LOANS | LOANS Loans as of September 30, 2021, and December 31, 2020, were as follows, in thousands: September 30, 2021 December 31, 2020 Loans receivable held to maturity: Commercial and industrial $ 2,538,369 $ 2,534,799 Paycheck Protection Program ("PPP") 409,247 957,785 Owner occupied commercial real estate 2,135,227 1,776,406 Non-owner occupied commercial real estate 2,020,487 1,921,481 Real estate construction 814,001 863,220 Agricultural and agricultural real estate 684,670 714,526 Residential real estate 840,356 840,442 Consumer 412,550 414,392 Total loans receivable held to maturity 9,854,907 10,023,051 Allowance for credit losses (117,533) (131,606) Loans receivable, net $ 9,737,374 $ 9,891,445 As of September 30, 2021, and December 31, 2020, HTLF had $37.4 million and $42.4 million, respectively, of accrued interest receivable, which is included in other assets on the consolidated balance sheet. HTLF does not consider accrued interest receivable in the allowance for credit losses calculation. The following table shows the balance in the allowance for credit losses at September 30, 2021, and December 31, 2020, and the related loan balances, disaggregated on the basis of measurement methodology, in thousands. If a loan no longer shares similar risk characteristics with other loans in the pool, it is evaluated on an individual basis and is not included in the collective evaluation. Lending relationships with $500,000 or more of total exposure and are on nonaccrual are individually assessed using a collateral dependency calculation. All other loans are collectively evaluated for losses. Allowance For Credit Losses Gross Loans Receivable Held to Maturity Individually Evaluated for Credit Losses Collectively Evaluated for Credit Losses Total Loans Individually Evaluated for Credit Losses Loans Collectively Evaluated for Credit Losses Total September 30, 2021 Commercial and industrial $ 4,710 $ 23,198 $ 27,908 $ 15,524 $ 2,522,845 $ 2,538,369 PPP — — — — 409,247 409,247 Owner occupied commercial real estate 110 19,018 19,128 10,166 2,125,061 2,135,227 Non-owner occupied commercial real estate 2,847 19,268 22,115 19,314 2,001,173 2,020,487 Real estate construction — 23,698 23,698 — 814,001 814,001 Agricultural and agricultural real estate 3,062 3,264 6,326 13,917 670,753 684,670 Residential real estate — 9,238 9,238 — 840,356 840,356 Consumer — 9,120 9,120 — 412,550 412,550 Total $ 10,729 $ 106,804 $ 117,533 $ 58,921 $ 9,795,986 $ 9,854,907 Allowance For Credit Losses Gross Loans Receivable Held to Maturity Individually Evaluated for Credit Losses Collectively Evaluated for Credit Losses Total Loans Individually Evaluated for Credit Losses Loans Collectively Evaluated for Credit Losses Total December 31, 2020 Commercial and industrial $ 4,077 $ 34,741 $ 38,818 $ 16,578 $ 2,518,221 $ 2,534,799 PPP — — — — 957,785 957,785 Owner occupied commercial real estate 111 19,890 20,001 11,174 1,765,232 1,776,406 Non-owner occupied commercial real estate 3,250 17,623 20,873 13,490 1,907,991 1,921,481 Real estate construction — 20,080 20,080 — 863,220 863,220 Agricultural and agricultural real estate 1,988 5,141 7,129 15,453 699,073 714,526 Residential real estate — 11,935 11,935 535 839,907 840,442 Consumer — 12,770 12,770 — 414,392 414,392 Total $ 9,426 $ 122,180 $ 131,606 $ 57,230 $ 9,965,821 $ 10,023,051 HTLF had $13.2 million of troubled debt restructured loans at September 30, 2021, of which $11.4 million were classified as nonaccrual and $1.8 million were accruing according to the restructured terms. HTLF had $6.2 million of troubled debt restructured