Together,
we are
23
ANNUAL REP ORT
Financial Highlights
For the years ended December 31, 2023, 2022 and 2021
(Dollars in thousands, except per share data)
F O R T H E Y E A R
2 0 2 3
% INCREASE
(DECREASE)
2 0 2 2
2 0 2 1
Net income
Net income available to common stockholders
Adjusted earnings available to common
stockholders (non-GAAP)1
$79,920
71,870
193,924
-62.33
%
$212,180
$219,923
-64.79
-7.45
204,130
209,527
$211,873
$203,649
Cash dividends, common
51,294
11.03
46,199
40,509
P E R S H A R E D ATA
Earnings per common share – diluted (EPS)
Adjusted earnings per common share - diluted
(non-GAAP)1
Cash dividends, common
Book value at December 31
$1.68
4.53
1.20
42.69
-64.93
%
-7.74
10.09
11.61
$4.79
4.91
1.09
38.25
$5.00
4.80
0.96
49.00
AT Y E A R E N D
Total assets
$19,411,707
%-4.11
$20,244,228
$19,274,549
Total loans receivable
12,068,645
Total deposits
Total common stockholders’ equity
16,201,714
1,822,412
5.60
-7.49
12.19
11,428,352
9,954,572
17,513,009
16,417,255
1,624,350
2,071,473
F I N A N C I A L R AT I O S
Return on average total assets
0.40
%
1.08
%
Adjusted return on average assets (non-GAAP)1
Return on average stockholders’ equity
Adjusted return on average
common equity (non-GAAP)1
Return on average tangible common equity (non-GAAP)1
Adjusted return on average
tangible common equity (non-GAAP)1
Net interest margin (GAAP)
Net interest margin, fully tax-equivalent (non GAAP)1
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
1.01
4.19
11.31
6.89
17.82
3.29
3.33
8.55
14.53
11.69
10.97
9.44
1 Refer to the “Non-GAAP Reconciliations” table on page 49 of the annual report on Form 10-K.
1.11
11.74
12.06
18.55
19.03
3.32
3.37
8.86
14.76
11.81
11.07
9.13
1.19
%
1.14
10.49
10.08
15.59
14.99
3.29
3.33
10.92
15.90
12.39
11.53
8.57
2
B R U C E K . L E E
President and CEO
“We are transforming
HTLF and how we
serve our customers.”
HTLF | 2023 Annual Report
TOGETHER, WE AR E
To our fellow stockholders:
2023 was a year of significant progress and successful execution of HTLF’s strategic plans. We completed
charter consolidation, strategically and structurally positioning the company to focus on our next phase, HTLF
3.0, our transformational and connected set of initiatives that will drive efficiency, enhance EPS growth, deliver
higher return on assets and more efficient use of capital.
One component of HTLF 3.0 was repositioning our
HTLF 3.0 was initiated in late 2023 and is well
balance sheet. In the fourth quarter, HTLF sold
underway. We repositioned the balance sheet,
investment securities with proceeds totaling $865 million
centralized our Retail structure and increased
and a pre-tax loss of $140 million. The proceeds of the
Retail leadership’s span of control.
sale were used to repay high-cost wholesale deposits
and short-term borrowings.
In the first quarter of 2024, HTLF announced plans
to sell all Rocky Mountain Bank division branches
By selling low-yielding investments and reducing
in Montana. The planned sales will improve capital
high-cost wholesale funding, we increased our net
and increase the efficiency of HTLF’s footprint, and
interest margin, improved our balance sheet efficiency
we intend to strategically reinvest sales proceeds in
and flexibility, and significantly strengthened our
talent, technology and markets where we have the
capital position.
greatest growth potential.
This, in part, resulted in net income available to common
stockholders of $71.9 million and EPS of $1.68 for the year.
W E A R E :
Adjusted earnings for the year were $193.9 million
available to common stockholders and EPS of
$4.53, which excludes losses related to balance
sheet repositioning, losses on sale or write-down
of assets, FDIC special assessment expense and
restructuring costs.
HTLF maintained strong momentum in Commercial
loan growth and we saw continued growth in customer
deposits. For the year, Commercial and Ag loans grew
$719 million or 7 percent.
Following the industry challenges in the first and second
quarters, we saw momentum in the second half of the
year with customer deposits increasing $211 million
combined in the third and fourth quarters, for 3 percent
annualized growth.
Our diverse and granular deposit base provided strength
and stability. Customer deposits are diversified by
geography and industry, with no industry concentration
higher than 10 percent across our portfolios.
Reducing real estate expenses through
branch rationalization, size and location
Investing in Middle Market banking and
adding talent in high growth markets
Expanding Treasury Management
products and capabilities
Creating a digital platform to better serve
Consumers and Small Business customers
These strategic initiatives have positioned HTLF
to take the next step forward. With that in mind, I
announced my intention to retire at the end of 2024.
It’s an ideal opportunity for the next leader to build on
our momentum and I’m confident that now is the right
time for the Board of Directors to begin searching for
my successor.
We are transforming HTLF and how we serve
our customers. I want to recognize and thank our
employees for their ongoing commitment to delivering
Strength, Insight and Growth to our customers,
HTLF’s disciplined approach continued to enable strong
communities, stockholders and each other.
credit performance, with our delinquency ratio finishing
the year at a low 9 basis points of total loans.
B R U C E K . L E E
4
J O H N K . S C H M I D T
Chairman
“HTLF did not waver
in consistently serving
its customers, communities
and stockholders.”
HTLF | 2023 Annual Report
TOGETHER, WE AR E
To our valued stockholders:
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
The board also welcomed two new directors,
share HTLF’s 2023 highlights in this annual report.
Margaret Lazo and Opal Perry, who bring extensive
It was a remarkable year with notable milestones
experience, leadership and perspective to the board.
despite significant industry challenges, yet HTLF
In particular, HTLF will benefit from their experience
did not waver in consistently serving its customers,
driving organizational change.
communities and stockholders.
Bruce K. Lee, President and Chief Executive Officer,
As independent Chairman, I’m pleased with the
and a member of the board, has announced his
company’s recent accomplishments and our
intention to retire at the end of 2024. Concurrent with
collective work as a board. The directors are
his retirement as President and CEO, he also intends
aligned with each other and management as
to retire from the board.
HTLF continues its transformation.
The HTLF Board of Directors will conduct a
Charter consolidation was unanimously
nationwide search for a successor. Bruce will
approved by the Board of Directors in late 2021
continue to serve as CEO until his successor is
and successfully completed on schedule in 2023.
chosen and assumes the role. He will assist with
This enabled the company to introduce HTLF 3.0,
the transition through year-end.
the next phase of its strategic plan, and again with
full support of the board.
I want to personally thank Bruce for his significant
contributions and dedicated years of service to HTLF.
In the first quarter of 2024, HTLF announced plans
The board and management team are committed
to sell all Rocky Mountain Bank division branches
to ensuring a smooth transition and we are grateful
in Montana. The planned sales will consolidate
that we’ll continue to benefit from Bruce’s leadership
HTLF’s geography, improve capital and increase
during this process.
Thank you for the opportunity to serve you as
independent Chairman.
efficiency, allowing the company to better serve
its targeted customers.
The board is also evolving how we operate.
We added a fourth committee, separating
Compensation from Nominating and Corporate
Governance and forming our Compensation and
Human Capital Committee. This provides directors
on each committee the ability to focus more deeply
and ensure alignment with the company’s goals.
J O H N K . S C H M I D T
6
Look Back
at 2023
HTLF was built to withstand
the economic and market
volatility that hit the banking
industry this year. Our financial
strength, coupled with our
local leadership and talent,
positioned us to deliver
Strength, Insight and Growth
that customers, communities,
employees and shareholders
depend on.
During the second half of the year, we continued
to execute our strategies and deliver deposit and
loan growth, stable credit quality and drive
long-term efficiency.
Dubuque Bank & Trust was consolidated into
HTLF’s strength and diverse geography
HTLF Bank during the fourth quarter of 2023,
enabled us to continue executing on our
which successfully completed the consolidation
strategic priorities despite industry challenges.
of all 11 charters.
We continued to display strong loan growth
and add new customer relationships.
Total consolidation restructuring costs came in
under budget at $16.9 million versus projected
To enhance our Retirement Plan Service
costs of $19-$20 million. Charter consolidation was
(RPS) product, HTLF entered into an
designed to eliminate redundancies and improve
agreement with JULY Business Services to sell
HTLF’s operating efficiency and capacity to support
the HTLF recordkeeping and administration
ongoing product and service enhancements, as well
business. This new partnership allows us to
as current and future growth.
better provide the robust technology and
product offerings our clients expect from
a top retirement services provider.
By selling the recordkeeping and administration
services, both firms will be stronger together as
JULY’s technology will enhance the customer
experience. HTLF retained investment
management oversight and participant
education and support.
HTLF | 2023 Annual Report
All our local bank brands are now divisions of HTLF
Bank and can serve all our customers anywhere in
our footprint.
The nearly two-year project was completed on
schedule and under budget, driving greater internal
efficiency while we continued to deliver external
growth. We are now strategically and structurally
positioned for our next phase – HTLF 3.0 – to execute
on new initiatives that leverage our brand, products,
technologies and capabilities.
Our determination to bring Strength, Insight and
Growth to customers and communities was reflected
in our performance. Our teamwork and discipline
supported individuals and businesses, while yielding
strong financial results for shareholders.
HTLF is moving forward together
into 2024. This is all due to the
hard work and dedication of
HTLF’s employees.
Wisconsin Bank & Trust in Green Bay, Wisconsin
Opened September 18, 2023
Wisconsin Bank & Trust relocated its current DePere office
to the heart of the Broadway District in downtown Green Bay.
T O G E T H E R , W E A R E
C O M M I T T E D T O
Executing our 3.0 strategies
Investing in quality revenue growth
Reducing our operating costs
Improving EPS growth, return on assets,
and efficient use of capital
Most importantly, serving our
customers and communities
EMPLOYEE
SPOTLIGHT
What did it mean
to lead one of the
largest initiatives
in company
history, charter
consolidation?
“It is always exciting to be part of
meaningful change – paving the
way for the growth and evolution
of a company. The best part,
though, was learning more about
how the company works, building
stronger relationships and working
with incredibly talented and
experienced people at HTLF
and the bank divisions!”
Jeannette Ross
SVP, Director Portfolio
Management Office
8
New HTLF Additions
A core initiative of HTLF is adding talent to grow our business
and better serve our customers and communities. To help drive
continued growth and help us further differentiate ourselves,
HTLF enhanced the executive leadership.
Tony Hammond
EVP, Head of Division
Bank, Commercial and
Middle Market
To enhance HTLF’s position as a Commercial bank, Tony
Hammond, Head of Commercial at Arizona Bank & Trust,
is our new Head of Division Bank Commercial and Middle
Market. Tony works with the heads of Commercial in each of
our markets. He will also oversee new HTLF Middle Market
Bankers that will be added in California’s Central Valley,
Denver, Kansas City, Milwaukee, Phoenix and the Twin Cities.
Zach Hamilton
EVP, Chief Innovation
and Digital Officer
Zach is responsible for developing HTLF’s enterprise-
wide digital strategy. Zach will work to offer a unique
experience to customers through the latest digital
products and innovations in the banking industry,
working across business lines to ensure effective,
streamlined processes for improved efficiency and
enhanced customer experiences.
Robert Kahn
EVP, Chief Strategy
Officer
Robert is responsible for charting the company’s
strategic direction. He works closely with the Executive
Leadership Team to identify growth opportunities,
mitigate risks and communicate our strategic vision
to key stakeholders. Robert will play an integral role in
propelling HTLF’s growth, operational excellence and
competitive standing in our markets.
Angela Kelley
EVP, Director of Wealth
Management
Wealth Management is an important growth
opportunity for HTLF. Angela rejoins the company
as a versatile leader who brings extensive
experience in business line and legal functions.
HTLF | 2023 Annual Report
Michelle Lance
EVP, Head of Treasury
and Payment Solutions
Michelle leads HTLF strategy, sales and product
development for Treasury Management and Card
Solutions. She aligns with other leaders across the
Bank to drive strong deposit and revenue growth while
delivering outstanding client experience and retention.
Lo Nestman
EVP, Head of Retail,
Marketing and Private
Banking
Lo is HTLF’s new Head of Retail, Marketing and Private
Banking. Lo previously served as President & CEO of
Premier Valley Bank (PVB) for five years. In that time,
Lo delivered significant growth at PVB and provided
leadership on numerous successful initiatives across
the organization.
Kevin
Thompson
EVP, Chief
Financial Officer
Kevin brings more than 25 years of finance experience.
His commitment to discipline and execution will help
HTLF continue to drive long-term strategic growth.
Kevin
Zimmermann
EVP, Director
Private Banking
The addition of Kevin marks a significant milestone in our
commitment to delivering unparalleled service to our Private
Banking clients. With an extensive 22-year background in
Private Banking, Kevin’s expertise will elevate and enhance
our Private Banking products and services.
®
Food & Agribusiness
Premier Valley Bank in Salinas, California
Opened March 9, 2023
The grand opening, hosted by PVB’s Salinas
branch and the HTLF Food & Agribusiness Team,
included a ribbon cutting and open house.
10
Corporate Social
Responsibility Highlights
HTLF is committed to enriching lives one customer, employee
and community at a time. Our continued growth and the growth
of the communities we serve is guided by our values of integrity,
accountability, community and excellence.
Achieving our mission means helping
solve problems and deliver solutions.
It also means supporting our employees
and being an outstanding partner with
individual and business customers, as
well as the communities we call home.
C O R P O R A T E
C I T I Z E N S H I P
Our commitment to our communities continues
to be a top priority and an important part of
who we are as a company. Since 2021, our team
members volunteered more than 34,000 hours
and invested approximately $1.2 million through
donations and sponsorships in support of
our communities.
Volunteering has always been a focus at
HTLF. In 2023, we evolved and enhanced our
volunteering efforts and dedicated an entire
week to a company wide service event.
HTLF | 2023 Annual Report
W E E K O F S E R V I C E :
T O G E T H E R , W E S E R V E
Our inaugural week of service focused
on “Food Insecurity/Hunger” in mid-September,
which led to Hunger Action Day on
September 23.
Food insecurity is a lack of consistent access
to enough food for all household members
to have an active and healthy life or limited
availability of nutritiously adequate food.
Millions of American families struggle to get
food on the table.
Events included volunteering at local food
banks, assembling boxes/bags of food,
delivering for Meals on Wheels and serving
meals at local shelters. We also organized food
drives at each of our locations. We collected
over 33,000 items of food for those in need.
“Together, we serve” was our theme for the
inaugural week of service and our week
long events made a positive impact in our
communities throughout the country.
Over 600 volunteers donated over
1,600+
Employee
Volunteer Hours
33,000+
Items of
Food
Embracing our mission of enriching lives and
acting on our vision of contributing to the vitality
of our communities is not only important but our
corporate responsibility.
C O M M U N I T Y R E I N V E S T M E N T
In addition to volunteerism, we also demonstrate
our commitment to our communities in other ways.
We understand the important role we play in
helping meet community needs, while investing
and contributing to the economic vitality of our
communities. Since 2020, HTLF has grown CRA
related investments in excess of $300 million.
The community development investment proceeds
are helping to create affordable housing units, while
also providing supporting funds toward community
services, economic development and community
revitalization, and stabilization.
H E L P I N G S M A L L B U S I N E S S E S
A C H I E V E B I G D R E A M S
Small businesses are critical to the health of our
communities. That’s why we’re committed to lending to
small businesses in low-and-moderate income urban
and rural communities. Since 2020, we provided nearly
$3 billion in small business and micro loans, comprising
over 24,000 loans. At HTLF, we strive to understand
opportunities and gaps to better serve the minority
owned small businesses within our footprint.
EMPLOYEE
SPOTLIGHT
What did it mean
to be a part of the
steering committee
for Week of Service?
“Being a part of the Week of Service
steering committee allowed me
to work directly with employees
across our footprint and get them
to connect with one another. Many
of us have not had the opportunity
to work with others in our regular
roles, so it provided an amazing
networking opportunity, while we
served in our local communities!”
Diego Ortiz
Regional HR Coordinator
1212
T O G E T H E R , W E S U P P O R T
O U R T E A M A N D O U R
C U S T O M E R S
Our talent is our greatest asset, and we strive
to promote the employee experience in a
variety of meaningful ways including but not
limited to competitive compensation, employee
engagement and retention.
Provided over $217,000 to employees
through the tuition assistance program
Awarded 59 scholarships totaling
$102,000 to our employees’ students
Contributed $78,000 to over 125
charitable organization through a
matching contribution program
Increased 401(k) match
contributions from 3% to 5%,
in addition to, discretionary
contributions.
HTLF | 2023 Annual Report
S T R O N G C O R P O R A T E
C U L T U R E
Diversity, Equity and Inclusion (DEI) is the right
thing to do, and we also believe it leads to a
more positive culture, higher-performing teams
and delivering better products and services.
HTLF is two years into our DEI journey, and we
have made significant accomplishments related
to awareness, outreach and transparency.
“Creating an inclusive workplace is a
top priority. This means increasing
demographic diversity and being
an ally to the communities we serve.
Every member of the Executive
Leadership Team is doing their part
to make this a reality.
Increasing diversity and inclusion
is at the core of the company’s
strategy, and commitment to it
starts at the top,”
Bruce K. Lee,
HTLF President and CEO
Our work to ensure our company is diverse,
equitable and inclusive continues to yield
strong results. 2023/2024 was highlighted by:
Launched five employee business
resource groups
Enhanced interactive DEI training
for all employees
Aligned and localized recruitment focus
Established supplier diversity strategy baseline
Published two DEI annual reports
Integrated quarterly DEI speaker series
The HTLF Board of Directors has continued
Employee engagement remains an important
its efforts to include talented individuals with
part of our efforts and is cultivated with a
diverse experiences that help HTLF evolve to
quarterly speaker series and new DEI online
better serve the needs of its diverse customer
training courses. By creating opportunities for
population. Recent directors added to the board
our colleagues, we deliver more value to our
came from a diverse group of candidates, and
stakeholders.
enhanced gender and minority representation
on the board.
“With more progress to be made, we are
proud of the advancements we have achieved
and are invigorated by our growing momentum,”
said Wendy Reynolds, Chief Diversity and
Inclusion Officer.
14
T O G E T H E R , W E A R E
C O M M I T T E D T O
E N V I R O N M E N T A L
S U S T A I N A B I L I T Y
one tree for every HTLF employee in honor
of National Arbor Day. The trees are planted in
areas of our geographic footprint impacted by
devastating forest fires.
Achieving a more sustainable future means
Other sustainability efforts include LEED
helping solve problems and delivering
Certified buildings, solar panels, converting
solutions. It also means being an outstanding
to LED lighting and decreasing paper printing
partner with our customers and communities.
volumes by 48 percent since 2019.
These priorities inspire us to nurture and
develop diverse talent and build trust through
collaboration. Our work both inside and outside
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 historic Roshek Building, centerpiece
of downtown Dubuque, Iowa’s sustainable
redevelopment, received the US Green
Building Council’s highest LEED Platinum
Certification. EvolveEA coordinated
the project team’s approach that
combined sustainable development,
HTLF partnered with One Tree Planted, a non-
green building and historic preservation
profit organization focused on reforestation and
to galvanize redevelopment in
conservation. Starting in 2022, HTLF has planted
historic downtown Dubuque.
HTLF | 2023 Annual Report
EMPLOYEE
SPOTLIGHT
What does it mean
to be in a leadership
role as Head of Bank
Operations?
“It means I get to do a job I love.
Every day is different in the world
of facilities, physical security
and branch operations. The one
constant is that I get to work with
and lead a smart and experienced
team across the country, problem
solving and developing solutions to
help better serve our customers.
I am extremely excited to be
involved in HTLF 3.0 as we
integrate Bank Operations and
Retail teams for better synergy,
as well as re-envisioning our
branch footprint and look and
feel of our facilities to provide
better customer service.”
Dubuque Bank & Trust joined HTLF at
700 Locust on November 1, 2023
Dubuque Bank & Trust’s new location at 700 Locust
continues the bank’s Dubuque downtown footprint
while also putting it under the same roof as local HTLF
employees. The location provides clients with a new,
modern brick-and-mortar branch to conduct business.
Together, we truly are living our
mission of enriching lives to help our
stakeholders thrive — a mission that will
contribute to a brighter future for us all.
TOG ETH ER, WE ARE
For more information on our Corporate
Social Responsibility (CSR) efforts, visit our
IR site ir.htlf.com for the 2023 CSR Report.
Julie Carstensen
SVP, HTLF Head of
Bank Operations
16
Celebrating Success
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.
a division of HTLF Bank
Michael Wamsganz,
President and CEO of
Citywide Banks, named a
2023 Colorado Titan 100
for demonstrating
exceptional leadership,
vision and passion.
Minnesota Bank & Trust ranked
as a Top 200 Workplace
named by Star Tribune.
Minnesota
Bank & Trust
recognized as
a Community
Champion by the Minnesota
Bankers Association for
the fourth year in a row for
volunteer efforts.
Dubuque Bank & Trust named
one of the Best Places to Work
by Dubuque Telegraph Herald.
Rocky Mountain Bank ranked
as a Top Workplace by
Energage Workplace Survey
Congratulations Doris Hannan
for 50 years of dedicated
service to HTLF and
Dubuque Bank & Trust.
Wisconsin Bank
& Trust ranked
a Best Bank
in Sheboygan
County Voted by
readers of the Sheboygan Press.
Nilson Report
ranked HTLF
among the top
U.S. commercial
credit card
issuers for the 8th
consecutive year .
Arizona Bank & Trust ranked
Best Places to Work #5 in the
Small Business Category by
Phoenix Business Journal.
Arizona Bank & Trust received
the voter-based #1 award in
the Banks category for Ranking
Arizona 2023 via AZBIG Media.
HTLF | 2023 Annual Report
A W E L L - E A R N E D
R E T I R E M E N T !
2023
Year-End
Key Financial
Highlights
Bryan
McKeag
Chief Financial Officer
Tangible Common Equity Ratio1
improved 132 bps
Dividend per share increased
to $1.20 from $1.09, or 10%
After more than 10 years with HTLF,
Bryan McKeag, Chief Financial
Officer (CFO), will retire.
Bryan’s expertise and stewardship
have been important to HTLF’s
significant growth during his tenure.
In that time, the company’s assets
quadrupled, and he oversaw numerous
acquisitions. We are grateful to Bryan
for his significant contributions to the
company over the past decade and
wish him all the best in his retirement.
L O A N G R O W T H
$640M or 5.6%
C O M M E R C I A L B U S I N E S S L O A N G R O W T H
9.6%
W H O L E S A L E A N D I N S T I T U T I O N A L D E P O S I T S
41%
T A N G I B L E B O O K V A L U E P E R S H A R E1
19%
1 Refer to the “Non-GAAP Reconciliations” table on
page 49 of the annual report on Form 10-K.
18
P L A T I N U M P O T A T O , I N C .
At Platinum Potato, their partnership
with local farmers and innovative
vision isn’t just changing the game;
it’s transforming Colorado’s potato
industry from the ground up.
In the heart of Colorado’s
potatoes to consumers
complexities of commercial
San Luis Valley, a new force
throughout North America.
financing and strategic
is shaping the landscape
They provide farms a fair and
planning, knowing that she had
of potato packaging and
transparent outlet to efficiently
a trusted ally by her side.
distribution. Meet Morgan
distribute their crop within
McCormick, the visionary
the limited timeline of
entrepreneur behind Platinum
perishable goods.
Potato Inc., whose passion
for innovation is driving
transformative change
across the industry.
Born and raised amidst the
hustle and bustle of her
family’s produce business,
Tater Traders LLC, Morgan’s
journey into entrepreneurship
was a natural progression.
After earning a degree in
Marketing from the University
of Denver, she returned to her
roots with a fresh perspective
and a desire to make her
mark. Recognizing a gap
in the market, Morgan set
out to revolutionize the way
potatoes were packaged and
distributed in Colorado.
Platinum Potato’s mission is
to provide superior quality
HTLF | 2023 Annual Report
B A N K
P A R T N E R S H I P
Citywide Banks (CWB)
recognized the growth
potential and transformative
impact Platinum Potato
would have on Colorado’s
fresh produce industry.
CWB Relationship Manager,
Alicja Gilbert, saw the passion
and vision behind Morgan’s
business plan. “Alicja asked
questions that made me
feel like she really wanted
to understand all sides of
my business – the numbers,
the produce industry and
why I would want to start
something like this,” said
Morgan. Empowered by this
partnership, Morgan felt
confident navigating the
CWB provided the resources
and lending agility needed
to turn Morgan’s vision into
reality. The purchase of a new
warehouse facility closed on
a Friday, and Platinum Potato
began processing potatoes
the following Monday.
“CWB is not known as an
Ag bank but have lived up
to the expectations,” said
Morgan. “They were able to
get things done quickly.” In
October, Alicja worked with
Morgan to finance a real estate
loan for their new facility in
Center, Colorado, as well as
an equipment line of credit
and operating line of credit.
CWB is also in the process
of expanding their Treasury
Management relationship.
“I am a young, female
voice in the process
entrepreneur in a male
and fostering mutually
dominated industry ready to
beneficial relationships.
revolutionize the industry.”
said Morgan. “Alicja and
her team did not treat me
differently. They embraced
my dream and my business
is exceeding expectations.”
C O M M U N I T Y
I M P A C T
H I G H L I G H T
What sets Morgan apart is
not just her entrepreneurial
spirit, but her commitment
to collaboration and
community engagement.
As the Founder and
President of Platinum
Potato, she recognized the
importance of forging direct
partnerships with area
farmers, giving them a
Through her hands-on
approach, Morgan not only
elevated the voices of local
farmers but also transformed
the landscape of produce
distribution, creating a ripple
effect of positive change. By
bridging the gap between
farmers and consumers, she
fostered a sense of trust
and transparency, ensuring
fair compensation for growers
and quality products
for consumers.
As Platinum Potato continues
to thrive, Morgan’s journey is
a reminder that with passion
and the right partnerships,
anything is possible.
“Citywide Banks makes my life simple.
With online banking, eDeposit and
DocuSign, I’m able to do everything
from my office in Center, Colorado.”
a division of HTLF Bank
MO RG AN MCCORMIC K
Founder, President
Platinum Potato, Inc.
20
20
L M 2 C O N S T R U C T I O N & C O N S U L T I N G , L L C
In the dynamic world of construction,
one name in Kansas City stands above
the rest: LM2 Construction & Consulting.
LM2 Construction &
Consulting, LLC, is a certified
100% minority and woman-
owned construction and
consulting enterprise in
Kansas City, Missouri.
They specialize in general
contracting and construction
management, both of
which minimize design and
construction costs, project
delivery time and facility life
cycle costs while maximizing
project flexibility and value
through strong communication
and process development.
In September of 2023, LM2
Construction & Consulting
successfully completed their
largest project to date – the
first structure for the Meta
Kansas City Data Center.
The 40,000-square-foot
building houses construction
operations for Meta, the
parent of Facebook. The pre-
engineered structure features
open offices, training rooms
and program space.
HTLF | 2023 Annual Report
L A T A S H A ’ S
B A C K G R O U N D
LaTasha McCall, whose
journey from humble
beginnings to Founder and
President of LM2 Construction
& Consulting is nothing short
of remarkable.
Born and raised in Kansas City,
LaTasha experienced firsthand
the challenges and obstacles
that often accompany minority
women entrepreneurs.
“What makes my business
unique is me,” said LaTasha.
“I’m a black woman in a white
man’s industry – one of a
handful of black women in
the United States who’s a
general contractor.” Fueled
by the desire to break barriers
and chart her own path, she
refused to be defined by
anyone other than herself.
LaTasha went to school
for marketing but soon felt
unfulfilled in her work. With
grit and determination, she
embarked on a new journey
in the construction trade.
Working her way from the
bottom rung of the ladder,
LaTasha embraced every
step to learn and grow.
After putting her two daughters
through medical school,
LaTasha stood at a crossroads
faced with the pivotal decision
that would shape the trajectory
of her career and life. With
courage and a steadfast
belief in her vision, she took
a leap of faith and used her
retirement savings to open LM2
Construction & Consulting, LLC.
LaTasha strives to shatter
industry standards by
forming strong professional
partnerships based on integrity,
ingenuity and reliability.
B A N K
P A R T N E R S H I P :
T H E P O W E R O F
P A R T N E R S H I P
Central to LaTasha’s remarkable
journey is her partnership with
Bank of Blue Valley (BBV) and
Relationship Manager Aladdin
Ashkar. Through personalized
guidance and custom financial
solutions, BBV provided the
tools LaTasha needed to propel
her business forward.
Whether it was securing
financing for LM2’s new
headquarters, Treasury
Management and Card
Services, navigating
complex financial
BBV was able to capture
LaTasha’s entrepreneurial
landscapes or seizing new
spirit and let her know early
opportunities for growth,
on they believed in her vision.
BBV’s partnership was a
She was able to develop
driving force behind her
strong relationships within the
company’s exponential
community and BBV could see
growth and success.
a bright future with her.
LaTasha’s relationship with
As LM2 and BBV look to
BBV is one of transparency,
the future, we do so with a
openness and inspiration.
shared sense of purpose,
Before LaTasha makes
determination and optimism.
a decision, she seeks
Together, we will continue
advice from Aladdin and
to break barriers, defy
the BBV team. They have
expectations, and create
consultative conversations
opportunities for success
that helps to contribute to
in Kansas City.
LaTasha’s success. “She has
a chip on her shoulder, but in
a good way, because she
is a woman of color
dominating in a white male
industry,” says Aladdin.
“What makes my business unique is
me. I’m a black woman in a white
man’s industry – one of a handful of
black women in the United States
who’s a general contractor.”
L ATASH A MCCA LL
Founder, President
LM2 Construction
& Consulting
22
22
C H U R C H B R O T H E R S F A R M S ( T R U E L E A F H O L D I N G S )
From seed to salad bowl, Church
Brothers Farms epitomizes the spirit
of a fully integrated agribusiness.
The Church family has been
and partners in progress.
showcases the power and
an integral part of California’s
HTLF Food & Agribusiness
importance of building strong
agricultural community for
Managing Director Patrick
partnerships. We were able
nearly a century. Brothers Tom
Bishop immersed himself in
to deliver additional value
and Steve Church developed
Church Brothers Farms’ world.
through Treasury Management
a deep-rooted passion for
Whether it’s joining meetings,
by enhancing efficiency and
agribusiness as teenagers
touring their state-of-the-art
acting as a one-stop shop for
harvesting lettuce together in
facilities, or delving deep into
all the client’s banking needs.
the Salinas Valley. Driven by
the intricacies of their business
“Our relationship with HTLF is
their entrepreneurial vision,
and industry, his presence
very personal, responsive and
they came together in 1999
is felt every step of the way.
whenever there’s a problem,
to create Church Brothers
Stacy Radich, CFO of Church
they’re on it. They provide
Farms – a grower-owned fresh
Brothers Farms says, “Having
training for all their new features,
vegetable processor.
someone understand the
and give us everything we need,
vertically integrated nature of
all in one place,” Radich said.
With a diverse and robust
product line, Church
Brothers Farms ensures a
year-round abundance of
fresh vegetables that caters
our company and the various
facets and complexities it
comes with are critical for us.
HTLF gets that.”
to the discerning needs of
When Church Brothers Farms
their clientele. Whether it’s a
sought financing for the
Michelin-starred restaurant
acquisition of cold storage
or a neighborhood grocery
and production warehouse
store, Church Brothers Farms
facilities in Salinas, California,
is the first and foremost choice
Patrick Bishop recognized
for those seeking impeccable
a prime opportunity. He
produce options.
leveraged this chance to
B A N K
P A R T N E R S H I P
Located in the heart of
Salinas, California, HTLF’s
Food & AgriBusiness is
not just a financial partner;
they are neighbors, allies
HTLF | 2023 Annual Report
capture the company’s
entire relationship by
refinancing several loans
and providing access to
additional working capital.
Our longstanding history
with Church Brothers Farms
H T L F F O O D &
A G R I B U S I N E S S
H I G H L I G H T
The HTLF Food & Agribusiness
team is dedicated to serving the
unique needs of our food and
agribusiness clients. Comprised
of seasoned professionals
with extensive experience and
a deep understanding of the
intricate nuances of food and
agriculture, our team works
exclusively within this space,
harnessing their collective
knowledge and insights to
provide tailored financial
solutions that fuel growth
and drive success.
As Church Brothers Farms’
to the sun-drenched fields
financial partner, we
of Yuma, Arizona, where they
understand their business
continue to harvest a bounty
model and the delicate
of fresh produce. When Spring
balance required to navigate
arrives, they return to the
the dynamic world of
Salinas Valley. Their reach
perishable produce products.
extends even further, with
C H U R C H
B R O T H E R S
F A R M S
I N N O V A T I V E
F O O T P R I N T
H I G H L I G H T
Spanning over 2,000 miles
of diverse terrain, Church
Brothers Farms orchestrates
a symphony of cultivation
that crosses geographical
boundaries. Their agile
approach to farming involves
a meticulous dance of
relocation, as they seamlessly
transition their processing
equipment across various
locations throughout the year.
As winter blankets northern
landscapes, Church Brothers
Farms moves their operations
thriving growing operations
year-round in Mexico.
In every field, in every season,
Church Brothers Farms stands
as a testament to the boundless
potential of agribusiness.
In the fast-paced realm of
agribusiness, adaptability is key
and HTLF stands shoulder-to-
shoulder with Church Brothers
Farms, ready to weather any
storm that comes their way.
By understanding the
intricate interplay between
the various facets of their
operations, Church Brothers
Farms is empowered to
navigate volatility with
confidence, emerging
stronger and more resilient
with each growing season.
“Having someone understand the
vertically integrated nature of our
company and the various facets
and complexities it comes with
are critical for us. HTLF gets that.”
®
Food & Agribusiness
STACY RAD ICH
Chief Financial Officer,
Church Brothers Farms
24
24
P A S S P O R T H E A L T H
At Passport Health, every traveler’s
journey is as unique as they are.
Whether for business or
expertise. Under Outlier’s
needs, he turned to Arizona
pleasure, our paths often
umbrella, Passport Health
Bank & Trust (ABT). “Passport
lead us far from home.
continues to expand its reach
Health is a geographically
Safeguarding our health while
and enhance its offerings,
diverse, customer service
abroad is essential, and that’s
ensuring it remains at the
oriented, high-growth
where Passport Health steps
forefront of the travel
business,” says Paul. “Arizona
in. With a commitment to
medicine industry.
Bank & Trust grasped that from
providing first-class medical
care for travelers nationwide,
Passport Health offers a
concierge approach to
travel medicine.
Passport Health is the largest
and leading provider of travel
medicine and immunization
services in North America.
They strive to be travelers
one-stop-shop for all their
vaccination, travel document
and travel supply needs. With
over 270 travel clinic locations,
a commitment to first-class
medical care, and rigorously
trained medical staff, they
have set the immunization
industry standard.
As a subsidiary of Outlier®,
a Phoenix-based holding
company known for
nurturing and growing niche
industry leaders, Passport
Health benefits from a solid
foundation of support and
C O M P A N Y
M I S S I O N
H I G H L I G H T
At Passport Health, their
mission begins with a
commitment to safeguarding
the health and well-being of
every traveler they serve. The
world can be unpredictable,
and health risks vary from one
destination to another. That’s
why they go above and beyond
to educate and prepare their
patients, arming them with the
knowledge, immunizations
and medications needed to
stay healthy wherever their
adventures may take them.
B A N K
P A R T N E R S H I P
When Paul Fishburn, Chief
Operating Officer of Passport
Health, sought a financial
partner capable of aligning
with his unique vision and
the beginning and offered
solutions to help us manage our
vast reach. We appreciate their
willingness to think outside of
the box to accommodate our
growing organization.”
“ABT asked great questions,
listened and offered solutions
that met our needs, and they
did it quickly and efficiently,”
said Paul. The bank understood
Passport’s growth trajectory
and was able to determine
a structure that would
facilitate that.
Paul found in ABT’s Relationship
Manager Brian Cousins a
trusted ally committed to
Passport Health’s success.
“As a former business owner
myself, I know that windows
of opportunity open and
close quickly. If you can’t get a
financial decision made in time,
you lose out on that opportunity.
What makes ABT special
HTLF | 2023 Annual Report
is that we’re local. When
Health into a standardized
opportunities arise, Paul
box, they were willing to
can pick up the phone and
create a structure that would
have a direct line to the
accommodate the business
bank’s decision makers,”
model. “I’ve never seen a bank
Brian explained.
move as fast as they did to learn
Passport Health utilizes ABT’s
full banking suite that includes
Treasury Management.
about our business, finalize a
deal, meet every deadline and
willing to devote significant
resources to support our
ABT provided creative
needs,” added Paul.
financing solutions to support
Passport Health’s growth
and cash generation profile.
Rather than try to fit Passport
PAUL F ISHB UR N
Chief Operating Officer,
Passport Health
“I’ve never seen a bank move as
fast as they did to learn about
our business, finalize a deal,
meet every deadline and willing
to devote significant resources
to support our needs.”
a division of HTLF Bank
26
26
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
Zach C. Hamilton
Executive Vice President
Chief Innovation and
Digital Officer
Nathan R. Jones
Executive Vice President
Chief Credit Officer
Robert S. Kahn
Executive Vice President
Chief Strategy Officer
Tamina L. O’Neill
Executive Vice President
Chief Risk Officer
Angela W. Kelley
Executive Vice President
Director of Wealth Management
David A. Prince
Executive Vice President
Chief Commercial Officer
Jay L. Kim
Executive Vice President
General Counsel and Chief
Administrative Officer
Janet M. Quick
Executive Vice President
Deputy Chief Financial Officer
Principal Accounting Officer
Lo B. Nestman
Executive Vice President
Head of Retail, Marketing
and Private Banking
Kevin G. Quinn
Executive Vice President
Chief Banking Officer
Kevin L. Thompson
Executive Vice President
Chief Financial Officer
BOARD MEMBERS
back row left to right
front row left to right
Robert B. Engel
Director
Christopher S. Hylen
Director
John K. Schmidt
Chairman of the Board
Susan G. Murphy
Director
Thomas L. Flynn
Director
Kathryn Graves Unger
Director
Bruce K. Lee
President and CEO
Jennifer K. Hopkins
Director
Duane E. White
Director
Martin J. Schmitz
Director
Opal G. Perry
Director
Margaret Lazo
Director
NEW HTLF BOARD ADDITIONS
Opal G. Perry is Chief Strategy and Digital Transformation Officer at PODS
Enterprises, LLC, has over 25 years of experience in building and growing
global technology organizations, leading change initiatives and managing
integration activities.
