Market Overview

Heartland Financial USA, Inc. Reports Second Quarter 2018 Results

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Highlights

  • Quarterly net income available to common stockholders of $27.9 million in comparison with $21.9 million for the second quarter of the prior year
  • Diluted earnings per common share of $0.85 in comparison with $0.81 for the second quarter of the prior year
  • Net interest margin of 4.23%, fully tax-equivalent (non-GAAP)(1) of 4.30%
  • Organic loan growth of $50.6 million or 3% annualized and organic demand deposit growth of $111.6 million or 14% annualized
  • Return on average common equity of 9.81% and return on average tangible common equity (non-GAAP)(2) of 14.56%
  • Tangible common equity ratio (non-GAAP)(3) of 7.46%
  • Completed the acquisition of First Bank Lubbock Bancshares, Inc. on May 18, 2018
       
  Quarter Ended
June 30,
  Six Months Ended
June 30,
  2018   2017   2018   2017
Net income (in millions) $ 27.9     $ 22.0     $ 51.1     $ 40.0  
Net income available to common stockholders (in millions) 27.9     21.9     51.1     39.9  
Diluted earnings per common share 0.85     0.81     1.61     1.49  
               
Return on average assets 1.05 %   1.06 %   1.01 %   0.97 %
Return on average common equity 9.81     11.13     9.58     10.44  
Return on average tangible common equity (non-GAAP)(2) 14.56     14.07     13.82     13.18  
Net interest margin 4.23     3.94     4.21     3.95  
Net interest margin, fully tax-equivalent (non-GAAP)(1) 4.30     4.14     4.28     4.15  


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Noninterest Income and Noninterest Expenses Increase from Second Quarter of 2017

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

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

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

Loans and Deposits Increase Since December 31, 2017

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

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

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

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

Nonperforming Assets Increase Since December 31, 2017

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

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


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

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

Safe Harbor Statement
This release, and future oral and written statements of Heartland and its management, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Heartland's financial condition, results of operations, plans, objectives, future performance and business. Although these forward-looking statements are based upon the beliefs, expectations and assumptions of Heartland's management, there are a number of factors, many of which are beyond the ability of management to control or predict, that could cause actual results to differ materially from those in its forward-looking statements. These factors, which are detailed in the risk factors in Heartland's Annual Report on Form 10-K filed with the Securities and Exchange Commission, contained, among others: (i) the strength of the local and national economy; (ii) the economic impact of past and any future terrorist threats and attacks and any acts of war; (iii) changes in state and federal laws, regulations and governmental policies as they impact the company's general business; (iv) changes in interest rates and prepayment rates of the company's assets; (v) increased competition in the financial services sector and the inability to attract new customers; (vi) changes in technology and the ability to develop and maintain secure and reliable electronic systems; (vii) the potential impact of acquisitions and Heartland's ability to successfully integrate acquired banks; (viii) the loss of key executives or employees; (ix) changes in consumer spending; (x) unexpected outcomes of existing or new litigation involving the company; and (xi) changes in accounting policies and practices. All statements in this release, including forward-looking statements, speak only as of the date they are made, and Heartland undertakes no obligation to update any statement in light of new information or future events.

-FINANCIAL TABLES FOLLOW

 
 
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  For the Quarter Ended
June 30,
  For the Six Months Ended
June 30,
  2018   2017   2018   2017
Interest Income              
Interest and fees on loans $ 96,787     $ 68,094     $ 182,438     $ 134,992  
Interest on securities:              
Taxable 12,270     8,599     23,847     16,852  
Nontaxable 3,584     5,020     7,163     10,211  
Interest on federal funds sold     3         3  
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments 768     345     1,175     554  
Total Interest Income 113,409     82,061     214,623     162,612  
Interest Expense              
Interest on deposits 7,983     4,163     13,749     7,893  
Interest on short-term borrowings 547     90     815     227  
Interest on other borrowings 3,470     3,228     7,066     6,884  
Total Interest Expense 12,000     7,481     21,630     15,004  
Net Interest Income 101,409     74,580     192,993     147,608  
Provision for loan losses 4,831     889     9,094     4,530  
Net Interest Income After Provision for Loan Losses 96,578     73,691     183,899     143,078  
Noninterest Income              
Service charges and fees 12,072     9,696     22,151     19,153  
Loan servicing income 1,807     1,351     3,561     3,075  
Trust fees 4,615     3,979     9,295     7,610  
Brokerage and insurance commissions 877     976     1,784     2,012  
Securities gains/(losses), net (259 )   1,392     1,182     3,874  
Unrealized gain/(loss) on equity securities, net 71         43      
Net gains on sale of loans held for sale 6,800     6,817     10,851     12,964  
Valuation adjustment on servicing rights (216 )   19     (218 )   24  
Income on bank owned life insurance 700     656     1,314     1,273  
Other noninterest income 1,167     738     2,387     1,532  
Total Noninterest Income 27,634     25,624     52,350     51,517  
Noninterest Expense              
Salaries and employee benefits 50,758     41,126     99,468     82,893  
Occupancy 6,315     5,056     12,358     10,129  
Furniture and equipment 3,184     2,586     5,933     5,087  
Professional fees 9,948     7,583     18,407     15,892  
FDIC insurance assessments 684     909     1,673     1,716  
Advertising 2,145     1,359     4,085     3,783  
Core deposit intangibles and customer relationship intangibles amortization 2,274     1,218     4,137     2,389  
Other real estate and loan collection expenses 948     365     1,680     1,193  
(Gain)/loss on sales/valuations of assets, net 1,528     (112 )   1,331     300  
Restructuring expenses         2,564      
Other noninterest expenses 11,098     9,208     20,892     17,656  
Total Noninterest Expense 88,882     69,298     172,528     141,038  
Income Before Income Taxes 35,330     30,017     63,721     53,557  
Income taxes 7,451     8,059     12,574     13,589  
Net Income 27,879     21,958     51,147     39,968  
Preferred dividends (13 )   (13 )   (26 )   (32 )
Interest expense on convertible preferred debt     4         9  
Net Income Available to Common Stockholders $ 27,866     $ 21,949     $ 51,121     $ 39,945  
Earnings per common share-diluted $ 0.85     $ 0.81     $ 1.61     $ 1.49  
Weighted average shares outstanding-diluted 32,830,751     26,972,580     31,746,126     26,798,134  
                       
