Press Release

Heartland Financial USA, Inc. Reports Quarterly and Year to Date Results as of September 30, 2019

Company Release - 10/28/2019 4:00 PM ET

Highlights

  • Quarterly net income available to common stockholders of $34.6 million or $0.94 per diluted common share in comparison with $33.7 million or $0.97 per diluted common share for the third quarter of the prior year
  • Net interest margin of 3.98%, fully tax-equivalent (non-GAAP)(1) of 4.02%
  • Return on average common equity of 8.91% and return on average tangible common equity (non-GAAP)(1) of 13.78%
  • Efficiency ratio (non-GAAP)(1) for the third quarter of 2019 of 61.92% compared to 62.51% for the third quarter of 2018
  • Tangible common equity ratio (non-GAAP)(1) of 8.99% in comparison to 7.70% at September 30, 2018
  • Organic loan growth of $118.6 million and organic deposit growth of $361.3 million for the third quarter of 2019
  • Entered into an agreement to acquire substantially all of the assets and deposits and certain other liabilities of Rockford Bank and Trust Company
  • Completed Bank of Blue Valley systems conversion on August 23, 2019
 Quarter Ended
September 30,
 Nine Months Ended
September 30,
 2019 2018 2019 2018
Net income available to common stockholders (in millions)$34.6 $33.7 $111.3 $84.8
Diluted earnings per common share0.94 0.97 3.11 2.59
        
Return on average assets1.12 % 1.18 % 1.27 % 1.07 %
Return on average common equity8.91 10.58 10.33 9.95
Return on average tangible common equity (non-GAAP)(1)13.78 17.31 16.13 15.64
Net interest margin3.98 4.32 4.05 4.25
Net interest margin, fully tax-equivalent (non-GAAP)(1)4.02 4.38 4.10 4.32
Efficiency ratio, fully-tax equivalent (non-GAAP)(1)61.92 62.51 63.95 65.03

(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 completed another successful quarter with net income of $34.6 million for the quarter ended September 30, 2019. Our quarterly results were highlighted by a strong net interest margin and impressive organic loan and deposit growth of $118.6 million and $361.3 million, respectively."
Bruce K. Lee, president and chief executive officer, Heartland Financial USA, Inc.

DUBUQUE, Iowa, Oct. 28, 2019 (GLOBE NEWSWIRE) -- Heartland Financial USA, Inc. (NASDAQ: HTLF) today reported net income available to common stockholders of $34.6 million, or $0.94 per diluted common share, for the quarter ended September 30, 2019, compared to $33.7 million, or $0.97 per diluted common share, for the third quarter of 2018. Return on average common equity was 8.91% and return on average assets was 1.12% for the third quarter of 2019, compared to 10.58% and 1.18%, respectively, for the same quarter in 2018.

Net income available to common stockholders for the nine months ended September 30, 2019, was $111.3 million or $3.11 per diluted common share, compared to $84.8 million or $2.59 per diluted common share for the nine months ended September 30, 2018. Return on average common equity was 10.33% and return on average assets was 1.27% for the first nine months of 2019, compared to 9.95% and 1.07% for the same period in 2018.

Commenting on Heartland’s third quarter results, Bruce K. Lee, Heartland’s president and chief executive officer, said, "Heartland completed another successful quarter with net income of $34.6 million for the quarter ended September 30, 2019. Our quarterly results were highlighted by a strong net interest margin and impressive organic loan and deposit growth of $118.6 million and $361.3 million, respectively."

Recent Developments

  • On May 10, 2019, Heartland completed the acquisition of Blue Valley Ban Corp. ("BVBC") and its wholly-owned subsidiary, Bank of Blue Valley, headquartered in Overland Park, Kansas. Based on Heartland's closing common stock price of $44.78 per share on May 10, 2019, the aggregate consideration paid to BVBC common shareholders was $92.3 million, which was paid by delivery of Heartland common stock. Immediately following the closing of the transaction, Bank of Blue Valley was merged with and into Heartland's wholly-owned Kansas subsidiary, Morrill & Janes Bank and Trust Company, and the combined entity operates under the Bank of Blue Valley brand. As of the closing date, BVBC had, at fair value, total assets of $766.2 million, total loans held to maturity of $542.0 million, and total deposits of $617.1 million. Heartland also assumed, at fair value, $16.1 million of trust preferred debt. The systems conversion for this transaction was completed on August 23, 2019.
  • In keeping with its focus on core businesses and execution of strategic priorities, during the second quarter of 2019, Heartland completed the sale of two branches of Dubuque Bank and Trust Company, two branches of Illinois Bank & Trust and one branch of Citywide Banks, which resulted in a reduction of loans of $27.1 million and deposits of $107.8 million. On April 30, 2019, Dubuque Bank and Trust Company closed on the sale of substantially all its mortgage servicing rights to PNC Bank, N.A. Heartland is utilizing a portion of the net gains from these sales transactions, which totaled approximately $19.8 million and were recorded in the second quarter of 2019, to invest in several new technology and process improvement projects. These projects include system upgrades, process automation, and expansion of online and mobile banking capabilities.
  • On August 13, 2019, Heartland's Illinois Bank & Trust subsidiary entered into a purchase and assumption agreement to acquire substantially all of the assets and substantially all of the deposits and certain other liabilities of Rockford Bank and Trust Company ("RB&T"), headquartered in Rockford, Illinois. RB&T is a wholly-owned subsidiary of Moline, Illinois-based QCR Holdings, Inc. As of September 30, 2019, RB&T had total assets of $519.5 million, which included $417.3 million of gross loans held to maturity, and $451.5 million of deposits. RB&T serves the Rockford market from two full-service banking locations. The all-cash transaction is subject to approval by federal and state bank regulators and to customary closing conditions and is expected to close in the fourth quarter of 2019. The systems conversion is expected to occur in the first quarter of 2020.