Margaret Lazo is a Senior Operating Consultant at Cerberus Capital
Management, a global private equity firm. She is an accomplished
executive with a history of successful leadership in the areas of talent
development, DEI, business transformation and organizational change.
Ms. Lazo is dedicated to empowering the Hispanic community and
advancing the Latino talent in corporate America.
42%
Female board
members
17%
Ethnically diverse
board members
HTLF | 2023 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
Douglas M. Kohlbeck
CEO
CITYWIDE BANKS
Michael A. Wamsganz
President and CEO
DUBUQUE BANK & TRUST
Andrew E. Townsend
President and CEO
FIRST BANK & TRUST
James D. Arnold
President and CEO
ILLINOIS BANK & TRUST
Jeffrey S. Hutman
President and CEO
MINNESOTA BANK & TRUST
Douglas M. Kohlbeck
Interim President and CEO
NEW MEXICO BANK & TRUST
Andres M. Garcia
President and CEO
PREMIER VALLEY BANK
David G. Triplitt
President and CEO
ROCKY MOUNTAIN BANK
Tod M. Petersen
President and CEO
WISCONSIN BANK & TRUST
Douglas M. Kohlbeck
President and CEO
®
a division of HTLF Bank
James Arnold
President and CEO,
First Bank & Trust (FBT)
James joined FBT after leading American Bank of
Commerce, most recently as President and CEO,
and delivering significant asset and loan growth.
He brings more than 20 years of local banking
experience and leadership in West Texas to FBT.
a division of HTLF Bank
®
Andres Garcia
President and CEO,
New Mexico Bank & Trust (NMBT)
Andres joined NMBT as Head of Commercial
in 2021. He has more than 18 years of banking
experience in New Mexico and strong relationships
across the state. Andres is deeply connected in the
Albuquerque community and serves on multiple
boards of volunteer organizations.
Greg Leyendecker
President and CEO Emeritus,
New Mexico Bank & Trust (NMBT)
a division of HTLF Bank
®
Greg has stepped down from his day-to-day
responsibilities and will transition to his new role as
NMBT CEO Emeritus. Greg is one of the founders of
NMBT and led the bank since its beginning in 1998,
driving growth and leading it to $2.6 billion in assets
as of June 30, 2023.
David Triplitt
President and CEO,
Premier Valley Bank (PVB)
David has led Commercial at PVB for more than
two years and brings over 30 years of banking
experience and relationships in California’s
Central Valley to the role.
28
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, May 22, 2024, at 1 p.m. Mountain
Time. You may attend the meeting, vote and submit your questions
during the meeting by visiting: www.virtualshareholdermeeting.com/
HTLF2024. Prior to the meeting, you may 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 Kevin L. Thompson, Executive Vice
President, Chief Financial Officer, at the above address or call 303-
365-3813. Additional information is also available online at HTLF.com.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
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.
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
HTLF.com
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 | 2023 Annual Report
29
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, 2023
☐ 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, 2023, the last business day of the registrant's most
recently completed second fiscal quarter, was approximately $1,167,506,494.
As of February 21, 2024, the Registrant had issued and outstanding 42,689,058 shares of common stock, $1.00 par value per share.
Portions of the Proxy Statement for the 2024 Annual Meeting of Stockholders, which will be filed no later than 120 days after December 31,
2023, 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 1C. Cybersecurity
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/or in the local economies in which HTLF conducts its operations, volatility in the debt and equity markets,
impairments of the value of our goodwill or tax assets, changes in tax laws, natural disasters, climate change and
climate-related regulations, persistent inflation, interest rate fluctuation, recession, labor shortages, terrorist threats or
geopolitical conflict;
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 borrower industry risks or climate and other risks, which may
impact the provision for credit losses and net charge-offs;
Liquidity and Interest Rate Risks, including unfavorable interest rate levels or rapid changes in interest rates, inability
to meet our liquidity needs, loss of deposits, increased funding costs, and changes in the value of our investment;
Operational Risks, including risks related to information systems, cybersecurity, third-party vendor, business
interruption, cyber security incidents and fraud, internal controls, technology expense, loss of key personnel, new
products;
Strategic and External Risks, including risks related to the soundness of other financial institutions execution of our
growth strategy, including acquisitions that we may make;
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. (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 2024 Annual Meeting of Stockholders will be available electronically via a
link on our website at www.htlf.com.
At December 31, 2023, HTLF had total assets of $19.41 billion, total loans held to maturity of $12.07 billion and total deposits
of $16.20 billion. HTLF’s total stockholders' equity as of December 31, 2023, was $1.93 billion. Net income available to
common stockholders for 2023 was $71.9 million.
HTLF conducts its banking business through multiple independently branded divisions of HTLF Bank (referred to herein
collectively as the "Banks" "Bank Markets", "Bank Divisions") in the states of Arizona, California, Colorado, Illinois, Iowa,
Kansas, Minnesota, Missouri, Montana, New Mexico, Texas and Wisconsin. Each Bank serves a separate state banking market
except for Kansas and Missouri, which constitute a single banking market.
HTLF Bank is insured and regulated by the Federal Deposit Insurance Corporation (the "FDIC"). As of December 31, 2023,
HTLF Bank and its respective bank brands listed below, operated a total of 117 banking locations:
•
HTLF Bank, Denver, Colorado, is chartered under the laws of the state of Colorado. The following brands operate as
divisions of HTLF Bank:
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◦
Arizona Bank & Trust, principal office located in Phoenix, Arizona,
Bank of Blue Valley, principal office located in Overland Park, Kansas
Citywide Banks, principal office located in Denver, Colorado,
Dubuque Bank & Trust, principal office located in Dubuque, Iowa,
First Bank & Trust, principal office located in Lubbock, Texas,
Illinois Bank & Trust, principal office located in Rockford, Illinois,
◦ Minnesota Bank & Trust, principal office located in Minnetonka, Minnesota,
◦
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New Mexico & Trust, principal office located in Albuquerque, New Mexico,
Premier Valley Bank, principal office located in Fresno, California,
Rocky Mountain Bank, principal office located in in Billings, Montana, and
◦ Wisconsin Bank & Trust, principal office located in Madison, Wisconsin
HTLF uses the "HTLF" brand to refer to activities and operations and certain limited common products and services offered by
all Banks, such as HTLF Retirement Plan Services.
As of December 31, 2023, 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, 2023.
The principal business of our Banks consists of making loans to and accepting deposits from businesses and consumers, while
offering other related bank products and services. Our Banks provide full service commercial and consumer banking in their
communities. Both our loans and our deposits are generated primarily through strong banking and market knowledge as well as
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
2 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 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 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
3. Centralizing back-office operations for efficiency and enhancing the customer experience.
•
•
•
•
•
•
•
Leverage expertise across HTLF Bank
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, fraud and enterprise risk management,
investment management, customer support and facilities management.
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 nimbly and 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 policies and procedures regarding asset/
liability and investment management, compliance and risk management, credit risk, and deposit structure management,
information technology management and security management.
Another component of our operating strategy is to require all directors and officers to maintain an ownership interest in HTLF,
and to create a culture of ownership with all employees by facilitating stock ownership. We have established ownership
guidelines for our directors and executive officers. We also have a long-terms incentive plan through which we grant equity-
based awards to eligible employees, and an employee stock purchase plan through which we facilitate stock ownership by
offering stock to all employees at a discount.
3 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 continues to evaluate opportunities to augment our business through
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 also considers acquisitions of fee income businesses that complement
and build on our existing businesses, or further meet the needs of our customers. Moreover, HTLF continues to explore 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 driven by the evolving digital and competitive landscape,
we continue to evaluate our branch footprint and 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.
HTLF completed strategic divestitures of certain non-core assets during 2023. Dubuque Bank & Trust, a division of HTLF
Bank, sold and transferred the recordkeeping and administration services component of HTLF’s Retirement Plan Services
business to July Business Services ("July"). Through the new partnership with July, HTLF expects to augment the
comprehensive retirement plan solutions offered to clients with enhanced technology and an expanded suite of product
offerings that clients expect from a top retirement services provider. The transaction was completed, and recordkeeping and
administration services were transferred in the second quarter of 2023. First Bank & Trust, a division of HTLF Bank, completed
the sale of its mortgage servicing rights portfolio during the first quarter of 2023, which consisted of approximately 4,500 loans
serviced for others with an unpaid principal balance of $698.5 million.
Subsequent to December 31, 2023, in February of 2024, HTLF announced that HTLF Bank had signed definitive agreements to
sell its nine Rocky Mountain Bank division branches to two purchasers. The agreements include the sale of approximately
$588.9 million of deposits, $365.9 million of loans and $13.6 million of premises, furniture and equipment. The transaction is
expected to close in the latter half of 2024. The sales are expected to improve capital levels and allow for increased focus and
investment in bank markets with higher future growth potential.
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 also has access to a centralized team of middle-
market lenders with expertise in specific industries and loan structures allowing us to retain growing customers and seek new
attractive customer opportunities. We have a broad and diverse 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 and geographies.
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 HTLF
Bank is 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.
4 We deliver the following products and services throughout our Bank Markets:
Commercial Banking
Our Banks have a strong commercial loan base generated primarily through established longstanding 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.
Commercial bankers provide a consultative customer-centric approach utilizing our 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
needs of the customer.
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 and Payment Solutions Suite includes a full array of services designed to meet the needs of commercial clients.
Our services include: online banking with custom statement formatting and multiple delivery options, same day and prior day
information reporting, bill payment, same day and next day automated clearing house ("ACH") services, wire transfers, insured
cash sweeps ("ICS"), zero balance accounts, lockbox, image cash letter, remote deposit capture, commercial cards for travel and
entertainment purchasing, merchant services to receive credit card payments, investment sweep accounts, reconciliation
services, online invoice processing, foreign exchange and positive pay fraud prevention services for checks and ACH payments.
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 the majority of 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.
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 HTLF Bank. Lenders in each Bank Market are complemented by
HTLF Specialized Industries, a centralized team of highly experienced middle-market lenders focused on specific industries
and more complex loan structures. This team includes specialized expertise in commercial real estate, healthcare, food and
agribusiness, and franchise finance, as well as in customer interest rate swaps and loan syndications. HTLF Specialized
Industries also selectively seeks out high quality lending and relationship opportunities within their specific areas of expertise
outside our bank markets.
With the oversight of our centralized credit administration group, our credit risk management process is governed by our
commercial and consumer loan policies which establish the enterprise framework for credit and underwriting standards across
the company. These policies are further governed and supported by our credit risk appetite. Our loan policies establish
underwriting standards in alignment with safe and sound credit decision making and in accordance with regulatory guidelines
and expectations commensurate with the risk within our portfolio (e.g., Real Estate 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 HTLF Bank, our internal loan review department, which is overseen by the Chief Risk
Officer, independently validates credit risk rating accuracy and analyzes credit risk. To reduce the risk of loss, we have
5 processes to help identify problem loans early, while working with customers and aggressively seeking resolution of credit
problems.
As part of Credit Administration, HTLF has a special assets group which focuses on providing guidance to our customers
experiencing challenges and resolving problem assets. Loans in a workout status or default are assigned to the special assets
group which is also responsible for marketing and disposing of repossessed properties.
Agricultural Banking
We originate loans and build customer relationships in the food, agribusiness and agriculture businesses in our Bank Markets
with operations in and around rural areas, including Dubuque Bank & Trust, 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. On a selective basis, this specialized industry group seeks out high quality lending
and relationship opportunities outside of our bank markets.
Agricultural loans constituted approximately 8% of our total loan portfolio at December 31, 2023. 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.
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 related 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 also
depends upon the profitable operation or management of the agricultural entity.
HTLF has a centralized underwriting group with knowledge and expertise in various types of agricultural lending. The
underwriters work closely with lending officers to evaluate credit requests and ensure that underwriting parameters are met in
accordance with HTLF's Loan Policy. Further the lending officers of HTLF Bank 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. HTLF Bank also works 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 related to 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. HTLF Bank has designated business bankers and branch
managers to serve the distinct banking needs of these customers.
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. Prior to March 31, 2023, HTLF originated residential mortgage loans through its wholly-owned subsidiary and sold
them on the secondary market with servicing retained. On March 31, 2023, HTLF sold its mortgage servicing rights portfolio,
which consisted of approximately 4,500 loans serviced for others with an unpaid principal balance of approximately $700
million. Pursuant to the terms of the sale, HTLF's subsidiary provided interim servicing of the loans until the transfer date in
May 2023. Following the sale, and because of the decrease in customer demand HTLF elected to significantly scale back
mortgage originations, and now offers residential mortgage loans to its customers through the Bank divisions and through a
partnership with a third-party mortgage loan provider that began in 2022.
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"), certificate
of deposit registry service ("CDARS") and debit cards. 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 We 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
HTLF offers wealth management, trust services, brokerage services, and fixed rate annuity products. HTLF also provides
retirement plan services to business clients, including 401(k), 403(b) and profit sharing plans. As of December 31, 2023, total
trust assets under management were $3.92 billion.
HTLF has contracted with LPL Financial Institution Services, a division of LPL Financial, to operate independent securities
brokerage offices at HTLF Bank. Through the LPL Financial third-party arrangement, 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 operating through HTLF Bank in the Midwest, West and
Southwest regions. The following table sets forth certain information about the offices and total customer deposits of HTLF
Bank's Markets as of December 31, 2023, with dollars in thousands. The table below excludes $1.63 billion of deposits not
allocated to a Market.
State
IA
Bank Division
Dubuque Bank & Trust
Total
Deposits
$ 1,306,044
IL
Illinois Bank & Trust
$ 1,419,844
WI Wisconsin Bank & Trust
$ 1,265,926
NM New Mexico Bank & Trust
$ 2,329,633
AZ Arizona Bank & Trust
MT Rocky Mountain Bank
$ 1,506,466
579,182
$
Number of
Locations
7
1
1
5
1
3
1
4
1
1
1
9
2
2
2
1
1
1
2
1
7
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 Citywide Banks
Bank Division
Total
Deposits
$ 1,811,729
MN Minnesota Bank & Trust
KS
Bank of Blue Valley
CA Premier Valley Bank
$
$
$
554,401
965,522
981,860
TX First Bank & Trust
$ 1,849,325
Number of
Locations
8
2
1
1
1
5
2
7
1
1
1
1
2
1
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
Monterey 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
C. COMPETITION
We face 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 include other commercial banks, credit unions, thrifts, fintech
firms, stockbrokers, securities and brokerage companies, mutual fund companies, mortgage companies, and insurance
companies and other non-bank financial service companies. Some of these competitors are local, while others are regional,
national, global, or have no physical location.
Technological advances have made it possible for our competitors, including non-bank 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 effectively through the array and quality of deposit and credit products and
services we provide, and the high-touch, customer-centric way in which we provide them. We invest in our people and we
focus on building long-lasting customer relationships through our strategy of serving our customers above and beyond their
8 expectations through excellence in customer service and providing banking solutions that are tailored to their 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 competitors.
D. HUMAN CAPITAL
People are our most valuable asset. They are critical in providing the high quality of service and knowledge our customers
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 employees' best interests as part of our evolving human capital strategy. In 2023, 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, 2023, HTLF employed 1,970 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 net voluntary turnover ratio was 18.1%, and we filled 558 positions, of which
approximately 148, or 26.5%, were filled internally. As of December 31, 2023, there were open requisitions for 67 positions,
which was a decrease of 21 positions or 31% from 90 open positions at December 31, 2022. We have thoughtfully responded to
inflation and other market pressures through increases in compensation.
Employee onboarding and education continue 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 customers.
HTLF delivers a culture session to all new hires to aid them in understanding the importance of who we are and the importance
of living our mission, vision, and values.
Competitive Compensation and Benefits
Aligned with our compensation philosophy, we remain focused on providing market level compensation and benefit packages.
We 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. We implemented an employee scholarship program supporting
secondary education for eligible dependents, as well as a charitable match program for charitable organizations that are
important to our team. HTLF organized a company-wide day of service supporting efforts around food insecurity. 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 provide a superior customer
experience. We continue to manage leadership training programs for high potential employees and successors and are
increasing our efforts into 2024. All employees participate in our annual computer-based coursework, which includes a suite of
human resources and compliance related courses to enhance awareness and understanding. Where appropriate, we also invest in
educational and professional certification opportunities for our employees to augment their subject matter expertise.
HTLF has implemented robust education for our consumer and commercial teams to enhance their ability to serve our
customers using a value-based approach.
9 Diversity and Inclusion
HTLF is committed to embracing diversity and inclusion at all levels of the organization beginning with our Board of Directors.
Our diversity statement reflects both our current culture and what we aspire to be:
HTLF is unique and so are you. We all come from different backgrounds and experience that help shape our company
values. Our values are rooted in the belief that respect, equality, and inclusiveness make us stronger together. The
variety of experiences and lifestyles we bring to work every day provides insights that help us better understand each
other and our customers.
We publish an annual report showcasing our efforts on Diversity, Equity, and Inclusion ("DEI"), establish metrics in candidate
pools and added new Employee Business Resource Groups. We remain committed to offering a series of quarterly speakers on
important topics to foster productive dialogue and understanding.
HTLF's Chief Diversity & Inclusion Officer and Diversity Advisory Council were appointed to oversee, advise, and connect
DEI activities to a broader business-driven, results-oriented strategy, as well as to align with our corporate values and the future
success of HTLF. The Diversity Advisory Council has engaged guest speakers to further the conversation as we work to
educate our teams and enhance inclusiveness. We support our employees in building community at HTLF through our
employee-driven Employee Business Resource Groups.
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 and banking industry events. Regulatory enforcement and fines have also
increased across the banking and financial services sector. Further driven by the banking turmoil in 2023, HTLF expects the
scope of regulation and the intensity of supervision will continue to be extensive, including increased scrutiny and higher
hurdles for approval of bank mergers and acquisitions by federal bank regulators.
As a bank holding company, HTLF is regulated by the Board of Governors of the Federal Reserve System (the "Federal
Reserve"). HTLF Bank is regulated by the FDIC as its principal federal regulator and the Colorado Department of Regulatory
Agencies, Division of Banking (the "Colorado Division of Banking") as its state regulator.
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 HTLF Bank to evaluate their financial condition and monitor
their compliance with laws and regulatory policies. Following those exams, HTLF and HTLF Bank 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 HTLF 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 banking agencies have broad authority to issue orders to depository institutions and their holding companies
prohibiting activities that constitute violations of law, rule, regulation, or administrative order, or that represent unsafe or
unsound banking practices, as determined by the federal banking agencies. The federal banking agencies also are empowered to
require affirmative actions to correct any violation or practice; issue administrative orders that can be judicially enforced; direct
increases in capital; limit dividends and distributions; restrict growth; assess civil money penalties against institutions or
individuals who violate any laws, regulations, orders, or written agreements with the agencies; order termination of certain
activities of holding companies or their non-bank subsidiaries; remove officers and directors; order divestiture of ownership or
10 control of a non-banking subsidiary by a holding company; or terminate deposit insurance and appoint a conservator or
receiver.
The CFPB has broad rulemaking authority over a wide range of federal consumer protection laws applicable to our business.
We are subject to CFPB examination and supervision relating to compliance with federal consumer protection laws and
regulations. Any 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 our business.
This section summarizes material elements of the regulatory framework that applies to HTLF and HTLF Bank. 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, 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 HTLF Bank and to commit
resources to support HTLF Bank in circumstances where HTLF might not otherwise do so. 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 periodic reports with the Federal Reserve of
HTLF's operations and such additional information regarding HTLF and its subsidiaries as the Federal Reserve may require.
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 a bank or bank holding company, or merging or consolidating with another bank
holding company. The Bank Merger Act generally requires us to obtain prior regulatory approval to merge, consolidate with,
acquire substantially all the assets of, or assume deposits of another bank.
Capital Requirements
Bank holding companies and their subsidiary financial institutions are required to maintain minimum risk-based and leverage
capital ratios, as well as a capital conservation buffer, pursuant to regulations adopted by the Federal Reserve and FDIC, as
applicable, to implement the Basel III capital framework ("Basel III Rule"). These requirements include quantitative measures
that assign risk weightings to assets and off-balance sheet items and define and set minimum regulatory capital ratios. Failure to
meet minimum capital requirements can initiate certain mandatory, and possible additional discretionary, actions by the federal
banking regulators that, if undertaken, could have a material adverse effect on the financial condition and results of operations
of a bank holding company and its subsidiaries. Federal banking regulators are required by law to take prompt action when
institutions are viewed as engaging in unsafe or unsound practices or do not meet certain minimum capital requirements. In
addition to other potential actions, failure to meet regulatory capital requirements would result in limitations on capital
distributions as well as executive bonuses. The Federal Reserve, FDIC and applicable state banking regulators may determine
11 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 HTLF Bank elected not to include the effects of other comprehensive income in CET 1 capital.
Under the Basel III Rule, HTLF and HTLF Bank 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 HTLF Bank to
maintain a capital conservation buffer composed entirely of common equity Tier 1 capital of 2.5% in addition to the minimum
risk-weighted asset ratios designed to absorb losses during periods of economic stress.
The following table presents the minimum regulatory capital ratios, minimum ratio plus capital conservation buffer, and well-
capitalized minimums that HTLF and HTLF Bank 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 HTLF Bank.
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 HTLF Bank's ability to pay dividends or
otherwise distribute capital. As part of its risk management framework, HTLF performs on-going capital stress testing to
validate its capital resiliency and ability to meet internal and regulatory capital thresholds under normal and stressed scenarios.
The results of stress tests are leveraged and further inform on strategic and capital planning activities. See the discussion of
"Capital Resources" in Management’s Discussion and Analysis of Financial Condition and Results of Operations. As of
December 31, 2023, HTLF had regulatory capital in excess of the Federal Reserve requirements for well-capitalized bank
holding companies.
12 Climate-Related Risk Management and Regulation
In recent years the federal banking agencies have increased their focus on climate-related risks impacting the operations of
banks, the communities they serve and the broader financial system. For example, in 2021, the Financial Stability Oversight
Council published a report identifying climate-related financial risks as an “emerging threat” to financial stability, and on
October 24, 2023, the OCC, the FDIC and the Federal Reserve jointly finalized principles for climate-related financial risk
management for national banks with more than $100 billion in total assets. Although these risk management principles do not
apply to HTLF, as climate-related supervisory guidance is formalized, and relevant risk areas and corresponding control
expectations are further refined, we may be required to expend significant capital and incur compliance, operating, maintenance
and remediation costs in order to conform to such requirements.
In addition, climate disclosure rules have been or are being enacted by states and the SEC. In October 2023, California enacted
two climate-related disclosure laws. The Climate Corporate Data Accountability Act (referred to as SB 253) requires all U.S.
businesses with revenues greater than $1 billion doing business in California to report their greenhouse gas emissions, including
scopes 1, 2, and 3, beginning in 2026 (for 2025 data), and also requires reporting companies to get third-party assurance of their
reports. Other states have proposed similar legislation to SB 253. The Climate-Related Financial Risk Act (referred to as SB
261) requires U.S. businesses with annual revenues over $500 million doing business in California to bi-annually disclose
climate-related financial risks and their mitigation strategies beginning January 1, 2026. In addition, in March of 2022, the SEC
proposed new climate-related disclosure rules. If adopted as expected, the rules would require new climate-related disclosures
in SEC filings and audited financial statements, including certain climate-related metrics and greenhouse gas emissions data,
information about climate-related targets and goals, transition plans, if any, and attestation requirements.
Dividend Payments
HTLF's ability to pay dividends to its stockholders may be affected by general corporate law considerations, 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 HTLF
if it determines that payment of the dividend would constitute an unsafe or unsound practice.
Regulation of HTLF Bank
General
HTLF Bank is a Colorado state-chartered, non-member bank, which means it was formed under state law and is not a member
of the Federal Reserve System. As a result, HTLF Bank is subject to the direct regulation, examination, supervision, and
reporting and enforcement requirements of the Colorado Division of Banking, the chartering authority for Colorado banks, as
well as by the FDIC as its primary federal banking regulator.
Deposit Insurance
The deposits of HTLF Bank are insured by the Depositors Insurance Fund (“DIF”) up to the standard maximum deposit
insurance amount of $250,000 per depositor. As an FDIC-insured institution, HTLF Bank is 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 increased the initial base deposit insurance assessment rates by 2 basis points, beginning with the first
quarterly assessment period of 2023.
In November 2023, the FDIC approved a final rule imposing a special assessment on banks to recover losses in connection with
its decision to guarantee uninsured deposits at two failed banks in March 2023. The rule provides for a 13.44 basis point annual
special assessment on the uninsured deposits of a bank as of December 31, 2022, excluding the first $5 billion of uninsured
deposits. The special assessment will be payable quarterly, and will be collected for an estimated eight quarters. At December
13 31, 2022, HTLF's uninsured deposits were $8.03 billion. As a result, HTLF Bank recorded an $8.145 million additional FDIC
assessment expense in the fourth quarter of 2023 which was the full amount of the special assessment.
Supervisory Assessments
HTLF Bank is required to pay supervisory assessments to the Colorado Division of Banking to fund the operations of that
agency. In general, the amount of the assessment is calculated based on each institution's total assets. During 2023, HTLF Bank
paid supervisory assessments totaling $954,000 to the Colorado Division of Banking and to the other state regulators prior to
merging HTLF's other banking subsidiaries into HTLF Bank.
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 HTLF Bank are described above under the caption "HTLF-Capital Requirements."
As of December 31, 2023: (i) HTLF Bank was not subject to a directive from its primary federal regulator to increase its
capital; (ii) HTLF Bank exceeded its minimum regulatory capital requirements under applicable capital adequacy guidelines;
(iii) HTLF Bank was "well-capitalized," as defined by applicable regulations; and (iv) HTLF Bank was not 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 HTLF Bank, HTLF Bank is commonly controlled for purposes of these provisions of federal law.
Anti-Money Laundering
A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering
and terrorist financing. 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 HTLF Bank, 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. Financial institutions are also prohibited from entering into specified financial transactions and
account relationships and must use enhanced due diligence procedures in their dealings with certain types of high-risk
customers and implement a written customer identification program. Financial institutions must take certain steps to assist
government agencies in detecting and preventing money laundering and report certain types of suspicious transactions.
The Anti-Money Laundering Act of 2020 (“AMLA”), which amends the Bank Secrecy Act of 1970 (“BSA”), was enacted in
January 2021. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money
laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial
institutions; requires the U.S. Department of the Treasury to promulgate priorities for anti-money laundering and countering the
financing of terrorism policy; requires the development of standards for testing technology and internal processes for BSA
compliance; expands enforcement- and investigation-related authority, including increasing available sanctions for certain BSA
violations; and expands BSA whistleblower incentives and protections. Many of the statutory provisions in the AMLA will
require additional rulemaking, reports and other measures, and the impact of the AMLA will depend on, among other things,
rulemaking and implementation guidance. In June 2021, the Financial Crimes Enforcement Network, a bureau of the U.S.
14 Department of the Treasury, issued the priorities for anti-money laundering and countering the financing of terrorism policy
required under the AMLA. The priorities include corruption, cybercrime, terrorist financing, fraud, transnational crime, drug
trafficking, human trafficking and proliferation financing.
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 Bank is a legal entity separate and distinct from HTLF. The primary source of funds for HTLF is dividends from HTLF
Bank. In general, HTLF Bank may only pay dividends either out of net income after any required transfers to surplus or
reserves have been made or out of 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, HTLF Bank exceeded
its minimum capital requirements under applicable guidelines as of December 31, 2023.
As of December 31, 2023, approximately $436.9 million was available in retained earnings at HTLF Bank 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 HTLF Bank.
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 HTLF Bank and its affiliates, including HTLF, for the primary purpose of protecting the interests of
HTLF Bank. The aggregate amount of Covered Transactions HTLF Bank may enter into with an affiliate may not exceed 10%
of the capital stock and surplus of HTLF Bank, and the aggregate amount of "covered transactions" with all affiliates may not
exceed 20% of the capital stock and surplus of HTLF Bank.
Covered Transactions between HTLF Bank and its affiliates are also subject to collateralization requirements and must be
conducted on arm’s length terms. "Covered Transactions" with respect to an affiliate means: (a) an extension of credit to the
affiliate; (b) a purchase of, or an investment in, a security issued by the affiliate; (c) a purchase of an asset from the affiliate,
including assets subject to recourse or repurchase except as otherwise exempted by the Federal Reserve, (d) the acceptance of a
security issued by the affiliate as collateral for an extension of credit; and (e) the issuance of a guarantee, acceptance or letter of
credit on behalf of the affiliate, a confirmation of a letter of credit issued by the affiliate, and cross-affiliate netting arrangement.
Insider Transactions
HTLF Bank is 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 HTLF Bank. Certain limitations and reporting requirements are also
placed on extensions of credit by HTLF Bank 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 provide certain restrictions on the terms upon which any person who is a director or officer of
HTLF or any of its subsidiaries or a principal stockholder of HTLF that may obtain credit from banks with which HTLF Bank
maintains correspondent relationships.
15 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, risk management, 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, fraud and cybersecurity are critical sources of operational risk that
financial institutions are expected to address in the current environment. HTLF Bank is 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.
Interstate Branching and Bank Merger Authority
Pursuant to the Dodd-Frank Act, state-chartered banks may open an initial branch in a state other than its home state by
establishing a de novo branch at any location in such host state at which a bank chartered in such state could establish a branch.
Applications to establish such branches must still be approved by the appropriate primary federal regulator.
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
HTLF Bank generally is permitted to make investments and engage in activities directly or through subsidiaries as authorized
by the laws of the state of Colorado. 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 HTLF Bank 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 HTLF Bank, 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. Proposed joint rules were issued in 2011 and 2016, and the SEC has indicated that they intend
to complete the rulemaking process in 2024. In 2023, the SEC approved Nasdaq's listing standard requiring listed companies to
implement clawback policies to recover incentive-based compensation from current or former executive officers in the event of
certain financial restatements and would also require companies to disclose their clawback policies and their actions under those
policies. Pursuant to this listing standard, listed companies had until December 1, 2023 to adopt compliant clawback policies.
HTLF has adopted a clawback policy, which is filed as Exhibit 97 to this Annual Report of Form 10-K.
16 The Volcker Rule and Proprietary Trading
HTLF and HTLF Bank 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 HTLF Bank. 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.
Community Reinvestment Act Requirements
The Community Reinvestment Act ("CRA") imposes a continuing and affirmative obligation on HTLF Bank to help meet the
credit needs of the communities in which it does business, including low- and moderate-income neighborhoods, in a safe and
sound manner. The FDIC and the state regulators regularly assess the record of HTLF Bank in meeting the credit needs of the
communities in which it does business. Applications for additional acquisitions are subject to evaluation of the effectiveness of
HTLF Bank in meeting its CRA requirements.
In May 2022, the FDIC, Office of the Comptroller of the Currency ("OCC") 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. Effective October 2023, the FDIC, OCC and the Federal Reserve issued the final CRA rule with the objective of
updating the CRA regulations to strengthen the core purpose of the statute, and adapt to changes in the banking industry,
including the expanded role of mobile and online banking. Most of the final rule's requirements will go into effect on January
1, 2026.
Consumer Protection
HTLF Bank is subject to a variety of federal and state statutes and regulations designed to protect consumers and is also under
the supervision of the Consumer Financial Protection Bureau (CFPB), a federal agency responsible for implementing,
examining, and enforcing compliance with federal consumer protection laws. 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 among other things fair lending laws and the authority to prohibit “unfair, deceptive or abusive” acts and practices.
The CFPB can issue cease-and-desist orders against banks and other entities that violate consumer financial laws. The CFPB
may also institute a civil action against an entity in violation of federal consumer financial law in order to impose a civil penalty
or injunction. The CFPB has examination and enforcement authority over all banks with more than $10 billion in assets, as well
as their affiliates. Banking regulators take into account compliance with consumer protection laws when considering approval
of a proposed transaction. 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 also publishes complaints submitted by consumers regarding consumer financial products and services in a publicly
accessible online portal. The CFPB publishes complaint narratives from consumers that opted to have their narratives made
public. The CFPB may use published complaint narratives to make decisions regarding regulatory, enforcement or examination
issues, and the publication of such narratives may have a negative effect on the reputation of those institutions that are the
subject of complaints.
In March 2023, the CFPB issued a final rule amending Regulation B to implement changes to the Equal Credit Opportunity Act
made by Section 1071 of the Dodd-Frank Act. Under the final rule, covered financial institutions are required to collect and
report to the CFPB data on applications for credit for small businesses, including those that are owned by women and
minorities. The purpose of Section 1071 is to facilitate enforcement of fair lending laws and to enable communities,
governmental entities and creditors to identify business and community development needs and opportunities for women-
owned, minority owned, and small businesses. The American Bankers Association (ABA) and the Texas Bankers Association
(TBA) challenged the CFPB's final rule in Federal district court, and on July 31, 2023, the district court stayed the rule’s
mandatory compliance dates for banks that are members of ABA and/or TBA. The stay was granted until the Supreme Court
17 decides whether the CFPB's funding structure is constitutional in Community Financial Services Association of America v.
CFPB. The district court ordered the CFPB to extend the 1071 final rule's mandatory compliance dates, once the Supreme Court
rules, by the number of months that elapse from July 31 to the date the Supreme Court rules. The Supreme Court is expected to
rule during the first half of 2024.
In addition, deposit operations are subject to, among others: the Truth in Savings Act and Regulation DD issued by the CFPB,
which require disclosure of deposit terms to consumers; Regulation CC issued by the Federal Reserve Board, which relates to
the availability of deposit funds to consumers; the Right to Financial Privacy Act, which imposes a duty to maintain the
confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of
financial records; and the Electronic Fund Transfer Act and Regulation E issued by the CFPB, which governs automatic
deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
Mortgage Lending
Mortgage loans originated by or held at HTLF Bank 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.
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, a mortgage lender is 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. HTLF Bank primarily originates 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 HTLF Bank, 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.
18 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 evolving rapidly. At the federal level, the Gramm-Leach-Bliley Act ("GLBA")
requires financial institutions to, among other things, periodically disclose their privacy policies and practices relating to
sharing personal information and, in some cases, enables consumers to opt out of the sharing of certain information with
unaffiliated third parties. The GLBA also requires financial institutions to implement an information security program that
includes administrative, technical and physical safeguards to ensure the security and confidentiality of customer records and
information, which is assessed annually and reviewed on an ongoing basis by the Board of Directors. Additionally, like other
lenders, HTLF Bank uses 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. In addition, the United States Congress may enact
more comprehensive data privacy and cybersecurity legislation.
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 (i) 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; (ii) maintain
sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s
operations after a cyber-attack; and (iii) 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. 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.
Under a final rule adopted by federal banking agencies in 2021, banking organizations are required to notify their primary
banking regulator within 36 hours of determining that a “computer-security incident” has materially disrupted or degraded, or is
reasonably likely to materially disrupt or degrade, the banking organization’s ability to carry out banking operations or deliver
banking products and services to a material portion of its customer base, its businesses and operations that would result in
material loss, or its operations that would impact the stability of the United States. In 2023, the SEC issued a final rule that
requires disclosure of material cybersecurity incidents, as well as cybersecurity risk management, strategy and governance.
Under this rule, banking organizations that are SEC registrants must generally disclose information about a material
cybersecurity incident within four business days of determining it is material with periodic updates as to the status of the
incident in subsequent filings as necessary.
Data privacy and cybersecurity are also areas of increasing state legislation. 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") 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. In addition, the California Privacy Rights Act ("CPRA"), which became effective in most material
respects on January 1, 2023, expands California residents’ rights with respect to certain sensitive personal information. The
California Privacy Protection Agency, which was created to enforce the CCPA and CPRA, is also currently in the process of
finalizing regulations under the CCPA regarding the use of automated decision making. Other states, including Colorado, have
adopted or are considering adopting similar laws. 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.
On October 30, 2023, the President issued an Executive Order on Safe, Secure and Trustworthy Development and Use of
Artificial Intelligence (AI), emphasizing the need for transparency, accountability and fairness in the development and use of
AI. The order seeks to address risks associated with AI by providing guiding principles and priorities, including ensuring that
consumers are protected from fraud, discrimination and privacy risks related to AI. The Executive Order also requires certain
federal agencies, including the CFPB, to address potential discrimination in the housing and consumer financial markets
relating to the use by financial institutions of AI technologies. Prior to the issuance of the Executive Order, the CFPB published
a report addressing the use by financial institutions of AI chatbots in the provision of financial products and services. The report
19 also highlighted the limitations and various risks posed by such activity. States have also started to regulate the use of AI
technologies.
Risks and exposures related to cybersecurity attacks, including fraud, litigation and enforcement risks, are expected to be
elevated for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the
expanding use of AI, Internet banking, mobile banking and other technology-based products and services by us and our
customers.
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.
20 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
•
•
•
•
Our business and financial performance are significantly affected by general business and economic conditions,
including those related to increased inflation, recessionary conditions, or domestic or geopolitical 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.
Continued actions by the Federal Reserve Board affecting interest rates and other conditions could negatively impact
net interest income and net interest margin.
• 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 regulation and climate change risks, including 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.
•
•
•
•
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.
Our allowance for credit losses may prove to be insufficient to absorb losses in our loan portfolio.
Liquidity and Interest Rate Risks
Our financial results are significantly impacted by interest rate levels and fluctuation.
•
• We may not be able to meet the cash flow requirements of our depositors or borrowers, or be able to meet our
•
obligations or the cash needs for growth or other strategic corporate activities.
Significant reductions in our core deposits or increases in our cost of funding could adversely affect our liquidity or
profitability.
21 • We use brokered deposits and other wholesale funding, which may be unstable and/or expensive, to fund earning asset
growth.
•
•
•
Our investment securities portfolio may be impacted by interest rate volatility and market conditions.
