Market Overview

Heartland Financial USA, Inc. Reports Quarterly Results as of March 31, 2020

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Highlights and Developments

  • Quarterly net income of $20.0 million or $0.54 per diluted common share in comparison with $31.5 million or $0.91 per diluted common share for the first quarter of the prior year
  • Net interest margin of 3.81%, fully tax-equivalent net interest margin (non-GAAP)(1) of 3.84%
  • Return on average common equity of 4.98% and return on average tangible common equity (non-GAAP)(1) of 8.00%
  • Efficiency ratio (non-GAAP)(1) for the first quarter of 2020 of 61.82% compared to 64.93% for the first quarter of 2019
  • Tangible common equity ratio (non-GAAP)(1) of 8.29% compared to 8.60% at March 31, 2019
  • Total commercial loan growth of $76.5 million and non-time deposit growth of $212.3 million for the first quarter of 2020
  • Entered into a definitive merger agreement with AIM Bancshares, Inc. 
  • Adopted ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)"
   
  Three Months Ended
March 31,
  2020   2019
Net income available to common stockholders (in millions) $ 20.0     $ 31.5  
Diluted earnings per common share 0.54     0.91  
       
Return on average assets 0.61 %   1.13 %
Return on average common equity 4.98     9.56  
Return on average tangible common equity (non-GAAP)(1) 8.00     15.24  
Net interest margin 3.81     4.12  
Net interest margin, fully tax-equivalent (non-GAAP)(1) 3.84     4.18  
Efficiency ratio, fully-tax equivalent (non-GAAP)(1) 61.82     64.93  

(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 solid first quarter, which included $76.5 million of commercial loan growth, non-time deposit growth of $212.3 million, strong net interest margin, and a significantly improved efficiency ratio compared to the same quarter last year."
Bruce K. Lee, president and chief executive officer, Heartland Financial USA, Inc.

DUBUQUE, Iowa, April 27, 2020 (GLOBE NEWSWIRE) -- Heartland Financial USA, Inc. (NASDAQ:HTLF) today reported the following results:

  • net income available to common stockholders of $20.0 million, or $0.54 per diluted common share, for the quarter ended March 31, 2020, compared to $31.5 million, or $0.91 per diluted common share, for the first quarter of 2019.
  • excluding provision for credit losses and acquisition, integration and restructuring costs (tax-effected), adjusted net income available to common stockholders (non-GAAP) was $38.1 million, or $1.03 of adjusted earnings per diluted common share (non-GAAP) for the first quarter of 2020, compared to $35.6 million (non-GAAP), or $1.03 per adjusted earnings per diluted common share (non-GAAP), for the first quarter of 2019.
  • return on average common equity was 4.98% and return on average assets was 0.61% for the first quarter of 2020, compared to 9.56% and 1.13%, respectively, for the same quarter in 2019.
  • return on average tangible common equity (non-GAAP) of 8.00% and adjusted return on average tangible common equity (non-GAAP) of 14.46% for the first quarter of 2020 compared to 15.24% and 17.11%, respectively, for the first quarter of 2019.

Responses to COVID-19 

Heartland has implemented its pandemic management plan to protect employees and enable business continuity while providing relief and support to customers and communities facing challenges from the impacts of COVID-19, which included the following:

  • enabled approximately 2/3rds of employees to work from home and canceled all in-person events and meetings;
  • expanded time off program and enhanced health care coverage for COVID-19 related testing and treatments;
  • implemented a 20% wage premium for customer-facing and call center employees;
  • closed most bank lobbies and implemented drive-through only for in-person transactions;
  • announced a series of relief programs for consumers and small business customers, which include waiving account maintenance fees, ATM fees and early redemption penalties on CDs, and deferrals on loan payments;
  • provided direct loans to customers via participation in the Small Business Administration's Paycheck Protection Program ("PPP"), and
  • contributed $1.2 million to support non-profit organizations in communities served by Heartland and its subsidiary banks.

"The health and safety of our employees is our top priority. Our customers and communities are relying on us now more than ever, and we are there for them with our full line of products and services to help navigate these unprecedented economic times," Lee said.

The 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 started working with customers to modify the terms of certain existing loans.

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

Industry   Total Exposure(1)   % of Gross Exposure(1)
Lodging   $ 498,596     4.47 %
Multi-family properties   436,931     3.92  
Retail real estate   408,506     3.66  
Retail trade   367,764     3.30  
Restaurants and bars   247,239     2.22  
Nursing homes/assisted living   126,267     1.13  
Oil and gas   56,302     0.50  
Childcare facilities   48,455     0.43  
Gaming   34,790     0.31  
         
(1) Total loans outstanding and unfunded commitments

As of April 23, 2020, loan modifications have been made on approximately $556.2 million of loans in Heartland's portfolio. Approximately 69% of these modifications are interest only for 90 days, and the remainder are primarily principal and interest deferments for 90 days. Heartland expects modifications to increase in the near term.

Through April 23, 2020, Heartland's subsidiary banks have processed approximately 3,000 PPP applications and disbursed $1.02 billion of PPP loans. Heartland expects to process approximately $300-$500 million of additional loans due to the announced expansion of the PPP on April 24, 2020.

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.

Recent 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.

The allowance calculation under CECL is an expected loss model, which encompasses expected losses over the life of the portfolio, including expected losses due to changes in economic conditions and forecasts, such as those caused by the COVID-19 pandemic. Heartland recorded $21.5 million of provision for credit losses in the first quarter of 2020, primarily due to a deteriorating economic outlook resulting in an increase in expected credit losses.

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. The transaction is expected to close in the third quarter of 2020 with a systems conversion planned for the fourth quarter of 2020. As of March 31, 2020, AimBank had total assets of approximately $1.82 billion, which included $1.16 billion of gross loans outstanding, and approximately $1.58 billion of deposits.

"We continue to move forward with our acquisition of AIM Bancshares, Inc., and we are excited to welcome them to the Heartland family in the third quarter," commented Lynn B. Fuller, Heartland's executive operating chairman.

