Press Release

Heartland Financial USA, Inc. Reports Second Quarter 2018 Results

Company Release - 7/23/2018 4:01 PM ET

Highlights

  • Quarterly net income available to common stockholders of $27.9 million in comparison with $21.9 million for the second quarter of the prior year
  • Diluted earnings per common share of $0.85 in comparison with $0.81 for the second quarter of the prior year
  • Net interest margin of 4.23%, fully tax-equivalent (non-GAAP)(1) of 4.30%
  • Organic loan growth of $50.6 million or 3% annualized and organic demand deposit growth of $111.6 million or 14% annualized
  • Return on average common equity of 9.81% and return on average tangible common equity (non-GAAP)(2) of 14.56%
  • Tangible common equity ratio (non-GAAP)(3) of 7.46%
  • Completed the acquisition of First Bank Lubbock Bancshares, Inc. on May 18, 2018

    
 Quarter Ended
June 30,
 Six Months Ended
June 30,
 2018 2017 2018 2017
Net income (in millions)$27.9  $22.0  $51.1  $40.0 
Net income available to common stockholders (in millions)27.9  21.9  51.1  39.9 
Diluted earnings per common share0.85  0.81  1.61  1.49 
        
Return on average assets1.05% 1.06% 1.01% 0.97%
Return on average common equity9.81  11.13  9.58  10.44 
Return on average tangible common equity (non-GAAP)(2)14.56  14.07  13.82  13.18 
Net interest margin4.23  3.94  4.21  3.95 
Net interest margin, fully tax-equivalent (non-GAAP)(1)4.30  4.14  4.28  4.15 


"Heartland's strong financial performance continued during the second quarter of 2018. Net income available to common stockholders was $27.9 million, which was a 27% increase over the same quarter a year ago."
Lynn B. Fuller, executive operating chairman, Heartland Financial USA, Inc.

(1) Refer to the "Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)" table included in this earnings release.
(2) Refer to the "Reconciliation of Return on Average Tangible Common Equity (non-GAAP)" table included in this earnings release.
(3) Refer to the "Reconciliation of Tangible Common Equity Ratio (non-GAAP)" table included in this earnings release.

DUBUQUE, Iowa, July 23, 2018 (GLOBE NEWSWIRE) -- Heartland Financial USA, Inc. (NASDAQ:HTLF) today reported net income available to common stockholders of $27.9 million, or $0.85 per diluted common share, for the quarter ended June 30, 2018, compared to $21.9 million, or $0.81 per diluted common share, for the second quarter of 2017. Return on average common equity was 9.81% and return on average assets was 1.05% for the second quarter of 2018, compared to 11.13% and 1.06%, respectively, for the same quarter in 2017.

Net income available to common stockholders for the six months ended June 30, 2018, was $51.1 million or $1.61 per diluted common share, compared to $39.9 million or $1.49 per diluted common share for the six months ended June 30, 2017. Return on average common equity was 9.58% and return on average assets was 1.01% for the first six months of 2018, compared to 10.44% and 0.97% for the same period in 2017.

Commenting on Heartland’s second quarter results, Lynn B. Fuller, Heartland’s executive operating chairman, said, "Heartland's strong financial performance continued during the second quarter of 2018. Net income available to common stockholders was $27.9 million, which was a 27% increase over the same quarter a year ago."

On February 23, 2018, Heartland completed the acquisition of Signature Bancshares, Inc., parent company of Signature Bank, based in Minnetonka, Minnesota. Based on Heartland's closing common stock price of $53.55 per share as of February 23, 2018, the aggregate consideration was $61.4 million, with approximately 10% of the consideration paid in cash and 90% paid by delivery of Heartland common stock. Simultaneous with the closing of the transaction, Signature Bank merged into Heartland's Minnesota Bank & Trust subsidiary. As of the closing date, Signature Bancshares, Inc. had, at fair value, total assets of $427.1 million, total loans held to maturity of $324.5 million and total deposits of $357.3 million. The systems conversion for this transaction occurred on April 20, 2018.

On May 18, 2018, Heartland completed the acquisition of Lubbock, Texas based First Bank Lubbock Bancshares, Inc. ("FBLB"), parent company of First Bank & Trust, and PrimeWest Mortgage Corporation, which is a wholly-owned subsidiary of First Bank & Trust. Based on Heartland's closing common stock price of $55.05 per share on May 18, 2018, the aggregate consideration paid to FBLB common shareholders was $189.9 million, with approximately 3% of the consideration paid in cash and 97% paid by delivery of Heartland common stock. As a result of the transaction, First Bank & Trust became a wholly-owned subsidiary of Heartland and its 11th state-chartered bank. First Bank & Trust and PrimeWest Mortgage Corporation continue to operate under their present brands and management teams. As of the closing date, FBLB had, at fair value, total assets of $1.12 billion, total loans held to maturity of $681.1 million and total deposits of $893.8 million. Heartland also assumed, at fair value, $8.2 million of trust preferred debt. The systems conversion for this transaction is expected to occur in the third quarter of 2018.

In the first quarter of 2018, Heartland recorded $2.6 million of restructuring expenses related to its legacy mortgage lending operation. The restructuring projects are primarily related to outsourcing the loan application processing, underwriting and loan closing functions and include a workforce reduction of approximately 100 employees and the discontinuation of several current systems.

Bruce K. Lee, Heartland's president and chief executive officer, stated, "Our mortgage restructuring projects are nearing completion. When completed, we look forward to providing an enhanced customer experience and streamlined operations that will reduce the volatility and cost of originating mortgage loans."

Fully Tax-Equivalent Net Interest Margin Increases from Second Quarter of 2017

Net interest margin, expressed as a percentage of average earning assets, was 4.23% (4.30% on a fully tax-equivalent basis, non-GAAP) during the second quarter of 2018, compared to 4.19% (4.26% on a fully tax-equivalent basis, non-GAAP) during the first quarter of 2018 and 3.94% (4.14% on a fully tax-equivalent basis, non-GAAP) during the second quarter of 2017.

