a plan to consolidate its eleven bank charters into a single
Colorado based charter, named "HTLF Bank," that will continue to operate under separate bank brands in each Bank Market.
The plan is subject to regulatory approval. The consolidation project is underway and is expected to take 18-24 months to
complete.
All Banks are insured and regulated by the Federal Deposit Insurance Corporation (the "FDIC"). Listed below are the Banks
and their respective Bank brands, which, as of the date of this Annual Report on Form 10-K, operate a total of 129 banking
locations:
Illinois Bank & Trust, Rockford, Illinois, is chartered under the laws of the state of Illinois.
• Dubuque Bank and Trust Company, Dubuque, Iowa, is chartered under the laws of the state of Iowa.
•
• Wisconsin Bank & Trust, Madison, Wisconsin, is chartered under the laws of the state of Wisconsin.
• New Mexico Bank & Trust, Albuquerque, New Mexico, is chartered under the laws of the state of New Mexico.
• Rocky Mountain Bank, Billings, Montana, is chartered under the laws of the state of Montana.
• Arizona Bank & Trust, Phoenix, Arizona, is chartered under the laws of the state of Arizona.
• Citywide Banks, Denver, Colorado, is chartered under the laws of the state of Colorado.
• Minnesota Bank & Trust, Edina, Minnesota, is chartered under the laws of the state of Minnesota.
• Bank of Blue Valley, Merriam, Kansas, is chartered under the laws of the state of Kansas.
•
•
Premier Valley Bank, Fresno, California, is chartered under the laws of the state of California.
First Bank & Trust, Lubbock, Texas, is chartered under the laws of the state of Texas.
Dubuque Bank and Trust Company also has two wholly-owned non-bank subsidiaries:
• DB&T Insurance, Inc., a multi-line insurance agency, with one wholly-owned subsidiary:
◦ Heartland Financial USA, Inc. Insurance Services, a multi-line insurance agency that provides online insurance
products to consumers and small business clients in Bank Markets.
• DB&T Community Development Corp., a community development company with the primary purpose of partnering
in low-income housing and historic rehabilitation projects.
2
HTLF uses the "HTLF" brand to refer to Parent Company activities and operations and certain limited common products and
services offered by all Banks, such as HTLF Retirement Plan Services. In addition, the relationship of each Bank to HTLF is
communicated using the phrase "Powered by HTLF".
In addition, as of December 31, 2021, HTLF had trust preferred securities issued through special purpose trust subsidiaries
formed for the purpose of offering cumulative capital securities including Heartland Financial Statutory Trust IV, Heartland
Financial Statutory Trust V, Heartland Financial Statutory Trust VI, Heartland Financial Statutory Trust VII, Morrill Statutory
Trust I, Morrill Statutory Trust II, Sheboygan Statutory Trust I, CBNM Capital Trust I, Citywide Capital Trust III, Citywide
Capital Trust IV, Citywide Capital Trust V, OCGI Statutory Trust III, OCGI Capital Trust IV, BVBC Capital Trust II and
BVBC Capital Trust III. All of HTLF’s subsidiaries were wholly owned as of December 31, 2021.
The principal business of our Banks consists of making loans to and accepting deposits from businesses and consumers. Our
Banks provide full service commercial and consumer banking in their communities. Both our loans and our deposits are
generated primarily through strong banking knowledge and customer relationships, guided by management that is actively
involved in the community. Our lending and investment activities are funded primarily by core deposits. This stable source of
funding is achieved by developing banking relationships with customers through value-added product offerings, competitive
market pricing, convenience and high-touch personal service. Deposit products, which are insured by the FDIC to the full
extent permitted by law, include checking and other demand deposit accounts, NOW accounts, savings accounts, money market
accounts, certificates of deposit, individual retirement accounts and other time deposits. Loan products include commercial and
industrial, commercial real estate, small business, agricultural, real estate mortgage, consumer, and credit cards for commercial,
business and personal use.
We enhance the customer-centric local services in our Bank Markets with a full complement of value-added services, including
wealth management, investment, retirement plan and insurance services. We provide contemporary technology solutions that
provide our customers convenient electronic banking services and client access to account information through business and
personal online banking, mobile banking, bill payment, remote deposit capture, treasury management services, credit and debit
cards and automated teller machines.
Business Model and Operating Philosophy
HTLF’s operating philosophy is to maximize the benefits of a community banking model by:
1. Creating strong community ties through customer-centric local bank delivery of products and services.
• Deeply rooted local management and boards
• Local community knowledge and relationships
• Local decision-making
• Locally recognized brands
• Commitment to an exceptional customer experience
2. Providing extensive banking services to increase revenue.
•
•
Full range of commercial products and services, including government guaranteed lending and treasury
management services
Private client services, including investment management, trust, retirement plans and brokerage and investment
services
• Convenient and competitive consumer products and services
• Residential mortgage origination and referrals
•
•
•
Providing added client value through consultative relationship building
Supporting the needs of growing customers by sharing credits across our combined banking organization
Specialized industries division providing middle-market lending expertise
3. Centralizing back-office operations for efficiency.
• Leverage expertise across all Banks
• Contemporary technology for account processing and delivery systems
• Efficient back-office support for loan processing and deposit operations
• Centralized customer relationship management systems
• Centralized loan underwriting and collections
3
• Centralized loss management and risk analysis
• Centralized support for other professional services, including human resources, marketing, legal, compliance,
finance, administration, internal audit, risk management, investment management, customer support and facilities
We believe the personal and professional service we offer to our customers provides an appealing alternative to the service
provided by the "megabanks" or large regional banks. While we are committed to a community banking philosophy, we believe
our size, combined with our robust suite of financial products and services, allows us to effectively compete in our respective
market areas. To remain price competitive, we also believe that we must manage expenses and gain economies of scale by
centralizing back office support functions. Although each of our Banks currently operate under the direction of its own board of
directors, we have standard operating policies regarding asset/liability management, liquidity management, risk management,
investment management, lending and deposit structure management, information technology management and security
management.
Another component of our operating strategy is to encourage all directors, officers and employees to maintain a strong
ownership interest in HTLF. We have established ownership guidelines for our directors. We also have a stock compensation
plan and an employee stock purchase plan.
We are deeply committed to our communities by encouraging the active participation of our employees, officers and board
members in local charitable, civic, school, religious and community development activities.
Acquisition and Branch Optimization Strategies
HTLF continues to seek opportunities for growth through acquisitions, capitalizing on an established record of successful
transactions. HTLF's acquisition strategy is to augment organic growth by focusing on acquisition targets that compliment or
supplement our current banking strategy. This includes transactions that increase penetration in existing geographic Bank
Markets and expansion into adjacent markets. In addition to acquisitions of established financial institutions, primarily
commercial banks, HTLF is exploring acquisitions of fee income businesses that compliment and build on our existing fee
income businesses or support and complement our existing lines of business. HTLF is also exploring the expansion of its
lending products and services through the acquisition of specialty lending, equipment finance, leasing and other services. All
acquisition opportunities are evaluated using a range of financial and non-financial criteria, including earnings per share
accretion, tangible equity earn back and internal rate of return.
In recent years, we have focused on markets with growth potential in the Midwestern, Southwestern and Western regions of the
United States. Our strategy is to balance the growth in our Southwestern and Western Bank Markets with the stability of our
Midwestern Bank Markets. The following table provides information about the implementation of HTLF's expansion strategy:
Name
Year
1988 Citizens Finance Co.(1)
1989 Key City Bank
1991 Farley State Bank
Galena State Bank & Trust Co.
1992
First Community Bank(2)
1994
Riverside Community Bank(3)
1995
Cottage Grove State Bank(4)
1997
1998 New Mexico Bank & Trust
1999 Bank One Monroe (branch)
2000 First National Bank of Clovis
2003 Arizona Bank & Trust
Rocky Mountain Bank
2004
Summit Bank & Trust(5)
2006
2006 Bank of the Southwest
2008
2009
2012 Liberty Bank, FSB (three branches)
2012 First National Bank Platteville
Minnesota Bank & Trust
Elizabeth State Bank
De Novo Acquisition Merged Into or Assets Purchased By
X
X
X
X
X
X
X
X
X
X
X
X
X
N/A
Dubuque Bank and Trust Company
Dubuque Bank and Trust Company
Illinois Bank & Trust (2015)
Dubuque Bank and Trust Company (2011)
N/A
N/A
N/A
Wisconsin Bank & Trust
New Mexico Bank & Trust
N/A
N/A
N/A
Arizona Bank & Trust
N/A
Galena State Bank & Trust Co.(6)
Dubuque Bank and Trust Company
Wisconsin Bank & Trust
X
X
X
X
X
4
Name
Year
2012 Heritage Bank, N.A.
2013 Morrill & Janes Bank and Trust Company
2013 Freedom Bank(7)
2015 Community Bank & Trust (Sheboygan)
2015 Community Bank (Santa Fe)
2015 First Scottsdale Bank, N.A.
2015 Premier Valley Bank
2016 Centennial Bank(5)
2017 Founders Community Bank
2017 Citywide Banks
2018 Signature Bank
2018 First Bank & Trust
2019 Bank of Blue Valley
2019 Rockford Bank and Trust Company
2020 Johnson Bank (4 branches)
2020 AimBank
De Novo Acquisition Merged Into or Assets Purchased By
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Arizona Bank & Trust
N/A
Illinois Bank & Trust (2014)
Wisconsin Bank & Trust
New Mexico Bank & Trust
Arizona Bank & Trust
N/A
Summit Bank & Trust(5)
Premier Valley Bank
Centennial Bank and Trust(8)
Minnesota Bank & Trust
N/A
Morrill & Janes Bank and Trust Company(9)
Illinois Bank & Trust
Arizona Bank & Trust
First Bank & Trust(10)
(1) The loans of Citizens Finance Co. were sold in the first quarter of 2019.
(2) First Community Bank branches were sold in the second quarter of 2019.
(3) Riverside Community Bank changed its name to Illinois Bank & Trust in 2014.
(4) Cottage Grove State Bank was renamed Wisconsin Community Bank upon acquisition and subsequently changed its name
to Wisconsin Bank & Trust.
(5) Summit Bank & Trust changed its name to Centennial Bank and Trust upon the acquisition of Centennial Bank.
(6) Galena State Bank & Trust Co. was merged into Illinois Bank & Trust in 2015.
(7) Two Freedom Bank branches were sold in the second quarter of 2019.
(8) Centennial Bank and Trust changed its name to Citywide Banks upon the acquisition of Citywide Banks.
(9) Morrill & Janes Bank and Trust Company changed its name to Bank of Blue Valley upon the acquisition of Bank of Blue
Valley.
(10) In the first quarter of 2021, seven of the twenty-five AimBank branches were transferred to New Mexico Bank & Trust.
Through organic growth and acquisitions, our goal is to reach at least $1 billion in assets in each of our Bank Markets. As of
December 31, 2021, we have achieved this goal in nine of our eleven Bank Markets. Dubuque Bank and Trust Company,
Illinois Bank & Trust, Wisconsin Bank & Trust, New Mexico Bank & Trust, Arizona Bank & Trust, Citywide Banks, Bank of
Blue Valley, Premier Valley Bank and First Bank & Trust each have assets over $1 billion.
Due to changes in our customers' banking preferences and behaviors as well as the competitive landscape, we have begun
selectively selling, consolidating and closing branches. We have also selectively opened loan production offices in certain
growth markets. We anticipate these strategic activities will provide additional resources to support our investments in areas
that improve our customer experiences and fuel our organic growth. As a result of our ongoing branch optimization, we may
complete additional, selective reductions in our branch network in the future.
5
Primary Business Lines
General
We are engaged in the business of community banking, with the expertise to serve a wide range of businesses and the scale to
compete at many levels. Our Banks provide a wide range of commercial, small business and consumer banking services to
businesses, including public sector and non-profit entities, and to individuals. Each Bank can also leverage a centralized team of
middle-market lenders with expertise in specific industries and loan structures. We have a broad customer base and are not
dependent upon a single or a few customers. We provide a contemporary menu of traditional and non-traditional service
channels including online banking, mobile banking and telephone banking. Our Banks provide a comprehensive suite of
banking products and services comprised of competitively priced deposit and credit offerings, along with treasury management,
wealth management, retirement plan services and insurance services.
Our bankers actively solicit the business of established and new businesses in their respective business communities. We
believe that the Banks are successful in attracting new customers in their markets through knowledgeable bankers, professional
high-touch service, a suite of comprehensive banking products and services, competitive pricing, credit facilities, convenient
locations and proactive communications. Our primary lines of business are described below.
Commercial Banking
Our Banks have a strong commercial loan base generated primarily through strong reputations, business networks and personal
relationships in the communities they serve. The current portfolios in each Bank Market reflect the businesses in those
communities and include a wide range of business loans, including lines of credit for working capital and operational purposes.
Commercial real estate loans, which include owner occupied and non-owner occupied real estate loans, are generally term loans
originated 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 when warranted by the overall financial condition of the borrower. Generally, terms of commercial
and commercial real estate loans range from one to five years.
Commercial bankers provide a consultative customer-centric approach utilizing the comprehensive suite of banking products
and services to deliver tailored solutions to the client in an organized and efficient manner both for the client and the bank.
Bankers are knowledgeable and experienced in providing consultative solutions to clients to assist them in accomplishing their
business strategies and objectives. The suite of banking products and services offered are highly competitive and can be tailored
to fit the objectives of the client.
Closely integrated with our lending activities is a significant emphasis on treasury management services that enhance our
business clients' ability to monitor, accumulate and disburse funds efficiently. Our treasury management services have five
basic functions:
collection;
disbursement;
•
•
• management of cash;
•
•
information reporting; and
fraud prevention.
Our treasury management services suite includes online banking and bill payment, automated clearing house ("ACH") services,
wire transfer, zero balance accounts, transaction reporting, lock box services, remote deposit capture, accounts receivable
solutions, commercial purchasing cards, merchant credit card services, investment sweep accounts, reconciliation services,
foreign exchange and several fraud prevention services, including check and electronic positive pay services.
6
Many of the businesses in the communities we serve are small to middle market businesses, and commercial lending to these
businesses has been, and continues to be, an emphasis for the Banks. The table below shows the certifications granted to the
Banks from the United States Small Business Administration ("SBA").
Bank
Dubuque Bank and Trust Company
Illinois Bank & Trust
Wisconsin Bank & Trust
New Mexico Bank & Trust
Arizona Bank & Trust
Rocky Mountain Bank
Citywide Banks
Minnesota Bank & Trust
Bank of Blue Valley
Premier Valley Bank
First Bank & Trust
SBA
Express
Lender
X
X
X
X
X
X
X
X
X
X
X
SBA
Preferred
Lender
SBA
Export
Express
X
X
X
X
X
X
X
X
X
X
Our Banks participated in the Paycheck Protection Program ("PPP"), originally created by the Coronavirus Aid, Relief and
Economic Security Act (the "CARES Act") and later expanded with the adoption of the Paycheck Protection Program
Flexibility Act (the "PPFA") and the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (the "Economic
Aid Act"). PPP loans provided small businesses with funding to maintain payroll and cover certain other overhead expenses.
PPP 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. PPP loans also carry a zero-risk rating for regulatory capital purposes, and because these loans
are 100% guaranteed by the SBA, there is no allowance recorded related to the PPP loans.
Our commercial and commercial real estate loans are primarily made based on the identified cash flow of the borrower and
secondarily on the underlying collateral provided by the borrower. We value the collateral for most of these loans based upon
its estimated fair market value and require personal guarantees in most instances. The primary repayment risks of commercial
and commercial real estate loans are that the cash flow of the borrowers may be unpredictable, and the collateral securing these
loans may fluctuate in value.
Lenders in each Bank Market are complimented by HTLF Specialized Industries, a centralized team of middle-market lenders
focused on specific industries and more complex loan structures. The expertise of this team includes the commercial real estate,
healthcare, and food and agribusiness industries, as well as syndications and franchise finance.
With the oversight of our centralized credit administration group, our credit risk management process is governed by our
commercial and consumer loan policies which establish a framework for credit and underwriting standards across the company.
Our loan policies establish underwriting standards in alignment with safe and sound credit decision making and in accordance
with regulatory guidelines as applicable to our portfolio (e.g., Real Estate Lending Standards, Supervisory Loan-to-Value
Limits). Centralized staff in credit administration assist our commercial and agricultural lending officers in the analysis,
underwriting of credit and facilitation of the credit approval process.
In addition to the lending personnel of the Banks, our internal loan review department validates credit risk rating accuracy and
analyzes the credit risk of the Banks. To reduce the risk of loss, we have processes to help identify problem loans early, and we
work with customers and aggressively seek resolution of credit problems.
HTLF has a special assets group which focuses on providing guidance to our customers and resolving problem assets. In 2020,
we added additional personnel and resources to the special assets group in response to the economic changes caused by the
COVID-19 pandemic. Commercial or agricultural loans in a default or workout status are assigned to the special assets group.
Special assets personnel are also responsible for marketing repossessed properties and meet with representatives from each
Bank on a quarterly basis.
7
Small Business Banking
HTLF's Small Business Lending Center is dedicated to serving the credit needs of small businesses with annual sales generally
under $5 million. The Small Business Lending Center is designed to provide quick turnaround on small business customer
credit requests on a wide variety of credit products and services. We believe that small businesses are an underserved market
segment and see additional opportunity in serving this market with competitively priced deposit and loan offerings and
convenient electronic banking services, as well as retirement plan services. The Banks have designated business bankers and
branch managers that serve the distinct banking needs of this customer segment.
Agricultural Loans
Agricultural loans are emphasized by those Banks with operations in and around rural areas, including Dubuque Bank and Trust
Company, Premier Valley Bank, Rocky Mountain Bank, Wisconsin Bank & Trust's Monroe and Platteville branches, New
Mexico Bank & Trust’s Clovis banking offices, Bank of Blue Valley's northeast Kansas banking offices, and First Bank &
Trust. Agricultural loans constituted approximately 8% of our total loan portfolio at December 31, 2021. In making agricultural
loans, we have policies designating a primary lending area for each Bank, in which a majority of its agricultural operating and
real estate loans are made. Under this policy, loans in a secondary market area must be secured by real estate.
Agricultural 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 loans present unique credit
risks relating to adverse weather conditions, loss of livestock due to disease or other factors, declines in market prices for
agricultural products and the impact of government regulations. The ultimate repayment of agricultural loans is dependent upon
the profitable operation or management of the agricultural entity.
In underwriting agricultural loans, the lending officers of the Banks work closely with their customers to review budgets and
cash flow projections for the ensuing crop year. These budgets and cash flow projections are monitored closely during the year
and reviewed with the customers at least annually. The Banks also work closely with governmental agencies, including the
United States Department of Agriculture ("USDA") and the Farm Services Agency ("FSA"), to help agricultural customers
obtain credit enhancement products such as loan guarantees, interest assistance and crop insurance.
Residential Real Estate Mortgage Lending
With our acquisition in 2018 of First Bank & Trust in Lubbock, Texas, we acquired its wholly owned mortgage subsidiary,
PrimeWest Mortgage Corporation ("PrimeWest"). PrimeWest, which was merged into First Bank & Trust in April 2020,
provides mortgage loans to customers in Texas and has expanded to also serve the mortgage needs of our customers in many of
our Bank Markets. First Bank & Trust services the loans it sells into the secondary market, and at December 31, 2021,
residential real estate mortgage loans serviced, primarily for government sponsored entities ("GSE"), totaled $723.3 million.
The Banks also provide mortgage loans to their customers that are retained and serviced by the originating Bank and, at
December 31, 2021, totaled $829.3 million for all the Banks combined.
Consumer Banking
A wide variety of consumer banking services are delivered through our branches. Services include checking, savings, money
market accounts, certificates of deposit, individual retirement accounts ("IRAs") and consumer credit cards. Brokerage services,
including fixed rate annuity products are also provided in many locations. Consumer lending services include a broad array of
consumer loans, including motor vehicle, home improvement, home equity lines of credit ("HELOC"), fixed rate home equity
loans and personal lines of credit.
Our Banks continue to enhance our consumer banking experience through the addition of secure electronic banking options
including online account opening and mobile banking. Our consumer banking customers receive high-touch service in our
branches and further enjoy the convenience of online bill pay, 24-hour ATM availability, mobile deposit, and 24-hour access to
account detail. As technology advances, we are committed to offering our customers the convenience of online, ATM and
mobile delivery channels in a secure manner.
Wealth Management and Retirement Plan Services
In most Banks Markets, wealth management, trust, and securities brokerage services are offered. HTLF also specializes in
retirement plan services, offering qualified retirement plan recordkeeping, administration and advice to business clients,
including 401(k), 403(b) and profit sharing plans. As of December 31, 2021, total trust assets under management were $3.79
billion.
HTLF has contracted with LPL Financial Institution Services, a division of LPL Financial, to operate independent securities
brokerage offices at the majority of the Banks. Through LPL Financial, HTLF offers a full array of investment services
including mutual funds, annuities, individual retirement products, education savings products, and brokerage services.
8
Insurance Services
Vehicle, property and casualty, life and disability insurance are also offered by HTLF through DB&T Insurance, Inc. and
Heartland Financial USA, Inc. Insurance Services, a multi-line insurance agency that provides online insurance products to
consumers and small businesses.
B. MARKET AREAS
HTLF is a geographically diversified company with a Midwestern, Western and Southwestern franchise, which balances the
risk of regional economic fluctuations. In general, we view our Midwest Bank Markets as stable with slower growth prospects
and the West and Southwest as offering greater opportunities for growth accompanied by the potential of wider economic
swings. The following table sets forth certain information about the offices and total deposits of each of the Banks and Bank
Markets as of December 31, 2021, dollars in thousands:
Charter
State
IA
Bank
Name
Dubuque Bank and Trust Company
Total
Deposits
$ 1,750,071
IL
Illinois Bank & Trust
$ 1,496,262
WI
Wisconsin Bank & Trust
$ 1,070,161
NM
New Mexico Bank & Trust
$ 2,308,939
AZ
MT
Arizona Bank & Trust
Rocky Mountain Bank
$ 1,768,793
640,757
$
CO
Citywide Banks
$ 2,291,912
MN
Minnesota Bank & Trust
$
719,489
Banking
Locations
6
1
5
2
2
3
1
5
1
1
1
9
3
2
2
1
1
2
2
1
1
9
2
2
1
1
1
1
1
11
1
2
1
1
4
2
Market Areas
Served
Dubuque MSA
Des Moines MSA
Rockford MSA
Galena
Jo Daviess County
Madison MSA
Green Bay MSA
Sheboygan MSA
Grant County
Green County
Milwaukee County
Albuquerque MSA
Clovis MSA
Santa Fe MSA
Colfax County
Guadalupe County
Los Alamos County
Quay County
Rio Arriba County
Union County
Dallam County, TX
Phoenix MSA
Billings MSA
Flathead County
Gallatin County
Jefferson County
Ravalli County
Sanders County
Sheridan County
Denver MSA
Arapahoe County
Boulder County
Eagle County
Grand County
Jefferson County
Minneapolis/St. Paul MSA
9
Charter
State
KS
Bank
Name
Bank of Blue Valley
Total
Deposits
$ 1,179,294
CA
Premier Valley Bank
$ 1,051,286
TX
First Bank & Trust
$ 2,397,350
Banking
Locations
7
1
2
1
1
1
2
1
8
1
1
1
1
1
1
1
1
1
1
1
1
1
1
Market Areas
Served
Kansas City MSA
Atchison County
Brown County
Fresno MSA
Madera County
Mariposa County
San Luis Obispo County
Tuolumne County
Lubbock MSA
Bailey County
Ector County
Gray County
Hockley County
Lamb County
Midland County
Mitchell County
Parmer County
Potter County
Roberts County
Scurry County
Taylor County
Wheeler County
Yoakum County
C. COMPETITION
We face direct competition for deposits, loans and other financial related services. To compete effectively, develop our market
share, maintain flexibility and keep pace with changing consumer preferences, business and economic conditions, we
continuously refine and develop our banking personnel, products and services. We have found the principal methods of
competing in the financial services industry are through personal service, product selection, convenience and technology.
Our Bank Markets are highly competitive, and our competitors are comprised of other commercial banks, credit unions, thrifts,
stock brokers, mutual fund companies, mortgage companies and loan production offices, insurance companies and online
providers and other non-bank financial service companies, including fintech companies. Some of these competitors are local,
while others are regional, national or global.
Technological advances have made it possible for our competitors, including nonbank competitors, to offer products and
services that traditionally were exclusively banking products and for financial institutions and other companies to provide
electronic and internet-based financial solutions, including online deposit accounts, electronic payment processing and
marketplace lending, without having a physical presence where their customers are located. In addition, many of our non-bank
competitors are not subject to the same extensive federal regulations that govern bank holding companies and federally insured
banks. In many cases, our competitors have substantially greater resources and lending limits.
We believe we are well positioned to compete for loans effectively through the array and quality of the credit products and
services we provide, and the high-touch, customer-centric way in which we provide them. We invest in building long-lasting
customer relationships, and our strategy is to serve our customers above and beyond their expectations through excellence in
customer service and providing banking solutions that are tailored to our customers’ needs. We believe that our long-standing
presence and commitment to the communities we serve and the personal service we emphasize enhance our ability to compete
favorably in attracting and retaining commercial and consumer customers. We continue to attract deposit-oriented customers by
offering personal attention, combined with contemporary electronic banking convenience, professional service and competitive
interest rates. The breadth of our product suite, coupled with our superior customer service, allows us to compete favorably with
our larger competitors.
10
D. HUMAN CAPITAL
People are our most valuable asset. They are critical in providing the high quality of service and knowledge our clients deserve.
Accordingly, the attraction and retention of qualified, engaged and diverse employees is critical to HTLF’s success and the
growth and preservation of long term client relationships. HTLF is committed to placing a primary focus on our associates'
interest as part of our evolving our human capital strategy. In 2021, we had 93% of employees participate in our annual
employee engagement survey, and we achieved our highest average engagement score since inception of the survey process in
2017. On December 31, 2021, HTLF employed 2,249 full-time equivalent employees.
COVID-19 Relief
As the COVID-19 pandemic advanced throughout the year, and in spite of the challenges presented by COVID-19 variants, our
employees' and customers' health and safety remained top of mind as our employees rose to the challenges of serving our
customers.
• HTLF continued a limited "pandemic pay" program for 2021, which helped to reduce employee financial hardship
when they needed to stay remote due to COVID-19 exposures during the first year of the pandemic. This additional
pay program will not continue in 2022.
• HTLF continues to provide preventative health care coverage at 100%, virtual medical care options and supplement
employees health savings accounts to make sure they stay healthy while social distancing.
• HTLF continues to promote the Employee Assistance Program to support employees and their families with the stress
and mental health strain of the pandemic.
In anticipation of some moderation of the effects of the COVID-19 pandemic on the workplace and employees, HTLF planned
for the return to work of most employees on work from home status in response to the pandemic. Return to work and related
office utilization planning was adjusted from pre-pandemic models to accommodate a mix of in office and hybrid work
schedules as well as some continued remote working arrangements.
Recruitment and Retention
In response to growing expectations of hybrid and remote working options, near full employment and wage pressure we
strengthened our employee recruitment and retention efforts. With the increased demand for talent, HTLF deployed enhanced
recruitment strategies and expanded our recruiting capacity. Given these challenges, our 2021 net voluntary turnover ratio was
20.18%, excluding acquired employees, which was an increase of 4.44% over our 2020 rate of 15.74% in a year that has been
labeled as "the great resignation". Increasing wage pressures also caused an increase in the compensation offered during the
hiring process, with successful recruitment initiatives often requiring compensation above the mid-point. Overall hiring for
2021 totaled 984 positions, 728 filled externally and 256 internally. As of December 31, 2021, there were open requisitions for
90 positions.
Employee onboarding and training continues to be delivered virtually, which enables most new hires to be engaged faster and
build their skill set to better serve our clients. HTLF delivers a culture session to all new hires to aide them in understanding the
importance of who we are and the importance of living our mission, vision, and values.
Competitive Compensation and Benefits
We remain focused on providing market level compensation and benefit packages. HTLF instituted a minimum pay threshold
of $15 per hour in all Bank Markets to compete with other businesses and banks for entry level talent. We also benchmark our
compensation programs annually. Incentive arrangements are evaluated annually to ensure that we reward talent appropriately
in exchange for their efforts in adding value for our customers. In 2021, we partnered with our compensation consultant to
identify a move toward true market based pay versus the Hay method of job grading. We believe that there will continue to be
significant market adjustments as greater pay transparency crosses our footprint. As a greater percentage of employees are
working hybrid or remote, we will evaluate how the market will compensate individuals, whether it will be national or based on
a geographic basis of an employee’s remote work or office location. HTLF continues to support employees with matching
contributions to their 401(k) (approximately 95% employee participation), an employee stock purchase plan, and buy down of
student debt in exchange for unused paid time off. Employees are also active participants in our wellness platform, which
includes a weight loss program, smoking cessation program, a program offering tips on how to stay healthy and resources for
home schooling. We offer comprehensive healthcare options including HTLF making annual health savings account
contributions.
11
Investment in Employee Development
We invest in our talent and provide meaningful development opportunities. Our training programs start on the employee's first
day with the basics of our culture and use of systems. There are more extensive programs for our Commercial and Consumer
lending teams that educate them on products, services, sales and systems. Our goal is to help the employee acclimate quickly to
HTLF so that they can focus on their role and servicing customers. In 2021, we initiated a manager training program that will
roll out more extensively to seasoned and newly promoted managers in 2022. All employees participate in our annual
compliance course work.
HTLF has implemented robust training for our consumer and commercial teams to enhance their ability to serve our customers
using a values based approach.
Diversity and Inclusion
HTLF is committed to seeking diversity and inclusion at all levels of the organization beginning with our Board of Directors.
Our diversity statement reflects both our current culture and what we aspire to be:
HTLF is unique and so are you. We all come from different backgrounds and experience that help shape our company
values. Our values are rooted in the belief that respect, equality, and inclusiveness make us stronger together. The
variety of experiences and lifestyles we bring to work every day provides insights that help us better understand each
other and our customers.
HTLF's Chief Diversity & Inclusion Officer and Diversity Advisory Council were appointed to oversee, advise and connect
Diversity, Equity, and Inclusion (DEI) activities to a broader business-driven, results-oriented strategy, as well as to align with
our corporate values and the future of HTLF. The Diversity Advisory Council has engaged guest speakers to further the
conversation as we work to educate our teams and enhance inclusiveness. The counsel is also establishing Employee Business
Resource Groups and expanding the depth and breadth of our annual DEI reporting. In furtherance of our diversity and
inclusion initiatives, executive and senior management also participated in diversity, equity and inclusion "listen and learn"
sessions. We are in the process of implementing additional diversity and inclusion training for all employees and updating the
onboarding process to enhance employee dialogue.
E. SUPERVISION AND REGULATION
General
Financial institutions, their holding companies, and their affiliates are extensively regulated and supervised under federal and
state law. As a result, the growth and earnings performance of HTLF may be affected not only by management decisions and
general economic conditions, but also by the requirements of federal and state statutes and by the regulations, supervisory
expectations and policies of various bank regulatory authorities. Both the scope of the laws and regulations and the intensity of
the supervision to which HTLF is subject have increased in recent years because of the increase in HTLF's asset size and other
factors such as technological and market changes. Regulatory enforcement and fines have also increased across the banking and
financial services sector. HTLF expects that its business will remain subject to extensive regulation and supervision. Further,
the scope of regulation and the intensity of supervision will likely be higher under the Biden Administration, including
increased scrutiny and possible denials of bank mergers and acquisitions by federal bank regulators.
As a bank holding company with subsidiary banks chartered under the laws of eleven different states, HTLF is regulated by the
Board of Governors of the Federal Reserve System (the "Federal Reserve"). Each of the Banks is regulated by the FDIC as its
principal federal regulator and one of the following as its state regulator: the Arizona State Banking Department (the "Arizona
Department"); the California Department of Business Oversight, Division of Financial Institutions (the "California Division");
the Colorado Department of Regulatory Agencies, Division of Banking (the "Colorado Division"); the Illinois Department of
Financial and Professional Regulation (the "Illinois DFPR"); the Iowa Superintendent of Banking (the "Iowa Superintendent");
the State Bank Commissioner of Kansas Division of Banking (the "Kansas Division"); the Minnesota Department of
Commerce: Division of Financial Institutions (the "Minnesota Division"); the Montana Division of Banking and Financial
Institutions (the "Montana Division"); the New Mexico Financial Institutions Division (the "New Mexico FID"); the Texas
Department of Banking (the "Texas Division"); and the Division of Banking of the Wisconsin Department of Financial
Institutions (the "Wisconsin DFI").
Federal and state laws and regulations generally applicable to financial institutions regulate, among other things, the scope of
business, the kinds and amounts of investments, reserve requirements, capital levels, the establishment of branches, mergers
and consolidations and the payment of dividends. This system of supervision and regulation establishes a comprehensive
framework for the respective operations of HTLF and its subsidiaries and is intended primarily for the protection of the FDIC-
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insured deposits and depositors, consumers, the stability of the financial system in the United States, and the health of the
national economy, rather than stockholders.
Federal and state banking regulators regularly examine HTLF and its subsidiaries to evaluate their financial condition and
monitor their compliance with laws and regulatory policies. Following those exams, HTLF and the Banks are assigned
supervisory ratings. These ratings are considered confidential supervisory information and disclosure to third parties is not
allowed without permission of the issuing regulator. Violations of laws and regulations or deemed deficiencies in risk
management practices may be incorporated into these supervisory ratings. A downgrade in these ratings could limit HTLF’s
ability to pursue acquisitions or conduct other expansionary activities for a period of time, require new or additional regulatory
approvals before engaging in certain other business activities or investments, affect a subsidiary bank’s deposit insurance
assessment rate, and impose additional recordkeeping and corporate governance requirements, as well as generally increase
regulatory scrutiny of HTLF.
The federal bank regulatory agencies have broad authority to issue orders to depository institutions and their holding companies
prohibiting activities that constitute violations of law, rule, regulation, or administrative order, or that represent unsafe or
unsound banking practices, as determined by the federal banking agencies. The federal banking agencies also are empowered to
require affirmative actions to correct any violation or practice; issue administrative orders that can be judicially enforced; direct
increases in capital; limit dividends and distributions; restrict growth; assess civil money penalties against institutions or
individuals who violate any laws, regulations, orders, or written agreements with the agencies; order termination of certain
activities of holding companies or their non-bank subsidiaries; remove officers and directors; order divestiture of ownership or
control of a non-banking subsidiary by a holding company; or terminate deposit insurance and appoint a conservator or
receiver.
The Consumer Financial Protection Bureau ("CFPB") has broad rulemaking authority over a wide range of federal consumer
protection laws applicable to the business of the Banks and some of our other operating subsidiaries. Because each of the Banks
currently has less than $10 billion in total consolidated assets, the FDIC, not the CFPB, is responsible for examining and
supervising the Banks’ compliance with federal consumer protection laws and regulations. Should we receive regulatory
approval and complete the consolidation of our Banks, we will become subject to the jurisdiction of the CFPB. Our non-bank
subsidiaries are subject to regulation by their functional regulators, including applicable state finance and insurance agencies.
Banking and other financial services statutes, regulations and policies are continually under review by Congress, state
legislatures and federal and state regulatory agencies. In addition to laws and regulations, state and federal bank regulatory
agencies may issue policy statements, interpretive letters and similar written guidance applicable to HTLF and its subsidiaries.
Any change in the statutes, regulations or regulatory policies including changes in their interpretation or implementation, may
have a material effect on the business of HTLF and its subsidiaries.
This section summarizes material elements of the regulatory framework that applies to HTLF and its subsidiaries. It does not
describe all of the applicable statutes, regulations and regulatory policies that apply, nor does it disclose all of the requirements
of the statutes, regulations and regulatory policies requirements that are described.
Regulation of HTLF
General
HTLF, as the sole shareholder of Dubuque Bank and Trust Company, New Mexico Bank & Trust, Rocky Mountain Bank,
Wisconsin Bank & Trust, Illinois Bank & Trust, Arizona Bank & Trust, Citywide Banks, Minnesota Bank & Trust, Bank of
Blue Valley, Premier Valley Bank and First Bank & Trust, is a bank holding company. As a bank holding company, HTLF is
registered with, and is subject to regulation, supervision and examination by, the Federal Reserve under the BHCA.
In accordance with Federal Reserve policy, HTLF is expected to act as a source of financial and managerial strength to the
Banks and to commit resources to support the Banks in circumstances where HTLF might not otherwise do so. In addition,
since the Banks are under the common control of HTLF, the FDIC may look to the assets of the Banks to offset losses incurred
as a result of the failure of one or more of the other Banks. Under the Dodd-Frank Act, the FDIC also has backup enforcement
authority over a depository institution holding company, such as HTLF, if the conduct or threatened conduct of the holding
company poses a risk to the Deposit Insurance Fund, although such authority may not be used if the holding company is in
sound condition and does not pose a foreseeable and material risk to the insurance fund.
Under the BHCA, HTLF is subject to examination by the Federal Reserve. Supervision and examinations are confidential, and
the outcomes of these actions will not be made public. HTLF is also required to file with the Federal Reserve periodic reports of
HTLF's operations and such additional information regarding HTLF and its subsidiaries as the Federal Reserve may require.
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Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA may elect to operate
as financial holding companies which may engage in, or own shares in companies engaged in, a wider range of nonbanking
activities. As of the date of this Annual Report on Form 10-K, HTLF has not applied for approval to operate as a financial
holding company.
Acquisitions, Activities and Change in Control
Acquisitions of HTLF’s voting stock above certain thresholds may be subject to prior regulatory notice or approval under
applicable federal banking laws. Investors are responsible for ensuring that they do not, directly or indirectly, acquire shares of
our stock in excess of the amount that can be acquired without regulatory approval or notice under the BHCA and the Change
in Bank Control Act.
The BHCA generally requires the prior approval of the Federal Reserve before acquiring direct or indirect ownership or control
of more than 5% of the voting shares of an additional bank or bank holding company, or to merge or consolidate with another
bank holding company. The Bank Merger Act generally requires our subsidiary banks to obtain prior regulatory approval to
merge or consolidate with, or acquire substantially all of the assets of or assume deposits of, another bank. We must also be
well-capitalized and well-managed, in order to acquire a bank located outside of our home state, which is currently Iowa under
the BHCA.
Capital Requirements
Bank holding companies and their subsidiary financial institutions are required to maintain minimum risk-based and leverage
capital ratios, as well as a capital conservation buffer, pursuant to regulations adopted by the Federal Reserve and FDIC, as
applicable, to implement the Basel III capital framework ("Basel III Rule"). These requirements include quantitative measures
that assign risk weightings to assets and off-balance sheet items and define and set minimum regulatory capital ratios. Failure to
meet minimum capital requirements can initiate certain mandatory, and possible additional discretionary, actions by the federal
banking regulators that, if undertaken, could have a material adverse effect on the financial condition and results of operations
of a bank holding company and its subsidiaries. Federal banking regulators are required by law to take prompt action when
institutions are viewed as engaging in unsafe or unsound practices or do not meet certain minimum capital requirements. In
addition to other potential actions, failure to meet regulatory capital requirements would result in limitations on capital
distributions as well as executive bonuses. The Federal Reserve, FDIC and applicable state banking regulators may determine
that a banking organization, based on its size, complexity or risk profile, must maintain a higher level of capital in order to
operate in a safe and sound manner. In addition, if a bank holding company is not well-capitalized, it will have difficulty
engaging in acquisition transactions.
The regulations of the Federal Reserve and the FDIC as the primary regulator of state banks, separate capital into three
components, Common Equity Tier 1 ("CET 1") capital, Tier 1 capital and Tier 2 capital, and test these capital components
based on their ratio to assets and to "risk weighted assets." CET 1 capital consists of common stockholders' equity. Tier 1
capital generally consists of (a) common stockholders' equity, qualifying noncumulative preferred stock, and to the extent they
do not exceed 25% of total Tier 1 capital, qualifying cumulative perpetual preferred stock and, for some institutions, trust
preferred securities, and (b) among other things, goodwill and specified intangible assets, credit enhancing strips and
investments in unconsolidated subsidiaries. Tier 2 capital includes, to the extent not in excess of Tier 1 capital, the allowance
for credit losses, other qualifying perpetual preferred stock, certain hybrid capital instruments, qualifying term subordinated
debt and certain trust preferred securities not otherwise included in Tier 1 capital. Risk weighted assets include the sum of
specific assets of an institution multiplied by risk weightings for each asset class.
The Basel III Rule generally requires that CET 1 capital include the effects of other comprehensive income adjustments, such as
gains and losses on securities held to maturity, but allow institutions, such as HTLF, to make a one-time election not to include
those effects. HTLF and its Banks elected not to include the effects of other comprehensive income in CET 1 capital.
If an institution grows beyond $15 billion in assets as a result of mergers or acquisitions, it loses its ability to include trust
preferred securities in Tier 1 capital. Previously issued trust preferred securities are excluded from Tier 1 capital but remain
included in Tier 2 capital. HTLF had $19.27 billion of assets as of December 31, 2021, and reclassified $147.3 million of trust
preferred securities from Tier 1 capital to Tier 2 capital.
Under the Basel III Rule, HTLF and the Banks are required to comply with a leverage requirement consisting of a minimum
ratio of Tier 1 capital to total assets (the "Leverage Ratio") of 4.0%. The Basel III Rule also requires HTLF and the Banks to
maintain a capital conservation buffer of 2.5% on top of the minimum risk-weighted asset ratios designed to absorb losses
during periods of economic stress and composed entirely of common equity Tier 1 capital.
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The following table presents the minimum regulatory capital ratios, minimum ratio plus capital conservation buffer, and well-
capitalized minimums that HTLF and the Banks must satisfy.
Ratio
CET 1 risk-based capital
Tier 1 risk-based capital
Total risk-based capital
Tier 1 leverage ratio
Entity
Consolidated
Bank
Consolidated
Bank
Consolidated
Bank
Consolidated
Bank
Capital Ratio %
Minimum Regulatory Minimum Ratio + Well-Capitalized
Capital Buffer %(1) Minimum %(2)
7.00
4.50
N/A
4.50
6.00
6.00
8.00
8.00
4.00
4.00
7.00
8.50
8.50
10.50
10.50
N/A
N/A
6.50
6.00
8.00
10.00
10.00
N/A
5.00
(1) Reflects a capital conservation buffer of 2.5%
(2) Reflects the well-capitalized standard applicable to HTLF under Federal Reserve Regulation Y and the well-capitalized
standard applicable to the Banks.
Failure to be well-capitalized or to meet minimum capital requirements could result in certain mandatory and possible
additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on our operations or
financial condition. For example, a financial institution generally must be "well-capitalized" to engage in acquisitions, and well-
capitalized institutions may qualify for exemptions from prior notice or application requirements otherwise applicable to certain
types of activities and may qualify for expedited processing of other required notices or applications. In addition, only a well-
capitalized depository institution may accept brokered deposits without prior regulatory approval. Failure to be well-capitalized
or to meet minimum capital requirements could also result in restrictions on HTLF’s or the Banks’ ability to pay dividends or
otherwise distribute capital. See the discussion of "Capital Resources" in Management’s Discussion and Analysis of Financial
Condition and Results of Operations. As of December 31, 2021, HTLF had regulatory capital in excess of the Federal Reserve
requirements for well-capitalized bank holding companies.
Stress Testing
The Dodd-Frank Act requires certain institutions to conduct an annual "stress test" of capital and consolidated earnings and
losses under a base case and two severely adverse stress scenarios. The Economic Growth, Regulatory Relief and Consumer
Protection Act (the "Economic Growth Act") raised the asset threshold for institutions subject to these stress testing
requirements from $10 billion in average total consolidated assets to $100 billion for bank holding companies. As a result,
HTLF, as well as its Banks, are no longer subject to the Wall Street Reform and Consumer Protection Act (the "Dodd-Frank
Act") stress testing requirements or any requirement to publish the results of stress testing. Despite elimination of this
requirement, HTLF continues to perform certain stress tests internally and incorporate the economic models and information
developed through its stress testing program into its risk management and business planning activities.
Dividend Payments
HTLF's ability to pay dividends to its stockholders may be affected by both general corporate law consideration, minimum
regulatory capital requirements and policies of the Federal Reserve applicable to bank holding companies. As a Delaware
corporation, HTLF is subject to the limitations of the Delaware General Corporation Law (the "DGCL"), which allows HTLF to
pay dividends only out of its surplus (as defined and computed in accordance with the provisions of the DGCL) or, if HTLF has
no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.
Federal Reserve policy provides that a bank holding company should not pay cash dividends unless (1) its net income over the
last four quarters (net of dividends paid) is sufficient to fully fund the dividends, (2) the prospective rate of earnings retention
appears consistent with the capital needs, asset quality, and overall financial condition of the bank holding company and its
subsidiaries and (3) the bank holding company will continue to meet minimum required capital adequacy ratios. The policy also
provides that a bank holding company should inform the Federal Reserve reasonably in advance of declaring or paying a
dividend that exceeds earnings for the period for which the dividend is being paid or that could result in a material adverse
change to the bank holding company’s capital structure. Bank holding companies also are expected to consult with the Federal
Reserve before materially increasing dividends. The Federal Reserve could prohibit or limit the payment of dividends by a bank
holding company if it determines that payment of the dividend would constitute an unsafe or unsound practice.
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Regulation of the Banks
General
All of the Banks are state chartered, non-member banks, which means that they are all formed under state law and are not
members of the Federal Reserve System. As a result, each Bank is subject to direct regulation by the banking authorities in the
state in which it was chartered, as well as by the FDIC as its primary federal regulator.
Dubuque Bank and Trust Company is an Iowa-chartered bank. As an Iowa-chartered bank, Dubuque Bank and Trust Company
is subject to the examination, supervision, reporting and enforcement requirements of the Iowa Superintendent, the chartering
authority for Iowa banks.
Illinois Bank & Trust is an Illinois-chartered bank. As an Illinois-chartered bank, Illinois Bank & Trust is subject to the
examination, supervision, reporting and enforcement requirements of the Illinois DFPR, the chartering authority for Illinois
banks.
Wisconsin Bank & Trust is a Wisconsin-chartered bank. As a Wisconsin-chartered bank, Wisconsin Bank & Trust is subject to
the examination, supervision, reporting and enforcement requirements of the Wisconsin DFI, the chartering authority for
Wisconsin banks.
New Mexico Bank & Trust is a New Mexico-chartered bank. As a New Mexico-chartered bank, New Mexico Bank & Trust is
subject to the examination, supervision, reporting and enforcement requirements of the New Mexico FID, the chartering
authority for New Mexico banks.
Arizona Bank & Trust is an Arizona-chartered bank. As an Arizona-chartered bank, Arizona Bank & Trust is subject to the
examination, supervision, reporting and enforcement requirements of the Arizona Department, the chartering authority for
Arizona banks.
Rocky Mountain Bank is a Montana-chartered bank. As a Montana-chartered bank, Rocky Mountain Bank is subject to the
examination, supervision, reporting and enforcement requirements of the Montana Division, the chartering authority for
Montana banks.
Citywide Banks is a Colorado-chartered bank. As a Colorado-chartered bank, Citywide Banks is subject to the examination,
supervision, reporting and enforcement requirements of the Colorado Division, the chartering authority for Colorado banks.
Minnesota Bank & Trust is a Minnesota-chartered bank. As a Minnesota-chartered bank, Minnesota Bank & Trust is subject to
the examination, supervision, reporting and enforcement requirements of the Minnesota Division, the chartering authority for
Minnesota banks.
Bank of Blue Valley is a Kansas-chartered bank. As a Kansas-chartered bank, Bank of Blue Valley is subject to the
examination, supervision, reporting and enforcement requirements of the Kansas Division, the chartering authority for Kansas
banks.
Premier Valley Bank is a California-chartered bank. As a California-chartered bank, Premier Valley Bank is subject to the
examination, supervision, reporting and enforcement requirements of the California Division, the chartering authority for
California banks.
First Bank & Trust is a Texas-chartered bank. As a Texas-chartered bank, First Bank & Trust is subject to the examination,
supervision, reporting and enforcement requirements of the Texas Division, the chartering authority for Texas banks.
Deposit Insurance
The deposits of each of the Banks are insured by the Depositors Insurance Fund (“DIF”) up to the standard maximum deposit
insurance amount of $250,000 per depositor. As FDIC-insured institutions, the Banks are required to pay deposit insurance
premium assessments to the FDIC using a risk-based assessment system based upon average total consolidated assets minus
tangible equity of the insured bank. The FDIC has authority to raise or lower assessment rates on insured deposits in order to
achieve statutorily required reserve ratios in the DIF and to impose special additional assessments.
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Supervisory Assessments
Each of the Banks is required to pay supervisory assessments to its respective state banking regulator to fund the operations of
that agency. In general, the amount of the assessment is calculated on the basis of each institution's total assets. During 2021,
the Banks paid supervisory assessments totaling $1.5 million.
Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") requires the federal bank regulatory agencies
to take "prompt corrective action" regarding FDIC-insured depository institutions that do not meet certain capital adequacy
standards. A depository institution’s treatment for purposes of the prompt corrective action provisions depends upon its level of
capitalization and certain other factors. An institution that fails to remain well-capitalized becomes subject to a series of
restrictions that increase in severity as its capital condition weakens. Such restrictions may include a prohibition on capital
distributions, restrictions on asset growth or restrictions on the ability to receive regulatory approval of applications. The
FDICIA also provides for enhanced supervisory authority over undercapitalized institutions, including authority for the
appointment of a conservator or receiver for the institution. In certain instances, a bank holding company may be required to
guarantee the performance of an undercapitalized subsidiary bank’s capital restoration plan. The capital adequacy requirements
applicable to the Banks are described above under the caption "HTLF-Capital Requirements."
As of December 31, 2021: (i) none of the Banks was subject to a directive from its primary federal regulator to increase its
capital; (ii) each of the Banks exceeded its minimum regulatory capital requirements under applicable capital adequacy
guidelines; (iii) each of the Banks was "well-capitalized," as defined by applicable regulations; and (iv) none of the Banks were
subject to a directive to maintain capital higher than the regulatory capital requirements, as discussed below under the caption
"Safety and Soundness Standards."
Liability of Commonly Controlled Institutions
Under federal law, institutions insured by the FDIC may be liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC in connection with the default of commonly controlled FDIC-insured depository institutions or any
assistance provided by the FDIC to commonly controlled FDIC-insured depository institutions in danger of default. Because
HTLF controls each of the Banks, the Banks are commonly controlled for purposes of these provisions of federal law.
Anti-Money Laundering
The Bank Secrecy Act, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001 (the "USA PATRIOT Act") and other related federal laws and regulations require financial
institutions, including the Banks, to implement policies and procedures relating to anti-money laundering, customer
identification and due diligence requirements and the reporting of certain types of transactions and suspicious activity. The
Financial Crimes Enforcement Network rules require financial institutions to develop policies, procedures and practices to
prevent and deter money laundering. The program must be a written board-approved program that is reasonably designed to
identify and verify the identities of beneficial owners of legal entity customers at the time a new account is opened. The
program must, at a minimum (1) provide for a system of internal controls to assure ongoing compliance; (2) designate a
compliance officer; (3) establish an ongoing employee training program; and (4) implement an independent audit function to
test programs. This rule has increased compliance costs for the Banks.
The Anti-Money Laundering Act of 2020, enacted on January 1, 2021 as part of the National Defense Authorization Act, does
not directly impose new requirements on banks, but requires the U.S. Treasury Department to issue National Anti-Money
Laundering and Countering the Financing of Terrorism Priorities, and conduct studies and issue regulations that may, over the
next few years, significantly alter some of the due diligence, recordkeeping and reporting requirements that the Bank Secrecy
Act and USA PATRIOT Act impose on banks. The Anti-Money Laundering Act of 2020 also contains provisions that promote
increased information-sharing and use of technology and increases penalties for violations of the Bank Secrecy Act and
includes whistleblower incentives, both of which could increase the prospect of regulatory enforcement.
Office of Foreign Assets Control Regulation
The U.S. Department of the Treasury’s Office of Foreign Assets Control, or "OFAC," is responsible for administering
economic sanctions that affect transactions with designated foreign countries, nationals and others, as defined by various
Executive Orders and Acts of Congress. OFAC-administered sanctions take many different forms. For example, sanctions may
include: (1) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect
imports from and exports to a sanctioned country and prohibitions on U.S. persons engaging in financial transactions relating
to, making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (2) a blocking of
assets in which the government or "specially designated nationals" of the sanctioned country have an interest, by prohibiting
transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons). OFAC also
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publishes lists of persons, organizations, and countries suspected of aiding, harboring or engaging in terrorist acts, known as
Specially Designated Nationals and Blocked Persons. Blocked assets (e.g., property and bank deposits) cannot be paid out,
withdrawn, set off or transferred in any manner without a license from OFAC. Failure to comply with these sanctions could
have serious legal and reputational consequences.
Dividend Payments
HTLF is a legal entity separate and distinct from its banking and non-banking subsidiaries. The primary source of funds for
HTLF is dividends from the Banks. In general, the Banks may only pay dividends either out of their net income after any
required transfers to surplus or reserves have been made or out of their retained earnings.
The payment of dividends by any financial institution is limited by the requirement to maintain adequate capital pursuant to
applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any
dividends if, following payment thereof, the institution would be undercapitalized. As described above, each of the Banks
exceeded its minimum capital requirements under applicable guidelines as of December 31, 2021.
As of December 31, 2021, approximately $502.1 million was available in retained earnings at the Banks for payment of
dividends to HTLF under the regulatory capital requirements to remain well-capitalized. Notwithstanding the availability of
funds for dividends, however, the FDIC and state regulators may reduce or prohibit the payment of dividends by the Banks.
Transactions with Affiliates
The Federal Reserve regulates transactions among HTLF and its subsidiaries. Generally, the Federal Reserve Act and
Regulation W, as amended by the Dodd-Frank Act, limit lending and certain other "covered transactions" as well as other
transactions between the Banks and their affiliates, including HTLF and its subsidiaries and for the primary purpose of
protecting the interests of the Banks. The aggregate amount of "covered transactions" a Bank may enter into with an affiliate
may not exceed 10% of the capital stock and surplus of the Bank. The aggregate amount of "covered transactions" with all
affiliates may not exceed 20% of the capital stock and surplus of the Bank.
"Covered transactions" between each Bank and its affiliates are also subject to collateralization requirements and must be
conducted on arm’s length terms. "Covered transactions" include (a) a loan or extension of credit by a Bank, including
derivative contracts, (b) a purchase of securities issued to a Bank, (c) a purchase of assets by a Bank unless otherwise exempted
by the Federal Reserve, (d) acceptance of securities issued by an affiliate to the Bank as collateral for a loan, and (e) the
issuance of a guarantee, acceptance or letter of credit by a Bank on behalf of an affiliate.
While the quantitative limits and collateral requirement described above are generally not applicable to transactions between
Banks, all affiliate transactions, including those between Banks, are subject to safety and soundness requirements, prohibitions
on the purchase of low-quality assets, and certain other requirements and most affiliate transactions are required to be on market
terms and conditions at least as favorable to the Bank as comparable transactions with non-affiliates.
Insider Transactions
The Banks are subject to certain restrictions imposed by federal law on extensions of credit to HTLF and its subsidiaries, on
investments in the stock or other securities of HTLF and its subsidiaries and the acceptance of the stock or other securities of
HTLF or its subsidiaries as collateral for loans made by the Banks. Certain limitations and reporting requirements are also
placed on extensions of credit by each of the Banks to its directors and officers, to directors and officers of HTLF and its
subsidiaries, to principal stockholders of HTLF and to "related interests" of such directors, officers and principal
stockholders. In addition, federal law and regulations may affect the terms upon which any person who is a director or officer of
HTLF or any of its subsidiaries or a principal stockholder of HTLF may obtain credit from banks with which the Banks
maintain correspondent relationships.
Safety and Soundness Standards
The federal banking agencies have adopted guidelines that establish operational and managerial standards to promote the safety
and soundness of federally insured depository institutions. The guidelines set forth standards for internal controls, information
systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation,
fees and benefits, vendor and model risk management, asset quality and earnings. In general, the safety and soundness
guidelines prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures
to achieve those goals. If an institution fails to comply with any of the standards set forth in the guidelines, the institution's
primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance. If an institution
fails to submit an acceptable compliance plan or fails in any material respect to implement a compliance plan that has been
accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the
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deficiency. Until the deficiency cited in the regulator's order is cured, the regulator may restrict the institution's rate of growth,
require the institution to increase its capital, restrict the rates the institution pays on deposits or require the institution to take
any action the regulator deems appropriate under the circumstances. Noncompliance with the standards established by the
safety and soundness guidelines may also constitute grounds for other enforcement action by the federal banking regulators,
including cease and desist orders and civil money penalty assessments.
Properly managing risks has been identified as critical to the conduct of safe and sound banking activities and has become even
more important as new technologies, product innovation, and the size and speed of financial transactions have changed the
nature of banking markets. The federal banking agencies have identified a spectrum of risks facing banking institutions
including, but not limited to, credit, market, liquidity, operational, legal, and reputational risk. Some of the regulatory
pronouncements have focused on operational risk, which arises from the potential that inadequate information systems,
operational problems, breaches in internal controls, fraud, or unforeseen catastrophes will result in unexpected losses. New
products and services, third-party risk management and cybersecurity are critical sources of operational risk that financial
institutions are expected to address in the current environment. The Banks are expected to have active board and senior
management oversight; adequate policies, procedures, and limits; adequate risk measurement, monitoring, and management
information systems; and comprehensive and effective internal controls.
Branching Authority
Each of the Banks has the authority, pursuant to the laws under which it is chartered, to establish branches anywhere in the state
in which its main office is located, subject to the receipt of all required regulatory approvals.
Federal law permits state and national banks to merge with banks in other states subject to: (i) regulatory approval; (ii) federal
and state deposit concentration limits; and (iii) state law limitations requiring the merging bank to have been in existence for a
minimum period of time (not to exceed five years) prior to the merger.
State Bank Investments and Activities
Each of the Banks generally is permitted to make investments and engage in activities directly or through subsidiaries as
authorized by the laws of the state under which it is chartered. However, under federal law and FDIC regulations, FDIC-insured
state banks are prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount,
that are not permissible for a national bank. Federal law and FDIC regulations also prohibit FDIC-insured state banks and their
subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank,
unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines the
activity would not pose a significant risk to the deposit insurance fund of which the bank is a member.