loans at December 31, 2020, of which $3.8 million were classified as nonaccrual and $2.4 million were accruing according to the restructured terms. The following tables provide information on troubled debt restructured loans that were modified during the three- and nine- months ended September 30, 2021, and September 30, 2020, dollars in thousands: Three Months Ended 2021 2020 Number Pre- Post- Number Pre- Post- Commercial — $ — $ — 1 $ 20 $ 20 PPP — — — — — — Owner occupied commercial real estate — — — — — — Non-owner occupied commercial real estate — — — 1 9,434 9,434 Real estate construction — — — — — — Agricultural and agricultural real estate — — — — — — Residential real estate — — — — — — Consumer — — — — — — Total — $ — $ — 2 $ 9,454 $ 9,454 Nine Months Ended 2021 2020 Number Pre- Post- Number Pre- Post- Commercial and industrial — $ — $ — 1 $ 20 $ 20 PPP — — — — — — Owner occupied commercial real estate — — — — — — Non-owner occupied commercial real estate 2 7,850 7,850 1 9,434 9,434 Real estate construction — — — — — — Agricultural and agricultural real estate — — — — — — Nine Months Ended 2021 2020 Number Pre- Post- Number Pre- Post- Residential real estate — — — 2 92 98 Consumer — — — — — — Total 2 $ 7,850 $ 7,850 4 $ 9,546 $ 9,552 At September 30, 2021, there were no commitments to extend credit to any of the borrowers with an existing troubled debt restructured loan. The tables above do not include any loan modifications made under COVID-19 modification programs. The following tables show troubled debt restructured loans for which there was a payment default during the three- and nine- months ended September 30, 2021, and September 30, 2020, that had been modified during the twelve-month period prior to default. With Payment Defaults During the Three Months Ended September 30, 2021 2020 Number of Loans Recorded Investment Number of Loans Recorded Investment Commercial and industrial — $ — — $ — PPP — — — — Owner occupied commercial real estate — — — — Non-owner occupied commercial real estate — — — — Real estate construction — — — — Agricultural and agricultural real estate — — — — Residential real estate — — — — Consumer — — — — Total — $ — — $ — With Payment Defaults During the Nine Months Ended September 30, 2021 2020 Number of Loans Recorded Investment Number of Loans Recorded Investment Commercial and industrial — $ — — $ — PPP — — — — Owner occupied commercial real estate — — — — Non-owner occupied commercial real estate — — — — Real estate construction — — — — Agricultural and agricultural real estate — — — — Residential real estate — — 1 236 Consumer — — — — Total — $ — 1 $ 236 HTLF's internal rating system is a series of grades reflecting management's risk assessment, based on its analysis of the borrower's financial condition. The "pass" category consists of all loans that are not in the "nonpass" category and categorized into a range of loan grades that reflect increasing, though still acceptable, risk. Movement of risk through the various grade levels in the pass category is monitored for early identification of credit deterioration. The "nonpass" category consists of watch, substandard, doubtful and loss rated loans. The "watch" rating is attached to loans where the borrower exhibits negative trends in financial circumstances due to borrower specific or systemic conditions that, if left uncorrected, threaten the borrower's capacity to meet its debt obligations. The borrower is believed to have sufficient financial flexibility to react to and resolve its negative financial situation. These credits are closely monitored for