UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For quarterly period ended ~~June~~September 30, 2023


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

For transition period from __________ to __________

Commission File Number: 001-15393

HEARTLAND FINANCIAL USA, INC.

(Exact name of Registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

42-1405748

(I.R.S. employer identification number)

1800 Larimer Street, Suite 1800, Denver, Colorado 80202

(Address of principal executive offices)~~(Zip~~ (Zip Code)

(303) 285-9200

(Registrant's telephone number, including area code)

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


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

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

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

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

Large accelerated filer

☒

Accelerated Filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

Indicate the number of shares outstanding of each of the classes of Registrant's common stock as of the latest practicable date: As of ~~August 3,~~November 8, 2023, the Registrant had outstanding ~~42,650,343~~42,661,604 shares of common stock, $1.00 par value per share.

HEARTLAND FINANCIAL USA, INC.

Form 10-Q Quarterly Report

Table of Contents

PART I

ITEM 1. FINANCIAL STATEMENTS


HEARTLAND FINANCIAL USA, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data)	HEARTLAND FINANCIAL USA, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data)					HEARTLAND FINANCIAL USA, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data)
		June 30, 2023 (Unaudited)		December 31, 2022			September 30, 2023 (Unaudited)		December 31, 2022
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	317,303	$	309,045	Cash and due from banks	$	248,756	$	309,045
Interest bearing deposits with other banks and other short-term investments	Interest bearing deposits with other banks and other short-term investments	82,884		54,042		Interest bearing deposits with other banks and other short-term investments	99,239		54,042
Cash and cash equivalents	Cash and cash equivalents	400,187		363,087		Cash and cash equivalents	347,995		363,087
Time deposits in other financial institutions	Time deposits in other financial institutions	1,490		1,740		Time deposits in other financial institutions	1,490		1,740
Securities:	Securities:					Securities:

Carried at fair value (cost of $6,415,588 at June 30, 2023, and $6,788,729 at December 31, 2022)		5,798,041		6,147,144
Held to maturity, net of allowance for credit losses of $0 at both June 30, 2023, and December 31, 2022 (fair value of $806,942 at June 30, 2023, and $776,557 at December 31, 2022)		834,673		829,403
Carried at fair value (cost of $6,229,280 at September 30, 2023, and $6,788,729 at December 31, 2022)						Carried at fair value (cost of $6,229,280 at September 30, 2023, and $6,788,729 at December 31, 2022)	5,482,687		6,147,144
Held to maturity, net of allowance for credit losses of $0 at both September 30, 2023, and December 31, 2022 (fair value of $758,626 at September 30, 2023, and $776,557 at December 31, 2022)						Held to maturity, net of allowance for credit losses of $0 at both September 30, 2023, and December 31, 2022 (fair value of $758,626 at September 30, 2023, and $776,557 at December 31, 2022)	835,468		829,403
Other investments, at cost	Other investments, at cost	72,291		74,567		Other investments, at cost	90,001		74,567
Loans held for sale	Loans held for sale	14,353		5,277		Loans held for sale	6,262		5,277
Loans receivable:	Loans receivable:					Loans receivable:
Held to maturity	Held to maturity	11,717,974		11,428,352		Held to maturity	11,872,436		11,428,352

Allowance for credit losses	Allowance for credit losses	(111,198)		(109,483)		Allowance for credit losses	(110,208)		(109,483)
Loans receivable, net	Loans receivable, net	11,606,776		11,318,869		Loans receivable, net	11,762,228		11,318,869
Premises, furniture and equipment, net	Premises, furniture and equipment, net	186,679		190,479		Premises, furniture and equipment, net	184,638		190,479
Premises, furniture and equipment held for sale	Premises, furniture and equipment held for sale	3,741		6,851		Premises, furniture and equipment held for sale	2,798		6,851
Other real estate, net	Other real estate, net	2,677		8,401		Other real estate, net	14,362		8,401
Goodwill	Goodwill	576,005		576,005		Goodwill	576,005		576,005
Core deposit intangibles and customer relationship intangibles, net	Core deposit intangibles and customer relationship intangibles, net	21,651		25,154		Core deposit intangibles and customer relationship intangibles, net	20,026		25,154
Servicing rights, net	Servicing rights, net	—		7,840		Servicing rights, net	—		7,840
Cash surrender value on life insurance	Cash surrender value on life insurance	195,793		193,403		Cash surrender value on life insurance	196,694		193,403

Other assets	Other assets	510,359		496,008		Other assets	609,139		496,008
TOTAL ASSETS	TOTAL ASSETS	$	20,224,716	$	20,244,228	TOTAL ASSETS	$	20,129,793	$	20,244,228
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
LIABILITIES:	LIABILITIES:					LIABILITIES:
Deposits:	Deposits:					Deposits:
Demand	Demand	$	4,897,858	$	5,701,340	Demand	$	4,792,813	$	5,701,340
Savings	Savings	8,772,596		9,994,391		Savings	8,754,911		9,994,391
Time	Time	3,993,089		1,817,278		Time	3,553,269		1,817,278
Total deposits	Total deposits	17,663,543		17,513,009		Total deposits	17,100,993		17,513,009

Short-term borrowings	Short-term borrowings	44,364		376,117		Short-term borrowings	392,634		376,117
Other borrowings	Other borrowings	372,403		371,753		Other borrowings	372,059		371,753
Accrued expenses and other liabilities	Accrued expenses and other liabilities	285,416		248,294		Accrued expenses and other liabilities	438,577		248,294
TOTAL LIABILITIES	TOTAL LIABILITIES	18,365,726		18,509,173		TOTAL LIABILITIES	18,304,263		18,509,173
STOCKHOLDERS' EQUITY:	STOCKHOLDERS' EQUITY:					STOCKHOLDERS' EQUITY:

Preferred stock (par value $1 per share; authorized 188,500 and 6,104 shares at June 30, 2023, and December 31, 2022; none issued or outstanding at both June 30, 2023, and December 31, 2022)		—		—
Preferred stock (par value $1 per share; authorized 188,500 and 6,104 shares at September 30, 2023, and December 31, 2022; none issued or outstanding at both September 30, 2023, and December 31, 2022)						Preferred stock (par value $1 per share; authorized 188,500 and 6,104 shares at September 30, 2023, and December 31, 2022; none issued or outstanding at both September 30, 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 June 30, 2023, and December 31, 2022; 11,500 shares issued and outstanding at both June 30, 2023 and December 31, 2022)		110,705		110,705
Common stock (par value $1 per share; 60,000,000 shares authorized at both June 30, 2023, and December 31, 2022; issued 42,644,544 shares at June 30, 2023, and 42,467,394 shares at December 31, 2022)		42,645		42,467
Series E Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock (par value $1 per share; 11,500 shares authorized at both September 30, 2023, and December 31, 2022; 11,500 shares issued and outstanding at both September 30, 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 September 30, 2023, and December 31, 2022; 11,500 shares issued and outstanding at both September 30, 2023 and December 31, 2022)	110,705		110,705
Common stock (par value $1 per share; 60,000,000 shares authorized at both September 30, 2023, and December 31, 2022; issued 42,656,303 shares at September 30, 2023, and 42,467,394 shares at December 31, 2022)						Common stock (par value $1 per share; 60,000,000 shares authorized at both September 30, 2023, and December 31, 2022; issued 42,656,303 shares at September 30, 2023, and 42,467,394 shares at December 31, 2022)	42,656		42,467
Capital surplus	Capital surplus	1,087,358		1,080,964		Capital surplus	1,088,267		1,080,964
Retained earnings	Retained earnings	1,193,522		1,120,925		Retained earnings	1,226,740		1,120,925
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(575,240)		(620,006)		Accumulated other comprehensive loss	(642,838)		(620,006)

TOTAL STOCKHOLDERS' EQUITY	TOTAL STOCKHOLDERS' EQUITY	1,858,990		1,735,055		TOTAL STOCKHOLDERS' EQUITY	1,825,530		1,735,055
TOTAL LIABILITIES AND EQUITY	TOTAL LIABILITIES AND EQUITY	$	20,224,716	$	20,244,228	TOTAL LIABILITIES AND EQUITY	$	20,129,793	$	20,244,228

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


HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share data)	HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share data)									HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share data)
		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
INTEREST INCOME:	INTEREST INCOME:									INTEREST INCOME:
Interest and fees on loans	Interest and fees on loans	$	168,899	$	108,718	$	322,742	$	211,087	Interest and fees on loans	$	182,394	$	122,913	$	505,136	$	334,000
Interest on securities:	Interest on securities:									Interest on securities:
Taxable	Taxable	58,172		38,098		114,148		70,718		Taxable	54,800		45,648		168,948		116,366
Nontaxable	Nontaxable	6,378		5,508		12,406		11,710		Nontaxable	6,584		6,164		18,990		17,874

Interest on federal funds sold										Interest on federal funds sold	3		—		3		—
Interest on interest bearing deposits in other financial institutions	Interest on interest bearing deposits in other financial institutions	2,051		563		3,182		634		Interest on interest bearing deposits in other financial institutions	1,651		1,081		4,833		1,715
TOTAL INTEREST INCOME	TOTAL INTEREST INCOME	235,500		152,887		452,478		294,149		TOTAL INTEREST INCOME	245,432		175,806		697,910		469,955
INTEREST EXPENSE:	INTEREST EXPENSE:									INTEREST EXPENSE:
Interest on deposits	Interest on deposits	81,975		6,530		138,873		9,507		Interest on deposits	92,744		15,158		231,617		24,665
Interest on short-term borrowings	Interest on short-term borrowings	848		88		3,270		134		Interest on short-term borrowings	1,167		360		4,437		494
Interest on other borrowings (includes $(63) and $182 of interest (income) expense related to derivatives reclassified from accumulated other comprehensive income (loss) for the three months ended June 30, 2023 and 2022, respectively, and $701 and $363 of interest expense related to derivatives reclassified from accumulated other comprehensive income (loss) for the six months ended June 30, 2023 and 2022, respectively)		5,545		3,808		10,991		7,368
Interest on other borrowings (includes $(63) and $189 of interest (income) expense related to derivatives reclassified from accumulated other comprehensive loss for the three months ended September 30, 2023 and 2022, respectively, and $638 and $552 of interest expense related to derivatives reclassified from accumulated other comprehensive income (loss) for the nine months ended September 30, 2023 and 2022, respectively)										Interest on other borrowings (includes $(63) and $189 of interest (income) expense related to derivatives reclassified from accumulated other comprehensive loss for the three months ended September 30, 2023 and 2022, respectively, and $638 and $552 of interest expense related to derivatives reclassified from accumulated other comprehensive income (loss) for the nine months ended September 30, 2023 and 2022, respectively)	5,765		4,412		16,756		11,780
TOTAL INTEREST EXPENSE	TOTAL INTEREST EXPENSE	88,368		10,426		153,134		17,009		TOTAL INTEREST EXPENSE	99,676		19,930		252,810		36,939
NET INTEREST INCOME	NET INTEREST INCOME	147,132		142,461		299,344		277,140		NET INTEREST INCOME	145,756		155,876		445,100		433,016
Provision for credit losses	Provision for credit losses	5,379		3,246		8,453		6,491		Provision for credit losses	1,516		5,492		9,969		11,983
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	141,753		139,215		290,891		270,649		NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	144,240		150,384		435,131		421,033
NONINTEREST INCOME:	NONINTEREST INCOME:									NONINTEREST INCOME:
Service charges and fees	Service charges and fees	19,627		18,066		36,763		33,317		Service charges and fees	18,553		17,282		55,316		50,599
Loan servicing income	Loan servicing income	411		834		1,125		1,120		Loan servicing income	278		831		1,403		1,951
Trust fees	Trust fees	5,419		5,679		11,076		11,758		Trust fees	4,734		5,372		15,810		17,130
Brokerage and insurance commissions	Brokerage and insurance commissions	677		839		1,373		1,708		Brokerage and insurance commissions	692		649		2,065		2,357
Capital markets fees	Capital markets fees	4,037		4,871		6,486		7,910		Capital markets fees	1,845		1,809		8,331		9,719
Securities (losses) gains, net (includes $325 and $2,641 of net security losses reclassified from accumulated other comprehensive income (loss) for the three months ended June 30, 2023 and 2022, respectively, and $1,429 and $650 of net security losses reclassified from accumulated other comprehensive income (loss) for the six months ended June 30, 2023 and 2022, respectively)		(314)		(2,089)		(1,418)		783
Securities losses, net (includes $59 and $(1,070) of net security gains (losses) reclassified from accumulated other comprehensive loss for the three months ended September 30, 2023 and 2022, respectively, and $(1,370) and $(1,720) of net security losses reclassified from accumulated other comprehensive income (loss) for the nine months ended September 30, 2023 and 2022, respectively)										Securities losses, net (includes $59 and $(1,070) of net security gains (losses) reclassified from accumulated other comprehensive loss for the three months ended September 30, 2023 and 2022, respectively, and $(1,370) and $(1,720) of net security losses reclassified from accumulated other comprehensive income (loss) for the nine months ended September 30, 2023 and 2022, respectively)	(114)		(1,055)		(1,532)		(272)

Unrealized gain (loss) on equity securities, net	Unrealized gain (loss) on equity securities, net	(41)		(121)		152		(404)		Unrealized gain (loss) on equity securities, net	13		(211)		165		(615)
Net gains on sale of loans held for sale	Net gains on sale of loans held for sale	1,050		2,901		2,881		6,312		Net gains on sale of loans held for sale	905		1,832		3,786		8,144
Valuation adjustment on servicing rights	Valuation adjustment on servicing rights	—		—		—		1,658		Valuation adjustment on servicing rights	—		—		—		1,658
Income on bank owned life insurance	Income on bank owned life insurance	1,220		523		2,184		1,047		Income on bank owned life insurance	858		694		3,042		1,741
Other noninterest income	Other noninterest income	407		3,036		1,870		3,899		Other noninterest income	619		1,978		2,489		5,877
TOTAL NONINTEREST INCOME	TOTAL NONINTEREST INCOME	32,493		34,539		62,492		69,108		TOTAL NONINTEREST INCOME	28,383		29,181		90,875		98,289
NONINTEREST EXPENSES:	NONINTEREST EXPENSES:									NONINTEREST EXPENSES:
Salaries and employee benefits	Salaries and employee benefits	62,099		64,032		124,248		130,206		Salaries and employee benefits	62,262		62,661		186,510		192,867
Occupancy	Occupancy	6,691		7,094		13,900		14,456		Occupancy	6,438		6,794		20,338		21,250
Furniture and equipment	Furniture and equipment	3,063		3,033		5,978		6,552		Furniture and equipment	2,720		2,928		8,698		9,480
Professional fees	Professional fees	15,194		14,457		27,991		27,997		Professional fees	13,616		14,289		41,607		42,286
FDIC insurance assessments	FDIC insurance assessments	3,035		1,530		6,314		3,146		FDIC insurance assessments	3,313		1,988		9,627		5,134
Advertising	Advertising	3,052		1,283		5,037		2,838		Advertising	1,633		1,554		6,670		4,392
Core deposit and customer relationship intangibles amortization	Core deposit and customer relationship intangibles amortization	1,715		2,083		3,503		4,137		Core deposit and customer relationship intangibles amortization	1,625		1,856		5,128		5,993
Other real estate and loan collection expenses	Other real estate and loan collection expenses	348		78		503		273		Other real estate and loan collection expenses	481		304		984		577
Gain on sales/valuations of assets, net		(3,372)		(3,230)		(2,257)		(3,184)
Loss (gain) on sales/valuations of assets, net										Loss (gain) on sales/valuations of assets, net	108		(251)		(2,149)		(3,435)
Acquisition, integration and restructuring costs	Acquisition, integration and restructuring costs	1,892		2,412		3,565		2,988		Acquisition, integration and restructuring costs	2,429		2,156		5,994		5,144
Partnership investment in tax credit projects	Partnership investment in tax credit projects	154		737		692		814		Partnership investment in tax credit projects	1,136		979		1,828		1,793
Other noninterest expenses	Other noninterest expenses	15,575		12,970		31,015		27,053		Other noninterest expenses	15,292		13,625		46,307		40,678
TOTAL NONINTEREST EXPENSES	TOTAL NONINTEREST EXPENSES	109,446		106,479		220,489		217,276		TOTAL NONINTEREST EXPENSES	111,053		108,883		331,542		326,159
INCOME BEFORE INCOME TAXES	INCOME BEFORE INCOME TAXES	64,800		67,275		132,894		122,481		INCOME BEFORE INCOME TAXES	61,570		70,682		194,464		193,163
Income taxes (includes $63 and $667 of income tax benefit reclassified from accumulated other comprehensive income (loss) for the three months ended June 30, 2023 and 2022, respectively, and $535 and $164 of income tax benefit reclassified from accumulated other comprehensive income (loss) for the six months ended June 30, 2023 and 2022, respectively)		15,384		15,402		30,702		27,519
Income taxes (includes $9,877 and $302 of income tax benefit reclassified from accumulated other comprehensive loss for the three months ended September 30, 2023 and 2022, respectively, and $19,253 and $466 of income tax benefit reclassified from accumulated other comprehensive income (loss) for the nine months ended September 30, 2023 and 2022, respectively)										Income taxes (includes $9,877 and $302 of income tax benefit reclassified from accumulated other comprehensive loss for the three months ended September 30, 2023 and 2022, respectively, and $19,253 and $466 of income tax benefit reclassified from accumulated other comprehensive income (loss) for the nine months ended September 30, 2023 and 2022, respectively)	13,479		14,118		44,181		41,637
NET INCOME	NET INCOME	49,416		51,873		102,192		94,962		NET INCOME	48,091		56,564		150,283		151,526

Preferred dividends	Preferred dividends	(2,012)		(2,012)		(4,025)		(4,025)		Preferred dividends	(2,013)		(2,013)		(6,038)		(6,038)

NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	47,404	$	49,861	$	98,167	$	90,937	NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	46,078	$	54,551	$	144,245	$	145,488
EARNINGS PER COMMON SHARE - BASIC	EARNINGS PER COMMON SHARE - BASIC	$	1.11	$	1.17	$	2.30	$	2.14	EARNINGS PER COMMON SHARE - BASIC	$	1.08	$	1.28	$	3.38	$	3.43
EARNINGS PER COMMON SHARE - DILUTED	EARNINGS PER COMMON SHARE - DILUTED	$	1.11	$	1.17	$	2.30	$	2.14	EARNINGS PER COMMON SHARE - DILUTED	$	1.08	$	1.28	$	3.37	$	3.42
CASH DIVIDENDS DECLARED PER COMMON SHARE	CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.30	$	0.27	$	0.60	$	0.54	CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.30	$	0.27	$	0.90	$	0.81

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


HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands)	HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands)									HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands)
		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
NET INCOME	NET INCOME	$	49,416	$	51,873	$	102,192	$	94,962	NET INCOME	$	48,091	$	56,564	$	150,283	$	151,526
OTHER COMPREHENSIVE INCOME (LOSS)	OTHER COMPREHENSIVE INCOME (LOSS)									OTHER COMPREHENSIVE INCOME (LOSS)
Changes in available for sale ("AFS") securities:	Changes in available for sale ("AFS") securities:									Changes in available for sale ("AFS") securities:
Net change in unrealized gain (loss) on securities		(43,558)		(263,212)		22,609		(641,902)
Net change in unrealized loss on securities										Net change in unrealized loss on securities	(128,987)		(218,463)		(106,378)		(860,365)
Reclassification adjustment for net losses on hedged AFS securities	Reclassification adjustment for net losses on hedged AFS securities	29,510		—		29,510		—		Reclassification adjustment for net losses on hedged AFS securities	36,362		—		65,872		—
Reclassification adjustment for net losses realized in net income		325		2,641		1,429		650
Income tax (expense) benefit		3,366		60,429		(14,555)		159,799
Other comprehensive income (loss) on available for sale securities		(10,357)		(200,142)		38,993		(481,453)
Reclassification adjustment for net (gains) losses realized in net income										Reclassification adjustment for net (gains) losses realized in net income	(59)		1,070		1,370		1,720
Income tax benefit										Income tax benefit	22,943		53,529		8,388		213,328
Other comprehensive loss on AFS securities										Other comprehensive loss on AFS securities	(69,741)		(163,864)		(30,748)		(645,317)
Changes in securities held to maturity:	Changes in securities held to maturity:									Changes in securities held to maturity:

Net amortization of unrealized losses on securities transferred from AFS	Net amortization of unrealized losses on securities transferred from AFS	2,768		—		5,508		—		Net amortization of unrealized losses on securities transferred from AFS	2,893		—		8,401		—
Income tax expense	Income tax expense	(693)		—		(1,753)		—		Income tax expense	(709)		—		(2,462)		—
Other comprehensive income on held to maturity securities	Other comprehensive income on held to maturity securities	2,075		—		3,755		—		Other comprehensive income on held to maturity securities	2,184		—		5,939		—
Change in cash flow hedges:	Change in cash flow hedges:									Change in cash flow hedges:
Net change in unrealized gain on derivatives	Net change in unrealized gain on derivatives	—		—		1,952		—		Net change in unrealized gain on derivatives	—		—		1,952		—
Reclassification adjustment for net losses (gains) on derivatives realized in net income		(63)		182		701		363
Income taxes		24		(37)		(635)		(76)
Reclassification adjustment for net (gains) losses on derivatives realized in net income										Reclassification adjustment for net (gains) losses on derivatives realized in net income	(63)		189		638		552
Income tax benefit (expense)										Income tax benefit (expense)	22		(43)		(613)		(119)
Other comprehensive income (loss) on cash flow hedges	Other comprehensive income (loss) on cash flow hedges	(39)		145		2,018		287		Other comprehensive income (loss) on cash flow hedges	(41)		146		1,977		433
Other comprehensive income (loss)		(8,321)		(199,997)		44,766		(481,166)
Other comprehensive loss										Other comprehensive loss	(67,598)		(163,718)		(22,832)		(644,884)
TOTAL COMPREHENSIVE INCOME (LOSS)	TOTAL COMPREHENSIVE INCOME (LOSS)	$	41,095	$	(148,124)	$	146,958	$	(386,204)	TOTAL COMPREHENSIVE INCOME (LOSS)	$	(19,507)	$	(107,154)	$	127,451	$	(493,358)

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


HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)	HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)					HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)
		Six Months Ended June 30,					Nine Months Ended September 30,
		2023		2022			2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	Net income	$	102,192	$	94,962	Net income	$	150,283	$	151,526
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	10,519		12,964		Depreciation and amortization	15,467		18,758
Provision for credit losses	Provision for credit losses	8,453		6,491		Provision for credit losses	9,969		11,983
Net amortization of premium on securities	Net amortization of premium on securities	14,848		38,332		Net amortization of premium on securities	23,332		50,886
Securities losses (gains), net		1,418		(783)
Securities losses, net						Securities losses, net	1,532		272

Unrealized (gain) loss on equity securities, net	Unrealized (gain) loss on equity securities, net	(152)		404		Unrealized (gain) loss on equity securities, net	(165)		615
Stock based compensation	Stock based compensation	6,893		5,090		Stock based compensation	7,742		7,411

Loans originated for sale	Loans originated for sale	(86,860)		(180,072)		Loans originated for sale	(122,764)		(244,908)
Proceeds on sales of loans held for sale	Proceeds on sales of loans held for sale	80,641		188,317		Proceeds on sales of loans held for sale	138,603		263,904
Net gains on sale of loans held for sale	Net gains on sale of loans held for sale	(2,857)		(5,408)		Net gains on sale of loans held for sale	(3,762)		(6,926)
Increase in accrued interest receivable	Increase in accrued interest receivable	(2,135)		(280)		Increase in accrued interest receivable	(9,203)		(5,348)
Decrease (increase) in prepaid expenses		2,647		(2,194)
Increase (decrease) in accrued interest payable		30,446		(91)
Decrease in prepaid expenses						Decrease in prepaid expenses	964		1,479
Increase in accrued interest payable						Increase in accrued interest payable	46,697		483

Capitalization of servicing rights	Capitalization of servicing rights	(24)		(904)		Capitalization of servicing rights	(24)		(1,218)
Valuation adjustment on servicing rights	Valuation adjustment on servicing rights	—		(1,658)		Valuation adjustment on servicing rights	—		(1,658)
Gain on sales/valuations of assets, net	Gain on sales/valuations of assets, net	(2,257)		(139)		Gain on sales/valuations of assets, net	(2,149)		(390)
Net excess tax benefit (expense) from stock based compensation	Net excess tax benefit (expense) from stock based compensation	(75)		129		Net excess tax benefit (expense) from stock based compensation	(115)		129
Other, net	Other, net	21,028		33,327		Other, net	140,670		66,142
NET CASH PROVIDED BY OPERATING ACTIVITIES	NET CASH PROVIDED BY OPERATING ACTIVITIES	184,725		188,487		NET CASH PROVIDED BY OPERATING ACTIVITIES	397,077		313,140
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from the sale of securities available for sale	Proceeds from the sale of securities available for sale	286,738		973,911		Proceeds from the sale of securities available for sale	331,196		1,031,521
Proceeds from the sale of securities held to maturity	Proceeds from the sale of securities held to maturity	—		2,337		Proceeds from the sale of securities held to maturity	—		2,337

Proceeds from the maturity of and principal paydowns on securities available for sale	Proceeds from the maturity of and principal paydowns on securities available for sale	336,175		565,196		Proceeds from the maturity of and principal paydowns on securities available for sale	480,362		758,453
Proceeds from the maturity of and principal paydowns on securities held to maturity	Proceeds from the maturity of and principal paydowns on securities held to maturity	298		1,286		Proceeds from the maturity of and principal paydowns on securities held to maturity	2,325		2,500
Proceeds from the maturity of time deposits in other financial institutions	Proceeds from the maturity of time deposits in other financial institutions	250		1,039		Proceeds from the maturity of time deposits in other financial institutions	250		1,154
Proceeds from the sale, maturity of, redemption of and principal paydowns on other investments	Proceeds from the sale, maturity of, redemption of and principal paydowns on other investments	6,761		6,715		Proceeds from the sale, maturity of, redemption of and principal paydowns on other investments	13,255		13,674
Purchase of securities available for sale	Purchase of securities available for sale	(265,959)		(1,788,922)		Purchase of securities available for sale	(276,635)		(1,982,073)

Purchase of other investments	Purchase of other investments	(4,474)		(8,714)		Purchase of other investments	(28,851)		(10,045)
Net increase in loans	Net increase in loans	(307,920)		(752,767)		Net increase in loans	(505,924)		(1,002,220)
Purchase of bank owned life insurance policies	Purchase of bank owned life insurance policies	(206)		(201)		Purchase of bank owned life insurance policies	(226)		(209)
Proceeds from bank owned life insurance policies	Proceeds from bank owned life insurance policies	—		502		Proceeds from bank owned life insurance policies	—		502
Proceeds from sale of mortgage servicing rights	Proceeds from sale of mortgage servicing rights	6,714		—		Proceeds from sale of mortgage servicing rights	6,714		—
Capital expenditures	Capital expenditures	(3,043)		(8,181)		Capital expenditures	(5,701)		(12,276)

Proceeds from the sale of equipment	Proceeds from the sale of equipment	1,321		4,264		Proceeds from the sale of equipment	4,446		6,789
Net cash expended in divestitures	Net cash expended in divestitures	—		(50,616)		Net cash expended in divestitures	—		(50,616)
Proceeds on sale of OREO and other repossessed assets	Proceeds on sale of OREO and other repossessed assets	5,077		1,927		Proceeds on sale of OREO and other repossessed assets	5,672		2,564
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES	NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES	$	61,732	$	(1,052,224)	NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES	$	26,883	$	(1,237,945)


HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED (Unaudited) (Dollars in thousands)	HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED (Unaudited) (Dollars in thousands)					HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED (Unaudited) (Dollars in thousands)
		Six Months Ended June 30,					Nine Months Ended September 30,
		2023		2022			2023		2022
CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits	Net decrease in demand deposits	$	(803,482)	$	(392,811)	Net decrease in demand deposits	$	(908,527)	$	(396,552)
Net (decrease) increase in savings deposits	Net (decrease) increase in savings deposits	(1,221,795)		1,203,729		Net (decrease) increase in savings deposits	(1,239,480)		1,204,574
Net increase in time deposit accounts	Net increase in time deposit accounts	2,175,811		61,228		Net increase in time deposit accounts	1,735,991		105,695

Net decrease in short-term borrowings		(281,753)		(33,848)
Net (decrease) increase in short-term borrowings						Net (decrease) increase in short-term borrowings	(285,255)		14,003
Proceeds from short term advances	Proceeds from short term advances	51,000		141,000		Proceeds from short term advances	617,391		236,000
Repayments of short term advances	Repayments of short term advances	(101,000)		(141,000)		Repayments of short term advances	(315,619)		(236,000)

Repayments of other borrowings	Repayments of other borrowings	(60)		(168)		Repayments of other borrowings	(740)		(198)

Proceeds from issuance of common stock	Proceeds from issuance of common stock	1,456		1,682		Proceeds from issuance of common stock	1,527		1,896
Dividends paid	Dividends paid	(29,534)		(26,880)		Dividends paid	(44,340)		(40,352)
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES	NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES	(209,357)		812,932		NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES	(439,052)		889,066
Net increase (decrease) in cash and cash equivalents		37,100		(50,805)
Net decrease in cash and cash equivalents						Net decrease in cash and cash equivalents	(15,092)		(35,739)
Cash and cash equivalents at beginning of year	Cash and cash equivalents at beginning of year	363,087		435,599		Cash and cash equivalents at beginning of year	363,087		435,599
CASH AND CASH EQUIVALENTS AT END OF PERIOD	CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	400,187	$	384,794	CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	347,995	$	399,860
Supplemental disclosures:	Supplemental disclosures:					Supplemental disclosures:
Cash paid for income/franchise taxes	Cash paid for income/franchise taxes	$	40,303	$	17,457	Cash paid for income/franchise taxes	$	47,240	$	33,412
Cash paid for interest	Cash paid for interest	122,688		17,100		Cash paid for interest	206,113		36,456
Loans transferred to OREO	Loans transferred to OREO	239		4,684		Loans transferred to OREO	12,776		8,458
Transfer of premises from premises, furniture and equipment, net, to premises, furniture and equipment held for sale	Transfer of premises from premises, furniture and equipment, net, to premises, furniture and equipment held for sale	3,741		4,061		Transfer of premises from premises, furniture and equipment, net, to premises, furniture and equipment held for sale	4,091		4,555
Transfer of premises from premises, furniture and equipment held for sale to premises, furniture and equipment, net	Transfer of premises from premises, furniture and equipment held for sale to premises, furniture and equipment, net	5,825		—		Transfer of premises from premises, furniture and equipment held for sale to premises, furniture and equipment, net	5,825		—

Dividends declared, not paid	Dividends declared, not paid	2,074		2,013		Dividends declared, not paid	2,141		2,013
Purchases of securities available for sale, accrued, not settled		—		7,420

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

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


HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited) (Dollars in thousands, except per share data)	HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited) (Dollars in thousands, except per share data)											HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited) (Dollars in thousands, except per share data)
		Heartland Financial USA, Inc. Stockholders' Equity											Heartland Financial USA, Inc. Stockholders' Equity
		Preferred Stock		Common Stock		Capital Surplus		Retained Earnings		Accumulated Other Comprehensive Income (Loss)				Total Equity			Preferred Stock		Common Stock		Capital Surplus		Retained Earnings		Accumulated Other Comprehensive Loss		Total Equity
Balance at March 31, 2022		$	110,705	$	42,370	$	1,073,048	$	992,655	$	(286,921)			$	1,931,857
Comprehensive income (loss)								51,873		(199,997)				(148,124)
Balance at June 30, 2022																Balance at June 30, 2022	$	110,705	$	42,439	$	1,076,766	$	1,031,076	$	(486,918)	$	1,774,068
Comprehensive (loss) income																Comprehensive (loss) income							56,564		(163,718)		(107,154)

Cash dividends declared:	Cash dividends declared:															Cash dividends declared:
Preferred, $175.00 per share	Preferred, $175.00 per share							(2,012)						(2,012)		Preferred, $175.00 per share							(2,013)				(2,013)
Common, $0.27 per share	Common, $0.27 per share							(11,440)						(11,440)		Common, $0.27 per share							(11,459)				(11,459)

Issuance of 69,531 shares of common stock				69		1,332								1,401
Issuance of 4,667 shares of common stock																Issuance of 4,667 shares of common stock			5		190						195
Stock based compensation	Stock based compensation					2,386								2,386		Stock based compensation					2,321						2,321
Balance at June 30, 2022		$	110,705	$	42,439	$	1,076,766	$	1,031,076	$	(486,918)			$	1,774,068
Balance at September 30, 2022																Balance at September 30, 2022	$	110,705	$	42,444	$	1,079,277	$	1,074,168	$	(650,636)	$	1,655,958

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

Comprehensive income (loss)								94,962		(481,166)				(386,204)
Comprehensive (loss) income																Comprehensive (loss) income							151,526		(644,884)		(493,358)

Cash dividends declared:	Cash dividends declared:															Cash dividends declared:
Preferred, $350.00 per share								(4,025)						(4,025)
Preferred, $525.00 per share																Preferred, $525.00 per share							(6,038)				(6,038)

Common, $0.54 per share								(22,855)						(22,855)
Common, $0.81 per share																Common, $0.81 per share							(34,314)				(34,314)

Issuance of 164,175 shares of common stock				164		(280)								(116)
Issuance of 168,842 shares of common stock																Issuance of 168,842 shares of common stock			169		(90)						79
Stock based compensation	Stock based compensation					5,090								5,090		Stock based compensation					7,411						7,411
Balance at June 30, 2022		$	110,705	$	42,439	$	1,076,766	$	1,031,076	$	(486,918)			$	1,774,068
Balance at September 30, 2022																Balance at September 30, 2022	$	110,705	$	42,444	$	1,079,277	$	1,074,168	$	(650,636)	$	1,655,958

Balance at March 31, 2023		$	110,705	$	42,559	$	1,084,112	$	1,158,948	$	(566,919)			$	1,829,405
Comprehensive income (loss)								49,416		(8,321)				41,095
Balance at June 30, 2023																Balance at June 30, 2023	$	110,705	$	42,645	$	1,087,358	$	1,193,522	$	(575,240)	$	1,858,990
Comprehensive (loss) income																Comprehensive (loss) income							48,091		(67,598)		(19,507)

Cash dividends declared:	Cash dividends declared:															Cash dividends declared:
Preferred, $175.00 per share	Preferred, $175.00 per share							(2,012)						(2,012)		Preferred, $175.00 per share							(2,013)				(2,013)
Common, $0.30 per share	Common, $0.30 per share							(12,830)						(12,830)		Common, $0.30 per share							(12,860)				(12,860)

Issuance of 85,818 shares of common stock				86		1,072								1,158
Issuance of 11,759 shares of common stock																Issuance of 11,759 shares of common stock			11		60						71
Stock based compensation	Stock based compensation					2,174								2,174		Stock based compensation					849						849
Balance at June 30, 2023		$	110,705	$	42,645	$	1,087,358	$	1,193,522	$	(575,240)			$	1,858,990
Balance at September 30, 2023																Balance at September 30, 2023	$	110,705	$	42,656	$	1,088,267	$	1,226,740	$	(642,838)	$	1,825,530

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

Comprehensive income (loss)								102,192		44,766				146,958
Comprehensive (loss) income																Comprehensive (loss) income							150,283		(22,832)		127,451

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

Preferred, $350.00 per share								(4,025)						(4,025)
Common, $0.60 per share								(25,570)						(25,570)
Preferred, $525.00 per share																Preferred, $525.00 per share							(6,038)				(6,038)
Common, $0.90 per share																Common, $0.90 per share							(38,430)				(38,430)

Issuance of 177,150 shares of common stock				178		(499)								(321)
Issuance of 188,909 shares of common stock																Issuance of 188,909 shares of common stock			189		(439)						(250)
Stock based compensation	Stock based compensation					6,893								6,893		Stock based compensation					7,742						7,742
Balance at June 30, 2023		$	110,705	$	42,645	$	1,087,358	$	1,193,522	$	(575,240)			$	1,858,990
Balance at September 30, 2023																Balance at September 30, 2023	$	110,705	$	42,656	$	1,088,267	$	1,226,740	$	(642,838)	$	1,825,530

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

HEARTLAND FINANCIAL USA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION

The interim unaudited consolidated financial statements contained herein should be read in conjunction with the audited consolidated financial statements and accompanying notes to the consolidated financial statements for the fiscal year ended December 31, 2022, included in the Annual Report on Form 10-K of Heartland Financial USA, Inc. ("HTLF") filed with the Securities and Exchange Commission ("SEC") on February 23, 2023. Footnote disclosures to the interim unaudited consolidated financial statements which would substantially duplicate the disclosure contained in the footnotes to the audited consolidated financial statements have been omitted.