"On a fully tax equivalent basis, net interest margin for the second quarter of 2018 increased 16 basis points to 4.30 percent from 4.14 percent for the second quarter of 2017. The strong margin was driven by an improved earning asset mix and strong demand deposit growth," Lee said.

Total interest income for the second quarter of 2018 was $113.4 million compared to $82.1 million recorded in the second quarter of 2017. The taxable equivalent adjustment for income taxes saved on the interest earned on nontaxable securities and loans was $1.6 million for the second quarter of 2018 and $3.8 million for the second quarter of 2017. With these adjustments, total interest income on a tax-equivalent basis was $115.0 million for the second quarter of 2018, an increase of $29.1 million or 34%, compared to total interest income of $85.9 million for the second quarter of 2017. Average earning assets increased $2.03 billion or 27% from the second quarter of 2017, which was primarily attributable to the acquisitions completed in the third quarter of 2017 and the first half of 2018. The average rate on earning assets increased 26 basis points to 4.80% for the second quarter of 2018 compared to 4.54% for the same quarter in 2017. The increase in interest income on a tax-equivalent basis was primarily due to recent increases in market interest rates and the increase in average earning assets.

Interest expense on deposits and borrowings for the second quarter of 2018 was $12.0 million, an increase of $4.5 million or 60% from $7.5 million in the second quarter of 2017. Average interest bearing deposits increased $1.08 billion or 23% to $5.79 billion for the quarter ended June 30, 2018, from $4.71 billion in the same quarter in 2017, which was primarily attributable to recent acquisitions. The average interest rate paid on Heartland's interest bearing deposits increased 20 basis points to 0.55% for the second quarter of 2018 compared to 0.35% for the same quarter in 2017. Average borrowings declined $19.8 million or 5% to $415.3 million during the second quarter of 2018 from $435.1 million during the same quarter in 2017. The average interest rate paid on Heartland's borrowings was 3.88% for the second quarter of 2018 compared to 3.06% in the second quarter of 2017. The increase in the average interest rate paid on Heartland's interest bearing liabilities was primarily due to recent increases in market interest rates.

Net interest income was $101.4 million during the second quarter of 2018 compared to $74.6 million during the second quarter of 2017, an increase of $26.8 million or 36%. After the tax-equivalent adjustment discussed above, net interest income on a tax-equivalent basis totaled $103.0 million during the second quarter of 2018 compared to net interest income on a tax-equivalent basis of $78.4 million during the second quarter of 2017, an increase of $24.6 million or 31%.

Noninterest Income and Noninterest Expenses Increase from Second Quarter of 2017

Noninterest income totaled $27.6 million during the second quarter of 2018 compared to $25.6 million during the second quarter of 2017, an increase of $2.0 million or 8%. Service charges and fees increased $2.4 million or 25% to $12.1 million for the second quarter of 2018 compared to $9.7 million for the same quarter of 2017. Service charges related to credit card income increased $806,000 or 37% to $3.0 million for the second quarter of 2018 from $2.2 million for the same quarter of 2017. The remainder of the increase in service charges was primarily attributable to Heartland's larger customer base as a result of recent acquisitions. Securities losses, net, totaled $259,000 for the second quarter of 2018 compared to net securities gains of $1.4 million for the second quarter of 2017. Other noninterest income increased $429,000 or 58% to $1.2 million for the second quarter of 2018 compared to $738,000 for the second quarter of 2017. Included in this increase was $174,000 of reimbursements from customers for loan workout expenses that had been incurred and paid in prior years.

For the second quarter of 2018, noninterest expenses totaled $88.9 million compared to $69.3 million during the second quarter of 2017, an increase of $19.6 million or 28%. Salaries and employee benefits increased $9.6 million or 23% to $50.8 million for the second quarter of 2018 compared to $41.1 million for the same quarter in 2017, which was primarily due to the increase in full time equivalent employees from recent acquisitions. Heartland had 2,216 full time equivalent employees at June 30, 2018, compared to 1,862 full time equivalent employees at June 30, 2017. Advertising expenses increased $786,000 or 58% to $2.1 million for the second quarter of 2018 compared to $1.4 million for the second quarter of 2017, primarily related to increased marketing efforts to support Heartland's expanding footprint. For the second quarter of 2018, losses of $1.5 million were recorded on sales/valuations of assets compared to a net gain of $112,000 for the same quarter of 2017. This increase of $1.6 million was primarily due to write-downs and losses on repossessed assets of $993,000 during the second quarter of 2018.

Heartland's effective tax rate was 21.09% for the second quarter of 2018 compared to 26.85% for the second quarter of 2017. Federal low-income housing tax credits included in the determination of Heartland's income taxes totaled $307,000 during the second quarter of 2018 compared to $310,000 for the second quarter of 2017. Heartland's effective tax rate was also affected by the passage of the Tax Cuts and Jobs Act in December 2017, which reduced the federal income tax rate from a maximum of 35% to 21% beginning January 1, 2018. The level of tax-exempt interest income as a percentage of pre-tax income was 16.77% during the second quarter of 2018 compared to 23.49% during the second quarter of 2017.

Loans and Deposits Increase Since December 31, 2017

Total assets were $11.30 billion at June 30, 2018, an increase of $1.49 billion or 15% from $9.81 billion at year-end 2017. Excluding $427.1 million of assets acquired at fair value in the Signature Bancshares Inc. transaction and $1.12 billion of assets acquired at fair value in the FBLB transaction, total assets decreased $53.1 million or 1% since December 31, 2017. The decrease in assets was primarily due to a reduction in the securities portfolio, which represented 22% and 25% of total assets at June 30, 2018, and December 31, 2017, respectively.