Incentive Compensation Policies and Restrictions
The federal banking agencies have issued joint guidance on incentive compensation designed to ensure that the incentive
compensation policies of banking organizations such as HTLF and the Banks are consistent with the safety and soundness of
the organization and its subsidiary banks.
In addition, the Dodd-Frank Act requires the federal banking agencies and the SEC to issue regulations and guidelines requiring
covered banking organizations such as HTLF and the Banks, to prohibit incentive-based compensation payment arrangements
that encourage inappropriate risk taking by providing compensation that is excessive or that could lead to material financial loss
to the organization. A proposed rule was issued in 2016. Also pursuant to the Dodd-Frank Act, in 2015, the SEC proposed rules
that would direct stock exchanges to require listed companies to implement clawback policies to recover incentive-based
compensation from current or former executive officers in the event of certain financial restatements and would also require
companies to disclose their clawback policies and their actions under those policies. It is unclear when, if ever, the proposed
rules will be finalized. The Biden Administration may revisit these proposals.
The Volcker Rule and Proprietary Trading
HTLF and the Banks are prohibited under the Volcker Rule from (1) engaging in short-term proprietary trading for their own
accounts, and (2) having certain ownership interests in and relationships with hedge funds or private equity funds. The
fundamental prohibitions of the Volcker Rule apply to banking entities of any size, including HTLF and the Banks. The
Volcker Rule regulations contain exemptions for market-making, hedging, underwriting, trading in U.S. government and
agency obligations and also permit certain ownership interests in certain types of funds to be retained. They also permit the
offering and sponsoring of funds under certain conditions. The Volcker Rule regulations impose compliance and reporting
obligations on banking entities.
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HTLF does not engage in any significant amount of proprietary trading, as defined in the Volcker Rule, and the impact of the
Volcker Rule on HTLF's business activities and investment portfolio has been minimal. HTLF has reviewed its investment
portfolio to determine if any investments meet the Volcker Rule's definition of covered funds. Based on the review, HTLF
determined that the impact related to investments considered to be covered funds did not have a significant effect on its
financial condition or results of operations.
Community Reinvestment Act Requirements
The Community Reinvestment Act ("CRA") imposes a continuing and affirmative obligation on each of the Banks to help meet
the credit needs of their respective communities, including low- and moderate-income neighborhoods, in a safe and sound
manner. The FDIC and the respective state regulators regularly assess the record of each Bank in meeting the credit needs of its
community. Applications for additional acquisitions are subject to evaluation of the effectiveness of the Banks' in meeting their
CRA requirements.
In December of 2019, the FDIC issued a proposal to significantly amend existing CRA regulations, with the goal of making the
regulatory framework more objective, transparent, consistent, and easy to understand. To accomplish these goals, this proposed
rule would strengthen the CRA regulations by clarifying which activities qualify for CRA credit, updating where activities
count for CRA credit, creating a more transparent and objective method for measuring CRA performance, and providing for
more transparent, consistent, and timely CRA-related data collection, recordkeeping, and reporting. While the adoption and
implementation of this proposed rule is uncertain, if adopted it is not anticipated that the rule would become effective before
2022.
Consumer Protection
The Banks and some of HTLF’s other operating subsidiaries are subject to a variety of federal and state statutes and regulations
designed to protect consumers. The CFPB has broad rulemaking authority over a wide range of federal consumer protection
laws that apply to banks and other providers of financial products and services, including the authority to prohibit “unfair,
deceptive or abusive” acts and practices, but examination and supervision is carried out by each subsidiary bank’s primary
federal banking agency and, where applicable, state banking agency, not the CFPB. In addition, state attorneys general and
other state officials have authority to enforce consumer protection rules issued by the CFPB. State authorities have recently
increased their focus on and enforcement of consumer protection rules.
The CFPB has undertaken numerous rule-making and other initiatives, including issuing informal guidance and taking
enforcement actions against certain financial institutions. The CFPB’s rulemaking, examination and enforcement authority has
affected and will continue to significantly affect financial institutions involved in the provision of consumer financial products
and services.
The CFPB has also been publishing complaints submitted by consumers regarding consumer financial products and services in
a publicly accessible online portal. The CFPB also publishes complaint narratives from consumers that opted to have their
narratives made public. The publication of complaint narratives could affect the Banks in the following ways: (i) complaint data
might be used by the CFPB to make decisions regarding regulatory, enforcement or examination issues; and (ii) the publication
of such narratives may have a negative effect on the reputation of those institutions that are the subject of complaints.
In addition, deposit operations are subject to, among others: the Truth in Savings Act and Regulation DD issued by the CFPB,
which require disclosure of deposit terms to consumers; Regulation CC issued by the Federal Reserve Board, which relates to
the availability of deposit funds to consumers; the Right to Financial Privacy Act, which imposes a duty to maintain the
confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of
financial records; and the Electronic Fund Transfer Act and Regulation E issued by the CFPB, which governs automatic
deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
Changes to consumer protection regulations, including those promulgated by the CFPB, could affect our business but the
likelihood, timing and scope of any such changes and the impact any such change may have on us cannot be determined with
any certainty.
Mortgage Lending
Mortgage loans held at each of the Banks and mortgage loans originated by PrimeWest, a division of First Bank & Trust, are
subject to a number of laws and rules affecting residential mortgages, including the Home Mortgage Disclosure Act ("HMDA")
and Regulation C and the Real Estate Settlement Procedures Act ("RESPA") and Regulation X. In recent years, the CFPB and
other federal agencies have proposed and finalized a number of rules affecting residential mortgages. These rules implement the
Dodd-Frank Act amendments to the Equal Credit Opportunity Act, Truth in Lending Act ("TILA") and RESPA. The rules,
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among other things, impose requirements regarding procedures to ensure compliance with "ability to repay" requirements,
policies and procedures for servicing mortgages, and additional rules and restrictions regarding mortgage loan originator
compensation and qualification and registration requirements for individual loan originator employees. These rules also impose
new or revised disclosure requirements, including a new integrated mortgage origination disclosure that combines disclosures
currently required under TILA and RESPA.
The HMDA and Regulation C require lenders to report certain information regarding home loans and includes tests for
determining what financial institutions and credit transactions are covered under HMDA and reporting requirements for new
data points identified in the Dodd-Frank Act or identified by the CFPB as necessary to carry out the purposes of HMDA.
Regulation C requires detailed information from lenders and the reporting on mortgage loan underwriting and pricing.
Federal law also requires financial institutions to impose a mandatory purchase requirement for flood insurance for loans
secured by certain real property located in areas with special flood hazards. In February 2019, federal regulators issued a final
rule implementing the Biggert-Waters Flood Insurance Reform Act. The final rule, which became effective July 1, 2019,
includes rules for identifying when private flood insurance policies must be accepted and criteria to apply in determining
whether certain types of coverage qualify as "flood insurance" for federal flood insurance law purposes.
Ability-to-Repay and Qualified Mortgage Rule
Under Federal Reserve Board Regulation Z, mortgage lenders, such as the Banks and the PrimeWest division of First Bank &
Trust, are required to make a reasonable and good faith determination based on verified and documented information that a
consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms. Mortgage lenders are
required to determine consumers’ ability to repay in one of two ways. The first alternative requires the mortgage lender to
consider the following eight underwriting factors when making the credit decision: (1) current or reasonably expected income
or assets; (2) current employment status; (3) the monthly payment on the covered transaction; (4) the monthly payment on any
simultaneous loan; (5) the monthly payment for mortgage-related obligations; (6) current debt obligations, alimony and child
support; (7) the monthly debt-to-income ratio or residual income; and (8) credit history. Alternatively, the mortgage lender can
originate "qualified mortgages," which are entitled to a presumption that the creditor making the loan satisfied the ability-to-
repay requirements. In general, a "qualified mortgage" is a mortgage loan without negative amortization, interest-only
payments, balloon payments or terms exceeding 30 years. In addition, to be a qualified mortgage, the points and fees paid by a
consumer cannot exceed 3% of the total loan amount. Qualified mortgages that are "higher-priced" (e.g., subprime loans) have
a rebuttable presumption of compliance with the ability-to-repay rules, while qualified mortgages that are not "higher-
priced" (e.g., prime loans) are given a safe harbor of compliance. The Banks primarily originate compliant qualified mortgages.
Lending Standards and Guidance
The federal banking agencies have adopted uniform regulations prescribing standards for extensions of credit that are secured
by liens or interests in real estate or made for the purpose of financing permanent improvements to real estate. Under these
regulations, all insured depository institutions, such as the Banks, must adopt and maintain written policies establishing
appropriate limits and standards for extensions of credit that are secured by liens or interests in real estate or are made for the
purpose of financing permanent improvements to real estate. These policies must establish loan portfolio diversification
standards, prudent underwriting standards (including loan-to-value limits) that are clear and measurable, loan administration
procedures, and documentation, approval and reporting requirements. The real estate lending policies must reflect consideration
of the federal bank regulators’ Interagency Guidelines for Real Estate Lending Policies.
Data Privacy and Cybersecurity
Various federal and state laws and regulations contain extensive data privacy and cybersecurity provisions and the regulatory
framework for data privacy and cybersecurity is in considerable flux and evolving rapidly. At the federal level, the Gramm-
Leach-Bliley Act ("GLBA") requires financial institutions to, among other things, periodically disclose their privacy policies
and practices relating to sharing personal information and, in some cases, enables consumers to opt out of the sharing of certain
information with unaffiliated third parties. The GLBA also requires financial institutions to implement an information security
program that includes administrative, technical and physical safeguards to ensure the security and confidentiality of customer
records and information. Additionally, like other lenders, the Banks use credit bureau data in their underwriting activities. Use
of such data is regulated under the Fair Credit Reporting Act ("FCRA"), and the FCRA also regulates reporting information to
credit bureaus, prescreening individuals for credit offers, sharing of information between affiliates, and using affiliate data for
marketing purposes. HTLF is also subject to the rules and regulations promulgated under the authority of the Federal Trade
Commission, which regulates unfair or deceptive acts or practices, including with respect to data privacy and cybersecurity.
Moreover, the United States Congress is currently considering various proposals for more comprehensive data privacy and
cybersecurity legislation, to which we may be subject if passed.
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The federal banking regulators, as well as the SEC and related self-regulatory organizations, regularly issue guidance regarding
cybersecurity that is intended to enhance cyber risk management among financial institutions. A financial institution is expected
to establish a framework of internal control, first, second and third lines of defense, and risk management policies, procedures
and processes that are designed to address the cyber risks that it faces in its business operations. A financial institution’s
management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption
and maintenance of the institution’s operations after a cyber-attack. A financial institution is also expected to develop
appropriate processes to enable recovery of data and business operations if the institution or its critical service providers fall
victim to a cyber-attack. Additionally, the Federal Financial Institutions Examination Council ("FFIEC") developed the
Cybersecurity Assessment Tool to help financial institutions identify their risks and determine their preparedness for
cybersecurity threats.
The FFIEC has also issued an Information Security booklet, which includes guidelines for evaluating the adequacy of
information security programs (including effective threat identification, assessment and monitoring, and incident identification
assessment and response), assurance reports and testing of information security programs.
Data privacy and cybersecurity are also areas of increasing state legislative focus. Various state laws and regulations apply, or
may apply in the future, to HTLF’S operations and may impose additional requirements on HTLF and its subsidiaries or
otherwise impact HTLF’s ability to share certain personal information with affiliates and non-affiliates. For example, the
California Consumer Protection Act of 2018 (the "CCPA"), which became effective on January 1, 2020, applies to for-profit
businesses that conduct business in California and meet certain revenue or data collection thresholds. The CCPA gives
California residents the right to, among other things, request disclosure of information collected about them and whether that
information has been sold to others, request deletion of personal information (subject to certain exceptions), opt out of the sale
of their personal information, and not be discriminated against for exercising these rights. The CCPA contains several
exemptions, including an exemption applicable to personal information that is collected, processed, sold or disclosed pursuant
to the GLBA. Further, effective in most material respects starting on January 1, 2023, the California Privacy Rights Act
("CPRA") (which was passed via a ballot initiative as part of the November 2020 election) will significantly modify the CCPA,
including by expanding California residents’ rights with respect to certain sensitive personal information. The CPRA also
creates a new state agency which will be vested with authority to implement and enforce the CCPA and the CPRA. Other states
where HTLF does business, or may in the future do business, or from which HTLF otherwise collects, or may in the future
otherwise collect, personal information of residents have adopted or are considering adopting similar laws. For example,
Virginia and Colorado have recently adopted comprehensive data privacy laws similar to the CCPA, which will go into effect in
January and July of 2023, respectively. In addition, laws in all 50 U.S. states generally require businesses to provide notice
under certain circumstances to consumers whose personal information has been disclosed as a result of a data breach.
See "Legal, Compliance and Reputational Risks—We are subject to complex and evolving laws, regulations, rules, standards
and contractual obligations regarding data privacy and cybersecurity, which can increase the cost of doing business,
compliance risks and potential liability." for additional information.
Durbin Amendment
The Dodd-Frank Act included provisions (known as the "Durbin Amendment"), which restrict interchange fees to those which
are "reasonable and proportionate" for certain debit card issuers and limits the ability of networks and issuers to restrict debit
card transaction routing. The Federal Reserve issued final rules implementing the Durbin Amendment on June 29, 2011. In the
final rules, interchange fees for debit card transactions were capped at $0.21 plus five basis points to be eligible for a safe
harbor such that the fee is conclusively determined to be reasonable and proportionate. The interchange fee restrictions
contained in the Durbin Amendment, and the rules promulgated thereunder, only apply to debit card issuers with $10 billion or
more in total consolidated assets at year-end. Because HTLF's assets exceeded $10 billion at December 31, 2018, it was
required to comply with the Durbin Amendment effective July 1, 2019.
ITEM 1A. RISK FACTORS
An investment in our securities is subject to risks inherent in our business. The material risks and uncertainties that management
believes affect us are described below. Additional risks and uncertainties that management is not aware of or that management
currently deems immaterial may also impair our business operations. If any of the events described in the risk factors should
actually occur, our financial condition and results of operations could be materially and adversely affected. If this were to
happen, the value of our securities could decline significantly, and you could lose all or part of your investment.
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Summary of Risk Factors
Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary
does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and
other risks that we face, can be found below and should be carefully considered, together with other information in this Form
10-K and our other filings with the SEC, before making an investment decision regarding our common stock. These risks
include, but are not limited to, the following:
• The ongoing COVID-19 pandemic and measures intended to prevent its spread have adversely affected, and may
continue to adversely affect our business activities, financial condition, and results of operations and such effects will
depend on future developments, which are highly uncertain and difficult to predict.
• Our participation in the Paycheck Protection Program and other regulatory and governmental actions to mitigate the
impact of the COVID-19 could result in reputational harm, claims and litigation.
• Our business and financial results are significantly affected by general business and economic conditions.
• Our business dependent upon the continued growth and welfare of the various geographic markets that we serve.
• Our business and performance are vulnerable to the impact of volatility in debt and equity markets.
• Changes in interest rates and other conditions could negatively impact net interest income and net interest margin.
• We may be adversely impacted by the planned phasing out of the London Interbank Offered Rate ("LIBOR") as a
reference rate.
• We have recorded goodwill as a result of acquisitions, and if it becomes impaired, our earnings could be significantly
impacted.
• We have substantial deferred tax assets that could require a valuation allowance and a charge against earnings if we
conclude that the tax benefits represented by the assets are unlikely to be realized.
• Changes in the federal, state or local tax laws may negatively impact our financial performance.
• Our business and financial performance could be adversely affected, directly or indirectly, by natural disasters, climate
change, pandemics, terrorist activities, domestic disturbances or international hostilities.
• Climate change manifesting as transition, physical or other risks could adversely affect our operations, businesses,
customers, reputation and financial condition.
If we do not properly manage our credit risk, we could suffer material credit losses.
• Our framework for managing risks may not be effective in mitigating risk and losses.
•
• We are subject to lending concentration risks.
• We depend on the accuracy and completeness of information about our customers and counterparties.
• Our loan portfolio has a large concentration of commercial real estate loans, a segment that can be subject to volatile
cash flows and collateral values.
• We may encounter issues with environmental law compliance if we take possession, through foreclosure or otherwise,
of the real property that secures a commercial real estate loan.
• The ability of a borrower to repay agricultural loans may be especially affected by many factors outside of the
borrower’s control.
• We hold one- to four-family first-lien residential mortgage loans in our loan portfolio, and the ability of the borrower
to repay may be difficult to estimate.
• Economic disruption resulting from the COVID-19 pandemic may make it difficult for some customers to repay their
loans, resulting in increased credit losses.
• Government programs established in response to the COVID-19 pandemic may delay but not avoid the realization of
credit losses.
• Our allowance for credit losses may prove to be insufficient to absorb losses in our loan portfolio.
• Liquidity is essential to our business, and our performance could be adversely affected by constraints in or increased
costs for funding.
• The required accounting treatment of loans we acquire through acquisitions could result in higher net interest margins
and interest income in current periods and lower net interest margins and interest income in future periods.
• Our liability portfolio, including deposits, may subject us to liquidity risk and pricing risk from concentrations.
• Our growth may create the need to raise additional capital in the future, but that capital may not be available when it is
needed.
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• We rely on dividends from our subsidiaries for most of our revenue and are subject to restrictions on payment of
dividends.
• Reduction in the value, or impairment of our investment securities, can impact our earnings and common stockholders'
equity.
• We have a continuing need for technology investments, and we may not have the resources to effectively implement
new technology.
• Our operations are affected by risks associated with our use of vendors and other third-party service providers.
•
Security breaches, cyber-attacks or other similar incidents with respect to our or our vendors’ systems or network
security, as well as the resulting theft or compromise of business and customer information, including personal
information, could adversely affect our business or reputation, and create significant legal, regulatory or financial
exposure.
• The potential for business interruption or failure exists throughout our organization.
• We are subject to risks from employee errors, customer or employee fraud and data processing system failures and
errors.
• Our Bank Markets and growth strategy rely heavily on our management team, and the unexpected loss of key
managers may adversely affect our operations.
• New lines of business, products and services are essential to our ability to compete but may subject us to additional
risks.
• Our analytical and forecasting models may be improper or ineffective.
• Our internal controls may be ineffective.
• The soundness of other financial institutions could adversely affect our liquidity and operations.
• We may experience difficulties in achieving and managing our growth and our growth strategy involves risks that may
negatively impact our net income. Strong organic growth is an integral component to allow us to achieve business and
financial results necessary to make appropriate investments in people, processes and systems which allow HTLF to
remain competitive in attracting and retaining employees and customers.
• Attractive acquisition opportunities may not be available to us in the future.
• We face intense competition in all phases of our business and competitive factors could adversely affect our business.
• Government regulation can result in limitations on our growth strategy.
• We are subject to extensive and evolving government regulation and supervision, which can increase the cost of doing
•
business and lead to enforcement actions.
Stringent requirements related to capital and liquidity may limit our ability to return earnings to stockholders or
operate or invest in our business.
• We are becoming subject to additional regulatory requirements as our total assets increase, and these additional
requirements could have an adverse effect on our financial condition or results of operations.
• We are subject to complex and evolving laws, regulations, rules, standards and contractual obligations regarding data
privacy and cybersecurity, which can increase the cost of doing business, compliance risks and potential liability.
• Litigation and enforcement actions could result in negative publicity and could adversely impact our business and
financial results.
• Our reputation and our business are subject to negative publicity risk.
• Our stock price can be volatile.
•
Stockholders may experience dilution as a result of future equity offerings and acquisitions.
• Certain banking laws and the HTLF Stockholder Rights Plan may have an anti-takeover effect.
COVID-19 Pandemic Risks
The ongoing COVID-19 pandemic and measures intended to prevent its spread have adversely affected, and may continue to
adversely affect our business activities, financial condition, and results of operations and such effects will depend on future
developments, which are highly uncertain and difficult to predict.
Although the U.S. and global economies have begun to recover from the COVID-19 pandemic as many health and safety
restrictions have been lifted and vaccine distribution has increased, certain adverse consequences of the pandemic continue to
impact the macroeconomic environment and may persist for some time, including labor shortages and disruptions of global
supply chains. The growth in economic activity and demand for goods and services, alongside labor shortages, wage pressure
and supply chain complications, have also contributed to rising inflationary pressures. The extent to which the COVID-19
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pandemic impacts our business, results of operations and financial condition will depend on future developments, which are
highly uncertain and are difficult to predict, including, but not limited to, the rate of distribution and administration of vaccines
globally, the severity and duration of any resurgence of COVID-19 variants, the actions to contain the virus or treat its impact,
and how quickly and to what extent normal economic and operating conditions can resume. The impact of the COVID-19
pandemic may also vary between our various Bank Markets, based in part on the severity, timing and duration of COVID-19
variants, differences in local vaccinations rates and differences in state and local responses to the COVID-19 pandemic.
The federal government has taken measures to address the economic and social consequences of the pandemic, including the
passage of the CARES Act and later with the adoption of the PPFA and the Economic Aid Act. The CARES Act, as
supplemented by the PPFA and Economic Aid Act, among other things, provides certain measures to support individuals and
businesses in maintaining solvency through monetary relief, including in the form of financing, loan forgiveness and automatic
forbearance. There can be no assurance, however, that the steps taken by the worldwide community or the U.S. government will
be sufficient to address the negative economic effects of COVID-19 or avert severe and prolonged reductions in economic
activity.
We have experienced adverse financial consequences due to a number of factors and may continue to experience such
consequences should the effects of the pandemic, including the emergence of variants, continue for an extended period of time
or worsen. These consequences include, but are not limited to:
•
•
•
•
•
•
•
•
negative effects on net interest income and net interest margins as a result of the low interest rate environment;
increased credit losses due to financial strain on our customers as a result of the pandemic and governmental actions,
specifically on loans to borrowers in the lodging, retail trade, retail properties, restaurants and bars and oil and gas;
increases in our provision for credit losses and net charge-offs resulting from increased credit losses;
declines in collateral values;
an impairment of goodwill or core deposit and customer relationship intangibles that could result in charges being
recorded and restrictions on the ability of certain Banks to pay dividends to us;
loan modifications and loan payment deferrals resulting in reduced earnings;
increased demand on our liquidity as we meet borrowers’ needs and cover expenses related to the pandemic
management plan;
negative effects on capital and leverage ratios as a result of reduced liquidity which, although not currently
contemplated, could reduce or force suspension of dividends;
stock price volatility;
•
• workforce disruptions if a significant portion of our workforce is unable to work effectively or must continue to work
remotely, including because of illness, quarantines, government actions, or other restrictions in connection with the
pandemic;
third-party disruptions, including negative effects on network providers and other suppliers, which may affect their
ability to perform under the terms of agreements or provide essential services;
increased risk of payment fraud, security breaches, cyber-attacks, and other similar incidents due to increased online
and remote activity; and
other operational failures due to changes in our normal business practices because of the pandemic and governmental
actions to contain it.
•
•
•
To the extent the pandemic adversely affects our business, financial condition, liquidity, or results of operations, it also has the
effect of heightening many of the other risks described in this 2021 Annual Report on Form 10-K.
We expect that the temporary reduction of interest rates to near zero will, gradually over the course of next year, be reversed,
with the Federal Reserve now signaling its concerns with respect to inflation and announcing that it will begin to taper its
purchases of mortgage and other bonds and increase the federal funds rate. The timing and impact of this expected reversal in
interest rates trends is unknown.
The factors described above may remain prevalent for a significant period of time and may continue to affect our business,
results of operations and financial condition even after the COVID-19 pandemic has subsided. There are no comparable recent
events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the
ultimate impact of the pandemic is highly uncertain and subject to change.
Our participation in the Paycheck Protection Program and other regulatory and governmental actions to mitigate the impact
of the COVID-19 could result in reputational harm, claims and litigation.
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Our Banks are participating lenders in the PPP, a loan program administered through the SBA that was created under the
CARES Act, and modified by the PPFA and Economic Aid Acts, to help eligible businesses, organizations and self-employed
persons fund their operational costs during the COVID-19 pandemic. Under this program, the SBA guarantees 100% of the
amounts of fixed, low interest rate loans that are subject to numerous other regulatory requirements. Borrowers are also eligible
to apply to the SBA for forgiveness of their PPP loan obligations, and most are expected to do so. Because of the short windows
between the passing of the authorizing legislation and the opening of the PPP, there was and continues to be some ambiguity in
the laws, rules and guidance regarding the operation of the PPP. Subsequent rounds of legislation and associated agency
guidance have not provided necessary clarity and have created potential additional inconsistencies and ambiguities.
Accordingly, the Banks are exposed to risks relating to compliance with the PPP requirements, including reputational harm.
Additionally, since the launch of the PPP, several other banks have been subject to litigation regarding the process and
procedures used in processing applications for the PPP. If PPP borrowers fail to qualify for loan forgiveness, the Banks face a
heightened risk of holding these loans at unfavorable interest rates for an extended period of time. The Banks have credit risk
on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated,
funded, or serviced. If a deficiency is identified, the SBA may deny forgiveness, take action against borrowers and, in some
instances, deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty,
seek recovery of any loss related to the deficiency from the Banks.
Economic and Market Conditions Risk
Our business and financial results are significantly affected by general business and economic conditions.
Our business activities and earnings are affected by general business conditions in the United States and particularly in our
Bank Markets. Factors such as the volatility of interest rates, home prices and real estate values, unemployment, credit defaults,
increased bankruptcies, decreased consumer spending and household income, volatility in the securities markets, persistent
inflation, supply chain issues, labor shortages, and the cost and availability of capital have negatively impacted our business in
the past and may adversely impact us in the future. Economic deterioration that affects household and/or corporate incomes
could result in renewed credit deterioration and reduced demand for credit or fee-based products and services, negatively
impacting our performance. In addition, changes in securities market conditions and monetary fluctuations could adversely
affect the availability and terms of funding necessary to meet our liquidity needs.
Our business dependent upon the continued growth and welfare of the various geographic markets that we serve.
We operate in Bank Markets in Iowa, Illinois, Wisconsin, Arizona, New Mexico, Montana, Colorado, Minnesota, Kansas,
Missouri, Texas and California, and our financial condition, results of operations and cash flows are subject to changes in the
economic conditions in those markets. Our success depends upon the economic vitality, growth prospects, business activity,
population, income levels, deposits and real estate activity in those areas and may be impacted by the effects of past and future
civil unrest and domestic disturbances in the communities that we serve. Although our customers' business and financial
interests may extend well beyond our market areas, adverse economic conditions that affect our specific market area could
reduce our growth rate, affect the ability of our customers to repay their loans to us and impact the stability of our deposit
funding sources. Consequently, declines in economic conditions in those Bank Markets could generally affect our financial
condition and results of operations.
Our business and performance are vulnerable to the impact of volatility in debt and equity markets.
As most of our assets and liabilities are financial in nature, our performance is sensitive to the performance of the financial
markets. Turmoil and volatility in the financial markets can be a major contributory factor to overall weak economic conditions,
including the impaired ability of borrowers and other counterparties to meet obligations to us. Financial market volatility may:
• Affect the value or liquidity of our on-balance sheet and off-balance sheet financial instruments.
• Affect the value of capitalized servicing assets.
• Affect our ability to access capital markets to raise funds. Inability to access capital markets if needed, at cost effective
rates, could adversely affect our liquidity and results of operations.
• Affect the value of the assets that we manage or otherwise administer or service for others. Although we are not
directly impacted by changes in the value of such assets, decreases in the value of those assets would affect related fee
income and could result in decreased demand for our services.
Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including
escalating military tension between Russia and Ukraine, terrorism or other geopolitical events.
Changes in interest rates and other conditions could negatively impact net interest income and net interest margin.
A high percentage of our assets and certain liabilities could become interest-bearing, and as a result, changes in interest rates, in
the shape of the yield curve or in spreads between different market interest rates, can have a material effect on our financial
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performance. Our profitability is in part a function of the spread between the interest rates earned on investments and loans and
the interest rates paid on deposits and other interest-bearing liabilities. Like most banking institutions, our net interest spread
and margin will be affected by general economic conditions and other factors, including fiscal and monetary policies of the
Federal Reserve that influence market interest rates, and our ability to respond to changes in such rates. The Federal Reserve
System regulates the supply of money and credit in the United States, and it influences interest rates by changing the discount
rate at which it lends money to banks and by adjusting the target for the federal funds rate at which banks borrow from other
banks. Its fiscal and monetary policies determine, in a large part, our cost of funds for lending and investing and the return that
can be earned on those loans and investments, both of which affect our net interest margin. In addition, decisions by the Federal
Reserve to increase or reduce the size of its balance sheet or to engage in tapering its purchase of assets may also affect interest
rates. Federal Reserve Board policies can also materially affect the value of financial instruments that we hold, such as debt
securities and mortgage servicing rights.
At any given time, our assets and liabilities may be affected differently by a given change in interest rates. Asset values,
especially commercial real estate collateral, securities or other fixed rate earning assets, can decline significantly with relatively
minor changes in interest rates. As a result, an increase or decrease in rates, the length of loan terms or the mix of adjustable and
fixed rate loans in our portfolio could have a positive or negative effect on our net income, capital and liquidity. We measure
interest rate risk under various rate scenarios using specific criteria and assumptions. A summary of this process, along with the
results of our net interest income simulations, is presented under the caption "Quantitative and Qualitative Disclosures About
Market Risk" included under Item 7A of Part II of this Annual Report on Form 10-K. Although we believe our current level of
interest rate sensitivity is reasonable and effectively managed, significant fluctuations in interest rates may have an adverse
effect on our business, financial condition and results of operations, and specifically, our net interest income. Also, our interest
rate risk modeling techniques and assumptions may not fully predict or capture the impact of actual interest rate changes on our
financial condition and results of operations.
In response to the economic consequences of the COVID-19 pandemic, the Federal Reserve lowered its target for the federal
funds rate to a range of 0% to 0.25%. While interest rates remain low, the Federal Reserve is expected to begin slowly raising
interest rates during 2022. We cannot predict the nature or timing of future changes in monetary policies or the precise effects
that they may have on our activities and financial results.
We may be adversely impacted by the planned phasing out of the London Interbank Offered Rate ("LIBOR") as a reference
rate.
We have derivative contracts, borrowings, variable rate loans and other financial instruments with attributes that are either
directly or indirectly dependent on the LIBOR. Central banks around the world, including the Federal Reserve, have
commissioned committees and working groups of market participants and official sector representatives to replace LIBOR and
replace or reform other interest rate benchmarks. The publication of most LIBOR rates ceased as of the end of December 2021.
While certain U.S. dollar LIBOR tenors are expected to continue to be published until June 30, 2023, the U.S. banking agencies
have encouraged banks to cease entering into new contracts referencing LIBOR no later than December 31, 2021. A transition
away from the widespread use of LIBOR to alternative rates and other potential interest rate benchmark reforms has begun and
will continue over the course of the next few years. These reforms may cause such rates to perform differently than in the past,
or to disappear entirely, or have other consequences which cannot be predicted.
While there is no consensus on what rate or rates may become accepted alternatives to LIBOR, a group of market participants
convened by the Federal Reserve, the Alternative Reference Rate Committee, has selected the Secured Overnight Financing
Rate ("SOFR") as its recommended alternative to LIBOR. SOFR is a broad measure of the cost of overnight borrowings
collateralized by Treasury securities that was selected due to the depth and robustness of the U.S. Treasury repurchase market.
At this time, it is impossible to predict whether SOFR will become an accepted alternative to LIBOR.
The transition from LIBOR to SOFR or a different alternative reference rate is complex and could have a range of adverse
impacts on us. In particular, any such transition could, among other things, (i) adversely effect the value of, return on and
trading for financial assets or liabilities that are linked to LIBOR, including securities, loans or derivatives; (ii) require
renegotiation of outstanding financial assets and liabilities; (iii) result in additional inquiries or other actions from regulators in
respect to our preparation and readiness for the LIBOR transition; (iv) increase the risks of disputes or litigation and/or increase
expenses related to the transition; (v) adversely impact our reputation as we work with customers to transition loans and
financial instruments from LIBOR; (vi) require successful system and analytics development and operationalization to
transition to our systems, loan portfolio and risk management processes away from LIBOR, which will require reliance on
third-party vendors; and (vii) cause disruption in financial markets that are relevant to our business.
In March 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-04 "Reference Rate Reform" which
addresses the effect of the anticipated transfer away from LIBOR towards new interest rate benchmarks under GAAP. HTLF
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has a formal working group that is responsible for the planning, assessment and execution of the transition from LIBOR to
SOFR. Currently, HTLF has adjustable rate loans, several debt obligations and securities and derivative instruments in place
that reference LIBOR-based rates. HTLF began transitioning to term SOFR effective December 31, 2021 and has ceased using
LIBOR as a reference rate for new contracts. While HTLF will continue to execute on its transition plan, there can be no
assurance that actions taken by us and third parties to address these risks or effectively transition from LIBOR will be
successful.
We have recorded goodwill as a result of acquisitions, and if it becomes impaired, our earnings could be significantly
impacted.
Under current accounting standards, goodwill is not amortized but, instead, is subject to impairment tests on at least an annual
basis or more frequently if an event occurs or circumstances change that reduce the fair value of a reporting unit below its
carrying amount. Although we do not anticipate impairment charges, if we conclude that some portion of our goodwill is
impaired, a non-cash charge for the amount of such impairment would be recorded against earnings. A goodwill impairment
charge could be caused by a decline in our stock price or occurrence of a triggering event that compounds the negative results in
an unfavorable quarter. At December 31, 2021, we had goodwill of $576.0 million, representing approximately 26% of
stockholders’ equity.
We have substantial deferred tax assets that could require a valuation allowance and a charge against earnings if we
conclude that the tax benefits represented by the assets are unlikely to be realized.
Our consolidated balance sheet reflected approximately $53.6 million of deferred tax assets at December 31, 2021, that
represents differences in the timing of the benefit of deductions, credits and other items for accounting purposes and the benefit
for tax purposes. To the extent we conclude that the value of this asset is not more likely than not to be realized, we would be
obligated to record a valuation allowance against the asset, impacting our earnings during the period in which the valuation
allowance is recorded. Assessing the need for, or the sufficiency of, a valuation allowance requires management to evaluate all
available evidence, both negative and positive. Positive evidence necessary to overcome the negative evidence includes whether
future taxable income in sufficient amounts and character within the carryback and carryforward periods is available under the
tax law. When negative evidence (e.g., cumulative losses in recent years, history of operating losses or tax credit carryforwards
expiring unused) exists, more positive evidence than negative evidence will be necessary. If the positive evidence is not
sufficient to exceed the negative evidence, a valuation allowance for deferred tax assets is established. The creation of a
substantial valuation allowance could have a significant negative impact on our reported results in the period in which it is
recorded. The impact of the impairment of HTLF's deferred tax assets could have a material adverse effect on our business,
results of operations and financial condition.
Changes in the federal, state or local tax laws may negatively impact our financial performance.
We are subject to changes in tax law that could increase our effective tax rates. The enactment of such legislation including
provisions impacting tax rates, apportionment, consolidation or combination, income, expenses, credits and exemptions may
have a material impact on our business, financial conditions and results of operations. These tax law changes may also be
retroactive to previous periods and could negatively affect our current and future financial performance. There is no assurance
that tax rates will remain at current levels or that presently anticipated benefits will be realized in future years’ financial
performance.
Our business and financial performance could be adversely affected, directly or indirectly, by natural disasters, climate
change, pandemics, terrorist activities, domestic disturbances or international hostilities
Neither the occurrence nor the potential impact of natural disasters, climate change, pandemics, terrorist activities, domestic
disturbances or international hostilities can be predicted. However, these occurrences could impact us directly (for example, by
interrupting our systems, which could prevent the us from obtaining deposits, originating loans and processing and controlling
the flow of business; causing significant damage to our facilities; or otherwise preventing us from conducting business in the
ordinary course), or indirectly as a result of their impact on our borrowers, depositors, other customers, vendors or other
counterparties (for example, by damaging properties pledged as collateral for our loans or impairing the ability of certain
borrowers to repay their loans). We could also suffer adverse consequences to the extent that natural disasters, climate change,
pandemics, terrorist activities, domestic disturbances or international hostilities affect the financial markets or the economy in
general or in any particular region. These types of impacts could lead, for example, to an increase in delinquencies,
bankruptcies or defaults that could result in higher levels of nonperforming assets, net charge- offs and provisions for credit
losses.
Our ability to mitigate the adverse consequences of these occurrences is in part dependent on the quality of our resiliency
planning, and our ability, if any, to anticipate the nature of any such event that occurs. The adverse impact of natural disasters,
climate change, pandemics, terrorist activities, domestic disturbances or international hostilities also could be increased to the
extent that there is a lack of preparedness on the part of national or regional emergency responders or on the part of other
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organizations and businesses that we transact with, particularly those that we depend upon, but have no control over.
Additionally, the force and frequency of natural disasters are increasing as the climate changes.
Climate change manifesting as transition, physical or other risks could adversely affect our operations, businesses,
customers, reputation and financial condition.
There is an increasing concern over the risks of climate change and related environmental sustainability matters. The physical
risks of climate change include discrete events, such as flooding, hurricanes, tornadoes and wildfires, and longer-term shifts in
climate patterns, such as extreme heat, sea level rise, and more frequent and prolonged drought. Such events could disrupt our
operations or those of our customers or third parties on which we rely, including through direct damage to assets and indirect
impacts from supply chain disruption and market volatility. Additionally, transitioning to a low-carbon economy will entail
extensive policy, legal, technology and market initiatives. Transition risks, including changes in consumer preferences,
additional regulatory requirements or taxes and additional counterparty or customer requirements, could increase our expenses,
undermine our strategies and impact our financial condition. In addition, our reputation and client relationships may be
damaged as a result of our practices related to climate change, including our involvement, or our clients’ involvement, in certain
industries or projects associated with causing or exacerbating climate change, as well as any decisions we make to continue to
conduct or change our activities in response to considerations relating to climate change. As climate risk is interconnected with
all key risk types, we are developing and enhancing processes and disclosures to embed climate risk considerations into our risk
management strategies established for risks such as market, credit and operational risks; however, because the timing and
severity of climate change may not be predictable, our risk management strategies may not be effective in mitigating climate
risk exposure.
Our framework for managing risks may not be effective in mitigating risk and losses.
Our risk management framework seeks to mitigate risk and loss. We have established processes and procedures intended to
identify, measure, monitor, report, and analyze the types of risk to which we are subject, including liquidity risk, credit risk,
market risk (including interest rate and price risk), compliance risk, strategic risk, reputation risk, and operational risk related to
our employees, systems, processes and vendors, among others. However, as with any risk management framework, there are
inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that it has not
appropriately anticipated or identified. We must also develop and maintain a culture of risk management among our employees,
as well as manage risks associated with third parties, and could fail to do so effectively. If our risk management framework
proves ineffective, we could incur litigation and negative regulatory consequences, and suffer unexpected losses that could
affect its financial condition or results of operations.
Credit Risks
If we do not properly manage our credit risk, we could suffer material credit losses.
There are substantial risks inherent in making any loan, including, but not limited to:
risks resulting from changes in economic and industry conditions;
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risks inherent in dealing with individual borrowers;
uncertainties as to the future value of collateral; and
the risk of non-payment of loans.
Although we attempt to properly establish, measure and manage our credit risk through prudent loan underwriting procedures
and by monitoring concentrations of our loans, there can be no assurance that these underwriting and monitoring procedures
will effectively reduce these risks. Moreover, as we continue to expand into new markets, credit administration and loan
underwriting policies and procedures may need to be adapted to local conditions. The inability to properly manage our credit
risk or appropriately adapt our credit administration and loan underwriting policies and procedures to local market conditions or
to changing economic circumstances could have an adverse impact on our allowance and provision for credit losses and our
financial condition, results of operations and liquidity.
We are subject to lending concentration risks.
Our commercial loans, which tend to be larger and more complex credits than loans to individuals, are primarily approved
based on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. If the
economy weakens or if the industry in which the borrower operates weakens, our borrowers may experience depressed or
sudden decreases in revenues that could hinder their cash flow and ability to repay their loans. Consequently, declines in the
economy could have a material adverse impact on our earnings. Most often, the underlying collateral consists of accounts
receivable, inventory, machinery or real estate. In the case of loans secured by accounts receivable, the availability of funds for
the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its
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customers. The other types of collateral securing these loans may depreciate over time, may be difficult to appraise and may
fluctuate in value based on the success of the customer's business and market conditions.
We depend on the accuracy and completeness of information about our customers and counterparties.
In deciding whether to extend credit or enter into other transactions, we rely on information furnished by or on behalf of
customers and counterparties, including financial statements, credit reports and other financial information. We may also rely
on representations of those customers, counterparties or other third parties, such as independent auditors, regarding the accuracy
and completeness of that information. As a result of the current economic environment caused by the COVID-19 pandemic, we
are engaging in more frequent communication with borrowers to better understand their creditworthiness and the challenges
faced. These communications should allow HTLF to respond proactively as borrower needs and issues arise. Reliance on
inaccurate or misleading financial statements, credit reports or other financial information could cause us to make uncollectible
loans or enter into other unfavorable transactions, which could have a material adverse effect on our financial condition and
results of operations.
Our loan portfolio has a large concentration of commercial real estate loans, a segment that can be subject to volatile cash
flows and collateral values.
Commercial real estate lending, which is comprised of owner-occupied, non-owner occupied, and real estate construction loans,
represents a large portion of our commercial loan portfolio. The market value of real estate can fluctuate significantly in a short
period of time as a result of market conditions in any of our geographic Bank Markets in which the real estate is located.
Adverse developments in nationwide or regional market conditions affecting real estate values could negatively impact of our
commercial real estate loans, and other developments could increase the credit risk associated with our loan portfolio. Non-
owner occupied commercial real estate loans typically are dependent, in large part, on sufficient income from the properties
securing the loans to cover operating expenses and debt service. The effect of and response to the COVID-19 pandemic (as
separately described above) has had a negative impact on some commercial real estate loans and a more heavily negative
impact on lodging, retail trade, and retail properties, in particular those retail properties dependent on restaurants and bars, and
the oil and gas, segments.
Real estate construction loans involve additional risks because funds are advanced based upon estimates of costs and the
estimated value of the completed project and also have a greater risk of default in a weaker economy because the source of
repayment is reliant on the successful and timely sale of lots or land held for resale. These loans present project completion
risks, as well as the risks applicable to other commercial real estate loans. Economic events or governmental regulations outside
of the control of HTLF or the borrower could negatively impact the future cash flow and market values of the affected
properties.
We may encounter issues with environmental law compliance if we take possession, through foreclosure or otherwise, of the
real property that secures a commercial real estate loan.
A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose
on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be
found on these properties. If previously unknown or undisclosed hazardous or toxic substances are discovered, we may be liable
for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur
substantial expenses which may materially reduce the affected property's value or limit our ability to use or sell the affected
property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may
increase our exposure to environmental liability. Although we have policies and procedures to perform an environmental
review at the time of underwriting a loan secured by real property and also before initiating any foreclosure action on real
property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other
financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and
results of operations.
The ability of a borrower to repay agricultural loans may be especially affected by many factors outside of the borrower’s
control.
Payments on agricultural and agricultural real estate loans are dependent on the profitable operation or management of the farm
property securing the loan. If the cash flow from a farming operation is diminished, the borrower's ability to repay the loan may
be impaired. Loans that are unsecured or secured by rapidly depreciating assets such as farm equipment or assets such as
livestock or crops may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater
likelihood of damage to or depreciation in the value of crops or livestock.
The success of a farm may be affected by many factors outside the control of the borrower, including adverse weather
conditions that prevent the planting of a crop or limit crop yields (such as hail, drought and floods), loss of livestock due to
disease or other factors, declines in market prices for agricultural products (both domestically and internationally) and the
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impact of government regulations (including changes to global trade agreements, price supports, subsidies and environmental
regulations). In addition, many farms are dependent on a limited number of key individuals whose injury or death may
significantly affect the successful operation of the farm.
We hold one- to four-family first-lien residential mortgage loans in our loan portfolio, and the ability of the borrower to
repay may be difficult to estimate.
The residential mortgage loans that we hold in our loan portfolio are primarily to borrowers we believe to be credit worthy
based on internal standards and guidelines. Repayment is dependent upon the borrower's ability to repay the loan and the
underlying value of the collateral. If we have overestimated or improperly calculated the abilities of the borrowers to repay
those loans, default rates could be high, and we could face more legal process and costs to enforce collection of the loan
obligations. If the value of the collateral is incorrect, we could face higher losses on the loans.
Economic disruption resulting from the COVID-19 pandemic may make it difficult for some customers to repay their loans,
resulting in increased credit losses.
The effect of and response to the COVID-19 pandemic (as separately described above) will make it difficult for some customers
to make timely payments on their loans in accordance with their terms. We believe that the COVID-19 pandemic has had some
impact on all customers and an especially negative impact on the lodging, retail trade, retail properties, restaurants and bars and
oil and gas segments.
In keeping with guidance from regulators, we have actively worked with COVID-19 affected borrowers to defer their
payments, interest, and fees. Beginning in March of 2020, we offered certain customers the opportunity to modify the terms of
existing loans, resulting in interest only payments or the deferment of principal and interest payments for a set period of time,
typically 90 days. In accordance with regulatory guidance, these modifications are not considered or reported as troubled debt
restructurings. While interest and fees will still accrue to income, through normal GAAP accounting, should eventual credit
losses on these deferred payments occur, interest income and fees accrued would need to be reversed. In such a scenario,
interest income and net interest margin could be negatively impacted in future periods. Upon completion of these initial deferral
periods, it is anticipated that some loans will return to normal repayment and other may require further modifications.
These loan deferrals are intended to increase the likelihood that the affected borrowers will operate through and recover
following the COVID-19 pandemic, after which their loans will return to a normal repayment schedule and perform in
accordance with their original terms. There can be no assurance, however, that these efforts will be successful and may instead
only result in a delay rather than avoidance of deterioration or losses on loans to the affected borrowers. If economic conditions
worsen, we could be required to further increase our allowance for credit losses and record additional credit loss expense. Our
asset quality measures could worsen during future measurement periods if the effects of the COVID-19 pandemic are
prolonged.
Government programs established in response to the COVID-19 pandemic may delay but not avoid the realization of credit
losses.
Pursuant to the CARES Act, beginning at the end of March 2020, the SBA made up to six months of principal and interest
payments on behalf of borrowers on certain qualifying SBA guaranteed loans. Pursuant to the Economic Aid Act, beginning in
February of 2021 the SBA began making an additional three months of such principal and interest payments.
The CARES Act also established the PPP (as further described above). PPP loans are also in payment deferral, requiring no
principal or interest payments until the loan forgiveness process is completed. Pursuant to the Economic Aid Act, in January of
2021, the PPP loan program was re-opened for new PPP borrowers and expanded to allow certain previous PPP borrowers to
receive a second draw PPP loan. Second draw PPP loans are also 100% SBA guaranteed, eligible for up to 100% forgiveness
by the SBA and will be in payment deferral, requiring no principal or interest payments until the loan forgiveness process is
completed.
The foregoing programs are intended to increase the likelihood that the affected borrowers operate through and recover
following the COVID-19 pandemic, after which their loans will return to a normal repayment schedule and perform in
accordance with their original terms or in the case of PPP loans, will be forgiven. There can be no assurance, however, that
these programs will be successful and may instead result in a delay rather than avoidance of deterioration or losses on loans to
the affected borrowers. In addition, while the implementation and success of these programs is highly dependent on the SBA
and other governmental bodies, these programs also expose the participating financial institutions, including HTLF, to
reputational risks.
Our allowance for credit losses may prove to be insufficient to absorb losses in our loan portfolio.
We establish our allowance for credit losses in consultation with management of the Banks and maintain it at a level considered
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appropriate by management to absorb current expected credit losses and risks inherent in the portfolio. While the level of
allowance for credit losses reflects management's continuing evaluation of quantitative and qualitative factors including
industry concentrations, loan portfolio quality and economic conditions, the amount of future loan losses is susceptible to
changes in economic, operating and other conditions, including changes in interest rates, levels of inflation, and other factors
which may be beyond our control, and such losses may exceed current estimates. At December 31, 2021, our allowance for
credit losses as a percentage of total loans was 1.11% and as a percentage of total nonperforming loans was approximately
157%. Although we believe that the allowance for credit losses is appropriate to absorb current expected credit losses on any
existing loans that may become uncollectible, we cannot predict loan losses with certainty, and we cannot provide assurance
that our allowance for credit losses will prove sufficient to cover actual loan losses in the future. Further significant provisions,
or charge-offs against our allowance that result in provisions, could have a significant negative impact on our profitability.
Credit losses in excess of our reserves may adversely affect our business, financial condition and results of operations.
In June 2016, the FASB issued an accounting standard update, "Financial Instruments-Credit Losses (Topic 326), Measurement
of Credit Losses on Financial Instruments," which replaced the "incurred loss" model for recognizing credit losses with an
"expected loss" model referred to as the Current Expected Credit Loss ("CECL") model. The CECL standard became effective
for us on January 1, 2020. Under the CECL model, we present certain financial assets carried at amortized cost, such as loans
held for investment and held-to-maturity debt securities, at the net amount expected to be collected. CECL also requires that an
allowance for credit losses be established for any unfunded loan commitments that are not cancelable. The measurement of
expected credit losses is based on information about past events, including historical experience, current conditions, and
reasonable and supportable forecasts that affect the collectability of the reported amount, including anticipated losses resulting
from changes in economic conditions as a result of events such as the COVID-19 pandemic. This measurement takes place at
the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the
incurred loss model previously required under GAAP, which delayed recognition until it is probable a loss has been incurred.
Accordingly, the adoption of the CECL model materially affected how we determine our allowance for credit losses and could
require us to significantly increase our allowance in future periods. Moreover, the CECL model may create more volatility in
the level of our allowance for credit losses. If we are required to materially increase our level of allowance for credit losses for
any reason, such increase could adversely affect our business, financial condition and results of operations. See Note 1, "Basis
of Presentation," of the notes to the consolidated financial statements for additional information on our CECL methodology.
While the fiscal stimulus and relief programs enacted in response to the COVID-19 pandemic mitigated credit losses in 2021,
going forward we may experience changes in the value of collateral securing outstanding loans, deterioration in the credit
quality of borrowers, and the inability of borrowers to repay loans in accordance with their loan terms causing credit losses.
Liquidity and Interest Rate Risks
Liquidity is essential to our business, and our performance could be adversely affected by constraints in or increased costs
for funding.
We require liquidity to fund our deposit and debt obligations as they come due. A number of factors beyond our control could
have a detrimental impact on the availability or costs of that funding. These include market disruptions, changes in our credit
ratings or the sentiment of investors, the state of the regulatory environment and monetary and fiscal policies, declines in the
value of our investment securities, loss of substantial deposits or customer relationships, financial or systemic shocks,
significant counterparty failures or reputational damage. Our ability to meet current financial obligations is a function of our
balance sheet structure, ability to liquidate assets and access to alternative sources of funds. Our access to deposits can be
impacted by the liquidity needs of our customers as a substantial portion of our deposit liabilities are on demand, while a
significant portion of our assets are loans that cannot be sold in the same timeframe or are securities that may not be readily
saleable if there is disruption in capital markets. If we become unable to obtain funds when needed, it could have a material
adverse effect on our business, financial condition and results of operations.
The required accounting treatment of loans we acquire through acquisitions could result in higher net interest margins and
interest income in current periods and lower net interest margins and interest income in future periods.
Under United States GAAP, we are required to record loans acquired through acquisitions, at fair value. Estimating the fair
value of such loans requires management to make estimates based on available information and facts and circumstances on the
acquisition date. Any net discount, which is the excess of the amount of reasonably estimable and probable discounted future
cash collections over the purchase price, is accreted into interest income over the weighted average remaining contractual life of
the loans. Therefore, our net interest margins may fluctuate due to the net discount accretion. We expect the yields on the total
loan portfolio will decline as our acquired loan portfolios pay down or mature and the corresponding accretion of the net
discount decreases. We expect downward pressure on our interest income to the extent that the runoff of our acquired loan
portfolios is not replaced with comparable high-yielding loans. This could result in higher net interest margins and interest
income in current periods and lower net interest margins and interest income in future periods.
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Our liability portfolio, including deposits, may subject us to liquidity risk and pricing risk from concentrations.
We strive to maintain a diverse liability portfolio, and we manage deposit portfolio diversification through our asset/liability
committee process. However, even with our efforts to maintain diversification, we occasionally accept larger deposit customers,
and our typical deposit customers might occasionally carry larger balances. Unanticipated, significant changes in these large
balances could affect our liquidity risk and pricing risk, particularly within the deposit portfolio of a single Bank, where the
effects of the concentration would be greater than for HTLF as a whole. Our inability to manage deposit concentration risk
could have a material adverse effect on our business, financial condition and results of operations.
Our growth may create the need to raise additional capital in the future, but that capital may not be available when it is
needed.
We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. We
anticipate that our existing capital resources will satisfy our capital requirements for the foreseeable future. However, from time
to time, we raise additional capital to support continued growth, both internally and through acquisitions. Our ability to raise
additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside of our control, and
on our financial performance. Accordingly, we cannot provide assurance that we will be able to raise additional capital if
needed on terms acceptable to us. If we cannot raise additional capital when needed, our ability to further expand our operations
through internal growth and acquisitions could be materially impaired.
We rely on dividends from our subsidiaries for most of our revenue and are subject to restrictions on payment of dividends.
The primary source of funds for HTLF is dividends from the Banks. In general, the Banks may only pay dividends either out of
their historical net income after any required transfers to surplus or reserves have been made or out of their retained earnings.
The payment of dividends by any financial institution is affected by the requirement to maintain adequate capital pursuant to
applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any
dividends if, following payment thereof, the institution would be undercapitalized. 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 our debt. Dividends payable
on common shares are also subject to quarterly dividends payable on outstanding preferred shares at the applicable dividend
rate.
Reduction in the value, or impairment of our investment securities, can impact our earnings and common stockholders'
equity.
We maintained a balance of $7.70 billion, or 40% of our assets, in investment securities at December 31, 2021. Changes in
market interest rates can affect the value of these investment securities, with increasing interest rates generally resulting in a
reduction of value. Although the reduction in value from temporary increases in market rates does not affect our income until
the security is sold, it does result in an unrealized loss recorded in other comprehensive income that can reduce our common
stockholders’ equity. Further, we may have to record provision expense to establish an allowance for credit losses on our
carried at fair value debt securities, and we must periodically test our investment securities for other-than-temporary impairment
in value. In assessing whether the impairment of investment securities is other-than-temporary, we consider the length of time
and extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the
intent and ability to retain our investment in the security for a period of time sufficient to allow for any anticipated recovery in
fair value in the near term.
Operational Risks
We have a continuing need for technology investments, and we may not have the resources to effectively implement new
technology.
The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven
products and services. In addition to being able to better serve customers, the effective use of technology increases efficiency
and enables financial institutions to reduce costs. Our future success will depend, in part, upon our ability to address the needs
of our customers by using technology to provide products and services that will satisfy customer demands for convenience, as
well as to create additional efficiencies in our operations as we continue to grow and expand our market areas. Many of our
larger competitors have substantially greater resources to invest in technological improvements. As a result, they may be able to
offer additional or superior products and services to those that we will be able to offer, which would put us at a competitive
disadvantage. In addition, the COVID-19 pandemic has accelerated the need to implement technological changes as a result of
modifications to our business practices implemented in order to address governmental restriction and requirements to address
the needs, preferences and best interests of our employees, customers and business partners.
Our operations are affected by risks associated with our use of vendors and other third-party service providers.
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We rely on vendor and third-party relationships for a variety of products and services necessary to maintain our day-to-day
activities, particularly in the areas of correspondent relationships, operations, treasury management, information technology and
security. This reliance exposes us to risks of those third parties failing to perform financially or contractually or to our
expectations. These risks could include material adverse impacts on our business, such as credit loss or fraud loss, disruption or
interruption of business activities, cyber-attacks and information security breaches, poor performance of services affecting our
customer relationships and/or reputation, and possibilities that we could be responsible to our customers for legal or regulatory
violations committed by those third parties while performing services on our behalf. In addition, the COVID-19 pandemic has
increased the risk of third-party disruptions, including negative effects on network providers and other suppliers, which have
been, and may further be, affected by, stay-at-home orders, market volatility and other factors that increase their risks of
business disruption or that may otherwise affect their ability to perform under the terms of any agreements with us or provide
essential services. While we have implemented an active program of oversight to address this risk, there can be no assurance
that our vendor and third-party relationships will not have a material adverse impact on our business.
Security breaches, cyber-attacks or other similar incidents with respect to our or our vendors’ systems or network security,
as well as the resulting theft or compromise of business and customer information, including personal information, could
adversely affect our business or reputation, and create significant legal, regulatory or financial exposure.
We rely heavily on communications and information systems and networks to conduct our business, and as part of our business,
we collect, maintain and otherwise process significant amounts of data (including confidential, personal, proprietary and other
information) about our business, our customers and the products and services they use. Our operations are dependent upon our
ability to protect our communications and information systems and networks against damage from physical theft, fire, power
loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, cyber-attacks or other similar
incidents. Our business relies on the secure processing, transmission, storage and retrieval of confidential, personal, proprietary
and other information in our communication and information systems and networks, and in communication and information
systems and networks of third parties with which we do business.
We, our customers, our vendors and other third parties, including other financial service institutions and companies engaging in
data processing, have been subject to, and are likely to continue to be the target of security breaches, cyber-attacks and other
similar incidents. These security breaches, cyber-attacks and other similar incidents include, denial of service attacks, worms,
computer viruses, malicious or destructive code, social engineering, phishing attacks, ransomware, malware, theft, malfeasance
or improper access by employees or vendors, human error, fraud, attacks on personal emails of employees or other disruptive
problems that could result in material disruptions, damage to systems or networks or the unauthorized release, accessing,
gathering, monitoring, loss, destruction modification, acquisition, transfer, use or other processing of confidential, personal,
proprietary or any other information of ours, our employees, our customers, our vendors, or other third parties with which we
do business. Attacks of this nature are increasing in frequency, levels of persistence, sophistication and intensity, are evolving
in nature, and are conducted by sophisticated and organized groups and individuals with a wide range of motives and expertise,
including organized criminal groups, "hacktivists," terrorists, nation states, nation state-supported actors, and others. As
cybersecurity threats continue to evolve, we may be required to expend significant additional resources to continue to modify or
enhance our protective measures or to investigate or remediate any information security vulnerabilities, threats, security
breaches, cyber-attacks or other similar incidents. Despite efforts to protect our systems and networks and implement controls,
processes, policies, and other measures, we may not be able to anticipate all security breaches, cyber-attacks or other similar
incidents, detect or react to such incidents in a timely manner, implement guaranteed preventive measures against such
incidents, or adequately remediate any such incident.
Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation
and rapid evolution of new technologies, and the use of the internet and telecommunication technologies to conduct financial
transactions. For example, cybersecurity risks may increase in the future as we continue to increase our mobile-payment and
other internet-based products offerings and increase our internal usage of web-based products and applications. Given the
continued and rapid evolution of cybersecurity threats, we may not be able to anticipate or prevent, and could be held liable for,
any security breach, cyber-attack or other similar incident. Additionally, concerns regarding the effectiveness of our measures
to safeguard our communications and information systems and networks, and information stored therein, or even the perception
that those measures are inadequate, could cause us to lose existing or potential customers and thereby reduce our revenues.
Further, the COVID-19 pandemic has increased cybersecurity and payment fraud risk due to increased online and remote
activity.
We also face indirect technology, cybersecurity and operational risks relating to the vendors, customers, clients and other third
parties with whom we do business or upon whom we rely to facilitate or enable our business activities, including for example
financial counterparties, regulators, and providers of critical infrastructure such as internet access or electrical power. Due to the
increasing consolidation, interdependence, and complexity of financial entities and technology systems, a security breach,
cyber-attack or other similar incident that significantly degrades, deletes or comprises the systems, networks or data of one or
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more financial entities could have a material impact on counterparties or other market participants, including us. This
consolidation, interconnectivity and complexity may increase the risk of operational failure on both an individual and industry-
wide basis. While we generally perform cybersecurity diligence on our key vendors, because we do not control our vendors and
our ability to monitor their cybersecurity is limited, we cannot ensure the cybersecurity measures they take will be sufficient to
protect any information we share with them. Due to applicable laws and regulations or contractual obligations, we may be held
responsible for security breaches, cyber-attacks or other similar incidents attributed to our vendors as they relate to the
information we share with them.
The occurrence of any security breach, cyber-attack or other similar incident with respect to our or our vendors’
communications or information systems or networks, or our failure to make adequate or timely disclosures to the public,
regulators, or law enforcement agencies following any such event, could result in violations of applicable data privacy,
cybersecurity and other laws and regulations, notification obligations, damage to our reputation, and loss of customer business,
or subject us to additional regulatory scrutiny or expose us to civil litigation, fines, damages or injunctions, any of which could
have a material adverse effect on our business, financial condition and results of operations. We cannot ensure that any
limitations of liability provisions in our agreements with customers, vendors and other third parties with which we do business
would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular
claim in connection with a security breach, cyber-attack or other similar incident. Additionally, we cannot be certain that our
insurance coverage will be adequate for cybersecurity liabilities actually incurred, that insurance will continue to be available to
us on economically reasonable terms, or at all, or that our insurer will not deny coverage as to any future claim.
The potential for business interruption or failure exists throughout our organization.
Integral to our performance is the continued efficacy of our technical systems, operational infrastructure, relationships with
third parties and the ability of our employees to perform their jobs day-to-day to support our on-going operations. Failure by
any or all of these resources subjects us to risks that may vary in size, scale and scope. These risks include, but are not limited
to, operational or technical failures, ineffectiveness or exposure due to interruption in third party support, as well as the loss of
key individuals, including those with specialized skills, or in general, the failure of key individuals to perform properly. These
risks are heightened during necessary data system changes or conversions and system integrations of newly acquired entities.
Although management has established policies and procedures to address such interruptions or failures, the occurrence of any
such event could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our
financial condition and results of operations.
We are subject to risks from employee errors, customer or employee fraud and data processing system failures and errors.
Employee errors and employee or customer misconduct could subject us to financial losses or regulatory sanctions and
seriously harm our reputation. Misconduct by our employees could include hiding unauthorized activities from us, improper or
unauthorized activities on behalf of our customers or improper use of confidential information. It is not always possible to
prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in
all cases. Employee errors could also subject us to financial claims for negligence. We maintain a system of internal controls
and insurance coverage to mitigate against operational risks, including data processing system failures and errors and customer
or employee fraud. Should our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or
exceeds applicable insurance limits, it could have a material adverse effect on our business, financial condition and results of
operations.
Our Bank Markets and growth strategy rely heavily on our management team, and the unexpected loss of key managers may
adversely affect our operations.
Much of our success to date has been influenced strongly by our ability to attract and to retain senior management experienced
in banking and financial services and familiar with the communities in our different market areas. Because our service areas are
spread over such a wide geographical area, our executive management headquartered in Dubuque, Iowa, is dependent on the
effective leadership and capabilities of the senior management in our Bank Markets for the continued success of HTLF. Our
ability to retain executive officers, the current senior management teams and loan officers of our operating subsidiaries will
continue to be important to the successful implementation of our strategy and could be difficult during times of low
unemployment. It is also critical, as we grow, to be able to attract and retain qualified additional management and loan officers
with the appropriate level of experience and knowledge about our market area to implement our community-based operating
strategy. The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified
personnel in the future, could have an adverse effect on our business, financial condition and results of operations.
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New lines of business, products and services are essential to our ability to compete but may subject us to additional risks.
We continually implement new lines of business and offer new products and services within existing lines of business to offer
our customers a competitive array of products and services. There can be substantial risks and uncertainties associated with
these efforts, particularly in instances where such products and services are still developing. In developing and marketing new
lines of business and/or new products or services, we may invest significant time and resources. Initial timetables for the
introduction and development of new lines of business and/or new products or services may not be achieved, and price and
profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, and
shifting market preferences, may also impact the successful implementation of a new line of business or a new product or
service. Furthermore, any new line of business and/or new product or service could have a significant impact on the
effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and
implementation of new lines of business or new products or services could have a material adverse effect on our business,
financial condition and results of operations.
Our analytical and forecasting models may be improper or ineffective.
The processes we use to estimate our current expected credit losses and to measure the fair value of financial instruments, as
well as the processes used to estimate the effects of changing interest rates and other market measures on our financial
condition and results of operations, depends upon the use of analytical and forecasting models. These models could reflect
assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these
assumptions are adequate, the models may prove to be inadequate or inaccurate because of other flaws and limitations in their
design or their implementation. If the models we use to guide management's decisions and oversight relating to interest rate risk
and asset-liability management are inadequate, we may incur increased or unexpected losses upon changes in market interest
rates or other market measures. If the models we use for determining our probable loan losses are inadequate, the allowance for
credit losses may not be appropriate to support future charge-offs. If the models we use to measure the fair value of financial
instruments are inadequate, the fair value of such financial instruments may fluctuate unexpectedly or may not accurately
reflect what we could realize upon sale or settlement of such financial instruments. Any such failure in our analytical or
forecasting models could have a material adverse effect on our business, financial condition and results of operations.
Our internal controls may be ineffective.
Management regularly reviews and updates our internal controls, disclosure controls and procedures and corporate governance
policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions
and can provide only reasonable, not absolute, assurances that the objectives of the controls are met. Any failure or
circumvention of our controls and procedures or failure to comply with regulations related to controls, policies and procedures
could have a material adverse effect on our business, financial condition and results of operation.
Strategic and External Risks
The soundness of other financial institutions could adversely affect our liquidity and operations.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of
other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other
relationships. We have exposure to many different counterparties, and we routinely execute transactions with counterparties in
the financial industry, including brokers and dealers, commercial banks, government sponsored entities, investment banks, and
other institutional clients. As a result, defaults by, or even rumors or questions about, one or more financial services institutions,
or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by
HTLF or the Banks or by other institutions. Many of these transactions expose us to credit risk in the event of default of our
counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or
is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due us. There is no
assurance that any such losses would not materially and adversely affect our results of operations.
We may experience difficulties in achieving and managing our growth and our growth strategy involves risks that may
negatively impact our net income. Strong organic growth is an integral component to allow us to achieve business and
financial results necessary to make appropriate investments in people, processes and systems which allow HTLF to remain
competitive in attracting and retaining employees and customers.
As part of our general growth strategy, we have acquired, and may acquire, additional banks and fee income and other financial
services businesses that we believe provide a strategic and geographic fit with our business. We expect to continue to make
such acquisitions in the future. We cannot predict the number, size or timing of acquisitions. Economic conditions as well as the
need for technological investment by regional banks could result in increased competition for merger or acquisition partners,
potentially resulting in higher acquisition prices or an inability to complete desired acquisitions. Moreover, changing attitudes
by the federal banking regulators about mergers may slow or prevent mergers. Failure to successfully identify and complete
acquisitions likely will result in HTLF achieving slower growth.
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To the extent that we grow through acquisitions, we cannot provide assurance that we will be able to manage this growth
adequately and profitably. Acquiring other banks and businesses will involve risks commonly associated with acquisitions,
including:
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potential exposure to unknown or contingent liabilities of the banks and businesses we acquire;
exposure to potential asset quality issues of the acquired bank or related business;
difficulty and expense of integrating the operations and personnel of banks and businesses we acquire;
potential disruption to our business;
potential restrictions on our business resulting from the regulatory approval process;
inability to realize the expected revenue increases, costs savings, market presence and/or other anticipated benefits;
potential diversion of our management's time and attention; and
the possible loss of key employees and customers of the banks and businesses we acquire.
In addition to acquisitions, we may expand into additional communities or attempt to strengthen our position in our current
Bank Markets by undertaking additional de novo bank formations or branch openings. Based on our experience, we believe that
it generally takes three years or more for new banking facilities to first achieve operational profitability, due to the impact of
organization and overhead expenses and the start-up phase of generating loans and deposits. To the extent that we undertake
additional branching and de novo bank and business formations, we are likely to continue to experience the effects of higher
operating expenses relative to operating income from the new operations, which may have an adverse effect on our levels of
reported net income, return on average equity and return on average assets.
Attractive acquisition opportunities may not be available to us in the future.
While we seek continued organic growth, we anticipate continuing to evaluate merger and acquisition opportunities presented
to us in our Bank Markets. We expect that other banking and financial companies, many of which have significantly greater
resources, will compete with us to acquire financial services businesses. This competition, as the number of appropriate merger
targets decreases, could increase prices for potential acquisitions which could reduce our potential returns, and reduce the
attractiveness of these opportunities to us. In addition, acquisitions are subject to various regulatory approvals, and if we fail to
receive the appropriate regulatory approvals, we will not be able to consummate an acquisition that we believe is in our best
interests. Among other things, our regulators consider our capital, liquidity, profitability, risk management, regulatory
compliance, including with respect to BSA/AML, consumer protection laws, CRA obligations, and levels of goodwill and
intangibles when considering acquisition and expansion proposals. The federal banking agencies are currently reevaluating their
existing requirements and policies for reviewing mergers and acquisitions involving banking organizations, which could make
it more difficult for us to pursue mergers and acquisitions in the future. Any acquisition could be dilutive to our earnings and
shareholders’ equity per share of our common stock.
We face intense competition in all phases of our business and competitive factors could adversely affect our business.
The banking and financial services business in our Bank Markets is highly competitive and is currently undergoing significant
change. Our competitors include large regional banks, local community banks, online banks, thrifts, fintech firms, securities and
brokerage companies, mortgage companies, insurance companies, finance companies, money market mutual funds, credit
unions and other non-bank financial service providers, and increasingly these competitors provide integrated financial services
over a broad geographic area. In particular, technology companies are increasingly focusing on the financial sector, either in
partnership with competitor banking organizations or on their own. These companies generally are not subject to the same
regulatory burdens as main street financial institutions and may accordingly realize certain cost strategies and offer products
and services at more favorable rates and with greater convenience to the client. This competition could result in the loss of
clients and revenue in areas where fintechs are operating. As the pace of technology and change advance, continuous innovation
is expected to exert long-term pressure on the financial services industry. Some of our competitors may also have access to
governmental programs that impact their position in the marketplace favorably.
The adoption of new technologies by competitors, including internet banking services, mobile applications, advanced ATM
functionality and cryptocurrencies could require HTLF to make substantial investments to modify or adapt its existing products
and services or even radically alter the way HTLF conducts business. These and other capital investments in HTLF’s business
may not produce expected growth in earnings anticipated at the time of the expenditure.
Increased competition in our Bank Markets may result in changes in our business model, sales of certain assets or business
units, decreases in the amounts of our loans and deposits, reduced spreads between loan rates and deposit rates or loan terms
that are more favorable to the borrower. Any of these results could have a material adverse effect on our ability to grow and
remain profitable.
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Legal, Compliance and Reputational Risks
Government regulation can result in limitations on our growth strategy.
We operate in a highly regulated environment and are subject to supervision and regulation by a number of governmental
regulatory agencies, including the Federal Reserve, the FDIC, Housing and Urban Development ("HUD") and the various state
agencies where we have a bank presence. We will also become subject to regulation by the CFPB upon consolidation of our
Banks into a single charter. Regulations adopted by these agencies, which are generally intended to provide protection for
depositors and customers rather than for the benefit of stockholders, govern a comprehensive range of matters relating to
ownership and control of our shares, our acquisition of other companies and businesses, our ability to offer new products and
services, our ability to obtain financing and other aspects of our strategy. In addition, the federal banking agencies are currently
reevaluating their existing requirements and policies for reviewing mergers and acquisitions involving banking organizations,
which could make it more difficult for us to pursue mergers and acquisitions in the future.
We are subject to extensive and evolving government regulation and supervision, which can increase the cost of doing
business and lead to enforcement actions.
Federal and state banking laws impose a comprehensive system of supervision, regulation and enforcement on the operations of
FDIC-insured institutions, their holding companies and affiliates that is intended primarily for the protection of the FDIC-
insured deposits and depositors of banks, rather than shareholders. These laws, and the regulations of the bank regulatory
agencies issued under them, affect, among other things, the scope of our business, the kinds and amounts of investments that we
and the Banks may make, reserve requirements, required capital levels relative to assets, the nature and amount of collateral for
loans, the establishment of branches, our ability to merge, consolidate and acquire, dealings with our and the Banks' insiders
and affiliates and our payment of dividends.
Both the scope of the laws and regulations and the intensity of the supervision to which our business is subject have increased
in recent years, as well as other factors such as technological and market changes. For example, as cybersecurity and data
privacy risks for banking organizations and the broader financial system have significantly increased in recent years,
cybersecurity and data privacy issues have become the subject of increasing legislative and regulatory focus. Regulatory
enforcement and fines also remain high across the banking and financial services sector. We expect that our business will
remain subject to extensive regulation and supervision.
We expect that the current presidential administration will continue to implement a regulatory reform agenda that is
significantly different than that of the previous administration. This reform agenda could include a heightened focus on
consumer protection, fair lending, the regulation of loan portfolios and credit concentrations to borrowers impacted by climate
change, heightened scrutiny on Bank Secrecy Act and AML requirements, topics related to social equity, executive
compensation, and increased capital and liquidity, as well as limits on share buybacks and dividends. For example, we currently
derive a portion of our noninterest income from consumer overdraft fees, which have recently come under scrutiny by
regulators, members of Congress and consumer rights groups. Regulators or Congress could impose additional restrictions on
overdraft fee programs, which could reduce our noninterest income. It is uncertain whether and to what extent the current
administration will increase the regulatory burden on community banks, and changes in existing regulations and their
enforcement may require modification to HTLF's existing regulatory compliance and risk management infrastructure and
practices.
In the routine course of regulatory oversight, proposals to change the laws and regulations governing the operations of banks
and other financial institutions are frequently raised in the U.S. Congress, state legislatures and before bank regulatory
authorities. Similarly, proposals to change the accounting and financial reporting requirements applicable to banks and other
depository financial institutions are frequently raised by the SEC, the federal banking agencies and other authorities. The
likelihood of significant changes in laws and regulations in the future and the effect such changes might have on our operations
are impossible to determine. Recent changes in the laws and regulations that apply to us have been significant. Moreover,
dramatic changes in statutes, regulations or policies could affect us in substantial and unpredictable ways, including limiting the
types of financial products and services that we offer and/or increasing the ability of non-banks to offer competing financial
products and services.
Stringent requirements related to capital and liquidity may limit our ability to return earnings to stockholders or operate or
invest in our business.
As a banking organization, we are subject to regulations that require us to maintain certain capital ratios, such as the ratio of our
Tier 1 capital to our risk-weighted assets. Failure to satisfy certain capital requirements could result in restrictions on our ability
to make capital distributions. If our regulatory capital ratios decline, as a result of decreases in the value of our loan portfolio or
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otherwise, we may be required to improve such ratios by either raising additional capital or by disposing of assets. If we choose
to dispose of assets, we cannot be certain that we will be able to do so at prices that we believe to be appropriate, and our future
operating results could be negatively affected. If we choose to raise additional capital, we may accomplish this by selling
additional shares of common stock, or securities convertible into or exchangeable for common stock, which could significantly
dilute the ownership percentage of holders of our common stock and cause the market price of our common stock to decline.
Additionally, events or circumstances in the capital markets generally may increase our capital costs and impair our ability to
raise capital at any given time.
Additional requirements may be imposed in the future. The Basel Committee continues to examine ways to strengthen the
regulation, supervision and practices of banks and has produced, and continues to produce a number of consultation and
discussion papers which point to a significant revision of the Basel Framework, including improvements to the calculation of
risk-weighted assets and the comparability of capital ratios. The ultimate impact on our capital and liquidity will depend on the
implementation of further changes in the United States.
We are becoming subject to additional regulatory requirements as our total assets increase, and these additional
requirements could have an adverse effect on our financial condition or results of operations.
Various federal banking laws and regulations impose heightened requirements on larger banks and bank holding companies.
These heightened requirements have added, and will continue to add, restrictions and complexity to our business operations, as
we expand. For example, we were required to comply with the Durbin Amendment effective July 1, 2019, which imposes
interchange fee restrictions to debit card issuers. In addition, should we receive regulatory approval and complete the
consolidation of our Banks, we will become subject to additional regulation as a bank with assets over $10 billion.
The Economic Growth Act exempted bank holding companies under $100 billion in assets from certain Dodd-Frank Act
requirements that were otherwise applicable to bank holding companies with greater than $10 billion and $50 billion in total
consolidated assets. As required by the Economic Growth Act, the federal banking agencies adopted rules further tailoring their
supervision and regulation of large bank holding companies with more than $100 billion in assets. However, federal banking
agencies have also indicated through interagency guidance that the capital planning and risk management practices of
institutions with total assets less than $100 billion would continue to be reviewed through the regular supervisory process,
which may offset the impact of the relief from stress testing and risk management requirements provided by the Economic
Growth Act.
We are subject to complex and evolving laws, regulations, rules, standards and contractual obligations regarding data
privacy and cybersecurity, which can increase the cost of doing business, compliance risks and potential liability.
We are subject to complex and evolving laws, regulations, rules and standards governing the privacy and protection of personal
information of individuals. Such individuals include our customers, our employees, and the employees of our vendors,
counterparties and other third parties with which we do business. Ensuring that our collection, use, transfer, storage and other
processing of personal information complies with applicable laws, regulations, rules and standards regarding data privacy and
cybersecurity in relevant jurisdictions can increase operating costs, impact the development of new products or services, and
reduce operational efficiency. Any actual or perceived mishandling or misuse of the personal information by HTLF or a third
party affiliated with HTLF could expose us to litigation, regulatory fines, penalties or other sanctions, reputational harm, and
other adverse impacts.
At the federal level, we are subject to the GLBA, which requires financial institutions to, among other things, periodically
disclose their privacy policies and practices relating to sharing personal information and, in some cases, enables retail customers
to opt out of the sharing of certain personal information with unaffiliated third parties. The GLBA also requires financial
institutions to implement an information security program that includes administrative, technical and physical safeguards to
ensure the security and confidentiality of customer records and information. Additionally, like other lenders, the Banks use
credit bureau data in their underwriting activities. Use of such data is regulated under the Fair Credit Reporting Act ("FCRA"),
and the FCRA also regulates reporting information to credit bureaus, prescreening individuals for credit offers, sharing of
information between affiliates, and using affiliate data for marketing purposes. We are also subject to the rules and regulations
promulgated under the authority of the Federal Trade Commission, which regulates unfair or deceptive acts or practices,
including with respect to data privacy and cybersecurity. Moreover, the United States Congress has recently considered, and is
currently considering, various proposals for more comprehensive data privacy and cybersecurity legislation, to which we may
be subject if passed. Additionally, the federal banking regulators, as well as the SEC and related self-regulatory organizations,
regularly issue guidance regarding cybersecurity that is intended to enhance cyber risk management among financial
institutions.
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Data privacy and cybersecurity are also areas of increasing state legislative focus and we are, or may in the future become,
subject to various state laws and regulations regarding data privacy and cybersecurity. For example, the California Consumer
Protection Act of 2018 (the "CCPA"), which became effective on January 1, 2020, applies to for-profit businesses that conduct
business in California and meet certain revenue or data collection thresholds. The CCPA gives California residents the right to,
among other things, request disclosure of information collected about them and whether that information has been sold to
others, request deletion of personal information (subject to certain exceptions), opt out of the sale of their personal information,
and not be discriminated against for exercising these rights. The CCPA contains several exemptions, including an exemption
applicable to personal information that is collected, processed, sold or disclosed pursuant to the GLBA. Further, effective in
most material respects starting on January 1, 2023, the California Privacy Rights Act ("CPRA") (which was passed via a ballot
initiative as part of the November 2020 election) will significantly modify the CCPA, including by expanding California
residents’ rights with respect to certain sensitive personal information. The CPRA also creates a new state agency which will be
vested with authority to implement and enforce the CCPA and the CPRA. Other states where we do business, or may in the
future do business, or from which we otherwise collect, or may in the future otherwise collect, personal information of residents
have adopted or are considering adopting similar laws. For example, Virginia and Colorado have recently adopted
comprehensive data privacy laws similar to the CCPA, which will go into effect in January and July of 2023, respectively. In
addition, laws in all 50 U.S. states generally require businesses to provide notice under certain circumstances to consumers
whose personal information has been disclosed as a result of a data breach. Certain state laws and regulations may be more
stringent, broader in scope, or offer greater individual rights, with respect to personal information than federal or other state
laws and regulations, and such laws and regulations may differ from each other, which may complicate compliance efforts and
increase compliance costs. Aspects of the CCPA, the CPRA, and other federal and state laws and regulations relating to data
privacy and cybersecurity, as well as their enforcement, remain unclear, and we may be required to modify our practices in an
effort to comply with them.
Further, while we strive to publish and prominently display privacy policies that are accurate, comprehensive, and compliant
with applicable laws, regulations, rules and industry standards, we cannot ensure that our privacy policies and other statements
regarding our practices will be sufficient to protect us from claims, proceedings, liability or adverse publicity relating to data
privacy or cybersecurity. Although we endeavor to comply with our privacy policies, we may at times fail to do so or be alleged
to have failed to do so. The publication of our privacy policies and other documentation that provide promises and assurances
about privacy, data protection and cybersecurity can subject us to potential federal or state action if they are found to be
deceptive, unfair, or misrepresentative of our actual practices. Additional risks could arise in connection with any failure or
perceived failure by us, our vendors or other third parties with which we do business to provide adequate disclosure or
transparency to our customers about the personal information collected from them and its use, to receive, document or honor
the privacy preferences expressed by our customers, to protect personal information from unauthorized disclosure, or to
maintain proper training on privacy practices for all employees or third parties who have access to personal information in our
possession or control.
Any failure or perceived failure by us to comply with our privacy policies, or applicable data privacy and cybersecurity laws,
regulations, rules, standards or contractual obligations, or any compromise of security that results in unauthorized access to, or
unauthorized loss, destruction, use, modification, acquisition, disclosure, release or transfer of personal information, may result
in requirements to modify or cease certain operations or practices, the expenditure of substantial costs, time and other resources,
proceedings or actions against us, legal liability, governmental investigations, enforcement actions, claims, fines, judgments,
awards, penalties, sanctions and costly litigation (including class actions). Any of the foregoing could harm our reputation,
distract our management and technical personnel, increase our costs of doing business, adversely affect the demand for our
products and services, and ultimately result in the imposition of liability, any of which could have a material adverse effect on
our business, financial condition and results of operations.
Litigation and enforcement actions could result in negative publicity and could adversely impact our business and financial
results.
We face significant legal and regulatory risks in our business, and the volume of claims and amount of damages and penalties
claimed in litigation and governmental proceedings against financial institutions have increased in recent years. Reputation risk,
or the risk to our earnings and capital from the resulting negative publicity, is inherent to our business. Current public
uneasiness with the United States banking system heightens this risk, as banking customers often transfer news regarding
consumer fraud, financial difficulties or even failure of some institutions, to fear of fraud, financial difficulty or failure of even
the most secure institutions. In this climate, any negative news may become cause for curtailment of business relationships,
withdrawal of funds or other actions that can have a compounding effect and could adversely affect our operations.
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Substantial legal liability or significant governmental action against us could materially impact our business and financial
results. Also, the resolution of a litigation or regulatory matter could result in additional accruals or exceed established accruals
for a particular period, which could materially impact our results from operations for that period.
Our reputation and our business are subject to negative publicity risk.
Reputation risk, or the risk to our earnings and capital from negative public opinion, is inherent in our business. Negative public
opinion could adversely affect our ability to keep and attract customers and expose us to adverse legal and regulatory
consequences. Negative public opinion could result from our actual or alleged conduct in any number of activities, including
lending practices, corporate governance, regulatory compliance, mergers and acquisitions, and disclosure, sharing or inadequate
protection of customer information, and from actions taken by government regulators and community organizations in response
to that conduct.
Risks of Owning Stock in HTLF
Our stock price can be volatile.
Our stock price can fluctuate widely in response to a variety of factors, including: actual or anticipated variations in our
quarterly operating results; recommendations by securities analysts; acquisitions or business combinations; capital
commitments by or involving HTLF or our Banks; operating and stock price performance of other companies that investors
deem comparable to us; new technology used or services offered by our competitors; new reports relating to trends, concerns
and other issues in the financial services industry; and changes in government regulations. General market fluctuations, industry
factors and general economic and political conditions and events have caused a decline in our stock price in the past, and these
factors, as well as, interest rate changes, continued unfavorable credit loss trends, or unforeseen events such as terrorist attacks
could cause our stock price to be volatile regardless of our operating results.
Stockholders may experience dilution as a result of future equity offerings and acquisitions.
In order to raise capital for future acquisitions or for general corporate purposes, we may offer additional shares of our common
stock or other securities convertible into or exchangeable for our common stock at a price per share that may be lower than the
current price. In addition, investors purchasing shares or other securities in the future could have rights superior to existing
stockholders. The price per share at which we sell additional shares of our common stock, or securities convertible or
exchangeable into common stock, may be higher or lower than the price paid by existing stockholders.
Certain banking laws and the HTLF Stockholder Rights Plan may have an anti-takeover effect.
Certain federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to
acquire HTLF, even if doing so would be perceived to be beneficial to HTLF’s stockholders. HTLF's Amended and Restated
Rights Agreement (the "Rights Plan") also made it difficult for any person to acquire 15% or more of HTLF's outstanding stock
(with certain limited exceptions) without the permission of our board of directors. This Rights Plan expired effective January
17, 2022 and has not been reinstated or replaced by a similar plan.
ITEM 1B. UNRESOLVED STAFF COMMENTS
As of December 31, 2021, HTLF had no unresolved staff comments.
41
ITEM 2. PROPERTIES
The following table is a listing of HTLF’s principal operating facilities and the home offices of each of the Banks as of
December 31, 2021:
Name and Main Facility Address
Heartland Financial USA, Inc.
700 Locust Street
Suite 400
Dubuque, IA 52001
Dubuque Bank and Trust Company
1398 Central Avenue
Dubuque, IA 52001
Illinois Bank & Trust
4571 Guilford Rd.
Rockford, IL 61107
Wisconsin Bank & Trust
119 Junction Road
Madison, WI 53717
New Mexico Bank & Trust
320 Gold NW
Suite 100
Albuquerque, NM 87102
Arizona Bank & Trust
2036 E. Camelback Road
Phoenix, AZ 85016
Rocky Mountain Bank
2615 King Avenue West
Billings, MT 59108
Citywide Banks
1800 Larimer Street
Suite 100
Denver, CO 80202
Minnesota Bank & Trust
7701 France Avenue South
Suite 110
Edina, MN 55435
Bank of Blue Valley
11935 Riley Street
Overland Park, KS 66213
Premier Valley Bank
255 East River Park Circle
Suite 180
Fresno, CA 93720
First Bank & Trust
9816 Slide Road
Lubbock, TX 79424
(1) Includes loan production offices
Main Facility
Number of
Square Footage Owned or Leased Locations(1)
Main Facility
111,800
Leased
65,500
Owned
8,000
Owned
19,000
Owned
11,400
Lease term
through 2026
14,000
Owned
16,600
Owned
8,700
6,100
Lease term
through 2030
Lease term
through 2023
38,000
Owned
17,600
Lease term
through 2023
64,500
Owned
1
8
11
12
24
9
9
20
3
10
6
30
The corporate office of HTLF moved from Dubuque Bank and Trust Company's main office to 700 Locust Street, Suite 400 in
Dubuque, Iowa in 2021. A majority of the support functions provided to the Banks by HTLF are also performed in the same
leased facility located at 700 Locust Street, Suites 500 and 600 in Dubuque, Iowa. In December 2019, HTLF formed a limited
liability corporation with an unrelated third party to purchase the location on Locust Street, and HTLF has a lease with the
limited liability corporation.
For information on obligations related to our leased facilities, see Note 23, "Leases," to the consolidated financial statements.
42
ITEM 3. LEGAL PROCEEDINGS
The information required by this item is set forth in Part II, Item 8, Financial Statements and Supplementary Data, under Note
15, "Commitments, Off-Balance Sheet Arrangements, and Legal Proceedings."
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The names and ages of the executive officers of HTLF, the position held by these officers with HTLF, and the positions held
with HTLF subsidiaries, are set forth below:
Name
Lynn B. Fuller
Bruce K. Lee
Bryan R. McKeag
Janet M. Quick
Deborah K. Deters
Lynn H. Fuller
Age Position with HTLF and Subsidiaries and Principal Occupation
72 Executive Operating Chairman and Director of HTLF; Vice Chairman of Dubuque Bank and
Trust Company, New Mexico Bank & Trust, Rocky Mountain Bank, Citywide Banks,
Minnesota Bank & Trust, Bank of Blue Valley, Premier Valley Bank and First Bank & Trust;
Director of Heartland Financial USA, Inc. Insurance Services
61 Chief Executive Officer, President and Director of HTLF; Director of Citywide Banks and
First Bank & Trust; President of Heartland Financial USA, Inc. Insurance Services
61 Executive Vice President and Chief Financial Officer of HTLF; Director of Heartland
Financial USA, Inc. Insurance Services
56 Executive Vice President, Deputy Chief Financial Officer, and Principal Accounting Officer
of HTLF
57 Executive Vice President and Chief Human Resources Officer of HTLF
38 Executive Vice President, Regional Bank President of HTLF, Director of Dubuque Bank and
Trust Company, Illinois Bank & Trust, Wisconsin Bank & Trust, Bank of Blue Valley and
First Bank & Trust
Nathan R. Jones
Jay L. Kim
49 Executive Vice President and Chief Credit Officer of HTLF
58 Executive Vice President, Corporate Secretary and General Counsel of HTLF; Secretary of
Heartland Financial USA, Inc. Insurance Services
Tamina L. O'Neill
David A. Prince
Daniel C. Stevens
52 Executive Vice President and Chief Risk Officer of HTLF
51 Executive Vice President and Commercial Banking of HTLF
66 Executive Vice President and Operations of HTLF
Lynn B. Fuller was named Executive Operating Chairman of HTLF in 2018. Mr. Fuller has been a Director of HTLF since
1987 and Chairman of the Board since 2000. Mr. Fuller was the Chief Executive Officer of HTLF from 1999 to 2018 and was
President of HTLF from 1990 to 2015. Mr. Fuller currently serves as a Director and Vice Chairman on the following HTLF
subsidiary boards: Dubuque Bank and Trust Company since 1984, New Mexico Bank & Trust since 1998, Rocky Mountain
Bank since 2004, Citywide Banks since 2006, Minnesota Bank & Trust since 2008, Bank of Blue Valley since 2013, Heartland
Financial USA, Inc. Insurance Services since 2015, Premier Valley Bank since 2015 and First Bank & Trust since 2018. Mr.
Fuller served as a Director on the Wisconsin Bank & Trust board from 1997 to 2021 and the Arizona Bank & Trust board from
2003 to 2021. Mr. Fuller joined Dubuque Bank and Trust Company in 1971 as a consumer loan officer and was named
Dubuque Bank and Trust Company's Executive Vice President and Chief Executive Officer in 1987. Mr. Fuller was President
of Dubuque Bank and Trust Company from 1987 until 1999 at which time he was named Chief Executive Officer of HTLF. He
was a Director of Galena State Bank & Trust Co. from 1992 to 2004 and of Illinois Bank & Trust from 1995 until 2004 and
Heritage Bank, N.A. from 2012 until its merger with Arizona Bank & Trust in 2013. Mr. Fuller is the father of Lynn H. Fuller,
Executive Vice President, Regional Bank President, of HTLF.
Bruce K. Lee was named Chief Executive Officer of HTLF in 2018. Mr. Lee joined HTLF in 2015 as President and was elected
a Director of HTLF in 2017. Mr. Lee currently serves as a Director on the following HTLF subsidiary boards: Heartland
Financial USA, Inc. Insurance Services since 2015, Citywide Banks since 2017 and First Bank & Trust since 2018. Prior to
joining HTLF, Mr. Lee held various leadership positions at Fifth Third Bancorp from 2001 to 2013, serving most recently as
Executive Vice President, Chief Credit Officer from 2011 to 2013. Mr. Lee previously served as President and CEO of a Fifth
Third affiliate bank in Ohio. Prior to Fifth Third, Mr. Lee served as an Executive Vice President and board member for Capital
Bank, a community bank located in Sylvania, Ohio. Mr. Lee was a Director of Rocky Mountain Bank from 2015 to 2018 and
Bank of Blue Valley from 2019 to 2021.
43
Bryan R. McKeag joined HTLF in 2013 as Executive Vice President, Chief Financial Officer. Mr. McKeag was named Director
of Heartland Financial USA, Inc. Insurance Services in 2015. Prior to joining HTLF, Mr. McKeag served as Executive Vice
President, Corporate Controller and Principal Accounting Officer with Associated Banc-Corp in Green Bay, Wisconsin. Prior to
his 13 years at Associated Banc-Corp, Mr. McKeag spent 9 years in various finance positions at JP Morgan and 9 years in
public accounting at KPMG in Minneapolis. He is an inactive holder of the certified public accountant certification.
Janet M. Quick was named Executive Vice President, Deputy Chief Financial Officer and Principal Accounting Officer in
2016. Ms. Quick had served as Senior Vice President, Deputy Chief Financial Officer since 2013. Ms. Quick has been with
HTLF since 1994, serving in various audit, finance and accounting positions. Prior to joining HTLF, Ms. Quick was with
Hawkeye Bancorporation in the corporate finance area. She is an active holder of the certified public accountant certification.
Deborah K. Deters joined HTLF in 2017 as Executive Vice President, Chief Human Resource Officer where she oversees
Organizational Development, Talent Management, Talent Acquisition, Total Rewards, Payroll, and Employee Relations. Prior
to HTLF Ms. Deters served as the Senior Vice President and Chief Human Resources Officer at HUB International, LTD., a
North American insurance brokerage based in Chicago, Illinois. While at HUB she was named the organization's first Chief
Human Resources Officer and transformed its Human Resources function while supporting the company’s growth from 4,000
to over 10,000 employees. Prior to HUB, Ms. Deters held several positions over 17 years with Bally Entertainment, finishing as
Senior Vice President, Chief Human Resource Officer of Bally Total Fitness.
Lynn H. Fuller was named Executive Vice President, Regional Bank President of HTLF in 2021. Mr. Fuller joined HTLF in
2013 as Executive Vice President, Corporate Director of Retail. In 2016, Mr. Fuller assumed the position of Market President
of Dubuque Bank and Trust Company, and from 2017 to 2021, Mr. Fuller was the President and Chief Executive Officer of
Dubuque Bank and Trust Company. In 2021, he was named Executive Vice President, Regional Bank President of HTLF. Prior
to joining HTLF, from 2010 to 2013, Mr. Fuller was a Case Team Leader at Bain & Company in Chicago, Illinois, where he led
his team in providing expert advice on client issues and industry topics and recommended solutions. Subsequent to December
31, 2021, Mr. Fuller left HTLF, effective on February 15, 2022.
Nathan R. Jones joined HTLF in July 2020 as Executive Vice President, Chief Credit Officer. Prior to joining HTLF, Mr. Jones
was the Chief Credit Officer for Fulton Financial Corporation, a regional financial holding company based in Lancaster,
Pennsylvania from 2018 until joining HTLF. Mr. Jones previously served as the Executive Vice President Credit
Administration and Analytics for First Horizon National Corporation, a regional financial holding company based in Memphis,
Tennessee from 2011 to 2018. Mr. Jones has managed large scale credit and banking operations while developing and
delivering new business processes and capabilities within global and regional financial institutions. He has previously worked
for Bank of America and BMO Harris primarily in the risk management areas.
Jay L. Kim joined HTLF in January 2020 as Executive Vice President, General Counsel and was named as Corporate Secretary
in October 2020. Mr. Kim was most recently a partner with Dorsey & Whitney LLP, based in Minneapolis, Minnesota, in their
Banking and Financial Services Industry group and focused on advising banks, trust companies, wealth management firms,
commercial and residential mortgage brokers and retirement plan administrators on mergers and acquisitions and regulatory and
operational matters. Mr. Kim rejoined Dorsey & Whitney LLP in 2017 after serving as Executive Vice President, General
Counsel and Director of Corporate Development for Alerus Financial Corporation headquartered in Grand Forks, North Dakota
from 2012 to 2017. His responsibilities at Alerus included oversight of the risk management, audit and compliance functions as
well as acquisitions and investor relations. Prior to joining Alerus in 2012, he was a partner at Dorsey & Whitney LLP and
another Minneapolis law firm, and he also served as Senior Vice President and General Counsel with Marquette Financial
Companies.
Tamina L. O'Neill joined HTLF in 2019 as Executive Vice President, Chief Risk Officer. Ms. O’Neill was most recently the
Director of Enterprise and Operational Risk Management at MB Financial Bank, a Chicago based mid-size institution from
2013 until joining HTLF. Ms. O’Neill’s experience spans small, mid-size and larger global financial institutions as her financial
services and risk management career started approximately 30 years ago with LaSalle Bank/ABN AMRO, a multi-national
global financial institution. Over the course of her career, she has built programs and led teams in government lending,
commercial banking compliance, corporate compliance, operational risk and enterprise risk management.
David A. Prince joined HTLF in 2018 as Executive Vice President, Commercial Banking. Prior to joining HTLF, Mr. Prince
was the Commercial Banking Group Executive Vice President at Associated Banc-Corp., headquartered in Green Bay,
Wisconsin from 2010 until joining HTLF. Mr. Prince has served in leadership roles at GE Capital Commercial Finance and
National City Bank and has extensive commercial lending experience.
44
Daniel C. Stevens joined HTLF in 2019 as Executive Vice President, Operations. He most recently served as the Chief
Operating Officer for Rabobank, NA based in Roseville, California from 2014 through 2019 and its Chief Financial Officer
from 2008 through 2014. Mr. Stevens has over 35 years of financial services experience, which includes serving as a Chief
Financial Officer and Chief Operating Officer at both international and domestic banks. Mr. Stevens started his professional
career at Arthur Andersen & Co. in Chicago, Illinois. He is an inactive holder of the certified public accountant certification.
Subsequent to December 31, 2021, Mr. Stevens announced his retirement from HTLF, which will be effective in March 2022.
45
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
HTLF's common stock was held by approximately 2,700 stockholders of record as of February 14, 2022, and approximately
19,200 additional stockholders held shares in street name. The common stock of HTLF has been quoted on the Nasdaq Stock
Market since May 2003 under the symbol "HTLF" and is a Nasdaq Global Select Market security.
On March 17, 2020, HTLF's board of directors authorized management to acquire and hold up to 5% of capital or $103.6
million as of December 31, 2021, as treasury shares at any one time. HTLF and its affiliated purchasers made no purchases of
its common stock during the quarter ended December 31, 2021.
The following table and graph show a five-year comparison of cumulative total returns for HTLF, the Nasdaq Composite Index,
the KBW Nasdaq Bank Index and the S&P U.S. BMI Banks Index, in each case assuming investment of $100 on December 31,
2016, and reinvestment of dividends. The table and graph were prepared at our request by S&P Global Market Intelligence.
Heartland Financial USA, Inc.
Nasdaq Composite Index
KBW Nasdaq Bank Index
S&P U.S. BMI Banks Index
Cumulative Total Return Performance
2016
2017
As of December 31,
2019
2018
2020
2021
$
100.00
$
112.96
$
93.56
$
107.47
$
89.22
$
114.08
100.00
100.00
100.00
129.64
118.59
118.21
125.96
97.58
98.75
172.18
132.84
135.64
249.51
119.14
118.33
304.85
164.80
160.89
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
ASSUMES $100 INVESTED ON DECEMBER 31, 2016
* Total return assumes reinvestment of dividends
Index Value ($)Total Return PerformanceHeartland Financial USA, Inc.Nasdaq Composite IndexKBW Nasdaq Bank IndexS&P U.S. BMI Banks Index12/31/1612/31/1712/31/1812/31/1912/31/2012/31/215010015020025030046
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management’s discussion and analysis of the consolidated financial condition and results of operations of HTLF as of the dates
and for the periods indicated is presented below. This discussion should be read in conjunction with the consolidated financial
statements and the notes thereto and other financial data appearing elsewhere in this Annual Report on Form 10-K. The
consolidated financial statements include the accounts of HTLF and its subsidiaries, all of which are wholly-owned.
For a discussion of 2019 results of operations, including a discussion of the financial results for the fiscal year ended December
31, 2020, compared to the fiscal year ended December 31, 2019, refer to Part I, Item 7 of our Annual Report on Form 10-K,
which was filed with the SEC on February 24, 2021.
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. Refer to Note 1, "Summary of
Significant Accounting Policies," for further discussion on HTLF's critical accounting policies.
The estimates and judgments that management believes have the most effect on HTLF’s reported financial position and results
of operations are as follows:
Allowance For Credit Losses
The process utilized by HTLF to estimate the allowance for credit losses is considered a critical accounting estimate for HTLF.
The allowance for credit losses represents management’s estimate of identified and unidentified current expected credit losses
in the existing loan portfolio. Therefore, the accuracy of this estimate could have a material impact on HTLF’s earnings.
For certain commercial and agricultural loans and any related unfunded loan commitments, the expected credit losses are
calculated on a pool basis through a transition matrix model derived life of loan probability of default and loss given default
methodology. The probability of default and loss given default methodology have been developed using HTLF’s historical loss
experience over the look back period, currently over the most recent 13 years. For smaller commercial and agricultural loans,
residential real estate loans and consumer loans and any related unfunded loan commitments, a lifetime average historical loss
rate is established for each pool of loans based upon an average loss rate calculated using HTLF historical loss experience over
the look back-period. The loss rates used in the allowance calculation are periodically re-evaluated and adjusted to reflect
changes in historical loss levels or other risks.
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. All individually assessed loan calculations are completed at least semi-annually.
HTLF's allowance methodology also has a qualitative component, the purpose of which is to provide management with a means
to take into consideration changes in current conditions that could potentially have an effect, up or down, on the level of
recognized loan losses, that, for whatever reason, may not be represented in the quantitative analysis performed in determining
its base loan loss rates.
Additionally, our allowance calculation utilizes an overlay approach for its economic forecasting component, similar to the
method utilized for the qualitative factors. The length of the reasonable and supportable forecast period is a judgmental
determination based on the level to which HTLF can reasonably support its forecast of economic conditions that drive its
estimate of expected loss.
The economic indices utilized from the economic forecast include the national unemployment rate, national gross domestic
product, capacity index manufacturing growth, national commercial real estate price index, national home price index and the
national farm products price index. The economic indices utilized in the calculation which may be the most sensitive in the
allowance calculation are the national unemployment rate and the national gross domestic product because management
believes changes in these indices, positive or negative, will be impactful to all loan pools.
47
The appropriateness of the allowance for credit losses is monitored on an ongoing basis by the credit administration group, loan
review staff, executive and senior management and the boards of directors of HTLF and each Bank. There can be no assurances
that the allowance for credit losses will be adequate to cover all current expected credit losses, but management believes that the
allowance for credit losses was appropriate at December 31, 2021. While management uses available information to provide for
credit losses, the ultimate collectability of a substantial portion of the loan portfolio and the need for future additions to the
allowance will be based on changes in economic conditions.
Should the economic climate deteriorate, borrowers may experience financial difficulty, and the level of nonperforming loans,
charge-offs, and delinquencies could rise and require further increases in the provision for credit losses. Conversely,
improvement in credit quality and economic conditions may allow for a reduction of provision for credit losses. Any
unanticipated changes, positive or negative, could have a significant impact on the results of operations.
In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for
credit losses carried by the Banks. Such agencies may require us to make additional provisions to the allowance based upon
their judgment about information available to them at the time of their examinations.
Business Combinations, Goodwill and Core Deposit Intangibles
We record all assets and liabilities purchased in an acquisition, including intangibles, at fair value. Determining the fair value of
assets and liabilities acquired often involves estimates based on third-party valuations, such as appraisals, or internal valuations
based on discounted cash flow analyses or other valuation techniques that may include the use of estimates. Goodwill and
indefinite-lived assets are not amortized but are subject to, at a minimum, annual tests for impairment. In certain situations,
interim impairment tests may be required if events occur or circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. Core deposit intangibles assets are amortized over their estimated
useful lives using straight-line and accelerated methods and are subject to impairment if events or circumstances indicate a
possible inability to realize the carrying amount.
The initial fair value measurement of loans and core deposit intangibles require us to make subjective judgments concerning
estimates of how the acquired assets will perform in the future using valuation methods. The fair value of acquired loans is
based on a discounted cash flow methodology that projects principal and interest payments using key assumptions related to the
discount rate and loss rates. The fair value of core deposit intangibles is based on the cost savings approach under a discounted
cash flow methodology, whereby projected net cash flow benefits are derived from estimating costs to carry deposits compared
to alternative funding costs, and includes key assumptions related to the discount rate, deposit attrition rates and net costs,
including discounted cash flow analyses. Events and factors that may significantly affect the estimates include, among others,
competitive forces, customer behaviors, changes in revenue growth trends, cost structures, technology, changes in discount
rates and market conditions. In determining the reasonableness of cash flow estimates, HTLF reviews historical performance of
the underlying assets or similar assets in an effort to assess and validate assumptions utilized in its estimates.
OVERVIEW
HTLF is a multi-bank holding company providing banking, mortgage, wealth management, investments and insurance services
to businesses and consumers. As of the date of this Annual Report on Form 10-K, HTLF has eleven separately chartered
banking subsidiaries with 129 locations in Iowa, Illinois, Wisconsin, New Mexico, Arizona, Montana, Colorado, Minnesota,
Kansas, Missouri, Texas and California. Our primary objectives are to increase profitability and diversify our deposits, assets
and overall customer base through organic growth and acquisitions in the Bank Markets we serve.
Our 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, securities gains, net, net gains on sale of loans held for
sale and income on bank owned life insurance also affects our results of operations. Our 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 intangibles and customer relationship intangibles amortization,
other real estate and loan collection expenses and acquisition, integration and restructuring costs.
48
2021 Overview
Net income available to common stockholders was $211.9 million, or $5.00 per diluted common share, for the year ended
December 31, 2021, compared to $133.5 million or $3.57 per diluted common share for the year ended December 31, 2020.
Return on average common equity was 10.49%, and return on average assets was 1.19% for the year ended December 31, 2021,
compared to 8.06% and 0.93%, respectively, for the year ended December 31, 2020.
Total assets of HTLF were $19.27 billion at December 31, 2021, an increase of $1.37 billion or 8% since December 31, 2020.
Securities represented 40% of total assets at December 31, 2021 compared to 35% of total assets at December 31, 2020.
Total loans held to maturity were $9.95 billion at December 31, 2021 compared to $10.02 billion at December 31, 2020, which
was a decrease of $68.5 million or 1%. Excluding total PPP loans, total loan held to maturity increased $689.4 million or 8%
since year-end 2020.
Total deposits were $16.42 billion as of December 31, 2021 compared to $14.98 billion as of December 31, 2020, an increase
of $1.44 billion or 10%.
Common stockholders' equity was $2.07 billion at December 31, 2021, compared to $1.97 billion at year-end 2020. Book value
per common share was $49.00 at December 31, 2021, compared to $46.77 at year-end 2020. HTLF's unrealized gains and
losses on securities available for sale, net of applicable taxes, reflected an unrealized loss of $4.4 million compared to an
unrealized gain of $76.8 million at December 31, 2020.
2020 Overview
Net income available to common stockholders was $133.5 million, or $3.57 per diluted common share, for the year ended
December 31, 2020, compared to $149.1 million, or $4.14 per diluted common share, earned during the prior year. Return on
average common equity was 8.06% and return on average assets was 0.93% for 2020, compared to 10.12% and 1.24%,
respectively, for 2019.
Total assets of HTLF were $17.91 billion at December 31, 2020, an increase of $4.70 billion or 36% from $13.21 billion at
year-end 2019. Included in this increase, at fair value, were $1.97 billion of assets acquired in the AimBank transaction and
$419.7 million of assets acquired in the Johnson Bank branch transaction. Exclusive of these transactions, total assets increased
$2.31 billion or 17% since December 31, 2019. Securities represented 35% of HTLF's total assets at December 31, 2020,
compared to 26% at year-end 2019.
Total loans held to maturity were $10.02 billion at December 31, 2020, compared to $8.37 billion at year-end 2019, an increase
of $1.66 billion or 20%. This change includes $1.24 billion of total loans held to maturity acquired at fair value in the AimBank
and Johnson Bank branch transactions, which included $53.1 million of PPP loans. Excluding the loans acquired in the
AimBank and Johnson Bank branch transactions and legacy PPP loans of $904.7 million, total loans held to maturity
organically decreased $487.3 million or 6% since December 31, 2020.
Total deposits were $14.98 billion as of December 31, 2020, compared to $11.04 billion at year-end 2019, an increase of $3.94
billion or 36%. This increase includes $2.09 billion of deposits acquired at fair value in the AimBank and Johnson Bank branch
transactions. Exclusive of the deposits acquired at fair value in the AimBank and Johnson Bank branch transactions, total
deposits organically grew $1.85 billion or 17% since December 31, 2019.
Common stockholders' equity was $1.97 billion at December 31, 2020, compared to $1.58 billion at year-end 2019. Book value
per common share was $46.77 at December 31, 2020, compared to $43.00 at year-end 2019. HTLF's unrealized gains and
losses on securities available for sale, net of applicable taxes, reflected an unrealized gain of $76.8 million at December 31,
2020, compared to an unrealized gain of $969,000 at December 31, 2019.
2021 Developments
AimBank Systems Conversion
On February 19, 2021, HTLF successfully completed the systems conversion of AimBank, which was acquired by HTLF in the
fourth quarter of 2020 and merged into HTLF's Texas subsidiary, First Bank & Trust. Subsequent to the systems conversion,
seven of AimBank's twenty-five bank branches were transferred to HTLF's New Mexico Bank & Trust subsidiary.
49
Branding Change
On April 14, 2021, a branding change from Heartland Financial to HTLF was announced and rolled out across the organization.
The branding was refreshed to better reflect the financial and non-financial strengths of HTLF, including a diverse footprint and
the continued growth of the company.
Paycheck Protection Program Loans
HTLF originated a second round of Paycheck Protection Program loans ("PPP II") totaling $473.9 million since the beginning
of 2021. PPP II loans are 100% United States SBA guaranteed, and borrowers may be eligible to have an amount up to the
entire principal balance forgiven and paid by the SBA. As of December 31, 2021, approximately 98% of PPP loans originated
in 2020 ("PPP I") loans have been forgiven, and approximately 63% of PPP II loans have been forgiven.
Total interest income on PPP loans increased $15.3 million or 61% to $40.6 million for the year ended December 31, 2021,
compared to $25.3 million for the year ended December 31, 2020.
Issuance of Subordinated Debt
On September 8, 2021, HTLF closed its public offering of $150.0 million aggregate principal amount of its 2.75% Fixed-to-
Floating Rate Subordinated Notes due 2031 (the "2021 subordinated notes"). The 2021 subordinated notes were issued at par
with an underwriting discount of $1.9 million, and the net proceeds totaled $147.6 million. The 2021 subordinated notes were
registered under HTLF’s effective shelf registration statement and qualify as Tier 2 capital for regulatory purposes. The net
proceeds are being used for general corporate purposes, which includes, without limitation, providing capital to support HTLF's
organic growth or growth through strategic acquisitions, financing investments, capital expenditures, investments in the
subsidiary banks as regulatory capital, and repaying indebtedness. The 2021 subordinated notes have a fixed interest rate of
2.75% until September 15, 2026, at which time the interest rate will be reset quarterly to a benchmark interest rate, which is
expected to be three-month term Secure Overnight Financing Rate ("SOFR") plus a spread of 210 basis points. The 2021
subordinated notes mature on September 15, 2031, and become redeemable at HTLF's option on September 15, 2026.
Branch Optimization
During 2021, HTLF consolidated eight legacy bank branches, which included two branches in Midwestern markets, four
branches in Southwestern markets, and five branches in Western markets, and sold one branch in a Midwestern market as it
continues to respond to customer preferences and closely manage expenses. HTLF plans to reduce branch locations by
approximately 10% in 2022 through closures, consolidations or sales. HTLF continues to review its branch network for
optimization and consolidation opportunities, which may result in additional write-downs of fixed assets in future periods.
Common Stock Dividend Increase
Since 2020, the common stock dividend has been increased from $0.20 per common share in each quarter of 2020 to $0.22 for
the first and second quarters of 2021, $0.25 for the third quarter of 2021, and $0.27 per common share in fourth quarter of 2021.
Charter Consolidation
In the fourth quarter of 2021, HTLF completed evaluating the consolidation of its eleven bank charters as part of its ongoing
efforts to improve operational efficiency. As a result, the HTLF Board of Directors approved a plan to consolidate its eleven
bank charters into a single Colorado based charter, "HTLF Bank," that will continue to operate under separate bank brands in
each market. The plan is subject to regulatory approval.
The consolidation project is underway and is expected to be completed by the end of 2023. The first bank consolidation is
expected to occur in mid-2022. The estimated restructuring costs of the project are approximately $20.0 million, of which $1.9
million was incurred in 2021. The ongoing financial benefits from consolidation are expected to be approximately $20.0 million
annually when the project is completed and are expected to arise from the elimination of redundancies and improved operating
processes. The consolidation will also increase operating capacity to be leveraged with future growth and provide better
alignment of our products and services.
COVID-19 Pandemic Update
In March 2020, the outbreak of the novel COVID-19 was recognized as a pandemic by the World Health Organization. The
spread of COVID-19 has created a global public health crisis that has resulted in unprecedented uncertainty, volatility and
disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally in
2021 and 2020.
50
In the first quarter of 2020, HTLF implemented and continues to operate under its pandemic management plan to assure
workplace and employee safety and business resiliency, and the pandemic management plan continues to evolve in response to
the recent developments relating to the COVID-19 pandemic.
The ultimate impact of the COVID-19 pandemic on HTLF's financial condition and results of operations will depend on the
severity and duration of the pandemic, including the emergence of COVID-19 variants, related restrictions on business and
consumer activity, efficacy and distribution of vaccines and the availability of government programs to alleviate the economic
stress of the pandemic. See "COVID-19 Pandemic Risks" in Part 1A Risk Factors of this Annual Report on Form 10-K.
2020 Developments
Adoption of ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)"
On January 1, 2020, HTLF adopted ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)," commonly referred to
as "CECL." The impact of HTLF's adoption of CECL on January 1, 2020 ("Day 1") resulted in the following:
•
•
•
an increase of $12.1 million to the allowance for credit losses related to loans, which included a reclassification of $6.0
million of purchased credit impaired loan discount on previously acquired loans, and a cumulative-effect adjustment to
retained earnings totaling $4.6 million, net of taxes of $1.5 million;
an increase of $13.6 million to the allowance for unfunded commitments and a cumulative-effect adjustment to
retained earnings totaling $10.2 million, net of taxes of $3.4 million, and
established an allowance for credit losses for HTLF's held to maturity debt securities of $158,000 and a cumulative-
effect adjustment to retained earnings totaling $118,000, net of taxes of $40,000.
The allowance calculation under CECL is an expected loss model, which encompasses expected losses over the life of the loan
and held to maturity securities portfolios, including expected losses due to changes in economic conditions and forecasts, such
as those caused by the COVID-19 pandemic. For more information, see Note 1, "Basis of Presentation" and Note 6, "Allowance
for Credit Losses" to the consolidated financial statements contained herein.
Issued $115.0 Million of Preferred Equity
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." The net proceeds of $110.7 million are being used for general corporate purposes,
which may include organic and acquired growth, financing investments, capital expenditures, investments in wholly-owned
subsidiaries as regulatory capital and repayment of debt.
Branch Optimization
In the second half of 2020, HTLF's member banks approved plans to consolidate eight branch locations, which included two
branches in the Midwest region, five branches in the Western region and one in the Southwestern region and resulted in $1.2
million and $2.3 million of fixed asset write-downs in the third and fourth quarters of 2020, respectively. The branch
consolidations were completed in early 2021.
