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LOANS
 12 Months Ended
Dec. 31, 2020
Receivables [Abstract]  
LOANS
LOANS

Loans as of December 31, 2020, and December 31, 2019, were as follows, in thousands:
December 31, 2020December 31, 2019
Loans receivable held to maturity:  
Commercial and industrial$2,534,799 $2,530,809 
Paycheck Protection Program ("PPP")957,785 — 
Owner occupied commercial real estate1,776,406 1,472,704 
Non-owner occupied commercial real estate1,921,481 1,495,877 
Real estate construction863,220 1,027,081 
Agricultural and agricultural real estate714,526 565,837 
Residential real estate840,442 832,277 
Consumer414,392 443,332 
Total loans receivable held to maturity10,023,051 8,367,917 
Allowance for credit losses(131,606)(70,395)
Loans receivable, net$9,891,445 $8,297,522 

On January 1, 2020, Heartland adopted ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)," and results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. Additionally, Heartland reclassified its loan categories to align more closely with Federal Deposit Insurance Corporation ("FDIC") reporting requirements and classification codes, and all prior periods have been adjusted. As of December 31, 2020, Heartland had $42.4 million of accrued interest receivable, which is included in other assets on the consolidated balance sheet. Heartland does not consider accrued interest receivable in the allowance for credit losses calculation.

The following table shows the balance in the allowance for credit losses at December 31, 2020, and December 31, 2019, and the related loan balances, disaggregated on the basis of measurement methodology, in thousands. As of December 31, 2020, individually assessed loans include lending relationships with total exposure of $500,000 or more and are nonaccrual and any loans that no longer shares the same risk characteristics of the other loans in the pool. All other loans are collectively evaluated for losses. Loans individually evaluated were considered impaired at December 31, 2019.
Allowance For Credit LossesGross Loans Receivable Held to Maturity
Individually Evaluated for Credit LossesCollectively Evaluated for Credit LossesTotalLoans Individually Evaluated for Credit LossesLoans Collectively Evaluated for Credit Losses Total
December 31, 2020
Commercial and industrial$4,077 $34,741 $38,818 $16,578 $2,518,221 $2,534,799 
PPP— — — — 957,785 957,785 
Owner occupied commercial real estate111 19,890 20,001 11,174 1,765,232 1,776,406 
Non-owner occupied commercial real estate3,250 17,623 20,873 13,490 1,907,991 1,921,481 
Real estate construction— 20,080 20,080 — 863,220 863,220 
Agricultural and agricultural real estate1,988 5,141 7,129 15,453 699,073 714,526 
Residential real estate— 11,935 11,935 535 839,907 840,442 
Consumer— 12,770 12,770 — 414,392 414,392 
Total$9,426 $122,180 $131,606 $57,230 $9,965,821 $10,023,051 
Allowance For Credit LossesGross Loans Receivable Held to Maturity
Individually Evaluated for Credit LossesCollectively Evaluated for Credit LossesTotalLoans Individually Evaluated for Credit LossesLoans Collectively Evaluated for Credit Losses Total
December 31, 2019
Commercial and industrial$6,276 $27,931 $34,207 $31,814 $2,498,995 $2,530,809 
PPP— — — — — — 
Owner occupied commercial real estate352 7,569 7,921 9,468 1,463,236 1,472,704 
Non-owner occupied commercial real estate33 7,551 7,584 1,730 1,494,147 1,495,877 
Real estate construction— 8,677 8,677 685 1,026,396 1,027,081 
Agricultural and agricultural real estate916 4,764 5,680 18,554 547,283 565,837 
Residential real estate176 1,328 1,504 20,678 811,599 832,277 
Consumer419 4,403 4,822 4,123 439,209 443,332 
Total$8,172 $62,223 $70,395 $87,052 $8,280,865 $8,367,917 

Heartland had $6.2 million of troubled debt restructured loans at December 31, 2020, of which $3.8 million were classified as nonaccrual and $2.4 million were accruing according to the restructured terms. Heartland had $7.6 million of troubled debt restructured loans at December 31, 2019, of which $3.8 million were classified as nonaccrual and $3.8 million were accruing according to the restructured terms.

