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CST: 16/11/2019 23:03:34   

Heartland Financial USA, Inc. Reports Improved Year Over Year Results for First Quarter 2019 and Announces Sale of Mortgage Servicing Rights

201 Days ago

Highlights

  • Quarterly net income available to common stockholders of $31.5 million in comparison with $23.3 million for the first quarter of the prior year, an increase of $8.2 million or 35%
  • Diluted earnings per common share of $0.91 in comparison with $0.76 for the first quarter of the prior year, an increase of $0.15 or 20%
  • Net interest margin of 4.12%, fully tax-equivalent (non-GAAP)(1) of 4.18%
  • Return on average common equity of 9.56% and return on average tangible common equity (non-GAAP)(1) of 15.24%
  • Tangible common equity ratio (non-GAAP)(1) of 8.60% in comparison to 7.59% at March 31, 2018
  • Efficiency ratio, fully tax-equivalent (non-GAAP)(1) of 65.23% in comparison with 68.21% for the first quarter of 2018
  • Completed the sale of Citizens Finance consumer loan portfolios and the sale of two branches at Wisconsin Bank & Trust
  • Signed an agreement to sell mortgage servicing rights of Dubuque Bank and Trust Company on April 26, 2019
  Three Months Ended
March 31,
  2019   2018
Net income available to common stockholders (in millions) $ 31.5     $ 23.3  
Diluted earnings per common share 0.91     0.76  
       
Return on average assets 1.13 %   0.97 %
Return on average common equity 9.56     9.32  
Return on average tangible common equity (non-GAAP)(1) 15.24     13.85  
Net interest margin 4.12     4.19  
Net interest margin, fully tax-equivalent (non-GAAP)(1) 4.18     4.26  
Efficiency ratio, fully-tax equivalent (non-GAAP)(1) 65.23     68.21  

(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 reported improved first quarter results with net income of $31.5 million, which was an impressive increase of $8.2 million or 35 percent over the same quarter of last year. We had a solid net interest margin and improved tangible common equity ratio."
Lynn B. Fuller, executive operating chairman, Heartland Financial USA, Inc.
 

DUBUQUE, Iowa, April 29, 2019 (GLOBE NEWSWIRE) -- Heartland Financial USA, Inc. (NASDAQ: HTLF) today reported net income available to common stockholders of $31.5 million, or $0.91 per diluted common share, for the quarter ended March 31, 2019, compared to $23.3 million, or $0.76 per diluted common share, for the first quarter of 2018. Return on average common equity was 9.56% and return on average assets was 1.13% for the first quarter of 2019, compared to 9.32% and 0.97%, respectively, for the same quarter in 2018.

Commenting on Heartland’s first quarter results, Lynn B. Fuller, Heartland’s executive operating chairman, said, "Heartland reported improved first quarter results with net income of $31.5 million, which was an impressive increase of $8.2 million or 35 percent over the same quarter of last year. We had a solid net interest margin and improved tangible common equity ratio."

In keeping with its focus on core businesses and execution of strategic priorities, Heartland completed the sale of two branch locations of Wisconsin Bank & Trust and sold the consumer finance loan portfolios totaling approximately $67 million of Citizens’ Finance Company.  Furthermore, during the quarter, Heartland announced an agreement to sell two branches of Dubuque Bank and Trust Company, which resulted in the reclassification of $20.3 million of loans and $77.0 million of deposits as held for sale.  This transaction, along with two previously announced branch sales at Illinois Bank & Trust and Citywide Banks, is expected to close in the second quarter of 2019. Heartland also reclassified commercial loans with balances of $11.8 million at March 31, 2019, to held for sale as part of a plan to exit a small lease portfolio.

On April 26, 2019, Dubuque Bank and Trust Company signed an agreement to sell substantially all its mortgage servicing rights to PNC Bank, N.A., headquartered in Pittsburgh, Pennsylvania. The servicing rights had an estimated fair value of $37.0 million and a book value of $21.0 million as of March 31, 2019. The portfolio contained approximately 20,300 of serviced residential mortgage loans with unpaid principal balances of $3.35 billion as of March 31, 2019. The serviced loans are primarily owned by Fannie Mae and Freddie Mac. The transaction has been approved by Fannie Mae and Freddie Mac and is expected to close on April 30, 2019. In the agreement, which includes customary terms and conditions, Dubuque Bank and Trust Company will provide interim servicing of the loans until the transfer date, which is expected to be in August 2019.

"During the fourth quarter of 2018, Heartland outsourced mortgage loan originations in many of our markets, and now, as a natural extension, we have decided to sell our mortgage servicing rights," said Bruce K. Lee, Heartland's president and chief executive officer.

After the completion of this transaction, Heartland will continue to originate and service conventional residential mortgages through its PrimeWest Mortgage Corporation subsidiary in Texas.

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

Net interest margin, expressed as a percentage of average earning assets, was 4.12% (4.18% on a fully tax-equivalent basis, non-GAAP) during the first quarter of 2019, compared to 4.28% (4.34% on a fully tax-equivalent basis, non-GAAP) during the fourth quarter of 2018 and 4.19% (4.26% on a fully tax-equivalent basis, non-GAAP) during the first quarter of 2018.

"We are pleased with the continued strength of our fully tax-equivalent net interest margin. Our net interest margin declined 16 basis points from last quarter, which was in line with our expectations due to the sale of our higher yielding consumer finance loan portfolios in the beginning of 2019," Lee said.