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

Net interest margin, expressed as a percentage of average earning assets, was 3.98% (4.02% on a fully tax-equivalent basis, non-GAAP) during the third quarter of 2019, compared to 4.06% (4.10% on a fully tax-equivalent basis, non-GAAP) during the second quarter of 2019 and 4.32% (4.38% on a fully tax-equivalent basis, non-GAAP) during the third quarter of 2018.

Total interest income for the third quarter of 2019 was $133.4 million compared to $124.9 million recorded in the third quarter of 2018, an increase of $8.5 million or 7%. The tax-equivalent adjustment for income taxes saved on the interest earned on nontaxable securities and loans was $1.1 million for the third quarter of 2019 and $1.5 million for the third quarter of 2018. With these adjustments, total interest income on a tax-equivalent basis was $134.5 million for the third quarter of 2019, an increase of $8.1 million or 6%, compared to total interest income on a tax-equivalent basis of $126.4 million for the third quarter of 2018. Average earning assets of $11.10 billion increased $948.0 million or 9% from the third quarter of 2018, which was primarily attributable to recent acquisitions. The average rate on earning assets decreased 13 basis points to 4.81% for the third quarter of 2019 compared to 4.94% for the same quarter in 2018. In the first quarter of 2019, Heartland sold its higher yielding consumer loan portfolios, which decreased the average rate on earning assets by approximately 13 basis points for the third quarter of 2019 compared to the same quarter in 2018. 

Total interest expense for the third quarter of 2019 was $22.1 million, an increase of $7.9 million or 55% from $14.2 million in the third quarter of 2018. The average interest rate paid on Heartland's interest bearing liabilities increased to 1.22% for the third quarter of 2019 compared to 0.86% for the third quarter of 2018, which was primarily due to recent increases in market interest rates. Average interest bearing deposits increased $666.8 million or 11% to $6.79 billion for the quarter ended September 30, 2019, from $6.13 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 40 basis points to 1.05% for the third quarter of 2019 compared to 0.65% for the same quarter in 2018. Average borrowings decreased $36.8 million or 9% to $382.2 million during the third quarter of 2019 from $419.0 million during the same quarter in 2018. The average interest rate paid on Heartland's borrowings was 4.26% for the third quarter of 2019 compared to 3.91% in the third quarter of 2018.

Net interest income was $111.3 million during the third quarter of 2019 compared to $110.7 million during the third quarter of 2018, an increase of $643,000 or 1%. After the tax-equivalent adjustment discussed above, net interest income on a tax-equivalent basis totaled $112.5 million during the third quarter of 2019 compared to net interest income on a tax-equivalent basis of $112.2 million during the third quarter of 2018, an increase of $239,000 or less than 1%.

"Our fully tax-equivalent net interest margin remains strong at 4.02% for the third quarter of 2019, which was a decline of eight basis points from the second quarter of 2019. In response to the recent decline in interest rates, we have taken steps to help maintain our yield on loans and lower our funding costs," Lee said.

Noninterest Income and Noninterest Expense Remain Flat from Third Quarter of 2018

Total noninterest income was $29.4 million during the third quarter of 2019 compared to $29.8 million during the third quarter of 2018, a decrease of $365,000 or 1%. Significant changes by noninterest income category were:

  • Loan servicing income totaled $821,000 for the third quarter of 2019 compared to $1.7 million for the third quarter of 2018, which was a decrease of $849,000 or 51%. The decrease was primarily due to the sale of the mortgage servicing rights of Dubuque Bank and Trust Company in the second quarter of 2019.
  • Securities gains, net, totaled $2.0 million for the third quarter of 2019 compared to net securities losses of $145,000 in the third quarter of 2018.
  • Net gains on sale of loans held for sale totaled $4.7 million during the third quarter of 2019 compared to $7.4 million during the same quarter in 2018, which was a decrease of $2.7 million or 37%, primarily due to the outsourcing of Heartland's legacy mortgage lending operations in the fourth quarter of 2018.
  • Other noninterest income totaled $3.2 million for the third quarter of 2019 compared to $1.1 million for the third quarter of 2018, which was an increase of $2.1 million or 179%. Commercial swap fee income increased $1.3 million to $1.6 million for the third quarter of 2019 compared to $374,000 for the same quarter of 2018. Also included in other noninterest income for the third quarter of 2019 was a gain on the extinguishment of debt of $375,000.

