XNAS:HTLF Heartland Financial USA Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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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 June 30, 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 August 8, 2012, the Registrant had outstanding 16,485,576 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)
 
 
 
 
June 30, 2012
 
 
 
(Unaudited)
 
December 31, 2011

ASSETS
 
 
 
Cash and due from banks
$
75,116

 
$
126,680

Federal funds sold and other short-term investments
7,715

 
3,154

Cash and cash equivalents
82,831

 
129,834

Securities:
 
 

Trading, at fair value
379

 
333

Available for sale, at fair value (cost of $1,247,961 at June 30, 2012, and $1,242,460 at December 31, 2011)
1,274,552

 
1,267,999

Held to maturity, at cost (fair value of $56,120 at June 30, 2012, and $57,486 at December 31, 2011)
56,157

 
58,260

Loans held for sale
73,284

 
53,528

Loans and leases receivable:
 
 

Held to maturity
2,629,597

 
2,481,284

Loans covered by loss share agreements
9,567

 
13,347

Allowance for loan and lease losses
(41,439
)
 
(36,808
)
Loans and leases receivable, net
2,597,725

 
2,457,823

Premises, furniture and equipment, net
114,823

 
110,206

Other real estate, net
37,941

 
44,387

Goodwill
25,909

 
25,909

Other intangible assets, net
14,295

 
12,960

Cash surrender value on life insurance
72,448

 
67,084

FDIC indemnification asset
1,148

 
1,343

Other assets
76,192

 
75,392

TOTAL ASSETS
$
4,427,684

 
$
4,305,058

LIABILITIES AND EQUITY
 
 
 
LIABILITIES:
 
 
 
Deposits:
 
 
 
Demand
$
799,548

 
$
737,323

Savings
1,734,155

 
1,678,154

Time
801,204

 
794,636

Total deposits
3,334,907

 
3,210,113

Short-term borrowings
249,485

 
270,081

Other borrowings
377,543

 
372,820

Accrued expenses and other liabilities
90,755

 
99,151

TOTAL LIABILITIES
4,052,690

 
3,952,165

STOCKHOLDERS' EQUITY:
 
 
 
Preferred stock (par value $1 per share; authorized 20,604 at June 30, 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 June 30, 2012 and December 31, 2011; authorized, issued and outstanding 81,698 shares at June 30, 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
44,223

 
43,333

Retained earnings
219,643

 
198,182

Accumulated other comprehensive income
12,101

 
12,147

Treasury stock at cost (143,782 shares at June 30, 2012, and 126,881 shares at December 31, 2011)
(1,939
)
 
(1,754
)
TOTAL STOCKHOLDERS' EQUITY
372,338

 
350,218

Noncontrolling interest
2,656

 
2,675

TOTAL EQUITY
374,994

 
352,893

TOTAL LIABILITIES AND EQUITY
$
4,427,684

 
$
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
 
Six Months Ended
 
June 30, 2012

 
June 30, 2011

 
June 30, 2012
 
June 30, 2011
INTEREST INCOME:
 
 
 
 
 
 
 
Interest and fees on loans and leases
$
39,382

 
$
37,480

 
$
77,781

 
$
74,446

Interest on securities:
 
 
 
 
 
 
 
Taxable
5,026

 
9,305

 
12,598

 
18,526

Nontaxable
2,619

 
1,796

 
4,890

 
3,550

Interest on federal funds sold
1

 

 
1

 
1

Interest on interest bearing deposits in other financial institutions
2

 
1

 
2

 
1

TOTAL INTEREST INCOME
47,030

 
48,582

 
95,272


96,524

INTEREST EXPENSE:
 
 
 
 
 
 
 
Interest on deposits
5,604

 
7,675

 
11,379

 
15,701

Interest on short-term borrowings
224

 
225

 
437

 
484

Interest on other borrowings
4,025

 
4,081

 
8,086

 
8,017

TOTAL INTEREST EXPENSE
9,853

 
11,981

 
19,902


24,202

NET INTEREST INCOME
37,177

 
36,601

 
75,370


72,322

Provision for loan and lease losses
3,000

 
3,845

 
5,354

 
13,854

NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES
34,177

 
32,756

 
70,016


58,468

NONINTEREST INCOME:
 
