Loans and Leases | 9 Months Ended |
Sep. 30, 2014 |
Receivables [Abstract] | ' |
Loans and Leases | ' |
LOANS AND LEASES |
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Loans and leases as of September 30, 2014, and December 31, 2013, were as follows, in thousands: |
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| September 30, 2014 | | December 31, 2013 | | | | | | | | | | | | | | | | | | | | |
Loans and leases receivable held to maturity: | | | | | | | | | | | | | | | | | | | | | | | |
Commercial | $ | 1,024,712 | | | $ | 950,197 | | | | | | | | | | | | | | | | | | | | | |
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Commercial real estate | 1,684,832 | | | 1,529,683 | | | | | | | | | | | | | | | | | | | | | |
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Agricultural and agricultural real estate | 404,423 | | | 376,735 | | | | | | | | | | | | | | | | | | | | | |
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Residential real estate | 360,309 | | | 349,349 | | | | | | | | | | | | | | | | | | | | | |
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Consumer | 326,148 | | | 294,145 | | | | | | | | | | | | | | | | | | | | | |
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Gross loans and leases receivable held to maturity | 3,800,424 | | | 3,500,109 | | | | | | | | | | | | | | | | | | | | | |
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Unearned discount | (98 | ) | | (168 | ) | | | | | | | | | | | | | | | | | | | | |
Deferred loan fees | (2,021 | ) | | (2,989 | ) | | | | | | | | | | | | | | | | | | | | |
Total net loans and leases receivable held to maturity | 3,798,305 | | | 3,496,952 | | | | | | | | | | | | | | | | | | | | | |
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Loans covered under loss share agreements: | | | | | | | | | | | | | | | | | | | | | | | |
Commercial and commercial real estate | 1,188 | | | 2,314 | | | | | | | | | | | | | | | | | | | | | |
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Agricultural and agricultural real estate | 573 | | | 543 | | | | | | | | | | | | | | | | | | | | | |
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Residential real estate | 1,762 | | | 2,280 | | | | | | | | | | | | | | | | | | | | | |
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Consumer | 327 | | | 612 | | | | | | | | | | | | | | | | | | | | | |
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Total loans covered under loss share agreements | 3,850 | | | 5,749 | | | | | | | | | | | | | | | | | | | | | |
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Allowance for loan and lease losses | (41,698 | ) | | (41,685 | ) | | | | | | | | | | | | | | | | | | | | |
Loans and leases receivable, net | $ | 3,760,457 | | | $ | 3,461,016 | | | | | | | | | | | | | | | | | | | | | |
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Heartland has certain lending policies and procedures in place that are designed to provide for an acceptable level of credit risk. The board of directors reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management and the board with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming loans and potential problem loans. Diversification in the loan portfolio is also a means of managing risk associated with fluctuations in economic conditions. |
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The commercial and commercial real estate loan portfolio includes a wide range of business loans, including lines of credit for working capital and operational purposes and term loans for the acquisition of equipment and real estate. Although most loans are made on a secured basis, loans may be made on an unsecured basis where warranted by the overall financial condition of the borrower. Terms of commercial business loans generally range from one to five years. Commercial loans and leases are primarily made based on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The collateral that Heartland requires for most of these loans and leases is based upon the discounted market value of the collateral. The primary repayment risks of commercial loans and leases are that the cash flow of the borrowers may be unpredictable, and the collateral securing these loans may fluctuate in value. Heartland seeks to minimize these risks in a variety of ways. The underwriting analysis includes credit verification, analysis of global cash flows, appraisals and a review of the financial condition of the borrower. Personal guarantees are frequently required as a tertiary form of repayment. In addition, when underwriting loans for commercial real estate, careful consideration is given to the property's operating history, future operating projections, current and projected occupancy, location and physical condition. Heartland also utilizes government guaranteed lending through the U.S. Small Business Administration and the USDA Rural Development Business and Industry Program to assist customers with longer-term funding and to reduce risk. |