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 HTLF Bank for most of our revenue and are subject to restrictions on payment of
dividends.
Operational Risks
• We have a continuing need for technology investments, and we may not have the resources to effectively implement
new technology.
•
•
•
Our operations are affected by risks associated with our use of vendors and other third-party service providers.
Security breaches, cyber-attacks or other similar incidents with respect to our or our vendors’ systems or network
security, as well as the resulting theft or compromise of business and customer information, including personal
information, could adversely affect our business or reputation, and create significant legal, regulatory or financial
exposure.
The potential for business interruption or failure exists throughout our organization.
• We are subject to risks from employee errors, customer or employee fraud and data processing system failures and
errors.
•
•
•
•
Our Bank Markets and growth strategy rely heavily on our management team, and the unexpected loss of key
managers may adversely affect our operations.
New lines of business, products, and services are essential to our ability to compete, but may subject us to additional
risks.
Our analytical and forecasting models may be improper or ineffective.
Our internal controls may be ineffective.
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.
•
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
• We are subject to extensive and evolving government regulation and supervision, which can increase the cost of doing
business, limit our ability to grow, and lead to enforcement actions.
•
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.
•
•
Litigation and enforcement actions could result in negative publicity and could adversely impact our business and
financial results.
Our reputation and our business are subject to negative publicity risk.
Risks of Owning Stock in HTLF
•
•
•
Our stock price can be volatile and can be affected by a variety of factors that are outside of our control.
Stockholders may experience dilution as a result of future equity offerings and acquisitions.
Certain banking laws may have an anti-takeover effect.
22 Economic and Overall Market Condition Risks
Our business and financial performance are significantly affected by general business and economic conditions, including
those related to increased inflation, recessionary conditions, or domestic and geopolitical factors.
Our business activities and earnings are affected by general business conditions in the United States and particularly in our
Bank Markets. Our business is impacted by factors such as economic, political and market conditions, including both general
conditions and those specific to the banking industry, changes in the Federal Reserve Board monetary and other governmental
fiscal policies, inflation, and interest rate and financial market volatility, all of which may be beyond our control. Future
economic conditions cannot be predicted, and any further deterioration in the national economy or in our Bank markets could
have an adverse effect, which could be material, on our business, financial condition, operational results. 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 expenses 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 decreasing the value of
our investment portfolio and collateral securing our loans, 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 Arizona, California, Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Montana, New
Mexico, Texas and Wisconsin, and our financial condition, results of operations and cash flows depend upon the economic
vitality, growth prospects, business activity, population, income levels, deposits and real estate activity in those areas. Adverse
economic conditions that affect our specific markets could affect the ability of our customers to repay their loans to us, impact
the stability of our deposit funding sources, and adversely affect our financial condition and results of operations.
We 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:
•
•
•
Affect the value or liquidity of the financial instruments we hold.
Affect our ability to access capital markets to raise funds at cost effective rates or at all.
Affect the value of the assets that we manage or otherwise administer or service for others, which could decrease fee
income, result in decreased demand for our services, and/or decrease the ability of our customers to repay their loans to
us.
Any of the above could adversely affect our financial condition and results of operations.
Continued actions by the Federal Reserve Board affecting interest rates and other conditions could negatively impact net
interest income and net interest margin.
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. While out of our control, the Fed's fiscal and monetary policies significantly affect our cost of funds
for lending and investing and the return that can be earned on our 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 reacted by implementing significant rate hikes. While these interest rate increases have resulted in
reduced inflation, there is continued uncertainty as to whether these actions could lead to an economic downturn. Further, we
23 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 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 negative financial
results. At December 31, 2023, we had goodwill of $576.0 million, representing approximately 30% 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
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 in part depends 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 increase 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. We may also be subject to compliance with
governmental measures taken to address the impact of natural disasters, pandemics, terrorist activities or other occurrences of
this nature.
Climate regulation and climate change risks, including transition, physical or other risks could adversely affect our
operations, businesses, customers, reputation and financial condition.
24 There is an increasing concern over the risks of climate change and related environmental sustainability matters. For example,
the Federal Reserve Board in its Financial Stability Report of November 2020, specifically addressed the implications of
climate change for markets, financial exposures, financial institutions, and financial stability. As a result of these concerns,
Congress, state legislatures and federal and state regulatory agencies have continued to propose legislative and regulatory
initiatives seeking to mitigate the effects of climate change, including disclosure requirements regarding greenhouse gas
emissions. Further, the SEC has proposed climate-related disclosure rules, which if finalized, would require new climate-
related disclosures in SEC filings and audited financial statements, including certain climate-related metrics and direct and
indirect greenhouse gas emissions data, information about climate-related targets and goals, transition plans, if any, and would
have attestation requirements. The State of California has enacted, and other states may enact, laws and regulations requiring
expanded measurement and disclosure of greenhouse gas emissions, including scopes 1, 2, and 3 emissions, and requiring third-
party assurance of their reports. Disclosure requirements imposed by different regulators may not always be uniform, which
may result in increased complexity, increased compliance costs, and other compliance-related risks. On October 24, 2023, the
federal banking agencies issued interagency guidance on principles for climate-related financial risk management by large
financial institutions. The guidance reiterates the agencies’ view that financial institutions are likely to be affected by both the
physical risks and transition risks associated with climate change.
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. We do not yet know all the ways that climate change may affect
us and our customers, however weather disasters, shifts in local climates and other disruptions related to climate change may
adversely affect our customers, particularly agricultural customers, or the value of real properties securing our loans, any of
which could diminish the value of our loan portfolio.
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, require changes to 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 identify, monitor, manage and mitigate risk of material loss. We have established
processes and procedures and dedicated resources 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 or that are out of our control. 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 material losses that could affect our 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, including fraud-related risks;
uncertainties as to the future value of collateral; and
the risk of non-payment of loans.
Although we attempt to properly establish limits, measure, monitor and manage our credit risk through prudent loan policies,
loan underwriting procedures and by monitoring concentrations of our loans, there can be no assurance that these policies,
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 further to local conditions. The inability
to properly manage our credit risk or appropriately adapt our credit administration and loan underwriting policies and
25 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.
In addition, certain of our investment securities may carry material credit risk, and as a result, we may have to record provision
expense to establish an allowance for credit losses on our carried at fair value debt securities.
We are subject to lending concentration risks.
In the ordinary course of business, we have credit exposures to specific 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 disproportionately impact different types of customers. Certain of our credit
exposures are concentrated in industries and may share similar characteristics which can make them more susceptible to
different adverse events and 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 in ways that we cannot anticipate.
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. 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. With recent increases in interest rates, borrowers
with variable rate loans may not have sufficient cash flows to absorb the impact of higher interest rates on their payments. In
addition, increases in interest rates could also negatively impact the cash flows and repayment ability of our borrowers.
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. While we follow prudent underwriting practices, including
determining project feasibility on construction projects we finance, economic events, supply chain issues, labor market
disruptions, 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
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
26 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 depend 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, extreme weather or temperatures, 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, tariffs, price
supports, subsidies and environmental regulations). In addition, many farms depend on a limited number of key individuals
whose injury or death may significantly affect the successful operation of the farm.
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 HTLF Bank 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, 2023, our allowance for
credit losses as a percentage of total loans was 1.02% and as a percentage of total nonperforming loans was approximately
125%. 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, may adversely affect our business, financial condition and results
of operations.
Liquidity and Interest Rate Risks
Our financial results are significantly affected by interest rate levels and fluctuation.
Our financial results depend to a large extent on net interest income, which is the difference between interest income earned on
loans and investment securities and interest expense paid on deposits, subordinated notes, borrowings, and other liabilities. Due
to differences in maturities and repricing characteristics of our interest-earning assets and interest-bearing liabilities, changes in
interest rates may not produce equivalent changes in interest income earned on interest-earning assets and interest paid on
interest-bearing liabilities. For example, asset values, especially values of 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, loan portfolio duration, the mix of adjustable and fixed rate loans in our portfolio, and the cost, stability, and
mix of deposits on our balance sheet all could have a negative effect on our financial condition, results of operation, and
liquidity. Ongoing fluctuations in interest rates could adversely affect our interest rate spread, and, in turn, our profitability.
Future monetary actions taken by the Federal Reserve to address various economic factors can further constrain our interest rate
spread and impact the mix of noninterest and interest-bearing accounts. If the interest we pay on liabilities increases at a faster
pace than the interest that we receive on our interest-earning assets, the result could be a reduction in net income.
In addition, the failure to match the durations of our assets and liabilities could result in us being unable to mitigate the impact
of changes in interest rates. 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 control nor
predict future changes in the Federal Reserve's monetary policy or actions taken to address inflation, recession, unemployment,
money supply and other changes in financial markets.
27 We may not be able to meet the cash flow requirements of our depositors or borrowers, or be able to meet our obligations or
the cash needs for expansion or other strategic corporate activities.
Liquidity represents our ability to provide funds to satisfy demands from depositors, and facilitates our ability to extend loans to
borrowers and meet our contractual debt obligations by either converting assets into cash or accessing new or existing sources
of incremental funds. Liquidity risk is the potential that we will be unable to meet our obligations as they become due because
of an inability to liquidate assets or obtain adequate funding. We manage liquidity risk with the primary objective of meeting
our cash flow requirements including those from our depositors and creditors, and having sufficient cash to satisfy our
operating needs, strategic initiatives and loan growth objectives while maintaining reasonable funding costs. We primarily rely
on deposits, repayments of loans and cash flows from our investment securities as our primary sources of funds. Our principal
deposit sources include consumer and commercial customers in our markets. We have used these funds, together with public
funds customers, brokered deposits and Federal Home Loan Bank ("FHLB") advances as well as federal funds purchased and
other sources of short-term borrowings to make loans, acquire investment securities and other assets and to fund continuing
operations.
Deposit levels may be affected by a number of factors, including competition, general interest rate levels, returns available to
customers on alternative investments, concerns about the stability of banks, general economic and market conditions and other
factors. 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 demand deposits, while a significant portion of our assets
are loans that cannot be sold in the same timeframe or are investment securities the value of which may be impaired, or which
we may not be readily able to sell if there is disruption in capital markets. Although we maintain asset/liability management
policies and a related contingency funding plan that, among other things, include policies and procedures for managing and
monitoring liquidity risk, there can be no assurance that these will prove adequate to our needs. If we are unable to access
additional funding sources when needed, we might be unable to meet our depositors’, borrowers’ or creditors’ needs, which
would adversely affect our financial condition, results of operations and liquidity.
Significant reductions in our core deposits or increases in our cost of funding could adversely affect our liquidity or
profitability.
Our profitability depends in part on successfully gathering and retaining a stable base of relatively low-cost deposits, as
deposits have traditionally served as our largest, least costly source of funding. The competition for these deposits has increased
dramatically in the last year, and our deposit levels might fall, or our cost of deposits may significantly increase, if the total
supply of deposits decreases due to economic events, or if competition increases to attract deposits, either of which could have
an adverse effect on our financial position, results of operations and liquidity.
We use brokered deposits and other wholesale funding, which may be unstable and/or expensive, to fund earning asset
growth.
We use wholesale and institutional deposits, including brokered deposits, as a source of funding to augment deposits generated
from our branch network. At December 31, 2023, we had $1.35 billion in wholesale and institutional deposits, of which $1.16
billion consisted of brokered deposits. Our ability to use these deposits is limited by our own internal policies as well as
regulatory limitations, and there can be no assurance that such sources will be available, or will remain available, or that the
cost of such funding sources will be reasonable. For example, if we are no longer considered well-capitalized, our ability to
access new brokered deposits or retain existing brokered deposits could be adversely affected by regulatory requirements, the
unwillingness of counterparties to do business with us, or both, which could result in most, if not all, brokered deposit sources
being unavailable.
In addition, we also utilize other wholesale funding sources to provide us with liquidity and fund our asset growth. As of
December 31, 2023, we had approximately $521 million in borrowings from the FHLB, which represents a significant source of
our wholesale borrowings. In the event of market disruptions, changes in our creditworthiness, or other unavailability of FHLB
borrowings in the future, sources of wholesale funding may not be available to us on reasonable terms, or at all. The inability to
utilize wholesale deposits, including brokered deposits, or other wholesale funding could have an adverse effect on our
financial position, results of operations and liquidity.
Our investment securities portfolio may be impacted by interest rate volatility and market conditions.
As of December 31, 2023, $5.58 billion, or 29%, of the assets on our balance sheet consisted of investment securities. Changes
in interest rates can negatively affect the value of most of our investment securities. Interest rates are highly sensitive to many
factors including monetary policies, domestic and international economic and geopolitical issues, and other factors beyond our
control as interest volatility can result in unrealized gains or losses in our portfolio. Additionally, actual investment income and
cash flows from investment securities that carry prepayment risk, such as mortgage-backed securities and callable securities,
may materially differ from our initial expectations due to changes in interest rates and market conditions. Our investment
securities portfolio is also subject to potential credit deterioration as financial distress is another risk that may impact the ability
28 of a security to pay principal and interest in a timely manner. Factors such as deteriorating financial conditions of the issuer,
changes in the issuer's creditworthiness, or adverse market conditions can contribute to financial distress. We may need to
establish an allowance for credit losses on our debt securities carried at fair value. This assessment involves testing at the
security level, considering factors such as changes in security ratings, the financial condition of the issuer, payment structure,
cash flow analyses, and security and industry-specific economic conditions. 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. Other factors such as changes in market
conditions, regulatory changes, counterparty risk could also impact the performance and value of our investment portfolio and
potentially result in financial losses.
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 HTLF Bank for most of our liquidity and are subject to restrictions on payment of dividends.
The primary source of funds for HTLF is dividends from HTLF Bank. In general, HTLF Bank 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 the requirement that we must pay quarterly dividends on our
outstanding preferred stock at the applicable dividend rate in order to declare dividends on our common stock.
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
29 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 cyber-attacks, attempts to breach our network
security, and other similar incidents. These cyber-attacks, attempts to breach our network security, 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 other information of ours, our employees, our customers, our vendors, or
other third parties with which we do business. Attacks of this nature are increasing in frequency, levels of persistence,
sophistication, and intensity, are evolving in nature, and are conducted by sophisticated and organized groups and individuals
with a wide range of motives and expertise, including organized criminal groups, "hacktivists," terrorists, nation states, nation
state-supported actors, and others. As cybersecurity threats continue to evolve, we may be required to expend significant
additional resources to continue to modify or enhance our protective measures or to investigate or remediate any information
security vulnerabilities, threats, security breaches, cyber-attacks or other similar incidents. Despite efforts to protect our systems
and networks and implement controls, processes, policies, and other measures, we may not be able to anticipate all security
breaches, cyber-attacks or other similar incidents, or be able to detect or react to such incidents in a timely manner, implement
guaranteed preventive measures against such incidents, or adequately remediate any such incident.
Cybersecurity and payment fraud risks for banking organizations have significantly increased in recent years in part because of
the proliferation and rapid evolution of new technologies, increased remote work, 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 or perceptions regarding the effectiveness or adequacy of our measures to safeguard our communications and
information systems and networks, and information stored therein, could cause us to lose existing or potential customers and
thereby reduce our revenues.
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, destroys, 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. Although we perform cybersecurity diligence through our Third Party Risk Management group on our key vendors,
our ability to monitor their cybersecurity is limited, and 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
30 may be held responsible for security breaches, cyber-attacks or other similar incidents affecting our vendors because 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, and could result in damage to our reputation and loss of
customer business, or subject us to additional regulatory scrutiny or 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. We also 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, and relationships with
third parties, as well as 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, interruptions in third-party support, and the loss of key individuals, including those with
specialized skills, or 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 enforcement actions,
and could 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. Although we maintain a system of internal
controls and insurance coverage to mitigate these operational risks, including data processing system failures and errors and
customer or employee fraud, these internal controls may fail to prevent or detect an occurrence, or the resulting loss may not be
covered or may exceed applicable insurance limits, any of which it could have a material adverse effect on our business,
financial condition and results of operations.
Our Bank Markets and growth strategy rely heavily on our management team, and the unexpected loss of key managers may
adversely affect our operations.
Much of our success to date has been influenced strongly by our ability to attract and to retain senior management experienced
in banking and financial services and familiar with the communities in our different market areas. Because our service areas are
spread over such a wide geographical area, our executive management depends on the effective leadership and capabilities of
the senior management in our Bank Markets for our continued success. Our ability to retain executive officers, senior
management teams, and other key personnel, will continue to be important to our success, and could be difficult during times of
low unemployment. It is also critical to the success of our banking strategy to be able to attract and retain qualified management
and key personnel with the appropriate level of experience and knowledge about our market areas. The unexpected loss 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, and
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.
31 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, depend 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 HTLF Bank or by other institutions. Many of these transactions expose us to credit risk in the event of default of our
counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or
is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due us. There is no
assurance that any such losses would not materially and adversely affect our results of operations.
We may experience difficulties in achieving and managing our growth and our growth strategy involves risks that may
negatively impact our net income.
Growth is an integral component of achieving business and financial scale and 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, and
failure to successfully identify and complete meaningful and accretive 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.
32 In addition to acquisitions, we may expand into additional communities or attempt to strengthen our position in our current
Bank Markets by undertaking additional 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 organizational and
overhead expenses and the start-up phase of generating loans and deposits. To the extent that we undertake additional branching
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 could have a material adverse effect on our business, financial condition and results of
operation.
Attractive acquisition opportunities may not be available to us in the future.
While our focus is on continued organic growth, we anticipate continuing to evaluate merger and acquisition opportunities
presented to us in our Bank Markets. Economic conditions as well as the need for technological investment by regional banks
could result in increased competition for merger or acquisition partners. 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 attractive merger targets decreases, could increase prices for potential acquisitions, which could
reduce our potential returns, and reduce the attractiveness of these opportunities to us. Acquisitions also 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 HTLF Bank's Markets is highly competitive and is currently undergoing
significant change. Our competitors include other commercial banks, credit unions, thrifts, fintech firms, stockbrokers,
securities and brokerage companies, mutual Fund companies, mortgage companies, insurance companies and other non-bank
financial service companies. Increasingly these competitors provide integrated financial services over a broad geographic area.
Technology companies are increasingly focusing on the financial sector, either in partnership with competing banking
organizations or on their own. These companies generally are not subject to the same regulatory requirements as traditional
financial institutions and may therefore have cost advantages over us and offer products and services at more favorable rates
and with greater convenience to the client. This competition could result in the loss of clients and revenue in areas where
Fintech's, many of which operate nationally without physical locations, 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 and products by competitors, including internet banking services, mobile applications,
advanced ATM functionality and cryptocurrencies could require us to make substantial investments to modify or adapt our
existing products and services or even radically alter the way we conduct business. These and other capital investments in our
business may not produce the 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 could impact our ability to grow and scale our business, which could have
an adverse effect on our ability to profitably compete.
Legal, Compliance and Reputational Risks
We are subject to extensive and evolving government regulation and supervision, which can increase the cost of doing
business, limit our ability to grow, 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
may make, our reserve requirements and required capital levels, the nature and amount of collateral for loans, the establishment
of branches, our ability to merge, consolidate and acquire, our dealings with our insiders and affiliates, and our payment of
dividends.
33 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 has the complexity of our business and the risks to which we are subjected due to 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 have increased across the banking and financial services sectors.
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 ("BSA")/Anti-Money Laundering ("AML") and Countering the Financing of Terrorism ("CFT") requirements,
topics related to social equity, executive compensation, and increased capital and liquidity, as well as limits on share buybacks
and dividends. For example, recent changes in our overdraft practices resulting from regulatory and competitive pressures will
result in lower future noninterest income. Other products or services of ours may be subjected to increased regulation in the
future, and such regulation may impact our ability to profitably provide services to our customers, which may result in
difficulties competing with larger institutions which have more resources. It is uncertain how changes in existing regulations
and their enforcement may require modification to HTLF's existing business strategy, regulatory compliance, and risk
management infrastructure and practices, and how these may impact our financial results in the future.
In the routine course of regulatory oversight, proposals to change the laws and regulations governing the operations of banks
and other financial institutions are frequently raised in the U.S. Congress, state legislatures and before bank regulatory
authorities. Similarly, proposals to change the accounting and financial reporting requirements applicable to banks and other
depository financial institutions are frequently raised by the SEC, the federal banking agencies and other authorities. We expect
that the recent failures in the banking industry are likely to increase future regulations on banks, and the specific changes in
laws and regulations in the future and the effect such changes might have on our results of operations and financial condition
are impossible to determine.
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, because of decreases in the value of our loan portfolio,
investment 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 on us 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 banking sector.
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 on, and complexity to, our business
operations, as we expand. For example, as a result of consolidation of our Banks in 2023, we became subject to CFPB
supervision.
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.
34 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 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 which is overseen by the HTLF Risk Committee that includes
administrative, technical and physical safeguards to ensure the security and confidentiality of customer records and information.
Additionally, like other lenders, HTLF Bank uses credit bureau data in its underwriting activities. Use of such data is regulated
under the Fair Credit Reporting Act ("FCRA"), and the FCRA also regulates reporting information to credit bureaus,
prescreening individuals for credit offers, sharing of information between affiliates, and using affiliate data for marketing
purposes. We are also subject to the rules and regulations promulgated under the authority of the Federal Trade Commission,
which regulates unfair or deceptive acts or practices, including with respect to data privacy and cybersecurity. Moreover, the
United States Congress has recently considered, and is currently considering, various proposals for more comprehensive data
privacy and cybersecurity legislation, to which we may be subject if passed. Additionally, the federal banking regulators, as
well as the SEC and related self-regulatory organizations, regularly issue guidance regarding cybersecurity that is intended to
enhance cyber risk management among financial institutions.
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. 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 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.
35 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), and may result in restrictions on our future activities,
including acquisitions. Any of the foregoing could harm our reputation, distract our management and technical personnel,
increase our costs of doing business, adversely affect the demand for our products and services, and ultimately result in the
imposition of liability, any of which could have a material adverse effect on our business, financial condition and results of
operations.
Litigation and enforcement actions could result in negative publicity and could adversely impact our business and financial
results.
We face significant legal and regulatory risks in our business, and the volume of claims and amount of damages and penalties
claimed in litigation and governmental proceedings against financial institutions have increased in recent years. Current public
uneasiness with the United States banking system heightens this risk, and 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 has
exacerbated these fears and, in some cases, led to rapid withdrawal of deposits at financial institutions. Any negative news may
result in the loss of business relationships, withdrawal by customers of deposits, or other actions that could materially adversely
affect our liquidity, operations, and financial condition.
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, and the resolution of litigation or regulatory matters could result in additional accruals or exceed established accruals for
a particular period, which could materially impact our financial condition or results of operations.
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 and can be affected by a variety of factors that are outside of our control.
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 HTLF Bank; 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, specific
banking industry issues, 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, rapid 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.
We may issue equity or other securities convertible into or exchangeable for our common stock to stockholders of companies
we acquire, to the public in order to raise capital for future acquisitions, or for general corporate purposes. Such issuances may
be at a price per share that may be lower than the current price or per share book value of our common stock. This could have a
substantial dilutive effect on existing stockholders. In addition, investors purchasing shares or other securities in the future
could have rights superior to existing stockholders.
36 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
As of December 31, 2023, HTLF had no unresolved staff comments.
ITEM 1C. CYBERSECURITY
Risk Management and Strategy
HTLF Bank's Risk Management program is designed to identify, assess, monitor and mitigate risks based on various key risk
factors we face including, but not limited to financial, operational, regulatory and legal. Cybersecurity is a critical component
of our risk management framework given internal dependencies on technology, the evolving digital environment and the rapid
acceleration of cyber-threats. HTLF’s cybersecurity risk management program is built on three lines of defense Risk
Management framework. HTLF’s first line of defense provides frontline business, operational and technical controls and
support to securely deliver access to HTLF applications and data to HTLF users. As part of the Risk Management function,
HTLF’s second line of defense is primarily responsible for infrastructure defense and security controls, performing
vulnerability assessments, identity access management, business continuity, third-party information security assessments,
employee awareness and training programs, and security incident management. Internal Audit functions as HTLF’s third line of
defense and independently provides assurance, via multiple audit and testing engagements to validate the effectiveness of
HTLF's cybersecurity risk management practices, while measuring against regulatory requirements and HTLF’s Policies and
Standards.
HTLF’s first line of defense is led by our Chief Operations Officer and our Chief Information Officer. HTLF’s second line of
defense is led by our Chief Risk Officer ("CRO") and includes the Security function, led by our Chief Information Security
Officer ("CISO") who is primarily responsible for the cybersecurity component. The primary responsibilities of the HTLF
Security function are to protect HTLF assets including networks, systems, application, data, funds, and staff, and facilitate
incident response and resolution. HTLF’s third line of defense is led by our Chief Audit Executive.
Our primary objectives for managing cybersecurity risk are to avoid or minimize the impacts of external threat events or other
efforts to penetrate, disrupt, exploit or misuse our information or systems. The structure of our information security program is
designed around the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework, regulatory guidance,
and other industry standards. The NIST cybersecurity framework is a nationally recognized industry standard for mitigating
organizational cybersecurity risks, which includes identifying risks, protecting assets, detecting threats, responding to incidents,
and recovery from incidents. The NIST cybersecurity framework uses standards, procedures and best practices, and is
integrated into the HTLF Security team’s overall risk management system and processes, including oversight of third-party
service providers. Management of the HTLF's third parties, including vendors and service providers, is conducted through a
risk-based approach and the level of due diligence is driven from risk factors established by Enterprise Risk Management
through its Third Party Risk Management Program. The process provides awareness and collaboration across all internal teams
including Information Security and Business Continuity. A technical requirements review process is conducted on new or
significantly changed third parties, applications, or technology to ensure that systems or third parties meet certain security
baseline requirements. Further, HTLF's Security program also provides for annual mandatory training for employees regarding
security awareness and understanding of how to properly use and protect the company assets, including computing resources
entrusted to them, and to communicate the company's information security policies, standards, processes and practices.
To address evolving cybersecurity risks and corresponding regulations, the HTLF Security team uses Federal Financial
Institutions Examination Council ("FFIEC") booklets and Cybersecurity and Infrastructure Agency ("CISA") guidance;
identifies and defines emerging risks using third-party research and subject matter expert consultants; executes strategic cyber
threat assessments; performs new product and initiative reviews; performs data management risk oversight; and conducts cyber
risk reviews as part of HTLF’s Third Party Risk Management process, which oversees and identifies risks, including
cybersecurity threats, associated with our use of third-party service providers. The HTLF Security team conducts periodic
tabletop exercises to test HTLF business units’ capabilities to respond to various security incidents, including cyber-attacks.
Governance
Our CISO is accountable for managing our enterprise information security department and delivering our information security
program. The responsibilities of this department include cybersecurity governance (policies and procedures), risk assessment,
defense operations, incident response, vulnerability monitoring, threat intelligence, identity access governance, information
security/cyber related third-party risk management, and business continuity. Moreover, the Security function is responsible for
assessing, managing and remediating material risks from cybersecurity threats. The Security management team has the
37 technical, management and project leadership experience in mid-sized or larger banks, maintains appropriate technical
certifications, and stay abreast of industry, technical and regulatory best practices and requirements.
If a cybersecurity event occurs, the CISO leads the HTLF Incident Response Team as part of our Incident Response Plan
designed to help reduce the risks related to security incidents by providing guidelines on responding to incidents by focusing on
a roadmap for coordinating personnel, policies, and procedures to ensure incidents are detected, analyzed, and handled to
mitigate material risks. The CISO and CRO work with key cross functional stakeholders, including members of executive
leadership and provide updates to the HTLF Risk Committee on the status and impact of the cybersecurity event, as well as
review the event with the Risk Committee following its ultimate resolution in order to share root cause and lessons learned from
the incident.
HTLF has implemented a robust corporate governance framework comprised of the HTLF Board of Directors and its
committees; which in turn delegate authority to management for implementation of the risk management program including
cybersecurity as an integral component. The corporate governance framework is designed to provide transparency through
routine reporting as provided by the CISO to facilitate effective oversight of cybersecurity risk by the Board and executive
management. The management committee layer of the corporate governance framework is supported by an Operational Risk
Committee which serves as a key forum for the CISO to report quarterly updates on HTLF's cybersecurity risk profile, key
metrics and risk indicators used to monitor the operating environment, emerging risks and threats as well as any cybersecurity
incidents or events. In addition, the CISO has a routine reporting cadence with the Executive Risk Management Committee
and the HTLF Risk Committee on the status of the cyber security management program, including trending of key risk metrics,
results of risk assessments, audits and regulatory examinations.
HTLF has not been materially affected by any cyber security incidents to date, nor are we aware of any cyber security incident
which we believe would have a material impact on us in the future. Nevertheless, like all financial institutions, we are subject
to the risk that cybersecurity threats will continue to evolve and may materially impact us in the future. These factors are
further detailed in the "Risk Factors" section included under Item 1A of Part I of this Annual Report on Form 10-K, including
under the caption “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.”
ITEM 2. PROPERTIES
The following table lists the principal operating facilities and the home offices of HTLF and HTLF Bank as of December 31,
2023:
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
(1) Includes 2 loan production offices for HTLF Bank
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
119
The corporate office of HTLF is located at 1800 Larimer Street, Suite 1800, in Denver, Colorado. A majority of the support
functions of HTLF Bank 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 Twenty-two, "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, 2023, 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.
38 ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The names and ages of the executive officers of HTLF, the position held by these officers with HTLF, and the positions held
with HTLF, are set forth below:
Name
Bruce K. Lee
Kevin L.
Thompson
Janet M. Quick
Age Position with HTLF and Subsidiaries and Principal Occupation
63 Chief Executive Officer, President and Director
50 Executive Vice President and Chief Financial Officer
58 Executive Vice President, Deputy Chief Financial Officer, and Principal Accounting Officer
Deborah K. Deters
59 Executive Vice President and Chief Human Resources Officer
Mark E. Frank
64 Executive Vice President and Chief Operating Officer
Nathan R. Jones
51 Executive Vice President and Chief Credit Officer
Robert S. Kahn
55 Executive Vice President and Chief Strategy Officer
Jay L. Kim
Tamina L. O'Neill
David A. Prince
60 Executive Vice President, Chief Administrative Officer, Corporate Secretary and General Counsel
54 Executive Vice President and Chief Risk Officer
53 Executive Vice President and Head of Commercial Banking
Kevin G. Quinn
63 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.
Kevin L. Thompson joined HTLF in December 2023, and was appointed Executive Vice President, Chief Financial Officer
effective January 1, 2024. Prior to joining HTLF, Mr. Thompson most recently served as Executive Vice President, Chief
Financial Officer with PacWest Bancorp in Los Angeles, California from November of 2022 through November of 2023. Prior
to his service at PacWest Bancorp, Mr. Thompson has served as CFO of several financial institutions, most recently First
Foundation Inc. from 2020 to 2022 and Opus Bank from 2017 to 2020. He is an active 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.
39 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.
Robert S. Kahn joined HTLF in October 2023 as Executive Vice President, Chief Strategy Officer. Prior to joining HTLF, Mr.
Kahn had worked at MUFG Bank, N.A. since 2006, last serving as the Managing Director, Head of Commercial Banking and
Service Administration since 2013, where his responsibilities included providing operational, strategic planning and decision
support, business performance and financial analysis, and sales reporting. Mr. Kahn has an extensive background driving
growth and sales enablement initiatives, process and efficiency improvements, platform and technology enhancements,
organizational re-design, and communications.
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 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.
40 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 2,372 stockholders of record as of February 15, 2024, and approximately
17,488 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 $91.1 million
as of December 31, 2023, as treasury shares at any one time. HTLF and its affiliated purchasers made no purchases of its
common stock during the quarter ended December 31, 2023.
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,
2018, 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,
2018
2019
2020
2021
2022
2023
Heartland Financial USA, Inc.
$
100.00 $
114.87 $
95.37 $
121.93 $
114.95 $
96.25
Nasdaq Composite Index
KBW Nasdaq Bank Index
S&P U.S. BMI Banks Index
100.00
100.00
100.00
136.69
136.13
137.36
198.10
122.09
119.83
242.03
168.88
162.92
163.28
132.75
135.13
236.17
131.57
147.41
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
ASSUMES $100 INVESTED ON DECEMBER 31, 2018
* Total return assumes reinvestment of dividends
Index Value ($)Total Return PerformanceHeartland Financial USA, Inc.Nasdaq Composite IndexKBW Nasdaq Bank IndexS&P U.S. BMI Banks Index 12/31/1812/31/1912/31/2012/31/2112/31/2212/31/235010015020025041
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 2022 results of operations, including a discussion of the financial results for the fiscal year ended December
31, 2022, compared to the fiscal year ended December 31, 2021, refer to Part I, Item 7 of our Annual Report on Form 10-K,
which was filed with the SEC on February 23, 2023.
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 One, "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 16 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 affect 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.
42 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 HTLF 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, 2023. 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 economic conditions 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 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 HTLF Bank. 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 intangible 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" and provides banking, wealth management,
investment and retirement plan services to businesses and consumers. HTLF's independently branded Bank Divisions serve
communities in Arizona, California, Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Montana, New Mexico, Texas and
Wisconsin from 117 locations as of December 31, 2023. Our primary objectives are to increase profitability, support our
communities and grow our customer base through organic loan and deposit growth in markets we serve.
Our results of operations depend primarily on net interest income, which is the difference between interest income from interest
earning assets and interest expense on interest bearing liabilities. Noninterest income, which includes service charges and fees,
loan servicing income, trust fees, brokerage and insurance commissions, net securities gains/(losses), net gains on sale of loans
held for sale, capital markets fees and income on bank owned life insurance also affect 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, FDIC insurance assessments, 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.
HTLF Response to Banking Industry Disruptions
43 The banking industry experienced significant disruptions in March 2023, including bank failures, which has since caused
industry-wide concerns related to deposit outflows, liquidity, continued interest rate increases and unrealized losses on
securities. In response to the concerns, management continues to:
•
help customers facilitate additional FDIC insurance through Insured Cash Sweep ("ICS") products and Certificate of
Deposit Registry Service ("CDARS") products,
• monitor deposit flows and adjust deposit pricing and customer acquisition incentives to address the highly competitive
deposit environment,
• maintain borrowing capacity through various federal programs, including the Federal Reserve Discount Window and
the Federal Reserve's Bank Term Funding Program ("BTFP"), which totaled $1.92 billion as of December 31, 2023, of
which no balance was drawn, and also including Federal Home Loan Bank ("FHLB") advances, which totaled $1.15
billion as of December 31, 2023, of which $521.2 million was drawn, and
reduce the investment portfolio through scheduled maturities and selective sales of investments, including the recently
executed a balance sheet repositioning, which reduced investments and related wholesale funding by $865.4 million.
•
As of December 31, 2023:
•
•
61% of HTLF's deposits were insured or collateralized.
HTLF's capital ratios substantially exceeded well-capitalized regulatory thresholds, and management believes that
HTLF would remain well-capitalized in the event that regulatory rules were adopted requiring that unrealized losses in
the total investment portfolio be included in the calculation of regulatory capital ratios.
The shift to work-from-home and hybrid work arrangements has caused decreased utilization of and demand for office space.
HTLF is actively monitoring its exposure to office space in the non-owner occupied commercial real estate portfolio and
securities portfolio. As of December 31, 2023:
•
•
•
Outstanding loans totaling $424.7 million, with an average loan size of $1.4 million, were collateralized by non-owner
occupied office space, which represents 3.5% of the total loans held to maturity and 2.7% of the total loan portfolio by
exposure.
There were no loans collateralized by office space on nonaccrual.
The collateral consists primarily of multi-tenant, non-central business district properties.
HTLF monitors the risk exposure in the loan portfolio for both industry and geographic concentrations. In response to the
increases in fed funds rate to a 23-year high during 2023, HTLF has developed a process to better identify higher credit risk
borrowers. This process flags specific risk drivers and identifies borrowers who exhibit indications of risk; including but not
limited to, utilization rate increases, risk rating migration, delinquencies and industries with higher risk in recessions including
office and medical office space related loans.
2023 Overview
Net income available to common stockholders was $71.9 million, or $1.68 per diluted common share, for the year ended
December 31, 2023, compared to $204.1 million or $4.79 per diluted common share for the year ended December 31, 2022.
Return on average common equity was 4.19% and return on average assets was 0.40% for the year ended December 31, 2023,
compared to 11.74% and 1.08%, respectively, for the year ended December 31, 2022.
Adjusted earnings available to common stockholders (non-GAAP)(1), which excludes losses related to balance sheet
repositioning, losses on sale or write-down of assets, FDIC special assessment expense, and restructuring costs, was $193.9
million for the year ended December 31, 2023, compared to $209.5 million for the year ended December 31, 2022, a decrease
of $15.6 million or 7%. Adjusted diluted earnings per common share(1) were $4.53 for the year ended December 31, 2023,
compared to $4.91 for the year ended December 31, 2022, a decrease of $0.38 or 8%. Adjusted annualized return on average
common equity(1) was 11.31% and adjusted annualized return on average assets(1) was 1.01% for the year ended December 31,
2023, compared to 12.06% and 1.11%, respectively, for the year ended December 31, 2022.
Total assets of HTLF were $19.41 billion at December 31, 2023, a decrease of $832.5 million or 4% from December 31, 2022.
The decrease in total assets was primarily attributable to a sizeable reduction in the investment portfolio due to the sale of
securities for the balance sheet repositioning and amortization during the year. Securities represented 29% of total assets at
December 31, 2023, compared to 35% of total assets at December 31, 2022.
44 Total loans held to maturity were $12.07 billion at December 31, 2023, compared to $11.43 billion at December 31, 2022,
which was an increase of $640.3 million or 6%.
Total deposits were $16.20 billion as of December 31, 2023, compared to $17.51 billion as of December 31, 2022, a decrease of
$1.31 billion or 7%. Total customer deposits were $14.86 billion as of December 31, 2023, compared to $15.22 billion at
December 31, 2022, which was a decrease of $367.3 million or 2%. Total wholesale and institutional deposits were $1.35
billion as of December 31, 2023, compared to $2.29 billion as of December 31, 2022, which was a decrease of $943.9 million
or 41%.