Johnson Bank Arizona Operations Purchase and Assumption
On December 4, 2020, Arizona Bank & Trust ("AB&T"), HTLF's wholly-owned subsidiary headquartered in Phoenix, Arizona,
acquired certain assets and assumed substantially all of the deposits and certain other liabilities of Johnson Bank’s Arizona
operations, which included four branches. Johnson Bank is a wholly-owned subsidiary of Johnson Financial Group, Inc.
headquartered in Racine, Wisconsin. As of the closing date, AB&T acquired, at fair value, total assets of $419.7 million, which
included gross loans of $150.7 million, and deposits of $415.5 million. The systems conversion occurred simultaneously with
the closing of the transaction.
AimBank Acquisition
On December 4, 2020, HTLF completed the acquisition of AimBank, headquartered in Levelland, Texas. Based on HTLF's
closing common stock price of $41.89 on December 4, 2020, the aggregate consideration paid to AimBank common
shareholders was $264.5 million, which was paid by delivery of common stock of $217.2 million and cash of $47.3 million,
subject to certain hold-back provisions of the merger agreement relating to the cash consideration. AimBank was merged with
and into HTLF's wholly-owned Texas subsidiary, First Bank and Trust, and the combined entity operates as First Bank and
Trust. As of the closing date, AimBank had, at fair value, total assets of $1.97 billion, which included gross loans of $1.09
billion, and deposits of $1.67 billion. The systems conversion for this transaction occurred in February 2021.
51
FINANCIAL HIGHLIGHTS (Dollars in thousands, except per share data)
As of and For the Years Ended
December 31,
2020
2021
2019
STATEMENT OF INCOME DATA
Interest income
Interest expense
Net interest income
Provision (benefit) for credit losses
Net interest income after provision for credit losses
Noninterest income
Noninterest expenses
Income taxes
Net income
Preferred dividends
Net income available to common stockholders
PER COMMON SHARE DATA
Net income – diluted
Cash dividends
Dividend payout ratio
Book value per common share (GAAP)
Tangible book value per common share (non-GAAP)(1)
Weighted average shares outstanding-diluted
Tangible common equity ratio (non-GAAP)(1)
BALANCE SHEET DATA
Investments
Loans held for sale
Total net loans receivable held to maturity
Allowance for credit losses-loans
Total assets
Total deposits
Long-term obligations
Preferred equity
Common stockholders’ equity
$ 588,760
$ 536,612
$ 514,329
28,200
560,560
(17,575)
578,135
128,935
431,812
55,335
219,923
44,883
491,729
67,066
424,663
120,291
370,963
36,053
137,938
(8,050)
(4,451)
80,600
433,729
16,657
417,072
116,208
349,161
34,990
149,129
—
$ 211,873
$ 133,487
$ 149,129
$
$
$
$
5.00
0.96
19.20 %
49.00
34.59
$
$
$
$
3.57
0.80
22.41 %
46.77
32.07
$
$
$
$
4.14
0.68
16.43 %
43.00
29.51
42,410,611
37,356,524
36,061,908
7.84 %
7.81 %
8.52 %
$ 7,697,650
$ 6,292,067
$ 3,435,441
21,640
57,949
26,748
9,954,572
10,023,051
8,367,917
110,088
131,606
70,395
19,274,549
17,908,339
13,209,597
16,417,255
372,072
14,979,905
457,042
11,044,331
275,773
110,705
110,705
—
2,071,473
1,968,526
1,578,137
52
FINANCIAL HIGHLIGHTS (Dollars in thousands, except per share data)
EARNINGS PERFORMANCE DATA
Annualized return on average assets
Annualized return on average common equity
Annualized return on average tangible common equity (non-GAAP)(1)
Annualized net interest margin
Annualized net interest margin, fully tax-equivalent (non-GAAP)(1)
Efficiency ratio, fully tax-equivalent (non-GAAP)(1)
ASSET QUALITY RATIOS
Nonperforming assets to total assets
Nonperforming loans to total loans
Net loan charge-offs to average loans
Allowance for credit losses to total loans
Allowance for credit losses to total loans excluding PPP loans
Allowance for lending related credit losses to total loans
Allowance for lending related credit losses to total loans excluding PPP loans
Allowance for credit losses to nonperforming loans
CONSOLIDATED CAPITAL RATIOS
Average equity to average assets
Average common equity to average assets
Total capital to risk-adjusted assets
Tier 1 capital
Common equity tier 1
Tier 1 leverage
As of and For the Years Ended
December 31,
2020
2021
2019
1.19 %
10.49
15.59
3.29
3.33
59.48
0.93 %
8.06
1.24 %
10.12
12.28
3.65
3.69
56.65
15.73
4.00
4.04
62.50
0.37 %
0.70
0.53 %
0.88
0.04
1.11
1.13
1.26
1.29
0.32
1.31
1.45
1.47
1.62
0.66 %
0.96
0.11
0.84
NA
NA
NA
157.45
149.37
87.28
11.51 %
10.92
11.59 %
11.21
12.26 %
12.26
15.90
12.39
11.53
8.57
14.71
11.85
10.92
9.02
13.75
12.31
10.88
10.10
(1) Refer to the "Non-GAAP Financial Measures" section after these financial tables for additional information on the usage
and presentation of these non-GAAP measures, and refer to these tables for reconciliations to the most directly comparable
GAAP measures.
NON-GAAP RECONCILIATIONS (Dollars in thousands, except per share data)
As of and For the Years Ended
December 31,
2020
2019
2021
Reconciliation of Tangible Book Value Per Common Share (non-GAAP)
Common stockholders' equity (GAAP)
Less goodwill
Less other intangible assets, net
Tangible common stockholders' equity (non-GAAP)
$ 2,071,473
$ 1,968,526
$ 1,578,137
576,005
576,005
446,345
32,988
$ 1,462,480
42,383
$ 1,350,138
48,688
$ 1,083,104
Common shares outstanding, net of treasury stock
Common stockholders' equity (book value) per share (GAAP)
Tangible book value per common share (non-GAAP)
42,275,264
42,093,862
36,704,278
$
$
49.00
34.59
$
$
46.77
32.07
$
$
43.00
29.51
53
NON-GAAP RECONCILIATIONS (Dollars in thousands, except per share data)
As of and For the Years Ended
December 31,
2020
2019
2021
Reconciliation of Tangible Common Equity Ratio (non-GAAP)
Total assets (GAAP)
$ 19,274,549
$ 17,908,339
$ 13,209,597
Less goodwill
Less core deposit intangibles and customer relationship intangibles, net
576,005
32,988
576,005
42,383
446,345
48,688
Total tangible assets (non-GAAP)
Tangible common equity ratio (non-GAAP)
$ 18,665,556
$ 17,289,951
$ 12,714,564
7.84 %
7.81 %
8.52 %
Reconciliation of Annualized Return on Average Tangible Common Equity
(non-GAAP)
Net income available to common stockholders (GAAP)
Plus core deposit and customer intangibles amortization, net of tax(1)
Adjusted net income available to common stockholders (non-GAAP)
$ 211,873
$ 133,487
$ 149,129
7,422
8,429
9,458
$ 219,295
$ 141,916
$ 158,587
Average common stockholders' equity (GAAP)
Less average goodwill
Less average other intangibles, net
Average tangible common equity (non-GAAP)
Annualized return on average common equity (GAAP)
Annualized return on average tangible common equity (non-GAAP)
$ 2,020,200
$ 1,656,708
$ 1,473,396
576,005
37,554
456,854
44,298
415,841
49,377
$ 1,406,641
$ 1,155,556
$ 1,008,178
10.49 %
15.59 %
8.06 %
12.28 %
10.12 %
15.73 %
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent
(non-GAAP)
Net interest income (GAAP)
Plus tax-equivalent adjustment(1)
Net interest income, fully tax-equivalent (non-GAAP)
Average earning assets
Net interest margin (GAAP)
Net interest margin, fully tax-equivalent (non-GAAP)
$ 560,560
$ 491,729
$ 433,729
7,212
5,466
4,929
$ 567,772
$ 497,195
$ 438,658
$ 17,025,088
$ 13,481,613
$ 10,845,940
3.29 %
3.33 %
3.65 %
3.69 %
4.00 %
4.04 %
54
NON-GAAP RECONCILIATIONS (Dollars in thousands, except per share data)
As of and For the Years Ended
December 31,
2020
2019
2021
Reconciliation of Efficiency Ratio (non-GAAP)
Net interest income (GAAP)
Plus tax-equivalent adjustment(1)
Net interest income, fully tax-equivalent
Noninterest income
Securities gains, net
Unrealized gain on equity securities, net
Gain on extinguishment of debt
Valuation adjustment on servicing rights
Adjusted revenue (non-GAAP)
Total noninterest expenses (GAAP)
Less:
$
560,560
$
491,729
$
433,729
7,212
567,772
128,935
(5,910)
(58)
—
5,466
497,195
120,291
(7,793)
(640)
—
4,929
438,658
116,208
(7,659)
(525)
(375)
(1,088)
689,651
1,778
610,831
$
$
911
547,218
$
$ 431,812
$ 370,963
$ 349,161
Core deposit intangibles and customer relationship intangibles amortization
Partnership investment in tax credit projects
(Gain)/loss on sales/valuations of assets, net
Acquisition, integration and restructuring costs
9,395
6,303
588
5,331
10,670
3,801
5,101
5,381
11,972
8,030
(19,422)
6,580
Adjusted noninterest expenses (non-GAAP)
Efficiency ratio, fully tax-equivalent (non-GAAP)
$
410,195
$
346,010
$
342,001
59.48 %
56.65 %
62.50 %
Acquisition, integration and restructuring costs
Salaries and employee benefits
Occupancy
Furniture and equipment
Professional fees
Advertising
(Gain)/loss on sales/valuations of assets, net
Other noninterest expenses
Total acquisition, integration and restructuring costs
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.
$
$
578
10
655
2,867
173
39
1,009
5,331
$
$
398
—
958
3,399
143
—
483
5,381
$
$
816
1,215
87
2,365
203
1,003
891
6,580
Non-GAAP Financial Measures
This Annual Report on Form 10-K 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 Annual Report on Form 10-K, management's reason for including each measure and
the method of calculating each measure are presented below:
• 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.
55
• Tangible common equity ratio is total common equity less goodwill and core deposit and customer relationship
intangibles, net, divided by total assets less goodwill and core deposit and customer relationship intangibles, net. This
measure is included as it is considered to be a critical metric to analyze and evaluate financial condition and capital
strength.
• Annualized return on average tangible common equity is net income excluding intangible amortization calculated as
(1) net income excluding tax-effected core deposit and customer relationship intangibles amortization, divided by (2)
average common equity less goodwill and core deposit and customer relationship intangibles, net. This measure is
included as it is considered to be a critical metric to analyze and evaluate use of equity, financial condition and capital
strength.
• 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.
• Annualized net interest margin, fully tax-equivalent, adjusts net interest income for the tax-favored status of certain
loans and securities. Management believes this measure enhances the comparability of net interest income arising from
taxable and tax-exempt sources.
• Efficiency ratio, fully tax equivalent, expresses noninterest expenses as a percentage of fully tax-equivalent net interest
income and noninterest income. This efficiency ratio is presented on a tax-equivalent basis which adjusts net interest
income and noninterest expenses for the tax favored status of certain loans, securities, and tax credit projects.
Management believes the presentation of this non-GAAP measure provides supplemental useful information for
proper understanding of the financial results as it enhances the comparability of income and expenses arising from
taxable and nontaxable sources and excludes specific items as noted in the reconciliation contained in this Annual
Report on Form 10-K.
• Organic deposit growth is exclusive of deposits obtained through acquisitions. Management believes that this measure
provides a more complete understanding of underlying trends in deposit growth notwithstanding acquisitions.
• Organic loan growth is exclusive of loans obtained through acquisitions and PPP loans. Management believes that this
measure provides a more complete understanding of underlying trends in loan growth notwithstanding acquisitions.
RESULTS OF OPERATIONS
Net Interest Margin and Net Interest Income
HTLF's management monitors and manages net interest income and net interest margin and shares the results with investors
because they are key indicators of HTLF's profitability and growth of earning assets.
Net interest income is the difference between interest income earned on earning assets and interest expense paid on interest
bearing liabilities. As such, net interest income is affected by changes in the volume 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.
Our success in maintaining competitive net interest margin despite the low-interest rate environment has been the result of an
increase in average earning assets, including earning assets acquired in recent acquisitions and PPP loans, and a favorable
deposit mix. Also contributing to our ability to maintain net interest margin has been the amortization of purchase accounting
discounts associated with acquisitions completed since 2015. For the years ended December 31, 2021, 2020 and 2019, our net
interest margin included 9 basis points, 12 basis points and 18 basis points, respectively, of purchase accounting discount
amortization.
See "Analysis of Average Balances, Tax-Equivalent Yields and Rates" for a description of our use of net interest income and
net interest margin on a fully tax-equivalent basis, which is not defined by GAAP, and a reconciliation of annualized net
interest margin on a fully tax-equivalent basis to GAAP.
Net interest margin, expressed as a percentage of average earning assets, was 3.29% (3.33% on a fully tax-equivalent basis)
during 2021, compared to 3.65% (3.69% on a fully tax-equivalent basis) during 2020 and 4.00% (4.04% on a fully tax-
equivalent basis) during 2019. Excluding the impact of PPP loans, HTLF's net interest margin on a fully-tax equivalent basis
(non-GAAP) was 3.24% during 2021 compared to 3.72% during 2020.
Total interest income and average earning asset changes for 2021 compared to 2020 were:
• Total interest income increased $52.1 million or 10% to $588.8 million from $536.6 million due to an increase in
average earning assets, which was partially offset by a decrease in the average rate on earning assets.
56
• Total interest income on a tax-equivalent basis (non-GAAP) was $596.0 million compared to $542.1 million, which
was an increase of $53.9 million or 10%.
• Average earning assets increased $3.54 billion or 26% to $17.03 billion from $13.48 billion, which was primarily
attributable to recent acquisitions, increases in securities and loan growth.
• The average rate on earning assets decreased 52 basis points to 3.50% compared to 4.02%, which was primarily due to
recent decreases in market interest rates and a shift in earning asset mix. Total average securities were 41% of earning
assets compared to 32%.
Total interest expense and average interest bearing liability changes for 2021 compared to 2020 were:
• Total interest expense decreased $16.7 million or 37% to $28.2 million compared to $44.9 million.
• The average rate paid on HTLF's interest bearing liabilities decreased to 0.28% compared to 0.54%, which was
primarily due to recent decreases in market interest rates.
• Average interest bearing deposits increased $1.64 billion or 21% to $9.45 billion from $7.81 billion, which was
primarily attributable to recent acquisitions and deposit growth.
• The average rate paid on HTLF's interest bearing deposits decreased 23 basis points to 0.16% compared to 0.39%,
which was primarily attributable to recent decreases in market interest rates.
• Average borrowings decreased $17.3 million or 3% to $520.9 million from $538.2 million. The average interest rate
paid on HTLF's borrowings was 2.57% compared to 2.71%.
Net interest income changes for 2021 compared to 2020 were:
• Net interest income totaled $560.6 million compared to $491.7 million, which was an increase of $68.8 million or
14%.
• Net interest income on a tax equivalent basis (non-GAAP) totaled $567.8 million compared to $497.2 million, which
was an increase of $70.6 million or 14%.
Total interest income and average earning asset changes for 2020 compared to 2019 were:
• Total interest income increased $22.3 million or 4% to $536.6 million from $514.3 million due to an increase in
average earning assets, which was partially offset by a decrease in the average rate on earning assets.
• Total interest income on a tax-equivalent basis (non-GAAP) was $542.1 million compared to $519.3 million, which
was an increase of $22.8 million or 4%.
• Average earning assets increased $2.64 billion or 24% to $13.48 billion from $10.85 billion, which was primarily
attributable to recent acquisitions, increases in securities and loan growth, including PPP loans.
• The average rate on earning assets decreased 77 basis points to 4.02% compared to 4.79%, which was primarily due to
recent decreases in market interest rates and the lower yield on PPP loans, which was 3.25%.
Total interest expense and average interest bearing liability changes for 2020 compared to 2019 were:
• Total interest expense decreased $35.7 million or 44% during 2020 to $44.9 million from $80.6 million during 2019.
• The average rate paid on HTLF's interest bearing liabilities decreased to 0.54% compared to 1.14%, which was
primarily due to recent decreases in market interest rates.
• Average interest bearing deposits increased $1.16 billion or 17% to $7.81 billion from $6.65 billion, which was
primarily attributable to recent acquisitions and deposit growth, including deposits from government stimulus
payments and other COVID-19 relief programs.
• The average rate paid on HTLF's interest bearing deposits decreased 57 basis points to 0.39% compared to 0.96%,
which was primarily attributable to recent decreases in market interest rates.
• Average borrowings increased $135.9 million or 34% to $538.2 million from $402.3 million. The average interest rate
paid on HTLF's borrowings was 2.71% compared to 4.19%.
Net interest income changes for 2020 compared to 2019 were:
• Net interest income totaled $491.7 million compared to $433.7 million, which was an increase of $58.0 million or
13%.
• Net interest income on a tax equivalent basis (non-GAAP) totaled $497.2 million compared to $438.7 million, which
was an increase of $58.5 million or 13%.
57
Management believes net interest margin in dollars will continue to increase as the amount of earning assets grows, however
the current low interest rate environment may result in a decrease to the net interest margin as a percentage of average earning
assets. The Federal Reserve has indicated it will closely assess economic data, but has signaled it will begin to raise the Federal
funds interest rate in early 2022. Ultimately,the timing and magnitude of any such changes are uncertain and will depend on
domestic and global economic conditions. Any increase to the Federal Funds rate in 2022 would positively impact HTLF's net
interest income due to its asset sensitive balance sheet.
We attempt to manage our balance sheet to minimize the effect that a change in interest rates has on our net interest margin. We
plan to continue to work toward improving both our earning assets and funding mix through targeted organic growth strategies,
which we believe will result in additional net interest income. We believe our net interest income simulations reflect a well-
balanced and manageable interest rate posture. Item 7A of this Annual Report on Form 10-K contains additional information
about the results of our most recent net interest income simulations. Note 12, "Derivative Financial Instruments" to the
consolidated financial statements contains a detailed discussion of the derivative instruments we have utilized to manage
interest rate risk.
58
The following table provides certain information relating to our average consolidated balance sheets and reflects the yield on
average earning assets and the cost of average interest bearing liabilities for the years indicated, in thousands. Dividing income
or expense by the average balance of assets or liabilities derives such yields and costs. Average balances are derived from daily
balances, and nonaccrual loans and loans held for sale are included in each respective loan category. Assets with tax favorable
treatment are evaluated on a tax-equivalent basis assuming a federal income tax rate of 21%. Tax favorable 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 favorable assets and dividing by the average balance of the tax favorable assets.
2021
For the Year Ended December 31,
2020
2019
Average
Balance
Interest
Rate
Average
Balance
Interest
Rate
Average
Balance
Interest
Rate
Earning Assets
Securities:
Taxable
Nontaxable(1)
Total securities
Interest bearing deposits with other
banks and other short-term investments
Federal funds sold
Loans:(2)
Commercial and industrial(1)
PPP loans
Owner occupied commercial real estate
Non-owner occupied commercial real
estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
Less: allowance for credit losses
Net loans
Total earning assets
Nonearning Assets
Total Assets
Interest Bearing Liabilities
Savings
Time deposits
Short-term borrowings
Other borrowings
Total interest bearing liabilities
Noninterest Bearing Liabilities
Noninterest bearing deposits
Accrued interest and other liabilities
Total noninterest bearing liabilities
Stockholders' Equity
Total Liabilities and Equity
Net interest income, fully tax-
equivalent (non-GAAP)(1)
Net interest spread(1)
Net interest income, fully tax-
equivalent (non-GAAP) to total
earning assets
$ 6,135,732
799,283
6,935,015
$ 125,010 2.04 % $ 3,901,202
424,199
4,325,401
24,390 3.05
149,400 2.15
$ 98,263 2.52 % $ 2,522,365
313,197
2,835,562
15,802 3.73
114,065 2.64
$ 73,147 2.90 %
12,491 3.99
85,638 3.02
254,630
3,457
2,543,514
734,139
1,950,014
1,969,910
824,055
681,493
846,573
407,592
(125,304)
9,831,986
17,025,088
1,483,185
$ 18,508,273
$ 8,311,825
1,137,097
181,165
339,733
9,969,820
6,230,851
176,697
6,407,548
2,130,905
$ 18,508,273
344 0.14
1 0.03
225,024
107
924 0.41
— —
313,373
138
6,695 2.14
4 2.90
111,473 4.38
40,627 5.53
81,717 4.19
87,728 4.45
37,891 4.60
29,822 4.38
2,437,183
779,183
1,480,109
1,589,932
1,007,086
538,646
793,821
36,768 4.34
410,013
20,201 4.96
(104,892)
— —
446,227 4.54
8,931,081
595,972 3.50 % 13,481,613
1,300,992
$ 14,782,605
118,513 4.86
25,285 3.25
72,215 4.88
2,445,552
—
1,337,910
127,796 5.23
— —
74,853 5.59
78,178 4.92
1,173,233
46,785 4.65
25,713 4.77
947,933
563,944
862,663
38,210 4.81
429,856
22,190 5.41
(64,224)
— —
7,696,867
427,089 4.78
542,078 4.02 % 10,845,940
1,175,977
$ 12,021,917
73,067 6.23
52,668 5.56
29,625 5.25
42,876 4.97
26,036 6.06
— —
426,921 5.55
519,258 4.79 %
$
9,063 0.11 % $ 6,718,413
1,088,185
5,734 0.50
155,467
471 0.26
382,733
12,932 3.81
8,344,798
28,200 0.28 %
$ 16,560 0.25 % $ 5,530,503
1,115,785
126,337
275,982
7,048,607
13,727 1.26
610 0.39
13,986 3.65
44,883 0.54 %
$ 47,069 0.85 %
16,665 1.49
1,748 1.38
15,118 5.48
80,600 1.14 %
4,554,479
169,450
4,723,929
1,713,878
$ 14,782,605
3,384,341
115,573
3,499,914
1,473,396
$ 12,021,917
$ 567,772
$ 497,195
$ 438,658
3.22 %
3.33 %
3.48 %
3.69 %
3.65 %
4.04 %
(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.
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
59
unallocated change has been allocated pro rata to volume and rate variances.
For the Years Ended December 31,
2021 Compared to 2020
Change Due to
Rate
Net
Volume
2020 Compared to 2019
Change Due to
Rate
Net
Volume
Earning Assets/Interest Income
Investment securities:
Taxable
Nontaxable(1)
Interest bearing deposits
Federal funds sold
Loans(1)(2)
Total earning assets
Liabilities/Interest Expense
Interest bearing deposits:
Savings
Time deposits
Short-term borrowings
Other borrowings
Total interest bearing liabilities
Net interest income
$ 48,218 $ (21,471) $ 26,747 $ 35,749 $ (10,633) $ 25,116
3,311
(5,771)
(4)
168
22,820
4,181
(1,493)
(1)
63,383
101,819
(870)
(4,278)
(3)
(63,215)
(78,999)
(3,287)
(688)
1
(22,486)
(47,931)
11,875
108
—
41,624
101,825
8,588
(580)
1
19,138
53,894
3,274
591
90
(10,771)
(8,584)
(229)
(7,497)
(7,993)
(139)
8,443
(403)
333
(38,952)
(2,535)
(1,471)
(30,509)
(2,938)
(1,138)
(1,619)
2,336
(1,132)
(35,717)
$ 99,489 $ (28,912) $ 70,577 $ 88,645 $ (30,108) $ 58,537
565
(19,019)
(5,933)
(48,891)
(1,054)
(16,683)
4,801
13,174
(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
A provision for credit losses is charged to expense to provide, in HTLF management’s opinion, an appropriate allowance for
credit losses. The following table shows the components of HTLF's provision for credit losses for the years ended December
31, 2021, 2020 and 2019, in thousands:
For the Years Ended December 31,
Provision (benefit) for credit losses-loans
Provision (benefit) for credit losses-unfunded commitments(1)
Provision (benefit) for credit losses-held to maturity securities(2)
Total provision expense (benefit)
$
2021
(17,706) $
182
2020
2019
65,745 $
1,428
16,657
—
—
(51)
(107)
$
(17,575) $
67,066 $
16,657
(1) Prior to the adoption of ASU 2016-13, the provision for unfunded commitments was immaterial and therefore, prior
periods are not presented.
(2) Prior to the adoption of ASU 2016-13, there was no requirement to record provision for credit losses for held to maturity
securities.
The provision benefit for credit losses was $17.6 million during 2021 compared to expense of $67.1 million during 2020 and
$16.7 million during 2019. The provision benefit for 2021 was impacted by several factors, including:
•
•
•
•
increases in balances of loans held to maturity of $689.4 million excluding total PPP loans from year end-2020, which
included an increase of $358.3 million of government guaranteed loans for which no provision was required,
decrease in nonperforming loans of $18.2 million to $69.9 million or 0.70% of total loans compared to $88.1 million
or 0.88% of total loans at December 31, 2020,
net charge-offs of $3.8 million, and
improved macroeconomic factors compared to 2020.
Provision expense for credit losses for loans increased $49.1 million during 2020 to $65.7 million compared to $16.7 million
for the year ended December 31, 2019. The increase in 2020 was primarily attributable to a deteriorated economic outlook due
60
to the COVID-19 pandemic. The following items contributed to the remainder of the increase during 2020:
•
Provision expense of $11.6 million was recorded for one owner-occupied commercial real estate fracking sand
company that was individually assessed for allowance for credit losses.
•
Provision expense of $5.9 million was recorded for one commercial and industrial loan that was fully charged off.
• HTLF recorded $9.6 million of provision expense for non-purchased credit deteriorated ("PCD") loans acquired in the
fourth quarter.
At December 31, 2021, the allowance for credit losses for loans was 1.11% of total loans and 157.45% of nonperforming loans
compared to 1.31% of total loans and 149.37% of nonperforming loans at December 31, 2020, and 0.84% of loans and 87.28%
of nonperforming loans at December 31, 2019.
Given the size of HTLF's loan portfolio, the level of organic loan growth including government guaranteed loans, changes in
credit quality and the variability that can occur in the factors, such as economic conditions, considered when determining the
appropriateness of the allowance for credit losses, HTLF's provision for credit losses will vary from year to year. For additional
details on the specific factors considered in establishing the allowance for credit losses, refer to the discussion under the
captions "Critical Accounting Estimates," "Provision for Credit Losses" and "Allowance for Credit Losses" in Item 8 of this
Annual Report on Form 10-K, and the information in Note 1, "Basis of Presentation," and Note 6, "Allowance for Credit
Losses" to the consolidated financial statements contained herein.
HTLF believes the allowance for credit losses as of December 31, 2021, was at a level commensurate with the overall risk
exposure of the loan portfolio. However, deterioration in current economic conditions could cause certain borrowers to
experience financial difficulty. Due to the uncertainty of future economic conditions resulting from the COVID-19 pandemic
and other economic headwinds, including recent concerns over COVID-19 variants, supply chain challenges and workforce
shortages and wage pressures, the provision for credit losses could be volatile in future periods.
NONINTEREST INCOME
The table below summarizes HTLF's noninterest income for the years indicated, in thousands:
Service charges and fees
Loan servicing income
Trust fees
Brokerage and insurance commissions
Securities gains, net
Unrealized gain on equity securities, net
Net gains on sale of loans held for sale
Valuation adjustment on servicing rights
Income on bank owned life insurance
Other noninterest income
Total noninterest income
$
2021
For the Years Ended December 31,
2020
47,467 $
2,977
20,862
2,756
7,793
640
28,515
(1,778)
3,554
7,505
2019
52,157
4,843
19,399
3,786
7,659
525
15,555
(911)
3,785
9,410
$ 128,935 $ 120,291 $ 116,208
59,703 $
3,276
24,417
3,546
5,910
58
20,605
1,088
3,762
6,570
% Change
2021/2020 2020/2019
(9) %
(39)
8
(27)
2
22
83
(95)
(6)
(20)
26 %
10
17
29
(24)
(91)
(28)
161
6
(12)
7 %
4 %
Notable changes in the components of noninterest income are as follows:
61
Service Charges and Fees
The following table summarizes the changes in service charges and fees for the years ended indicated, in thousands:
Service charges and fees on deposit accounts
Overdraft fees
Customer service fees
Credit card fee income
Debit card income
Total service charges and fees
For the Years Ended December 31,
2019
2020
2021
$
16,414 $
14,441 $
11,005
220
21,623
10,441
9,166
177
16,026
7,657
$
59,703 $
47,467 $
12,790
11,543
331
15,594
11,899
52,157
% Change
2021/2020 2020/2019
13 %
(21)
14 %
20
24
35
36
26 %
(47)
3
(36)
(9) %
Total service charges and fees were $59.7 million in 2021, which was an increase of $12.2 million or 26% from $47.5 million
in 2020. Total service charges and fees in 2020 were $47.5 million, which was a decrease of $4.7 million or 9% from $52.2
million in 2019.
The changes detailed in the table above were primarily attributable to HTLF's larger customer base as a result of recent
acquisitions. Additionally, HTLF waived retail and small business service charges and fees through much of the second and
third quarters of 2020 in recognition of the impact of the COVID-19 pandemic on those customers. Credit card and debit card
transaction volumes were lower throughout the most of 2020 due to the COVID-19 pandemic.
Management does not anticipate making changes to its consumer overdraft fee structure. However, management is monitoring
and assessing the industry changes related to consumer overdraft fees, and any future changes could negatively impact overdraft
fee income.
Trust Fees
Trust fees totaled $24.4 million for the year ended December 31, 2021, an increase of $3.6 million or 17% from $20.9 million
for the year ended December 31, 2020. Trust fees increased $1.5 million or 8% to $20.9 million for the year ended December
31, 2020 from $19.4 million for the year ended December 31, 2019. The increase was primarily attributable to an increase in
the market value of trust assets under management, which were $3.79 billion, $3.42 billion and $3.03 billion at December 31,
2021, 2020, and 2019, respectively.
Loan Servicing Income
The following tables show the changes in loan servicing income for the years indicated, in thousands:
Commercial and agricultural loan servicing fees(1)
Residential mortgage servicing fees(2)
Mortgage servicing rights amortization
Total loan servicing income
For the Years Ended December 31,
2020
2021
2019
$
2,826 $
1,837
3,287 $
1,726
3,110
4,901
% Change
2021/2020 2020/2019
6 %
(14) %
6
(1,387)
(2,036)
(3,168)
$
3,276 $
2,977 $
4,843
(32)
10 %
(65)
(36)
(39) %
(1) Includes servicing fees for commercial, commercial real estate, agricultural and agricultural real estate loans and
amortization of capitalized commercial servicing rights.
(2) Mortgage loans serviced by HTLF, primarily for GSEs, totaled $723.3 million, $743.3 million and $616.7 million as of
December 31, 2021, 2020 and 2019, respectively.
Loan servicing income includes the fees collected for the servicing of commercial, agricultural, and mortgage loans, which are
dependent upon the aggregate outstanding balance of these loans, rather than quarterly production and sale of these loans. Total
loan servicing income totaled $3.3 million for 2021 compared to $3.0 million for 2020 and $4.8 million for 2019.
Included in and offsetting loan servicing income is the amortization of capitalized servicing rights, which was $1.4 million
during 2021 compared to $2.0 million during 2020 and $3.2 million during 2019. Stable residential mortgage interest rates
during 2021 caused mortgage refinancing activity to decrease during the year, which resulted in lower mortgage servicing rights
62
amortization. The decrease in mortgage loan servicing income and the amortization of servicing rights in 2020 was primarily
due to the sale of Dubuque Bank and Trust Company's mortgage servicing portfolio on April 30, 2019.
Note 8, "Goodwill, Core Deposit Intangibles and Other Intangible Assets," to the consolidated financial statements contains a
discussion of our servicing rights.
Net Gains on Sale of Loans Held for Sale
Net gains on sale of loans held for sale totaled $20.6 million during 2021 compared to $28.5 million during 2020 and $15.6
million during 2019. These gains result primarily from the gain or loss on sales of mortgage loans into the secondary market,
related fees and fair value marks on the associated derivatives. Loans sold to investors in 2021 totaled $466.1 million compared
to $621.5 million during 2020, which was a decrease of $155.4 million or 25%. The decrease in 2021 was primarily attributable
to stable residential mortgage interest rates which caused mortgage refinancing activity to decrease. The increase during 2020
was primarily due to an increase in residential mortgage loan refinancing activity in response to declines in mortgage interest
rates.
Valuation Adjustment on Servicing Rights
The valuation adjustment on servicing rights decreased $1.1 million for the year ending December 31, 2021, compared to
increasing $1.8 million for the year ended December 31, 2020, which was a change of $2.9 million or 161%, and the valuation
adjustment increased $867,000 to $1.8 million for the year ended December 31, 2020 from $911,000 for the year ended
December 31, 2019. The change for the year ended December 31, 2021 was primarily due to increases in residential mortgage
interest rates during 2021 compared to declines in residential mortgage interest rates during 2020.
NONINTEREST EXPENSES
The following table summarizes HTLF's noninterest expenses for the years indicated, in thousands:
Salaries and employee benefits
Occupancy
Furniture and equipment
Professional fees
Advertising
Core deposit intangibles and customer relationship
intangibles amortization
Other real estate and loan collection expenses
(Gain)/loss on sales/valuations of assets, net
Acquisition, integration and restructuring costs
Partnership investment in tax credit projects
Other noninterest expenses
For the Years Ended December 31,
2020
$ 240,114 $ 202,668 $ 200,341
2021
2019
29,965
13,323
64,600
7,257
26,554
12,514
54,068
5,235
9,395
10,670
990
588
5,331
6,303
53,946
1,340
5,101
5,381
3,801
43,631
25,429
12,013
47,697
9,825
11,972
1,035
(19,422)
6,580
8,030
45,661
Total noninterest expenses
$ 431,812 $ 370,963 $ 349,161
Notable changes in the components of noninterest expenses are as follows:
% Change
2021/2020 2020/2019
1 %
4
18 %
13
6
19
39
(12)
(26)
88
(1)
4
13
(47)
(11)
29
(126)
(18)
66
24
16 %
(53)
(4)
6 %
Salaries and Employee Benefits
The largest component of noninterest expense, salaries and employee benefits, increased $37.4 million or 18% to $240.1
million in 2021 and $2.3 million or 1% to $202.7 million in 2020. Full-time equivalent employees totaled 2,249 on
December 31, 2021, compared to 2,013 on December 31, 2020, and 1,908 on December 31, 2019.
The increase in salaries and employee benefits during 2021 was primarily attributable to higher salaries expense, normalized
health care usage, and an increase in full-time equivalent employees, which included the addition of specialized commercial and
agribusiness lending teams. The increase in full-time equivalent employees as of December 31, 2020 was primarily due to the
acquisitions completed in the fourth quarter of 2020.
63
Professional Fees
Professional fees increased $10.5 million or 19% to $64.6 million during 2021 and $6.4 million or 13% to $54.1 million during
2020. The increase in 2021 was primarily attributable to technology and automation projects completed during the year and the
acquisitions completed in the fourth quarter of 2020. Included in professional fees for 2020 was $5.7 million of FDIC insurance
assessments compared to $860,000 in 2019. The increase for 2020 was due to the expiration of small bank credits, which were
applied to FDIC assessments for the year ended December 31, 2019.
Advertising
Advertising expense increased $2.0 million or 39% to $7.3 million during 2021, which was primarily attributable to the
resumption of in-person customer events. Advertising expense decreased $4.6 million or 47% to $5.2 million during 2020. The
decrease for the year ended December 31, 2020 was primarily attributable to a reduction of in-person customer events and an
overall managed reduction in marketing spend in response to operational environment changes caused by the COVID-19
pandemic.
Core Deposit Intangibles and Customer Relationship Intangibles Amortization
Core deposit intangibles and customer relationship intangibles amortization totaled $9.4 million during 2021 compared to
$10.7 million during 2020 and $12.0 million during 2019, which was a decrease of $1.3 million or 12% and a decrease of $1.3
million or 11%. The changes for the years ended December 31, 2021 and 2020 were attributable to recent acquisitions.
Net Gains/Losses on Sales/Valuations of Assets
Net losses on sales/valuations of assets totaled $588,000 during 2021 compared to $5.1 million during 2020 and net gains of
$19.4 million during 2019. During the fourth quarter of 2021, HTLF recorded $424,000 of fixed asset write-downs related to
twelve properties, which included seven bank branches and five operation centers, listed as held for sale at the end of 2021.
During the second half of 2020, HTLF recorded $3.5 million of fixed asset write-downs related to eight branch consolidations.
Partnership Investment in Tax Credit Projects
Partnership investment in tax credit projects totaled $6.3 million, $3.8 million and $8.0 million for the years ended December
31, 2021, 2020 and 2019, respectively. The expense is dependent upon the number of tax credit projects placed in service
during the year.
Excluding the items noted above, increases in all other noninterest expense categories for the years ended December 31, 2021,
and 2020, were primarily attributable to recent acquisitions.
EFFICIENCY RATIO
One of HTLF's top priorities has been to improve its efficiency ratio, on a fully tax-equivalent basis (non-GAAP), with the goal
of reducing it to below 57%. The efficiency ratio, fully tax-equivalent (non-GAAP), was 59.48% for 2021 compared to 56.65%
for 2020 and 62.50% for 2019.
HTLF continues to explore strategies to improve operational efficiency, which include the following items:
• The consolidation of its eleven bank charters. Two key tenets of the charter consolidation project are the retention of
brand identities and local market decision-making and management and the maintenance of operational and
administrative functions in Dubuque, Iowa. The ongoing financial benefits from consolidation are expected to be
approximately $20.0 million annually when the project is completed and are expected to arise from the elimination of
redundancies and improved operating processes. The consolidation will also increase operating capacity to be
leveraged with future growth and provide better alignment of our products and services. The charter consolidation is
expected to be complete by the end of 2023.
• A reduction in HTLF's branch network by approximately 10% is expected through its branch optimization strategy.
In spite of cost savings initiatives, management believes the efficiency ratio could remain elevated due to the continued low
interest rate environment, wage pressure and workforce shortages, supply chain disruptions and inflation.
See "Financial Highlights" in Item 7 of this Annual Report on Form 10-K for a description of the calculation of the efficiency
ratio on a fully tax-equivalent basis, which is a non-GAAP financial measure.
64
INCOME TAXES
HTLF's effective tax rate was 20.1% for 2021 compared to 20.7% for 2020 and 19.0% for 2019. The following items impacted
HTLF's 2021, 2020 and 2019 tax calculations:
Solar energy tax credits of $6.1 million, $2.3 million and $4.0 million.
Federal low-income housing tax credits of $540,000, $780,000 and $1.1 million.
•
•
• Historic rehabilitation tax credits of $720,000, $1.1 million and $1.8 million.
• New markets tax credits of $300,000, $300,000 and $0.
• Tax-exempt interest income as a percentage of pre-tax income of 9.9%, 11.8% and 10.1%.
• The tax-equivalent adjustment for this tax-exempt interest income was $7.2 million, $5.5 million and $4.9 million.
• Tax benefits of $491,000, $617,000 and $1.9 million related to the release of valuation allowances on deferred tax
assets.
FINANCIAL CONDITION
HTLF's total assets were $19.27 billion at December 31, 2021, an increase of $1.37 billion or 8% since December 31, 2020.
HTLF's total assets were $17.91 billion at December 31, 2020, an increase of $4.70 billion or 36% compared to $13.21 billion
at December 31, 2019. Included in the increase for 2020 were $1.97 billion of assets acquired at fair value in the AimBank
transaction and $419.7 million of assets acquired at fair value in the Johnson Bank branch transaction.
LENDING ACTIVITIES
HTLF's board of directors establishes an acceptable level of credit risk appetite, and the subsidiary banks have certain lending
policies and procedures in place that are designed to provide for an acceptable level of credit risk. 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 and 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.
In 2021, HTLF originated $473.9 million of PPP loans ("PPP II"). HTLF originated $1.20 billion of PPP loans ("PPP I") during
2020, and HTLF acquired $53.1 million of PPP loans in the AimBank transaction. At December 31, 2021, HTLF had $27.1
million of PPP I loans outstanding, which was net of $118,000 of unamortized deferred fees, and $172.8 million of PPP II loans
outstanding, which was net of $6.4 million of unamortized deferred fees. Under the CARES Act, all PPP 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 that HTLF
requires 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.
65
Agricultural and agricultural real estate loans, many of which are secured by crops, machinery and real estate, are provided to
finance capital improvements and farm operations as well as acquisitions of livestock and machinery. Agricultural and
agricultural real estate loans present unique credit risks relating to adverse weather conditions, loss of livestock due to disease
or other reasons, declines in market prices for agricultural products and the impact of government regulations. The ultimate
repayment of agricultural and agricultural real estate loans is dependent upon the profitable operation or management of the
agricultural entity. Loans secured by farm equipment, livestock or crops may not provide an adequate source of repayment
because of damage or depreciation. In underwriting agricultural and agricultural real estate loans, lending personnel work
closely with their customers to review budgets and cash flow projections for crop production for the ensuing year. These
budgets and cash flow projections are monitored closely during the year and reviewed with the customers at least annually.
Lending personnel work closely with governmental agencies, including the U.S. Small Business Administration 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.
Lenders at each subsidiary bank are complimented by HTLF Specialized Industries, a centralized team of middle-market
lenders focused on specific industries and more complex loan structures. The expertise of this team includes the commercial
real estate, healthcare, and food and agribusiness industries, as well as syndications and franchise finance.
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 Bank Markets. First
Bank & Trust services the conventional loans it sells into the secondary market.
Consumer lending includes motor vehicle, home improvement, home equity and small personal credit lines. Consumer loans
typically have shorter terms, lower balances, higher yields and higher risks of default than one-to-four-family residential
mortgage loans. Consumer loan collections are dependent on the borrower's continuing financial stability and are therefore
more likely to be affected by adverse personal circumstances. Risk is reduced through underwriting criteria, which include
credit verification, appraisals, a review of the borrower's financial condition, and personal cash flows. A security interest, with
title insurance when necessary, is taken in the underlying real estate.
At December 31, 2021, $212.6 million or 51% of the consumer loan portfolio were in home equity lines of credit ("HELOCs")
compared to $234.4 million or 57% at December 31, 2020. Under our policy guidelines for the underwriting of these lines of
credit, the customer may generally receive advances of up to 80% of the value of the property.
The Banks have not been active in the origination of subprime loans. Consistent with our community banking model, which
includes meeting the legitimate credit needs within the communities served, the Banks may make loans to borrowers possessing
subprime characteristics if there are mitigating factors present that reduce the potential default risk of the loan.
66
HTLF’s major source of income is interest on loans. The table below presents the composition of HTLF’s loan portfolio at the
end of the years indicated, in thousands:
2021
As of December 31,
2020
2019
Amount
%
Amount
%
Amount
%
Loans receivable held to maturity:
Commercial and industrial
Paycheck Protection Program ("PPP")
Owner occupied commercial real estate
Non-owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
Total loans receivable held to maturity
Allowance for credit losses
Loans receivable, net
26.57 % $ 2,534,799
957,785
2.01
25.29 % $ 2,530,809
—
9.56
30.24 %
—
$ 2,645,085
199,883
2,240,334
2,010,591
856,119
753,753
829,283
419,524
22.51
20.20
8.60
7.57
8.33
4.21
1,776,406
1,921,481
17.72
19.17
863,220
714,526
840,442
414,392
8.61
7.13
8.39
4.13
9,954,572 100.00 % 10,023,051 100.00 %
(110,088)
(131,606)
$ 9,844,484
$ 9,891,445
1,472,704
1,495,877
1,027,081
565,837
832,277
443,332
17.60
17.88
12.27
6.76
9.95
5.30
8,367,917 100.00 %
(70,395)
$ 8,297,522
Loans held for sale totaled $21.6 million at December 31, 2021, and $57.9 million at December 31, 2020, which were primarily
residential mortgage loans.
The table below sets forth the remaining maturities of loans held to maturity by category as of December 31, 2021, in
thousands. Maturities are based upon contractual dates.
Over 1 Year
Through 5 Years
Over 5 Years Through 15
Years
Over 15 Years
One Year
or Less
Fixed
Rate
Floating
Rate
Fixed
Rate
Floating
Rate
Fixed
Rate
Floating
Rate
Total
$
866,630 $
554,904 $
489,022 $
397,724 $
202,267 $
105,541 $
28,997 $
2,645,085
199,883
—
—
—
—
199,883
298,073
564,587
299,473
451,667
377,021
70,746
178,767
2,240,334
316,697
616,856
414,998
261,683
341,720
8,829
49,808
2,010,591
307,750
211,028
169,468
73,024
91,534
—
3,315
856,119
298,356
102,148
45,028
174,915
181,573
97,785
106,213
64,914
240,824
81,550
232,911
33,238
53,674
112,679
1,795
25,193
45,629
663
13,852
89,429
191
753,753
829,283
419,524
$
2,434,565 $
2,401,648 $ 1,784,912 $ 1,531,797 $ 1,180,690 $
256,601 $
364,359 $
9,954,572
Commercial and
industrial
PPP
Owner occupied
commercial real estate
Non-owner occupied
commercial real estate
Real estate
construction
Agricultural and
agricultural real estate
Residential real estate
Consumer
Total
Total loans
Total loans held to maturity were $9.95 billion at December 31, 2021, compared to $10.02 billion at year-end 2020, a decrease
of $68.5 million or 1%. Excluding changes in total PPP loans, loans increased $689.4 million or 8% since year end 2020.
Total loans held to maturity were $10.02 billion at December 31, 2020, compared to $8.37 billion at year-end 2019, an increase
of $1.66 billion or 20%. This change includes $1.24 billion of total loans held to maturity acquired at fair value in the fourth
quarter in the AimBank and Johnson Bank branch transactions, which included $53.1 million of PPP loans. Excluding the loans
acquired in the AimBank and Johnson Bank branch transactions and legacy PPP loans of $904.7 million, total loans held to
maturity organically decreased $487.3 million or 6% since December 31, 2019.
67
The table below shows the changes in loan balances by loan category for the years indicated, in thousands:
Commercial and industrial
$ 2,645,085 $ 2,534,799 $ 2,530,809
4 %
— %
As of December 31,
% Change
2021
2020
2019
2021/2020 2020/2019
PPP
199,883
957,785
—
(79)
Owner occupied commercial real estate
2,240,334
1,776,406
1,472,704
Non-owner occupied commercial real estate
2,010,591
1,921,481
1,495,877
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
Total
856,119
753,753
829,283
419,524
863,220
1,027,081
714,526
840,442
414,392
565,837
832,277
443,332
$ 9,954,572 $ 10,023,051 $ 8,367,917
(1) %
20 %
26
5
(1)
5
(1)
1
100
21
28
(16)
26
1
(7)
Commercial and industrial loans
Commercial and industrial loans totaled $2.65 billion at December 31, 2021, compared to $2.53 billion at both December 31,
2020 and December 31, 2019. Changes to commercial and industrial loans for the years ended December 31, 2021 and 2020
were:
• Commercial and industrial loans increased $110.3 million or 4% since December 31, 2020, and included an increase of
$25.8 million of government guaranteed loans.
• During the year ended December 31, 2020, commercial and industrial loans increased $4.0 million or less than 1%.
• Excluding $186.8 million of loans acquired in the AimBank and Johnson Bank branch transactions, loans organically
decreased $182.8 million or 7% during the year ended December 31, 2020.
PPP loans
At December 31, 2021, HTLF had $27.1 million of PPP I loans outstanding, which was net of $118,000 of unamortized
deferred fees, and $172.8 million of PPP II loans outstanding, which was net of $6.4 million of unamortized deferred fees. As
of December 31, 2021, approximately 98% of PPP I loans had been forgiven, and approximately 63% of PPP II loans had been
forgiven.
At December 31, 2020, HTLF had $957.8 million of PPP I loans outstanding, which was net of $19.3 million of unamortized
deferred fees, and included $53.1 million of loans acquired in the AimBank transaction.
Owner occupied commercial real estate loans
Owner occupied commercial real estate loans totaled $2.24 billion at December 31, 2021, compared to $1.78 billion at year-end
2020 and $1.47 billion at year-end 2019. Changes to owner occupied real estate loans for the years ended December 31, 2021
and 2020 were:
• Owner occupied commercial real estate loans increased $463.9 million or 26% during 2021, and included an increase
of $249.7 million of government guaranteed loans.
• During the year ended December 31, 2020, owner occupied commercial real estate loans increased $303.7 million or
21%.
• Excluding $182.1 million of loans acquired in the AimBank and Johnson Bank branch transactions, loans organically
increased $121.6 million or 8% during the year ended December 31, 2020.
Non-owner occupied commercial real estate loans
Non-owner occupied commercial real estate loans totaled $2.01 billion at December 31, 2021, compared to $1.92 billion at
year-end 2020 and $1.50 billion at year-end 2019. Changes to non-owner occupied commercial real estate loans for the years
ended December 31, 2021 and 2020 were:
• Non-owner occupied commercial loans increased $89.1 million or 5% during the year ended December 31, 2021, and
included an increase of $46.2 million of government guaranteed loans.
• During the year ended December 31, 2020, non-owner occupied commercial real estate loans increased $425.6 million
or 28%.
• Excluding $218.7 million of loans acquired in the AimBank and Johnson Bank branch transactions, loans organically
increased $206.9 million or 14% during the year ended December 31, 2020.
68
Real estate construction loans
Real estate construction loans totaled $856.1 million at December 31, 2021, compared to $863.2 million at year-end 2020 and
$1.03 billion at year-end 2019. Changes to real estate construction loans for the years ended December 31, 2021 and 2020 were:
• Real estate construction loans decreased $7.1 million or 1% during the year ended December 31, 2021.
• During the year ended December 31, 2020, real estate construction loans decreased $163.9 million or 16%.
• Excluding $100.9 million of loans acquired in the AimBank and Johnson Bank branch transactions, loans organically
decreased $264.8 million or 26% since December 31, 2019.
Agricultural and agricultural real estate loans
Agricultural and agricultural real estate loans totaled $753.8 million at December 31, 2021, compared to $714.5 million at year-
end 2020 and $565.8 million at year-end 2019. Changes to agricultural and agricultural real estate loans for the years ended
December 31, 2021 and 2020 were:
• Agricultural and agricultural real estate loans increased $39.2 million or 5% since December 31, 2020, and included an
increase of $36.7 million of government guaranteed loans.
• During the year ended December 31, 2020, agricultural and agricultural real estate loans increased $148.7 million or
26%.
• Excluding $247.5 million of loans acquired in the AimBank transaction, loans organically decreased $98.8 million or
17% since December 31, 2019.
Residential real estate loans
Residential real estate loans totaled $829.3 million at December 31, 2021, compared to $840.4 million at December 31, 2020,
and $832.3 million at December 31, 2019. Changes to residential real estate loans for the years ended December 31, 2021 and
2020 were:
• Residential real estate loans decreased $11.2 million or 1% during the year end December 31, 2021.
• Residential real estate loans increased $8.2 million or 1% during the year ended December 31, 2020.
• Excluding $197.3 million of loans acquired in the AimBank and Johnson Bank branch transactions, loans organically
decreased $189.2 million or 23% since December 31, 2019.
Consumer loans
Consumer loans totaled $419.5 million at December 31, 2021, compared to $414.4 million at year-end 2020 and $443.3 million
at year-end 2019. Changes to consumer loans for the years ended December 31, 2021 and 2020 were:
For the year ended December 31, 2021, consumer loans increased $5.1 million or 1%.
•
•
• Excluding $51.4 million of loans acquired in the AimBank and Johnson Bank branch transactions, loans organically
For the year ended December 31, 2020, consumer loans decreased $28.9 million or 7%.
decreased $80.3 million or 18% since December 31, 2019.
Although repayment risk exists on all loans, different factors influence repayment risk for each type of loan. The primary risks
associated with commercial, commercial real estate and agricultural loans are the quality of the borrower’s management and the
health of national and regional economies. Additionally, repayment of commercial real estate, real estate construction and
agricultural real estate loans may be influenced by fluctuating property values and concentrations of loans in a specific type of
real estate. Repayment on loans to individuals, including those secured by residential real estate, are dependent on the
borrower’s continuing financial stability as well as the value of the collateral underlying these credits, and thus are more likely
to be affected by adverse personal circumstances and deteriorating economic conditions. These risks are described in more
detail in Item 1A. "Risk Factors" of this Annual Report on Form 10-K. We monitor loan concentrations and do not believe we
have excessive concentrations in any specific industry.
Our strategy with respect to the management of these types of risks, whether loan demand is weak or strong, is to encourage the
Banks to follow tested and prudent loan policies and underwriting practices, which include: (i) making loans on a sound and
collectible basis; (ii) verifying that primary and secondary sources of repayment are adequate in relation to the amount of the
loan; (iii) administering loan policies through a board of directors; (iv) developing and maintaining adequate diversification of
the loan portfolio as a whole and of the loans within each loan category; and (v) appropriately documenting each loan and
augmenting government guaranteed lending programs and adequate insurance.
We regularly monitor and continue to develop systems to oversee the quality of our loan portfolio. Under our internal loan
review program, loan review officers are responsible for reviewing existing loans, testing loan ratings assigned by loan officers,
69
identifying potential problem loans and monitoring the adequacy of the allowance for credit losses at the Banks. An integral
part of our loan review program is a loan rating system, under which a rating is assigned to each loan within the portfolio based
on the borrower’s financial position, repayment ability, collateral position and repayment history.
While HTLF has seen overall improvement in customers' financial position since the onset of the COVID-19 pandemic, further
economic disruption resulting from COVID-19 and its variants and the cessation of government support programs could make
it difficult for some customers to repay the principal and interest on their loans.
ALLOWANCE FOR CREDIT LOSSES
The process utilized by HTLF to determine the appropriateness of the allowance for credit losses is considered a critical
accounting practice for HTLF and has been updated to be in accordance with CECL as of January 1, 2020. All prior periods are
presented in accordance with prior GAAP. 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 this Annual Report on Form 10-K for the year ended December 31,
2021 and Note 1, "Basis of Presentation," of the consolidated financial statements included in this Annual Report on Form 10-
K.
Total Allowance for Lending Related Credit Losses
The following table shows, in thousands, the components of HTLF's total allowance for lending related credit losses, which
includes the allowance for credit losses for loans and the allowance for unfunded commitments, as of the dates indicated:
December 31, 2021
Amount % of Allowance
December 31, 2020
Amount % of Allowance
January 1, 2020
Amount
% of Allowance
Quantitative
Qualitative
Economic forecast
Total
$
88,635
25,445
11,470
70.59 % $
20.27
9.14
102,398
29,101
15,387
$ 125,550
100.00 % $
146,886
69.71 % $
19.81
10.48
100.00 % $
82,829
11,468
2,021
96,318
85.99 %
11.91
2.10
100.00 %
Quantitative Allowance
The quantitative allowance of HTLF's total allowance for lending related credit losses totaled $88.6 million at December 31,
2021, which was a decrease of $13.8 million or 13% from $102.4 million at December 31, 2020. The following items impacted
the quantitative allowance at December 31, 2021:
• Nonpass loans totaled $741.3 million at December 31, 2021, which was a decrease of $341.4 million or 32% from
$1.08 billion at December 31, 2020.
• Government guaranteed loans, for which no provision is required, increased $358.3 million during 2021.
•
Specific reserves for individually assessed loans totaled $7.6 million, which was a decrease of $1.8 million or 19%
from $9.4 million at December 31, 2020.
The following items impacted the quantitative allowance at December 31, 2020:
• The quantitative allowance increased $17.5 million for loans acquired in the AimBank and Johnson Bank branch
transactions in the fourth quarter of 2020.
Specific reserves for individually assessed loans totaled $9.4 million.
•
Qualitative Allowance
The qualitative allowance of HTLF's total allowance decreased $3.7 million or 13% to $25.4 million at December 31, 2021,
compared to $29.1 million at December 31, 2020. Management assesses several risk factors in the qualitative calculation, and in
making its assessment for December 31, 2021, decreased the level of qualitative adjustment based on improving market
conditions and credit quality trends.
At the end of the first quarter of 2020, in making its assessment, management increased the level of other external factors risk
from the initial day 1 (January 1, 2020) assessment of moderate to high, which remained high at December 31, 2020. This level
reflected the uncertainty of both the economic forecasting and quantitative allowance component results given the high level of
market and economic volatility that existed due to the COVID-19 pandemic. While several of the qualitative factors increased,
70
the change in the other external factors was the primary driver of the overall increase in the qualitative allowance for the year
ended December 31, 2020.
Economic Forecasting
The economic forecast allowance was $11.5 million at December 31, 2021, which was a decrease of $3.9 million or 25% from
$15.4 million at December 31, 2020. HTLF has access to various third-party economic forecast scenarios provided by Moody's,
which are updated quarterly in HTLF's methodology. At December 31, 2021, Moody's December 6, 2021 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 the December 31, 2021 calculation, the economic outlook factors used to develop the allowance retained a measured level
of caution and uncertainty that management deemed appropriate for lingering economic headwinds, such as COVID-19
variants, supply chain challenges, and workforce shortages and wage pressures, that are yet to be resolved.
At December 31, 2020, HTLF utilized Moody's December 7, 2020, baseline forecast scenario, which included implications of
COVID-19, and HTLF used a one year reasonable and supportable forecast period.
Allowance for Credit Losses-Loans
The table below presents the changes in the allowance for credit losses for loans for the years ended December 31, 2021 and
2020, in thousands:
For the Year Ended December 31,
2021
2020
Balance at beginning of period
Impact of ASU 2016-13 adoption on January 1, 2020
Adjusted balance January 1, 2020
Allowance for purchased credit deteriorated loans
Provision (benefit) for credit losses
Recoveries on loans previously charged off
Charge-offs on loans
Balance at end of period
$
131,606
$
—
131,606
—
(17,706)
4,931
(8,743)
110,088
$
70,395
12,071
82,466
12,313
65,745
3,804
(32,722)
131,606
$
Allowance for credit losses for loans as a percent of loans
Allowance for credit losses for loans as a percentage of nonaccrual loans
Allowance for credit losses for loans a percentage of non-performing loans
1.11 %
1.31 %
158.70
157.45
150.60
149.37
The allowance for credit losses for loans totaled $110.1 million and $131.6 million at December 31, 2021, and December 31,
2020, respectively. The allowance for credit losses for loans at December 31, 2021, was 1.11% of loans compared to 1.31% of
loans at December 31, 2020. The following items impacted HTLF's allowance for credit losses for loans for the year ended
December 31, 2021:
•
Provision benefit totaled $17.7 million, which was primarily attributable to improved macroeconomic factors
compared to 2020.
