Press Release

Heartland Financial USA, Inc. Reports Improved Year Over Year Results for First Quarter 2019 and Announces Sale of Mortgage Servicing Rights

Company Release - 4/29/2019 4:00 PM ET

Highlights

  • Quarterly net income available to common stockholders of $31.5 million in comparison with $23.3 million for the first quarter of the prior year, an increase of $8.2 million or 35%
  • Diluted earnings per common share of $0.91 in comparison with $0.76 for the first quarter of the prior year, an increase of $0.15 or 20%
  • Net interest margin of 4.12%, fully tax-equivalent (non-GAAP)(1) of 4.18%
  • Return on average common equity of 9.56% and return on average tangible common equity (non-GAAP)(1) of 15.24%
  • Tangible common equity ratio (non-GAAP)(1) of 8.60% in comparison to 7.59% at March 31, 2018
  • Efficiency ratio, fully tax-equivalent (non-GAAP)(1) of 65.23% in comparison with 68.21% for the first quarter of 2018
  • Completed the sale of Citizens Finance consumer loan portfolios and the sale of two branches at Wisconsin Bank & Trust
  • Signed an agreement to sell mortgage servicing rights of Dubuque Bank and Trust Company on April 26, 2019
 Three Months Ended
March 31,
 2019 2018
Net income available to common stockholders (in millions)$31.5  $23.3 
Diluted earnings per common share0.91  0.76 
    
Return on average assets1.13% 0.97%
Return on average common equity9.56  9.32 
Return on average tangible common equity (non-GAAP)(1)15.24  13.85 
Net interest margin4.12  4.19 
Net interest margin, fully tax-equivalent (non-GAAP)(1)4.18  4.26 
Efficiency ratio, fully-tax equivalent (non-GAAP)(1)65.23  68.21 

(1) Refer to "Non-GAAP Measures" in this earnings release for additional information on the usage and presentation of these non-GAAP measures, and refer to the financial tables for reconciliations to the most directly comparable GAAP measures.

"Heartland reported improved first quarter results with net income of $31.5 million, which was an impressive increase of $8.2 million or 35 percent over the same quarter of last year. We had a solid net interest margin and improved tangible common equity ratio."
Lynn B. Fuller, executive operating chairman, Heartland Financial USA, Inc.
 

DUBUQUE, Iowa, April 29, 2019 (GLOBE NEWSWIRE) -- Heartland Financial USA, Inc. (NASDAQ: HTLF) today reported net income available to common stockholders of $31.5 million, or $0.91 per diluted common share, for the quarter ended March 31, 2019, compared to $23.3 million, or $0.76 per diluted common share, for the first quarter of 2018. Return on average common equity was 9.56% and return on average assets was 1.13% for the first quarter of 2019, compared to 9.32% and 0.97%, respectively, for the same quarter in 2018.

Commenting on Heartland’s first quarter results, Lynn B. Fuller, Heartland’s executive operating chairman, said, "Heartland reported improved first quarter results with net income of $31.5 million, which was an impressive increase of $8.2 million or 35 percent over the same quarter of last year. We had a solid net interest margin and improved tangible common equity ratio."

In keeping with its focus on core businesses and execution of strategic priorities, Heartland completed the sale of two branch locations of Wisconsin Bank & Trust and sold the consumer finance loan portfolios totaling approximately $67 million of Citizens’ Finance Company.  Furthermore, during the quarter, Heartland announced an agreement to sell two branches of Dubuque Bank and Trust Company, which resulted in the reclassification of $20.3 million of loans and $77.0 million of deposits as held for sale.  This transaction, along with two previously announced branch sales at Illinois Bank & Trust and Citywide Banks, is expected to close in the second quarter of 2019. Heartland also reclassified commercial loans with balances of $11.8 million at March 31, 2019, to held for sale as part of a plan to exit a small lease portfolio.

On April 26, 2019, Dubuque Bank and Trust Company signed an agreement to sell substantially all its mortgage servicing rights to PNC Bank, N.A., headquartered in Pittsburgh, Pennsylvania. The servicing rights had an estimated fair value of $37.0 million and a book value of $21.0 million as of March 31, 2019. The portfolio contained approximately 20,300 of serviced residential mortgage loans with unpaid principal balances of $3.35 billion as of March 31, 2019. The serviced loans are primarily owned by Fannie Mae and Freddie Mac. The transaction has been approved by Fannie Mae and Freddie Mac and is expected to close on April 30, 2019. In the agreement, which includes customary terms and conditions, Dubuque Bank and Trust Company will provide interim servicing of the loans until the transfer date, which is expected to be in August 2019.

"During the fourth quarter of 2018, Heartland outsourced mortgage loan originations in many of our markets, and now, as a natural extension, we have decided to sell our mortgage servicing rights," said Bruce K. Lee, Heartland's president and chief executive officer.

After the completion of this transaction, Heartland will continue to originate and service conventional residential mortgages through its PrimeWest Mortgage Corporation subsidiary in Texas.

Net Interest Income Increases, Net Interest Margin Decreases, from First Quarter of 2018

Net interest margin, expressed as a percentage of average earning assets, was 4.12% (4.18% on a fully tax-equivalent basis, non-GAAP) during the first quarter of 2019, compared to 4.28% (4.34% on a fully tax-equivalent basis, non-GAAP) during the fourth quarter of 2018 and 4.19% (4.26% on a fully tax-equivalent basis, non-GAAP) during the first quarter of 2018.