The following table provides information on troubled debt restructured loans that were modified during the years ended December 31, 2020, and December 31, 2019, in thousands:
For the Years Ended
December 31, 2020December 31, 2019
Number of LoansPre-Modification Recorded InvestmentPost-Modification Recorded InvestmentNumber of LoansPre-Modification Recorded InvestmentPost-Modification Recorded Investment
Commercial and industrial1 $20 $20 1 $40 $40 
PPP— — — — — — 
Owner occupied commercial real estate— — — — — — 
Non-owner occupied commercial real estate— — — — — — 
Real estate construction — — — — — — 
Agricultural and agricultural real estate— — — — — — 
Residential real estate2 92 98 6 623 649 
Consumer— — — — — — 
Total3 $112 $118 7 $663 $689 
The pre-modification and post-modification recorded investment represents amounts as of the date of loan modification. The difference between the pre-modification investment and post-modification investment amounts on Heartland’s residential real estate troubled debt restructured loans is due to principal deferment collected from government guarantees and capitalized interest and escrow. At December 31, 2020, there were no commitments to extend credit to any of the borrowers with an existing TDR. The tables above do not include any loan modifications made under COVID-19 modification programs.
The following table provides information on troubled debt restructured loans for which there was a payment default during the years ended December 31, 2020, and December 31, 2019, in thousands, that had been modified during the 12-month period prior to the default:
With Payment Defaults During the Following Periods
For the Years Ended
December 31, 2020December 31, 2019
Number of LoansRecorded InvestmentNumber of LoansRecorded Investment
Commercial and industrial— $— — $— 
PPP— — — — 
Owner occupied commercial real estate— — — — 
Non-owner occupied commercial real estate— — — — 
Real estate construction— — — — 
Agricultural and agricultural real estate— — — — 
Residential real estate1 232 2 210 
Consumer— — — — 
Total1 $232 2 $210 

Heartland's internal rating system is a series of grades reflecting management's risk assessment, based on its analysis of the borrower's financial condition. The "pass" category consists of all loans that are not in the "nonpass" category and categorized into a range of loan grades that reflect increasing, though still acceptable, risk. Movement of risk through the various grade levels in the pass category is monitored for early identification of credit deterioration.

The "nonpass" category consists of watch, substandard, doubtful and loss loans. The "watch" rating is attached to loans where the borrower exhibits negative trends in financial circumstances due to borrower specific or systemic conditions that, if left uncorrected, threaten the borrower's capacity to meet its debt obligations. The borrower is believed to have sufficient financial flexibility to react to and resolve its negative financial situation. These credits are closely monitored for improvement or deterioration.

The "substandard" rating is assigned to loans that are inadequately protected by the current net worth and repaying capacity of the borrower and that may be further at risk due to deterioration in the value of collateral pledged. Well-defined weaknesses jeopardize liquidation of the debt. These loans are still considered collectible; however, a distinct possibility exists that Heartland will sustain some loss if deficiencies are not corrected. Substandard loans may exhibit some or all of the following weaknesses: deteriorating financial trends, lack of earnings, inadequate debt service capacity, excessive debt and/or lack of liquidity.