For the third quarter of 2019, total noninterest expense was $93.0 million compared to $92.5 million during the third quarter of 2018, an increase of $428,000 or less than 1%. The most significant change by noninterest expense category was in other noninterest expenses, which was $15.5 million for the third quarter of 2019 compared to $12.9 million for the third quarter of 2018, which was an increase of $2.5 million or 20%. Included in this increase was a write-down of $3.1 million on a partnership investment that qualifies for solar energy tax credits.

"Our strategic initiatives and process improvement projects are positively impacting our  total noninterest expense as we expected. Since the end of the third quarter of 2018, our assets increased $1.23 billion while our expenses have remained flat," said Lee.

Heartland's effective tax rate was 18.66% for the third quarter of 2019 compared to 20.99% for the third quarter of 2018. Included in Heartland's third quarter 2019 and 2018 tax calculations were solar energy tax credits of $2.0 million and $223,000, respectively. Federal low-income housing tax credits included in the determination of Heartland's income taxes totaled $281,000 for the third quarter of 2019 compared to $307,000 for the third quarter of 2018. Tax-exempt interest income as a percentage of pre-tax income declined to 10.08% during the third quarter of 2019 from 13.62% during the third quarter of 2018.

Loans and Deposits Increase Since December 31, 2018

Total assets were $12.57 billion at September 30, 2019, an increase of $1.16 billion or 10% from $11.41 billion at year-end 2018. Excluding $766.2 million of assets acquired at fair value in the BVBC transaction, total assets increased $395.0 million or 3% since year-end 2018. Securities represented 25% and 24% of total assets at September 30, 2019, and December 31, 2018, respectively.

Total loans held to maturity were $7.97 billion at September 30, 2019, compared to $7.41 billion at year-end 2018, an increase of $563.9 million or 8%. This change includes $542.0 million of total loans held to maturity acquired at fair value in the BVBC transaction. During the first quarter of 2019, Heartland classified $32.1 million of loans as held for sale in conjunction with the branch sales. Excluding the reclassification of loans to held for sale and the BVBC transaction, total loans held to maturity increased $54.0 million or 1% since December 31, 2018. Loan changes by category were:

  • Commercial and commercial real estate loans totaled $6.39 billion at September 30, 2019, compared to $5.73 billion at December 31, 2018, which was an increase of $661.9 million or 12%. Excluding $14.9 million of commercial and commercial real estate loans classified as held for sale during the first quarter of 2019 and $480.1 million of loans acquired in the BVBC transaction, commercial and commercial real estate loans increased $196.6 million or 3% since year-end.
  • Agricultural and agricultural real estate loans totaled $545.0 million at September 30, 2019, compared to $565.4 million at December 31, 2018, which was a decrease of $20.4 million or 4%. Excluding $6.6 million of agricultural and agricultural real estate loans classified as held for sale during the first quarter of 2019 and $1.8 million of loans acquired in the BVBC transaction, agricultural and agricultural real estate loans decreased $15.6 million or 3% since year-end.
  • Residential mortgage loans decreased $83.8 million or 12% to $589.8 million at September 30, 2019, from $673.6 million at December 31, 2018. Excluding $2.0 million of residential mortgage loans classified as held for sale during the first quarter of 2019 and $17.2 million of loans acquired in the BVBC transaction, residential mortgage loans decreased $99.0 million or 15% since year-end.
  • Consumer loans increased $7.6 million or 2% to $447.7 million at September 30, 2019, compared to $440.2 million at December 31, 2018. Excluding $8.6 million of loans classified as held for sale during the first quarter of 2019 and $42.9 million of loans acquired in the BVBC transaction, consumer loans decreased $26.7 million or 6% since year-end.

"An important contributor to our third quarter success was organic growth in our commercial loan portfolio of $163.2 million and $196.6 million year to date. We continued to see contraction in the residential mortgage and consumer loan portfolios due to declines in mortgage interest rates. Quality loan growth remains a top priority, and our pipelines indicate continued growth," said Lee. 

Total deposits were $10.47 billion as of September 30, 2019, compared to $9.40 billion at year-end 2018, an increase of $1.07 billion or 11%. This increase includes $617.1 million of deposits acquired at fair value in the BVBC transaction. During the first quarter of 2019, Heartland classified $77.0 million of deposits as held for sale in conjunction with the branch sales. Exclusive of the reclassification of deposits to held for sale and the deposits acquired at fair value in the BVBC transaction, total deposits increased $533.3 million or 6% since December 31, 2018. Deposit changes by category were:

  • Demand deposits increased $316.4 million or 10% to $3.58 billion at September 30, 2019, compared to $3.26 billion at December 31, 2018. Excluding $164.9 million of demand deposits acquired in the BVBC transaction and $17.3 million of demand deposits classified as held for sale in the first quarter of 2019, demand deposits increased $168.8 million or 5% since year-end 2018.
  • Savings deposits increased $662.8 million or 13% to $5.77 billion at September 30, 2019, from $5.11 billion at December 31, 2018. Excluding savings deposits of $346.2 million acquired in the BVBC transaction and $47.8 million of savings deposits classified as held for sale in the first quarter of 2019, savings deposits increased $364.4 million or 7% since year-end 2018.
  • Time deposits increased $94.2 million or 9% to $1.12 billion at September 30, 2019 from $1.02 billion at December 31, 2018. Excluding time deposits of $106.0 million acquired in the BVBC transaction and $11.9 million of time deposits classified as held for sale in the first quarter of 2019, time deposits increased $100,000 or less than 1% since year-end 2018.

