XNAS:HTLF Heartland Financial USA Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For quarterly period ended March 31, 2012

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period __________ to __________

Commission File Number: 001-15393

HEARTLAND FINANCIAL USA, INC.
(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

42-1405748
(I.R.S. employer identification number)

1398 Central Avenue, Dubuque, Iowa  52001
(Address of principal executive offices)(Zip Code)

(563) 589-2000
(Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x No o

     Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o
   
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Act.
 
Large accelerated filer
¨
 
 
Accelerated Filer
x
 
 
 
 
 
 
 
 
 
 
 
 
Non-accelerated filer
¨
 
 
Smaller reporting company
¨
 
 
(Do not check if a smaller reporting company)
 
 
 
 
 

Indicate by check mark whether the Registrant is a shell company (as defined by Rule 12b-2 of the Securities Exchange Act of 1934). Yes o No x

Indicate the number of shares outstanding of each of the classes of Registrant's common stock as of the latest practicable date:  As of May 8, 2012, the Registrant had outstanding 16,487,731 shares of common stock, $1.00 par value per share.





HEARTLAND FINANCIAL USA, INC.
Form 10-Q Quarterly Report
 
Part I
Item 1.
Item 2.
Item 3.
Item 4.
Part II
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 
 
 
 
 
 
101 Financial statements formatted in Extensible Business Reporting Language: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Changes in Equity, and (vi) the Notes to Consolidated Financial Statements.
 
 

 





PART I

ITEM 1. FINANCIAL STATEMENTS
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
 
 
 
 
March 31, 2012
 
 
 
(Unaudited)
 
December 31, 2011

ASSETS
 
 
 
Cash and due from banks
$
144,632

 
$
126,680

Federal funds sold and other short-term investments
5,490

 
3,154

Cash and cash equivalents
150,122

 
129,834

Securities:
 
 

Trading, at fair value
330

 
333

Available for sale, at fair value (cost of $1,135,679 at March 31, 2012, and $1,242,460 at December 31, 2011)
1,165,108

 
1,267,999

Held to maturity, at cost (fair value of $57,441 at March 31, 2012, and $57,486 at December 31, 2011)
56,471

 
58,260

Loans held for sale
103,460

 
53,528

Loans and leases receivable:
 
 

Held to maturity
2,532,419

 
2,481,284

Loans covered by loss share agreements
11,360

 
13,347

Allowance for loan and lease losses
(39,362
)
 
(36,808
)
Loans and leases receivable, net
2,504,417

 
2,457,823

Premises, furniture and equipment, net
111,946

 
110,206

Other real estate, net
38,934

 
44,387

Goodwill, net
25,909

 
25,909

Other intangible assets, net
13,109

 
12,960

Cash surrender value on life insurance
72,159

 
67,084

FDIC indemnification asset
1,270

 
1,343

Other assets
69,616

 
75,392

TOTAL ASSETS
$
4,312,851

 
$
4,305,058

LIABILITIES AND EQUITY
 
 
 
LIABILITIES:
 
 
 
Deposits:
 
 
 
Demand
$
771,421

 
$
737,323

Savings
1,731,399

 
1,678,154

Time
772,939

 
794,636

Total deposits
3,275,759

 
3,210,113

Short-term borrowings
229,533

 
270,081

Other borrowings
377,362

 
372,820

Accrued expenses and other liabilities
64,154

 
99,151

TOTAL LIABILITIES
3,946,808

 
3,952,165

STOCKHOLDERS' EQUITY:
 
 
 
Preferred stock (par value $1 per share; authorized 20,604 at March 31, 2012 and December 31, 2011; none issued or outstanding)

 

Series A Junior Participating preferred stock (par value $1 per share; authorized 16,000 shares; none issued or outstanding)

 

Series C Fixed Rate Non-Cumulative Perpetual preferred stock (par value $1 per share; liquidation value $81.7 million at March 31, 2012 and December 31, 2011; authorized, issued and outstanding 81,698 shares at March 31, 2012 and December 31, 2011)
81,698

 
81,698

Common stock (par value $1 per share; authorized 25,000,000 shares; issued 16,611,671 shares)
16,612

 
16,612

Capital surplus
43,885

 
43,333

Retained earnings
208,353

 
198,182

Accumulated other comprehensive income
14,418

 
12,147

Treasury stock at cost (125,132 shares at March 31, 2012, and 126,881 shares at December 31, 2011)
(1,572
)
 
(1,754
)
TOTAL STOCKHOLDERS' EQUITY
363,394

 
350,218

Noncontrolling interest
2,649

 
2,675

TOTAL EQUITY
366,043

 
352,893

TOTAL LIABILITIES AND EQUITY
$
4,312,851

 
$
4,305,058

 
 
 
 
See accompanying notes to consolidated financial statements.
 