The "doubtful" rating is assigned to loans where identified weaknesses in the borrowers' ability to repay the loan make collection or liquidation in full, on the basis of existing facts, conditions and values, highly questionable and improbable. These borrowers are usually in default, lack liquidity and capital, as well as resources necessary to remain as an operating entity. Specific pending events, such as capital injections, liquidations or perfection of liens on additional collateral, may strengthen the credit, thus deferring the rating of the loan as "loss" until the exact status of the loan can be determined. The loss rating is assigned to loans considered uncollectible. As of December 31, 2020, and December 31, 2019, Heartland had no loans classified as doubtful and no loans classified as loss.
The following table shows the risk category of loans by loan category and year of origination as of December 31, 2020, in thousands:
Amortized Cost Basis of Term Loans by Year of Origination
202020192018201720162015 and PriorRevolvingTotal
Commercial and industrial
Pass$557,853 $340,809 $168,873 $215,696 $101,010 $337,834 $541,627 $2,263,702 
Watch41,574 24,676 19,672 14,262 8,072 2,474 49,432 160,162 
Substandard23,024 16,274 8,897 15,717 9,098 19,537 18,388 110,935 
Commercial and industrial total$622,451 $381,759 $197,442 $245,675 $118,180 $359,845 $609,447 $2,534,799 
PPP
Pass$880,709 $— $— $— $— $— $— $880,709 
Watch 22,533 — — — — — — 22,533 
Substandard54,543 — — — — — — 54,543 
PPP total$957,785 $— $— $— $— $— $— $957,785 
Owner occupied commercial real estate
Pass$400,662 $369,401 $300,242 $167,470 $107,234 $213,780 $33,759 $1,592,548 
Watch15,345 13,764 22,488 20,811 8,717 15,282 4,311 100,718 
Substandard15,914 9,522 12,164 14,147 8,580 21,708 1,105 83,140 
Owner occupied commercial real estate total$431,921 $392,687 $334,894 $202,428 $124,531 $250,770 $39,175 $1,776,406 
Non-owner occupied commercial real estate
Pass$334,722 $411,301 $305,456 $194,101 $108,070 $233,153 $24,466 $1,611,269 
Watch22,826 55,225 24,718 18,724 20,954 45,672 5,114 193,233 
Substandard30,899 15,035 23,290 17,046 9,147 21,060 502 116,979 
Non-owner occupied commercial real estate total$388,447 $481,561 $353,464 $229,871 $138,171 $299,885 $30,082 $1,921,481 
Real estate construction
Pass$311,625 $309,678 $157,171 $12,625 $6,954 $5,110 $21,431 $824,594 
Watch 2,105 26,659 2,403 332 55 388 1,295 33,237
Substandard196 2,760 2,036 — 39 358 — 5,389
Real estate construction total$313,926 $339,097 $161,610 $12,957 $7,048 $5,856 $22,726 $863,220 
Agricultural and agricultural real estate
Pass $171,578 $90,944 $62,349 $39,252 $17,626 $37,696 $148,456 $567,901 
Watch 20,500 16,202 8,854 2,448 3,515 3,157 12,282 66,958 
Substandard17,403 7,044 23,519 6,758 3,917 9,952 11,074 79,667 
Agricultural and agricultural real estate total$209,481 $114,190 $94,722 $48,458 $25,058 $50,805 $171,812 $714,526 
Residential real estate
Pass$153,017 $99,440 $118,854 $83,534 $63,477 $244,852 $33,467 $796,641 
Watch 3,986 4,507 2,188 1,896 3,117 8,525 — 24,219
Substandard980 442 2,507 1,528 884 12,141 1,100 19,582
Residential real estate total$157,983 $104,389 $123,549 $86,958 $67,478 $265,518 $34,567 $840,442 
Consumer
Pass$37,037 $27,646 $18,811 $15,034 $4,009 $19,483 $280,996 $403,016 
Watch168 352 647 340 82 646 1,622 3,857
Substandard481 959 1,884 500 897 1,976 822 7,519
Consumer total$37,686 $28,957 $21,342 $15,874 $4,988 $22,105 $283,440 $414,392 
Total pass$2,847,203 $1,649,219 $1,131,756 $727,712 $408,380 $1,091,908 $1,084,202 $8,940,380 
Total watch129,037 141,385 80,970 58,813 44,512 76,144 74,056 604,917
Total substandard143,440 52,036 74,297 55,696 32,562 86,732 32,991 477,754
Total loans $3,119,680 $1,842,640 $1,287,023 $842,221 $485,454 $1,254,784 $1,191,249 $10,023,051 
Included in Heartland's nonpass loans at December 31, 2020 were $77.1 million of nonpass PPP loans as a result of risk ratings on related credits. Heartland's risk rating methodology assigns a risk rating to the whole lending relationship. Heartland has no allowance recorded related to the PPP loans because of the 100% SBA guarantee.

The following table presents loans by credit quality indicator at December 31, 2019, in thousands:
PassNonpassTotal
December 31, 2019
Commercial and industrial$2,352,131 $178,678 $2,530,809 
Owner occupied commercial real estate1,369,290 103,414 1,472,704 
Non-owner occupied commercial real estate1,429,760 66,117 1,495,877 
Real estate construction984,736 42,345 1,027,081 
Agricultural and agricultural real estate454,272 111,565 565,837 
Residential real estate790,226 42,051 832,277 
Consumer430,733 12,599 443,332 
 Total loans receivable held to maturity$7,811,148 $556,769 $8,367,917 

The nonpass category in the table above is comprised of approximately 60% special mention and 40% substandard as of December 31, 2019. The percentage of nonpass loans on nonaccrual status as of December 31, 2019, was 14%. Changes in credit risk are monitored on a continuous basis and changes in risk ratings are made when identified.

As of December 31, 2020, Heartland had $1.7 million of loans secured by residential real estate property that were in the process of foreclosure.

The following table sets forth information regarding Heartland's accruing and nonaccrual loans at December 31, 2020, and December 31, 2019, in thousands:
Accruing Loans
30-59
Days
Past Due		60-89
Days
Past Due		90 Days
or More
Past Due		Total
Past Due		CurrentNonaccrualTotal Loans
December 31, 2020
Commercial and industrial$5,825 $2,322 $720 $8,867 $2,504,170 $21,762 $2,534,799 
PPP1 — — 1 957,784 — 957,785 
Owner occupied commercial real estate2,815 167 — 2,982 1,759,649 13,775 1,776,406 
Non-owner occupied commercial real estate2,143 2,674 — 4,817 1,902,003 14,661 1,921,481 
Real estate construction2,446 96 — 2,542 859,784 894 863,220 
Agricultural and agricultural real estate1,688 — — 1,688 694,150 18,688 714,526 
Residential real estate1,675 83 — 1,758 825,047 13,637 840,442 
Consumer807 139 — 946 409,477 3,969 414,392 
Total loans receivable held to maturity$17,400 $5,481 $720 $23,601 $9,912,064 $87,386 $10,023,051 
December 31, 2019
Commercial and industrial$5,121 $904 $3,899 $9,924 $2,491,110 $29,775 $2,530,809 
PPP— — — — — — — 
Owner occupied commercial real estate3,487 690 — 4,177 1,461,589 6,938 1,472,704 
Non-owner occupied commercial real estate614 81 — 695 1,493,619 1,563 1,495,877 
Real estate construction5,689 72 — 5,761 1,020,153 1,167 1,027,081 
Agricultural and agricultural real estate3,734 79 26 3,839 541,455 20,543 565,837 
Residential real estate4,166 24 180 4,370 814,840 13,067 832,277 
Consumer2,511 651 — 3,162 436,675 3,495 443,332 
Total loans receivable held to maturity$25,322 $2,501 $4,105 $31,928 $8,259,441 $76,548 $8,367,917 
Loans delinquent 30 to 89 days as a percent of total loans were 0.23% at December 31, 2020, compared to 0.33% at December 31, 2019. Changes in credit risk are monitored on a continuous basis and changes in risk ratings are made when identified. All individually assessed loans are reviewed at least semi-annually.

