C O R P O R A T E P R O F I L E
HTLF is a $20 billion bank, headquartered in Denver, serving
customers across the West, Southwest and Midwest. Our
unique model powers our geographically diverse group of
banks with technology, efficiency and strength.
Our local bank brands serve our customers and
communities through commercial, small business and
consumer banking. We leverage our deep local roots and
longstanding connections to expand existing relationships
and create new ones.
We believe local brands, local leadership and local
decision-making best serve the communities where we
operate. We differentiate ourselves by offering the depth
and breadth of products and services of a $20 billion bank
in each of our local markets.
HTLF’s common stock is traded through the NASDAQ
Global Select Market System under the symbol “HTLF.”
Depositary 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 // 2022 Annual Report
Financial Highlights
For the years ended December 31, 2022, 2021 and 2020
(Dollars in thousands, except per share data)
F O R T H E Y E A R
2 0 2 2
% INCREASE
(DECREASE)
2 0 2 1
2 0 2 0
Net income
Net income available to common stockholders
Cash dividends, common
$212,180
204,130
46,199
-3.52
%
$219,923
$137,938
-3.65
14.05
211,873
40,509
133,487
29,468
P E R S H A R E D ATA
Earnings per common share – diluted (EPS)
Cash dividends, common
Book value at December 31
$4.79
1.09
38.25
-4.20
%
13.54
-21.94
$5.00
0.96
49.00
$3.57
0.80
46.77
AT Y E A R E N D
Total assets
$20,244,228
5.03
%
$19,274,549
$17,908,339
Total loans receivable
Total deposits
Total common stockholders’ equity
11,428,352
17,513,009
1,624,350
14.81
6.67
-21.58
9,954,572
10,023,051
16,417,255
14,979,905
2,071,473
1,968,526
F I N A N C I A L R AT I O S
Return on average total assets
Return on average stockholders’ equity
Return on average tangible common equity
(non-GAAP)1
Net interest margin
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
1.08
%
11.74
18.56
3.32
3.37
8.86
14.76
11.81
11.07
9.13
1.19
%
10.49
15.59
3.29
3.33
10.92
15.9
12.39
11.53
8.57
0.93
%
8.06
12.28
3.65
3.69
11.21
14.71
11.85
10.92
9.02
1 Refer to the “Reconciliation of Return on Average Tangible Common Equity (non-GAAP)” table on page 46 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 47 of the annual report on Form 10-K.
3
“We are executing
our strategies,
delivering results
and exceeding
expectations.”
F O R W A R DT O G E T H E R
B R U C E K . L E E
President and CEO
HTLF // 2022 Annual Report
To our fellow shareholders:
In 2022, HTLF moved forward together. We had tremendous success executing our strategies to deliver
Strength, Insight and Growth to our customers and strong results that exceeded expectations to our shareholders.
F I N A N C I A L H I G H L I G H T S F O R T H E Y E A R I N C L U D E :
Total revenue was a record $726.5 million, an increase of $37 million or 5 percent
We delivered net income available to common stockholders of $204.1 million and earnings per
diluted common share of $4.79
We saw tremendous loan growth of $1.5 billion or 15 percent. Excluding decreases in Paycheck Protection
Program loans, annual loan growth was $1.7 billion or 17 percent
And our disciplined credit approach continued to deliver excellent credit quality across our portfolios
Total assets grew to a record $20.2 billion, up $970 million
HTLF is executing charter consolidation and
or 5 percent, driven by strong momentum in commercial
optimizing branches and geographies to create
and consumer loans, and growth in deposits.
efficiencies, capacity and scale that support growth
HTLF continues to be recognized as a top-performing
and admired banking organization. For the seventh
organically and through strategic acquisitions of
talent and customers.
consecutive year, HTLF was named by Forbes as one of
We successfully executed five bank charter
“America’s Best Banks.”
In addition, our steadfast commitment to improving
the customer experience was recognized by Coalition
Greenwich, as six of our banks were named 2022
Customer Experience Leaders in the Commercial
Small Business Banking or Commercial Middle Market
Banking categories.
Our 11 bank brands leveraged deep local roots and
longstanding connections to expand existing commercial
and business banking relationships and create new ones.
In 2022, we added 1,300 new commercial customers
representing $1.2 billion in funded loans.
We expanded our customer base with ambitious, yet
disciplined, growth strategies, adding lending and capital
markets expertise that extends our capabilities and
enhances our growth trajectory.
We drove business in fee generating products, such as our
commercial card business, which reached a milestone in
2022 as we surpassed $1 billion in purchase volume. And
consolidations, with our banks in Arizona, California,
Colorado, Illinois and Minnesota becoming divisions of
HTLF Bank. The project continues on schedule and on
budget. We expect to finish early in the fourth quarter
of 2023 and deliver $20 million of annual benefits
upon completion.
We’ve invested significantly in our culture and our
people. Our employee retention strategy was
successful and our Diversity, Equity and Inclusion
program, launched in 2021, continues to develop
with the introduction of three employee business
resource groups.
In December 2022, HTLF’s corporate headquarters
moved to Denver, Colorado. Our administrative and
operational headquarters continue to be based in
Dubuque, Iowa.
HTLF’s momentum continues into 2023 as we strive to
better serve our employees, customers, communities
and shareholders.
Nilson Report ranked HTLF among the top U.S. commercial
We are executing our strategies. We are delivering
credit card issuers for the seventh year in a row.
results. We are exceeding expectations. And we’re
moving forward together.
T O G E T H E R , W E A R E H T L F .
B R U C E K . L E E
5
F O R W A R DT O G E T H E R
J O H N K . S C H M I D T
Chairman
HTLF // 2022 Annual Report
To our valued shareholders:
“HTLF had an outstanding year,
advancing strategic initiatives,
delivering excellent results, and
serving customers, communities
and shareholders.”
F I N A N C I A L H I G H L I G H T S F O R T H E Y E A R :
On behalf of the Board of Directors, I’m pleased to
With a more efficient organizational structure
share HTLF’s 2022 highlights with you in this annual
reinforced by our ongoing commitment to our local
report. HTLF had an outstanding year, advancing
markets, HTLF will be even better positioned to serve
strategic initiatives, delivering excellent results, and
more businesses and customers and help them
serving customers, communities and shareholders.
reach their financial goals.
As independent chairman, I’m excited about the
2022 was a period of transition for the board.
company’s performance, direction and our collective
I assumed the role of independent chairman in
work as a board. The directors are aligned with each
March, and Lynn “Butch” Fuller resigned from the
other and management as the company continues to
board in December. I want to thank Mr. Fuller for his
drive forward its strategic plans.
This alignment has been encouraged by our board
committees, spearheaded by Robert Engel, Susan
service and many contributions to HTLF during his
five decades as an employee, board director and
board chairman.
Murphy and Duane White, our respective Risk, Audit
As HTLF evolves, we remain grounded in our
and Compensation, Nominating and Corporate
values, founded on the principle that local control
Governance committee chairpersons.
and local decision-making best serve the
Charter consolidation was unanimously approved
by the Board of Directors in late 2021. The board is
pleased with the excellent progress made on the
communities where we operate and create value
for shareholders. This core legacy continues to
guide us as we adapt and grow.
foundational initiative and eagerly anticipates its
Thank you for the opportunity to serve you as
completion later this year.
independent chairman.
T O G E T H E R , W E A R E H T L F .
J O H N K . S C H M I D T
7
We celebrate Together.
Awards, recognition and strong performance result from
the hard work and dedication of our employees. We are
committed to delivering Strength, Insight and Growth to
our customers, communities and investors. We move
forward together, because together, we are HTLF.
ABT was recognized as one of
First Bank & Trust was named
Brent Giles, President and
the “Best Places to Work” by the
Best Bank by KCBD (NBC
CEO of Bank of Blue Valley,
Phoenix Business Journal and
affiliate) in its Best of the
was recognized as one of
ranked 10th in its category.
West viewers’ poll.
ABT also ranked #2 in the top
“It was an honor to receive the
banks in Arizona ($480M - $1.6B
recognition of “Best Bank” in
market deposits category) via
KCBD’s 2022 Best of the West
Ingram’s Magazine’s 250 most
powerful business leaders in
Kansas City.
AZBIG Media.
Bill Callahan, President and
CEO, Arizona Bank & Trust
was also recognized as one of
the Bank Leaders of the year in
the 2022 list published by
AZBIG Media.
“It is a privilege to serve as
President and CEO of Arizona
Bank &Trust,” Callahan says. “I
look forward to contributing
to the success and vibrancy
of the Phoenix market and
leading our associates to
contest, said Greg Garland,
President and CEO of First Bank
& Trust. “The coveted title is
the gold standard in “Best of”
voting competitions in
West Texas.”
Minnesota Bank & Trust was
named a 2022 Star Tribune
Top Workplace.
Minnesota Bank & Trust
Premier Valley Bank’s Mariposa
Banking Center was named Best
Bank for the 17th consecutive
year in the Mariposa Gazette’s
Best of the Best annual Readers’
Choice Awards.
provide the finest community
was also recognized as a
banking experience.”
Community Champion by the
Minnesota Banker’s Association
for the third year in a row.
Illinois Bank & Trust won Best
Bank for the 5th consecutive
year and Best Customer
Service (1st time) by the
Rockford Register Star.
Wisconsin Bank & Trust was
voted Best Bank in Sheboygan
County by readers of the
Sheboygan Press.
HTLF // 2022 Annual Report
John K. Schmidt
HTLF Chairman of the Board received the 2022
First Citizen of Dubuque award.
Greenwich Award
Six of our bank brands named 2022 Customer
Experience Leaders in the Commercial Small
Business Banking or Commercial Middle
Market Banking categories.
Nilson Report
Ranked HTLF among the top U.S. commercial
credit card issuers for the seventh year in a row.
$1B in Purchase Volume
HTLF surpassed $1 billion in purchase volume
as a commercial credit card issuer.
Forbes America’s Best
Banks 2023
Named for the seventh consecutive year.
Excellent Credit Quality
Delinquency ratio at historic low of 4 basis points.
Coalition Greenwich is a division of CRISIL, an S&P Global Company, and is a leading global
provider of strategic benchmarking, analytics and insights to the financial services industry.
We see
Growth.
T O T A L A S S E T S
$20.24B
+$970M or 5% from a year ago
T O T A L R E V E N U E
$726.5M
5% growth vs. 2021
L O A N G R O W T H
$1.47B
+15% vs. 2021
E P S - D I L U T E D
$4.79
N E T I N C O M E
A V A I L A B L E T O C O M M O N
S H A R E H O L D E R S
$204.1M
D I V I D E N D
$1.09 per share of common
stock in 2022 (13.5% growth
over 2021)
Increased common stock
dividend to a record
$.28 per share
9
Forward focus.
HTLF had
tremendous
success and
significant
growth in 2022.
F O R W A R DT O G E T H E R
HTLF // 2022 Annual Report
Our strategic focus is based on our
disciplined approach in five key areas.
1 .
S T R A T E G I C C U S T O M E R
A C Q U I S I T I O N A N D R E T E N T I O N
2022 was a record year for customer acquisitions. We added 1,300
new commercial customers by leveraging our growing commercial
expertise. The depth and breadth of our products and services is
expanding relationships and developing new ones.
We have made strategic investments in specialized industry
verticals and capital markets expertise, including loan syndications,
interest rate derivatives, trade finance and foreign exchange.
We continue to build our middle market banking services, adding
talent and vertical expertise to enhance our capabilities and
support our local bank brands.
1,300+
New Commercial
Customers
$1.2B
Loans Funded
2 .
E N H A N C I N G O U R C U S T O M E R
E X P E R I E N C E
Our steadfast commitment to improving the customer experience
has been recognized by Coalition Greenwich, as six of our bank
brands were named 2022 Customer Experience Leaders in the
Commercial Small Business Banking or Commercial Middle Market
Banking categories.
HTLF among
the top U.S.
commercial credit
card issuers
To earn the recognition, our banks achieved scores that exceeded
the industry benchmark by a specified margin in:
Overall satisfaction
Likelihood to recommend
Ease of doing business
Nilson Report ranked HTLF among the top U.S. commercial credit
card issuers for the seventh year in a row. Nilson Report’s ranking
reflects HTLF’s innovative approach to digital technology products
and providing excellent customer education and experiences.
11
3 .
A T T R A C T I N G A N D
R E T A I N I N G T A L E N T
We continue to invest in our culture, which enables us to
better serve our customers and communities.
Jay Kim, EVP, General Counsel, assumed the new Chief
Administrative Officer role. Jay’s leadership aligns and
enhances HTLF support services and processes.
Kevin Karrels, EVP, Head of Consumer Banking, gained
additional leadership responsibilities as our new Chief
Marketing Officer. Kevin brings creativity and innovation to
our Marketing department to better support our banks and
business partners.
Calvin Carson was promoted to SVP, Treasury and Payment
Solutions National Sales Manager. In 2022, Calvin’s Treasury
and Payment Solutions team and our banks reached a
significant milestone: HTLF surpassed $1 billion in purchase
card volume as a commercial credit card issuer! HTLF
continues to be among the fastest growing Visa issuers
and remains committed to growing non-interest income
through this line of business, as evidenced by this
impressive accomplishment.
4 .
E F F I C I E N C Y I M P R O V E M E N T S T O
O P E R A T E E F F E C T I V E L Y
HTLF is driving efficiency while investing for growth. We
continue to consolidate our 11 separate bank charters into
a single HTLF Bank charter. This will create operational and
cost efficiencies, unlocking capacity that supports growth
organically and through mergers and acquisitions.
We also continue to optimize our branch network. In 2022,
we reduced our number of branches by 8 percent to
119 total locations.
We reduced our number of full-time equivalent employees
by 11 percent and our efficiency ratio (non-GAAP) decreased
3 percent for the year.
Jay Kim
EVP, General Counsel
and HTLF Chief
Administrative Officer
Kevin Karrels
EVP, Head of Consumer
Banking and HTLF Chief
Marketing Officer
Calvin Carson
SVP, Treasury and
Payment Solutions
National Sales Manager
-3%
Efficiency Ratio
(non-GAAP)
Decrease in 20221
HTLF // 2022 Annual Report
1 Refer to the efficiency ratio (non-GAAP) table on page 47 of the annual report on Form 10-K.
5 .
P R U D E N T R I S K M A N A G E M E N T A N D
C R E D I T D I S C I P L I N E
Our ongoing growth strategies and investments in talent and
technology continue to deliver results, including our excellent credit
quality. We’ve added talent and strategically built a strong credit
team that uses a disciplined credit approach. The team has been
focused on improving credit quality across our portfolios.
Our delinquency ratio reached a historic low of 4 basis points and
non-performing loans represented 51 basis points of total loans.
It was a year of significant growth and tremendous
accomplishment for HTLF. We executed our
strategies, grew our business, operated more
efficiently, delivered strong results and most
importantly, provided excellent service
to our customers and communities.
Strength.
Insight.
Growth.
13
Together, we make a Difference.
HTLF is committed to enriching lives one customer,
employee and community at a time. We believe our
continued growth and the growth of the communities we
serve is guided by our values of integrity, accountability,
community and excellence.
C O M M I T M E N T T O
S U S T A I N A B I L I T Y
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 ( D E I )
Achieving a more sustainable future means
Diversity, Equity and Inclusion (DEI) is the right
helping solve problems and delivering
thing to do, and we also believe it leads to a
solutions. It also means being an outstanding
more positive culture, higher-performing teams
partner with our customers and communities.
and delivering better products and services.
These priorities inspire us to nurture and
HTLF is two years into our DEI journey and made
develop diverse talent and build trust through
significant accomplishments in 2022 related to
collaboration. Our work both inside and outside
recruiting and developing diverse talent.
HTLF continues to focus on our strategic
partnerships. By shining a light on our progress
and where we can improve, we become better
equipped to take action.
The HTLF Board of Directors has evolved its
diversity efforts to include talented individuals
with experiences that help evolve HTLF and
the banking industry. Recent directors added
HTLF partnered with One Tree Planted, a non-
to the board came from a diverse group of
profit organization focused on reforestation and
candidates and enhanced gender and minority
conservation. HTLF planted one tree for every
representation on the board.
HTLF and bank employee in honor of National
Arbor Day. The trees were planted in areas of
our geographic footprint impacted by
devastating forest fires.
Planting trees in our western markets is just
one way we demonstrate the importance
of corporate social responsibility and our
commitment to sustainability.
In 2022, HTLF published its first DEI annual report,
summarizing HTLF’s diversity statistics and
helping identify areas of opportunity so we can
continue to evolve on our DEI journey.
Three employee business resource groups
(EBRGs) launched. EBRGs are voluntary,
employee-led networks based on shared
characteristics or backgrounds formed around
Other sustainability efforts include LEED
a common, yet traditionally underrepresented,
Certified buildings, solar panels, converting
social identity. These groups are open to all
to LED lighting and decreasing paper printing
employees and promote a more diverse
volumes by 48 percent since 2019.
and inclusive environment where everyone feels
12,000+
$800K+
Employee
Volunteer Hours
In Charitable
Donations
valued and empowered to succeed. The three
groups include LIFT – Powered by the Women
of HTLF, Multicultural Champions and Veterans
& Friends. These groups are comprised of more
than 175 founding members combined.
HTLF seeks to improve the diversity among
HTLF // 2022 Annual Report
Download the DEI 2022 Report
management and leadership. The creation of
and are eligible to receive federal funding
EBRGs provides new leadership and networking
matching the amount and terms of locally raised
opportunities as well as professional development
capital, so local dollars can be leveraged to
exposure for internal candidates.
generate additional funding for our communities.
Employee engagement remains an important part of
Illinois Bank & Trust is the lead bank on a CDFI
fund, the only one in Rockford, Illinois, and has
our efforts and is cultivated with a quarterly speaker
committed $250,000.
series and new DEI online training courses.
F I N A N C I A L I N C L U S I O N
E M P L O Y E E F O C U S
The health and wellness of our employees
We are committed to financial inclusion through the
remain a primary focus. The pandemic was hard
implementation of new products and services to help
on many employees and their families, and the
support low to moderate income (LMI) customers and
communities. Earlier this year, we launched a new
checking product called Bank-on, that is checkless
impacts are still being felt. Mental health care is
an ongoing need, and to aid our employees and
their dependents we’ve increased free access to
and has no overdrafts fees, helping LMI customers
counseling sessions.
avoid fees. We are a part of a national movement
to increase safe and affordable banking and bring
HTLF has increased our remote workforce using
the underbanked and unbanked into the financial
technology. Remote work has allowed us to expand
mainstream. Over 300 Bank-on checking accounts
our talent pool across the U.S., employing people
have been opened.
In 2022, inclusive lending at our banks provided
over 3,900 small business and micro loans totaling
more than $800 million. Our Buy Local Loans help
in 42 states. Remote work is also a talent retention
tool and demonstrates our flexibility as an employer.
24 percent of employees are fully remote while 22
percent work on a hybrid basis. We have found
that overall productivity has increased with our
support local businesses as part of the Community
remote workforce.
Reinvestment Act (CRA). Since we launched the
program we have helped nearly 4,700 customers with
HTLF is enhancing our employee benefits
over $20 million in lending.
in 2023, including:
S E R V I N G C O M M U N I T I E S
HTLF employees have invested their time and talents
Increasing the 401k matching contribution from
3 percent to 5 percent
in the communities we serve with more than 12,000
Introducing a $2,000 scholarship for children
volunteer hours and charitable giving exceeding
of eligible employees
$800,000. CRA hosted and attended events totaling
more than 2,900 hours and over $200 million
dedicated to CRA investments directly related to
developing our communities.
Community Development Financial Institutions (CDFI)
are mission-driven organizations providing financing
for underserved communities and populations. CDFI
funds are certified by the U.S. Department of Treasury
Introducing a matching contribution for
eligible charitable organizations ranging from
$50 up to $2,500
We are driven to deliver Strength, Insight, and
Growth to our customers, community, employees
and shareholders.
15
E R 2
Driving Forces
At home, at work and at play, software and
hardware enables nearly all of our activities.
But what happens when that technology
renders our device a dinosaur and dreaded
software updates are needed? Enter ER2.
ER2 seamlessly manages
as the conduit for getting
Rick Krug grew up on a farm
software and hardware
technology in the hands of
in Wisconsin where his
purchasing, maximizes
in-need organizations so
adventurous spirit was fueled
warehousing and delivery
they can continue making
early on. He worked for 17 years
needs, and simplifies
an impact on people’s lives.
in the automotive field, then
installment and deployment
Organizations such as
transitioned into the electronic
specializing in the corporate
Forefront Experience, PS
recycling industry, focusing on
and educational sectors.
Academy Arizona, DCS Youth
his lifelong passion to innovate,
They work with Fortune
Valley Resource Room and
and setting into motion what is
100 companies to recycle
countless others have been
now ER2.
electronics, are licensed to
aided using refurbished
destroy sensitive information
technology and expertise
and remove, clean and
facilitated through ER2.
repurpose the devices
through online sales or
donations to those in need.
An environmentally and
socially focused business,
ER2’s services have zero-
landfill impact.
The founders of ER2, Chris
Ko and Rick Krug, took very
different paths to success,
albeit with shared values.
A T R U S T W O R T H Y
P A R T N E R S H I P
Chris and Rick partnered in
2011, with a common vision
of what ER2 could be, and
created a company founded
on and operated through a
Chris Ko began his family at
strong set of shared values.
a young age. He graduated
ER2 found a trustworthy
Managing old and new
from Arizona State University
partner in Arizona Bank & Trust
corporate technology needs is
with a degree in finance, plus
(ABT) to help expand its
just one side of ER2. Through
a wife and three kids. He went
vision further.
the generosity of its clients,
ER2 also assists with often-
overlooked technology needs
of underserved communities
directly into venture capital
and private equity where he
The ABT team of Peter Eberle,
quickly learned how to grow
Relationship Manager,
a business and maximize a
Tony Hammond, Head of
around the globe. It serves
financial return.
Commercial and Bill Callahan,
President and CEO, partner
on the ER2 relationship.
HTLF // 2022 Annual Report
Phoenix, Arizona
Since 2018, ABT has provided
“We have grown the
ER2 with a full banking
relationship with ABT from one
relationship, including treasury
OORE and a small line of credit
management, owner occupied
when we were at $4 million in
real estate (OORE) and working
annual sales, to four OOREs
capital line of credit.
and now over $32 million in
Chris commented, “The ability
to connect with leadership, as
well as ABT’s ability and desire
sales,” Chris added.
E R 2 ’ S M I S S I O N
to understand a complicated
ER2 believes it’s a steward
business model, created
the keys to the successful
relationship.”
of the planet and has a
responsibility to take care
of it. The company has built
a sustainable business
Chris is grateful for the ABT
model that can be profitable
team and support at the
and positively impact the
HTLF level. ER2 would not be
environment. It’s committed to
where it is today without them,
having a zero-landfill impact
growing 38% year over year.
relating to all technology that
ER2 supplies technology to
charter schools. When there
were chip shortages and
supply delays in 2022, ABT
stepped up and stepped in.
School equipment is ordered
in March and April, but ER2
doesn’t get paid until months
later. ABT provided a non-
revolving line of credit with an
advanced strategy to help ER2.
This was done with knowledge
and understanding of how the
business operates.
comes through its doors,
and to educate clients and
peers about sustainable
practices and environmentally
conscious procedures.
ER2’s mission to grow
a sustainable company
providing opportunities for
individuals to continuously
improve is clearly successful.
Chris and Rick lead a diverse
group of individuals who have
the unified desire to empower
uniqueness. ER2 proves that
people are the driving force,
not technology.
“The ability to connect with leadership,
as well as ABT’s ability and desire to
understand a complicated business
model, created the keys to the
successful relationship.”
CH RI S KO
Co-founder,
ER2
17
H & C A N I M A L H E A L T H
Find Yes!
Critical thinking is the foundation of
every department and creativity is the
driving factor of the entire organization.
Using those guiding principles, Find Yes
has brought purrfect growth.
P E O P L E A N D
P A R T N E R S H I P S
tools, including treasury
management, deposit and
Find Yes is the mantra that
H&C Animal Health uses to
guide its success. Founder
Chuck Latham and team are
passionate brand builders,
results-driven sales and
marketing specialists,
informed data analysts,
powerful digital experts,
seasoned consultants, content
creators, informed consumer
researchers and most
importantly, pet lovers.
With over 100 years of
combined experience on H&C
Animal Health’s executive
team, the drive to create
innovative products and
provide affordable access had
humble beginnings.
Chuck grew up on a hog
farm. He was surrounded by
veterinarians and pet lovers.
Driven by his own passion for
animals, he took his ideas,
worked hard and created an
organization that now employs
over 400 people. While the
products are for pets, the
business is about people
and partnerships.
Citywide Banks (CWB)
provides the essential financial
partnership H&C Animal
Health values and uses to its
advantage. The company
takes advantage of a wide
breadth of available business
While the products are
for pets, the business is
about people.
HTLF // 2022 Annual Report
loan services.
Chuck commented, “Our
business is unique. We run
a branded manufacturing
company and a brokerage
commissioned based
company. It is a different and
difficult business model. Yet,
our team at CWB understands
our needs works to meet them.”
“It is great to be able to
pick up the phone, call
CWB, and work through
opportunities or issues. For
several years, we’ve been
good business partners and
friends. Their team looks out
for us as a holistic business,”
added Chuck.
Citywide Banks’ culture,
demonstrated through Reggie
Fink, CWB Relationship
Manager, fosters open
communication. Working
collectively, both the CWB
space. They’ve delivered
and H&C Animal Health teams
innovative products from
meet regularly. They confer
veterinary services to pet
not only on banking needs, but
retail, and made products more
on relationship building and
affordable and accessible to
knowledge sharing. Chuck
consumers by offering them
expressed, “Our CWB team
over the counter rather than
asks the right questions. Hard
requiring a prescription. Over
questions sometimes. And
the years, they’ve donated
that’s been good. Really good.”
millions to help animals. As
an example, beneficiaries
Together, H&C Animal
on Giving Tuesday received
Health, Michael Wamsganz,
much needed, and much
CWB President and CEO,
appreciated, supplies and
Shawn McGoff, CWB Head
treats, helping pets live their
of Commercial and Reggie
best life.
Fink have fostered a
successful partnership.
H&C Animal Health has
I N N O V A T I N G P E T
P R O D U C T S
created an international
business, employing hundreds
of people and enhancing
animal care for millions of pets.
Working closely on day-to-
Find Yes, indeed!
day business, mergers and
acquisitions and long-term
strategies, H&C Animal Health
has successfully created
new categories in the pet
Parker, Colorado
“It is great to be able to pick up the
phone, call CWB, and work through
opportunities or issues. For several
years, we’ve been good business
partners and friends.”
CH UC K L ATHA M
Founder,
H&C Animal Health
19
T U C K E R F R E I G H T L I N E S
Delivering Growth by the Truckload
Tucker Freight Lines, previously known
as Art Pape Transfer, has been in
transportation since 1956 and has worked
with customers in open deck and dry van
transportation sectors to find various
solutions for transportation roadblocks.
A.J. Tucker, President, and
father also has extensive
Sauny Tucker, CEO, have built
experience in trucking and
S P E C I A L I Z E D
S U P P O RT
The Tuckers see the Dubuque
Bank and Trust (DB&T) team as
a key part of their family.
“We financed the acquisition of
the company four and a half
years ago and have partnered
with them as they’ve grown
over 300% from 2018 to 2022,”
said Drew Townsend, DB&T
President and CEO.
a solid foundation of customer
continues to serve as an
satisfaction and excellent
important sounding board
service, all while focusing on
for all things related to
providing the highest quality
the business.
trucking and transportation
experience possible for their
The husband-and-wife duo
drivers, customers, employees
believes their relationship is
and strategic partners.
a key to their entrepreneurial
F A M I L Y
B U S I N E S S
success. “You also need
to have fun and surround
yourself with people who love
what they do and that is the
Tucker Freight Lines is a
atmosphere we’ve created,”
family business with a long
says Sauny.
trucking history. Sauny’s
father and grandfather both
“A benchmark for success isn’t
were truckers. Her father and
in the size of the company, but
brother are both employed
rather, its positive workplace
by Tucker Freight Lines. A.J.’s
culture and emphasis on family
values,” says A.J.
HTLF // 2022 Annual Report
Dubuque, Iowa
Women in Trucking Association
named Sauny one of the industry’s
“Top Women to Watch.”
“DB&T, with the support of
mortgage, lending, retirement
HTLF, has the capacity to
plan services and personal
support the capital intense
accounts. The convenience
nature of our business and
of a one-stop-shop and not
the growth of it,” said Sauny.
having multiple contacts saves
“We’ve surpassed our growth
time and money.
trajectories and DB&T has
grown with us.”
Sauny never envisioned
herself as someone who would
Both businesses are in
lead a company, but she is
Dubuque, Iowa, and that’s
making a name for herself
been convenient. “They are
in the industry. In March of
always willing to listen and that
2022, the Women in Trucking
can’t be said at other financial
Association named Sauny one
institutions. I have direct
of the industry’s “Top Women
access to the bank president
to Watch.”
who takes time for us,” said A.J.
Sauny says, “The company
Tucker Freight Lines utilizes
strives to create opportunities
many of DB&T’s products and
to encourage more women
services, including commercial
to consider careers in the
card, treasury management,
trucking industry.”
“DB&T, with the support of HTLF,
has the capacity to support the
capital-intense nature of our
business and the growth of it. We’ve
surpassed our growth trajectories
and DB&T has grown with us.”
SAUN Y TUCK ER
CEO, Tucker Freight Lines
A . J. TUCK ER
President, Tucker Freight Lines
21
T R U S T A U T O M A T I O N , I N C .
Partnership Built on Trust
Trust Automation, Inc., designs, builds and
supports control and power management
systems for Department of Defense,
Semiconductor Capital Equipment, industrial
automation and medical applications.
Trust Automation has over
from a Starbucks oven, to how
Senior leadership took the
30 years of experience
your food is packaged, how
time to listen to the Safrenos,
in custom motors, linear
your produce is planted, how
and not in a superficial way.
drives, digital drives, custom
computers are made, how your
Mike Mierau, PVB Relationship
assemblies and products to
heart beats and even how our
Manager, was committed to
fit unique applications and
military defends.
ground-up system design and
manufacturing solutions.
Ty Safreno, Co-founder, Chief
Executive Officer and Chief
P E R S O N A L I Z E D
F I N A N C I A L
S T R A T E G Y
understanding their industry
and business needs. Lo B.
Nestman, PVB President and
CEO, instilled confidence in
their business and met with
them personally. Laura Cellini,
Technology Officer, came to
The Safrenos best customers
PVB Treasury Management
his friend Trudie Safreno, Co-
are their partners, and that is
Officer, reintroduced treasury
founder, Chief Financial Officer
what they were looking for in
management solutions based
and President, while they were
a financial partner. “Premier
on the requirement for the
in college with a business idea.