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

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

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

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 ~~June~~September 30, 2023 and December 31, 2022.

Earnings Per Share

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


		Three Months Ended June 30,					Three Months Ended September 30,
		2023		2022			2023		2022
Net income	Net income	$	49,416	$	51,873	Net income	$	48,091	$	56,564
Preferred dividends	Preferred dividends	(2,012)		(2,012)		Preferred dividends	(2,013)		(2,013)

Net income available to common stockholders	Net income available to common stockholders	$	47,404	$	49,861	Net income available to common stockholders	$	46,078	$	54,551

Weighted average common shares outstanding for basic earnings per share	Weighted average common shares outstanding for basic earnings per share	42,696		42,475		Weighted average common shares outstanding for basic earnings per share	42,761		42,575
Assumed incremental common shares issued upon vesting of outstanding restricted stock units	Assumed incremental common shares issued upon vesting of outstanding restricted stock units	62		91		Assumed incremental common shares issued upon vesting of outstanding restricted stock units	52		69
Weighted average common shares for diluted earnings per share	Weighted average common shares for diluted earnings per share	42,758		42,566		Weighted average common shares for diluted earnings per share	42,813		42,644
Earnings per common share — basic	Earnings per common share — basic	$	1.11	$	1.17	Earnings per common share — basic	$	1.08	$	1.28
Earnings per common share — diluted	Earnings per common share — diluted	$	1.11	$	1.17	Earnings per common share — diluted	$	1.08	$	1.28
Number of antidilutive common stock equivalents excluded from diluted earnings per share computation	Number of antidilutive common stock equivalents excluded from diluted earnings per share computation	59		172		Number of antidilutive common stock equivalents excluded from diluted earnings per share computation	204		4
Number of antidilutive stock options excluded from diluted earnings per share computation	Number of antidilutive stock options excluded from diluted earnings per share computation	221		—		Number of antidilutive stock options excluded from diluted earnings per share computation	58		—

		Six Months Ended June 30,					Nine Months Ended September 30,
		2023		2022			2023		2022
Net income	Net income	$	102,192	$	94,962	Net income	$	150,283	$	151,526
Preferred dividends	Preferred dividends	(4,025)		(4,025)		Preferred dividends	(6,038)		(6,038)

Net income available to stockholders	Net income available to stockholders	$	98,167	$	90,937	Net income available to stockholders	$	144,245	$	145,488

Weighted average common shares outstanding for basic earnings per share	Weighted average common shares outstanding for basic earnings per share	42,655		42,418		Weighted average common shares outstanding for basic earnings per share	42,681		42,471
Assumed incremental common shares issued upon vesting of outstanding restricted stock units	Assumed incremental common shares issued upon vesting of outstanding restricted stock units	98		145		Assumed incremental common shares issued upon vesting of outstanding restricted stock units	89		125
Weighted average common shares for diluted earnings per share	Weighted average common shares for diluted earnings per share	42,753		42,563		Weighted average common shares for diluted earnings per share	42,770		42,596
Earnings per common share — basic	Earnings per common share — basic	$	2.30	$	2.14	Earnings per common share — basic	$	3.38	$	3.43
Earnings per common share — diluted	Earnings per common share — diluted	$	2.30	$	2.14	Earnings per common share — diluted	$	3.37	$	3.42
Number of antidilutive common stock equivalents excluded from diluted earnings per share computation	Number of antidilutive common stock equivalents excluded from diluted earnings per share computation	95		76		Number of antidilutive common stock equivalents excluded from diluted earnings per share computation	107		8
Number of antidilutive stock options excluded from diluted earnings per share computation	Number of antidilutive stock options excluded from diluted earnings per share computation	62		—		Number of antidilutive stock options excluded from diluted earnings per share computation	62		—

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

Subsequent to September 30, 2023, in late October and early November, in responses to changes in interest rates, HTLF sold investment securities with a combined yield of approximately 2.48% in a series of sale transactions, resulting in proceeds totaling approximately $667.9 million and a pre-tax loss of approximately $103.5 million or approximately $77.7 million after tax.

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 require 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~~These amendments also 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 was effective for entities that have adopted ASU 2016-13 for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. HTLF adopted this ASU on January 1, 2023, as required, and these amendments were applied prospectively.

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 Issues Task Force)." ASU 2023-02 expands the permitted use of the proportional amortization method, which is currently only available to low-income housing tax credit investments, to other tax equity investments if certain conditions are met. Under the proportional amortization method, the initial cost of an investment is amortized in proportion to the income tax benefits received and both the amortization of the investment and the income tax benefits received are recognized as a component of income tax expense. This ASU is effective on January 1, 2024 and may be applied on either a modified retrospective or retrospective basis or, for certain changes, on a prospective basis, and early adoption is permitted. The amendments in this ASU are not expected to 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.

NOTE 2: SECURITIES

The amortized cost, gross unrealized gains and losses, and estimated fair values of debt securities available for sale and equity securities with a readily determinable fair value that are carried at fair value as of ~~June~~September 30, 2023, and December 31, 2022, are summarized in the table below, in thousands:


		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
June 30, 2023
September 30, 2023										September 30, 2023
U.S. treasuries	U.S. treasuries	$	32,413	$	—	$	(734)	$	31,679	U.S. treasuries	$	32,436	$	—	$	(631)	$	31,805
U.S. agencies	U.S. agencies	48,944		—		(5,908)		43,036		U.S. agencies	48,022		—		(6,918)		41,104
Obligations of states and political subdivisions	Obligations of states and political subdivisions	985,387		5		(136,153)		849,239		Obligations of states and political subdivisions	982,570		—		(207,883)		774,687
Mortgage-backed securities - agency	Mortgage-backed securities - agency	1,958,157		51		(271,562)		1,686,646		Mortgage-backed securities - agency	1,910,725		48		(316,378)		1,594,395
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	2,150,547		39		(154,777)		1,995,809		Mortgage-backed securities - non-agency	2,058,422		20		(163,362)		1,895,080
Commercial mortgage-backed securities - agency	Commercial mortgage-backed securities - agency	99,072		—		(15,247)		83,825		Commercial mortgage-backed securities - agency	98,497		—		(17,053)		81,444
Commercial mortgage-backed securities - non-agency	Commercial mortgage-backed securities - non-agency	635,549		—		(17,557)		617,992		Commercial mortgage-backed securities - non-agency	621,163		—		(18,730)		602,433
Asset-backed securities	Asset-backed securities	425,632		—		(12,916)		412,716		Asset-backed securities	397,410		—		(13,031)		384,379
Corporate bonds	Corporate bonds	59,199		—		(2,788)		56,411		Corporate bonds	59,197		—		(2,675)		56,522
Total debt securities	Total debt securities	6,394,900		95		(617,642)		5,777,353		Total debt securities	6,208,442		68		(746,661)		5,461,849
Equity securities with a readily determinable fair value	Equity securities with a readily determinable fair value	20,688		—		—		20,688		Equity securities with a readily determinable fair value	20,838		—		—		20,838
Total	Total	$	6,415,588	$	95	$	(617,642)	$	5,798,041	Total	$	6,229,280	$	68	$	(746,661)	$	5,482,687
December 31, 2022	December 31, 2022									December 31, 2022
U.S. treasuries	U.S. treasuries	$	32,369	$	8	$	(678)	$	31,699	U.S. treasuries	$	32,369	$	8	$	(678)	$	31,699
U.S. agencies	U.S. agencies	49,437		—		(6,302)		43,135		U.S. agencies	49,437		—		(6,302)		43,135
Obligations of states and political subdivisions	Obligations of states and political subdivisions	1,049,578		14		(170,155)		879,437		Obligations of states and political subdivisions	1,049,578		14		(170,155)		879,437
Mortgage-backed securities - agency	Mortgage-backed securities - agency	2,042,092		56		(270,043)		1,772,105		Mortgage-backed securities - agency	2,042,092		56		(270,043)		1,772,105
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	2,327,308		1,417		(146,849)		2,181,876		Mortgage-backed securities - non-agency	2,327,308		1,417		(146,849)		2,181,876
Commercial mortgage-backed securities - agency	Commercial mortgage-backed securities - agency	100,518		—		(15,395)		85,123		Commercial mortgage-backed securities - agency	100,518		—		(15,395)		85,123
Commercial mortgage-backed securities - non-agency	Commercial mortgage-backed securities - non-agency	679,511		—		(20,052)		659,459		Commercial mortgage-backed securities - non-agency	679,511		—		(20,052)		659,459
Asset-backed securities	Asset-backed securities	428,397		—		(12,343)		416,054		Asset-backed securities	428,397		—		(12,343)		416,054
Corporate bonds	Corporate bonds	59,205		—		(1,263)		57,942		Corporate bonds	59,205		—		(1,263)		57,942
Total debt securities	Total debt securities	6,768,415		1,495		(643,080)		6,126,830		Total debt securities	6,768,415		1,495		(643,080)		6,126,830
Equity securities with a readily determinable fair value	Equity securities with a readily determinable fair value	20,314		—		—		20,314		Equity securities with a readily determinable fair value	20,314		—		—		20,314
Total	Total	$	6,788,729	$	1,495	$	(643,080)	$	6,147,144	Total	$	6,788,729	$	1,495	$	(643,080)	$	6,147,144

The amortized cost, gross unrealized gains and losses and estimated fair values of held to maturity securities as of ~~June~~September 30,

2023, and December 31, 2022, are summarized in the table below, in thousands:


		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
June 30, 2023
September 30, 2023										September 30, 2023

Obligations of states and political subdivisions	Obligations of states and political subdivisions	$	834,673	$	2,775	(30,506)		$	806,942	Obligations of states and political subdivisions	$	835,468	$	1,307	(78,149)		$	758,626
Total	Total	$	834,673	$	2,775	$	(30,506)	$	806,942	Total	$	835,468	$	1,307	$	(78,149)	$	758,626
December 31, 2022	December 31, 2022									December 31, 2022

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

As of ~~June~~September 30, 2023, and December 31, 2022, HTLF had ~~$32.2~~$30.1 million and $33.0 million, respectively, of accrued interest receivable, which is included in other assets on the consolidated balance sheets. HTLF does not consider accrued interest receivable in the carrying amount of financial assets held at amortized cost basis or in the allowance for credit losses calculation.

The amortized cost and estimated fair value of investment securities carried at fair value at ~~June~~September 30, 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.


		June 30, 2023					September 30, 2023
		Amortized Cost		Estimated Fair Value			Amortized Cost		Estimated Fair Value
Due in 1 year or less	Due in 1 year or less	$	17,299	$	16,935	Due in 1 year or less	$	22,124	$	21,736
Due in 1 to 5 years	Due in 1 to 5 years	70,602		68,532		Due in 1 to 5 years	65,617		63,728
Due in 5 to 10 years	Due in 5 to 10 years	48,317		40,477		Due in 5 to 10 years	49,120		39,808
Due after 10 years	Due after 10 years	989,725		854,421		Due after 10 years	985,364		778,846
Total debt securities	Total debt securities	1,125,943		980,365		Total debt securities	1,122,225		904,118
Mortgage and asset-backed securities	Mortgage and asset-backed securities	5,268,957		4,796,988		Mortgage and asset-backed securities	5,086,217		4,557,731
Equity securities with a readily determinable fair value	Equity securities with a readily determinable fair value	20,688		20,688		Equity securities with a readily determinable fair value	20,838		20,838
Total investment securities	Total investment securities	$	6,415,588	$	5,798,041	Total investment securities	$	6,229,280	$	5,482,687

The amortized cost and estimated fair value of debt securities held to maturity at ~~June~~September 30, 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.


		June 30, 2023					September 30, 2023
		Amortized Cost		Estimated Fair Value			Amortized Cost		Estimated Fair Value
Due in 1 year or less	Due in 1 year or less	$	1,459	$	1,460	Due in 1 year or less	$	5,584	$	5,573
Due in 1 to 5 years	Due in 1 to 5 years	70,913		70,453		Due in 1 to 5 years	86,908		85,469
Due in 5 to 10 years	Due in 5 to 10 years	159,786		157,595		Due in 5 to 10 years	156,899		147,931
Due after 10 years	Due after 10 years	602,515		577,434		Due after 10 years	586,077		519,653
Total debt securities	Total debt securities	$	834,673	$	806,942	Total debt securities	$	835,468	$	758,626

As of ~~June~~September 30, 2023, and December 31, 2022, securities with a carrying value of ~~$2.88~~$2.66 billion and $1.49 billion, respectively, were pledged to secure public and trust deposits, short-term borrowings and for other purposes as required or permitted by law.

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

Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
Proceeds from sales $ 140,290 $ 149,840 $ 286,738 $ 973,911
Gross security gains 483 357 483 7,298
Gross security losses 808 2,998 1,912 7,948


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Proceeds from sales	$	44,457	$	57,610	$	331,196	$	1,031,521
Gross security gains	803		—		1,286		7,298
Gross security losses	744		1,070		2,656		9,018

The following table summarizes, in thousands, the amount of unrealized losses, defined as the amount by which cost or amortized cost exceeds fair value, and the related fair value of investments with unrealized losses in the securities portfolio as of ~~June~~September 30, 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 months or more. The reference point for determining how long an investment was in an unrealized loss position was ~~June~~September 30, 2022, and December 31, 2021, respectively.

Debt securities available for sale Less than 12 months 12 months or longer Total
Fair
Value Unrealized
Losses Count Fair
Value Unrealized
Losses Count Fair
Value Unrealized
Losses Count
June 30, 2023
U.S. treasuries $ 28,270 $ (652) 5 $ 3,409 $ (82) 1 $ 31,679 $ (734) 6
U.S. agencies — — — 43,036 (5,908) 6 43,036 (5,908) 6
Obligations of states and political subdivisions 2,698 (118) 3 844,628 (136,035) 162 847,326 (136,153) 165
Mortgage-backed securities - agency 27,450 (1,774) 30 1,657,307 (269,788) 191 1,684,757 (271,562) 221
Mortgage-backed securities - non-agency 393,712 (33,619) 16 1,205,116 (121,158) 43 1,598,828 (154,777) 59
Commercial mortgage-backed securities - agency 1,795 (96) 1 82,030 (15,151) 19 83,825 (15,247) 20
Commercial mortgage-backed securities - non-agency 7,254 (262) 2 588,183 (17,295) 16 595,437 (17,557) 18
Asset-backed securities 31,941 (1,997) 1 121,281 (10,919) 10 153,222 (12,916) 11
Corporate bonds 48,966 (1,532) 2 7,445 (1,256) 6 56,411 (2,788) 8
Total temporarily impaired securities $ 542,086 $ (40,050) 60 $ 4,552,435 $ (577,592) 454 $ 5,094,521 $ (617,642) 514
December 31, 2022
U.S. treasuries $ 28,699 $ (678) 4 $ — $ — — $ 28,699 $ (678) 4
U.S. agencies 16,487 (222) 5 26,648 (6,080) 2 43,135 (6,302) 7
Obligations of states and political subdivisions 288,457 (28,378) 69 589,641 (141,777) 113 878,098 (170,155) 182
Mortgage-backed securities - agency 241,288 (21,420) 99 1,528,951 (248,623) 126 1,770,239 (270,043) 225
Mortgage-backed securities - non-agency 950,054 (70,213) 25 693,531 (76,636) 25 1,643,585 (146,849) 50
Commercial mortgage-backed securities - agency 27,732 (2,291) 12 57,392 (13,104) 7 85,124 (15,395) 19
Commercial mortgage-backed securities - non-agency 530,541 (16,830) 15 84,619 (3,222) 4 615,160 (20,052) 19
Asset-backed securities 118,613 (6,107) 7 56,621 (6,236) 6 175,234 (12,343) 13
Corporate bonds 57,544 (1,257) 7 398 (6) 1 57,942 (1,263) 8
Total temporarily impaired securities $ 2,259,415 $ (147,396) 243 $ 3,037,801 $ (495,684) 284 $ 5,297,216 $ (643,080) 527

Securities held to maturity Less than 12 months 12 months or longer Total
Fair
Value Unrealized
Losses Count Fair
Value Unrealized
Losses Count Fair
Value Unrealized
Losses Count
June 30, 2023
Obligations of states and political subdivisions $ 727,436 $ (30,464) 155 $ 1,522 $ (42) 1 $ 728,958 $ (30,506) 156
Total temporarily impaired securities $ 727,436 (30,464) 155 $ 1,522 $ (42) 1 $ 728,958 (30,506) 156
December 31, 2022
Obligations of states and political subdivisions $ 697,424 $ (55,942) 155 $ — $ — — $ 697,424 $ (55,942) 155
Total temporarily impaired securities $ 697,424 $ (55,942) 155 $ — $ — — $ 697,424 $ (55,942) 155


Debt securities available for sale	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses		Count	Fair Value		Unrealized Losses		Count	Fair Value		Unrealized Losses		Count
September 30, 2023
U.S. treasuries	$	5,917	$	(72)	2	$	25,888	$	(559)	3	$	31,805	$	(631)	5
U.S. agencies	—		—		—	41,104		(6,918)		6	41,104		(6,918)		6
Obligations of states and political subdivisions	3,360		(470)		4	771,031		(207,413)		163	774,391		(207,883)		167
Mortgage-backed securities - agency	1,958		(62)		11	1,591,796		(316,316)		215	1,593,754		(316,378)		226
Mortgage-backed securities - non-agency	488,800		(41,299)		14	1,282,494		(122,063)		43	1,771,294		(163,362)		57
Commercial mortgage-backed securities - agency	—		—		—	81,444		(17,053)		19	81,444		(17,053)		19
Commercial mortgage-backed securities - non-agency	9,695		(344)		1	584,871		(18,386)		17	594,566		(18,730)		18
Asset-backed securities	—		—		—	139,217		(13,031)		11	139,217		(13,031)		11
Corporate bonds	48,634		(1,365)		1	7,888		(1,310)		7	56,522		(2,675)		8


Total temporarily impaired securities	$	558,364	$	(43,612)	33	$	4,525,733	$	(703,049)	484	$	5,084,097	$	(746,661)	517
December 31, 2022
U.S. treasuries	$	28,699	$	(678)	4	$	—	$	—	—	$	28,699	$	(678)	4
U.S. agencies	16,487		(222)		5	26,648		(6,080)		2	43,135		(6,302)		7
Obligations of states and political subdivisions	288,457		(28,378)		69	589,641		(141,777)		113	878,098		(170,155)		182
Mortgage-backed securities - agency	241,288		(21,420)		99	1,528,951		(248,623)		126	1,770,239		(270,043)		225
Mortgage-backed securities - non-agency	950,054		(70,213)		25	693,531		(76,636)		25	1,643,585		(146,849)		50
Commercial mortgage-backed securities - agency	27,732		(2,291)		12	57,392		(13,104)		7	85,124		(15,395)		19
Commercial mortgage-backed securities - non-agency	530,541		(16,830)		15	84,619		(3,222)		4	615,160		(20,052)		19
Asset-backed securities	118,613		(6,107)		7	56,621		(6,236)		6	175,234		(12,343)		13
Corporate bonds	57,544		(1,257)		7	398		(6)		1	57,942		(1,263)		8


Total temporarily impaired securities	$	2,259,415	$	(147,396)	243	$	3,037,801	$	(495,684)	284	$	5,297,216	$	(643,080)	527



Securities held to maturity	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses		Count	Fair Value		Unrealized Losses		Count	Fair Value		Unrealized Losses		Count
September 30, 2023

Obligations of states and political subdivisions	$	164,348	$	(14,240)	38	$	531,005	$	(63,909)	129	$	695,353	$	(78,149)	167
Total temporarily impaired securities	$	164,348	(14,240)		38	$	531,005	$	(63,909)	129	$	695,353	(78,149)		167
December 31, 2022

Obligations of states and political subdivisions	$	697,424	$	(55,942)	155	$	—	$	—	—	$	697,424	$	(55,942)	155
Total temporarily impaired securities	$	697,424	$	(55,942)	155	$	—	$	—	—	$	697,424	$	(55,942)	155

HTLF reviews each security in the investment securities portfolio on a quarterly basis for potential credit losses, taking 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, and security and industry specific economic conditions. With regard to debt securities, HTLF may also evaluate payment structure, whether there are defaulted payments or expected defaults, prepayment speeds and the value of any underlying collateral. For certain debt securities in unrealized loss positions, HTLF prepares cash flow analyses to compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security.

The unrealized losses on HTLF's commercial mortgage, mortgage and asset-backed securities are the result of changes in market interest rates or widening of market spreads subsequent to HTLF's 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, as of September 30, 2023, HTLF has the intent and ability to hold these investments until a market price recovery or to maturity and does not believe it will be required to sell the securities before maturity, no credit losses were recognized on these securities during the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022.

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

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

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


		June 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Rating	Rating					Rating
AAA	AAA	$	83,190	$	79,598	AAA	$	88,254	$	79,598
AA, AA+, AA-	AA, AA+, AA-	588,448		588,354		AA, AA+, AA-	583,188		588,354
A+, A, A-	A+, A, A-	138,122		136,624		A+, A, A-	138,885		136,624
BBB	BBB	20,618		20,623		BBB	20,113		20,623
Not Rated	Not Rated	4,295		4,204		Not Rated	5,028		4,204
Total	Total	$	834,673	$	829,403	Total	$	835,468	$	829,403

Included in other investments were shares of stock in each Federal Home Loan Bank (the "FHLB") of which each of its Banks is a member at an amortized cost of ~~$8.1~~$24.9 million at ~~June~~September 30, 2023, and $12.3 million at December 31, 2022.

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

NOTE 3: LOANS

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


		June 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Loans receivable held to maturity:	Loans receivable held to maturity:					Loans receivable held to maturity:
Commercial and industrial	Commercial and industrial	$	3,590,680	$	3,464,414	Commercial and industrial	$	3,591,809	$	3,464,414
Paycheck Protection Program ("PPP")	Paycheck Protection Program ("PPP")	4,139		11,025		Paycheck Protection Program ("PPP")	3,750		11,025
Owner occupied commercial real estate	Owner occupied commercial real estate	2,398,698		2,265,307		Owner occupied commercial real estate	2,429,659		2,265,307
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	2,530,736		2,330,940		Non-owner occupied commercial real estate	2,656,358		2,330,940
Real estate construction	Real estate construction	1,013,134		1,076,082		Real estate construction	1,029,554		1,076,082
Agricultural and agricultural real estate	Agricultural and agricultural real estate	839,817		920,510		Agricultural and agricultural real estate	842,116		920,510
Residential real estate	Residential real estate	828,437		853,361		Residential real estate	813,803		853,361
Consumer	Consumer	512,333		506,713		Consumer	505,387		506,713
Total loans receivable held to maturity	Total loans receivable held to maturity	11,717,974		11,428,352		Total loans receivable held to maturity	11,872,436		11,428,352

Allowance for credit losses	Allowance for credit losses	(111,198)		(109,483)		Allowance for credit losses	(110,208)		(109,483)
Loans receivable, net	Loans receivable, net	$	11,606,776	$	11,318,869	Loans receivable, net	$	11,762,228	$	11,318,869

As of ~~June~~September 30, 2023, and December 31, 2022, HTLF had ~~$52.1~~$61.3 million and $49.1 million, respectively, of accrued interest receivable, which is included in other assets on the consolidated balance sheets. HTLF does not consider accrued interest receivable in the allowance for credit losses calculation.

The following table shows the balance in the allowance for credit losses at ~~June~~September 30, 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 on nonaccrual with $500,000 or more of total exposure 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							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			Individually Evaluated for Credit Losses		Collectively Evaluated for Credit Losses		Total		Loans Individually Evaluated for Credit Losses		Loans Collectively Evaluated for Credit Losses		Total
June 30, 2023
September 30, 2023														September 30, 2023
Commercial and industrial	Commercial and industrial	$	6,817	$	22,579	$	29,396	$	16,051	$	3,574,629	$	3,590,680	Commercial and industrial	$	6,712	$	21,584	$	28,296	$	15,242	$	3,576,567	$	3,591,809
PPP	PPP	—		—		—		—		4,139		4,139		PPP	—		—		—		—		3,750		3,750
Owner occupied commercial real estate	Owner occupied commercial real estate	290		14,419		14,709		7,629		2,391,069		2,398,698		Owner occupied commercial real estate	—		14,674		14,674		4,411		2,425,248		2,429,659
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	257		17,719		17,976		14,018		2,516,718		2,530,736		Non-owner occupied commercial real estate	257		17,027		17,284		6,580		2,649,778		2,656,358
Real estate construction	Real estate construction	—		28,246		28,246		910		1,012,224		1,013,134		Real estate construction	—		28,979		28,979		910		1,028,644		1,029,554
Agricultural and agricultural real estate	Agricultural and agricultural real estate	1,000		2,511		3,511		7,147		832,670		839,817		Agricultural and agricultural real estate	2,021		2,383		4,404		6,964		835,152		842,116
Residential real estate	Residential real estate	—		7,644		7,644		2,254		826,183		828,437		Residential real estate	—		7,107		7,107		2,216		811,587		813,803
Consumer	Consumer	—		9,716		9,716		—		512,333		512,333		Consumer	—		9,464		9,464		—		505,387		505,387

Total	Total	$	8,364	$	102,834	$	111,198	$	48,009	$	11,669,965	$	11,717,974	Total	$	8,990	$	101,218	$	110,208	$	36,323	$	11,836,113	$	11,872,436

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

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

The following tables show the amortized cost basis as of ~~June~~September 30, 2023, of the loans modified during the ~~three-~~three and ~~six-months~~nine months ended ~~June~~September 30, 2023, to borrowers experiencing financial difficulty by loan category and type of concession granted, dollars in thousands.


For the Three Months Ended June 30, 2023		Loan Modifications Made to Borrowers Experiencing Financial Difficulty
For the Three Months Ended September 30, 2023										For the Three Months Ended September 30, 2023	Loan Modifications Made to Borrowers Experiencing Financial Difficulty
		Term Extension				Term Extension and Interest Only Payments					Term Extension				Term Extension and Interest Only Payments
		Amortized Cost Basis		% of Loan Category		Amortized Cost Basis		% of Loan Category			Amortized Cost Basis		% of Loan Category		Amortized Cost Basis		% of Loan Category
Commercial	Commercial	$	1,411	0.04	%	$	—	—	%	Commercial	$	—	—	%	$	—	—	%

Owner occupied commercial real estate	Owner occupied commercial real estate	—		—		—		—		Owner occupied commercial real estate	—		—		—		—

Real estate construction	Real estate construction	—		—		—		—		Real estate construction	—		—		—		—
Agricultural and agricultural real estate	Agricultural and agricultural real estate	1,354		0.16		—		—		Agricultural and agricultural real estate	1,992		0.24		—		—
Residential real estate	Residential real estate	—		—		—		—		Residential real estate	—		—		—		—

Total	Total	$	2,765	0.02	%	$	—	—	%	Total	$	1,992	0.02	%	$	—	—	%


For the Six Months Ended June 23, 2023		Loan Modifications Made to Borrowers Experiencing Financial Difficulty
For the Nine Months Ended September 30, 2023										For the Nine Months Ended September 30, 2023	Loan Modifications Made to Borrowers Experiencing Financial Difficulty
		Term Extension				Term Extension and Interest Only Payments					Term Extension				Term Extension and Interest Only Payments
		Amortized Cost Basis		% of Loan Category		Amortized Cost Basis		% of Loan Category			Amortized Cost Basis		% of Loan Category		Amortized Cost Basis		% of Loan Category
Commercial	Commercial	$	5,073	0.14	%	$	—	—	%	Commercial	$	4,233	0.12	%	$	—	—	%

Owner occupied commercial real estate	Owner occupied commercial real estate	—		—		5,043		0.21		Owner occupied commercial real estate	—		—		5,043		0.21

Real estate construction	Real estate construction	1,477		0.15		—		—		Real estate construction	1,453		0.14		—		—
Agricultural and agricultural real estate	Agricultural and agricultural real estate	1,354		0.16		—		—		Agricultural and agricultural real estate	3,546		0.42		—		—
Residential real estate	Residential real estate	752		0.09		—		—		Residential real estate	741		0.09		—		—

Total	Total	$	8,656	0.07	%	$	5,043	0.04	%	Total	$	9,973	0.08	%	$	5,043	0.04	%

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty in the ~~six~~nine months ending ~~June~~September 30, 2023.


Loan Type	Loan Type	Weighted Average Term Extension (months)	Weighted Average Term Extension and Interest Only Payments (months)	Loan Type	Weighted Average Term Extension (months)	Weighted Average Term Extension and Interest Only Payments (months)
Commercial and industrial	Commercial and industrial	9	0	Commercial and industrial	8	0

Owner occupied commercial real estate	Owner occupied commercial real estate	0	12	Owner occupied commercial real estate	0	12

Real estate construction	Real estate construction	6	0	Real estate construction	6	0
Agricultural and agricultural real estate	Agricultural and agricultural real estate	9	0	Agricultural and agricultural real estate	11	0
Residential real estate	Residential real estate	12	0	Residential real estate	12	0

At ~~June~~September 30, 2023, there were ~~$2.7 million~~$98,000 in unfunded commitments to extend credit to the borrowers experiencing financial difficulty.

HTLF had no loans to borrowers experiencing financial difficulty that had a payment default during the three months and ~~six~~nine months ended ~~June~~September 30, 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 ~~six~~nine months ended ~~June~~September 30, 2023, dollars in thousands.


		Accruing Loans												Accruing Loans
		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Nonaccrual				30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Nonaccrual
June 30, 2023
September 30, 2023															September 30, 2023
Commercial and industrial	Commercial and industrial	$	—	$	—	$	—	$	—	$	5,073	$	—		Commercial and industrial	$	—	$	—	$	—	$	—	$	4,233	$	—

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

Real estate construction	Real estate construction	—		—		—		—		—		1,477			Real estate construction	—		—		—		—		—		1,453
Agricultural and agricultural real estate	Agricultural and agricultural real estate	—		—		—		—		1,354		—			Agricultural and agricultural real estate	—		—		—		—		3,546		—
Residential real estate	Residential real estate	—		—		—		—		—		752			Residential real estate	—		—		—		—		—		741

Total	Total	$	—	$	—	$	—	$	—	$	11,470	$	2,229		Total	$	—	$	—	$	—	$	—	$	12,822	$	2,194

HTLF's internal rating system is a series of grades reflecting management's credit risk assessment, based on its analysis of the borrower's financial condition. The "pass" category consists of all loans that are not in the "nonpass" category and ~~categorized into~~consists of 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 and risk rating migration analysis.

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

The "substandard" rating is assigned to loans that are inadequately protected by the current net worth and repaying capacity of the borrower and that may be further at risk due to deterioration in the value of collateral pledged. Well-defined weaknesses jeopardize liquidation of the debt. These loans are still considered collectible; however, a distinct possibility exists that HTLF will sustain some loss if deficiencies are not corrected. Substandard loans may exhibit some or all of the following weaknesses: deteriorating financial trends, ~~lack of~~insufficient 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~~these loans make collection or liquidation in full, on the basis of existing facts, conditions and values, highly questionable and improbable. These borrowers are usually in default, lack liquidity, capital, and ~~capital, as well as~~the resources necessary to remain as an operating entity. Specific pending events, such as capital injections, liquidations or perfection of liens on additional collateral, may strengthen the credit, thus deferring the rating of the loan as "loss" until the exact status of the loan can be determined. The "loss" rating is assigned to loans considered uncollectible. HTLF had no loans classified as "loss" or "doubtful" as of ~~June~~September 30, 2023, and December 31, 2022.