                       


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) 
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  For the Quarter Ended
  6/30/2018     3/31/2018     12/31/2017     9/30/2017     6/30/2017
Interest Income                                      
Interest and fees on loans $ 96,787     $ 85,651     $ 86,108     $ 82,906     $ 68,094  
Interest on securities:                            
Taxable 12,270     11,577     11,119     10,394     8,599  
Nontaxable 3,584     3,579     4,401     5,086     5,020  
Interest on federal funds sold         5     34     3  
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments 768     407     435     558     345  
Total Interest Income 113,409     101,214     102,068     98,978     82,061  
Interest Expense                  
Interest on deposits 7,983     5,766     5,313     5,073     4,163  
Interest on short-term borrowings 547     268     180     271     90  
Interest on other borrowings 3,470     3,596     3,719     3,790     3,228  
Total Interest Expense 12,000     9,630     9,212     9,134     7,481  
Net Interest Income 101,409     91,584     92,856     89,844     74,580  
Provision for loan losses 4,831     4,263     5,328     5,705     889  
Net Interest Income After Provision for Loan Losses 96,578     87,321     87,528     84,139     73,691  
Noninterest Income                  
Service charges and fees 12,072     10,079     9,892     10,138     9,696  
Loan servicing income 1,807     1,754     1,400     1,161     1,351  
Trust fees 4,615     4,680     4,336     3,872     3,979  
Brokerage and insurance commissions 877     907     1,071     950     976  
Securities gains/(losses), net (259 )   1,441     1,420     1,679     1,392  
Unrealized gain/(loss) on equity securities, net 71     (28 )            
Net gains on sale of loans held for sale 6,800     4,051     4,290     4,997     6,817  
Valuation adjustment on servicing rights (216 )   (2 )   (8 )   5     19  
Income on bank owned life insurance 700     614     733     766     656  
Other noninterest income 1,167     1,220     2,394     1,409     738  
Total Noninterest Income 27,634     24,716     25,528     24,977     25,624  
Noninterest Expense                  
Salaries and employee benefits 50,758     48,710     43,289     45,225     41,126  
Occupancy 6,315     6,043     5,892     6,223     5,056  
Furniture and equipment 3,184     2,749     3,148     2,826     2,586  
Professional fees 9,948     8,459     8,537     8,450     7,583  
FDIC insurance assessments 684     989     985     894     909  
Advertising 2,145     1,940     2,088     1,358     1,359  
Core deposit intangibles and customer relationship intangibles amortization 2,274     1,863     1,825     1,863     1,218  
Other real estate and loan collection expenses 948     732     687     581     365  
(Gain)/loss on sales/valuations of assets, net 1,528     (197 )   833     1,342     (112 )
Restructuring expenses     2,564              
Other noninterest expenses 11,098     9,794     10,594     9,997     9,208  
Total Noninterest Expense 88,882     83,646     77,878     78,759     69,298  
Income Before Income Taxes 35,330     28,391     35,178     30,357     30,017  
Income taxes 7,451     5,123     21,506     8,725     8,059  
Net Income 27,879     23,268     13,672     21,632     21,958  
Preferred dividends (13 )   (13 )   (13 )   (13 )   (13 )
Interest expense on convertible preferred debt             3     4  
Net Income Available to Common Stockholders $ 27,866     $ 23,255     $ 13,659     $ 21,622     $ 21,949  
Earnings per common share-diluted $ 0.85     $ 0.76     $ 0.45     $ 0.72     $ 0.81  
Weighted average shares outstanding-diluted 32,830,751     30,645,212     30,209,043     29,910,437     26,972,580  
                             
                             


