Heartland had goodwill of $427.1 million at June 30, 2019, and $391.7 million at December 31, 2018. Heartland conducts its annual internal assessment of the goodwill both at the consolidated level and at its subsidiaries as of September 30. There was no goodwill impairment as of the most recent assessment.

Heartland recorded $35.4 million of goodwill and $11.4 million of core deposit intangibles in connection with the acquisition of Blue Valley Ban Corp., parent company of Bank of Blue Valley, headquartered in Overland Park, Kansas on May 10, 2019.

Heartland recorded $121.4 million of goodwill and $13.9 million of core deposit intangibles in connection with the acquisition of First Bank Lubbock Bancshares, Inc., parent company of First Bank & Trust Company, headquartered in Lubbock, Texas on May 18, 2018.

Heartland recorded $33.7 million of goodwill and $7.7 million of core deposit intangibles in connection with the acquisition of Signature Bancshares, Inc., parent company of Signature Bank, headquartered in Minnetonka, Minnesota on February 23, 2018.

The core deposit intangibles recorded with the First Bank Lubbock Bancshares, Inc. and Signature Bancshares, Inc. acquisitions are not deductible for tax purposes and are expected to be amortized over a period of 10 years on an accelerated basis.

Goodwill related to the Blue Valley Ban Corp., First Bank Lubbock Bancshares, Inc., and Signature Bancshares, Inc. acquisitions resulted from expected operational synergies, increased market presence, cross-selling opportunities, and expanded business lines and is not deductible for tax purposes.

Heartland's intangible assets consist of core deposit intangibles, mortgage servicing rights, customer relationship intangibles, and commercial servicing rights. The gross carrying amount of these intangible assets and the associated accumulated amortization at June 30, 2019, and December 31, 2018, are presented in the table below, in thousands:



	June 30, 2019						December 31, 2018
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizing intangible assets:
Core deposit intangibles	$	95,033	$	42,539	$	52,494	$	83,640	$	36,403	$	47,237
Customer relationship intangibles	1,177		953		224		1,177		935		242
Mortgage servicing rights	7,112		1,311		5,801		42,228		12,865		29,363
Commercial servicing rights	6,907		5,528		1,379		6,834		5,125		1,709
Total	$	110,229	$	50,331	$	59,898	$	133,879	$	55,328	$	78,551

On April 30, 2019, Dubuque Bank and Trust Company closed on the sale of substantially all its servicing rights portfolio, which contained loans with an unpaid principal balance of $3.31 billion to PNC Bank, N.A. The transaction qualified as a sale, and $20.6 million of mortgage servicing rights were de-recognized on the consolidated balance sheet as of June 30, 2019. Cash of approximately $34.8 million was received during the second quarter, and Heartland recorded an estimated gain on the sale of this portfolio of approximately $13.3 million. A payable of approximately $334,000 was recorded as of June 30, 2019, due to the timing of the servicing transfer per the terms of the sale agreement. In the agreement, which includes customary terms and conditions, Dubuque Bank and Trust Company provided interim servicing of the loans until the transfer date, which was August 1, 2019.



	Core Deposit Intangibles		Customer Relationship Intangibles		Mortgage Servicing Rights		Commercial Servicing Rights		Total
Six months ending December 31, 2019	$	5,869	$	19	$	876	$	195	$	6,959
Year ending December 31,
2020	10,238		36		1,231		329		11,834
2021	8,520		35		1,055		293		9,903
2022	6,947		35		879		246		8,107
2023	6,061		34		704		159		6,958
2024	4,981		33		528		86		5,628
Thereafter	9,878		32		528		71		10,509
Total	$	52,494	$	224	$	5,801	$	1,379	$	59,898

Projections of amortization expense for mortgage servicing rights are based on existing asset balances and the existing interest rate environment as of June 30, 2019. Heartland's actual experience may be significantly different depending upon changes in mortgage interest rates and market conditions. Mortgage loans serviced for others at First Bank & Trust were approximately $630.7 million at June 30, 2019 compared to $648.9 million at December 31, 2018. Custodial escrow balances maintained in connection with the mortgage loan servicing portfolio at First Bank & Trust were approximately $12.5 million at June 30, 2019 and $5.9 million at December 31, 2018.

Custodial escrow balances maintained at Dubuque Bank and Trust Company in connection with the interim servicing of the mortgage loan servicing portfolio sold to PNC Bank, N.A. totaled $19.8 million at June 30, 2019. Heartland transferred custodial escrow balances totaling $22.9 million to PNC Bank, N.A. in conjunction with the transfer of the mortgage servicing rights portfolio on August 1, 2019. Custodial escrow balances maintained in connection with the mortgage loan servicing portfolio at Dubuque Bank and Trust Company totaled $17.7 million at December 31, 2018.

The fair value of mortgage servicing rights is calculated based upon a discounted cash flow analysis. Cash flow assumptions, including prepayment speeds, servicing costs and escrow earnings of First Bank & Trust's mortgage servicing rights are considered in the calculation. The average constant prepayment rate was 14.10% for the June 30, 2019 valuation compared to 10.30% for the December 31, 2018 valuation. The discount rate was 9.03% for both June 30, 2019 and December 31, 2018 valuations. The average capitalization rate for the first six months of 2019 ranged from 81 to 98 basis points compared to a range of 93 to 117 basis points for 2018 since acquisition on May 18, 2018. Fees collected for the servicing of mortgage loans for others were $427,000 and $174,000 for the quarters ended June 30, 2019 and June 30, 2018, respectively, and $854,000 and $174,000 for the six-months ended June 30, 2019 and June 30, 2018.