The following table shows the risk category of loans by loan category, year of origination and charge-offs as of ~~June~~September 30, 2023, in thousands:


As of June 30, 2023		Amortized Cost Basis of Term Loans by Year of Origination
As of September 30, 2023																		As of September 30, 2023	Amortized Cost Basis of Term Loans by Year of Origination
		2023		2022		2021		2020		2019		2018 and Prior		Revolving		Total			2023		2022		2021		2020		2019		2018 and Prior		Revolving		Total
Commercial and industrial	Commercial and industrial																	Commercial and industrial
Pass	Pass	$	347,091	$	891,309	$	375,623	$	221,147	$	88,352	$	340,468	$	1,139,264	$	3,403,254	Pass	$	371,612	$	844,387	$	359,961	$	207,736	$	86,378	$	331,567	$	1,232,550	$	3,434,191
Watch	Watch	5,500		16,536		1,431		1,764		6,012		11,266		46,907		89,416		Watch	4,078		23,685		253		3,266		3,200		10,002		26,000		70,484
Substandard	Substandard	20,127		7,012		5,520		9,008		20,299		10,765		25,279		98,010		Substandard	18,954		12,849		4,005		6,025		18,761		7,971		18,569		87,134
Commercial and industrial total	Commercial and industrial total	$	372,718	$	914,857	$	382,574	$	231,919	$	114,663	$	362,499	$	1,211,450	$	3,590,680	Commercial and industrial total	$	394,644	$	880,921	$	364,219	$	217,027	$	108,339	$	349,540	$	1,277,119	$	3,591,809
Commercial and industrial charge-offs	Commercial and industrial charge-offs	$	—	$	290	$	101	$	1,414	$	554	$	1,386	$	1,392	$	5,137	Commercial and industrial charge-offs	$	—	$	567	$	196	$	1,414	$	554	$	1,938	$	1,812	$	6,481

PPP	PPP																	PPP
Pass	Pass	$	—	$	—	$	3,944	$	69	$	—	$	—	$	—	$	4,013	Pass	$	—	$	—	$	2,968	$	59	$	—	$	—	$	—	$	3,027
Watch	Watch	—		—		6		—		—		—		—		6		Watch	—		—		636		—		—		—		—		636
Substandard	Substandard	—		—		120		—		—		—		—		120		Substandard	—		—		87		—		—		—		—		87
PPP total	PPP total	$	—	$	—	$	4,070	$	69	$	—	$	—	$	—	$	4,139	PPP total	$	—	$	—	$	3,691	$	59	$	—	$	—	$	—	$	3,750
PPP charge-offs	PPP charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	PPP charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Owner occupied commercial real estate


As of June 30, 2023		Amortized Cost Basis of Term Loans by Year of Origination
As of September 30, 2023																		As of September 30, 2023	Amortized Cost Basis of Term Loans by Year of Origination
		2023		2022		2021		2020		2019		2018 and Prior		Revolving		Total			2023		2022		2021		2020		2019		2018 and Prior		Revolving		Total
Owner occupied commercial real estate																		Owner occupied commercial real estate
Pass	Pass	$	223,815	$	500,240	$	768,837	$	228,536	$	246,327	$	242,129	$	40,683	$	2,250,567	Pass	$	283,766	$	501,294	$	770,707	$	228,578	$	242,952	$	236,637	$	43,522	$	2,307,456
Watch	Watch	19,888		15,187		15,238		4,013		8,418		11,065		321		74,130		Watch	15,369		11,034		15,380		2,690		10,724		6,661		—		61,858
Substandard	Substandard	23,518		9,897		3,665		22,093		5,154		9,322		352		74,001		Substandard	23,354		12,824		3,479		12,050		4,132		4,506		—		60,345
Owner occupied commercial real estate total	Owner occupied commercial real estate total	$	267,221	$	525,324	$	787,740	$	254,642	$	259,899	$	262,516	$	41,356	$	2,398,698	Owner occupied commercial real estate total	$	322,489	$	525,152	$	789,566	$	243,318	$	257,808	$	247,804	$	43,522	$	2,429,659
Owner occupied commercial real estate charge-offs	Owner occupied commercial real estate charge-offs	$	—	$	—	$	—	$	5	$	—	$	14	$	—	$	19	Owner occupied commercial real estate charge-offs	$	—	$	—	$	—	$	5	$	—	$	14	$	—	$	19

Non-owner occupied commercial real estate	Non-owner occupied commercial real estate																	Non-owner occupied commercial real estate
Pass	Pass	$	282,886	$	742,328	$	518,555	$	219,439	$	245,083	$	302,523	$	63,131	$	2,373,945	Pass	$	479,766	$	743,063	$	480,475	$	219,733	$	242,084	$	276,518	$	43,226	$	2,484,865
Watch	Watch	—		4,448		1,355		3,222		27,118		40,103		—		76,246		Watch	28,925		3,673		437		2,412		27,620		51,230		—		114,297
Substandard	Substandard	—		6,873		3,757		942		26,916		42,057		—		80,545		Substandard	—		6,697		690		652		14,816		34,341		—		57,196
Non-owner occupied commercial real estate total	Non-owner occupied commercial real estate total	$	282,886	$	753,649	$	523,667	$	223,603	$	299,117	$	384,683	$	63,131	$	2,530,736	Non-owner occupied commercial real estate total	$	508,691	$	753,433	$	481,602	$	222,797	$	284,520	$	362,089	$	43,226	$	2,656,358
Non-owner occupied commercial real estate charge-offs	Non-owner occupied commercial real estate charge-offs	$	—	$	—	$	—	$	29	$	—	$	—	$	—	$	29	Non-owner occupied commercial real estate charge-offs	$	—	$	62	$	—	$	29	$	398	$	147	$	—	$	636

Real estate construction	Real estate construction																	Real estate construction
Pass	Pass	$	114,193	$	557,657	$	262,600	$	41,632	$	12,094	$	4,591	$	7,906	$	1,000,673	Pass	$	207,371	$	529,810	$	207,672	$	35,069	$	11,885	$	3,834	$	8,438	$	1,004,079
Watch	Watch	—		6,546		—		76		—		102		—		6,724		Watch	—		12,808		1,823		74		—		100		—		14,805
Substandard	Substandard	406		4,239		665		340		17		70		—		5,737		Substandard	394		9,275		665		336		—		—		—		10,670
Real estate construction total	Real estate construction total	$	114,599	$	568,442	$	263,265	$	42,048	$	12,111	$	4,763	$	7,906	$	1,013,134	Real estate construction total	$	207,765	$	551,893	$	210,160	$	35,479	$	11,885	$	3,934	$	8,438	$	1,029,554
Real estate construction charge-offs	Real estate construction charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	Real estate construction charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Agricultural and agricultural real estate	Agricultural and agricultural real estate																	Agricultural and agricultural real estate
Pass	Pass	$	109,375	$	233,885	$	120,638	$	69,406	$	30,000	$	51,715	$	187,766	$	802,785	Pass	$	130,711	$	231,769	$	119,184	$	68,386	$	29,310	$	49,609	$	178,635	$	807,604
Watch	Watch	780		240		750		2,901		418		607		764		6,460		Watch	2,626		359		740		2,033		150		438		2,292		8,638
Substandard	Substandard	1,366		9,832		3,374		54		911		14,117		918		30,572		Substandard	1,496		7,635		1,770		35		912		13,454		572		25,874
Agricultural and agricultural real estate total	Agricultural and agricultural real estate total	$	111,521	$	243,957	$	124,762	$	72,361	$	31,329	$	66,439	$	189,448	$	839,817	Agricultural and agricultural real estate total	$	134,833	$	239,763	$	121,694	$	70,454	$	30,372	$	63,501	$	181,499	$	842,116
Agricultural and agricultural real estate charge-offs	Agricultural and agricultural real estate charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	5,309	$	5,309	Agricultural and agricultural real estate charge-offs	$	—	$	—	$	—	$	9	$	—	$	1	$	5,309	$	5,319

Residential real estate	Residential real estate																	Residential real estate
Pass	Pass	$	41,579	$	189,390	$	256,355	$	80,165	$	44,278	$	177,741	$	19,838	$	809,346	Pass	$	60,769	$	183,291	$	247,584	$	75,960	$	44,007	$	166,554	$	18,715	$	796,880
Watch	Watch	—		2,045		3,006		48		1,441		4,632		34		11,206		Watch	63		1,479		1,666		614		674		4,194		—		8,690
Substandard	Substandard	799		203		1,512		827		219		3,926		399		7,885		Substandard	741		—		2,728		768		265		3,332		399		8,233
Residential real estate total	Residential real estate total	$	42,378	$	191,638	$	260,873	$	81,040	$	45,938	$	186,299	$	20,271	$	828,437	Residential real estate total	$	61,573	$	184,770	$	251,978	$	77,342	$	44,946	$	174,080	$	19,114	$	813,803

Residential real estate charge-offs	Residential real estate charge-offs	$	—	$	59	$	—	$	—	$	—	$	—	$	—	$	59	Residential real estate charge-offs	$	—	$	59	$	—	$	—	$	—	$	—	$	—	$	59

Consumer	Consumer																	Consumer
Pass	Pass	$	30,129	$	70,624	$	41,217	$	9,952	$	4,700	$	15,735	$	332,789	$	505,146	Pass	$	41,649	$	66,162	$	38,254	$	9,007	$	4,167	$	14,394	$	325,015	$	498,648
Watch	Watch	625		69		829		35		44		801		1,491		3,894		Watch	618		91		710		26		44		430		1,582		3,501
Substandard	Substandard	8		264		222		95		185		1,938		581		3,293		Substandard	2		282		320		69		145		2,039		381		3,238
Consumer total	Consumer total	$	30,762	$	70,957	$	42,268	$	10,082	$	4,929	$	18,474	$	334,861	$	512,333	Consumer total	$	42,269	$	66,535	$	39,284	$	9,102	$	4,356	$	16,863	$	326,978	$	505,387
Consumer charge-offs	Consumer charge-offs	$	—	$	87	$	71	$	23	$	18	$	8	$	1,004	$	1,211	Consumer charge-offs	$	—	$	210	$	112	$	23	$	18	$	27	$	2,824	$	3,214

Total Pass	Total Pass	$	1,149,068	$	3,185,433	$	2,347,769	$	870,346	$	670,834	$	1,134,902	$	1,791,377	$	11,149,729	Total Pass	$	1,575,644	$	3,099,776	$	2,226,805	$	844,528	$	660,783	$	1,079,113	$	1,850,101	$	11,336,750
Total Watch	Total Watch	26,793		45,071		22,615		12,059		43,451		68,576		49,517		268,082		Total Watch	51,679		53,129		21,645		11,115		42,412		73,055		29,874		282,909
Total Substandard	Total Substandard	46,224		38,320		18,835		33,359		53,701		82,195		27,529		300,163		Total Substandard	44,941		49,562		13,744		19,935		39,031		65,643		19,921		252,777
Total Loans	Total Loans	$	1,222,085	$	3,268,824	$	2,389,219	$	915,764	$	767,986	$	1,285,673	$	1,868,423	$	11,717,974	Total Loans	$	1,672,264	$	3,202,467	$	2,262,194	$	875,578	$	742,226	$	1,217,811	$	1,899,896	$	11,872,436

Total Charge-offs	Total Charge-offs	$	—	$	436	$	172	$	1,471	$	572	$	1,408	$	7,705	$	11,764	Total Charge-offs	$	—	$	898	$	308	$	1,480	$	970	$	2,127	$	9,945	$	15,728

The following table shows the risk category of loans by loan category and year of origination as of December 31, 2022, in thousands.


As of December 31, 2022	Amortized Cost Basis of Term Loans by Year of Origination
	2022		2021		2020		2019		2018		2017 and Prior		Revolving		Total
Commercial and industrial
Pass	$	967,103	$	442,001	$	260,021	$	101,998	$	57,776	$	421,312	$	1,064,333	$	3,314,544
Watch	12,638		1,370		685		5,487		2,882		3,315		21,984		48,361
Substandard	6,691		14,366		9,369		22,171		5,546		6,758		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	$	—	$	7,807	$	526	$	—	$	—	$	—	$	—	$	8,333
Watch	—		7		—		—		—		—		—		7
Substandard	—		2,685		—		—		—		—		—		2,685
PPP total	$	—	$	10,499	$	526	$	—	$	—	$	—	$	—	$	11,025
Owner occupied commercial real estate
Pass	$	511,547	$	781,946	$	255,476	$	266,228	$	103,943	$	179,503	$	34,117	$	2,132,760
Watch	22,079		3,410		12,346		8,520		3,645		11,899		—		61,899
Substandard	2,971		23,802		26,490		6,358		2,574		7,353		1,100		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	$	756,059	$	515,075	$	227,383	$	261,964	$	127,400	$	210,289	$	70,398	$	2,168,568
Watch	8,131		792		2,849		38,218		38,510		16,180		547		105,227
Substandard	202		6,784		1,838		16,019		22,332		9,970		—		57,145
Non-owner occupied commercial real estate total	$	764,392	$	522,651	$	232,070	$	316,201	$	188,242	$	236,439	$	70,945	$	2,330,940
Real estate construction
Pass	$	597,370	$	328,391	$	88,660	$	21,221	$	2,568	$	6,274	$	8,252	$	1,052,736
Watch	665		16,218		1,257		—		—		122		—		18,262
Substandard	2,587		356		173		446		1,478		44		—		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	$	324,791	$	140,252	$	79,307	$	34,447	$	22,600	$	38,672	$	239,686	$	879,755
Watch	3,795		515		3,865		641		444		672		902		10,834
Substandard	8,674		3,224		204		1,859		12,323		2,682		955		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	$	189,133	$	268,561	$	64,627	$	39,468	$	34,863	$	217,489	$	23,331	$	837,472
Watch	706		1,095		88		957		2,296		2,237		399		7,778
Substandard	28		1,273		1,024		99		792		4,895		—		8,111
Residential real estate total	$	189,867	$	270,929	$	65,739	$	40,524	$	37,951	$	224,621	$	23,730	$	853,361

Consumer
Pass	$	80,592	$	47,787	$	11,722	$	6,022	$	4,840	$	24,655	$	325,247	$	500,865
Watch	20		191		35		119		74		1,584		953		2,976
Substandard	188		331		242		303		75		1,539		194		2,872
Consumer total	$	80,800	$	48,309	$	11,999	$	6,444	$	4,989	$	27,778	$	326,394	$	506,713

Total Pass	$	3,426,595	$	2,531,820	$	987,722	$	731,348	$	353,990	$	1,098,194	$	1,765,364	$	10,895,033
Total Watch	48,034		23,598		21,125		53,942		47,851		36,009		24,785		255,344
Total Substandard	21,341		52,821		39,340		47,255		45,120		33,241		38,857		277,975
Total Loans	$	3,495,970	$	2,608,239	$	1,048,187	$	832,545	$	446,961	$	1,167,444	$	1,829,006	$	11,428,352

Included in the nonpass loans at ~~June~~September 30, 2023, and December 31, 2022, were ~~$126,000~~$723,000 and $2.7 million, respectively, of nonpass PPP loans as a result of risk ratings on non-PPP related credits. HTLF's risk rating methodology assigns a risk rating to the whole lending relationship. HTLF has no allowance recorded related to the PPP loans because of the 100% government guarantee through the United States Small Business ~~Administration ("SBA").~~

Administration.

~~As of June 30, 2023, HTLF had $176,000 of loans secured by residential real estate property that were in the process of foreclosure.~~

~~The following table sets forth information regarding accruing and nonaccrual loans at June 30, 2023, and December 31, 2022, in thousands:~~

Accruing Loans
30-59
Days
Past Due 60-89
Days
Past Due 90 Days or
More
Past Due Total
Past
Due Current Nonaccrual Total Loans
June 30, 2023
Commercial and industrial $ 6,646 $ 1,202 $ 517 $ 8,365 $ 3,561,379 $ 20,936 $ 3,590,680
PPP 19 — 109 128 4,011 — 4,139
Owner occupied commercial real estate 137 2,290 — 2,427 2,387,931 8,340 2,398,698
Non-owner occupied commercial real estate — — — — 2,516,515 14,221 2,530,736
Real estate construction 36 — — 36 1,010,274 2,824 1,013,134
Agricultural and agricultural real estate 108 360 1 469 829,814 9,534 839,817
Residential real estate 673 321 780 1,774 821,925 4,738 828,437
Consumer 1,499 371 52 1,922 509,048 1,363 512,333
Total gross loans receivable held to maturity $ 9,118 $ 4,544 $ 1,459 $ 15,121 $ 11,640,897 $ 61,956 $ 11,717,974
December 31, 2022
Commercial and industrial $ 1,099 $ 356 $ 131 $ 1,586 $ 3,440,062 $ 22,766 $ 3,464,414
PPP — — — — 11,006 19 11,025
Owner occupied commercial real estate 12 127 — 139 2,256,365 8,803 2,265,307
Non-owner occupied commercial real estate — — — — 2,319,282 11,658 2,330,940
Real estate construction 16 28 — 44 1,073,687 2,351 1,076,082
Agricultural and agricultural real estate 48 — 142 190 914,088 6,232 920,510
Residential real estate 1,206 152 — 1,358 846,739 5,264 853,361
Consumer 1,526 196 — 1,722 503,853 1,138 506,713
Total gross loans receivable held to maturity $ 3,907 $ 859 $ 273 $ 5,039 $ 11,365,082 $ 58,231 $ 11,428,352

~~Loans delinquent 30 to 89 days as a percent of total loans were 0.12% at June 30, 2023, compared to 0.04% at December 31, 2022.~~ Changes in credit risk are monitored on a continuous basis as part of relationship management, and changes in risk ratings are made when credit quality improves or deteriorates in accordance with HTLF's credit risk rating framework. All individually assessed loans are reviewed at least annually.

As of September 30, 2023, HTLF had $63,000 of loans secured by residential real estate property that were in the process of foreclosure.

The following table sets forth information regarding accruing and nonaccrual loans at September 30, 2023, and December 31, 2022, in thousands:


	Accruing Loans
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Nonaccrual		Total Loans
September 30, 2023
Commercial and industrial	$	2,736	$	653	$	152	$	3,541	$	3,568,215	$	20,053	$	3,591,809
PPP	597		35		20		652		3,098		—		3,750
Owner occupied commercial real estate	707		—		318		1,025		2,422,914		5,720		2,429,659
Non-owner occupied commercial real estate	125		—		—		125		2,649,460		6,773		2,656,358
Real estate construction	4,752		—		—		4,752		1,022,040		2,762		1,029,554
Agricultural and agricultural real estate	—		12		—		12		832,609		9,495		842,116
Residential real estate	1,310		777		21		2,108		806,638		5,057		813,803
Consumer	1,933		179		—		2,112		501,831		1,444		505,387
Total gross loans receivable held to maturity	$	12,160	$	1,656	$	511	$	14,327	$	11,806,805	$	51,304	$	11,872,436
December 31, 2022
Commercial and industrial	$	1,099	$	356	$	131	$	1,586	$	3,440,062	$	22,766	$	3,464,414
PPP	—		—		—		—		11,006		19		11,025
Owner occupied commercial real estate	12		127		—		139		2,256,365		8,803		2,265,307
Non-owner occupied commercial real estate	—		—		—		—		2,319,282		11,658		2,330,940
Real estate construction	16		28		—		44		1,073,687		2,351		1,076,082
Agricultural and agricultural real estate	48		—		142		190		914,088		6,232		920,510
Residential real estate	1,206		152		—		1,358		846,739		5,264		853,361
Consumer	1,526		196		—		1,722		503,853		1,138		506,713
Total gross loans receivable held to maturity	$	3,907	$	859	$	273	$	5,039	$	11,365,082	$	58,231	$	11,428,352

Loans delinquent 30 to 89 days as a percent of total loans were 0.12% at September 30, 2023, compared to 0.04% at December 31, 2022.

HTLF recognized $0 of interest income on nonaccrual loans during the three and ~~six~~nine months ended ~~June~~September 30, 2023 and ~~June~~September 30, 2022. As of ~~June~~September 30, 2023, and December 31, 2022, HTLF had ~~$28.7~~$17.4 million and $26.7 million of nonaccrual loans with no related allowance, respectively.

NOTE 4: ALLOWANCE FOR CREDIT LOSSES

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


		Commercial and Industrial		Owner Occupied Commercial Real Estate		Non-Owner Occupied Commercial Real Estate		Real Estate Construction		Agricultural and Agricultural Real Estate		Residential Real Estate		Consumer		Total					Commercial and Industrial			Owner Occupied Commercial Real Estate			Non-Owner Occupied Commercial Real Estate			Real Estate Construction			Agricultural and Agricultural Real Estate			Residential Real Estate			Consumer			Total
Balance at March 31, 2023		$	31,823	$	14,151	$	17,062	$	30,138	$	2,546	$	7,564	$	9,423	$	112,707
Balance at June 30, 2023																		Balance at June 30, 2023		$	29,396		$	14,709		$	17,976		$	28,246		$	3,511		$	7,644		$	9,716		$	111,198
Charge-offs	Charge-offs	(3,686)		(5)		(29)		—		(5,309)		(59)		(525)		(9,613)			Charge-offs		(1,344)			—			(607)			—			(10)			—			(2,003)			(3,964)
Recoveries	Recoveries	118		—		—		2		1		—		154		275			Recoveries		167			1			—			7			—			—			127			302
Provision (benefit)	Provision (benefit)	1,141		563		943		(1,894)		6,273		139		664		7,829			Provision (benefit)		77			(36)			(85)			726			903			(537)			1,624			2,672
Balance at June 30, 2023		$	29,396	$	14,709	$	17,976	$	28,246	$	3,511	$	7,644	$	9,716	$	111,198
Balance at September 30, 2023																		Balance at September 30, 2023		$	28,296		$	14,674		$	17,284		$	28,979		$	4,404		$	7,107		$	9,464		$	110,208

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

Charge-offs	Charge-offs	(5,137)		(19)		(29)		—		(5,309)		(59)		(1,211)		(11,764)			Charge-offs		(6,481)			(19)			(636)			—			(5,319)			(59)			(3,214)			(15,728)
Recoveries	Recoveries	1,840		112		—		19		11		19		1,465		3,466			Recoveries		2,007			113			—			26			11			19			1,592			3,768
Provision (benefit)	Provision (benefit)	3,622		668		1,466		(1,771)		6,175		(27)		(120)		10,013			Provision (benefit)		3,699			632			1,381			(1,045)			7,078			(564)			1,504			12,685
Balance at June 30, 2023		$	29,396	$	14,709	$	17,976	$	28,246	$	3,511	$	7,644	$	9,716	$	111,198
Balance at September 30, 2023																		Balance at September 30, 2023		$	28,296		$	14,674		$	17,284		$	28,979		$	4,404		$	7,107		$	9,464		$	110,208


		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					Commercial and Industrial			Owner Occupied Commercial Real Estate			Non-Owner Occupied Commercial Real Estate			Real Estate Construction			Agricultural and Agricultural Real Estate			Residential Real Estate			Consumer			Total
Balance at March 31, 2022		$	25,800	$	17,975	$	16,013	$	21,397	$	2,667	$	7,875	$	8,795	$	100,522
Balance at June 30, 2022																		Balance at June 30, 2022		$	27,668		$	17,658		$	15,738		$	19,391		$	2,948		$	8,571		$	9,379		$	101,353
Charge-offs	Charge-offs	(643)		—		(193)		—		(25)		(49)		(563)		(1,473)			Charge-offs		(385)			—			—			(35)			(34)			(1)			(483)			(938)
Recoveries	Recoveries	445		—		—		2		124		—		188		759			Recoveries		506			—			20			3			76			—			307			912
Provision (benefit)	Provision (benefit)	2,066		(317)		(82)		(2,008)		182		745		959		1,545			Provision (benefit)		2,474			(686)			(949)			4,911			(423)			(1,144)			205			4,388
Balance at June 30, 2022		$	27,668	$	17,658	$	15,738	$	19,391	$	2,948	$	8,571	$	9,379	$	101,353
Balance at September 30, 2022																		Balance at September 30, 2022		$	30,263		$	16,972		$	14,809		$	24,270		$	2,567		$	7,426		$	9,408		$	105,715

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

Charge-offs	Charge-offs	(5,143)		—		(322)		—		(3,129)		(137)		(5,959)		(14,690)			Charge-offs		(5,528)			—			(322)			(35)			(3,163)			(138)			(6,442)			(15,628)
Recoveries	Recoveries	651		40		33		9		577		—		472		1,782			Recoveries		1,157			40			53			12			653			—			779			2,694
Provision (benefit)	Provision (benefit)	4,422		(1,596)		(1,881)		(3,156)		287		281		5,816		4,173			Provision (benefit)		6,896			(2,282)			(2,830)			1,755			(136)			(863)			6,021			8,561
Balance at June 30, 2022		$	27,668	$	17,658	$	15,738	$	19,391	$	2,948	$	8,571	$	9,379	$	101,353
Balance at September 30, 2022																		Balance at September 30, 2022		$	30,263		$	16,972		$	14,809		$	24,270		$	2,567		$	7,426		$	9,408		$	105,715

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

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


		For the Three Months Ended June 30,					For the Three Months Ended September 30,
		2023		2022			2023		2022
Balance at March 31,		$	21,086	$	16,079
Balance at June 30,						Balance at June 30,	$	18,636	$	17,780
Provision (benefit)	Provision (benefit)	(2,450)		1,701		Provision (benefit)	(1,156)		1,104
Balance at June 30,		$	18,636	$	17,780
Balance at September 30,						Balance at September 30,	$	17,480	$	18,884


		For the Six Months Ended June 30,					For the Nine Months Ended September 30,
		2023		2022			2023		2022
Balance at December 31,	Balance at December 31,	$	20,196	$	15,462	Balance at December 31,	$	20,196	$	15,462

Provision (benefit)	Provision (benefit)	(1,560)		2,318		Provision (benefit)	(2,716)		3,422
Balance at June 30,		$	18,636	$	17,780
Balance at September 30,						Balance at September 30,	$	17,480	$	18,884

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

HTLF had goodwill of $576.0 million at both ~~June~~September 30, 2023, and December 31, 2022. HTLF conducts its annual internal assessment of the goodwill both at the consolidated level and at its subsidiaries in the fourth quarter of every year as of September 30.

The sustained decline in HTLF's stock price, which management deemed to be a triggering event, caused management to perform a quantitative impairment test on its goodwill in the second quarter of 2023. Management concluded that none of the goodwill at any of HTLF's reporting units was impaired.

The gross carrying amount of other intangible assets, which ~~consists~~consisted of core deposit intangibles and mortgage servicing rights, and the associated accumulated amortization at ~~June~~September 30, 2023, and December 31, 2022, are presented in the table below, in thousands:


		June 30, 2023						December 31, 2022							September 30, 2023						December 31, 2022
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizing intangible assets:	Amortizing intangible assets:													Amortizing intangible assets:
Core deposit intangibles	Core deposit intangibles	$	101,185	$	79,534	$	21,651	$	101,185	$	76,031	$	25,154	Core deposit intangibles	$	101,185	$	81,159	$	20,026	$	101,185	$	76,031	$	25,154

Mortgage servicing rights	Mortgage servicing rights	—		—		—		13,700		5,860		7,840		Mortgage servicing rights	—		—		—		13,700		5,860		7,840

Total	Total	$	101,185	$	79,534	$	21,651	$	114,885	$	81,891	$	32,994	Total	$	101,185	$	81,159	$	20,026	$	114,885	$	81,891	$	32,994

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


		Core Deposit Intangibles			Core Deposit Intangibles
Six months ending December 31, 2023		$	3,236
Three months ending December 31, 2023				Three months ending December 31, 2023	$	1,611
Year ending December 31,	Year ending December 31,			Year ending December 31,
2024	2024	5,591		2024	5,591
2025	2025	4,700		2025	4,700
2026	2026	3,533		2026	3,533
2027	2027	2,601		2027	2,601
2028	2028	1,287		2028	1,287
Thereafter	Thereafter	703		Thereafter	703
Total	Total	$	21,651	Total	$	20,026

On March 31, 2023, First Bank & Trust, a division of HTLF Bank, closed on the sale of 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 were de-recognized 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 ~~$193,000~~$203,000 was recorded. A receivable of approximately ~~$746,000~~$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. ~~Pursuant to the agreement, which includes customary terms and conditions,~~ First Bank & Trust provided interim servicing of the loans until the transfer date, which was May 1, 2023.

The following table summarizes, in thousands, the changes in ~~capitalized~~ mortgage servicing rights for the ~~six~~nine months ended ~~June~~September 30, 2023, and ~~June~~September 30, 2022:


		2023			2022				2023			2022
Balance at January 1,	Balance at January 1,	$	7,840		$	6,412		Balance at January 1,	$	7,840		$	6,412
Originations	Originations	24			904			Originations	24			1,218
Amortization	Amortization	(210)			(686)			Amortization	(210)			(909)

Sale of mortgage servicing rights	Sale of mortgage servicing rights	(7,654)			—			Sale of mortgage servicing rights	(7,654)			—

Valuation adjustment	Valuation adjustment	—			1,658			Valuation adjustment	—			1,658
Balance at period end	Balance at period end	$	—		$	8,288		Balance at period end	$	—		$	8,379

Mortgage servicing rights, net to servicing portfolio	Mortgage servicing rights, net to servicing portfolio	—		%	1.13		%	Mortgage servicing rights, net to servicing portfolio	—		%	1.14		%

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	$	—

NOTE 6: 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, interest rate lock commitments and forward sales of mortgage securities. 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 ~~$586,000~~$587,000 of collateral at ~~June~~September 30, 2023, compared to $793,000 as of December 31, 2022, related to derivative financial instruments. HTLF's counterparties were required to pledge ~~$75.2~~$179.4 million at ~~June~~September 30, 2023, compared to $45.1 million at December 31, 2022.

HTLF's derivative and hedging instruments are recorded at fair value on the consolidated balance sheets. See Note 7, "Fair Value," for additional fair value information and disclosures.

Cash Flow Hedges

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 ~~$596,000.~~$411,000.

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 ~~June~~September 30, 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:


	Notional Amount		Fair Value		Balance Sheet Category


December 31, 2022
Interest rate swap	$	500,000	$	13	Other Assets

The table below identifies the gains and losses recognized on HTLF's terminated derivative instruments designated as cash flow hedges for the three and ~~six~~nine months ended ~~June~~September 30, 2023, and ~~June~~September 30, 2022, in thousands:


		Recognized in OCI		Reclassified from AOCI into Income			Recognized in OCI		Reclassified from AOCI into Income
		Amount of Gain (Loss)		Category	Amount of Gain (Loss)				Amount of Gain (Loss)		Category	Amount of Gain (Loss)
Three Months Ended June 30, 2023
Three Months Ended September 30, 2023								Three Months Ended September 30, 2023
Interest rate swap	Interest rate swap	$	—	Interest income	$	63		Interest rate swap	$	—	Interest income	$	63
Six Months Ended June 30, 2023
Nine Months Ended September 30, 2023								Nine Months Ended September 30, 2023
Interest rate swap	Interest rate swap	$	1,952	Interest income	$	(701)		Interest rate swap	$	1,952	Interest income	$	(638)
Three Months Ended June 30, 2022
Three Months Ended September 30, 2022								Three Months Ended September 30, 2022
Interest rate swap	Interest rate swap	$	—	Interest income	$	—		Interest rate swap	$	—	Interest income	$	—
Six Months Ended June 30, 2022
Nine Months Ended September 30, 2022								Nine Months Ended September 30, 2022
Interest rate swap	Interest rate swap	$	—	Interest income	$	—		Interest rate swap	$	—	Interest income	$	—

Fair Value Hedges

HTLF uses interest rate swaps to convert certain long term fixed rate loans to floating rates to hedge interest rate risk exposure. HTLF 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 ~~the second quarter of~~ 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 using the portfolio layer method.~~rates. HTLF also executed an interest rate ~~swap~~swaps designated as a fair value ~~hedge~~hedges with antotal original notional ~~amount~~amounts of ~~$500.0 million~~$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.~~

~~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 fair value portfolio level basis adjustment on the hedged securities has not been attributed to the individual available for sale security on the consolidated balance sheet.~~

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 as of ~~June~~September 30, 2023 and December 31, 2022, in thousands:


	Fair Value		Balance Sheet Category
~~June~~September 30, 2023
Interest rate swaps-loans receivable held to maturity	$	~~13,643~~24,998	Other assets
Interest rate swaps-securities carried at fair value	~~31,052~~66,853		Other assets
December 31, 2022
Interest rate swaps-loans receivable held to maturity	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~~relationships at ~~June~~September 30, 2023, and December 31, 2022, in thousands:


		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			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
June 30, 2023
September 30, 2023							September 30, 2023

Interest rate swap	Interest rate swap	Loans receivable held to maturity	$	501,080	$	(12,938)	Interest rate swap	Loans receivable held to maturity	$	2,476,983	$	(23,707)
Interest rate swap	Interest rate swap	Securities carried at fair value	826,545		(29,584)		Interest rate swap	Securities carried at fair value	729,528		(64,820)
December 31, 2022	December 31, 2022						December 31, 2022

Interest rate swap	Interest rate swap	Loans receivable held to maturity	$	1,185	$	(54)	Interest rate swap	Loans receivable held to maturity	$	1,185	$	(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 three- and nine- months ended September 30, 2023, and September 30, 2022, in thousands:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Gain (loss) recognized in interest income and fees on loans	$	(375)	$	5	$	(371)	$	44
Total amount of interest and fees on loans	182,394		122,913		505,136		334,000
Gain (loss) recognized in interest income on securities-taxable	(1,126)		—		(1,052)		—
Total amount of interest on securities-taxable	54,800		45,648		168,948		116,366

The table below identifies the ~~gains and losses recognized on HTLF's~~effect of fair value ~~hedges and~~hedge accounting on the consolidated statements of income, ~~statement classification for the three- and six- months ended June 30, 2023, and June 30, 2022,~~ in ~~thousands. For the three- and six-months ended June 30, 2023, HTLF recorded $74,000 of interest income on taxable securities related to ineffectiveness.~~thousands:

Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
Gain recognized in interest income and fees on loans $ 13,604 $ 42 $ 13,589 $ 1,225
Gain recognized in interest income on securities-taxable 31,052 — 31,052 —


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Hedged item (loans receivable held to maturity)	$	(11,144)	$	(34)	$	(24,026)	$	(117)
Hedged item (securities carried at fair value)	(36,362)		—		(65,872)		—
Derivatives designated as hedging instruments on loans receivable held to maturity	10,769		39		23,655		161
Derivatives designated as hedging instruments on securities carried at fair value	35,236		—		64,820		—

Embedded Derivatives

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


		Notional Amount		Fair Value		Balance Sheet Category		Notional Amount		Fair Value		Balance Sheet Category
June 30, 2023
September 30, 2023							September 30, 2023
Embedded derivatives	Embedded derivatives	$	5,843	$	118	Other assets	Embedded derivatives	$	4,185	$	109	Other assets

December 31, 2022	December 31, 2022						December 31, 2022
Embedded derivatives	Embedded derivatives	$	6,028	$	135	Other assets	Embedded derivatives	$	6,028	$	135	Other assets

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

Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
Gain (loss) recognized in other noninterest income on embedded derivatives $ 20 $ 100 $ (17) $ 325


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Gain (loss) recognized in other noninterest income on embedded derivatives	$	(9)	$	121	$	(26)	$	446

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.~~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 three and ~~six~~nine months ended ~~June~~September 30, 2023, and ~~June~~September 30, 2022, no gain or loss was recognized. HTLF recognized $1.6 million and $6.7 million in fee income for the three and nine months ended September 30, 2023, respectively, compared to $1.3 million and $5.8 million for the three and nine months ended September 30, 2022, respectively.

The table below identifies the balance sheet category and fair values of the derivative instruments designated as loan swaps at ~~June~~September 30, 2023, and December 31, 2022, in thousands:


		Notional Amount		Fair Value		Balance Sheet Category	Weighted Average Receive Rate		Weighted Average Pay Rate			Notional Amount		Fair Value		Balance Sheet Category
June 30, 2023
September 30, 2023											September 30, 2023
Customer interest rate swaps	Customer interest rate swaps	$	1,325,478	$	51,876	Other assets	4.08	%	7.16	%	Customer interest rate swaps	$	1,500,715	$	75,965	Other assets
Customer interest rate swaps	Customer interest rate swaps	1,325,478		(51,876)		Other liabilities	7.16		4.08		Customer interest rate swaps	1,500,715		(75,965)		Other liabilities
December 31, 2022	December 31, 2022										December 31, 2022
Customer interest rate swaps	Customer interest rate swaps	$	819,662	$	46,091	Other assets	4.23	%	6.76	%	Customer interest rate swaps	$	819,662	$	46,091	Other assets
Customer interest rate swaps	Customer interest rate swaps	819,662		(46,091)		Other liabilities	6.76		4.23		Customer interest rate swaps	819,662		(46,091)		Other liabilities

Other Free Standing Derivatives

HTLF has entered into interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans and mortgage backed securities that are considered derivative instruments. HTLF enters into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into and to economically hedge the effect of future changes in interest rates on the commitments to fund the loans as well as on residential mortgage loans available for sale. The fair value of these commitments is recorded on the consolidated balance sheets, with the changes in fair value recorded in the consolidated statements of income as a component of gains on sale of loans held for sale. These derivative contracts are designated as free standing derivative contracts and are not designated against specific assets and liabilities on the consolidated balance sheets or forecasted transactions and therefore do not qualify for hedge accounting treatment. HTLF was required to pledge no collateral at both ~~June~~September 30, 2023, and December 31, 2022. HTLF's counterparties were required to pledge no collateral at both ~~June~~September 30, 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 sheets or forecasted transactions and therefore do not qualify for hedge accounting in accordance with ASC 815. These swaps are carried at fair value on the consolidated balance sheets as a component of other liabilities, with changes in the fair value recorded as a component of other noninterest income.