Total loans held to maturity were $7.48 billion at June 30, 2018, compared to $6.39 billion at year-end 2017, an increase of $1.09 billion or 17%. This change includes $324.5 million of total loans held to maturity acquired at fair value in the Signature Bancshares, Inc. transaction and $681.1 million of total loans held to maturity acquired at fair value in the FBLB transaction. Exclusive of these transactions, total loans held to maturity increased $50.6 million or 3% annualized during the second quarter of 2018 and $80.7 million or 3% annualized for the first six months of 2018.

Total deposits were $9.49 billion as of June 30, 2018, compared to $8.15 billion at year-end 2017, an increase of $1.34 billion or 16%. This increase included $357.3 million of deposits, at fair value, acquired in the Signature Bancshares, Inc. transaction and $893.8 million of deposits, at fair value, acquired in the FBLB transaction. Exclusive of these transactions, total deposits increased $91.1 million or 1% since December 31, 2017. Demand deposits increased $416.5 million or 14% to $3.40 billion at June 30, 2018 compared to $2.98 billion at December 31, 2017. Excluding $299.0 million of demand deposits attributable to the Signature Bancshares, Inc. and FBLB transactions, demand deposits increased $117.5 million or 4% since year-end 2017. Excluding demand deposits acquired in the second quarter of 2018, demand deposits increased $111.6 million or 4% since March 31, 2018. Savings deposits increased $624.4 million or 15% to $4.86 billion at June 30, 2018, from $4.24 billion at December 31, 2017. Excluding savings deposits of $619.0 million acquired in the Signature Bancshares, Inc. and FBLB transactions, savings deposits increased $5.4 million or less than 1% since year-end 2017. Excluding savings deposits acquired in the second quarter of 2018, savings deposits decreased $95.2 million or 2% since March 31, 2018.

"We were encouraged by both organic loan growth of $50.6 million and organic demand deposit growth of $111.6 million in the second quarter. Quality loan and demand deposit growth remain among our top priorities," Lee stated.

Nonperforming Assets Increase Since December 31, 2017

Nonperforming assets were $81.0 million or 0.72% of total assets at June 30, 2018, compared to $74.6 million or 0.76% of total assets at December 31, 2017. Excluding $10.4 million of nonperforming assets acquired in the Signature Bancshares, Inc. and FBLB transactions, nonperforming assets decreased $4.0 million or 5% since year-end 2017. Nonperforming loans were $69.4 million or 0.93% of total loans at June 30, 2018, compared to $63.4 million or 0.99% of total loans at December 31, 2017.

The allowance for loan losses at June 30, 2018, was 0.82% of loans and 88.32% of nonperforming loans, compared to 0.87% of loans and 87.82% of nonperforming loans at December 31, 2017. The provision for loan losses increased $3.9 million to $4.8 million for the second quarter of 2018 compared to $889,000 for the same quarter in 2017. Included in the provision expense for the second quarter of 2018 was $2.1 million of specific reserves related to updated collateral values on two agricultural relationships and two commercial relationships. The remaining increase is attributable to a combination of several factors, including higher loan growth, acquired loans moving out of the purchased accounting pools and general changes in credit quality.

Conference Call Details
Heartland will host a conference call for investors at 5:00 p.m. EDT today. To participate, dial 877-407-0782 at least five minutes before start time. To listen to the live webcast, log on to www.htlf.com at least 15 minutes before start time. A replay will be available until July 22, 2019, by logging on to www.htlf.com.  

About Heartland Financial USA, Inc.
Heartland Financial USA, Inc. is a diversified financial services company with assets of $11.3 billion. The company provides banking, mortgage, private client, investment, insurance and consumer finance services to individuals and businesses. Heartland currently has 125 banking locations serving 93 communities in Iowa, Illinois, Wisconsin, New Mexico, Arizona, Montana, Colorado, Minnesota, Kansas, Missouri, Texas and California. Additional information about Heartland Financial USA, Inc. is available at www.htlf.com

Safe Harbor Statement
This release, and future oral and written statements of Heartland and its management, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Heartland's financial condition, results of operations, plans, objectives, future performance and business. Although these forward-looking statements are based upon the beliefs, expectations and assumptions of Heartland's management, there are a number of factors, many of which are beyond the ability of management to control or predict, that could cause actual results to differ materially from those in its forward-looking statements. These factors, which are detailed in the risk factors in Heartland's Annual Report on Form 10-K filed with the Securities and Exchange Commission, contained, among others: (i) the strength of the local and national economy; (ii) the economic impact of past and any future terrorist threats and attacks and any acts of war; (iii) changes in state and federal laws, regulations and governmental policies as they impact the company's general business; (iv) changes in interest rates and prepayment rates of the company's assets; (v) increased competition in the financial services sector and the inability to attract new customers; (vi) changes in technology and the ability to develop and maintain secure and reliable electronic systems; (vii) the potential impact of acquisitions and Heartland's ability to successfully integrate acquired banks; (viii) the loss of key executives or employees; (ix) changes in consumer spending; (x) unexpected outcomes of existing or new litigation involving the company; and (xi) changes in accounting policies and practices. All statements in this release, 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.

