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Fair Value (Tables)
 9 Months Ended
Sep. 30, 2018
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 September 30, 2018, and December 31, 2017, 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
September 30, 2018
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Securities available for sale
 
 
 
 
 
 
 
U.S. government corporations and agencies
$
26,997

 
$
25,367

 
$
1,630

 
$
—

Mortgage and asset-backed securities
1,871,819

 
—

 
1,871,819

 
—

Obligations of states and political subdivisions
358,483

 
—

 
358,483

 
—

Equity securities with a readily determinable fair value
16,916

 
—

 
16,916

 
—

Derivative financial instruments(1)
9,327

 
—

 
9,327

 
—

Interest rate lock commitments
1,539

 
—

 
—

 
1,539

Forward commitments
353

 
—

 
353

 
—

Total assets at fair value
$
2,285,434

 
$
25,367

 
$
2,258,528

 
$
1,539

Liabilities
 
 
 
 
 
 
 
Derivative financial instruments(2)
$
5,940

 
$
—

 
$
5,940

 
$
—

Forward commitments
69

 
—

 
69

 
—

Total liabilities at fair value
$
6,009

 
$
—

 
$
6,009

 
$
—

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

 
$
—

 
 
 
 
 
 
 
 
(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, Nonrecurring
The tables below present Heartland's assets that are measured at fair value on a nonrecurring basis, in thousands:
 
Fair Value Measurements at
September 30, 2018
 
Total
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
 Inputs
(Level 3)
 
Year-to-
Date (Gains)
Losses
Collateral dependent impaired loans:
 
 
 
 
 
 
 
 
 
Commercial
$
6,772

 
$
—

 
$
—

 
$
6,772

 
$
237

Commercial real estate
420

 
—

 
—

 
420

 
72

Agricultural and agricultural real estate
11,821

 
—

 
—

 
11,821

 
495

Residential real estate
590

 
—

 
—

 
590

 
—

Consumer
1,942

 
—

 
—

 
1,942

 
—

Total collateral dependent impaired loans
$
21,545

 
$
—

 
$
—

 
$
21,545

 
$
804

Loans held for sale
$
77,727

 
$
—

 
$
77,727

 
$
—

 
$
(835
)
Other real estate owned
$
11,908

 
$
—

 
$
—

 
$
11,908

 
$
1,847

Premises, furniture and equipment held for sale
$
4,422

 
$
—

 
$
—

 
$
4,422

 
$
(74
)

 
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)
 
Year-to-
Date (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 Inputs, Assets, Quantitative Information
The following tables present additional quantitative information about assets measured at fair value and for which Heartland has utilized Level 3 inputs to determine fair value, in thousands:
 
Fair Value at
9/30/2018
 
Valuation
Technique
 
Unobservable
Input
 
Range
(Weighted Average)
Interest rate lock commitments
$
1,539

 
Discounted cash flows
 
Closing ratio
 
0-99%
(1)
Other real estate owned
11,908

 
Modified appraised value
 
Third party appraisal
 
 
(2)
 
 
 
 
Appraisal discount
 
0-10%
(3)
Premises, furniture and equipment held for sale
4,422

 
Modified appraised value
 
Third party appraisal
 
 
(2)
 
 
 
 
Appraisal discount
 
0-10%
(3)
Collateral dependent impaired loans:
 
 
 
 
 
 
 
 
Commercial
6,772

 
Modified appraised value
 
Third party appraisal
 

(2)
 
 
 
 
Appraisal discount
 
0-13%
(3)
Commercial real estate
420

 
Modified appraised value
 
Third party appraisal
 

(2)
 
 
 
 
Appraisal discount
 
0-12%
(3)
Agricultural and agricultural real estate
11,821

 
Modified appraised value
 
Third party appraisal
 

(2)
 
 
 
 
Appraisal discount
 
0-15%
(3)
Residential real estate
590

 
Modified appraised value
 
Third party appraisal
 

(2)
 
 
 
 
Appraisal discount
 
0-24%
(3)
Consumer
1,942

 
Modified appraised value
 
Third party valuation
 

(2)
 
 
 
 
Valuation discount
 
0-14%
(3)
 
 
 
 
 
 
 
 
 
(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. The weighted average closing ratio for Heartland's legacy mortgage operations is 86%. The weighted average closing ratio for PrimeWest Mortgage Corporation is 95%.
(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) 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
12/31/2017
 
Valuation
Technique
 
Unobservable
Input
 
Range
(Weighted Average)
Interest rate lock commitments
$
1,738

 
Discounted cash flows
 
Closing ratio
 
0-99% (89%)
(1)
Other real estate owned
10,777

 
Modified appraised value
 
Third party appraisal
 
 
(2)
 