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


		Balance Sheet Category	Notional Amount		Fair Value			Balance Sheet Category	Notional Amount		Fair Value
June 30, 2023
September 30, 2023							September 30, 2023
Interest rate lock commitments (mortgage)	Interest rate lock commitments (mortgage)	Other assets	$	12,329	$	306	Interest rate lock commitments (mortgage)	Other assets	$	4,000	$	99

Forward commitments	Forward commitments	Other assets	18,500		43		Forward commitments	Other assets	7,500		41
Forward commitments	Forward commitments	Other liabilities	1,500		(4)		Forward commitments	Other liabilities	1,750		(5)
Undesignated interest rate swaps	Undesignated interest rate swaps	Other liabilities	5,843		(118)		Undesignated interest rate swaps	Other liabilities	4,185		(109)

December 31, 2022	December 31, 2022						December 31, 2022
Interest rate lock commitments (mortgage)	Interest rate lock commitments (mortgage)	Other assets	$	9,340	$	174	Interest rate lock commitments (mortgage)	Other assets	$	9,340	$	174

Forward commitments	Forward commitments	Other assets	6,400		47		Forward commitments	Other assets	6,400		47
Forward commitments	Forward commitments	Other liabilities	5,750		(99)		Forward commitments	Other liabilities	5,750		(99)
Undesignated interest rate swaps	Undesignated interest rate swaps	Other liabilities	6,028		(135)		Undesignated interest rate swaps	Other liabilities	6,028		(135)

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
Interest rate lock commitments (mortgage)	Interest rate lock commitments (mortgage)	$	(128)	$	523	$	282	$	(672)	Interest rate lock commitments (mortgage)	$	(352)	$	(1,337)	$	(70)	$	(2,009)

Forward commitments	Forward commitments	(181)		(967)		91		68		Forward commitments	(4)		813		87		881
Undesignated interest rate swaps	Undesignated interest rate swaps	20		(100)		17		(325)		Undesignated interest rate swaps	9		(121)		26		(446)

NOTE 7: FAIR VALUE

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

Fair Value Hierarchy

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

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

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

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

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

Securities Available for Sale and Held to Maturity

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

Equity Securities with a Readily Determinable Fair Value

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

Loans Held for Sale

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

Loans Held to Maturity

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

Premises, Furniture and Equipment Held for Sale

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

Mortgage Servicing Rights

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

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

Derivative Financial Instruments

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

Although HTLF has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of ~~June~~September 30, 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 are estimated using an internal valuation model, which includes current trade pricing for similar financial instruments in active markets that HTLF has the ability to access and are classified in Level 2 of the fair value hierarchy.

Other Real Estate Owned

Other real estate owned ("OREO") represents property acquired through foreclosures and settlements of loans. Property acquired is carried at the fair value of the property at the time of acquisition (representing the property's cost basis), plus any acquisition costs, or the estimated fair value of the property, less disposal costs. HTLF considers third party appraisals, as well

as independent fair value assessments from realtors or persons involved in selling OREO, in determining the fair value of particular properties. Accordingly, the valuation of OREO is subject to significant external and internal judgment. HTLF periodically reviews OREO to determine if the fair value of the property, less disposal costs, has declined below its recorded book value and records any adjustments accordingly. OREO is classified as nonrecurring Level 3 of the fair value hierarchy.

The table below presents HTLF's assets and liabilities that are measured at fair value on a recurring basis as of ~~June~~September 30, 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			Total Fair Value		Level 1		Level 2		Level 3
June 30, 2023
September 30, 2023										September 30, 2023
Assets	Assets									Assets

Securities available for sale	Securities available for sale									Securities available for sale
U.S. treasuries	U.S. treasuries	$	31,679	$	31,679	$	—	$	—	U.S. treasuries	$	31,805	$	31,805	$	—	$	—
U.S. agencies	U.S. agencies	43,036		—		43,036		—		U.S. agencies	41,104		—		41,104		—
Obligations of states and political subdivisions	Obligations of states and political subdivisions	849,239		—		849,239		—		Obligations of states and political subdivisions	774,687		—		774,687		—
Mortgage-backed securities - agency	Mortgage-backed securities - agency	1,686,646		—		1,686,646		—		Mortgage-backed securities - agency	1,594,395		—		1,594,395		—
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	1,995,809		—		1,995,809		—		Mortgage-backed securities - non-agency	1,895,080		—		1,895,080		—
Commercial mortgage-backed securities - agency	Commercial mortgage-backed securities - agency	83,825		—		83,825		—		Commercial mortgage-backed securities - agency	81,444		—		81,444		—
Commercial mortgage-backed securities - non-agency	Commercial mortgage-backed securities - non-agency	617,992		—		617,992		—		Commercial mortgage-backed securities - non-agency	602,433		—		602,433		—
Asset-backed securities	Asset-backed securities	412,716		—		412,716		—		Asset-backed securities	384,379		—		384,379		—
Corporate bonds	Corporate bonds	56,411		—		56,411		—		Corporate bonds	56,522		—		56,522		—
Equity securities with a readily determinable fair value	Equity securities with a readily determinable fair value	20,688		—		20,688		—		Equity securities with a readily determinable fair value	20,838		—		20,838		—
Derivative financial instruments(1)	Derivative financial instruments(1)	96,689		—		96,689		—		Derivative financial instruments(1)	167,925		—		167,925		—
Interest rate lock commitments	Interest rate lock commitments	306		—		—		306		Interest rate lock commitments	99		—		—		99
Forward commitments	Forward commitments	43		—		43		—		Forward commitments	41		—		41		—
Total assets at fair value	Total assets at fair value	$	5,895,079	$	31,679	$	5,863,094	$	306	Total assets at fair value	$	5,650,752	$	31,805	$	5,618,848	$	99
Liabilities	Liabilities									Liabilities
Derivative financial instruments(2)	Derivative financial instruments(2)	$	51,994	$	—	$	51,994	$	—	Derivative financial instruments(2)	$	76,074	$	—	$	76,074	$	—
Forward commitments	Forward commitments	4		—		4		—		Forward commitments	5		—		5		—

Total liabilities at fair value	Total liabilities at fair value	$	51,998	$	—	$	51,998	$	—	Total liabilities at fair value	$	76,079	$	—	$	76,079	$	—
December 31, 2022	December 31, 2022									December 31, 2022
Assets	Assets									Assets

Securities available for sale	Securities available for sale									Securities available for sale
U.S. treasuries	U.S. treasuries	$	31,699	$	31,699	$	—	$	—	U.S. treasuries	$	31,699	$	31,699	$	—	$	—
U.S. agencies	U.S. agencies	43,135		—		43,135		—		U.S. agencies	43,135		—		43,135		—
Obligations of states and political subdivisions	Obligations of states and political subdivisions	879,437		—		879,437		—		Obligations of states and political subdivisions	879,437		—		879,437		—
Mortgage-backed securities - agency	Mortgage-backed securities - agency	1,772,105		—		1,772,105		—		Mortgage-backed securities - agency	1,772,105		—		1,772,105		—
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	2,181,876		—		2,181,876		—		Mortgage-backed securities - non-agency	2,181,876		—		2,181,876		—
Commercial mortgage-backed securities - agency	Commercial mortgage-backed securities - agency	85,123		—		85,123		—		Commercial mortgage-backed securities - agency	85,123		—		85,123		—
Commercial mortgage-backed securities - non-agency	Commercial mortgage-backed securities - non-agency	659,459		—		659,459		—		Commercial mortgage-backed securities - non-agency	659,459		—		659,459		—
Asset-backed securities	Asset-backed securities	416,054		—		416,054		—		Asset-backed securities	416,054		—		416,054		—
Corporate bonds	Corporate bonds	57,942		—		57,942		—		Corporate bonds	57,942		—		57,942		—
Equity securities with a readily determinable fair value	Equity securities with a readily determinable fair value	20,314		—		20,314		—		Equity securities with a readily determinable fair value	20,314		—		20,314		—
Derivative financial instruments(2)	Derivative financial instruments(2)	46,293		—		46,293		—		Derivative financial instruments(2)	46,293		—		46,293		—
Interest rate lock commitments	Interest rate lock commitments	174		—		—		174		Interest rate lock commitments	174		—		—		174
Forward commitments	Forward commitments	47		—		47		—		Forward commitments	47		—		47		—
Total assets at fair value	Total assets at fair value	$	6,193,658	$	31,699	$	6,161,785	$	174	Total assets at fair value	$	6,193,658	$	31,699	$	6,161,785	$	174
Liabilities	Liabilities									Liabilities
Derivative financial instruments(1)	Derivative financial instruments(1)	$	46,226	$	—	$	46,226	$	—	Derivative financial instruments(1)	$	46,226	$	—	$	46,226	$	—
Forward commitments	Forward commitments	99		—		99		—		Forward commitments	99		—		99		—

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

(1) Includes interest rate swaps, embedded derivatives and back-to-back loan swaps.	(1) Includes interest rate swaps, embedded derivatives and back-to-back loan swaps.									(1) Includes interest rate swaps, embedded derivatives and back-to-back loan swaps.
(2) Includes back-to-back loan swaps and free standing derivatives.	(2) Includes back-to-back loan swaps and free standing derivatives.									(2) Includes back-to-back loan swaps and free standing derivatives.

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


		Fair Value Measurements at June 30, 2023											Fair Value Measurements at September 30, 2023
		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Year-to- Date (Gains) Losses			Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Year-to- Date (Gains) Losses
Collateral dependent individually assessed loans:	Collateral dependent individually assessed loans:											Collateral dependent individually assessed loans:
Commercial and industrial	Commercial and industrial	$	9,234	$	—	$	—	$	9,234	$	799	Commercial and industrial	$	8,530	$	—	$	—	$	8,530	$	554
Owner occupied commercial real estate	Owner occupied commercial real estate	7,339		—		—		7,339		—		Owner occupied commercial real estate	4,411		—		—		4,411		—
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	13,761		—		—		13,761		—		Non-owner occupied commercial real estate	6,323		—		—		6,323		—
Real estate construction	Real estate construction	910		—		—		910		—		Real estate construction	910		—		—		910		—
Agricultural and agricultural real estate	Agricultural and agricultural real estate	6,147		—		—		6,147		5,309		Agricultural and agricultural real estate	4,943		—		—		4,943		5,309
Residential real estate	Residential real estate	2,254		—		—		2,254		—		Residential real estate	2,216		—		—		2,216		—

Total collateral dependent individually assessed loans	Total collateral dependent individually assessed loans	$	39,645	$	—	$	—	$	39,645	$	6,108	Total collateral dependent individually assessed loans	$	27,333	$	—	$	—	$	27,333	$	5,863
Loans held for sale	Loans held for sale	$	14,353	$	—	$	14,353	$	—	$	(266)	Loans held for sale	$	6,262	$	—	$	6,262	$	—	$	(121)
Other real estate owned	Other real estate owned	2,677		—		—		2,677		737		Other real estate owned	14,362		—		—		14,362		1,010
Premises, furniture and equipment held for sale	Premises, furniture and equipment held for sale	3,741		—		—		3,741		759		Premises, furniture and equipment held for sale	2,798		—		—		2,798		1,455


	Fair Value Measurements at December 31, 2022
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Year-to- Date (Gains) Losses
Collateral dependent individually assessed loans:
Commercial and industrial	$	12,042	$	—	$	—	$	12,042	$	4,186
Owner occupied commercial real estate	7,556		—		—		7,556		—
Non-owner occupied commercial real estate	11,371		—		—		11,371		—
Real estate construction	1,518		—		—		1,518		—
Agricultural and agricultural real estate	3,788		—		—		3,788		—
Residential real estate	1,607		—		—		1,607		—

Total collateral dependent individually assessed loans	$	37,882	$	—	$	—	$	37,882	$	4,186
Loans held for sale	$	5,277	$	—	$	5,277	$	—	$	(116)

Other real estate owned	8,401		—		—		8,401		180
Premises, furniture and equipment held for sale	6,851		—		—		6,851		1,562
Servicing rights	7,840		—		—		7,840		516

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

Fair Value at
6/30/2023

Valuation
Technique

Unobservable
Input

Range (Weighted
Average)

Fair Value at
9/30/2023

Valuation
Technique

Unobservable
Input

Range (Weighted
Average)

Interest rate lock commitments

306

Discounted cash flows

Closing ratio

0-99% (89%)(1)

Interest rate lock commitments

Discounted cash flows

Closing ratio

0-99% (89%)(1)

Other real estate owned

2,677

Modified appraised value

Third party appraisal

(2)

Other real estate owned

14,362

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Appraisal discount

0-10%(3)

Premises, furniture and equipment held for sale

3,741

Modified appraised value

Third party appraisal

(2)

Premises, furniture and equipment held for sale

2,798

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Appraisal discount

0-10%(3)

Collateral dependent individually assessed loans:

Commercial

9,234

Modified appraised value

Third party appraisal

(2)

Commercial

8,530

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Appraisal discount

0-10%(3)

Owner occupied commercial real estate

7,339

Modified appraised value

Third party appraisal

(2)

Owner occupied commercial real estate

4,411

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-13%(3)

Appraisal discount

0-10%(3)

Non-owner occupied commercial real estate

13,761

Modified appraised value

Third party appraisal

(2)

Non-owner occupied commercial real estate

6,323

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-9%(3)

Appraisal discount

0-8%(3)

Real estate construction

910

Modified appraised value

Third party appraisal

(2)

Real estate construction

910

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Appraisal discount

0-10%(3)

Agricultural and agricultural real estate

6,147

Modified appraised value

Third party appraisal

(2)

Agricultural and agricultural real estate

4,943

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-15%(3)

Appraisal discount

0-10%(3)

Residential real estate

2,254

Modified appraised value

Third party appraisal

(2)

Residential real estate

2,216

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Appraisal discount

0-10%(3)

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

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

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

Fair Value at 12/31/2022

Valuation
Technique

Unobservable
Input

Range (Weighted Average)

Interest rate lock commitments

174

Discounted cash flows

Closing ratio

0-99% (88%)(1)

Other real estate owned

8,401

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Servicing rights

7,840

Discounted cash flows

Discount rate

9.98 - 11.72% (10.02%)(4)

Constant prepayment rate

7.8 - 14.2% (7.9%)(4)

Premises, furniture and equipment held for sale

6,851

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Collateral dependent individually assessed loans:

Commercial and industrial

12,042

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Owner occupied commercial real estate

7,556

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Non-owner occupied commercial real estate

11,371

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Real estate construction

1,518

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Agricultural and agricultural real estate

3,788

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-15%(3)

Residential real estate

1,607

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

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

The changes in fair value of the interest rate lock commitments, which are Level 3 financial instruments measured on a recurring basis, are summarized in the following table, in thousands:


		For the Six Months Ended June 30, 2023		For the Year Ended December 31, 2022			For the Nine Months Ended September 30, 2023		For the Year Ended December 31, 2022
Balance at January 1,	Balance at January 1,	$	174	$	1,306	Balance at January 1,	$	174	$	1,306

Total net gains included in earnings	Total net gains included in earnings	282		(1,828)		Total net gains included in earnings	(70)		(1,828)
Issuances	Issuances	1,110		3,683		Issuances	1,678		3,683
Settlements	Settlements	(1,260)		(2,987)		Settlements	(1,683)		(2,987)
Balance at period end	Balance at period end	$	306	$	174	Balance at period end	$	99	$	174

~~Gains included~~Included in gains (losses) on sale of loans held for sale attributable to interest rate lock commitments held at ~~June~~September 30, 2023, and December 31, 2022, were ~~$306,000~~losses of $99,000 and gains of $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 ~~June~~September 30, 2023, and December 31, 2022, in thousands. The carrying amounts in the following tables are recorded in the consolidated balance sheets under the indicated captions. In accordance with ASC 825, the assets and liabilities that are not financial instruments are not included in the disclosure, including the value of ~~the commercial and~~ mortgage servicing rights, premises, furniture and equipment, premises, furniture and equipment held for sale, OREO, goodwill, and other intangibles and other liabilities.

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


						Fair Value Measurements at June 30, 2023											Fair Value Measurements at September 30, 2023
		Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	400,187	$	400,187	$	400,187	$	—	$	—	Cash and cash equivalents	$	347,995	$	347,995	$	347,995	$	—	$	—
Time deposits in other financial institutions	Time deposits in other financial institutions	1,490		1,490		1,490		—		—		Time deposits in other financial institutions	1,490		1,490		1,490		—		—
Securities:	Securities:											Securities:

Carried at fair value	Carried at fair value	5,798,041		5,798,041		31,679		5,766,362		—		Carried at fair value	5,482,687		5,482,687		31,805		5,450,882		—
Held to maturity	Held to maturity	834,673		806,942		—		806,942		—		Held to maturity	835,468		758,626		—		758,626		—
Other investments	Other investments	72,291		72,291		—		72,291		—		Other investments	90,001		90,001		—		90,001		—
Loans held for sale	Loans held for sale	14,353		14,353		—		14,353		—		Loans held for sale	6,262		6,262		—		6,262		—
Loans, net:	Loans, net:											Loans, net:
Commercial and industrial	Commercial and industrial	3,561,284		3,380,572		—		3,371,338		9,234		Commercial and industrial	3,563,513		3,371,432		—		3,362,902		8,530
PPP	PPP	4,139		4,139		—		4,139		—		PPP	3,750		3,750		—		3,750		—
Owner occupied commercial real estate	Owner occupied commercial real estate	2,383,989		2,196,424		—		2,189,085		7,339		Owner occupied commercial real estate	2,414,985		2,225,107		—		2,220,696		4,411
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	2,512,760		2,370,988		—		2,357,227		13,761		Non-owner occupied commercial real estate	2,639,074		2,493,314		—		2,486,991		6,323
Real estate construction	Real estate construction	984,888		979,326		—		978,416		910		Real estate construction	1,000,575		977,316		—		976,406		910
Agricultural and agricultural real estate	Agricultural and agricultural real estate	836,306		760,910		—		754,763		6,147		Agricultural and agricultural real estate	837,712		760,022		—		755,079		4,943
Residential real estate	Residential real estate	820,793		708,992		—		706,738		2,254		Residential real estate	806,696		699,081		—		696,865		2,216
Consumer	Consumer	502,617		483,574		—		483,574		—		Consumer	495,923		476,515		—		476,515		—
Total Loans, net	Total Loans, net	11,606,776		10,884,925		—		10,845,280		39,645		Total Loans, net	11,762,228		11,006,537		—		10,979,204		27,333
Cash surrender value on life insurance	Cash surrender value on life insurance	195,793		195,793		—		195,793		—		Cash surrender value on life insurance	196,694		196,694		—		196,694		—
Derivative financial instruments(1)	Derivative financial instruments(1)	96,689		96,689		—		96,689		—		Derivative financial instruments(1)	167,925		167,925		—		167,925		—
Interest rate lock commitments	Interest rate lock commitments	306		306		—		—		306		Interest rate lock commitments	99		99		—		—		99
Forward commitments	Forward commitments	43		43		—		43		—		Forward commitments	41		41		—		41		—
Financial liabilities:	Financial liabilities:											Financial liabilities:
Deposits	Deposits											Deposits
Demand deposits	Demand deposits	4,897,858		4,897,858		—		4,897,858		—		Demand deposits	4,792,813		4,792,813		—		4,792,813		—
Savings deposits	Savings deposits	8,772,596		8,772,596		—		8,772,596		—		Savings deposits	8,754,911		8,754,911		—		8,754,911		—
Time deposits	Time deposits	3,993,089		3,993,089		—		3,993,089		—		Time deposits	3,553,269		3,553,269		—		3,553,269		—

Short term borrowings	Short term borrowings	44,364		44,364		—		44,364		—		Short term borrowings	392,634		392,634		—		392,634		—
Other borrowings	Other borrowings	372,403		374,127		—		374,127		—		Other borrowings	372,059		373,681		—		373,681		—
Derivative financial instruments(2)	Derivative financial instruments(2)	51,994		51,994		—		51,994		—		Derivative financial instruments(2)	76,074		76,074		—		76,074		—
Forward commitments	Forward commitments	4		4		—		4		—		Forward commitments	5		5		—		5		—

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


					Fair Value Measurements at December 31, 2022
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
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	6,147,144		6,147,144		31,699		6,115,445		—
Held to maturity	829,403		776,557		—		776,557		—
Other investments	74,567		74,567		—		74,567		—
Loans held for sale	5,277		5,277		—		5,277		—
Loans, net:
Commercial and industrial	3,435,343		3,270,127		—		3,258,085		12,042
PPP	11,025		11,025		—		11,025		—
Owner occupied commercial real estate	2,251,359		2,084,665		—		2,077,109		7,556
Non-owner occupied commercial real estate	2,314,401		2,184,796		—		2,173,425		11,371
Real estate construction	1,046,084		1,039,244		—		1,037,726		1,518
Agricultural and agricultural real estate	917,876		842,637		—		838,849		3,788
Residential real estate	845,650		741,325		—		739,718		1,607
Consumer	497,131		480,018		—		480,018		—
Total Loans, net	11,318,869		10,653,837		—		10,615,955		37,882
Cash surrender value on life insurance	193,403		193,403		—		193,403		—
Derivative financial instruments(1)	46,293		46,293		—		46,293		—
Interest rate lock commitments	174		174		—		—		174
Forward commitments	47		47		—		47		—
Financial liabilities:
Deposits
Demand deposits	5,701,340		5,701,340		—		5,701,340		—
Savings deposits	9,994,391		9,994,391		—		9,994,391		—
Time deposits	1,817,278		1,817,278		—		1,817,278		—

Short term borrowings	376,117		376,117		—		376,117		—
Other borrowings	371,753		372,473		—		372,473		—
Derivative financial instruments(1)	46,226		46,226		—		46,226		—
Forward commitments	99		99		—		99		—

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

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

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

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

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

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

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

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

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

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

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

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

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

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

NOTE 8: STOCK COMPENSATION

Under its 2020 Long-Term Incentive Plan (the "Plan"), HTLF's Compensation and Human Capital Committee, (the "Compensation Committee"), may grant non-qualified and incentive stock options, stock appreciation rights, stock awards, restricted stock, restricted stock units and cash incentive ~~awards, .~~awards. The Plan ~~has~~authorized 1,460,000 shares of common stock ~~authorized~~ for ~~issuance. As~~issuance, of ~~June 30, 2023, 757,105~~which 739,466 shares of common stock were available as of September 30, 2023, for issuance ~~under~~of future awards ~~that may be granted under the Plan~~ to employees and directors of, and service providers to, HTLF or its subsidiaries.

~~ASC Topic 718,~~ ~~"Compensation-Stock Compensation,"~~ ~~requires the measurement of the cost of employee services received in exchange for an award of equity instruments based upon the fair value of the award on the grant date.~~ The cost ~~of the~~each 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 ~~$75,000~~$115,000 of tax expense during the ~~six~~nine months ended ~~June~~September 30, 2023, and a tax benefit of $129,000 during the ~~six~~nine months ended ~~June~~September 30, 2022, related to the exercise, vesting and forfeiture of equity-based awards.

Restricted Stock Units

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

The Compensation Committee has also granted three-year performance-based RSUs, generally in the first quarter of each year. These performance-based RSUs will be earned based on satisfaction of performance targets for the three-year performance period as defined in the RSU agreement. These performance-based RSUs or a portion thereof vest after measurement of performance in relation to the performance targets.

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

All of HTLF's RSUs will be settled in common stock upon vesting. 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 RSUs outstanding as of ~~June~~September 30, 2023, and ~~June~~September 30, 2022, and changes during the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, follows:


		2023			2022				2023			2022
		Shares	Weighted-Average Grant Date Fair Value		Shares	Weighted-Average Grant Date Fair Value			Shares	Weighted-Average Grant Date Fair Value		Shares	Weighted-Average Grant Date Fair Value
Outstanding at January 1,	Outstanding at January 1,	424,086	$	46.15	389,885	$	44.19	Outstanding at January 1,	424,086	$	46.15	389,885	$	44.19
Granted	Granted	241,347	47.30		236,120	48.47		Granted	272,465	45.33		238,495	48.41
Vested	Vested	(166,845)	42.22		(158,519)	45.03		Vested	(175,313)	41.74		(158,702)	45.04
Forfeited	Forfeited	(28,612)	44.27		(25,500)	46.60		Forfeited	(42,091)	46.25		(27,316)	46.69
Outstanding at June 30,		469,976	$	48.25	441,986	$	46.03
Outstanding at September 30,								Outstanding at September 30,	479,147	$	47.29	442,362	$	46.01

Total compensation costs recorded for RSUs were ~~$6.7~~$7.4 million ~~and $5.1 million for~~during both the ~~six~~nine months ended ~~June~~September 30, 2023 and ~~2022, respectively.~~2022. As of ~~June~~September 30, 2023, there were ~~$12.9~~$11.0 million of total unrecognized compensation costs related to the Plan for RSUs that 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, 2022, 64,518 options were granted, and the fair value of the options granted was determined using the Black-Scholes valuation model. The options granted generally vest over the first four years in equal installments on the anniversary date of the grant. The options may also vest upon death, disability, upon a change in control or upon a "qualified retirement" as defined in the stock option agreement.

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

A summary of the status of stock options as of ~~June~~September 30, 2023, and changes during the ~~six~~nine months ended ~~June~~September 30, 2023, is shown in the table below. There were no options outstanding at ~~June~~September 30, 2022.


		2023				2023
		Shares	Weighted Average Exercise Price			Shares	Weighted Average Exercise Price
Outstanding January 1,	Outstanding January 1,	64,518	$	48.79	Outstanding January 1,	64,518	$	48.79
Granted	Granted	—	—		Granted	—	—
Exercised	Exercised	—	—		Exercised	—	—
Forfeited	Forfeited	(6,452)	48.79		Forfeited	(6,452)	48.79
Outstanding at June 30,		58,066	48.79
Options exercisable at June 30,		—	$	—
Outstanding at September 30,					Outstanding at September 30,	58,066	48.79
Options exercisable at September 30,					Options exercisable at September 30,	—	$	—

At ~~June~~September 30, 2023, the options had a weighted average remaining contractual life of ~~9.42~~9.17 years. The intrinsic value of the vested options as of ~~June~~September 30, 2023 was $0. The intrinsic value of the options exercised during the ~~six~~nine months ended ~~June~~September 30, 2023, was $0. The total fair value of the ~~shares~~options that vested during the ~~six~~nine months ended ~~June~~September 30, 2023, was $0. Total compensation costs recorded for stock options during the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 were ~~$109,000~~$165,000 and $0, respectively. As of ~~June~~September 30, 2023, there were ~~$602,000~~$546,000 of total unrecognized compensation costs related to the Plan for options that are expected to be recognized through 2026.

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

SAFE HARBOR STATEMENT

This Quarterly Report on Form 10-Q (including any information incorporated herein by reference) contains, and future oral and written statements of Heartland Financial USA, Inc. ("HTLF") and its management may contain, forward-looking statements within the meaning of such term in Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") with respect to the business, financial condition, results of operations, plans, objectives and future performance of HTLF. Any statements about HTLF's expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. Forward-looking statements may include information about possible or assumed future results of HTLF's operations or performance, and may be based upon beliefs, expectations and assumptions of HTLF's management. These forward-looking statements are generally 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~~ include, among others, those described below and in the risk factors in HTLF's reports filed with the Securities and Exchange Commission ("SEC"), including the "Risk Factors" section under Item 1A of Part I of the company’s Annual Report on Form 10-K for the year ended December 31, 2022:

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

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

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

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

•Strategic and External Risks, including economic, political, and competitive forces impacting our business;

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

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

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

CRITICAL ACCOUNTING ESTIMATES

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

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

OVERVIEW

Heartland Financial USA, Inc. is a bank holding company operating under the brand name "HTLF". HTLF's independently branded banks (referred to herein collectively as the "Banks", "Bank Markets") serve communities in Arizona, California, Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Montana, New Mexico, Texas and Wisconsin. HTLF is committed to its core commercial business supported by a strong retail operation and provides a diversified line of financial services and products including treasury management, commercial credit cards, wealth management, investments and residential mortgages. As of ~~June~~September 30, 2023, HTLF had ~~four~~two Banks ~~operating~~and operated under 11 local bank brands through a total of ~~117~~116 locations.

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

HTLF Response to Recent Banking Industry Disruptions

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 and adjust deposit pricing to address the highly competitive deposit environment, and

•maintain borrowing capacity through various federal programs, including the Federal Reserve's Bank Term Funding Program ("BTFP"), which totaled ~~$3.30~~$3.09 billion as of ~~June~~September 30, 2023, of which no balance was ~~drawn, and~~

•~~conduct active commercial and retail deposit campaigns, which resulted in nearly 1,300 net new commercial deposit account and over 1,400 net new retail accounts opened in the second quarter of 2023.~~

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 June 30, 2023:

•~~Outstanding loans totaling $408.4 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 $1.3 million.~~

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

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

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

As of ~~June~~September 30, 2023:

•~~66%~~64% of HTLF's deposits were insured or collateralized.

•HTLF's capital ratios substantially exceeded the well-capitalized 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.

•Outstanding loans totaling $425.9 million were collateralized by non-owner occupied office space, which represents 3.6% of the total loans held to maturity, and the average loan size was $1.5 million.

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

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

Overview of ~~Second~~Third Quarter and Year to Date results as of ~~June~~September 30, 2023

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

•net income available to common stockholders of ~~$47.4~~$46.1 million compared to ~~$49.9~~$54.6 million, a decrease of ~~$2.5~~$8.5 million or 5%16%,

•earnings per diluted common share of ~~$1.11~~$1.08 compared to ~~$1.17,~~$1.28, a decrease of ~~$0.06~~$0.20 or 5%16%,

•earnings per diluted common share included $0.04 of acquisition, integration and restructuring costs in both quarters,

•net interest income of ~~$147.1~~$145.8 million compared to ~~$142.5~~$155.9 million, ~~an increase~~a decrease of ~~$4.7~~$10.1 million or 3%6%,

•~~total revenue growth of $2.6 million or 1% to $179.6 million~~return on average assets was 0.94% compared to ~~$177.0 million,~~1.13%,

•return on average ~~assets was 0.98% compared to 1.06%,~~

•~~return on average~~ common equity was ~~11.01%~~10.47% compared to ~~11.55%~~12.93%, and

•return on average tangible common equity (non-GAAP) was ~~17.33%~~16.34% compared to ~~18.35%~~20.76%.

HTLF reported the following results for the ~~six~~nine months ended ~~June~~September 30, 2023 compared to the ~~six~~nine months ended ~~June~~September 30, 2022:

•net income available to common stockholders of ~~$98.2~~$144.2 million compared to ~~$90.9~~$145.5 million, ~~an increase~~a decrease of ~~$7.2~~$1.2 million or 8%1%.

•earnings per diluted common share of ~~$2.30~~$3.37 compared to ~~$2.14, an increase~~$3.42, a decrease of ~~$0.16~~$0.05 or 7%1%,

•earnings per diluted common share included $0.11 of acquisition, integration and restructuring costs compared to $0.10,

•net interest income of ~~$299.3~~$445.1 million compared to ~~$277.1~~$433.0 million, an increase of ~~$22.2~~$12.1 million or 8%3%,

•~~total revenue of $361.8 million~~return on average assets was 1.00% compared to ~~$346.2 million, an increase of $15.6 million or 5%~~1.04%,

•return on average common equity was ~~11.70%~~11.28% compared to ~~9.82%,~~

•~~return on average assets was 1.02% compared to 0.99%~~10.80%, and

•return on average tangible common equity (non-GAAP) was ~~18.63%~~17.83% compared to ~~15.08%~~16.79%.

For the ~~second~~third quarter of 2023, net interest margin was ~~3.19% (3.24%~~3.14% (3.18% on a fully tax-equivalent basis, non-GAAP), which compares to ~~3.36% (3.40% on a fully tax-equivalent basis, non-GAAP) for the first quarter of 2023, and 3.18% (3.22%~~3.19% (3.23% on a fully tax-equivalent basis, non-GAAP) for the second quarter of 2023, and 3.41% (3.45% on a fully tax-equivalent basis, non-GAAP) for the third quarter of 2022. For the first ~~six~~nine months of 2023, net interest margin was ~~3.27% (3.32%~~3.23% (3.27% on a fully tax-equivalent basis, non-GAAP) which compares to ~~3.13% (3.17%~~3.22% (3.27% on a fully tax equivalent basis, non-GAAP) for the first ~~six~~nine months of 2022.

The efficiency ratio was ~~60.93% (59.82%~~63.77% (59.95% on an adjusted fully tax-equivalent basis, non-GAAP) for the ~~second~~third quarter of 2023 compared to ~~60.16% (57.66%~~58.84% (55.26% on an adjusted fully-tax equivalent basis, non-GAAP) for the same quarter of 2022. For the first ~~six~~nine months of 2023, the efficiency ratio was ~~60.94% (58.48%~~61.86% (58.98% on an adjusted fully tax-equivalent basis, non-GAAP) compared to ~~62.75% (61.02%~~61.39% (58.99% on an adjusted fully tax-equivalent basis, non-GAAP) for the first ~~six~~nine months of 2022.

Total assets were ~~$20.22~~$20.13 billion at ~~June~~September 30, 2023, a decrease of ~~$19.5~~$114.4 million or ~~less than~~ 1% since December 31, 2022. Securities represented ~~33%~~32% and 35% of total assets at ~~June~~September 30, 2023 and December 31, 2022, respectively. Total loans held to maturity were ~~$11.72~~$11.87 billion at ~~June~~September 30, 2023, compared to $11.43 billion at December 31, 2022, an increase of ~~$289.6~~$444.1 million or 3%4%.

The total allowance for lending related credit losses was ~~$129.8~~$127.7 million or ~~1.11%~~1.08% of total loans at ~~June~~September 30, 2023, compared to $129.7 million or 1.13% of total loans at December 31, 2022.

Total deposits were ~~$17.66~~$17.10 billion as of ~~June~~September 30, 2023, compared to $17.51 billion at December 31, 2022, ~~an increase~~a decrease of ~~$150.5~~$412.0 million or 1%2%.

Total equity was ~~$1.86~~$1.83 billion at ~~June~~September 30, 2023, compared to $1.74 billion at December 31, 2022. Book value per common share was ~~$41.00~~$40.20 at ~~June~~September 30, 2023, compared to $38.25 at year-end 2022. The unrealized loss on securities available for sale including the unrealized gain on the fair value security hedges, net of applicable taxes, was ~~$576.5~~$644.0 million at ~~June~~September 30, 2023, compared to an unrealized loss of $619.2 million, net of applicable taxes, at December 31, 2022.