Valley Bank (PVB) was the first
government contracts. And
They started Trust Automation
bank to believe in us,” said
Andy Carlson, PVB Treasury and
and while these young
Ty Safreno. “Their team took
Payment Solutions Consultant,
entrepreneurs grew their
the time to understand our
implemented a new commercial
friendship into a marriage, their
business and personally met
credit card program.
business also took off with
with us to create a personalized
much success.
financial strategy that aligns
“They presented a structure
with our growth goals.”
that works for everyone, truly
Trust’s business model is built
a partnership that is much
on a commitment to help its
“Decisions about our business
more than a relationship,” said
customers solve problems by
felt local and not distant,” said
Trudie. “They are proactive
automating aspects of their
Trudie. “We felt like we were a
versus reactive.”
products. You can find their
part of the process.”
products almost anywhere,
HTLF // 2022 Annual Report
San Luis Obispo, California
C O M M U N I T Y I M P A C T
“Premier Valley Bank is honored
The San Luis Obispo Chamber
to work with such an admirable
of Commerce named Ty
company,” Mierau said.
Safreno its 2022 Citizen of the
Year. The award is given yearly
Ty and Trudie have a willingness
to someone who exhibits
to impact and better their
“unparalleled service to the
community and have positively
community of San Luis Obispo.”.
affected countless lives. During
the height of the Covid-19
Ty and Trudie are committed
pandemic, Ty led a team to
to improving the lives of their
research, design, collaborate
employees, customers and
with others and construct the
community. Trust Automation
Cal Poly Alternative Care Site, a
is one of the largest employers
way to bring more hospital beds
in the San Luis Obispo market.
to San Luis Obispo County.
Ty and Trudie Safreno are
committed to improving the lives
of their employees, customers
and community.
Their 104,000 square foot facility supports its 125-plus team
of engineers, designers, manufacturers and customer service
employees. They take pride in their family-friendly workplace and
created a company-owned and operated on-site childcare facility,
one of only three in California along with Patagonia and Google.
“Their team took the time to
understand our business and
personally met with us to create a
personalized financial strategy that
aligns with our growth goals.”
TY SA FRE NO
Co-founder, Chief Executive Officer
and Chief Technology Officer,
Trust Automation, Inc.
TR UDI E SA FRE NO
Co-founder, Chief Financial Officer
and President, Trust Automation, Inc.
23
W A W O N A F R O Z E N F O O D S
Fruitful Growth
Located in California’s fertile San
Joaquin Valley, Wawona Frozen Foods
specializes in growing and processing
the highest quality fresh frozen fruit
products for food manufacturers,
foodservice distributors, restaurants,
resorts, supermarkets and schools.
Wawona is a multi-
Bill Smittcamp, who took the
“Relationships are especially
generational family owned
reins as President and CEO
important to our business and
and operated frozen fruit
from his brother Bob in 1983,
family. Doug Weber with HTLF
processor and the leader of
continues to run Wawona
Food and Agribusiness was
the U.S. frozen peach market.
and is helped by the third
always a strong advocate and
generation of Smittcamps:
a straight shooter,” said Blake.
Founded in 1963, Wawona
Blake, Executive Vice
“The team at HTLF is only a
specializes in the growing
President of Sales; Bradley,
phone call away and is always
and freezing of fresh fruit. As
Regional Sales Manager for
very responsive.”
a pioneer in the frozen fruit
Schools; and Blair, Marketing &
industry, the company is an
Special Projects Coordinator.
“We understand their business
industry leader, producing
many of America’s favorite fruits
including fresh frozen peaches,
strawberries, pears, plums and
A G R I C U L T U R A L
P A R T N E R S
and are focused on providing
creative solutions to meet
all of their banking needs,”
said Doug. “Our consultative
unique mixed fruit blends.
“Every business is unique, ours
approach addressed key pain
is even more so. We freeze
points in their deal structure
Wawona has become an
fresh fruits during the harvest
and provided a unique way
industry leader, shipping
season, store all year long,
to meet their credit needs
more than 100 million pounds
and ship to our customers as
— but most importantly, we
annually, and is the largest
they need our products,” says
understand their industry
peach processing facility in
Bill. “With the capital-intense
and its seasonality.”
the nation, turning out 65 to
nature of our business, it takes
75 million pounds in about 120
a bank and a relationship that
days of its season.
understands agriculture.”
HTLF // 2022 Annual Report
Clovis, California
The Smittcamp family is
synonymous with philanthropy
and advocacy.
“I consider my bank to
be my partner,” said Bill.
The Smittcamp family is
synonymous with philanthropy
“They need to understand
and advocacy. In June, Bill
the ups and downs of our
testified before the U.S. House
business, so open and honest
of Representatives Agriculture
communications is key, which
Committee meeting to
speaks volumes about Doug.”
urge Congress to ensure
N U T R I T I O N A N D
A D V O C A C Y
Another important partner is
frozen foods are included
and promoted in nutrition
programs in the writing of the
2023 farm bill.
the USDA. Wawona has been
And Wawona continues to
working with the USDA for over
emphasize sustainability in
35 years, providing frozen fruit
innovative ways. For example,
cups, frozen fruit pops and
many of the company’s roads
more to children in the national
are paved with peach pits.
school meals program.
It is just one way the current
Wawona works with school
generations of Smittcamps
districts to ensure their menus
are trying to ensure the
fulfill the recommended daily
company bears fruit for
fruit requirements.
generations to come.
“With the capital-intense
nature of our business, it takes
a bank and a relationship that
understands agriculture.”
B IL L S MIT TCA MP
President & CEO,
Wawona Frozen Foods
25
D O U B L E N I C K E L S T E A K H O U S E A N D S P A N K Y ’ S
Order Up!
Before attending a big game or
celebrating a special evening, your
experience can be enhanced by finding
just the right establishment. The food,
the drink, and most importantly the
people, can make or break the mood.
In the heart of the old West
businesses and college
she was determined despite
– Lubbock, Texas – are two
students. Spanky’s comically
working in a male dominated
delectable options. Lisa
describes its location on the
world. A client of First Bank &
West, owner of Double Nickel
corner of Awesome Burgers
Trust (FBT) since 1996 when
Steak House and Spanky’s
and Fried Cheese, right across
FBT first opened, Lisa now
restaurants, leads her staff
from Texas Tech University and
holds a seat on the First Bank
in hand-cutting your steak
Jones AT&T Stadium. Spanky’s
& Trust board.
or pouring your favorite
encourages that ‘good people
beverage, essential for the
drink good beer.’
perfect outing.
When commenting on her
success, Lisa confidently
While two very different
shares, “Whether you are
The Double Nickel is a
restaurants, guests can expect
a woman or a man – your
modern, saloon-style steak
the same dedication to detail
willingness to work hard and
house bragging, ‘Where the
while visiting either of these
put in the time is recognized
old West meets Lisa West.’
successful establishments.
by your community and your
Offering steaks, seafood, an
eclectic wine selection and
handcrafted cocktails,
Double Nickel’s attentive
F O C U S E D O N
S U C C E S S
customers, and they will
reward you for it.” She added,
“Always stay focused on
success. Maintain your path
staff will ensure you have a
Lisa West started her culinary
and passion.”
memorable evening.
career while in college
Spanky’s, mood is quite
customers. At a young age,
with a passion for food and
different. It’s an inviting
downtown eatery for
HTLF // 2022 Annual Report
Lisa’s success is directly tied to
her desire to be the best and
willingness to set that example.
Greg Garland, FBT President and CEO, and Matt Graves, FBT Head
of Commercial, work closely with Lisa. Greg said, “Lisa’s success is
directly tied to her desire to be the best and willingness to set that
example. She expects the same from her organization. Her boots
on the ground business approach has helped her to be successful.”
A 2 6 - Y E A R R E L A T I O N S H I P
Working with Lisa on both professional and personal accounts, FBT
values the 26-year relationship. Matt commented, “As a local bank,
we can get to know her business and her goals. We work closely
with Lisa. She is humble and dedicated.”
“Matt and Greg are incredibly good at knowing my business and
my needs,” Lisa commented. “Their focus on small business is so
valuable. FBT takes care of me, they make me feel important,
just as important as a large business.”
So whether you are looking for a romantic night out or a cold
beverage before a fall football game in Lubbock, head West.
Lisa West will not disappoint.
Lubbock, Texas
“Their focus on small business is
so valuable. FBT takes care of me,
they make me feel important, just as
important as a large business.”
L ISA WEST
Owner, Double Nickel Steak
House and Spanky’s
27
E X E C U T I V E M A N A G E M E N T A N D B O A R D O F D I R E C T O R S
EXECUTIVE MANAGEMENT
Bruce K. Lee
President and CEO
Deborah K. Deters
Executive Vice President
Chief Human Resources Officer
Mark A. Frank
Executive Vice President
Chief Operations Officer
Nathan R. Jones
Executive Vice President
Chief Credit Officer
BOARD OF DIRECTORS
Kevin C. Karrels
Executive Vice President
Head of Consumer Banking
and Chief Marketing Officer
Jay L. Kim
Executive Vice President
General Counsel and Chief
Administrative Officer
Bryan R. McKeag
Executive Vice President
Chief Financial Officer
Tamina L. O’Neill
Executive Vice President
Chief Risk Officer
David A. Prince
Executive Vice President
Head of Commercial Banking
Janet M. Quick
Executive Vice President
Deputy Chief Financial Officer
Principal Accounting Officer
Kevin G. Quinn
Executive Vice President
Chief Banking Officer
John K. Schmidt
Chairman
Senior Vice President and
Chief Financial Officer
A.Y. McDonald
Dubuque, Iowa
Bruce K. Lee
President and CEO
HTLF
Denver, Colorado
Robert B. Engel
Managing Director and CEO
BLT Advisory Services, LLC
Naples, Florida
Kathryn Graves Unger
Vice President
Environmental, Social and Governance
Boston Scientific Corporation
Marlborough, Massachusetts
Thomas L. Flynn
Past President and CEO
Flynn Ready-Mix Concrete Co.
Dubuque, Iowa
Jennifer K. Hopkins
Managing Partner
Crescendo Capital Partners
Centennial, Colorado
Christopher S. Hylen
Past Board Member and CEO
Reltio, Inc.
Redwood City, California
Susan G. Murphy
Principal
The Grace Alliance, LLC
Denver, Colorado
Martin J. Schmitz
Past Chairman
Citywide Banks
Greenwood Village, Colorado
Duane E. White
Past Executive Vice President
and Chief Product Officer
Medecision
Minneapolis, Minnesota
HTLF // 2022 Annual Report
D I V I S I O N C E O S
ARIZONA BANK & TRUST
William H. Callahan
President and CEO
BANK OF BLUE VALLEY
Brent M. Giles
President and CEO
CITYWIDE BANKS
Michael A. Wamsganz
President and CEO
DUBUQUE BANK AND
TRUST COMPANY
Andrew E. Townsend
President and CEO
FIRST BANK & TRUST
Greg Garland
President and CEO
ILLINOIS BANK & TRUST
Jeffrey S. Hultman
President and CEO
MINNESOTA
BANK & TRUST
Stephen G. Bishop
President and CEO
NEW MEXICO
BANK & TRUST
R. Greg Leyendecker
President and CEO
PREMIER VALLEY BANK
Lo B. Nestman
President and CEO
ROCKY MOUNTAIN BANK
Tod M. Petersen
President and CEO
WISCONSIN
BANK & TRUST
Douglas M. Kohlbeck
President and CEO
29
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 on Wednesday, June 14, 2023, at 1 p.m. Mountain
Time. You can attend the meeting, vote and submit your questions
during the meeting by visiting: www.virtualshareholdermeeting.com/
HTLF2023. Prior to the meeting, you can vote at www.proxyvote.com.
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, 1800 Larimer
Street, Suite 1800, Denver, CO 80202. 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
HTLF
1800 Larimer Street
Suite 1800,
Denver, CO 80202
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.” Depositary
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 may
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 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 // 2022 Annual Report
30
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, 2022
☐ 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)
1800 Larimer Street, Suite 1800, Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
(303) 285-9200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the 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 ☑ Accelerated filer ☐
Emerging growth company ☐
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. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. Yes ☐ No ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240-10D-1(b).
Yes ☐ No ☐
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, 2022, the last business day of the registrant's most
recently completed second fiscal quarter, was approximately $1,705,115,226.
As of February 22, 2023, the Registrant had issued and outstanding 42,468,081 shares of common stock, $1.00 par value per share.
Portions of the Proxy Statement for the 2023 Annual Meeting of Stockholders, which will be filed no later than 120 days after December 31,
2022, 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.
Part II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Information About Our Executive Officers
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Part IV
Principal Accountant Fees and Services
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:
•
•
•
•
•
•
•
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,
such as the COVID-19 pandemic or future pandemics and governmental measures addressing them, climate change
and climate-related regulations, persistent inflation, higher interest rates, recession, supply chain issues, labor
shortages, terrorist threats or acts of war;
Credit Risks, including risks of increasing credit losses due to deterioration in the financial condition of HTLF's
borrowers, changes in asset and collateral values due to climate and other borrower industry risks, which may impact
the provision for credit losses and net charge-offs;
Liquidity and Interest Rate Risks, including the impact of capital market conditions, rising interest rates and changes in
monetary policy on our borrowings and net interest income;
Operational Risks, including processing, information systems, cybersecurity, vendor, business interruption, and fraud
risks;
Strategic and External Risks, including economic, political, and competitive forces impacting our business;
Legal, Compliance and Reputational Risks, including regulatory and litigation risks; and
Risks of Owning Stock in HTLF, including stock price volatility and dilution as a result of future equity offerings and
acquisitions.
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. 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 its subsidiaries
and affiliates referred to herein as "HTLF," "we," "us," or "our") is a 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 1800 Larimer Street, Suite 1800, Denver, Colorado. 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 2023
Annual Shareholders Meeting to be held on June 14, 2023, will be available electronically via a link on our website at
www.htlf.com.
At December 31, 2022, HTLF had total assets of $20.24 billion, total loans held to maturity of $11.43 billion and total deposits
of $17.51 billion. HTLF’s total stockholders' equity as of December 31, 2022, was $1.74 billion. Net income available to
common stockholders for 2022 was $204.1 million.
HTLF conducts its banking business through multiple community banks (referred to herein collectively as the "Banks" "Bank
Markets", "Bank Divisions") operating as either independent entities or independently branded divisions in the states of Iowa,
Illinois, Wisconsin, New Mexico, Arizona, Montana, Colorado, Minnesota, Kansas, Missouri, Texas and California. In the
fourth quarter of 2021, the HTLF Board of Directors approved a plan to consolidate its eleven bank charters into a single
Colorado based charter, named "HTLF Bank," (formerly named Citywide Banks). When the charter consolidation project is
completed, the Banks will operate as divisions of HTLF Bank and retain their separate bank brands.
During 2022, five charters were consolidated into HTLF Bank. Subsequent to December 31, 2022, one additional charter
consolidation was completed. The consolidation of the remaining five charters is expected to be completed by December 31,
2023. Each Bank serves a separate state banking market except for Kansas and Missouri, which constitute a single banking
market.
All Banks are insured and regulated by the Federal Deposit Insurance Corporation (the "FDIC"). As of December 31, 2022, the
Banks and their respective bank brands listed below, operated a total of 119 banking locations:
•
HTLF Bank, Denver, Colorado, is chartered under the laws of the state of Colorado. The following charters have been
consolidated into HTLF Bank and now operate as divisions of HTLF Bank:
•
•
•
Illinois Bank & Trust, headquartered in Rockford, Illinois
Arizona Bank & Trust, headquartered in Phoenix, Arizona
Citywide Banks, headquartered in Denver, Colorado
• Minnesota Bank & Trust, headquartered in Edina, Minnesota, and
•
Premier Valley Bank, headquartered in Fresno, California
•
Dubuque Bank and Trust Company, Dubuque, Iowa, is chartered under the laws of the state of Iowa.
• Wisconsin Bank & Trust, headquartered in Madison, 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.
Bank of Blue Valley, Merriam, Kansas, is chartered under the laws of the state of Kansas.
First Bank & Trust, Lubbock, Texas, is chartered under the laws of the state of Texas.
In February 2023, the charter of Wisconsin Bank & Trust was consolidated into HTLF Bank, and as of that date, Wisconsin
Bank & Trust began operating as a division of HTLF Bank.
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".
2 In addition, as of December 31, 2022, 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, 2022.
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, agricultural, small business, 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 and retirement plan services. We provide 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 our community-focused banking model by:
1. Creating strong community ties through customer-centric local bank delivery of products and services.
•
•
•
•
•
Deeply rooted local management and advisory 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
Specialized industries division and capital markets team providing middle-market lending expertise
Providing added client value through consultative relationship building
Convenient and competitive consumer products and services
Private client services, including investment management, trust, retirement plans, brokerage services and
investment services
Residential mortgage origination and referrals
3. Centralizing back-office operations for efficiency and enhancing the customer experience.
•
•
•
•
•
•
•
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
Centralized loss management and risk analysis
Centralized support for other professional services, including information technology, human resources,
marketing, legal, compliance, finance, administration, internal audit, risk management, investment management,
customer support and facilities
3 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-focused 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. We have standard operating policies regarding asset/liability management,
liquidity management, compliance and risk management, investment management, credit risk, 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 and executive leadership team. We
also have a stock compensation plan and an employee stock purchase plan.
We are deeply committed to our communities through lending, investments and service activities such as active participation by
our employees, officers and board members in local charitable, civic, school, religious and community development activities.
Market Focus, Branch Optimization, and Acquisition Strategies
In addition to our focus on organic growth, HTLF will continue to evaluate opportunities to augment our business by acquiring
businesses that complement 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 will consider acquisitions of fee income businesses that complement and build
on our existing businesses, or further meet the needs of our customers. HTLF is also exploring the expansion of its lending
products and services through the acquisition of specialty lending, equipment finance, leasing and other services to expand our
product and service offerings. All acquisition opportunities are evaluated using a range of financial and non-financial criteria,
including earnings per share accretion, tangible equity earn back, internal rate of return, operational synergies and strategic fit.
We have focused our investments and previous acquisitions on markets with growth potential in the Midwestern, Southwestern
and Western regions of the United States. Our overall strategy is to balance the growth in our Southwestern and Western Bank
Markets with the stability of our Midwestern Bank Markets.
Due to changes in our customers' banking preferences and behaviors as well as the competitive landscape, we have selectively
sold, consolidated and closed branches. We anticipate these strategic activities will provide additional resources to support our
investments in areas that enhance our customer relationships and experiences, while fueling organic growth opportunities. As a
result of our ongoing branch optimization, we may complete additional, selective reductions in our branch network in the
future.
Primary Business Lines
General
We are engaged in the business of 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 do not depend upon
a small number of customers. Our extensive customer base across our Bank Markets spans a multitude of diversified industries.
We provide multiple service delivery channels, including online banking, mobile/remote 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 and retirement plan services.
Our bankers actively solicit new and established businesses in their respective business communities. We believe that the Banks
are successful in attracting new customers in their markets through knowledgeable and experienced bankers, professional high-
touch service, a suite of comprehensive credit and non-credit banking products and services, competitive pricing, convenient
locations and proactive communications. We deliver the following products and services through our Bank Markets:
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 real estate and equipment. Although most loans are made on a secured basis, loans may be
made on an unsecured basis when warranted by the overall financial condition and cash flow of the borrower. Generally, terms
of commercial and commercial real estate loans range from one to five years.
4 Commercial bankers provide a consultative customer-centric approach utilizing the comprehensive suite of banking products
and services to deliver solutions designed to fit the objectives of the client in an organized and efficient manner. 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
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.
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") as of December 31, 2022.
Bank
HTLF Bank
Dubuque Bank and Trust Company
Wisconsin Bank & Trust
New Mexico Bank & Trust
Rocky Mountain Bank
Bank of Blue Valley
First Bank & Trust
SBA Express
Lender
SBA Preferred
Lender
SBA Export
Express
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Our Banks participated in the Paycheck Protection Program ("PPP"), which 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 complemented 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 customer interest rate swaps, loan 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 are governed by our risk appetite and 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
5 Lending Standards, Supervisory Loan-to-Value Limits). Centralized staff in credit administration assist our commercial 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, which is overseen by the Chief Risk
Officer, independently 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, while working with customers and aggressively seeking resolution of
credit problems.
HTLF has a special assets group which focuses on providing guidance to our customers experiencing challenges and resolving
problem assets. Commercial or agricultural loans in a workout status or default are assigned to the special assets group which is
also responsible for marketing repossessed properties.
Agricultural Loans
Agricultural loans are emphasized by those Bank Markets 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. We also have a Food & Agribusiness specialized industry group, which consists of specialized lenders with expert
knowledge who focus on loan opportunities to larger commercial agricultural growers, producers and food manufacturers
within our Bank Markets and provide expert knowledge to assist our commercial bankers with loan opportunities.
Agricultural loans constituted approximately 8% of our total loan portfolio at December 31, 2022. In making agricultural loans,
we have policies designating a primary lending area for each Bank, in which most 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 potentially adverse weather conditions, loss of livestock due to disease or other factors, declines in market
prices for agricultural products and the impact of local and federal government regulations. The 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.
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, convenient
electronic banking services, and retirement plan services. The Banks have designated business bankers and branch managers
that serve the distinct banking needs of this customer segment.
Residential Real Estate Mortgage Lending
We provide residential real estate mortgage loans to our customers for the purchase or refinancing of single family residential
properties. In certain Bank Markets, residential mortgage loans are originated through PrimeWest Mortgage Corporation
("PrimeWest"), a division of First Bank & Trust, and sold to the secondary market with servicing retained. The Banks also
provide residential mortgage loans to their customers that are retained and serviced by the originating Bank. In 2022, we began
partnering with a third-party mortgage loan provider to facilitate the residential mortgage lending needs of our customers in
selected Bank Markets.
Consumer Banking
A wide variety of consumer banking services are delivered through our branches and electronic banking platforms. Services
include checking, savings, money market accounts, certificates of deposit, individual retirement accounts ("IRAs") and
consumer debit and 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.
6 Our Banks continue to respond to customer preferences 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 Bank Markets, wealth management, trust, and securities brokerage services are offered. HTLF also provides retirement
plan services to business clients, including 401(k), 403(b) and profit sharing plans. As of December 31, 2022, total trust assets
under management were $3.62 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.
B. MARKET AREAS
HTLF is a geographically diversified bank holding company with a Midwestern, Western and Southwestern franchise, all of
which are impacted by regional and macroeconomic fluctuations. The following table sets forth certain information about the
offices and total customer deposits of each of the Bank Markets as of December 31, 2022, dollars in thousands. The table below
excludes $1.07 billion of deposits not allocated to a Bank Market.
State
IA
Region
Midwest
Bank
Total
Deposits
Dubuque Bank and Trust Company $ 1,768,057
IL
WI
Midwest
Illinois Bank & Trust(1)
$ 1,427,277
Midwest
Wisconsin Bank & Trust
$ 1,250,251
NM
Southwest
New Mexico Bank & Trust
$ 2,392,887
AZ
MT
Southwest
West
Arizona Bank & Trust(1)
Rocky Mountain Bank
$ 1,523,001
646,636
$
Number of
Locations
6
1
1
5
1
3
1
4
1
1
1
9
2
2
2
1
1
1
2
1
9
2
2
1
1
1
1
1
Market Areas Served
Dubuque MSA
Des Moines MSA
Cedar Rapids MSA
Rockford MSA
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
Phoenix MSA
Billings MSA
Flathead County
Gallatin County
Jefferson County
Ravalli County
Sanders County
Sheridan County
7 State
CO
Region
West
Bank
Citywide Banks(1)
Total
Deposits
$ 2,120,378
MN
KS
CA
Midwest
Midwest
Minnesota Bank & Trust(1)
Bank of Blue Valley
$
571,025
$ 1,239,066
West
Premier Valley Bank(1)
$
929,725
TX
Southwest
First Bank & Trust
$ 2,578,197
Number of
Locations
10
1
2
1
1
4
2
7
2
1
1
1
2
1
7
1
1
1
1
1
1
1
1
1
1
1
1
Market Areas Served
Denver MSA
Arapahoe County
Boulder County
Eagle County
Grand County
Jefferson County
Minneapolis/St. Paul MSA
Kansas City MSA
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
Scurry County
Taylor County
Yoakum County
(1) Operates as a division of HTLF Bank as of December 31, 2022
C. COMPETITION
We face direct competition for deposits, loans and other financial related services. To compete effectively, grow our market
share, maintain flexibility and keep pace with changing client 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, expertise, product selection, convenience and technology.
Our Bank Markets are highly competitive, and our competitors are comprised of other commercial banks, credit unions, thrifts,
stockbrokers, 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 were traditionally offered exclusively by banks 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
8 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 convenient electronic banking and other technology-based solutions, 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.
D. HUMAN CAPITAL
People are our most valuable asset. They are critical in providing the high quality of service and knowledge our clients require
and deserve. Accordingly, the attraction, retention and promotion 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' best interests as part of our evolving human capital strategy. In 2022, we had 91% 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, 2022, HTLF employed 2,002 full-time equivalent employees.
Recruitment and Retention
In response to growing demand for hybrid and remote working options and a tight labor market, we strengthened our employee
retention efforts. With the increased demand for talent, we enhanced our recruitment strategies and expanded our recruiting
capacity. Given these and other challenges, our 2022 net voluntary turnover ratio was 24.47%. In 2022, we filled 638 positions,
of which approximately 200 were filled internally. As of December 31, 2022, there were open requisitions for 88 positions,
which was a decrease of 2 positions or 2% from 90 open positions at December 31, 2021. Intensifying wage pressures have also
increased compensation, particularly for certain positions.
Employee onboarding and training continues to be delivered virtually, which enables most new hires to be engaged faster to
connect with employees beyond just those in their geographic market and to 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 $15.00 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 based on performance and for retention purposes, and we have better aligned and improved our market-based pay
practices. We believe that there will continue to be upward market adjustments as demands for greater pay transparency
increase. We continue to evaluate pay trends, including geographic pay trends and how they impact remote worker pay, to
ensure that compensation remains competitive. Approximately 95% of our employees participate in our 401(k) plan, and
effective January 1, 2023, we increased the employer match to the plan. We offer 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.
Investment in Employee Development
We invest in our talent and provide meaningful development opportunities. Our training and education 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 performing in their roles effectively and servicing customers. In 2022, we
piloted the first leadership training program for high potential employees, "Ascend." All employees participate in our annual
computer-based course work, which includes a suite of human resources and compliance related courses to enhance awareness
and understanding. We also invest in educational and professional certification opportunities for our employees to augment
subject matter expertise in certain roles.
HTLF has implemented robust education 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:
9 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 council established three Employee Business
Resource Groups focused on cultural minorities, women and veterans, and made available a more expansive DEI training to all
employees.
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 the scope of regulation and the intensity of supervision will continue to be extensive
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 multiple 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 Colorado Department of Regulatory Agencies,
Division of Banking (the "Colorado Division"); the Iowa Superintendent of Banking (the "Iowa Superintendent"); the State
Bank Commissioner of Kansas Division of Banking (the "Kansas 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"). Upon completion of charter consolidation, the number of state regulators will decrease to
one, which will be the Colorado Division.
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-
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
10 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. The charter consolidation
of our Banks into HTLF Bank will subject us to CFPB examination and supervision relating to compliance with federal
consumer protection laws and regulations. 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 applicable statutes, regulations and regulatory policies that apply, nor does it disclose all the requirements of the
statutes, regulations and regulatory policies requirements that are described.
Regulation of HTLF
General
HTLF, as the sole shareholder of HTLF Bank, Dubuque Bank and Trust Company, New Mexico Bank & Trust, Rocky
Mountain Bank, Wisconsin Bank & Trust, Bank of Blue Valley 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.
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 Banks to obtain prior regulatory approval to merge,
consolidate with, acquire substantially all 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.
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
11 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.
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.
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.
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
Minimum Regulatory
Capital Ratio %
4.50
4.50
6.00
6.00
8.00
8.00
4.00
4.00
Minimum Ratio +
Capital Buffer %(1)
7.00
7.00
8.50
8.50
10.50
10.50
N/A
N/A
Well-Capitalized
Minimum %(2)
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
12 Condition and Results of Operations. As of December 31, 2022, 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, strategic and capital 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.
Regulation of the Banks
General
All 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.
HTLF Bank is a Colorado-chartered bank. As a Colorado-chartered bank, HTLF Bank is subject to the examination,
supervision, reporting and enforcement requirements of the Colorado Division, the chartering authority for Colorado banks.
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.
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.
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.
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.
13 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. On October 18, 2022, the
FDIC finalized a rule that would increase initial base deposit insurance assessment rates by 2 basis points, beginning with the
first quarterly assessment period of 2023.
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 based on each institution's total assets. During 2022, the
Banks paid supervisory assessments totaling $1.7 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, 2022: (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
14 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
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, 2022.
As of December 31, 2022, approximately $403.9 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
15 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
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, reliance on third-party application, 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 2022, the SEC issued final
rules that 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
16 companies to disclose their clawback policies and their actions under those policies. Following the issuance of final rules by the
Nasdaq market, HTLF will review the rules and take the necessary actions required to comply.
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.
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 May 2022, the FDIC, Office of the Comptroller of the Currency and the Federal Reserve issued a joint Notice of Proposed
Rulemaking ("NPR") on the Community Reinvestment Act. The NPR is intended to strengthen and modernize the rule that
implements the CRA by expanding access to credit, investment and banking services in low- and moderate- income ("LMI")
communities, which are CRA's core goals; adapting to changes in the banking industry, including mobile and internet banking
by modernizing assessment areas while remaining focused on branch-based communities; providing greater clarity,
consistency, and transparency in the application of the regulations through the use of standardized metrics as part of CRA
evaluation and clarification eligible CRA activities focused on LMI communities and under-served rural communities; tailoring
of CRA rules and data collection to bank size and business model and maintaining a unified approach among the regulators.
The proposed rule contains expanded data collection and reporting requirements for which the impact and associated costs are
unknown. It remains uncertain whether the proposed rule will be finalized in 2023, including its effective implementation date
requirement for all banks.
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
17 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"), Regulation X and rules regarding the mandatory
purchase of flood insurance, including those issued pursuant to the Biggert-Waters Flood Insurance Reform Act. 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, among other things, impose requirements regarding procedures to ensure compliance with the "ability to
repay" requirements further detailed below, 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.
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
18 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, which is assessed annually and reviewed on an ongoing basis by the Board of Directors. 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.
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. In addition, the California Privacy Rights Act ("CPRA"), which became effective in most material respects on
January 1, 2023, significantly modifies 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 went into effect in January 2023, and will go into effect in 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.