• Net charge offs totaled $3.8 million or 0.04% of average loans outstanding.
• Nonpass loans totaled $741.3 million at December 31, 2021, which was a decrease of $341.4 million or 32% from
$1.08 billion at December 31, 2020.
• Government guaranteed loans, for which no provision is required, increased $358.3 million during 2021.
The following items impacted HTLF's allowance for credit losses for loans for the year ended December 31, 2020:
• The allowance for credit losses for loans increased $12.1 million after the adoption of CECL on January 1, 2020.
•
Provision expense totaled $65.7 million, which included $9.6 million of provision expense for loans acquired in the
fourth quarter of 2020.
• Net charge offs totaled $28.9 million or 0.32% of average loans outstanding, which included $13.9 million of charge
offs related to three individually assessed loans with principal balances of $17.1 million.
71
The table below summarizes activity in the allowance for credit losses for loans for the years indicated, including amounts of
loans charged off, amounts of recoveries and additions to the allowance charged to income. the ratio of net charge-offs to
average loans outstanding, in thousands:
Balance at beginning of year
Impact of ASU 2016-13 adoption on January 1, 2020
Adjusted balance
Allowance for purchased credit deteriorated loans
Charge-offs:
Commercial and industrial
PPP
Owner occupied commercial real estate
Non-owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
Total charge-offs
Recoveries:
Commercial and industrial
PPP
Owner occupied commercial real estate
Non-owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
Total recoveries
Net charge-offs(1)
Provision (benefit) for credit losses
Balance at end of year
Net charge-offs to average loans
As of December 31,
2020
$ 70,395
2019
$ 61,963
2021
$ 131,606
—
131,606
—
12,071
82,466
12,313
—
61,963
—
2,150
14,974
7,129
—
296
1,637
10
1,902
181
2,567
8,743
—
13,671
45
105
1,201
515
2,211
—
119
21
156
2,633
458
3,074
32,722
13,590
3,058
1,277
2,462
—
152
33
10
531
13
1,134
4,931
3,812
(17,706)
—
205
30
220
971
108
993
3,804
28,918
65,745
—
178
201
255
529
139
1,601
5,365
8,225
16,657
$ 110,088
$ 131,606
$ 70,395
0.04 %
0.32 %
0.11 %
(1) Includes net charge-offs (recoveries) at Citizens Finance Parent Co. of $(631) for 2019.
72
The following table shows the ratio of net charge offs (recoveries) to average loans outstanding, which include nonaccrual loans
and loans held for sale, by loan type for the years indicated, dollars in thousands:
Commercial and industrial
Net charge offs (recoveries)
Average loans
For the Years Ended December 31,
2021
2020
2019
$
(908)
$
13,697
$
4,667
2,543,514
2,437,183
2,445,552
Net charge offs (recoveries) to average loans
(0.04) %
0.56 %
0.19 %
PPP
Net charge offs (recoveries)
Average loans
Net charge offs (recoveries) to average loans
Owner occupied commercial real estate
Net charge offs (recoveries)
Average loans
Net charge offs (recoveries) to average loans
Non-owner occupied commercial real estate
Net charge offs (recoveries)
Average loans
Net charge offs (recoveries) to average loans
Real estate construction
Net charge offs (recoveries)
Average loans
Net charge offs (recoveries) to average loans
Agricultural and agricultural real estate
Net charge offs (recoveries)
Average loans
$
—
$
—
734,139
779,183
—
—
N/A
N/A
N/A
$
144
$
13,466
$
(59)
1,950,014
1,480,109
1,337,910
0.01 %
0.91 %
— %
$
1,604
$
15
$
(180)
1,969,910
1,589,932
1,173,233
0.08 %
— %
(0.02) %
$
—
$
(115)
$
(99)
824,055
1,007,086
947,933
— %
(0.01) %
(0.01) %
$
1,371
$
230
$
2,104
681,493
538,646
563,944
Net charge offs (recoveries) to average loans
0.20 %
0.04 %
0.37 %
Residential real estate
Net charge offs (recoveries)
Average loans
$
168
$
407
$
319
846,573
793,821
862,663
Net charge offs (recoveries) to average loans
0.02 %
0.05 %
0.04 %
Consumer
Net charge offs (recoveries)(1)
Average loans
$
1,433
$
1,218
$
1,473
407,592
410,013
429,856
Net charge offs (recoveries) to average loans
0.35 %
0.30 %
0.34 %
(1) Includes net charge-offs (recoveries) at Citizens Finance Parent Co. of $(631) for 2019.
73
The table below shows our allocation of the allowance for credit losses for loans by types of loans, in thousands:
2021
As of December 31,
2020
2019
Commercial and industrial
PPP
Owner occupied commercial real estate
Non-owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
Total allowance for credit losses for loans
—
19,214
17,908
22,538
5,213
8,427
9,050
$ 110,088
Loan
Category to
Gross Loans
Loan
Category to
Gross Loans
Amount Receivable Amount Receivable Amount Receivable
$ 27,738
Loan
Category to
Gross Loans
26.57 % $ 38,818
—
2.01
25.29 % $ 34,207
—
9.56
30.24 %
—
22.51
20.20
8.60
7.57
8.33
20,001
20,873
20,080
7,129
11,935
17.72
19.17
8.61
7.13
8.39
7,921
7,584
8,677
5,680
1,504
17.60
17.88
12.27
6.76
9.95
4.21
12,770
100.00 % $ 131,606
4.13
4,822
100.00 % $ 70,395
5.30
100.00 %
Management allocates the allowance for credit losses for loans by pools of risk within each loan portfolio. The allocation of the
allowance for credit losses by loan portfolio is made for analytical purposes and is not necessarily indicative of the trend of
future loan losses in any particular category. The total allowance for credit losses is available to absorb losses from any segment
of the loan portfolio.
Allowance for Unfunded Commitments
The following table shows, in thousands, the changes in HTLF's allowance for unfunded commitments for the years ended
December 31, 2021 and December 31, 2020:
Balance at beginning of year
Impact of ASU 2016-13 adoption on January 1, 2020
Adjusted balance at January 1, 2020
Provision (benefit) for credit losses
Balance at end of year
For the Year Ended December 31,
2021
2020
$
$
15,280 $
—
15,280
182
15,462 $
248
13,604
13,852
1,428
15,280
The allowance for unfunded commitments totaled $15.5 million as of December 31, 2021, compared to $15.3 million as of
December 31, 2020. Unfunded commitments totaled $3.83 billion at December 31, 2021, and $3.26 billion at December 31,
2020.
HTLF's allowance for unfunded commitments totaled $13.9 million after the adoption of CECL on January 1, 2020. HTLF
recorded a benefit to provision for credit losses for unfunded commitments of $894,000 during 2020, and $2.3 million of
provision for credit losses related to unfunded loan commitments related to the acquisitions completed in the fourth quarter of
2020.
CREDIT QUALITY AND NONPERFORMING ASSETS
HTLF's 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 5, "Loans" of HTLF’s consolidated financial statements in this Annual
Report on Form 10-K.
74
HTLF's nonpass loans totaled $741.3 million or 7.4% of total loans as of December 31, 2021 compared to $1.08 billion or
10.8% of total loans as of December 31, 2020. As of December 31, 2021, HTLF's nonpass loans consisted of approximately
50% watch loans and 50% substandard loans. The percent of nonpass loans on nonaccrual status as of December 31, 2021 was
9%. Included in HTLF's nonpass loans at December 31, 2021 were $27.8 million of nonpass PPP loans as a result of risk ratings
on 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% SBA guarantee.
As of December 31, 2020, HTLF's nonpass loans were comprised of approximately 56% watch loans and 44% substandard
loans. The percent of nonpass loans on nonaccrual status as of December 31, 2020, was 8%.
Loans delinquent 30 to 89 days as a percent of total loans were 0.07% at December 31, 2021 compared to 0.23% at
December 31, 2020.
The table below presents the amounts of nonperforming loans and other nonperforming assets on the dates indicated, in
thousands:
Nonaccrual loans
Loans contractually past due 90 days or more
Total nonperforming loans
Other real estate
Other repossessed assets
Total nonperforming assets
Restructured loans(1)
As of December 31,
2020
$ 87,386
2019
$ 76,548
2021
$ 69,369
550
69,919
1,927
43
720
88,106
6,624
240
4,105
80,653
6,914
11
$ 71,889
$ 94,970
$ 87,578
$
817
$ 2,370
$ 3,794
Nonaccrual loans to total loans receivable
Nonperforming loans to total loans receivable
Nonperforming assets to total loans receivable plus repossessed property
Nonperforming assets to total assets
0.70 %
0.70
0.72
0.37
0.87 %
0.88
0.95
0.53
0.91 %
0.96
1.05
0.66
(1) Represents accruing restructured loans performing according to their restructured terms.
The performing troubled debt restructured loans above do not include any loan modifications initially made under COVID-19
modification programs.
75
The tables below summarize the changes in HTLF's nonperforming assets, including other real estate owned ("OREO") during
2021 and 2020, in thousands:
Nonperforming
Loans
Other
Real Estate
Owned
Other
Repossessed
Assets
Total
Nonperforming
Assets
December 31, 2020
Loan foreclosures
Net loan charge offs
New nonperforming loans
Reduction of nonperforming loans(1)
OREO/Repossessed sales proceeds
OREO/Repossessed assets gains/(write-downs), net
December 31, 2021
$
88,106 $
6,624 $
240 $
(3,252)
(3,812)
35,719
(46,842)
—
—
2,807
—
—
—
(7,749)
245
445
—
—
—
(589)
(53)
$
69,919 $
1,927 $
43 $
94,970
—
(3,812)
35,719
(46,842)
(8,338)
192
71,889
(1) Includes principal reductions and transfers to performing status.
Nonperforming
Loans
Other
Real Estate
Owned
Other
Repossessed
Assets
Total
Nonperforming
Assets
December 31, 2019
Loan foreclosures
Net loan charge offs
New nonperforming loans
Acquired nonperforming assets
Reduction of nonperforming loans(1)
OREO/Repossessed sales proceeds
OREO/Repossessed assets gains/(write-downs), net
December 31, 2020
$
80,653 $
6,914 $
11 $
(3,789)
(28,918)
63,151
11,662
(34,653)
—
—
3,511
—
—
1,119
—
(3,876)
(1,044)
278
—
—
—
—
(37)
(12)
$
88,106 $
6,624 $
240 $
87,578
—
(28,918)
63,151
12,781
(34,653)
(3,913)
(1,056)
94,970
(1) Includes principal reductions and transfers to performing status.
Nonperforming loans were $69.9 million or 0.70% of total loans at December 31, 2021, compared to $88.1 million or 0.88% of
total loans at December 31, 2020.
Approximately 58%, or $40.8 million, of HTLF's nonperforming loans at December 31, 2021, had individual loan balances
exceeding $1.0 million, the largest of which was $7.6 million. At December 31, 2020, approximately 54%, or $47.4 million, of
HTLF's nonperforming loans had individual loan balances exceeding $1.0 million, the largest of which was $7.3 million. The
portion of HTLF's nonresidential real estate nonperforming loans covered by government guarantees was $14.5 million at
December 31, 2021, compared to $14.6 million at December 31, 2020.
Other real estate owned
Other real estate owned was $1.9 million at December 31, 2021, compared to $6.6 million at December 31, 2020, and $6.9
million at December 31, 2019. Liquidation strategies have been identified for all the assets held in other real estate owned.
Management continues to market these properties through a systematic liquidation process instead of an immediate liquidation
process in order to avoid discounts greater than the projected carrying costs. Proceeds from the sale of other real estate owned
totaled $7.7 million in 2021 compared to $3.9 million in 2020 and $7.7 million in 2019.
Troubled debt restructured loans
In certain circumstances, we may modify the terms of a loan to maximize the collection of amounts due. In most cases, the
modification is either a reduction in interest rate, conversion to interest only payments, extension of the maturity date or a
reduction in the principal balance. Generally, the borrower is experiencing financial difficulties or is expected to experience
difficulties in the near-term, so a concessionary modification is granted to the borrower that would otherwise not be considered.
Restructured loans accrue interest as long as the borrower complies with the revised terms and conditions and has demonstrated
repayment performance at a level commensurate with the modified terms over several payment cycles. Many of our loan
restructurings occur on a case-by-case basis in connection with ongoing loan collection processes. We have also participated in
76
certain restructuring programs for residential real estate borrowers. In general, certain residential real estate borrowers facing an
interest rate reset that are current in their repayment status are allowed to retain the lower of their existing interest rate or the
market interest rate as of their interest reset date.
We had an aggregate balance of $10.4 million in 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. At December 31, 2020, we had an aggregate
balance of $6.2 million in restructured loans, of which $3.8 million were classified as nonaccrual and $2.4 million were
accruing according to the restructured terms.
SECURITIES
The composition of HTLF's securities portfolio is managed to ensure liquidity needs are met while maximizing the return on the
portfolio within the established risk appetite parameters. Securities represented 40% of HTLF's total assets at December 31,
2021, compared to 35% at December 31, 2020, and 26% at December 31, 2019. Whenever possible, management intends to use
a portion of the proceeds from maturities, paydowns and sales of securities to fund loan growth and paydown borrowings. Total
securities carried at fair value as of December 31, 2021, were $7.53 billion, an increase of $1.40 billion or 23% since
December 31, 2020. Total securities carried at fair value as of December 31, 2020, were $6.13 billion, an increase of $2.82
billion or 85% since December 31, 2019. The increase includes $267.9 million of securities acquired in 2020.
The table below presents the composition of the securities portfolio, including securities carried at fair value, held to maturity
net of allowance for credit losses and other, by major category, in thousands:
U.S. treasuries
U.S. agencies
Obligations of states and political subdivisions
Mortgage-backed securities - agency
Mortgage-backed securities - non-agency
Commercial mortgage-backed securities - agency
Commercial mortgage-backed securities - non-agency
Asset-backed securities
Corporate bonds
Equity securities
Other securities
Total securities
As of December 31,
2021
2020
2019
Amount
% of
Portfolio
Amount
% of
Portfolio
Amount
% of
Portfolio
$
1,008
0.01 % $
2,026
0.03 % $
8,503
0.25 %
193,384
2,169,742
2,349,289
1,743,379
123,912
600,888
409,653
3,040
20,788
82,567
2.51
28.19
30.52
22.65
1.61
7.81
5.32
0.04
0.27
1.07
166,779
1,724,066
1,355,270
1,449,116
174,153
252,767
2.65
27.40
21.54
23.03
2.77
4.02
1,069,266
16.99
3,742
19,629
75,253
0.06
0.31
1.20 %
184,676
798,514
766,726
430,497
68,865
436,325
691,579
—
18,435
31,321
5.38
23.24
22.32
12.53
2.00
12.70
20.13
—
0.54
0.91
$ 7,697,650
100.00 % $ 6,292,067
100.00 % $ 3,435,441
100.00 %
HTLF's securities portfolio had an expected modified duration of 5.26 years as of December 31, 2021, compared to 5.52 years
as of December 31, 2020, and 6.17 years as of December 31, 2019.
At December 31, 2021, we had $82.6 million of other securities, including capital stock in the various Federal Home Loan
Banks ("FHLB") of which the Banks are members. All securities classified as other are held at cost.
77
The table below presents the contractual maturities for the debt securities classified as available for sale at December 31, 2021,
by major category, in thousands. Expected maturities will differ from contractual maturities, as borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Within
One Year
After One But
Within
Five Years
After Five But
Within
Ten Years
After
Ten Years
Mortgage and a
backed and
equity securities
sset-
Total
Amount Yield Amount Yield Amount Yield Amount Yield
Amount
Yield
Amount
Yield
$ 1,008 1.70 % $ — — % $ — — % $
— — % $
— — % $
1,008 1.70 %
— —
1,264 2.73
33,561 1.48
158,559 1.53
— —
193,384 1.53
1,473 4.00
18,061 3.27
139,159 2.59
1,926,340 2.41
— —
2,085,033 2.43
— —
— —
— —
— —
2,349,289 0.81
2,349,289 0.81
— —
— —
— —
— —
1,743,379 2.70
1,743,379 2.70
— —
— —
— —
— —
123,912 1.69
123,912 1.69
— —
— —
— —
— —
— —
— —
— —
— —
572 3.98
2,468 4.78
— —
— —
— —
— —
— —
— —
600,888 3.81
600,888 3.81
409,653 1.76
409,653 1.76
— —
3,040 4.63
20,788 —
20,788 —
U.S. treasuries
U.S. agencies
Obligations of states and
political subdivisions
Mortgage-backed
securities - agency
Mortgage-backed
securities - non-agency
Commercial mortgage-
backed securities - agency
Commercial mortgage-
backed securities - non-
agency
Asset-backed securities
Corporate bonds
Equity securities
Total
$ 2,481 3.07 % $ 19,897 3.25 % $ 175,188 2.41 % $ 2,084,899 2.35 % $ 5,247,909 1.88 % $ 7,530,374 2.02 %
The table below presents the contractual maturities for the debt securities classified as held to maturity at December 31, 2021,
by major category, in thousands. Expected maturities will differ from contractual maturities, as borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Within
One Year
After One But
Within
Five Years
After Five But
Within
Ten Years
After
Ten Years
Total
Amount Yield Amount Yield
Amount
Yield Amount Yield Amount Yield
Obligations of states and political subdivisions
$ 5,096 5.43 % $ 38,787 5.10 % $ 34,824 4.87 % $
6,002 5.31 % $ 84,709 5.04 %
Total
$ 5,096 5.43 % $ 38,787 5.10 % $ 34,824 4.87 % $
6,002 5.31 % $ 84,709 5.04 %
The unrealized losses on HTLF's debt securities are the result of changes in market interest rates or widening of market spreads
subsequent to the initial purchase of the securities and not related to concerns regarding the underlying credit of the issuers or
the underlying collateral. For this reason and because we have 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 year ended December 31, 2021. See Note 4, "Securities" of the consolidated financial
statements for further discussion regarding unrealized losses on our securities portfolio.
DEPOSITS
Total deposits were $16.42 billion as of December 31, 2021, compared to $14.98 billion as of December 31, 2020, an increase
of $1.44 billion or 10%, The mix of total deposits remains favorable, with demand deposits representing 40% at December 31,
2021, and 38% at December 31, 2020. Savings deposits represented 54% at both December 31, 2021 and December 31, 2020.
78
The table below sets forth the distribution of our average deposit account balances and the average interest rates paid on each
category of deposits for the years indicated, in thousands:
For the Years Ended December 31,
2021
Average
Deposits
6,230,851
Percent
of
Deposits
Average
Interest
Rate
39.74 %
— %
$
Average
Deposits
4,554,479
2020
Percent
of
Deposits
36.85 %
Average
Interest
Rate
Average
Deposits
— %
$
3,384,341
2019
Percent
of
Deposits
33.74 %
Average
Interest
Rate
— %
8,311,825
53.01
1,137,097
7.25
0.11
0.50
6,718,413
54.35
1,088,185
8.80
0.25
1.26
5,530,503
55.14
1,115,785
11.12
0.85
1.49
$ 15,679,773 100.00 %
$ 12,361,077 100.00 %
$ 10,030,629 100.00 %
Demand deposits
$
Savings
Time deposits
Total deposits
Total Average Deposits
• Total average deposits increased $3.32 billion or 27% during 2021 to $15.68 billion.
•
In 2021, 38% of our total average deposits were from our Midwestern Bank Markets, 38% were from our
Southwestern Bank Markets, and 24% were from our Western Bank Markets.
• Total average deposits increased $2.33 billion or 23% during 2020 to $12.36 billion, which included approximately
$153.9 million of deposits acquired in 2020.
• Excluding acquired deposits, total average deposits increased $2.18 billion or 22% during 2020.
Average Demand Deposits
• Average demand deposits increased $1.68 billion or 37% to $6.23 billion during 2021.
•
In 2021, 33% of our demand deposits were from our Midwestern Bank Markets, 40% were from our Southwestern
Bank Markets, and 27% were from our Western Bank Markets.
• Average demand deposits increased $1.17 billion or 35% to $4.55 billion during 2020.
• Excluding acquired demand deposits of approximately $57.3 million, average demand deposits increased $1.11 billion
or 33% during 2020.
Average Savings Deposits
• Average savings deposits increased $1.59 billion or 24% to $8.31 billion during 2021.
•
In 2021, 43% of our savings deposits were from our Midwestern Bank Markets, 36% were from our Southwestern
Bank Markets, and 21% were from our Western Bank Markets.
• Average savings deposit balances increased by $1.19 billion or 21% to $6.72 billion during 2020.
• Excluding acquired savings deposits of approximately $72.0 million, average savings deposits increased $1.12 billion
or 20% during 2020.
Growth in non-time deposits in 2021 was positively impacted by payments related to federal government stimulus and other
COVID-19 relief programs.
Average Time Deposits
• Average time deposits increased $48.9 million or 4% to $1.14 billion during 2021.
•
In 2021, 28% of time deposits were from our Midwestern Bank Markets, 52% were from our Southwestern Bank
Markets, and 20% were from our Western Bank Markets.
• Average time deposits decreased $27.6 million or 2% to $1.09 billion during 2020.
• Excluding acquired time deposits of approximately $24.6 million, average time deposits decreased $52.2 million or
5% during 2020.
Average brokered time deposits as a percentage of total average deposits were less than 1% during 2021, 2020 and 2019.
79
The following table sets forth the amount and maturities of time deposits of $100,000 or more at December 31, 2021, in
thousands:
3 months or less
Over 3 months through 6 months
Over 6 months through 12 months
Over 12 months
Total
December 31, 2021
170,248
$
131,284
166,413
137,282
605,227
$
The following table sets for the amount and maturities of time deposits of $250,000 or more, at December 31, 2021, in
thousands:
3 months or less
Over 3 months through 6 months
Over 6 months through 12 months
Over 12 months
Total
SHORT-TERM BORROWINGS
December 31, 2021
$
$
89,140
67,751
96,839
80,002
333,732
Short-term borrowings, which HTLF defines as borrowings with an original maturity of one year or less, were as follows as of
December 31, 2021, 2020, and 2019 in thousands:
Retail repurchase agreements
Federal funds purchased
Advances from the FHLB
Advances from the federal discount window
Other short-term borrowings
Total
As of December 31,
2020
2021
$ 122,996 $ 118,293
2019
84,486
—
—
—
8,601
2,100
—
35,000
12,479
2,450
81,198
—
14,492
$ 131,597 $ 167,872 $ 182,626
% Change
2021/2020 2020/2019
40 %
(14)
(100)
4 %
—
(100)
(31)
(22) %
(100)
100
(14)
(8) %
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 the 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- or long-
term purposes under a variety of programs. As of December 31, 2021, the amount of short-term borrowings was $131.6 million
compared to $167.9 million at year-end 2020, a decrease of $36.3 million or 22%.
All of 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. This source of funding does not increase the bank's reserve requirements.
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 $123.0 million at
December 31, 2021, compared to $118.3 million at December 31, 2020, an increase of $4.7 million or 4%.
HTLF renewed its revolving credit line agreement with an unaffiliated bank on June 14, 2021. This revolving credit line
agreement, which has $75.0 million of borrowing capacity, is included in short-term borrowings, and the primary purpose of
this credit line agreement is to provide liquidity to HTLF. HTLF had no advances on this line during 2021 or 2020, and no
balance was outstanding on this line at December 31, 2021, and December 31, 2020.
80
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 unamortized discount and issuance costs, in thousands, as of December 31, 2021
and 2020:
Advances from the FHLB
Paycheck Protection Program Liquidity Fund
Trust preferred securities
Note payable to unaffiliated bank
Contracts payable for purchase of real estate and other assets
Subordinated notes
Total
As of Dec
2021
ember 31,
2020
% Change
2021/2020
$
898
$
1,018
—
147,316
—
1,593
222,265
188,872
146,323
44,417
1,983
74,429
$ 372,072 $ 457,042
(12) %
(100)
1
(100)
(20)
199
(19) %
Other borrowings include all debt arrangements HTLF and its subsidiaries have entered into with original maturities that extend
beyond one year, as listed in the table above. As of December 31, 2021, the amount of other borrowings was $372.1 million, a
decrease of $85.0 million or 19% from $457.0 million as of year-end 2020.
Each of the Banks was approved in 2020 by their respective Federal Reserve Bank to borrow from the Paycheck Protection
Program Liquidity Fund ("PPPLF"). The PPPLF program ended on July 31, 2021, and all advances were repaid by September
30, 2021.
On September 8, 2021, HTLF closed its public offering of $150.0 million aggregate principal amount of its 2.75% Fixed-to-
Floating Rate Subordinated Notes due 2031 (the "2021 subordinated notes"). The notes were issued at par with an underwriting
discount of $1.9 million. The net proceeds of the 2021 subordinated notes totaled $147.6 million. The 2021 subordinated notes
were registered under HTLF’s effective shelf registration statement and qualify as Tier 2 capital for regulatory purposes. The
net proceeds are expected to be used for general corporate purposes, which may include, without limitation, providing capital to
support HTLF's organic growth or growth through strategic acquisitions, financing investments, capital expenditures,
investments in the subsidiary banks as regulatory capital, and repaying indebtedness. The 2021 subordinated notes have a fixed
interest rate of 2.75% until September 15, 2026, at which time the interest rate will be reset quarterly to a benchmark interest
rate, which is expected to be three-month term Secure Overnight Financing Rate ("SOFR") plus a spread of 210 basis points.
The 2021 subordinated notes mature on September 15, 2031, and become redeemable at HTLF's option on September 15, 2026.
In 2014, HTLF issued $75.0 million of subordinated notes with a maturity date of December 30, 2024. The notes were issued at
par with an underwriting discount of $1.1 million. The interest rate on the notes is fixed at 5.75% per annum payable semi-
annually. The notes were sold to qualified institutional buyers, and the proceeds were used for general corporate purposes.
For regulatory purposes, $177.5 million of total subordinated notes qualified as Tier 2 capital as of December 31, 2021.
HTLF has a non-revolving credit facility with an unaffiliated bank, and at December 31, 2021, no balance was outstanding on
this non-revolving credit line compared to $44.4 million outstanding at December 31, 2020. The decrease in this non-revolving
credit line was primarily attributable to a paydown of $20.3 million in conjunction with the renewal of the credit line in the
second quarter of 2021, and the remainder was repaid with proceeds from the subordinated notes issued in September 2021. At
December 31, 2021, $3.5 million of borrowing capacity was available on this non-revolving credit facility, of which no balance
was drawn.
81
A schedule of HTLF's trust preferred offerings outstanding as of December 31, 2021, is as follows, in thousands:
Heartland Financial Statutory Trust IV
$ 10,310
03/17/2004
2.75% over LIBOR
2.97 % 03/17/2034
03/17/2022
Amount
Issued
Issuance
Date
Interest
Rate
Interest
Rate as of Maturity
12/31/21
Date
Callable
Date
Heartland Financial Statutory Trust V
20,619
01/27/2006
1.33% over LIBOR
Heartland Financial Statutory Trust VI
20,619
06/21/2007
1.48% over LIBOR
Heartland Financial Statutory Trust VII
18,042
06/26/2007
1.48% over LIBOR
Morrill Statutory Trust I
Morrill Statutory Trust II
9,276
12/19/2002
3.25% over LIBOR
8,976
12/17/2003
2.85% over LIBOR
Sheboygan Statutory Trust I
6,703
09/17/2003
2.95% over LIBOR
CBNM Capital Trust I
Citywide Capital Trust III
Citywide Capital Trust IV
Citywide Capital Trust V
OCGI Statutory Trust III
OCGI Capital Trust IV
BVBC Capital Trust II
BVBC Capital Trust III
Total trust preferred offerings
Less: deferred issuance costs
CAPITAL RESOURCES
4,508
09/10/2004
3.25% over LIBOR
6,549
12/19/2003
2.80% over LIBOR
4,411
09/30/2004
2.20% over LIBOR
12,198
05/31/2006
1.54% over LIBOR
3,012
06/27/2002
3.65% over LIBOR
5,455
09/23/2004
2.50% over LIBOR
7,278
04/10/2003
3.25% over LIBOR
9,404
07/29/2005
1.60% over LIBOR
147,360
(44)
$ 147,316
1.45
1.68
1.65
3.47
3.07
3.17
3.45
2.93
2.36
1.74
3.89
2.70
3.38
1.82
04/07/2036
04/07/2022
09/15/2037
03/15/2022
09/01/2037
03/01/2022
12/26/2032
03/26/2022
12/17/2033
03/17/2022
09/17/2033
03/17/2022
12/15/2034
03/15/2022
12/19/2033
04/23/2022
09/30/2034
05/23/2022
07/25/2036
03/15/2022
09/30/2032
03/30/2022
12/15/2034
03/15/2022
04/24/2033
04/24/2022
09/30/2035
03/30/2022
The Federal Reserve has adopted capital adequacy guidelines that are used to assess the adequacy of capital in supervising a
bank holding company. Under Basel III, HTLF must hold a conservation buffer above the adequately capitalized risk-based
capital ratios; however, the transition provision related to the conservation buffer have been extended indefinitely.
The most recent notification from the FDIC categorized HTLF and each of its banks as well capitalized under the regulatory
framework for prompt corrective action. There are no conditions or events since that notification that management believes
have changed the categorization of any of these entities.
HTLF's capital ratios are calculated in accordance with Federal Reserve Board instructions and are required regulatory financial
measures. The following table illustrates HTLF's capital ratios and the Federal Reserve'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)
December 31, 2021
Minimum capital requirement
Well capitalized requirement
Minimum capital requirement, including fully-phased
in capital conservation buffer
Risk-weighted assets
Average assets
15.90 %
8.00
10.00
10.50
12.39 %
6.00
8.00
8.50
11.53 %
4.50
6.50
7.00
$ 12,829,318
$ 12,829,318
$ 12,829,318
8.57 %
4.00
5.00
N/A
N/A
N/A
N/A
N/A $ 18,553,872
82
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)
December 31, 2020
Minimum capital requirement
Well capitalized requirement
Minimum capital requirement, including fully-phased
in capital conservation buffer
Risk-weighted assets
Average assets
14.71 %
8.00
10.00
10.50
11.85 %
6.00
8.00
8.50
10.92 %
4.50
6.50
7.00
$ 11,819,037
$ 11,819,037
$ 11,819,037
9.02 %
4.00
5.00
N/A
N/A
N/A
N/A
N/A $ 15,531,884
December 31, 2019
Minimum capital requirement
Well capitalized requirement
Minimum capital requirement, including fully-phased
in capital conservation buffer (2019)
Risk-weighted assets
Average assets
13.75 %
8.00
10.00
10.50
12.31 %
6.00
8.00
8.50
10.88 %
4.50
6.50
7.00
$ 10,098,515
$ 10,098,515
$ 10,098,515
10.10 %
4.00
5.00
N/A
N/A
N/A
N/A
N/A $ 12,318,135
At December 31, 2021, retained earnings that could be available for the payment of dividends to meet the most restrictive
minimum capital requirements totaled $758.6 million. Retained earnings that could be available for the payment of dividends to
HTLF from its Banks totaled approximately $502.1 million at December 31, 2021, under the capital requirements to remain
well capitalized. These dividends are the principal source of funds to pay dividends on HTLF's common and preferred stock and
to pay interest and principal on its debt.
On December 4, 2020, HTLF completed the acquisition of AimBank, headquartered in Levelland, Texas in a transaction valued
at approximately $264.5 million, which was paid by delivery of 5,185,045 shares of HTLF common stock and cash of $47.3
million, subject to certain hold-back provisions.
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.
The net proceeds of $110.7 million are being used for general corporate purposes, which include organic and acquired growth,
financing investments, capital expenditures, investments in wholly-owned subsidiaries as regulatory capital and repayment of
debt.
On August 8, 2019, HTLF filed a universal shelf registration statement with the SEC to register debt or equity securities. This
shelf registration statement, which was effective immediately, provided HTLF with the ability to raise capital, subject to market
conditions and SEC rules and limitations, if HTLF's board of directors decided to do so. This registration statement permitted
HTLF, from time to time, in one or more public offerings, to offer debt securities, subordinated notes, common stock, preferred
stock, rights or any combination of these securities. The amount of securities that may have been offered was not specified in
the registration statement, and the terms of any future offerings were to be established at the time of the offering.
Common stockholders' equity was $2.07 billion at December 31, 2021, compared to $1.97 billion at year-end 2020. Book value
per common share was $49.00 at December 31, 2021, compared to $46.77 at year-end 2020. Changes in common stockholders'
equity and book value per common share are the result of earnings, dividends paid, stock transactions and mark-to-market
adjustments for unrealized gains and losses on securities available for sale. HTLF's unrealized gains and losses on securities
83
available for sale, net of applicable taxes, reflected an unrealized loss of $4.4 million and an unrealized gain of $76.8 million at
December 31, 2021, and December 31, 2020, respectively.
COMMITMENTS, CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
The following table presents material fixed and determinable contractual obligations as of December 31, 2021, in thousands.
Further discussion of each obligation is included in the referenced note to the consolidated financial statements.
Obligation
Note Reference
One Year or Less
Payments Due In
More than One Year
Total
Demand deposits
Savings deposits
Time deposits
Repurchase agreements
Other borrowings
Total
9
9
9
10
11
$
6,495,326 $
8,897,909
795,813
122,996
2
— $
—
228,207
—
372,070
6,495,326
8,897,909
1,024,020
122,996
372,072
$
16,312,046 $
600,277 $
16,912,323
We also enter into financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs
of our customers. These financial instruments include commitments to extend credit and standby letters of credit, and are
described in Note 15, "Commitments," to the consolidated financial statements for additional information on these
commitments. As of December 31, 2021, and December 31, 2020, commitments to extend credit aggregated $3.83 billion and
$3.26 billion, and standby letters of credit aggregated $51.4 million and $73.2 million, respectively.
We continue to explore opportunities to expand our footprint of independent community banks, and these acquisitions may be
financed from dividends collected from our subsidiaries, the issuance of equity or debt securities, drawing on our existing lines
of credit or other sources of funding. Future expenditures relating to expansion efforts cannot be estimated at this time.
We enter 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 such loans. We enter 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 the loans as well as on the residential mortgage loans available for sale. We enter into
risk participation agreements for credit protection should borrowers fail to perform on their interest rate derivative contracts.
See Note 12, "Derivative Financial Instruments," to the consolidated financial statements for additional information on our
derivative financial instruments.
Refer to "Liquidity" in Item 7 of this Annual Report on Form 10-K for further discussion regarding our cash flow and funding
sources.
LIQUIDITY
Liquidity refers to our 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. For COVID-19 trends and
uncertainties impacting HTLF’s liquidity, see the discussion of "Liquidity and Interest Rate Risks" under Item 1A, Risk
Factors.
At December 31, 2021, HTLF had $435.6 million of cash and cash equivalents, time deposits in other financial institutions of
$2.9 million and securities carried at fair value of $7.53 billion.
Management of investing and financing activities, and market conditions, determine the level and the stability of net interest
cash flows. Management attempts to mitigate the impact of changes in market interest rates to the extent possible, so that
balance sheet growth is the principal determinant of growth in net interest cash flows.
HTLF's 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
84
funds; however, HTLF intends to rely on deposit growth and additional FHLB and discount window borrowings as needed in
the future.
Additional funding is provided by long-term debt and short-term borrowings. In the event of short-term liquidity needs, HTLF's
banks may purchase federal funds from each other or from correspondent banks and may also borrow from the Federal Reserve
Bank. As of December 31, 2021, HTLF had $131.6 million of short-term borrowings outstanding.
As of December 31, 2021, HTLF had $372.1 million of long-term debt outstanding, and it is an important funding source
because of its multi-year borrowing structure. Additionally, the subsidiary banks' FHLB memberships give them the ability to
borrow funds for short-term and long-term purposes under a variety of programs, and at December 31, 2021, HTLF had $913.5
million of borrowing capacity under these programs. Additionally, at December 31, 2021, HTLF had $895.6 million of
borrowing capacity at the Federal Reserve Banks' discount window.
On a consolidated basis, HTLF maintains a large balance of short-term securities that, when combined with cash from
operations, HTLF believes are adequate to meet its funding obligations.
At the parent company level, routine funding requirements consist primarily of dividends paid to stockholders, debt service on
revolving credit arrangements and trust preferred securities issuances, repayment requirements under other debt obligations and
payments for acquisitions. The parent company obtains the funding to meet these obligations from dividends paid by its bank
subsidiaries and the issuance of debt and equity securities.
As of December 31, 2021, the parent company had cash of $259.8 million. Additionally, HTLF has a revolving credit
agreement and non-revolving credit line with an unaffiliated bank, which is renewed annually, most recently on June 14, 2021.
HTLF's revolving credit agreement has $75.0 million of maximum borrowing capacity, of which none was outstanding at
December 31, 2021. At December 31, 2021, $3.5 million was available on the non-revolving credit line. These credit
agreements contain specific financial covenants, all of which HTLF complied with as of December 31, 2021.
The ability of HTLF to pay dividends to its stockholders is dependent upon dividends paid by its subsidiaries. The Banks are
subject to statutory and regulatory restrictions on the amount they may pay in dividends. To maintain acceptable capital ratios
in the HTLF banks, certain portions of their retained earnings are not available for the payment of dividends. Retained earnings
that could be available for the payment of dividends to HTLF under the regulatory capital requirements to remain well-
capitalized totaled approximately $502.1 million as of December 31, 2021.
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 2022.
Management believes that cash on hand, cash flows from operations and cash availability under existing borrowing programs
and facilities will be sufficient to meeting any recurring and additional operating cash needs in 2022.
EFFECTS OF INFLATION
Consolidated financial data included in this report has been prepared in accordance with U.S. GAAP. Presently, these principles
require reporting of financial position and operating results in terms of historical dollars, except for available for sale securities,
trading securities, derivative instruments, certain impaired loans and other real estate which require reporting at fair value.
Changes in the relative value of money due to inflation or recession are generally not considered.
In management’s opinion, changes in interest rates affect the financial condition of a financial institution to a far greater degree
than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not change
at the same rate or in the same magnitude as the inflation rate. Rather, interest rate volatility is based on changes in the expected
rate of inflation, as well as on changes in monetary and fiscal policies. A financial institution’s ability to be relatively
unaffected by changes in interest rates is a good indicator of its capability to perform in today’s volatile economic environment.
HTLF seeks to insulate itself from interest rate volatility by ensuring that rate-sensitive assets and rate-sensitive liabilities
respond to changes in interest rates in a similar time frame and to a similar degree. See Item 7A of this Annual Report on Form
10-K for a discussion on the process HTLF utilizes to mitigate market risk.
85
ITEM 7A. 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 deposit gathering. Interest rate risk
measures the impact on earnings from changes in interest rates and the effect on current fair market values of HTLF's assets,
liabilities and off-balance sheet contracts. The objective is to measure this risk and manage the 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 HTLF's bank subsidiaries and, on a consolidated basis, by HTLF's executive
management and board of directors. At least quarterly, a detailed review of the balance sheet risk profile is performed for HTLF
and each of its bank subsidiaries. Included in these reviews are interest rate sensitivity analyses, which simulate changes in net
interest income in response to various interest rate scenarios. These analyses consider current portfolio rates, existing maturities,
repricing opportunities and market interest rates, in addition to prepayments and growth under different interest rate
assumptions. Selected strategies are modeled prior to implementation to determine their effect on HTLF's interest rate risk
profile and net interest income.
The core interest rate risk analysis utilized by HTLF 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 1) and a rate shock (year 2 and beyond)
could have on HTLF's net interest income. Starting balances in the model reflect actual balances on the "as of" date, adjusted
for material and significant 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 December 31, 2021, and 2020, provided the results below, in
thousands.
Year 1
Down 100 Basis Points
Base
Up 200 Basis Points
Year 2
Down 100 Basis Points
Base
Up 200 Basis Points
2021
2020
Net Interest
Margin
% Change
From Base
Net Interest
Margin
% Change
From Base
$
506,362
519,573
549,027
466,779
503,949
565,414
(2.54) % $
5.67 %
(10.16) %
(3.01) %
8.82 %
506,247
511,697
540,625
485,312
501,288
562,247
(1.07) %
5.65 %
(5.16) %
(2.03) %
9.88 %
We use derivative financial instruments to manage the impact of changes in interest rates on our future interest income or
interest expense. We are exposed to credit-related losses in the event of nonperformance by the counterparties to these
derivative instruments but believe we have 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 12 to the
consolidated financial statements.
We enter into financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of
our 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 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 with specified terms and conditions. These
commitments to extend credit and standby letters of credit are not recorded on the balance sheet until the loan is made or the
letter of credit is issued.
86
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
ASSETS
Cash and due from banks
Interest bearing deposits with other banks and other short-term investments
Cash and cash equivalents
Time deposits in other financial institutions
Securities:
Carried at fair value (cost of $7,536,338 at December 31, 2021, and cost of $6,024,225 at December 31, 2020)
Held to maturity, net of allowance for credit losses of $0 at December 31, 2021, and $51 at December 31, 2020
(fair value of $94,139 at December 31, 2021, and $100,041 at December 31, 2020)
Other investments, at cost
Loans held for sale
Loans receivable:
Held to maturity
Allowance for credit losses
Loans receivable, net
Premises, furniture and equipment, net
Premises, furniture and equipment held for sale
Other real estate, net
Goodwill
Core deposit intangibles and customer relationship intangibles, net
Servicing rights, net
Cash surrender value on life insurance
Other assets
TOTAL ASSETS
LIABILITIES AND EQUITY
LIABILITIES:
Deposits:
Demand
Savings
Time
Total deposits
Short-term borrowings
Other borrowings
Accrued expenses and other liabilities
TOTAL LIABILITIES
STOCKHOLDERS' EQUITY:
Preferred stock (par value $1 per share; authorized 6,104 shares; none issued or outstanding at both December 31,
2021, and December 31, 2020)
Series A Junior Participating preferred stock (par value $1 per share; authorized 16,000 shares; none issued or
outstanding at both December 31, 2021, and December 31, 2020)
Series B Fixed-Rate Reset Cumulative Perpetual Preferred Stock (par value $1 per share; 81,698 shares
authorized at both December 31, 2021, and December 31, 2020, none issued or outstanding at both December 31,
2021, and December 31, 2020)
Series C Senior Non-Cumulative Perpetual Preferred Stock (par value $1 per share; 81,698 shares authorized at
both December 31, 2021, and December 31, 2020, none issued or outstanding at both December 31, 2021, and
December 31, 2020)
Series D Senior Non-Cumulative Perpetual Convertible Preferred Stock (par value $1 per share; 3,000 shares
authorized at both December 31, 2021, and December 31, 2020; none issued or outstanding at December 31,
2021, and December 31, 2020)
Series E Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock (par value $1 per share; 11,500 shares
authorized at both December 31, 2021, and December 31, 2020; 11,500 shares issued and outstanding at both
December 31, 2021, and December 31, 2020)
Common stock (par value $1 per share; 60,000,000 shares authorized at both December 31, 2021 and December
31, 2020; issued 42,275,264 shares at December 31, 2021, and 42,093,862 shares at December 31, 2020)
Capital surplus
Retained earnings
Accumulated other comprehensive income (loss)
TOTAL STOCKHOLDERS' EQUITY
TOTAL LIABILITIES AND EQUITY
See accompanying notes to consolidated financial statements.
Notes
3
$
4
4
4
5
5, 6
7
2, 8
8
8
9
10
11
16, 17, 18
As of December 31,
2020
2021
$
163,895
271,704
435,599
2,894
219,243
118,660
337,903
3,129
7,530,374
6,127,975
84,709
82,567
21,640
88,839
75,253
57,949
9,954,572
(110,088)
9,844,484
204,999
10,828
1,927
576,005
32,988
6,890
191,722
246,923
10,023,051
(131,606)
9,891,445
219,595
6,499
6,624
576,005
42,383
6,052
187,664
281,024
$ 19,274,549 $ 17,908,339
$ 6,495,326 $ 5,688,810
8,019,704
1,271,391
14,979,905
167,872
457,042
224,289
15,829,108
8,897,909
1,024,020
16,417,255
131,597
372,072
171,447
17,092,371
—
—
—
—
—
—
—
—
—
—
110,705
110,705
42,275
1,071,956
962,994
(5,752)
2,182,178
42,094
1,062,083
791,630
72,719
2,079,231
$ 19,274,549 $ 17,908,339
87
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
INTEREST INCOME:
Interest and fees on loans
Interest on securities:
Taxable
Nontaxable
Interest on federal funds sold
Interest on interest bearing deposits in other financial institutions
TOTAL INTEREST INCOME
INTEREST EXPENSE:
Interest on deposits
Interest on short-term borrowings
Interest on other borrowings (includes $1,601, $(1,820), and $170 of interest expense (benefit)
related to derivatives reclassified from accumulated other comprehensive income (loss) for the
years ended December 31, 2021, 2020, and 2019, respectively)
TOTAL INTEREST EXPENSE
NET INTEREST INCOME
Provision (benefit) for credit losses
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
NONINTEREST INCOME:
Service charges and fees
Loan servicing income
Trust fees
Brokerage and insurance commissions
Securities gains, net (includes $5,910, $7,592, and $7,659 of net security gains reclassified from
accumulated other comprehensive income (loss) for the years ended December 31, 2021, 2020,
and 2019, respectively)
Unrealized gain on equity securities, net
Net gains on sale of loans held for sale
Valuation adjustment on servicing rights
Income on bank owned life insurance
Other noninterest income
TOTAL NONINTEREST INCOME
NONINTEREST EXPENSES:
Salaries and employee benefits
Occupancy
Furniture and equipment
Professional fees
Advertising
Core deposit intangibles and customer relationship intangibles amortization
Other real estate and loan collection expenses
(Gain) loss on sales/valuations of assets, net
Acquisition, integration and restructuring costs
Partnership investment in tax credit projects
Other noninterest expenses
TOTAL NONINTEREST EXPENSES
INCOME BEFORE INCOME TAXES
Income taxes (includes $1,896, $2,376, and $1,890 of income tax expense reclassified from
accumulated other comprehensive income (loss) for the years ended December 31, 2021, 2020,
and 2019, respectively)
NET INCOME
Preferred dividends
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
EARNINGS PER COMMON SHARE - BASIC
EARNINGS PER COMMON SHARE - DILUTED
CASH DIVIDENDS DECLARED PER COMMON SHARE
See accompanying notes to consolidated financial statements.
For the Years Ended December 31,
2020
2019
2021
Notes
5
$ 444,137 $ 424,941 $ 424,615
125,010
19,268
1
344
588,760
98,263
12,484
—
924
536,612
73,147
9,868
4
6,695
514,329
9
14,797
471
30,287
610
63,734
1,748
11, 12
5, 6
21
8
21
21
4
4
8
14, 16
15, 23
7
8
13
1
1
15,118
80,600
433,729
16,657
417,072
52,157
4,843
19,399
3,786
7,659
525
15,555
(911)
3,785
9,410
116,208
200,341
25,429
12,013
47,697
9,825
11,972
1,035
(19,422)
6,580
8,030
45,661
349,161
184,119
12,932
28,200
560,560
(17,575)
578,135
59,703
3,276
24,417
3,546
5,910
58
20,605
1,088
3,762
6,570
128,935
240,114
29,965
13,323
64,600
7,257
9,395
990
588
5,331
6,303
53,946
431,812
275,258
13,986
44,883
491,729
67,066
424,663
47,467
2,977
20,862
2,756
7,793
640
28,515
(1,778)
3,554
7,505
120,291
202,668
26,554
12,514
54,068
5,235
10,670
1,340
5,101
5,381
3,801
43,631
370,963
173,991
36,053
137,938
(4,451)
$ 133,487
55,335
219,923
(8,050)
$ 211,873
$
$
$
5.01 $
5.00 $
0.96 $
34,990
149,129
—
$ 149,129
4.14
4.14
0.68
3.58 $
3.57 $
0.80 $
88
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
NET INCOME
OTHER COMPREHENSIVE INCOME (LOSS)
Securities:
Net change in unrealized gain (loss) on securities
Reclassification adjustment for net gains realized in net income
Income taxes
Other comprehensive income (loss) on securities
Derivatives used in cash flow hedging relationships:
Net change in unrealized gain (loss) on derivatives
Reclassification adjustment for net (gains) losses on derivatives realized in net
income
Income taxes
Other comprehensive income (loss) on cash flow hedges
Other comprehensive income (loss)
TOTAL COMPREHENSIVE INCOME
See accompanying notes to consolidated financial statements.
For the Years Ended December 31,
2020
$ 219,923 $ 137,938 $ 149,129
2021
2019
(103,807)
(5,910)
28,573
(81,144)
109,972
(7,592)
(26,578)
75,802
52,557
(7,659)
(11,429)
33,469
5,037
(904)
(3,639)
(1,601)
(763)
2,673
(78,471)
170
723
(2,746)
30,723
$ 141,452 $ 211,583 $ 179,852
(1,820)
567
(2,157)
73,645
89
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Dollars in thousands, except per share data)
Balance at January 1, 2019
Comprehensive income (loss)
$
— $
34,477 $ 743,095 $ 579,252 $
(31,649) $ 1,325,175
149,129
30,723
179,852
Heartland Financial USA, Inc. Stockholders' Equity
Preferred
Stock
Common
Stock
Capital
Surplus
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Equity
Cumulative effect adjustment from the adoption of ASU 2016-02
on January 1, 2019
Cash dividends declared:
Common, $0.68 per share
Issuance of 2,226,779 shares of common stock
Stock based compensation
Balance at December 31, 2019
Balance at January 1, 2020
Cumulative effect adjustment from the adoption of ASU 2016-13
on January 1, 2020
(1,272)
(24,607)
2,227
90,692
6,070
(1,272)
(24,607)
92,919
6,070
$
$
—
$
36,704 $ 839,857 $ 702,502 $
(926) $ 1,578,137
— $
36,704 $ 839,857 $ 702,502 $
(926) $ 1,578,137
(14,891)
687,611
137,938
(4,451)
(29,468)
(14,891)
(926)
1,563,246
73,645
211,583
(4,451)
(29,468)
110,705
220,206
7,410
Adjusted balance on January 1, 2020
—
36,704
839,857
Comprehensive income (loss)
Cash dividends declared:
Preferred, $386.94 per share
Common, $0.80 per share
Issuance of 11,500 shares of Series E preferred stock
110,705
Issuance of 5,389,584 shares of common stock
Stock based compensation
Balance at December 31, 2020
Balance at January 1, 2021
Comprehensive income (loss)
Cash dividends declared:
Preferred, $700.00 per share
Common, $0.96 per share
Issuance of 181,402 shares of common stock
Stock based compensation
Balance at December 31, 2021
See accompanying notes to consolidated financial statements.
5,390
214,816
7,410
$ 110,705 $
42,094 $ 1,062,083 $ 791,630 $
72,719 $ 2,079,231
$ 110,705 $
42,094 $ 1,062,083 $ 791,630
$
72,719
$ 2,079,231
219,923
(78,471)
141,452
(8,050)
(40,509)
181
1,130
8,743
(8,050)
(40,509)
1,311
8,743
$ 110,705 $
42,275
$ 1,071,956 $
962,994 $
(5,752)
$ 2,182,178
90
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the Years Ended December 31,
2020
2019
2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
219,923 $
137,938 $
149,129
Depreciation and amortization
Provision (benefit) for credit losses
Net amortization of premium on securities
Provision for deferred taxes
Securities gains, net
Unrealized gain on equity securities, net
Stock based compensation
(Gain) loss on sales/valuations of assets, net
Loans originated for sale
Proceeds on sales of loans held for sale
Net gains on sales of loans held for sale
(Increase) decrease in accrued interest receivable
Increase in prepaid expenses
Increase (decrease) in accrued interest payable
Gain on extinguishment of debt
Capitalization of servicing rights
Valuation adjustment on servicing rights
Net excess tax (expense) benefit from stock based compensation
Other, net
NET CASH PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of time deposits in other financial institutions
Proceeds from the sale of securities available for sale
Proceeds from the sale of securities held to maturity
Proceeds from the sale, maturity of and principal paydowns on other investments
Proceeds from the maturity of and principal paydowns on securities available for sale
Proceeds from the maturity of and principal paydowns on securities held to maturity
Proceeds from the maturity of time deposits in other financial institutions
Purchase of securities available for sale
Purchase of other investments
Net (increase) decrease in loans
Purchase of bank owned life insurance policies
Proceeds from bank owned life insurance policies
Proceeds from sale of mortgage servicing rights
Capital expenditures and investments
Net cash and cash equivalents received in acquisitions
Net cash expended in divestitures
Proceeds from sale of equipment
Proceeds on sale of OREO and other repossessed assets
NET CASH USED BY INVESTING ACTIVITIES
26,894
(17,575)
52,145
11,543
(5,910)
(58)
8,743
2,222
(466,071)
521,463
(19,083)
(1,590)
(1,102)
(497)
—
(1,522)
(1,088)
312
(2,712)
326,037
(10)
1,475,598
—
4,858
1,059,292
5,659
245
(4,094,661)
(12,172)
50,437
(288)
—
—
(17,203)
—
(15,682)
10,489
8,338
(1,525,100)
27,289
67,066
16,042
(10,910)
(7,793)
(640)
7,410
5,101
(621,507)
615,439
(25,133)
(9,971)
(3,504)
(2,915)
—
(3,484)
1,778
(93)
(1,745)
190,368
—
1,097,378
1,056
8,506
567,884
3,458
585
(4,119,814)
(49,228)
(444,146)
(292)
606
—
(18,542)
641,315
—
5,895
3,913
(2,301,426)
30,797
16,657
20,326
(414)
(7,659)
(525)
6,070
(8,394)
(384,603)
396,290
(14,661)
1,301
(8,566)
421
(375)
(1,011)
911
266
(34,786)
161,174
(258)
1,628,467
—
10,325
402,946
3,158
1,216
(2,577,106)
(6,446)
(90,749)
(28)
1,402
35,017
(17,928)
76,071
(49,264)
903
8,304
(573,970)
91
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Dollars in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits
Net increase in savings accounts
Net decrease in time deposit accounts
Net increase (decrease) in short-term borrowings
Proceeds from short term FHLB advances
Repayments of short term FHLB advances
Proceeds from other borrowings
Repayments of other borrowings
Proceeds from issuance of preferred stock
Payment for the redemption of debt
Proceeds from issuance of common stock
Dividends paid
NET CASH PROVIDED BY FINANCING ACTIVITIES
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
CASH AND CASH EQUIVALENTS AT END OF PERIOD
Supplemental disclosures:
Cash paid for income/franchise taxes
Cash paid for interest
Loans transferred to OREO
Transfer of premises from premises, furniture and equipment held for sale to premises,
furniture and equipment, net
Purchases of securities available for sale, accrued, not paid
Transfer of premises from premises, furniture and equipment, net to premises,
furniture and equipment held for sale
Securities transferred from held to maturity to available for sale
Securities transferred from available for sale to held to maturity
Loans transferred to held for sale
Deposits transferred to held for sale
Dividends declared, not paid
Stock consideration granted for acquisitions
See accompanying notes to consolidated financial statements.
For the Years Ended December 31,
2020
2019
2021
813,600
893,569
(242,321)
(36,275)
141,700
(141,700)
147,614
(233,794)
—
—
2,925
(48,559)
1,296,759
97,696
337,903
435,599 $
1,367,903
735,968
(254,540)
40,137
516,545
(597,742)
314,397
(134,244)
110,705
—
3,004
(31,906)
2,070,227
(40,831)
378,734
337,903 $
49,914 $
28,703
2,807
33,402 $
47,798
3,511
$
$
396
—
12,662
—
—
—
—
2,013
—
855
—
8,134
—
462
—
—
2,013
217,202
51,178
680,641
(81,251)
(51,314)
512,085
(546,725)
50
(20,693)
—
(2,125)
661
(24,607)
517,900
105,104
273,630
378,734
37,609
80,238
8,066
4,306
11,106
4,655
148,030
—
32,111
76,968
—
92,258
92
HEARTLAND FINANCIAL USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ONE
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Heartland Financial USA, Inc. ("HTLF") is a multi-bank holding company with locations in Iowa,
Illinois, Wisconsin, New Mexico, Arizona, Colorado, Montana, Minnesota, Kansas, Missouri, Texas and California. The
principal services of HTLF, which are provided through its subsidiaries, are FDIC-insured deposit accounts and related
services, and loans to businesses and consumers. The loans consist primarily of 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 and consumer loans.
Principles of Presentation - The consolidated financial statements include the accounts of HTLF and its subsidiaries: Dubuque
Bank and Trust Company; Illinois Bank & Trust; Wisconsin Bank & Trust; New Mexico Bank & Trust; Arizona Bank & Trust;
Rocky Mountain Bank; Citywide Banks; Minnesota Bank & Trust; Bank of Blue Valley; Premier Valley Bank; First Bank &
Trust; Citizens Finance Parent Co.; DB&T Insurance, Inc.; DB&T Community Development Corp.; Heartland Community
Development, Inc.; Heartland Financial USA, Inc. Insurance Services; Citizens Finance Co.; Citizens Finance of Illinois Co.;
Heartland Financial Statutory Trust IV; Heartland Financial Statutory Trust V; Heartland Financial Statutory Trust VI;
Heartland Financial Statutory Trust VII; Morrill Statutory Trust I; Morrill Statutory Trust II; Sheboygan Statutory Trust I,
CBNM Capital Trust I, Citywide Capital Trust III, Citywide Capital Trust IV, Citywide Capital Trust V, OCGI Statutory Trust
III, OCGI Capital Trust IV, BVBC Capital Trust II, and BVBC Capital Trust III. All of HTLF’s subsidiaries are wholly-owned
as of December 31, 2021.
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles
("GAAP") and prevailing practices within the banking industry. In preparing such financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities as of the date of the balance sheets and revenues and expenses for the years then ended. Actual results could
differ significantly from those estimates. A material estimate that is particularly susceptible to significant change relates to the
determination of the allowance for credit losses.