 
 
 
 
 
 
Service charges and fees
3,712

 
3,599

 
7,296

 
6,960

Loan servicing income
3,056

 
1,298

 
4,816

 
2,847

Trust fees
2,660

 
2,656

 
5,273

 
5,135

Brokerage and insurance commissions
939

 
856

 
1,849

 
1,704

Securities gains, net
4,951

 
4,756

 
8,894

 
6,845

Gain on trading account securities
49

 
81

 
46

 
297

Impairment loss on securities

 

 
(981
)
 

Gains on sale of loans
12,689

 
1,308

 
21,191

 
2,710

Valuation adjustment on mortgage servicing rights
(194
)
 

 
(181
)
 

Income on bank owned life insurance
267

 
331

 
749

 
734

Other noninterest income
149

 
(216
)
 
2,714

 
45

TOTAL NONINTEREST INCOME
28,278

 
14,669

 
51,666


27,277

NONINTEREST EXPENSES:
 
 
 
 
 
 
 
Salaries and employee benefits
25,384

 
17,480

 
49,380

 
35,666

Occupancy
2,534

 
2,213

 
5,016

 
4,599

Furniture and equipment
1,517

 
1,360

 
2,963

 
2,769

Professional fees
3,961

 
3,053

 
6,721

 
6,072

FDIC insurance assessments
807

 
786

 
1,671

 
2,131

Advertising
1,304

 
1,113

 
2,375

 
1,963

Intangible assets amortization
122

 
144

 
253

 
290

Net loss on repossessed assets
1,307

 
2,511

 
4,211

 
4,143

Other noninterest expenses
4,523

 
3,683

 
9,009

 
7,597

TOTAL NONINTEREST EXPENSES
41,459

 
32,343

 
81,599


65,230

INCOME BEFORE INCOME TAXES
20,996

 
15,082

 
40,083


20,515

Income taxes
7,032

 
4,870

 
13,304

 
6,082

NET INCOME
13,964

 
10,212

 
26,779


14,433

Net (income) loss available to noncontrolling interest, net of tax
(7
)
 
9

 
19

 
25

NET INCOME ATTRIBUTABLE TO HEARTLAND
13,957

 
10,221

 
26,798


14,458

Preferred dividends and discount
(1,021
)
 
(1,336
)
 
(2,042
)
 
(2,672
)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
$
12,936

 
$
8,885

 
$
24,756


$
11,786

EARNINGS PER COMMON SHARE - BASIC
$
0.79

 
$
0.54

 
$
1.50

 
$
0.72

EARNINGS PER COMMON SHARE - DILUTED
$
0.77

 
$
0.54

 
$
1.48

 
$
0.71

CASH DIVIDENDS DECLARED PER COMMON SHARE
$
0.10

 
$
0.10

 
$
0.20

 
$
0.20

 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
 
 
 
 
 
 
 







HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
6/30/2012

 
6/30/2011

 
6/30/2012

 
6/30/2011

NET INCOME
$
13,964

 
$
10,212

 
$
26,779

 
$
14,433

OTHER COMPREHENSIVE INCOME
 
 
 
 
 
 
 
Securities:
 
 
 
 
 
 
 
Net change in unrealized gain (loss) on securities available for sale
2,113

 
14,544

 
8,965

 
13,479

Reclassification adjustment for net gains realized in net income
(4,951
)
 
(4,756
)
 
(7,913
)
 
(6,845
)
Net change in non-credit related other than temporary impairment
23

 

 
(660
)
 

Income taxes
1,039

 
(3,679
)
 
(161
)
 
(2,503
)
Other comprehensive income on securities available for sale
(1,776
)
 
6,109

 
231

 
4,131

Derivatives used in cash flow hedging relationships:
 
 
 
 
 
 
 
Unrealized gain on derivatives
(1,380
)
 
(2,206
)
 
(1,453
)
 
(1,968
)
Reclassification adjustment for net losses on derivatives realized in net income
491