"We had outstanding organic non-time deposit growth of $391.6 million for the third quarter of 2019 and $533.3 million for the first nine months of 2019. Non-time deposits represented 89 percent of total deposits at September 30, 2019," Lee stated.

Nonperforming Assets Decrease Since December 31, 2018

Nonperforming assets decreased $595,000 or 1% to $78.7 million or 0.63% of total assets at September 30, 2019, compared to $79.3 million or 0.69% of total assets at December 31, 2018. Nonperforming loans were $72.2 million or 0.91% of total loans at September 30, 2019, compared to $72.7 million or 0.98% of total loans at December 31, 2018. At September 30, 2019, loans delinquent 30-89 days were 0.28% of total loans compared to 0.21% of total loans at December 31, 2018.

The allowance for loan losses at September 30, 2019, was 0.83% of loans and 91.66% of nonperforming loans, compared to 0.84% of loans and 85.27% of nonperforming loans at December 31, 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 tangible common 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 October 27, 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 $12.57 billion. The company provides banking, mortgage, private client, investment, insurance and consumer finance services to individuals and businesses. Heartland currently has 114 banking locations serving 83 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
September 30,
 For the Nine Months Ended
September 30,
 2019  2018  2019  2018 
Interest Income       
Interest and fees on loans$110,566  $105,733  $317,049  $288,171 
Interest on securities:       
Taxable18,567  14,433  50,566  38,280 
Nontaxable2,119  3,490  7,766  10,653 
Interest on federal funds sold    4   
Interest on deposits with other banks and other short-term investments2,151  1,238  5,742  2,413 
Total Interest Income133,403  124,894  381,127  339,517 
Interest Expense       
Interest on deposits17,982  10,092  47,333  23,841 
Interest on short-term borrowings250  464  1,477  1,279 
Interest on other borrowings3,850  3,660  11,333  10,726 
Total Interest Expense22,082  14,216  60,143  35,846 
Net Interest Income111,321  110,678  320,984  303,671 
Provision for loan losses5,201  5,238  11,754  14,332 
Net Interest Income After Provision for Loan Losses106,120  105,440  309,230  289,339 
Noninterest Income       
Service charges and fees12,366  12,895  39,789  35,046 
Loan servicing income821  1,670  3,888  5,231 
Trust fees4,959  4,499  14,258  13,794 
Brokerage and insurance commissions962  1,111  2,724  2,895 
Securities gains/(losses), net2,013  (145) 7,168  1,037 
Unrealized gain on equity securities, net144  54  514  97 
Net gains on sale of loans held for sale4,673  7,410  12,192  18,261 
Valuation adjustment on servicing rights(626) 230  (1,579) 12 
Income on bank owned life insurance881  892  2,668  2,206 
Other noninterest income3,207  1,149  6,556  3,536 
Total Noninterest Income29,400  29,765  88,178  82,115 
Noninterest Expense       
Salaries and employee benefits50,027  49,921  150,307  149,389 
Occupancy6,594  6,348  19,637  18,706 
Furniture and equipment2,858  3,470  8,770  9,403 
Professional fees12,131  12,800  38,478  32,880 
Advertising2,737  2,754  7,723  6,839 
Core deposit and customer relationship intangibles amortization2,899  2,626  9,054  6,763 
Other real estate and loan collection expenses, net(89) 784  774  2,464 
(Gain)/loss on sales/valuations of assets, net356  912  (20,934) 2,243 
Restructuring expenses    3,227  2,564 
Other noninterest expenses15,454  12,924  39,259  33,816 
Total Noninterest Expense92,967  92,539  256,295  265,067 
Income Before Income Taxes42,553  42,666  141,113  106,387 
Income taxes7,941  8,956  29,835  21,530 
Net Income34,612  33,710  111,278  84,857 
Preferred dividends  (13)   (39)
Net Income Available to Common Stockholders$34,612  $33,697  $111,278  $84,818 
Earnings per common share-diluted$0.94  $0.97  $3.11  $2.59 
Weighted average shares outstanding-diluted36,835,191  34,644,187  35,817,899  32,707,481 
            
            