 
 






HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share data)
 
 
 
 
 
 
 
 
Three Months Ended
 
March 31, 2012

 
March 31, 2011

INTEREST INCOME:
 
 
 
Interest and fees on loans and leases
$
38,399

 
$
36,966

Interest on securities:
 
 
 
Taxable
7,572

 
7,411

Nontaxable
2,271

 
3,564

Interest on interest bearing deposits in other financial institutions

 
1

TOTAL INTEREST INCOME
48,242

 
47,942

INTEREST EXPENSE:
 
 
 
Interest on deposits
5,775

 
8,026

Interest on short-term borrowings
213

 
259

Interest on other borrowings
4,061

 
3,936

TOTAL INTEREST EXPENSE
10,049

 
12,221

NET INTEREST INCOME
38,193

 
35,721

Provision for loan and lease losses
2,354

 
10,009

NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES
35,839

 
25,712

NONINTEREST INCOME:
 
 
 
Service charges and fees
3,584

 
3,361

Loan servicing income
1,760

 
1,549

Trust fees
2,613

 
2,479

Brokerage and insurance commissions
910

 
848

Securities gains, net
3,943

 
2,089

Gain (loss) on trading account securities
(3
)
 
216

Impairment loss on securities
(981
)
 

Gains on sale of loans
8,502

 
1,402

Valuation adjustment on mortgage servicing rights
13

 

Income on bank owned life insurance
482

 
403

Other noninterest income
2,565

 
261

TOTAL NONINTEREST INCOME
23,388

 
12,608

NONINTEREST EXPENSES:
 
 
 
Salaries and employee benefits
23,996

 
18,186

Occupancy
2,482

 
2,386

Furniture and equipment
1,446

 
1,409

Professional fees
2,760

 
3,019

FDIC insurance assessments
864

 
1,345

Advertising
1,071

 
850

Intangible assets amortization
131

 
146

Net loss on repossessed assets
2,904

 
1,632

Other noninterest expenses
4,486

 
3,914

TOTAL NONINTEREST EXPENSES
40,140

 
32,887

INCOME BEFORE INCOME TAXES
19,087

 
5,433

Income taxes
6,272

 
1,212

NET INCOME
12,815

 
4,221

Net income available to noncontrolling interest, net of tax
26

 
16

NET INCOME ATTRIBUTABLE TO HEARTLAND
12,841

 
4,237

Preferred dividends and discount
(1,021
)
 
(1,336
)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
$
11,820

 
$
2,901

EARNINGS PER COMMON SHARE - BASIC
$
0.72

 
$
0.18

EARNINGS PER COMMON SHARE - DILUTED
$
0.71

 
$
0.18

CASH DIVIDENDS DECLARED PER COMMON SHARE
$
0.10

 
$
0.10

 
 
 
 
See accompanying notes to consolidated financial statements.
 
 
 







HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars in thousands)
 
 
 
 
 
 
 
 
Three Months Ended
 
March 31, 2012

 
March 31, 2011

NET INCOME
$
12,815

 
$
4,221

OTHER COMPREHENSIVE INCOME
 
 
 
Securities:
 
 
 
Net change in unrealized gain (loss) on securities available for sale
6,852

 
(1,065
)
Reclassification adjustment for net gains realized in net income
(2,962
)
 
(2,089
)
Net change in non-credit related other than temporary impairment
(683
)
 

Income taxes
(1,200
)
 
1,176

Other comprehensive income on securities available for sale
2,007

 
(1,978
)
Derivatives used in cash flow hedging relationships:
 
 
 
Unrealized gain on derivatives
(73
)
 
238

Reclassification adjustment for net losses on derivatives realized in net income
494

 
445

Income taxes
(157
)
 
(233
)
Other comprehensive income on cash flow hedges
264

 
450

Other comprehensive income
2,271

 
(1,528
)
Comprehensive income
15,086

 
2,693

Less: comprehensive income attributable to noncontrolling interest
26

 
16

COMPREHENSIVE INCOME ATTRIBUTABLE TO HEARTLAND
$
15,112

 
$
2,709







HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands, except per share data)
 
 
Three Months Ended
 
March 31, 2012
 
March 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
12,815

 
$
4,221

Adjustments to reconcile net income to net cash (used) provided by operating activities:
 
 
 
Depreciation and amortization
1,753

 
1,945

Provision for loan and lease losses
2,354

 
10,009

Net amortization of premium on securities
3,413

 
2,921

Securities gains, net
(3,943
)
 
(2,089
)
(Increase) decrease in trading account securities
3

 
(216
)
Impairment loss on securities
981

 

Stock based compensation
759

 
312

Loans originated for sale
(273,974
)
 
(95,660
)
Proceeds on sales of loans held for sale
232,544

 
81,475

Net gains on sales of loans held for sale
(8,502
)
 
(1,402
)
(Increase) decrease in accrued interest receivable
779

 
(268
)
Decrease in prepaid expenses
707

 
1,090

Decrease in accrued interest payable
(634
)
 
(901
)
Valuation adjustment on mortgage servicing rights
(13
)
 

Other, net
953

 
(244
)
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES
(30,005
)
 
1,193

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Proceeds from the sale of securities available for sale
124,364

 
165,336

Proceeds from the maturity of and principal paydowns on securities available for sale
76,453

 
77,536

Proceeds from the maturity of and principal paydowns on securities held to maturity
371

 
220

Purchase of securities available for sale
(124,246
)
 
(226,801
)
Net increase in loans and leases
(57,734
)
 
(2,248
)
Purchase of bank owned life insurance policies
(4,571
)
 
(3,140
)
Capital expenditures
(3,403
)
 
(1,359
)
Proceeds on sale of OREO and other repossessed assets
12,114

 
5,216

NET CASH PROVIDED BY INVESTING ACTIVITIES
23,348

 
14,760

CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Net increase in demand deposits and savings accounts
87,343

