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Fair Value (Tables)
12 Months Ended
Dec. 31, 2017
Fair Value Disclosures [Abstract]  
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 December 31, 2017, and December 31, 2016, 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
December 31, 2017
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Securities available for sale
 
 
 
 
 
 
 
U.S. government corporations and agencies
$
5,328

 
$
3,484

 
$
1,844

 
$

Mortgage and asset-backed securities
1,753,736

 

 
1,753,736

 

Obligations of states and political subdivisions
441,015

 

 
441,015

 

Equity securities
16,674

 

 
16,674

 

Derivative financial instruments(1)
3,933

 

 
3,933

 

Interest rate lock commitments
1,738

 

 

 
1,738

Forward commitments
80

 

 
80

 

Total assets at fair value
$
2,222,504

 
$
3,484

 
$
2,217,282

 
$
1,738

Liabilities
 
 
 
 
 
 
 
Derivative financial instruments(2)
$
5,167

 
$

 
$
5,167

 
$

Forward commitments
232

 

 
232

 

Total liabilities at fair value
$
5,399

 
$

 
$
5,399

 
$

December 31, 2016
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Securities available for sale
 
 
 
 
 
 
 
U.S. government corporations and agencies
$
4,700

 
$
517

 
$
4,183

 
$

Mortgage-backed securities
1,290,500

 

 
1,288,276

 
2,224

Obligations of states and political subdivisions
536,144

 

 
536,144

 

Equity securities
14,520

 

 
14,520

 

Derivative financial instruments(1)
3,222

 

 
3,222

 

Interest rate lock commitments
2,790

 

 

 
2,790

Forward commitments
2,546

 

 
2,546

 

Total assets at fair value
$
1,854,422

 
$
517

 
$
1,848,891

 
$
5,014

Liabilities
 
 
 
 
 
 
 
Derivative financial instruments(2)
$
7,027

 
$

 
$
7,027

 
$

Forward commitments
266

 

 
266

 

Total liabilities at fair value
$
7,293

 
$

 
$
7,293

 
$

 
(1) Includes embedded derivatives, back-to-back loan swaps and cash flow hedges
(2) Includes cash flow hedges, fair value hedges, back-to-back loan swaps, embedded conversion options and free standing derivative instruments
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 December 31, 2017
 
Total
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
 Inputs
(Level 3)
 
(Gains)/Losses
Collateral dependent impaired loans:
 
 
 
 
 
 
 
 
 
Commercial
$
3,212

 
$

 
$

 
$
3,212

 
$
1,119

Commercial real estate
9,480

 

 

 
9,480

 
322

Agricultural and agricultural real estate
8,406

 

 

 
8,406

 
2,028

Residential real estate
1,137

 

 

 
1,137

 

Consumer
1,234

 

 

 
1,234

 

Total collateral dependent impaired loans
$
23,469

 
$

 
$

 
$
23,469

 
$
3,469

Loans held for sale
$
44,560

 
$

 
$
44,560

 
$

 
$
190

Other real estate owned
$
10,777

 
$

 
$

 
$
10,777

 
$
737

Premises, furniture and equipment held for sale
$
1,977

 
$

 
$

 
$
1,977

 
$
192

Commercial servicing rights
$
291

 
$

 
$

 
$
291

 
$
(21
)
 
Fair Value Measurements at December 31, 2016
 
Total
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
 Inputs
(Level 3)
 
(Gains)/Losses
Collateral dependent impaired loans:
 
 
 
 
 
 
 
 
 
Commercial
$
1,683

 
$

 
$

 
$
1,683

 
$
41

Commercial real estate
3,026

 

 

 
3,026

 
527

Agricultural and agricultural real estate
1,955

 

 

 
1,955

 

Residential real estate
3,565

 

 

 
3,565

 
85

Consumer
1,193

 

 

 
1,193

 

