Loans (Tables)

9 Months Ended

Sep. 30, 2018

Loans as of September 30, 2018, and December 31, 2017, were as follows, in thousands:



	September 30, 2018			December 31, 2017
Loans receivable held to maturity:
Commercial	$	1,962,222		$	1,646,606
Commercial real estate	3,648,731			3,163,269
Agricultural and agricultural real estate	574,048			511,588
Residential real estate	676,941			624,279
Consumer	506,181			447,484
Gross loans receivable held to maturity	7,368,123			6,393,226
Unearned discount	(1,340		)	(556		)
Deferred loan fees	(1,290		)	(1,206		)
Total net loans receivable held to maturity	7,365,493			6,391,464
Allowance for loan losses	(61,221		)	(55,686		)
Loans receivable, net	$	7,304,272		$	6,335,778

Allowance for Loan and Lease Losses, Based on Impairment Methodology

The following table shows the balance in the allowance for loan losses at September 30, 2018, and December 31, 2017, and the related loan balances, disaggregated on the basis of impairment methodology, in thousands. Loans evaluated under ASC 310-10-35 include loans on nonaccrual status and troubled debt restructurings, which are individually evaluated for impairment, and other impaired loans deemed to have similar risk characteristics. All other loans are collectively evaluated for impairment under ASC 450-20. Heartland has made no significant changes to the accounting for the allowance for loan losses during 2018.



	Allowance For Loan Losses						Gross Loans Receivable Held to Maturity
	Ending Balance Under ASC 310-10-35		Ending Balance Under ASC 450-20		Total		Ending Balance Evaluated for Impairment Under ASC 310-10-35		Ending Balance Evaluated for Impairment Under ASC 450-20		Total
September 30, 2018
Commercial	$	4,165	$	17,904	$	22,069	$	23,414	$	1,938,808	$	1,962,222
Commercial real estate	214		23,476		23,690		14,415		3,634,316		3,648,731
Agricultural and agricultural real estate	260		4,306		4,566		17,522		556,526		574,048
Residential real estate	279		1,571		1,850		23,647		653,294		676,941
Consumer	1,085		7,961		9,046		8,671		497,510		506,181
Total	$	6,003	$	55,218	$	61,221	$	87,669	$	7,280,454	$	7,368,123
December 31, 2017
Commercial	$	1,613	$	16,485	$	18,098	$	7,415	$	1,639,191	$	1,646,606
Commercial real estate	766		21,184		21,950		23,705		3,139,564		3,163,269
Agricultural and agricultural real estate	546		3,712		4,258		13,304		498,284		511,588
Residential real estate	430		1,794		2,224		27,141		597,138		624,279
Consumer	1,400		7,756		9,156		6,903		440,581		447,484
Total	$	4,755	$	50,931	$	55,686	$	78,468	$	6,314,758	$	6,393,226

Schedule of Financing Receivables, Non Accrual Status

The following table presents nonaccrual loans, accruing loans past due 90 days or more and performing troubled debt restructured loans at September 30, 2018, and December 31, 2017, in thousands:



	September 30, 2018		December 31, 2017
Nonaccrual loans	$	68,528	$	58,272
Nonaccrual troubled debt restructured loans	4,532		4,309
Total nonaccrual loans	$	73,060	$	62,581
Accruing loans past due 90 days or more	$	154	$	830
Performing troubled debt restructured loans	$	4,180	$	6,617

Troubled Debt Restructuring on Loans Modified

The following tables provide information on troubled debt restructured loans that were modified during the three- and nine-month periods ended September 30, 2018, and September 30, 2017, dollars in thousands:



	Three Months Ended September 30,
	2018					2017
	Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment
Commercial	—	$	—	$	—	—	$	—	$	—
Commercial real estate	—	—		—		—	—		—
Total commercial and commercial real estate	—	—		—		—	—		—
Agricultural and agricultural real estate	—	—		—		—	—		—
Residential real estate	1	92		94		8	1,174		1,174
Consumer	—	—		—		—	—		—
Total	1	$	92	$	94	8	$	1,174	$	1,174



	Nine Months Ended September 30,
	2018					2017
	Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment
Commercial	—	$	—	$	—	3	$	131	$	131
Commercial real estate	—	—		—		—	—		—
Total commercial and commercial real estate	—	—		—		3	131		131
Agricultural and agricultural real estate	—	—		—		—	—		—
Residential real estate	11	2,098		1,808		22	2,977		2,977
Consumer	—	—		—		—	—		—
Total	11	$	2,098	$	1,808	25	$	3,108	$	3,108

The following table shows troubled debt restructured loans for which there was a payment default during the three- and nine- month periods ended September 30, 2018, and September 30, 2017, that had been modified during the twelve-month period prior to default, in thousands:



	With Payment Defaults During the
	Three Months Ended September 30,
	2018			2017
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Commercial	—	$	—	—	$	—
Commercial real estate	—	—		—	—
Total commercial and commercial real estate	—	—		—	—
Agricultural and agricultural real estate	—	—		—	—
Residential real estate	4	418		5	1,221
Consumer	—	—		—	—
Total	4	$	418	5	$	1,221



	With Payment Defaults During the
	Nine Months Ended September 30,
	2018			2017
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Commercial	—	$	—	—	$	—
Commercial real estate	—	—		—	—
Total commercial and commercial real estate	—	—		—	—
Agricultural and agricultural real estate	—	—		—	—
Residential real estate	10	1,598		8	1,480
Consumer	—	—		—	—
Total	10	$	1,598	8	$	1,480

Financing Receivable Credit Quality Indicators

The following table presents loans by credit quality indicator at September 30, 2018, and December 31, 2017, in thousands:



	Pass		Nonpass		Total
September 30, 2018
Commercial	$	1,825,692	$	136,530	$	1,962,222
Commercial real estate	3,467,522		181,209		3,648,731
Total commercial and commercial real estate	5,293,214		317,739		5,610,953
Agricultural and agricultural real estate	476,261		97,787		574,048
Residential real estate	644,592		32,349		676,941
Consumer	491,092		15,089		506,181
Total gross loans receivable held to maturity	$	6,905,159	$	462,964	$	7,368,123
December 31, 2017
Commercial	$	1,552,783	$	93,823	$	1,646,606
Commercial real estate	2,985,501		177,768		3,163,269
Total commercial and commercial real estate	4,538,284		271,591		4,809,875
Agricultural and agricultural real estate	451,539		60,049		511,588
Residential real estate	586,623		37,656		624,279
Consumer	432,936		14,548		447,484
Total gross loans receivable held to maturity	$	6,009,382	$	383,844	$	6,393,226

Past Due Financing Receivables

The following table sets forth information regarding Heartland's accruing and nonaccrual loans at September 30, 2018, and December 31, 2017, in thousands:



	Accruing Loans
	30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Nonaccrual		Total Loans
September 30, 2018
Commercial	$	10,558	$	3,521	$	61	$	14,140	$	1,924,173	$	23,909	$	1,962,222
Commercial real estate	11,495		9,036		58		20,589		3,616,737		11,405		3,648,731
Total commercial and commercial real estate	22,053		12,557		119		34,729		5,540,910		35,314		5,610,953
Agricultural and agricultural real estate	1,294		1,146		35		2,475		554,055		17,518		574,048
Residential real estate	2,893		192		—		3,085		659,662		14,194		676,941
Consumer	4,493		811		—		5,304		494,843		6,034		506,181
Total gross loans receivable held to maturity	$	30,733	$	14,706	$	154	$	45,593	$	7,249,470	$	73,060	$	7,368,123
December 31, 2017
Commercial	$	1,246	$	259	$	100	$	1,605	$	1,637,773	$	7,228	$	1,646,606
Commercial real estate	4,769		2,326		—		7,095		3,139,576		16,598		3,163,269
Total commercial and commercial real estate	6,015		2,585		100		8,700		4,777,349		23,826		4,809,875
Agricultural and agricultural real estate	604		134		—		738		497,546		13,304		511,588
Residential real estate	2,022		270		—		2,292		601,120		20,867		624,279
Consumer	4,734		943		730		6,407		436,493		4,584		447,484
Total gross loans receivable held to maturity	$	13,375	$	3,932	$	830	$	18,137	$	6,312,508	$	62,581	$	6,393,226

Summary of Impaired Loans

The following tables present, by category of loan, impaired loans, the unpaid contractual loan balances at September 30, 2018, and December 31, 2017; the outstanding loan balances recorded on the consolidated balance sheets at September 30, 2018, and December 31, 2017; any related allowance recorded for those loans as of September 30, 2018, and December 31, 2017; the average outstanding loan balances recorded on the consolidated balance sheets during the three- and nine-months ended September 30, 2018, and year ended December 31, 2017; and the interest income recognized on the impaired loans during the three- and nine-month periods ended September 30, 2018, and year ended December 31, 2017, in thousands:



	Unpaid Contractual Balance		Loan Balance		Related Allowance Recorded		Quarter- to- Date Avg. Loan Balance		Quarter- to- Date Interest Income Recognized		Year- to- Date Avg. Loan Balance		Year- to- Date Interest Income Recognized
September 30, 2018
Impaired loans with a related allowance:
Commercial	$	6,768	$	6,768	$	4,165	$	5,173	$	16	$	3,593	$	52
Commercial real estate	748		748		214		889		4		5,635		20
Total commercial and commercial real estate	7,516		7,516		4,379		6,062		20		9,228		72
Agricultural and agricultural real estate	2,043		2,043		260		3,000		2		2,369		2
Residential real estate	869		869		279		1,006		4		1,278		10
Consumer	3,028		3,028		1,085		3,146		9		3,069		29
Total impaired loans with a related allowance	$	13,456	$	13,456	$	6,003	$	13,214	$	35	$	15,944	$	113
Impaired loans without a related allowance:
Commercial	$	18,003	$	16,646	$	—	$	13,113	$	182	$	9,307	$	277
Commercial real estate	13,765		13,667		—		11,850		80		12,847		201
Total commercial and commercial real estate	31,768		30,313		—		24,963		262		22,154		478
Agricultural and agricultural real estate	18,002		15,479		—		15,837		1		14,726		4
Residential real estate	22,778		22,778		—		22,779		121		24,780		320
Consumer	5,643		5,643		—		5,522		22		4,930		78
Total impaired loans without a related allowance	$	78,191	$	74,213	$	—	$	69,101	$	406	$	66,590	$	880
Total impaired loans held to maturity:
Commercial	$	24,771	$	23,414	$	4,165	$	18,286	$	198	$	12,900	$	329
Commercial real estate	14,513		14,415		214		12,739		84		18,482		221
Total commercial and commercial real estate	39,284		37,829		4,379		31,025		282		31,382		550
Agricultural and agricultural real estate	20,045		17,522		260		18,837		3		17,095		6
Residential real estate	23,647		23,647		279		23,785		125		26,058		330
Consumer	8,671		8,671		1,085		8,668		31		7,999		107
Total impaired loans held to maturity	$	91,647	$	87,669	$	6,003	$	82,315	$	441	$	82,534	$	993



	Unpaid Contractual Balance		Loan Balance		Related Allowance Recorded		Year-to- Date Avg. Loan Balance		Year-to- Date Interest Income Recognized
December 31, 2017
Impaired loans with a related allowance:
Commercial	$	2,292	$	2,292	$	1,613	$	3,607	$	39
Commercial real estate	11,925		10,068		766		11,479		34
Total commercial and commercial real estate	14,217		12,360		2,379		15,086		73
Agricultural and agricultural real estate	1,539		1,539		546		3,437		—
Residential real estate	1,568		1,568		430		2,056		15
Consumer	2,634		2,634		1,400		2,370		41
Total impaired loans with a related allowance	$	19,958	$	18,101	$	4,755	$	22,949	$	129
Impaired loans without a related allowance:
Commercial	$	6,243	$	5,123	$	—	$	2,586	$	165
Commercial real estate	14,243		13,637		—		20,148		514
Total commercial and commercial real estate	20,486		18,760		—		22,734		679
Agricultural and agricultural real estate	13,793		11,765		—		9,654		—
Residential real estate	25,573		25,573		—		26,024		277
Consumer	4,269		4,269		—		3,884		73
Total impaired loans without a related allowance	$	64,121	$	60,367	$	—	$	62,296	$	1,029
Total impaired loans held to maturity:
Commercial	$	8,535	$	7,415	$	1,613	$	6,193	$	204
Commercial real estate	26,168		23,705		766		31,627		548
Total commercial and commercial real estate	34,703		31,120		2,379		37,820		752
Agricultural and agricultural real estate	15,332		13,304		546		13,091		—
Residential real estate	27,141		27,141		430		28,080		292
Consumer	6,903		6,903		1,400		6,254		114
Total impaired loans held to maturity	$	84,079	$	78,468	$	4,755	$	85,245	$	1,158

At September 30, 2018, and December 31, 2017, the carrying amount of loans acquired since 2015 consist of purchased impaired and nonimpaired loans as summarized in the following table, in thousands:



	September 30, 2018						December 31, 2017
	Impaired Purchased Loans		Non Impaired Purchased Loans		Total Purchased Loans		Impaired Purchased Loans		Non Impaired Purchased Loans		Total Purchased Loans
Commercial	$	9,078	$	300,261	$	309,339	$	952	$	187,375	$	188,327
Commercial real estate	302		1,202,537		1,202,839		2,572		1,052,469		1,055,041
Agricultural and agricultural real estate	—		32,357		32,357		—		1,242		1,242
Residential real estate	220		204,414		204,634		214		173,909		174,123
Consumer loans	—		89,061		89,061		—		51,292		51,292
Total loans	$	9,600	$	1,828,630	$	1,838,230	$	3,738	$	1,466,287	$	1,470,025

Changes in Accretable Yield on Acquired Loans

Changes in accretable yield on acquired loans with evidence of credit deterioration at the date of acquisition for the three- and nine-month periods ended September 30, 2018, and September 30, 2017, were as follows, in thousands:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Balance at beginning of period	$	463		$	101		$	57		$	182
Original yield discount, net, at date of acquisition	—			—			508			—
Accretion	(93		)	(700		)	(943		)	(1,074		)
Reclassification from nonaccretable difference⁽¹⁾	186			654			934			947
Balance at period end	$	556		$	55		$	556		$	55

(1) Represents increases in estimated cash flows expected to be received, primarily due to lower estimated credit losses.