 
 
 
Appraisal discount
 
0-10%
(3)
Commercial servicing rights
291

 
Discounted cash flows
 
Third party valuation
 
 
(3)
Premises, furniture and equipment held for sale
1,977

 
Modified appraised value
 
Third party appraisal
 
 
(2)
 
 
 
 
Appraisal discount
 
0-10%
(3)
Other real estate owned
10,777

 
Modified appraised value
 
Third party appraisal
 
 
(2)
 
 
 
 
Appraisal discount
 
0-10%
(3)
Collateral dependent impaired loans:
 
 
 
 
 
 
 
 
Commercial
3,212

 
Modified appraised value
 
Third party appraisal
 
 
(2)
 
 
 
 
Appraisal discount
 
0-15%
(3)
Commercial real estate
9,480

 
Modified appraised value
 
Third party appraisal
 
 
(2)
 
 
 
 
Appraisal discount
 
0-12%
(3)
Agricultural and agricultural real estate
8,406

 
Modified appraised value
 
Third party appraisal
 
 
(2)
 
 
 
 
Appraisal discount
 
0-10%
(3)
Residential real estate
1,137

 
Modified appraised value
 
Third party appraisal
 
 
(2)
 
 
 
 
Appraisal discount
 
0-12%
(3)
Consumer
1,234

 
Modified appraised value
 
Third party valuation
 
 
(2)
 
 
 
 
Valuation discount
 
0-12%
(3)
 
 
 
 
 
 
 
 
 
(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) 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, Assets Measured on Recurring Basis, Unobservable Input Reconciliation

The changes in fair value of the interest rate lock commitments, which are Level 3 financial instruments measured on a recurring basis, are summarized in the following table, in thousands:
 
For the Nine Months Ended
September 30, 2018
 
For the Year Ended
December 31, 2017
Balance at January 1,
$
1,738

 
$
2,790

Acquired interest rate lock commitments
1,383

 
—

Total gains (losses) included in earnings
(1,849
)
 
(1,479
)
Issuances
1,661

 
1,875

Settlements
(1,394
)
 
(1,448
)
Balance at period end
$
1,539

 
$
1,738
Fair Value, by Balance Sheet Grouping
Heartland does not believe that the estimated information presented herein is representative of the earnings power or value of Heartland. 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, deposit gathering or fee generating activities. Many of the estimates presented herein 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
September 30, 2018
 
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
$
437,375

 
$
437,375

 
$
437,375

 
$
—

 
$
—

Time deposits in other financial institutions
5,836

 
5,836

 
5,836

 
—

 
—

Securities:
 
 
 
 
 
 
 
 
 
Carried at fair value
2,274,215

 
2,274,215

 
25,367

 
2,248,848

 
—

Held to maturity
239,908

 
247,394

 
—

 
247,394

 
—

Other investments
26,656

 
26,656

 
—

 
26,656

 
—

Loans held for sale
77,727

 
77,727

 
—

 
77,727

 
—

Loans, net:
 
 
 
 
 
 
 
 
 
Commercial
1,939,469

 
1,906,941

 
—

 
1,900,169

 
6,772

Commercial real estate
3,623,768

 
3,611,265

 
—

 
3,610,845

 
420

Agricultural and agricultural real estate
570,320

 
563,262

 
—

 
551,441

 
11,821

Residential real estate
673,628

 
663,234

 
—

 
662,644

 
590

Consumer
497,151

 
494,379

 
—

 
492,437

 
1,942

Total Loans, net
7,304,336

 
7,239,081

 
—

 
7,217,536

 
21,545

Cash surrender value on life insurance
162,216

 
162,216

 
—

 
162,216

 
—

Derivative financial instruments(1)
9,126

 
9,126

 
—

 
9,126

 
—

Interest rate lock commitments
1,539

 
1,539

 
—

 
—

 
1,539

Forward commitments
353

 
353

 
—

 
353

 
—

Financial liabilities:
 
 
 
 
 
 
 
 
 
Deposits
 
 
 
 
 
 
 
 
 
Demand deposits
3,427,819

 
3,427,819

 
—

 
3,427,819

 
—

Savings deposits
4,958,430

 
4,958,430

 
—

 
4,958,430

 
—

Time deposits
1,125,914

 
1,125,914

 
—

 
1,125,914

 
—

Short term borrowings
131,139

 
131,139

 
—

 
131,139

 
—

Other borrowings
277,563

 
279,087

 
—

 
279,087

 
—

Derivative financial instruments(2)
5,739

 
5,940

 
—

 
5,940

 
—

Forward commitments
69

 
69

 
—

 
69

 
—

 
(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, 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:
 
 
 
 
 
 
 
 
 
Carried at fair value
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