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Agricultural loans, many of which are secured by crops, machinery and real estate, are provided to finance capital improvements and farm operations as well as acquisitions of livestock and machinery. Agricultural loans present unique credit risks relating to adverse weather conditions, loss of livestock due to disease or other factors, declines in market prices for agricultural products and the impact of government regulations. The ultimate repayment of agricultural loans is dependent upon the profitable operation or management of the agricultural entity. In underwriting agricultural loans, lending personnel work closely with their customers to review budgets and cash flow projections for the ensuing crop year. These budgets and cash flow projections are monitored closely during the year and reviewed with the customers at least annually. Lending personnel also work closely with governmental agencies, including the Farm Service Agency, to help agricultural customers obtain credit enhancement products such as loan guarantees or interest assistance. |
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Heartland originates first-lien, adjustable-rate and fixed-rate, one-to-four-family residential real estate loans for the construction, purchase or refinancing of a single family residential property. These loans are principally collateralized by owner-occupied properties and are amortized over 10 to 30 years. Heartland typically sells longer-term, low-rate, residential mortgage loans in the secondary market with servicing rights retained. This practice allows Heartland to better manage interest rate risk and liquidity risk. The Heartland bank subsidiaries participate in lending programs sponsored by U.S. government agencies such as Veterans Administration and Federal Home Administration when justified by market conditions. |
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Consumer lending includes motor vehicle, home improvement, home equity and small personal credit lines. Consumer loans typically have shorter terms, lower balances, higher yields and higher risks of default than one-to-four-family residential mortgage loans. Consumer loan collections are dependent on the borrower's continuing financial stability, and are therefore more likely to be affected by adverse personal circumstances. Risk is reduced through underwriting criteria, which include credit verification, appraisals, a review of the borrower's financial condition, and personal cash flows. A security interest, with title insurance when necessary, is taken in the underlying real estate. Heartland's consumer finance subsidiaries, Citizens Finance Co. and Citizens Finance of Illinois Co., typically lend to borrowers with past credit problems or limited credit histories, which comprise approximately 22% of Heartland's total consumer loan portfolio. |
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Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Heartland’s policy is to discontinue the accrual of interest income on any loan or lease when, in the opinion of management, there is a reasonable doubt as to the timely collection of the interest and principal, normally when a loan or lease is 90 days past due. When interest accruals are deemed uncollectible, interest credited to income in the current year is reversed and interest accrued in prior years is charged to the allowance for loan and lease losses. Nonaccrual loans and leases are returned to an accrual status when, in the opinion of management, the financial position of the borrower indicates that there is no longer any reasonable doubt as to the timely payment of interest and principal. |
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Under Heartland’s credit practices, a loan is impaired when, based on current information and events, it is probable that Heartland will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loan impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except where more practical, at the observable market price of the loan or the fair value of the collateral if the loan is collateral dependent. |
The following table shows the balance in the allowance for loan and lease losses at September 30, 2014, and December 31, 2013, 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 and lease losses policy during 2014. |
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| Allowance For Loan and Lease Losses | | Gross Loans and Leases Receivable Held to Maturity | | | | |
| Ending Balance | | Ending Balance | | Total | | Ending Balance Evaluated for Impairment | | Ending Balance Evaluated for Impairment | | Total | | | | |
Under ASC | Under ASC | Under ASC | Under ASC | | | | |
310-10-35 | 450-20 | 310-10-35 | 450-20 | | | | |
September 30, 2014 | | | | | | | | | | | | | | | |
Commercial | $ | 451 | | | $ | 10,904 | | | $ | 11,355 | | | $ | 8,278 | | | $ | 1,016,434 | | | $ | 1,024,712 | | | | | |
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Commercial real estate | 1,176 | | | 14,969 | | | 16,145 | | | 33,280 | | | 1,651,552 | | | 1,684,832 | | | | | |
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Agricultural and agricultural real estate | 67 | | | 3,049 | | | 3,116 | | | 5,689 | | | 398,734 | | | 404,423 | | | | | |
