HEARTLAND FINANCIAL USA INC (Form: 10-Q, Received: 11/06/2015 12:47:31)

Large accelerated filer ¨

Accelerated Filer x

Non-accelerated filer ¨

Smaller reporting company ¨

(Do not check if a smaller reporting company)

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 September 30, 2015

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.

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 November 4, 2015, the Registrant had outstanding 20,637,321 shares of common stock, $1.00 par value per share.

HEARTLAND FINANCIAL USA, INC.

Form 10-Q Quarterly Report

Table of Contents



Part I
Item 1.	Financial Statements
Item 2 .	Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
Part II
Item 1.	Legal Proceedings
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Mine Safety Disclosures
Item 5.	Other Information
Item 6.	Exhibits
	10.3 Merger Agreement among Heartland Financial USA, Inc., CIC Bancshares, Inc. and Kevin W. Ahern, as Securityholders' Representative dated October 22, 2015.
	31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).
	31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).
	32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	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)
	September 30, 2015 (Unaudited)			December 31, 2014
ASSETS
Cash and due from banks	$	76,954		$	64,150
Federal funds sold and other short-term investments	14,151			9,721
Cash and cash equivalents	91,105			73,871
Time deposits in other financial institutions	2,355			2,605
Securities:
Available for sale, at fair value (cost of $1,253,607 at September 30, 2015, and $1,396,794 at December 31, 2014)	1,261,687			1,401,868
Held to maturity, at cost (fair value of $294,622 at September 30, 2015, and $296,768 at December 31, 2014)	282,200			284,587
Other investments, at cost	19,292			20,498
Loans held for sale	102,569			70,514
Loans and leases receivable:
Held to maturity	4,642,523			3,876,745
Loans covered by loss share agreements	—			1,258
Allowance for loan and lease losses	(47,105		)	(41,449		)
Loans and leases receivable, net	4,595,418			3,836,554
Premises, furniture and equipment, net	144,046			130,713
Premises, furniture and equipment held for sale	3,440			—
Other real estate, net	17,041			19,016
Goodwill	56,828			35,583
Other intangible assets, net	48,695			33,932
Cash surrender value on life insurance	99,564			82,638
Other assets	81,644			59,433
TOTAL ASSETS	$	6,805,884		$	6,051,812
LIABILITIES AND EQUITY
LIABILITIES:
Deposits:
Demand	$	1,632,005		$	1,295,193
Savings	2,936,611			2,687,493
Time	938,621			785,336
Total deposits	5,507,237			4,768,022
Short-term borrowings	335,845			330,264
Other borrowings	302,086			395,705
Accrued expenses and other liabilities	69,707			61,504
TOTAL LIABILITIES	6,214,875			5,555,495
STOCKHOLDERS' EQUITY:
Preferred stock (par value $1 per share; authorized 20,604 shares; 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; authorized, issued and outstanding 81,698 shares)	81,698			81,698
Common stock (par value $1 per share; authorized 30,000,000 shares at September 30, 2015, and 25,000,000 shares at December 31, 2014; issued 20,639,886 shares at September 30, 2015, and 18,511,125 shares at December 31, 2014)	20,640			18,511
Capital surplus	149,613			95,816
Retained earnings	337,421			298,764
Accumulated other comprehensive income	1,731			1,528
Treasury stock at cost (2,565 shares at September 30, 2015 and 0 at December 31, 2014)	(94		)	—
TOTAL STOCKHOLDERS' EQUITY	591,009			496,317
TOTAL LIABILITIES AND EQUITY	$	6,805,884		$	6,051,812

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 September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
INTEREST INCOME:
Interest and fees on loans and leases	$	58,328		$	49,311		$	167,201		$	143,796
Interest on securities:
Taxable	5,858			7,547			19,729			22,755
Nontaxable	3,077			3,249			8,867			10,079
Interest on federal funds sold	1			1			3			1
Interest on interest bearing deposits in other financial institutions	4			6			11			20
TOTAL INTEREST INCOME	67,268			60,114			195,811			176,651
INTEREST EXPENSE:
Interest on deposits	3,767			4,655			11,758			14,010
Interest on short-term borrowings	228			227			638			655
Interest on other borrowings (includes $557 and $577 of interest expense related to derivatives reclassified from accumulated other comprehensive income for the three months ended September 30, 2015 and 2014, respectively, and $1,680 and $1,671 of interest expense related to derivatives reclassified from accumulated other comprehensive income for the nine months ended September 30, 2015 and 2014, respectively)	3,549			3,741			12,117			11,084
TOTAL INTEREST EXPENSE	7,544			8,623			24,513			25,749
NET INTEREST INCOME	59,724			51,491			171,298			150,902
Provision for loan and lease losses	3,181			2,553			10,526			11,635
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES	56,543			48,938			160,772			139,267
NONINTEREST INCOME:
Service charges and fees	6,350			4,857			17,654			15,007
Loan servicing income	1,368			1,319			3,572			4,223
Trust fees	3,507			3,194			11,051			9,747
Brokerage and insurance commissions	869			1,044			2,872			3,325
Securities gains, net (includes $1,807 and $825 of net security gains reclassified from accumulated other comprehensive income for the three months ended September 30, 2015 and 2014, respectively, and $9,270 and $2,460 of net security gains reclassified from accumulated other comprehensive income for nine months ended September 30, 2015 and 2014, respectively)	1,767			825			9,230			2,460
Gain (loss) on trading account securities	—			—			—			(38		)
Net gains on sale of loans held for sale	9,823			8,384			38,164			23,559
Income on bank owned life insurance	372			371			1,355			1,073
Other noninterest income	924			612			2,406			1,635
TOTAL NONINTEREST INCOME	24,980			20,606			86,304			60,991
NONINTEREST EXPENSES:
Salaries and employee benefits	37,033			33,546			110,522			98,428
Occupancy	4,307			3,807			12,594			11,841
Furniture and equipment	2,121			2,033			6,403			6,008
Professional fees	5,251			4,429			16,544			13,169
FDIC insurance assessments	1,018			888			2,873			2,848
Advertising	1,327			1,383			3,841			4,082
Intangible assets amortization	734			521			2,080			1,736
Other real estate and loan collection expenses	496			215			1,714			1,785
Loss on sales/valuations of assets, net	721			447			2,583			1,989
Other noninterest expenses	8,988			7,386			25,938			19,966
TOTAL NONINTEREST EXPENSES	61,996			54,655			185,092			161,852
INCOME BEFORE INCOME TAXES	19,527			14,889			61,984			38,406
Income taxes (includes $451 and $93 of income tax expense reclassified from accumulated other comprehensive income for the three months ended September 30, 2015 and 2014, respectively, and $2,816 and $296 of income tax expense reclassified from accumulated other comprehensive income for the nine months ended September 30, 2015 and 2014, respectively)	4,945			2,916			16,533			8,769
NET INCOME	14,582			11,973			45,451			29,637
Preferred dividends and discount	(205		)	(205		)	(613		)	(613		)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	14,377		$	11,768		$	44,838		$	29,024
EARNINGS PER COMMON SHARE - BASIC	$	0.70		$	0.64		$	2.19		$	1.57
EARNINGS PER COMMON SHARE - DILUTED	$	0.69		$	0.63		$	2.16		$	1.55
CASH DIVIDENDS DECLARED PER COMMON SHARE	$	0.10		$	0.10		$	0.30		$	0.30

See accompanying notes to consolidated financial statements.



HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
NET INCOME	$	14,582		$	11,973		$	45,451		$	29,637
OTHER COMPREHENSIVE INCOME
Securities:
Net change in unrealized gain (loss) on securities	2,202			(144		)	10,916			30,538
Reclassification adjustment for net gains realized in net income	(1,807		)	(825		)	(9,270		)	(2,460		)
Net change in non-credit related other than temporary impairment	24			24			72			72
Income taxes	(169		)	372			(667		)	(11,110		)
Other comprehensive income (loss) on securities	250			(573		)	1,051			17,040
Derivatives used in cash flow hedging relationships:
Net change in unrealized gain (loss) on derivatives	(3,071		)	317			(3,016		)	(758		)
Reclassification adjustment for net loss on derivatives realized in net income	557			577			1,680			1,671
Income taxes	936			(334		)	488			(341		)
Other comprehensive income (loss) on cash flow hedges	(1,578		)	560			(848		)	572
Other comprehensive income (loss)	(1,328		)	(13		)	203			17,612
TOTAL COMPREHENSIVE INCOME	$	13,254		$	11,960		$	45,654		$	47,249

See accompanying notes to consolidated financial statements.



HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)
	Nine Months Ended September 30,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	45,451		$	29,637
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	16,325			13,041
Provision for loan and lease losses	10,526			11,635
Net amortization of premium on securities	21,339			18,993
Securities gains, net	(9,230		)	(2,460		)
Decrease in trading account securities	—			1,801
Stock based compensation	2,635			2,683
Write downs and losses on repossessed assets, net	1,686			1,365
Loans originated for sale	(1,087,510		)	(694,622		)
Proceeds on sales of loans held for sale	1,083,285			665,837
Net gains on sale of loans held for sale	(27,102		)	(17,604		)
(Increase) decrease in accrued interest receivable	170			(603		)
Increase in prepaid expenses	(1,021		)	(857		)
Decrease in accrued interest payable	(177		)	(1,176		)
Capitalization of servicing rights	(11,766		)	(5,955		)
Write downs and losses on sales of assets, net	897			624
Other, net	8,137			6,772
NET CASH PROVIDED BY OPERATING ACTIVITIES	53,645			29,111
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of securities available for sale	877,077			699,830
Proceeds from the sale of other investments	12,917			10,178
Proceeds from the sale of time deposits in other financial institutions	2,925			—
Proceeds from the maturity of and principal paydowns on securities available for sale	124,084			104,089
Proceeds from the maturity of and principal paydowns on securities held to maturity	1,338			2,217
Proceeds from the maturity of and principal paydowns on time deposits in other financial institutions	250			750
Proceeds from the maturity of and principal paydowns on other investments	619			—
Purchase of securities available for sale	(774,657		)	(543,407		)
Purchase of securities held to maturity	—			(20,944		)
Purchase of other investments	(9,833		)	(8,849		)
Net increase in loans and leases	(225,356		)	(317,604		)
Purchase of bank owned life insurance policies	(1,100		)	—
Capital expenditures	(4,982		)	(5,738		)
Net cash and cash equivalents received in acquisition	(6,861		)	—
Proceeds from the sale of equipment	1,108			175
Proceeds on sale of OREO and other repossessed assets	6,328			14,578
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES	3,857			(64,725		)



HEARTLAND FINANCIAL USA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED (Unaudited) (Dollars in thousands)
	Nine Months Ended September 30,
	2015			2014
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits and savings accounts	118,311			100,466
Net decrease in time deposit accounts	(26,326		)	(40,246		)
Net decrease in short-term borrowings	(25,901		)	(31,451		)
Proceeds from short term FHLB advances	276,100			230,000
Repayments of short term FHLB advances	(270,000		)	(259,000		)
Proceeds from other borrowings	29,000			5,000
Repayments of other borrowings	(134,803		)	(20,596		)
Purchase of treasury stock	(2,856		)	(625		)
Proceeds from issuance of common stock	2,330			662
Excess tax benefits on exercised stock options	671			119
Dividends paid	(6,794		)	(6,149		)
NET CASH USED BY FINANCING ACTIVITIES	(40,268		)	(21,820		)
Net increase (decrease) in cash and cash equivalents	17,234			(57,434		)
Cash and cash equivalents at beginning of year	73,871			125,270
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	91,105		$	67,836
Supplemental disclosures:
Cash paid for income/franchise taxes	$	7,305		$	2,632
Cash paid for interest	$	24,690		$	26,925
Loans transferred to OREO	$	5,206		$	6,528
Purchases of securities available for sale, accrued, not paid	$	3,523		$	2,089
Stock consideration granted for acquisition	$	53,052		$	—

See accompanying notes to consolidated financial statements.



HEARTLAND FINANCIAL USA, INC. CONSOLIDATED 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 (Loss)			Treasury Stock			Total Equity
Balance at January 1, 2014	$	81,698	$	18,399	$	91,632	$	265,067		$	(17,336	)	$	—		$	439,460
Comprehensive income							29,637			17,612						47,249
Cash dividends declared:
Preferred, $7.50 per share							(613		)							(613		)
Common, $0.30 per share							(5,536		)							(5,536		)
Purchase of 24,042 shares of common stock													(625		)	(625		)
Issuance of 182,392 shares of common stock			78		78								625			781
Stock based compensation					2,683											2,683
Balance at September 30, 2014	$	81,698	$	18,477	$	94,393	$	288,555		$	276		$	—		$	483,399
Balance at January 1, 2015	$	81,698	$	18,511	$	95,816	$	298,764		$	1,528		$	—		$	496,317
Comprehensive income							45,451			203						45,654
Cash dividends declared:
Preferred, $7.50 per share							(613		)							(613		)
Common, $0.30 per share							(6,181		)							(6,181		)
Purchase of 54,389 shares of common stock													(2,856		)	(2,856		)
Issuance of 2,180,585 shares of common stock			2,129		51,162								2,762			56,053
Stock based compensation					2,635											2,635
Balance at September 30, 2015	$	81,698	$	20,640	$	149,613	$	337,421		$	1,731		$	(94	)	$	591,009

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, 2014, included in the Form 10-K of Heartland Financial USA, Inc. ("Heartland") filed with the Securities and Exchange Commission ("SEC") on March 13, 2015 . Accordingly, foot note 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 September 30, 2015, are not necessarily indicative of the results expected for the year ending December 31, 2015.

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 and nine months ended September 30, 2015 and 2014, are shown in the table below:



	Three Months Ended September 30,
(Dollars and number of shares in thousands, except per share data)	2015			2014
Net income attributable to Heartland	$	14,582		$	11,973
Preferred dividends and discount	(205		)	(205		)
Net income available to common stockholders	$	14,377		$	11,768
Weighted average common shares outstanding for basic earnings per share	20,620			18,469
Assumed incremental common shares issued upon exercise of stock options and non-vested restricted stock units	273			284
Weighted average common shares for diluted earnings per share	20,893			18,753
Earnings per common share — basic	$	0.70		$	0.64
Earnings per common share — diluted	$	0.69		$	0.63
Number of antidilutive common stock equivalents excluded from diluted earnings per share computation	—			94

	Nine Months Ended September 30,
(Dollars and number of shares in thousands, except per share data)	2015			2014
Net income attributable to Heartland	$	45,451		$	29,637
Preferred dividends and discount	(613		)	(613		)
Net income available to common stockholders	$	44,838		$	29,024
Weighted average common shares outstanding for basic earnings per share	20,483			18,456
Assumed incremental common shares issued upon exercise of stock options and non-vested restricted stock units	269			287
Weighted average common shares for diluted earnings per share	20,752			18,743
Earnings per common share — basic	$	2.19		$	1.57
Earnings per common share — diluted	$	2.16		$	1.55
Number of antidilutive common stock equivalents excluded from diluted earnings per share computation	—			94

Stock-Based Compensation

Heartland may grant, through its Nominating and Compensation Committee (the "Compensation Committee"), non-qualified and incentive stock options, stock appreciation rights, stock awards, restricted stock, restricted stock units and cash incentive awards, under its 2012 Long-Term Incentive Plan (the "Plan"). The Plan, which was approved by stockholders in May 2012 and replaced Heartland's 2005 Long-Term Incentive Plan with respect to grants after such approval, reserved 268,390 shares of common stock at September 30, 2015, for issuance under future awards that may be granted under the Plan to employees and directors of, and service providers to, Heartland or its subsidiaries.

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 718, " Compensation-Stock Compensation " requires the measurement of the cost of employee services received in exchange for an award of equity instruments based upon the fair value of the award on the grant date. The cost of the award is based upon its fair value estimated on the date of grant and recognized in the consolidated statements of income over the vesting period of the award. The fair market value of restricted stock and restricted stock units is based on the fair value of the underlying shares of common stock on the date of grant. The fair value of stock options is estimated on the date of grant using the Black-Scholes model.

The amount of tax benefit related to the exercise, vesting, and forfeiture of equity-based awards reflected in additional paid-in-capital, not taxes payable, was $671,000 and $ 119,000 during the nine months ended September 30, 2015 and 2014, respectively.

Restricted Stock Units

The Plan permits the Compensation Committee to grant restricted stock units ("RSUs"). On January 20, 2015, the Compensation Committee granted time-based RSUs with respect to 78,220 shares of common stock, and on March 11, 2014 , the Compensation Committee granted time-based RSUs with respect to 67,190 shares of common stock to selected officers. The time-based RSUs, which represent the right, without payment, 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, and will not be entitled to dividends until vested. The time-based RSUs vest upon a "qualified retirement" (as defined in the RSU agreement), and the retiree is required to sign a non-solicitation and non-compete agreement as a condition to vesting.

In addition to the time-based RSUs referenced in the preceding paragraph, the Compensation Committee granted performance-based RSUs with respect to 39,075 shares of common stock on March 10, 2015, and performance-based RSUs with respect to 32,645 shares of common stock on March 11, 2014 , to Heartland executives and subsidiary presidents. These performance-based RSUs vest based first on performance measures tied to Heartland's earnings and loans on December 31, 2015, and December 31, 2014, respectively, and then on time-based vesting conditions. For the grants awarded in 2015, the portion of the RSUs earned based on performance vest on December 31, 2017, and for the grants awarded in 2014 , the portion of the RSUs earned based on performance vest on December 31, 2016 , subject to employment on the respective vesting dates.

The Compensation Committee also grants RSUs under the Plan to directors as part of their compensation, to new management level employees at commencement of employment, and to other employees and service providers as incentives. During the nine months ended September 30, 2015, and September 30, 2014, 22,648 and 33,304 RSUs, respectively, were granted to directors and new employees.

A summary of the status of the RSUs as of September 30, 2015 and 2014, and changes during the nine months ended September 30, 2015 and 2014, follows:



	2015				2014
	Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value
Outstanding at January 1	396,555		$	21.48	353,070		$	18.62
Granted	139,943		28.90		133,139		26.65
Vested	(151,681	)	17.98		(74,521	)	16.95
Forfeited	(15,636	)	25.08		(7,483	)	20.22
Outstanding at September 30	369,181		$	25.56	404,205		$	21.44

Total compensation costs recorded for RSUs were $2.6 million and $2.7 million for the nine months ended September 30, 2015 and 2014, respectively. As of September 30, 2015 , there were $3.8 million of total unrecognized compensation costs related to the 2005 and 2012 Long-Term Incentive Plans for RSUs which are expected to be recognized through 2019.

Options

Although the Plan provides authority to the Compensation Committee to grant stock options, no options were granted during the first nine months of 2015 and 2014. 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 September 30, 2015 and 2014, and changes during the nine months ended September 30, 2015 and 2014, follows:



	2015				2014
	Shares		Weighted-Average Exercise Price		Shares		Weighted-Average Exercise Price
Outstanding at January 1	215,851		$	23.85	261,936		$	23.60
Granted	—		—		—		—
Exercised	(81,401	)	23.34		(9,750	)	19.67
Forfeited	(3,250	)	23.51		(7,000	)	26.62
Outstanding at September 30	131,200		$	24.15	245,186		$	23.67
Options exercisable at September 30	131,200		$	24.15	245,186		$	23.67

At September 30, 2015 , the vested options totale d 131,200 shares with a weighted average exercise price of $ 24.15 per share and a weighted average remaining contractual life of 1.50 years. The intrinsic value (the difference between the market price and the aggregate exercise price) for the vested options as of September 30, 2015 , was $1.6 million . The intrinsic value for the total of all options exercised during the nine months ended September 30, 2015 , was $829,000 .

The exercise price of stock options granted is established by the Compensation Committee, but the exercise price for the stock options may not be less than the fair market value of the shares on the date that the option is granted or, if greater, the par value of a share of stock. Each option granted is exercisable in full at any time or from time to time, subject to vesting provisions, as determined by the Compensation Committee and as provided in the option agreement, but such time may not exceed ten years from the grant date. Cash received from options exercised was $ 1.9 million for the nine months ended September 30, 2015 , and $192,000 for the nine months ended September 30, 2014.

Total compensation costs recorded for options were $0 for the nine months ended September 30, 2015 and 2014, respectively. There are no unrecorded compensation costs related to options at September 30, 2015.

Subsequent Events

Heartland has evaluated subsequent events through the filing date of this quarterly report on Form 10-Q with the SEC. On October 22, 2015, Heartland entered into a merger agreement with CIC Bancshares, Inc. parent company of Centennial Bank in Denver, Colorado. See Note 2, "Acquisitions," for further details of this acquisition. On October 7, 2015, Heartland reached a buyout agreement with the FDIC related to the loss share agreements. See Note 4, "Loans and Leases," for further details.

Effect of New Financial Accounting Standards

In January 2014, the FASB issued ASU 2014-01, " Accounting for Investments in Qualified Affordable Housing Projects ." The amendments in ASU 2014-01 to Topic 323, " Equity Investments and Joint Ventures ," provide guidance on accounting for investments by a reporting entity in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit. The amendments permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefit received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments are effective for fiscal years, and interim periods within those years, beginning after December 31, 2014, and should be applied retrospectively to all periods presented. Heartland elected to use the proportional amortization method for equity investments in qualified affordable housing projects

that meet the conditions specified in ASU-2014-01. Heartland adopted this standard on January 1, 2015, and the adoption did not have a material impact on the results of operations, financial position, and liquidity.

In January 2014, the FASB issued ASU 2014-04, " Receivables-Troubled Debt Restructurings by Creditors: Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure. " The amendments in ASU 2014-04 clarify that an in-substance foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (i) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (ii) the borrower conveying all interest in the residential real estate property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or similar legal agreement. ASU 2014-04 also requires disclosure of both the amount of foreclosed residential real estate property held by the creditor and the recorded investment in loans collateralized by residential real estate property that are in the process of foreclosure. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014, with early adoption permitted. Once adopted, an entity can elect either (i) a modified retrospective transition method or (ii) a prospective transition method. The modified retrospective transition method is applied by means of a cumulative-effect adjustment to residential mortgage loans and foreclosed residential real estate properties existing as of the beginning of the period for which the amendments of ASU 2014-04 are effective, with real estate reclassified to loans measured at the carrying value of the real estate at the date of adoption and loans reclassified to real estate measured at the lower of net carrying value of the loan or the fair value of the real estate less costs to sell at the date of adoption. The prospective transition method is applied by means of applying the amendments of ASU 2014-04 to all instances of receiving physical possession of residential real estate properties that occur after the date of adoption. Heartland adopted this standard on January 1, 2015, and the adoption did not have a material impact on the results of operations, financial position, and liquidity. As of September 30, 2015, Heartland had not received possession of any residential real estate properties that meet the disclosure requirements.

In May 2014, the FASB issued ASU 2014-09, " Revenue from Contracts with Customers ." The amendment clarifies the principles for recognizing revenue and develops a common revenue standard. The amendment outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” In applying the revenue model to contracts within its scope, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The amendment applies to all contracts with customers except those that are within the scope of other topics in the FASB Codification. The standard also requires significantly expanded disclosures about revenue recognition. The amendment is effective for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). Early application is not permitted. Heartland intends to adopt the accounting standard during the first quarter of 2018, as required, and is currently evaluating the impact on its results of operations, financial position, and liquidity.

In August 2014, the FASB issued ASU 2014-14, " Receivables-Troubled Debt Restructurings by Creditors: Classification of Certain Government-Guaranteed Mortgage Loans Upon Foreclosure." The amendment clarifies how creditors are to classify certain government-guaranteed mortgage loans upon foreclosure. The amendment requires that a mortgage loan be derecognized and a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) the loan has a government guarantee that is not separate from the loan before foreclosure, and (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under the claim, and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured on the amount of the loan balance (principal and interest) expected to be recovered for the guarantor. This amendment is effective for annual reporting periods, and interim reporting periods within those years, beginning after December 15, 2014, with early adoption permitted. Heartland adopted this standard on January 1, 2015, and the adoption did not have an impact on the results of operations, financial position, and liquidity.

In January 2015, the FASB issued ASU 2015-01, " Income Statement-Extraordinary and Unusual Items ." The amendment eliminates from U.S. GAAP the concept of extraordinary items. Presently, an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item. If an event or transaction meets the criteria for extraordinary classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. This amended guidance will prohibit separate disclosure of extraordinary items in the income statement. This amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.

Entities may apply the amendment prospectively or retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. Heartland does not expect the adoption of this standard to have a material impact on the results of operations, financial position, and liquidity.

In April 2015, the FASB issued ASU 2015-03, " Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs. " The amendment intends to simplify the presentation of debt issuance costs and more closely align the presentation of debt issuance costs under U.S. GAAP with the presentation under comparable International Financial Reporting Standards. The cost of issuing debt will no longer be recorded as a separate asset, except when incurred before receipt of the funding from the associated debt liability. Debt issuance costs related to a recognized debt liability are to be presented on the balance sheet as a direct reduction from the debt liability, similar to the presentation of debt premiums or discounts. The costs will continue to be amortized to interest expense using the effective interest method. This amendment is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years with early adoption permitted. The ASU requires retrospective application to all prior periods presented in the financial statements. Heartland adopted this standard effective March 31, 2015, at which time $550,000 was reclassified from other assets to other borrowings on the consolidated balance sheet for all periods presented.

In April 2015, the FASB issued ASU 2015-05, "Intangibles-Goodwill and Other-Internal-Use Software." The amendment intends to provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer's accounting for service contracts. As a result, all software licenses within the scope of this guidance will be accounted for consistently with other licenses of intangible assets. This amendment is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Entities can elect to adopt the standard either retrospectively or prospectively to all cloud computing arrangements entered into or materially modified after the adoption date. Early adoption is permitted. Heartland intends to adopt this standard on January 1, 2016 and believes the adoption will not have a material impact on the results of operations, financial position, and liquidity.

In September 2015, the FASB issued ASU 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments." The amendment eliminates the requirement of Topic 805, Business Combinations, to retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a business combination is consummated. Measurement-period adjustments are calculated as if they were known at the acquisition date, but are recognized in the reporting period in which they are determined. Prior period information is not revised. Additional disclosures are required about the impact on current period income statement line items of adjustments that would have been recognized in prior periods if prior period information had been revised. This amendment is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted if financial statements have not been issued. Heartland adopted this standard effective September 30, 2015. The adoption of this standard did not have a material impact on the results of operations, financial position, and liquidity.

NOTE 2: ACQUISITIONS

CIC Bancshares, Inc.

On October 22, 2015, Heartland entered into a merger agreement with CIC Bancshares, Inc., parent company of Centennial Bank, headquartered in Denver, Colorado. Under the agreement, Heartland will acquire CIC Bancshares, Inc., in a transaction valued at approximately $83.5 million , of which approximately 20% would be payable in cash and approximately 80% would be payable by issuance of Heartland common stock. Simultaneous with the closing of the transaction, Centennial Bank will be merged into Heartland's Summit Bank & Trust, with the resulting institution operating under the Centennial Bank name. Centennial Bank had assets of approximately $730.0 million as of September 30, 2015, including loans of approximately $556.0 million , and deposits of approximately $645.0 million . The transaction is subject to approvals by shareholders of CIC Bancshares, Inc., and bank regulatory authorities, and is expected to close during the first quarter of 2016.

Premier Valley Bank

On May 28, 2015, Heartland entered into a merger agreement with Premier Valley Bank in Fresno, California. Under the terms of the agreement, Premier Valley Bank shareholders will receive approximately $95.0 million or $7.73 per share of common stock in the merger, subject to adjustment if tangible equity is less than $58.8 million , and may elect to receive this payment in shares of Heartland common stock or cash, subject to proration so that 70% of the total payment is in Heartland common stock and 30% in cash. As of September 30, 2015, Premier Valley Bank had assets of approximately $683.0 million , loans of

approximately $414.0 million , and deposits of approximately $598.0 million . Upon closing of the transaction, Premier Valley Bank will become a wholly-owned subsidiary of Heartland and will continue to operate under its current name and management team as Heartland's tenth state-chartered bank.

First Scottsdale Bank, N.A.

On September 11, 2015, Heartland completed the purchase of First Scottsdale Bank, N.A., in Scottsdale, Arizona, in an all cash transaction valued at approximately $17.7 million . Simultaneous with the closing of the transaction, First Scottsdale Bank, N.A., merged into Heartland's Arizona Bank & Trust subsidiary. The transaction included, at fair value, total assets of $83.7 million , loans of $54.7 million , and deposits of $65.9 million on the acquisition date.

Community Bancorporation of New Mexico, Inc.

On August 21, 2015, Heartland acquired Community Bancorporation of New Mexico, Inc., parent company of Community Bank in Santa Fe, New Mexico, in an all cash transaction valued at approximately $11.1 million . Simultaneous with the closing of the transaction, Community Bank merged into Heartland's New Mexico Bank & Trust subsidiary. The transaction included, at fair value, total assets of $166.5 million , loans of $99.5 million , and deposits of $147.4 million on the acquisition date. Also included in this transaction is one bank building with a fair value of $3.4 million that Heartland intends to sell. The building is classified as premises, furniture and equipment held for sale on the consolidated balance sheet.

Community Banc-Corp of Sheboygan, Inc.

On January 16, 2015, Heartland completed the acquisition of Community Banc-Corp of Sheboygan, Inc., parent company of Community Bank & Trust in Sheboygan, Wisconsin. Under the terms of the agreement, the aggregate purchase price was based upon 155% of the December 31, 2014, adjusted tangible book value, as defined in the merger agreement, of Community Banc-Corp of Sheboygan, Inc. The purchase price was approximately $ 53.1 million, which was paid by delivery of 1,970,720 shares of Heartland common stock. The transaction included, at fair value, total assets of $506.8 million , including loans of $395.0 million , and deposits of $433.9 million . Simultaneous with the close of the transaction, Community Bank & Trust merged into Heartland’s Wisconsin Bank & Trust subsidiary. The transaction was a tax-free reorganization with respect to the stock consideration received by the stockholders of Community Banc-Corp of Sheboygan, Inc.

The assets and liabilities of Community Banc-Corp of Sheboygan, Inc. were recorded on the consolidated balance sheet at the estimated fair value on the acquisition date. The following table represents, in thousands, the amounts recorded on the consolidated balance sheet as of January 16, 2015:



	As of January 16, 2015
Fair value of consideration paid
Common Stock	$	53,052
Cash	6
Total consideration paid	53,058
Fair value of assets acquired
Cash and due from banks	7,109
Securities:
Securities available for sale	52,976
Other securities	1,284
Loans held for sale	728
Loans held to maturity	395,007
Premises, furniture and equipment, net	13,954
Other real estate, net	346
Other intangible assets, net	10,295
Other assets	25,066
Total assets	506,765
Fair value of liabilities assumed
Deposits	433,919
Short term borrowings	24,836
Other borrowings	6,097
Other liabilities	7,434
Total liabilities assumed	472,286
Fair value of net assets acquired	34,479
Goodwill resulting from acquisition	$	18,579

Heartland recognized goodwill of $18.6 million in conjunction with the acquisition of Community Banc-Corp of Sheboygan, Inc., which is calculated as the excess of both the consideration exchanged and the liabilities assumed as compared to the fair value of identifiable assets acquired. See Note 6 for further information on goodwill.

Pro Forma Information: The following pro forma information presents the results of operations for the years ended December 31, 2014, and December 31, 2013, as if the Community Banc-Corp of Sheboygan, Inc. acquisition occurred on January 1, 2013:



(Dollars in thousands, except per share data)	For the Years Ended
	December 31, 2014		December 31, 2013
Net interest income	$	220,358	$	179,001
Net income	$	44,710	$	42,105
Basic earnings per share	$	2.19	$	2.20
Diluted earnings per share	$	2.16	$	2.17

The above pro forma results are presented for illustrative purposes and are not intended to represent or be indicative of the actual results of operations of the merged companies that would have been achieved had the acquisition occurred on January 1, 2013, nor are they intended to represent or be indicative of future results of operations. The pro forma results do not include expected operating cost savings as a result of the acquisition. These pro forma results require significant estimates and judgments particularly as it relates to valuation and accretion of income associated with the acquired loans.

Heartland incurred $1.7 million of pre-tax merger related expenses during 2014 and 2015. The merger expenses are reflected on the consolidated statement of income for the applicable period and are reported primarily in the categories of salaries and employee benefits, professional fees and other noninterest expenses.

Acquired loans were preliminarily recorded at fair value based on a discounted cash flow valuation methodology that considers, among other things, projected default rates, loss given defaults, and recovery rates. No allowance for credit losses was carried over from the acquisition. The balance of nonaccrual loans at acquisition date was $5.8 million .

NOTE 3: SECURITIES

The amortized cost, gross unrealized gains and losses, and estimated fair values of securities available for sale as of September 30, 2015 , and December 31, 2014 , are summarized in the table below, in thousands:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
September 30, 2015
U.S. government corporations and agencies	$	26,584	$	436	$	—		$	27,020
Mortgage-backed securities	1,001,955		13,210		(8,816		)	1,006,349
Obligations of states and political subdivisions	211,194		3,946		(589		)	214,551
Corporate debt securities	740		—		(160		)	580
Total debt securities	1,240,473		17,592		(9,565		)	1,248,500
Equity securities	13,134		53		—			13,187
Total	$	1,253,607	$	17,645	$	(9,565	)	$	1,261,687
December 31, 2014
U.S. government corporations and agencies	$	24,010	$	98	$	(15	)	$	24,093
Mortgage-backed securities	1,219,305		11,929		(11,968		)	1,219,266
Obligations of states and political subdivisions	148,450		5,304		(328		)	153,426
Corporate debt securities	—		—		—			—
Total debt securities	1,391,765		17,331		(12,311		)	1,396,785
Equity securities	5,029		54		—			5,083
Total	$	1,396,794	$	17,385	$	(12,311	)	$	1,401,868

At both September 30, 2015 , and December 31, 2014 , the amortized cost of the available for sale securities is net of $184,000 of credit related other-than-temporary impairment ("OTTI").

The amortized cost, gross unrealized gains and losses and estimated fair values of held to maturity securities as of September 30, 2015 , and December 31, 2014 , are summarized in the table below, in thousands:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
September 30, 2015
Mortgage-backed securities	$	5,482	$	178	$	(945	)	$	4,715
Obligations of states and political subdivisions	276,718		14,048		(859		)	289,907
Total	$	282,200	$	14,226	$	(1,804	)	$	294,622
December 31, 2014
Mortgage-backed securities	$	5,734	$	217	$	(667	)	$	5,284
Obligations of states and political subdivisions	278,853		13,576		(945		)	291,484
Total	$	284,587	$	13,793	$	(1,612	)	$	296,768

At September 30, 2015 , the amortized cost of the held to maturity securities is net of $ 797,000 of credit related OTTI and $ 351,000 of non-credit related OTTI. At December 31, 2014 , the amortized cost of the held to maturity securities was net of $ 797,000 of credit related OTTI and $ 422,000 of non-credit related OTTI.

Approximately 80% of Heartland's mortgage-backed securities are issuances of government-sponsored enterprises.

The amortized cost and estimated fair value of debt securities available for sale at September 30, 2015 , by contractual maturity are as follows, in thousands. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties.



	Amortized Cost		Estimated Fair Value
Due in 1 year or less	$	3,831	$	3,839
Due in 1 to 5 years	40,492		40,749
Due in 5 to 10 years	63,734		64,596
Due after 10 years	130,461		132,967
Total debt securities	238,518		242,151
Mortgage-backed securities	1,001,955		1,006,349
Equity securities	13,134		13,187
Total investment securities	$	1,253,607	$	1,261,687

The amortized cost and estimated fair value of debt securities held to maturity at September 30, 2015 , by contractual maturity are as follows, in thousands. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties.



	Amortized Cost		Estimated Fair Value
Due in 1 year or less	$	5,290	$	5,367
Due in 1 to 5 years	13,881		14,620
Due in 5 to 10 years	59,706		62,884
Due after 10 years	197,841		207,036
Total debt securities	276,718		289,907
Mortgage-backed securities	5,482		4,715
Total investment securities	$	282,200	$	294,622

Gross gains and losses realized related to the sales of securities available for sale for the three- and nine-month periods ended September 30, 2015 and 2014, are summarized as follows, in thousands:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Proceeds from sales	$	351,050	$	189,939	$	877,077	$	699,830
Gross security gains	2,416		1,101		10,857		4,547
Gross security losses	609		276		1,587		2,087

The following tables summarize, 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 September 30, 2015 , and December 31, 2014 . 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 w as September 30, 2014, and December 31, 2013, 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.



Securities available for sale	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2015
U.S. government corporations and agencies	$	—	$	—		$	—	$	—		$	—	$	—
Mortgage-backed securities	381,863		(7,239		)	110,908		(1,577		)	492,771		(8,816		)
Obligations of states and political subdivisions	32,527		(442		)	9,892		(147		)	42,419		(589		)
Corporate debt securities	580		(160		)	—		—			580		(160		)
Total temporarily impaired securities	$	414,970	$	(7,841	)	$	120,800	$	(1,724	)	$	535,770	$	(9,565	)
December 31, 2014
U.S. government corporations and agencies	$	6,042	$	(15	)	$	—	$	—		$	6,042	$	(15	)
Mortgage-backed securities	327,363		(7,391		)	306,078		(4,577		)	633,441		(11,968		)
Obligations of states and political subdivisions	886		(6		)	20,507		(322		)	21,393		(328		)
Corporate debt securities	—		—			—		—			—		—
Total temporarily impaired securities	$	334,291	$	(7,412	)	$	326,585	$	(4,899	)	$	660,876	$	(12,311	)



Securities held to maturity	Less than 12 months					12 months or longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2015
Mortgage-backed securities	$	—	$	—		$	1,832	$	(945	)	$	1,832	$	(945	)
Obligations of states and political subdivisions	11,258		(70		)	18,220		(789		)	29,478		(859		)
Total temporarily impaired securities	$	11,258	$	(70	)	$	20,052	$	(1,734	)	$	31,310	$	(1,804	)
December 31, 2014
Mortgage-backed securities	$	—	$	—		$	2,761	$	(667	)	$	2,761	$	(667	)
Obligations of states and political subdivisions	3,172		(422		)	29,402		(523		)	32,574		(945		)
Total temporarily impaired securities	$	3,172	$	(422	)	$	32,163	$	(1,190	)	$	35,335	$	(1,612	)

Heartland reviews the investment securities portfolio on a quarterly basis to monitor its exposure to OTTI. 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 OTTI 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 analyses to compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. During 2012, Heartland experienced deterioration in the credit support on three private label mortgage-backed securities which resulted in a credit-related OTTI 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 $981,000 OTTI 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 $ 797,000 in the held to maturity category and $184,000 in the available for sale category.

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 credit quality and financial stability of the underlying 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 September 30, 2015 , or December 31, 2014 .

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 September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Recorded as part of gross realized losses:
Credit related OTTI	$	—		$	—		$	—		$	—
Intent to sell OTTI	—			—			—			—
Total recorded as part of gross realized losses	—			—			—			—
Recorded directly to AOCI for non-credit related impairment:
Residential mortgage backed securities	—			—			—			—
Accretion of non-credit related impairment	(24		)	(24		)	(72		)	(72		)
Total changes to AOCI for non-credit related impairment	(24		)	(24		)	(72		)	(72		)
Total OTTI losses (accretion) recorded on debt securities, net	$	(24	)	$	(24	)	$	(72	)	$	(72	)

Heartland has not experienced any OTTI writedowns since the initial impairment charge in 2012.

Included in other securities at September 30, 2015, and December 31, 2014, were shares of stock in each Federal Home Loan Bank (the "FHLB") of Des Moines, Chicago, Dallas, San Francisco and Topeka at an amortized cost of $ 13.3 million and $ 14.3 million , respectively.

NOTE 4: LOANS AND LEASES

Loans and leases as of September 30, 2015 , and December 31, 2014 , were as follows, in thousands:



	September 30, 2015			December 31, 2014
Loans and leases receivable held to maturity:
Commercial	$	1,240,956		$	1,036,080
Commercial real estate	2,062,142			1,707,060
Agricultural and agricultural real estate	469,381			423,827
Residential real estate	491,667			380,341
Consumer	379,903			330,555
Gross loans and leases receivable held to maturity	4,644,049			3,877,863
Unearned discount	(478		)	(90		)
Deferred loan fees	(1,048		)	(1,028		)
Total net loans and leases receivable held to maturity	4,642,523			3,876,745
Loans covered under loss share agreements:
Commercial and commercial real estate	—			54
Agricultural and agricultural real estate	—			—
Residential real estate	—			1,204
Consumer	—			—
Total loans covered under loss share agreements	—			1,258
Allowance for loan and lease losses	(47,105		)	(41,449		)
Loans and leases receivable, net	$	4,595,418		$	3,836,554

Heartland has certain lending policies and procedures in place that are designed to provide for an acceptable level of credit risk. The board of directors reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management and the board with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming loans and potential problem loans. Diversification in the loan portfolio is also a means of managing risk associated with fluctuations in economic conditions.

The commercial and commercial real estate loan portfolio includes a wide range of business loans, including lines of credit for working capital and operational purposes and term loans for the acquisition of equipment and real estate. Although most loans are made on a secured basis, loans may be made on an unsecured basis where warranted by the overall financial condition of the borrower. Terms of commercial business loans generally range from one to five years. Commercial loans and leases are primarily made based on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The collateral that Heartland requires for most of these loans and leases is based upon the discounted market value of the collateral. The primary repayment risks of commercial loans and leases are that the cash flow of the borrowers may be unpredictable, and the collateral securing these loans may fluctuate in value. Heartland seeks to minimize these risks in a variety of ways. The underwriting analysis includes credit verification, analysis of global cash flows, appraisals and a review of the financial condition of the borrower. Personal guarantees are frequently required as a tertiary form of repayment. In addition, when underwriting loans for commercial real estate, careful consideration is given to the property's operating history, future operating projections, current and projected occupancy, location and physical condition. Heartland also utilizes government guaranteed lending through the U.S. Small Business Administration and the U.S. Department of Agriculture's 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, including the Farm Service Agency, 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. As of September 30, 2015, Heartland had $950,000 of loans secured by residential real estate property that were in the process of foreclosure.

Consumer lending includes motor vehicle, home improvement, home equity and small personal credit lines. Consumer loans typically have shorter terms, lower balances, higher yields and higher risks of default than one-to-four-family residential mortgage loans. Consumer loan collections are dependent on the borrower's continuing financial stability, and are therefore more likely to be affected by adverse personal circumstances. Risk is reduced through underwriting criteria, which include credit verification, appraisals, a review of the borrower's financial condition, and personal cash flows. A security interest, with title insurance when necessary, is taken in the underlying real estate. Heartland's consumer finance subsidiaries, Citizens Finance Co. and Citizens Finance of Illinois Co., typically lend to borrowers with past credit problems or limited credit histories and comprises approximately 20% of Heartland's total consumer loan portfolio.

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, a loan is impaired when, based on current information and events, it is probable that Heartland will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loan impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except where more practical, at the observable market price of the loan or the fair value of the collateral if the loan is collateral dependent.

The following table shows the balance in the allowance for loan and lease losses at September 30, 2015 , and December 31, 2014 , and the related loan balances, disaggregated on the basis of impairment methodology, in thousands. Loans evaluated under ASC 310-10-35 include loans on nonaccrual status and troubled debt restructurings, which are individually evaluated for impairment, and other impaired loans deemed to have similar risk characteristics. All other loans are collectively evaluated for impairment under ASC 450-20. Heartland has made no significant changes to the accounting for the allowance for loan and lease losses policy during 2015.