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

Net interest margin, expressed as a percentage of average earning assets, was 3.81% (3.84% on a fully tax-equivalent basis, non-GAAP) during the first quarter of 2020, compared to 3.86% (3.90% on a fully tax-equivalent basis, non-GAAP) during the fourth quarter of 2019 and 4.12% (4.18% on a fully tax-equivalent basis, non-GAAP) during the first quarter of 2019.

Total interest income for the first quarter of 2020 was $131.0 million compared to $120.7 million recorded in the first quarter of 2019, an increase of $10.3 million or 9%. The tax-equivalent adjustment for income taxes saved on the interest earned on nontaxable securities and loans was $1.1 million for the first quarter of 2020 and $1.4 million for the first quarter of 2019. With these adjustments, total interest income on a tax-equivalent basis was $132.2 million for the first quarter of 2020, an increase of $10.0 million or 8%, compared to total interest income on a tax-equivalent basis of $122.1 million for the first quarter of 2019.

Average earning assets of $11.89 billion increased $1.76 billion or 17% from the first quarter of 2019, which was primarily attributable to recent acquisitions. The average rate on earning assets decreased 42 basis points to 4.47% for the first quarter of 2020 compared to 4.89% for the same quarter in 2019, which was primarily due to recent decreases in market interest rates.

Total interest expense for the first quarter of 2020 was $18.5 million, an increase of $772,000 or 4% from $17.8 million in the first quarter of 2019, which was the result of the increase in average interest bearing liabilities. The average interest rate paid on Heartland's interest bearing liabilities decreased to 0.95% for the first quarter of 2020 compared to 1.09% for the first quarter of 2019, which was primarily due to recent decreases in market interest rates.

Average interest bearing deposits increased $1.27 billion or 21% to $7.42 billion for the quarter ended March 31, 2020, from $6.16 billion in the same quarter in 2019, which was primarily attributable to recent acquisitions. The average interest rate paid on Heartland's interest bearing deposits decreased 8 basis points to 0.79% for the first quarter of 2020 compared to 0.87% for the same quarter in 2019.

Average borrowings decreased $48.4 million or 10% to $417.8 million during the first quarter of 2020 from $466.2 million during the same quarter in 2019. The average interest rate paid on Heartland's borrowings was 3.81% for the first quarter of 2020 compared to 3.96% in the first quarter of 2019.

Net interest income was $112.5 million during the first quarter of 2020 compared to $103.0 million during the first quarter of 2019, an increase of $9.6 million or 9%. After the tax-equivalent adjustment discussed above, net interest income on a tax-equivalent basis totaled $113.6 million during the first quarter of 2020 compared to net interest income on a tax-equivalent basis of $104.4 million during the first quarter of 2019, an increase of $9.3 million or 9%.

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

Total noninterest income was $25.8 million during the first quarter of 2020 compared to $26.7 million during the first quarter of 2019, a decrease of $900,000 or 3%. Significant changes by noninterest income category were:

  • Loan servicing income totaled $963,000 for the first quarter of 2020 compared to $1.7 million for the first quarter of 2019, which was a decrease of $766,000 or 44%. 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 $4.7 million during the first quarter of 2020 compared to $3.2 million during the same quarter in 2019, which was an increase of $1.5 million or 47%, primarily due to an increase in residential mortgage loan refinancing activity in response to the recent declines in mortgage interest rates.
  • The valuation adjustment on servicing rights increased $976,000 to $1.6 million in the first quarter of 2020 from $589,000 in the first quarter of 2019, primarily due to recent declines in mortgage interest rates.

For the first quarter of 2020, total noninterest expense was $90.9 million compared to $88.2 million during the first quarter of 2019, an increase of $2.6 million or 3%. Significant changes by noninterest expense category were:

  • Professional fees totaled $12.5 million for the first quarter of 2020 compared to $11.0 million for the same quarter of 2019, which was an increase of $1.5 million or 13%, which was primarily due to recent technology upgrades.
  • Net loss on sales/valuations of assets increased $3.0 million as losses totaled $16,000 in the first quarter of 2020 compared to gains of $3.0 million in the first quarter of 2019. The gains recorded in 2019 were primarily attributable to the branch sales at Wisconsin Bank & Trust.
  • Other noninterest expenses totaled $11.8 million for the first quarter of 2020 compared to $10.7 million for the first quarter of 2019, which was an increase of $1.1 million or 10%, which was primarily attributable to recent acquisitions.

Heartland's effective tax rate was 22.77% for the first quarter of 2020 compared to 20.88% for the first quarter of 2019. The following items impacted Heartland's first quarter 2020 and 2019 tax calculations:

  • Solar energy tax credits of $76,000 and $314,000 for the first quarter of 2020 and 2019, respectively.
  • Federal low-income housing tax credits of $195,000 and $281,000 for the first quarter of 2020 and 2019, respectively.
  • New markets tax credits of $75,000 during the first quarter of 2020 compared to $0 in the first quarter of 2019.
  • Tax-exempt interest income as a percentage of pre-tax income increased to 16.40% during the first quarter of 2020 compared to 13.35% for the first quarter of 2019. 
  • Tax expense of $25,000 in the first quarter of 2020 compared to a tax benefit of $336,000 in the first quarter of 2019 resulting from the vesting of restricted stock unit awards.

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

Total assets were $13.29 billion at March 31, 2020, an increase of $84.9 million or 1% from $13.21 billion at year-end 2019. Securities represented 27% and 26% of total assets at March 31, 2020, and December 31, 2019, respectively.

