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Securities
6 Months Ended
Jun. 30, 2016
Investments, Debt and Equity Securities [Abstract]  
Securities
SECURITIES

The amortized cost, gross unrealized gains and losses, and estimated fair values of securities available for sale as of June 30, 2016, and December 31, 2015, are summarized in the table below, in thousands:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
June 30, 2016
 
 
 
 
 
 
 
U.S. government corporations and agencies
$
4,943

 
$
158

 
$

 
$
5,101

Mortgage-backed securities
1,226,085

 
13,776

 
(19,129
)
 
1,220,732

Obligations of states and political subdivisions
311,883

 
14,583

 
(44
)
 
326,422

Corporate debt securities
815

 
15

 

 
830

Total debt securities
1,543,726

 
28,532

 
(19,173
)
 
1,553,085

Equity securities
13,158

 
349

 

 
13,507

Total
$
1,556,884

 
$
28,881

 
$
(19,173
)
 
$
1,566,592

December 31, 2015
 
 
 
 
 
 
 
U.S. government corporations and agencies
$
25,847

 
$
22

 
$
(103
)
 
$
25,766

Mortgage-backed securities
1,254,452

 
9,134

 
(20,884
)
 
1,242,702

Obligations of states and political subdivisions
290,522

 
6,547

 
(1,087
)
 
295,982

Corporate debt securities
740

 
106

 

 
846

Total debt securities
1,571,561


15,809


(22,074
)

1,565,296

Equity securities
13,142

 
40

 
(44
)
 
13,138

Total
$
1,584,703

 
$
15,849

 
$
(22,118
)
 
$
1,578,434



At June 30, 2016, and December 31, 2015, the amortized cost of the available for sale securities is net of $0 and $237,000 of credit related other-than-temporary impairment ("OTTI"), respectively.

The amortized cost, gross unrealized gains and losses and estimated fair values of held to maturity securities as of June 30, 2016, and December 31, 2015, are summarized in the table below, in thousands:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
June 30, 2016
 
 
 
 
 
 
 
Mortgage-backed securities
$

 
$

 
$

 
$

Obligations of states and political subdivisions
270,423

 
22,717

 
(286
)
 
292,854

Total
$
270,423

 
$
22,717

 
$
(286
)
 
$
292,854

December 31, 2015
 
 
 
 
 
 
 
Mortgage-backed securities
$
4,369

 
$
306

 
$

 
$
4,675

Obligations of states and political subdivisions
274,748

 
15,595

 
(505
)
 
289,838

Total
$
279,117

 
$
15,901

 
$
(505
)
 
$
294,513



At June 30, 2016, the amortized cost of the held to maturity securities is net of $0 of credit related OTTI and $0 of non-credit related OTTI. At December 31, 2015, the amortized cost of the held to maturity securities was net of $1.5 million of credit related OTTI and $40,000 of non-credit related OTTI.

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 June 30, 2016, 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
$
1,645

 
$
1,653

Due in 1 to 5 years
15,892

 
16,181

Due in 5 to 10 years
87,334

 
90,004

Due after 10 years
212,770

 
224,515

Total debt securities
317,641

 
332,353

Mortgage-backed securities
1,226,085

 
1,220,732

Equity securities
13,158

 
13,507

Total investment securities
$
1,556,884

 
$
1,566,592


The amortized cost and estimated fair value of debt securities held to maturity at June 30, 2016, 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
$
4,380

 
$
4,448

Due in 1 to 5 years
14,327

 
15,170

Due in 5 to 10 years
87,072

 
92,495

Due after 10 years
164,644

 
180,741

Total debt securities
270,423

 
292,854

Mortgage-backed securities

 

Total investment securities
$
270,423

 
$
292,854



As of June 30, 2016 and December 31, 2015, securities with a fair value of $843.0 million and $855.8 million, respectively, were pledged to secure public and trust deposits, short-term borrowings and for other purposes as required by law.