improvement or deterioration. The "substandard" rating is assigned to loans that are inadequately protected by the current net worth and repaying capacity of the borrower and that may be further at risk due to deterioration in the value of collateral pledged. Well-defined weaknesses jeopardize liquidation of the debt. These loans are still considered collectible; however, a distinct possibility exists that HTLF will sustain some loss if deficiencies are not corrected. Substandard loans may exhibit some or all of the following weaknesses: deteriorating financial trends, lack of earnings, inadequate debt service capacity, excessive debt and/or lack of liquidity. The "doubtful" rating is assigned to loans where identified weaknesses in the borrowers' ability to repay the loan make collection or liquidation in full, on the basis of existing facts, conditions and values, highly questionable and improbable. These borrowers are usually in default, lack liquidity and capital, as well as resources necessary to remain as an operating entity. Specific pending events, such as capital injections, liquidations or perfection of liens on additional collateral, may strengthen the credit, thus deferring the rating of the loan as "loss" until the exact status of the loan can be determined. The "loss" rating is assigned to loans considered uncollectible. HTLF had no loans classified as "loss" or "doubtful" as of September 30, 2021, and December 31, 2020. The following tables show the risk category of loans by loan category and year of origination as of September 30, 2021, and December 31, 2020, in thousands: As of September 30, 2021 Amortized Cost Basis of Term Loans by Year of Origination 2021 2020 2019 2018 2017 2016 and Prior Revolving Total Commercial and industrial Pass $ 460,258 $ 401,606 $ 239,419 $ 100,840 $ 179,241 $ 343,238 $ 602,155 $ 2,326,757 Watch 13,274 14,096 13,982 11,230 6,363 16,657 30,157 105,759 Substandard 14,511 9,315 14,949 8,858 10,880 16,921 30,419 105,853 Commercial and industrial total $ 488,043 $ 425,017 $ 268,350 $ 120,928 $ 196,484 $ 376,816 $ 662,731 $ 2,538,369 PPP Pass $ 297,218 $ 59,481 $ — $ — $ — $ — $ — $ 356,699 Watch 19,656 11,210 — — — — — 30,866 Substandard 19,434 2,248 — — — — — 21,682 PPP total $ 336,308 $ 72,939 $ — $ — $ — $ — $ — $ 409,247 Owner occupied commercial real estate Pass $ 679,698 $ 378,366 $ 337,572 $ 207,982 $ 128,973 $ 220,013 $ 29,446 $ 1,982,050 Watch 2,517 16,981 13,277 18,264 15,618 9,216 1,853 77,726 Substandard 4,490 17,518 13,338 2,866 13,857 21,632 1,750 75,451 Owner occupied commercial real estate total $ 686,705 $ 412,865 $ 364,187 $ 229,112 $ 158,448 $ 250,861 $ 33,049 $ 2,135,227 Non-owner occupied commercial real estate Pass $ 394,782 $ 316,992 $ 353,092 $ 274,618 $ 166,123 $ 199,072 $ 37,518 $ 1,742,197 Watch 12,832 17,170 48,377 35,098 7,595 35,783 — 156,855 Substandard 18,113 15,291 22,011 2,828 14,848 48,036 308 121,435 Non-owner occupied commercial real estate total $ 425,727 $ 349,453 $ 423,480 $ 312,544 $ 188,566 $ 282,891 $ 37,826 $ 2,020,487 Real estate construction Pass $ 240,048 $ 282,023 $ 177,594 $ 15,228 $ 8,501 $ 9,628 $ 13,269 $ 746,291 Watch 2,191 876 15,006 47,267 — — 112 65,452 Substandard — 50 47 1,992 — 169 — 2,258 Real estate construction total $ 242,239 $ 282,949 $ 192,647 $ 64,487 $ 8,501 $ 9,797 $ 13,381 $ 814,001 Agricultural and agricultural real estate Pass $ 174,014 $ 114,928 $ 66,869 $ 37,763 $ 24,751 $ 39,479 $ 128,684 $ 586,488 As of September 30, 2021 Amortized Cost Basis of Term Loans by Year of Origination 2021 2020 2019 2018 2017 2016 and Prior Revolving Total Watch 