Total loans held to maturity were $8.37 billion at both March 31, 2020, and December 31, 2019. Loan changes by category were:

  • Commercial and business lending, which includes commercial and industrial and owner occupied commercial real estate loans, decreased $22.0 million or 1% to $3.98 billion at March 31, 2020, compared to $4.00 billion at December 31, 2019.
  • Commercial real estate lending, which includes non-owner occupied commercial real estate and construction loans, increased $98.5 million or 4% to $2.62 billion at March 31, 2020 from $2.52 billion at year-end 2019. 
  • Agricultural and agricultural real estate loans totaled $550.1 million at March 31, 2020, compared to $565.8 million at December 31, 2019, which was a decrease of $15.7 million or 3%.
  • Residential mortgage loans decreased $39.7 million or 5% to $792.5 million at March 31, 2020, from $832.3 million at December 31, 2019.
  • Consumer loans decreased $14.8 million or 3% to $428.6 million at March 31, 2020, compared to $443.3 million at December 31, 2019.

Total deposits were $11.17 billion as of March 31, 2020, compared to $11.04 billion at year-end 2019, an increase of $129.7 million or 1%. Deposit changes by category were:

  • Demand deposits increased $153.1 million or 4% to $3.70 billion at March 31, 2020, compared to $3.54 billion at December 31, 2019.
  • Savings deposits increased $59.2 million or 1% to $6.37 billion at March 31, 2020, from $6.31 billion at December 31, 2019. 
  • Time deposits decreased $82.6 million or 7% to $1.11 billion at March 31, 2020 from $1.19 billion at December 31, 2019. 

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

Heartland's allowance for credit losses for loans totaled $82.5 million after adoption of CECL on January 1, 2020, which was an increase of $12.1 million since year-end 2019. Heartland recorded provision for credit losses for loans of $19.9 million in the first quarter of 2020 compared to $1.6 million in the first quarter of 2019.  The allowance for credit losses for loans totaled $97.4 million and $70.4 million at March 31, 2020, and December 31, 2019, respectively.

The allowance for credit losses for loans at March 31, 2020, was 1.16% of loans compared to 0.84% of loans at December 31, 2019. Net charge offs for the first quarter of 2020 totaled $5.0 million compared to $959,000 for the first quarter of 2019, which was a $4.0 million increase. The increase was primarily attributable to a $3.2 million charge off on a commercial and industrial loan for which a full reserve had been previously established.

Heartland's allowance for unfunded commitments totaled $13.9 million after the adoption of CECL on January 1, 2020. Prior to January 1, 2020, the allowance for unfunded commitments was immaterial. Heartland recorded $1.6 million of provision for credit losses related to unfunded loan commitments in the first quarter of 2020. At March 31, 2020, the allowance for unfunded commitments was $15.5 million. At March 31, 2020, Heartland had $2.78 billion of unfunded loan commitments.

The total allowance for credit related lending losses was $112.8 million at March 31, 2020, which was 1.35% of loans as of March 31, 2020.

Nonperforming Assets Decrease Since December 31, 2019

Nonperforming assets decreased $2.2 million or 3% to $85.4 million or 0.64% of total assets at March 31, 2020, compared to $87.6 million or 0.66% of total assets at December 31, 2019. Nonperforming loans were $79.3 million or 0.95% of total loans at March 31, 2020, compared to $80.7 million or 0.96% of total loans at December 31, 2019. At March 31, 2020, loans delinquent 30-89 days were 0.38% 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.
  • Adjusted net income 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 and earnings per share results excluding the variability of credit loss provisions and acquisition, integration and restructuring costs. 
  • Annualized adjusted return on average tangible common equity is adjusted net income excluding intangible amortization calculated as (1) net income excluding (A) tax-effected provision for credit losses, (B) tax-effected acquisition, integration and restructuring costs and (C) 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.

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 April 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 $13.29 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 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, including to the extent that they are affected by the COVID-19 pandemic and related restrictions on business and consumer activities; (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, including government programs offering relief from the COVID-19 pandemic; (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, including changes resulting from the COVID-19 pandemic; (x) unexpected outcomes of existing or new litigation involving the company, including claims resulting from our participation in and execution of government programs related to the COVID-19 pandemic; and (xi) changes in accounting policies and practices.

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 Three Months Ended
March 31,
  2020   2019
Interest Income      
Interest and fees on loans $ 106,414     $ 100,456  
Interest on securities:      
Taxable 21,731     15,876  
Nontaxable 2,183     3,093  
Interest on federal funds sold     4  
Interest on deposits with other banks and short-term investments 721     1,292  
Total Interest Income 131,049     120,721  
Interest Expense      
Interest on deposits 14,582     13,213  
Interest on short-term borrowings 296     889  
Interest on other borrowings 3,660     3,664  
Total Interest Expense 18,538     17,766  
Net Interest Income 112,511     102,955  
Provision for credit losses 21,520     1,635  
Net Interest Income After Provision for Credit Losses 90,991     101,320  
Noninterest Income      
Service charges and fees 12,021     12,794  
Loan servicing income 963     1,729  
Trust fees 5,022     4,474  
Brokerage and insurance commissions 733     734  
Securities gains, net 1,658     1,575  
Unrealized gain/ (loss) on equity securities, net (231 )   258  
Net gains on sale of loans held for sale 4,660     3,176  
Valuation adjustment on servicing rights (1,565 )   (589 )
Income on bank owned life insurance 498     899  
Other noninterest income 2,058     1,667  
Total Noninterest Income 25,817     26,717  
Noninterest Expense      
Salaries and employee benefits 49,957     50,285  
Occupancy 6,471     6,607  
Furniture and equipment 3,108     2,692  
Professional fees 12,473     10,995  
Advertising 2,205     2,320  
Core deposit and customer relationship intangibles amortization 2,981     2,869  
Other real estate and loan collection expenses, net 334     701  
(Gain)/loss on sales/valuations of assets, net 16     (3,004 )
Acquisition, integration and restructuring costs 1,376     3,614  
Partnership investment in tax credit projects 184     475  
Other noninterest expenses 11,754     10,676  
Total Noninterest Expense 90,859     88,230  
Income Before Income Taxes 25,949     39,807  
Income taxes 5,909     8,310  
Net Income $ 20,040     $ 31,497  
Earnings per common share-diluted $ 0.54     $ 0.91  
Weighted average shares outstanding-diluted 36,895,591     34,699,839  