"We are pleased with the continued strength of our fully tax-equivalent net interest margin. Our net interest margin declined 16 basis points from last quarter, which was in line with our expectations due to the sale of our higher yielding consumer finance loan portfolios in the beginning of 2019," Lee said.

Growth in total interest income on a tax-equivalent basis was primarily due to recent increases in market interest rates and the increase in average earning assets. Total interest income for the first quarter of 2019 was $120.7 million compared to $101.2 million recorded in the first quarter of 2018, an increase of $19.5 million or 19%. The tax-equivalent adjustment for income taxes saved on the interest earned on nontaxable securities and loans was $1.4 million for the first quarter of 2019 and $1.5 million for the first quarter of 2018. With these adjustments, total interest income on a tax-equivalent basis was $122.1 million for the first quarter of 2019, an increase of $19.4 million or 19%, compared to total interest income on a tax-equivalent basis of $102.8 million for the first quarter of 2018. Average earning assets increased $1.27 billion or 14% from the first quarter of 2018, which was primarily attributable to the acquisitions completed in 2018. The average rate on earning assets increased 19 basis points to 4.89% for the first quarter of 2019 compared to 4.70% for the same quarter in 2018.

Increases in total interest expense were primarily due to recent increases in market interest rates and deposit growth from recent acquisitions. Total interest expense for the first quarter of 2019 was $17.8 million, an increase of $8.1 million or 84% from $9.6 million in the first quarter of 2018. The average interest rate paid on Heartland's interest bearing liabilities increased to 1.09% for the first quarter of 2019 compared to 0.69% for the first quarter of 2018, which was primarily due to recent increases in market interest rates. Average interest bearing deposits increased $889.5 million or 17% to $6.16 billion for the quarter ended March 31, 2019, from $5.27 billion in the same quarter in 2018, which was primarily attributable to recent acquisitions. The average interest rate paid on Heartland's interest bearing deposits increased 43 basis points to 0.87% for the first quarter of 2019 compared to 0.44% for the same quarter in 2018. Average borrowings increased $38.3 million or 9% to $466.2 million during the first quarter of 2019 from $427.9 million during the same quarter in 2018. The average interest rate paid on Heartland's borrowings was 3.96% for the first quarter of 2019 compared to 3.66% in the first quarter of 2018.

Net interest income was $103.0 million during the first quarter of 2019 compared to $91.6 million during the first quarter of 2018, an increase of $11.4 million or 12%. After the tax-equivalent adjustment discussed above, net interest income on a tax-equivalent basis totaled $104.4 million during the first quarter of 2019 compared to net interest income on a tax-equivalent basis of $93.1 million during the first quarter of 2018, an increase of $11.2 million or 12%.

Noninterest Income and Noninterest Expense Increase from First Quarter 2018

Total noninterest income was $26.7 million during the first quarter of 2019 compared to $24.7 million during the first quarter of 2018, an increase of $2.0 million or 8%. Significant changes by noninterest income category were:

  • Service charges and fees increased $2.7 million or 27% to $12.8 million for the first quarter of 2019 compared to $10.1 million for the same quarter of 2018. Service charges related to credit card income increased $1.1 million or 48% to $3.3 million for the first quarter of 2019 from $2.3 million for the same quarter of 2018. The remainder of the increase in service charges was primarily attributable to Heartland's larger customer base as a result of recent acquisitions.
  • Net gains on sale of loans held for sale totaled $3.2 million during the first quarter of 2019 compared to $4.1 million during the same quarter in 2018, which was a decrease of $875,000 or 22%, primarily due to the outsourcing of Heartland's legacy mortgage lending operations in the fourth quarter of 2018.

For the first quarter of 2019, total noninterest expense was $88.2 million compared to $83.6 million during the first quarter of 2018, an increase of $4.6 million or 5%. Significant changes by noninterest expense category were:

  • Salaries and employee benefits increased $1.6 million or 3% to $50.3 million for the first quarter of 2019 compared to $48.7 million for the same quarter in 2018.
  • Professional fees increased $1.9 million or 20% to $11.4 million for the first quarter of 2019 compared to $9.4 million for the same period in 2018.
  • Core deposit and customer relationship intangibles amortization increased $979,000 to $2.8 million for the first quarter of 2019 compared to $1.9 million for the first quarter of 2018, which was partially due to the write-off of $329,000 of core deposit intangibles related to the branch sales at Wisconsin Bank & Trust.
  • Gains on sales/valuations of assets, net, totaled $3.0 million and $197,000 for the first quarter of 2019 and 2018, respectively, with the increase of $2.8 million primarily attributable to the sale of the Wisconsin Bank & Trust branches.
  • Restructuring expenses totaled $3.2 million for the first quarter of 2019 compared to $2.6 million during the first quarter of 2018, which was an increase of $663,000 or 26%. Restructuring expenses in the first quarter of 2019 related to the wind down of Citizens' Finance Company and the legacy mortgage lending operations and consisted of severance and retention payments for employees, software discontinuation fees and expected lease buyouts.
  • Other noninterest expenses were $11.2 million for the first quarter of 2019 compared to $9.8 million for the first quarter of 2018, which was an increase of $1.4 million or 14%. Included in this increase was a write-down of $475,000 on a partnership investment that qualifies for solar energy tax credits.

The increases in salaries and employee benefits, professional fees, and the remainder of the increases in core deposit and customer relationship intangibles amortization and other noninterest expenses were primarily attributable to recent acquisitions.