Total collateral dependent impaired loans
$
11,422

 
$

 
$

 
$
11,422

 
$
653

Loans held for sale
$
61,261

 
$

 
$
61,261

 
$

 
$
(640
)
Other real estate owned
$
9,744

 
$

 
$

 
$
9,744

 
$
1,341

Premises, furniture and equipment held for sale
$
414

 
$

 
$

 
$
414

 
$
35

Commercial servicing rights
$
326

 
$

 
$

 
$
326

 
$
33

Quantitative Information on Assets Measured at Fair Value on Recurring and Nonrecurring Basis Using Level 3
The following tables present additional quantitative information about assets measured at fair value on a recurring and nonrecurring basis and for which Heartland has utilized Level 3 inputs to determine fair value, in thousands:
 
Fair Value at 12/31/17
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)
Z-TRANCHE Securities
$

 
Discounted cash flows
 
Pretax discount rate
 
 
 
 
 
Actual defaults
 
 
 
 
 
Actual deferrals
 
Interest rate lock commitments
1,738

 
Discounted cash flows
 
Closing ratio
 
0 - 99% (89%)(1)
Premises, furniture and equipment held for sale
1,977

 
Modified appraised value
 
Third party appraisal
 
(2) 
 
 
 
 
Appraisal discount
 
0-10%(4)
Other real estate owned
10,777

 
Modified appraised value
 
Third party appraisal
 
(2) 
 
 
 
 
Appraisal discounts
 
0-10%
Commercial servicing rights
291

 
Discounted cash flows
 
Third party valuation
 
(3) 
 
 
 
 
 
 
 
Collateral dependent impaired loans:
 
 
 
 
 
 
 
Commercial
3,212

 
Modified appraised value
 
Third party appraisal
 
(2) 
 
 
 
 
Appraisal discount
 
0-15%(4)
Commercial real estate
9,480

 
Modified appraised value
 
Third party appraisal
 
(2) 
 
 
 
 
 
Appraisal discount
 
0-12%(4)
Agricultural and agricultural real estate
8,406

 
Modified appraised value
 
Third party appraisal
 
(2) 
 
 
 
 
Appraisal discount
 
0-10%(4)
Residential real estate
1,137

 
Modified appraised value
 
Third party appraisal
 
(2) 
 
 
 
 
 
Appraisal discount
 
0-12%(4)
Consumer
1,234

 
Modified appraised value
 
Third party valuation
 
(2) 
 
 
 
 
Valuation discount
 
0-12%(4)
 
 
 
 
 
 
 
 
(1) The significant unobservable input used in the fair value measurement is the closing ratio, which represents the percentage of loans currently in a lock position which management estimates will ultimately close. The closing ratio calculation takes into consideration historical data and loan-level data.
(2) Third party appraisals are obtained and updated at least annually to establish the value of the underlying asset, but the disclosure of the unobservable inputs used by the appraisers would not be meaningful because the range will vary widely from appraisal to appraisal.
(3) The significant unobservable input used in the fair value measurement are the value indices, which are weighted-average spreads to LIBOR based on maturity groups.
(4) Discounts applied to the appraised values primarily include estimated sales costs, but also consider the age of the appraisal, changes in local market conditions and changes in the current condition of the collateral.


 
Fair Value at 12/31/16
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)
Z-TRANCHE Securities
$
2,224

 
Discounted cash flows
 
Pretax discount rate
 
7.50 - 9.50%
 
 
 
 
Actual defaults
 
21.77 - 37.62% (33.11%)
 
 
 
 
Actual deferrals
 
  10.44 - 26.29% (14.81%)
Interest rate lock commitments
2,790

 
Discounted cash flows
 
Closing ratio
 
0 - 99% (89%)(1)
 
 
 
 
 
 
 
Premises, furniture and equipment held for sale
414

 
Modified appraised value
 
Third party appraisal
 
(2) 
 
 
 
 
Appraisal discount
 
0-8%(4)
Other real estate owned
9,744

 
Modified appraised value
 
Third party appraisal
 
(2) 
 
 
 
 
 
Appraisal discounts
 
0-10%
Commercial servicing rights
326

 
Discounted cash flows
 
Third party valuation
 
(3) 
 
 
 
 
 
 
 