	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
September 30, 2015
Commercial	$	388	$	13,522	$	13,910	$	8,386	$	1,232,570	$	1,240,956
Commercial real estate	645		17,441		18,086		43,682		2,018,460		2,062,142
Agricultural and agricultural real estate	40		3,899		3,939		5,916		463,465		469,381
Residential real estate	372		3,474		3,846		14,024		477,643		491,667
Consumer	1,057		6,267		7,324		4,925		374,978		379,903
Total	$	2,502	$	44,603	$	47,105	$	76,933	$	4,567,116	$	4,644,049
December 31, 2014
Commercial	$	754	$	11,155	$	11,909	$	4,526	$	1,031,554	$	1,036,080
Commercial real estate	636		15,262		15,898		35,771		1,671,289		1,707,060
Agricultural and agricultural real estate	52		3,243		3,295		5,049		418,778		423,827
Residential real estate	442		3,299		3,741		10,235		370,106		380,341
Consumer	813		5,793		6,606		6,143		324,412		330,555
Total	$	2,697	$	38,752	$	41,449	$	61,724	$	3,816,139	$	3,877,863

The following table presents nonaccrual loans, accruing loans past due 90 days or more and troubled debt restructured loans not covered under loss share agreements at September 30, 2015 , and December 31, 2014 , in thousands. There were no nonaccrual leases, accruing leases past due 90 days or more or restructured leases at September 30, 2015 , and December 31, 2014 .



	September 30, 2015		December 31, 2014
Nonaccrual loans	$	30,965	$	24,205
Nonaccrual troubled debt restructured loans	1,612		865
Total nonaccrual loans	$	32,577	$	25,070
Accruing loans past due 90 days or more	$	1,181	$	—
Performing troubled debt restructured loans	$	10,154	$	12,133

The following table provides information on troubled debt restructured loans that were modified during the three and nine months ended September 30, 2015 , and September 30, 2014, dollars in thousands:



	Three Months Ended September 30,
	2015					2014
	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	—	—		—		—	—		—
Total commercial and commercial real estate	—	—		—		—	—		—
Agricultural and agricultural real estate	—	—		—		1	60		60
Residential real estate	1	55		55		—	—		—
Consumer	—	—		—		—	—		—
Total	1	$	55	$	55	1	$	60	$	60



	Nine Months Ended September 30,
	2015					2014
	Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment
Commercial	1	$	830	$	830	—	$	—	$	—
Commercial real estate	1	3,992		3,992		1	298		298
Total commercial and commercial real estate	2	4,822		4,822		1	298		298
Agricultural and agricultural real estate	1	311		311		3	3,417		3,417
Residential real estate	1	55		55		1	38		38
Consumer	—	—		—		—	—		—
Total	4	$	5,188	$	5,188	5	$	3,753	$	3,753

The pre-modification and post-modification recorded investment represents amounts as of the date of loan modification. Since the modifications on these loans have been only interest rate concessions and term extensions, not principal reductions, the pre-modification and post-modification recorded investment amounts are the same. At September 30, 2015, there were no commitments to extend credit to any of the borrowers with an existing troubled debt restructuring.

The following tables provide information on troubled debt restructured loans for which there was a payment default during the three months and nine months ended September 30, 2015, and September 30, 2014, in thousands, that had been modified during the twelve-month period prior to default:



	With Payment Defaults During the Following Periods
	Three Months Ended September 30,
	2015			2014
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Commercial	—	$	—	—	$	—
Commercial real estate	1	814		—	—
Total commercial and commercial real estate	1	814		—	—
Agricultural and agricultural real estate	—	—		1	60
Residential real estate	—	—		—	—
Consumer	—	—		—	—
Total	1	$	814	1	$	60



	With Payment Defaults During the Following Periods
	Nine Months Ended September 30,
	2015			2014
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
Commercial	—	$	—	—	$	—
Commercial real estate	1	814		—	—
Total commercial and commercial real estate	1	814		—	—
Agricultural and agricultural real estate	—	—		1	60
Residential real estate	—	—		—	—
Consumer	—	—		—	—
Total	1	$	814	1	$	60

Heartland's internal rating system is a series of grades reflecting management's risk assessment, based on its analysis of the borrower's financial condition. The "pass" category consists of all loans that are not in the "nonpass" category, categorized into a range of loan grades that reflect increasing, though still acceptable, risk. Movement of risk through the various grade levels in the pass category is monitored for early identification of credit deterioration. The "nonpass" category consists of special mention, substandard, doubtful and loss loans. The "special mention" rating is attached to loans where the borrower exhibits negative financial trends due to borrower specific or systemic conditions that, if left uncorrected, threaten its capacity to meet its debt obligations. The borrower is believed to have sufficient financial flexibility to react to and resolve its negative financial situation. These credits are closely monitored for improvement or deterioration. The "substandard" rating is assigned to loans that are inadequately protected by the current sound net worth and paying capacity of the borrower and may be further at risk due to deterioration in the value of collateral pledged. Well-defined weaknesses jeopardize liquidation of the debt. These loans are still considered collectible, however, a distinct possibility exists that Heartland will sustain some loss if deficiencies are not corrected. Substandard loans may exhibit some or all of the following weaknesses: deteriorating trends, lack of earnings, inadequate debt service capacity, excessive debt and/or lack of liquidity. The "doubtful" rating is assigned to loans where identified weaknesses make collection or liquidation in full, on the basis of existing facts, conditions and values, highly questionable and improbable. These borrowers are usually in default, lack liquidity and capital, as well as, resources necessary to remain an operating entity. Specific pending events, such as capital injections, liquidations or perfection of liens on additional collateral, may strengthen the credit, thus deferring classification of the loan as loss until exact status can be determined. The "loss" rating is assigned to loans considered uncollectible. As of September 30, 2015 , Heartland had no loans classified as doubtful and no loans classified as 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 September 30, 2015 , and December 31, 2014 , in thousands:



	Pass		Nonpass		Total
September 30, 2015
Commercial	$	1,093,853	$	147,103	$	1,240,956
Commercial real estate	1,878,579		183,563		2,062,142
Total commercial and commercial real estate	2,972,432		330,666		3,303,098
Agricultural and agricultural real estate	443,460		25,921		469,381
Residential real estate	470,332		21,335		491,667
Consumer	371,268		8,635		379,903
Total gross loans and leases receivable held to maturity	$	4,257,492	$	386,557	$	4,644,049
December 31, 2014
Commercial	$	939,717	$	96,363	$	1,036,080
Commercial real estate	1,567,711		139,349		1,707,060
Total commercial and commercial real estate	2,507,428		235,712		2,743,140
Agricultural and agricultural real estate	402,883		20,944		423,827
Residential real estate	361,325		19,016		380,341
Consumer	321,114		9,441		330,555
Total gross loans and leases receivable held to maturity	$	3,592,750	$	285,113	$	3,877,863

The nonpass category in the table above is comprised of approximately 69% special mention and 31% substandard as of September 30, 2015 . The percent of nonpass loans on nonaccrual status as of September 30, 2015 , was 8% . As of December 31, 2014 , the nonpass category in the table above was comprised of approximately 66% special mention and 34% substandard. The percent of nonpass loans on nonaccrual status as of December 31, 2014 , was 9% . Loans delinquent 30 to 89 days as a percent of total loans were 0.40% at September 30, 2015, compared to 0 .21% at December 31, 2014. 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 September 30, 2015 , and December 31, 2014 , 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
September 30, 2015
Commercial	$	1,729	$	21	$	291	$	2,041	$	1,235,294	$	3,621	$	1,240,956
Commercial real estate	6,115		1,475		890		8,480		2,040,177		13,485		2,062,142
Total commercial and commercial real estate	7,844		1,496		1,181		10,521		3,275,471		17,106		3,303,098
Agricultural and agricultural real estate	223		84		—		307		466,607		2,467		469,381
Residential real estate	2,118		535		—		2,653		478,464		10,550		491,667
Consumer	4,710		1,446		—		6,156		371,293		2,454		379,903
Total gross loans and leases receivable held to maturity	$	14,895	$	3,561	$	1,181	$	19,637	$	4,591,835	$	32,577	$	4,644,049
December 31, 2014
Commercial	$	980	$	48	$	—	$	1,028	$	1,032,707	$	2,345	$	1,036,080
Commercial real estate	1,788		111		—		1,899		1,693,554		11,607		1,707,060
Total commercial and commercial real estate	2,768		159		—		2,927		2,726,261		13,952		2,743,140
Agricultural and agricultural real estate	119		50		—		169		422,219		1,439		423,827
Residential real estate	1,037		445		—		1,482		371,982		6,877		380,341
Consumer	2,382		1,366		—		3,748		324,005		2,802		330,555
Total gross loans and leases receivable held to maturity	$	6,306	$	2,020	$	—	$	8,326	$	3,844,467	$	25,070	$	3,877,863

The majority of Heartland's impaired loans are those that are nonaccrual or have had their terms restructured in a troubled debt restructuring. The following tables present, for impaired loans not covered by loss share agreements and by category of loan, the unpaid contractual balance at September 30, 2015 , and December 31, 2014 ; the outstanding loan balance recorded on the consolidated balance sheets at September 30, 2015 , and December 31, 2014 ; any related allowance recorded for those loans as of September 30, 2015 , and December 31, 2014 ; the average outstanding loan balance recorded on the consolidated balance sheets during the nine months ended September 30, 2015 , and year ended December 31, 2014 ; and the interest income recognized on the impaired loans during the nine months ended September 30, 2015 , and year ended December 31, 2014 , in thousands:



	Unpaid Contractual Balance		Loan Balance		Related Allowance Recorded		Quarter-to- Date Avg. Loan Balance		Quarter-to- Date Interest Income Recognized		Year-to- Date Avg. Loan Balance		Year-to- Date Interest Income Recognized
September 30, 2015
Impaired loans with a related allowance:
Commercial	$	1,200	$	948	$	388	$	394	$	3	$	383	$	9
Commercial real estate	2,384		2,384		645		1,243		10		2,028		20
Total commercial and commercial real estate	3,584		3,332		1,033		1,637		13		2,411		29
Agricultural and agricultural real estate	3,196		3,196		40		3,281		85		3,058		123
Residential real estate	2,637		2,469		372		2,860		7		2,619		16
Consumer	3,036		3,027		1,057		3,136		5		2,845		16
Total impaired loans with a related allowance	$	12,453	$	12,024	$	2,502	$	10,914	$	110	$	10,933	$	184
Impaired loans without a related allowance:
Commercial	$	7,518	$	7,438	$	—	$	9,759	$	100	$	7,050	$	274
Commercial real estate	44,758		41,298		—		42,476		397		36,149		1,055
Total commercial and commercial real estate	52,276		48,736		—		52,235		497		43,199		1,329
Agricultural and agricultural real estate	2,720		2,720		—		2,197		—		2,106		9
Residential real estate	11,593		11,555		—		10,305		15		8,936		85
Consumer	1,898		1,898		—		2,025		4		2,431		27
Total impaired loans without a related allowance	$	68,487	$	64,909	$	—	$	66,762	$	516	$	56,672	$	1,450
Total impaired loans held to maturity:
Commercial	$	8,718	$	8,386	$	388	$	10,153	$	103	$	7,433	$	283
Commercial real estate	47,142		43,682		645		43,719		407		38,177		1,075
Total commercial and commercial real estate	55,860		52,068		1,033		53,872		510		45,610		1,358
Agricultural and agricultural real estate	5,916		5,916		40		5,478		85		5,164		132
Residential real estate	14,230		14,024		372		13,165		22		11,555		101
Consumer	4,934		4,925		1,057		5,161		9		5,276		43
Total impaired loans held to maturity	$	80,940	$	76,933	$	2,502	$	77,676	$	626	$	67,605	$	1,634



	Unpaid Contractual Balance		Loan Balance		Related Allowance Recorded		Year-to- Date Avg. Loan Balance		Year-to- Date Interest Income Recognized
December 31, 2014
Impaired loans with a related allowance:
Commercial	$	780	$	780	$	754	$	5,594	$	19
Commercial real estate	7,356		7,322		636		5,931		303
Total commercial and commercial real estate	8,136		8,102		1,390		11,525		322
Agricultural and agricultural real estate	3,317		3,317		52		3,966		104
Residential real estate	2,412		2,244		442		3,398		12
Consumer	2,799		2,799		813		4,053		19
Total impaired loans with a related allowance	$	16,664	$	16,462	$	2,697	$	22,942	$	457
Impaired loans without a related allowance:
Commercial	$	4,913	$	3,746	$	—	$	3,499	$	101
Commercial real estate	32,708		28,449		—		24,522		1,172
Total commercial and commercial real estate	37,621		32,195		—		28,021		1,273
Agricultural and agricultural real estate	3,961		1,732		—		3,308		13
Residential real estate	8,200		7,991		—		6,267		110
Consumer	3,350		3,344		—		1,870		127
Total impaired loans without a related allowance	$	53,132	$	45,262	$	—	$	39,466	$	1,523
Total impaired loans held to maturity:
Commercial	$	5,693	$	4,526	$	754	$	9,093	$	120
Commercial real estate	40,064		35,771		636		30,453		1,475
Total commercial and commercial real estate	45,757		40,297		1,390		39,546		1,595
Agricultural and agricultural real estate	7,278		5,049		52		7,274		117
Residential real estate	10,612		10,235		442		9,665		122
Consumer	6,149		6,143		813		5,923		146
Total impaired loans held to maturity	$	69,796	$	61,724	$	2,697	$	62,408	$	1,980

On January 16, 2015, Heartland acquired Community Banc-Corp of Sheboygan, Inc., parent company of Community Bank & Trust in Sheboygan, Wisconsin. As of January 16, 2015, Community Bank & Trust had loans of $413.4 million , and the estimated fair value of the loans acquired was $395.0 million .

On August 21, 2015, Heartland acquired Community Bancorporation of New Mexico, Inc., parent company of Community Bank of Santa Fe, New Mexico. As of August 21, 2015, Community Bank had loans of $103.7 million , and the estimated fair value of the loans acquired was $99.5 million .

On September 11, 2015, Heartland acquired First Scottsdale Bank, N.A. in Scottsdale, Arizona. As of September 11, 2015, First Scottsdale Bank, N.A. had loans of $56.5 million , and the estimated fair value of the loans acquired was $54.7 million .

The acquisitions of Community Banc-Corp of Sheboygan, Inc., Community Bancorporation of New Mexico, Inc., and First Scottsdale Bank, N.A. were accounted for under the acquisition method of accounting in accordance with ASC 805, “ Business Combinations. ” Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date, but the purchaser cannot carry over the related allowance for loan and lease losses. Purchased loans are accounted for under ASC 310-30, “ Loans and Debt Securities with Deteriorated Credit Quality, ” when the loans have evidence of credit deterioration since origination and it is probable at the date of the acquisition that Heartland will not collect all contractually required principal and interest payments. Evidence of credit quality deterioration at the purchase date included statistics such as past due and nonaccrual status. Generally, acquired loans that meet Heartland’s definition for nonaccrual status fall within the scope of ASC 310-30. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference which is included in the carrying value of the loans. Subsequent decreases to the expected cash flows will generally result in a provision for loan and lease losses. Subsequent increases in cash flows result in a reversal of the provision for loan and lease losses to the extent of prior charges, or a reclassification of the difference from nonaccretable to accretable with a positive impact on future interest income. Further, any

excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan when there is a reasonable expectation about the amount and timing of such cash flows.

The carrying amount of the loans acquired with the acquisitions in 2015 at September 30, 2015 , consisted of purchased impaired and nonimpaired loans as summarized in the following table, in thousands:



	September 30, 2015
	Impaired Purchased Loans		Non Impaired Purchased Loans		Total Purchased Loans
Commercial	$	—	$	93,304	$	93,304
Commercial real estate	6,561		270,229		276,790
Agricultural and agricultural real estate	—		2,788		2,788
Residential real estate	—		49,816		49,816
Consumer loans	—		28,056		28,056
Total Loans	$	6,561	$	444,193	$	450,754

On the acquisition dates, the preliminary estimate of the contractually required payments receivable for all loans with evidence of credit deterioration since origination acquired in the acquisitions was $14.7 million and the estimated fair value of the loans was $9.3 million . At September 30, 2015 , a majority of these loans were valued based upon the liquidation value of the underlying collateral, because the expected cash flows are primarily based on the liquidation of underlying collateral and the timing and amount of the cash flows could not be reasonably estimated. At September 30, 2015, there was an allowance for loan and lease losses of $ 116,000 related to these ASC 310-30 loans.

On the acquisition dates, the preliminary estimate of the contractually required payments receivable for all nonimpaired loans acquired in the acquisitions was $558.4 million and the estimated fair value of the loans was $539.9 million .

On July 2, 2009, Heartland acquired all deposits of The Elizabeth State Bank in Elizabeth, Illinois through its subsidiary Galena State Bank & Trust Co., which merged into Illinois Bank & Trust, in a whole bank loss sharing transaction facilitated by the FDIC. As of July 2, 2009, The Elizabeth State Bank had loans of $42.7 million with an estimated fair value of $37.8 million .

The acquired loans and other real estate owned were covered by a loss share agreement for non-residential loans and a loss share agreement for residential real estate. The loss sharing agreement for non-residential loans expired on October 1, 2014. The remaining residential real estate loans covered under the loss share agreement were not material at September 30, 2015. On October 7, 2015, Heartland reached a buy-out agreement with the FDIC on the residential real estate loan portfolio, and as a result Heartland no longer has any loans covered under loss share agreements.

NOTE 5: ALLOWANCE FOR LOAN AND LEASE LOSSES

Changes in the allowance for loan and lease losses for the three and nine months ended September 30, 2015 , and September 30, 2014, were as follows, in thousands:



	Commercial			Commercial Real Estate			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
Balance at June 30, 2015	$	13,064		$	17,608		$	3,676		$	4,099		$	7,167		$	—	$	45,614
Charge-offs	(869		)	(376		)	—			(13		)	(1,181		)	—		(2,439		)
Recoveries	87			357			5			71			229			—		749
Provision	1,628			497			258			(311		)	1,109			—		3,181
Balance at September 30, 2015	$	13,910		$	18,086		$	3,939		$	3,846		$	7,324		$	—	$	47,105

	Commercial			Commercial Real Estate			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
Balance at December 31, 2014	$	11,909		$	15,898		$	3,295		$	3,741		$	6,606		$	—	$	41,449
Charge-offs	(1,825		)	(1,080		)	(551		)	(126		)	(3,595		)	—		(7,177		)
Recoveries	518			853			29			178			729			—		2,307
Provision	3,308			2,415			1,166			53			3,584			—		10,526
Balance at September 30, 2015	$	13,910		$	18,086		$	3,939		$	3,846		$	7,324		$	—	$	47,105



	Commercial			Commercial Real Estate			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
Balance at June 30, 2014	$	11,927		$	14,680		$	2,788		$	3,815		$	7,516		$	166	$	40,892
Charge-offs	(875		)	(295		)	(338		)	(21		)	(1,120		)	—		(2,649		)
Recoveries	145			539			5			29			184			—		902
Provision	158			1,221			661			(200		)	673			40		2,553
Balance at September 30, 2014	$	11,355		$	16,145		$	3,116		$	3,623		$	7,253		$	206	$	41,698

	Commercial			Commercial Real Estate			Agricultural			Residential Real Estate			Consumer			Unallocated		Total
Balance at December 31, 2013	$	13,099		$	14,152		$	2,992		$	3,720		$	7,722		$	—	$	41,685
Charge-offs	(7,940		)	(1,379		)	(1,974		)	(225		)	(3,189		)	—		(14,707		)
Recoveries	552			1,833			9			85			606			—		3,085
Provision	5,644			1,539			2,089			43			2,114			206		11,635
Balance at September 30, 2014	$	11,355		$	16,145		$	3,116		$	3,623		$	7,253		$	206	$	41,698

Management allocates the allowance for loan and lease losses by pools of risk within each loan portfolio. The allocation of the allowance for loan and lease losses by loan portfolio is made for analytical purposes and is not necessarily indicative of the trend of future loan and lease losses in any particular category. The total allowance for loan and lease losses is available to absorb losses from any segment of the loan portfolio.

NOTE 6: GOODWILL, CORE DEPOSIT PREMIUM AND OTHER INTANGIBLE ASSETS

Heartland had goodwill of $ 56.8 million at September 30, 2015 , and $35.6 million December 31, 2014 . Heartland conducts its annual internal assessment of the goodwill both collectively and at its subsidiaries as of September 30.

Heartland recorded $ 18.6 million of goodwill in connection with the acquisition of Community Banc-Corp of Sheboygan, Inc., the parent company of Community Bank & Trust, based in Sheboygan, Wisconsin on January 16, 2015. The goodwill associated with this transaction is not deductible for tax purposes. As part of this acquisition, Heartland recognized core deposit intangibles of $ 6.0 million that are expected to be amortized over a period of 10 years on an accelerated basis. The core deposit intangibles associated with this transaction are not deductible for tax purposes. In addition, Heartland recognized commercial servicing rights of $ 4.3 million .

Heartland recorded $213,000 of goodwill in connection with the acquisition of Community Bancorporation of New Mexico, Inc., parent company of Community Bank in Santa Fe, New Mexico, based in Santa Fe, New Mexico on August 21, 2015. The goodwill associated with this transaction is not deductible for tax purposes. As part of this acquisition, Heartland also recognized core deposit intangibles of $1.7 million that are expected to be amortized over a period of 10 years on an accelerated basis. The core deposit intangibles associated with this transaction are not deductible for tax purposes.

Heartland recorded $2.5 million of goodwill in connection with the acquisition of First Scottsdale Bank, N.A., based in Scottsdale, Arizona on September 11, 2015. The goodwill associated with this transaction is not deductible for tax purposes. As part of this acquisition, Heartland also recognized core deposit intangibles of $357,000 that are expected to be amortized over a period of 10 years on an accelerated basis. The core deposit intangibles associated with this transaction are not deductible for tax purposes.

Goodwill related to the Community Banc-Corp of Sheboygan, Inc., Community Bancorporation of New Mexico, Inc., and First Scottsdale Bank, N.A., resulted from expected operational synergies, increased market presence, cross-selling opportunities, and expanded business lines.

Other intangible assets consist of core deposit intangibles, mortgage servicing rights, customer relationship intangible, and commercial servicing rights. The gross carrying amount of other intangible assets and the associated accumulated amortization at September 30, 2015 , and December 31, 2014 , are presented in the table below, in thousands:



	September 30, 2015						December 31, 2014
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizing intangible assets:
Core deposit intangibles	$	29,138	$	14,572	$	14,566	$	21,069	$	12,525	$	8,544
Mortgage servicing rights	44,166		14,566		29,600		37,825		12,841		24,984
Customer relationship intangible	1,177		805		372		1,177		773		404
Commercial servicing rights	4,959		802		4,157		—		—		—
Total	$	79,440	$	30,745	$	48,695	$	60,071	$	26,139	$	33,932

The following table shows the estimated future amortization expense for amortizable intangible assets, in thousands:



	Core Deposit Intangibles		Mortgage Servicing Rights		Customer Relationship Intangible		Commercial Servicing Rights		Total
Three months ending December 31, 2015	$	755	$	2,087	$	11	$	221	$	3,074
Year ending December 31,
2016	2,772		6,878		41		866		10,557
2017	2,452		5,896		40		820		9,208
2018	2,169		4,913		39		731		7,852
2019	1,886		3,930		38		563		6,417
2020	1,619		2,948		37		364		4,968
Thereafter	2,913		2,948		166		592		6,619
Total	$	14,566	$	29,600	$	372	$	4,157	$	48,695

Projections of amortization expense for mortgage servicing rights are based on existing asset balances and the existing interest rate environment as of September 30, 2015 . Heartland's actual experience may be significantly different depending upon changes in mortgage interest rates and market conditions. Mortgage loans serviced for others were $3.96 billion and $ 3.50 billion as of September 30, 2015 , and December 31, 2014 , respectively. The fair value of Heartland's mortgage servicing rights was estimated at $40.2 million at September 30, 2015 , and $34.2 million at December 31, 2014 .

Heartland's mortgage servicing rights portfolio is comprised of loans serviced for the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the Government National Mortgage Association. The servicing rights portfolio is separated into 15 - and 30 -year tranches.

The fair value of mortgage servicing rights is calculated based upon a discounted cash flow analysis. Cash flow assumptions, including prepayment speeds, servicing costs and escrow earnings are considered in the calculation. The average constant prepayment rate was 10.79% and 11.40% for the September 30, 2015, and December 31, 2014, valuations, respectively. The discount rate was 9.23% and 9.20% for the September 30, 2015, and December 31, 2014, valuations, respectively. The average capitalization rate for the first nine months of 2015 ranged from 65 to 138 basis points compared to 75 and 139 basis points for 2014. Fees collected for the servicing of mortgage loans for others were $ 7.8 million and $ 6.4 million for the nine months ended September 30, 2015, and September 30, 2014, respectively.

The following table summarizes, in thousands, the changes in capitalized mortgage servicing rights for the nine months ended September 30, 2015, and September 30, 2014:



	2015			2014
Balance at January 1	$	24,984		$	21,788
Originations	11,062			5,955
Amortization	(6,446		)	(3,778		)
Balance at September 30	$	29,600		$	23,965
Fair value of mortgage servicing rights	$	40,166		$	33,260
Mortgage servicing rights, net to servicing portfolio	0.75		%	0.71		%

Heartland's commercial servicing rights portfolio was initially acquired with the Community Banc-Corp of Sheboygan, Inc. transaction that closed on January 16, 2015. The commercial servicing portfolio is comprised of loans serviced for the Small Business Administration and United States Department of Agriculture, which totaled $158.8 million . Fees collected for the servicing of commercial loans for others were $438,000 . The fair value of Heartland's commercial servicing rights was estimated at $4.4 million as of September 30, 2015.

The following table summarizes, in thousands, the changes in capitalized commercial servicing rights for the nine months ended September 30, 2015, and September 30, 2014:



	2015			2014
Balance at January 1	$	—		$	—
Purchased commercial servicing rights	4,255			—
Originations	704			—
Amortization	(802		)	—
Balance at September 30	$	4,157		$	—
Fair value of commercial servicing rights	$	4,412		$	—
Commercial servicing rights, net to servicing portfolio	2.33		%	—		%

Mortgage and commercial servicing rights are initially recorded at fair value in net gains on sale of loans held for sale when they are acquired through loan sales. Fair value is based on market prices for comparable servicing contracts, when available, or based on a valuation model that calculates the present value of estimated future net servicing income.

Mortgage and commercial servicing rights are subsequently measured using the amortization method, which requires the asset to be amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Servicing rights are evaluated for impairment based upon the fair value of the assets as compared to the carrying amount. Impairment is recognized through a valuation allowance for specific tranches to the extent that fair value is

less than carrying amount. At September 30, 2015, and December 31, 2014, no valuation allowance was required for any of Heartland's servicing rights.

NOTE 7: DERIVATIVE FINANCIAL INSTRUMENTS

Heartland uses derivative financial instruments as part of its interest rate risk management strategy. As part of the strategy, Heartland considers the use of interest rate swaps, caps, floors, collars, and certain interest rate lock commitments and forward sales of securities related to mortgage banking activities. Heartland's current strategy includes the use of interest rate swaps, interest rate lock commitments and forward sales of mortgage securities. In addition, Heartland is facilitating back-to-back loan swaps to assist customers in managing interest rate risk. Heartland's objectives are to add stability to its net interest margin and to manage its exposure to movements in interest rates. The contract or notional amount of a derivative is used to determine, along with the other terms of the derivative, the amounts to be exchanged between the counterparties. Heartland is exposed to credit risk in the event of nonperformance by counterparties to financial instruments. Heartland minimizes this risk by entering into derivative contracts with counterparties that meet Heartland’s credit standards, and the contracts contain collateral provisions protecting the at-risk party. Heartland has not experienced any losses from nonperformance by these counterparties. Heartland monitors counterparty risk in accordance with the provisions of ASC 815.

In addition, interest rate-related derivative instruments generally contain language outlining collateral pledging requirements for each counterparty. Collateral must be posted when the market value exceeds certain threshold limits which are determined by credit ratings of each counterparty. Heartland was required to pledge $7.0 million and $5.3 million of cash as collateral at September 30, 2015 , and December 31, 2014 , respectively. Heartland's counterparties were required to pledge $0 at both September 30, 2015 , and December 31, 2014 , respectively.

Heartland's derivative and hedging instruments are recorded at fair value on the consolidated balance sheets. See Note 8, “Fair Value,” for additional fair value information and disclosures.

Cash Flow Hedges

Heartland has variable rate funding which creates exposure to variability in interest payments due to changes in interest rates. To manage the interest rate risk related to the variability of interest payments, Heartland has entered into various interest rate swap agreements. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are received or made on Heartland's variable-rate liabilities. For the nine months ended September 30, 2015 , the change in net unrealized losses on cash flow hedges reflects changes in the fair value of the swaps and reclassification from accumulated other comprehensive income to interest expense totaling $1.7 million . For the next twelve months, Heartland estimates that cash payments and reclassification from accumulated other comprehensive income to interest expense will total $ 2.2 million .

Heartland executed an interest rate swap transaction on April 5, 2011, with an effective date of April 20, 2011, and an expiration date of April 20, 2016, to effectively convert $15.0 million of its newly issued variable rate amortizing debt to fixed rate debt. For accounting purposes, this swap transaction is designated as a cash flow hedge of the changes in cash flows attributable to changes in one-month LIBOR, the benchmark interest rate being hedged, associated with the interest payments made on an amount of Heartland's debt principal equal to the then-outstanding swap notional amount. At inception, Heartland asserted that the underlying principal balance would remain outstanding throughout the hedge transaction making it probable that sufficient LIBOR-based interest payments would exist through the maturity date of the swap.

Heartland entered into three forward starting interest rate swap transactions to effectively convert Heartland Financial Statutory Trust IV, V, and VII, which total $ 65.0 million , as well as Morrill Statutory Trust I and II, which total $ 20.0 million , from variable rate subordinated debentures to fixed rate debt. For accounting purposes, these five swap transactions are designated as cash flow hedges of the changes in cash flows attributable to changes in LIBOR, the benchmark interest rate being hedged, associated with the interest payments made on $85.0 million of Heartland's subordinated debentures that reset quarterly on a specified reset date. At inception, Heartland asserted that the underlying principal balance would remain outstanding throughout the hedge transaction making it probable that sufficient LIBOR-based interest payments would exist through the maturity date of the swaps.

During the first quarter of 2015, Heartland entered into two additional forward starting interest rate swaps. The first forward starting interest rate swap transaction relates to Heartland's $20.0 million Statutory Trust VI, which will convert from a fixed interest rate subordinated debenture to a variable interest rate subordinated debenture. The effective date of the interest rate swap transaction is June 15, 2017, and Heartland Statutory Trust VI will effectively remain at a fixed interest rate. The forward-starting swap transaction expires on June 15, 2024. The second forward starting interest rate swap is effective on March 1,

2017, and will replace the current interest rate swap related to Heartland Statutory Trust VII upon its expiration on March 1, 2017.

The table below identifies the balance sheet category and fair values of Heartland's derivative instruments designated as cash flow hedges at September 30, 2015 , and December 31, 2014 , in thousands:



	Notional Amount		Fair Value			Balance Sheet Category	Receive Rate		Weighted Average Pay Rate		Maturity
September 30, 2015
Interest rate swap	$	9,309	$	(111	)	Other Liabilities	2.966	%	5.140	%	04/20/2016
Interest rate swap	25,000		(1,097		)	Other Liabilities	0.334	%	2.255	%	03/17/2021
Interest rate swap	20,000		(799		)	Other Liabilities	0.324	%	3.220	%	03/01/2017
Interest rate swap	20,000		(1,946		)	Other Liabilities	0.284	%	3.355	%	01/07/2020
Interest rate swap	10,000		(208		)	Other Liabilities	0.326	%	1.674	%	03/26/2019
Interest rate swap	10,000		(206		)	Other Liabilities	0.334	%	1.658	%	03/18/2019
Interest rate swap	20,000		(283		)	Other Liabilities	1.190	%	2.390	%	06/15/2024
Interest rate swap	20,000		(332		)	Other Liabilities	1.048	%	2.352	%	03/01/2024

December 31, 2014
Interest rate swap	$	10,369	$	(248	)	Other Liabilities	2.915	%	5.140	%	04/20/2016
Interest rate swap	25,000		(534		)	Other Liabilities	0.243	%	2.255	%	03/17/2021
Interest rate swap	20,000		(1,046		)	Other Liabilities	0.234	%	3.220	%	03/01/2017
Interest rate swap	20,000		(1,748		)	Other Liabilities	0.232	%	3.355	%	01/07/2020
Interest rate swap	10,000		(35		)	Other Liabilities	0.255	%	1.674	%	03/26/2019
Interest rate swap	10,000		(35		)	Other Liabilities	0.243	%	1.658	%	03/18/2019

The table below identifies the gains and losses recognized on Heartland's derivative instruments designated as cash flow hedges for the nine months ended September 30, 2015 , and September 30, 2014, in thousands:



	Effective Portion							Ineffective Portion
	Recognized in OCI			Reclassified from AOCI into Income				Recognized in Income on Derivatives
	Amount of Gain (Loss)			Category	Amount of Gain (Loss)			Category	Amount of Gain (Loss)
Three Months Ended September 30, 2015
Interest rate swap	$	48		Interest Expense	$	(53	)	Other Income	$	—
Interest rate swap	(574		)	Interest Expense	(127		)	Other Income	—
Interest rate swap	78			Interest Expense	(150		)	Other Income	—
Interest rate swap	(266		)	Interest Expense	(156		)	Other Income	—
Interest rate swap	(122		)	Interest Expense	(35		)	Other Income	—
Interest rate swap	(120		)	Interest Expense	(36		)	Other Income	—
Interest rate swap	(774		)	Interest Expense	—			Other Income	—
Interest rate swap	(784		)	Interest Expense	—			Other Income	—

Nine Months Ended September 30, 2015
Interest rate swap	$	137		Interest Expense	$	(166	)	Other Income	$	—
Interest rate swap	(563		)	Interest Expense	(379		)	Other Income	—
Interest rate swap	247			Interest Expense	(451		)	Other Income	—
Interest rate swap	(198		)	Interest Expense	(471		)	Other Income	—
Interest rate swap	(173		)	Interest Expense	(106		)	Other Income	—
Interest rate swap	(171		)	Interest Expense	(107		)	Other Income	—
Interest rate swap	(283		)	Interest Expense	—			Other Income	—
Interest rate swap	(332		)	Interest Expense	—			Other Income	—

Three Months Ended September 30, 2014
Interest rate swap	$	68		Interest Expense	$	(63	)	Other Income	$	—
Interest rate swap	193			Interest Expense	(129		)	Other Income	—
Interest rate swap	208			Interest Expense	(153		)	Other Income	—
Interest rate swap	248			Interest Expense	(158		)	Other Income	—
Interest rate swap	89			Interest Expense	(37		)	Other Income	—
Interest rate swap	88			Interest Expense	(37		)	Other Income	—
Interest rate swap	—			Interest Expense	—			Other Income	—

Nine Months Ended September 30, 2014
Interest rate swap	$	162		Interest Expense	$	(192	)	Other Income	$	—
Interest rate swap	(117		)	Interest Expense	(258		)	Other Income	—
Interest rate swap	387			Interest Expense	(455		)	Other Income	—
Interest rate swap	8			Interest Expense	(473		)	Other Income	—
Interest rate swap	48			Interest Expense	(74		)	Other Income	—
Interest rate swap	48			Interest Expense	(73		)	Other Income	—
Interest rate swap	146			Interest Expense	(146		)	Other Income	—

Fair Value Hedge

Heartland uses interest rate swaps to convert certain long term fixed rate loans to floating rates to hedge interest rate risk exposure. Heartland uses hedge accounting in accordance with ASC 815, with the unrealized gains and losses, representing the change in fair value of the derivative and the change in fair value of the risk being hedged on the related loan, being recorded in the consolidated statements of income. The ineffective portions of the unrealized gains or losses, if any, are recorded in interest income and interest expense in the consolidated statements of income. Heartland uses statistical regression to assess hedge effectiveness, both at the inception of the hedge as well as on a continual basis. The regression analysis involves regressing the periodic change in fair value of the hedging instrument against the periodic changes in the fair value of the asset being hedged due to changes in the hedge risk.

During the second quarter of 2015, Heartland entered into an interest rate swap, paying a fixed interest rate of 3.40% to the counterparty and receives a variable interest rate from the same counterparty based on one month LIBOR plus .88% calculated on a notional amount of $13.8 million . The swap is designated as a fair value hedge and did not have a material impact on the consolidated balance sheets as of September 30, 2015, or consolidated statements of income for the three- and nine-month periods ended September 30, 2015. Heartland was required to pledge $414,000 of cash as collateral as of September 30, 2015. The swap was recorded in other liabilities with a fair value of $111,500 as of September 30, 2015.

Loan Swaps

Heartland enters into interest rate swap loan relationships with customers to meet their financing needs. Upon entering into these loan swaps, Heartland enters into offsetting positions with counterparties in order to minimize interest rate risk. These back-to-back loan swaps qualify as financial derivatives with the fair values reported in other assets and other liabilities on the consolidated balance sheets. As of September 30, 2015, the fair value of the swap asset was $570,000 , and the fair value of the swap liability was $570,000 . The notional amount of the back-to-back loan swaps total $19.5 million as of September 30, 2015. As of September 30, 2015, Heartland did not have any cash posted as collateral related to these back-to-back swaps, and there was no material impact to the consolidated financial statements.

Mortgage Derivatives

Heartland also has entered into interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans and mortgage backed securities that are considered derivative instruments. The fair value of these commitments is recorded on the consolidated balance sheets with the changes in fair value recorded in the consolidated statements of income as a component of net gains on sale of loans held for sale. These derivative contracts are designated as free standing derivative contracts and are not designated against specific assets and liabilities on the consolidated balance sheets or forecasted transactions and therefore do not qualify for hedge accounting treatment.

The table below identifies the balance sheet category and fair values of Heartland's derivative instruments not designated as hedging instruments at September 30, 2015 , and December 31, 2014 , in thousands:



	Balance Sheet Category	Notional Amount		Fair Value
September 30, 2015
Interest rate lock commitments (mortgage)	Other Assets	$	126,619	$	4,903
Forward commitments	Other Assets	117,525		833
Forward commitments	Other Liabilities	309,020		(2,841		)
December 31, 2014
Interest rate lock commitments (mortgage)	Other Assets	$	74,863	$	2,496
Forward commitments	Other Assets	88,484		275
Forward commitments	Other Liabilities	218,337		(1,619		)

The table below identifies the income statement category of the gains and losses recognized in income on Heartland's derivative instruments not designated as hedging instruments for the three- and nine-month periods ended September 30, 2015 , and September 30, 2014, in thousands:



	Income Statement Category	Gain (Loss) Recognized
Three Months Ended September 30, 2015
Interest rate lock commitments (mortgage)	Gains on sale of loans held for sale	$	(361	)
Forward commitments	Gains on sale of loans held for sale	(4,237		)

Nine Months Ended September 30, 2015
Interest rate lock commitments (mortgage)	Gains on sale of loans held for sale	$	3,471
Forward commitments	Gains on sale of loans held for sale	(662		)

Three Months Ended September 30, 2014
Interest rate lock commitments (mortgage)	Gains on sale of loans held for sale	$	(1,924	)
Forward commitments	Gains on sale of loans held for sale	1,505

Nine Months Ended September 30, 2014
Interest rate lock commitments (mortgage)	Gains on sale of loans held for sale	$	3,393
Forward commitments	Gains on sale of loans held for sale	(1,474		)

NOTE 8: FAIR VALUE

Heartland utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available for sale, trading securities and derivatives are recorded in the consolidated balance sheets at fair value on a recurring basis. Additionally, from time to time, Heartland may be required to record at fair value other assets on a nonrecurring basis such as loans held for sale, loans held to maturity and certain other assets including, but not limited to, mortgage servicing rights, commercial servicing rights and other real estate owned. These nonrecurring fair value adjustments typically involve application of lower of cost or fair value accounting or write-downs of individual assets.

Fair Value Hierarchy

Under ASC 820, assets and liabilities are grouped at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1 — Valuation is based upon quoted prices for identical instruments in active markets.

Level 2 — Valuation is based upon quoted prices for similar instruments in active markets, or similar instruments in markets that are not active, and model-based valuation techniques for all significant assumptions are observable in the market.

Level 3 — Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value on a recurring or non-recurring basis.

Assets

Securities Available for Sale and Held to Maturity

Securities available for sale are recorded at fair value on a recurring basis. Securities held to maturity are generally recorded at cost and are recorded at fair value only to the extent a decline in fair value is determined to be other-than-temporary. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted

for the security's credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, as well as U.S. Treasury securities. Level 2 securities include U.S. government and agency securities, mortgage-backed securities and private collateralized mortgage obligations, municipal bonds and corporate debt securities. Level 3 securities consist primarily of Z-TRANCHE mortgage-backed securities and corporate debt securities. On a quarterly basis, a secondary independent pricing service is used for a sample of securities to validate the pricing from Heartland's primary pricing service.

Loans Held for Sale

Loans held for sale are carried at the lower of cost or fair value on an aggregate basis. The fair value of loans held for sale is based on what secondary markets are currently offering for portfolios with similar characteristics. As such, Heartland classifies loans held for sale subjected to nonrecurring fair value adjustments as Level 2.

Loans Held to Maturity

Heartland does not record loans held to maturity at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC 310. The fair value of impaired loans is measured using one of the following impairment methods: 1) the present value of expected future cash flows discounted at the loan's effective interest rate or 2) the observable market price of the loan or 3) the fair value of the collateral if the loan is collateral dependent. In accordance with ASC 820, impaired loans measured at fair value are classified as nonrecurring Level 3 in the fair value hierarchy.

Premises, furniture and equipment held for sale

Heartland values premises, furniture and equipment held for sale based on third-party appraisals less estimated disposal costs. Heartland considers third party appraisals, as well as independent fair value assessments from realtors or persons involved in selling bank premises, furniture and equipment, in determining the fair value of particular properties. Accordingly, the valuation of premises, furniture and equipment held for sale is subject to significant external and internal judgment. Heartland periodically reviews premises, furniture and equipment held for sale to determine if the fair value of the property, less disposal costs, has declined below its recorded book value and records any adjustments accordingly. Premises, furniture and equipment held for sale are classified as nonrecurring Level 3 in the fair value hierarchy.

Mortgage Servicing Rights

Mortgage servicing rights assets represent the value associated with servicing residential real estate loans that have been sold to outside investors with servicing retained. Heartland uses the amortization method (i.e., the lower of amortized cost or estimated fair value measured on a nonrecurring basis), not fair value measurement accounting, to determine the carrying value of its mortgage servicing rights. The fair value for servicing assets is determined through discounted cash flow analysis and utilizes discount rates, prepayment speeds and delinquency rate assumptions as inputs. All of these assumptions require a significant degree of management estimation and judgment. Mortgage servicing rights are subject to impairment testing. The carrying values of these rights are reviewed quarterly for impairment based upon the calculation of fair value as performed by an outside third party. For purposes of measuring impairment, the rights are stratified into certain risk characteristics including note type and note term. If the valuation model reflects a fair value less than the carrying value, mortgage servicing rights are adjusted to fair value through a valuation allowance. Heartland classifies mortgage servicing rights as nonrecurring with Level 3 measurement inputs.

Commercial Servicing Rights

Commercial servicing rights assets represent the value associated with servicing commercial loans that have been sold to Small Business Administration and United States Department of Agriculture with servicing retained. Heartland uses the amortization method (i.e., the lower of amortized cost or estimated fair value measured on a nonrecurring basis), not fair value measurement accounting, to determine the carrying value of its commercial servicing rights. The fair value for servicing assets is determined through market prices for comparable servicing contracts, when available, or through a valuation model that calculates the present value of estimated future net servicing income. Inputs utilized include discount rates, prepayment speeds and delinquency rate assumptions as inputs. All of these assumptions require a significant degree of management estimation and judgment. Commercial servicing rights are subject to impairment testing, and the carrying values of these rights are reviewed quarterly for impairment based upon the calculation of fair value as performed by an outside third party. If the valuation model reflects a fair value less than the carrying value, commercial servicing rights are adjusted to fair value through a valuation allowance. Heartland classifies commercial servicing rights as nonrecurring with Level 3 measurement inputs.

Derivative Financial Instruments

Heartland's current interest rate risk strategy includes interest rate swaps. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. To comply with the provisions of ASC 820, Heartland incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, Heartland has considered the impact of netting any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although Heartland has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of September 30, 2015 , and December 31, 2014 , Heartland has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, Heartland has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Interest rate lock commitments

Heartland uses an internal valuation model that relies on internally developed inputs to estimate the fair value of its interest rate lock commitments which is based on unobservable inputs that reflect management's assumptions and specific information about each borrower. Interest rate lock commitments are classified in Level 3 of the fair value hierarchy.