Heartland's effective tax rate was 20.88% for the first quarter of 2019 compared to 18.04% for the first quarter of 2018. Federal low-income housing tax credits included in the determination of Heartland's income taxes totaled $281,000 for the first quarter of 2019 compared to $307,000 for the first quarter of 2018. Included in Heartland's first quarter 2019 tax calculation was a solar energy tax credit totaling $314,000. Tax-exempt interest income as a percentage of pre-tax income declined to 13.35% during the first quarter of 2019 from 20.46% during the first quarter of 2018.

Loans and Deposits Decrease Since December 31, 2018

Total assets were $11.31 billion at March 31, 2019, a decrease of $95.5 million or 1% from $11.41 billion at year-end 2018. Securities represented 22% and 24% of total assets at March 31, 2019, and December 31, 2018, respectively.

Total loans held to maturity were $7.33 billion at March 31, 2019, compared to $7.41 billion at year-end 2018, a decrease of $76.2 million or 1%. During the first quarter of 2019, the sale of two branches at Dubuque Bank and Trust Company was announced, which included $20.3 million of loans that were classified as held for sale at March 31, 2019. Heartland also reclassified commercial loans with balances of $11.8 million at March 31, 2019, to held for sale as part of a plan to exit a small lease portfolio. Exclusive of these transactions, total loans held to maturity decreased $44.0 million or less than 1% since year-end 2018. Loan changes by category were:

  • Commercial and commercial real estate loans totaled $5.75 billion at March 31, 2019, compared to $5.73 billion at December 31, 2018, which was an increase of $13.3 million or less than 1%. Excluding $14.9 million of commercial and commercial real estate loans classified as held for sale during the quarter, commercial and commercial real estate loans increased $28.2 million or less than 1% since year-end.
  • Agricultural and agricultural real estate loans totaled $544.8 million at March 31, 2019, compared to $565.4 million at year-end, which was a decrease of $20.6 million or 4%. Excluding $6.6 million of agricultural and agricultural real estate loans classified as held for sale during the quarter, agricultural and agricultural real estate loans decreased $14.0 million or 2% since December 31, 2018.
  • Residential mortgage loans decreased $43.2 million or 6% to $630.4 million at March 31, 2019, from $673.6 million at year-end. Excluding $2.0 million of residential mortgage loans classified as held for sale during the quarter, residential mortgage loans decreased $41.2 million or 6% since year-end.
  • Consumer loans decreased $27.6 million or 6% to $412.6 million at March 31, 2019, compared to $440.2 million at December 31, 2018. Excluding $8.6 million of loans classified as held for sale during the quarter, consumer loans decreased $19.0 million or 4% since year-end.

"We continued to see commercial and commercial real estate loan growth this quarter. The decreases in the residential mortgage and consumer loans were primarily the result of customers refinancing loans due to recent mortgage interest rate decreases," said Lee.

Total deposits were $9.35 billion as of March 31, 2019, compared to $9.40 billion at year-end 2018, a decrease of $43.5 million or less than 1%. The deposits classified as held for sale in conjunction with the branch sale announced at Dubuque Bank and Trust Company totaled $77.0 million at March 31, 2019. Excluding deposits classified as held for sale during the quarter, total deposits increased $33.5 million or less than 1% since December 31, 2018. Deposit changes by category were:

  • Demand deposits decreased $145.8 million or 4% to $3.12 billion at March 31, 2019, compared to $3.26 billion at December 31, 2018. Excluding $17.3 million of demand deposits classified as held for sale during the quarter, demand deposits decreased $128.6 million or 4% since year-end 2018.
  • Savings deposits increased $38.0 million or 1% to $5.15 billion at March 31, 2019, from $5.11 billion at December 31, 2018. Excluding savings deposits of $47.8 million classified as held for sale during the quarter, savings deposits increased $85.8 million or 2% since year-end 2018.
  • Time deposits increased $64.4 million or 6% to $1.09 billion at March 31, 2019 from $1.02 billion at December 31, 2018. Excluding time deposits of $11.9 million classified as held for sale during the quarter, time deposits increased $76.2 million or 7% since year-end 2018.

"Demand deposit balances declined during the first quarter, primarily due to commercial and public fund outflows, which tend to be seasonal. However, non-time deposits represent a healthy 88 percent of total deposits at March 31, 2019," Lee stated.

Nonperforming Assets Increase Since December 31, 2018

Nonperforming assets increased $5.1 million or 6% to $84.4 million or 0.75% of total assets at March 31, 2019, compared to $79.3 million or 0.69% of total assets at December 31, 2018. Nonperforming loans were $79.0 million or 1.08% of total loans at March 31, 2019, compared to $72.7 million or 0.98% of total loans at December 31, 2018.  The increase is primarily related to two agribusiness relationships that were originated in Heartland's Midwestern markets. At March 31, 2019, loans delinquent 30-89 days were 0.47% of total loans compared to 0.21% of total loans at December 31, 2018.

The allowance for loan losses at March 31, 2019, was 0.85% of loans and 79.29% of nonperforming loans, compared to 0.84% of loans and 85.27% of nonperforming loans at December 31, 2018. The provision for loan losses decreased $2.6 million to $1.6 million for the first quarter of 2019 compared to $4.3 million for the same quarter in 2018.

Non-GAAP Financial Measures

This press release contains references to financial measures which are not defined by generally accepted accounting principles ("GAAP"). Management believes the non-GAAP measures are helpful for investors to analyze and evaluate Heartland's financial condition and operating results. However, these non-GAAP measures have inherent limitations and should not be considered a substitute for operating results determined in accordance with GAAP. Additionally, because non-GAAP measures are not standardized, it may not be possible to compare the non-GAAP measures in this press release with other companies' non-GAAP measures. Reconciliations of each non-GAAP measure to the most directly comparable GAAP measure may be found in the financial tables in this press release.