 
67,858

Net decrease in time deposit accounts
(21,697
)
 
(19,532
)
Net decrease in short-term borrowings
(40,548
)
 
(40,930
)
Proceeds from other borrowings
10,126

 
3,054

Repayments of other borrowings
(5,584
)
 
(300
)
Purchase of treasury stock
(308
)
 
(289
)
Proceeds from issuance of common stock
260

 
485

Excess tax benefits on exercised stock options
23

 
66

Dividends paid
(2,670
)
 
(2,659
)
NET CASH PROVIDED BY FINANCING ACTIVITIES
26,945

 
7,753

Net increase in cash and cash equivalents
20,288

 
23,706

Cash and cash equivalents at beginning of year
129,834

 
62,572

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
150,122

 
$
86,278

Supplemental disclosures:
 
 
 
Cash paid for income/franchise taxes
$
290

 
$
592

Cash paid for interest
$
10,683

 
$
13,122

Loans transferred to OREO
$
8,722

 
$
8,973

Purchases of securities available for sale, accrued, not paid
$
24,871

 
$

 
 
 
 
See accompanying notes to consolidated financial statements.






HEARTLAND FINANCIAL USA, INC.
CONSOLATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)
(Dollars in thousands, except per share data)
 
 
 
Heartland Financial USA, Inc. Stockholders' Equity
 
 
 
 
 
 
 
Preferred
Stock
 
 
 
Common
Stock
 
 
 
Capital
Surplus
 
 
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
Treasury
Stock
 
 
Non-controlling
Interest
 
 
 
Total
Equity
Balance at January 1, 2011
$
78,483

 
$
16,612

 
$
44,628

 
$
184,525

 
$
8,517

 
$
(3,674
)
 
$
2,693

 
$
331,784

Comprehensive income

 

 

 
4,237

 
(1,528
)
 

 
(16
)
 
2,693

Cumulative preferred dividends accrued and discount accretion
315

 

 

 
(315
)
 

 

 

 

Cash dividends declared:


 

 

 

 

 

 

 
 
Preferred, $12.50 per share

 

 

 
(1,021
)
 

 

 

 
(1,021
)
Common, $0.10 per share

 

 

 
(1,638
)
 

 

 

 
(1,638
)
Purchase of 48,215 shares of common stock

 

 

 

 

 
(289
)
 

 
(289
)
Issuance of 41,388 shares of common stock

 

 
(354
)
 

 

 
905

 

 
551

Commitments to issue common stock

 

 
312

 

 

 

 

 
312

Balance at March 31, 2011
$
78,798

 
$
16,612

 
$
44,586

 
$
185,788

 
$
6,989

 
$
(3,058
)
 
$
2,677

 
$
332,392

Balance at January 1, 2012
$
81,698

 
$
16,612

 
$
43,333

 
$
198,182

 
$
12,147

 
$
(1,754
)
 
$
2,675

 
$
352,893

Comprehensive income

 

 

 
12,841

 
2,271

 

 
(26
)
 
15,086

Cash dividends declared:

 

 

 

 

 

 

 
 
Preferred, $12.50 per share

 

 

 
(1,021
)
 

 

 

 
(1,021
)
Common, $0.10 per share

 

 

 
(1,649
)
 

 

 

 
(1,649
)
Purchase of 19,805 shares of common stock

 

 

 

 

 
(308
)
 

 
(308
)
Issuance of 21,554 shares of common stock

 


 
(207
)
 

 

 
490

 

 
283

Commitments to issue common stock

 

 
759

 

 

 

 

 
759

Balance at March 31, 2012
$
81,698

 
$
16,612

 
$
43,885

 
$
208,353

 
$
14,418

 
$
(1,572
)
 
$
2,649

 
$
366,043

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
 
 
 
 
 
 
 
 
 
 






HEARTLAND FINANCIAL USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION

The interim unaudited consolidated financial statements contained herein should be read in conjunction with the audited consolidated financial statements and accompanying notes to the consolidated financial statements for the fiscal year ended December 31, 2011, included in Heartland Financial USA, Inc.'s ("Heartland") Form 10-K filed with the Securities and Exchange Commission on March 15, 2012. Accordingly, footnote disclosures, which would substantially duplicate the disclosure contained in the audited consolidated financial statements, have been omitted.

The financial information of Heartland included herein has been prepared in accordance with U.S. generally accepted accounting principles for interim financial reporting and has been prepared pursuant to the rules and regulations for reporting on Form 10-Q and Rule 10-01 of Regulation S-X. Such information reflects all adjustments (consisting of normal recurring adjustments), that are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the periods presented. The results of the interim period ended March 31, 2012, are not necessarily indicative of the results expected for the year ending December 31, 2012.

Heartland evaluated subsequent events through the filing date of its quarterly report on Form 10-Q with the SEC.

