Heartland Reports Quarterly and Year To Date Results as of June 30, 2020

Monday, July 27, 2020

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Highlights and Developments

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Quarterly net income of $30.1 million or $0.82 per diluted common share in comparison with $45.2 million or $1.26 per diluted common share for the second quarter of the prior year

 

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Net interest margin of 3.81% (3.85% on a fully tax-equivalent basis, non-GAAP)(1) during the second quarter of 2020, compared to 3.81% (3.84% on a fully tax-equivalent basis, non-GAAP)(1) during the first quarter of 2020 and 4.06% (4.10% on a fully tax-equivalent basis, non-GAAP)(1) during the second quarter of 2019

 

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Efficiency ratio (non-GAAP)1 of 55.75% compared to 64.13% for the second quarter of 2019

 

§

Funded approximately 4,800 Paycheck Protection Program ("PPP") loans totaling $1.20 billion

 

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Arizona Bank & Trust subsidiary entered into a purchase and assumption agreement with Johnson Bank for four banking centers located in Phoenix and Scottsdale, Arizona

 

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Completed the issuance of $115.0 million of preferred equity

 

Quarter Ended
June 30,

Six Months Ended June 30,

2020

2019

2020

2019

Net income available to common stockholders (in millions)

$

30.1

$

45.2

$

50.2

$

76.7

Diluted earnings per common share

0.82

1.26

1.36

2.17

Return on average assets

0.84

%

1.55

%

0.73

%

1.35

%

Return on average common equity

7.69

12.56

6.32

11.13

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

11.97

19.52

9.95

17.49

Net interest margin

3.81

4.06

3.81

4.09

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

3.85

4.10

3.85

4.14

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

55.75

64.13

58.64

64.52

                                   

(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 had a very successful second quarter, which was driven by a solid net interest margin and strong efficiency ratio. In addition, we funded $1.2 billion of Paycheck Protection Program loans, announced the purchase of four banking centers in Phoenix and Scottsdale, Arizona and issued $115 million of preferred stock during the quarter."

Bruce K. Lee, president and chief executive officer, Heartland Financial USA, Inc.

Dubuque, Iowa - Heartland Financial USA, Inc. (NASDAQ: HTLF) today reported the following quarterly results:

  • net income available to common stockholders of $30.1 million, or $0.82 per diluted common share, for the quarter ended June 30, 2020, compared to $45.2 million, or $1.26 per diluted common share, for the second quarter of 2019.
  • excluding tax-effected provision for credit losses of $21.2 million and tax-effected acquisition, integration and restructuring costs of $532,000, adjusted net income available to common stockholders (non-GAAP) was $51.8 million, or $1.40 of adjusted earnings per diluted common share (non-GAAP) for the second quarter of 2020, compared to $49.8 million (non-GAAP), or $1.39 of adjusted earnings per diluted common share (non-GAAP), for the second quarter of 2019, which excluded tax-effected provision for credit losses of $3.9 million and tax-effected acquisition, integration and restructuring costs of $734,000.
  • return on average common equity was 7.69% and return on average assets was 0.84% for the second quarter of 2020, compared to 12.56% and 1.55%, respectively, for the same quarter in 2019.
  • return on average tangible common equity (non-GAAP) of 11.97% and adjusted return on average tangible common equity (non-GAAP) of 20.02% for the second quarter of 2020 compared to 19.52% and 21.41%, respectively, for the second quarter of 2019.

Heartland reported the following results for the six months ended June 30, 2020:

  • net income available to common stockholders of $50.2 million or $1.36 per diluted common share, for the six months ended June 30, 2020, compared to $76.7 million or $2.17 per diluted common share for the six months ended June 30, 2019.
  • excluding tax-effected provision for credit losses of $38.2 million and tax-effected acquisition, integration and restructuring costs of $1.6 million, adjusted net income available to common stockholders (non-GAAP) was $90.0 million, or $2.44 of adjusted earnings per diluted common share (non-GAAP), for the six months ended June 30, 2020, compared to $85.4 million (non-GAAP), or $2.42 of adjusted earnings per diluted common share (non-GAAP), for the six months ended June 30, 2019, which excluded tax-effected provision for credit losses of $5.2 million and tax-effected acquisition, integration and restructuring costs of $3.6 million.
  • return on average common equity was 6.32% and return on average assets was 0.73% for the first six months of 2020, compared to 11.13% and 1.35%, respectively, for the same period in 2019.
  • return on average tangible common equity (non-GAAP) of 9.95% and adjusted return on average tangible common equity (non-GAAP) of 17.19% for the six months ended June 30, 2020, compared to 17.49% and 19.37%, respectively, for the six months ended June 30, 2019.