Common stockholders' equity was $1.82 billion at December 31, 2023, compared to $1.62 billion at December 31, 2022. Book
value per common share was $42.69 at December 31, 2023, compared to $38.25 at December 31, 2022. HTLF's unrealized loss
on securities available for sale including the unrealized gain on the fair value of security hedges, net of applicable taxes, was
$453.7 million at December 31, 2023, compared to an unrealized loss of $619.2 million at December 31, 2022.
During the first quarter of 2023, HTLF reclassified customer swap and loan syndication income (collectively, "capital markets
fees") to capital markets fees from other noninterest income on the consolidated statements of income, and all prior periods
have been adjusted.
During the second quarter of 2023, HTLF reclassified Federal Deposit Insurance Corporation ("FDIC") insurance premiums to
FDIC insurance assessments from professional fees on the consolidated statements of income, and all prior periods have been
adjusted.
2023 Developments
Sale of HTLF Retirement Plan Services Recordkeeping and Administration
As of March 29, 2023, Dubuque Bank & Trust, a division of HTLF Bank, entered into an agreement to sell and transfer the
recordkeeping and administration services component of HTLF’s Retirement Plan Services business to July Business Services
("July") in order to augment the comprehensive retirement plan solutions offered to clients with enhanced technology and an
expanded suite of product offerings that clients expect from a top retirement services provider. The transaction was completed
in the second quarter of 2023 resulting in a gain of $4.3 million, which is included in the gain on sales and valuations of assets
on the consolidated statements of income.
Sale of First Bank & Trust Mortgage Servicing Rights
On March 31, 2023, First Bank & Trust, a division of HTLF Bank, sold its mortgage servicing rights portfolio, which consisted
of approximately 4,500 loans serviced for others with an unpaid principal balance of $698.5 million. First Bank & Trust
provided interim servicing of the loans until the transfer date of May 1, 2023.
Goodwill Impairment Testing
Following the banking industry disruption in March 2023, the sustained decline in the share prices of banking industry stock
prices, including HTLF's, was deemed to be a triggering event which caused management to perform impairment testing on its
goodwill in the second quarter of 2023. Based on the testing and analysis performed, management concluded that none of the
goodwill at any of HTLF's reporting units was impaired. HTLF also conducted its annual internal assessment of the goodwill at
HTLF or HTLF's reporting units as of September 30. There was no goodwill impairment as of the most recent assessment.
Fair Value Hedges
During the second quarter of 2023, HTLF entered into interest rate swaps designated as fair value hedges with initial notional
amounts of $838.1 million primarily designed to provide protection against unrealized securities losses due to the impact of
higher mid-to-long term interest rates.
During the second and third quarters of 2023, HTLF also executed interest rate swaps designated as fair value hedges with
original notional amounts totaling $2.5 billion to convert certain long term fixed rate loans to floating rates to hedge interest rate
risk exposure.
Balance Sheet Repositioning
During the fourth quarter of 2023, as a part of the new HTLF 3.0 strategic initiatives, HTLF sold investment securities with a
combined yield of 2.69% in a series of sale transactions, resulting in proceeds totaling approximately $865.4 million and
45 realized securities losses of $140.0 million or $106.8 million after tax. HTLF utilized the proceeds to reduce its wholesale
deposits and short-term borrowings, which carried an interest rate of approximately 5.50%.
These transactions decreased earning assets by approximately $865.4 million during the fourth quarter of 2023. HTLF's net
interest income increased $10.4 million from $145.8 million for the third quarter of 2023 to $156.1 million for the fourth
quarter of 2023 largely as result of the balance sheet reposition. The common equity ratio increased from 8.16% at December
31, 2022, to 8.49% at September 30, 2023, and 9.27% at December 31, 2023. In addition, the tangible common equity ratio(1)
increased from 5.21% at December 31, 2022, to 5.73% at September 30, 2023, and 6.53% at December 31, 2023. Because the
securities sold were held on the balance sheet as available for sale, the incurred losses had already been included in calculating
tangible common equity.
HTLF will continue to manage its balance sheet and investment portfolio through purchases and/or sales of investments in order
to effectively manage its balance sheet and liquidity and interest rate positions.
Charter Consolidation Update
During 2023, Wisconsin Bank & Trust, Bank of Blue Valley, First Bank & Trust, Rocky Mountain Bank, New Mexico Bank &
Trust and Dubuque Bank and Trust were consolidated into HTLF Bank, which successfully completed the consolidation of all
11 charters. Total consolidation restructuring costs were $16.9 million, of which $7.3 million was incurred in 2023.
HTLF 3.0
HTLF's new strategic plan, HTLF 3.0, was announced and initiated in the fourth quarter of 2023. HTLF 3.0 is a connected set
of initiatives that includes investing in growth through banker expansion and talent acquisition, expanding Treasury
Management products and capabilities, enhancement of consumer and small business digital platforms, and footprint and
facilities optimization. As part of these initiatives, in the fourth quarter of 2023, HTLF repositioned its balance sheet,
centralized retail management span of control, and took further steps to optimize its facilities.
Common Stock Dividend Increase
The common stock dividend was increased from $0.28 per common share to $0.30 in the first quarter of 2023 and was
maintained at this level in all four quarters of 2023.
Subsequent Events
Planned Retirement of Chief Executive Officer
On February 13, 2024, Bruce K. Lee, the Company’s President and Chief Executive Officer (“CEO”), and a member of the
Board of Directors (the “Board”), informed the Board that he intends to retire by the end of 2024. Mr. Lee has agreed that he
will continue to serve as the Company’s CEO until his successor is chosen and assumes the role of CEO, and will assist in the
transition and retire from the Company at the end of the year. Mr. Lee also indicated that concurrent with his successor
assuming the role of CEO of the Company, he intends to retire from the Board. The Board has formed a search committee and
will use Heidrick & Struggles, a nationally recognized executive recruiting firm, to begin a nationwide search for Mr. Lee’s
successor.
Sale of Rocky Mountain Bank
Subsequent to December 31, 2023, in February of 2024, HTLF Bank signed definitive agreements to sell its nine Rocky
Mountain Bank division branches to two purchasers. The agreements include the sale of approximately $588.9 million of
deposits, $365.9 million of loans and $13.6 million of premises, furniture and equipment. The transaction is expected to close in
the latter half of 2024. The sales are expected to improve capital and increase the efficiency of HTLF's footprint, aligning with
HTLF 3.0.
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.
46
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 December 31, 2021. Book
value per common share was $38.25 at December 31, 2022, compared to $49.00 at December 31, 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 11 bank charters. In
the second quarter of 2022, the consolidation project advanced from planning to execution with Citywide Banks' initial
consolidation into an operating division of HTLF Bank. During the remainder of 2022, the charters of Premier Valley Bank,
Minnesota Bank & Trust, Arizona Bank & Trust and Illinois Bank & Trust were consolidated into HTLF Bank, operating as
divisions of HTLF Bank. Charter consolidation utilized an operating model that retains the current brands, local leadership and
local decision making.
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.
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.
(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.
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
As of and For the Years Ended
December 31,
2023
2022
2021
$ 953,796
$ 674,656
$ 588,760
352,559
601,237
21,707
579,530
(20,926)
461,827
76,420
598,236
15,370
582,866
128,264
443,377
28,200
560,560
(17,575)
578,135
128,935
431,812
47
FINANCIAL HIGHLIGHTS (Dollars in thousands, except per share data)
Income taxes
Net income
Preferred dividends
As of and For the Years Ended
December 31,
2023
16,857
79,920
2022
55,573
2021
55,335
212,180
219,923
(8,050)
(8,050)
(8,050)
Net income available to common stockholders
$ 71,870
$ 204,130
$ 211,873
Adjusted earnings available to common stockholders (non-GAAP)(1)
PER COMMON SHARE DATA
Net income – diluted
Adjusted diluted earnings per common share
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
Term debt
Preferred equity
Common stockholders’ equity
$ 193,924
$ 209,527
$ 203,649
$
$
$
1.68
4.53
1.20
$
4.79
4.91
1.09
5.00
4.80
0.96
71.43 %
22.76 %
19.20 %
42.69
28.77
$
38.25
24.09
$
49.00
34.59
42,791,795
42,630,703
42,410,611
6.53 %
5.21 %
7.84 %
$ 5,576,409
$ 7,051,114
$ 7,697,650
5,071
5,277
21,640
12,068,645
11,428,352
9,954,572
122,566
109,483
110,088
19,411,707
20,244,228
19,274,549
16,201,714
17,513,009
16,417,255
372,396
371,753
372,072
110,705
110,705
110,705
1,822,412
1,624,350
2,071,473
EARNINGS PERFORMANCE DATA
Annualized return on average assets
Annualized adjusted return on average assets (non-GAAP)(2)
Adjusted annualized return on average assets (non-GAAP)(1)
Annualized return on average common equity
Adjusted annualized return on average common equity (non-GAAP)(1)
Annualized return on average tangible common equity (non-GAAP)(1)
Adjusted 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)
Adjusted 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)
0.40 %
4.19 %
1.01
4.19
11.31
6.89
1.08 %
11.74 %
1.11
11.74
12.06
18.55
1.19 %
10.49 %
1.14
10.49
10.08
15.59
17.82 %
19.03 %
14.99 %
3.29
3.33
79.58
59.06
2.30
2.15
3.32
3.37
61.03
57.74
2.26
2.16
3.29
3.33
62.63
59.48
2.33
2.22
48
FINANCIAL HIGHLIGHTS (Dollars in thousands, except per share data)
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 lending related credit losses to total loans
Allowance for credit losses to nonperforming loans
CONSOLIDATED CAPITAL RATIOS
Average equity to average assets
Average common equity to average assets
Total capital to risk-adjusted assets
Tier 1 capital
Common equity tier 1
Tier 1 leverage
As of and For the Years Ended
December 31,
2023
2022
2021
0.57 %
0.33 %
0.37 %
0.81
0.11
1.02
1.15
0.51
0.11
0.96
1.13
0.70
0.04
1.11
1.26
125.15
187.14
157.45
9.10 %
9.42 %
11.51 %
8.55
14.53
11.69
10.97
9.44
8.86
14.76
11.81
11.07
9.13
10.92
15.90
12.39
11.53
8.57
(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,
2023
2022
2021
$ 1,822,412
$ 1,624,350
$ 2,071,473
576,005
18,415
576,005
25,154
576,005
32,988
Tangible common stockholders' equity (non-GAAP)
$ 1,227,992
$ 1,023,191
$ 1,462,480
Common shares outstanding, net of treasury stock
Common stockholders' equity (book value) per share (GAAP)
Tangible book value per common share (non-GAAP)
42,688,008
42,467,394
42,275,264
$
$
42.69
28.77
$
$
38.25
24.09
$
$
49.00
34.59
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)
$ 19,411,707
$ — $ 20,244,228
$ 19,274,549
576,005
18,415
576,005
25,154
576,005
32,988
$ 18,817,287
$ 19,643,069
$ 18,665,556
6.53 %
5.21 %
7.84 %
Reconciliation of Annualized Return on Average Tangible Common Equity
(non-GAAP)
Net income available to common stockholders (GAAP)
$
71,870
$ 204,130
$ 211,873
49
NON-GAAP RECONCILIATIONS (Dollars in thousands, except per share data)
Plus core deposit and customer intangibles amortization, net of tax(1)
Adjusted net income available to common stockholders (non-GAAP)
As of and For the Years Ended
December 31,
2023
5,142
2022
6,071
2021
7,422
$
77,012
$ 210,201
$ 219,295
50
NON-GAAP RECONCILIATIONS (Dollars in thousands, except per share data)
As of and For the Years Ended
December 31,
2023
2022
2021
Average common stockholders' equity (GAAP)
$ 1,714,983
$ 1,738,041
$ 2,020,200
Less average goodwill
Less average other intangibles, net
576,005
21,667
576,005
28,912
576,005
37,554
Average tangible common equity (non-GAAP)
$ 1,117,311
$ 1,133,124
$ 1,406,641
Annualized return on average common equity (GAAP)
Annualized return on average tangible common equity (non-GAAP)
4.19 %
6.89 %
11.74 %
18.55 %
10.49 %
15.59 %
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 Adjusted 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:
$ 601,237
$ 598,236
$ 560,560
8,555
8,399
7,212
$ 609,792
$ 606,635
$ 567,772
$ 18,301,190
$ 18,021,134
$ 17,025,088
3.29 %
3.33 %
3.32 %
3.37 %
3.29 %
3.33 %
$ 601,237
$ 598,236
$ 560,560
8,555
609,792
(20,926)
141,539
(240)
8,399
606,635
128,264
425
622
7,212
567,772
128,935
(5,910)
(58)
—
$ 730,165
(1,658)
$ 734,288
(1,088)
$ 689,651
$ 461,827
$ 443,377
$ 431,812
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
FDIC special assessment
Core expenses (non-GAAP)
Efficiency ratio (GAAP)
Efficiency ratio, fully tax-equivalent (non-GAAP)
6,739
5,401
(77)
10,359
8,145
7,834
5,040
(1,047)
7,586
—
9,395
6,303
588
5,331
—
$ 431,260
$ 423,964
$ 410,195
79.58 %
59.06 %
61.03 %
57.74 %
62.63 %
59.48 %
Reconciliation of Annualized Ratio of Core Expenses to Average Assets
Total noninterest expenses (GAAP)
Core expenses (non-GAAP)
$ 461,827
$ 443,377
$ 431,812
431,260
423,964
410,195
Average assets
Total noninterest expenses to average assets (GAAP)
$ 20,053,004
$ 19,621,839
$ 18,508,273
2.30 %
2.26 %
2.33 %
51
NON-GAAP RECONCILIATIONS (Dollars in thousands, except per share data)
Core expenses to average assets (non-GAAP)
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,
2023
2022
2021
2.15 %
2.16 %
2.22 %
$
1,686
1,092
19
4,412
550
—
2,600
$
1,404
$
—
—
5,082
382
—
718
$
10,359
$
7,586
$
578
10
655
2,867
173
39
1,009
5,331
52
NON-GAAP RECONCILIATIONS (Dollars in thousands, except per share data)
Reconciliation of Adjusted Earnings (non-GAAP)
Net income/(loss)
Loss (gain) from sale of securities
(Gain) loss on sales/valuation of assets, net
Acquisition, integration and restructuring costs
FDIC special assessment
Total adjustments
Tax effect of adjustments(2)
Adjusted earnings
Preferred dividends
As of and For the Years Ended
December 31,
2023
2022
2021
$
79,920
$
212,180
$
219,923
141,539
(77)
10,359
8,145
159,966
(37,912)
425
(1,047)
7,586
—
6,964
(1,567)
(5,910)
588
(5,331)
—
(10,653)
2,429
$
201,974
$
217,577
$
211,699
(8,050)
(8,050)
(8,050)
Adjusted earnings available to common stockholders
$
193,924
$
209,527
$
203,649
Plus core deposit and customer relationship intangibles amortization, net of tax(2)
5,142
6,071
7,253
Earnings available to common stockholders excluding intangible amortization
(non-GAAP)
$
199,066
$
215,598
$
210,902
Reconciliation of Adjusted Annualized Return on Average Assets
Average assets
$ 20,053,004
$ 19,621,839
$ 18,508,273
Adjusted annualized return on average assets (non-GAAP)
1.01 %
1.11 %
1.14 %
Reconciliation of Adjusted Annualized Return on Average Common Equity
Average common stockholders' equity (GAAP)
$ 1,714,983
$ 1,738,041
$ 2,020,200
Adjusted annualized return on average common equity (non-GAAP)
11.31 %
12.06 %
10.08 %
Reconciliation of Adjusted Annualized Return on Average Tangible Common
Equity
Average tangible common equity (non-GAAP)
$ 1,117,311
$ 1,133,124
$ 1,406,641
Adjusted annualized return on average tangible common equity (non-GAAP)
17.82 %
19.03 %
14.99 %
Reconciliation of Adjusted Diluted Earnings Per Common Share
Weighted average shares outstanding-diluted
Adjusted diluted earnings per common share
42,791,795
42,630,703
42,410,611
$
4.53
$
4.91
$
4.80
(2) Tax effect is calculated based on the respective periods’ year-to-date effective tax rate excluding the impact of discrete
items.
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.
53
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:
•
•
•
•
•
•
•
•
•
•
•
Adjusted earnings available to common stockholders, adjusts net income for the loss/(gain) from sale of securities, and
other non-operating expenses as well as the tax effect of those transactions. Management believes this measure
enhances the comparability net income available to common stockholders as it reflects adjustments commonly made
by management, investors and analysts to evaluate the ongoing operations and enhance comparability with the results
of prior periods.
Adjusted annualized return on average assets, adjusts net income for the loss/(gain) from sale of securities, and other
non-operating expenses as well as the tax effect of those transactions. Management believes this measure enhances the
comparability of annualized return on average assets as it reflects adjustments commonly made by management,
investors and analysts to evaluate the ongoing operations and enhance comparability with the results of prior periods.
Adjusted annualized return on average common equity, adjusts net income for the loss/(gain) from sale of securities,
and other non-operating expenses as well as the tax effect of those transactions. Management believes this measure
enhances the comparability of annualized return on average assets as it reflects adjustments commonly made by
management, investors and analysts to evaluate the ongoing operations and enhance comparability with the results of
prior periods.
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.
Adjusted annualized return on average tangible common equity, adjusts net income available to common stockholders
for the loss/(gain) from sale of securities, and other non-operating expenses as well as the tax effect of those
transactions. Management believes this measure enhances the comparability of annualized return on average assets as
it reflects adjustments commonly made by management, investors and analysts to evaluate the ongoing operations and
enhance comparability with the results of prior periods.
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.
Adjusted efficiency ratio, fully tax equivalent, expresses adjusted noninterest expenses as a percentage of fully tax-
equivalent net interest income and adjusted noninterest income. This adjusted efficiency ratio is presented on a tax-
equivalent basis which adjusts net interest income and noninterest expenses for the tax favored status of certain loans,
securities, and tax credit projects. Management believes the presentation of this non-GAAP measure provides
supplemental useful information for proper understanding of the financial results as it enhances the comparability of
income and expenses arising from taxable and nontaxable sources and excludes specific items as noted in the
reconciliation contained in this Annual Report on Form 10-K.
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
customer deposits while managing asset and liability positions to maximize HTLF's profitability.
Net interest income is the difference between interest income earned on earning assets and interest expense paid on interest
54 bearing liabilities. As such, net interest income is affected by changes in the volume of and yields on earning assets, and the
volume of and rates paid on interest bearing liabilities. Net interest margin is the ratio of net interest income to average earning
assets.
See "Analysis of Average Balances, Tax-Equivalent Yields and Rates" for a description of our use of net interest income and
net interest margin on a fully tax-equivalent basis, which is not defined by GAAP, and a reconciliation of annualized net
interest margin on a fully tax-equivalent basis to GAAP.
Net interest margin, expressed as a percentage of average earning assets, was 3.29% (3.33% on a fully tax-equivalent basis,
non-GAAP) during 2023, compared to 3.32% (3.37% on a fully tax-equivalent basis, non-GAAP) during 2022 and 3.29%
(3.33% on a fully tax-equivalent basis, non-GAAP) during 2021.
Net interest margin for the year ended December 31, 2023, compared to the year ended December 31, 2022
Total interest income and average earning asset changes for 2023 compared to 2022 were:
•
•
•
•
Total interest income increased $279.1 million or 41% to $953.8 million from $674.7 million, which was primarily
attributable to higher yields and an increase in average loans.
Total interest income on a tax-equivalent basis (non-GAAP) was $962.4 million compared to $683.1 million, which
was an increase of $279.3 million or 41%.
Average earning assets increased $280.1 million or 2% to $18.30 billion from $18.02 billion, which was primarily
attributable to loan growth, which was offset by a reduction in securities balances.
The average rate on earning assets increased 147 basis points to 5.26% compared to 3.79%, 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 2023 compared to 2022 were:
•
•
•
•
•
Total interest expense increased $276.1 million to $352.6 million compared to $76.4 million.
The average rate paid on HTLF's interest bearing liabilities increased 206 basis points to 2.73% compared to 0.67%,
which was primarily due to recent increases in market interest rates, competition for deposits, and deposit mix
changes.
Average interest-bearing deposits increased $1.44 billion or 13% to $12.34 billion from $10.90 billion. The increase
was primarily due to the increase in average wholesale deposits, which totaled $2.52 billion compared to $1.21 billion.
The average rate paid on HTLF's interest bearing deposits increased 206 basis points to 2.59% compared to 0.52%,
which was primarily attributable to recent increases in market interest rates.
Average borrowings increased $36.4 million or 7% to $576.7 million from $540.3 million. The average interest rate
paid on HTLF's borrowings was 5.70% compared to 3.62%.
Net interest income changes for 2023 compared to 2022 were:
•
•
Net interest income totaled $601.2 million compared to $598.2 million, which was an increase of $3.0 million or 1%.
Net interest income on a tax equivalent basis (non-GAAP) totaled $609.8 million compared to $606.6 million, which
was an increase of $3.2 million or 1%.
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.
55 •
•
•
•
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%.
HTLF's future net interest margin may be impacted by several factors including changes in market interest rates driven by the
Federal Reserve, our ability to grow customer deposits to replace wholesale deposits, pressure on deposit pricing due to
competition, and our ability to utilize cash flow from the investment portfolio to reduce wholesale deposits and borrowings.
Management anticipates utilizing cash flow from the investment portfolio to pay down wholesale deposits and short-term
borrowings to improve net interest margin. In 2023, the Federal Reserve increased the federal funds rate four times for a total of
100 basis points to a 23-year high. The Federal Reserve has indicated it will closely assess economic data, but has signaled it
may reduce the Federal funds interest rate in the latter half of 2024. Ultimately, the timing and magnitude of any such changes
are uncertain and will depend on domestic and global economic conditions.
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 Eleven, "Derivative Financial
Instruments" to the consolidated financial statements contains a detailed discussion of the derivative instruments we have
utilized to manage interest rate risk.
56 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.
2023
For the Year Ended December 31,
2022
2021
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
$ 5,723,603
864,288
6,587,891
$ 223,521
31,292
254,813
3.91 % $ 6,335,586
965,474
3.62
7,301,060
3.87
$ 169,544
30,387
199,931
2.68 % $ 6,135,732
3.15
799,283
6,935,015
2.74
$ 125,010
24,390
149,400
2.04 %
3.05
2.15
136,964
38
7,007
3
5.12
7.89
216,786
192
3,125
11
1.44
5.73
254,630
3,457
344
1
0.14
0.03
3,566,610
5,797
236,532
69
6.63
1.19
3,070,890
50,464
140,310
6,884
4.57
13.64
2,543,514
734,139
111,473
40,627
4.38
2
5 5.53
Owner occupied commercial real estate 2,375,883
Non-owner occupied commercial real
estate
2,517,645
Real estate construction
1,047,192
Agricultural and agricultural real estate
837,861
76,307
7.29
49,260
5.88
923,316
778,526
48,258
5.23
34,064
4.38
824,055
681,493
147,528
5.86
2,196,922
99,202
4.52
1,969,910
116,641
4.91
2,272,088
93,936
4.13
1,950,014
81,717
4.19
37,669
36,522
—
700,528
962,351
4.52
852,541
7.25
464,084
—
(105,735)
10,503,096
6.05
5.26 % 18,021,134
1,600,705
$ 19,621,839
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
87,728
4.45
37,891
4.60
29,822
4.38
36,768
20,201
—
446,227
595,972
4.34
4.96
—
4.54
3.50 %
832,562
503,763
(111,016)
11,576,297
18,301,190
1,751,814
$ 20,053,004
$ 9,043,067
3,299,405
204,524
372,129
12,919,125
5,008,822
299,369
5,308,191
1,825,688
$ 20,053,004
Residential real estate
Consumer
Less: allowance for credit losses
Net loans
Total earning assets
Nonearning Assets
Total Assets
Interest-bearing Liabilities
Savings
Time deposits
Borrowings
Term debt
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
Interest-bearing liabilities to earning
assets
$ 182,179
137,509
10,311
22,560
352,559
2.01 % $ 9,737,100
1,160,538
4.17
168,404
5.04
6.06
371,879
2.73 % 11,437,921
$ 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 %
0.50
0.26
3.81
0.28 %
6,131,760
203,412
6,335,172
1,848,746
$ 19,621,839
6,230,851
176,697
6,407,548
2,130,905
$ 18,508,273
$ 609,792
$ 606,635
$ 567,772
2.53 %
3.33 %
3.12 %
3.37 %
3.22 %
3.33 %
70.59 %
63.47 %
58.56 %
(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.
57
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,
2023 Compared to 2022
Change Due to
Rate
Net
Volume
2022 Compared to 2021
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
Borrowings
(3,381)
(1,521)
(11)
$ (17,684) $ 71,661 $ 53,977 $
4,286
5,403
3
167,685
249,038
220,540
279,296
52,855
30,258
905
3,882
(8)
4,192 $ 40,342 $ 44,534
5,997
787
5,210
2,781
2,840
10
12
33,761
3,111
87,083
47,092
(59)
(2)
30,650
39,991
(3,555) 139,111
85,060
42,192
6,898
696
135,556
127,252
7,594
1,808
121
(35)
1,301
3,195
35,752
4,402
2,281
37,560
4,523
2,246
3,891
2,590
45,025
48,220
2,067 $ 38,863
3,157 $ 36,796 $
Term debt
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.
11
39,344
(9,086) $ 12,243 $
5,726
236,795
5,737
276,139
$
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, 2023, 2022 and 2021, in thousands:
Provision (benefit) for credit losses-loans
Provision (benefit) for credit losses-unfunded commitments
Provision (benefit) for credit losses-held to maturity securities
Total provision expense (benefit)
For the Years Ended December 31,
2023
2022
2021
$
25,435 $
10,636 $
(17,706)
(3,728)
—
4,734
—
182
(51)
$
21,707 $
15,370 $
(17,575)
The provision for credit losses was $21.7 million for 2023 compared to $15.4 million for 2022. The provision expense for 2023
was impacted by several factors, including:
•
•
•
loan growth, excluding PPP loans which have no associated provision, totaled $648.5 million,
an increase in nonperforming loans of $39.4 million to $97.9 million or 0.81% of total loans compared to $58.5
million or 0.51% of total loans at December 31, 2022, and
net charge-offs of $12.4 million.
58
The provision for credit losses was $15.4 million for 2022 compared to a benefit of $17.6 million for 2021. The provision
expense for 2022 was impacted by several factors, including:
•
•
•
•
loan growth, excluding PPP loans which have no associated provision, totaled $718.0 million,
a 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.
At December 31, 2023, the allowance for credit losses for loans was 1.02% of total loans and 125.15% of nonperforming loans
compared to 0.96% of total loans and 187.14% of nonperforming loans at December 31, 2022.
The size of the loan portfolio, the level of organic loan growth, government loan guarantees, changes in credit quality, and
economic conditions, are all considered when determining the appropriateness of the allowance for credit losses and will
contribute to changes 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 One, "Basis of Presentation," and Note Five, "Allowance for Credit Losses" to the consolidated
financial statements contained herein.
HTLF believes the allowance for credit losses as of December 31, 2023, was at a level commensurate with the overall risk
exposure of the loan portfolio. However, deterioration in economic conditions, including a recession, could cause certain
borrowers to experience financial difficulty and impede their ability to make loan payments. Due to the uncertainty of future
economic conditions, including ongoing concerns over the impact of higher interest rates, 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
Capital markets fees
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 (loss)
$
$
2023
74,024 $
1,561
20,715
2,794
10,007
(141,539)
2022
68,031 $
2,741
22,570
2,986
11,543
2021
59,703
3,276
24,417
3,546
1,324
(425)
5,910
(622)
58
9,032
20,605
1,658
1,088
2,341
3,762
5,246
8,409
(20,926) $ 128,264 $ 128,935
240
3,880
—
3,771
3,621
2023/2022
9 %
(43)
(8)
(6)
(13)
33,203
(139)
(57)
(100)
61
(57)
(116) %
2022/2021
14 %
(16)
(8)
(16)
772
(107)
(1,172)
(56)
52
(38)
60
(1) %
59
Notable changes in the components of noninterest income are as follows:
Service Charges and Fees
The following table summarizes the changes in service charges and fees for the years ended indicated, in thousands:
For the Years Ended December 31,
% Change
2023
2022
2021
2023/2022 2022/2021
Service charges and fees on deposit accounts
$
21,037 $
18,625 $
Overdraft fees
Customer service fees
Credit card fee income
Debit card income
11,878
358
31,102
9,649
12,136
375
27,560
9,335
Total service charges and fees
$
74,024 $
68,031 $
16,414
11,005
220
21,623
10,441
59,703
13 %
13 %
(2)
(5)
13
3
9 %
10
70
27
(11)
14 %
Total service charges and fees were $74.0 million in 2023, which was an increase of $6.0 million or 9% from $68.0 million in
2022. Total service charges and fees in 2022 were $68.0 million, which was an increase of $8.3 million or 14% from $59.7
million in 2021.
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 an increase in debit interchange volume.
In December 2023, in response to industry changes related to the consumer overdraft fees, HTLF modified its consumer deposit
product and fee structure, including overdraft fees. As result, consumer deposit overdraft fees declined $600,000. Management
anticipates this decline to be ongoing, and result in approximately $7.2 million lower consumer overdraft fee income in 2024 as
compared to 2023.
Loan Servicing Income
Loan servicing income includes the fees collected for the servicing of commercial, agricultural, and mortgage loans, which
depend upon the aggregate outstanding balance of these loans, rather than quarterly production and sale of these loans. Total
loan servicing income totaled $1.6 million for 2023 compared to $2.7 million for 2022 and $3.3 million for 2021.
Included in and offsetting loan servicing income is the amortization of capitalized mortgage servicing rights, which was
$210,000 during 2023 compared to $1.1 million during 2022 and $1.4 million during 2021. In the first quarter of 2023, First
Bank & Trust, a division of HTLF Bank, sold its mortgage servicing rights portfolio. Increases in residential mortgage interest
rates during 2022 caused mortgage refinancing activity to decrease during the year ended December 31, 2022, 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 $20.7 million for the year ended December 31, 2023, a decrease of $1.9 million or 8% from $22.6 million for
the year ended December 31, 2022. 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. The decrease in 2023 was largely attributable to the
sale of the administrative and recordkeeping services component of HTLF's Retirement Plan Services business that was
completed in the second quarter of 2023. Retirement plan services income decreased $1.7 million or 27% to $4.6 million in
2023 compared to $6.3 million in 2022. The changes in trust fees are also impacted by changes in the market value of trust
assets under management, which were $3.92 billion, $3.62 billion and $3.79 billion at December 31, 2023, 2022, and 2021,
respectively.
Capital markets fees
Capital markets fees totaled $10.0 million for the year ended 2023, compared to $11.5 million for the year ended 2022.
Syndication income totaled $2.3 million in 2023 compared to $4.9 million for 2022. Swap fee income was $7.7 million in 2023
compared to $6.6 million in 2022.
Capital markets fees vary, in part, based upon the size of the transaction and are recognized upon the closing of the transaction.
60
Securities (losses) gains, net
Net security losses totaled $141.5 million for the year ended December 31, 2023, compared to net security losses of $425,000
for the year ended December 31, 2022, which was a decrease of $141.1 million. During the fourth quarter of 2023, as
previously described, HTLF sold securities to strategically reposition its balance sheet, resulting in a $140.0 million loss.
Net Gains on Sale of Loans Held for Sale
Net gains on sale of loans held for sale totaled $3.9 million during 2023 compared to $9.0 million during 2022 and $20.6
million during 2021. The decrease in 2023 in comparison with 2022 was primarily due to a decrease of loans sold to the
secondary market. HTLF elected to significantly scale back mortgage originations, as a result of the decreased customer
demand due to the continued challenging rate environment for mortgage loan originations. The decrease in 2022 in comparison
with 2021 was largely attributable to increased residential mortgage rates, which caused mortgage loan origination volumes to
decline.
Valuation Adjustment on Servicing Rights
The valuation adjustment recovery on servicing rights was $0 for the year ending December 31, 2023, compared to $1.7 million
for the year ending December 31, 2022, and compared to $1.1 million for the year ended December 31, 2021. HTLF sold its
mortgage servicing rights portfolio in the first quarter of 2023. HTLF recovered its valuation allowance in the first quarter of
2022 due to increases in residential mortgage loan interest rates.
Other noninterest income
Other noninterest income totaled $3.6 million for the year ended December 31, 2023, a decrease of $4.8 million from $8.4
million for the year ended December 31, 2022. The decrease was primarily attributable to gains of $1.9 million recorded in the
second quarter of 2022 on the sale of all VISA Class B shares.
NONINTEREST EXPENSES
The following table summarizes HTLF's noninterest expenses for the years indicated, in thousands:
For the Years Ended December 31,
% Change
2023
2022
2021
2023/2022 2022/2021
Salaries and employee benefits
$ 251,276 $ 254,478 $ 240,114
Occupancy
Furniture and equipment
Professional fees
FDIC insurance assessments
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
26,847
11,599
58,667
19,940
8,347
6,739
1,489
28,155
12,499
58,606
7,000
6,221
7,834
950
(77)
(1,047)
10,359
5,401
61,240
7,586
5,040
29,965
13,323
58,843
5,757
7,257
9,395
990
588
5,331
6,303
56,055
53,946
$ 461,827 $ 443,377 $ 431,812
(1) %
(5)
(7)
—
185
34
(14)
57
(93)
37
7
9
4 %
6 %
(6)
(6)
—
22
(14)
(17)
(4)
(278)
42
(20)
4
3 %
Notable changes in the components of noninterest expenses are as follows:
Salaries and Employee Benefits
The largest component of noninterest expense, salaries and employee benefits, decreased $3.2 million or 1% to $251.3 million
in 2023 and increased $14.4 million or 6% to $254.5 million in 2022. Full-time equivalent employees totaled 1,970 on
December 31, 2023, compared to 2,002 on December 31, 2022, and 2,249 on December 31, 2021.
61
The decrease in salaries and employee benefits during 2023 was primarily attributable to lower incentive compensation
expense, which was partially offset by higher salaries expense.
The increase in salaries and employee benefits during 2022 was primarily attributable to higher salaries expense due to
inflationary wage pressures and incentive compensation.
FDIC Insurance Assessments
FDIC insurance assessments increased $12.9 million or 185% to $19.9 million in 2023 and $1.2 million or 22% to $7.0 million
in 2022. The increase during 2023 was primarily attributable to a one-time special assessment of $8.1 million. In November
2023, the FDIC issued a final rule to implement a special assessment to recover losses to the Deposit Insurance Fund ("DIF")
incurred as a result of the early 2023 bank failures and the FDIC's use of the systemic risk exception to cover certain deposits
that were otherwise uninsured. The rule provides for a 13.44 basis point annual special assessment on the uninsured deposits
reported by HTLF at December 31, 2022, which was $8.03 billion. The special assessment excluded the first $5 billion of
uninsured deposits and will be payable over two years.
Advertising
Advertising expense increased $2.1 million or 34% to $8.3 million during 2023 from $6.2 million during 2022, which was
primarily driven by deposit acquisition campaigns launched in 2023. During 2022, advertising expense decreased $1.0 million
or 14% to $6.2 million from $7.3 million for the year ended December 31, 2021.
Core Deposit Intangibles and Customer Relationship Intangibles Amortization
Core deposit intangibles and customer relationship intangibles amortization totaled $6.7 million during 2023 compared to $7.8
million during 2022, which was a decrease of $1.1 million or 14%. 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%. The decreases for the years ended December 31, 2023 and 2022 were attributable to the amortization of core
deposit intangibles and customer relationship intangibles from recent acquisitions.
(Gain) Loss on Sales/Valuations of Assets, net
Net losses on sales/valuations of assets totaled $77,000 during 2023 compared to net losses on sales/valuations of assets of $1.0
million during 2022 and net gains on sales/valuations of assets of $588,000 during 2021. During 2023, HTLF recorded a gain
of $4.3 million associated with the sale of HTLF's Retirement Plan Services recordkeeping and administrative services
component. The gain was partially offset by a $1.9 million write-down on one other real estate owned property. HTLF
recorded $2.4 million of losses, net, on fixed assets associated with branch optimization activities and a loss of $203,000
associated with the sale of the mortgage servicing rights portfolio.
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 write-downs totaling $1.5 million
associated with branch optimization activities.
Acquisition, Integration and Restructuring Expenses
Acquisition, integration and restructuring expenses totaled $10.4 million for the year ended December 31, 2023, which was an
increase of $2.8 million or 37% from $7.6 million for the year ended December 31, 2022. The charter consolidation project was
completed in the fourth quarter of 2023 with total expenses for 2023 totaling $7.3 million. Additionally, restructuring expenses
of $3.1 million were incurred for HTLF's new strategic plan, HTLF 3.0 during 2023.
Partnership Investment in Tax Credit Projects
Partnership investment in tax credit projects totaled $5.4 million, $5.0 million and $6.3 million for the years ended December
31, 2023, 2022 and 2021, respectively. The expense depends upon the number of tax credit projects placed in service during the
year.
EFFICIENCY RATIO
One of the primary goals of HTLF 3.0 strategic initiatives is to improve its efficiency ratio, on a fully tax-equivalent basis (non-
GAAP), with the goal to reach 52% over the next three years and maintain it below that level thereafter. The efficiency ratio
was 79.58% (59.06% on an adjusted fully tax-equivalent basis, non-GAAP) for 2023, 61.03% (57.74% on an adjusted fully tax-
equivalent basis, non-GAAP) for 2022, and 62.63% (59.48% on an adjusted fully tax-equivalent basis, non-GAAP) for 2021.
HTLF continues to pursue strategies to improve operational efficiency and its efficiency ratio, on a fully tax-equivalent basis
(non-GAAP) which include the following initiatives:
62 Consolidation of its 11 Bank Charters
Charter consolidation was designed to eliminate redundancies and improve operating efficiency and capacity to support
ongoing product and service enhancements as well as current and future growth. During the fourth quarter of 2023, HTLF
successfully completed the consolidation of all 11 charters. Consolidation restructuring costs were originally projected to total
$19-20 million, and at completion, the total consolidation restructuring costs were $16.9 million. Largely as a result of charter
consolidation, full-time equivalent employees decreased 279 of 12%, from 2,249 full-time equivalent employees prior to the
announcement of charter consolidation at December 31, 2021, to 1,970 full-time equivalent employees at December 31, 2023.
