SECURITIES

The amortized cost, gross unrealized gains and losses, and estimated fair values of securities available for sale as of September 30, 2013, and December 31, 2012, are summarized in the table below, in thousands:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
September 30, 2013
U.S. government corporations and agencies	$	7,836	$	192	$	—		$	8,028
Mortgage-backed securities	942,819		9,778		(19,450		)	933,147
Obligations of states and political subdivisions	436,914		8,583		(16,662		)	428,835
Total debt securities	1,387,569		18,553		(36,112		)	1,370,010
Equity securities	21,537		63		—			21,600
Total	$	1,409,106	$	18,616	$	(36,112	)	$	1,391,610
December 31, 2012
U.S. government corporations and agencies	$	21,002	$	443	$	(1	)	$	21,444
Mortgage-backed securities	1,027,234		19,002		(10,035		)	1,036,201
Obligations of states and political subdivisions	403,077		23,560		(192		)	426,445
Total debt securities	1,451,313		43,005		(10,228		)	1,484,090
Equity securities	21,252		733		—			21,985
Total	$	1,472,565	$	43,738	$	(10,228	)	$	1,506,075

At both September 30, 2013, and December 31, 2012, the amortized cost of the available for sale securities is net of $184,000 of credit related other-than-temporary impairment ("OTTI").

The amortized cost, gross unrealized gains and losses and estimated fair values of held to maturity securities as of September 30, 2013, and December 31, 2012, are summarized in the table below, in thousands:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
September 30, 2013
Mortgage-backed securities	$	6,045	$	290	$	(238	)	$	6,097
Obligations of states and political subdivisions	47,796		—		—			47,796
Total	$	53,841	$	290	$	(238	)	$	53,893
December 31, 2012
Mortgage-backed securities	$	7,040	$	492	$	(12	)	$	7,520
Obligations of states and political subdivisions	48,462		—		—			48,462
Total	$	55,502	$	492	$	(12	)	$	55,982

At September 30, 2013, the amortized cost of the held to maturity securities is net of $797,000 of credit related OTTI and $540,000 of non-credit related OTTI. At December 31, 2012, $797,000 of credit related OTTI and $612,000 of non-credit related OTTI was recorded.

Approximately 84% of Heartland's mortgage-backed securities are issuances of government-sponsored enterprises.

The amortized cost and estimated fair value of debt securities available for sale at September 30, 2013, by contractual maturity are as follows, in thousands. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties.



	Amortized Cost		Estimated Fair Value
Due in 1 year or less	$	7,737	$	7,808
Due in 1 to 5 years	38,189		39,952
Due in 5 to 10 years	47,239		48,207
Due after 10 years	351,585		340,896
Total debt securities	444,750		436,863
Mortgage-backed securities	942,819		933,147
Equity securities	21,537		21,600
Total investment securities	$	1,409,106	$	1,391,610

The amortized cost and estimated fair value of debt securities held to maturity at September 30, 2013, by contractual maturity are as follows, in thousands. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties.



	Amortized Cost		Estimated Fair Value
Due in 1 year or less	$	—	$	—
Due in 1 to 5 years	1,281		1,281
Due in 5 to 10 years	10,200		10,200
Due after 10 years	36,315		36,315
Total debt securities	47,796		47,796
Mortgage-backed securities	6,045		6,097
Total investment securities	$	53,841	$	53,893

Gross gains and losses realized related to the sales of securities for the three and nine month periods ended September 30, are summarized as follows, in thousands:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013	2012
Proceeds from sales	$	130,031	$	147,199	347,170	$	488,350
Gross security gains	1,420		5,212		7,703	14,592
Gross security losses	302		—		1,091	486

The following tables summarize, in thousands, the amount of unrealized losses, defined as the amount by which cost or amortized cost exceeds fair value, and the related fair value of investments with unrealized losses in Heartland's securities portfolio as of September 30, 2013, and December 31, 2012. The investments were segregated into two categories: those that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 or more months. The reference point for determining how long an investment was in an unrealized loss position was September 30, 2012, and December 31, 2011, respectively. Securities for which Heartland has taken credit-related OTTI write-downs are categorized as being "less than 12 months" or "12 months or longer" in a continuous loss position based on the point in time that the fair value declined to below the cost basis and not the period of time since the credit-related OTTI write-down.