Growth in total interest income on a tax-equivalent basis was primarily due to recent increases in market interest rates and the increase in average earning assets. Total interest income for the first quarter of 2019 was $120.7 million compared to $101.2 million recorded in the first quarter of 2018, an increase of $19.5 million or 19%. The tax-equivalent adjustment for income taxes saved on the interest earned on nontaxable securities and loans was $1.4 million for the first quarter of 2019 and $1.5 million for the first quarter of 2018. With these adjustments, total interest income on a tax-equivalent basis was $122.1 million for the first quarter of 2019, an increase of $19.4 million or 19%, compared to total interest income on a tax-equivalent basis of $102.8 million for the first quarter of 2018. Average earning assets increased $1.27 billion or 14% from the first quarter of 2018, which was primarily attributable to the acquisitions completed in 2018. The average rate on earning assets increased 19 basis points to 4.89% for the first quarter of 2019 compared to 4.70% for the same quarter in 2018.

Increases in total interest expense were primarily due to recent increases in market interest rates and deposit growth from recent acquisitions. Total interest expense for the first quarter of 2019 was $17.8 million, an increase of $8.1 million or 84% from $9.6 million in the first quarter of 2018. The average interest rate paid on Heartland's interest bearing liabilities increased to 1.09% for the first quarter of 2019 compared to 0.69% for the first quarter of 2018, which was primarily due to recent increases in market interest rates. Average interest bearing deposits increased $889.5 million or 17% to $6.16 billion for the quarter ended March 31, 2019, from $5.27 billion in the same quarter in 2018, which was primarily attributable to recent acquisitions. The average interest rate paid on Heartland's interest bearing deposits increased 43 basis points to 0.87% for the first quarter of 2019 compared to 0.44% for the same quarter in 2018. Average borrowings increased $38.3 million or 9% to $466.2 million during the first quarter of 2019 from $427.9 million during the same quarter in 2018. The average interest rate paid on Heartland's borrowings was 3.96% for the first quarter of 2019 compared to 3.66% in the first quarter of 2018.

Net interest income was $103.0 million during the first quarter of 2019 compared to $91.6 million during the first quarter of 2018, an increase of $11.4 million or 12%. After the tax-equivalent adjustment discussed above, net interest income on a tax-equivalent basis totaled $104.4 million during the first quarter of 2019 compared to net interest income on a tax-equivalent basis of $93.1 million during the first quarter of 2018, an increase of $11.2 million or 12%.

Noninterest Income and Noninterest Expense Increase from First Quarter 2018

Total noninterest income was $26.7 million during the first quarter of 2019 compared to $24.7 million during the first quarter of 2018, an increase of $2.0 million or 8%. Significant changes by noninterest income category were:

  • Service charges and fees increased $2.7 million or 27% to $12.8 million for the first quarter of 2019 compared to $10.1 million for the same quarter of 2018. Service charges related to credit card income increased $1.1 million or 48% to $3.3 million for the first quarter of 2019 from $2.3 million for the same quarter of 2018. The remainder of the increase in service charges was primarily attributable to Heartland's larger customer base as a result of recent acquisitions.
  • Net gains on sale of loans held for sale totaled $3.2 million during the first quarter of 2019 compared to $4.1 million during the same quarter in 2018, which was a decrease of $875,000 or 22%, primarily due to the outsourcing of Heartland's legacy mortgage lending operations in the fourth quarter of 2018.

For the first quarter of 2019, total noninterest expense was $88.2 million compared to $83.6 million during the first quarter of 2018, an increase of $4.6 million or 5%. Significant changes by noninterest expense category were:

  • Salaries and employee benefits increased $1.6 million or 3% to $50.3 million for the first quarter of 2019 compared to $48.7 million for the same quarter in 2018.
  • Professional fees increased $1.9 million or 20% to $11.4 million for the first quarter of 2019 compared to $9.4 million for the same period in 2018.
  • Core deposit and customer relationship intangibles amortization increased $979,000 to $2.8 million for the first quarter of 2019 compared to $1.9 million for the first quarter of 2018, which was partially due to the write-off of $329,000 of core deposit intangibles related to the branch sales at Wisconsin Bank & Trust.
  • Gains on sales/valuations of assets, net, totaled $3.0 million and $197,000 for the first quarter of 2019 and 2018, respectively, with the increase of $2.8 million primarily attributable to the sale of the Wisconsin Bank & Trust branches.
  • Restructuring expenses totaled $3.2 million for the first quarter of 2019 compared to $2.6 million during the first quarter of 2018, which was an increase of $663,000 or 26%. Restructuring expenses in the first quarter of 2019 related to the wind down of Citizens' Finance Company and the legacy mortgage lending operations and consisted of severance and retention payments for employees, software discontinuation fees and expected lease buyouts.
  • Other noninterest expenses were $11.2 million for the first quarter of 2019 compared to $9.8 million for the first quarter of 2018, which was an increase of $1.4 million or 14%. Included in this increase was a write-down of $475,000 on a partnership investment that qualifies for solar energy tax credits.

The increases in salaries and employee benefits, professional fees, and the remainder of the increases in core deposit and customer relationship intangibles amortization and other noninterest expenses were primarily attributable to recent acquisitions.

Heartland's effective tax rate was 20.88% for the first quarter of 2019 compared to 18.04% for the first quarter of 2018. Federal low-income housing tax credits included in the determination of Heartland's income taxes totaled $281,000 for the first quarter of 2019 compared to $307,000 for the first quarter of 2018. Included in Heartland's first quarter 2019 tax calculation was a solar energy tax credit totaling $314,000. Tax-exempt interest income as a percentage of pre-tax income declined to 13.35% during the first quarter of 2019 from 20.46% during the first quarter of 2018.

Loans and Deposits Decrease Since December 31, 2018

Total assets were $11.31 billion at March 31, 2019, a decrease of $95.5 million or 1% from $11.41 billion at year-end 2018. Securities represented 22% and 24% of total assets at March 31, 2019, and December 31, 2018, respectively.