 
447

 
985

 
892

Income taxes
329

 
631

 
172

 
398

Other comprehensive income on cash flow hedges
(560
)
 
(1,128
)
 
(296
)
 
(678
)
Other comprehensive income
(2,336
)
 
4,981

 
(65
)
 
3,453

Comprehensive income
11,628

 
15,193

 
26,714

 
17,886

Less: comprehensive (income) loss attributable to noncontrolling interest
(7
)
 
9

 
19

 
25

COMPREHENSIVE INCOME ATTRIBUTABLE TO HEARTLAND
$
11,621

 
$
15,202

 
$
26,733

 
$
17,911







HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands, except per share data)
 
 
Six Months Ended
 
June 30, 2012
 
June 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
26,779

 
$
14,433

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
3,533

 
3,869

Provision for loan and lease losses
5,354

 
13,854

Net amortization of premium on securities
9,576

 
6,301

Securities gains, net
(8,894
)
 
(6,845
)
Increase in trading account securities
(46
)
 
(297
)
Impairment loss on securities
981

 

Stock based compensation
1,184

 
620

Loss on sale of OREO and other repossessed property
2,683

 
2,883

Loans originated for sale
(625,194
)
 
(153,574
)
Proceeds on sales of loans held for sale
626,629

 
148,150

Net gains on sales of loans held for sale
(21,191
)
 
(2,710
)
(Increase) decrease in accrued interest receivable
(661
)
 
956

(Increase) decrease in prepaid expenses
2,572

 
2,302

Decrease in accrued interest payable
(1,305
)
 
(132
)
Valuation adjustment on mortgage servicing rights
181

 

Other, net
(3,883
)
 
7,310

NET CASH PROVIDED BY OPERATING ACTIVITIES
18,298

 
37,120

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Proceeds from the sale of securities available for sale
341,151

 
321,053

Proceeds from the maturity of and principal paydowns on securities available for sale
161,109

 
165,237

Proceeds from the maturity of and principal paydowns on securities held to maturity
764

 
601

Purchase of securities available for sale
(517,773
)
 
(408,333
)
Net increase in loans and leases
(159,895
)
 
(22,805
)
Purchase of bank owned life insurance policies
(4,571
)
 
(3,140
)
Capital expenditures
(7,776
)
 
(2,352
)
Proceeds on sale of OREO and other repossessed assets
18,585

 
7,215

NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES
(168,406
)
 
57,476

CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Net increase in demand deposits and savings accounts
118,226

 
66,989

Net increase (decrease) in time deposit accounts
6,568

 
(20,352
)
Net decrease in short-term borrowings
(20,596
)
 
(67,843
)
Proceeds from other borrowings
10,695

 
18,102

Repayments of other borrowings
(5,972
)
 
(911
)
Purchase of treasury stock
(1,222
)
 
(305
)
Proceeds from issuance of common stock
667

 
793

Excess tax benefits on exercised stock options
76

 
68

Dividends paid
(5,337
)
 
(5,321
)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES
103,105

 
(8,780
)
Net increase (decrease) in cash and cash equivalents
(47,003
)
 
85,816

Cash and cash equivalents at beginning of year
129,834

 
62,572

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
82,831

 
$
148,388

Supplemental disclosures:
 
 
 
Cash paid for income/franchise taxes
$
4,090

 
$
1,067

Cash paid for interest
$
20,284

 
$
24,334

Loans transferred to OREO
$
14,562

 
$
19,940

Purchases of securities available for sale, accrued, not paid
$
46,338

 
$

 
 
 
 
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

 

 

 
14,458

 
3,478

 

 
(25
)
 
17,911

Cumulative preferred dividends accrued and discount accretion
630

 

 

 
(630
)
 

 

 

 

Cash dividends declared:


 

 

 

 

 

 

 
 
Preferred, $25.00 per share

 

 

 
(2,042
)
 

 

 

 
(2,042
)
Common, $0.20 per share

 

 

 
(3,279
)
 

 

 

 
(3,279
)
Purchase of 49,298 shares of common stock

 