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Residential real estate | 424 | | | 3,199 | | | 3,623 | | | 8,187 | | | 352,122 | | | 360,309 | | | | | |
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Consumer | 1,287 | | | 5,966 | | | 7,253 | | | 6,150 | | | 319,998 | | | 326,148 | | | | | |
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Unallocated | — | | | 206 | | | 206 | | | — | | | — | | | — | | | | | |
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Total | $ | 3,405 | | | $ | 38,293 | | | $ | 41,698 | | | $ | 61,584 | | | $ | 3,738,840 | | | $ | 3,800,424 | | | | | |
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December 31, 2013 | | | | | | | | | | | | | | | |
Commercial | $ | 2,817 | | | $ | 10,282 | | | $ | 13,099 | | | $ | 14,644 | | | $ | 935,553 | | | $ | 950,197 | | | | | |
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Commercial real estate | 818 | | | 13,334 | | | 14,152 | | | 28,299 | | | 1,501,384 | | | 1,529,683 | | | | | |
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Agricultural and agricultural real estate | 756 | | | 2,236 | | | 2,992 | | | 16,667 | | | 360,068 | | | 376,735 | | | | | |
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Residential real estate | 605 | | | 3,115 | | | 3,720 | | | 7,214 | | | 342,135 | | | 349,349 | | | | | |
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Consumer | 1,721 | | | 6,001 | | | 7,722 | | | 5,137 | | | 289,008 | | | 294,145 | | | | | |
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Unallocated | — | | | — | | | — | | | — | | | — | | | — | | | | | |
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Total | $ | 6,717 | | | $ | 34,968 | | | $ | 41,685 | | | $ | 71,961 | | | $ | 3,428,148 | | | $ | 3,500,109 | | | | | |
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The following table presents nonaccrual loans, accruing loans past due 90 days or more and troubled debt restructured loans not covered under loss share agreements at September 30, 2014, and December 31, 2013, in thousands. There were no nonaccrual leases, accruing leases past due 90 days or more or restructured leases at September 30, 2014, and December 31, 2013. |
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| September 30, 2014 | | 31-Dec-13 | | | | | | | | | | | | | | | | | | | | |
Nonaccrual loans | $ | 25,802 | | | $ | 29,313 | | | | | | | | | | | | | | | | | | | | | |
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Nonaccrual troubled debt restructured loans | 4,328 | | | 13,081 | | | | | | | | | | | | | | | | | | | | | |
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Total nonaccrual loans | $ | 30,130 | | | $ | 42,394 | | | | | | | | | | | | | | | | | | | | | |
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Accruing loans past due 90 days or more | $ | — | | | $ | 24 | | | | | | | | | | | | | | | | | | | | | |
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Performing troubled debt restructured loans | $ | 11,994 | | | $ | 19,353 | | | | | | | | | | | | | | | | | | | | | |
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The following tables provide information on troubled debt restructured loans that were modified during the three and nine months ended September 30, 2014, and September 30, 2013, dollars in thousands: |
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| Three Months Ended | | | | | | |
September 30, | | | | | | |
| 2014 | | 2013 | | | | | | |
| Number | | Pre- | | Post- | | Number | | Pre- | | Post- | | | | | | |
of Loans | Modification | Modification | of Loans | Modification | Modification | | | | | | |
| Recorded | Recorded | | Recorded | Recorded | | | | | | |
| Investment | Investment | | Investment | Investment | | | | | | |
Commercial | — | | | $ | — | | | $ | — | | | — | | | $ | — | | | $ | — | | | | | | | |
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Commercial real estate | — | | | — | | | — | | | — | | | — | | | — | | | | | | | |
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Total commercial and commercial real estate | — | | | — | | | — | | | — | | | — | | | — | | | | | | | |
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Agricultural and agricultural real estate | 1 | | | 60 | | | 60 | | | — | | | — | | | — | | | | | | | |
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Residential real estate | — | | | — | | | — | | | 1 | | | 65 | | | 65 | | | | | | | |
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Consumer | — | | | — | | | — | | | — | | | — | | | — | | | | | | | |
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Total | 1 | | | $ | 60 | | | $ | 60 | | | 1 | | | $ | 65 | | | $ | 65 | | | | | | | |
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| Nine Months Ended | | | | | | |
September 30, | | | | | | |
| 2014 | | 2013 | | | | | | |
| Number | | Pre- | | Post- | | Number | | Pre- | | Post- | | | | | | |
of Loans | Modification | Modification | of Loans | Modification | Modification | | | | | | |
| Recorded | Recorded | | Recorded | Recorded | | | | | | |