Earnings Per Share

Basic earnings per share is determined using net income available to common stockholders and weighted average common shares outstanding. Diluted earnings per share is computed by dividing net income available to common stockholders by the weighted average common shares and assumed incremental common shares issued. Amounts used in the determination of basic and diluted earnings per share for the three-month periods ended March 31, 2012 and 2011, are shown in the table below:
 
Three Months Ended
(Dollars and number of shares in thousands, except per share data)
March 31, 2012
 
March 31, 2011
Net income attributable to Heartland
$
12,841

 
$
4,237

Preferred dividends and discount
(1,021
)
 
(1,336
)
Net income available to common stockholders
$
11,820

 
$
2,901

Weighted average common shares outstanding for basic earnings per share
16,490

 
16,408

Assumed incremental common shares issued upon exercise of stock options
240

 
149

Weighted average common shares for diluted earnings per share
16,730

 
16,557

Earnings per common share — basic
$
0.72

 
$
0.18

Earnings per common share — diluted
$
0.71

 
$
0.18

Number of antidilutive stock options excluded from diluted earnings per share computation
509

 
562


Stock-Based Compensation

Prior to 2009, options were typically granted annually with an expiration date ten years after the date of grant. Vesting was generally over a five-year service period with portions of a grant becoming exercisable at three years, four years and five years after the date of grant. A summary of the status of the stock options as of March 31, 2012 and 2011, and changes during the three months ended March 31, 2012 and 2011, follows:
 
2012
 
2011
 
Shares
 
Weighted-Average Exercise Price
 
Shares
 
Weighted-Average Exercise Price
Outstanding at January 1
570,762

 
$
21.06

 
672,721

 
$
20.27

Granted

 

 

 

Exercised
(12,500
)
 
9.89

 
(30,250
)
 
10.03

Forfeited
(5,250
)
 
20.62

 

 

Outstanding at March 31
553,012

 
$
21.32

 
642,471

 
$
20.76

Options exercisable at March 31
505,295

 
$
21.58

 
499,370

 
$
20.44







At March 31, 2012, the vested options totaled 505,295 shares with a weighted average exercise price of $21.58 per share and a weighted average remaining contractual life of 3.73 years. The intrinsic value for the vested options as of March 31, 2012, was $240 thousand. The intrinsic value for the total of all options exercised during the three months ended March 31, 2012, was $93 thousand. The total fair value of shares under stock options and awards that vested during the three months ended March 31, 2012, was $759 thousand. At March 31, 2012, shares available for issuance under the 2005 Long-Term Incentive Plan totaled 168,263.

No options were granted during the first three months of 2012 and 2011. Cash received from options exercised for the three months ended March 31, 2012, was $124 thousand, with a related tax benefit of $23 thousand. Cash received from options exercised for the three months ended March 31, 2011, was $303 thousand, with a related tax benefit of $66 thousand.

Under the 2005 Long-Term Incentive Plan, stock awards may be granted as determined by the Heartland Compensation Committee. On January 17, 2012, restricted stock units (“RSUs”) totaling 94,001 were granted to key policy-making employees. On January 18, 2011, RSUs totaling 101,150 were granted to key policy-making employees. The RSUs were granted at no cost to the employee. The RSUs granted in 2012 represent the right to receive shares of Heartland common stock at a specified date in the future based on specific vesting conditions; vest over five years in three equal installments on the third, fourth and fifth anniversaries of the grant date; will be settled in common stock upon vesting; will not be entitled to dividends until vested; will terminate upon termination of employment, but will continue to vest after retirement if retirement occurs after the second anniversary of the grant date and the employee has attained age 62 and provided five years of service to Heartland. The RSUs granted in 2011 contain the same terms as the RSUs granted in 2012 except that vesting after retirement is conditioned on ten years of service to Heartland.

In addition to the RSUs referenced in the preceding paragraph, performance-based RSUs totaling 49,801 were granted to key policy-making employees on January 17, 2012, and 21,200 on October 11, 2011. These RSUs were granted at no cost to the employee and represent the right to receive shares of Heartland common stock at a specified date in the future based first on performance measures tied to Heartland's earnings and assets on December 31 of the grant year, and then on time-based vesting conditions. For the grants in 2011, vesting occurs on December 31, 2013, and for the grants in 2012, vesting occurs on December 31, 2014. The performance-based RSUs will be settled in common stock upon vesting; will not be entitled to dividends until vested; will terminate upon termination of employment, but will continue to vest after retirement if the employee has attained age 62 and has provided ten years of service to Heartland for those granted in 2011 and five years of service for those granted in 2012.

Total compensation costs recorded for stock options, RSUs and restricted stock awards were $759 thousand and $312 thousand for the three months ended March 31, 2012 and 2011, respectively. As of March 31, 2012, there were $4.3 million of total unrecognized compensation costs related to the 2005 Long-Term Incentive Plan for stock options, RSUs and restricted stock awards which are expected to be recognized through 2016.

Effect of New Financial Accounting Standards

In April 2011, the FASB issued ASU No. 2011-03, "Reconsideration of Effective Control for Repurchase Agreements," which removes the collateral maintenance provision that is currently required when determining whether a transfer of a financial instrument is accounted for as a sale or a secured borrowing. This accounting standard was subsequently codified into ASC Topic 860. Heartland adopted this standard on January 1, 2012, and the adoption did not have an impact on the results of operations, financial position and liquidity.