"Heartland had a very successful second quarter, which was driven by a solid net interest margin and strong efficiency ratio. In addition, we funded $1.2 billion of Paycheck Protection Program loans, announced the purchase of four banking centers in Phoenix and Scottsdale, Arizona and issued $115 million of preferred stock during the quarter," said Bruce K. Lee, Heartland's president and chief executive officer.

Responses to COVID-19 

In the first quarter of 2020, Heartland implemented and continues to operate under its pandemic management plan to assure workplace and employee safety and business resiliency while providing relief and support to customers and communities facing challenges from the impacts of COVID-19, which included the following measures:

  • employees who can work from home continue to do so, while those who come into bank locations are on rotating teams to limit potential exposure;
  • all in-person events and large meetings are canceled and have transitioned to virtual meetings;
  • expanded time off program and enhanced health care coverage for COVID-19 related testing and treatments, and
  • implemented and extended a 20% wage premium for certain customer-facing and call center employees.

"The health and safety of our employees continues to be our top priority. We are monitoring our markets closely and updating our responses accordingly," Lee said.

The continued economic disruption resulting from the COVID-19 pandemic will make it difficult for some customers to repay the principal and interest on their loans, and Heartland's subsidiary banks have been working with customers to modify the terms of certain existing loans.

The following table shows the total loan exposure as of June 30, 2020, and March 31, 2020, to customer segment profiles that Heartland believes will be more heavily impacted by COVID-19, dollars in thousands:

As of June 30, 2020

As of March 31, 2020

Industry

Total Exposure(1)

% of Gross Exposure(1)

Total Exposure(1)

% of Gross Exposure(1)

Lodging

$

490,475

4.38

%

$

498,596

4.47

%

Multi-family properties

474,610

4.24

436,931

3.92

Retail trade

407,030

3.64

367,727

3.30

Retail properties

369,782

3.31

408,506

3.66

Restaurants and bars

255,701

2.29

247,239

2.22

Nursing homes/assisted living

130,103

1.16

126,267

1.13

Oil and gas

63,973

0.57

56,302

0.50

Childcare facilities

44,968

0.40

48,455

0.43

Gaming

34,618

0.31

34,790

0.31

Total

$

2,271,260

20.30

%

$

2,224,813

19.94

%

(1) Total loans outstanding, excluding PPP loans, and unfunded commitments

As of June 30, 2020, loan modifications have been made on approximately $1.10 billion of loans in Heartland's portfolio. Approximately 58% of these modifications are interest only for 90 days, and the remainder are primarily principal and interest deferments for 90 days. The original loan modifications will be expiring throughout the third quarter, and Heartland expects that the majority will be returning to full payment status. However, it is likely that some of the modifications will be extended for an additional 90 days in order to provide the necessary support for certain COVID-19 impacted customers.

Through June 30, 2020, Heartland's subsidiary banks funded approximately 4,800 PPP loans, totaling $1.20 billion. As of June 30, 2020, deferred fees totaling $35.3 million were recorded associated with the PPP loans, of which $3.7 million was recognized in income during the quarter. 

The ultimate impact of the COVID-19 pandemic on Heartland's financial condition and results of operations will depend on risks and uncertainties, such as the severity and duration of the pandemic, related restrictions on business and consumer activity, and the availability of government programs to alleviate the economic stress of the pandemic. See Heartland's "Safe Harbor Statement" below.

2020 Developments

Adoption of ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)"

On January 1, 2020, Heartland adopted ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)," commonly referred to as "CECL." The impact of Heartland's adoption of CECL ("Day 1") resulted in the following:

  • an increase of $12.1 million to the allowance for credit losses related to loans, which included a reclassification of $6.0 million of purchased credit impaired loan discount on previously acquired loans, and a cumulative-effect adjustment to retained earnings totaling $4.6 million, net of taxes of $1.5 million;
  • an increase of $13.6 million to the allowance for unfunded commitments and a cumulative-effect adjustment to retained earnings totaling $10.2 million, net of taxes of $3.4 million, and
  • established an allowance for credit losses for Heartland's held to maturity debt securities of $158,000 and a cumulative-effect adjustment to retained earnings totaling $118,000, net of taxes of $40,000.

Entered into a Definitive Merger Agreement with AIM Bancshares, Inc.