| Investment | Investment | | Investment | Investment | | | | | | |
Commercial | — | | | $ | — | | | $ | — | | | 3 | | | $ | 17,873 | | | $ | 17,873 | | | | | | | |
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Commercial real estate | 1 | | | 298 | | | 298 | | | — | | | — | | | — | | | | | | | |
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Total commercial and commercial real estate | 1 | | | 298 | | | 298 | | | 3 | | | 17,873 | | | 17,873 | | | | | | | |
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Agricultural and agricultural real estate | 3 | | | 3,417 | | | 3,417 | | | 3 | | | 2,576 | | | 2,576 | | | | | | | |
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Residential real estate | 1 | | | 38 | | | 38 | | | 4 | | | 762 | | | 762 | | | | | | | |
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Consumer | — | | | — | | | — | | | 1 | | | 166 | | | 166 | | | | | | | |
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Total | 5 | | | $ | 3,753 | | | $ | 3,753 | | | 11 | | | $ | 21,377 | | | $ | 21,377 | | | | | | | |
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The pre-modification and post-modification recorded investment represents amounts as of the date of loan modification. Since the modifications on these loans have been only interest rate concessions and term extensions, not principal reductions, the pre-modification and post-modification recorded investment amounts are the same. At September 30, 2014, there were no commitments to extend credit to any of the borrowers with an existing troubled debt restructuring. |
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The following tables provide information on troubled debt restructured loans for which there was a payment default during the three months and nine months ended September 30, 2014, and September 30, 2013, in thousands, that had been modified during the twelve month period prior to the default: |
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| With Payment Defaults During the Following Periods | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | | | | | | | | | |
September 30, | | | | | | | | | | | | | | |
| 2014 | | 2013 | | | | | | | | | | | | | | |
| Number of Loans | | Recorded Investment | | Number of Loans | | Recorded Investment | | | | | | | | | | | | | | |
Commercial | — | | | $ | — | | | 1 | | | $ | 13,000 | | | | | | | | | | | | | | | |
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Commercial real estate | — | | | — | | | — | | | — | | | | | | | | | | | | | | | |
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Total commercial and commercial real estate | — | | | — | | | 1 | | | 13,000 | | | | | | | | | | | | | | | |
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Agricultural and agricultural real estate | 1 | | | 60 | | | — | | | — | | | | | | | | | | | | | | | |
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Residential real estate | — | | | — | | | — | | | — | | | | | | | | | | | | | | | |
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Consumer | — | | | — | | | — | | | — | | | | | | | | | | | | | | | |
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Total | 1 | | | $ | 60 | | | 1 | | | $ | 13,000 | | | | | | | | | | | | | | | |
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| With Payment Defaults During the Following Periods | | | | | | | | | | | | | | |
| Nine Months Ended | | | | | | | | | | | | | | |
September 30, | | | | | | | | | | | | | | |
| 2014 | | 2013 | | | | | | | | | | | | | | |
| Number of Loans | | Recorded Investment | | Number of Loans | | Recorded Investment | | | | | | | | | | | | | | |
Commercial | — | | | $ | — | | | 2 | | | $ | 17,670 | | | | | | | | | | | | | | | |
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Commercial real estate | — | | | — | | | — | | | — | | | | | | | | | | | | | | | |
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Total commercial and commercial real estate | — | | | — | | | 2 | | | 17,670 | | | | | | | | | | | | | | | |
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Agricultural and agricultural real estate | 1 | | | 60 | | | — | | | — | | | | | | | | | | | | | | | |
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Residential real estate | — | | | — | | | 2 | | | 167 | | | | | | | | | | | | | | | |
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Consumer | — | | | — | | | — | | | — | | | | | | | | | | | | | | | |
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Total | 1 | | | $ | 60 | | | 4 | | | $ | 17,837 | | | | | | | | | | | | | | | |