In May 2011, the FASB issued ASU No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS," which is a joint effort between the FASB and IASB to converge fair value measurement and disclosure guidance. This accounting standard was subsequently codified into ASC Topic 820. This standard permits measuring financial assets and liabilities on a net credit risk basis, if certain criteria are met. This standard also increases disclosure surrounding company-determined market prices (Level 3) financial instruments and requires the fair value hierarchy disclosure of financial assets and liabilities that are not recognized at fair value in the statement of financial position for which fair values are disclosed. Heartland adopted this standard on January 1, 2012, and the adoption did not have a material impact on the results of operations, financial position and liquidity. See Note 8 for the fair value of financial instruments disclosure.

In June 2011, the FASB issued ASU No. 2011-05, "Presentation of Comprehensive Income," which requires companies to report total net income, each component of comprehensive income, and total comprehensive income on the face of the income statement, or as two consecutive statements. This statement was subsequently codified into ASC Topic 220. The components of





comprehensive income were not changed, nor did the standard affect how earnings per share is calculated or reported. The adoption of this standard was required for Heartland's first quarter 2012 Form 10-Q, and did not have an impact on the results of operations, financial position and liquidity.

In September 2011, the FASB issued ASU No. 2011-08, "Intangibles-Goodwill and Other (Topic 350): Testing Goodwill For Impairment," which allows an entity to make an initial qualitative evaluation as to whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The results of this qualitative assessment determine if it is necessary to perform the currently required two-step impairment test. ASU 2011-08 also expands upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Heartland adopted this standard on January 1, 2012, and the adoption did not have a material impact on the results of operations, financial position and liquidity.

NOTE 2: SECURITIES

The amortized cost, gross unrealized gains and losses and estimated fair values of securities available for sale as of March 31, 2012, and December 31, 2011, are summarized in the table below, in thousands:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
March 31, 2012
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
U.S. government corporations and agencies
$
47,133

 
$
1,048

 
$
(65
)
 
$
48,116

Mortgage-backed securities
777,611

 
17,712

 
(3,658
)
 
791,665

Obligations of states and political subdivisions
263,524

 
16,259

 
(958
)
 
278,825

Corporate debt securities
26,307

 
129

 
(1,642
)
 
24,794

Total debt securities
1,114,575

 
35,148

 
(6,323
)
 
1,143,400

Equity securities
21,104

 
604

 

 
21,708

Total
$
1,135,679

 
$
35,752

 
$
(6,323
)
 
$
1,165,108

December 31, 2011
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
U.S. government corporations and agencies
$
104,719

 
$
2,428

 
$

 
$
107,147

Mortgage-backed securities
815,408

 
14,643

 
(4,997
)
 
825,054

Obligations of states and political subdivisions
272,660

 
14,983

 
(973
)
 
286,670

Corporate debt securities
26,284

 
29

 
(1,060
)
 
25,253

Total debt securities
1,219,071

 
32,083

 
(7,030
)
 
1,244,124

Equity securities
23,389

 
486

 

 
23,875

Total
$
1,242,460

 
$
32,569

 
$
(7,030
)
 
$
1,267,999


At March 31, 2012, the amortized cost of the available for sale securities is net of $184 thousand of credit related other-than temporary impairment. At December 31, 2011, no other-than-temporary impairment was recorded.






The amortized cost, gross unrealized gains and losses and estimated fair values of held to maturity securities as of March 31, 2012, and December 31, 2011, are summarized in the table below, in thousands:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
March 31, 2012
 
 
 
 
 
 
 
Securities held to maturity:
 
 
 
 
 
 
 
Mortgage-backed securities
$
7,342

 
$
260

 
$

 
$
7,602

Obligations of states and political subdivisions
49,129

 
721

 
(11
)
 
49,839

Total
$
56,471

 
$
981

 
$
(11
)
 
$
57,441

December 31, 2011
 
 
 
 
 
 
 
Securities held to maturity:
 
 
 
 
 
 
 
Mortgage-backed securities
$
9,131

 
$
40

 
$
(1,532
)
 
$
7,639

Obligations of states and political subdivisions
49,129

 
730

 
(12
)
 
49,847

Total
$
58,260

 
$
770

 
$
(1,544
)
 
$
57,486


At March 31, 2012, the amortized cost of the held to maturity securities is net of $797 thousand of credit related other-than temporary impairment and $683 thousand of non-credit related other-than-temporary impairments. At December 31, 2011, no other-than-temporary impairment was recorded.

Nearly 83% of Heartland's mortgage-backed securities are issuances of government-sponsored enterprises.

The following table summarizes, in thousands, the amount of unrealized losses, defined as the amount by which cost or amortized cost exceeds fair value, and the related fair value of investments with unrealized losses in Heartland's securities portfolio as of March 31, 2012, and December 31, 2011. The investments were segregated into two categories: those that have been in a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 or more months. The reference point for determining how long an investment was in an unrealized loss position was March 31, 2011, and December 31, 2010, respectively.
 