HTLF 3.0
HTLF's new strategic plan, HTLF 3.0, was announced and initiated in the fourth quarter of 2023. Initiatives of HTLF 3.0
include investing in growth through banker expansion and talent acquisition, expanding treasury management products and
capabilities, enhancement of consumer and small business digital platforms, improving our efficiency ratio and footprint and
facilities optimization.
Branch Optimization Strategy
During 2023, HTLF's branch network was reduced by 2 locations. During 2022, HTLF reduced its branch footprint by 11
locations. HTLF will continue to optimize its branch network and physical facilities as part of the HTLF 3.0 initiatives, which
will likely result in write-downs of fixed assets and additional restructuring costs in future periods.
See "Financial Highlights" in this section above 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 17.4% for 2023 compared to 20.8% for 2022 and 20.1% for 2021. The following items impacted
HTLF's 2023, 2022 and 2021 tax calculations:
•
•
•
•
•
Various tax credits of $7.0 million, $6.6 million, and $7.7 million.
Tax expense of $4.9 million, $987,000, and $229,000 resulting from disallowed interest expense related to tax-exempt
loans and securities, aligning with increases in total interest expense.
Tax-exempt interest income as a percentage of pre-tax income of 33.3%, 11.8% and 9.9%.
The tax-equivalent adjustment for this tax-exempt interest income was $8.6 million, $8.4 million and $7.2 million.
Tax benefits of $0, $165,000 and $491,000 related to the release of valuation allowances on deferred tax assets.
FINANCIAL CONDITION
HTLF's total assets were $19.41 billion at December 31, 2023, a decrease of $832.5 million or 4% compared to December 31,
2022. HTLF's total assets were $20.24 billion at December 31, 2022, an increase of $969.7 million or 5% compared to $19.27
billion at December 31, 2021.
LENDING ACTIVITIES
HTLF's board of directors establishes the Bank's credit risk appetite, which is further supported by the implementation of sound
lending policies, processes, and procedures designed to maintain and uphold an acceptable level of credit risk. Management and
the HTLF board of directors are provided reports at least quarterly related to loan production, loan quality, concentrations of
credit, loan delinquencies and nonperforming loans and potential problem loans.
HTLF originates commercial and industrial loans and owner occupied commercial real estate loans for a wide variety of
business purposes, including lines of credit for working capital and operational purposes and term loans for the acquisition of
equipment and real estate. Although most loans are made on a secured basis, loans may be made on an unsecured basis if
warranted by the overall financial condition of the borrower. Terms of commercial business loans generally range from one to
five years. Commercial loans are primarily made based on the identified cash flow of the borrower and secondarily on the
underlying collateral provided by the borrower. The risks in the commercial and industrial portfolio include the unpredictability
of the cash flow of the borrowers and the variability in the value of the collateral securing the loans. Owner occupied
commercial real estate loans depend upon the cash flow of the borrowers and the collateral value of the real estate.
63 In 2021 and 2020, HTLF originated Paycheck Protection Plan ("PPP") loans in conjunction with the CARES Act. The PPP
loans are 100% SBA guaranteed and carry a zero risk rating for regulatory capital purposes. The principal balance of PPP loans
has been significantly reduced as borrowers may be eligible to have the entire principal balance forgiven and paid by the SBA.
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 typically depend, 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 repayment relies on the successful and timely completion of the project. Personal guarantees are
required a majority of instances 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 depends 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 division are complemented by HTLF Specialized Industries, a centralized team of highly experienced
middle-market lenders focused on specific industries and more complex loan structures. The team includes specialized expertise
in commercial real estate, healthcare, food and agribusiness industries, and franchise finance, as well as in capital markets
activities such as swaps and syndications.
Residential real estate loans are originated for the purchase or refinancing of single-family residential properties. Residential
real estate loans depend upon the borrower's ability to repay the loan and the underlying collateral value. HTLF Bank provides
residential mortgage loans to their customers that are retained and serviced by HTLF Bank.
Consumer lending includes motor vehicle, home improvement, home equity and small personal credit lines. Consumer loans
typically have shorter terms, lower balances, higher yields and higher risks of default than one-to-four-family residential
mortgage loans. Consumer loan collections are dependent on the borrower's continuing financial stability and are therefore
more likely to be affected by adverse personal circumstances. Risk is reduced through underwriting criteria, which include
credit verification, appraisals, a review of the borrower's financial condition, and personal cash flows. A security interest, with
title insurance, when necessary, is taken in the underlying real estate.
At December 31, 2023, $276.6 million or 56% of the consumer loan portfolio was in home equity lines of credit ("HELOCs")
compared to $265.8 million or 52% at December 31, 2022. 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.
HTLF Bank has 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, HTLF Bank may make loans to borrowers
possessing subprime characteristics only if there are mitigating factors present that reduce the potential default risk of the loan.
64 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:
2023
As of December 31,
2022
2021
Amount
%
Amount
%
Amount
%
Loans receivable held to maturity:
Commercial and industrial
$ 3,652,047
30.26 % $ 3,464,414
30.31 % $ 2,645,085
26.57 %
PPP
2,777
Owner occupied commercial real estate
2,638,175
Non-owner occupied commercial real estate
2,553,711
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
1,011,716
919,184
797,829
493,206
0.02
21.86
21.16
8.38
7.62
6.61
4.09
11,025
2,265,307
2,330,940
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
Total loans receivable held to maturity
12,068,645
100.00 % 11,428,352
100.00 % 9,954,572
100.00 %
Allowance for credit losses
Loans receivable, net
(122,566)
$ 11,946,079
(109,483)
$ 11,318,869
(110,088)
$ 9,844,484
Loans held for sale totaled $5.1 million at December 31, 2023, and $5.3 million at December 31, 2022, 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, 2023, 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
$
1,175,560 $
569,567 $ 1,150,307 $
414,707 $
278,098 $
51,103 $
12,705 $
3,652,047
2,777
—
—
—
—
—
—
2,777
308,524
647,255
597,814
481,104
353,157
77,733
172,588
2,638,175
295,859
608,391
1,094,193
271,571
221,053
13,051
49,593
2,553,711
350,630
105,419
399,032
82,317
71,317
285,733
72,782
41,090
100,020
205,827
67,663
245,073
74,152
317,759
7,047
209,861
59,685
207,675
96,468
6,458
898
184
37,872
543
2,103
1,011,716
73,452
100,867
8
919,184
797,829
493,206
$
2,532,955 $
2,304,142 $ 3,878,330 $ 1,526,292 $ 1,234,226 $
181,384 $
411,316 $ 12,068,645
Total loans
Total loans held to maturity were $12.07 billion at December 31, 2023, compared to $11.43 billion at the year ended 2022, an
increase of $640.3 million or 6%. Excluding changes in total PPP loans, loans increased $648.5 billion or 6% since year-end
2022.
Total loans held to maturity were $11.43 billion at December 31, 2022, compared to $9.95 billion at the year ended 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.
65
The table below shows the changes in loan balances by loan category for the years indicated, in thousands:
Commercial and industrial
$ 3,652,047 $ 3,464,414 $ 2,645,085
PPP
2,777
11,025
199,883
5 %
(75)
31 %
(94)
As of December 31,
% Change
2023
2022
2021
2023/2022
2022/2021
Owner occupied commercial real estate
2,638,175
2,265,307
2,240,334
Non-owner occupied commercial real estate
2,553,711
2,330,940
2,010,591
1,011,716
1,076,082
919,184
797,829
493,206
920,510
853,361
506,713
856,119
753,753
829,283
419,524
16
10
(6)
—
(7)
(3)
1
16
26
22
3
21
$ 12,068,645 $ 11,428,352 $ 9,954,572
6 %
15 %
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
Total
The loan growth in 2023 was primarily in commercial and industrial, owner occupied commercial real estate, and non-owner
occupied commercial real estate, which was attributable to an emphasis on organic loan growth and further market penetration
in various HTLF growth markets, partially offset by decreases in real estate construction and residential mortgage.
Commercial and industrial loans
Commercial and industrial loans totaled $3.65 billion at December 31, 2023, compared to $3.46 billion at December 31, 2022,
and $2.65 billion at December 31, 2021. Changes to commercial and industrial loans for the years ended December 31, 2023
and 2022 were:
•
•
Commercial and industrial loans increased $187.6 million or 5% during 2023.
Commercial and industrial loans increased $819.3 million or 31% during 2022.
Owner occupied commercial real estate loans
Owner occupied commercial real estate loans totaled $2.64 billion at December 31, 2023, compared to $2.27 billion at
December 31, 2022, and $2.24 billion at the year ended 2021. Changes to owner occupied real estate loans for the years ended
December 31, 2023 and 2022 were:
•
•
Owner occupied commercial real estate loans increased $372.9 million or 16% during 2023.
Owner occupied commercial real estate loans increased $25.0 million or 1% during 2022.
The following table provides detail on owner occupied commercial real estate loans classified by industry diversification for the
years indicated, in thousands:
Health care and social assistance
$
Real estate and rental and leasing
Retail trade
Manufacturing
Other services (except public administration)
Construction
Wholesale trade
Accommodation and food services
Arts, entertainment, and recreation
All other
Total
$
$
As of December 31,
2023
2022
Amount
%
Amount
483,073
438,244
307,543
277,755
197,260
161,746
149,310
121,268
90,325
411,651
18.31 % $
16.61
11.66
10.53
7.48
6.13
5.66
4.60
3.42
15.60 % $
222,582
365,297
329,413
277,528
211,636
158,514
146,016
126,886
90,993
336,442
%
9.83 %
16.12
14.54
12.25
9.34
7.00
6.45
5.60
4.02
14.85 %
2,638,175
100.00 % $
2,265,307
100.00 %
66
The following table provides geographic diversification detail on owner occupied commercial real estate loans by bank division
location for the years indicated, in thousands:
Colorado
California
Illinois
Arizona
Wisconsin
Texas
Iowa
New Mexico
Minnesota
Kansas/Missouri
Montana
Total
As of December 31,
2023
2022
Amount
%
Amount
%
$
516,354
19.56 % $
383,487
16.92 %
314,135
298,076
297,759
250,069
236,592
195,491
159,401
158,278
119,395
92,625
11.91
11.30
11.29
9.48
8.97
7.41
6.04
6.00
4.53
3.51
232,440
10.26
184,703
270,254
244,849
232,145
211,123
174,996
116,956
128,120
86,234
8.15
11.93
10.81
10.25
9.32
7.73
5.16
5.66
3.81
$
2,638,175
100.00 % $
2,265,307
100.00 %
Non-owner occupied commercial real estate loans
Non-owner occupied commercial real estate loans totaled $2.55 billion at December 31, 2023, compared to $2.33 billion at
December 31, 2022, and $2.01 billion at the year ended 2021. Changes to non-owner occupied commercial real estate loans for
the years ended December 31, 2023, and 2022 were:
•
•
Non-owner occupied commercial loans increased $222.8 million or 10% during the year ended December 31, 2023.
Non-owner occupied commercial loans increased $320.3 million or 16% during the year ended December 31, 2022.
The shift to work-from-home and hybrid work arrangements has caused decreased utilization of and demand for office space.
HTLF is actively monitoring its exposure to office space in the non-owner occupied commercial real estate portfolio. As of
December 31, 2023:
• Outstanding loans totaling $424.7 million were collateralized by non-owner occupied office space, which represents
•
•
•
•
3.5% of the total loans held to maturity, and the average loan size was $1.4 million.
There were no loans collateralized by office space on nonaccrual.
The collateral consists primarily of multi-tenant, non-central business district properties.
Debt service coverage ratio was 1.50 at origination on loans greater than $1.0 million, which represents 18% of all
office non-owner occupied commercial real estate loans.
Average loan-to-value was 57% on initial appraised value on loans greater than $1.0 million, which represents 18% of
all office non-owner occupied commercial real estate loans.
67
The following table provides detail on non-owner occupied commercial real estate loans classified by industry diversification
for the years indicated, in thousands:
Retail
Office
Hospitality
Medical
Multifamily
Logistics/distribution
Industrial flex/other
Self-Storage
Restaurant
Other
Total
$
As of December 31,
2023
2022
Amount
%
Amount
432,084
424,671
406,516
329,306
294,097
258,389
230,167
115,731
52,820
9,930
16.91 % $
16.63
15.92
12.90
11.52
10.12
9.01
4.53
2.07
0.39
366,619
379,776
459,247
301,881
257,755
260,893
150,573
98,910
42,024
13,262
%
15.74 %
16.29
19.70
12.95
11.06
11.19
6.46
4.24
1.80
0.57
$
2,553,711
100.00 % $
2,330,940
100.00 %
The following table provides geographic diversification detail on non-owner occupied commercial real estate loans by bank
division location for the years indicated, in thousands:
Colorado
Arizona
New Mexico
Illinois
California
Texas
Minnesota
Kansas/Missouri
Iowa
Wisconsin
Montana
Total
As of December 31,
2023
2022
Amount
%
Amount
%
$
593,688
23.25 % $
417,973
17.92 %
280,144
275,083
244,000
234,182
224,571
216,458
148,126
137,055
124,093
76,311
10.97
10.77
9.55
9.17
8.79
8.48
5.80
5.37
4.86
2.99
152,370
280,915
241,087
231,381
262,852
260,017
144,900
155,769
108,300
75,376
6.54
12.05
10.34
9.93
11.28
11.16
6.22
6.68
4.65
3.23
$
2,553,711
100.00 % $
2,330,940
100.00 %
Real estate construction loans
Real estate construction loans totaled $1.01 billion at December 31, 2023, compared to $1.08 billion at December 31, 2022, and
$856.1 million at the year ended 2021. Changes to real estate construction loans for the years ended December 31, 2023 and
2022 were:
•
•
Real estate construction loans decreased $64.4 million or 6% during the year ending December 31, 2023.
Real estate construction loans increased $220.0 million or 26% during the year ended December 31, 2022.
Agricultural and agricultural real estate loans
Agricultural and agricultural real estate loans totaled $919.2 million at December 31, 2023, compared to $920.5 million at
December 31, 2022, and $753.8 million at the year ended 2021. Changes to agricultural and agricultural real estate loans for the
years ended December 31, 2023 and 2022 were:
•
Agricultural and agricultural real estate loans decreased $1.3 million or less than 1% during 2023, which included a
decrease of $6.2 million of government guaranteed loans.
68
•
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.
Residential real estate loans
Residential real estate loans totaled $797.8 million at December 31, 2023, compared to $853.4 million at December 31, 2022,
and $829.3 million at the year ended 2021. Changes to residential real estate loans for the years ended December 31, 2023 and
2022 were:
•
•
Residential real estate loans decreased $55.5 million or 7% during the year ending December 31, 2023.
Residential real estate loans increased $24.1 million or 3% during the year end December 31, 2022.
Consumer loans
Consumer loans totaled $493.2 million at December 31, 2023, compared to $506.7 million at December 31, 2022, and $419.5
million at the year ended 2021. Changes to consumer loans for the years ended December 31, 2023 and 2022 were:
•
•
Consumer loans decreased $13.5 million or 3% during the year ending December 31, 2023.
Consumer loans increased $87.2 million or 21% during the year ended December 31, 2022.
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. Repayment of commercial real estate, real estate construction and agricultural real
estate loans may also 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, depends on the borrower’s continuing
financial stability as well as the value of the collateral underlying the loan, 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.
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, validating loan ratings assigned by loan
officers, identifying potential problem loans and monitoring the adequacy of the allowance for credit losses at HTLF Bank. An
integral part of our loan review program is validating the effectiveness of the 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
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 One, "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:
2023
December 31,
2022
2021
Amount
% of
Allowance
Amount
% of
Allowance
Amount
% of
Allowance
Quantitative
Qualitative/Economic Forecast
Total
$ 102,004
37,030
$ 139,034
73.37 % $
26.63
100.00 % $
84,409
45,270
129,679
65.09 % $
34.91
100.00 % $
88,635
36,915
125,550
70.59 %
29.41
100.00 %
Quantitative Allowance
69
The quantitative allowance of HTLF's total allowance for lending related credit losses totaled $102.0 million at December 31,
2023, compared to $84.4 million at December 31, 2022, which was an increase of $17.6 million or 21%. The following items
impacted the quantitative allowance at December 31, 2023:
•
•
Nonpass loans totaled $676.3 million or 6% of the total loan portfolio, which was an increase of $143.0 million or
27% from nonpass loans of $533.3 million at December 31, 2022.
Specific reserves for individually assessed loans totaled $20.4 million, which was an increase of $13.3 million from
$7.1 million at December 31, 2022.
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.
Qualitative Allowance/Economic Forecast
The qualitative allowance of HTLF's total allowance decreased $8.2 million or 18% to $37.0 million at December 31, 2023,
compared to $45.3 million at December 31, 2022. 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, 2023,
Moody's December 11, 2023 baseline forecast scenario was utilized, and management also considered other downturn forecast
scenarios 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 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 for December 31, 2022 reflected a baseline
scenario of qualitative adjustment and considered other downturn forecast scenarios, which had anticipated a moderate
recession developing within the next twelve months.
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, 2023 and
2022, in thousands:
Balance at beginning of period
Provision 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,
2023
2022
$
109,483
$
110,088
$
25,435
7,262
(19,614)
122,566
$
1.02 %
128.44
125.15
10,636
7,055
(18,296)
109,483
0.96 %
188.01
187.14
The allowance for credit losses for loans totaled $122.6 million at December 31, 2023, compared to $109.5 million at
December 31, 2022, which was an increase of $13.1 million or 12%. The allowance for credit losses for loans at December 31,
2023, was 1.02% of loans compared to 0.96% of loans at December 31, 2022. The following items impacted HTLF's allowance
for credit losses for loans for the year ended December 31, 2023:
•
Provision expense totaled $25.4 million, which was primarily impacted by a $9.0 million specific impairment for a
customer that moved to nonaccrual due to its abrupt decision to discontinue business operations and a $5.3 million
70
provision and charge-off related to an overdraft, the result of a fraud incident impacting the account of a single long-
term customer.
• Nonpass loans totaled $676.3 million or 6% of the total loan portfolio, which was an increase of $143.0 million or
27% from nonpass loans of $533.3 million or 5% of total loans as of December 31, 2022.
•
Net charge-offs totaled $12.4 million or 0.11% of average loans outstanding. Included in net charge-offs was the $5.3
million charge-off related to an overdraft.
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 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, in thousands, including the ratio of
net charge-offs to average loans outstanding:
Balance at beginning of year
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,
2023
2022
2021
$ 109,483
$ 110,088
$ 131,606
8,622
6,964
870
627
316
5,319
183
3,677
129
193
35
3,217
307
7,451
19,614
18,296
5,069
113
268
26
11
19
1,756
7,262
4,951
112
60
13
653
—
1,266
7,055
12,352
11,241
2,150
296
1,637
10
1,902
181
2,567
8,743
3,058
152
33
10
531
13
1,134
4,931
3,812
25,435
$ 122,566
10,636
$ 109,483
(17,706)
$ 110,088
0.11 %
0.11 %
0.04 %
71
The following table shows the ratio of net charge-offs (recoveries) to average loans outstanding, dollars in thousands, which
include nonaccrual loans and loans held for sale, by loan type for the years indicated:
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,
2023
2022
2021
$
3,553
$
2,013
$
(908)
3,566,610
3,070,890
2,543,514
0.10 %
0.07 %
(0.04) %
$
757
$
17
$
144
2,375,883
2,272,088
1,950,014
0.03 %
— %
0.01 %
$
359
$
133
$
1,604
2,517,645
2,196,922
1,969,910
0.01 %
0.01 %
0.08 %
$
290
$
22
$
—
1,047,192
923,316
824,055
0.03 %
— %
— %
$
5,308
$
2,564
$
1,371
837,861
778,526
681,493
0.63 %
0.33 %
0.20 %
$
164
$
307
$
168
832,562
852,541
846,573
0.02 %
0.04 %
0.02 %
$
1,921
$
6,185
$
1,433
503,763
464,084
407,592
0.38 %
1.33 %
0.35 %
72
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
$ 40,679
—
Owner occupied commercial real estate
17,156
Non-owner occupied commercial real estate 17,249
Real estate construction
28,773
Agricultural and agricultural real estate
Residential real estate
Consumer
4,292
5,845
8,572
2023
As of December 31,
2022
Loan
Category to
Gross Loans
Receivable
Amount
Loan
Category to
Gross Loans
Receivable
Amount
2021
Loan
Category to
Gross Loans
Receivable
30.26 % $ 29,071
30.31 % $ 27,738
26.57 %
0.02
21.86
21.16
8.38
7.62
6.61
4.09
—
13,948
16,539
29,998
2,634
7,711
9,582
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
Total allowance for credit losses for loans
$ 122,566
100.00 % $ 109,483
100.00 % $ 110,088
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, 2023, and December 31, 2022:
Balance at beginning of year
Provision (benefit) for credit losses
Balance at end of year
For the Year Ended December 31,
2023
2022
$
$
20,196 $
(3,728)
16,468 $
15,462
4,734
20,196
The allowance for unfunded commitments totaled $16.5 million as of December 31, 2023, compared to $20.2 million as of
December 31, 2022. Unfunded commitments totaled $4.63 billion at December 31, 2023, and $4.73 billion at December 31,
2022.
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 Four, "Loans" of HTLF’s consolidated financial statements in this Annual
Report on Form 10-K.
HTLF's nonpass loans totaled $676.3 million or 6% of total loans as of December 31, 2023, compared to $533.3 million or 5%
of total loans as of December 31, 2022. As of December 31, 2023, HTLF's nonpass loans consisted of approximately 62%
watch loans and 38% substandard loans. The percent of nonpass loans on nonaccrual status as of December 31, 2023 was 14%.
As of December 31, 2022, HTLF's nonpass loans were comprised of approximately 48% watch loans and 52% substandard
loans. The percent of nonpass loans on nonaccrual status as of December 31, 2022, was 11%.
Loans delinquent 30 to 89 days as a percent of total loans were 0.09% at December 31, 2023, compared to 0.04% at
December 31, 2022.
73
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
As of December 31,
2022
2023
2021
$ 95,426
$ 58,231
$ 69,369
2,507
273
550
97,933
58,504
69,919
12,548
—
8,401
26
1,927
43
$ 110,481
$ 66,931
$ 71,889
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
0.79 %
0.51 %
0.70 %
0.81
0.91
0.57
0.51
0.59
0.33
0.70
0.72
0.37
The tables below summarize the changes in HTLF's nonperforming assets, including other real estate owned ("OREO") during
2023 and 2022, in thousands:
December 31, 2022
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
Nonperforming
Loans
Other
Real Estate
Owned
Other
Repossessed
Assets
Total
Nonperforming
Assets
$
58,504 $
8,401 $
26 $
(13,205)
(12,352)
104,919
(39,933)
—
—
13,181
—
—
—
(5,954)
(3,080)
24
—
—
—
(36)
(14)
66,931
—
(12,352)
104,919
(39,933)
(5,990)
(3,094)
December 31, 2023
$
97,933 $
12,548 $
— $
110,481
(1) Includes principal reductions and transfers to performing status.
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.
418
—
—
—
(490)
55
26 $
71,889
—
(11,241)
34,249
(24,582)
(3,062)
(322)
66,931
Nonperforming loans were $97.9 million or 0.81% of total loans at December 31, 2023, compared to $58.5 million or 0.51% of
total loans at December 31, 2022.
74
Approximately 80%, or $78.0 million, of HTLF's nonperforming loans at December 31, 2023, had individual loan balances
exceeding $1.0 million, the largest of which was one relationship with a total principal balance of $40.4 million. At
December 31, 2022, approximately 67%, or $39.0 million, of HTLF's nonperforming loans had individual loan balances
exceeding $1.0 million, the largest of which was $6.8 million. The portion of HTLF's nonresidential real estate nonperforming
loans covered by government guarantees was $10.3 million at December 31, 2023, compared to $12.5 million at December 31,
2022.
Other real estate owned
Other real estate owned was $12.5 million at December 31, 2023, compared to $8.4 million at December 31, 2022. 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 $6.0 million in 2023
compared to $2.6 million in 2022. Subsequent to December 31, 2023, in late January 2024, HTLF sold its largest OREO
property, decreasing other real estate owned by $10 million, with no associated loss.
Financial difficulty modifications
Any loans that are modified are reviewed by HTLF to identify if a financial difficulty modification has occurred, which is when
HTLF modifies a loan related to a borrower experiencing financial difficulties. Terms may be modified to fit the ability of the
borrower to repay in line with its current financial status. The modification of the terms of such loans includes one or a
combination of the following: a reduction of the stated interest rate of the loan, an extension of the maturity date, a permanent
reduction of the recorded investment of the loan, or an other-than-insignificant payment delay. The adoption of ASU 2022-02
on January 1, 2023 eliminated the recognition and measurement of troubled debt restructured loans ("TDRs") and enhanced
disclosures for modifications to loans related to borrowers experiencing financial difficulties. See Note Four to the consolidated
financial statements for additional detail regarding the adoption of ASU 2022-02.
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 29% of HTLF's total assets at December 31,
2023, compared to 35% at December 31, 2022. Whenever possible, management intends to use a portion of the proceeds from
maturities, paydowns, and sales of securities beyond those needed to fund loan growth to repay borrowings and wholesale
funding. Total securities carried at fair value as of December 31, 2023, were $4.65 billion, a decrease of $1.50 billion or 24%
since December 31, 2022. 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.
During the fourth quarter of 2023, HTLF sold securities with proceeds totaling $865.4 million resulting in a pre-tax loss of
$140.0 million to strategically reposition the balance sheet. The proceeds of the sale were used to repay high-cost wholesale
deposits and short-term borrowings.
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.
75 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
514,858
Asset-backed securities
Corporate bonds
Equity securities
Other securities
Total securities
As of December 31,
2023
2022
2021
Amount
% of
Portfolio
Amount
% of
Portfolio
Amount
% of
Portfolio
$
32,118
0.58 % $
31,699
0.45 % $
1,008
0.01 %
14,530
1,579,486
1,393,629
1,529,128
64,788
217,370
118,169
21,056
91,277
0.26
28.32
24.99
27.42
1.16
9.23
3.90
2.12
0.38
1.64
43,135
1,708,840
1,772,105
2,181,876
85,123
659,459
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
$ 5,576,409
100.00 % $ 7,051,114
100.00 % $ 7,697,650
100.00 %
HTLF's securities portfolio had an expected modified duration of 6.38 years as of December 31, 2023, compared to 6.19 years
as of December 31, 2022, and 5.26 years as of December 31, 2021.
At December 31, 2023, we had $91.3 million of other securities, including capital stock in the various Federal Home Loan
Banks ("FHLB") of which HTLF Bank is a member. 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, 2023,
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
$ 24,236
3.20 % $ 7,882
3.38 % $ —
— % $
—
— % $
—
—
434
2.73
—
—
14,096
6.62
—
—
— % $ 32,118
3.24 %
—
14,530
6.50
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
375
0.34
2,590
1.52
11,691
1.59
726,589
2.19
—
—
741,245
2.18
—
—
—
—
—
—
—
—
1,393,629
2.94
1,393,629
2.94
—
—
—
—
—
—
—
—
1,529,128
4.52
1,529,128
4.52
—
—
—
—
—
—
—
—
64,788
1.91
64,788
1.91
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
514,858
7.12
514,858
7.12
217,370
3.81
217,370
3.81
286
405.00
50,507
7.03
6,345
4.31
61,031
0.05
—
—
—
—
—
—
—
—
—
21,056
—
—
118,169
5.85
21,056
—
Total
$ 24,897
3.17 % $ 61,413
6.30 % $ 18,036
2.55 % $ 801,716
2.49 % $ 3,740,829
4.20 % $ 4,646,891
3.90 %
76
The table below presents the contractual maturities for the debt securities classified as held to maturity at December 31, 2023,
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
$ 8,116
5.04 % $ 88,728
4.83 % $ 158,686
4.48 % $ 582,711
4.68 % $ 838,241
4.66 %
Total
$ 8,116
5.04 % $ 88,728
4.83 % $ 158,686
4.48 % $ 582,711
4.68 % $ 838,241
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 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 year ended December 31, 2023. See Note Three, "Securities" of the consolidated
financial statements for further discussion regarding unrealized losses on our securities portfolio.
DEPOSITS
Total deposits were $16.20 billion as of December 31, 2023, compared to $17.51 billion as of December 31, 2022, a decrease of
$1.31 billion or 7%. Excluding wholesale and institutional deposits, customer deposits were $14.85 billion as of December 31,
2023, compared to $15.22 billion as of December 31, 2022, a decrease of $367.3 million or 2%. As of December 31, 2023, 61%
of HTLF's deposits were insured or collateralized.
Increases in interest rates in 2023 and 2022 encouraged customers to move deposit balances from noninterest-bearing accounts
to interest bearing accounts.
HTLF maintains a granular and diverse deposit base. As of December 31, 2023, no Bank Market represented more than 14% of
total customers deposits, and no major industry represented more than 10% of total commercial customer deposits.
The following table shows the changes in deposit balances by deposit type since year end 2022, in thousands:
Demand-customer
Savings-customer
Savings-wholesale and institutional
Total savings
Time-customer
Time-wholesale
Total time
Total deposits
Total customer deposits
Total wholesale and institutional deposits
Total deposits
December 31, 2023 December 31, 2022
Change
% Change
$
4,500,304 $
5,701,340 $
(1,201,036)
(21) %
8,411,240
394,357
8,805,597
1,944,884
950,929
2,895,813
8,670,898
1,323,493
9,994,391
851,539
965,739
(259,658)
(929,136)
(1,188,794)
1,093,345
(14,810)
1,817,278
1,078,535
(3)
(70)
(12)
128
(2)
59
16,201,714 $
17,513,009 $
(1,311,295)
(7) %
14,856,428 $
15,223,777 $
(367,349)
1,345,286
2,289,232
(943,946)
16,201,714 $
17,513,009 $
(1,311,295)
(2) %
(41) %
(7) %
$
$
$
At December 31, 2023, HTLF had $1.35 billion of wholesale and institutional deposits, of which $394.4 million was included
in savings deposits and $950.9 million was included in time deposits. HTLF had $1.32 billion of wholesale and institutional
savings and $965.7 million of wholesale time deposits at December 31, 2022.
Wholesale and institutional deposits at December 31, 2023, include $1.16 billion, or 7% of total deposits, of brokered deposits,
of which $951.9 million was included in brokered time deposits and $210.7 million included in ICS.
77
HTLF has established policies with respect to the use of brokered deposits to limit the amount of brokered deposits as a
percentage of total deposits and the HTLF Asset/Liability Committee monitors the use of brokered deposits on a regular basis,
including interest rates and the total volume of such deposits in relation to total deposits. As of December 31, 2023, the level of
brokered deposits falls well within the internal policy limit of 20% of total assets. HTLF has established risk limits for the level
of uninsured deposits to total deposits and uninsured and collateralized deposits to total deposits as well as deposit
concentration limits for the largest one, five and 100 customers, and has been in compliance with those internal requirements
for the periods presented. Total uninsured deposits were $7.35 billion, or 45% of total deposits, as of December 31, 2023.
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,
2023
2022
2021
Average
Deposits
Percent
of
Deposits
Average
Interest
Rate
Average
Deposits
Percent
of
Deposits
Average
Interest
Rate
Average
Deposits
Percent
of
Deposits
Average
Interest
Rate
$ 5,008,822
28.87 %
— % $ 6,131,760
36.01 %
— % $ 6,230,851
39.74 %
— %
8,354,036
48.15
1.77
8,686,187
51.00
0.29
8,125,426
51.82
0.11
689,031
1,463,545
3.97
8.43
1,835,860
10.58
4.98
3.14
4.98
1,050,912
997,218
163,321
6.17
5.86
0.96
2.08
0.58
2.77
$ 17,351,294
100.00 %
$ 17,029,398
100.00 %
$ 15,679,773
186,399
1,137,097
1.19
7.25
—
—
100.00 %
0.01
0.50
—
Demand-customer
Savings-customer
Savings-wholesale
and institutional
Time-customer
Time-wholesale
Total deposits
Customer Deposits
Total average customer deposits were $14.83 billion at December 31, 2023, compared to $15.82 billion at December 31, 2022,
which was a decrease of $988.8 million or 6%. Significant customer deposit changes by category at December 31, 2023,
compared to December 31, 2022, included:
•
•
•
Average customer demand deposits decreased $1.12 billion or 18% to $5.01 billion compared to $6.13 billion.
Average customer savings deposits decreased $332.2 million or 4% to $8.35 billion compared to $8.69 billion.
Average customer time deposits increased $466.3 million to $1.46 billion compared to $997.2 million.
Total average customer deposits were $15.82 billion at December 31, 2022, compared to $15.49 billion at December 31, 2021,
which was an increase of $321.8 million or 2%. Significant customer deposit changes by category at December 31, 2022,
compared to December 31, 2021, included:
•
•
•
Average customer demand deposits decreased $99.1 million or 2% to $6.13 billion compared to $6.23 billion.
Average customer savings deposits increased $560.8 million or 7% to $8.69 billion compared to $8.13 billion.
Average customer time deposits decreased $139.9 million to $997.2 million compared to $1.14 billion.
Wholesale and Institutional Deposits
Total average wholesale and institutional deposits were $2.52 billion as of December 31, 2023, which was an increase of $1.31
billion or 108% from $1.21 billion at December 31, 2022. Significant wholesale and institutional deposit changes by category at
December 31, 2023, compared to December 31, 2022 included:
•
•
Average wholesale and institutional savings deposits decreased $361.9 million or 34% to $689.0 million compared to
$1.05 billion.
Average wholesale time deposits increased $1.67 billion to $1.84 billion compared to $163.3 million.
Total average wholesale and institutional deposits were $1.21 billion as of December 31, 2022, which was an increase of $1.03
billion or 551% from $186.4 million at December 31, 2021. Significant wholesale and institutional deposit changes by category
at December 31, 2022, compared to December 31, 2021 included:
•
•
Average wholesale and institutional savings deposits increased $864.5 million or 464% to $1.05 billion compared to
$186.4 million.
Average wholesale time deposits increased $163.3 million compared to $0.
78
The following table sets for the amount and maturities of time deposits of $250,000 or more, at December 31, 2023, in
thousands:
3 months or less
Over 3 months through 6 months
Over 6 months through 12 months
Over 12 months
Total
BORROWINGS
Borrowings were as follows as of December 31, 2023 and 2022, in thousands:
Retail repurchase agreements
Advances from the FHLB
Advances from the federal discount window
Other borrowings
Total
December 31, 2023
$
664,607
785,359
282,385
66,535
$
1,798,886
As of December 31,
2023
2022
% Change
2023/2022
$
42,447 $
95,303
(55) %
521,186
—
58,622
50,000
224,000
6,814
942
(100)
760
$ 622,255 $ 376,117
65 %
Borrowings generally include securities sold under agreements to repurchase, FHLB advances, swap margin payable, and
discount window borrowings from the Federal Reserve Bank. These funding alternatives are utilized in varying degrees
depending on their pricing and availability. HTLF Bank owns stock in the FHLB of Topeka, enabling HTLF Bank to borrow
funds for short- or long-term purposes under a variety of programs. As of December 31, 2023, the amount of borrowings was
$622.3 million compared to $376.1 million for the year ended 2022, an increase of $246.1 million.
HTLF Bank provides retail repurchase agreements to its customers as a cash management tool, which sweep excess funds from
demand deposit accounts into these agreements. This source of funding does not increase HTLF 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 $42.4 million at
December 31, 2023, compared to $95.3 million at December 31, 2022, a decrease of $52.9 million or 55%.
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 borrowings, and the primary purpose of this credit
line agreement is to provide liquidity to HTLF. HTLF had no advances on this line during 2023 or 2022, and no balance was
outstanding on this line at December 31, 2023, and December 31, 2022. The credit agreement contains specific financial
covenants which HTLF complied with as of December 31, 2023 with the exception of the return on average assets covenant for
which HTLF obtained a waiver through February 22, 2024.
TERM DEBT
The outstanding balances of term debt net of unamortized discount and issuance costs, in thousands, as of December 31, 2023
and 2022:
As of December 31,
% Change
2023
2022
2023/2022
Advances from the FHLB
Trust preferred securities
Contracts payable for purchase of real estate and other assets
Subordinated notes
Total
$
— $
740
148,284
82
222,647
$ 372,396 $ 371,753
149,288
80
223,028
(100) %
1
(2)
—
— %
79
Term debt includes all debt arrangements HTLF and its subsidiaries have entered into as listed in the table above. As of
December 31, 2023, the amount of term debt was $372.4 million, an increase of $643,000 or less than 1% since December 31,
2022.
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, $148.2 million of total subordinated notes qualified as Tier 2 capital as of December 31, 2023.
A schedule of HTLF's trust preferred offerings outstanding as of December 31, 2023, is as follows, in thousands:
Heartland Financial Statutory Trust IV
$ 10,310 03/17/2004
2.75% over SOFR
8.39 % 03/17/2034
03/17/2024
Amount
Issued
Issuance
Date
Interest
Rate
Interest Rate
as of 12/31/23
Maturity
Date
Callable
Date
Heartland Financial Statutory Trust V
20,619 01/27/2006
1.33% over SOFR
Heartland Financial Statutory Trust VI
20,619 06/21/2007
1.48% over SOFR
Heartland Financial Statutory Trust VII
18,042 06/26/2007
1.48% over SOFR
Morrill Statutory Trust I
Morrill Statutory Trust II
9,464 12/19/2002
3.25% over SOFR
9,198 12/17/2003
2.85% over SOFR
Sheboygan Statutory Trust I
6,878 09/17/2003
2.95% over SOFR
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
4,608 09/10/2004
3.25% over SOFR
6,661 12/19/2003
2.80% over SOFR
4,526 09/30/2004
2.20% over SOFR
12,649 05/31/2006
1.54% over SOFR
3,028 06/27/2002
3.65% over SOFR
5,567 09/23/2004
2.50% over SOFR
7,359 04/10/2003
3.25% over SOFR
9,760 07/29/2005
1.60% over SOFR
Total trust preferred offerings
$ 149,288
CAPITAL RESOURCES
6.99
7.13
7.12
8.87
8.49
8.59
8.90
8.45
7.84
7.19
9.31
8.15
8.89
7.19
04/07/2036
04/07/2024
09/15/2037
03/15/2024
09/01/2037
03/01/2024
12/26/2032
03/26/2024
12/17/2033
03/17/2024
09/17/2033
03/17/2024
12/15/2034
03/15/2024
12/19/2033
04/23/2024
09/30/2034
05/23/2024
07/25/2036
03/15/2024
09/30/2032
03/30/2024
12/15/2034
03/15/2024
04/24/2033
04/24/2024
09/30/2035
03/30/2024
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 HTLF Bank 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.