Below are the non-GAAP measures included in this press release, management's reason for including each measure and the method of calculating each measure:

  • Annualized return on average common tangible equity is net income available to common stockholders plus  core deposit and customer relationship intangibles amortization, net of tax, divided by average common stockholders' equity less goodwill and core deposit and customer relationship intangibles, net. This measure is included as it is considered to be a critical metric to analyze and evaluate financial condition and capital strength.
  • Annualized net interest margin, fully tax-equivalent, 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.
  • 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 reconciliation contained in this press release.
  • Tangible book value per common share is total common stockholders' equity less goodwill and core deposit and customer relationship intangibles, net, divided by common shares outstanding, net of treasury. This measure is included as it is considered to be a critical metric to analyze and evaluate use of equity, financial condition and capital strength.
  • Tangible common equity ratio is total common stockholders' equity less goodwill and core deposit and customer relationship intangibles, net, divided by total assets less goodwill and core deposit and customer relationship intangibles, net. This measure is included as it is considered to be a critical metric to analyze and evaluate use of equity, financial condition and capital strength.

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 April 28, 2020, 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 116 banking locations serving 84 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 Three Months Ended
March 31,
 2019 2018
Interest Income   
Interest and fees on loans$100,456  $85,651 
Interest on securities:   
Taxable15,876  11,577 
Nontaxable3,093  3,579 
Interest on federal funds sold4   
Interest on deposits with other banks and other short-term investments

1,292  407 
Total Interest Income120,721  101,214 
Interest Expense   
Interest on deposits13,213  5,766 
Interest on short-term borrowings889  268 
Interest on other borrowings3,664  3,596 
Total Interest Expense17,766  9,630 
Net Interest Income102,955  91,584 
Provision for loan losses1,635  4,263 
Net Interest Income After Provision for Loan Losses101,320  87,321 
Noninterest Income   
Service charges and fees12,794  10,079 
Loan servicing income1,729  1,754 
Trust fees4,474  4,680 
Brokerage and insurance commissions734  907 
Securities gains/(losses), net1,575  1,441 
Unrealized gain/(loss) on equity securities, net258  (28)
Net gains on sale of loans held for sale3,176  4,051 
Valuation adjustment on servicing rights(589) (2)
Income on bank owned life insurance899  614 
Other noninterest income1,667  1,220 
Total Noninterest Income26,717  24,716 
Noninterest Expense   
Salaries and employee benefits50,285  48,710 
Occupancy6,607  6,043 
Furniture and equipment2,692  2,749 
Professional fees11,379  9,448 
Advertising2,325  1,940 
Core deposit and customer relationship intangibles amortization2,842  1,863 
Other real estate and loan collection expenses701  732 
(Gain)/loss on sales/valuations of assets, net(3,004) (197)
Restructuring expenses3,227  2,564 
Other noninterest expenses11,176  9,794 
Total Noninterest Expense88,230  83,646 
Income Before Income Taxes39,807  28,391 
Income taxes8,310  5,123 
Net Income31,497  23,268 
Preferred dividends  (13)
Net Income Available to Common Stockholders$31,497  $23,255 
Earnings per common share-diluted$0.91  $0.76 
Weighted average shares outstanding-diluted34,699,839  30,645,212 


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 For the Quarter Ended
 3/31/2019 12/31/2018 9/30/2018 6/30/2018 3/31/2018
Interest Income         
Interest and fees on loans$100,456  $105,700  $105,733  $96,787  $85,651 
Interest on securities:         
Taxable15,876  15,851  14,433  12,270  11,577 
Nontaxable3,093  3,467  3,490  3,584  3,579 
Interest on federal funds sold4         
Interest on deposits with other banks and other short-term investments1,292  1,285  1,238  768  407 
Total Interest Income120,721  126,303  124,894  113,409  101,214 
Interest Expense         
Interest on deposits13,213  11,826  10,092  7,983  5,766 
Interest on short-term borrowings889  417  464  547  268 
Interest on other borrowings3,664  3,777  3,660  3,470  3,596 
Total Interest Expense17,766  16,020  14,216  12,000  9,630 
Net Interest Income102,955  110,283  110,678  101,409  91,584 
Provision for loan losses1,635  9,681  5,238  4,831  4,263 
Net Interest Income After Provision for Loan Losses101,320  100,602  105,440  96,578  87,321 
Noninterest Income         
Service charges and fees12,794  13,660  12,895  12,072  10,079 
Loan servicing income1,729  2,061  1,670  1,807  1,754 
Trust fees4,474  4,599  4,499  4,615  4,680 
Brokerage and insurance commissions734  1,618  1,111  877  907 
Securities gains/(losses), net1,575  48  (145) (259) 1,441 
Unrealized gain/(loss) on equity securities, net258  115  54  71  (28)
Net gains on sale of loans held for sale3,176  3,189  7,410  6,800  4,051 
Valuation adjustment on servicing rights(589) (58) 230  (216) (2)
Income on bank owned life insurance899  587  892  700  614 
Other noninterest income1,667  1,226  1,149  1,167  1,220 
Total Noninterest Income26,717  27,045  29,765  27,634  24,716 
Noninterest Expense         
Salaries and employee benefits50,285  46,729  49,921  50,758  48,710 
Occupancy6,607  6,622  6,348  6,315  6,043 
Furniture and equipment2,692  3,126  3,470  3,184  2,749 
Professional fees11,379  10,630  12,800  10,632  9,448 
Advertising2,325  2,726  2,754  2,145  1,940 
Core deposit and customer relationship intangibles amortization2,842  2,592  2,626  2,274  1,863 
Other real estate and loan collection expenses701  574  784  948  732 
(Gain)/loss on sales/valuations of assets, net(3,004) (35) 912  1,528  (197)
Restructuring expenses3,227        2,564 
Other noninterest expenses11,176  15,857  12,924  11,098  9,794 
Total Noninterest Expense88,230  88,821  92,539  88,882  83,646 
Income Before Income Taxes39,807  38,826  42,666  35,330  28,391 
Income taxes8,310  6,685  8,956  7,451  5,123 
Net Income31,497  32,141  33,710  27,879  23,268 
Preferred dividends    (13) (13) (13)
Net Income Available to Common Stockholders$31,497  $32,141  $33,697  $27,866  $23,255 
Earnings per common share-diluted$0.91  $0.93  $0.97  $0.85  $0.76 
Weighted average shares outstanding-diluted34,699,839  34,670,180  34,644,187  32,830,751  30,645,212 