Total loans held to maturity were $7.33 billion at March 31, 2019, compared to $7.41 billion at year-end 2018, a decrease of $76.2 million or 1%. During the first quarter of 2019, the sale of two branches at Dubuque Bank and Trust Company was announced, which included $20.3 million of loans that were classified as held for sale at March 31, 2019. Heartland also reclassified commercial loans with balances of $11.8 million at March 31, 2019, to held for sale as part of a plan to exit a small lease portfolio. Exclusive of these transactions, total loans held to maturity decreased $44.0 million or less than 1% since year-end 2018. Loan changes by category were:

  • Commercial and commercial real estate loans totaled $5.75 billion at March 31, 2019, compared to $5.73 billion at December 31, 2018, which was an increase of $13.3 million or less than 1%. Excluding $14.9 million of commercial and commercial real estate loans classified as held for sale during the quarter, commercial and commercial real estate loans increased $28.2 million or less than 1% since year-end.
  • Agricultural and agricultural real estate loans totaled $544.8 million at March 31, 2019, compared to $565.4 million at year-end, which was a decrease of $20.6 million or 4%. Excluding $6.6 million of agricultural and agricultural real estate loans classified as held for sale during the quarter, agricultural and agricultural real estate loans decreased $14.0 million or 2% since December 31, 2018.
  • Residential mortgage loans decreased $43.2 million or 6% to $630.4 million at March 31, 2019, from $673.6 million at year-end. Excluding $2.0 million of residential mortgage loans classified as held for sale during the quarter, residential mortgage loans decreased $41.2 million or 6% since year-end.
  • Consumer loans decreased $27.6 million or 6% to $412.6 million at March 31, 2019, compared to $440.2 million at December 31, 2018. Excluding $8.6 million of loans classified as held for sale during the quarter, consumer loans decreased $19.0 million or 4% since year-end.

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

Total deposits were $9.35 billion as of March 31, 2019, compared to $9.40 billion at year-end 2018, a decrease of $43.5 million or less than 1%. The deposits classified as held for sale in conjunction with the branch sale announced at Dubuque Bank and Trust Company totaled $77.0 million at March 31, 2019. Excluding deposits classified as held for sale during the quarter, total deposits increased $33.5 million or less than 1% since December 31, 2018. Deposit changes by category were:

  • Demand deposits decreased $145.8 million or 4% to $3.12 billion at March 31, 2019, compared to $3.26 billion at December 31, 2018. Excluding $17.3 million of demand deposits classified as held for sale during the quarter, demand deposits decreased $128.6 million or 4% since year-end 2018.
  • Savings deposits increased $38.0 million or 1% to $5.15 billion at March 31, 2019, from $5.11 billion at December 31, 2018. Excluding savings deposits of $47.8 million classified as held for sale during the quarter, savings deposits increased $85.8 million or 2% since year-end 2018.
  • Time deposits increased $64.4 million or 6% to $1.09 billion at March 31, 2019 from $1.02 billion at December 31, 2018. Excluding time deposits of $11.9 million classified as held for sale during the quarter, time deposits increased $76.2 million or 7% since year-end 2018.

"Demand deposit balances declined during the first quarter, primarily due to commercial and public fund outflows, which tend to be seasonal. However, non-time deposits represent a healthy 88 percent of total deposits at March 31, 2019," Lee stated.

Nonperforming Assets Increase Since December 31, 2018

Nonperforming assets increased $5.1 million or 6% to $84.4 million or 0.75% of total assets at March 31, 2019, compared to $79.3 million or 0.69% of total assets at December 31, 2018. Nonperforming loans were $79.0 million or 1.08% of total loans at March 31, 2019, compared to $72.7 million or 0.98% of total loans at December 31, 2018.  The increase is primarily related to two agribusiness relationships that were originated in Heartland's Midwestern markets. At March 31, 2019, loans delinquent 30-89 days were 0.47% of total loans compared to 0.21% of total loans at December 31, 2018.

The allowance for loan losses at March 31, 2019, was 0.85% of loans and 79.29% of nonperforming loans, compared to 0.84% of loans and 85.27% of nonperforming loans at December 31, 2018. The provision for loan losses decreased $2.6 million to $1.6 million for the first quarter of 2019 compared to $4.3 million for the same quarter in 2018.

Non-GAAP Financial Measures

This press release contains references to financial measures which are not defined by generally accepted accounting principles ("GAAP"). Management believes the non-GAAP measures are helpful for investors to analyze and evaluate Heartland's financial condition and operating results. However, these non-GAAP measures have inherent limitations and should not be considered a substitute for operating results determined in accordance with GAAP. Additionally, because non-GAAP measures are not standardized, it may not be possible to compare the non-GAAP measures in this press release with other companies' non-GAAP measures. Reconciliations of each non-GAAP measure to the most directly comparable GAAP measure may be found in the financial tables in this press release.

Below are the non-GAAP measures included in this press release, management's reason for including each measure and the method of calculating each measure:

  • Annualized return on average common tangible equity is net income available to common stockholders plus  core deposit and customer relationship intangibles amortization, net of tax, divided by average common stockholders' equity less goodwill and core deposit and customer relationship intangibles, net. This measure is included as it is considered to be a critical metric to analyze and evaluate financial condition and capital strength.
  • Annualized net interest margin, fully tax-equivalent, adjusts net interest income for the tax-favored status of certain loans and securities. Management believes this measure enhances the comparability of net interest income arising from taxable and tax-exempt sources.
  • Efficiency ratio, fully tax equivalent, expresses noninterest expenses as a percentage of fully tax-equivalent net interest income and noninterest income. This efficiency ratio is presented on a tax-equivalent basis which adjusts net interest income and noninterest expenses for the tax favored status of certain loans, securities, and tax credit projects. Management believes the presentation of this non-GAAP measure provides supplemental useful information for proper understanding of the financial results as it enhances the comparability of income and expenses arising from taxable and nontaxable sources and excludes specific items as noted in reconciliation contained in this press release.
  • Tangible book value per common share is total common stockholders' equity less goodwill and core deposit and customer relationship intangibles, net, divided by common shares outstanding, net of treasury. This measure is included as it is considered to be a critical metric to analyze and evaluate use of equity, financial condition and capital strength.
  • Tangible common equity ratio is total common stockholders' equity less goodwill and core deposit and customer relationship intangibles, net, divided by total assets less goodwill and core deposit and customer relationship intangibles, net. This measure is included as it is considered to be a critical metric to analyze and evaluate use of equity, financial condition and capital strength.