Forward commitments

The fair value of forward commitments are estimated using an internal valuation model, which includes current trade pricing for similar financial instruments in active markets that Heartland has the ability to access and are classified in Level 2 of the fair value hierarchy.

Other Real Estate Owned

Other real estate owned ("OREO") represents property acquired through foreclosures and settlements of loans. Property acquired is carried at the fair value of the property at the time of acquisition (representing the property's cost basis), plus any acquisition costs, or the estimated fair value of the property, less disposal costs. Heartland considers third party appraisals, as well as independent fair value assessments from realtors or persons involved in selling OREO, in determining the fair value of particular properties. Accordingly, the valuation of OREO is subject to significant external and internal judgment. Heartland periodically reviews OREO to determine if the fair value of the property, less disposal costs, has declined below its recorded book value and records any adjustments accordingly. OREO is classified as nonrecurring Level 3 of the fair value hierarchy.

The table below presents Heartland's assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2015 , and December 31, 2014 , in thousands, aggregated by the level in the fair value hierarchy within which those measurements fall:



	Total Fair Value		Level 1		Level 2		Level 3
September 30, 2015
Assets
Securities available for sale
U.S. government corporations and agencies	$	27,020	$	529	$	26,491	$	—
Mortgage-backed securities	1,006,349		—		1,000,309		6,040
Obligations of states and political subdivisions	214,551		—		214,551		—
Corporate debt securities	580		—		—		580
Equity securities	13,187		—		13,187		—
Interest rate lock commitments	4,903		—		—		4,903
Forward commitments	833		—		833		—
Total assets at fair value	$	1,267,423	$	529	$	1,255,371	$	11,523
Liabilities
Derivative financial instruments	$	4,982	$	—	$	4,982	$	—
Forward commitments	2,841		—		2,841		—
Total liabilities at fair value	$	7,823	$	—	$	7,823	$	—
December 31, 2014
Assets
Securities available for sale
U.S. government corporations and agencies	$	24,093	$	2,529	$	21,564	$	—
Mortgage-backed securities	1,219,266		—		1,214,319		4,947
Obligations of states and political subdivisions	153,426		—		153,426		—
Corporate debt securities	—		—		—		—
Equity securities	5,083		—		5,083		—
Interest rate lock commitments	2,496		—		—		2,496
Forward commitments	275		—		275		—
Total assets at fair value	$	1,404,639	$	2,529	$	1,394,667	$	7,443
Liabilities
Derivative financial instruments	$	3,646	$	—	$	3,646	$	—
Forward commitments	1,619		—		1,619		—
Total liabilities at fair value	$	5,265	$	—	$	5,265	$	—

The tables below present Heartland's assets that are measured at fair value on a nonrecurring basis, in thousands:



	Fair Value Measurements at September 30, 2015
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Year-to- Date Losses
Collateral dependent impaired loans:
Commercial	$	767	$	—	$	—	$	767	$	79
Commercial real estate	4,277		—		—		4,277		57
Agricultural and agricultural real estate	—		—		—		—		—
Residential real estate	2,475		—		—		2,475		5
Consumer	1,970		—		—		1,970		—
Total collateral dependent impaired loans	$	9,489	$	—	$	—	$	9,489	$	141
Other real estate owned	$	17,041	$	—	$	—	$	17,041	$	1,685
Premises, furniture and equipment held for sale	$	3,440	$	—	$	—	$	3,440	$	—



	Fair Value Measurements at December 31, 2014
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Year-to- Date Losses
Collateral dependent impaired loans:
Commercial	$	1,033	$	—	$	—	$	1,033	$	659
Commercial real estate	12,584		—		—		12,584		492
Agricultural and agricultural real estate	552		—		—		552		2,229
Residential real estate	3,173		—		—		3,173		—
Consumer	2,003		—		—		2,003		22
Total collateral dependent impaired loans	$	19,345	$	—	$	—	$	19,345	$	3,402
Other real estate owned	$	19,016	$	—	$	—	$	19,016	$	1,938
Premises, furniture and equipment held for sale	$	—	$	—	$	—	$	—	$	—

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



	Fair Value at 9/30/15		Valuation Technique	Unobservable Input	Range (Weighted Average)
Z-TRANCHE Securities	$	6,040	Discounted cash flows	Pretax discount rate	7.00 - 9.50%
				Actual defaults	17.28 - 32.60% (26.32%)
				Actual deferrals	4.91 - 21.20% (16.30%)
Corporate debt securities	580		Discounted cash flows	Bank analysis	⁽¹⁾
Interest rate lock commitments	4,903		Discounted cash flows	Closing ratio	⁽²⁾
Premises, furniture and equipment held for sale	3,440		Modified appraised value	Third party appraisal	⁽³⁾
				Appraisal discount	⁽³⁾
Collateral dependent impaired loans:
Commercial	767		Modified appraised value	Third party appraisal	⁽³⁾
				Appraisal discount	⁽³⁾
Commercial real estate	4,277		Modified appraised value	Third party appraisal	⁽³⁾
				Appraisal discount	⁽³⁾
Agricultural and agricultural real estate	—		Modified appraised value	Third party appraisal	⁽³⁾
				Appraisal discount	⁽³⁾
Residential real estate	2,475		Modified appraised value	Third party appraisal	⁽³⁾
				Appraisal discount	⁽³⁾
Consumer	1,970		Modified appraised value	Third party valuation	⁽³⁾
				Valuation discount	⁽³⁾
Other real estate owned	17,041		Modified appraised value	Third party appraisal	⁽³⁾
				Appraisal discount	⁽³⁾

(1) The unobservable input is the bank analysis market using Moody's Global Bank Rating Methodology. The analysis takes into consideration various performance metrics as well as yield on the debt securities and credit risk analysis.
(2) The significant unobservable input used in the fair value measurement is the closing ratio, which represents the percentage of loans currently in a lock position which management estimates will ultimately close. The closing ratio calculation takes into consideration historical data and loan-level data; therefore providing a range would not be meaningful. The weighted average closing ratio at September 30, 2015, was 86%.
(3) Third party appraisals are obtained as to the value of the underlying asset, but disclosure of this information would not provide meaningful information, as the range will vary widely from loan to loan. Types of discounts considered included age of the appraisal, local market conditions, current condition of the property, and estimated sales costs. These discounts will also vary from loan to loan, thus providing range would not be meaningful.



	Fair Value at 12/31/14		Valuation Technique	Unobservable Input	Range (Weighted Average)
Z-TRANCHE Securities	$	4,947	Discounted cash flows	Pretax discount rate	7.00 - 9.00%
				Actual defaults	15.60 - 30.60% (24.50%)
				Actual deferrals	7.20 - 17.30% (12.90%)
Corporate debt securities	—		Discounted cash flows	Bank analysis	⁽¹⁾
Interest rate lock commitments	2,496		Discounted cash flows	Closing ratio	⁽²⁾
Premises, furniture and equipment held for sale	—		Modified appraised value	Third party appraisal	⁽³⁾
					⁽³⁾
Collateral dependent impaired loans:
Commercial	1,033		Modified appraised value	Third party appraisal	⁽³⁾
				Appraisal discount	⁽³⁾
Commercial real estate	12,584		Modified appraised value	Third party appraisal	⁽³⁾
				Appraisal discount	⁽³⁾
Agricultural and agricultural real estate	552		Modified appraised value	Third party appraisal	⁽³⁾
				Appraisal discount	⁽³⁾
Residential real estate	3,173		Modified appraised value	Third party appraisal	⁽³⁾
				Appraisal discount	⁽³⁾
Consumer	2,003		Modified appraised value	Third party valuation	⁽³⁾
				Valuation discount	⁽³⁾
Other real estate owned	19,016		Modified appraised value	Third party appraisal	⁽³⁾
				Appraisal discount	⁽³⁾

(1) The unobservable input is the bank analysis market using Moody's Global Bank Rating Methodology. The analysis takes into consideration various performance metrics as well as yield on the debt securities and credit risk analysis.
(2) The significant unobservable input used in the fair value measurement is the closing ratio, which represents the percentage of loans currently in a lock position which management estimates will ultimately close. The closing ratio calculation takes into consideration historical data and loan-level data; therefore providing a range would not be meaningful. The weighted average closing ratio at December 31, 2014, was 84%.
(3) Third party appraisals are obtained as to the value of the underlying asset, but disclosure of this information would not provide meaningful information, as the range will vary widely from loan to loan. Types of discounts considered included age of the appraisal, local market conditions, current condition of the property, and estimated sales costs. These discounts will also vary from loan to loan, thus providing range would not be meaningful.

The changes in fair value of the Z-TRANCHE, a Level 3 asset, that is measured on a recurring basis are summarized in the following table, in thousands:



	For the Nine Months Ended September 30, 2015			For the Year Ended December 31, 2014
Balance at January 1,	$	4,947		$	3,298
Total gains (losses):
Included in earnings	—			—
Included in other comprehensive income	1,209			1,783
Purchases, sales and settlements:
Purchases	6			—
Sales	—			—
Settlements	(122		)	(134		)
Balance at period end	$	6,040		$	4,947

The changes in fair value of the corporate debt securities, Level 3 assets, that are measured on a recurring basis is summarized in the following table, in thousands:



	For the Nine Months Ended September 30, 2015			For the Year Ended December 31, 2014
Balance at January 1,	$	—		$	—
Total gains (losses):
Included in earnings	—			—
Included in other comprehensive income	(160		)	—
Purchases, acquired, sales and settlements:
Purchases	—			—
Acquired	740			—
Sales	—			—
Settlements	—			—
Balance at period end	$	580		$	—

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



	For the Nine Months Ended September 30, 2015			For the Year Ended December 31, 2014
Balance at January 1,	$	2,496		$	1,809
Total gains (losses) included in earnings	3,471			2,422
Issuances	3,851			2,038
Settlements	(4,915		)	(3,773		)
Balance at period end	$	4,903		$	2,496

Gains included in net gains on sale of loans held for sale attributable to interest rate lock commitments held at September 30, 2015, and December 31, 2014, were $4.9 million and $2.5 million , respectively.

The tables below summarize the estimated fair value of Heartland's financial instruments as defined by ASC 825 as of September 30, 2015 , and December 31, 2014 , in thousands. The carrying amounts in the following tables are recorded in the consolidated balance sheets under the indicated captions. In accordance with ASC 825, the assets and liabilities that are not financial instruments are not included in the disclosure, such as the value of the mortgage servicing rights, premises, furniture and equipment, premises, furniture and equipment held for sale, goodwill and other intangibles and other liabilities.

Heartland does not believe that the estimated information presented herein is representative of the earnings power or value of Heartland. The following analysis, which is inherently limited in depicting fair value, also does not consider any value associated with either existing customer relationships or the ability of Heartland to create value through loan origination, deposit gathering or fee generating activities. Many of the estimates presented herein are based upon the use of highly

subjective information and assumptions and, accordingly, the results may not be precise. Management believes that fair value estimates may not be comparable between financial institutions due to the wide range of permitted valuation techniques and numerous estimates which must be made. Furthermore, because the disclosed fair value amounts were estimated as of the balance sheet date, the amounts actually realized or paid upon maturity or settlement of the various financial instruments could be significantly different.



					Fair Value Measurements at September 30, 2015
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	91,105	$	91,105	$	91,105	$	—	$	—
Time deposits in other financial institutions	2,355		2,355		2,355		—		—
Securities:
Available for sale	1,261,687		1,261,687		529		1,254,538		6,620
Held to maturity	282,200		294,622		—		294,622		—
Other investments	19,292		19,292		—		19,057		235
Loans held for sale	102,569		102,569		—		102,569		—
Loans, net:
Commercial	1,226,694		1,223,493		—		1,222,726		767
Commercial real estate	2,043,473		2,058,649		—		2,054,372		4,277
Agricultural and agricultural real estate	465,961		469,329		—		469,329		—
Residential real estate	486,782		483,793		—		481,318		2,475
Consumer	372,508		375,497		—		373,527		1,970
Total Loans, net	4,595,418		4,610,761		—		4,601,272		9,489
Interest rate lock commitments	4,903		4,903		—		—		4,903
Forward commitments	833		833		—		833		—
Financial liabilities:
Deposits
Demand deposits	1,632,005		1,632,005		—		1,632,005		—
Savings deposits	2,936,611		2,936,611		—		2,936,611		—
Time deposits	938,621		938,621		—		938,621		—
Short term borrowings	335,845		335,845		—		335,845		—
Other borrowings	302,086		305,361		—		305,361		—
Derivative financial instruments	4,982		4,982		—		4,982		—
Forward commitments	2,841		2,841		—		2,841		—



					Fair Value Measurements at December 31, 2014
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	73,871	$	73,871	$	73,871	$	—	$	—
Time deposits in other financial institutions	2,605		2,605		2,605		—		—
Securities:
Available for sale	1,401,868		1,401,868		2,529		1,394,392		4,947
Held to maturity	284,587		296,768		—		296,768		—
Other investments	20,498		20,498		—		20,263		235
Loans held for sale	70,514		70,514		—		70,514		—
Loans, net:
Commercial	1,024,065		1,009,802		—		1,008,769		1,033
Commercial real estate	1,690,899		1,699,722		—		1,687,138		12,584
Agricultural and agricultural real estate	420,623		423,968		—		423,416		552
Residential real estate	377,094		370,178		—		367,005		3,173
Consumer	323,873		330,211		—		328,208		2,003
Total Loans, net	3,836,554		3,833,881		—		3,814,536		19,345
Interest rate lock commitments	2,496		2,496		—		—		2,496
Forward commitments	275		275		—		275		—
Financial liabilities:
Deposits
Demand deposits	1,295,193		1,295,193		—		1,295,193		—
Savings deposits	2,687,493		2,687,493		—		2,687,493		—
Time deposits	785,336		785,336		—		785,336		—
Short term borrowings	330,264		330,264		—		330,264		—
Other borrowings	396,255		401,978		—		401,978		—
Derivative financial instruments	3,646		3,646		—		3,646		—
Forward commitments	1,619		1,619		—		1,619		—

Cash and Cash Equivalents — The carrying amount is a reasonable estimate of fair value due to the short-term nature of these instruments.

Time Deposits in Other Financial Institutions — The carrying amount is a reasonable estimate of fair value due to the short-term nature of these instruments.

Securities — For securities either held to maturity, available for sale or trading, fair value equals quoted market price if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. For Level 3 securities, Heartland utilizes independent pricing provided by third party vendors or brokers.

Other Investments — Fair value measurement of other investments, which consists primarily of FHLB stock, are based on their redeemable value, which is at cost due to the restrictions placed on their transferability. The market for these securities is restricted to the issuer of the stock and subject to impairment evaluation.

Loans and Leases — The fair value of loans is estimated using an entrance price concept by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same

remaining maturities. The fair value of impaired loans is measured using the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the underlying collateral. The fair value of loans held for sale is estimated using quoted market prices.

Interest Rate Lock Commitments — The fair value of interest rate lock commitments is estimated using an internal valuation model, which includes grouping the interest rate lock commitments by interest rate and terms, applying an estimated closing ratio based on historical experience, and then multiplying by quoted investor prices determined to be reasonably applicable to the loan commitment groups based on interest rate, terms, and rate lock expiration dates of the loan commitment group.

Forward Commitments — The fair value of these instruments is estimated using an internal valuation model, which includes current trade pricing for similar financial instruments.

Derivative Financial Instruments — The fair value of all derivatives is estimated based on the amount that Heartland would pay or would be paid to terminate the contract or agreement, using current rates and, when appropriate, the current creditworthiness of the counter-party.

Deposits — The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. If the fair value of the fixed maturity certificates of deposit is calculated at less than the carrying amount, the carrying value of these deposits is reported as the fair value.

Short-term and Other Borrowings — Rates currently available to Heartland for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.

Commitments to Extend Credit, Unused Lines of Credit and Standby Letters of Credit — Based upon management's analysis of the off balance sheet financial instruments, there are no significant unrealized gains or losses associated with these financial instruments based upon review of the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.

NOTE 9: SEGMENT REPORTING

Heartland has identified two operating segments for purposes of financial reporting: community and other banking, and retail mortgage banking. These segments were determined based on the products and services provided or the type of customers served and are consistent with the information used by Heartland's key decision makers to make operating decisions and to assess Heartland's performance. The following tables present financial information from Heartland's operating segments for the three and nine months ended September 30, 2015 , and September 30, 2014, in thousands.



	Three Months Ended September 30,
	2015							2014
	Community and Other Banking		Retail Mortgage Banking			Total		Community and Other Banking		Retail Mortgage Banking			Total
Net interest income	$	58,123	$	1,601		$	59,724	$	50,790	$	701		$	51,491
Provision for loan losses	3,181		—			3,181		2,553		—			2,553
Total noninterest income	16,015		8,965			24,980		11,568		9,038			20,606
Total noninterest expense	49,168		12,828			61,996		43,228		11,427			54,655
Income (loss) before taxes	$	21,789	$	(2,262	)	$	19,527	$	16,577	$	(1,688	)	$	14,889
Average Loans, for the period	$	4,563,221	$	90,958		$	4,654,179	$	3,736,917	$	75,301		$	3,812,218
Segment Assets, at period end	$	6,676,526	$	129,358		$	6,805,884	$	5,817,427	$	117,382		$	5,934,809

	Nine Months Ended September 30,
	2015							2014
	Community and Other Banking		Retail Mortgage Banking			Total		Community and Other Banking		Retail Mortgage Banking			Total
Net interest income	$	167,000	$	4,298		$	171,298	$	148,930	$	1,972		$	150,902
Provision for loan losses	10,526		—			10,526		11,635		—			11,635
Total noninterest income	48,679		37,625			86,304		35,085		25,906			60,991
Total noninterest expense	145,614		39,478			185,092		129,108		32,744			161,852
Income (loss) before taxes	$	59,539	$	2,445		$	61,984	$	43,272	$	(4,866	)	$	38,406
Average Loans, for the period	$	4,365,908	$	91,807		$	4,457,715	$	3,629,822	$	62,896		$	3,692,718
Segment Assets, at period end	$	6,676,526	$	129,358		$	6,805,884	$	5,817,427	$	117,382		$	5,934,809

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SAFE HARBOR STATEMENT

This document (including information incorporated by reference) contains, and future oral and written statements of Heartland and its management may contain, forward-looking statements within the meaning of such term in the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, plans, objectives, future performance and business of Heartland. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of Heartland's management and on information currently available to management, are generally identifiable by the use of words such as "believe," "expect," "anticipate," "plan," "intend," "estimate," "may," "will," "would," "could," "should" or other similar expressions. Although Heartland has made these statements based on management's experience and best estimate of future events, there may be events or factors that management has not anticipated, and the accuracy and achievement of such forward-looking statements and estimates are subject to a number of risks, including those identified in our Annual Report on Form 10-K for the year ended December 31, 2014. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and Heartland undertakes no obligation to update any statement in light of new information or future events.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, income and expenses. These estimates are based upon historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The estimates and judgments that management believes have the most effect on Heartland's reported financial position and results of operations are described as critical accounting policies in Heartland's Annual Report on Form 10-K for the year ended December 31, 2014. There have been no significant changes in the critical accounting policies or the assumptions and judgments utilized in applying these policies since the year ended December 31, 2014.

OVERVIEW

Heartland's results of operations depend primarily on net interest income, which is the difference between interest income from interest earning assets and interest expense on interest bearing liabilities. Noninterest income, which includes service charges and fees, loan servicing income, trust income, brokerage and insurance commissions, securities gains and net gains on sale of loans held for sale, also affects Heartland's results of operations. Heartland's principal operating expenses, aside from interest expense, consist of the provision for loan and lease losses, salaries and employee benefits, occupancy and equipment costs, professional fees, FDIC insurance premiums, advertising and other real estate and loan collection expenses.

Net income available to common stockholders for the quarter ended September 30, 2015, was $14.4 million, or $0.69 per diluted common share, compared to $11.8 million, or $0.63 per diluted common share, for the quarter ended September 30, 2014. Return on average common equity was 11.40% and return on average assets was 0.85% for the third quarter of 2015, compared to 11.86% and 0.79%, respectively, for the same quarter in 2014.

Net income available to common stockholders for the first nine months of 2015 was $44.8 million, or $2.16 per diluted common share, compared to $29.0 million, or $1.55 per diluted common share, recorded during the first nine months of 2014. Return on average common equity was 12.38% and return on average assets was 0.91% for the first nine months of 2015, compared to 10.21% and 0.67%, respectively, for the same period in 2014.

On January 16, 2015, Heartland completed the acquisition of Community Banc-Corp of Sheboygan, Inc., parent company of Community Bank & Trust in Sheboygan, Wisconsin, in an all stock transaction. Simultaneous with the closing, Community Bank & Trust was merged into Heartland's Wisconsin Bank & Trust subsidiary. As of the close date, the transaction included, at fair value, total assets of $525.3 million, total loans of $395.0 million and total deposits of $434.0 million. Conversion onto Heartland's core processing systems for this transaction was completed on May 15, 2015.

On August 21, 2015, Heartland completed the acquisition of Community Bancorporation of New Mexico, Inc., parent company of Community Bank in Santa Fe, New Mexico, in an all cash transaction valued at approximately $11.1 million. Simultaneous with closing of the transaction, Community Bank merged into Heartland’s New Mexico Bank & Trust subsidiary. As of the

close date, the transaction included, at fair value, total assets of $166.5 million, total loans of $99.5 million and total deposits of $147.4 million. The systems conversion for this transaction is expected to occur during the fourth quarter of 2015.

On September 11, 2015, Heartland completed the acquisition of First Scottsdale Bank, N.A. in Scottsdale, Arizona, in an all cash transaction valued at approximately $17.7 million. Simultaneous with the close, First Scottsdale Bank was merged into Heartland’s Arizona Bank & Trust subsidiary. As of the close date, the transaction included, at fair value, total assets of $83.7 million, total loans of $54.7 million and total deposits of $65.9 million. The systems conversion for this transaction was completed simultaneous with the closing.

During the second quarter of 2015, Heartland announced it had entered into a merger agreement with Premier Valley Bank, a community bank based in Fresno, California, that had assets of approximately $683.0 million at September 30, 2015. Under this agreement, Premier Valley will become a wholly-owned subsidiary of Heartland and operate under its present name and management team as Heartland's tenth state-chartered bank. Subject to adjustment for a minimum tangible equity threshold, Premier Valley shareholders will receive approximately $95.0 million or $7.73 per share of Premier Valley common stock in the merger, and may elect to receive this payment in shares of Heartland common stock or in cash, subject to proration so that 70% of the total payment is in Heartland common stock and 30% in cash. The transaction is expected to close during the fourth quarter of 2015.

Subsequent to the quarter-end, Heartland entered into a merger agreement with CIC Bancshares, Inc., parent company of Centennial Bank, headquartered in Denver, Colorado. Under the agreement, Heartland will acquire CIC Bancshares, Inc. in a transaction valued at approximately $83.5 million, of which approximately 20 percent would be payable in cash and approximately 80 percent would be payable by issuance of Heartland common stock. Simultaneous with closing of the transaction, Centennial Bank will be merged into Heartland’s Summit Bank & Trust subsidiary, with the resulting institution operating under the Centennial Bank name. Centennial Bank had total assets of approximately $730.0 million as of September 30, 2015. The transaction is subject to approvals by shareholders of CIC Bancshares, Inc. and bank regulatory authorities, and is expected to close during the first quarter of 2016.

Total assets were $6.81 billion at September 30, 2015, an increase of $754.1 million or 12% since year-end 2014. Total assets of the entities acquired during 2015 were $775.5 million at acquisition date. Securities represented 23% of total assets at September 30, 2015, compared to 28% at year-end 2014, as a portion of the proceeds from maturities, paydowns and sales were used to fund loan growth.

Total loans and leases held to maturity were $4.64 billion at September 30, 2015, compared to $3.88 billion at year-end 2014, an increase of $765.8 million or 20%, which includes $549.2 million acquired during 2015 in acquisitions. Exclusive of these acquisitions, total loans and leases held to maturity increased $216.5 million or 7% annualized since year-end 2014.

Total deposits were $5.51 billion as of September 30, 2015, compared to $4.77 billion at year-end 2014, an increase of $739.2 million or 16%, with $647.2 million attributable to the acquisitions completed during 2015. Exclusive of these acquisitions, total deposits increased $91.9 million or 3% annualized since year-end 2014. Included in the deposit growth during the first nine months of 2015 was an $88.1 million increase in brokered time deposits, the majority of which were issued to replace higher cost long-term FHLB advances and wholesale repurchase agreements that matured during the first six months of 2015.

Common stockholders' equity was $509.3 million at September 30, 2015, compared to $414.6 million at year-end 2014. Book value per common share was $24.68 at September 30, 2015, compared to $22.40 at year-end 2014. Heartland's unrealized gains on securities available for sale, net of applicable taxes, were $4.6 million at September 30, 2015, compared to $3.6 million at December 31, 2014.

RESULTS OF OPERATIONS

Net Interest Income

Net interest margin, expressed as a percentage of average earning assets, was 4.01% during the third quarter of 2015 compared to 3.97% during the second quarter of 2015 and 3.96% during the third quarter of 2014. For the first nine months of 2015, net interest margin was 3.96% compared to 3.97% for the first nine months of 2014. Heartland's success in maintaining net interest margin near the 4.00% level is the result of continuous price discipline on both sides of the balance sheet and management's ability to shift dollars from the securities portfolio into the loan portfolio.

Interest income increased $7.2 million or 12% to $67.3 million in the third quarter of 2015 from the $60.1 million recorded in the third quarter of 2014. After an adjustment to add $2.6 million for both the third quarter of 2015 and the third quarter of

2014 for income taxes saved on the interest earned on nontaxable securities and loans, on a tax-equivalent basis, interest income in the third quarter of 2015 was $69.9 million compared to $62.7 million in the third quarter of 2014. For the first nine months of 2015, interest income increased $19.2 million or 11% to $195.8 million from $176.6 million for the first nine months of 2014. After an adjustment to add $7.4 million for the first nine months of 2015 and $7.8 million for the first nine months of 2014 for income taxes saved on the interest earned on nontaxable securities and loans, on a tax-equivalent basis, interest income in the first nine months of 2015 was $203.2 million compared to $184.4 million in the first nine months of 2014. These increases were primarily due to growth in average earning assets, which increased $735.2 million or 14% during the third quarter of 2015 compared to the third quarter of 2014 and $688.1 million or 13% during the first nine months of 2015 compared to the first nine months of 2014. The acquisitions completed during 2015 accounted for approximately $527.4 million of the growth in average earning assets for the quarterly comparative period and approximately $451.4 million for the nine month comparative period. The remainder of the growth in average earning assets in both periods was primarily attributable to loan growth experienced during the last half of 2014 and first half of 2015. Also contributing to the increases in interest income during both comparative periods was a change in the composition of average earning assets from lower-yielding investments to higher-yielding loans. The percentage of average net loans and leases to total earning assets was 75% during the third quarter of 2015 compared to 69% during the third quarter of 2014 and 73% during the first nine months of 2015 compared to 68% during the first nine months of 2014.

Interest expense for the third quarter of 2015 was $7.5 million, a decrease of $1.1 million or 13% from $8.6 million in the third quarter of 2014. Interest expense for the first nine months of 2015 was $24.5 million compared to $25.7 million for the first nine months of 2014, a decrease of $1.2 million or 5%. Average interest bearing liabilities increased $391.6 million or 10% for the quarter ended September 30, 2015, as compared to the same quarter in 2014, while the average interest rate paid on Heartland's interest bearing deposits and borrowings declined 16 basis points from 0.83% in the third quarter of 2014 to 0.67% in the third quarter of 2015. Average interest bearing liabilities increased $353.6 million or 9% for the first nine months of 2015 as compared to the first nine months in 2014, while the average interest rate paid on Heartland's interest bearing deposits and borrowings declined 10 basis points from 0.84% in the first nine months of 2014 to 0.74% in the first nine months of 2015. The average interest rate paid on savings deposits was 0.22% during the third quarter of 2015 compared to 0.31% during the third quarter of 2014 and the average interest rate paid on time deposits was 0.91% during the third quarter of 2015 compared to 1.22% during the third quarter of 2014. For the first nine months of 2015, the average interest rate paid on savings deposits was 0.23% compared to 0.32% during the first nine months of 2014 and the average interest rate paid on time deposits was 0.99% during the first nine months of 2015 compared to 1.19% during the first nine months of 2014. The rates currently paid on Heartland's non-maturity deposits are effectively approaching a floor and management believes there is limited flexibility to pay lower rates on these deposits in the future.

Net interest income increased $8.2 million or 16% to $59.7 million in the third quarter of 2015 from the $51.5 million recorded in the third quarter of 2014. Net interest income on a tax-equivalent basis totaled $62.3 million during the third quarter of 2015, an increase of $8.2 million or 15% from the $54.1 million recorded during the third quarter of 2014. For the first nine months of 2015, net interest income increased $20.4 million or 14% to $171.3 million from the $150.9 million recorded in the first nine months of 2014. Net interest income on a tax-equivalent basis totaled $178.7 million during the first nine months of 2015, an increase of $20.0 million or 13% from the $158.6 million recorded during the nine months of 2014. Net interest income in dollars has increased steadily for each of the last eight quarters.

Heartland attempts to manage its balance sheet to minimize the effect that a change in interest rates has on its net interest margin. Heartland plans to continue to work toward improving both its earning assets and funding mix through targeted organic growth strategies, which management believes will result in additional net interest income. Heartland believes its net interest income simulations reflect a well-balanced and manageable interest rate posture. Approximately 37% of Heartland's commercial and agricultural loan portfolios consist of floating rate loans that reprice based upon changes in the national prime or LIBOR interest rate. Since nearly 57% of these floating rate loans have interest rate floors that are currently in effect, an upward movement in the national prime interest rate or LIBOR would not have an immediate positive effect on Heartland's interest income. Item 3 of this Form 10-Q contains additional information about the results of Heartland's most recent net interest income simulations. Note 7 to the quarterly consolidated financial statements contains a detailed discussion of the derivative instruments Heartland has utilized to manage its interest rate risk.

The following table sets forth certain information relating to Heartland's average consolidated balance sheets and reflects the yield on average earning assets and the cost of average interest bearing liabilities for the periods indicated, in thousands. Dividing income or expense by the average balance of assets or liabilities derives such yields and costs. Average balances are derived from daily balances, and nonaccrual loans and loans held for sale are included in each respective loan category. Assets with tax favorable treatment are evaluated on a tax-equivalent basis assuming a federal income tax rate of 35%. Tax favorable assets generally have lower contractual pre-tax yields than fully taxable assets. A tax-equivalent yield is calculated by adding the tax savings to the interest earned on tax favorable assets and dividing by the average balance of the tax favorable assets.



ANALYSIS OF AVERAGE BALANCES, TAX-EQUIVALENT YIELDS AND RATES ⁽¹⁾ For the Quarters Ended September 30, 2015 and 2014
	2015							2014
	Average Balance			Interest		Rate		Average Balance			Interest		Rate
Earning Assets
Securities:
Taxable	$	1,192,259		$	5,858	1.95	%	$	1,279,612		$	7,547	2.34	%
Nontaxable ⁽¹⁾	348,760			4,733		5.38		367,791			4,997		5.39
Total securities	1,541,019			10,591		2.73		1,647,403			12,544		3.02
Interest bearing deposits	11,567			4		0.14		8,098			6		0.29
Federal funds sold	1,032			1		0.38		344			1		1.15
Loans and leases: ⁽²⁾
Commercial and commercial real estate ⁽¹⁾	3,252,610			38,802		4.73		2,656,438			32,249		4.82
Residential mortgage	570,117			5,848		4.07		435,965			4,589		4.18
Agricultural and agricultural real estate ⁽¹⁾	461,144			5,525		4.75		398,571			5,030		5.01
Consumer	370,308			7,384		7.91		321,244			6,704		8.28
Fees on loans	—			1,701		—		—			1,603		—
Less: allowance for loan and lease losses	(46,302		)	—		—		(41,727		)	—		—
Net loans and leases	4,607,877			59,260		5.10		3,770,491			50,175		5.28
Total earning assets	6,161,495			69,856		4.50	%	5,426,336			62,726		4.59	%
Nonearning assets	564,701							456,456
Total assets	$	6,726,196						$	5,882,792
Interest Bearing Liabilities
Savings	$	2,870,847		$	1,565	0.22	%	$	2,592,630		$	2,032	0.31	%
Time, $100,000 and over	337,163			741		0.87		320,849			924		1.14
Other time deposits	622,110			1,461		0.93		534,544			1,699		1.26
Short-term borrowings	362,094			228		0.25		316,874			227		0.28
Other borrowings	298,875			3,549		4.71		334,629			3,741		4.44
Total interest bearing liabilities	4,491,089			7,544		0.67	%	4,099,526			8,623		0.83	%
Noninterest bearing liabilities
Noninterest bearing deposits	1,593,298							1,262,154
Accrued interest and other liabilities	59,712							45,674
Total noninterest bearing liabilities	1,653,010							1,307,828
Stockholders' Equity	582,097							475,438
Total Liabilities and Stockholders' Equity	$	6,726,196						$	5,882,792
Net interest income ⁽¹⁾				$	62,312						$	54,103
Net interest spread ⁽¹⁾						3.83	%						3.76	%
Net interest income to total earning assets ⁽¹⁾						4.01	%						3.96	%
Interest bearing liabilities to earning assets	72.89		%					75.55		%

(1) Tax-equivalent basis is calculated using an effective tax rate of 35%.
(2) Nonaccrual loans are included in average loans outstanding.



ANALYSIS OF AVERAGE BALANCES, TAX-EQUIVALENT YIELDS AND RATES ⁽¹⁾ For the Nine Months Ended September 30, 2015 and 2014
	2015							2014
	Average Balance			Interest		Rate		Average Balance			Interest		Rate
Earning Assets
Securities:
Taxable	$	1,266,546		$	19,729	2.08	%	$	1,303,152		$	22,755	2.33	%
Nontaxable ⁽¹⁾	335,104			13,641		5.44		380,154			15,506		5.45
Total securities	1,601,650			33,370		2.79		1,683,306			38,261		3.04
Interest bearing deposits	10,541			11		0.14		7,256			20		0.37
Federal funds sold	4,562			3		0.09		450			1		0.30
Loans and leases: ⁽²⁾
Commercial and commercial real estate ⁽¹⁾	3,133,525			112,343		4.79		2,580,868			93,978		4.87
Residential mortgage	529,412			16,146		4.08		421,571			13,554		4.30
Agricultural and agricultural real estate ⁽¹⁾	436,050			15,835		4.86		381,406			14,508		5.09
Consumer	358,728			21,476		8.00		308,873			19,372		8.39
Fees on loans	—			4,016		—		—			4,704		—
Less: allowance for loan and lease losses	(43,856		)	—		—		(41,249		)	—		—
Net loans and leases	4,413,859			169,816		5.14		3,651,469			146,116		5.35
Total earning assets	6,030,612			203,200		4.50	%	5,342,481			184,398		4.61	%
Nonearning assets	572,473							475,679
Total assets	$	6,603,085						$	5,818,160
Interest Bearing Liabilities
Savings	$	2,851,506		$	5,002	0.23	%	$	2,572,492		$	6,184	0.32	%
Time, $100,000 and over	343,369			2,373		0.92		329,976			2,641		1.07
Other time deposits	570,446			4,383		1.03		548,171			5,185		1.26
Short-term borrowings	343,537			638		0.25		308,000			655		0.28
Other borrowings	338,307			12,117		4.79		334,881			11,084		4.43
Total interest bearing liabilities	4,447,165			24,513		0.74	%	4,093,520			25,749		0.84	%
Noninterest bearing liabilities
Noninterest bearing deposits	1,531,450							1,219,431
Accrued interest and other liabilities	58,354							43,346
Total noninterest bearing liabilities	1,589,804							1,262,777
Stockholders' Equity	566,116							461,863
Total Liabilities and Stockholders' Equity	$	6,603,085						$	5,818,160
Net interest income ⁽¹⁾				$	178,687						$	158,649
Net interest spread ⁽¹⁾						3.76	%						3.77	%
Net interest income to total earning assets ⁽¹⁾						3.96	%						3.97	%
Interest bearing liabilities to earning assets	73.74		%					76.62		%

(1) Tax-equivalent basis is calculated using an effective tax rate of 35%.
(2) Nonaccrual loans are included in average loans outstanding.

Provision For Loan And Lease Losses

The allowance for loan and lease losses is established through a provision charged to expense to provide, in Heartland management's opinion, an appropriate allowance for loan and lease losses. The provision for loan losses was $3.2 million for the third quarter of 2015 compared to $2.6 million for the third quarter of 2014. For the first nine months of 2015, the provision for loan losses was $10.5 million compared to $11.6 million for the first nine months of 2014. The first quarter 2014 provision included approximately $4.5 million to compensate for a charge off on a single large credit and without this compensating provision, the increase in provision for loan losses for the first nine months of 2015 in comparison with the first nine months of

2014 was $3.4 million. The increases in provision for loan and lease losses during both the quarterly and nine-month comparative periods were partially attributable to provision necessary to establish an allowance for loans acquired in prior acquisitions for which purchase accounting valuation reserves were depleted. Additionally, the second quarter of 2015 provision was affected by valuation changes on purchased impaired loans.

In determining that the allowance for loan and lease losses is appropriate, management uses factors that include the overall composition of the loan portfolio, general economic conditions, types of loans, loan collateral values, past loss experience, loan delinquencies, substandard credits, and doubtful credits. For additional details on the specific factors considered, refer to the discussion of critical accounting policies set forth in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Heartland's Annual Report on Form 10-K for the year ended December 31, 2014, and under the caption "Allowance For Loan and Lease Losses" in this report. Heartland believes the allowance for loan and lease losses as of September 30, 2015, was at a level commensurate with the overall risk exposure of the loan portfolio. However, if economic conditions should become more unfavorable, certain borrowers may experience difficulty and the level of nonperforming loans, charge-offs and delinquencies could rise and require further increases in the provision for loan and lease losses.

Noninterest Income

The tables below show Heartland's noninterest income for the three and nine months ended September 30, 2015 and 2014, in thousands:



	Three Months Ended September 30,
	2015		2014		Change			% Change
Service charges and fees	$	6,350	$	4,857	$	1,493		31	%
Loan servicing income	1,368		1,319		49			4
Trust fees	3,507		3,194		313			10
Brokerage and insurance commissions	869		1,044		(175		)	(17	)
Securities gains, net	1,767		825		942			114
Gain (loss) on trading account securities, net	—		—		—			—
Net gains on sale of loans held for sale	9,823		8,384		1,439			17
Income on bank owned life insurance	372		371		1			—
Other noninterest income	924		612		312			51
Total noninterest income	$	24,980	$	20,606	$	4,374		21	%



	Nine Months Ended September 30,
	2015		2014			Change			% Change
Service charges and fees	$	17,654	$	15,007		$	2,647		18	%
Loan servicing income	3,572		4,223			(651		)	(15	)
Trust fees	11,051		9,747			1,304			13
Brokerage and insurance commissions	2,872		3,325			(453		)	(14	)
Securities gains, net	9,230		2,460			6,770			275
Gain (loss) on trading account securities, net	—		(38		)	38			100
Net gains on sale of loans held for sale	38,164		23,559			14,605			62
Income on bank owned life insurance	1,355		1,073			282			26
Other noninterest income	2,406		1,635			771			47
Total noninterest income	$	86,304	$	60,991		$	25,313		42	%

Noninterest income totaled $25.0 million during the third quarter of 2015 compared to $20.6 million during the third quarter of 2014, an increase of $4.4 million or 21%. For the nine-month period ended on September 30, noninterest income totaled $86.3 million during 2015 compared to $61.0 million during 2014, an increase of $25.3 million or 42%. These increases were primarily due to increased service charges and fees, securities gains and net gains on sale of loans held for sale.

Service charges and fees increased $1.5 million or 31% during the quarters under comparison and $2.6 million or 18% during the nine-month periods under comparison, with a majority of this growth attributable to the service charges and fees collected by Wisconsin Bank & Trust at locations acquired through the Community Banc-Corp of Sheboygan, Inc. acquisition. Service charges on checking and savings accounts recorded during the third quarter of 2015 were $1.5 million compared to $1.3 million during the third quarter of 2014, an increase of $239,000 or 19%. For the nine months ended September 30, service charges on checking and savings accounts totaled $4.4 million during 2015 compared to $3.8 million during 2014, an increase of $583,000 or 15%. Overdraft fees were $1.9 million during the third quarter of 2015 compared to $1.7 million during the third quarter of 2014, an increase of $247,000 or 15% . For the nine months ended September 30, overdraft fees totaled $5.3 million during 2015 compared to $4.6 million during 2014, an increase of $652,000 or 14%. Interchange revenue from activity on bank debit cards, along with surcharges on ATM activity, resulted in service charges and fees of $2.2 million during the third quarter of 2015 compared to $1.9 million during the third quarter of 2014, an increase of $304,000 or 16%. These same fees were $6.1 million during the first nine months of 2015 compared to $5.4 million during the first nine months of 2014, an increase of $730,000 or 14%. These increases are primarily attributable to a larger demand deposit customer base in 2015, a portion of which is due to the Community Banc-Corp of Sheboygan, Inc. acquisition completed during the first quarter of 2015. An area of emphasis during 2015 has been the ramping up of credit card services at all the bank subsidiaries. These fees comprised $661,000 or 44% of the $1.5 million increase in service charges and fees for the third quarter of 2015 in comparison with the third quarter of 2014. For the first nine months of 2015 in comparison with the first nine months of 2014, these fees comprised $507,000 or 19% of the $2.6 million increase in service charges and fees.

Loan servicing income includes the fees collected for the servicing of commercial, agricultural, and mortgage loans, which are dependent upon the aggregate outstanding balance of these loans. Loan servicing income totaled $1.4 million during the third quarter of 2015 compared to $1.3 million during the third quarter of 2014. On a nine-month comparative basis, loan servicing income totaled $3.6 million during the first nine months of 2015 compared to $4.2 million during the same period in 2014. Loan servicing income related to the servicing of commercial and agricultural loans totaled $718,000 for the third quarter of 2015 compared to $518,000 for the third quarter of 2014, an increase of $200,000 or 39%. For the first nine months of the year, fees collected for commercial and agricultural loan servicing totaled $2.2 million during 2015 compared to $1.6 million during 2014, an increase of $641,000 or 40%. These increases resulted primarily from the additional commercial and agricultural loans acquired in the Community Banc-Corp of Sheboygan, Inc. acquisition. Fees collected for the servicing of mortgage loans, primarily for government sponsored entities, were $2.7 million during the third quarter of 2015 compared to $2.2 million during the third quarter of 2014, an increase of $513,000 or 23%. For the first nine months of the year, the fees collected for the servicing of mortgage loans for others were $7.8 million during 2015 compared to $6.4 million during 2014, an increase of $1.4 million or 21%. Included in and offsetting loan servicing income is amortization of capitalized mortgage servicing rights, which totaled $2.1 million during the third quarter of 2015 compared to $1.4 million during the third quarter of 2014, an increase of $664,000 or 47%. For the first nine months of the year, amortization of mortgage servicing rights totaled $6.4 million during 2015 compared to $3.8 million during 2014, an increase of $2.6 million or 71%. These increases are reflective of higher prepayments in the serviced mortgage loans portfolio during the first nine months of 2015, causing a decrease in total residential mortgage loan servicing income.