Less than 12 months
 
12 months or longer
 
Total
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
March 31, 2012
 
 
 
 
 
 
 
 
 
 
 
U.S. government corporations and agencies
$
22,119

 
$
(65
)
 
$

 
$

 
$
22,119

 
$
(65
)
Mortgage-backed securities
78,858

 
(878
)
 
80,729

 
(2,780
)
 
159,587

 
(3,658
)
Obligations of states and political subdivisions
27,423

 
(430
)
 
2,867

 
(528
)
 
30,290

 
(958
)
Corporate debt securities
5,164

 
(226
)
 
14,753

 
(1,416
)
 
19,917

 
(1,642
)
Total debt securities
133,564

 
(1,599
)
 
98,349

 
(4,724
)
 
231,913

 
(6,323
)
Equity securities

 

 

 

 

 

Total temporarily impaired securities
$
133,564

 
$
(1,599
)
 
$
98,349

 
$
(4,724
)
 
$
231,913

 
$
(6,323
)
December 31, 2011
U.S. government corporations and agencies
$

 
$

 
$

 
$

 
$

 
$

Mortgage-backed securities
133,538

 
(1,794
)
 
71,231

 
(3,203
)
 
204,769

 
(4,997
)
Obligations of states and political subdivisions
13,139

 
(284
)
 
4,010

 
(689
)
 
17,149

 
(973
)
Corporate debt securities
5,147

 
(243
)
 
15,346

 
(817
)
 
20,493

 
(1,060
)
Total debt securities
151,824

 
(2,321
)
 
90,587

 
(4,709
)
 
242,411

 
(7,030
)
Equity securities

 

 

 

 

 

Total temporarily impaired securities
$
151,824

 
$
(2,321
)
 
$
90,587

 
$
(4,709
)
 
$
242,411

 
$
(7,030
)






Heartland reviews the investment securities portfolio on a quarterly basis to monitor its exposure to other-than-temporary impairment. A determination as to whether a security's decline in fair value is other-than-temporary takes into consideration numerous factors and the relative significance of any single factor can vary by security. Some factors Heartland may consider in the other-than-temporary impairment analysis include, the length of time the security has been in an unrealized loss position, changes in security ratings, financial condition of the issuer, as well as security and industry specific economic conditions. In addition, with regard to debt securities, Heartland may also evaluate payment structure, whether there are defaulted payments or expected defaults, prepayment speeds, and the value of any underlying collateral. For certain debt securities in unrealized loss positions, Heartland prepares cash flow analysis to compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. During the first quarter of 2012, Heartland experienced deterioration in the credit support on three private label mortgage-backed securities which resulted in a credit-related other-than-temporary impairment loss. The underlying collateral on these securities experienced an increased level of defaults and a slowing of voluntary prepayments causing the present value of the forward expected cash flows, using prepayment and default vectors, to be below the amortized cost basis of the securities. Based on Heartland's evaluation, a $981 thousand other-than-temporary impairment on three private label mortgage-backed securities attributable to credit-related losses was recorded in March 2012. The other-than-temporary credit-related losses were $797 thousand in the held to maturity category and $184 thousand in the available for sale category. Heartland has not previously recorded an other-than-temporary impairment loss on debt securities.

The remaining unrealized losses on Heartland's mortgage-backed securities are the result of changes in market interest rates or widening of market spreads subsequent to the initial purchase of the securities and not related to concerns regarding the underlying credit of the issuers or the underlying collateral. It is expected that the securities will not be settled at a price less than the amortized cost of the investment. Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because Heartland has the intent and ability to hold these investments until a market price recovery or to maturity and does not believe it will be required to sell the securities before maturity, these investments are not considered other-than-temporarily impaired.

Unrealized losses on Heartland's obligations of states and political subdivisions are the result of changes in market interest rates or widening of market spreads subsequent to the initial purchase of the securities. Management monitors the published credit ratings of these securities and has noted credit rating reductions in a number of these securities, primarily due to the downgrade in the credit ratings of the insurance companies providing credit enhancement to that of the issuing municipalities. Because the decline in fair value is attributable to changes in interest rates or widening market spreads due to insurance company downgrades and not underlying credit quality, and because Heartland has the intent and ability to hold these investments until a market price recovery or to maturity and does not believe it will be required to sell the securities before maturity, these investments are not considered other-than-temporarily impaired.






NOTE 3: LOANS AND LEASES

Loans and leases as of March 31, 2012, and December 31, 2011, were as follows, in thousands:
 
 
March 31, 2012
 
December 31, 2011
Loans and leases receivable held to maturity:
 
 
 
 
Commercial
 
$
634,655

 
$
645,666

Commercial real estate
 
1,207,911

 
1,163,784

Agricultural and agricultural real estate
 
270,687

 
262,975

Residential real estate
 
202,883

 
194,436

Consumer
 
222,387

 
220,099

Gross loans receivable held to maturity
 
2,538,523

 
2,486,960

Net direct financing leases held to maturity
 
323

 
450

Gross loans and leases receivable held to maturity
 
2,538,846

 
2,487,410

Unearned discount
 
(1,984
)
 
(2,463
)
Deferred loan fees
 
(4,443
)
 
(3,663
)
Total net loans and leases receivable held to maturity
 
2,532,419

 
2,481,284

Loans covered under loss share agreements:
 
 
 
 
Commercial and commercial real estate
 
5,730

 
6,380

Agricultural and agricultural real estate
 
934

 
1,659

Residential real estate
 
3,734

 
4,158

Consumer
 
962

 
1,150

Total loans covered under loss share agreements
 
11,360

 
13,347

Allowance for loan and lease losses
 
(39,362
)
 
(36,808
)
Loans and leases receivable, net
 
$
2,504,417

 
$
2,457,823


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 non-performing loans and potential problem loans. Diversification in the loan portfolio is also a means of managing risk associated with fluctuations in economic conditions.