Business Combinations - HTLF applies the acquisition method of accounting in accordance with the Financial Accounting
Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 805, Business Combinations. Under the
acquisition method, HTLF recognizes assets acquired, including identified intangible assets, and the liabilities assumed in
acquisitions at fair value as of the acquisition date, with the acquisition-related transaction costs expensed in the period
incurred. Determining the fair value of assets acquired and liabilities assumed often involves estimates based on third-party
valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques that
may include estimates of attrition, inflation, asset growth rates, discount rates, multiples of earnings or other relevant factors. In
addition, the determination of the useful lives over which an intangible asset will be amortized is subjective.
Cash and Cash Equivalents - For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts
due from banks, interest bearing deposits held at the Federal Reserve Bank, federal funds sold to other banks and other short-
term investments. Generally, federal funds are purchased and sold for one-day periods.
Trading Securities - Trading securities represent those securities HTLF intends to actively trade and are stated at fair value with
changes in fair value reflected in noninterest income. HTLF had no trading securities at both December 31, 2021 and 2020.
Available for Sale ("AFS") Debt Securities and Equity Securities - Available for sale securities consist of those securities not
classified as held to maturity or trading, which management intends to hold for indefinite periods of time or that may be sold in
response to changes in interest rates, prepayments or other similar factors. Available for sale securities are stated at fair value
with any unrealized gain or loss, net of applicable income tax, reported as a separate component of stockholders’ equity.
Security premiums and discounts are amortized/accreted using the interest method over the period from the purchase date to the
expected maturity or call date of the related security.
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
93
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.
Realized securities gains or losses on securities sales (using specific identification method) are included in securities gains, net
in the consolidated statements of income.
Equity securities include Community Reinvestment Act mutual funds with readily determinable fair values and are carried at
fair value. Certain equity securities do not have readily determinable fair values, such as Federal Reserve Bank stock and
Federal Home Loan Bank stock, which are held for debt and regulatory purposes and are carried at cost minus impairment, if
any, plus or minus changes resulting from observable price changes for the identical or similar investment of the same issuer.
HTLF has not recorded any impairment or other adjustments to the carrying amount of these investments during the years
ended December 31, 2021, and December 31, 2020.
Allowance for Credit Losses on AFS Debt Securities - 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 decline in fair value of an AFS debt security due to credit loss results in recording an allowance for credit losses to the
extent the fair value is less than the amortized cost basis. Declines in fair value that have not been recorded through an
allowance for credit losses, such as declines due to changes in market interest rates, are recorded through other comprehensive
income, net of applicable taxes. Although these evaluations involve significant judgment, an unrealized loss in the fair value of
a debt security is generally considered to not be related to credit when the fair value of the security is below the carrying value
primarily due to changes in risk-free interest rates, there has not been significant deterioration in the financial condition of the
issuer, and HTLF does not intend to sell nor does it believe it will be required to sell the security before the recovery of its cost
basis. HTLF had no allowance for credit losses on AFS debt securities recorded at December 31, 2021, and December 31, 2020.
Securities Held to Maturity - Securities which HTLF has the ability and positive intent to hold to maturity are classified as held
to maturity. Such securities are stated at amortized cost, adjusted for premiums and discounts that are amortized/accreted using
the interest method over the period from the purchase date to the expected maturity or call date of the related security.
Allowance for Credit Losses on Held to Maturity Debt Securities - HTLF measures expected credit losses on held to maturity
debt securities on a collective basis based on security type. The estimate of expected credit losses considers historical credit
information that is adjusted for current conditions and supportable forecasts. HTLF's held to maturity debt securities consist
primarily of investment grade obligations of states and political subdivisions. The forecast and forecast period used in the
calculation of the allowance for credit losses for loans is used in calculating the allowance for credit losses on held to maturity
debt securities. HTLF had no allowance for credit losses on held to maturity debt securities recorded at December 31, 2021,
compared to $51,000 at December 31, 2020.
Loans Held to Maturity - Loans that management has the intent and ability to hold for the foreseeable future or until maturity
or payoff are reported at amortized cost, which is the principal amount outstanding, net of cumulative charge-offs, unamortized
net deferred loan origination fees and costs and unamortized premiums or discounts on purchased loans. HTLF has a loan
policy which establishes the credit risk appetite, lending standards and underwriting criteria designed so that HTLF may extend
credit in a prudent and sound manner. The HTLF board of directors reviews and approves the loan policy on a regular basis. 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 and 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 capital and operating purposes and term loans for real estate and equipment
purchases. 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. Agricultural
and agricultural real estate loans provide financing for capital improvements and farm operations, as well as livestock and
machinery purchases. Residential real estate loans are originated for the purchase or refinancing of single family residential
properties. Consumer loans include loans for motor vehicles, home improvement, home equity and personal lines of credit.
94
Loans are considered past due if the required principal and interest payments have not been received as of the date such
payments were due. HTLF’s policy is to discontinue the accrual of interest income on any loan when, in the opinion of
management, there is a reasonable doubt as to the timely collection of the interest and principal, normally when a loan is 90
days past due. When interest accruals are deemed uncollectible, interest credited to income in the current year is reversed and
interest accrued in prior years is charged to the allowance for credit losses. A loan can be restored to accrual status if the
borrower has resumed paying the full amount of the scheduled contractual interest and principal payments on the loan, and (1)
all principal and interest amounts contractually due (including arrearages) are reasonably assured of repayment within a
reasonable period of time, and (2) there is a sustained period of repayment performance (generally a minimum of six months)
by the borrower in accordance with the scheduled contractual terms.
Acquired Loans - HTLF has acquired loans through acquisitions, some of which have experienced more than insignificant
deterioration in credit quality since origination and are classified as PCD loans. HTLF considers the following criteria in
determining PCD loans:
• watch, substandard and non-accrual loans;
•
•
•
•
•
•
loans delinquent more than 30 days as of the acquisition date;
loans that have experienced more than one 30-59 day delinquency;
loans that have experienced any delinquency of more than 60 days;
loan with a TDR status as of the acquisition date;
loans with a Coronavirus Disease 2019 ("COVID-19") modification as of the acquisition date;
loans in high-risk industries based on macroeconomic conditions and local market conditions of the acquired entity on
acquisition date.
An allowance for credit losses on PCD loans is determined using the same allowance methodology as described below for loans
held to maturity. The allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of
the PCD loan purchase price and allowance for credit loss becomes the initial amortized cost basis. The difference between the
initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest
income over the life of the loan. Any subsequent changes to the credit quality of PCD loans are recognized in net income by
adjusting the allowance for credit losses through provision expense.
At acquisition, for purchased loans not defined as PCD loans ("non-PCD"), the purpose of the loan (e.g., business, agricultural
or personal), the type of borrower (e.g., business or individual) and the type of collateral for the loan (e.g., commercial real
estate, residential real estate, general business assets or unsecured) of each loan are considered in order to assign purchased
loans into one of the following eight loan pools: commercial and industrial, Paycheck Protection Program ("PPP"), owner
occupied commercial real estate, non-owner occupied commercial real estate, real estate construction, agricultural and
agricultural real estate, residential real estate and consumer.
For non-PCD loans, the premium or discount, if any, representing the excess of the amount of reasonably estimable and
probable discounted future cash collections over the purchase price, is accreted into interest income using the interest method
over the weighted average remaining contractual life of the loan pool. Because HTLF uses the pool method as described above,
no adjustment is made to the discount of an individual loan on the specific date of a credit event with respect to such loan.
Additionally, the premium or discount accretion is suspended on loans that subsequently become nonperforming.
An allowance for credit losses for non-PCD loans is established through recognition of provision expense in net income using
the same methodology as other loans held to maturity.
Allowance for Credit Losses for Loans - The allowance for credit losses is a valuation account that is deducted from the loans
held to maturity amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off
against the allowance when management believes the uncollectibility of a loan balance is confirmed. Provisions for credit losses
for loans and recoveries on loan previously charged-off by HTLF are added back to the allowance.
HTLF's allowance model is designed to consider the current contractual term of the loan, defined as starting as of the most
recent renewal date and ending at maturity date.
Management's estimation of expected credit losses is based on relevant information about past events, current conditions, and
reasonable and supportable forecasts that affect the collectability of the reported amounts, including expected defaults and
prepayments. Historical loss experience is generally the starting point for estimating expected credit losses. Adjustments are
95
made to historical loss experience to reflect differences in asset-specific risk characteristics, such as underwriting standards,
portfolio mix or asset terms and differences in economic conditions, both current conditions and reasonable and supportable
forecasts. If HTLF is not able to make or obtain reasonable and supportable forecasts for the entire life of the financial asset, it
is required to estimate expected credit losses for the remaining life using an approach that reverts to historical credit loss
information. The components of the allowance for credit losses are described more specifically below.
Quantitative Factors
The quantitative component of the allowance for credit losses is measured using historical loss experience using a look back
period, currently over the most recent 13 years, on a pool basis for loans with similar risk characteristics. HTLF utilizes third-
party software to calculate the expected credit losses using two separate methodologies. For certain commercial and agricultural
loans, the expected credit losses are calculated through a transition matrix model derived probability of default and loss given
default methodology. The transition matrix model determines the life of loan probability of default using the historical
transitions of loans between risk ratings and through default. The probability of default and loss given default methodology
have been developed using HTLF’s historical loss experience over the look back period. For smaller commercial and
agricultural loans, residential real estate loans and consumer loans, a lifetime average historical loss rate is established for each
pool of loans based upon an average loss rate calculated using HTLF historical loss experience over the look back-period.
The risks in the commercial and industrial loan 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. 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. Agricultural
and agricultural real estate loans are dependent upon the profitable operation or management of the farm property securing the
loan. Loans secured by farm equipment, livestock or crops may not provide an adequate source of repayment because of
damage or depreciation. Residential real estate loans are dependent upon the borrower's ability to repay the loan and the
underlying collateral value. Consumer loans are dependent upon the borrower's personal financial circumstances and continued
financial stability.
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. A loan is collateral-dependent when the debtor is experiencing
financial difficulty and repayment is expected to be provided substantially through the sale or operation of the collateral. The
impairment will be recognized by creating a specific reserve against the loan with a corresponding charge to provision expense.
In most cases, the specific reserve will be charged off in the same quarter as the loss is probable. In some cases, when HTLF
believes certain loans do not share the same risk characteristics with other loans in the pool, the standard allows for these loans
to be individually assessed. All individually assessed loan calculations are completed at least semi-annually.
Qualitative Factors
HTLF's allowance methodology also has a qualitative component, the purpose of which is to provide management with a means
to take into consideration changes in current conditions that could potentially have an effect, up or down, on the level of
recognized loan losses, that, for whatever reason, fail to show up in the quantitative analysis performed in determining its base
loan loss rates.
HTLF utilizes the following qualitative factors, all of which are equally weighted:
•
•
•
•
•
•
•
changes in lending policies and procedures
changes in the nature of loans
experience and ability of management
changes in the credit quality of the loan portfolio
risk in acquired portfolios
concentrations of credit
other external factors
The qualitative adjustments are based on the comparison of the current condition to the average condition over the look back
period. The adjustment amount can be either positive or negative depending on whether or not the current condition is better or
worse than the historical average. HTLF incorporates the adjustments for changes in current conditions using an overlay
96
approach. The adjustments are applied as a percentage adjustment in addition to the calculated historical loss rates of each pool.
These adjustments reflect the extent to which HTLF expects current conditions to differ from the conditions that existed for the
period over which historical information was evaluated. HTLF utilizes an anchoring approach to determine the minimum and
maximum amount of qualitative allowance for credit losses, which is determined by comparing the highest and lowest historical
rate to the current quantitative allowance rate to calculate the rate for the adjustment.
Economic Forecasting
The allowance for credit losses estimate incorporates a reasonable and supportable forecast of various macro-economic indices
over the remaining life of HTLF’s assets. HTLF utilizes an overlay approach for its economic forecasting component, similar to
the method utilized for the qualitative factors. The length of the reasonable and supportable forecast period is a judgmental
determination based on the level to which the entity can support its forecast of economic conditions that drive its estimate of
expected loss. HTLF compares forecasted macro-economic indices, such as unemployment and gross domestic product, to the
economic conditions that existed over HTLF's look back period.
HTLF uses Moody's baseline economic forecast scenario, which is updated quarterly in HTLF's methodology. The economic
forecast reverts to the historical mean immediately at the end of the reasonable and supportable forecast period. Because of the
economic uncertainty associated with COVID-19, HTLF utilized a one-year reasonable and supportable forecast period for the
calculation of the December 31, 2021, and December 31, 2020 allowance for credit losses.
It is expected that actual economic conditions will, in many circumstances, turn out differently than forecasted because the
ultimate outcomes during the forecast period may be affected by events that were unforeseen, such as economic disruption and
fiscal or monetary policy actions, which are exacerbated by longer forecasting periods. This uncertainty would be relevant to
the entity’s confidence level as to the outcomes being forecasted. That is, an entity is likely less confident in the ultimate
outcome of events that will occur at the end of the forecast period as compared to the beginning. As a result, actual future
economic conditions may not be an effective indicator of the quality of management’s forecasting process, including the length
of the forecast period.
Under the incurred credit losses methodology utilized in the prior periods, the allowance for loan losses was maintained at a
level estimated by management to provide for known and inherent risks in the loan portfolio. The allowance for loan losses was
based upon a continuing review of past loan loss experience, current economic conditions, volume growth, the underlying
collateral value of the loans and other relevant factors. Loans which were deemed uncollectible were charged-off and deducted
from the allowance for loan losses. Provisions for loan losses and recoveries on loans previously charged-off by Heartland were
added to the allowance for loan losses.
The incurred credit losses methodology included the establishment of a dual risk rating system, which allowed for the
utilization of a probability of default and loss given default for certain commercial and agricultural loans in the calculation of
the allowance for loan losses. The probability of default and loss given default methodology was developed using Heartland’s
default and loss experience over historical observation periods. Heartland's incurred credit losses methodology also utilized loss
emergence periods, which represented the average amount of time from the point that a loss was incurred to the point at which
the loss was confirmed. The loss rates used in the allowance calculation were periodically re-evaluated and adjusted to reflect
changes in historical loss levels or other risks. In addition to past loss experience, management also utilized certain qualitative
factors in our incurred credit losses methodology including the overall composition of the loan portfolio, general economic
conditions, types of loans, loan collateral values, and trends in loan delinquencies and non-performing assets.
Troubled Debt Restructured Loans - Loans are considered troubled debt restructured loans ("TDR") if concessions have been
granted to borrowers that are experiencing financial difficulty. The concessions granted generally involve the modification of
terms of the loan, such as changes in payment schedule or interest rate, which generally would not otherwise be considered.
TDRs can involve loans remaining on nonaccrual, moving to nonaccrual, or continuing on accrual status, depending on the
individual facts and circumstances of the borrower. Nonaccrual TDRs are included and treated consistently with all other
nonaccrual loans. Generally, TDRs remain on nonaccrual until the customer has attained a sustained period of repayment
performance under the modified loan terms (generally a minimum of six months). However, performance prior to the
restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can
meet the new terms and whether the loan should be returned to or maintained on accrual status. If the borrower’s ability to meet
the revised payment schedule is not reasonably assured, the loan remains on nonaccrual status.
During 2020, TDR treatments were updated due to COVID-19 and the Coronavirus Aid, Relief and Economic Security Act (the
"CARES Act") regulation. Under the CARES Act, banking institutions are not required to classify modifications as TDRs if the
following three conditions are met: 1) the deferral was related to COVID-19, 2) executed on a loan that was not more than 30
days past due as of December 31, 2019, and 3) executed between March 1, 2020 and the later of December 31, 2020 or the last
97
day of the Declaration of National Emergency. HTLF has adopted the CARES Act rule for TDR classification and has
enhanced its procedures for deferral monitoring. The National Emergency Declaration was in effect during 2021, and therefore,
HTLF followed the CARES Act rule for TDR classification during the year ended December 31, 2021.
A loan that is a TDR that has an interest rate consistent with market rates at the time of restructuring and is in compliance with
its modified terms in the calendar year after the year in which the restructuring took place is no longer considered a TDR. To be
considered in compliance with its modified terms, a loan that is a TDR must be in accrual status and must be current or less than
30 days past due under the modified repayment terms. A loan that has been modified at a below market rate will remain
classified as a TDR. If the borrower’s financial conditions improve to the extent that the borrower qualifies for a new loan with
market terms, the new loan will not be considered a TDR if HTLF's credit analysis shows the borrower's ability to perform
under scheduled terms.
Loans Held for Sale - Loans held for sale are stated at the lower of cost or fair value on an aggregate basis. Gains or losses on
sales are recorded in noninterest income. Direct loan origination costs and fees are deferred at origination of the loan. These
deferred costs and fees are recognized in noninterest income as part of the gain or loss on sales of loans upon sale of the loan.
At December 31, 2021 and 2020, loans held for sale primarily consisted of 1-4 family residential mortgages.
Allowance for Credit Losses on Unfunded Loan Commitments - HTLF estimates expected credit losses over the contractual
term of the loan for the unfunded portion of the loan commitment that is not unconditionally cancellable by HTLF using the
same collective allowance methodology for credit losses for loans described above. Management uses an estimated average
utilization rate to determine the exposure at default. The allowance for unfunded commitments is recorded in the Accrued
Expenses and Other Liabilities section of the consolidated balance sheets.
Mortgage Servicing and Transfers of Financial Assets - HTLF regularly sells residential mortgage loans to others, primarily
government sponsored entities, on a non-recourse basis. Sold loans are not included in the accompanying consolidated balance
sheets. HTLF generally retains the right to service the sold loans for a fee. HTLF's First Bank and Trust subsidiary serviced
mortgage loans primarily for government sponsored entities with aggregate unpaid principal balance of $723.3 million and
$743.3 million, at December 31, 2021 and 2020, respectively.
Premises, Furniture and Equipment, net - Premises, furniture and equipment are stated at cost less accumulated depreciation.
The provision for depreciation of premises, furniture and equipment is determined by straight-line and accelerated methods over
the estimated useful lives of 18 to 39 years for buildings, 15 years for land improvements and 3 to 7 years for furniture and
equipment.
Premises, Furniture and Equipment Held for Sale - Premises, furniture and equipment are stated at the estimated fair value
less disposal costs. Subsequent write-downs and gains or losses on the sales are recorded to loss on sales/valuation of assets,
net.
Other Real Estate - Other real estate represents property acquired through foreclosures and settlements of loans. Property
acquired is recorded at the estimated fair value of the property less disposal costs. The excess of carrying value over fair value
less disposal costs is charged against the allowance for credit losses. Subsequent write downs estimated on the basis of later
valuations and gains or losses on sales are charged to loss on sales/valuation of assets, net. Expenses incurred in maintaining
such properties are charged to other real estate and loan collection expenses.
Goodwill - Goodwill represents the excess of the purchase price of acquired subsidiaries’ net assets over their fair value at the
purchase date. HTLF assesses goodwill for impairment annually, and more frequently if events occur which may indicate
possible impairment, and assesses goodwill at the reporting unit level, also giving consideration to overall enterprise value as
part of that assessment.
In evaluating goodwill for impairment, HTLF first assesses qualitative factors to determine whether it is more likely than not
(that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If HTLF
concludes that it is more likely than not that the fair value of a reporting unit is more than its carrying value, then no further
testing of goodwill assigned to the reporting unit is required. However, if HTLF concludes that it is more likely than not that the
fair value of a reporting unit is less than its carrying value, then HTLF performs a quantitative goodwill impairment test to
identify potential goodwill impairment and measure the amount of goodwill impairment to recognize, if any. In addition, the
income tax effects of tax deductible goodwill on the carrying amount of the reporting unit should be considered when
measuring the goodwill impairment loss, if applicable. A goodwill impairment charge is recognized for the amount by which
98
the carrying amount exceeds the reporting unit's fair value; however, the loss recognized cannot exceed the total amount of
goodwill allocated to that reporting unit.
Core Deposit Intangibles and Customer Relationship Intangibles, Net - Core deposit intangibles are amortized over 8 to 18
years on an accelerated basis. Customer relationship intangibles are amortized over 22 years on an accelerated basis. Annually,
HTLF reviews these intangible assets for events or circumstances that may indicate a change in the recoverability of the
underlying basis.
Servicing Rights, Net - Mortgage and commercial servicing rights associated with loans originated and sold, where servicing is
retained, are initially capitalized at fair value and recorded on the consolidated statements of income as a component of gains on
sale of loans held for sale. The values of these capitalized servicing rights are amortized as an offset to the loan servicing
income earned in relation to the servicing revenue expected to be earned.
The carrying values of these rights are reviewed quarterly for impairment based on the calculation of their fair value as
performed by an outside third party. For purposes of measuring impairment, the rights are stratified into certain risk
characteristics including loan type and loan term. As of December 31, 2021, a valuation allowance of $327,000 was required on
HTLF's mortgage servicing rights with an original term of 15 years, and a valuation allowance of $1.3 million was required on
HTLF's mortgage servicing rights with an original term of 30 years. At December 31, 2020, a valuation allowance of $422,000
was required on HTLF's mortgage servicing rights with an original term of 15 years, and a valuation allowance of $1.4 million
was required on HTLF's mortgage servicing rights with an original term of 30 years.
Cash Surrender Value on Life Insurance - HTLF and its subsidiaries have purchased life insurance policies on the lives of
certain officers. The one-time premiums paid for the policies, which coincide with the initial cash surrender value, are recorded
as an asset. Increases or decreases in the cash surrender value, other than proceeds from death benefits, are recorded as
noninterest income in income on bank owned life insurance. Proceeds from death benefits first reduce the cash surrender value
attributable to the individual policy and then any additional proceeds are recorded in other noninterest income.
Income Taxes - HTLF and its subsidiaries file a consolidated federal income tax return and separate or combined income or
franchise tax returns as required by the various states. HTLF recognizes certain income and expenses in different time periods
for financial reporting and income tax purposes. The provision for deferred income taxes is based on an asset and liability
approach and represents the change in deferred income tax accounts during the year, including the effect of enacted tax rate
changes. A valuation allowance is provided to reduce deferred tax assets if their expected realization is deemed not to be more
likely than not.
A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax
examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on
examination. HTLF recognizes interest and penalties related to income tax matters in income tax expense.
Derivative Financial Instruments - HTLF uses derivative financial instruments as part of its interest rate risk management,
which includes interest rate swaps, certain interest rate lock commitments and forward sales of securities related to mortgage
banking activities. FASB ASC Topic 815 establishes accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging activities. As required by ASC 815, HTLF records
all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives
depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to
variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. To qualify
for hedge accounting, HTLF must comply with the detailed rules and documentation requirements at the inception of the hedge,
and hedge effectiveness is assessed at inception and periodically throughout the life of each hedging relationship. Hedge
ineffectiveness, if any, is measured periodically throughout the life of the hedging relationship.
For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially
reported in other comprehensive income (loss) and subsequently reclassified to interest income or expense when the hedged
transaction affects earnings, while the ineffective portion of changes in the fair value of the derivative, if any, is recognized
immediately in other noninterest income. HTLF assesses the effectiveness of each hedging relationship by comparing the
cumulative changes in cash flows of the derivative hedging instrument with the cumulative changes in cash flows of the
designated hedged item or transaction. No component of the change in the fair value of the hedging instrument is excluded from
the assessment of hedge effectiveness.
99
HTLF has fair value hedging relationships at December 31, 2021. 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 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 does not use derivatives for trading or speculative purposes. Derivatives not designated as hedges are not speculative and
are used to manage HTLF’s exposure to interest rate movements and other identified risks, but do not meet the strict hedge
accounting requirements of ASC 815.
Mortgage Derivatives - HTLF uses interest rate lock commitments to originate residential mortgage loans held for sale and
forward commitments to sell residential mortgage loans and mortgage backed securities. These commitments are considered
derivative instruments. 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.
Fair Value Measurements - Fair value represents the estimated price at which an orderly transaction to sell an asset or transfer
a liability would take place between market participants at the measurement date under current market conditions (i.e., an exit
price concept). Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values
are measured using discounted cash flow or other valuation techniques. Inputs into the valuation methods are subjective in
nature, involve uncertainties, and require significant judgment and therefore cannot be determined with precision. Accordingly,
the derived fair value estimates presented herein are not necessarily indicative of the amounts HTLF could realize in a current
market exchange. Assets and liabilities are categorized into three levels based on the markets in which the assets and liabilities
are traded and the reliability of the assumptions used to determine the fair value. In instances where the determination of the fair
value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy in
which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement
in its entirety. HTLF's assessment of the significance of a particular input to the fair value measurement in its entirety requires
judgment and considers factors specific to the asset or liability. Below is a brief description of each fair value level:
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 which 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.
Treasury Stock - Treasury stock is accounted for by the cost method, whereby shares of common stock reacquired are recorded
at their purchase price. When treasury stock is reissued, any difference between the sales proceeds, or fair value when issued for
business combinations, and the cost is recognized as a charge or credit to capital surplus. HTLF had no treasury stock at
December 31, 2021 and December 31, 2020.
Trust Department Assets - Property held for customers in fiduciary or agency capacities is not included in the accompanying
consolidated balance sheets because such items are not assets of the HTLF banks.
100
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 years ended December 31, 2021, 2020 and 2019, are shown in the
table below, dollars and number of shares in thousands, except per share data:
Net income attributable to HTLF
Preferred dividends
Net income available to common stockholders
Weighted average common shares outstanding for basic earnings per share
Assumed incremental common shares issued upon vesting of restricted stock units
Weighted average common shares for diluted earnings per share
Earnings per common share — basic
Earnings per common share — diluted
Number of antidilutive stock units excluded from diluted earnings per share computation
2021
2020
$ 219,923 $ 137,938 $ 149,129
2019
(8,050)
(4,451)
—
$ 211,873 $ 133,487 $ 149,129
42,260
37,269
35,991
151
88
71
42,411
37,357
36,062
$
$
5.01 $
3.58 $
5.00 $
3.57 $
1
—
4.14
4.14
—
Subsequent Events - HTLF has evaluated subsequent events that may require recognition or disclosure through the filing date
of this Annual Report on Form 10-K with the SEC.
Effect of New Financial Accounting Standards
ASU 2018-16
In October 2018, the FASB issued ASU 2018-16, "Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight
Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting." In the United
States, eligible benchmark interest rates under Topic 815 are interest rates on direct Treasury obligations of the U.S.
government, the London Interbank Offered Rate ("LIBOR") swap rate, and the Overnight Index Swap ("OIS") Rate based on
the Fed Funds Effective Rate. When the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted
Improvements to Accounting for Hedging Activities, in August 2017, it introduced the Securities Industry and Financial Markets
Association ("SIFMA") Municipal Swap Rate as the fourth permissible U.S. benchmark rate. ASU 2018-16 adds the OIS rate
based on the Secured Overnight Financing Rate ("SOFR") as a U.S. benchmark interest rate to facilitate the LIBOR to SOFR
transition and provide sufficient lead time for entities to prepare for changes to interest rate risk hedging strategies for both risk
management and hedge accounting purposes. ASU 2018-16 became effective for fiscal years beginning after December 15,
2018, and interim periods within those fiscal years and the financial statement impact immediately upon adoption was
immaterial. The future financial statement impact will depend on any new contracts entered into using new benchmark rates, as
well as any existing contracts that are migrated from LIBOR to new benchmark interest rates. HTLF has a formal working
group that is 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 derivative instruments in place that
reference LIBOR-based rates. HTLF's transition plan provided for the cessation in new contracts of the use of LIBOR as a
reference rate by December 31, 2021.
ASU 2019-12
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740) - Simplifying the Accounting for Income
Taxes." ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740
related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the
recognition for deferred tax liabilities for outside basis differences. ASU 2019-12 also simplifies aspects of the accounting for
franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in
the tax basis of goodwill. HTLF adopted this ASU on January 1, 2021, as required, and the adoption did not have a material
impact on its results of operations, financial position and liquidity.
ASU 2020-04
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform," which provides optional expedients and exceptions
for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated
transition away from LIBOR toward new interest rate benchmarks. For loan and lease agreements that are modified because of
reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by
prospectively adjusting the effective interest rate, and the modifications would be considered "minor" with the result that any
existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease
101
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.
TWO
ACQUISITIONS
Johnson Bank branches
On December 4, 2020, Arizona Bank & Trust ("AB&T"), a wholly-owned subsidiary of HTLF headquartered in Phoenix,
Arizona, completed its acquisition of certain assets and assumed substantially all of the deposits and certain other liabilities of
Johnson Bank’s Arizona operations, which includes four branches. Johnson Bank is a wholly-owned subsidiary of Johnson
Financial Group, Inc. headquartered in Racine, Wisconsin. As of the closing date, AB&T acquired, at fair value, total assets of
$419.7 million, which included gross loans of $150.7 million, and deposits of $415.5 million.
AIM Bancshares, Inc.
On October 19, 2020, HTLF entered into an Amended and Restated Agreement and Plan of Merger (the "agreement") with First
Bank & Trust ("FBT"), HTLF's Texas wholly-owned subsidiary, AIM Bancshares, Inc. ("AIM"), AimBank, a Texas stated
chartered bank and wholly-owned subsidiary of AIM, and the shareholder representative of AIM providing for HTLF to acquire
AIM and AimBank in a two-step transaction. The transaction closed on December 4, 2020.
Pursuant the agreement, each share of AimBank common stock was converted into the right to receive 207 shares of HTLF
common stock and $1,887.16 of cash, subject to certain hold-back provisions of the agreement. Based on the closing price of
$41.89 per share of HTLF common stock on December 4, 2020, the aggregate merger consideration received by AimBank
stockholders was valued at approximately $264.5 million, which was paid by delivery of HTLF common stock valued at
$217.2 million and cash of $47.3 million, subject to certain hold-back provisions of the merger agreement relating to the cash
consideration. In addition, holders of in-the-money options to acquire shares of AimBank common stock received aggregate
consideration of approximately $4.9 million in exchange for the cancellation of such stock options.
The transaction included, at fair value, total assets of $1.97 billion, including $1.09 billion of gross loans held to maturity, and
deposits of $1.67 billion. The transaction was considered a tax-free reorganization with respect to the stock consideration
received by the shareholders of AimBank.
The assets and liabilities of AimBank were recorded on the consolidated balance sheet at the estimated fair value on the
acquisition date. Loans classified as non-PCD were recorded on acquisition date at fair value based on a discounted cash flow
valuation methodology that considers, among other things, projected default rates, loss given defaults and recovery rates.
102
The following table represents, in thousands, the amounts recorded on the consolidated balance sheet as of December 4, 2020:
As of December 4, 2020
Fair value of consideration paid:
Common stock (5,185,045 shares)
Cash
Total consideration paid
Fair value of assets acquired
Cash and cash equivalents
Securities:
Carried at fair value
Other securities
Loans held to maturity
Allowance for credit losses for loans
Net loans held to maturity
Premises, furniture and equipment, net
Other real estate, net
Core deposit intangibles and customer relationships, net
Cash surrender value on life insurance
Other assets
Total assets
Fair value of liabilities assumed
Deposits
Short term borrowings
Other liabilities
Total liabilities assumed
Fair value of net assets acquired
Goodwill resulting from acquisition
$
$
217,202
47,275
264,477
470,085
267,936
3,210
1,087,041
(12,055)
1,074,986
27,867
1,119
3,102
13,418
20,159
1,881,882
1,670,715
26,306
11,807
1,708,828
173,054
91,423
HTLF recognized $91.4 million of goodwill in conjunction with the acquisition of AimBank which is calculated as the excess
of both the consideration exchanged and the liabilities assumed as compared to the fair value of identifiable assets acquired.
Goodwill resulted from the expected operational synergies, enhanced market area, cross-selling opportunities and expanded
business lines. See Note 8 for further information on goodwill.
HTLF incurred $2.5 million of pre-tax merger related expenses in the year ended December 31, 2020, associated with the
AimBank acquisition. The merger expenses are reflected on the consolidated statements of income for the applicable period and
are reported primarily in the category of acquisition, integration and restructuring costs.
THREE
CASH AND DUE FROM BANKS
The HTLF banks are required to maintain certain average cash reserve balances as a non-member bank of the Federal Reserve
System. On March 15, 2020, the Federal Reserve temporarily suspended the reserve requirement due to the COVID-19
pandemic, and as a result, there was no reserve requirement at both December 31, 2021, and December 31, 2020.
103
FOUR
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 as of December 31, 2021, and December 31, 2020, are summarized in the table
below, in thousands:
Gross
Amortized Unrealized Unrealized
Gains
Losses
Gross
Cost
Estimated
Fair
Value
December 31, 2021
U.S. treasuries
U.S. agencies
Obligations of states and political subdivisions
Mortgage-backed securities - agency
Mortgage-backed securities - non-agency
Commercial mortgage-backed securities - agency
Commercial mortgage-backed securities - non-agency
Asset-backed securities
Corporate bonds
Total debt securities
Equity securities with a readily determinable fair value
Total
December 31, 2020
U.S. treasuries
U.S. agencies
Obligations of states and political subdivisions
Mortgage-backed securities - agency
Mortgage-backed securities - non-agency
Commercial mortgage-backed securities - agency
Commercial mortgage-backed securities - non-agency
Asset-backed securities
Corporate bonds
Total debt securities
Equity securities
Total
$
997 $
11 $
— $
1,008
193,932
2,045,386
2,388,601
1,749,838
125,397
600,253
408,167
2,979
264
56,263
11,870
4,570
1,429
998
2,803
61
(812)
193,384
(16,616)
2,085,033
(51,182)
2,349,289
(11,029)
1,743,379
(2,914)
(363)
(1,317)
—
123,912
600,888
409,653
3,040
7,515,550
78,269
(84,233)
7,509,586
20,788
—
—
20,788
$ 7,536,338 $
78,269 $
(84,233) $ 7,530,374
$
1,995 $
31 $
— $
2,026
167,048
1,562,631
1,351,964
1,428,068
171,451
253,421
1,064,255
3,763
657
75,555
16,029
22,688
3,440
37
9,421
8
(926)
166,779
(2,959)
1,635,227
(12,723)
1,355,270
(1,640)
1,449,116
(738)
(691)
174,153
252,767
(4,410)
1,069,266
(29)
3,742
6,004,596
127,866
(24,116)
6,108,346
19,629
—
—
19,629
$ 6,024,225 $ 127,866 $
(24,116) $ 6,127,975
The amortized cost, gross unrealized gains and losses and estimated fair values of held to maturity securities as of
December 31, 2021, and December 31, 2020, are summarized in the table below, in thousands:
Gross
Unrealized
Losses
Gross
Unrealized
Gains
Estimated
Fair
Value
Allowance
for Credit
Losses
Amortized
Cost
December 31, 2021
Obligations of states and political subdivisions
Total
December 31, 2020
Obligations of states and political subdivisions
Total
$
$
$
$
84,709 $
84,709 $
9,430 $
9,430 $
— $
— $
94,139 $
94,139 $
88,890 $
88,890 $
11,151 $
11,151 $
— $ 100,041 $
— $ 100,041 $
—
—
(51)
(51)
104
As of December 31, 2021, HTLF had $29.4 million compared to $20.8 million at December 31, 2020, 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 December 31, 2021, by contractual
maturity are as follows, in thousands. Expected maturities will differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without penalties.
December 31, 2021
Due in 1 year or less
Due in 1 to 5 years
Due in 5 to 10 years
Due after 10 years
Total debt securities
Mortgage and asset-backed securities
Equity securities with a readily determinable fair value
Total investment securities
Amortized Cost
Estimated Fair Value
2,481
2,455 $
$
19,058
173,467
2,048,314
2,243,294
5,272,256
20,788
$
7,536,338 $
19,897
175,188
2,084,899
2,282,465
5,227,121
20,788
7,530,374
The amortized cost and estimated fair value of debt securities held to maturity at December 31, 2021, by contractual maturity
are as follows, in thousands. Expected maturities will differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without penalties.
December 31, 2021
Due in 1 year or less
Due in 1 to 5 years
Due in 5 to 10 years
Due after 10 years
Total investment securities
$
$
Amortized Cost
Estimated Fair Value
5,112
5,096 $
38,787
34,824
6,002
84,709 $
40,561
39,871
8,595
94,139
As of December 31, 2021, securities with a carrying value of $1.66 billion compared to $2.12 billion at December 31, 2020,
were pledged to secure public and trust deposits, short-term borrowings and for other purposes as required and permitted by
law.
Gross gains and losses realized related to sales of securities carried at fair value for the years ended December 31, 2021, 2020
and 2019 are summarized as follows, in thousands:
2021
2020
2019
Available for Sale Securities sold:
Proceeds from sales
Gross security gains
Gross security losses
$ 1,475,598 $ 1,097,378 $ 1,628,467
11,774
4,115
11,892
5,982
13,208
5,616
105
The following tables summarize, 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 HTLF's securities portfolio
as of December 31, 2021, and December 31, 2020. The investments were segregated into two categories: those that have been
in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss
position for 12 or more months. The reference point for determining how long an investment was in an unrealized loss position
was December 31, 2021, and December 31, 2020, respectively.
Debt securities available for
sale
December 31, 2021
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Losses
Count
Fair
Value
Unrealized
Losses
Count
Fair
Value
Unrealized
Losses
Count
U.S. agencies
$ 100,839 $
(812)
2 $
— $
—
— $ 100,839 $
(812)
2
Obligations of states and
political subdivisions
Mortgage-backed securities -
agency
Mortgage-backed securities -
non-agency
Commercial mortgage-backed
securities - agency
Commercial mortgage-backed
securities - non-agency
Asset-backed securities
Total temporarily impaired
securities
December 31, 2020
596,866
(10,115)
113
236,329
(6,501)
49
833,195
(16,616)
162
1,383,808
(33,291)
929,515
(10,870)
26,999
(689)
74,450
113,945
(145)
(1,201)
83
27
8
3
6
474,724
(17,891)
19
1,858,532
(51,182)
102
23,821
(159)
53,025
(2,225)
14,124
13,799
(218)
(116)
5
5
2
6
953,336
(11,029)
80,024
(2,914)
88,574
127,744
(363)
(1,317)
32
13
5
12
$ 3,226,422 $
(57,123)
242 $ 815,822 $
(27,110)
86 $ 4,042,244 $
(84,233)
328
U.S. agencies
$
2,981 $
(8)
5 $
99,922 $
(918)
72 $ 102,903 $
(926)
Obligations of states and
political subdivisions
Mortgage-backed securities -
agency
Mortgage-backed securities -
non-agency
Commercial mortgage-backed
securities - agency
Commercial mortgage-backed
securities - non-agency
Asset-backed securities
Corporate bonds
Total temporarily impaired
securities
346,598
(2,959)
653,793
(12,342)
49
35
31,012
(381)
—
—
—
346,598
(2,959)
378,843
(1,639)
17
1,622
46,541
(738)
100,042
141,824
1,908
(15)
(643)
(29)
6
2
9
4
—
35,428
340,452
—
(1)
—
(676)
(3,767)
—
3
1
—
3
24
—
684,805
(12,723)
380,465
(1,640)
46,541
(738)
135,470
482,276
1,908
(691)
(4,410)
(29)
77
49
38
18
6
5
33
4
$ 1,672,530 $
(18,373)
127 $ 508,436 $
(5,743)
103 $ 2,180,966 $
(24,116)
230
HTLF had no securities held to maturity with unrealized losses at December 31, 2021, or December 31, 2020.
The unrealized losses on HTLF's mortgage and asset-backed securities are the result of changes in market interest rates or
widening of market spreads subsequent to the initial purchase of the securities. The losses are not related to concerns regarding
the underlying credit of the issuers or the underlying collateral. It is expected that the securities will not be settled at a price less
than the amortized cost of the investment. Because the decline in fair value is attributable to changes in interest rates or
widening market spreads and not credit quality, and because HTLF has the intent and ability to hold these investments until a
market price recovery or to maturity and does not believe it will be required to sell the securities before maturity, no credit
losses were recognized on these securities during the years ended December 31, 2021 and December 31, 2020.
The unrealized losses on HTLF's obligations of states and political subdivisions are the result of changes in market interest rates
or widening of market spreads subsequent to the initial purchase of the securities. Management monitors the published credit
ratings of these securities and the stability of the underlying municipalities. Because the decline in fair value is attributable to
changes in interest rates or widening market spreads due to insurance company downgrades and not underlying credit quality,
and because HTLF has the intent and ability to hold these investments until a market price recovery or to maturity and does not
106
believe it will be required to sell the securities before maturity, no credit losses were recognized on these securities during the
years ended December 31, 2021 and December 31, 2020.
The credit loss model applicable to held to maturity debt securities requires the recognition of lifetime expected credit losses
through an allowance account at the time when the security is purchased. The following table presents, in thousands, the
activity in the allowance for credit losses for securities held to maturity by obligations of states and political subdivisions for the
years ended December 31, 2021 and December 31, 2020:
Beginning balance
Impact of ASU 2016-13 adoption
Adjusted balance
Provision (benefit) for credit losses
Ending balance
Year Ended
December 31,
2021
2020
$
$
51 $
—
51
(51)
— $
—
158
158
(107)
51
The following table summarizes, in thousands, the carrying amount of HTLF's held to maturity debt securities by investment
rating as of December 31, 2021 and December 31, 2020, which are updated quarterly and used to monitor the credit quality of
the securities:
Rating
AAA
AA, AA+, AA-
A+, A, A-
BBB
Not Rated
Total
December 31, 2021
December 31, 2020
$
$
3,265 $
61,471
15,034
4,939
—
84,709 $
—
64,385
18,353
4,208
1,944
88,890
Included in other securities were shares of stock in each Federal Home Loan Bank (the "FHLB") of Des Moines, Chicago,
Dallas, San Francisco and Topeka at an amortized cost of $22.6 million at December 31, 2021 and $19.5 million at
December 31, 2020.
The HTLF banks are required to maintain FHLB stock as members of the various FHLBs as required by these institutions.
These equity securities are "restricted" in that they can only be sold back to the respective institutions or another member
institution at par. Therefore, they are less liquid than other marketable equity securities and their 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
December 31, 2021, did not consider the investments to be other than temporarily impaired.
107
FIVE
LOANS
Loans as of December 31, 2021, and December 31, 2020, were as follows, in thousands:
Loans receivable held to maturity:
Commercial and industrial
Paycheck Protection Program ("PPP")
Owner occupied commercial real estate
Non-owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
Total loans receivable held to maturity
Allowance for credit losses
Loans receivable, net
December 31, 2021
December 31, 2020
$
$
2,645,085 $
199,883
2,240,334
2,010,591
856,119
753,753
829,283
419,524
9,954,572
(110,088)
9,844,484 $
2,534,799
957,785
1,776,406
1,921,481
863,220
714,526
840,442
414,392
10,023,051
(131,606)
9,891,445
As of December 31, 2021, HTLF had $35.3 million compared to $42.4 million as of December 31, 2020, 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 December 31, 2021, and December 31, 2020, 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
Loans
Loans
Collectively
Individually
Evaluated for
Evaluated for
Credit Losses Credit Losses
Total
Total
December 31, 2021
Commercial and industrial
$
4,562 $
23,176 $
27,738 $
13,551 $
2,631,534 $ 2,645,085
PPP
Owner occupied commercial real estate
Non-owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
Total
—
105
610
—
2,369
—
—
—
19,109
17,298
22,538
2,844
8,427
9,050
—
19,214
17,908
22,538
5,213
8,427
9,050
—
8,552
12,557
—
13,773
855
—
199,883
199,883
2,231,782
2,240,334
1,998,034
2,010,591
856,119
739,980
828,428
419,524
856,119
753,753
829,283
419,524
$
7,646 $
102,442 $ 110,088 $
49,288 $
9,905,284 $ 9,954,572
108
Allowance For Credit Losses
Gross Loans Receivable Held to Maturity
Individually
Evaluated
for Credit
Losses
Collectively
Evaluated
for Credit
Losses
Loans
Loans
Individually
Collectively
Evaluated for
Evaluated for
Credit Losses Credit Losses
Total
Total
December 31, 2020
Commercial and industrial
$
4,077 $
34,741 $
38,818 $
16,578 $
2,518,221 $ 2,534,799
PPP
Owner occupied commercial real estate
Non-owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
Total
—
111
3,250
—
1,988
—
—
—
19,890
17,623
20,080
5,141
11,935
12,770
—
20,001
20,873
20,080
7,129
11,935
12,770
—
957,785
957,785
11,174
13,490
—
15,453
535
—
1,765,232
1,776,406
1,907,991
1,921,481
863,220
699,073
839,907
414,392
863,220
714,526
840,442
414,392
$
9,426 $
122,180 $ 131,606 $
57,230 $
9,965,821 $ 10,023,051
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. HTLF had $6.2 million of troubled debt
restructured loans at December 31, 2020, of which $3.8 million were classified as nonaccrual and $2.4 million were accruing
according to the restructured terms.
The following table provides information on troubled debt restructured loans that were modified during the years ended
December 31, 2021, and December 31, 2020, in thousands:
For the Years Ended
December 31, 2021
December 31, 2020
Pre-
Post-
Modification Modification
Pre-
Post-
Modification Modification
Number
of Loans
Recorded
Investment
Recorded
Investment
Number
of Loans
Recorded
Investment
Recorded
Investment
Commercial and industrial
— $
— $
PPP
Owner occupied commercial real estate
Non-owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
Total
—
—
2
—
—
—
—
—
—
—
—
—
7,850
7,850
—
—
—
—
—
—
—
—
1 $
20 $
—
—
—
—
—
2
—
—
—
—
—
—
92
—
20
—
—
—
—
—
98
—
2 $
7,850 $
7,850
3 $
112 $
118
The pre-modification and post-modification recorded investment represents amounts as of the date of loan modification. The
difference between the pre-modification investment and post-modification investment amounts on HTLF’s residential real
estate troubled debt restructured loans is due to principal deferment collected from government guarantees and capitalized
interest and escrow. At December 31, 2021, there were no commitments to extend credit to any of the borrowers with an
existing TDR. The tables above do not include any loan modifications made under COVID-19 modification programs.
109
The following table provides information on troubled debt restructured loans for which there was a payment default during the
years ended December 31, 2021, and December 31, 2020, in thousands, that had been modified during the 12-month period
prior to the default:
Commercial and industrial
PPP
Owner occupied commercial real estate
Non-owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
Total
With Payment Defaults During the Following Periods
For the Years Ended
December 31, 2021
December 31, 2020
Number of
Loans
Recorded
Investment
Number of
Loans
Recorded
Investment
— $
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
1
—
1 $
—
—
—
—
—
—
232
—
232
HTLF's internal rating system is a series of grades reflecting management's risk assessment, based on its analysis of the
borrower's financial condition. The "pass" category consists of all loans that are not in the "nonpass" category and categorized
into a range of loan grades that reflect increasing, though still acceptable, risk. Movement of risk through the various grade
levels in the pass category is monitored for early identification of credit deterioration.
The "nonpass" category consists of watch, substandard, doubtful and loss loans. The "watch" rating is attached to loans where
the borrower exhibits negative trends in financial circumstances due to borrower specific or systemic conditions that, if left
uncorrected, threaten the borrower's capacity to meet its debt obligations. The borrower is believed to have sufficient financial
flexibility to react to and resolve its negative financial situation. These credits are closely monitored for improvement or
deterioration.
The "substandard" rating is assigned to loans that are inadequately protected by the current net worth and repaying capacity of
the borrower and that may be further at risk due to deterioration in the value of collateral pledged. Well-defined weaknesses
jeopardize liquidation of the debt. These loans are still considered collectible; however, a distinct possibility exists that HTLF
will sustain some loss if deficiencies are not corrected. Substandard loans may exhibit some or all of the following weaknesses:
deteriorating financial trends, lack of earnings, inadequate debt service capacity, excessive debt and/or lack of liquidity.
The "doubtful" rating is assigned to loans where identified weaknesses in the borrowers' ability to repay the loan make
collection or liquidation in full, on the basis of existing facts, conditions and values, highly questionable and improbable. These
borrowers are usually in default, lack liquidity and capital, as well as resources necessary to remain as an operating entity.
Specific pending events, such as capital injections, liquidations or perfection of liens on additional collateral, may strengthen
the credit, thus deferring the rating of the loan as "loss" until the exact status of the loan can be determined. The loss rating is
assigned to loans considered uncollectible. As of December 31, 2021, and December 31, 2020, HTLF had no loans classified as
doubtful and no loans classified as loss.
110
The following tables show the risk category of loans by loan category and year of origination as of December 31, 2021 and
December 31, 2020, in thousands:
As of December 31, 2021
Amortized Cost Basis of Term Loans by Year of Origination
2021
2020
2019
2018
2017
2016 and
Prior
Revolving
Total
Commercial and industrial
Pass
Watch
Substandard
$ 604,659 $ 359,533 $ 203,960 $
89,694 $
171,709 $
330,094 $
708,525 $ 2,468,174
10,633
19,888
12,790
6,391
12,550
13,050
8,210
8,535
3,611
6,619
14,976
12,052
24,626
22,980
87,396
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
Watch
Substandard
PPP total
Owner occupied commercial real
estate
$ 146,370 $
25,707 $
— $
— $
— $
— $
— $
172,077
10,726
16,932
127
21
—
—
—
—
—
—
—
—
—
—
10,853
16,953
$ 174,028 $
25,855 $
— $
— $
— $
— $
— $
199,883
Pass
Watch
Substandard
$ 940,043 $ 328,052 $ 315,497 $
180,936 $
115,142 $
189,647 $
34,233 $ 2,103,550
4,676
11,958
13,956
20,769
7,759
13,734
10,501
2,809
15,032
13,912
6,830
13,063
35
1,750
58,789
77,995
Owner occupied commercial real
estate total
Non-owner occupied commercial
real estate
$ 956,677 $ 362,777 $ 336,990 $
194,246 $
144,086 $
209,540 $
36,018 $ 2,240,334
Pass
Watch
Substandard
$ 609,968 $ 263,093 $ 315,815 $
236,823 $
152,059 $
166,792 $
28,728 $ 1,773,278
4,754
15,722
9,109
10,612
35,496
21,798
29,227
3,599
4,865
14,023
35,901
51,766
—
441
119,352
117,961
Non-owner occupied commercial
real estate total
Real estate construction
$ 630,444 $ 282,814 $ 373,109 $
269,649 $
170,947 $
254,459 $
29,169 $ 2,010,591
Pass
Watch
Substandard
$ 381,283 $ 206,879 $ 169,606 $
14,197 $
7,163 $
7,823 $
14,507 $
801,458
2,704
—
858
50
2,145
46
44,846
3,944
—
—
—
54
14
—
50,567
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
Watch
Substandard
$ 217,179 $ 102,030 $
47,927 $
32,913 $
22,029 $
35,548 $
220,065 $
677,691
4,018
9,250
10,390
1,095
4,688
4,910
2,270
15,825
33
3,212
2,038
8,859
2,948
6,526
26,385
49,677
Agricultural and agricultural
real estate total
Residential real estate
$ 230,447 $ 113,515 $
57,525 $
51,008 $
25,274 $
46,445 $
229,539 $
753,753
Pass
Watch
Substandard
$ 311,292 $
86,355 $
50,762 $
53,773 $
43,619 $
230,566 $
29,017 $
805,384
3,928
2,528
1,499
444
750
410
1,452
2,317
734
1,139
1,977
5,721
1,000
—
11,340
12,559
Residential real estate total
$ 317,748 $
88,298 $
51,922 $
57,542 $
45,492 $
238,264 $
30,017 $
829,283
Consumer
Pass
Watch
Substandard
Consumer total
Total pass
Total watch
Total substandard
Total loans
$
69,172
$
20,258
$
13,051
$
9,001
$
10,986
$
18,202
$
271,034
$
411,704
555
267
309
204
392
218
373
236
113
363
591
1,611
2,210
378
4,543
3,277
$
69,994
$
20,771
$
13,661
$
9,610
$
11,462
$
20,404
$
273,622
$
419,524
$ 3,279,966
$ 1,391,907
$ 1,116,618
$
617,337
$
522,707
$
978,672
$
1,306,109
$ 9,213,316
41,994
76,545
49,038
39,586
63,780
54,166
96,879
37,265
24,388
39,268
62,313
93,126
30,833
32,075
369,225
372,031
$ 3,398,505
$ 1,480,531
$ 1,234,564
$
751,481
$
586,363
$
1,134,111
$
1,369,017
$ 9,954,572
111
As of December 31, 2020
Amortized Cost Basis of Term Loans by Year of Origination
2020
2019
2018
2017
2016
2015 and
Prior
Revolving
Total
Commercial and industrial
Pass
Watch
Substandard
$ 557,853 $ 340,809 $ 168,873 $ 215,696 $ 101,010 $ 337,834 $ 541,627 $ 2,263,702
41,574
23,024
24,676
16,274
19,672
8,897
14,262
15,717
8,072
9,098
2,474
19,537
49,432
18,388
160,162
110,935
Commercial and industrial total
$ 622,451 $ 381,759 $ 197,442 $ 245,675 $ 118,180 $ 359,845 $ 609,447 $ 2,534,799
PPP
Pass
Watch
Substandard
PPP total
Owner occupied commercial real
estate
Pass
Watch
Substandard
Owner occupied commercial real
estate total
Non-owner occupied commercial real
estate
$ 880,709 $
— $
— $
— $
— $
— $
— $ 880,709
22,533
54,543
—
—
—
—
—
—
—
—
—
—
—
—
22,533
54,543
$ 957,785 $
— $
— $
— $
— $
— $
— $ 957,785
$ 400,662 $ 369,401 $ 300,242 $ 167,470 $ 107,234 $ 213,780 $
33,759 $ 1,592,548
15,345
15,914
13,764
9,522
22,488
12,164
20,811
14,147
8,717
8,580
15,282
21,708
4,311
1,105
100,718
83,140
$ 431,921 $ 392,687 $ 334,894 $ 202,428 $ 124,531 $ 250,770 $
39,175 $ 1,776,406
Pass
Watch
Substandard
$ 334,722 $ 411,301 $ 305,456 $ 194,101 $ 108,070 $ 233,153 $
24,466 $ 1,611,269
22,826
30,899
55,225
15,035
24,718
23,290
18,724
17,046
20,954
9,147
45,672
21,060
5,114
502
193,233
116,979
Non-owner occupied commercial
real estate total
Real estate construction
$ 388,447 $ 481,561 $ 353,464 $ 229,871 $ 138,171 $ 299,885 $
30,082 $ 1,921,481
Pass
Watch
Substandard
$ 311,625 $ 309,678 $ 157,171 $
12,625 $
6,954 $
5,110 $
21,431 $ 824,594
2,105
196
26,659
2,760
2,403
2,036
332
—
55
39
388
358
1,295
—
33,237
5,389
Real estate construction total
$ 313,926 $ 339,097 $ 161,610 $
12,957 $
7,048 $
5,856 $
22,726 $ 863,220
Agricultural and agricultural real estate
Pass
Watch
Substandard
$ 171,578 $
90,944 $
62,349 $
39,252 $
17,626 $
37,696 $ 148,456 $ 567,901
20,500
17,403
16,202
7,044
8,854
23,519
2,448
6,758
3,515
3,917
3,157
9,952
12,282
11,074
66,958
79,667
Agricultural and agricultural real
estate total
Residential real estate
$ 209,481 $ 114,190 $
94,722 $
48,458 $
25,058 $
50,805 $ 171,812 $ 714,526
Pass
Watch
Substandard
$ 153,017 $
99,440 $ 118,854 $
83,534 $
63,477 $ 244,852 $
33,467 $ 796,641
3,986
980
4,507
442
2,188
2,507
1,896
1,528
3,117
884
8,525
12,141
—
1,100
24,219
19,582
Residential real estate total
$ 157,983 $ 104,389 $ 123,549 $
86,958 $
67,478 $ 265,518 $
34,567 $ 840,442
Consumer
Pass
Watch
Substandard
Consumer total
Total pass
Total watch
Total substandard
Total loans
$
37,037 $
27,646 $
18,811 $
15,034 $
4,009 $
19,483 $ 280,996 $ 403,016
168
481
352
959
647
1,884
340
500
82
897
646
1,976
1,622
822
3,857
7,519
$
37,686 $
28,957 $
21,342 $
15,874 $
4,988 $
22,105 $ 283,440 $ 414,392
$ 2,847,203 $ 1,649,219 $ 1,131,756 $ 727,712 $ 408,380 $ 1,091,908 $ 1,084,202 $ 8,940,380
129,037
143,440
141,385
52,036
80,970
74,297
58,813
55,696
44,512
32,562
76,144
86,732
74,056
32,991
604,917
477,754
$ 3,119,680 $ 1,842,640 $ 1,287,023 $ 842,221 $ 485,454 $ 1,254,784 $ 1,191,249 $ 10,023,051
Included in HTLF's nonpass loans at December 31, 2021 were $27.8 million compared to $77.1 million at December 31, 2020,
of nonpass PPP loans as a result of risk ratings on non-PPP related credits. HTLF's risk rating methodology assigns a risk rating
112
to the whole lending relationship. HTLF has no allowance recorded related to the PPP loans because of the 100% SBA
guarantee.
As of December 31, 2021, HTLF had $1.0 million of loans secured by residential real estate property that were in the process of
foreclosure.
The following table sets forth information regarding HTLF's accruing and nonaccrual loans at December 31, 2021, and
December 31, 2020, in thousands:
Accruing Loans
30-59
Days
Past Due
60-89
Days
Past Due
90 Days
or More
Past Due
Total
Past Due Current Nonaccrual
Total
Loans
December 31, 2021
Commercial and industrial
PPP
Owner occupied commercial real estate
Non-owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
$ 1,024 $
183 $
541 $ 1,748 $ 2,625,109 $
18,228 $ 2,645,085
—
130
3,929
238
687
767
251
—
—
—
50
—
46
57
—
—
—
—
—
9
—
—
199,883
—
199,883
130
2,229,054
11,150
2,240,334
3,929
1,993,346
13,316
2,010,591
288
687
822
308
855,463
737,380
819,294
417,762
368
15,686
9,167
1,454
856,119
753,753
829,283
419,524
Total loans receivable held to maturity
$ 7,026 $
336 $
550 $ 7,912 $ 9,877,291 $
69,369 $ 9,954,572
December 31, 2020
Commercial and industrial
$ 5,825 $ 2,322 $
720 $ 8,867 $ 2,504,170 $
21,762 $ 2,534,799
PPP
Owner occupied commercial real estate
Non-owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
1
2,815
2,143
2,446
1,688
1,675
807
—
167
2,674
96
—
83
139
—
—
—
—
—
—
—
1
957,784
—
957,785
2,982
1,759,649
13,775
1,776,406
4,817
1,902,003
14,661
1,921,481
2,542
1,688
1,758
946
859,784
694,150
825,047
409,477
894
18,688
13,637
3,969
863,220
714,526
840,442
414,392
Total loans receivable held to maturity
$ 17,400 $ 5,481 $
720 $ 23,601 $ 9,912,064 $
87,386 $ 10,023,051
Loans delinquent 30 to 89 days as a percent of total loans were 0.07% at December 31, 2021, compared to 0.23% at
December 31, 2020. Changes in credit risk are monitored on a continuous basis and changes in risk ratings are made when
identified. All individually assessed loans are reviewed at least semi-annually.