The following table summarizes Heartland's residential mortgage loan activity during the most recent five quarters, in thousands:



	As Of and For the Quarter Ended
	9/30/2015			6/30/2015			3/31/2015			12/31/2014			9/30/2014
Mortgage Servicing Fees	$	2,738		$	2,553		$	2,495		$	2,396		$	2,225
Mortgage Servicing Rights Amortization	(2,088		)	(2,184		)	(2,175		)	(1,643		)	(1,424		)
Total Residential Mortgage Loan Servicing Income	$	650		$	369		$	320		$	753		$	801
Net Gains On Sale of Residential Mortgage Loans	$	8,489		$	14,121		$	13,602		$	7,384		$	8,260
Total Residential Mortgage Loan Applications	$	443,294		$	615,463		$	647,487		$	383,845		$	445,039
Residential Mortgage Loans Originated	$	370,956		$	421,798		$	319,581		$	293,268		$	312,428
Residential Mortgage Loans Sold	$	360,172		$	402,151		$	268,786		$	281,250		$	283,677
Residential Mortgage Loan Servicing Portfolio	$	3,963,677		$	3,785,794		$	3,578,409		$	3,498,724		$	3,362,717

Net gains on sale of loans held for sale totaled $9.8 million during the third quarter of 2015 compared to $8.4 million during the third quarter of 2014, an increase of $1.4 million or 17%. During the first nine months of 2015, net gains on sale of loans held for sale totaled $38.2 million compared to $23.6 million during the same period in 2014, an increase of $14.6 million or 62%. These gains result primarily from the gain or loss on sales of mortgage loans into the secondary market, related fees and fair

value marks on the associated derivatives. During the third quarter of 2015, mortgage loan application activity returned to more normal seasonal levels after higher refinance activity during the first two quarters of 2015. The lower interest rate environment during the first half of 2015 encouraged mortgage loan refinancing, as opposed to a relatively higher interest rate environment in the first half of 2014. As a result, mortgage loan applications were $1.71 billion in the first nine months of 2015 compared to $1.22 billion in the first nine months of 2014, an increase of $483.8 million or 40%. The volume of mortgage loans sold totaled $1.03 billion during the first nine months of 2015, a $389.0 million or 61% increase from the $642.1 million sold during the first nine months of 2014. Net gains on sale of loans held for sale also includes gains on the sale of commercial and agricultural loans, which totaled $1.0 million during the third quarter of 2015 compared to $54,000 during the third quarter of 2014 and $2.0 million during the first nine months of 2015 compared to $187,000 during the first nine months of 2014. An area of emphasis for the Community Banc-Corp of Sheboygan, Inc. locations was the origination for sale of small business loans written under the U.S. Small Business Administration (SBA) programs.

Trust fees increased $313,000 or 10% during the third quarter of 2015 compared to the same quarter in 2014. For the nine-month period ended September 30, 2015, trust fees increased $1.3 million or 13% compared to the same nine-month period in 2014. A large portion of trust fees is based upon the market value of the trust assets under management, which was $1.86 billion at September 30, 2015, and compared to $1.82 billion at September 30, 2014. Those values fluctuate throughout the year as market conditions improve or decline.

Net securities gains totaled $1.8 million during the third quarter of 2015 compared to $825,000 during the third quarter of 2014, an increase of $942,000 or 114%. For the first nine months of 2015, net securities gains totaled $9.2 million during 2015 compared to $2.5 million during the first nine months of 2014, an increase of $6.8 million or 275%. These increases were related to the low interest rate environment during the first half of 2015 that encouraged rebalancing of the securities portfolio, as opposed to the flat or moderately increasing interest rate environment that existed during the first half of 2014.

Noninterest Expenses

The tables below show Heartland's noninterest expenses for the three- and nine-month periods ended September 30, 2015 and 2014, in thousands:



	Three Months Ended September 30,
	2015			2014			Change			% Change
Salaries and employee benefits	$	37,033		$	33,546		$	3,487		10	%
Occupancy	4,307			3,807			500			13
Furniture and equipment	2,121			2,033			88			4
Professional fees	5,251			4,429			822			19
FDIC insurance assessments	1,018			888			130			15
Advertising	1,327			1,383			(56		)	(4	)
Intangible assets amortization	734			521			213			41
Other real estate and loan collection expenses	496			215			281			131
Loss on sales/valuations of assets, net	721			447			274			61
Other noninterest expenses	8,988			7,386			1,602			22
Total Noninterest Expenses	$	61,996		$	54,655		$	7,341		13	%
Efficiency ratio, fully taxable equivalent ⁽¹⁾	69.85		%	70.76		%

(1) See the reconciliation of Non-GAAP measure below.



	Nine Months Ended September 30,
	2015			2014			Change			% Change
Salaries and employee benefits	$	110,522		$	98,428		$	12,094		12	%
Occupancy	12,594			11,841			753			6
Furniture and equipment	6,403			6,008			395			7
Professional fees	16,544			13,169			3,375			26
FDIC insurance assessments	2,873			2,848			25			1
Advertising	3,841			4,082			(241		)	(6	)
Intangible assets amortization	2,080			1,736			344			20
Other real estate and loan collection expenses	1,714			1,785			(71		)	(4	)
Loss on sales/valuations of assets, net	2,583			1,989			594			30
Other noninterest expenses	25,938			19,966			5,972			30
Total Noninterest Expenses	$	185,092		$	161,852		$	23,240		14	%
Efficiency ratio, fully taxable equivalent ⁽¹⁾	69.37		%	72.16		%

(1) See the reconciliation of Non-GAAP measure below.



Reconciliation of Non-GAAP Measure-Efficiency Ratio
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2015			2014			2015			2014
Net interest income	$	59,724		$	51,491		$	171,298		$	150,902
Taxable equivalent adjustment ⁽¹⁾	2,588			2,613			7,389			7,747
Fully taxable equivalent net interest income	62,312			54,104			178,687			158,649
Noninterest income	24,980			20,606			86,304			60,991
Securities gains, net	(1,767		)	(825		)	(9,230		)	(2,460		)
Adjusted income	$	85,525		$	73,885		$	255,761		$	217,180

Total noninterest expenses	$	61,996		$	54,655		$	185,092		$	161,852
Less:
Intangible assets amortization	734			521			2,080			1,736
Partnership investment in historic rehabilitation tax credits	805			1,408			2,995			1,408
Loss on sales/valuations of assets, net	721			447			2,583			1,989
Adjusted noninterest expenses	$	59,736		$	52,279		$	177,434		$	156,719

Efficiency ratio, fully taxable equivalent ⁽²⁾	69.85		%	70.76		%	69.37		%	72.16		%

(1) Computed on a tax equivalent basis using an effective tax rate of 35%.
(2) Efficiency ratio, fully taxable equivalent, expresses noninterest expenses as a percentage of fully taxable equivalent net interest income and noninterest income. This efficiency ratio is presented on a tax equivalent basis, which adjusts net interest income and noninterest expenses for the tax favored status of certain loans, securities and historic rehabilitation tax credits. Management believes the presentation of this non-GAAP measure provides supplemental useful information for proper understanding of the financial results as it enhances the comparability of income and expenses arising from taxable and nontaxable sources and excludes specific items, such as securities gains, net and losses on sales/valuations of assets, net. This measure should not be considered a substitute for operating results determined in accordance with GAAP.

For the third quarter of 2015, noninterest expenses totaled $62.0 million compared to $54.7 million during the third quarter of 2014, an increase of $7.3 million or 13%. For the first nine months of 2015, noninterest expenses totaled $185.1 million, an increase of $23.2 million or 14% from the first nine months of 2014. During both comparative periods, the categories contributing most significantly to these increases were salaries and employee benefits, professional fees and other noninterest expenses.

One of Heartland's top priorities is improving its efficiency ratio to achieve a ratio of 65% by the end of 2016. During the second and third quarters of 2015, management announced the consolidation of two banking centers and the closing of seven under-performing loan production offices. Management is also focused on completing systems conversions of acquired entities as close to closing date as possible, which is also expected to contribute to improvement in Heartland's efficiency ratio.

The largest component of noninterest expenses, salaries and employee benefits, increased $3.5 million or 10% during the third quarter of 2015 as compared to the same quarter in 2014 and $12.1 million or 12% for the nine-month period ended on September 30, 2015, as compared to the same period in 2014. The salaries and employee benefits at the acquired locations comprised $1.1 million of the increase for the quarterly comparative period and $4.3 million for the nine-month comparative period. Salaries and employee benefits was also affected by increases in incentive plan accruals and higher compensation in the mortgage segment during the first quarter of 2015. Full-time equivalent employees totaled 1,736 on September 30, 2015, compared to 1,646 full-time equivalent employees on September 30, 2014, an increase of 90 full-time equivalent employees, primarily as a result of the acquisitions.

Professional fees increased $822,000 million or 19% during the third quarter of 2015 compared to the third quarter of 2014 and $3.4 million or 26% during the first nine months of 2015 compared to the first nine months of 2014. These increases were primarily attributable to the increased volumes of mortgage loan originations and additional services provided to Heartland by third-parties, including those performed in relation to acquisitions.

For the third quarter of 2015, other noninterest expenses increased $1.6 million or 22% over the third quarter of 2014. For the first nine months of 2015, other noninterest expenses increased $6.0 million or 30% over the first nine months of 2014. Included in other noninterest expenses are costs associated with partnership investments in real estate projects that qualify for historic rehabilitation tax credits, which totaled $805,000 during the third quarter of 2015 and $1.4 million during the third quarter of 2014. For the nine-month comparative period, these costs totaled $3.0 million during 2015 and $1.4 million during 2014. These credits are included as a reduction to income tax expense as further described in the Income Taxes section of this report. Excluding the effect of the cost associated with the tax credit investment, other noninterest expenses increased $2.2 million or 37% during the third quarter of 2015 in comparison to the third quarter of 2014 and $4.4 million or 24% during the first nine months of 2015 in comparison with the same period in 2014. These increases were primarily a result of initial costs associated with the acquisitions and additional investments in technology.

Income Taxes

Heartland's effective tax rate was 25.32% for the third quarter of 2015 compared to 19.58% for the third quarter of 2014. Included in Heartland's income taxes for the third quarters of both 2015 and 2014 were federal historic rehabilitation tax credits associated with Heartland's ownership interest in qualifying real estate projects totaling $1.1 million in 2015 and $1.8 million in 2014. Federal low-income housing tax credits included in Heartland's income taxes totaled $145,000 during the third quarter of 2015 compared to $166,000 during the third quarter of 2014. Heartland's effective tax rate was also affected by the level of tax-exempt interest income which, as a percentage of pre-tax income, was 24.61% during the third quarter of 2015 compared to 32.59% during the third quarter of 2014.

Heartland's effective tax rate was 26.67% for the first nine months of 2015 compared to 22.83% for the first nine months of 2014. Included in Heartland's income taxes were federal historic rehabilitation tax credits associated with Heartland's ownership interest in qualifying real estate projects totaling $4.0 million during the first nine months of 2015 and $1.8 million during first nine months of 2014. Federal low-income housing tax credits included in Heartland's effective tax rate totaled $435,000 during the first nine months of 2015 compared to $566,000 during the first nine months of 2014. The level of tax-exempt interest income which, as a percentage of pre-tax income, was 22.14% during the first nine months of 2015 compared to 37.46% during the first nine months of 2014.

Segment Reporting

Heartland has two reportable segments: community and other banking, and retail mortgage banking. Revenues from community and other banking operations consist primarily of interest earned on loans and investment securities and fees from deposit services. Retail mortgage banking operating revenues consist of interest earned on mortgage loans held for sale, net gains on sale of loans into the secondary market, the servicing of mortgage loans for various investors and loan origination fee income. See Note 9 to our consolidated financial statements for further information regarding our segment reporting.

Income before taxes for the community and other banking segment for the third quarter of 2015 was $21.8 million compared to $16.6 million for the third quarter of 2014, a $5.2 or 31% increase, primarily as a result of increased net interest income and

noninterest income, the effect of which was partially offset by increased noninterest expenses. Net interest income from the community and other banking segment improved by $7.3 million or 14% for the third quarter of 2015 as compared to the third quarter of 2014, primarily as a result of strong loan growth experienced during the last half of 2014 and first half of 2015, combined with the acquisition of Community Banc-Corp of Sheboygan, Inc. in January 2015. Provision for loan and lease losses for the community and other banking segment was $3.2 million for the third quarter of 2015 compared of $2.5 million for the third quarter of 2014. Noninterest income allocable to the community and other banking segment totaled $16.0 million during the third quarter of 2015 compared to $11.6 million during the third quarter of 2014, an increase of $4.4 million or 38%, primarily resulting from increases in service charges and fees, securities gains and net gains on the sale of commercial and agricultural loans held for sale. Noninterest expenses allocable to the community and other banking segment increased $5.9 million or 14% during the third quarter of 2015 as compared to the third quarter of 2014. Included in the third quarter of 2015 noninterest expenses was $805,000 in costs associated with a partnership investment which qualifies for historic rehabilitation tax credits.

Income before taxes for the community and other banking segment for the nine months ended September 30 was $59.5 million for 2015 compared to $43.3 million for 2014, a $16.3 million or 38% increase. Driven by strong loan growth, net interest income increased $18.1 million or 12% from $148.9 million during the first nine months of 2014 to $167.0 million during the first nine months of 2015. Provision for loan and lease losses was $10.5 million for the first nine months of 2015 compared of $11.6 million for the first nine months of 2014, a decrease of $1.1 million or 10%. Noninterest income allocable to the community and other banking segment totaled $48.7 million during the first nine months of 2015 compared to $35.1 million during the first nine months of 2014, an increase of $13.6 million or 39%, primarily a result of increases in service charges and fees, trust fees, securities gains and net gains on sale of commercial and agricultural loans held for sale. Noninterest expenses totaled $145.6 million during the first nine months of 2015 compared to $129.1 million during the first nine months of 2014, an increase of $16.5 million or 13%, primarily a result of the added expenses of acquisitions completed during 2015 and $3.0 million in costs associated with historic rehabilitation tax credit partnership investments.

The retail mortgage banking segment recorded a loss before taxes of $2.3 million for the third quarter of 2015 compared to a loss before taxes of $1.7 million for the third quarter of 2014. Noninterest income from the retail mortgage banking segment totaled $9.0 million for both the third quarter of 2015 and 2014. Noninterest expenses allocable to the retail mortgage banking segment were $12.8 million during the third quarter of 2015 compared to $11.4 million during the third quarter of 2014, a $1.4 million or 12% increase, primarily as a result of additional salaries and employee benefits expense.

For the nine-month comparative periods ended on September 30, the retail mortgage banking segment recorded income before taxes of $2.4 million in 2015 compared to a loss before taxes of $4.9 million in 2014. This increase was reflective of the reduced long-term interest rates during the first half of 2015 in comparison to the first half of 2014 and the effect lower interest rates have on the volume of residential mortgage loans originated for sale and the associated gains on sale of these loans into the secondary market. For the nine-month comparative period ended September 30, noninterest income totaled $37.6 million in 2015 compared to $25.9 million in 2014, an $11.7 million or 45% increase. Noninterest expenses totaled $39.5 million during the first nine months of 2015 compared to $32.7 million during the first nine months of 2014, an increase of $6.7 million or 21%. This increase was primarily a result of transaction-based compensation to mortgage banking personnel associated with the increased volume of residential mortgage loans underwritten during the first half of 2015. Also included in noninterest expenses during the first nine months of 2015 were $800,000 in asset writedowns associated with the closure of seven under-performing loan production offices. Management has refined its strategy relative to the retail mortgage banking segment with an emphasis on building out this line of business within bank subsidiary locations instead of in out-of-footprint locations.

FINANCIAL CONDITION

Lending Activities

The table below presents the composition of the loan portfolio as of September 30, 2015, and December 31, 2014, in thousands:



LOAN PORTFOLIO	September 30, 2015					December 31, 2014
	Amount			Percent		Amount			Percent
Loans and leases receivable held to maturity:
Commercial	$	1,240,956		26.72	%	$	1,036,080		26.72	%
Commercial real estate	2,062,142			44.40		1,707,060			44.02
Agricultural and agricultural real estate	469,381			10.11		423,827			10.93
Residential mortgage	491,667			10.59		380,341			9.81
Consumer	379,903			8.18		330,555			8.52
Gross loans and leases receivable held to maturity	4,644,049			100.00	%	3,877,863			100.00	%
Unearned discount	(478		)			(90		)
Deferred loan fees	(1,048		)			(1,028		)
Total net loans and leases receivable held to maturity	4,642,523					3,876,745
Loans covered under loss share agreements:
Commercial and commercial real estate	—			—	%	54			4.29	%
Agricultural and agricultural real estate	—			—		—			—
Residential mortgage	—			—		1,204			95.71
Consumer	—			—		—			—
Total loans covered under loss share agreements	—			—	%	1,258			100.00	%
Allowance for loan and lease losses	(47,105		)			(41,449		)
Loans and leases receivable, net	$	4,595,418				$	3,836,554

Loans and leases secured by real estate, either fully or partially, totaled $3.01 billion or 65% of gross loans and leases at September 30, 2015. Of the non-farm, nonresidential real estate loans, 57% are owner occupied. The largest categories within Heartland's real estate secured loans at September 30, 2015, and December 31, 2014, are listed below, in thousands:



LOANS SECURED BY REAL ESTATE
	September 30, 2015		December 31, 2014
Residential real estate, excluding residential construction and residential lot loans	$	844,426	$	702,627
Industrial, manufacturing, business and commercial	380,566		321,338
Agriculture	256,007		252,143
Retail	232,886		200,049
Office	269,049		225,769
Land development and lots	122,995		122,662
Hotel, resort and hospitality	113,505		105,217
Multi-family	183,981		150,657
Food and beverage	92,385		79,208
Warehousing	81,813		68,449
Health services	91,805		49,401
Residential construction	93,851		72,419
All other	149,585		127,714
Loans acquired in the 3rd quarter 2015	94,810		—
Total loans secured by real estate	$	3,007,664	$	2,477,653

Allowance For Loan and Lease Losses

The process utilized by Heartland to determine the appropriateness of the allowance for loan and lease losses is considered a critical accounting practice for Heartland and has remained consistent over the past several years. The allowance for loan and lease losses represents management's estimate of identified and unidentified probable losses in the existing loan portfolio. For additional details on the specific factors considered, refer to the critical accounting policies section of our Annual Report on Form 10-K for the year ended December 31, 2014.

Exclusive of loans covered under loss sharing agreements, the allowance for loan and lease losses at September 30, 2015, was 1.01% of loans and leases and 139.54% of nonperforming loans compared to 1.07% of loans and leases and 165.33% of nonperforming loans at December 31, 2014.

Nonperforming loans, excluding those covered under loss sharing agreements, were $33.8 million or 0.73% of total loans and leases at September 30, 2015, compared to $25.1 million or 0.63% of total loans and leases at December 31, 2014. Exclusive of $11.4 million of nonperforming assets acquired in the acquisitions, nonperforming assets decreased $4.8 million or 12% since year-end 2014. Approximately 27%, or $9.1 million, of Heartland's nonperforming loans have individual loan balances exceeding $1.0 million and represent loans to an aggregate of five borrowers. The portion of Heartland's nonperforming loans covered by government guarantees was $2.9 million at September 30, 2015, and $1.5 million at December 31, 2014.

Loans delinquent 30 to 89 days as a percent of total loans increased to 0.40% at September 30, 2015, in comparison with 0.21% at December 31, 2014, primarily due to loans acquired in the Community Banc-Corp of Sheboygan, Inc. transaction.

The tables below present the changes in the allowance for loan and lease losses during the three and nine months ended September 30, 2015 and 2014, in thousands:



ANALYSIS OF ALLOWANCE FOR LOAN AND LEASE LOSSES	Three Months Ended September 30,
	2015			2014
Balance at beginning of period	$	45,614		$	40,892
Provision for loan and lease losses	3,181			2,553
Recoveries on loans and leases previously charged off	749			894
Recoveries on loans and leases covered by loss share agreements	—			8
Charge-offs on loans and leases not covered by loss share agreements	(2,439		)	(2,649		)
Charge-offs on loans and leases covered by loss share agreements	—			—
Balance at end of period	$	47,105		$	41,698
Annualized ratio of net charge offs to average loans and leases	0.14		%	0.18		%

	Nine Months Ended September 30,
	2015			2014
Balance at beginning of period	$	41,449		$	41,685
Provision for loan and lease losses	10,526			11,635
Recoveries on loans and leases previously charged off	2,307			3,022
Recoveries on loans and leases covered by loss share agreements	—			63
Charge-offs on loans and leases not covered by loss share agreements	(7,177		)	(14,658		)
Charge-offs on loans and leases covered by loss share agreements	—			(49		)
Balance at end of period	$	47,105		$	41,698
Annualized ratio of net charge offs to average loans and leases	0.15		%	0.42		%

The table below presents the amounts of nonperforming loans and leases and other nonperforming assets on the dates indicated, in thousands:



NONPERFORMING ASSETS	September 30,						December 31,
	2015			2014			2014			2013
Not covered under loss share agreements:
Nonaccrual loans and leases	$	32,577		$	30,130		$	25,070		$	42,394
Loan and leases contractually past due 90 days or more	1,181			—			—			24
Total nonperforming loans and leases	33,758			30,130			25,070			42,418
Other real estate	17,041			19,873			19,016			29,794
Other repossessed assets	626			506			445			397
Total nonperforming assets not covered under loss share agreements	$	51,425		$	50,509		$	44,531		$	72,609
Covered under loss share agreements:
Nonaccrual loans and leases	$	—		$	297		$	278		$	783
Total nonperforming loans and leases	—			297			278			783
Other real estate	—			602			—			58
Total nonperforming assets covered under loss share agreements	$	—		$	899		$	278		$	841
Performing troubled debt restructured loans ⁽¹⁾	$	10,154		$	11,994		$	12,133		$	19,353
Nonperforming loans and leases not covered under loss share agreements to total loans and leases	0.73		%	0.79		%	0.65		%	1.21		%
Nonperforming assets not covered under loss share agreements to total loans and leases plus repossessed property	1.10		%	1.32		%	1.14		%	2.06		%
Nonperforming assets not covered under loss share agreements to total assets	0.76		%	0.85		%	0.74		%	1.23		%

(1) Represents accruing troubled debt restructured loans performing according to their restructured terms.

The schedule below summarizes the changes in Heartland's nonperforming assets, including those covered by loss share agreements, during the third quarter of 2015 and the first nine months of 2015, in thousands:



	Nonperforming Loans			Other Real Estate Owned			Other Repossessed Assets			Total Nonperforming Assets
June 30, 2015	$	26,710		$	16,983		$	544		$	44,237
Loan foreclosures	(1,160		)	1,160			—			—
Net loan charge-offs	(1,690		)	—			—			(1,690		)
Acquired nonperforming assets	4,660			645			23			5,328
New nonperforming loans	7,996			—			—			7,996
Reduction of nonperforming loans ⁽¹⁾	(2,758		)	—			—			(2,758		)
OREO/Repossessed assets sales proceeds	—			(991		)	(83		)	(1,074		)
OREO/Repossessed assets writedowns, net	—			(756		)	—			(756		)
Net activity at Citizens Finance Co.	—			—			142			142
September 30, 2015	$	33,758		$	17,041		$	626		$	51,425

(1) Includes principal reductions and transfers to performing status.

	Nonperforming Loans			Other Real Estate Owned			Other Repossessed Assets			Total Nonperforming Assets
December 31, 2014	$	25,348		$	19,016		$	445		$	44,809
Loan foreclosures	(5,206		)	5,123			83			—
Net loan charge-offs	(4,870		)	—			—			(4,870		)
Acquired nonperforming assets	10,415			991			23			11,429
New nonperforming loans	16,731			—			—			16,731
Reduction of nonperforming loans ⁽¹⁾	(8,660		)	—			—			(8,660		)
OREO/Repossessed assets sales proceeds	—			(6,477		)	(111		)	(6,588		)
OREO/Repossessed assets writedowns, net	—			(1,612		)	(28		)	(1,640		)
Net activity at Citizens Finance Co.	—			—			214			214
September 30, 2015	$	33,758		$	17,041		$	626		$	51,425

(1) Includes principal reductions and transfers to performing status.

Securities

The composition of Heartland's securities portfolio is managed to maximize the return on the portfolio while considering the impact it has on Heartland's asset/liability position and liquidity needs. Securities declined to 23% of total assets at September 30, 2015, compared to 28% at year-end 2014. Total available for sa le securities as of September 30, 2015, were $1.26 billion, a decrease of $140.2 million or 10% from $1.40 billion at December 31, 2014.

The table below presents the composition of the securities portfolio, including trading, available for sale and held to maturity, by major category, as of September 30, 2015, and December 31, 2014, in thousands:



SECURITIES PORTFOLIO COMPOSITION	September 30, 2015				December 31, 2014
	Amount		Percent		Amount		Percent
U.S. government corporations and agencies	$	27,020	1.73	%	$	24,093	1.41	%
Mortgage-backed securities	1,011,831		64.73		1,225,000		71.77
Obligation of states and political subdivisions	491,269		31.43		432,279		25.32
Corporate debt securities	580		0.04		—		—
Equity securities	13,187		0.84		5,083		0.30
Other securities	19,292		1.23		20,498		1.20
Total securities	$	1,563,179	100.00	%	$	1,706,953	100.00	%

The percentage of Heartland's securities portfolio comprised of mortgage-backed securities was 65% at September 30, 2015, and 72% at December 31, 2014. Approximately 80% of Heartland's mortgage-backed securities were issuances of government-sponsored enterprises at September 30, 2015. Heartland's securities portfolio had an expected duration of 3.78 years as of September 30, 2015, compared to 4.07 years at year-end 2014. The available for sale securities portfolio had an expected duration of 3.35 years as of September 30, 2015, compared to 2.52 years as of December 31, 2014.

The Volcker Rule prohibits insured depository institutions and their holding companies from engaging in proprietary trading except in limited circumstances, and prohibits them from owning equity interests in excess of 3% of Tier 1 Capital in private equity and hedge funds. The Volcker Rule will not have a material impact on Heartland’s investment securities portfolio.

At September 30, 2015, Heartland had $19.3 million of other securities, including capital stock in the various Federal Home Loan Banks of which its bank subsidiaries are members and all of which were classified as other securities held at cost.

Deposits And Borrowed Funds

Total deposits were $5.51 billion as of September 30, 2015, compared to $4.77 billion at year-end 2014, an increase of $739.2 million or 16%, with $647.2 million attributable to the acquisitions completed during 2015. Exclusive of these acquisitions, total deposits increased $91.9 million or 3% annualized since year-end 2014. Demand deposits totaled $1.63 billion at September 30, 2015, an increase of $336.8 million or 26% since year-end 2014, with $145.5 million attributable to the acquisitions. Included in deposit growth during the first nine months of 2015 was an $88.1 million increase in brokered time deposits, the majority of which were issued to replace higher cost long-term FHLB advances and wholesale repurchase agreements that matured during the first six months of 2015.

Short-term borrowings generally include federal funds purchased, securities sold under agreements to repurchase, short-term FHLB advances and discount window borrowings from the Federal Reserve Bank. These funding alternatives are utilized in varying degrees depending on their pricing and availability. All of Heartland's bank subsidiaries own FHLB stock in either the Chicago, Dallas, Des Moines, San Francisco or Topeka FHLB, enabling them to borrow funds from their respective FHLB for short- or long-term purposes under a variety of programs. The amount of short-term borrowings was $335.8 million at September 30, 2015, compared to $330.3 million at year-end 2014. Short-term FHLB advances of $82.1 million were included in short-term borrowings at September 30, 2015, in comparison with $76.0 million at December 31, 2014.

All of the Heartland bank subsidiaries provide retail repurchase agreements to their customers as a cash management tool, sweeping excess funds from demand deposit accounts into these agreements. This source of funding does not increase the bank's reserve requirements. Although the aggregate balance of these retail repurchase agreements is subject to variation, the account relationships represented by these balances are principally local. The balances of retail repurchase agreements were $224.0 million at September 30, 2015, compared to $240.2 million at December 31, 2014.

Also included in short-term borrowings is the revolving credit line Heartland has with an unaffiliated bank, primarily to provide liquidity to Heartland. There was no balance outstanding on Heartland's revolving credit line at both September 30, 2015, and December 31, 2014. This credit agreement contains specific covenants, with which Heartland was in compliance on September 30, 2015.

Other borrowings include all debt arrangements Heartland and its subsidiaries have entered into with original maturities that extend beyond one year, including long-term FHLB borrowings, term borrowings under term notes, subordinated notes and

senior notes, and obligations under trust preferred capital securities. As of September 30, 2015, the amount of other borrowings was $302.1 million, a decrease of $93.6 million or 24% since year-end 2014.

Long-term FHLB borrowings with an original term beyond one year totaled $42.3 million at September 30, 2015, compared to $109.7 million at December 31, 2014, a decrease of $67.4 million or 61%. Total long-term FHLB borrowings at September 30, 2015, had an average rate of 0.81% and an average maturity of 2.04 years. Structured wholesale repurchase agreements totaled $30.0 million at September 30, 2015, and $45.0 million at December 31, 2014.

The outstanding balance on Heartland's amortizing term loan with an unaffiliated bank was $9.3 million at September 30, 2015, compared to $10.4 million at December 31, 2014. Heartland also had senior notes totaling $29.5 million and subordinated notes totaling $74.0 million outstanding at both September 30, 2015, and December 31, 2014.

On March 31, 2015, $20.0 million of 8.25% trust preferred securities were redeemed with no early redemption penalties. A schedule of Heartland's trust preferred securities outstanding as of September 30, 2015, is as follows, in thousands:

Amount

Issued

Issuance

Date

Interest

Rate

Interest

Rate as of

9/30/15 ⁽¹⁾

Maturity

Date

Callable

Date

Heartland Financial Statutory Trust IV

25,774

03/17/2004

2.75% over LIBOR

3.08% ⁽²⁾

03/17/2034

12/17/2015

Heartland Financial Statutory Trust V

20,619

01/27/2006

1.33% over LIBOR

1.62% ⁽³⁾

04/07/2036

01/07/2016

Heartland Financial Statutory Trust VI

20,619

06/21/2007

6.75%

6.75% ⁽⁴⁾

09/15/2037

12/15/2015

Heartland Financial Statutory Trust VII

20,619

06/26/2007

1.48% over LIBOR

1.81% ⁽⁵⁾

09/01/2037

12/01/2015

Morrill Statutory Trust I

8,688

12/19/2002

3.25% over LIBOR

3.58% ⁽⁶⁾

12/26/2032

12/26/2015

Morrill Statutory Trust II

8,281

12/17/2003

2.85% over LIBOR

3.18% ⁽⁷⁾

12/17/2033

12/17/2015

Sheboygan Statutory Trust I

6,155

9/17/2003

2.95% over LIBOR

3.29%

09/17/2033

12/17/2015

CBNM Capital Trust I

4,193

9/10/2004

3.25% over LIBOR

3.59%

12/15/2034

12/15/2015

114,948

(1) Effective weighted average interest rate as of September 30, 2015, was 4.97% due to interest rate swap transactions on the variable rate securities as discussed in Note 7 to Heartland's consolidated financial statements.

(2) Effective interest rate as of September 30, 2015, was 5.00% due to an interest rate swap transaction as discussed in Note 7 to Heartland's consolidated financial statements.

(3) Effective interest rate as of September 30, 2015, was 4.69% due to an interest rate swap transaction as discussed in Note 7 to Heartland's consolidated financial statements.

(4) Interest rate is fixed at 6.75% through June 15, 2017, then resets to 1.48% over LIBOR for the remainder of the term.

(5) Effective interest rate as of September 30, 2015, was 4.70% due to an interest rate swap transaction as discussed in Note 7 to Heartland's consolidated financial statements.

(6) Effective interest rate as of September 30, 2015, was 4.92% due to an interest rate swap transaction as discussed in Note 7 to Heartland's consolidated financial statements.

(7) Effective interest rate as of September 30, 2015, was 4.51% due to an interest rate swap transaction as discussed in Note 7 to Heartland's consolidated financial statements.

CAPITAL REQUIREMENTS

Bank regulatory agencies have adopted capital standards by which all bank holding companies will be evaluated, including requirements to maintain certain core capital amounts included as Tier 1 capital at minimum levels relative to total assets (the “Tier 1 Leverage Capital Ratio”) and at minimum levels relative to “risk-weighted assets” which is calculated by assigning value to assets, and off balance sheet commitments, based on their risk characteristics (the “Tier 1 Risk-Based Capital Ratio”), and to maintain total capital at minimum levels relative to risk-weighted assets (the “Total Risk-Based Capital Ratio”). Starting in 2015, bank holding companies are subject to a new Common Equity Tier 1 Capital Ratio, an increased Tier 1 Leverage Capital Ratio and an increased Tier 1 Risk-Based Capital Ratio under the Basel III rules and are required to include in Common Equity Tier 1 capital the effects of other comprehensive income adjustments, such as gains and losses on securities held to maturity, that are currently excluded from the definition of Tier 1 capital, but are allowed to make a one-time election not to include those effects. Heartland and its bank subsidiaries have been, and will continue to be, managed so they meet the well-capitalized requirements under the regulatory framework for prompt corrective action and have made the one-time election to exclude the effects of other comprehensive income adjustments on their Tier 1 capital. Under the Basel III rules, the requirements to be categorized as well-capitalized changed from 4% to 5% for the Tier 1 Leverage Capital Ratio, from 6% to 8% for the Tier 1 Risk-Based Capital Ratio and remained at 10% for the Total Risk-Based Capital Ratio. The most recent notification from the FDIC categorized Heartland and each of its bank subsidiaries as well capitalized under the regulatory framework for prompt corrective action, and Heartland and its bank subsidiaries would have continued to be well capitalized

had the Basel III rules been effective for the period covered by such notification. There are no conditions or events since that notification that management believes have changed each institution's category.

Heartland's capital ratios were as follows for the dates indicated, in thousands:



CAPITAL RATIOS	September 30, 2015				December 31, 2014
	Amount		Ratio		Amount		Ratio
Risk-Based Capital Ratios:
Tier 1 capital	$	644,738	11.50	%	$	578,564	12.95	%
Tier 1 capital minimum requirement ⁽¹⁾	336,482		6.00	%	178,757		4.00	%
Excess	$	308,256	5.50	%	$	399,807	8.95	%

Total capital	$	771,614	13.76	%	$	703,032	15.73	%
Total capital minimum requirement	448,642		8.00	%	357,513		8.00	%
Excess	$	322,972	5.76	%	$	345,519	7.73	%

Tier 1 common equity	$	448,193	7.99	%
Tier 1 common equity minimum requirement	$	252,361	4.50	%
Excess	$	195,832	3.49	%

Total risk-adjusted assets	$	5,608,025			$	4,468,914

Leverage Capital Ratios
Tier 1 capital	$	644,738	9.67	%	$	578,564	9.75	%
Tier 1 capital minimum requirement ⁽²⁾	266,672		4.00	%	237,316		4.00	%
Excess	$	378,066	5.67	%	$	341,248	5.75	%

Average adjusted assets (less goodwill and other intangible assets)	$	6,666,809			$	5,932,898

(1) Under Basel III, the minimum requirement for this measure was changed from 4.00% to 6.00%.
(2) Under Basel III, the minimum requirement for this measure was changed from 3.00% for the most highly-rated banks and 4.00% for all others, to 4.00% for all banks.

Heartland filed a universal shelf registration statement with the Securities and Exchange Commission on August 28, 2013, which became effective on September 9, 2013, to register up to $75.0 million in securities. The shelf registration statement provides Heartland with increased flexibility to raise capital, subject to Securities and Exchange Commission rules and limitations, if Heartland’s board of directors decides to do so.

Common stockholders' equity was $509.3 million at September 30, 2015, compared to $414.6 million at December 31, 2014. Book value per common share was $24.68 at September 30, 2015, compared to $22.40 at year-end 2014. Changes in common stockholders' equity and book value per common share are the result of earnings, dividends paid, stock transactions and mark-to-market adjustment for unrealized gains and losses on securities available for sale. Heartland's unrealized gains on securities available for sale, net of applicable taxes, were $4.6 million at September 30, 2015, compared to $3.6 million at December 31, 2014.

COMMITMENTS AND CONTRACTUAL OBLIGATIONS

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit and financial guarantees written are conditional commitments issued by the Heartland banks to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. At September 30, 2015, and December 31, 2014,

commitments to extend credit aggregated $1.56 billion and $1.42 billion, and standby letters of credit aggregated $51.5 million and $38.9 million, respectively.

Contractual obligations and other commitments were presented in Heartland's Annual Report on Form 10-K for the year ended December 31, 2014. Except for the commitments with respect to acquisitions discussed below, there have been no other material changes in Heartland's contractual obligations and other commitments since that report was filed.

On May 28, 2015, Heartland entered into a merger agreement with Premier Valley Bank, a community bank based in Fresno, California. Under the terms of the agreement, Premier Valley will become a wholly-owned subsidiary of Heartland and continue to operate under its present name and management team as Heartland's tenth state-chartered bank. Subject to adjustment for a minimum tangible equity threshold, Premier Valley shareholders will receive approximately $95.0 million or $7.73 per share of Premier Valley common stock in the merger, and may elect to receive this payment in shares of Heartland common stock or in cash, subject to proration so that 70% of the total payment is in Heartland common stock and 30% in cash. The transaction is expected to close during the fourth quarter of 2015.

On October 22, 2015, Heartland entered into a merger agreement with CIC Bancshares, Inc., parent company of Centennial Bank, headquartered in Denver, Colorado. The agreement provides that, subject to regulatory approvals and approval by CIC Bancshares, Inc. shareholders, CIC Bancshares, Inc. will merge with and into Heartland, the holders of CIC Bancshares Inc. common stock will receive consideration in the form of 20 percent cash and 80 percent Heartland common stock, Heartland will issue a new series of convertible preferred stock to holders of CIC Bancshares, Inc. convertible preferred stock, and Heartland will assume the obligations under CIC Bancshares, Inc. convertible notes, including the obligation to issue its common stock upon conversion of the notes. Heartland will pay an aggregate of approximately $83.5 million to holders of CIC Bancshares, Inc. common stock, convertible preferred stock and convertible notes. Upon closing of the transaction, Centennial Bank will merge with Heartland’s Summit Bank & Trust subsidiary and continue operations under the Centennial Bank name. The transaction is expected to close during the first quarter of 2016.

Heartland continues to explore opportunities to expand its footprint of independent community banks through acquisitions. Although attention is focused on existing and adjacent markets, where there would be an opportunity to grow market share, achieve efficiencies and provide greater convenience for existing customers, acquisitions in new growth markets are also considered if they fit Heartland's business model and would provide a sufficient return on investment to be accretive to earnings within the first year of integration. Future expenditures relating to expansion efforts, in addition to those identified above are not estimable at this time.

On a consolidated basis, Heartland maintains a large balance of short-term securities that, when combined with cash from operations, management believes are adequate to meet Heartland's funding obligations.

At the parent company level, routine funding requirements consist primarily of dividends paid to stockholders, including the U.S. Treasury, which holds Heartland Series C Fixed Rate Non-Cumulative Perpetual preferred stock, debt service on revolving credit arrangements, subordinated debt and trust preferred securities issuances, debt repayment obligations under other obligations and payments for acquisitions. The parent company obtains the funding to meet these obligations from dividends collected from its subsidiaries and the issuance of debt securities. Heartland believes that the regulatory permissible dividends from its subsidiary banks are adequate to meet these funding obligations for the next 12 months and maintains a revolving credit agreement with an unaffiliated bank that provides a maximum borrowing capacity of $20.0 million, of which none has been used during the past 12 months. The credit agreement contains specific financial covenants, all of which Heartland was in compliance with as of September 30, 2015.

LIQUIDITY

Liquidity refers to Heartland's ability to maintain cash flow that is adequate to meet maturing obligations and existing commitments, to withstand fluctuations in deposit levels, to fund operations and to provide for customers' credit needs. The liquidity of Heartland principally depends on cash flows from operating activities, investment in and maturity of assets, changes in balances of deposits and borrowings and its ability to borrow funds in the money or capital markets.

Operating activities provided $53.6 million of cash during the first nine months of 2015 compared to $29.1 million during the first nine months of 2014, with a majority of the change resulting from higher net income during the first nine months of 2015. Securities gains, net, totaled $9.2 million during the first nine months of 2015 compared to $2.5 million during the first nine months of 2014. L oans originated for sale and the proceeds on sales of loans held for sale used cash of $31.3 million during the first nine months of 2015 compared to $46.4 million during the first nine months of 2014.

Investing activities provided cash of $3.9 million during the first nine months of 2015 compared to using cash of $64.7 million during the first nine months of 2014. Cash used for the purchase of securities and other investments totaled $784.5 million during the first nine months of 2015 compared to $573.2 million during the first nine months of 2014. The proceeds from sales of securities sales, paydowns and maturities were $1.02 billion during the first nine months of 2015 compared to $817.1 million during the first nine months of 2014. The net change in loans and leases used cash of $225.4 million during the first nine months of 2015 compared to $317.6 million during the first nine months of 2014.

Financing activities used cash of $40.3 million during the first nine months of 2015 compared to $21.8 million during the first nine months of 2014. The net increase in demand and savings deposits provided cash of $118.3 million during the first nine months of 2015 compared to $100.5 million during the first nine months of 2014. The net decrease in time deposits used cash of $26.3 million during the first nine months of 2015 compared to $40.2 million during the first nine months of 2014. Activity in short-term borrowings, including short-term FHLB advances, used cash of $19.8 million during the first nine months of 2015 compared to $60.5 million during the first nine months of 2014. Proceeds from other borrowings provided cash of $29.0 million during the first nine months of 2015 compared to $5.0 million during the first nine months of 2014 while repayment of other borrowings used cash of $134.8 million during the first nine months of 2015 compared to $20.6 million during the first nine months of 2014.

Management of investing and financing activities, and market conditions, determine the level and the stability of net interest cash flows. Management attempts to mitigate the impact of changes in market interest rates to the extent possible, so that balance sheet growth is the principal determinant of growth in net interest cash flows.

Heartland's short-term borrowing balances are dependent on commercial cash management and smaller correspondent bank relationships and, as such, will normally fluctuate. Management believes these balances, on average, to be stable sources of funds; however, management intends to rely on deposit growth and additional FHLB borrowings in the future.

In the event of short-term liquidity needs, Heartland's bank subsidiaries may purchase federal funds from each other or from correspondent banks and may also borrow from the Federal Reserve Bank. Additionally, the bank subsidiaries’ FHLB memberships give them the ability to borrow funds for short- and long-term purposes under a variety of programs.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in market prices and rates. Heartland's market risk is comprised primarily of interest rate risk resulting from its core banking activities of lending and deposit gathering. Interest rate risk measures the impact on earnings from changes in interest rates and the effect on current fair market values of Heartland's assets, liabilities and off-balance sheet contracts. The objective is to measure this risk and manage the balance sheet to avoid unacceptable potential for economic loss.

Management continually develops and applies strategies to mitigate market risk. Exposure to market risk is reviewed on a regular basis by the asset/liability committees of the banks and, on a consolidated basis, by Heartland's executive management and board of directors. Darling Consulting Group, Inc. has been engaged to provide asset/liability management position assessment and strategy formulation services to Heartland and its bank subsidiaries. At least quarterly, a detailed review of the balance sheet risk profile is performed for Heartland and each of its bank subsidiaries. Included in these reviews are interest rate sensitivity analyses, which simulate changes in net interest income in response to various interest rate scenarios. These analyses consider current portfolio rates, existing maturities, repricing opportunities and market interest rates, in addition to prepayments and growth under different interest rate assumptions. Selected strategies are modeled prior to implementation to determine their effect on Heartland's interest rate risk profile and net interest income. Heartland believes its net interest income simulations reflect a well-balanced and manageable interest rate posture, and primary market risk exposures have not changed significantly in the first nine months of 2015.

The core interest rate risk analysis utilized by Heartland examines the balance sheet under increasing and decreasing interest scenarios that are neither too modest nor too extreme. All rate changes are ramped over a 12-month horizon based upon a parallel shift in the yield curve and then maintained at those levels over the remainder of the simulation horizon. Using this approach, management is able to see the effect that both a gradual change of rates (year 1) and a rate shock (year 2 and beyond) could have on Heartland's net interest income. Starting balances in the model reflect actual balances on the “as of” date, adjusted for material and significant transactions. Pro-forma balances remain static. This enables interest rate risk embedded within the existing balance sheet structure to be isolated from the interest rate risk often caused by growth in assets and liabilities. Due to the low interest rate environment, the simulations under a decreasing interest rate scenario were prepared using a 100 basis point shift in rates. The most recent reviews at September 30, 2015, and September 30, 2014, provided the

following results, in thousands:



	2015				2014
	Net Interest Margin		% Change From Base		Net Interest Margin		% Change From Base
Year 1
Down 100 Basis Points	$	226,876	(2.16	)%	$	182,980	(0.65	)%
Base	$	231,874			$	184,171
Up 200 Basis Points	$	228,740	(1.35	)%	$	189,081	2.67	%
Year 2
Down 100 Basis Points	$	217,114	(6.37	)%	$	177,377	(3.69	)%
Base	$	232,015	0.06	%	$	184,924	0.41	%
Up 200 Basis Points	$	236,464	1.98	%	$	201,276	9.29	%

Heartland uses derivative financial instruments to manage the impact of changes in interest rates on its future interest income or interest expense. Heartland is exposed to credit-related losses in the event of nonperformance by the counterparties to these derivative instruments, but believes it has minimized the risk of these losses by entering into the contracts with large, stable financial institutions. The estimated fair market values of these derivative instruments are presented in Note 7 to the consolidated financial statements.