5,343 10,435 5,967 3,013 38 3,711 6,840 35,347 Substandard 7,559 6,354 8,570 18,243 3,937 9,826 8,346 62,835 Agricultural and agricultural real estate total $ 186,916 $ 131,717 $ 81,406 $ 59,019 $ 28,726 $ 53,016 $ 143,870 $ 684,670 Residential real estate Pass $ 251,931 $ 103,529 $ 58,179 $ 68,551 $ 50,817 $ 244,641 $ 32,474 $ 810,122 Watch 1,086 4,650 1,205 1,503 807 5,043 — 14,294 Substandard 4,085 537 496 2,555 1,185 7,082 — 15,940 Residential real estate total $ 257,102 $ 108,716 $ 59,880 $ 72,609 $ 52,809 $ 256,766 $ 32,474 $ 840,356 Consumer Pass $ 57,680 $ 22,845 $ 16,732 $ 10,290 $ 11,722 $ 18,442 $ 265,241 $ 402,952 Watch 912 196 281 1,368 190 542 1,387 4,876 Substandard 891 359 511 259 335 1,742 625 4,722 Consumer total $ 59,483 $ 23,400 $ 17,524 $ 11,917 $ 12,247 $ 20,726 $ 267,253 $ 412,550 Total Pass $ 2,555,629 $ 1,679,770 $ 1,249,457 $ 715,272 $ 570,128 $ 1,074,513 $ 1,108,787 $ 8,953,556 Total Watch 57,811 75,614 98,095 117,743 30,611 70,952 40,349 491,175 Total Substandard 69,083 51,672 59,922 37,601 45,042 105,408 41,448 410,176 Total Loans $ 2,682,523 $ 1,807,056 $ 1,407,474 $ 870,616 $ 645,781 $ 1,250,873 $ 1,190,584 $ 9,854,907 As of December 31, 2020 Amortized Cost Basis of Term Loans by Year of Origination 2020 2019 2018 2017 2016 2015 and Prior Revolving Total Commercial and industrial Pass $ 557,853 $ 340,809 $ 168,873 $ 215,696 $ 101,010 $ 337,834 $ 541,627 $ 2,263,702 Watch 41,574 24,676 19,672 14,262 8,072 2,474 49,432 160,162 Substandard 23,024 16,274 8,897 15,717 9,098 19,537 18,388 110,935 Commercial and industrial total $ 622,451 $ 381,759 $ 197,442 $ 245,675 $ 118,180 $ 359,845 $ 609,447 $ 2,534,799 PPP Pass $ 880,709 $ — $ — $ — $ — $ — $ — $ 880,709 Watch 22,533 — — — — — — 22,533 Substandard 54,543 — — — — — — 54,543 PPP total $ 957,785 $ — $ — $ — $ — $ — $ — $ 957,785 Owner occupied commercial real estate Pass $ 400,662 $ 369,401 $ 300,242 $ 167,470 $ 107,234 $ 213,780 $ 33,759 $ 1,592,548 Watch 15,345 13,764 22,488 20,811 8,717 15,282 4,311 100,718 Substandard 15,914 9,522 12,164 14,147 8,580 21,708 1,105 83,140 Owner occupied commercial real estate total $ 431,921 $ 392,687 $ 334,894 $ 202,428 $ 124,531 $ 250,770 $ 39,175 $ 1,776,406 Non-owner occupied commercial real estate Pass $ 334,722 $ 411,301 $ 305,456 $ 194,101 $ 108,070 $ 233,153 $ 24,466 $ 1,611,269 Watch 22,826 55,225 24,718 18,724 20,954 45,672 5,114 193,233 Substandard 30,899 15,035 23,290 17,046 9,147 21,060 502 116,979 Non-owner occupied commercial real estate total $ 388,447 $ 481,561 $ 353,464 $ 229,871 $ 138,171 $ 299,885 $ 30,082 $ 1,921,481 Real estate construction Pass $ 311,625 $ 309,678 $ 157,171 $ 12,625 $ 6,954 $ 5,110 $ 21,431 $ 824,594 Watch 2,105 26,659 2,403 332 55 388 1,295 33,237 Substandard 196 2,760 2,036 — 39 358 — 5,389 Real estate construction total $ 313,926 $ 339,097 $ 161,610 $ 12,957 $ 7,048 $ 5,856 $ 22,726 $ 863,220 As of December 31, 2020 Amortized Cost Basis of Term Loans by Year of Origination 2020 2019 2018 2017 2016 2015 and Prior Revolving Total Agricultural and agricultural real estate Pass $ 171,578 $ 90,944 $ 62,349 $ 39,252 $ 17,626 $ 37,696 $ 148,456 $ 567,901 Watch 20,500 16,202 8,854 2,448 3,515 3,157 12,282 66,958 Substandard 17,403 7,044 23,519 6,758 3,917 9,952 11,074 79,667 Agricultural and agricultural real estate total $ 209,481 $ 114,190 $ 94,722 $ 48,458 $ 25,058 $ 50,805 $ 171,812 $ 714,526 Residential real estate Pass $ 153,017 $ 99,440 $ 118,854 $ 83,534 $ 63,477 $ 244,852 $ 33,467 $ 796,641 Watch 3,986 4,507 2,188 1,896 3,117 8,525 — 24,219 Substandard 980 442 2,507 1,528 884 12,141 1,100 19,582 