Securities available for sale	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2013
U.S. government corporations and agencies	$	—	$	—		$	—	$	—		$	—	$	—
Mortgage-backed securities	679,247		(18,529		)	30,886		(921		)	710,133		(19,450		)
Obligations of states and political subdivisions	255,451		(16,662		)	—		—			255,451		(16,662		)
Total temporarily impaired securities	$	934,698	$	(35,191	)	$	30,886	$	(921	)	$	965,584	$	(36,112	)
December 31, 2012
U.S. government corporations and agencies	$	1,517	$	(1	)	$	—	$	—		$	1,517	$	(1	)
Mortgage-backed securities	332,842		(9,121		)	24,489		(914		)	357,331		(10,035		)
Obligations of states and political subdivisions	22,503		(192		)	—		—			22,503		(192		)
Total temporarily impaired securities	$	356,862	$	(9,314	)	$	24,489	$	(914	)	$	381,351	$	(10,228	)



Securities held to maturity	Less than 12 months				12 months or longer					Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2013
Mortgage-backed securities	$	—	$	—	$	3,082	$	(238	)	$	3,082	$	(238	)
Obligations of states and political subdivisions	—		—		—		—			—		—
Total temporarily impaired securities	$	—	$	—	$	3,082	$	(238	)	$	3,082	$	(238	)
December 31, 2012
Mortgage-backed securities	$	—	$	—	$	3,296	$	(12	)	$	3,296	$	(12	)
Obligations of states and political subdivisions	—		—		—		—			—		—
Total temporarily impaired securities	$	—	$	—	$	3,296	$	(12	)	$	3,296	$	(12	)

Heartland reviews the investment securities portfolio on a quarterly basis to monitor its exposure to OTTI. A determination as to whether a security's decline in fair value is other-than-temporary takes into consideration numerous factors and the relative significance of any single factor can vary by security. Some factors Heartland may consider in the OTTI analysis include the length of time the security has been in an unrealized loss position, changes in security ratings, financial condition of the issuer, as well as security and industry specific economic conditions. In addition, with regard to debt securities, Heartland may also evaluate payment structure, whether there are defaulted payments or expected defaults, prepayment speeds, and the value of any underlying collateral. For certain debt securities in unrealized loss positions, Heartland prepares cash flow analyses to compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. During the first quarter of 2012, Heartland experienced deterioration in the credit support on three private label mortgage-backed securities which resulted in a credit-related OTTI loss. The underlying collateral on these securities experienced an increased level of defaults and a slowing of voluntary prepayments causing the present value of the forward expected cash flows, using prepayment and default vectors, to be below the amortized cost basis of the securities. Based on Heartland's evaluation, a $981,000 OTTI on three private label mortgage-backed securities attributable to credit-related losses was recorded in March 2012. The other-than-temporary credit-related losses were $797,000 in the held to maturity category and $184,000 in the available for sale category.

The remaining unrealized losses on Heartland's mortgage-backed securities are the result of changes in market interest rates or widening of market spreads subsequent to the initial purchase of the securities and not related to concerns regarding the underlying credit of the issuers or the underlying collateral. It is expected that the securities will not be settled at a price less than the amortized cost of the investment. Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because Heartland has the intent and ability to hold these investments until a market price recovery or to maturity and does not believe it will be required to sell the securities before maturity, these investments are not considered other-than-temporarily impaired.

Unrealized losses on Heartland's obligations of states and political subdivisions are the result of changes in market interest rates or widening of market spreads subsequent to the initial purchase of the securities. Management monitors the credit quality and financial stability of the underlying municipalities. Because the decline in fair value is attributable to changes in interest rates or what management believes to be temporary market conditions and not underlying credit quality, and because Heartland has the intent and ability to hold these investments until a market price recovery or to maturity and does not believe it will be required to sell the securities before maturity, these investments are not considered other-than-temporarily impaired.

There were no gross realized gains or losses on the sale of available for sale securities with OTTI write-downs for the periods ended September 30, 2013, or December 31, 2012.

The following table shows the detail of total OTTI write-downs included in earnings, in thousands:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Available for sale debt securities:
Mortgage backed securities	$	—	$	—	$	—	$	184
Held to maturity debt securities:
Mortgage backed securities	—		—		—		797
Total debt security OTTI write-downs included in earnings	$	—	$	—	$	—	$	981

The following table shows the detail of OTTI write-downs on debt securities included in earnings and the related changes in other accumulated comprehensive income ("AOCI") for the same securities, in thousands:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Recorded as part of gross realized losses:
Credit related OTTI	$	—		$	—		$	—		$	981
Intent to sell OTTI	—			—			—			—
Total recorded as part of gross realized losses	—			—			—			981
Recorded directly to AOCI for non-credit related impairment:
Residential mortgage backed securities	—			—			—			683
Accretion of non-credit related impairment	(24		)	(24		)	(72		)	(47		)
Total changes to AOCI for non-credit related impairment	(24		)	(24		)	(72		)	636
Total OTTI losses (accretion) recorded on debt securities, net	$	(24	)	$	(24	)	$	(72	)	$	1,617

Heartland has not experienced any OTTI writedowns since the initial impairment charge in the first quarter of 2012.