Heartland recognized $0 of interest income on nonaccrual loans during the year ended December 31, 2020. As of December 31, 2020, Heartland had $32.5 million of nonaccrual loans with no related allowance.

As of December 31, 2019, the majority of Heartland's impaired loans were those that were nonaccrual, were past due 90 days or more and still accruing or have had their terms restructured in a troubled debt restructuring. The following table presents the unpaid principal balance that was contractually due at December 31, 2019, the outstanding loan balance recorded on the consolidated balance sheet at December 31, 2019, any related allowance recorded for those loans as of December 31, 2019, the average outstanding loan balances recorded on the consolidated balance sheet during the year ended December 31, 2019, and the interest income recognized on the impaired loans during the year ended December 31, 2019, in thousands:
Unpaid
Principal
Balance		Loan
Balance		Related
Allowance
Recorded		Year-to-Date
Avg. Loan
Balance		Year-to-Date
Interest Income
Recognized
Impaired loans with a related allowance:
Commercial and industrial$11,727 $11,710 $6,276 $11,757 $6 
Owner occupied commercial real estate712 712 352 1,435 22 
Non-owner occupied commercial real estate138 138 33 — — 
Real estate construction17 17 — — — 
Agricultural and agricultural real estate2,751 2,237 916 2,739 — 
Residential real estate1,378 1,378 176 1,116 — 
Consumer998 997 419 1,170 11 
Total loans held to maturity$17,721 $17,189 $8,172 $18,217 $39 
Impaired loans without a related allowance:
Commercial and industrial$22,525 $20,104 $— $19,141 $782 
Owner occupied commercial real estate8,756 8,756 — 8,337 341 
Non-owner occupied commercial real estate1,592 1,592 — 1,515 62 
Real estate construction668 668 — 636 26 
Agricultural and agricultural real estate19,113 16,317 — 16,837 60 
Residential real estate19,382 19,300 — 17,073 280 
Consumer3,135 3,126 — 4,182 45 
Total loans held to maturity$75,171 $69,863 $— $67,721 $1,596 
Total impaired loans held to maturity:
Commercial and industrial$34,252 $31,814 $6,276 $30,898 $788 
Owner occupied commercial real estate9,468 9,468 352 9,772 363 
Non-owner occupied commercial real estate1,730 1,730 33 1,515 62 
Real estate construction685 685 — 636 26 
Agricultural and agricultural real estate21,864 18,554 916 19,576 60 
Residential real estate20,760 20,678 176 18,189 280 
Consumer4,133 4,123 419 5,352 56 
Total impaired loans held to maturity$92,892 $87,052 $8,172 $85,938 $1,635 
The following table sets forth information regarding the PCD loans acquired during 2020 as of the date of acquisition, in thousands:
Purchase
Price		Allowance for
Credit Losses		Premium/
(Discount)		Book
Value
Commercial and industrial$81,917 $(1,707)$170 $80,380 
PPP— — — — 
Owner occupied commercial real estate74,854 (1,205)(56)73,593 
Non-owner occupied commercial real estate134,135 (6,465)(3,150)124,520 
Real estate construction19,405 (603)360 19,162 
Agricultural and agricultural real estate54,584 (1,848)(413)52,323 
Residential real estate25,556 (410)94 25,240 
Consumer2,760 (75)17 2,702 
Total PCD loans$393,211 $(12,313)$(2,978)$377,920 
Loans are made in the normal course of business to directors, officers and principal holders of equity securities of Heartland. The terms of these loans, including interest rates and collateral, are similar to those prevailing for comparable transactions and do not involve more than a normal risk of collectability. Changes in such loans during the years ended December 31, 2020 and 2019, were as follows, in thousands:
 20202019
Balance at beginning of year$184,568 $124,983 
Advances73,412 91,287 
Repayments(42,531)(31,702)
Balance at end of year$215,449 $184,568