Part I [Business](index=5&type=section&id=Item%201.%20Business) HTLF is a diversified bank holding company with **$19.41 billion** in assets, operating through HTLF Bank across 12 states, offering comprehensive banking and wealth management services - **Key Financial Metrics as of December 31, 2023** | Metric | Amount (Billions) | | :--- | :--- | | Total Assets | $19.41 | | Total Loans Held to Maturity | $12.07 | | Total Deposits | $16.20 | | Total Stockholders' Equity | $1.93 | - HTLF operates through multiple independently branded divisions of HTLF Bank across 12 states with a total of **117** banking locations[16](index=16&type=chunk)[17](index=17&type=chunk) - The company's operating philosophy combines a community-focused banking model with centralized back-office functions to enhance efficiency and customer experience[23](index=23&type=chunk)[25](index=25&type=chunk) - In 2023, HTLF completed strategic divestitures, including the sale of its Retirement Plan Services' recordkeeping and administration business and its mortgage servicing rights portfolio[30](index=30&type=chunk) - Subsequent to year-end, in February 2024, HTLF agreed to sell its nine Rocky Mountain Bank division branches, including approximately **$589 million** in deposits and **$366 million** in loans[31](index=31&type=chunk) [General Description](index=5&type=section&id=A.%20GENERAL%20DESCRIPTION) HTLF provides a full range of commercial and consumer banking, wealth management, and retirement services, supported by centralized operations - The company's primary business involves making loans and accepting deposits, with a focus on commercial and consumer banking, supported by strong community relationships and centralized back-office operations[19](index=19&type=chunk)[23](index=23&type=chunk)[25](index=25&type=chunk) - HTLF's commercial banking strategy emphasizes a consultative, customer-centric approach, offering a comprehensive suite of products including treasury management services and specialized industry lending expertise[35](index=35&type=chunk)[36](index=36&type=chunk)[38](index=38&type=chunk) - Agricultural loans constituted approximately **8%** of the total loan portfolio at year-end 2023, with a focus on financing farm operations and capital improvements in rural markets[43](index=43&type=chunk)[44](index=44&type=chunk) - In 2023, HTLF significantly scaled back its residential mortgage origination activities after selling its mortgage servicing rights portfolio, which consisted of approximately **4,500** loans with an unpaid principal balance of around **$700 million**[47](index=47&type=chunk) - Wealth management and retirement plan services are a key offering, with total trust assets under management reaching **$3.92 billion** as of December 31, 2023[50](index=50&type=chunk) [Market Areas](index=10&type=section&id=B.%20MARKET%20AREAS) HTLF operates across 12 states in the Midwest, West, and Southwest, with **$14.57 billion** in customer deposits Total Deposits by State/Bank Division (as of Dec 31, 2023) | State | Bank Division | Total Deposits ($ thousands) | | :--- | :--- | :--- | | NM | New Mexico Bank & Trust | $2,329,633 | | TX | First Bank & Trust | $1,849,325 | | CO | Citywide Banks | $1,811,729 | | AZ | Arizona Bank & Trust | $1,506,466 | | IL | Illinois Bank & Trust | $1,419,844 | | IA | Dubuque Bank & Trust | $1,306,044 | | WI | Wisconsin Bank & Trust | $1,265,926 | | CA | Premier Valley Bank | $981,860 | | KS | Bank of Blue Valley | $965,522 | | MT | Rocky Mountain Bank | $579,182 | | MN | Minnesota Bank & Trust | $554,401 | [Competition](index=11&type=section&id=C.%20COMPETITION) HTLF faces intense competition from diverse financial institutions, including fintech firms, competing on service, expertise, and technology - The company faces intense competition from a diverse set of players, including traditional banks, credit unions, and increasingly, fintech firms and technology companies that are not subject to the same extensive federal regulations[56](index=56&type=chunk)[57](index=57&type=chunk) - HTLF's competitive strategy relies on providing high-touch, customer-centric service, building long-lasting relationships, and offering a broad suite of products to compete effectively against larger competitors[58](index=58&type=chunk)[59](index=59&type=chunk) [Human Capital](index=12&type=section&id=D.%20HUMAN%20CAPITAL) HTLF prioritizes human capital, employing **1,970** FTEs, focusing on retention, development, and diversity with an **18.1%** voluntary turnover - As of December 31, 2023, HTLF employed **1,970** full-time equivalent employees[60](index=60&type=chunk) - In 2023, the company's net voluntary turnover was **18.1%**, and it filled **558** positions, with **26.5%** of them filled internally[61](index=61&type=chunk) - HTLF is committed to diversity and inclusion, with a Chief Diversity & Inclusion Officer and a Diversity Advisory Council overseeing a business-driven strategy[66](index=66&type=chunk)[68](index=68&type=chunk) [Supervision and Regulation](index=14&type=section&id=E.%20SUPERVISION%20AND%20REGULATION) HTLF and HTLF Bank are extensively regulated by federal and state authorities, adhering to Basel III capital requirements and exceeding all regulatory ratios - HTLF is regulated by the Federal Reserve, while its subsidiary, HTLF Bank, is regulated by the FDIC and the Colorado Division of Banking[70](index=70&type=chunk) Regulatory Capital Ratio Requirements | Ratio | Minimum Regulatory Capital Ratio % | Minimum Ratio + Capital Buffer % | Well-Capitalized Minimum % (Bank) | | :--- | :--- | :--- | :--- | | CET 1 risk-based capital | 4.50 | 7.00 | 6.50 | | Tier 1 risk-based capital | 6.00 | 8.50 | 8.00 | | Total risk-based capital | 8.00 | 10.50 | 10.00 | | Tier 1 leverage ratio | 4.00 | N/A | 5.00 | - As of December 31, 2023, HTLF and HTLF Bank were considered "well-capitalized" under all regulatory definitions[90](index=90&type=chunk)[99](index=99&type=chunk) - In response to bank failures in March 2023, the FDIC imposed a special assessment on uninsured deposits. HTLF Bank recorded an **$8.145 million** additional FDIC assessment expense in the fourth quarter of 2023, representing the full amount of the special assessment[96](index=96&type=chunk)[97](index=97&type=chunk) - HTLF Bank is subject to supervision by the Consumer Financial Protection Bureau (CFPB), which has broad rulemaking and enforcement authority over federal consumer protection laws[121](index=121&type=chunk) [Risk Factors](index=25&type=section&id=Item%201A.%20Risk%20Factors) This section outlines material risks to HTLF's business, including economic, credit, liquidity, operational, strategic, legal, and stock ownership factors [Economic and Overall Market Condition Risks](index=27&type=section&id=Economic%20and%20Overall%20Market%20Condition%20Risks) HTLF's performance is sensitive to economic conditions, including inflation, interest rates, market volatility, goodwill impairment, and climate change impacts - Business performance is highly sensitive to economic conditions such as inflation and recession, which can affect loan demand, repayment ability, and funding costs[148](index=148&type=chunk)[149](index=149&type=chunk) - As of December 31, 2023, the company had goodwill of **$576.0 million**, representing approximately **30%** of stockholders' equity, which is subject to impairment risk if fair value declines[155](index=155&type=chunk) - Climate change presents both physical risks (e.g., natural disasters affecting collateral) and transition risks (e.g., policy changes impacting customers), which could adversely affect operations and financial condition[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk) [Credit Risks](index=29&type=section&id=Credit%20Risks) HTLF faces significant credit risk from lending activities, particularly in commercial real estate and agricultural loans, with potential for insufficient loss allowance - A large concentration of commercial real estate loans exposes the company to risks from volatile cash flows and collateral values, particularly with the decreased demand for physical office space[170](index=170&type=chunk) - The allowance for credit losses, which was **1.02%** of total loans at December 31, 2023, may prove insufficient to absorb future losses, which are susceptible to changes in economic conditions[176](index=176&type=chunk) [Liquidity and Interest Rate Risks](index=31&type=section&id=Liquidity%20and%20Interest%20Rate%20Risks) HTLF's financial results are sensitive to interest rate fluctuations and liquidity risks, including reliance on potentially unstable wholesale funding - Net interest income is highly sensitive to interest rate changes due to mismatches in the repricing characteristics of assets and liabilities[177](index=177&type=chunk) - The company relies on wholesale and institutional deposits, including **$1.16 billion** in brokered deposits at December 31, 2023, which may be unstable or more expensive sources of funding[182](index=182&type=chunk) - The investment securities portfolio, representing **29%** of total assets at year-end 2023, is subject to value fluctuations from interest rate volatility and potential credit deterioration[184](index=184&type=chunk) [Operational Risks](index=33&type=section&id=Operational%20Risks) HTLF faces operational risks from technology reliance, third-party vendors, and key personnel, including cybersecurity threats, business interruption, and internal control failures - The company is exposed to significant risk from security breaches and cyber-attacks on its own or its vendors' systems, which could lead to theft of customer information, reputational harm, and significant financial exposure[192](index=192&type=chunk)[193](index=193&type=chunk) - HTLF's success depends heavily on its management team, and the unexpected loss of key managers could adversely affect operations[200](index=200&type=chunk) [Strategic and External Risks](index=37&type=section&id=Strategic%20and%20External%20Risks) Strategic risks include growth management challenges, intense competition from less regulated fintechs, and systemic risks from other financial institutions - The company's growth strategy, which includes acquisitions, involves risks such as integration difficulties, potential exposure to unknown liabilities, and the inability to realize expected synergies[205](index=205&type=chunk) - HTLF faces intense competition from traditional banks as well as fintech firms and technology companies, which are often not subject to the same regulatory requirements and can offer services at more favorable rates[208](index=208&type=chunk) [Legal, Compliance and Reputational Risks](index=38&type=section&id=Legal%2C%20Compliance%20and%20Reputational%20Risks) HTLF faces legal, compliance, and reputational risks from extensive and evolving regulations, including capital, consumer protection, data privacy, and potential litigation - The company operates under a comprehensive system of federal and state banking regulations that affect nearly all aspects of its business, with increasing scope and intensity of supervision in recent years[211](index=211&type=chunk)[212](index=212&type=chunk) - As the company's assets increase, it becomes subject to additional regulatory requirements, such as supervision by the Consumer Financial Protection Bureau (CFPB), which adds complexity and cost[217](index=217&type=chunk) - Evolving data privacy and cybersecurity laws at both federal and state levels (e.g., GLBA, CCPA) increase compliance costs and potential liability for any mishandling of personal information[219](index=219&type=chunk)[221](index=221&type=chunk) [Risks of Owning Stock in HTLF](index=41&type=section&id=Risks%20of%20Owning%20Stock%20in%20HTLF) Investing in HTLF stock carries risks of price volatility, dilution from future offerings, and potential anti-takeover effects from banking laws - The company's stock price can be volatile and is influenced by a variety of factors, including operating results, analyst recommendations, and broader market and economic conditions[228](index=228&type=chunk) - Future equity offerings or acquisitions could result in dilution for existing stockholders[229](index=229&type=chunk) [Unresolved Staff Comments](index=42&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) As of December 31, 2023, HTLF had no unresolved comments from the SEC staff - The company reports no unresolved staff comments as of the end of the fiscal year[231](index=231&type=chunk) [Cybersecurity](index=42&type=section&id=Item%201C.%20Cybersecurity) HTLF manages cybersecurity risk via a NIST-aligned program with a three-lines-of-defense framework, overseen by the CISO and Board Risk Committee - HTLF's cybersecurity risk management program is structured around a three-lines-of-defense model and aligns with the NIST Cybersecurity Framework[232](index=232&type=chunk)[234](index=234&type=chunk) - Governance includes oversight by the CISO, the CRO, an Operational Risk Committee, the Executive Risk Management Committee, and the HTLF Board's Risk Committee[239](index=239&type=chunk) - The company has not been materially affected by any cybersecurity incidents to date but acknowledges the evolving nature of these threats[240](index=240&type=chunk) [Properties](index=43&type=section&id=Item%202.%20Properties) HTLF's corporate office is in Denver, with **119** bank locations, and major support functions in Dubuque, Iowa Principal Operating Facilities (as of Dec 31, 2023) | Name | Main Facility Address | Owned or Leased | Number of Locations | | :--- | :--- | :--- | :--- | | Heartland Financial USA, Inc. | 1800 Larimer Street, Denver, CO | Leased | 2 | | HTLF Bank | 1800 Larimer Street, Denver, CO | Leased | 119 | [Legal Proceedings](index=43&type=section&id=Item%203.%20Legal%20Proceedings) As of December 31, 2023, HTLF was not party to any material legal proceedings beyond routine litigation - The company is not involved in any material legal proceedings outside of ordinary routine litigation[243](index=243&type=chunk) [Mine Safety Disclosures](index=44&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to HTLF - Not applicable[244](index=244&type=chunk) [Information About Our Executive Officers](index=44&type=section&id=Information%20About%20Our%20Executive%20Officers) This section provides professional backgrounds and positions of HTLF's executive officers, including the CEO and CFO Executive Officers of HTLF | Name | Age | Position | | :--- | :--- | :--- | | Bruce K. Lee | 63 | Chief Executive Officer, President and Director | | Kevin L. Thompson | 50 | Executive Vice President and Chief Financial Officer | | Janet M. Quick | 58 | Executive Vice President, Deputy Chief Financial Officer, and Principal Accounting Officer | | Deborah K. Deters | 59 | Executive Vice President and Chief Human Resources Officer | | Mark E. Frank | 64 | Executive Vice President and Chief Operating Officer | | Nathan R. Jones | 51 | Executive Vice President and Chief Credit Officer | | Robert S. Kahn | 55 | Executive Vice President and Chief Strategy Officer | | Jay L. Kim | 60 | Executive Vice President, Chief Administrative Officer, Corporate Secretary and General Counsel | | Tamina L. O'Neill | 54 | Executive Vice President and Chief Risk Officer | | David A. Prince | 53 | Executive Vice President and Head of Commercial Banking | | Kevin G. Quinn | 63 | Executive Vice President and Chief Banking Officer | Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=46&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) HTLF common stock trades on Nasdaq, with a **$91.1 million** share repurchase authorization and a five-year performance graph - HTLF's common stock (HTLF) and Series E Preferred Stock (HTLFP) are traded on The Nasdaq Global Select Market[2](index=2&type=chunk)[255](index=255&type=chunk) - The company has a board authorization to repurchase up to **5%** of its capital (**$91.1 million** as of Dec 31, 2023) but made no common stock purchases during the fourth quarter of 2023[256](index=256&type=chunk) Five-Year Cumulative Total Return Performance (assuming $100 invested on Dec 31, 2018) | Year | Heartland Financial USA, Inc. | Nasdaq Composite Index | KBW Nasdaq Bank Index | S&P U.S. BMI Banks Index | | :--- | :--- | :--- | :--- | :--- | | 2018 | $100.00 | $100.00 | $100.00 | $100.00 | | 2019 | $114.87 | $136.69 | $136.13 | $137.36 | | 2020 | $95.37 | $198.10 | $122.09 | $119.83 | | 2021 | $121.93 | $242.03 | $168.88 | $162.92 | | 2022 | $114.95 | $163.28 | $132.75 | $135.13 | | 2023 | $96.25 | $236.17 | $131.57 | $147.41 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=48&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section discusses HTLF's 2023 financial performance, noting decreased net income due to a balance sheet repositioning, asset and deposit changes, and strategic initiatives 2023 vs. 2022 Financial Performance | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Income Available to Common Stockholders | $71.9 million | $204.1 million | | Diluted EPS | $1.68 | $4.79 | | Adjusted Diluted EPS (non-GAAP) | $4.53 | $4.91 | | Total Assets (Year-End) | $19.41 billion | $20.24 billion | | Total Loans Held to Maturity (Year-End) | $12.07 billion | $11.43 billion | | Total Deposits (Year-End) | $16.20 billion | $17.51 billion | - In Q4 2023, HTLF executed a balance sheet repositioning, selling **$865.4 million** in lower-yielding investment securities at a loss of **$140.0 million** to pay down higher-cost wholesale funding, which is expected to benefit future net interest income[292](index=292&type=chunk)[293](index=293&type=chunk) - The company successfully completed the consolidation of its **11** bank charters into a single charter (HTLF Bank) in 2023, incurring **$7.3 million** in related restructuring costs during the year[295](index=295&type=chunk) - HTLF launched a new strategic plan, HTLF 3.0, in Q4 2023, focusing on banker expansion, treasury management growth, digital platform enhancement, and facility optimization[296](index=296&type=chunk) [Critical Accounting Estimates](index=48&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) Critical accounting estimates include the Allowance for Credit Losses, business combinations, goodwill, and core deposit intangibles, all requiring significant judgment - The Allowance for Credit Losses is a critical estimate, calculated using a model based on historical loss experience over a **16-year** look-back period, adjusted for qualitative factors and an economic forecast overlay[264](index=264&type=chunk)[265](index=265&type=chunk) - Key economic indices used in the ACL calculation include the national unemployment rate and GDP, which are considered highly sensitive and impactful to all loan pools[269](index=269&type=chunk) - Accounting for business combinations requires significant estimates to determine the fair value of acquired assets and liabilities, including loans and core deposit intangibles, using discounted cash flow