Fair Value (Assets and liabilities, fair value, recurring basis) (Tables)

9 Months Ended

Sep. 30, 2013

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

The table below presents Heartland's assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2013, and December 31, 2012, in thousands, aggregated by the level in the fair value hierarchy within which those measurements fall:



	Total Fair Value		Level 1		Level 2		Level 3
September 30, 2013
Trading securities	$	1,219	$	1,219	$	—	$	—
Securities available for sale	1,391,610		8,028		1,378,625		4,957
Derivative assets	5,872		—		5,872		—
Total assets at fair value	$	1,398,701	$	9,247	$	1,384,497	$	4,957
Derivative liabilities	$	7,660	$	—	$	7,660	$	—
Total liabilities at fair value	$	7,660	$	—	$	7,660	$	—
December 31, 2012
Trading securities	$	380	$	380	$	—	$	—
Securities available for sale	1,506,075		12,811		1,488,924		4,340
Derivative assets	9,815		—		9,815		—
Total assets at fair value	$	1,516,270	$	13,191	$	1,498,739	$	4,340
Derivative liabilities	$	7,846	$	—	$	7,846	$	—
Total liabilities at fair value	$	7,846	$	—	$	7,846	$	—

Fair Value Measurements, Nonrecurring

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



	Fair Value Measurements at September 30, 2013
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Losses
Collateral dependent impaired loans:
Commercial	$	12,455	$	—	$	—	$	12,455	$	472
Commercial real estate	8,004		—		—		8,004		1,374
Agricultural and agricultural real estate	6,749		—		—		6,749		—
Residential real estate	3,284		—		—		3,284		—
Consumer	1,936		—		—		1,936		14
Total collateral dependent impaired loans	$	32,428	$	—	$	—	$	32,428	$	1,860
Other real estate owned	$	33,018	$	—	$	—	$	33,018	$	2,440



	Fair Value Measurements at December 31, 2012
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Losses
Collateral dependent impaired loans
Commercial	$	7,681	$	—	$	—	$	7,681	$	1,799
Commercial real estate	44,471		—		—		44,471		6,898
Agricultural and agricultural real estate	16,019		—		—		16,019		1
Residential real estate	6,660		—		—		6,660		988
Consumer	4,121		—		—		4,121		4,818
Total collateral dependent impaired loans	$	78,952	$	—	$	—	$	78,952	$	14,504
Other real estate owned	$	35,822	$	—	$	—	$	35,822	$	6,953
Mortgage servicing rights	$	15,956	$	—	$	—	$	15,956	$	477

Fair Value Inputs, Liabilities, Quantitative Information

The following tables present additional quantitative information about assets measured at fair value and for which Heartland has utilized Level 3 inputs to determine fair value, in thousands:



	Quantitative Information About Level 3 Fair Value Measurements
	Fair Value at 9/30/13		Valuation Technique	Unobservable Input	Range (Weighted Average)
z-TRANCHE Securities	$	4,957	Discounted cash flows	Pretax discount rate	7.00 - 9.00%
				Actual defaults	12.71-20.14% (15.52%)
				Actual deferrals	6.25-22.35% (11.32%)
Collateral dependent impaired loans:
Commercial	12,455		Modified appraised value	Third party appraisal	NM*
				Appraisal discount	NM*
Commercial real estate	8,004		Modified appraised value	Third party appraisal	NM*
				Appraisal discount	NM*
Agricultural and agricultural real estate	6,749		Modified appraised value	Third party appraisal	NM*
				Appraisal discount	NM*
Residential real estate	3,284		Modified appraised value	Third party appraisal	NM*
				Appraisal discount	NM*
Consumer	1,936		Modified appraised value	Third party appraisal	NM*
				Appraisal discount	NM*
Other real estate owned	33,018		Modified appraised value	Third party appraisal	NM*
				Appraisal discount

* Not Meaningful. Third party appraisals are obtained as to the value of the underlying asset, but disclosure of this information would not provide meaningful information, as the range will vary widely from loan to loan. Types of discounts considered included age of the appraisal, local market conditions, current condition of the property, and estimated sales costs. These discounts will also vary from loan to loan, thus providing range would not be meaningful.