80
December 31, 2023
Minimum capital requirement
Well capitalized requirement
Minimum capital requirement, including fully-phased
in capital conservation buffer
Risk-weighted assets
Average assets
December 31, 2022
Minimum capital requirement
Well capitalized requirement
Minimum capital requirement, including fully-phased
in capital conservation buffer
Risk-weighted assets
Average assets
December 31, 2021
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)
14.53 %
11.69 %
10.97 %
9.44 %
8.00
10.00
10.50
6.00
8.00
8.50
4.50
6.50
7.00
$ 15,399,653
$ 15,399,653
$
15,399,653
4.00
5.00
N/A
N/A
N/A
N/A
N/A $ 19,082,733
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
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
At December 31, 2023, retained earnings that could be available for the payment of dividends to meet the most restrictive
minimum capital requirements totaled $743.3 million. Retained earnings that could be available for the payment of dividends to
HTLF from HTLF Bank totaled approximately $436.9 million at December 31, 2023, under the capital requirements to remain
well capitalized. These dividends are the principal source of funds to pay dividends on HTLF's common and preferred stock and
to pay interest and principal on its debt.
As of December 31, 2023, management believes regulatory capital ratio buffers would withstand any changes in regulatory
rules that require the inclusion of unrealized losses in the total investment portfolio and remain well capitalized.
On June 26, 2020, HTLF issued and sold 4.6 million depositary shares, each representing a 1/400th interest in a share of 7.00%
Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series E. The depositary shares are listed on The Nasdaq Global
Select Market under the symbol "HTLFP." If declared, dividends are paid quarterly in arrears at a rate of 7.00% per annum
beginning on October 15, 2020. For the dividend period beginning on the first reset date of July 15, 2025, and for dividend
periods beginning every fifth anniversary thereafter, each a reset date, the rate per annum will be reset based on a recent five-
year treasury rate plus 6.675%. The earliest redemption date for the preferred shares is July 15, 2025. Dividends payable on
common shares are subject to quarterly dividends payable on these outstanding preferred shares at the applicable dividend rate.
On August 8, 2022, HTLF filed a universal shelf registration statement with the SEC to register debt or equity securities. This
shelf registration statement, which was effective immediately, 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 permits
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 would be established at the time of the offering. The registration
statement expires on August 8, 2025.
81 Common stockholders' equity was $1.82 billion at December 31, 2023, compared to $1.62 billion for the year ended 2022.
Book value per common share was $42.69 at December 31, 2023, compared to $38.25 for the year ended 2022. 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 losses on
securities available for sale including the unrealized gain on the fair value of security hedges, net of applicable taxes, reflected
unrealized losses of $453.7 million and $619.2 million at December 31, 2023, and December 31, 2022, respectively.
COMMITMENTS, CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
The following table presents material fixed and determinable contractual obligations as of December 31, 2023, 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
Other borrowings
Term debt
Total
8
8
8
9
9
9
10
$
4,500,304 $
8,805,597
2,726,098
42,447
521,186
58,622
74,937
— $ 4,500,304
—
8,805,597
169,715
2,895,813
—
—
—
42,447
521,186
58,622
297,459
372,396
$
16,729,191 $
467,174 $ 17,196,365
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 Fourteen, "Commitments," to the consolidated financial statements for additional information on these
commitments. As of December 31, 2023, and December 31, 2022, commitments to extend credit aggregated $4.62 billion and
$4.73 billion, and standby letters of credit aggregated $56.4 million and $55.1 million, respectively.
At December 31, 2023, and December 31, 2022, HTLF Bank had $917.0 million and $682.9 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, 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.
HTLF considers and uses derivative financial instruments as part of its interest rate risk management strategy, which may
include interest rate swaps, fair value hedges, risk participation agreements, caps, floors and collars. In the first quarter of 2023,
HTLF terminated cash flow hedges that were effectively converting $500.0 million of variable rate loans to fixed rate loans. In
the second and third quarter of 2023, HTLF continued the strategy of using derivatives by entering into fair value hedges to
manage the exposure to changes in fair value on $2.5 billion of our loan portfolio and $838.1 million of our investment
portfolio. See Note Eleven, "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.
82
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, 2023, HTLF had $323.0 million of cash and cash equivalents, time deposits in other financial institutions of
$1.2 million and securities carried at fair value of $4.65 billion. Management expects the securities portfolio to produce
principal cash flows of approximately $751.4 million during 2024.
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 borrowing balances depend on commercial cash management and smaller correspondent bank relationships and, as a
result, will normally fluctuate. Management believes these balances to be stable sources of funds and has tested drawing on
these sources. In the event of short-term liquidity needs, HTLF Bank may purchase federal funds from correspondent banks,
borrow from the FHLB, and may also borrow from the Federal Reserve Bank, including utilizing the BTFP.
HTLF's current liquidity strategy includes using overnight borrowings and reducing wholesale deposits. The use of overnight
borrowings provides flexibility to make repayments on demand. As of December 31, 2023, pledged securities totaled $2.63
billion. As of December 31, 2023, approximately $2.83 billion of securities remained available to pledge. Additionally, FHLB
advances are collateralized with pledges of one- to four-family residential mortgages, commercial and agricultural mortgages
and securities totaling $2.07 billion at December 31, 2023.
The following table shows the source of funding, balance outstanding and available borrowing capacity as of December 31,
2023, dollars in thousands:
Source
Federal Reserve Discount Window
Bank Term Funding Program
Federal Home Loan Bank
Federal Funds
Wholesale deposits/brokered CDs
Total
As of December 31, 2023
Outstanding
Available
$
— $
—
521,186
—
1,162,603
$
1,683,789 $
1,378,898
545,519
629,861
140,000
2,697,946
5,392,224
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. The securities portfolio is expected to produce principal cash flows of approximately $751.4 million
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 ICS and CDARS products accessed through the Intrafi network of financial institutions, which helps to
reduce the amount of pledged securities.
On a consolidated basis, HTLF maintains a large balance of 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, repayment requirements under other debt obligations and payments
for acquisitions. The parent company obtains the funding to meet these obligations from dividends paid by HTLF Bank and the
issuance of debt and equity securities.
As of December 31, 2023, the parent company had cash of $288.2 million. Additionally, HTLF has a revolving credit
agreement with an unaffiliated bank, which was renewed 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, 2023. This credit
83
agreement contains specific financial covenants which HTLF complied with as of December 31, 2023 with the exception of the
return on average assets covenant for which HTLF obtained a waiver through February 22, 2024.
The ability of HTLF to pay dividends to its stockholders is dependent upon dividends paid by HTLF Bank. HTLF Bank is
subject to statutory and regulatory restrictions on the amount it may pay in dividends. To maintain acceptable capital ratios in
HTLF Bank, certain portions of its 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 $436.9 million as of December 31, 2023.
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 HTLFs 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 2024.
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. 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, including the risk that our net income
will be materially impacted by changes in interest rates. HTLF's market risk is comprised primarily of interest rate risk resulting
from HTLF Bank's core banking activities of lending and deposit gathering.
HTLF uses an interest rate management process to measure market risk and manage exposure within policy limits approved by
the HTLF Board of Directors. Exposure to market risk is reviewed on a regular basis by HTLF Bank’s Asset/Liability
Committee as well as HTLF's and HTLF Bank's management and Board of Directors.
HTLF's balance sheet market risk profile is measured and reviewed at least quarterly. As part of the review, interest rate
sensitivity analysis is performed, which simulates changes in net interest income in response to various hypothetical interest
rate scenarios capturing asset and liability pricing mismatches over a one-year and two-year time horizon. Increasing net
interest income in a rising rate environment would indicate that asset-related income will increase faster than liability-related
expense over the simulation period.
The core interest rate risk analysis utilized by HTLF examines the balance sheet under many interest rate scenarios including
shocks, ramps, yield curve twists, market-based, as well as those that may be deemed extreme or highly unlikely. We use a net
interest income ("NII") simulation model to measure the estimated changes in NII that would result over various time horizons
from immediate and sustained changes in interest rates. This model is an interest rate risk management tool and the results are
not necessarily an indication of our future net interest income. The model has inherent limitations and these results are based on
a given set of rate changes and assumptions at a point in time. Key assumptions in the analysis include balance sheet growth,
product mix-shift, the repricing behavior of interest-bearing deposits (i.e., deposit betas), behavior of deposits with
indeterminate maturities, prepayment assumptions on financial instruments with embedded options such as loans and
investment securities, as well as cashflow reinvestment assumptions.
The base scenario assumes a static balance sheet and static interest rates as of December 31, 2023, no changes to product mix
shift and cashflow reinvestment at current market interest rates. HTLF also assumes a correlation, referred to as a deposit beta,
84 with respect to interest-bearing deposits, as the rates paid to deposit holders change at a different pace when compared with
changes in average benchmark interest rates. Generally, time deposits are assumed to have a high correlation, while other
interest bearing accounts are assumed to have a lower correlation. The model assumes interest-bearing deposits reprice at 54%
and total deposits reprice at 39% in an up rate scenario and that interest-bearing deposits reprice at 48% and total deposits
reprice at 34% in a down rate scenario, as compared to the change in benchmark interest rates. The majority of our loans are
variable rate and are assumed to reprice in accordance with their contractual terms. Some loans and investment securities
include the opportunity of prepayment (embedded options) and the simulation model uses prepayment assumptions to estimate
these accelerated cash flows and reinvests the proceeds at current simulated yields Changes that could vary significantly from
HTLF's assumptions include loan and deposit growth or contraction, loan and deposit pricing, changes in the mix of earning
assets or funding sources, and future asset/liability management decisions, all of which may have significant effects on our net
interest income.
Key assumptions are monitored at least annually or as needed, as part of the sensitivity analysis and back testing framework.
When appropriate and applicable assumptions are recalibrated taking into consideration among other factors, the impact of a
full interest rate cycle on the balance sheet. In 2023, HTLF recalibrated certain prepayment assumptions and updated cash flow
characteristics. None of the changes were material to the simulation model.
The following table presents the most recent simulation of net interest income at December 31, 2023, in thousands. The interest
rate scenarios assume parallel instantaneous changes to interest rate levels by 100 and 200 basis points.
Year 1
Down 200 Basis Points
Down 100 Basis Points
Base
Up 100 Basis Points
Up 200 Basis Points
Year 2
Down 200 Basis Points
Down 100 Basis Points
Base
Up 100 Basis Points
Up 200 Basis Points
As of December 31, 2023
Net Interest
Margin
% Change
From Base
$
549,363
603,551
651,555
694,385
735,751
587,149
652,175
707,457
745,787
779,600
(15.68) %
(7.37)
6.57
12.92
(9.88)
0.10
8.58
14.46
19.65
As of December 31, 2023, HTLF's through the cycle deposit beta (calculated by taking the change in company deposit rates
compared to the benchmark federal funds target rate over a period of time) for customer deposits was approximately 31% for all
customer deposits and 37% including both customer and wholesale and institutional deposits. As of December 31, 2023,
HTLF's through the cycle beta excluding noninterest-bearing accounts was approximately 45% for customer deposits and 51%
including both customer and wholesale and institutional deposits. As of December 31, 2022, HTLF's through the cycle beta for
customer deposits was approximately 9% for all customer deposits and 18% including both customer and wholesale and
institutional deposits. As of December 31, 2022, HTLF's through the cycle beta excluding noninterest-bearing accounts was
approximately 14% for customer deposits and 27% including both customer and wholesale and institutional deposits. HTLF
compares actual deposit betas to the betas utilized in the net interest margin simulation models to monitor model performance
and to monitor our deposits in comparison with market competition. Management also uses deposit betas to understand the risk
to net interest income in various interest rate environments.
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 Eleven 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
85
instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the
consolidated balance sheets. Commitments to extend credit are agreements to lend to a customer as long as there is no violation
of any condition established in the contract relating to the commitment. Commitments generally have fixed expiration dates and
may require collateral from the borrower. Standby letters of credit are conditional commitments issued by HTLF to guarantee
the performance of a customer to a third-party up to a stated amount and with specified terms and conditions. These
commitments to extend credit and standby letters of credit are not recorded on the balance sheet until the loan is made or the
letter of credit is issued.
86 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
ASSETS
Cash and due from banks
Interest bearing deposits with other banks and other short-term investments
Cash and cash equivalents
Time deposits in other financial institutions
Securities:
Carried at fair value (cost of $5,100,344 at December 31, 2023, and cost of $6,788,729 at December 31, 2022)
Held to maturity, net of allowance for credit losses of $0 at both December 31, 2023, and December 31, 2022
(fair value of $816,399 at December 31, 2023, and $776,557 at December 31, 2022)
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
Borrowings
Term debt
Accrued expenses and other liabilities
TOTAL LIABILITIES
STOCKHOLDERS' EQUITY:
Preferred stock (par value $1 per share; authorized 188,500 shares at December 31, 2023 and 6,104 shares at
December 31, 2022; none issued or outstanding at both December 31, 2023, and December 31, 2022)
Series E Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock (par value $1 per share; 11,500 shares
authorized at both December 31, 2023, and December 31, 2022; 11,500 shares issued and outstanding at both
December 31, 2023, and December 31, 2022)
Common stock (par value $1 per share; 60,000,000 shares authorized at both December 31, 2023 and December
31, 2022; issued 42,688,008 shares at December 31, 2023, and 42,467,394 shares at December 31, 2022)
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
As of December 31,
2022
2023
275,554 $
47,459
323,013
1,240
309,045
54,042
363,087
1,740
4,646,891
6,147,144
838,241
91,277
5,071
829,403
74,567
5,277
12,068,645
(122,566)
11,946,079
177,001
4,069
12,548
576,005
18,415
—
197,085
574,772
11,428,352
(109,483)
11,318,869
190,479
6,851
8,401
576,005
25,154
7,840
193,403
496,008
$ 19,411,707 $ 20,244,228
$ 4,500,304 $ 5,701,340
9,994,391
1,817,278
17,513,009
376,117
371,753
248,294
18,509,173
8,805,597
2,895,813
16,201,714
622,255
372,396
282,225
17,478,590
—
—
110,705
110,705
42,688
1,090,740
1,141,501
(452,517)
1,933,117
42,467
1,080,964
1,120,925
(620,006)
1,735,055
$ 19,411,707 $ 20,244,228
87
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
INTEREST INCOME:
Interest and fees on loans
Interest on securities:
Taxable
Nontaxable
Interest on federal funds sold
Interest on interest bearing deposits in other financial institutions
TOTAL INTEREST INCOME
INTEREST EXPENSE:
Interest on deposits
Interest on borrowings
Interest on term debt (includes $575, $246, and $(1,601) of interest (income) expense related to
derivatives reclassified from accumulated other comprehensive income (loss) for the years ended
December 31, 2023, 2022, and 2021, 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
Capital markets fees
Securities (losses) gains, net (includes $(141,377), $(1,892), and $5,910 of net security gains
(losses) reclassified from accumulated other comprehensive income (loss) for the years ended
December 31, 2023, 2022, and 2021, 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 (LOSS)
NONINTEREST EXPENSES:
Salaries and employee benefits
Occupancy
Furniture and equipment
Professional fees
FDIC insurance assessments
Advertising
Core deposit intangibles and customer relationship intangibles amortization
Other real estate and loan collection expenses
(Gain) loss on sales/valuations of assets, net
Acquisition, integration and restructuring costs
Partnership investment in tax credit projects
Other noninterest expenses
TOTAL NONINTEREST EXPENSES
INCOME BEFORE INCOME TAXES
Income taxes (includes $(43,560), $(355), and $1,896 of income tax expense (benefit) reclassified
from accumulated other comprehensive income (loss) for the years ended December 31, 2023,
2022, and 2021, respectively)
NET INCOME
Preferred dividends
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
EARNINGS PER COMMON SHARE - BASIC
EARNINGS PER COMMON SHARE - DILUTED
CASH DIVIDENDS DECLARED PER COMMON SHARE
See accompanying notes to consolidated financial statements.
For the Years Ended December 31,
2022
2023
2021
Notes
4
$ 697,997 $ 477,970 $ 444,137
223,521
25,268
3
7,007
953,796
169,544
24,006
11
3,125
674,656
125,010
19,268
1
344
588,760
8
319,688
10,311
56,880
2,717
14,797
471
10, 11
4, 5
22,560
352,559
601,237
21,707
579,530
16,823
76,420
598,236
15,370
582,866
12,932
28,200
560,560
(17,575)
578,135
19
7
19
19
3
3
7
13, 15
21
6
7
12
1
1
74,024
1,561
20,715
2,794
10,007
68,031
2,741
22,570
2,986
11,543
59,703
3,276
24,417
3,546
1,324
(141,539)
240
3,880
—
3,771
3,621
(20,926)
(425)
(622)
9,032
1,658
2,341
8,409
128,264
5,910
58
20,605
1,088
3,762
5,246
128,935
251,276
26,847
11,599
58,667
19,940
8,347
6,739
1,489
(77)
10,359
5,401
61,240
461,827
96,777
254,478
28,155
12,499
58,606
7,000
6,221
7,834
950
(1,047)
7,586
5,040
56,055
443,377
267,753
240,114
29,965
13,323
58,843
5,757
7,257
9,395
990
588
5,331
6,303
53,946
431,812
275,258
16,857
79,920
(8,050)
55,573
212,180
(8,050)
55,335
219,923
(8,050)
$ 71,870 $ 204,130 $ 211,873
5.01
$
5.00
$
0.96
$
4.80 $
4.79 $
1.09 $
1.68 $
1.68 $
1.20 $
88
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
NET INCOME
OTHER COMPREHENSIVE INCOME (LOSS)
Change in available for sale ("AFS") securities:
Net change in unrealized gain (loss) on securities
Reclassification adjustment for net (gains) losses realized in net income
Reclassification adjustment for net losses on hedged AFS securities
Income tax benefit (expense)
Other comprehensive income (loss) on AFS securities
Change in securities held to maturity
Adjustment for securities transferred from AFS
Net amortization of unrealized losses on securities transferred from AFS
Income tax benefit (expense)
Other comprehensive income (loss) on held to maturity securities
Change in cash flow hedges:
Net change in unrealized gain on derivatives
Reclassification adjustment for net (gains) losses on derivatives realized in net
income
Income tax expense
Other comprehensive income on cash flow hedges
Other comprehensive income (loss)
TOTAL COMPREHENSIVE INCOME (LOSS)
See accompanying notes to consolidated financial statements.
For the Years Ended December 31,
2022
$ 79,920 $ 212,180 $ 219,923
2021
2023
46,755
141,377
20,913
(52,096)
156,949
(637,513) (103,807)
(5,910)
—
28,573
(81,144)
1,892
—
158,049
(477,572)
—
11,237
(2,633)
8,604
(186,286)
3,842
45,174
(137,270)
—
—
—
—
1,952
500
5,037
246
(158)
588
(1,601)
575
(763)
(591)
2,673
1,936
167,489
(78,471)
$ 247,409 $ (402,074) $ 141,452
(614,254)
89
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Dollars in thousands, except per share data)
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
Balance at January 1, 2023
Comprehensive income (loss)
Cash dividends declared:
Preferred, $700.00 per share
Common, $1.20 per share
Issuance of 220,614 shares of common stock
Stock based compensation
Balance at December 31, 2023
See accompanying notes to consolidated financial statements.
Heartland Financial USA, Inc. Stockholders' Equity
Preferred
Stock
Common
Stock
Capital
Surplus
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Equity
$ 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
$ 110,705 $
42,467 $ 1,080,964 $ 1,120,925 $
(620,006) $ 1,735,055
79,920
167,489
247,409
(8,050)
(51,294)
221
327
9,449
(8,050)
(51,294)
548
9,449
$ 110,705 $
42,688 $ 1,090,740 $ 1,141,501 $
(452,517) $ 1,933,117
90
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:
For the Years Ended December 31,
2023
2022
2021
$
79,920 $
212,180 $
219,923
Depreciation and amortization
Provision (benefit) for credit losses
Net amortization of premium on securities
Provision (benefit) for deferred taxes
Securities losses (gains), net
Unrealized loss (gain) on equity securities, net
Stock based compensation
Loss (gain) 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
Income from fair value hedge activity
Other, net
NET CASH PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of time deposits in other financial institutions
Proceeds from the sale of securities available for sale
Proceeds from the sale of securities held to maturity
Proceeds from the sale, maturity of and principal paydowns on other investments
Proceeds from the maturity of and principal paydowns on securities available for sale
Proceeds from the maturity of and principal paydowns on securities held to maturity
Proceeds from the maturity of time deposits in other financial institutions
Purchase of securities available for sale
Purchase of other investments
Net (increase) decrease in loans
Purchase of bank owned life insurance policies
Proceeds from bank owned life insurance policies
Proceeds from sale of mortgage servicing rights
Capital expenditures and investments
Net cash expended in divestitures
Proceeds from sale of premises, furniture and equipment
Proceeds on sale of OREO and other repossessed assets
20,385
21,707
29,671
24,479
15,370
59,454
(9,196)
(3,887)
141,539
(240)
9,449
(77)
425
622
8,162
1,998
26,894
(17,575)
52,145
11,543
(5,910)
(58)
8,743
2,222
(136,734)
(284,324)
(466,071)
160,705
308,294
521,463
(3,856)
(7,607)
(19,083)
(11,294)
(17,530)
(1,183)
(1,580)
45,987
(24)
—
(123)
(4,021)
(62,303)
280,312
3,737
(1,425)
(1,658)
131
—
71,167
388,008
(1,590)
(1,102)
(497)
(1,522)
(1,088)
312
—
(2,712)
326,037
—
—
(10)
1,196,586
1,048,525
1,475,598
—
42,875
604,088
2,427
500
2,337
22,359
—
4,858
903,514
1,059,292
6,082
1,154
5,659
245
(337,667)
(2,226,881)
(4,094,661)
(59,747)
(12,992)
(12,172)
(661,445)
(1,506,338)
50,437
(320)
(283)
(288)
—
6,714
(7,060)
—
9,254
5,990
966
—
(14,804)
(50,616)
10,872
3,062
—
—
(17,203)
(15,682)
10,489
8,338
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES
802,195
(1,813,043)
(1,525,100)
91
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 (decrease) in savings accounts
Net increase (decrease) in time deposit accounts
Net increase (decrease) in 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 common stock
Dividends paid
For the Years Ended December 31,
2023
2022
2021
(1,201,036)
(206,366)
(1,188,794)
1,078,535
(225,048)
1,295,488
566,033
799,938
194,520
286,000
813,600
893,569
(242,321)
(36,275)
141,700
(824,302)
(236,000)
(141,700)
—
(740)
2,467
—
147,614
(228)
(233,794)
2,875
2,925
(59,151)
(54,249)
(48,559)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES
(1,122,581)
1,352,523
1,296,759
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
CASH AND CASH EQUIVALENTS AT END OF PERIOD
Supplemental disclosures:
Cash paid for income/franchise taxes
Cash paid for interest
Loans transferred to OREO
Transfer of premises from premises, furniture and equipment held for sale to premises,
furniture and equipment, net
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
See accompanying notes to consolidated financial statements.
$
$
(40,074)
(72,512)
363,087
435,599
323,013 $
363,087 $
97,696
337,903
435,599
48,624 $
37,782 $
306,572
13,181
72,683
9,423
49,914
28,703
2,807
5,824
6,786
—
2,205
—
396
5,188
934,538
2,013
12,662
—
2,013
92
HEARTLAND FINANCIAL USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ONE
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Heartland Financial USA, Inc. ("HTLF") is a 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 HTLF Bank, 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; DB&T Community Development Corp.; Heartland Community Development, Inc.; Heartland Financial USA, Inc.
Insurance Services; 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, 2023.
As of December 31, 2023, HTLF Bank and its respective bank brands listed below operated as divisions of HTLF Bank:
•
•
•
•
•
•
Arizona Bank & Trust
Bank of Blue Valley
Citywide Banks
Dubuque Bank & Trust
First Bank & Trust
Illinois Bank & Trust
• Minnesota Bank & Trust
•
•
•
New Mexico Bank & Trust
Premier Valley Bank
Rocky Mountain Bank
• Wisconsin Bank & Trust
During the first quarter of 2023, HTLF reclassified swap and loan syndication income (collectively, "capital markets fees") to
capital markets fees from other noninterest income on the consolidated statements of income, and all prior periods have been
adjusted.
During the second quarter of 2023, HTLF reclassified Federal Deposit Insurance Corporation ("FDIC") insurance premiums to
FDIC insurance assessments from professional fees on the consolidated statements of income, and all prior periods have been
adjusted.
In the second quarter of 2023, HTLF amended and restated its Certificate of Incorporation and filed Certificates of Elimination
with the state of Delaware with respect to Series A, B, C, and D preferred stock issuances, which returned these previously
designated shares to authorized but unissued. The following shows the details of Series A, B, C and D preferred stock at
December 31, 2022:
•
•
•
•
Series A Junior Participating preferred stock-par value $1 per share; authorized 16,000 shares; none issued or
outstanding at December 31, 2022
Series B Fixed Rate Cumulative Perpetual Preferred Stock-par value $1 per share; 81,698 shares authorized at
December 31, 2022; none issued or outstanding at December 31, 2022
Series C Senior Non-Cumulative Perpetual Preferred Stock-par value $1 per share; 81,698 shares authorized at
December 31, 2022; none issued or outstanding at December 31, 2022
Series D Senior Non-Cumulative Perpetual Convertible Preferred Stock-par value $1 per share; 3,000 shares
authorized at December 31, 2022; none issued or outstanding at December 31, 2022
93 After the cancellation of Series A, B, C and D preferred shares, total undesignated preferred shares authorized increased to
188,500 from 6,104 at December 31, 2022, of which none were issued or outstanding at both December 31, 2023 and
December 31, 2022.
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, 2023 and 2022.
Available for Sale ("AFS") Debt Securities and Equity Securities - Available for sale securities consist of those securities not
classified as held to maturity or trading, which management intends to hold for indefinite periods of time or that may be sold in
response to changes in interest rates, prepayments or other similar factors. Available for sale securities are stated at fair value
with any unrealized gain or loss, net of applicable income tax, reported as a separate component of stockholders’ equity.
Security premiums and discounts are amortized/accreted using the interest method over the period from the purchase date to the
expected maturity or call date of the related security.
HTLF reviews the investment securities portfolio at the security level on a quarterly basis for potential credit losses, which
takes into consideration numerous factors, and the relative significance of any single factor can vary by security. Some factors
HTLF may consider include changes in security ratings, the financial condition of the issuer, as well as security and industry-
specific economic conditions. In addition, regarding 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 a specific identification method) are included in securities gains, net
in the consolidated statements of income.
Equity securities include Community Reinvestment Act 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 did not
record any impairment or other adjustments to the carrying amount of these investments during the years ended December 31,
2023, and December 31, 2022.
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
94 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, 2023, and December 31, 2022.
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,
2023, and December 31, 2022.
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 loan policy is reviewed and approved on a regular basis. A reporting system
supplements the review process by providing management and the board with frequent reports related to loan production, loan
quality, concentrations of credit, loan delinquencies and nonperforming loans and potential problem loans.
HTLF originates commercial and industrial loans and owner occupied commercial real estate loans for a wide variety of
business purposes, including lines of credit for capital and operating purposes and term loans for real estate and equipment
purchases. Non-owner occupied commercial real estate loans provide financing for various non-owner occupied or income
producing properties. Real estate construction loans are generally short-term or interim loans that provide financing for
acquiring or developing commercial income properties, multi-family projects or single-family residential homes. Agricultural
and agricultural real estate loans provide financing for capital improvements and farm operations, as well as livestock and
machinery purchases. Residential real estate loans are originated for the purchase or refinancing of single-family residential
properties. Consumer loans include loans for motor vehicles, home improvement, home equity and personal lines of credit.
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.
Allowance for Credit Losses for Loans - The allowance for credit losses is a valuation account that is deducted from the loans
held to maturity amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged-off
against the allowance when management believes the 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.
95 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 16 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 depend upon the cash
flow of the borrowers and the collateral value of the real estate. Non-owner occupied commercial real estate loans typically
depend, 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 relies on the successful and timely completion of the project. Agricultural
and agricultural real estate loans depend 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 depend upon the borrower's ability to repay the loan and the underlying collateral
value. Consumer loans depend 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 on nonaccrual status
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 on the level of recognized loan
losses, that otherwise 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
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.
96 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 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, 2023, and December 31, 2022,
allowance for credit losses.
It is expected that actual economic conditions will, in many cases, differ from forecasts 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.
Financial Difficulty Modifications - Any loans that are modified are reviewed by HTLF to identify if a financial difficulty
modification has occurred, which is when HTLF modifies a loan related to a borrower experiencing financial difficulties. Terms
may be modified to fit the ability of the borrower to repay in line with its current financial status. The modification of the terms
of such loans includes one or a combination of the following: a reduction of the stated interest rate of the loan, an extension of
the maturity date, a permanent reduction of the recorded investment of the loan, or an other-than-insignificant payment delay.
The adoption of ASU 2022-02 on January 1, 2023 eliminated the recognition and measurement of TDRs and enhanced
disclosures for modifications to loans related to borrowers experiencing financial difficulties. See Note Four to the consolidated
financial statements for additional detail regarding the adoption of ASU 2022-02.
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, 2023 and 2022, 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 - Prior to dissolving its mortgage operations in 2023, HTLF regularly
sold 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 retained the right to service the sold loans for a fee
prior to the sale of its mortgage servicing rights portfolio in the first quarter of 2023. First Bank & Trust, a division of HTLF
Bank, serviced mortgage loans primarily for government sponsored entities with aggregate unpaid principal balance of $0 and
$725.9 million, at December 31, 2023 and 2022, respectively.
97 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.
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.
First Bank & Trust, a division of HTLF Bank, sold its mortgage servicing portfolio in the first quarter of 2023, and the value of
the mortgage servicing rights was derecognized on the consolidated balance sheet. In prior periods, the carrying values of these
rights were 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 were stratified into certain risk characteristics including loan type and
loan term. At 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.
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
98 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. Derivatives
used to manage the exposure to changes in the fair value of a recognized asset or liability on the consolidated balance sheets are
fair value hedges. To qualify for hedge accounting, HTLF must comply with the detailed rules and documentation requirements
at the inception of the hedge, and hedge effectiveness is assessed at inception and periodically throughout the life of each
hedging relationship. Hedge ineffectiveness, if any, is measured periodically throughout the life of the hedging relationship.
For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially
reported in other comprehensive income (loss) and subsequently reclassified to interest income or expense when the hedged
transaction affects earnings, while the ineffective portion of changes in the fair value of the derivative, if any, is recognized
immediately in other noninterest income. HTLF assesses the effectiveness of each hedging relationship by comparing the
cumulative changes in cash flows of the derivative hedging instrument with the cumulative changes in cash flows of the
designated hedged item or transaction. No component of the change in the fair value of the hedging instrument is excluded from
the assessment of hedge effectiveness. In the first quarter of 2023 HTLF terminated its cash flow hedges. It was determined that
the forecasted transactions remain probable, so the unrealized gains at termination were kept in accumulated comprehensive
income and are being amortized into income over the remaining life of the forecasted transaction.
HTLF had multiple fair value hedging relationships at December 31, 2023. HTLF uses hedge accounting in accordance with
ASC 815. For hedges where the fair value change in the loan portfolio is being hedged, 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 are being
recorded in the consolidated statements of income. The ineffective portions of the unrealized gains or losses, if any, are
recorded in interest income in the consolidated statements of income. For hedges where the fair value change in the investment
portfolio are being hedged, the change in the fair value of the derivative and the change in the fair value of the risk being
hedged on the related investments is being recorded in interest income on the consolidated statements of income. The
ineffective portions of the unrealized gains or losses, if any, are recorded in interest income in the consolidated statements of
income. HTLF uses statistical regression to assess hedge effectiveness, both at the inception of the hedge as well as on a
continual basis. The regression analysis involves regressing the periodic change in fair value of the hedging instrument against
the periodic changes in the fair value of the asset being hedged due to changes in the hedge risk.
HTLF also has loan interest rate swap relationships with customers to assist them in managing their interest rate risk. Upon
entering into these loan swaps HTLF enters into offsetting positions with counterparties in order to minimize interest rate risk to
HTLF. 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. Any gains and losses on these back-to-back swaps are recorded in
noninterest income on the consolidated statements of income.
HTLF does not use derivatives for 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. As of December 31, 2023, HTLF was winding out of this activity due to dissolving its mortgage operations.
99 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, 2023 and December 31, 2022.
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 HTLF Bank.
100 Earnings Per Share - Basic earnings per share is determined using net income available to common stockholders and weighted
average common shares outstanding. Diluted earnings per share is computed by dividing net income available to common
stockholders by the weighted average common shares and assumed incremental common shares issued. Amounts used in the
determination of basic and diluted earnings per share for the years ended December 31, 2023, 2022 and 2021, 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
2023
2022
2021
$ 79,920 $ 212,180 $ 219,923
(8,050)
(8,050)
(8,050)
$ 71,870 $ 204,130 $ 211,873
42,701
42,496
42,260
Assumed incremental common shares issued upon vesting of restricted stock units
91
135
151
Weighted average common shares for diluted earnings per share
42,792
42,631
42,411
Earnings per common share — basic
Earnings per common share — diluted
$
$
1.68 $
4.80 $
1.68 $
4.79 $
Number of antidilutive stock units excluded from diluted earnings per share computation
Number of antidilutive stock options excluded from diluted earnings per share computation
112
60
5
5
5.01
5.00
1
—
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.
Subsequent to December 31, 2023, in February of 2024, HTLF announced that HTLF Bank had signed definitive agreements to
sell its nine Rocky Mountain Bank division branches to two purchasers. The agreements include the sale of approximately
$588.9 million of deposits, $365.9 million of loans and $13.6 million of premises, furniture and equipment. The transaction is
expected to close in the latter half of 2024.
Effect of New Financial Accounting Standards
ASU 2022-01
In March 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-01,
"Derivatives and Hedging (Topic 815): Fair Value Hedging-Portfolio Layer Method," which expands the current last-of-layer
method by allowing multiple hedged layers to be designated for a single closed portfolio of financial assets or one or more
beneficial interests secured by a portfolio of financial instruments. HTLF adopted this ASU on January 1, 2023, and these
amendments were applied prospectively.
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.
ASU 2023-02
In March 2023, the FASB issued ASU 2023-02 "Investments-Equity Method and Joint Ventures (Topic 323): Accounting for
Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Task Force)."
ASU 2023-02 expands the permitted use of the proportional amortization method, which is currently only available to low-
income housing tax credit investments, to other tax equity investments if certain conditions are met. Under the proportional
101
amortization method, the initial cost of an investment is amortized in proportion to the income tax benefits received and both
the amortization of the investment and the income tax benefits received are recognized as a component of income tax expense.
The amendments in this update are effective for fiscal years beginning after December 15, 2023, and must be applied on either a
modified retrospective or a retrospective basis. The adoption of this amendment is not expected to have a material impact on the
results of operations or financial position.
ASU 2023-06
In October 2023, the FASB issued ASU 2023-06, "Disclosure Improvements: Codification Amendments in Response to the
SEC's Disclosure Update and Simplification Initiative." The amendments in this Update modify the disclosure or presentation
requirements of a variety of Topics in the Codification. Certain of the amendments represent clarifications to, or technical
corrections of, the current requirements. Each amendment in the ASU will only become effective if the SEC removes the
related disclosure or presentation requirement from its existing regulations by June 30, 2027. The amendments in this ASU are
not expected to have a material impact on the results of operations or financial position.
TWO
CASH AND DUE FROM BANKS
HTLF Bank is 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, 2023, and December 31, 2022.
102 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, 2023, and December 31, 2022, are summarized in the table
below, in thousands:
December 31, 2023
U.S. treasuries
U.S. agencies
Obligations of states and political subdivisions
Mortgage-backed securities - agency
Mortgage-backed securities - non-agency
Commercial mortgage-backed securities - agency
Commercial mortgage-backed securities - non-agency
Asset-backed securities
Corporate bonds
Total debt securities
Equity securities with a readily determinable fair value
Total
December 31, 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
Equity securities
Total
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
$
32,459 $
— $
(341) $
32,118
14,724
839,754
1,620,409
1,616,414
76,076
526,974
232,140
120,338
5,079,288
21,056
—
25
13
(194)
14,530
(98,534)
741,245
(226,793) 1,393,629
363
(87,649) 1,529,128
—
—
—
—
401
—
(11,288)
64,788
(12,116)
514,858
(14,770)
217,370
(2,169)
118,169
(453,854) 4,625,835
—
21,056
$ 5,100,344 $
401 $ (453,854) $ 4,646,891
$
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
20,314
—
—
20,314
$ 6,788,729 $
1,495 $ (643,080) $ 6,147,144
The amortized cost, gross unrealized gains and losses and estimated fair values of held to maturity securities as of
December 31, 2023, and December 31, 2022, are summarized in the table below, in thousands:
December 31, 2023
Obligations of states and political subdivisions
Total
December 31, 2022
Obligations of states and political subdivisions
Total
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Allowance
for Credit
Losses
$ 838,241 $
$ 838,241 $
3,622 $
3,622 $
(25,464) $ 816,399 $
(25,464) $ 816,399 $
$ 829,403 $
$ 829,403 $
3,096 $
3,096 $
(55,942) $ 776,557 $
(55,942) $ 776,557 $
—
—
—
—
103
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, 2023, HTLF had $28.0 million compared to $33.0 million at December 31, 2022, 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, 2023, by contractual
maturity are as follows, in thousands. Expected maturities will differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without penalties.