methodologies[273](index=273&type=chunk)[274](index=274&type=chunk) [Results of Operations](index=60&type=section&id=RESULTS%20OF%20OPERATIONS) In 2023, net interest income was stable, but noninterest income became a loss due to securities sales, and noninterest expenses increased Net Interest Income and Margin | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Interest Income | $601.2M | $598.2M | | Net Interest Margin (GAAP) | 3.29% | 3.32% | | Net Interest Margin (FTE, non-GAAP) | 3.33% | 3.37% | - The provision for credit losses increased to **$21.7 million** in 2023 from **$15.4 million** in 2022, influenced by loan growth, an increase in nonperforming loans, and net charge-offs of **$12.4 million**[335](index=335&type=chunk) - Noninterest income swung to a loss of **$20.9 million** in 2023 from income of **$128.3 million** in 2022, primarily due to a **$141.5 million** net loss on the sale of securities[339](index=339&type=chunk) - Noninterest expense rose by **4%** to **$461.8 million** in 2023, driven by a one-time FDIC special assessment of **$8.1 million** and increased acquisition, integration, and restructuring costs[354](index=354&type=chunk)[357](index=357&type=chunk) [Financial Condition](index=69&type=section&id=FINANCIAL%20CONDITION) As of December 31, 2023, HTLF's assets decreased, loans grew, deposits declined due to wholesale funding reduction, and equity increased Loan Portfolio Composition (as of Dec 31, 2023) | Loan Category | Amount ($ millions) | % of Total | | :--- | :--- | :--- | | Commercial and industrial | $3,652.0 | 30.26% | | Owner occupied commercial real estate | $2,638.2 | 21.86% | | Non-owner occupied commercial real estate | $2,553.7 | 21.16% | | Real estate construction | $1,011.7 | 8.38% | | Agricultural and agricultural real estate | $919.2 | 7.62% | | Residential real estate | $797.8 | 6.61% | | Consumer | $493.2 | 4.09% | | **Total Loans** | **$12,068.6** | **100.00%** | - Nonperforming loans increased to **$97.9 million**, or **0.81%** of total loans, at year-end 2023, up from **$58.5 million**, or **0.51%** of total loans, at year-end 2022[416](index=416&type=chunk)[418](index=418&type=chunk) - The securities portfolio decreased to **$5.58 billion** (**29%** of total assets) from **$7.05 billion** (**35%** of total assets) at the end of 2022, largely due to the strategic balance sheet repositioning[422](index=422&type=chunk) - Total deposits decreased by **$1.31 billion**, driven by a **$944 million** reduction in wholesale and institutional deposits and a **$1.20 billion** decrease in customer demand deposits, partially offset by a **$1.09 billion** increase in customer time deposits[431](index=431&type=chunk)[433](index=433&type=chunk) Consolidated Capital Ratios (as of Dec 31, 2023) | Ratio | Actual % | Well Capitalized Requirement % | | :--- | :--- | :--- | | Total Capital (to Risk-Weighted Assets) | 14.53% | 10.00% | | Tier 1 Capital (to Risk-Weighted Assets) | 11.69% | 8.00% | | Common Equity Tier 1 (to Risk-Weighted Assets) | 10.97% | 6.50% | | Tier 1 Capital (to Average Assets) | 9.44% | 5.00% | [Quantitative and Qualitative Disclosures About Market Risk](index=91&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) HTLF manages interest rate risk through NII simulation, showing asset sensitivity where NII increases in rising rate environments and decreases in falling ones - The company's primary market risk is interest rate risk, which is managed through an interest rate management process overseen by the Asset/Liability Committee and the Board of Directors[478](index=478&type=chunk)[479](index=479&type=chunk) Net Interest Income Sensitivity Analysis (as of Dec 31, 2023) | Interest Rate Scenario | Year 1 % Change From Base | Year 2 % Change From Base | | :--- | :--- | :--- | | Up 200 Basis Points | +12.92% | +19.65% | | Up 100 Basis Points | +6.57% | +14.46% | | Base | -- | -- | | Down 100 Basis Points | -7.37% | +0.10% | | Down 200 Basis Points | -15.68% | -9.88% | [Financial Statements and Supplementary Data](index=94&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents HTLF's audited consolidated financial statements for 2021-2023, including notes on accounting policies, and an unqualified auditor's opinion - The report includes audited consolidated financial statements for the years ended December 31, 2023, 2022, and 2021[490](index=490&type=chunk) - KPMG LLP, the independent registered public accounting firm, issued an unqualified opinion on both the consolidated financial statements and the effectiveness of the company's internal control over financial reporting as of December 31, 2023[740](index=740&type=chunk)[741](index=741&type=chunk) - The critical audit matter identified by the auditor was the assessment of the allowance for credit losses for loans and unfunded loan commitments that are collectively evaluated, due to the high degree of subjective and complex judgment involved[746](index=746&type=chunk)[747](index=747&type=chunk) [Note 1. Summary of Significant Accounting Policies](index=101&type=section&id=Note%201.%20Summary%20of%20Significant%20Accounting%20Policies) This note details significant accounting policies, including consolidation, estimates for credit losses, business combinations, securities, loans, and new accounting standard adoption - The allowance for credit losses is estimated using historical loss experience adjusted for current conditions and reasonable forecasts. For certain commercial loans, a probability of default/loss given default model is used, while other loans use a lifetime average historical loss rate[522](index=522&type=chunk)[523](index=523&type=chunk) - Effective January 1, 2023, the company adopted ASU 2022-02, which eliminated the recognition and measurement guidance for Troubled Debt Restructurings (TDRs) and enhanced disclosure requirements for loan modifications to borrowers experiencing financial difficulty[533](index=533&type=chunk)[565](index=565&type=chunk) [Note 3. Securities](index=114&type=section&id=Note%203.%20Securities) This note details the **$5.58 billion** securities portfolio, including available-for-sale and held-to-maturity, with **$453.9 million** in unrealized losses Securities Portfolio Composition (as of Dec 31, 2023) | Security Type | Fair Value ($ thousands) | | :--- | :--- | | **Available for Sale** | **$4,646,891** | | *U.S. treasuries* | $32,118 | | *Obligations of states and political subdivisions* | $741,245 | | *Mortgage-backed securities (Agency & Non-agency)* | $2,922,757 | | *Other* | $950,771 | | **Held to Maturity** | **$816,399** | | *Obligations of states and political subdivisions* | $816,399 | | **Other Investments (at cost)** | **$91,277** | - The available-for-sale portfolio had gross unrealized losses of **$453.9 million** and gross unrealized gains of **$0.4 million** as of December 31, 2023. These unrealized losses are primarily attributed to changes in interest rates, not credit quality[570](index=570&type=chunk)[580](index=580&type=chunk) [Note 4. Loans](index=118&type=section&id=Note%204.%20Loans) This note details the **$12.07 billion** diversified loan portfolio, including risk categories and disclosures on loan modifications - As of December 31, 2023, nonpass loans (rated watch, substandard, doubtful, or loss) totaled **$676.3 million**, or **6%** of total loans, an increase from **$533.3 million** (**5%** of total loans) at year-end 2022[414](index=414&type=chunk) - During 2023, the company modified loans with an amortized cost basis of **$11.8 million** for borrowers experiencing financial difficulty, primarily through term extensions or temporary interest-only payments[589](index=589&type=chunk)[590](index=590&type=chunk) [Note 5. Allowance for Credit Losses](index=124&type=section&id=Note%205.%20Allowance%20for%20Credit%20Losses) This note details the ACL for loans, which increased to **$122.6 million** at year-end 2023 due to a **$25.4 million** provision Allowance for Credit Losses - Loans Roll-Forward (Year Ended Dec 31, 2023) | Component | Amount ($ thousands) | | :--- | :--- | | Balance at beginning of year | $109,483 | | Provision for credit losses | $25,435 | | Charge-offs on loans | ($19,614) | | Recoveries on loans previously charged-off | $7,262 | | **Balance at end of year** | **$122,566** | [Note 11. Derivative Financial Instruments](index=130&type=section&id=Note%2011.%20Derivative%20Financial%20Instruments) This note details HTLF's use of derivatives for interest rate risk management, including fair value hedges on loans and securities, and customer loan swaps - In 2023, HTLF entered into fair value hedges on **$2.5 billion** of its loan portfolio and **$838.1 million** of its investment portfolio to manage interest rate risk[633](index=633&type=chunk) - The company facilitates back-to-back loan swaps for customers, with a total notional amount of **$1.67 billion** as of December 31, 2023[639](index=639&type=chunk) - In Q1 2023, HTLF terminated its cash flow hedges that were converting **$500.0 million** of variable-rate loans to fixed-rate loans[628](index=628&type=chunk) [Note 17. Regulatory Capital Requirements](index=139&type=section&id=Note%2017.%20Regulatory%20Capital%20Requirements) This note details HTLF and HTLF Bank's Basel III capital requirements, confirming both entities are "well capitalized" as of year-end 2023 HTLF Consolidated Capital Ratios (as of Dec 31, 2023) | Ratio | Actual | Minimum Requirement | To Be Well Capitalized | | :--- | :--- | :--- | :--- | | Total Capital (to Risk-Weighted Assets) | 14.53% | 8.00% | 10.00% | | Tier 1 Capital (to Risk-Weighted Assets) | 11.69% | 6.00% | 8.00% (Bank) | | Common Equity Tier 1 (to Risk-Weighted Assets) | 10.97% | 4.50% | 6.50% (Bank) | | Tier 1 Capital (to Average Assets) | 9.44% | 4.00% | 5.00% (Bank) | - As of December 31, 2023, HTLF Bank had approximately **$436.9 million** in retained earnings available for dividends to the parent company while maintaining its "well-capitalized" status[677](index=677&type=chunk) [Controls and Procedures](index=161&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management and KPMG LLP concluded that HTLF's disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[752](index=752&type=chunk) - Management's assessment concluded that internal control over financial reporting was effective as of December 31, 2023. This assessment was audited by KPMG LLP, which also issued an unqualified opinion[753](index=753&type=chunk)[754](index=754&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=164&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement - Required information is incorporated by reference from the 2024 Proxy Statement[765](index=765&type=chunk) [Executive Compensation](index=164&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive compensation is incorporated by reference from the 2024 Proxy Statement - Required information is incorporated by reference from the 2024 Proxy Statement[766](index=766&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=164&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership and equity compensation plans is incorporated by reference from the 2024 Proxy Statement - Required information is incorporated by reference from the 2024 Proxy Statement[767](index=767&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=164&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related person transactions and director independence is incorporated by reference from the 2024 Proxy Statement - Required information is incorporated by reference from the 2024 Proxy Statement[768](index=768&type=chunk) [Principal Accountant Fees and Services](index=164&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services is incorporated by reference from the 2024 Proxy Statement - Required information is incorporated by reference from the 2024 Proxy Statement[769](index=769&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=164&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section confirms consolidated financial statements are in Item 8 and provides an index of all filed exhibits - The consolidated financial statements are located in Item 8 of the report[770](index=770&type=chunk) - An index of exhibits required by Item 601 of Regulation S-K is provided, listing documents such as articles of incorporation, bylaws, material contracts, and certifications[770](index=770&type=chunk)[773](index=773&type=chunk) [Form 10-K Summary](index=164&type=section&id=Item%2016.%20Form%2010-K%20Summary) No summary is provided under this item - None[771](index=771&type=chunk)

HTLF 3.0 Strategic Plan - HTLF 3.0 aims to become a top-performing bank by focusing on quality revenue growth and efficient capital allocation[2, 141] - The plan targets an EPS growth of 6-8%, Return on Average Assets of 1.40-1.50%, and a Fee Income to Revenue ratio of 22-25%[167] - The plan also aims to improve the Tangible Common Equity to Assets ratio to 9.5-100% and the Efficiency Ratio to 50-52%[167] Financial Performance & Metrics - Net Interest Income improved 7% to $156 million[138] - Loan growth reached $640 million, a 56% increase[154] - Net Interest Margin increased 34 bps to 352%[9, 153] - The company sold $8654 million of securities, resulting in a $140 million pre-tax loss[166, 169] - Adjusted Earnings per Share (EPS) was $453 for the year[5, 116] Deposit & Liquidity - Average customer deposit balance grew by $271 million over the prior quarter[22] - Customer deposits have a cycle-to-date beta of 31%[22] - The company has $26 billion in collateralized borrowing capacity[213]

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 September 30, 2023 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) ...

3.40% 3.23% 5.56% 3.67% 3.86% 3Q2022 4Q2022 1Q2023 2Q2023 3Q2023 Note: Cycle beta starting point 1Q2022 Note: Beta is defined as the change in deposit cost of funds rate divided by the change in Fed Funds rate - over the same time period 1. On a fully tax equivalent basis; See appendix for reconciliation of non-GAAP financial measures 2. Non Customer Deposits include Wholesale deposits, Institutional deposits, and Brokered CDs ▪ Loan yields increased 30 bps Deposit Funding Attractive Customer Deposit Costs ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) Comprehensive financial data for Heartland Financial USA, Inc., including statements, notes, and management's analysis of performance and condition [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents Heartland Financial USA, Inc.'s (HTLF) unaudited consolidated financial statements, including balance sheets, income statements, comprehensive income, cash flows, and changes in equity, along with detailed notes covering accounting policies, securities, loans, credit losses, intangible assets, derivatives, fair value measurements, and stock compensation for the periods ended June 30, 2023, and December 31, 2022 [Consolidated Balance Sheets](index=4&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) Presents the company's financial position, detailing assets, liabilities, and equity at specific points in time Consolidated Balance Sheet Highlights (Dollars in billions) | Metric | June 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------ | :---------------- | | Total Assets | $20.22 | $20.24 | | Cash and cash equivalents | $0.40 | $0.36 | | Securities (at fair value) | $5.80 | $6.15 | | Loans receivable, net | $11.61 | $11.32 | | Total Deposits | $17.66 | $17.51 | | Total Liabilities | $18.37 | $18.51 | | Total Stockholders' Equity | $1.86 | $1.74 | - Total assets slightly decreased by **$19.5 million** (less than 1%) from December 31, 2022, to June 30, 2023[8](index=8&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk)[155](index=155&type=chunk)[244](index=244&type=chunk)[248](index=248&type=chunk) - Securities decreased by **$349.1 million** (6%), while net loans receivable increased by **$287.9 million** (2.5%)[8](index=8&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk)[155](index=155&type=chunk)[244](index=244&type=chunk)[248](index=248&type=chunk) - Total deposits increased by **$150.5 million** (1%), and total stockholders' equity increased by **$123.9 million** (7.1%)[8](index=8&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk)[155](index=155&type=chunk)[244](index=244&type=chunk)[248](index=248&type=chunk) [Consolidated Statements of Income](index=5&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20INCOME) Details the company's revenues, expenses, and net income over specific reporting periods Consolidated Statements of Income Highlights (Dollars in millions, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Interest Income | $235.50 | $152.89 | $452.48 | $294.15 | | Total Interest Expense | $88.37 | $10.43 | $153.13 | $17.01 | | Net Interest Income | $147.13 | $142.46 | $299.34 | $277.14 | | Provision for Credit Losses | $5.38 | $3.25 | $8.45 | $6.49 | | Total Noninterest Income | $32.49 | $34.54 | $62.49 | $69.11 | | Total Noninterest Expenses | $109.45 | $106.48 | $220.49 | $217.28 | | Net Income | $49.42 | $51.87 | $102.19 | $94.96 | | Net Income Available to Common Stockholders | $47.40 | $49.86 | $98.17 | $90.94 | | Basic EPS | $1.11 | $1.17 | $2.30 | $2.14 | | Diluted EPS | $1.11 | $1.17 | $2.30 | $2.14 | | Cash Dividends Declared Per Common Share | $0.30 | $0.27 | $0.60 | $0.54 | - For the three months ended June 30, 2023, net income available to common stockholders decreased by **5%** year-over-year, primarily due to a significant increase in interest expense (up **747%**) despite a **54%** rise in total interest income[10](index=10&type=chunk)[148](index=148&type=chunk)[157](index=157&type=chunk) - Diluted EPS also decreased by **5%** for the three months ended June 30, 2023[10](index=10&type=chunk)[148](index=148&type=chunk)[157](index=157&type=chunk) - For the six months ended June 30, 2023, net income available to common stockholders increased by **8%** year-over-year, with diluted EPS up **7%**[10](index=10&type=chunk)[148](index=148&type=chunk)[157](index=157&type=chunk) [Consolidated Statements of Comprehensive Income](index=6&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME) Reports net income and other comprehensive income, reflecting all changes in equity from non-owner sources Consolidated Statements of Comprehensive Income Highlights (Dollars in millions) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income | $49.42 | $51.87 | $102.19 | $94.96 | | Other Comprehensive Income (Loss) | $(8.32) | $(199.99) | $44.77 | $(481.17) | | Total Comprehensive Income (Loss) | $41.10 | $(148.12) | $146.96 | $(386.20) | - Total comprehensive income significantly improved for the three and six months ended June 30, 2023, compared to the prior year periods[11](index=11&type=chunk) - This was primarily driven by a substantial reduction in other comprehensive loss, mainly due to a smaller net change in unrealized loss on available-for-sale securities and positive reclassification adjustments[11](index=11&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) Summarizes cash inflows and