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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, 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 special mention, substandard, doubtful and loss loans. The "special mention" rating is attached to loans where the borrower exhibits negative financial trends due to borrower specific or systemic conditions that, if left uncorrected, threaten its 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 sound net worth and paying capacity of the borrower and 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 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 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 an operating entity. Specific pending events, such as capital injections, liquidations or perfection of liens on additional collateral, may strengthen the credit, thus deferring classification of the loan as loss until exact status can be determined. The "loss" rating is assigned to loans considered uncollectible. As of September 30, 2014, Heartland had no loans classified as doubtful or loss. Loans are placed on "nonaccrual" when management does not expect to collect payments of principal and interest in full or when principal or interest has been in default for a period of 90 days or more, unless the loan is both well secured and in the process of collection. |
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The following table presents loans and leases not covered by loss share agreements by credit quality indicator at September 30, 2014, and December 31, 2013, in thousands: |
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| Pass | | Nonpass | | Total | | | | | | | | | | | | | | | | |
September 30, 2014 | | | | | | | | | | | | | | | | | | | | | |
Commercial | $ | 913,923 | | | $ | 110,789 | | | $ | 1,024,712 | | | | | | | | | | | | | | | | | |
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Commercial real estate | 1,536,940 | | | 147,892 | | | 1,684,832 | | | | | | | | | | | | | | | | | |
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Total commercial and commercial real estate | 2,450,863 | | | 258,681 | | | 2,709,544 | | | | | | | | | | | | | | | | | |
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Agricultural and agricultural real estate | 377,733 | | | 26,690 | | | 404,423 | | | | | | | | | | | | | | | | | |
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Residential real estate | 341,984 | | | 18,325 | | | 360,309 | | | | | | | | | | | | | | | | | |
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Consumer | 316,609 | | | 9,539 | | | 326,148 | | | | | | | | | | | | | | | | | |
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Total gross loans and leases receivable held to maturity | $ | 3,487,189 | | | $ | 313,235 | | | $ | 3,800,424 | | | | | | | | | | | | | | | | | |
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December 31, 2013 | | | | | | | | | | | | | | | | | | | | | |
Commercial | $ | 871,825 | | | $ | 78,372 | | | $ | 950,197 | | | | | | | | | | | | | | | | | |
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Commercial real estate | 1,390,820 | | | 138,863 | | | 1,529,683 | | | | | | | | | | | | | | | | | |
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Total commercial and commercial real estate | 2,262,645 | | | 217,235 | | | 2,479,880 | | | | | | | | | | | | | | | | | |
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Agricultural and agricultural real estate | 335,821 | | | 40,914 | | | 376,735 | | | | | | | | | | | | | | | | | |
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Residential real estate | 333,161 | | | 16,188 | | | 349,349 | | | | | | | | | | | | | | | | | |
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Consumer | 284,148 | | | 9,997 | | | 294,145 | | | | | | | | | | | | | | | | | |
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Total gross loans and leases receivable held to maturity | $ | 3,215,775 | | | $ | 284,334 | | | $ | 3,500,109 | | | | | | | | | | | | | | | | | |
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The nonpass category in the table above is comprised of approximately 69% special mention and 31% substandard as of September 30, 2014. The percent of nonpass loans on nonaccrual status as of September 30, 2014, was 9%. As of December 31, 2013, the nonpass category in the table above was comprised of approximately 59% special mention, 38% substandard, and 3% doubtful. The percent of nonpass loans on nonaccrual status as of December 31, 2013, was 15%. Loans delinquent 30 to 89 days as a percent of total loans were 0.32% at September 30, 2014, compared to 0.30% at December 31, 2013. Changes in credit risk are monitored on a continuous basis and changes in risk ratings are made when identified. All impaired loans are reviewed at least annually. |
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The following table sets forth information regarding Heartland's accruing and nonaccrual loans and leases not covered by loss share agreements at September 30, 2014, and December 31, 2013, in thousands: |
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| Accruing Loans and Leases | | | | |
| 30-59 Days | | 60-89 Days | | 90 Days or | | Total | | Current | | Nonaccrual | | Total Loans |
Past Due | Past Due | More Past Due | Past Due | and Leases |
September 30, 2014 | | | | | | | | | | | | | |
Commercial | $ | 5,163 | | | $ | 124 | | | $ | — | | | $ | 5,287 | | | $ | 1,013,124 | | | $ | 6,301 | | | $ | 1,024,712 | |
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Commercial real estate | 941 | | | 101 | | | — | | | 1,042 | | | 1,670,756 | | | 13,034 | | | 1,684,832 | |