 

 

 

 
(305
)
 

 
(305
)
Issuance of 66,680 shares of common stock

 

 
(520
)
 

 

 
1,381

 

 
861

Commitments to issue common stock

 

 
620

 

 

 

 

 
620

Balance at June 30, 2011
$
79,113

 
$
16,612

 
$
44,728

 
$
193,032

 
$
11,995

 
$
(2,598
)
 
$
2,668

 
$
345,550

Balance at January 1, 2012
$
81,698

 
$
16,612

 
$
43,333

 
$
198,182

 
$
12,147

 
$
(1,754
)
 
$
2,675

 
$
352,893

Comprehensive income

 

 

 
26,798

 
(46
)
 

 
(19
)
 
26,733

Cash dividends declared:

 

 

 

 

 

 

 
 
Preferred, $25.00 per share

 

 

 
(2,042
)
 

 

 

 
(2,042
)
Common, $0.20 per share

 

 

 
(3,295
)
 

 

 

 
(3,295
)
Purchase of 66,415 shares of common stock

 

 

 

 

 
(1,222
)
 

 
(1,222
)
Issuance of 49,514 shares of common stock

 


 
(294
)
 

 

 
1,037

 

 
743

Commitments to issue common stock

 

 
1,184

 

 

 

 

 
1,184

Balance at June 30, 2012
$
81,698

 
$
16,612

 
$
44,223

 
$
219,643

 
$
12,101

 
$
(1,939
)
 
$
2,656

 
$
374,994

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 the Form 10-K of Heartland Financial USA, Inc. ("Heartland") 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 June 30, 2012, are not necessarily indicative of the results expected for the year ending December 31, 2012.

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 and six-month periods ended June 30, 2012 and 2011, are shown in the table below:
 
Three Months Ended
(Dollars and number of shares in thousands, except per share data)
June 30, 2012
 
June 30, 2011
Net income attributable to Heartland
$
13,957

 
$
10,221

Preferred dividends and discount
(1,021
)
 
(1,336
)
Net income available to common stockholders
$
12,936

 
$
8,885

Weighted average common shares outstanding for basic earnings per share
16,474

 
16,427

Assumed incremental common shares issued upon exercise of stock options
244

 
142

Weighted average common shares for diluted earnings per share
16,718

 
16,569

Earnings per common share — basic
$
0.79

 
$
0.54

Earnings per common share — diluted
$
0.77

 
$
0.54

Number of antidilutive stock options excluded from diluted earnings per share computation
500

 
537


 
Six Months Ended
(Dollars and number of shares in thousands, except per share data)
June 30, 2012
 
June 30, 2011
Net income attributable to Heartland
$
26,798

 
$
14,458

Preferred dividends and discount
(2,042
)
 
(2,672
)
Net income available to common stockholders
$
24,756

 
$
11,786

Weighted average common shares outstanding for basic earnings per share
16,482

 
16,417

Assumed incremental common shares issued upon exercise of stock options
240

 
144

Weighted average common shares for diluted earnings per share
16,722

 
16,561

Earnings per common share — basic
$
1.50

 
$
0.72

Earnings per common share — diluted
$
1.48

 
$
0.71

Number of antidilutive stock options excluded from diluted earnings per share computation
$
500

 
537







Stock-Based Compensation

Prior to 2009, options were typically granted annually with an expiration date 10 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 June 30, 2012 and 2011, and changes during the six months ended June 30, 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
(33,333
)
 
11.38

 
(38,125
)
 
9.75

Forfeited
(7,667
)
 
21.72

 
(25,334
)
 
22.7

Outstanding at June 30
529,762

 
$
21.66

 
609,262

 
$
20.83

Options exercisable at June 30
482,712

 
$
21.96

 
470,078

 
$
20.55


At June 30, 2012, the vested options totaled 482,712 shares with a weighted average exercise price of $21.96 per share and a weighted average remaining contractual life of 3.76 years. The intrinsic value for the vested options as of June 30, 2012, was $1.9 million. The intrinsic value for the total of all options exercised during the six months ended June 30, 2012, was $421 thousand. The total fair value of shares under stock options and awards that vested during the six months ended June 30, 2012, was $1.2 million.