19 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 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.
Summary of Risk Factors
Below is a summary of the principal factors that make an investment in our common stock risky or speculative. This summary
does not address all 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:
Economic and Overall Market Condition Risks
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•
The current or future pandemics and measures intended to prevent their spread may 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 business and financial performance are significantly affected by general business and economic conditions,
including those related to increased inflation, recessionary conditions, or domestic political factors.
Our business and financial performance depend upon the continued growth and welfare of the various geographic
markets that we serve.
Our business and financial performance are vulnerable to the impact of volatility in debt and equity markets.
Changes in interest rates, including continued actions by the Federal Reserve Board, and other conditions could
negatively impact net interest income, net interest margin, and liquidity.
• We may be adversely impacted by the 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,
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.
Our framework for managing risks may not be effective in identifying or mitigating risk and losses.
•
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Credit Risks
•
If we do not properly manage our credit risk, we could suffer material credit 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 which may be impacted by changes in industry trends or regional or national market
conditions.
• 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.
Government programs established in response to the COVID-19 pandemic may delay but not avoid the realization of
credit losses that result from the economic disruption caused by the COVID-19 pandemic.
20 •
Our allowance for credit losses may prove to be insufficient to absorb losses in our loan portfolio.
Liquidity and Interest Rate Risks
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Liquidity is essential to our business, and our financial 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 lower net interest margins
and interest income in future periods.
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 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.
Operational Risks
• We have a continuing need for technology investments, and we may not have the resources to effectively implement
new technology.
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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.
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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.
Strategic and External Risks
•
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.
Legal, Compliance and Reputational Risks
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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.
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Stringent requirements related to capital 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.
• Our participation as lenders in the PPP could result in reputational harm, claims and litigation.
•
Litigation and enforcement actions could result in negative publicity and could adversely impact our business and
financial results.
21 •
Our reputation and our business are subject to negative publicity risk.
Risks of Owning Stock in HTLF
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Our stock price can be volatile.
Stockholders may experience dilution as a result of future equity offerings and acquisitions.
Certain banking laws may have an anti-takeover effect.
Economic and Overall Market Condition Risks
The current or future pandemics and measures intended to prevent their spread may 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 recovered from the initial impacts of the COVID-19 pandemic as many health
and safety restrictions have been lifted and vaccine distribution has increased, certain adverse consequences of the pandemic
may 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 pandemic or another similar event could impact our business, results of operations and financial condition
in the future will depend on future developments, which are highly uncertain and are difficult to predict, and may include
increased credit losses due to financial strain on our customers as a result of the pandemic and governmental actions; increases
in our loan loss provision 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 our 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; 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; 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; and other operational failures due to changes in
our normal business practices because of the pandemic and governmental actions to contain it.
Our business and financial performance are significantly affected by general business and economic conditions, including
those related to increased inflation, recessionary conditions, or domestic political factors.
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, inflation and the response of
the Federal Reserve Board to it, unemployment, credit defaults, increased bankruptcies, decreased consumer spending and
household income, volatility in the securities markets, persistent inflation, supply chain issues caused by the COVID-19
pandemic and geopolitical conflict such as the war in Ukraine, 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. In addition, domestic political factors,
including potential future federal government shutdowns and the possibility of the federal government defaulting on its
obligations due to debt ceiling limitations, could have a serious impact on general economic conditions or the value of financial
instruments owned by us that are issued or guaranteed by the federal government.
Over the past year, the economy has experienced persistent inflation and higher interest rates. Prolonged periods of inflation
may negatively affect our expenses by increasing funding costs and expense related to talent acquisition and retention.
Increased interest rates may adversely affect numerous aspects of our business, including by reducing demand for our financial
products and services, restricting the ability of our consumer and business customers to repay loans, and diminishing the value
of our investment portfolio, and may lead to economic deterioration or recession. Economic deterioration and recessionary
conditions that affect household and/or corporate incomes could result in renewed credit deterioration, reduced demand for
credit or fee-based products and services and turmoil and volatility in the financial markets, which could, negatively impact 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 and financial performance depend 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
22 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 financial 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 domestic and global 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:
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•
•
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.
Changes in interest rates, including continued actions by the Federal Reserve Board, and other conditions could negatively
impact net interest income and net interest margin.
We are exposed to interest rate risk in our core banking activities of lending and deposit taking, and changes in prevailing
interest rates affect the value of our assets and liabilities. 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 net income and financial 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. In
response to the persistent inflation experienced in the past year, the Federal Reserve Board has reacted by implementing
multiple interest rate increases. These interest rate increases may fail to reduce inflation and may lead to economic downturn or
recession. 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.
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 phasing out of the London Interbank Offered Rate ("LIBOR") as a reference rate.
We have borrowings, variable rate loans, derivative contracts, and other financial instruments with attributes that either directly
or indirectly depend on LIBOR. The publication of most LIBOR rates ceased as of the end of December 2021. While all
remaining tenors of LIBOR will cease to be published immediately after June 30, 2023, the Alternative Reference Rate
Committee developed a paced transition plan with specific steps and timelines to encourage the adoption of the Secured
23 Overnight Financing Rate ("SOFR") and to create a forward-looking term rate based on SOFR. The Board of Governors of the
Federal Reserve ("Fed Board") selected SOFR as the replacement for LIBOR at the end of 2021.
The transition from LIBOR to SOFR could have a range of adverse impacts on us and financial contracts worldwide. In
particular, any such transition could, among other things, (i) adversely affect 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 for the status of 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; and (vi) cause
disruption in financial markets that are relevant to our business.
To address the permanent cessation of LIBOR, Congress enacted the Adjustable Interest Rate (LIBOR) Act ("AIRLA") on
March 15, 2022, to provide a federal solution for replacing references to LIBOR in existing contracts that either lack, or contain
insufficient, LIBOR fallback provisions. AIRLA required the Fed Board to issue implementing regulations that would apply to
financial contracts that lack or contain insufficient fallback provisions. The Fed Board adopted the final rule, which becomes
effective February 27, 2023 ("Regulation ZZ"). Regulation ZZ expressly provides safe harbor protections in the use of Board-
selected benchmark replacement rates of SOFR where there is a benchmark replacement problem in existing contracts, and
further pre-empts any state or local law or standard relating to the selection of benchmark replacement rates. Regulation ZZ also
includes the relevant tenor spread adjustments specified in AIRLA.
HTLF has a formal working group responsible for the planning, assessment and execution of the transition from LIBOR to
SOFR. HTLF ceased using LIBOR as a reference rate for new contracts effective December 31, 2021. Currently, HTLF has
identified borrowings, adjustable-rate loans, and derivative instruments which reference LIBOR-based tenors maturing beyond
the LIBOR replacement date. HTLF is assessing each financial contract to determine whether the legislative solution afforded
by Regulation ZZ is applicable or if there is a hardwired fallback provision. 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 market 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, 2022, we had goodwill of $576.0 million, representing approximately 33% 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.
We record deferred tax assets on our consolidated balance sheet, which represent 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
24 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, pandemics,
terrorist activities, domestic disturbances or international hostilities.
Neither the occurrence nor the potential impact of natural disasters, 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 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, 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,
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 organizations and
businesses that we transact with, particularly those that we depend upon, but have no control over.
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 not only discrete events such as natural disaster events described above, the force and frequency
of which are increasing as the climate changes, but also longer-term shifts in climate patterns, such as extreme heat, sea level
rise, and more frequent and prolonged drought. Attempts to mitigate climate change, such as transitioning to a low-carbon
economy, may include extensive policy, legal, technology and market initiatives. Transition risks, including changes in
consumer preferences, additional regulatory, governance, and disclosure 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.
Our framework for managing risks may not be effective in identifying or 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:
•
•
•
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risks resulting from changes in economic and industry conditions, including those precipitated by climate change or
climate transition in the economy;
risks inherent in dealing with individual borrowers;
uncertainties as to the future value of collateral; and
the risk of non-payment of loans.
25 Although we attempt to properly establish limits, measure, monitor 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, if we 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.
In the ordinary course of business, we have credit exposures to particular industries, regions, financial markets, or individual
borrowers. As an example, loans secured by commercial and residential real estate typically represent a significant percentage
of our overall credit portfolio. Although there are established limitations on the extent of total exposure to an individual
consumer or business borrower, events adversely affecting specific customers or counterparties, industries, regions or financial
markets, including a decline in their creditworthiness or a worsening overall risk profile, could materially and adversely affect
us. Declining economic conditions also may impact commercial borrowers more than consumer borrowers, or vice versa.
Certain of our credit exposures are concentrated in industries and may share similar characteristics which can make them more
susceptible to the long-term risks of climate change, climate regulation, natural disasters, global pandemics or deteriorating
economic conditions. Thus, the concentration and mix of our loan portfolio may affect the severity of the impact of a recession
or other adverse events on us and our financial performance.
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, 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 which may be impacted by changes in industry trends or regional and national market
conditions.
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 our
commercial real estate loans, and other developments could increase the credit risk associated with our loan portfolio. For
example, the decrease in demand for physical office space has reduced, and may continue to reduce, the value of certain
commercial space, which increases the risk of default and the severity of defaults associated with loans secured by such
properties. Non-owner occupied commercial real estate loans typically depend, in large part, on sufficient income from the
properties securing the loans to cover operating expenses and debt service. Although our outstanding loans have not yet been
significantly impacted by changes in economic activity, such changes, including an economic downturn or volatility in interest
rates, could have a negative impact on some commercial real estate loan sectors.
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 therefore have a greater risk of default in a weaker economy. Construction
projects require prudent underwriting including determination of a borrower's ability to complete the project, while staying
within budget and on time in accordance with construction plans. Project feasibility is an important consideration, since these
loans present project completion risks, as well as the risks applicable to other commercial real estate loans. While we follow
prudent underwriting practices, including determining project feasibility on construction projects we finance, economic events,
supply chain issues, labor market disruptions, or governmental regulations and other factors outside of the control of HTLF or
our borrowers 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
26 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
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.
Government programs established in response to the COVID-19 pandemic may delay but not avoid the realization of credit
losses that result from the economic disruption caused by the COVID-19 pandemic.
Many of our customers experienced adverse effects as a result of the COVID-19 pandemic, particularly those customers in or
affected by the lodging, retail trade, retail properties, restaurants and bars, and oil and gas segments. In some cases, these
negative effects may have been temporary, whereas in other cases these impacts, or other changes in the economy as a result of
the pandemic, may have permanent adverse effects on customers of ours. Pursuant to the Coronavirus Aid, Relief and
Economic Security Act (the "CARES Act"), beginning at the end of March 2020, the SBA made principal and interest
payments on behalf of borrowers on certain qualifying SBA guaranteed loans for a period of time and established the PPP.
The foregoing programs were intended to increase the likelihood that the affected borrowers operate through and recover
following the COVID-19 pandemic, after which their loans would 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
customers who have suffered more permanent adverse effects as a result of the COVID-19 pandemic and economic changes
related thereto will be able to sustain their repayment ability.
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
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, 2022, our allowance for
credit losses as a percentage of total loans was 0.96% and as a percentage of total nonperforming loans was approximately
187%. 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.
27 Credit losses in excess of our reserves may adversely affect our business, financial condition and results of operations.
Liquidity and Interest Rate Risks
Liquidity is essential to our business, and our financial 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 and financial condition of our customers, particularly large 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 or lose a significant portion of our low-cost deposits, it could increase our cost of funding and 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 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. As acquired loans pay down, mature, or if they are not replaced with higher-yielding loans, we may have a lower net
interest margin and interest income in future periods.
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 $7.05 billion, or 35% of our assets, in investment securities at December 31, 2022. 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 at the security level for potential
credit losses, which takes into consideration numerous factors, and the relative significance of any single factor can vary by
security. In assessing if an investment security is impaired, we may consider factors such as changes in security ratings,
financial condition of the issuer, payment structure, cash flow analyses, security and industry specific economic conditions, as
28 well as our 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, our need to address the changing needs, preferences, and best interests of our employees, customers,
and business partners has accelerated the need to implement technological changes.
Our operations are affected by risks associated with our use of vendors and other third-party service providers.
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, changes to work preferences
and environments have 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, 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 depend 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
29 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, cybersecurity and payment fraud risk due to increased online and remote work and remote customer 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
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 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.
30 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 depends 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.
New lines of business, products and services are essential to our ability to compete but may subject us to additional risks.
We may 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
31 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, fee income businesses 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 meaningful acquisitions likely may result in HTLF achieving slower growth.
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:
•
•
•
•
•
•
•
•
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 traditional financial institutions and may accordingly realize certain cost strategies and offer products and
32 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 a competitive
advantage over us due to their access to governmental programs that we do not have access to 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.
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 when the assets of HTLF
Bank, the Bank into which the eleven charters are consolidating, exceed $10 billion. 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 a continued emphasis on regulatory reform, including 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 regulatory burden on us will increase, 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
33 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, and 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 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,
carried at fair value securities portfolio or 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 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, when we complete the consolidation of our Banks, we will become subject to additional regulation as
a bank with assets over $10 billion.
Although 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, federal banking agencies have 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
34 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.
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. In addition, the
California Privacy Rights Act ("CPRA") which went into effect on January 1, 2023, significantly modifies 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 went into effect in January 2023 and will go into
effect in July 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.
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.
Our participation as lenders in the PPP could result in reputational harm, claims and litigation.
Our Banks were participating lenders in the PPP, a loan program created to help eligible businesses, organizations and self-
employed persons fund their operational costs during the COVID-19 pandemic. Under this program, the SBA guaranteed 100%
of the amounts of fixed, low interest rate loans that are subject to numerous other regulatory requirements. Because of the short
windows between the passing of the authorizing legislation and the opening of the PPP, considerable inconsistencies and
ambiguities existed, and there was increased risk of fraud on the part of borrowers. Even though most borrowers have applied
35 for and received forgiveness of their PPP loans, the Banks are exposed to reputational harm and litigation regarding their
processing of PPP applications. If a deficiency is identified, the SBA may 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.
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.
The financial services industry has increasingly been targeted by lawsuits alleging infringement of patent rights. Regardless of
the scope or validity of such patents or other intellectual property rights, or the merits of any claims by potential or actual
litigants, we may have to engage in protracted and costly litigation which may be time consuming and disruptive to our
operations and management. If we are found to infringe on one or more patents or other intellectual property rights, we may be
required to pay substantial damages or royalties to a third-party, or may be subject to a temporary or permanent injunction
prohibiting us from utilizing certain technologies.
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, unfavorable credit loss trends, or unforeseen events such as geopolitical events or
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 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.
36 ITEM 1B. UNRESOLVED STAFF COMMENTS
As of December 31, 2022, HTLF had no unresolved staff comments.
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, 2022:
Name and Main Facility Address
Heartland Financial USA, Inc.
1800 Larimer Street
Suite 1800
Denver, CO 80202
HTLF Bank
1800 Larimer Street
Suite 100
Denver, CO 80202
Dubuque Bank and Trust Company
1398 Central Avenue
Dubuque, IA 52001
Wisconsin Bank & Trust
119 Junction Road
Madison, WI 53717
New Mexico Bank & Trust
320 Gold NW
Suite 100
Albuquerque, NM 87102
Rocky Mountain Bank
2615 King Avenue West
Billings, MT 59108
Bank of Blue Valley
11935 Riley Street
Overland Park, KS 66213
First Bank & Trust
9816 Slide Road
Lubbock, TX 79424
(1) Includes loan production offices
Main Facility
Square Footage
7,100
Main Facility
Owned or Leased
Lease term
through 2030
Number of
Locations(1)
2
8,700
Lease term
through 2030
65,500
Owned
19,000
Owned
11,400
Lease term
through 2026
16,600
Owned
38,000
Owned
64,500
Owned
44
9
12
21
9
9
25
The corporate office of HTLF is located at 1800 Larimer Street, Suite 1800, in Denver, Colorado. A majority of the support
functions provided to the Bank Markets by HTLF are performed at 700 Locust Street, Suites 400, 500 and 600 in Dubuque,
Iowa.
For information on obligations related to our leased facilities, see Note 22, "Leases," to the consolidated financial statements.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which HTLF or its subsidiaries are a party to at December 31, 2022, other
than ordinary routine litigation incidental to their respective businesses. While the ultimate outcome of current legal
proceedings cannot be predicted with certainty, it is the opinion of management that the resolution of these legal actions should
not have a material effect on HTLF's consolidated financial position or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
37 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, are set forth below:
Name
Bruce K. Lee
Age Position with HTLF and Subsidiaries and Principal Occupation
62 Chief Executive Officer, President and Director
Bryan R. McKeag
62 Executive Vice President and Chief Financial Officer
Janet M. Quick
57 Executive Vice President, Deputy Chief Financial Officer, and Principal Accounting Officer
Deborah K. Deters
58 Executive Vice President and Chief Human Resources Officer
Mark E. Frank
63 Executive Vice President and Chief Operating Officer
Nathan R. Jones
50 Executive Vice President and Chief Credit Officer
Kevin C. Karrels
49 Executive Vice President, Chief Marketing Officer, and Head of Consumer Banking
Jay L. Kim
Tamina L. O'Neill
David A. Prince
59 Executive Vice President, Chief Administrative Officer, Corporate Secretary and General Counsel
53 Executive Vice President and Chief Risk Officer
52 Executive Vice President and Head of Commercial Banking
Kevin G. Quinn
62 Executive Vice President and Chief Banking Officer
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. 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.
Bryan R. McKeag joined HTLF in 2013 as Executive Vice President, Chief Financial Officer. 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. Prior to joining 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, where she oversaw the company’s growth from 4,000 to over 10,000
employees. Prior to HUB, Ms. Deters held several positions with Bally Entertainment for over 17 years, finishing as Senior
Vice President, Chief Human Resource Officer of Bally Total Fitness. Ms. Deters has over 35 years of experience in all aspects
of Human Resources.
Mark E. Frank joined HTLF in November 2019 as Senior Vice President, Regional Operations Officer. Mr. Frank was named
Executive Vice President, Chief Operating Officer in early 2022. Prior to HTLF, Mr. Frank served as Executive Vice President,
Senior Banking Officer at CoBiz Financial from 2003 to 2019. Mr. Frank has been employed in the banking industry in various
management positions for approximately 40 years with experience focused on bank operations and information technology with
deep expertise in strategic planning, budgeting project management, treasury management, computer operations, loan
operations, customer service, facilities management and vendor management.
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.
38 Kevin C. Karrels joined HTLF in March 2019 as the Executive Vice President, Head of Consumer Banking and in 2022, he
assumed the additional role of Chief Marketing Officer. Prior to joining HTLF, Mr. Karrels led the Retail Bank and Consumer
Digital for First Tennessee, N.A. for 21 years where he was responsible for the overall profitability of the Retail Bank
organization and digital channels. Mr. Karrels has been in consumer banking for more than 25 years and has experience in
Branch, Market Level Leadership, Loan Cross Sale Leadership, growth development in consumer lending, deposits, and
profitability and the development of loan and deposit product offerings.
Jay L. Kim joined HTLF in January 2020 as Executive Vice President, General Counsel and in 2022, Mr. Kim was named
Chief Administrative Officer. In October 2020, Mr. Kim was named as Corporate Secretary. 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 August 2019 as Executive Vice President, Chief Risk Officer. Ms. O’Neill was most
recently Senior Vice President and 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 began over 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 November 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.
Kevin G. Quinn was named Executive Vice President, Chief Banking Officer of HTLF in February 2022. Prior to that, Mr.
Quinn was a Regional President for HTLF from January 2019 to 2022, with responsibility for six of HTLF's Bank Markets.
Prior to joining HTLF, Mr. Quinn was the President and Chief Executive Officer of Citywide Banks, headquartered in Denver,
Colorado, a role which he held since 2009.
39 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 2,515 stockholders of record as of February 15, 2023, and approximately
22,678 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 $81.2 million
as of December 31, 2022, 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, 2022.
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,
2017, and reinvestment of dividends. The table and graph were prepared at our request by S&P Global Market Intelligence.
Cumulative Total Return Performance
As of December 31,
2017
2018
2019
2020
2021
2022
Heartland Financial USA, Inc.
$
100.00 $
82.82 $
95.14 $
78.99 $
100.99 $
95.21
Nasdaq Composite Index
KBW Nasdaq Bank Index
S&P U.S. BMI Banks Index
100.00
100.00
100.00
97.16
82.29
83.54
132.81
112.01
114.74
192.47
100.46
100.10
235.15
138.97
136.10
158.65
109.23
112.89
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
ASSUMES $100 INVESTED ON DECEMBER 31, 2017
* Total return assumes reinvestment of dividends
Index Value ($)Total Return PerformanceHeartland Financial USA, Inc.Nasdaq Composite IndexKBW Nasdaq Bank IndexS&P U.S. BMI Banks Index 12/31/1712/31/1812/31/1912/31/2012/31/2112/31/225010015020025040
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 2020 results of operations, including a discussion of the financial results for the fiscal year ended December
31, 2021, compared to the fiscal year ended December 31, 2020, refer to Part I, Item 7 of our Annual Report on Form 10-K,
which was filed with the SEC on February 25, 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 14 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, commercial real estate price indexes, 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.
41 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, 2022. 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 bank holding company operating under the brand name "HTLF". HTLF's independently branded Bank Divisions
serve communities in Arizona, California, Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Montana, New Mexico,
Texas and Wisconsin. HTLF provides banking, mortgage, wealth management, investment and retirement plan services to
businesses and consumers. As of December 31, 2022, HTLF has seven separately chartered banking subsidiaries with 119
locations in Iowa, Illinois, Wisconsin, New Mexico, Arizona, Montana, Colorado, Minnesota, Kansas, Missouri, Texas and
California. Our primary objectives are to increase profitability, support our communities and grow our customer base through
organic loan and deposit growth in the Bank Markets we serve while considering selective acquisitions.
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, net securities gains/(losses), 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, partnership investment in tax credit projects and acquisition, integration and
restructuring costs.
42 2022 Overview
Net income available to common stockholders was $204.1 million, or $4.79 per diluted common share, for the year ended
December 31, 2022, compared to $211.9 million or $5.00 per diluted common share for the year ended December 31, 2021.
Return on average common equity was 11.74%, and return on average assets was 1.08% for the year ended December 31, 2022,
compared to 10.49% and 1.19%, respectively, for the year ended December 31, 2021.
Total assets of HTLF were $20.24 billion at December 31, 2022, an increase of $969.7 million or 5% since December 31, 2021.
Securities represented 35% of total assets at December 31, 2022, compared to 40% of total assets at December 31, 2021.
Total loans held to maturity were $11.43 billion at December 31, 2022, compared to $9.95 billion at December 31, 2021, which
was an increase of $1.47 billion or 15%. Excluding total PPP loans, total loan held to maturity increased $1.66 billion or 17%
since year-end 2021.
Total deposits were $17.51 billion as of December 31, 2022, compared to $16.42 billion as of December 31, 2021, an increase
of $1.10 billion or 7%.
Common stockholders' equity was $1.62 billion at December 31, 2022, compared to $2.07 billion at year-end 2021. Book value
per common share was $38.25 at December 31, 2022, compared to $49.00 at year-end 2021. HTLF's unrealized gains and
losses on securities available for sale, net of applicable taxes, reflected an unrealized loss of $619.2 million compared to an
unrealized loss of $4.4 million at December 31, 2021.
2022 Developments
Charter Consolidation Update
In the fourth quarter of 2021, the HTLF Board of Directors unanimously approved a plan to consolidate its eleven bank
charters. In the second quarter of 2022, the consolidation project advanced from planning to execution with Citywide Banks
operating as a division of HTLF Bank. During the third quarter of 2022, the charters of Premier Valley Bank and Minnesota
Bank & Trust were consolidated into HTLF Bank, and during the fourth quarter of 2022, the Arizona Bank & Trust and Illinois
Bank & Trust charters were consolidated into HTLF Bank. Citywide Banks, Premier Valley Bank, Minnesota Bank & Trust,
Arizona Bank & Trust and Illinois Bank & Trust are now operating as divisions of HTLF Bank. Subsequent to December 31,
2022, the Wisconsin Bank & Trust charter was consolidated. The remaining five charters are expected to be consolidated by the
end of 2023. Charter consolidation follows a template that retains the current brands, local leadership and local decision
making.
Total consolidation restructuring costs are projected to be $19-$20 million. Total costs incurred since the project started in the
fourth quarter of 2021 through December 31, 2022, were $9.3 million. The remaining project costs of approximately $10
million are expected to be incurred in 2023.
Charter consolidation is designed to eliminate redundancies and improve HTLF’s operating efficiency and capacity to support
ongoing product and service enhancements, as well as current and future growth, while enriching the customer experience. The
operational efficiencies and expansion in capacity are projected to generate benefits of approximately $20.0 million annually
when the project is completed with core operating expenses expected to decline to 2.10% or less of average assets. HTLF
started to realize operating efficiencies and financial benefits in the second half of 2022 with the completion of five charter
consolidations.
Common Stock Dividend Increase
The common stock dividend was increased from $0.27 per common share for the first three quarters of 2022 to $0.28 per
common share for the fourth quarter of 2022.
Branch Optimization
During 2022, HTLF reduced its branch footprint from 130 to 119 locations, which was a reduction of 11 locations or 8%. HTLF
continues to review its franchise network for optimization and consolidation opportunities, which may result in additional
write-downs of fixed assets in future periods.
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.
43 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.
2021 Developments
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") in 2021 totaling $473.9 million. PPP II loans
are 100% SBA guaranteed, and borrowers may be eligible to have an amount up to the entire principal balance forgiven and
paid by the SBA.
Branch Optimization
During 2021, HTLF reduced its branch footprint from 141 to 130 location, which was a reduction of 11 locations or 8%.
Common Stock Dividend Increase
The common stock dividend 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.
FINANCIAL HIGHLIGHTS (Dollars in thousands, except per share data)
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
As of and For the Years Ended
December 31,
2022
2021
2020
$ 674,656
$ 588,760
$ 536,612
76,420
598,236
15,370
582,866
28,200
560,560
(17,575)
578,135
44,883
491,729
67,066
424,663
128,264
443,377
55,573
212,180
(8,050)
$ 204,130
128,935
431,812
55,335
219,923
(8,050)
$ 211,873
120,291
370,963
36,053
137,938
(4,451)
$ 133,487
44
FINANCIAL HIGHLIGHTS (Dollars in thousands, except per share data)
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
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 (GAAP)
Efficiency ratio, fully tax-equivalent (non-GAAP)(1)
Annualized ratio of total noninterest expenses to average assets (GAAP)
Annualized ratio of core expenses to average assets (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
As of and For the Years Ended
December 31,
2022
2021
2020
$
$
$
$
4.79
1.09
22.76 %
38.25
24.09
$
$
$
$
5.00
0.96
19.20 %
49.00
34.59
$
$
$
$
3.57
0.80
22.41 %
46.77
32.07
42,630,703
42,410,611
37,356,524
5.21 %
7.84 %
7.81 %
$ 7,051,114
$ 7,697,650
$ 6,292,067
5,277
21,640
57,949
11,428,352
9,954,572
10,023,051
109,483
110,088
131,606
20,244,228
19,274,549
17,908,339
17,513,009
16,417,255
14,979,905
371,753
110,705
372,072
110,705
457,042
110,705
1,624,350
2,071,473
1,968,526
1.08 %
1.19 %
0.93 %
11.74
18.56
3.32
3.37
61.03
57.74
2.26
2.16
10.49
15.59
3.29
3.33
62.63
59.48
2.33
2.22
8.06
12.28
3.65
3.69
60.61
56.65
2.51
2.34
0.33 %
0.37 %
0.53 %
0.51
0.11
0.96
0.96
1.13
0.70
0.04
1.11
1.13
1.26
1.29
157.45
0.88
0.32
1.31
1.45
1.47
1.62
149.37
Allowance for lending related credit losses to total loans excluding PPP loans
Allowance for credit losses to nonperforming loans
1.14
187.14
45
FINANCIAL HIGHLIGHTS (Dollars in thousands, except per share data)
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,
2022
2021
2020
9.42 %
11.51 %
11.59 %
8.86
14.76
11.81
11.07
9.13
10.92
15.90
12.39
11.53
8.57
11.21
14.71
11.85
10.92
9.02
(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)
Reconciliation of Tangible Book Value Per Common Share (non-GAAP)
Common stockholders' equity (GAAP)
Less goodwill
Less other intangible assets, net
As of and For the Years Ended
December 31,
2022
2021
2020
$ 1,624,350
$ 2,071,473
$ 1,968,526
576,005
25,154
576,005
32,988
576,005
42,383
Tangible common stockholders' equity (non-GAAP)
$ 1,023,191
$ 1,462,480
$ 1,350,138
Common shares outstanding, net of treasury stock
Common stockholders' equity (book value) per share (GAAP)
Tangible book value per common share (non-GAAP)
42,467,394
42,275,264
42,093,862
$
$
38.25
24.09
$
$
49.00
34.59
$
$
46.77
32.07
Reconciliation of Tangible Common Equity Ratio (non-GAAP)
Total assets (GAAP)
Less goodwill
Less core deposit intangibles and customer relationship intangibles, net
Total tangible assets (non-GAAP)
Tangible common equity ratio (non-GAAP)
$ 20,244,228
$ 19,274,549
$ 17,908,339
576,005
25,154
576,005
32,988
576,005
42,383
$ 19,643,069
$ 18,665,556
$ 17,289,951
5.21 %
7.84 %
7.81 %
Reconciliation of Annualized Return on Average Tangible Common Equity
(non-GAAP)
Net income available to common stockholders (GAAP)
$ 204,130
$ 211,873
$ 133,487
Plus core deposit and customer intangibles amortization, net of tax(1)
Adjusted net income available to common stockholders (non-GAAP)
6,189
7,422
8,429
$ 210,319
$ 219,295
$ 141,916
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)
$ 1,738,041
$ 2,020,200
$ 1,656,708
576,005
28,912
$ 1,133,124
576,005
37,554
$ 1,406,641
456,854
44,298
$ 1,155,556
11.74 %
18.56 %
10.49 %
15.59 %
8.06 %
12.28 %
46
NON-GAAP RECONCILIATIONS (Dollars in thousands, except per share data)
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)
Reconciliation of Efficiency Ratio (non-GAAP)
Net interest income (GAAP)
Plus tax-equivalent adjustment(1)
Net interest income, fully tax-equivalent (non-GAAP)
Noninterest income (GAAP)
Securities losses (gains), net
Unrealized (gain)/loss on equity securities, net
Valuation adjustment on servicing rights
Adjusted revenue (non-GAAP)
Total noninterest expenses (GAAP)
Less:
As of and For the Years Ended
December 31,
2022
2021
2020
$ 598,236
$ 560,560
$ 491,729
8,399
7,212
5,466
$ 606,635
$ 567,772
$ 497,195
$ 18,021,134
$ 17,025,088
$ 13,481,613
3.32 %
3.37 %
3.29 %
3.33 %
3.65 %
3.69 %
$ 598,236
8,399
$ 560,560
7,212
$ 491,729
5,466
606,635
128,264
425
622
567,772
128,935
(5,910)
(58)
497,195
120,291
(7,793)
(640)
(1,658)
$ 734,288
(1,088)
$ 689,651
1,778
$ 610,831
$ 443,377
$ 431,812
$ 370,963
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
Core expenses (non-GAAP)
Efficiency ratio (GAAP)
Efficiency ratio, fully tax-equivalent (non-GAAP)
Reconciliation of Annualized Ratio of Core Expenses to Average Assets
Total noninterest expenses (GAAP)
Core expenses (non-GAAP)
Average assets
Total noninterest expenses to average assets (GAAP)
Core expenses to average assets (non-GAAP)
7,834
5,040
(1,047)
7,586
9,395
6,303
588
5,331
10,670
3,801
5,101
5,381
$ 423,964
$ 410,195
$ 346,010
61.03 %
57.74 %
62.63 %
59.48 %
60.61 %
56.65 %
$ 443,377
$ 431,812
$ 370,963
423,964
410,195
346,010
$ 19,621,839
$ 18,508,273
$ 14,782,605
2.26 %
2.16 %
2.33 %
2.22 %
2.51 %
2.34 %
47
NON-GAAP RECONCILIATIONS (Dollars in thousands, except per share data)
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%.