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  As of
  6/30/2018   3/31/2018   12/31/2017     9/30/2017   6/30/2017
Assets                                      
Cash and due from banks $ 193,069     $ 143,071     $ 168,723     $ 180,751     $ 141,100  
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments 194,937     123,275     27,280     70,985     40,676  
Cash and cash equivalents 388,006     266,346     196,003     251,736     181,776  
Time deposits in other financial institutions 6,803     6,297     9,820     19,793     30,241  
Securities:                  
Carried at fair value 2,197,117     2,027,665     2,216,753     2,093,385     1,789,441  
Held to maturity, at cost 244,271     249,766     253,550     256,355     259,586  
Other investments, at cost 26,725     22,982     22,563     23,176     21,094  
Loans held for sale 55,684     24,376     44,560     35,795     48,848  
Loans:                  
Held to maturity 7,477,697     6,746,015     6,391,464     6,373,415     5,325,082  
Allowance for loan losses (61,324 )   (58,656 )   (55,686 )   (54,885 )   (54,051 )
Loans, net 7,416,373     6,687,359     6,335,778     6,318,530     5,271,031  
Premises, furniture and equipment, net 199,959     172,862     174,301     178,961     163,003  
Goodwill 391,668     270,305     236,615     236,615     141,461  
Core deposit intangibles and customer relationship intangibles, net 52,698     41,063     35,203     37,028     22,850  
Servicing rights, net 31,996     25,471     25,857     26,599     34,736  
Cash surrender value on life insurance 159,302     143,444     142,818     142,073     120,281  
Other real estate, net 11,074     11,801     10,777     13,226     9,269  
Other assets 120,244     106,126     106,141     122,355     111,104  
Total Assets $ 11,301,920     $ 10,055,863     $ 9,810,739     $ 9,755,627     $ 8,204,721  
Liabilities and Equity                  
Liabilities                  
Deposits:                  
 Demand $ 3,399,598     $ 3,094,457     $ 2,983,128     $ 3,009,940     $ 2,355,410  
 Savings 4,864,773     4,536,106     4,240,328     4,227,340     3,704,579  
 Time 1,224,773     910,977     923,453     994,604     870,180  
Total deposits 9,489,144     8,541,540     8,146,909     8,231,884     6,930,169  
Short-term borrowings 229,890     131,240     324,691     171,871     139,130  
Other borrowings 258,708     276,118     285,011     301,473     281,096  
Accrued expenses and other liabilities 68,431     55,460     62,671     68,715     48,356  
Total Liabilities 10,046,173     9,004,358     8,819,282     8,773,943     7,398,751  
Stockholders' Equity                  
Preferred equity 938     938     938     938     938  
Common stock 34,438     31,068     29,953     29,946     26,701  
Capital surplus 740,128     557,990     503,709     503,262     352,500  
Retained earnings 524,786     500,959     481,331     468,556     450,228  
Accumulated other comprehensive loss (44,543 )   (39,450 )   (24,474 )   (21,018 )   (24,397 )
Total Equity 1,255,747     1,051,505     991,457     981,684     805,970  
Total Liabilities and Equity $ 11,301,920     $ 10,055,863     $ 9,810,739     $ 9,755,627     $ 8,204,721  
                                       
                                       


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  For the Quarter Ended
June 30,
  For the Six Months Ended
June 30,
  2018   2017   2018   2017
Average Balances                              
Assets $ 10,643,306     $ 8,333,301     $ 10,204,061     $ 8,283,681  
Loans, net of unearned 7,123,182     5,376,826     6,826,018     5,371,271  
Deposits 9,018,945     7,050,126     8,637,165     6,973,897  
Earning assets 9,614,800     7,586,256     9,238,391     7,544,609  
Interest bearing liabilities 6,205,187     5,146,243     5,951,175     5,168,475  
Common stockholders' equity 1,139,876     791,039     1,076,083     771,464  
Total stockholders' equity 1,140,814     791,977     1,077,021     772,575  
Tangible common stockholders' equity(1) 767,732     625,929     745,937     611,050  
               
Key Performance Ratios              
Annualized return on average assets 1.05 %   1.06 %   1.01 %   0.97 %
Annualized return on average common equity (GAAP) 9.81 %   11.13 %   9.58 %   10.44 %
Annualized return on average tangible common equity (non-GAAP)(2) 14.56 %   14.07 %   13.82 %   13.18 %
Annualized ratio of net charge-offs to average loans 0.12 %   0.14 %   0.11 %   0.18 %
Annualized net interest margin (GAAP) 4.23 %   3.94 %   4.21 %   3.95 %
Annualized net interest margin, fully tax-equivalent (non-GAAP)(3) 4.30 %   4.14 %   4.28 %   4.15 %
Efficiency ratio, fully tax-equivalent(4) 65.04 %   65.61 %   66.53 %   67.75 %
               
Reconciliation of Return on Average Tangible Common Equity (non-GAAP)(5)              
Net income available to common shareholders (GAAP) $ 27,866     $ 21,949     $ 51,121     $ 39,945  
               
Average common stockholders' equity (GAAP) $ 1,139,876     $ 791,039     $ 1,076,083     $ 771,464  
Less average goodwill 325,781     141,461     288,185     136,976  
Less average core deposit intangibles and customer relationship intangibles, net 46,363     23,649     41,961     23,438  
Average tangible common equity (non-GAAP) $ 767,732     $ 625,929     $ 745,937     $ 611,050  
Annualized return on average common equity (GAAP) 9.81 %   11.13 %   9.58 %   10.44 %
Annualized return on average tangible common equity (non-GAAP) 14.56 %   14.07 %   13.82 %   13.18 %
               
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)(6)              
Net Interest Income (GAAP) $ 101,409     $ 74,580     $ 192,993     $ 147,608  
Plus tax-equivalent adjustment(7) 1,575     3,796     3,119     7,656  
Net interest income, tax-equivalent (non-GAAP) $ 102,984     $ 78,376     $ 196,112     $ 155,264  
               
Average earning assets $ 9,614,800     $ 7,586,256     $ 9,238,391     $ 7,544,609  
               
Annualized net interest margin (GAAP) 4.23 %   3.94 %   4.21 %   3.95 %
Annualized net interest margin, fully tax-equivalent (non-GAAP) 4.30 %   4.14 %   4.28 %   4.15 %
               
(1) Calculated as common stockholders' equity less goodwill and core deposit intangibles and customer relationship intangibles, net.
(2) Refer to the "Reconciliation of Return on Average Tangible Common Equity (non-GAAP)" table.
(3) Refer to the "Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)" table.
(4) Refer to the "Reconciliation of Non-GAAP Measure-Efficiency Ratio" table that follows for details of this non-GAAP measure.
(5) Return on average tangible common equity is net income available to common stockholders divided by average common stockholders' equity less goodwill and core deposit intangibles and customer deposit intangibles, net. This financial measure is included as it is considered to be a critical metric to analyze and evaluate financial condition and capital strength. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(6) Annualized net interest margin, fully tax-equivalent is a non-GAAP measure, which adjusts net interest income for the tax-favored status of certain loans and securities. Management believes this measure enhances the comparability of net interest income arising from taxable and tax-exempt sources. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(7) Computed on a tax-equivalent basis using an effective tax rate of 21% beginning January 1, 2018, and 35% for all prior periods.
 