December 31, 2023
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
$
25,138 $
62,537
20,231
899,369
1,007,275
4,072,013
21,056
Total investment securities
$
5,100,344 $
24,897
61,413
18,036
801,716
906,062
3,719,773
21,056
4,646,891
The amortized cost and estimated fair value of debt securities held to maturity at December 31, 2023, by contractual maturity
are as follows, in thousands. Expected maturities will differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without penalties.
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, 2023
Amortized Cost
Estimated Fair Value
$
$
8,116 $
88,728
158,686
582,711
838,241 $
8,126
88,646
158,430
561,197
816,399
As of December 31, 2023, securities with a carrying value of $2.63 billion compared to $1.49 billion at December 31, 2022,
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, 2023, 2022
and 2021 are summarized as follows, in thousands:
Proceeds from sales
Gross security gains
Gross security losses
For the Years Ended December 31,
2021
2022
2023
$ 1,196,586 $ 1,048,525 $ 1,475,598
11,892
5,982
589
141,966
7,299
9,191
104
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, 2023, and December 31, 2022. The investments were segregated into two categories: those that have been
in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss
position for 12 or more months. The reference point for determining how long an investment was in an unrealized loss position
was December 31, 2023, and December 31, 2022, 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, 2023
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, 2022
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Losses
Count
Fair
Value
Unrealized
Losses
Count
Fair
Value
Unrealized
Losses
Count
$
$
2,985 $
(12)
1 $
26,138 $
(329)
3 $
29,123 $
— $
—
— $
14,530 $
(194)
4 $
14,530 $
(341)
(194)
4
4
1,440
(65)
1
736,653
(98,469) 150
738,093
(98,534) 151
194
(2)
2
1,392,769
(226,791) 166
1,392,963
(226,793) 168
415,934
(24,568)
12
902,291
(63,081)
35
1,318,225
(87,649)
47
—
—
—
—
64,788
(11,288)
17
64,788
(11,288)
17
—
—
507,044
(12,116)
16
148,063
61,031
(9,723)
(111)
4
1
69,307
57,138
(5,047)
(2,058)
7
8
507,044
217,370
118,169
(12,116)
(14,770)
(2,169)
16
11
9
$ 629,647 $
(34,481)
21 $ 3,770,658 $ (419,373) 406 $ 4,400,305 $ (453,854) 427
U.S. treasuries
U.S. agencies
$
$
28,699 $
(678)
4 $
— $
—
— $
28,699 $
(678)
16,487 $
(222)
5 $
26,648 $
(6,080)
2 $
43,135 $
(6,302)
4
7
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
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
105
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, 2023
Obligations of states and
political subdivisions
Total temporarily impaired
securities
December 31, 2022
Obligations of states and
political subdivisions
Total temporarily impaired
securities
$ 145,471 $
(3,706)
23 $ 569,691 $
(21,758) 126 $ 715,162 $
(25,464) 149
$ 145,471 $
(3,706)
23 $ 569,691 $
(21,758)
126 $ 715,162 $
(25,464) 149
$ 697,424 $
(55,942) 155 $
— $
—
— $ 697,424 $
(55,942) 155
$ 697,424 $
(55,942)
155 $
— $
—
$ 697,424 $
(55,942) 155
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, the financial condition of the issuer, as well as security and industry
specific economic conditions. In addition, regarding 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 after 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, 2023 and December 31, 2022.
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 after 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, 2023 and December 31, 2022.
In the first quarter of 2022, HTLF sold two obligations of states and political subdivisions securities from the held to maturity
portfolio. Because the evaluation of the underlying credit quality of the individual securities indicated significant deterioration,
it was unlikely HTLF would recover the remaining basis of the securities prior to maturity and therefore inconsistent with
HTLF's original intent upon purchase and classification of these held to maturity securities. The carrying value of these
securities was $2.2 million, and the associated gross gains were $100,000.
The following table summarizes, in thousands, the carrying amount of HTLF's held to maturity debt securities by investment
rating as of December 31, 2023 and December 31, 2022, 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, 2023
December 31, 2022
$
$
88,550 $
583,816
139,658
20,133
6,084
838,241 $
79,598
588,354
136,624
20,623
4,204
829,403
106
Included in other securities were shares of stock in each Federal Home Loan Bank (the "FHLB") of Des Moines, Dallas and
Topeka at an amortized cost of $25.8 million at December 31, 2023 and $12.3 million at December 31, 2022.
HTLF Bank is required to maintain FHLB stock as a member of the FHLB. 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, 2023, did not consider the investments to be other
than temporarily impaired.
FOUR
LOANS
Loans as of December 31, 2023, and December 31, 2022, 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, 2023
December 31, 2022
$
$
3,652,047 $
2,777
2,638,175
2,553,711
1,011,716
919,184
797,829
493,206
12,068,645
(122,566)
11,946,079 $
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
As of December 31, 2023, HTLF had $65.4 million compared to $49.1 million as of December 31, 2022, 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, 2023, and December 31, 2022, and
the related loan balances, disaggregated on the basis of measurement methodology, in thousands. If a loan no longer shares
similar risk characteristics with other loans in the pool, it is evaluated on an individual basis and is not included in the collective
evaluation. Lending relationships with $500,000 or more of total exposure and are on nonaccrual are individually assessed
using a collateral dependency calculation. All other loans are collectively evaluated for losses.
Allowance For Credit Losses
Gross Loans Receivable Held to Maturity
Individually
Evaluated
for Credit
Losses
Collectively
Evaluated
for Credit
Losses
Total
Loans
Individually
Evaluated for
Credit Losses
Loans
Collectively
Evaluated for
Credit Losses
Total
December 31, 2023
Commercial and industrial
$
18,425 $
22,254 $
40,679 $
41,847 $
3,610,200 $ 3,652,047
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
—
—
—
56
1,932
—
—
—
17,156
17,249
28,717
2,360
5,845
8,572
—
17,156
17,249
28,773
4,292
5,845
8,572
—
2,777
2,777
30,400
2,607,775
2,638,175
—
697
6,700
741
—
2,553,711
2,553,711
1,011,019
1,011,716
912,484
797,088
493,206
919,184
797,829
493,206
$
20,413 $
102,153 $ 122,566 $
80,385 $ 11,988,260 $ 12,068,645
107
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
The following tables show the amortized cost basis as of December 31, 2023, of the loans modified during the year ended
December 31, 2023, to borrowers experiencing financial difficulty by loan category and type of concession granted, dollars in
thousands.
For the Year Ended December 31, 2023
Loan Modifications Made to Borrowers Experiencing Financial Difficulty
Term Extension and Interest Only
Payments
Term Extension
Amortized
Cost Basis
% of Loan
Category
Amortized
Cost Basis
% of Loan
Category
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
$
4,088
0.11 % $
—
—
—
—
1,936
741
—
6,765
—
—
—
—
0.21
0.09
—
0.06 % $
$
—
—
5,043
—
—
—
—
—
5,043
— %
—
0.19
—
—
—
—
—
0.04 %
The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty in the
year ended December 31, 2023.
Loan Type
Commercial and industrial
Owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Weighted Average
Term Extension
(months)
Weighted Average Term Extension
and Interest Only Payments
(months)
7
0
0
7
12
0
12
0
0
0
At December 31, 2023, there was $43,000 in unfunded commitments to extend credit to the borrowers experiencing financial
difficulty.
108
HTLF had no loans to borrowers experiencing financial difficulty that had a payment default during the year ended December
31, 2023, that had been modified in the twelve-month period prior to the default.
HTLF closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to
understand the effectiveness of its modification efforts. The following table shows the performance of loans that have been
modified in the year ended December 31, 2023, dollars in thousands.
December 31, 2023
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
Accruing Loans
30-59
Days
Past Due
60-89
Days
Past Due
90 Days
or
More
Past Due
Total
Past Due
Current
Nonaccrual
$
— $
— $
— $
— $
3,986 $
102
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,043
—
—
1,936
—
—
$
— $
— $
— $
— $ 10,965 $
—
—
—
—
—
741
—
843
HTLF's internal rating system is a series of grades reflecting management's risk assessment, based on its analysis of the
borrower's financial condition. The "pass" category consists of all loans that are not in the "nonpass" category and categorized
into a range of loan grades that reflect increasing, though still acceptable risk. Movement of risk through the various grade
levels in the pass category is monitored for early identification of credit deterioration.
The "nonpass" category consists of watch, substandard, doubtful and loss loans. The "watch" rating is attached to loans where
the borrower exhibits negative trends in financial circumstances due to borrower specific or systemic conditions that, if left
uncorrected, threaten the borrower's capacity to meet its debt obligations. The borrower is believed to have sufficient financial
flexibility to react to and resolve its negative financial situation. These credits are closely monitored for improvement or
deterioration.
The "substandard" rating is assigned to loans that are inadequately protected by the current net worth and repaying capacity of
the borrower and that may be further at risk due to deterioration in the value of collateral pledged. Well-defined weaknesses
jeopardize liquidation of the debt. These loans are still considered collectible; however, a distinct possibility exists that HTLF
will sustain some loss if deficiencies are not corrected. Substandard loans may exhibit some or all 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, based on 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, 2023, and December 31, 2022, 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, 2023 and
December 31, 2022, in thousands:
As of December 31, 2023
Amortized Cost Basis of Term Loans by Year of Origination
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
Total
Commercial and industrial
Pass
$ 608,030 $ 779,218 $ 333,900 $ 187,406 $ 78,455 $ 327,775 $ 1,159,397 $ 3,474,181
109
As of December 31, 2023
Amortized Cost Basis of Term Loans by Year of Origination
Watch
Substandard
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
Total
20,694
19,788
20,171
12,658
257
2,636
3,631
5,447
2,398
18,535
2,953
7,489
28,749
32,460
78,470
99,396
Commercial and industrial total
$ 648,895 $ 811,664 $ 336,793 $ 196,484 $ 99,388 $ 338,217 $ 1,220,606 $ 3,652,047
Commercial and industrial charge-offs
245
794
680
1,425
563
1,949
2,966
8,622
PPP
Pass
Watch
Substandard
PPP total
PPP charge-offs
$
— $
— $
2,591 $
50 $
— $
— $
— $
2,641
—
—
—
—
89
47
—
—
—
—
—
—
—
—
89
47
$
— $
— $
2,727 $
50 $
— $
— $
— $
2,777
—
—
—
—
—
—
—
—
Owner occupied commercial real estate
Pass
Watch
Substandard
$ 443,683 $ 547,898 $ 799,978 $ 225,257 $ 225,405 $ 224,608 $ 41,072 $ 2,507,901
8,052
25,947
13,114
2,662
31,904
10,489
2,268
11,609
8,115
6,390
7,553
2,171
—
—
65,443
64,831
Owner occupied commercial real estate total
$ 483,639 $ 584,334 $ 815,360 $ 239,528 $ 239,910 $ 234,332 $ 41,072 $ 2,638,175
Owner occupied commercial real estate charge-
offs
Non-owner occupied commercial real estate
Pass
Watch
Substandard
Non-owner occupied commercial real estate
total
—
802
—
5
—
63
—
870
$ 480,683 $ 656,824 $ 423,420 $ 203,330 $ 262,541 $ 251,499 $ 26,978 $ 2,305,275
71,400
5,043
34,651
952
8,237
1,391
3,834
—
27,345
4,238
57,083
34,262
—
—
202,550
45,886
$ 557,126 $ 692,427 $ 433,048 $ 207,164 $ 294,124 $ 342,844 $ 26,978 $ 2,553,711
110
As of December 31, 2023
Amortized Cost Basis of Term Loans by Year of Origination
Non-owner occupied commercial real estate
charge-offs
—
52
—
29
399
147
—
627
2023
2022
2021
2020
2019
2018 and
Prior
Revolving
Total
Real estate construction
Pass
Watch
Substandard
$ 283,519 $ 468,646 $ 176,604 $
9,889 $ 11,048 $
3,405 $
6,486 $ 959,597
629
—
33,220
8,522
9,418
—
72
107
—
—
65
—
—
86
43,404
8,715
Real estate construction total
$ 284,148 $ 510,388 $ 186,022 $ 10,068 $ 11,048 $
3,470 $
6,572 $ 1,011,716
Real estate construction charge-offs
284
—
—
32
—
—
—
316
Agricultural and agricultural real estate
Pass
Watch
Substandard
$ 152,665 $ 208,375 $ 114,798 $ 67,006 $ 28,247 $ 43,663 $ 260,941 $ 875,695
2,245
12
16,257
7,616
293
1,649
622
4
70
855
349
12,591
427
499
20,263
23,226
Agricultural and agricultural real estate total
$ 154,922 $ 232,248 $ 116,740 $ 67,632 $ 29,172 $ 56,603 $ 261,867 $ 919,184
Agricultural and agricultural real estate charge-
offs
—
—
—
9
—
1
5,309
5,319
Residential real estate
Pass
Watch
Substandard
$ 71,470 $ 177,564 $ 241,362 $ 73,029 $ 42,526 $ 155,899 $ 19,534 $ 781,384
171
741
973
150
945
3,400
659
464
158
290
4,845
3,649
—
—
7,751
8,694
Residential real estate total
$ 72,382 $ 178,687 $ 245,707 $ 74,152 $ 42,974 $ 164,393 $ 19,534 $ 797,829
Residential real estate charge-offs
—
59
124
—
—
—
—
183
Consumer
Pass
Watch
Substandard
Consumer total
$ 45,595 $ 62,900 $ 35,459 $
7,731 $
3,663 $
6,109 $ 324,218 $ 485,675
730
80
84
308
694
401
21
75
41
159
644
1,769
2,060
465
4,274
3,257
$ 46,405 $ 63,292 $ 36,554 $
7,827 $
3,863 $
8,522 $ 326,743 $ 493,206
Consumer charge-offs
2
246
154
27
19
112
3,117
3,677
Total pass
Total watch
Total substandard
Total loans
$ 2,085,645 $ 2,901,425 $ 2,128,112 $ 773,698 $ 651,885 $ 1,012,958 $ 1,838,626 $ 11,392,349
103,921
130,920
57,951
40,695
33,047
11,792
11,501
17,706
38,127
30,467
73,492
61,931
31,236
33,510
422,244
254,052
$ 2,247,517 $ 3,073,040 $ 2,172,951 $ 802,905 $ 720,479 $ 1,148,381 $ 1,903,372 $ 12,068,645
Total Charge-offs
$
531 $
1,953 $
958 $
1,527 $
981 $
2,272 $ 11,392 $ 19,614
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
48,361
36,608
101,509
Commercial and industrial total
$ 986,432 $ 457,737 $ 270,075 $ 129,656 $ 66,204 $ 431,385 $ 1,122,925 $ 3,464,414
PPP
Pass
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
111
As of December 31, 2022
Amortized Cost Basis of Term Loans by Year of Origination
Pass
Watch
Substandard
2022
2021
2020
2019
2018
2017 and
Prior
Revolving
Total
$ 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
$ 536,597 $ 809,158 $ 294,312 $ 281,106 $ 110,162 $ 198,755 $ 35,217 $ 2,265,307
Non-owner occupied commercial real estate
Pass
Watch
Substandard
Non-owner occupied commercial real estate
total
Real estate construction
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
$ 764,392 $ 522,651 $ 232,070 $ 316,201 $ 188,242 $ 236,439 $ 70,945 $ 2,330,940
$ 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
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
$ 337,260 $ 143,991 $ 83,376 $ 36,947 $ 35,367 $ 42,026 $ 241,543 $ 920,510
Residential real estate
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
Included in HTLF's nonpass loans at December 31, 2023 were $136,000 compared to $2.7 million at December 31, 2022, 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, 2023, HTLF had $127,000 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, 2023, and
December 31, 2022, in thousands:
December 31, 2023
Commercial and industrial
PPP
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
$ 1,738 $
126 $ 2,203 $ 4,067 $ 3,601,165 $
46,815 $ 3,652,047
94
53
—
147
2,630
—
2,777
112
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
Owner occupied commercial real estate
Non-owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
205
875
332
121
2,082
2,257
2,664
—
—
—
273
150
74
—
—
12
21
197
2,943
2,603,640
31,592
2,638,175
875
2,552,469
367
2,553,711
332
1,010,601
783
1,011,716
133
2,376
2,604
909,841
790,367
489,029
9,210
5,086
1,573
919,184
797,829
493,206
Total loans receivable held to maturity
$ 7,704 $ 3,266 $ 2,507 $ 13,477 $ 11,959,742 $
95,426 $ 12,068,645
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
Loans delinquent 30 to 89 days as a percent of total loans were 0.09% at December 31, 2023, compared to 0.04% at
December 31, 2022. 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, 2023 and December 31,
2022. As of December 31, 2023, HTLF had $52.5 million compared to $26.7 million at December 31, 2022, of nonaccrual
loans with no related allowance.
FIVE
ALLOWANCE FOR CREDIT LOSSES
Changes in the allowance for credit losses for loans for the years ended December 31, 2023, 2022, and 2021 were as follows, in
thousands:
Balance at beginning of year
Provision (benefit) for credit losses
Recoveries on loans previously charged-off
Charge-offs on loans
Balance at end of year
2023
2022
2021
$
109,483 $
110,088 $
131,606
25,435
7,262
10,636
7,055
(19,614)
(18,296)
(17,706)
4,931
(8,743)
$
122,566 $
109,483 $
110,088
113
Changes in the allowance for credit losses for loans by loan category for the years ended December 31, 2023, and December 31,
2022, were as follows, in thousands:
Balance at
12/31/2022
Charge-offs
Recoveries
Provision
(Benefit)
Balance at
12/31/2023
Commercial and industrial
$
29,071 $
(8,622) $
5,069 $
15,161 $
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
13,948
16,539
29,998
2,634
7,711
9,582
(870)
(627)
(316)
(5,319)
(183)
(3,677)
113
268
26
11
19
1,756
3,965
1,069
(935)
6,966
(1,702)
911
$
109,483 $
(19,614) $
7,262 $
25,435 $
122,566
Balance at
12/31/2021
Charge-offs
Recoveries
Provision
(Benefit)
Balance at
12/31/2022
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
40,679
17,156
17,249
28,773
4,292
5,845
8,572
29,071
13,948
16,539
29,998
2,634
7,711
9,582
Commercial and industrial
$
27,738 $
(6,964) $
4,951 $
3,346 $
Changes in the allowance for credit losses on unfunded commitments for the years ended December 31, 2023 and
December 31, 2022, were as follows:
Beginning balance
Provision
Ending balance
For the Years Ended December 31,
2023
2022
$
$
20,196 $
(3,728)
16,468 $
15,462
4,734
20,196
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, 2023, and December 31, 2022, 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
2023
2022
$
53,434 $ 56,599
172,585
168,244
66,685
56,378
278,056
295,869
(101,055) (105,390)
$ 177,001 $ 190,479
Depreciation expense on premises, furniture and equipment was $11.7 million, $13.2 million and $13.5 million for 2023, 2022
and 2021, respectively. Depreciation expense on buildings and building improvements of $6.0 million, $6.3 million and $6.9
million for the years ended December 31, 2023, 2022, and 2021, respectively, is recorded in occupancy expense on the
114
consolidated statements of income. Depreciation expense on furniture and equipment of $5.7 million, $6.9 million and $6.6
million for the years ended December 31, 2023, 2022, and 2021, 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, 2023, and December 31, 2022. HTLF conducts its annual internal
assessment of the goodwill both at the consolidated level and at the reporting unit level as of September 30. However, due the
sustained decline in HTLF's stock price, which management considered a triggering event, HTLF performed an interim
quantitative goodwill assessment during the second quarter of 2023, and there was no goodwill impairment identified. HTLF
also conducted its annual internal assessment of the goodwill at HTLF or HTLF's reporting units as of September 30. There was
no goodwill impairment as of the most recent assessment.
The gross carrying amount of other intangible assets, which consisted of core deposit intangibles and mortgage servicing rights,
and the associated accumulated amortization at December 31, 2023, and December 31, 2022, are presented in the table below,
in thousands:
December 31, 2023
December 31, 2022
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Amortizing intangible assets:
Core deposit intangibles
Mortgage servicing rights
Total
$ 101,185 $
—
$ 101,185 $
82,770 $ 18,415 $ 101,185 $
—
82,770 $ 18,415 $ 114,885 $
13,700
—
76,031 $ 25,154
7,840
81,891 $ 32,994
5,860
The following table shows the estimated future amortization expense for amortizable intangible assets, in thousands:
Year ending December 31,
2024
2025
2026
2027
2028
Thereafter
Total
Core Deposit Intangibles
$
$
5,591
4,700
3,533
2,601
1,287
703
18,415
On March 31, 2023, First Bank & Trust, a division of HTLF Bank, sold its mortgage servicing rights portfolio, which contained
loans with an unpaid principal balance of $698.5 million, to two unrelated third parties. The transaction qualified as a sale, and
$7.7 million of mortgage servicing rights was derecognized on the consolidated balance sheet as of March 31, 2023. Cash of
approximately $6.7 million was received on March 31, 2023, and an estimated loss of $203,000 was recorded. A receivable of
approximately $580,000 was recorded in other assets on the consolidated balance sheet as of March 31, 2023, due to the timing
of the servicing transfer per the terms of the sale agreement. First Bank & Trust provided interim servicing of the loans until the
transfer date, which was May 1, 2023.
115
The following table summarizes, in thousands, the changes in capitalized mortgage servicing rights for the twelve months
ended December 31, 2023, and December 31, 2022:
Balance at January 1,
Originations
Amortization
Sale of mortgage servicing rights
Valuation adjustment
Balance at December 31,
Fair value of mortgage servicing rights
2023
7,840
24
(210)
(7,654)
—
—
—
$
$
$
2022
6,412
1,425
(1,139)
(516)
1,658
7,840
7,840
$
$
$
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:
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
$
1,388 $
1,388 $
— $
6,452 $
6,452 $
—
EIGHT
DEPOSITS
At December 31, 2023, the scheduled maturities of time certificates of deposit were as follows, in thousands:
2024
2025
2026
2027
2028
Thereafter
Total
$ 2,726,098
126,415
18,949
18,703
4,697
951
$ 2,895,813
The aggregate amount of time certificates of deposit in denominations of $250,000 or more as of December 31, 2023, and
December 31, 2022 were $1.80 billion and $1.28 billion, respectively.
Interest expense on deposits for the years ended December 31, 2023, 2022, and 2021, was as follows, in thousands:
Savings and money market accounts
Time deposits
Interest expense on deposits
2023
182,179 $
137,509
319,688 $
$
$
2022
2021
46,623 $
10,257
56,880 $
9,063
5,734
14,797
116
NINE
BORROWINGS
Borrowings as of December 31, 2023, and 2022, were as follows, in thousands:
Retail repurchase agreements
Advances from the FHLB
Advances from the federal discount window
Other borrowings
Total
2023
2022
42,447 $
521,186
—
58,622
622,255 $
95,303
50,000
224,000
6,814
376,117
$
$
HTLF Bank is a member of the FHLB of Topeka. At December 31, 2023, none of HTLF's FHLB advances had call features.
The advances from the FHLB are collateralized by HTLF Bank's investments in FHLB stock of $25.8 million and $10.9 million
at December 31, 2023 and 2022, respectively. In addition, the FHLB advances are collateralized with pledges of one- to four-
family residential mortgages, commercial and agricultural mortgages and securities totaling $2.07 billion at December 31, 2023,
and $4.00 billion at December 31, 2022. At December 31, 2023, HTLF Bank had $629.9 million of remaining FHLB borrowing
capacity.
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 borrowings, and the primary purpose of this credit line
agreement is to provide liquidity to HTLF. HTLF had no advances on this line during 2023 and 2022, and there was no
outstanding balance at both December 31, 2023, and December 31, 2022. The credit agreement contains specific financial
covenants which HTLF complied with as of December 31, 2023 with the exception of the return on average assets covenant for
which HTLF obtained a waiver through February 22, 2024. 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, 2023, and 2022, were due within twelve months.
Average and maximum balances and rates on aggregate borrowings outstanding during the years ended December 31, 2023,
December 31, 2022, and December 31, 2021, 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
2023
$ 622,255
227,993
2022
$ 376,117
191,306
2021
$ 299,457
173,556
5.04 %
5.28 %
1.61 %
4.07 %
0.26 %
0.19 %
HTLF Bank has availability to borrow funds under the Discount Window Program and the Bank Term Funding Program based
upon pledged securities with an outstanding balance of $2.63 billion, which provided total borrowing capacity of $1.92 billion,
of which $1.92 billion was available at December 31, 2023. There was no outstanding balance at December 31, 2023 and
$224.0 million outstanding balance at December 31, 2022.
TEN
TERM DEBT
Term debt outstanding at December 31, 2023 and 2022, are shown in the table below, net of unamortized discount and issuance
costs, in thousands:
2023
2022
Advances from the FHLB; weighted average interest rate was 3.03% at December 31, 2022
Trust preferred securities
Contracts payable for purchase of real estate and other assets
Subordinated notes
Total
$
— $
149,288
80
223,028
372,396 $
$
740
148,284
82
222,647
371,753
117
At December 31, 2023, 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 or entities acquired 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 term debt was $0 and $40,000 as of
December 31, 2023 and December 31, 2022, respectively. The majority of the interest payments are due quarterly.
A schedule of HTLF’s trust preferred offerings outstanding, as of December 31, 2023, were as follows, in thousands:
Heartland Financial Statutory Trust IV
$ 10,310
2.75% over SOFR
8.39%
03/17/2034
03/17/2024
Amount
Issued
Interest
Rate
Interest
Rate as
of 12/31/23
Maturity
Date
Callable
Date
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
20,619
1.33% over SOFR
20,619
1.48% over SOFR
18,042
9,464
9,198
6,878
4,608
6,661
4,526
1.48% over SOFR
3.25% over SOFR
2.85% over SOFR
2.95% over SOFR
3.25% over SOFR
2.80% over SOFR
2.20% over SOFR
12,649
1.54% over SOFR
3,028
5,567
7,359
9,760
3.65% over SOFR
2.50% over SOFR
3.25% over SOFR
1.60% over SOFR
6.99
7.13
7.12
8.87
8.49
8.59
8.90
8.45
7.84
7.19
9.31
8.15
8.89
7.19
04/07/2036
04/07/2024
09/15/2037
03/15/2024
09/01/2037
12/26/2032
12/17/2033
03/01/2024
03/26/2024
03/17/2024
09/17/2033
03/17/2024
12/15/2034
03/15/2024
12/19/2033
04/23/2024
09/30/2034
05/23/2024
07/25/2036
03/15/2024
09/30/2032
03/30/2024
12/15/2034
03/15/2024
04/24/2033
04/24/2024
09/30/2035
03/30/2024
Total trust preferred offerings
$ 149,288
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 term debt was $392,000 at
December 31, 2023, and $443,000 at December 31,2022. 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 term
debt was $38,000 at December 31, 2023, and $76,000 at December 31, 2022. These deferred costs are amortized on a straight-
line basis over the life of the notes.
For regulatory purposes, $148.2 million of the total $223.0 million of subordinated notes qualified as Tier 2 capital as of
December 31, 2023.
118
Future payments, net of unamortized discount and issuance costs, at December 31, 2023, for term debt at their maturity date
follow in the table below, in thousands.
2024
2025
2026
2027
2028
Thereafter
Total
$
$
74,937
—
—
—
—
297,459
372,396
ELEVEN
DERIVATIVE FINANCIAL INSTRUMENTS
HTLF considers and uses derivative financial instruments as part of its interest rate risk management strategy, which may
include interest rate swaps, fair value hedges, risk participation agreements, caps, floors, collars, and certain interest rate lock
commitments and forward sales of securities related to mortgage banking activities. HTLF's current strategy includes the use of
interest rate swaps. In addition, HTLF facilitates back-to-back loan swaps to assist customers in managing their interest rate risk
while executing offsetting interest rate swaps with dealer counterparties.
HTLF's objectives are to add stability to its net interest margin and to manage its exposure to movements in interest rates. The
contract or notional amount of a derivative is used to determine, along with the other terms of the derivative, the amounts to be
exchanged between the counterparties. HTLF is exposed to credit risk in the event of nonperformance by counterparties to
financial instruments. HTLF minimizes this risk by entering into derivative contracts with counterparties that meet HTLF’s
credit standards, and the contracts contain collateral provisions protecting the at-risk party. HTLF has not experienced any
losses from nonperformance by these counterparties. HTLF monitors counterparty risk in accordance with the provisions of
ASC 815. HTLF was required to post $27.7 million of collateral at December 31, 2023, compared to $793,000 as of
December 31, 2022, related to derivative financial instruments. HTLF's counterparties were required to pledge $44.8 million at
December 31, 2023, compared to $45.1 million at December 31, 2022. HTLF records interest rate derivatives subject to master
netting agreements at their gross value and does not offset derivative assets and liabilities on the consolidated balance sheets.
HTLF's derivative and hedging instruments are recorded at fair value on the consolidated balance sheets. See Note Eighteen,
"Fair Value," for additional fair value information and disclosures.
Cash Flow Hedges
In 2021, two interest rate swap transactions were terminated, and the debt was converted to variable rate subordinated
debentures. For the next twelve months, HTLF estimates cash payments and reclassification from accumulated other
comprehensive income (loss) to interest expense related to the terminated swaps will total $227,000.
In the first quarter of 2023, HTLF terminated its interest rate swap agreement, which effectively converted $500.0 million of
variable rate loans to fixed rate loans. For the next twelve months, HTLF estimates cash payments and reclassification from
accumulated other comprehensive income (loss) to interest expense will total $985,000.
HTLF had no derivative instruments designated as cash flow hedges at December 31, 2023. 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:
119
December 31, 2022
Interest rate swap
Notional Amount
Fair Value
Balance Sheet Category
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, 2023, and December 31, 2022, in thousands:
Recognized in OCI
Amount of Gain (Loss)
Reclassified from AOCI into Income
Category
Amount of Gain (Loss)
For the Year Ended December 31, 2023
Interest rate swap
For the Year Ended December 31, 2022
Interest rate swap
$
$
1,952
Interest income
13
Interest income
$
$
(575)
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 also uses interest rate swaps to mitigate the risk of changes in the fair market value of certain municipal and mortgage-
backed securities. The changes in the fair values of derivatives that have been designated and qualify for fair value hedge
accounting are recorded in the same line item in the consolidated statements of income as the changes in the fair value of the
hedged items attributable to the risk being hedged.
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.
During 2023, HTLF entered into interest rate swaps designated as fair value hedges with initial notional amounts totaling
$838.1 million primarily designed to provide protection for unrealized securities losses against the impact of higher mid-to-long
term interest rates. HTLF also executed interest rate swaps designated as a fair value hedges with total original notional
amounts of $2.5 billion to convert certain long-term fixed rate loans to floating rates to hedge interest rate risk exposure using
the portfolio layer method, which allows HTLF to designate as the hedged item a stated amount of the assets that are not
expected to be affected by prepayments, defaults and other factors that would affect the timing and amount of cash flow.
The table below identifies the fair value of the interest rate swaps designated as fair value hedges and the balance sheet category
of the interest rate swaps at December 31, 2023, and December 31, 2022, in thousands:
December 31, 2023
Interest rate swaps-loans receivable held to maturity
Interest rate swaps-securities carried at fair value
Interest rate swaps-loans receivable held to maturity
December 31, 2022
Interest rate swaps-loans receivable held to maturity
Fair Value
Balance Sheet Category
$
$
5,027
23,182
27,554
Other assets
Other assets
Other liabilities
54
Other assets
The table below identifies the carrying amount of the hedged assets and cumulative amount of fair value hedging adjustment
included in the carrying amount of the hedged assets that are designated as a fair value hedge accounting relationship at
December 31, 2023, and December 31, 2022, in thousands:
120
Location in the consolidated
balance sheet
Carrying Amount of
the Hedged Assets
Cumulative Amount of Fair Value
Hedging Adjustment Included in
Carrying Amount of Hedged Assets
December 31, 2023
Interest rate swap
Loans receivable held to maturity
$
2,525,261 $
Interest rate swap
Securities carried at fair value
786,716
December 31, 2022
Interest rate swap
Loans receivable held to maturity
$
1,185 $
24,652
(20,979)
(54)
The table below identifies the net impact to interest income recognized on HTLF's fair value hedges specific to the fair value
remeasurements and the income statement classification where it is recorded in comparison to the total amount of interest
income presented on the consolidated statements of income for the year ended December 31, 2023, and December 31, 2022, in
thousands:
Year Ended December 31,
2023
2022
Gain (loss) recognized in interest income and fees on loans
$
Total amount of interest and fees on loans
Gain (loss) recognized in interest income on securities-taxable
Total amount of interest on securities-taxable
(386) $
697,997
66
223,521
46
477,970
—
169,544
The table below identifies the effect of fair value hedge accounting on the consolidated statements of income, in thousands:
Year Ended December 31,
2023
2022
Hedged item (loans receivable held to maturity)
$
Hedged item (securities carried at fair value)
Derivatives designated as hedging instruments on loans receivable
held to maturity
Derivatives designated as hedging instruments on securities carried at
fair value
24,318 $
(20,913)
(24,704)
20,979
(113)
—
159
—
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, 2023, and December 31, 2022, in thousands:
Notional Amount
Fair Value
Balance Sheet Category
December 31, 2023
Embedded derivatives
December 31, 2022
Embedded derivatives
$
$
2,391 $
6,028 $
61
135
Other Assets
Other Assets
121
The table below identifies the gains and losses recognized on HTLF's embedded derivatives for the years ended December 31,
2023 and December 31, 2022, in thousands:
Year Ended December 31,
2023
2022
Gain (loss) recognized in other noninterest income on embedded derivatives $
(74) $
452
Back-to-Back Loan Swaps
HTLF has loan interest rate swap relationships with customers to assist them in managing their interest rate risk. Upon entering
into these loan swaps, HTLF enters into offsetting positions with counterparties in order to minimize interest rate risk to HTLF.
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. 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, 2023, and December 31,
2022, no gains or losses were recognized. HTLF recognized $7.7 million in fee income for the year ended December 31, 2023,
compared to $6.6 million for the year ended December 31, 2022.
The table below identifies the balance sheet category and fair values of HTLF's derivative instruments designated as loan swaps
at December 31, 2023 and 2022, in thousands:
December 31, 2023
Customer interest rate swaps
Customer interest rate swaps
December 31, 2022
Customer interest rate swaps
Customer interest rate swaps
Notional
Amount
Fair
Value
Balance Sheet
Category
$
1,672,729 $
56,634
Other Assets
1,672,729
(56,634) Other Liabilities
$
819,662 $
46,091
Other Assets
819,662
(46,091) Other Liabilities
Weighted
Average
Receive
Rate
Weighted
Average
Pay
Rate
4.12 %
4.96 %
4.23 %
6.76 %
4.96 %
4.12 %
6.76 %
4.23 %
Other Free-Standing Derivatives
HTLF has entered into interest rate lock commitments to originate residential mortgage loans held for sale and forward
commitments to sell residential mortgage loans and mortgage-backed securities that are considered derivative instruments.
HTLF enters into forward commitments for the future delivery of residential mortgage loans when interest rate lock
commitments are entered into 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, 2023, and December 31,
2022, as collateral for these forward commitments. HTLF's counterparties were required to pledge no cash as collateral at both
December 31, 2023, and December 31, 2022, as collateral for these forward commitments.
HTLF acquired undesignated interest rate swaps in 2015. These swaps were entered into primarily for the benefit of customers
seeking to manage their interest rate risk and are not designated against specific assets or liabilities on the consolidated balance
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.
122
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, 2023, and December 31, 2022, in thousands:
Notional
Amount
Fair
Value
Balance Sheet
Category
December 31, 2023
Interest rate lock commitments (mortgage)
$
— $
—
—
—
—
Other Assets
Other Assets
— Other Liabilities
2,391
(61) Other Liabilities
Forward commitments
Forward commitments
Undesignated interest rate swaps
December 31, 2022
Interest rate lock commitments (mortgage)
$
9,340 $
Forward commitments
Forward commitments
Undesignated interest rate swaps
6,400
5,750
6,028
174
47
Other Assets
Other Assets
(99) Other Liabilities
(135) Other Liabilities
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,
2023, and December 31, 2022, in thousands:
Interest rate lock commitments (mortgage)
$
Forward commitments
Undesignated interest rate swaps
(291) $
52
74
(1,828)
11
(452)
Year Ended December 31,
2023
2022
TWELVE
INCOME TAXES
The current income tax provision reflects the tax consequences of revenue and expenses currently taxable or deductible on
various income tax returns for the year reported. The deferred income tax provision generally reflects the net change in deferred
income tax assets and liabilities during the year, excluding any deferred income tax assets and liabilities of acquired businesses.
The components of the provision for income taxes for the years ended December 31, 2023, 2022, and 2021 were as follows, in
thousands:
Current:
Federal
State
Total current expense
Deferred:
Federal
State
Total deferred expense (benefit)
Total income tax expense
2023
2022
2021
$
$
$
$
18,844 $
7,209
26,053 $
45,911 $
13,549
59,460 $
(7,442) $
(1,754)
(9,196)
16,857 $
(3,637) $
(250)
(3,887)
55,573 $
32,440
11,352
43,792
8,938
2,605
11,543
55,335
123
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, 2023 and 2022, were as follows, in thousands:
Deferred tax assets:
Net unrealized loss on securities carried at fair value reflected in stockholders' equity
$ 107,669 $ 159,763
2023
2022
Net unrealized loss on derivatives reflected in stockholders’ equity
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
Lease liability
Investments in partnerships
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
Lease right-of-use asset
Deferred loan costs
Other
Total deferred tax liabilities
Net deferred tax assets
(382)
210
42,541
34,527
13,055
14,789
7,241
2,042
7,971
45,174
28,732
12,861
21,844
7,731
2,843
5,476
284,634
229,453
(13,000)
(19,001)
$ 216,453 $ 265,633
$
8,245 $
10,070
6,391
6,031
912
9,227
7,954
7,182
6,078
3,846
31,649
34,287
$ 184,804 $ 231,346
As a result of acquisitions, HTLF had net operating loss carryforwards for federal income tax purposes of approximately $14.0
million at December 31, 2023, and $17.2 million at December 31, 2022. The associated deferred tax asset was $2.9 million at
December 31, 2023, and $3.6 million at December 31, 2022. These net carryforwards expire during the period from December
31, 2025, through December 31, 2035, and are subject to an annual limitation of approximately $3.1 million. Net operating loss
carryforwards for state income tax purposes were approximately $191.9 million at December 31, 2023, and $203.4 million at
December 31, 2022. The associated deferred tax asset, net of federal tax, was $9.9 million at December 31, 2023, and $16.3
million at December 31, 2022. These carryforwards have begun to expire and will continue to do so until December 31, 2031.
