LOANS (Tables)

3 Months Ended

Mar. 31, 2019

Loans as of March 31, 2019, and December 31, 2018, were as follows, in thousands:



	March 31, 2019			December 31, 2018
Loans receivable held to maturity:
Commercial	$	2,042,594		$	2,020,231
Commercial real estate	3,702,457			3,711,481
Agricultural and agricultural real estate	544,805			565,408
Residential real estate	630,433			673,603
Consumer	412,573			440,158
Gross loans receivable held to maturity	7,332,862			7,410,881
Unearned discount	(288		)	(1,624		)
Deferred loan fees	(1,030		)	(1,560		)
Total net loans receivable held to maturity	7,331,544			7,407,697
Allowance for loan losses	(62,639		)	(61,963		)
Loans receivable, net	$	7,268,905		$	7,345,734

Allowance for Loan and Lease Losses, Based on Impairment Methodology

The following table shows the balance in the allowance for loan losses at March 31, 2019, and December 31, 2018, 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 the quarter ended March 31, 2019.



	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
March 31, 2019
Commercial	$	6,301	$	17,520	$	23,821	$	24,498	$	2,018,096	$	2,042,594
Commercial real estate	353		26,434		26,787		18,150		3,684,307		3,702,457
Agricultural and agricultural real estate	1,099		4,499		5,598		20,475		524,330		544,805
Residential real estate	153		1,452		1,605		18,619		611,814		630,433
Consumer	653		4,175		4,828		5,826		406,747		412,573
Total	$	8,559	$	54,080	$	62,639	$	87,568	$	7,245,294	$	7,332,862
December 31, 2018
Commercial	$	5,733	$	18,772	$	24,505	$	24,202	$	1,996,029	$	2,020,231
Commercial real estate	218		25,320		25,538		14,388		3,697,093		3,711,481
Agricultural and agricultural real estate	686		4,267		4,953		15,951		549,457		565,408
Residential real estate	168		1,617		1,785		20,251		653,352		673,603
Consumer	749		4,433		5,182		7,004		433,154		440,158
Total	$	7,554	$	54,409	$	61,963	$	81,796	$	7,329,085	$	7,410,881

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 March 31, 2019, and December 31, 2018, in thousands:



	March 31, 2019		December 31, 2018
Nonaccrual loans	$	72,670	$	67,833
Nonaccrual troubled debt restructured loans	4,624		4,110
Total nonaccrual loans	$	77,294	$	71,943
Accruing loans past due 90 days or more	$	1,706	$	726
Performing troubled debt restructured loans	$	3,460	$	4,026

Troubled Debt Restructuring on Loans Modified

The following tables provide information on troubled debt restructured loans that were modified during the three-month periods ended March 31, 2019, and March 31, 2018, dollars in thousands:



	Three Months Ended March 31,
	2019					2018
	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	36		42		5	877		752
Consumer	—	—		—		—	—		—
Total	1	$	36	$	42	5	$	877	$	752

The following table shows troubled debt restructured loans for which there was a payment default during the three month periods ended March 31, 2019, and March 31, 2018, that had been modified during the twelve-month period prior to default, in thousands:



	With Payment Defaults During the Three Months Ended March 31,
	2019			2018
	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	1	42		3	519
Consumer	—	—		—	—
Total	1	$	42	3	$	519

Financing Receivable Credit Quality Indicators

The following table presents loans by credit quality indicator at March 31, 2019, and December 31, 2018, in thousands:



	Pass		Nonpass		Total
March 31, 2019
Commercial	$	1,907,620	$	134,974	$	2,042,594
Commercial real estate	3,510,161		192,296		3,702,457
Total commercial and commercial real estate	5,417,781		327,270		5,745,051
Agricultural and agricultural real estate	440,927		103,878		544,805
Residential real estate	603,647		26,786		630,433
Consumer	398,695		13,878		412,573
Total gross loans receivable held to maturity	$	6,861,050	$	471,812	$	7,332,862
December 31, 2018
Commercial	$	1,880,579	$	139,652	$	2,020,231
Commercial real estate	3,524,344		187,137		3,711,481
Total commercial and commercial real estate	5,404,923		326,789		5,731,712
Agricultural and agricultural real estate	471,642		93,766		565,408
Residential real estate	645,478		28,125		673,603
Consumer	425,451		14,707		440,158
Total gross loans receivable held to maturity	$	6,947,494	$	463,387	$	7,410,881

Past Due Financing Receivables

The following table sets forth information regarding Heartland's accruing and nonaccrual loans at March 31, 2019, and December 31, 2018, 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
March 31, 2019
Commercial	$	8,253	$	2,859	$	325	$	11,437	$	2,006,358	$	24,799	$	2,042,594
Commercial real estate	5,870		4,942		1,264		12,076		3,674,676		15,705		3,702,457
Total commercial and commercial real estate	14,123		7,801		1,589		23,513		5,681,034		40,504		5,745,051
Agricultural and agricultural real estate	2,179		800		31		3,010		521,621		20,174		544,805
Residential real estate	4,224		110		—		4,334		613,667		12,432		630,433
Consumer	4,835		536		86		5,457		402,932		4,184		412,573
Total gross loans receivable held to maturity	$	25,361	$	9,247	$	1,706	$	36,314	$	7,219,254	$	77,294	$	7,332,862
December 31, 2018
Commercial	$	2,574	$	205	$	—	$	2,779	$	1,991,525	$	25,927	$	2,020,231
Commercial real estate	4,819		—		726		5,545		3,694,259		11,677		3,711,481
Total commercial and commercial real estate	7,393		205		726		8,324		5,685,784		37,604		5,731,712
Agricultural and agricultural real estate	99		—		—		99		549,376		15,933		565,408
Residential real estate	5,147		49		—		5,196		655,329		13,078		673,603
Consumer	2,724		307		—		3,031		431,799		5,328		440,158
Total gross loans receivable held to maturity	$	15,363	$	561	$	726	$	16,650	$	7,322,288	$	71,943	$	7,410,881