-FINANCIAL TABLES FOLLOW

 
 
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 For the Quarter Ended
June 30,
 For the Six Months Ended
June 30,
 2018 2017 2018 2017
Interest Income       
Interest and fees on loans$96,787  $68,094  $182,438  $134,992 
Interest on securities:       
Taxable12,270  8,599  23,847  16,852 
Nontaxable3,584  5,020  7,163  10,211 
Interest on federal funds sold  3    3 
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments768  345  1,175  554 
Total Interest Income113,409  82,061  214,623  162,612 
Interest Expense       
Interest on deposits7,983  4,163  13,749  7,893 
Interest on short-term borrowings547  90  815  227 
Interest on other borrowings3,470  3,228  7,066  6,884 
Total Interest Expense12,000  7,481  21,630  15,004 
Net Interest Income101,409  74,580  192,993  147,608 
Provision for loan losses4,831  889  9,094  4,530 
Net Interest Income After Provision for Loan Losses96,578  73,691  183,899  143,078 
Noninterest Income       
Service charges and fees12,072  9,696  22,151  19,153 
Loan servicing income1,807  1,351  3,561  3,075 
Trust fees4,615  3,979  9,295  7,610 
Brokerage and insurance commissions877  976  1,784  2,012 
Securities gains/(losses), net(259) 1,392  1,182  3,874 
Unrealized gain/(loss) on equity securities, net71    43   
Net gains on sale of loans held for sale6,800  6,817  10,851  12,964 
Valuation adjustment on servicing rights(216) 19  (218) 24 
Income on bank owned life insurance700  656  1,314  1,273 
Other noninterest income1,167  738  2,387  1,532 
Total Noninterest Income27,634  25,624  52,350  51,517 
Noninterest Expense       
Salaries and employee benefits50,758  41,126  99,468  82,893 
Occupancy6,315  5,056  12,358  10,129 
Furniture and equipment3,184  2,586  5,933  5,087 
Professional fees9,948  7,583  18,407  15,892 
FDIC insurance assessments684  909  1,673  1,716 
Advertising2,145  1,359  4,085  3,783 
Core deposit intangibles and customer relationship intangibles amortization2,274  1,218  4,137  2,389 
Other real estate and loan collection expenses948  365  1,680  1,193 
(Gain)/loss on sales/valuations of assets, net1,528  (112) 1,331  300 
Restructuring expenses    2,564   
Other noninterest expenses11,098  9,208  20,892  17,656 
Total Noninterest Expense88,882  69,298  172,528  141,038 
Income Before Income Taxes35,330  30,017  63,721  53,557 
Income taxes7,451  8,059  12,574  13,589 
Net Income27,879  21,958  51,147  39,968 
Preferred dividends(13) (13) (26) (32)
Interest expense on convertible preferred debt  4    9 
Net Income Available to Common Stockholders$27,866  $21,949  $51,121  $39,945 
Earnings per common share-diluted$0.85  $0.81  $1.61  $1.49 
Weighted average shares outstanding-diluted32,830,751  26,972,580  31,746,126  26,798,134 
            
            


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) 
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 For the Quarter Ended
 6/30/2018  3/31/2018  12/31/2017  9/30/2017  6/30/2017
Interest Income                   
Interest and fees on loans$96,787  $85,651  $86,108  $82,906  $68,094 
Interest on securities:              
Taxable12,270  11,577  11,119  10,394  8,599 
Nontaxable3,584  3,579  4,401  5,086  5,020 
Interest on federal funds sold    5  34  3 
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments768  407  435  558  345 
Total Interest Income113,409  101,214  102,068  98,978  82,061 
Interest Expense         
Interest on deposits7,983  5,766  5,313  5,073  4,163 
Interest on short-term borrowings547  268  180  271  90 
Interest on other borrowings3,470  3,596  3,719  3,790  3,228 
Total Interest Expense12,000  9,630  9,212  9,134  7,481 
Net Interest Income101,409  91,584  92,856  89,844  74,580 
Provision for loan losses4,831  4,263  5,328  5,705  889 
Net Interest Income After Provision for Loan Losses96,578  87,321  87,528  84,139  73,691 
Noninterest Income         
Service charges and fees12,072  10,079  9,892  10,138  9,696 
Loan servicing income1,807  1,754  1,400  1,161  1,351 
Trust fees4,615  4,680  4,336  3,872  3,979 
Brokerage and insurance commissions877  907  1,071  950  976 
Securities gains/(losses), net(259) 1,441  1,420  1,679  1,392 
Unrealized gain/(loss) on equity securities, net71  (28)      
Net gains on sale of loans held for sale6,800  4,051  4,290  4,997  6,817 
Valuation adjustment on servicing rights(216) (2) (8) 5  19 
Income on bank owned life insurance700  614  733  766  656 
Other noninterest income1,167  1,220  2,394  1,409  738 
Total Noninterest Income27,634  24,716  25,528  24,977  25,624 
Noninterest Expense         
Salaries and employee benefits50,758  48,710  43,289  45,225  41,126 
Occupancy6,315  6,043  5,892  6,223  5,056 
Furniture and equipment3,184  2,749  3,148  2,826  2,586 
Professional fees9,948  8,459  8,537  8,450  7,583 
FDIC insurance assessments684  989  985  894  909 
Advertising2,145  1,940  2,088  1,358  1,359 
Core deposit intangibles and customer relationship intangibles amortization2,274  1,863  1,825  1,863  1,218 
Other real estate and loan collection expenses948  732  687  581  365 
(Gain)/loss on sales/valuations of assets, net1,528  (197) 833  1,342  (112)
Restructuring expenses  2,564       
Other noninterest expenses11,098  9,794  10,594  9,997  9,208 
Total Noninterest Expense88,882  83,646  77,878  78,759  69,298 
Income Before Income Taxes35,330  28,391  35,178  30,357  30,017 
Income taxes7,451  5,123  21,506  8,725  8,059 
Net Income27,879  23,268  13,672  21,632  21,958 
Preferred dividends(13) (13) (13) (13) (13)
Interest expense on convertible preferred debt      3  4 
Net Income Available to Common Stockholders$27,866  $23,255  $13,659  $21,622  $21,949 
Earnings per common share-diluted$0.85  $0.76  $0.45  $0.72  $0.81 
Weighted average shares outstanding-diluted32,830,751  30,645,212  30,209,043  29,910,437  26,972,580 
               
               