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

2023 Developments

HTLF Retirement Plan Services

As of March 29, 2023, HTLF's subsidiary, Dubuque Bank & Trust, entered into an agreement to sell and transfer the recordkeeping and administration services component of HTLF’s Retirement Plan Services business to July Business Services ("July"). Through the new partnership with July, HTLF expects to augment the comprehensive retirement plan solutions offered to clients with enhanced technology and an expanded suite of product offerings that clients expect from a top retirement services provider. The transaction was completed and recordkeeping and administration services were transferred in the second quarter of 2023. The transaction resulted in a gain of $4.3 million.

First Bank & Trust Mortgage Servicing Rights

On March 31, 2023, First Bank & Trust, a division of HTLF Bank, closed on the sale of its mortgage servicing rights portfolio, which consisted of approximately 4,500 loans serviced for others with an unpaid principal balance of $698.5 million. ~~In the agreement, which includes customary terms and conditions,~~ First Bank & Trust provided interim servicing of the loans until the transfer date of May 1, 2023.

Goodwill Impairment Testing

The sustained decline in HTLF's stock price, which management deemed to be a triggering event, caused management to perform impairment testing on its goodwill in the second quarter of 2023. Management concluded that none of the goodwill at any of HTLF's reporting units was impaired.

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 an interest rate ~~swap~~swaps designated as a fair value ~~hedge~~hedges with an original notional ~~amount of $500.0 million~~amounts totaling $2.5 billion to convert certain long term fixed rate loans to floating rates to hedge interest rate risk exposure.

Sale of Securities

Subsequent to September 30, 2023, in late October and early November, in responses to changes in interest rates, HTLF sold investment securities with a combined yield of approximately 2.48% and an average life of approximately 4.6 years in a series of sale transactions, resulting in proceeds totaling approximately $667.9 million and realized securities losses of approximately $103.5 million or approximately $77.7 million after tax. HTLF intends to utilize the proceeds to reduce its wholesale deposits and short-term borrowings, which carry an interest rate of approximately 5.52%.

These transactions decreased earning assets by approximately $667.9 million and tangible assets by approximately $693.7 million. Future net interest income is expected to increase approximately $20.3 million on an annualized basis. In addition, the net interest margin is expected to increase approximately 11 basis points due to the increase in net interest income and the decrease in earning assets. Because the securities sold were held on the balance sheet as available for sale, the incurred loss was included in tangible common equity at September 30, 2023, and with the decrease in tangible assets, management expects the tangible common equity ratio to immediately increase by approximately 36 basis points.

Depending on market conditions, HTLF may execute additional sales of this nature in the near future and intends to use the proceeds to further reduce high-cost wholesale deposits and short-term borrowings.

Charter Consolidation Update

During the ~~second~~third quarter of 2023, Rocky Mountain Bank ~~of Blue Valley~~ and ~~First~~New Mexico Bank & Trust were consolidated into HTLF Bank. Subsequent to ~~June~~September 30, 2023, ~~Rocky Mountain~~Dubuque Bank & Trust was consolidated into HTLF ~~Bank. Citywide Banks, Premier Valley~~ Bank, ~~Minnesota Bank & Trust, Arizona Bank & Trust, Illinois Bank & Trust, Wisconsin Bank & Trust, Bank~~which completed the consolidation of ~~Blue Valley, First Bank & Trust and Rocky Mountain Bank are now operating as divisions of~~member banks into HTLF Bank. ~~The remaining two charters are expected to be consolidated by the end of 2023. Charter consolidation follows a template that retains the current brands, local leadership and local decision making.~~

~~Consolidation~~Total consolidation restructuring costs are projected to be ~~$19-~~$18-$2019 million with approximately ~~$6-~~$2-$73 million of expenses remaining to be incurred in 2023. Total costs incurred since the project started in the fourth quarter of 2021 through ~~June~~September 30, 2023, were ~~$12.9~~$15.3 million, of which ~~$1.9~~$2.4 million ~~was~~were incurred in the ~~second~~third quarter of 2023. Total charter consolidation costs for the first ~~six~~nine months of 2023 totaled ~~$3.6~~$6.0 million. Charter consolidation is designed to eliminate redundancies and improve HTLF’s operating efficiency and capacity to support ongoing product and service enhancements, as well as current and future growth. HTLF has realized some operating efficiencies and financial benefits with the completion of nine charter consolidations. The resulting efficiencies and expansion in capacity are projected to generate benefits of approximately $20 million annually when the project is completed with core operating expenses expected to decline to 2.10% or less of average assets.


FINANCIAL HIGHLIGHTS	FINANCIAL HIGHLIGHTS													FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	Three Months Ended June 30,						Six Months Ended June 30,						(Dollars in thousands, except per share data)	Three Months Ended September 30,						Nine Months Ended September 30,
		2023			2022			2023			2022				2023			2022			2023			2022
STATEMENT OF INCOME DATA	STATEMENT OF INCOME DATA													STATEMENT OF INCOME DATA
Interest income	Interest income	$	235,500		$	152,887		$	452,478		$	294,149		Interest income	$	245,432		$	175,806		$	697,910		$	469,955
Interest expense	Interest expense	88,368			10,426			153,134			17,009			Interest expense	99,676			19,930			252,810			36,939
Net interest income	Net interest income	147,132			142,461			299,344			277,140			Net interest income	145,756			155,876			445,100			433,016
Provision for credit losses	Provision for credit losses	5,379			3,246			8,453			6,491			Provision for credit losses	1,516			5,492			9,969			11,983
Net interest income after provision for credit losses	Net interest income after provision for credit losses	141,753			139,215			290,891			270,649			Net interest income after provision for credit losses	144,240			150,384			435,131			421,033
Noninterest income	Noninterest income	32,493			34,539			62,492			69,108			Noninterest income	28,383			29,181			90,875			98,289
Noninterest expenses	Noninterest expenses	109,446			106,479			220,489			217,276			Noninterest expenses	111,053			108,883			331,542			326,159
Income taxes	Income taxes	15,384			15,402			30,702			27,519			Income taxes	13,479			14,118			44,181			41,637
Net income	Net income	49,416			51,873			102,192			94,962			Net income	48,091			56,564			150,283			151,526
Preferred dividends	Preferred dividends	(2,012)			(2,012)			(4,025)			(4,025)			Preferred dividends	(2,013)			(2,013)			(6,038)			(6,038)

Net income available to common stockholders	Net income available to common stockholders	$	47,404		$	49,861		$	98,167		$	90,937		Net income available to common stockholders	$	46,078		$	54,551		$	144,245		$	145,488

KEY PERFORMANCE RATIOS	KEY PERFORMANCE RATIOS													KEY PERFORMANCE RATIOS
Annualized return on average assets	Annualized return on average assets	0.98		%	1.06		%	1.02		%	0.99		%	Annualized return on average assets	0.94		%	1.13		%	1.00		%	1.04		%
Annualized return on average common equity (GAAP)	Annualized return on average common equity (GAAP)	11.01			11.55			11.70			9.82			Annualized return on average common equity (GAAP)	10.47			12.93			11.28			10.80
Annualized return on average tangible common equity (non-GAAP)(1)	Annualized return on average tangible common equity (non-GAAP)(1)	17.33			18.35			18.63			15.08			Annualized return on average tangible common equity (non-GAAP)(1)	16.34			20.76			17.83			16.79

Annualized ratio of net charge-offs/(recoveries) to average loans		0.32			0.03			0.15			0.25
Annualized ratio of net charge-offs to average loans														Annualized ratio of net charge-offs to average loans	0.12			0.00			0.14			0.17
Annualized net interest margin (GAAP)	Annualized net interest margin (GAAP)	3.19			3.18			3.27			3.13			Annualized net interest margin (GAAP)	3.14			3.41			3.23			3.22
Annualized net interest margin, fully tax-equivalent (non-GAAP)(1)	Annualized net interest margin, fully tax-equivalent (non-GAAP)(1)	3.24			3.22			3.32			3.17			Annualized net interest margin, fully tax-equivalent (non-GAAP)(1)	3.18			3.45			3.27			3.27
Efficiency ratio (GAAP)	Efficiency ratio (GAAP)	60.93			60.16			60.94			62.75			Efficiency ratio (GAAP)	63.77			58.84			61.86			61.39
Adjusted efficiency ratio, fully tax-equivalent (non-GAAP)(1)	Adjusted efficiency ratio, fully tax-equivalent (non-GAAP)(1)	59.82			57.66			58.48			61.02			Adjusted efficiency ratio, fully tax-equivalent (non-GAAP)(1)	59.95			55.26			58.98			58.99
Total noninterest expenses to average assets	Total noninterest expenses to average assets	2.17			2.18			2.20			2.26			Total noninterest expenses to average assets	2.18			2.18			2.20			2.23
Core noninterest expenses to average assets (non-GAAP)(1)	Core noninterest expenses to average assets (non-GAAP)(1)	2.16			2.14			2.15			2.21			Core noninterest expenses to average assets (non-GAAP)(1)	2.08			2.09			2.12			2.17


Dollars in thousands, expect per share data	Dollars in thousands, expect per share data	As Of and For the Quarter Ended															Dollars in thousands, expect per share data	As Of and For the Quarter Ended
		6/30/2023			3/31/2023			12/31/2022			9/30/2022			6/30/2022				9/30/2023			6/30/2023			3/31/2023			12/31/2022			9/30/2022
BALANCE SHEET DATA	BALANCE SHEET DATA																BALANCE SHEET DATA
Investments	Investments	$	6,705,005		$	7,001,119		$	7,051,114		$	6,970,864		$	7,274,056		Investments	$	6,408,156		$	6,705,005		$	7,001,119		$	7,051,114		$	6,970,864
Loans held for sale	Loans held for sale	14,353			10,425			5,277			9,570			18,803			Loans held for sale	6,262			14,353			10,425			5,277			9,570
Loans receivable held to maturity	Loans receivable held to maturity	11,717,974			11,495,353			11,428,352			10,923,532			10,678,218			Loans receivable held to maturity	11,872,436			11,717,974			11,495,353			11,428,352			10,923,532
Allowance for credit losses	Allowance for credit losses	111,198			112,707			109,483			105,715			101,353			Allowance for credit losses	110,208			111,198			112,707			109,483			105,715
Total assets	Total assets	20,224,716			20,182,544			20,244,228			19,682,950			19,658,399			Total assets	20,129,793			20,224,716			20,182,544			20,244,228			19,682,950
Total deposits	Total deposits	17,663,543			17,681,346			17,513,009			17,267,121			17,225,550			Total deposits	17,100,993			17,663,543			17,681,346			17,513,009			17,267,121
Long-term obligations	Long-term obligations	372,403			372,097			371,753			371,446			372,538			Long-term obligations	372,059			372,403			372,097			371,753			371,446

Common equity	Common equity	1,748,285			1,718,700			1,624,350			1,545,253			1,663,363			Common equity	1,714,825			1,748,285			1,718,700			1,624,350			1,545,253

COMMON SHARE DATA	COMMON SHARE DATA																COMMON SHARE DATA
Book value per common share (GAAP)	Book value per common share (GAAP)	$	41.00		$	40.38		$	38.25		$	36.41		$	39.19		Book value per common share (GAAP)	$	40.20		$	41.00		$	40.38		$	38.25		$	36.41
Tangible book value per common share (non-GAAP)(1)	Tangible book value per common share (non-GAAP)(1)	$	26.98		$	26.30		$	24.09		$	22.20		$	24.94		Tangible book value per common share (non-GAAP)(1)	$	26.23		$	26.98		$	26.30		$	24.09		$	22.20
ASC 320 effect on book value per common share	ASC 320 effect on book value per common share	$	(14.04)		$	(13.35)		$	(14.58)		$	(15.31)		$	(11.43)		ASC 320 effect on book value per common share	$	(16.27)		$	(14.04)		$	(13.35)		$	(14.58)		$	(15.31)
Common shares outstanding, net of treasury stock	Common shares outstanding, net of treasury stock	42,644,544			42,558,726			42,467,394			42,444,106			42,439,439			Common shares outstanding, net of treasury stock	42,656,303			42,644,544			42,558,726			42,467,394			42,444,106
Tangible common equity ratio (non-GAAP)(1)	Tangible common equity ratio (non-GAAP)(1)	5.86		%	5.72		%	5.21		%	4.94		%	5.56		%	Tangible common equity ratio (non-GAAP)(1)	5.73		%	5.86		%	5.72		%	5.21		%	4.94		%
Adjusted tangible common equity ratio (non-GAAP)(1)	Adjusted tangible common equity ratio (non-GAAP)(1)	8.79		%	8.61		%	8.37		%	8.35		%	8.11		%	Adjusted tangible common equity ratio (non-GAAP)(1)	8.73		%	8.54		%	8.37		%	8.11		%	8.07		%

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


Non-GAAP Reconciliations (Dollars in thousands, except per share data)	Non-GAAP Reconciliations (Dollars in thousands, except per share data)																Non-GAAP Reconciliations (Dollars in thousands, except per share data)
		As Of and For the Quarter Ended																As Of and For the Quarter Ended
		6/30/2023			3/31/2023			12/31/2022			9/30/2022			6/30/2022				9/30/2023			6/30/2023			3/31/2023			12/31/2022			9/30/2022
Reconciliation of Tangible Book Value Per Common Share (non-GAAP)	Reconciliation of Tangible Book Value Per Common Share (non-GAAP)																Reconciliation of Tangible Book Value Per Common Share (non-GAAP)
Common equity (GAAP)	Common equity (GAAP)	$	1,748,285		$	1,718,700		$	1,624,350		$	1,545,253		$	1,663,363		Common equity (GAAP)	$	1,714,825		$	1,748,285		$	1,718,700		$	1,624,350		$	1,545,253
Less goodwill	Less goodwill	576,005			576,005			576,005			576,005			576,005			Less goodwill	576,005			576,005			576,005			576,005			576,005
Less core deposit and customer relationship intangibles, net	Less core deposit and customer relationship intangibles, net	21,651			23,366			25,154			26,995			28,851			Less core deposit and customer relationship intangibles, net	20,026			21,651			23,366			25,154			26,995
Tangible common equity (non-GAAP)	Tangible common equity (non-GAAP)	$	1,150,629		$	1,119,329		$	1,023,191		$	942,253		$	1,058,507		Tangible common equity (non-GAAP)	$	1,118,794		$	1,150,629		$	1,119,329		$	1,023,191		$	942,253

Common shares outstanding, net of treasury stock	Common shares outstanding, net of treasury stock	42,644,544			42,558,726			42,467,394			42,444,106			42,439,439			Common shares outstanding, net of treasury stock	42,656,303			42,644,544			42,558,726			42,467,394			42,444,106
Common equity (book value) per share (GAAP)	Common equity (book value) per share (GAAP)	$	41.00		$	40.38		$	38.25		$	36.41		$	39.19		Common equity (book value) per share (GAAP)	$	40.20		$	41.00		$	40.38		$	38.25		$	36.41
Tangible book value per common share (non-GAAP)	Tangible book value per common share (non-GAAP)	$	26.98		$	26.30		$	24.09		$	22.20		$	24.94		Tangible book value per common share (non-GAAP)	$	26.23		$	26.98		$	26.30		$	24.09		$	22.20

Reconciliation of Tangible Common Equity Ratio (non-GAAP)	Reconciliation of Tangible Common Equity Ratio (non-GAAP)																Reconciliation of Tangible Common Equity Ratio (non-GAAP)
Tangible common equity (non-GAAP)	Tangible common equity (non-GAAP)	$	1,150,629		$	1,119,329		$	1,023,191		$	942,253		$	1,058,507		Tangible common equity (non-GAAP)	$	1,118,794		$	1,150,629		$	1,119,329		$	1,023,191		$	942,253

Total assets (GAAP)	Total assets (GAAP)	$	20,224,716		$	20,182,544		$	20,244,228		$	19,682,950		$	19,658,399		Total assets (GAAP)	$	20,129,793		$	20,224,716		$	20,182,544		$	20,244,228		$	19,682,950
Less goodwill	Less goodwill	576,005			576,005			576,005			576,005			576,005			Less goodwill	576,005			576,005			576,005			576,005			576,005
Less core deposit and customer relationship intangibles, net	Less core deposit and customer relationship intangibles, net	21,651			23,366			25,154			26,995			28,851			Less core deposit and customer relationship intangibles, net	20,026			21,651			23,366			25,154			26,995
Total tangible assets (non-GAAP)	Total tangible assets (non-GAAP)	$	19,627,060		$	19,583,173		$	19,643,069		$	19,079,950		$	19,053,543		Total tangible assets (non-GAAP)	$	19,533,762		$	19,627,060		$	19,583,173		$	19,643,069		$	19,079,950
Tangible common equity ratio (non-GAAP)	Tangible common equity ratio (non-GAAP)	5.86		%	5.72		%	5.21		%	4.94		%	5.56		%	Tangible common equity ratio (non-GAAP)	5.73		%	5.86		%	5.72		%	5.21		%	4.94		%

Reconciliation of Adjusted Tangible Common Equity Ratio (non-GAAP)	Reconciliation of Adjusted Tangible Common Equity Ratio (non-GAAP)																Reconciliation of Adjusted Tangible Common Equity Ratio (non-GAAP)
Tangible common equity (non-GAAP)	Tangible common equity (non-GAAP)	$	1,150,629		$	1,119,329		$	1,023,191		$	942,253		$	1,058,507		Tangible common equity (non-GAAP)	$	1,118,794		$	1,150,629		$	1,119,329		$	1,023,191		$	942,253
Accumulated other comprehensive loss	Accumulated other comprehensive loss	575,240			566,919			620,006			650,636			486,918			Accumulated other comprehensive loss	642,838			575,240			566,919			620,006			650,636
Adjusted tangible common equity (non-GAAP)	Adjusted tangible common equity (non-GAAP)	$	1,725,869		$	1,686,248		$	1,643,197		$	1,592,889		$	1,545,425		Adjusted tangible common equity (non-GAAP)	$	1,761,632		$	1,725,869		$	1,686,248		$	1,643,197		$	1,592,889

Total tangible assets (non-GAAP)	Total tangible assets (non-GAAP)	$	19,627,060		$	19,583,173		$	19,643,069		$	19,079,950		$	19,053,543		Total tangible assets (non-GAAP)	$	19,533,762		$	19,627,060		$	19,583,173		$	19,643,069		$	19,079,950
Fair value adjustment for securities and derivatives, net of deferred taxes																	Fair value adjustment for securities and derivatives, net of deferred taxes	642,838			575,240			566,919			620,006			650,636
Total adjusted tangible assets (non-GAAP)																	Total adjusted tangible assets (non-GAAP)	$	20,176,600		$	20,202,300		$	20,150,092		$	20,263,075		$	19,730,586
Adjusted tangible common equity ratio (non-GAAP)	Adjusted tangible common equity ratio (non-GAAP)	8.79		%	8.61		%	8.37		%	8.35		%	8.11		%	Adjusted tangible common equity ratio (non-GAAP)	8.73		%	8.54		%	8.37		%	8.11		%	8.07		%

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


Non-GAAP Reconciliations (Dollars in thousands, except per share data)	Non-GAAP Reconciliations (Dollars in thousands, except per share data)	For the Quarter Ended June 30,						For the Six Months Ended June 30,						Non-GAAP Reconciliations (Dollars in thousands, except per share data)	For the Quarter Ended September 30,						For the Nine Months Ended September 30,
		2023			2022			2023			2022				2023			2022			2023			2022
Reconciliation of Annualized Return on Average Tangible Common Equity (non-GAAP)	Reconciliation of Annualized Return on Average Tangible Common Equity (non-GAAP)													Reconciliation of Annualized Return on Average Tangible Common Equity (non-GAAP)
Net income available to common stockholders (GAAP)	Net income available to common stockholders (GAAP)	$	47,404		$	49,861		$	98,167		$	90,937		Net income available to common stockholders (GAAP)	$	46,078		$	54,551		$	144,245		$	145,488
Plus core deposit and customer relationship intangibles amortization, net of tax(1)	Plus core deposit and customer relationship intangibles amortization, net of tax(1)	1,354			1,645			2,767			3,268			Plus core deposit and customer relationship intangibles amortization, net of tax(1)	1,284			1,466			4,051			4,734
Net income available to common stockholders excluding intangible amortization (non-GAAP)	Net income available to common stockholders excluding intangible amortization (non-GAAP)	$	48,758		$	51,506		$	100,934		$	94,205		Net income available to common stockholders excluding intangible amortization (non-GAAP)	$	47,362		$	56,017		$	148,296		$	150,222

Average common equity (GAAP)	Average common equity (GAAP)	$	1,727,013		$	1,731,393		$	1,691,633		$	1,866,657		Average common equity (GAAP)	$	1,746,818		$	1,674,306		$	1,710,230		$	1,801,835
Less average goodwill	Less average goodwill	576,005			576,005			576,005			576,005			Less average goodwill	576,005			576,005			576,005			576,005
Less average core deposit and customer relationship intangibles, net	Less average core deposit and customer relationship intangibles, net	22,481			29,845			23,355			30,883			Less average core deposit and customer relationship intangibles, net	20,821			27,902			22,501			29,878
Average tangible common equity (non-GAAP)	Average tangible common equity (non-GAAP)	$	1,128,527		$	1,125,543		$	1,092,273		$	1,259,769		Average tangible common equity (non-GAAP)	$	1,149,992		$	1,070,399		$	1,111,724		$	1,195,952
Annualized return on average common equity (GAAP)	Annualized return on average common equity (GAAP)	11.01		%	11.55		%	11.70		%	9.82		%	Annualized return on average common equity (GAAP)	10.47		%	12.93		%	11.28		%	10.80		%
Annualized return on average tangible common equity (non-GAAP)	Annualized return on average tangible common equity (non-GAAP)	17.33		%	18.35		%	18.63		%	15.08		%	Annualized return on average tangible common equity (non-GAAP)	16.34		%	20.76		%	17.83		%	16.79		%

Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)	Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)													Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)
Net interest income (GAAP)	Net interest income (GAAP)	$	147,132		$	142,461		$	299,344		$	277,140		Net interest income (GAAP)	$	145,756		$	155,876		$	445,100		$	433,016
Plus tax-equivalent adjustment(1)	Plus tax-equivalent adjustment(1)	2,314			1,977			4,523			4,096			Plus tax-equivalent adjustment(1)	2,152			2,151			6,497			6,247
Net interest income, fully tax-equivalent (non-GAAP)	Net interest income, fully tax-equivalent (non-GAAP)	$	149,446		$	144,438		$	303,867		$	281,236		Net interest income, fully tax-equivalent (non-GAAP)	$	147,908		$	158,027		$	451,597		$	439,263

Average earning assets	Average earning assets	$	18,523,552		$	17,987,734		$	18,458,462		$	17,873,037		Average earning assets	$	18,439,010		$	18,157,795		$	18,451,907		$	17,969,001

Annualized net interest margin (GAAP)	Annualized net interest margin (GAAP)	3.19		%	3.18		%	3.27		%	3.13		%	Annualized net interest margin (GAAP)	3.14		%	3.41		%	3.23		%	3.22		%
Annualized net interest margin, fully tax-equivalent (non-GAAP)	Annualized net interest margin, fully tax-equivalent (non-GAAP)	3.24			3.22			3.32			3.17			Annualized net interest margin, fully tax-equivalent (non-GAAP)	3.18			3.45			3.27			3.27
Net purchase accounting discount accretion on loans included in annualized net interest margin	Net purchase accounting discount accretion on loans included in annualized net interest margin	0.03			0.07			0.02			0.06			Net purchase accounting discount accretion on loans included in annualized net interest margin	0.01			0.03			0.02			0.05


Reconciliation of Adjusted Efficiency Ratio (non-GAAP)	Reconciliation of Adjusted Efficiency Ratio (non-GAAP)													Reconciliation of Adjusted Efficiency Ratio (non-GAAP)
Net interest income (GAAP)	Net interest income (GAAP)	$	147,132		$	142,461		$	299,344		$	277,140		Net interest income (GAAP)	$	145,756		$	155,876		$	445,100		$	433,016
Tax-equivalent adjustment(1)	Tax-equivalent adjustment(1)	2,314			1,977			4,523			4,096			Tax-equivalent adjustment(1)	2,152			2,151			6,497			6,247
Fully tax-equivalent net interest income	Fully tax-equivalent net interest income	149,446			144,438			303,867			281,236			Fully tax-equivalent net interest income	147,908			158,027			451,597			439,263
Noninterest income (GAAP)	Noninterest income (GAAP)	32,493			34,539			62,492			69,108			Noninterest income (GAAP)	28,383			29,181			90,875			98,289
Securities (gains)/losses, net	Securities (gains)/losses, net	314			2,089			1,418			(783)			Securities (gains)/losses, net	114			1,055			1,532			272
Unrealized (gain)/loss on equity securities, net	Unrealized (gain)/loss on equity securities, net	41			121			(152)			404			Unrealized (gain)/loss on equity securities, net	(13)			211			(165)			615

Valuation adjustment on servicing rights	Valuation adjustment on servicing rights	—			—			—			(1,658)			Valuation adjustment on servicing rights	—			—			—			(1,658)
Adjusted revenue (non-GAAP)	Adjusted revenue (non-GAAP)	$	182,294		$	181,187		$	367,625		$	348,307		Adjusted revenue (non-GAAP)	$	176,392		$	188,474		$	543,839		$	536,781

Total noninterest expenses (GAAP)	Total noninterest expenses (GAAP)	$	109,446		$	106,479		$	220,489		$	217,276		Total noninterest expenses (GAAP)	$	111,053		$	108,883		$	331,542		$	326,159
Less:	Less:													Less:
Core deposit and customer relationship intangibles amortization	Core deposit and customer relationship intangibles amortization	1,715			2,083			3,503			4,137			Core deposit and customer relationship intangibles amortization	1,625			1,856			5,128			5,993
Partnership investment in tax credit projects	Partnership investment in tax credit projects	154			737			692			814			Partnership investment in tax credit projects	1,136			979			1,828			1,793
(Gain)/loss on sales/valuation of assets, net	(Gain)/loss on sales/valuation of assets, net	(3,372)			(3,230)			(2,257)			(3,184)			(Gain)/loss on sales/valuation of assets, net	108			(251)			(2,149)			(3,435)
Acquisition, integration and restructuring costs	Acquisition, integration and restructuring costs	1,892			2,412			3,565			2,988			Acquisition, integration and restructuring costs	2,429			2,156			5,994			5,144
Core expenses (non-GAAP)	Core expenses (non-GAAP)	$	109,057		$	104,477		$	214,986		$	212,521		Core expenses (non-GAAP)	$	105,755		$	104,143		$	320,741		$	316,664
Efficiency ratio (GAAP)	Efficiency ratio (GAAP)	60.93		%	60.16		%	60.94		%	62.75		%	Efficiency ratio (GAAP)	63.77		%	58.84		%	61.86		%	61.39		%
Adjusted efficiency ratio, fully tax-equivalent (non-GAAP)	Adjusted efficiency ratio, fully tax-equivalent (non-GAAP)	59.82		%	57.66		%	58.48		%	61.02		%	Adjusted efficiency ratio, fully tax-equivalent (non-GAAP)	59.95		%	55.26		%	58.98		%	58.99		%

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


Non-GAAP Reconciliations (Dollars in thousands, except per share data)	Non-GAAP Reconciliations (Dollars in thousands, except per share data)	For the Quarter Ended June 30,						For the Six Months Ended June 30,						Non-GAAP Reconciliations (Dollars in thousands, except per share data)	For the Quarter Ended September 30,						For the Nine Months Ended September 30,
		2023			2022			2023			2022				2023			2022			2023			2022
Reconciliation of Annualized Ratio of Core Expenses to Average Assets (non-GAAP)	Reconciliation of Annualized Ratio of Core Expenses to Average Assets (non-GAAP)													Reconciliation of Annualized Ratio of Core Expenses to Average Assets (non-GAAP)
Total noninterest expenses (GAAP)	Total noninterest expenses (GAAP)	$	109,446		$	106,479		$	220,489		$	217,276		Total noninterest expenses (GAAP)	$	111,053		$	108,883		$	331,542		$	326,159
Core expenses (non-GAAP)	Core expenses (non-GAAP)	109,057			104,477			214,986			212,521			Core expenses (non-GAAP)	105,755			104,143			320,741			316,664

Average assets	Average assets	$	20,221,511		$	19,559,091		$	20,170,044		$	19,395,391		Average assets	$	20,207,920		$	19,775,341		$	20,182,808		$	19,523,433
Total noninterest expenses to average assets (GAAP)	Total noninterest expenses to average assets (GAAP)	2.17		%	2.18		%	2.20		%	2.26		%	Total noninterest expenses to average assets (GAAP)	2.18		%	2.18		%	2.20		%	2.23		%
Core expenses to average assets (non-GAAP)	Core expenses to average assets (non-GAAP)	2.16		%	2.14		%	2.15		%	2.21		%	Core expenses to average assets (non-GAAP)	2.08		%	2.09		%	2.12		%	2.17		%

Acquisition, integration and restructuring costs	Acquisition, integration and restructuring costs													Acquisition, integration and restructuring costs
Salaries and employee benefits	Salaries and employee benefits	$	93		$	275		$	167		$	615		Salaries and employee benefits	$	94		$	365		$	261		$	980

Professional fees	Professional fees	1,068			1,779			2,002			2,015			Professional fees	1,617			1,480			3,619			3,495
Advertising	Advertising	222			156			344			156			Advertising	178			131			522			287

Other noninterest expenses	Other noninterest expenses	509			202			1,052			202			Other noninterest expenses	540			180			1,592			382
Total acquisition, integration and restructuring costs	Total acquisition, integration and restructuring costs	$	1,892		$	2,412		$	3,565		$	2,988		Total acquisition, integration and restructuring costs	$	2,429		$	2,156		$	5,994		$	5,144
After tax impact on diluted earnings per common share(1)	After tax impact on diluted earnings per common share(1)	$	0.03		$	0.04		$	0.07		$	0.06		After tax impact on diluted earnings per common share(1)	$	0.04		$	0.04		$	0.11		$	0.10

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

Non-GAAP Financial Measures

This Quarterly Report on Form 10-Q contains references to financial measures which are not defined by generally accepted accounting principles ("GAAP"). Management believes the non-GAAP measures are helpful for investors to analyze and evaluate HTLF's financial condition and operating results. However, these non-GAAP measures have inherent limitations and should not be considered a substitute for operating results determined in accordance with GAAP. Additionally, because non-GAAP measures are not standardized, it may not be possible to compare the non-GAAP measures presented in this section with other companies' non-GAAP measures. Reconciliations of each non-GAAP measure to the most directly comparable GAAP measure may be found in the financial tables above.

The non-GAAP measures presented in this Quarterly Report on Form 10-Q, management's reason for including each measure and the method of calculating each measure are presented below:

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

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

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

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

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

•~~Adjusted~~The adjusted tangible common equity ratio is ~~total common equity less~~calculated by subtracting goodwill, core deposit and customer relationship intangibles, net, and accumulated other comprehensive loss ~~divided~~from total common equity and dividing it by total assets ~~less~~excluding goodwill, ~~and~~ core deposit and customer relationship intangibles, ~~net.~~net and the fair value adjustment on securities and derivatives, net of deferred taxes. This measure is included as it is considered to be a critical metric used by management, analysts, and investors to analyze and evaluate financial condition and capital strength, ~~excluding the variability of accumulated other comprehensive income (loss).~~

composition and trends on a comparable basis by excluding the variability of the fair value of securities and derivatives, net of deferred taxes.

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

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

RESULTS OF OPERATIONS

Net Interest Margin and Net Interest Income

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

Net interest income is the difference between interest income on earning assets and interest expense paid on interest bearing liabilities. As such, net interest income is affected by changes in volumes and yields on earning assets and the volume and rates paid on interest bearing liabilities. Net interest margin is the ratio of net interest income to average earning assets.

For the Quarters ended ~~June~~September 30, 2023 and 2022

Net interest margin, expressed as a percentage of average earning assets, was ~~3.19% (3.24%~~3.14% (3.18% on a fully tax-equivalent basis, non-GAAP) during the ~~second~~third quarter of 2023 compared to ~~3.18% (3.22%~~3.41% (3.45% on a fully tax-equivalent basis, non-GAAP) during the ~~second~~third quarter of 2022. For the quarters ended ~~June~~September 30, 2023 and 2022, net interest margin included 31 basis ~~points~~point and 73 basis points, respectively, of net purchase accounting discount amortization. HTLF's net interest margin may be impacted in future periods as a result of market pressures to increase deposit ~~pricing.~~pricing due to competition. Management anticipates utilizing ~~the~~ cash flow from the investment portfolio to pay down wholesale deposits and short-term borrowings, which would positively impact net interest margin.

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

•Total interest income was ~~$235.5~~$245.4 million compared to ~~$152.9~~$175.8 million, an increase of ~~$82.6~~$69.6 million or ~~54%~~40% and primarily attributable to an increase in average earning assets and higher yields.

•Total interest income on a tax-equivalent basis (non-GAAP) was ~~$237.8~~$247.6 million, an increase of ~~$83.0~~$69.6 million or ~~54%~~39% from ~~$154.9~~$178.0 million.

•Average earning assets increased ~~$535.8~~$281.2 million or 3%2% to ~~$18.52~~$18.44 billion compared to ~~$17.99~~$18.16 billion.

•The average rate on earning assets increased ~~170~~144 basis points to ~~5.15%~~5.33% compared to ~~3.45%~~3.89%, primarily due to recent interest rate increases.

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

•Total interest expense was ~~$88.4~~$99.7 million, an increase of ~~$77.9~~$79.7 million from ~~$10.4~~$19.9 million, due to increases in the average interest rate paid and the average balance of interest bearing liabilities.

•The average interest rate paid on interest bearing liabilities increased ~~232~~234 basis points to ~~2.68% compared to 0.36%~~3.01% from 0.67%.

•Average interest bearing deposits increased ~~$1.66~~$1.47 billion or ~~15%~~13% to ~~$12.75~~$12.68 billion from ~~$11.08~~$11.22 billion, including an increase of ~~$1.94~~$1.36 billion in wholesale and institutional deposits.

•The average interest rate paid on interest bearing deposits increased ~~234~~236 basis points to ~~2.58% compared~~2.90% from 0.54%, primarily due to ~~0.24%.~~recent interest rate increases and increased competition for deposits.

•Average borrowings decreased ~~$29.4~~$30.8 million or 6% to ~~$461.7~~$475.7 million from ~~$491.1~~$506.5 million, and the average interest rate paid on borrowings was ~~5.55%~~5.78% compared to ~~3.18%~~3.74%.

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

•Net interest income totaled ~~$147.1~~$145.8 million compared to ~~$142.5~~$155.9 million, ~~an increase~~a decrease of ~~$4.7~~$10.1 million or 3%6%.

•Net interest income on a tax-equivalent basis (non-GAAP) totaled ~~$149.4~~$147.9 million compared to ~~$144.4~~$158.0 million, which was ~~an increase~~a decrease of ~~$5.0~~$10.1 million or 3%6%.

For the ~~Six~~Nine Months ended ~~June~~September 30, 2023 and 2022

Net interest margin, expressed as a percentage of average earning assets, was ~~3.27% (3.32%~~3.23% (3.27% on a fully tax-equivalent basis, non-GAAP) during the first ~~six~~nine months of 2023, compared to ~~3.13% (3.17%~~3.22% (3.27% on a fully tax-equivalent basis, non-GAAP) during the first ~~six~~nine months of 2022. For the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, net interest margin included 2 basis points and 65 basis points, respectively, of net purchase accounting discount amortization.