Conference Call Details
Heartland will host a conference call for investors at 5:00 p.m. EDT today. To participate, dial 877-407-0782 at least five minutes before start time. To listen to the live webcast, log on to www.htlf.com at least 15 minutes before start time. A replay will be available until April 28, 2020, by logging on to www.htlf.com.

About Heartland Financial USA, Inc.
Heartland Financial USA, Inc. is a diversified financial services company with assets of $11.3 billion. The company provides banking, mortgage, private client, investment, insurance and consumer finance services to individuals and businesses. Heartland currently has 116 banking locations serving 84 communities in Iowa, Illinois, Wisconsin, New Mexico, Arizona, Montana, Colorado, Minnesota, Kansas, Missouri, Texas and California. Additional information about Heartland Financial USA, Inc. is available at www.htlf.com.

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

-FINANCIAL TABLES FOLLOW -


 
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  For the Three Months Ended
March 31,
  2019   2018
Interest Income      
Interest and fees on loans $ 100,456     $ 85,651  
Interest on securities:      
Taxable 15,876     11,577  
Nontaxable 3,093     3,579  
Interest on federal funds sold 4      
Interest on deposits with other banks and other short-term investments

1,292     407  
Total Interest Income 120,721     101,214  
Interest Expense      
Interest on deposits 13,213     5,766  
Interest on short-term borrowings 889     268  
Interest on other borrowings 3,664     3,596  
Total Interest Expense 17,766     9,630  
Net Interest Income 102,955     91,584  
Provision for loan losses 1,635     4,263  
Net Interest Income After Provision for Loan Losses 101,320     87,321  
Noninterest Income      
Service charges and fees 12,794     10,079  
Loan servicing income 1,729     1,754  
Trust fees 4,474     4,680  
Brokerage and insurance commissions 734     907  
Securities gains/(losses), net 1,575     1,441  
Unrealized gain/(loss) on equity securities, net 258     (28 )
Net gains on sale of loans held for sale 3,176     4,051  
Valuation adjustment on servicing rights (589 )   (2 )
Income on bank owned life insurance 899     614  
Other noninterest income 1,667     1,220  
Total Noninterest Income 26,717     24,716  
Noninterest Expense      
Salaries and employee benefits 50,285     48,710  
Occupancy 6,607     6,043  
Furniture and equipment 2,692     2,749  
Professional fees 11,379     9,448  
Advertising 2,325     1,940  
Core deposit and customer relationship intangibles amortization 2,842     1,863  
Other real estate and loan collection expenses 701     732  
(Gain)/loss on sales/valuations of assets, net (3,004 )   (197 )
Restructuring expenses 3,227     2,564  
Other noninterest expenses 11,176     9,794  
Total Noninterest Expense 88,230     83,646  
Income Before Income Taxes 39,807     28,391  
Income taxes 8,310     5,123  
Net Income 31,497     23,268  
Preferred dividends     (13 )
Net Income Available to Common Stockholders $ 31,497     $ 23,255  
Earnings per common share-diluted $ 0.91     $ 0.76  
Weighted average shares outstanding-diluted 34,699,839     30,645,212  


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  For the Quarter Ended
  3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
Interest Income                  
Interest and fees on loans $ 100,456     $ 105,700     $ 105,733     $ 96,787     $ 85,651  
Interest on securities:                  
Taxable 15,876     15,851     14,433     12,270     11,577  
Nontaxable 3,093     3,467     3,490     3,584     3,579  
Interest on federal funds sold 4                  
Interest on deposits with other banks and other short-term investments 1,292     1,285     1,238     768     407  
Total Interest Income 120,721     126,303     124,894     113,409     101,214  
Interest Expense                  
Interest on deposits 13,213     11,826     10,092     7,983     5,766  
Interest on short-term borrowings 889     417     464     547     268  
Interest on other borrowings 3,664     3,777     3,660     3,470     3,596  
Total Interest Expense 17,766     16,020     14,216     12,000     9,630  
Net Interest Income 102,955     110,283     110,678     101,409     91,584  
Provision for loan losses 1,635     9,681     5,238     4,831     4,263  
Net Interest Income After Provision for Loan Losses 101,320     100,602     105,440     96,578     87,321  
Noninterest Income                  
Service charges and fees 12,794     13,660     12,895     12,072     10,079  
Loan servicing income 1,729     2,061     1,670     1,807     1,754  
Trust fees 4,474     4,599     4,499     4,615     4,680  
Brokerage and insurance commissions 734     1,618     1,111     877     907  
Securities gains/(losses), net 1,575     48     (145 )   (259 )   1,441  
Unrealized gain/(loss) on equity securities, net 258     115     54     71     (28 )
Net gains on sale of loans held for sale 3,176     3,189     7,410     6,800     4,051  
Valuation adjustment on servicing rights (589 )   (58 )   230     (216 )   (2 )
Income on bank owned life insurance 899     587     892     700     614  
Other noninterest income 1,667     1,226     1,149     1,167     1,220  
Total Noninterest Income 26,717     27,045     29,765     27,634     24,716  
Noninterest Expense                  
Salaries and employee benefits 50,285     46,729     49,921     50,758     48,710  
Occupancy 6,607     6,622     6,348     6,315     6,043  
Furniture and equipment 2,692     3,126     3,470     3,184     2,749  
Professional fees 11,379     10,630     12,800     10,632     9,448  
Advertising 2,325     2,726     2,754     2,145     1,940  
Core deposit and customer relationship intangibles amortization 2,842     2,592     2,626     2,274     1,863  
Other real estate and loan collection expenses 701     574     784     948     732  
(Gain)/loss on sales/valuations of assets, net (3,004 )   (35 )   912     1,528     (197 )
Restructuring expenses 3,227                 2,564  
Other noninterest expenses 11,176     15,857     12,924     11,098     9,794  
Total Noninterest Expense 88,230     88,821     92,539     88,882     83,646  
Income Before Income Taxes 39,807     38,826     42,666     35,330     28,391  
Income taxes 8,310     6,685     8,956     7,451     5,123  
Net Income 31,497     32,141     33,710     27,879     23,268  
Preferred dividends         (13 )   (13 )   (13 )
Net Income Available to Common Stockholders $ 31,497     $ 32,141     $ 33,697     $ 27,866     $ 23,255  
Earnings per common share-diluted $ 0.91     $ 0.93     $ 0.97     $ 0.85     $ 0.76  
Weighted average shares outstanding-diluted 34,699,839     34,670,180     34,644,187     32,830,751     30,645,212  