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  For the Quarter Ended
  3/31/2020   12/31/2019 9/30/2019   6/30/2019   3/31/2019
Interest Income                
Interest and fees on loans $ 106,414     $ 107,566   $ 110,566     $ 106,027     $ 100,456  
Interest on securities:                
Taxable 21,731     22,581   18,567     16,123     15,876  
Nontaxable 2,183     2,102   2,119     2,554     3,093  
Interest on federal funds sold               4  
Interest on deposits with other banks and short-term investments 721     953   2,151     2,299     1,292  
Total Interest Income 131,049     133,202   133,403     127,003     120,721  
Interest Expense                
Interest on deposits 14,582     16,401   17,982     16,138     13,213  
Interest on short-term borrowings 296     271   250     338     889  
Interest on other borrowings 3,660     3,785   3,850     3,819     3,664  
Total Interest Expense 18,538     20,457   22,082     20,295     17,766  
Net Interest Income 112,511     112,745   111,321     106,708     102,955  
Provision for credit losses 21,520     4,903   5,201     4,918     1,635  
Net Interest Income After Provision for Credit Losses 90,991     107,842   106,120     101,790     101,320  
Noninterest Income                
Service charges and fees 12,021     12,368   12,366     14,629     12,794  
Loan servicing income 963     955   821     1,338     1,729  
Trust fees 5,022     5,141   4,959     4,825     4,474  
Brokerage and insurance commissions 733     1,062   962     1,028     734  
Securities gains, net 1,658     491   2,013     3,580     1,575  
Unrealized gain/ (loss) on equity securities, net (231 )   11   144     112     258  
Net gains on sale of loans held for sale 4,660     3,363   4,673     4,343     3,176  
Valuation adjustment on servicing rights (1,565 )   668   (626 )   (364 )   (589 )
Income on bank owned life insurance 498     1,117   881     888     899  
Other noninterest income 2,058     2,854   3,207     1,682     1,667  
Total Noninterest Income 25,817     28,030   29,400     32,061     26,717  
Noninterest Expense                
Salaries and employee benefits 49,957     50,234   49,927     49,895     50,285  
Occupancy 6,471     5,802   6,594     6,426     6,607  
Furniture and equipment 3,108     3,323   2,862     3,136     2,692  
Professional fees 12,473     11,082   11,276     14,344     10,995  
Advertising 2,205     2,274   2,622     2,609     2,320  
Core deposit and customer relationship intangibles amortization 2,981     2,918   2,899     3,313     2,869  
Other real estate and loan collection expenses, net 334     261   (89 )   162     701  
(Gain)/loss on sales/valuations of assets, net 16     1,512   356     (18,286 )   (3,004 )
Acquisition, integration and restructuring costs 1,376     537   1,500     929     3,614  
Partnership investment in tax credit projects 184     3,038   3,052     1,465     475  
Other noninterest expenses 11,754     11,885   11,968     11,105     10,676  
Total Noninterest Expense 90,859     92,866   92,967     75,098     88,230  
Income Before Income Taxes 25,949     43,006   42,553     58,753     39,807  
Income taxes 5,909     5,155   7,941     13,584     8,310  
Net Income $ 20,040     $ 37,851   $ 34,612     $ 45,169     $ 31,497  
Earnings per common share-diluted $ 0.54     $ 1.03   $ 0.94     $ 1.26     $ 0.91  
Weighted average shares outstanding-diluted 36,895,591     36,840,519   36,835,191     35,879,259     34,699,839  


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  As of
  3/31/2020   12/31/2019   9/30/2019   6/30/2019   3/31/2019
Assets                  
Cash and due from banks $ 175,587     $ 206,607     $ 243,395     $ 198,664     $ 174,198  
Interest bearing deposits with other banks and short-term investments 64,156     172,127     204,372     443,475     318,303  
Cash and cash equivalents 239,743     378,734     447,767     642,139     492,501  
Time deposits in other financial institutions 3,568     3,564     3,711     4,430     4,675  
Securities:                  
Carried at fair value 3,488,621     3,312,796     3,020,568     2,561,887     2,400,460  
Held to maturity, at cost, less allowance for credit losses 91,875     91,324     87,965     88,166     88,089  
Other investments, at cost 35,370     31,321     29,042     31,366     27,506  
Loans held for sale 22,957     26,748     35,427     34,575     69,716  
Loans:                  
Held to maturity 8,374,236     8,367,917     7,971,608     7,853,051     7,331,544  
 Allowance for credit losses (97,350 )   (70,395 )   (66,222 )   (63,850 )   (62,639 )
Loans, net 8,276,886     8,297,522     7,905,386     7,789,201     7,268,905  
Premises, furniture and equipment, net 200,960     200,525     199,235     198,329     190,215  
Goodwill 446,345     446,345     427,097     427,097     391,668  
Core deposit and customer relationship intangibles, net 45,707     48,688     49,819     52,718     44,637  
Servicing rights, net 5,220     6,736     6,271     7,180     28,968  
Cash surrender value on life insurance 172,140     171,625     171,471     170,421     163,764  
Other real estate, net 6,074     6,914     6,425     6,646     5,391  
Other assets 259,043     186,755     179,078     146,135     136,000  
Total Assets $ 13,294,509     $ 13,209,597     $ 12,569,262     $ 12,160,290     $ 11,312,495  
Liabilities and Equity                  
Liabilities                  
Deposits:                  
 Demand $ 3,696,974     $ 3,543,863     $ 3,581,127     $ 3,426,758     $ 3,118,909  
 Savings 6,366,610     6,307,425     5,770,754     5,533,503     5,145,929  
 Time 1,110,441     1,193,043     1,117,975     1,148,296     1,088,104  
Total deposits 11,174,025     11,044,331     10,469,856     10,108,557     9,352,942  
Deposits held for sale                 118,564  
Short-term borrowings 121,442     182,626     107,853     107,260     104,314  
Other borrowings 276,150     275,773     278,417     282,863     268,312  
Accrued expenses and other liabilities 169,178     128,730     149,293     139,823     96,261  
Total Liabilities 11,740,795     11,631,460     11,005,419     10,638,503     9,940,393  
Stockholders' Equity                  
Common stock 36,807     36,704     36,696     36,690     34,604  
Capital surplus 842,780     839,857     838,543     837,150     745,596  
Retained earnings 700,298     702,502     670,816     642,808     603,506  
Accumulated other comprehensive income/(loss) (26,171 )   (926 )   17,788     5,139     (11,604 )
Total Equity 1,553,714     1,578,137     1,563,843     1,521,787     1,372,102  
Total Liabilities and Equity $ 13,294,509     $ 13,209,597     $ 12,569,262     $ 12,160,290     $ 11,312,495  