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 For the Quarter Ended
 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018
Interest Income         
Interest and fees on loans$110,566  $106,027  $100,456  $105,700  $105,733 
Interest on securities:         
Taxable18,567  16,123  15,876  15,851  14,433 
Nontaxable2,119  2,554  3,093  3,467  3,490 
Interest on federal funds sold    4     
Interest on deposits with other banks and other short-term investments2,151  2,299  1,292  1,285  1,238 
Total Interest Income133,403  127,003  120,721  126,303  124,894 
Interest Expense         
Interest on deposits17,982  16,138  13,213  11,826  10,092 
Interest on short-term borrowings250  338  889  417  464 
Interest on other borrowings3,850  3,819  3,664  3,777  3,660 
Total Interest Expense22,082  20,295  17,766  16,020  14,216 
Net Interest Income111,321  106,708  102,955  110,283  110,678 
Provision for loan losses5,201  4,918  1,635  9,681  5,238 
Net Interest Income After Provision for Loan Losses106,120  101,790  101,320  100,602  105,440 
Noninterest Income         
Service charges and fees12,366  14,629  12,794  13,660  12,895 
Loan servicing income821  1,338  1,729  2,061  1,670 
Trust fees4,959  4,825  4,474  4,599  4,499 
Brokerage and insurance commissions962  1,028  734  1,618  1,111 
Securities gains/(losses), net2,013  3,580  1,575  48  (145)
Unrealized gain on equity securities, net144  112  258  115  54 
Net gains on sale of loans held for sale4,673  4,343  3,176  3,189  7,410 
Valuation adjustment on servicing rights(626) (364) (589) (58) 230 
Income on bank owned life insurance881  888  899  587  892 
Other noninterest income3,207  1,682  1,667  1,226  1,149 
Total Noninterest Income29,400  32,061  26,717  27,045  29,765 
Noninterest Expense         
Salaries and employee benefits50,027  49,995  50,285  46,729  49,921 
Occupancy6,594  6,436  6,607  6,622  6,348 
Furniture and equipment2,858  3,220  2,692  3,126  3,470 
Professional fees12,131  14,968  11,379  10,630  12,800 
Advertising2,737  2,661  2,325  2,726  2,754 
Core deposit and customer relationship intangibles amortization2,899  3,313  2,842  2,592  2,626 
Other real estate and loan collection expenses, net(89) 162  701  574  784 
(Gain)/loss on sales/valuations of assets, net356  (18,286) (3,004) (35) 912 
Restructuring expenses    3,227     
Other noninterest expenses15,454  12,629  11,176  15,857  12,924 
Total Noninterest Expense92,967  75,098  88,230  88,821  92,539 
Income Before Income Taxes42,553  58,753  39,807  38,826  42,666 
Income taxes7,941  13,584  8,310  6,685  8,956 
Net Income34,612  45,169  31,497  32,141  33,710 
Preferred dividends        (13)
Net Income Available to Common Stockholders$34,612  $45,169  $31,497  $32,141  $33,697 
Earnings per common share-diluted$0.94  $1.26  $0.91  $0.93  $0.97 
Weighted average shares outstanding-diluted36,835,191  35,879,259  34,699,839  34,670,180  34,644,187 
               
               


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
 As of
 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018
Assets         
Cash and due from banks$243,395  $198,664  $174,198  $223,135  $196,847 
Interest bearing deposits with other banks and other short-term investments204,372  443,475  318,303  50,495  240,528 
Cash and cash equivalents447,767  642,139  492,501  273,630  437,375 
Time deposits in other financial institutions3,711  4,430  4,675  4,672  5,836 
Securities:         
Carried at fair value3,020,568  2,561,887  2,400,460  2,450,709  2,274,215 
Held to maturity, at cost87,965  88,166  88,089  236,283  239,908 
Other investments, at cost29,042  31,366  27,506  28,396  26,656 
Loans held for sale35,427  34,575  69,716  119,801  77,727 
Loans:         
Held to maturity7,971,608  7,853,051  7,331,544  7,407,697  7,365,493 
Allowance for loan losses(66,222) (63,850) (62,639) (61,963) (61,221)
Loans, net7,905,386  7,789,201  7,268,905  7,345,734  7,304,272 
Premises, furniture and equipment, net199,235  198,329  190,215  194,676  198,224 
Goodwill427,097  427,097  391,668  391,668  391,668 
Core deposit and customer relationship intangibles, net49,819  52,718  44,637  47,479  50,071 
Servicing rights, net6,271  7,180  28,968  31,072  32,039 
Cash surrender value on life insurance171,471  170,421  163,764  162,892  162,216 
Other real estate, net6,425  6,646  5,391  6,153  11,908 
Other assets179,078  146,135  136,000  114,841  123,017 
Total Assets$12,569,262  $12,160,290  $11,312,495  $11,408,006  $11,335,132 
Liabilities and Equity         
Liabilities         
Deposits:         
 Demand$3,581,127  $3,426,758  $3,118,909  $3,264,737  $3,427,819 
 Savings5,770,754  5,533,503  5,145,929  5,107,962  4,958,430 
 Time1,117,975  1,148,296  1,088,104  1,023,730  1,125,914 
Total deposits10,469,856  10,108,557  9,352,942  9,396,429  9,512,163 
Deposits held for sale    118,564  106,409  50,312 
Short-term borrowings107,853  107,260  104,314  227,010  131,139 
Other borrowings278,417  282,863  268,312  274,905  277,563 
Accrued expenses and other liabilities149,293  139,823  96,261  78,078  83,562 
Total Liabilities11,005,419  10,638,503  9,940,393  10,082,831  10,054,739 
Stockholders' Equity         
Common stock36,696  36,690  34,604  34,477  34,473 
Capital surplus838,543  837,150  745,596  743,095  742,080 
Retained earnings670,816  642,808  603,506  579,252  553,662 
Accumulated other comprehensive income/(loss)17,788  5,139  (11,604) (31,649) (49,822)
Total Equity1,563,843  1,521,787  1,372,102  1,325,175  1,280,393 
Total Liabilities and Equity$12,569,262  $12,160,290  $11,312,495  $11,408,006  $11,335,132 
                    
                    