outflows from operating, investing, and financing activities over a period Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, Dollars in millions) | Cash Flow Activity | 2023 | 2022 | | :----------------- | :---------- | :------------ | | Operating Activities | $184.73 | $188.49 | | Investing Activities | $61.73 | $(1,052.22) | | Financing Activities | $(209.36) | $812.93 | | Net increase (decrease) in cash and cash equivalents | $37.10 | $(50.81) | | Cash and cash equivalents at end of period | $400.19 | $384.79 | - For the six months ended June 30, 2023, net cash provided by operating activities remained stable[12](index=12&type=chunk)[13](index=13&type=chunk) - A significant shift occurred in investing activities, moving from a net cash outflow of over **$1 billion** in 2022 to a net inflow of **$61.7 million** in 2023, largely due to reduced purchases of available-for-sale securities and a smaller net increase in loans[12](index=12&type=chunk)[13](index=13&type=chunk) - Financing activities saw a substantial change from net cash provided to net cash used, driven by a decrease in savings deposits and short-term borrowings, offset by a large increase in time deposits[12](index=12&type=chunk)[13](index=13&type=chunk) [Consolidated Statements of Changes in Equity](index=9&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20EQUITY) Illustrates changes in each component of stockholders' equity over a period, including net income and dividends Consolidated Statements of Changes in Equity Highlights (Dollars in millions) | Metric | Balance at June 30, 2023 | Balance at December 31, 2022 | Balance at June 30, 2022 | | :----------------------------------- | :----------------------- | :--------------------------- | :----------------------- | | Preferred Stock | $110.71 | $110.71 | $110.71 | | Common Stock | $42.65 | $42.47 | $42.44 | | Capital Surplus | $1,087.36 | $1,080.96 | $1,076.77 | | Retained Earnings | $1,193.52 | $1,120.93 | $1,031.08 | | Accumulated Other Comprehensive Loss | $(575.24) | $(620.01) | $(486.92) | | Total Equity | $1,858.99 | $1,735.06 | $1,774.07 | - Total stockholders' equity increased by **$123.9 million** from December 31, 2022, to June 30, 2023, primarily driven by net income and a reduction in accumulated other comprehensive loss[14](index=14&type=chunk) - Common stock and capital surplus also saw increases due to the issuance of common stock and stock-based compensation[14](index=14&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=NOTES%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) Provides detailed explanations and additional information supporting the consolidated financial statements [NOTE 1: BASIS OF PRESENTATION](index=10&type=section&id=NOTE%201:%20BASIS%20OF%20PRESENTATION) Outlines the accounting principles, reclassifications, and significant accounting policies applied in the financial statements - HTLF reclassified 'capital markets fees' from other noninterest income and 'FDIC insurance premiums' to FDIC insurance assessments on the consolidated statements of income, with all prior periods adjusted for comparability[18](index=18&type=chunk)[19](index=19&type=chunk) - HTLF amended its Certificate of Incorporation in Q2 2023, returning Series A, B, C, and D preferred stock to authorized but unissued status, increasing total authorized preferred shares to **188,500**[20](index=20&type=chunk)[21](index=21&type=chunk) Earnings Per Common Share (Dollars in millions and shares in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income available to common stockholders | $47.40 | $49.86 | $98.17 | $90.94 | | Basic EPS | $1.11 | $1.17 | $2.30 | $2.14 | | Diluted EPS | $1.11 | $1.17 | $2.30 | $2.14 | | Weighted average common shares outstanding for basic EPS | 42,696 | 42,475 | 42,655 | 42,418 | - HTLF adopted ASU 2022-01 (Derivatives and Hedging) and ASU 2022-02 (Financial Instruments-Credit Losses) on January 1, 2023, applying them prospectively[23](index=23&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk) - ASU 2023-02 (Investments-Equity Method and Joint Ventures) is effective January 1, 2024, and is not expected to have a material impact[23](index=23&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk) [NOTE 2: SECURITIES](index=12&type=section&id=NOTE%202:%20SECURITIES) Details the composition, fair value, and unrealized gains/losses of the company's investment securities portfolio Debt Securities Available for Sale and Equity Securities (Fair Value, Dollars in billions) | Category | June 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------ | :---------------- | | Total debt securities | $5.78 | $6.13 | | Equity securities with a readily determinable fair value | $0.02 | $0.02 | | Total | $5.80 | $6.15 | Held to Maturity Securities (Fair Value, Dollars in millions) | Category | June 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------ | :---------------- | | Obligations of states and political subdivisions | $806.94 | $776.56 | | Total | $806.94 | $776.56 | - Total debt securities available for sale decreased by **$349.5 million** from December 31, 2022, to June 30, 2023[27](index=27&type=chunk)[34](index=34&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk) - Unrealized losses on debt securities available for sale were **$617.6 million** at June 30, 2023, compared to **$643.1 million** at December 31, 2022[27](index=27&type=chunk)[34](index=34&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk) - These losses are primarily due to changes in market interest rates or widening market spreads, not credit quality, and HTLF intends and has the ability to hold these investments to maturity[27](index=27&type=chunk)[34](index=34&type=chunk)[36](index=36&type=chunk)[37](index=37&type=chunk) - Securities with a carrying value of **$2.88 billion** were pledged at June 30, 2023, up from **$1.49 billion** at December 31, 2022, to secure public and trust deposits, short-term borrowings, and other purposes[31](index=31&type=chunk)[245](index=245&type=chunk) [NOTE 3: LOANS](index=16&type=section&id=NOTE%203:%20LOANS) Provides a detailed breakdown of the loan portfolio, including categories, credit quality, and nonaccrual status Loans Receivable Held to Maturity (Dollars in billions) | Loan Category | June 30, 2023 | December 31, 2022 | Change (YoY) | | :----------------------------------- | :------------ | :---------------- | :----------- | | Commercial and industrial | $3.59 | $3.46 | +$0.13 | | Owner occupied commercial real estate | $2.40 | $2.27 | +$0.13 | | Non-owner occupied commercial real estate | $2.53 | $2.33 | +$0.20 | | Real estate construction | $1.01 | $1.08 | -$0.06 | | Agricultural and agricultural real estate | $0.84 | $0.92 | -$0.08 | | Total loans receivable held to maturity | $11.72 | $11.43 | +$0.29 | | Allowance for credit losses | $(0.11) | $(0.11) | | | Loans receivable, net | $11.61 | $11.32 | | - Total loans held to maturity increased by **$289.6 million** (3%) from December 31, 2022, to June 30, 2023, driven by growth in commercial and commercial real estate loans, partially offset by decreases in real estate construction and agricultural loans[40](index=40&type=chunk)[227](index=227&type=chunk)[228](index=228&type=chunk)[230](index=230&type=chunk) - Nonpass loans (watch, substandard) totaled **$568.2 million** (**4.8%** of total loans) at June 30, 2023, up from **$533.3 million** (**4.7%**) at December 31, 2022[240](index=240&type=chunk) - Approximately **11%** of nonpass loans were on nonaccrual status[240](index=240&type=chunk) Accruing and Nonaccrual Loans (Dollars in billions) | Loan Status | June 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------ | :---------------- | | Total Past Due (30-89 days) | $0.01 | $0.00 | | Total Past Due (90+ days) | $0.00 | $0.00 | | Total Accruing Loans | $11.64 | $11.37 | | Nonaccrual Loans | $0.06 | $0.06 | | Total Gross Loans Receivable Held to Maturity | $11.72 | $11.43 | [NOTE 4: ALLOWANCE FOR CREDIT LOSSES](index=22&type=section&id=NOTE%204:%20ALLOWANCE%20FOR%20CREDIT%20LOSSES) Details the allowance for credit losses on loans and unfunded commitments, reflecting management's estimate of expected credit losses Allowance for Credit Losses on Loans (Dollars in millions) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | $112.71 | $100.52 | $109.48 | $110.09 | | Provision for credit losses | $7.83 | $1.55 | $10.01 | $4.17 | | Recoveries on loans previously charged off | $0.28 | $0.76 | $3.47 | $1.78 | | Charge-offs on loans | $(9.61) | $(1.47) | $(11.76) | $(14.69) | | Balance at end of period | $111.20 | $101.35 | $111.20 | $101.35 | | Allowance for credit losses for loans as a percent of loans | 0.95% | 0.95% | 0.95% | 0.95% | - The allowance for credit losses for loans increased to **$111.2 million** at June 30, 2023, from **$109.5 million** at December 31, 2022[58](index=58&type=chunk)[190](index=190&type=chunk)[193](index=193&type=chunk)[237](index=237&type=chunk)[239](index=239&type=chunk) - The provision for credit losses for loans increased significantly to **$7.8 million** in Q2 2023 from **$1.5 million** in Q2 2022, primarily due to a **$5.3 million** charge-off from a fraud incident and loan growth[58](index=58&type=chunk)[190](index=190&type=chunk)[193](index=193&type=chunk)[237](index=237&type=chunk)[239](index=239&type=chunk) - Net charge-offs for the six months ended June 30, 2023, decreased to **$8.3 million** from **$12.9 million** in the prior year, despite the fraud-related charge-off[58](index=58&type=chunk)[190](index=190&type=chunk)[193](index=193&type=chunk)[237](index=237&type=chunk)[239](index=239&type=chunk) Allowance for Unfunded Commitments (Dollars in millions) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | $21.09 | $16.08 | $20.20 | $15.46 | | Provision (benefit) for credit losses | $(2.45) | $1.70 | $(1.56) | $2.32 | | Balance at end of period | $18.64 | $17.78 | $18.64 | $17.78 | - The allowance for unfunded commitments decreased to **$18.6 million** at June 30, 2023, from **$20.2 million** at December 31, 2022, mainly due to a **$164.2 million** reduction in unfunded commitments for construction loans, which carry the highest loss rate[237](index=237&type=chunk) [NOTE 5: GOODWILL, CORE DEPOSIT PREMIUM AND OTHER INTANGIBLE ASSETS](index=23&type=section&id=NOTE%205:%20GOODWILL,%20CORE%20DEPOSIT%20PREMIUM%20AND%20OTHER%20INTANGIBLE%20ASSETS) Reports the carrying amounts of goodwill and other intangible assets, including core deposit intangibles and mortgage servicing rights - Goodwill remained stable at **$576.0 million** at June 30, 2023, and December 31, 2022[61](index=61&type=chunk)[62](index=62&type=chunk) - Despite a sustained decline in HTLF's stock price triggering a quantitative impairment test in Q2 2023, management concluded that no goodwill was impaired[61](index=61&type=chunk)[62](index=62&type=chunk) Other Intangible Assets (Net Carrying Amount, Dollars in millions) | Intangible Asset | June 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------ | :---------------- | | Core deposit intangibles | $21.65 | $25.15 | | Mortgage servicing rights | $0.00 | $7.84 | | Total | $21.65 | $32.99 | - Mortgage servicing rights (MSRs) were de-recognized to **$0** at June 30, 2023, following the sale of the MSR portfolio on March 31, 2023, which generated approximately **$6.7 million** in cash and an estimated loss of **$193,000**[63](index=63&type=chunk)[65](index=65&type=chunk)[98](index=98&type=chunk) [NOTE 6: DERIVATIVE FINANCIAL INSTRUMENTS](index=24&type=section&id=NOTE%206:%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) Describes the company's use of derivative instruments to manage interest rate risk and their impact on financial statements - HTLF uses derivative financial instruments, including interest rate swaps, to manage interest rate risk and add stability to its net interest margin[67](index=67&type=chunk)[68](index=68&type=chunk) - The company minimizes credit risk by contracting with counterparties meeting its credit standards and utilizing collateral provisions[67](index=67&type=chunk)[68](index=68&type=chunk) - In Q1 2023, HTLF terminated an interest rate swap agreement that converted **$500.0 million** of variable-rate loans to fixed-rate, with estimated reclassification to interest expense of **$985,000** over the next 12 months[71](index=71&type=chunk)[72](index=72&type=chunk) - No derivative instruments were designated as cash flow hedges at June 30, 2023[71](index=71&type=chunk)[72](index=72&type=chunk) - In Q2 2023, HTLF entered into **$838.1 million** in fair value hedges (interest rate swaps) to protect against unrealized securities losses from higher interest rates and a **$500.0 million** swap to convert fixed-rate loans to floating rates, both using the portfolio layer method[76](index=76&type=chunk) Fair Value of Fair Value Hedges (Dollars in millions) | Derivative Type | June 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------ | :---------------- | | Interest rate swaps-loans receivable held to maturity | $13.64 | $0.05 | | Interest rate swaps-securities carried at fair value | $31.05 | $0.00 | Back-to-Back Loan Swaps (Fair Value, Dollars in billions) | Category | Notional Amount (June 30, 2023) | Fair Value (June 30, 2023) | Fair Value (December 31, 2022) | | :----------------------------------- | :------------------------------ | :------------------------- | :----------------------------- | | Customer interest rate swaps (assets) | $1.33 | $0.05 | $0.05 | | Customer interest rate swaps (liabilities) | $1.33 | $(0.05) | $(0.05) | [NOTE 7: FAIR VALUE](index=28&type=section&id=NOTE%207:%20FAIR%20VALUE) Explains the methodologies and hierarchy used to measure the fair value of financial and non-financial assets and liabilities - HTLF categorizes assets and liabilities measured at fair value into a three-level hierarchy based on the observability of valuation inputs[88](index=88&type=chunk)[89](index=89&type=chunk)[92](index=92&type=chunk)[100](index=100&type=chunk) - Most recurring fair value measurements for securities and derivatives fall into Level 2, utilizing observable market-based inputs[88](index=88&type=chunk)[89](index=89&type=chunk)[92](index=92&type=chunk)[100](index=100&type=chunk) Assets Measured at Fair Value on a Recurring Basis (Dollars in billions) | Asset Category | Total Fair Value (June 30, 2023) | Level 1 | Level 2 | Level 3 | | :----------------------------------- | :------------------------------- | :------ | :------ | :------ | | Securities available for sale | $5.78 | $0.03 | $5.75 | $0.00 | | Equity securities with a readily determinable fair value | $0.02 | $0.00 | $0.02 | $0.00 | | Derivative financial instruments | $0.10 | $0.00 | $0.10 | $0.00 | | Interest rate lock commitments | $0.00 | $0.00 | $0.00 | $0.00 | | Forward commitments | $0.00 | $0.00 | $0.00 | $0.00 | | Total assets at fair value | $5.90 | $0.03 | $5.86 | $0.00 | Assets Measured at Fair Value on a Nonrecurring Basis (Level 3, Dollars in millions) | Asset Category | Total Fair Value (June 30, 2023) | Year-to-Date (Gains) Losses | | :----------------------------------- | :------------------------------- | :-------------------------- | | Collateral dependent individually assessed loans | $39.65 | $6.11 | | Loans held for sale | $14.35 | $(0.27) | | Other real estate owned | $2.68 | $0.74 | | Premises, furniture and equipment held for sale | $3.74 | $0.76 | - Interest rate lock commitments are classified as Level 3 due to reliance on internally developed, unobservable inputs like the closing ratio[101](index=101&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk) - Other real estate owned (OREO) and premises/furniture/equipment held for sale are also Level 3, valued using modified appraisals and appraisal discounts[101](index=101&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk) [NOTE 8: STOCK COMPENSATION](index=37&type=section&id=NOTE%208:%20STOCK%20COMPENSATION) Details the company's stock-based compensation plans, including restricted stock units and stock options, and their associated costs - HTLF's 2020 Long-Term Incentive Plan authorizes **1,460,000 shares** for various equity awards, with **757,105 shares** available for future issuance as of June 30, 2023[130](index=130&type=chunk) Restricted Stock Units (RSUs) Activity (Shares in thousands and Dollars per share) | Metric | Shares (June 30, 2023) | Weighted-Average Grant Date Fair Value (June 30, 2023) | | :----------------------------------- | :--------------------- | :----------------------------------------------------- | | Outstanding at January 1 | 424.09 | $46.15 | | Granted | 241.35 | $47.30 | | Vested | (166.85) | $42.22 | | Forfeited | (28.61) | $44.27 | | Outstanding at June 30 | 469.98 | $48.25 | - Total compensation costs for RSUs were **$6.7 million** for the six months ended June 30, 2023, with **$12.9 million** in unrecognized costs expected through 2026[136](index=136&type=chunk) - Most RSUs granted after March 2023 accrue dividends upon vesting[136](index=136&type=chunk) Stock Options Activity (Shares in thousands and Dollars per share) | Metric | Shares (June 30, 2023) | Weighted Average Exercise Price (June 30, 2023) | | :----------------------------------- | :--------------------- | :---------------------------------------------- | | Outstanding January 1 | 64.52 | $48.79 | | Forfeited | (6.45) | $48.79 | | Outstanding at June 30 | 58.07 | $48.79 | - Total compensation costs for stock options were **$109,000** for the six months ended June 30, 2023, with **$602,000** in unrecognized costs expected through 2026[139](index=139&type=chunk) - No options were exercisable or had intrinsic value at June 30, 2023[139](index=139&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=40&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on HTLF's financial condition and results of operations, highlighting key performance drivers, recent developments, and responses to industry disruptions. It includes an overview of financial performance, detailed analysis of net interest income, noninterest income and expenses, credit quality, and capital and liquidity management [Safe Harbor Statement](index=40&type=section&id=SAFE%20HARBOR%20STATEMENT) Warns that forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially - This report contains forward-looking statements regarding HTLF's business, financial condition, and future performance, which are subject to various risks and uncertainties that could cause actual results to differ materially[140](index=140&type=chunk) - Key risk factors include economic and market conditions (e.g., inflation, interest rates, recession), credit risks, liquidity and interest rate risks, operational risks (e.g., cybersecurity), strategic and external risks, legal/compliance/reputational risks, and risks of owning HTLF stock[140](index=140&type=chunk)[143](index=143&type=chunk) [Critical Accounting Estimates](index=40&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) Discusses key accounting estimates and judgments that significantly