Residential real estate total $ 157,983 $ 104,389 $ 123,549 $ 86,958 $ 67,478 $ 265,518 $ 34,567 $ 840,442 Consumer Pass $ 37,037 $ 27,646 $ 18,811 $ 15,034 $ 4,009 $ 19,483 $ 280,996 $ 403,016 Watch 168 352 647 340 82 646 1,622 3,857 Substandard 481 959 1,884 500 897 1,976 822 7,519 Consumer total $ 37,686 $ 28,957 $ 21,342 $ 15,874 $ 4,988 $ 22,105 $ 283,440 $ 414,392 Total Pass $ 2,847,203 $ 1,649,219 $ 1,131,756 $ 727,712 $ 408,380 $ 1,091,908 $ 1,084,202 $ 8,940,380 Total Watch 129,037 141,385 80,970 58,813 44,512 76,144 74,056 604,917 Total Substandard 143,440 52,036 74,297 55,696 32,562 86,732 32,991 477,754 Total Loans $ 3,119,680 $ 1,842,640 $ 1,287,023 $ 842,221 $ 485,454 $ 1,254,784 $ 1,191,249 $ 10,023,051 Included in the nonpass loans at September 30, 2021 and December 31, 2020 were $52.5 million and $77.1 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. As of September 30, 2021, HTLF had $712,000 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, 2021, and December 31, 2020, in thousands: Accruing Loans 30-59 60-89 90 Days or Total Current Nonaccrual Total Loans September 30, 2021 Commercial and industrial $ 3,800 $ 653 $ 727 $ 5,180 $ 2,513,785 $ 19,404 $ 2,538,369 PPP — — — — 409,247 — 409,247 Owner occupied commercial real estate 1,255 952 6 2,213 2,120,755 12,259 2,135,227 Non-owner occupied commercial real estate 41 26 — 67 1,999,904 20,516 2,020,487 Real estate construction 50 101 52 203 813,343 455 814,001 Agricultural and agricultural real estate 625 — — 625 668,065 15,980 684,670 Residential real estate 2,168 903 76 3,147 825,013 12,196 840,356 Consumer 1,112 27 — 1,139 409,846 1,565 412,550 Total gross loans receivable held to maturity $ 9,051 $ 2,662 $ 861 $ 12,574 $ 9,759,958 $ 82,375 $ 9,854,907 December 31, 2020 Commercial and industrial $ 5,825 $ 2,322 $ 720 $ 8,867 $ 2,504,170 $ 21,762 $ 2,534,799 PPP 1 — — 1 957,784 — 957,785 Owner occupied commercial real estate 2,815 167 — 2,982 1,759,649 13,775 1,776,406 Non-owner occupied commercial real estate 2,143 2,674 — 4,817 1,902,003 14,661 1,921,481 Real estate construction 2,446 96 — 2,542 859,784 894 863,220 Agricultural and agricultural real estate 1,688 — — 1,688 694,150 18,688 714,526 Residential real estate 1,675 83 — 1,758 825,047 13,637 840,442 Consumer 807 139 — 946 409,477 3,969 414,392 Total gross loans receivable held to maturity $ 17,400 $ 5,481 $ 720 $ 23,601 $ 9,912,064 $ 87,386 $ 10,023,051 Loans delinquent 30 to 89 days as a percent of total loans were 0.12% at September 30, 2021, compared to 0.23% at December 31, 2020. Changes in credit risk are monitored on a continuous basis as part of relationship management, and changes in risk ratings are made when identified. All individually assessed loans are reviewed at least annually. HTLF recognized $0 of interest income on nonaccrual loans during the three and nine months ended September 30, 2021 and September 30, 2020. As of September 30, 2021, and December 31, 2020, HTLF had $28.6 million and $32.5 million of nonaccrual loans with no related allowance, respectively. On December 4, 2020, HTLF's Arizona Bank & Trust subsidiary completed the acquisition of certain assets and substantially all of the deposits and certain other liabilities of Johnson Bank's Arizona operations, headquartered in Racine, Wisconsin. As of December 4, 2020, the Johnson Bank branches acquired had gross loans with a fair value of $150.7 million. On December 4, 2020, HTLF completed the acquisition of AimBank, headquartered in Levelland, Texas. As of December 4, 2020, AimBank had gross loans with a fair value of $1.09 billion. |