As of and For the Years Ended
December 31,
2022
2021
2020
$
1,404
$
—
—
5,082
382
—
718
$
7,586
$
578
10
655
2,867
173
39
1,009
5,331
$
398
—
958
3,399
143
—
483
$
5,381
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.
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 adjusted noninterest expenses as a percentage of fully tax-equivalent
net interest income and adjusted 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.
48
•
Annualized ratio of core expenses to average assets adjusts noninterest expenses to exclude specific items noted in the
reconciliation. Management includes this measure as it is considered to be a critical metric to analyze and evaluate
controllable expenses related to primary business operations.
RESULTS OF OPERATIONS
Net Interest Margin and Net Interest Income
HTLF's management seeks to optimize net interest income and net interest margin through the growth of earning assets and
management of asset and liability positions because they are key indicators of HTLF's profitability.
Net interest income is the difference between interest income 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 a favorable net interest margin has been the result of an increase in average earning assets 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, 2022, 2021 and
2020, our net interest margin included 4 basis points, 9 basis points and 12 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 3.32% (3.37% on a fully tax-equivalent basis)
during 2022, compared to 3.29% (3.33% on a fully tax-equivalent basis) during 2021 and 3.65% (3.69% on a fully tax-
equivalent basis) during 2020.
Net interest margin for the year ended December 31, 2022, compared to the year ended December 31, 2021
Total interest income and average earning asset changes for 2022 compared to 2021 were:
•
•
•
•
Total interest income increased $85.9 million or 15% to $674.7 million from $588.8 million, which was primarily
attributable to an increase in average earning assets and an increase in the average rate on earning assets.
Total interest income on a tax-equivalent basis (non-GAAP) was $683.1 million compared to $596.0 million, which
was an increase of $87.1 million or 15%.
Average earning assets increased $996.0 million or 6% to $18.02 billion from $17.03 billion, which was primarily
attributable to loan growth.
The average rate on earning assets increased 29 basis points to 3.79% compared to 3.50%, which was primarily due to
recent increases in market interest rates and a shift in earning asset mix.
Total interest expense and average interest bearing liability changes for 2022 compared to 2021 were:
•
•
•
•
•
Total interest expense increased $48.2 million to $76.4 million compared to $28.2 million.
The average rate paid on HTLF's interest bearing liabilities increased 39 basis points to 0.67% compared to 0.28%,
which was primarily due to recent increases in market interest rates and deposit growth, including wholesale funding.
Average interest bearing deposits increased $1.45 billion or 15% to $10.90 billion from $9.45 billion. Average
wholesale deposits totaled $1.02 billion compared to $5.2 million.
The average rate paid on HTLF's interest bearing deposits increased 36 basis points to 0.52% compared to 0.16%,
which was primarily attributable to recent increases in market interest rates.
Average borrowings increased $19.4 million or 4% to $540.3 million from $520.9 million. The average interest rate
paid on HTLF's borrowings was 3.62% compared to 2.57%.
Net interest income changes for 2022 compared to 2021 were:
•
•
Net interest income totaled $598.2 million compared to $560.6 million, which was an increase of $37.7 million or 7%.
Net interest income on a tax equivalent basis (non-GAAP) totaled $606.6 million compared to $567.8 million, which
was an increase of $38.9 million or 7%.
49 Net interest margin for the year ended December 31, 2021, compared to the year ended December 31, 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.
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%.
Management believes net interest margin in dollars will continue to increase as earning assets grows and a favorable deposit
profile is maintained. In 2022, the Federal Reserve increased the federal funds rate seven times for a total of 425 basis points,
and in February 2023, the Federal Reserve increased the federal funds rate 25 basis points. The Federal Reserve has indicated it
will closely assess economic data but has signaled it will likely continue to raise the Federal funds interest rate in the first half
of 2023. Ultimately, the timing and magnitude of any such changes are uncertain and will depend on domestic and global
economic conditions.
The increases to the federal funds interest rate in 2022 had a positive impact on net interest income due to our asset sensitive
balance sheet. We expect net interest income to be higher in 2023 compared to 2022, however, the magnitude of the increase
will be dependent upon future federal funds rate increases and deposit pricing, which are difficult to predict.
We attempt to manage our balance sheet to minimize the effect that a change in interest rates has on our net interest income. We
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 model and review simulations using various improving and
deteriorating interest rate scenarios to assist in monitoring our exposure to interest rate risk. 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 11, "Derivative Financial
Instruments" to the consolidated financial statements contains a detailed discussion of the derivative instruments we have
utilized to manage interest rate risk.
50 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.
2022
For the Year Ended December 31,
2021
2020
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
$ 6,335,586
965,474
7,301,060
$ 169,544
30,387
199,931
2.68 % $ 6,135,732
799,283
3.15
6,935,015
2.74
$ 125,010
24,390
149,400
2.04 % $ 3,901,202
3.05
424,199
4,325,401
2.15
$ 98,263
15,802
114,065
2.52 %
3.73
2.64
216,786
192
3,125
11
1.44
5.73
254,630
3,457
344
1
0.14
0.03
225,024
107
924
—
0.41
—
3,070,890
50,464
140,310
6,884
4.57
13.64
2,543,514
734,139
111,473
40,627
4.38
5.53
2,437,183
779,183
118,513
25,285
4.86
2
5 3.25
Owner occupied commercial real estate 2,272,088
Non-owner occupied commercial real
estate
2,196,922
Real estate construction
923,316
Agricultural and agricultural real estate
778,526
852,541
464,084
(105,735)
10,503,096
18,021,134
1,600,705
$ 19,621,839
$ 9,737,100
1,160,538
168,404
371,879
11,437,921
6,131,760
203,412
6,335,172
1,848,746
$ 19,621,839
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
93,936
4.13
1,950,014
81,717
4.19
1,480,109
72,215
4.88
99,202
4.52
1,969,910
87,728
4.45
1,589,932
48,258
5.23
34,064
4.38
824,055
681,493
37,891
4.60
1,007,086
29,822
4.38
538,646
34,276
23,058
—
479,988
683,055
4.02
846,573
4.97
407,592
—
(125,304)
9,831,986
4.57
3.79 % 17,025,088
1,483,185
$ 18,508,273
36,768
20,201
—
446,227
595,972
4.34
793,821
4.96
410,013
—
(104,892)
8,931,081
4.54
3.50 % 13,481,613
1,300,992
$ 14,782,605
78,178
4.92
46,785
4.65
25,713
4.77
38,210
22,190
—
427,089
542,078
4.81
5.41
—
4.78
4.02 %
$ 46,623
10,257
2,717
16,823
76,420
0.48 % $ 8,311,825
1,137,097
0.88
181,165
1.61
4.52
339,733
0.67 % 9,969,820
$
9,063
5,734
471
12,932
28,200
0.11 % $ 6,718,413
1,088,185
0.50
155,467
0.26
3.81
382,733
0.28 % 8,344,798
$ 16,560
13,727
610
13,986
44,883
0.25 %
1.26
0.39
3.65
0.54 %
6,230,851
176,697
6,407,548
2,130,905
$ 18,508,273
4,554,479
169,450
4,723,929
1,713,878
$ 14,782,605
$ 606,635
$ 567,772
$ 497,195
3.12 %
3.37 %
3.22 %
3.33 %
3.48 %
3.69 %
(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.
51
The following table presents the dollar amount of changes in interest income and interest expense for the major components of
interest earning assets and interest bearing liabilities, in thousands. It quantifies the changes in interest income and interest
expense related to changes in the average outstanding balances (volume) and those changes caused by fluctuating interest rates.
For each category of interest earning assets and interest bearing liabilities, information is provided on changes attributable to (i)
changes in volume, calculated by multiplying the difference between the average balance for the current period and the average
balance for the prior period by the rate for the prior period, and (ii) changes in rate, calculated by multiplying the difference
between the rate for the current period and the rate for the prior period by the average balance for the prior period. The
unallocated change has been allocated pro rata to volume and rate variances.
For the Years Ended December 31,
2022 Compared to 2021
Change Due to
Rate
Net
Volume
2021 Compared to 2020
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
4,192 $ 40,342 $ 44,534 $ 48,218 $ (21,471) $ 26,747
8,588
5,210
(580)
1
19,138
53,894
11,875
108
—
41,624
101,825
5,997
2,781
10
33,761
87,083
787
2,840
12
3,111
47,092
(3,287)
(688)
1
(22,486)
(47,931)
(59)
(2)
30,650
39,991
1,808
121
(35)
35,752
4,402
2,281
37,560
4,523
2,246
3,274
591
90
(10,771)
(8,584)
(229)
(7,497)
(7,993)
(139)
Other borrowings
Total interest bearing liabilities
Net interest income
(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.
1,301
3,195
$ 36,796 $
(1,054)
(1,619)
2,590
45,025
(16,683)
2,336
2,067 $ 38,863 $ 99,489 $ (28,912) $ 70,577
565
(19,019)
3,891
48,220
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, 2022, 2021 and 2020, in thousands:
Provision (benefit) for credit losses-loans
Provision for credit losses-unfunded commitments
Provision (benefit) for credit losses-held to maturity securities
Total provision expense (benefit)
For the Years Ended December 31,
2022
2021
2020
$
10,636 $
(17,706) $
65,745
4,734
—
182
(51)
1,428
(107)
$
15,370 $
(17,575) $
67,066
•
•
The provision for credit losses was $15.4 million during 2022 compared to a benefit of $17.6 million during 2021. The
provision expense for 2022 was impacted by several factors, including:
loan growth excluding PPP loans totaled $1.66 billion,
decrease in nonperforming loans of $11.4 million to $58.5 million or 0.51% of total loans compared to $69.9 million
or 0.70% of total loans at December 31, 2021,
net charge-offs of $11.2 million, and
utilization of a macroeconomic outlook in the estimation of the allowance for credit losses that anticipates a moderate
recession developing within the next twelve months.
•
•
52
The provision benefit for credit losses was $17.6 million during 2021 compared to expense of $67.1 million during 2020. The
provision benefit for 2021 was impacted by several factors, including:
•
•
•
•
loan growth of $689.4 million excluding PPP loans, 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.
At December 31, 2022, the allowance for credit losses for loans was 0.96% of total loans and 187.14% of nonperforming loans
compared to 1.11% of total loans and 157.45% of nonperforming loans at December 31, 2021.
The size of the loan portfolio, the level of organic loan growth including government guaranteed loans, changes in credit quality
and the variability that can occur in the factors, including the impact of economic conditions, are all considered when
determining the appropriateness of the allowance for credit losses and will contribute to the variability in the provision for
credit losses from 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 5, "Allowance for Credit Losses" to the consolidated financial statements contained herein.
HTLF believes the allowance for credit losses as of December 31, 2022, was at a level commensurate with the overall risk
exposure of the loan portfolio. However, deterioration in economic conditions, including a recession, could cause certain
borrowers to experience financial difficulty and impede their ability to meet debt service. Due to the uncertainty of future
economic conditions, including ongoing concerns over higher interest rates, supply chain challenges and workforce shortages,
wage pressures and the waning effects of the economic stimulus, 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:
For the Years Ended December 31,
% Change
Service charges and fees
Loan servicing income
Trust fees
Brokerage and insurance commissions
Securities (losses) gains, net
Unrealized (loss) 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
$
2022
2020
47,467
2,977
20,862
2,756
7,793
640
28,515
(1,778)
3,554
7,505
$ 128,264 $ 128,935 $ 120,291
2021
59,703 $
3,276
24,417
3,546
5,910
58
20,605
1,088
3,762
6,570
68,031 $
2,741
22,570
2,986
(425)
(622)
9,032
1,658
2,341
19,952
2022/2021
14 %
(16)
(8)
(16)
(107)
(1,172)
(56)
52
(38)
204
2021/2020
26 %
10
17
29
(24)
(91)
(28)
161
6
(12)
(1) %
7 %
Notable changes in the components of noninterest income are as follows:
53
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
$
18,625 $
16,414 $
14,441
13 %
14 %
For the Years Ended December 31,
% Change
2022
2021
2020
2022/2021 2021/2020
Overdraft fees
Customer service fees
Credit card fee income
Debit card income
12,136
375
27,560
9,335
11,005
220
21,623
10,441
9,166
177
16,026
7,657
Total service charges and fees
$
68,031 $
59,703 $
47,467
10
70
27
(11)
14 %
20
24
35
36
26 %
Total service charges and fees were $68.0 million in 2022, which was an increase of $8.3 million or 14% from $59.7 million in
2021. Total service charges and fees in 2021 were $59.7 million, which was an increase of $12.2 million or 26% from $47.5
million in 2020.
The increase in credit card income detailed above was primarily the result of a larger commercial credit card base and increased
utilization. The changes in debit card income noted above are primarily attributable to transaction volume fluctuations.
Management is monitoring and assessing industry changes related to the consumer overdraft fees, and any future changes could
negatively impact overdraft fee income.
Loan Servicing Income
The following tables show the changes in loan servicing income for the years indicated, in thousands:
For the Years Ended December 31,
2021
2022
2020
% Change
2022/2021 2021/2020
Commercial and agricultural loan servicing fees(1)
Residential mortgage servicing fees(2)
Mortgage servicing rights amortization
Total loan servicing income
$
2,033 $
2,826 $
3,287
(28) %
1,847
1,837
1,727
(1,139)
(1,387)
(2,037)
$
2,741 $
3,276 $
2,977
1
(18)
(16) %
(14) %
6
(32)
10 %
(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 $725.9 million, $723.3 million and $743.3 million as of
December 31, 2022, 2021 and 2020, 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 $2.7 million for 2022 compared to $3.3 million for 2021 and $3.0 million for 2020.
Included in and offsetting loan servicing income is the amortization of capitalized mortgage servicing rights, which was $1.1
million during 2022 compared to $1.4 million during 2021 and $2.0 million during 2020. Increases in residential mortgage
interest rates during 2022 and stable residential mortgage interest rates during 2021 caused mortgage refinancing activity to
decrease during the years ended December 31, 2022 and 2021, which resulted in lower mortgage servicing rights amortization.
Note 7, "Goodwill, Core Deposit Intangibles and Other Intangible Assets," to the consolidated financial statements contains a
discussion of our servicing rights.
Trust Fees
Trust fees totaled $22.6 million for the year ended December 31, 2022, a decrease of $1.8 million or 8% from $24.4 million for
the year ended December 31, 2021. 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. The changes in trust fees are primarily attributable to
changes in the market value of trust assets under management, which were $3.62 billion, $3.79 billion and $3.42 billion at
December 31, 2022, 2021, and 2020, respectively.
54
Securities (losses) gains, net
Net security losses totaled $425,000 for the year ended December 31, 2022 compared to net security gains of $5.9 million for
the year ended December 31, 2021, which was a decrease of $6.3 million. During 2022, HTLF strategically repositioned $217.8
million of lower yielding securities, which resulted in net securities losses of $3.7 million, and the proceeds were used to
purchase securities with a higher yield.
Net Gains on Sale of Loans Held for Sale
Net gains on sale of loans held for sale totaled $9.0 million during 2022 compared to $20.6 million during 2021 and $28.5
million during 2020. 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 2022 totaled $300.7 million compared
to $502.4 million during 2021, which was a decrease of $201.7 million or 40%. Loans sold to investors in 2021 totaled $502.4
million, a decrease of $87.9 million or 15% from $590.3 million sold in 2020. The decreases in loans sold to investors and the
net gains on sale of loans held for sale during 2022 were primarily attributable to increased residential mortgage rates. The
decreases in loans sold to investors and the net gains on sale of loans held for sale during 2021 were primarily attributable to
increased and stable residential mortgage interest rates compared to 2020, which caused mortgage activity to decrease.
Valuation Adjustment on Servicing Rights
The valuation adjustment recovery on servicing rights totaled $1.7 million for the year ending December 31, 2022, compared to
$1.1 million for the year ending December 31, 2021, and compared to an impairment of $1.8 million for the year ended
December 31, 2020. The change for the years ended December 31, 2022 and 2021 was primarily due to increases in residential
mortgage interest rates during 2022 and 2021 compared to declines in residential mortgage interest rates during 2020.
Other noninterest income
Other noninterest income totaled $20.0 million for the year ended December 31, 2022, an increase of $13.4 million from $6.6
million for the year ended December 31, 2021. Commercial swap fees and syndication income totaled $11.5 million for the year
ended December 31, 2022, compared to $1.3 million for the year ended December 31, 2021, an increase of $10.2 million.
Additionally, gains of $1.9 million were recorded in the second quarter of 2022 on the sale of VISA B shares held by two
Banks.
NONINTEREST EXPENSES
The following table summarizes HTLF's noninterest expenses for the years indicated, in thousands:
For the Years Ended December 31,
% Change
2022
2021
2020
2022/2021 2021/2020
Salaries and employee benefits
$ 254,478 $ 240,114 $ 202,668
6 %
18 %
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
28,155
12,499
65,606
6,221
7,834
950
(1,047)
7,586
5,040
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
1,340
5,101
5,381
3,801
(6)
(6)
2
(14)
(17)
(4)
(278)
42
(20)
56,055
53,946
43,631
$ 443,377 $ 431,812 $ 370,963
4
3 %
13
6
19
39
(12)
(26)
(88)
(1)
66
24
16 %
Notable changes in the components of noninterest expenses are as follows:
55
Salaries and Employee Benefits
The largest component of noninterest expense, salaries and employee benefits, increased $14.4 million or 6% to $254.5 million
in 2022 and $37.4 million or 18% to $240.1 million in 2021. Full-time equivalent employees totaled 2,002 on December 31,
2022, compared to 2,249 on December 31, 2021, and 2,013 on December 31, 2020.
The increase in salaries and employee benefits during 2022 was primarily attributable to higher salaries expense due to
inflationary wage pressures and incentive compensation.
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.
Professional Fees
Professional fees increased $1.0 million or 2% to $65.6 million during 2022 and $10.5 million or 19% to $64.6 million during
2021 from $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.
On October 18, 2022, the FDIC finalized a rule that would increase initial base deposit insurance assessment rates by 2 basis
point, beginning with the first quarterly assessment period of 2023. Management estimates FDIC insurance expense, which is
included within professional fees, will increase $3-$4 million due to the change in assessment rates.
Advertising
Advertising expense decreased $1.0 million or 14% to $6.2 million during 2022 from $7.3 million during 2021. During 2021,
advertising expense increased $2.0 million or 39% to $7.3 million from $5.2 million for the year ended December 31, 2020,
which was primarily attributable to the resumption of in-person customer events.
Core Deposit Intangibles and Customer Relationship Intangibles Amortization
Core deposit intangibles and customer relationship intangibles amortization totaled $7.8 million during 2022 compared to $9.4
million during 2021, which was a decrease of $1.6 million or 17%. Core deposit intangibles and customer relationship
intangibles amortization totaled $9.4 million during 2021 compared to $10.7 million during 2020, which was a decrease of $1.3
million or 12%. The decreases for the years ended December 31, 2022 and 2021 were attributable the amortization of core
deposit intangibles and customer relationship intangibles from recent acquisitions.
(Gain) loss on sales/valuations of assets, net
Net gains on sales/valuations of assets totaled $1.0 million during 2022 compared to net losses on sales/valuations of assets of
$588,000 during 2021 and $5.1 million during 2020. During 2022, two branches in Illinois were sold for a gain of $3.0 million,
and a gain of $413,000 was recorded in conjunction with the sale of an insurance subsidiary. These gains were partially offset
by losses and writedowns totaling $1.5 million associated with branch optimization activities.
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.
Acquisition, integration and restructuring expenses
Acquisition, integration and restructuring expenses totaled $7.6 million for the year ended December 31, 2022, which was an
increase of $2.3 million or 42% from $5.3 million for the year ended December 31, 2021. The increase was primarily
attributable to the progression of the charter consolidation project. Management estimates acquisition, integration and
restructuring expenses of approximately $10 million will be incurred through the end of 2023 for the charter consolidation
project.
Partnership Investment in Tax Credit Projects
Partnership investment in tax credit projects totaled $5.0 million, $6.3 million and $3.8 million for the years ended December
31, 2022, 2021 and 2020, respectively. The expense is dependent upon the number of tax credit projects placed in service
during the year.
56 EFFICIENCY RATIO
One of HTLF's strategic priorities is to improve its efficiency ratio, on a fully tax-equivalent basis (non-GAAP), with the goal
of maintaining it at or below 57%. The efficiency ratio, fully tax-equivalent (non-GAAP), was 57.74% for 2022, 59.48% for
2021 compared to 56.65% for 2020.
The efficiency ratio for 2022 was positively impacted by higher net interest income, which was partially offset by increases in
noninterest expenses as noted above.
HTLF continues to pursue strategies to improve operational efficiency, which include the following initiatives:
Consolidation of its eleven bank charters
Charter consolidation is designed to eliminate redundancies and improve our operating efficiency and capacity to support
ongoing product and service enhancements as well as current and future growth. Through December 31, 2022, five charters
have been consolidated into HTLF Bank, and subsequent to December 31, 2022, one additional charter was consolidated. The
consolidated charters are now operating as divisions of HTLF Bank. The remaining five charters are expected to be
consolidated in 2023.
Consolidation restructuring costs are projected to be $19-20 million with approximately $10 million of expenses remaining to
be incurred through 2023. Total costs incurred since the project started in the fourth quarter of 2021 through December 31,
2022 were $9.3 million. HTLF realized some operating efficiencies and financial benefits in the second half of 2022 with the
completion of five charter consolidations. The resulting efficiencies and expansion in capacity are projected to generate benefits
of approximately $20.0 million annually when the project is completed with core operating expenses expected to decline to
2.10% or less of average assets.
Branch optimization strategy
During the year ended December 31, 2022, HTLF's branch network was reduced by 11 locations.
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.
INCOME TAXES
HTLF's effective tax rate was 20.8% for 2022 compared to 20.1% for 2021 and 20.7% for 2020. The following items impacted
HTLF's 2022, 2021 and 2020 tax calculations:
•
•
•
•
•
•
•
Solar energy tax credits of $4.2 million, $6.1 million and $2.3 million.
Federal low-income housing tax credits of $1.1 million, $540,000 and $780,000.
Historic rehabilitation tax credits of $1.0 million, $720,000 and $1.1 million.
New markets tax credits of $300,000 in each annual calculation.
Tax-exempt interest income as a percentage of pre-tax income of 11.8%, 9.9% and 11.8%.
The tax-equivalent adjustment for this tax-exempt interest income was $8.4 million, $7.2 million and $5.5 million.
Tax benefits of $165,000, $491,000 and $617,000 related to the release of valuation allowances on deferred tax assets.
FINANCIAL CONDITION
HTLF's total assets were $20.24 billion at December 31, 2022, an increase of $969.7 million or 5% since December 31, 2021.
HTLF's total assets were $19.27 billion at December 31, 2021, an increase of $1.37 billion or 8% compared to $17.91 billion at
December 31, 2020.
LENDING ACTIVITIES
HTLF's board of directors establishes an acceptable level of credit risk appetite, and certain lending policies and procedures are
in place that are designed to provide for an acceptable level of credit risk. Management and the HTLF board of directors are
frequently provided reports related to loan production, loan quality, concentrations of credit, loan delinquencies and
nonperforming loans and potential problem loans.
57 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, 2022, HTLF had $1.4
million of PPP I loans outstanding, and $9.6 million of PPP II loans outstanding. 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 required for
most of these loans is based upon the discounted market value of the collateral. Non-owner occupied commercial real estate
loans are typically dependent, in large part, on sufficient income from the properties securing the loans to cover the operating
expenses and debt service. Real estate construction loans involve additional risks because funds are advanced based upon
estimates of costs and the estimated value of the completed project. Additionally, real estate construction loans have a greater
risk of default in a weaker economy because the source of repayment is reliant on the successful and timely sale of the project.
Personal guarantees are frequently required as a tertiary form of repayment. In addition, when underwriting loans for
commercial real estate, careful consideration is given to the property's operating history, future operating projections, current
and projected occupancy, location and physical condition.
Agricultural and agricultural real estate loans, many of which are secured by crops, machinery and real estate, are provided to
finance capital improvements and farm operations as well as acquisitions of livestock and machinery. Agricultural and
agricultural real estate loans present unique credit risks relating to adverse weather conditions, loss of livestock due to disease
or other reasons, declines in market prices for agricultural products and the impact of government regulations. The ultimate
repayment of agricultural and agricultural real estate loans is dependent upon the profitable operation or management of the
agricultural entity. Loans secured by farm equipment, livestock or crops may not provide an adequate source of repayment
because of damage or depreciation. In underwriting agricultural and agricultural real estate loans, lending personnel work
closely with their customers to review budgets and cash flow projections for crop production for the ensuing year. These
budgets and cash flow projections are monitored closely during the year and reviewed with the customers at least annually.
Lending personnel work closely with governmental agencies, including the 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 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 swaps, syndications, trade and franchise financing.
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. In certain Bank
Markets, residential mortgage loans are originated through PrimeWest, a division of First Bank & Trust, and sold to the
secondary market with servicing retained. The Banks also provide residential mortgage loans to their customers that are
retained and serviced by the originating Bank. In 2022, HTLF began partnering with a third-party mortgage loan provider to
facilitate the residential mortgage lending needs of customers in selected Bank Markets.
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.
58 At December 31, 2022, $265.8 million or 52% of the consumer loan portfolio were in home equity lines of credit ("HELOCs")
compared to $212.6 million or 51% at December 31, 2021. 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-focused banking model,
which includes meeting the legitimate credit needs within the communities served, the Banks may make loans to borrowers
possessing subprime characteristics only if there are mitigating factors present that reduce the potential default risk of the loan.
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:
2022
As of December 31,
2021
2020
Amount
%
Amount
%
Amount
%
Loans receivable held to maturity:
Commercial and industrial
$ 3,464,414
30.31 % $ 2,645,085
26.57 % $ 2,534,799
25.29 %
Paycheck Protection Program ("PPP")
11,025
Owner occupied commercial real estate
2,265,307
Non-owner occupied commercial real estate
2,330,940
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
1,076,082
920,510
853,361
506,713
0.10
19.82
20.40
9.42
8.05
7.47
4.43
199,883
2,240,334
2,010,591
856,119
753,753
829,283
419,524
2.01
22.51
20.20
8.60
7.57
8.33
4.21
957,785
1,776,406
1,921,481
863,220
714,526
840,442
414,392
9.56
17.72
19.17
8.61
7.13
8.39
4.13
Total loans receivable held to maturity
11,428,352
100.00 % 9,954,572
100.00 % 10,023,051
100.00 %
Allowance for credit losses
Loans receivable, net
(109,483)
$ 11,318,869
(110,088)
$ 9,844,484
(131,606)
$ 9,891,445
Loans held for sale totaled $5.3 million at December 31, 2022, and $21.6 million at December 31, 2021, 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, 2022, 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
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
$
1,051,478 $
615,482 $
987,458 $
468,283 $
285,533 $
27,635 $
28,545 $
3,464,414
11,025
—
—
—
—
—
—
11,025
209,937
561,121
334,722
523,746
349,619
85,179
200,983
2,265,307
344,212
596,950
669,435
344,801
301,731
9,672
64,139
2,330,940
396,520
167,540
331,101
110,288
65,581
274,185
84,464
49,253
86,552
203,201
63,832
252,391
72,165
331,932
5,050
238,186
54,499
218,739
107,858
6,322
720
306
40,525
736
4,332
1,076,082
83,287
106,962
139
920,510
853,361
506,713
$
2,421,074 $
2,294,678 $ 2,979,204 $ 1,744,853 $ 1,335,383 $
164,773 $
488,387 $ 11,428,352
Total loans
Total loans held to maturity were $11.43 billion at December 31, 2022, compared to $9.95 billion at year-end 2021, an increase
of $1.47 billion or 15%. Excluding changes in total PPP loans, loans increased $1.66 billion or 17% since year end 2021.
59
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.
The table below shows the changes in loan balances by loan category for the years indicated, in thousands:
Commercial and industrial
$ 3,464,414 $ 2,645,085 $ 2,534,799
PPP
11,025
199,883
957,785
31 %
(94)
4 %
(79)
As of December 31,
% Change
2022
2021
2020
2022/2021
2021/2020
Owner occupied commercial real estate
2,265,307
2,240,334
1,776,406
Non-owner occupied commercial real estate
2,330,940
2,010,591
1,921,481
1,076,082
920,510
853,361
506,713
856,119
753,753
829,283
419,524
863,220
714,526
840,442
414,392
1
16
26
22
3
21
26
5
(1)
5
(1)
1
$ 11,428,352 $ 9,954,572 $ 10,023,051
15 %
(1) %
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
Total
The loan growth in 2022 was primarily in commercial, commercial real estate, real estate construction and agricultural and
agricultural real estate portfolios, which was attributable to an emphasis on organic loan growth, expansion of specific
commercial and agribusiness lending teams and further market penetration in various Bank Markets.
Commercial and industrial loans
Commercial and industrial loans totaled $3.46 billion at December 31, 2022, compared to $2.65 billion at December 31, 2021,
and $2.53 billion at December 31, 2020. Changes to commercial and industrial loans for the years ended December 31, 2022
and 2021 were:
•
•
Commercial and industrial loans increased $819.3 million or 31% since December 31, 2022, and included an increase
of $16.6 million of government guaranteed loans.
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.
PPP loans
At December 31, 2022, HTLF had $1.4 million of PPP I loans outstanding, and $9.6 million of PPP II loans outstanding. 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, 2022, approximately 99% of total PPP loans had been forgiven.