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 As of
 6/30/2018 3/31/2018 12/31/2017  9/30/2017 6/30/2017
Assets                   
Cash and due from banks$193,069  $143,071  $168,723  $180,751  $141,100 
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments194,937  123,275  27,280  70,985  40,676 
Cash and cash equivalents388,006  266,346  196,003  251,736  181,776 
Time deposits in other financial institutions6,803  6,297  9,820  19,793  30,241 
Securities:         
Carried at fair value2,197,117  2,027,665  2,216,753  2,093,385  1,789,441 
Held to maturity, at cost244,271  249,766  253,550  256,355  259,586 
Other investments, at cost26,725  22,982  22,563  23,176  21,094 
Loans held for sale55,684  24,376  44,560  35,795  48,848 
Loans:         
Held to maturity7,477,697  6,746,015  6,391,464  6,373,415  5,325,082 
Allowance for loan losses(61,324) (58,656) (55,686) (54,885) (54,051)
Loans, net7,416,373  6,687,359  6,335,778  6,318,530  5,271,031 
Premises, furniture and equipment, net199,959  172,862  174,301  178,961  163,003 
Goodwill391,668  270,305  236,615  236,615  141,461 
Core deposit intangibles and customer relationship intangibles, net52,698  41,063  35,203  37,028  22,850 
Servicing rights, net31,996  25,471  25,857  26,599  34,736 
Cash surrender value on life insurance159,302  143,444  142,818  142,073  120,281 
Other real estate, net11,074  11,801  10,777  13,226  9,269 
Other assets120,244  106,126  106,141  122,355  111,104 
Total Assets$11,301,920  $10,055,863  $9,810,739  $9,755,627  $8,204,721 
Liabilities and Equity         
Liabilities         
Deposits:         
 Demand$3,399,598  $3,094,457  $2,983,128  $3,009,940  $2,355,410 
 Savings4,864,773  4,536,106  4,240,328  4,227,340  3,704,579 
 Time1,224,773  910,977  923,453  994,604  870,180 
Total deposits9,489,144  8,541,540  8,146,909  8,231,884  6,930,169 
Short-term borrowings229,890  131,240  324,691  171,871  139,130 
Other borrowings258,708  276,118  285,011  301,473  281,096 
Accrued expenses and other liabilities68,431  55,460  62,671  68,715  48,356 
Total Liabilities10,046,173  9,004,358  8,819,282  8,773,943  7,398,751 
Stockholders' Equity         
Preferred equity938  938  938  938  938 
Common stock34,438  31,068  29,953  29,946  26,701 
Capital surplus740,128  557,990  503,709  503,262  352,500 
Retained earnings524,786  500,959  481,331  468,556  450,228 
Accumulated other comprehensive loss(44,543) (39,450) (24,474) (21,018) (24,397)
Total Equity1,255,747  1,051,505  991,457  981,684  805,970 
Total Liabilities and Equity$11,301,920  $10,055,863  $9,810,739  $9,755,627  $8,204,721 
                    
                    


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 For the Quarter Ended
June 30,
 For the Six Months Ended
June 30,
 2018 2017 2018 2017
Average Balances               
Assets$10,643,306  $8,333,301  $10,204,061  $8,283,681 
Loans, net of unearned7,123,182  5,376,826  6,826,018  5,371,271 
Deposits9,018,945  7,050,126  8,637,165  6,973,897 
Earning assets9,614,800  7,586,256  9,238,391  7,544,609 
Interest bearing liabilities6,205,187  5,146,243  5,951,175  5,168,475 
Common stockholders' equity1,139,876  791,039  1,076,083  771,464 
Total stockholders' equity1,140,814  791,977  1,077,021  772,575 
Tangible common stockholders' equity(1)767,732  625,929  745,937  611,050 
        
Key Performance Ratios       
Annualized return on average assets1.05% 1.06% 1.01% 0.97%
Annualized return on average common equity (GAAP)9.81% 11.13% 9.58% 10.44%
Annualized return on average tangible common equity (non-GAAP)(2)14.56% 14.07% 13.82% 13.18%
Annualized ratio of net charge-offs to average loans0.12% 0.14% 0.11% 0.18%
Annualized net interest margin (GAAP)4.23% 3.94% 4.21% 3.95%
Annualized net interest margin, fully tax-equivalent (non-GAAP)(3)4.30% 4.14% 4.28% 4.15%
Efficiency ratio, fully tax-equivalent(4)65.04% 65.61% 66.53% 67.75%
        
Reconciliation of Return on Average Tangible Common Equity (non-GAAP)(5)       
Net income available to common shareholders (GAAP)$27,866  $21,949  $51,121  $39,945 
        
Average common stockholders' equity (GAAP)$1,139,876  $791,039  $1,076,083  $771,464 
Less average goodwill325,781  141,461  288,185  136,976 
Less average core deposit intangibles and customer relationship intangibles, net46,363  23,649  41,961  23,438 
Average tangible common equity (non-GAAP)$767,732  $625,929  $745,937  $611,050 
Annualized return on average common equity (GAAP)9.81% 11.13% 9.58% 10.44%
Annualized return on average tangible common equity (non-GAAP)14.56% 14.07% 13.82% 13.18%
        
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)(6)       
Net Interest Income (GAAP)$101,409  $74,580  $192,993  $147,608 
Plus tax-equivalent adjustment(7)1,575  3,796  3,119  7,656 
Net interest income, tax-equivalent (non-GAAP)$102,984  $78,376  $196,112  $155,264 
        
Average earning assets$9,614,800  $7,586,256  $9,238,391  $7,544,609 
        
Annualized net interest margin (GAAP)4.23% 3.94% 4.21% 3.95%
Annualized net interest margin, fully tax-equivalent (non-GAAP)4.30% 4.14% 4.28% 4.15%
        
(1) Calculated as common stockholders' equity less goodwill and core deposit intangibles and customer relationship intangibles, net.
(2) Refer to the "Reconciliation of Return on Average Tangible Common Equity (non-GAAP)" table.
(3) Refer to the "Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)" table.
(4) Refer to the "Reconciliation of Non-GAAP Measure-Efficiency Ratio" table that follows for details of this non-GAAP measure.
(5) Return on average tangible common equity is net income available to common stockholders divided by average common stockholders' equity less goodwill and core deposit intangibles and customer deposit intangibles, net. This financial measure is included as it is considered to be a critical metric to analyze and evaluate financial condition and capital strength. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(6) Annualized net interest margin, fully tax-equivalent is a non-GAAP measure, which adjusts net interest income for the tax-favored status of certain loans and securities. Management believes this measure enhances the comparability of net interest income arising from taxable and tax-exempt sources. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(7) Computed on a tax-equivalent basis using an effective tax rate of 21% beginning January 1, 2018, and 35% for all prior periods.
 