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Total commercial and commercial real estate | 6,104 | | | 225 | | | — | | | 6,329 | | | 2,683,880 | | | 19,335 | | | 2,709,544 | |
|
Agricultural and agricultural real estate | 89 | | | — | | | — | | | 89 | | | 402,319 | | | 2,015 | | | 404,423 | |
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Residential real estate | 1,626 | | | 120 | | | — | | | 1,746 | | | 352,362 | | | 6,201 | | | 360,309 | |
|
Consumer | 2,915 | | | 990 | | | — | | | 3,905 | | | 319,664 | | | 2,579 | | | 326,148 | |
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Total gross loans and leases receivable held to maturity | $ | 10,734 | | | $ | 1,335 | | | $ | — | | | $ | 12,069 | | | $ | 3,758,225 | | | $ | 30,130 | | | $ | 3,800,424 | |
|
December 31, 2013 | | | | | | | | | | | | | |
Commercial | $ | 697 | | | $ | 741 | | | $ | — | | | $ | 1,438 | | | $ | 935,508 | | | $ | 13,251 | | | $ | 950,197 | |
|
Commercial real estate | 3,042 | | | 199 | | | 24 | | | 3,265 | | | 1,511,618 | | | 14,800 | | | 1,529,683 | |
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Total commercial and commercial real estate | 3,739 | | | 940 | | | 24 | | | 4,703 | | | 2,447,126 | | | 28,051 | | | 2,479,880 | |
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Agricultural and agricultural real estate | 818 | | | — | | | — | | | 818 | | | 369,907 | | | 6,010 | | | 376,735 | |
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Residential real estate | 1,199 | | | 56 | | | — | | | 1,255 | | | 342,735 | | | 5,359 | | | 349,349 | |
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Consumer | 2,624 | | | 1,089 | | | — | | | 3,713 | | | 287,458 | | | 2,974 | | | 294,145 | |
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Total gross loans and leases receivable held to maturity | $ | 8,380 | | | $ | 2,085 | | | $ | 24 | | | $ | 10,489 | | | $ | 3,447,226 | | | $ | 42,394 | | | $ | 3,500,109 | |
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The majority of Heartland's impaired loans are those that are nonaccrual or have had their terms restructured in a troubled debt restructuring. The following tables present, for impaired loans not covered by loss share agreements and by category of loan, the unpaid contractual balance at September 30, 2014, and December 31, 2013; the outstanding loan balance recorded on the consolidated balance sheets at September 30, 2014, and December 31, 2013; any related allowance recorded for those loans as of September 30, 2014, and December 31, 2013; the average outstanding loan balance recorded on the consolidated balance sheets during the three months and nine months ended September 30, 2014, and year ended December 31, 2013; and the interest income recognized on the impaired loans during the three months and nine months ended September 30, 2014, and year ended December 31, 2013, in thousands: |
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| Unpaid | | Loan | | Related | | Quarter-to- | | Quarter-to- | | Year-to- | | Year-to- |
Contractual | Balance | Allowance | Date | Date | Date | Date |
Balance | | Recorded | Avg. | Interest | Avg. | Interest |
| | | Loan | Income | Loan | Income |
| | | Balance | Recognized | Balance | Recognized |
September 30, 2014 | | | | | | | | | | | | | |
Impaired loans with a related allowance: | | | | | | | | | | | | | |
Commercial | $ | 4,751 | | | $ | 4,675 | | | $ | 451 | | | $ | 6,960 | | | $ | — | | | $ | 7,022 | | | $ | 10 | |
|
Commercial real estate | 4,092 | | | 3,832 | | | 1,176 | | | 11,645 | | | 7 | | | 6,294 | | | 40 | |
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Total commercial and commercial real estate | 8,843 | | | 8,507 | | | 1,627 | | | 18,605 | | | 7 | | | 13,316 | | | 50 | |
|
Agricultural and agricultural real estate | 3,368 | | | 3,368 | | | 67 | | | 4,021 | | | 12 | | | 4,176 | | | 67 | |
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Residential real estate | 2,024 | | | 1,939 | | | 424 | | | 6,308 | | | 8 | | | 3,604 | | | 17 | |
|
Consumer | 4,339 | | | 4,330 | | | 1,287 | | | 5,489 | | | 21 | | | 4,710 | | | 81 | |
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Total loans held to maturity | $ | 18,574 | | | $ | 18,144 | | | $ | 3,405 | | | $ | 34,423 | | | $ | 48 | | | $ | 25,806 | | | $ | 215 | |
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Impaired loans without a related allowance: | | | | | | | | | | | | | |
Commercial | $ | 4,222 | | | $ | 3,603 | | | $ | — | | | $ | 2,620 | | | $ | 20 | | | $ | 3,519 | | | $ | 60 | |
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Commercial real estate | 33,626 | | | 29,448 | | | — | | | 23,937 | | | 595 | | | 23,325 | | | 883 | |
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Total commercial and commercial real estate | 37,848 | | | 33,051 | | | — | | | 26,557 | | | 615 | | | 26,844 | | | 943 | |
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Agricultural and agricultural real estate | 3,749 | | | 2,321 | | | — | | | 2,100 | | | 3 | | | 3,731 | | | 10 | |
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Residential real estate | 6,616 | | | 6,248 | | | — | | | 6,449 | | | — | | | 6,055 | | | 64 | |