impact the financial statements - The preparation of financial statements involves estimates and judgments, particularly for carrying values of assets and liabilities[142](index=142&type=chunk)[144](index=144&type=chunk) - No significant changes in critical accounting estimates or assumptions have occurred since December 31, 2022[142](index=142&type=chunk)[144](index=144&type=chunk) [Overview](index=41&type=section&id=OVERVIEW) Provides a high-level summary of HTLF's business, strategic responses to market conditions, and key financial performance indicators - HTLF operates as a bank holding company with four banks under 11 local brands across 12 states, offering diversified financial services including commercial business, retail operations, treasury management, wealth management, and residential mortgages[145](index=145&type=chunk) - In response to recent banking industry disruptions, HTLF is actively helping customers with FDIC insurance, monitoring deposit pricing, maintaining **$3.30 billion** in borrowing capacity through federal programs (undrawn), and conducting deposit campaigns that resulted in over **2,700** net new commercial and retail accounts in Q2 2023[147](index=147&type=chunk)[148](index=148&type=chunk) - HTLF's exposure to non-owner occupied office space loans is **$408.4 million** (**3.5%** of total loans), with no nonaccrual loans in this category[147](index=147&type=chunk)[148](index=148&type=chunk) - **66%** of HTLF's deposits are insured or collateralized, and capital ratios substantially exceed well-capitalized thresholds[147](index=147&type=chunk)[148](index=148&type=chunk) Key Financial Results (Dollars in millions, except per share data) | Metric | Q2 2023 | Q2 2022 | YTD Q2 2023 | YTD Q2 2022 | | :----------------------------------- | :------ | :------ | :---------- | :---------- | | Net income available to common stockholders | $47.40 | $49.86 | $98.17 | $90.94 | | Diluted EPS | $1.11 | $1.17 | $2.30 | $2.14 | | Net interest income | $147.13 | $142.46 | $299.34 | $277.14 | | Total revenue | $179.63 | $177.00 | $361.84 | $346.25 | | Return on average assets | 0.98% | 1.06% | 1.02% | 0.99% | | Return on average common equity | 11.01% | 11.55% | 11.70% | 9.82% | | Return on average tangible common equity (non-GAAP) | 17.33% | 18.35% | 18.63% | 15.08% | [2023 Developments](index=43&type=section&id=2023%20Developments) Highlights significant events and strategic initiatives undertaken by HTLF during the current reporting period - HTLF's subsidiary, Dubuque Bank & Trust, sold its Retirement Plan Services recordkeeping and administration business to July Business Services in Q2 2023, resulting in a **$4.3 million** gain[158](index=158&type=chunk) - First Bank & Trust sold its mortgage servicing rights portfolio on March 31, 2023, for approximately **$6.7 million** in cash, leading to the de-recognition of **$7.7 million** in MSRs[159](index=159&type=chunk) - Goodwill impairment testing was performed in Q2 2023 due to a decline in stock price, but no impairment was found[160](index=160&type=chunk) - HTLF entered into **$838.1 million** in fair value hedges to protect against unrealized securities losses and a **$500.0 million** fair value hedge to convert fixed-rate loans to floating rates in Q2 2023[161](index=161&type=chunk) - Eight bank charters have been consolidated into HTLF Bank by Q2 2023, with one more post-June 30, 2023, and the remaining two expected by year-end 2023[162](index=162&type=chunk)[163](index=163&type=chunk) - This project aims for **$20 million** in annual benefits and core operating expenses of **2.10%** or less of average assets, with **$12.9 million** in costs incurred to date[162](index=162&type=chunk)[163](index=163&type=chunk) [Financial Highlights](index=44&type=section&id=FINANCIAL%20HIGHLIGHTS) Presents key financial ratios and balance sheet data, offering a quick overview of the company's performance and position Key Performance Ratios | Metric | Q2 2023 | Q2 2022 | YTD Q2 2023 | YTD Q2 2022 | | :----------------------------------- | :------ | :------ | :---------- | :---------- | | Annualized return on average assets | 0.98% | 1.06% | 1.02% | 0.99% | | Annualized return on average common equity (GAAP) | 11.01% | 11.55% | 11.70% | 9.82% | | Annualized return on average tangible common equity (non-GAAP) | 17.33% | 18.35% | 18.63% | 15.08% | | Annualized ratio of net charge-offs/(recoveries) to average loans | 0.32 | 0.03 | 0.15 | 0.25 | | Annualized net interest margin (GAAP) | 3.19% | 3.18% | 3.27% | 3.13% | | Annualized net interest margin, fully tax-equivalent (non-GAAP) | 3.24% | 3.22% | 3.32% | 3.17% | | Efficiency ratio (GAAP) | 60.93% | 60.16% | 60.94% | 62.75% | | Adjusted efficiency ratio, fully tax-equivalent (non-GAAP) | 59.82% | 57.66% | 58.48% | 61.02% | Balance Sheet and Common Share Data (Dollars in billions, except per share data) | Metric | June 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------ | :---------------- | | Investments | $6.71 | $7.05 | | Loans receivable held to maturity | $11.72 | $11.43 | | Total assets | $20.22 | $20.24 | | Total deposits | $17.66 | $17.51 | | Common equity | $1.75 | $1.62 | | Book value per common share (GAAP) | $41.00 | $38.25 | | Tangible book value per common share (non-GAAP) | $26.98 | $24.09 | | Common shares outstanding | 42,644,544 | 42,467,394 | | Tangible common equity ratio (non-GAAP) | 5.86% | 5.21% | | Adjusted tangible common equity ratio (non-GAAP) | 8.79% | 8.37% | [Non-GAAP Reconciliations](index=45&type=section&id=Non-GAAP%20Reconciliations) Provides reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures, enhancing transparency - HTLF provides reconciliations for non-GAAP financial measures such as Tangible Book Value Per Common Share, Tangible Common Equity Ratio, Adjusted Tangible Common Equity Ratio, Annualized Return on Average Tangible Common Equity, Annualized Net Interest Margin (fully tax-equivalent), Adjusted Efficiency Ratio (fully tax-equivalent), and Annualized Ratio of Core Expenses to Average Assets[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk) - These measures are used to enhance comparability and provide supplemental information for investors[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk) [Results of Operations](index=48&type=section&id=RESULTS%20OF%20OPERATIONS) Analyzes the company's financial performance over the reporting period, focusing on revenue, expenses, and profitability [Net Interest Margin and Net Interest Income](index=48&type=section&id=Net%20Interest%20Margin%20and%20Net%20Interest%20Income) Examines the components of net interest income and the factors influencing the company's net interest margin - Net interest margin (GAAP) was **3.19%** in Q2 2023, slightly up from **3.18%** in Q2 2022[151](index=151&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk) - On a fully tax-equivalent basis (non-GAAP), it was **3.24%** in Q2 2023, compared to **3.22%** in Q2 2022[151](index=151&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk) - For the first six months of 2023, net interest margin (GAAP) was **3.27%**, up from **3.13%** in the prior year[151](index=151&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk) - Total interest income increased by **$82.6 million** (**54%**) in Q2 2023 year-over-year, primarily due to higher average earning assets and increased yields (average rate up **170 bps** to **5.15%**)[176](index=176&type=chunk) - Total interest expense surged by **$77.9 million** due to higher average interest rates paid (up **232 bps** to **2.68%**) and increased interest-bearing liabilities, particularly wholesale and institutional deposits[176](index=176&type=chunk) - Net interest income increased by **$4.7 million** (**3%**) in Q2 2023 year-over-year[148](index=148&type=chunk)[157](index=157&type=chunk)[176](index=176&type=chunk) - For the first six months of 2023, net interest income increased by **$22.2 million** (**8%**) to **$299.3 million**[148](index=148&type=chunk)[157](index=157&type=chunk)[176](index=176&type=chunk) Changes in Interest Income and Expense (Three Months Ended June 30, 2023 vs. 2022, Dollars in millions) | Category | Change Due to Volume | Change Due to Rate | Net Change | | :----------------------------------- | :------------------- | :----------------- | :--------- | | Total earning assets interest income | $(7.35) | $90.30 | $82.95 | | Total interest bearing liabilities interest expense | $4.39 | $73.55 | $77.94 | | Net interest income | $(11.74) | $16.75 | $5.01 | [Provision For Credit Losses](index=53&type=section&id=Provision%20For%20Credit%20Losses) Analyzes the provision for credit losses, reflecting changes in loan quality and economic forecasts Provision for Credit Losses (Dollars in millions) | Metric | Q2 2023 | Q2 2022 | YTD Q2 2023 | YTD Q2 2022 | | :----------------------------------- | :------ | :------ | :---------- | :---------- | | Provision expense for credit losses-loans | $7.83 | $1.55 | $10.01 | $4.17 | | Provision (benefit) expense for credit losses-unfunded commitments | $(2.45) | $1.70 | $(1.56) | $2.32 | | Total provision expense | $5.38 | $3.25 | $8.45 | $6.49 | - Total provision for credit losses increased to **$5.4 million** in Q2 2023 from **$3.2 million** in Q2 2022[190](index=190&type=chunk)[193](index=193&type=chunk) - This was primarily driven by a **$7.8 million** provision for loan losses, which included a **$5.3 million** charge-off related to a fraud incident, partially offset by a benefit from unfunded commitments[190](index=190&type=chunk)[193](index=193&type=chunk) - For the first six months of 2023, total provision expense was **$8.5 million**, up from **$6.5 million** in the prior year[190](index=190&type=chunk)[193](index=193&type=chunk)[237](index=237&type=chunk) - This included **$10.0 million** for loan losses, impacted by the **$5.3 million** fraud charge-off, and a **$1.6 million** benefit for unfunded commitments due to a reduction in construction loan commitments[190](index=190&type=chunk)[193](index=193&type=chunk)[237](index=237&type=chunk) [Noninterest Income](index=54&type=section&id=Noninterest%20Income) Details income generated from sources other than interest, such as service charges, fees, and gains on asset sales Noninterest Income (Dollars in millions) | Metric | Q2 2023 | Q2 2022 | YTD Q2 2023 | YTD Q2 2022 | | :----------------------------------- | :------ | :------ | :---------- | :---------- | | Service charges and fees | $19.63 | $18.07 | $36.76 | $33.32 | | Loan servicing income | $0.41 | $0.83 | $1.13 | $1.12 | | Capital markets fees | $4.04 | $4.87 | $6.49 | $7.91 | | Securities losses, net | $(0.31) | $(2.09) | $(1.42) | $0.78 | | Net gains on sale of loans held for sale | $1.05 | $2.90 | $2.88 | $6.31 | | Income on bank owned life insurance | $1.22 | $0.52 | $2.18 | $1.05 | | Other noninterest income | $0.41 | $3.04 | $1.87 | $3.90 | | Total noninterest income | $32.49 | $34.54 | $62.49 | $69.11 | - Total noninterest income decreased by **$2.0 million** (**6%**) in Q2 2023 year-over-year and by **$6.6 million** (**10%**) for the first six months of 2023[194](index=194&type=chunk)[198](index=198&type=chunk)[202](index=202&type=chunk)[207](index=207&type=chunk) - This was primarily due to lower net gains on sale of loans held for sale (down **64%** in Q2), reduced capital markets fees (down **17%** in Q2), and a decrease in other noninterest income (down **87%** in Q2) due to prior year gains on VISA Class B shares[194](index=194&type=chunk)[198](index=198&type=chunk)[202](index=202&type=chunk)[207](index=207&type=chunk) - Service charges and fees increased by **9%** in Q2 2023, driven by a larger customer base and increased commercial credit card utilization[195](index=195&type=chunk)[206](index=206&type=chunk) - Income on bank-owned life insurance increased by **133%** in Q2 2023 due to market value changes[195](index=195&type=chunk)[206](index=206&type=chunk) [Noninterest Expenses](index=57&type=section&id=Noninterest%20Expenses) Outlines expenses not related to interest, including salaries, benefits, and other operating costs Noninterest Expenses (Dollars in millions) | Metric | Q2 2023 | Q2 2022 | YTD Q2 2023 | YTD Q2 2022 | | :----------------------------------- | :------ | :------ | :---------- | :---------- | | Salaries and employee benefits | $62.10 | $64.03 | $124.25 | $130.21 | | FDIC insurance assessments | $3.04 | $1.53 | $6.31 | $3.15 | | Advertising | $3.05 | $1.28 | $5.04 | $2.84 | | Acquisition, integration and restructuring costs | $1.89 | $2.41 | $3.57 | $2.99 | | Other noninterest expenses | $15.58 | $12.97 | $31.02 | $27.05 | | Total noninterest expenses | $109.45 | $106.48 | $220.49 | $217.28 | - Total noninterest expenses increased by **$3.0 million** (**3%**) in Q2 2023 year-over-year and by **$3.2 million** (**1%**) for the first six months of 2023[208](index=208&type=chunk)[210](index=210&type=chunk)[212](index=212&type=chunk)[217](index=217&type=chunk)[218](index=218&type=chunk) - This was primarily driven by a **98%** increase in FDIC insurance assessments due to rate changes, a **138%** increase in advertising for deposit acquisition campaigns, and a **20%** increase in other noninterest expenses, including credit card processing and fraud losses[208](index=208&type=chunk)[210](index=210&type=chunk)[212](index=212&type=chunk)[217](index=217&type=chunk)[218](index=218&type=chunk) - Salaries and employee benefits decreased by **3%** in Q2 2023 and **5%** for the first six months, attributable to a reduction in full-time equivalent employees and lower incentive compensation[209](index=209&type=chunk)[216](index=216&type=chunk) - Acquisition, integration, and restructuring costs decreased by **22%** in Q2 but increased by **19%** for the first six months due to the progression of the charter consolidation project[209](index=209&type=chunk)[216](index=216&type=chunk) - HTLF recorded a **$4.3 million** gain from the sale of its Retirement Plan Services business in Q2 2023, partially offset by losses on other repossessed real estate properties[214](index=214&type=chunk) [Efficiency Ratio](index=58&type=section&id=Efficiency%20Ratio) Analyzes the company's efficiency in managing operating expenses relative to revenue generation - The GAAP efficiency ratio was **60.93%** in Q2 2023, up from **60.16%** in Q2 2022[152](index=152&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk) - The adjusted fully tax-equivalent efficiency ratio (non-GAAP) was **59.82%** in Q2 2023, compared to **57.66%** in Q2 2022[152](index=152&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk) - For the first six months of 2023, the adjusted efficiency ratio improved to **58.48%** from **61.02%** in the prior year[152](index=152&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk) - HTLF continues to pursue strategies to improve operational efficiency, including the consolidation of bank charters, which is projected to generate **$20 million** annually in benefits and reduce core operating expenses to **2.10%** or less of average assets upon completion by year-end 2023[163](index=163&type=chunk)[221](index=221&type=chunk)[222](index=222&type=chunk) [Income Taxes](index=59&type=section&id=Income%20Taxes) Reports the effective tax rate and factors influencing the company's income tax expense - The effective tax rate was **23.74%** for Q2 2023, up from **22.89%** in Q2 2022[224](index=224&type=chunk) - For the first six months of 2023, the effective tax rate was **23.10%**, compared to **22.47%** in the prior year[224](index=224&type=chunk) - Tax calculations were impacted by federal low-income housing tax credits (**$311,000** in Q2 2023), new markets tax credits, historic rehabilitation tax credits, and disallowed interest expense related to tax-exempt loans and securities[225](index=225&type=chunk) [Financial Condition](index=59&type=section&id=FINANCIAL%20CONDITION) Assesses the company's financial health, including asset quality, liquidity, and capital adequacy [Lending Activities](index=60&type=section&id=LENDING%20ACTIVITIES) Details the composition and growth of the company's loan portfolio across various categories Loan Portfolio Composition (Dollars in billions) | Loan Category | June 30, 2023 | Percent | December 31, 2022 | Percent | | :----------------------------------- | :------------ | :------ | :---------------- | :------ | | Commercial and industrial | $3.59 | 30.63% | $3.46 | 30.31% | | Owner occupied commercial real estate | $2.40 | 20.47% | $2.27 | 19.82% | | Non-owner occupied commercial real estate | $2.53 | 21.60% | $2.33 | 20.40% | | Real estate construction | $1.01 | 8.65% | $1.08 | 9.42% | | Agricultural and agricultural real estate | $0.84 | 7.17% | $0.92 | 8.05% | | Residential mortgage | $0.83 | 7.07% | $0.85 | 7.47% | | Consumer | $0.51 | 4.37% | $0.51 | 4.43% | | Total gross loans held to maturity | $11.72 | 100.00% | $11.43 | 100.00% | - Total loans held to maturity increased by **$289.6 million** (**3%**) to **$11.72 billion** at June 30, 2023, from **$11.43 billion** at December 31, 2022[226](index=226&type=chunk)[228](index=228&type=chunk)[230](index=230&type=chunk) - This growth was primarily in commercial and commercial real estate loans, reflecting an emphasis on organic growth and market penetration, offset by decreases in real estate construction and agricultural loans[226](index=226&type=chunk)[228](index=228&type=chunk)[230](index=230&type=chunk) [Allowance for Credit Losses](index=61&type=section&id=ALLOWANCE%20FOR%20CREDIT%20LOSSES) Examines the allowance for credit losses, its components, and the methodology used for its calculation - The total allowance for lending-related credit losses was **$129.8 million** (**1.11%** of loans) at June 30, 2023, compared to **$129.7 million** (**1.13%** of loans) at December 31, 2022[154](index=154&type=chunk)[232](index=232&type=chunk) Components of Allowance for Lending Related Credit Losses (Dollars in millions) | Component | June 30, 2023 | % of Allowance | December 31, 2022 | % of Allowance | | :----------------------------------- | :------------ | :------------- | :---------------- | :------------- | | Quantitative | $82.42 | 63.48% | $84.41 | 65.09% | | Qualitative/Economic Forecast | $47.42 | 36.52% | $45.27 | 34.91% | | Total | $129.83 | 100.00% | $129.68 | 100.00% | - The quantitative allowance decreased by **$2.0 million** (**2%**), while the qualitative allowance increased by **$2.1 million** (**4.7%**)[233](index=233&type=chunk)[234](index=234&type=chunk)[235](index=235&type=chunk) - Management utilized Moody's June 5, 2023, baseline forecast, considering a moderate recession scenario, for the allowance calculation[233](index=233&type=chunk)[234](index=234&type=chunk)[235](index=235&type=chunk) [Credit Quality and Nonperforming Assets](index=62&type=section&id=CREDIT%20QUALITY%20AND%20NONPERFORMING%20ASSETS) Assesses the quality of the loan portfolio and the levels of nonperforming assets, including nonaccrual loans - Nonpass loans (watch, substandard) increased