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  For the Quarter Ended
September 30,
 For the Nine Months Ended
September 30,
  2019 2018 2019 2018
Average Balances        
Assets $12,293,332 $11,291,289 $11,760,120 $10,570,453
Loans, net of unearned 7,883,678 7,462,176 7,650,090 7,040,401
Deposits 10,253,643 9,530,743 9,803,488 8,938,297
Earning assets 11,102,581 10,154,591 10,598,465 9,547,147
Interest bearing liabilities 7,174,944 6,544,949 6,891,871 6,151,275
Common stockholders' equity 1,541,369 1,263,226 1,440,754 1,139,149
Total stockholders' equity 1,541,369 1,263,795 1,440,754 1,139,963
Tangible common stockholders' equity 1,062,568 819,966 981,449 770,884
         
Key Performance Ratios        
Annualized return on average assets 1.12 % 1.18 % 1.27 % 1.07 %
Annualized return on average common equity (GAAP) 8.91 % 10.58 % 10.33 % 9.95 %
Annualized return on average tangible common equity (non-GAAP)(1) 13.78 % 17.31 % 16.13 % 15.64 %
Annualized ratio of net charge-offs to average loans 0.14 % 0.28 % 0.13 % 0.17 %
Annualized net interest margin (GAAP) 3.98 % 4.32 % 4.05 % 4.25 %
Annualized net interest margin, fully tax-equivalent (non-GAAP)(1) 4.02 % 4.38 % 4.10 % 4.32 %
Efficiency ratio, fully tax-equivalent(1) 61.92 % 62.51 % 63.95 % 65.03 %
         
Reconciliation of Annualized Return on Average Tangible Common Equity (non-GAAP)        
Net income available to common stockholders (GAAP) $34,612 $33,697 $111,278 $84,818
Plus core deposit and customer relationship intangibles amortization, net of tax(2) 2,291 2,075 7,153 5,343
Adjusted net income available to common stockholders (non-GAAP) $36,903 $35,772 $118,431 $90,161
         
Average common stockholders' equity (GAAP) $1,541,369 $1,263,226 $1,440,754 $1,139,149
Less average goodwill 427,097 391,668 409,932 323,058
Less average core deposit and customer relationship intangibles, net 51,704 51,592 49,373 45,207
Average tangible common equity (non-GAAP) $1,062,568 819,966 981,449 770,884
Annualized return on average common equity (GAAP) 8.91 %  10.58 %  10.33 %  9.95 % 
Annualized return on average tangible common equity (non-GAAP) 13.78 %  17.31 %  16.13 %  15.64 % 
         
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)        
Net Interest Income (GAAP) $111,321 $110,678 $320,984 $303,671
Plus tax-equivalent adjustment(2) 1,140 1,544 3,820 4,663
Net interest income, tax-equivalent (non-GAAP) $112,461 $112,222 $324,804 $308,334
         
Average earning assets $11,102,581 $10,154,591 $10,598,465 $9,547,147
         
Annualized net interest margin (GAAP) 3.98 %  4.32 %  4.05 %  4.25 % 
Annualized net interest margin, fully tax-equivalent (non-GAAP) 4.02 %  4.38 %  4.10 %  4.32 % 
         
(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
 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018
Average Balances         
Assets$12,293,332 $11,708,538 $11,267,214 $11,371,247 $11,291,289
Loans, net of unearned7,883,678 7,648,562 7,412,855 7,436,497 7,462,176
Deposits10,253,643 9,790,756 9,356,204 9,596,807 9,530,743
Earning assets11,102,581 10,552,166 10,129,957 10,225,409 10,154,591
Interest bearing liabilities7,174,944 6,872,449 6,622,149 6,557,185 6,544,949
Common stockholders' equity1,541,369 1,442,388 1,336,250 1,290,691 1,263,226
Total stockholders' equity1,541,369 1,442,388 1,336,250 1,290,691 1,263,795
Tangible common stockholders' equity (non-GAAP)1,062,568 981,878 898,092 849,851 819,966
          
Key Performance Ratios         
Annualized return on average assets1.12 % 1.55 % 1.13 % 1.12 % 1.18 %
Annualized return on average common equity (GAAP)8.91 % 12.56 % 9.56 % 9.88 % 10.58 %
Annualized return on average tangible common equity (non-GAAP)(1)13.78 % 19.52 % 15.24 % 15.96 % 17.31 %
Annualized ratio of net charge-offs to average loans0.14 % 0.19 % 0.05 % 0.48 % 0.28 %
Annualized net interest margin (GAAP)3.98 % 4.06 % 4.12 % 4.28 % 4.32%
Annualized net interest margin, fully tax-equivalent (non-GAAP)(1)4.02 % 4.10 % 4.18 % 4.34 % 4.38 %
Efficiency ratio, fully tax-equivalent (non-GAAP)(1)61.92 % 64.81 % 65.23 % 59.35 % 62.51 %
          
Reconciliation of Annualized Return on Average Tangible Common Equity (non-GAAP)         
Net income available to common stockholders (GAAP)$34,612 $45,169 $31,497 $32,141 $33,697
Plus core deposit and customer relationship intangibles amortization, net of tax(2)2,291 2,617 2,245 2,048 2,075
Adjusted net income available to common stockholders (non-GAAP)$36,903 $47,786 $33,742 $34,189 $35,772
          