Total interest income and average earning asset changes for the first ~~six~~nine months of 2023 compared to the first ~~six~~nine months of 2022 were:

•Total interest income was ~~$452.5~~$697.9 million, an increase of ~~$158.3~~$228.0 million or ~~54%~~49% from ~~$294.1~~$470.0 million.

•Total interest income on a tax-equivalent basis (non-GAAP) was ~~$457.0~~$704.4 million, an increase of ~~$158.8~~$228.2 million or ~~53%~~48% from ~~$298.2~~$476.2 million.

•Average earning assets increased ~~$585.4~~$482.9 million or 3% to ~~$18.46~~$18.45 billion ~~compared to $17.87~~from $17.97 billion.

Total interest expense and average interest bearing liability changes for the first ~~six~~nine months of 2023 compared to the first ~~six~~nine months of 2022 were:

•Total interest expense was ~~$153.1~~$252.8 million, an increase of ~~$136.1~~$215.9 million from ~~$17.0~~$36.9 million, due to increases in the average interest rate paid and the average balance of interest bearing liabilities.

•The average interest rate paid on interest bearing liabilities increased to ~~2.39% compared to 0.31%~~2.60% from 0.44%.

•Average interest bearing deposits increased ~~$1.84~~$1.72 billion or ~~18%~~16% to ~~$12.37~~$12.48 billion from ~~$10.53~~$10.76 billion which was primarily attributable to an increase in wholesale and institutional deposits. Average wholesale and institutional deposits totaled ~~$2.78~~$2.79 billion for the first ~~six~~nine months of 2023 compared to ~~$826.1 million~~$1.03 billion for the first ~~six~~nine months of ~~2022.~~2022, an increase of $1.75 billion.

•The average interest rate paid on interest bearing deposits was ~~2.26%~~2.48% for the first ~~six~~nine months of 2023 compared to ~~0.18%~~0.31% for the first ~~six~~nine months of ~~2022.~~2022, primarily due to recent interest rate increases and increased competition for deposits.

Net interest income changes for the first nine months of 2023 compared to first nine months of 2022 were:

•Net interest income totaled $445.1 million compared to $433.0 million, an increase of $12.1 million or 3%.

•Net interest income on a tax-equivalent basis (non-GAAP) totaled $451.6 million compared to $439.3 million, an increase of $12.3 million or 3%.

See "Analysis of Average Balances, Tax-Equivalent Yields and Rates" for additional information relating to net interest income on a fully tax-equivalent basis, which is not defined by GAAP.

HTLF attempts to manage its balance sheet to minimize the effect that a change in interest rates has on its net interest income. Management continues to work toward improving both its earning assets and funding mix through targeted organic growth strategies, which management believes will result in additional net interest income. In addition, management continually monitors the balance sheet position for opportunities to increase net interest income. HTLF models and reviews simulations using various improving and deteriorating interest rate scenarios to assist in monitoring its exposure to interest rate risk. Based on these simulations, it is management's opinion that HTLF maintains a well-balanced and manageable interest rate posture. Item 3 of Part I of this Quarterly Report on Form 10-Q contains additional information about the results of the most recent net interest income simulations. Note 6 to the consolidated financial statements included in this Quarterly Report on Form 10-Q contains a detailed discussion of the derivative instruments utilized to manage its interest rate risk.

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

ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT YIELDS AND RATES (1)
For the Quarter Ended
June 30, 2023 March 31, 2023 June 30, 2022
Average
Balance Interest Rate Average
Balance Interest Rate Average
Balance Interest Rate
Earning Assets
Securities:
Taxable $ 5,962,207 $ 58,172 3.91 % $ 6,096,888 $ 55,976 3.72 % $ 6,419,615 $ 38,098 2.38 %
Nontaxable(1)
895,458 8,074 3.62 922,676 7,630 3.35 915,880 6,972 3.05
Total securities 6,857,665 66,246 3.87 7,019,564 63,606 3.67 7,335,495 45,070 2.46
Interest on deposits with other banks and short-term investments 153,622 2,051 5.41 105,400 1,131 4.35 277,773 563 0.81
Federal funds sold — — — — — — — — —
Loans:(2)
Commercial and industrial(1)
3,565,449 56,644 6.37 3,459,317 49,907 5.85 3,002,822 30,441 4.07
PPP loans 6,302 24 1.53 9,970 26 1.06 41,370 1,801 17.46
Owner occupied commercial real estate 2,366,107 28,031 4.75 2,289,002 26,769 4.74 2,294,524 22,863 4.00
Non-owner occupied commercial real estate 2,462,098 35,583 5.80 2,331,318 30,749 5.35 2,179,048 22,871 4.21
Real estate construction 1,028,109 18,528 7.23 1,099,026 18,131 6.69 878,555 10,015 4.57
Agricultural and agricultural real estate 848,554 12,256 5.79 835,648 11,353 5.51 782,610 7,933 4.07
Residential mortgage 840,741 9,383 4.48 852,561 9,273 4.41 849,174 8,358 3.95
Consumer 508,082 9,068 7.16 501,236 8,242 6.67 449,265 4,949 4.42
Less: allowance for credit losses-loans (113,177) — — (110,393) — — (102,902) — —
Net loans 11,512,265 169,517 5.91 11,267,685 154,450 5.56 10,374,466 109,231 4.22
Total earning assets 18,523,552 237,814 5.15 % 18,392,649 219,187 4.83 % 17,987,734 154,864 3.45 %
Nonearning Assets 1,697,959 1,725,356 1,571,357
Total Assets $ 20,221,511 $ 20,118,005 $ 19,559,091
Interest Bearing Liabilities
Savings $ 8,935,775 $ 41,284 1.85 % $ 9,730,494 $ 37,893 1.58 % $ 9,995,497 $ 5,372 0.22 %
Time deposits 3,812,330 40,691 4.28 2,257,047 19,005 3.41 1,088,765 1,158 0.43
Short-term borrowings 89,441 848 3.80 222,772 2,422 4.41 118,646 88 0.30
Other borrowings 372,248 5,545 5.97 371,921 5,446 5.94 372,411 3,808 4.10
Total interest bearing liabilities 13,209,794 88,368 2.68 % 12,582,234 64,766 2.09 % 11,575,319 10,426 0.36 %
Noninterest Bearing Liabilities
Noninterest bearing deposits 4,941,033 5,518,326 5,960,217
Accrued interest and other liabilities 232,966 250,880 181,457
Total noninterest bearing liabilities 5,173,999 5,769,206 6,141,674
Equity 1,837,718 1,766,565 1,842,098
Total Liabilities and Equity $ 20,221,511 $ 20,118,005 $ 19,559,091
Net interest income, fully tax-equivalent (non-GAAP)(1)(3)
$ 149,446 $ 154,421 $ 144,438
Net interest spread(1)
2.47 % 2.74 % 3.09 %
Net interest income, fully tax-equivalent to total earning assets (non-GAAP)(1)(3)
3.24 % 3.40 % 3.22 %
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.
(2) Nonaccrual loans and loans held for sale are included in the average loans outstanding.
(3) Refer to "Non-GAAP Financial Measures" for additional information on the usage and presentation of these non-GAAP measures, and refer to the financial tables under "Financial Highlights" for the reconciliations to the most directly comparable GAAP measures.


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

		For the Six Months Ended															For the Quarter Ended
		June 30, 2023							June 30, 2022								September 30, 2023							June 30, 2023							September 30, 2022
		Average Balance			Interest		Rate		Average Balance			Interest		Rate			Average Balance			Interest		Rate		Average Balance			Interest		Rate		Average Balance			Interest		Rate
Earning Assets	Earning Assets															Earning Assets
Securities:	Securities:															Securities:
Taxable	Taxable	$	6,029,175		$	114,148	3.82	%	$	6,460,412		$	70,718	2.21	%	Taxable	$	5,726,057		$	54,800	3.80	%	$	5,962,207		$	58,172	3.91	%	$	6,303,278		$	45,648	2.87	%
Nontaxable(1)	Nontaxable(1)	908,992			15,704		3.48		1,010,888			14,823		2.96		Nontaxable(1)	881,162			8,085		3.64		895,458			7,896		3.54		951,232			7,802		3.25
Total securities	Total securities	6,938,167			129,852		3.77		7,471,300			85,541		2.31		Total securities	6,607,219			62,885		3.78		6,857,665			66,068		3.86		7,254,510			53,450		2.92
Interest bearing deposits with other banks and other short-term investments		129,645			3,182		4.95		247,281			634		0.52
Interest on deposits with other banks and short-term investments																Interest on deposits with other banks and short-term investments	142,301			1,651		4.60		153,622			2,051		5.36		222,170			1,081		1.93
Federal funds sold	Federal funds sold	—			—		—		6			—		—		Federal funds sold	152			3		7.83		—			—		—		11			—		—
Loans:(2)	Loans:(2)															Loans:(2)
Commercial and industrial(1)	Commercial and industrial(1)	3,512,807			106,551		6.12		2,874,694			57,494		4.03		Commercial and industrial(1)	3,610,677			63,001		6.92		3,565,449			56,644		6.37		3,182,134			37,526		4.68
PPP loans	PPP loans	8,126			50		1.24		86,460			6,124		14.28		PPP loans	3,948			11		1.11		6,302			24		1.53		17,859			363		8.06
Owner occupied commercial real estate	Owner occupied commercial real estate	2,327,702			54,800		4.75		2,268,963			44,141		3.92		Owner occupied commercial real estate	2,412,501			30,127		4.95		2,366,107			28,031		4.75		2,272,666			23,601		4.12
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	2,397,004			66,332		5.58		2,119,925			44,034		4.19		Non-owner occupied commercial real estate	2,586,011			38,779		5.95		2,462,098			35,583		5.80		2,258,424			25,895		4.55
Real estate construction	Real estate construction	1,063,372			36,659		6.95		862,989			19,291		4.51		Real estate construction	1,027,544			19,448		7.51		1,028,109			18,528		7.23		914,520			12,382		5.37
Agricultural and agricultural real estate	Agricultural and agricultural real estate	842,136			23,609		5.65		764,082			14,939		3.94		Agricultural and agricultural real estate	822,957			12,582		6.07		848,554			12,256		5.79		799,823			8,966		4.45
Residential mortgage	Residential mortgage	846,618			18,656		4.44		846,542			16,443		3.92		Residential mortgage	827,402			9,482		4.55		840,741			9,383		4.48		858,119			8,665		4.01
Consumer	Consumer	504,678			17,310		6.92		438,024			9,604		4.42		Consumer	509,024			9,615		7.49		508,082			9,068		7.16		479,590			6,028		4.99

Less: allowance for loan losses		(111,793)			—		—		(107,229)			—		—
Less: allowance for credit losses-loans																Less: allowance for credit losses-loans	(110,726)			—		—		(113,177)			—		—		(102,031)			—		—
Net loans	Net loans	11,390,650			323,967		5.74		10,154,450			212,070		4.21		Net loans	11,689,338			183,045		6.21		11,512,265			169,517		5.91		10,681,104			123,426		4.58
Total earning assets	Total earning assets	18,458,462			457,001		4.99	%	17,873,037			298,245		3.37	%	Total earning assets	18,439,010			247,584		5.33	%	18,523,552			237,636		5.15	%	18,157,795			177,957		3.89	%
Nonearning Assets	Nonearning Assets	1,711,582							1,522,354							Nonearning Assets	1,768,910							1,697,959							1,617,546
Total Assets	Total Assets	$	20,170,044						$	19,395,391						Total Assets	$	20,207,920						$	20,221,511						$	19,775,341
Interest Bearing Liabilities	Interest Bearing Liabilities															Interest Bearing Liabilities
Savings	Savings	$	9,330,939		$	79,177	1.71	%	$	9,445,778		$	7,766	0.17	%	Savings	$	8,737,581		$	49,195	2.23	%	$	8,935,775		$	41,284	1.85	%	$	10,059,652		$	12,907	0.51	%
Time deposits	Time deposits	3,038,985			59,696		3.96		1,080,267			1,741		0.32		Time deposits	3,945,371			43,549		4.38		3,812,330			40,691		4.28		1,156,908			2,251		0.77
Short-term borrowings	Short-term borrowings	155,738			3,270		4.23		119,115			134		0.23		Short-term borrowings	103,567			1,167		4.47		89,441			848		3.80		134,974			360		1.06
Other borrowings	Other borrowings	372,085			10,991		5.96		372,299			7,368		3.99		Other borrowings	372,112			5,765		6.15		372,248			5,545		5.97		371,492			4,412		4.71
Total interest bearing liabilities	Total interest bearing liabilities	12,897,747			153,134		2.39	%	11,017,459			17,009		0.31	%	Total interest bearing liabilities	13,158,631			99,676		3.01	%	13,209,794			88,368		2.68	%	11,723,026			19,930		0.67	%
Noninterest Bearing Liabilities	Noninterest Bearing Liabilities															Noninterest Bearing Liabilities
Noninterest bearing deposits	Noninterest bearing deposits	5,228,085							6,227,499							Noninterest bearing deposits	4,824,861							4,941,033							6,065,729
Accrued interest and other liabilities	Accrued interest and other liabilities	241,874							173,071							Accrued interest and other liabilities	366,905							232,966							201,575
Total noninterest bearing liabilities	Total noninterest bearing liabilities	5,469,959							6,400,570							Total noninterest bearing liabilities	5,191,766							5,173,999							6,267,304
Equity	Equity	1,802,338							1,977,362							Equity	1,857,523							1,837,718							1,785,011
Total Liabilities and Equity	Total Liabilities and Equity	$	20,170,044						$	19,395,391						Total Liabilities and Equity	$	20,207,920						$	20,221,511						$	19,775,341
Net interest income, fully tax-equivalent (non-GAAP)(1)(3)	Net interest income, fully tax-equivalent (non-GAAP)(1)(3)				$	303,867						$	281,236			Net interest income, fully tax-equivalent (non-GAAP)(1)(3)				$	147,908						$	149,268						$	158,027
Net interest spread(1)	Net interest spread(1)						2.60	%						3.06	%	Net interest spread(1)						2.32	%						2.47	%						3.22	%
Net interest income, fully tax-equivalent (non-GAAP) to total earning assets(1)(3)							3.32	%						3.17	%
Net interest income, fully tax-equivalent to total earning assets (non-GAAP)(1)(3)																Net interest income, fully tax-equivalent to total earning assets (non-GAAP)(1)(3)						3.18	%						3.23	%						3.45	%
Interest bearing liabilities to earning assets	Interest bearing liabilities to earning assets	69.87		%					61.64		%					Interest bearing liabilities to earning assets	71.36		%					71.31		%					64.56		%

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



ANALYSIS OF AVERAGE BALANCES, TAX EQUIVALENT YIELDS AND RATES (1)
	For the Nine Months Ended
	September 30, 2023							September 30, 2022
	Average Balance			Interest		Rate		Average Balance			Interest		Rate
Earning Assets
Securities:
Taxable	$	5,927,026		$	168,948	3.81	%	$	6,407,459		$	116,366	2.43	%
Nontaxable(1)	899,613			23,611		3.51		990,784			22,625		3.05
Total securities	6,826,639			192,559		3.77		7,398,243			138,991		2.51
Interest bearing deposits with other banks and other short-term investments	133,910			4,833		4.83		238,819			1,715		0.96
Federal funds sold	51			3		7.86		7			—		—
Loans:(2)
Commercial and industrial(1)	3,547,256			169,552		6.39		2,977,751			95,020		4.27
PPP loans	6,718			61		1.21		63,342			6,487		13.69
Owner occupied commercial real estate	2,355,545			84,927		4.82		2,270,486			67,742		3.99
Non-owner occupied commercial real estate	2,459,965			105,111		5.71		2,166,873			69,929		4.31
Real estate construction	1,051,298			56,107		7.14		880,354			31,673		4.81
Agricultural and agricultural real estate	835,673			36,191		5.79		776,127			23,905		4.12
Residential mortgage	840,143			28,138		4.48		850,444			25,108		3.95
Consumer	506,143			26,925		7.11		452,032			15,632		4.62

Less: allowance for loan losses	(111,434)			—		—		(105,477)			—		—
Net loans	11,491,307			507,012		5.90		10,331,932			335,496		4.34
Total earning assets	18,451,907			704,407		5.10	%	17,969,001			476,202		3.54	%
Nonearning Assets	1,730,901							1,554,432
Total Assets	$	20,182,808						$	19,523,433
Interest Bearing Liabilities
Savings	$	9,130,980		$	128,372	1.88	%	$	9,652,651		$	20,673	0.29	%
Time deposits	3,344,434			103,245		4.13		1,106,095			3,992		0.48
Short-term borrowings	138,157			4,437		4.29		124,459			494		0.53
Other borrowings	372,094			16,756		6.02		372,027			11,780		4.23
Total interest bearing liabilities	12,985,665			252,810		2.60	%	11,255,232			36,939		0.44	%
Noninterest Bearing Liabilities
Noninterest bearing deposits	5,092,200							6,172,984
Accrued interest and other liabilities	284,008							182,677
Total noninterest bearing liabilities	5,376,208							6,355,661
Equity	1,820,935							1,912,540
Total Liabilities and Equity	$	20,182,808						$	19,523,433
Net interest income, fully tax-equivalent (non-GAAP)(1)(3)				$	451,597						$	439,263
Net interest spread(1)						2.50	%						3.10	%
Net interest income, fully tax-equivalent (non-GAAP) to total earning assets(1)(3)						3.27	%						3.27	%
Interest bearing liabilities to earning assets	70.38		%					62.64		%




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

The following tables present 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, and quantify 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.


		Three Months Ended																			Three Months Ended
		June 30, 2023 Compared to June 30, 2022 Change Due to						June 30, 2023 Compared to March 31, 2023 Changes Due to						June 30, 2022 Compared to June 30, 2021 Change Due to							September 30, 2023 Compared to September 30, 2022 Change Due to						September 30, 2023 Compared to June 30, 2023 Changes Due to						September 30, 2022 Compared to September 30, 2021 Change Due to
		Volume		Rate		Net		Volume		Rate		Net		Volume		Rate		Net			Volume		Rate		Net		Volume		Rate		Net		Volume		Rate		Net
Earnings Assets/Interest Income	Earnings Assets/Interest Income																			Earnings Assets/Interest Income
Investment securities:	Investment securities:																			Investment securities:
Taxable	Taxable	$	(17,607)	$	37,681	$	20,074	$	(6,336)	$	8,532	$	2,196	$	3,145	$	3,407	$	6,552	Taxable	$	(23,787)	$	32,939	$	9,152	$	(1,925)	$	(1,447)	$	(3,372)	$	310	$	12,954	$	13,264
Nontaxable(1)	Nontaxable(1)	(994)		2,096		1,102		(1,205)		1,649		444		2,078		(879)		1,199		Nontaxable(1)	(2,705)		2,988		283		(587)		776		189		1,555		412		1,967
Interest bearing deposits	Interest bearing deposits	(1,759)		3,247		1,488		612		308		920		1		502		503		Interest bearing deposits	(2,330)		2,900		570		(138)		(262)		(400)		(290)		1,239		949
Federal funds sold	Federal funds sold	—		—		—		—		—		—		—		—		—		Federal funds sold	—		3		3		—		3		3		—		—		—
Loans(1)(2)	Loans(1)(2)	13,011		47,275		60,286		3,889		11,178		15,067		22,722		(25,956)		(3,234)		Loans(1)(2)	12,520		47,099		59,619		3,093		10,435		13,528		10,198		678		10,876
Total earning assets	Total earning assets	(7,349)		90,299		82,950		(3,040)		21,667		18,627		27,946		(22,926)		5,020		Total earning assets	(16,302)		85,929		69,627		443		9,505		9,948		11,773		15,283		27,056
Liabilities/Interest Expense	Liabilities/Interest Expense																			Liabilities/Interest Expense
Interest bearing deposits:	Interest bearing deposits:																			Interest bearing deposits:
Savings	Savings	(4,012)		39,924		35,912		(15,977)		19,368		3,391		562		2,577		3,139		Savings	(11,602)		47,890		36,288		(5,859)		13,770		7,911		541		10,126		10,667
Time deposits	Time deposits	8,572		30,961		39,533		15,851		5,835		21,686		(104)		(295)		(399)		Time deposits	14,053		27,245		41,298		1,725		1,133		2,858		69		978		1,047
Short-term borrowings	Short-term borrowings	(155)		915		760		(1,280)		(294)		(1,574)		(120)		110		(10)		Short-term borrowings	(566)		1,373		807		151		168		319		(20)		282		262
Other borrowings	Other borrowings	(12)		1,749		1,737		12		87		99		780		52		832		Other borrowings	7		1,346		1,353		(13)		233		220		1,062		248		1,310
Total interest bearing liabilities	Total interest bearing liabilities	4,393		73,549		77,942		(1,394)		24,996		23,602		1,118		2,444		3,562		Total interest bearing liabilities	1,892		77,854		79,746		(3,996)		15,304		11,308		1,652		11,634		13,286
Net interest income	Net interest income	$	(11,742)	$	16,750	$	5,008	$	(1,646)	$	(3,329)	$	(4,975)	$	26,828	$	(25,370)	$	1,458	Net interest income	$	(18,194)	$	8,075	$	(10,119)	$	4,439	$	(5,799)	$	(1,360)	$	10,121	$	3,649	$	13,770

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


		Six Months Ended													Nine Months Ended
		June 30, 2023 Compared to June 30, 2022 Change Due to						June 30, 2022 Compared to June 30, 2021 Change Due to							September 30, 2023 Compared to September 30, 2022 Change Due to						September 30, 2022 Compared to September 30, 2021 Change Due to
		Volume		Rate		Net		Volume		Rate		Net			Volume		Rate		Net		Volume		Rate		Net
Earnings Assets/Interest Income	Earnings Assets/Interest Income													Earnings Assets/Interest Income
Investment securities:	Investment securities:													Investment securities:
Taxable	Taxable	$	(13,802)	$	57,232	$	43,430	$	7,444	$	1,285	$	8,729	Taxable	$	(14,500)	$	67,082	$	52,582	$	7,891	$	14,102	$	21,993
Nontaxable(1)	Nontaxable(1)	(3,531)		4,412		881		5,274		(1,924)		3,350		Nontaxable(1)	(3,069)		4,055		986		5,862		(545)		5,317
Interest bearing deposits	Interest bearing deposits	(1,019)		3,567		2,548		5		503		508		Interest bearing deposits	(1,510)		4,628		3,118		(48)		1,505		1,457
Federal funds sold	Federal funds sold	—		—		—		—		(1)		(1)		Federal funds sold	—		3		3		—		(1)		(1)
Loans(1)(2)	Loans(1)(2)	28,170		83,727		111,897		15,635		(29,033)		(13,398)		Loans(1)(2)	40,865		130,651		171,516		21,786		(24,308)		(2,522)
Total earning assets	Total earning assets	9,818		148,938		158,756		28,358		(29,170)		(812)		Total earning assets	21,786		206,419		228,205		35,491		(9,247)		26,244
Liabilities/Interest Expense	Liabilities/Interest Expense													Liabilities/Interest Expense
Interest bearing deposits:	Interest bearing deposits:													Interest bearing deposits:
Savings	Savings	(287)		71,698		71,411		841		2,262		3,103		Savings	(1,923)		109,622		107,699		154		13,616		13,770
Time deposits	Time deposits	8,082		49,873		57,955		(328)		(1,453)		(1,781)		Time deposits	20,972		78,281		99,253		178		(912)		(734)
Short-term borrowings	Short-term borrowings	54		3,082		3,136		(98)		(18)		(116)		Short-term borrowings	60		3,883		3,943		16		130		146
Other borrowings	Other borrowings	(13)		3,636		3,623		350		742		1,092		Other borrowings	2		4,974		4,976		(11)		2,413		2,402
Total interest bearing liabilities	Total interest bearing liabilities	7,836		128,289		136,125		765		1,533		2,298		Total interest bearing liabilities	19,111		196,760		215,871		337		15,247		15,584
Net interest income	Net interest income	$	1,982	$	20,649	$	22,631	$	27,593	$	(30,703)	$	(3,110)	Net interest income	$	2,675	$	9,659	$	12,334	$	35,154	$	(24,494)	$	10,660

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

Provision For Credit Losses

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
Provision expense for credit losses-loans	Provision expense for credit losses-loans	$	7,829	$	1,545	$	10,013	$	4,173	Provision expense for credit losses-loans	$	2,672	$	4,388	$	12,685	$	8,561
Provision (benefit) expense for credit losses-unfunded commitments		(2,450)		1,701		(1,560)		2,318
(Benefit) provision expense for credit losses-unfunded commitments										(Benefit) provision expense for credit losses-unfunded commitments	(1,156)		1,104		(2,716)		3,422

Total provision expense	Total provision expense	$	5,379	$	3,246	$	8,453	$	6,491	Total provision expense	$	1,516	$	5,492	$	9,969	$	11,983

The provision expense for credit losses for loans was ~~$7.8~~$2.7 million for the ~~second~~third quarter of 2023, which was ~~an increase~~a decrease of ~~$6.3~~$1.7 million from provision expense of ~~$1.5~~$4.4 million recorded in the ~~second~~third quarter of 2022. The provision expense for the ~~second~~third quarter of 2023 compared to the ~~second~~third quarter of 2022 was impacted by several factors, including:

•~~a $5.3 million charge-off related to an overdraft, the result of a fraud incident impacting the account of a single long-term customer compared to net charge-offs of $714,000,~~

•loan growth of ~~$222.6~~$154.5 million compared to ~~$500.8~~$254.8 million, and

•improvement in credit quality as indicated by the decrease of nonpass loans as a percentage of total loans. Nonpass loans were 4.5% at September 30, 2023 and 4.8% of loans at ~~both~~ June 30, ~~2023 and March 31,~~ 2023. Nonpass loans were 5.3% of total loans at September 30, 2022 compared to 5.8% of total loans at June 30, ~~2022 compared to 6.3% of total loans at March 31,~~ 2022.

The provision expense for credit losses for loans was ~~$10.0~~$12.7 million for the first ~~six~~nine months of 2023 compared to ~~$4.2~~$8.6 million for the first ~~six~~nine months of 2022. The provision expense for the first ~~six~~nine months of 2023 and the first ~~six~~nine months of 2022 were impacted by several factors, including:

•net charge-offs of ~~$8.3~~$12.0 million, which included a $5.3 million charge-off related to an overdraft of a single long-term customer compared to net charge-offs of $12.9 million, which included two charge-offs totaling $9.2 million due to customer fraud ~~totaling $9.2 million~~ related to two lending relationships that had collateral deficiencies,

•provision expense totaling $2.6 million was recorded for an individually assessed loan in the first quarter of 2023,

•loan growth of ~~$289.6~~$444.1 million compared to ~~$723.6~~$969.0 million, and

•stable credit quality during the first ~~six~~nine months of 2023 compared to improved credit quality as indicated by nonpass loans as a percentage of total loans. Nonpass loans were ~~4.8%~~4.5% of loans at ~~June~~September 30, 2023 compared to 4.7% at December 31, 2022. Nonpass loans were ~~5.8%~~5.3% of total loans at ~~June~~September 30, 2022 compared to 7.4% of total loans at December 31, 2021.

The size of the loan portfolio, the ~~level~~levels of organic loan growth including government guaranteed loans, changes in credit quality and the variability that can occur in the factors, including the impact of economic conditions, are all considered when determining the appropriateness of the allowance for credit losses and will contribute to the variability in the provision for credit losses from quarter to quarter. For additional details on the specific factors considered in establishing the allowance for credit losses, refer to the discussion of critical accounting estimates set forth in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in HTLF's Annual Report on Form 10-K for the year ended December 31, 2022, "Allowance For Credit Losses" and "Provision for Credit Losses" in Item 2 of this Quarterly Report on Form 10-Q and Note 4, "Allowance for Credit Losses," to the consolidated financial statements included herein.

Management believes that the allowance for credit losses as of ~~June~~September 30, 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 difficulty and impede their ability to meet debt service. Due to the uncertainty of future economic conditions, including ongoing concerns regarding higher interest rates, supply chain challenges, workforce shortages and wage pressures, the provision for credit losses could be volatile in future quarters.

Noninterest Income

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


		Three Months Ended June 30,									Three Months Ended September 30,
		2023		2022		Change		% Change			2023		2022		Change		% Change
Service charges and fees	Service charges and fees	$	19,627	$	18,066	$	1,561	9	%	Service charges and fees	$	18,553	$	17,282	$	1,271	7	%
Loan servicing income	Loan servicing income	411		834		(423)		(51)		Loan servicing income	278		831		(553)		(67)
Trust fees	Trust fees	5,419		5,679		(260)		(5)		Trust fees	4,734		5,372		(638)		(12)
Brokerage and insurance commissions	Brokerage and insurance commissions	677		839		(162)		(19)		Brokerage and insurance commissions	692		649		43		7
Capital markets fees	Capital markets fees	4,037		4,871		(834)		(17)		Capital markets fees	1,845		1,809		36		2
Securities losses, net	Securities losses, net	(314)		(2,089)		1,775		85		Securities losses, net	(114)		(1,055)		941		89
Unrealized loss on equity securities, net		(41)		(121)		80		66
Unrealized gain/(loss) on equity securities, net										Unrealized gain/(loss) on equity securities, net	13		(211)		224		106

Net gains on sale of loans held for sale	Net gains on sale of loans held for sale	1,050		2,901		(1,851)		(64)		Net gains on sale of loans held for sale	905		1,832		(927)		(51)
Valuation adjustment on servicing rights	Valuation adjustment on servicing rights	—		—		—		—		Valuation adjustment on servicing rights	—		—		—		—
Income on bank owned life insurance	Income on bank owned life insurance	1,220		523		697		133		Income on bank owned life insurance	858		694		164		24
Other noninterest income	Other noninterest income	407		3,036		(2,629)		(87)		Other noninterest income	619		1,978		(1,359)		(69)
Total noninterest income	Total noninterest income	$	32,493	$	34,539	$	(2,046)	(6)	%	Total noninterest income	$	28,383	$	29,181	$	(798)	(3)	%


		Six Months Ended June 30,									Nine Months Ended September 30,
		2023		2022		Change		% Change			2023		2022		Change		% Change
Service charges and fees	Service charges and fees	$	36,763	$	33,317	$	3,446	10	%	Service charges and fees	$	55,316	$	50,599	$	4,717	9	%
Loan servicing income	Loan servicing income	1,125		1,120		5		—		Loan servicing income	1,403		1,951		(548)		(28)
Trust fees	Trust fees	11,076		11,758		(682)		(6)		Trust fees	15,810		17,130		(1,320)		(8)
Brokerage and insurance commissions	Brokerage and insurance commissions	1,373		1,708		(335)		(20)		Brokerage and insurance commissions	2,065		2,357		(292)		(12)
Capital markets fees	Capital markets fees	6,486		7,910		(1,424)		(18)		Capital markets fees	8,331		9,719		(1,388)		(14)
Securities (losses)/gains, net		(1,418)		783		(2,201)		(281)
Securities losses, net										Securities losses, net	(1,532)		(272)		(1,260)		463
Unrealized gain/(loss) on equity securities, net	Unrealized gain/(loss) on equity securities, net	152		(404)		556		138		Unrealized gain/(loss) on equity securities, net	165		(615)		780		127

Net gains on sale of loans held for sale	Net gains on sale of loans held for sale	2,881		6,312		(3,431)		(54)		Net gains on sale of loans held for sale	3,786		8,144		(4,358)		(54)
Valuation adjustment on servicing rights	Valuation adjustment on servicing rights	—		1,658		(1,658)		(100)		Valuation adjustment on servicing rights	—		1,658		(1,658)		(100)
Income on bank owned life insurance	Income on bank owned life insurance	2,184		1,047		1,137		109		Income on bank owned life insurance	3,042		1,741		1,301		75
Other noninterest income	Other noninterest income	1,870		3,899		(2,029)		(52)		Other noninterest income	2,489		5,877		(3,388)		(58)
Total noninterest income	Total noninterest income	$	62,492	$	69,108	$	(6,616)	(10)	%	Total noninterest income	$	90,875	$	98,289	$	(7,414)	(8)	%

Total noninterest income was ~~$32.5~~$28.4 million during the ~~second~~third quarter of 2023 compared to ~~$34.5~~$29.2 million during the ~~second~~third quarter of 2022, a decrease of ~~$2.0 million~~$798,000 or 6%3%. Total noninterest income was ~~$62.5~~$90.9 million for the first ~~six~~nine months of 2023 compared to ~~$69.1~~$98.3 million for the first ~~six~~nine months of 2022, a decrease of ~~$6.6~~$7.4 million or ~~10%~~8%. Notable changes in noninterest income categories for the three- and ~~six-~~nine- months ended ~~June~~September 30, 2023 and 2022 are as follows:

Service charges and fees

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


		Three Months Ended June 30,									Three Months Ended September 30,
		2023		2022		Change		% Change			2023		2022		Change		% Change
Service charges and fees on deposit accounts	Service charges and fees on deposit accounts	$	5,229	$	4,672	$	557	12	%	Service charges and fees on deposit accounts	$	5,431	$	4,764	$	667	14	%
Overdraft fees	Overdraft fees	3,094		2,982		112		4		Overdraft fees	3,184		3,152		32		1
Customer service and other service fees	Customer service and other service fees	93		106		(13)		(12)		Customer service and other service fees	94		102		(8)		(8)
Credit card fee income	Credit card fee income	8,908		7,885		1,023		13		Credit card fee income	7,551		6,885		666		10
Debit card income	Debit card income	2,303		2,421		(118)		(5)		Debit card income	2,293		2,379		(86)		(4)
Total service charges and fees	Total service charges and fees	$	19,627	$	18,066	$	1,561	9	%	Total service charges and fees	$	18,553	$	17,282	$	1,271	7	%

		Six Months Ended June 30,									Nine Months Ended September 30,
		2023		2022		Change		% Change			2023		2022		Change		% Change
Service charges and fees on deposit accounts	Service charges and fees on deposit accounts	$	10,140	$	9,067	$	1,073	12	%	Service charges and fees on deposit accounts	$	15,571	$	13,831	$	1,740	13	%
Overdraft fees	Overdraft fees	6,063		5,807		256		4		Overdraft fees	9,248		8,959		289		3
Customer service and other service fees	Customer service and other service fees	186		187		(1)		(1)		Customer service and other service fees	280		289		(9)		(3)
Credit card fee income	Credit card fee income	15,911		13,534		2,377		18		Credit card fee income	23,462		20,419		3,043		15
Debit card income	Debit card income	4,463		4,722		(259)		(5)		Debit card income	6,755		7,101		(346)		(5)
Total service charges and fees	Total service charges and fees	$	36,763	$	33,317	$	3,446	10	%	Total service charges and fees	$	55,316	$	50,599	$	4,717	9	%

The increase in service charges and fees on deposit accounts was primarily attributable to a larger customer base. The increase in credit card fee income was primarily the result of a larger commercial credit card customer base and increased utilization.

Management ~~is monitoring and assessing industry changes related~~expects to ~~the consumer~~institute new policies regarding overdraft fees ~~and any future changes could negatively impact~~in the fourth quarter of 2023, which will reduce overdraft fee ~~income.~~income in future periods.