On February 11, 2020, Heartland entered into a definitive merger agreement to acquire AIM Bancshares, Inc. and its wholly-owned subsidiary, AimBank, headquartered in Levelland, Texas. In the transaction, all issued and outstanding shares of AIM Bancshares stock will be exchanged for shares of Heartland common stock and cash. Shareholders of AIM Bancshares will receive 207.0 shares of Heartland common stock and $685.00 of cash for each share of AIM Bancshares. The transaction value will change due to fluctuations in the price of Heartland common stock and is subject to certain potential adjustments as set forth in the merger agreement. Simultaneous with the closing of the transaction, AimBank will merge with and into Heartland's Lubbock, Texas-based subsidiary, First Bank and Trust. Heartland and AIM Bancshares are currently reviewing the corporate structure and terms of the transaction. As of June 30, 2020, AimBank had total assets of approximately $1.95 billion, which included $1.19 billion of gross loans outstanding, and approximately $1.69 billion of deposits.

Entered into a Purchase and Assumption Agreement with Johnson Financial Group, Inc.

On June 9, 2020, Arizona Bank & Trust (“AB&T”), a wholly-owned subsidiary of Heartland headquartered in Phoenix, Arizona, entered into a purchase and assumption agreement, pursuant to which AB&T will acquire certain assets and will assume substantially all of the deposits and certain other liabilities of Johnson Bank’s Arizona operations, which includes four banking centers. Johnson Bank is a wholly-owned subsidiary of Johnson Financial Group, Inc. headquartered in Racine, Wisconsin. Johnson Insurance Services is not a part of this transaction.

Under the terms of the purchase and assumption agreement, AB&T will acquire Johnson Bank's Arizona banking centers, which had deposits of approximately $415.3 million and loans of approximately $168.1 million as of June 30. The actual amount of deposits assumed and loans acquired will be determined at closing, which is expected to be in the fourth quarter of 2020.

"We are excited to expand Arizona Bank & Trust's presence in the Phoenix and Scottsdale areas," commented Lynn B. Fuller, Heartland's executive operating chairman.

Issued $115.0 Million of Preferred Equity

On June 26, 2020, Heartland issued and sold 4.6 million depositary shares, each representing a 1/400th interest in a share of 7.00% Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series E. The depositary shares are listed on The Nasdaq Global Select Market under the symbol "HTLFP." The net proceeds of $110.7 million are expected to be used for general corporate purposes, which may include organic and acquired growth, financing investments, capital expenditures, investments in wholly-owned subsidiaries as regulatory capital and repayment of debt.

Net Interest Income Increases and Net Interest Margin Decreases from Second Quarter of 2019

Net interest margin, expressed as a percentage of average earning assets, was 3.81% (3.85% on a fully tax-equivalent basis, non-GAAP) during the second quarter of 2020, compared to 3.81% (3.84% on a fully tax-equivalent basis, non-GAAP) during the first quarter of 2020 and 4.06% (4.10% on a fully tax-equivalent basis, non-GAAP) during the second quarter of 2019.

Total interest income for the second quarter of 2020 was $133.8 million compared to $127.0 million recorded in the second quarter of 2019, an increase of $6.8 million or 5%. The tax-equivalent adjustment for income taxes saved on the interest earned on nontaxable securities and loans was $1.4 million for the second quarter of 2020 and $1.3 million for the second quarter of 2019. With these adjustments, total interest income on a tax-equivalent basis was $135.2 million for the second quarter of 2020, an increase of $6.9 million or 5%, compared to total interest income on a tax-equivalent basis of $128.3 million for the second quarter of 2019.

Average earning assets of $13.10 billion increased $2.55 billion or 24% from the second quarter of 2019, which was primarily attributable to recent acquisitions and loan growth, including PPP loans. The average rate on earning assets decreased 73 basis points to 4.15% for the second quarter of 2020 compared to 4.88% for the same quarter in 2019, which was primarily due to recent decreases in market interest rates and the lower yield on PPP loans, which was 2.64% for the second quarter of 2020.

Total interest expense for the second quarter of 2020 was $9.6 million, a decrease of $10.7 million or 53% from $20.3 million in the second quarter of 2019. The average interest rate paid on Heartland's interest bearing liabilities decreased to 0.47% for the second quarter of 2020 compared to 1.18% for the second quarter of 2019, which was primarily due to recent decreases in market interest rates.

Average interest bearing deposits increased $1.28 billion or 20% to $7.79 billion for the quarter ended June 30, 2020, from $6.50 billion in the same quarter in 2019, which was primarily attributable to recent acquisitions and deposit growth. The average interest rate paid on Heartland's interest bearing deposits decreased 67 basis points to 0.32% for the second quarter of 2020 compared to 0.99% for the same quarter in 2019.

