Heartland Financial Usa, Inc. Reports Record Quarterly And Year To Date Results As Of June 30, 2019

Monday, July 29, 2019

Highlights

§

Quarterly net income available to common stockholders of $45.2 million in comparison with $27.9 million for the second quarter of the prior year, an increase of $17.3 million or 62%

§

Diluted earnings per common share of $1.26 in comparison with $0.85 for the second quarter of the prior year, an increase of $0.41 or 48%

§

Net interest margin of 4.06%, fully tax-equivalent (non-GAAP)(1) of 4.10%

§

Return on average common equity of 12.56% and return on average tangible common equity (non-GAAP)(1) of 19.52%

§

Tangible common equity ratio (non-GAAP)(1) of 8.92% in comparison to 7.46% at June 30, 2018

§

Completed the acquisition of Blue Valley Ban Corp. on May 10, 2019

§

Closed on the sale of Dubuque Bank and Trust Company's residential mortgage servicing portfolio

§

Completed the sale of two branches at Dubuque Bank and Trust Company, two branches at Illinois Bank & Trust, and one branch at Citywide Banks

Quarter Ended

June 30,

Six Months Ended

June 30,

2019

2018

2019

2018

Net income available to common stockholders (in millions)

$

45.2

$

27.9

$

76.7

$

51.1

Diluted earnings per common share

1.26

0.85

2.17

1.61

Return on average assets

1.55

%

1.05

%

1.35

%

1.01

%

Return on average common equity

12.56

9.81

11.13

9.58

Return on average tangible common equity (non-GAAP)(1)

19.52

15.50

17.49

14.70

Net interest margin

4.06

4.23

4.09

4.21

Net interest margin, fully tax-equivalent (non-GAAP)(1)

4.10

4.30

4.14

4.28

Efficiency ratio, fully-tax equivalent (non-GAAP)(1)

64.81

64.94

65.01

66.48

(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 set new quarterly and year-to-date net income records for the period ended June 30, 2019. Net income of $45.2 million represents a 62 percent increase over the second quarter of 2018, while year-to-date net income of $76.7 million represents a 50 percent increase over the previous year."

Lynn B. Fuller, executive operating chairman, Heartland Financial USA, Inc.

 

Dubuque, Iowa, Monday, July 29, 2019-Heartland Financial USA, Inc. (NASDAQ: HTLF) today reported net income available to common stockholders of $45.2 million, or $1.26 per diluted common share, for the quarter ended June 30, 2019, compared to $27.9 million, or $0.85 per diluted common share, for the second quarter of 2018. Return on average common equity was 12.56% and return on average assets was 1.55% for the second quarter of 2019, compared to 9.81% and 1.05%, respectively, for the same quarter in 2018.

 

Net income available to common stockholders for the six months ended June 30, 2019, was $76.7 million or $2.17 per diluted common share, compared to $51.1 million or $1.61 per diluted common share for the six months ended June 30, 2018. Return on average common equity was 11.13% and return on average assets was 1.35% for the first six months of 2019, compared to 9.58% and 1.01% for the same period in 2018.

 

Commenting on Heartland’s first quarter results, Lynn B. Fuller, Heartland’s executive operating chairman, said, "Heartland set new quarterly and year-to-date net income records for the period ended June 30, 2019. Net income of $45.2 million represents a 62 percent increase over the second quarter of 2018, while year-to-date net income of $76.7 million represents a 50 percent increase over the previous year."

 

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 is expected to occur in the third quarter of 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. The mortgage servicing rights had a book value of $21.0 million and an estimated fair value of $37.1 million as of March 31, 2019. In the agreement, which includes customary terms and conditions, Dubuque Bank and Trust Company is providing interim servicing of the loans until the transfer date, which is expected to be in August 2019.

Heartland is utilizing a portion of the net gains from these sales transactions, which totaled approximately $19.8 million and are recorded in the gain/loss on sales/valuations of assets, net, on the consolidated income statement, 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.

 

"We are excited about the technology and process improvement projects that are currently underway. We believe these projects will allow us to focus on growing our core business, improve our efficiency, and reduce our compliance and operational risks," said Bruce K. Lee, Heartland's president and chief executive officer.

 

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

 

Net interest margin, expressed as a percentage of average earning assets, was 4.06% (4.10% on a fully tax-equivalent basis, non-GAAP) during the second quarter of 2019, compared to 4.12% (4.18% on a fully tax-equivalent basis, non-GAAP) during the first quarter of 2019 and 4.23% (4.30% on a fully tax-equivalent basis, non-GAAP) during the second quarter of 2018.