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 As of
 3/31/2019 12/31/2018 9/30/2018 6/30/2018 3/31/2018
Assets         
Cash and due from banks$174,198  $223,135  $196,847  $193,069  $143,071 
Interest bearing deposits with other banks and other short-term investments318,303  50,495  240,528  194,937  123,275 
Cash and cash equivalents492,501  273,630  437,375  388,006  266,346 
Time deposits in other financial institutions4,675  4,672  5,836  6,803  6,297 
Securities:         
Carried at fair value2,400,460  2,450,709  2,274,215  2,197,117  2,027,665 
Held to maturity, at cost88,089  236,283  239,908  244,271  249,766 
Other investments, at cost27,506  28,396  26,656  26,725  22,982 
Loans held for sale69,716  119,801  77,727  55,684  24,376 
Loans:         
Held to maturity7,331,544  7,407,697  7,365,493  7,477,697  6,746,015 
 Allowance for loan losses(62,639) (61,963) (61,221) (61,324) (58,656)
Loans, net7,268,905  7,345,734  7,304,272  7,416,373  6,687,359 
Premises, furniture and equipment, net190,215  194,676  198,224  199,959  172,862 
Goodwill391,668  391,668  391,668  391,668  270,305 
Core deposit and customer relationship intangibles, net44,637  47,479  50,071  52,698  41,063 
Servicing rights, net28,968  31,072  32,039  31,996  25,471 
Cash surrender value on life insurance163,764  162,892  162,216  159,302  143,444 
Other real estate, net5,391  6,153  11,908  11,074  11,801 
Other assets136,000  114,841  123,017  120,244  106,126 
Total Assets$11,312,495  $11,408,006  $11,335,132  $11,301,920  $10,055,863 
Liabilities and Equity         
Liabilities         
Deposits:         
 Demand$3,118,909  $3,264,737  $3,427,819  $3,399,598  $3,094,457 
 Savings5,145,929  5,107,962  4,958,430  4,864,773  4,536,106 
 Time1,088,104  1,023,730  1,125,914  1,224,773  910,977 
Total deposits9,352,942  9,396,429  9,512,163  9,489,144  8,541,540 
Deposits held for sale118,564  106,409  50,312     
Short-term borrowings104,314  227,010  131,139  229,890  131,240 
Other borrowings268,312  274,905  277,563  258,708  276,118 
Accrued expenses and other liabilities96,261  78,078  83,562  68,431  55,460 
Total Liabilities9,940,393  10,082,831  10,054,739  10,046,173  9,004,358 
Stockholders' Equity         
Preferred equity      938  938 
Common stock34,604  34,477  34,473  34,438  31,068 
Capital surplus745,596  743,095  742,080  740,128  557,990 
Retained earnings603,506  579,252  553,662  524,786  500,959 
Accumulated other comprehensive loss(11,604) (31,649) (49,822) (44,543) (39,450)
Total Equity1,372,102  1,325,175  1,280,393  1,255,747  1,051,505 
Total Liabilities and Equity$11,312,495  $11,408,006  $11,335,132  $11,301,920  $10,055,863 


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 For the Quarter Ended
 3/31/2019 12/31/2018 9/30/2018 6/30/2018 3/31/2018
Average Balances         
Assets$11,267,214  $11,371,247  $11,291,289  $10,643,306  $9,759,936 
Loans, net of unearned7,412,855  7,436,497  7,462,176  7,123,182  6,525,553 
Deposits9,356,204  9,596,807  9,530,743  9,018,945  8,251,140 
Earning assets10,129,957  10,225,409  10,154,591  9,614,800  8,857,801 
Interest bearing liabilities6,622,149  6,557,185  6,544,949  6,205,187  5,694,337 
Common stockholders' equity1,336,250  1,290,691  1,263,226  1,139,876  1,011,580 
Total stockholders' equity1,336,250  1,290,691  1,263,795  1,140,814  1,012,518 
Tangible common stockholders' equity (non-GAAP)898,092  849,851  819,966  767,732  723,898 
          