Average borrowings decreased $389,000 or less than 1% to $368.9 million during the first quarter of 2020 from $369.3 million during the same quarter in 2019. The average interest rate paid on Heartland's borrowings was 3.80% for the second quarter of 2020 compared to 4.52% in the second quarter of 2019.

Net interest income was $124.1 million during the second quarter of 2020 compared to $106.7 million during the second quarter of 2019, an increase of $17.4 million or 16%. After the tax-equivalent adjustment discussed above, net interest income on a tax-equivalent basis totaled $125.6 million during the second quarter of 2020 compared to net interest income on a tax-equivalent basis of $108.0 million during the second quarter of 2019, an increase of $17.6 million or 16%.

Noninterest Income Decreases and Noninterest Expense Increases from Second Quarter of 2019

Total noninterest income was $30.6 million during the second quarter of 2020 compared to $32.1 million during the second quarter of 2019, a decrease of $1.4 million or 4%. Significant changes by noninterest income category were:

  • Service charges and fees decreased $3.7 million or 25% to $11.0 million for the second quarter of 2020 compared to $14.6 million for the second quarter of 2019. Overdraft fees and ATM fees for the second quarter of 2020 totaled $3.4 million compared to $7.1 million for the same quarter of 2019. The decrease was primarily attributable to decreased volume due to the COVID-19 pandemic and the impact of the Durbin Amendment, which was effective for Heartland on July 1, 2019.
  • Loan servicing income totaled $379,000 for the second quarter of 2020 compared to $1.3 million for the second quarter of 2019, which was a decrease of $959,000 or 72%. The decrease was attributable to the sale of the mortgage servicing rights of Dubuque Bank and Trust Company in the second quarter of 2019.
  • Net gains on sale of loans held for sale totaled $7.9 million during the second quarter of 2020 compared to $4.3 million during the same quarter in 2019, which was an increase of $3.5 million or 81%, primarily due to an increase in residential mortgage loan activity in response to the recent declines in mortgage interest rates.

For the second quarter of 2020, total noninterest expense was $90.4 million compared to $75.1 million during the second quarter of 2019, an increase of $15.3 million or 20%. Significant changes by noninterest expense category were:

  • Net loss on sales/valuations of assets increased $19.0 million as losses totaled $701,000 in the second quarter of 2020 compared to gains of $18.3 million in the second quarter of 2019. The gains recorded in 2019 were related to branch sales and the sale of the mortgage servicing rights of Dubuque Bank and Trust Company.

Heartland's effective tax rate was 19.75% for the second quarter of 2020 compared to 23.12% for the second quarter of 2019. The following items impacted Heartland's second quarter 2020 and 2019 tax calculations:

  • Solar energy tax credits of $798,000 and $911,000 for the second quarter of 2020 and 2019, respectively.
  • Federal low-income housing tax credits of $195,000 and $281,000 for the second quarter of 2020 and 2019, respectively.
  • New markets tax credits of $75,000 during the second quarter of 2020 compared to $0 in the second quarter of 2019.
  • Tax-exempt interest income as a percentage of pre-tax income increased to 14.19% during the second quarter of 2020 compared to 8.09% for the second quarter of 2019. 
  • Tax expense of $66,000 in the second quarter of 2020 compared to $64,000 in the second quarter of 2019 resulting from the vesting of restricted stock unit awards.

Total Assets Increase, Total Loans Increase and Deposits Increase Since December 31, 2019

Total assets were $15.0 billion at June 30, 2020, an increase of $1.82 billion or 14% from $13.21 billion at year-end 2019. Securities represented 28% and 26% of total assets at June 30, 2020, and December 31, 2019, respectively.

Total loans held to maturity were $9.25 billion at June 30, 2020, and $8.37 billion at December 31, 2019, which was an increase of $878.9 million or 11%. Loan changes by category were:

  • Commercial and business lending, which includes commercial and industrial, Paycheck Protection Program ("PPP"), and owner occupied commercial real estate loans, increased $918.6 million or 23% to $4.92 billion at June 30, 2020, compared to $4.00 billion at December 31, 2019. Excluding $1.12 billion of PPP loans, commercial and business lending decreased $205.8 million or 5% since year-end 2019. 
  • Commercial real estate lending, which includes non-owner occupied commercial real estate and construction loans, increased $136.5 million or 5% to $2.66 billion at June 30, 2020 from $2.52 billion at year-end 2019. 
  • Agricultural and agricultural real estate loans totaled $520.8 million at June 30, 2020, compared to $565.8 million at December 31, 2019, which was a decrease of $45.1 million or 8%.
  • Residential mortgage loans decreased $96.5 million or 12% to $735.8 million at June 30, 2020, from $832.3 million at December 31, 2019.
  • Consumer loans decreased $34.6 million or 8% to $408.7 million at June 30, 2020, compared to $443.3 million at December 31, 2019.