 


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  For the Quarter Ended
    6/30/2018       3/31/2018       12/31/2017       9/30/2017       6/30/2017  
Average Balances                                      
Assets $ 10,643,306     $ 9,759,936     $ 9,807,621     $ 9,639,844     $ 8,333,301  
Loans, net of unearned 7,123,182     6,525,553     6,343,923     6,286,264     5,376,826  
Deposits 9,018,945     8,251,140     8,293,006     8,100,028     7,050,126  
Earning assets 9,614,800     8,857,801     8,891,432     8,726,228     7,586,256  
Interest bearing liabilities 6,205,187     5,694,337     5,663,816     5,697,713     5,146,243  
Common stockholders' equity 1,139,876     1,011,580     986,026     954,511     791,039  
Total stockholders' equity 1,140,814     1,012,518     986,964     955,449     791,977  
Tangible common stockholders' equity(1) 767,732     723,898     713,018     691,464     625,929  
                   
Key Performance Ratios                  
Annualized return on average assets 1.05 %   0.97 %   0.55 %   0.89 %   1.06 %
Annualized return on average common equity (GAAP) 9.81 %   9.32 %   5.50 %   8.99 %   11.13 %
Annualized return on average tangible common equity (non-GAAP)(2) 14.56 %   13.03 %   7.60 %   12.41 %   14.07 %
Annualized ratio of net charge-offs to average loans 0.12 %   0.08 %   0.28 %   0.31 %   0.14 %
Annualized net interest margin (GAAP) 4.23 %   4.19 %   4.14 %   4.08 %   3.94 %
Annualized net interest margin, fully tax-equivalent (non-GAAP)(3) 4.30 %   4.26 %   4.30 %   4.26 %   4.14 %
Efficiency ratio, fully tax-equivalent(4) 65.04 %   68.21 %   62.26 %   64.54 %   65.61 %
                   
Reconciliation of Return on Average Tangible Common Equity (non-GAAP)(5)                  
Net income available to common shareholders (GAAP) $ 27,866     $ 23,255     $ 13,659     $ 21,622     $ 21,949  
                   
Average common stockholders' equity (GAAP) $ 1,139,876     $ 1,011,580     $ 986,026     $ 954,511     $ 791,039  
Less average goodwill 325,781     250,172     236,615     226,097     141,461  
Less average core deposit intangibles and customer relationship intangibles, net 46,363     37,510     36,393     36,950     23,649  
Average tangible common equity (non-GAAP) $ 767,732     $ 723,898     $ 713,018     $ 691,464     $ 625,929  
Annualized return on average common equity (GAAP) 9.81 %   9.32 %   5.50 %   8.99 %   11.13 %
Annualized return on average tangible common equity (non-GAAP) 14.56 %   13.03 %   7.60 %   12.41 %   14.07 %
                   
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)(6)                  
Net Interest Income (GAAP) $ 101,409     $ 91,584     $ 92,856     $ 89,844     $ 74,580  
Plus tax-equivalent adjustment(7) 1,575     1,544     3,558     3,925     3,796  
Net interest income, fully tax-equivalent (non-GAAP) $ 102,984     $ 93,128     $ 96,414     $ 93,769     $ 78,376  
                   
Average earning assets $ 9,614,800     $ 8,857,801     $ 8,891,432     $ 8,726,228     $ 7,586,256  
                   
Annualized net interest margin (GAAP) 4.23 %   4.19 %   4.14 %   4.08 %   3.94 %
Annualized net interest margin, fully tax-equivalent (non-GAAP) 4.30 %   4.26 %   4.30 %   4.26 %   4.14 %
 
(1) Calculated as common stockholders' equity less goodwill and core deposit intangibles and customer relationship intangibles, net.
(2) Refer to the "Reconciliation of Return on Average Tangible Common Equity (non-GAAP)" table.
(3) Refer to the "Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)" table.
(4) Refer to the "Reconciliation of Non-GAAP Measure-Efficiency Ratio" table that follows for details of this non-GAAP measure.
(5) Return on average common tangible equity is net income available to common stockholders divided by average common stockholders' equity less goodwill and core deposit intangibles and customer relationship intangibles, net. This financial measure is included as it is considered to be a critical metric to analyze and evaluate financial condition and capital strength. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(6) Annualized net interest margin, fully tax-equivalent is a non-GAAP measure, which adjusts net interest income for the tax-favored status of certain loans and securities. Management believes this measure enhances the comparability of net interest income arising from taxable and tax-exempt sources. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(7) Computed on a tax-equivalent basis using an effective tax rate of 21% beginning January 1, 2018, and 35% for all prior periods.
 