 


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 For the Quarter Ended
  6/30/2018   3/31/2018   12/31/2017   9/30/2017   6/30/2017 
Average Balances                   
Assets$10,643,306  $9,759,936  $9,807,621  $9,639,844  $8,333,301 
Loans, net of unearned7,123,182  6,525,553  6,343,923  6,286,264  5,376,826 
Deposits9,018,945  8,251,140  8,293,006  8,100,028  7,050,126 
Earning assets9,614,800  8,857,801  8,891,432  8,726,228  7,586,256 
Interest bearing liabilities6,205,187  5,694,337  5,663,816  5,697,713  5,146,243 
Common stockholders' equity1,139,876  1,011,580  986,026  954,511  791,039 
Total stockholders' equity1,140,814  1,012,518  986,964  955,449  791,977 
Tangible common stockholders' equity(1)767,732  723,898  713,018  691,464  625,929 
          
Key Performance Ratios         
Annualized return on average assets1.05% 0.97% 0.55% 0.89% 1.06%
Annualized return on average common equity (GAAP)9.81% 9.32% 5.50% 8.99% 11.13%
Annualized return on average tangible common equity (non-GAAP)(2)14.56% 13.03% 7.60% 12.41% 14.07%
Annualized ratio of net charge-offs to average loans0.12% 0.08% 0.28% 0.31% 0.14%
Annualized net interest margin (GAAP)4.23% 4.19% 4.14% 4.08% 3.94%
Annualized net interest margin, fully tax-equivalent (non-GAAP)(3)4.30% 4.26% 4.30% 4.26% 4.14%
Efficiency ratio, fully tax-equivalent(4)65.04% 68.21% 62.26% 64.54% 65.61%
          
Reconciliation of Return on Average Tangible Common Equity (non-GAAP)(5)         
Net income available to common shareholders (GAAP)$27,866  $23,255  $13,659  $21,622  $21,949 
          
Average common stockholders' equity (GAAP)$1,139,876  $1,011,580  $986,026  $954,511  $791,039 
Less average goodwill325,781  250,172  236,615  226,097  141,461 
Less average core deposit intangibles and customer relationship intangibles, net46,363  37,510  36,393  36,950  23,649 
Average tangible common equity (non-GAAP)$767,732  $723,898  $713,018  $691,464  $625,929 
Annualized return on average common equity (GAAP)9.81% 9.32% 5.50% 8.99% 11.13%
Annualized return on average tangible common equity (non-GAAP)14.56% 13.03% 7.60% 12.41% 14.07%
          
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)(6)         
Net Interest Income (GAAP)$101,409  $91,584  $92,856  $89,844  $74,580 
Plus tax-equivalent adjustment(7)1,575  1,544  3,558  3,925  3,796 
Net interest income, fully tax-equivalent (non-GAAP)$102,984  $93,128  $96,414  $93,769  $78,376 
          
Average earning assets$9,614,800  $8,857,801  $8,891,432  $8,726,228  $7,586,256 
          
Annualized net interest margin (GAAP)4.23% 4.19% 4.14% 4.08% 3.94%
Annualized net interest margin, fully tax-equivalent (non-GAAP)4.30% 4.26% 4.30% 4.26% 4.14%
 
(1) Calculated as common stockholders' equity less goodwill and core deposit intangibles and customer relationship intangibles, net.
(2) Refer to the "Reconciliation of Return on Average Tangible Common Equity (non-GAAP)" table.
(3) Refer to the "Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)" table.
(4) Refer to the "Reconciliation of Non-GAAP Measure-Efficiency Ratio" table that follows for details of this non-GAAP measure.
(5) Return on average common tangible equity is net income available to common stockholders divided by average common stockholders' equity less goodwill and core deposit intangibles and customer relationship intangibles, net. This financial measure is included as it is considered to be a critical metric to analyze and evaluate financial condition and capital strength. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(6) Annualized net interest margin, fully tax-equivalent is a non-GAAP measure, which adjusts net interest income for the tax-favored status of certain loans and securities. Management believes this measure enhances the comparability of net interest income arising from taxable and tax-exempt sources. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(7) Computed on a tax-equivalent basis using an effective tax rate of 21% beginning January 1, 2018, and 35% for all prior periods.
 
 


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 For the Quarter Ended
June 30,
 For the Six Months Ended
June 30,
Reconciliation of Non-GAAP Measure-Efficiency Ratio(1)2018  2017  2018  2017 
Net interest income$101,409  $74,580  $192,993  $147,608 
Tax-equivalent adjustment(2)1,575  3,796  3,119  7,656 
Fully tax-equivalent net interest income102,984  78,376  196,112  155,264 
Noninterest income27,634  25,624  52,350  51,517 
Securities (gains)/losses, net259  (1,392) (1,182) (3,874)
Unrealized (gain)/loss on equity securities, net(71)   (43)  
Adjusted income$130,806  $102,608  $247,237  $202,907 
        