Key Performance Ratios         
Annualized return on average assets1.13% 1.12% 1.18% 1.05% 0.97%
Annualized return on average common equity (GAAP)9.56% 9.88% 10.58% 9.81% 9.32%
Annualized return on average tangible common
equity (non-GAAP)(1)
15.24% 15.96% 17.31% 15.50% 13.85%
Annualized ratio of net charge-offs to average loans0.05% 0.48% 0.28% 0.12% 0.08%
Annualized net interest margin (GAAP)4.12% 4.28% 4.32% 4.23% 4.19%
Annualized net interest margin, fully tax-equivalent (non-GAAP)(1)4.18% 4.34% 4.38% 4.30% 4.26%
Efficiency ratio, fully tax-equivalent (non-GAAP)(1)65.23% 59.35% 62.51% 64.94% 68.21%
          
Reconciliation of Annualized Return on Average Tangible Common Equity (non-GAAP)         
Net income available to common shareholders (GAAP)$31,497  $32,141  $33,697  $27,866  $23,255 
Plus core deposit and customer relationship intangibles amortization, net of tax(2)2,245  2,048  2,075  1,796  1,472 
Adjusted net income available to common shareholders (non-GAAP)$33,742  $34,189  $35,772  $29,662  $24,727 
          
Average common stockholders' equity (GAAP)$1,336,250  $1,290,691  $1,263,226  $1,139,876  $1,011,580 
  Less average goodwill391,668  391,668  391,668  325,781  250,172 
Less average core deposit and customer relationship intangibles, net46,490  49,172  51,592  46,363  37,510 
Average tangible common stockholders' equity (non-GAAP)$898,092  $849,851  $819,966  $767,732  $723,898 
Annualized return on average common equity (GAAP)9.56% 9.88% 10.58% 9.81% 9.32%
Annualized return on average tangible common equity (non-GAAP)15.24% 15.96% 17.31% 15.50% 13.85%
          
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)         
Net Interest Income (GAAP)$102,955  $110,283  $110,678  $101,409  $91,584 
  Plus tax-equivalent adjustment(2)1,412  1,565  1,544  1,575  1,544 
Net interest income, fully tax-equivalent (non-GAAP)$104,367  $111,848  $112,222  $102,984  $93,128 
          
Average earning assets$10,129,957  $10,225,409  $10,154,591  $9,614,800  $8,857,801 
          
Annualized net interest margin (GAAP)4.12% 4.28% 4.32% 4.23% 4.19%
Annualized net interest margin, fully tax-equivalent (non-GAAP)4.18% 4.34% 4.38% 4.30% 4.26%
 
(1) Refer to the "Non-GAAP Measures" in this earnings release for additional information on the usage and presentation of these non-GAAP measures, and refer to these financial tables for the reconciliations to the most directly comparable GAAP measures.
(2) Computed on a tax-equivalent basis using an effective tax rate of 21%.
 


HEARTLAND FINANCIAL USA, INC.  
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) 
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  
 For the Quarter Ended 
Reconciliation of Efficiency Ratio (non-GAAP)  3/31/2019 12/31/2018 9/30/2018 6/30/2018 3/31/2018 
Net interest income$102,955  $110,283  $110,678  $101,409  $91,584  
Tax-equivalent adjustment(1)1,412  1,565  1,544  1,575  1,544  
Fully tax-equivalent net interest income104,367  111,848  112,222  102,984  93,128  
Noninterest income26,717  27,045  29,765  27,634  24,716  
Securities (gains)/losses, net(1,575) (48) 145  259  (1,441) 
Unrealized (gain)/loss on equity securities, net(258) (115) (54) (71) 28  
Valuation adjustment on servicing rights589  58  (230) 216  2  
Adjusted income$129,840  $138,788  $141,848  $131,022  $116,433  
           
Total noninterest expenses$88,230  $88,821  $92,539  $88,882  $83,646  
Less:          
Core deposit and customer relationship intangibles amortization2,842  2,592  2,626  2,274  1,863  
Partnership investment in tax credit projects475  3,895  338      
(Gain)/loss on sales/valuation of assets, net(3,004) (35) 912  1,528  (197) 
Restructuring expenses3,227        2,564  
Adjusted noninterest expenses$84,690  $82,369  $88,663  $85,080  $79,416  
           
Efficiency ratio, fully tax-equivalent (non-GAAP)65.23% 59.35% 62.51% 64.94% 68.21% 
           
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%. 


 
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
 3/31/2019 12/31/2018 9/30/2018 6/30/2018 3/31/2018
Common Share Data         
Book value per common share$39.65  $38.44  $37.14  $36.44  $33.81 
Tangible book value per common share (non-GAAP)(1)$27.04  $25.70  $24.33  $23.53  $23.79 
Common shares outstanding, net of treasury stock34,603,611  34,477,499  34,473,029  34,438,445  31,068,239 
Tangible common equity ratio (non-GAAP)(1)8.60% 8.08% 7.70% 7.46% 7.59%
          
Reconciliation of Tangible Book Value Per Common Share (non-GAAP)         
Common stockholders' equity (GAAP)$1,372,102  $1,325,175  $1,280,393  $1,254,809  $1,050,567 
Less goodwill391,668  391,668  391,668  391,668  270,305 
Less core deposit and customer relationship intangibles, net44,637  47,479  50,071  52,698  41,063 
Tangible common stockholders' equity (non-GAAP)$935,797  $886,028  $838,654  $810,443  $739,199 
          
Common shares outstanding, net of treasury stock34,603,611  34,477,499  34,473,029  34,438,445  31,068,239 
Common stockholders' equity (book value) per share (GAAP)$39.65  $38.44  $37.14  $36.44  $33.81 
Tangible book value per common share (non-GAAP)$27.04  $25.70  $24.33  $23.53  $23.79 
          