Heartland enters into financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates and may require collateral from the borrower. Standby letters of credit are conditional commitments issued by Heartland to guarantee the performance of a customer to a third party up to a stated amount and with specified terms and conditions. These commitments to extend credit and standby letters of credit are not recorded on the balance sheet until the instrument is exercised.

Heartland periodically holds a securities trading portfolio that would also be subject to elements of market risk. These securities are carried on the balance sheet at fair value. At both September 30, 2015, and December 31, 2014, Heartland held no securities in its securities trading portfolio.

ITEM 4. CONTROLS AND PROCEDURES

Under the direction of our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2015. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.

There were no significant changes to Heartland's disclosure controls or internal controls over financial reporting during th e quarter ended September 30, 2015 , that have materially affected or are reasonably likely to materially affect Heartland's internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

There are no material pending legal proceedings to which Heartland or its subsidiaries are a party other than ordinary routine litigation incidental to their respective businesses. While the ultimate outcome of current legal proceedings cannot be predicted with certainty, it is the opinion of management that the resolution of these legal actions should not have a material effect on Heartland's consolidated financial position or results of operations.

ITEM 1A. RISK FACTORS

There have been no material changes in the risk factors applicable to Heartland from those disclosed in Part I, Item 1A. “Risk Factors” in Heartland's 2014 Annual Report on Form 10-K. Please refer to that section of Heartland's Form 10-K for disclosures regarding the risks and uncertainties related to Heartland's business.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Heartland's board of directors has authorized management to acquire and hold up to 500,000 shares of common stock as treasury shares at any one time. Heartland and its affiliated purchasers made no purchases of its common stock during the nine months ended September 30, 2015.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibits



3.1		Amendment to Certificate of Incorporation of Heartland Financial USA, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q filed on August 6, 2015).
10.1		Agreement and Plan of Merger among Heartland Financial USA, Inc., Premier Valley Bank and, following its organization, PV Acquisition Bank dated May 28, 2015 (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed on May 29, 2015).
10.2		Promissory Note between Heartland Financial USA, Inc. and Bankers Trust Company dated June 14, 2015 (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q filed on August 6, 2015).
10.3	⁽¹⁾	Merger Agreement among Heartland Financial USA, Inc., CIC Bancshares, Inc. and Kevin W. Ahern, as Securityholders' Representative dated October 22, 2015.
31.1	⁽¹⁾	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).
31.2	⁽¹⁾	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).
32.1	⁽¹⁾	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	⁽¹⁾	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	⁽¹⁾	Financial statement 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.

(1) Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized.

HEARTLAND FINANCIAL USA, INC.

(Registrant)

Principal Executive Officer

/s/ Lynn B. Fuller

By: Lynn B. Fuller

Chairman and Chief Executive Officer

Principal Financial and Accounting Officer

/s/ Bryan R. McKeag

By: Bryan R. McKeag

Executive Vice President and Chief Financial Officer

Dated: November 6, 2015

MERGER AGREEMENT

DATED OCTOBER 22, 2015

BY AND AMONG

HEARTLAND FINANCIAL USA, INC.,

CIC BANCSHARES, INC.

AND

KEVIN W. AHERN, AS SECURITY HOLDERS’ REPRESENTATIVE

TABLE OF CONTENTS



	Page
MERGER AGREEMENT	1

ARTICLE 1 DEFINITIONS	2

ARTICLE 2 MERGER	11

2.1 The Merger	11
2.2 Effect of Merger	11
2.3 Conversion of CIC Capital Stock	12
2.4 Adjustments to Heartland Common Stock	12
2.5 Rights of Holders of CIC Capital Stock; Capital Stock of Heartland	13
2.6 Payment and Exchange of Certificates	13
2.7 Dissenting Shares	14
2.8 The Closing	15
2.9 Scheduled Payments	16
2.10 Tax-Free Reorganization	18

ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF HEARTLAND	19

3.1 Organization and Qualification	19
3.2 Authority Relative to this Agreement; Non-Contravention	19
3.3 Validity of Heartland Capital Stock	20
3.4 Capital Stock	20
3.5 Exchange Act Reports	21
3.6 No Material Adverse Changes	21
3.7 Reports and Filings; Compliance with Laws	21
3.8 Regulatory Approvals	22
3.9 Certain Tax Matters	22
3.10 Litigation	22
3.11 Financial Ability	22

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER	22

4.1 Organization and Qualification	22
4.2 Authority Relative to this Agreement; Non-Contraventio	23
4.3 Capitalization	23
4.4 Financial Statements	24
4.5 Absence of Undisclosed Liabilities	25
4.6 Loans	25
4.7 Reports and Filings	26
4.8 Subsidiaries	26
4.9 Books and Records	26
4.10 No Material Adverse Changes	27
4.11 Absence of Certain Developments	27



4.12 Properties	28
4.13 Environmental Matters	29
4.14 Tax Matters	31
4.15 Contracts and Commitments	35
4.16 Litigation	36
4.17 No Brokers or Finders	36
4.18 Employees	36
4.19 Employee Benefit Plans	38
4.20 Insurance	42
4.21 Affiliate Transactions	42
4.22 Compliance with Laws; Permits	42
4.23 Administration of Fiduciary Accounts	42
4.24 Interest Rate Risk Management Instruments	43
4.25 Regulatory Approvals	43
4.26 Disclosure	43

ARTICLE 5 CONDUCT OF BUSINESS PENDING THE MERGER	43

5.1 Conduct of Business	43
5.2 Access to Information; Confidentiality	46
5.3 Notice of Developments	47
5.4 Certain Loans and Related Matters	47
5.5 Monthly Financial Statements and Pay Listings	47
5.6 Consents and Authorizations	47
5.7 Filing of Tax Returns and Adjustments	47
5.8 No Solicitation	48

ARTICLE 6 ADDITIONAL COVENANTS AND AGREEMENTS	49

6.1 The Bank Merger	49
6.2 Filings and Regulatory Approvals	50
6.3 Expenses	50
6.4 Title Insurance and Surveys	50
6.5 Shareholder Approval; Registration Statement	51
6.6 Establishment of Accruals	53
6.7 Employee Matters	54
6.8 Tax Treatment	55
6.9 Updated Schedules	55
6.10 Indemnification; Directors’ and Officers’ Insurance	55
6.11 Notice of Developments by Heartland	56
6.12 Redemption of CIC Preferred Stock	57
6.13 Repayment of CIC Bank Loan	57
6.14 Assumption of CIC Convertible Notes and CIC Sub-Debt	57
6.15 Millennium Stragglers	57
6.16 Determination of Adjusted Tangible Equity	57



ARTICLE 7 CONDITIONS	58

7.1 Conditions to Obligations of Each Party	58
7.2 Additional Conditions to Obligation of CIC	59
7.3 Additional Conditions to Obligation of Heartland	60

ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER	61

8.1 Reasons for Termination	61
8.2 Effect of Termination	63
8.3 Expenses	63
8.4 CIC Termination Payments	64
8.5 Amendment	64
8.6 Waiver	64

ARTICLE 9 GENERAL PROVISIONS	64

9.1 Press Releases and Announcements	64
9.2 Notices	64
9.3 Assignment	66
9.4 No Third Party Beneficiaries	66
9.5 Schedules	66
9.6 Interpretation	66
9.7 Severability	67
9.8 Complete Agreement	67
9.9 Governing Law	67
9.10 Specific Performance	67
9.11 Waiver of Jury Trial	67
9.12 Investigation of Representations, Warranties and Covenants	68
9.13 No Survival of Representations	68
9.14 Securityholders’ Representative	68

SIGNATURES	69

MERGER AGREEMENT

This MERGER AGREEMENT (this “ Agreement ”), dated October 22, 2015, is made and entered into by and among Heartland Financial USA, Inc., a Delaware corporation (“ Heartland ”), CIC Bancshares, Inc., a Colorado corporation (“ CIC ”), and Kevin W. Ahern, as Securityholders’ Representative (the “ Securityholders’ Representative ”).

WHEREAS , the respective Boards of Directors of Heartland and CIC have determined that it is advisable and in the best interests of Heartland and CIC and their respective shareholders to consummate the merger of CIC with and into Heartland as described in Article 2 of this Agreement (the “ Merger ”);

WHEREAS , as a result of the Merger, (a) the outstanding shares of Class A Common Stock, no par value, of CIC (“ CIC Class A Common Stock ”) will be converted into a combination of cash and shares of Common Stock, $1.00 par value, of Heartland (“ Heartland Common Stock ”), and (b) the outstanding shares of 7% Senior Non-Cumulative Perpetual Convertible Preferred Stock, Series B, of CIC (“ CIC Series B Preferred Stock ”) will be converted into 7% Senior Non-Cumulative Perpetual Convertible Preferred Stock, Series D, of Heartland (which will have the preferences, limitations and rights set forth in the form of Certificate of Designation attached hereto as Exhibit A) (“ Heartland Series D Preferred Stock ”), on the terms and subject to the conditions set forth in this Agreement;

WHEREAS , immediately prior to consummation of the Merger, the outstanding shares of Class B Common Stock, no par value, of CIC (the “ CIC Class B Common Stock ”) will automatically be converted into shares of CIC Class A Common Stock;

WHEREAS , CIC owns all of the issued and outstanding capital stock of Centennial Bank, a Colorado state banking corporation and member of the Federal Reserve System (“ Centennial ”), and Heartland owns all of the issued and outstanding capital stock of Summit Bank & Trust, a Colorado state banking corporation (“ Summit ”), and Heartland and CIC desire that Centennial be merged with and into Summit simultaneously with, or immediately after, the Merger (the “ Bank Merger ”);

WHEREAS , as an inducement to Heartland to enter into this Agreement, certain holders of CIC Class A Common Stock, CIC Class B Common Stock and CIC Series B Preferred Stock have entered into a Shareholder Voting Agreement in the form attached hereto as Exhibit B pursuant to which each such holder has agreed to vote in favor of the Merger and all other transactions contemplated by this Agreement; and

WHEREAS , Heartland and CIC desire that the Merger be made on the terms and subject to the conditions set forth in this Agreement and that the Merger qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “ Code ”).

NOW, THEREFORE , in consideration of the representations, warranties and covenants contained herein, the parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

“ Adjusted Tangible Equity ” means (a) CIC’s consolidated shareholders’ common equity, as of the Determination Date; plus (b) the sum of (i) the equity attributable, on an As-Converted Basis, to the CIC Series B Preferred Stock; (ii) the equity attributable, on an As-Converted Basis, to the CIC Convertible Notes; and (iii) the Transaction Costs; and minus (c) the sum of (i) the book value of intangible assets (except that capitalized servicing rights shall be considered a tangible asset for purpose of determining Adjusted Tangible Equity); (ii) accumulated other comprehensive income (loss), each as determined in accordance with GAAP and adjusted to reflect a reasonable projection of operations through Closing, and (iii) the amount of a provision (on an after-Tax basis), if any, that would be required to increase Centennial’s allowance for loan and lease losses on all loans and leases (other than the Scheduled Lease Agreements and the Mutual of Omaha Loans) to 1.25% (including all accretable purchase discounts applicable to such loans and leases) of the gross carrying value (before such allowance) of such loans and leases, and to increase the allowance for loan and lease losses on the Mutual of Omaha Loans to at least 0.30% (including all accretable purchase discounts applicable to such loans and leases) of the gross carrying value of the Mutual of Omaha Loans. For such purposes, a “reasonable projection of operations” shall be based upon the average monthly operations of CIC for the period from January 1 through the Determination Date.

“ Acquisition Proposal ” means any offer, proposal, inquiry or indication of interest (other than an offer, proposal, inquiry or indication of interest by Heartland) contemplating or otherwise relating to any Acquisition Transaction.

“ Acquisition Transaction ” means any transaction or series of transactions involving (a) any merger, consolidation, share exchange, business combination, issuance of securities, acquisition of securities, tender offer, exchange offer or other similar transaction (i) in which CIC or Centennial is a constituent corporation, (ii) in which a Person or “group” (as defined in the Exchange Act and the rules promulgated thereunder) of Persons directly or indirectly acquires beneficial or record ownership of securities representing more than 15% of the outstanding securities of any class of voting securities of CIC or Centennial or (iii) in which CIC or Centennial issues or sells securities representing more than 20% of the outstanding securities of any class of voting securities of CIC or Centennial; or (b) any sale (other than sales in the Ordinary Course of Business), lease (other than in the Ordinary Course of Business), exchange, transfer (other than in the Ordinary Course of Business), license (other than nonexclusive licenses in the Ordinary Course of Business), acquisition or disposition of any business or businesses or assets that constitute or account for 20% or more of the consolidated net revenues, net income or assets of CIC or Centennial.

“ Affiliate ” has the meaning set forth in Rule 12b‑2 under the Exchange Act.

“ Aggregate Merger Consideration ” means (a) $83,500,000; plus (b) the Warrant Exercise Proceeds, minus (c) the dollar amount, if any, by which Adjusted Tangible Equity is less than $55,000,000; and minus (d) the Net Book Value of the Scheduled Leases as of the Closing Date, as determined in accordance with Centennial’s books and records.

“ Aggregate Merger Consideration Per Share ” means the Aggregate Merger Consideration divided by the Fully Diluted Shares Outstanding.

“ As-Converted Basis ” means, with respect to the CIC Series B Preferred Stock, all shares of CIC Class A Common Stock that would be issuable upon a full conversion of all shares of CIC Series B Preferred Stock as of the Determination Date, and, with respect to the CIC Convertible Notes, all shares of CIC Class A Common Stock that would be issuable upon a full conversion of all CIC Convertible Notes as of the Determination Date.

“ Average Closing Price ” means (a) the sum, for each of the twenty (20) trading days ending on and including the fifth (5 ^th ) calendar day prior to the Closing Date, of the product of (i) the closing price of Heartland Common Stock as quoted on the Nasdaq Global Select Market for such trading day multiplied by, (ii) the trading volume of Heartland Common Stock reported on the Nasdaq Global Select Market for such trading day, divided by (b) the aggregate trading volume over such twenty (20) day period; provided , however , that (x) if the Average Closing Price as so determined is greater than $41.25, the Average Closing Price shall be deemed to be $41.25, and (y) if the Average Closing Price as so determined is less than the Minimum Closing Price, the Average Closing Price shall be deemed to be the Minimum Closing Price.

“ Average Determination Date Price ” means (a) the sum, for each of the twenty (20) trading days ending on and including the fifth (5 ^th ) calendar day prior to the Determination Date, of the product of (i) the closing price of Heartland Common Stock as quoted on the Nasdaq Global Select Market for such trading day multiplied by, (ii) the trading volume of Heartland Common Stock reported on the Nasdaq Global Select Market for such trading day, divided by (b) the aggregate trading volume over such twenty (20) day period.

“ Business Day ” means any day other than Saturday, Sunday or a day on which a state bank is required to be closed under Colorado Law.

“ Cash Merger Consideration for CIC Class A Common Stock ” means the product of the Common Share Cash Consideration Per Share and the CIC Class A Common Shares Outstanding.

“ Charter ” means (a) with respect to any corporation or banking association, those instruments that at that time constitute its charter as filed or recorded under the general corporation or other applicable Law of the jurisdiction of incorporation or association, including the articles or certificate of incorporation or association, any amendments thereto and any articles or certificates of merger or consolidation, and (b) with respect to any partnership, those agreements and instruments that at that time constitute the partnership agreement as filed or recorded under the partnership or other applicable Law of the jurisdiction of organization, or executed by the partners of such partnership, including any amendments thereto.

“ CIC Class A Common Shares Outstanding ” means, immediately before the Effective Time, the number of shares of CIC Class A Common Stock issued and outstanding after giving effect to the conversion of the shares of CIC Class B Common Stock into shares of Class A Common Stock.

“ CIC Convertible Notes ” means the outstanding 6.5% Subordinated Notes Due 2019 of CIC in the aggregate principal amount of $2,000,000.

“ CIC Securityholders ” means holders of the CIC Class A Common Stock, CIC Series B Preferred Stock, CIC Convertible Notes and CIC Warrants.

“ CIC Sub-Debt ” means the outstanding Subordinated Debentures of CIC bearing a fixed annual rate per annum of 8.0% and due 2023, in the aggregate principal amount of $5,829,600.

“ CIC Warrants ” means only those Stock Purchase Warrants of CIC outstanding as of the date of this Agreement, as set forth in Section 4.3, and that entitle the holders thereof to purchase an aggregate of 153,359 shares of CIC Class A Common Stock at an exercise price of $11.50 per share.

“ Code ” means the Internal Revenue Code of 1986, as amended.

“ Common Share Cash Consideration Per Share ” means twenty percent (20%) of the Aggregate Merger Consideration Per Share.

“ Common Share Stock Consideration Per Share ” means a number of shares of Heartland Common Stock equal to (a) eighty percent (80%) of the Aggregate Merger Consideration Per Share, divided by and (b) the Average Closing Price.

“ Consent ” means any authorization, consent, approval, filing, waiver, exemption or other action by or notice to any Person.

“ Contract ” means a contract, agreement, lease, commitment or binding understanding, whether oral or written, that is in effect as of the date of this Agreement or any time after the date of this Agreement.

“ Converted Common Shares ” means the shares of CIC Class A Common Stock that will be converted into Common Stock Consideration Per Share and Common Share Cash Consideration Per Share pursuant to Sections 2.3(a)(i).

“ Converted Shares ” means the shares of CIC Class A Common Stock and CIC Series B Preferred Stock that will be converted into Merger Consideration pursuant to Section 2.3(a).

“ Determination Date ” shall mean the last day of the month immediately preceding the month in which the Effective Time occurs.

“ Disclosure Schedules ” means the Schedules delivered by CIC to Heartland on or prior to the date of this Agreement, which will neither be attached to this Agreement nor publicly available.

“ Encumbrance ” means any charge, claim, community property interest, easement, covenant, condition, equitable interest, lien, option, pledge, security interest, right of first refusal or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

“ Fully Diluted Shares Outstanding ” means, as of the time immediately prior to the Effective Time, the number of shares of CIC Class A Common Stock outstanding assuming (i) the exercise of all CIC Warrants then outstanding, (ii) the conversion of CIC Class B Common Stock into CIC Class A Common Stock, (iii) the conversion of CIC Series B Preferred Stock into CIC Class A Common Stock, and (iv) the conversion of CIC Convertible Notes into CIC Class A Common Stock.

“ GAAP ” means generally accepted accounting principles in the United States applied on a consistent basis during the periods involved.

“ General Effects ” means (a) changes in banking laws of general applicability or interpretations thereof by Governmental Entities; (b) changes in GAAP or regulatory accounting requirements applicable to banks and bank holding companies generally; (c) changes in global, national or regional political conditions affecting other companies in the financial services industry; (d) any outbreak or escalation of hostilities, declared or undeclared acts of war or terrorism; and (e) actions or omissions of a party required by this Agreement; except to the extent that the effects of such changes in the foregoing clauses (a) through (d) disproportionately affect Heartland and its Subsidiaries or CIC and Centennial, as the case may be, as compared to other companies in the banking industry.

“ Governmental Authorization ” means any approval, consent, license, permit, waiver, registration or other authorization issued, granted, given, made available or otherwise required by any Governmental Entity or pursuant to applicable Law.

“ Governmental Entity ” means any federal, state, local, foreign, international or multinational entity or authority exercising executive, legislative, judicial, regulatory, administrative or taxing functions of or pertaining to government.

“ Governmental Order ” means any judgment, injunction, writ, order, ruling, award or decree by any Governmental Entity or arbitrator.

“ Knowledge of CIC ” or other similar phrase means the actual knowledge of a director or executive officer of CIC.

“ Law ” means any constitution, law, ordinance, principle of common law, regulation, statute or treaty of any Governmental Entity.

“ Liability ” means any liability or obligation whether accrued, absolute, contingent, unliquidated or otherwise, whether due or to become due, whether known or unknown, and regardless of when asserted.

“ Litigation ” means any claim, action, arbitration, mediation, audit, hearing, investigation, proceeding, litigation or suit (whether civil, criminal, administrative, investigative or informal) commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Entity or arbitrator or mediator.

“ Material Adverse Effect ” means any change, effect, event or condition, individually or in the aggregate, that has had, or, with the passage of time, could reasonably be expected to have, a material adverse effect on the business, assets, properties, financial condition, or results of operations of CIC and Centennial, taken as a whole, or Heartland and its Subsidiaries, taken as a whole, as the case may be.

“ Merger Consideration ” means the consideration into which shares of CIC Class A Common Stock and CIC Series B Preferred Stock and CIC Warrants will be converted pursuant to Section 2.3(a)(i), Section 2.3(a)(ii) and Section 2.3(d), respectively.

“ Millennium Agreement ” means the Amended and Restated Agreement and Plan of Merger dated as of March 19, 2012 among CIC, CIC Merger Sub, Inc. and Millennium Bancorp, Inc.

“ Millennium Stragglers ” means any former shareholders of Millennium Bancorp, Inc. who have not claimed CIC Class A Common Stock or received cash pursuant to the Millennium Agreement.

“ Minimum Closing Price ” means $30.49.

“ Mutual of Omaha Loans ” means loans or leases outstanding as of the Closing Date (i) made by Mutual of Omaha Bank and acquired by CIC on October 24, 2014, to the extent such loans were a part of the loan pool reviewed by FTN Financial in which FTN Financial confirmed in writing to Centennial that, at the time of such purchase, a credit related purchase accounting adjustment of not more than 0.30% of the gross carrying value of such loans and leases was sufficient with respect thereto; and (ii) made by Mutual of Omaha Bank and acquired by Centennial after the date hereof provided that, with respect to loans and leases included pursuant to this clause (ii), such loans and leases shall have been reviewed by FTN Financial, and FTN Financial shall have confirmed in writing to Centennial that, at the time of purchase, a credit related purchase accounting adjustment of not more than 0.30% of the gross carrying value of such loans and leases is sufficient with respect thereto.

“ Net Book Value ” means, with respect to each lease subject to a Scheduled Lease Agreement, the value at which such lease is carried on the balance sheet of Centennial calculated in accordance with GAAP, consistently applied, minus any specific reserve attributable to such lease calculated in accordance with GAAP, consistently applied.

“ Ordinary Course of Business ” means the ordinary course of business of CIC and Centennial consistent with past custom and practice (including with respect to nature, scope, magnitude, quantity and frequency).

“ Payment Right Per Share ” means (i) the aggregate contractual right of Centennial to receive Scheduled Payments under the Scheduled Lease Agreements as of the Effective Time, after deduction of any Servicing Fees, Collection Expenses and Administrative Costs as set forth in Section2.9, divided by (ii) the Fully Diluted Shares Outstanding.

“ Permitted Encumbrances ” means (a) Encumbrances for Taxes and other governmental charges and assessments that are not yet due and payable or which are being contested in good

faith by appropriate proceedings (provided required payments have been made in connection with any such contest), (b) Encumbrances of carriers, warehousemen, mechanics’ and materialmen and other like Encumbrances arising in the Ordinary Course of Business (provided lien statements have not been filed as of the Closing Date), (c) easements, rights of way and restrictions, zoning ordinances and other similar Encumbrances affecting the Real Property and which do not unreasonably restrict the use thereof in the Ordinary Course of Business, (d) statutory Encumbrances in favor of lessors arising in connection with any property leased to CIC or Centennial, (e) Encumbrances reflected in the Latest Financial Statements or arising under Material Contracts and (f) Encumbrances that will be removed prior to or in connection with the Closing.

“ Person ” means any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, Governmental Entity or other entity.

“ Plan ” means every plan, fund, contract, program and arrangement (whether written or not) for the benefit of present or former employees, including those intended to provide (a) medical, surgical, health care, hospitalization, dental, vision, workers’ compensation, life insurance, death, disability, legal services, severance, sickness or accident benefits (whether or not defined in Section 3(1) of ERISA), (b) pension, profit sharing, stock bonus, retirement, supplemental retirement or deferred compensation benefits (whether or not tax qualified and whether or not defined in Section 3(2) of ERISA) or (c) salary continuation, unemployment, supplemental unemployment, severance, termination pay, change-in-control, vacation or holiday benefits (whether or not defined in Section 3(3) of ERISA), (i) that is maintained or contributed to by CIC, Centennial or any entity under common control with CIC within the meaning of Section 414(b), (c), (m), (o), or (t) of the Code (a “ Commonly Controlled Entity ”), (ii) that CIC, Centennial or any other Commonly Controlled Entity has committed to implement, establish, adopt or contribute to in the future, (iii) for which CIC, Centennial or any other Commonly Controlled Entity is or may be financially liable as a result of the direct sponsor’s affiliation with CIC, its Subsidiaries or CIC’s stockholders (whether or not such affiliation exists at the date of this Agreement and notwithstanding that the Plan is not maintained by CIC, Centennial or any other Commonly Controlled Entity for the benefit of its employees or former employees) or (iv) for or with respect to which CIC, Centennial or any other Commonly Controlled Entity is or may become liable under any common law successor doctrine, express successor liability provisions of Law, provisions of a collective bargaining agreement, labor or employment Law or agreement with a predecessor employer. Plan does not include any arrangement that has been terminated and completely wound up prior to the date of this Agreement and for which neither CIC, Centennial nor any other Commonly Controlled Entity has any present or potential liability.

“ Remedies Exception ” means except to the extent enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other Laws affecting the enforcement of creditors’ rights generally and by general equitable principles.

“ Return ” means any return, declaration, report, estimate, information return or statement pertaining to any Taxes.

“ Scheduled Entities ” means those entities listed in the attached Schedule A.

“ Scheduled Lease Agreements ” means equipment lease agreements for the Scheduled Entities, as listed in Schedule A.

“ Scheduled Payments ” means any payments received by Summit pursuant to the Scheduled Lease Agreements following the Closing Date.

“ Subsidiary ” means, with respect to any Person, any other Person (other than a natural person), whether incorporated or unincorporated, in which such Person, directly or indirectly (a) has a 50% or more equity interest or (b) owns at least a majority of the securities or ownership interests having by their terms ordinary voting power to elect a majority of the Board of Directors or other persons performing similar functions; provided , however , that the term shall not include any such entity in which such voting securities or equity interest is owned or controlled in a fiduciary capacity, without sole voting power, or was acquired in securing or collecting a debt previously contracted in good faith.

“ Superior Proposal ” means any Acquisition Proposal by a third party on terms which the Board of Directors of CIC determines in its good faith judgment, after consultation with, and receipt of written advice from, its financial advisors (which advice will be communicated to Heartland), to be more favorable from a financial point of view to its shareholders than the Merger and the other transactions contemplated hereby, after taking into account the likelihood of consummation of such transaction on the terms set forth therein, taking into account all legal, financial (including the financing terms of any such proposal), regulatory and other aspects of such proposal, the likelihood of consummation of any such proposal and any other relevant factors permitted under applicable Law, after giving Heartland at least five Business Days to respond to such third-party Acquisition Proposal once the Board of Directors has notified Heartland that in the absence of any further action by Heartland it would consider such Acquisition Proposal to be a Superior Proposal, and then taking into account any amendment or modification to this Agreement proposed by Heartland.

“ Tax Affiliate ” means each of Centennial and any other Person that is or was a member of an affiliated, combined or unitary group of which CIC or Centennial is or was a member.

“ Taxes ” means all taxes, charges, fees, levies or other assessments, including all net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, social security, unemployment, excise, estimated, severance, stamp, occupation, property or other taxes, customs, duties, fees, assessments or charges of any kind whatsoever, including all interest and penalties thereon, and additions to tax or additional amounts imposed by any Governmental Entity upon CIC or any Tax Affiliate.

“ Transaction Costs ” shall mean any and all amounts paid or accrued by CIC or Centennial, on an after-Tax basis, on or before the Determination Date that arise out of or in connection with (a) the negotiation and preparation of this Agreement and the consummation and performance of the transactions contemplated hereby, including CIC and Centennial’s legal and accounting fees, valuation fees, brokerage commissions, finder’s fees or similar fees or commissions, title insurance and survey expenses, D&O Insurance, administrative costs and expenses of redeeming securities or repayment of debt and any unamortized costs of issuance (but not, for the avoidance of doubt, the payments required to redeem securities or repay debt),

and income, sales or other liability for Taxes for income or gain arising out of such transactions; and (b) any payments to be made on or after the Closing Date pursuant to any existing employment, change in control, salary continuation, deferred compensation or other similar agreements or arrangements or severance, noncompetition, retention or bonus arrangements between CIC or Centennial and any other Person.

“ Warrant Exercise Proceeds” means the aggregate exercise proceeds received between the date of this Agreement and the Effective Time by CIC upon exercise of CIC Warrants, plus the aggregate exercise proceeds that would have been received by CIC upon exercise of any CIC Warrants that remain outstanding immediately prior to the Effective Time.

The following terms not defined above are defined in the sections indicated below:



Definition	Defined
Administrative Costs	2.9(d)
Agreement	Preamble
Annual Financial Statements	4.4(a)
Blue Sky Laws	3.2
Bank Holding Company Act	3.1
Bank Merger	Recitals
Bank Regulators	4.22
Board Recommendation	6.5(a)
CBCA	2.1
CDB	2.1
Centennial	Recitals
Centennial Annual Financial Statements	4.4(b)
Centennial Financial Statements	4.4(b)
Change of Board Recommendation	6.5(a)
CIC	Preamble
CIC Annual Financial Statements	4.4(a)
CIC Class A Common Stock	Recitals
CIC Class B Common Stock	Recitals
CIC Employees	6.7(a)
CIC Financial Statements	4.4(a)
CIC Regulatory Reports	4.7
CIC Series A Preferred Stock	4.3
CIC Series B Preferred Stock	Recitals
CIC Series C Preferred Stock	4.3
Closing	2.8
Closing Date	2.8
Code	Recitals
Collection Expenses	2.9(d)
Department	4.18(b)
DGCL	2.1
Dissenting Shares	2.7(b)
Dissenting Stockholders	2.7(a)
Effective Date	2.2(d)




Effective Time	2.2(d)
Exchange Act	3.2
Expenses	8.3
FDIA	4.1(b)
FDIC	3.2
Fractional Share Amount	2.3(b)
FRB	2.1
Heartland	Preamble
Heartland Common Stock	Recitals
Heartland Plans	6.7(b)
Heartland Regulatory Reports	3.7
Heartland Series D Preferred Stock	Recitals
Heartland 10-K Reports	3.5(a)
Heartland 10-Q Report	3.5(a)
Indemnified Party	6.10
Latest Balance Sheets	4.4(c)
Latest Centennial Balance Sheet	4.4(b)
Latest CIC Balance Sheet	4.4(a)
Leased Real Property	4.12(c)
Letter of Transmittal	2.6(a)
Material Contracts	4.15(a)
Merger	Recitals
Nasdaq	3.2
Net Scheduled Payment Per Class A Share	2.9(e)
Operating Real Property	4.12(c)
Owned Real Property	4.12(b)
Prospectus/Proxy Statement	6.5(b)
Real Property	4.12(c)
Registration Statement	6.5(b)
Regulatory Approvals	3.2
Related Centennial Statements	4.4(b)
Related CIC Statements	4.4(a)
Related Statements	4.4(c)
Representatives	5.8(a)
Required CIC Shareholder Vote	4.2
Required Consents	5.6
SEC	3.5(a)
Securities Act	3.2
Shareholder Meeting	6.5(a)
Securityholders’ Representative	Preamble
Servicing Fee	2.9(d)
Summit	Recitals
Surviving Corporation	2.1
Title Objection	6.4(b)
Work Permits	4.18(b)

ARTICLE 2

MERGER

2.1 The Merger . Subject to the satisfaction or waiver of the conditions set forth in Article 7, on a date mutually satisfactory to the parties as soon as practicable following receipt of all necessary regulatory approvals of the Board of Governors of the Federal Reserve System (the “ FRB ”) and the Colorado Division of Banking (the “ CDB ”), CIC shall be merged with and into Heartland. Heartland, in its capacity as the corporation surviving the Merger, is sometimes referred to herein as the “ Surviving Corporation .” The Merger will be effected pursuant to the provisions of, and with the effect provided in, Section 252 of the Delaware General Corporation Law (the “ DGCL ”), and Section 7-111-106.5 of the Colorado Business Corporation Act (the “ CBCA ”).

2.2 Effect of Merger .

(a) At the Effective Time, CIC shall be merged with and into Heartland, and the separate existence of CIC shall cease. The Charter and the Bylaws of Heartland, as in effect immediately prior to the Effective Time, shall be the Charter and the Bylaws of the Surviving Corporation, until the same may be amended as provided therein and in accordance with applicable Law. The directors and officers of Heartland immediately prior to the Effective Time will be the directors and officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and shall qualify.

(b) At the Effective Time and thereafter, the Surviving Corporation shall be responsible and liable for all the liabilities, debts, obligations and penalties of each of Heartland and CIC.

(c) At the Effective Time and thereafter, the Surviving Corporation shall possess all the rights, privileges, immunities and franchises, of a public as well as of a private nature, of each of Heartland and CIC; all property, real, personal and mixed, and all debts due on whatever account, and all and every other interest, of or belonging to or due to each of Heartland and CIC, shall be taken and deemed to be transferred to and vested in the Surviving Corporation without further act or deed; and the title to any real estate or any interest therein, vested in Heartland or CIC, shall not revert or be in any way impaired by reason of the Merger.

(d) To effect the Merger, the parties hereto will cause an appropriate certificate of merger and statement of merger relating to the Merger to be filed with the Secretary of State of Delaware and the Secretary of State of Colorado, respectively. The Merger shall become effective upon the filing of such certificate of merger and statement of merger. As used herein, the term “ Effective Date ” shall mean the date on which the Merger shall become effective as provided in the preceding sentence, and the term “ Effective Time ” shall mean the time on the Effective Date when the Merger shall become effective. The Effective Date and the Effective Time shall take place on the Closing Date.

2.3 Conversion of CIC Capital Stock .

(a) To effectuate the Merger, at the Effective Time, and without any further action of Heartland, CIC or any holder of capital stock of CIC:

(i) each issued and outstanding share of CIC Class A Common Stock (other than shares to be canceled pursuant to 2.3(c) and Dissenting Shares) shall be canceled and extinguished and be converted into and become a right to receive the Common Share Stock Consideration Per Share plus the Common Share Cash Consideration Per Share plus a Payment Right Per Share; and

(ii) each issued and outstanding share of CIC Series B Preferred Stock (other than shares to be canceled pursuant to Section 2.3(c) and Dissenting Shares) shall be canceled and extinguished and be converted into and become a right to receive one share of Heartland Series D Preferred Stock.

(b) No fractional shares of Heartland Common Stock shall be issued for Converted Common Shares, and in lieu of any fractional share, Heartland shall pay to each holder of Converted Common Shares who otherwise would be entitled to receive a fractional share of Heartland Common Stock, an amount of cash (without interest) equal to the product of (i) the Average Closing Price multiplied by (ii) the fractional share interest to which such holder would otherwise be entitled (the “ Fractional Share Amount ”).

(c) Each share of capital stock of CIC held as treasury stock of CIC or held directly or indirectly by Heartland, other than shares held in a fiduciary capacity or in satisfaction of a debt previously contracted, shall be canceled, retired and cease to exist, and no exchange or payment shall be made with respect thereto.

(d) Pursuant to a Warrant Termination Agreement executed by each CIC Warrant holder concurrently with this Agreement, each outstanding CIC Warrant to purchase one share of CIC Class A Common Stock shall be cancelled and converted into and become a right to receive (i) cash in the amount of the difference between (x) the Aggregate Merger Consideration Per Share, less (y) the exercise price of such CIC Warrant per share of CIC Class A Common Stock, plus (ii) an Payment Right Per Share.

2.4 Adjustments to Heartland Common Stock . If, between the date hereof and the Effective Time, shares of Heartland Common Stock shall be changed into a different number of shares or a different class of shares by reason of any reclassification, recapitalization, split-up, combination, exchange of shares or readjustment, or if a stock dividend thereon shall be declared with a record date within such period, then the number of shares of Heartland Common Stock issued to holders of Converted Common Shares at the Effective Time pursuant to this Agreement will be appropriately and proportionately adjusted so that the number of such shares of Heartland Common Stock (or such class of shares into which shares of Heartland Common Stock have been changed) that will be issued in exchange for the Converted Common Shares will equal the number of such shares that the holders of Converted Common Shares would have received pursuant to such classification, recapitalization, split-up, combination, exchange of shares,

readjustment or stock dividend had the record date therefor been immediately following the Effective Time.

2.5 Rights of Holders of CIC Capital Stock; Capital Stock of Heartland .

(a) At and after the Effective Time and until surrendered for exchange, each outstanding stock certificate which immediately prior to the Effective Time represented the Converted Shares shall be deemed for all purposes to evidence the right to receive the applicable form of Merger Consideration for the Converted Shares, and the record holder of such outstanding stock certificate shall, after the Effective Time, be entitled to vote the shares of capital stock of Heartland into which such shares of capital stock of CIC shall have been converted on any matters on which the holders of record of capital stock of Heartland, as of any date subsequent to the Effective Time, shall be entitled to vote. In any matters relating to such stock certificates, Heartland may rely conclusively upon the record of shareholders maintained by CIC containing the names and addresses of the holders of record of capital stock of CIC at the Effective Time.

(b) At and after the Effective Time, each share of capital stock of Heartland issued and outstanding immediately prior to the Effective Time shall remain an issued and existing share of capital stock of the Surviving Corporation and shall not be affected by the Merger.

2.6 Payment and Exchange of Certificates .

(a) Payment of Merger Consideration; Exchange of Certificates . Within ten (10) Business Days after the Closing, Heartland will cause to be distributed to each holder of capital stock of CIC a letter of transmittal or other appropriate materials to facilitate the surrender of certificates representing such stock for the applicable form of Merger Consideration (a “ Letter of Transmittal ”). Within ten (10) Business Days after surrender to Heartland or to a paying agent appointed by Heartland of any certificate which prior to the Effective Date represented a Converted Share, Heartland or such paying agent shall distribute to the Person in whose name such certificate is registered, the applicable form of Merger Consideration and, if applicable, cash in the amount of any Fractional Share Amount.

(b) Failure to Surrender Certificates . If outstanding certificates formerly representing Converted Shares are not surrendered prior to the date on which the Merger Consideration to which any holder of such shares is entitled as a result of the Merger would otherwise escheat to or become the property of any Governmental Entity, the unclaimed Merger Consideration shall, to the extent permitted by abandoned property and any other applicable Law, become the property of Heartland (and to the extent not in Heartland’s possession shall be paid over to Heartland), free and clear of any and all claims or interest of any Person. Notwithstanding the foregoing, neither Heartland nor any other Person shall be liable to any former holder of capital stock of CIC for any amount delivered to a public official pursuant to applicable abandoned property, escheat or other similar Laws.

(c) Lost Certificates . In the event that any certificate representing capital stock of CIC shall have been lost, stolen or destroyed, Heartland shall issue and pay in exchange for such lost, stolen or destroyed certificate, upon the making of an affidavit of that fact by the holder thereof in form satisfactory to Heartland’s paying agent, the appropriate form of Merger Consideration; provided, however , that Heartland or Heartland’s paying agent may, as a condition precedent to the issuance and payment of the Merger Consideration to which the holder of such certificate is entitled as a result of the Merger, require the owner of such lost, stolen or destroyed certificate to deliver a bond in such sum as it may direct as indemnity against any claim that may be made against Heartland, CIC or any other party with respect to the certificate alleged to have been lost, stolen or destroyed.

(d) Dividends . Until outstanding certificates formerly representing Converted Shares are surrendered as provided in Section 2.6(a) and (c), no dividend or distribution payable to holders of record of shares of capital stock of Heartland shall be paid to any holder of such outstanding certificates, but upon surrender of such outstanding certificates by such holder there shall be paid to such holder the amount of any dividends or distributions (without interest) theretofore paid with respect to such whole shares of capital stock of Heartland, but not paid to such holder, and which dividends or distributions had a record date occurring on or subsequent to the Effective Time.

(e) Full Satisfaction . Except as otherwise provided in Section 2.9, all Merger Consideration issued and paid upon the surrender for exchange of Converted Shares in accordance with the terms and conditions of this Agreement shall be deemed to have been issued and paid in full satisfaction of all rights pertaining to such Converted Shares.

2.7 Dissenting Shares .

(a) Notwithstanding any provision of this Agreement to the contrary, any shares of CIC Series A Common Stock and CIC Series B Preferred Stock held by a holder (a “ Dissenting Shareholder ”) who has demanded and perfected a demand for payment of the fair value of his, her or its shares in accordance with Section 7-113-101, et seq. , of the CBCA and as of the Effective Time has neither effectively withdrawn nor lost his, her or its right to such appraisal shall not represent a right to receive Merger Consideration pursuant to Section 2.3(a) above, but in lieu thereof the holder thereof shall be entitled to only such rights as are granted by the CBCA. Heartland shall make any and all payments to holders of shares of CIC Class A Common Stock and CIC Series B Preferred Stock with respect to such demands.

(b) Notwithstanding the provisions of Section 2.7(a) above, if any Dissenting Shareholder demanding payment of the fair value of such Dissenting Shareholder’s shares of CIC Class A Common Stock or CIC Series B Preferred Stock (“ Dissenting Shares ”) under the CBCA shall effectively withdraw or lose (through failure to perfect or otherwise) such Dissenting Shareholder’s right to appraisal, then as of the Effective Time or the occurrence of such event, whichever later occurs, such Dissenting Shares shall automatically be converted into and represent only the right to receive the applicable

form of Merger Consideration as provided in Section 2.3(a) above upon surrender of the certificate or certificates representing such Dissenting Shares.

(c) CIC shall give Heartland prompt notice of any demands by a Dissenting Shareholder for payment, or notices of intent to demand payment received by CIC under Section 7-113-101, et seq. , of the CBCA, and Heartland shall have the right, at its expense, to participate in all negotiations and proceedings with respect to such demands. CIC shall not, except with the prior written consent of Heartland (which will not be unreasonably withheld or delayed) or as otherwise required by Law, make any payment with respect to, or settle, or offer to settle, any such demands.

2.8 The Closing . The closing of the transactions contemplated by this Agreement (the “ Closing ”) will take place at the offices of Heartland located at 1398 Central Avenue, Dubuque, Iowa, or at a location otherwise agreed upon by CIC and Heartland. The Closing will take place as soon as practicable once the conditions in Article 6 have been satisfied or waived but in any event within ten (10) Business Days after the date on which all such conditions have been satisfied or waived, unless the parties otherwise agree (the “ Closing Date ”). The failure of the Closing will not ipso facto result in termination of this Agreement and will not relieve any party of any obligation under this Agreement.

(a) Subject to the conditions set forth in this Agreement, on the Closing Date, CIC will deliver to Heartland:

(i) the certificate of CIC, dated the Closing Date, required by Section 7.3(c);

(ii) the certificate of CIC, dated the Closing Date, required by Section 7.3(d);

(iii) a certificate of CIC dated the Closing Date (A) stating the number of shares of each class of capital stock of CIC outstanding immediately prior to the Closing, and (B) except as otherwise provided in such certificate, stating that there are no other shares of capital stock of CIC or options, warrants, rights to acquire, or securities convertible into capital stock of CIC, outstanding as of the Closing Date, and the number and the class or series of the Dissenting Shares;

(iv) duly executed copies of all Required Consents;

(v) a copy of the text of the resolutions adopted by the Board of Directors of Centennial, and by CIC as the sole shareholder of Centennial, authorizing the Bank Merger;

(vi) certificates representing all outstanding shares of Centennial capital stock, which shall be free of any Encumbrance;

(vii) the minute books, stock transfer records, corporate seal and other materials related to the corporate administration of CIC and Centennial;

(viii) resignations in writing (effective as of the Closing Date) from the directors of Centennial, as Heartland may have requested prior to the Closing Date;

(ix) evidence of title insurance commitments, policies, riders and surveys in accordance with Section 6.4;

(x) releases of all Encumbrances on the Operating Real Property, other than Permitted Encumbrances;

(xi) certificates dated as of a date not earlier than the third Business Day prior to the Closing as to the good standing of CIC executed by the appropriate officials of the State of Colorado and payment of all applicable state Taxes by CIC; and

(xii) such other certificates, documents and instruments that Heartland reasonably requests for the purpose of (1) evidencing the accuracy of CIC’s representations and warranties, (2) evidencing the performance and compliance by CIC with agreements contained in this Agreement, (3) evidencing the satisfaction of any condition referred to in Section 7.3(c) or (4) otherwise facilitating the consummation of the transactions contemplated by this Agreement.