HTLF recognized $0 of interest income on nonaccrual loans during the years ended December 31, 2021 and December 31,
2020. As of December 31, 2021, HTLF had $25.5 million compared to $32.5 million at December 31, 2020, of nonaccrual
loans with no related allowance.
113
The following table sets forth information regarding the PCD loans acquired during 2020 as of the date of acquisition, in
thousands:
Purchase
Price
Allowance for
Credit Losses
Premium/
(Discount)
Book
Value
Commercial and industrial
$
81,917 $
(1,707) $
170 $
80,380
PPP
Owner occupied commercial real estate
Non-owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
Total PCD loans
—
74,854
134,135
19,405
54,584
25,556
2,760
—
(1,205)
(6,465)
(603)
(1,848)
(410)
(75)
—
(56)
(3,150)
360
(413)
94
17
—
73,593
124,520
19,162
52,323
25,240
2,702
$
393,211 $
(12,313) $
(2,978) $
377,920
Loans are made in the normal course of business to directors, officers and principal holders of equity securities of HTLF. The
terms of these loans, including interest rates and collateral, are similar to those prevailing for comparable transactions and do
not involve more than a normal risk of collectability. Changes in such loans during the years ended December 31, 2021 and
2020, were as follows, in thousands:
Balance at beginning of year
Advances
Repayments
Balance at end of year
SIX
ALLOWANCE FOR CREDIT LOSSES
2021
215,449 $
69,204
(90,776)
193,877 $
2020
184,568
73,412
(42,531)
215,449
$
$
Changes in the allowance for credit losses for loans for the years ended December 31, 2021, 2020 and 2019 were as follows, in
thousands:
Balance at beginning of year
Impact of the adoption of ASU 2016-13 on January 1, 2020
Adjusted balance at January 1, 2020
Allowance for purchased credit deteriorated loans
Provision (benefit) for credit losses
Recoveries on loans previously charged-off
Charge-offs on loans
Balance at end of year
2021
131,606 $
$
2020
2019
70,395 $
61,963
—
131,606
—
(17,706)
4,931
(8,743)
12,071
82,466
12,313
65,745
3,804
—
61,963
—
16,657
5,365
(32,722)
(13,590)
$
110,088 $
131,606 $
70,395
114
Changes in the allowance for credit losses for loans by loan category for the years ended December 31, 2021, and December 31,
2020, were as follows, in thousands:
Balance at
12/31/2020
Charge-offs
Recoveries
Provision
(Benefit)
Balance at
12/31/2021
Commercial and industrial
$
38,818 $
(2,150) $
3,058 $
(11,988) $
Owner occupied commercial real estate
Non-owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
Total
20,001
20,873
20,080
7,129
11,935
12,770
(296)
(1,637)
(10)
(1,902)
(181)
(2,567)
152
33
10
531
13
1,134
(643)
(1,361)
2,458
(545)
(3,340)
(2,287)
27,738
19,214
17,908
22,538
5,213
8,427
9,050
$
131,606 $
(8,743) $
4,931 $
(17,706) $
110,088
Impact of ASU
2016-13
adoption on
1/1/2020
Adjusted
balance at
1/1/2020
Purchased
Credit
Deteriorated
Allowance
Balance at
12/31/2019
Charge-
offs
Recoveries
Provision
(Benefit)
Balance at
12/31/2020
Commercial and industrial
$
34,207
(272) $
33,935
1,707
(14,974) $
1,277 $ 16,873 $
38,818
Owner occupied commercial
real estate
Non-owner occupied
commercial real estate
Real estate construction
Agricultural and agricultural
real estate
Residential real estate
Consumer
Total
7,921
7,584
8,677
5,680
1,504
4,822
(114)
7,807
1,205
(13,671)
205
24,455
20,001
(2,617)
6,335
(387)
4,817
4,309
4,967
15,012
5,293
6,321
9,131
6,465
603
(45)
(105)
1,848
(1,201)
410
75
(515)
(2,211)
30
220
971
108
993
9,456
4,350
218
5,611
4,782
20,873
20,080
7,129
11,935
12,770
$
70,395 $
12,071 $
82,466 $
12,313 $ (32,722) $
3,804 $ 65,745 $ 131,606
Changes in the allowance for credit losses
December 31, 2020, were as follows:
on unfunded commitments for the years ended December 31, 2021 and
Beginning balance
Impact of ASU 2016-13 adoption on January 1, 2020
Adjusted balance
Provision (benefit)
Ending balance
For the Years Ended December 31,
2021
2020
$
$
15,280 $
—
15,280
182
15,462 $
248
13,604
13,852
1,428
15,280
Management allocates the allowance for credit losses by pools of risk within each loan portfolio. The allocation of the
allowance for credit losses by loan portfolio is made for analytical purposes and is not necessarily indicative of the trend of
future loan losses in any particular category. The total allowance for credit losses is available to absorb losses from any segment
of the loan portfolio.
115
SEVEN
PREMISES, FURNITURE AND EQUIPMENT
Premises, furniture and equipment, excluding those held for sale, as of December 31, 2021, and December 31, 2020, were as
follows, in thousands:
Land and land improvements
Buildings and building improvements
Furniture and equipment
Total
Less accumulated depreciation
Premises, furniture and equipment, net
$
2021
2020
$ 61,930
192,702
69,468
324,100
(104,505)
$ 204,999 $ 219,595
59,195
177,296
73,091
309,582
(104,583)
Depreciation expense on premises, furniture and equipment was $13.5 million, $11.8 million and $12.0 million for 2021, 2020
and 2019, respectively. Depreciation expense on buildings and building improvements of $6.9 million, $6.5 million and $6.2
million for the years ended December 31, 2021, 2020, and 2019, respectively, is recorded in occupancy expense on the
consolidated statements of income. Depreciation expense on furniture and equipment of $6.6 million, $5.3 million and $5.8
million for the years ended December 31, 2021, 2020, and 2019, respectively, is recorded in furniture and equipment expense
on the consolidated statements of income.
EIGHT
GOODWILL, CORE DEPOSIT INTANGIBLES AND OTHER INTANGIBLE ASSETS
HTLF had goodwill of $576.0 million at December 31, 2021, and $576.0 million at December 31, 2020. HTLF conducts its
annual internal assessment of the goodwill both at the consolidated level and at its subsidiaries as of September 30. There was
no goodwill impairment as of the most recent assessment.
HTLF recorded $91.4 million of goodwill and $3.1 million of core deposit intangibles in connection with the acquisition of
AimBank, headquartered in Levelland, Texas on December 4, 2020.
HTLF recorded $38.4 million of goodwill and $1.3 million of core deposit intangibles in connection with the acquisition of
certain assets and substantially all of the deposits and certain other liabilities of Johnson Bank's Arizona operations,
headquartered in Racine, Wisconsin on December 4, 2020.
The core deposit intangibles recorded with the AimBank acquisition are not deductible for tax purposes and are expected to be
amortized over a period of 10 years on an accelerated basis.
Goodwill related to the AimBank acquisition resulted from expected operational synergies, increased market presence, cross-
selling opportunities, and expanded business lines and is not deductible for tax purposes.
The core deposit intangibles and goodwill recorded with Johnson Bank's Arizona operations are deductible for tax purposes,
and the core deposit intangibles are expected to be amortized over a period of 10 years on an accelerated basis for book
purposes.
116
Other intangible assets consist of core deposit intangibles, mortgage servicing rights, customer relationship intangible and
commercial servicing rights. The gross carrying amount of other intangible assets and the associated accumulated amortization
at December 31, 2021, and December 31, 2020, are presented in the table below, in thousands:
Amortizing intangible assets:
Core deposit intangibles
Customer relationship intangible
Mortgage servicing rights
Commercial servicing rights
Total
December 31, 2021
December 31, 2020
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$ 101,185 $
1,177
12,790
7,054
$ 122,206 $
68,330 $ 32,855 $ 101,185 $
133
1,044
6,412
6,378
6,576
478
82,328 $ 39,878 $ 120,684 $
1,177
11,268
7,054
58,970 $ 42,215
168
1,009
5,189
6,079
6,191
863
72,249 $ 48,435
The following table shows the estimated future amortization expense for amortizable intangible assets, in thousands:
Year ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total
Core
Deposit
Intangibles
Customer
Relationship
Intangible
Mortgage
Servicing
Rights
Commercial
Servicing
Rights
Total
$
$
$
7,702
6,739
5,591
4,700
8,123
—
32,855 $
$
34
34
33
32
—
—
133 $
$
1,603
1,374
1,145
916
687
687
6,412 $
$
171
126
86
95
—
—
478 $
9,510
8,273
6,855
5,743
8,810
687
39,878
Projections of amortization expense for mortgage servicing rights are based on existing asset balances and the existing interest
rate environment as of December 31, 2021. HTLF's actual experience may be significantly different depending upon changes in
mortgage interest rates and market conditions. Mortgage loans serviced for others at First Bank & Trust were $723.3 million
and $743.3 million as of December 31, 2021, and December 31, 2020, respectively. Custodial escrow balances maintained in
connection with the mortgage loan servicing portfolio at First Bank & Trust were approximately $4.5 million and $5.7 million
as of December 31, 2021, and December 31, 2020, respectively.
The following table summarizes, in thousands, the changes in capitalized mortgage servicing rights for the twelve months
ended December 31, 2021, and December 31, 2020:
Balance at January 1,
Originations
Amortization
Valuation adjustment
Balance at December 31,
Fair value of mortgage servicing rights
Mortgage servicing rights, net to servicing portfolio
$
$
$
2021
5,189
1,522
(1,387)
1,088
6,412
6,412
0.89 %
$
$
$
2020
5,621
3,383
(2,037)
(1,778)
5,189
5,189
0.70 %
HTLF's commercial servicing portfolio is comprised of loans guaranteed by the Small Business Administration and United
States Department of Agriculture that have been sold with servicing retained by HTLF, which totaled $45.4 million at
December 31, 2021, and $66.2 million at December 31, 2020. The commercial servicing rights portfolio is separated into two
tranches at the respective HTLF subsidiary, loans with a term of less than 20 years and loans with a term of more than 20 years.
Fees collected for the servicing of commercial loans for others were $536,000 and $879,000 for the years ended December 31,
2021 and 2020, respectively.
117
The following table summarizes, in thousands, the changes in capitalized commercial servicing rights for the twelve months
ended December 31, 2021, and December 31, 2020:
Balance at January 1,
Originations
Amortization
Balance at December 31,
Fair value of commercial servicing rights
Commercial servicing rights, net to servicing portfolio
$
$
$
2021
2020
$
$
$
863
—
(385)
478
782
1.05 %
1,115
102
(354)
863
1,288
1.30 %
Mortgage and commercial servicing rights are initially recorded at fair value in net gains on sale of loans held for sale when
they are acquired through loan sales. Fair value is based on market prices for comparable servicing contracts, when available, or
based on a valuation model that calculates the present value of estimated future net servicing income.
Mortgage and commercial servicing rights are subsequently measured using the amortization method, which requires the asset
to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of
the underlying loans. Servicing rights are evaluated for impairment at each HTLF subsidiary based upon the fair value of the
assets as compared to the carrying amount. Impairment is recognized through a valuation allowance for specific tranches to the
extent that fair value is less than carrying amount at each HTLF subsidiary.
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 December 31, 2021, and December 31, 2020:
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
December 31, 2021
December 31, 2020
$
$
1,607 $
1,280 $
327 $
6,463 $
5,132 $
1,331
1,522 $
1,100 $
422 $
5,445 $
4,089 $
1,356
The following table summarizes, in thousands, the book value, the fair value of each tranche of the commercial servicing rights
at December 31, 2021, and December 31, 2020:
December 31, 2021
December 31, 2020
Book Value-
Less than
20 Years
Fair Value-
Less than
20 Years
Book Value-
More than
20 Years
Fair Value-
More than
20 Years
$
$
45 $
98 $
433 $
684
87 $
203 $
776 $
1,085
The fair value of HTLF's mortgage servicing rights at First Bank & Trust was estimated at $6.4 million and $5.2 million at
December 31, 2021, and December 31, 2020, respectively, and is comprised of loans serviced for the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
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 First Bank & Trust's mortgage servicing rights are
considered in the calculation. The weighted average constant prepayment rate was 13.40% as of December 31, 2021 compared
to 16.20% for the December 31, 2020 valuation. The weighted average discount rate was 9.02% for both the December 31,
2021 and December 31, 2020 valuations. The average capitalization rate for 2021 ranged from 76 to 120 basis points compared
to a range of 76 to 116 basis points for 2020. Fees collected for the servicing of mortgage loans for others were $1.8 million,
$1.7 million and $4.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.
The fair value of each commercial servicing rights portfolio is calculated based upon a discounted cash flow analysis. Cash
flow assumptions, including prepayment speeds and servicing costs, are considered in the calculation. The range of average
constant prepayment rates for the portfolio valuations was 12.52% and 16.88% as of December 31, 2021, compared to 14.95%
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and 19.25% as of December 31, 2020. The discount rate range was 9.20% and 10.66% for the December 31, 2021 valuations
compared to 7.70% and 12.88% for the December 31, 2020 valuations. There were no capitalizations during 2021 and the
capitalization rate ranged from 310 to 445 basis points at December 31, 2020. The total fair value of HTLF's commercial
servicing rights portfolios was estimated at $782,000 as of December 31, 2021, and $1.3 million as of December 31, 2020.
At December 31, 2021, a valuation allowance of $327,000 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. At December 31, 2020, a
$422,000 valuation allowance was required on the 15-year tranche and a $1.4 million valuation was required on the 30-year
tranche for mortgage servicing rights. At both December 31, 2021 and December 31, 2020, no valuation allowance was
required on commercial servicing rights with an original term of less than 20 years and no valuation allowance was required on
commercial servicing rights with an original term of greater than 20 years.
NINE
DEPOSITS
At December 31, 2021, the scheduled maturities of time certificates of deposit were as follows, in thousands:
2022
2023
2024
2025
2026
Thereafter
Total
$
795,813
146,326
39,435
17,490
15,458
9,498
$ 1,024,020
The aggregate amount of time certificates of deposit in denominations of $100,000 or more as of December 31, 2021, and
December 31, 2020, were $605.2 million and $774.2 million, respectively. The aggregate amount of time certificates of deposit
in denominations of $250,000 or more as of December 31, 2021, and December 31, 2020 were $333.7 million and $423.3
million, respectively.
Interest expense on deposits for the years ended December 31, 2021, 2020, and 2019, was as follows, in thousands:
Savings and money market accounts
Time certificates of deposit in denominations of $100,000 or more
Other time deposits
Interest expense on deposits
Total uninsured deposits were $8.21 billion as of December 31, 2021.
TEN
SHORT-TERM BORROWINGS
2021
2020
2019
$
$
9,063 $
3,463
2,271
14,797 $
16,560 $
8,244
5,483
30,287 $
47,069
9,344
7,321
63,734
Short-term borrowings, which HTLF defines as borrowings with an original maturity of one year or less, as of December 31,
2021, and 2020, were as follows, in thousands:
Retail repurchase agreements
Federal funds purchased
Advances from the federal discount window
Other short-term borrowings
Total
2021
122,996 $
—
—
8,601
131,597 $
2020
118,293
2,100
35,000
12,479
167,872
$
$
At December 31, 2021, HTLF had one non-revolving credit facility with an unaffiliated bank, which provided a borrowing
capacity not to exceed $25.0 million when combined with the outstanding balance on the amortizing term loan discussed in
Note 11, "Other Borrowings." The agreement with the unaffiliated bank for the credit facility contains specific financial
covenants, all of which HTLF was in compliance with at December 31, 2021, and December 31, 2020. As of December 31,
119
2021, there was $3.5 million of borrowing capacity available, and there was no balance outstanding at both December 31, 2021,
and December 31, 2020.
HTLF renewed its $75.0 million revolving credit line agreement with the same unaffiliated bank on June 14, 2021. This
revolving credit line agreement is included in short-term borrowings, and the primary purpose of this credit line agreement is to
provide liquidity to HTLF. HTLF had no advances on this line during 2021, and there was no outstanding balance at both
December 31, 2021, and December 31, 2020.
The non-revolving credit facility and revolving credit line agreement mature on June 14, 2022, at which time any outstanding
balance is due.
All retail repurchase agreements as of December 31, 2021, and 2020, were due within twelve months.
Average and maximum balances and rates on aggregate short-term borrowings outstanding during
December 31, 2021, December 31, 2020 and December 31, 2019, were as follows, in thousands:
the years ended
Maximum month-end balance
Average month-end balance
Weighted average interest rate for the year
Weighted average interest rate at year-end
2021
$ 299,457
173,556
2020
$ 380,360
157,348
2019
$ 226,096
128,098
0.26 %
0.19 %
0.39 %
0.18 %
1.38 %
1.21 %
All of HTLF's banks have availability to borrow short-term funds under the Discount Window Program based upon pledged
securities with an outstanding balance of $1.66 billion and pledged commercial loans under the Borrower-In Custody of
Collateral Program of $235.5 million, which provided total borrowing capacity of $895.6 million. There were no borrowings
outstanding at December 31, 2021 compared to $35.0 million at December 31, 2020.
ELEVEN
OTHER BORROWINGS
Other borrowings, which HTLF defines as borrowings with an original maturity date of more than one year, outstanding at
December 31, 2021 and 2020, are shown in the table below, net of unamortized discount and issuance costs, in thousands:
Advances from the FHLB; weighted average interest rates were 3.03% at both December 31,
2021 and 2020, respectively
Paycheck Protection Program Liquidity Fund
Trust preferred securities
Note payable to unaffiliated bank
Contracts payable for purchase of real estate and other assets
Subordinated notes
Total
2021
2020
$
898 $
1,018
—
147,316
—
1,593
222,265
188,872
146,323
44,417
1,983
74,429
$
372,072 $
457,042
Each of HTLF's subsidiary banks had been approved by their respective Federal Reserve Bank for the Paycheck Protection
Program Liquidity Fund ("PPPLF"). The PPPLF program ended on July 31, 2021, and the balance at December 31, 2021, was
$0. The balance outstanding at December 31, 2020 was $188.9 million.
The HTLF banks are members of the FHLB of Des Moines, Chicago, Dallas, San Francisco and Topeka. At December 31,
2021, none of HTLF's FHLB advances had call features. The advances from the FHLB are collateralized by a portion of the
HTLF banks' investments in FHLB stock of $8.5 million and $13.6 million at December 31, 2021 and 2020, respectively. In
addition, the FHLB advances are collateralized with pledges of one- to four-family residential mortgages, commercial and
agricultural mortgages and securities totaling $4.43 billion at December 31, 2021, and $4.96 billion at December 31, 2020. At
December 31, 2021, HTLF had $913.5 million of remaining FHLB borrowing capacity.
At December 31, 2021, HTLF had fifteen wholly-owned trust subsidiaries that were formed to issue trust preferred securities,
which includes trust subsidiaries acquired in acquisitions since 2013. The proceeds from the offerings were used to purchase
junior subordinated debentures from HTLF and were in turn used by HTLF for general corporate purposes. HTLF has the
120
option to shorten the maturity date to a date not earlier than the callable date. HTLF may not shorten the maturity date without
prior approval of the Board of Governors of the Federal Reserve System, if required. Early redemption is permitted under
certain circumstances, such as changes in tax or regulatory capital rules. In connection with these offerings of trust preferred
securities, the balance of deferred issuance costs included in other borrowings was $44,000 and $74,000 as of December 31,
2021 and December 31, 2020, respectively. These deferred costs are amortized on a straight-line basis over the life of the
debentures. The majority of the interest payments are due quarterly.
A schedule of HTLF’s trust preferred offerings outstanding, as of December 31, 2021, were as follows, in thousands:
Heartland Financial Statutory Trust IV
Heartland Financial Statutory Trust V
Heartland Financial Statutory Trust VI
Heartland Financial Statutory Trust VII
Morrill Statutory Trust I
Morrill Statutory Trust II
Sheboygan Statutory Trust I
CBNM Capital Trust I
Citywide Capital Trust III
Citywide Capital Trust IV
Citywide Capital Trust V
OCGI Statutory Trust III
OCGI Capital Trust IV
BVBC Capital Trust II
BVBC Capital Trust III
Total trust preferred offerings
Less: deferred issuance costs
Interest
Rate
2.75% over LIBOR
1.33% over LIBOR
1.48% over LIBOR
1.48% over LIBOR
3.25% over LIBOR
2.85% over LIBOR
2.95% over LIBOR
3.25% over LIBOR
2.80% over LIBOR
2.20% over LIBOR
1.54% over LIBOR
3.65% over LIBOR
2.50% over LIBOR
3.25% over LIBOR
1.60% over LIBOR
Interest
Rate as
of 12/31/21
2.97%
1.45%
1.68%
1.65%
3.47%
3.07%
3.17%
3.45%
2.93%
2.36%
1.74%
3.89%
2.70%
3.38%
1.82%
Maturity
Date
Callable
Date
03/17/2034 03/17/2022
04/07/2036 04/07/2022
09/15/2037 03/15/2022
09/01/2037 03/01/2022
12/26/2032 03/26/2022
12/17/2033 03/17/2022
09/17/2033 03/17/2022
12/15/2034 03/15/2022
12/19/2033 04/23/2022
09/30/2034 05/23/2022
07/25/2036 03/15/2022
09/30/2032 03/30/2022
12/15/2034 03/15/2022
04/24/2033 04/24/2022
09/30/2035 03/30/2022
Amount
Issued
$ 10,310
20,619
20,619
18,042
9,276
8,976
6,703
4,508
6,549
4,411
12,198
3,012
5,455
7,278
9,404
147,360
(44)
$ 147,316
For regulatory purposes, $147.3 million of the trust preferred securities qualified as Tier 2 capital as of December 31, 2021 and
$146.3 million of the trust preferred securities qualified as Tier 2 capital as of December 31, 2020.
In addition to the credit line described in Note 10, "Short-Term Borrowings," HTLF entered into a non-revolving credit facility
with the same unaffiliated bank, which provided a borrowing capacity not to exceed $100.0 million when combined with the
outstanding balance on its then existing amortizing term loan with the same unaffiliated bank. At December 31, 2021, a balance
of $0 was outstanding on this term debt compared to $44.4 million at December 31, 2020. At December 31, 2021, $3.5 million
was available on the non-revolving credit facility, of which no balance was outstanding.
On September 8, 2021, HTLF closed its public offering of $150.0 million aggregate principal amount of its 2.75% Fixed-to-
Floating Rate Subordinated Notes due 2031 (the "2021 subordinated notes"). The notes were issued at par with an underwriting
discount of $1.9 million. The 2021 subordinated notes were registered under HTLF’s effective shelf registration statement, and
the net proceeds were used for general corporate purposes. The 2021 subordinated notes have a fixed interest rate of 2.75%
until September 15, 2026, at which time the interest rate will be reset quarterly to a benchmark interest rate, which is expected
to be three-month term Secure Overnight Financing Rate ("SOFR") plus a spread of 210 basis points. Interest is payable
quarterly. The 2021 subordinated notes mature on September 15, 2031, and become redeemable at HTLF's option on September
15, 2026. In connection with the sale of the notes, the balance of deferred issuance costs included in other borrowings was
$494,000 at December 31, 2021, These deferred costs are amortized on a straight-line basis over the life of the notes.
On December 17, 2014, HTLF issued $75.0 million of subordinated notes with a maturity date of December 30, 2024. The
notes were issued at par with an underwriting discount of $1.1 million. The interest rate on the notes is fixed at 5.75% per
annum, payable semi-annually. In connection with the sale of the notes, the balance of deferred issuance costs included in other
borrowings was $114,000 at December 31, 2021, and $151,000 at December 31, 2020. These deferred costs are amortized on a
straight-line basis over the life of the notes.
121
For regulatory purposes, $177.5 million of the total $222.3 million of subordinated notes qualified as Tier 2 capital as of
December 31, 2021.
Future payments, net of unamortized discount and issuance costs, at December 31, 2021, for other borrowings at their maturity
date follow in the table below, in thousands.
2022
2023
2024
2025
2026
Thereafter
Total
$
$
2
80
74,572
—
—
297,418
372,072
TWELVE
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 and collars and certain interest rate lock
commitments and forward sales of securities related to mortgage banking activities. HTLF's current strategy includes the use of
interest rate swaps, interest rate lock commitments and forward sales of mortgage securities. In addition, HTLF is facilitating
back-to-back loan swaps to assist customers in managing interest rate risk. HTLF's objectives are to add stability to its net
interest margin and to manage its exposure to movement 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 large, stable financial institutions. HTLF has not experienced any losses from
nonperformance by these counterparties. HTLF monitors counterparty risk in accordance with the provisions of ASC 815.
In addition, interest rate-related derivative instruments generally contain language outlining collateral pledging requirements for
each counterparty. Collateral must be posted when the market value exceeds certain threshold limits which are determined by
credit ratings of each counterparty. HTLF was required to pledge no cash as collateral at December 31, 2021, and $3.8 million
of cash at December 31, 2020. No collateral was required to be pledged by HTLF's counterparties at both December 31, 2021
and December 31, 2020.
HTLF's derivative and hedging instruments are recorded at fair value on the consolidated balance sheets. See Note 20, "Fair
Value," for additional fair value information and disclosures.
Cash Flow Hedges
HTLF has variable rate funding which creates exposure to variability in interest payments due to changes in interest rates. To
manage the interest rate risk related to the variability of interest payments, HTLF has entered into various interest rate swap
agreements. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest
expense as interest payments are received or made on HTLF's variable-rate liabilities. For the twelve months ended
December 31, 2021, the change in net unrealized losses on cash flow hedges reflects changes in the fair value of the swaps and
reclassification from accumulated other comprehensive income to interest expense totaling $1.4 million.
HTLF entered into forward starting interest rate swap transactions to effectively convert Heartland Financial Statutory Trust VI
and VII, which total $40.0 million, from variable rate debt to fixed rate debt. For accounting purposes, these swap transactions
are designated as a cash flow hedge of the changes in LIBOR, the benchmark interest rate being hedged, associated with the
interest payments made on $40.0 million of HTLF's subordinated debentures that reset quarterly on a specified reset date.
During the third quarter of 2021, the 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 to interest
expense related to the terminated swaps will total $733,000.
122
At December 31, 2021, HTLF had no derivative instruments designated as cash flow hedges. The table below identifies the
balance sheet category and fair values of HTLF's derivative instruments designated as cash flow hedges at December 31, 2020,
in thousands:
Notional
Amount
Fair
Value
Balance Sheet
Category
Receive
Rate
Weighted
Average
Pay Rate
Maturity
December 31, 2020
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate swap
$
25,000 $
21,667
22,750
20,000
20,000
6,000
3,000
(127) Other Liabilities
(91) Other Liabilities
(2,220) Other Liabilities
(1,482) Other Liabilities
(1,385) Other Liabilities
(50) Other Liabilities
(25) Other Liabilities
0.229 %
2.649
2.643
0.217
0.225
0.217
0.241
2.390
5.425
2.255 % 03/17/2021
05/10/2021
3.674
07/24/2028
06/15/2024
03/01/2024
06/15/2021
06/30/2021
1.878
1.866
2.352
The table below identifies the gains and losses recognized on HTLF's derivative instruments designated as cash flow hedges for
the years ended December 31, 2021, and December 31, 2020, in thousands:
Year Ended December 31,
2021
2020
Effective Portion
Gain (loss) recognized in other comprehensive income on interest rate swaps
Gain (loss) reclassified from accumulated other comprehensive income into income
(expense) on interest rate swaps
$
5,380 $
(2,698)
1,403
1,794
Fair Value Hedges
HTLF uses interest rate swaps to convert certain long term fixed rate loans to floating rates to hedge interest rate risk exposure.
HTLF uses hedge accounting in accordance with ASC 815, with the unrealized gains and losses, representing the change in fair
value of the derivative and the change in fair value of the risk being hedged on the related loan, being recorded in the
consolidated statements of income. The ineffective portions of the unrealized gains or losses, if any, are recorded in interest
income and interest expense in the consolidated statements of income. HTLF uses statistical regression to assess hedge
effectiveness, both at the inception of the hedge as well as on a continual basis. The regression analysis involves regressing the
periodic change in the fair value of the hedging instrument against the periodic changes in the fair value of the asset being
hedged due to changes in the hedge risk.
HTLF was required to pledge $3.8 million and $4.2 million of cash as collateral for these fair value hedges at December 31,
2021, and December 31, 2020, respectively.
The table below identifies the notional amount, fair value and balance sheet category of HTLF's fair value hedges at
December 31, 2021, and December 31, 2020, in thousands:
Notional Amount
Fair Value
Balance Sheet Category
December 31, 2021
Fair value hedges
December 31, 2020
Fair value hedges
$
$
16,755 $
(1,208)
Other liabilities
20,841 $
(2,480)
Other liabilities
The table below identifies the gains and losses recognized on HTLF's fair value hedges for the years ended December 31, 2021,
and December 31, 2020, in thousands:
Gain (loss) recognized in interest income on fair value hedges
$
1,272 $
(1,227)
Year Ended December 31,
2021
2020
123
Embedded Derivatives
HTLF has fixed rate loans with embedded derivatives. The loans contain terms that affect the cash flows or value of the loan
similar to a derivative instrument, and therefore are considered to contain an embedded derivative. The embedded derivatives
are bifurcated from the loans because the terms of the derivative instrument are not clearly and closely related to the loans. The
embedded derivatives are recorded at fair value on the consolidated balance sheets as a part of other assets, and changes in the
fair value are a component of noninterest income. The table below identifies the notional amount, fair value and balance sheet
category of HTLF's embedded derivatives as of December 31, 2021, and December 31, 2020, in thousands:
Notional Amount
Fair Value
Balance Sheet Category
December 31, 2021
Embedded derivatives
December 31, 2020
Embedded derivatives
$
$
7,496 $
(317)
Other liabilities
9,198 $
680
Other assets
The table below identifies the gains and losses recognized on HTLF's embedded derivatives for the years ended December 31,
2021 and December 31, 2020, in thousands:
Year Ended December 31,
2020
2021
Gain (loss) recognized in other noninterest income on embedded derivatives $
(997) $
215
Back-to-Back Loan Swaps
HTLF has interest rate swap loan relationships with customers to meet their financing needs. Upon entering into these loan
swaps, HTLF enters into offsetting positions with counterparties in order to minimize interest rate risk. These back-to-back loan
swaps qualify as free standing financial derivatives with the fair values reported in other assets and other liabilities on the
consolidated balance sheets. HTLF was required to post $24.1 million and $46.5 million as of December 31, 2021, and
December 31, 2020, respectively, as collateral related to these back-to-back swaps. HTLF's counterparties were required to
pledge $0 at both December 31, 2021 and December 31, 2020, related to these back-to-back swaps. Any gains and losses on
these back-to-back swaps are recorded in noninterest income on the consolidated statements of income, and for the years ended
December 31, 2021, and December 31, 2020, no gains or losses were recognized. The table below identifies the balance sheet
category and fair values of HTLF's derivative instruments designated as loan swaps at December 31, 2021 and 2020, in
thousands:
December 31, 2021
Customer interest rate swaps
Customer interest rate swaps
December 31, 2020
Customer interest rate swaps
Customer interest rate swaps
Notional
Amount
Fair
Value
Balance Sheet
Category
Weighted
Average
Receive
Rate
Weighted
Average
Pay
Rate
$
463,069 $
463,069
23,574
(23,574) Other Liabilities
Other Assets
4.44 %
2.35 %
2.35 %
4.44 %
$
440,719 $
440,719
43,422
(43,422) Other Liabilities
Other Assets
4.46 %
2.46 %
2.46 %
4.46 %
Other Free Standing Derivatives
HTLF has entered into interest rate lock commitments to originate residential mortgage loans held for sale and forward
commitments to sell residential mortgage loans and mortgage backed securities that are considered derivative instruments.
HTLF enters into forward commitments for the future delivery of residential mortgage loans when interest rate lock
commitments are entered into in order to economically hedge the effect of future changes in interest rates on the commitments
to fund the loans as well as on residential mortgage loans available for sale. The fair value of these commitments is recorded on
the consolidated balance sheets with the changes in fair value recorded in the consolidated statements of income as a component
of gains on sale of loans held for sale. These derivative contracts are designated as free standing derivative contracts and are not
designated against specific assets and liabilities on the consolidated balance sheets or forecasted transactions and therefore do
not qualify for hedge accounting treatment. HTLF was required to pledge $0 at both December 31, 2021, and December 31,
2020, as collateral for these forward commitments. HTLF's counterparties were required to pledge no cash as collateral at both
December 31, 2021, and December 31, 2020, as collateral for these forward commitments.
124
HTLF acquired undesignated interest rate swaps in 2015. These swaps were entered into primarily for the benefit of customers
seeking to manage their interest rate risk and are not designated against specific assets or liabilities on the consolidated balance
sheet or forecasted transactions and therefore do not qualify for hedge accounting in accordance with ASC 815. These swaps
are carried at fair value on the consolidated balance sheets as a component of other liabilities, with changes in the fair value
recorded as a component of other noninterest income.
The table below identifies the balance sheet category and fair values of HTLF's other free standing derivative instruments not
designated as hedging instruments at December 31, 2021, and December 31, 2020, in thousands:
Notional
Amount
Fair
Value
Balance Sheet
Category
December 31, 2021
Interest rate lock commitments (mortgage)
Forward commitments
Forward commitments
Undesignated interest rate swaps
December 31, 2020
Interest rate lock commitments (mortgage)
Forward commitments
Forward commitments
Undesignated interest rate swaps
$
37,046 $
1,306
19,000
35,500
7,496
—
86,500
9,198
Other Assets
Other Assets
32
(95) Other Liabilities
317
Other Assets
Other Assets
Other Assets
—
(697) Other Liabilities
(680) Other Liabilities
$
42,078 $
1,827
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 years ended December 31,
2021, and December 31, 2020, in thousands:
Interest rate lock commitments (mortgage)
Forward commitments
Forward commitments
Undesignated interest rate swaps
Year Ended December 31,
2021
2020
$
(2,345) $
32
602
997
2,803
(15)
(585)
(215)
125
THIRTEEN
INCOME TAXES
The current income tax provision reflects the tax consequences of revenue and expenses currently taxable or deductible on
various income tax returns for the year reported. The deferred income tax provision generally reflects the net change in deferred
income tax assets and liabilities during the year, excluding any deferred income tax assets and liabilities of acquired businesses.
The components of the provision for income taxes for the years ended December 31, 2021, 2020, and 2019 were as follows, in
thousands:
Current:
Federal
State
Total current expense
Deferred:
Federal
State
Total deferred expense (benefit)
Total income tax expense
2021
2020
2019
$
$
$
$
32,440 $
11,352
43,792 $
34,513 $
12,450
46,963 $
24,106
11,298
35,404
8,938 $
2,605
11,543
55,335 $
(8,498) $
(2,412)
(10,910)
36,053 $
760
(1,174)
(414)
34,990
Temporary differences between the amounts reported in the financial statements and the tax basis of assets and liabilities result
in deferred taxes. Deferred tax assets and liabilities at December 31, 2021 and 2020, were as follows, in thousands:
Deferred tax assets:
Tax effect of net unrealized loss on securities carried at fair value reflected in stockholders’ equity $
Tax effect of net unrealized loss on derivatives reflected in stockholders’ equity
Allowance for credit losses
Deferred compensation
Net operating loss carryforwards
Investments in partnerships
Deferred loan fees
Other
Total deferred tax assets
Valuation allowance for deferred tax assets
Total deferred tax assets after valuation allowance
$
Deferred tax liabilities:
Tax effect of net unrealized gain on securities carried at fair value reflected in stockholders’ equity $
Securities
Premises, furniture and equipment
Purchase accounting
Prepaid expenses
Deferred loan costs
Other
Total deferred tax liabilities
Net deferred tax assets
$
2021
2020
1,715 $
—
367
28,149
11,299
18,874
958
1,691
5,673
68,726
1,130
33,393
9,623
17,585
467
5,006
5,563
72,767
(15,120)
53,606 $
(12,828)
59,939
— $
26,858
1,232
10,502
7,977
2,078
5,164
2,250
635
8,311
5,326
2,675
4,107
3,905
29,203
24,403 $
51,817
8,122
As a result of acquisitions, HTLF had net operating loss carryforwards for federal income tax purposes of approximately $20.5
million at December 31, 2021, and $25.8 million at December 31, 2020. The associated deferred tax asset was $4.3 million at
December 31, 2021, and $5.4 million at December 31, 2020. These net carryforwards expire during the period from December
31, 2026, through December 31, 2039, and are subject to an annual limitation of approximately $7.3 million. Net operating loss
carryforwards for state income tax purposes were approximately $183.3 million at December 31, 2021, and $159.1 million at
126
December 31, 2020. The associated deferred tax asset, net of federal tax, was $14.3 million at December 31, 2021, and $11.8
million at December 31, 2020. These carryforwards have begun to expire and will continue to do so until December 31, 2039.
A valuation allowance against the deferred tax asset due to the uncertainty surrounding the utilization of these state net
operating loss carryforwards was $13.2 million at December 31, 2021, and $10.5 million at December 31, 2020. During both
2021 and 2020, HTLF had book write-downs on investments that, for tax purposes, would generate capital losses upon disposal.
Due to the uncertainty of HTLF's ability to utilize the potential capital losses, a valuation allowance for these potential losses
totaled $1.9 million at December 31, 2021, and $2.3 million at December 31, 2020. HTLF released valuation allowances of
$491,000 and $617,000 in 2021 and 2020, respectively, on deferred tax assets for capital losses it expects to realize on the
disposal of partnership investments. HTLF generated capital gains from its strategic activities, which included various branch
sales not conducted in the ordinary course of its business strategy. As a result of its net capital gains, HTLF was able to realize
the benefit of its capital losses.
Realization of the deferred tax asset over time is dependent upon the existence of taxable income in carryback periods or the
ability to generate sufficient taxable income in future periods. In determining that realization of the deferred tax asset was more
likely than not, HTLF gave consideration to a number of factors, including its taxable income during carryback periods, its
recent earnings history, its expectations for earnings in the future and, where applicable, the expiration dates associated with its
tax carryforwards.
The actual income tax expense from continuing operations differs from the expected amounts for the years ended December 31,
2021, 2020, and 2019, (computed by applying the U.S. federal corporate tax rate of 21% for 2021, 2020, and 2019 income
before income taxes) are as follows, in thousands:
Computed "expected" tax on net income
Increase (decrease) resulting from:
Nontaxable interest income
State income taxes, net of federal tax benefit
Tax credits
Valuation allowance
Excess tax expense/(benefit) on stock compensation
Other
Income taxes
Effective tax rates
2021
$ 57,804
2020
$ 36,538
2019
$ 38,665
(5,504)
11,026
(7,613)
(440)
(270)
332
(4,011)
7,930
(4,521)
(374)
80
411
(3,281)
8,509
(6,860)
(1,648)
(229)
(166)
$ 55,335
$ 36,053
$ 34,990
20.1 %
20.7 %
19.0 %
HTLF's income taxes included solar energy tax credits totaling $6.1 million, $2.3 million, and $4.0 million during 2021, 2020
and 2019, respectively. Federal historic rehabilitation tax credits included in HTLF's income taxes totaled $720,000, $1.1
million, and $1.8 million in 2021, 2020, and 2019, respectively. Additionally, investments in certain low-income housing
partnerships totaled $5.1 million at December 31, 2021, $5.6 million at December 31, 2020, and $6.1 million at December 31,
2019. These investments generated federal low-income housing tax credits of $538,000 during 2021, $780,000 at December 31,
2020 and $1.1 million at December 31, 2019 These investments are expected to generate federal low-income housing tax
credits of approximately $538,000 for 2022 through 2023, $322,000 for 2024, $86,000 for 2025 and $34,000 for 2026.
Additionally, HTLF had new markets tax credits of $300,000 in both 2021 and 2020, respectively.
On December 31, 2021, the amount of unrecognized tax benefits was $724,000, including $87,000 of accrued interest and
penalties. On December 31, 2020, the amount of unrecognized tax benefits was $702,000, including $79,000 of accrued interest
and penalties. If recognized, the entire amount of the unrecognized tax benefits would affect the effective tax rate.
The tax years ended December 31, 2018, and later remain subject to examination by the Internal Revenue Service. For state
purposes, the tax years ended December 31, 2016, and later remain open for examination. HTLF does not anticipate any
significant increase or decrease in unrecognized tax benefits during the next twelve months.
127
FOURTEEN
EMPLOYEE BENEFIT PLANS
HTLF sponsors a defined contribution retirement plan covering substantially all employees. The plan includes matching
contributions and non-elective contributions. Matching contributions and non-elective contributions are limited to a maximum
amount of the participant's wages as defined by federal law.
HTLF's subsidiaries made matching contributions of up to 3% of participants' wages in 2021, 2020, and 2019. Costs charged to
operating expenses with respect to the matching contributions were $5.1 million, $4.1 million, and $3.9 million for 2021, 2020
and 2019, respectively.
Non-elective contributions to this plan are subject to approval by the HTLF Board of Directors. The HTLF subsidiaries fund
and record as an expense all approved contributions. Costs of these contributions, charged to operating expenses, were $5.1
million, $4.8 million, and $4.8 million for 2021, 2020 and 2019, respectively.
In addition, HTLF has a non-qualified defined contribution plan that allows eligible employees to make voluntary contributions
into a deferred compensation plan. Any non-elective contributions to this plan are subject to approval by the HTLF Board of
Directors.
FIFTEEN
COMMITMENTS AND CONTINGENT LIABILITIES
HTLF utilizes a variety of financial instruments in the normal course of business to meet the financial needs of customers and to
manage its exposure to fluctuations in interest rates. These financial instruments include lending related and other commitments
as indicated below as well as derivative instruments shown in Note 12, "Derivative Financial Instruments." The HTLF banks
make various commitments and incur certain contingent liabilities that are not presented in the accompanying consolidated
financial statements. The commitments and contingent liabilities include various guarantees, commitments to extend credit and
standby letters of credit.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established
in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a
fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. HTLF's bank subsidiaries evaluate the creditworthiness of customers to which
they extend a credit commitment on a case-by-case basis and may require collateral to secure any credit extended. The amount
of collateral obtained is based upon management's credit evaluation of the counterparty. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment and income-producing commercial properties. Standby letters of
credit and financial guarantees are conditional commitments issued by HTLF's bank subsidiaries to guarantee the performance
of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
At December 31, 2021, and at December 31, 2020, commitments to extend credit aggregated $3.83 billion and $3.26 billion,
respectively, and standby letters of credit aggregated $51.4 million and $73.2 million, respectively.
HTLF enters into commitments to sell mortgage loans to reduce interest rate risk on certain mortgage loans held for sale and
loan commitments, which were recorded in the consolidated balance sheets at their fair values. HTLF does not anticipate any
material loss as a result of the commitments and contingent liabilities. Residential mortgage loans sold to others are
predominantly conventional residential first lien mortgages originated under HTLF's usual underwriting procedures and are
most often sold on a nonrecourse basis. HTLF's agreements to sell residential mortgage loans in the normal course of business,
primarily to GSE's, which usually require certain representations and warranties on the underlying loans sold, related to credit
information, loan documentation, collateral, and insurability, which if subsequently are untrue or breached, could require HTLF
to repurchase certain loans affected. HTLF had no repurchase obligation at both December 31, 2021 and December 31, 2020.
HTLF had no new requests for repurchases during 2021 and 2020.
There are certain legal proceedings pending against HTLF and its subsidiaries at December 31, 2021, that are ordinary routine
litigation incidental to business.
The aggregate amount of cash consideration paid in the AimBank transaction was reduced by $5.3 million as a holdback against
any losses that might be incurred as a result of pending litigation involving a former customer. The balance of the holdback as
of December 31, 2021 was $4.9 million. HTLF incurred $388,000 of legal expenses in 2021 associated with the pending
litigation.
128
HTLF does not currently anticipate any material exposure from the litigation, and that if any litigation losses are incurred, the
holdback amount will be sufficient to cover such losses. The shareholders of AimBank are entitled to any remaining amount
from the holdback after payment for any potential settlement and related legal expenses. While the ultimate outcome of this and
any other ordinary routine litigation proceedings incidental to business cannot be predicted with certainty, it is the opinion of
management that the resolution of these legal actions should not have a material effect on HTLF's consolidated financial
position or results of operations.
SIXTEEN
STOCK-BASED 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 was approved by stockholders
in May 2020 and replaces the 2012 Long-Term Incentive Plan. The Plan increased the number of shares of common stock
authorized for issuance to 1,460,000 and made certain other changes to the Plan. At December 31, 2021, 1,192,760 shares of
common stock were reserved for future issuance under 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 $312,000 of tax benefit for the year ended December 31, 2021, compared to a tax expense
of $93,000 for the year ended December 31, 2020, related to the 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 represent the
right, without payment, to receive shares of HTLF common stock at 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 granted three-year performance-based RSUs. These performance-based RSUs will be earned
based upon satisfaction of performance targets for the three-year performance period, which is 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 vest to the extent that they are earned upon death
or disability or upon a "qualified retirement" (as defined in the RSU agreement) after measurement of performance.
All of HTLF's RSUs will be settled in common stock upon vesting and are not entitled to dividends until vested.
A summary of the status of RSUs as of December 31, 2021, 2020 and 2019, and changes during the years ended December 31,
2021, 2020, and 2019, follows:
Outstanding at January 1
Granted
Vested
Forfeited
Outstanding at December 31
2021
2020
2019
Weighted-
Average
Grant Date
Fair Value
38.22
51.44
Shares
348,275 $
216,560
Weighted-
Average
Grant Date
Fair Value
46.76
32.06
Shares
254,383 $
232,586
Weighted-
Average
Grant Date
Fair Value
43.89
45.09
Shares
266,995 $
162,465
(149,350)
(25,600)
389,885 $
40.83
40.96
44.19
(119,916)
(18,778)
348,275 $
44.47
46.10
38.22
(148,158)
(26,919)
254,383 $
39.27
49.20
46.76
129
Total compensation costs recorded for RSUs were $8.5 million, $7.2 million and $5.8 million, for 2021, 2020 and 2019,
respectively. As of December 31, 2021, there were $7.4 million of total unrecognized compensation costs related to the Plan for
RSUs which are expected to be recognized through 2024.
Employee Stock Purchase Plan
HTLF maintains an employee stock purchase plan (the "ESPP"), which was adopted in May 2016 and replaced the 2006 ESPP,
that permits all eligible employees to purchase shares of HTLF common stock at a discounted price as determined by the
Compensation Committee. Under ASC Topic 718, compensation expense related to the ESPP of $228,000 was recorded in
2021, $186,000 was recorded in 2020, and $222,000 was recorded in 2019.
A maximum of 500,000 shares is available for purchase under the ESPP, and as of December 31, 2021, 290,236 shares remain
available for purchase. Beginning with the 2020 plan year, the Compensation Committee authorized HTLF to make ESPP
purchases semi-annually, and the purchases are to be made as soon as practicable on or after June 30 and December 31. For
employee deferrals made in the 2021 plan year, shares purchased in 2021 totaled 46,899. For employee deferrals made in the
2020 plan year, shares purchased in 2020 totaled 43,207. On January 2, 2020, 32,179 shares were purchased under the ESPP for
employee deferrals made during the plan year ended December 31, 2019.
SEVENTEEN
STOCKHOLDER RIGHTS PLAN
HTLF adopted an Amended and Restated Rights Agreement (the "Extended Rights Plan"), dated as of January 17, 2012, which
became effective upon approval by the stockholders on May 16, 2012. The Extended Rights Plan expired on January 17, 2022
and has not been renewed or extended.
In 2002, when the Rights Plan was originally created, HTLF designated 16,000 shares, par value $1.00 per share, of Series A
Preferred Stock. There were no shares of Series A Preferred issued and outstanding at December 31, 2021 or December 31,
2020.
EIGHTEEN
CAPITAL ISSUANCES
Common Stock
For a description of the issuance of shares of HTLF common stock in connection with acquisitions, see Note 2, "Acquisitions,"
of the consolidated financial statements. For a description of the issuance of shares of HTLF common stock in connection with
the 2020 Long-Term Incentive Plan and the 2016 ESPP, see Note 16, "Stock-Based Compensation."
Series E Preferred Stock
On June 26, 2020, HTLF issued 4,600,000 depositary shares, each representing a 1/400th ownership interest in a share of
HTLF's 7.00% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series E, (the "Series E Preferred Stock) par value
$1.00 per share, with a liquidation preference of $10,000 per share of Series E Preferred Stock (equivalent to $25 per depositary
share).
Holders of the depositary shares are entitled to all proportional rights and preferences of the Series E Preferred Stock (including
dividend, voting, redemption and liquidation rights).
With respect to the payment of dividends and distributions upon HTLF’s liquidation, dissolution, or winding-up, the Series E
Preferred Stock ranks:
•
•
•
senior to HTLF’s common stock and to any class or series of its capital stock that it may issue in the future that is not
expressly stated to be on parity with or senior to the Series E Preferred Stock with respect to such dividends and
distributions, including but not limited to HTLF’s Series A Junior Participating Preferred Stock;
on parity with, or equally to, any class or series of HTLF’s capital stock that it may issue in the future that is expressly
stated to be on parity with the Series E Preferred Stock with respect to such dividends and distributions; and
junior to any class or series of HTLF’s capital stock that it may issue in the future that is expressly stated to be senior
to the Series E Preferred Stock with respect to such dividends and distributions, if the issuance is approved by the
holders of at least two-thirds of the outstanding shares of Series E Preferred Stock.
HTLF will generally be able to pay dividends and distributions upon liquidation, dissolution or winding up only out of lawfully
available assets for such payment after satisfaction of all claims for indebtedness and other non-equity claims.
130
HTLF will pay dividends or make distributions on the Series E Preferred Stock only when, as, and if declared by its Board of
Directors or a duly authorized committee of the Board. Under the terms of the Series E Preferred Stock, subject to certain
important exceptions, the ability of HTLF to pay dividends on, make distributions with respect to, or to repurchase, redeem or
otherwise acquire its common stock or any other stock ranking junior to or on parity with the Series E Preferred Stock is subject
to restrictions unless the full dividends for the most recently completed dividend period have been declared and paid, or set
aside for payment, on all outstanding shares of Series E Preferred Stock.
Shelf Registration
HTLF filed a universal shelf registration with the SEC to register debt or equity securities on August 8, 2019, that expires on
August 8, 2022. This registration statement, which was effective immediately, provides HTLF the ability to raise capital,
subject to market conditions and SEC rules and limitations, if HTLF's 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, units or any combination of these securities. The amount of
securities that may have been offered was not specified in the registration statement, and the terms of any future offerings were
to be established at the time of the offering.
NINETEEN
REGULATORY CAPITAL REQUIREMENTS AND RESTRICTIONS ON SUBSIDIARY DIVIDENDS
The HTLF banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators
that, if undertaken, could have a direct material effect on the HTLF banks’ financial statements. The regulations prescribe
specific capital adequacy guidelines that involve quantitative measures of a bank’s assets, liabilities and certain off balance
sheet items as calculated under regulatory accounting practices. Capital classification is also subject to qualitative judgments by
the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the HTLF banks to maintain minimum
amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets
(as defined), and of Tier 1 capital (as defined) to average assets (as defined).
The requirements to be categorized as well-capitalized under the Tier 1 leverage capital ratio is 4% for all banks. The minimum
requirement to be well-capitalized for the Tier 1 risk-based capital ratio is 8%. The total risk-based capital ratio minimum
requirement to be well-capitalized remained is 10%. Management believes, as of December 31, 2021 and 2020, that the HTLF
banks met all capital adequacy requirements to which they were subject.
As of December 31, 2021 and 2020, the FDIC categorized each of the HTLF banks as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized, the HTLF banks must maintain minimum total
risk-based, Tier 1 risk-based, Tier 1 common equity and Tier 1 leverage ratios as set forth in the following table. There are no
conditions or events since December 31, 2021, that management believes have changed each institution’s category.
The HTLF banks’ actual capital amounts and ratios are also presented in the tables below, in thousands:
As of December 31, 2021
Total Capital (to Risk-Weighted Assets)
Consolidated
Dubuque Bank and Trust Company
Illinois Bank & Trust
Wisconsin Bank & Trust
New Mexico Bank & Trust
Arizona Bank & Trust
Rocky Mountain Bank
Citywide Banks
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Ratio
Amount
To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
$ 2,040,500
180,934
135,986
124,009
213,981
157,475
64,366
265,964
15.90 % $ 1,026,345
110,758
13.07
12.88
84,466
14.27
69,499
12.10
141,530
12.61
99,886
13.07
39,385
15.09
140,999
8.00 %
8.00
8.00
8.00
8.00
8.00
8.00
8.00
N/A
$ 138,447
105,583
86,874
176,912
124,858
49,231
176,248
10.00 %
10.00
10.00
10.00
10.00
10.00
10.00
131
As of December 31, 2021
Minnesota Bank & Trust
Bank of Blue Valley
Premier Valley Bank
First Bank & Trust
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated
Dubuque Bank and Trust Company
Illinois Bank & Trust
Wisconsin Bank & Trust
New Mexico Bank & Trust
Arizona Bank & Trust
Rocky Mountain Bank
Citywide Banks
Minnesota Bank & Trust
Bank of Blue Valley
Premier Valley Bank
First Bank & Trust
Common Equity Tier 1 (to Risk-Weighted Assets)
Consolidated
Dubuque Bank and Trust Company
Illinois Bank & Trust
Wisconsin Bank & Trust
New Mexico Bank & Trust
Arizona Bank & Trust
Rocky Mountain Bank
Citywide Banks
Minnesota Bank & Trust
Bank of Blue Valley
Premier Valley Bank
First Bank & Trust
Tier 1 Capital (to Average Assets)
Consolidated
Dubuque Bank and Trust Company
Illinois Bank & Trust
Wisconsin Bank & Trust
New Mexico Bank & Trust
Arizona Bank & Trust
Rocky Mountain Bank
Citywide Banks
Minnesota Bank & Trust
Bank of Blue Valley
Premier Valley Bank
First Bank & Trust
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Ratio
Amount
To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
87,263
160,694
111,741
282,231
14.79
16.74
12.82
15.48
47,194
76,785
69,720
145,823
8.00
8.00
8.00
8.00
58,993
95,982
87,151
182,279
10.00
10.00
10.00
10.00
$ 1,590,111
168,321
126,869
114,825
198,728
147,098
59,159
244,722
81,637
150,305
104,336
263,096
$ 1,479,406
168,321
126,869
114,825
198,728
147,098
59,159
244,722
81,637
150,305
104,336
263,096
$ 1,590,111
168,321
126,869
114,825
198,728
147,098
59,159
244,722
81,637
150,305
104,336
263,096
12.39 % $ 769,759
12.16
83,068
12.02
63,350
13.22
52,124
11.23
106,147
11.78
74,915
12.02
29,538
13.89
105,749
13.84
35,396
57,589
15.66
52,290
11.97
109,367
14.43
11.53 % $ 577,319
62,301
12.16
47,512
12.02
39,093
13.22
79,611
11.23
56,186
11.78
22,154
12.02
79,312
13.89
26,547
13.84
43,192
15.66
39,218
11.97
82,025
14.43
8.57 % $ 742,155
83,982
8.02
67,212
7.55
47,551
9.66
102,173
7.78
73,605
7.99
28,614
8.27
102,587
9.54
33,698
9.69
55,921
10.75
45,256
9.22
106,986
9.84
6.00 %
6.00
6.00
6.00
6.00
6.00
6.00
6.00
6.00
6.00
6.00
6.00
4.50 %
4.50
4.50
4.50
4.50
4.50
4.50
4.50
4.50
4.50
4.50
4.50
4.00 %
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
N/A
$ 110,758
84,466
69,499
141,530
99,886
39,385
140,999
47,194
76,785
69,720
145,823
$
N/A
89,991
68,629
56,468
114,993
81,158
32,000
114,561
38,346
62,388
56,648
118,481
N/A
$ 104,978
84,016
59,439
127,716
92,006
35,767
128,233
42,123
69,901
56,570
133,732
8.00 %
8.00
8.00
8.00
8.00
8.00
8.00
8.00
8.00
8.00
8.00
6.50 %
6.50
6.50
6.50
6.50
6.50
6.50
6.50
6.50
6.50
6.50
5.00 %
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
132
As of December 31, 2020
Total Capital (to Risk-Weighted Assets)
Consolidated
Dubuque Bank and Trust Company
Illinois Bank & Trust
Wisconsin Bank & Trust
New Mexico Bank & Trust
Arizona Bank & Trust
Rocky Mountain Bank
Citywide Banks
Minnesota Bank & Trust
Bank of Blue Valley
Premier Valley Bank
First Bank & Trust
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated
Dubuque Bank and Trust Company
Illinois Bank & Trust
Wisconsin Bank & Trust
New Mexico Bank & Trust
Arizona Bank & Trust
Rocky Mountain Bank
Citywide Banks
Minnesota Bank & Trust
Bank of Blue Valley
Premier Valley Bank
First Bank & Trust
Common Equity Tier 1 (to Risk Weighted Assets)
Consolidated
Dubuque Bank and Trust Company
Illinois Bank & Trust
Wisconsin Bank & Trust
New Mexico Bank & Trust
Arizona Bank & Trust
Rocky Mountain Bank
Citywide Banks
Minnesota Bank & Trust
Bank of Blue Valley
Premier Valley Bank
First Bank & Trust
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Ratio
Amount
To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
$ 1,739,048
177,782
133,674
121,899
177,708
112,589
56,872
258,419
85,566
157,093
93,032
304,397
$ 1,401,131
164,316
121,513
111,985
161,750
102,882
51,597
237,295
78,661
145,795
85,456
279,521
$ 1,290,426
164,316
121,513
111,985
161,750
102,882
51,597
237,295
78,661
145,795
85,456
279,521
14.71 % $
13.94
13.13
14.35
13.40
12.16
13.49
15.30
13.11
17.40
12.62
15.34
11.85 % $
12.89
11.94
13.18
12.19
11.11
12.24
14.05
12.05
16.15
11.59
14.09
10.92 % $
12.89
11.94
13.18
12.19
11.11
12.24
14.05
12.05
16.15
11.59
14.09
945,523
102,018
81,432
67,956
106,120
74,056
33,732
135,097
52,206
72,240
58,968
158,705
709,142
76,514
61,074
50,967
79,590
55,542
25,299
101,323
39,155
54,180
44,226
119,029
531,857
57,385
45,806
38,225
59,692
41,657
18,974
75,992
29,366
40,635
33,170
89,271
8.00 %
8.00
8.00
8.00
8.00
8.00
8.00
8.00
8.00
8.00
8.00
8.00
6.00 %
6.00
6.00
6.00
6.00
6.00
6.00
6.00
6.00
6.00
6.00
6.00
4.50 %
4.50
4.50
4.50
4.50
4.50
4.50
4.50
4.50
4.50
4.50
4.50
N/A
$ 127,523
101,790
84,945
132,649
92,571
42,166
168,871
65,258
90,300
73,710
198,381
N/A
$ 102,018
81,432
67,956
106,120
74,056
33,732
135,097
52,206
72,240
58,968
158,705
$
N/A
82,890
66,164
55,214
86,222
60,171
27,408
109,766
42,418
58,695
47,912
128,948
10.00 %
10.00
10.00
10.00
10.00
10.00
10.00
10.00
10.00
10.00
10.00
8.00 %
8.00
8.00
8.00
8.00
8.00
8.00
8.00
8.00
8.00
8.00
6.50 %
6.50
6.50
6.50
6.50
6.50
6.50
6.50
6.50
6.50
6.50
133
Tier 1 Capital (to Average Assets)
Consolidated
Dubuque Bank and Trust Company
Illinois Bank & Trust
Wisconsin Bank & Trust
New Mexico Bank & Trust
Arizona Bank & Trust
Rocky Mountain Bank
Citywide Banks
Minnesota Bank & Trust
Bank of Blue Valley
Premier Valley Bank
First Bank & Trust
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Ratio
Amount
To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
$ 1,401,131
164,316
121,513
111,985
161,750
102,882
51,597
237,295
78,661
145,795
85,456
279,521
9.02 % $
8.52
8.22
9.67
8.11
9.09
8.41
9.67
8.68
10.93
8.57
17.63
621,275
77,150
59,129
46,337
79,764
45,295
24,552
98,182
36,251
53,343
39,893
63,407
4.00 %
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
4.00
$
N/A
96,437
73,912
57,921
99,705
56,619
30,690
122,728
45,313
66,679
49,866
79,259
5.00 %
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
The ability of HTLF to pay dividends to its stockholders is dependent upon dividends paid by its subsidiaries. The HTLF banks
are subject to certain statutory and regulatory restrictions on the amount they may pay in dividends. To maintain acceptable
capital ratios for the Banks, certain portions of their retained earnings are not available for the payment of dividends. Retained
earnings that could be available for the payment of dividends to HTLF totaled approximately $758.6 million as of
December 31, 2021, under the most restrictive minimum capital requirements. Retained earnings that could be available for the
payment of dividends to HTLF totaled approximately $502.1 million as of December 31, 2021, under the capital requirements
to remain well capitalized.