Reconciliation of Tangible Common Equity Ratio (non-GAAP)         
Tangible common stockholders' equity (non-GAAP)$935,797  $886,028  $838,654  $810,443  $739,199 
          
Total assets (GAAP)$11,312,495  $11,408,006  $11,335,132  $11,301,920  $10,055,863 
Less goodwill391,668  391,668  391,668  391,668  270,305 
Less core deposit and customer relationship intangibles, net44,637  47,479  50,071  52,698  41,063 
Total tangible assets (non-GAAP)$10,876,190  $10,968,859  $10,893,393  $10,857,554  $9,744,495 
Tangible common equity ratio (non-GAAP)8.60% 8.08% 7.70% 7.46% 7.59%
          
Loan Data         
Loans held to maturity:         
Commercial and commercial real estate$5,745,051  $5,731,712  $5,610,953  $5,721,138  $5,129,777 
Residential mortgage630,433  673,603  676,941  683,051  624,725 
Agricultural and agricultural real estate544,805  565,408  574,048  562,353  518,386 
Consumer412,573  440,158  506,181  512,899  474,929 
Unearned discount and deferred loan fees(1,318) (3,184) (2,630) (1,744) (1,802)
Total loans held to maturity$7,331,544  $7,407,697  $7,365,493  $7,477,697  $6,746,015 
          
Other Selected Trend Information         
Effective tax rate20.88% 17.22% 20.99% 21.09% 18.04%
Full time equivalent employees1,976  2,045  2,124  2,216  2,022 
          
(1) Refer to "Non-GAAP Measures" in this earnings release for additional information on the usage and presentation of these non-GAAP measures, and refer to these financial tables for the reconciliations to the most directly comparable GAAP measures.


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 As of and for the Quarter Ended
 3/31/2019 12/31/2018 9/30/2018 6/30/2018 3/31/2018
Allowance for Loan Losses         
Balance, beginning of period$61,963  $61,221  $61,324  $58,656  $55,686 
Provision for loan losses1,635  9,681  5,238  4,831  4,263 
Charge-offs(1,950) (9,777) (6,120) (3,164) (2,224)
Recoveries991  838  779  1,001  931 
Balance, end of period$62,639  $61,963  $61,221  $61,324  $58,656 
          
Asset Quality         
Nonaccrual loans$77,294  $71,943  $73,060  $69,376  $64,806 
Loans past due ninety days or more1,706  726  154  54  22 
Other real estate owned5,391  6,153  11,908  11,074  11,801 
Other repossessed assets8  459  495  499  423 
Total nonperforming assets$84,399  $79,281  $85,617  $81,003  $77,052 
          
Performing troubled debt restructured loans$3,460  $4,026  $4,180  $4,012  $3,206 
          
Nonperforming Assets Activity         
Balance, beginning of period$79,281  $85,617  $81,003  $77,052  $74,599 
Net loan charge offs(959) (8,939) (5,341) (2,163) (1,293)
New nonperforming loans15,314  17,332  16,965  16,254  8,546 
Acquired nonperforming assets      7,973  2,459 
Reduction of nonperforming loans(1)(6,238) (6,065) (5,085) (15,696) (6,549)
OREO/Repossessed assets sales proceeds(2,092) (8,390) (1,064) (1,541) (657)
OREO/Repossessed assets writedowns, net(462) (230) (886) (993) (16)
Net activity at Citizens Finance Co.(445) (44) 25  117  (37)
Balance, end of period$84,399  $79,281  $85,617  $81,003  $77,052 
 
Asset Quality Ratios         
Ratio of nonperforming loans to total loans1.08% 0.98% 0.99% 0.93% 0.96%
Ratio of nonperforming assets to total assets0.75% 0.69% 0.76% 0.72% 0.77%
Annualized ratio of net loan charge-offs to average loans0.05% 0.48% 0.28% 0.12% 0.08%
Allowance for loan losses as a percent of loans0.85% 0.84% 0.83% 0.82% 0.87%
Allowance for loan losses as a percent of nonperforming loans79.29% 85.27% 83.62% 88.32% 90.48%
Loans delinquent 30-89 days as a percent of total loans0.47% 0.21% 0.62% 0.30% 0.21%
          