Average common stockholders' equity (GAAP)$1,541,369 $1,442,388 $1,336,250 $1,290,691 $1,263,226
Less average goodwill427,097 410,642 391,668 391,668 391,668
Less average core deposit and customer relationship intangibles, net51,704 49,868 46,490 49,172 51,592
Average tangible common stockholders' equity (non-GAAP)$1,062,568 $981,878 $898,092 $849,851 $819,966
Annualized return on average common equity (GAAP)8.91 % 12.56 % 9.56 % 9.88 % 10.58 %
Annualized return on average tangible common equity (non-GAAP)13.78 % 19.52 % 15.24 % 15.96 % 17.31 %
          
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)         
Net Interest Income (GAAP)$111,321 $106,708 $102,955 $110,283 $110,678
Plus tax-equivalent adjustment(2)1,140 1,268 1,412 1,565 1,544
Net interest income, fully tax-equivalent (non-GAAP)$112,461 $107,976 $104,367 $111,848 $112,222
          
Average earning assets$11,102,581 $10,552,166 $10,129,957 $10,225,409 $10,154,591
          
Annualized net interest margin (GAAP)3.98 % 4.06 % 4.12 % 4.28 % 4.32 %
Annualized net interest margin, fully tax-equivalent (non-GAAP)4.02 % 4.10 % 4.18 % 4.34 % 4.38 %
 
(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
September 30,
 For the Nine Months Ended
September 30,
Reconciliation of Efficiency Ratio (non-GAAP)2019
 2018
 2019 2018
Net interest income (GAAP)$111,321  $110,678  $320,984  $303,671 
Tax-equivalent adjustment(1)1,140  1,544  3,820  4,663 
Fully tax-equivalent net interest income112,461  112,222  324,804  308,334 
Noninterest income29,400  29,765  88,178  82,115 
Securities (gains)/losses, net(2,013) 145  (7,168) (1,037)
Unrealized gain on equity securities, net(144) (54) (514) (97)
Gain on extinguishment of debt(375)   (375)  
Valuation adjustment on servicing rights626  (230) 1,579  (12)
Adjusted income (non-GAAP)$139,955  $141,848  $406,504  $389,303 
        
Total noninterest expenses (GAAP)$92,967  $92,539  $256,295  $265,067 
Less:       
Core deposit and customer relationship intangibles amortization2,899  2,626  9,054  6,763 
Partnership investment in tax credit projects3,052  338  4,992  338 
(Gain)/loss on sales/valuations of assets, net356  912  (20,934) 2,243 
Restructuring expenses    3,227  2,564 
Adjusted noninterest expenses (non-GAAP)$86,660  $88,663  $259,956  $253,159 
        
Efficiency ratio, fully tax-equivalent (non-GAAP)61.92% 62.51% 63.95% 65.03%
            
            


Reconciliation of Efficiency Ratio (non-GAAP)For the Quarter Ended
9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018
Net interest income (GAAP)$111,321  $106,708  $102,955  $110,283  $110,678 
Tax-equivalent adjustment(1)1,140  1,268  1,412  1,565  1,544 
Fully tax-equivalent net interest income112,461  107,976  104,367  111,848  112,222 
Noninterest income29,400  32,061  26,717  27,045  29,765 
Securities (gains)/losses, net(2,013) (3,580) (1,575) (48) 145 
Unrealized gain on equity securities, net(144) (112) (258) (115) (54)
Gain on extinguishment of debt(375)        
Valuation adjustment on servicing rights626  364  589  58  (230)
Adjusted income (non-GAAP)$139,955  $136,709  $129,840  $138,788  $141,848 
          
Total noninterest expenses (GAAP)$92,967  $75,098  $88,230  $88,821  $92,539 
Less:         
Core deposit and customer relationship intangibles amortization2,899  3,313  2,842  2,592  2,626 
Partnership investment in tax credit projects3,052  1,465  475  3,895  338 
(Gain)/loss on sales/valuation of assets, net356  (18,286) (3,004) (35) 912 
Restructuring expenses    3,227     
Adjusted noninterest expenses (non-GAAP)$86,660  $88,606  $84,690  $82,369  $88,663 
          
Efficiency ratio, fully tax-equivalent (non-GAAP)61.92
% 64.81
% 65.23
% 59.35
% 62.51
%
          
(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
 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018
Common Share Data         
Book value per common share$42.62  $41.48  $39.65  $38.44  $37.14 
Tangible book value per common share (non-GAAP)(1)$29.62  $28.40  $27.04  $25.70  $24.33 
Common shares outstanding, net of treasury stock36,696,190  36,690,061  34,603,611  34,477,499  34,473,029 
Tangible common equity ratio (non-GAAP)(1)8.99 %  8.92 %  8.60 %  8.08 %  7.70 % 
                         
Reconciliation of Tangible Book Value Per Common Share (non-GAAP)                        
Common stockholders' equity (GAAP)$1,563,843  $1,521,787  $1,372,102  $1,325,175  $1,280,393 
Less goodwill427,097  427,097  391,668  391,668  391,668 
Less core deposit and customer relationship intangibles, net49,819  52,718  44,637  47,479  50,071 
Tangible common stockholders' equity (non-GAAP)$1,086,927  $1,041,972  $935,797  $886,028  $838,654 
          