Owner occupied commercial real estate loans
Owner occupied commercial real estate loans totaled $2.27 billion at December 31, 2022, compared to $2.24 billion at
December 31, 2021, and $1.78 billion at year-end 2020. Changes to owner occupied real estate loans for the years ended
December 31, 2022 and 2021 were:
•
•
Owner occupied commercial real estate loans increased $25.0 million or 1% during 2022 and included an increase of
$38.1 million of government guaranteed loans.
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.
Non-owner occupied commercial real estate loans
Non-owner occupied commercial real estate loans totaled $2.33 billion at December 31, 2022, compared to $2.01 billion at
December 31, 2021 and $1.92 billion at year-end 2020. Changes to non-owner occupied commercial real estate loans for the
years ended December 31, 2022 and 2021 were:
•
•
Non-owner occupied commercial loans increased $320.3 million or 16% during the year ended December 31, 2022,
and included an increase of $22.9 million of government guaranteed loans.
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.
60
Real estate construction loans
Real estate construction loans totaled $1.08 billion at December 31, 2022, compared to $856.1 million at December 31, 2021,
and $863.2 million at year-end 2020. Changes to real estate construction loans for the years ended December 31, 2022 and 2021
were:
•
•
Real estate construction loans increased $220.0 million or 26% during the year ending December 31, 2022.
Real estate construction loans decreased $7.1 million or 1% during the year ended December 31, 2021.
Agricultural and agricultural real estate loans
Agricultural and agricultural real estate loans totaled $920.5 million at December 31, 2022, compared to $753.8 million at
December 31, 2021 and $714.5 million at year-end 2020. Changes to agricultural and agricultural real estate loans for the years
ended December 31, 2022 and 2021 were:
•
•
Agricultural and agricultural real estate loans increased $166.8 million or 22% during 2022, which included an
increase of $40.3 million of government guaranteed loans.
Agricultural and agricultural real estate loans increased $39.2 million or 5% during 2021 and included an increase of
$36.7 million of government guaranteed loans.
Residential real estate loans
Residential real estate loans totaled $853.4 million at December 31, 2022, compared to $829.3 million at December 31, 2021,
and $840.4 million at December 31, 2020. Changes to residential real estate loans for the years ended December 31, 2022 and
2021 were:
•
•
Residential real estate loans increased $24.1 million or 3% during the year ending December 31, 2022.
Residential real estate loans decreased $11.2 million or 1% during the year end December 31, 2021.
Consumer loans
Consumer loans totaled $506.7 million at December 31, 2022, compared to $419.5 million at December 31, 2021, and $414.4
million at year-end 2020. Changes to consumer loans for the years ended December 31, 2022 and 2021 were:
•
•
For the year ended December 31, 2022, consumer loans increased $87.2 million or 21%.
For the year ended December 31, 2021, consumer loans increased $5.1 million or 1%.
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,
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.
ALLOWANCE FOR CREDIT LOSSES
The process utilized by HTLF to determine the appropriateness of the allowance for credit losses is considered a critical
accounting practice for HTLF. The allowance for credit losses represents management's estimate of lifetime losses in the
61 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 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:
2022
Amount
% of
Allowance
Quantitative
$
84,409
65.09 % $
Qualitative/Economic Forecast
45,270
34.91
December 31,
2021
2020
Amount
88,635
36,915
% of
Allowance
Amount
% of
Allowance
70.59 % $
102,398
29.41
44,488
69.71 %
30.29
Total
$ 129,679
100.00 % $
125,550
100.00 % $
146,886
100.00 %
Quantitative Allowance
The quantitative allowance of HTLF's total allowance for lending related credit losses totaled $84.4 million at December 31,
2022, compared to $88.6 million at December 31, 2021, which was a decrease of $4.2 million or 5%. The following items
impacted the quantitative allowance at December 31, 2022:
•
•
•
Nonpass loans totaled $533.3 million or 5% of the total loan portfolio, which was a decrease of $207.9 million or 28%
from nonpass loans of $741.3 million at December 31, 2021.
Loans delinquent 30-89 days totaled $4.8 million or 4 basis points of total loans, which was a decrease of $2.6 million
or 35% from $7.4 million or 7 basis points of total loans at December 31, 2021.
Specific reserves for individually assessed loans totaled $7.1 million, which was a decrease of $537,000 or 7% from
$7.6 million at December 31, 2021.
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.
Qualitative Allowance /Economic Forecast
The qualitative allowance of HTLF's total allowance increased $8.4 million or 23% to $45.3 million at December 31, 2022,
compared to $36.9 million at December 31, 2021. Management's assessment of the non-economic risk factors in the qualitative
calculation reflected the healthy, current credit environment.
HTLF has access to various third-party economic forecast scenarios provided by Moody's, which are updated quarterly in
HTLF's methodology. HTLF continued to use a one year reasonable and supportable forecast period. At December 31, 2022,
Moody's December 9, 2022 baseline forecast scenario was utilized, and management also considered other downturn forecast
scenarios, which anticipated a moderate recession developing within the next twelve months, in addition to the baseline forecast
to support the macroeconomic outlook used in the allowance for credit losses calculation.
The qualitative allowance of HTLF's total allowance decreased $7.6 million or 17% to $36.9 million at December 31, 2021,
compared to $44.5 million at December 31, 2020. Management's assessment for December 31, 2021, reflected a decreased level
of qualitative adjustment based on improving market conditions and credit quality trends. 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.
62
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, 2022 and
2021, in thousands:
Balance at beginning of period
Provision (benefit) for credit losses
Recoveries on loans previously charged off
Charge-offs on loans
Balance at end of period
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
For the Year Ended December 31,
2022
2021
$
110,088
$
$
10,636
7,055
(18,296)
109,483
$
0.96 %
188.01
187.14
131,606
(17,706)
4,931
(8,743)
110,088
1.11 %
158.70
157.45
The allowance for credit losses for loans totaled $109.5 million at December 31, 2022, compared to $110.1 million at
December 31, 2021, which was a decrease of $605,000 or less than 1%. The allowance for credit losses for loans at December
31, 2022, was 0.96% of loans compared to 1.11% of loans at December 31, 2021. The following items impacted HTLF's
allowance for credit losses for loans for the year ended December 31, 2022:
•
•
•
Provision expense totaled $10.6 million, which was primarily attributable to loan growth and deterioration of
macroeconomic factors compared to 2021, partially offset by a current healthy credit environment.
Net charge-offs totaled $11.2 million or 0.11% of average loans outstanding. Included in net charge-offs were two
charge-offs due to customer fraud totaling $9.2 million related to two lending relationships which had collateral
deficiencies. A charge-off of $2.6 million was recorded for one-agricultural-related credit that had been substantially
reserved for in a prior year. HTLF recorded one notable recovery on a commercial and industrial loan of $3.0 million
in the fourth quarter of 2022.
Nonpass loans totaled $533.3 million or 5% of the total loan portfolio, which was a decrease of $207.9 million or 28%
from nonpass loans of $741.3 million at December 31, 2021.
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.
63
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
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
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
Provision (benefit) for credit losses
Balance at end of year
Net charge-offs to average loans
As of December 31,
2022
2021
2020
$ 110,088
$ 131,606
$ 70,395
—
—
12,071
110,088
131,606
82,466
—
—
12,313
6,964
2,150
14,974
129
193
35
3,217
307
7,451
18,296
4,951
112
60
13
653
—
1,266
7,055
11,241
296
13,671
1,637
10
1,902
181
2,567
8,743
3,058
152
33
10
531
13
1,134
4,931
3,812
45
105
1,201
515
2,211
32,722
1,277
205
30
220
971
108
993
3,804
28,918
10,636
(17,706)
65,745
$ 109,483
$ 110,088
$ 131,606
0.11 %
0.04 %
0.32 %
64
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
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
Net charge-offs (recoveries) to average loans
Residential real estate
Net charge-offs (recoveries)
Average loans
Net charge-offs (recoveries) to average loans
Consumer
Net charge-offs (recoveries)
Average loans
Net charge-offs (recoveries) to average loans
For the Years Ended December 31,
2022
2021
2020
$
2,013
$
(908)
$
13,697
3,070,890
2,543,514
2,437,183
0.07 %
(0.04) %
0.56 %
$
17
$
144
$
13,466
2,272,088
1,950,014
1,480,109
— %
0.01 %
0.91 %
$
133
$
1,604
$
15
2,196,922
1,969,910
1,589,932
0.01 %
0.08 %
— %
$
22
$
—
$
(115)
923,316
824,055
1,007,086
— %
— %
(0.01) %
$
2,564
$
1,371
$
230
778,526
681,493
538,646
0.33 %
0.20 %
0.04 %
$
307
$
168
$
407
852,541
846,573
793,821
0.04 %
0.02 %
0.05 %
$
6,185
$
1,433
$
1,218
464,084
407,592
410,013
1.33 %
0.35 %
0.30 %
65
The table below shows our allocation of the allowance for credit losses for loans by types of loans, in thousands:
Commercial and industrial
PPP
Amount
$ 29,071
—
Owner occupied commercial real estate
13,948
Non-owner occupied commercial real estate 16,539
Real estate construction
29,998
Agricultural and agricultural real estate
Residential real estate
Consumer
2,634
7,711
9,582
2022
As of December 31,
2021
Loan
Category to
Gross Loans
Receivable
Amount
Loan
Category to
Gross Loans
Receivable
Amount
2020
Loan
Category to
Gross Loans
Receivable
30.31 % $ 27,738
26.57 % $ 38,818
25.29 %
0.10
19.82
20.40
9.42
8.05
7.47
4.43
—
19,214
17,908
22,538
5,213
8,427
9,050
2.01
22.51
20.20
8.60
7.57
8.33
4.21
—
20,001
20,873
20,080
7,129
11,935
12,770
9.56
17.72
19.17
8.61
7.13
8.39
4.13
Total allowance for credit losses for loans
$ 109,483
100.00 % $ 110,088
100.00 % $ 131,606
100.00 %
Management allocates the allowance for credit losses for loans by pools of risk within each loan portfolio. The total allowance
for credit losses is available to absorb losses from any segment of the loan portfolio.
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, 2022, and December 31, 2021:
Balance at beginning of year
Provision (benefit) for credit losses
Balance at end of year
For the Year Ended December 31,
2022
2021
$
$
15,462 $
4,734
20,196 $
15,280
182
15,462
The allowance for unfunded commitments totaled $20.2 million as of December 31, 2022, compared to $15.5 million as of
December 31, 2021. Unfunded commitments totaled $4.73 billion at December 31, 2022, and $3.83 billion at December 31,
2021.
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 4, "Loans" of HTLF’s consolidated financial statements in this Annual
Report on Form 10-K.
HTLF's nonpass loans totaled $533.3 million or 5% of total loans as of December 31, 2022 compared to $741.3 million or 7%
of total loans as of December 31, 2021. As of December 31, 2022, HTLF's nonpass loans consisted of approximately 48%
watch loans and 52% substandard loans. The percent of nonpass loans on nonaccrual status as of December 31, 2022 was 11%.
Included in HTLF's nonpass loans at December 31, 2022 were $2.7 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, 2021, HTLF's nonpass loans were comprised of approximately 50% watch loans and 50% substandard
loans. The percent of nonpass loans on nonaccrual status as of December 31, 2021, was 9%.
66
Loans delinquent 30 to 89 days as a percent of total loans were 0.04% at December 31, 2022 compared to 0.07% at
December 31, 2021.
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,
2021
2022
2020
$ 58,231
$ 69,369
$ 87,386
273
550
720
58,504
69,919
88,106
8,401
26
1,927
43
6,624
240
$ 66,931
$ 71,889
$ 94,970
$ 8,279
$
817
$ 2,370
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
0.51 %
0.70 %
0.87 %
0.51
0.59
0.33
0.70
0.72
0.37
0.88
0.95
0.53
(1) Represents accruing restructured loans performing according to their restructured terms.
The tables below summarize the changes in HTLF's nonperforming assets, including other real estate owned ("OREO") during
2022 and 2021, in thousands:
Nonperforming
Loans
Other
Real Estate
Owned
Other
Repossessed
Assets
Total
Nonperforming
Assets
$
69,919 $
1,927 $
43 $
December 31, 2021
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
(9,841)
(11,241)
34,249
(24,582)
—
—
9,423
—
—
—
(2,572)
(377)
December 31, 2022
$
58,504 $
8,401 $
(1) Includes principal reductions and transfers to performing status.
Nonperforming
Loans
Other
Real Estate
Owned
Other
Repossessed
Assets
Total
Nonperforming
Assets
$
88,106 $
6,624 $
240 $
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
(3,252)
(3,812)
35,719
(46,842)
—
—
2,807
—
—
—
(7,749)
245
December 31, 2021
$
69,919 $
1,927 $
(1) Includes principal reductions and transfers to performing status.
418
—
—
—
(490)
55
26 $
445
—
—
—
(589)
(53)
43 $
71,889
—
(11,241)
34,249
(24,582)
(3,062)
(322)
66,931
94,970
—
(3,812)
35,719
(46,842)
(8,338)
192
71,889
67
Nonperforming loans were $58.5 million or 0.51% of total loans at December 31, 2022, compared to $69.9 million or 0.70% of
total loans at December 31, 2021.
Approximately 67%, or $39.0 million, of HTLF's nonperforming loans at December 31, 2022, had individual loan balances
exceeding $1.0 million, the largest of which was $6.8 million. At December 31, 2021, approximately 58%, or $40.8 million, of
HTLF's nonperforming loans had individual loan balances exceeding $1.0 million, the largest of which was $7.6 million. The
portion of HTLF's nonresidential real estate nonperforming loans covered by government guarantees was $12.5 million at
December 31, 2022, compared to $14.5 million at December 31, 2021.
Other real estate owned
Other real estate owned was $8.4 million at December 31, 2022, compared to $1.9 million at December 31, 2021. 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 $2.6 million in 2022
compared to $7.7 million in 2021.
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
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 $15.7 million in restructured loans at December 31, 2022, of which $7.4 million were classified
as nonaccrual and $8.3 million were accruing according to the restructured terms. At December 31, 2021, we had an aggregate
balance of $10.4 million in restructured loans, of which $9.5 million were classified as nonaccrual and $817,000 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 35% of HTLF's total assets at December 31,
2022, compared to 40% at December 31, 2021. Whenever possible, management intends to use a portion of the proceeds from
maturities, paydowns and sales of securities to fund loan growth and repay borrowings. Total securities carried at fair value as
of December 31, 2022, were $6.15 billion, a decrease of $1.38 billion or 18% since December 31, 2021. 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.
During the third quarter of 2022, HTLF transferred taxable municipal bonds with an amortized cost basis of $934.5 million and
fair value of $748.3 million from available for sale to held to maturity. On the date of the transfer, accumulated other
comprehensive income (loss) included $186.3 million of net unrealized losses, after tax, attributable to these securities, and the
net unrealized losses will be amortized into interest income over the remaining life of the transferred securities. The bonds were
transferred at fair value at the date of transfer. HTLF has the ability and intent to hold these securities to maturity.
68 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
659,459
Asset-backed securities
Corporate bonds
Equity securities
Other securities
Total securities
As of December 31,
2022
2021
2020
Amount
% of
Portfolio
Amount
% of
Portfolio
Amount
% of
Portfolio
$
31,699
0.45 % $
1,008
0.01 % $
2,026
0.03 %
43,135
1,708,840
1,772,105
2,181,876
85,123
416,054
57,942
20,314
74,567
0.61
24.24
25.13
30.94
1.21
9.35
5.90
0.82
0.29
1.06
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
$ 7,051,114
100.00 % $ 7,697,650
100.00 % $ 6,292,067
100.00 %
HTLF's securities portfolio had an expected modified duration of 6.19 years as of December 31, 2022, compared to 5.26 years
as of December 31, 2021, and 5.52 years as of December 31, 2020.
At December 31, 2022, we had $74.6 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.
The table below presents the contractual maturities for the debt securities classified as available for sale at December 31, 2022,
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 asset-
backed and
equity securities
Total
Amount Yield Amount Yield Amount Yield
Amount
Yield
Amount
Yield
Amount
Yield
U.S. treasuries
U.S. agencies
$ —
— % $ 31,699
3.24 % $ —
— % $
—
— % $
—
—
755
2.66
26,648
1.43
15,732
4.41
—
—
— % $ 31,699
3.24 %
—
43,135
2.52
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
488
2.45
2,951
1.37
11,661
1.86
864,337
2.16
—
—
879,437
2.16
—
—
—
—
—
—
—
—
1,772,105
2.50
1,772,105
2.50
—
—
—
—
—
—
—
—
2,181,876
3.95
2,181,876
3.95
—
—
—
—
—
—
—
—
85,123
1.71
85,123
1.71
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
50,456
6.96
7,486
4.31
—
—
—
—
—
—
—
—
—
—
—
—
659,459
6.48
659,459
6.48
416,054
3.39
416,054
3.39
—
20,314
—
—
57,942
6.59
20,314
—
Total
$
488
2.45 % $ 85,861
5.36 % $ 45,795
2.01 % $ 880,069
2.20 % $ 5,134,931
3.69 % $ 6,147,144
3.48 %
69
The table below presents the contractual maturities for the debt securities classified as held to maturity at December 31, 2022,
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
$ 1,233
3.80 % $ 70,253
4.97 % $ 129,072
4.54 % $ 628,845
4.65 % $ 829,403
4.66 %
Total
$ 1,233
3.80 % $ 70,253
4.97 % $ 129,072
4.54 % $ 628,845
4.65 % $ 829,403
4.66 %
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, 2022. See Note 3, "Securities" of the consolidated financial
statements for further discussion regarding unrealized losses on our securities portfolio.
DEPOSITS
Total deposits were $17.51 billion as of December 31, 2022, compared to $16.42 billion as of December 31, 2021, an increase
of $1.10 billion or 7%. At December 31, 2022, HTLF had wholesale deposits totaling $2.06 billion, of which $1.09 billion was
included in savings deposits and $965.7 million was included in time deposits.
The mix of total deposits remains favorable, with demand deposits representing 33% at December 31, 2022, and 40% at
December 31, 2021. Savings deposits represented 57% at December 31, 2022, and 54% at December 31, 2021.
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,
2022
Percent
of
Deposits
36.01 %
Average
Deposits
$ 6,131,760
9,737,100
57.18
Average
Interest
Rate
Average
Deposits
— % $ 6,230,851
8,311,825
0.48
2021
Percent
of
Deposits
39.74 %
53.01
1,160,538
6.81
0.88
1,137,097
7.25
$ 17,029,398
100.00 %
$ 15,679,773
100.00 %
Demand deposits
Savings
Time deposits
Total deposits
Average
Interest
Rate
Average
Deposits
— % $ 4,554,479
2020
Percent
of
Deposits
36.85 %
0.11
0.50
6,718,413
54.35
1,088,185
$ 12,361,077
8.80
100.00 %
Average
Interest
Rate
— %
0.25
1.26
Total Average Deposits
•
•
•
Total average deposits increased $1.35 billion or 9% during 2022 to $17.03 billion, which included an increase of
$1.01 billion in wholesale deposits.
Excluding wholesale deposits, 38% of our total average deposits were from our Midwestern Bank Markets, 39% were
from our Southwestern Bank Markets, and 23% were from our Western Bank Markets in 2022.
Total average deposits increased $3.32 billion or 27% during 2021 to $15.68 billion.
Average Demand Deposits
•
•
•
Average demand deposits decreased $99.1 million or 2% to $6.13 billion during 2022.
In 2022, 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 $1.68 billion or 37% to $6.23 billion during 2021.
Average Savings Deposits
•
Average savings deposits increased $1.43 billion or 17% to $9.74 billion during 2022, which included an increase of
$847.3 million in average wholesale deposits.
70
•
•
Excluding wholesale deposits, 41% of our savings deposits were from our Midwestern Bank Markets, 37% were from
our Southwestern Bank Markets, and 22% were from our Western Bank Markets in 2022.
Average savings deposits increased $1.59 billion or 24% to $8.31 billion during 2021.
Increases in deposit interest rates in 2022 encouraged customers to move deposit balances from non-interest bearing accounts to
interest bearing accounts.
Average Time Deposits
•
•
•
Average time deposits increased $23.4 million or 2% to $1.16 billion during 2022. Excluding average wholesale
deposits of $163.3 million, average time deposits decreased $139.9 million or 12% during 2022.
Excluding wholesale deposits, 30% of time deposits were from our Midwestern Bank Markets, 51% from our
Southwestern Bank Markets, and 19% were from our Western Bank Markets.
Average time deposits increased $48.9 million or 4% to $1.14 billion during 2021.
Average brokered time deposits as a percentage of total average deposits were less than 1% during 2021.
The following table sets forth the amount and maturities of time deposits of $100,000 or more at December 31, 2022, in
thousands:
3 months or less
Over 3 months through 6 months
Over 6 months through 12 months
Over 12 months
Total
December 31, 2022
$
$
627,597
446,247
231,459
193,676
1,498,979
The following table sets for the amount and maturities of time deposits of $250,000 or more, at December 31, 2022, 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, 2022
$
566,739
402,067
177,834
133,074
$
1,279,714
Short-term borrowings, which HTLF defines as borrowings with an original maturity of one year or less, were as follows as of
December 31, 2022 and 2021, in thousands:
Retail repurchase agreements
Advances from the FHLB
Advances from the federal discount window
Other short-term borrowings
Total
As of December 31,
2022
2021
% Change
2022/2021
$
95,303 $ 122,996
(23) %
50,000
224,000
6,814
—
—
8,601
100
100
(21)
$ 376,117 $ 131,597
186 %
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 the Banks own FHLB stock in one of the Chicago, Dallas, Des
Moines or Topeka FHLBs, enabling them to borrow funds from their respective FHLB for short- or long-term purposes under a
71
variety of programs. As of December 31, 2022, the amount of short-term borrowings was $376.1 million compared to $131.6
million at year-end 2021, an increase of $244.5 million.
All 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 primarily local. The balances of retail repurchase agreements were $95.3 million at
December 31, 2022, compared to $123.0 million at December 31, 2021, a decrease of $27.7 million or 23%.
HTLF renewed its revolving credit line agreement with an unaffiliated bank on June 14, 2022. This revolving credit line
agreement, which has $100.0 million of borrowing capacity, is included in short-term borrowings, and the primary purpose of
this credit line agreement is to provide short-term liquidity to HTLF. HTLF had no advances on this line during 2022 or 2021,
and no balance was outstanding on this line at December 31, 2022, and December 31, 2021.
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, 2022
and 2021:
Advances from the FHLB
Trust preferred securities
Contracts payable for purchase of real estate and other assets
Subordinated notes
Total
As of December 31,
% Change
2022
2021
2022/2021
$
740 $
898
(18) %
148,284
147,316
82
1,593
222,647
222,265
1
(95)
—
$ 371,753 $ 372,072
— %
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, 2022, the amount of other borrowings was $371.8 million, a
decrease of $319,000 or less than 1% since December 31, 2021.
On September 8, 2021, HTLF issued $150.0 million aggregate principal amount of Fixed-to-Floating Rate Subordinated Notes
due 2031 (the "2021 subordinated notes"), which were issued at par with an underwriting discount of $1.9 million. The net
proceeds of the 2021 subordinated notes totaled $147.6 million and 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. 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, $162.9 million of total subordinated notes qualified as Tier 2 capital as of December 31, 2022.
72
A schedule of HTLF's trust preferred offerings outstanding as of December 31, 2022, is as follows, in thousands:
Heartland Financial Statutory Trust IV
$ 10,310 03/17/2004
2.75% over LIBOR
7.49 % 03/17/2034
03/17/2023
Amount
Issued
Issuance
Date
Interest
Rate
Interest Rate
as of 12/31/22
Maturity
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
9,370 12/19/2002
3.25% over LIBOR
9,087 12/17/2003
2.85% over LIBOR
Sheboygan Statutory Trust I
6,790 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
4,558 09/10/2004
3.25% over LIBOR
6,605 12/19/2003
2.80% over LIBOR
4,468 09/30/2004
2.20% over LIBOR
12,424 05/31/2006
1.54% over LIBOR
3,020 06/27/2002
3.65% over LIBOR
5,511 09/23/2004
2.50% over LIBOR
7,319 04/10/2003
3.25% over LIBOR
9,582 07/29/2005
1.60% over LIBOR
148,324
(40)
$ 148,284
5.41
6.25
6.24
7.97
7.59
7.69
8.02
7.22
6.89
6.31
8.48
7.27
7.69
6.35
04/07/2036
04/07/2023
09/15/2037
03/15/2023
09/01/2037
03/01/2023
12/26/2032
03/26/2023
12/17/2033
03/17/2023
09/17/2033
03/17/2023
12/15/2034
03/15/2023
12/19/2033
04/23/2023
09/30/2034
05/23/2023
07/25/2036
03/15/2023
09/30/2032
03/30/2023
12/15/2034
03/15/2023
04/24/2033
04/24/2023
09/30/2035
03/30/2023
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.
December 31, 2022
Minimum capital requirement
Well capitalized requirement
Minimum capital requirement, including fully-phased
in capital conservation buffer
Risk-weighted assets
Average assets
Total
Capital
(to Risk-
Weighted
Assets)
Tier 1
Capital
(to Risk-
Weighted
Assets)
Common Equity
Tier 1
(to Risk-
Weighted
Assets)
Tier 1
Capital
(to Average
Assets)
14.76 %
11.81 %
11.07 %
9.13 %
8.00
10.00
10.50
6.00
8.00
8.50
4.50
6.50
7.00
$ 14,937,128
$ 14,937,128
$
14,937,128
4.00
5.00
N/A
N/A
N/A
N/A
N/A $ 19,322,778
73
December 31, 2021
Minimum capital requirement
Well capitalized requirement
Minimum capital requirement, including fully-phased
in capital conservation buffer
Risk-weighted assets
Average assets
December 31, 2020
Minimum capital requirement
Well capitalized requirement
Minimum capital requirement, including fully-phased
in capital conservation buffer (2019)
Risk-weighted assets
Average assets
Total
Capital
(to Risk-
Weighted
Assets)
Tier 1
Capital
(to Risk-
Weighted
Assets)
Common Equity
Tier 1
(to Risk-
Weighted
Assets)
Tier 1
Capital
(to Average
Assets)
15.90 %
12.39 %
11.53 %
8.57 %
8.00
10.00
10.50
6.00
8.00
8.50
4.50
6.50
7.00
$ 12,829,318
$ 12,829,318
$
12,829,318
4.00
5.00
N/A
N/A
N/A
N/A
N/A $ 18,553,872
14.71 %
11.85 %
10.92 %
9.02 %
8.00
10.00
10.50
6.00
8.00
8.50
4.50
6.50
7.00
$ 11,819,037
$ 11,819,037
$
11,819,037
4.00
5.00
N/A
N/A
N/A
N/A
N/A $ 15,531,884
At December 31, 2022, retained earnings that could be available for the payment of dividends to meet the most restrictive
minimum capital requirements totaled $702.2 million. Retained earnings that could be available for the payment of dividends to
HTLF from its Banks totaled approximately $403.9 million at December 31, 2022, under the capital requirements to remain
well capitalized. These dividends are the principal source of funds to pay dividends on HTLF's common and preferred stock and
to pay interest and principal on its debt.
On June 26, 2020, 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, 2022, HTLF filed a universal shelf registration statement with the SEC to register debt or equity securities. This
shelf registration statement, which was effective immediately, 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. The
registration statement expires on August 8, 2025.
Common stockholders' equity was $1.62 billion at December 31, 2022, compared to $2.07 billion at year-end 2021. Book value
per common share was $38.25 at December 31, 2022, compared to $49.00 at year-end 2021. 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
available for sale, net of applicable taxes, reflected unrealized losses of $619.2 million and $4.4 million at December 31, 2022,
and December 31, 2021, respectively.
74 COMMITMENTS, CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
The following table presents material fixed and determinable contractual obligations as of December 31, 2022, 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 More than One Year
Total
Payments Due In
Demand deposits
Savings deposits
Time deposits
Repurchase agreements
Advances from the FHLB
Advances from the federal discount window
Other borrowings
Total
8
8
8
9
9
9
10
$
5,701,340 $
9,994,391
1,531,996
95,303
50,000
224,000
82
— $ 5,701,340
—
9,994,391
285,282
1,817,278
—
—
—
371,671
95,303
50,000
224,000
371,753
$
17,597,112 $
656,953 $ 18,254,065
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 14, "Commitments," to the consolidated financial statements for additional information on these
commitments. As of December 31, 2022, and December 31, 2021, commitments to extend credit aggregated $4.73 billion and
$3.83 billion, and standby letters of credit aggregated $55.1 million and $51.4 million, respectively.
At December 31, 2022, and December 31, 2021, HTLF's Banks had $682.9 million and $753.3 million, respectively, of standby
letters of credit with the respective FHLB to secure public funds and municipal deposits.
We continue to explore opportunities to expand the size of our banking footprint by opportunistically augmenting organic
growth by focusing on acquisition targets that complement or supplement our current banking strategy. This includes
transactions that increase penetration in existing geographic Bank Markets and expansion into adjacent markets, as well as
acquisitions of fee income businesses that complement and build on our existing businesses or further meet the needs of our
customers. 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 11, "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 deposit balances,
maturity of time deposits and borrowings and its ability to borrow funds in the money or capital markets.
At December 31, 2022, HTLF had $363.1 million of cash and cash equivalents, time deposits in other financial institutions of
$1.7 million and securities carried at fair value of $6.15 billion. Management expects the securities portfolio to produce cash
flows exceeding $1 billion over the next twelve months.
75
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
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, 2022, HTLF had $376.1 million of short-term borrowings outstanding.
As of December 31, 2022, HTLF had $371.8 million of long-term debt outstanding, and it is an important funding source
because of its multi-year borrowing structure. Additionally, the 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, 2022, HTLF had $581.2 million
of borrowing capacity under these programs. Additionally, at December 31, 2022, HTLF had $501.6 million of borrowing
capacity at the Federal Reserve Banks' discount window.
HTLF is focused on loan growth and strives to fund the loan growth with the least expensive source of deposits, sales of
securities or borrowings. Management believes it is unlikely HTLF would be required to sell securities at a loss for such
funding needs. The securities portfolio is expected to produce cash flows exceeding $1 billion over the next twelve months,
which could be used to fund loan growth. Additionally, growing deposits will continue to be a focus. HTLF offers the Insured
Cash Sweep ("ICS") product accessed through the Intrafi network of financial institutions, which helps to reduce the amount of
pledged securities.
On a consolidated basis, HTLF maintains a large balance of short-term securities that, when combined with cash from
operations, 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 Banks
and the issuance of debt and equity securities.