The following table summarizes, in thousands, the changes in capitalized mortgage servicing rights for the six months ended June 30, 2019, and June 30, 2018:



	2019			2018
Balance at January 1,	$	29,363		$	23,248
Originations	342			2,673
Amortization	(2,395		)	(2,752		)
Valuation allowance on mortgage servicing rights	—			(209		)
Sale of mortgage servicing rights	(20,556		)	—
Acquired mortgage servicing rights	—			6,995
Valuation adjustment	(953		)	—
Balance at period end	$	5,801		$	29,955
Mortgage servicing rights, net to servicing portfolio	0.92		%	0.72		%

Heartland's commercial servicing portfolio is comprised of loans guaranteed by the Small Business Administration and United States Department of Agriculture that have been sold with servicing retained by Heartland, which totaled $90.9 million at June 30, 2019 and $107.4 million at December 31, 2018. The commercial servicing rights portfolio is separated into two tranches at the respective Heartland subsidiary, loans with a term of less than 20 years and loans with a term of more than 20 years. Fees collected for the servicing of commercial loans for others were $230,000 and $425,000 for the quarter ended June 30, 2019 and June 30, 2018, respectively, and $610,000 and $845,000 for the six-months ended June 30, 2019, and June 30, 2018, respectively.

The fair value of each commercial servicing rights portfolio is calculated based upon a discounted cash flow analysis. Cash flow assumptions, including prepayment speeds and servicing costs, are considered in the calculation. The range of average constant prepayment rates for the valuations was 11.26% to 15.50% as of June 30, 2019, compared to 11.01% to 13.50% as of December 31, 2018. The discount rate range was 12.25% to 14.66% for the June 30, 2019, valuations compared to 13.44% to 16.96% for the December 31, 2018, valuations. The capitalization rate for both 2019 and 2018 ranged from 310 to 445 basis points. The total fair value of Heartland's commercial servicing rights was estimated at $1.9 million as of June 30, 2019, and $2.1 million as of December 31, 2018.



	2019			2018
Balance at January 1,	$	1,709		$	2,609
Originations	73			21
Amortization	(403		)	(580		)
Valuation allowance on commercial servicing rights	—			(9		)
Balance at period end	$	1,379		$	2,041
Fair value of commercial servicing rights	$	1,851		$	2,502
Commercial servicing rights, net to servicing portfolio	1.52		%	1.75		%

Mortgage and commercial servicing rights are initially recorded at fair value in net gains on sale of loans held for sale when they are acquired through loan sales. Fair value is based on market prices for comparable servicing contracts, when available, or based on a valuation model that calculates the present value of estimated future net servicing income.

Mortgage and commercial servicing rights are subsequently measured using the amortization method, which requires the asset to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Servicing rights are evaluated for impairment at each Heartland subsidiary based upon the fair value of the assets as compared to the carrying amount. Impairment is recognized through a valuation allowance for specific tranches to the extent that fair value is less than carrying amount at each Heartland subsidiary. At June 30, 2019, a $1.0 million valuation allowance was required on mortgage servicing rights and at December 31, 2018, a $58,000 valuation allowance was required on mortgage servicing rights. At June 30, 2019, no valuation allowance was required on commercial servicing rights with a term less than 20 years and no valuation allowance was required on commercial servicing rights with a term greater than 20 years. At December 31, 2018, no valuation allowance was required on commercial servicing rights with a term less than 20 years and no valuation allowance was required on commercial servicing rights with a term greater than 20 years.



June 30, 2019	Book Value 15-Year Tranche		Fair Value 15-Year Tranche		Impairment 15-Year Tranche		Book Value 30-Year Tranche		Fair Value 30-Year Tranche		Impairment 30-Year Tranche
Dubuque Bank and Trust Company	$	—	$	—	$	—	$	—	$	—	$	—
First Bank & Trust	1,541		1,389		152		5,271		4,412		859
Total	$	1,541	$	1,389	$	152	$	5,271	$	4,412	$	859
December 31, 2018
Dubuque Bank and Trust Company	$	2,195	$	4,636	$	—	$	20,025	$	36,901	$	—
First Bank & Trust	1,685		1,665		20		5,516		5,478		38
Total	$	3,880	$	6,301	$	20	$	25,541	$	42,379	$	38



June 30, 2019	Book Value Less than 20 Years		Fair Value Less than 20 Years		Impairment Less than 20 Years		Book Value More than 20 Years		Fair Value More than 20 Years		Impairment More than 20 Years
Citywide Banks	$	—	$	—	$	—	$	—	$	—	$	—
Premier Valley Bank	33		62		—		159		176		—
Wisconsin Bank & Trust	178		346		—		1,009		1,267		—
Total	$	211	$	408	$	—	$	1,168	$	1,443	$	—
December 31, 2018
Citywide Banks	$	1	$	6	$	—	$	18	$	20	$	—
Premier Valley Bank	45		74		—		178		184		—
Wisconsin Bank & Trust	249		411		—		1,218		1,439		—
Total	$	295	$	491	$	—	$	1,414	$	1,643	$	—