Collateral dependent impaired loans:
 
 
 
 
 
 
 
Commercial
1,683

 
Modified appraised value
 
Third party appraisal
 
(2) 
 
 
 
 
Appraisal discount
 
0-8%(4)
Commercial real estate
3,026

 
Modified appraised value
 
Third party appraisal
 
(2) 
 
 
 
 
 
Appraisal discount
 
0-7%(4)
Agricultural and agricultural real estate
1,955

 
Modified appraised value
 
Third party appraisal
 
(2) 
 
 
 
 
Appraisal discount
 
0-10%(4)
Residential real estate
3,565

 
Modified appraised value
 
Third party appraisal
 
(2) 
 
 
 
 
 
Appraisal discount
 
0-8%(4)
Consumer
1,193

 
Modified appraised value
 
Third party valuation
 
(2) 
 
 
 
 
Valuation discount
 
0-11%(4)
 
 
 
 
 
 
 
 
(1) The significant unobservable input used in the fair value measurement is the closing ratio, which represents the percentage of loans currently in a lock position that management estimates will ultimately close. The closing ratio calculation takes into consideration historical data and loan-level data.
(2) Third party appraisals are obtained and updated at least annually to establish the value of the underlying asset, but the disclosure of the unobservable inputs used by the appraisers would not be meaningful because the range will vary widely from appraisal to appraisal.
(3) The significant unobservable input used in the fair value measurement are the value indices, which are weighted-average spreads to LIBOR based on maturity groups.
(4) Discounts applied to the appraised values primarily include estimated sales costs, but also consider the age of the appraisal, changes in local market conditions and changes in the current condition of the collateral.
Summary of Changes in Fair Value of Level 3 Assets Measured at Fair Value on Recurring Basis
The changes in fair value of the Z-TRANCHE, a Level 3 asset that is measured at fair value on a recurring basis, are summarized in the following table, in thousands:
 
For the Years Ended
 
December 31, 2017
 
December 31, 2016
Balance at January 1,
$
2,224

 
$
2,039

Total gains (losses), net:
 
 


  Included in earnings
2,810

 

  Included in other comprehensive income
(2,166
)
 
185

Purchases, issuances, sales and settlements:
 
 

  Purchases

 

  Sales
(2,868
)
 

  Settlements

 

Balance at period end,
$

 
$
2,224



The changes in fair value of the corporate debt securities, Level 3 assets that are measured on a recurring basis, are summarized in the following table, in thousands:
 
For the Years Ended
 
December 31, 2017
 
December 31, 2016
Balance at January 1,
$

 
$
846

Total gains (losses), net:
 
 
 
  Included in earnings

 
56

  Included in other comprehensive income

 
(106
)
Purchases, issuances, sales and settlements:
 
 
 
  Purchases

 

Acquired

 

  Sales

 
(796
)
  Settlements

 

Balance at period end,
$

 
$


The changes in fair value of the interest rate lock commitments, which are Level 3 financial instruments and are measured on a recurring basis, are summarized in the following table, in thousands:
 
For the Years Ended
 
December 31, 2017
 
December 31, 2016
Balance at January 1,
$
2,790

 
$
3,168

Total gains (losses), net, included in earnings
(1,479
)
 
(1,564
)
Issuances
1,875

 
5,373

Settlements
(1,448
)
 
(4,187
)
Balance at period end,
$
1,738

 
$
2,790

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, obtaining deposits or fee generating activities. Many of the estimates presented below 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
December 31, 2017
 
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
$
196,003

 
$
196,003

 
$
196,003

 
$

 
$

Time deposits in other financial institutions
9,820

 
9,820

 
9,820

 

 

Securities:
 
 
 
 
 
 
 
 
 
Available for sale
2,216,753

 
2,216,753

 
3,484

 
2,213,269

 

Held to maturity
253,550

 
265,494

 

 
265,494

 

Other investments
22,563

 
22,563

 

 
22,563

 

Loans held for sale
44,560

 
44,560

 

 
44,560

 

Loans, net:
 
 
 
 
 
