FAIR VALUE (Tables)

12 Months Ended

Dec. 31, 2020

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 December 31, 2020, and December 31, 2019, 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
December 31, 2020
Assets

Securities available for sale
U.S. treasuries	$	2,026	$	2,026	$	—	$	—
U.S. agencies	166,779		—		166,779		—
Obligations of states and political subdivisions	1,635,227		—		1,635,227		—
Mortgage-backed securities - agency	1,355,270		—		1,355,270		—
Mortgage-backed securities - non-agency	1,449,116		—		1,449,116		—
Commercial mortgage-backed securities - agency	174,153		—		174,153		—
Commercial mortgage-backed securities - non-agency	252,767		—		252,767		—
Asset-backed securities	1,069,266		—		1,069,266		—
Corporate bonds	3,742		—		3,742		—
Equity securities with a readily determinable fair value	19,629		—		19,629		—
Derivative financial instruments(1)	44,102		—		44,102		—
Interest rate lock commitments	1,827		—		—		1,827
Forward commitments	—		—		—		—
Total assets at fair value	$	6,173,904	$	2,026	$	6,170,051	$	1,827
Liabilities
Derivative financial instruments(2)	$	51,962	$	—	$	51,962	$	—
Forward commitments	697		—		697		—
Total liabilities at fair value	$	52,659	$	—	$	52,659	$	—
December 31, 2019
Assets

Securities available for sale
U.S. treasuries	$	8,503	$	8,503	$	—	$	—
U.S. agencies	184,676		—		184,676		—
Obligations of states and political subdivisions	707,190		—		707,190		—
Mortgage-backed securities - agency	766,726		—		766,726		—
Mortgage-backed securities - non-agency	430,497		—		430,497		—
Commercial mortgage-backed securities - agency	68,865		—		68,865		—
Commercial mortgage-backed securities - non-agency	436,325		—		436,325		—
Asset-backed securities	691,579		—		691,579		—
Corporate bonds	—		—		—		—
Equity securities	18,435		—		18,435		—
Derivative financial instruments(1)	17,527		—		17,527		—
Interest rate lock commitments	681		—		—		681
Forward commitments	15		—		15		—
Total assets at fair value	$	3,331,019	$	8,503	$	3,321,835	$	681
Liabilities
Derivative financial instruments(2)	$	21,462	$	—	$	21,462	$	—
Forward commitments	113		—		113		—
Total liabilities at fair value	$	21,575	$	—	$	21,575	$	—

(1) Includes embedded derivatives, back-to-back loan swaps and cash flow hedges.
(2) Includes cash flow hedges, fair value hedges, back-to-back loan swaps 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 December 31, 2020
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		(Gains)/Losses
Collateral dependent individually assessed loans:
Commercial and industrial	$	11,256	$	—	$	—	$	11,256	$	451
Owner occupied commercial real estate	5,874		—		—		5,874		11,631
Non-owner occupied commercial real estate	4,907		—		—		4,907		—
Real estate construction	—		—		—		—		—
Agricultural and agricultural real estate	12,451		—		—		12,451		—
Residential real estate	—		—		—		—		—
Consumer	—		—		—		—		—
Total collateral dependent individually assessed loans	$	34,488	$	—	$	—	$	34,488	$	12,082
Loans held for sale	$	57,949	$	—	$	57,949	$	—	$	(982)
Other real estate owned	$	6,624	$	—	$	—	$	6,624	$	1,044
Premises, furniture and equipment held for sale	$	6,499	$	—	$	—	$	6,499	$	3,288
Servicing rights	$	5,189	$	—	$	—	$	5,189	$	1,778