Summary of Impaired Loans

At March 31, 2019, and December 31, 2018, the carrying amount of loans acquired since 2015 consist of purchased impaired and nonimpaired purchased loans as summarized in the following table, in thousands:



	March 31, 2019						December 31, 2018
	Impaired Purchased Loans		Non Impaired Purchased Loans		Total Purchased Loans		Impaired Purchased Loans		Non Impaired Purchased Loans		Total Purchased Loans
Commercial	$	3,804	$	197,958	$	201,762	$	3,801	$	243,693	$	247,494
Commercial real estate	156		986,926		987,082		158		1,098,171		1,098,329
Agricultural and agricultural real estate	—		14,942		14,942		—		27,115		27,115
Residential real estate	227		168,167		168,394		231		184,389		184,620
Consumer loans	—		63,090		63,090		—		75,773		75,773
Total covered loans	$	4,187	$	1,431,083	$	1,435,270	$	4,190	$	1,629,141	$	1,633,331

The following tables present the unpaid principal balance that was contractually due at March 31, 2019, and December 31, 2018, the outstanding loan balance recorded on the consolidated balance sheets at March 31, 2019, and December 31, 2018, any related allowance recorded for those loans as of March 31, 2019, and December 31, 2018, the average outstanding loan balances recorded on the consolidated balance sheets during the three months ended March 31, 2019, and year ended December 31, 2018, and the interest income recognized on the impaired loans during the three-month period ended March 31, 2019, and year ended December 31, 2018, in thousands:



	Unpaid Principal Balance		Loan Balance		Related Allowance Recorded		Year- to- Date Avg. Loan Balance		Year- to- Date Interest Income Recognized
March 31, 2019
Impaired loans with a related allowance:
Commercial	$	12,107	$	12,096	$	6,301	$	12,046	$	7
Commercial real estate	1,421		1,421		353		1,201		6
Total commercial and commercial real estate	13,528		13,517		6,654		13,247		13
Agricultural and agricultural real estate	3,280		3,280		1,099		2,225		1
Residential real estate	1,253		1,253		153		1,012		—
Consumer	1,272		1,270		653		1,275		6
Total loans held to maturity	$	19,333	$	19,320	$	8,559	$	17,759	$	20
Impaired loans without a related allowance:
Commercial	$	14,467	$	12,402	$	—	$	11,928	$	330
Commercial real estate	16,809		16,729		—		14,008		54
Total commercial and commercial real estate	31,276		29,131		—		25,936		384
Agricultural and agricultural real estate	19,538		17,195		—		14,373		16
Residential real estate	17,370		17,366		—		17,933		76
Consumer	4,620		4,556		—		4,820		25
Total loans held to maturity	$	72,804	$	68,248	$	—	$	63,062	$	501
Total impaired loans held to maturity:
Commercial	$	26,574	$	24,498	$	6,301	$	23,974	$	337
Commercial real estate	18,230		18,150		353		15,209		60
Total commercial and commercial real estate	44,804		42,648		6,654		39,183		397
Agricultural and agricultural real estate	22,818		20,475		1,099		16,598		17
Residential real estate	18,623		18,619		153		18,945		76
Consumer	5,892		5,826		653		6,095		31
Total impaired loans held to maturity	$	92,137	$	87,568	$	8,559	$	80,821	$	521



	Unpaid Principal Balance		Loan Balance		Related Allowance Recorded		Year-to- Date Avg. Loan Balance		Year-to- Date Interest Income Recognized
December 31, 2018
Impaired loans with a related allowance:
Commercial	$	12,376	$	12,366	$	5,733	$	4,741	$	33
Commercial real estate	891		891		218		4,421		25
Total commercial and commercial real estate	13,267		13,257		5,951		9,162		58
Agricultural and agricultural real estate	1,718		1,718		686		2,165		2
Residential real estate	647		647		168		1,138		12
Consumer	1,373		1,373		749		2,934		29
Total loans held to maturity	$	17,005	$	16,995	$	7,554	$	15,399	$	101
Impaired loans without a related allowance:
Commercial	$	13,616	$	11,836	$	—	$	10,052	$	299
Commercial real estate	13,578		13,497		—		13,000		249
Total commercial and commercial real estate	27,194		25,333		—		23,052		548
Agricultural and agricultural real estate	16,836		14,233		—		14,781		5
Residential real estate	19,604		19,604		—		23,950		308
Consumer	5,631		5,631		—		5,117		97
Total loans held to maturity	$	69,265	$	64,801	$	—	$	66,900	$	958
Total impaired loans held to maturity:
Commercial	$	25,992	$	24,202	$	5,733	$	14,793	$	332
Commercial real estate	14,469		14,388		218		17,421		274
Total commercial and commercial real estate	40,461		38,590		5,951		32,214		606
Agricultural and agricultural real estate	18,554		15,951		686		16,946		7
Residential real estate	20,251		20,251		168		25,088		320
Consumer	7,004		7,004		749		8,051		126
Total impaired loans held to maturity	$	86,270	$	81,796	$	7,554	$	82,299	$	1,059

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-month periods ended March 31, 2019, and March 31, 2018, were as follows, in thousands:



	Three Months Ended March 31,
	2019			2018
Balance at beginning of period	$	227		$	57
Original yield discount, net, at date of acquisition	—			(56		)
Accretion	(257		)	(199		)
Reclassification from nonaccretable difference⁽¹⁾	218			198
Balance at period end	$	188		$	—

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