 
 
 
 
Commercial
1,628,043

 
1,617,956

 

 
1,614,744

 
3,212

Commercial real estate
3,140,427

 
3,132,542

 

 
3,123,062

 
9,480

Agricultural and agricultural real estate
508,075

 
508,987

 

 
500,581

 
8,406

Residential real estate
620,939

 
614,667

 

 
613,530

 
1,137

Consumer
438,294

 
440,820

 

 
439,586

 
1,234

Total Loans, net
6,335,778

 
6,314,972

 

 
6,291,503

 
23,469

Cash surrender value on life insurance
142,818

 
142,818

 

 
142,818

 

Derivative financial instruments(1)
3,933

 
3,933

 

 
3,933

 

Interest rate lock commitments
1,738

 
1,738

 

 

 
1,738

Forward commitments
80

 
80

 

 
80

 

Financial liabilities:
 
 
 
 
 
 
 
 
 
Deposits
 
 
 
 
 
 
 
 
 
Demand deposits
2,983,128

 
2,983,128

 

 
2,983,128

 

Savings deposits
4,240,328

 
4,240,328

 

 
4,240,328

 

Time deposits
923,453

 
923,453

 

 
923,453

 

Short term borrowings
324,691

 
324,691

 

 
324,691

 

Other borrowings
285,011

 
285,609

 

 
285,609

 

Derivative financial instruments(2)
5,167

 
5,167

 

 
5,167

 

Forward commitments
232

 
232

 

 
232

 

 
(1) Includes cash flow hedges, embedded derivatives and back-to-back loan swaps
(2) Includes cash flow hedges, fair value hedges, back-to-back loan swaps, embedded conversion options and free standing derivative instruments

 
 
 
 
 
Fair Value Measurements at
December 31, 2016
 
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
$
158,724

 
$
158,724

 
$
158,724

 
$

 
$

Time deposits in other financial institutions
2,105

 
2,105

 
2,105

 

 

Securities:
 
 
 
 
 
 
 
 
 
Available for sale
1,845,864

 
1,845,864

 
517

 
1,843,123

 
2,224

Held to maturity
263,662

 
274,799

 

 
274,799

 

Other investments
21,560

 
21,560

 

 
21,365

 
195

Loans held for sale
61,261

 
61,261

 

 
61,261

 

Loans, net:
 
 
 
 
 
 
 
 
 
Commercial
1,272,089

 
1,258,754

 

 
1,257,071

 
1,683

Commercial real estate
2,513,446

 
2,506,858

 

 
2,503,832

 
3,026

Agricultural and agricultural real estate
485,820

 
487,001

 

 
485,046

 
1,955

Residential real estate
614,207

 
604,233

 

 
600,668

 
3,565

Consumer
411,833

 
414,266

 

 
413,073

 
1,193

Total Loans, net
5,297,395

 
5,271,112

 

 
5,259,690

 
11,422

Cash surrender value on life insurance
112,615

 
112,615

 

 
112,615

 

Derivative financial instruments(1)
3,222

 
3,222

 

 
3,222

 

Interest rate lock commitments
2,790

 
2,790

 

 

 
2,790

Forward commitments
2,546

 
2,546

 

 
2,546

 

Financial liabilities:
 
 
 
 
 
 
 
 
 
Deposits
 
 
 
 
 
 
 
 
 
Demand deposits
2,202,036

 
2,202,036

 

 
2,202,036

 

Savings deposits
3,788,089

 
3,788,089

 

 
3,788,089

 

Time deposits
857,286

 
857,286

 

 
857,286

 

Short term borrowings
306,459

 
306,459

 

 
306,459

 

Other borrowings
288,534

 
288,534

 

 
288,534

 

Derivative financial instruments(2)
7,027

 
7,027

 

 
7,027

 

Forward commitments
266

 
266

 

 
266

 

 
(1) Includes cash flow hedges, embedded derivatives and back-to-back loan swaps
(2) Includes cash flow hedges, fair value hedges, back-to-back loan swaps, embedded conversion options and free standing derivative instruments