(b) Subject to the conditions set forth in this Agreement, on the Closing Date, Heartland will deliver to CIC:

(i) the certificate of Heartland, dated the Closing Date, required by Section 7.2(c);

(ii) the certificate of Heartland, dated the Closing Date, required by Section 7.2(d);

(iii) such other certificates, documents and instruments that CIC reasonably requests for the purpose of (1) evidencing the accuracy of Heartland’s representations and warranties, (2) evidencing the performance and compliance by Heartland with agreements contained in this Agreement, (3) evidencing the satisfaction of any condition referred to in Section 7.2 or (4) otherwise facilitating the consummation of the transactions contemplated by this Agreement.

2.9 Scheduled Payments .

(a) This Section 2.9 sets forth the terms of the Payment Rights Per Share, and the procedures for collection of Scheduled Payments after the Effective Time. The Payment Rights Per Share shall not be certificated or represented by any document other than this Agreement, and shall not be transferable, except by operation of Law.

(b) Subject to this Section 2.9, after the Closing Date, CIC Securityholders shall be entitled to receive Scheduled Payments collected by Summit, after deduction of

any Servicing Fees, Collection Expenses and Administrative Costs as set forth below. After the Effective Time, Heartland shall cause Summit to take all actions determined by Heartland in its reasonable discretion and pursuant to this Section 2.9 to be appropriate to enforce payment of amounts due under the Scheduled Lease Agreements for the benefit of the CIC Securityholders. However, Summit shall not grant any consents, waivers, variances or releases under the Scheduled Lease Agreements without the consent of the Securityholders’ Representative. Summit will service and manage the Scheduled Lease Agreements in accordance with its usual practices and will exercise the same degree of care to protect the CIC Securityholders’ interests as it does its own. So long as Summit exercises such care in the servicing and management of the Scheduled Lease Agreements, it shall not be under any liability to the CIC Securityholders with respect to anything it may do or refrain from doing in the exercise of its reasonable judgment or which may seem to Summit to be necessary or desirable in the servicing and management of the Scheduled Lease Agreements; provided, however , Summit shall be liable for any acts or omissions that constitute gross negligence or willful misconduct. Notwithstanding the foregoing, if Heartland determines in its reasonable discretion, after consultation with the Securityholders’ Representative, that the cost of collecting Scheduled Payments will exceed the amount of any collections, Summit shall be relieved of any obligation to enforce payment of amounts due under the Scheduled Lease Agreements for the benefit of the CIC Securityholders; provided, however , in such event, within five (5) Business Days following receipt of written notice from the Securityholders’ Representative, Heartland shall cause Summit to transfer and assign, without recourse, the Scheduled Lease Agreements, together with all collateral, liens, assets, agreements, guaranties, instruments, payments, recoveries and other rights related thereto, to the Securityholders’ Representative or to an entity or trust designated by the Securityholders’ Representative, to hold the Scheduled Lease Agreements for the benefit of the Persons entitled to receive the Net Scheduled Payment Per Share pursuant to Section 2.9(e), and thereafter, the Securityholders’ Representative shall be entitled to take such action, or no action, as the Sercurityholders’ Representative shall determine in his sole discretion, and the Securityholders’ Representative, or his designee, shall have all rights provided to Summit in Section 2.9(d) concerning the administration, servicing and collection of the Scheduled Payments. Notwithstanding the foregoing, the Securityholders’ Representative shall have no responsibility or liability, express or implied, for the collectability of amounts due under, or the enforceability or validity of, the Scheduled Lease Agreements, or the financial condition of the Scheduled Entities.

(c) Summit does not assume and has no responsibility or liability, express or implied, for the collectability of amounts due under, or the enforceability or validity of, the Scheduled Lease Agreements, or the financial condition of the Scheduled Entities.

(d) In connection with its duties hereunder, Summit shall receive a servicing fee (a “ Servicing Fee ”) in an amount equal to a rate of 1.0% of each Scheduled Payment. In addition, Summit will be reimbursed for all out-of-pocket expenses reasonably incurred in (i) collecting the Scheduled Payments (the “ Collection Expenses ”), and (ii) maintaining records regarding, and making distributions to, CIC Securityholders as provided in Section 2.9(e) (the “ Administrative Costs ”) (which responsibilities may be outsourced by Summit to a third party). The Servicing Fee, the Collection Expenses and

the Administrative Costs shall be deducted from each Scheduled Payment as and when received by Summit.

(e) Within 20 days after the end of each calendar quarter, Heartland will cause Summit to determine the amount, if any, of Scheduled Payments collected by Summit during such calendar quarter, together with any deductions for the Servicing Fee, the Collection Expenses and the Administrative Costs, and give written notice to the Securityholders’ Representative of such amounts. Heartland also will cause Summit to provide the Securityholders’ Representative with appropriate back-up documentation supporting the determination of the amount of such Scheduled Payments and any deductions applicable thereto. If the Securityholders’ Representative objects to the determination of such within 10 Business Days following receipt of such documentation, Heartland and the Securityholders’ Representative will negotiate in good faith to resolve such objection and finally determine the amount of Scheduled Payments and any deductions applicable thereto. Within 10 Business Days following each annual anniversary of the Closing Date, Heartland will cause Summit (which may act through an outsourcing company) to (i) distribute to each Person who was a holder of CIC Class A Common Stock as of the Effective Time and who has complied with the provisions of Section 2.6, an amount per share of CIC Class A Common Stock so held as is equal to the quotient of (A) the net amount of the Scheduled Payments so collected after deduction of any Servicing Fees, Collection Expenses and Administrative Costs incurred by Summit in accordance with this Section 2.9 divided by (B) the Fully Diluted Shares Outstanding (the “Net Scheduled Payment Per Class A Share ”); (ii) hold for payment in accordance with Section 2.6(a) for each Person who was such a holder but has not complied with Section 2.6, for each share of CIC Class A Common Stock so held, the Net Scheduled Payment Per Share; (iii) distribute to each holder of shares of Heartland Series D Preferred Stock who has converted such shares into Heartland Common Stock after the Effective Date, the amount of such payment to which such holder is entitled under the Certificate of Designations attached hereto as Exhibit A; (iv) hold for distribution to each holder of Heartland Series D Preferred Stock who has not so converted, the amount of such payment to which such holder will be entitled upon conversion; (v) distribute to each holder of a CIC Warrant to purchase one share of Heartland Common Stock as of the Effective Time, the Net Scheduled Payment Per Share; (vi) distribute to each holder of a CIC Convertible Note as of the Effective Time who has converted such CIC Convertible Note into Heartland Common Stock, an amount equal to the Net Scheduled Payment Per Class A Share multiplied by the number of shares of CIC Class A Common Stock such holder would have received had the holder converted the CIC Convertible Notes prior to the Effective Time; and (vii) hold for distribution to each holder of a CIC Convertible Note who has not so converted such CIC Convertible Note into Heartland Common Stock upon conversion an equivalent amount. All payments made by Summit (or the outsourcing company) pursuant to this Section 2.9(e) will be made by checks payable to the applicable CIC Securityholders, except as Summit and any such CIC Securityholder shall otherwise agree.

2.1 Tax-Free Reorganization . The acquisition contemplated by this Agreement is intended to be a reorganization within the meaning of Section 368(a)(1)(A) of the Code and this Agreement is intended to be a “ plan of reorganization ” within the meaning of the Treasury

Regulations promulgated under Section 368 of the Code. Each party to this Agreement agrees to treat this acquisition as a reorganization within the meaning of Section 368(a)(1)(A) of the Code and agrees to treat this Agreement as a “ plan of reorganization ” within the meaning of the Treasury Regulations under Section 368 of the Code, unless and until there is a determination, within the meaning of Section 1313 of the Code, that such treatment is not correct.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF HEARTLAND

Heartland hereby represents and warrants to CIC as follows:

3.1 Organization and Qualification .

(a) Heartland is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware, and has the requisite corporate power to carry on its business as now conducted. Heartland is registered as a bank holding company under Bank Holding Company Act of 1956, as amended (the “ Bank Holding Company Act ”). Heartland is licensed or qualified to do business in every jurisdiction in which the nature of its business or its ownership or property requires it to be licensed or qualified, except where the failure to be so licensed or qualified would not have or would not be reasonably expected to have a Material Adverse Effect on Heartland.

(b) Summit is a Colorado state banking corporation duly organized, validly existing and in good standing under the Laws of the State of Colorado. Summit has the requisite corporate power and authority (including all Governmental Authorizations as are legally required) to carry on its business as now being conducted, to own, lease and operate its properties and assets as now owned, leased or operated and to enter into and to carry on the business and activities now conducted by it. Summit is an insured bank as defined in the FDIA. Summit has no Subsidiaries. The nature of the business of Summit does not require it to be qualified to do business in any jurisdiction other than the State of Colorado. Summit has no equity interest, direct or indirect, in any bank or corporation or in any partnership, joint venture or other business enterprise or entity, except as acquired through settlement of indebtedness, foreclosure, the exercise of creditors’ remedies or in a fiduciary capacity. The copies of the Charter and Bylaws of Summit which have been provided to Centennial prior to the date of this Agreement are correct and complete and reflect all amendments made thereto.

3.2 Authority Relative to this Agreement; Non-Contravention . Heartland has the requisite corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. The execution and delivery of this Agreement by Heartland and the consummation by Heartland of the transactions contemplated hereby have been duly authorized by the Board of Directors of Heartland, and no other corporate proceedings on the part of Heartland are necessary to authorize this Agreement, the Merger and such transactions. This Agreement has been duly executed and delivered by Heartland and constitutes a valid and binding obligation of Heartland, enforceable in accordance with its terms, subject to the Remedies Exception. Heartland is not subject to, or obligated under, any provision of (a) its Charter or Bylaws, (b) any agreement, arrangement or understanding, (c) any license, franchise

or permit or (d) subject to obtaining the approvals referred to in the next sentence, any Law, order, judgment or decree, which would be breached or violated, or in respect of which a right of termination or acceleration or any encumbrance on any of its or any of its Subsidiaries’ assets would be created, by its execution, delivery and performance of this Agreement or the consummation by it of the transactions contemplated hereby, other than any such breaches or violations which will not, individually or in the aggregate, have a Material Adverse Effect on Heartland or materially adversely affect the consummation of the transactions contemplated hereby. Other than in connection with obtaining any approvals from the FRB for the Merger required under Bank Holding Company Act, any approvals from CDB for the Merger required under Section 11‑104‑22 of the Colorado Banking Code (the “ CBC ”) and any approvals from the Federal Deposit Insurance Corporation (“ FDIC ”) for the Bank Merger required under Bank Merger Act (such approvals under Bank Holding Company Act, the CBC and Bank Merger Act being hereafter collectively referred to as the “ Regulatory Approvals ”); approvals to issue Heartland Common Stock and Heartland Series D Preferred Stock under the Securities Act of 1933, as amended, and the rules and regulations thereunder (the “ Securities Act ”), under state securities or blue sky laws and the rules and regulations thereunder (“ Blue Sky Laws ”), and under the rules of the Nasdaq Stock Market, Inc. (“ Nasdaq ”); filings with respect to the Merger under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the “ Exchange Act ”); and the filing with respect to the Merger of a certificate of merger and a statement of merger with the Secretary of State of Delaware and the Secretary of State of Colorado, respectively, no authorization, consent or approval of, or filing with, any Governmental Entity is necessary on the part of Heartland for the consummation by it of the transactions contemplated by this Agreement, except for such authorizations, consents, approvals and filings as to which the failure to obtain or make would not, individually or in the aggregate, have a Material Adverse Effect on Heartland or materially adversely affect the consummation of the transactions contemplated hereby.

3.3 Validity of Heartland Capital Stock . The shares of Heartland Common Stock and Heartland Series D Preferred Stock to be issued pursuant to this Agreement will be, when issued, duly authorized, validly issued, fully paid and nonassessable and free and clear of any Encumbrance. Such shares of Heartland Common Stock shall be authorized for listing on the Nasdaq Global Select Market or other national securities exchange upon official notice of issuance. The shares of Heartland Common Stock and Heartland Series D Preferred Stock to be issued pursuant to this Agreement are and will be free of any preemptive rights of the shareholders of Heartland or any other person, firm or entity. The shares of Heartland Common Stock and Heartland Series D Preferred Stock to be issued pursuant to this Agreement will not be subject to any restrictions on transfer arising under the Securities Act, except for shares of Heartland Common Stock or Heartland Series D Preferred Stock issued to any shareholders of CIC who may be deemed to be an “affiliate” of Heartland under the Exchange Act after completion of the Merger.

3.4 Capital Stock . The authorized capital stock of Heartland consists of 30,000,000 shares of Heartland Common Stock, and 200,000 shares of preferred stock, par value $1.00 per share, of which 16,000 shares have been designated Series A Junior Participating Preferred Stock, 81,698 shares have been designated Series B Fixed Rate Cumulative Perpetual Preferred Stock, and 81,698 shares have been designated Senior Non-Cumulative Perpetual Preferred Stock, Series C. As of October 21, 2015, (a) 20,367,321 shares of Heartland Common Stock

were issued and outstanding (excluding 2,565 shares of Heartland Common Stock held in treasury), and 622,067 shares of Heartland Common Stock were reserved for issuance pursuant to Heartland’s employee stock option, incentive and employee stock purchase plans; (b) no shares of Series A Junior Participating Preferred Stock were issued and outstanding; (c) no shares of Series B Fixed Rate Cumulative Perpetual Preferred Stock were issued and outstanding; and (d) 81,698 shares of Senior Non-Cumulative Perpetual Preferred Stock, Series C were issued and outstanding.

3.5 Exchange Act Reports .

(a) Prior to the execution of this Agreement, Heartland has made available to CIC complete and accurate copies of (i) Heartland’s Annual Reports on Form 10‑K for the years ended December 31, 2012, 2013 and 2014, as amended (the “ Heartland 10‑K Reports ”), as filed under the Exchange Act with the Securities and Exchange Commission (the “ SEC ”), (ii) all Heartland proxy statements and annual reports to shareholders used in connection with meetings of Heartland shareholders held since January 1, 2012, and (iii) Heartland’s Quarterly Report on Form 10‑Q for the quarter ended June 30, 2015 (the “ Heartland 10‑Q Report ”), as filed under the Exchange Act with the SEC. As of their respective dates, such documents (x) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and (y) complied as to form in all material respects with the applicable Laws and rules and regulations of the SEC. Since January 1, 2012, Heartland has filed all reports that it was required to file with the SEC pursuant to the Exchange Act.

(b) Heartland’s financial statements (including any footnotes thereto) contained in the Heartland 10‑K Reports and the Heartland 10‑Q Report were prepared in accordance with GAAP and fairly present the consolidated financial position of Heartland and its subsidiaries as of the dates thereof and the consolidated results of operations, changes in shareholders’ equity and cash flows for the periods then ended.

3.6 No Material Adverse Changes . Since June 30, 2015, and except as otherwise disclosed in reports filed with the SEC prior to the date hereof, there has been no material adverse change in, and no event, occurrence or development in the business of Heartland or its Subsidiaries, taken individually or as a whole, that has had or would reasonably be expected to have a Material Adverse Effect on Heartland or its Subsidiaries or materially adversely affect the consummation of the transactions contemplated hereby; provided, however , that, for purposes of this Section 3.6, a Material Adverse Effect shall not be deemed to include the impact of General Effects.

3.7 Reports and Filings; Compliance with Laws . Since January 1, 2012, each of Heartland and its Subsidiaries has filed each report or other filing it was required to file with any federal or state banking or bank holding company or other Governmental Entity having jurisdiction over it (together with all exhibits thereto, the “ Heartland Regulatory Reports ”), except for such reports and filings which the failure to so file would not have a Material Adverse Effect on Heartland or materially adversely affect the consummation of the transactions

contemplated hereby. As of their respective dates or as subsequently amended prior to the date hereof, each Heartland Regulatory Report was true and correct in all material respects and complied in all material respects with applicable Laws, rules and regulations.

3.8 Regulatory Approvals . As of the date hereof, Heartland is not aware of any fact or circumstance relating to it or any of its Subsidiaries that would materially impede or delay receipt of any Regulatory Approvals or that would likely result in the Regulatory Approvals not being obtained. Neither Heartland nor any of its Subsidiaries is subject to any Governmental Order, written agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is a recipient of any extraordinary supervisory agreement letter from, or has adopted any board resolutions at the request of, any Bank Regulators that would reasonably be expected to, impair the ability of Heartland to obtain the Regulatory Approvals in a timely fashion or to operate Centennial in the Ordinary Course of Business after the Merger.

3.9 Certain Tax Matters . Neither Heartland nor any Affiliate has taken or agreed to take any action or knows of any circumstances that would prevent the acquisition contemplated by this Agreement from qualifying as a reorganization within the meaning of Section 368(a)(1)(A) of the Code.

3.10 Litigation . There is no Litigation pending against, or, to the knowledge of Heartland, threatened against Heartland or its Subsidiaries, before or by any Governmental Entity, that in any manner challenges or seeks to prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement.

3.11 Financial Ability . Heartland has cash on hand to pay, or available lines of credit available to finance, the Merger Consideration payable in cash.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF SELLER

CIC hereby represents and warrants to Heartland that, except as described in the Disclosure Schedules:

4.1 Organization and Qualification .

(a) CIC is a corporation duly organized, validly existing and in good standing under the Laws of the State of Colorado, and has the requisite corporate power to carry on its business as now conducted. CIC is a bank holding company registered under Bank Holding Company Act. Except for Centennial, CIC has no Subsidiaries. CIC is, and as of the Closing Date will be, the lawful record and beneficial owner of all of the outstanding securities of Centennial, free and clear of any Encumbrance. The copies of the Charter and Bylaws of CIC which have been provided to Heartland prior to the date of this Agreement are correct and complete and reflect all amendments made thereto.

(b) Centennial is a Colorado state banking corporation duly organized, validly existing and in good standing under the Laws of the State of Colorado. Centennial has the requisite corporate power and authority (including all Governmental Authorizations as are legally required) to carry on its business as now being conducted, to own, lease and

operate its properties and assets as now owned, leased or operated and to enter into and to carry on the business and activities now conducted by it. Centennial is an insured bank as defined in the Federal Deposit Insurance Act, as amended (the “ FDIA ”). Centennial has no Subsidiaries. The nature of the business of Centennial does not require it to be qualified to do business in any jurisdiction other than the State of Colorado. Centennial has no equity interest, direct or indirect, in any bank or corporation or in any partnership, joint venture or other business enterprise or entity, except as acquired through settlement of indebtedness, foreclosure, the exercise of creditors’ remedies or in a fiduciary capacity. The copies of the Charter and Bylaws of Centennial which have been provided to Heartland prior to the date of this Agreement are correct and complete and reflect all amendments made thereto.

4.2 Authority Relative to this Agreement; Non-Contravention . CIC has the requisite corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. The execution and delivery of this Agreement by CIC and the consummation by CIC of the transactions contemplated hereby have been duly authorized by the Board of Directors of CIC and, other than the approval of the Merger by holders of a majority of the outstanding shares of CIC Class A Common Stock and a majority of the outstanding shares of CIC Series B Preferred Stock (the “ Required CIC Shareholder Vote ”), no other corporate proceedings on the part of CIC are necessary to authorize this Agreement, the Merger and such transactions. This Agreement has been duly executed and delivered by CIC and constitutes a valid and binding obligation of CIC, enforceable in accordance with its terms, subject to the Remedies Exception. Except as disclosed on Schedule 4.2, neither CIC nor Centennial is subject to, or obligated under, any provision of (i) its Charter or Bylaws, (ii) any agreement, arrangement or understanding, (iii) any license, franchise or permit or (iv) subject to obtaining the approvals referred to in the next sentence, any Law, order, judgment or decree, which would be breached or violated, or in respect of which a right of termination or acceleration or any encumbrance on any of its assets would be created, by the execution, delivery or performance of this Agreement, or the consummation of the transactions contemplated hereby, other than any such breaches or violations which will not, individually or in the aggregate, have a Material Adverse Effect on CIC or Centennial or materially adversely affect the consummation of the transactions contemplated hereby. Other than the Regulatory Approvals and the filing of a certificate of merger and statement of merger with the Secretary of State of Delaware and the Secretary of State of Colorado, respectively, no Governmental Authorization is necessary on the part of CIC or Centennial for the consummation by CIC of the transactions contemplated by this Agreement, except for such Governmental Authorizations as to which the failure to obtain or make would not, individually or in the aggregate, have a Material Adverse Effect on CIC or Centennial or materially adversely affect the consummation of the transactions contemplated hereby.

4.3 Capitalization . The authorized capital stock of CIC consists of (a) 6,300,000 shares of CIC Class A Common Stock, (b) 500,000 shares of CIC Class B Common Stock, and (c) 1,000,000 shares of Preferred Stock, of which 1,772 shares have been designated Senior Non-Cumulative Perpetual Preferred Stock, Series A (the “ CIC Series A Preferred Stock ”), 3,000 shares have been designated 7.0% Senior Non-Cumulative Perpetual Convertible Preferred Stock, Series B, and 5,312 shares have been designated 8.5% Senior Non-Cumulative Perpetual Preferred Stock, Series C (“ CIC Series C Preferred Stock ”). As of September 30, 2015,

(i) 5,108,173 shares of CIC Class A Common Stock were issued and outstanding, 260,865 shares of CIC Class A Common Stock were reserved for issuance upon conversion of the CIC Series B Preferred Stock, 153,359 shares of CIC Class A Common Stock were reserved for issuance upon exercise of the CIC Warrants, and 160,000 shares of CIC Class A Common Stock were reserved for issuance upon conversion of the CIC Convertible Notes, (ii) 362,970 shares of CIC Class B Common Stock were issued and outstanding, (iii) 1,772 shares of CIC Series A Preferred Stock were issued and outstanding, (iv) 3,000 shares of CIC Series B Preferred Stock were issued and outstanding, and (v) 5,312 shares of CIC Series C Preferred Stock were issued and outstanding. The conversion price of the CIC Series B Preferred Stock is $11.50 per share, and no event has occurred that would cause adjustment of such conversion price. The conversion price of the CIC Convertible Notes is $12.50 per share, and no event has occurred that would cause adjustment of such conversion price. CIC has declared and paid dividends quarterly since the date of issue in the full amount provided for in CIC’s Charter (as supplemented by certificates of designation) for each of the CIC Series A Preferred Stock, CIC Series B Preferred Stock and CIC Series C Preferred Stock. The authorized capital stock of Centennial consists of 100,000 shares of Common Stock, $2.50 par value, of which 100,000 shares are issued and outstanding. Except as set forth on Schedule 4.3 , all of the issued and outstanding shares of capital stock of Centennial are owned by CIC, free and clear of any Encumbrance. The issued and outstanding shares of capital stock of CIC are duly authorized, validly issued, fully paid and nonassessable and have not been issued in violation of any preemptive rights. Except as set forth on Schedule 4.3 , there are no options, warrants, conversion privileges or other rights, agreements, arrangements or commitments obligating CIC or Centennial to issue, sell, purchase or redeem any shares of its capital stock or securities or obligations of any kind convertible into or exchangeable for any shares of its capital stock, nor are there any stock appreciation, phantom or similar rights outstanding based upon the book value or any other attribute of any of capital stock of CIC or capital stock of Centennial, or the earnings or other attributes of CIC or Centennial.

4.4 Financial Statements .

(a) CIC has made available to Heartland copies of its audited consolidated balance sheets as of December 31, 2012, 2013 and 2014 and the related statements of operations, changes in shareholders’ equity and cash flows for the years then ended (collectively, together with any notes thereto, the “ CIC Annual Financial Statements ”). CIC has made available to Heartland copies of its unaudited consolidated balance sheets as of June 30, 2014 and 2015, and the related statements of operations, changes in shareholders’ equity and cash flows for the 6-month periods then ended. The consolidated balance sheet of CIC as of June 30, 2015 is herein referred to as the “ Latest CIC Balance Sheet ,” and the related statement of income, shareholders’ equity and cash flows for the 6-month period then ended are herein referred to as the “ Related CIC Statements .” The Annual CIC Financial Statements, the Latest CIC Balance Sheet and the Related CIC Statements are collectively referred to as the “ CIC Financial Statements .” The CIC Financial Statements are based upon the books and records of CIC and Centennial, and have been prepared in accordance with GAAP (except that the Latest CIC Balance Sheet and the Related CIC Statements may not contain all notes and are subject to year-end adjustments, none of which, except as disclosed on Schedule 4.4(a) , are material). The CIC Financial Statements fairly present the consolidated financial position of CIC and Subsidiaries as of the dates thereof and the consolidated results of

operations and, as applicable, changes in shareholders’ equity and cash flows for the periods then ended.

(b) CIC has made available to Heartland copies of the audited balance sheets of Centennial as of December 31, 2012, 2013 and 2014 and the related statements of operations, changes in shareholders’ equity and cash flows for the years then ended (together with any notes thereto, the “ Centennial Annual Financial Statements ”). CIC has made available to Heartland copies of the balance sheets of Centennial as of June 30, 2014 and 2015 and the related statement of operations for the 6-month periods then ended. The balance sheet of Centennial as of June 30, 2015 is herein referred to as the “ Latest Centennial Balance Sheet ,” and the related statement of income for the 6-month period then ended is herein referred to as the “ Related Centennial Statements .” The Annual Centennial Financial Statements, the Latest Centennial Balance Sheet and the Related CIC Statements are collectively referred to as the “ Centennial Financial Statements .” The Centennial Financial Statements are based upon the books and records of Centennial and have been prepared in accordance with GAAP (except that the Latest Centennial Balance Sheet and the Related Centennial Statements may not contain all notes and are subject to year-end adjustments, none of which, except as disclosed on Schedule 4.4(b) , are material). The Centennial Financial Statements fairly present the financial position of Centennial as of the dates thereof and the results of operations and, as applicable, changes in shareholder’s equity and cash flows for the periods then ended.

(c) The Latest CIC Balance Sheet and the Latest Centennial Balance Sheet are collectively referred to as the “ Latest Balance Sheets ,” and the Related CIC Statements and the Related Centennial Statements are collectively referred to as the “ Related Statements .”

4.5 Absence of Undisclosed Liabilities . Except as reflected or expressly reserved against in the Latest Balance Sheets, neither CIC nor Centennial has any Liability, and, to the Knowledge of CIC, no basis exists for any present or future Litigation against CIC or Centennial giving rise to any Liability, except (a) a Liability that has arisen after the date of the Latest Balance Sheet in the Ordinary Course of Business (none of which is a material uninsured Liability for breach of Contract, breach of warranty, tort, infringement, Litigation or violation of Governmental Order, Governmental Authorization or Law); or (b) obligations under any Contract listed on a Disclosure Schedule to this Agreement or under a Contract not required to be listed on such a Disclosure Schedule. As of the date of this Agreement, and except as set forth on Schedule 4.5 , there are no agreements or commitments binding upon CIC or Centennial to extend credit, in the amount per “one borrower” (as combined and aggregated as set forth in 12 C.F.R. §32.5), of $500,000 or more.

4.6 Loans .

(a) The documentation relating to each loan made by Centennial and relating to all security interests, mortgages and other liens with respect to all collateral for each such loan are adequate for the enforcement of the material terms of each such loan and of the related security interests, mortgages and other liens. The terms of each such loan and

of the related security interests, mortgages and other liens comply in all material respects with all applicable Laws (including Laws relating to the extension of credit).

(b) Except as shown on the books and records of CIC made available to Heartland on or prior to the date hereof, there are no loans, leases, other extensions of credit or commitments to extend credit of CIC or Centennial that have been or, to the Knowledge of CIC, should have been classified by CIC or Centennial as non-accrual, as restructured, as 90 days past due, as still accruing and doubtful of collection or any comparable classification. CIC has disclosed all of the substandard, doubtful, loss, nonperforming or problem loans of Centennial on the internal watch list of Centennial, a copy of which is attached as Schedule 4.6(b) , has been provided to Heartland.

4.7 Reports and Filings . Since January 1, 2012, each of CIC and Centennial has filed each report or other filing that it was required to file with any federal or state banking, bank holding company or other applicable Governmental Entity having jurisdiction over it, including the FRB, the FDIC and the CDB (together with all exhibits thereto, the “ CIC Regulatory Reports ”). CIC has provided or made available to Heartland copies of all of CIC Regulatory Reports that it may provide consistent with applicable Law. As of their respective dates or as subsequently amended prior to the date hereof, each of CIC Regulatory Reports was true and correct in all material respects and complied in all material respects with applicable Laws, rules and regulations.

4.8 Subsidiaries . Except for the capital stock of Centennial owned by CIC, neither CIC nor Centennial owns any stock, partnership interest, joint venture interest or any other security issued by any other corporation, organization or entity, except securities owned by Centennial in the Ordinary Course of Business.

4.9 Books and Records . The books of account of CIC and Centennial are complete and correct in all material respects and have been maintained in accordance with sound business practices. To the Knowledge of CIC, each transaction is properly and accurately recorded on the books and records of CIC or Centennial, and each document upon which entries in CIC or Centennial’s books and records are based is complete and accurate in all material respects. CIC and Centennial maintain a system of internal control over financial reporting sufficient to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP, including reasonable assurance (A) that transactions are executed in accordance with management’s general or specific authorizations and recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability and (B) regarding prevention or timely detection of any unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements of CIC or Centennial. The minute books and stock or equity records of each of CIC and Centennial, all of which have been made available to Heartland to the extent not related to this Agreement or otherwise restricted by applicable Law, are correct in all material respects. The minute books of each of CIC and Centennial contain accurate records of all meetings held and actions taken by the holders of stock or equity interests, the Boards of Directors and committees of the Boards of Directors or other governing body of each of CIC and Centennial (except to the extent minutes have not yet been approved or finalized by such Boards of Directors or other governing body or committees), and, to CIC’s Knowledge, no meeting of

any such holders, Boards of Directors or other governing body or committees has been held for which minutes are not contained in such minute books (except to the extent such minutes have not been approved or finalized by such Boards of Directors or other governing body or committees). At the Closing, all such books and records will be in the possession of CIC.

4.10 No Material Adverse Changes . Since the date of the Latest Balance Sheets, there has been no material adverse change in, and no event, occurrence or development in the business of CIC or Centennial that, taken together with other events, occurrences and developments with respect to such business, has had, or would reasonably be expected to have, a Material Adverse Effect on CIC or Centennial or materially adversely affect the consummation of the transactions contemplated hereby; provided, however , that, for purposes of this Section 4.10, a Material Adverse Effect shall not be deemed to include the impact of General Effects.

4.11 Absence of Certain Developments . Except as contemplated by this Agreement or as set forth in the Latest Balance Sheets, the Related Statements or on Schedule 4.11 , since June 30, 2015, neither CIC nor Centennial has:

(a) issued or sold any of its equity securities, securities convertible into or exchangeable for its equity securities, warrants, options or other rights to acquire its equity securities, or any bonds or other securities, except deposit and other bank obligations and investment securities in the ordinary course of business;

(b) redeemed, purchased, acquired or offered to acquire, directly or indirectly, any shares of its capital stock or other securities;

(c) split, combined or reclassified any of its outstanding shares of capital stock or declared, set aside or paid any dividends or other distribution payable in cash, property or otherwise with respect to any shares of its capital stock of CIC or Centennial or other securities;

(d) incurred any Liability, whether due or to become due, other than in the Ordinary Course of Business and consistent with safe and sound banking practices;

(e) discharged or satisfied any Encumbrance or paid any Liability other than in the Ordinary Course of Business and consistent safe and sound banking practices;

(f) mortgaged or subjected to Encumbrance any of its property, business or assets, tangible or intangible except (i) for Permitted Encumbrances, (ii) for pledges of assets to secure public funds deposits, and (iii) for those assets and properties disposed of for fair value in the Ordinary Course of Business since June 30, 2015;

(g) sold, transferred or otherwise disposed of any of its assets or canceled any material debts or claims or waived any rights of material value, other than in the Ordinary Course of Business and consistent with prudent banking practices;

(h) suffered any theft, damage, destruction or loss of or to any property or properties owned or used by it, whether or not covered by insurance, which would, individually or in the aggregate, have a Material Adverse Effect on CIC or Centennial;

(i) made or granted any bonus or any wage, salary or compensation increase or severance or termination payment to, or promoted, any director, officer, employee, group of employees or consultant, entered into any employment contract or hired any employee, in each case, other than in the Ordinary Course of Business;

(j) made or granted any increase in the benefits payable under any employee benefit plan or arrangement, amended or terminated any existing employee benefit plan or arrangement or adopted any new employee benefit plan or arrangement, except as required by Law;

(k) made any single or group of related capital expenditures or commitment therefor in excess of $50,000 or entered into any lease or group of related leases with the same party which involves aggregate lease payments payable of more than $50,000 for any individual lease or involves more than $100,000 for any group of related leases in the aggregate;

(l) acquired (by merger, exchange, consolidation, acquisition of stock or assets or otherwise) any corporation, partnership, joint venture or other business organization or division or material assets thereof, or assets or deposits that are material to CIC or Centennial;

(m) taken any other action or entered into any other transaction other than in the Ordinary Course of Business;

(n) made any change in its accounting methods or practices, other than changes required by Law or regulation made in accordance with GAAP or regulatory accounting principles generally applicable to depository institutions such as Centennial; or

(o) agreed to do any of the foregoing.

4.12 Properties .

(a) The real properties owned by, or demised by the leases to, CIC and Centennial are listed on Schedule 4.12(a), and constitute all of the real property owned, leased (whether or not occupied and including any leases assigned or leased premises sublet for which CIC or Centennial remains liable), owned, used or occupied by CIC or Centennial.

(b) CIC or Centennial owns good and marketable title to each parcel of real property identified on Schedule 4.12 as being owned by CIC or Centennial (the “ Owned Real Property ”), free and clear of any Encumbrance, except for Permitted Encumbrances.

(c) The leases of real property listed on Schedule 4.12(c) as being leased by CIC or Centennial (the “ Leased Real Property ” and, together with the Owned Real Property, the “ Real Property, ” and the Real Property occupied by CIC or Centennial in the conduct of their respective businesses is hereafter referred to as the “ Operating Real Property ”) are in full force and effect, and CIC or Centennial holds a valid and existing

leasehold interest under each of the leases for the term listed on Schedule 4.12(c) . The Leased Real Property is subject to no Encumbrance or interests that would entitle the holder thereof to interfere with or disturb use or enjoyment of the Leased Real Property or the exercise by the lessee of its rights under such lease so long as the lessee is not in default under such lease.

(d) Each parcel of Operating Real Property has access sufficient for the conduct of the business as conducted by CIC or Centennial on such parcel of Operating Real Property to public roads and to all utilities, including electricity, sanitary and storm sewer, potable water, natural gas, telephone, fiberoptic, cable television, and other utilities used in the operation of the business at that location. The zoning for each parcel of Operating Real Property permits the existing improvements and the continuation of the business being conducted thereon as a conforming use. To the Knowledge of CIC, neither CIC nor Centennial is in violation of any applicable zoning ordinance or other Law relating to the Operating Real Property, and neither CIC nor Centennial has received any written notice of any such violation or the existence of any condemnation or other proceeding with respect to any of the Operating Real Property. The buildings and other improvements are located within the boundary lines of each parcel of Operating Real Property, and do not encroach over applicable setback lines. To the Knowledge of CIC, there are no improvements contemplated to be made by any Governmental Entity, the costs of which are to be assessed as assessments, special assessments, special Taxes or charges against any of the Operating Real Property.

(e) Each of CIC and Centennial has good and marketable title to, or a valid leasehold interest in, the buildings, machinery, equipment and other tangible assets and properties used by it, located on its premises or shown in the Latest Balance Sheet, free and clear of all Encumbrances, except for Permitted Encumbrances and properties and assets disposed of in the Ordinary Course of Business since the date of the Latest Balance Sheet.

(f) All of the buildings, fixtures, furniture and equipment necessary for the conduct of the business of CIC or Centennial are in adequate condition and repair, ordinary wear and tear excepted, and are usable in the Ordinary Course of Business. Each of CIC and Centennial owns, or leases under valid leases, all buildings, fixtures, furniture, personal property, land improvements and equipment necessary for the conduct of its business as it is presently being conducted.

4.13 Environmental Matters .

(a) As used in this Section 4.13, the following terms have the following meanings:

(i) “ Environmental Costs ” means any and all costs and expenditures, including any fees and expenses of attorneys and of environmental consultants or engineers incurred in connection with investigating, defending, remediating or otherwise responding to any Release of Hazardous Materials, any violation or alleged violation of Environmental Law, any fees, fines, penalties or charges

associated with any governmental authorization, or any actions necessary to comply with any Environmental Law.

(ii) “ Environmental Law ” means any Law, governmental authorization or governmental order relating to pollution, contamination, Hazardous Materials or protection of the environment.

(iii) “ Hazardous Materials ” means any dangerous, toxic or hazardous pollutant, contaminant, chemical, waste, material or substance as defined in or governed by any Law relating to such substance or otherwise relating to the environment or human health or safety, including any waste, material, substance, pollutant or contaminant that might cause any injury to human health or safety or to the environment or might subject the owner or operator of the Real Property to any Environmental Costs or liability under any Environmental Law.

(iv) “ List ” means the United States Environmental Protection Agency’s National Priorities List of Hazardous Waste Sites or any other list, schedule, log, inventory or record, however defined, maintained by any Governmental Entity with respect to sites from which there has been a Release of Hazardous Materials.

(v) “ Regulatory Action ” means any litigation with respect to CIC or Centennial brought or instigated by any Governmental Entity in connection with any Environmental Costs, Release of Hazardous Materials or any Environmental Law.

(vi) “ Release ” means the spilling, leaking, disposing, discharging, emitting, depositing, ejecting, leaching, escaping or any other release or threatened release, however defined, whether intentional or unintentional, of any Hazardous Material.

(vii) “ Third-Party Environmental Claim ” means any litigation (other than a Regulatory Action) based on negligence, trespass, strict liability, nuisance, toxic tort or any other cause of action or theory relating to any Environmental Costs, Release of Hazardous Materials or any violation of Environmental Law.

(b) No Third-Party Environmental Claim or Regulatory Action is pending or, to the Knowledge of CIC, threatened against CIC or Centennial.

(d) All transfer, transportation or disposal of Hazardous Materials by CIC or Centennial to properties not owned, leased or operated by CIC or Centennial has been in compliance with applicable Environmental Law; and neither CIC nor Centennial transported or arranged for the transportation of any Hazardous Materials to any location that is (i) listed on a List, (ii) listed for possible inclusion on any List or (iii) the subject of any Regulatory Action or Third-Party Environmental Claim.

(e) To the Knowledge of CIC, no Owned Real Property has ever been used as a landfill, dump or other disposal, storage, transfer, handling or treatment area for Hazardous Materials, or as a gasoline service station or a facility for selling, dispensing, storing, transferring, disposing or handling petroleum and/or petroleum products.

(f) There has not been any Release of any Hazardous Material by CIC or Centennial, or any Person under their respective control, or, to the Knowledge of CIC, by any other Person, on, under, about, from or in connection with the Real Property, including the presence of any Hazardous Materials that have come to be located on or under the Real Property from another location.

(g) To the Knowledge of CIC, the Operating Real Property has been so used and operated in compliance with all applicable Environmental Law.

(h) Each of CIC and Centennial has obtained all Governmental Authorizations relating to Environmental Laws necessary for the operations of CIC and Centennial, and all such Governmental Authorizations relating to the Environmental Law are listed on Schedule 4.13(h) . To the Knowledge of CIC, such Governmental Authorizations relating to the Environmental Law will be valid and in full force and effect upon consummation of the transactions contemplated by this Agreement. Each of CIC and Centennial has filed all reports and notifications required to be filed under and pursuant to all applicable Environmental Laws.

(i) No Hazardous Materials have been generated, treated, contained, handled, located, used, manufactured, processed, buried, incinerated, deposited or stored on, under or about any part of the Owned Real Property by CIC or Centennial, or, to the Knowledge of CIC, any other Person. To the Knowledge of CIC, the Owned Real Property contains no asbestos, urea, formaldehyde, radon at levels above natural background, PCBs or pesticides. To the Knowledge of CIC, no aboveground or underground storage tanks are located on, under or about the Owned Real Property, or have been located on, under or about the Owned Real Property and then subsequently been removed or filled.

(j) To the Knowledge of CIC, no expenditure will be required in order for Heartland or Centennial to comply with any Environmental Law in effect at the time of Closing in connection with the operation or continued operation of the Owned Real Property in a manner consistent with the present operation thereof.

(k) To the Knowledge of CIC, no Encumbrance has been attached or filed against CIC or Centennial in favor of any Person for (i) any liability under or violation of any applicable Environmental Law, (ii) any Release of Hazardous Materials or (iii) any imposition of Environmental Costs.

4.14 Tax Matters .

(a) Each of CIC and any Tax Affiliate, (i) has timely filed (or has had timely filed on its behalf) each Return required to be filed or sent by it in respect of any Taxes or required to be filed or sent by it by any Governmental Entity, each of which was correctly

completed and accurately reflected any liability for Taxes of CIC and any Tax Affiliate covered by such Return, (ii) timely and properly paid (or had paid on its behalf) all Taxes due and payable for all Tax periods or portions thereof whether or not shown on such Returns, (iii) established on CIC’s books of account, in accordance with GAAP and consistent with past practices, adequate reserves for the payment of any Taxes not then due and payable and (iv) complied in all material respects with all applicable Laws relating to the withholding of Taxes and the payment thereof in connection with any amounts paid or owing to any employee, independent contractor, creditor, shareholder or other third party.

(b) Each of CIC and any Tax Affiliate has made (or caused to be made on its behalf) all estimated Tax payments required to have been made to avoid any underpayment penalties.

(d) Neither CIC nor any Tax Affiliate has requested any extension of time within which to file any Return, which Return has not since been filed.

(e) No deficiency for any Taxes has been proposed, asserted or assessed against CIC or any Tax Affiliate that has not been resolved and paid in full. No waiver, extension or comparable consent given by CIC or any Tax Affiliate regarding the application of the statute of limitations with respect to any Taxes or any Return is outstanding, nor is any request for any such waiver or consent pending. There has been no Tax audit or other administrative proceeding or court proceeding with regard to any Taxes or any Return for any Tax year subsequent to the year ended December 31, 2010, nor is any such Tax audit or other proceeding pending, nor has there been any notice to CIC or any Tax Affiliate by any Governmental Entity regarding any such Tax audit or other proceeding, or is any such Tax audit or other proceeding threatened with regard to any Taxes or Returns. There are no outstanding subpoenas or requests for information with respect to any of the Returns of CIC or any Tax Affiliate. Neither CIC nor any Tax Affiliate has entered into a closing agreement pursuant to Section 7121 of the Code or any similar provision under any other Law.

(f) No additional Taxes will be assessed against CIC or any Tax Affiliate for any Tax period or portion thereof ending on or prior to the Closing Date, and there are no unresolved questions, claims or disputes concerning the liability for Taxes of CIC or any Tax Affiliate, that would exceed the estimated reserves established on its books of account.

(g) Schedule 4.14(g) lists all federal, state, local and foreign income Returns filed with respect to CIC or any Tax Affiliate for taxable periods ended on or after December 31, 2010, indicates those Returns that have been audited and indicates those Returns that currently are the subject of audit. True and complete copies of the Returns of CIC and all Tax Affiliates, as filed with the Internal Revenue Service and all state Tax

jurisdictions for the years ended December 31, 2010, 2011, 2012, 2013 and 2014 have been delivered to Heartland.