to **$568.2 million** (**4.8%** of total loans) at June 30, 2023, from **$533.3 million** (**4.7%**) at December 31, 2022[240](index=240&type=chunk) - Substandard loans constituted **53%** of nonpass loans at June 30, 2023[240](index=240&type=chunk) Nonperforming Assets (Dollars in millions) | Metric | June 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------ | :---------------- | | Nonaccrual loans | $61.96 | $58.23 | | Loans contractually past due 90 days or more | $1.46 | $0.27 | | Total nonperforming loans | $63.42 | $58.50 | | Other real estate | $2.68 | $8.40 | | Other repossessed assets | $0.01 | $0.03 | | Total nonperforming assets | $66.10 | $66.93 | | Nonperforming loans to total loans | 0.54% | 0.51% | | Nonperforming assets to total assets | 0.33% | 0.33% | - Total nonperforming assets decreased by **$834,000** (**1%**) to **$66.1 million** (**0.33%** of total assets) at June 30, 2023[243](index=243&type=chunk) - Nonperforming loans increased to **$63.4 million** (**0.54%** of total loans) from **$58.5 million** (**0.51%**) at December 31, 2022[243](index=243&type=chunk) - Approximately **64%** of nonperforming loans at June 30, 2023, were individual balances exceeding **$1.0 million**[243](index=243&type=chunk) [Securities](index=64&type=section&id=SECURITIES) Reviews the composition and value of the company's investment securities portfolio - Securities represented **33%** of total assets at June 30, 2023, down from **35%** at December 31, 2022[153](index=153&type=chunk)[244](index=244&type=chunk) - Total securities carried at fair value decreased by **$349.1 million** (**6%**) to **$5.80 billion**[153](index=153&type=chunk)[244](index=244&type=chunk) Securities Portfolio Composition (Dollars in billions) | Category | June 30, 2023 | Percent | December 31, 2022 | Percent | | :----------------------------------- | :------------ | :------ | :---------------- | :------ | | Obligations of states and political subdivisions | $1.68 | 25.11% | $1.71 | 24.24% | | Mortgage-backed securities - agency | $1.69 | 25.16% | $1.77 | 25.13% | | Mortgage-backed securities - non-agency | $2.00 | 29.76% | $2.18 | 30.94% | | Total securities | $6.71 | 100.00% | $7.05 | 100.00% | - The securities portfolio had an expected modified duration of **6.20 years** at June 30, 2023, consistent with **6.19 years** at December 31, 2022[246](index=246&type=chunk)[245](index=245&type=chunk) - Approximately **$3.73 billion** of securities remained available to pledge at June 30, 2023[246](index=246&type=chunk)[245](index=245&type=chunk) [Deposits](index=64&type=section&id=DEPOSITS) Analyzes the composition and changes in the company's deposit base, including customer and wholesale deposits - Total deposits increased by **$150.5 million** (**1%**) to **$17.66 billion** at June 30, 2023, from **$17.51 billion** at December 31, 2022[154](index=154&type=chunk)[248](index=248&type=chunk) - **66%** of HTLF's deposits were insured or collateralized[154](index=154&type=chunk)[248](index=248&type=chunk) Deposit Balances by Type (Dollars in billions) | Deposit Type | June 30, 2023 | December 31, 2022 | Change | | :----------------------------------- | :------------ | :---------------- | :----- | | Demand-customer | $4.90 | $5.70 | $(0.80) | | Savings-customer | $8.15 | $8.67 | $(0.52) | | Savings-wholesale and institutional | $0.62 | $1.32 | $(0.70) | | Time-customer | $1.60 | $0.85 | $0.75 | | Time-wholesale | $2.40 | $0.97 | $1.43 | | Total deposits | $17.66 | $17.51 | $0.15 | - Customer demand and savings deposits decreased significantly, while time deposits, particularly wholesale time deposits, saw substantial increases[249](index=249&type=chunk) - Wholesale and institutional deposits grew by **$729.0 million** (**32%**) to **$3.02 billion**[249](index=249&type=chunk) [Short-Term Borrowings](index=65&type=section&id=SHORT-TERM%20BORROWINGS) Details the company's short-term funding sources, including repurchase agreements and advances from federal programs Short-Term Borrowings (Dollars in millions) | Borrowing Type | June 30, 2023 | December 31, 2022 | Change | | :----------------------------------- | :------------ | :---------------- | :----- | | Securities sold under agreement to repurchase | $35.91 | $95.30 | $(59.39) | | Advances from the FHLB | $0.00 | $50.00 | $(50.00) | | Advances from the federal discount window | $0.00 | $224.00 | $(224.00) | | Total | $44.36 | $376.12 | $(331.75) | - Short-term borrowings decreased significantly by **$331.8 million** (**88%**) to **$44.4 million** at June 30, 2023, from **$376.1 million** at December 31, 2022[251](index=251&type=chunk) - This reduction was primarily due to the paydown of FHLB advances and federal discount window borrowings[251](index=251&type=chunk) - HTLF had **$630.4 million** in borrowing capacity pledged to the Federal Reserve's Bank Term Funding Program (BTFP) at June 30, 2023, with no advances drawn[252](index=252&type=chunk)[254](index=254&type=chunk) - The company also renewed a **$100.0 million** revolving credit line, with no outstanding balance[252](index=252&type=chunk)[254](index=254&type=chunk) [Other Borrowings](index=66&type=section&id=OTHER%20BORROWINGS) Reports long-term debt instruments, such as trust preferred securities and subordinated notes Other Borrowings (Dollars in millions) | Borrowing Type | June 30, 2023 | December 31, 2022 | Change | | :----------------------------------- | :------------ | :---------------- | :----- | | Trust preferred securities | $148.81 | $148.28 | $0.52 | | Subordinated notes | $222.84 | $222.65 | $0.19 | | Total | $372.40 | $371.75 | $0.65 | - Other borrowings, defined as maturities over one year, remained stable at **$372.4 million** at June 30, 2023, compared to **$371.8 million** at December 31, 2022[255](index=255&type=chunk) - The effective weighted average interest rate for trust preferred securities was **8.17%** at June 30, 2023[255](index=255&type=chunk) [Capital Requirements](index=67&type=section&id=CAPITAL%20REQUIREMENTS) Outlines the company's regulatory capital ratios and its compliance with well-capitalized thresholds - HTLF and its Banks are categorized as well-capitalized under regulatory frameworks[257](index=257&type=chunk)[260](index=260&type=chunk) - Management believes current capital ratio buffers would withstand regulatory changes requiring inclusion of unrealized losses in the total investment portfolio[257](index=257&type=chunk)[260](index=260&type=chunk) Capital Ratios (Percent) | Capital Ratio | June 30, 2023 | December 31, 2022 | Minimum Capital Requirement | Well Capitalized Requirement | | :----------------------------------- | :------------ | :---------------- | :-------------------------- | :--------------------------- | | Total Capital (to Risk-Weighted Assets) | 14.93% | 14.76% | 8.00% | 10.00% | | Tier 1 Capital (to Risk-Weighted Assets) | 12.05% | 11.81% | 6.00% | 8.00% | | Common Equity Tier 1 (to Risk-Weighted Assets) | 11.33% | 11.07% | 4.50% | 6.50% | | Tier 1 Capital (to Average Assets) | 9.40% | 9.13% | 4.00% | 5.00% | - Retained earnings available for dividends from its banks to HTLF totaled **$788.5 million** at June 30, 2023, under the most restrictive minimum capital requirements, and **$482.8 million** to remain well-capitalized[259](index=259&type=chunk) - HTLF has a universal shelf registration statement effective until August 2025, providing flexibility to raise debt or equity capital as needed[261](index=261&type=chunk)[262](index=262&type=chunk) [Commitments and Contractual Obligations](index=68&type=section&id=COMMITMENTS%20AND%20CONTRACTUAL%20OBLIGATIONS) Details off-balance sheet commitments, including credit extensions and standby letters of credit - Commitments to extend credit totaled **$4.91 billion** at June 30, 2023, up from **$4.73 billion** at December 31, 2022[263](index=263&type=chunk) - Standby letters of credit increased to **$72.8 million** from **$55.1 million**[263](index=263&type=chunk) - HTLF's banks had **$878.3 million** in standby letters of credit with the FHLB to secure public funds and municipal deposits at June 30, 2023[264](index=264&type=chunk) - No material changes to contractual obligations have occurred since the 2022 Annual Report on Form 10-K[264](index=264&type=chunk) [Liquidity](index=68&type=section&id=LIQUIDITY) Assesses the company's ability to meet its financial obligations, including cash on hand, securities, and borrowing capacity - At June 30, 2023, HTLF had **$400.2 million** in cash and cash equivalents and **$5.80 billion** in securities carried at fair value[269](index=269&type=chunk)[273](index=273&type=chunk) - The securities portfolio is expected to generate approximately **$1.3 billion** in cash flow over the next twelve months[269](index=269&type=chunk)[273](index=273&type=chunk) - HTLF shifted from overnight borrowings to brokered CDs in the first six months of 2023 to enhance immediate funding availability[273](index=273&type=chunk) - Pledged securities totaled **$2.88 billion**, with **$3.73 billion** remaining available to pledge[273](index=273&type=chunk) Funding Sources and Available Borrowing Capacity (As of June 30, 2023, Dollars in billions) | Source | Outstanding | Available | | :----------------------------------- | :---------- | :-------- | | Federal Reserve Discount Window | $0.00 | $1.49 | | Bank Term Funding Program | $0.00 | $0.63 | | Federal Home Loan Bank | $0.00 | $1.18 | | Federal Funds | $0.00 | $0.27 | | Wholesale deposits/brokered CDs | $2.89 | $1.18 | | Total | $2.89 | $4.75 | - Management believes cash on hand, cash flows from operations, and existing borrowing programs will be sufficient to meet operating cash needs in 2023[273](index=273&type=chunk)[278](index=278&type=chunk) - HTLF is focused on funding loan growth with less expensive deposits, securities sales, or borrowings, and actively pursuing deposit acquisition campaigns[273](index=273&type=chunk)[278](index=278&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=71&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section details HTLF's exposure to market risk, primarily interest rate risk, and its strategies for measurement and management. It includes interest rate sensitivity analyses and information on derivative financial instruments used to mitigate risk - HTLF's primary market risk is interest rate risk, managed through balance sheet strategies and regular reviews by asset/liability committees and the board of directors[279](index=279&type=chunk)[280](index=280&type=chunk) - Interest rate sensitivity analyses simulate net interest income changes under various rate scenarios[279](index=279&type=chunk)[280](index=280&type=chunk) Net Interest Margin Sensitivity Analysis (Dollars in millions) | Scenario | Year 1 Net Interest Margin (2023) | Year 1 % Change From Base (2023) | Year 2 Net Interest Margin (2023) | Year 2 % Change From Base (2023) | | :----------------------------------- | :-------------------------------- | :------------------------------- | :-------------------------------- | :------------------------------- | | Down 100 Basis Points | $610.23 | (1.00)% | $614.57 | (0.30)% | | Base | $616.42 | — | $637.16 | 3.36 | | Up 200 Basis Points | $627.22 | 1.75 | $650.26 | 5.49 | - HTLF uses derivative financial instruments to manage interest rate risk, primarily with large, stable financial institutions to minimize credit-related losses[263](index=263&type=chunk)[282](index=282&type=chunk) - Off-balance sheet financial instruments, such as commitments to extend credit (**$4.91 billion**) and standby letters of credit (**$72.8 million**), also involve credit and interest rate risk[263](index=263&type=chunk)[282](index=282&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=71&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management, including the CEO and CFO, concluded that HTLF's disclosure controls and procedures were effective as of June 30, 2023. No material changes in internal controls over financial reporting occurred during the period - HTLF's disclosure controls and procedures were effective as of June 30, 2023[284](index=284&type=chunk) - No material changes in internal controls over financial reporting occurred during the three months ended June 30, 2023[284](index=284&type=chunk) [PART II. OTHER INFORMATION](index=73&type=section&id=PART%20II.%20OTHER%20INFORMATION) Additional disclosures including legal proceedings, risk factors, equity sales, defaults, and other relevant information [ITEM 1. LEGAL PROCEEDINGS](index=73&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section states that HTLF and its subsidiaries are involved in ordinary routine litigation incidental to business as of June 30, 2023 - HTLF and its subsidiaries are currently involved in ordinary routine litigation incidental to business as of June 30, 2023[265](index=265&type=chunk)[286](index=286&type=chunk) [ITEM 1A. RISK FACTORS](index=73&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section confirms that there have been no material changes to the risk factors previously disclosed in HTLF's 2022 Annual Report on Form 10-K - No material changes have occurred in the risk factors applicable to HTLF since those disclosed in the 2022 Annual Report on Form 10-K[287](index=287&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=73&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section reports that HTLF made no purchases of its common stock during the quarter ended June 30, 2023, despite authorization to acquire up to 5% of capital - HTLF did not purchase any of its common stock during the quarter ended June 30, 2023, despite board authorization to acquire up to **5%** of capital (**$87.4 million** as of June 30, 2023)[288](index=288&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=73&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[289](index=289&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=73&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This section indicates that mine safety disclosures are not applicable to HTLF - Mine safety disclosures are not applicable to HTLF[289](index=289&type=chunk) [ITEM 5. OTHER INFORMATION](index=73&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This section discloses that a director, Marty Schmitz, entered into a 10b5-1 Plan on May 26, 2023, to sell up to 17,800 shares of HTLF's common stock - Marty Schmitz, a Director of HTLF, adopted a 10b5-1 Plan on May 26, 2023, to sell 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[289](index=289&type=chunk) [ITEM 6. EXHIBITS](index=74&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed with the Form 10-Q, including amended organizational documents, compensation plans, and certifications from executive officers - Exhibits include Amended and Restated Bylaws and Certificate of Incorporation, Directors Deferred Compensation Plan, an amendment to an agreement with Fiserv Solutions LLC, and certifications from the Chief Executive Officer and Chief Financial Officer[290](index=290&type=chunk) [SIGNATURES](index=75&type=section&id=SIGNATURES) Formal declaration by authorized officers confirming the accuracy and completeness of the report - The report was duly signed on behalf of Heartland Financial USA, Inc. by Bruce K. Lee (President and CEO), Bryan R. McKeag (EVP and CFO), and Janet M. Quick (EVP and Deputy CFO) on August 4, 2023[292](index=292&type=chunk)[293](index=293&type=chunk)

Financial Data and Key Metrics Changes - Net income available to common stockholders was $47.4 million, with an EPS of $1.11, negatively impacted by a $5.3 million charge-off and $1.5 million in premium write-offs [82] - Net interest income totaled $147.1 million, down $5.1 million from the prior quarter, with a net interest margin of 3.24%, a decrease of 16 basis points [14][86] - Total allowance for lending-related credit losses decreased by $4 million to $129.8 million, representing 1.1% of total loans [12] Business Line Data and Key Metrics Changes - Commercial and industrial loans increased by $92 million (3%), owner-occupied real estate by $86 million (4%), and non-owner-occupied real estate by $109 million (5%), while construction loans decreased by $89 million (8%) [3] - Consumer loan portfolio increased by $11 million (2%), while residential mortgages decreased by $13 million (2%) [9] - Total commercial and ag loans grew by $224 million (2%) from the linked quarter, with 58% of loan production being commercial and industrial and owner-occupied real estate [21][22] Market Data and Key Metrics Changes - Total deposits remained flat at $17.7 billion, with 66% of total balances insured or collateralized [8] - Customer demand accounts decreased from 35% to 34%, indicating a shift towards interest-bearing accounts [8] - The commercial pipeline remains strong at over $1 billion, with 60% in commercial and industrial and owner-occupied real estate [78] Company Strategy and Development Direction - The company is focused on executing growth strategies, adding new customers, and enhancing product offerings, particularly in commercial and small business sectors [83][67] - Bank charter consolidation is on schedule, with expectations to finish early in the fourth quarter, aiming for greater internal efficiency [79] - The company is actively recruiting talent and expanding its customer base, with a focus on maintaining stable credit quality [40][70] Management Comments on Operating Environment and Future Outlook - Management anticipates loan growth of $150 million to $200 million in the third quarter, funded primarily through customer deposit growth [15] - The provision for credit losses is projected to range from $3 million to $5 million per quarter, with expectations of a moderate recession impacting future provisions [90] - Management expressed confidence in the company's strategies and performance, highlighting strong loan growth and new customer relationships despite industry challenges [7][65] Other Important Information - The company approved a quarterly cash dividend of $0.30 per share, reflecting strength and stability [7] - Non-interest income increased by $2.5 million to $32.5 million, driven by strong capital markets fees [89] - The tangible common equity ratio increased to 5.86% at quarter end, indicating a strong capital position [27] Q&A Session Summary Question: What are the expectations for deposit beta? - Management hopes to return to a more normal deposit beta of around 30% for the next rate hikes, which would keep total customer deposits in the 25% to 30% range [92] Question: What is the status of charter consolidation savings? - The company has achieved significant savings from charter consolidation, with expectations to complete the process by the end of the year [93] Question: How is the company managing credit quality in the C&I portfolio? - The company is focusing on monitoring sectors that may be more vulnerable to downturns, such as contractors and construction-based firms [58]