As of December 31, 2022, the parent company had cash of $307.0 million. Additionally, HTLF has a revolving credit
agreement with an unaffiliated bank, which was most recently on June 14, 2022. HTLF's revolving credit agreement has $100.0
million of maximum borrowing capacity, of which none was outstanding at December 31, 2022. This credit agreement contains
specific financial covenants, all of which HTLF complied with as of December 31, 2022.
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 $403.9 million as of December 31, 2022.
HTLF has filed a universal shelf registration statement with the SEC that provides HTLF the ability to raise both debt and
capital, subject to SEC rules and limitations, if HTLF's board of directors decides to do so. This registration statement expires in
August 2025.
Management believes that cash on hand, cash flows from operations and cash availability under existing borrowing programs
and facilities will be sufficient to meeting any recurring and additional operating cash needs in 2023.
76 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.
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 Banks and, on a consolidated basis, by HTLF's executive management
and board of directors. At least quarterly, a detailed review of the balance sheet risk profile is performed for HTLF and each of
its Banks. Included in these reviews are interest rate sensitivity analyses, which simulate changes in net interest income in
response to various interest rate scenarios. These analyses consider current portfolio rates, existing maturities, repricing
opportunities and market interest rates, in addition to prepayments and growth under different interest rate assumptions.
Selected strategies are modeled prior to implementation to determine their effect on HTLF's interest rate risk profile and net
interest income.
The core interest rate risk analysis utilized 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. 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, 2022, and 2021, provided the results below, in thousands.
2022
2021
Net Interest
Margin
% Change
From Base
Net Interest
Margin
% Change
From Base
Year 1
Down 100 Basis Points
$
Base
Up 200 Basis Points
Year 2
Down 100 Basis Points
Base
Up 200 Basis Points
660,369
665,837
668,093
680,644
706,450
720,307
(0.82) % $
0.34 %
2.22 %
6.10 %
8.18 %
506,362
519,573
549,027
466,779
503,949
565,414
(2.54) %
5.67 %
(10.16) %
(3.01) %
8.82 %
77
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 11 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.
78 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 $6,788,729 at December 31, 2022, and cost of $7,536,338 at December 31, 2021)
Held to maturity, net of allowance for credit losses of $0 at both December 31, 2022, and December 31, 2021
(fair value of $776,557 at December 31, 2022, and $94,139 at December 31, 2021)
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,
2022, and December 31, 2021)
Series A Junior Participating preferred stock (par value $1 per share; authorized 16,000 shares; none issued or
outstanding at both December 31, 2022, and December 31, 2021)
Series B Fixed-Rate Reset Cumulative Perpetual Preferred Stock (par value $1 per share; 81,698 shares
authorized at both December 31, 2022, and December 31, 2021, none issued or outstanding at both December 31,
2022, and December 31, 2021)
Series C Senior Non-Cumulative Perpetual Preferred Stock (par value $1 per share; 81,698 shares authorized at
both December 31, 2022, and December 31, 2021, none issued or outstanding at both December 31, 2022, and
December 31, 2021)
Series D Senior Non-Cumulative Perpetual Convertible Preferred Stock (par value $1 per share; 3,000 shares
authorized at both December 31, 2022, and December 31, 2021; none issued or outstanding at December 31,
2022, and December 31, 2021)
Series E Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock (par value $1 per share; 11,500 shares
authorized at both December 31, 2022, and December 31, 2021; 11,500 shares issued and outstanding at both
December 31, 2022, and December 31, 2021)
Common stock (par value $1 per share; 60,000,000 shares authorized at both December 31, 2022 and December
31, 2021; issued 42,467,394 shares at December 31, 2022, and 42,275,264 shares at December 31, 2021)
Capital surplus
Retained earnings
Accumulated other comprehensive loss
TOTAL STOCKHOLDERS' EQUITY
TOTAL LIABILITIES AND EQUITY
See accompanying notes to consolidated financial statements.
Notes
2
$
3
3
3
4
4, 5
6
7
7
7
8
9
10
15, 16, 17
As of December 31,
2021
2022
309,045 $
54,042
363,087
1,740
163,895
271,704
435,599
2,894
6,147,144
7,530,374
829,403
74,567
5,277
84,709
82,567
21,640
11,428,352
(109,483)
11,318,869
190,479
6,851
8,401
576,005
25,154
7,840
193,403
496,008
9,954,572
(110,088)
9,844,484
204,999
10,828
1,927
576,005
32,988
6,890
191,722
246,923
$ 20,244,228 $ 19,274,549
$ 5,701,340 $ 6,495,326
8,897,909
1,024,020
16,417,255
131,597
372,072
171,447
17,092,371
9,994,391
1,817,278
17,513,009
376,117
371,753
248,294
18,509,173
—
—
—
—
—
—
—
—
—
—
110,705
110,705
42,467
1,080,964
1,120,925
(620,006)
1,735,055
42,275
1,071,956
962,994
(5,752)
2,182,178
$ 20,244,228 $ 19,274,549
79
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 $246, $1,601, and $(1,820) of interest expense (benefit)
related to derivatives reclassified from accumulated other comprehensive income (loss) for the
years ended December 31, 2022, 2021, and 2020, 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 (losses) gains, net (includes $(1,892), $5,910, and $7,592 of net security gains (losses)
reclassified from accumulated other comprehensive income (loss) for the years ended December
31, 2022, 2021, and 2020, respectively)
Unrealized (loss) 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
For the Years Ended December 31,
2021
2020
2022
Notes
4
$ 477,970 $ 444,137 $ 424,941
169,544
24,006
11
3,125
674,656
125,010
19,268
1
344
588,760
98,263
12,484
—
924
536,612
8
56,880
2,717
14,797
471
30,287
610
10, 11
4, 5
16,823
76,420
598,236
15,370
582,866
12,932
28,200
560,560
(17,575)
578,135
13,986
44,883
491,729
67,066
424,663
20
7
20
20
3
3
7
13, 15
22
6
7
68,031
2,741
22,570
2,986
59,703
3,276
24,417
3,546
47,467
2,977
20,862
2,756
(425)
(622)
9,032
1,658
2,341
19,952
128,264
5,910
58
20,605
1,088
3,762
6,570
128,935
7,793
640
28,515
(1,778)
3,554
7,505
120,291
254,478
28,155
12,499
65,606
6,221
7,834
950
(1,047)
7,586
5,040
56,055
443,377
267,753
240,114
29,965
13,323
64,600
7,257
9,395
990
588
5,331
6,303
53,946
431,812
275,258
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
Income taxes (includes $(355), $1,896, and $2,376 of income tax expense (benefit) reclassified
from accumulated other comprehensive income (loss) for the years ended December 31, 2022,
2021, and 2020, 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
12
1
1
See accompanying notes to consolidated financial statements.
55,335
219,923
(8,050)
55,573
212,180
(8,050)
36,053
137,938
(4,451)
$ 204,130 $ 211,873 $ 133,487
3.58
$
3.57
$
0.80
$
5.01 $
5.00 $
0.96 $
4.80 $
4.79 $
1.09 $
80
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
NET INCOME
OTHER COMPREHENSIVE INCOME (LOSS)
Change in available for sale securities:
For the Years Ended December 31,
2021
$ 212,180 $ 219,923 $ 137,938
2022
2020
Net change in unrealized gain (loss) on securities
Reclassification adjustment for net (gains) losses realized in net income
Income taxes
Other comprehensive income (loss) on available for sale securities
(637,513)
1,892
158,049
(477,572)
(103,807) 109,972
(7,592)
(26,578)
75,802
(5,910)
28,573
(81,144)
Change in securities held to maturity
Adjustment for securities transferred from available for sale
Net amortization of unrealized losses on securities transferred from available for sale
Income taxes
Other comprehensive loss on held to maturity securities
Change in cash flow hedges
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 (LOSS)
See accompanying notes to consolidated financial statements.
(186,286)
3,842
45,174
(137,270)
—
—
—
—
—
—
—
—
500
5,037
(904)
246
(158)
588
(1,820)
567
(2,157)
(614,254)
73,645
$ (402,074) $ 141,452 $ 211,583
(1,601)
(763)
2,673
(78,471)
81
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Dollars in thousands, except per share data)
Balance at January 1, 2020
$
— $
36,704 $ 839,857 $ 702,502 $
(926) $ 1,578,137
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 2016-13
on January 1, 2020
Adjusted balance on January 1, 2020
Comprehensive income (loss)
Cash dividends declared:
Series C Preferred, 2.50 per share
Preferred $386.94 per share
Common, $0.80 per share
—
36,704
839,857
Issuance of 11,500 shares of Series E preferred stock
110,705
(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
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
$ 110,705 $
42,275 $ 1,071,956 $ 962,994 $
(5,752) $ 2,182,178
212,180
(614,254)
(402,074)
(8,050)
(46,199)
192
846
8,162
(8,050)
(46,199)
1,038
8,162
$ 110,705 $
42,467 $ 1,080,964 $ 1,120,925 $
(620,006) $ 1,735,055
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:
Series C Preferred, 2.50 per share
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
Balance at January 1, 2022
Comprehensive income (loss)
Cash dividends declared:
Preferred, $700.00 per share
Common, $1.09 per share
Issuance of 192,130 shares of common stock
Stock based compensation
Balance at December 31, 2022
See accompanying notes to consolidated financial statements.
82
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED 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:
Depreciation and amortization
Provision (benefit) for credit losses
Net amortization of premium on securities
Provision for deferred taxes
Securities losses (gains), net
Unrealized loss (gain) on equity securities, net
Stock based compensation
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 in accrued interest receivable
Increase in prepaid expenses
Increase (decrease) in accrued interest payable
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
For the Years Ended December 31,
2022
2021
2020
$
212,180 $
219,923 $
137,938
24,479
15,370
59,454
(3,887)
425
622
8,162
1,998
26,894
(17,575)
52,145
11,543
(5,910)
(58)
8,743
2,222
27,289
67,066
16,042
(10,910)
(7,793)
(640)
7,410
5,101
(284,324)
(466,071)
(621,507)
308,294
521,463
615,439
(7,607)
(19,083)
(25,133)
(17,530)
(1,580)
3,737
(1,425)
(1,658)
131
71,167
388,008
(1,590)
(1,102)
(497)
(1,522)
(1,088)
312
(2,712)
(9,971)
(3,504)
(2,915)
(3,484)
1,778
(93)
(1,745)
326,037
190,368
—
(10)
—
1,048,525
1,475,598
1,097,378
2,337
22,359
—
4,858
1,056
8,506
Proceeds from the maturity of and principal paydowns on securities available for sale
903,514
1,059,292
567,884
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
Capital expenditures and investments
Net cash and cash equivalents received in acquisitions
Net cash expended in divestitures
Proceeds from sale of premises, furniture and equipment
Proceeds on sale of OREO and other repossessed assets
NET CASH USED BY INVESTING ACTIVITIES
6,082
1,154
5,659
245
3,458
585
(2,226,881)
(4,094,661)
(4,119,814)
(12,992)
(12,172)
(49,228)
(1,506,338)
50,437
(444,146)
(283)
966
(288)
—
(292)
606
(14,804)
(17,203)
(18,542)
—
—
641,315
(50,616)
(15,682)
10,872
3,062
10,489
8,338
—
5,895
3,913
(1,813,043)
(1,525,100)
(2,301,426)
83
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Dollars in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits
Net increase in savings accounts
Net increase (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
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
$
$
For the Years Ended December 31,
2022
2021
2020
(206,366)
566,033
799,938
194,520
286,000
813,600
893,569
1,367,903
735,968
(242,321)
(254,540)
(36,275)
141,700
40,137
516,545
(236,000)
(141,700)
(597,742)
—
147,614
314,397
(228)
(233,794)
(134,244)
—
2,875
—
2,925
110,705
3,004
(54,249)
(48,559)
(31,906)
1,352,523
1,296,759
2,070,227
(72,512)
435,599
97,696
337,903
363,087 $
435,599 $
(40,831)
378,734
337,903
37,782 $
49,914 $
72,683
9,423
28,703
2,807
Transfer of premises from premises, furniture and equipment held for sale to premises,
furniture and equipment, net
—
396
Transfer of premises from premises, furniture and equipment, net to premises,
furniture and equipment held for sale
Securities transferred from available for sale to held to maturity
Dividends declared, not paid
Stock consideration granted for acquisitions
See accompanying notes to consolidated financial statements.
5,188
934,538
2,013
—
12,662
—
2,013
—
33,402
47,798
3,511
855
8,134
462
2,013
217,202
84
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 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: HTLF
Bank; Dubuque Bank and Trust Company; Wisconsin Bank & Trust; New Mexico Bank & Trust; Rocky Mountain Bank; Bank
of Blue Valley; 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 HTLF’s
subsidiaries are wholly-owned as of December 31, 2022.
The following charters were consolidated into HTLF Bank in 2022 and now operate as divisions of HTLF Bank:
•
•
•
Illinois Bank & Trust
Arizona Bank & Trust
Citywide Banks
• Minnesota Bank & Trust
•
Premier Valley Bank
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, 2022 and 2021.
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.
85 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
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, 2022, and December 31, 2021.
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 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, 2022, and December 31, 2021.
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 both December 31,
2022, and December 31, 2021.
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.
86 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.
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 purchased with credit deterioration ("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
87 against the allowance when management believes the loan balance is deemed to be uncollectible. Provisions for credit losses for
loans and recoveries on loans 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
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 14 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 has
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 completion and 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 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:
•
•
•
changes in lending policies and procedures
changes in the nature of loans
experience and ability of management
88 •
•
•
changes in the credit quality of the loan portfolio
risk in acquired portfolios
concentrations of credit
The qualitative factors for changes in lending policies and procedures, management and acquired portfolios are weighted as one
factor. The other qualitative factors noted above are equally weighted as individual 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
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, and considers
other Moody's forecast scenarios to support the economic forecast component of the allowance for credit losses. The economic
forecast reverts to the historical mean immediately at the end of the reasonable and supportable forecast period. HTLF utilized a
one-year reasonable and supportable forecast period for the calculation of the December 31, 2022, and December 31, 2021,
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.
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 were 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 day of the Declaration of National Emergency. HTLF adopted the CARES Act rule for TDR classification and 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. The provisions of the CARES
Act expired on January 1, 2022, and any new troubled debt restructured loan modifications are evaluated in accordance with
generally accepted accounting principles.
89 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, 2022 and 2021, 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 $725.9 million and
$723.3 million, at December 31, 2022 and 2021, 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 gain (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 gain (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
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.
90 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 were 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, 2022, no valuation allowance was required on HTLF's
mortgage servicing rights with an original term of 15 years, and no valuation allowance was required on HTLF's mortgage
servicing rights with an original term of 30 years. At 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.
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.
HTLF has cash flow hedges at December 31, 2022. 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.
HTLF has fair value hedging relationships at December 31, 2022. 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.
91 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 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.
Segment Reporting - Operating segments are defined as components of an enterprise for which separate financial information
is evaluated regularly by the chief operating decision maker ("CODM"), which is the Chief Executive Officer of HTLF, in
deciding how to allocate resources and assess the financial and operating performance of HTLF. HTLF’s operating segments
provide, and primarily derive revenue, through full service commercial and consumer banking. HTLF has determined that the
economic characteristics, operating models, performance metrics, suite of products and services, customer base, and regulatory
requirements are similar for its operating segments and has therefore aggregated them into one reportable segment.
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, 2022 and December 31, 2021.
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.
92 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, 2022, 2021 and 2020, 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
2022
2021
2020
$ 212,180 $ 219,923 $ 137,938
(8,050)
(8,050)
(4,451)
$ 204,130 $ 211,873 $ 133,487
42,496
42,260
37,269
Assumed incremental common shares issued upon vesting of restricted stock units
135
151
88
Weighted average common shares for diluted earnings per share
42,631
42,411
37,357
Earnings per common share — basic
Earnings per common share — diluted
$
$
4.80 $
5.01 $
4.79 $
5.00 $
Number of antidilutive stock units excluded from diluted earnings per share computation
Number of antidilutive stock options excluded from diluted earnings per share computation
5
5
1
—
3.58
3.57
—
—
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 responsible for the planning, assessment and execution of the transition from LIBOR to SOFR. HTLF ceased using
LIBOR as a reference rate for new contracts effective December 31, 2021. Currently, HTLF has identified borrowings,
adjustable-rate loans, and derivative instruments which reference LIBOR-based tenors maturing beyond the LIBOR
replacement date.
ASU 2020-04
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform," which provides optional expedients and exceptions
for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated
transition away from LIBOR toward new interest rate benchmarks. For loan and lease agreements that are modified because of
reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by
prospectively adjusting the effective interest rate, and the modifications would be considered "minor" with the result that any
existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease
agreements should be accounted for as a continuation of the existing agreement, with no reassessments of the lease
classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not
accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for derivative accounting. ASU
2020-04 is effective March 12, 2020, through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract
modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to
March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry
Subtopic within the ASC, ASU 2020-04 must be applied prospectively for all eligible contract modifications for that Topic or
93
Industry Subtopic. ASU 2020-04 simplified any modifications executed between the selected start date and December 31, 2022
that were 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.
ASU 2022-02
In March 2022, the FASB issued ASU 2022-02, "Financial Instruments-Credit Losses (Topic 326): Troubled Debt
Restructurings and Vintage Disclosures." These amendments eliminate the troubled debt restructurings ("TDR") recognition
and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan
modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also
enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made
to borrowers experiencing financial difficulty. Additionally, these amendments require that an entity disclose current-period
gross charge-offs by year of origination for loans receivable within the scope of Subtopic 326-20. The guidance is effective for
entities that have adopted ASU 2016-13 for fiscal years beginning after December 15, 2022, including interim periods within
those fiscal years. These amendments should be applied prospectively. If an entity elects to early adopt ASU 2022-02 in an
interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. An entity
may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments
related to vintage disclosures. HTLF adopted this ASU on January 1, 2023, as required, and the adoption did not have a
material impact on its results of operations, financial position or liquidity.
TWO
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, 2022, and December 31, 2021.
94 THREE
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, 2022, and December 31, 2021, are summarized in the table
below, in thousands:
December 31, 2022
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
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
$
32,369 $
8 $
(678) $
31,699
49,437
1,049,578
2,042,092
2,327,308
100,518
679,511
428,397
59,205
—
14
56
(6,302)
43,135
(170,155)
879,437
(270,043) 1,772,105
1,417
(146,849) 2,181,876
—
—
—
—
(15,395)
85,123
(20,052)
659,459
(12,343)
416,054
(1,263)
57,942
6,768,415
1,495
(643,080) 6,126,830
Equity securities with a readily determinable fair value
20,314
—
—
20,314
Total
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
Total
$ 6,788,729 $
1,495 $ (643,080) $ 6,147,144
$
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)
123,912
(363)
600,888
(1,317)
409,653
—
3,040
7,515,550
78,269
(84,233) 7,509,586
20,788
$ 7,536,338 $
—
78,269 $
—
20,788
(84,233) $ 7,530,374
The amortized cost, gross unrealized gains and losses and estimated fair values of held to maturity securities as of
December 31, 2022, and December 31, 2021, are summarized in the table below, in thousands:
December 31, 2022
Obligations of states and political subdivisions
Total
December 31, 2021
Obligations of states and political subdivisions
Total
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Allowance
for Credit
Losses
$ 829,403 $
$ 829,403 $
3,096 $
3,096 $
(55,942) $ 776,557 $
(55,942) $ 776,557 $
$
$
84,709 $
84,709 $
9,430 $
9,430 $
— $
— $
94,139 $
94,139 $
—
—
—
—
95
During the third quarter of 2022, HTLF transferred taxable municipal bonds with an amortized cost basis of $934.5 million and
fair value of $748.3 million from available for sale to held to maturity. On the date of the transfer, accumulated other
comprehensive income (loss) included $186.3 million of net unrealized losses, after tax, attributable to these securities, and the
net unrealized losses will be amortized into interest income over the remaining life of the transferred securities. The bonds were
transferred at fair value at the date of transfer.
As of December 31, 2022, HTLF had $33.0 million compared to $29.4 million at December 31, 2021, 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, 2022, 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, 2022
Amortized Cost
Estimated Fair Value
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
$
490 $
87,069
53,649
1,049,381
1,190,589
5,577,826
20,314
Total investment securities
$
6,788,729 $
488
85,861
45,795
880,069
1,012,213
5,114,617
20,314
6,147,144
The amortized cost and estimated fair value of debt securities held to maturity at December 31, 2022, 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.
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
December 31, 2022
Amortized Cost
Estimated Fair Value
$
$
1,233 $
70,253
129,072
628,845
829,403 $
1,236
69,799
126,177
579,345
776,557
As of December 31, 2022, securities with a carrying value of $1.49 billion compared to $1.66 billion at December 31, 2021,
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, 2022, 2021
and 2020 are summarized as follows, in thousands:
Proceeds from sales
Gross security gains
Gross security losses
For the Years Ended December 31,
2020
2021
2022
$ 1,048,525 $ 1,475,598 $ 1,097,378
13,208
5,616
11,892
5,982
7,299
9,191
96
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, 2022, and December 31, 2021. 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, 2022, and December 31, 2021, respectively. For securities transferred to held to maturity during the third
quarter of 2022, the reference point was the date of transfer.
Debt securities available for
sale
December 31, 2022
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 temporarily impaired
securities
December 31, 2021
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
Total temporarily impaired
securities
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Losses
Count
Fair
Value
Unrealized
Losses
Count
Fair
Value
Unrealized
Losses
Count
28,699 $
(678)
4 $
— $
—
— $
28,699 $
(678)
16,487 $
(222)
5 $
26,648 $
(6,080)
2 $
43,135 $
(6,302)
4
7
288,457
(28,378)
69
589,641
(141,777) 113
878,098
(170,155) 182
241,288
(21,420)
99
1,528,951
(248,623) 126
1,770,239
(270,043) 225
950,054
(70,213)
25
693,531
(76,636)
25
1,643,585
(146,849)
50
27,732
(2,291)
12
57,392
(13,104)
530,541
118,613
57,544
(16,830)
15
(6,107)
(1,257)
7
7
84,619
56,621
398
(3,222)
(6,236)
(6)
7
4
6
1
85,124
(15,395)
19
615,160
175,234
57,942
(20,052)
(12,343)
(1,263)
19
13
8
$ 2,259,415 $ (147,396) 243 $ 3,037,801 $ (495,684) 284 $ 5,297,216 $ (643,080) 527
$ 100,839 $
(812)
2 $
— $
—
— $ 100,839 $
(812)
2
596,866
(10,115) 113
236,329
(6,501)
49
833,195
(16,616) 162
1,383,808
(33,291)
83
474,724
(17,891)
19
1,858,532
(51,182) 102
929,515
(10,870)
27
23,821
(159)
26,999
(689)
74,450
113,945
(145)
(1,201)
8
3
6
53,025
(2,225)
14,124
13,799
(218)
(116)
5
5
2
6
953,336
(11,029)
32
80,024
(2,914)
13
88,574
127,744
(363)
(1,317)
5
12
$ 3,226,422 $
(57,123) 242 $ 815,822 $
(27,110)
86 $ 4,042,244 $
(84,233) 328
Securities held to maturity
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Losses
Count
Fair
Value
Unrealized
Losses
Count
Fair
Value
Unrealized
Losses
Count
December 31, 2022
Obligations of states and
political subdivisions
Total temporarily impaired
securities
$ 697,424 $
(55,942) 155 $
— $
—
— $ 697,424 $
(55,942) 155
$ 697,424 $
(55,942)
155 $
— $
—
$ 697,424 $
(55,942) 155
HTLF had no securities held to maturity with unrealized losses at December 31, 2021.
HTLF reviews the investment securities portfolio at the security level on a quarterly basis for potential credit losses, which
takes into consideration numerous factors, and the relative significance of any single factor can vary by security. Some factors
97
HTLF may consider include changes in security ratings, financial condition of the issuer, as well as security and industry
specific economic conditions. In addition, with regard to debt securities, HTLF may also evaluate payment structure, whether
there are defaulted payments or expected defaults, prepayment speeds and the value of any underlying collateral. For certain
debt securities in unrealized loss positions, HTLF prepares cash flow analyses to compare the present value of cash flows
expected to be collected from the security with the amortized cost basis of the security.
The unrealized losses on HTLF's 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, 2022 and December 31, 2021.
The unrealized losses on HTLF's obligations of states and political subdivisions are the result of changes in market interest rates
or widening of market spreads subsequent to the initial purchase of the securities. Management monitors the published credit
ratings of these securities and the stability of the underlying municipalities. Because the decline in fair value is attributable to
changes in interest rates or widening market spreads due to insurance company downgrades and not underlying credit quality,
and because HTLF has the intent and ability to hold these investments until a market price recovery or to maturity and does not
believe it will be required to sell the securities before maturity, no credit losses were recognized on these securities during the
years ended December 31, 2022 and December 31, 2021.
In the first quarter of 2022, HTLF sold two obligations of states and political subdivisions securities from the held to maturity
portfolio. Because the evaluation of the underlying credit quality of the individual securities indicated significant deterioration,
it was unlikely HTLF would recover the remaining basis of the securities prior to maturity and therefore inconsistent with
HTLF's original intent upon purchase and classification of these held to maturity securities. The carrying value of these
securities was $2.2 million, and the associated gross gains were $100,000.
The following table summarizes, in thousands, the carrying amount of HTLF's held to maturity debt securities by investment
rating as of December 31, 2022 and December 31, 2021, 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, 2022
December 31, 2021
$
$
79,598 $
588,354
136,624
20,623
4,204
829,403 $
3,265
61,471
15,034
4,939
—
84,709
Included in other securities were shares of stock in each Federal Home Loan Bank (the "FHLB") of Des Moines, Chicago,
Dallas and Topeka at an amortized cost of $12.3 million at December 31, 2022 and $22.6 million at December 31, 2021.
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, 2022, did not consider the investments to be other than temporarily impaired.
98
FOUR
LOANS
Loans as of December 31, 2022, and December 31, 2021, 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, 2022
December 31, 2021
$
$
3,464,414 $
11,025
2,265,307
2,330,940
1,076,082
920,510
853,361
506,713
11,428,352
(109,483)
11,318,869 $
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
As of December 31, 2022, HTLF had $49.1 million compared to $35.3 million as of December 31, 2021, 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, 2022, and December 31, 2021, and
the related loan balances, disaggregated on the basis of measurement methodology, in thousands. If a loan no longer shares
similar risk characteristics with other loans in the pool, it is evaluated on an individual basis and is not included in the collective
evaluation. Lending relationships with $500,000 or more of total exposure and are on nonaccrual are individually assessed
using a collateral dependency calculation. All other loans are collectively evaluated for losses.
Allowance For Credit Losses
Gross Loans Receivable Held to Maturity
Individually
Evaluated
for Credit
Losses
Collectively
Evaluated
for Credit
Losses
Total
Loans
Individually
Evaluated for
Credit Losses
Loans
Collectively
Evaluated for
Credit Losses
Total
December 31, 2022
Commercial and industrial
$
6,670 $
22,401 $
29,071 $
18,712 $
3,445,702 $ 3,464,414
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
—
376
—
—
63
—
—
—
13,572
16,539
29,998
2,571
7,711
9,582
—
13,948
16,539
29,998
2,634
7,711
9,582
—
7,932
11,371
1,518
3,851
1,607
—
11,025
11,025
2,257,375
2,265,307
2,319,569
2,330,940
1,074,564
1,076,082
916,659
851,754
506,713
920,510
853,361
506,713
$
7,109 $
102,374 $ 109,483 $
44,991 $ 11,383,361 $ 11,428,352
99
Allowance For Credit Losses
Gross Loans Receivable Held to Maturity
Individually
Evaluated
for Credit
Losses
Collectively
Evaluated
for Credit
Losses
Total
Loans
Individually
Evaluated for
Credit Losses
Loans
Collectively
Evaluated for
Credit Losses
Total
December 31, 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
—
199,883
199,883
8,552
12,557
—
13,773
855
—
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
HTLF had $15.7 million of troubled debt restructured loans at December 31, 2022, of which $7.4 million were classified as
nonaccrual and $8.3 million were accruing according to the restructured terms. HTLF had $10.4 million of troubled debt
restructured loans at December 31, 2021, of which $9.5 million were classified as nonaccrual and $817,000 were accruing
according to the restructured terms.
The following table provides information on troubled debt restructured loans that were modified during the years ended
December 31, 2022, and December 31, 2021, in thousands. The provisions of the CARES Act, which modified troubled debt
restructured loan classification, expired on January 1, 2022, and any new troubled debt restructured loan modifications are
evaluated in accordance with generally accepted accounting principles.
For the Years Ended
December 31, 2022
December 31, 2021
Pre-
Modification
Recorded
Investment
Post-
Modification
Recorded
Investment
Number
of Loans
Pre-
Modification
Recorded
Investment
Post-
Modification
Recorded
Investment
Number
of Loans
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
—
1
—
—
1
—
—
—
5,058
—
—
—
—
5,058
—
—
1,400
1,400
—
—
—
—
—
—
2
—
—
—
—
—
—
—
—
—
7,580
7,580
—
—
—
—
—
—
—
—
2 $
6,458 $
6,458
2 $
7,580 $
7,580
The pre-modification and post-modification recorded investment represents amounts as of the date of loan modification. At
December 31, 2022, there were no commitments to extend credit to any of the borrowers with an existing TDR.
There were no troubled debt restructured loans for which there was a payment default during the years ended December 31,
2022, and December 31, 2021, that had been modified during the 12-month period prior to the default.
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.
100
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 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, 2022, and December 31, 2021, HTLF had no loans classified as
doubtful and no loans classified as loss.