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  As of
  3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
Assets                  
Cash and due from banks $ 174,198     $ 223,135     $ 196,847     $ 193,069     $ 143,071  
Interest bearing deposits with other banks and other short-term investments 318,303     50,495     240,528     194,937     123,275  
Cash and cash equivalents 492,501     273,630     437,375     388,006     266,346  
Time deposits in other financial institutions 4,675     4,672     5,836     6,803     6,297  
Securities:                  
Carried at fair value 2,400,460     2,450,709     2,274,215     2,197,117     2,027,665  
Held to maturity, at cost 88,089     236,283     239,908     244,271     249,766  
Other investments, at cost 27,506     28,396     26,656     26,725     22,982  
Loans held for sale 69,716     119,801     77,727     55,684     24,376  
Loans:                  
Held to maturity 7,331,544     7,407,697     7,365,493     7,477,697     6,746,015  
 Allowance for loan losses (62,639 )   (61,963 )   (61,221 )   (61,324 )   (58,656 )
Loans, net 7,268,905     7,345,734     7,304,272     7,416,373     6,687,359  
Premises, furniture and equipment, net 190,215     194,676     198,224     199,959     172,862  
Goodwill 391,668     391,668     391,668     391,668     270,305  
Core deposit and customer relationship intangibles, net 44,637     47,479     50,071     52,698     41,063  
Servicing rights, net 28,968     31,072     32,039     31,996     25,471  
Cash surrender value on life insurance 163,764     162,892     162,216     159,302     143,444  
Other real estate, net 5,391     6,153     11,908     11,074     11,801  
Other assets 136,000     114,841     123,017     120,244     106,126  
Total Assets $ 11,312,495     $ 11,408,006     $ 11,335,132     $ 11,301,920     $ 10,055,863  
Liabilities and Equity                  
Liabilities                  
Deposits:                  
 Demand $ 3,118,909     $ 3,264,737     $ 3,427,819     $ 3,399,598     $ 3,094,457  
 Savings 5,145,929     5,107,962     4,958,430     4,864,773     4,536,106  
 Time 1,088,104     1,023,730     1,125,914     1,224,773     910,977  
Total deposits 9,352,942     9,396,429     9,512,163     9,489,144     8,541,540  
Deposits held for sale 118,564     106,409     50,312          
Short-term borrowings 104,314     227,010     131,139     229,890     131,240  
Other borrowings 268,312     274,905     277,563     258,708     276,118  
Accrued expenses and other liabilities 96,261     78,078     83,562     68,431     55,460  
Total Liabilities 9,940,393     10,082,831     10,054,739     10,046,173     9,004,358  
Stockholders' Equity                  
Preferred equity             938     938  
Common stock 34,604     34,477     34,473     34,438     31,068  
Capital surplus 745,596     743,095     742,080     740,128     557,990  
Retained earnings 603,506     579,252     553,662     524,786     500,959  
Accumulated other comprehensive loss (11,604 )   (31,649 )   (49,822 )   (44,543 )   (39,450 )
Total Equity 1,372,102     1,325,175     1,280,393     1,255,747     1,051,505  
Total Liabilities and Equity $ 11,312,495     $ 11,408,006     $ 11,335,132     $ 11,301,920     $ 10,055,863  


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  For the Quarter Ended
  3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
Average Balances                  
Assets $ 11,267,214     $ 11,371,247     $ 11,291,289     $ 10,643,306     $ 9,759,936  
Loans, net of unearned 7,412,855     7,436,497     7,462,176     7,123,182     6,525,553  
Deposits 9,356,204     9,596,807     9,530,743     9,018,945     8,251,140  
Earning assets 10,129,957     10,225,409     10,154,591     9,614,800     8,857,801  
Interest bearing liabilities 6,622,149     6,557,185     6,544,949     6,205,187     5,694,337  
Common stockholders' equity 1,336,250     1,290,691     1,263,226     1,139,876     1,011,580  
Total stockholders' equity 1,336,250     1,290,691     1,263,795     1,140,814     1,012,518  
Tangible common stockholders' equity (non-GAAP) 898,092     849,851     819,966     767,732     723,898  
                   
Key Performance Ratios                  
Annualized return on average assets 1.13 %   1.12 %   1.18 %   1.05 %   0.97 %
Annualized return on average common equity (GAAP) 9.56 %   9.88 %   10.58 %   9.81 %   9.32 %
Annualized return on average tangible common
equity (non-GAAP)(1)
15.24 %   15.96 %   17.31 %   15.50 %   13.85 %
Annualized ratio of net charge-offs to average loans 0.05 %   0.48 %   0.28 %   0.12 %   0.08 %
Annualized net interest margin (GAAP) 4.12 %   4.28 %   4.32 %   4.23 %   4.19 %
Annualized net interest margin, fully tax-equivalent (non-GAAP)(1) 4.18 %   4.34 %   4.38 %   4.30 %   4.26 %
Efficiency ratio, fully tax-equivalent (non-GAAP)(1) 65.23 %   59.35 %   62.51 %   64.94 %   68.21 %
                   