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Heartland Financial USA, Inc.'s unaudited consolidated financial statements for the quarter ended March 31, 2023, including the balance sheets, statements of income, comprehensive income, cash flows, and changes in equity, along with accompanying notes. The financial information is prepared in accordance with U.S. GAAP for interim reporting and reflects all necessary adjustments for a fair presentation - Financial statements are unaudited and prepared in accordance with U.S. GAAP for interim financial reporting, reflecting all necessary adjustments for fair presentation[17](index=17&type=chunk) - During Q1 2023, HTLF reclassified swap and loan syndication income to 'capital markets fees' from 'other noninterest income' on the consolidated statements of income, with prior periods adjusted accordingly[18](index=18&type=chunk) [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) The consolidated balance sheets show a slight decrease in total assets and liabilities from December 31, 2022, to March 31, 2023, while total stockholders' equity increased. Key changes include a shift in deposit composition with a significant increase in time deposits and a decrease in demand and savings deposits | Metric (in thousands) | March 31, 2023 | December 31, 2022 | Change (QoQ) | % Change (QoQ) | | :-------------------- | :------------- | :---------------- | :----------- | :------------- | | **Assets:** | | | | | | Cash and cash equivalents | $362,111 | $363,087 | $(976) | (0.27)% | | Securities carried at fair value | $6,096,657 | $6,147,144 | $(50,487) | (0.82)% | | Loans receivable, net | $11,382,646 | $11,318,869 | $63,777 | 0.56% | | Total Assets | $20,182,544 | $20,244,228 | $(61,684) | (0.30)% | | **Liabilities:** | | | | | | Demand Deposits | $5,119,554 | $5,701,340 | $(581,786) | (10.20)% | | Savings Deposits | $9,256,609 | $9,994,391 | $(737,782) | (7.38)% | | Time Deposits | $3,305,183 | $1,817,278 | $1,487,905 | 81.87% | | Total Deposits | $17,681,346 | $17,513,009 | $168,337 | 0.96% | | Short-term borrowings | $92,337 | $376,117 | $(283,780) | (75.45)% | | Total Liabilities | $18,353,139 | $18,509,173 | $(156,034) | (0.84)% | | **Equity:** | | | | | | Total Stockholders' Equity | $1,829,405 | $1,735,055 | $94,350 | 5.44% | [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) The consolidated statements of income show a significant increase in net interest income and net income available to common stockholders for the three months ended March 31, 2023, compared to the same period in 2022, driven by higher interest income on loans and securities, despite a substantial rise in interest expense | Metric (in thousands, except per share) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | % Change (YoY) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----------- | :------------- | | Interest and fees on loans | $153,843 | $102,369 | $51,474 | 50.28% | | Interest on securities | $62,004 | $38,822 | $23,182 | 59.71% | | Total Interest Income | $216,978 | $141,262 | $75,716 | 53.60% | | Total Interest Expense | $64,766 | $6,583 | $58,183 | 883.85% | | Net Interest Income | $152,212 | $134,679 | $17,533 | 13.02% | | Provision for credit losses | $3,074 | $3,245 | $(171) | (5.27)% | | Total Noninterest Income | $29,999 | $34,569 | $(4,570) | (13.22)% | | Total Noninterest Expenses | $111,043 | $110,797 | $246 | 0.22% | | Net Income | $52,776 | $43,089 | $9,687 | 22.48% | | Net Income Available to Common Stockholders | $50,763 | $41,076 | $9,687 | 23.58% | | Earnings Per Common Share - Basic | $1.19 | $0.97 | $0.22 | 22.68% | | Earnings Per Common Share - Diluted | $1.19 | $0.97 | $0.22 | 22.68% | | Cash Dividends Declared Per Common Share | $0.30 | $0.27 | $0.03 | 11.11% | [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) The consolidated statements of comprehensive income show a significant positive shift from a comprehensive loss in Q1 2022 to a comprehensive income in Q1 2023, primarily due to a substantial net change in unrealized gains on available-for-sale securities | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | | :-------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Net Income | $52,776 | $43,089 | $9,687 | | Net change in unrealized gain (loss) on securities | $66,167 | $(378,690) | $444,857 | | Other comprehensive income (loss) | $53,087 | $(281,169) | $334,256 | | Total Comprehensive Income (Loss) | $105,863 | $(238,080) | $343,943 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The consolidated statements of cash flows indicate a decrease in net cash provided by operating activities but a significant positive swing in investing activities from net cash used to net cash provided. Financing activities shifted from providing cash to using cash, primarily due to changes in deposit types and short-term borrowings | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Net Cash Provided by Operating Activities | $74,432 | $83,779 | $(9,347) | | Net Cash Provided (Used) by Investing Activities | $54,576 | $(126,447) | $181,023 | | Net Cash (Used) Provided by Financing Activities | $(129,984) | $211,971 | $(341,955) | | Net (Decrease) Increase in Cash and Cash Equivalents | $(976) | $169,303 | $(170,279) | | Cash and Cash Equivalents at End of Period | $362,111 | $604,902 | $(242,791) | [Consolidated Statements of Changes in Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Equity) The consolidated statements of changes in equity show an increase in total equity from January 1, 2023, to March 31, 2023, primarily driven by comprehensive income, despite common and preferred dividends declared | Metric (in thousands) | Balance at January 1, 2023 | Balance at March 31, 2023 | Change (QoQ) | | :-------------------- | :------------------------- | :------------------------ | :----------- | | Preferred Stock | $110,705 | $110,705 | $0 | | Common Stock | $42,467 | $42,559 | $92 | | Capital Surplus | $1,080,964 | $1,084,112 | $3,148 | | Retained Earnings | $1,120,925 | $1,158,948 | $38,023 | | Accumulated Other Comprehensive Loss | $(620,006) | $(566,919) | $53,087 | | Total Equity | $1,735,055 | $1,829,405 | $94,350 | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed disclosures on the basis of presentation, significant accounting policies, and specific financial statement line items, including securities, loans, allowance for credit losses, goodwill, intangible assets, derivative instruments, fair value measurements, and stock compensation. They also cover recent accounting standard adoptions and subsequent events [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on HTLF's financial performance and condition for the first quarter of 2023, highlighting key operational results, responses to banking industry disruptions, strategic initiatives like charter consolidation, and detailed analysis of net interest income, noninterest income/expenses, credit quality, and capital adequacy - HTLF is a bank holding company operating under the brand name 'HTLF' with independently branded banks serving communities across 12 states[135](index=135&type=chunk) - HTLF's operations primarily depend on net interest income, supplemented by noninterest income from various financial services[136](index=136&type=chunk) - In response to Q1 2023 banking disruptions, HTLF proactively engaged large depositors, increased deposit pricing, strategically increased wholesale deposits, and enhanced liquidity access through Federal Reserve and FHLB systems[137](index=137&type=chunk) [SAFE HARBOR STATEMENT](index=37&type=section&id=SAFE%20HARBOR%20STATEMENT) This statement cautions readers that the report contains forward-looking statements regarding HTLF's future performance, which are subject to inherent uncertainties and risks. It advises against undue reliance on these statements and disclaims any obligation to update them - The report contains forward-looking statements identifiable by words like 'believe,' 'expect,' 'anticipate,' and 'plan,' which are based on management's beliefs and expectations[130](index=130&type=chunk) - Actual results may differ materially from forward-looking statements due to various risks, many beyond management's control, including economic, credit, liquidity, operational, strategic, legal, and stock ownership risks[130](index=130&type=chunk)[133](index=133&type=chunk) - HTLF does not undertake any obligation to publicly update or revise any forward-looking statements[131](index=131&type=chunk) [CRITICAL ACCOUNTING ESTIMATES](index=37&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) This section reiterates that financial statement preparation involves significant management estimates and judgments, particularly for asset and liability carrying values. It confirms no significant changes in critical accounting estimates or assumptions since December 31, 2022 - Financial statements require management estimates and judgments, which are based on historical experience and reasonable assumptions[132](index=132&type=chunk) - No significant changes in critical accounting estimates or the assumptions and judgments used since December 31, 2022[134](index=134&type=chunk) [OVERVIEW](index=38&type=section&id=OVERVIEW) HTLF operates as a bank holding company with six banks under 11 local brands across 12 states, focusing on commercial business supported by retail operations and diversified financial services. Its profitability is primarily driven by net interest income and noninterest income, offset by operating expenses and provision for credit losses - HTLF operates six banks under 11 local brands across Arizona, California, Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Montana, New Mexico, Texas, and Wisconsin, with 119 locations as of March 31, 2023[135](index=135&type=chunk) - HTLF's core business is commercial, supported by retail operations, offering diversified financial services including treasury management, commercial credit cards, wealth management, investments, and residential mortgages[135](index=135&type=chunk) - Results of operations depend primarily on net interest income (interest income minus interest expense) and noninterest income (service charges, loan servicing, trust fees, etc.), offset by provision for credit losses and various noninterest expenses[136](index=136&type=chunk) [HTLF Response to Recent Banking Industry Disruptions](index=38&type=section&id=HTLF%20Response%20to%20Recent%20Banking%20Industry%20Disruptions) In response to Q1 2023 banking industry disruptions, HTLF implemented several measures to manage liquidity and deposit stability. These included proactive engagement with large depositors, adjusting deposit pricing, increasing wholesale deposits, and expanding access to borrowing capacity through federal programs - Proactively reached out to over 1,000 large depositors to facilitate additional FDIC insurance through Insured Cash Sweep (ICS) and Certificate of Deposit Registry Service (CDARS) products[137](index=137&type=chunk) - Increased deposit pricing to address the competitive deposit environment and strategically increased wholesale deposits to reduce short-term borrowings[137](index=137&type=chunk) - Increased access to liquidity sources through the Federal Reserve and FHLB system by **$1.68 billion**, with total borrowing capacity of **$2.76 billion** as of March 31, 2023, of which no balance was drawn[137](index=137&type=chunk) - Retail deposit campaign resulted in over 8,000 new consumer accounts opened[137](index=137&type=chunk) - As of March 31, 2023, **35% of HTLF's deposits were uninsured and uncollateralized**[137](index=137&type=chunk) - HTLF's capital ratios substantially exceeded well-capitalized thresholds, and management believes they would withstand regulatory changes requiring inclusion of unrealized losses[137](index=137&type=chunk) - Subsequent to March 31, 2023, HTLF repositioned hedges and entered new swaps totaling approximately **$1.34 billion** to protect against unrealized securities losses from higher mid-to-long term interest rates[137](index=137&type=chunk) [Overview of First Quarter 2023 Results](index=38&type=section&id=Overview%20of%20First%20Quarter%202023%20Results) HTLF reported strong financial performance in Q1 2023 compared to Q1 2022, with significant increases in net income, EPS, and net interest income. Asset and deposit bases grew modestly, while capital ratios remained strong, exceeding well-capitalized thresholds | Metric | Q1 2023 | Q1 2022 | Change (YoY) | % Change (YoY) | | :------------------------------------ | :------ | :------ | :----------- | :------------- | | Net income available to common stockholders | $50.8M | $41.1M | $9.7M | 24% | | Earnings per diluted common share | $1.19 | $0.97 | $0.22 | 23% | | Net interest income | $152.2M | $134.7M | $17.5M | 13% | | Return on average assets | 1.06% | 0.91% | 0.15 pp | 16.48% | | Return on average common equity | 12.43% | 8.32% | 4.11 pp | 49.40% | | Return on average tangible common equity (non-GAAP) | 20.05% | 12.41% | 7.64 pp | 61.56% | | Net interest margin (GAAP) | 3.36% | 3.08% | 0.28 pp | 9.09% | | Net interest margin, fully tax-equivalent (non-GAAP) | 3.40% | 3.12% | 0.28 pp | 8.97% | | Efficiency ratio (GAAP) | 60.94% | 65.46% | (4.52) pp | (6.91)% | | Adjusted efficiency ratio, fully tax-equivalent (non-GAAP) | 57.16% | 64.65% | (7.49) pp | (11.59)% | - Total assets decreased slightly by less than **1% to $20.18 billion** at March 31, 2023, from **$20.24 billion** at December 31, 2022[143](index=143&type=chunk) - Total loans held to maturity increased by **1% to $11.50 billion** at March 31, 2023, from **$11.43 billion** at December 31, 2022[143](index=143&type=chunk) - Total deposits increased by **1% to $17.68 billion** at March 31, 2023, from **$17.51 billion** at December 31, 2022[144](index=144&type=chunk) - Total equity increased to **$1.83 billion** at March 31, 2023, from **$1.74 billion** at December 31, 2022, with book value per common share rising to **$40.38** from **$38.25**[145](index=145&type=chunk) - Unrealized loss on available-for-sale securities, net of taxes, improved to **$568.2 million** at March 31, 2023, from **$619.2 million** at December 31, 2022[145](index=145&type=chunk) [2023 Developments](index=39&type=section&id=2023%20Developments) HTLF initiated strategic developments in Q1 2023, including the sale of its mortgage servicing rights portfolio and an agreement to sell its Retirement Plan Services business. A post-quarter overdraft event with a single customer resulted in a potential credit exposure of $5.3-$7.0 million - Dubuque Bank & Trust (HTLF subsidiary) agreed to sell and transfer its Retirement Plan Services business to July Business Services, expected to complete in Q2 2023[147](index=147&type=chunk) - First Bank & Trust (HTLF subsidiary) sold its mortgage servicing rights portfolio, comprising approximately 4,500 loans with an unpaid principal balance of **$698.5 million**, on March 31, 2023[148](index=148&type=chunk) - Subsequent to Q1 2023, one bank experienced a **$5.3 million** overdraft from a single long-term customer, with a potential credit exposure range of **$5.3-$7.0 million**[149](index=149&type=chunk) [Charter Consolidation Update](index=40&type=section&id=Charter%20Consolidation%20Update) HTLF continued its charter consolidation project in Q1 2023, with Wisconsin Bank & Trust and Bank of Blue Valley consolidating into HTLF Bank. This initiative aims to eliminate redundancies, improve operating efficiency, and is projected to generate approximately $20 million in annual benefits upon completion by the end of 2023 - Wisconsin Bank & Trust was consolidated into HTLF Bank during Q1 2023; Bank of Blue Valley was consolidated subsequent to March 31, 2023[151](index=151&type=chunk) - Seven charters are now operating as divisions of HTLF Bank, with the remaining four expected to consolidate by the end of 2023[151](index=151&type=chunk)[196](index=196&type=chunk) - Consolidation restructuring costs are projected at **$19-$20 million**, with **$8-$9 million** remaining in 2023. Total costs incurred through March 31, 2023, were **$11.0 million**, with **$1.7 million** in Q1 2023[152](index=152&type=chunk)[197](index=197&type=chunk) - The project is designed to eliminate redundancies, improve operating efficiency, and is projected to generate approximately **$20 million** annually in benefits upon completion[152](index=152&type=chunk)[197](index=197&type=chunk) [FINANCIAL HIGHLIGHTS](index=40&type=section&id=FINANCIAL%20HIGHLIGHTS) HTLF's financial highlights for Q1 2023 show improved profitability metrics, including higher net income and returns on equity, alongside a stronger tangible common equity ratio. Total assets and deposits remained relatively stable, while the allowance for credit losses increased | Metric (in thousands, except per share) | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | | :------------------------------------ | :------------- | :---------------- | :----------------- | :------------ | :------------- | | **Statement of Income Data (QoQ):** | | | | | | | Net income available to common stockholders | $50,763 | N/A | N/A | N/A | $41,076 | | **Key Performance Ratios (QoQ):** | | | | | | | Annualized return on average assets | 1.06% | N/A | N/A | N/A | 0.91% | | Annualized return on average common equity (GAAP) | 12.43% | N/A | N/A | N/A | 8.32% | | Annualized net interest margin (GAAP) | 3.36% | N/A | N/A | N/A | 3.08% | | Efficiency ratio (GAAP) | 60.94% | N/A | N/A | N/A | 65.46% | | **Balance Sheet Data (Period End):** | | | | | | | Investments | $7,001,119 | $7,051,114 | $6,970,864 | $7,274,056 | $7,189,779 | | Loans receivable held to maturity | $11,495,353 | $11,428,352 | $10,923,532 | $10,678,218 | $10,177,385 | | Allowance for credit losses | $112,707 | $109,483 | $105,715 | $101,353 | $100,522 | | Total assets | $20,182,544 | $20,244,228 | $19,682,950 | $19,658,399 | $19,230,879 | | Total deposits | $17,681,346 | $17,513,009 | $17,267,121 | $17,225,550 | $16,666,684 | | Common equity | $1,718,700 | $1,624,350 | $1,545,253 | $1,663,363 | $1,821,152 | | **Common Share Data (Period End):** | | | | | | | Book value per common share (GAAP) | $40.38 | $38.25 | $36.41 | $39.19 | $42.98 | | Tangible book value per common share (non-GAAP) | $26.30 | $24.09 | $22.20 | $24.94 | $28.66 | | Tangible common equity ratio (non-GAAP) | 5.72% | 5.21% | 4.94% | 5.56% | 6.52% | | Adjusted tangible common equity ratio (non-GAAP) | 8.61% | 8.37% | 8.35% | 8.11% | 8.06% | [Non-GAAP Reconciliations](index=41&type=section&id=Non-GAAP%20Reconciliations) This section provides reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures, including tangible book value per common share, tangible common equity ratio, adjusted tangible common equity ratio, annualized return on average tangible common equity, annualized net interest margin (fully tax-equivalent), adjusted efficiency ratio (fully tax-equivalent), and annualized ratio of core expenses to average assets. These non-GAAP measures are used by management to analyze and evaluate financial condition and