(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
 March 31, 2019 December 31, 2018 March 31, 2018
 Average
Balance
 Interest Rate Average
Balance
 Interest Rate Average
Balance
 Interest Rate
Earning Assets                 
Securities:                 
Taxable$2,169,016  $15,876  2.97% $2,184,096  $15,851  2.88% $1,827,611  $11,577  2.57%
Nontaxable(1)391,724  3,915  4.05  427,332  4,388  4.07  448,641  4,530  4.09 
Total securities2,560,740  19,791  3.13  2,611,428  20,239  3.07  2,276,252  16,107  2.87 
Interest on deposits with other banks and other short-term investments218,445  1,292  2.40  238,087  1,285  2.14  112,024  407  1.47 
Federal funds sold560  4  2.90  309           
Loans:(2)                 
Commercial and commercial real estate(1)5,745,180  78,083  5.51  5,644,475  77,822  5.47  4,910,797  62,813  5.19 
Residential mortgage673,682  7,179  4.32  704,012  8,682  4.89  642,181  6,851  4.33 
Agricultural and agricultural real estate(1)554,506  7,301  5.34  568,904  7,752  5.41  513,780  6,004  4.74 
Consumer439,487  6,479  5.98  519,106  9,355  7.15  458,795  8,660  7.66 
Fees on loans  2,004      2,733      1,916   
Less: allowance for loan losses(62,643)     (60,912)     (56,028)    
Net loans7,350,212  101,046  5.58  7,375,585  106,344  5.72  6,469,525  86,244  5.41 
Total earning assets10,129,957  122,133  4.89% 10,225,409  127,868  4.96% 8,857,801  102,758  4.70%
Nonearning Assets1,137,257      1,145,838      902,135     
Total Assets$11,267,214      $11,371,247      $9,759,936     
Interest Bearing Liabilities(3)                 
Savings$5,121,179  $10,083  0.80% $5,071,573  $8,817  0.69% $4,358,508  $3,791  0.35%
Time deposits1,034,744  3,130  1.23  1,088,122  3,009  1.10  907,928  1,975  0.88 
Short-term borrowings195,390  889  1.85  121,053  417  1.37  147,738  268  0.74 
Other borrowings270,836  3,664  5.49  276,437  3,777  5.42  280,163  3,596  5.21 
Total interest bearing liabilities6,622,149  17,766  1.09% 6,557,185  16,020  0.97% 5,694,337  9,630  0.69%
Noninterest Bearing Liabilities(3)                 
Noninterest bearing deposits3,200,281      3,437,112      2,984,704     
Accrued interest and other liabilities108,534      86,259      68,377     
Total noninterest bearing liabilities3,308,815      3,523,371      3,053,081     
Stockholders' Equity1,336,250      1,290,691      1,012,518     
Total Liabilities and Stockholders' Equity$11,267,214      $11,371,247      $9,759,936     
Net interest income, fully tax-equivalent (non-GAAP)(1)  $104,367      $111,848      $93,128   
Net interest spread(1)    3.80%     3.99%     4.01%
Net interest income, fully tax-equivalent (non-GAAP) to total earning assets    4.18%     4.34%     4.26%
                  
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.
(2) Nonaccrual loans and loans held for sale are included in the average loans outstanding.
(3) Includes deposits held for sale


 
HEARTLAND FINANCIAL USA, INC.
SELECTED FINANCIAL DATA - SUBSIDIARY BANKS (Unaudited)
DOLLARS IN THOUSANDS
 As of and For the Quarter Ended
 3/31/201912/31/20189/30/20186/30/20183/31/2018
Total Assets     
Citywide Banks$2,214,105 $2,307,284 $2,300,018 $2,295,261 $2,299,818 
Dubuque Bank and Trust Company1,550,487 1,480,914 1,523,447 1,500,108 1,490,100 
New Mexico Bank & Trust1,500,024 1,492,555 1,465,020 1,466,311 1,416,788 
First Bank & Trust1,099,759 1,109,929 1,112,464 1,123,559  
Wisconsin Bank & Trust1,031,305 1,114,352 1,051,160 1,034,075 1,017,053 
Premier Valley Bank855,473 849,696 851,358 846,215 805,014 
Illinois Bank & Trust810,357 804,907 795,132 815,905 751,371 
Arizona Bank & Trust669,806 658,714 650,032 653,596 633,474 
Minnesota Bank & Trust657,187 666,564 649,179 660,469 631,852 
Morrill & Janes Bank and Trust Company564,833 571,012 592,786 602,630 648,568 
Rocky Mountain Bank489,135 490,453 492,063 504,243 490,917 
Total Deposits(1)     
Citywide Banks$1,802,701 $1,848,373 $1,905,830 $1,867,626 $1,914,726 
Dubuque Bank and Trust Company1,245,553 1,214,541 1,217,976 1,136,431 1,193,271 
New Mexico Bank & Trust1,313,708 1,307,464 1,267,844 1,242,673 1,202,051 
First Bank & Trust857,313 861,629 875,170 887,181  
Wisconsin Bank & Trust872,090 927,821 891,167 874,035 835,919 
Premier Valley Bank676,849 639,194 706,125 696,460 660,070 
Illinois Bank & Trust735,101 715,482 726,790 753,022 674,391 
Arizona Bank & Trust593,089 574,762 550,530 558,895 567,515 
Minnesota Bank & Trust546,706 560,399 544,513 561,257 533,893 
Morrill & Janes Bank and Trust Company473,712 489,471 511,154 498,798 558,174 
Rocky Mountain Bank426,503 424,700 429,167 443,359 429,000 
Net Income     
Citywide Banks$7,283 $7,005 $7,762 $7,018 $5,463 
Dubuque Bank and Trust Company5,011 6,002 4,458 4,426 3,214 
New Mexico Bank & Trust7,847 6,007 7,104 7,043 6,444 
First Bank & Trust2,792 3,334 3,932 1,925  
Wisconsin Bank & Trust4,707 3,229 3,735 2,470 2,617 
Premier Valley Bank2,411 2,930 3,006 2,664 2,373 
Illinois Bank & Trust2,632 2,180 2,419 2,421 2,712 
Arizona Bank & Trust2,780 1,951 2,660 3,623 2,104 
Minnesota Bank & Trust1,454 1,038 2,167 581 762 
Morrill & Janes Bank and Trust Company1,172 324 165 961 1,186 
Rocky Mountain Bank1,358 1,230 1,210 1,185 1,172 
 
(1) Includes deposits held for sale.


CONTACT:
Bryan R. McKeag
Executive Vice President
Chief Financial Officer
(563) 589-1994
bmckeag@htlf.com 

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Source: Heartland Financial USA, Inc.