 

"Our fully tax-equivalent net interest margin declined eight basis points during the second quarter of 2019, compared to the first quarter, primarily due to increased deposit market rates. We will remain competitive, yet disciplined in our deposit pricing strategies as we navigate through the ever-changing interest rate environment," 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 second quarter of 2019 was $127.0 million compared to $113.4 million recorded in the second quarter of 2018, an increase of $13.6 million or 12%. The tax-equivalent adjustment for income taxes saved on the interest earned on nontaxable securities and loans was $1.3 million for the second quarter of 2019 and $1.6 million for the second quarter of 2018. With these adjustments, total interest income on a tax-equivalent basis was $128.3 million for the second quarter of 2019, an increase of $13.3 million or 12%, compared to total interest income on a tax-equivalent basis of $115.0 million for the second quarter of 2018. Average earning assets of $10.55 billion increased $937.4 million or 10% from the second quarter of 2018, which was primarily attributable to recent acquisitions. The average rate on earning assets increased 8 basis points to 4.88% for the second quarter of 2019 compared to 4.80% 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 second quarter of 2019 was $20.3 million, an increase of $8.3 million or 69% from $12.0 million in the second quarter of 2018. The average interest rate paid on Heartland's interest bearing liabilities increased to 1.18% for the second quarter of 2019 compared to 0.78% for the second quarter of 2018, which was primarily due to recent increases in market interest rates. Average interest bearing deposits increased $713.3 million or 12% to $6.50 billion for the quarter ended June 30, 2019, from $5.79 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 44 basis points to 0.99% for the second quarter of 2019 compared to 0.55% for the same quarter in 2018. Average borrowings decreased $46.0 million or 11% to $369.3 million during the second quarter of 2019 from $415.3 million during the same quarter in 2018. The average interest rate paid on Heartland's borrowings was 4.52% for the second quarter of 2019 compared to 3.88% in the second quarter of 2018.

 

Net interest income was $106.7 million during the second quarter of 2019 compared to $101.4 million during the second quarter of 2018, an increase of $5.3 million or 5%. After the tax-equivalent adjustment discussed above, net interest income on a tax-equivalent basis totaled $108.0 million during the second quarter of 2019 compared to net interest income on a tax-equivalent basis of $103.0 million during the second quarter of 2018, an increase of $5.0 million or 5%.

 

Noninterest Income Increases and Noninterest Expense Decreases from Second Quarter of 2018

 

Total noninterest income was $32.1 million during the second quarter of 2019 compared to $27.6 million during the second quarter of 2018, an increase of $4.4 million or 16%. Significant changes by noninterest income category were:

  • Service charges and fees increased $2.6 million or 21% to $14.6 million for the second quarter of 2019 compared to $12.1 million for the same quarter of 2018. Service charges related to credit card income increased $1.2 million or 37% to $4.3 million for the second quarter of 2019 from $3.0 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.
  • Securities gains, net, totaled $3.6 million for the second quarter of 2019 compared to net securities losses of $259,000 in the second quarter of 2018.
  • Net gains on sale of loans held for sale totaled $4.3 million during the second quarter of 2019 compared to $6.8 million during the same quarter in 2018, which was a decrease of $2.5 million or 36%, primarily due to the outsourcing of Heartland's legacy mortgage lending operations in the fourth quarter of 2018.
  • Other noninterest income totaled $1.7 million for the second quarter of 2019 compared to $1.2 million for the second quarter of 2018, which was an increase of $515,000 or 44%. Included in noninterest income for the second quarter of 2019 was a recovery of $266,000 on an acquired loan that was charged off prior to acquisition.

For the second quarter of 2019, total noninterest expense was $75.1 million compared to $88.9 million during the second quarter of 2018, a decrease of $13.8 million or 16%. Significant changes by noninterest expense category were:

  • Professional fees increased $4.3 million or 41% to $15.0 million for the second quarter of 2019 compared to $10.6 million for the same period in 2018. Included in this increase for the second quarter of 2019 was $2.9 million of expenses related to Heartland's technology and process improvement projects.
  • Core deposit and customer relationship intangibles amortization increased $1.0 million to $3.3 million for the second quarter of 2019 compared to $2.3 million for the second quarter of 2018, which was primarily due to recent acquisitions.
  • Net gains on sales/valuations of assets totaled $18.3 million for the second quarter of 2019 compared to net losses on sales/valuations of assets of $1.5 million for the second quarter of 2018. Net gains from the branch sales totaled $6.5 million, and the gain on the sale of the mortgage servicing rights totaled $13.3 million. Excluding these gains, net losses on sales/valuations of assets totaled $1.5 million for the second quarter of 2019.
  • Other noninterest expenses were $12.6 million for the second quarter of 2019 compared to $11.1 million for the second quarter of 2018, which was an increase of $1.5 million or 14%. Included in this increase was a write-down of $1.5 million on a partnership investment that qualifies for solar energy tax credits.