Total deposits were $12.71 billion as of June 30, 2020, compared to $11.04 billion at year-end 2019, an increase of $1.66 billion or 15%. Deposit changes by category were:

  • Demand deposits increased $1.29 billion or 36% to $4.83 billion at June 30, 2020, compared to $3.54 billion at December 31, 2019.
  • Savings deposits increased $502.9 million or 8% to $6.81 billion at June 30, 2020, from $6.31 billion at December 31, 2019. 
  • Time deposits decreased $125.8 million or 11% to $1.07 billion at June 30, 2020 from $1.19 billion at December 31, 2019. 

Growth in non-time deposits was positively impacted by federal government stimulus payments and other COVID-19 relief programs.

Provision and Allowance for Credit Losses for Loans Increase Since December 31, 2019

Heartland's allowance for credit losses for loans totaled $119.9 million and $70.4 million at June 30, 2020, and December 31, 2019, respectively. The allowance for credit losses for loans totaled $82.5 million after the adoption of CECL on January 1, 2020, which was an increase of $12.1 million since year-end 2019. Provision expense for the second quarter of 2020 totaled $25.0 million compared to $19.9 million for the first quarter of 2020 and $4.9 million in the second quarter of 2019. Heartland recorded $11.6 million of provision expense for one fracking sand company relationship that was individually assessed for allowance for credit losses in the second quarter.

The allowance for credit losses for loans at June 30, 2020, was 1.30% of loans compared to 0.84% of loans at December 31, 2019. Net charge offs for the second quarter of 2020 totaled $2.4 million compared to $3.7 million for the second quarter of 2019, which was a decrease of $1.3 million or 35%. Heartland expects that net charge offs will increase in the second half of 2020 as customers’ ability to repay loans is adversely impacted by economic disruptions caused by the COVID-19 pandemic.

Heartland's allowance for unfunded commitments totaled $13.9 million after the adoption of CECL on January 1, 2020. Heartland recorded $1.9 million of provision for credit losses related to unfunded loan commitments in the second quarter of 2020. At June 30, 2020, the allowance for unfunded commitments was $17.4 million, and unfunded loan commitments totaled $3.06 billion.

The total allowance for credit related lending losses was $137.3 million at June 30, 2020, which was 1.49% of loans as of June 30, 2020.

 

Nonperforming Assets Increase Since December 31, 2019

Nonperforming assets increased $11.0 million or 13% to $98.5 million or 0.66% of total assets at June 30, 2020, compared to $87.6 million or 0.66% of total assets at December 31, 2019. Nonperforming loans were $93.0 million or 1.01% of total loans at June 30, 2020, compared to $80.7 million or 0.96% of total loans at December 31, 2019. Included in new nonperforming loans at June 30, 2020 was one fracking sand company relationship with an unpaid principal balance of $14.6 million. At June 30, 2020, loans delinquent 30-89 days were 0.22% of total loans compared to 0.33% of total loans at December 31, 2019. Heartland expects that nonperforming assets and delinquent loans will increase through 2020 as customers’ ability to repay loans is adversely impacted by economic disruptions caused by the COVID-19 pandemic.

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 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 use of equity, 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 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 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 financial condition and capital strength.
  • Annualized return on average tangible common equity is net income excluding intangible amortization calculated as (1) net income excluding tax-effected core deposit and customer relationship intangibles amortization, divided by (2) average common 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 use of equity, financial condition and capital strength.
  • Adjusted net income, adjusted return on average tangible common equity and adjusted diluted earnings per share exclude tax-effected provision for credit losses and acquisition, integration and restructuring costs. Management believes the presentation of these non-GAAP measures are useful to compare net income, return on average tangible common equity and earnings per share results excluding the variability of credit loss provisions and acquisition, integration and restructuring costs. 