 


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
  3/31/2020   12/31/2019   9/30/2019   6/30/2019   3/31/2019
Average Balances                  
Assets $ 13,148,173     $ 12,798,770     $ 12,293,332     $ 11,708,538     $ 11,267,214  
Loans, net of unearned 8,364,220     8,090,476     7,883,678     7,648,562     7,412,855  
Deposits 10,971,193     10,704,643     10,253,643     9,790,756     9,356,204  
Earning assets 11,891,455     11,580,295     11,102,581     10,552,166     10,129,957  
Interest bearing liabilities 7,841,941     7,513,701     7,174,944     6,872,449     6,622,149  
Common equity 1,619,682     1,570,258     1,541,369     1,442,388     1,336,250  
Tangible common equity (non-GAAP) 1,125,705     1,087,495     1,062,568     981,878     898,092  
                   
Key Performance Ratios                  
Annualized return on average assets 0.61 %   1.17 %   1.12 %   1.55 %   1.13 %
Annualized return on average common equity (GAAP) 4.98     9.56     8.91     12.56     9.56  
Annualized return on average tangible common equity (non-GAAP)(1) 8.00     14.65     13.78     19.52     15.24  
Annualized adjusted return on average tangible common equity (non-GAAP) 14.46 %   16.22 %   15.76 %   21.41 %   17.11 %
Annualized ratio of net charge-offs to average loans 0.24     0.04     0.14     0.19     0.05  
Annualized net interest margin (GAAP) 3.81     3.86     3.98     4.06     4.12  
Annualized net interest margin, fully tax-equivalent (non-GAAP)(1) 3.84     3.90     4.02     4.10     4.18  
Efficiency ratio, fully tax-equivalent (non-GAAP)(1) 61.82     60.31     60.85     64.13     64.93  



  As of and for the Quarter Ended
  3/31/2020   12/31/2019   9/30/2019   6/30/2019   3/31/2019
Common Share Data                  
Book value per common share $ 42.21     $ 43.00     $ 42.62     $ 41.48     $ 39.65  
Tangible book value per common share (non-GAAP)(1) $ 28.84     $ 29.51     $ 29.62     $ 28.40     $ 27.04  
Common shares outstanding, net of treasury stock 36,807,217     36,704,278     36,696,190     36,690,061     34,603,611  
Tangible common equity ratio (non-GAAP)(1) 8.29 %   8.52 %   8.99 %   8.92 %   8.60 %
                   
Other Selected Trend Information                  
Effective tax rate 22.77 %   11.99 %   18.66 %   23.12 %   20.88 %
Full time equivalent employees 1,817     1,908     1,962     2,040     1,976  
                   
Loans Held to Maturity(2)                  
Commercial and industrial $ 2,550,490     $ 2,530,809     $ 2,388,861     $ 2,325,025     $ 2,158,085  
Owner occupied commercial real estate 1,431,038     1,472,704     1,392,415     1,354,996     1,278,181  
Commercial and business lending 3,981,528     4,003,513     3,781,276     3,680,021     3,436,266  
Non-owner occupied commercial real estate 1,551,787     1,495,877     1,378,020     1,372,343     1,233,525  
Real estate construction 1,069,700     1,027,081     980,298     943,109     850,844  
Commercial real estate lending 2,621,487     2,522,958     2,358,318     2,315,452     2,084,369  
Total commercial lending 6,603,015     6,526,471     6,139,594     5,995,473     5,520,635  
Agricultural and agricultural real estate 550,107     565,837     571,596     559,054     558,090  
Residential mortgage 792,540     832,277     823,056     849,576     850,845  
Consumer 428,574     443,332     437,362     448,948     401,974  
Total loans held to maturity $ 8,374,236     $ 8,367,917     $ 7,971,608     $ 7,853,051     $ 7,331,544  
                   
Total unfunded loan commitments $ 2,782,679     $ 2,973,732     $ 2,659,729     $ 2,530,946     $ 2,332,174  
                   
(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.
(2) In conjunction with the adoption of ASU 2016-13, Heartland reclassified loan balances to more closely align with FDIC codes. All prior period balances have been adjusted.



HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  As of and for the Quarter Ended
  3/31/2020   12/31/2019   9/30/2019   6/30/2019   3/31/2019
Allowance for Credit Losses-Loans                  
Balance, beginning of period $ 70,395     $ 66,222     $ 63,850     $ 62,639     $ 61,963  
Impact of ASU 2016-13 adoption 12,071                  
Provision for credit losses 19,865     4,903     5,201     4,918     1,635  
Charge-offs (6,301 )   (2,018 )   (4,842 )   (4,780 )   (1,950 )
Recoveries 1,320     1,288     2,013     1,073     991  
Balance, end of period $ 97,350     $ 70,395     $ 66,222     $ 63,850     $ 62,639  
                   
Allowance for Unfunded Commitments(1)                  
Balance, beginning of period $ 248     $     $     $     $  
Impact of ASU 2016-13 adoption 13,604                  
Provision for credit losses 1,616                  
Balance, end of period $ 15,468     $     $     $     $  
                   
Allowance for lending related credit losses $ 112,818     $ 70,395     $ 66,222     $ 63,850     $ 62,639  
                   
Provision for Credit Losses                  
Provision for credit losses-loans $ 19,865     $ 4,903     $ 5,201     $ 4,918     $ 1,635  
Provision for credit losses-unfunded commitments 1,616                  
Provision for credit losses-held to maturity securities(2) 39                  
Total provision for credit losses $ 21,520     $ 4,903     $ 5,201     $ 4,918     $ 1,635  
                   
(1) Prior to the adoption of ASU 2016-13, the allowance for unfunded commitments was immaterial and therefore prior periods have not been shown in this table.
(2) Prior to ASU 2016-13, there was no requirement to record provision for credit losses for held to maturity securities.



HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  As of and for the Quarter Ended
  3/31/2020   12/31/2019   9/30/2019   6/30/2019   3/31/2019
Asset Quality                  
Nonaccrual loans $ 79,280     $ 76,548     $ 72,208     $ 79,619     $ 77,294  
Loans past due ninety days or more     4,105     40     285     1,706  
Other real estate owned 6,074     6,914     6,425     6,646     5,391  
Other repossessed assets 17     11     13     39     8  
Total nonperforming assets $ 85,371     $ 87,578     $ 78,686     $ 86,589     $ 84,399  
                   
Performing troubled debt restructured loans $ 2,858     $ 3,794     $ 3,199     $ 3,539     $ 3,460  
                   
Nonperforming Assets Activity                  
Balance, beginning of period $ 87,578     $ 78,686     $ 86,589     $ 84,399     $ 79,281  
Net loan charge offs (4,981 )   (730 )   (2,829 )   (3,707 )   (959 )
New nonperforming loans 15,796     13,751     6,818     13,688     15,314  
Acquired nonperforming assets     3,262         230      
Reduction of nonperforming loans(1) (11,937 )   (5,859 )   (8,861 )   (6,246 )   (6,238 )
Net OREO/repossessed assets sales proceeds and losses (1,085 )   (1,532 )   (3,031 )   (1,775 )   (2,999 )
Balance, end of period $ 85,371     $ 87,578     $ 78,686     $ 86,589     $ 84,399  
                   
Asset Quality Ratios                  
Ratio of nonperforming loans to total loans 0.95     0.96     0.91     1.02     1.08  
Ratio of nonperforming loans and performing trouble debt restructured loans to total loans 0.98     1.01     0.95     1.06     1.12  
Ratio of nonperforming assets to total assets 0.64     0.66     0.63     0.71     0.75  
Annualized ratio of net loan charge-offs to average loans 0.24     0.04     0.14     0.19     0.05  
Allowance for loan credit losses as a percent of loans 1.16     0.84     0.83     0.81     0.85  
Allowance for lending related credit losses as a percent of loans(2) 1.35     0.84     0.83     0.81     0.85  
Allowance for loan credit losses as a percent of nonperforming loans 122.79     87.28     91.66     79.91     79.29  
Loans delinquent 30-89 days as a percent of total loans 0.38     0.33     0.28     0.31     0.47  
                   
(1) Includes principal reductions, transfers to performing status and transfers to OREO.
(2) Prior to the adoption of ASU 2016-13, the reserve for unfunded commitments was immaterial.



HEARTLAND FINANCIAL USA, INC.    
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS
  For the Quarter Ended
  March 31, 2020   December 31, 2019   March 31, 2019
  Average
Balance
  Interest   Rate   Average
Balance
  Interest   Rate   Average
Balance
  Interest   Rate
Earning Assets                                  
Securities:                                  
Taxable $ 3,132,103     $ 21,731     2.79 %   $ 3,033,480     $ 22,581     2.95 %   $ 2,169,016     $ 15,876     2.97 %
Nontaxable(1) 288,535     2,763     3.85     271,792     2,661     3.88     391,724     3,915     4.05  
Total securities 3,420,638     24,494     2.88     3,305,272     25,242     3.03     2,560,740     19,791     3.13  
Interest on deposits with other banks and short-term investments 181,320     721     1.60     251,599     953     1.50     218,445     1,292     2.40  
Federal funds sold                         560     4     2.90  
Loans:(2)(3)                                  
Commercial and industrial(1) 2,607,513     32,454     5.01     2,444,961     32,006     5.19     2,137,168     30,389     5.77  
Owner occupied commercial real estate 1,433,160     18,581     5.21     1,416,338     19,241     5.39     1,262,567     17,531     5.63  
Non-owner occupied commercial real estate 1,472,268     19,530     5.34     1,388,677     18,952     5.41     1,326,014     17,423     5.33  
Real estate construction 1,045,836     12,845     4.94     1,003,797     13,645     5.39     825,634     11,871     5.83  
Agricultural and agricultural real estate 552,968     7,039     5.12     566,419     7,314     5.12     566,878     7,203     5.15  
Residential mortgage 819,730     10,421     5.11     830,277     10,454     5.00     880,825     10,286     4.74  
Consumer 432,745     6,095     5.66     440,007     6,504     5.86     413,769     6,343     6.22  
Less: allowance for loan losses (74,723 )           (67,052 )           (62,643 )        
Net loans 8,289,497     106,965     5.19     8,023,424     108,116     5.35     7,350,212     101,046     5.58  
Total earning assets 11,891,455     132,180     4.47 %   11,580,295     134,311     4.60 %   10,129,957     122,133     4.89 %
Nonearning Assets 1,256,718             1,218,475             1,137,257          
Total Assets $ 13,148,173             $ 12,798,770             $ 11,267,214          
Interest Bearing Liabilities(4)                                  
Savings $ 6,277,528     $ 10,082     0.65 %   $ 5,986,007     $ 11,790     0.78 %   $ 5,121,179     $ 10,083     0.80 %
Time deposits 1,146,619     4,500     1.58     1,135,025     4,611     1.61     1,034,744     3,130     1.23  
Short-term borrowings 141,807     296     0.84     115,680     271     0.93     195,390     889     1.85  
Other borrowings 275,987     3,660     5.33     276,989     3,785     5.42     270,836     3,664     5.49  
Total interest bearing liabilities 7,841,941     18,538     0.95 %   7,513,701     20,457     1.08 %   6,622,149     17,766     1.09  
Noninterest Bearing Liabilities(3)                                  
Noninterest bearing deposits 3,547,046             3,583,611             3,200,281          
Accrued interest and other liabilities 139,504             131,200             108,534          
Total noninterest bearing liabilities 3,686,550             3,714,811             3,308,815          
Common Equity 1,619,682             1,570,258             1,336,250          
Total Liabilities and Common Equity $ 13,148,173             $ 12,798,770             $ 11,267,214          
Net interest income, fully tax-equivalent (non-GAAP)(1)     $ 113,642             $ 113,854             $ 104,367      
Net interest spread(1)         3.52 %           3.52 %           3.80 %
Net interest income, fully tax-equivalent (non-GAAP) to total earning assets         3.84 %           3.90 %           4.18 %
Interest bearing liabilities to earning assets 65.95             64.88             65.37          
                                   