On May 16, 2012, Heartland stockholders approved adoption of the 2012 Long-Term Incentive Plan. The maximum number of shares of Heartland common stock that may be delivered to participants under the 2012 Long-Term Incentive Plan is 500,000 shares, subject to permitted adjustments for certain corporate transactions and for forfeited shares. Effective May 16, 2012, no additional awards will be granted under the 2005 Long-Term Incentive Plan. At June 30, 2012, shares available for issuance under the 2012 Long-Term Incentive Plan totaled 496,550.

No options were granted during the first six months of 2012 and 2011. Cash received from options exercised for the six months ended June 30, 2012, was $379 thousand, with a related tax benefit of $76 thousand. Cash received from options exercised for the six months ended June 30, 2011, was $372 thousand, with a related tax benefit of $68 thousand.

Under both the 2005 Long-Term Incentive Plan and the 2012 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 $1.2 million and $620 thousand for the six months ended June 30, 2012 and 2011, respectively. As of June 30, 2012, there were $3.9 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.

In July 2012, the FASB issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment,” which permits an entity to make a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset, other than goodwill, is impaired. This accounting standard was subsequently codified into ASC Topic 350. Currently, entities are required to quantitatively test indefinite-lived intangible assets for impairment at least annually and more frequently if indicators of impairment exist. Under the new standard, if an entity concludes, based on an evaluation of all relevant qualitative factors, that it is not more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, it will not be required to perform the quantitative impairment test for that asset. The standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted, and is not expected to have a material impact on the consolidated financial statements.






NOTE 2: SECURITIES

The amortized cost, gross unrealized gains and losses and estimated fair values of securities available for sale as of June 30, 2012, and December 31, 2011, are summarized in the table below, in thousands:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
June 30, 2012
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
U.S. government corporations and agencies
$
47,100

 
$
1,557

 
$

 
$
48,657

Mortgage-backed securities
809,040

 
12,455

 
(3,925
)
 
817,570

Obligations of states and political subdivisions
344,564

 
19,247

 
(1,346
)
 
362,465

Corporate debt securities
26,330

 
129

 
(2,146
)
 
24,313

Total debt securities
1,227,034

 
33,388

 
(7,417
)
 
1,253,005

Equity securities
20,927

 
620

 

 
21,547

Total
$
1,247,961

 
$
34,008

 
$
(7,417
)
 
$
1,274,552

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 June 30, 2012, the amortized cost of the available for sale securities is net of $184 thousand of credit related other-than temporary impairment ("OTTI"). 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 June 30, 2012, and December 31, 2011, are summarized in the table below, in thousands:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
June 30, 2012
 
 
 
 
 
 
 
Securities held to maturity:
 
 
 
 
 
 
 
Mortgage-backed securities
$
7,222

 
$
99

 
$
(125
)
 
$
7,196

Obligations of states and political subdivisions
48,935

 

 
(11
)
 
48,924

Total
$
56,157

 
$
99

 
$
(136
)
 
$
56,120

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 June 30, 2012, the amortized cost of the held to maturity securities is net of $797 thousand of credit related other-than temporary impairment and $660 thousand of non-credit related other-than-temporary impairments. At December 31, 2011, no other-than-temporary impairment was recorded.

Approximately 84% 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 June 30, 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 June 30, 2011, and December 31, 2010, respectively. Securities for which Heartland has taken credit-related OTTI write-downs are categorized as being "less than 12 months" or "12 months or longer" in a continuous loss position based on the point in time that the fair value declined to below the cost basis and not the period of time since the credit-related OTTI write-down.