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Consumer | 1,820 | | | 1,820 | | | — | | | 1,627 | | | 17 | | | 1,722 | | | 34 | |
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Total loans held to maturity | $ | 50,033 | | | $ | 43,440 | | | $ | — | | | $ | 36,733 | | | $ | 635 | | | $ | 38,352 | | | $ | 1,051 | |
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Total impaired loans held to maturity: | | | | | | | | | | | | | |
Commercial | $ | 8,973 | | | $ | 8,278 | | | $ | 451 | | | $ | 9,580 | | | $ | 20 | | | $ | 10,541 | | | $ | 70 | |
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Commercial real estate | 37,718 | | | 33,280 | | | 1,176 | | | 35,582 | | | 602 | | | 29,619 | | | 923 | |
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Total commercial and commercial real estate | 46,691 | | | 41,558 | | | 1,627 | | | 45,162 | | | 622 | | | 40,160 | | | 993 | |
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Agricultural and agricultural real estate | 7,117 | | | 5,689 | | | 67 | | | 6,121 | | | 15 | | | 7,907 | | | 77 | |
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Residential real estate | 8,640 | | | 8,187 | | | 424 | | | 12,757 | | | 8 | | | 9,659 | | | 81 | |
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Consumer | 6,159 | | | 6,150 | | | 1,287 | | | 7,116 | | | 38 | | | 6,432 | | | 115 | |
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Total impaired loans held to maturity | $ | 68,607 | | | $ | 61,584 | | | $ | 3,405 | | | $ | 71,156 | | | $ | 683 | | | $ | 64,158 | | | $ | 1,266 | |
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| Unpaid | | Loan | | Related | | Year-to- | | Year-to- | | | | | | | | |
Contractual | Balance | Allowance | Date | Date | | | | | | | | |
Balance | | Recorded | Avg. | Interest | | | | | | | | |
| | | Loan | Income | | | | | | | | |
| | | Balance | Recognized | | | | | | | | |
December 31, 2013 | | | | | | | | | | | | | | | | | |
Impaired loans with a related allowance: | | | | | | | | | | | | | | | | | |
Commercial | $ | 7,901 | | | $ | 7,901 | | | $ | 2,817 | | | $ | 5,343 | | | $ | 38 | | | | | | | | | |
| | | | | | | |
Commercial real estate | 9,164 | | | 8,909 | | | 818 | | | 7,686 | | | 282 | | | | | | | | | |
| | | | | | | |
Total commercial and commercial real estate | 17,065 | | | 16,810 | | | 3,635 | | | 13,029 | | | 320 | | | | | | | | | |
| | | | | | | |
Agricultural and agricultural real estate | 13,818 | | | 13,818 | | | 756 | | | 7,537 | | | 354 | | | | | | | | | |
| | | | | | | |
Residential real estate | 2,460 | | | 2,460 | | | 605 | | | 3,179 | | | 13 | | | | | | | | | |
| | | | | | | |
Consumer | 3,485 | | | 3,485 | | | 1,721 | | | 3,490 | | | 100 | | | | | | | | | |
| | | | | | | |
Total loans held to maturity | $ | 36,828 | | | $ | 36,573 | | | $ | 6,717 | | | $ | 27,235 | | | $ | 787 | | | | | | | | | |
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Impaired loans without a related allowance: | | | | | | | | | | | | | | | | | |
Commercial | $ | 7,724 | | | $ | 6,743 | | | $ | — | | | $ | 9,394 | | | $ | 89 | | | | | | | | | |
| | | | | | | |
Commercial real estate | 24,830 | | | 19,390 | | | — | | | 25,676 | | | 538 | | | | | | | | | |
| | | | | | | |
Total commercial and commercial real estate | 32,554 | | | 26,133 | | | — | | | 35,070 | | | 627 | | | | | | | | | |
| | | | | | | |
Agricultural and agricultural real estate | 2,849 | | | 2,849 | | | — | | | 9,985 | | | 189 | | | | | | | | | |
| | | | | | | |
Residential real estate | 5,345 | | | 4,754 | | | — | | | 4,198 | | | 80 | | | | | | | | | |
| | | | | | | |
Consumer | 1,652 | | | 1,652 | | | — | | | 1,515 | | | 37 | | | | | | | | | |
| | | | | | | |
Total loans held to maturity | $ | 42,400 | | | $ | 35,388 | | | $ | — | | | $ | 50,768 | | | $ | 933 | | | | | | | | | |
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Total impaired loans held to maturity: | | | | | | | | | | | | | | | | | |
Commercial | $ | 15,625 | | | $ | 14,644 | | | $ | 2,817 | | | $ | 14,737 | | | $ | 127 | | | | | | | | | |
| | | | | | | |
Commercial real estate | 33,994 | | | 28,299 | | | 818 | | | 33,362 | | | 820 | | | | | | | | | |
| | | | | | | |
Total commercial and commercial real estate | 49,619 | | | 42,943 | | | 3,635 | | | 48,099 | | | 947 | | | | | | | | | |
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Agricultural and agricultural real estate | 16,667 | | | 16,667 | | | 756 | | | 17,522 | | | 543 | | | | | | | | | |
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Residential real estate | 7,805 | | | 7,214 | | | 605 | | | 7,377 | | | 93 | | | | | | | | | |
| | | | | | | |
Consumer | 5,137 | | | 5,137 | | | 1,721 | | | 5,005 | | | 137 | | | | | | | | | |
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Total impaired loans held to maturity | $ | 79,228 | | | $ | 71,961 | | | $ | 6,717 | | | $ | 78,003 | | | $ | 1,720 | | | | | | | | | |