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.    
(2) Nonaccrual loans and loans held for sale are included in the average loans outstanding.
(3) In conjunction with the adoption of ASU 2016-13, Heartland reclassified loan balances to more closely align with FDIC codes. All prior period balances have been adjusted.
(4) Includes deposits held for sale.



HEARTLAND FINANCIAL USA, INC.
SELECTED FINANCIAL DATA - SUBSIDIARY BANKS (Unaudited)
DOLLARS IN THOUSANDS
  As of and For the Quarter Ended
  3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019
Total Assets          
Citywide Banks $ 2,271,889   $ 2,294,512   $ 2,335,811   $ 2,261,591   $ 2,214,105  
New Mexico Bank & Trust 1,670,097   1,763,037   1,607,498   1,534,236   1,500,024  
Dubuque Bank and Trust Company 1,591,312   1,646,105   1,547,014   1,680,539   1,550,487  
Illinois Bank & Trust 1,295,984   1,301,172   839,721   852,830   810,357  
Bank of Blue Valley(1) 1,222,358   1,307,688   1,346,342   1,319,226   564,833  
First Bank & Trust 1,163,181   1,137,714   1,158,320   1,088,796   1,099,759  
Wisconsin Bank & Trust 1,079,582   1,090,412   1,032,016   1,042,463   1,031,305  
Premier Valley Bank 889,280   903,220   888,401   847,076   855,473  
Arizona Bank & Trust 866,107   784,240   695,236   732,783   669,806  
Minnesota Bank & Trust 778,724   718,724   718,035   631,339   657,187  
Rocky Mountain Bank 576,245   532,191   528,094   503,126   489,135  
Total Deposits(2)          
Citywide Banks $ 1,868,404   $ 1,829,217   $ 1,895,894   $ 1,833,259   $ 1,802,701  
New Mexico Bank & Trust 1,451,041   1,565,070   1,413,170   1,346,304   1,313,708  
Dubuque Bank and Trust Company 1,363,164   1,290,756   1,275,131   1,157,881   1,245,553  
Illinois Bank & Trust 1,139,945   1,167,905   768,267   769,577   735,101  
Bank of Blue Valley(1) 1,008,362   1,016,743   1,091,243   1,077,183   473,712  
First Bank & Trust 900,399   893,419   903,410   844,793   857,313  
Wisconsin Bank & Trust 920,168   941,109   880,217   892,020   872,090  
Premier Valley Bank 706,479   707,814   719,141   689,384   676,849  
Arizona Bank & Trust 754,464   693,975   578,694   646,728   593,089  
Minnesota Bank & Trust 648,560   574,369   600,175   515,310   546,706  
Rocky Mountain Bank 496,465   468,314   462,825   438,349   426,503  
 
(1) Formerly known as Morrill & Janes Bank and Trust Company.
(2) Includes deposits held for sale.



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
  3/31/2020   12/31/2019   9/30/2019   6/30/2019   3/31/2019
Reconciliation of Annualized Return on Average Tangible Common Equity (non-GAAP)                  
Net income (GAAP) $ 20,040     $ 37,851     $ 34,612     $ 45,169     $ 31,497  
Plus core deposit and customer relationship intangibles amortization, net of tax(1) 2,355     2,305     2,291     2,617     2,245  
Net income excluding intangible amortization (non-GAAP) $ 22,395     $ 40,156     $ 36,903     $ 47,786     $ 33,742  
                   
Average common equity (GAAP) $ 1,619,682     $ 1,570,258     $ 1,541,369     $ 1,442,388     $ 1,336,250  
Less average goodwill 446,345     433,374     427,097     410,642     391,668  
Less average core deposit and customer relationship intangibles, net 47,632     49,389     51,704     49,868     46,490  
Average tangible common equity (non-GAAP) $ 1,125,705     $ 1,087,495     $ 1,062,568     $ 981,878     $ 898,092  
Annualized return on average common equity (GAAP) 4.98 %   9.56 %   8.91 %   12.56 %   9.56 %
Annualized return on average tangible common equity (non-GAAP) 8.00 %   14.65 %   13.78 %   19.52 %   15.24 %
                   
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)                  
Net Interest Income (GAAP) $ 112,511     $ 112,745     $ 111,321     $ 106,708     $ 102,955  
Plus tax-equivalent adjustment(1) 1,131     1,109     1,140     1,268     1,412  
Net interest income, fully tax-equivalent (non-GAAP) $ 113,642     $ 113,854     $ 112,461     $ 107,976     $ 104,367  
                   
Average earning assets $ 11,891,455     $ 11,580,295     $ 11,102,581     $ 10,552,166     $ 10,129,957  
Annualized net interest margin (GAAP) 3.81 %   3.86 %   3.98 %   4.06 %   4.12 %
Annualized net interest margin, fully tax-equivalent (non-GAAP) 3.84 %   3.90 %   4.02 %   4.10 %   4.18 %
Purchase accounting discount amortization on loans included in annualized net interest margin 0.09 %   0.17 %   0.23 %   0.18 %   0.16 %