The following tables show the risk category of loans by loan category and year of origination as of December 31, 2022 and
December 31, 2021, in thousands:
As of December 31, 2022
Amortized Cost Basis of Term Loans by Year of Origination
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
Total
Commercial and industrial
Pass
Watch
Substandard
$ 967,103 $ 442,001 $ 260,021 $
101,998 $
57,776 $
421,312 $ 1,064,333 $ 3,314,544
12,638
6,691
1,370
14,366
685
9,369
5,487
22,171
2,882
5,546
3,315
6,758
21,984
36,608
48,361
101,509
Commercial and industrial total
$ 986,432 $ 457,737 $ 270,075 $
129,656 $
66,204 $
431,385 $ 1,122,925 $ 3,464,414
PPP
Pass
Watch
Substandard
PPP total
Owner occupied commercial real
estate
$
$
— $
7,807 $
526 $
— $
— $
— $
— $
8,333
—
—
7
2,685
—
—
—
—
—
—
—
—
—
—
7
2,685
— $
10,499 $
526 $
— $
— $
— $
— $
11,025
Pass
Watch
Substandard
$ 511,547 $ 781,946 $ 255,476 $
266,228 $
103,943 $
179,503 $
34,117 $ 2,132,760
22,079
2,971
3,410
23,802
12,346
26,490
8,520
6,358
3,645
2,574
11,899
7,353
—
1,100
61,899
70,648
Owner occupied commercial real
estate total
Non-owner occupied commercial
real estate
$ 536,597 $ 809,158 $ 294,312 $
281,106 $
110,162 $
198,755 $
35,217 $ 2,265,307
Pass
Watch
Substandard
$ 756,059 $ 515,075 $ 227,383 $
261,964 $
127,400 $
210,289 $
70,398 $ 2,168,568
8,131
202
792
6,784
2,849
1,838
38,218
16,019
38,510
22,332
16,180
9,970
547
—
105,227
57,145
Non-owner occupied commercial
real estate total
Real estate construction
$ 764,392 $ 522,651 $ 232,070 $
316,201 $
188,242 $
236,439 $
70,945 $ 2,330,940
Pass
Watch
Substandard
$ 597,370 $ 328,391 $
88,660 $
21,221 $
2,568 $
6,274 $
8,252 $ 1,052,736
665
2,587
16,218
356
1,257
173
—
446
—
1,478
122
44
—
—
18,262
5,084
Real estate construction total
$ 600,622 $ 344,965 $
90,090 $
21,667 $
4,046 $
6,440 $
8,252 $ 1,076,082
101
As of December 31, 2022
Amortized Cost Basis of Term Loans by Year of Origination
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
Total
Agricultural and agricultural real
estate
Pass
Watch
Substandard
$ 324,791 $ 140,252 $
79,307 $
34,447 $
22,600 $
38,672 $
239,686 $
879,755
3,795
8,674
515
3,224
3,865
204
641
1,859
444
12,323
672
2,682
902
955
10,834
29,921
Agricultural and agricultural real
estate total
Residential real estate
$ 337,260 $ 143,991 $
83,376 $
36,947 $
35,367 $
42,026 $
241,543 $
920,510
Pass
Watch
Substandard
$ 189,133 $ 268,561 $
64,627 $
39,468 $
34,863 $
217,489 $
23,331 $
837,472
706
28
1,095
1,273
88
1,024
957
99
2,296
792
2,237
4,895
399
—
7,778
8,111
Residential real estate total
$ 189,867 $ 270,929 $
65,739 $
40,524 $
37,951 $
224,621 $
23,730 $
853,361
Consumer
Pass
Watch
Substandard
Consumer total
Total pass
Total watch
Total substandard
Total loans
$
80,592 $
47,787 $
11,722 $
6,022 $
4,840 $
24,655 $
325,247 $
500,865
20
188
191
331
35
242
119
303
74
75
1,584
1,539
953
194
2,976
2,872
$
80,800 $
48,309 $
11,999 $
6,444 $
4,989 $
27,778 $
326,394 $
506,713
$ 3,426,595 $ 2,531,820 $ 987,722 $
731,348 $
353,990 $ 1,098,194 $ 1,765,364 $ 10,895,033
48,034
21,341
23,598
52,821
21,125
39,340
53,942
47,255
47,851
45,120
36,009
33,241
24,785
38,857
255,344
277,975
$ 3,495,970 $ 2,608,239 $ 1,048,187 $
832,545 $
446,961 $ 1,167,444 $ 1,829,006 $ 11,428,352
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
Pass
Watch
Substandard
Owner occupied commercial real
estate total
Non-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
$ 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
$ 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
$ 630,444 $ 282,814 $ 373,109 $ 269,649 $ 170,947 $ 254,459 $
29,169 $ 2,010,591
102
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
Real estate construction
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
Included in HTLF's nonpass loans at December 31, 2022 were $2.7 million compared to $27.8 million at December 31, 2021,
of nonpass PPP loans as a result of risk ratings on non-PPP related credits. HTLF's risk rating methodology assigns a risk rating
to the whole lending relationship. HTLF has no allowance recorded related to the PPP loans because of the 100% SBA
guarantee.
As of December 31, 2022, HTLF had $1.7 million of loans secured by residential real estate property that were in the process of
foreclosure.
The following table sets forth information regarding HTLF's accruing and nonaccrual loans at December 31, 2022, and
December 31, 2021, 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, 2022
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
$ 1,099 $
356 $
131 $ 1,586 $ 3,440,062 $
22,766 $ 3,464,414
—
12
—
16
48
1,206
1,526
—
127
—
28
—
152
196
—
—
—
—
142
—
—
—
11,006
19
11,025
139
2,256,365
8,803
2,265,307
—
44
2,319,282
1,073,687
11,658
2,330,940
2,351
1,076,082
190
1,358
1,722
914,088
846,739
503,853
6,232
5,264
1,138
920,510
853,361
506,713
Total loans receivable held to maturity
$ 3,907 $
859 $
273 $ 5,039 $ 11,365,082 $
58,231 $ 11,428,352
103
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
Loans delinquent 30 to 89 days as a percent of total loans were 0.04% at December 31, 2022, compared to 0.07% at
December 31, 2021. 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, 2022 and December 31,
2021. As of December 31, 2022, HTLF had $26.7 million compared to $25.5 million at December 31, 2021, of nonaccrual
loans with no related allowance.
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, 2022 and
2021, were as follows, in thousands. Due to changes in the organizational structure of the Banks' boards of directors related to
charter consolidation, balances related to former directors and officers were removed and shown as "other" in the table below.
Balance at beginning of year
Advances
Repayments
Other
Balance at end of year
FIVE
ALLOWANCE FOR CREDIT LOSSES
2022
193,877 $
1,382
—
(190,622)
4,637 $
2021
215,449
69,204
(90,776)
—
193,877
$
$
Changes in the allowance for credit losses for loans for the years ended December 31, 2022, 2021, and 2020 were as follows, in
thousands:
2022
2021
2020
Balance at beginning of year
$
110,088 $
131,606 $
Impact of the adoption of ASU 2016-13 on January 1, 2020
Adjusted beginning balance
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
—
—
110,088
131,606
—
—
10,636
(17,706)
70,395
12,071
82,466
12,313
65,745
7,055
(18,296)
109,483 $
4,931
(8,743)
110,088 $
3,804
(32,722)
131,606
$
104
Changes in the allowance for credit losses for loans by loan category for the years ended December 31, 2022, and December 31,
2021, were as follows, in thousands:
Balance at
12/31/2021
Charge-offs
Recoveries
Provision
(Benefit)
Balance at
12/31/2022
Commercial and industrial
$
27,738 $
(6,964) $
4,951 $
3,346 $
Owner occupied commercial real estate
Non-owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
Total
Owner occupied commercial real estate
Non-owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
Total
19,214
17,908
22,538
5,213
8,427
9,050
(129)
(193)
(35)
(3,217)
(307)
(7,451)
112
60
13
653
—
1,266
(5,249)
(1,236)
7,482
(15)
(409)
6,717
$
110,088 $
(18,296) $
7,055 $
10,636 $
109,483
Balance at
12/31/2020
Charge-offs
Recoveries
Provision
(Benefit)
Balance at
12/31/2021
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)
$
131,606 $
(8,743) $
4,931 $
(17,706) $
110,088
29,071
13,948
16,539
29,998
2,634
7,711
9,582
27,738
19,214
17,908
22,538
5,213
8,427
9,050
Commercial and industrial
$
38,818 $
(2,150) $
3,058 $
(11,988) $
Changes in the allowance for credit losses on unfunded commitments for the years ended December 31, 2022 and
December 31, 2021, were as follows:
Beginning balance
Provision
Ending balance
For the Years Ended December 31,
2022
2021
$
$
15,462 $
4,734
20,196 $
15,280
182
15,462
Management allocates the allowance for credit losses by pools of risk within each loan portfolio. The total allowance for credit
losses is available to absorb losses from any segment of the loan portfolio.
SIX
PREMISES, FURNITURE AND EQUIPMENT
Premises, furniture and equipment, excluding those held for sale, as of December 31, 2022, and December 31, 2021, 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
2022
2021
$
56,599 $ 59,195
177,296
172,585
73,091
66,685
295,869
309,582
(105,390) (104,583)
$ 190,479 $ 204,999
Depreciation expense on premises, furniture and equipment was $13.2 million, $13.5 million and $11.8 million for 2022, 2021
and 2020, respectively. Depreciation expense on buildings and building improvements of $6.3 million, $6.9 million and $6.5
million for the years ended December 31, 2022, 2021, and 2020, respectively, is recorded in occupancy expense on the
105
consolidated statements of income. Depreciation expense on furniture and equipment of $6.9 million, $6.6 million and $5.3
million for the years ended December 31, 2022, 2021, and 2020, respectively, is recorded in furniture and equipment expense
on the consolidated statements of income.
SEVEN
GOODWILL, CORE DEPOSIT INTANGIBLES AND OTHER INTANGIBLE ASSETS
HTLF had goodwill of $576.0 million at both December 31, 2022, and December 31, 2021. HTLF conducts its annual internal
assessment of the goodwill both at the consolidated level and at the reporting unit level as of September 30. There was no
goodwill impairment as of the most recent assessment.
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, 2022, and December 31, 2021, 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, 2022
December 31, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$ 101,185 $
1,177
13,700
7,054
$ 123,116 $
76,031 $ 25,154 $ 101,185 $
—
1,177
7,840
5,860
—
7,054
90,122 $ 32,994 $ 122,206 $
1,177
12,790
7,054
68,330 $ 32,855
133
1,044
6,412
6,378
478
6,576
82,328 $ 39,878
The following table shows the estimated future amortization expense for amortizable intangible assets, in thousands:
Core Deposit Intangibles Mortgage Servicing Rights
Total
Year ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total
$
$
6,739 $
5,591
4,700
3,533
2,601
1,990
25,154 $
1,960 $
1,680
1,400
1,120
840
840
7,840 $
8,699
7,271
6,100
4,653
3,441
2,830
32,994
Projections of amortization expense for mortgage servicing rights are based on existing asset balances and the existing interest
rate environment as of December 31, 2022. HTLF's actual experience may be significantly different depending upon changes in
mortgage interest rates and market conditions. Mortgage loans serviced for others were $725.9 million and $723.3 million as of
December 31, 2022, and December 31, 2021, respectively. Custodial escrow balances maintained in connection with the
mortgage loan servicing portfolio were approximately $5.1 million and $4.5 million as of December 31, 2022, and
December 31, 2021, respectively.
106
The following table summarizes, in thousands, the changes in capitalized mortgage servicing rights for the twelve months
ended December 31, 2022, and December 31, 2021:
Balance at January 1,
Originations
Amortization
Writedown on mortgage servicing rights
Valuation adjustment
Balance at December 31,
Fair value of mortgage servicing rights
2022
6,412
1,425
(1,139)
(516)
1,658
7,840
7,840
$
$
$
2021
5,189
1,522
(1,387)
—
1,088
6,412
6,412
$
$
$
HTLF had a commercial servicing portfolio, which was comprised of loans guaranteed by the Small Business Administration
and the United States Department of Agriculture that were sold with servicing retained by HTLF, which totaled $0 and
$45.4 million at December 31, 2022 and 2021, respectively. The commercial servicing rights portfolio was 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.
The following table summarizes, in thousands, the changes in capitalized commercial servicing rights for the years ended
December 31, 2022, and December 31, 2021:
Balance at January 1,
Originations
Amortization
Balance at December 31,
Fair value of commercial servicing rights
Commercial servicing rights, net to servicing portfolio
$
$
$
2022
2021
$
$
$
478
—
(478)
—
—
— %
863
—
(385)
478
782
1.05 %
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, 2022, and December 31, 2021:
Book Value
15-Year
Tranche
Fair Value
15-Year
Tranche
Valuation
Allowance
15-Year
Tranche
Book Value
30-Year
Tranche
Fair Value
30-Year
Tranche
Valuation
Allowance
30-Year
Tranche
December 31, 2022
December 31, 2021
$
$
1,388 $
1,388 $
— $
6,452 $
6,452 $
—
1,607 $
1,280 $
327 $
6,463 $
5,132 $
1,331
The fair value of HTLF's mortgage servicing rights was estimated at $7.8 million and $6.4 million at December 31, 2022, and
December 31, 2021, respectively, and is comprised of loans serviced for the Federal National Mortgage Association ("FNMA")
and the Federal Home Loan Mortgage Corporation ("FHLMC").
107
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 are considered in the calculation. The following table
presents key assumptions used to value the mortgage servicing rights as of December 31, 2022 and 2021, dollars in thousands:
Weighted average constant prepayment rate
Weighted average discount rate
Fair value of mortgage servicing rights
As of December 31,
2022
2021
7.90 %
10.02 %
7,840
$
13.40 %
9.02 %
6,412
$
The average capitalization rate for 2022 ranged from 83 to 148 basis points compared to a range of 76 to 120 basis points for
2021. Fees collected for the servicing of mortgage loans for others were $1.8 million, $1.8 million and $1.7 million for the
years ended December 31, 2022, 2021 and 2020, respectively.
At December 31, 2021, the less than 20 years tranche of the commercial servicing rights had a book value of $45,000 and a fair
value of $98,000, and the more than 20 years tranche of the commercial servicing rights had a book value of $433,000 and a
fair value of $684,000.
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. The discount rate
range was 9.20% and 10.66% for the December 31, 2021 valuations. There were no capitalizations during 2021.
EIGHT
DEPOSITS
At December 31, 2022, the scheduled maturities of time certificates of deposit were as follows, in thousands:
2023
2024
2025
2026
2027
Thereafter
Total
$ 1,531,996
227,991
22,492
15,590
18,003
1,206
$ 1,817,278
The aggregate amount of time certificates of deposit in denominations of $100,000 or more as of December 31, 2022, and
December 31, 2021, were $1.50 billion and $605.2 million, respectively. The aggregate amount of time certificates of deposit in
denominations of $250,000 or more as of December 31, 2022, and December 31, 2021 were $1.28 billion and $333.7 million,
respectively.
Interest expense on deposits for the years ended December 31, 2022, 2021, and 2020, 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 $7.70 billion as of December 31, 2022.
2022
2021
2020
$
$
46,623 $
2,217
8,040
56,880 $
9,063 $
3,463
2,271
14,797 $
16,560
8,244
5,483
30,287
108
NINE
SHORT-TERM BORROWINGS
Short-term borrowings, which HTLF defines as borrowings with an original maturity of one year or less, as of December 31,
2022, and 2021, were as follows, in thousands:
Retail repurchase agreements
Advances from the FHLB
Advances from the federal discount window
Other short-term borrowings
Total
2022
95,303 $
50,000
224,000
6,814
376,117 $
2021
122,996
—
—
8,601
131,597
$
$
HTLF renewed its revolving credit line agreement with an unaffiliated bank on June 14, 2022, which provides $100.0 million of
borrowing capacity. This revolving credit line agreement is included in short-term borrowings, and the primary purpose of this
credit line agreement is to provide short-term liquidity to HTLF. HTLF had no advances on this line during 2022, and there was
no outstanding balance at both December 31, 2022, and December 31, 2021.
The revolving credit line agreement expires on June 14, 2024, at which time any outstanding balance is due.
All retail repurchase agreements as of December 31, 2022, and 2021, were due within twelve months.
Average and maximum balances and rates on aggregate short-term borrowings outstanding during the years ended
December 31, 2022, December 31, 2021 and December 31, 2020, were as follows, in thousands:
Maximum month-end balance
Average month-end balance
Weighted average interest rate for the year
Weighted average interest rate at year-end
2022
$ 376,117
191,306
2021
$ 299,457
173,556
2020
$ 380,360
157,348
1.61 %
4.07 %
0.26 %
0.19 %
0.39 %
0.18 %
All HTLF's Banks have availability to borrow short-term funds under the Discount Window Program based upon pledged
securities with an outstanding balance of $1.49 billion and pledged commercial loans under the Borrower-In Custody of
Collateral Program of $60.8 million, which provided total borrowing capacity of $725.6 million, of which $501.6 million was
available at December 31, 2022. There were $224.0 million in borrowings outstanding at December 31, 2022 and no
outstanding balance at December 31, 2021.
TEN
OTHER BORROWINGS
Other borrowings, which HTLF defines as borrowings with an original maturity date of more than one year, outstanding at
December 31, 2022 and 2021, 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,
2022 and 2021, respectively
Trust preferred securities
Contracts payable for purchase of real estate and other assets
Subordinated notes
Total
2022
2021
$
740 $
898
148,284
82
222,647
147,316
1,593
222,265
$
371,753 $
372,072
The HTLF Banks are members of the FHLB of Des Moines, Chicago, Dallas and Topeka. At December 31, 2022, 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 $10.9 million and $8.5 million at December 31, 2022 and 2021, respectively. In addition, the
FHLB advances are collateralized with pledges of one- to four-family residential mortgages, commercial and agricultural
109
mortgages and securities totaling $4.00 billion at December 31, 2022, and $4.43 billion at December 31, 2021. At
December 31, 2022, HTLF had $581.2 million of remaining FHLB borrowing capacity.
At December 31, 2022, 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
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 $40,000 and $44,000 as of December 31,
2022 and December 31, 2021, 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, 2022, were as follows, in thousands:
Amount
Issued
Interest
Rate
Interest
Rate as
of 12/31/22
Heartland Financial Statutory Trust IV
$ 10,310
2.75% over LIBOR
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
20,619
1.33% over LIBOR
20,619
1.48% over LIBOR
18,042
9,370
1.48% over LIBOR
3.25% over LIBOR
9,087
2.85% over LIBOR
6,790
2.95% over LIBOR
4,558
3.25% over LIBOR
6,605
2.80% over LIBOR
4,468
2.20% over LIBOR
12,424
1.54% over LIBOR
3,020
3.65% over LIBOR
5,511
2.50% over LIBOR
7,319
3.25% over LIBOR
9,582
1.60% over LIBOR
148,324
(40)
$ 148,284
7.49%
5.41%
6.25%
6.24%
7.97%
7.59%
7.69%
8.02%
7.22%
6.89%
6.31%
8.48%
7.27%
7.69%
6.35%
Maturity
Date
Callable
Date
03/17/2034
03/17/2023
04/07/2036
04/07/2023
09/15/2037
03/15/2023
09/01/2037
12/26/2032
03/01/2023
03/26/2023
12/17/2033
03/17/2023
09/17/2033
03/17/2023
12/15/2034
03/15/2023
12/19/2033
04/23/2023
09/30/2034
05/23/2023
07/25/2036
03/15/2023
09/30/2032
03/30/2023
12/15/2034
03/15/2023
04/24/2033
04/24/2023
09/30/2035
03/30/2023
On September 8, 2021, HTLF issued $150.0 million of Fixed-to-Floating Rate Subordinated Notes due 2031 (the "2021
subordinated notes"), which were issued at par with an underwriting discount of $1.9 million. 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 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
$443,000 at December 31, 2022, and $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 $76,000 at December 31, 2022, and $114,000 at December 31, 2021. These deferred costs are amortized on a
straight-line basis over the life of the notes.
For regulatory purposes, $162.9 million of the total $222.6 million of subordinated notes qualified as Tier 2 capital as of
December 31, 2022.
110
Future payments, net of unamortized discount and issuance costs, at December 31, 2022, for other borrowings at their maturity
date follow in the table below, in thousands.
2023
2024
2025
2026
2027
Thereafter
Total
$
$
82
74,715
—
—
196
296,760
371,753
ELEVEN
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 their interest rate risk while executing offsetting interest rate swaps
with dealer counterparties. HTLF's objectives are to add stability to its net interest margin and to manage its exposure to
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.
HTLF's derivative and hedging instruments are recorded at fair value on the consolidated balance sheets. See Note 19, "Fair
Value," for additional fair value information and disclosures.
Cash Flow Hedges
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.
HTLF has variable rate loans 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 the interest receipts, HTLF entered into one interest rate swap
agreement in 2022 to effectively convert $500.0 million of variable rate loans to fixed rate loans. For accounting purposes, this
swap transaction is designated as a cash flow hedge of the changes in one-month SOFR, the benchmark interest rate being
hedged, associated with the interest receipts made on $500.0 million of HTLF's variable rate loans that reset quarterly on a
specified reset date.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income as
interest payments are received or made on Heartland's variable-rate assets. For the twelve months ended December 31, 2022,
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 loss to interest expense totaling $487,000. For the next twelve months, Heartland estimates
that cash payments and reclassification from accumulated other comprehensive loss to interest expense will total $2.9 million.
111
The table below identifies the balance sheet category and fair value of HTLF's derivative instrument designated as a cash flow
hedge at December 31, 2022, in thousands. At December 31, 2021, HTLF had no derivative instruments designated as cash
flow hedges.
Notional Amount
Fair Value
Balance Sheet Category
December 31, 2022
Interest rate swap
$
500,000 $
13 Other Assets
The table below identifies the gains recognized on HTLF's derivative instrument designated as a cash flow hedge for the year
ended December 31, 2022, in thousands:
December 31, 2022
Interest rate swap
Recognized in OCI
Amount of Gain (Loss)
Reclassified from AOCI into Income
Category
Amount of Gain (Loss)
$
13
Interest income
$
487
Fair Value Hedges
HTLF uses interest rate swaps to convert certain long term fixed rate loans to floating rates to hedge interest rate risk exposure.
HTLF uses hedge accounting in accordance with ASC 815, with the unrealized gains and losses, representing the change in fair
value of the derivative and the change in fair value of the risk being hedged on the related loan, being recorded in the
consolidated statements of income. The ineffective portions of the unrealized gains or losses, if any, are recorded in interest
income and interest expense in the consolidated statements of income. HTLF uses statistical regression to assess hedge
effectiveness, both at the inception of the hedge as well as on a continual basis. The regression analysis involves regressing the
periodic change in the fair value of the hedging instrument against the periodic changes in the fair value of the asset being
hedged due to changes in the hedge risk.
HTLF was required to pledge $481,000 and $3.8 million of cash as collateral for these fair value hedges at December 31, 2022,
and December 31, 2021, respectively.
The table below identifies the notional amount, fair value and balance sheet category of HTLF's fair value hedges at
December 31, 2022, and December 31, 2021, in thousands:
Notional Amount
Fair Value
Balance Sheet Category
December 31, 2022
Fair value hedges
December 31, 2021
Fair value hedges
$
$
1,185 $
54
Other Assets
16,755 $
(1,208)
Other Liabilities
The table below identifies the gains and losses recognized on HTLF's fair value hedges for the years ended December 31, 2022,
and December 31, 2021, in thousands:
Year Ended December 31,
2022
2021
Gain (loss) recognized in interest income on fair value hedges
$
1,262 $
1,272
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, 2022, and December 31, 2021, in thousands:
112 December 31, 2022
Embedded derivatives
December 31, 2021
Embedded derivatives
Notional Amount
Fair Value
Balance Sheet Category
$
$
6,028 $
135
Other Assets
7,496 $
(317)
Other Liabilities
The table below identifies the gains and losses recognized on HTLF's embedded derivatives for the years ended December 31,
2022 and December 31, 2021, in thousands:
Year Ended December 31,
2022
2021
Gain (loss) recognized in other noninterest income on embedded derivatives $
452 $
(997)
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 $312,000 and $24.1 million as of December 31, 2022, and
December 31, 2021, respectively, as collateral related to these back-to-back swaps. HTLF's counterparties were required to
pledge $45.1 million at December 31, 2022 compared to $0 at December 31, 2021, 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, 2022, and December 31, 2021, 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, 2022 and
2021, in thousands:
December 31, 2022
Customer interest rate swaps
Customer interest rate swaps
December 31, 2021
Customer interest rate swaps
Customer interest rate swaps
Notional
Amount
Fair
Value
Balance Sheet
Category
$
819,662 $
46,091
Other Assets
819,662
(46,091) Other Liabilities
$
463,069 $
23,574
Other Assets
463,069
(23,574) Other Liabilities
Weighted
Average
Receive
Rate
Weighted
Average
Pay
Rate
4.23 %
6.76 %
4.44 %
2.35 %
6.76 %
4.23 %
2.35 %
4.44 %
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, 2022, and December 31,
2021, as collateral for these forward commitments. HTLF's counterparties were required to pledge no cash as collateral at both
December 31, 2022, and December 31, 2021, as collateral for these forward commitments.
HTLF acquired undesignated interest rate swaps in 2015. These swaps were entered into primarily for the benefit of customers
seeking to manage their interest rate risk and are not designated against specific assets or liabilities on the consolidated balance
sheet or forecasted transactions and therefore do not qualify for hedge accounting in accordance with ASC 815. These swaps
are carried at fair value on the consolidated balance sheets as a component of other liabilities, with changes in the fair value
recorded as a component of other noninterest income.
113
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, 2022, and December 31, 2021, in thousands:
Notional
Amount
Fair
Value
Balance Sheet
Category
December 31, 2022
Interest rate lock commitments (mortgage)
$
9,340 $
Forward commitments
Forward commitments
Undesignated interest rate swaps
December 31, 2021
6,400
5,750
6,028
174
47
Other Assets
Other Assets
(99) Other Liabilities
(135) Other Liabilities
Interest rate lock commitments (mortgage)
$
37,046 $
1,306
Other Assets
Forward commitments
Forward commitments
Undesignated interest rate swaps
19,000
35,500
7,496
32
Other Assets
(95) Other Liabilities
317
Other Assets
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,
2022, and December 31, 2021, in thousands:
Interest rate lock commitments (mortgage)
$
Forward commitments
Forward commitments
Undesignated interest rate swaps
TWELVE
INCOME TAXES
Year Ended December 31,
2022
2021
(1,828) $
15
(4)
(452)
(2,345)
32
602
997
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, 2022, 2021, and 2020 were as follows, in
thousands:
Current:
Federal
State
Total current expense
Deferred:
Federal
State
Total deferred expense (benefit)
Total income tax expense
2022
2021
2020
$
$
$
$
45,911 $
13,549
59,460 $
32,440 $
11,352
43,792 $
34,513
12,450
46,963
(3,637) $
(250)
(3,887)
55,573 $
8,938 $
2,605
11,543
55,335 $
(8,498)
(2,412)
(10,910)
36,053
114
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, 2022 and 2021, were as follows, in thousands:
Deferred tax assets:
Tax effect of net unrealized loss on securities carried at fair value reflected in stockholders' equity $ 159,763 $
1,715
2022
2021
Tax effect of net unrealized loss on derivatives reflected in stockholders’ equity
Tax effect of net unrealized loss on securities transferred from carried at fair value to held to
maturity 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:
Premises, furniture and equipment
Purchase accounting
Deferred loan costs
Other
Total deferred tax liabilities
Net deferred tax assets
210
45,174
28,732
12,861
21,844
2,843
—
5,476
276,903
(19,001)
$ 257,902 $
367
—
28,149
11,299
18,874
958
1,691
5,673
68,726
(15,120)
53,606
$
9,227 $
7,954
6,078
3,297
26,556
$ 231,346 $
10,502
7,977
5,164
5,560
29,203
24,403
As a result of acquisitions, HTLF had net operating loss carryforwards for federal income tax purposes of approximately $17.2
million at December 31, 2022, and $20.5 million at December 31, 2021. The associated deferred tax asset was $3.6 million at
December 31, 2022, and $4.3 million at December 31, 2021. These net carryforwards expire during the period from December
31, 2026, through December 31, 2039, and are subject to an annual limitation of approximately $3.5 million. Net operating loss
carryforwards for state income tax purposes were approximately $203.4 million at December 31, 2022, and $183.3 million at
December 31, 2021. The associated deferred tax asset, net of federal tax, was $16.3 million at December 31, 2022, and $14.3
million at December 31, 2021. 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 $15.5 million at December 31, 2022, and $13.2 million at December 31, 2021. During both
2022 and 2021, 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 $1.5 million at December 31, 2022, and $1.9 million at December 31, 2021. HTLF released valuation allowances of
$165,000 and $491,000 in 2022 and 2021, 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.
115
The actual income tax expense from continuing operations differs from the expected amounts for the years ended December 31,
2022, 2021, and 2020, (computed by applying the U.S. federal corporate tax rate of 21% for 2022, 2021, and 2020 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
2022
2021
2020
$ 56,228
$ 57,804
$ 36,538
(5,804)
10,523
(6,613)
13
(113)
1,339
(5,504)
11,026
(7,613)
(440)
(270)
332
(4,011)
7,930
(4,521)
(374)
80
411
$ 55,573
$ 55,335
$ 36,053
20.8 %
20.1 %
20.7 %
HTLF's income taxes included solar energy tax credits totaling $4.2 million, $6.1 million, and $2.3 million during 2022, 2021
and 2020, respectively. Federal historic rehabilitation tax credits included in HTLF's income taxes totaled $1.0 million,
$720,000, and $1.1 million in 2022, 2021, and 2020, respectively. Additionally, investments in certain low-income housing
partnerships totaled $10.4 million at December 31, 2022, $5.1 million at December 31, 2021, and $5.6 million at December 31,
2020. These investments generated federal low-income housing tax credits of $1.1 million during 2022, $538,000 at December
31, 2021 and $780,000 at December 31, 2020. These investments are expected to generate federal low-income housing tax
credits of approximately $1.2 million for 2023, $1.0 million for 2024, $790,000 for 2025 and $740,000 for 2026. Additionally,
HTLF had new markets tax credits of $300,000 in both 2022 and 2021, respectively.
On December 31, 2022, the amount of unrecognized tax benefits was $719,000, including $91,000 of accrued interest and
penalties. On December 31, 2021, the amount of unrecognized tax benefits was $724,000, including $87,000 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, 2019, and later remain subject to examination by the Internal Revenue Service. For state
purposes, the tax years ended December 31, 2017, and later remain open for examination. HTLF does not anticipate any
significant increase or decrease in unrecognized tax benefits during the next twelve months.
THIRTEEN
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 2022, 2021, and 2020. Costs charged to
operating expenses with respect to the matching contributions were $5.3 million, $5.1 million, and $4.1 million for 2022, 2021
and 2020, 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 $5.8
million, $5.1 million, and $4.8 million for 2022, 2021 and 2020, 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. For the years ended December 31, 2022, 2021 and 2020, the employer contributions to the non-qualified defined
contribution plan were $222,500, $237,200 and $191,700, respectively, and are included in the matching contributions and non-
elective contributions amounts noted above.
116
FOURTEEN
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 11, "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 Banks evaluate the creditworthiness of customers to which they extend
a credit commitment on a case-by-case basis and may require collateral to secure any credit extended. The amount of collateral
obtained is based upon management's credit evaluation of the counterparty. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment and income-producing commercial properties. Standby letters of credit and
financial guarantees are conditional commitments issued by HTLF's Banks to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk
involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. At
December 31, 2022, and at December 31, 2021, commitments to extend credit aggregated $4.73 billion and $3.83 billion,
respectively, and standby letters of credit aggregated $55.1 million and $51.4 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, 2022 and December 31, 2021.
HTLF had no new requests for repurchases during 2022 and 2021.