 
Less than 12 months
 
12 months or longer
 
Total
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
U.S. government corporations and agencies
$

 
$

 
$

 
$

 
$

 
$

Mortgage-backed securities
266,527

 
(2,007
)
 
41,396

 
(1,918
)
 
307,923

 
(3,925
)
Obligations of states and political subdivisions
78,889

 
(923
)
 
2,906

 
(423
)
 
81,795

 
(1,346
)
Corporate debt securities
4,876

 
(514
)
 
14,542

 
(1,632
)
 
19,418

 
(2,146
)
Total debt securities
350,292

 
(3,444
)
 
58,844

 
(3,973
)
 
409,136

 
(7,417
)
Equity securities

 

 

 

 

 

Total temporarily impaired securities
$
350,292

 
$
(3,444
)
 
$
58,844

 
$
(3,973
)
 
$
409,136

 
$
(7,417
)
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.

There were no gross realized gains or losses on the sale of available for sale securities with OTTI write-downs for the periods ended June 30, 2012 or December 31, 2011.

The following table shows the detail of total OTTI write-downs included in earnings for debt securities, in thousands:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2012
 
2011
 
2012
 
2011
OTTI write-downs included in earnings:
 
 
 
 
 
 
 
Available for sale debt securities:
 
 
 
 
 
 
 
  Mortgage backed securities
$

 
$

 
$
184

 
$

Held to maturity debt securities:
 
 
 
 
 
 
 
  Mortgage backed securities

 

 
797

 

Total debt security OTTI write-downs included in earnings
$

 
$

 
$
981

 
$


The following table shows the detail of OTTI write-downs on debt securities included in earnings and the related changes in other accumulated comprehensive income (AOCI) for the same securities, in thousands:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2012
 
2011
 
2012
 
2011
OTTI on debt securities
 
 
 
 
 
 
 
Recorded as part of gross realized losses:
 
 
 
 
 
 
 
Credit related OTTI
$

 
$

 
$
981

 
$

Intent to sell OTTI

 

 

 

Total recorded as part of gross realized losses

 

 
981

 

Recorded directly to AOCI for non-credit related impairment:
 
 
 
 
 
 
 
  Residential mortgage backed securities

 

 
683

 

  Accretion of non-credit related impairment
(23
)
 

 
(23
)
 

Total recorded directly to AOCI for increase in non-credit related impairment
(23
)
 

 
660

 

Total OTTI losses recorded on debt securities
$
(23
)
 
$

 
$
1,641

 
$


The following table presents a rollforward of the credit loss component of OTTI recognized in earnings for debt securities still owned by Heartland. The credit loss component of the amortized cost represents the difference between the present value of expected future cash flows discounted using the security's current effective interest rate and the amortized cost basis of the security prior to considering credit losses. OTTI recognized in earnings for credit impaired debt securities is presented as additions and is classified into one of two components based upon whether the current period is the first time the debt security was credit-impaired (initial credit impairment) or if the debt security was previously credit impaired (subsequent credit impairments). The credit loss component is reduced if Heartland sells, intends to sell, or if management believes they will be required to sell previously credit impaired debt securities. Additionally, the credit loss component is reduced if Heartland





receives, expects to receive cash flows in excess of what was previously expected to be received over the remaining life of the credit impaired debt security, the security matures or is fully written down.

Changes in the credit loss component of the credit impaired debt securities that Heartland does not intend to sell were, in thousands:

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2012
 
2011
 
2012
 
2011
Credit loss component, beginning of period
$
981

 
$

 
$

 
$

Additions:
 
 
 
 
 
 
 
Initial credit impairments

 

 
981

 

Subsequent credit impairments

 

 

 

Total additions

 

 
981

 

Reductions:
 
 
 
 
 
 
 
For securities sold

 

 

 

Due to change in intent to sell or requirement to sell

 

 

 

For recoveries of previous credit impairments

 

 

 

Total reductions

 

 

 

Credit loss component, end of period
$
981

 
$

 
$
981

 
$


NOTE 3: LOANS AND LEASES

Loans and leases as of June 30, 2012, and December 31, 2011, were as follows, in thousands:
 
 
June 30, 2012
 
December 31, 2011
Loans and leases receivable held to maturity:
 
 
 