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On July 2, 2009, Heartland acquired all deposits of The Elizabeth State Bank in Elizabeth, Illinois through its subsidiary Galena State Bank & Trust Co. based in Galena, Illinois, in a whole bank loss sharing transaction facilitated by the FDIC. As of July 2, 2009, The Elizabeth State Bank had loans of $42.7 million. The estimated fair value of the loans acquired was $37.8 million. |
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The acquired loans and other real estate owned are covered by two loss share agreements between the FDIC and Galena State Bank & Trust Co., which affords Galena State Bank & Trust Co. significant loss protection. Under the loss share agreements, the FDIC covers 80% of the covered loan and other real estate owned losses (referred to as covered assets) up to $10 million and 95% of losses in excess of that amount. The term for loss sharing on non-residential real estate losses is five years with respect to losses and eight years with respect to recoveries, while the term for loss sharing on residential real estate loans is ten years with respect to losses and recoveries. The reimbursable losses from the FDIC are based on the book value of the relevant loan as determined by the FDIC at the date of the transaction. New loans made after the acquisition are not covered by the loss share agreements. |
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The Elizabeth State Bank acquisition was accounted for under the acquisition method of accounting in accordance with ASC 805, “Business Combinations.” Purchased loans acquired in a business combination, which include loans purchased in The Elizabeth State Bank acquisition, are recorded at estimated fair value on their purchase date, but the purchaser cannot carry over the related allowance for loan and lease losses. Purchased loans are accounted for under ASC 310-30, “Loans and Debt Securities with Deteriorated Credit Quality,” when the loans have evidence of credit deterioration since origination and it is probable at the date of the acquisition that Heartland will not collect all contractually required principal and interest payments. Evidence of credit quality deterioration at the purchase date included statistics such as past due and nonaccrual status. Generally, acquired loans that meet Heartland’s definition for nonaccrual status fall within the scope of ASC 310-30. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference which is included in the carrying value of the loans. Subsequent decreases to the expected cash flows will generally result in a provision for loan and lease losses. Subsequent increases in cash flows result in a reversal of the provision for loan and lease losses to the extent of prior charges, or a reclassification of the difference from nonaccretable to accretable with a positive impact on future interest income. Further, any excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan when there is a reasonable expectation about the amount and timing of such cash flows. |
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The carrying amount of the loans covered by these loss share agreements at September 30, 2014, and December 31, 2013, consisted of purchased impaired and nonimpaired loans as summarized in the following table, in thousands: |
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| September 30, 2014 | | December 31, 2013 | | | | |
| Impaired | | Non | | Total | | Impaired | | Non | | Total | | | | |
Purchased | Impaired | Covered | Purchased | Impaired | Covered | | | | |
Loans | Purchased | Loans | Loans | Purchased | Loans | | | | |
| Loans | | | Loans | | | | | |
Commercial and commercial real estate | $ | — | | | $ | 1,188 | | | $ | 1,188 | | | $ | 549 | | | $ | 1,765 | | | $ | 2,314 | | | | | |
| | | |
Agricultural and agricultural real estate | — | | | 573 | | | 573 | | | — | | | 543 | | | 543 | | | | | |
| | | |
Residential real estate | — | | | 1,762 | | | 1,762 | | | — | | | 2,280 | | | 2,280 | | | | | |
| | | |
Consumer loans | 266 | | | 61 | | | 327 | | | 538 | | | 74 | | | 612 | | | | | |
| | | |
Total Covered Loans | $ | 266 | | | $ | 3,584 | | | $ | 3,850 | | | $ | 1,087 | | | $ | 4,662 | | | $ | 5,749 | | | | | |
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On the acquisition date, the preliminary estimate of the contractually required payments receivable for all loans with evidence of credit deterioration since origination acquired in the acquisition was $13.8 million and the estimated fair value of the loans was $9.0 million. At September 30, 2014, and December 31, 2013, a majority of these loans were valued based upon the liquidation value of the underlying collateral, because the expected cash flows are primarily based on the liquidation of underlying collateral and the timing and amount of the cash flows could not be reasonably estimated. There was no allowance for loan and lease losses related to these ASC 310-30 loans at September 30, 2014, and December 31, 2013. |
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On the acquisition date, the preliminary estimate of the contractually required payments receivable for all nonimpaired loans acquired in the acquisition was $28.9 million and the estimated fair value of the loans was $28.7 million. |