 

Conference Call Details

Heartland will host a conference call for investors at 5:00 p.m. EDT today. To participate, dial 866-928-9948 at least five minutes before the 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 26, 2021, 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 $15.03 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 below and in the risk factors in Heartland's reports filed with the Securities and Exchange Commission, contained, among others: the impact of the COVID-19 pandemic on Heartland and U.S. and global financial markets; containment measures enacted by the U.S. federal and state governments and by private businesses in response to the COVID-19 pandemic; the deterioration of the U.S. economy in general and in the local economies in which Heartland conducts its operations; increasing credit losses due to deterioration in the financial condition of its borrowers, based on declining oil prices and asset and collateral values, which may continue to increase Heartland’s provision for credit losses and net charge-offs; civil unrest in the communities that Heartland serves; levels of unemployment in the subsidiary banks’ lending areas; real estate market values in the subsidiary banks’ lending areas; future natural disasters and increases to flood insurance premiums; the effects of past and any future terrorist threats and attacks, acts of war or threats thereof; the level of prepayments on loans and mortgage-backed securities; legislative/regulatory changes affecting banking, taxes, securities, insurance and monetary and financial matters; monetary and fiscal policies of the U.S. Government including policies of the United States Department of the Treasury and the Federal Reserve; the quality or composition of Heartland’s loan or investment portfolios; demand for loan products and financial services, deposit flows and competition in Heartland’s market areas; changes in accounting principles and guidelines; the timely development and acceptance of products and services, including products and services offered through alternative delivery channels such as the Internet; Heartland’s ability to implement technological changes as anticipated and to develop and maintain secure and reliable electronic delivery systems; Heartland’s ability to retain key executives and employees and the ability of Heartland and its subsidiaries to successfully consummate acquisitions and integrate acquired operations.

The COVID-19 pandemic is adversely affecting Heartland and its customers, counterparties, employees and third-party service providers. The pandemic’s severity, its duration and the extent of its impact on Heartland’s business, financial condition, results of operations, liquidity and prospects remain uncertain. Continued deterioration in general business and economic conditions or turbulence in domestic or global financial markets could adversely affect Heartland’s net income and the value of its assets and liabilities, reduce the availability of funding to Heartland, lead to a tightening of credit and increase stock price volatility. Some economists and investment banks also predict that a recession or depression may result from the continued spread of COVID-19 and the economic consequences.

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,

2020

2019

2020

2019

Interest Income

Interest and fees on loans

$

107,005

$

106,027

$

213,419

$

206,483

Interest on securities:

Taxable

23,362

16,123

45,093

31,999

Nontaxable

3,344

2,554

5,527

5,647

Interest on federal funds sold

4

Interest on deposits with other banks and short-term investments

54

2,299

775

3,591

Total Interest Income

133,765

127,003

264,814

247,724

Interest Expense

Interest on deposits

6,134

16,138

20,716

29,351

Interest on short-term borrowings

61

338

357

1,227

Interest on other borrowings

3,424

3,819

7,084

7,483

Total Interest Expense

9,619

20,295

28,157

38,061

Net Interest Income

124,146

106,708

236,657

209,663

Provision for credit losses

26,796

4,918

48,316

6,553

Net Interest Income After Provision for Credit Losses

97,350

101,790

188,341

203,110

Noninterest Income

Service charges and fees

10,972

14,629

22,993

27,423

Loan servicing income

379

1,338

1,342

3,067

Trust fees

4,977

4,825

9,999

9,299

Brokerage and insurance commissions

595

1,028

1,328

1,762

Securities gains, net

2,006

3,580

3,664

5,155

Unrealized gain/ (loss) on equity securities, net

680

112

449

370

Net gains on sale of loans held for sale

7,857

4,343

12,517

7,519

Valuation adjustment on servicing rights

9

(364)

(1,556)

(953)

Income on bank owned life insurance

1,167

888

1,665

1,787

Other noninterest income

1,995

1,682

4,053

3,349

Total Noninterest Income

30,637

32,061

56,454

58,778

Noninterest Expense

Salaries and employee benefits

50,118

49,895

100,075

100,180

Occupancy

6,502

6,426

12,973

13,033

Furniture and equipment

2,993

3,136

6,101

5,828

Professional fees

13,676

14,344

26,149

25,366

Advertising

995

2,609

3,200

4,929

Core deposit and customer relationship intangibles amortization

2,696

3,313

5,677

6,155

Other real estate and loan collection expenses, net

203

162

537

863

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

701

(18,286)

717

(21,290)

Acquisition, integration and restructuring costs

673

929

2,049

4,543

Partnership investment in tax credit projects

791

1,465

975

1,940

Other noninterest expenses

11,091

11,105

22,845

21,781

Total Noninterest Expense

90,439

75,098

181,298

163,328

Income Before Income Taxes

37,548

58,753

63,497

98,560

Income taxes

7,417

13,584

13,326

21,894

Net Income

$

30,131

$

45,169

$

50,171

$

76,666

Earnings per common share-diluted

$

0.82

$

1.26

$

1.36

$

2.17

Weighted average shares outstanding-diluted

36,915,630

35,879,259

36,919,555

35,295,407

HEARTLAND FINANCIAL USA, INC.

CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA

For the Quarter Ended

6/30/2020

3/31/2020

12/31/2019

9/30/2019

6/30/2019

Interest Income

Interest and fees on loans

$

107,005

$

106,414

$

107,566

$

110,566

$

106,027

Interest on securities:

Taxable

23,362

21,731

22,581

18,567

16,123

Nontaxable

3,344

2,183

2,102

2,119

2,554

Interest on federal funds sold

Interest on deposits with other banks and short-term investments

54

721

953

2,151

2,299

Total Interest Income

133,765

131,049

133,202

133,403

127,003

Interest Expense

Interest on deposits

6,134

14,582

16,401

17,982

16,138

Interest on short-term borrowings

61

296

271

250

338

Interest on other borrowings

3,424

3,660

3,785

3,850

3,819

Total Interest Expense

9,619

18,538

20,457

22,082

20,295

Net Interest Income

124,146

112,511

112,745

111,321

106,708

Provision for credit losses

26,796

21,520

4,903

5,201

4,918

Net Interest Income After Provision for Credit Losses

97,350

90,991

107,842

106,120

101,790

Noninterest Income

Service charges and fees

10,972

12,021

12,368

12,366

14,629

Loan servicing income

379

963

955

821

1,338

Trust fees

4,977

5,022

5,141

4,959

4,825

Brokerage and insurance commissions

595

733

1,062

962

1,028

Securities gains, net

2,006

1,658

491

2,013

3,580

Unrealized gain/ (loss) on equity securities, net

680

(231)

11

144

112

Net gains on sale of loans held for sale

7,857

4,660

3,363

4,673

4,343

Valuation adjustment on servicing rights

9

(1,565)

668

(626)

(364)

Income on bank owned life insurance

1,167

498

1,117

881

888

Other noninterest income

1,995

2,058

2,854

3,207

1,682

Total Noninterest Income

30,637

25,817

28,030

29,400

32,061

Noninterest Expense

Salaries and employee benefits

50,118

49,957

50,234

49,927

49,895

Occupancy

6,502

6,471

5,802

6,594

6,426

Furniture and equipment

2,993

3,108

3,323

2,862

3,136

Professional fees

13,676

12,473

11,082

11,276

14,344

Advertising

995

2,205

2,274

2,622

2,609

Core deposit and customer relationship intangibles amortization

2,696

2,981

2,918

2,899

3,313

Other real estate and loan collection expenses, net

203

334

261

(89)

162

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

701

16

1,512

356

(18,286)

Acquisition, integration and restructuring costs

673

1,376

537

1,500

929

Partnership investment in tax credit projects

791

184

3,038

3,052

1,465

Other noninterest expenses

11,091

11,754

11,885

11,968

11,105

Total Noninterest Expense

90,439

90,859

92,866

92,967

75,098

Income Before Income Taxes

37,548

25,949

43,006

42,553

58,753

Income taxes

7,417

5,909

5,155

7,941

13,584

Net Income

$

30,131

$

20,040

$

37,851

$

34,612

$

45,169

Earnings per common share-diluted

$

0.82

$

0.54

$

1.03

$

0.94

$

1.26

Weighted average shares outstanding-diluted

36,915,630

36,895,591

36,840,519

36,835,191

35,879,259

HEARTLAND FINANCIAL USA, INC.

CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA

As of

6/30/2020

3/31/2020

12/31/2019

9/30/2019

6/30/2019

Assets

Cash and due from banks

$

211,429

$

175,587

$

206,607

$

243,395

$

198,664

Interest bearing deposits with other banks and short-term investments

242,149

64,156

172,127

204,372

443,475

Cash and cash equivalents

453,578

239,743

378,734

447,767

642,139

Time deposits in other financial institutions

3,128

3,568

3,564

3,711

4,430

Securities:

Carried at fair value

4,126,351

3,488,621

3,312,796

3,020,568

2,561,887

Held to maturity, at cost, less allowance for credit losses

90,579

91,875

91,324

87,965

88,166

Other investments, at cost

35,902

35,370

31,321

29,042

31,366

Loans held for sale

54,382

22,957

26,748

35,427

34,575

Loans:

Held to maturity

9,246,830

8,374,236

8,367,917

7,971,608

7,853,051

 Allowance for credit losses

(119,937)

(97,350)

(70,395)

(66,222)

(63,850)

Loans, net

9,126,893

8,276,886

8,297,522

7,905,386

7,789,201

Premises, furniture and equipment, net

198,481

200,960

200,525

199,235

198,329

Goodwill

446,345

446,345

446,345

427,097

427,097

Core deposit and customer relationship intangibles, net

43,011

45,707

48,688

49,819

52,718

Servicing rights, net

5,469

5,220

6,736

6,271

7,180

Cash surrender value on life insurance

172,813

172,140

171,625

171,471

170,421

Other real estate, net

5,539

6,074

6,914

6,425

6,646

Other assets

263,682

259,043

186,755

179,078

146,135

Total Assets

$

15,026,153

$

13,294,509

$

13,209,597

$

12,569,262

$

12,160,290

Liabilities and Equity

Liabilities

Deposits:

 Demand

$

4,831,151

$

3,696,974

$

3,543,863

$

3,581,127

$

3,426,758

 Savings

6,810,296

6,366,610

6,307,425

5,770,754

5,533,503

 Time

1,067,252

1,110,441

1,193,043

1,117,975

1,148,296

Total deposits

12,708,699

11,174,025

11,044,331

10,469,856

10,108,557

Short-term borrowings

88,631

121,442

182,626

107,853

107,260

Other borrowings

306,459

276,150

275,773

278,417

282,863

Accrued expenses and other liabilities

174,987

169,178

128,730

149,293

139,823

Total Liabilities

13,278,776

11,740,795

11,631,460

11,005,419

10,638,503

Stockholders' Equity

Preferred equity

110,705

Common stock

36,845

36,807

36,704

36,696

36,690

Capital surplus

844,202

842,780

839,857

838,543

837,150

Retained earnings

723,067

700,298

702,502

670,816

642,808

Accumulated other comprehensive income/(loss)

32,558

(26,171)

(926)

17,788

5,139

Total Equity

1,747,377

1,553,714

1,578,137

1,563,843

1,521,787

Total Liabilities and Equity

$

15,026,153

$

13,294,509

$

13,209,597

$

12,569,262

$

12,160,290

HEARTLAND FINANCIAL USA, INC.

CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)

DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND FULL TIME EQUIVALENT EMPLOYEE DATA

For the Quarter Ended

6/30/2020

3/31/2020

12/31/2019

9/30/2019

6/30/2019

Average Balances

Assets

$

14,391,856

$

13,148,173

$

12,798,770

$

12,293,332

$

11,708,538

Loans, net of unearned

9,186,913

8,364,220

8,090,476

7,883,678

7,648,562

Deposits

12,288,378

10,971,193

10,704,643

10,253,643

9,790,756

Earning assets

13,103,159

11,891,455

11,580,295

11,102,581

10,552,166

Interest bearing liabilities

8,155,753

7,841,941

7,513,701

7,174,944

6,872,449

Common equity

1,574,902

1,619,682

1,570,258

1,541,369

1,442,388

Total stockholders' equity

1,580,997

1,619,682

1,570,258

1,541,369

1,442,388

Tangible common equity (non-GAAP)(1)

1,083,834

1,125,705

1,087,495

1,062,568

981,878

Key Performance Ratios

Annualized return on average assets

0.84

%

0.61

%

1.17

%

1.12

%

1.55

%

Annualized return on average common equity (GAAP)

7.69

4.98

9.56

8.91

12.56

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

11.97

8.00

14.65

13.78

19.52

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

20.02

14.46

16.22

15.76

21.41

Annualized ratio of net charge-offs to average loans

0.11

0.24

0.04

0.14

0.19

Annualized net interest margin (GAAP)

3.81

3.81

3.86

3.98

4.06

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

3.85

3.84

3.90

4.02

4.10

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

55.75

61.82

60.31

60.85

64.13

(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.

For the Quarter Ended
June 30,

For the Six Months Ended
June 30,

2020

2019

2020

2019

Average Balances

Assets

$

14,391,856

$

11,708,538

$

13,770,015

$

11,489,095

Loans, net of unearned

9,186,913

7,648,562

8,775,566

7,531,360

Deposits

12,288,378

9,790,756

11,629,785

9,574,680

Earning assets

13,103,159

10,552,166

12,497,307

10,342,229

Interest bearing liabilities

8,155,753

6,872,449

7,998,847

6,747,990

Common equity

1,574,902

1,442,388

1,597,292

1,389,612

Total stockholders' equity