Total noninterest expenses$88,882  $69,298  $172,528  $141,038 
Less:       
Core deposit intangibles and customer relationship intangibles amortization2,274  1,218  4,137  2,389 
Partnership investment in tax credit projects  876    876 
(Gain)/loss on sales/valuations of assets, net1,528  (112) 1,331  300 
Restructuring expenses    2,564   
Adjusted noninterest expenses$85,080  $67,316  $164,496  $137,473 
        
Efficiency ratio, fully tax-equivalent (non-GAAP)65.04% 65.61% 66.53% 67.75%
            


 For the Quarter Ended
Reconciliation of Non-GAAP Measure-Efficiency Ratio(1)6/30/2018 3/31/2018 12/31/2017 9/30/2017 6/30/2017
Net interest income$101,409  $91,584  $92,856  $89,844  $74,580 
Tax-equivalent adjustment(2)1,575  1,544  3,558  3,925  3,796 
Fully tax-equivalent net interest income102,984  93,128  96,414  93,769  78,376 
Noninterest income27,634  24,716  25,528  24,977  25,624 
Securities (gains)/losses, net259  (1,441) (1,420) (1,679) (1,392)
Unrealized (gain)/loss on equity securities, net(71) 28       
Gain on extinguishment of debt    (1,280)    
Adjusted income$130,806  $116,431  $119,242  $117,067  $102,608 
          
Total noninterest expenses$88,882  $83,646  $77,878  $78,759  $69,298 
Less:         
Core deposit intangibles and customer relationship intangibles amortization2,274  1,863  1,825  1,863  1,218 
Partnership investment in tax credit projects    984    876 
(Gain)/loss on sales/valuation of assets, net1,528  (197) 833  1,342  (112)
Restructuring expenses  2,564       
Adjusted noninterest expenses$85,080  $79,416  $74,236  $75,554  $67,316 
          
Efficiency ratio, fully tax-equivalent (non-GAAP)65.04% 68.21% 62.26% 64.54% 65.61%
          
(1) Efficiency ratio, fully tax-equivalent, expresses noninterest expenses as a percentage of fully tax-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 tax credit projects. 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, as noted in the table. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(2) Computed on a tax-equivalent basis using an effective tax rate of 21% beginning January 1, 2018, and 35% for all prior periods.
 
 


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND FULL TIME EQUIVALENT EMPLOYEE DATA
 As of and for the Quarter Ended
  6/30/2018   3/31/2018   12/31/2017   9/30/2017   6/30/2017 
Common Share Data                   
Book value per common share$36.44  $33.81  $33.07  $32.75  $30.15 
Tangible book value per common share (non-GAAP)(1)$23.53  $23.79  $23.99  $23.61  $24.00 
Common shares outstanding, net of treasury stock34,438,445  31,068,239  29,953,356  29,946,069  26,701,226 
Tangible common equity ratio (non-GAAP)(2)7.46% 7.59% 7.53% 7.46% 7.97%
          
Reconciliation of Tangible Book Value Per Common Share (non-GAAP)(3)         
Common stockholders' equity (GAAP)$1,254,809  $1,050,567  $990,518  $980,746  $805,032 
Less goodwill391,668  270,305  236,615  236,615  141,461 
Less core deposit intangibles and customer relationship intangibles, net52,698  41,063  35,203  37,028  22,850 
Tangible common stockholders' equity (non-GAAP)$810,443  $739,199  $718,700  $707,103  $640,721 
          
Common shares outstanding, net of treasury stock34,438,445  31,068,239  29,953,356  29,946,069  26,701,226 
Common stockholders' equity (book value) per share (GAAP)$36.44  $33.81  $33.07  $32.75  $30.15 
Tangible book value per common share (non-GAAP)$23.53  $23.79  $23.99  $23.61  $24.00 
          
Reconciliation of Tangible Common Equity Ratio (non-GAAP)(4)         
Total assets (GAAP)$11,301,920  $10,055,863  $9,810,739  $9,755,627  $8,204,721 
Less goodwill391,668  270,305  236,615  236,615  141,461 
Less core deposit intangibles and customer relationship
 intangibles, net
52,698  41,063  35,203  37,028  22,850 
Total tangible assets (non-GAAP)$10,857,554  $9,744,495  $9,538,921  $9,481,984  $8,040,410 
Tangible common equity ratio (non-GAAP)7.46% 7.59% 7.53% 7.46% 7.97%
          
Loan Data         
Loans held to maturity:         
Commercial and commercial real estate$5,721,138  $5,129,777  $4,809,875  $4,777,856  $3,803,011 
Residential mortgage683,051  624,725  624,279  635,611  596,385 
Agricultural and agricultural real estate562,353  518,386  511,588  511,764  495,243 
Consumer512,899  474,929  447,484  450,088  431,052 
Unearned discount and deferred loan fees(1,744) (1,802) (1,762) (1,904) (609)
Total loans held to maturity$7,477,697  $6,746,015  $6,391,464  $6,373,415  $5,325,082 
          
Other Selected Trend Information         
Effective tax rate21.09% 18.04% 61.13% 28.74% 26.85%
Full time equivalent employees2,216  2,022  2,008  2,024  1,862 
Total residential mortgage loan applications$341,978  $234,825  $232,946  $271,476  $308,113 
Residential mortgage loans originated$225,563  $149,768  $185,580  $198,911  $216,637 
Residential mortgage loans sold$201,808  $127,963  $168,527  $188,501  $180,296 
Residential mortgage loan servicing portfolio$4,158,107  $3,535,988  $3,558,090  $3,557,866  $4,340,243 
          
(1) Refer to the "Reconciliation of Tangible Book Value Per Common Share (non-GAAP)" table.
(2) Refer to the "Reconciliation of Tangible Common Equity Ratio (non-GAAP)" table.
(3) Tangible book value per common share is total common stockholders' equity less goodwill and core deposit intangibles and customer relationship intangibles, net, divided by common shares outstanding, net of treasury. This is a non-GAAP financial measure but has been included as it is considered to be a critical metric with which to analyze and evaluate financial condition and capital strength. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(4) The tangible common equity ratio is total common stockholders' equity less goodwill and core deposit intangibles and customer relationship intangibles, net, divided by total assets less goodwill and core deposit intangibles and customer relationship intangibles, net. This is a non-GAAP financial measure but has been included as it is considered to be a critical metric with which to analyze and evaluate financial condition and capital strength. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
 