Reconciliation of Annualized Return on Average Tangible Common Equity (non-GAAP)                  
Net income available to common shareholders (GAAP) $ 31,497     $ 32,141     $ 33,697     $ 27,866     $ 23,255  
Plus core deposit and customer relationship intangibles amortization, net of tax(2) 2,245     2,048     2,075     1,796     1,472  
Adjusted net income available to common shareholders (non-GAAP) $ 33,742     $ 34,189     $ 35,772     $ 29,662     $ 24,727  
                   
Average common stockholders' equity (GAAP) $ 1,336,250     $ 1,290,691     $ 1,263,226     $ 1,139,876     $ 1,011,580  
  Less average goodwill 391,668     391,668     391,668     325,781     250,172  
Less average core deposit and customer relationship intangibles, net 46,490     49,172     51,592     46,363     37,510  
Average tangible common stockholders' equity (non-GAAP) $ 898,092     $ 849,851     $ 819,966     $ 767,732     $ 723,898  
Annualized return on average common equity (GAAP) 9.56 %   9.88 %   10.58 %   9.81 %   9.32 %
Annualized return on average tangible common equity (non-GAAP) 15.24 %   15.96 %   17.31 %   15.50 %   13.85 %
                   
Reconciliation of Annualized Net Interest Margin, Fully Tax-Equivalent (non-GAAP)                  
Net Interest Income (GAAP) $ 102,955     $ 110,283     $ 110,678     $ 101,409     $ 91,584  
  Plus tax-equivalent adjustment(2) 1,412     1,565     1,544     1,575     1,544  
Net interest income, fully tax-equivalent (non-GAAP) $ 104,367     $ 111,848     $ 112,222     $ 102,984     $ 93,128  
                   
Average earning assets $ 10,129,957     $ 10,225,409     $ 10,154,591     $ 9,614,800     $ 8,857,801  
                   
Annualized net interest margin (GAAP) 4.12 %   4.28 %   4.32 %   4.23 %   4.19 %
Annualized net interest margin, fully tax-equivalent (non-GAAP) 4.18 %   4.34 %   4.38 %   4.30 %   4.26 %
 
(1) Refer to the "Non-GAAP Measures" in this earnings release for additional information on the usage and presentation of these non-GAAP measures, and refer to these financial tables for the reconciliations to the most directly comparable GAAP measures.
(2) Computed on a tax-equivalent basis using an effective tax rate of 21%.
 


HEARTLAND FINANCIAL USA, INC.   
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)  
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
   
  For the Quarter Ended  
Reconciliation of Efficiency Ratio (non-GAAP)    3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018  
Net interest income $ 102,955     $ 110,283     $ 110,678     $ 101,409     $ 91,584    
Tax-equivalent adjustment(1) 1,412     1,565     1,544     1,575     1,544    
Fully tax-equivalent net interest income 104,367     111,848     112,222     102,984     93,128    
Noninterest income 26,717     27,045     29,765     27,634     24,716    
Securities (gains)/losses, net (1,575 )   (48 )   145     259     (1,441 )  
Unrealized (gain)/loss on equity securities, net (258 )   (115 )   (54 )   (71 )   28    
Valuation adjustment on servicing rights 589     58     (230 )   216     2    
Adjusted income $ 129,840     $ 138,788     $ 141,848     $ 131,022     $ 116,433    
                     
Total noninterest expenses $ 88,230     $ 88,821     $ 92,539     $ 88,882     $ 83,646    
Less:                    
Core deposit and customer relationship intangibles amortization 2,842     2,592     2,626     2,274     1,863    
Partnership investment in tax credit projects 475     3,895     338            
(Gain)/loss on sales/valuation of assets, net (3,004 )   (35 )   912     1,528     (197 )  
Restructuring expenses 3,227                 2,564    
Adjusted noninterest expenses $ 84,690     $ 82,369     $ 88,663     $ 85,080     $ 79,416    
                     
Efficiency ratio, fully tax-equivalent (non-GAAP) 65.23 %   59.35 %   62.51 %   64.94 %   68.21 %  
                     
(1) Computed on a tax-equivalent basis using an effective tax rate of 21%.  


 
HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND FULL TIME EQUIVALENT EMPLOYEE DATA
  As of and for the Quarter Ended
  3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
Common Share Data                  
Book value per common share $ 39.65     $ 38.44     $ 37.14     $ 36.44     $ 33.81  
Tangible book value per common share (non-GAAP)(1) $ 27.04     $ 25.70     $ 24.33     $ 23.53     $ 23.79  
Common shares outstanding, net of treasury stock 34,603,611     34,477,499     34,473,029     34,438,445     31,068,239  
Tangible common equity ratio (non-GAAP)(1) 8.60 %   8.08 %   7.70 %   7.46 %   7.59 %
                   
Reconciliation of Tangible Book Value Per Common Share (non-GAAP)                  
Common stockholders' equity (GAAP) $ 1,372,102     $ 1,325,175     $ 1,280,393     $ 1,254,809     $ 1,050,567  
Less goodwill 391,668     391,668     391,668     391,668     270,305  
Less core deposit and customer relationship intangibles, net 44,637     47,479     50,071     52,698     41,063  
Tangible common stockholders' equity (non-GAAP) $ 935,797     $ 886,028     $ 838,654     $ 810,443     $ 739,199  
                   