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 balances of these ~~loans, rather than quarterly production and sale of these~~ loans. The following tables show the changes in loan servicing income for the three- and ~~six-~~nine- months ended ~~June~~September 30, 2023, and 2022, in thousands:


		Three Months Ended June 30,									Three Months Ended September 30,
		2023		2022		Change		% Change			2023		2022		Change		% Change
Commercial and agricultural loan servicing fees(1)	Commercial and agricultural loan servicing fees(1)	$	373	$	649	$	(276)	(43)	%	Commercial and agricultural loan servicing fees(1)	$	274	$	583	$	(309)	(53)	%
Residential mortgage servicing fees	Residential mortgage servicing fees	38		466		(428)		(92)		Residential mortgage servicing fees	4		471		(467)		(99)
Mortgage servicing rights amortization	Mortgage servicing rights amortization	—		(281)		281		100		Mortgage servicing rights amortization	—		(223)		223		100
Total loan servicing income	Total loan servicing income	$	411	$	834	$	(423)	(51)	%	Total loan servicing income	$	278	$	831	$	(553)	(67)	%

		Six Months Ended June 30,									Nine Months Ended September 30,
		2023		2022		Change		% Change			2023		2022		Change		% Change
Commercial and agricultural loan servicing fees(1)	Commercial and agricultural loan servicing fees(1)	$	846	$	886	$	(40)	(5)	%	Commercial and agricultural loan servicing fees(1)	$	1,120	$	1,469	$	(349)	(24)	%
Residential mortgage servicing fees	Residential mortgage servicing fees	489		920		(431)		(47)		Residential mortgage servicing fees	493		1,391		(898)		(65)
Mortgage servicing rights amortization	Mortgage servicing rights amortization	(210)		(686)		476		69		Mortgage servicing rights amortization	(210)		(909)		699		77
Total loan servicing income	Total loan servicing income	$	1,125	$	1,120	$	5	—	%	Total loan servicing income	$	1,403	$	1,951	$	(548)	(28)	%

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

Trust fees

~~Capital markets~~Trust fees

~~For~~ totaled $4.7 million for the ~~second~~third quarter of 2023 ~~capital markets fees totaled $4.0 million~~ compared to ~~$4.9~~$5.4 million for the same quarter of 2022, a decrease of ~~$834,000~~$638,000 or ~~17%~~12%. ~~Syndication income decreased~~For the first nine months of 2023, trust fees totaled $15.8 million compared to $17.1 million for the first nine months of 2022, a decrease of $1.3 million or ~~56%~~8%.

The decrease for both the quarterly and year-to-date comparisons was primarily attributable to ~~$976,000 for~~ the ~~second quarter~~sale of ~~2023 from $2.2 million for~~ the ~~second quarter~~administrative and recordkeeping services component of ~~2022. Swap fee income increased $430,000 or 16% to $3.1 million~~HTLF’s Retirement Plan Services business that was completed in the second quarter of 2023. Retirement plan services income decreased $743,000 or 50% to $746,000 for the third quarter of 2023 ~~from $2.6~~compared to $1.5 million for the ~~same~~third quarter inof 2022. For the first nine months of 2023, retirement plan services income decreased $916,000 or 19% to $3.8 million from $4.7 million for the first nine months of 2022.

Capital markets fees

Capital markets fees totaled $1.8 million for the third quarter of both 2023 and 2022. For the first ~~six~~nine months of 2023, capital markets fees totaled ~~$6.5~~$8.3 million, a decrease of $1.4 million or ~~18%~~14% from ~~$7.9~~$9.7 million for the first ~~six~~nine months of 2022. Syndication income decreased ~~$1.9~~$2.2 million or 58% to ~~$1.4~~$1.7 million for the first ~~six~~nine months of 2023 compared to ~~$3.3~~$3.9 million for the same period of 2022. Swap fee income increased ~~$526,000~~$857,000 or ~~12%~~15% to ~~$5.1~~$6.7 million for the first ~~six~~nine months of 2023 compared to ~~$4.6~~$5.8 million for the first ~~six~~nine months of 2022.

Capital markets fees vary, in part, based upon the size of the transaction and are recognized upon the closing of the transaction.

Securities ~~losses/gains,~~losses, net

For the ~~second~~third quarter of 2023, net security losses totaled ~~$314,000~~$114,000 compared to net losses of ~~$2.1~~$1.1 million for the ~~second~~third quarter of 2022, a decrease of ~~$1.8 million~~$941,000 or ~~85%~~89%. For the first ~~six~~nine months of 2023, net security losses totaled ~~$1.4~~$1.5 million compared to net ~~gains for $783,000~~losses of $272,000 during the first ~~six~~nine months of 2022, ~~a change~~an increase of ~~$2.2~~$1.3 million. The realized losses in 2023 for both the quarterly and year-to-date results were primarily attributable to the sustained ~~unrealized~~ loss position of the securities portfolio. During the second quarter of 2022, approximately $158.7 million of lower-yielding securities were sold, resulting in a net loss of $2.6 million, and the proceeds from this sale were used to purchase higher-yielding securities.

Net gains on sale of loans held for sale

For the ~~second~~third quarter of 2023, net gains on sale of loans held for sale totaled ~~$1.1 million,~~$905,000, a decrease of ~~$1.9 million~~$927,000 or ~~64%~~51% from ~~$2.9~~$1.8 million in the same quarter of 2022. For the first ~~six~~nine months of 2023, net gains on sale of loans held for sale totaled ~~$2.9~~$3.8 million compared to ~~$6.3~~$8.1 million for the first ~~six~~nine months of 2022, a decrease of ~~$3.4~~$4.4 million or 54%.

Loans sold to investors induring the ~~second~~third quarter of 2023 totaled ~~$39.7~~$57.1 million compared to ~~$84.6~~$74.1 million during the ~~second~~third quarter of 2022, a decrease of ~~$44.9~~$17.0 million or ~~53%~~23%. Loans sold to investors in the first ~~six~~nine months of 2023 totaled ~~$77.8~~$134.8 million compared to ~~$182.9~~$257.0 million during the first ~~six~~nine months of 2022, a decrease of ~~$105.1~~$122.1 million or ~~57%~~48%.

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

Valuation adjustment on servicing rights

The valuation adjustment on servicing rights was $0 for both the ~~second~~third quarter of 2023 and 2022. For the first ~~six~~nine months of 2023, the valuation adjustment on servicing rights was $0 compared to $1.7 million for the first ~~six~~nine months of 2022. 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 ~~recent~~ increases in residential mortgage loan interest rates.

Income on bank owned life insurance

Income on bank owned life insurance totaled ~~$1.2 million~~$858,000 for the ~~second~~third quarter of 2023, an increase of ~~$697,000~~$164,000 or 24% from ~~$523,000~~$694,000 recorded in the ~~second~~third quarter of 2022. For the first ~~six~~nine months of 2023, income on bank owned life insurance totaled ~~$2.2~~$3.0 million, an increase of ~~$1.1~~$1.3 million from ~~$1.1~~$1.7 million for the first ~~six~~nine months of 2022. The increase for both the quarterly and year-to-date comparisons was attributable to market value changes.

Other noninterest income

Other noninterest income totaled ~~$407,000~~$619,000 for the ~~second~~third quarter of 2023 compared to ~~$3.0~~$2.0 million for the same quarter of 2022, a decrease of ~~$2.6~~$1.4 million or ~~87%~~69%. During the third quarter of 2022, HTLF received a $637,000 recovery on an acquired loan that had been charged off prior to acquisition.

For the first ~~six~~nine months of 2023, other noninterest income was ~~$1.9~~$2.5 million compared to ~~$3.9~~$5.9 million for the first ~~six~~nine months of 2022, a decrease of ~~$2.0~~$3.4 million or ~~52%~~58%. The decrease ~~for both the quarterly and year-to-date comparisons~~ 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 held by two subsidiary ~~banks.~~banks and the $637,000 recovery noted above.

Noninterest Expenses

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


		Three Months Ended June 30,									Three Months Ended September 30,
		2023		2022		Change		% Change			2023		2022		Change		% Change
Salaries and employee benefits	Salaries and employee benefits	$	62,099	$	64,032	$	(1,933)	(3)	%	Salaries and employee benefits	$	62,262	$	62,661	$	(399)	(1)	%
Occupancy	Occupancy	6,691		7,094		(403)		(6)		Occupancy	6,438		6,794		(356)		(5)
Furniture and equipment	Furniture and equipment	3,063		3,033		30		1		Furniture and equipment	2,720		2,928		(208)		(7)
Professional fees	Professional fees	15,194		14,457		737		5		Professional fees	13,616		14,289		(673)		(5)
FDIC insurance assessments	FDIC insurance assessments	3,035		1,530		1,505		98		FDIC insurance assessments	3,313		1,988		1,325		67
Advertising	Advertising	3,052		1,283		1,769		138		Advertising	1,633		1,554		79		5
Core deposit and customer relationship intangibles amortization	Core deposit and customer relationship intangibles amortization	1,715		2,083		(368)		(18)		Core deposit and customer relationship intangibles amortization	1,625		1,856		(231)		(12)
Other real estate and loan collection expenses	Other real estate and loan collection expenses	348		78		270		346		Other real estate and loan collection expenses	481		304		177		58
Gain on sales/valuations of assets, net		(3,372)		(3,230)		(142)		(4)
Loss/(gain) on sales/valuations of assets, net										Loss/(gain) on sales/valuations of assets, net	108		(251)		359		143
Acquisition, integration and restructuring costs	Acquisition, integration and restructuring costs	1,892		2,412		(520)		(22)		Acquisition, integration and restructuring costs	2,429		2,156		273		13
Partnership investment in tax credit projects	Partnership investment in tax credit projects	154		737		(583)		(79)		Partnership investment in tax credit projects	1,136		979		157		16
Other noninterest expenses	Other noninterest expenses	15,575		12,970		2,605		20		Other noninterest expenses	15,292		13,625		1,667		12
Total noninterest expenses	Total noninterest expenses	$	109,446	$	106,479	$	2,967	3	%	Total noninterest expenses	$	111,053	$	108,883	$	2,170	2	%


		Six Months Ended June 30,									Nine Months Ended September 30,
		2023		2022		Change		% Change			2023		2022		Change		% Change
Salaries and employee benefits	Salaries and employee benefits	$	124,248	$	130,206	$	(5,958)	(5)	%	Salaries and employee benefits	$	186,510	$	192,867	$	(6,357)	(3)	%
Occupancy	Occupancy	13,900		14,456		(556)		(4)		Occupancy	20,338		21,250		(912)		(4)
Furniture and equipment	Furniture and equipment	5,978		6,552		(574)		(9)		Furniture and equipment	8,698		9,480		(782)		(8)
Professional fees	Professional fees	27,991		27,997		(6)		—		Professional fees	41,607		42,286		(679)		(2)
FDIC insurance assessments	FDIC insurance assessments	6,314		3,146		3,168		101		FDIC insurance assessments	9,627		5,134		4,493		88
Advertising	Advertising	5,037		2,838		2,199		77		Advertising	6,670		4,392		2,278		52
Core deposit and customer relationship intangibles amortization	Core deposit and customer relationship intangibles amortization	3,503		4,137		(634)		(15)		Core deposit and customer relationship intangibles amortization	5,128		5,993		(865)		(14)
Other real estate and loan collection expenses	Other real estate and loan collection expenses	503		273		230		84		Other real estate and loan collection expenses	984		577		407		71
Gain on sales/valuations of assets, net		(2,257)		(3,184)		927		(29)
Loss/(gain) on sales/valuations of assets, net										Loss/(gain) on sales/valuations of assets, net	(2,149)		(3,435)		1,286		(37)
Acquisition, integration and restructuring costs	Acquisition, integration and restructuring costs	3,565		2,988		577		19		Acquisition, integration and restructuring costs	5,994		5,144		850		17
Partnership investment in tax credit projects	Partnership investment in tax credit projects	692		814		(122)		(15)		Partnership investment in tax credit projects	1,828		1,793		35		2
Other noninterest expenses	Other noninterest expenses	31,015		27,053		3,962		15		Other noninterest expenses	46,307		40,678		5,629		14
Total noninterest expenses	Total noninterest expenses	$	220,489	$	217,276	$	3,213	1	%	Total noninterest expenses	$	331,542	$	326,159	$	5,383	2	%

For the ~~second~~third quarter of 2023, total noninterest expenses were ~~$109.4~~$111.1 million compared to ~~$106.5~~$108.9 million for the ~~second~~third quarter of 2022, an increase of ~~$3.0~~$2.2 million or 3%2%. For the first ~~six~~nine months of 2023, noninterest expenses totaled ~~$220.5~~$331.5 million compared to ~~$217.3~~$326.2 million during the first ~~six~~nine months of 2022, an increase of ~~$3.2~~$5.4 million or ~~less than 1%~~2%.

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

Salaries and employee benefits

Salaries and employee benefits totaled ~~$62.1~~$62.3 million for the ~~second~~third quarter of 2023 compared to ~~$64.0~~$62.7 million for the ~~second~~third quarter of 2022, a decrease of ~~$1.9 million~~$399,000 or 3%1%. The decrease was attributable to a reduction of full-time equivalent employees and lower incentive compensation expense, mostly offset by higher salary expense driven by inflationary wage pressures and competition for talent.

For the first ~~six~~nine months of 2023, salaries and employee benefits totaled ~~$124.2~~$186.5 million compared to ~~$130.2~~$192.9 million for the first ~~six~~nine months of 2022, a decrease of ~~$6.0~~$6.4 million or ~~5%. The decrease for both the quarterly and year-to-date comparisons was~~3%, primarily attributable to a reduction of full-time equivalent employees and lower incentive compensation ~~expense.~~

expense and partially offset by inflationary wage pressures and competition for talent.

FDIC insurance assessments

FDIC insurance assessments totaled ~~$3.0~~$3.3 million for the ~~second~~third quarter of 2023 compared to ~~$1.5~~$2.0 million for the ~~second~~third quarter of 2022, an increase of ~~$1.5~~$1.3 million or ~~98%~~67%. For the first ~~six~~nine months of 2023, FDIC insurance assessments totaled ~~$6.3~~$9.6 million compared to ~~$3.1~~$5.1 million, an increase of ~~$3.2 million.~~$4.5 million or 88%. The increase for both the quarterly and year-to-date comparisons ~~was~~were attributable to assessment rate changes that were effective with the first quarter 2023 assessment.

HTLF is expecting an additional FDIC assessment expense associated with the special assessment that was proposed by the FDIC in May 2023. The proposal would assess a 12.5 basis point annual special assessment on the uninsured deposits reported by HTLF at December 31, 2022, which was $7.70 billion. The special assessment excludes the first $5 billion of uninsured deposits and would be in place for two years. The full expense for the two year period would be recognized upon approval of the ~~assessment.~~assessment and is estimated to be approximately $3.4 million.

Advertising

Advertising totaled ~~$3.1~~$1.6 million for the ~~second~~third quarter of 2023, an increase of ~~$1.8 million~~$79,000 or 5% from ~~$1.3~~$1.6 million for the ~~second~~third quarter of 2022. Advertising totaled ~~$5.0~~$6.7 million for the first ~~six~~nine months of 2023 compared to ~~$2.8~~$4.4 million for the first ~~six~~nine months of 2022, an increase of ~~$2.2~~$2.3 million or ~~77%. The increase for both the quarterly and year-to-date comparisons~~52%, which was primarily driven by deposit acquisition campaigns launched in 2023.

Gain on sales/valuations of assets, net

Net ~~gains~~losses on sales/valuations of assets were ~~$3.4 million~~$108,000 for the ~~second~~third quarter of 2023 compared to ~~$3.2 million~~net gains of $251,000 for the ~~second~~third quarter of 2022. For the first ~~six~~nine months of 2023, net gains on sales/valuations of assets totaled ~~$2.3~~$2.1 million compared to ~~$3.2~~$3.4 million for the first ~~six~~nine months of 2022.

In the ~~second quarter~~first nine months of 2023, HTLF recorded a gain of $4.3 million associated with the sale of HTLF's Retirement Plan Services recordkeeping and administrative services business, which was partially offset by losses on various other repossessed real estate properties. ~~In the first quarter of 2023,~~ HTLF recorded $813,000 of losses on fixed assets associated with branch optimization activities and a loss of ~~$193,000~~$203,000 associated with the sale of the mortgage servicing rights portfolio.

During the ~~second quarter~~first nine months of 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.

Acquisition, integration and restructuring costs

Acquisition, integration and restructuring costs totaled ~~$1.9~~$2.4 million in the ~~second~~third quarter of 2023 compared to ~~$2.4~~$2.2 million in the ~~second~~third quarter of ~~2022, a decrease~~2023, an increase of ~~$520,000~~$273,000 or ~~22%~~13%. For the first ~~six~~nine months of 2023, acquisition, integration and restructuring costs totaled ~~$3.6~~$6.0 million compared to ~~$3.0~~$5.1 million for the same period of 2022, an increase of ~~$577,000~~$850,000 or ~~19%. The change in expenses is~~17% primarily due to ~~the progression of the~~ charter consolidation ~~project which~~expenses that will continue through the end of 2023.

Other noninterest expenses

Other noninterest expenses totaled ~~$15.6~~$15.3 million in the ~~second~~third quarter of 2023 compared to ~~$13.0~~$13.6 million in the ~~second~~third quarter of 2022, an increase of ~~$2.6~~$1.7 million or ~~20%~~12%. Credit card processing expenses increased ~~$909,000~~$1.4 million or ~~27%~~49% to $4.3 million from ~~$3.4~~$2.9 million. ~~Fraud losses increased $739,000 to $948,000 from $209,000.~~

For the first ~~six~~nine months of 2023, other noninterest expenses totaled ~~$31.0~~$46.3 million compared to ~~$27.1~~$40.7 million for the first ~~six~~nine months of 2022, an increase of ~~$4.0~~$5.6 million or ~~15%~~14%. Credit card processing expenses increased ~~$1.5~~$2.9 million or ~~22%~~30% to ~~$8.4~~$12.7 million from ~~$6.9~~$9.8 million. Fraud losses increased ~~$1.2~~$1.1 million or 58% to ~~$2.3~~$3.1 million from ~~$1.2~~$2.0 million.

The increases in credit card processing expenses for both the three- and ~~six-month~~nine-month comparisons ~~are~~were primarily due to higher volumes and increased rebate expense.

Efficiency Ratio

~~One~~During the third quarter of ~~HTLF's strategic priorities is~~2023, the efficiency ratio was 63.77% (59.95% on an adjusted fully tax-equivalent basis, non-GAAP) compared to 58.84% (55.26% on an adjusted fully tax-equivalent basis, non-GAAP) for the third quarter of 2022.

During the first nine months of 2023, the efficiency ratio was 61.86% (58.98% on an adjusted fully tax-equivalent basis, non-GAAP) compared to 61.39% (58.99% on an adjusted fully tax-equivalent basis, non-GAAP) for the first nine months of 2022.

HTLF continues to pursue strategies to improve operational efficiency and its adjusted efficiency ratio, on a fully tax-equivalent basis (non-GAAP), ~~with~~which include the goal of maintaining it at or below 57%. During the second quarter of 2023, the efficiency ratio was 60.93% (59.82% on an adjusted fully tax-equivalent basis, non-GAAP) compared to 60.16% (57.66% on an adjusted fully tax-equivalent basis, non-GAAP) for the second quarter of 2022.

During the first six months of 2023, the efficiency ratio was 60.94% (58.48% on an adjusted fully tax-equivalent basis, non-GAAP) compared to 62.75% (61.02% on an adjusted fully tax-equivalent basis, non-GAAP) for the first six months of 2022.

following initiatives:

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

Consolidation of ~~its~~ bank charters

Charter consolidation is designed to eliminate redundancies and improve HTLF’s operating efficiency and capacity to support ongoing product and service enhancements ~~and~~as well as current and future growth. Through the end of the ~~second~~third quarter of 2023, ~~eight~~ten charters have been consolidated into HTLF Bank, and subsequent to ~~June~~September 30, 2023, ~~one additional~~the final charter was consolidated. The consolidated charters ~~are now operating~~operate as divisions of HTLF Bank. ~~The remaining charters are expected to be consolidated by the end of October 2023.~~

Consolidation restructuring costs are projected to be ~~$19-20~~$18-$19 million with approximately ~~$6-~~$2-$73 million of expenses remaining to be incurred in ~~2023.~~2023, which includes expenses to complete several span of control improvements. Total costs incurred since the project started in the fourth quarter of 2021 through ~~June~~September 30, 2023, were ~~$12.9~~$15.3 million, of which ~~$1.9~~$2.4 million was incurred in the ~~second~~third quarter of 2023. Total charter consolidation costs for the first ~~six~~nine months of 2023 totaled ~~$3.6~~$6.0 million. HTLF has realized some operating efficiencies and financial benefits with the completed charter consolidations. The resulting efficiencies and expansion in capacity are projected to generate benefits of approximately $20 million annually when the project is completed with core operating expenses expected to decline to 2.10% or less of average assets.

~~Branch~~Facilities optimization ~~strategy~~initiatives

HTLF continues to review its branch network and physical facilities as part of its ~~branch~~facilities optimization strategy, which ~~may~~will likely result in write-downs of fixed assets and additional restructuring costs in future periods.

Income Taxes

The effective tax rate was ~~23.74%~~21.89% for the ~~second~~third quarter of 2023, compared to ~~22.89%~~19.97% for the ~~second~~third quarter of 2022. The following items impacted the ~~second~~third quarter 2023 and 2022 tax calculations:

•Solar energy tax credits of $0$844,000 compared to ~~$702,000.~~$1.1 million.

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

•New markets tax credits of $90,000 compared to $75,000.

•Historic rehabilitation tax credits of ~~$167,000~~$362,000 compared to $63,000.

•Tax-exempt interest income as a percentage of pre-tax income of ~~12.40%~~13.14% compared to ~~11.05%~~11.45%.

•Tax expense of ~~$121,000~~$41,000 compared to ~~$43,000~~$0 resulting from the vesting of restricted stock units.

•Tax expense of ~~$1.1~~$1.6 million compared to ~~$109,000~~$258,000 resulting from the disallowed interest expense related to tax-exempt loans and securities, aligning with increases in total interest expense.

The effective tax rate was ~~23.10%~~22.72% for the ~~six~~nine months ended ~~June~~September 30, 2023, compared to ~~22.47%~~21.56% for the ~~six~~nine months ended ~~June~~September 30, 2022. The following items impacted HTLF's tax calculation for the first ~~six~~nine months of 2023 and 2022:

•Solar energy tax credits of ~~$310,000~~$1.2 million compared to ~~$702,000.~~$1.8 million.

•Federal low-income housing tax credits of ~~$621,000~~$932,000 compared to ~~$269,000.~~$789,000.

•New markets tax credits of ~~$180,000~~$270,000 compared to ~~$150,000.~~$225,000.

•Historic rehabilitation tax credits of ~~$425,000~~$787,000 compared to ~~$127,000.~~$190,000.

•Tax-exempt interest income as a percentage of pre-tax income of ~~12.30%~~12.57% compared to ~~12.58%~~12.17%.

•Tax expense of ~~$75,000~~$115,000 compared to a tax benefit of $129,000 resulting from the vesting of restricted stock units.

•Tax expense of ~~$2.0~~$3.6 million compared to ~~$167,000~~$425,000 resulting from the disallowed interest expense related to tax-exempt loans and securities, aligning with increases in total interest expense.

FINANCIAL CONDITION

Total assets were ~~$20.22~~$20.13 billion at ~~June~~September 30, 2023, a decrease of ~~$19.5~~$114.4 million or ~~less than~~ 1% from $20.24 billion at December 31, 2022. Securities represented ~~33%~~32% and 35% of total assets at ~~June~~September 30, 2023, and December 31, 2022, respectively.

LENDING ACTIVITIES

Total loans held to maturity were ~~$11.72~~$11.87 billion at ~~June~~September 30, 2023, and $11.43 billion at December 31, 2022, an increase of ~~$289.6~~$444.1 million or 3%4%.

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


		June 30, 2023		December 31, 2022		Change		% Change			September 30, 2023		December 31, 2022		Change		% Change
Commercial and industrial	Commercial and industrial	$	3,590,680	$	3,464,414	$	126,266	4	%	Commercial and industrial	$	3,591,809	$	3,464,414	$	127,395	4	%
Paycheck Protection Program ("PPP")	Paycheck Protection Program ("PPP")	4,139		11,025		(6,886)		(62)		Paycheck Protection Program ("PPP")	3,750		11,025		(7,275)		(66)
Owner occupied commercial real estate	Owner occupied commercial real estate	2,398,698		2,265,307		133,391		6		Owner occupied commercial real estate	2,429,659		2,265,307		164,352		7
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	2,530,736		2,330,940		199,796		9		Non-owner occupied commercial real estate	2,656,358		2,330,940		325,418		14
Real estate construction	Real estate construction	1,013,134		1,076,082		(62,948)		(6)		Real estate construction	1,029,554		1,076,082		(46,528)		(4)
Agricultural and agricultural real estate	Agricultural and agricultural real estate	839,817		920,510		(80,693)		(9)		Agricultural and agricultural real estate	842,116		920,510		(78,394)		(9)
Residential mortgage	Residential mortgage	828,437		853,361		(24,924)		(3)		Residential mortgage	813,803		853,361		(39,558)		(5)
Consumer	Consumer	512,333		506,713		5,620		1		Consumer	505,387		506,713		(1,326)		—
Total loans held to maturity	Total loans held to maturity	$	11,717,974	$	11,428,352	$	289,622	3	%	Total loans held to maturity	$	11,872,436	$	11,428,352	$	444,084	4	%

The loan growth in the first ~~six~~nine months of 2023 was primarily in commercial and commercial real estate, which was attributable to an emphasis on organic loan growth and further market penetration in various HTLF growth markets. The growth was partially offset by decreases in real estate construction, agricultural and agricultural real estate and residential mortgage.

~~Notable changes in the loan portfolio include:~~

•~~Commercial and industrial loans increased $126.3 million or 4% to $3.59 billion at June 30, 2023, compared to $3.46 billion at December 31, 2022.~~

•~~Owner occupied commercial real estate loans increased $133.4 million or 6% to $2.40 billion at June 30, 2023, compared to $2.27 billion at December 31, 2022.~~

•~~Non-owner occupied commercial real estate loans increased $199.8 million or 9% to $2.53 billion at June 30, 2023, compared to $2.33 billion at December 31, 2022.~~

•~~Real estate construction loans decreased $62.9 million or 6% to $1.01 billion at June 30, 2023, compared to $1.08 billion at December 31, 2022.~~

•~~Agricultural and agricultural real estate loans decreased $80.7 million or 9% to $839.8 million at June 30, 2023 compared to $920.5 million at December 31, 2022.~~

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


		June 30, 2023				December 31, 2022					September 30, 2023				December 31, 2022
		Amount		Percent		Amount		Percent			Amount		Percent		Amount		Percent
Loans receivable held to maturity:	Loans receivable held to maturity:									Loans receivable held to maturity:
Commercial and industrial	Commercial and industrial	$	3,590,680	30.63	%	$	3,464,414	30.31	%	Commercial and industrial	$	3,591,809	30.27	%	$	3,464,414	30.31	%
PPP	PPP	4,139		0.04		11,025		0.10		PPP	3,750		0.03		11,025		0.10
Owner occupied commercial real estate	Owner occupied commercial real estate	2,398,698		20.47		2,265,307		19.82		Owner occupied commercial real estate	2,429,659		20.46		2,265,307		19.82
Non-owner occupied commercial real estate	Non-owner occupied commercial real estate	2,530,736		21.60		2,330,940		20.40		Non-owner occupied commercial real estate	2,656,358		22.37		2,330,940		20.40
Real estate construction	Real estate construction	1,013,134		8.65		1,076,082		9.42		Real estate construction	1,029,554		8.67		1,076,082		9.42
Agricultural and agricultural real estate	Agricultural and agricultural real estate	839,817		7.17		920,510		8.05		Agricultural and agricultural real estate	842,116		7.09		920,510		8.05
Residential mortgage	Residential mortgage	828,437		7.07		853,361		7.47		Residential mortgage	813,803		6.85		853,361		7.47
Consumer	Consumer	512,333		4.37		506,713		4.43		Consumer	505,387		4.26		506,713		4.43
Gross loans receivable held to maturity	Gross loans receivable held to maturity	11,717,974		100.00	%	11,428,352		100.00	%	Gross loans receivable held to maturity	11,872,436		100.00	%	11,428,352		100.00	%

Allowance for credit losses-loans	Allowance for credit losses-loans	(111,198)				(109,483)				Allowance for credit losses-loans	(110,208)				(109,483)
Loans receivable, net	Loans receivable, net	$	11,606,776			$	11,318,869			Loans receivable, net	$	11,762,228			$	11,318,869

ALLOWANCE FOR CREDIT LOSSES

The process utilized by HTLF to determine the appropriateness of the allowance for credit losses is considered a critical accounting practice. The allowance for credit losses represents management's estimate of lifetime losses in the existing loan portfolio. For additional details on the specific factors considered in determining the allowance for credit losses, refer to the critical accounting estimates section of HTLF's Annual Report on Form 10-K for the year ended December 31, 2022.

Total Allowance for Lending Related Credit Losses

The total allowance for lending related credit losses was ~~$129.8~~$127.7 million at ~~June~~September 30, 2023, which was ~~1.11%~~1.08% of loans, compared to $129.7 million or 1.13% of loans at December 31, 2022. The following table shows, in thousands, the components of the allowance for lending related credit losses as of ~~June~~September 30, 2023, and December 31, 2022:


		June 30, 2023				December 31, 2022					September 30, 2023				December 31, 2022
		Amount		% of Allowance		Amount		% of Allowance			Amount		% of Allowance		Amount		% of Allowance
Quantitative	Quantitative	$	82,417	63.48	%	$	84,409	65.09	%	Quantitative	$	88,482	69.30	%	$	84,409	65.09	%
Qualitative/Economic Forecast	Qualitative/Economic Forecast	47,417		36.52		45,270		34.91		Qualitative/Economic Forecast	39,206		30.70		45,270		34.91

Total	Total	$	129,834	100.00	%	$	129,679	100.00	%	Total	$	127,688	100.00	%	$	129,679	100.00	%

Quantitative Allowance

The quantitative allowance ~~decreased $2.0~~increased $4.1 million or 2%5% to ~~$82.4~~$88.5 million or ~~63%~~69% of the total allowance for lending related credit losses at ~~June~~September 30, 2023, compared to $84.4 million or 65% of the total allowance at December 31, 2022. Specific reserves for individually assessed loans totaled ~~$8.4~~$9.0 million at ~~June~~September 30, 2023, an increase of ~~$1.3~~$1.9 million or ~~18%~~26% from $7.1 million at December 31, 2022.

Qualitative Allowance/Economic Forecast

The qualitative allowance totaled ~~$47.4~~$39.2 million or ~~37%~~31% of the total allowance for lending related credit losses at ~~June~~September 30, 2023, compared to $45.3 million or 35% at December 31, 2022.

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 ~~June~~September 30, 2023, Moody's ~~June 5,~~September 11, 2023, baseline forecast scenario was utilized, and management considered other ~~downturn~~downside forecast scenarios ~~which anticipated a moderate recession developing withing the next twelve months,~~ in addition to the baseline forecast to support the macroeconomic outlook used in the allowance for credit losses calculation.

During HTLF's annual methodology update in the third quarter of 2023, management made some enhancements to the methodology, resulting in a shift of allowance composition. The quantitative calculation increased while the qualitative/economic forecast calculation decreased.

Allowance for Credit Losses-Loans

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


		Three Months Ended June 30,							Three Months Ended September 30,
		2023			2022				2023			2022
Balance at beginning of period	Balance at beginning of period	$	112,707		$	100,522		Balance at beginning of period	$	111,198		$	101,353

Provision for credit losses	Provision for credit losses	7,829			1,545			Provision for credit losses	2,672			4,388
Recoveries on loans previously charged off	Recoveries on loans previously charged off	275			759			Recoveries on loans previously charged off	302			912
Charge-offs on loans	Charge-offs on loans	(9,613)			(1,473)			Charge-offs on loans	(3,964)			(938)
Balance at end of period	Balance at end of period	$	111,198		$	101,353		Balance at end of period	$	110,208		$	105,715
Allowance for credit losses for loans as a percent of loans	Allowance for credit losses for loans as a percent of loans	0.95		%	0.95		%	Allowance for credit losses for loans as a percent of loans	0.93		%	0.97		%
Annualized ratio of net charge-offs to average loans	Annualized ratio of net charge-offs to average loans	0.32		%	0.03		%	Annualized ratio of net charge-offs to average loans	0.12		%	0.00		%


		Six Months Ended June 30,							Nine Months Ended September 30,
		2023			2022				2023			2022
Balance at beginning of period	Balance at beginning of period	$	109,483		$	110,088		Balance at beginning of period	$	109,483		$	110,088

Provision for credit losses	Provision for credit losses	10,013			4,173			Provision for credit losses	12,685			8,561
Recoveries on loans previously charged off	Recoveries on loans previously charged off	3,466			1,782			Recoveries on loans previously charged off	3,768			2,694
Charge-offs on loans	Charge-offs on loans	(11,764)			(14,690)			Charge-offs on loans	(15,728)			(15,628)
Balance at end of period	Balance at end of period	$	111,198		$	101,353		Balance at end of period	$	110,208		$	105,715
Allowance for credit losses for loans as a percent of loans	Allowance for credit losses for loans as a percent of loans	0.95		%	0.95		%	Allowance for credit losses for loans as a percent of loans	0.93		%	0.97		%
Annualized ratio of net charge-offs to average loans	Annualized ratio of net charge-offs to average loans	0.15		%	0.25		%	Annualized ratio of net charge-offs to average loans	0.14		%	0.17		%

The allowance for credit losses for loans totaled ~~$111.2~~$110.2 million at ~~June~~September 30, 2023, compared to $109.5 million at December 31, 2022, and ~~$101.4~~$105.7 million at ~~June~~September 30, 2022. The allowance for credit losses for loans at ~~June~~September 30, 2023, was ~~0.95%~~0.93% of loans compared to 0.96% of loans at December 31, 2022. The following items impacted the allowance for credit losses for loans for the ~~six~~nine months ended ~~June~~September 30, 2023:

•Net charge-offs for the first ~~six~~nine months of 2023 totaled ~~$8.3~~$12.0 million compared to net charge-offs of $12.9 million for the first ~~six~~nine months of 2022, ~~which was~~ a decrease of ~~$4.6 million.~~$974,000. Included in net charge-offs for the first ~~six~~nine months of 2023 was a $5.3 million charge-off related to an overdraft, the result of a fraud incident impacting the account of a single long-term customer. Included in net charge-offs for the first ~~six~~nine months of 2022 were two charge-offs due to customer fraud totaling $9.2 million related to two lending relationships which had collateral deficiencies.

•Provision expense totaling $2.6 million was recorded for an individually assessed loan in the first quarter of 2023.

•Loan growth totaled ~~$289.6~~$444.1 million for the first ~~six~~nine months of 2023.