 
Commercial
 
$
667,251

 
$
645,666

Commercial real estate
 
1,236,745

 
1,163,784

Agricultural and agricultural real estate
 
279,285

 
262,975

Residential real estate
 
220,084

 
194,436

Consumer
 
230,594

 
220,099

Gross loans receivable held to maturity
 
2,633,959

 
2,486,960

Net direct financing leases held to maturity
 
290

 
450

Gross loans and leases receivable held to maturity
 
2,634,249

 
2,487,410

Unearned discount
 
(1,382
)
 
(2,463
)
Deferred loan fees
 
(3,270
)
 
(3,663
)
Total net loans and leases receivable held to maturity
 
2,629,597

 
2,481,284

Loans covered under loss share agreements:
 
 
 
 
Commercial and commercial real estate
 
4,497

 
6,380

Agricultural and agricultural real estate
 
858

 
1,659

Residential real estate
 
3,309

 
4,158

Consumer
 
903

 
1,150

Total loans covered under loss share agreements
 
9,567

 
13,347

Allowance for loan and lease losses
 
(41,439
)
 
(36,808
)
Loans and leases receivable, net
 
$
2,597,725

 
$
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 practices, all nonaccrual and 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 June 30, 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
June 30, 2012
 
 
 
 
 
 
 
 
 
 
 
Commercial
$
1,241

 
$
9,046

 
$
10,287

 
$
8,220

 
$
659,031

 
$
667,251

Commercial real estate
3,513

 
13,544

 
17,057

 
54,109

 
1,182,636

 
1,236,745

Agricultural and agricultural real estate
10

 
1,992

 
2,002

 
13,447

 
265,838

 
279,285

Residential real estate
720

 
3,179

 
3,899

 
6,594

 
213,490

 
220,084

Consumer
2,152

 
6,041

 
8,193

 
5,474

 
225,120

 
230,594

Lease financing

 
1

 
1

 

 
290

 
290

Total
$
7,636

 
$
33,803

 
$
41,439

 
$
87,844

 
$
2,546,405

 
$
2,634,249

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 June 30, 2012, and December 31, 2011, in thousands. There were no nonaccrual leases, accruing leases past due 90 days or more or restructured leases at June 30, 2012, and December 31, 2011.
 
 
June 30, 2012
 
December 31, 2011
Nonaccrual loans
 
$
37,529

 
$
48,587

Nonaccrual troubled debt restructured loans
 
7,316

 
8,848

Total nonaccrual loans
 
$
44,845

 
$
57,435

Accruing loans past due 90 days or more
 

 

Performing troubled debt restructured loans
 
$
24,715

 
$
25,704


Heartland had $32.0 million of troubled debt restructured loans at June 30, 2012, of which $7.3 million were classified as nonaccrual and $24.7 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 tables provide information on troubled debt restructured loans that were modified during the three and six months ended June 30, 2012, and June 30, 2011, in thousands:
 
 
Three Months Ended
June 30, 2012
 
Three Months Ended
June 30, 2011
 
 
Number of Loans
 
Pre-Modification Recorded Investment
 
Post-Modification Recorded Investment
 
Number of Loans
 
Pre-Modification Recorded Investment
 
Post-Modification Recorded Investment
Commercial
 

 
$

 
$

 
3

 
$
129

 
$
129

Commercial real estate
 
1

 
1,380

 
1,380

 
15

 
8,510

 
8,510

Total commercial and commercial real estate
 
1

 
1,380

 
1,380

 
18

 
8,639

 
8,639

Agricultural and agricultural real estate
 
3

 
1,014

 
1,014

 

 

 

Residential real estate
 
1

 
1,005

 
1,005

 
1

 
323

 
323

Consumer
 

 

 

 

 

 

Total Troubled Debt Restructured Loans
 
5

 
$
3,399

 
$
3,399

 
19

 
$
8,962

 
$
8,962


 
 
Six Months Ended
June 30, 2012
 
Six Months Ended
June 30, 2011
 
 
Number of Loans
 
Pre-Modification Recorded Investment
 
Post-Modification Recorded Investment
 
Number of Loans
 
Pre-Modification Recorded Investment
 
Post-Modification Recorded Investment
Commercial
 

 
$

 
$

 
3

 
$
129

 
$
129

Commercial real estate
 
2

 
1,398