Heartland's effective tax rate was 23.12% for the second quarter of 2019 compared to 21.09% for the second quarter of 2018. Included in Heartland's second quarter 2019 tax calculation were solar energy tax credits of $911,000. Federal low-income housing tax credits included in the determination of Heartland's income taxes totaled $281,000 for the second quarter of 2019 compared to $307,000 for the second quarter of 2018. Tax-exempt interest income as a percentage of pre-tax income declined to 8.09% during the second quarter of 2019 from 16.77% during the second quarter of 2018.

 

Loans and Deposits Decrease Since December 31, 2018

 

Total assets were $12.16 billion at June 30, 2019, an increase of $752.3 million or 7% from $11.41 billion at year-end 2018. Excluding $766.2 million of assets acquired at fair value in the BVBC transaction, total assets decreased $13.9 million or less than 1% since year-end 2018. Securities represented 22% and 24% of total assets at June 30, 2019, and December 31, 2018, respectively.

 

Total loans held to maturity were $7.85 billion at June 30, 2019, compared to $7.41 billion at year-end 2018, an increase of $445.4 million or 6%. 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 decreased $64.6 million or 1% since December 31, 2018. Loan changes by category were:

  • Commercial and commercial real estate loans totaled $6.23 billion at June 30, 2019, compared to $5.73 billion at December 31, 2018, which was an increase of $498.7 million or 9%. Excluding $14.9 million of commercial and commercial real estate loans classified as held for sale during the first quarter and $480.1 million of loans acquired in the BVBC transaction, commercial and commercial real estate loans increased $33.4 million or 1% since year-end.
  • Agricultural and agricultural real estate loans totaled $549.4 million at June 30, 2019, compared to $565.4 million at December 31, 2018, which was a decrease of $16.0 million or 3%. 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 $11.2 million or 2% since December 31, 2018.
  • Residential mortgage loans decreased $59.9 million or 9% to $613.7million at June 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 $75.1 million or 11% since year-end.
  • Consumer loans increased $21.6 million or 5% to $461.8 million at June 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 $12.6 million or 3% since year-end.

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

 

Total deposits were $10.11 billion as of June 30, 2019, compared to $9.40 billion at year-end 2018, an increase of $712.1 million or 8%. 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 $172.0 million or 2% since December 31, 2018. Deposit changes by category were:

  • Demand deposits increased $162.0 million or 5% to $3.43 billion at June 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 $14.4 million or less than 1% since year-end 2018.
  • Savings deposits increased $425.5 million or 8% to $5.53 billion at June 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 $127.2 million or 2% since year-end 2018.
  • Time deposits increased $124.6 million or 12% to $1.15 billion at June 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 $30.4 million or 3% since year-end 2018. The increase in time deposits was primarily due to an increase in brokered time deposits of $30.9 million.

"Organic non-time deposit growth was $141.6 million for the first six months of 2019, which represents a 2 percent increase since year-end 2018. Non-time deposits represented 89 percent of total deposits at June 30, 2019," Lee stated.

 

Nonperforming Assets Increase Since December 31, 2018

 

Nonperforming assets increased $7.3 million or 9% to $86.6 million or 0.71% of total assets at June 30, 2019, compared to $79.3 million or 0.69% of total assets at December 31, 2018. Nonperforming loans were $79.9 million or 1.02% of total loans at June 30, 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 and one commercial relationship that was originated in one of Heartland's Western markets. At June 30, 2019, loans delinquent 30-89 days were 0.31% of total loans compared to 0.21% of total loans at December 31, 2018.

