SECURITIES

The amortized cost, gross unrealized gains and losses, and estimated fair values of securities available for sale as of March 31, 2017, and December 31, 2016, are summarized in the table below, in thousands:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
March 31, 2017
U.S. government corporations and agencies	$	15,027	$	71	$	(31	)	$	15,067
Mortgage-backed securities	1,319,662		3,859		(34,994		)	1,288,527
Obligations of states and political subdivisions	588,559		2,997		(16,963		)	574,593
Total debt securities	1,923,248		6,927		(51,988		)	1,878,187
Equity securities	15,209		132		—			15,341
Total	$	1,938,457	$	7,059	$	(51,988	)	$	1,893,528
December 31, 2016
U.S. government corporations and agencies	$	4,716	$	16	$	(32	)	$	4,700
Mortgage-backed securities	1,321,760		7,026		(38,286		)	1,290,500
Obligations of states and political subdivisions	553,020		2,436		(19,312		)	536,144
Total debt securities	1,879,496		9,478		(57,630		)	1,831,344
Equity securities	14,451		69		—			14,520
Total	$	1,893,947	$	9,547	$	(57,630	)	$	1,845,864

The amortized cost, gross unrealized gains and losses and estimated fair values of held to maturity securities as of March 31, 2017, and December 31, 2016, are summarized in the table below, in thousands:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
March 31, 2017
Obligations of states and political subdivisions	260,616		13,176		(995		)	272,797
Total	$	260,616	$	13,176	$	(995	)	$	272,797
December 31, 2016
Obligations of states and political subdivisions	263,662		12,282		(1,145		)	274,799
Total	$	263,662	$	12,282	$	(1,145	)	$	274,799

At March 31, 2017, approximately 77% 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 March 31, 2017, 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.



	March 31, 2017
	Amortized Cost		Estimated Fair Value
Due in 1 year or less	$	380	$	380
Due in 1 to 5 years	47,478		47,375
Due in 5 to 10 years	96,785		94,282
Due after 10 years	458,943		447,623
Total debt securities	603,586		589,660
Mortgage-backed securities	1,319,662		1,288,527
Equity securities	15,209		15,341
Total investment securities	$	1,938,457	$	1,893,528

The amortized cost and estimated fair value of debt securities held to maturity at March 31, 2017, 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.



	March 31, 2017
	Amortized Cost		Estimated Fair Value
Due in 1 year or less	$	1,993	$	2,022
Due in 1 to 5 years	19,307		20,246
Due in 5 to 10 years	89,388		92,873
Due after 10 years	149,928		157,656
Total investment securities	$	260,616	$	272,797

As of March 31, 2017, and December 31, 2016, securities with a fair value of $714.5 million and $810.6 million, respectively, were pledged to secure public and trust deposits, short-term borrowings and for other purposes as required and permitted by law.

Gross gains and losses realized related to the sales of securities available for sale for the three-month periods ended March 31, 2017 and 2016, are summarized as follows, in thousands:



	Three Months Ended March 31,
	2017		2016
Proceeds from sales	$	221,637	$	303,448
Gross security gains	3,830		4,558
Gross security losses	1,339		682

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 March 31, 2017, and December 31, 2016. 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 March 31, 2016, and December 31, 2015, respectively. Securities for which Heartland has taken credit-related other-than-temporary impairment ("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
March 31, 2017
U.S. government corporations and agencies	$	4,071	$	(31	)	$	—	$	—		$	4,071	$	(31	)
Mortgage-backed securities	696,073		(17,851		)	316,686		(17,143		)	1,012,759		(34,994		)
Obligations of states and political subdivisions	454,072		(16,960		)	250		(3		)	454,322		(16,963		)
Total debt securities	1,154,216		(34,842		)	316,936		(17,146		)	1,471,152		(51,988		)
Equity securities	—		—			—		—			—		—
Total temporarily impaired securities	$	1,154,216	$	(34,842	)	$	316,936	$	(17,146	)	$	1,471,152	$	(51,988	)
December 31, 2016
U.S. government corporations and agencies	$	4,185	$	(32	)	$	—	$	—		$	4,185	$	(32	)
Mortgage-backed securities	744,202		(23,527		)	272,449		(14,759		)	1,016,651		(38,286		)
Obligations of states and political subdivisions	414,151		(19,309		)	251		(3		)	414,402		(19,312		)
Total debt securities	1,162,538		(42,868		)	272,700		(14,762		)	1,435,238		(57,630		)
Equity securities	—		—			—		—			—		—
Total temporarily impaired securities	$	1,162,538	$	(42,868	)	$	272,700	$	(14,762	)	$	1,435,238	$	(57,630	)



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
March 31, 2017
Obligations of states and political subdivisions	24,248		(752		)	2,024		(243		)	26,272		(995		)
Total temporarily impaired securities	$	24,248	$	(752	)	$	2,024	$	(243	)	$	26,272	$	(995	)
December 31, 2016
Obligations of states and political subdivisions	31,479		(884		)	2,017		(261		)	33,496		(1,145		)
Total temporarily impaired securities	$	31,479	$	(884	)	$	2,017	$	(261	)	$	33,496	$	(1,145	)

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.

In the first quarter of 2016, Heartland sold the mortgage-backed securities in the held to maturity portfolio because the credit quality of the securities showed further deterioration, and it was unlikely Heartland would recover the remaining basis of the securities prior to maturity. The significant deterioration of the credit quality of these securities was inconsistent with Heartland's original intent upon purchase and classification of these held to maturity securities. The carrying value of these securities was $4.4 million, and the associated realized gross gains were $89,000, and the realized gross losses were $439,000.

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. The losses are 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.

The remaining 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 published credit ratings of these securities and the stability of the underlying municipalities. Because the decline in fair value is attributable to changes in interest rates or widening market spreads due to insurance company downgrades 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 and no gross realized losses on the sale of available for sale securities with OTTI write-downs for the period ended March 31, 2017. Additionally, there were no gross realized gains and no gross realized losses on the sale of held to maturity securities with OTTI write-downs for the period ended March 31, 2017. There were no gross realized gains and $85,000 of gross realized losses on the sale of available for sale securities with OTTI writedowns for the period ended March 31, 2016. Additionally, there were no gross realized gains and $439,000 of gross realized losses on the sale of held to maturity securities with OTTI write-downs for the period ended March 31, 2016.

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 March 31,
	2017		2016
Recorded as part of gross realized losses:
Credit related OTTI	$	—	$	—
Intent to sell OTTI	—		—
Total recorded as part of gross realized losses	—		—
Recorded directly to AOCI for non-credit related impairment:
Residential mortgage backed securities	—		—
Reduction of non-credit related impairment related to security sales	—		(120		)
Accretion of non-credit related impairment	—		(7		)
Total changes to AOCI for non-credit related impairment	—		(127		)
Total OTTI losses (accretion) recorded on debt securities, net	$	—	$	(127	)

Included in other securities at March 31, 2017, and December 31, 2016, were shares of stock in each Federal Home Loan Bank (the "FHLB") of Des Moines, Chicago, Dallas, San Francisco and Topeka, both at an amortized cost of $14.4 million.

The Heartland banks are required to maintain FHLB stock as members of the various FHLBs as required by these institutions. These equity securities are "restricted" in that they can only be sold back to the respective institutions or another member institution at par. Therefore, they are less liquid than other marketable equity securities and their fair value approximates amortized cost. Heartland considers its FHLB stock as a long-term investment that provides access to competitive products and liquidity. Heartland evaluates impairment in these investments based on the ultimate recoverability of the par value and at March 31, 2017, did not consider the investments to be other than temporarily impaired.