	Fair Value Measurements at December 31, 2019
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		(Gains)/Losses
Collateral dependent impaired loans:
Commercial and industrial	$	15,173	—		—		15,173		1,114
Owner occupied commercial real estate	1,352		—		—		1,352		—
Non-owner occupied commercial real estate	1,305		—		—		1,305		—
Real estate construction	—		—		—		—		—
Agricultural and agricultural real estate	12,623		—		—		12,623		1,254
Residential real estate	4,978		—		—		4,978		82
Consumer	1,033		—		—		1,033		—
Total collateral dependent impaired loans	$	36,464	$	—	$	—	$	36,464	$	2,450
Loans held for sale	$	26,748	$	—	$	26,748	$	—	$	(980)
Other real estate owned	$	6,914	$	—	$	—	$	6,914	$	947
Premises, furniture and equipment held for sale	$	2,967	$	—	$	—	$	2,967	$	735
Servicing rights	$	5,621	$	—	$	—	$	5,621	$	911

Quantitative Information on Assets Measured at Fair Value on Recurring and Nonrecurring Basis Using Level 3

The following tables present additional quantitative information about assets measured at fair value on a recurring and nonrecurring basis and for which Heartland has utilized Level 3 inputs to determine fair value, in thousands:

Fair Value at 12/31/20

Valuation Technique

Unobservable Input

Range (Weighted Average)

Interest rate lock
commitments

1,827

Discounted cash flows

Closing ratio

0 - 99% (86%)(1)

Premises, furniture and equipment held for sale

6,499

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Other real estate owned

6,624

Modified appraised value

Third party appraisal

(2)

Appraisal discounts

0-10%(3)

Servicing rights

5,189

Discounted cash flows

Third party valuation

(4)

Collateral dependent individually assessed loans:

Commercial and industrial

11,256

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-8%(3)

Owner occupied commercial real estate

5,874

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-12%(3)

Non-owner occupied commercial real estate

4,907

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Agricultural and agricultural real estate

12,451

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(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.

(4) The significant unobservable input used in the fair value measurement are the value indices, which are weighted-average spreads to LIBOR based on maturity groups.

Fair Value at 12/31/19

Valuation Technique

Unobservable Input

Range (Weighted Average)

Interest rate lock commitments

681

Discounted cash flows

Closing ratio

0 - 99% (90%)(1)

Premises, furniture and equipment held for sale

2,967

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-10%(3)

Other real estate owned

6,914

Modified appraised value

Third party appraisal

(2)

Appraisal discounts

0-10%(3)

Servicing rights

5,621

Discounted cash flows

Third party valuation

(4)

Collateral dependent impaired loans:

Commercial and industrial

15,173

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-25%(3)

Owner occupied commercial real estate

1,352

Modified appraised value

Third party appraisal

(2)

Appraisal discounts

0-14%(3)

Non-owner occupied commercial real estate

1,305

Modified appraised value

Third party appraisal

(2)

Appraisal discounts

0-14%(3)

Real estate construction

—

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-14%(3)

Agricultural and agricultural real estate

12,623

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-15%(3)

Residential real estate

4,978

Modified appraised value

Third party appraisal

(2)

Appraisal discount

0-25%(5)

Consumer

1,033

Modified appraised value

Third party valuation

(2)

Valuation discount

0-10%(3)

(3) The significant unobservable input used in the fair value measurement are the value indices, which are weighted-average spreads to LIBOR based on maturity groups.

(4) 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.

Summary of Changes in Fair Value of Level 3 Assets Measured at Fair Value on Recurring Basis

The changes in fair value of the interest rate lock commitments, which are Level 3 financial instruments and are measured on a recurring basis, are summarized in the following table, in thousands:


	For the Years Ended
	December 31, 2020		December 31, 2019
Balance at January 1,	$	681	$	725
Acquired interest rate lock commitments	—		—
Total gains (losses), net, included in earnings	2,803		18
Issuances	17,221		10,702
Settlements	(18,878)		(10,764)
Balance at period end,	$	1,827	$	681

Fair Value, by Balance Sheet Grouping

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, obtaining deposits or fee generating activities. Many of the estimates presented below 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 December 31, 2020
	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	$	337,903	$	337,903	$	337,903	$	—	$	—
Time deposits in other financial institutions	3,129		3,129		3,129		—		—
Securities:

Carried at fair value	6,127,975		6,127,975		2,026		6,125,949		—




Held to maturity	88,839		100,041		—		100,041		—
Other investments	75,253		75,523		—		75,523		—

Loans held for sale	57,949		57,949		—		57,949		—
Loans, net:
Commercial	2,495,981		2,391,041		—		2,379,785		11,256
PPP	957,785		957,785		—		957,785		—
Owner occupied commercial real estate	1,756,405		1,745,397		—		1,739,523		5,874
Non-owner occupied commercial real estate	1,900,608		1,892,213		—		1,887,306		4,907
Real estate construction	843,140		849,224		—		849,224		—
Agricultural and agricultural real estate	707,397		697,729		—		685,278		12,451
Residential real estate	828,507		828,366		—		828,366		—
Consumer	401,622		407,914		—		407,914		—
Total Loans, net	9,891,445		9,769,669		—		9,735,181		34,488

Cash surrender value on life insurance	187,664		187,664		—		187,664		—
Derivative financial instruments(1)	44,102		44,102		—		44,102		—
Interest rate lock commitments	1,827		1,827		—		—		1,827
Forward commitments	—		—		—		—		—

Financial liabilities:
Deposits
Demand deposits	5,688,810		5,688,810		—		5,688,810		—
Savings deposits	8,019,704		8,019,704		—		8,019,704		—
Time deposits	1,271,391		1,273,468		—		1,273,468		—
Short term borrowings	167,872		167,872		—		167,872		—
Other borrowings	457,042		458,806		—		458,806		—
Derivative financial instruments(2)	51,962		51,962		—		51,962		—
Forward commitments	697		697		—		697		—

(1) Includes embedded derivatives, back-to-back loan swaps and cash flow hedges.
(2) Includes cash flow hedges, fair value hedges, back-to-back loan swaps and free standing derivative instruments.


					Fair Value Measurements at December 31, 2019
	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	$	378,734	$	378,734	$	378,734	$	—	$	—
Time deposits in other financial institutions	3,564		3,564		3,564		—		—
Securities:

Carried at fair value	3,312,796		3,304,293		—		3,304,293		—




Held to maturity	91,324		100,484		—		100,484		—
Other investments	31,321		31,321		—		31,321		—

Loans held for sale	26,748		26,748		—		26,748		—
Loans, net:
Commercial and industrial	2,500,022		2,621,253		—		2,606,080		15,173
PPP	—		—		—		—		—
Owner occupied commercial real estate	1,464,490		1,409,388		—		1,408,036		1,352
Non-owner occupied commercial real estate	1,488,075		1,397,527		—		1,396,222		1,305
Real estate construction	1,015,482		924,041		—		924,041		—
Agricultural and agricultural real estate	560,164		576,821		—		564,198		12,623
Residential real estate	830,773		843,343		—		838,365		4,978
Consumer	438,516		470,972		—		469,939		1,033
Total Loans, net	8,297,522		8,243,345		—		8,206,881		36,464
Cash surrender value on life insurance	171,625		171,625		—		171,625		—
Derivative financial instruments(1)	17,527		17,527		—		17,527		—
Interest rate lock commitments	681		637		—		—		637
Forward commitments	—		15		—		15		—


Financial liabilities:
Deposits
Demand deposits	3,543,863		3,543,863		—		3,543,863		—
Savings deposits	6,307,425		6,307,425		—		6,307,425		—
Time deposits	1,193,043		1,193,043		—		1,193,043		—

Short term borrowings	182,626		182,626		—		182,626		—
Other borrowings	275,773		278,169		—		278,169		—
Derivative financial instruments(2)	21,462		21,462		—		21,462		—
Forward commitments	113		113		—		113		—

(1) Includes embedded derivatives, back-to-back loan swaps and cash flow hedges.
(2) Includes cash flow hedges, fair value hedges, back-to-back loan swaps and free standing derivative instruments.