 

The allowance for loan losses at June 30, 2019, was 0.81% of loans and 79.91% 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 July 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 $12.16 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 Quarter Ended
June 30,

For the Six Months Ended
June 30,

2019

2018

2019

2018

Interest Income

Interest and fees on loans

$

106,027

$

96,787

$

206,483

$

182,438

Interest on securities:

Taxable

16,123

12,270

31,999

23,847

Nontaxable

2,554

3,584

5,647

7,163

Interest on federal funds sold

4

Interest on deposits with other banks and other short-term investments
 

2,299

768

3,591

1,175

Total Interest Income

127,003

113,409

247,724

214,623

Interest Expense

Interest on deposits

16,138

7,983

29,351

13,749

Interest on short-term borrowings

338

547

1,227

815

Interest on other borrowings

3,819

3,470

7,483

7,066

Total Interest Expense

20,295

12,000

38,061

21,630

Net Interest Income

106,708

101,409

209,663

192,993

Provision for loan losses

4,918

4,831

6,553

9,094

Net Interest Income After Provision for Loan Losses

101,790

96,578

203,110

183,899

Noninterest Income

Service charges and fees

14,629

12,072

27,423

22,151

Loan servicing income

1,338

1,807

3,067

3,561

Trust fees

4,825

4,615

9,299

9,295

Brokerage and insurance commissions

1,028

877

1,762

1,784

Securities gains/(losses), net

3,580

(259

)

5,155

1,182

Unrealized gain on equity securities, net

112

71

370

43

Net gains on sale of loans held for sale

4,343

6,800

7,519

10,851

Valuation adjustment on servicing rights

(364

)

(216

)

(953

)

(218

)

Income on bank owned life insurance

888

700

1,787

1,314

Other noninterest income

1,682

1,167

3,349

2,387

Total Noninterest Income

32,061

27,634

58,778

52,350

Noninterest Expense

Salaries and employee benefits

49,995

50,758

100,280

99,468

Occupancy

6,436

6,315

13,043

12,358

Furniture and equipment

3,220

3,184

5,912

5,933

Professional fees

14,968

10,632

26,347

20,080

Advertising

2,661

2,145

4,986

4,085

Core deposit and customer relationship intangibles amortization

3,313

2,274

6,155

4,137

Other real estate and loan collection expenses

162

948

863

1,680

(Gain)/loss on sales/valuations of assets, net

(18,286

)

1,528

(21,290

)

1,331

Restructuring expenses

3,227

2,564

Other noninterest expenses

12,629

11,098

23,805

20,892

Total Noninterest Expense

75,098

88,882

163,328

172,528

Income Before Income Taxes

58,753

35,330

98,560

63,721

Income taxes

13,584

7,451

21,894

12,574

Net Income

45,169

27,879

76,666

51,147

Preferred dividends

(13

)

(26

)

Net Income Available to Common Stockholders

$

45,169

$

27,866

$

76,666

$

51,121

Earnings per common share-diluted

$

1.26

$

0.85

$

2.17

$

1.61

Weighted average shares outstanding-diluted

35,879,259

32,830,751

35,295,407

31,746,126

HEARTLAND FINANCIAL USA, INC.

CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA

For the Quarter Ended

6/30/2019

3/31/2019

12/31/2018

9/30/2018

6/30/2018

Interest Income

Interest and fees on loans

$

106,027

$

100,456

$

105,700

$

105,733

$

96,787

Interest on securities:

Taxable

16,123

15,876

15,851

14,433

12,270

Nontaxable

2,554

3,093

3,467

3,490

3,584

Interest on federal funds sold

4

Interest on deposits with other banks and other short-term investments
 

2,299

1,292

1,285

1,238

768

Total Interest Income

127,003

120,721

126,303

124,894

113,409

Interest Expense

Interest on deposits

16,138

13,213

11,826

10,092

7,983

Interest on short-term borrowings

338

889

417

464

547

Interest on other borrowings

3,819

3,664

3,777

3,660

3,470

Total Interest Expense

20,295

17,766

16,020

14,216

12,000

Net Interest Income

106,708

102,955

110,283

110,678

101,409

Provision for loan losses

4,918

1,635

9,681

5,238

4,831

Net Interest Income After Provision for Loan Losses

101,790

101,320

100,602

105,440

96,578

Noninterest Income

Service charges and fees

14,629

12,794

13,660

12,895

12,072

Loan servicing income

1,338

1,729

2,061

1,670

1,807

Trust fees

4,825

4,474

4,599

4,499

4,615

Brokerage and insurance commissions

1,028

734

1,618

1,111

877

Securities gains/(losses), net

3,580

1,575

48

(145

)

(259

)

Unrealized gain on equity securities, net

112

258

115

54

71

Net gains on sale of loans held for sale

4,343

3,176

3,189

7,410

6,800

Valuation adjustment on servicing rights

(364

)

(589

)

(58

)

230

(216

)