(h) Neither CIC nor any Tax Affiliate has any liability for Taxes in a jurisdiction where it does not file a Return, nor has CIC or any Tax Affiliate received notice from a taxing authority in such a jurisdiction that it is or may be subject to taxation by that jurisdiction.

(i) Neither CIC nor any Tax Affiliate is a party to any Contract that would result, separately or in the aggregate, in the payment of any “excess parachute payments” within the meaning of Section 280G of the Code, and the consummation of the transactions contemplated by this Agreement will not be a factor causing payments to be made by CIC or any other Person that are not deductible (in whole or in part) as a result of the application of Section 280G of the Code.

(j) No property of CIC or any Tax Affiliate is (i) property that CIC or any Tax Affiliate is or will be required to treat as being owned by another Person under the provisions of Section 168(f)(8) of the Code (as in effect prior to amendment by the Tax Reform Act of 1986), (ii) “tax-exempt use property” within the meaning of Section 168(h) of the Code or (iii) “tax-exempt bond financed property” within the meaning of Section 168(g)(5) of the Code.

(k) Neither CIC nor any Tax Affiliate is required to include in income any adjustment under either Section 481(a) or Section 482 of the Code (or an analogous provision of Law) by reason of a voluntary change in accounting method or otherwise, and the Internal Revenue Service has not proposed any such adjustment or change in accounting method.

(l) All transactions that could give rise to an underpayment of tax (within the meaning of Section 6662 of the Code) were reported by CIC and each Tax Affiliate in a manner for which there is substantial authority or were adequately disclosed on the Returns as required in accordance with Section 6662(d)(2)(B) of the Code.

(m) Neither CIC nor any Tax Affiliate is a party to any Tax allocation or sharing agreement with any entity that is not a Tax Affiliate.

(n) Neither CIC nor Centennial (i) has been a member of an affiliated group filing a consolidated Return (other than a group the common parent of which was CIC) or (ii) has any liability for the Taxes of any Person (other than CIC or Centennial) under Treasury Regulations Section 1.1502‑6 (or any similar provision of Law), as a transferee or successor, by Contract, or otherwise.

(o) Neither CIC nor Centennial constitutes either a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of shares qualifying for tax-free treatment under Section 355 of the Code (i) that took place during the two-year period ending on the date of this Agreement or (ii) that could otherwise constitute part of a “plan” or “series of related transactions”

(within the meaning of Section 355(e) of the Code) in conjunction with the purchase of the Shares.

(p) None of the indebtedness of CIC or any Tax Affiliate constitutes (i) “corporate acquisition indebtedness” (as defined in Section 279(b) of the Code) with respect to which any interest deductions may be disallowed under Section 279 of the Code or (ii) an “applicable high yield discount obligation” under Section 163(i) of the Code, and none of the interest on any such indebtedness will be disallowed as a deduction under any other provision of the Code.

(q) Neither CIC nor any Tax Affiliate has engaged in any transaction that is subject to disclosure under present or former Treasury Regulations Sections 1.6011‑4 or 1.6011‑4T, as applicable.

(r) There is no Contract, plan or arrangement, including this Agreement, by which any current or former employee of CIC or Centennial would be entitled to receive any payment from CIC or Centennial as a result of the transactions contemplated by this Agreement that would not be deductible pursuant to Section 404 or 162(m) of the Code.

(s) Neither CIC nor any Tax Affiliate has been a member of any partnership or joint venture or the holder of a beneficial interest in any trust for any period for which the statute of limitations for any Taxes potentially applicable as a result of such membership or holding has not expired.

(t) Neither CIC nor any Tax Affiliate is subject to accumulated earnings tax penalty or has received any notification regarding a personal holding company tax.

(u) Neither CIC nor any Tax Affiliate has a permanent establishment or otherwise has an office or fixed place of business outside the United States of America.

(v) Neither CIC nor any Tax Affiliate has participated in any confidential corporate tax shelter (within the meaning of Treasury Regulation §301.6111‑2(a)(2)) or a potentially abusive tax shelter (within the meaning of Treasury Regulation §301.6112‑1(b)).

(w) Neither CIC nor any Tax Affiliate has taken or agreed to take any action, or knows of any circumstances, that would prevent the acquisition contemplated by this Agreement from qualifying as a reorganization within the meaning of Section 368(a)(1)(A) of the Code.

(x) Neither CIC nor any Tax Affiliate has a pending private letter ruling from the Internal Revenue Service or any comparable ruling from any other taxing authority.

(y) Neither CIC nor any Tax Affiliate has engaged in any transactions that would cause any limitation under Section 382 of the Code, except for the merger of CIC with Millennium Bancorp on August 12, 2012.

4.15 Contracts and Commitments .

(a) Schedule 4.15(a) lists the following Contracts to which CIC or Centennial is a party or subject or by which it is bound (such Contracts required to be listed on Schedule 4.15(a) , the “ Material Contracts ”):

(i) any employment, agency, collective bargaining Contract or consulting Contract;

(ii) any written or oral Contract relating to any severance pay for any Person;

(iii) any written or oral agreement or understanding to repurchase assets previously sold (or to indemnify or otherwise compensate the purchaser in respect of such assets), except for securities sold under a repurchase agreement providing for a repurchase date 30 days or less after the purchase date;

(iv) any (A) contract or group of related contracts with the same party for the purchase or sale of products or services, under which the undelivered balance of such products and services has a purchase price in excess of $50,000 for any individual contract or $100,000 for any group of related contracts in the aggregate, or (B) other contract or group of related contracts with the same party continuing over a period of more than six months from the date or dates thereof, which is not entered into in the Ordinary Course of Business and is either not terminable by it on 30 days’ or less notice without penalty or involves more than $50,000 for any individual contract or $100,000 in the aggregate for any group of related contracts;

(v) any Contract containing exclusivity, noncompetition or nonsolicitation provisions or that would otherwise prohibit CIC or Centennial from freely engaging in business anywhere in the world or prohibiting the solicitation of the employees or contractors of any other entity;

(vi) any stock purchase, stock option, restricted stock or restricted stock unit or stock incentive plan;

(vii) any Contract for capital expenditures in excess of $50,000;

(viii) any other Contract material to the business of CIC and Centennial, taken as a whole, which is not entered into in the Ordinary Course of Business.

(b) Except as disclosed on Schedule 4.15(b) , (i) each of CIC and Centennial has performed all obligations required to be performed by it prior to the date hereof in connection with the Contracts or commitments set forth on Schedule 4.15(a) , and neither CIC nor Centennial is in receipt of any claim of default under any Contract or

commitment set forth on Schedule 4.15(b) , except for any failures to perform, breaches or defaults which would not, individually or in the aggregate, have a Material Adverse Effect on CIC or Centennial or materially adversely affect the consummation of the transactions contemplated hereby; (ii) neither CIC nor Centennial has any present

expectation or intention of not fully performing any material obligation pursuant to any Contract or commitment set forth on Schedule 4.15(a) ; and (iii) to the Knowledge of CIC, there has been no cancellation, breach or anticipated breach by any other party to any Contract or commitment set forth on Schedule 4.15(a) , except for any cancellation, breach or anticipated breach which would not, individually or in the aggregate, have a Material Adverse Effect on CIC or Centennial or materially adversely affect the consummation of the transactions contemplated hereby.

4.16 Litigation . Schedule 4.16 lists all Litigation pending or, to the Knowledge of CIC, threatened against CIC or Centennial, and each Governmental Order to which CIC or Centennial is subject. None of the matters set forth on Schedule 4.16 , individually or in the aggregate, will have or would reasonably be expected to have a Material Adverse Effect on CIC or Centennial or materially adversely affect the consummation of the transactions contemplated hereby.

4.17 No Brokers or Finders . Except as provided in the letter agreement dated August 12, 2015, between CIC and River Branch Capital LLC, there are no claims for brokerage commissions, finders’ fees, investment advisory fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement, understanding, commitment or agreement made by or on behalf of CIC or Centennial.

4.18 Employees .

(a) Schedule 4.18(a) lists (i) each employee of CIC or Centennial as of the date of this Agreement, and indicates for each such employee, and in the aggregate, (ii) whether such employee is full-time, part-time or on temporary status, (iii) whether such employee is a salaried employee, (iv) the employee’s annual salary, wages and any other compensation payable (including compensation payable pursuant to bonus, incentive, deferred compensation or commission arrangements), (v) the date of commencement of the employee’s employment, and (vi) the employee’s position. To the Knowledge of CIC, and except as set forth in Schedule 4.18(a) , no executive employee of CIC or Centennial and no group of employees of CIC or Centennial has any plans to terminate his, her or their employment. Each of CIC and Centennial has complied in all material respects with all applicable Laws relating to employment and employment practices and those relating to the calculation and payment of wages (including overtime pay, maximum hours of work and child labor restrictions), equal employment opportunity (including Laws prohibiting discrimination and/or harassment or requiring accommodation on the basis of race, color, national origin, religion, gender, disability, age, sexual orientation or otherwise), affirmative action and other hiring practices, occupational safety and health, workers compensation, unemployment, the payment of social security and other Taxes, and unfair labor practices under the National Labor Relations Act or applicable state Law. Neither CIC nor Centennial has any labor relations problem pending or, to the Knowledge of CIC, threatened, and its labor relations are satisfactory. There are no workers’ compensation claims pending against CIC or Centennial or, to the Knowledge of CIC, any facts that would give rise to such a claim, that are not fully covered by insurance indemnity with respect to the amount of such

claims. To the Knowledge of CIC, no employee of CIC or Centennial is subject to any secrecy or noncompetition agreement or any other agreement or restriction of any kind that would impede in any way the ability of such employee to carry out fully all activities of such employee in furtherance of the business of CIC or Centennial as currently conducted.

(b) Schedule 4.18(b) lists each employee of CIC or Centennial as of the date of this Agreement who holds a temporary work authorization, including H‑1B, L‑1, F‑1 or J‑1 visas or work authorizations (the “ Work Permits ”), and shows for each such employee the type of Work Permit and the length of time remaining on such Work Permit. With respect to each Work Permit, all of the information that CIC or Centennial provided to the Department of Labor and the Immigration and Naturalization Service or the Department of Homeland Security (collectively, the “ Department ”) in the application for such Work Permit was true and complete. CIC or Centennial received the appropriate notice of approval from the Department with respect to each such Work Permit. Neither CIC nor Centennial has received any notice from the Department that any Work Permit has been revoked. There is no action pending or, to the Knowledge of CIC, threatened to revoke or adversely modify the terms of any of the Work Permit. Except as set forth in Schedule 4.18(b) , no employee of CIC or Centennial is (a) a non-immigrant employee whose status would terminate or otherwise be affected by the transactions contemplated by this Agreement, or (b) an alien who is authorized to work in the United States in non-immigrant status. For each employee of the CIC or Centennial hired after November 6, 1986, CIC or Centennial has retained an Immigration and Naturalization Service Form I‑9, completed in accordance with applicable Law.

(c) The employment of all terminated former employees of CIC and Centennial has been terminated in accordance with any applicable contract terms and applicable Law, and neither CIC nor Centennial has any liability under any Contract or applicable Law applicable to any such terminated employee. Except as set forth in Schedule 4.18(c) , the transactions contemplated by this Agreement will not cause CIC or Centennial to incur or suffer any liability relating to, or obligation to pay, severance, termination or other payment to any Person.

(d) All loans that CIC or Centennial have outstanding to any employee were made in the Ordinary Course of Business on the same terms as would have been provided to a Person not Affiliated with CIC or Centennial, and all such loans with a principle balance exceeding $500,000, or that are nonaccrual or on a watch list, are set forth in Schedule 4.18(d) .

(e) Within the last five years, neither CIC nor Centennial has experienced and, to the Knowledge of CIC, there has not been threatened, any strike, work stoppage, slowdown, lockout, picketing, leafleting, boycott, other labor dispute, union organization attempt, demand for recognition from a labor organization or petition for representation under the National Labor Relations Act or applicable state Law. No grievance, demand for arbitration or arbitration proceeding arising out of or under any collective bargaining agreement is pending or, to the Knowledge of CIC, threatened. Except as set forth on Schedule 4.18(e) , no Litigation is pending or, to the Knowledge of CIC, threatened

respecting or involving any applicant for employment, any current employee or any former employee, or any class of the foregoing, including:

(i) the Equal Employment Opportunity Commission or any other corresponding state or local fair employment practices agency relating to any claim or charge of discrimination or harassment in employment;

(ii) the United States Department of Labor or any other corresponding state or local agency relating to any claim or charge concerning hours of work, wages or employment practices;

(iii) the Occupational Safety and Health Administration or any other corresponding state or local agency relating to any claim or charge concerning employee safety or health;

(iv) the Office of Federal Contract Compliance or any corresponding state agency; and

(v) the National Labor Relations Board or any corresponding state agency, whether relating to any unfair labor practice or any question concerning representation,

and, to the Knowledge of CIC, there is no reasonable basis for any such Litigation.

(f) No employee of CIC or Centennial is covered by any collective bargaining agreement, and no collective bargaining agreement is being negotiated.

(g) Each of CIC and Centennial has paid in full to all employees all wages, salaries, bonuses and commissions due and payable to such employees and has fully reserved in its books of account all amounts for wages, salaries, bonuses and commissions due but not yet payable to such employees.

(h) There has been no lay-off of employees or work reduction program undertaken by or on behalf of CIC or Centennial in the past two years, and no such program has been adopted by CIC or Centennial or publicly announced.

4.19 Employee Benefit Plans .

(a) Schedule 4.19(a) sets forth all Plans by name and brief description identifying: (i) the type of Plan, (ii) the funding arrangements for the Plan, (iii) the sponsorship of the Plan, (iv) the participating employers in the Plan, and (v) any one or more of the following characteristics that may apply to such Plan: (A) defined contribution plan as defined in Section 3(34) of ERISA or Section 414(i) of the Code, (B) defined benefit plan as defined in Section 3(35) of ERISA or Section 414(j) of the Code, (C) Plan that is or is intended to be tax qualified under Section 401(a) or 403(a) of the Code, (D) Plan that is or is intended to be an employee stock ownership plan as defined in Section 4975(e)(7) of the Code (and whether or not such Plan has entered into an exempt loan), (E) nonqualified deferred compensation arrangement, (F) employee

welfare benefit plan as defined in Section 3(1) of ERISA, (G) multiemployer plan as defined in Section 3(37) of ERISA or Section 414(f) of the Code, (H) multiple employer plan maintained by more than one employer as defined in Section 413(c) of the Code, (I) Plan providing benefits after separation from service or termination of employment, (J) Plan that owns any CIC or other employer securities as an investment, (K) Plan that provides benefits (or provides increased benefits or vesting) as a result of a change in control of CIC, (L) Plan that is maintained pursuant to collective bargaining and (M) Plan that is funded, in whole or in part, through a voluntary employees’ beneficiary association exempt from Tax under Section 501(c)(9) of the Code.

(b) Schedule 4.19(b) sets forth the identity of each corporation, trade or business (separately for each category below that applies): (i) which is (or was during the preceding five years) under common control with CIC or Centennial within the meaning of Section 414(b) or (c) of the Code; (ii) which is (or was during the preceding five years) in an affiliated service group with CIC or Centennial within the meaning of Section 414(m) of the Code; (iii) which is (or was during the preceding five years) the legal employer of Persons providing services to CIC or Centennial as leased employees within the meaning of Section 414(n) of the Code; and (iv) with respect to which CIC or Centennial is a successor employer for purposes of group health or other welfare plan continuation rights (including Section 601 et. seq. of ERISA) or the Family and Medical Leave Act.

(c) CIC has made available to Heartland true and complete copies of: (i) the most recent determination letter, if any, received by CIC or Centennial from the Internal Revenue Service regarding each Plan; (ii) the most recent determination or opinion letter ruling, if any, from the Internal Revenue Service that each trust established in connection with plans which are intended to be tax exempt under Section 501(a) or (c) of the Code are so tax exempt; (iii) all pending applications, if any, for rulings, determinations, opinions, no-action letters and the like filed with any governmental agency (including the Department of Labor, Internal Revenue Service, Pension Benefit Guaranty Corporation and the SEC); (iv) the financial statements for each Plan for the three most recent fiscal or Plan years (in audited form if required by ERISA) and, where applicable, Annual Report/Return (Form 5500) with schedules, if any, and attachments for each Plan; (v) the most recently prepared actuarial valuation report for each Plan (including reports prepared for funding, deduction and financial accounting purposes); (vi) plan documents, trust agreements, insurance contracts, service agreements and all related contracts and documents (including any employee summaries and material employee communications) with respect to each Plan, if any; and (vii) collective bargaining agreements (including side agreements and letter agreements) relating to the establishment, maintenance, funding and operation of any Plan, if any.

(d) Schedule 4.19(d) identifies each employee of CIC or Centennial who is: (i) absent from active employment due to short or long term disability; (ii) absent from active employment on a leave pursuant to the Family and Medical Leave Act or a comparable state Law; (iii) absent from active employment on any other leave or approved absence; (iv) absent from active employment due to military service (under

conditions that give the employee rights to re-employment); or (v) not an “at will” employee.

(e) With respect to continuation rights arising under federal or state Law as applied to Plans that are group health plans (as defined in Section 601 et. seq. of ERISA), Schedule 4.19(e) identifies: (i) each employee, former employee or qualifying beneficiary who has elected continuation; and (ii) each employee, former employee or qualifying beneficiary who has not elected continuation coverage but is still within the period in which such election may be made.

(f) (i) All Plans intended to be tax qualified under Section 401(a) or Section 403(a) of the Code have received a determination letter stating that they are so qualified; (ii) all trusts established in connection with Plans which are intended to be tax exempt under Section 501(a) or (c) of the Code have received a determination letter stating that they are so tax exempt; (iii) to the extent required either as a matter of Law or to obtain the intended tax treatment and tax benefits, all Plans comply in all material respects with the requirements of ERISA and the Code; (iv) all Plans have been administered materially in accordance with the documents and instruments governing the Plans; (v) all reports and filings with governmental agencies (including the Department of Labor, Internal Revenue Service, Pension Benefit Guaranty Corporation and the SEC) required in connection with each Plan have been timely made; (vi) all disclosures and notices required by Law or Plan provisions to be given to participants and beneficiaries in connection with each Plan have been properly and timely made in all material respects; and (vii) each of CIC and Centennial has made a good faith effort to comply with the reporting and taxation requirements for FICA taxes with respect to any deferred compensation arrangements under Section 3121(v) of the Code.

(g) (i) All contributions, premium payments and other payments required to be made in connection with the Plans have been made, (ii) a proper accrual has been made on the books of account of CIC for all contributions, premium payments and other payments due in the current fiscal year, (iii) no contribution, premium payment or other payment has been made in support of any Plan that is in excess of the allowable deduction for federal income Tax purposes for the year with respect to which the contribution was made (whether under Section 162, Section 280G, Section 404, Section 419 or Section 419A of the Code or otherwise) and (iv) with respect to each Plan that is subject to Section 301 et seq . of ERISA or Section 412 of the Code, CIC is not liable for any “accumulated funding deficiency” as that term is defined in Section 412 of the Code and the projected benefit obligations do not exceed the assets of the Plan.

(h) Except as disclosed on Schedule 4.19(h) :

(i) no action, suit, charge, complaint, proceeding, hearing, investigation or claim is pending with regard to any Plan other than routine uncontested claims for benefits;

(ii) the consummation of the transactions contemplated by this Agreement will not cause any Plan to increase benefits payable to any participant or beneficiary;

(iii) the consummation of the transactions contemplated by this Agreement will not: (A) entitle any current or former employee of CIC or Centennial to severance pay, unemployment compensation or any other payment, benefit or award, or (B) accelerate or modify the time of payment or vesting, or increase the amount of any benefit, award or compensation due any such employee;

(iv) CIC has not been notified that any Plan is currently under examination or audit by the Department of Labor, the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the SEC;

(v) to the Knowledge of CIC, neither CIC nor Centennial has any actual or potential liability arising under Title IV of ERISA as a result of any Plan that has terminated or is in the process of terminating;

(vi) to CIC’s Knowledge, neither CIC nor Centennial has any actual or potential liability under Section 4201 et. seq. of ERISA for either a complete withdrawal or a partial withdrawal from a multiemployer plan; and

(vii) with respect to the Plans, to the Knowledge of CIC, neither CIC nor Centennial has any liability (either directly or as a result of indemnification) for (and the transaction contemplated by this Agreement will not cause any liability for): (A) any excise taxes under Section 4971 through Section 4980B, Section 4999, Section 5000 or any other section of the Code, or (B) any penalty under Section 502(i), Section 502(l), Part 6 of Title I or any other provision of ERISA, or (C) any excise taxes, penalties, damages or equitable relief as a result of any prohibited transaction, breach of fiduciary duty or other violation under ERISA or any other applicable Law.

(i) Except as disclosed on Schedule 4.19(i) :

(i) all accruals required under FAS 106 and FAS 112 have been properly accrued on the financial statements of each of CIC and Centennial;

(ii) no condition, agreement or Plan provision limits the right of CIC or Centennial to amend, cut back or terminate any Plan (except to the extent such limitation arises under ERISA or the Code); and

(iii) neither CIC nor Centennial has any liability for life insurance, death or medical benefits after separation from employment other than: (A) death benefits under the Plans identified on Schedule 4.19(i) , or (B) health care continuation benefits described in Section 4980B of the Code.

(j) Each Plan, or other nonqualified deferred compensation plan of CIC or Centennial, that is subject to Section 409A of the Code has been designed and has been administered in compliance with Section 409A and the Treasury Regulations thereunder.

4.20 Insurance . Schedule 4.20 hereto lists each insurance policy maintained by CIC or Centennial with respect to its properties and assets. Prior to the date hereof, CIC has delivered to Heartland complete and accurate copies of each of the insurance policies described on Schedule 4.20 . All such insurance policies are in full force and effect, and neither CIC nor Centennial is in default with respect to its obligations under any of such insurance policies.

4.21 Affiliate Transactions . Except as set forth on Schedule 4.21 , neither CIC nor Centennial, nor any of their respective executive officers or directors, or any member of the immediate family of any such executive officer or director (which for the purposes hereof shall mean a spouse, minor child or adult child living at the home of any such executive officer or director), or any entity which any of such Persons “controls” (within the meaning of Regulation O of the FRB), has any loan agreement, note or borrowing arrangement or any other agreement with CIC or Centennial (other than normal employment arrangements or deposit account relationships) or any interest in any property, real, personal or mixed, tangible or intangible, used in or pertaining to the business of CIC or Centennial.

4.22 Compliance with Laws; Permits . Each of CIC and Centennial is in compliance in all material respects with all Laws, Governmental Orders or Governmental Authorizations, including the Bank Holding Company Act, the FDIA, the Occupational Safety and Health Act of 1970, the Home Owners Loan Act, the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act of 1975, the Fair Housing Act, the Equal Credit Opportunity Act and the Federal Reserve Act, each as amended, and any other applicable Governmental Order or Governmental Authorization regulating or otherwise affecting bank holding companies, banks and banking; and no claims have been filed by any Governmental Entity against CIC or Centennial alleging such a violation of any such Law which have not been resolved to the satisfaction of such Governmental Entity. Each of CIC and Centennial holds all of Governmental Authorizations required for the conduct of its business. Neither CIC nor Centennial is subject to any Governmental Order, written agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is a recipient of any extraordinary supervisory agreement letter from, or has adopted any Board resolutions at the request of, any Governmental Entity charged with the supervision or regulation of banks or bank holding companies or engaged in the insurance of bank deposits (collectively, the “ Bank Regulators ”), nor have either of CIC or Centennial has been advised by any Bank Regulator that it is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such order, directive, written agreement, memorandum of understanding, extraordinary supervisory letter, commitment letter, Board resolutions or similar undertaking.

4.23 Administration of Fiduciary Accounts . Centennial has administered all accounts for which it acts as a fiduciary, including accounts for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in all material respects in accordance with the terms of the governing documents and applicable state and federal Law and regulation and common law. None of CIC or Centennial or any of their

respective officers or directors has committed any breach of trust with respect to any such fiduciary account which is material to or would reasonably be expected to be material to the business, operations or financial condition of CIC or Centennial, and the accountings for each such fiduciary account are true and correct in all material respects and accurately reflect the assets of such fiduciary account in all material respects.

4.24 Interest Rate Risk Management Instruments .

(a) Schedule 4.24 sets forth a true, correct and complete list of all interest rate swaps, caps, floors and option agreements and other interest rate risk management arrangements to which CIC or Centennial is a party or by which any of their properties or assets may be bound. CIC has delivered to Heartland true, correct and complete copies of all such interest rate risk management agreements and arrangements.

(b) All interest rate swaps, caps, floors and option agreements and other interest rate risk management arrangements to which CIC or Centennial is a party or by which any of their properties or assets may be bound were entered into in the ordinary course of business and, to the Knowledge of CIC, in accordance with prudent banking practice and applicable rules, regulations and policies of Bank Regulators and with counterparties believed to be financially responsible at the time, and are legal, valid and binding obligations enforceable in accordance with their terms (except as may be limited by Remedies Exceptions), and are in full force and effect. Each of CIC and Centennial has duly performed in all material respects all of its obligations thereunder to the extent that such obligations to perform have accrued; and, to the Knowledge of CIC, there are no breaches, violations or defaults or allegations or assertions of such by any party thereunder.

4.25 Regulatory Approvals . CIC is not aware of any fact or circumstance relating to it or Centennial that would materially impede or delay receipt of any Regulatory Approvals or that would likely result in the Regulatory Approvals not being obtained.

4.26 Disclosure . To the Knowledge of CIC, the representations and warranties of CIC contained in this Agreement do not omit any material fact necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading. There is no fact known to CIC which has not been disclosed to Heartland pursuant to this Agreement and the Disclosure Schedules which would have or would reasonably be expected to have a Material Adverse Effect on CIC or Centennial or materially adversely affect the consummation of the transactions contemplated hereby.

ARTICLE 5

CONDUCT OF BUSINESS PENDING THE MERGER

5.1 Conduct of Business . From the date of this Agreement to the Effective Time, unless Heartland shall otherwise agree in writing or as otherwise expressly contemplated or permitted by other provisions of this Agreement, including this Section 5.1, or disclosed in the Disclosure Schedules:

(a) the business of CIC and Centennial shall be conducted only in, and neither CIC nor Centennial shall take any action except in, the Ordinary Course of Business and in accordance with all applicable Laws;

(b) each of CIC and Centennial will (i) preserve its business organization and goodwill, and will use commercially reasonable efforts to keep available the services of its officers, employees and consultants and maintain satisfactory relationships with vendors, customers and others having business relationships with it, (ii) subject to applicable Laws, confer on a regular and frequent basis with representatives of Heartland to report operational matters and the general status of ongoing operations as reasonably requested by Heartland and (iii) not take any action that would render, or that reasonably would be expected to render, any representation or warranty made by CIC in this Agreement untrue at the Closing as though then made and as though the Closing Date had been substituted for the date of this Agreement in such representation or warranty;

(i) amend or propose to amend its Charter or Bylaws;

(ii) except as provided on Schedule 5.1(c) , issue or sell any of its equity securities, securities convertible into or exchangeable for its equity securities, warrants, options or other rights to acquire its equity securities, or any bonds or other securities, except deposit and other bank obligations in the ordinary course of business;

(iii) redeem, purchase, acquire or offer to acquire, directly or indirectly, any shares of capital stock of or any other ownership interest in CIC or Centennial;

(iv) split, combine or reclassify any outstanding shares of capital stock of CIC or Centennial, or declare, set aside or pay any dividend or other distribution payable in cash, property or otherwise with respect to shares of capital stock of CIC or capital stock of Centennial, except that Centennial shall be permitted to pay dividends on the shares of common stock of Centennial owned by CIC;

(v) borrow any amount or incur or become subject to any material liability, except in the Ordinary Course of Business;

(vi) discharge or satisfy any material Encumbrance on its properties or assets or pay any material liability, except otherwise in the Ordinary Course of Business;

(vii) sell, assign, transfer, mortgage, pledge or subject to any Encumbrance any of its assets, except (A) in the Ordinary Course of Business; provided , that any such sale, assignment or transfer of any Operating Real Property shall not be considered in the Ordinary Course of Business, (B) Permitted Encumbrances and (C) Encumbrances which do not materially

affect the value of, or interfere with the past or future use or ability to convey, the property subject thereto or affected thereby;

(viii) cancel any material debt or claims or waive any rights of material value, except in the Ordinary Course of Business;

(ix) acquire (by merger, exchange, consolidation, acquisition of stock or assets or otherwise) any corporation, partnership, joint venture or other business organization or division or material assets thereof, or any Real Estate or assets or deposits that are material to CIC or Centennial, except in exchange for debt previously contracted, including OREO;

(x) other than as set forth on Schedule 4.11 , make any single or group of related capital expenditures or commitments therefor in excess of $50,000 or enter into any lease or group of related leases with the same party which involves aggregate lease payments payable of more than $75,000 for any individual lease or involves more than $100,000 for any group of related leases in the aggregate; or

(xi) change any of its methods of accounting in effect on the date of the Latest Balance Sheet Date, other than changes required by GAAP or regulatory accounting principles;

(xii) cancel or terminate its current insurance policies or allow any of the coverage thereunder to lapse, unless simultaneously with such termination, cancellation or lapse replacement policies providing coverage equal to or greater than the coverage under the canceled, terminated or lapsed policies for substantially similar premiums are in full force and effect;

(xiii) enter into or modify any employment, severance or similar agreements or arrangements with, or grant any compensation increases to, any director, officer or management employee, except in the Ordinary Course of Business;

(xiv) terminate or amend any bonus, profit sharing, stock option, restricted stock, pension, retirement, deferred compensation, or other employee benefit plan, trust, fund, contract or arrangement for the benefit or welfare of any employees, except as contemplated hereunder or by Law or as disclosed on Schedule 4.19 ;

(xv) enter into or propose to enter into, or modify or propose to modify, any agreement, arrangement or understanding with respect to any of the matters set forth in this Section 5.1(c); or

(xvi) make any agreements or commitments binding it to extend credit except in a manner consistent with past practice and in accordance with Centennial’s lending policies as disclosed to Heartland, and Centennial shall not make any agreements or commitments binding it to extend credit in an amount in

excess of $500,000, or sell, assign or otherwise transfer any participation in any loan, in each case without prior consultation with Heartland.

5.2 Access to Information; Confidentiality .

(a) CIC shall permit and shall cause Centennial to permit Heartland full access on reasonable notice and at reasonable hours to the properties of CIC and Centennial, and shall disclose and make available (together with the right to copy) to Heartland and to the internal auditors, loan review officers, employees, attorneys, accountants and other representatives of Heartland all books, papers and records relating to the assets, stock, properties, operations, obligations and liabilities of CIC and Centennial, including, without limitation, all books of account (including, without limitation, the general ledgers), tax records, minute books of directors’ and shareholders’ meetings, organizational documents, bylaws, contracts and agreements, filings with any regulatory authority, accountants’ work papers, litigation files (including, without limitation, legal research memoranda), documents relating to assets and title thereto (including, without limitation, abstracts, title insurance policies, surveys, environmental reports, opinions of title and other information relating to the real and personal property), Plans affecting employees, securities transfer records and shareholder lists, and any books, papers and records relating to other assets, business activities or prospects in which Heartland may have a reasonable interest, including, without limitation, its interest in planning for integration and transition with respect to the business of CIC and Centennial; provided, however , that (i) the foregoing rights granted to Heartland shall in no way affect the nature or scope of the representations, warranties and covenants of CIC set forth herein, and (ii) CIC shall be permitted to keep confidential any information that CIC reasonably believes is subject to legal privilege or other legal protection that would be compromised by disclosure to Heartland. In addition, CIC shall cause Centennial to instruct their officers, employees, counsel and accountants to be available for, and respond to any questions of, such Heartland representatives at reasonable hours and with reasonable notice by Heartland to such individuals, and to cooperate fully with Heartland in planning for the integration of the business of CIC and Centennial with the business of Heartland and its Affiliates.

(b) Any confidential information or trade secrets of CIC or Centennial received by Heartland, its employees or agents in the course of the consummation of the Merger or Bank Merger shall be treated confidentially, and any correspondence, memoranda, records, copies, documents and electronic or other media of any kind containing either such confidential information, or trade secrets or both shall be destroyed by Heartland or, at CIC’s request, returned to CIC if this Agreement is terminated as provided in Article 7. Such information shall not be used by Heartland or its agents to the detriment of CIC or Centennial.

(c) In the event that this Agreement shall terminate, neither party shall disclose, except as required by Law or pursuant to the request of a Governmental Agency, the basis or reason for such termination, without the consent of the other party.

5.3 Notice of Developments . CIC will promptly notify Heartland of any emergency or other change in the Ordinary Course of Business of CIC or Centennial. CIC will promptly notify Heartland in writing if CIC should discover that any representation or warranty made by it in this Agreement was when made, has subsequently become or will be on the Closing Date untrue in any respect. No disclosure pursuant to this Section 5.3 will be deemed to amend or supplement the Disclosure Schedules or to prevent or cure any inaccuracy, misrepresentation, breach of warranty or breach of agreement.

5.4 Certain Loans and Related Matters . CIC will furnish to Heartland a complete and accurate list as of the end of each calendar month after October 2015, within 15 Business Days after the end of each such calendar month, of (a) all of Centennial’s periodic internal credit quality reports prepared during such calendar month (which reports will be prepared in a manner consistent with past practices), (b) all loans of Centennial classified as non-accrual, as restructured, as 90 days past due, as still accruing and doubtful of collection or any comparable classification, (c) all OREO, including in-substance foreclosures and real estate in judgment, (d) all new loans where the principal amount advanced exceeds $500,000; (e) any current repurchase obligations of Centennial with respect to any loans, loan participations or state or municipal obligations or revenue bonds and (f) any standby letters of credit issued by Centennial.

5.5 Monthly Financial Statements and Pay Listings . CIC shall furnish Heartland with balance sheets of CIC and Centennial as of the end of each calendar month after October 2015 and the related statements of income, within 15 days after the end of each such calendar month. Such financial statements shall be prepared on a basis consistent with the Latest Balance Sheet and the Related Statements and on a consistent basis during the periods involved, and shall fairly present the financial positions of CIC and Centennial as of the dates thereof and the results of operations of CIC and Centennial for the periods then ended. CIC shall make available to Heartland the payroll listings of CIC and Centennial as of the end of each pay period after October 2015, within one week after the end of such pay period.

5.6 Consents and Authorizations . CIC will use its commercially reasonable efforts to obtain (at no cost to Heartland), prior to Closing, all Consents (the “ Required Consents ”) necessary or reasonably desirable for the consummation of the transactions contemplated by this Agreement, and the other consents listed on Schedule 5.6 . CIC will keep Heartland reasonably advised of the status of obtaining the Required Consents, and Heartland will reasonably cooperate with CIC to obtain the Required Consents.

5.7 Filing of Tax Returns and Adjustments .

(a) CIC and Centennial shall file (or cause to be filed) at their own expense, on or prior to the due date, all Returns, including all Plan Returns and reports, for all Tax periods ending on or before the Effective Time where the due date for such Returns or reports (taking into account valid extensions of the respective due dates) falls on or before the Effective Time; provided, however , that neither CIC nor Centennial shall file any such Returns, or other returns, elections or information statements with respect to any liabilities for Taxes (other than federal, state or local sales, use, withholding or employment Tax Returns or statements), or consent to any adjustment or otherwise compromise or settle any matters with respect to Taxes, without prior consultation with

Heartland; provided, further , that neither CIC nor Centennial shall make any election or take any other discretionary position with respect to Taxes, in a manner inconsistent with past practices, without the prior written approval of Heartland, which approval shall not be unreasonably withheld, conditioned or delayed. In the event the granting or withholding of such approval by Heartland results in additional Taxes owing for any Tax period ending on or before the Effective Time, Liability for such additional Taxes shall not cause any representation of CIC relating to Taxes to be untrue, and to the extent such Liability would otherwise result in a reduction in the Adjusted Tangible Equity at Closing, such Liability shall be ignored for purposes of calculating Adjusted Tangible Equity. CIC shall provide Heartland with a copy of appropriate workpapers, schedules, drafts and final copies of each federal and state income Tax Return or election of CIC and Centennial (including Returns of all Plans) at least ten days before filing such Return or election. CIC shall consider in good faith and incorporate in the Return any reasonable comments that Heartland may make with respect to such Return or election.

(b) Heartland, in its sole and absolute discretion and at its sole expense, will file (or cause to be filed) all Returns of CIC and Centennial due after the Effective Time. After the Effective Time, Heartland, in its sole and absolute discretion and to the extent permitted by Law, shall have the right to amend, modify or otherwise change all Returns of CIC and Centennial for all Tax periods. To the extent Heartland amends any such Returns, other than an amendment to comply with applicable Law, to correct an error or made at the request of the applicable federal, state, local or foreign Tax authority, and such amendment results in additional Taxes owing for any Tax period ending on or before the Effective Time, such additional Taxes shall not cause any representation of CIC relating to Taxes to be untrue.

5.8 No Solicitation .

(a) Neither CIC nor Centennial will, and they will each use their best efforts to cause their officers, directors, employees agents and authorized representatives (“ Representatives ”) not to, directly or indirectly, (i) solicit, initiate, encourage, induce or facilitate the making, submission or announcement of any Acquisition Proposal or take any action that would reasonably be expected to lead to an Acquisition Proposal, (ii) furnish any information regarding CIC or Centennial to any Person in connection with or in response to an Acquisition Proposal or an inquiry or indication of interest that would reasonably be expected to lead to an Acquisition Proposal, (iii) engage in discussions or negotiations with any Person with respect to any Acquisition Proposal or that would reasonably be expected to lead to an Acquisition Proposal, (iv) approve, endorse or recommend any Acquisition Proposal or (v) enter into any letter of intent or similar document or any Contract contemplating or otherwise relating to any Acquisition Transaction; provided, however, that prior to the adoption of this Agreement by the Required CIC Shareholder Vote, this Section 5.8(a) will not prohibit CIC from furnishing nonpublic information regarding CIC to, or entering into discussions or negotiations with, any Person in response to a Superior Proposal that is submitted to CIC by such Person (and not withdrawn) if (1) neither CIC nor Centennial nor any their respective Representatives have violated any of the restrictions set forth in this Section 5.8(a), (2) the Board of Directors of CIC concludes in good faith, after having consulted with

and considered the advice of outside counsel to CIC, that such action is required in order for the Board of Directors of CIC to comply with its fiduciary obligations to CIC’s shareholders under applicable Law, (3) at least two business days prior to furnishing any such nonpublic information to, or entering into discussions with, such Person, CIC gives Heartland written notice of the identity of such Person and of CIC’s intention to furnish nonpublic information to, or enter into discussions with, such Person, and CIC receives from such Person an executed confidentiality agreement containing customary limitations on the use and disclosure of all nonpublic written and oral information furnished to such Person by or on behalf of CIC and (4) at least two business days prior to furnishing any such nonpublic information to such Person, CIC furnishes such nonpublic information to Heartland (to the extent such nonpublic information has not been previously furnished by the CIC to Heartland). Without limiting the generality of the foregoing, CIC acknowledges and agrees that any violation of or the taking of any action inconsistent with any of the restrictions set forth in the preceding sentence by CIC, Centennial or any Representative will be deemed to constitute a breach of this Section 5.8(a) by CIC.

(b) CIC will promptly (and in no event later than 24 hours after receipt of any Acquisition Proposal, any inquiry or indication of interest that could lead to an Acquisition Proposal or any request for nonpublic information) advise Heartland orally and in writing of any Acquisition Proposal, any inquiry or indication of interest that could lead to an Acquisition Proposal or any request for nonpublic information relating to CIC or Centennial (including the identity of the Person making or submitting such Acquisition Proposal, inquiry, indication of interest or request, and the terms thereof) that is made or submitted by any Person prior to the Closing Date. CIC will keep Heartland fully informed with respect to the status of any such Acquisition Proposal, inquiry, indication of interest or request and any modification or proposed modification thereto.

(c) CIC and Centennial will immediately cease and cause to be terminated any existing discussions with any Person that relate to any Acquisition Proposal.

(d) CIC will not release or permit the release of any Person from, or waive or permit the waiver of any provision of, any confidentiality, “standstill” or similar agreement to which CIC or Centennial is a party, and will enforce or cause to be enforced each such agreement at the request of Heartland. CIC will promptly request each Person that has executed, within 12 months prior to the date of this Agreement, a confidentiality agreement in connection with its consideration of a possible Acquisition Transaction or equity investment to return all confidential information heretofore furnished to such Person by or on behalf of CIC.

ARTICLE 6

ADDITIONAL COVENANTS AND AGREEMENTS

6.1 The Bank Merger . To the extent not previously approved, CIC shall cause the Board of Directors of Centennial to approve the Bank Merger within three business days of execution of this Agreement, and shall vote all of the shares of Centennial voting stock held by Centennial for the Bank Merger. For the avoidance of doubt, the Bank Merger shall occur simultaneous with the Merger, and shall be conditioned upon regulatory approval and upon the

Required CIC Shareholder Vote. Heartland shall take, and shall cause Summit to take, all actions necessary to cause Summit to change its name at the time of consummation of the Bank Merger to be “Centennial Bank” or a derivative thereof reasonably acceptable to CIC.

6.2 Filings and Regulatory Approvals . Heartland and CIC will use all commercially reasonable efforts and will cooperate with each other in the preparation and filing of, and Heartland will file, promptly after the date of this Agreement (but in any event within twenty (20) Business Days after the date of this Agreement), all applications or other documents required to obtain Regulatory Approvals and consents from the FDIC and the CDB for the Bank Merger under the Bank Merger Act, and notification, or approval, if required, of the FRB of the Merger under the Bank Holding Company Act, and any other applicable Governmental Entities, and Heartland shall provide copies of the non-confidential portions of such applications, filings and related correspondence to CIC. CIC will file, promptly after the date of this Agreement (but in any event within twenty (20) Business Days after the date of this Agreement), all applications, notices or other documents required to cause the redemption of the CIC Series A Preferred Stock and pay a dividend from Centennial to CIC in an amount necessary to redeem the CIC Series A Preferred Stock and the CIC Series C Preferred Stock pursuant to this Agreement, and CIC shall provide copies of the non-confidential portions of such applications, filings and related correspondence to Heartland. Prior to filing each application, registration statement or other document with the applicable Governmental Entity, each party will provide the other party with an opportunity to review and comment on the non-confidential portions of each such application, registration statement or other document and will discuss with the other party which portions of this Agreement shall be designated as confidential portions of such applications. Each party will use all commercially reasonable efforts and will cooperate with the other party in taking any other actions necessary to obtain such regulatory or other approvals and consents, including participating in any required hearings or proceedings. Subject to the terms and conditions herein provided, each party will use all commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement. Heartland will pay, or will cause to be paid, any applicable fees and expenses in connection with the preparation and filing of such regulatory filings necessary to obtain the Regulatory Approvals.

6.3 Expenses . All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses.

6.4 Title Insurance and Surveys .

(a) In preparation for the Closing, as soon as reasonably possible and in no event later than January 15, 2016, CIC will furnish to Heartland, at CIC’s expense, with respect to each parcel of Owned Real Property, a title commitment with respect to a title policy conforming to be an ALTA Form 2006 Owner’s Policy of Title Insurance, issued by a title insurer satisfactory to Heartland insuring marketable fee title in Heartland as of the Closing, subject only to Permitted Encumbrances.

(b) If (i) any title commitment or other evidence of title, or search of the appropriate real estate records, discloses that any party other than CIC or Centennial has title to any of the Owned Real Property or (ii) any title exception is disclosed in Schedule B to any title commitment that is not one of the Permitted Encumbrances or not one that CIC specifies when delivering the title commitment to Heartland that CIC will cause to be deleted from the title commitment concurrently with the Closing, including (A) any exceptions that pertain to Encumbrances securing any loans, and (B) any exceptions that Heartland reasonably believes could materially and adversely affect Heartland’s use and enjoyment of the Owned Real Property described therein (a “ Title Objection ”), Heartland will notify CIC in writing of such matters within fifteen (15) Business Days after receiving all of the title commitments for the Owned Real Property. CIC will use reasonable commercial efforts to cure each Title Objection (other than by payment of money) and take reasonable steps required by the title insurer to eliminate each Title Objection as an exception to the title commitment, or in the event it cannot so eliminate such Title Objection, to procure from the title insurer, at Heartland’s direction and but at CIC’s expense, title insurance coverage over such Title Objection on terms acceptable to CIC and Heartland. Matters not objected to by Heartland or that are insured in the manner above will be deemed to be acceptable to Heartland.