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


		Three Months Ended June 30,					Three Months Ended September 30,
		2023		2022			2023		2022
Balance at beginning of period	Balance at beginning of period	$	21,086	$	16,079	Balance at beginning of period	$	18,636	$	17,780
Provision (benefit) for credit losses		(2,450)		1,701
(Benefit) provision for credit losses						(Benefit) provision for credit losses	(1,156)		1,104
Balance at end of period	Balance at end of period	$	18,636	$	17,780	Balance at end of period	$	17,480	$	18,884

		Six Months Ended June 30,					Nine Months Ended September 30,
		2023		2022			2023		2022
Balance at beginning of period	Balance at beginning of period	$	20,196	$	15,462	Balance at beginning of period	$	20,196	$	15,462

Provision (benefit) for credit losses		(1,560)		2,318
(Benefit) provision for credit losses						(Benefit) provision for credit losses	(2,716)		3,422
Balance at end of period	Balance at end of period	$	18,636	$	17,780	Balance at end of period	$	17,480	$	18,884

The allowance for unfunded commitments totaled ~~$18.6~~$17.5 million as of ~~June~~September 30, 2023, compared to $20.2 million as of December 31, 2022, and ~~$17.8~~$18.9 million as of ~~June~~September 30, 2022. The decrease in the allowance for unfunded commitments in the first ~~six~~nine months of 2023 was primarily due to a reduction of ~~$164.2~~$85.6 million in unfunded commitments for construction loans, which carry the highest loss rate. Total unfunded commitments increased ~~$175.5~~$84.1 million or 4%2% to ~~$4.91~~$4.81 billion at ~~June~~September 30, 2023, compared to $4.73 billion at December 31, 2022.

CREDIT QUALITY AND NONPERFORMING ASSETS

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

The nonpass loans totaled ~~$568.2~~$535.7 million or ~~4.8%~~4.5% of total loans as of ~~June~~September 30, 2023, compared to $533.3 million or 4.7% of total loans as of December 31, 2022. As of ~~June~~September 30, 2023, the nonpass loans consisted of approximately ~~47%~~53% watch loans and ~~53%~~47% substandard loans compared to approximately 48% watch loans and 52% substandard loans as of December 31, 2022. The percent of nonpass loans on nonaccrual status as of ~~June~~September 30, 2023, was ~~11%~~10%.

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


		June 30,						December 31,							September 30,						December 31,
		2023			2022			2022			2021				2023			2022			2022			2021
Nonaccrual loans	Nonaccrual loans	$	61,956		$	62,909		$	58,231		$	69,369		Nonaccrual loans	$	51,304		$	64,560		$	58,231		$	69,369
Loans contractually past due 90 days or more	Loans contractually past due 90 days or more	1,459			95			273			550			Loans contractually past due 90 days or more	511			678			273			550
Total nonperforming loans	Total nonperforming loans	63,415			63,004			58,504			69,919			Total nonperforming loans	51,815			65,238			58,504			69,919
Other real estate	Other real estate	2,677			4,528			8,401			1,927			Other real estate	14,362			8,030			8,401			1,927
Other repossessed assets	Other repossessed assets	5			—			26			43			Other repossessed assets	1			—			26			43
Total nonperforming assets	Total nonperforming assets	$	66,097		$	67,532		$	66,931		$	71,889		Total nonperforming assets	$	66,178		$	73,268		$	66,931		$	71,889

Nonperforming loans to total loans	Nonperforming loans to total loans	0.54		%	0.59		%	0.51		%	0.70		%	Nonperforming loans to total loans	0.44		%	0.60		%	0.51		%	0.70		%
Nonperforming assets to total loans plus repossessed property	Nonperforming assets to total loans plus repossessed property	0.56			0.63			0.59			0.72			Nonperforming assets to total loans plus repossessed property	0.56			0.67			0.59			0.72
Nonperforming assets to total assets	Nonperforming assets to total assets	0.33			0.34			0.33			0.37			Nonperforming assets to total assets	0.33			0.37			0.33			0.37

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


		Nonperforming Loans		Other Real Estate Owned		Other Repossessed Assets		Total Nonperforming Assets			Nonperforming Loans		Other Real Estate Owned		Other Repossessed Assets		Total Nonperforming Assets
March 31, 2023		$	58,240	$	7,438	$	24	$	65,702
June 30, 2023										June 30, 2023	$	63,415	$	2,677	$	5	$	66,097
Loan foreclosures	Loan foreclosures	(39)		28		11		—		Loan foreclosures	(12,542)		12,537		5		—
Net loan charge-offs	Net loan charge-offs	(9,338)		—		—		(9,338)		Net loan charge-offs	(3,662)		—		—		(3,662)

New nonperforming loans	New nonperforming loans	19,805		—		—		19,805		New nonperforming loans	19,295		—		—		19,295
Reduction of nonperforming loans(1)	Reduction of nonperforming loans(1)	(5,253)		—		—		(5,253)		Reduction of nonperforming loans(1)	(14,691)		—		—		(14,691)
OREO/Repossessed assets sales proceeds	OREO/Repossessed assets sales proceeds	—		(3,915)		(26)		(3,941)		OREO/Repossessed assets sales proceeds	—		(589)		(6)		(595)
OREO/Repossessed assets writedowns, net	OREO/Repossessed assets writedowns, net	—		(874)		(4)		(878)		OREO/Repossessed assets writedowns, net	—		(263)		(3)		(266)

June 30, 2023		$	63,415	$	2,677	$	5	$	66,097
September 30, 2023										September 30, 2023	$	51,815	$	14,362	$	1	$	66,178

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


		Nonperforming Loans		Other Real Estate Owned		Other Repossessed Assets		Total Nonperforming Assets			Nonperforming Loans		Other Real Estate Owned		Other Repossessed Assets		Total Nonperforming Assets
December 31, 2022	December 31, 2022	$	58,504	$	8,401	$	26	$	66,931	December 31, 2022	$	58,504	$	8,401	$	26	$	66,931
Loan foreclosures	Loan foreclosures	(258)		239		19		—		Loan foreclosures	(12,800)		12,776		24		—
Net loan charge-offs	Net loan charge-offs	(8,298)		—		—		(8,298)		Net loan charge-offs	(11,960)		—		—		(11,960)

New nonperforming loans	New nonperforming loans	24,431		—		—		24,431		New nonperforming loans	43,726		—		—		43,726
Reduction of nonperforming loans(1)	Reduction of nonperforming loans(1)	(10,964)		—		—		(10,964)		Reduction of nonperforming loans(1)	(25,655)		—		—		(25,655)
OREO/Repossessed assets sales proceeds	OREO/Repossessed assets sales proceeds	—		(5,047)		(30)		(5,077)		OREO/Repossessed assets sales proceeds	—		(5,636)		(36)		(5,672)
OREO/Repossessed assets writedowns, net	OREO/Repossessed assets writedowns, net	—		(916)		(10)		(926)		OREO/Repossessed assets writedowns, net	—		(1,179)		(13)		(1,192)

June 30, 2023		$	63,415	$	2,677	$	5	$	66,097
September 30, 2023										September 30, 2023	$	51,815	$	14,362	$	1	$	66,178

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

Total nonperforming assets decreased ~~$834,000~~$753,000 or 1% to ~~$66.1~~$66.2 million or 0.33% of total assets at ~~June~~September 30, 2023, compared to $66.9 million or 0.33% of total assets at December 31, 2022. Nonperforming loans were ~~$63.4~~$51.8 million at ~~June~~September 30, 2023, compared to $58.5 million at December 31, 2022, which represented ~~0.54%~~0.44% and 0.51% of total loans at ~~June~~September 30, 2023, and December 31, 2022, respectively. At ~~June~~September 30, 2023, approximately ~~$40.8~~$33.6 million or ~~64%~~65% of HTLF's nonperforming loans had individual loan balances exceeding $1.0 million and represented loans to ~~sixteen~~twelve borrowers. The portion of the nonperforming nonresidential real estate loans covered by government guarantees totaled ~~$10.6~~$10.4 million and $12.5 million at ~~June~~September 30, 2023, and December 31, 2022, respectively.

Other real estate owned, net, increased $6.0 million or 71% to $14.4 million at September 30, 2023 from $8.4 million at December 31, 2022. HTLF added one property with a book value of $11.3 million to other real estate, net, during the third quarter of 2023.

SECURITIES

The composition of the securities portfolio is managed to meet liquidity needs while maximizing the return on the portfolio within the established HTLF risk appetite parameters and in consideration of the impact it has on HTLF's asset/liability position. Securities represented ~~33%~~32% and 35% of total assets at ~~June~~September 30, 2023, and December 31, 2022, respectively. Total securities carried at fair value as of ~~June~~September 30, 2023, were ~~$5.80~~$5.48 billion, a decrease of ~~$349.1~~$664.5 million or 6%11% from $6.15 billion at December 31, 2022.

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


		June 30, 2023				December 31, 2022					September 30, 2023				December 31, 2022
		Amount		Percent		Amount		Percent			Amount		Percent		Amount		Percent
U.S. treasuries	U.S. treasuries	$	31,679	0.47	%	$	31,699	0.45	%	U.S. treasuries	$	31,805	0.50	%	$	31,699	0.45	%
U.S. agencies	U.S. agencies	43,036		0.64		43,135		0.61		U.S. agencies	41,104		0.64		43,135		0.61
Obligations of states and political subdivisions	Obligations of states and political subdivisions	1,683,912		25.11		1,708,840		24.24		Obligations of states and political subdivisions	1,610,155		25.13		1,708,840		24.24
Mortgage-backed securities - agency	Mortgage-backed securities - agency	1,686,646		25.16		1,772,105		25.13		Mortgage-backed securities - agency	1,594,395		24.88		1,772,105		25.13
Mortgage-backed securities - non-agency	Mortgage-backed securities - non-agency	1,995,809		29.76		2,181,876		30.94		Mortgage-backed securities - non-agency	1,895,080		29.57		2,181,876		30.94
Commercial mortgage-backed securities - agency	Commercial mortgage-backed securities - agency	83,825		1.25		85,123		1.21		Commercial mortgage-backed securities - agency	81,444		1.27		85,123		1.21
Commercial mortgage-backed securities - non-agency	Commercial mortgage-backed securities - non-agency	617,992		9.22		659,459		9.35		Commercial mortgage-backed securities - non-agency	602,433		9.40		659,459		9.35
Asset-backed securities	Asset-backed securities	412,716		6.16		416,054		5.90		Asset-backed securities	384,379		6.00		416,054		5.90
Corporate bonds	Corporate bonds	56,411		0.84		57,942		0.82		Corporate bonds	56,522		0.88		57,942		0.82

Equity securities with a readily determinable fair value	Equity securities with a readily determinable fair value	20,688		0.31		20,314		0.29		Equity securities with a readily determinable fair value	20,838		0.33		20,314		0.29
Other securities	Other securities	72,291		1.08		74,567		1.06		Other securities	90,001		1.40		74,567		1.06
Total securities	Total securities	$	6,705,005	100.00	%	$	7,051,114	100.00	%	Total securities	$	6,408,156	100.00	%	$	7,051,114	100.00	%

HTLF's securities portfolio had an expected modified duration of ~~6.20~~6.12 years as of ~~June~~September 30, 2023, and 6.19 years as of December 31, 2022.

At ~~June~~September 30, 2023, HTLF had ~~$72.3~~$90.0 million of other securities, including Federal Home Loan Bank ("FHLB") stock. These securities are recorded on the consolidated balance sheets in ~~other~~Securities: Other investments, ~~held~~ at cost.

DEPOSITS

Total deposits were ~~$17.66~~$17.10 billion as of ~~June~~September 30, 2023, compared to $17.51 billion at December 31, 2022, ~~an increase~~a decrease of ~~$150.5~~$412.0 million or 1%2%. As of ~~June~~September 30, 2023, ~~66%~~64% of HTLF's deposits were insured or collateralized.

HTLF maintains a granular and diverse deposit base. As of ~~June~~September 30, 2023, no Bank Market represented more than ~~12%~~13% 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:


		June 30, 2023		December 31, 2022		Change		% Change			September 30, 2023		December 31, 2022		Change		% Change
Demand-customer	Demand-customer	$	4,897,858	$	5,701,340	$	(803,482)	(14)	%	Demand-customer	$	4,792,813	$	5,701,340	$	(908,527)	(16)	%
Savings-customer	Savings-customer	8,149,596		8,670,898		(521,302)		(6)		Savings-customer	8,190,430		8,670,898		(480,468)		(6)
Savings-wholesale and institutional	Savings-wholesale and institutional	623,000		1,323,493		(700,493)		(53)		Savings-wholesale and institutional	564,481		1,323,493		(759,012)		(57)
Total savings	Total savings	8,772,596		9,994,391		(1,221,795)		(12)		Total savings	8,754,911		9,994,391		(1,239,480)		(12)
Time-customer	Time-customer	1,597,849		851,539		746,310		88		Time-customer	1,814,335		851,539		962,796		113
Time-wholesale	Time-wholesale	2,395,240		965,739		1,429,501		148		Time-wholesale	1,738,934		965,739		773,195		80
Total time	Total time	3,993,089		1,817,278		2,175,811		120		Total time	3,553,269		1,817,278		1,735,991		96
Total deposits	Total deposits	$	17,663,543	$	17,513,009	$	150,534	1	%	Total deposits	$	17,100,993	$	17,513,009	$	(412,016)	(2)	%

Total customer deposits	Total customer deposits	$	14,645,303	$	15,223,777	$	(578,474)	(4)	%	Total customer deposits	$	14,797,578	$	15,223,777	$	(426,199)	(3)	%
Total wholesale and institutional deposits	Total wholesale and institutional deposits	3,018,240		2,289,232		729,008		32	%	Total wholesale and institutional deposits	2,303,415		2,289,232		14,183		1	%
Total deposits	Total deposits	$	17,663,543	$	17,513,009	$	150,534	1	%	Total deposits	$	17,100,993	$	17,513,009	$	(412,016)	(2)	%

At ~~June~~September 30, 2023, HTLF had ~~$3.02~~$2.30 billion of wholesale and institutional deposits, of which ~~$623.0~~$564.5 million was included in savings deposits and ~~$2.40~~$1.74 billion was included in time deposits. HTLF had $1.32 billion of wholesale savings and institutional deposits and $965.7 million of wholesale time deposits at December 31, 2022.

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


		June 30, 2023				December 31, 2022					September 30, 2023				December 31, 2022
		Amount		Percent		Amount		Percent			Amount		Percent		Amount		Percent
Demand-customer	Demand-customer	$	4,897,858	27.73	%	$	5,701,340	32.55	%	Demand-customer	$	4,792,813	28.03	%	$	5,701,340	32.55	%
Savings-customer	Savings-customer	8,149,596		46.13		8,670,898		49.52		Savings-customer	8,190,430		47.89		8,670,898		49.52
Savings-wholesale and institutional	Savings-wholesale and institutional	623,000		3.53		1,323,493		7.56		Savings-wholesale and institutional	564,481		3.30		1,323,493		7.56
Time-customer	Time-customer	1,597,849		9.05		851,539		4.86		Time-customer	1,814,335		10.61		851,539		4.86
Time-wholesale	Time-wholesale	2,395,240		13.56		965,739		5.51		Time-wholesale	1,738,934		10.17		965,739		5.51
Total	Total	$	17,663,543	100.00	%	$	17,513,009	100.00	%	Total	$	17,100,993	100.00	%	$	17,513,009	100.00	%

SHORT-TERM BORROWINGS

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


		June 30, 2023		December 31, 2022		Change		% Change			September 30, 2023		December 31, 2022		Change		% Change
Securities sold under agreement to repurchase	Securities sold under agreement to repurchase	$	35,913	$	95,303	$	(59,390)	(62)	%	Securities sold under agreement to repurchase	$	29,124	$	95,303	$	(66,179)	(69)	%

Advances from the FHLB	Advances from the FHLB	—		50,000		(50,000)		(100)		Advances from the FHLB	351,772		50,000		301,772		604
Advances from the federal discount window	Advances from the federal discount window	—		224,000		(224,000)		(100)		Advances from the federal discount window	—		224,000		(224,000)		(100)
Other short-term borrowings	Other short-term borrowings	8,451		6,814		1,637		24		Other short-term borrowings	11,738		6,814		4,924		72
Total	Total	$	44,364	$	376,117	$	(331,753)	(88)	%	Total	$	392,634	$	376,117	$	16,517	4	%

Short-term borrowings generally include federal funds purchased, securities sold under agreements to repurchase, short-term FHLB advances and discount window borrowings from the Federal Reserve Bank. These funding sources are utilized in varying degrees depending on their pricing and availability. The Banks own FHLB stock in either the ~~Dallas~~Topeka or Des Moines FHLB, enabling them to borrow funds from their respective FHLB for short-term or long-term purposes under a variety of programs. Short-term borrowings totaled ~~$44.4~~$392.6 million at ~~June~~September 30, 2023, compared to $376.1 million at December 31, 2022, ~~a decrease~~an increase of ~~$331.8~~$16.5 million or ~~88%~~4%.

The Banks have pledged securities that provided borrowing capacity totaling ~~$630.4~~$613.1 million as of ~~June~~September 30, 2023, to the BTFP, a Federal Reserve Bank program created in the first quarter of 2023 to assist banks in meeting all the liquidity needs of depositors. There have been no advances from the BTFP since the inception of the program.

The Banks provide retail repurchase agreements to their customers as a cash management tool. Although the aggregate balance of these retail repurchase agreements is subject to variation, the account relationships represented by these balances are principally local. The balances of retail repurchase agreements were ~~$35.9~~$29.1 million at ~~June~~September 30, 2023, compared to $95.3 million at December 31, 2022, a decrease of ~~$59.4~~$66.2 million or ~~62%~~69%.

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

OTHER BORROWINGS

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


		June 30, 2023		December 31, 2022		Change		% Change			September 30, 2023		December 31, 2022		Change		% Change
Advances from the FHLB	Advances from the FHLB	$	680	$	740	$	(60)	(8)	%	Advances from the FHLB	$	—	$	740	$	(740)	(100)	%

Trust preferred securities	Trust preferred securities	148,806		148,284		522		—		Trust preferred securities	148,595		148,284		311		—

Contracts payable	Contracts payable	80		82		(2)		(2)		Contracts payable	80		82		(2)		(2)
Subordinated notes	Subordinated notes	222,837		222,647		190		—		Subordinated notes	223,384		222,647		737		—

Total	Total	$	372,403	$	371,753	$	650	—	%	Total	$	372,059	$	371,753	$	306	—	%

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

Amount
Issued

Issuance
Date

Interest
Rate

Interest

Rate as of 6/30/2023(1)

Maturity
Date

Callable
Date

Amount
Issued

Issuance
Date

Interest
Rate

Interest Rate as

of 9/30/2023(1)

Maturity
Date

Callable
Date

Heartland Financial Statutory Trust IV

10,310

03/17/2004

2.75% over LIBOR

8.26%

03/17/2034

09/17/2023

Heartland Financial Statutory Trust IV

10,310

03/17/2004

2.75% over LIBOR

8.42%

03/17/2034

12/17/2023

Heartland Financial Statutory Trust V

20,619

01/27/2006

1.33% over LIBOR

6.59

04/07/2036

10/07/2023

Heartland Financial Statutory Trust V

20,619

01/27/2006

1.33% over LIBOR

6.90

04/07/2036

01/07/2024

Heartland Financial Statutory Trust VI

20,619

06/21/2007

1.48% over LIBOR

7.03

09/15/2037

09/15/2023

Heartland Financial Statutory Trust VI

20,619

06/21/2007

1.48% over LIBOR

7.15

09/15/2037

12/15/2023

Heartland Financial Statutory Trust VII

18,042

06/26/2007

1.48% over LIBOR

6.98

09/01/2037

09/01/2023

Heartland Financial Statutory Trust VII

18,042

06/26/2007

1.48% over LIBOR

7.15

09/01/2037

12/01/2023

Morrill Statutory Trust I

9,416

12/19/2002

3.25% over LIBOR

8.79

12/26/2032

09/26/2023

Morrill Statutory Trust I

9,440

12/19/2002

3.25% over LIBOR

8.91

12/26/2032

12/26/2023

Morrill Statutory Trust II

9,143

12/17/2003

2.85% over LIBOR

8.36

12/17/2033

09/17/2023

Morrill Statutory Trust II

9,170

12/17/2003

2.85% over LIBOR

8.52

12/17/2033

12/17/2023

Sheboygan Statutory Trust I

6,834

09/17/2003

2.95% over LIBOR

8.46

09/17/2033

09/17/2023

Sheboygan Statutory Trust I

6,856

09/17/2003

2.95% over LIBOR

8.62

09/17/2033

12/17/2023

CBNM Capital Trust I

4,583

09/10/2004

3.25% over LIBOR

8.80

12/15/2034

09/15/2023

CBNM Capital Trust I

4,595

09/10/2004

3.25% over LIBOR

8.92

12/15/2034

12/15/2023

Citywide Capital Trust III

6,633

12/19/2003

2.80% over LIBOR

8.10

12/19/2033

10/23/2023

Citywide Capital Trust III

6,647

12/19/2003

2.80% over LIBOR

8.43

12/19/2033

01/23/2024

Citywide Capital Trust IV

4,497

09/30/2004

2.20% over LIBOR

7.59

09/30/2034

08/23/2023

Citywide Capital Trust IV

4,512

09/30/2004

2.20% over LIBOR

7.84

09/30/2034

11/23/2023

Citywide Capital Trust V

12,536

05/31/2006

1.54% over LIBOR

7.09

07/25/2036

09/15/2023

Citywide Capital Trust V

12,593

05/31/2006

1.54% over LIBOR

7.21

07/25/2036

12/15/2023

OCGI Statutory Trust III

3,024

06/27/2002

3.65% over LIBOR

8.91

09/30/2032

09/30/2023

OCGI Statutory Trust III

3,026

06/27/2002

3.65% over LIBOR

9.22

09/30/2032

12/30/2023

OCGI Capital Trust IV

5,539

09/23/2004

2.50% over LIBOR

8.05

12/15/2034

09/15/2023

OCGI Capital Trust IV

5,553

09/23/2004

2.50% over LIBOR

8.17

12/15/2034

12/15/2023

BVBC Capital Trust II

7,339

04/10/2003

3.25% over LIBOR

8.55

04/24/2033

10/24/2023

BVBC Capital Trust II

7,349

04/10/2003

3.25% over LIBOR

8.88

04/24/2033

01/24/2024

BVBC Capital Trust III

9,672

07/29/2005

1.60% over LIBOR

7.14

09/30/2035

09/30/2023

BVBC Capital Trust III

9,716

07/29/2005

1.60% over LIBOR

7.26

09/30/2035

12/30/2023

Total trust preferred costs

148,806

Total trust preferred securities

149,047

(1) Effective weighted average interest rate as of June 30, 2023, was 8.17%.

(1) Effective weighted average interest rate as of September 30, 2023, was 8.35%.

CAPITAL REQUIREMENTS

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

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

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


		Total Capital (to Risk- Weighted Assets)			Tier 1 Capital (to Risk- Weighted Assets)			Common Equity Tier 1 (to Risk- Weighted Assets)			Tier 1 Capital (to Average Assets)				Total Capital (to Risk- Weighted Assets)			Tier 1 Capital (to Risk- Weighted Assets)			Common Equity Tier 1 (to Risk- Weighted Assets)			Tier 1 Capital (to Average Assets)
June 30, 2023		14.93		%	12.05		%	11.33		%	9.40		%
September 30, 2023														September 30, 2023	14.90		%	12.08		%	11.37		%	9.59		%
Minimum capital requirement	Minimum capital requirement	8.00			6.00			4.50			4.00			Minimum capital requirement	8.00			6.00			4.50			4.00
Well capitalized requirement	Well capitalized requirement	10.00			8.00			6.50			5.00			Well capitalized requirement	10.00			8.00			6.50			5.00
Minimum capital requirement, including fully-phased in capital conservation buffer	Minimum capital requirement, including fully-phased in capital conservation buffer	10.50			8.50			7.00			N/A			Minimum capital requirement, including fully-phased in capital conservation buffer	10.50			8.50			7.00			N/A
Risk-weighted assets	Risk-weighted assets	$	15,324,421		$	15,324,421		$	15,324,421		N/A			Risk-weighted assets	$	15,579,756		$	15,579,756		$	15,579,756		N/A
Average assets	Average assets	N/A			N/A			N/A			$	19,633,800		Average assets	N/A			N/A			N/A			$	19,621,072

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

Retained earnings that could be available for the payment of dividends to HTLF from its banks totaled approximately ~~$788.5~~$774.2 million and $702.2 million at ~~June~~September 30, 2023, and December 31, 2022, respectively, under the most restrictive minimum capital requirements. Retained earnings that could be available for the payment of dividends to HTLF from its banks while remaining above the well capitalized levels totaled approximately ~~$482.8~~$463.7 million and $403.9 million at ~~June~~September 30, 2023, and December 31, 2022, ~~respectively, under the capital requirements to remain well capitalized.~~respectively. 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 ~~June~~September 30, 2023, management believes regulatory capital ratio buffers would withstand any changes in regulatory rules that require the inclusion of unrealized losses in the total investment portfolio and remain well capitalized.

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

On August 8, 2022, HTLF filed a universal shelf registration statement with the SEC to register debt or equity securities. This shelf registration statement, which was effective immediately, provides HTLF with the ability to raise capital, subject to market conditions and SEC rules and limitations, if the board of directors decides to do so. This registration statement permits HTLF,

from time to time, in one or more public offerings, to offer debt securities, subordinated notes, common stock, preferred stock, depositary shares, warrants, rights or units of any combination of these securities. The amount of securities that may be offered was not specified in the registration statement, and the terms of any future offerings are to be established at the time of the offering. The registration statement expires on August 8, 2025.

COMMITMENTS AND CONTRACTUAL OBLIGATIONS

Commitments and Contractual Obligations

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Banks evaluate the creditworthiness of customers to which they extend a credit commitment on a case-by-case basis and may require collateral to secure any credit extended. The amount of collateral obtained is based upon management's credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties. Standby letters of credit and financial guarantees are conditional commitments issued by the Banks to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. At ~~June~~September 30, 2023, and December 31, 2022, commitments to extend credit totaled ~~$4.91~~$4.81 billion and $4.73 billion, respectively. Standby letters of credit totaled ~~$72.8~~$75.8 million at ~~June~~September 30, 2023, and $55.1 million at December 31, 2022.

At ~~June~~September 30, 2023, and December 31, 2022, HTLF's banks had ~~$878.3~~$832.6 million and $682.9 million, respectively, of standby letters of credit with the respective FHLB to secure public funds and municipal deposits.

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

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

HTLF continues to explore opportunities to expand the size of its banking footprint by opportunistically identifying acquisition targets that complement ~~or supplement~~ its current banking strategy. This includes transactions that increase penetration in existing geographic Bank Markets, ~~and expansion into adjacent markets,~~ as well as acquisitions of fee income businesses that complement and build on existing businesses or further meet the needs of customers. Future expenditures relating to expansion efforts, in addition to those identified above, cannot be estimated at this time.

Derivative Financial Instruments

HTLF enters into mortgage banking derivatives, which are classified as free standing derivatives. These derivatives include interest rate lock commitments provided to customers to fund certain mortgage loans to be sold into the secondary market and forward commitments for the future delivery of these loans. HTLF enters into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of future interest rate changes on the commitments to fund these loans and on the residential mortgage loans held as available for sale. See Note 6 to the consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information on derivative financial instruments.

LIQUIDITY

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

At ~~June~~September 30, 2023, HTLF had ~~$400.2~~$348.0 million of cash and cash equivalents, time deposits in other financial institutions of $1.5 million and securities carried at fair value of ~~$5.80~~$5.48 billion. Management expects the securities portfolio to produce principal cash flows of approximately ~~$1.3~~$1.2 billion over the next twelve months.

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

The Banks' FHLB memberships give them the ability to borrow funds for short- and long-term purposes under a variety of programs. Short-term 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.~~funds and has tested drawing on these sources. In the event of short-term liquidity needs, HTLF's banks may purchase federal funds from each other or from correspondent banks and may also borrow from the Federal Reserve Bank, including utilizing the BTFP.

Additional funding is provided by long-term debt and short-term borrowings. As of ~~June~~September 30, 2023, HTLF had ~~$372.4~~$372.1 million of long-term debt outstanding, and it is an important funding source because of its multi-year borrowing structure.

~~During the first six months of 2023, HTLF shifted out~~HTLF's current liquidity strategy includes using overnight borrowings and reducing wholesale deposits. The use of overnight borrowings ~~and into brokered CDs, which allowed for more immediate funding availability through various federal programs.~~provides flexibility to make repayments on demand. As of ~~June~~September 30, 2023, pledged securities totaled ~~$2.88~~$2.66 billion. As of ~~June~~September 30, 2023, approximately ~~$3.73~~$3.64 billion of securities remained available to pledge.

The following table shows the source of funding, balance outstanding and available borrowing capacity as of ~~June~~September 30, 2023, dollars in thousands:


		As of June 30, 2023					As of September 30, 2023
Source	Source	Outstanding		Available		Source	Outstanding		Available
Federal Reserve Discount Window	Federal Reserve Discount Window	$	—	$	1,491,556	Federal Reserve Discount Window	$	—	$	1,337,967
Bank Term Funding Program	Bank Term Funding Program	—		630,400		Bank Term Funding Program	—		613,065
Federal Home Loan Bank	Federal Home Loan Bank	680		1,178,830		Federal Home Loan Bank	351,772		1,142,180
Federal Funds	Federal Funds	—		272,500		Federal Funds	—		295,000
Wholesale deposits/brokered CDs	Wholesale deposits/brokered CDs	2,893,391		1,175,723		Wholesale deposits/brokered CDs	2,163,287		1,864,025
Total	Total	$	2,894,071	$	4,749,009	Total	$	2,515,059	$	5,252,237

HTLF is focused on loan growth and strives to fund loan growth with the least expensive source of deposits, sales of securities or borrowings. ~~Management believes it is unlikely HTLF would be required~~Excluding any sales which management may pursue from time to ~~sell securities at a loss for such funding needs. The~~time, the securities portfolio is expected to produce principal cash flows of approximately ~~$1.3~~$1.2 billion over the next twelve months, which could be used to fund loan ~~growth.~~growth, as well as reduce wholesale deposits. Additionally, growing customer deposits will continue to be a focus. During the second quarter of 2023, HTLF introduced commercial and retail deposit campaigns, which resulted in the opening of nearly 1,300 net new commercial deposit account and over 1,400 net new retail accounts. 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 short-term securities that, when combined with cash from operations, management believes are adequate to meet its funding obligations.

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

At ~~June~~September 30, 2023, the parent company had cash of ~~$267.5~~$301.5 million. Additionally, HTLF has a revolving credit agreement with an unaffiliated bank, which was renewed most recently on June 14, 2022. The revolving credit agreement has $100.0 million of maximum borrowing capacity, of which none was outstanding at ~~June~~September 30, 2023. This credit agreement contains specific financial covenants, all of which HTLF complied with as of ~~June~~September 30, 2023.

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

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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


		2023				2022					2023				2022
		Net Interest Margin		% Change From Base		Net Interest Margin		% Change From Base			Net Interest Margin		% Change From Base		Net Interest Margin		% Change From Base
Year 1	Year 1									Year 1
Down 100 Basis Points	Down 100 Basis Points	$	610,231	(1.00)	%	$	596,846	(2.43)	%	Down 100 Basis Points	$	598,060	(2.83)	%	$	596,846	(2.43)	%
Base	Base	616,421		—		611,715		—		Base	615,457		—		611,715		—
Up 200 Basis Points	Up 200 Basis Points	627,222		1.75		628,011		2.66		Up 200 Basis Points	648,671		5.40		628,011		2.66
Year 2	Year 2									Year 2
Down 100 Basis Points	Down 100 Basis Points	$	614,571	(0.30)	%	$	590,415	(3.48)	%	Down 100 Basis Points	$	609,155	(1.02)	%	$	590,415	(3.48)	%
Base	Base	637,157		3.36		646,665		5.71		Base	657,034		6.76		646,665		5.71
Up 200 Basis Points	Up 200 Basis Points	650,264		5.49		680,461		11.24		Up 200 Basis Points	716,655		16.44		680,461		11.24

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

HTLF enters into financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. Commitments to extend credit are agreements to lend funds to a customer as long as there is no violation of any condition established in the contract relating to the commitment. Commitments generally have fixed expiration dates and may require collateral from the borrower. Standby letters of credit are conditional commitments issued by HTLF to guarantee the performance of a customer to a third party up to a stated amount and subject to specified terms and conditions. These commitments to extend credit and standby letters of credit are not recorded on the consolidated balance sheets until the loan is made or the letter or credit is issued.

ITEM 4. CONTROLS AND PROCEDURES

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

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

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

PART II

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

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

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

On March 17, 2020, the board of directors authorized management to acquire and hold up to 5% of capital or ~~$87.4~~$85.7 million as of ~~June~~September 30, 2023, as treasury shares at any one time. HTLF and its affiliated purchasers made no purchases of its common stock during the quarter ended ~~June~~September 30, 2023.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

On May 26, 2023 (the "Adoption Date"), Marty Schmitz, a Director of HTLF, entered into a written plan for the sale of securities of HTLF intended to satisfy SEC Rule 10b5-1(c) (a "10b5-1 Plan"). Mr. Schmitz’s 10b5-1 Plan provides for the sale of up to 17,800 shares of HTLF’s common stock commencing no earlier than 90 days after the Adoption Date, and terminating on June 15, 2024.

None

ITEM 6. EXHIBITS

Exhibits


3.1			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).

3.2			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).
10.1				10.1	(2)(3)	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.

10.1		(1)	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).
10.2				10.2	(2)(3)	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.

10.2		(2)	Amendment 2 to Agreement, dated June 9, 2023, to Master Agreement between Fiserv Solutions LLC and Heartland Financial USA, Inc. dated of July 1, 2021.
10.3				10.3	(2)(3)	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.

31.1	31.1	(3)	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.	31.1	(3)	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.

31.2	31.2	(3)	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.	31.2	(3)	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.

32.1	32.1	(3)	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	32.1	(3)	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	32.2	(3)	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	32.2	(3)	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101	101		Financial statement formatted in Inline Extensible Business Reporting Language: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Changes in Equity, and (vi) the Notes to Consolidated Financial Statements.	101		Financial statement formatted in Inline Extensible Business Reporting Language: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Changes in Equity, and (vi) the Notes to Consolidated Financial Statements.
104	104		Cover page formatted in Inline Extensible Business Reporting Language	104		Cover page formatted in Inline Extensible Business Reporting Language

______________

(1) Management contract or compensatory plan or arrangement

(2) Certain confidential information contained in this agreement has been omitted because it is both not material and is the type that the registrant treats as private or confidential.

(3) Filed or furnished herewith

SIGNATURES

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


HEARTLAND FINANCIAL USA, INC.
(Registrant)


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


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


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

Dated: ~~August 4,~~November 8, 2023


Part I
Item 1.			Financial Statements
Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.			Quantitative and Qualitative Disclosures About Market Risk
Item 4.			Controls and Procedures
Part II
Item 1.			Legal Proceedings
Item 1A.			Risk Factors
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.			Defaults Upon Senior Securities
Item 4.			Mine Safety Disclosures
Item 5.			Other Information
Item 6.			Exhibits