Common shares outstanding, net of treasury stock 34,603,611     34,477,499     34,473,029     34,438,445     31,068,239  
Common stockholders' equity (book value) per share (GAAP) $ 39.65     $ 38.44     $ 37.14     $ 36.44     $ 33.81  
Tangible book value per common share (non-GAAP) $ 27.04     $ 25.70     $ 24.33     $ 23.53     $ 23.79  
                   
Reconciliation of Tangible Common Equity Ratio (non-GAAP)                  
Tangible common stockholders' equity (non-GAAP) $ 935,797     $ 886,028     $ 838,654     $ 810,443     $ 739,199  
                   
Total assets (GAAP) $ 11,312,495     $ 11,408,006     $ 11,335,132     $ 11,301,920     $ 10,055,863  
Less goodwill 391,668     391,668     391,668     391,668     270,305  
Less core deposit and customer relationship intangibles, net 44,637     47,479     50,071     52,698     41,063  
Total tangible assets (non-GAAP) $ 10,876,190     $ 10,968,859     $ 10,893,393     $ 10,857,554     $ 9,744,495  
Tangible common equity ratio (non-GAAP) 8.60 %   8.08 %   7.70 %   7.46 %   7.59 %
                   
Loan Data                  
Loans held to maturity:                  
Commercial and commercial real estate $ 5,745,051     $ 5,731,712     $ 5,610,953     $ 5,721,138     $ 5,129,777  
Residential mortgage 630,433     673,603     676,941     683,051     624,725  
Agricultural and agricultural real estate 544,805     565,408     574,048     562,353     518,386  
Consumer 412,573     440,158     506,181     512,899     474,929  
Unearned discount and deferred loan fees (1,318 )   (3,184 )   (2,630 )   (1,744 )   (1,802 )
Total loans held to maturity $ 7,331,544     $ 7,407,697     $ 7,365,493     $ 7,477,697     $ 6,746,015  
                   
Other Selected Trend Information                  
Effective tax rate 20.88 %   17.22 %   20.99 %   21.09 %   18.04 %
Full time equivalent employees 1,976     2,045     2,124     2,216     2,022  
                   
(1) Refer to "Non-GAAP Measures" in this earnings release for additional information on the usage and presentation of these non-GAAP measures, and refer to these financial tables for the reconciliations to the most directly comparable GAAP measures.


HEARTLAND FINANCIAL USA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
  As of and for the Quarter Ended
  3/31/2019   12/31/2018   9/30/2018   6/30/2018   3/31/2018
Allowance for Loan Losses                  
Balance, beginning of period $ 61,963     $ 61,221     $ 61,324     $ 58,656     $ 55,686  
Provision for loan losses 1,635     9,681     5,238     4,831     4,263  
Charge-offs (1,950 )   (9,777 )   (6,120 )   (3,164 )   (2,224 )
Recoveries 991     838     779     1,001     931  
Balance, end of period $ 62,639     $ 61,963     $ 61,221     $ 61,324     $ 58,656  
                   
Asset Quality                  
Nonaccrual loans $ 77,294     $ 71,943     $ 73,060     $ 69,376     $ 64,806  
Loans past due ninety days or more 1,706     726     154     54     22  
Other real estate owned 5,391     6,153     11,908     11,074     11,801  
Other repossessed assets 8     459     495     499     423  
Total nonperforming assets $ 84,399     $ 79,281     $ 85,617     $ 81,003     $ 77,052  
                   
Performing troubled debt restructured loans $ 3,460     $ 4,026     $ 4,180     $ 4,012     $ 3,206  
                   
Nonperforming Assets Activity                  
Balance, beginning of period $ 79,281     $ 85,617     $ 81,003     $ 77,052     $ 74,599  
Net loan charge offs (959 )   (8,939 )   (5,341 )   (2,163 )   (1,293 )
New nonperforming loans 15,314     17,332     16,965     16,254     8,546  
Acquired nonperforming assets             7,973     2,459  
Reduction of nonperforming loans(1) (6,238 )   (6,065 )   (5,085 )   (15,696 )   (6,549 )
OREO/Repossessed assets sales proceeds (2,092 )   (8,390 )   (1,064 )   (1,541 )   (657 )
OREO/Repossessed assets writedowns, net (462 )   (230 )   (886 )   (993 )   (16 )
Net activity at Citizens Finance Co. (445 )   (44 )   25     117     (37 )
Balance, end of period $ 84,399     $ 79,281     $ 85,617     $ 81,003     $ 77,052  
 
Asset Quality Ratios                  
Ratio of nonperforming loans to total loans 1.08 %   0.98 %   0.99 %   0.93 %   0.96 %
Ratio of nonperforming assets to total assets 0.75 %   0.69 %   0.76 %   0.72 %   0.77 %
Annualized ratio of net loan charge-offs to average loans 0.05 %   0.48 %   0.28 %   0.12 %   0.08 %
Allowance for loan losses as a percent of loans 0.85 %   0.84 %   0.83 %   0.82 %   0.87 %
Allowance for loan losses as a percent of nonperforming loans 79.29 %   85.27 %   83.62 %   88.32 %   90.48 %
Loans delinquent 30-89 days as a percent of total loans 0.47 %   0.21 %   0.62 %   0.30 %   0.21 %
                   