 


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 As of and for the Quarter Ended
  6/30/2018   3/31/2018   12/31/2017   9/30/2017   6/30/2017 
Allowance for Loan Losses                   
Balance, beginning of period$58,656  $55,686  $54,885  $54,051  $54,999 
Provision for loan losses4,831  4,263  5,328  5,705  889 
Charge-offs(3,164) (2,224) (5,628) (5,759) (2,766)
Recoveries1,001  931  1,101  888  929 
Balance, end of period$61,324  $58,656  $55,686  $54,885  $54,051 
          
Asset Quality         
Nonaccrual loans$69,376  $64,806  $62,581  $63,456  $65,393 
Loans past due ninety days or more as to interest or principal payments54  22  830  2,348  698 
Other real estate owned11,074  11,801  10,777  13,226  9,269 
Other repossessed assets499  423  411  773  675 
Total nonperforming assets$81,003  $77,052  $74,599  $79,803  $76,035 
          
Performing troubled debt restructured loans$4,012  $3,206  $6,617  $10,040  $11,157 
          
Nonperforming Assets Activity         
Balance, beginning of period$77,052  $74,599  $79,803  $76,035  $75,667 
Net loan charge offs(2,163) (1,293) (4,527) (4,871) (1,837)
New nonperforming loans16,254  8,546  9,911  9,117  13,700 
Acquired nonperforming assets7,973  2,459    7,991   
Reduction of nonperforming loans(1)(15,696) (6,549) (7,177) (5,183) (7,443)
OREO/Repossessed assets sales proceeds(1,541) (657) (2,917) (3,328) (3,734)
OREO/Repossessed assets writedowns, net(993) (16) (146) (56) (259)
Net activity at Citizens Finance Co.117  (37) (348) 98  (59)
Balance, end of period$81,003  $77,052  $74,599  $79,803  $76,035 
 
Asset Quality Ratios         
Ratio of nonperforming loans to total loans0.93% 0.96% 0.99% 1.03% 1.24%
Ratio of nonperforming assets to total assets0.72% 0.77% 0.76% 0.82% 0.93%
Annualized ratio of net loan charge-offs to average loans0.12% 0.08% 0.28% 0.31% 0.14%
Allowance for loan losses as a percent of loans0.82% 0.87% 0.87% 0.86% 1.02%
Allowance for loan losses as a percent of nonperforming loans88.32% 90.48% 87.82% 83.41% 81.78%
Loans delinquent 30-89 days as a percent of total loans0.30% 0.21% 0.27% 0.33% 0.38%
          
(1) Includes principal reductions, transfers to performing status and transfers to OREO.
 
 


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS
 For the Quarter Ended
 June 30, 2018 June 30, 2017
 Average
Balance
 Interest Rate Average
Balance
 Interest Rate
Earning Assets           
Securities:           
Taxable$1,890,468  $12,270  2.60% $1,516,745  $8,599  2.27%
Nontaxable(1)448,844  4,537  4.05  624,915  7,723  4.96 
Total securities2,339,312  16,807  2.88  2,141,660  16,322  3.06 
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments211,414  768  1.46  121,778  345  1.14 
Federal funds sold      1,262  3  0.95 
Loans:(2)           
Commercial and commercial real estate(1)5,403,447  71,301  5.29  3,824,061  46,912  4.92 
Residential mortgage685,005  7,562  4.43  633,344  6,509  4.12 
Agricultural and agricultural real estate(1)542,249  6,850  5.07  488,222  5,807  4.77 
Consumer492,481  9,192  7.49  431,199  8,289  7.71 
Fees on loans  2,504      1,670   
Less: allowance for loan losses(59,108)     (55,270)    
Net loans7,064,074  97,409  5.53  5,321,556  69,187  5.21 
Total earning assets9,614,800  114,984  4.80% 7,586,256  85,857  4.54%
Nonearning Assets1,028,506      747,045     
Total Assets$10,643,306      $8,333,301     
Interest Bearing Liabilities           
Savings$4,748,306  $5,535  0.47% $3,881,219  $2,505  0.26%
Time, $100,000 and over482,593  1,066  0.89  350,786  727  0.83 
Other time deposits558,997  1,382  0.99  479,164  931  0.78 
Short-term borrowings152,576  547  1.44  153,565  90  0.24 
Other borrowings262,715  3,470  5.30  281,509  3,228  4.60 
Total interest bearing liabilities6,205,187  12,000  0.78% 5,146,243  7,481  0.58%
Noninterest Bearing Liabilities           
Noninterest bearing deposits3,229,049      2,338,957     
Accrued interest and other liabilities68,256      56,124     
Total noninterest bearing liabilities3,297,305      2,395,081     
Stockholders' Equity1,140,814      791,977     
Total Liabilities and Stockholders' Equity$10,643,306      $8,333,301     
Net interest income, fully tax-equivalent (non-GAAP)(1)  $102,984      $78,376   
Net interest spread(1)    4.02%     3.96%
Net interest income, fully tax-equivalent (non-GAAP) to total earning assets(3)    4.30%     4.14%
Interest bearing liabilities to earning assets64.54%     67.84%    
            
Reconciliation of annualized net interest margin, fully tax-equivalent (non-GAAP)(3)           
Net interest income, fully tax-equivalent (non-GAAP)  $102,984      $78,376   
Adjustments for tax-equivalent interest(1)  (1,575)     (3,796)  
Net interest income (GAAP)  $101,409      $74,580   
            
Average earning assets$9,614,800