Income on bank owned life insurance

888

899

587

892

700

Other noninterest income

1,682

1,667

1,226

1,149

1,167

Total Noninterest Income

32,061

26,717

27,045

29,765

27,634

Noninterest Expense

Salaries and employee benefits

49,995

50,285

46,729

49,921

50,758

Occupancy

6,436

6,607

6,622

6,348

6,315

Furniture and equipment

3,220

2,692

3,126

3,470

3,184

Professional fees

14,968

11,379

10,630

12,800

10,632

Advertising

2,661

2,325

2,726

2,754

2,145

Core deposit and customer relationship intangibles amortization

3,313

2,842

2,592

2,626

2,274

Other real estate and loan collection expenses

162

701

574

784

948

(Gain)/loss on sales/valuations of assets, net

(18,286

)

(3,004

)

(35

)

912

1,528

Restructuring expenses

3,227

Other noninterest expenses

12,629

11,176

15,857

12,924

11,098

Total Noninterest Expense

75,098

88,230

88,821

92,539

88,882

Income Before Income Taxes

58,753

39,807

38,826

42,666

35,330

Income taxes

13,584

8,310

6,685

8,956

7,451

Net Income

45,169

31,497

32,141

33,710

27,879

Preferred dividends

(13

)

(13

)

Net Income Available to Common Stockholders

$

45,169

$

31,497

$

32,141

$

33,697

$

27,866

Earnings per common share-diluted

$

1.26

$

0.91

$

0.93

$

0.97

$

0.85

Weighted average shares outstanding-diluted

35,879,259

34,699,839

34,670,180

34,644,187

32,830,751

HEARTLAND FINANCIAL USA, INC.

CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA

As of

6/30/2019

3/31/2019

12/31/2018

9/30/2018

6/30/2018

Assets

Cash and due from banks

$

198,664

$

174,198

$

223,135

$

196,847

$

193,069

Interest bearing deposits with other banks and other short-term investments

443,475

318,303

50,495

240,528

194,937

Cash and cash equivalents

642,139

492,501

273,630

437,375

388,006

Time deposits in other financial institutions

4,430

4,675

4,672

5,836

6,803

Securities:

Carried at fair value

2,561,887

2,400,460

2,450,709

2,274,215

2,197,117

Held to maturity, at cost

88,166

88,089

236,283

239,908

244,271

Other investments, at cost

31,366

27,506

28,396

26,656

26,725

Loans held for sale

34,575

69,716

119,801

77,727

55,684

Loans:

Held to maturity

7,853,051

7,331,544

7,407,697

7,365,493

7,477,697

Allowance for loan losses

(63,850

)

(62,639

)

(61,963

)

(61,221

)

(61,324

)

Loans, net

7,789,201

7,268,905

7,345,734

7,304,272

7,416,373

Premises, furniture and equipment, net

198,329

190,215

194,676

198,224

199,959

Goodwill

427,097

391,668

391,668

391,668

391,668

Core deposit and customer relationship intangibles, net

52,718

44,637

47,479

50,071

52,698

Servicing rights, net

7,180

28,968

31,072

32,039

31,996

Cash surrender value on life insurance

170,421

163,764

162,892

162,216

159,302

Other real estate, net

6,646

5,391

6,153

11,908

11,074

Other assets

146,135

136,000

114,841

123,017

120,244

Total Assets

$

12,160,290

$

11,312,495

$

11,408,006

$

11,335,132

$

11,301,920

Liabilities and Equity

Liabilities

Deposits:

Demand

$

3,426,758

$

3,118,909

$

3,264,737

$

3,427,819

$

3,399,598

Savings

5,533,503

5,145,929

5,107,962

4,958,430

4,864,773

Time

1,148,296

1,088,104

1,023,730

1,125,914

1,224,773

Total deposits

10,108,557

9,352,942

9,396,429

9,512,163

9,489,144

Deposits held for sale

118,564

106,409

50,312

Short-term borrowings

107,260

104,314

227,010

131,139

229,890

Other borrowings

282,863

268,312

274,905

277,563

258,708

Accrued expenses and other liabilities

139,823

96,261

78,078

83,562

68,431

Total Liabilities

10,638,503

9,940,393

10,082,831

10,054,739

10,046,173

Stockholders' Equity

Preferred equity

938

Common stock

36,690

34,604

34,477

34,473

34,438

Capital surplus

837,150

745,596

743,095

742,080

740,128

Retained earnings

642,808

603,506

579,252

553,662

524,786

Accumulated other comprehensive income/(loss)

5,139

(11,604

)

(31,649

)

(49,822

)

(44,543

)

Total Equity

1,521,787

1,372,102

1,325,175

1,280,393

1,255,747

Total Liabilities and Equity

$

12,160,290

$

11,312,495

$

11,408,006

$

11,335,132

$

11,301,920

HEARTLAND FINANCIAL USA, INC.

CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA

For the Quarter Ended

June 30,

For the Six Months Ended

June 30,

2019

2018

2019

2018

Average Balances

Assets

$

11,708,538

$

10,643,306

$

11,489,095

$

10,204,061

Loans, net of unearned

7,648,562

7,123,182

7,531,360

6,826,018

Deposits

9,790,756

9,018,945

9,574,680

8,637,165

Earning assets

10,552,166

9,614,800

10,342,229

9,238,391

Interest bearing liabilities

6,872,449

6,205,187

6,747,990

5,951,175

Common stockholders' equity

1,442,388

1,139,876

1,389,612

1,076,083

Total stockholders' equity

1,442,388

1,140,814

1,389,612

1,077,021

Tangible common stockholders' equity

981,878

767,732

940,217

745,937

Key Performance Ratios

Annualized return on average assets

1.55

%

1.05

%

1.35

%

1.01

%

Annualized return on average common equity (GAAP)

12.56

%

9.81

%

11.13

%

9.58

%

Annualized return on average tangible common equity (non-GAAP)(1)

19.52

%

15.50

%

17.49

%

14.70

%

Annualized ratio of net charge-offs to average loans

0.19

%

0.12

%

0.12

%

0.10

%

Annualized net interest margin (GAAP)

4.06

%

4.23

%

4.09

%

4.21

%

Annualized net interest margin, fully tax-equivalent (non-GAAP)(1)

4.10

%

4.30

%

4.14

%

4.28

%

Efficiency ratio, fully tax-equivalent(1)

64.81

%

64.94

%

65.01

%

66.48

%

Reconciliation of Annualized Return on Average Tangible Common Equity (non-GAAP)

Net income available to common stockholders (GAAP)

$

45,169

$

27,866

$

76,666

$

51,121

Plus core deposit and customer relationship intangibles amortization, net of tax(2)

2,617

1,796

4,862

3,268

Adjusted net income available to common stockholders (non-GAAP)

$

47,786

$

29,662

$

81,528

$

54,389

Average common stockholders' equity (GAAP)

$

1,442,388

$

1,139,876

$

1,389,612

$

1,076,083

Less average goodwill

410,642

325,781

401,207

288,185

Less average core deposit and customer relationship intangibles, net

49,868

46,363

48,188

41,961

Average tangible common equity (non-GAAP)

$

981,878

767,732

940,217

745,937

Annualized return on average common equity (GAAP)

12.56

%

9.81

%

11.13

%

9.58

%

Annualized return on average tangible common equity (non-GAAP)

19.52

%

15.50

%

17.49

%

14.70

%

Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)

Net Interest Income (GAAP)

$

106,708

$

101,409

$

209,663

$

192,993

Plus tax-equivalent adjustment(2)

1,268

1,575

2,680

3,119

Net interest income, tax-equivalent (non-GAAP)
 

$

107,976

$

102,984

$

212,343

$

196,112

Average earning assets

$

10,552,166

$

9,614,800

$

10,342,229

$

9,238,391

Annualized net interest margin (GAAP)

4.06

%

4.23

%

4.09

%

4.21

%

Annualized net interest margin, fully tax-equivalent (non-GAAP)
 

4.10

%

4.30

%

4.14

%

4.28

%

(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

6/30/2019

3/31/2019

12/31/2018

9/30/2018

6/30/2018

Average Balances

Assets

$

11,708,538

$

11,267,214

$

11,371,247

$

11,291,289

$

10,643,306

Loans, net of unearned

7,648,562

7,412,855

7,436,497

7,462,176

7,123,182

Deposits

9,790,756

9,356,204

9,596,807

9,530,743

9,018,945

Earning assets

10,552,166

10,129,957

10,225,409

10,154,591

9,614,800

Interest bearing liabilities

6,872,449

6,622,149

6,557,185

6,544,949

6,205,187

Common stockholders' equity

1,442,388

1,336,250

1,290,691

1,263,226

1,139,876

Total stockholders' equity

1,442,388

1,336,250

1,290,691

1,263,795

1,140,814

Tangible common stockholders' equity (non-GAAP)

981,878

898,092

849,851

819,966

767,732