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 for most of these loans and leases is based upon a discount from its market value. 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.

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 to help agricultural customers obtain credit enhancement products such as loan





guarantees or interest assistance.

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.

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.

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.

Under Heartland’s credit policies, all nonaccrual and troubled debt restructured loans meeting the criteria of a troubled debt restructuring are defined as impaired loans. 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 March 31, 2012, and December 31, 2011, 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, 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 changes to the accounting for the allowance for loan and lease losses policy during 2012.
 
Allowance For Loan and Lease Losses
 
Gross Loans and Leases 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, 2012
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
2,285

 
$
8,734

 
$
11,019

 
$
9,116

 
$
625,539

 
$
634,655

Commercial real estate
1,747

 
13,653

 
15,400

 
58,852

 
1,149,059

 
1,207,911

Agricultural and agricultural real estate
12

 
1,835

 
1,847

 
14,240

 
256,447

 
270,687

Residential real estate
881

 
2,659

 
3,540

 
6,465

 
196,418

 
202,883

Consumer
1,518

 
6,037

 
7,555

 
5,053

 
217,334

 
222,387

Lease financing

 
1

 
1

 

 
323

 
323

Total
$
6,443

 
$
32,919

 
$
39,362

 
$
93,726

 
$
2,445,120

 
$
2,538,846

December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
1,990

 
$
8,557

 
$
10,547

 
$
9,293

 
$
636,373

 
$
645,666

Commercial real estate
1,929

 
12,692

 
14,621

 
66,467

 
1,097,317

 
1,163,784

Agricultural and agricultural real estate

 
1,763

 
1,763

 
14,385

 
248,590

 
262,975

Residential real estate
464

 
2,537

 
3,001

 
5,905

 
188,531

 
194,436

Consumer
1,097

 
5,777

 
6,874

 
4,391

 
215,708

 
220,099

Lease financing

 
2

 
2

 

 
450

 
450

Total
$
5,480

 
$
31,328

 
$
36,808

 
$
100,441

 
$
2,386,969

 
$
2,487,410


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 March 31, 2012, and December 31, 2011, in thousands. There were no nonaccrual leases, accruing leases past due 90 days or more or restructured leases at March 31, 2012, and December 31, 2011.
 
 
March 31, 2012
 
December 31, 2011
Nonaccrual loans
 
$
40,091

 
$
48,587

Nonaccrual troubled debt restructured loans
 
9,849

 
8,848

Total nonaccrual loans
 
$
49,940

 
$
57,435

Accruing loans past due 90 days or more
 

 

Performing troubled debt restructured loans
 
$
21,379

 
$
25,704


Heartland had $31.2 million of troubled debt restructured loans at March 31, 2012, of which $9.8 million were classified as nonaccrual and $21.4 million were accruing according to the restructured terms. Heartland had $34.6 million of troubled debt restructured loans at December 31, 2011, of which $8.8 million were classified as nonaccrual and $25.7 million were accruing according to the restructured terms.






The following table provides information on troubled debt restructured loans that were modified during the three months ended March 31, 2012, and March 31, 2011, in thousands:
 
 
Three Months Ended
 March 31, 2012
 
Three Months Ended
 March 31, 2011
 
 
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
 

 

 

 

 
1,152

 
1,152

Total commercial and commercial real estate
 

 

 

 

 
1,152

 
1,152

Agricultural and agricultural real estate
 

 

 

 

 

 

Residential real estate
 
1

 
19

 
19

 
3

 
499

 
499

Consumer
 

 

 

 

 
 
 
 
Total Troubled Debt Restructured Loans
 
1

 
$
19

 
$
19

 
$
3

 
$
1,651

 
$
1,651


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.

The following table provides information on troubled debt restructured loans for which there was a payment default during the three months ended March 31, 2012, and March 31, 2011, in thousands, that had been modified during the 12-month period prior to the default:
 
With Payment Defaults During the Following Periods
 
Three Months Ended March 31, 2012
 
Three Months Ended March 31, 2011
 
Number of Loans
 
Recorded Investment
 
Number of Loans
 
Recorded Investment
Commercial

 
$

 
$

 
$

Commercial real estate
1

 
640

 
3

 
345

  Total commercial and commercial real estate
1

 
640

 
3

 
345

Agricultural and agricultural real estate

 

 

 

Residential real estate

 

 

 

Consumer

 

 

 

  Total
1

 
$
640

 
$
3

 
$
345


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 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 March 31, 2012, 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.

The following table presents loans and leases not covered by loss share agreements by credit quality indicator at March 31, 2012, and December 31, 2011, in thousands:
 
Pass
 
Nonpass
 
Total
March 31, 2012
 
 
 
 
 
Commercial
$
590,360

 
$
44,295

 
$
634,655

Commercial real estate
1,036,472

 
171,439

 
1,207,911

  Total commercial and commercial real estate
1,626,832

 
215,734

 
1,842,566

Agricultural and agricultural real estate
233,410

 
37,277

 
270,687

Residential real estate
185,961

 
16,922

 
202,883

Consumer
212,774

 
9,613

 
222,387

Lease financing
323

 

 
323

  Total gross loans and leases receivable held to maturity
$
2,259,300

 
$
279,546

 
$
2,538,846

December 31, 2011
 
 
 
 
 