(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
  March 31, 2019   December 31, 2018   March 31, 2018
  Average
Balance
  Interest   Rate   Average
Balance
  Interest   Rate   Average
Balance
  Interest   Rate
Earning Assets                                  
Securities:                                  
Taxable $ 2,169,016     $ 15,876     2.97 %   $ 2,184,096     $ 15,851     2.88 %   $ 1,827,611     $ 11,577     2.57 %
Nontaxable(1) 391,724     3,915     4.05     427,332     4,388     4.07     448,641     4,530     4.09  
Total securities 2,560,740     19,791     3.13     2,611,428     20,239     3.07     2,276,252     16,107     2.87  
Interest on deposits with other banks and other short-term investments 218,445     1,292     2.40     238,087     1,285     2.14     112,024     407     1.47  
Federal funds sold 560     4     2.90     309                      
Loans:(2)                                  
Commercial and commercial real estate(1) 5,745,180     78,083     5.51     5,644,475     77,822     5.47     4,910,797     62,813     5.19  
Residential mortgage 673,682     7,179     4.32     704,012     8,682     4.89     642,181     6,851     4.33  
Agricultural and agricultural real estate(1) 554,506     7,301     5.34     568,904     7,752     5.41     513,780     6,004     4.74  
Consumer 439,487     6,479     5.98     519,106     9,355     7.15     458,795     8,660     7.66  
Fees on loans     2,004             2,733             1,916      
Less: allowance for loan losses (62,643 )           (60,912 )           (56,028 )        
Net loans 7,350,212     101,046     5.58     7,375,585     106,344     5.72     6,469,525     86,244     5.41  
Total earning assets 10,129,957     122,133     4.89 %   10,225,409     127,868     4.96 %   8,857,801     102,758     4.70 %
Nonearning Assets 1,137,257             1,145,838             902,135          
Total Assets $ 11,267,214             $ 11,371,247             $ 9,759,936          
Interest Bearing Liabilities(3)                                  
Savings $ 5,121,179     $ 10,083     0.80 %   $ 5,071,573     $ 8,817     0.69 %   $ 4,358,508     $ 3,791     0.35 %
Time deposits 1,034,744     3,130     1.23     1,088,122     3,009     1.10     907,928     1,975     0.88  
Short-term borrowings 195,390     889     1.85     121,053     417     1.37     147,738     268     0.74  
Other borrowings 270,836     3,664     5.49     276,437     3,777     5.42     280,163     3,596     5.21  
Total interest bearing liabilities 6,622,149     17,766     1.09 %   6,557,185     16,020     0.97 %   5,694,337     9,630     0.69 %
Noninterest Bearing Liabilities(3)                                  
Noninterest bearing deposits 3,200,281             3,437,112             2,984,704          
Accrued interest and other liabilities 108,534             86,259             68,377          
Total noninterest bearing liabilities 3,308,815             3,523,371             3,053,081          
Stockholders' Equity 1,336,250             1,290,691             1,012,518          
Total Liabilities and Stockholders' Equity $ 11,267,214             $ 11,371,247             $ 9,759,936          
Net interest income, fully tax-equivalent (non-GAAP)(1)     $ 104,367             $ 111,848             $ 93,128      
Net interest spread(1)         3.80 %           3.99 %           4.01 %
Net interest income, fully tax-equivalent (non-GAAP) to total earning assets         4.18 %           4.34 %           4.26 %
                                   
(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) 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
  3/31/2019 12/31/2018 9/30/2018 6/30/2018 3/31/2018
Total Assets          
Citywide Banks $ 2,214,105   $ 2,307,284   $ 2,300,018   $ 2,295,261   $ 2,299,818  
Dubuque Bank and Trust Company 1,550,487   1,480,914   1,523,447   1,500,108   1,490,100  
New Mexico Bank & Trust 1,500,024   1,492,555   1,465,020   1,466,311   1,416,788  
First Bank & Trust 1,099,759   1,109,929   1,112,464   1,123,559    
Wisconsin Bank & Trust 1,031,305   1,114,352   1,051,160   1,034,075   1,017,053  
Premier Valley Bank 855,473   849,696   851,358   846,215   805,014  
Illinois Bank & Trust 810,357   804,907   795,132   815,905   751,371  
Arizona Bank & Trust 669,806   658,714   650,032   653,596   633,474  
Minnesota Bank & Trust 657,187   666,564   649,179   660,469   631,852  
Morrill & Janes Bank and Trust Company 564,833   571,012   592,786   602,630   648,568  
Rocky Mountain Bank 489,135   490,453   492,063   504,243   490,917  
Total Deposits(1)          
Citywide Banks $ 1,802,701   $ 1,848,373   $ 1,905,830   $ 1,867,626   $ 1,914,726  
Dubuque Bank and Trust Company 1,245,553   1,214,541   1,217,976   1,136,431   1,193,271  
New Mexico Bank & Trust 1,313,708   1,307,464   1,267,844   1,242,673   1,202,051  
First Bank & Trust 857,313   861,629   875,170   887,181    
Wisconsin Bank & Trust 872,090   927,821   891,167   874,035   835,919  
Premier Valley Bank 676,849   639,194   706,125   696,460   660,070  
Illinois Bank & Trust 735,101   715,482   726,790   753,022   674,391  
Arizona Bank & Trust 593,089   574,762   550,530   558,895   567,515  
Minnesota Bank & Trust 546,706   560,399   544,513   561,257   533,893  
Morrill & Janes Bank and Trust Company 473,712   489,471   511,154   498,798   558,174  
Rocky Mountain Bank 426,503   424,700   429,167   443,359   429,000  
Net Income          
Citywide Banks $ 7,283   $ 7,005   $ 7,762   $ 7,018   $ 5,463  
Dubuque Bank and Trust Company 5,011   6,002   4,458   4,426   3,214  
New Mexico Bank & Trust 7,847   6,007   7,104   7,043   6,444  
First Bank & Trust 2,792   3,334   3,932   1,925    
Wisconsin Bank & Trust 4,707   3,229   3,735   2,470   2,617  
Premier Valley Bank 2,411   2,930   3,006   2,664   2,373  
Illinois Bank & Trust 2,632   2,180   2,419   2,421   2,712  
Arizona Bank & Trust 2,780   1,951   2,660   3,623   2,104  
Minnesota Bank & Trust 1,454   1,038   2,167   581   762  
Morrill & Janes Bank and Trust Company 1,172   324   165   961   1,186  
Rocky Mountain Bank 1,358   1,230   1,210   1,185   1,172  
 
(1) Includes deposits held for sale.


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

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