A valuation allowance against the deferred tax asset due to the uncertainty surrounding the utilization of these state net
operating loss carryforwards was $9.4 million at December 31, 2023, and $15.5 million at December 31, 2022. During both
2023 and 2022, 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 $1.7 million at December 31, 2023, and $1.5 million at December 31, 2022. HTLF released valuation allowances of $0
and $165,000 in 2023 and 2022, respectively, on deferred tax assets for capital losses it expects to realize on the disposal of
partnership investments.
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 considered 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.
124
The actual income tax expense from continuing operations differs from the expected amounts for the years ended December 31,
2023, 2022, and 2021, (computed by applying the U.S. federal corporate tax rate of 21% for 2023, 2022, and 2021 income
before income taxes) are as follows, in thousands:
Computed "expected" tax on net income
Increase (decrease) resulting from:
Tax-exempt interest benefit
State income taxes, net of federal tax benefit
Tax credits
Partnership investments
Valuation allowance
Excess tax expense/(benefit) on stock compensation
Other
Income taxes
Effective tax rates
2023
2022
2021
$ 20,323
$ 56,228
$ 57,804
(2,624)
4,310
(6,966)
1,105
214
107
388
(5,804)
10,523
(6,613)
(351)
13
(113)
1,690
(5,504)
11,026
(7,613)
572
(440)
(270)
(240)
$ 16,857
$ 55,573
$ 55,335
17.4 %
20.8 %
20.1 %
HTLF's income taxes included solar energy tax credits totaling $4.2 million, $4.2 million, and $6.1 million during 2023, 2022
and 2021, respectively. Federal historic rehabilitation tax credits included in HTLF's income taxes totaled $1.1 million, $1.0
million, and $720,000 in 2023, 2022, and 2021, respectively. Additionally, investments in certain low-income housing
partnerships totaled $9.3 million at December 31, 2023, $10.4 million at December 31, 2022, and $5.1 million at December 31,
2021. These investments generated federal low-income housing tax credits of $1.2 million during 2023, $1.1 million at
December 31, 2022, and $538,000 at December 31, 2021. These investments are expected to generate federal low-income
housing tax credits of approximately $1.0 million for 2024, $790,000 for 2025, $740,000 for 2026 and $705,000 for 2027.
Additionally, HTLF had new markets tax credits of $360,000 and $300,000 in 2023 and 2022, respectively.
On December 31, 2023, the amount of unrecognized tax benefits was $709,000, including $129,000 of accrued interest and
penalties. On December 31, 2022, the amount of unrecognized tax benefits was $719,000, including $91,000 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, 2020, and later remain subject to examination by the Internal Revenue Service. For state
purposes, the tax years ended December 31, 2018, 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 5% of participants' wages in 2023 and 3% of participants' wages in
2022 and 2021. Costs charged to operating expenses with respect to the matching contributions were $7.9 million, $5.3 million,
and $5.1 million for 2023, 2022 and 2021, 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 $3.1
million, $5.8 million, and $5.1 million for 2023, 2022 and 2021, 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, 2023, 2022 and 2021, the employer contributions to the non-qualified defined
contribution plan were $235,000, $222,500 and $237,200, respectively, and are included in the matching contributions and non-
elective contributions amounts noted above.
125
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 Eleven, "Derivative Financial Instruments." HTLF Bank
makes various commitments and incurs 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 if 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 Bank evaluates 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 Bank 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, 2023,
and at December 31, 2022, commitments to extend credit aggregated $4.62 billion and $4.73 billion, respectively, and standby
letters of credit aggregated $56.4 million and $55.1 million, respectively.
Previously, HTLF entered 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
were predominantly conventional residential first lien mortgages originated under HTLF's usual underwriting procedures and
were 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 required 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, 2023 and
December 31, 2022. HTLF had no new requests for repurchases during 2023 and 2022.
There are certain legal proceedings pending against HTLF and its subsidiaries at December 31, 2023, 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 HTLF's consolidated
financial position or results of operation.
FIFTEEN
STOCK-BASED COMPENSATION
HTLF may grant, through its Compensation and Human Capital 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, 2023, 744,310 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 $123,000 of expense and $131,000 of benefit for the years ended December 31, 2023, and
December 31, 2022, respectively, related to the vesting and forfeiture of equity-based awards.
126 Restricted Stock Units
The Plan permits the Compensation Committee to grant restricted stock units ("RSUs"). The time-based RSUs represent the
right, without payment, to receive shares of HTLF common stock at a specified date in the future. Generally, the time-based
RSUs vest over three years in equal installments in March of each of the three years following the year of the grant.
The Compensation Committee has granted three-year performance-based RSUs. These performance-based RSUs will be earned
based upon satisfaction of performance targets for the three-year performance period, which is defined in the RSU agreement.
These performance-based RSUs or a portion thereof may vest after measurement of performance in relation to the performance
targets.
The time-based RSUs may also vest upon death or disability, upon a change in control or upon a "qualified retirement" (as
defined in the RSU agreement), and the three-year performance-based RSUs vest to the extent that they are earned upon death
or disability or upon a "qualified retirement" (as defined in the RSU agreement) after measurement of performance.
All of HTLF's RSUs will be settled in common stock upon vesting. Most RSUs granted after March 2023 accrue dividends,
which are paid without interest only upon vesting. Dividend equivalents with respect to RSUs forfeited are also forfeited. RSUs
granted prior to 2023 are not entitled to dividend equivalents.
A summary of the status of RSUs as of December 31, 2023, 2022 and 2021, and changes during the years ended December 31,
2023, 2022, and 2021, follows:
Outstanding at January 1
Granted
Vested
Forfeited
Outstanding at December 31
2023
2022
2021
Weighted-
Average
Grant Date
Fair Value
Shares
Weighted-
Average
Grant Date
Fair Value
Shares
Weighted-
Average
Grant Date
Fair Value
Shares
424,086 $
278,999
(183,511)
(53,469)
466,105 $
46.15
44.94
41.39
46.84
47.22
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
Total compensation costs recorded for RSUs were $9.0 million, $7.8 million and $8.5 million, for 2023, 2022 and 2021,
respectively. As of December 31, 2023, there were $8.8 million of total unrecognized compensation costs related to the Plan for
RSUs which are expected to be recognized through 2026.
Stock Options
The plan provides the Compensation Committee the authority to grant stock options. During the year ended December 31,
2023, 0 options were granted. There were 64,518 options granted in the year ended December 31, 2022, and no options granted
in the year ended December 31, 2021. Options granted 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.
127
A summary of the status of the stock options as of December 31, 2023, 2022, and 2021, and changes during the years ended
December 31, 2023, 2022, and 2021 follows:
2023
2022
2021
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
Shares
Outstanding at January 1,
64,518 $
48.79
— $
Granted
Exercised
Forfeited
Outstanding at December 31
—
—
(6,452)
58,066
Options exercisable at December 31,
— $
—
—
—
48.79
—
64,518
—
—
64,518
— $
—
48.79
—
—
48.79
—
— $
—
—
—
—
— $
—
—
—
—
—
—
At December 31, 2023, the vested options have a weighted average remaining contractual life of 8.92 years. The intrinsic value
for the vested options as of December 31, 2023, was $0. The intrinsic value for the total of all options exercised during year
ended December 31, 2023, was $0. The total fair value of shares under stock options that vested during the year ended
December 31, 2023, was $0. Total compensation costs recorded for stock options were $221,000, $167,000, and $0 for 2023,
2022, and 2021, respectively. As of December 31, 2023, there was $490,000 of total unrecognized compensation costs related
to the Plan for options that are expected to be recognized through 2026.
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 $192,000 was recorded in
2023, $214,000 was recorded in 2022, and $228,000 was recorded in 2021.
A maximum of 500,000 shares is available for purchase under the ESPP, and as of December 31, 2023, 171,537 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 2023 plan year, shares purchased in 2023 totaled 60,583. 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.
SIXTEEN
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 Fifteen, "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
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.
SEVENTEEN
REGULATORY CAPITAL REQUIREMENTS AND RESTRICTIONS ON SUBSIDIARY DIVIDENDS
HTLF Bank is 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,
128
if undertaken, could have a direct material effect on HTLF Bank's 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 HTLF Bank 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, 2023 and 2022, that HTLF
Bank met all capital adequacy requirements to which it was subject.
As of December 31, 2023 and 2022, the FDIC categorized HTLF Bank, and all HTLF member banks prior to charter
consolidation, as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well
capitalized, the 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, 2023, that management believes
have changed each institution’s category.
HTLF Bank's, and all HTLF member banks prior to charter consolidation, actual capital amounts and ratios are also presented
in the tables below, in thousands:
As of December 31, 2023
Total Capital (to Risk-Weighted Assets)
Consolidated
HTLF Bank
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated
HTLF Bank
Common Equity Tier 1 (to Risk-Weighted Assets)
Consolidated
HTLF Bank
Tier 1 Capital (to Average Assets)
Consolidated
HTLF Bank
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Ratio
Amount
To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
$ 2,237,035
1,969,006
14.53 % $ 1,231,972
1,225,669
12.85
8.00 % $ 1,539,965
8.00
1,532,087
10.00 %
10.00
$ 1,800,542
1,829,972
11.69 % $ 923,979
11.94
919,252
6.00 % $ 923,979
6.00
1,225,669
6.00 %
8.00
$ 1,689,837
1,829,972
10.97 % $ 692,984
689,439
11.94
4.50 %
4.50
N/A
$ 995,856
$ 1,800,542
1,829,972
9.44 % $ 763,309
790,709
9.26
4.00 %
4.00
N/A
$ 988,386
6.50 %
5.00 %
129
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
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
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Ratio
Amount
$ 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
$ 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
14.76 % $ 1,194,970
562,497
11.72
113,197
13.01
78,336
13.12
144,059
13.23
43,489
12.84
80,689
16.07
170,835
13.51
11.81 % $
10.84
12.35
12.18
12.42
11.74
15.37
12.51
11.07 % $
10.84
12.35
12.18
12.42
11.74
15.37
12.51
9.13 % $
8.64
8.08
9.22
8.12
8.49
10.75
9.29
896,228
421,873
84,898
58,752
108,044
32,617
60,516
128,126
672,171
316,405
63,674
44,064
81,033
24,463
45,387
96,094
772,911
352,914
86,473
51,753
110,214
30,064
57,676
115,026
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
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
To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
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
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
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
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
The ability of HTLF to pay dividends to its stockholders is dependent upon dividends paid by its subsidiaries. HTLF Bank is
subject to certain statutory and regulatory restrictions on the amount it may pay in dividends. To maintain acceptable capital
ratios for the HTLF Bank, 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 $743.3 million as of
December 31, 2023, under the most restrictive minimum capital requirements. Retained earnings that could be available for the
payment of dividends to HTLF totaled approximately $436.9 million as of December 31, 2023, under the capital requirements
to remain well capitalized.
130
EIGHTEEN
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 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
131 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 measured at fair value and 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.
On March 31, 2023, HTLF sold its mortgage servicing rights portfolio. The transaction qualified as a sale, and $7.7 million of
mortgage servicing rights were derecognized on the consolidated balance sheet as of March 31, 2023. The book value and fair
value were both $0 as of March 31, 2023.
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, 2023, and
December 31, 2022, HTLF has assessed the significance of the impact of the credit valuation adjustments on the overall
valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall
valuation of its derivatives. As a result, HTLF has determined that its derivative valuations in their entirety are classified in
Level 2 of the fair value hierarchy.
Interest Rate Lock Commitments
HTLF uses an internal valuation model that relies on internally developed inputs to estimate the fair value of its interest rate
lock commitments which is based on unobservable inputs that reflect management's assumptions and specific information about
each borrower. Interest rate lock commitments are classified in Level 3 of the fair value hierarchy.
Forward Commitments
The fair value of forward commitments is estimated using an internal valuation model, which includes current trade pricing for
similar financial instruments in active markets that HTLF has the ability to access and are classified in Level 2 of the fair value
hierarchy.
Other Real Estate Owned
Other real estate owned ("OREO") represents property acquired through foreclosures and settlements of loans. Property
acquired is carried at the fair value of the property at the time of acquisition (representing the property's cost basis), plus any
acquisition costs, or the estimated fair value of the property, less disposal costs. HTLF considers third-party appraisals, as well
as independent fair value assessments from realtors or persons involved in selling OREO, in determining the fair value of
particular properties. Accordingly, the valuation of OREO is subject to significant external and internal judgment. HTLF
periodically reviews OREO to determine if the fair value of the property, less disposal costs, has declined below its recorded
book value and records any adjustments accordingly. OREO is classified as nonrecurring Level 3 of the fair value hierarchy.
132 The tables below present HTLF's assets and liabilities that are measured at fair value on a recurring basis as of December 31,
2023, and December 31, 2022, in thousands, aggregated by the level in the fair value hierarchy within which those
measurements fall:
Total Fair
Value
Level 1
Level 2
Level 3
December 31, 2023
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
$
$
$
32,118 $
14,530
741,245
1,393,629
1,529,128
64,788
514,858
217,370
118,169
21,056
84,904
—
—
4,731,795 $
84,249 $
—
84,249 $
32,118 $
—
—
—
—
—
—
—
—
—
—
—
—
32,118 $
— $
14,530
741,245
1,393,629
1,529,128
64,788
514,858
217,370
118,169
21,056
84,904
—
—
4,699,677 $
— $
—
— $
84,249 $
—
84,249 $
(1) Includes interest rate swaps, fair value hedges, embedded derivatives, and back-to-back loan swaps.
(2) Includes fair value hedges, back-to-back loan swaps and free-standing derivatives.
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
133
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
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 $
—
—
—
—
—
—
—
—
—
—
—
174
—
174
—
—
—
(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, 2023
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
$ 23,422 $
— $
— $
23,422 $
554
Owner occupied commercial real estate
Non-owner occupied commercial real estate
Real estate construction
Agricultural and agricultural real estate
Residential real estate
30,400
—
642
4,768
741
Total collateral dependent individually assessed loans $ 59,973 $
Loans held for sale
Other real estate owned
Premises, furniture and equipment held for sale
Servicing rights
$
5,071 $
12,548
4,069
—
—
—
—
—
—
— $
— $
—
—
—
—
—
—
—
—
30,400
—
642
4,768
741
—
—
—
5,309
—
— $
59,973 $
5,863
5,071 $
— $
—
—
—
—
12,548
4,069
—
2,967
2,786
—
134
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
Total collateral dependent impaired loans
Loans held for sale
Other real estate owned
Premises, furniture and equipment held for sale
Servicing rights
7,556
11,371
1,518
3,788
1,607
$ 37,882 $
$
5,277 $
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
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 12/31/23
Valuation Technique
Unobservable Input Range (Weighted Average)
Premises, furniture and
equipment held for sale
$
4,069 Modified appraised value Third-party appraisal
Appraisal discount
Other real estate owned
12,548 Modified appraised value Third-party appraisal
Appraisal discounts
Collateral dependent
individually assessed loans:
Commercial and industrial
Owner occupied commercial
real estate
Non-owner occupied
commercial real estate
23,422 Modified appraised value Third-party appraisal
Appraisal discount
30,400 Modified appraised value Third-party appraisal
— Modified appraised value Third-party appraisal
Appraisal discount
Appraisal discount
Real estate construction
642 Modified appraised value Third-party appraisal
Agricultural and agricultural
real estate
4,768 Modified appraised value Third-party appraisal
Appraisal discount
Appraisal discount
Residential real estate
741 Modified appraised value Third-party appraisal
Appraisal discount
(1)
0-10%(2)
(1)
0-10%(2)
(1)
0-12%(2)
(1)
0-20%(2)
(1)
0-10%(2)
(1)
0-10%(2)
(1)
0%-10%(2)
(1)
0-10%(2)
(1) 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.
(2) 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.
135
Interest rate lock commitments $
Fair Value at 12/31/22
174
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
6,851 Modified appraised value Third-party appraisal
Appraisal discount
8,401 Modified appraised value Third-party appraisal
Servicing rights
7,840
Discounted cash flows
Appraisal discounts
Discount rate
Constant prepayment
rate
(2)
0-10%(3)
(2)
0-10%(3)
9.98 - 11.72% (10.02%)(4)
7.8 - 14.2% (7.9%)(4)
Collateral dependent
individually assessed loans:
Commercial and industrial
Owner occupied commercial
real estate
Non-owner occupied
commercial real estate
Real estate construction
Agricultural and agricultural
real estate
Residential real estate
12,042 Modified appraised value Third-party appraisal
Appraisal discount
7,556 Modified appraised value Third-party appraisal
Appraisal discounts
11,371 Modified appraised value Third-party appraisal
Appraisal discounts
1,518 Modified appraised value Third-party appraisal
Appraisal discount
3,788 Modified appraised value Third-party appraisal
Appraisal discount
1,607 Modified appraised value Third-party appraisal
Appraisal discount
(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.
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, 2023
December 31, 2022
$
$
174 $
(290)
1,864
(1,748)
— $
1,306
(1,828)
3,683
(2,987)
174
Gains included in net gains on sale of loans held for sale attributable to interest rate lock commitments held at December 31,
2023, and December 31, 2022, were $0 and $174,000, respectively.
The table below is a summary of the estimated fair value of HTLF's financial instruments (as defined by ASC 825) as of
December 31, 2023, and December 31, 2022, 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.
136
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, 2023
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
$ 323,013 $ 323,013 $
323,013 $
Time deposits in other financial institutions
1,240
1,240
1,240
— $
—
Owner occupied commercial real estate
2,621,019
2,444,540
Non-owner occupied commercial real estate
2,536,462
2,393,931
Securities:
Carried at fair value
Held to maturity
Other investments
Loans held for sale
Loans, net:
Commercial
PPP
Real estate construction
Agricultural and agricultural real estate
Residential real estate
Consumer
Total Loans, net
Cash surrender value on life insurance
Derivative financial instruments(1)
Financial liabilities:
Deposits
Demand deposits
Savings deposits
Time deposits
Borrowings
Term debt
Derivative financial instruments(2)
4,646,891
4,646,891
32,118
4,614,773
838,241
816,399
91,277
5,071
91,277
5,071
3,611,368
3,396,628
2,777
2,777
982,943
914,892
791,984
484,634
979,105
839,572
687,428
465,686
11,946,079
197,085
11,209,667
197,085
84,904
84,904
—
—
—
—
—
—
—
—
—
—
—
—
—
—
816,399
91,277
5,071
3,373,206
2,777
2,414,140
2,393,931
978,463
834,804
686,687
465,686
11,149,694
197,085
84,904
$ 4,500,304 $ 4,500,304 $
— $
4,500,304 $
8,805,597
8,805,597
2,895,813
2,895,813
622,255
372,396
84,249
622,255
374,017
84,249
—
—
—
—
—
8,805,597
2,895,813
622,255
374,017
84,249
(1) Includes interest rate swaps, fair value hedges, embedded derivatives, and back-to-back loan swaps.
(2) Includes fair value hedges, back-to-back loan swaps and undesignated interest rate swaps.
—
—
—
—
—
—
23,422
—
30,400
—
642
4,768
741
—
59,973
—
—
—
—
—
—
—
—
137
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:
6,147,144
6,147,144
31,699
6,115,445
829,403
776,557
74,567
5,277
74,567
5,277
Commercial and industrial
PPP
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
—
—
—
—
—
—
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
—
—
—
—
—
—
—
—
—
—
—
—
Agricultural and agricultural real estate
Residential real estate
Consumer
Total Loans, net
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
Borrowings
Term debt
Derivative financial instruments(2)
Forward commitments
917,876
845,650
497,131
842,637
741,325
480,018
11,318,869
10,653,837
10,615,955
37,882
$ 193,403 $ 193,403 $
— $
193,403 $
46,293
46,293
174
47
174
47
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
—
—
—
—
—
—
—
—
—
—
46,293
—
47
5,701,340
9,994,391
1,817,278
376,117
372,473
46,226
99
—
—
174
—
—
—
—
—
—
—
—
(1) Includes interest rate swaps, fair value hedges, embedded derivatives and back-to-back loan swaps.
(2) Includes fair value hedges, back-to-back loan swaps and undesignated interest rate swaps.
Cash and Cash Equivalents — The carrying amount is a reasonable estimate of fair value due to the short-term nature of these
instruments.
Time Deposits in Other Financial Institutions — The carrying amount is a reasonable estimate of the fair value due to the short-
term nature of these instruments.
138
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, the remaining life of the loan and credit risk.
The fair value of individually assessed or impaired loans is measured using the fair value of the underlying collateral. The fair
value of loans held for sale is estimated using quoted market prices or sales contracts.
Cash surrender value on life insurance — Life insurance policies are held on certain officers. The carrying value of these
policies approximates fair value as it is based on the cash surrender value adjusted for other charges or amounts due that are
probable at settlement. As such, HTLF classifies the estimated fair value of the cash surrender value on life insurance as Level
2.
Derivative Financial Instruments — The fair value of all derivatives is estimated based on the amount that HTLF would pay or
would be paid to terminate the contract or agreement, using current rates, and when appropriate, the current creditworthiness of
the counterparty.
Interest Rate Lock Commitments — The fair value of interest rate lock commitments is estimated using an internal valuation
model, which includes grouping the interest rate lock commitments by interest rate and terms, applying an estimated closing
ratio based on historical experience, and then multiplying by quoted investor prices determined to be reasonably applicable to
the loan commitment groups based on interest rate, terms, and rate lock expiration dates of the loan commitment group.
Forward Commitments — The fair value of these instruments is estimated using an internal valuation model, which includes
current trade pricing for similar financial instruments.
Deposits — The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on
demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities. If the fair value of the fixed maturity certificates of deposit is calculated at
less than the carrying amount, the carrying value of these deposits is reported as the fair value.
Borrowings and Term Debt — 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.
NINETEEN
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.
139 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 HTLF Bank's debit and credit cards are processed through
card payment networks such as Visa. ATM fees are primarily generated when a Bank cardholder uses an ATM that is not
owned by one of HTLF's Banks or a non-bank cardholder uses HTLF-owned ATM. Merchant services income mainly
represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees.
Trust Fees
Trust fees are primarily comprised of fees earned from the management and administration of trusts and other customer assets.
HTLF's performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the
average daily market value or month-end market value of the assets under management and the applicable fee rate. Payment is
generally received a few days before or after month end through a direct charge to customers’ accounts. HTLF does not earn
performance-based incentives. Optional services such as real estate sales and tax return preparation services are also available
to existing trust and asset management customers. HTLF's performance obligation for these transactional-based services is
generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after
services are rendered.
Brokerage and Insurance Commissions
Brokerage commission primarily consists 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.
140 The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the year
ended December 31, 2023, 2022, and 2021, in thousands:
For the Years Ended December 31,
2023
2022
2021
In-scope of Topic 606
Service charges and fees
Service charges and fees on deposit accounts
$
21,037 $
18,625 $
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
Capital markets fees
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
$
$
11,878
358
31,102
9,649
74,024
20,715
2,794
12,136
375
27,560
9,335
68,031
22,570
2,986
97,533 $
93,587 $
1,561 $
10,007
(141,539)
240
3,880
—
3,771
3,621
2,741 $
11,543
(425)
(622)
9,032
1,658
2,341
8,409
Total noninterest income out-of-scope of Topic 606
Total noninterest income
$
(118,459)
(20,926) $
34,677
128,264 $
16,414
11,005
220
21,623
10,441
59,703
24,417
3,546
87,666
3,276
1,324
5,910
58
20,605
1,088
3,762
5,246
41,269
128,935
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, 2023, 2022, and 2021, HTLF did not have any significant contract balances or
capitalized contract acquisition costs.
141
TWENTY
PARENT COMPANY ONLY FINANCIAL INFORMATION
Condensed financial information for Heartland Financial USA, Inc. is as follows:
BALANCE SHEETS (Dollars in thousands)
December 31,
2023
2022
Assets:
Cash and interest-bearing deposits
Investment in subsidiaries
Other assets
Total assets
Liabilities and Stockholders’ equity:
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
$
288,203 $
307,026
1,747,188
94,953
$ 2,331,718 $ 2,149,167
1,971,014
72,501
$
372,316 $
26,285
398,601
370,930
43,182
414,112
110,705
42,688
1,090,740
1,141,501
(452,517)
1,933,117
110,705
42,467
1,080,964
1,120,925
(620,006)
1,735,055
$ 2,331,718 $ 2,149,167
For the Years Ended December 31,
2021
2022
2023
$
50,000 $
1,486
51,486
142,500 $
1,200
143,700
163,500
1,885
165,385
22,637
4,610
8,807
9,287
45,341
57,799
63,944
15,976
79,920
(8,050)
71,870 $
16,886
7,225
11,594
10,474
46,179
98,983
196,504
15,676
212,180
(8,050)
204,130 $
12,851
7,509
5,161
10,984
36,505
75,368
204,248
15,675
219,923
(8,050)
211,873
$
142
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 (decrease) 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 cash used by investing activities
Cash flows from financing activities:
Proceeds from borrowings
Repayments of borrowings
Cash dividends paid
Proceeds from issuance of common stock
Net cash provided by (used in) 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 year
Supplemental disclosure:
Dividends declared, not paid
Net assets from dissolved subsidiary
TWENTY-ONE
LEASES
For the Years Ended December 31,
2021
2022
2023
$
79,920 $
212,180 $
219,923
(57,799)
(17,090)
23,335
(123)
11,537
39,780
(98,983)
(8,946)
(13,933)
131
9,958
100,407
—
—
—
—
—
—
—
—
(59,151)
548
(58,603) —
(18,823)
307,026
288,203 $
(54,249)
1,038
(53,211) —
47,196
259,830
307,026 $
$
(75,368)
8,723
(13,069)
312
12,632
153,153
(34,000)
(34,000)
147,614
(44,417)
(48,559)
1,311
55,949
175,102
84,728
259,830
2,013
883
2,013
—
2,013
—
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. HTLF leases some of its facilities to third parties and receives rental income
from such lease agreements which is not significant.
The table below presents HTLF's right-of-use ("ROU") assets and lease liabilities as of December 31, 2023 and December 31,
2022, in thousands:
Operating lease right-of-use assets
Classification
Other assets
Operating lease liabilities
Accrued expenses and other liabilities
As of December 31,
2023
2022
$
$
25,859 $
29,333 $
29,429
31,681
The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and
the discount rate used to present value the minimum lease payments. HTLF’s lease agreements often include one or more
options to renew at HTLF’s discretion. If at lease inception, HTLF considers the exercising of a renewal option to be reasonably
certain, HTLF will include the extended term in the calculation of the ROU asset and lease liability. 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.
143
The table below presents the lease costs and supplemental information as of December 31, 2023, 2022, and 2021, 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,
2022
2021
2023
$ 7,768
11
$ 7,779
$ 1,164
—
$
$
$
7,256 $
8,013
16
47
7,272 $
8,060
32 $
1,244
10
—
As of December 31, 2023
5.53
3.08 %
Included in the noncash reduction of ROU assets in 2023 and 2022 are expenses related to lease modifications and ROU
acceleration related to lease abandonments.
HTLF recorded $63,000 of impairment on one lease in 2023, which was recorded in gain (loss) on sales/valuations of assets,
net. HTLF recorded $360,000 of impairment on two leases in 2022, and no impairment on leases in 2021.
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, 2023 is as follows, in thousands:
Year ending December 31,
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Less interest
Present value of lease liabilities
$
$
$
6,386
6,221
5,535
4,581
3,997
5,219
31,939
(2,606)
29,333
144
TWENTY-TWO
SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(Dollars in thousands, except per share data)
As of and for the Quarter Ended
2023
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Noninterest income
Noninterest expense
Income taxes
Net income (loss)
Preferred dividends
December 31 September 30
$
156,137 $
11,738
145,756 $
1,516
144,399
(111,801)
130,285
(27,324)
(70,363)
(2,012)
144,240
28,383
111,053
13,479
48,091
June 30
March 31
147,132 $
5,379
141,753
32,493
109,446
15,384
49,416
152,212
3,074
149,138
29,999
111,043
15,318
52,776
(2,013)
(2,013)
(2,012)
Net income (loss) available to common stockholders
$
(72,375) $
46,078 $
47,404 $
50,763
Per share:
Earnings (loss) per share-basic
Earnings (loss) per share-diluted
Cash dividends declared on common stock
Book value per common share
$
(1.69) $
(1.69)
0.30
42.69
1.08 $
1.11 $
1.08
0.30
40.20
1.11
0.30
41.00
1.19
1.19
0.30
40.38
Weighted average common shares outstanding
42,770,347
42,760,406
42,695,522
42,614,806
Weighted average diluted common shares outstanding
42,838,405
42,812,563
42,757,603
42,742,878
(Dollars in thousands, except per share data)
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
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
$
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)
58,642 $
(2,013)
54,551 $
(2,012)
49,861 $
134,679
3,245
131,434
34,569
110,797
12,117
43,089
(2,013)
41,076
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
145
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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its
operations and its cash flows for each of the years in the three-year period ended December 31, 2023,
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, 2023, 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, 2024 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
146 statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter
below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to
which it relates.
Assessment of the allowance for credit losses for loans and unfunded loan commitments collectively
evaluated
As discussed in Notes 1, 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, 2023, the total
allowance for credit losses related to loans and unfunded loan commitments was $122.6 million and
$16.5 million, respectively, of which $102.2 million and $16.5 million, respectively, was related to the
collective ACL. The Company estimates the collective ACL using a current expected credit losses
methodology which is based on relevant information about past events, current conditions, and a
reasonable and supportable forecast that affect the collectability of the reported loan and
commitment amounts, including expected defaults and prepayments. The allowance for credit losses
on unfunded commitments leverages the same methodology utilized for the allowance for credit
losses for loans. The Company estimates the collective ACL on a pool basis for loans and
commitments with similar risk characteristics using 1) a transition matrix model derived probability of
default (PD) and loss given default (LGD) methodology, which is based on transition of loans
between risk ratings and through default based on the Company’s historical loss experience, for
certain commercial and agricultural loans, or 2) a lifetime average historical loss model for all other
commercial and agricultural loans, residential real estate loans, consumer loans, and commitments.
A portion of the collective ACL on outstanding loans and commitments is comprised of qualitative
adjustments, based on a comparison of current conditions to the average conditions over the look
back period. The qualitative adjustments are determined by the Company using an anchoring
approach to determine the minimum and maximum amount of qualitative allowance, which is
determined by comparing the highest and lowest historical lifetime average loss rate to the current
quantitative allowance rate to calculate the rate for the adjustment. The collective ACL utilizes an
overlay approach for its economic forecasting component which incorporates a reasonable and
supportable forecast of various macro-economic indices. The Company utilizes an economic
forecast scenario which reverts to the historical mean immediately at the end of the reasonable and
supportable forecast period. For the allowance for credit losses on unfunded loan commitments, the
Company separately estimates the exposure at default using estimated average utilization rates.
We identified the assessment of the collective ACL as a critical audit matter. A high degree of audit
effort, including specialized skills and knowledge, and subjective and complex auditor judgment was
involved in the assessment of the collective ACL estimate. Specifically, the assessment
encompassed the evaluation of the collective ACL methodology, including the methods and models
used to estimate (1) the PD and LGD and the related assumption of the risk ratings for certain
commercial and agricultural loans, (2) the lifetime average historical loss rates, and (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
147 •
•
•
•
identification and determination of the assumptions used in the PD and LGD model
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 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, 2024
148 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, 2023. 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, 2023.
KPMG LLP, the independent registered public accounting firm that audited HTLF’s consolidated financial statements as of and
for the year ended December 31, 2023, 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, 2023, that have materially affected or are reasonably likely to materially affect HTLF's internal control
over financial reporting.
149 KPMG LLP
2500 Ruan Center
666 Grand Avenue
Des Moines, IA 50309
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Heartland Financial USA, Inc.:
Opinion on 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, 2023, 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, 2023, 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,
2023 and 2022, 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, 2023, and the
related notes (collectively, the consolidated financial statements), and our report dated February 23,
2024 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
150 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, 2024
151 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 2024 Annual Meeting of Stockholders (the "2024 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 2024 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 2024 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 2024 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 2024 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.
152 INDEX OF EXHIBITS
3.1
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).
3.2
3.3
3.4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
Amended and Restated Bylaws of Heartland Financial USA, Inc. (incorporated by reference to Exhibit 3.2 to the
Registrant’s Form 8-K filed on June 20, 2023).
Amended and Restated Certificate of Incorporation of Heartland Financial USA, Inc. (incorporated by reference
to Exhibit 3.1 to the Registrant’s Form 8-K filed on June 20, 2023).
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).
Form of Specimen Stock Certificate for Heartland Financial USA, Inc. common stock (incorporated by reference
to Exhibit 4.1 to Registrant’s Registration Statement on Form S-4 (File No. 33-76228) filed on May 4, 1994).
Form of Global Note representing the Securities (incorporated by reference to Exhibit 4.3 to the Registrant's
Current Report on Form 10-Q filed on November 5, 2021)
Indenture by and between Heartland Financial USA, Inc. and Wells Fargo Bank, National Association, dated as
of January 31, 2006 (incorporated by reference to Exhibit 10.19 to the Registrant’s Annual Report on Form 10-K
filed on March 10, 2006).
Indenture between Heartland Financial USA, Inc. and U.S. Bank National Association dated December 17, 2014
(incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K dated December 18, 2014)
Second Supplemental Indenture dated as of September 8, 2021 to the Indenture dated as of December 17, 2014
between Heartland Financial USA, Inc. and U.S. Bank National Association, as trustee (incorporated by reference
to Exhibit 4.2 to Registrant’s Current Report on Form 8-K dated September 8, 2021)
Indenture between Heartland Financial USA, Inc. and Wilmington Trust Company dated as of June 21, 2007
(incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on August 9,
2007).
Indenture between Heartland Financial USA, Inc. and Wilmington Trust Company dated as of June 26, 2007
(incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on August 9,
2007).
Rights Agreement, dated as of January 17, 2012, between Heartland Financial USA, Inc. and Dubuque Bank and
Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.1 to Registrant’s Form 8-A filed on May
17, 2012).
Indenture by and between Morrill Bancshares, Inc. and State Street Bank and Trust Company of Connecticut,
National Association dated as of December 19, 2002 (incorporated by reference to Exhibit 10.34 to the
Registrant's Annual Report on Form 10-K filed on March 14, 2014).
Indenture by and between Morrill Bancshares, Inc. and U.S. Bank National Association dated as of December 17,
2003 (incorporated by reference to Exhibit 10.35 to the Registrant's Annual Report on Form 10-K filed on March
14, 2014).
Indenture between Heartland Financial USA, Inc. and U.S. Bank National Association dated as of December 17,
2014, as supplemented (including form of note) (incorporated by reference to Exhibit 4.1 and 4.2 to the
Registrant's Current Report on Form 8-K filed on December 18, 2014).
Form of 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).
153
4.14
4.15
10.1 (3)
10.2 (3)
10.3 (3)
10.4 (2)
10.5 (2)
10.6 (2)
10.7 (2)
10.8
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 ).
Description of Securities (incorporated by reference to Exhibit 4.15 to the Registrant's Form 10-K filed on
February 25, 2021).
Amendment 3 to Agreement, dated June 9, 2023, to Master Agreement between Fiserv Solutions LLC and
Heartland Financial USA, Inc. dated of July 1, 2021 (incorporated by reference to Exhibit 10.1 to the Registrant's
Form 10-K filed on November 8, 2023).
Amendment 4 to Agreement, dated June 9, 2023, to Master Agreement between Fiserv Solutions LLC and
Heartland Financial USA, Inc. dated of July 1, 2021 (incorporated by reference to Exhibit 10.2 to the Registrant's
Form 10-K filed on November 8, 2023).
Amendment 5 to Agreement, dated June 9, 2023, to Master Agreement between Fiserv Solutions LLC and
Heartland Financial USA, Inc. dated of July 1, 2021 (incorporated by reference to Exhibit 10.3 to the Registrant's
Form 10-K filed on November 8, 2023).
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 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 5, 2023).
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).
154
10.15 (2)
10.16 (2)
10.17 (2)
10.18 (2)
10.19 (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 5, 2023).
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).
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).
10.20
Heartland Financial USA, Inc. Directors Deferred Compensation Plan. (incorporated by reference to Exhibit 99.1
to the Registrant’s Form 8-K filed on June 20, 2023).
10.21 (1)(2) Form of Director Restricted Stock Unit Award Agreement under the Heartland Financial USA, Inc. 2020 Long-
Term Incentive Plan.
10.22 (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)
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.
97 (1)
Financial Statement Compensation Recoupment Policy
101 (1)
Financial statement formatted in Inline Extensible Business Reporting Language: (i) the Consolidated Balance
Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Cash Flows, (iv) the
Consolidated Statements of Changes in Equity and Comprehensive Income, and (v) the Notes to Consolidated
Financial Statements.
104 (1)
Cover page formatted in Inline Extensible Business Reporting Language
(1) Filed herewith.
(2) Management contracts or compensatory plans or arrangements.
(3) Portions of the contract have been omitted pursuant to SEC confidential treatment under 17 C.F.R. Section
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, copies of certain instruments defining the rights of holders of long-term
debt are not filed. Heartland agrees to furnish copies of such instruments to the SEC upon request.
155
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, 2024.
SIGNATURES
Heartland Financial USA, Inc.
By:
/s/ Bruce K. Lee
President and Chief Executive Officer
Date:
February 23, 2024
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, 2024.
By:
/s/ Bruce K. Lee
Bruce K. Lee
President and Chief Executive Officer
(Principal Executive Officer and Duly Authorized Officer)
/s/ Kevin L. Thompson
Kevin L. Thompson
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/Susan G. Murphy
Susan G. Murphy
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/ Margaret Lazo
Margaret Lazo
Director
/s/ Opal G. Perry
Opal G. Perry
Director
/s/ Martin J. Schmitz
Martin J. Schmitz
Director
/s/ Duane E. White
Duane E. White
Director
156