Commercial
$
596,759

 
$
48,907

 
$
645,666

Commercial real estate
988,906

 
174,878

 
1,163,784

  Total commercial and commercial real estate
1,585,665

 
223,785

 
1,809,450

Agricultural and agricultural real estate
223,247

 
39,728

 
262,975

Residential real estate
177,128

 
17,308

 
194,436

Consumer
211,073

 
9,026

 
220,099

Lease financing
450

 

 
450

  Total gross loans and leases receivable held to maturity
$
2,197,563

 
$
289,847

 
$
2,487,410


The nonpass category in the table above is comprised of approximately 45% special mention and 55% substandard as of March 31, 2012. The percent of nonpass loans on nonaccrual status as of March 31, 2012, was 18%. As of December 31, 2011, the nonpass category in the table above was comprised of approximately 43% special mention and 57% substandard. The percent of nonpass loans on nonaccrual status as of December 31, 2011, was 20%. 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.






The following table sets forth information regarding Heartland's accruing and nonaccrual loans and leases not covered by loss share agreements at March 31, 2012, and December 31, 2011, in thousands:
 
Accruing Loans and Leases
 
 
 
 
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
90 Days or More Past Due
 
Total
Past Due
 
Current
 
Nonaccrual
 
Total Loans and Leases
March 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
6,830

 
$
157

 
$

 
$
6,987

 
$
626,095

 
$
1,573

 
$
634,655

Commercial real estate
2,232

 
57

 

 
2,289

 
1,167,872

 
37,750

 
1,207,911

Total commercial and commercial real estate
9,062

 
214

 

 
9,276

 
1,793,967

 
39,323

 
1,842,566

Agricultural and agricultural real estate
890

 
104

 

 
994

 
269,286

 
407

 
270,687

Residential real estate
1,456

 
28

 

 
1,484

 
195,859

 
5,540

 
202,883

Consumer
1,952

 
365

 

 
2,317

 
215,400

 
4,670

 
222,387

Lease financing

 

 

 

 
323

 

 
323

Total gross loans and leases receivable held to maturity
$
13,360

 
$
711

 
$

 
$
14,071

 
$
2,474,835

 
$
49,940

 
$
2,538,846

December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
220

 
$
479

 
$

 
$
699

 
$
643,273

 
$
1,694

 
$
645,666

Commercial real estate
668

 

 

 
668

 
1,117,274

 
45,842

 
1,163,784

Total commercial and commercial real estate
888

 
479

 

 
1,367

 
1,760,547

 
47,536

 
1,809,450

Agricultural and agricultural real estate
32

 

 

 
32

 
262,409

 
534

 
262,975

Residential real estate
940

 
93

 

 
1,033

 
188,865

 
4,538

 
194,436

Consumer
2,176

 
555

 

 
2,731

 
212,541

 
4,827

 
220,099

Lease financing

 

 

 

 
450

 

 
450

Total gross loans and leases receivable held to maturity
$
4,036

 
$
1,127

 
$

 
$
5,163

 
$
2,424,812

 
$
57,435

 
$
2,487,410







The majority of Heartland's impaired loans are those that are nonaccrual, are past due 90 days or more and still accruing 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 balance that was contractually due at March 31, 2012, and December 31, 2011, the outstanding loan balance recorded on the consolidated balance sheets at March 31, 2012, and December 31, 2011, any related allowance recorded for those loans as of March 31, 2012, and December 31, 2011, the average outstanding loan balance recorded on the consolidated balance sheets during the three months ended March 31, 2012, and year ended December 31, 2011, and the interest income recognized on the impaired loans during the three months ended March 31, 2012, and year ended December 31, 2011, in thousands:
<
March 31, 2012
Unpaid Contractual 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
$
8,589

 
$
8,539

 
$
2,285

 
$
8,233

 
$
103

Commercial real estate
16,333

 
14,140

 
1,747

 
13,470

 
92

Total commercial and commercial real estate
24,922

 
22,679

 
4,032

 
21,703

 
195

Agricultural and agricultural real estate
131

 
131

 
12

 
44

 
3

Residential real estate
2,694

 
2,694

 
881

 
2,079

 
23

Consumer
3,112

 
3,112

 
1,518

 
2,901

 
9

Total loans held to maturity
$
30,859

 
$
28,616

 
$
6,443

 
$
26,727

 
$
230

Impaired loans without a related allowance
 
 
 
 
 
 
 
 
 
Commercial
$
890

 
$
577

 
$

 
$
1,117

 
$

Commercial real estate
59,687

 
44,712

 

 
50,090

 
211

Total commercial and commercial real estate
60,577

 
45,289

 

 
51,207

 
211

Agricultural and agricultural real estate
14,128

 
14,109

 

 
14,141

 
157

Residential real estate
3,941

 
3,771

 

 
4,031

 
6

Consumer
2,508

 
1,941

 

 
2,030

 
6

Total loans held to maturity
$
81,154

 
$
65,110

 
$

 
$
71,409

 
$
380

Total impaired loans held to maturity
 
 
 
 
 
 
 
 
 
Commercial
$
9,479

 
$
9,116

 
$
2,285

 
$
9,350

 
$
103

Commercial real estate
76,020

 
58,852

 
1,747

 
63,560

 
303

Total commercial and commercial real estate
85,499