operating results, enhancing comparability and excluding specific items - Non-GAAP measures are used to analyze and evaluate HTLF's financial condition and operating results, despite inherent limitations[160](index=160&type=chunk) - Key non-GAAP measures include annualized net interest margin (fully tax-equivalent), adjusted efficiency ratio (fully tax equivalent), tangible book value per common share, tangible common equity ratio, and adjusted tangible common equity ratio[161](index=161&type=chunk) - The adjusted tangible common equity ratio, which excludes accumulated other comprehensive loss, increased to **8.61%** at March 31, 2023, from **8.37%** at December 31, 2022[157](index=157&type=chunk) [RESULTS OF OPERATIONS](index=44&type=section&id=RESULTS%20OF%20OPERATIONS) HTLF's results of operations for Q1 2023 were characterized by a significant increase in net interest income due to higher interest rates and earning asset growth, partially offset by increased interest expense. Noninterest income decreased, while noninterest expenses remained relatively stable, leading to improved profitability and efficiency ratios [Net Interest Margin and Net Interest Income](index=44&type=section&id=Net%20Interest%20Margin%20and%20Net%20Interest%20Income) Net interest income increased by 13% year-over-year, driven by a 54% rise in total interest income from higher average earning assets and yields, despite an 884% surge in total interest expense due to increased rates on interest-bearing liabilities. The net interest margin improved to 3.36% (3.40% FTE) in Q1 2023 from 3.08% (3.12% FTE) in Q1 2022 - Net interest income increased by **$17.5 million (13%)** to **$152.2 million** in Q1 2023 compared to **$134.7 million** in Q1 2022[167](index=167&type=chunk) - Total interest income rose by **$75.7 million (54%)** to **$217.0 million**, primarily due to a **4%** increase in average earning assets and a **156 basis point** increase in the average rate on earning assets to **4.83%**[167](index=167&type=chunk) - Total interest expense surged by **$58.2 million** from **$6.6 million** to **$64.8 million**, driven by a **183 basis point** increase in the average interest rate paid on interest-bearing liabilities to **2.09%**[167](index=167&type=chunk) - Net interest margin (GAAP) improved to **3.36%** in Q1 2023 from **3.08%** in Q1 2022; on a fully tax-equivalent basis (non-GAAP), it increased to **3.40%** from **3.12%**[164](index=164&type=chunk) - Average interest-bearing deposits increased by **$2.03 billion (20%)** to **$11.99 billion**, including a **$1.04 billion** increase in wholesale deposits[167](index=167&type=chunk) [Provision For Credit Losses](index=47&type=section&id=Provision%20For%20Credit%20Losses) The provision for credit losses for loans decreased by 17% year-over-year to $2.2 million in Q1 2023, influenced by specific individually assessed loans, a shift to net recoveries from net charge-offs, and a macroeconomic outlook anticipating a moderate recession. The total provision for credit losses was $3.1 million | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | % Change (YoY) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----------- | :------------- | | Provision expense for credit losses-loans | $2,184 | $2,628 | $(444) | (16.89)% | | Provision expense for credit losses-unfunded commitments | $890 | $617 | $273 | 44.25% | | Total provision expense | $3,074 | $3,245 | $(171) | (5.27)% | - Provision expense for individually assessed loans totaled **$2.5 million** in Q1 2023[176](index=176&type=chunk) - Q1 2022 provision was negatively impacted by **$9.2 million** in charge-offs related to two lending relationships with collateral deficiencies due to customer fraud[176](index=176&type=chunk) - Net recoveries of **$1.0 million** in Q1 2023 compared to net charge-offs of **$12.2 million** in Q1 2022[176](index=176&type=chunk) - The macroeconomic outlook used in Q1 2023 anticipated a moderate recession within the next twelve months, compared to an improved outlook in Q1 2022[176](index=176&type=chunk) [Noninterest Income](index=48&type=section&id=Noninterest%20Income) Total noninterest income decreased by 13% year-over-year to $30.0 million in Q1 2023, primarily due to lower net gains on sale of loans held for sale, net security losses, and the absence of a valuation adjustment on servicing rights. This was partially offset by increases in service charges and fees, loan servicing income, and income on bank-owned life insurance | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | % Change (YoY) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----------- | :------------- | | Service charges and fees | $17,136 | $15,251 | $1,885 | 12% | | Loan servicing income | $714 | $286 | $428 | 150% | | Trust fees | $5,657 | $6,079 | $(422) | (7)% | | Brokerage and insurance commissions | $696 | $869 | $(173) | (20)% | | Capital markets fees | $2,449 | $3,039 | $(590) | (19)% | | Securities (losses)/gains, net | $(1,104) | $2,872 | $(3,976) | (138)% | | Unrealized gain/(loss) on equity securities, net | $193 | $(283) | $476 | 168% | | Net gains on sale of loans held for sale | $1,831 | $3,411 | $(1,580) | (46)% | | Valuation adjustment on servicing rights | $0 | $1,658 | $(1,658) | (100)% | | Income on bank owned life insurance | $964 | $524 | $440 | 84% | | Other noninterest income | $1,463 | $863 | $600 | 70% | | Total noninterest income | $29,999 | $34,569 | $(4,570) | (13)% | [Service Charges and Fees](index=48&type=section&id=Service%20Charges%20and%20Fees) Service charges and fees increased by 12% year-over-year to $17.1 million in Q1 2023, primarily driven by a larger customer base for deposit accounts and increased commercial credit card utilization | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | % Change (YoY) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----------- | :------------- | | Service charges and fees on deposit accounts | $4,911 | $4,395 | $516 | 12% | | Overdraft fees | $2,969 | $2,825 | $144 | 5% | | Credit card fee income | $7,003 | $5,649 | $1,354 | 24% | | Debit card income | $2,160 | $2,301 | $(141) | (6)% | | Total service charges and fees | $17,136 | $15,251 | $1,885 | 12% | - Increase in service charges and fees on deposit accounts was due to a larger customer base[180](index=180&type=chunk) - Increase in credit card fee income was due to a larger commercial credit card customer base and increased utilization[180](index=180&type=chunk) [Loan Servicing Income](index=48&type=section&id=Loan%20Servicing%20Income) Loan servicing income significantly increased by 150% year-over-year to $714,000 in Q1 2023, primarily driven by a 100% increase in commercial and agricultural loan servicing fees and a 48% decrease in mortgage servicing rights amortization | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | % Change (YoY) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----------- | :------------- | | Commercial and agricultural loan servicing fees | $473 | $237 | $236 | 100% | | Residential mortgage servicing fees | $451 | $454 | $(3) | (1)% | | Mortgage servicing rights amortization | $(210) | $(405) | $195 | 48% | | Total loan servicing income | $714 | $286 | $428 | 150% | [Securities Losses/Gains, Net](index=49&type=section&id=Securities%20Losses%2FGains%2C%20Net) HTLF recorded net security losses of $1.1 million in Q1 2023, a significant decrease of $4.0 million compared to net gains of $2.9 million in Q1 2022 | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | | :-------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Net security losses (gains) | $(1,104) | $2,872 | $(3,976) | [Net Gains on Sale of Loans Held for Sale](index=49&type=section&id=Net%20Gains%20on%20Sale%20of%20Loans%20Held%20for%20Sale) Net gains on sale of loans held for sale decreased by 46% year-over-year to $1.8 million in Q1 2023, primarily due to a 61% reduction in residential mortgage loan sales to investors | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | % Change (YoY) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----------- | :------------- | | Net gains on sale of loans held for sale | $1,831 | $3,411 | $(1,580) | (46)% | | Loans sold to investors | $38,100 | $98,300 | $(60,200) | (61)% | - The decrease in net gains was primarily attributable to a reduction in residential mortgage activity due to recent increases in residential mortgage loan interest rates[185](index=185&type=chunk) [Valuation Adjustment on Servicing Rights](index=49&type=section&id=Valuation%20Adjustment%20on%20Servicing%20Rights) No valuation adjustment on servicing rights was recorded in Q1 2023, compared to a $1.7 million adjustment in Q1 2022, as HTLF sold its mortgage servicing rights portfolio in Q1 2023 | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | | :-------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Valuation adjustment on servicing rights | $0 | $1,658 | $(1,658) | - HTLF sold its mortgage servicing rights portfolio in Q1 2023, resulting in no valuation adjustment[186](index=186&type=chunk) - The valuation allowance was recovered in Q1 2022 due to increases in residential mortgage loan interest rates[186](index=186&type=chunk) [Noninterest Expenses](index=49&type=section&id=Noninterest%20Expenses) Total noninterest expenses remained relatively stable, increasing by less than 1% year-over-year to $111.0 million in Q1 2023. This was driven by higher professional fees (due to FDIC assessments), losses on asset sales/valuations, and acquisition/restructuring costs, largely offset by decreases in salaries and employee benefits, occupancy, and furniture and equipment expenses | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | % Change (YoY) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----------- | :------------- | | Salaries and employee benefits | $62,149 | $66,174 | $(4,025) | (6)% | | Occupancy | $7,209 | $7,362 | $(153) | (2)% | | Furniture and equipment | $2,915 | $3,519 | $(604) | (17)% | | Professional fees | $16,076 | $15,156 | $920 | 6% | | Advertising | $1,985 | $1,555 | $430 | 28% | | Core deposit and customer relationship intangibles amortization | $1,788 | $2,054 | $(266) | (13)% | | Loss on sales/valuations of assets, net | $1,115 | $46 | $1,069 | 2324% | | Acquisition, integration and restructuring costs | $1,673 | $576 | $1,097 | 190% | | Partnership investment in tax credit projects | $538 | $77 | $461 | 599% | | Other noninterest expenses | $15,440 | $14,083 | $1,357 | 10% | | Total noninterest expenses | $111,043 | $110,797 | $246 | 0% | [Salaries and Employee Benefits](index=49&type=section&id=Salaries%20and%20Employee%20Benefits) Salaries and employee benefits decreased by 6% year-over-year to $62.1 million in Q1 2023, primarily due to a reduction of 217 full-time equivalent employees and lower incentive compensation expense | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | % Change (YoY) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----------- | :------------- | | Salaries and employee benefits | $62,149 | $66,174 | $(4,025) | (6)% | | Full-time equivalent employees | 1,991 | 2,208 | (217) | (10)% | [Occupancy](index=50&type=section&id=Occupancy) Occupancy expense decreased by 2% year-over-year to $7.2 million in Q1 2023, primarily due to a reduced number of branch locations as part of HTLF's branch optimization strategy | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | % Change (YoY) | | :-------------------- | :-------------------------------- | :-------------------------------- | :----------- | :------------- | | Occupancy expense | $7,209 | $7,362 | $(153) | (2)% | | Number of branches | 119 | 130 | (11) | (8.46)% | [Furniture and Equipment](index=50&type=section&id=Furniture%20and%20Equipment) Furniture and equipment expense decreased by 17% year-over-year to $2.9 million in Q1 2023, also attributed to the branch optimization strategy and fewer branch locations | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | % Change (YoY) | | :-------------------- | :-------------------------------- | :-------------------------------- | :----------- | :------------- | | Furniture and equipment expense | $2,915 | $3,519 | $(604) | (17)% | - Decreases in occupancy and furniture/equipment expenses are primarily attributable to the decreased number of branch locations as a result of HTLF's branch optimization strategy[191](index=191&type=chunk) [Professional Fees](index=50&type=section&id=Professional%20Fees) Professional fees increased by 6% year-over-year to $16.1 million in Q1 2023, primarily due to a $1.7 million increase in FDIC insurance assessments | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | % Change (YoY) | | :-------------------- | :-------------------------------- | :-------------------------------- | :----------- | :------------- | | Professional fees | $16,076 | $15,156 | $920 | 6% | | FDIC insurance assessments | $3,300 | $1,600 | $1,700 | 106.25% | [Loss on sales/valuations of assets, net](index=50&type=section&id=Loss%20on%20sales%2Fvaluations%20of%20assets%2C%20net) Net losses on sales/valuations of assets significantly increased to $1.1 million in Q1 2023 from $46,000 in Q1 2022, primarily due to losses on fixed assets from branch optimization and the sale of the mortgage servicing rights portfolio | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | % Change (YoY) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----------- | :------------- | | Loss on sales/valuations of assets, net | $1,115 | $46 | $1,069 | 2324% | - Losses included **$813,000** on fixed assets from branch optimization activities and **$193,000** from the sale of the mortgage servicing rights portfolio[193](index=193&type=chunk) [Acquisition, integration and restructuring costs](index=50&type=section&id=Acquisition%2C%20integration%20and%20restructuring%20costs) Acquisition, integration, and restructuring costs increased by 190% year-over-year to $1.7 million in Q1 2023, driven by the ongoing charter consolidation project | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | % Change (YoY) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----------- | :------------- | | Acquisition, integration and restructuring costs | $1,673 | $576 | $1,097 | 190% | - The increase is due to the progression of the charter consolidation project, which will continue through the end of 2023[194](index=194&type=chunk) [Efficiency Ratio](index=50&type=section&id=Efficiency%20Ratio) HTLF's efficiency ratio improved to 60.94% (57.16% adjusted fully tax-equivalent) in Q1 2023 from 65.46% (64.65% adjusted fully tax-equivalent) in Q1 2022. The company continues to pursue strategies like charter consolidation and branch optimization to achieve its goal of maintaining an adjusted efficiency ratio at or below 57% | Metric | Q1 2023 | Q1 2022 | Change (YoY) | % Change (YoY) | | :------------------------------------ | :------ | :------ | :----------- | :------------- | | Efficiency ratio (GAAP) | 60.94% | 65.46% | (4.52) pp | (6.91)% | | Adjusted efficiency ratio, fully tax-equivalent (non-GAAP) | 57.16% | 64.65% | (7.49) pp | (11.59)% | - HTLF's strategic priority is to improve its adjusted efficiency ratio (fully tax-equivalent) to at or below **57%**[195](index=195&type=chunk) - Ongoing initiatives include charter consolidation (six charters consolidated by Q1 2023, one more post-quarter, remaining by end of 2023) and branch optimization (anticipating 2-3 branch closures in 2023)[196](index=196&type=chunk)[198](index=198&type=chunk) - Charter consolidation is projected to generate approximately **$20 million** annually in benefits, with core operating expenses expected to decline to **2.10% or less** of average assets[197](index=197&type=chunk) [Income Taxes](index=50&type=section&id=Income%20Taxes) The effective tax rate for Q1 2023 was 22.50%, slightly higher than 21.95% in Q1 2022. This was influenced by various tax credits (solar energy, low-income housing, new markets, historic rehabilitation), changes in tax-exempt interest income, and tax benefits/expenses related to stock-based compensation and disallowed interest expense | Tax Item | Q1 2023 Impact | Q1 2022 Impact | | :------------------------------------ | :------------- | :------------- | | Effective tax rate | 22.50% | 21.95% | | Solar energy tax credits | $310,000 | $0 | | Federal low-income housing tax credits | $311,000 | $135,000 | | New markets tax credits | $90,000 | $75,000 | | Historic rehabilitation tax credits | $258,000 | $63,000 | | Tax-exempt interest income (% of pre-tax income) | 12.20% | 14.44% | | Tax benefit from stock-based compensation | $46,000 | $172,000 | | Tax expense from disallowed interest expense | $929,000 | $58,000 | [FINANCIAL CONDITION](index=51&type=section&id=FINANCIAL%20CONDITION) HTLF's financial condition at March 31, 2023, showed stable total assets, modest loan growth driven by commercial and real estate sectors, and an increased allowance for credit losses. Deposit composition shifted towards time deposits, while short-term borrowings decreased significantly. Capital ratios remained strong, exceeding well-capitalized thresholds, and liquidity was maintained through diverse funding sources - Total assets were **$20.18 billion** at March 31, 2023, a decrease of **$61.7 million (less than 1%)** from December 31, 2022[200](index=200&type=chunk) - Securities represented **35%** of total assets at both March 31, 2023, and December 31, 2022[200](index=200&type=chunk) [LENDING ACTIVITIES](index=51&type=section&id=LENDING%20ACTIVITIES) Total loans held to maturity increased by 1% to $11.50 billion at March 31, 2023, driven primarily by growth in commercial, owner-occupied commercial real estate, non-owner occupied commercial real estate, and real estate construction loans. This growth was partially offset by a decrease in agricultural and residential mortgage loans | Loan Category (in thousands) | March 31, 2023 | December 31, 2022 | Change (QoQ) | % Change (QoQ) | | :------------------------------------ | :------------- | :---------------- | :----------- | :------------- | | Commercial and industrial | $3,498,345 | $3,464,414 | $33,931 | 1% | | Paycheck Protection Program ("PPP") | $8,258 | $11,025 | $(2,767) | (25)% | | Owner occupied commercial real estate | $2,312,538 | $2,265,307 | $47,231 | 2% | | Non-owner occupied commercial real estate | $2,421,341 | $2,330,940 | $90,401 | 4% | | Real estate construction | $1,102,186 | $1,076,082 | $26,104 | 2% | | Agricultural and agricultural real estate | $810,183 | $920,510 | $(110,327) | (12)% | | Residential mortgage | $841,084 | $853,361 | $(12,277) | (1)% | | Consumer | $501,418 | $506,713 | $(5,295) | (1)% | | Total loans held to maturity | $11,495,353 | $11,428,352 | $67,001 | 1% | - Loan growth was attributed to an emphasis on organic growth, expansion of commercial and agribusiness lending teams, and market penetration in HTLF growth markets[202](index=202&type=chunk) - Agricultural and agricultural real estate loans decreased due to paydowns