 


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  For the Quarter Ended
June 30,
  For the Six Months Ended
June 30,
Reconciliation of Non-GAAP Measure-Efficiency Ratio(1) 2018     2017     2018     2017  
Net interest income $ 101,409     $ 74,580     $ 192,993     $ 147,608  
Tax-equivalent adjustment(2) 1,575     3,796     3,119     7,656  
Fully tax-equivalent net interest income 102,984     78,376     196,112     155,264  
Noninterest income 27,634     25,624     52,350     51,517  
Securities (gains)/losses, net 259     (1,392 )   (1,182 )   (3,874 )
Unrealized (gain)/loss on equity securities, net (71 )       (43 )    
Adjusted income $ 130,806     $ 102,608     $ 247,237     $ 202,907  
               
Total noninterest expenses $ 88,882     $ 69,298     $ 172,528     $ 141,038  
Less:              
Core deposit intangibles and customer relationship intangibles amortization 2,274     1,218     4,137     2,389  
Partnership investment in tax credit projects     876         876  
(Gain)/loss on sales/valuations of assets, net 1,528     (112 )   1,331     300  
Restructuring expenses         2,564      
Adjusted noninterest expenses $ 85,080     $ 67,316     $ 164,496     $ 137,473  
               
Efficiency ratio, fully tax-equivalent (non-GAAP) 65.04 %   65.61 %   66.53 %   67.75 %
                       


  For the Quarter Ended
Reconciliation of Non-GAAP Measure-Efficiency Ratio(1) 6/30/2018   3/31/2018   12/31/2017   9/30/2017   6/30/2017
Net interest income $ 101,409     $ 91,584     $ 92,856     $ 89,844     $ 74,580  
Tax-equivalent adjustment(2) 1,575     1,544     3,558     3,925     3,796  
Fully tax-equivalent net interest income 102,984     93,128     96,414     93,769     78,376  
Noninterest income 27,634     24,716     25,528     24,977     25,624  
Securities (gains)/losses, net 259     (1,441 )   (1,420 )   (1,679 )   (1,392 )
Unrealized (gain)/loss on equity securities, net (71 )   28              
Gain on extinguishment of debt         (1,280 )        
Adjusted income $ 130,806     $ 116,431     $ 119,242     $ 117,067     $ 102,608  
                   
Total noninterest expenses $ 88,882     $ 83,646     $ 77,878     $ 78,759     $ 69,298  
Less:                  
Core deposit intangibles and customer relationship intangibles amortization 2,274     1,863     1,825     1,863     1,218  
Partnership investment in tax credit projects         984         876  
(Gain)/loss on sales/valuation of assets, net 1,528     (197 )   833     1,342     (112 )
Restructuring expenses     2,564              
Adjusted noninterest expenses $ 85,080     $ 79,416     $ 74,236     $ 75,554     $ 67,316  
                   
Efficiency ratio, fully tax-equivalent (non-GAAP) 65.04 %   68.21 %   62.26 %   64.54 %   65.61 %
                   
(1) Efficiency ratio, fully tax-equivalent, expresses noninterest expenses as a percentage of fully tax-equivalent net interest income and noninterest income. This efficiency ratio is presented on a tax-equivalent basis, which adjusts net interest income and noninterest expenses for the tax favored status of certain loans, securities and tax credit projects. Management believes the presentation of this non-GAAP measure provides supplemental useful information for proper understanding of the financial results as it enhances the comparability of income and expenses arising from taxable and nontaxable sources and excludes specific items, as noted in the table. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(2) Computed on a tax-equivalent basis using an effective tax rate of 21% beginning January 1, 2018, and 35% for all prior periods.
 
 


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND FULL TIME EQUIVALENT EMPLOYEE DATA
  As of and for the Quarter Ended
    6/30/2018       3/31/2018       12/31/2017       9/30/2017       6/30/2017  
Common Share Data                                      
Book value per common share $ 36.44     $ 33.81     $ 33.07     $ 32.75     $ 30.15  
Tangible book value per common share (non-GAAP)(1) $ 23.53     $ 23.79     $ 23.99     $ 23.61     $ 24.00  
Common shares outstanding, net of treasury stock 34,438,445     31,068,239     29,953,356     29,946,069     26,701,226  
Tangible common equity ratio (non-GAAP)(2) 7.46 %   7.59 %   7.53 %   7.46 %   7.97 %
                   
Reconciliation of Tangible Book Value Per Common Share (non-GAAP)(3)                  
Common stockholders' equity (GAAP) $ 1,254,809     $ 1,050,567     $ 990,518     $ 980,746     $ 805,032  
Less goodwill 391,668     270,305     236,615     236,615     141,461  
Less core deposit intangibles and customer relationship intangibles, net 52,698     41,063     35,203     37,028     22,850  
Tangible common stockholders' equity (non-GAAP) $ 810,443     $ 739,199     $ 718,700     $ 707,103     $ 640,721  
                   
Common shares outstanding, net of treasury stock 34,438,445     31,068,239     29,953,356     29,946,069     26,701,226  
Common stockholders' equity (book value) per share (GAAP) $ 36.44     $ 33.81     $ 33.07     $ 32.75     $ 30.15  
Tangible book value per common share (non-GAAP) $ 23.53     $ 23.79     $ 23.99     $ 23.61     $ 24.00  
                   
Reconciliation of Tangible Common Equity Ratio (non-GAAP)(4)                  
Total assets (GAAP) $ 11,301,920     $ 10,055,863     $ 9,810,739     $ 9,755,627     $ 8,204,721  
Less goodwill 391,668     270,305     236,615     236,615     141,461  
Less core deposit intangibles and customer relationship
 intangibles, net
52,698     41,063     35,203     37,028     22,850  
Total tangible assets (non-GAAP) $ 10,857,554     $ 9,744,495     $ 9,538,921     $ 9,481,984     $ 8,040,410  
Tangible common equity ratio (non-GAAP) 7.46 %   7.59 %   7.53 %   7.46 %   7.97 %
                   