Gross gains and losses realized related to the sales of securities available for sale for the three- and six-month periods ended June 30, 2016 and 2015, are summarized as follows, in thousands:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Proceeds from sales
$
318,927

 
$
270,688

 
$
622,375

 
$
526,026

Gross security gains
5,095

 
3,819

 
9,653

 
8,441

Gross security losses
473

 
709

 
1,155

 
978



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 June 30, 2016, and December 31, 2015. 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 June 30, 2015, and December 31, 2014, 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
June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
U.S. government corporations and agencies
$

 
$

 
$

 
$

 
$

 
$

Mortgage-backed securities
517,699

 
(14,569
)
 
144,275

 
(4,560
)
 
661,974

 
(19,129
)
Obligations of states and political subdivisions
2,236

 
(43
)
 
255

 
(1
)
 
2,491

 
(44
)
Corporate debt securities

 

 

 

 

 

Total debt securities
519,935

 
(14,612
)
 
144,530

 
(4,561
)
 
664,465

 
(19,173
)
Equity securities

 

 

 

 

 

Total temporarily impaired securities
$
519,935

 
$
(14,612
)
 
$
144,530

 
$
(4,561
)
 
$
664,465

 
$
(19,173
)
December 31, 2015
U.S. government corporations and agencies
$
22,359

 
$
(103
)
 
$

 
$

 
$
22,359

 
$
(103
)
Mortgage-backed securities
724,330

 
(15,523
)
 
139,562

 
(5,361
)
 
863,892

 
(20,884
)
Obligations of states and political subdivisions
68,482

 
(896
)
 
7,460

 
(191
)
 
75,942

 
(1,087
)
Corporate debt securities

 

 

 

 

 

Total debt securities
815,171

 
(16,522
)
 
147,022

 
(5,552
)
 
962,193

 
(22,074
)
Equity securities
6,566

 
(44
)
 

 

 
6,566

 
(44
)
Total temporarily impaired securities
$
821,737

 
$
(16,566
)
 
$
147,022

 
$
(5,552
)
 
$
968,759

 
$
(22,118
)


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
June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
Obligations of states and political subdivisions
1,388

 
(3
)
 
1,131

 
(283
)
 
2,519

 
(286
)
Total temporarily impaired securities
$
1,388

 
$
(3
)
 
$
1,131

 
$
(283
)
 
$
2,519

 
$
(286
)
December 31, 2015
Obligations of states and political subdivisions
3,646

 
(12
)
 
18,033

 
(493
)
 
21,679

 
(505
)
Total temporarily impaired securities
$
3,646

 
$
(12
)
 
$
18,033

 
$
(493
)
 
$
21,679

 
$
(505
)


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.

Heartland previously recorded $981,000 of OTTI on three private label mortgage-backed securities 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. During 2015, Heartland recorded additional credit-related OTTI on two of the private label mortgage-backed securities that previously had OTTI credit losses. 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, $769,000 of OTTI attributable to credit-related losses was recorded in December 2015. The credit-related OTTI was $716,000, of which $200,000 was reclassified from previous non-credit related OTTI in the held to maturity category. Credit-related OTTI was $53,000 in the available for sale category.

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.

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 June 30, 2016. 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 June 30, 2016. There were no gross realized gains or losses on the sale of available for sale or held to maturity securities with OTTI write-downs for the period ended June 30, 2015.
 
 
 
 
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
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
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

 
(24
)
 
(7
)
 
(48
)
Total changes to AOCI for non-credit related impairment

 
(24
)
 
(127
)
 
(48
)
Total OTTI losses (accretion) recorded on debt securities, net
$

 
$
(24
)
 
$
(127
)
 
$
(48
)


Included in other securities at June 30, 2016, and December 31, 2015, were shares of stock in each Federal Home Loan Bank (the "FHLB") of Des Moines, Chicago, Dallas, San Francisco and Topeka at an amortized cost of $15.5 million and $14.3 million, respectively.