Common shares outstanding, net of treasury stock36,696,190  36,690,061  34,603,611  34,477,499  34,473,029 
Common stockholders' equity (book value) per share (GAAP)$42.62  $41.48  $39.65  $38.44  $37.14 
Tangible book value per common share (non-GAAP)$29.62  $28.40  $27.04  $25.70  $24.33 
          
Reconciliation of Tangible Common Equity Ratio (non-GAAP)         
Tangible common stockholders' equity (non-GAAP)$1,086,927  $1,041,972  $935,797  $886,028  $838,654 
          
Total assets (GAAP)$12,569,262  $12,160,290  $11,312,495  $11,408,006  $11,335,132 
Less goodwill427,097  427,097  391,668  391,668  391,668 
Less core deposit and customer relationship intangibles, net49,819  52,718  44,637  47,479  50,071 
Total tangible assets (non-GAAP)$12,092,346  $11,680,475  $10,876,190  $10,968,859  $10,893,393 
Tangible common equity ratio (non-GAAP)8.99 %  8.92 %  8.60 %  8.08 %  7.70 % 
          
Loan Data          
Loans held to maturity:         
Commercial and commercial real estate$6,393,596  $6,230,372  $5,745,051  $5,731,712  $5,610,953 
Residential mortgage589,793  613,707  630,433  673,603  676,941 
Agricultural and agricultural real estate545,006  549,404  544,805  565,408  574,048 
Consumer447,718  461,802  412,573  440,158  506,181 
Unearned discount and deferred loan fees(4,505) (2,234) (1,318) (3,184) (2,630)
Total loans held to maturity$7,971,608  $7,853,051  $7,331,544  $7,407,697  $7,365,493 
          
Other Selected Trend Information          
Effective tax rate18.66 %  23.12 %  20.88 %  17.22 %  20.99 % 
Full time equivalent employees1,962  2,040  1,976  2,045  2,124 
          
(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
 9/30/2019 6/30/2019 3/31/2019 12/31/2018 9/30/2018
Allowance for Loan Losses         
Balance, beginning of period$63,850  $62,639  $61,963  $61,221  $61,324 
Provision for loan losses5,201  4,918  1,635  9,681  5,238 
Charge-offs(4,842) (4,780) (1,950) (9,777) (6,120)
Recoveries2,013  1,073  991  838  779 
Balance, end of period$66,222  $63,850  $62,639  $61,963  $61,221 
          
Asset Quality         
Nonaccrual loans$72,208  $79,619  $77,294  $71,943  $73,060 
Loans past due ninety days or more40  285  1,706  726  154 
Other real estate owned6,425  6,646  5,391  6,153  11,908 
Other repossessed assets13  39  8  459  495 
Total nonperforming assets$78,686  $86,589  $84,399  $79,281  $85,617 
          
Performing troubled debt restructured loans$3,199  $3,539  $3,460  $4,026  $4,180 
          
Nonperforming Assets Activity          
Balance, beginning of period$86,589  $84,399  $79,281  $85,617  $81,003 
Net loan charge offs(2,829) (3,707) (959) (8,939) (5,341)
New nonperforming loans6,818  13,688  15,314  17,332  16,965 
Acquired nonperforming assets  230       
Reduction of nonperforming loans(1)(8,861) (6,246) (6,238) (6,065) (5,085)
OREO/Repossessed assets sales proceeds(3,067) (1,288) (2,092) (8,390) (1,064)
OREO/Repossessed assets gain/(loss and writedowns), net36  (487) (462) (230) (886)
Net activity at Citizens Finance Co.    (445) (44) 25 
Balance, end of period$78,686  $86,589  $84,399  $79,281  $85,617 
          
Asset Quality Ratios         
Ratio of nonperforming loans to total loans0.91 % 1.02 % 1.08 % 0.98 % 0.99 %
Ratio of nonperforming loans and performing trouble debt restructured loans to total loans0.95 % 1.06 % 1.12 % 1.04 % 1.05 %
Ratio of nonperforming assets to total assets0.63 % 0.71 % 0.75 % 0.69 % 0.76 %
Annualized ratio of net loan charge-offs to average loans0.14 % 0.19 % 0.05 % 0.48 % 0.28 %
Allowance for loan losses as a percent of loans0.83 % 0.81 % 0.85 % 0.84 % 0.83 %
Allowance for loan losses as a percent of nonperforming loans91.66 % 79.91 % 79.29 % 85.27 % 83.62 %
Loans delinquent 30-89 days as a percent of total loans0.28 % 0.31 % 0.47 % 0.21 % 0.62 %
          
(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
 September 30, 2019 June 30, 2019 September 30, 2018
 Average
Balance
 Interest Rate Average
Balance
 Interest Rate Average
Balance
 Interest Rate
Earning Assets                 
Securities:                 
Taxable$2,658,107  $18,567 2.77% $2,217,863  $16,123 2.92% $2,066,071  $14,433 2.77%
Nontaxable(1)266,933  2,682 3.99  324,164  3,233 4.00  435,045  4,418 4.03 
Total securities