Loan Data                  
Loans held to maturity:                  
Commercial and commercial real estate $ 5,721,138     $ 5,129,777     $ 4,809,875     $ 4,777,856     $ 3,803,011  
Residential mortgage 683,051     624,725     624,279     635,611     596,385  
Agricultural and agricultural real estate 562,353     518,386     511,588     511,764     495,243  
Consumer 512,899     474,929     447,484     450,088     431,052  
Unearned discount and deferred loan fees (1,744 )   (1,802 )   (1,762 )   (1,904 )   (609 )
Total loans held to maturity $ 7,477,697     $ 6,746,015     $ 6,391,464     $ 6,373,415     $ 5,325,082  
                   
Other Selected Trend Information                  
Effective tax rate 21.09 %   18.04 %   61.13 %   28.74 %   26.85 %
Full time equivalent employees 2,216     2,022     2,008     2,024     1,862  
Total residential mortgage loan applications $ 341,978     $ 234,825     $ 232,946     $ 271,476     $ 308,113  
Residential mortgage loans originated $ 225,563     $ 149,768     $ 185,580     $ 198,911     $ 216,637  
Residential mortgage loans sold $ 201,808     $ 127,963     $ 168,527     $ 188,501     $ 180,296  
Residential mortgage loan servicing portfolio $ 4,158,107     $ 3,535,988     $ 3,558,090     $ 3,557,866     $ 4,340,243  
                   
(1) Refer to the "Reconciliation of Tangible Book Value Per Common Share (non-GAAP)" table.
(2) Refer to the "Reconciliation of Tangible Common Equity Ratio (non-GAAP)" table.
(3) Tangible book value per common share is total common stockholders' equity less goodwill and core deposit intangibles and customer relationship intangibles, net, divided by common shares outstanding, net of treasury. This is a non-GAAP financial measure but has been included as it is considered to be a critical metric with which to analyze and evaluate financial condition and capital strength. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
(4) The tangible common equity ratio is total common stockholders' equity less goodwill and core deposit intangibles and customer relationship intangibles, net, divided by total assets less goodwill and core deposit intangibles and customer relationship intangibles, net. This is a non-GAAP financial measure but has been included as it is considered to be a critical metric with which to analyze and evaluate financial condition and capital strength. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
 
 


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  As of and for the Quarter Ended
    6/30/2018       3/31/2018       12/31/2017       9/30/2017       6/30/2017  
Allowance for Loan Losses                                      
Balance, beginning of period $ 58,656     $ 55,686     $ 54,885     $ 54,051     $ 54,999  
Provision for loan losses 4,831     4,263     5,328     5,705     889  
Charge-offs (3,164 )   (2,224 )   (5,628 )   (5,759 )   (2,766 )
Recoveries 1,001     931     1,101     888     929  
Balance, end of period $ 61,324     $ 58,656     $ 55,686     $ 54,885     $ 54,051  
                   
Asset Quality                  
Nonaccrual loans $ 69,376     $ 64,806     $ 62,581     $ 63,456     $ 65,393  
Loans past due ninety days or more as to interest or principal payments 54     22     830     2,348     698  
Other real estate owned 11,074     11,801     10,777     13,226     9,269  
Other repossessed assets 499     423     411     773     675  
Total nonperforming assets $ 81,003     $ 77,052     $ 74,599     $ 79,803     $ 76,035  
                   
Performing troubled debt restructured loans $ 4,012     $ 3,206     $ 6,617     $ 10,040     $ 11,157  
                   
Nonperforming Assets Activity                  
Balance, beginning of period $ 77,052     $ 74,599     $ 79,803     $ 76,035     $ 75,667  
Net loan charge offs (2,163 )   (1,293 )   (4,527 )   (4,871 )   (1,837 )
New nonperforming loans 16,254     8,546     9,911     9,117     13,700  
Acquired nonperforming assets 7,973     2,459         7,991      
Reduction of nonperforming loans(1) (15,696 )   (6,549 )   (7,177 )   (5,183 )   (7,443 )
OREO/Repossessed assets sales proceeds (1,541 )   (657 )   (2,917 )   (3,328 )   (3,734 )
OREO/Repossessed assets writedowns, net (993 )   (16 )   (146 )   (56 )   (259 )
Net activity at Citizens Finance Co. 117     (37 )   (348 )   98     (59 )
Balance, end of period $ 81,003     $ 77,052     $ 74,599     $ 79,803     $ 76,035  
 
Asset Quality Ratios                  
Ratio of nonperforming loans to total loans 0.93 %   0.96 %   0.99 %   1.03 %   1.24 %
Ratio of nonperforming assets to total assets 0.72 %   0.77 %   0.76 %   0.82 %   0.93 %
Annualized ratio of net loan charge-offs to average loans 0.12 %   0.08 %   0.28 %   0.31 %   0.14 %
Allowance for loan losses as a percent of loans 0.82 %   0.87 %   0.87 %   0.86 %   1.02 %
Allowance for loan losses as a percent of nonperforming loans 88.32 %   90.48 %   87.82 %   83.41 %   81.78 %
Loans delinquent 30-89 days as a percent of total loans 0.30 %   0.21 %   0.27 %   0.33 %   0.38 %
                   
(1) Includes principal reductions, transfers to performing status and transfers to OREO.
 
