Goodwill, Core Deposit Premium and Other Intangible Assets

3 Months Ended

Mar. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill, Core Deposit Premium and Other Intangible Assets

GOODWILL, CORE DEPOSIT PREMIUM AND OTHER INTANGIBLE ASSETS

Heartland had goodwill of $35.6 million at both March 31, 2014, and December 31, 2013. Heartland conducts its annual internal assessment of the goodwill both collectively and at its subsidiaries as of September 30.

Other intangible assets consist of core deposit intangibles, mortgage servicing rights and customer relationship intangible. The gross carrying amount of other intangible assets and the associated accumulated amortization at March 31, 2014, and December 31, 2013, are presented in the table below, in thousands:



	March 31, 2014						December 31, 2013
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizing intangible assets:
Core deposit intangibles	$	21,069	$	10,959	$	10,110	$	21,069	$	10,345	$	10,724
Mortgage servicing rights	33,134		10,990		22,144		32,160		10,372		21,788
Customer relationship intangible	1,177		741		436		1,177		730		447
Total	$	55,380	$	22,690	$	32,690	$	54,406	$	21,447	$	32,959

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



	Core Deposit Intangibles		Mortgage Servicing Rights		Customer Relationship Intangible		Total

Nine months ending December 31, 2014	$	1,566	$	3,237	$	32	$	4,835
Year ending December 31,
2015	1,780		4,727		42		6,549
2016	1,575		4,052		41		5,668
2017	1,393		3,376		40		4,809
2018	1,232		2,701		39		3,972
2019	1,056		2,026		38		3,120
Thereafter	1,508		2,025		204		3,737

Projections of amortization expense for mortgage servicing rights are based on existing asset balances and the existing interest rate environment as of March 31, 2014. Heartland's actual experience may be significantly different depending upon changes in mortgage interest rates and market conditions. Mortgage loans serviced for others were $3.11 billion and $3.05 billion as of March 31, 2014, and December 31, 2013, respectively. The fair value of Heartland's mortgage servicing rights was estimated at $32.0 million at both March 31, 2014, and December 31, 2013.

Heartland's mortgage servicing rights portfolio is comprised of loans serviced for the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the Government National Mortgage Association. The servicing rights portfolio is separated into 15- and 30-year tranches. At both March 31, 2014, and December 31, 2013, no valuation allowance was required for any of the tranches.

The fair value of mortgage servicing rights is calculated based upon a discounted cash flow analysis. Cash flow assumptions, including prepayment speeds, servicing costs and escrow earnings are considered in the calculation. The average constant prepayment rate was 10.05% and 9.65% for the March 31, 2014, and December 31, 2013, valuations, respectively. The discount rate was 9.66% and 10.15% for the March 31, 2014, and December 31, 2013, valuations, respectively. The average capitalization rate for the first three months of 2014 ranged from 0.83% to 1.16% compared to 0.79% and 1.39% for 2013. Fees collected for the servicing of mortgage loans for others were $2.1 million and $1.4 million for the three months ended March 31, 2014, and March 31, 2013, respectively.

The following table summarizes, in thousands, the changes in capitalized mortgage servicing rights for the three month period ended March 31, 2014 and 2013:



	2014			2013
Balance at January 1	$	21,788		$	15,653
Originations	1,435			3,245
Amortization	(1,079		)	(1,761		)
Valuation adjustment	—			496
Balance at March 31	$	22,144		$	17,633
Fair value of mortgage servicing rights	$	32,032		$	19,389
Mortgage servicing rights, net to servicing portfolio	0.71		%	0.58		%

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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