TWENTY
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 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 which 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.
Assets
Securities Available for Sale and Held to Maturity
134
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, equity securities and corporate debt securities. On a quarterly basis, a
secondary independent pricing service is used for the securities portfolio to validate the pricing from HTLF's primary pricing
service.
Equity Securities with a Readily Determinable Fair Value
Equity securities with a readily determinable fair value generally include Community Reinvestment Act mutual funds and are
classified as Level 2 due to the infrequent trading of these securities. The fair value is based on the price per share.
Loans Held for Sale
Loans held for sale are carried at the lower of cost or fair value on an aggregate basis. The fair value of loans held for sale is
based on what secondary markets are currently offering for portfolios with similar characteristics. As such, HTLF classifies
loans held for sale subjected to nonrecurring fair value adjustments as Level 2.
Loans Held to Maturity
HTLF does not record loans held to maturity at fair value on a recurring basis. However, from time to time, certain loans are
considered collateral dependent and an allowance for credit losses is established. The fair value of individually assessed loans is
measured using the fair value of the collateral. In accordance with ASC 820, individually assessed loans measured at fair value
are classified as nonrecurring Level 3 in the fair value hierarchy.
Premises, Furniture and Equipment Held for Sale
HTLF values premises, furniture and equipment held for sale based on third-party appraisals less estimated disposal costs.
HTLF considers third party appraisals, as well as independent fair value assessments from Realtors or persons involved in
selling bank premises, furniture and equipment, in determining the fair value of particular properties. Accordingly, the valuation
of premises, furniture and equipment held for sale is subject to significant external and internal judgment. HTLF periodically
reviews premises, furniture and equipment held for sale to determine if the fair value of the property, less disposal costs, has
declined below its recorded book value and records any adjustments accordingly. Premises, furniture and equipment held for
sale are classified as nonrecurring Level 3 in the fair value hierarchy.
Mortgage Servicing Rights
Mortgage servicing rights assets represent the value associated with servicing residential real estate loans that have been sold to
outside investors with servicing retained. The fair value for servicing assets is determined through discounted cash flow
analysis and utilizes discount rates, prepayment speeds and delinquency rate assumptions as inputs. All of these assumptions
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 value less than the carrying value, mortgage
servicing rights are adjusted to fair value through a valuation allowance. HTLF classifies mortgage servicing rights as
nonrecurring with Level 3 measurement inputs.
Commercial Servicing Rights
Commercial servicing rights assets represent the value associated with servicing commercial loans guaranteed by the Small
Business Administration and United States Department of Agriculture that have been sold with servicing retained by HTLF.
HTLF uses the amortization method (i.e., the lower of amortized cost or estimated fair value measured on a nonrecurring basis),
not fair value measurement accounting, to determine the carrying value of its commercial servicing rights. The fair value for
servicing assets is determined through market prices for comparable servicing contracts, when available, or through a valuation
model that calculates the present value of estimated future net servicing income. Inputs utilized include discount rates,
prepayment speeds and delinquency rate assumptions as inputs. All of these assumptions require a significant degree of
management estimation and judgment. Commercial servicing rights are subject to impairment testing, and the carrying values
of these rights are reviewed quarterly for impairment based upon the calculation of fair value as performed by an outside third
party. If the valuation model reflects a fair value less than the carrying value, commercial servicing rights are adjusted to fair
value through a valuation allowance. HTLF classifies commercial servicing rights as nonrecurring with Level 3 measurement
inputs.
135
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 December 31, 2021, and
December 31, 2020, HTLF has assessed the significance of the impact of the credit valuation adjustments on the overall
valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall
valuation of its derivatives. As a result, HTLF has determined that its derivative valuations in their entirety are classified in
Level 2 of the fair value hierarchy.
Interest Rate Lock Commitments
HTLF uses an internal valuation model that relies on internally developed inputs to estimate the fair value of its interest rate
lock commitments which is based on unobservable inputs that reflect management's assumptions and specific information about
each borrower. Interest rate lock commitments are classified in Level 3 of the fair value hierarchy.
Forward Commitments
The fair value of forward commitments is 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 tables below present HTLF's assets and liabilities that are measured at fair value on a recurring basis as of December 31,
2021, and December 31, 2020, in thousands, aggregated by the level in the fair value hierarchy within which those
measurements fall:
Total Fair
Value
Level 1
Level 2
Level 3
December 31, 2021
Assets
Securities available for sale
U.S. treasuries
U.S. agencies
Obligations of states and political subdivisions
Mortgage-backed securities - agency
Mortgage-backed securities - non-agency
Commercial mortgage-backed securities - agency
Commercial mortgage-backed securities - non-agency
Asset-backed securities
Corporate bonds
Equity securities with a readily determinable fair value
Derivative financial instruments(1)
$
1,008 $
193,384
2,085,033
2,349,289
1,743,379
123,912
600,888
409,653
3,040
20,788
23,891
1,008 $
—
—
—
—
—
—
—
—
—
—
— $
193,384
2,085,033
2,349,289
1,743,379
123,912
600,888
409,653
3,040
20,788
23,891
—
—
—
—
—
—
—
—
—
—
—
136
Interest rate lock commitments
Forward commitments
Total assets at fair value
Liabilities
Derivative financial instruments(2)
Forward commitments
Total liabilities at fair value
$
$
$
Total Fair
Value
1,306
32
7,555,603 $
Level 1
Level 2
Level 3
—
—
1,008 $
—
32
7,553,289 $
25,099
95
25,194
$
$
—
—
—
$
$
25,099
95
25,194
$
$
(1) Includes back-to-back loan swaps and free standing derivative instruments.
(2) Includes embedded derivatives, fair value hedges and back-to-back loan swaps.
December 31, 2020
Assets
Securities available for sale
U.S. treasuries
U.S. agencies
Obligations of states and political subdivisions
Mortgage-backed securities - agency
Mortgage-backed securities - non-agency
Commercial mortgage-backed securities - agency
Commercial mortgage-backed securities - non-agency
Asset-backed securities
Corporate bonds
Equity securities
Derivative financial instruments(1)
Interest rate lock commitments
Forward commitments
Total assets at fair value
Liabilities
Derivative financial instruments(2)
Forward commitments
Total liabilities at fair value
$
2,026 $
166,779
1,635,227
1,355,270
1,449,116
174,153
252,767
1,069,266
3,742
19,629
44,102
1,827
—
$
$
$
6,173,904 $
51,962 $
697
52,659 $
2,026
—
—
—
—
—
—
—
—
—
—
—
—
2,026
$
$
—
166,779
1,635,227
1,355,270
1,449,116
174,153
252,767
1,069,266
3,742
19,629
44,102
—
—
6,170,051
$
$
$
—
—
— $
$
51,962
697
52,659 $
(1) Includes embedded derivatives, back-to-back loan swaps and cash flow hedges.
(2) Includes cash flow hedges, fair value hedges, back-to-back loan swaps and free standing derivative instruments.
1,306
—
1,306
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,827
—
1,827
—
—
—
137
The tables below present HTLF's assets that are measured at fair value on a nonrecurring basis, in thousands:
Fair Value Measurements at December 31, 2021
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Total
Significant
Other
Significant
Observable Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
(Gains)/
Losses
$
8,447
11,946
8,989 $
Collateral dependent individually assessed loans:
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 collateral dependent individually assessed loans $ 41,641 $
Loans held for sale
Other real estate owned
Premises, furniture and equipment held for sale
Servicing rights
$ 21,640 $
10,828
11,404
6,890
1,927
855
—
—
— $
— $
8,989 $
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
—
—
—
8,447
11,946
—
11,404
855
—
275
—
1,637
—
372
—
—
— $
41,641 $
2,284
21,640 $
— $
(813)
—
—
—
1,927
10,828
6,890
686
241
(1,088)
Fair Value Measurements at December 31, 2020
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Total
Significant
Other
Significant
Observable Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
(Gains)/
Losses
Collateral dependent individually assessed loans:
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 collateral dependent impaired loans
Loans held for sale
Other real estate owned
Premises, furniture and equipment held for sale
Servicing rights
$ 11,256 $
— $
— $
11,256 $
451
5,874
4,907
—
12,451
—
—
$ 34,488 $
$ 57,949 $
6,624
6,499
5,189
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
—
—
—
5,874
4,907
—
12,451
—
—
11,631
—
—
—
—
—
— $
34,488 $ 12,082
57,949 $
— $
(982)
—
—
—
6,624
6,499
5,189
1,044
3,288
1,778
The following tables present additional quantitative information about assets measured at fair value on a recurring and
nonrecurring basis and for which HTLF has utilized Level 3 inputs to determine fair value, in thousands:
Interest rate lock
commitments
Premises, furniture and
equipment held for sale
Fair Value at 12/31/21
Valuation Technique Unobservable Input Range (Weighted Average)
$
1,306 Discounted cash flows
Closing ratio
0 - 99% (88%)(1)
10,828 Modified appraised value Third party appraisal
Appraisal discount
(2)
0-10%(3)
138
Fair Value at 12/31/21
Valuation Technique Unobservable Input Range (Weighted Average)
Other real estate owned
1,927 Modified appraised value Third party appraisal
Appraisal discounts
Servicing rights
6,890 Discounted cash flows
Discount rate
Collateral dependent
individually assessed loans:
Commercial and industrial
$
8,989 Modified appraised value Third party appraisal
Constant prepayment
rate
Owner occupied commercial
real estate
Non-owner occupied
commercial real estate
Agricultural and agricultural
real estate
Appraisal discount
8,447 Modified appraised value Third party appraisal
Appraisal discount
11,946 Modified appraised value Third party appraisal
Appraisal discount
11,404 Modified appraised value Third party appraisal
Appraisal discount
Residential real estate
855 Modified appraised value Third party appraisal
Appraisal discount
(2)
0-10%(3)
9 - 11% (9.02%)(4)
13.1 - 18.6% (13.4%)(4)
(2)
0-6%(3)
(2)
0-7%(3)
(2)
0-10%(3)
(2)
0%-7%%(3)
(2)
0-7%(3)
(1) The significant unobservable input used in the fair value measurement is the closing ratio, which represents the percentage of loans
currently in a lock position which management estimates will ultimately close. The closing ratio calculation takes into consideration
historical data and loan-level data.
(2) Third party appraisals are obtained and updated at least annually to establish the value of the underlying asset, but the disclosure of the
unobservable inputs used by the appraisers would not be meaningful because the range will vary widely from appraisal to appraisal.
(3) Discounts applied to the appraised values primarily include estimated sales costs, but also consider the age of the appraisal, changes in
local market conditions and changes in the current condition of the collateral.
(4) The significant unobservable inputs used in the discounted cash flow analysis are the discount rate and constant prepayment rate.
139
Interest rate lock commitments $
Fair Value at 12/31/20
1,827
Valuation Technique
Unobservable Input Range (Weighted Average)
Discounted cash flows
Closing ratio
0 - 99% (86%)(1)
Premises, furniture and
equipment held for sale
Other real estate owned
6,499 Modified appraised value Third party appraisal
Appraisal discount
6,624 Modified appraised value Third party appraisal
Servicing rights
5,189
Discounted cash flows
Appraisal discounts
Discount rate
Constant prepayment
rate
(2)
0-10%(3)
(2)
0-10%(3)
9 - 11% (9.02%)(4)
7.3 - 18.8% (16.2%)(4)
Collateral dependent
individually assessed loans:
Commercial and industrial
Owner occupied commercial
real estate
Non-owner occupied
commercial real estate
Agricultural and agricultural
real estate
11,256 Modified appraised value Third party appraisal
Appraisal discount
5,874 Modified appraised value Third party appraisal
Appraisal discounts
4,907 Modified appraised value Third party appraisal
Appraisal discounts
12,451 Modified appraised value Third party appraisal
Appraisal discount
(2)
0-8%(3)
(2)
0-12%(3)
(2)
0-10%(3)
(2)
0-10%(3)
(1) The significant unobservable input used in the fair value measurement is the closing ratio, which represents the percentage of loans
currently in a lock position which management estimates will ultimately close. The closing ratio calculation takes into consideration
historical data and loan-level data.
(2) Third party appraisals are obtained and updated at least annually to establish the value of the underlying asset, but the disclosure of the
unobservable inputs used by the appraisers would not be meaningful because the range will vary widely from appraisal to appraisal.
(3) Discounts applied to the appraised values primarily include estimated sales costs, but also consider the age of the appraisal, changes in
local market conditions and changes in the current condition of the collateral.
(4) The significant unobservable inputs 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 and are measured on a
recurring basis, are summarized in the following table, in thousands:
For the Years Ended
Balance at January 1,
Total gains (losses), net, included in earnings
Issuances
Settlements
Balance at period end,
$
$
December 31, 2021
December 31, 2020
681
1,827 $
(2,345)
15,403
(13,579)
1,306 $
2,803
17,221
(18,878)
1,827
Gains included in net gains on sale of loans held for sale attributable to interest rate lock commitments held at December 31,
2021, and December 31, 2020, were $1.3 million and $1.8 million, respectively.
The table below is a summary of the estimated fair value of HTLF's financial instruments (as defined by ASC 825) as of
December 31, 2021, and December 31, 2020, in thousands. The carrying amounts in the following table 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, other intangibles and
other liabilities.
HTLF does not believe that the estimated information presented below 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, obtaining deposits or
fee generating activities. Many of the estimates presented below are based upon the use of highly subjective information and
140
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
December 31, 2021
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
$ 435,599 $ 435,599 $
435,599 $
2,894
2,894
2,894
— $
—
7,530,374
7,530,374
1,008
7,529,366
Financial assets:
Cash and cash equivalents
Time deposits in other financial institutions
Securities:
Carried at fair value
Held to maturity
Other investments
Loans held for sale
Loans, net:
Commercial
PPP
Owner occupied commercial real estate
Non-owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
Total Loans, net
Cash surrender value on life insurance
Derivative financial instruments(1)
Interest rate lock commitments
Forward commitments
Financial liabilities:
Deposits
Demand deposits
Savings deposits
Time deposits
Short term borrowings
Other borrowings
Derivative financial instruments(2)
Forward commitments
84,709
82,567
21,640
94,139
82,567
21,640
2,617,347
2,603,001
199,883
199,883
2,221,120
2,222,030
1,992,683
1,998,161
833,581
748,540
820,856
410,474
844,578
749,238
819,178
415,487
9,844,484
9,851,556
191,722
191,722
23,891
1,306
32
23,891
1,306
32
6,495,326
6,495,326
8,897,909
8,897,909
1,024,020
1,024,020
131,597
372,072
25,099
95
131,597
373,194
25,099
95
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1) Includes back-to-back loan swaps and free standing derivative instruments.
(2) Includes embedded derivatives, fair value hedges and back-to-back loan swaps.
—
—
—
—
—
—
8,989
—
8,447
11,946
—
11,404
855
—
94,139
82,567
21,640
2,594,012
199,883
2,213,583
1,986,215
844,578
737,834
818,323
415,487
9,809,915
41,641
191,722
23,891
—
32
6,495,326
8,897,909
1,024,020
131,597
373,194
25,099
95
—
—
1,306
—
—
—
—
—
—
—
—
141
Fair Value Measurements at
December 31, 2020
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
$ 337,903 $ 337,903 $
337,903 $
3,129
3,129
3,129
— $
—
6,127,975
6,127,975
2,026
6,125,949
Financial assets:
Cash and cash equivalents
Time deposits in other financial institutions
Securities:
Carried at fair value
Held to maturity
Other investments
Loans held for sale
Loans, net:
Commercial and industrial
PPP
Owner occupied commercial real estate
Non-owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
Total Loans, net
Cash surrender value on life insurance
Derivative financial instruments(1)
Interest rate lock commitments
Forward commitments
Financial liabilities:
Deposits
Demand deposits
Savings deposits
Time deposits
Short term borrowings
Other borrowings
Derivative financial instruments(2)
Forward commitments
88,839
75,253
57,949
100,041
75,523
57,949
2,495,981
2,391,041
957,785
957,785
1,756,405
1,745,397
1,900,608
1,892,213
843,140
707,397
828,507
401,622
849,224
697,729
828,366
407,914
9,891,445
9,769,669
187,664
187,664
44,102
1,827
—
44,102
1,827
—
5,688,810
5,688,810
8,019,704
8,019,704
1,271,391
1,273,468
167,872
457,042
51,962
697
167,872
458,806
51,962
697
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11,256
—
5,874
4,907
—
12,451
—
—
100,041
75,523
57,949
2,379,785
957,785
1,739,523
1,887,306
849,224
685,278
828,366
407,914
9,735,181
34,488
187,664
44,102
—
—
5,688,810
8,019,704
1,273,468
167,872
458,806
51,962
697
—
—
1,827
—
—
—
—
—
—
—
—
(1) Includes embedded derivatives, back-to-back loan swaps and cash flow hedges.
(2) Includes cash flow hedges, fair value hedges, back-to-back loan swaps and free standing derivative instruments.
Cash and Cash Equivalents — The carrying amount is a reasonable estimate of fair value due to the short-term nature of these
instruments.
Time Deposits in Other Financial Institutions — The carrying amount is a reasonable estimate of the 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
142
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. The market for these securities is restricted to the issuer of the stock and subject to
impairment evaluation.
Loans — The fair value of loans were 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 or sales contracts.
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 when appropriate, the current creditworthiness of
the counter-party.
Interest Rate Lock Commitments — The fair value of interest rate lock commitments is estimated using an internal valuation
model, which includes grouping the interest rate lock commitments by interest rate and terms, applying an estimated closing
ratio based on historical experience, and then multiplying by quoted investor prices determined to be reasonably applicable to
the loan commitment groups based on interest rate, terms, and rate lock expiration dates of the loan commitment group.
Forward Commitments — The fair value of these instruments is estimated using an internal valuation model, which includes
current trade pricing for similar financial instruments.
Deposits — The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on
demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities. If the fair value of the fixed maturity certificates of deposit is calculated at
less than the carrying amount, the carrying value of these deposits is reported as the fair value.
Short-term and Other Borrowings — Rates currently available to HTLF for debt with similar terms and remaining maturities
are used to estimate fair value of existing debt.
Commitments to Extend Credit, Unused Lines of Credit and Standby Letters of Credit — Based upon management's analysis of
the off balance sheet financial instruments, there are no significant unrealized gains or losses associated with these financial
instruments based upon review of the fees currently charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the counterparties.
TWENTY-ONE
REVENUE
ASC 606, Revenue from Contracts with Customers, requires revenue to be recognized at an amount that reflects the
consideration to which HTLF expects to be entitled in exchange for transferring goods or services to a customer. ASC 606
applies to all contracts with customers to provide goods or services in the ordinary course of business, except for contracts that
are specifically excluded from its scope. The majority of HTLF's revenue streams including interest income, loan servicing
income, net securities gain, net unrealized gains and losses on equity securities, net gains on sale of loans held for sale,
valuation adjustment on servicing rights, income from bank owned life insurance and other noninterest income are outside the
scope of ASC 606. Revenue streams including service charges and fees, interchange fees on credit and debit cards, trust fees
and brokerage and insurance commissions are within the scope of ASC 606.
143
Service Charges and Fees
Service charges and fees consist of revenue generated from deposit account related service charges and fees, overdraft fees,
customer service fees and other service charges, credit card fee income, debit card income and other service charges and fees.
Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public
checking accounts), monthly service fees, check orders and other deposit account related fees. HTLF's performance obligation
for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in
which the service is provided. Check orders and other deposit account related fees, including overdraft fees, are largely
transaction based, and therefore, the performance obligation is satisfied, and related revenue recognized, at a point in time.
Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct
charge to customers’ accounts.
Customer service fees and other service charges include revenue from processing wire transfers, bill pay service, cashier’s
checks, and other services. HTLF's performance obligation for fees, exchange, and other service charges are largely satisfied,
and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately
or in the following month.
Credit card fee income and debit card income are comprised of interchange fees, ATM fees, and merchant services income.
Credit card fee income and debit card income are earned whenever the banks' debit and credit cards are processed through card
payment networks such as Visa. ATM fees are primarily generated when a bank cardholder uses an ATM that is not owned by
one of HTLF's banks or a non-bank cardholder uses HTLF-owned ATM. Merchant services income mainly represents fees
charged to merchants to process their debit and credit card transactions, in addition to account management fees.
Trust Fees
Trust fees are primarily comprised of fees earned from the management and administration of trusts and other customer assets.
HTLF's performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the
average daily market value or month-end market value of the assets under management and the applicable fee rate. Payment is
generally received a few days before or after month end through a direct charge to customers’ accounts. HTLF does not earn
performance-based incentives. Optional services such as real estate sales and tax return preparation services are also available
to existing trust and asset management customers. HTLF's performance obligation for these transactional-based services is
generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after
services are rendered.
Brokerage and Insurance Commissions
Brokerage commission primarily consist of commissions related to broker-dealer contracts. The contracts are between the
customer and the broker-dealer, and HTLF satisfies its performance obligation and earns commission when the transactions are
completed. The recognition of revenue is based on a defined fee schedule and does not require significant judgment. Payment is
received shortly after services are rendered. Insurance commissions are related to commissions received directly from the
insurance carrier. HTLF acts as an insurance agent between the customer and the insurance carrier. HTLF's performance
obligations and associated fee and commission income are defined with each insurance product with the insurance company.
When insurance payments are received from customers, a portion of the payment is recognized as commission revenue.
144
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the year
ended December 31, 2021, 2020, and 2019, in thousands:
For the Years Ended December 31,
2020
2021
2019
In-scope of Topic 606
Service charges and fees
Service charges and fees on deposit accounts
Overdraft fees
Customer service and other service fees
Credit card fee income
Debit card income
Total service charges and fees
Trust fees
Brokerage and insurance commissions
Total noninterest income in-scope of Topic 606
Out-of-scope of Topic 606
Loan servicing income
Securities gains, net
Unrealized gain on equity securities, net
Net gains on sale of loans held for sale
Valuation adjustment on servicing rights
Income on bank owned life insurance
Other noninterest income
Total noninterest income out-of-scope of Topic 606
Total noninterest income
$
16,414
$
14,441
$
11,005
220
21,623
10,441
59,703
24,417
3,546
9,166
177
16,026
7,657
47,467
20,862
2,756
$
$
87,666 $
71,085 $
3,276
$
2,977
$
5,910
58
20,605
1,088
3,762
6,570
41,269
7,793
640
28,515
(1,778)
3,554
7,505
49,206
$
128,935 $
120,291 $
12,790
11,543
331
15,594
11,899
52,157
19,399
3,786
75,342
4,843
7,659
525
15,555
(911)
3,785
9,410
40,866
116,208
Contract Balances
HTLF does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant
contract balances. As of December 31, 2021, 2020, and 2019, HTLF did not have any significant contract balances or
capitalized contract acquisition costs.
145
TWENTY-TWO
PARENT COMPANY ONLY FINANCIAL INFORMATION
Condensed financial information for Heartland Financial USA, Inc. is as follows:
BALANCE SHEETS
(Dollars in thousands)
December 31,
2021
2020
Assets:
Cash and interest bearing deposits
Investment in subsidiaries
Other assets
Total assets
Liabilities and Stockholders’ equity:
Other borrowings
Accrued expenses and other liabilities
Total liabilities
Stockholders’ equity:
Preferred stock
Common stock
Capital surplus
Retained earnings
Accumulated other comprehensive income (loss)
Total stockholders’ equity
Total liabilities and stockholders’ equity
INCOME STATEMENTS
(Dollars in thousands)
Operating revenues:
Dividends from subsidiaries
Other
Total operating revenues
Operating expenses:
Interest
Salaries and employee benefits
Professional fees
Other operating expenses
Total operating expenses
Equity in undistributed earnings
Income before income tax benefit
Income tax benefit
Net income
Preferred dividends
Net income available to common stockholders
$
259,830 $
84,728
2,234,813
68,263
$ 2,603,887 $ 2,387,804
2,263,037
81,020
$
369,581 $
52,128
421,709
265,168
43,405
308,573
110,705
42,275
1,071,956
962,994
(5,752)
2,182,178
110,705
42,094
1,062,083
791,630
72,719
2,079,231
$ 2,603,887 $ 2,387,804
For the Years Ended December 31,
2019
2020
2021
$
163,500 $
1,885
165,385
83,000 $
1,948
84,948
137,000
893
137,893
12,851
7,509
5,161
10,984
36,505
75,368
204,248
15,675
219,923
(8,050)
211,873 $
13,573
8,147
4,310
4,939
30,969
73,430
127,409
10,529
137,938
(4,451)
133,487 $
15,044
4,072
3,029
15,559
37,704
34,307
134,496
14,633
149,129
—
149,129
$
146
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Undistributed earnings of subsidiaries
Gain on extinguishment of debt
Increase in accrued expenses and other liabilities
Increase in other assets
Excess tax (expense) benefit from stock based compensation
Other, net
Net cash provided by operating activities
Cash flows from investing activities:
Capital contributions to subsidiaries
Repayment of advances from subsidiaries
Net assets acquired
Net cash used by investing activities
Cash flows from financing activities:
Proceeds on short-term revolving credit line
Proceeds from borrowings
Repayments on short-term revolving credit line
Repayments of borrowings
Payment for the redemption of debt
Cash dividends paid
Proceeds from issuance of preferred stock
Proceeds from issuance of common stock
Net cash provided by (used in) by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure:
Cumulative effect adjustment from the adoption of ASU 2016-13
on January 1, 2020
Dividends declared, not paid
Stock consideration granted for acquisitions
TWENTY-THREE
LEASES
For the Years Ended December 31,
2019
2020
2021
$
219,923 $
137,938 $
149,129
(75,368)
—
8,723
(13,069)
312
12,632
153,153
(34,000)
—
—
(34,000)
(73,430)
—
8,419
(19,168)
(93)
6,375
60,041
(70,000)
—
(41,982)
(111,982)
—
147,614
—
(44,417)
—
(48,559)
—
1,311
55,949
175,102
84,728
259,830 $
—
—
—
(7,000)
—
(31,906)
110,705
3,004
74,803
22,862
61,866
84,728 $
(34,307)
(375)
3,274
(12,248)
270
4,103
109,846
(46,583)
6,000
(594)
(41,177)
—
—
—
(20,023)
(2,500)
(24,607)
—
661
(46,469)
22,200
39,666
61,866
— $
2,013
—
14,891 $
2,013
217,202
—
—
92,258
$
$
A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or
equipment for a period of time in exchange for consideration.
Lessee Accounting
Substantially all of the leases in which HTLF is the lessee are comprised of real estate property for branches, ATM locations,
and office space with terms extending through 2031. All of HTLF's leases are classified as operating leases, and therefore, were
previously not recognized on the consolidated balance sheet. With the adoption of ASU 2016-02 "Leases" (Topic 842),
operating lease agreements are required to be recognized on the consolidated balance sheet as a right-of use ("ROU") asset and
a corresponding lease liability. HTLF elected not to include short-term leases (i.e., leases with initial terms of twelve months or
less), or equipment leases (deemed immaterial) on the consolidated balance sheets.
147
The table below presents HTLF's ROU assets and lease liabilities as of December 31, 2021 and December 31, 2020, in
thousands:
Operating lease right-of-use assets
Operating lease liabilities
Classification
Other assets
Accrued expenses and other liabilities
$
$
As of December 31,
2021
2020
22,630 $
26,125 $
21,557
25,337
The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and
the discount rate used to present value the minimum lease payments. HTLF’s lease agreements often include one or more
options to renew at HTLF’s discretion. If at lease inception, HTLF considers the exercising of a renewal option to be reasonably
certain, HTLF will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount
rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely
determinable, HTLF utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. The
variable lease cost primarily represents variable payments such as common area maintenance and utilities.
The table below presents the lease costs and supplemental information as of December 31, 2021, 2020 and 2019, in thousands:
Lease Cost
Operating lease cost
Variable lease cost
Total lease cost
Supplemental Information
Noncash reduction of ROU assets
Noncash reduction lease liabilities
Income Statement
Category
Occupancy expense
Occupancy expense
Occupancy expense
Occupancy expense
Supplemental balance sheet information
Weighted-average remaining operating lease term (in years)
Weighted-average discount rate for operating leases
As of December 31,
2020
2019
2021
$
$
$
$
$
$
8,013
47
8,060
1,244
—
6,071 $
72
6,143 $
1,037 $
389
As of December 31, 2021
6,031
145
6,176
1,771
1,789
5.99
2.69 %
Included in the noncash reduction of ROU assets in 2021 and 2020 are expenses related to lease modifications and ROU
acceleration related to lease abandonments.
HTLF did not record any impairment on leases in 2021. HTLF recorded an impairment on one lease in 2020, and the
impairment of $360,000 was recorded in gain/loss on sales/valuations of assets, net. No impairment losses were recorded in
2019.
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease
liabilities as of December 31, 2021 is as follows, in thousands:
Year ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less interest
Present value of lease liabilities
$
$
$
6,595
5,154
3,484
3,363
2,940
6,837
28,373
(2,248)
26,125
148
TWENTY-FOUR
SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(Dollars in thousands, except per share data)
As of and for the Quarter Ended
2021
Net interest income
Provision (benefit) for credit losses
Net interest income after provision for credit losses
Noninterest income
Noninterest expense
Income taxes
Net income
Preferred dividends
Net income available to common stockholders
Per share:
December 31 September 30
$
137,194 $
(5,313)
142,543 $
(4,534)
142,507
32,730
115,386
10,271
49,580
(2,012)
147,077
32,724
110,627
13,250
55,924
(2,013)
June 30
March 31
141,218 $
(7,080)
148,298
33,164
103,376
16,481
61,605
(2,012)
139,605
(648)
140,253
30,317
102,423
15,333
52,814
(2,013)
$
47,568 $
53,911 $
59,593 $
50,801
Earnings per share-basic
Earnings per share-diluted
Cash dividends declared on common stock
Book value per common share
Weighted average common shares outstanding
Weighted average diluted common shares outstanding
$
1.12 $
1.27 $
1.41 $
1.12
0.27
49.00
1.27
0.25
48.79
1.41
0.22
48.50
1.20
1.20
0.22
46.13
42,309,003
42,302,780
42,242,893
42,174,092
42,479,442
42,415,993
42,359,873
42,335,747
(Dollars in thousands, except per share data)
2020
Net interest income
Provision (benefit) for credit losses
Net interest income after provision for credit losses
Noninterest income
Noninterest expense
Income taxes
Net income
Preferred dividends
Net income available to common stockholders
Per share:
Earnings per share-basic
Earnings per share-diluted
Cash dividends declared on common stock
Book value per common share
Weighted average common shares outstanding
Weighted average diluted common shares outstanding
As of and for the Quarter Ended
December 31 September 30
$
132,575 $
17,072
122,497 $
1,678
June 30
March 31
124,146 $
26,796
112,511
21,520
115,503
120,819
32,621
99,269
9,046
39,809
(2,014)
$
37,795 $
31,216
90,396
13,681
47,958
(2,437)
45,521 $
—
30,131 $
97,350
30,637
90,439
7,417
30,131
$
0.98 $
1.23 $
0.82 $
0.98
0.20
46.77
1.23
0.20
46.11
0.82
0.20
44.42
38,420,063
36,941,110
36,880,325
36,820,972
38,534,082
36,995,572
36,915,630
36,895,591
90,991
25,817
90,859
5,909
20,040
—
20,040
0.54
0.54
0.20
42.21
149
KPMG LLP
2500 Ruan Center
666 Grand Avenue
Des Moines, IA 50309
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Heartland Financial USA, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Heartland Financial USA, Inc. and
subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of
income, comprehensive income, changes in equity, and cash flows for each of the years in the three-
year period ended December 31, 2021, and the related notes (collectively, the consolidated financial
statements). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2021 and 2020, and the results of its
operations and its cash flows for each of the years in the three-year period ended December 31, 2021,
in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December
31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February
24, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over
financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method
of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the
adoption of ASC Topic 326, Financial Instruments - Credit Losses.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our
opinion.
150
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the
consolidated financial statements that was communicated or required to be communicated to the audit
committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter
below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to
which it relates.
Assessment of the allowance for credit losses for loans and unfunded loan commitments
collectively evaluated
As discussed in Notes 1, 5, and 6 to the consolidated financial statements, the Company’s
allowance for credit losses related to loans and unfunded loan commitments collectively
evaluated for credit losses is comprised of an allowance for credit losses on loans and an
allowance for credit losses on unfunded loan commitments (the collective ACL). As of
December 31, 2021, the total allowance for credit losses related to loans and unfunded loan
commitments was $110.1 million and $15.5 million, respectively, of which $102.4 million and
$15.5 million, respectively, was related to the collective ACL. The Company estimates the
collective ACL using a current expected credit losses methodology which is based on relevant
information about past events, current conditions, and a reasonable and supportable forecast
that affect the collectability of the reported loan and commitment amounts, including expected
defaults and prepayments. The allowance for credit losses on unfunded commitments
leverages the same methodology utilized for the allowance for credit losses for loans. The
Company estimates the collective ACL on a pool basis for loans and commitments with similar
risk characteristics using 1) a transition matrix model derived probability of default (PD) and
loss given default (LGD) methodology, which is based on transition of loans between risk
ratings and through default based on the Company’s historical loss experience, for certain
commercial and agricultural loans, or 2) a lifetime average historical loss model for all other
commercial and agricultural loans, residential real estate loans, consumer loans, and
commitments. A portion of the collective ACL on outstanding loans and commitments is
comprised of qualitative adjustments, based on a comparison of current conditions to the
average conditions over the look back period. The qualitative adjustments are determined by
the Company using an anchoring approach to determine the minimum and maximum amount of
qualitative allowance, which is determined by comparing the highest and lowest historical
lifetime average loss rate to the current quantitative allowance rate to calculate the rate for the
adjustment. The collective ACL utilizes an overlay approach for its economic forecasting
component which incorporates a reasonable and supportable forecast of various macro-
economic indices. The Company utilizes an economic forecast scenario which reverts to the
historical mean immediately at the end of the reasonable and supportable forecast period. For
the allowance for credit losses on unfunded loan commitments, the Company separately
estimates the exposure at default using estimated average utilization rates.
We identified the assessment of the collective ACL as a critical audit matter. A high degree of
audit effort, including specialized skills and knowledge, and subjective and complex auditor
judgment was involved in the assessment of the collective ACL estimate. Specifically, the
assessment encompassed the evaluation of the collective ACL methodology, including the
methods and models used to estimate (1) the PD and LGD and the related assumption of the
risk ratings for certain commercial and agricultural loans, (2) the lifetime average historical loss
rates and the related assumption of the look back period, and (3) the method used to estimate
the economic forecasting component of the qualitative component and determination of that
component, certain assumptions related to the qualitative component including the reasonable
supportable forecast period, anchoring, weighting, and the determination of the impact of other
external factors considered in the qualitative adjustments. The assessment also included an
evaluation of the conceptual soundness and performance of the PD, LGD, and lifetime average
historical loss models. In addition, auditor judgment was required to evaluate the sufficiency of
audit evidence obtained.
151
The following are the primary procedures we performed to address this critical audit matter. We
evaluated the design and tested the operating effectiveness of certain internal controls related
to the Company’s measurement of the collective ACL estimates, including controls over the:
•
•
•
•
•
•
•
development and approval of the collective ACL methodology
continued use and appropriateness of changes to the PD, LGD, and lifetime average
historical loss models
performance monitoring of the lifetime average historical loss models
identification and determination of the assumptions used in the PD and LGD models
identification and determination of the assumptions used in the lifetime average
historical loss models
development of the qualitative adjustments, including the method used to estimate the
economic forecasting component overlay, and related assumptions including the
anchoring and weighting approaches, the reasonable and supportable forecast period,
and other external factors
analysis of the collective ACL results, trends and ratios.
We evaluated the Company’s process to develop the collective ACL estimate by testing certain
sources of data, factors, and assumptions that the Company used, and considered the
relevance and reliability of such data, factors, and assumptions. In addition, we involved credit
risk professionals with specialized skills and knowledge, who assisted in evaluating:
•
•
•
•
•
•
the Company’s collective ACL methodology for compliance with U.S. generally
accepted accounting principles
judgments made by the Company relative to the continued use and performance
monitoring of the PD, LGD, and lifetime average historical loss models, by comparing
them to relevant Company-specific metrics and trends and applicable industry and
regulatory practices
the conceptual soundness of the PD, LGD, and lifetime average historical loss models
by inspecting the model documentation to determine whether the models are suitable
for their intended use
the length of the look back period by comparing it to Company specific portfolio risk
characteristics and trends
the methodology used to develop the qualitative adjustments including the economic
forecasting component, the assumptions used in the adjustments including reasonable
and supportable forecast period, anchoring, and weighting, and the effect of those
adjustments on the collective ACL estimate compared with relevant credit risk factors
and consistency with credit trends and identified limitations of the underlying
quantitative models
individual risk ratings for a selection of commercial and agricultural loan relationships
by evaluating the financial performance of the borrower, sources of repayment, and any
relevant guarantees or underlying collateral.
We also assessed the sufficiency of the audit evidence obtained related to the collective ACL
estimates by evaluating the:
•
•
cumulative results of the audit procedures
qualitative aspects of the Company’s accounting practices
152
•
potential bias in the accounting estimates
/s/ KPMG LLP
We have served as the Company’s auditor since 1994.
Des Moines, Iowa
February 24, 2022
153
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Under the direction of our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under
the Securities and Exchange Act of 1934, as amended) as of December 31, 2021. Based on that evaluation, our management,
including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were
effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in
applicable rules and forms and that such information is accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining effective internal control over financial reporting. Our internal
control system was designed to provide reasonable assurance to our management, board of directors and stockholders regarding
the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in
accordance with U.S. generally accepted accounting principles. All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation. Our management, under the supervision and with the participation
of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our internal control over financial
reporting based upon the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control - Integrated Framework (2013). Based on our assessment, our internal control over financial
reporting was effective as of December 31, 2021.
KPMG LLP, the independent registered public accounting firm that audited HTLF’s consolidated financial statements as of and
for the year ended December 31, 2021, included herein, has issued a report on HTLF’s internal control over financial reporting.
This report follows management’s report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no significant changes to HTLF's disclosure controls or internal controls over financial reporting during the quarter
ended December 31, 2021, that have materially affected or are reasonably likely to materially affect HTLF's internal control
over financial reporting.
154
KPMG LLP
2500 Ruan Center
666 Grand Avenue
Des Moines, IA 50309
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Heartland Financial USA, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Heartland Financial USA, Inc. and subsidiaries' (the Company) internal control over
financial reporting as of December 31, 2021, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. In our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2021, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31,
2021 and 2020, the related consolidated statements of income, comprehensive income, changes in
equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the
related notes (collectively, the consolidated financial statements), and our report dated February 24,
2022 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included
in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based
on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides
a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
155
control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Des Moines, Iowa
February 24, 2022
156
ITEM 9B. OTHER INFORMATION
None
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information in the Proxy Statement for HTLF’s 2022 Annual Meeting of Stockholders to be held on May 18, 2022, (the
"2021 Proxy Statement") under the captions "Proposal 1-Election of Directors", "Delinquent Section 16(a) Reports," "Corporate
Governance and the Board of Directors - Stockholder Communications with the Board, Nomination and Proposal Procedures,"
"Corporate Governance and the Board of Directors - Committees of the Board," and "Corporate Governance and the Board of
Directors - Code of Business Conduct and Ethics" is incorporated by reference. The information regarding executive officers is
included in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information in our 2022 Proxy Statement, under the captions "Corporate Governance and the Board of Directors - Director
Compensation" and "Executive Officer Compensation" is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information in our 2022 Proxy Statement, under the caption "Security Ownership of Certain Beneficial Owners and
Management" and "Equity Compensation Plan Information" is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information in the 2022 Proxy Statement under the captions "Related Person Transactions" and "Corporate Governance and
the Board of Directors - Our Board of Directors - Director Independence" is incorporated by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our independent registered public accounting firm is KPMG, LLP, Des Moines, IA., Auditor Firm ID: 185.
The information in the 2022 Proxy Statement under the caption "Relationship with Independent Registered Public Accounting
Firm" is incorporated by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The documents filed as a part of this Annual Report on Form 10-K are listed below:
1. Financial Statements
The consolidated financial statements of Heartland Financial USA, Inc. are included in Item 8 of this Annual
Report on Form 10-K.
2. Financial Statement Schedules
None.
3. Exhibits
The exhibits required by Item 601 of Regulation S-K are included along with this Annual Report on Form 10-K
and are listed on the "Index of Exhibits" immediately following Item 16 below.
ITEM 16. FORM 10-K SUMMARY
None.
157
2.1
2.2
2.3
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.1
INDEX OF EXHIBITS
Agreement and Plan of Merger between Heartland Financial USA, Inc. and Blue Valley Ban Corp., dated January
16, 2019 (incorporated by reference to Exhibit 10.27 to the Registrant's Annual Report on Form 10-K Filed on
February 27, 2019).
Purchase and Assumption Agreement between Illinois Bank & Trust, Rockford Bank and Trust Company and
QCR Holdings, Inc. dated August 13, 2019 (incorporated by reference to Exhibit 2.1 to the Registrant's Quarterly
Report on Form 10-Q filed on November 6, 2019).
Amended and Restated Agreement and Plan of Merger dated as of October 19, 2020 among Heartland Financial
USA, Inc., First Bank & Trust, AIM Bancshares, Inc., AimBank and Michael F. Epps, as the Shareholder
Representative (incorporated by reference to Appendix B to the Proxy Statement/Prospectus contained in
Amendment No. 1 to Heartland’s Registration Statement on Form S-4 (Registration No. 333‑238459)) filed on
October 19, 2020.
Restated Certificate of Incorporation of Heartland Financial USA, Inc. and Certificate of Designation of Series A
Junior Participating Preferred Stock as filed with the Delaware Secretary of State on June 10, 2002 (incorporated
by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed on November 8, 2008).
Bylaws of Heartland Financial USA, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Annual
Report on Form 10-K filed on March 15, 2004).
Amended and Restated ByLaws of Heartland Financial USA, Inc. Amended and Restated as of March 16, 2021
(incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 6,
2021).
Amendment to Certificate of Incorporation of Heartland Financial USA, Inc. as filed with the Delaware Secretary
of State on July 30, 2009 (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form
10-Q filed on August 10, 2009).
Certificate of Designation of Senior Non-Cumulative Perpetual Preferred Stock, Series C, as filed with the
Delaware Secretary of State on September 12, 2011 (incorporated by reference to Exhibit 3.1 to the Registrant’s
Current Report on Form 8-K filed on September 15, 2011).
Amendment to Certificate of Incorporation of Heartland Financial USA, Inc. filed with the Delaware Secretary of
State on May 28, 2015 (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-
Q filed on August 6, 2015).
Certificate of Designation of 7% Senior Non-Cumulative Perpetual Convertible Preferred Stock, Series D, as
filed with the Delaware Secretary of State on February 5, 2016 (incorporated by reference to Exhibit 3.1 to the
Registrant’s Current Report on Form 8-K filed on February 11, 2016).
Amendment to Certificate of Incorporation of Heartland Financial USA, Inc. as filed with the Delaware Secretary
of State on May 18, 2017 (incorporated by reference to Exhibit 3.4 to the Registrant's Amendment No. 2 to it
Form S-4 Registration Statement filed on May 18, 2017).
Amendment to Certificate of Incorporation of Heartland Financial USA, Inc. as filed with the Delaware Secretary
of State on August 28, 2018 (incorporated by reference to Exhibit 3.1 to the Registrant's Quarterly Report on
Form 10-Q filed on November 6, 2018).
Amendment to Certificate of Incorporation of Heartland Financial USA, Inc. as filed with the Delaware Secretary
of State on May 23, 2019 (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form
10-Q filed on August 7, 2019).
3.11
Amendment to Certificate of Incorporation of Heartland Financial USA, Inc. as filed with the Delaware Secretary
of State Amendment to Certificate of Incorporation of Heartland Financial USA, Inc. as filed with the Delaware
Secretary of State on June 6, 2019 (incorporated by reference to Exhibit 3.2 to the Registrant’s Quarterly Report
on Form 10-Q filed on August 7, 2019).
158
3.12
Certificate of Designation of 7.00% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series E, filed
with the Secretary of State of the State of Delaware and effective June 25, 2020 (incorporated by reference to
Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed on June 26, 2020).
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.1
4.11
4.12
4.13
4.14
4.15
Form of Specimen Stock Certificate for Heartland Financial USA, Inc. common stock (incorporated by reference
to Exhibit 4.1 to Registrant’s Registration Statement on Form S-4 (File No. 33-76228) filed on May 4, 1994).
Form of Global Note representing the Securities (incorporated by reference to Exhibit 4.3 to the Registrant's
Current Report on Form 10-Q filed on November 5, 2021)
Indenture by and between Heartland Financial USA, Inc. and Wells Fargo Bank, National Association, dated as
of January 31, 2006 (incorporated by reference to Exhibit 10.19 to the Registrant’s Annual Report on Form 10-K
filed on March 10, 2006).
Indenture between Heartland Financial USA, Inc. and U.S. Bank National Association dated December 17, 2014
(incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K dated December 18, 2014)
Second Supplemental Indenture dated as of September 8, 2021 to the Indenture dated as of December 17, 2014
between Heartland Financial USA, Inc. and U.S. Bank National Association, as trustee (incorporated by reference
to Exhibit 4.2 to Registrant’s Current Report on Form 8-K dated September 8, 2021)
Indenture between Heartland Financial USA, Inc. and Wilmington Trust Company dated as of June 21, 2007
(incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on August 9,
2007).
Indenture between Heartland Financial USA, Inc. and Wilmington Trust Company dated as of June 26, 2007
(incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on August 9,
2007).
Rights Agreement, dated as of January 17, 2012, between Heartland Financial USA, Inc. and Dubuque Bank and
Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.1 to Registrant’s Form 8-A filed on May
17, 2012).
Indenture by and between Morrill Bancshares, Inc. and State Street Bank and Trust Company of Connecticut,
National Association dated as of December 19, 2002 (incorporated by reference to Exhibit 10.34 to the
Registrant's Annual Report on Form 10-K filed on March 14, 2014).
Indenture by and between Morrill Bancshares, Inc. and U.S. Bank National Association dated as of December 17,
2003 (incorporated by reference to Exhibit 10.35 to the Registrant's Annual Report on Form 10-K filed on March
14, 2014).
Indenture between Heartland Financial USA, Inc. and U.S. Bank National Association dated as of December 17,
2014, as supplemented (including form of note) (incorporated by reference to Exhibit 4.1 and 4.2 to the
Registrant's Current Report on Form 8-K filed on December 18, 2014).
Form of Stock Certificate for 7% Senior Non-Cumulative Perpetual Convertible Preferred Stock, Series D
(incorporated by reference to Exhibit 4.4 to the Registrant's Annual Report on Form 10-K filed on March 11,
2016).
Form of certificate representing the 7.00% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series E
(incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed on June 26, 2020).
Deposit Agreement, dated June 26, 2020, by and among Heartland Financial USA, Inc., Broadridge Corporate
Issuer Solutions, Inc. and the holders from time to time of Depositary Receipts described therein (incorporated by
reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed on June 26, 2020).
Form of Depositary Receipt representing Depositary Shares (incorporated by reference to Exhibit 4.2 to the
Registrant's Form 8-K filed on June 25, 2020 ).
159
4.16
Amended and Restated Shareholder Voting Agreement, dated October 19, 2020, by and among AIM Bancshares,
Inc., AimBank, Heartland Financial USA, Inc., First Bank & Trust, and certain holders of Common Stock
(incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-4/A filed on
October 19, 2020).
4.17
Description of Securities
10.1 (2)
10.2 (2)
10.3 (2)
10.4 (2)
10.5
10.6 (2)
Form of Split-Dollar Life Insurance Plan effective November 13, 2001, between the subsidiaries of Heartland
Financial USA, Inc. and their selected officers, including four subsequent amendments effective January 1, 2002,
May 1, 2002, September 16, 2003 and December 31, 2007. These plans are in place at Dubuque Bank and Trust
Company, Illinois Bank & Trust, Wisconsin Bank & Trust and New Mexico Bank & Trust (incorporated by
reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 12, 2008).
Form of Executive Supplemental Life Insurance Plan effective January 1, 2005, between the subsidiaries of
Heartland Financial USA, Inc. and their selected officers, including a subsequent amendment effective December
31, 2007. These plans are in place at Dubuque Bank and Trust Company, Illinois Bank & Trust, Wisconsin Bank
& Trust and New Mexico Bank & Trust (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly
Report on Form 10-Q filed on May 12, 2008).
Form of Executive Life Insurance Bonus Plan effective December 31, 2007, between Heartland Financial USA,
Inc. and selected officers of Heartland Financial USA, Inc. and its subsidiaries, including a subsequent
amendment effective December 31, 2007 (incorporated by reference to Exhibit 10.8 to the Registrant’s Annual
Report on Form 10-K filed on March 16, 2009).
Form of Split-Dollar Agreement effective November 1, 2008, between the subsidiaries of Heartland Financial
USA, Inc. and their selected officers. These plans are in place at Dubuque Bank and Trust Company, Illinois
Bank & Trust, Wisconsin Bank & Trust, New Mexico Bank & Trust, Arizona Bank & Trust, Citywide Banks,
Minnesota Bank & Trust and Citizens Finance Co. (incorporated by reference to Exhibit 10.9 to the Registrant’s
Annual Report on Form 10-K filed on March 16, 2009).
ISDA Confirmation Letter between Heartland Financial USA, Inc. and Bankers Trust Company dated April 5,
2011 (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q filed on May
10, 2011).
Form of Amendment to Change in Control Agreements (incorporated by reference to Exhibit 10.8 to the
Registrant’s Annual Report on Form 10-K filed on February 26, 2020).
10.7 (2) Heartland Financial USA, Inc. 2016 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.2 to
the Registrant's Current Report on Form 8-K filed on May 20, 2016).
10.8 (2) Business Loan Agreement dated June 14, 2019, between Heartland Financial USA, Inc. and Bankers Trust
Company (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q filed on
August 7, 2019).
10.9
10.10
First Amendment dated June 16, 2020 to Business Loan Agreement dated June 14, 2019 June 16, 2020 to
Business Loan Agreement dated June 14, 2019, between Heartland Financial USA, Inc. and Bankers Trust
Company (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on
August 6, 2020).
Promissory Note dated June 14, 2019 (issued under the non-revolving line of credit), and Change in Terms
Agreement dated July 15, 2019 between Heartland Financial USA, Inc. and Bankers Trust Company
(incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q filed on August 7,
2019).
10.11 (2)(3) Master Agreement between Fiserv Solutions LLC and Heartland Financial USA, Inc. dated July 1, 2021, and
Amendment 1 to Agreement dated as of July 1, 2021 (incorporated by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q filed on August 5, 2021)
10.12 (2) Heartland Financial USA, Inc. Deferred Compensation Plan effective April 30, 2019 (incorporated by reference
to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on May 6, 2019
160
10.13
10.14
10.15
10.16 (2)
10.17 (2)
10.18 (2)
10.19
10.20
Promissory Note dated June 14, 2020 (issued under the credit facility)issued to Bankers Trust Company by
Heartland Financial USA, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on
Form 10-Q filed on August 6, 2020).
Promissory Note dated June 14, 2020 (issued under the non-revolving line of credit) issued to Bankers Trust
Company by Heartland Financial USA, Inc. (incorporated by reference to Exhibit 10.3 to the Registrant’s
Quarterly Report on Form 10-Q filed on August 6, 2020).
Form of Time-Based Restricted Stock Unit Award Agreement under the Heartland Financial USA, Inc. 2020
Long-Term Incentive Plan for time-based awards vesting in the first, second and third years following the
original grant award (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-
Q filed on May 6, 2021).
Form of Performance-Based Restricted Stock Unit Award Agreement Three-Year Performance Period under the
Heartland Financial USA, Inc. 2012 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q filed on May 8, 2018).
Form of Performance -Based Restricted Stock Unit Award Agreement Three-Year Performance Period under the
Heartland Financial USA, Inc. 2020 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q filed on May 6, 2021)
Heartland Financial USA, Inc. 2020 Long-Term Incentive Plan (incorporated by reference to Annex A to the
Registrant's Definitive Proxy Statement filed on April 6, 2020)
Form of Time-Based Restricted Stock Unit Award Agreement under the Heartland Financial USA, Inc. 2020
Long-Term Incentive Plan for the time - based awards 3 year cliff vesting (incorporated by reference to Exhibit
10.3 to the Registrant's Quarterly Report on Form 10-Q filed on May 6, 2021)
Form of Director Restricted Stock Unit Award Agreement under the Heartland Financial USA, Inc. 2020 Long-
Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-
Q filed on August 5, 2021)
21.1 (1)
Subsidiaries of the Registrant.
23.1 (1) Consent of KPMG LLP.
31.1 (1) Certification of Chief Executive Officer pursuant to Rule 13a-14.
31.2 (1) Certification of Chief Financial Officer pursuant to Rule 13a-14.
32.1 (1) Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2 (1) Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
101 (1)
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 Cash Flows, (iv) the
Consolidated Statements of Changes in Equity and Comprehensive Income, and (v) the Notes to Consolidated
Financial Statements.
104 (1) Cover page formatted in Inline Extensible Business Reporting Language
(1) Filed herewith.
(2) Management contracts or compensatory plans or arrangements.
(3) Portions of the contract have been omitted pursuant to SEC confidential treatment under 17 C.F.R. Section
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, copies of certain instruments defining the rights of holders of long-term
debt are not filed. Heartland agrees to furnish copies of such instruments to the SEC upon request.
161
162 Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized on February 24, 2022.
SIGNATURES
Heartland Financial USA, Inc.
By: /s/ Bruce K. Lee
President and Chief Executive Officer
Date:
February 24, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities indicated on February 24, 2022.
By: /s/ Bruce K. Lee
Bruce K. Lee
President and Chief Executive Officer
(Principal Executive Officer and Duly Authorized Officer)
/s/ Lynn B. Fuller
Lynn B. Fuller
Executive Operating Chairman and Director
(Principal Executive Officer)
/s/ Bryan R. McKeag
Bryan R. McKeag
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Janet M. Quick
Janet M. Quick
Executive Vice President and Deputy Chief Financial Officer
(Principal Accounting Officer)
/s/ Robert B. Engel
Robert B. Engel
Director
/s/ Jennifer K. Hopkins
Jennifer K. Hopkins
Director
/s/ Susan G. Murphy
Susan G. Murphy
Director
/s/ John K. Schmidt
John K. Schmidt
Director
/s/ Kathryn Graves Unger
Kathryn Graves Unger
Director
/s/ Thomas L. Flynn
Thomas L. Flynn
Director
/s/ Christopher S. Hylen
Christopher S. Hylen
Director
/s/ Barry H. Orr
Barry H. Orr
Director
/s/ Martin J. Schmitz
Martin J. Schmitz
Director
/s/ Duane E. White
Duane E. White
Director
163
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