 


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS
  For the Quarter Ended
  June 30, 2018   June 30, 2017
  Average
Balance
  Interest   Rate   Average
Balance
  Interest   Rate
Earning Assets                      
Securities:                      
Taxable $ 1,890,468     $ 12,270     2.60 %   $ 1,516,745     $ 8,599     2.27 %
Nontaxable(1) 448,844     4,537     4.05     624,915     7,723     4.96  
Total securities 2,339,312     16,807     2.88     2,141,660     16,322     3.06  
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments 211,414     768     1.46     121,778     345     1.14  
Federal funds sold             1,262     3     0.95  
Loans:(2)                      
Commercial and commercial real estate(1) 5,403,447     71,301     5.29     3,824,061     46,912     4.92  
Residential mortgage 685,005     7,562     4.43     633,344     6,509     4.12  
Agricultural and agricultural real estate(1) 542,249     6,850     5.07     488,222     5,807     4.77  
Consumer 492,481     9,192     7.49     431,199     8,289     7.71  
Fees on loans     2,504             1,670      
Less: allowance for loan losses (59,108 )           (55,270 )        
Net loans 7,064,074     97,409     5.53     5,321,556     69,187     5.21  
Total earning assets 9,614,800     114,984     4.80 %   7,586,256     85,857     4.54 %
Nonearning Assets 1,028,506             747,045          
Total Assets $ 10,643,306             $ 8,333,301          
Interest Bearing Liabilities                      
Savings $ 4,748,306     $ 5,535     0.47 %   $ 3,881,219     $ 2,505     0.26 %
Time, $100,000 and over 482,593     1,066     0.89     350,786     727     0.83  
Other time deposits 558,997     1,382     0.99     479,164     931     0.78  
Short-term borrowings 152,576     547     1.44     153,565     90     0.24  
Other borrowings 262,715     3,470     5.30     281,509     3,228     4.60  
Total interest bearing liabilities 6,205,187     12,000     0.78 %   5,146,243     7,481     0.58 %
Noninterest Bearing Liabilities                      
Noninterest bearing deposits 3,229,049             2,338,957          
Accrued interest and other liabilities 68,256             56,124          
Total noninterest bearing liabilities 3,297,305             2,395,081          
Stockholders' Equity 1,140,814             791,977          
Total Liabilities and Stockholders' Equity $ 10,643,306             $ 8,333,301          
Net interest income, fully tax-equivalent (non-GAAP)(1)     $ 102,984             $ 78,376      
Net interest spread(1)         4.02 %           3.96 %
Net interest income, fully tax-equivalent (non-GAAP) to total earning assets(3)         4.30 %           4.14 %
Interest bearing liabilities to earning assets 64.54 %           67.84 %        
                       
Reconciliation of annualized net interest margin, fully tax-equivalent (non-GAAP)(3)                      
Net interest income, fully tax-equivalent (non-GAAP)     $ 102,984             $ 78,376      
Adjustments for tax-equivalent interest(1)     (1,575 )           (3,796 )    
Net interest income (GAAP)     $ 101,409             $ 74,580      
                       
Average earning assets $ 9,614,800             $ 7,586,256          
Annualized net interest margin (GAAP)     4.23 %           3.94 %    
Annualized net interest margin, fully tax-equivalent (non-GAAP)     4.30 %           4.14 %    
                       
(1) Computed on a tax-equivalent basis using an effective tax rate of 21% beginning January 1, 2018, and 35% for all prior periods.
(2) Nonaccrual loans are included in the average loans outstanding.
(3) Annualized net interest margin, fully tax-equivalent is a non-GAAP measure, which adjusts net interest income for the tax-favored status of certain loans and securities. Management believes this measure enhances the comparability of net interest income arising from taxable and tax exempt sources. This measure should not be considered a substitute for operating results determined in accordance with GAAP.
 
 


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS
  For the Six Months Ended
  June 30, 2018   June 30, 2017
  Average
Balance
  Interest   Rate   Average
Balance
  Interest   Rate
Earning Assets                      
Securities:                      
Taxable $ 1,847,858     $ 23,847     2.60 %   $ 1,483,087     $ 16,852     2.29 %
Nontaxable(1) 448,743     9,067     4.07     635,168     15,709     4.99  
Total securities 2,296,601     32,914     2.89     2,118,255     32,561     3.10  
Interest bearing deposits with the Federal Reserve Bank and other banks and other short-term investments 173,349     1,175     1.37     109,095     554     1.02  
Federal funds sold             791     3     0.76  
Loans:(2)                      
Commercial and commercial real estate(1) 5,158,483     134,114     5.24     3,818,689     92,825     4.90  
Residential mortgage 663,711     14,413     4.38     639,902     13,192     4.16  
Agricultural and agricultural real estate(1) 528,093     12,854     4.91     485,665     11,361     4.72  
Consumer 475,731     17,852     7.57     427,015     16,342     7.72  
Fees on loans     4,420             3,430      
Less: allowance for loan losses (57,577 )           (54,803 )        
Net loans 6,768,441     183,653     5.47     5,316,468     137,150     5.20  
Total earning assets 9,238,391     217,742     4.75 %   7,544,609     170,268     4.55 %
Nonearning Assets 965,670             739,072          
Total Assets $ 10,204,061             $ 8,283,681          
Interest Bearing Liabilities                      
Savings $ 4,554,484     $ 9,326     0.41 %   $ 3,859,730     $ 4,610     0.24 %
Time, $100,000 and over 430,309     1,842     0.86     349,789     1,452     0.84  
Other time deposits 544,820     2,581     0.96     481,736     1,831     0.77  
Short-term borrowings 150,171     815     1.09     194,272     227     0.24  
Other borrowings 271,391     7,066     5.25     282,948     6,884     4.91  
Total interest bearing liabilities 5,951,175     21,630     0.73 %   5,168,475     15,004     0.59 %
Noninterest Bearing Liabilities                      
Noninterest bearing deposits 3,107,552             2,282,642          
Accrued interest and other liabilities 68,313             59,989          
Total noninterest bearing liabilities 3,175,865             2,342,631          
Stockholders' Equity 1,077,021             772,575          
Total Liabilities and Stockholders' Equity $ 10,204,061             $ 8,283,681          
Net interest income, fully tax-equivalent (non-GAAP)(1)     $ 196,112             $ 155,264      
Net interest spread(1)         4.02 %           3.96 %
Net interest income, fully tax-equivalent (non-GAAP) to total earning assets(3)         4.28 %           4.15 %
Interest bearing liabilities to earning assets 64.42 %           68.51 %        
                       