Reconciliation of Tangible Book Value Per Common Share (non-GAAP)                  
Common equity (GAAP) $ 1,553,714     $ 1,578,137     $ 1,563,843     $ 1,521,787     $ 1,372,102  
Less goodwill 446,345     446,345     427,097     427,097     391,668  
Less core deposit and customer relationship intangibles, net 45,707     48,688     49,819     52,718     44,637  
Tangible common equity (non-GAAP) $ 1,061,662     $ 1,083,104     $ 1,086,927     $ 1,041,972     $ 935,797  
                   
Common shares outstanding, net of treasury stock 36,807,217     36,704,278     36,696,190     36,690,061     34,603,611  
Common equity (book value) per share (GAAP) $ 42.21     $ 43.00     $ 42.62     $ 41.48     $ 39.65  
Tangible book value per common share (non-GAAP) $ 28.84     $ 29.51     $ 29.62     $ 28.40     $ 27.04  
                   
Reconciliation of Tangible Common Equity Ratio (non-GAAP)                  
Tangible common equity (non-GAAP) $ 1,061,662     $ 1,083,104     $ 1,086,927     $ 1,041,972     $ 935,797  
                   
Total assets (GAAP) $ 13,294,509     $ 13,209,597     $ 12,569,262     $ 12,160,290     $ 11,312,495  
Less goodwill 446,345     446,345     427,097     427,097     391,668  
Less core deposit and customer relationship intangibles, net 45,707     48,688     49,819     52,718     44,637  
Total tangible assets (non-GAAP) $ 12,802,457     $ 12,714,564     $ 12,092,346     $ 11,680,475     $ 10,876,190  
Tangible common equity ratio (non-GAAP) 8.29 %   8.52 %   8.99 %   8.92 %   8.60 %
                   
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.



HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
Reconciliation of Efficiency Ratio (non-GAAP) For the Quarter Ended
3/31/2020   12/31/2019   9/30/2019   6/30/2019   3/31/2019
Net interest income (GAAP) $ 112,511     $ 112,745     $ 111,321     $ 106,708     $ 102,955  
Tax-equivalent adjustment(1) 1,131     1,109     1,140     1,268     1,412  
Fully tax-equivalent net interest income 113,642     113,854     112,461     107,976     104,367  
Noninterest income 25,817     28,030     29,400     32,061     26,717  
Securities gains, net (1,658 )   (491 )   (2,013 )   (3,580 )   (1,575 )
Unrealized (gain)/loss on equity securities, net 231     (11 )   (144 )   (112 )   (258 )
Gain on extinguishment of debt         (375 )        
Valuation adjustment on servicing rights 1,565     (668 )   626     364     589  
Adjusted revenue (non-GAAP) $ 139,597     $ 140,714     $ 139,955     $ 136,709     $ 129,840  
                   
Total noninterest expenses (GAAP) $ 90,859     $ 92,866     $ 92,967     $ 75,098     $ 88,230  
Less:                  
Core deposit and customer relationship intangibles amortization 2,981     2,918     2,899     3,313     2,842  
Partnership investment in tax credit projects 184     3,038     3,052     1,465     475  
(Gain)/loss on sales/valuation of assets, net 16     1,512     356     (18,286 )   (3,004 )
Acquisition, integration and restructuring costs 1,376     537     1,500     929     3,614  
Adjusted noninterest expenses (non-GAAP) $ 86,302     $ 84,861     $ 85,160     $ 87,677     $ 84,303  
Efficiency ratio, fully tax-equivalent (non-GAAP) 61.82 %   60.31 %   60.85 %   64.13 %   64.93 %
                   
Acquisition, integration and restructuring costs                  
Salaries and employee benefits $ 44     $     $ 100     $ 100     $ 616  
Occupancy     11         10     1,194  
Furniture and equipment 24     7     (4 )   84      
Professional fees 996     462     855     624     424  
Advertising 89     31     115     52     5  
(Gain)/loss on sales/valuations of assets, net                 1,003  
Other noninterest expenses 223     26     434     59     372  
Total acquisition, integration and restructuring costs $ 1,376     $ 537     $ 1,500     $ 929     $ 3,614  
After tax impact on diluted earnings per share(1) $ 0.03     $ 0.01     $ 0.03     $ 0.02     $ 0.08  
                   
Reconciliation of Adjusted Net Income and Adjusted Diluted EPS (non-GAAP)                  
Net income (GAAP) $ 20,040     $ 37,851     $ 34,612     $ 45,169     $ 31,497  
Provision for credit losses(1) 17,001     3,873     4,109     3,885     1,292  
Acquisition, integration and restructuring costs(1) 1,087     424     1,185     734     2,855  
Adjusted net income (non-GAAP) $ 38,128     $ 42,148     $ 39,906     $ 49,788     $ 35,644  
Diluted earnings per share (GAAP) $ 0.54     $ 1.03     $ 0.94     $ 1.26     $ 0.91  
Adjusted diluted earnings per share (non-GAAP) $ 1.03     $ 1.14     $ 1.08     $ 1.39     $ 1.03  
                   
Reconciliation of Annualized Adjusted Return on Average Tangible Common Equity (non-GAAP)                  
Adjusted net income (non-GAAP) $ 38,128     $ 42,148     $ 39,906     $ 49,788     $ 35,644  
Plus core deposit and customer relationship intangibles amortization, net of tax(1) 2,355     2,305     2,291     2,617     2,245  
Adjusted net income excluding intangible amortization (non-GAAP) $ 40,483     $ 44,453     $ 42,197     $ 52,405     $ 37,889  
Average tangible common equity (non-GAAP) $ 1,125,705     $ 1,087,495     $ 1,062,568     $ 981,878     $ 898,092  
Annualized adjusted return on average tangible common equity (non-GAAP) 14.46 %   16.22 %   15.76 %   21.41 %   17.11 %
                   
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.

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

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