of credit lines and delayed utilization, primarily from weather concerns in California markets[204](index=204&type=chunk) [ALLOWANCE FOR CREDIT LOSSES](index=52&type=section&id=ALLOWANCE%20FOR%20CREDIT%20LOSSES) The total allowance for lending related credit losses increased to $133.8 million (1.16% of loans) at March 31, 2023, from $129.7 million (1.13% of loans) at December 31, 2022. This increase was driven by a rise in both quantitative and qualitative components, reflecting a macroeconomic outlook anticipating a moderate recession - Total allowance for lending related credit losses was **$133.8 million (1.16% of loans)** at March 31, 2023, up from **$129.7 million (1.13% of loans)** at December 31, 2022[207](index=207&type=chunk) - The quantitative allowance increased by **$2.1 million (2%)** to **$86.5 million**, with specific reserves for individually assessed loans rising by **$2.5 million (35%)** to **$9.6 million**[208](index=208&type=chunk) - The qualitative allowance totaled **$47.3 million (35% of total allowance)**, reflecting a macroeconomic outlook anticipating a moderate recession[209](index=209&type=chunk)[210](index=210&type=chunk) | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----------- | | Balance at beginning of period | $109,483 | $110,088 | $(605) | | Provision for credit losses | $2,184 | $2,628 | $(444) | | Recoveries on loans previously charged off | $3,191 | $1,023 | $2,168 | | Charge-offs on loans | $(2,151) | $(13,217) | $11,066 | | Balance at end of period | $112,707 | $100,522 | $12,185 | | Allowance for credit losses for loans as a percent of loans | 0.98% | 0.99% | (0.01) pp | | Annualized ratio of net charge offs/(recoveries) to average loans | (0.04)% | 0.49% | (0.53) pp | - The allowance for unfunded commitments increased to **$21.1 million** at March 31, 2023, from **$20.2 million** at December 31, 2022, corresponding to a **3%** increase in unfunded commitments to **$4.87 billion**[213](index=213&type=chunk) [CREDIT QUALITY AND NONPERFORMING ASSETS](index=53&type=section&id=CREDIT%20QUALITY%20AND%20NONPERFORMING%20ASSETS) HTLF's credit quality showed a slight increase in nonpass loans, which totaled $546.8 million (4.8% of total loans) at March 31, 2023. Total nonperforming assets decreased by 2% to $65.7 million (0.33% of total assets), with nonperforming loans remaining stable at 0.51% of total loans - Nonpass loans increased by **$13.5 million (3%)** to **$546.8 million (4.8% of total loans)** at March 31, 2023, from **$533.3 million (4.7% of total loans)** at December 31, 2022[215](index=215&type=chunk)[216](index=216&type=chunk) - Nonpass loans consisted of approximately **49% watch loans** and **51% substandard loans** at March 31, 2023[215](index=215&type=chunk) - Total nonperforming assets decreased by **$1.2 million (2%)** to **$65.7 million (0.33% of total assets)** at March 31, 2023, from **$66.9 million (0.33% of total assets)** at December 31, 2022[218](index=218&type=chunk) | Metric (in thousands) | March 31, 2023 | December 31, 2022 | Change (QoQ) | % Change (QoQ) | | :------------------------------------ | :------------- | :---------------- | :----------- | :------------- | | Nonaccrual loans | $58,066 | $58,231 | $(165) | (0.28)% | | Loans contractually past due 90 days or more | $174 | $273 | $(99) | (36.26)% | | Total nonperforming loans | $58,240 | $58,504 | $(264) | (0.45)% | | Other real estate | $7,438 | $8,401 | $(963) | (11.46)% | | Other repossessed assets | $24 | $26 | $(2) | (7.69)% | | Total nonperforming assets | $65,702 | $66,931 | $(1,229) | (1.84)% | | Nonperforming loans to total loans | 0.51% | 0.51% | 0.00 pp | 0.00% | | Nonperforming assets to total assets | 0.33% | 0.33% | 0.00 pp | 0.00% | - Approximately **$40.0 million (69%)** of nonperforming loans at March 31, 2023, had individual balances exceeding **$1.0 million**, spread across fifteen borrowers[218](index=218&type=chunk) [SECURITIES](index=54&type=section&id=SECURITIES) The securities portfolio, representing 35% of total assets, decreased slightly to $6.10 billion at March 31, 2023. HTLF pledged an additional $1.48 billion in securities to increase borrowing capacity, bringing total pledged securities to $2.96 billion, with $3.83 billion remaining available to pledge - Total securities carried at fair value decreased by **$50.5 million (1%)** to **$6.10 billion** at March 31, 2023, from **$6.15 billion** at December 31, 2022[219](index=219&type=chunk) - Securities represented **35%** of total assets at both March 31, 2023, and December 31, 2022[219](index=219&type=chunk) - HTLF pledged an additional **$1.48 billion** in securities, bringing total pledged securities to **$2.96 billion** at March 31, 2023 (up from **$1.49 billion** at Dec 31, 2022), to secure public/trust deposits and short-term borrowings[220](index=220&type=chunk) - Approximately **$3.83 billion** of securities remained available to pledge as of March 31, 2023[220](index=220&type=chunk) - The securities portfolio had an expected modified duration of **6.19 years** at both March 31, 2023, and December 31, 2022[221](index=221&type=chunk) [DEPOSITS](index=55&type=section&id=DEPOSITS) Total deposits increased by 1% to $17.68 billion at March 31, 2023. This was driven by a significant 82% increase in time deposits, particularly wholesale time deposits, which offset decreases in demand and savings deposits. As of March 31, 2023, 35% of deposits were uninsured and uncollateralized, but HTLF maintains a granular and diverse deposit base | Deposit Type (in thousands) | March 31, 2023 | December 31, 2022 | Change (QoQ) | % Change (QoQ) | | :------------------------------------ | :------------- | :---------------- | :----------- | :------------- | | Demand-customer | $5,119,554 | $5,701,340 | $(581,786) | (10)% | | Savings-customer | $8,647,396 | $8,903,747 | $(256,351) | (3)% | | Savings-wholesale | $609,213 | $1,090,644 | $(481,431) | (44)% | | Total savings | $9,256,609 | $9,994,391 | $(737,782) | (7)% | | Time-customer | $1,071,476 | $851,539 | $219,937 | 26% | | Time-wholesale | $2,233,707 | $965,739 | $1,267,968 | 131% | | Total time | $3,305,183 | $1,817,278 | $1,487,905 | 82% | | Total deposits | $17,681,346 | $17,513,009 | $168,337 | 1% | | Total customer deposits | $14,838,426 | $15,456,626 | $(618,200) | (4)% | | Total wholesale deposits | $2,842,920 | $2,056,383 | $786,537 | 38% | - As of March 31, 2023, **35% of HTLF's deposits were uninsured and uncollateralized**[223](index=223&type=chunk) - HTLF maintains a granular and diverse deposit base, with no Bank Market representing more than **12%** and no major industry more than **10%** of total customer deposits[223](index=223&type=chunk) [SHORT-TERM BORROWINGS](index=56&type=section&id=SHORT-TERM%20BORROWINGS) Short-term borrowings significantly decreased by 75% to $92.3 million at March 31, 2023, from $376.1 million at December 31, 2022. This reduction was primarily due to decreases in advances from the FHLB and the federal discount window, partially offset by an increase in other short-term borrowings | Short-term Borrowing (in thousands) | March 31, 2023 | December 31, 2022 | Change (QoQ) | % Change (QoQ) | | :------------------------------------ | :------------- | :---------------- | :----------- | :------------- | | Securities sold under agreement to repurchase | $81,641 | $95,303 | $(13,662) | (14)% | | Advances from the FHLB | $1,000 | $50,000 | $(49,000) | (98)% | | Advances from the federal discount window | $0 | $224,000 | $(224,000) | (100)% | | Other short-term borrowings | $9,696 | $6,814 | $2,882 | 42% | | Total | $92,337 | $376,117 | $(283,780) | (75)% | - The Banks pledged securities providing **$476.9 million** in borrowing capacity to the BTFP (Federal Reserve Bank program), with no advances drawn in Q1 2023[227](index=227&type=chunk) - HTLF renewed its **$100.0 million** revolving credit line agreement, with no outstanding balance at March 31, 2023[229](index=229&type=chunk) [OTHER BORROWINGS](index=57&type=section&id=OTHER%20BORROWINGS) Other borrowings, defined as those with original maturities over one year, remained stable at $372.1 million at March 31, 2023. This category primarily consists of trust preferred securities and subordinated notes | Other Borrowing (in thousands) | March 31, 2023 | December 31, 2022 | Change (QoQ) | % Change (QoQ) | | :------------------------------------ | :------------- | :---------------- | :----------- | :------------- | | Advances from the FHLB | $710 | $740 | $(30) | (4)% | | Trust preferred securities | $148,565 | $148,284 | $281 | 0% | | Contracts payable | $80 | $82 | $(2) | (2)% | | Subordinated notes | $222,742 | $222,647 | $95 | 0% | | Total | $372,097 | $371,753 | $344 | 0% | - The effective weighted average interest rate for trust preferred securities was **7.60%** as of March 31, 2023[230](index=230&type=chunk) [CAPITAL REQUIREMENTS](index=57&type=section&id=CAPITAL%20REQUIREMENTS) HTLF and its Banks remained well-capitalized at March 31, 2023, with capital ratios substantially exceeding regulatory minimums. Management believes these buffers would withstand potential regulatory changes requiring the inclusion of unrealized losses in the investment portfolio. HTLF also has a universal shelf registration statement effective until August 2025 for future capital raising - HTLF and its Banks were categorized as well-capitalized under regulatory frameworks at March 31, 2023[232](index=232&type=chunk) | Capital Ratio | March 31, 2023 | Minimum Requirement | Well Capitalized Requirement | | :------------------------------------ | :------------- | :------------------ | :------------------------- | | Total Capital (to Risk-Weighted Assets) | 14.98% | 8.00% | 10.00% | | Tier 1 Capital (to Risk-Weighted Assets) | 12.02% | 6.00% | 8.00% | | Common Equity Tier 1 (to Risk-Weighted Assets) | 11.28% | 4.50% | 6.50% | | Tier 1 Capital (to Average Assets) | 9.25% | 4.00% | 5.00% | - Management believes regulatory capital ratio buffers would withstand any changes requiring the inclusion of unrealized losses in the total investment portfolio[235](index=235&type=chunk) - Retained earnings available for dividends from banks to HTLF totaled **$756.5 million** (most restrictive) and **$456.3 million** (well-capitalized requirement) at March 31, 2023[234](index=234&type=chunk) - HTLF has a universal shelf registration statement effective until August 8, 2025, allowing for future debt or equity securities offerings[237](index=237&type=chunk) [COMMITMENTS AND CONTRACTUAL OBLIGATIONS](index=58&type=section&id=COMMITMENTS%20AND%20CONTRACTUAL%20OBLIGATIONS) Commitments to extend credit aggregated $4.87 billion at March 31, 2023, and standby letters of credit totaled $55.6 million. There have been no other material changes to HTLF's contractual obligations since the 2022 Annual Report on Form 10-K. HTLF continues to explore acquisition opportunities to expand its banking footprint and fee income businesses - Commitments to extend credit aggregated **$4.87 billion** at March 31, 2023, up from **$4.73 billion** at December 31, 2022[239](index=239&type=chunk) - Standby letters of credit aggregated **$55.6 million** at March 31, 2023, up from **$55.1 million** at December 31, 2022[239](index=239&type=chunk) - HTLF's banks had **$614.3 million** in standby letters of credit with FHLB to secure public funds and municipal deposits at March 31, 2023[240](index=240&type=chunk) - No other material changes to contractual obligations since the 2022 Annual Report on Form 10-K[240](index=240&type=chunk) - HTLF continues to explore acquisition targets to augment organic growth, increase market penetration, and expand fee income businesses[242](index=242&type=chunk) [LIQUIDITY](index=59&type=section&id=LIQUIDITY) HTLF maintains adequate liquidity through cash, securities, and diverse borrowing capacities. At March 31, 2023, it held $362.1 million in cash and cash equivalents and $6.10 billion in securities. Management expects $1.3 billion in cash flows from the securities portfolio over the next twelve months. HTLF increased borrowing capacity by pledging additional securities and shifted towards brokered CDs for funding - At March 31, 2023, HTLF had **$362.1 million** in cash and cash equivalents and **$6.10 billion** in securities carried at fair value[245](index=245&type=chunk) - Management expects the securities portfolio to generate approximately **$1.3 billion** in cash flows over the next twelve months[245](index=245&type=chunk)[250](index=250&type=chunk) - HTLF shifted from overnight borrowings to brokered CDs in Q1 2023 and pledged an additional **$1.48 billion** in securities, bringing total pledged securities to **$2.96 billion**[249](index=249&type=chunk) - As of March 31, 2023, approximately **$3.83 billion** of securities remained available to pledge[249](index=249&type=chunk) | Funding Source (in thousands) | Outstanding | Available | | :------------------------------------ | :---------- | :-------- | | Federal Reserve Discount Window | $0 | $1,604,904 | | Bank Term Funding Program | $0 | $476,925 | | Federal Home Loan Bank | $1,711 | $679,588 | | Federal Funds | $0 | $247,500 | | Wholesale deposits/brokered CDs | $2,842,920 | $1,689,420 | | Total | $2,844,631 | $4,698,337 | - The parent company had **$284.4 million** in cash and a **$100.0 million** revolving credit agreement (undrawn) at March 31, 2023[253](index=253&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=61&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) HTLF's primary market risk is interest rate risk, which is continually managed through strategies and reviewed quarterly by asset/liability committees and the board of directors. Simulations of net interest income under various interest rate scenarios (up 200 bps, down 100 bps) indicate manageable impacts on net interest margin for both Year 1 and Year 2 - HTLF's market risk primarily consists of interest rate risk from lending and deposit activities[256](index=256&type=chunk) - Interest rate risk is managed through strategies and reviewed quarterly via interest rate sensitivity analyses that simulate changes in net interest income under various rate scenarios[257](index=257&type=chunk) | Scenario | Year 1 Net Interest Margin (in thousands) | Year 1 % Change From Base | Year 2 Net Interest Margin (in thousands) | Year 2 % Change From Base | | :-------------------- | :-------------------------------------- | :------------------------ | :-------------------------------------- | :------------------------ | | Down 100 Basis Points | $632,070 | (1.32)% | $658,497 | 2.81% | | Base | $640,512 | — | $688,624 | 7.51% | | Up 200 Basis Points | $654,132 | 2.13% | $713,149 | 11.34% | [Item 4. Controls and Procedures](index=62&type=section&id=Item%204.%20Controls%20and%20Procedures) As of March 31, 2023, HTLF's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective. No material changes in internal controls over financial reporting occurred during the quarter - Disclosure controls and procedures were effective as of March 31, 2023[260](index=260&type=chunk) - No material changes in internal controls over financial reporting occurred during the three months ended March 31, 2023[260](index=260&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=63&type=section&id=Item%201.%20Legal%20Proceedings) As of March 31, 2023, HTLF and its subsidiaries had certain legal proceedings pending, which are considered ordinary routine litigation incidental to business - Certain legal proceedings are pending against HTLF and its subsidiaries as of March 31, 2023[262](index=262&type=chunk) - These proceedings are ordinary routine litigation incidental to business[262](index=262&type=chunk) [Item 1A. Risk Factors](index=63&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors applicable to HTLF from those disclosed in its 2022 Annual Report on Form 10-K - No material changes in risk factors from those disclosed in HTLF's 2022 Annual Report on Form 10-K[263](index=263&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=63&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) HTLF did not make any purchases of its common stock during the quarter ended March 31, 2023, under the board-authorized program to acquire up to 5% of capital or $85.9 million as treasury shares - The board of directors authorized management to acquire and hold up to **5% of capital** or **$85.9 million** as of March 31, 2023, as treasury shares[264](index=264&type=chunk) - HTLF and its affiliated purchasers made no purchases of common stock during the quarter ended March 31, 2023[264](index=264&type=chunk) [Item 3. Defaults Upon Senior Securities](index=63&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the period - No defaults upon senior securities[265](index=265&type=chunk) [Item 4. Mine Safety Disclosures](index=63&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to HTLF - Not applicable[265](index=265&type=chunk) [Item 5. Other Information](index=63&type=section&id=Item%205.%20Other%20Information) No other information is reported under this item - None[265](index=265&type=chunk) [Item 6. Exhibits](index=64&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed or furnished with the Quarterly Report on Form 10-Q, including forms of restricted stock unit agreements, CEO and CFO certifications, and financial statements formatted in Inline Extensible Business Reporting Language (XBRL) - Exhibits include forms of Time-Based and Performance-Based Restricted Stock Unit Award Agreements[266](index=266&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer are included pursuant to the Securities Exchange Act and Sarbanes-Oxley Act[266](index=266&type=chunk) - Financial statements are formatted in Inline Extensible Business Reporting Language (XBRL)[266](index=266&type=chunk)

Heartland Financial USA, Inc. (NASDAQ:HTLF) Q1 2023 Results Conference Call April 24, 2023 5:00 PM ET Company Participants Bruce Lee - President & Chief Executive Office Bryan McKeag - Executive Vice President & Chief Financial Office Nathan Jones - Executive Vice President & Chief Credit Officer Conference Call Participants Damon DelMonte - KBW Jeff Rulis - D.A. Davidson Terry McEvoy - Stephens Andrew Liesch - Piper Sandler David Long - Raymond James Operator Greetings, and welcome to HTLF 2023 First Quart ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File Number: 001-15393 HEARTLAND FINANCIAL USA, INC. (Exact name of Registrant as specified in its charter) Delaware (State or other jurisd ...

Safe Harbor • Economic and Market Conditions Risks, including risks related to changes in the U.S. economy in general and in the local economies in which HTLF conducts its operations and future civil unrest, natural disasters, terrorist threats or acts of war; • Operational Risks, including processing, information systems, cybersecurity, vendor, business interruption, and fraud risks; • Risks of Owning Stock in HTLF, including stock price volatility and dilution as a result of future equity offerings and ac ...