Reconciliation of annualized net interest margin, fully tax-equivalent (non-GAAP)(3)                      
Net interest income, fully tax-equivalent (non-GAAP)     $ 196,112             $ 155,264      
Adjustments for tax-equivalent interest(1)     (3,119 )           (7,656 )    
Net interest income (GAAP)     $ 192,993             $ 147,608      
                       
Average earning assets $ 9,238,391             $ 7,544,609          
Annualized net interest margin (GAAP)     4.21 %           3.95 %    
Annualized net interest margin, fully tax-equivalent (non-GAAP)     4.28 %           4.15 %    
                       
(1) Computed on a tax-equivalent basis using an effective tax rate of 21% beginning January 1, 2018, and 35% for all prior periods.
(2) Nonaccrual loans are included in the average loans outstanding.
(3) Annualized net interest margin, fully tax-equivalent is a non-GAAP measure, which adjusts net interest income for the tax-favored status of certain loans and securities. Management believes this measure enhances the comparability of net interest income arising from taxable and tax exempt sources. This measure should not be considered a substitute for operating results determined in accordance with GAAP.


HEARTLAND FINANCIAL USA, INC.
SELECTED FINANCIAL DATA - SUBSIDIARY BANKS (Unaudited)
DOLLARS IN THOUSANDS
  As of and For the Quarter Ended  
  6/30/2018   3/31/2018   12/31/2017   9/30/2017   6/30/2017  
Total Assets                    
Citywide Banks(1) $2,295,261                  
Dubuque Bank and Trust Company 1,500,108   1,490,100   1,443,419   1,479,647   1,441,655  
New Mexico Bank & Trust 1,466,311   1,416,788   1,453,534   1,425,185   1,407,991  
First Bank & Trust 1,123,559          
Wisconsin Bank & Trust 1,034,075   1,017,053   1,079,222   1,030,192   1,035,628  
Premier Valley Bank 846,215   805,014   925,078   886,495   850,956  
Illinois Bank & Trust 815,905   751,371   783,127   761,285   740,153  
Minnesota Bank & Trust 660,469   631,852   210,157   217,246   216,957  
Arizona Bank & Trust 653,596   633,474   602,182   566,951   566,339  
Morrill & Janes Bank and Trust Company 602,630   648,568   654,871   719,246   748,286  
Rocky Mountain Bank 504,243   490,917   487,136   486,790   476,829  
Total Deposits                              
Citywide Banks(1) $ 1,867,626   $ 1,914,726   $ 1,895,540   $ 1,924,605   $ 682,872  
Dubuque Bank and Trust Company 1,136,431   1,193,271   1,084,415   1,139,512   1,178,368  
New Mexico Bank & Trust 1,242,673   1,202,051   1,229,324   1,221,134   1,190,758  
First Bank & Trust 887,181          
Wisconsin Bank & Trust 874,035   835,919   890,835   852,489   874,845  
Premier Valley Bank 696,460   660,070   705,142   714,605   681,298  
Illinois Bank & Trust 753,022   674,391   692,227   691,680   669,532  
Minnesota Bank & Trust 561,257   533,893   178,036   189,749   193,365  
Arizona Bank & Trust 558,895   567,515   522,490   500,270   493,419  
Morrill & Janes Bank and Trust Company 498,798   558,174   563,638   605,390   627,857  
Rocky Mountain Bank 443,359   429,000   424,487   426,405   416,436  
Net Income                              
Citywide Banks(1) $ 7,018   $ 5,463   $ 1,069   $ 4,541   $ 746  
Dubuque Bank and Trust Company 4,426   3,214   9,027   703   3,477  
New Mexico Bank & Trust 7,043   6,444   2,954   4,972   5,855  
First Bank & Trust 1,925          
Wisconsin Bank & Trust 2,470   2,617   2,210   3,368   3,448  
Premier Valley Bank 2,664   2,373   1,508   2,907   2,573  
Illinois Bank & Trust 2,421   2,712   794   2,286   1,984  
Minnesota Bank & Trust 581   762   106   791   563  
Arizona Bank & Trust 3,623   2,104   (103 ) 1,451   1,073  
Morrill & Janes Bank and Trust Company 961   1,186   650   1,760   2,210  
Rocky Mountain Bank 1,185   1,172   1,769   1,631   1,732  
 
(1) Formerly known as Centennial Bank and Trust.

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

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