	Quantitative Information About Level 3 Fair Value Measurements
	Fair Value at 12/31/12		Valuation Technique	Unobservable Input	Range (Weighted Average)
z-TRANCHE Securities	$	4,340	Discounted cash flows	Pretax discount rate	8.00 - 10.00%
				Actual defaults	13.94-20.94% (15.52%)
				Actual deferrals	6.30-23.71% (11.32%)
Collateral dependent impaired loans:
Commercial	7,681		Modified appraised value	Third party appraisal	NM*
				Appraisal discount	NM*
Commercial real estate	44,471		Modified appraised value	Third party appraisal	NM*
				Appraisal discount	NM*
Agricultural and agricultural real estate	16,019		Modified appraised value	Third party appraisal	NM*
				Appraisal discount	NM*
Residential real estate	6,660		Modified appraised value	Third party appraisal	NM*
				Appraisal discount	NM*
Consumer	4,121		Modified appraised value	Third party appraisal	NM*
				Appraisal discount	NM*
Other real estate owned	35,822		Modified appraised value	Third party appraisal	NM*
				Appraisal discount
Mortgage servicing rights	15,956		Discounted cash flows	Prepayment speeds, servicing costs and escrow analysis	Average CPR Life 12.99 - 18.71% (18.05%)

* Not Meaningful. Third party appraisals are obtained as to the value of the underlying asset, but disclosure of this information would not provide meaningful information, as the range will vary widely from loan to loan. Types of discounts considered included age of the appraisal, local market conditions, current condition of the property, and estimated sales costs. These discounts will also vary from loan to loan, thus providing range would not be meaningful.

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation

The changes in fair value of Level 3 assets that are measured on a recurring basis are summarized in the following table, in thousands:



	For the Nine Months Ended			For the Year Ended
	September 30, 2013			December 31, 2012
Balance at January 1,	$	4,340		$	3,243
Total gains (losses):
Included in earnings	642			—
Included in other comprehensive income	794			938
Purchases, issuances, sales and settlements:
Purchases	—			195
Sales	(651		)	—
Settlements	(168		)	(36		)
Balance at period end	$	4,957		$	4,340

Fair Value, by Balance Sheet Grouping

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



					Fair Value Measurements at September 30, 2013
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	165,008	$	165,008	$	165,008	$	—	$	—
Time deposits in other financial institutions	3,605		3,605		3,605		—		—
Securities:
Trading	1,219		1,219		1,219		—		—
Available for sale	1,391,610		1,391,610		8,028		1,378,625		4,957
Held to maturity	53,841		53,893		—		53,893		—
Total securities	1,446,670		1,446,722		9,247		1,432,518		4,957
Loans held for sale	61,326		61,640		—		61,640		—
Loans, net:
Commercial	741,728		735,522		—		723,067		12,455
Commercial real estate	1,274,043		1,276,194		—		1,268,190		8,004
Agricultural and agricultural real estate	322,502		323,236		—		316,487		6,749
Residential real estate	267,341		259,334		—		256,050		3,284
Consumer	260,657		263,888		—		261,952		1,936
Total Loans, net	2,866,271		2,858,174		—		2,825,746		32,428
Derivatives	5,872		5,872		—		5,872		—
Financial liabilities:
Deposits
Demand deposits	1,073,688		1,073,688		—		1,073,688		—
Savings deposits	2,043,397		2,043,397		—		2,043,397		—
Time deposits	807,913		807,913		—		807,913		—
Short term borrowings	224,048		224,048		—		224,048		—
Other borrowings	322,538		321,074		—		321,074		—
Derivatives	7,660		7,660		—		7,660		—



					Fair Value Measurements at December 31, 2012
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	168,054	$	168,054	$	168,054	$	—	$	—
Securities:
Trading	380		380		380		—		—
Available for sale	1,506,075		1,506,075		12,811		1,488,924		4,340
Held to maturity	55,502		55,982		—		55,982		—
Total securities	1,561,957		1,562,437		13,191		1,544,906		4,340
Loans held for sale	96,165		96,165		—		96,165		—
Loans, net:
Commercial	700,225		691,605		—		683,924		7,681
Commercial real estate	1,275,770		1,281,031		—		1,236,560		44,471
Agricultural and agricultural real estate	326,867		329,443		—		313,424		16,019
Residential real estate	248,608		237,050		—		230,390		6,660
Consumer	238,617		241,978		—		237,857		4,121
Total Loans, net	2,790,087		2,781,107		—		2,702,155		78,952
Mortgage derivatives	9,815		9,815		—		9,815		—
Financial liabilities:
Deposits
Demand deposits	974,232		974,232		—		974,232		—
Savings deposits	2,004,438		2,004,438		—		2,004,438		—
Time deposits	866,990		866,990		—		866,990		—
Short term borrowings	224,626		224,626		—		224,626		—
Other borrowings	389,025		376,422		—		376,422		—
Derivatives	7,846		7,846		—		7,846		—

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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- Definition

Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

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