There are certain legal proceedings pending against HTLF and its subsidiaries at December 31, 2022, that are ordinary routine
litigation incidental to business. While the ultimate outcome of current legal proceedings 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 Heartland's
consolidated financial position or results of operation.
FIFTEEN
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") which authorized 1,460,000 of common
stock available for issuance. At December 31, 2022, 963,563 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 $131,000 and $312,000 of tax benefit for the years ended December 31, 2022, and
December 31, 2021, respectively, related to the vesting and forfeiture of equity-based awards.
117 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 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, 2022, 2021 and 2020, and changes during the years ended December 31,
2022, 2021, and 2020, follows:
Outstanding at January 1
Granted
Vested
Forfeited
Outstanding at December 31
2022
2021
2020
Weighted-
Average
Grant Date
Fair Value
Shares
Weighted-
Average
Grant Date
Fair Value
Shares
Weighted-
Average
Grant Date
Fair Value
Shares
389,885 $
242,718
(159,880)
(48,637)
424,086 $
44.19
48.38
44.96
45.49
46.15
348,275 $
216,560
(149,350)
(25,600)
389,885 $
38.22
51.44
40.83
40.96
44.19
254,383 $
232,586
(119,916)
(18,778)
348,275 $
46.76
32.06
44.47
46.10
38.22
Total compensation costs recorded for RSUs were $7.8 million, $8.5 million and $7.2 million, for 2022, 2021 and 2020,
respectively. As of December 31, 2022, there were $9.1 million of total unrecognized compensation costs related to the Plan for
RSUs which are expected to be recognized through 2025.
Stock Options
The plan provides the Compensation Committee the authority to grant stock options. During the year ended December 31,
2022, 64,518 of options were granted, and the fair value of the options granted was determined using the Black-Scholes
valuation model. There were no options granted in the years ended December 31, 2021 and 2020. The options granted in 2022
generally vest over the first four years in equal installments on the anniversary date of the grant. The exercise price of the stock
options granted is established by the Compensation Committee, but the exercise price may not be less than the fair market value
of the shares on the date the options are granted.
The stock options may also vest upon death or disability, upon a change in control or upon a "qualified retirement" as defined in
the stock option agreement.
118
A summary of the status of the stock options as of December 31, 2022, 2021, and 2020, and changes during the years ended
December 31, 2022, 2021, and 2020 follows:
2022
2021
2020
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
Shares
Outstanding at January 1,
Granted
Exercised
Forfeited
— $
64,518
—
—
Outstanding at December 31
64,518
Options exercisable at December 31,
— $
—
48.79
—
—
48.79
—
— $
—
—
—
—
— $
—
—
—
—
—
—
— $
—
—
—
—
— $
—
—
—
—
—
—
At December 31, 2022, the vested options have a weighted average remaining contractual life of 9.92 years. The intrinsic value
for the vested options as of December 31, 2022, was $0. The intrinsic value for the total of all options exercised during year
ended December 31, 2022, was $0. The total fair value of shares under stock options that vested during the year ended
December 31, 2022, was $0. Total compensation costs recorded for stock options were $167,000, $0, and $0 for 2022, 2021,
and 2020, respectively.
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 $214,000 was recorded in
2022, $228,000 was recorded in 2021, and $186,000 was recorded in 2020.
A maximum of 500,000 shares is available for purchase under the ESPP, and as of December 31, 2022, 241,067 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 2022 plan year, shares purchased in 2022 totaled 49,169. 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.
SIXTEEN
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, 2022 or December 31,
2021.
SEVENTEEN
CAPITAL ISSUANCES
Common Stock
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 15, "Stock-Based Compensation."
Shelf Registration
HTLF filed a universal shelf registration with the SEC to register debt or equity securities on August 8, 2022, that expires on
August 8, 2025. 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
119
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.
EIGHTEEN
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, 2022 and 2021, that the HTLF
Banks met all capital adequacy requirements to which they were subject.
As of December 31, 2022 and 2021, 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, 2022, 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, 2022
Total Capital (to Risk-Weighted Assets)
Consolidated
HTLF Bank
Dubuque Bank and Trust Company
Wisconsin Bank & Trust
New Mexico Bank & Trust
Rocky Mountain Bank
Bank of Blue Valley
First Bank & Trust
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated
HTLF Bank
Dubuque Bank and Trust Company
Wisconsin Bank & Trust
New Mexico Bank & Trust
Rocky Mountain Bank
Bank of Blue Valley
First Bank & Trust
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Amount
Ratio
To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
$ 2,204,829
824,069
184,096
128,490
238,190
69,792
162,131
288,518
$ 1,763,990
762,103
174,684
119,231
223,602
63,814
155,002
267,169
14.76 % $ 1,194,970
562,497
11.72
113,197
13.01
13.12
78,336
13.23
144,059
12.84
43,489
16.07
80,689
170,835
13.51
11.81 % $ 896,228
10.84
421,873
12.35
84,898
12.18
58,752
12.42
108,044
11.74
32,617
60,516
15.37
128,126
12.51
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
N/A
$ 703,122
141,497
97,920
180,073
54,361
100,861
213,543
N/A
$ 562,497
113,197
78,336
144,059
43,489
80,689
170,835
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
120
As of December 31, 2022
Common Equity Tier 1 (to Risk-Weighted Assets)
Consolidated
HTLF Bank
Dubuque Bank and Trust Company
Wisconsin Bank & Trust
New Mexico Bank & Trust
Rocky Mountain Bank
Bank of Blue Valley
First Bank & Trust
Tier 1 Capital (to Average Assets)
Consolidated
HTLF Bank
Dubuque Bank and Trust Company
Wisconsin Bank & Trust
New Mexico Bank & Trust
Rocky Mountain Bank
Bank of Blue Valley
First Bank & Trust
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
Minnesota Bank & Trust
Bank of Blue Valley
Premier Valley Bank
First Bank & Trust
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Amount
Ratio
To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
$ 1,653,285
762,103
174,684
119,231
223,602
63,814
155,002
267,169
$ 1,763,990
762,103
174,684
119,231
223,602
63,814
155,002
267,169
11.07 % $ 672,171
316,405
10.84
63,674
12.35
44,064
12.18
81,033
12.42
24,463
11.74
45,387
15.37
96,094
12.51
9.13 % $ 772,911
352,914
8.64
86,473
8.08
51,753
9.22
110,214
8.12
30,064
8.49
57,676
10.75
115,026
9.29
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
N/A
$ 457,029
91,973
63,648
117,048
35,335
65,560
138,803
N/A
$ 441,143
108,091
64,691
137,767
37,580
72,095
143,782
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
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Amount
Ratio
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
87,263
160,694
111,741
282,231
15.90 % $ 1,026,345
110,758
13.07
84,466
12.88
69,499
14.27
141,530
12.10
99,886
12.61
39,385
13.07
140,999
15.09
47,194
14.79
76,785
16.74
69,720
12.82
145,823
15.48
8.00 %
8.00
8.00
8.00
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
58,993
95,982
87,151
182,279
10.00 %
10.00
10.00
10.00
10.00
10.00
10.00
10.00
10.00
10.00
10.00
121
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
Amount
Ratio
To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
$ 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 % $
12.16
12.02
13.22
11.23
11.78
12.02
13.89
13.84
15.66
11.97
14.43
11.53 % $
12.16
12.02
13.22
11.23
11.78
12.02
13.89
13.84
15.66
11.97
11.43
8.57 % $
8.02
7.55
9.66
7.78
7.99
8.27
9.54
9.69
10.75
9.22
9.84
769,759
83,068
63,350
52,124
106,147
74,915
29,538
105,749
35,396
57,589
52,290
109,367
577,319
62,301
47,512
39,093
79,611
56,186
22,154
79,312
26,547
43,192
39,218
82,025
742,155
83,982
67,212
47,551
102,173
73,605
28,614
102,587
33,698
55,921
45,256
106,986
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
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 $702.2 million as of
December 31, 2022, under the most restrictive minimum capital requirements. Retained earnings that could be available for the
payment of dividends to HTLF totaled approximately $403.9 million as of December 31, 2022, under the capital requirements
to remain well capitalized.
122
NINETEEN
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
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
123 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 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 these assumptions require a significant degree of
management estimation and judgment. Commercial servicing rights are subject to impairment testing, and the carrying values
of these rights are reviewed quarterly for impairment based upon the calculation of fair value as performed by an outside third
party. If the valuation model reflects a fair value less than the carrying value, commercial servicing rights are adjusted to fair
value through a valuation allowance. HTLF classifies commercial servicing rights as nonrecurring with Level 3 measurement
inputs.
Derivative Financial Instruments
HTLF's current interest rate risk strategy includes cash flow hedges and 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, 2022, and
December 31, 2021, 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.
124 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,
2022, and December 31, 2021, in thousands, aggregated by the level in the fair value hierarchy within which those
measurements fall:
Total Fair
Value
Level 1
Level 2
Level 3
December 31, 2022
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)
Interest rate lock commitments
Forward commitments
Total assets at fair value
Liabilities
Derivative financial instruments(2)
Forward commitments
Total liabilities at fair value
$
$
$
31,699 $
43,135
879,437
1,772,105
2,181,876
85,123
659,459
416,054
57,942
20,314
46,293
174
47
6,193,658 $
46,226 $
99
46,325 $
31,699 $
—
—
—
—
—
—
—
—
—
—
—
—
31,699 $
— $
43,135
879,437
1,772,105
2,181,876
85,123
659,459
416,054
57,942
20,314
46,293
—
47
6,161,785 $
— $
—
— $
46,226 $
99
46,325 $
(1) Includes interest rate swaps, fair value hedges, embedded derivatives, and back-to-back loan swaps.
(2) Includes back-to-back loan swaps and undesignated interest rate swaps.
—
—
—
—
—
—
—
—
—
—
—
174
—
174
—
—
—
125
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
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
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
1,306
32
$
$
$
7,555,603 $
25,099 $
95
25,194 $
1,008 $
—
—
—
—
—
—
—
—
—
—
—
—
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
—
32
7,553,289 $
— $
—
— $
25,099 $
95
25,194 $
—
—
—
—
—
—
—
—
—
—
—
1,306
—
1,306
—
—
—
(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.
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, 2022
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Total
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(Gains)/
Losses
Collateral dependent individually assessed loans:
Commercial and industrial
$ 12,042 $
— $
— $
12,042 $
4,186
Owner occupied commercial real estate
Non-owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
7,556
11,371
1,518
3,788
1,607
Total collateral dependent individually assessed loans $ 37,882 $
Loans held for sale
$
5,277 $
Other real estate owned
Premises, furniture and equipment held for sale
Servicing rights
8,401
6,851
7,840
—
—
—
—
—
— $
— $
—
—
—
—
—
—
—
—
7,556
11,371
1,518
3,788
1,607
—
—
—
—
—
— $
37,882 $
4,186
5,277 $
— $
(116)
—
—
—
8,401
6,851
7,840
180
1,562
516
126
Fair Value Measurements at December 31, 2021
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Total
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(Gains)/
Losses
Collateral dependent individually assessed loans:
Commercial and industrial
$
8,989 $
— $
— $
8,989 $
Owner occupied commercial real estate
Non-owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Total collateral dependent impaired loans
Loans held for sale
Other real estate owned
Premises, furniture and equipment held for sale
Servicing rights
8,447
11,946
—
11,404
855
$ 41,641 $
$ 21,640 $
1,927
10,828
6,890
—
—
—
—
—
— $
— $
—
—
—
—
—
—
—
—
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)
127
The following tables present additional quantitative information about assets measured at fair value on a recurring and
nonrecurring basis and for which HTLF has utilized Level 3 inputs to determine fair value, in thousands:
Fair Value at 12/31/22
Valuation Technique
Unobservable Input Range (Weighted Average)
$
174 Discounted cash flows
Closing ratio
0 - 99% (88%)(1)
Interest rate lock
commitments
Premises, furniture and
equipment held for sale
6,851 Modified appraised value Third party appraisal
Appraisal discount
Other real estate owned
8,401 Modified appraised value Third party appraisal
Appraisal discounts
Servicing rights
7,840 Discounted cash flows
Discount rate
Constant prepayment
rate
Collateral dependent
individually assessed loans:
Commercial and industrial
Owner occupied commercial
real estate
Non-owner occupied
commercial real estate
12,042 Modified appraised value Third party appraisal
Appraisal discount
7,556 Modified appraised value Third party appraisal
Appraisal discount
11,371 Modified appraised value Third party appraisal
Appraisal discount
Real estate construction
1,518 Modified appraised value Third party appraisal
Agricultural and agricultural
real estate
3,788 Modified appraised value Third party appraisal
Appraisal discount
Appraisal discount
Residential real estate
1,607 Modified appraised value Third party appraisal
Appraisal discount
(2)
0-10%(3)
(2)
0-10%(3)
9.98 - 11.72% (10.02%)(4)
7.8 - 14.2% (7.9%)(4)
(2)
0-10%(3)
(2)
0-10%(3)
(2)
0-10%(3)
(2)
0-10%(3)
(2)
0%-15%(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.
128
Interest rate lock commitments $
Fair Value at 12/31/21
1,306
Valuation Technique
Unobservable Input Range (Weighted Average)
Discounted cash flows
Closing ratio
0 - 99% (88%)(1)
Premises, furniture and
equipment held for sale
Other real estate owned
10,828 Modified appraised value Third party appraisal
Appraisal discount
1,927 Modified appraised value Third party appraisal
Servicing rights
6,890
Discounted cash flows
Appraisal discounts
Discount rate
Constant prepayment
rate
(2)
0-10%(3)
(2)
0-10%(3)
9 - 11% (9.02%)(4)
13.1 - 18.6% (13.4%)(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
Residential real estate
8,989 Modified appraised value Third party appraisal
Appraisal discount
8,447 Modified appraised value Third party appraisal
Appraisal discounts
11,946 Modified appraised value Third party appraisal
Appraisal discounts
11,404 Modified appraised value Third party appraisal
Appraisal discount
855 Modified appraised value Third party appraisal
Appraisal discount
(2)
0-6%(3)
(2)
0-7%(3)
(2)
0-10%(3)
(2)
0-7%(3)
(2)
0-7%(5)
(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:
Balance at January 1,
Total gains (losses), net, included in earnings
Issuances
Settlements
Balance at period end,
For the Years Ended
December 31, 2022
December 31, 2021
$
$
1,306 $
(1,828)
3,683
(2,987)
174 $
1,827
(2,345)
15,403
(13,579)
1,306
Gains included in net gains on sale of loans held for sale attributable to interest rate lock commitments held at December 31,
2022, and December 31, 2021, were $174,000 and $1.3 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, 2022, and December 31, 2021, 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.
129
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
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, 2022
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
Financial assets:
Cash and cash equivalents
$ 363,087 $ 363,087 $
363,087 $
Time deposits in other financial institutions
1,740
1,740
1,740
— $
—
Securities:
Carried at fair value
Held to maturity
Other investments
Loans held for sale
Loans, net:
Commercial
PPP
6,147,144
6,147,144
31,699
6,115,445
829,403
776,557
74,567
5,277
74,567
5,277
3,435,343
3,270,127
11,025
11,025
Owner occupied commercial real estate
2,251,359
2,084,665
Non-owner occupied commercial real estate
2,314,401
2,184,796
Real estate construction
1,046,084
1,039,244
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
917,876
845,650
497,131
842,637
741,325
480,018
11,318,869
10,653,837
193,403
193,403
46,293
46,293
174
47
174
47
—
—
—
—
—
—
12,042
—
7,556
11,371
1,518
3,788
1,607
—
776,557
74,567
5,277
3,258,085
11,025
2,077,109
2,173,425
1,037,726
838,849
739,718
480,018
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10,615,955
37,882
193,403
46,293
—
47
—
—
174
—
130
Fair Value Measurements at
December 31, 2022
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
$ 5,701,340 $ 5,701,340 $
— $
5,701,340 $
9,994,391
9,994,391
1,817,278
1,817,278
376,117
371,753
46,226
99
376,117
372,473
46,226
99
—
—
—
—
—
—
9,994,391
1,817,278
376,117
372,473
46,226
99
—
—
—
—
—
—
—
Financial liabilities:
Deposits
Demand deposits
Savings deposits
Time deposits
Short term borrowings
Other borrowings
Derivative financial instruments(2)
Forward commitments
(1) Includes interest rate swaps, fair value hedges, embedded derivatives, and back-to-back loan swaps.
(2) Includes back-to-back loan swaps and undesignated interest rate swaps.
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
Financial assets:
Cash and cash equivalents
$ 435,599 $ 435,599 $
435,599 $
Time deposits in other financial institutions
2,894
2,894
2,894
— $
—
Securities:
Carried at fair value
Held to maturity
Other investments
Loans held for sale
Loans, net:
7,530,374
7,530,374
1,008
7,529,366
84,709
82,567
21,640
94,139
82,567
21,640
Commercial and industrial
PPP
2,617,347
2,603,001
199,883
199,883
Owner occupied commercial real estate
2,221,120
2,222,030
Non-owner occupied commercial real estate
1,992,683
1,998,161
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
Total Loans, net
833,581
748,540
844,578
749,238
820,856
410,474
9,844,484
819,178
415,487
9,851,556
—
—
—
—
—
—
8,989
—
8,447
11,946
—
11,404
855
—
41,641
—
—
—
—
—
—
—
—
—
—
—
—
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
131
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
$ 191,722 $ 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
—
—
—
—
—
—
—
—
—
—
23,891
—
32
6,495,326
8,897,909
1,024,020
131,597
373,194
25,099
95
—
—
1,306
—
—
—
—
—
—
—
—
Financial assets
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
(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
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.
132
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
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 and losses, net unrealized gains and losses on equity securities, net gains on sale of loans held for
sale, valuation adjustment on servicing rights, income from bank owned life insurance and other noninterest income are outside
the scope of ASC 606. Revenue streams including service charges and fees, interchange fees on credit and debit cards, trust fees
and brokerage and insurance commissions are within the scope of ASC 606.
Service Charges and Fees
Service charges and fees consist of revenue generated from deposit account related service charges and fees, overdraft fees,
customer service fees and other service charges, credit card fee income, debit card income and other service charges and fees.
Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public
checking accounts), monthly service fees, check orders and other deposit account related fees. HTLF's performance obligation
for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in
which the service is provided. Check orders and other deposit account related fees, including overdraft fees, are largely
transaction based, and therefore, the performance obligation is satisfied, and related revenue recognized, at a point in time.
Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct
charge to customers’ accounts.
Customer service fees and other service charges include revenue from processing wire transfers, bill pay service, cashier’s
checks, and other services. HTLF's performance obligation for fees, exchange, and other service charges are largely satisfied,
and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately
or in the following month.
Credit card fee income and debit card income are comprised of interchange fees, ATM fees, and merchant services income.
Credit card fee income and debit card income are earned whenever the Banks' debit and credit cards are processed through card
payment networks such as Visa. ATM fees are primarily generated when a Bank cardholder uses an ATM that is not owned by
one of HTLF's Banks or a non-bank cardholder uses 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.
133 Trust Fees
Trust fees are primarily comprised of fees earned from the management and administration of trusts and other customer assets.
HTLF's performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the
average daily market value or month-end market value of the assets under management and the applicable fee rate. Payment is
generally received a few days before or after month end through a direct charge to customers’ accounts. HTLF does not earn
performance-based incentives. Optional services such as real estate sales and tax return preparation services are also available
to existing trust and asset management customers. HTLF's performance obligation for these transactional-based services is
generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after
services are rendered.
Brokerage and Insurance Commissions
Brokerage commission primarily consist of commissions related to broker-dealer contracts. The contracts are between the
customer and the broker-dealer, and HTLF satisfies its performance obligation and earns commission when the transactions are
completed. The recognition of revenue is based on a defined fee schedule and does not require significant judgment. Payment is
received shortly after services are rendered. Insurance commissions are related to commissions received directly from the
insurance carrier. HTLF acts as an insurance agent between the customer and the insurance carrier. HTLF's performance
obligations and associated fee and commission income are defined with each insurance product with the insurance company.
When insurance payments are received from customers, a portion of the payment is recognized as commission revenue.
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the year
ended December 31, 2022, 2021, and 2020, in thousands:
For the Years Ended December 31,
2022
2021
2020
In-scope of Topic 606
Service charges and fees
Service charges and fees on deposit accounts
$
18,625 $
16,414 $
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 (losses), net
Unrealized gain (loss) 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
$
$
12,136
375
27,560
9,335
68,031
22,570
2,986
11,005
220
21,623
10,441
59,703
24,417
3,546
93,587 $
87,666 $
2,741 $
(425)
(622)
9,032
1,658
2,341
19,952
3,276 $
5,910
58
20,605
1,088
3,762
6,570
Total noninterest income out-of-scope of Topic 606
Total noninterest income
$
34,677
128,264 $
41,269
128,935 $
14,441
9,166
177
16,026
7,657
47,467
20,862
2,756
71,085
2,977
7,793
640
28,515
(1,778)
3,554
7,505
49,206
120,291
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, 2022, 2021, and 2020, HTLF did not have any significant contract balances or
capitalized contract acquisition costs.
134
TWENTY-ONE
PARENT COMPANY ONLY FINANCIAL INFORMATION
Condensed financial information for Heartland Financial USA, Inc. is as follows:
BALANCE SHEETS (Dollars in thousands)
December 31,
2022
2021
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 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
$
307,026 $
259,830
2,263,037
81,020
$ 2,149,167 $ 2,603,887
1,747,188
94,953
$
370,930 $
43,182
414,112
369,581
52,128
421,709
110,705
42,467
1,080,964
1,120,925
(620,006)
1,735,055
110,705
42,275
1,071,956
962,994
(5,752)
2,182,178
$ 2,149,167 $ 2,603,887
For the Years Ended December 31,
2020
2021
2022
$
142,500 $
1,200
143,700
163,500 $
1,885
165,385
83,000
1,948
84,948
16,886
7,225
11,594
10,474
46,179
98,983
196,504
15,676
212,180
12,851
7,509
5,161
10,984
36,505
75,368
204,248
15,675
219,923
(8,050)
204,130 $
(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
135
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
Increase (decrease) 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
Net assets acquired
Net cash used by investing activities
Cash flows from financing activities:
Proceeds from borrowings
Repayments of borrowings
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-TWO
LEASES
For the Years Ended December 31,
2020
2021
2022
$
212,180 $
219,923 $
137,938
(98,983)
(8,946)
(13,933)
131
9,958
100,407
(75,368)
8,723
(13,069)
312
12,632
153,153
(73,430)
8,419
(19,168)
(93)
6,375
60,041
—
—
—
—
—
(54,249)
—
1,038
(53,211)
47,196
259,830
307,026 $
(34,000)
—
(34,000)
(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
— $
— $
2,013
—
2,013
—
14,891
2,013
217,202
$
$
HTLF, as lessee, leases certain assets for use in its operations. Leased assets primarily include real estate property for retail
branches, ATM locations and operations centers with terms extending through 2031. All HTLF's leases are classified as
operating leases. HTLF excludes leases with an original term of twelve months or less and equipment leases (deemed
immaterial) on the consolidated balance sheets.
The table below presents HTLF's right-of-use ("ROU") assets and lease liabilities as of December 31, 2022 and December 31,
2021, in thousands:
Operating lease right-of-use assets
Operating lease liabilities
Other assets
Accrued expenses and other liabilities
$
$
29,429 $
31,681 $
22,630
26,125
Classification
As of December 31,
2022
2021
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
136
certain, HTLF will include the extended term in the calculation of the ROU asset and lease liability. 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, 2022, 2021 and 2020, 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,
2021
2020
2022
$ 7,256
16
$ 7,272
$
32
10
$
$
$
8,013 $
6,071
47
72
8,060 $
6,143
1,244 $
1,037
—
389
As of December 31, 2022
6.19
2.37 %
Included in the noncash reduction of ROU assets in 2022 and 2021 are expenses related to lease modifications and ROU
acceleration related to lease abandonments.
HTLF recorded $360,000 of impairment on two leases in 2022, which was recorded in gain (loss) on sales/valuations of assets,
net. HTLF did not record any impairment on leases in 2021, and $360,000 of impairment on one lease in 2020.
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, 2022 is as follows, in thousands:
Year ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less interest
Present value of lease liabilities
$
$
$
6,205
5,712
5,599
4,938
4,005
7,591
34,050
(2,369)
31,681
137
TWENTY-THREE
SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(Dollars in thousands, except per share data)
As of and for the Quarter Ended
2022
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Noninterest income
Noninterest expense
Income taxes
Net income
Preferred dividends
June 30
March 31
December 31 September 30
$
165,220 $
3,387
155,876 $
5,492
161,833
29,975
117,218
13,936
60,654
150,384
29,181
108,883
14,118
56,564
142,461 $
3,246
139,215
34,539
106,479
15,402
51,873
(2,012)
(2,013)
(2,012)
134,679
3,245
131,434
34,569
110,797
12,117
43,089
(2,013)
Net income available to common stockholders
$
58,642 $
54,551 $
49,861 $
41,076
Per share:
Earnings per share-basic
Earnings per share-diluted
Cash dividends declared on common stock
Book value per common share
$
1.38 $
1.28 $
1.17 $
1.37
0.28
38.25
1.28
0.27
36.41
1.17
0.27
39.19
0.97
0.97
0.27
42.98
Weighted average common shares outstanding
42,578,977
42,574,557
42,474,835
42,359,582
Weighted average diluted common shares outstanding
42,699,752
42,643,940
42,565,391
42,540,953
(Dollars in thousands, except per share data)
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:
Earnings per share-basic
Earnings per share-diluted
Cash dividends declared on common stock
Book value per common share
As of and for the Quarter Ended
June 30
March 31
December 31 September 30
$
137,194 $
(5,313)
142,543 $
(4,534)
142,507
32,730
115,386
10,271
49,580
147,077
32,724
110,627
13,250
55,924
141,218 $
(7,080)
148,298
33,164
103,376
16,481
61,605
(2,012)
47,568 $
(2,013)
53,911 $
(2,012)
59,593 $
139,605
(648)
140,253
30,317
102,423
15,333
52,814
(2,013)
50,801
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
$
$
Weighted average common shares outstanding
42,309,003
42,302,780
42,242,893
42,174,092
Weighted average diluted common shares outstanding
42,479,442
42,415,993
42,359,873
42,335,747
138
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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its
operations and its cash flows for each of the years in the three-year period ended December 31, 2022,
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, 2022, 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
23, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over
financial reporting.
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.
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
139 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, 4, and 5 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, 2022, the total allowance for credit losses
related to loans and unfunded loan commitments was $109.5 million and $20.2 million, respectively, of
which $102.4 million and $20.2 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 (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, and weighting. The assessment also included an evaluation of the conceptual
soundness and performance of the PD and LGD model and lifetime average historical loss model. In
addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.
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 of the PD and LGD model and lifetime average historical loss model
identification and determination of the assumptions used in the PD and LGD model
140 •
•
•
identification and determination of the assumptions used in the lifetime average historical loss
model
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, and the reasonable and supportable forecast period
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 of the PD and LGD model and
lifetime average historical loss model, by comparing them to relevant Company-specific metrics and
trends and applicable industry and regulatory practices
the conceptual soundness of the PD and LGD model and lifetime average historical loss model 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
potential bias in the accounting estimates.
We have served as the Company’s auditor since 1994.
/s/ KPMG LLP
Des Moines, Iowa
February 23, 2023
141 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, 2022. 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, 2022.
KPMG LLP, the independent registered public accounting firm that audited HTLF’s consolidated financial statements as of and
for the year ended December 31, 2022, 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, 2022, that have materially affected or are reasonably likely to materially affect HTLF's internal control
over financial reporting.
142 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, 2022, 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, 2022, 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,
2022 and 2021, 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, 2022, and the
related notes (collectively, the consolidated financial statements), and our report dated February 23,
2023 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
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
143 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 23, 2023
144 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 2023 Annual Meeting of Stockholders to be held on June 14, 2023, (the
"2023 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 2023 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 2023 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 2023 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 2023 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.
145 2.1
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
INDEX OF EXHIBITS
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).
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).
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).
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
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).
4.2
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)
146
4.3
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).
4.4
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)
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
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 4.3 to the
Registrant's Form 8-K filed on June 26, 2020 ).
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
147
10.1 (2)
10.2 (2)
10.3 (2)
10.4 (2)
10.5 (2)
10.6 (2)
10.7 (2)
10.8
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).
Form of Amendment to Change of Control Agreements (incorporated by reference to Exhibit 10.8 to the
Registrant’s Annual Report on Form 10-K filed on February 26, 2020).
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).
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).
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).
10.9 (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).
10.10 (2)
10.11 (2)
10.12 (2)
10.13 (2)
10.14 (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.
Form of Stock Options Award Agreement under the Heartland Financial USA, INC. 2020 Long-Term Incentive
Plan vesting in the first, second, third and fourth years following the original grant award with a expiration date
of 12/1/2032 (incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed on December 5, 2022.
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 9, 2022).
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. 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 9, 2022).
148
10.15 (2)
10.16 (2)
10.17 (2)
Form of Performance -Based Restricted Stock Unit Award Agreement Three-Year Performance Period under the
Heartland Financial USA, Inc. 2020 Long-Term Incentive Plan (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).
10.18 (1)(2) Form of Director Restricted Stock Unit Award Agreement under the Heartland Financial USA, Inc. 2020 Long-
Term Incentive Plan.
10.19 (1)(2) Form of Member Board Restricted Stock Unit Award Agreement under the Heartland Financial USA, Inc. 2020
Long-Term Incentive Plan.
21.1 (1)
Subsidiaries of the Registrant.
23.1 (1)
Consent of KPMG LLP.
31.1 (1)
31.2 (1)
32.1 (1)
32.2 (1)
101 (1)
Certification of Chief Executive Officer pursuant to Rule 13a-14.
Certification of Chief Financial Officer pursuant to Rule 13a-14.
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.
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.
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.
149
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 23, 2023.
SIGNATURES
Heartland Financial USA, Inc.
By:
/s/ Bruce K. Lee
President and Chief Executive Officer
Date:
February 23, 2023
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 23, 2023.
By:
/s/ Bruce K. Lee
Bruce K. Lee
President and Chief Executive Officer
(Principal Executive Officer and Duly Authorized 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/ Thomas L. Flynn
Thomas L. Flynn
Director
/s/ Christopher S. Hylen
Christopher S. Hylen
Director
/s/ John K. Schmidt
John K. Schmidt
Director
/s/ Kathryn Graves Unger
Kathryn Graves Unger
Director
/s/ Jennifer K. Hopkins
Jennifer K. Hopkins
Director
/s/ Susan G. Murphy
Susan G. Murphy
Director
/s/ Martin J. Schmitz
Martin J. Schmitz
Director
/s/ Duane E. White
Duane E. White
Director
150