6.5 Shareholder Approval; Registration Statement .

(a) CIC shall call a meeting of its shareholders (the “ Shareholder Meeting ”) for the purpose of voting upon this Agreement and the Merger, and shall schedule such meeting based on consultation with Heartland as soon as practicable after the Registration Statement is declared effective. The Board of Directors of CIC shall recommend that the shareholders approve this Agreement and the Merger (the “ Board Recommendation ”), and shall use its best efforts (including soliciting proxies for such approval) to obtain the Required CIC Shareholder Vote. The Board Recommendation may not be withdrawn or modified in a manner adverse to Heartland, and no resolution by the Board of Directors of CIC or any committee thereof to withdraw or modify the Board Recommendation in a manner adverse to CIC may be adopted; provided , however , that notwithstanding the foregoing, prior to the adoption of this Agreement by the Required CIC Shareholder Vote, the Board of Directors of CIC may withdraw, qualify or modify the Board Recommendation or approve, adopt, recommend or otherwise declare advisable any Superior Proposal made after the date hereof and not solicited, initiated or encouraged in breach of Section 5.8 if the Board of Directors of CIC determines in good faith, after consultation with outside counsel, that failure to do so would be likely to result in a breach of fiduciary duties under applicable law (a “ Change of Board Recommendation ”). In determining whether to make a Change of Board Recommendation in response to a Superior Proposal or otherwise, the Board of Directors of CIC shall take into account any changes to the terms of this Agreement proposed by Heartland or any other information provided by Heartland in response to such notice.

(b) For the purposes of (i) holding the Shareholder Meeting and (ii) registering Heartland Common Stock and Heartland Series D Preferred Stock to be issued to shareholders of CIC in connection with the Merger with the SEC and with applicable state securities authorities, Heartland shall prepare, with the cooperation of

CIC (which shall, for the avoidance of doubt, be given the opportunity to participate in the preparation of the Registration Statement and shall have the right to approve the content of the Registration Statement relating to CIC and Centennial), a registration statement on Form S‑4 (such registration statement, together with all and any amendments and supplements thereto, being herein referred to as the “ Registration Statement ”), which shall include a prospectus/proxy statement satisfying all applicable requirements of the Securities Act, the Exchange Act and applicable Blue Sky Laws (such prospectus/proxy statement, together with any and all amendments or supplements thereto, being herein referred to as the “ Prospectus/Proxy Statement ”).

(c) Heartland shall furnish such information concerning Heartland as is necessary in order to cause the Prospectus/Proxy Statement and the Registration Statement, insofar as they relate to Heartland, to be prepared in accordance with Section 6.5(b). Heartland agrees promptly to notify CIC if at any time prior to the Shareholder Meeting any information provided by Heartland in the Prospectus/Proxy Statement becomes incorrect or incomplete in any material respect, and to provide the information needed to correct such inaccuracy or omission.

(d) CIC shall promptly, and in any event within 30 days after the date of this Agreement, furnish Heartland with such information concerning CIC and Centennial as is necessary in order to cause the Prospectus/Proxy Statement and the Registration Statement, insofar as they relate to CIC and Centennial, to be prepared in accordance with Section 6.5(b), including the opinion of counsel as to tax matters required to be filed as an exhibit thereto. CIC agrees promptly to notify Heartland if at any time prior to the Shareholder Meeting any information provided by CIC in the Prospectus/Proxy Statement becomes incorrect or incomplete in any material respect, and to provide Heartland with the information needed to correct such inaccuracy or omission.

(e) Heartland shall promptly, and in any event within 30 days of receipt from CIC pursuant to Section 6.5(d) of all portions of such Registration Statement requiring information relating to CIC and Centennial, file the Registration Statement with the SEC and applicable state securities agencies. Heartland shall use commercially reasonable efforts to cause (i) the Registration Statement to become effective under the Securities Act and applicable Blue Sky Laws at the earliest practicable date; and (ii) the shares of Heartland Common Stock issuable to the shareholders of CIC to be authorized for listing on the Nasdaq Global Select Market or other national securities exchange. At the time the Registration Statement becomes effective, Heartland shall use its commercially reasonable efforts to ensure that the Registration Statement complies in all material respects with the provisions of the Securities Act and applicable Blue Sky Laws. CIC hereby authorizes Heartland to utilize in the Registration Statement the information concerning CIC and Centennial provided to Heartland for the purpose of inclusion in the Prospectus/Proxy Statement. Heartland shall advise CIC promptly when the Registration Statement has become effective and of any supplements or amendments thereto, and Heartland shall furnish CIC with copies of all such documents. Prior to the Effective Time or the termination of this Agreement, each party shall consult with the other with respect to any material (other than the Prospectus/Proxy Statement) that might constitute a “prospectus” relating to the Merger within the meaning of the Securities Act.

(f) For a period of not less than two years after the date hereof (or such shorter period of time as may be applicable for “affiliates” of CIC to sell shares of Heartland Common Stock and Heartland Series D Preferred Stock in accordance with Rule 145 of the Securities Act), Heartland will use commercially reasonable efforts to file in a timely manner all reports with the SEC required to be filed by it pursuant to Section 13 and Section 15(d) of the Exchange Act (other than Current Reports on Form 8‑K) and submit electronically and post on its corporate website, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T.

(g) None of the information relating to Heartland and its Subsidiaries that is provided by Heartland for inclusion in: (i) the Prospectus/Proxy Statement, any filings or approvals under applicable federal or state banking laws or regulations or state securities laws, or any filing pursuant to the Securities Act will, at the time of mailing the Prospectus/Proxy Statement to CIC’s shareholders, at the time of the Shareholder Meeting and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; and (ii) the Registration Statement will, at the time the Registration Statement and each amendment or supplement thereto, if any, becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading.

(h) Heartland shall bear the costs of all SEC filing fees with respect to the Registration Statement and the costs of qualifying the shares of Heartland Common Stock and Heartland Series D Preferred Stock under the Blue Sky Laws, to the extent necessary. Heartland shall also bear the costs of all Nasdaq listing fees with respect to listing the shares of Heartland Common Stock on the Nasdaq Global Select Market or other national securities exchange pursuant to this Agreement. Heartland shall bear all printing and mailing costs in connection with the preparation and mailing of the Prospectus/Proxy Statement to CIC shareholders. Heartland and CIC shall each bear their own legal and accounting expenses in connection with the preparation of the Prospectus/Proxy Statement and the Registration Statement.

6.6 Establishment of Accruals . If requested by Heartland, on the Business Day immediately prior to the Closing Date, Centennial shall, consistent with GAAP, establish such additional accruals and reserves as Heartland indicates are necessary to conform Centennial’s accounting and credit loss reserve practices and methods to those of Heartland (as such practices and methods are to be applied to Centennial from and after the Effective Time) and reflect Heartland’s plans with respect to the conduct of Centennial’s business following the Merger and to provide for the costs and expenses relating to the consummation by Centennial of the transactions contemplated by this Agreement; provided, however , that any such accruals and reserves shall not affect the determination of Adjusted Tangible Equity. No such accruals or reserves shall of itself constitute or be deemed to be a breach, violation or failure to satisfy any representation, warranty, covenant, condition or other provision or constitute grounds for termination of this Agreement or be an acknowledgment by CIC or Centennial (a) of any adverse circumstances for purposes of determining whether the conditions to Heartland’s obligations under this Agreement have been satisfied; or (b) that such adjustment has any bearing on the

Aggregate Merger Consideration. In no event shall any accrual, reserve or other adjustment required or permitted by this Section 6.6 require any prior filing with any Governmental Entity or violate any Law, rule or order applicable to CIC or Centennial.

6.7 Employee Matters .

(a) General . At the request of Heartland, CIC agrees to terminate any Plans as of the Effective Time on terms reasonably acceptable to Heartland. If any Plans are not so terminated, after the Effective Time, Heartland shall have the right to continue, amend, merge or terminate any of such Plans in accordance with the terms thereof and subject to any limitation arising under applicable Law, including tax qualification requirements. Until Heartland shall take such action, however, such Plans shall continue in force for the benefit of present and former employees of CIC or Centennial who have any present or future entitlement to benefits under any of the Plans (“ CIC Employees ”).

(b) Limitation on Enforcement . This Section 6.7 is an agreement solely between CIC and Heartland. Nothing in this Section 6.7, whether express or implied, confers upon any employee of CIC, Centennial or Heartland or any other Person, any rights or remedies, including: (i) any right to employment or recall, (ii) any right to continued employment for any specified period or (iii) any right to claim any particular compensation, benefit or aggregate of benefits, of any kind or nature whatsoever, as a result of this Section 6.7. Each CIC Employee will be eligible to continue to participate in Heartland’s health, vacation and other non-equity based employee benefit plans to the same extent as similarly situated employees of Heartland to the extent permitted by the applicable Heartland Plan or applicable Law; provided , however , that (a) nothing in this Section 6.7(b) or elsewhere in this Agreement will limit the right of Heartland or any of its Subsidiaries to amend or terminate any such health, vacation or other employee benefit plan at any time. With respect to employee benefit plans, if any, of Heartland or its Subsidiaries in which CIC Employees become eligible to participate after the Closing Date (the “ Heartland Plans ”), Heartland will, or will cause the Surviving Corporation or its Subsidiaries to: (i) with respect to each Heartland Plan that is a medical/prescription, dental or vision plan, (x) waive any exclusions for pre-existing conditions under such Heartland Plan that would result in a lack of coverage for any condition for which the applicable CIC Employee would have been entitled to coverage under the corresponding Benefit Plan in which such CIC Employee was an active participant immediately prior to his or her transfer to Heartland Plan; (y) waive any waiting period under such Heartland Plan, to the extent that such period exceeds the corresponding waiting period under the corresponding Benefit Plan in which such CIC Employee was an active participant immediately prior to his or her transfer to Heartland Plan (after taking into account the service credit provided for herein for purposes of satisfying such waiting period); and (z) provided CIC’s insurance company provides information related to the amount of such credit that is available to Heartland, provide each CIC Employee with credit for deductibles paid by such CIC Employee prior to his or her transfer to Heartland Plan (to the same extent such credit was given under the analogous Benefit Plan prior to such transfer) in satisfying any applicable deductible or out-of-pocket requirements under such Heartland Plan for the plan year that includes such transfer and (ii) fully recognize service of the CIC Employees with CIC or Centennial for purposes of eligibility to

participate and vesting credit, and, solely with respect to vacation and severance benefits, benefit accrual in any Heartland Plan in which the CIC Employees are eligible to participate after the Closing Date, to the extent that such service was recognized for that purpose under the analogous Benefit Plan prior to such transfer. Heartland shall extend coverage to CIC Employees for health care, dependent care and limited purpose health care flexible spending accounts established under Section 125 of the Code to the same extent as available to similarly situated employees of Heartland to the extent permitted by such Heartland Plans and applicable Law. Heartland shall give effect to any elections made by CIC Employees with respect to such accounts under any CIC or Centennial flexible benefits cafeteria plan to the extent permitted by such Heartland Plan and applicable Law. CIC Employees shall be credited with amounts available for reimbursement equal to such amounts as were credited under any CIC or Centennial flexible benefits cafeteria plan to the extent permitted by such Heartland Plan and applicable Law. The foregoing will not apply to the extent it would result in duplication of benefits.

(c) Terminated CIC Employees . To the extent that Heartland terminates the employment of any CIC Employee at, or within six months after, the Effective Time, and such CIC Employee is not entitled to severance benefits under a separate contractual obligation with CIC, Heartland will provide such CIC Employee with severance benefits equivalent to one week of pay for each year of service with a minimum of two and a maximum of 12 weeks of severance pay.

6.8 Tax Treatment . None of CIC, Centennial or Heartland shall take any action which would disqualify the Merger as a “reorganization” that would be tax-free to the shareholders of CIC pursuant to Section 368(a)(1)(A) of the Code.

6.9 Updated Schedules . On a date 15 Business Days prior to the Effective Date and on the Effective Date, CIC shall modify any Schedule to this Agreement or add any Schedule or Schedules for the purpose of making the representations and warranties to which any such Schedule relates true and correct in all material respects as of such date, whether to correct any misstatement or omission in any Schedule or to reflect any additional information obtained by CIC subsequent to the date any Schedule was previously delivered by CIC to Heartland. Notwithstanding the foregoing, any updated Schedule shall not have the effect of making any representation or warranty contained in this Agreement true and correct in all material respects for purposes of Section 7.3(a).

6.10 Indemnification; Directors’ and Officers’ Insurance .

(a) Heartland agrees that all rights of the present and former directors and officers of CIC and Centennial to indemnification provided for in the Charter or Bylaws of CIC or Centennial, as applicable, as in effect on the date hereof, or required under any applicable Law (including rights to advancement of expenses and exculpation), shall survive the Merger and continue in full force and effect until expiration of the applicable statute of limitations (each such director and officer being sometimes hereinafter be referred to as an “ Indemnified Party ”). Without limiting the generality of the foregoing, Heartland agrees that, following the Effective Time, the Surviving Corporation will

indemnify any person made a party to any proceeding by reason of the fact that such person was a director, officer or employee of CIC or Centennial at or prior to the Effective Time to the fullest extent provided in, and shall advance expenses in accordance with, the Charter and Bylaws of CIC or Centennial, as applicable, in the form provided to Heartland, in each case subject to all the limitations set forth in such Charter and Bylaws and applicable Law. Notwithstanding anything to the contrary contained in this Section 6.10, nothing contained in this Agreement shall require Heartland to indemnify, defend or hold harmless any Indemnified Party to a greater extent than CIC or Centennial may, as of the date of this Agreement, indemnify, defend and hold harmless such Indemnified Party, and any such indemnification provided pursuant to this Section 6.10 shall be provided only to the extent that such indemnification is permitted by any applicable federal or state Laws.

(b) Prior to the Effective Time, CIC shall or, if CIC is unable to, Heartland as of the Effective Time shall, obtain and fully pay for “tail” insurance with a claims period of at least six (6) years from and after the Effective Time with respect to directors’ and officers’ liability insurance and fiduciary liability insurance (collectively, “ D&O Insurance ”) with benefits and levels of coverage at least as favorable to the Indemnified Parties as CIC and Centennial’s existing policies with respect to matters existing or occurring at or prior to the Effective Time (including in connection with this Agreement or the transactions or actions contemplated hereby); provided , however , that in no event shall CIC or Heartland expend for “tail” insurance policies for the D&O Insurance a premium amount in excess of $100,000). If CIC and Surviving Corporation for any reason fail to obtain such “tail” insurance policies as of the Effective Time, Surviving Corporation shall continue to maintain in effect for a period of at least six (6) years from and after the Effective Time the D&O Insurance in place as of the date of this Agreement with benefits and levels of coverage at least as favorable to the Indemnified Parties as provided in CIC and Centennial’s existing policies as of the date of this Agreement, or Surviving Corporation shall purchase comparable D&O Insurance for such six-year period with benefits and levels of coverage at least as favorable to the Indemnified Parties as provided in CIC and Centennial’s existing policies as of the date of this Agreement; provided , however , that in no event shall CIC or Surviving Corporation be required to expend for such policies an annual premium amount in excess of $40,000; and, provided , further , that if the annual premiums of such insurance coverage exceeds such amount, Surviving Corporation shall obtain a policy with the greatest coverage available for a cost not exceeding such amount.

(c) The provisions of this Section 6.10 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party as if he or she were a party to this Agreement. The indemnification rights provided to each Indemnified Party pursuant hereto shall be in addition to all other indemnification rights provided to such Indemnified Party under any agreement or certificate between CIC or Centennial and such Indemnified Party.

6.11 Notice of Developments by Heartland . Heartland will promptly notify CIC in writing if Heartland should discover that any representation or warranty made by it in this Agreement was when made, has subsequently become or will be on the Closing Date untrue in

any respect. No disclosure pursuant to this Section 6.11 will be deemed to prevent or cure any inaccuracy, misrepresentation, breach of warranty or breach of agreement.

6.12 Redemption of CIC Preferred Stock . Subject to receipt of any approvals required from any Governmental Entities to either provide the necessary funding or effect the redemption, CIC will redeem all outstanding shares of CIC Series A Preferred Stock and CIC Series C Preferred Stock immediately prior to the Effective Time.

6.13 Repayment of CIC Bank Loan . Subject to receipt of any approvals required from any Governmental Entities to provide the necessary funding, including the payment of any dividend from Centennial to CIC, immediately prior to the Effective Time, CIC will repay in full the Promissory Note dated October 24, 2014 in the principal amount of $5,000,000 issued to Busey Bank pursuant to the Bank Stock Loan Agreement dated October 24, 2014 among CIC, CIC Intermediate Holdco, Inc. and Busey Bank and cause the Stock Pledge Agreement dated October 24, 2014 between CIC and Busey Bank to be terminated.

6.14 Assumption of CIC Convertible Notes and CIC Sub-Debt . Heartland will assume all of the CIC Convertible Notes and CIC Sub-Debt as of the Effective Time. Upon conversion of the CIC Convertible Notes after the Effective Time, the holders thereof will be entitled to receive (i) Heartland Common Stock for the entire outstanding principal amount thereof, calculated by dividing such principal amount by a conversion price, subject to further adjustment as provided therein, that has been adjusted as of the Effective Time by multiplying the current conversion price of the CIC Convertible Notes ($12.50) by the ratio of the Average Closing Price to the Aggregate Merger Consideration per Share, and (ii) a proportionate amount of the Scheduled Payments.

6.15 Millennium Stragglers . During the 60-day period following the date of this Agreement, CIC shall provide the Millennium Stragglers with an opportunity to claim shares of CIC Class A Common Stock or receive cash pursuant to the Millennium Agreement. If, within such period any Millennium Stragglers have not claimed shares of CIC Class A Common Stock, CIC will use commercially reasonable efforts to pay them cash in accordance with the Millennium Agreement.

6.16 Determination of Adjusted Tangible Equity . Within five (5) Business Days following the Determination Date, CIC shall prepare and deliver to Heartland its good faith calculation of Adjusted Tangible Equity, together with reasonable support therefor. If CIC and Heartland agree to such calculation and to the Adjusted Tangible Equity, such amounts shall be final and conclusive. If Heartland believes that Tangible Equity is less than $55,000,000 and Heartland and CIC disagree as to such calculations and are unable to reconcile their differences in writing within five (5) Business Days, unless otherwise agreed upon by the parties, the items in dispute shall be submitted to a mutually acceptable independent national accounting firm in the United States for final determination, and the calculations shall be deemed adjusted in accordance with the determination of the independent accounting firm and shall become binding, final and conclusive upon all of the parties hereto. The independent accounting firm shall consider only the items in dispute and shall be instructed to act within five (5) Business Days (or such longer period as CIC and Heartland may agree) to resolve all items in dispute. CIC and

Heartland shall share equally the payment of reasonable fees and expenses of the independent accounting firm.

ARTICLE 7

CONDITIONS

7.1 Conditions to Obligations of Each Party . The respective obligations of each party to effect the transactions contemplated hereby shall be subject to the fulfillment at or prior to the Effective Time of the following conditions:

(a) Regulatory Approvals . The Regulatory Approvals shall have been obtained and the applicable waiting periods, if any, under all statutory or regulatory waiting periods shall have lapsed. None of such approvals shall contain any conditions or restrictions that would (i) be reasonably expected to be materially burdensome on, or impair in any material respect the benefits of the transactions contemplated by this Agreement to Heartland, CIC or Centennial; (ii) require any Person other than Heartland to be deemed a bank holding company under the Bank Holding Company Act; (iii) require any Person other than Heartland to guaranty, support or maintain the capital of Centennial; or (iv) require a material modification of, or impose any material limitation or restriction on, the activities, governance, legal structure, compensation or fee arrangements of Heartland or any of its Subsidiaries; (any of the foregoing, a “ Materially Burdensome Regulatory Condition ”); provided, however , that the following shall not be deemed to be included in the preceding list and shall not be deemed a “Materially Burdensome Regulatory Condition”: any restraint, limitation, term, requirement, provision or condition that applies generally to bank holding companies and banks as provided by Law, written and publicly available supervisory guidance of general applicability, unwritten supervisory guidance of which Heartland has knowledge, in each case, as in effect on the date hereof.

(b) No Injunction . No injunction or other order entered by a state or federal court of competent jurisdiction shall have been issued and remain in effect which would impair the consummation of the transactions contemplated hereby.

(c) No Prohibitive Change of Law . There shall have been no Law, domestic or foreign, enacted or promulgated which would materially impair the consummation of the transactions contemplated hereby.

(d) Governmental Action . There shall not be any action taken, or any statute, rule, regulation, judgment, order or injunction proposed, enacted, entered, enforced, promulgated, issued or deemed applicable to the transactions contemplated hereby by any Governmental Entity which would reasonably be expected to result, directly or indirectly, in (i) restraining or prohibiting the consummation of the transactions contemplated hereby or obtaining material damages from CIC, Centennial, Heartland or any of Heartland’s Subsidiaries in connection with the transactions contemplated hereby, (ii) prohibiting direct or indirect ownership or operation by Heartland of all or a material portion of the business or assets of CIC or Centennial or of Heartland or any of its Subsidiaries, or to compelling Heartland or any of its Subsidiaries or CIC or Centennial to dispose of or to hold separately all or a material portion of the business or assets of Heartland or any of its Subsidiaries or of CIC or Centennial, as a result of the transactions

contemplated hereby, or (iii) requiring direct or indirect divestiture by Heartland of any of its business or assets or of the business or assets of CIC or Centennial.

(e) No Termination . No party hereto shall have terminated this Agreement as permitted herein.

(f) Shareholder Approval . The Merger shall have been approved by the Required CIC Shareholder Vote.

(g) Registration Statement . The Registration Statement shall have been declared and shall remain effective under the Securities Act, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no action, lawsuit, proceeding or investigation for that purpose shall have been initiated or threatened by the SEC, and all approvals required under Blue Sky Laws relating to the shares of Heartland Common Stock and Heartland Series D Preferred Stock issuable to the shareholders of CIC hereunder shall have been received. The shares of Heartland Common Stock issuable to the shareholders of CIC shall have been authorized for listing on the Nasdaq Global Select Market or other national securities exchange, subject to official notice of issuance.

(h) Minimum Adjusted Tangible Equity . Adjusted Tangible Equity, determined as of the Determination Date, shall be not less than $51,500,000.

7.2 Additional Conditions to Obligation of CIC . The obligation of CIC to consummate the transactions contemplated hereby in accordance with the terms of this Agreement is also subject to the following conditions:

(a) Representations and Warranties . The representations and warranties set forth in Article 3 (i) that are not subject to materiality or Material Adverse Effect qualifications will be true and correct in all material respects at and as of the Closing Date as though then made and as though the Closing Date had been substituted for the date of this Agreement in such representations and warranties, except that any representation or warranty expressly made as of a specified date will only need to have been true on and as of such date, and (ii) the representations and warranties set forth in Article 3 that are subject to materiality or Material Adverse Effect qualifications will be true and correct in all respects at and as of the Closing Date as though then made and as though the Closing Date had been substituted for the date of this Agreement in such representations and warranties, except that any representation or warranty expressly made as of a specified date will only need to have been true on and as of such date.

(b) Agreements . Heartland shall have performed and complied in all material respects with each of its agreements contained in this Agreement.

(c) Officer’s Certificate . Heartland shall have furnished to CIC a certificate of the Chief Financial Officer of Heartland, dated as of the Effective Time, in which such officer shall certify to the conditions set forth in Sections 7.2(a) and (b).

(d) Heartland Secretary’s Certificate . Heartland shall have furnished to CIC (i) copies of the text of the resolutions by which the corporate action on the part of Heartland necessary to approve this Agreement and the transactions contemplated hereby were taken, and (ii) a certificate dated as of the Effective Time executed on behalf of Heartland by its corporate secretary or one of its assistant corporate secretaries certifying to CIC that such copies are true, correct and complete copies of such resolutions and that such resolutions were duly adopted and have not been amended or rescinded.

(e) Change in Control of Heartland . Heartland shall not have (i) been merged or consolidated with or into, or announced an agreement to merge with or into, another corporation in any transaction in which the holders of the voting securities of Heartland would not hold a majority of the voting securities of the surviving corporation, (ii) sold all or substantially all of its assets, or (iii) had one Person or group acquire, directly or indirectly, beneficial ownership of more than 50% of the outstanding Heartland Common Stock.

(f) Legal Opinion . CIC shall have received an opinion of Bieging Shapiro & Barber LLP that, based on the terms of this Agreement and on the basis of certain facts, representations and assumptions set forth in such opinion, the Merger will qualify as a reorganization under Section 368(a)(1)(A) of the Code. In rendering such opinion, such counsel may require and rely upon and may incorporate by reference representations and covenants, including those contained in certificates of officers or directors of CIC, Heartland and others.

(g) Other Materials . CIC shall have received the materials set forth in Section 2.8(b).

7.3 Additional Conditions to Obligation of Heartland . The obligation of Heartland to consummate the transactions contemplated hereby in accordance with the terms of this Agreement is also subject to the following conditions:

(a) Representations and Compliance . The representations and warranties set forth in Article 4 (i) that are not subject to materiality or Material Adverse Effect qualifications will be true and correct in all material respects at and as of the Closing Date as though then made and as though the Closing Date had been substituted for the date of this Agreement in such representations and warranties, except that any representation or warranty expressly made as of a specified date will only need to have been true on and as of such date, and (ii) the representations and warranties set forth in Article 4 that are subject to materiality or Material Adverse Effect qualifications will be true and correct in all respects at and as of the Closing Date as though then made and as though the Closing Date had been substituted for the date of this Agreement in such representations and warranties, except that any representation or warranty expressly made as of a specified date will only need to have been true on and as of such date.

(b) Agreements . CIC shall have performed and complied in all material respects with each of its agreements contained in this Agreement.

(c) Officers’ Certificate of CIC . CIC shall have furnished to Heartland a certificate of the Chief Executive Officer and Chief Financial Officer of CIC, dated as of the Effective Date, in which such officers shall certify to the conditions set forth in Sections 7.3(a) and 7.3(b).

(d) CIC Secretary’s Certificate . CIC shall have furnished to Heartland (i) copies of the text of the resolutions by which the corporate action on the part of CIC necessary to approve this Agreement and the transactions contemplated hereby were taken, and (ii) a certificate dated as of the Effective Time executed on behalf of CIC by its corporate secretary or one of its assistant corporate secretaries certifying to Heartland that such copies are true, correct and complete copies of such resolutions and that such resolutions were duly adopted and have not been amended or rescinded.

(e) Dissenting Shares . The total number of Dissenting Shares shall be no greater than six and one-half percent (6.5%) of the number of outstanding shares of CIC Common Stock or CIC Series B Preferred Stock.

(f) Required Consents . Each Required Consent will have been obtained and be in full force and effect, and such actions as Heartland’s counsel may reasonably require will have been taken in connection therewith.

(g) No Equity Claims . No Person (other than a CIC Securityholder) will have asserted that, such Person (i) is the owner of, or has the right to acquire or to obtain ownership of, any capital stock of, or any other voting, equity or ownership interest in, CIC or Centennial or (ii) is entitled to all or any portion of the Merger Consideration.

(h) Employment Agreements . Heartland or Centennial will have entered into employment agreements with Kevin W. Ahern and James L. Basey in substantially the forms attached hereto as Exhibits C and D, such agreements will be in full force and effect and neither of such Persons will have indicated any intention of not fulfilling his obligations under his agreement.

(i) Non-Compete Agreements . Kevin W. Ahern and James L. Basey will have entered into non-compete agreements with Heartland in substantially the forms attached hereto as Exhibits E and F, such agreements will be in full force and effect and neither of such Persons will have indicated any intention of not fulfilling his obligations under his agreement.

(j) Other Materials . Heartland shall have received the materials set forth in Section 2.8(a).

ARTICLE 8

TERMINATION, AMENDMENT AND WAIVER

8.1 Reasons for Termination . This Agreement, by prompt written notice given to the other parties prior to or at the Closing, may be terminated:

(a) by mutual consent of the Boards of Directors of Heartland and CIC;

(b) by either party in the event a Law or Governmental Order will have been enacted, entered, enforced, promulgated, issued or deemed applicable to the transactions contemplated by this Agreement by any Governmental Entity that prohibits the Closing;

(c) by either party if the Merger is disapproved (or suggested or recommended to be withdrawn) by any Governmental Entity;

(d) by CIC if:

(i) the Closing has not occurred by June 30, 2016 (the “ Termination Date ”); provided that CIC will not be entitled to terminate this Agreement pursuant to this clause (d)(i) if (x) CIC’s failure to comply fully with its obligations under this Agreement has prevented the consummation of the transactions contemplated by this Agreement, (y) CIC has refused, after satisfaction of the conditions set forth in Sections 7.1 and 7.2, to close in accordance with Section 2.8 or (z) the circumstances or events underlying the termination rights set forth in clauses (d)(iii) or (d)(iv) of this Section 8.1 shall have occurred;

(ii) Heartland will have breached any representation, warranty or agreement of Heartland in this Agreement in any material respect and such breach cannot be or is not cured within thirty (30) days after written notice of such breach is given by CIC to Heartland;

(iii) at the Shareholder Meeting, this Agreement shall not have been duly adopted by the Required CIC Shareholder Vote;

(iv) (A) CIC will have delivered to Heartland a written notice of the intent of CIC to enter into a merger, acquisition or other agreement (including an agreement in principle) to effect a Superior Proposal based on an Acquisition Proposal received by it, (B) five business days have elapsed following delivery to Heartland of such written notice by CIC, (C) during such five business-day period CIC has fully complied with the terms of Section 5.8, including informing Heartland of the terms and conditions of such Acquisition Proposal and the identity of the Person making such Acquisition Proposal, with the intent of enabling Heartland to agree to a modification of the terms and conditions of this Agreement so that the transactions contemplated hereby may be effected, (D) at the end of such five business-day period the Board of Directors of the CIC will have continued reasonably to believe that such Acquisition Proposal constitutes a Superior Proposal, (E) CIC pays to Heartland the termination fee in accordance with Section 8.4, and (F) CIC will have entered into a merger, acquisition or other agreement (including an agreement in principle) to effect a Superior Proposal or the Board of Directors of CIC will have resolved to do so;

(v) any of the conditions set forth in Sections 7.1 or 7.2 will have become impossible to satisfy (other than through a failure of CIC to comply with its obligations under this Agreement); or

(vi) the Average Determination Date Price shall be less than $23.50; provided, however , CIC may only exercise its termination right pursuant to this Section 8.1(d)(vi) by written notice given to Heartland within two (2) Business Days following the Determination Date.

(e) by Heartland if:

(i) the Closing has not occurred by the Termination Date; provided that Heartland will not be entitled to terminate this Agreement pursuant to this clause (e)(i) if (x) Heartland’s failure to comply fully with its obligations under this Agreement has prevented the consummation of the transactions contemplated by this Agreement or (y) Heartland has refused, after satisfaction of the conditions set forth in Sections 7.1 or 7.3, to close in accordance with Section 2.8;

(ii) CIC will have breached any representation, warranty or agreement in this Agreement in any material respect and such breach cannot be or is not cured within thirty (30) days after written notice of such breach is given by Heartland to CIC; or

(iii) at the Shareholder Meeting, this Agreement shall not have been duly adopted by the Required CIC Shareholder Vote.

8.2 Effect of Termination . Except as provided in Sections 8.3 and 8.4 and any provisions set forth herein that survive the termination of this Agreement, if this Agreement is terminated pursuant to Section 8.1, this Agreement shall forthwith become void, there shall be no liability under this Agreement on the part of Heartland, CIC or any of their respective Representatives or Subsidiaries, and all rights and obligations of each party hereto shall cease; provided, however , that, subject to Sections 8.3, and 8.4, nothing herein shall relieve any party from liability arising out of its own fraud, willful misconduct or material breach of this Agreement.

8.3 Expenses . Except as provided in this Section 8.3 or Section 8.4, all Expenses incurred in connection with this Agreement and the transactions contemplated by this Agreement shall be paid by the party incurring such Expenses, whether or not the Merger is consummated. Notwithstanding the foregoing, if this Agreement is terminated pursuant to Sections 8.1(d)(iii), 8.1(e)(ii) or 8.1(e)(iii), or for any of the reasons set forth in Section 8.4, then CIC shall pay to Heartland, within five Business Days of presentation by Heartland of reasonably detailed invoices for the same, all Expenses reasonably incurred by Heartland, and if this Agreement is terminated pursuant to Section 8.1(d)(ii), then Heartland shall pay to CIC, within five Business Days of presentation by CIC of reasonably detailed invoices for the same, all Expenses reasonably incurred by CIC; provided, however , in either event, neither party’s reimbursement obligation hereunder shall exceed $500,000 in the aggregate. As used in this Agreement, “ Expenses ” shall consist of all out-of-pocket expenses (including all fees and expenses of counsel, accountants, investment bankers, experts and consultants to a party hereto and its Affiliates) incurred by a party in connection with or related to the authorization, preparation, negotiation, execution and performance of this Agreement, the solicitation of shareholder approvals and all other matters related to the consummation of the Merger.

8.4 CIC Termination Payments . If this Agreement is terminated by CIC pursuant to 8.1(d)(iv), or by Heartland pursuant to Section 8.1(e)(ii) because of a breach of any portion of Section 5.8 or Section 6.5(a), then CIC shall pay to Heartland (in lieu of any payment that may be due under Section 8.3), a termination fee of $3,400,000 as the sole and exclusive remedy of Heartland (including any remedy for specific performance), as agreed-upon liquidated damages.

8.5 Amendment . This Agreement may not be amended except by an instrument in writing approved by the parties to this Agreement and signed on behalf of each of the parties hereto.

8.6 Waiver . At any time prior to the Effective Time, any party hereto may (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto or (b) waive compliance with any of the agreements of any other parties or with any conditions to its own obligations, in each case only to the extent such obligations, agreements and conditions are intended for its benefit.

ARTICLE 9

GENERAL PROVISIONS

9.1 Press Releases and Announcements . Any public announcement, including any announcement to employees, customers, suppliers or others having dealings with CIC or Centennial, or similar publicity with respect to this Agreement or the transactions contemplated by this Agreement, will be issued, if at all, at such time and in such manner as Heartland and CIC mutually determine and approve or as required by applicable Law. Heartland will have the right to be present for any in-Person announcement by CIC. Unless consented to by Heartland or required by Law, CIC will keep, and will cause Centennial to keep, this Agreement and the transactions contemplated by this Agreement confidential.

9.2 Notices . All notices and other communications hereunder shall be in writing and shall be sufficiently given if made by hand delivery, by fax, by e-mail, by overnight delivery service, or by registered or certified mail (postage prepaid and return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by it by like notice):



if to Heartland:

Heartland Financial USA, Inc.
1398 Central Avenue
P.O. Box 778
Dubuque, Iowa 52004-0778
Telephone:	(563) 589-1994
Fax:	(563) 589-1951
Attention:	David Horstmann, Executive Vice President, Finance and Corporate Strategy
	Michael Coyle, Executive Vice President, Senior General Counsel and Corporate Secretary
e-mail:	davidhorstmann@htlf.com
	mcoyle@htlf.com



with a copy to:

Dorsey & Whitney LLP
50 South Sixth Street, Suite 1500
Minneapolis, Minnesota 55402
Attention:	Thomas Martin
	Jay L. Swanson
Fax:	(612) 340-7800
e-mail:	martin.tom@dorsey.com
	swanson.jay@dorsey.com

if to CIC:

CIC Bancshares, Inc.
707 17th Street, Suite 2950
Denver, Colorado 80202
Attention:	Kevin W. Ahern, Chairman and Chief Executive Officer
Fax:	(720) 873-3775
e-mail:	kahern@cicbancshares.com

with a copy to:

Bieging Shapiro & Barber LLP
4582 South Ulster Street Parkway
Suite 1650
Denver, Colorado 80237
Attention:	Christian E. Otteson
Fax:	(720) 488-7711
Email:	cotteson@bsblawyers.com

if to the Securityholders’ Representative:

Kevin W. Ahern
c/o CIC Bancshares, Inc.
707 17th Street, Suite 2950
Denver, Colorado 80202
Fax:	(720) 873-3775
Email:	kahern@cicbancshares.com

All such notices and other communications shall be deemed to have been duly given as follows: when delivered by hand, if personally delivered; three Business Days after being deposited in the mail, postage prepaid, if delivered by mail; when receipt electronically acknowledged, if faxed or e-mailed; and the next day after being delivered to an overnight delivery service.

9.3 Assignment . Neither this Agreement nor any of the rights, interests or obligations under this Agreement may be assigned by any party to this Agreement without the prior written consent of the other parties to this Agreement, except that Heartland may assign any of its rights under this Agreement to one or more Subsidiaries of Heartland, so long as Heartland remains responsible for the performance of all of its obligations under this Agreement. Subject to the foregoing, this Agreement and all of the provisions of this Agreement will be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and permitted assigns.

9.4 No Third Party Beneficiaries . Nothing expressed or referred to in this Agreement confers any rights or remedies upon any Person that is not a party or permitted assign of a party to this Agreement.

9.5 Schedules . The Schedules correspond to the specific sections contained in Article 4. Nothing in a Schedule is deemed adequate to disclose an exception to a representation or warranty made in this Agreement unless the Schedule identifies the exception with particularity and describes the relevant facts in detail. Without limiting the generality of the foregoing, the mere listing (or inclusion of a copy) of a document or other item is not deemed adequate to disclose an exception to a representation or warranty unless the representation or warranty relates solely to the existence of the document or other item itself. In the event of any inconsistency between the statements in this Agreement and statements in a Schedule, the statements in this Agreement will control and the statements in the Schedule will be disregarded.

9.6 Interpretation . The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. References to Sections and Articles refer to Sections and Articles of this Agreement unless otherwise stated. Words such as “herein,” “hereinafter,” “hereof,” “hereto,” “hereby” and “hereunder,” and words of like import, unless the context requires otherwise, refer to this Agreement (including the Exhibits and Schedules hereto). As used in this Agreement, the masculine, feminine and neuter genders shall be deemed to include the others if the context requires. Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular if the context requires. Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “but not limited to,”, whether or not they are in fact followed by those words or words of like import. “Writing”, “written” and comparable terms refer to printing, typing and other means of reproducing words (including electronic media) in a visible form. Any reference to any money or currency or use of “$” shall be in U.S. dollars. Except as the context may otherwise require, references to any Contract are to that Contract as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof; provided that with respect to any Contract listed on any Schedules hereto, all such amendments, modifications or supplements must also be listed in the appropriate Schedule. References to a statute shall be to such statute, as amended from time to time, and to the rules and regulations promulgated thereunder. References to any Person include the successors and permitted assigns of that Person. References from or through any date mean, unless otherwise specified, from and including or through and including, respectively.

9.7 Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties shall negotiate in good faith to modify this Agreement and to preserve each party’s anticipated benefits under this Agreement.

9.8 Complete Agreement . This Agreement contains the complete agreement between the parties and supersedes any prior understandings, agreements or representations by or between the parties, written or oral. CIC acknowledges that Heartland has made no representations, warranties, agreements, undertakings or promises except for those expressly set forth in this Agreement or in agreements referred to herein that survive the execution and delivery of this Agreement.

9.9 Governing Law . THE DOMESTIC LAW, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, OF THE STATE OF DELAWARE WILL GOVERN ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT AND THE PERFORMANCE OF THE OBLIGATIONS IMPOSED BY THIS AGREEMENT.

9.10 Specific Performance . Each of the parties acknowledges and agrees that the subject matter of this Agreement, including the business, assets and properties of CIC and Centennial, is unique, that the other party would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached, and that the remedies at Law would not be adequate to compensate such other parties not in default or in breach. Accordingly, each of the parties agrees that the other party will be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions of this Agreement in addition to any other remedy to which they may be entitled, at Law or in equity (without any requirement that Heartland provide any bond or other security). The parties waive any defense that a remedy at Law is adequate and any requirement to post bond or provide similar security in connection with actions instituted for injunctive relief or specific performance of this Agreement.

9.11 Waiver of Jury Trial . EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVER, (III) IT MAKES SUCH WAIVER VOLUNTARILY AND (IV) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG

OTHER THINGS, THE MUTUAL WAIVER AND CERTIFICATIONS IN THIS SECTION 9.11.

9.12 Investigation of Representations, Warranties and Covenants . No investigation made by or on behalf of the parties hereto or the results of any such investigation shall constitute a waiver of any representation, warranty or covenant of any other party.

9.13 No Survival of Representations . The representations, warranties and covenants made by CIC and Heartland in this Agreement or in any instrument delivered pursuant to this Agreement shall terminate on, and shall have no further force or effect after, the first to occur of (a) the Effective Time or (b) the date on which this Agreement is terminated as set forth herein, except for those covenants contained herein or therein which by their terms apply in whole or in part after the Effective Time or survive the termination of this Agreement.

9.14 Securityholders’ Representative . By approving this Agreement and the transactions contemplated hereby or by executing a Letter of Transmittal, each holder of CIC Class A Common Stock shall have irrevocably (a) authorized and appointed the Securityholders’ Representative as such holder’s representative to act on behalf of the holder with respect to the matters set forth in Section 2.9; and (b) agreed that the Securityholders’ Representative shall not be liable, responsible or accountable in damages or otherwise to CIC Securityholders for any Liabilities incurred by reason of any error in judgment or any act or failure to act arising out of the activities of the Securityholders’ Representative on behalf or in respect of the CIC Securityholders, including (i) the failure to perform any acts he is not expressly obligated to perform under this Agreement; (ii) any acts or failures to act made in good faith or on the advice of legal counsel, accountants or other consultants to the Securityholders’ Representative; or (iii) any other matter beyond the control of the Securityholders’ Representative. No bond shall be required of the Securityholders’ Representative, and the Securityholders’ Representative shall not receive compensation for his services contemplated by this Agreement except as set forth in Section 2.9. If Kevin W. Ahern is no longer serving as Securityholders’ Representative due to his resignation, death or disability, the resulting vacancy in the position of Securityholders’ Representative may be filled by the approval of the Persons (or their heirs or successors) that held immediately prior to Closing a majority of the Fully Diluted Shares Outstanding.

[The remainder of this page is intentionally blank.]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the date first written above.



HEARTLAND FINANCIAL USA, INC.

By	/s/ Lynn B. Fuller
	Lynn B. Fuller, Chairman and Chief Executive Officer


CIC BANCSHARES, INC.

By	/s/ Kevin W. Ahern
	Kevin W. Ahern, Chairman and Chief Executive Officer


KEVIN W. AHERN, as Securityholders’ Representative

	/s/ Kevin W. Ahern
	Kevin W. Ahern

Exhibit 31.1

I, Lynn B. Fuller, certify that:



1.	I have reviewed this quarterly report on Form 10-Q of Heartland Financial USA, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)) for the registrant and have:

	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

	d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting, and;

5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date:	November 6, 2015

/s/ Lynn B. Fuller
Lynn B. Fuller
Chief Executive Officer

Exhibit 31.2

I, Bryan R. McKeag, certify that:



1.	I have reviewed this quarterly report on Form 10-Q of Heartland Financial USA, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)) for the registrant and have:

	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

	d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting, and;

5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date:	November 6, 2015

/s/ Bryan R. McKeag
Bryan R. McKeag
Executive Vice President
Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Heartland Financial USA, Inc. (the “Company”) on Form 10-Q for the quarter ending September 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report), I, Lynn B. Fuller, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



/s/ Lynn B. Fuller
Lynn B. Fuller
Chief Executive Officer

Date:	November 6, 2015

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Heartland Financial USA, Inc. (the “Company”) on Form 10-Q for the quarter ending September 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report), I, Bryan R. McKeag, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



/s/ Bryan R. McKeag
Bryan R. McKeag
Executive Vice President
Chief Financial Officer

Date:	November 6, 2015